Category Archives: operations

Comment on Andy Grove’s Bloomberg Opinion

It’s been while since the last post, but Andy Grove recently wrote an interesting Bloomberg opinion piece called, “How to Make an American Job Before It’s Too Late: Andy Grove. It was mentioned by WebGuild, which usually offers some interesting angles to the technology business and Silicon Valley life.

MANUFACTURING VALUE. Certainly Andy Grove is a successful businessman with some very valid points about the back-end/residual value of manufacturing jobs to the broader US economy. Andy bemoans the fact that many Asian countries (and Mexico) have gained manufacturing jobs at the American economy’s collective expense. Most people would agree that this has had a generally negative effect on the US economy.

GAME THEORY. Outside of winning on philosophy, game theory tells suggests that China, India, Mexico and others beat us at our own game; the USA’s shrinking manufacturing economy and trade deficit suggests we lost a lot. It is a tricky situation because China and other countries rigged their economies to absorb more and more manufacturing business. At the same time, the US stuck to it’s libertarian free-market roots on the one-hand (pushing for free trade) but continued to tack-on more and more regulation of business (nanny-state).

The bottom-line is that this was a terrible combination that resulted in fewer US manufacturing businesses, shrinking jobs with what was left over being even more costly (outside Silicon Valley, think Detroit auto-industry). Unfortunately, as many states (California, Illinois, Michigan, New York) are now finding, you can’t collect tax revenues to fund their bureaucracies off of business and people that left or went bankrupt. Consider that it took just that – bankruptcy for GM to renegotiate with their unions.

Does eschewing those capitalist American ideas by imposing new tariffs on imported goods and new taxes on offshore operations make sense? Probably not.

DON’T THROW THE BABY OUT WITH THE BATHWATER. Rather than penalize smart businesses with higher costs and reward inefficient American companies, maybe a better approach is for the Federal government to provide more log-term incentives to build manufacturing plants in the US. In other words, change the game so that costs in the US could compete and be a much lower cost place to do business. However, that means allowing individual Americans to better control their own wages/compensation not the states, US Congress and certainly not grafty unions.

GET MANUFACTURING-FRIENDLY Many American businesses would prefer to build operations here but simply can’t afford to when they are facing global competition. Think about it: there is a reason why the non-union auto industry developed away from the politics of the Michigan economy, e.g. BMW in North Carolina and Honda in Indiana, etc…Unfortunately, the current Obama administration is already going the wrong-way way with “health-care reform.” Only by reducing the colossal HR red-tape and onerous labor laws states or counties could compete for business and WIN.

INTERNATIONAL TRADE-RELATIONS. To channel Keynes for a moment, “in the long run we are all dead.”
The US needs to play hardball with other countries when it comes to international trade negotiations. There is certainly some room for improvement there to Andy’s point; no country should be permitted to “get” without “giving”…simple quid pro quo.

START-UPS. Andy also notes the media-driven fascination with start-ups by politicians and others. Few people speak about about their tiny *real* contribution to the economy…sure they can have an impact but the vast majority fail after burning through vast amounts of capital…capital that could have been invested in businesses that are more likely to produce return. Many people and start-ups chase their tails for a long-time wasting money…this is not always apparent to journalists. Meanwhile, big companies MUST make a profit from operations (usually) in order to continue. Yet the mythical start-up and the romanticized ideas of entrepreneurship makes for good stories and dreams.

Finally, I do agree with some of the posted WebGuild responses. It seems a bit hipocritical for Andy to be wagging his finger and arguing for more government influence over the economy today, while he’s comfy retiring from massive wealth created by a less-regulated system (US in the 70s and 80s).

Maybe Andy will contribute from his Intel stock to help fund this!