TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/102389/10238900.071

Text File | 1990-09-22 | 4KB | 70 lines

TECHNOLOGY, Page 102

Who's Afraid of The Japanese?

A new book contends that the U.S. is winning the chip wars

By Philip Elmer-Dewitt


    America's high-tech companies do not have to look back: they
know the Japanese are coming. U.S. computer-chip manufacturers,
concerned that their survival is threatened, have gone to Congress
for protection. And fear is rising that if the chipmakers go down,
it will be only a matter of time before Japan overtakes the U.S.
in the computer business. That would put an end to America's
high-tech supremacy.

    But are such apocalyptic visions justified? Not at all, argues
conservative pundit George Gilder in his new book, Microcosm: The
Quantum Revolution in Economics and Technology (Simon & Schuster;
$19.95), a lively look at the history and prospects of the U.S.
microelectronics industry. Gilder, author of the best-selling
Wealth and Poverty, thinks that as computer-chip technology
advances, America will widen its lead.

    At the heart of Gilder's argument is the notion that the
breakthroughs in quantum physics in the early 20th century, which
provided the theoretical basis for microelectronics, also laid the
groundwork for sweeping changes in the world's economy. In the
past, a nation's wealth sprang from its natural resources and its
ability to fashion raw materials into manufactured products. But
the computer has put a premium on information, not raw materials
or manufacturing prowess.

    Using the new knowledge of the microcosm -- the invisible
region populated by protons, electrons and other subatomic
particles -- computer-chip manufacturers have been able to pack
more and more information (and value) onto slivers of silicon whose
material content represents less than 1% of their total expense.
As chips are incorporated into everything from furnaces to cars,
the value of these products resides increasingly in the
"intelligence" stored in their electronic components. In the
future, industrial might will depend less on mass production and
more on the creative use of information technology. Gilder calls
this phenomenon the "overthrow of matter" by ideas.

    The book uses this theoretical framework to focus on what has
happened in the semiconductor industry. In particular, Gilder's
analysis attacks the conventional view that the U.S. blundered in
letting Japan take over the market for mass-produced memory chips.
As he points out, the key component for a computer is not hardware
but software, the instructions that make the machine work. When
programs like Lotus 1-2-3 made the personal computer a runaway
success in the early 1980s, IBM and other firms made a strategic
decision to let Japan supply the demand for memory chips that U.S.
chipmakers could not meet. The Japanese built costly factories to
fabricate an enormous supply of chips. But then their price
plummeted way below the cost of production, saddling Japan's
conglomerates with huge losses.

    Meanwhile, Americans were working on far more valuable computer
parts. Using systems called silicon compilers, U.S. engineers have
been able to design a vast array of custom chips to suit almost any
purpose. These specialized chips can be much more profitable than
the commodity chips mass-produced by the Japanese. As more and more
instructions are etched onto chips, the balance of power in
electronics is shifting from manufacturing prowess, Japan's
strength, toward software and design, in which the U.S. excels.

    Gilder's arguments, while forceful, are not always persuasive.
He seems to forget that Japan, an island nation rich in know-how
and poor in resources, is itself a prime beneficiary of the triumph
of ideas over matter. The Japanese may not be also-rans in software
and custom chips forever. But at a time when so many books talk
only about what is wrong with the U.S., Gilder's optimism about the
future of American high-tech is refreshing.