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Asia's economic lessons for the US

By Richard Elkus, BusinessWeek.com
November 26, 2008 14:56 IST
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This year's mortgage meltdown suggests the U.S. standard of living is a house of cards. Mortgaging the nation's future is no substitute for a productive globally competitive society that borrows to invest rather than borrows to consume.

The current economic crisis should be a wake-up call that the U.S. needs to boost its productive capacity and win in global markets -- something we've been neglecting for the last 40 years.

The VCR became one of the most successful consumer-electronics products the world had ever seen, but the U.S. gave it away. Although the VCR was first introduced by American-owned Ampex in 1970, it was never manufactured in the U.S.

In the mid-1980s no VCRs at all were built in the U.S. Japan's dominance in the market built the foundation of its consumer-electronics industry, contributing significantly to Japan's export surplus and the U.S. trade deficit. As the VCR was the largest user of semiconductor devices of any product of that day, a major part of the U.S. semiconductor industry shifted to Japan as well.

The cell phone is another example. Today there are in excess of 1 billion cell phones sold annually. There have been more electronic cameras sold in cell phones in the last 10 years than cameras sold by Kodak in its first 100 years of existence. But although the first practical cell phone was introduced by American-owned Motorola (MOT) in 1973, relatively few cell phones are manufactured in the U.S. today. Most of the critical components are manufactured in Asia, including the displays and semiconductor devices. China, not the U.S., is the largest consumer. Yet the U.S.'s consumption of cell phones continues to contribute to its trade deficit.

Devastating for the Future

The U.S. is no longer a significant producer of VCRs, cell phones, cameras, TV sets, displays, CD and DVD players, semiconductors, or most other consumer-electronics products.

The technological base that has been lost as a result of exiting these markets is devastating for the U.S. economy and our future. IBM (IBM), once the largest manufacturer of personal computers, sold its PC business to China's Lenovo. The old-line consumer-electronics companies like RCA, Zenith, Magnavox, Sylvania, and Polaroid are gone. Even Bell Labs has been sold. Most of the component parts of America's computers are made in Asia. Today's hottest innovation, high-definition TV, is an Asian phenomenon. America is only the consumer.

How did these events transpire? America's obsession with short-term profits and cash flow often occurred at the expense of everything else.

Outsourcing is necessary when the technological and manufacturing investment required of these businesses is too high for any nation, let alone an individual company, to handle on its own. The question is not whether or not to outsource, but are you outsourcing to advance your competitive position in the industry or are you really just on your way to exiting the business altogether?

Losing a Technological Base

In the case of the VCR, the TV industry, and most consumer electronics, U.S. companies chose to exit each business. Better profits were available elsewhere. But the price paid by the U.S. for this choice relative to its industrial competitiveness is enormous. For the last 40 years the U.S. has reduced its productive capacity and its ability to innovate, all for the sake of short-term profits and cash flow.

By exiting these businesses, we've lost a technological base necessary not just for them but also for other businesses that we're still involved in and value much more.

For example, the markets that the U.S. has abandoned are critical to image and information processing, which are fundamental to most other products and markets in today's Information Age. Thus other major American enterprises, including automobiles and aircraft, already have been or will soon be negatively affected. Without giving it a second thought, the U.S. has been willing to trade long-term national competitiveness for short-term cash. If this continues, the present may be ours, but the future will in the hands of someone else.

Richard Elkus is the author of Winner Take All: Why Competitiveness Shapes The Fate Of Nations (Basic Books, 2008). He has been chief executive or on the board of directors of over 15 different high-tech companies during his career, as well as board member of the University of California President's Board of Science and Innovation, Scripps Research Institute, the Center for Strategic and International Studies, the Economic Strategy Institute, the American Electronics Assn., and many other organizations. He lives in Atherton, Calif.

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Richard Elkus, BusinessWeek.com
 

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