The danger of taking the social out of innovation

Andy Grove sounds the alarm about innovation

By dropping the social in innovation, is North America breaking the innovation chain?

Andy Grove, a co-founder of Intel and a Silicon Valley icon, is sounding two alarms about innovation’s future. Both flow from his disagreement with the accepted article of faith that the US tech sector necessarily should focus high-end jobs in the US and export manufacturing jobs.

One alarm is that US innovation is dropping the ball in job creation. By exporting manufacturing offshore to Asia, the United States is focusing on start-ups.  “Start-ups are a wonderful thing,” says Grove in a recent essay in Bloomberg Businessweek, “But they cannot by themselves increase tech employment.”

Grove challenges that notion that “shipping jobs overseas is no big deal because the high-value work — and much of the profits — remain in the US. But what kind of society are we going to have if it consists of highly paid people doing high-value-added work — and masses of unemployed?”

Grove’s second alarm is that, by not having hi-tech manufacturing at close hand, the US innovation chain becomes broken by not participating in scale-up.  Equally important as start-up is the point when “technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.”

With hi-tech firms like Apple, Seagate and Dell, for every US worker they employ, their suppliers have 10 people working overseas on their behalf.

Besides losing US jobs, Grove says the US “broke the chain of experience that is so important to technology’s evolution.” He cites the example of batteries.  “What microprocessors are to computing, batteries are to electric vehicles. Unlike with microprocessors, the US share of the lithium-ion battery production is tiny… As happened with batteries, abandoning today’s ‘commodity’ manufacturing can lock you out of tomorrow’s emerging industry.”

Grove argues that when individual businesses make decisions to transfer manufacturing and a great deal of engineering out of the US, they have “hindered our ability to bring innovations to scale at home. Without scaling… we lose our hold on new technologies. Losing the ability to scale will ultimately damage our capacity to innovate.”

Grove recognizes that the remarkable growth of Asian manufacturing was the direct outcome of Asian states’ economic policies that said that the number-one objective was job creation.

Learning from their success, Grove calls for “job-centric economic theory — and job-centric political leadership — to guide our plans and actions.” Making a suggestion that will be seen as heretical by many, Grove is advocating for a tax on the product of offshore labour. He says the resulting money should be segregated and used to fund a Scaling Bank of the US. SBUS would make the capital available to companies scaling their US operations.  All this, says Grove, would be in aid of rebuilding of America’s “industrial commons”.

Grove’s understanding of the value of an integrated innovation chain seems highly consistent with Ontario’s recent large-scale commitment to renewable energy and its market-making deal with Samsung.

But Grove’s analysis and recommendations will also be sober reading for Canadians interested in our innovation future for two reasons:

  1. His views are an acute critique of how incremental decisions (like outsourcing) might erode a country’s innovation prowess over time
  2. The implications of these views are dangerous for Canada if the US goes protectionist

Andy Grove’s views are always worth reading. In his recent Bloomberg Businessweek essay, he places the social implications of innovation policy front and centre — and underscores the fact that all innovation is fundamentally social.