Andy Grove on Jobs and the Need for US Industrial Policy

Andy Grove, the founder and former CEO & Chairman of Intel Corporation, wrote a short op-ed for Bloomberg News last week that takes a hard look at our serious unemployment question. Perhaps because it was published on the eve of a long holiday weekend, Grove's op-ed didn't get much discussion (Yves Smith at Naked Capitalism linked to it but that was pretty much it). That's regrettable because Grove, one of the driving forces in the tech boom of the past 30 years, covers some important ground asking some very poignant questions including one of the ones that has so troubled me over the past decade.

I am fortunate to have lived through one such example. In 1968, two well-known technologists and their investor friends anted up $3 million to start Intel Corp., making memory chips for the computer industry. From the beginning, we had to figure out how to make our chips in volume. We had to build factories; hire, train and retain employees; establish relationships with suppliers; and sort out a million other things before Intel could become a billion-dollar company. Three years later, it went public and grew to be one of the biggest technology companies in the world. By 1980, which was 10 years after our IPO, about 13,000 people worked for Intel in the U.S.

Not far from Intel’s headquarters in Santa Clara, California, other companies developed. Tandem Computers Inc. went through a similar process, then Sun Microsystems Inc., Cisco Systems Inc., Netscape Communications Corp., and on and on. Some companies died along the way or were absorbed by others, but each survivor added to the complex technological ecosystem that came to be called Silicon Valley.

As time passed, wages and health-care costs rose in the U.S., and China opened up. American companies discovered they could have their manufacturing and even their engineering done cheaper overseas. When they did so, margins improved. Management was happy, and so were stockholders. Growth continued, even more profitably. But the job machine began sputtering.

U.S. Versus China
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.

The largest of these companies is Hon Hai Precision Industry Co., also known as Foxconn. The company has grown at an astounding rate, first in Taiwan and later in China. Its revenue last year was $62 billion, larger than Apple Inc., Microsoft Corp., Dell Inc. or Intel. Foxconn employs more than 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard Co., Intel and Sony Corp.

10-to-1 Ratio
Until a recent spate of suicides at Foxconn’s giant factory complex in Shenzhen, China, few Americans had heard of the company. But most know the products it makes: computers for Dell and HP, Nokia Oyj cell phones, Microsoft Xbox 360 consoles, Intel motherboards, and countless other familiar gadgets. Some 250,000 Foxconn employees in southern China produce Apple’s products. Apple, meanwhile, has about 25,000 employees in the U.S. -- that means for every Apple worker in the U.S. there are 10 people in China working on iMacs, iPods and iPhones. The same roughly 10-to-1 relationship holds for Dell, disk-drive maker Seagate Technology, and other U.S. tech companies.

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?

It is my contention that economic inequality poses a mortal danger to democratic values and democratic societies. In the United States we have moved away from the notion of a relative egalitarian distribution of the national income and indeed championed policies that lead to increased inequality. This, in turn, is now putting pressure on our democratic governance. It is not by accident that we are seeing billionaires of the most unusual stripes run for public office, largely to defend their largesse and create what amounts to an aristocracy, or that we have a Supreme Court overturn a century of restraint on the corporate financing of political campaigns. Indeed these are the logical conclusions of a society that placed the desires of a few over the needs of the many. Avarice is triumphant, poverty evermore commonplace and American democracy under stress if not in serious jeopardy.


Tags: US Economy, Corporate Issues, US Industrial Policy, globalization (all tags)


1 Comment

One additional point..

One that Andy Grove is well aware of (although he does not mention it here), because it closely mirror's Intel's own evolution.


In the dark ages (i.e., in the 1980s), you could separate out the foundry (or the fab) from the design wings, and still make decent ICs.  Thus, you could outsource your foundry to a lower wage country, while still retaining all the intellectual IP and the value add associaed with it.


You cant do that anymore...these days, the design is being governed by rules that emanate from the fab; and the trend is not about to change anytime soon.  Thus, the companies that control the fab/foundry service will soon dominate all the IP and the value adds associated with it.

You can only outsource manufactring for so long, before the value add cycles also get outsourced.

by Ravi Verma 2010-07-09 02:38AM | 1 recs


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