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The Microchips Are Down

In the early days of Silicon Valley, cutting-edge innovation was propelled by both the push of entrepreneurial ambition and the pull of big government. With the United States confronting new and unprecedented competitive pressures from abroad, it will need to revive this tradition, while avoiding unforced errors.

CAMBRIDGE – “Potato chips, computer chips, what’s the difference?” a top economic adviser to US President George H.W. Bush supposedly asked in the early 1990s. “A hundred dollars of one or a hundred dollars of the other is still a hundred dollars.” At the time, Japanese firms were pushing their American competitors out of the market for memory chips, but free-market elites in Washington, DC, staunchly opposed any form of industrial policy to protect the domestic semiconductor industry. If foreign companies could produce chips at a lower price, they argued, American consumers would pocket the cost savings and direct their spending to other sectors.

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