Andy Grove, writing in bloomberg, asks: “what kind of a society are we going to have if it consists of highly paid people doing high-value-added work -- and masses of unemployed?”
“I fled Hungary as a young man in 1956 to come to the U.S. Growing up in the Soviet bloc, I witnessed first-hand the perils of both government overreach and a stratified population. Most Americans probably aren’t aware that there was a time in this country when tanks and cavalry were massed on Pennsylvania Avenue to chase away the unemployed. It was 1932; thousands of jobless veterans were demonstrating outside the White House. Soldiers with fixed bayonets and live ammunition moved in on them, and herded them away from the White House. In America! Unemployment is corrosive. If what I’m suggesting sounds protectionist, so be it.”
The problem, as Grove sees it, is that scaling – the innovation and commercialization which has to happen after the r&d labs and startups have done their bit – are essentially big bets, they require huge investments at times early on when the returns are still very uncertain. Under those conditions, one way to reduce the downside of the risk is to make the investments in countries like China where the costs are hugely cheaper. The downside is the jobs stay in China.
“… I remember how afraid I was as I asked the Intel directors for authorization to spend billions of dollars for factories to make a product that didn’t exist at the time for a market we couldn’t size. Fortunately, they gave their OK even as they gulped. The bet paid off.
My point isn’t that Intel was brilliant. The company was founded at a time when it was easier to scale domestically. For one thing, China wasn’t yet open for business. More importantly, the U.S. hadn’t yet forgotten that scaling was crucial to its economic future.
How could the U.S. have forgotten? I believe the answer has to do with a general undervaluing of manufacturing -- the idea that as long as “knowledge work” stays in the U.S., it doesn’t matter what happens to factory jobs. It’s not just newspaper commentators who spread this idea.”
So what’s the solution?
“Long term, we need a job-centric economic theory -- and job-centric political leadership -- to guide our plans and actions.”
Which, intriguingly, is what China did.
“…
The story comes to mind of an engineer who was to be executed by guillotine. The guillotine was stuck, and custom required that if the blade didn’t drop, the condemned man was set free. Before this could happen, the engineer pointed with excitement to a rusty pulley, and told the executioner to apply some oil there. Off went his head.
We got to our current state as a consequence of many of us taking actions focused on our own companies’ next milestones. An example: Five years ago, a friend joined a large VC firm as a partner. His responsibility was to make sure that all the startups they funded had a “China strategy,” meaning a plan to move what jobs they could to China. He was going around with an oil can, applying drops to the guillotine in case it was stuck. We should put away our oil cans. VCs should have a partner in charge of every startup’s “U.S. strategy.”
He points out several concrete actions but the general direction of his solution is to “rebuild our industrial commons. … Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability -- and stability -- we may have taken for granted.”
Andy Grove is a great thinker and has written a very thoughtful article.
