Footnotes

 

  1. Richard J. Elkus, Jr.; “Winner Take All;” Basic Books, New York; 2008; p. 56.

 

  1. Elkus, p. 46.

 

  1. Elkus, p.p. 67-68.

 

  1. Elkus, p.p. 68-69.

 

  1. U.S. manufacturers must compete with foreign companies assisted by their governments. Lithographic steppers are a key component of semiconductor technology; they project millions of circuit elements onto semiconductor wafers before chemical etching. After the U.S. companies Perkin-Elmer and GCA developed the stepper, “…Nikon and Canon began development of their own stepper related programs with specific help and guidance from a highly motivated Ministry of International Trade and Industry (MITI). The stepper was crucial to Japan’s semiconductor industry. (Elkus, p. 144)”  In 1980, the U.S. suppliers of steppers had 90 percent of the market. By 1990, the U.S.’s market share decreased to 10%  (p. 149). Steppers to manufacture semiconductors with 32 nanometer precision cost in excess of  $50 million.

 

True, in an oft cited example, MITI also backed mainframe technology, proving to some that government could not pick the winners. But, it backed more than mainframes.

 

  1. Manufacturing is capital intensive, particularly the manufacture of sophisticated consumer electronics products. Elkus writes, “Volume coupled with performance and reliability can add hundreds of millions of dollars to the capital investment required to produce consumer electronic products, many times that required of a commercial version.” (p. 75)

 

What does the stock market favor? Using 2007 financial results, we set the economic interest of having a vibrant manufacturing base against the shareholder interest of having an high return on net assets.

 

                                                  Sony Corp.           Hewlett Packard

 

Return on Net Assets                     8.7%                         32.9%

 

Plant and Equipment % Sales      14.0%                           7.5%

 

Stock Price Appreciation                 4%                          104%           

    (1/2002-6/2008)
 
                                                                         

 

 

 

 

 

 

         

 

 

The example of Hewlett Packard suggests a further tendency of U.S. companies to reduce their investments in all manufacturing, contracting it out instead. To remedy the manufacturing base problem, government must change the rules.

 

A viable manufacturing base is crucial, not only for developing new products. Manufacturing provides high-paying jobs on a large scale; it is capable of productivity improvements; and has substantial multiplier effects on the rest of the economy. This base has to be ultimately sustained by the long-term development of advanced value-added products. Simply mandating that manufacturing remain in the U.S., without R&D, opens the U.S. economy up to increasing competition from abroad as the rest of the world improves.

 

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The 9/8/08 issue of the WSJ has an article titled, “Outsourcing at Crux of Boeing Strike.”

 

1/10 As it turned out, outsourcing was responsible for a two-year delay in launching the 787. About 50% of the 787’s primary structure is made from composite materials. Its suppliers could not maintain adequate quality control and deliver functional subsections that Boeing could just snap together. According to Mauboussin (2009), “While Boeing designed the production system to integrate twelve hundred components, the first plane came in thirty thousand pieces…” Boeing originally outsourced its manufacturing to reduce capital investment (and increase ROI); it has since had to acquire at least one major supplier.

 

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The 9/6/08 issue of the NYT reports that Dell Computer plans to depart from its made-to-order production model; four of its ten factories are in the U.S.. The company plans to possibly sell all its factories within the next 18 months to contract manufacturers. Dell will then become a design and marketing company. Guess who will do the designing in a few years?

 

To cite an incremental change that has evolved into a major improvement: Our new Lenovo (formerly IBM) X200 Thinkpad laptop has as battery life of five hours and a blindingly fast Samsung solid-state drive that boots up the XP operating system (some of our programs won't run on Windows 7) in just 20 seconds.

                                                                                                                                                                                                                                                                      

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The 9/4/08 issue of the NYT reports three new products from Japan, all of them evolved from previous ones:

 

The Canon 50D Digital Camera, “An Upgraded Camera That Only Looks Familiar,,,by shrinking the light-sensitive faces of pixels by a third, the new sensor is able to pack in 15 million (sic) of them. Above these pixels, light-gathering microlenses are bigger and gapless, so fewer photons sneak by.”

 

The Sony Walkman, “…the NWZ-738F stands out with built-in noise-cancellation headphones…the new Walkmans come with an FM tuner to grab some radio waves.”

 

The Epson 800, “This glossy black inkjet printer looks more like a sleek piece of modern furniture than a boxy peripheral.”

 

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The above does say something about turning all of U.S. industry into a cash cow. The future requires commitments in the present.                                                               

 

 

 

 

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