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In my piece today about the ways the American managerial class has failed the U.S. manufacturing sector, I included a slightly elliptical riff about the superiority of managers in other advanced economies: "By contrast, European and Japanese manufacturers, who lived and died on the strength of their exports, innovated relentlessly."
The logic of this comes from the Harvard Business Review piece by Robert Hayes and William Abernathy that I cite. Hayes and Abernathy basically make two points. First, because the Europeans and Japanese rely so heavily on overseas markets, where the prices of their products can fluctuate owing to factors beyond their control, like exchange rates and tariffs, their manufacturers are forced to focus on quality and technological superiority. Technological advantages remain even when an exchange rate cuts against you. By contrast, American companies have always had a huge domestic market, so they could afford to mostly compete in terms of price. (They certainly don't have to, but they can get away with it, whereas the Japanese can't and the Europeans couldn't for decades.) As a result, managers at American industrial companies have tended to think a bit more in terms of short-term costs--ways to undercut the other guy rather than outperform him.
Second, because labor markets tend to be less flexible and hourly labor costs tend to be higher in Europe and Japan (consider Germany's famously powerful industrial unions), manufacturers there couldn't traditionally cut costs very easily even if they wanted to. Whereas American manufacturers could often lower costs simply by lowering wages or axing employees, the Germans and Japanese had to either make their workers productive or have them produce more valuable products. It's not that American manufacturers never did the latter, of course. But some of our foreign competitors simply had no choice, and they were very good at making virtue of necessity.
Finally, an unrelated point: I think some readers are slightly misinterpreting the point of my piece. I'm not saying that the shortage of managerial talent caused the decline of U.S. manufacturing. (I think it played some role, but that role was swamped by more important factors, like the forces of globalization and other countries' aggressive industrial policies.) What I'm saying is that, even if we decided to spend a lot of time and resources reviving the manufacturing sector--aggressively subsidizing research and development, coordinating the supply-chains for new industries, providing credit for new firms, pushing back hard when other countries try to poach U.S. companies, etc., etc.--all of that effort might be wasted if we don't have a competent managerial class in which to entrust these industries
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One thing you neglect to mention is how too often management ignored or were outright dismissive of US innovations, only to have foreign competitors use the technology. The biggest reason was 'it costs too much' or 'no one will buy it'.
A famous example: the VCR. Ampex engineers invented the VCR in the 60s but their management dismissed it outright. JVC licensed the patents to create what became the VHS format. IEEE "Spectrum" (the premier electrical/electronics engineering tech journal) had a good article about it years ago. It was quite depressing to see that *all* the patents used were from Ampex.
Another one: the CD format. Philips did the groundbreaking work and came to the US for ... view full comment
One thing you neglect to mention is how too often management ignored or were outright dismissive of US innovations, only to have foreign competitors use the technology. The biggest reason was 'it costs too much' or 'no one will buy it'.
A famous example: the VCR. Ampex engineers invented the VCR in the 60s but their management dismissed it outright. JVC licensed the patents to create what became the VHS format. IEEE "Spectrum" (the premier electrical/electronics engineering tech journal) had a good article about it years ago. It was quite depressing to see that *all* the patents used were from Ampex.
Another one: the CD format. Philips did the groundbreaking work and came to the US for a partner to build it. GE, Zenith and RCA turned them down (it was another article in the same "Spectrum" issue). That's when they reluctantly went to Sony.
There are countless examples like that. There is one industry that seems to have kept most of it's manufacturing and innovation in the US, the semiconductor industry. One difference I see there from many other industries is management often came from rank and file engineering in design, product development or manufacturing. It shows. Things are far from perfect in that industry but it didn't get hollowed out like too many other manufacturing concerns. Even Intel, TI and IBM keep their most advanced R&D and wafer fabs in the US.
It is not true that the semiconductor industry kept their manufacturing in the US. Yes, IBM, Intel and TI keep fabs in the US, but most semiconductor companies in the US have no fab at all, anywhere. They outsource all manufacturing to foundries in Asia.
It is not true that the semiconductor industry kept their manufacturing in the US. Yes, IBM, Intel and TI keep fabs in the US, but most semiconductor companies in the US have no fab at all, anywhere. They outsource all manufacturing to foundries in Asia.
Jamiller, do you work in the industry? I do, have since 1986. I know what I'm talking about.
You must be talking about fabless companies, ones that never had them to begin with. nVidia is the prime example and yes, they do use TSMC as their foundry but they also use IBM (another big foundry). The US companies that had fabs kept them. Name one that shed their factories that is still in business. The only one one I can think of is AMD and they're nearly gone. US companies still have a lot of manufacturing capability in the US and not just the big boys. Linear Tech and Maxim have their own fabs and they are a fraction of TI's size. I can name many more like that.
Jamiller, do you work in the industry? I do, have since 1986. I know what I'm talking about.
You must be talking about fabless companies, ones that never had them to begin with. nVidia is the prime example and yes, they do use TSMC as their foundry but they also use IBM (another big foundry). The US companies that had fabs kept them. Name one that shed their factories that is still in business. The only one one I can think of is AMD and they're nearly gone. US companies still have a lot of manufacturing capability in the US and not just the big boys. Linear Tech and Maxim have their own fabs and they are a fraction of TI's size. I can name many more like that.
tnmats, I'm not saying we don't manufacture, I'm saying that lots and lots of semiconductor companies don't. Yes, some companies have decided to keep doing it, but for most semiconductor companies, their innovation is in what the chip does and not in how it is made. So they use TSMC, UMC, or whomever. So maybe I should not have said "most" companies don't manufacture anymore because I don't know the actual data, but based on my observations, and yes, I am in the industry, albeit indirectly, "most" US semiconductor companies don't make their own silicon.
My real point (and fear) is that such a model might reward the inventor and their investors, it does not help joe sixpack wearing a bunnys ... view full comment
tnmats, I'm not saying we don't manufacture, I'm saying that lots and lots of semiconductor companies don't. Yes, some companies have decided to keep doing it, but for most semiconductor companies, their innovation is in what the chip does and not in how it is made. So they use TSMC, UMC, or whomever. So maybe I should not have said "most" companies don't manufacture anymore because I don't know the actual data, but based on my observations, and yes, I am in the industry, albeit indirectly, "most" US semiconductor companies don't make their own silicon.
My real point (and fear) is that such a model might reward the inventor and their investors, it does not help joe sixpack wearing a bunnysuit. Unfortunately, if Joe sixpack has no job prospects, there is not much of a chance for a middle class, and that is terrifying to me.
Jamiller, I fully agree with your last paragraph.
I am in the industry, a chip designer; worked for Motorola, TI and others. What I've noticed over the decades is the companies that have their own fabs always win in the end. nVidia is one of the exceptions. For now. Intel is beginning to eat their lunch at the low end and will eventually at the high end too; their main competitor (ATI) eventually got swallowed by AMD. The rest in the fabless area are real small fry and seem in the end to have to partner with a big (ie fab-owning) company.
Jamiller, I fully agree with your last paragraph.
I am in the industry, a chip designer; worked for Motorola, TI and others. What I've noticed over the decades is the companies that have their own fabs always win in the end. nVidia is one of the exceptions. For now. Intel is beginning to eat their lunch at the low end and will eventually at the high end too; their main competitor (ATI) eventually got swallowed by AMD. The rest in the fabless area are real small fry and seem in the end to have to partner with a big (ie fab-owning) company.
Hey Noam, what's with the comments section? On your main page article about MBAs there was an exchange between me and a few others that is now gone. I'm seeing such weirdness with the TNR web site lately. The one I'm really confused about is comments sections that won't allow any comments.
Hey Noam, what's with the comments section? On your main page article about MBAs there was an exchange between me and a few others that is now gone. I'm seeing such weirdness with the TNR web site lately. The one I'm really confused about is comments sections that won't allow any comments.
sorry - looking into it now. not sure what happened.
sorry - looking into it now. not sure what happened.
Noam,
Germany is different, but you are totally wrong again with respect to Japan. Take autos as an example.
1. Japanese industrial policy did not encourage the auto industry. To the contrary, MITI thought there were too many manufacturers and it's policy was in fact to try to put some of them out of business.
2. The industry did have a big domestic market.
3. Toyota and other did compete primarily by beating down cost. They relyvery heavily on sub-contractors who are treated like slaves. Toyota's well known policy for their sub-contractors was "Don't let them die, but don't let them live either."
4. The industry was not particularly innovative. It quickly adopted i ... view full comment
Noam,
Germany is different, but you are totally wrong again with respect to Japan. Take autos as an example.
1. Japanese industrial policy did not encourage the auto industry. To the contrary, MITI thought there were too many manufacturers and it's policy was in fact to try to put some of them out of business.
2. The industry did have a big domestic market.
3. Toyota and other did compete primarily by beating down cost. They relyvery heavily on sub-contractors who are treated like slaves. Toyota's well known policy for their sub-contractors was "Don't let them die, but don't let them live either."
4. The industry was not particularly innovative. It quickly adopted innovation developed elsewhere, but traditionally did little of it's own.
5. Japan did not rely on worker productivity. Worker productivity in Japanese plants is much lower and the plants are much more labor intensive than in the U.S.
It's much simpler. Cheap labor, cheap capital, protected domestic markets.
You're argument is like claiming that the U.S. has a superior agriculture industry because it has better agricultural management. Comparative advantage in an industry leads to the development of competent management....not the other way around.