Whose Industrial Policy?

By Kathy Mitchell
September 1991; pages 5, 18; Volume 3, No. 1

An unsual collection of local citizen and environmental groups, and the National Campaign for Responsible Technology (CRT) opened negotiations in Austin this summer with Sematech, a Defense Department-subsidized semiconductor research consortium. The ongoing meetings could lead to safer chemical processes for use by the microelectronics industry and substantially affect national industrial policy, if Sematech responds in good faith to the coalition.

Thus far though, organizers says, Sematech has evaded their most important questions. "The consensus was that the written response fell far short of our expectations," CRT representatives claimed, in an August 12 letter to Sematech CEO William Spencer following months of discussion.

The meetings with Sematech, eighteen months in the making, have come at a particularly opportune moment. Sematech, now three years into its five-year funding cycle, has begun formulating a new agenda, "Sematech II," in preparation for next year's re-funding debate in Congress. An industry research consortium made up of 14 major semi-conductor manufacturers, Sematech was originally created by Congress to provide its member corporations with high-tech research needs to strengthen their "competitiveness" in the global microchip market. Sematech received $500 million in Defense subsidies for its research. In addition, Austin provided an attractive incentive package and the University of Texas rented land worth $12 million to the industry group for one dollar per year despite student protests. Now the consortium has submitted a new five-year plan to the Defense Advanced Research Projects Agency (DARPA) that substantially revises its original mission.

Given its federal and local subsidies, CRT and a local group, People Organized in Defense of Earth and its Resources (PODER), have demanded that the consortium introduce popular priorities into the new Sematech mandate.

According to Susanna Almanza, Austin's CRT representative, Sematech member companies must take community demands for safer and cleaner high-tech working conditions seriously, or the community will go to Washington to testify next fall.

"We plan to keep the community pressure on locally, and then from there take the community to the actual hearings if necessary."

At War With the Japanese: A "Defensive" Industrial Policy

Currently Sematech hopes to "beat the Japanese." Representatives of the consortium see themselves as warriors in an international struggle to dominate the $620 billion chip market. "We're at war with the Japanese," one Sematech representative said to the CRT delegation, standing before a market-share chart outside the chemical vapor deposition area, "and this is the front right here." More meaningful in the context of its Defense Department subsidies, the war metaphors also refer to the U.S.'s military dependence upon chip supplies. In Washington, defense analysts insist that government support for the private semiconductor industry is a national defense issue.

Sematech represents one of the federal government's most controversial moves toward a national industrial policy. With 2.7 million workers and 1988 sales of $279 billion, according to the Austin Electronics Assocation, the capital-intensive electronics industry, dominated by a handful of multinational corporations, has become the focus of a wide ranging debate over national economic priorities and the role of government subsidy in world competitiveness.

Sematech in its promotional material claims, "Our overseas competitors have, with their government's encouragement and support, targeted specific industries for domination. The U.S. electronics industries, which invented silicon chips, was one of those targeted. As a result, the U.S. lost leadership in the market and its ability to compete has eroded."

Sematech conspicuously fails to mention the macro-economic issues, such as the over-valued dollar and third-world labor exploitation, that make foreign goods cheaper here and American capital more profitable overseas. U.S. industrial problems will be solved, according to Sematech, with good old fashioned "innovation" subsidized by DoD.

Originally, industrial planners hoped that Sematech, at its new Austin plant, would design a smaller chip than those currently produced by Japan. But member companies, in competition with one another for a better product, proved unable to work together on the original goals.

Instead, the research group now provides cash grants for the "precompetitive" production of industrial tools for chip manufacture, according to CEO William Spencer's July testimony before House Science, Space and Technology Committee. Sematech grants from five to twenty million dollars to selected, private tool-making companies to support product improvements. In addition, the consortium has created an office in Washington to lobby on behalf of the 14 member companies and their partners.

Sematech's government funder, the Defense Advanced Research Projects Agency (DARPA), supports this move into the "venture capital" business, according to the San Jose Mercury News. According to VLSI of San Jose, in May 1990, "The problem with the industry is a business issue, not a technology issue. There's always good technology floating around. The problem is we don't have enough money to do the business properly."

Sematech critics charge that the consortium, with its bags of government money, has become a "kingmaker" in the tools industry. "If Sematech was funding one of my competitors with government money, I would get upset," says T.J. Rogers, CEO of Cypress Semiconductor. Rogers also notes that government money should not be spent to lobby government on behalf of recipient companies.

In addition, Sematech - a nationalist effort in a multinational arena - has had trouble keeping companies it supports within the U.S. industrial fold. This spring, a Japanese firm bought Semi-Gas Systems from its U.S. parent company after Sematech had poured millions into it. Semi-Gas was one of the first suppliers chosen by the consortium for support. In the past three years, according to a Statesman analysis, 28 companies that supply equipment to U.S. chip manufacturers have been bought by Japanese and European firms.

In yet another departure, CEO Spencer now claims that Sematech II will work on software. Whether or not the new direction produces useful new technology, the consortium will probably plod along. According to VLSI Research head, G. Dan Hutcheson, "Most people in the industry think it's good. They don't have very high expectations of it, and they are willing to put money into it regardless of whether those expectations are met."

Of course, according to General Accounting Office audit of Sematech, at least two of the member companies "have included a portion of their Sematech contributions for reimbursement as overhead costs on government contracts they hold." This makes it a little easier to support Sematech, whether it's successful or not.

The People's Industrial Policy

While Sematech's success in "the war against Japan" continues to be controversial, it has introduced some toxic-chemical source reduction programs demanded by CRT and other environmental groups. CRT, however, insists that planning for new production processes must involve citizens at every step.

According to Sematech's environmental-health specialists, the consortium labs have already substituted solid arsenic for arsine gas, the most lethal chemical commonly used in semiconductor production. But in order to ensure that hazard response and worker safety, as well as toxic-substance control, will be the central objectives of a government and taxpayer sponsored industrial policy for the semiconductor industry, local CRT members asked that Sematech create a permanent channel of communication with the public.

"The Montopolis neighborhood has been here since the 1800's and has a long tradition and tremendous needs," said Frank Campos, head of the Montopolis Mentessori School situation across the street from the Sematech plant. "I want to know how Sematech is going to do something for us ... There is nothing wrong with holding you guys [Sematech] accountable to the community. We can go out and dialogue, offer people an open place for questions and concerns."

Almanza suggested that the public should have direct oversight over a publicly funded industry group. "You have advisory boards. We would like to be that advisory board - the people who are here. We would like to set up another meeting and see a response to the recommendations put forward today. We want to see the funds go to the community, a community protection plan, and we want to start a Good Neighbor Policy."