6 ms·

Is the U.S. tech industry oiling its own guillotine?

20 points by dfox 16y ago

davidw 16y ago
Here's economist Tyler Cowen's response, which was a good one: http://www.marginalrevolution.com/marginalrevolution/2010/07/the-andy-grove-essay.html http://www.marginalrevolution.com/marginalrevolution/2010/07...
- dfa 16y ago
  I know economists still have soft spots in their hearts for Smith and Ricardo, but how, in 2010, could anyone honestly cite comparative advantage in support of free trade when the markets for land, labor, and capital have gone global? No nation has an inherent advantage over any other in producing a particular good or service. The idea that we should specialize in producing what we're best at producing and trade for everything else makes less sense in a world where raw materials can be mined in Africa, refined in India, and assembled into a finished product by workers in China to be sold abroad at a 98% markup by a multinational corporation. All too often the primary "comparative advantage" other nations have over us is their lax labor and environmental regulation. And even if we were to follow the tenets of free trade and specialize in what we're best at, what, again, would that be? Economists told us that high-tech jobs would replace the outgoing manufacturing ones. What will replace the high-tech jobs? I also thought it was amusing to see Tyler suggest that we could learn something from those countries in East Asia eating our lunch. Apparently he is unaware that those countries all have neomercantilist systems that favor exports over imports, encourage personal saving, and discourage consumption. As for the original article, the claim that no nation ever got rich by engaging in protectionism is ridiculous. The US pursued a protectionist trade policy from its inception (The American System) up until Smoot-Hawley and even then continued to and still continues to in certain sectors (see the US Sugar Program as a prime example). Great Britain became the most powerful empire on Earth while engaging in protectionism, starting with the infamous Navigation Acts. This is not to say that America and Britain became prosperous because of protectionism, only that it is not as absolutely fatal to an economy as some suggest. Thriving European countries today engage in protectionism against us by putting a VAT on American exports. Lastly, though this post may have seemed like a defense of protectionism, it isn't. The problem with protectionism is that its antonym is not "free trade" but "free markets." Doctors, lawyers, dentists, and many other white collar professionals enjoy immense economic protection in our system. Rather than adding even more, on behalf of engineers, why not reduce the protection of other professions? If people stopped seeing society throw engineers to the wolves of the market while guaranteeing doctors, lawyers and others comfortable, upper-middle class lifestyles, more people might go into engineering.
  - davidw 16y ago
    You make some good points. However: > No nation has an inherent advantage over any other in producing a particular good or service. Which is why we drink so much Norwegian wine here in Italy lately. I think your claim is overly broad.
  - korch 16y ago
    Bingo! You're completely right. I cringe whenever I see someone drag out Ricardo's comparative advantage BS, dating from the 1800's. Economics, as it is taught in the schools, opposed to the real world of business, is mostly fiction. Sure, you can demonstrate the validity of comparative advantage on paper using a simple matrix of Guns & Butter, and because it's so simple we get all these Randroids who believe they understand how the world truly works through the lens of basic freshman level math. But these Macroecon textbooks are also wearing the kid gloves for the benefit of innumerate undergrads in order to pass off an illusion as scientific fact. (Econ is the dismal science after all). Instead, let's scale the Guns & Butter matrix up to 1,000,000 variables, which is still embarassingly low compared to the complexity of real life, and let's add a time dimension too. Now just try to find the fucking comparative advantage! Good luck even finding the eigenvalues of that matrix before the heat death of the Universe. And if you happen to get lucky and find some minimum, you won't be able to know if it's global or if you're going to be wandering around in a false local minimum for eternity. Faced with this kind of uncertainty, your smartest evolutionary move is to grab whatever you can buy or sell and defend it within your territory. Period. Ricardo's theorem is to economics as play-dough is to architecture. I often amuse myself by wondering this: what if our entire idea that our post-modern global society has transitioned to free trade and free markets is a delusion, a folie a deux, a cynical ploy by the rich & powerful to control everyone, and in fact historical mercantilism is still the basis of global political economy? Just look at the balance sheet of the Federal Reserve sometime and ask yourself if hoarding currency is still the primary determinant of a nation's wealth? Sure, we've changed the language we use to describe it, we've changed the playing field itself, added incomparable technology, and re-shuffled the boundaries and identities of nations through a few world wars, all underneath an expanding teleological architectonic of democracy and freedom around the world, but ultimately everything is still the same basic pattern being played out across the nations. Hoard currency! Perhaps mercantilism & protectionism is the only Game theoretic dominant economic strategy for any nation or collective group?
- kls 16y ago
  He has one problem with his argument, he brought Germany into the equation which is a bad example. Germany has some of the most stringent manufacturing protection policies in the first world. Not to long ago they went after Nokia for "caravan capitalism" for moving manufacturing bases from Germany to Romania. Germany is probably the most piss poor example one could use to strengthen their anti-protectionism argument. They are protectionist (in actions not in words) and they are doing the best through this whole mess.
- binaryfinery 16y ago
  FTLA: "Those results are not definitive, and might be wrong, but so far they're better than anything Grove serves up." If they are wrong, how are they better exactly? Fact: the Global Market makes a ton of money for the ultra rich, and screws the poor. That this is happening is simply because they now have the anti-personel weapons to defeat a civilian population should it try to revolt.
  - davidw 16y ago
    [citation needed] Also, if I may, that sort of commentary is exactly what fuels the "HN is going the way of reddit" posts, and a good example of why it's best we simply avoid articles like these on economics/politics.
skowmunk 16y ago
I would agree with Grove's anslysis of the problem and that loss of manufacturing technology leadership will give lead to eventual loss of technology leadership itself, because manufacturing technology is a critical component of high end technology. Its like giving off potential competitors some of your chips, not realizing that those chips might enable your competitors to get more chips in the future, enough to give you more serious competition. But at the same time, the solution he suggests could backfire very badly. If it were a case where the US was the only technology leader, then protectionism could have been possibly used to re-establish local manufacturing. But thats not the case, there are competitiors there too, japan, Korea, Taiwan, not to mention China. If the US does resort to protectionism, it would put at stake the massive revenues that american companies are getting from foreign markets. For many of the top American companies, the foreign markets are the fastest growing markets and in many, they have started being more than 50% of revenues. The moment American companies start being 'idealistic' or the government starts protectionistic, that would set american companies at a massive disadvantage in foreigh markets. Japanese, Korean, Taiwanese and Chinese companies would be more than willing to take advantage of those disadvantages that American companies would face. The evntual losers would be the investors in American companeis, that includes the multitudes of Americans who invest in them through pension funds, mutual funds, 401s, etc. Of course, they will lose in other wasy if they keep losing the manufacturing jobs too. This is like a highly complex Game theory scenario with multiple players, multiple possible strategic moves, with gains and losses for each move. A simplistic or idealistic answer would not solve it I think what the Gates foundation is doing, spending on education to increase the supply of more highly qualified people within the US, in the future, is definitely a move in the right direction. As for Grove, I think he is just doing his best to serve his masters the best. Earlier his masters were the investors in Intel, so he was making sure that it was profitable and keeps surviving. Now, that he no longer has to serve those previous masters, he has decided to serve his primary master, the USA of which he is a citizen (Please note, my use of the words 'masters' and 'serving' is not meant to be derogatory, he is just doing his patriotic duty now that there is no conflict with his corporate duties. I am not going to judge him based on that, life is not black and white, and he still remains very high in my list of idols.)
- sprout 16y ago
dmethvin 16y ago
> In that speech [Andy Grove] decried the U.S. patent system, explaining that in the early days of the transistor there was much more cross-licensing of patents and a greater spirit of companies building upon the same technologies -- even among fierce competitors. At the time, however, the largest consumer of electronics was the U.S. government. They required second-sourcing of just about every electronic component they purchased. Intel had to share its technology to get that business. Do you think Intel would have licensed x86 to AMD otherwise? Once Intel got powerful enough they tried to go back on that deal, but the courts ruled for AMD. Even back then it was about money.
lefstathiou 16y ago
I've had this nacent idea percilating in my mind that in our lifetime we are going to see the (economic) separation of American industry from the American homeland. If we look at it from a nationalistic perspective (ie America versus the world) then yes, America has much to lose if it cant get it's shit together and thus has to resort to protectionism (which ultimately will fail). If we look at it from the corporate perspective, American companies have everything to gain from continued globalization, assuming they have free access to these markets. What's the big deal of Intel engineers in California design chips manufactured by Intel engineers in Vietnam? At the end of the day this is still Intel. We see this phenomenon playing out more dramatically as many of America's leading firms (in Finance, Energy, Tech) are pulling in tremendous amounts of money while the Nation is engaging in historic trade deficits. Long term, this has fairly dangerous implications because the interests of your nation should coincide with the long term interests of its corporations. When this fails, I can see some of these super multi-jurisdictional firms making a case for why they should no longer be "American" corporations. Coming from the Finance industry, there really is no reason why I have to be in NYC to do what i do. I could do it in Hong Kong where there is 15% income tax or Dubai where I hear it's even less. In that case, I win, America loses. These are dark times...
dasil003 16y ago
Look at the factors that made America prosperous in the post-war period: most industrialized nations in ruins, huge land and natural resources, long-term instability in latin america, big demand for semi-skilled labor, etc. We were living in a fairy tale scenario. No wonder a factory worker could buy a nice house in the 'burbs for his wife and 3 kids and drink scotch every night. All this hand-wringing about how to get back to that is fundamentally misguided. We're not slipping, it's just that our most significant advantages have evaporated, and we are used to a certain standard of living that is an order of magnitude above what the developing world expects. We still have cards to play, but eventually we will have to compete with developing countries and accept the devaluation of our work.
supahfly_remix 16y ago
Manufacturing is bad for the environment, and I think US environmental regulation is partly to blame for the decline of manufacturing in the US. I, for one, am happy with this tradeoff, but I think any discussion about manufacturing should acknowledge this.

20 points by dfox 16y ago

Here's economist Tyler Cowen's response, which was a good one: http://www.marginalrevolution.com/marginalrevolution/2010/07/the-andy-grove-essay.html http://www.marginalrevolution.com/marginalrevolution/2010/07...

dfa 16y ago
I know economists still have soft spots in their hearts for Smith and Ricardo, but how, in 2010, could anyone honestly cite comparative advantage in support of free trade when the markets for land, labor, and capital have gone global? No nation has an inherent advantage over any other in producing a particular good or service. The idea that we should specialize in producing what we're best at producing and trade for everything else makes less sense in a world where raw materials can be mined in Africa, refined in India, and assembled into a finished product by workers in China to be sold abroad at a 98% markup by a multinational corporation. All too often the primary "comparative advantage" other nations have over us is their lax labor and environmental regulation. And even if we were to follow the tenets of free trade and specialize in what we're best at, what, again, would that be? Economists told us that high-tech jobs would replace the outgoing manufacturing ones. What will replace the high-tech jobs? I also thought it was amusing to see Tyler suggest that we could learn something from those countries in East Asia eating our lunch. Apparently he is unaware that those countries all have neomercantilist systems that favor exports over imports, encourage personal saving, and discourage consumption. As for the original article, the claim that no nation ever got rich by engaging in protectionism is ridiculous. The US pursued a protectionist trade policy from its inception (The American System) up until Smoot-Hawley and even then continued to and still continues to in certain sectors (see the US Sugar Program as a prime example). Great Britain became the most powerful empire on Earth while engaging in protectionism, starting with the infamous Navigation Acts. This is not to say that America and Britain became prosperous because of protectionism, only that it is not as absolutely fatal to an economy as some suggest. Thriving European countries today engage in protectionism against us by putting a VAT on American exports. Lastly, though this post may have seemed like a defense of protectionism, it isn't. The problem with protectionism is that its antonym is not "free trade" but "free markets." Doctors, lawyers, dentists, and many other white collar professionals enjoy immense economic protection in our system. Rather than adding even more, on behalf of engineers, why not reduce the protection of other professions? If people stopped seeing society throw engineers to the wolves of the market while guaranteeing doctors, lawyers and others comfortable, upper-middle class lifestyles, more people might go into engineering.
- davidw 16y ago
  You make some good points. However: > No nation has an inherent advantage over any other in producing a particular good or service. Which is why we drink so much Norwegian wine here in Italy lately. I think your claim is overly broad.
- korch 16y ago
  Bingo! You're completely right. I cringe whenever I see someone drag out Ricardo's comparative advantage BS, dating from the 1800's. Economics, as it is taught in the schools, opposed to the real world of business, is mostly fiction. Sure, you can demonstrate the validity of comparative advantage on paper using a simple matrix of Guns & Butter, and because it's so simple we get all these Randroids who believe they understand how the world truly works through the lens of basic freshman level math. But these Macroecon textbooks are also wearing the kid gloves for the benefit of innumerate undergrads in order to pass off an illusion as scientific fact. (Econ is the dismal science after all). Instead, let's scale the Guns & Butter matrix up to 1,000,000 variables, which is still embarassingly low compared to the complexity of real life, and let's add a time dimension too. Now just try to find the fucking comparative advantage! Good luck even finding the eigenvalues of that matrix before the heat death of the Universe. And if you happen to get lucky and find some minimum, you won't be able to know if it's global or if you're going to be wandering around in a false local minimum for eternity. Faced with this kind of uncertainty, your smartest evolutionary move is to grab whatever you can buy or sell and defend it within your territory. Period. Ricardo's theorem is to economics as play-dough is to architecture. I often amuse myself by wondering this: what if our entire idea that our post-modern global society has transitioned to free trade and free markets is a delusion, a folie a deux, a cynical ploy by the rich & powerful to control everyone, and in fact historical mercantilism is still the basis of global political economy? Just look at the balance sheet of the Federal Reserve sometime and ask yourself if hoarding currency is still the primary determinant of a nation's wealth? Sure, we've changed the language we use to describe it, we've changed the playing field itself, added incomparable technology, and re-shuffled the boundaries and identities of nations through a few world wars, all underneath an expanding teleological architectonic of democracy and freedom around the world, but ultimately everything is still the same basic pattern being played out across the nations. Hoard currency! Perhaps mercantilism & protectionism is the only Game theoretic dominant economic strategy for any nation or collective group?
kls 16y ago
He has one problem with his argument, he brought Germany into the equation which is a bad example. Germany has some of the most stringent manufacturing protection policies in the first world. Not to long ago they went after Nokia for "caravan capitalism" for moving manufacturing bases from Germany to Romania. Germany is probably the most piss poor example one could use to strengthen their anti-protectionism argument. They are protectionist (in actions not in words) and they are doing the best through this whole mess.
binaryfinery 16y ago
FTLA: "Those results are not definitive, and might be wrong, but so far they're better than anything Grove serves up." If they are wrong, how are they better exactly? Fact: the Global Market makes a ton of money for the ultra rich, and screws the poor. That this is happening is simply because they now have the anti-personel weapons to defeat a civilian population should it try to revolt.
- davidw 16y ago
  [citation needed] Also, if I may, that sort of commentary is exactly what fuels the "HN is going the way of reddit" posts, and a good example of why it's best we simply avoid articles like these on economics/politics.

skowmunk 16y ago

I would agree with Grove's anslysis of the problem and that loss of manufacturing technology leadership will give lead to eventual loss of technology leadership itself, because manufacturing technology is a critical component of high end technology. Its like giving off potential competitors some of your chips, not realizing that those chips might enable your competitors to get more chips in the future, enough to give you more serious competition. But at the same time, the solution he suggests could backfire very badly. If it were a case where the US was the only technology leader, then protectionism could have been possibly used to re-establish local manufacturing. But thats not the case, there are competitiors there too, japan, Korea, Taiwan, not to mention China. If the US does resort to protectionism, it would put at stake the massive revenues that american companies are getting from foreign markets. For many of the top American companies, the foreign markets are the fastest growing markets and in many, they have started being more than 50% of revenues. The moment American companies start being 'idealistic' or the government starts protectionistic, that would set american companies at a massive disadvantage in foreigh markets. Japanese, Korean, Taiwanese and Chinese companies would be more than willing to take advantage of those disadvantages that American companies would face. The evntual losers would be the investors in American companeis, that includes the multitudes of Americans who invest in them through pension funds, mutual funds, 401s, etc. Of course, they will lose in other wasy if they keep losing the manufacturing jobs too. This is like a highly complex Game theory scenario with multiple players, multiple possible strategic moves, with gains and losses for each move. A simplistic or idealistic answer would not solve it I think what the Gates foundation is doing, spending on education to increase the supply of more highly qualified people within the US, in the future, is definitely a move in the right direction. As for Grove, I think he is just doing his best to serve his masters the best. Earlier his masters were the investors in Intel, so he was making sure that it was profitable and keeps surviving. Now, that he no longer has to serve those previous masters, he has decided to serve his primary master, the USA of which he is a citizen (Please note, my use of the words 'masters' and 'serving' is not meant to be derogatory, he is just doing his patriotic duty now that there is no conflict with his corporate duties. I am not going to judge him based on that, life is not black and white, and he still remains very high in my list of idols.)

sprout 16y ago

dmethvin 16y ago

> In that speech [Andy Grove] decried the U.S. patent system, explaining that in the early days of the transistor there was much more cross-licensing of patents and a greater spirit of companies building upon the same technologies -- even among fierce competitors. At the time, however, the largest consumer of electronics was the U.S. government. They required second-sourcing of just about every electronic component they purchased. Intel had to share its technology to get that business. Do you think Intel would have licensed x86 to AMD otherwise? Once Intel got powerful enough they tried to go back on that deal, but the courts ruled for AMD. Even back then it was about money.

lefstathiou 16y ago

I've had this nacent idea percilating in my mind that in our lifetime we are going to see the (economic) separation of American industry from the American homeland. If we look at it from a nationalistic perspective (ie America versus the world) then yes, America has much to lose if it cant get it's shit together and thus has to resort to protectionism (which ultimately will fail). If we look at it from the corporate perspective, American companies have everything to gain from continued globalization, assuming they have free access to these markets. What's the big deal of Intel engineers in California design chips manufactured by Intel engineers in Vietnam? At the end of the day this is still Intel. We see this phenomenon playing out more dramatically as many of America's leading firms (in Finance, Energy, Tech) are pulling in tremendous amounts of money while the Nation is engaging in historic trade deficits. Long term, this has fairly dangerous implications because the interests of your nation should coincide with the long term interests of its corporations. When this fails, I can see some of these super multi-jurisdictional firms making a case for why they should no longer be "American" corporations. Coming from the Finance industry, there really is no reason why I have to be in NYC to do what i do. I could do it in Hong Kong where there is 15% income tax or Dubai where I hear it's even less. In that case, I win, America loses. These are dark times...

dasil003 16y ago

Look at the factors that made America prosperous in the post-war period: most industrialized nations in ruins, huge land and natural resources, long-term instability in latin america, big demand for semi-skilled labor, etc. We were living in a fairy tale scenario. No wonder a factory worker could buy a nice house in the 'burbs for his wife and 3 kids and drink scotch every night. All this hand-wringing about how to get back to that is fundamentally misguided. We're not slipping, it's just that our most significant advantages have evaporated, and we are used to a certain standard of living that is an order of magnitude above what the developing world expects. We still have cards to play, but eventually we will have to compete with developing countries and accept the devaluation of our work.

supahfly_remix 16y ago

Manufacturing is bad for the environment, and I think US environmental regulation is partly to blame for the decline of manufacturing in the US. I, for one, am happy with this tradeoff, but I think any discussion about manufacturing should acknowledge this.