One of the reasons my sort of conservative has been anxious about the post–Cold War world trading order is that it seemed to be based on a misunderstanding about innovation and value creation. We set up policies that allowed advanced manufacturing to move across the Pacific and achieve all sorts of innovation gains over there, on the theory that if we protected intellectual property — and we did increase protections there — we could capture the higher value ad. This deal was reflected in the labels on the most important tech product of our age: the iPhone — designed in California, manufactured in China. Increasingly, the material science and business innovations were coming directly from the Chinese fabricators themselves, not the engineers in California.
Adam Smith talked about this side of innovation, in the terms of his day.
A great part of the machines made use of in those manufactures in which labour is most subdivided, were originally the invention of common workmen, who, being each of them employed in some very simple operation, naturally turned their thoughts towards finding out easier and readier methods of performing it. Whoever has been much accustomed to visit such manufactures, must frequently have been shewn very pretty machines, which were the inventions of such workmen, in order to facilitate and quicken their own particular part of the work.
That’s why I’m so cheered by Elon Musk, who is bringing this dynamic back to America. On his recent earnings call, he talked about the innovations that were coming out of his various advanced manufactures in America. Innovations from the Starlink factory in Bastrop, Texas, is leading to innovations in turbine blades and vanes.
In another clip he talks about their microchip fab research in Austin and how that’s informing major innovations at the planned Terafab project in Gibbons Creek, Texas, allowing them to dramatically accelerate chip production.