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Financialization's negative effect on the American solar industry

Financialization impedes climate change mitigation: Evidence from the early American solar industry

American Association for the Advancement of Science

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IMAGE: An infographic shows the development of solar industries in Japan and the United States. Financialization impeded the US industry while Japan's global market share rose. view more

Credit: Carla Schaffer/ AAAS

Financialization's Negative Effect on the American Solar Industry: The increasing role of the United States' financial sector in the 1980s and 1990s, when it shifted from focusing on technology investment to speculating on future markets, impaired the country's emerging solar industry, a new study reports. In Japan, by contrast, photovoltaics manufacturers were insulated from such financial turbulence and continued to expand investment in solar manufacturing, achieving nearly 50% of the global market share by 2005, by which time U.S. market share had dwindled to about 9%. At a time when it is critical to understand how to best define carbon mitigation strategies, this case study helps assess whether such efforts are obstructed by financialization, highlighting the conflicting relationship between finance and production, at least in this case. Max Jerneck chronicled the history of Japan and the U.S. beginning in the 1960s when NASA first developed solar cells to convert sunlight into electricity. As American conglomerates purchased small firms pioneering solar technology, less money was orientated toward investing in improving the technology and instead directed toward enriching managers and investors. This led to a disconnect between industry and finance and eventually resulted in dismantling or selling the solar divisions of many conglomerates. As a result, between 1978 and 2005 the American share of the global solar market dropped from 95% to about 9%. In contrast, Japan, with an economy roughly half the size of the U.S., has fostered a solar market now several times larger. The country's entrance into the solar industry began with a strong hold on semiconductor and electronics markets and progressed without corporate governance takeover, leading to nearly a 50% global share of the industry in 2005. These case studies cast doubt on the success of carbon pricing in the U.S., Jerneck says; while a carbon tax could make low carbon industries more competitive, many will undoubtedly fail as innovation is always uncertain. Instead, the paper calls for policies that bring productive and financial capital together.

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