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international competitors an advantage.

Why We Shouldn't Imitate Japan

One of the most common--and erroneous--rationalizations for corporate welfare is

that foreign governments give it out; America must do the same to remain competitive.

Perhaps Europe is not an immediate threat, but what about Japan?

Sematech was formed at the height of the Japanese attack on the American

semiconductor industry. The American semiconductor industry dominated the market

from its origin in the 1960s through the 1970s. As late as 1982, America held a 57

percent to 32 percent chip market share advantage over Japan. But in the 1980s fortunes

reversed, and by 1989 Japan actually took a 50 percent to 37 percent lead. Clyde Presto-

witz, a long-time champion of corporate subsidies, wrote the book Trading Places,12 and

testified before Congress that Japan's semiconductor subsidies, channeled through its

Ministry of International Trade and Industry, were responsible for the defeat. Prestowitz

declared that the American semiconductor industry was lost to the Japanese and pondered

whether or not the American computer industry could survive (both assertions were

wrong). In 1993 I debated Prestowitz at the Cato Institute, where he went so far as to

declare that the semiconductor industry was created by defense spending.13 Nothing could

have been further from the truth, yet Prestowitz was presented as an expert to justify

subsidies to Silicon Valley, about which he knew very little.

I also debated Michael Maibach, the chief lobbyist for Intel Corporation, on public

television in 1993. Maibach said that Sematech was needed to maintain the domestic

supply of military chips. What if our military had to depend on Japan? That was another

scare tactic used to justify corporate welfare. Even at its lowest point in 1989, America

still manufactured 37 percent of the world's $49.7 billion worth of chips. The military

rationalization for corporate welfare sounded sensible in Washington, but it had no

rational basis. My company, Cypress Semiconductor, shipped 20 percent of its production

to the military and had chips in the F-14, F-15, F-16, and F-18, as well as many of the

guidance and weapons systems aboard those airplanes. My position was vindicated a few

years later when Intel announced that it was voluntarily exiting the military chip business,

despite its Sematech subsidy. Cypress still ships a wide variety of chips to the military.

Did MITI subsidies to the Japanese semiconductor industry hurt our chip

companies? Were Japanese companies sharing secret data in a way that would violate

American antitrust laws? The answer to both questions is no. In 1992 I convinced

Yoshio Nishi to testify to that effect at a congressional hearing. Nishi, then the head of

chip development at Hewlett Packard, had been head of the Very Large-Scale Integration

program at Toshiba, one of the few MITI-

sponsored programs that seemed to work. The VLSI program was targeted at entering

the dynamic random access memory, or DRAM, market, the biggest chip market in the