Andy Grove II
Andy Grove in his Business Week commentary lays out a case that America is on track to have high unemployment long term. With all sorts of dangerous implications for the country, social and political as well as economic.
He identifies two prime reasons for the country’s likely inability to create jobs at the needed scale. The first is a belief that start ups are the key to economic growth which he argues is just wrong. He writes: The underlying problem isn’t simply lower Asian costs. It’s our own misplaced faith in the power of startups to create U.S. jobs. Americans love the idea of the guys in the garage inventing something that changes the world. … Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. … The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.
The second reason he identifies is that because the factories that make new technology products are increasingly overseas America is far less likely to invent and commercialize successive generations of products from those new technologies. The result: America gets little job creation from technology based enterprises. And given that technology is a key sector of employment growth we end up with not having enough jobs.
As Grove writes: I believe the answer has to do with a general undervaluing of manufacturing—the idea that as long as “knowledge work” stays in the U.S., it doesn’t matter what happens to factory jobs. … I disagree. Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry.
We agree that start ups are not the key to economic growth. What drives economies are small companies that grow big, not that stay small. Where we don’t agree is that where the factory jobs go, so go the pre and post production jobs. As we wrote in our posts about Bissell and Apple, they have their products made elsewhere but keep adding to their workforce in the knowledge parts of the business. And both companies continue to be leaders in new product development. To us that is the future of American manufacturing and one that will contribute to American job growth.
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It is correct that most small businesses are not significant job creators over the long run. However, a small fraction of those firms grow substantially and do make a significant economic contribution.
We at Public Policy Associates, Inc. have been working with the Small Business Association of Michigan to develop a blueprint for the next governor to use to broaden Michigan’s economic development strategy. Essentially, we are recommending that instead of relying solely on the current strategy of “economic hunting,” that Michigan add “economic gardening” to its approach. Gardening refers to nurturing small firms that have the potential for substanial growth and creating a culture of entrepreneurship.
Our initial white paper on the subject, “Propelling a New Economic Direction for Michigan,” is at http://publicpolicy.com/Reports.asp. As a first step, the paper explicitly raises as many questions as it answers, so we would welcome comments about it.