March 27, 2012
By: Venkatesh Narayanamurti
Source: Los Angeles Times
We all know the United States has a jobs crisis. President Obama further acknowledged it when he made manufacturing a top priority in this year's State of the Union address. He has his eye set on fixing the tax code to keep jobs onshore, training young people to fill them, reforming immigration to retain workers once trained and setting new standards to drive innovation and create more jobs. That's all good news for the nation; it's practically an industrial policy.
In all this, though, there's a worrisome undercurrent. The United States didn't just suddenly find itself in this crisis. Our nation has worked long and hard to get here, after decades of so-called free markets while other nations tilted the playing field, of American jobs going offshore, of politicians, economic advisors and industrialists finding common cause in letting manufacturing move to Asia and Latin America.
Jobs fled to cheaper labor markets, unprotected by U.S. health and safety standards. And they took with them wealth. Seventy large U.S. firms — including Apple, Microsoft, GE and Pfizer — hold $1.2 trillion in cash overseas, according to a recent Bloomberg survey. Much of that money is unlikely ever to be repatriated to the United States because of tax laws.
So U.S. industrial policy — or the lack of it — has made many nations rich in jobs, short on worker safety and loaded up on cash.
But that's the least of it. The United States also has put at risk its greatest asset: the return on its intellectual capital. We have let China learn by doing, South Korea innovate by manufacturing, India build new capabilities in design and research and development — much of it on the back of initial American innovation.
With manufacturing gone to China, for example, R&D followed Apple to Foxconn. Applied Materials set up a major R&D shop in China, where solar cells are being manufactured. GE, Texas Instruments, Cisco and others established major R&D and design centers in Bangalore, India.
Why? Because you can't do R&D offshore from a distance. The "look-see-do" of innovation depends on close ties to the manufacturing process. Proximity to manufacturing is the key to other higher-value activities — design, engineering and R&D. And with that, jobs.
The results are in: Pacific Rim nations are increasing their dominance in the electronics and communications technology that is central to the continued advancement of the high-tech industry.
But some economists seem to find manufacturing almost demeaning — high-rent, low-wage scut work best left to the developing world. Losing those jobs, they say, is really proof of America's greatness, its very essence.
Writing for a Harvard symposium in 2007, for example, Princeton professor Alan Blinder, a member of President Clinton's Council of Economic Advisers and a former vice chairman of the Federal Reserve, seemed practically heartened by job loss:
"Nowadays, the number of television sets manufactured in the United States is zero. A failure? No, a success," Blinder wrote. "Like the cowboy hero, the leader innovates and moves on."
Such thinking is shortsighted. As we now know, letting others handle our manufacturing over the long term does deep, slow-moving and irreparable damage to the welfare of nations.
These turn out to be hard lessons to learn. President Obama offered a vision that tied together jobs and taxes, manufacturing and training, education and welfare. Yet Christina D. Romer, past chairwoman of his Council of Economic Advisers, demurred. Writing in the New York Times, she asked: Why favor manufacturing over service industries such as insurance or entertainment?
The answer is in the vertical supply chain integration that made Silicon Valley and later, Austin, Texas, the innovation centers and jobs engine they once were, and what Albany, N.Y., is now for nanotechnology. Writing in CrainsNewYork.com last November, Jeremy Smerd reported that Albany has become "the new Austin" — loaded up with R&D, manufacturing and jobs:
"Companies in the computer chip supply chain, facing exponential increases in development costs, relocated employees to the nanoscience center — which in 2004 became a college — to conduct research and collaborate with competitors.
"[Since then], companies have begun flocking to the college and to the area; more than 200 have workers at the campus. The semiconductor industry in Albany has bloomed to more than 400 companies, more than New York City or the mid-Hudson Valley.
"The college estimates that its funding has spurred billions of dollars in private investments that have helped create 12,500 high-tech jobs statewide, a number it expects to double within 10 years.
" 'We develop technology before anybody else in the world,' [said one engineer.] 'Not just New York — the world.'"
One wonders where America might be today without the advice of the president's Council of Economic Advisers. One guess: more manufacturing, more innovation and more jobs. By now surely ordinary Americans would be within their rights to question the council's own marginal utility.
Venkatesh Narayanamurti, founding dean of Harvard's School of Engineering and Applied Sciences, is director of the Science, Technology and Public Policy Program at Harvard Kennedy School's Belfer Center for Science and International Affairs.