Out of the ashes of Obama's green-collar vision, a worker-run business may point the way to the economy of the future.
Last election, Obama had an economic plan and wasn't afraid to embrace government as a primary creator of jobs. With markets melting down, almost half a million people being fired a month, and automakers and banks emitting a death rattle, Obama presented a sweeping vision of tackling health care, global warming, a rogue Wall Street and reshaping the decaying industrial economy with a green-collar one. Liberals dubbed it a Green New Deal and fantasized about the land blossoming with solar panels, electric cars and high-speed trains as new regulations cut corporations down to size.
Obama botched the plan, however. He inflated hopes in 2008 that his policies would create 5 million green-collar jobs in a decade. He then skimped by allocating only $90 billion in stimulus money for clean energy, producing a measly 225,000 jobs after 18 months by the White House's own estimates.
Republicans blasted Obama's green economy as failed central planning imported from Europe. They believe the government that's best is the one that governs the least. Its purpose is to spur the private sector, but how it does so is mysterious. This was Romney's position, but it seems to have become Obama's, as well. During the election campaign, the two mouthed the same invisible-hand mumbo-jumbo, offering little chance of reviving an ailing economy.
In the real world, corporations clasp onto the public teat like squealing piglets. Big business would starve if deprived of state-organized central banking, transport, electricity, water, sewage, courts, zoning, police, environmental remediation, customs and labor regulation. Pick an industry and you'll find tailored public aid. Banks and car makers get bailouts; energy and forestry companies mine, drill and log public lands; the health care industry thrives thanks to the Food and Drug Administration (FDA), National Institutes of Health (NIH), Medicare and Medicaid; agribusiness soaks up crop insurance and subsidies; home construction is built on Fannie Mae, Freddie Mac and the Federal Reserve; and perhaps the largest part of the economy - the military-surveillance-police-and-prison sector - is assembled piece by piece by government.
Clearly, government policies create many millions of jobs. (That's not counting 22 million government employees and an estimated 14 million other jobs created by government contracting and consumer spending by public-sector workers.) This is known as industrial policy. Every country does it, and the United States is no exception. We just tend to do it worse because it is heresy to question the god of the free market. If the public realized how much big business depended on public support, then there might be a loud clamor for more activist government.
The lesson is not that the Obama administration did too much to spur a green economy; it did too little. Answers to why the green-collar economy withered and where its future may lie can be found in the story of Serious Energy and workers from the former Republic Windows and Doors factory in Chicago.
A New Era
Obama's green jobs plan had one missing element - labor. A healthy economy requires plenty of good-paying, stable jobs with benefits. However, the titans of Wall Street aren't going to voluntarily give up profits so the proles can get better wages and social programs; the proles have to fight for it.
As if on cue, a glimmer of labor's revival emerged after Obama's election. On December 5, 2008, 240 workers at Republic Windows and Doors staged a sit-down strike after receiving notice that their factory would be mothballed. The workers, members of Local 1110 of the United Electrical, Radio and Machine Workers of America, raised expectations that a wave of labor militancy could turn the tide against runaway corporate power.
Soon, all the elements came together. Serious Materials, a clean-technology firm, purchased the bankrupt Republic plant, which specialized in manufacturing high-energy-efficiency windows. Serious Materials (since renamed Serious Energy) billed itself as a green-economy pioneer ready to revolutionize manufacturing with green products. Obama's stimulus would open up the market for its goods. And Serious was intent on showing profits, sustainability and social responsibility were compatible by keeping the unionized workforce in place.
Serious was one of many companies that hitched its wagon to Obama's plans to green old markets and catalyze new ones. Despite shifting business models, Serious flailed along with the green economy. Now, Serious is no Solyndra, the solar-panel manufacturer that defaulted on a $535 million taxpayer-backed loan. The Republicans successfully saddled Obama with Solyndra's bankruptcy, turning it into "a case study of what can go wrong when a rigid government bureaucracy tries to play venture capitalist and jump-start a nascent, fast-changing market," as he Washington Post called it. Serious shows the private sector can be just as wrong. Ten venture capital firms poured more than $140 million into Serious and have little to show for it.
But rising out of the ashes are the Republic workers. They've raised hundreds of thousands of dollars to purchase machine tools and lease factory space to open the New Era Windows Cooperative. Modeling themselves on cooperatives in Argentina's recovered factory movement and Spain's Mondragon, the New Era workers will collectively decide how to manage the business, what products to manufacture and what to do with the profits. While they make green windows, they hope to inspire other self-managed enterprises across the United States and could provide an alternative to free-market capitalism.
Ironically, if New Era succeeds, it will do so with zero government support. One might have expected both presidential candidates to heap praise on the cooperative. Romney could have touted the workers' entrepreneurial initiative, while Obama could have pointed to it as a new model for domestic green manufacturing.
In terms of Serious and Solyndra, their breakdowns are par for the course. The clean-tech sector is littered with so many casualties it looks like a Civil War battlefield. It is an unavoidable part of the process, and the Obama administration made a big mistake in shrinking away from failures.
Josh Whitford, a professor of sociology at Columbia University who studies industrial policy, says, "Novel technologies are areas in which the rewards are very uncertain and where a lot of things will not pan out. Venture capitalists deal with this by funding lots and lots of companies in the hopes of hitting a winner. They expect a lot of their investments to fail. In fact, if none failed, they'd think they were too far from the 'possibilities frontier.'"
Government's goal, says Whitford, "is not to hit a big financial winner, but to promote policies judged to be socially beneficial. He explains, "In the case of industrial policy, the purpose is often to push a technological direction," such as cutting-edge clean energy that benefits society by curbing greenhouse gasses. Government is up against the same constraints as venture capitalists, however. Whitford says it does not know which projects will succeed. "So, government should, like venture capitalists, be spreading resources around and betting on multiple horses in the hopes that some do win. If the government has no failures, it's being too conservative."
Windows of Opportunity
The story of Serious and the Republic workers begins in 2007. Serious Material was planning to market EcoRock, which it touted as requiring only 10 percent of the energy used to make standard drywall. It raised $50 million to build factories in the United States that could crank out 400 million square feet of EcoRock a year. It's the type of project that excites wonks: Serious Materials would reinvent the archaic drywall industry, which spews out more than 20 billion pounds of carbon dioxide annually, with a stateside 100-kilowatt solar-power plant that would create hundreds of good-paying manufacturing jobs while eliminating nearly all greenhouse gas emissions.
To make the product viable, Serious was counting on Obama enacting a cap-and-refund carbon tax. As small-batch production of EcoRock costs nearly twice as much as regular gypsum drywall, it needed a carbon tax to entice contractors to use it. But the carbon-tax bill died in Congress, so EcoRock was doomed to the green-building niche. This added to Serious' woes because it jumped into the building market just as the economy collapsed in 2008. Furthermore, EcoRock may be great for the environment, but not for the bottom line. As one report noted, it "does not insulate or curb power consumption in buildings." In 2010, CEO Kevin Surace explained to Greentech media that Serious "never pulled the trigger" on constructing a full-scale factory because "Gypsum (drywall) plants are 75 vacant."
"New construction is down 80 percent from the peak," said Surace.
Flush with cash to build factories, Serious Materials pivoted to plan B: manufacture windows that slash heating and cooling by 40 percent. Even though home building was in the dumps, Serious calculated that it would "ramp up production [in 2009] by tenfold" because of anticipated demand. It had been in the windows business for a few years, and in 2008, it purchased Alpen Windows in Colorado. In 2009, it added the defunct Kensington Windows factory in Pennsylvania, where 150 workers had been booted out of work the previous year.
The real prize was the Republic factory. The workers there won $1.75 million in wages and benefits after a six-day-long sit-down strike. They were unemployed, however, joining more than 600,000 workers who lost their jobs in December 2008. With 4,000 news articles published on their fight, Serious was paying attention. At Serious' headquarters in Sunnyvale, California, CEO Surace watched the drama unfold and pondered riding to the rescue of the beleaguered facility.
An engineer and entrepreneur, Surace first considered the downside. He told Inc. magazine: "The workers were up in arms. The equipment had been pillaged. The computers were destroyed. The customers didn't want to buy. The records weren't accurate. There was no management team. No one but the craziest person on earth would take over that."
At Serious Materials' holiday party that December, co-founder Marc Porat pushed Surace to consider the upside: "Think what can happen! We're creating green-collar jobs. We're creating an energy-efficient product. We're hitting climate change. And it's Chicago!"
"It will come to the White House's attention," said Porat. "It's a perfect expression of their policy." According to a detailed account in Inc., which named Surace "Entrepreneur of the Year" for 2009, the board of Serious Materials approved the acquisition of the idle factory based on "owning one of the largest window-glass facilities in the country, with a seasoned work force and a fabulous location."
Not lost on anyone was the "the public relations potential" of aligning with the Obama administration's plan for a green-collar economy. The stimulus included $5 billion for the Weatherization Assistance Program. Much of this was for tax credits for energy efficient retrofits that included windows. Serious was eager to cash in because its windows exceeded Energy Star ratings by up to 400 percent.
Surace became a rock star in the clean tech field, hit the TED circuit and shared stages with politicians. He gave Sen. Mark Udall (D-Colorado) a tour of Serious Energy's Boulder facility, wielded scissors with Pennsylvania Gov. Ed Rendell for a "green ribbon-cutting ceremony" at the Kensington plant, and basked in the limelight with Joe Biden as the vice president heaped praise on the re-opened Chicago factory. Surace was on a mission to save the world from climate change with green windows and drywall that would generate serious greenbacks for Serious Materials' investors.
Despite the grim economy, Serious hauled in $60 million from investors in 2009, one of the largest venture capital deals of the year, and its backers were salivating. In a newsletter from 2009, the Chicago-based Mesirow Financial, which pumped $15 million into Serious that year, wrote glowingly of how its "private equity investors" would benefit because $10.5 billion of stimulus money was in the pipeline "for home weatherization and federal building efficiency retrofits."
Everything was going according to plan. As Serious collected factories, it boasted of "creating green collar jobs in plants across the country including ... the President's home town of Chicago," wrote an Inc. editor. Inc. noted: "The Republic rescue has paid off handsomely in publicity ... Aspiring vendors, curious dealers, and assorted well-wishers began stopping by the plant after its reopening. These days, salespeople rarely need to introduce Serious Materials to their prospects; the White House has already done that for them." Revenue in 2009 reportedly increased by 50 percent; the company was employing more than 300 people, and in March 2010, Serious landed a coveted contract to upgrade the Empire State Building's 6,514 windows.
Cracks were appearing in the façade, however. By the end of 2009, only 20 workers had been hired back at the old Republic plant, and Serious was spending $100,000 a week to keep the space open, which could hold 600 workers. Surace admitted the company had erred in thinking "we'd be hot and heavy into weatherization of thousands of homes in the Chicago area."
Serious put its chips on weatherization, but the recession weakened its hand. The Department of Energy inspector general found that by December 2009, only 8 percent of the money had been spent "and few homes had actually been weatherized." Because the $4.73 billion in the pipeline was divided into 58 spigots to cover every US state and territory, "State hiring freezes, problems with resolving significant local budget shortfalls, and state-wide planned furloughs delayed various aspects of the program." On top of that, little money was being spent on windows like those built by Serious because weatherization also covered furnaces, insulation, water heaters, weather stripping, cooling systems and storm doors.
By the summer of 2010, Serious was back on the PowerPoint circuit, imploring funders for $56 million to become a player in the building management market. Its new model - the third in three years - was software "for monitoring and lowering energy consumption in commercial buildings." Serious was acquiring more companies - software firms like Valence Energy and Agilewaves. It boasted of 60 customers in the wings and products that could deliver "immediate energy savings of 10 to 15 percent with payback in one to two years."
But Serious was trying to muscle in on the turf of heavyweights like Siemens, Honeywell and General Electric, so it was back to the drawing board. After changing its name, Serious Energy unveiled a new division and plan number four in November 2011. A spokesperson announced Serious Capital would finance energy efficiency retrofits of buildings for free: "We install, at no cost to customers, energy conservation measures that will save energy," they said, "and we become the agent for utility bill payments." Serious Energy figured the revenue stream would allow it to pay the bills and lenders and leave enough for a tidy profit. For the third time, it was eyeing a government angle, committing to perform $100 million in retrofits as part of Obama's Better Buildings Initiative.
The initiative is one of those so-called "public-private partnerships" that are economic quackery. The Better Building Initiative promises to cure every ill - "creating jobs, growing our industries, improving businesses' bottom lines, reducing our energy bills and consumption, and preserving our planet for future generations" - with no pain in the form of taxpayer financing or altering business as usual. For Serious, the initiative made little difference. As Greentech Media pointed out, it was unclear how it was going to "get the backing to meet its stated goal of $2 billion in potential project financing." Plus it would need to buy insurance as a hedge in case the savings did not materialize.
Once exalted as the poster child for exemplifying Obama's vision of "green-collar jobs at the hands of a resurgence in American innovation," Serious Energy shriveled into a new economy shell reminiscent of Enron, chucking aside manufacturing for software, finance and hedging. The venture capital taps were also running dry. Serious raised less than $20 million of its 2010 goal of $56 million, and less than $3 million of a $33 million round in 2011.
The free retrofit plan unraveled in weeks. In February 2012, Surace was canned, and Serious announced it was closing the Chicago factory. On February 23, it summoned the 38 remaining workers to "the offices of the notorious union-busting law firm Seyfarth and Shaw," as Labor Notes put it. The workers were told they would get their 60 days pay under the law, but the factory would be cannibalized and the machines shipped to Serious' plants in Pennsylvania and Colorado. Not given to taking things lying down, the workers sat down once more. Less than 12 hours later, they emerged victorious with a written agreement that the factory would operate for 90 days longer while Serious Energy looked for a buyer. As for Serious Energy, Porat says it is returning to its roots of producing soundproof drywall, a business he admits has very little to do with clean tech.
UE Local 1110 had no illusions that a white knight was in the wings, however. During a visit last May to the headquarters in Chicago, local President Armando Robles confided: "Nobody is going to buy the factory after two occupations. They don't want troublemakers there." Having shown themselves to be innovative risk-takers by winning two sit-down strikes that were technically illegal, the workers decided they would run the factory themselves. They joined forces with The Working World, which provides "investment capital and technical support for worker cooperatives," and raised the money to buy the window-making equipment and establish the worker-run and -owned business.
The cooperative is still in the works. The big question is, can it blaze a path for labor to revive manufacturing? Small, worker-run cooperatives can't replace an advanced industrial base, but they could democratize the US economy and employ millions in stable, living-wage jobs.
Networks of cooperatives could also provide a model to supplant the warmed-over Keynesianism beloved by liberals. Stimulating demand or creating public-works programs would still be effective today; Obama has done far too little of it. Trying to reshape the industrial base as happened under FDR (and that's mainly because of World War II) is far more difficult because back then, US capital had limited options beyond the domestic market for consumers, factories and workers. That's not the case in the globalized economy. The biggest US employer, Walmart, pays poverty-level wages to most of its 1.4 million workers. The most valuable corporation in the world, Apple, has only 13,000 US-based employees outside of its retail stores. And both source most of their goods from China.
The free-market solution is to subsidize corporations, a point upon which Romney and Obama agreed. For instance, states like Alabama, Tennessee and Mississippi already gift $300 million or more to automakers opening plants they were planning to build. Imagine if instead of padding the profits of Fortune 500 companies, the public sector funded tens of thousands of worker-run cooperatives. Many would go bankrupt, but that's the price of innovation. The upside would be successful worker-run cooperatives rooted in communities. Such enterprises would be unable to move operations to Mexico or Malaysia, while abuse of employees that is far too common here would be almost impossible in democratic workplaces.
A new economy demands new answers, not the failed free market or nostalgia for a past that no longer exists. The New Era Windows Cooperative might just provide some of those answers.