Andrew Grove on Job-Creation

http://www.futureofcapitalism.com/2010/07/andrew-grove-on-job-creation

Intel co-founder Andrew Grove writes in Bloomberg Businessweek:

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

...Some 250,000 Foxconn employees in southern China produce Apple's products. Apple, meanwhile, has about 25,000 employees in the U.S. That means for every Apple worker in the U.S. there are 10 people in China working on iMacs, iPods, and iPhones.

Interesting data. Unfortunately, Mr. Grove then launches into an (increasingly typical for Businessweek) attack on the capitalist system under which he made his fortune:

Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best of all economic systems—the freer the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief, largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.

Such evidence stares at us from the performance of several Asian countries in the past few decades. These countries seem to understand that job creation must be the No. 1 objective of state economic policy. The government plays a strategic role in setting the priorities and arraying the forces and organization necessary to achieve this goal. The rapid development of the Asian economies provides numerous illustrations. In a thorough study of the industrial development of East Asia, Robert Wade of the London School of Economics found that these economies turned in precedent-shattering economic performances over the '70s and '80s in large part because of the effective involvement of the government in targeting the growth of manufacturing industries.

His suggestion: "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.)...If what I'm suggesting sounds protectionist, so be it."

Again, Intel's initial growth that made Mr. Grove his fortune took place without such protective tariffs and even without much government priority-setting. If American companies and entrepreneurs could make it then without a protective tax wall, why can't they do it again now? Mr. Grove writes, "Growing up in the Soviet bloc, I witnessed first-hand the perils of both government overreach and a stratified population." But the population in the Soviet bloc was stratified precisely because of the government overreach; when the government amasses power, that power created the rarely-resisted temptation to reward cronies and punish enemies.

As Richard Tedlow tells it in his biography of Mr. Grove, who was born Andras Istvan Grof, Grof's mother was raped by a Russian soldier. Grof's father, who had been called up to serve in a labor battalion in the Hungarian Army, returned home and reported that on one bitter cold night the Hungarian guards had made the Jews strip naked and climb into trees. Then the guards amused themselves by spraying the Jews with water and laughing as "one after another fell out of the trees frozen to death."

My point here is not to criticize Mr. Grove, whose life story -- at age 20, Grof escaped across the border to Austria, took a train from Vienna to Bremerhaven in Germany, and then a boat to Brooklyn, New York, where he worked his way through City College, changed the spelling of his name to Grove and supported himself in part by working as a summer bus-boy at a New Hampshire resort hotel -- is one of the most amazing and inspiring I have ever encountered.

Mr. Grove is right that government should make job-creation a key goal. But I doubt his prescription of choosing industries ("manufacturing") to favor or prioritize will accomplish that desired goal. What's more, Mr. Grove's article describes jobs as a kind of zero-sum game, in which the gains of making the devices accrue to China, while the increased productivity and enjoyment of the device end-users in America is not taken into account at all. And his idea of protecting American jobs with a tax will only make it less likely that American companies will develop the skills necessary to compete successfully worldwide on a non-protected basis.

If Mr. Grove is worried about American job loss to China, there are approaches to consider that might be better than a protective tax or a program of government priority-setting. One would be changing the immigration laws to make it easier for Chinese and others who wish to follow in Mr. Grove's footsteps to become Americans and create jobs here. Another is to help those in China who are working to make sure that Chinese have the same freedoms Americans do.

by Editor  |  Jul 6, 2010 at 9:41 am Related Topics:  China, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list