The fragility of global trade and infrastructure
Date: Monday, January 08 2007
By Alice Friedemann
Science fiction movies used to scare us with out-of-control robots bent on world destruction. If there’s a runaway robot now, it’s global corporations doing what’s best for the shareholder rather than the citizens and nations of the world. Pensions have been looted, health care benefits taken away, taxes avoided, and regulations ignored.
Risks are being taken that could bring down the global financial system.
One of the risks to global trade is due large computer and electronic companies using the same outsourcers for similar components from the same region -- even the same place – such as an industrial park in Hsinchu, Taiwan. The risk is a single source of failure.
Microprocessors are essential to the modern world.
Billions of chips are created every year for a myriad of applications: in autos, airplanes, ATMs, air conditioners, calculators, cameras, cell phones, clocks, DVDs, machine tools, medical equipment, microwave ovens, office and industrial equipment, routers, security systems, thermostats, TVs, VCRs, washing machines – nearly all electrical devices.
So when an earthquake struck Taiwan in 1999, world markets were shaken. Willem Roelandts of Xilinx immediately knew this had the possibility of hurting the world economy. “There is not an electronic product in the world that does not contain a Taiwanese component”, he said.
Even though the factories were fine, electrical and transportation systems weren’t, so production and delivery of components stopped, which caused assembly lines in the United States to halt as well. Wall Street traders sold off electronic firms, especially Dell, HP, and Apple.
You wouldn’t think the United States would build microchip factories offshore in industries that were essential to its national and economic security. But low wages are irresistible to corporations. Also, many foreign countries are closer to sources of natural gas, which is declining at an alarming rate in North America.
According to Jack Gerard, president and CEO of the American Chemistry Council, "Natural gas is a raw material for compounds used in thousands of consumer products — from agriculture, telecommunications and automobiles to pharmaceuticals…and food packaging. More than 96 percent of all manufactured goods are directly touched by chemistry. The industries that rely on chemistry together represent more than a quarter of the nation's entire workforce. Unaffordable natural gas is driving away investment, crippling our manufacturing base, and reducing job opportunities. It is transferring to foreign countries the advanced research and technology desperately needed in order to compete on the world stage. In effect, our nation's energy policy has become its de facto manufacturing and national-security policies as well."
Industries also like to locate factories where environmental regulations are less stringent.
The chemicals used to create computer parts have resulted in 29 superfund sites in Silicon Valley, the most concentrated number of superfund spots in America. At the Advanced Micro Devices superfund site in Sunnyvale, California, chemicals are in the groundwater and soil that can cause death, cancer, brain and central nervous system damage, leukemia, anemia, convulsions, nausea, unconsciousness. The zinc and copper at this site are toxic to plants, ruining what were once some of the best orchards in the world.
The need to go where costs are lowest is driven by the enormous amount of money it takes to build a mega-size wafer fabrication plants -- nearly ten billion dollars.27
Part of this amount is due to very high insurance costs. In 1997, an Hsinchu Taiwan fabrication plant had a fire that caused $421 million dollars in smoke and water damage.
Business interruptions can cost a fabrication plant 20-30 million dollars in lost revenue. For instance, a plant that had a four-hour long electricity outage had to spend the next four days recalibrating their equipment, resulting in a $5 million dollar loss. Insurance companies have responded with huge deductibles and capped the loss amounts.28
As unexpected energy shortages and outages grow more common in the future, this will wreak havoc on microprocessor production.
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[Proofreader's note: this article was edited for spelling and typos on January 10, 2006]