As I See It: A Novel Idea
February 23, 2009 Victor Rozek
As the Feds apply money like defibrillation paddles to the chest of the seizing economy, some still-healthy bystanders (think IT vendors) are openly wondering why they don’t just let the patients die. Of course, the onlookers wouldn’t phrase it so fatalistically, but they question the strategy of rewarding failed companies for their greed and stupidity.
As anyone who has ever played a team sport knows: When the game is on the line, you don’t call on your weakest player. And if you play with the big boys at the professional level, you understand that no one in their right mind throws money at players who have failed to perform and are an impediment to having a winning team. Yet that appears to be the bulk of the recovery strategy: reward the failed and dishonest; ignore the thriving and productive.
Well, the productive are tired of being ignored and they’re sending a message to the new administration: If you don’t want the likes of IBM, Hewlett-Packard, Microsoft, Cisco Systems, Apple, Intel, and Oracle to go the of way Ford, GM, and Chrysler, invest in the technology sector. And do so now.
Daniel Lyons, writing for Newsweek, interviewed Stan Williams, senior fellow at HP Labs. Williams articulated the IT community’s position succinctly: “Technology has been paying the bills in this country. It’s delivering all of the innovation and the profits in the United States. The IT industry has created the wealth that we’re enjoying now. But because the industry is doing well, it gets neglected. We’re killing the goose that lays the golden eggs.” That should come as no surprise to IT professionals. And although the goose is not yet cooked, it’s definitely looking mangy from all the plucking.
Yahoo reports that U.S. corporations will pluck another 70,000 domestic jobs from the IT goose and ship them overseas in 2009 and 2010. According to a recent report by the Hackett Group, a global firm specializing in moving your job elsewhere, by 2010, about 25 percent of all IT jobs at the world’s largest companies will have been moved offshore. Small comfort that siphoning American jobs has become a rare growth industry.
To be sure, money is propelling the exodus. Why pay a software developer in the U.S. $75,000 when you can buy the same skill in India for $8,000? But that’s not what worries Williams and HP. They worry that over time America will lose its technological edge and be surpassed by China and India. They worry because they can no longer find homegrown brains to fill their research labs. “In Williams’s lab at HP, only 18 of the 75 scientists were born in the United States,” and 10 of the 18 Americans are over 50 years of age. Evidently, the answer to the celebrated question “Is our children learning?” is “No, they isn’t.”
Unlike the failed banks and antebellum car makers, the U.S. tech industry is neither making excuses for its failures, nor is it asking for subsidies; it’s looking for investment. Specifically, the industry wants a significant increase in spending on education to bolster the four horsemen of the recovery: science, technology, engineering, and math. As Newsweek points out, while our global competitors were rapidly boosting their investment in science and technology, the U.S. (clinging to the myth that government is not part of the solution) has been cutting back.
In the past, U.S. technology companies could at least count on retaining the brightest foreign students, but that is no longer the case. Many return home after obtaining their PhDs in the U.S. because they now see greater opportunity abroad. In India, for example, a graduate researcher can secure a $5 million nanotechnology research grant, while “in the United States a young assistant professor would struggle to raise $50,000.” What HP, IBM, and others fear is not only that the next generation of innovators won’t be Americans, but that in increasing numbers they won’t even want to work here. As a result, our once overwhelming lead in technological innovation threatens to go the way of GM’s supremacy in the auto industry.
Beyond an increase in education spending, HP also suggests creating “a permanent research-and-development tax credit. . . more government funding for basic science research. . . and changes in immigration laws” making it easier for foreign students to stay in the U.S. after graduation. Microsoft apparently felt so constrained by laws preventing it from hiring foreign graduate students that it opened a research center in Vancouver where, as Fareed Zakaria points out, “most of them will work, innovate, and pay taxes for the rest of their lives.”
How HP’s proposed investments translate into dollars is not yet clear, but they will surely cost far less than the $350 billion Bush bank bailout, which disappeared faster than a magician’s rabbit, leaving taxpayers wondering where exactly it went, and what precisely it accomplished.
For IT professionals, the Obama bailout promises to be more fruitful. Robert Atkinson, president of the Information Technology and Innovation Foundation (ITIF), a nonpartisan think tank that champions public policies that advance technological innovation, examined the proposed legislation and concluded that “IT did pretty well.”
For a change, government spending will be used to create jobs rather than rewarding failed institutions, and based on a $20 billion allocation to create an information infrastructure that will facilitate the electronic storage and exchange of health care records. Rachael King, writing for Yahoo, reports that ITIF has done the math and estimates that the investment “will create or retain 86,820 jobs for one year in high-paying industries such as computer hardware manufacturing, software, and IT services.” The troubling part of that analysis is “for one year,” but we’ll take what we can get. There’s another $6 billion is targeted at rolling out broadband. That amount, according to ITIF “would create or retain 29,892 direct telecom jobs for a year and 8,304 capital equipment jobs.”
The aging power grid will also get a makeover, with $11 billion currently allocated, but that amount could skyrocket as electric cars replace automobiles with tailpipes. Regardless, ITIF estimates another 64,509 direct and indirect IT jobs will be saved or created. So the best we can say is that jobs are coming in one door and going out the other, although in the short term the projections show a net gain. For the long term we should model the “buy American” provisions in the stimulus package, and add an “employ Americans” provisions as well.
The commitment to the digital infrastructure is a hopeful sign that the Obama administration is moving toward a strategy of investing in jobs and workers. And what other choice is there? Neither business or consumption are likely to jerk the economy out of free fall. Government must provide the bridge between recession and recovery. As Newsweek‘s February 16 cover screams: We Are All Socialists Now.
Placed in a broader context, cycles of boom and bust have buffeted the economy long before The Crash of 1929. In 1837, land speculation led to the nation’s first depression and the failure of half the country’s 850 banks. In 1893, overextended railroad companies folded, causing widespread panic and the demise of 500 banks. In 1907, the Stock Exchange lost half its value and thousands of businesses failed. And since the Great Depression we’ve endured the Oil Crisis of 1973; Black Monday in October of 1987 when the Dow dropped 508 points; the S&L scandal; the Enron collapse; the dot-com bust; and the last eight years spent in the sub-basement of the American experiment.
We are nothing if not resilient.