Japanese Chipmaker Slashing Payroll due to High Supply and Low Demand in Lingering Recession

Posted by PITHOCRATES - May 27th, 2012

Week in Review

You know the recession is bad when electronic chipmakers are slashing their payrolls.  When that happens it means we’re not buying televisions, phones, computers, etc.  Because we don’t have the disposable income.  And don’t expect to have it anytime soon (see Japan’s Renesas eyes 14,000 job cuts, chip plant sale: Nikkei by Maki Shiraki and Taiga Uranaka posted 5/26/2012 on Reuters).

Japanese chipmaker Renesas Electronics Corp plans to sell off loss-making operations and cut its payroll by at least 12,000, a source close to the matter told Reuters on Saturday, as the company battles high costs and nimbler foreign rivals…

Renesas has posted cumulative net losses of nearly $6 billion over the past seven years as it struggles to keep up with South Korea’s Samsung Electronics and others in an expensive race to build ever smaller and faster chips.

Hobbled by a strong yen and forced to close eight of its factories after natural disasters in Japan and Thailand last year, Renesas has said it would hammer out a restructuring scheme by July…

The plan would trim its payroll by more than a quarter.

The Tsuruoka plant, which makes system chips that combine processing and other functions on a single sliver of silicon and are used in a range of digital electronics, has been a major burden for Renesas as Japanese consumer electronics makers cut production of TVs and other products.

Japan Inc. dominated during the Eighties.  They were manufacturing everything.  America lost its TV business as it couldn’t compete with the powerhouse that was government partnering with business.  Those on the Left in America said that was the way capitalism should work.  Put the government in charge.  Let the brilliant bureaucrats guide the hapless corporation.  For capitalism was chaos.  While government brought order to that chaos.  Which is why Japan Inc. dominated in the Eighties.  And frightened Americans as they used their massive profits to buy up American landmarks.  People worried that America would end up as a wholly owned subsidiary of Japan Inc. 

Of course, that was then.  Before their Lost Decade.  And the deflationary spiral that continues to this day.  For the bureaucrats may be smart.  But they’re not smart like the corporation people.  Who understand that while you can control your domestic markets with state capitalism you can’t control international competition.  And if you build up too much capacity you may just end up expanding supply greater than demand.  Sending prices so low your companies can’t operate at a profit.  And send your nation into a deflationary spiral.

This is typically what happens when the government interferes with the free market.  They create bubbles that eventually pop.  Sending prices into a tailspin.  A recent example in the United States is the subprime mortgage crisis.  Government kept interest rates artificially low creating a housing bubble.  And when that bubble popped it sent housing prices in a tailspin. 

It happens all the time when government interferes.  Yet it never stops government from interfering.  Amazing how we just can’t seem to learn this lesson.

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