Andy Grove Suggests US Protectionism For Tech Jobs
from the didn't-see-that-coming dept
Former Intel CEO Andy Grove is one of those guys who I always pay attention to when he speaks. Usually, he makes me look at things in a different light and, more often than not, shift my thinking on a certain subject. It’s quite rare that I finish reading something he’s written in near total disagreement, but it’s happened this time. Grove has penned a long, and thought-provoking piece for Bloomberg, where he takes the surprising-for-Silicon-Valley position that offshoring jobs to China is bad, and the US government should get involved with protectionist policies on American jobs.
Now, as always, his position is deeply nuanced, and not as simplistic as the typical calls for US job protectionism. He talks up the importance of job “scaling” in the US economy:
Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.
The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.
Scaling used to work well in Silicon Valley. Entrepreneurs came up with an invention. Investors gave them money to build their business. If the founders and their investors were lucky, the company grew and had an initial public offering, which brought in money that financed further growth.
First of all, I’m not convinced he’s right that the scaling doesn’t happen in Silicon Valley. The same day that Grove’s column was released, Tom Foremski had a short post about the hockey-stick-like job growth at Silicon Valley’s most popular companies, where even he worried that such scaling — which does appear to be happening — might “crowd out” other startups. So, we have Andy Grove saying Silicon Valley startups can’t scale from an employment standpoint just at the same time the data shows that they still do…
But as we dig a bit deeper into the article, we find out what Grove’s real concern is. It’s not that jobs aren’t scaling, but which kind of jobs are scaling. And, to Grove, the problem is that we’re no longer scaling manufacturing jobs:
Today, manufacturing employment in the U.S. computer industry is about 166,000 — lower than it was before the first personal computer, the MITS Altair 2800, was assembled in 1975. Meanwhile, a very effective computer-manufacturing industry has emerged in Asia, employing about 1.5 million workers — factory employees, engineers and managers.
I’m kind of surprised that Grove would make this argument. From David Ricardo, writing 200 years ago, forward, the concept of comparative advantage is pretty well-established. Now, there definitely are some recent critiques of the concept of comparative advantage, and one major concern is whether or not it really applies in a globalized world, but the general theory still seems valid: if it’s more efficient and economical (other things equal) for manufacturing to take place in China, then it should actually make the US better off. Now, obviously, reality is more complex than theory, and there are other considerations as well, including human rights, quality, and even safety (lead in toys and poisoned toothpaste, anyone?). But, on the whole, that’s not what Grove is talking about. Instead, his main worry seems to be that if we lose our manufacturing prowess in certain tech fields, it actually puts us behind the curve in important new fields:
There’s more at stake than exported jobs. With some technologies, both scaling and innovation take place overseas. Such is the case with advanced batteries. It has taken years and many false starts, but finally we are about to witness mass- produced electric cars and trucks. They all rely on lithium-ion batteries. What microprocessors are to computing, batteries are to electric vehicles. Unlike with microprocessors, the U.S. share of lithium-ion battery production is tiny.
That’s a problem. A new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer-electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies didn’t participate in the first phase and consequently weren’t in the running for all that followed. I doubt they will ever catch up.
Now, I will agree that this is a point that got me thinking. It certainly fits well with our recent post about how scientific knowledge advances, where the research has shown that those who aren’t actively involved in a particular field simply can’t understand that field enough to stay innovative or competitive in that field. So, the real question is whether or not the jobs that are being offshored are really the ones in areas where the US needs to be that knowledgeable… and also whether or not the knowledge transfer really is that complete. If, as is sometimes the case, the design work still really takes place in the US, but the manufacturing takes place in China, which bit of knowledge is more important?
I can understand where Grove is coming from. While many people still think that Intel’s advantage was in its chip design, that was never really the case. It was always its manufacturing capabilities that put the company ahead. Intel’s manufacturing expertise meant that its yield rates (effectively, the percentage of silicon that was successfully turned into a working computer chip) were always significantly higher than competitors, allowing Intel to produce more at a lower cost, and keep its margins higher. So, it’s no wonder that Grove would focus in on manufacturing expertise as being key. But there is more to innovation than just manufacturing.
Grove reiterates the same point later in the article, but makes a big assumption:
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.
But you could make the same argument with plenty of industries that went overseas, or were more automated, that didn’t end up harming the US. The textile industry was once a huge domestic industry, but much of it has gone overseas, and because of that, we tend to have cheaper clothing for everyone. Again, there are issues there to be aware of, such as human rights and sweatshops — something I’m not defending — but it’s not clear that jobs going overseas automatically means harm to the economy, as Grove implies.
Grove then challenges the “free market” orthodoxy by pointing to the growth of certain east Asian economies in the 70s and 80s that were largely due to heavy government involvement and planning:
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.
Indeed, that’s undoubtedly true. But Grove is playing a bit of a game with confirmation bias on this one. Yes, certain government mandates worked well for certain countries, but some of them also had governments force them to bet on the wrong technology. Japan bet on certain technologies (like HDTV) too soon, and discovered that they got leapfrogged in the market. Sometimes, it’s absolutely true, a government can help an industry develop, but often it can push an industry down the wrong road. To ignore that is dangerous. In fact, we were just discussing how some of Japan’s choices pushing certain industries have had long term negative consequences in terms of Japanese domestic efficiency and innovation.
Protectionism leads to perverse incentives that can absolutely work against long term growth and innovation.
Yet, Grove goes so far as to suggest that we should put a tax on offshoring and try to force companies to keep certain types of jobs in the US:
We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars — fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability — and stability — we may have taken for granted.
Yikes! Grove should certainly know that the history of trade wars — even when you “fight to win” is not pretty for any of the countries involved in those wars. They lead to less growth, less innovation and higher prices. They’re incredibly dangerous, and the unintended consequences do significantly more harm than good.
Besides, how do you pick the “good jobs” from the jobs we’re actually better off offshoring. Nearly every day we hear stories about attempts by the US government to protect jobs in a particular industry. Just look at US telco policy or US copyright policy — both of which are very much designed to prop up less efficient companies in the industry, at the expense of more innovative, more efficient upstarts. Protecting jobs comes at a cost to efficiency. If we always had a policy of “protecting jobs,” then we never would have automated the telephone switching system, which put tons of “operators” out of work. But that also opened up massive new innovations, including the internet. I don’t think anyone would argue that the jobs created due to more efficient telephone switching have so far surpassed the jobs lost from no longer needing operators to connect one party to another.
Yes, Grove has an important point in the middle of all of this, about the potential loss of key knowledge and expertise that is needed for the next generation of innovation, but he’s cherry picked the other examples, without realizing the very real and very serious downsides to protectionism and to having government policy pick which industries (and which players in those industries) are “winners” and which are “losers.”
In the end, the article is thought-provoking, and is at least making me reconsider some aspects on how we handle knowledge transfer for future innovation. But mostly the suggestions seem to go too far in heavy handed government involvement in propping up less efficient businesses, just to keep jobs local, even if it comes at the expense of future innovations that actually will (despite Grove’s claims) create the jobs of the future.
Filed Under: andy grove, economics, employment, manufacturing, protectionism
Comments on “Andy Grove Suggests US Protectionism For Tech Jobs”
Battery design is done in the U.S. are you kidding me?
All I see are papers discussing theoretical possibilities and one or another prototype that doesn’t get to the end, while in Israel people came up with paper batteries, in Japan almost every year there is a new battery coming out ready for production that increases the efficiency.
The U.S. probably wouldn’t be able to mass produce a LCD if it wanted to, there is a real loss of knowledge when you don’t do the producing and that is people stop thinking about producing the tools to produce things that lead to some accidental discoveries.
Japan is decades ahead in practical photonics applications, NEC and NTT are practically the de facto producers of GPON equipment, open your cisco router and peek inside to see what it is running under.
Now I will agree that protectionism will only exacerbate the problem, it gives no one the incentive to start working out again and that is the need to survive that one is very powerful.
Sense making
I read this article when it was originally posted as well. His arguments do make a lot of sense. But I would agree that his conclusion about the solution is at best “off mark”. Unfortunately, because large corporations are not localized, but global, there is no real incentive for them to even care about emerging markets in America. For a global company it doesn’t matter where the market emerges, just so long as they are there to stop it from competing with them. (yes the last sentence is a bit snarky)
A Comment on the Nature of War
Preface: war is necessary, as is the development of a formidable military presence.
The notion of a trade war (playing to win) waged in an effort to keep jobs or industry in the state to which some individual or group is loyal is counterintuitive. The inherent destruction associated with said act (war) generates too many external damages (negative externalities) to a system of technology based innovation. Behaving with such aggression does not serve an efficient end and should be avoided.
This is not to say that Mr. Grove’s paper does not make a series of valid points. The idea of a job-protectionist war (however casualties are defined within this setting) in service to technological innovation does not serve a worthwhile end. Nationalist bias doesn’t help either but is inevitable. Just a thought but I hope it resonates.
JNOMICS
Re: A Comment on the Nature of War (trade)
As far as I know there are no treaties resticting US from the type of protectionism Grove is advocating. Besides higher consumer costs and corporate budgets what else will it cause A robust economy?
You miss his point
There are a class of people in any society who are not going to design anything. They used to be able to get a decent manufacturing job, but thats gone.
You seem to be saying we should accept that 20+% of our society will be permanantly unemployed or under-employed?
While China & India grow a huge manufacturing capability, largely on our efforts through outsourcing?
We’re screwed if this is the approach we take. We don’t have enough money (actually will is whats missing) to educate our kids and we’re about to get our asses handed to us.
We need to begin protecting some key areas right away.
Re: You miss his point
“20+% of our society will be permanantly unemployed or under-employed…”
To support that argument, you’ll have to show that historically whenever a domestic industry employing lots of manual laborers declined, there was a corresponding and permanent rise in unemployment.
Who here can name the biggest example of a domestic industry that declined?
Re: Re: You miss his point
I’m guessing steel manufacturing.
Re: Re: You miss his point
Ehh, I’ll bite: Manufacturing. Rust belt, anyone? Steel? Automobiles?
In fairness, labor unions brought this on their own members.
AND there are *still* tax *incentives* for offshoring. The point here is that the Congress is still licking its corporate masters’ boots.
Not really the point, but...
“Levy an extra tax on [something bad]… Keep that money separate [and use it against the bad thing]…”
Does that ever work? Has it ever worked? Can government be trusted with “earmarked” money?
Re: Not really the point, but...
No, they spend it on the next project. Once money isn’t dedicated to something, it’s spent.
You miss his point
Bloomberg ran a story a few weeks ago that discusses some of these happenings in other industries.
It seems many industries outside of technology are struggling with Wall Street Analyst’s continual expectation to grow productivity within the business. Last quarter, productivity increased 2.7% while unemployment rose. The reality is that the work didn’t disappear. In fact, people’s jobs continued to be completed (2.7% increase in productivity). So what happened? It’s very possible that some people’s work was offshored or put onto another person’s plate. When you can pay 5 Indian nationals for the same amount as a single American, of course, as a company, you’ll see an increase in productivity and also profitability. The question remains how long this will be an acceptable practice.
It seems that the only sector that can’t be offshored is home-building, which may explain the economic push for re-affirmation of the first time homebuyer tax credit.
Some people mention an unofficial estimate of 20% unemployment. This remains a very realistic number when the numbers include those who stopped looking, the under-employed, and non-census workers. It would be great if a polling company looked into this separate from the BLS data. Separately, this may provide logical support for the recent drop in Americans taking on additional debt as well as luxury items. A drop in taking on debt may be attributed to uncertainty in the market, and the correlation to luxury items shows it.
The biggest issue is that the US doesn’t have a strong manufacturing base in the US, and also lacks the legal protections to ensure employment is balanced to company productivity.
Taking a efficacy-maximalist position, will in time only lead down a path of labor exploitation in other countries with more lax regulation, and no such thing as OSHA or worker safety.
For these reasons, I believe Andy Grove may be more correct than you.
Re: You miss his point
When you can pay 5 Indian nationals for the same amount as a single American,
Then it reduces the incentive for technical efficiency improvements – since they are effectively trumped by cheap labour.
The problem is that when you allowed unfettered competition between countries with very different economic/social regimes then the economic forces don’t work in the usual way. The point is that India has no real advantage in the market – all it has is a large supply of desperately poor people who have inadequate state welfare and thus will do anything to survive. Unfettered competition will produce (in fact has already produced) an economic effect similar to the physical one in the plot of the Sci-fi story “The Gods themselves”. http://en.wikipedia.org/wiki/The_Gods_Themselves
It may seem to be a win to import goods from cheap labour countries – but along with the good we also import a little bit of their economic structure. In time this gradually undermines our own socio-economic structure – until eventually it will collapse under the strain.
Free market economics is fine provided the playing field is relatively level and there are no rapid adjustments to make. However the dynamics of large economic adjustments are not well understood.
We cannot guarantee that importing cheap third world produce will not result in us importing third world poverty as well.
I imagine it works both ways. If importing their goods imports “a little bit of their economic structure” then when they import our money in exchange, they also import “a little bit of our economic structure.” Eventually I suppose we would trade places and become an outsourcing destination, and the cycle would begin again.
What about the defense implications of outsourcing? Could we have helped out i WWII if we hadn’t had auto factories available to convert into tank factories?
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I imagine it works both ways. If importing their goods imports “a little bit of their economic structure” then when they import our money in exchange, they also import “a little bit of our economic structure.”
Exactly right – and that was in the plot of the story too.
Eventually I suppose we would trade places and become an outsourcing destination, and the cycle would begin again.
Well it would in theory reach some kind of equilibrium first. However the problem is that our societies would probably collapse before the end state is reached – and we can see that happening already. At present the west has huge government debts – that are currently financed by far eastern savers. This is now recognised as unsustainable and so governments are trying to cut the deficits. However they will find that they cannot actually achieve the deficit reduction without dismantling state education, healthcare and the social security safety net.
Ultimately it will mean that people in the west will start dying as a result of poverty like they do in the third world (and like they used to here in the 19th century and earlier).
I can’t imagine that this will be socially acceptable – and so there will be political unrest, revolutions, coups etc – which will just make things worse. It really doesn’t bear thinking about for long.
Personally I think we should impose tariffs on imports from countries with wages below our minimum wage and/or employment conditions that would be unacceptable here. The tariffs should not be set at a level that completely protects our industry from the competition – but rather at a level where their industry and ours can co-exist. The wew should feed the tariff money into improving social conditions and inequality in those countries. The aim of this process is not to buck the market (you can’t do that forever) but rather to damp it – slow its effects down and ensure that terms of employment are levelled up rather than down.
More than just jobs are getting outsourced
As a product designer, I am biased toward some form of protectionism, there is my honest disclaimer.
When I design a product & the manufacturing of it gets moved overseas, many times they can’t seem to make it right. What happens next is they send an engineer over to show them how to do it. They have all the models, assemblies, & drawings. Then they get all the processes needed. In the executive’s opinion, all is well, we have an NDA, don’t worry!
Big surprise when we see our products counterfeited regularly!
We are giving everything away. Not just manufacturing. Design, engineering, customer service, even the bean counters are going overseas. What will left?
hockey stick growth
I also think that protectionism is a bad idea but I would take exception at the graphs used to illustrate that some companies’ employment figures are increasing. I think the chart shows the proportion of total job postings that are posted by Google, Facebook and Twitter, which can’t be assumed to imply a rapid increase in the number of tech jobs being created. It may mean that the total number of tech jobs are decreasing while the three companies’ hiring numbers are holding steady, which would lend further credence to Alan’s point.
Re:Getting Outsourced
As A retired Tool and Die Maker for over 22 years 30 plus years in manufacturing,and working 20 plus years for a National Research Laboratory.Hiring top shelf Toolmakers back in 1978 required an national search of which it took 50 to 75 Applicants to fill a position when I retired it took well over 150 to fill the same position and in todays world of 10-20% unemployment I am still offers to name my own hours and excellent pay to go back into the field.Fact is we have already lost a vast amount of our highly skilled manufacturing base due to sending manufacturing overseas we have taken the easy way out rather than educate in order to replace a depleted and aging manufacturing base This is how the vast majority of companies increase the bottom
Grow some balls
The goal of any economic interaction is to win, however that can only be done through fair cooperation. Grove’s tax strategy is only slightly off base. What is needed is an even competitive arena. We need to allow any company to import into the US but only if they pay their workers at least our minimum wage and follow at least our environmental regulations. Otherwise tax them to the point that it would have cost them to do these things. Anything less draws all countries down to the lowest common denominator and only profits the rich.
I suspect that the Chinese must be quaking in their boots at the prospect of the American tech industry being run like General Motors!
Until such time as US factory workers are prepared to work the same hours for the same pay and benefits as their Chinese counterparts, US factory workers will not be competitive (in the industries which have been off-shored).
Taking money away from people who have it (because they earned it) and giving it to people and companies that don’t have it (because they cannot compete) sounds like a great way to make a country more successful!
Of course, if Mr Grove’s idea is implemented the US will need a cadre of central planners to decide who (i.e. which defense contractor) gets the “scaling funds” and who doesn’t…maybe the Chinese Communist party has a few that are no longer needed!
Re: Re:
Until such time as US factory workers are prepared to work the same hours for the same pay and benefits as their Chinese counterparts, US factory workers will not be competitive (in the industries which have been off-shored).
US factory workers can’t work for the same wages as their Chinese equivalents – they would be unable to pay for the much higher costs of housing and food in the US.
US factory workers shouldn’t be asked to work the under the same terms and conditions as the Chinese. Instead the Chinese should be given the same terms and conditions that US workers fought for and won over many years of struggle. Offshoring is a mechanism for routing around these victories of the common man.
Capitalism and competition are supposed to be about finding better ways to do things – not a means for wealthy (and short sighted) businessmen to play one group of poor workers off against another in order to squeeze the maximum short term profit from their labour.
US will need a cadre of central planners to decide who (i.e. which defense contractor) gets the “scaling funds” and who doesn’t…maybe the Chinese Communist party has a few that are no longer needed!
Those Chinese communist planners are still at work preparing for the victory of their totalitarian system over the west (which is now imminent).
When our financial systems collapse completely because the level of our public and private debt is unsustainable then then Chinese will be there, holding all the technical capabilities that we have outsourced to them over the years and ready to take over.
This “offshoring” business was part of the Chinese communist plans all along.
Re: Re: Re:
Gee, did you came from the 80’s that was the same thing they said about the Japanese.
Re: Re: Re: Re:
Gee, did you came from the 80’s that was the same thing they said about the Japanese.
I remember the 80’s – I don’t remember anyone accusing the Japanese of being Communists with a master plan to take over the world!
Also, did you not detect my tongue firmly placed in my cheek in that comment….
Re: Re: Re:
US factory workers expect to live middle-class lifestyles. Unfortunately they cannot add enough value to justify being paid for what they do (or don’t do). This is not sustainable.
Import tariffs and similar taxes will simply deny Americans the freedom to make their own market decisions. If commodity technology products increase in price, there will be parents who can no longer afford to give their kids PC’s, there will be schools which will no longer be able to put computers in the classroom, etc.
One has to question whether or not the tech companies (like Google) built on the back of cheap computing power would have ever come into existence (in the US that is) if consumers had to subsidize the uncompetitive.
If you cannot add the value, you are not entitled to the reward.
Re: Re: Re: Re:
US factory workers expect to live middle-class lifestyles. Unfortunately they cannot add enough value to justify being paid for what they do (or don’t do). This is not sustainable.
This is a really insulting thing to say to the ordinary people of your own country. You can expect to be “the first against the wall when the revolution comes” if you continue to make comments like that. How can you judge what the value of a man’s work is?
Import tariffs and similar taxes will simply deny Americans the freedom to make their own market decisions. If commodity technology products increase in price, there will be parents who can no longer afford to give their kids PC’s,
and how will the factory workers be able to afford to give their children PCs (or even food) if they are paid 3rd world wages?
The point is that we are NOT talking here about labour competing with technology. What we are talking about is labour in a rich country with a minimum wages, safety laws, some kind of provision for healthcare and pensions competing with labour in a country without any of those protections (yep, in spite of being supposedly “socialist” China never had public healthcare!)
As I’ve said elsewhere capitalist competition is supposed to encourage better technical solutions – not a beggar my neighbour race to poor working conditions and bargain basement wage rates.
In fact expensive labour is a major driver of technical progress. Cheap labour undermines the return on technical development. The existence of slave labour was a major factor that undermined progress in the Greco-Roman world.
Tariffs directed specifically at competitors with low wage rates would drive technical progress rather than inhibit it.
Re: Re: Re:2 Re:
“This is a really insulting thing to say to the ordinary people of your own country. You can expect to be “the first against the wall when the revolution comes” if you continue to make comments like that. How can you judge what the value of a man’s work is?”/
lol! I am not American and don’t live in America! That said, I don’t think that economic reality is a matter of patriotism.
As for the value of a man’s work…the market decides.
Re: Re: Re:3 Re:
ol! I am not American and don’t live in America!
Nor am I but I still wouldn’t make a comment that was so insulting to the ordinary man in any country.
I don’t think that economic reality is a matter of patriotism.
Of course it isn’t a matter of patriotism, it is a matter of humanity.
As for the value of a man’s work…the market decides.
No the market decides the value of his output, which is of course a composite of his input and the investment in his education, the tools, he is given, the design of the products he makes etc etc.
During the 1950’s and 1960’s American factory workers enjoyed a higher standard of living than many in the middle classes in the UK. They were able to do this because of the high level of investment in the factories in which they worked. That was not, of course, their achievement. It was the result of decisions made by their companies and politicians. However it is equally not their fault that their output can no longer command such a return. That is also the fault of their leaders.
Re: Re: Re:4 Re:
I suspect that the real reason the US did well in the 1950’s and 1960’s was the fact that they did not have any real competition – Europe and Japan were still rebuilding after being devastated by WW2 and large parts of Asia were either genuinely trying to be Communist or involved in messy conflicts.
From the late 1960’s onwards, many of these issues started to reverse and the US started to experience competition and trade deficits…downhill ever since.
Re: Re: Re: Re:
Really? I guess then I have to question your opinion of value. And wonder who exactly does add “value” in your opinion? Is it the mid-level manager who spends her day pushing paper? Or one of dozens of VP’s who bore me daily in Powerpoint hell. Possibly the CFO or CEO as they plot ways to leverage away the means of production? Or the COO scheming ways to pit domestic union members and their cities against foreign slums. Who is going to buy that “valued added” product again? Really?
Re: Re: Re:2 Re:
The market determines the value of your work…what would you prefer?
The organization you describe does not sound very competitive…probably needs protective tariffs or some bail-out funds 🙂
Re: Re: Re:3 Re:
The market determines the value of your work…what would you prefer?
“The market” is often a fig leaf that politicians and business leaders use to excuse the results of decisions that they themselves have made.
In particular the current issue of “offshoring” hasn’t arisen by chance, or even as a result of natural economic forces of development. Why is it that 3rd world countries have such low wage economies? It is not an accident, it is not “the market” and it is quite a recent phenomenon. Even whilst the leaders of politics and business were being dragged into more egalitarian and democratic structures in their own countries they were allowing (encouraging)oppressive and very unequal regimes to persist in the 3rd world countries. Now globalisation means that these low wages can undermine the social gains made in the west during the first 2/3 of the 20th century.
The market we have is not some inevitable result of blind forces beyond the control of humanity. It is the result of choices made by political and business leaders in the past, These choices have always favoured the elite at the expense of the common man so it is not a surprise when “the market” does the same thing.
A serious misunderstanding
While I usually find Andy Grove’s fulminations annoying and one-sided, I finally find him informed and persuasive. What happened, Andy? Did you wake up and realize that all the money, taxes, and sweat that Americans put into Silicon Valley have created a system that siphons off wealth to other countries and benefits only a few in our own? It’s not hard to choose which jobs should be protected. They’re the ones that require technical training and increase productivity. But the government doesn’t have to choose industries. All it needs to do is level the playing field, as shedly and others have suggested. We should place a premium on training our own workers and improving our schools. The government should plan to increase wages and well-being.
Grove is simply *late* at stating the obvious.
“But you could make the same argument with plenty of industries that went overseas, or were more automated, that didn’t end up harming the US.”
Actually, *all* that went overseas have harmed the US. You insufficiently regard the following:
1) Effect on (the usually small number of) individuals is real but lost in noise at the ivory tower level. A McJob is not a replacement even at same wage as manufacturing jobs have greater psychic reward of *making* goods. Further, if the boss is at all decent, there are “perks” such as being able to borrow company equipment for personal use.
2) Even *tiny* industries can provide essential items to larger ones. “For want of a nail … the battle was lost.” Further, a “down the street” location of supply houses or other manufacturers is an advantages for various panics.
3) As the level of familiarity with tools and the notion of repairing things drops, the level of innovation necessarily does too. Two poor brothers making bicycles can invent an airplane, but a kid given a trust fund will *never* invent anything except maybe a new way to burden the rest of us.
4) Tossing in “more automated” is just wrong. The cotton gin “more automated” cloth production; automation as such does create new jobs that are *better*, not eliminate them as going overseas does.
“The textile industry was once a huge domestic industry, but much of it has gone overseas, and because of that, we tend to have cheaper clothing for everyone.”
But it’s *worse* clothing, and not much cheaper in price, if any. Most of the advantage has been extra profits for retailers, not savings to consumers. Fashion is a bad area for arguing, either way, so I’ll just point out that the selling price of “fashionable” sneakers bear no relation to costs of production, and could in fact profitably be made in the US.
The overall effect of less domestic manufacturing is definitely to reduce living standards. No longer can a single manufacturing job support a family, and despite saying that isn’t the whole story, it *is* true. Manufacturing jobs are *good* jobs.
The West is currently living off Asian labor, but that’s only going to last so long as the Asians keep taking *debt* in exchange for real goods. When that debt accumulates to the point that there’s no possible way for the US to pay it off — not even by ceding massive areas of public lands — it’ll be interesting times.
Andy is Right
The key is that the proposal is a tax on “offshoring”. It does not matter where it goes after its collected only that companies are allowed to balance “offshored” with “onshored” jobs and infrastructure. All companies, all the time. The one thing we don’t want is government choosing winners. A blind offshore tax does the job. The tax should be regressive making “offshored” goods where no onshore manufacturing exists substantially (20 to 40 %) more expensive- with a big step down for goods that are onshored in a meaningful way i.e. 20 to 30% of all such goods from a given manu
“Former Intel CEO Andy Grove ” – mike, why did you declare his past affliations? isnt that sort of out of line with your standards here. after all, if you cannot declare the current affiliations (and the party that someone was elected under) in other posts, why should you mention intel at all?
i see a double standard here.
reaching equilibrium sooner
So if Richard’s theory is correct, and first world and third world should theoretically reach economic equilibrium, then tariffs are a good way to make that equilibrium happen a bit sooner. The idea would be to apply a tariff to an extent that depends on the extent to which the cost of production here differs from the cost of production in a hypothetical country in a world in which such equilibrium has already been achieved. This would help level the playing field faster and in a controlled way.
Re: reaching equilibrium sooner
The playing field will only be leveled if the tariffs go the workers of the third-world countries, so that they can have pensions, health-care and 27 different flavors of jelly bean in the cafetaria.
Re: Re: reaching equilibrium sooner
he playing field will only be leveled if the tariffs go the workers of the third-world countries, so that they can have pensions, health-care and 27 different flavors of jelly bean in the cafetaria.
Which is exactly where I suggested they ought to go.
Not sure about the jelly beans though.
PS if you’re not an American how come you spell “flavour” as “flavor”?
Re: Re: Re: reaching equilibrium sooner
I don’t think that is what Andy Grove had in mind though!
PS Although I am NOT American, my spellchecker is!
Blah, blah, blah, blah….
Yes, it is as simple as realizing that if you jettison your magnufacturing foundation you as a society also jettison your future.
You can not innovate anything if you can not build anything.
He is right ...
With companies exporting technological manufacturing overseas and automation truely coming of age, it doesnt make sense to export these jobs any more. When you have approaching zero labor costs it doesnt matter where a factory is set up.
Free market and the foot less enterprises
Excellent Discussion! Finally someone expose the problem.
Free markets used to favor the US based corporation dominated many markets. As the emerging powers embrace the market economies, corporations are not so much attached to any country. While free markets are still good for all, they do not advantage the US over the other players any longer.
Most of the rest of the world practice some form of protectionism. Beyond the blatant import taxes and quota there is a whole set of tools deployed:
– Technical regulation easier to meet in the home country.
– Labor rights standards
– Environmental standards
– Indirect subsidies via R&D tax breaks
– Government stake holding in key players
Unfortunately, I do not forecast any action from the corporate financed politicians. Unemployment and poverty will have to increase much further before unrest forces them to pass the appropriate laws.
Andy Grove and protectionism
This is a classic case of the ivory-tower academic and the “roll up your sleeves” type.
Both sides are both right and wrong, but while I frequently disagree with Andy Grove, in this case he is far more right than wrong; for one thing, he is “speaking from the trenches”, it isn’t an academic pursuit for him.
Re: Andy Grove and protectionism
Its not protectionism, it is plain and simple corporate survival. Outsourcing jobs reduces our ability to compete, and the removes the motivation to educate our own children. The majority of the worlds products come from IP developed in the US, Germany, and Japan. It is one of the reasons for the US push for ACTA. We do need for the US to pull production back the the US.
Re: Re: Andy Grove and protectionism
Please do. Seriously cannot wait for the US to stop exporting their crap laws here. Go Japan’s route – all insular and isolated. Anyone taking bets on how that ends up?
We don’t want or need you. We have scientists too (when they are sober anyway), we grow stuff, hell we even tell jokes and make movies. We can build a car – we have!
So keep your IP you’re oh so welcome to it and Bloody Well keep your laws and ACTA too!
/rant
ps measuring majority how? by weight? well the food and ore got you beat. By cleverness? Well didn’t the Aussies do wireless? By … oh well hell you get my point I hope.
Re: Re: Andy Grove and protectionism
removes the motivation to educate our own children.
Wouldn’t this give us even more incentive to educate our children? So they can do jobs that are hard to outsource? Not sure where you’re coming from with this bit.
Outsourcing jobs reduces our ability to compete,
I don’t think this is true. If USCorp decides to make its DVD players in the US, isn’t ChinaCorp going to make them and export them for cheaper? Thus USCorp goes out of business and the jobs are in China anway. The outsourcing isn’t what reduces our ability to compete*, it’s their extremely cheap labor that does that. The outsourcing is a *result* of our inability to compete.
Hardly anybody is going to buy a more expensive item to support American industry. Therefore, all else being equal (and often even when it’s not), the less expensive item wins. Therefore, the manufacturing gets pushed to places where it’s cheaper to do no matter what.
I agree this is a problem, but I don’t agree that the proposed solutions aren’t protectionism.
* unless you’re talking about this long-term problem with ceding whole industries to other countries, and that I agree with.
Re: Re: Re: Andy Grove and protectionism
So that’s it? That’s all you got? “manufacturing gets pushed to places where it’s cheaper to do no matter what”? You give up too easy.
Why does the idea of protectionism, if that’s what it truly is, necessarily resound negatively with you?
What is being protected is peoples health, safety, livelyhood, and ability to raise families with appropriate resources to make life more than just an existence. In short, what we all strive for.
It never fails to astound and disgust me the things men attribute to economics. “It’s just business” is used to excuse and justify an array of unethical human behaviors including greed.
Economics is a human construct, all other things equal. As such it can and will be adapted to & by the best interests of all men, not just a greedy few.
Re: Re: Re:2 Andy Grove and protectionism
So that’s it? That’s all you got? “manufacturing gets pushed to places where it’s cheaper to do no matter what”? You give up too easy.
Is there some aspect of my analysis you disagree with? If so, what and why?
Why does the idea of protectionism, if that’s what it truly is, necessarily resound negatively with you?
That is not what I said.
What is being protected is peoples health, safety, livelyhood, and ability to raise families with appropriate resources to make life more than just an existence.
If that’s actually what happens, great. Seriously, I’m all for it. I’m not sure protectionism has ever worked as well as you depict though. Unintended (negative) consequences are virtually guaranteed.
It never fails to astound and disgust me the things men attribute to economics. “It’s just business” is used to excuse and justify an array of unethical human behaviors including greed.
Keep in mind that economics is a tool used to describe what actually happens, not what people ought to do. Confusing economics with morality usually leads to getting at least one of them wrong. And when decisions are based on a muddling of the two, the outcome can be both economically less efficient, and morally less desirable.
He is right on the money on the problem, but I found it troubleling that the first suggestion is to run the protectionism path first.
That was exactly what started the offshoring thing.
Ever belligerent unions demanding more, pressured business to find labour elsewhere and they found it.
People think they can compete with other countries erecting barriers?
Please do and discover that all raw materials come from outside and not even the Europeans will take kindly to that kind of action.
Reducing the barriers(IP) so people can create their own solutions and markets is the only way out.
Something is needed
I can’t and won’t comment specifically on manufacturing and design jobs, but generally speaking in this country we need something done about our elected officials generally screwing the American worker.
Under Clinton, and expanded under Bush there was major incentives for corporations to outsource jobs away from this country. IT in generally was hit horribly, and in the end so was the economy.
I remember as a child my Grandpa complaining about how companies were moving their manufacturing jobs out of the country, then as a teen I heard how robots were taking over jobs. IT in this country has replaced the shop floor worker, and now we have our government giving companies huge tax breaks for sending that work out of the country.
What will the American worker become? Minimum wage stock boys? Where will the money come from to purchase these products?
I’m all for these other countries competing on even ground, but when my own government is paying my employer out of the taxes I pay to actually give my job away I have a real issue.
Protectionism? I could care less if there are laws requiring the jobs to stay here. I just want the laws off the books that pay American companies to send my job overseas.
on adding value
SHEDLY
Richard does not have to provide an opinion on the value of the various workers you list. If one believes in the free market (which everyone around here seems to worship unconditionally), then you can’t argue with the fact that this precious free market has opted to pay those people considerable amounts for their value added. Thus the burden is on you to show why the omniscient free market of yours has made a mistake in this special case, but is somehow correct when it comes to importing goods made by labor that is as close to being slave labor as it is possible to get without crossing the line.
reaching equilibrium soone
“The playing field will only be leveled if the tariffs go the workers of the third-world countries, so that they can have pensions, health-care and 27 different flavors of jelly bean in the cafetaria.”
Actually that would be great. I just didn’t voice it out ’cause I thought it’d be too radical for this group. Seems to me all these nation states with their borders ought to be a thing of the past already. It’s weird to allow goods to cross borders but not labor. One step at a time I guess…
Put up the wall
go for it just do it like the news paywalls.
People will stop trading with you or raise prices and you will see that america doesn’t have the resource base on its own to survive. Like i dunno without resources fo canada and other nations.
I would also like to see how hte prices of items would sky rocket when you stop importing form china and are also forced to pay the entire debt you owe them.
USA = PWNED by a COMMUNIST country
If, as is sometimes the case, the design work still really takes place in the US, but the manufacturing takes place in China, which bit of knowledge is more important?
I am quite surprised this question is even asked. Neither is more important. They are both equally important. It is no accident that in certain industries where domestic manufacturing is an imperative (e.g., defense), the engineering community comprises design engineers, production engineers, and product support engineers. Remove any from the mix and the remaining are adversely, and perhaps even perversely, affected.
“”The market” is often a fig leaf that politicians and business leaders use”
Yes, and everybody else uses “the market” as a fig leaf to avoid having to think too much. So many posts degenerate into “the market says this” and “the market says that” as if it were some sort of higher power we were obliged to genuflect to.
“Even whilst the leaders of politics and business were being dragged into more egalitarian and democratic structures in their own countries they were allowing (encouraging)oppressive and very unequal regimes to persist in the 3rd world countries.”
Yes! It’s the law of karma being played out on a national level. We are just reaping what we have sown.
Protectionism
Protectionism, like unions, is something I am for, to a point. Neither will solve all the problems and both will create new problems. But one of the problems solved will be jobs wont leave the U.S. for some foreign shore. More of our people will fill those jobs. Corporations need to keep in mind where they are based and quit behaving like vampires attached to some some sleeping peon.
Protectionism
“Corporations need to keep in mind where they are based and quit behaving like vampires attached to some some sleeping peon”
Give them a break. They have no choice. Directors in a corporation have a fiduciary duty to maximize shareholder profit by any legal means necessary. Even if had a conscience, a director cannot exercise it contrary to the interests of the shareholders. This is a fundamental organic problem to corporations. They are like juggernauts that exist only to fulfill their prime directive: increase shareholder wealth.
When corporations were first invented many centuries ago, I don’t think anybody foresaw this happening. But don’t criticize the corporation: it is just a machine programmed to do a job, and it does it almost too well. I would view a corporation as the legal equivalent of a robot running amok, because it hasn’t been built with Asimov’s three laws of robotics.
Re: Protectionism
Give us a break, when they were invented people knew exactly what they were and how it would play out, they probably didn’t knew how good at it those corporations would be, corporations have no natural predators and so grow exponentially and become to big and yield to much power, that breaks safety nets and when they suffer catastrophic failure the whole economy suffers.
What people need to do is to create a lot of smaller companies that acts like cells and can differentiate when at times they need too.
Corporations are bad, they are like cancer that spreads all over a country and inhibit grow of other sectors, the way to counter them is to lower IP which is the principal instrument being used to keep competition at bay.
Google didn’t have any protection and they got bigger and bigger and bigger, but their monopoly is based on competence they can compete everywhere, different from GM that cannot compete nowhere.
One thing that also inhibit growth is strong unions, it is not just corporations that are bad basically any type of protectionism leads to pain.
Re: Re: Protectionism
“Give us a break, when they were invented people knew exactly what they were and how it would play out, they probably didn’t knew how good at it those corporations would be, corporations have no natural predators and so grow exponentially “
There used to be some laws in place to hinder corporate abuses, way back in the 1700’s and early 1800’s. They’ve since been eroded. We need to bring those back.
“the way to counter them is to lower IP which is the principal instrument being used to keep competition at bay”
Not the answer. Patent term is a blip in the life of a corporation. The best way to limit corporate abuse is to restore the eroded statutory protections we used to have. There are many other instruments, far more effective than IP, to suppress competition. Look at the Standard Oil story. They didn’t waive a lot of patents and copyrights around.
“One thing that also inhibit growth is strong unions”
No. Strong unions are essential to check corporate abuses. Lone individuals simply lack the power to fight back unless they are organized. If management had treated labor fairly all along, there would be no need for unions.
Besides, you sound like you think growth is an end in itself. Look at your language “cancer that spreads”…that’s what corporations are. We need to check their growth. Reform of IP law would just be a speed bump. If you want to fight corporate abuses, you need to go for the jugular!
Re: Re: Protectionism
Corporations are good for one thing and one thing only:
Avoiding responsibility.
How markets are formed?
How they grow?
What is a sustainable market?
Without answering those questions first I don’t think anybody can do the right thing.
But I will tell you guys this:
Market and growth are just illusions.
China and India have enough people to recreate the world market place internally with all the same dynamics where poverty moves around, yep the west is getting poorer and will be exploited by Asia, then after a century they could get poorer.
At the end of the day the only thing that matters is “real work” being done, financial products, IP those things are all illusions that will fade away.
Theoretically society can even grow without money, people just need to work to maintain their infra-structure in place and try to advance themselves.
Of course that is easier said than done.
Andy Grove
I’ve seen a lot of responses to Andy Grove’s comments at various places on the Web. Many of them mention Ricardo of course and take for granted that something he wrote 200 years ago must be relevant today (funny how little we take medical opinions from 200 years ago seriously but economics, nothing new there!). Nothing is ever said of course about how various Britain’s industries were protected from foreign competition until they matured but then economic theory is a far more comforting discipline than economic history isn’t it?
And nowhere have I seen what for me is the more fundamental issue underlying what Grove is saying about manufacturing and that is; what is going to happen to the American middle class if we don’t continue to produce high wage jobs for the majority of entrants into the work force who are comprised of people who either don’t graduate from high school or having done so, don’t go to college?
We have the world’s third largest population. If the wage stratification that has been developing for that last 30 years continues, what’s going to happen to the social contract that has seemed to promise a growing standard of living for each succeeding generation? And what kind of politics will appeal to a population, the majority of whom may come to believe that the “American Dream” is a lie? How much comfort will they take from the notion that free-market theory says that somewhere someone else is doing well, just not them?
Kids leaving the house
What if the knowledge that is offshored is knowledge that we consider “mature” and ready to go off into the world to be used.
In essence, here the heavy lifting required to create the knowledge is done here, and once the knowledge/process is considered mature, it is moved elsewhere to make room for new knowledge to be created.
Thus, the originator of the knowledge retains the space to create new knowledge, and the knowledge itself continues to be useful (creating products, helping new countries industrialize, making new jobs).
Possible case in point: the tallest building in the world is not in the Unites States, but the tallest building in the world was designed in the United States.
This poses the question: Is this knowledge that we are offshoring really “key”? I personally don’t believe that the key knowledge for how to run a tech support call center is necessary to my country’s well being, but the ability to design and create the products that necesitate such a call center probably is something that I value.