The Semiconductor Panic
The world market for semiconductors is slipping away from American companies, the ones that led in the creation of the industry. Only with significant changes in the way government, business and education approach the problem can there be a possibility of making America competitive enough to get some of the market back, according to a compelling report by the National Advisory Commission on Semiconductors.
To describe the high stakes, the committee said in its first report since Congress created it that the semiconductor business, including chip makers, provides work for twice as many Americans as auto makers and the steel industry.
To turn the industry around, the country must spend more money, public and private, on research and development and new plants, change trade, anti-trust and tax laws and accelerate school reform to expand the skilled work force that is needed for this demanding work.
Loss of market threatens an estimated 2.6 million American jobs. “Unless the U.S. industry and government take coordinated, concerted and timely action, there will be a long-term deterioration of our industrial strength and military security, and an erosion of our economic wealth,” the committee warns.
Enormous obstacles are evident. At the federal level, the Gramm-Rudman budget-deficit ceiling, a self-imposed budget-limitation formula, blocks increased funding. Some companies resist cooperation, an attitude that contributed to the collapse of the U.S. Memories project, an effort to enlist rival American firms in seeking to recover American leadership in making the critically important dynamic random access memory (DRAM) chips. Despite the participation of some of the nation’s leading semiconductor companies, the enterprise was unable to attract adequate capital or commitments for purchases.
As we read the report, a better model of what needs doing is Sematech. It’s a cooperative venture of government and the private sector to accelerate semiconductor research in the pre-competition development stages. It appears to be working well. An immediate doubling of financial support from government and industry is a key recommendation of the report.
The report urges a revival of the consumer electronics industry that America let float away to Japan and other Far Eastern countries. The revival would start with the creation of a Consumer Electronics Capital Corp. Using mostly private funds, it would make long-term loans at below-market interest rates to entrepreneurs. Government tax concessions or guarantees probably would be required to ensure low interest rates. But in that way the corporation could counter two of the economic factors that have penalized the industry in the United States: The relatively high cost of capital and the pressure for short-term rather than long-term return.
The most controversial and difficult recommendations involve new trade, tax and business laws to put American industry on more equal footing with Japan without adopting Japanese trade tactics that would weaken the final draft of the new General Agreement on Tariffs and Trade now near completion in Geneva. There are some elements of the report that can and should be quickly implemented. Expansion of federal funding for Sematech heads the list. But equally valid are the calls for continued significant funding by the Department of Defense and the Department of Energy in research related to semiconductors.
The report has had an encouraging response. Senate hearings commenced immediately after release of the report. D. Allan Bromley, the President’s science adviser and a member of the committee, has indicated support for some but not all of the recommendations. A meeting is scheduled Thursday at the White House with John H. Sununu, the President’s chief of staff, Bromley and Ian M. Ross, chairman of the commission and president of AT&T; Bell Laboratories. But the President himself has not yet spoken directly about the report.
The risk now is that Washington and the semiconductor industry will decide that they cannot afford this commitment in money and in cooperation. The consequences of such shortsight-edness are made clear in the report. As the committee concluded, “the United States is at a critical crossroads.” There is, then, a rare opportunity for leadership, a rare opportunity for the President to seize upon this report and point the way past the crossroads.
