Thursday, March 18, 2004


Manufacturing ain't all sweat shops.

Philips, the Dutch electronics giant, is making a $21 billion green investment in Korea to produce next generation TFT-LCD screens--the ones used in computers, PDAs, flat panel TVs, cell phones, and a growing number of other electronic devices.

Dow Jones wire: The plant and the research-and-development facility in the Paju area is expected to create about 25,000 new jobs.

Korea, you'll recall, ain't exactly a low-wage country.

The firm-specific knowledge embodied in the manufacturing equipment and production processes are incredibly high-tech, producing huge positive spill-over effects that drive employment multipliers and dissemanate new technologies throughout the rest of the economy.

An LCD screen is comprised of hundreds of thousands of tiny little dots, each controlled by a tiny little transistor. The trick is to get every single dot on a screen functioning properly, otherwise the LCD screen becomes junk. Even the slightest contamination, a microscopic speck of dust, can render these transistors dysfunctional. In short, the real technological value is in the design og manufacturing process and the ability to deliver such quality control.

Market leaders in LCD displays, such as Philips, typically enjoy yields in the range of 90 percent. That is, for every 10 screens they manufacture, only 1 is faulty. In contrast, were we to try developing similar industries in the United States, the successful yield would be more like 10 percent. America will never be able to enter into this industry because we lack the technological sophistication to compete.

Manufacturing is high technology. When we lose it, we lose innovation and we lose the benefits and externalities for the rest of the economy that cannot be replaced by other sectors, even knowledge-intensive services.


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