May 18, 2023

The UK is about to release a review of their domestic semiconductor industry and capacity to grow it. Lead by a bunch of Tories, it is likely to recommend that the UK should not try to expand semiconductor development, but instead grow partnerships with Japan and South Korea for production and focus on design and "advanced packaging" (read "plastic box").

Some of the largest chipmakers have agreed to invest billions of dollars in Japan as the world’s most developed economies seek to reduce their dependency on Taiwan’s semiconductor industry amid rising tension between the west and China.

Japanese prime minister Fumio Kishida met the heads of leading western semiconductor companies, including Taiwan Semiconductor Manufacturing, South Korea’s Samsung Electronics and Intel and Micron of the US, in Tokyo ahead of the G7 summit that begins tomorrow in Hiroshima. (FT)

This is similar to the more unsophisticated view of the Canadian government. Essentially, leave it to other places and be at the mercy of USA geopolitics.

The "we can't build it here" attitude is one of the reasons is that there is corporate blackmail starting in this sector—similar to the autosector. It is less terroristic than the Stelantis battle cry of "we will destroy your economy unless you guarantee high profits", but the outcome is the same. Chip companies want billions in subsidies, not because it isn't profitable to produce in the UK and Canada, but because other countries are offering profit subsidies this size. In the UK, highly profitable companies are starting to threaten to leave just because they have not been approached by the government for handouts.

The strange thing is both countries have domestic capacity for semiconductor production. The universities and state-owned research and production centres already produce chips.

For me, the questions is not if we should produce semiconductors here. The question is what do we need semiconductors for and can we produce those that meet those needs?

The answer is an unqualified yes. While the more advanced computing chips may be left to the cutting edge intellectual property of multinational companies, most applications that need semiconductors are not cutting edge. If fact, most processes that need semiconductors need stable, tested, known, and fully open chips. We are talking hospital equipment, auto manufacturing, farming, secure devices for small-scale production facilities, safety-focused automation and monitoring, security, and local information gathering for logistics.

Most everything has chips in it, if we focused on the trailing-edge of the chips advancement, house it in a well funded public research and production facilities, and focus on advancing the open architectures such as RISC V, we could build a domestic production that supports endemic economic advancement in this area. That is, we could have companies that hire people and create jobs and things built for our needs.

This is national industrial policy. It is one that the Liberals and Tories are very much bad at in Canada outside some very specific subsidy regimes.

We must move away from this bizarre false David Ricardo notion of Comparative Advantage only applying to the single most advanced country in each area. We know this implicitly when it comes to certain things (like food, national security, making cars), but then neoclassical economists pretend that it is an iron law of economics for everything else.

Why is this important? The future of productivity and a point of major advancement in economic processes will be driven by AI and advanced automation. To have a part in this, to develop endemic people capacity to understand these issues, we must have endemic industries that build and implement all of this.

If we outsource technology develop to other places, we don't just lose control over the implementation of that technology. We will lose control over understanding of that technology and how to regulate it for the public good.

Vaccines, semiconductors, battery production, energy generation/transmission, logistics, recycling. The list goes on. There are many areas where it makes no sense for an economy like Canada's to leave it to Comparative Advantage. That just means that our economy will continue to be dependent on mining the raw materials for capital's profit. And, it will mean we will be forever at the whim of corporate blackmail of a few companies demanding ever more profit subsidies.