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June 22, 1989
"A Common Agenda for Chip and Computer Makers"
San Jose Mercury News
By Timothy Taylor
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I don't expect the Semiconductor Industry Association and the American Electronics Association to sing exactly the same tune. After all, the SIA membership includes several dozen chip manufacturers, while the AEA membership includes all of the SIA companies, plus an additional 3,500 firms from all branches of the electronics industry.

But two recent publications of the two trade associations differ not only in matters of modulation and pitch, but in their basic assertions about why their industries are important, how greater U.S. competitiveness can best be achieved and the role of free trade.

There is wisdom in both reports, but industry, government officials and the public would do much better to learn from the AEA report, "America's Future at Stake: Winning in the Global Marketplace," rather than the "Key Facts and Issues" published by the SIA.

Here are some examples behind that judgment:

The SIA emphasizes that individual companies can no longer compete without government assistance. "The stunning impact of the Japanese business and trade model on America's dominance in semiconductors must serve as a lesson that the United States can no longer conduct business as usual. We cannot expect relatively small individual companies to compete against coordinated industry/government efforts by foreign countries."

Since it comes from this perspective, it should be no surprise that the "SIA's Competitive Platform" emphasizes how the government must direct financial subsidies, tax breaks, antitrust law and trade protection to helping the chip industry.

The AEA, on the other hand, emphasizes the responsibility of private companies. "AEA firmly believes that private companies have the primary role in meeting the challenge of global competition. Individual companies are responsible for their own destiny. Government can help, but companies must lead."

Thus, the first half of the AEA's competitiveness agenda stresses the need for U.S. companies to reach out to customers (including foreign ones) to "make a commitment to manufacturing prowess," to "make a commitment to long-term goals" like investment, to work toward the continuing education and increased motivation of its workforce.

A second difference is that SIA puts heavy emphasis on the role of semiconductors in the defense industry, which seems odd given that only 5 percent of semiconductor sales go to the defense industry. "Our dwindling control over the development and supply of semiconductors could have a variety of consequences," writes the SIA.

Three consequences are listed:

  • "Our ability to produce advanced weapons and products could be controlled by another country's willingness to sell us advanced semiconductors."
  • "The costs of our defense systems and our ability to produce weapons could be affected by semiconductor prices and volume levels set in other countries.
  • "Our dependence on foreign semiconductors would swell the U.S. trade deficit even more, further weakening our economy."

The emphasis on defense becomes even more clear when you discard the last argument, which is a bit silly. Total sales for U.S. chip makers were $13.4 billion last year. Even if foreign competition had eaten up half their market -- terrible for other reasons -- it wouldn't have made much difference to the huge trade deficit.

The AEA report could have chosen to emphasize defense or the fact that electronics is now the largest U.S. industry, with $278.9 billion in sales. Those facts are surely discussed.

But when it comes to priorities, the AEA says, "The most important role that the high-technology industry plays is to provide the tools for workers in other segments of the economy to boost their productivity.... The major beneficiaries from innovation are not the relatively small number of companies that create the new tools, but the much larger number of companies and organizations that use them."

Finally, the AEA supports the notion that American business needs access to the best technology in the world, wherever it is produced.

"The electronics industry has been likened to a food chain," writes the AEA. "The survival of each unit in the chain -- materials, manufacturing equipment, semiconductors, circuit boards, computers, systems, software -- is critical to all of the other elements in the chain. For example, access to state-of-the-art semiconductor technology is essential to the success of all of the elements further 'up' the chain. A lag in access to this technology by U.S. companies ultimately means a loss of competitiveness in other sectors."

The SIA, on the other hand, encourages trade sanctions against Japanese high-tech products until Japanese companies buy more chips from SIA members, even though these sanctions have involved some injury to other parts of the high-tech "food chain."

Perhaps the best way to understand these different emphases is to follow what they imply as policy recommendations.

Both perspectives agree that a healthy and productive semiconductor industry is desperately important to U.S. competitiveness. Perhaps in the misty realms of theory, a healthy U.S. electronics industry might exist without a healthy U.S. semiconductor industry. But I wouldn't want to try it.

The SIA and the AEA agree on many general steps for U.S. competitiveness. Both agree that better math and science education is needed at all levels. Both encourage government support of research and development through direct spending, tax credits and antitrust exemptions that allow companies to cooperate on such work. Both agree that the U.S. should pursue tough negotiations to give U.S. companies a better chance to sell their products in foreign markets.

At the business level, the AEA and SIA have been encouraging their members to form partnerships, alliances and long-term contracts. The recent proposal by SIA members for a consortium of U.S. companies to manufacture semiconductors is one example. Japanese chip makers are generally attached to much larger electronics companies, which gives them a measure of financial security in hard times. Joint agreements will give some of that same security to U.S. semiconductor manufacturers.

On the other hand, the SIA seems bound for disagreement with the AEA on questions of trade restrictions. For example, a number of U.S. companies that use chips -- including Apple, Hewlett-Packard, IBM, AT&T, Tandem, Compaq and Unisys -- have been holding preliminary talks about joint lobbying to make sure that they can import advanced high-tech products when they wish.

But focusing only on the public policy agenda can be dangerous, because U.S. competitiveness must rely, in the end, on the private initiative of industry. This is where the SIA report bothers me. It bothers me that the SIA can distribute a 25-page pamphlet on "Key Facts and Issues" and barely mention any changes that individual companies should make. It bothers me to hear the SIA argue that private chip companies are not able to compete on their own, that the semiconductor industry is a weapons industry, and that government should put semiconductors first in trade policy, even at the expense of the rest of the electronics food chain.

The semiconductor and electronics industries need to keep remembering that their purpose is to serve the overall economy, not the other way around.

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