(Ex) Titans of Industry Against Free Trade Fundamentalism

Intel founder Andy Grove calls for a serious re-examination of our trade and industrial policies

Former Intel chief Andy Grove has an extremely important piece in Bloomberg BusinessWeek this week on how Silicon Valley and politicians have sold out American manufacturing, writing that “plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.”

This is anti-Tom Friedmanism— a refutation of free-trade fundamentalism.

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?

Grove namechecks the New York Times columnist to slap at him, and you can bet another wrongheaded (as usual) Friedman column from March on Intel’s current CEO fueled the fire here.

Look, it’s no accident that the era of corporate dominance has coincided with a hollowing out of the American labor force, and free trade is one part of a multifront war on labor that has included a concerted attack on unionization and lax immigration enforcement.

Free trade for the modern “American” multinational is about arbitrage: Environmental arbitrage. Labor arbitrage. Regulatory arbitrage. Tax arbitrage. Hell, press arbitrage. You think Apple and Dell and all those folks would have been able to keep their atrocious working conditions (yes, I’m considering companies responsible for their outsourced labor) as hidden in the U.S. as long as they did with Foxconn in China?

If you follow it to its logical conclusion, the stagnation of American workers’ wages won’t stop until it reaches a sort of equilibrium with those of workers in countries like Indonesia. That may be okay for Megan McArdle guest blogger Katherine Mangu-Ward (“If anything, jobs are likely to be gained when an industry moves to China, where more aspects of the manufacturing and assembly process are done by hand. They just won’t be created here. If that’s your focus, you have to make the case that American jobs are intrinsically better or more valuable than Chinese jobs), but it’s not with me or with 90 percent of the country.

Remember how CNN’s Bob Franken got in trouble, rightly, for saying that he was a “citizen of the world”? Intel’s CEO and Tom Friedman can spew this stuff and few bat an eye:

Intel can thrive today — not just survive, but thrive — and never hire another American. Asked if his company was being held back by weak science and math education in America’s K-12 schools, Otellini explained:

“As a citizen, I hate it. As a global employer, I have the luxury of hiring the best engineers anywhere on earth. If I can’t get them out of M.I.T., I’ll get them out of Tsing Hua” — Beijing’s M.I.T.

Unfortunately, Otellini is the current CEO of Intel, not Andy Grove.

But Grove makes a pretty good op-ed writer, and we need those, too (believe me—you read the WSJ or Washington Post edit pages lately?). I’ve never seen this stat before, have you?

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 (AAPL), Microsoft (MSFT), Dell (DELL), or Intel. Foxconn employs over 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard (HPQ), Intel, and Sony.

Grove argues that the U.S. is forfeiting its long-term economic health to short-term profit-seeking:

How could the U.S. have forgotten (how to scale manufacturers)? I believe the answer has to do with a general undervaluing of manufacturing—the idea that as long as “knowledge work” stays in the U.S., it doesn’t matter what happens to factory jobs. It’s not just newspaper commentators who spread this idea. Consider this passage by Princeton University economist Alan S. Blinder: “The TV manufacturing industry really started here, and at one point employed many workers. But as TV sets became ‘just a commodity,’ their production moved offshore to locations with much lower wages. And nowadays the number of television sets manufactured in the U.S. is zero. A failure? No, a success.”

I disagree. 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.

And he calls for a tax on imports to fund the rebuilding of our manufacturing capacity:

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 wars—fight 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 adaptability—and stability—we may have taken for granted.

This is about as heretical as you can get. And it’s the cover story of BusinessWeek. This is something that would make heads explode at Fortune or Forbes. Here’s hoping it sparks a re-evaluation.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.