On Andy Grove, Mercantilist Schwerpunkts And Free Trade Kool Aid

If one is serious about re-industrializing the United States to create high wage manufacturing jobs, one probably should shun hapless pundits and other ideological purveyors. To be fair the braying comes from all sides: ‘Free Markets’ cant or the tiresome “What Would Hamilton Do Today”? As par for the course, the most visible ‘experts’ provided to us on the cable news wall often can’t read a spreadsheet, think EBITDA is a new social networking site, haven’t actually worked for an industrial company or consistently met a payroll.

Economic development requires a more serious mind. But then, one could say the same about war. And look at that.

Even more than killing dark people, a sustained development concept in Bubble-addicted America is particularly challenging. Americans expect to earn inflated income by performing essentially meaningless and frivolous output. Haven’t we essentially outsourced the wars, too?

Andy Grove laments the decline of the hi-tech industry’s domestic manufacturing. He’s right that it is essentially now a (temporary) branding and marketing channel for Asian manufacturers. “Made in China, Designed By Apple In California”. Our friend comment shared this link from Grove on point: Sadly, one has to ask: where precisely have you been for the last 30 years, Andy? (Let’s overlook the Intel billions invested in India, Malaysia and China along the way.)

Can Americans Even Have An Intelligent Policy On Re-Industrialization?

Americans we will assert seem generally uninterested in development matters, especially historical economic development. So it’s important to put forth first principles to frame a conversation. Say a president visits a failed state like Michigan. He declares ‘new manufacturing jobs in America’ [cue ritual applause] will come. But before that can happen, we should be clear on what’s the goal of American economic activity? To promote *consumer* welfare measured in the here and now? Or to develop a social and economic infrastructure that maximizes *societal* welfare in the medium to long term? An infrastructure to enable other economic and social expenditures (military, standard of living, life expectancy, etc.)?

The first is America 1960-2010; ‘consumer welfare’ is the metric. The second? Delayed consumption, lower standards of living and capital accumulation for the future. How one answers these questions determines divergent paths.

The Four Models

For statesmen or serious students of Great Power history (this excludes by definition march of trumpets Boys Life ‘history’ ala Victor Davis Hanson et. al.), there are 4 essential, successful modern development models: (a) the British until 1870s (the end of the mercantalist First Empire and commingling with ‘Wealth of Nations’ and ‘White Man’s Burden’ era); (b) the Germans from 1870-1914; (c) the American from 1880s-1960s; (d) the Soviets 1917-1970s; (e) Japan from 1945-1991; (f) the Four Tigers (copying Japan); and (g) China (1980s-today). The latter three are essentially variations on the Japanese dual economy mercantalist approach. (The BRICs are more notional, still in China’s shadow).

Each development model has structural micro and macro features unique to itself and also reflecting contemporary domestic and international environments. Of them all, only the Soviet example can be said to be reasonably autarkic. Trotsky and Preobrazhensky’s ‘Primitive Socialist Accumulation’ explored how to industrialize a peasant society with a dictatorship; Stalin’s hijacking of the Left Opposition’s platform in 1929 with the first Five Year Plan just dialed it all the way up to genocide. Even here, however, autarky had limits. For example, American Ford technology built factories in Tsaritsyn/Stalingrad, American tank designer sold Moscow plans for his tank (and especially suspension) which became the BT series and evolving into the later T-34, etc.

Few can deny the industrial achievements. Even fewer could even consider tolerating the costs.

The First British Empire (pre-Yorktown) was almost single minded in its mercantilism. It outfought the Dutch. That focus did not survive the industrial revolution and England’s unanticipated unipolar position post Waterloo. Still, the First Empire’s achievements provided much of the real wealth that supported the Second Empire’s embrace of Adam Smith’s ideology and later decline, to be ground up at the Somme, Ypres, etc. One need not be Corelli Barnett to note that India and other possessions, by requiring supply lines, governing classes, naval coaling stations, etc. were a net drain on British wealth. The numbers are striking.

Not coincidentally, the United States’ rise coincided with British infatuation with ‘free trade’ and economically debilitating imperial activity. As long as ‘Free Trade’ meant immediate price point, the U.S. with unique continental scale could ride the British as both beneficiary and parasite, staying in the British slipstream. All while America pursued its own development goals and promotion of national industrial champions. J.P. Morgan’s (the man) loans to the Empire for WW I said it all. Does anyone think American support for post-war de-colonization was purely humanitarian?

Economic Development And The Free Rider Phenomenon

American natural resources and continental scale ensured eventual industrial and economic pre-eminence. Combined with British reliance on ‘Free Trade’ and capital mobility, America’s time became inevitable. Hamilton had little to do with it. A national bank? Promoting some physical infrastructure? Important as policy gestures but the concept long jettisoned in American eyes. British profligacy and American scale mattered far more.

An ‘American Century’ might have happened without British blindness but likely later and less clear cut. British reliance on ‘Free Trade’ ideology empirically and manifestly undermined British economic interests from the 19th Century’s close. Lend Lease a bitter recognition of the future. In our view, Hamilton the man offers little for solving today’s development predicament. Perhaps he’d be a useful AgitProp facade to mask implementing something altogether different.

The German model naturally is more organized. Ironically it starts from the most disorganized political position. Prussia’s use of the zollverein customs union tool to unify Germany first against Austria and then to incorporate Austria into the Empire is adroit political-economic statesmanship. It was nevera foregone conclusion. Germans pioneered focusing on key industrial sectors. These national champions were unleashed within the Second British Empire’s global ‘Free Trade’ framework. Initial examples include chemicals and optics.

The 1914-1918 civilizational disaster didn’t alter German concerns. Much of the corporal’s later semi-coherent economic thought focused on how to meet the American continental challenge of scale. How could Germany gain resources and industrial means to compete (survive in his view) with the other two great global/continental powers – Great Britain and the U.S.? (It’s not coincidence that his adjutants reported hearing him say privately in the Fall of 1942 the war was lost when Germany failed to secure Soviet oilfields (pre-Stalingrad kessel )).

His focus on scale was shared. Willing historians have buried how much industrial and financial classes in Occupied Europe agreed. It’s instructive to recall how often past is prologue. One reason the post-war European Coal and Steel Community, founded in 1950 to help begin European unification was so successful? It in many ways continued and built upon trans-national relationships and working partnerships established by Speer during the war.

Why Everyone From Moscow To Beijing Looks At Toyko

Japanese success is the most remarkable of them all. No natural resources to speak of; prostrate, with paper cities in embers, a generation led them to become the second largest economy in the world. One can debate how much the Japanese fooled SCAP and MacArthur and maintained nationalist structures (outlawed zaibatsu became today’s keiretsu, etc.). Or whether we went along after 1950 because we needed a staging area for Korea. Regardless, Japanese success set the template for nations to come: targeted selection of export industries, supported by massive barriers to entry in domestic markets, enforced savings and capital accumulation. They created from ruins the largest transfer of wealth in human history at the time. Way beyond OPEC.

Americans mistook their accidental post WW II unipolar hegemonic position as the natural order of things just as the British had over a century before. We still do, oddly. American wealth and economic power is ineffable, ‘the American way'; free trade was a law like gravity. Company after company giving away intellectual property for a song. As we’ve written at length (IIRC) at STSOZ 1.0, the Zenith vs. Matsushita litigation is painfully comical. American judges and lawyers repeating tautologies such as ‘Japanese companies are private entities in the business of making money, ergo, they would not ‘dump’ televisions in the U.S. below their cost’. And so on.

Americans forgot how their economy worked. Meanwhile, the Japanese could glance at sophisticated input/output tables and see theirs. Chess versus checkers. Key American inventions like the transistor, the integrated circuit all quickly turned against entire sectors of an economy – what Grove likes to call scalability, others call supply chains and eco-systems. Watching Detroit become Dresden must have offered grim satisfaction for those who ran or who had parents try to run from the formations of B-Sans firebombing Tokyo. MITI made mistakes, of course. Honda is a classic example of a company mandarins told to die but refused, going to Americans for money instead. They clearly met the overall macro goal of national capital accumulation.

Nothing is ever perfect. Academic (i.e., non Jon Stewart- ‘Our guest tonight has written a new book on . . .’) literature on the Japanese success and its price of a dual economy worth a re-read. Bernanke has written thoughtful pieces on Japan post 1989, for example. Granted, the model — like the 1955 Political System itself — stayed in place too long. Economic and political power can seduce and become entitlement. Ideally, the model should have begun relaxing in the mid 1980s – with or without the Plaza Accords (James Baker’s coup de main). The free money from the real estate bubble instead jammed the accelerator. Old practices and protecting inefficient domestic services industries prolonged the ‘Lost Decade’. Say what one will. They still remain the second largest economy. From literal ash.

The Four Tigers and China we submit are following essentially the Japanese model. China, however, out hustled the Japanese, aided by their awesome population pool and continental scope. The Pearl River Complex we’ve written about at length should be a mandatory case study. It’s intriguing and even nostalgic that Sharp alone refuses to offshore fabrication of LCD TVs (Sony more or less re-sells Samsung or other OEMs). What all of them have in common is that they suppressed immediate *consumer welfare* for capital accumulation and long term goals.

Step Right Up And Enjoy The Joyride . . . Hello, You Fool

All of the 20th and 21st century mercantilist powers require a free rider. The U.S. mindlessly still plays that role for all of them. When you hear Obama talk about adding 75 new ‘high tech green manufacturing jobs’ at some fender assembly plant, or Summers discuss how new jobs will come from ‘high tech industries of the future’, think about all this. Or that hoary chestnut “Nothing can stop the creativity and productivity of the American worker” – except the Japanese development model, the Four Tigers, China and the rest of the BRICs.

Andy Grove writes an interesting piece from the perspective of looking through a straw. The challenges are far more than about ‘bringing back American jobs’. More to the point, if the U.S. should stop (or is forced to stop) being the free rider for external development across Asia, who will permit American re-industrialization? ‘Free trade’ as an ideology (and it is ideology, no matter how many curves someone draws on a chalkboard or napkin) only works when there is true, undistorted comparative advantage. In this global environment for the foreseeable future, who is willing to stop their success and play the demonstrably unsuccessful U.S. role? What development model will work for the U.S. surrounded by mercantilist schwerpunkt export powers?

What Can One Expect Of A QVC/Home Shopping Power?

Too harsh? For a nation that celebrated over 30% of its economic growth came from ‘financial engineering’? Ask yourself: Is the U.S. prepared to make the coordinated national sacrifices across economic sectors to mobilize, compete and win? Can the U.S. even think in such strategic terms? It’d be nice to think so.

Comments

  1. Ames Tiedeman says

    Lower taxes? Higher taxes? Does anyone actually think being plus or minus 5% on taxes will make a lick of difference for the U.S. economy at this stage in the game? The economy will never again work the way we all want it to work with the current account deficit at 6 or 7 percent of GDP. You cannot get unemployment even under 6% without a credit bubble, with a current account deficit as large as ours. We have not had a trade surplus since 1974. We have been in decline for 40 years and this decline has only accelerated in recent years. We closed 55,000 plants in the United States since 1980. Your politicians won’t tell you this because some of them fed you the false promise of free trade. Others don’t want to admit NAFTA has been a complete failure for America. Great for Mexico as that giant “sucking sound” Ross Perot predicted has materialized. Clinton and Gore promised the American people ever bigger trade surpluses with Mexico and ten’s of thousands of new high paying jobs. Just pass NAFTA they exclaimed! Quite laughable, really. We have gone from a trade surplus of a few billion a year to a trade deficit nearing 100 billion per annum with Mexico. What is equally as laughable or insulting is the trade deal Obama has just signed with Columbia. Do we make anything they can afford? Of course not. Columbia will simply become a new launch pad to make textiles and sell them into America. How about the trade deal Obama signed with South Korea? This is an interesting one. Within the bill on the U.S. side is a provision to provide worker training for displaced Americans. So we are now so stupid that we are signing trade deals that we know will diminish the U.S. labor force. The insanity is just that! Does anyone think the South Koreans would agree to a trade deal if they were not sure to win? Does Obama understand that the South Koreans are fierce nationalists who will never let America win a trade contest? Did my ancestors lead pre-Revolutionary War skirmishes against the British at Lexington and Concord in 1775 and early 1776 only to have America end up how it is today? My blood has been on this land since 1635. How many of my ancestors ever dreamed that America would be so deep in debt and short on ideas? Would any of them ever have thought that such mediocre men would one day be leading this nation? America has done a terrific job of creating a low employment and low wage society, for millions. Quite sad indeed. No civilization has succeeded by consuming more than it produces. We must massively restructure. Until America decides to produce what it consumes you can forget about any long term economic recovery. The financial games all failed. The credit bubble is gone and now the U.S. economy is exposed as the biggest joke of all time. Credit bubbles have a way of masking the real issues. How do we fix the American economy? Start by making every American who has received a Nobel Prize in economics return the award. Why? because they were either 100% wrong or their work proved to be of no benefit to the American economy. Next, round up every economist who advised Nixon that if America left the gold standard and moved the world to a floating currency regime; that America would never, ever, run a current account deficit. And I am very sorry to inform everyone that this would include the late and great Milton Friedman. Sorry Milton, you were dead wrong too! Next, leave the WTO, end NAFTA, and go about setting up country-by-country trade deals that are realistic based on where America stands today. It is not 1955 anymore. The world has either matched us or surpassed us in industry after industry. We have literally become an emerging economy is some industries as we have faltered so badly. Next, move to a flat tax, and end all farm subsidies. Cancel most government social programs like food stamps and deport 100% of the people living in America illegally. Make it a high crime to employ anyone not here legally. Finally, for major industries such as steel and automobiles, move to a must-be-made-in-America policy. No longer allow imports of products in specific industries. They must all be made in America. We must employ our people. We can no longer employ the world via our consumption as so many Americans remain unemployed. We must use our 50 state union to our advantage. We must promote massive trade between the states. We must socialize CAPITALISM to avoid becoming a socialist state! We must reinvigorate the American people. We must manufacture. And who running for office can lead America on this grand and pious endeavor? Who running for office today has the passion of a General MacArthur or the skill of a Chester Nimitz? Who has the energy of a Teddy Roosevelt? The men who command the attention of the electorate in this age of mediocre ambition are all too small to make a difference…

  2. Dr Leo Strauss says

    @Ames Tiedeman Succinctly put, Ames. Without a development policy that recognizes these structural realities in the global economy, American efforts ‘to out innovate, out compete’ are just so much Up With People meaningless cant.

  3. Ames Tiedeman says

    The United States has not had a current account surplus since 1975. We have not had a trade surplus with Japan since April, 1976. We have been in deficit with the EU since 1983. We have run trade deficits with both Russia and China for more than 20 years. How did America go from being the largest creditor nation in 1975 to the largest debtor nation by the end of the 1980’s? To understand what has happened one must go back in time. Prior to 1860 much of the Western World practiced Mercantilism. After 1860, led by Great Britain, Mercantilism was abandoned in favor of the teachings of John Locke and the free trade principles of Adam Smith. Trade barriers throughout Europe came down. A great debate on economic policy took place in America. Lincoln for instance was a Mercantilist. For the next 110 years the Western World basically traded with itself. Good flowed across the Atlantic and trade disputes if they arose were generally settled quickly. By 1970 the world was changing. The post world war II era produced the eventual rise of Japan as an economic machine. Goods started to flow from Japan to the United States and to Europe. The problem was that goods were only flowing one way. America for instance was banned by Japan from selling rice or apples to Japanese consumers. While disputes like this in many industries were festering, Japan was quietly becoming a world power in automobile and electronics manufacturing. Auto’s and electronics were exported out of Japan at an ever faster clip. By 1977 Japan was running steady trade surpluses with the United States and American politicians were raising alarms that Japan was simply practicing protectionism. What Japan was really doing is practicing a new form of Mercantilism which I have pegged, “Asian Mercantilism.” Japan was more concerned with full employment in Japan than the loud voices of western politicians. By the late 1980’s the United States and Europe were both running huge trade deficits with Japan. After 15 years of trade deficits America had found herself in the position of having gone from being the world’s biggest creditor nation to being a debtor nation. The rise of China over the past 20 years has given the world another Japan but this time on steroids. If Japan practices Mercantilism then China practices Supra Mercantilism: Goods are exported, imports are controlled. The currency is massively controlled, not free floating. Production is favored over consumption. With a population of 1.5 billion China has been able to give Mercantilism a whole new dynamic. What we have in the world today are two competing economic models for prosperity. We have the Western model with relies on the system of Free Trade and we have the Asian system with relies on a super sized form of Mercantilism. We have the West running trade deficits and the Asians running trade surpluses. China, Japan, and South Korea are the producers of goods while Europe and America are the consumers. Who is winning the battle between Western Free Trade and Asian Mercantilism? Asia is clearly the winner. The question going forward needs to be how we reverse a trend that is leaving America and much of the western World indebted and economically broken. What the West now calls protectionism, the Asians call Mercantilism.

  4. Dr Leo Strauss says

    Not sure who wrote this, but sure wish I did. Going to have to read this site more often!

  5. Dr Leo Strauss says

    “Kathy, I’m lost,” I said, though I knew she was sleeping
    I’m empty and aching and I don’t know why
    Counting the cars on the New Jersey Turnpike
    They’ve all gone to look for America
    All gone to look for America
    All gone to look for America

    “In 1968, Simon & Garfunkel released the bittersweet song “America” — a tune about a couple leaving Saginaw, Mich., to seek their fortunes elsewhere. This past week, a reporter at The Saginaw News noticed lyrics from that song spray-painted on vacant buildings all over town.”

    http://www.npr.org/2010/12/19/132168299/finding-simon-garfunkels-america-in-saginaw-mich?ft=1&f=1001

  6. Dr Leo Strauss says

    Last week, China announced the opening of a 20-kilometre, $1.8 billion rail line connecting Mecca with 9 holy sites in Saudi Arabia, including Mina, Arafat and Muzdalifah. The project was only awarded to the China Railway Construction Company in February of last year, so it’s a remarkable feat to have completed the task so quickly.

    China ensured that the line was operational a few days ahead of the start of this year’s Haj pilgrimage, although it was operating at half the passenger load it was designed for. The line—Saudi Arabia’s first dual track light railway project—is expected to be fully operational by next year’s Haj, when it will carry 72,000 passengers per hour.

    This is the first light rail system built by China in the Middle East and, knowing China, its firms will flock to such infrastructure co-operation projects. The Mecca project is a simple but masterly diplomatic move to win friends and influence people in the Islamic world, especially considering China itself has only 23 million Muslims, making up about 0.6 per cent of its total population.

    http://the-diplomat.com/indian-decade/2010/11/18/china-courts-islamic-world/

    A shame that Republicans are so opposed to infrastructure investments and manufacturing. Perhaps that’s because they think only communists build things ?

  7. latte says

    writing that on a bus upstate, failed to account for misinterprtations of “currency transactions” in context of generating the GDP metric: I meant it not in the sense of currency (foreign exhange) but more generically in the sense of ‘dollar transactions’ within an economic scope. (normative termonology demons allayed hopefully). Conclusion/point remains valid: the status of GDP as a meaningful /metric/ of economic (actually ‘productive) activity is dubious at best, which ought to be of concern to anyone who is occupies themselves with srategic socio-economic issues (a la MITI).

  8. Comment says

    Tweety – acquitted does not mean innocent – just means you were acquitted. So much for presumption of innocence,

  9. RedPhillip says

    @Comment

    “Getting”? I mean, really. It helps to think of her work as an ongoing Dada performance piece. That way the cognitive dissonance doesn’t grate so much, and the stupid burns less.

  10. Comment says

    Though we are in the tank for Obama, we must painfully admit that Hitch is right here in his first sentence – Though we never did expect Obama to make more then negligible progress on Mid East stuff – The political realities are just too against that. He can only make progress indirectly .
    http://www.slate.com/id/2260231/

  11. Comment says

    Re Reihan’s comment via Sullivan – who is bashing China? Seems kind of early in the game to bring out a straw man like that. Was there any China bashing in Grove’s piece?

  12. Comment says

    FWIW Grove’s old colleagues Moore and Noyce were old friendly associates of Comment Sr. when they were at Fairchild semiconductor and he was following them for investors. They are are quite a group. We will gave to dig into the old files and see if we can come up with some old reports from the 60s.

  13. Comment says

    That guy at Forbes counsels “We should not dismiss Grove lightly” and the he goes on to extol the skills of low paid health care worker job growth, This is just the result of a magazing culture with now connection to reality. Very few conservative writers have any idea what tax rates were or interest rates were when growth and job numbers were good. They just babble inside their epistemically closed loop (to use Julian’s S. technically incorrect but snappy sounding term)

  14. Comment says

    Niall Ferguson is smarter than Newt and actually a good prose stylist, but he is sorta of a hack w/politics – His critiques of Obama just happen to lack coherence – his demand for fiscal disciplined is silly twinned with calls to Reageanomics. It’s just to not credible that he really thinks that way. Rather, as is the case with Mort Zuckerman, he dislikes Obama for reasons x, y, z – but feels he must give more politically astute sounding reasons for opposing Obama .

  15. Dr Leo Strauss says

    Niall Ferguson makes clear he’s not part of the answer. His solution? Get those entrepreneurs going again. Demonstrating an utter lack of macro economic fundamentals and contemporary structural realities. Nathan Rosenberg’s ‘How The West Grew Rich’ (mis)interpreted by – and for – the Fareed Zakaria generation.

    As Latte points out, recourse to the past for the future is predictable intellectual failure of decadent societies (Newt’s Renewing American Civilization with men hunting giraffes predating today’s grotesqueries by almost 20 years). Interesting that Ferguson claims to be a financial historian as we recall him marketing himself as a military-geostrategic thought leader before March 2003 and triumphalist aftermath. (He’s no Charles Kindleberger, we can tell you that). But then, Condi also informed us in her 9/11 Commission testimony that she was ‘an expert in organizational change’. So anything’s possible.

    http://www.realclearpolitics.com/video/2010/07/08/niall_ferguson_on_the_future_of_americas_economy.html

    Ferguson’s burp-as-deep-thought famously prompted *both* Streisand and Brolin to proclaim afterwards he was ‘simply mind blowing’. (That those two are even part of an ‘ideas summit’ by purported ‘serious’ people at Aspen Institute and Atlantic Monthly? ‘Nuff said).

  16. Dr Leo Strauss says

    @latte
    Well said. The piece is largely retrospective, designed to put some analytical framework around random verbage qua scholarship/thought leadership. As you note, it left open the next step – to explore possibilities for a new model appropriate for American circumstance.

    Contemporary America probably is incapable of the necessary self-awareness and rigor to develop a discipline (‘socio economics’ as you coined is a good one) needed to devise a new alternative. To sift relevant historical data but maintain detachment to escape ensnarement by definition requires more than 140 characters. We fear such passivity will result in the equivalent Ottoman-esque ‘Sick Man’ destiny.

  17. latte says

    nice read.
    reviewing sets of past actualities essential, but doing so only a precursor to filling out the space of possible approaches circa 2010-20?? contemplating counterfactuals (and actual exigencies/special-cases like Speer’s borderline improvisational reorganization/decentralization of industry 43-44 to counter 8th strategic-bombardment) next, provided some kind of appropriate rigor and comprehensiveness. technologies, especially communication and logistics, make for high level of dimension of freedom in contemplating developmental approaches.
    dimensionally quite a rich situation.
    a random point from the bag:
    – interwebs still relatively immature in terms of living up to obvious potential across socio-economic spectrum. massive productivity gains, in everything from health to car-maintenence; manufacturing also. paradoxically, the development here is slow because it has been so dificult to localize a principal node for the all-important profit motive. no business model? forget it. (GDP as a failed metric, in the sense that it can only account for ‘production’ corellated with a currency transaction) the idiocy of the bulk of the present web attests to such distortions. your points orbiting the notions of societal-well-being (however one might choose to define) in the first place and the importance of careful generation/definition of metrics in the second place especially salient. the second by the way implies a properly scientific mode; discursive system; a formal ontology over a plane of reference. (socio)Economics as a science in dire need of real development before any of the above can even be approached as anything other than an exercise in flights-of-fancy or heuristics mongering (‘experience’, ie “this is how it worked before, so this is how we will do it now.”)
    in a culture of idiocy no less.

  18. Dr Leo Strauss says

    To be fair, Grove did try. There was MCC (with Bobby Inman pre-Clinton flame out) and Sematech and other government-industry initiatives. SIA, the industry group, supported those warning of Japanese economic preponderance at various think tanks and policy groups. But as he notes in his own article, they threw in the towel and bet the farm on non-commodity microprocessor designs. In his book, ‘Only The Paranoid Survive’, Grove explains the gamble to essentially get inside the Japanese innovation loop using Moore’s Law ruthlessly.

    Other U.S. companies re-acted strategically as well, such as TI and HP giving IP licenses to then pitiful Koreans (Samsung, LG and Daewoo were considered jokes much like Japanese tinny transistor radios in the early 1960s) to build a price alternative to Japanese growing monopoly-price setting power.

    It worked for Intel. They and Microsoft turned the rest of the U.S. computer industry into commodities, where the only real value in a PC was the microprocessor and OS. It drove the Japanese crazy, that they couldn’t break into this wealth-generating fortress (WINTEL) – we know, senior Keidanren officials told us directly in Tokyo.

    Could it have turned out any other way? Probably not. Sematech and MCC were doomed to failure because their essential premise was to use American open markets as starting point. Each became isolated sand castles in a rising tide but never understood they were on a beach.

    When *consumer welfare* dominates in an open market vulnerable to mercantilist schwerpunkts, all that is left eventually is financial engineering to generate temporary phony prosperity. It becomes a vicious circle, as ‘shareholder value’ mandates hollowing out for short term margins which allows chasing lower price points, etc. It’s completely linked – the malign Wall Street ethos first decried in the 1980s with the simultaneous hollowing out of manufacturing.

    If America did not generate phony bubbles, we would be forced to face what our addiction to consumption and beggar-thy-neighbor policies from Asia wrought. The post 2008 non-recovery suggests that reckoning, although postponed, approaches.

  19. RedPhillip says

    Good Doctor, somewhat along the lines of this discussion, I assume you saw this article in today’s NYT:

    http://www.nytimes.com/2010/07/07/business/economy/07generation.html?th&emc=th

    One thing I found particularly touching, apart from the privations visited on privilege, is the youngster’s disdain at the thought of working in manufacturing.

    In better times, Scott’s father might have given his son work at Endeavor, but the father is laying off workers, and a job in manufacturing, in Scott’s eyes, would be a defeat.

    “If you talk to 20 people,” Scott said, “you’ll find only one in manufacturing and everyone else in finance or something else.”

    People like this make me yearn for the total collapse of this country.

  20. Comment says

    One quick point – unlike Grove (who may be late in the game) – his wsj-type critics know nothing and they do not care about ordinary people. They just do not know.

  21. Comment says

    Wait – we have not read the WSJ piece yet – we are in a baseball moment – But we predicted WSJ would be upset. Lets face it – WSJ opinion writers do not know people who make things – They only know people who propose bombing this or that country or people who have various theories on trade.

  22. Comment says

    Where has Grove been? Good point – but he could not have afforded to act against his own short term interest in the past. He had a good run, but now he can afford to reflect – From a position of restful distance. A man for some seasons, if you will.

    “Perhaps he’d be a useful AgitProp facade to mask implementing something altogether different.”

    Many of the people who invoke Hamilton now seem closer, in spirit, to Burr – Intriguers.

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