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The Collapsing Ivory Tower

August 18, 2010

A frequent criticism of university professors is that they live in an "Ivory Tower" out of touch with the real world. I can state from my own experience that this is definitely not the case for the university engineers I've met during my professional career. They all work on practical problems, if only because that's where the funding is found. Corporations are very tight with their money, and they won't enter into collaborations with academia unless they are assured of some monetary gain in the very near future. Government leaders, likewise, want taxpayer dollars to result in a useful innovation (Space Food Sticks) they can highlight during election season.

What's troubling is a different Ivory Tower mindset that's established itself concurrently with economic globalization. This is what I call the "Innovation Solution." That's the idea that the US will handle the innovation and let the rest of the world do the dirty work of manufacturing. It's a fact that US technology corporations have been outsourcing manufacturing to other countries at an alarming rate. Manpower costs in the rest of the world are extremely low, and the allure of improving the bottom line is hard for corporations to resist. US Corporations are telling the few US employees they still have on their payrolls not to worry. Their job is to invent the new products the rest of the world will manufacture for our use, and everyone will be happy. Ralph Gomory, a former senior Vice President of Science and Technology at IBM, President Emeritus of the Alfred P. Sloan Foundation, and currently a Research Professor at New York University, says this is nonsense; and he states his case in an article that appeared in Manufacturing & Technology News [2] and was recently reprinted in Today's Engineer.[2]

Gomory's article was written principally as a rebuttal of the opinions of journalist, Thomas Friedman, three-time winner of the Pulitzer Prize, who writes for The New York Times. Friedman is the author of The World Is Flat, a book that describes the emergence of economic globalization. Although globalization is a fact that can't be denied, Friedman has proposed the aforementioned innovation solution to America's woes. Gomory thinks that the innovation solution is not workable, and he further questions the idea that manufacturing must be outsourced to the cheaper alternatives. He cites as examples both Germany and Japan, which are high wage countries still competitive in automobile manufacturing. There's also the example of semiconductor manufacturing, prominent in Asia, that has a very small workforce but a huge capital investment.

Allegheny Ludlum steel furnace, c. 1941

Allegheny Ludlum steel furnace, c.1941 (Photograph by Alfred T. Palmer).


Gomory's most important argument against the innovation solution is based on a simple balance sheet assessment of what R&D and manufacturing bring to the table. As someone who's worked in R&D all his life, Gomory knows that R&D (often listed as RD&E by companies to include engineering) accounts for less than five percent of a company's revenues. Can our lifestyle be funded on just 5% of the world economy while everyone else enjoys the fruits of the remaining 95%? Even that analysis assumes that all R&D will be done in America. To quote Gomory,
"Specializing in R&D, but sending its fruits on to others is a strange and completely unworkable strategy for a nation... Specializing in innovation, though often recommended, is in fact a delusion, an alluring path that in reality will lead us straight downhill."

Much of the problem is that the global economy is not a level playing field. When countries subsidize industries, devalue their currency and loan you the money to buy its underpriced goods, it's hard to resist such temptation. US corporations have every incentive to outsource manufacturing and no incentive to keep jobs here. The US provides no tax incentives and subsidies to companies to support manufacturing operations. One example that should be familiar to readers of this blog is First Solar, a US manufacturer of innovative photovoltaic cells that now manufactures in Malaysia, Canada, France and Germany. Its investment in Germany is sizable, and it's fueled by the favorable economic climate fostered by the German Renewable Energy Act.

References:

  1. Ralph Gomory, "The Innovation Delusion: More Funding For R&D Won't Solve America's Economic Difficulties," Manufacturing & Technology News, vol. 17, no. 9, May 31, 2010.
  2. Ralph Gomory, "The Innovation Delusion," July 10, 2010.

Permanent Link to this article

Linked Keywords: Ivory Tower; Space Food Sticks; economic globalization; bottom line; Ralph Gomory; IBM; Alfred P. Sloan Foundation; New York University; Thomas Friedman; Pulitzer Prize; The World Is Flat; Germany; Japan; Asia; Allegheny Ludlum; Research and development; R&D; First Solar; photovoltaic cells; German Renewable Energy Act.

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