Policy Feedback, Sectoral Fragmentation and Germany's Elusive Solar Economy

The paper traces the introduction, extension and crisis of German solar support policies from the early 1990s into recent times. It suggests that policy feedback of industrial policies (and their recent environmental descendants) is two-sided in political economies with predominantly sectoral modes of industrial governance. While public funds tend to bind beneficiaries to certain industrial or technological paths, they may undermine sectoral governance structures by establishing new interest compositions. Early solar policies gained political support in the face of a series of industrial advances during the second half of the 1990s. The extension of public support, in turn, created a broad coalition in support of continued political backing. Deployment-intensive regions discovered solar subsidies (FITs) as a vehicle for transfers and local savings utilization; Eastern German centers of cell production used them for regional industrial restructuring; machine tool industries learned to rededicate their skills to equip the wave of solar entrepreneurs; industrial labor unions acquired a taste for green industrial policies; and environmentalists found a working commercialization instrument after decades of disillusionment. In both industrial and political terms the support system fell into a deep crisis beginning in 2008. While German solar manufacturing faced massive foreign competition, deployment for years exceeded agreed upon plans by far. As soon as the German solar sector had to restructure to stay the same the broad support coalition turned from virtue to vice and locked the sector into a downward spiral of industrial decline, interest fragmentation, excessive exploitation of deployment support and declining political legitimacy.