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Facing Facts about Job Creation

Paul Richardson July 2010

Amid all of the political posturing and infighting, the media talking heads, the

experts in finance and economics I found a voice of reason. In the July 5 11Bloomberg Business Week there is an article written by Andy Grove, one of the

founders of Intel. His article is titled Startups are wonderful. But they dont

create employment.

His base assumption is that startups create a few high paying jobs but in the current

model little else because the manufacturing jobs and unfortunately the refinement

and spin off work done by high paid individuals occurs off shore. Some of the data

he uses to define the problem are devastating.

Today, manufacturing employment in the U. S. computer industry is about

166,000, lower than it was before the first PC . . . 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, also known as Foxconn. The company has revenues of

$62 billion, larger than Apple, Microsoft, Dell or Intel. Foxconn employs

over 800,000 people. . .

About 250,000 people at Foxconn work directly on Apple products. That

compares to 25,000 Apple employees. This 10 to 1 factor Grove asserts is true in

many industries. He says that many people say, Shipping jobs overseas is no big

deal because the high-value workand much of the profitsremain in the U.S.

He points out, That may be so. But what kind of a society are we going to have if

it consists of highly-paid people doing high-value-added workand masses of

unemployed.

He points out that while many see alternative energy and battery technology as

paths to creating good jobs for Americans to replace those lost in computers, autos,

etc. we have already given away the manufacturing and innovation work on solar

cell technology that was developed in the U.S. He estimates that the U.S.

employment in making of photovoltaic films and panels is about 10,000. This is a

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tiny percentage of the workforce worldwide. He points out that advanced lithium

ion batteries which will facilitate electric cars and trucks are a problem. We lost

our lead in advanced batteries 30 years ago when we stopped making consumer

electronics. He doubts that U.S. companies will be able to catch up.

Silicon Valley is a community with a strong tradition of engineering, and

engineers are a peculiar breed. They are eager to solve whatever problems

they encounter. If profit margins are the problem, we go to work on margins,

with exquisite focus. Each company, ruggedly individualistic, does its best

to expand efficiently and improve its own profitability. However, our pursuit

of our individual business, 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 [building the

manufacturing process here which is expensive, time consuming and carries

risk because the lead time for equipment is often long and requires orders be

placed before the design is final], we dont just lose jobswe lose our hold

on new technologies. Losing the ability to scale will ultimately damage our

capacity to innovate.

The first task is to rebuild our industrial commons. 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 warsfight 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 adaptabilityand stabilitywe may have taken for granted.

His perspective is unique. He grew up in Hungary, part of the Soviet block and

saw firsthand the perils of both government overreach and a stratified population.He reminds that in our own history we have an example that should give us reason

to change what we are doing before things get any worse. Most probably dont

know that there was a time in this country when tanks and cavalry were massed on

Pennsylvania Avenue to chase away the unemployed. It was in 1932 when

thousands of jobless veterans were demonstrating outside the White House.

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Soldiers with fixed bayonets and live ammunition moved in on them and forced

them away from the White House. Unemployment is corrosive. His point is what

is worse being criticized for being protectionist or watching our society implode.

His article is a warning shot across the bow. It is time for our leaders to stoppontificating and looking for political advantage in this problem and really get

down to solving this problem without regard for who gets the political advantage.

I have very little hope something like that can happen. The politicians who are

mostly lawyers by training get prepared to argue in a win-lose situation and dont

care much about the reality of the situation. They are not motivated by future

disasters. They figure someone else will be in office then and they will be blamed.

A final point can you imagine politicians sequestering the funds from his

recommended tax on offshored labor products for a special fund to be used topromote domestic scaling. That would be like throwing red meat amongst a group

of ravenous wolves and expecting them not to eat it (spend the money on some

other worthless pet project intended to buy campaign contributions or votes in their

home district.)