The Semiconductor Bill and Moderna’s Billionaires – OpEd – Eurasia Review


Funny enough, we continually debate the causes of inequality when we regularly pass bills that redistribute income upwards. The semiconductor bill about to be approved by Congress is the latest installment in this absurd charade.

Let’s be clear, the bill does some good things. It has funds both to subsidize semiconductor manufacturing capacity in the United States and to continue research into developing better chips in the future. These two developments are positive even if the advantages of the first are overstated.

It was common during the pandemic era to tout supply chain issues as evidence that we needed more US manufacturing in various areas. However, this story ignored several factors.

First, the pandemic has also destroyed many factories in the United States, it’s not just factories in Thailand and China that have closed. Second, some of the problems were associated with shortages of truckers and other transportation workers and facilities. We also have to carry USA-made goods, most people can’t just go to the local furniture factory to buy a new living room sofa.

More importantly, complaints about foreign sourcing ignore the fact that we have seen a massive increase in imports of goods, as there has been a huge pandemic-induced shift in consumption from services to goods. Real imports of goods increased by more than $270 billion between the fourth quarter of 2019 and the second quarter of 2021.

This represents nearly 1.5% of GDP. It is difficult to imagine a scenario in which we could increase domestic production of manufactured goods by an amount close to this amount in the midst of a pandemic. In short, our supply chains have actually served us quite well by supplying us with a lot more imported goods as large parts of the domestic economy have been shut down, even though there were shortages of many items, which which drove up prices.

The other misleading aspect of the virtues of this bill is the idea that the working class (unqualified workers) will benefit from more manufacturing jobs in the United States. While this would have been true 30 years ago, it is no longer true today. Thanks to our trade policies over this period, the wage premium in the manufacturing sector has largely disappeared.

At the most basic level, the average hourly earnings of production workers and non-supervisors in manufacturing are now less than 92.0% of the average for the private sector as a whole. A more comprehensive comparison needs to include non-wage compensation and also look at the specific demographics of manufacturing workers versus the workforce as a whole. That might still leave some bounty, but almost certainly a very small one.

The disappearance of the wage premium in manufacturing has been associated with a reduction in the gap in unionization rates between manufacturing and the private sector as a whole. In 1993, 19.2% of workers in the manufacturing sector were unionized, compared to 11.6% for the private sector as a whole. By 2021, the gap in unionization rates had been significantly reduced, with 7.7% of workers in industry unionized, compared to 6.1% for the whole private sector.

In this context, the increase in manufacturing jobs that could result from this bill should not be a godsend for unqualified workers. There is little reason to believe that the manufacturing jobs created by this bill will be qualitatively better than the other jobs these workers might do.

To be clear, it is probably better to have more diversified sources for such an important input in the modern economy, so an increase in domestic capacity is desirable. And, to be so dependent on sources that could be shut down in a confrontation with China is a problem, although the idea of ​​advancing a new Cold War with China is almost certain to prove disastrous for the United States and the world.

Research and Inequality Grants

The other part of this bill is a substantial increase in research funding that will focus on the development of new generations of semiconductors and related technologies. This is positive in the sense that we would benefit from more research in these areas. However, the problem is that the gains from developments in these areas will go disproportionately to those already at the top of the income ladder.

The development of mRNA and Moderna technologies are the case study here. The development of mRNA technology over the past four decades has been largely funded by the public, primarily through grants from the National Institutes of Health. Moderna recently began its own research, although it had not yet brought an effective vaccine to market when the pandemic began.

The federal government paid Moderna $450 million to develop its coronavirus vaccine. He then paid roughly the same amount for Moderna to conduct clinical trials to demonstrate its effectiveness.

He then let Moderna retain ownership of the intellectual property it had developed while working for the government. In effect, the government paid Moderna twice, once with public funding, the second time giving them monopoly control over what they developed.

As a result, according to Forbes, we had created at least five Moderna billionaires last summer. No doubt many other well-placed people in the business have pocketed tens or hundreds of millions. While the origins of rising inequality may be a mystery to many economists, it really should come as no surprise to anyone following the news.

We will spend over $500 billion on prescription drugs this year. If we did not grant patent monopolies or related protections, the cost would almost certainly be less than $100 billion. The difference of more than $400 billion per year represents about $3,000 per family, or more than half of the military budget.

If we really want to promote technology in a way that doesn’t hugely increase inequality, we can use a system that only pays companies once. We can make it a condition of funding that all products developed have short patents. I suggested four years as a rule, with everything in the public domain immediately in the case of biomedical and climate research. (See chapter five of Rigged [it’s free].)

If American companies find these terms too onerous, there are sure to be plenty of researchers elsewhere in the world happy to take our research dollars on these terms. Remember that we shouldn’t care at all about where the researchers are, research will be open and available to our makers here, as well as elsewhere, as a condition of the contracts. That’s what economists and politicians always tout: free trade.

We can support the economy without redistributing upwards

In short, with a little thought, the semiconductor bill could have been designed in such a way that it did not redistribute income upwards. We must overcome the idea that manufacturing jobs are a solution to the problems of unqualified workers. That was true 30 years ago, when our political leaders were vigorously pushing policies aimed at destroying those jobs. However, thanks to the success of these efforts, bringing the jobs back will not solve the problem.

The other point is that it’s not technology that gives a lot of money to those with skills in STEM and other fields, it’s our policies on technology. Until we can have a serious political debate about changing these policies, we will continue to see upward redistribution. It’s as simple as that.

This first appeared on Dean Baker’s Beat the Press blog.

Previous Davies Insolvency Now, Issue 6 - Canada's Changing Credit and Insolvency Landscapes
Next Babel Finance lost over $280 million in client funds due to risky trades, Eyes Fundraising