In an article he wrote last year in Bloomberg BusinessWeek, Andy Grove called himself “a onetime factory guy.” It was a reminder that the 74-year-old retired chairman of Intel knows from experience how costly and risky manufacturing can be. Given these challenges, Grove argues, the U.S. government should do far more to nurture manufacturing, or else the country will face dire consequences.
For one thing, losing the ability to manufacture things domestically will make it harder for innovators to scale their ideas into products, he says. Indeed, although photovoltaic technology was invented in the United States, many key innovations in solar power are happening in Asia now, largely because the necessary manufacturing prowess is there. Second, he argues, only manufacturing can meaningfully reduce unemployment. That’s why Grove thinks the United States shouldn’t necessarily focus solely on “high-value” production of advanced technologies; it might also be wise to boost manufacturing of some lower-value goods.
In his BusinessWeek piece, he even called for taxes on goods made overseas, with the resulting revenue to be invested in American manufacturers. Such protectionist measures are unpopular with economists. But Grove remains convinced, as he told technology journalist Robert D. Hof.
TR: What prompted your concern about the decline of U.S. manufacturing jobs?
Grove: The incredible magnitude of job loss in the U.S. computer industry. In the 1970s, the U.S. computer industry had 150,000 workers. This became two million at its peak but now is back to 150,000. Meanwhile, computers went from a $20 billion to a $200 billion industry.
To have that happen and for us to continue to repeat the mantra that innovation and technology will save us, in the face of evidence to the contrary—that was why I wrote about this.
Aren’t automation and other productivity improvements major reasons for this decline in factory jobs?
No. Notwithstanding productivity, most of those jobs still exist—just not here. You can correlate what happened in the U.S. completely to the rise of contract manufacturing [in which a company like Apple designs a product and hands off the production to another company]. One company accounts for 1.1 million computer manufacturing jobs—China’s Foxconn.
Isn’t it simply cheaper to manufacture in China?
First of all, try to find an analysis that tells how much cheaper. You can probably get whatever answer you want, depending on the assumptions you make. Is the local supply chain saving cost? How much of your support costs [expenses related to manufacturing, such as those incurred in product design or engineering] do you assign to labor in foreign countries? How much of the benefit of moving a plant offshore is from tax benefits from the host country?
The received wisdom is that “everybody knows manufacturing in the U.S. is dead.” If you believe those things and act on them, they’re going to be true. I think venture investments are influenced by the “everybody knows” factor before the first spreadsheet is run. And if you don’t get the money to scale manufacturing here, you won’t do it. And if you don’t do it, your suppliers won’t move to the United States either.
Do any other industrialized countries provide clues to how the United States might boost at least some kinds of manufacturing?
Germany managed—in complete contrast to the U.S.—to hold on to manufacturing and move it upscale. So they do precision manufacturing, like Mercedes. Siemens produces high-end imaging products and power technology. It’s not that Germany has no problems. It’s just that employment is not among them.
For that to be more feasible in the U.S., what needs to occur here?
I think the biggest enemy of manufacturing in the U.S. is the pseudo-knowledge that America is a bad place for manufacturing. This perception will keep manufacturing from happening and thereby ensure that the reality will fulfill the prophecy. I think for every example where companies, states, cities, governmental agencies do well on this issue, our government should find ways of drumming it into the consciousness of people who are considering building a plant or who are ready to enter a career which is not manufacturing-based. It is probably best to look at this as a major brand campaign.
You don’t sound confident that the U.S. will recapture manufacturing jobs.
I think all of this is going to happen, but it will happen too late. In World War II, American manufacturing won the war, but even then, it took them two years to get moving, and that was a different world. I don’t know any way to break the cycle except to plug away and create enough successes that you begin to raise doubts about the conventional wisdom.