When they allude to Mark Twain's prescient but overused quote :- "History Doesn't Repeat Itself, but It Often Rhymes” , this is what they mean:- The following article appears in The New York Times' print on Oct. 12, 1986. Yes, 1986 - not the 2020s. Such uncanny resemblance today:-
Article:-
THIS is another story of the loss of a manufacturing industry to Japan, of protectionism that backfired, and of options unexplored. But this time it is not about steel, textiles, autos or anything else produced by unionized workers and entrenched managers in grimy factories in the middle of America.
This story is about semiconductors - the fingernail-sized circuits that drive just about every electronic gadget you can name. These chips are the building blocks of high technology. They are designed and made by American entrepreneurs in modern, spanking-clean facilities, in trendy locales like Palo Alto, Calif.
Yet the story is familiar enough: American chip makers have lost $500 million over the past two years and have laid off 65,000 workers over the last five. Meanwhile, Japan has surged ahead. Most of the world's memory chips are now made in Japan, which is also the largest market for them. Japanese companies that sell chips on the open market spend more on research, plant and equipment than do their American counterparts, with the result that Japanese facilities are newer and produce chips of far higher quality.
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Last year, American chip makers - following the well-worn path of America's smokestack industries -accused the Japanese of ''dumping'' their chips in the United States at prices below their fair market value. The Commerce Department investigated, and agreed. There followed months of haggling, culminating on July 30 when the Japanese chip makers consented to charge more. To guarantee they were not dumping chips in America, they would even clear their prices in advance with the Commerce Department. The agreement was heralded as a milestone in Japanese-American relations. ''It represents an important step toward freer and more equitable world trade,'' said President Reagan.
Predictably, chip prices have skyrocketed since then. The price of a 256K random-access-memory chip jumped from $2 to $8 during August alone. This has gratified American chip makers. But it also has meant that all the American companies that buy chips to put into their computers, telephone networks, cars and other products are suddenly at a disadvantage relative to their Japanese competitors who can buy cheaper chips.
So now the American chip buyers are crying foul. They met on Sept. 9 with Commerce Secretary Malcolm Baldrige to say they cannot compete with Japan on these terms. Some are threatening to leave the country to get lower-priced chips.
It is the same old plot line. You remember: After American steel makers first secured a price floor on foreign steel in the 1970's, American auto makers found themselves paying 40 percent more for steel than their Japanese rivals. That was one reason why G.M., Ford and Chrysler began to seek protection for themselves, ultimately shifting some production offshore while buying cars and parts from Japan.
Chip prices may settle down in the months ahead. But the damage is done. American chip buyers are looking elsewhere. Meanwhile, most American chip makers have already folded or, like Texas Instruments, have begun moving their production of memory chips to their better-equipped Japanese subsidiaries. Motorola, one of America's largest chip makers, has agreed to sell memory chips made by Japan's Toshiba.
What should we have done? Where do we go from here?
There are only two alternatives to this sad tale. Either the Government refrains from intervening in semiconductor trade altogether - letting the chips fall where they may, as it were - or the Government helps the American semiconductor industry stay in the race by subsidizing the next generations of chip technology.
The first alternative, favored by those who believe that world trade follows the dictates of 18th and 19th century British economists, is attractive in its simplicity. If the Japanese can make cheaper and better chips, let 'em. We'll buy them and be better off for the deal. WHAT may be at stake here, however, is more than the jobs or returns to shareholders of semiconductor companies. The design and manufacture of memory chips is so challenging and sophisticated - and intimately linked to so many other electronics advances -that experience in producing chips is essential to continued innovation in a vast array of high-tech products. These include everything from telecommunication devices to strategic defense shields in outer space. Once we get off the track, there may be no getting back on.
But the cost of staying on the track is extraordinarily high. Over the past two years the world's chip makers spent $18 billion on new plants and equipment - 30 percent of their revenues. And they spent an additional 15 percent of sales on research and development. According to the National Academies of Science and Engineering, no single American corporation has the resources to perfect the next generation of chip technologies, involving such exotica as X-ray lithography and multidimensional interconnected chips. Meanwhile, the Japanese Government and industry have embarked on joint programs in pursuit of them. European governments are also funding chip research and development on a large scale.
This brings us to the second alternative - direct help from the Government. The problem here is that even if a subsidy could be arranged without waste or scandal, the idea sounds too much like industrial planning, which, as we all know, is not to be seriously considered in America. Four years ago the unions and managers of our basic industries sought an ''industrial policy'' for modernizing their plants and equipment, upgrading their products and retraining their workers. Ronald Reagan, among many others, hooted it down.
But this time, it is the entrepreneurs of Silicon Valley and the generals of the Defense Department who are pushing for an industrial policy. The National Security Council, in a draft report that will be issued in the coming months, warns of ''dire effects'' for the economy from dependence on Japanese chips. It argues that, if Japanese companies wanted to withhold chips from the American market they ''could be in a position to impede the ability of the United States to compete in almost any area of manufacturing.'' The Defense Department, in a separate study, is recommending $1 billion in aid to the failing semiconductor industry. The Regan Administration is considering several rescue plans.
It remains to be seen whether this story will have a happier ending than the others. So far, protectionism is working no better for semiconductors than it did for steel, textiles or autos. But, as the Administration is discovering the hard way, laissez faire may be no answer either. Reluctantly but inevitably, the Administration is moving toward the same conclusion as many liberals and Democrats, as well as the leaders of every other industrialized nation: What's needed to stay ahead in high tech is a partnership between government and business, aimed at embracing the future rather than preserving the past.
Robert B. Reich, professor of political economy and management at Harvard's John F. Kennedy School of Government, is author of the forthcoming, ''Tales of a New America.''
A version of this article appears in print on Oct. 12, 1986, Section 3, Page 3 of the National edition with the headline: BUSINESS FORUM: FALL-OUT FROM THE SEMICONDUCTOR PACT; MAKING A RUST BOWL OF SILICON VALLEY.
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