(FORTUNE Magazine) – In the industries that have changed the world, from fertilizers to machinery to computers, the firms that make the big capital investment early are the ones that survive. The cost advantages are tremendous for those that have , scale and scope -- the ability to make many products out of the same set of materials. Silicon Valley is kind of our entrepreneurial dream -- and a disaster. Those companies are very good, but they don't make big investments in production and continued research. The three firms that did -- Intel, Motorola, and Texas Instruments -- are our best hope today. By contrast, the semiconductor companies in Japan are all old firms. More important, they are the very big Mitsubishi, Toshiba, and Hitachi -- the GEs and Westinghouses of Japan. The only smaller one is Fujitsu. But unlike the GEs and Westinghouses, they pursue a highly focused diversification that produces growth through synergy and competitive advantage. They also have much lower cost capital, and markets within their own groups of related companies so they can produce at a scale that yields lower costs. There is no way these companies could have survived against IBM in computers without strong government support. But because they were big, they were able to push against Silicon Valley in semiconductors with little government help. The same thing is likely to happen in biogenetics. It was striking to see Switzerland's Roche Holding buy 60% of Genentech, our pioneer. One good thing I see is that companies like Biogen here in Cambridge are getting startup capital from the big pharmaceutical companies. The great function of the big companies is development, not research.

If the American capital markets don't shape up, if we continue to do what we did in the 1980s -- look to make money on the deal and sacrifice long-term investment for dividends or interest -- then the people who buy our companies will be foreigners. My hope is that we can get away from shareholder capitalism, where the size of the dividend is most important, to a capitalism that values the results of investing retained earnings in skills and facilities. The great strength of the United States is the entrepreneur, and the entrepreneurships are bubbling. We do have more new things coming out of the United States than Continental Europe, Britain, or Japan. But to be a successful entrepreneur and build a successful business, you have to do what Ken Olsen of DEC did, or Rockefeller and Carnegie did. You have to create a world-wide organization to compete, or you will be bought by someone.