A Personal View on Today’s Competitiveness Challenges: “We Did It to Ourselves”


As the United States seeks to raise its game to counter the technology challenge from China, Richard Elkus Jr. reminds us of how we lost track of our strategic perspective, and what, in his mind, the U.S. must do to reestablish its competitive and strategic position amongst nations.

Elkus asserts that for the United States to remain competitive and innovative in semiconductors and advanced manufacturing requires an infrastructure of products and markets. The United States, he emphasizes, is too large and demanding of itself to think that one industry, regardless of how strategic it is, can support the goals and objectives of the nation, let alone insure its own competitiveness:

“Technology integrates all products and markets. The weakest link can affect the whole system. Without a strong integrated infrastructure of products and markets including, but not limited to semiconductors, we won’t reach the level of competitiveness and innovation that we need to maintain our freedom and the democracy that protects it.”

The following transcript was derived from an interview between RAI Director Sujai Shivakumar and industry expert Richard Elkus Jr.

Richard Elkus Jr. is an International Councilor with the Center for Strategic and International Studies. An industry pioneer, he was a founder of semiconductor firm KLA, director of Lam Research and CEO, Chairman, and director of several high-tech companies, both private and public.

Sujai Shivakumar is a senior fellow and the director of the Renewing American Innovation project at the Center for Strategic and International Studies (CSIS) in Washington, D.C. 




Sujai Shivakumar: Welcome. Today, the United States is revamping its high technology strategy considering the challenge from China. The U.S. was a high technology leader in the 1980s but fell behind in several industries.  How did we let this happen?

Richard Elkus: Strategy is everything. One may know where to go. The question is how to get there. This is where I start: End-use products, like T.V. sets, create the demand for components, like semiconductors, not the other way around. So, where those products are built makes a difference.

In testimony I gave to Congress in 1989 on the importance of High-Definition Television, there was no disagreement that the technology and its effect on the communication and computer industries was going to be very important for the U.S. economy. The question was what the U.S. should do to be a competitive player.

My testimony centered around what I saw as the main problem facing the United States at that time. Testifying with me were top management from the major U.S. players in the game including the CEO of Zenith. I tried to explain in my testimony, that current economic strategy, both in the public and private sector, if continued, might well, not only, eliminate our ability to remain a competitor in HDTV but in adjacent products and markets as well. In my testimony I said that we were literally abandoning those products and markets that were strategic to our technological and economic success.

Today, 30+ years later, almost every major U.S. company that dominated those products and markets in the decade of the 80’s has either abandoned their position, have been sold to foreign interests, or have gone bankrupt. How could this happen? To understand the solution, it is essential to understand the problem, how it occurred--and then build a strategy for success.

SS: Can you give me an example of a strategic loss?

RE: In the latter half of the-1980s I entered the Sumitomo building in Tokyo for a meeting with the Chairman of Sumitomo Corporation. Going in the opposite direction from the Chairman’s office was the Chairman of GCA Corporation, the principal manufacturer of photolithography equipment in the United States. Photolithography equipment is used in the process of etching circuit designs into materials from which semiconductors are made. When I reached Chairman Akiyama’s office I found him, standing in the doorway, livid. Totally uncharacteristic of the Japanese, the Chairman of Sumitomo Corporation greeted me by saying, “are all you Americans alike: No honor, no loyalty-only interested in profit?” I answered as quickly as I could- “absolutely not. Why would you ask such a question.”

At that moment in time, GCA was flush with business for their new photolithography equipment dubbed “steppers,” short for the process- step and repeat. In their joint venture with Sumitomo, they represented over 50 percent of the Japanese market which approximated half their stepper sales.  GCA had concluded that they didn’t need Sumitomo anymore. The Chairman of GCA informed the Chairman of Sumitomo they were going to go direct.

GCA had made a critical and strategic mistake. Their timing was terrible, and, most importantly, they caused their partner to lose face. During the 70’s and 80’s economic boom in Japan the cost of real estate went through the roof. Tokyo land values rose 10.4 percent in 1986, 57.5 percent in 1987 and 22.6 percent in 1988. Some areas jumped 400 percent in those three years. The grounds of the imperial Palace in Tokyo were estimated to be worth more than the entire real estate value of the State of California. When GCA severed its relationship with Sumitomo, moving to other locations not owned by Sumitomo was virtually impossible. Coupled with serious management and financial problems GCA went broke. GCA’s largest competitors, Nikon, and Cannon, did not. Nikon and Cannon were supported by their other instrumentation businesses including cameras, that provided economic stability and technologies that were allied with their investment in steppers.

SS: But wasn’t Sematech, there to support the development of the stepper?

RE: Sematech, a joint venture between industry and government in the United States was established in 1987 to help bolster the semiconductor equipment industry for the sake of semiconductor competitiveness. It was led for a period by Bob Noyce, one of the inventors of the integrated circuit and founder of Intel.

Testifying before a Congressional committee, November 8, 1989, Noyce noted that “Our board of directors recommended to us that wafer steppers be the highest priority equipment we work on ... We are supporting the development of steppers in the US to make them fully competitive with those from Japan. Thus, Sematech may likely be judged, in large part, as to how successful it is in saving America's optical stepper makers.” Sematech spent upwards of 70 million dollars on the project trying to resurrect GCA, but they failed.

The potential implications of the loss of GCA cannot be overemphasized. Many years later, as dimensional characteristics of the semiconductor began to approach atomic size, and as a result of complicated events, photolithography in its most esoteric form gravitated to the Netherlands. ASML, formally a division of Phillips, now produces the most highly advanced photolithography equipment in the world. Their newest equipment slated for introduction in the next few years may sell for 400 million dollars a copy. If the technological advancements and manufacturing of that product had found its way into a country other than the Netherlands, a country that might be considered an unfriendly competitor, the potential results would have been devastating to the United States.

SS: What was the Japanese strategy at that time to dominate the semiconductor industry?

RE: In those years, Japan was on a roll. From the ashes of World War Two they became the second largest economy in the world. They were doing this in a land that represented an area less than that of the state of California, only 25 percent of which was habitable. They weren’t doing it with cheap currency. In the 70’s the yen had been 360 to the dollar. Now it was on its way to 100. They didn’t build their economy on natural resources. There were little to none. They were building a vast and ever encompassing economy by manufacturing and exporting cars, appliances, TVs, cameras, and computers. They were determined to dominate all consumer electronics. They were supercharging their economic prowess by concentrating on products and markets that in one form or another related to the processing, control, and use of information. And at the heart of everything they did or would do in those ever-expanding areas of endeavor was the semiconductor.

Fundamental to the advancement of semiconductor manufacturing was photolithography and the GCA Stepper. But so were Nikon and Cannon steppers. Most importantly, in their quest for growth, economic power and prosperity they learned a very significant fact. The most important way to control and dominate the semiconductor industry, along with direct investment in it, was to dominate the products and markets that used the chips. From this position of market strength, the Japanese manufacturers would know what semiconductor device specifications you needed to ensure the form, fit and function of the end product. In addition, market dominance in end use products would provide satisfactory demand for semiconductors to justify the investment required to fund the design and construction of their factoriesthat today can cost upwards of 30 billion dollars apiece. In their day, and for many years, the Japanese were singularly successful. Their success came at the expense of the United States.

SS: What factors gave rise to the Japanese electronics industry?

RE: Japan, after World War II, embarked on a massive plan to rebuild their country. They began by copying American products and offering them for sale at lower prices. At first low-cost labor and a remarkable work ethic gave them an edge. Quickly they learned that quality was essential. They employed an American named Deming, to teach them how you achieve quality. Very quickly these products, that replicated others, were not only less expensive but highly reliable. As their volumes grew the Japanese learned how to make cheap reliable products at scale. Their manufacturing plants became automated. The cost of investment in manufacturing these products went up. But volume reduced the price to consumers.

As the Japanese became proficient in mass production, they began to learn ways to improve their products using innovative techniques to add features and performance characteristics. Small size, light weight, low power consumption, easy to operate and highly reliable products were key features essential to the success and expansion of the Japanese manufacturing strategy. Consumer electronic products fit the bill. Fundamental to the expansion of innovative features and ultimately the performance of these products was the processing, control, and use of information. That realization spurred the move to master those products which lent themselves to information processing and computing power. That in turn resulted in a major investment in the use of semiconductors which provided computing capability suited to products that met the goals of cost, size, ease of operation, low power consumption, reliability and above all scale, that is, mass production.

SS: You mention that the U.S. was the world’s technology leader following the Second World War but made strategic mistakes which led to the loss of this leadership. A key strategic mistake you identify is not recognizing the importance of connected end-markets. What other factors amplified this mistake?

RE: In 1965 two major events occurred in the United States. Gordon Moore, one of the founders of Intel stated that in his opinion we would be able to double the amount of computing power in a given area of silicon approximately every two years. The implications of this prediction, which has been upheld ever since, meant that computing power would double exponentially from that point on. That works out to computing power today that is approximately 4 billion times what it was in 1965.

On the other hand, the cost of building fabrication facilities to manufacture devices that meet these qualifications has gone up exponentially as well. A fabrication facility for a logic semiconductor in 1983 cost approximately 50 million dollars. That same facility today can cost upwards of 30 billion dollars.

To pay for this level of investment you must sell a lot of products. And to create products year after year that can garner that level of demand you must provide ever-increasing and highly desirable features at an affordable cost. Everything is connected. The paradigm feeds on itself. If the system works, you can create a prosperous nation on very little land, with a relatively small group of people, from nothing to a massive economic behemoth in relatively little time. And that was Japan.

The second event also occurred in 1965. The Boston Consulting Group devised a matrix for business leaders designed for the creation of ever-increasing revenues and profits. It boiled down to four categories: Stars-high growth businesses, very proprietary with high profit margins; Cash Cows- very low growth businesses with few participants and significant cash flow; Dog-businesses that may have very high growth but are extraordinarily competitive thus requiring relatively large amounts of capital investment with very low profit margins. And, finally, Question Marks-those industries that were, for whatever reason, yet to be classified. The idea was very simple. Put your money in the Stars, milk the Cash Cows and get rid of the Dogs.

This matrix fit the United States perfectly. In 1965 we dominated almost every economic category on the planet. Why make anything that you could buy at a very reasonable cost from the Japanese, or elsewhere, designed to your specifications, and marketed under your brand. No inventory problems, no capital investment problems. Very little cash requirements. Only high returns on investment. And, because the U.S. was coming off two decades in which the rest of the world wanted and expected American goods, profits became the mark of success. This matrix in its many forms was taught in business schools, used by consultants, and supported if not encouraged by the investment community. But as it turned out, the apparent advantages became very short term, and ultimately, disastrous for the United States.

In terms of this matrix, from the standpoint of American companies and investors, consumer electronics in all its forms had become a Dog business. It was a business that offered high growth, high investment, massive competition, and low margins. But not for long. Over time, these low-priced consumer products, produced in Japan, were combined with semiconductors, that allowed them to process information and become a part of an ecosystem of related products. They became feature rich. They began to be able to talk to each other.  Just look at the camera in your phone as compared to the high-end standalone products of yesteryear. Sony, and its founder and CEO Akio Morita saw this coming from the very beginning. Japan, as a nation, saw this coming.

SS: So, was overlooking the importance of interdependent end-markets a failure of strategic thinking on the U.S. side and recognizing its importance, a shrewd move by the Japanese?

Absolutely. Interdependent products and markets were key to the initial success of Japan. It was something they learned from the very beginning. In 1956 Ampex Corporation, of Redwood City, California announced the invention of the video tape recorder. That same year Dr. Shockley (who co-developed the transistor at Bell Labs) founded Shockley Semiconductor just a few minutes away, in Palo Alto.  Videotape recording changed the world of audiovisual communications overnight. Ampex went on to own 90 percent of the patents relating to that technology and for several years dominated the market.  Akio Morita, CEO, and co- founder of Sony Corporation had already purchased a license to manufacture the transistor from AT&T. He understood the commonality that video recorders would have with the other electronic products Sony manufactured including audio recorders, television sets and ultimately video and digital cameras. And he understood how much a video recorder could derive from the power of the semiconductor as did his radios, recorders and TV sets. So, Sony (as well as other Japanese manufacturers) obtained a license from Ampex to produce video recorders. Sony’s first video recorder was produced in 1965, the year that marked the inception of Moore’s Law and the BCG matrix.

SS:  So give me an example of the effect of adopting Moore’s law over the Matrix approach that you described.

 I joined Ampex Corporation in 1959. As of 1967 I became staff assistant to the CEO and general manager of the consumer and educational products division located in Chicago. Ampex at that time was by far the world’s leader in broadcast video recording and the major player in closed circuit television recording. Under license to Ampex, Japan was making low-cost video recorders that could be used by consumers. But, in those days, their reel-to-reel recorders had poor picture quality, and were difficult to operate. Thus, their market was small.

In 1968 I presented a product plan to the CEO of Ampex proposing the introduction of a consumer video product which became known as the VCR. I introduced the product in September of 1970. The reception upon introduction was off the charts. Ampex stock went from 13 to 19 in two days. The Ampex (VCR) recorder became the centerpiece in the next issue of Life Magazine, and the subject of highly complementary press reports around the world. We had a potential winner, and we owned almost all the patents. But Ampex had neither the money nor the knowledge to manufacture the product. It needed a partner. I suggested the American firm Motorola because of their TV business, semiconductor business and other consumer electronics. The Ampex CEO said he didn’t want another competitor on U.S. soil and turned my suggestion down.

In the year of its introduction, under instructions from the Ampex CEO, I went to Japan to make a deal with Toshio Doko, Chairman, and founder of Toshiba, to produce the Ampex VCR. According to the agreement: Toshiba would put up most of the investment required to manufacture the product. It was agreed that Ampex would establish the general product design and specifications and, except for Japan, could sell it under its name worldwide. Toshiba would manufacture the product and had total marketing rights in Japan.

But, like GCA, Ampex had for years mismanaged its affairs. One year later, after reporting a devastating loss, Ampex was facing bankruptcy, Management cancelled all programs that were not cash positive. As such, its entry into the VCR market was halted four years before the Japanese introduced their products: VHS, and Beta. But knowledge of the technology given by Ampex to Toshiba stayed with Toshiba. The results were astounding for Japan and disastrous for the United States. The technological capability of the VCR improved rapidly including its ability to generate a quality picture. All this came from a small, reliable, lightweight easy to use package. In a short time, the VCR became the dominant factor in video recording. Before it finally went bankrupt, Ampex was forced into repackaging and selling rebranded Sony equipment. The United States was basically out of the video recorder business. and control of the market went to Asia.

SS: So, how did the loss of the VCR accelerate the loss of manufacturing and technology in the U.S.?

RE: The VCR became the most successful consumer electronics product ever introduced up to that time. It was called an IC (integrated circuit) hog because it used more semiconductors than any other previously introduced product. At the time of the introduction of the VCR, the United States totally dominated the semiconductor market. The total market for semiconductors was about 4 billion dollars at that time. By 1986 the Japanese had surpassed the U.S. in the manufacture of semiconductors. By 1990 the market for semiconductors had reached 50 billion dollars. Today, the semiconductor market is approaching six hundred billion dollars, and the United States represents less than 12 percent of the world market. Asia represents approximately 80 percent.

But the VCR absorbed more than just the semiconductor market. It was a principal demand driver for the display market (TVs), the optics market, magnetic tape, and laid the groundwork for digital cameras and an electronic network of products and components that would find their way into computers, aircraft, automobiles, appliances, and the entire array of consumer electronics that the world now takes for granted. The volumes were so great that VCR production affected the entire manufacturing process for electronic products, stimulating massive investment in automation and robotics.

SS: And how did entering consumer electronics help grow Japan’s innovation ecosystem?

RE: Japanese electronic products and components quickly became more than a subset for American business. The Japanese began to understand better than anyone else what their product base could do if they decided to innovate on their own. Eventually, Japanese products in the field of consumer electronics at all levels began to replace those produced or rebranded in United States. Finally, U.S. companies who had not maintained their competitive position were virtually forced out of the business.

At the heart of this massively competitive period in Japan’s history was Akio Morita. At the very beginning he realized what could be done with the electronic products he produced. He didn’t have to be competitive only on price. He could innovate and commercialize his products on the back of his semiconductor knowledge, manufacturing expertise and most importantly the markets that could be affected and controlled by the extension of the technologies he had mastered. Hence his purchase of Columbia Pictures and CBS Records which laid the groundwork for Sony’s major position in the media business. With the purchase of those two companies Morita integrated both the media and the hardware. As a result of his foresight and the success of Sony, Akio Morita became one of the leaders of Keidanren, the private sector side of the Ministry of Trade and Industry. In this capacity he could influence the strategic and competitive progress of the entire country.

In the early 90’ s I received a request from Mr. Morita to convey a message to Alfred Sikes, Chairman of the FCC. Both Japan and the U.S. were trying to develop a broadcast standard for High-Definition Television. Akio Morita asked me to convey to Chairman Sikes that Japan would agree to whatever standard the U.S. wanted. In addition, Japan would provide both talent and investment to speed up the process. I passed on the message. But I added a warning. “To Japan, a standard is a highway. What they want is to supply the cars. All the cars." As an aside, Zenith Corporation, one of the principal suppliers of television sets and computers in the U.S. at that time, had probably the most proprietary high-definition technology in the U.S. when HDTV was in its infancy. But they felt they couldn’t compete with Asia and there were no partners available in the U.S., so they sold that technology to LG in Korea for approximately 10 percent of the cost of a single fabrication facility for HDTV television sets. Zenith was finally sold to LG in 1999.

SS: You have described the impact of outsourcing—“getting rid of the dogs.” How did Moore’s Law play a role in Japan’s growth as an innovator in the 1980s?

RE: Not that many years before, the United States, representing 60% of the world’s GDP, owned these markets. But Japan adapted an industrial strategy based on the assumptions of Moore’s Law. The Japanese concluded that critical investments in strategic products and markets had to be made if they were to take advantage of the exponential growth in information processing. They decided it was a national issue, not just an individual company issue. As such they made the investments, and were able, on a grand scale, to use the rapid changes in product design and capability to their advantage. Because Japan maintained and grew their position in these end use markets, they were able to take advantage of the rapid improvements in semiconductor components before anyone else had a chance. And, because of the exponential increase in knowledge and investment required to fulfill the needs of Moore’s law, the competition found that the cost of catching up, after years of neglect, became overwhelming and a very risky bet.

At the same time, the United States had adopted Stars, Cash Cows and Dogs, which seemed to make it okay to avoid substantive investments if you couldn’t make enough immediate money to justify the risk, and you could outsource. But, when the U.S. found out it was no longer competitive, it was too late. The United States was great at innovation. As time went on, commercializing that innovation became much more difficult. The rocket had left the pad. Businesses, like consumer electronics, and its manufacturing base, were disappearing from America—and weren’t coming back.

And one more thing. In the world of Moore’s law, Stars can become Cash Cows, Cash Cows can become Dogs. And Dogs, believe it or not, can become Stars. This fact totally belies the value of the matrix theory.

SS: Let’s move the story on to the 1990s and beyond. What has been the cumulative impact of outsourcing for the U.S?

RE: In the 90’s things began to change. Japan had grown so fast that it created bubbles in the economy and an attitude that made competition, let alone cooperation between the U.S. and Japan difficult. Akio Morita and Ishihara coauthored a book called “The Japan That Can Say No” which annoyed the U.S. and helped justify its belief that Japan was competing unfairly. The U.S. attempted through various means, politically as well as economically to open Japan’s market and reduce what the U.S. felt was unfair competition. Economic conditions worsened by the end of the 80’s and the real estate bubble in Japan burst. Most of all, South Korea, Taiwan, and China were watching and learning from Japan and began to compete in earnest for their business. Japan, on a relative basis went into decline but remains the world’s third largest economy. South Korea, Taiwan, and China picked up the slack. From 1995 to 2020, Japan’s economy remained relatively flat, the U.S. grew 2.7 times, and China, now the world’s second largest economy, increased 20 times.

But the big problem for the U.S. was that what was lost never returned. In fact, the situation got worse. Asia was still living Moore’s law and the U.S. continued as a proponent of Stars, Cash Cows and Dogs.

And what was the damage? IBM, which at one time was one of the world’s largest producers of semiconductors and the largest producer of computers, basically abandoned both businesses. IBM nearly went bankrupt. Their personal computer business went to China. Their semiconductor manufacturing business was sold to other Asian companies or shut down. The only major U.S. digital semiconductor company that still manufactures logic chips is Intel, and at the very advanced level even they are subcontracting to TSMC in Taiwan. Intel’s biggest competitor in the U.S., AMD has gone fabless, subcontracting to TSMC. Just as others had decided, AMD didn’t like the risk reward equation when you considered the astoundingly high cost of a new fab and the quality of product you could get from TSMC. So contrary to their founder, Jerry Sanders, who felt real men had fabs, they went fabless. They now have a higher market capitalization than Intel, who just cut its dividend. As the dimensional characteristics of semiconductor design began to tighten, Texas Instruments began to outsource their semiconductor production to TSMC as well. (Interestingly, Morris Chang, the founder of TSMC got his start at TI.) HP computers and Dell computers are mostly assembled in Asia. Qualcomm and Nvidia both subcontract their semiconductor requirements to TSMC. The television industry is gone and virtually all the American companies that were in the business either went broke, were sold off, or just shut their doors.

Zenith is gone, RCA is gone, Sylvania is gone and a major part of Motorola who produced cell phones, set top boxes, television sets and semiconductors is no longer in the business. Virtually no displays including TV sets are manufactured by U.S. companies anymore. Kodak went bankrupt when the digital camera put Kodachrome out of business. Kodak was the first company to design a digital camera. But they shelved the product because they didn’t want to upset their own market. National laboratories like Bell Labs and Sarnoff Labs are gone. Western Electric, the manufacturing arm of AT&T, is no more. Any phone you use today, cellular, or otherwise is in total or large part manufactured in Asia. Principally China. And keep this in mind: Of all the companies, products and markets noted, that the United States  lost, mostly to Asia, all depended in one way or another on semiconductors. But none were lost because of a lack of semiconductors. And now, 80 percent of semiconductors are made in Asia.

Not only is this diminution of the U.S. electronics and semiconductor industry a threat to the overall economy from the standpoint of its ability to innovate and compete; were there to be a conflict that might permanently shut off semiconductor supplies and product assemblies from Asia, whole U.S. industries could be crippled.

SS:  That is a sobering tally. So, what can this experience tell us going forward? 

RE: There is no easy answer. The U.S. has waited too long. The first step is to understand the problem.

A nation can be competitive and not be particularly innovative. For example, you can reverse engineer, copy exact, make the product reliable, available, and cheap. But not for long. Too many things change. And if you don’t innovate and the competition does, it will finally win. More importantly, a nation or a company can be innovative. But if it can’t commercialize the idea the innovation will never see the light of day, or it will be introduced by someone else. The key is to be competitive as well as to know how to innovate and commercialize. To do any of this, the company, and the nation must be in the game. It doesn’t have to do everything. But, especially in strategic markets, it must be a player.

The nation must have a strategy. Where does it stand in relation to its competition. What products and markets are most important in relation to the nation’s goals and objectives. It must know what it has and what it doesn’t. Because of Moore’s Law, getting back in the game is very expensive and that expense grows exponentially over time. Therefore, major direct investments must be made, and they must be strategic. And some partnerships must be created to overcome deficiencies while the U.S. gets its act together. And they must be strategic as well.

SS: You have also talked about the damage to the nation’s innovation ecosystem.

RE: Competitiveness as a problem for the United States is not simply based on getting back into the semiconductor business, though that is very important. The U.S. has lost too many other products and markets that are essential to its economic competitiveness, its ability to innovate, and the general health and stability of the economy. The nation must again manufacture products that drive and direct demand for semiconductors.  Not just innovating or rebranding another country’s products but building an infrastructure that puts us back in the manufacturing business from the ground up. Not everywhere, but in strategic markets. 

We haven’t even talked about the loss of manufacturing and what it did to the machine tool industry. We used to be number one in machine tools. We lost that business many years ago to countries like Japan. Now it’s difficult to even locate a machine or sheet metal shop, let alone build the tools that do the work. At least in the semiconductor industry we still have Lam, KLA, and Applied Materials. If we didn’t, we might find it virtually impossible to regain what we have lost in semiconductors. Conversely other countries are facing that problem and are trying to replicate the semi equipment business and are at risk without that resource.

SS: What strategic mistakes from the past must we avoid?

RE: As a part of any strategy to improve the competitiveness of the United States there must be an understanding that the concept of Stars, Cash Cows, and Dogs-though it might make someone a fast buck, it won’t build our nation. On the contrary, without some willingness to avoid the temptations of that matrix, it will (in my mind) finally destroy our ability to be anything close to number one. And that’s not bad just for the United States. It’s a problem for the world.

One of the key things to remember about technology and information processing in whatever form it takes: Over time, in technology, everything gets connected. So, strengths in one area will in time be a major strength somewhere else. And in the case of the U.S. today, weaknesses in one area begin to affect others. And with Moore’s law, those effects grow exponentially.

Can the CHIPS Act help regrow our innovation potential?

RE: It doesn’t hurt. But the problem we have will not be solved by a 50-billion-dollar investment designed to help the nation achieve another fabrication facility or improve the research and development in a particular area of technology. Because of the loss of the interconnected businesses mentioned, it’s more like a trillion, or more, -dollar problem. But you can’t just throw money at it. It takes much more than that. It will take time, probably many years.

We must begin to produce those products that are fundamental to the technological infrastructure that makes up our economy. Displays, cameras, computers, phones, medical instrumentation, modems, routers, and other products supporting the internet. The list is long. And while we try to catch up, Moore’s law is providing wind to the back of the competition.

SS: What will be the role of international technology partnerships?

RE: The nation must be strategic. It must establish commercial international partnerships that bolster its weaknesses while it gets back into the business. Japan, South Korea, countries already well situated in the business in which we are deficient are obvious choices. And as a nation, the U.S. must become strategic as it plans future capital investment. It used to be that Government research became the lynch pin in the establishment of a new industry as it did in computers and aircraft. But technological research dollars required in the private sector today are many times that which can be provided by Government. Hence the need for a national strategy that includes a buy in and investment from the private sector.

SS: Today’s competition with China differs from our competition with Japan in the 1980s. In addition to avoiding past errors, what else do we need to do going forward?

RE: It’s very important to discern the difference between friendly competition and competition that wants to alter your political and economic system and allegiances. The plight of GCA I noted earlier in part came about because the relationship with a key player became personal rather than good business.

Though far from describing an enemy, part of the reason the example was noted is that when competitive relationships based on animus occur, the time frame to act if something goes wrong contracts quickly. If you lack the resources then, it’s game over. Whatever strategy is picked, it needs to take into consideration reactions based on “friendly competition” as well as the more volatile relationships that can occur when competition touches on personal, political, and potentially military considerations. This of course is one of the main problems facing the U.S. in Taiwan. The fact that the United States faces both friendly and non-friendly competition emphasizes the need for a national strategy for competitiveness considering all these matters. It is in this regard that I reiterate that we need some international partners as we try to right our ship.

My fundamental point is that the United States has an economic component called, interrelated, and interconnected end use products and markets. Though some are more strategic than others, the loss of several can cause the downfall of the rest regardless of their level of strategic value. This infrastructure of interrelated, and interconnected end use products and markets is essential to national competitiveness and the ability to innovate. So, in a world that is not always friendly or accommodating: it is essential to be a participant in enough of these products and markets that this interrelated fabric gives some assurance that the nation stays in the game, innovates, and above all, remains competitive. Make or buy is not always simply an individual company decision. Sometimes it has national consequences. Short-term thinking, like the matrix approach to investment, over time, will lead to the fate of GCA: “GAME OVER.”

The strategic nature of a national plan for competitiveness must start with the President of the United States:

“We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard; because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one we intend to win, and the others, too.” — President John Kennedy, 1962.

Richard Elkus Jr.

International Councillor, Center for Strategic and International Studies
Sujai Shivakumar
Director and Senior Fellow, Renewing American Innovation Project