Wed, Mar 30, 2016 - Page 9 News List

Andy Grove warned Silicon Valley over losing competitive edge

By Teresa Tritch  /  NY Times News Service

Praise for Andy Grove, who died on Monday last week, aged 79, has been wrapped up in praise for Silicon Valley, where he was a towering figure in the semiconductor revolution and the longtime leader of Intel, the world’s biggest supplier of microprocessors.

Lost in the lore is Grove’s critique of Silicon Valley in an essay he wrote in Bloomberg Businessweek in 2010. Grove said Silicon Valley was squandering its competitive edge in innovation by failing to propel strong job growth in the US.

Grove said that it is cheaper and thus more profitable for companies to hire workers and build factories in Asia than in the US.

However, he added that such lower costs mask the high price of offshoring, as measured by lost jobs and lost expertise. Silicon Valley misjudged the severity of such losses, because of a “misplaced faith in the power of startups to create US jobs,” he wrote.

Grove contrasted the startup phase of a business, when uses for new technologies are identified, with the scale-up phase, when technology goes from prototype to mass production. Both are important. However, only scale-up is an engine for job growth — and scale-up, in general, no longer occurs in the US.

“Without scaling, we do not just lose jobs — we lose our hold on new technologies” and “ultimately damage our capacity to innovate,” he wrote.

Yet, an all-out commitment to US-based manufacturing has not been on the business agenda of Silicon Valley or the political agenda of the US. Grove said that omission is a result of another “unquestioned truism”: “that the free market is the best of all economic systems — the freer the better.”

To Grove, that belief was flawed.

The triumph of free-market principles over planned economies in the 20th century did not make those principles infallible or immutable, he said, adding that there is room for improvement, for what he called “job-centric” economics and politics. In a job-centric system, job creation would be the nation’s No. 1 objective, with the government setting priorities and arraying the forces necessary to achieve the goal, and with businesses operating not only in their immediate profit interest, but also in the interests of “employees, and employees yet to be hired.”

When Grove wrote his critique, he was concerned about the corrosive social and economic effects of high unemployment — then 9.7 percent nationally. Unemployment has dropped considerably since then, but problems persist. Insecure, low-paying, part-time and dead-end jobs are prevalent. On the US presidential campaign trail, large groups of Americans are motivated and manipulated on the basis of real and perceived social and economic inequities.

Conditions have worsened in other ways. In 2010, one of the arguments against Grove’s critique was that exporting jobs did not matter as long as much of the corporate profits stayed in the US.

However, just as US companies have bolstered their profits by exporting jobs, many now do so by shifting profits overseas through tax-avoidance maneuvers.

The result is a high-profit, low-prosperity nation.

“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,” Grove wrote.

Silicon Valley and much of the US’ corporate sector have yet to live up to that principle.

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