How Semiconductors Fit Into A Vision For A Progressive Economy
By Colin McAuliffe
We currently face overlapping crises of the pandemic, climate change, poverty, and the persistent lack of good jobs for people without college degrees. These pressing issues cannot be solved without significant public and collective action. The Biden administration is orienting itself towards an economic philosophy where the public sector plays a much more active role in provisioning goods and creating jobs. This is a welcome step in the right direction, and stands in sharp contrast to the trickle down economics of past administrations. Meanwhile, a recent shortage of semiconductors has highlighted the fragility of the supply chains we rely on for a critical resource. We believe that this presents an opportunity for progressives to push for a number of different policies which meet a wide range of progressive goals.
What is a semiconductor?
A semiconductor is a material which has specific properties for conducting electricity. Semiconductors conduct electricity better than insulators like rubber, but not as well as conductors like copper wire. These properties make semiconductors the most important ingredient in integrated circuits, or computer chips. Generally speaking, the term “semiconductor industry” refers to both the production of silicon wafers as well as integrated circuits, since these two are so closely related.
Once, semiconductors were only found in giant main-frame computers, but today semiconductors are found everywhere. They are in your computers and wireless devices, they are in data storage centers which make information readily available on the internet, they are key components for energy management and for making transportation systems work efficiently, Semiconductors are now important components of the end products of advanced manufacturing such as medical equipment, cars, and airplanes, and their use in these areas is expected to increase over time. On top of being a key part of these end products, semiconductors are now a critical part of the production process itself. Advanced manufacturing plants (including those for semiconductors themselves) all depend on sophisticated semiconductor-based technology to operate efficiently. This has led some commentators to declare that “semiconductors are the new oil,” meaning that they are a foundational resource which underpins entire economies, and which nations view as critical to their strategic interests.
Most foundries, factories where semiconductors are made, are now found in the Asia Pacific region, with Taiwan playing an especially prominent role. Foundries have very high capital costs, typically take years to turn a profit, and use specialized equipment which prevents a foundry from pivoting if market conditions change. This means investors are often skittish about putting their money into expanding production capacity of semiconductors, particularly for the older generation semiconductors which remain vital to numerous applications despite growing use of the most advanced “bleeding edge” semiconductors.
In the past it was typical for all companies that design integrated circuits to also have their own foundries. However, many computer chip designers have since opted to go “fabless,” meaning that they outsource the production of the semiconductors to another company, while they keep design and the related research and development in house. Pressure to go fabless has led us to a point where semiconductor production capacity is concentrated overseas, leaving critical components to our supply chains increasingly vulnerable to disruptions from climate change and other unexpected events.
So why should progressives care about any of this? Semiconductors are critical for meeting our goals for an equitable transition to clean energy, providing top quality healthcare for all, and provisioning infrastructure such as broadband internet. Much of the pressure to offshore semiconductor fabrication capacity is not the result of “natural” economic forces but instead is the result of chronic underinvestment in our digital infrastructure. If we are willing to take action, a thriving U.S. based semiconductor industry could be a cornerstone of an economy that works for everyone. We’ve sketched out a few ideas on how we can make this possible, which you can read here.
Colin McAuliffe (@ColinJMcAuliffe) is a co-founder of Data for Progress.