Andy Grove doesn’t mince words, even in his semi-retired life. The former chief executive of Intel has written a forceful essay about “How to make an American job before it’s too late” for Bloomberg Businessweek.
Depending on your point of view, you could put labels on his views about how Silicon Valley is failing to create enough jobs in the U.S. as startups “scale up” into rapid hiring, resulting in the creation of about 10 jobs in China for every one created in the U.S. You could call it incendiary, protectionist, alarmist, or just plain blunt. But whatever you call it, it is classic Andy Grove. He is worried about our future (as he was with the healthcare crisis and the onslaught of Japanese manufacturing in the 1980s) and proposes a tough fix.
The problem is that not enough jobs are being created in Silicon Valley and the U.S., largely because of offshoring trends that motivate companies to place low-wage manufacturing jobs overseas. That has been a perennial problem, but many economists (Grove singles out New York Times columnist Thomas L. Friedman for his advocacy of “startups, not bailouts“) have not worried about it because the high-wage jobs that matter are created here. The profits of the companies also stay here and are invested in the creation of new technologies and more high-wage jobs.
But Grove, who is a senior adviser for Intel but is expressing his own opinion, is troubled by the rapid growth of Asian economies and the lingering unemployment, which in Silicon Valley is holding stubborn at 9.7 percent, higher than the rest of the country. The situation is getting worse, he says, as companies have to generate more and more revenue just to create a single job in the U.S.
The reason is that so much of the revenue generated from “scaling up” a startup into a manufacturing giant comes from creating a big base of factory jobs overseas. He estimates that Foxconn employs 250,000 people making Apple products in China, while Apple itself has only 25,000 U.S. employees.
“Since the early days of Silicon Valley, the money invested in companies has increased dramatically, only to produce fewer jobs,” Grove wrote. “Simply put, the U.S. has become wildly inefficient at creating American tech jobs.”
Grove sees the same thing happening in alternative energy, where the 10,000 jobs created in the U.S. for making solar cells is dwarfed by the number of jobs created doing the same thing in China. He worries that if the scaling up of technologies such as batteries takes place overseas, the U.S. will lose not just jobs but its ability to participate at all.
Grove writers further, “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.”
Grove proposes a tax on products that are made with overseas labor. Here’s where his remarks are sure to cause charges of being an alarmist.
“(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….Unemployment is corrosive. If what I’m suggesting sounds protectionist, so be it,” he writes.
There are some holes in Grove’s analysis. He doesn’t mention that the engine of job growth in Silicon Valley has nothing to do with manufacturing. Much of it is focused on “Web 2.0” style businesses and their successors. Companies such as Facebook, Zynga, Playdom and others are creating considerable numbers of jobs. These jobs aren’t available to the working class masses that Grove wants to support with manufacturing jobs, but they are important and worth mentioning in his analysis. Where Grove sees a crisis, others may see nothing wrong whatsoever.
His conclusions may still be the same: that manufacturing jobs matter more. But manufacturing has been a losing battle in the U.S. for a long time. Proposing a tax on products that will be countered with a global trade war — or a very serious confrontation with China — may not save U.S. manufacturing.
But I would agree with Grove that people ought to pay attention and do something about it. When Japan threatened the U.S. in chips in the 1980s and used its own protectionist tactics, the U.S. penalized Japan and forced it to start allowing the use of U.S. chips in Japanese-made products. The intervention was successful, though the U.S. industry came back not necessarily because of the trade pact but because Intel innovated in microprocessors, becoming the world’s biggest chip maker. Logically, in this day and age, the U.S. government should do something, but the rest is up to the innovators.
[picture credit: Industry Week]
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