Andy Grove: Rebuild US Manufacturing
This week’s Business Week features an opinion written by Andy Grove, former CEO of Intel, in which he states it is vital for the future of America and our workers that US policy must focus on rebuilding – or more accurately, building anew – our manufacturing capabilities. He lays out some policy prescriptions that won’t gain favor with Wall St or profit seeking investors, but what he writes and recommends are certainly worth discussion – especially in light of the fact that CEOs are sitting on $1.7 Trillion in cash at a time when costs are low and unemployment is so high. Much of that cash could be turned into company expansions and investments in the company’s future. Or they could take percentages in start-up manufacturing for green tech or some other manufacturing venture.
You could say, as many do, that shipping jobs overseas is no big deal because the high-value work — and much of the profits — remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work — and masses of unemployed?
Since the early days of Silicon Valley, the money invested in companies has increased dramatically, only to produce fewer jobs. Simply put, the U.S. has become wildly inefficient at creating American tech jobs. We may be less aware of this growing inefficiency, however, because our history of creating jobs over the past few decades has been spectacular — masking our greater and greater spending to create each position.
Should we wait and not act on the basis of early indicators? I think that would be a tragic mistake because the only chance we have to reverse the deterioration is if we act early and decisively. […]
Consider this passage by Princeton University economist Alan S. Blinder: “The TV manufacturing industry really started here, and at one point employed many workers. But as TV sets became ‘just a commodity,’ their production moved offshore to locations with much lower wages. And nowadays the number of television sets manufactured in the U.S. is zero. A failure? No, a success.”
I disagree. Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry.
Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best economic system — the freer, the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief, largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.
No. 1 Objective
Such evidence stares at us from the performance of several Asian countries in the past few decades. These countries seem to understand that job creation must be the No. 1 objective of state economic policy. The government plays a strategic role in setting the priorities and arraying the forces and organization necessary to achieve this goal.
The rapid development of the Asian economies provides numerous illustrations. In a thorough study of the industrial development of East Asia, Robert Wade of the London School of Economics found that these economies turned in precedent- shattering economic performances over the 1970s and 1980s in large part because of the effective involvement of the government in targeting the growth of manufacturing industries.
Consider the “Golden Projects,” a series of digital initiatives driven by the Chinese government in the late 1980s and 1990s. Beijing was convinced of the importance of electronic networks — used for transactions, communications and coordination — in enabling job creation, particularly in the less developed parts of the country. Consequently, the Golden Projects enjoyed priority funding. In time, they contributed to the rapid development of China’s information infrastructure and the country’s economic growth.
How do we turn such Asian experience into intelligent action here and now? Long term, we need a job-centric economic theory — and job-centric political leadership — to guide our plans and actions. In the meantime, consider some basic thoughts from a onetime factory guy.