Andy Grove’s lost warning?

Former Intel CEO Andy Grove in 2003 with a 1978 photo of him with Intel co-founders Robert Noyce and Gordon Moore. Source: Wikimedia

Former Intel CEO Andy Grove in 2003 with a 1978 photo of him with Intel co-founders Robert Noyce and Gordon Moore. Source: Wikimedia

Holocaust survivor Andy Grove, credited with much success at the reinvention of Intel, died earlier this week. The obituaries have set out how much of a contribution he made. For example, at the Guardian, it says:

“[Grove]…was a mercurial but visionary leader who helped position Intel’s microprocessors as the central technology inside personal computers.

Grove’s bet-the-company gamble – moving Intel from memory chips to microprocessors in the mid-1980s to serve what was still a fledgling PC industry – helped rescue Intel from a financial crisis and set it on course to becoming one of the most profitable and important technology companies of all time.

“Andy made the impossible happen, time and again, and inspired generations of technologists, entrepreneurs, and business leaders,” Intel CEO Brian Krzanich said Monday.

Robert Burgelman, a professor at Stanford University’s Graduate School of Business who started teaching management classes with Grove in the late 1980s, called Grove “one of the most incisive thinkers that I have ever come across”. He said Grove’s technical and strategic abilities were critical in building Intel and fending off threats from Asian competitors.

“I don’t think Intel would have been Intel as we know it, and therefore the US chip industry would not have been what it is” without him, Burgelman said.”

None of the obituaries, however, mentions his warning to western economies about the loss of manufacturing know-how.

The Register fills in the gap:

Lost in the obits: Intel’s Andy Grove’s great warning to Silicon Valley

You won’t prosper with a weightless economy

A few years ago, Andy Grove took the Davos crowd to task. The received wisdom at the time – and it still is – was that America’s future was as a “knowledge economy.”

It was 2010, and the former Intel CEO lamented that Foxconn employed more people – 800,000 in total – than Sony, Intel, Apple, Dell, Microsoft and HP combined.

Grove was fed up with being told that prosperity would come if the US continued to export jobs and manufacturing skills. And that the future was startups. This was a load of rubbish, he pointed out in a comment piece.

The lesson Grove had learned at Intel was that success was all about scale. As soon as a country loses its high-tech manufacturing base, it forgets how to do many things, and loses its ability to scale in a new marketplace. The spoils go to those who retain a competitive manufacturing base.

TVs were a good example, Grove wrote. Princeton economist Alan Blinder had written that the absence of TV production in the USA, as TVs became a low cost “commodity,” was a good thing.

“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.”

He compared it to a condemned engineer fixing a faulty guillotine, so it successfully chops off his head.

“Without scaling, we don’t just lose jobs – we lose our hold on new technologies. Losing the ability to scale will ultimately damage our capacity to innovate.”

Grove was sympathetic to the mixed model of free markets and strategic prioritization that Asian companies used, but with a more corporatist model, where the governments choose winners. He suggested imposing levies on manufactured imports, with the money raised being doled out on strategic loans.

The accepted position is that you cannot manufacture in the west, because you cannot compete with low cost manufacturing in China and elsewhere. But I know at least one lone voice in the crowd protesting that the accepted position is wrong. There are many more, though they are in the minority. It depends what you manufacture, how you manufacture, and what the local economic situation is regarding imports. If Europe, for example, has no import barriers, no wonder it is swimming in cheap imports. If tax allowances for investment in manufacturing equipment are woeful, no wonder there is a hesitation about such investment. Manufacturing can be done, but it needs the people at the top to recognize the whole situation, and put in place mechanisms that pay heed to the warnings that Grove and others have given.

Read the whole piece here. It includes an interesting note about the Dyson position, and a link to Grove’s original article.

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