Profitable With Uncle Sam’s Assist
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Should the United States get a bit more similar in order to stay competitive with China?
I’m provocative, but that is essentially the question behind the US government’s plans to provide financial aid to American-made computer chips and perhaps other native technologies as well.
In practice, the US government is constantly subsidizing or supporting industry. But the idea of a government helping its favorite industries is usually ridiculed by the United States as a perversion of the free markets. It’s what China is doing or what European governments are doing with their leading aircraft manufacturer.
That makes what happens to computer chips only at the start of a sensitive political debate: should the government step in more to create American winners, particularly in technology and other key areas? And if so, how?
What’s happening: Computer chips are like the tiny brain or memory in everything from jet fighters and satellites to refrigerators and automobiles, as my colleagues Ana Swanson and Don Clark wrote. Silicon Valley was named after a material used in computer chips – and Intel was an industry pioneer and star. No longer.
Taiwanese firms, including Taiwan Semiconductor Manufacturing Company and South Korean Samsung, have leaped forward in advanced designs and are now kings of manufacturing. The vast majority of chips in the world are made outside of the US, also due to government subsidies abroad.
The pandemic resulted in a chip shortage that slowed U.S. auto factories, creating a greater urgency for the U.S. military and businesses to have a safe and uninterrupted supply of chips in close proximity.
Last year, Intel and federal agencies proposed financial support for American chip manufacturing. The result was the approval of taxpayers’ money to subsidize US chip factories and chip research in the military policy bill passed a month ago.
Congress has not yet funded the program, so the dollar amount and details are pending, Don told me. He also said it could be years before government money is converted into more US-made chips. But you have the goal: Make sure that more chips are churned up within American borders, whether from Intel or foreign chip manufacturers on US soil.
The bigger picture: The background to all of this is China. One fear is that the ongoing tensions between China and Taiwan could at some point disrupt the island’s chip industry and affect the rest of the world.
The Chinese government has also spent a lot of money building its own chip industry and relying less on imported chips and devices.
Chips are one of the leading fronts in the political, military and economic competition between the USA and China.
What’s next: It’s an odd sight in Washington: Republican politicians, who tend to prefer less government intervention, are campaigning for politicians on the left to support more government support for private companies. This is true in computer chips and in a few other areas including artificial intelligence, robotics, and advanced manufacturing.
One question is how can industry be supported without wasting taxpayer money. Advocates of government aid have supported more generous tax credits for corporate research and development spending, government support for basic scientific research, and tax-backed mutual funds in strategic industries like chips, batteries, and automobiles. America has already done this, especially in the 1980s and 1990s when Japan was an emerging economic power.
This debate is about much more than politics. It’s about figuring out the proper role of government in the economy, and what America should do when other countries are pouring endless money into their national master craftsmen.
And ultimately, this is a window to a big question that I think about all the time: What should the United States do about a future where technology becomes less American?
A history lesson that might be relevant to chips
When I first heard of the proposals for state funding for the chip industry, I thought of the 1990s and the equipment of telephone networks. (Yeah, I’m very cool.) Come on a journey through history.
North American corporations were once the kings of another important industry: the equipment that telephone companies need to run the world’s communications. But for complicated reasons, American titans like Lucent – a successor to the old Bell Labs – were sold to foreign companies or died.
The world’s leading telecommunications equipment company today is the Chinese company Huawei, and the US is worrying about it.
So I wondered if Huawei was a cautionary story about America’s missed opportunity. If the U.S. government had thrown taxpayers’ money behind the country’s telecommunications sector in the 1990s, as it is now with Chips, would Lucent have succeeded and not Huawei?
I put this question to Rob Atkinson, who wrote a story last year about the demise of American telecommunications companies. “If you really wanted to save Lucent, yes, I think you could have survived,” he said on US government funds or loans.
Dr. Atkinson is president of the Information Technology and Innovation Foundation, a research group funded by telecommunications and technology companies like Intel.
Of course, there are complex reasons behind the death of American telecommunications companies and the rise of Huawei. I encourage you to Dr. Read Atkinson’s article to learn more. It is also impossible to know for sure whether US government support over the past few decades would really have changed anything for Lucent and his colleagues.
The organization of Dr. Atkinson supports more US government investment in key industries, including chips. And like others who support this policy, said Dr. Atkinson said America must also make its trade and diplomacy with China conditional on that country slowing down its strong support for domestic industries.
Before we go …
Teaching a cat to flip a coin. The best part is the man’s enthusiastic response.
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