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Former Intel CEO Andy Grove has sparked a furious Internet debate with his viewpoints on how the United States can jump-start job growth.
In a lengthy column in Bloomberg Businessweek July 1, Grove outlined his belief that the United States must rebuild its manufacturing sector if the country is to regain its capacity for creating jobs, and said the federal government must be a key player.
Pointing to the vast number of manufacturing jobs in countries such as China and Taiwan-many of which have been transferred there by such tech giants as Apple and Dell-he said the United States has placed too much faith in the free market system. While these countries have built manufacturing bases that hire hundreds of thousands of people to build the technology that U.S. businesses and consumers use, the United States has let those jobs slip away.
The result of letting these jobs get moved overseas by U.S. corporations is a broken cycle of job creation and innovation, he said. As has happened with other products, such as batteries, “abandoning today’s ‘commodity’ manufacturing can lock you out of tomorrow’s emerging industry,” he said.
“Our fundamental economic [belief], 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,” Grove wrote. “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.”
That evidence comes in the form of Asian countries that have increased their manufacturing bases over the past few decades, he said.
“These countries seem to understand that job creation must be the No. 1 objective of state economic policy,” Grove wrote. “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.”
The first thing the United States must do is rebuild its “industrial commons,” Grove said. That can be done through providing financial carrots to encourage keeping manufacturing jobs in the country.
Grove advised, “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.)” He added, “If what I’m suggesting sounds protectionist, so be it.”
Perspectives on Free Market System
Grove’s suggestions drew sharp criticism from several columnists who said protectionist policies would cost the United States jobs. They also were surprised that a man like Grove, who helped built Intel into the tech powerhouse that it is today, would come up with such ideas.
In a Wall Street Journal blog headlined “Andy Grove from Intel Is Wrong,” James Altucher, while praising Grove’s accomplishments, said protectionism has never worked for any country, including the United States. Countries that have flourished have done so through free trade and open markets, he argued, pointing to Germany and Japan after World War II.
“So what if we have outsourced 100,000s of low-level semiconductor manufacturing jobs to China?” Altucher asked. “Silicon Valley has continued to innovate with Google, Facebook, eBay, Amazon, etc. There are lines around the block still for the latest Apple iPhone, and the chip makers for the iPhone … don’t seem too worried that they have to outsource to Foxconn in China.“
If the manufacturing jobs are brought back to the United States, he asked, what would be the result?
“Would a trade war start that would drive up prices even further? Furthermore, would the resulting spikes in unemployment in the Third World countries we outsource to suddenly dip into massive recessions, causing a global spiral down in the economy?” Altucher asked.
Reihan Salam, a policy adviser at e21 and a fellow at the New America Foundation, in a column in Forbes said Grove brought up some good points-“The decline of manufacturing employment really has coincided with a broader deterioration in the economic prospects of less-skilled American workers,” he wrote-but argued that huge tax shifts would likely lead to fewer U.S. jobs.
“The U.S. badly needs job and income growth,” Salam wrote. “But it won’t come from the manufacturing sector. Rather, it will come from a wrenching series of labor market and entitlement and tax reforms designed to improve work incentives, most of which will prove far less popular than simply bashing China.”
Not everyone disagrees with Grove. Brooke Crothers, a former IDC analyst who lived in Japan for 10 years, in a commentary on Cnet said countries throughout Asia have adopted Japan’s successful manufacturing philosophy to build their own economies.
Crothers also pointed out that while many in the United States call for a pure free market system, the rest of the world doesn’t work the same way, which puts the United States at a disadvantage.
Free market proponents worry that such actions as Grove suggests would spur a trade war-which Crothers argues Asian countries are already waging-and that the United States would end up paying higher prices for products. However, the result would be more jobs.
“Yes, the free market is a powerful force and invaluable for creating companies and jobs,” Crothers wrote. “But it’s not perfect and not, in its pure form, practically applicable in a world that plays by other rules. That’s what Grove is saying. Far from radical, it’s a prudent and necessary argument.”