Andy Grove is frustrated and depressed. In How America Can Create Jobs, the former Intel chief doesn't think start-ups alone can produce jobs—
Bay Area unemployment is even higher than the 9.7 percent national average. Clearly, the great Silicon Valley innovation machine hasn't been creating many jobs of late—unless you're counting Asia, where American tech companies have been adding jobs like mad for years.
The underlying problem isn't simply lower Asian costs. It's our own misplaced faith in the power of start-ups to create U.S. jobs. Americans love the idea of the guys in the garage inventing something that changes the world. New York Times columnist Thomas L. Friedman recently encapsulated this view in a piece called "Start-Ups, Not Bailouts." His argument: Let tired old companies that do commodity manufacturing die if they have to. If Washington really wants to create jobs, he wrote, it should back startups.
Friedman is wrong. Start-ups 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.
Don't worry about Thomas Friedman, Andy. He's making it up as he goes along, throwing out ideas like scattershot from a shotgun. If Friedman were actually right about something, if he actually hit a target, that would be a random event. That's why he's featured at the New York Times!
Grove's concerns are quite clear in the data. Although you wouldn't think so, those Apple iPods, iPads and computers are counted as durable goods. Here's the number of Americans employed in durable good manufacturing since the late 1930s—
Grove explains (in part) the tragic manufacturing employment data—
Today, manufacturing employment in the U.S. computer industry is about 166,000, lower than it was before the first PC, the MITS Altair 2800, was assembled in 1975 (figure-B). 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, also known as Foxconn. The company has grown at an astounding rate, first in Taiwan and later in China. Its revenues last year were $62 billion, larger than Apple, Microsoft, Dell, or Intel. Foxconn employs over 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard, Intel, and Sony (figure-C).
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 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?
Good question! — because that's the kind of society we have been racing toward for many years now. And the answer is obvious: it is a new kind of Banana Republic, a variation on so-called "Third World" countries. How did this come about?
I covered this territory in When In Doubt, Blame China. Rather than walk this well-trodden ground again, I urge you to read that article. Suffice it say that Steve Jobs can sell you overpriced iShit because his manufacturing costs are very low. As the Age of Globalization has proceeded, Americans have been sold down the river.
The way many economists figured it, we could successfully give up many of our good-paying jobs and in exchange, we would get cheap imported goods from China and elsewhere. Something about global trade equilibriums and all that ... mumble, mumble. How Americans would actually pay for these goods as their jobs disappeared and their wages fell was left unspecified, but there was an obvious benefit to Apple and other corporations. In the end, consumers Americans used easy credit offered at usurious rates to buy Apple gadgets they could not really afford. This so-called credit bubble collapsed in 2008.
Grove wants a return to job-centric economics—
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.
Grove's heart is clearly in the right place. It's the actual execution, Andy, which is going to be a problem.
Good Luck.
I was thinking of this stuff and have following observation:
Productivity=>Less employment+Massive cheap goods=>cheap credit to sell the goods(unemployed can't buy the increasing amount of stuff) resulting in societal bankruptcy through increasing financial bubbles to supply income to get desirable (due to heavy ad campaigns) goods into people's possession. So higher productivity is bad.
Lower prodcutivity supposedly makes people poor as they can't afford simple consumer goods. However then they save and are frugal, ocnsidering waht they really need before buying it and keeping it a long time. With less productivity things are made to last. So as GDP and growth are the holy grails of economics along withg productivity, we can throw them all out as not well thought out. GDQ (Gross Domestic Quality) should replace GDP and quality should replace productivity.
Posted by: Edward Boyle | 07/05/2010 at 10:24 AM