

Thomas Friedman Wrong? The Innovation Delusion - F_J_H
http://www.huffingtonpost.com/ralph-gomory/the-innovation-delusion_b_480794.html

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cwan
I can't say that I'm a fan of Friedman but it would also seem like Gomory's
concerns are overwrought. While I'm far from an impartial observer, it seems
that Gomory simply echoes the same concerns and fears that many Americans (and
the world) had of Japan. I did a quick search for the 'myth of balanced trade'
and came up with this article (written with an ideological perspective but it
was written in 1986 but it could have been written today in direct response to
Gomory): [http://www.thefreemanonline.org/columns/protectionism-the-
my...](http://www.thefreemanonline.org/columns/protectionism-the-myths/)

Further this concern that the US manufacturing industry is dying or dead is a
myth (and quite handily, type in 'myths of US manufacturing' and you come up
with the following article among many) - an excerpt "U.S. workers produce 21%
of all factory goods made globally, or about $1.7 trillion worth per year.
That's significantly lower than the peak of 28% in 1985 but only slightly
below the long-term average of 23% for 1970 through 2006.":
[http://articles.moneycentral.msn.com/Investing/CompanyFocus/...](http://articles.moneycentral.msn.com/Investing/CompanyFocus/the-
myth-of-us-industrys-demise.aspx)

What Gomory doesn't seem to address and why innovation factors so importantly
(if Friedman, overstates his case, Gomory understates the value of
innovation), ideas have far higher margins than their underlying component and
fixed goods. A contract manufacturer in China might make 5% or less (that
Gomory argues are already subidized by the Chinese government which implies
that the Chinese government is losing money in this process) while Apple makes
30+ on the overall products it sells (and these products presumably aren't
subsidized by the US government). So for that same dollar of trade that an
American consumer is buying from China, more profit is retained in in the US
as those same products are sold globally. This is why it's not necessary for
there to be "balanced trade" and why countries like the UK had been able to
run trade deficits for large periods of modern history.

If history is instructive, it's useful to also consider what's happened to
Japan over the past few decades. The ascent of China, who Gomory targets, is
very very far from trouble free or certain. Further, he seems to have this
assumption if the US aims for balance of trade with China, those same deficits
won't simply go to other developing nations. Ultimately it is consumers who
bear the costs of imposing protectionist policies.

~~~
gamble
> this concern that the US manufacturing industry is dying or dead is a myth

The counter-meme that US manufacturing is still strong is also something of a
myth. The biggest components of the manufacturing sector are things that most
people probably don't immediately associate with manufacturing. For example,
agricultural products are a huge component. As are primary industries like
logging. Processed chemicals represent another big chunk. Most of the factory
goods that fit the traditional definition of manufacturing are industrial
equipment like earth-movers or electrical transformers. Note that these are
all capital-intensive industries that are either protected by tariffs and
subsides, or bulky, cost-sensitive goods that aren't as easy to build at a
profit overseas.

On the other hand, the mass-market consumer product industries that most
people think of as synonymous with manufacturing have been wiped out in the
US.

------
SkyMarshal
This article is so right on. I wish I had a billion downvotes for everything
Friedman has ever published. He seems to think nothing bad can happen as long
as your intentions are good, and his critical thinking faculties and street
smarts are about nil.

Buffet and Grove have indirectly criticized his world view, but I wish more
like the author (retired SVP of R&D at IBM, among other things) would directly
call him out, expose his flawed world view, and replace it with some sense.

~~~
keyist
You'll enjoy the posts below then. Matt Taibbi takes skewering Friedman and
raises it to the level of an art form:

\- <http://www.nypress.com/article-11419-flathead.html>

\- <http://www.smirkingchimp.com/thread/5950>

\- <http://www.nypress.com/article-19271-flat-n-all-that.html>

\- [http://trueslant.com/matttaibbi/2009/04/23/tom-friedman-
stri...](http://trueslant.com/matttaibbi/2009/04/23/tom-friedman-strikes-
again/)

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billswift
If you want a far more detailed discussion, especially one that goes into why
it can't work, see Eamonn Fingleton's book _Unsustainable_ (or the earlier
version _In Praise of Hard Industries_ , there is little difference between
them).

And if you want a good story about specifically how innovation grows out of
practice, see Bob Johnstone's _We Were Burning_ about the Japanese development
of the first blue-light laser diode.

------
vorg
Gomory mentions 3 choices for a country that stops making something: (1)
import it by selling something else it makes, (2) go without, and (3) import
it by promising to pay later. The Buffett article he links to says because
America's been doing no.3, the foreigners will use those bonds to buy property
in the US before they're inflated away, and that the US won't likely
confiscate foreign-owned property.

But neither author mentions what makes the US different to China, Japan,
India, and others taking over US manufacturing. Chinese can become Americans,
but Americans can't become Chinese. The US (and Australia and Brazil, etc) are
founded on immigration. Foreigners buying US land can be given US citizenship
as an alternative to having their property confiscated. The children of
Chinese (and Koreans,etc) are going to Western countries to be educated,
usually hoping to stay. By offshoring manufacturing and ICT, the US, Canada,
etc simply get a larger citizenship base, not lose any global competitive
advantage.

Despite the rise of China, many of the younger generation of Chinese still
want to live in foreign English-speaking and European countries, and that's
not likely to stop. And eventually, Americans will eventually vote for the
government that lets them in the easiest, because house prices will start
rising again when the international students rent them and immigrants buy
them.

But Americans and Australians don't become Chinese or Vietnamese, nor do they
want to. An immigrant-based nation such as the US can outsource its
manufacturing to ethnic-based nations such as China and India, and stay rich
BECAUSE it's an immigrant-based nation. People from ethnic-based nations will
generally prefer to live in the US or Canada BECAUSE they're immigrant-based
nations. So the US needn't worry about outsourcing to India.

------
fraserharris
The Warren Buffett opinion piece the author links is a must read too. His
ideas around Import Certificates are novel and were ahead of their time in
2003. It seems to be something that both the Democrats and Republicans could
support to address the trade deficit.

[http://money.cnn.com/magazines/fortune/fortune_archive/2003/...](http://money.cnn.com/magazines/fortune/fortune_archive/2003/11/10/352872/index.htm)

------
galactus
Great article. I specially liked this part:

"At a recent meeting I heard "The only thing that matters is innovative and
passionate people." These people do matter, but they are very far from being
the only ones. This attitude misses the point that it was all our people,
working in many different work settings, that made this country prosper. And
all of them will all be needed in any viable future for our country."

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VladRussian
Producing things is a way. Getting 5% share of any thing produced in the world
is another way. Having largest and most innovative and entrepreneurial
financial and economical system and largest aircraft carriers would more
efficiently be used with the later way.

------
sabat
Summary would seem to be: innovation is good and all, but the US' trade
balance is really out of whack, and you can't make up for that by just
innovating.

Makes some sense. Let's not take this as a discounting of innovation, however.
It's necessary, just not sufficient.

