For the past decade or so we’ve chosen to have an economy driven by financial alchemy and debt. Our government gave in to the wishes of the financial services industry and essentially let them write their own regulatory laws. The effects of which we are living with today. Now that we seemed to have, for now, contained the enormous damage of the financial implosion of 08, we must turn to what’s next. I’ve made no secret of my appreciation for former Fed chief, Paul Volcker. Today he wrote an excellent piece explaining, very simply, financial reform. At the cost of 5 minutes of careful reading, you will get an incredibly strong grasp of what needs to get done and why. Highly recommended. The financial crisis is far too important of an event for us to leave this to the “experts” to understand and solve. We all need to be aware and engaged.

The flip side of this is the question of what we want the next few decades of our economy to look like. It can continue to be driven, falsely, by debt, inflated statistics, and other tricks. Or we can work on producing things the world wants again. This article shows that, ominously, China looks like it’s in a really strong position in the clean energy race. Millions of jobs are at stake from the total of next-generation energy jobs. As we’ve seen from other manufacturing sectors, clusters develop and it can be winner take all. We need to invest heavily in R&D -and- manufacturing incentives to ensure that we can incubate these industries fully here and we give them a chance to compete.

Two types of economies here. We’re at at a pivotal time where we can ensure that our financial services sector does the things it’s supposed to without blowing up the real economy and also invest so we have an economy that produces real things of value for us and the world. I think our way forward is pretty clear…

GM today announced plans to build its own electric motors for hybrid vehicles. This is encouraging news, as it keeps engineering, manufacturing, and assembly infrastructure for advanced technology in the United States.

Clearly GM has huge challenges ahead of it (I’ll disclose that, like my whole family, I’ve been loyal to GM – Grand Am, Saturn SL2, Saturn SC2, & now a Buick Lacrosse– but that’s probably more than you care to know) but this is good news for America. If GM is going to turn the corner it will be thanks to advanced technologies that go along with their strides in quality.

Good quotes:

At a news conference in Detroit on Monday, Mr. Stephens compared the importance of G.M. making its own electric-drive motors for hybrid and electric vehicles to producing its own internal combustion engines for today’s gas-powered cars and trucks. He said that by designing and manufacturing electric motors in-house, G.M. “can more efficiently use energy from batteries as they evolve, potentially reducing cost and weight -– two significant challenges facing batteries today,” he said.

G.M. has spent the last seven years engineering its new electric motors at various research facilities in Michigan, Indiana and California. Tooling costs for the Baltimore plant will be covered primarily by a $105 million grant from the Energy Department.

Great article in Harvard Business Review by Williy Shih about American manufacturing and the Kindle.

The net of the article is that America can’t manufacture the Kindle (the new ebook reader from Amazon). This is despite the fact that the critical innovative aspects of the Kindle, the software and e-ink technology, were created here in the US. The sub-components and assembly are all handled in Asia and Shih very deftly walks through why this should be cause for concern. Here are my takeaways:

• The Kindle is at the cutting edge of technology. For all the talk about losing old-line manufacturing, the next generation is increasingly never even getting out of the cradle here. I challenge you to walk around Best Buy and find something made in America.
• The Kindle is a great example of fundamental innovation that should have multiplier effects. Meaning, the initial investment in R&D and development in a groundbreaking new project has traditionally, over the past 50+ years been accompanied by a corresponding creation of supporting industries and jobs.  The clearest example would be the automobile industry and the creation of the massive supplier businesses. The creation of these jobs and businesses is still happening. *In Asia.*
• This is a worrying sign that future innovation and R&D investment will bear a substantial part of their long-term reward for foreign economies with a short-term immediate reward for us, the originator. Here Amazon will clearly make the bulk of the reward in the short-term, but as these devices proliferate, the majority of the economic value will be captured in Asia.
• Innovation and iteration on these devices will be, unfortunately for the US, done overseas. Improvements on the manufacturing side will be made in process and improvements to components will be done at the source of the production.

This is exactly the kind of manufacturing that US economic policy should be encouraging investment in since it is high-tech and largely automated component creation/assembly. With real fair trade policies in place we can create a pro-manufacturing environment that allows for “Made in USA” of goods like this, and more importantly, capture the future value of the innovations that come from it and its infrastructure.

Read: The US Can’t Manufacture the Kindle and that’s a problem