Not the best of examples

A 33pc rise that easily outstrips the 20pc average for the semi-conductor industry. Who says we don\’t make things anymore? Almost 98pc of mobile phones now have an Arm chip inside them, with most phones having more than one. Drop that expensive iPhone, for example, and you will find at least five Arm chips inside.

Really not the best of examples. For of course you won\’t find any chips at all \”made by ARM\” inside an iPhone. For, famously, ARM doesn\’t in fact \”make anything\”. They make the designs for other people to make things.

I agree absolutely that ARM is an excellent addition to our economy. Those 1,700 highly paid and very bright people are adding value like Billy Oh. They\’re making us all vastly richer through the value their designs produce (and by far, far, the majority of that value flows to us as consumers of the products containing the chips. By one analysis 97% of the value flows to us and only 3% to those innovators.).

But the point is that they don\’t make anything and yet still add this huge value.

Which leads us to a couple of interesting points: you don\’t have to manufacture things in order to create value. And you don\’t need to consume physical resources in order to create value. Thus it isn\’t true that only with manufacturing can you have a strong economy nor is it true that GDP growth (or economic growth if you prefer) is constrained by the finite amount of physical resources available on a finite planet.

That ARM doesn\’t make anything is disproof of two very common misconceptions.

20 comments on “Not the best of examples

  1. You cannot expect everybody to be inventors,the same way you cannot expect a lot of Shakespeares.Most people want to do work for others in return for a roof over their heads and food on the table.
    This inventiveness formula is much like the old City/Tory slogan” we don’t need no manufacturing,we’ll make more from skimming money”.Another fine mess.

  2. @Tim: damn right. One of the things that most annoys me about the UK is the coterie of idiots (right and old-left alike) who think all anyone does is push paper around or claim the dole, just because they’re not working in a coal mine or a steelworks any more.

    @DBC: what, you think everyone at ARM’s an inventor? Most are engineers, programmers, testers, etc – jobs that a large proportion of the population could do with some training.

  3. Further to john b’s point, they only liked the coal mines because it provided fodder and funds for their own unions. Why else would they love the coal industry and despise the oil industry?

  4. ARM make about 6 cents per core. It’s a heck of a way to make a couple of hundred million dollars.

    Then there are the rumours that Apple will take ARM over, resulting in them not being British any more.

  5. Erm, I have a question.

    What would the value-add be if nobody manufactured anything from those frightfully-clever designs?

  6. As a design engineer I know that if you don’t manufacture you lose touch with the practicalities of your design, hence becoming a poorer designer. Moreover the claim that just designing is a viable sole method of earning money is a trap: as soon as the actual manufacturers (in China?) learn how these things are made they will first copy, then modify, then make their own designs.

  7. as soon as the actual manufacturers (in China?) learn how these things are made they will first copy, then modify, then make their own designs.

    I think this threat is overblown. Currently, the Chinese make low-value tat which used to be made in Hong Kong ansd Taiwan. In order to move into the manufacturing of high-quality stuff, they need to massively raise their game regarding quality assurance and quality control. From my experience in Russia, this is easier said than done largely because QA/QC, like HSE, is largely dependent on culture (look at the Japanese, for example). It will be no small step for the Chinese to adopt exacting quality standards into their culture to the point they can make aeroplane engines better than Rolls Royce can.

    It is the QA/QC which lets the Russians down every time. Their engineering skills are formidable, but at the end of the day they do not incorporate proper quality controls into their design or manufacturing processes, and even if they are present on paper the level of corruption normally allows them to be bypassed. I can well imagine the corruption in China having the same effect, hence the poisoned baby milk scandal a few years back.

  8. My point was that the H.G. Wells idea that prosperity from ever more whizzo inventions ignores that a lot of stuff we buy is pretty low tech: clothes,shoes,food ,toys ,furniture,carpets etc And people prefer them low tech:nobody wants super-intelligent even borderline autistic people messing about with good basic things.There is whole wedge of jobs in this neck of the woods where things are made in much the same way as they’ve been made for years.
    As an inhabitant of Northampton I wonder how it is that all these clever people from our privately educated elites can no longer organise a system whereby this country can make its own shoes.
    As with a lot of things this relates to the failure of the Two Cultures debate to come to any accepted conclusion.

  9. As an inhabitant of Northampton I wonder how it is that all these clever people from our privately educated elites can no longer organise a system whereby this country can make its own shoes.

    We cannot (and do not want to) compete solely on price with developing world labour rates. However, we have _chosen_ to make ourselves increasingly uncompetitive via:
    * Excessive taxes on labour and capital and insufficient taxes on land ownership.
    * Restrictive planning permission regulations.
    * Excessive demands on the economically productive part of the economy to fund an ever growing economically unproductive part.
    * Excessive regulation on business.
    * Unrealistic pay and benefit expectations (e.g. UAW in Detroit).
    * Final salary pension schemes, both government provided and private sector employer provided, that hide (to some extent) from workers (aka voters) the consequences of their political choices on the economy, and hence underlying investment performance.
    * The workshy and militant attitude of many unionised workplaces in the 60’s and 70’s.
    * Complacency w.r.t. new competition from abroad, e.g. the Japanese car industry in the 60’s.

  10. Tim Newman said: ” … as soon as the actual manufacturers (in China?) learn how these things are made they will first copy, then modify, then make their own designs.” “I think this threat is overblown.”

    Sorry Tim, you do not know what you are talking about. It is already happening. Hooker describes the Chinese copy of a Russian copy of a BS/RR jet engine 20 plus years ago. The Chinese supply much more than people imagine because it is still sold by the UK originators, though no manufacturing takes place here.

    From motherboards to rotary unions to cars to bearings to machine tools to cd players to fasteners China makes the lot. Some of it is complete tat but a lot is passed off as Western and customers perceive no difference.

    Everything “we” (the West) makes there, is copied – make no mistake about that. We will lose design expertise to China just as surely we lost out to Japan.

  11. Some of it is complete tat but a lot is passed off as Western and customers perceive no difference.

    Well, I can’t speak for all industries but there’s no way players in the oil and gas business would procure stuff from China. Last project I was on the Russian subcontractor ordered a whole lot of Chinese steel before he read his specs. properly and found it was unacceptable.

    If customers are buying Chinese knockoffs unawares then their own QA/QC procedures are fucked up. I have no doubt the Chinese are making this junk, what I think is overblown is the extent to which any reputable company would consider buying it.

    Take the knockoff RR engine, for example? Which airlines use it?

  12. There is no reason why it can’t be manufactured in China either. But this is a lot different from a Chinese company with Chinese management systems and a Chinese version of QA/QC going it alone either from scratch or using a knock-off design.

  13. I used to watch old government films (1940’s) where the propaganda was that Britain could n’t compete in making cheap items and had to make more skills-based things and leave the stupid foreigners to make the common or garden items.
    We have pursued this basic mistake ever since and as I said before the idea that” metal -bashing”, that’s what they called,still call, manufacturing, was a thing of the past took a grip in the City and the Tory party which believed that money could be made without any expense of physical energy ,e.g. from financial services at their most abstract.
    But it should be possible for British workers to make things that their fellow workers can buy. At the moment it appears to be impossible.
    Going the high tech route will leave average dopey people unemployed without the resources from wages to buy any high tech goods that are produced.
    Northampton has many up-market shoemakers not just Church’s,but Crocket&Jones,Lobb’s ,Trickers…but these do not make ordinary shoes for ordinary people.British industry cannot supply its own workers.It is not that the workers were highly unionised : Nuflatt had the reputation for being a pushover. The workers were not highly paid .The middle order firms Sears ,Truform, Manfield etc all got scooped up by Charles Clore who bought out the share holders with highly leveraged private equity.He also went in for selling and leasing back the huge number of dedicated shoe shops Remember them? He was an incredible financial innovator and by the standards of the later breed of pure asset stripper not that concerned to sell up anything that the original firms owned like land and property.
    But there is no doubt that a huge number of family firms got taken over by corporate raiders from the 60’s onwards who used the market to make alot of money and close down productive operations.That is why this country does not have mittelstand firms:market forces at their sharpest ;nothing to do with the usual suspects.

  14. Finding out where things really are made is extremely difficult. But a lot more is made in China than people imagine. I know that Chinese firms have got to the copy/modify stage. That’s only one stage from designing for themselves.

    And whilst I generally agree with Mr Reed, the reason to retain manufacturing is not to employ “average dopey people” here, but because designing needs manufacturing to keep it rooted in reality.

  15. Manufacturing and innovative design are completely different things. It is absolutely correct to say that China can manufacture, through blunt copying mainly, absolutely anything but that doesn’t meant they are best placed to do the design element. Software development is a pretty good example of how this seems to play out, you want large chunks of code crunched out to an established framework then India or even Poland are your friends, the man hour cost of developers over there is insignificant to the UK. But if you want something new, custom, designed from a blank piece of paper? Don’t even think about it. Similarly ARM design chips, those chips are manufacturered in the far east, can China copy them, of course, they’re building them FFS. But could they start from scratch and design a better new chip than ARM? I doubt it, not for the medium term at least.

    As for ‘we should be making things here’ you’re kidding right? To quote the host, imports make us richer, if you want to pay 5 times as much for your electronics be my guest but I’m happy with the work being outsourced somewhere where the balance is that I get goods at a price I think is reasonable and they get paid a good living wage for their local economy.

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