Monday, January 03, 2011

Silicon Valley Vs. Detroit

There are two very different ideas in the USA about where value is created in our economy. I frequently hear what I will call the "Detroit" perspective that we need manufacturing jobs in the US because, gosh darn it, everything is being "made" in China (or some other country). When Barack Obama was running for his current job I attended a fundraising dinner (in Silicon Valley) for him and he defended Detroit, the auto industry, and all of the jobs there when a question came up about his commitment to the environment (and anticipated policies toward electric cars). So it was nice late last year to hear Barack Obama say that "Steve Jobs is living the American Dream."

Which is somewhat short of understanding that the driving factor for the US economy (and job creation, Mr. President) is NOT manufacturing jobs, but instead is intellectual property.

First lets take manufacturing. Atoms. What differentiated value is there in the labor component of manufacturing?

Virtually nothing.

Therefore labor will first move to the lowest cost provider and second be eliminated (eventually altogether).

What you say? Eliminated?

Yes - the history of the industrial revolution (and the agricultural revolution) has been to replace the need for human beings by automating and mechanizing production. Produce more with fewer hours of human labor. Eventually robotics will eliminate 100% of human labor and routine and repetitive tasks will be done by machines so much more cheaply than humans can perform them that our children's children will wonder what we were thinking when we talked about manufacturing jobs (just as our generation has no idea what people on farms do anymore).

Designed by Apple in California

Furthermore, and now let us switch to intellectual property (bits), the majority of the value in the goods we consume in the developed world comes from the BITS and not the ATOMS. We pay a lot to Apple for the DESIGN of the iPhone, not for the physical atoms used to construct the phone. We pay more for blueberries prepared in a smoothie than in a bag from the freezer aisle. We pay to see Sandra Bullock win an oscar for her performance in Blind Side and not for some physical medium delivering the movie.

We need to understand how to build an economy that does a better job of promoting the creation of (and appropriate protection for) intellectual property. This is the 21st century imperative -- not manufacturing jobs. We need more products DESIGNED in the United States -- wherever they may be manufactured.

If you really want more things MADE in the US (as opposed to designed here) then one of the things we should be designing (and investing in as a country) is the fully automated manufacturing technology that brings production back to local markets - with zero labor.

But Detroit is not going to lift our economy to the next level. Silicon Valley will.