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Andy Grove: How To Make An American Job Before It's Too Late

• Aaronontheweb 16y ago
  Andy makes an excellent point: when we outsource the manufacturing and scaling processes to another country, what we lose in addition to jobs are the innovations and experience necessary to maintain a strong defensive econosystem with respect to our economy. However, I disagree with Andy's recommendation that we should tax offshore labor - we should focus on making labor in the United States less expensive. Neuter the Department of Labor, get rid of labor regulations with heniously expensive and obnoxious unintended consequences like the mandatory 8-hour work day in California, eliminate the concept of wrongful termination, and put a muzzle on the EPA. Negative incentives aren't the way to go to encourage job creation. Make the climate more hospitable for large businesses within the U.S. instead.
  • ovi256 16y ago
    >Neuter the Department of Labor, get rid of labor regulations with heniously expensive and obnoxious unintended consequences like the mandatory 8-hour work day in California, eliminate the concept of wrongful termination, and put a muzzle on the EPA. Enjoy your third world working conditions. But you are an executive and/or a shareholder, are you not ?
    • ja30278 16y ago
      Enjoy _your_ third world economy, free from pesky pollutant-causing industry and manufacturing. The poster has correctly identified the value proposition that causes companies to locate their manufacturing facilities elsewhere, and points out (also correctly) that making our tax codes as unfriendly to business as our labor laws will only encourage _those_ bits of the business to relocate as well. You cannot have all of: * high wages for manufacturing workers * cheap products for consumers * high taxes on business * large profits that make it attractive to operate a company. You would probably respond by saying that you'd prefer higher priced products and low-profit corporations, to which I'd reply that: * cheap products for consumers = higher standard of living. * higher profit potential = more business growth.
      • Hubbert 16y ago
        * cheap products for consumers = higher standard of living. IIRC, consumer products are about 18% of a typical household budget. Housing, healthcare, and education are the majority. For the millions now with ZERO income, even Chinese-made Wal*Mart crap is unaffordable. Yet the unionized workers of the 1950s - 1970's somehow purchased cars, household products, and clothing like domestically-made Levis blue jeans WITHOUT slave labor from repressive countries and without borrowing trillions fro those same countries. I will gladly trade somewhat higher consumer prices for confidence that I will be employable in safe conditions at a middle-class wage for the duration of my normal working life. And I'm very pro-manufacturing: but the environmental externalities must be mitigated and properly priced: my health is very valuable to me, even if there's no clear market price for it.
        • cageface 16y ago
          Yet the unionized workers of the 1950s - 1970's somehow purchased cars, household products, and clothing like domestically-made Levis blue jeans WITHOUT slave labor from repressive countries and without borrowing trillions fro those same countries. That was only possible because that time period was a window in which our technological superiority made it possible to provide the average working man with that standard of living. That period is coming quickly to a close.
          • Hubbert 16y ago
            Uh, no. Aside from petroleum issues, it was a SUSTAINABLE CLOSED SYSTEM of trade among similarly-developed countries with similar standards. This could continue even if innovation had suddenly stopped in 1985. Far more sustainable than the present, which involves unsustainable personal debts, unsustainable trade deficits, and unsustainable federal borrowing. But please note that CENTRAL POINT OF THE ARTICLE explains WHY our technological superiority lessened, rather than moving exponentially further ahead.
            • cageface 16y ago
              Uh, no. Aside from petroleum issues, it was a SUSTAINABLE CLOSED SYSTEM of trade among similarly-developed countries with similar standards. This could continue even if innovation had suddenly stopped in 1985. It's only a closed system if you ignore the resources and cheap bottom-tier labor the first world extracted from the third world at a fraction of their potential value. The U.S. in particular was very active in this time period propping up puppet regimes around the third world in order to get cheap access to their raw materials and labor. The world has never been a closed system.
  • rbranson 16y ago
    Oh yes, the EPA and Department of Labor, with their obnoxious "don't fuck up the environment" and "don't treat people like shit" rules. God damn them.
    • donw 16y ago
      Seriously. I mean, when has a private, for-profit corporate entity not been a responsible steward of the environment?
    • anamax 16y ago
      That would be the EPA that is blocking the use of many oil skimmers in the Gulf and forcing the ones that they approve to run at about 1/6th efficiency. And that's the department of labor that is keeping experienced crews from running the skimmers that the EPA approves. I forget which department decided that oil in sensitive wetlands was better than putting up sand berms.
      • cia_plant 16y ago
        Citation?
        • Aaronontheweb 16y ago
          Seriously? Have you been living in a cave for the past two weeks? Try using Google. Ok you know what - I'll do it: The sandberms fiasco was the work of the Fish and Wildlife Service: http://www.wdsu.com/news/23997498/detail.html http://www.wdsu.com/news/23997498/detail.html The "A-Whale" fiasco appears to be a joint fail between the Coast Guard and the EPA - among many other things they've had to sit around and wait for an EPA permit before they can start the work, and now that they're actually in the gulf there are even more problems: http://www.dailypress.com/news/oil-spill/dp-nws-oil-skimmer-20100625,0,3072230.story http://www.dailypress.com/news/oil-spill/dp-nws-oil-skimmer-... http://www.wwltv.com/news/gulf-oil-spill/A-Whale-Of-A-Skimmer-Ready-For-Action-In-BP-Spill-97625959.html http://www.wwltv.com/news/gulf-oil-spill/A-Whale-Of-A-Skimme...
          • 16y ago
  • sanderjd 16y ago
    I'm sorry, I don't think this is the place for a thread that will inevitably devolve into tit-for-tat politics, but I really have trouble stomaching the commentary that the EPA should have less regulatory power over industry when proof of the big-picture bankruptcy of environmental deregulation is current gushing into the gulf at a few tens of thousands of barrels a day. Yes, it raises costs to force industries to comply with environmental protection standards. Yes, this is bad for the short-term of our economy. But we will continue to suffer the consequences of the environmental harm we do, even at the current regulatory levels, and more so with "a muzzle on the EPA".
    • CamperBob 16y ago
      I'm sorry, I don't think this is the place for a thread that will inevitably devolve into tit-for-tat politics, but I really have trouble stomaching the commentary that the EPA should have less regulatory power over industry when proof of the big-picture bankruptcy of environmental deregulation is current gushing into the gulf at a few tens of thousands of barrels a day. This kind of reasoning is tricky, though. Do we shut down the airline industry when a plane crashes? No, we pick up the pieces, study what happened, and move on. The result, over time, is a safety record that almost no rational person could criticize. Nothing made by God or Man will ever be perfect, and that includes deep-sea drilling rigs. If you want to regulate the industry with the goal of making accidents impossible, well, good luck with that.
      • deleted 16y ago
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  • woodrow 16y ago
    While I'll agree that OSHA/EPA are often overzealous when you look at the cost-effectiveness (i.e. dollars spent per statistical life saved), and that labor is expensive, I don't think the rapid abandonment of our standards in a race to the bottom is the solution. The problem is that places like China have low/non-existent standards that are politically acceptable there (or citizens can't say otherwise). This is their comparative advantage -- not accounting for the externalities of their industrial efforts. As Larry Summers said, some countries in Africa are vastly underpolluted. Not great in the long term perhaps, but harmful for western workers competing for the same contracts in the short term. So what do you do? Tarrifs on imported goods to make US production more competitive? Limiting trade to countries that have similar standards regarding externalities? Or is it okay for countries to have low/no work and environmental standards because that's (at least in the beginning) the road to economic development?
    • enjo 16y ago
      Exactly. This is the strong case for tariffs. We need to effectively tax the flow of goods coming into the country for countries who insist on promoting a lower standard. If it costs money to protect workers rights and the environment, then any country doing less should see it's good taxed to make up the difference.
  • dcb 16y ago
    No, Aaronontheweb makes a good point. Of course he's not arguing in favor of environmental disasters or slavery-in-all-but-name. Pay attention to his main point: attack high labor prices here, rather than low prices elsewhere. Andy Grove can be protectionist if he wants, but just because he's not ashamed of it doesn't make it any better of an idea.
    • Hubbert 16y ago
      "High labor prices" = "High wages." THIS MEANS YOU! Unless you are worth >$10M, are retired, or live off a trust fund, admit that you're labor not capital: just like highly paid executives, surgeons, and name-brand attorneys are more "labor:" they generate more earned income than asset income. Go ahead: pull out your 2009 tax return: is the "income from wages, tips, and salaries" greater than the "interest income" and appreciation on your house (ha ha!)? Then you care about WAGES. Stop pretending like you're a Rockefeller: you're not. And your doctor / lawyer / professors / boss aren't either. (If you persist in an unjustified obsession with your assets, HIGHER WAGES are what will drive housing prices up in the long run...compare incomes and housing prices in Palo Alto and Lubbock, TX, and HIGHER WAGES and GROWING MANUFACTURING will help your stock portfolio: do you really want to see GE and Boeing follow GM into bankruptcy?)
      • Hubbert 16y ago
        And since this is YCombinator: it means high wages for YOUR CUSTOMERS to afford YOUR PRODUCT by the MILLIONS. There are only so many Senators and Hedge Fund managers, and they spend their weekends in The Hamptons, not playing with your crappy iPhone game.
        • starkfist 16y ago
          Hedge fund managers do indeed bring their iPhones along to the Hamptons.
          • deleted 16y ago
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  • Hubbert 16y ago
    Aaronontheweb, why wait for government action? Come work at my apartment TOMORROW 16 hours/day for $0.20/hr. I'll try to find a way for you to inhale some heavy metals and asbestos while you work. Imagine the fun of trying to predict whether you will be functionally retarded or die of painful cancer first. Either way, you will die painfully, because I do NOT provide health insurance. Seriously: How did we get from "life, liberty, and the pursuit of happiness" to "drive down everyone's quality life to match the world's most miserable and backward countries?" Aside from technology that hadn't been invented yet, people in the West lived did very well in the late 20th century. Most people who bothered to show up for work had a balanced diet, adequate medical care, and usually a car. And they somehow managed to do it without rampant workplace death, child labor, or rendering the ecosystem uninhabitable for decades[1]. They even had fundamental civil rights like freedom of religion, freedom of speech, freedom of the press. [1] Aside from notable exceptions like Love Canal, etc. But I see that as largely the result of ignorance; we now have a better understanding of the impacts of our behavior on the place we LIVE.
    • sitmaster 16y ago
      This post is silly. No one is forced to work at an unsafe job for any given wage. The job of the government should not be to say "you can only work for this long, for this wage, under these conditions." Shouldn't that question be up to the would-be employee? And you're not as clever as you think bringing up asbestos. You're far more likely to die in a fire because your building had its asbestos replaced with shitty fireproofing than from the cancer that asbestos can cause.
      • Hubbert 16y ago
        We all need income to SURVIVE, and indeed FORCED to take the market wage for our labor. The question is whether the market wage will tend toward "Modern Western Wage" or "Communist Slave Wage." Current trade and industrial policies favor the latter.
        • sitmaster 16y ago
          But the government cannot, by fiat, deem that people should make "Modern Western Wage" because some people's work is not worth that much. Forcing wages to be at that level causes more problems than it solves (i.e. massive offshoring). Minimum wage laws, workplace safety laws, environmental standards, etc, all raise the cost of doing business and make it so only people whose work is worth "Modern Western Wage" can be employed. The whole point is that "Current trade and industrial policies" favor the former ("Modern Western Wage"), not the latter, which is what is causing the problems in the US. Did you read the article?
  • donw 16y ago
    Have you actually ever been to an industrialized country that lacks an equivalent of the EPA and OSHA? Go to Beijing, and enjoy the brown air, which is pretty unbreathable on the bad days, and just moderately smelly on the good ones. Whatever you do, don't drink the tapwater, because it'll make even local residents sick. Don't go for a swim in the river, either. Be careful near construction sites; there are gaping holes with no signs, and if you fall into one and break your leg, tough. Also, if there's construction only on the higher floors of a building, slag from welding may rain down onto your head. Unless you're well-connected, don't even think about getting the construction firm to pay for your medical bills. If you're a woman and your boss rapes you, and you're not connected, that's too bad. If you're a man and your boss rapes you, and you're not connected, that's even worse. Californa's labor practices and tax laws aren't ideal, but I'd much rather work in California than China.
    • lionhearted 16y ago
      > Go to Beijing... brown air... sick... gaping holes with no signs... break your leg... welding rain down on your head... boss rapes you and you're not connected, that's too bad... Dude, I was in Beijing two months ago. It's not like you make it out to be. Actually, it's a hell of a lot nicer than Detroit. In fact, I was in China five years ago and again two months ago. It's trending upwards quickly - the pollution was near unbearable five years ago and is rapidly improving. Infrastructure is improving. Air and water quality are improving. The country is gradually politically liberalizing... almost everything is improving in China quickly. Scary quickly, actually. Over the last 10 years, China is trending upwards quickly and the USA and trending downwards slowly... you might prefer living in Washington D.C. to Beijing right now (but would you, really?)... but you almost certainly won't prefer D.C. to Beijing in 10 years unless something changes.
      • nl 16y ago
        In fact, I was in China five years ago and again two months ago. It's trending upwards quickly - the pollution was near unbearable five years ago and is rapidly improving. Infrastructure is improving. Air and water quality are improving All of these things are because of deliberate government policies. I'm sure you know this, but it's worth pointing out. I think you & donw are agreeing with each other here - he's just underestimating how quickly the Chinese government acted to fix what was becoming a problem.
  • drenkert 16y ago
    What he's saying is we've lost the ability to compete in the current manufacturing game. But that is Manufacturing 1.0. Manufacturing 2.0 incorporates environmental and social standards and companies who don't operate along those principles should be taxed.
  • drenkert 16y ago
    What he's saying is we've lost the ability to compete in the current manufacturing game. But that is Manufacturing 1.0. We need to create and become the leaders of Manufacturing 2.0 which incorporates environmental and social externalities. Companies who don't operate along these principles should be taxed and those monies put toward continuously improving global standards.
  • binaryfinery 16y ago
    You can not make labor in the US as cheap as it is in China because if you did they would not be able to afford food.
    • CamperBob 16y ago
      You can not make labor in the US as cheap as it is in China because if you did they would not be able to afford food. I wonder if that's really true. Food's pretty cheap nowadays.
      • abalashov 16y ago
        Then perhaps the more accurate statement would be that food would be all they'd be able to afford. At that point, options are really, really cheap (and incredibly toxic) fast food, or buying some sort of staple in bulk like rice or grains. And if you don't have a roof over your head, it won't do you much good to spend 2/3rds of your monthly salary on a big bag of rice from Costco.
      • binaryfinery 16y ago
        Even with government subsidized corn, its still not cheap enough. I suppose if we round them all up like we did in the 18th century we could manage it. Put their children to work too. Make them slaves in everything but name. Yes, this is what the founding fathers meant by freedom!
  • vessenes 16y ago
    Actually, Andy is suggesting the same thing, cheapen job creation in the US, although he would do it through inflation, which is always more politically popular than deflation (except among people who live off their accrued wealth). Tariffs on chinese goods would up the cost of those goods to slightly higher than what US-made goods could be sold for. This will create jobs in America as companies create factories here. There will be more jobs, and more money in the economy. On the downside, everything just got a lot more expensive, maybe 50% more. This is inflation. People don't notice it as much as they notice a 33% to 50% wage cut, especially since the most discontented members of society, the un and under-employed are no longer un(der)employed.
• mindblink 16y ago
  An article worth reading for a lot of astute observations. Andy doesn't shy away from making painful points. One of his more striking quotes: "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?" (Actually, my guess is the over-dependency of faith of individual meritocracy will cause us to miss the deeper structural problems that Grove is pointing to.) EDIT: (Anedoctal single point of data with limited context), My friend worked in a Battery startup company in the Silicon Valley. After the initial design phase, the VCs and management decided not scale up into manufacturing, they rather lay most people off and sell the design.
• deleted 16y ago
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• cageface 16y ago
  Mr. Grove correctly identifies the problem but avoids the obvious solution, perhaps because it's too painful to articulate. The phenomenally elevated standard of living that we have enjoyed in the U.S. since the end of WWII just isn't sustainable. The Chinese aren't devouring the tech market because they manage their economy. They're doing so because the Chinese worker will work for far, far less than any American worker. Americans currently still monopolize the high paying design & research job market but there's no reason to expect that Asia will indefinitely play second fiddle here. To put it bluntly - the last decade was the beginning of a painful crash of the American economy back to earth. When we finally do reestablish equilibrium Americans will be back at work at assembly lines. A massive re-investment in hard science education, which seems extremely unlikely, might cushion the blow but there's only so much room for jobs in intellectual capital.
  • alf 16y ago
    Lets also not forget that millions of people in China were starving 30 years ago. The flow of jobs into China pulled 1 billion people out of poverty. This is not insignificant and is not mentioned enough. Americans will go back to work when we get to valuing intelligence and work ethic again. It may take a while.
    • jbellis 16y ago
      The Chinese (and many other nationalities) have intelligence and work ethic in spades. Perhaps you didn't mean that the way it sounded. :)
  • rbranson 16y ago
    This is a good thing. I disagree with your grim outlook about jobs in intellectual capital being a zero sum game though. Innovation begets more innovation. The more well-educated people around the globe that are innovating in ways that increase productivity, the more capital that is freed up to invest in more intellectually-intensive research and development. Hopefully the allocation of intellectual capital into non-productive activity the financial services sector has caused will be short-lived.
• gojomo 16y ago
  He had me up until: 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.) Everybody loses a trade war. And the ensuing impoverishment and desperation can trigger a shooting war.
  • Hubbert 16y ago
    We are currently losing this non-war. The Chinese are playing to win this non-war.
    • hristov 16y ago
      Or to put it in other words, the Chinese are fighting a trade war and we are just pretending this is not happening, and getting our asses kicked.
      • HSO 16y ago
        More likely, Chinese leadership has its own set of problems and what happens to the US is tangential, at most just another factor to consider in complex calculations. They are probably indifferent about whether some particular policy of theirs is "creating" or "destroying" jobs in the US, as long as it has its desired domestic effect. That's a completely different thing from a "war" with its focus on the other side and emphasis on "winning" against the other side. Attitudes like yours are knee-jerk, populist, and likely to make the world a worse place than it already is in the future.
        • juicebox 16y ago
          Call it whatever you want, sweetie. Looking like a duck and quacking like a duck doesn't depend on your silly definition of "war." What China is effectively doing is waging war on the US. Whether we wake up to this fact or not will determine whether the US becomes a nation of the rich in fortified castles sitting amongst the poor and desperate, or whether we return to the American Dream.
    • gojomo 16y ago
• spinchange 16y ago
  I think our elected representatives need to listen a hell of a lot more to guys like this.
• todayiamme 16y ago
  I have a question; does a company only exist to make profits?* Whenever, someone starts a debate like this, or whenever I see a human being slaving away for a pennies in despicable conditions. I have to ask this question. If and only if companies are entities that exist to make more and more money (not wealth) then you will inevitably run into such problems. The companies in the USA outsource that labor to China, or India only for earning more money, but are they creating wealth? By destroying the long-term sustainability of human civilization on this planet (I live a few kms from a few of these factories in India. You have to see in order to believe what they get away with)? By ultimately harming the very source of their wealth through such measures? I have absolutely no idea about the implications of these concepts to make any categorical statement on them, but I think that David Packard and Bill Hewlett may have gotten it right. (see: http://www.jimcollins.com/article_topics/articles/the-hp-way.html http://www.jimcollins.com/article_topics/articles/the-hp-way...) *profits are a pre-requisite to its existence. I want to ask if they exist only to do that?
  • rbranson 16y ago
    The answer is yes. Wealth is the unlocking of human potential through productivity and efficient use of finite resources such as labor and goods. What these companies do is shift costs, not unlocking potential. Luckily for humanity, this is mostly a temporary condition. It only takes a few decades for labor markets to modernize and they will eventually run out of new markets to exploit.
• tylee78 16y ago
  Completely disagree: we need technological paradigm shifts and work our buts off... That was the way to our current standard of living, successfully copied by the East, and it will be the successful path to future growth and industrial/scientific advancement. Not that socialist whiny I need more money and less work attitude a la dying Europe.
• CamperBob 16y ago
  The real elephant in the room, which Grove and practically everybody else knows very well but refuses to talk about, is that nobody starts a company to employ people. People start a company to make stuff. To the extent this can be done with fewer people, this is always a good thing from that company's perspective, with no exceptions I can think of offhand. People suck, and you don't want to deal with them if you can help it. Just as factory farmers would love to be able to grow meat in vats without dealing with the messy parts of animal welfare and husbandry, most managers would love to be able to carry out their missions with fewer people. This is a simple reality of productive life, not a question of social morality or human values. Why does it make sense for companies like Foxconn to take on more and more of our high-tech manufacturing work? Simply because, in contrast to most of the twentieth century, most consumer products are built pretty much the same these days. There is absolutely nothing about a PS3 that requires different components, production lines, or assembly techniques from a desktop PC. There is nothing about an iPhone that justifies building it in a factory that doesn't also make pocket calculators, handheld game consoles, or, hell, competing phones such as Droids. Massive contraction and consolidation of the manufacturing sector, whether here or elsewhere, is both desirable and inevitable. Right now this is true of high-tech items but soon enough, it will be evident enough across the spectrum of durable goods. This wasn't the case when producing a new widget required a lot of custom tool and die work, specialized worker training, or the development of advanced processes unique to that widget. For a drop-dead awesome example of what I'm talking about, look at the processes Tektronix had to develop in the 1960s in order to build CRTs for their oscilloscopes: http://classictek.org/index.php?option=com_seyret&Itemid=100&task=videodirectlink&id=1 http://classictek.org/index.php?option=com_seyret&Itemid... (Flash required) Grove is basically saying we need to start more companies that "scale up" to require factories where people sit doing stuff like what's seen in that video. He's wrong. Today, if I design a better oscilloscope, I'd be out of my mind if I didn't find a way to use the same generic LCD panels that Chinese factories produce by the tens of millions for sale to everyone from Apple to Boeing. And when my hypothetical design is complete, it will use at most one or two custom ASICs (the fewer the better -- I'll use FPGAs if I can), and Foxconn can start building it as soon as they finish their rush order of iPhone 5G Extremes. I have a lot of respect for Grove, but as a captain of industry, he's fighting the last war. His subtextual premise is dead-on, though: we need to figure out how to put 200,000,000 underemployed US workers to good use, or things are going to suck. To me, it's obvious what the future of mass production will look like, but it's not at all clear how to stave off a future where 10% of us are shouldering the entire productivity burden for the rest of the country.
• signa11 16y ago
  > Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution... wow ! just amazing.
• known 16y ago
  Due to Globalization, America will be saturated and will be inhabited by people who will live on http://en.wikipedia.org/wiki/Passive_income http://en.wikipedia.org/wiki/Passive_income
  • mkramlich 16y ago
    When I read your sentence, right before I got to the very end with the link to Wikipedia, I was thinking you were going to end it with something like "soylent green."
    • known 16y ago
      I think privatizing profits and socializing losses will result in passive income society.
    • rationalbeaver 16y ago
      Man, don't eat that stuff. Soylent green is people.
• starkfist 16y ago
  It's interesting to hear this from Andy Grove. Intel of the 1990s was constantly being called out as an abusive workplace, exploiting H1B and "home grown" engineers, then laying them off when they got too old and sending their work overseas. Although I agree with most of his essay, I'm not sure I would want to be an employee in whatever scheme he is envisioning.
  • juicebox 16y ago
    You mean the "scheme" of economic survivability? I didn't read where Grove was proud of how Intel behaved during the '90s. In fact, I got the opposite impression from this article: Grove is writing from the pain and tragedy caused by competing with the Chinese on entirely Chinese terms. Where was the US during those years? Absent. Like a drunk staring into a Vegas slot machine in the wee hours of the morning going through the motions, but not really being there.
    • starkfist 16y ago
      He doesn't go into Intel's part in the whole thing. He mentions asking investors for money to build a fab, that's about it. Regarding his scheme, if his economic stimulus plan means to build a bunch of Intels, people will choose to party on and watch the economy go down in flames. Others in this thread keep talking about "the elephant in the room" but the real elephant in the room is that given other options, almost nobody chooses to work in a factory.
  • _delirium 16y ago
    He doesn't quite come out and say it, but I almost see his own policies as what he's now reacting against. Saying something like: If I were in charge of U.S. policy, I wouldn't allow Intel to do the kinds of things it did when I was in charge of it.
• SkyMarshal 16y ago
  There's another proposed solution to this problem in the form of tax reform - The Fair Tax proposal. IANA Tax Expert, but I like how they've completely rethought the tax system from the ground up, with the objective of making the US a tax haven for all parts of the manufacturing process - harvesting raw materials, milling into useful materials, manufacturing into products, transport, and sales. In a nutshell, there are 'embedded taxes' at every point in the manufacturing chain. Take a simplified semiconductor for example, made of sand, aluminum, and copper: 1. Mine the copper and aluminum, collect the sand (payroll + income + other taxes) 2. Purify it all, mill the copper and aluminum (payroll + income + other taxes) 3. Deliver to fabrication facilities (tax the transport company) 4. Convert sand to silicon wafers, etch the microprocessors into the wafers with the copper and aluminum, package into chips. (more taxes) 5. Transport to OEMs (tax the transport company) 6. Build computers (more taxes) 7. FedEx/UPS to purchaser (more taxes). The consumer ends up paying multiple embedded taxes in the final cost of the product. The Fair Tax folks estimate that these embedded taxes comprise roughly 22% of the cost of the average product manufactured in the US. The Fair Tax would instead remove all the embedded taxes and add them in one lump sum to the final product: 1. Mine the copper and aluminum, collect the sand (no tax) 2. Purify it all, mill the copper and aluminum (no tax) 3. Deliver to fabrication facilities (no tax) 4. Convert sand to silicon wafers, etch the microprocessors into the wafers with the copper and aluminum, package into chips. (no tax) 5. Transport to OEMs (no tax) 6. Build computers (no tax) 7. FedEx/UPS to purchaser (no tax). 8. Consumer pays 23% tax (calculated inclusively, 30% calculated exclusively) on the final product. The final cost to the US consumer is roughly the same, but the incentives are drastically realigned. It becomes much less expensive to make things in the US, and they are only taxed when sold in the US. Products exported overseas would be tax-free to make and sell (except for taxes in the foreign countries). The concept potentially solves all sorts of problems, from our trade balance to illegal immigrants not paying taxes. Definitely worth reading more about for anyone interested: http://www.fairtax.org/ http://www.fairtax.org/ http://www.amazon.com/FairTax-Answering-Critics-Neal-Boortz/dp/0061540463 http://www.amazon.com/FairTax-Answering-Critics-Neal-Boortz/... http://www.amazon.com/FairTax-Solution-Financial-Justice-Americans/dp/1595230602/ http://www.amazon.com/FairTax-Solution-Financial-Justice-Ame...
  • aero142 16y ago
• aero142 16y ago
  I find this line of thinking very disturbing. Mr. Grove follows others in believing a common fallacy, by ignoring secondary effects, and fails to see how issues in macroeconomics affect each other. Where to start... The American standard of living is higher than China. In order for a worker in the US to continue to enjoy his standard of living and salary, she must contribute to creating something of value equal to what she consumes that is then exchanged at a market price(which determines it's value relative to goods/services created by others). When the US is a leader in technology and innovation, we create things that are very valuable, because rare and productive people make them, and trade them for other, largely commoditized goods, from poorer countries. The reason these commoditized goods are produced in poorer countries is because they can... The ability to produce them is well known so there is more competition, and therefor demand, and the price drops, along with the wages. If you work in a factory cheaply, you do so because replacing your skills in that factory is easy. There are many other people with that set of skills to replace you. The value you produce is cheaper, therefor you are paid less and have less to consume . Now, back to Mr. Grove's statements. The factory jobs left the United States because wages were higher here than there. It's that simple, but where he goes wrong is say that "managers were happy", which is not quite as harsh, but very close to the usual line, which attributes the offshoring to "greed". Not quite. If an American company has to produce it's goods in a factory where people make 2x the salary of the same good in China, the goods will cost more to buy. If the American company, doesn't outsource, and a Chinese company is able to produce the same or similar good(think commodity again), then they will be undercut in the market and go out of business. Not only will management be un-"happy", but the US as a whole is worse off because the profits now go to a Chinese company instead of an American one. The US has now lost not only the manufacturing jobs, but the high value add jobs as well. Mr. Groves proposes the "solution" that we tax imports and use the proceeds promote American production. This merely shifts the money around. Those imported goods were cheaper than their American counterpart. Assuming current wages remain the same, it now cost more dollars to purchase that good because of the tariff and American's have less stuff because it is more expensive relative to their salary. The other option(without the tariff), is that the American factory worker cannot find other work that will pay him more, so he agrees to accept lower wages for performing that same job here and can therefor buy less stuff. I believe that these, as a whole, offset one another and are probably net a wash. As for unemployment, I believe that it is caused by many different things, probably many reasons that are poorly understood, but I'll address a few of them that I think are important here. Unemployment can be caused by temporary mismatches between market demands for goods and supply of those goods. Demand changes, prices change, companies don't require as many employees to produce the goods(this can also be caused by changes in the efficiency of production), and people are fired. There may not be a job in their previous line of work. If there is some other skill set which is in demand, that person can learn a new skill and make whatever salary the market demand supports for that skill. It is also possible that the market will not support the workers previous salary. Labor costs go down, but here is where people usually go wrong. When labor costs drop, it becomes affordable to pay people to do things that you might have automated(for a high cost in machinery or software for example). Or, the market might now support the cost of producing a good which must be done with tedious manual labor. Or, if the American worker is more efficient than his Chinese counterpart, then it might be cheaper to start doing manufacturing in the US again. In other words, as wages drop, the unemployment rate will go down, and less will be outsourced. This is just the tradeoff. The fact that jobs are sent to China means that cheaper goods are available here in the US. Mr. Groves states that the trend is towards an economy where there are high value add jobs and high unemployment. This is true only if current wages hold. If wages drop, then outsourcing makes less sense and unemployment picks up. What we really want is lots of high value add jobs here. This comes through innovation, creativity, a highly skilled and motivated workforce and outsourcing production(if it makes sense) to cheaper markets.
• binaryfinery 16y ago
  Hear hear. China manipulates its currency, and so does the US: to keep the rich rich. If we were on the gold standard (not that I'm saying we should be) the dollar would already be worthless and US labor would be competitive. But then Wall Street 20yos wouldn't be able to afford a ferrari. We must either begin enforcing fair trade, and fair employment, or we must face the fact that tens of millions will be unemployed. We cannot support them either. They will not be able to buy the iphones or the xboxes that pay our salaries, and we wont be able to pay our taxes. And do you imagine that they will just starve to death? Or is LA a testbed for containing the lawless future? I do not know what is happening to the USA. It seems as if those who should know better are willfully ignoring the consequences of their actions.
• davidw 16y ago
  I think the 'answer' insomuch as there is one, is not a quick fix, but to educate people in order let them compete for the 'higher level' jobs. 'Making education work better' is a big, long, ugly, hairy and very political topic though.
• meric 16y ago
  Andy Grove is worrying about yesterday's jobs. He shouldn't be. No one was worrying about agricultural jobs disappearing, replaced by manufacturing jobs. As technology advanced, fewer farmers were needed to satisfy the basic needs of the consumer. As their basic needs were satisfied new needs for random widgets, plastic toys and entertainment devices appeared, creating opportunities in manufacturing. Today, service jobs has mostly replaced jobs in manufacturing in developed countries; The amount of service & creative work (e.g giving massages, selling products, and of course inventing the next digital device) output an American worker can produce makes it uneconomical to put the worker in a mundane factory making McDonald's toys instead. As technology advances and robotics replaces even factory workers in developing countries, more labor will be freed up to do other things. As had happened in the past, when the most basic consumer needs are resolved there will always be new needs arising; Where yesterday's consumer demanded shelter, food, clothing and a radio, today's consumer demands cars, houses, artwork, internet, hot water supply and monthly professional haircuts. The circle of increasing supply leading to increased demand and thus increased supply again is a virtuous one.
• BrandonM 16y ago
  I think the core of the problem is the idea of the 40-hour work week. It is inevitable that more and more jobs will become marginalized and automated. That is a good thing: the goal of technological progress should be increased happiness, of which one component is increased leisure time. As more and more jobs require less and less work performed by humans, the obvious solution is to work less hours. Instead of family providers working a total of 60-90 hours per week, they should be working closer to 40-50 in the somewhat-near future, with that number continuing to drop over time. We obviously have 3 possible paths: 1. We return to the single-provider days of old 2. We scale back "normal" hours to be 20-30 hours per week per person. 3. We have high unemployment while many are working 70+ hour weeks. Currently we are going with (3), and it just doesn't make that much sense. Either (1) or (2) would be acceptable to me, but (2) certainly seems more fair. I would love to get to a situation where families get to spend valuable time together and kids are raised by their parents. I think an average of 25 hours per week would hit a nice sweet spot. It would allow companies to have 10-hour work days, either alternating 3/2 10-hour days per week, or 5-hour shifts 5 days a week. Jobs like programming could be designed to have 2 8-hour shifts per week (to perform actual development) along with 3 3-hour shifts (to address meetings, squash bugs, perform customer service, etc.). What is keeping us from this? Instead, we have something like 15-20% of the population overworking themselves while another 15-20% are under- or unemployed. Something's gotta give.
  • c1sc0 16y ago
    Ask the French how reducing the workweek to 35 solved their unemployment problem in the last decade or so.
• robryan 16y ago
  The question is though, is it smarter to use some form of tariffs to create more American jobs, lower the minimum wage, or as a third option accept that Asia can do manufacturing cheaper than anyone else and people will be unemployed, but tax the American companies benefiting most from the outsourcing and redistribute the wealth to the unemployed. Maybe at this point in time you have to accept a high unemployment rate, the problem you have to be careful with I guess is you still want to provide incentive to the people currently in minimum wage positions.
• joubert 16y ago
  Although it is naive, at present, to discount (artificial) national borders (and the patriotic sense people might feel), I look forward to a day when countries no longer exist, similarly to how different regions were amalgamated to form countries and their "national identities".
• vessenes 16y ago
  I'm very interested in extrapolating some of these trends out -- America does not have a social system which allows society as a whole to benefit from GDP growth while jobs are destroyed. My social history tells me that no other countries have been successful at creating such a system either. Whether or not we have such a system, we may well be moving to a world in which the US can continue to increase GDP significantly while unemployment increases (efficiency increases, in other words). Successfully creating a Chinese middle class, and selling them our branded stuff only hastens that eventuality. What happens to all these American unemployed people? In an ideal world, they would be artists and poets, inventors and writers, people who add to our cultural capital. The end-game here would (in my dreams) look a lot like Ian Banks' Culture books -- a utopian society which has moved past 'the age of scarcity'. Unfortunately, right now, places like Saudi are the closest we can look to for a society with, frankly, enough money for everyone. In the interim, we are facing a sort of cultural crisis. America's PDI (Power Distance Index) is middling right now; the PDI describes out comfort with and exposure to, high levels of power differences in society, including wealth. Saudi has one of the highest PDIs in the world, meaning that they as a country haven't solved this problem of building an equitable society based on passive income production; in fact, their society is less equitable than many poorer countries. It is hard to imagine that we are aiming at anything else but a Saudi-ish social system if the GDP growth + unemployment growth trend continues. I say this partly because Americans think of someone who is 'unemployed' as lazy, uneducated, etc. In fact, there's a significant undercurrent of that perspective in this thread. The reality is that if we are able to keep improving productivity while birth rates decline, there will eventually be less work. There might be more money, but there will be less work. How do we deal with that? I don't have a good answer, but I still am part of the problem -- I would much rather spend capital on an automated solution for my business than hire someone.
• _debug_ 16y ago
  Just thinking aloud : please humour me. Since technology is getting robotized, and even Chinese labour is at risk of losing jobs...Organ Farming. If and when the technology matures : You take my cells, convert them to stem cells, and workers help grow a perfect heart / liver / other organ, nudging it along it's growth to perfection. It's like working in an iPhone factory, except, it's really life-saving / preserving.
• hga 16y ago
  WRT to US startups, how relevant is this anymore? I.e. with the exception of sports (in the biological sense) like Tesla (also a big political factor there), what new Intel like startups are going to get the serious funding they require in today's political and economic environment. As far as I can tell, the period of the big VC funded company like DEC or Intel lasted between the late '50s (there's a certain bit of legislation that pushed the concept over the top) to the early '00s, when SarBox was the last straw that ended the game. Pretty much all of us who are here for the startup game are here for the small capital web/Internet/software type of companies. E.g. I don't see where the next FPGA like think is going to come from (well, in the US).
• wslh 16y ago
  It's sad that after a nice article he ends thinking in taxing, it sounds like a lost case when you need taxes to solve the problem! My naive point of view sees lowering lifecost (cheaper real state, health insurance, etc) so people needs less money to live in a good way and costs can go down. That can't be done in Silicon Valley or NYC but thanks to the technology and good transportation can be done in other areas of the country with good planning.
• mattmcknight 16y ago
  He ignores the fundamental problem- the American worker is overpaid. Why would anyone work at the wages of a Chinese laborer when you can make as much money as a Foxconn production line worker ($1.25/hr x 60hr week) in about 10 hours per week at minimum wage here, about 6 hours per week at factory job? We need to find a way to avoid the sticky wage problem, and it will likely involve inflation.