Afternoon In America?

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For one thing, both combatants seem to be living in a debater's dreamworld. Ferguson's solution to the problem he outlines, for example, is massive government support for the industry, including "direct industrial assistance" targeted primarily at large companies. His ideal is the "stable, concentrated, and protected industrial alliances" he sees in Japan. Excuse me -- but wasn't it precisely such stable, concentrated, and protected industries (steel, autos, consumer electronics) that lost out to Japan in the first place? Let's say we now create some new megateams, maybe lining up IBM with Intel and AT&T with Motorola, each with Japanese-style affiliations with banks, suppliers, and so on. Does anyone really believe such elephants would be dancing nimbly on the edge of technological innovation?

To say that entrepreneurship is to blame for the semiconductor (or any other) industry's decline, moreover, is to beg an only too obvious question. Why couldn't all those entrepreneurs accomplish what they wanted at the large companies they eventually left? The American semiconductor companies that are now hurting were once awash with cash and opportunities. All they lacked was management smart enough to attract top innovators, move quickly on the ideas those people came up with, and reward them accordingly. Had they done so, they might not be running to the government for help today.

Gilder has blinders of his own. The proliferation of design-intensive start-ups, as even Ferguson acknowledges, really is an American strength, and really does push the technology forward. But Gilder never does address the problem that has hamstrung the American economy in about 218 separate industries over the past two decades, which is that the United States invents and the Japanese manufacture. There's no doubt that encouraging entrepreneurship is the best way to encourage technological risk taking. There's also no doubt that the Japanese love to watch us take risks, then move in and figure out how to capitalize on the risks that pay off.

The reason for the contestants' blinders, of course, is that Ferguson and Gilder's debate is fundamentally ideological, not practical. The issue isn't the semiconductor industry, it's what role government should play in the economy -- and whether the unfettered free market "works." To Ferguson, Gilder's laissez-faire approach is dangerous stuff -- "voodoo competitive doctrine." To Gilder, Ferguson is just one more "scholar of the Left" who favors "an onslaught of government subsidies and guidance favoring established businesses and counteracting the bias toward new companies." Gilder's conclusion -- which you somehow suspect he'd have reached no matter what he discovered in researching his book -- is that the government shouldn't meddle with the industry. Ferguson's is that the government should meddle quite a bit. Like lawyers, both combatants seem less concerned with truth than with marshaling evidence to support their favored course of action.

That's a system of argument that makes sense in court, where the choice is usually between acquitting and convicting. But economic policy rarely lends itself to either/or propositions. One reasonable set of actions, for example, would be to offer start-ups more support, not less -- and at the same time mount a big cooperative program to develop new manufacturing technologies, bringing in the experts from IBM, et al. The former would be anathema to Ferguson, the latter to Gilder. But that doesn't make it a silly combination.

The popularity of books like Kennedy's Rise and Fall can't be traced to any immediate economic troubles; it's probably due, rather, to the decades-long transformation of the global marketplace that we're very much in the middle of. A beneficial effect of this economic turmoil is that it has shaken up conventional perceptions and challenged established ideologies. To see things once again as Ferguson and Gilder do -- black vs. white, big vs. small, government vs. no government -- is to go backward, not forward.

POINT/COUNTERPOINT

The debate on semiconductors and U.S. competitiveness

Maybe it was Charles H. Ferguson's Ph.D. thesis that started it all. A voluminous study with the imposing title "Technological Development, Strategic Behavior and Government Policy in Information Technology Industries," it must have rubbed George Gilder the wrong way. Whatever the cause, Gilder's article in the March-April Harvard Business Review ("The Revitalization of Everything: The Law of the Microcosm") devoted several pages to summarizing and attacking Ferguson's arguments. Ferguson responded in the May-June issue, with a piece titled "From the People Who Brought You Voodoo Economics."

Watch for future installments -- articles from Ferguson, a book on the semiconductor industry from Gilder. Meanwhile, the industry's viewpoint can be found in The Microelectronics Race (Westview Press, 1988), a book sponsored by the Semiconductor Industry Association.

BETWEEN HARD COVERS

Books from our writers

Three collections of articles -- The Best of Inc. -- are being published this month by Prentice Hall Press. Guide to Finding Capital ($11.95) examines capital sources of all sorts, and includes a section on valuing, buying, and selling businesses. Guide to Marketing and Selling ($10.95) focuses on marketing strategies and sales management. Guide to Business Strategy ($10.95) looks at how companies grow -- and where such enterprises can run into trouble as they do.

All three books are in paperback.

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