Tuesday, November 27, 2007

A Conversation with Paul Otellini

The Lehmann Letter ©

Yesterday evening I was fortunate to attend a public conversation with Paul Otellini, President and CEO of Intel and a former student of mine at the University of San Francisco. Mr. Otellini graduated in 1972 and I’ve been pleased to follow his career to the top of one of America’s great firms. He spoke at USF at the Invitation of USF’s Center for the Pacific Rim.

The questions and conversation were wide ranging and I’d like to briefly touch upon one aspect of the discussion relevant to this blog: The future of the American economy. In response to a question about where the U.S. is today, Mr. Otellini drew an analogy with Great Britain at the end of the nineteenth century. At that time the sun never set on the British Empire and Britain was still “the workshop of the world,” the world’s greatest manufacturer and exporter of manufactures. But Germany and the United States became effective competitors and drove Britain out of international markets for steel, electrical equipment and some kinds of machinery and chemicals. German firms already predominated in Britain’s home market for industrial dyes. Then America took the technological lead and Britain never regained it. Britain today is an affluent and comfortable first-world nation, but no longer an industrial powerhouse.

Mr. Otellini sees the U.S. today in circumstances similar to Britain a century ago. He spoke authoritatively, buttressed with vivid anecdotes drawn from his own experience, of China’s drive for technological excellence and achievement. China’s emphasis on math and science is stunning, as is the number of engineers it graduates. Its efforts at primary and secondary education are likewise prodigious and successful. Its best and brightest still go here for graduate school training, but how long can that last? Meanwhile those students return home to build a world leader.

At the same time the U.S., at least with reference to its public policy, is not doing much. Our best are still the world’s best, but that’s the cream of the crop. Our bench is not deep. Having said that, Mr. Otellini gives credit where credit is due. No one knew better than Intel what a threat the Japanese were in the 1980s to the U.S. semiconductor industry. Yet in the 1990s Silicon Valley, Intel’s microprocessor and Microsoft’s software led the world in the personal computer and internet revolution, while Japan fell into a slump. That happened because we had the innovators. Maybe this story will be told again with respect to the U.S. and China.

Maybe…. But Mr. Otellini’s description of the concerted effort China is making on so many levels should give cause for concern. If it’s important for American industry to maintain leadership, Mr. Otellini ‘s remarks last night implored us to wake up.

(By the way and along the way, Mr. Otellini mentioned the late Alfred Chandler’s Scale and Scope as having an impact on his career and therefore Intel’s future. I also recommend it for an historical account of the development of the giant industrial enterprise, and how America’s and Germany’s business innovations helped those countries take the industrial lead from Britain.)

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