The Google Phone and The Decline of Manufacturing

A provocative essay by Noam Scheiber in The New Republic argued that the roots of the decline of America’s manufacturing sector can be found not just in the maquiladoras across the river from El Paso, or the sweatshops/factories of southern China, but in the dark-paneled halls of elite American business schools.

“Even if you could reclaim a chunk of those blue-collar [manufacturing] jobs, would you have the managers you need to supervise them?” Scheiber asked. “It’s not obvious that you would.”

Referring to the landmark 1980 study “Managing Our Way to Economic Decline,” published in the Harvard Business Review, Scheiber noted that “since 1965, the percentage of graduates of highly-ranked business schools who go into consulting and financial services has doubled, from about one-third to about two-thirds.” In other words, the graduates of the business schools of Harvard, Stanford, and other super-competitive universities have gotten very good at pricing and trading things, and less adept at making them.

I graduated from college in 1980, the year the “Managing Our Way” study appeared, and my generation is fully emblematic of its, and Scheiber’s, theses. My brother, my brother-in-law, and my oldest friend all graduated from business school at either Harvard or Stanford. They are undoubtedly three of the smartest people I’ve ever known. All of them have been consultants, investment bankers, or financial analysts their entire careers.

Don’t get me wrong: these men, and their peers, have helped power the U.S. economic engine that has raised the standard of living, and the level of technological innovation, to remarkable heights in this country in the last 40 years. Whether they could run a factory to compete with overseas operations is another question.

And that brings me to Google Inc. (GOOG), and its plans to build its own smartphone. I have opined against this move repeatedly, and I should note that the dozens of commentators who now believe that this is a settled matter, and that a “Google-phone” will hit the market next year, could be dead wrong: Google could be doing what it says it’s doing, and having its OEM partner, HTC, produce a prototype in order to test new apps and services on its mobile OS, Android. My point here is just to note that Google founders Sergey Brin and Larry Page – and chairman Eric Schmidt, for that matter – are brilliant innovators in Web-based technology and so-far infallible anticipators of cultural and technological trends. That doesn’t mean they can make handsets that will compete with Nokia (NOK), Samsung, or HTC (or Apple (AAPL), whose CEO Steve Jobs never graduated from college, much less business school). Running a phone factory is a lot different than creating a skunkworks.