The French Fry and the Polluted Sky

Last month at bloomberg.com, Andy Grove offered his perspectives on innovation and job creation and America’s failure to link the two. (See “How to Make an American Job Before It’s Too Late.”) Grove led Intel to global dominance in the microprocessor market, and he’s uniquely qualified to talk about the conditions that have stunted American growth and driven job creation off-shore.

Fries, by Karin Hearn

Earlier this year, in a typical exercise in editorial bloviation, the pompous Thomas Friedman, a high priest in the cult of the entrepreneur, belittled the bail-outs and by inference any proto-Keynesian impulses from the left. Bail-out money would have been better spent on start-ups, Friedman suggests. Grove destroys the nonsensical position that the government should back start-ups while commodity manufacturing should be allowed to die. No matter what Mr. Friedman says, our faith in start-ups as little job creation engines is misplaced. Long experience in Silicon Valley informs Grove’s argument that shipping jobs overseas to avoid rising costs stateside is a chump’s game.

As time passed, wages and health-care costs rose in the U.S., and China opened up. American companies discovered they could have their manufacturing and even their engineering done cheaper overseas. When they did so, margins improved. Management was happy, and so were stockholders. Growth continued, even more profitably. But the job machine began sputtering.

Back in the day, Intel converted its intellectual capital to manufacturing muscle by scaling up for production and creating jobs. These jobs cost Intel about $650 each–$3,600 in today’s dollars adjusted for inflation. Today, while the money invested in companies has grown enormously, far fewer jobs are produced. Grove estimates Silicon valley job creation costs now at about $100,000 per job. The reason is that over ninety percent of the jobs are farmed out to offshore manufacturing plants. Apple, for example, has 25,000 US employees (including, I assume, the nimrods behind the “Genius Bar” at your local Apple retail outlet). Meanwhile, in southern China, 250,000 Foxconn employees are busy manufacturing Apple products.

The US undervalues manufacturing. Ideologues like Friedman have been touting the “service (would you like fries with that?) economy” for years, placing a premium on “knowledge work” and ignoring the fate of factory workers and their jobs. The social costs of deteriorating infrastructure are ignored. The decisions to build new plants are based on financial statements.

Photo by Lawrence Sinclair

The profit motive has forced jobs offshore for a lot of reasons. Grove is less than forthcoming about Silicon Valley’s open secret, the environmental costs associated with making chips and circuit boards. The point isn’t central to his concern; but, by the eighties it was clear that the San Jose area would soon be awash in a sea of heavy metals and carcinogenic compounds if something wasn’t done. One of the quick and dirty solutions was to send our pollution offshore with our jobs.

Grove dares to question the conventional wisdom that the free market is “the best economic system.” He says, “Long term, we need a job-centric economic theory–and job-centric political leadership–to guide our plans and actions.” He’s lobbying for the country to “rebuild our industrial commons.” How can we get that done?

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cross posted at Classwar