Two days after drafting my post on Jeffrey Immelt’s observations on American industry, I read Tim Duy’s superb post on the loss of manufacturing jobs. (Thanks for leading me to Duy to Steve Clemons and New America Foundation’s indispensible “Views on the Global Economy: Your Daily Briefing” (July 6, 2010).)
Duy cites statistics and provides graphs illustrating the problem. His recounting of conventional wisdom on this subject is spot on. His links to a recent exchange between Yves Smith and Rajiv Sethi are worth following.
But most interestingly, in view of Jeffrey Immelt’s Rome quotations, is the three bloggers’ focus on former Intel CEO’s Andy Grove’s important Bloomberg.com article, “How to Make an American Job Before It’s Too Late”. Says Duy, “Rajiv Sethi… summarizes:
“[Grove’s] piece is long, detailed and worth reading in full, but the central point is this: an economy that innovates prolifically but consistently exports its jobs to lower cost overseas locations will eventually lose not only its capacity for mass production, but eventually also its capacity for innovation….” (Emphasis added.)
Among Grove’s observations:
“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?
…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 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.
…However, our pursuit of our individual businesses, which often involves transferring manufacturing and a great deal of engineering out of the country, has hindered our ability to bring innovations to scale at home. Without scaling, we don’t just lose jobs — we lose our hold on new technologies. Losing the ability to scale will ultimately damage our capacity to innovate.”
Critically important here is Grove’s assertion “we have broken the chain of experience that is so important in technological evolution.” As a college student in the late 60s, I worked summers in a steel fabricating plant. The plant’s founder/owners were machinists who’d thought up a better way to make couplings for pipes. They built many of the machines I worked on.
That company and most of its domestic competitors are history. So is the chain of American expertise that made them successful until the 1980s. The challenge of creating anew these types of skills in fields we’ve exported, such as photovoltaics, is deeply daunting. But so are the consequences if we don’t meet that challenge.
“I fled Hungary as a young man in 1956 to come to the U.S. Growing up in the Soviet bloc, I witnessed first-hand the perils of both government overreach and a stratified population. Most Americans probably aren’t aware that there was a time in this country when tanks and cavalry were massed on Pennsylvania Avenue to chase away the unemployed. It was 1932; thousands of jobless veterans were demonstrating outside the White House. Soldiers with fixed bayonets and live ammunition moved in on them, and herded them away from the White House. In America! Unemployment is corrosive. If what I’m suggesting sounds protectionist, so be it.”
One need not fear a new Bonus Army to fix on the need for jobs. But threats of that type motivated John Maynard Keynes and his disciples. (I would speculate they also informed the political development of a US Army major who had a key role in dispersing the Bonus Army: future president Dwight Eisenhower.)
Now such fears focus Andy Grove whose experience in what became the Soviet half of what was the Austro-Hungarian empire challenges the theorizing of Friedrich Hayek and the Austrian school of economists.
Grove’s views on job exports have long been more nuanced than other corporate magnates of the Reagan-Bush II era. Six years ago, The San Jose Mercury News quoted him:
“As CEO of Intel, my allegiance is to the shareholders of Intel and to the success of the company. We go after the most cost-effective resources around the world, no matter where they are.
[However,] as an American citizen, I would have to be worried about whether jobs that are created are created outside the U.S…. As a citizen, I see all these resources and I think this puts my country in danger.” (Kristi Heim, “U.S. Tech Giants Invest in Future Competitor,” San Jose Mercury News, March 15, 2004, p. A1.)
If this worries Mr. Grove, it should also worry universal investors – pensions, large foundations and endowments, that “own the market” – as well as individual index fund investors. Their portfolios hold thousands of companies that pose Mr. Grove’s dilemma.