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
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
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
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
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
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
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
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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