Andy Grove, Smoot-Hawley redux?

In a recent article in Bloomberg Businessweek Andy Grove says that the way to make American jobs is not start-ups, as Times op-ed writer Friedman would have it, but tariffs!

This is how he puts it, “Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars—fight to win.)

And a bit later, “If what I’m suggesting sounds protectionist, so be it.”

Now if the head of the local machinists union, no. 1275 were to say this we wouldn’t give it a thought, or a even passing glance. For all union officials are programmed to see no further than the job security of their members.

But Andy Grove? Although he didn’t found Intel (that was Robert Noyce and Gordon E. Moore and friends) he is now credited with having transformed the company from a manufacturer of memory chips into one of the world’s dominant producers of microprocessors.

He became Intel’s president in 1979, its CEO in 1987, and its Chairman and CEO in 1997, and during his tenure as CEO, he oversaw a 4,500% increase in Intel’s market capitalization from $4 billion to $197 billion, making it, at the time, the world’s most valuable company.

So yes, when he talks about start-ups and job creation we have to listen. But not for long. 1979, the year when Grove became Intel’s president, is not 2010. The world has changed and Grove doesn’t seem to have noticed.

Just one week later, also in Bloomberg-Business Week, Vivek Wadhwa, a visiting scholar at University of California at Berkeley, makes this clear. Start-ups, he says, do create jobs.

“The Kauffman Foundation’s analysis of Census Bureau statistics shows that net job growth in the U.S. economy occurs only through start-up firms. From 1977 to 2005, existing companies were net job destroyers, losing 1 million net jobs per year. In contrast, new outfits in their first year added an average of 3 million jobs annually.”

Also, he points out that tariffs have been tried before, with the goal of stemming job losses. In the infamous case of the The Smoot-Hawley Tariff Act of June 1930, that which raised U.S. tariffs to historically high levels, jobs were not created but destroyed.

So what has happened to Grove? He must know the history of tariff wars and how little they benefit the participants.

Wadhwa makes his own common sense recommendations for what we might do to create additional jobs.

First we need to upgrade our investment in workforce training and development as a national priority. We need to have the concept of lifelong education become part of our culture. Education … is the best way of staying ahead in the global race for skills.

Second, we need to foster entrepreneurship at the source…. What inhibits Americans from starting companies is a lack of knowledge of how to do it, lack of financing, and fear of failure…. a significant proportion of the workforce can be taught to start successful companies and create jobs.

Third, we need to recruit the world’s best and brightest to the U.S. and do all we can to keep them here …. These skilled workers tend to be highly educated, to understand foreign cultures and markets, and to be highly entrepreneurial.

Fourth, we need to more effectively tap the gold mine of knowledge and innovation locked in our universities…. by building mechanisms [that promote] the nexus between the scientists who make the discoveries, the universities that market the discoveries to the world, and the entrepreneurs with domain experience who could take these discoveries and turn them into products.

Lastly, he says, and probably Andy Grove would agree, we need to provide incentives to American companies to keep research in the U.S. … The lure for these companies isn’t just cheap labor but also heavily subsidized infrastructure and cash subsidies. We may have to level the playing field [but not start anything like a tariff war as in 1930] in those industries where other countries aren’t playing by the rules.

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