Rocky Vega

Andy Grove, one of Intel’s earliest employees and its former Chairman and CEO, offers his take on how the US must create jobs at home instead of in China. As he sees it, the cost of rising wages and benefits in the US has eroded the nation’s ability to compete versus China’s low-cost labor machine.

US companies have understandably chosen to ship work overseas in order to boost profits and please shareholders in the short term. However, the number of offshored positions has become staggering. These decisions have contributed to the frailty of the US manufacturing sector, and Grove probes what could be done differently.

From his opinion piece in Bloomberg:

“Today, manufacturing employment in the U.S. computer industry is about 166,000 — lower than it was before the first personal computer, 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 Co., also known as Foxconn. The company has grown at an astounding rate, first in Taiwan and later in China. Its revenue last year was $62 billion, larger than Apple Inc., Microsoft Corp., Dell Inc. or Intel. Foxconn employs more than 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard Co., Intel and Sony Corp…

“…You could say, as many do, that shipping jobs overseas is no big deal because the high-value work — and much of the profits — remain in the U.S. That may well be so. But 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? Since the early days of Silicon Valley, the money invested in companies has increased dramatically, only to produce fewer jobs. Simply put, the U.S. has become wildly inefficient at creating American tech jobs.”

Foxconn’s employment of 800,000 — more than Apple, Dell, MSFT, HP, Intel, and Sony combined — is simply astounding. It’s a stunning example of how quickly offshoring has transferred employment from the US to China. And, it’s not a mechanism that works so easily in reverse.

Grove implores today’s US executives to develop US employment strategies of the same caliber as their China offshoring practices. If the US is going to avoid overwhelming unemployment, and retain some potential for manufacturing leadership, he recommends that action be taken immediately, before it’s too late.

To read Grove’s full opinion, and some of his ideas for creating US jobs, visit his Bloomberg piece on how to make an American job.


Rocky Vega,
The Daily Reckoning

Rocky Vega

Rocky Vega is publisher of Agora Financial International, where he advances the growth of Agora Financial publishing enterprises outside of the US. Previously, he was publisher of The Daily Reckoning, and founding publisher of both UrbanTurf and RFID Update -- which he ran from Brazil, Chile, and Puerto Rico -- as well as associate publisher of FierceFinance. Rocky has an honors MS from the Stockholm School of Economics and an honors BA from Harvard University, where he served on the board of directors for Let?s Go Publications, Harvard Student Agencies, and The Harvard Advocate.

  • Cory Brickner

    It’s very interesting that Andy’s solution is more government intervention and protectionism. While he was a great leader at Intel, he’s a poor economist. The very things he asks for have have caused our manufacturing capacity to move overseas.

    Government run schools protected by unions can’t produce graduates that know math, engineering, and software development. We need a free market in education, because there isn’t one currently.

    Protectionism via minimum wage and pro-union laws have inflated the costs of labor here in this country. This coupled with the education problem, has created an expensive and inflexible labor force in the United States. We can’t adapt, we’re unwilling to take a pay cut, and so jobs go elsewhere.

    Government, driven by the Federal Reserve and entitlement programs increase the cost of living in our country. Government spending on entitlement programs (Medicare, Social Security, Unemployment, etc.) shifts resources from where they need to invested in new methods and technologies to handouts for people. Entitlement spending exacerbates the misallocation of resources. The market knows where this money needs to go, and instead political interests take that money and create moral hazards that wouldn’t exist otherwise. Government is a monopoly that taxes and spends. It creates nothing, and is extremely inefficient at what it does to. Yet we look to government to solve the very problems that it creates. This is absurd. It is also made worse that the government controls the money supply and can print it at will.

    The end result is that the more we try and save our standard of living by trying to prop up prices and wages, the more manufacturing and technology will search more efficient labor sources in different countries.

  • curmudgeon

    Alas lets just call it what it really is. Our time is running out. Period. There is no solution. Blame who you will it still will not fix anything. To late.

  • Alexander

    Its never too late, but the problem can not be fixed unless people realize their mistakes.

  • Sam Adams

    It’s too late. The US is finished as a society and an economy – it will become a second rate Third World source of slaves to serve its Chinese masters. Obama and his criminal gang should be executed for treason.

  • Mr Goldman

    Unfortunately, it looks like Americans get to suffer for having greater wealth per capita than the majority of countries.

    Wealth breeds lazy kids who don’t need or want to study.
    The government is bloated and greedy. BTW, the private corporations will be the same if you “privatize” everything.

    Yes, time has run out, there isn’t a solution because greed breeds greed and everyone wants that “precious” gold ring.

  • ranger

    Gentlemen: America does not create manufacturing jobs because American politicians see factories and their workers as sources of income, inventory, real estate and unemmployment taxes, and crush them with regulatory nonsense and attack them with union organizers. All our heavy industries are zombies, blood sucked out by Washington. Grove proposes a typical statist solution the would benefit a large company such as his. Pay no attention to the man behind the curtain. Corporations do not pay taxes–private consumers do. Bloodsuckers in DC have killed the host. Manufacturing will return when Washington is a crumbling ruin, and not before.

  • kenn

    I am always impressed when the vile word ‘protectionism’ is thrown out.
    It seems the collective have no qualms ‘protecting’ themselves from enemies militarily but quiver in rage if one even mentions protecting the country economically.
    Even the stupidest American knows he cannot compete with a foreign national earning 1/10 his wages.
    We’re not only toast,,, we’re burnt toast!

  • Daniel Newhouse

    You are a fool if you believe in the future of China any more than the United States. Far to many business decisions in China are made by the government and its cronies to believe in its future. If any western country survives the storm with an intact democracy, it will be Australia. And if I were to go long term, I’d bet money on India.

  • Daniel Newhouse

    Protectionism doesn’t save jobs, it destroys them. It will raise the cost of low value labor so that we cannot afford to create high value jobs anymore. This will leave the nation poorer, not wealthier.
    There are no short term solutions to the problems of the working poor. It all started to go downhill for the working man in the 19th century when silver was demonitized. That’s 150 years of the working guy getting shafted.

  • TC

    America finds itself in the current state because it has been unwilling to adapt to world reality after 1990.

    The big reality that emerged in 1990 is emergence of a new world of 2 billion people who *can* compete with America. But broad spectrum of US society was determined to believe in the continued supreme superiority of everything American, every ideology American, every output that’s American. Add to this over-confidence that has reached the level of hubris, American society proceeded to waste resources and squandered opportunities in ways that boggle the rational mind. It also proceeded to mismanage all aspects of society – both the public and private sectors – on a grand scale. All suggestions of something gone wrong were dismissed over again. The absolute refusal to see so many things can go wrong is the root reason behind the many disasters.

    Today, the complexity and size of the problems, the profoundness of the rot, the vastness of the contradictions are such that it is mathematically and politically impossible to repair. Still, even at the current stage, one can find a large segment of society unwilling to solve problems, even unwilling to see there are deep fundamental problems. People continue to spend an amazing amount of time blaming others – from biz CEO to government, from Wall Street to political ideology. And sniping at foreigners who are doing better. But the responsibility lies completely, totally, within America. Not foreigners.

    This is becoming to be called the Great Recession. But until most Americans call this the Great Reckoning, thus recognizing responsibility of past mistakes, there is no chance of acceptable solution. A great country now is absolute and relative decline, citizens are confused and scared, many behave childlike.

    The great reckoning, the great punishment, the great correction, and the great downsizing will continue for a decade. There is no way around it. Not even war.

  • Geez

    Mr. Grove is correct that we are stuck in the ideological no-man’s-land between free markets and command economies. He’s talking common sense and the pendulum needs to swing back from all capital all the time to a bit more labor and society. How patriotic is capital? Will capital remain in US markets if the US becomes a basket case of a society? I would question the loyalty and patriotism of every capitalist. And I’m not talking partial ownership in pension, 401k and mutual funds. I’m talking about those who can move mountains of capital. Yes, I’m talking about the rich in America. They used to be patriots. Now they just seek the lowest tax rate haven, and America has been pretty good to them for the past 60 years.

  • Geez

    And the way forward most certainly is some sort of industrial policy. Not government control of industry, which is absurd. But we need government and our private leaders (because in America, the government does not and should not lead the way) to recognize that jobs are important as profits in the long term. So we need to be smart about keeping some industries “protected,” not to prop up failing or ailing industries (like our auto manufacturers), but to balance the incentives that result in shipping good, high-paying, high skilled jobs overseas. We’re fooling ourselves if we think that only the low-skilled jobs are going overseas. I really worry that the people with real power in America (i.e., those with money to invest) are just too greedy and not patriotic enough.

  • jason

    Sadly the workers in these Chinese factories making the clackity Macities and the piddly pods are so miserable that they kill themselves. So those jobs aren’t very desirable, and the unions in the US were right to get better conditions for their workers. The greed of the few has undone the US, but then again, in order for the economy to work, we are compelled to manufacture and buy stuff that we don’t need. Witness cash for clonkers: let’s throw away serviceable cars and make some new cars just so that auto workers can work 40 hours per week making cars that nobody really needs. The solution is a new way of doing things–the 40 hour work week, etc. is a corpse. All of our leaders, have corpses in their mouths. The industrialists, the CEO’s all have mouths full of corpses.

  • Daniel Newhouse

    TC, is “The Great Reckoning” your idea?

    Geez, you are a fool if you think your ideas will do anything but make conditions worse.

  • Ed Wooster

    Ed said,

    A very good commentary from Mr. Grove, however it is too late to turn the ship around or save it from sinking.

    Companies didn’t move off shore just because of the wages and benefits, they moved off shore because the government pushed the global agenda with Nafta and WTO. First jobs to Mexico in hopes of stemming the flood of immigrants to the US, didn’t work. Then the jobs left Mexico and its’ workers high and dry and went to Asia. When Asia becomes too expensive we can move them to Africa to the dirt poor regions of that country.

    But to recover? Not going to happen. We lack the resources. Educated, well trained workers, raw materials, and the fact that oil production is declining and you cannot ship freight with green technology. Costs are not only escalating but China has been buying up raw material resources with our Wal-Mart Dollars. This country’s leaders, government and private sector should have been looking ahead and listening, but instead their self righteous ideals and egos have torpedoed America right into the briny depths. Doesn’t matter if the country is being lead by Democrats or Republicans, they have failed us all.

    I worked at Agilent before it went down in the Tech Bubble. They had a big party for their employees providing a circus and lots of electronic freebies. The next morning the CEO came on the overhead speakers notifying the employees that finances were bad and not to waste pencils and etc. I knew that if we were cost conscious about pencils things were not good. They were hiring three temps for every job so no one had anything to do. They leased new buildings and on and on and on. But reading the internet I read articles about their clients filing Chapter 7. What was it the MBA’s kept saying? Oh yes, The New Paradigm.

    Greed – Ego and now self destruction. It can not get any better than this.

  • TC

    Daniel – Alas, I cannot claim the Great Reckoning as all mine. Since we’re in Daily Reckoning, one must always acknowledge inspiration from Reckoner In Chief Bill Bonner. I have visited DR for years and read Mr Bonner book. He has got the big picture totally right since day one.

    Geez – There are many sound ways forward. But all are politically, economically, socially taboo. Just take a look around the world – seriously, with an open mind. While a few countries are in trouble, many are in pretty good shape. There are in fact more than a dozen in great shape. So there are many examples of sound policies, best practice, wise institutions to learn from, to copy or adapt. But America will have none of it. Survey all the debate, noise, blame, and BS all over the media. You will find not a single word on what works outside of America. Such is the degree of hubris and delusion that still overwhelm a once great country.

  • LS

    The first comment (Cory Brickner’s) nailed it.

    Andy Grove may be a brilliant engineer and a brilliant leader, but he’s no economist. He proposes we embark on the same economic fallacies that Henry Hazlitt so neatly skewered 10 years before Mr. Grove arrived in this country.

    It is true that “our generation has seen the decisive victory of free-market principles over planned economies.” But what Mr. Grove fails to realize that our generation has also witnessed the devolution of the United States from a free-market economy to a planned economy—and that is the fundamental source of our problems.

    In essence, the young man who fled Hungary in 1956 to become one of America’s most successful entrepreneurs now advocates the exact same economic policies for this country that he was attempting to escape in his youth.

    What a sad, sad, commentary on the state of our country.

  • SR

    He should practice what he preaches. HUNDREDS of Intel employees located in Riverton, UTAH lost their jobs when Intel sent their ACCOUNTING jobs to Costa Rica this year.

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