The Multinational Monitor

JANUARY 31, 1986 - VOLUME 7 - NUMBER 2

H I G H - T E C H   H A Z A R D S

Dwindling Jobs

High-Tech Short Circuits

by Josh Martin

Silicon Valley, the nation's high-tech mecca is experiencing something new: High-tech unemployment. In the last year, semiconductor companies alone have been forced to lay off more than 54,000 workers. In the process, the electronics industry has lost some of its promise for the workers of Northern California.

Silicon Valley, North Carolina's Research Triangle and Massachusetts' Route 128, all have lost thousands of jobs, as have dozens of other small high-tech communities across the United States. The layoffs and shutdowns, in an industry that many thought could beat back unemployment while bypassing many of the ills that came with the run-ofthe-mill manufacturing, has left communities and workers reeling.

In the late 1970s and early 80s, many communities in seeking to duplicate the success of Silicon Valley, offered companies generous tax and zoning incentives.

Many states also made substantial investments in budding high-tech companies. Indiana, Massachusetts, Michigan, New Mexico and New York provide direct venture capital support.

What communities have failed to do is to look realistically at the high-tech industry, said Ken Geiser of the Task Force on High Tech Toxics.

"The [high tech] industry provides jobs, but it also has just as many downsides as the steel, auto and chemical industries: the jobs will be unstable, eventually we will lose out to foreign competition, there are a lot of chemicals involved, and it has a very dramatic effect on the environment and on the health of workers," Geiser said.

Too often communities, in their efforts to attract both jobs and economic development, have overestimated the benefits of high-tech. Communities have offered high-tech industries subsidies of every kind, from free land to tax concessions, to entice them to locate within their borders, but locating a high-tech firm in a neighborhood parallels bringing any type of heavy manufacturing industry into an area, said Nancy Lessin, director of the Massachusetts Coalition of Occupational Safety and Health.

The fact that there are no belching smokestacks or unsightly surroundings often gives the illusion that high tech industry is devoid of problems, she said, a fallacy that left Silicon Valley's water contaminated and many of its workers exposed to high levels of toxic chemicals. (See The Seamy Side of Silicon Valley, p. 3)

"The key thing about high tech is that one should not relax regulation or forego tax revenue to attract it," said Lenny Siegel, editor of Global Electronics. "The companies can be a good source of economic growth, but their presence costs money-they can cause a great deal of environmental problems."

High tech development can be positive, said Siegel, if regulations are in place and if the community doesn't give away the tax base.

Many communities, however, especially ones that successfully concentrated their efforts on attracting high-tech firms already have been hard hit by the problems in the electronics industry. Hardly a week passes without a computer company announcing earnings declines, layoffs, shortened workweeks, salary cuts or plant shut-downs. Burroughs Corp., saw its stock decline almost 20 percent in value following its surprise announcement that its third quarter earnings would be "substantially below" those of a year ago. Technology stocks tumbled.

Ironically, even though individual companies are facing tough times, the American computer market has expanded, particularly in domestic sales. Last year, computer sales grew 20 percent, to $75 billion. The market for semiconductors, the chips which form the heart of a modern computer, posted an even more remarkable 50 percent rise over last year, with sales reaching $11.6 billion.

Moreover, American computer companies have a positive international trade balance. Last year, despite a strong dollar, the U.S. enjoyed a $6 billion trade surplus in computers and business equipment. The recent devaluation of the dollar is expected to substantially increase that surplus.

Nonetheless, sales have not grown as originally forecast. In some cases, demand is less than half the original estimates, leaving manufacturers and stores with enormous inventories. There was such a glut of semiconductors that many manufacturers only emptied their shelves of 1984 stocks at the end of 1985, according to the Semiconductor Industry Association.

Another factor is competition, not just from the muchpublicized Japanese giants, but from newer American entrants as well. In 1981, there were only eight American companies making microcomputers; today there are almost 50. The number of microcomputer software companies grew from 34 to 280 in the same four-year period.

Despite rapid sales growth, too many companies and products have been chasing too few customers. The result has been cutthroat competition, with price wars so vicious that some computers and computer parts are now sold for less than the cost of manufacture.

As the American computer industry enters a painful maturity, chastened companies are going to take fewer risks. John Sculley, chairman of Apple, set the tone in a meeting with stock analysts this summer, vowing to institute "very tight spending controls" and to concentrate on rounding out existing product lines rather than undertake new projects.

The declining high tech industry has been the focus of national attention and local frustration. More than 2.5 million Americans were employed in the electronics industry in 1984 and millions more worked for companies dependent in one way or another on that industry's health. It is the United States' single largest manufacturing sector, and one that like steel, automobiles, and other heavy manufacturing has come under intense competition from abroad.

Many industry executives see some form of trade tariff as the solution. But, critics of this "Japan bashing" effort say a tariff would provide little long-term security, since it may ultimately force Japanese firms to invade other, lucrative markets now dominated by American companies. U.S. firms have 55 percent of the European semiconductor market while Japanese firms have only 12 percent.

In the United States, where a number of state and local governments already provide substantial subsidies for the computer industry, they're finding as the computer companies retrench, they have lost jobs, tax revenue and investments. Part of the problem may rest with the onceeager government sponsors, who did not fully understand the realities-and the risks-of the computer revolution.

Many states are taking a more critical look at proposals to create or expand high-tech corridors. They now know that the promise of Silicon Valley does not come with a guarantee of permanent economic success.

Equally important, government planners have discovered that, even in boom years, most of the jobs created by the computer industry tend to be low-paying. While a steel worker may earn $12 to $15 an hour or more, computer operators and assembly line workers are often paid the minimum wage.

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