Zhone Says 'Buy American'

Yup, it's a very dangerous way to go, especially for vendors like Cisco and Juniper. Zhone may have very little to lose.

Plus, it would be very complicated to define exactly what would be ok and not ok. Plain old duties are at least quite simple. Lots of red tape! By the time any equipment would actually be installed, the recession will be over.

No, this wouldn't mean any saved american jobs, save the army of lawyers and bureaucrats needed...

The idea of 'Buy American' in a depression has been debunked pretty well in 1929. The Smoot Hawley act tried to do this by increasing duties on foreign goods. Other countries retaliated in kind. A mild depression became a global phenomenon. This is exactly what all countries are trying to avoid today. Most wireless vendors do as much business outside the US as they do here. Would they like to be cut off from international markets? I don't think so. We have a crisis on our hands, but the reaction is not to come up with an emotional response that is short sighted and will do more harm than good.

I'm all for strengthening the family.  I'd focus family money on the investment side and not the expense side.  Tech equipment churns and depreciates too fast to be considered an investment.  Fiber outside plants, done properly, are 50 year investment.   The optimal model is that customers pay for equipment and government monies support the fiber natural monpolies (of which we are on the front side - i.e costs haven't been sunk.)   I doubt any other model will generate a return.  One can look at the dial up MODEM history to see how the model works - there the local loop was regulated such that any ISP could buy MODEM termination equipment and consumers would update their own MODEMs.  That's the basic model that has proven itself.

First of all, one thing unique about Zhone is they now do most of their own "board stuffing".  Most Telecoms use contract manufacturers to build printed circuit board assemblies (PCBA).  When Zhone took on Paradyne, they took on some PCBA lines in Florida.  Part of the work is also the testing and configuring after the boards are built, which Zhone does.  Some other Telecoms do that also, while others have their CMs do it all, including shipping to customers (such as Cisco).

As far raw components, they are made all over the world.  Cheap ones in China (and often only China), others closer to the US.  High $$ chips are often fabed (silicon) in the US, but then assembled and tested overseas.  Bulkier items (plastics, metals) are more likely to come from the US.

Overall, Zhone's US built claim is a fair argument, they likely source as much of the raw components from US that they can, if the cost is competitive.  Purchasing of their systems will have a direct impact on their workforce in Fla, as well as in Ca.  Ultimately, you want the US tax money spent on products that meet the stated need, but all things being equal there should be some consideration for US content.

RJ,

Our taxpayer dollars are not going to be used for loans to fund broadband expansion, they are going to be used for grants (if I understand correctly). 

To follow your "family money" analogy, what if you were the patriarch of the family and you decided that you needed to spend a fairly large chunk of the family wealth to buy certain things that would help some struggling members of the family in the near term, and strengthen the entire family in the long term. 

When making these spending decisions, if you could provide additional benefits for your family by patronizing their businesses instead of their competitors', what would you do?

All I'm trying to say is that right now, we need to put as many Americans back to work as possible, and prevent any more from losing their jobs.

Al's argument also was that public money shouldn't be used to subsidize foreign jobs.  That's on the topic of public finance. 

Think of it this way.  Imagine you're in charge of some family money and a relative would like a loan from the family pool.  What strings would you attach?  Would you say the relative could only use the money to buy products made by a member of the family with the argument that this would cause the other family members to develop best of breed skills?  Would you say the relative could only use the money for an invesment  expense (e.g. education) where the education could only be provided by a family member?  (No family members who can teach worthwhile skills - out of luck.)  Would you allow the relative to buy drugs with the money or a fancy new car? 

Seems like getting this right is not so straight foward.  "Buy American" is a bit too simplistic and isn't likely to maximize the return on the money nor is it likely to motivate a workforce to develop best of breed skills.  Probably need a better set of criteria.

rj,

You are talking about a different topic.  Al put out there that we should not buy products manufactured in a foreign land.  That is completely on topic on trade. That is the point I am addressing.  You are talking about something separate, which deserves separate consideration.

seven

The stimulus package isn't about free trade.  It's public obligations backing the failures of private ones, ones that have proved to be untrustworthy.   The private financial system over the last decade based its "profits" on the expansion of monetary instruments (aka the printing presses) and also created a bunch of bogus insurance products in order to end around reserve ratios required of banks by its regulator (Greenspan).  It's Enron's off balance sheet shenanigans on steroids. 

Smith doesn't consider any of this in his economic model described in Wealth of Nations.  It's not addresssed in comparative advantage models either.

As far as where the money should go for stimulus - I'd say after shoring up the crooked financial system, it needs to go into long term physical assets (think TVA or Hoover Dam) and/or educating a work force to supply health care services to an aging population.  Propping up U.S. consumer spending (something like 72% of GDP) via more and more IOUs is just more drugs for a drug addict. 

Where a product is made is sorta irrelevant.  What needs to happen is that a local workforce does what it's least worst at when compared to the aggregate.  That maximizes economic outputs and the standards of livings.

Phil,

You pose an interesting question, regarding what exactly is "American" broadband 
equipment in this day and age.

Where the design engineering is done for the infrastructure and equipment 
deployed using stimulus dollars is certainly relevant, as this work is performed 
by salaried high tech knowledge workers who will continue to innovate and make 
their companies stronger.  As their employers grow top line revenue by delivering 
more of their products for US broadband deployments, more of these types of 
workers will be required and the ones currently employed will remain employed.

Where the manufacturing and testing is done for the various circuit cards in the 
broadband equipment is certainly relevant as well, as this work is performed by 
skilled workers paid hourly wages, and the number of these types of employees 
required for production is proportional to the quantity of units being built.  
More product needs to be built?  More jobs for prodution workers will result.

What about the subassemblies?  These are the smaller circuit cards or modules 
or cable assemblies that may be required as part of the broadband equipment.  
Where these are assembled and tested is relevant as well, for the same reasons 
as above.

What about components?  These are the Individual chips, resistors, regulators, 
connectors etc. required in the product.  The labor content in these are relevant 
as well, but there aren't many domestic manufacturers left to choose from so 
many will certainly come from suppliers outside the US.

As such, I don't believe that any broadband equipment is truly 100% American, 
nor do I believe this should be a requirement for funding Stimulus projects.  
However, if there are ten project proposals, each specifying a different vendors 
equipment for a broadband network buildout,  their bids are all competitive, 
and the products they selected all meet the technical requirements, which project 
proposals (and which vendors) should get the grant dollars?

In a normal free-market system, the buyer can apply what ever criteria he/she 
wants to select the winning vendor or vendors.  However, when the money to pay 
for all this equipment is coming from the US taxpayers, too many of whom are 
out of work, living through one of the harshest economic periods of our lifetimes, 
and when one of the key objectives for spending all of this money in the first 
place is to stimulate the collapsed US economy and put as many Americans back 
to work as possible, then it seems prudent to consider how much American content 
is included in each proposed project.

This is why the Buy American clause needs to apply to the broadband infrastructure 
projects.  Each candidate project should specifiy the % of American Labor content 
in the design, manufacturing, and support of that project and the broadband 
equipment it will deploy.  If some of the projects have 90% American content and 
others only have 70% or 50% or even less, then the projects with the most American 
content should be the ones that get funded.