Date: Tue, 30 Dec 2003 22:41:42 -0800
From: Norm Matloff <matloff@laura.cs.ucdavis.edu>
To: Norm Matloff <matloff@laura.cs.ucdavis.edu>
Subject: Mercury News fears decline (the Valley's, and its own)
To: H-1B/L-1/offshoring e-newsletter
Some weeks ago, Intel Chairman Andy Grove attracted a lot of attention
by saying that the U.S. tech industry is at serious risk of demise, due
to offshoring. (He readily admitted that his own firm is engaging in
offshoring.) Though many American engineers and programmers were
heartened by Grove's speaking out, I pointed out that if you look
closely at his proposed remedies, there is basically almost nothing
there for the workers--it's stuff that's good for Intel, not for
workers. He wants R&D funds, not a policy change on H-1B or offshoring.
Whatever U.S. jobs would be generated by such funds would go to H-1Bs,
and there wouldn't be that many of them either. For that matter, the
R&D jobs could go to India. Recall the San Diego biotech firm I cited
recently, which had all its R&D abroad (and even its CFO!). And for the
record, government funding for R&D is at an all-time high, contrary to
what's implied here.
Grove also wants more tax breaks for Intel, etc. As I said, these are
mainly for Intel, and the trickle-down effects for engineers and
programmers will be minor.
Of course Grove also made the obligatory call for the U.S. educational
system to produce more engineers and programmers, an absurdity since
most of them won't get engineering or programming jobs.
So, now we see the Mercury following up on this, with a roundtable
discussion, one which unfortunately (but not coincidentally) has no
engineers, no programmers, no one from the professional organizations
(notably excluded was the new union-affiliated tech organization
TechsUnite). The Merc's lack of any concern for the worker has never
been more apparent. Interestingly, though, the Mercury has a lot at
stake in all this. If Silicon Valley does decline, they not only lose
revenue but also prestige. (They call themselves "Silicon Valley's
newspaper.")
Again we see a call for retraining the engineers and programmers.
Retraining to do WHAT? This is one of the fundamental myths. These
people reason that in past history, when an industry was lost to foreign
labor, Americans would have something better to move on to. But key to
that was that that new, better thing is something that the foreign
workers can't do. THIS SITUATION DOES NOT HOLD TODAY. Just what is it
that is of a technical nature that these people think won't be done more
cheaply by H-1Bs or offshore workers?
Enclosed you'll find an intro piece/editorial, then the roundtable
discussion transcript, and finally an interview of Intel CEO Craig
Barrett. In the transcript, here are a couple of things to look at in
particular:
* The exchange between venture capitalist Kevin Fong and Intel
VP of Worldwide Government Affairs Jim Jarrett. Fong points out
that Intel has moved its most important R&D project to India.
Jarrett--whose fancy title translates to "chief lobbyist" in plain
English--denies it, but his denial is nonsense. For instance,
Jarrett points out that Intel has built new factories right here in
the U.S. Well, factories are not for R&D.
* Rep. Lofgren's remarks are disgraceful. First she uses her
favorite evasive tactic, that we need more data. Then says we need
retraining, when she knows full well (explained in detail in the
meeting the Programmers Guild had with her) that major U.S.
employers are laying off American engineers and programmers and
forcing them to train their foreign replacements. Obviously it's
the foreign workers who need the training, not the Americans. And
once again, she can't resist saying we need American kids to study
more math and science; she ignores the fact (also explained to
her by PG) that there are no jobs in math and science.
Lofgren then totally contradicts herself:
I have a neighbor who recently was sent to India to train a
whole unit. He has just been told that he's been laid off. The
whole place where he works is now going to the people he
trained. He's got a master's degree from an excellent
university, in a scientific field.
So did that neighbor not study enough math and science, Zoe? Does
he need training? She knows full well that her neighbor is
typical.
The interview with Craig Barrett is even worse. He denies wanting
corporate welfare, but that's exactly what he wants. And even worse,
he is committing welfare fraud, because Intel doesn't need welfare; it's
just plain greed. Here Intel is playing role in the demise of the
American middle class, and instead of apologizing, he callously mines
the situation for more money for Intel. No wonder all the participants
here make nervous statements about popular unrest.
Norm
http://www.mercurynews.com/mld/mercurynews/news/opinion/7584846.htm
Sun, Dec. 28, 2003
Valley's leadership role at risk
GOVERNMENT, INDUSTRY MUST ACT TO REMAIN CENTER OF INNOVATION
Namas Bhojani / Special to the Mercury News
Silicon Valley's historic role as the world's center of technology and
innovation is facing an unprecedented challenge that threatens its
quality of life, its economic vitality and its prosperity.
The challenge stems from the roughly 300 million skilled workers who
have joined the global economy in the past few years or will join it
soon.
They are primarily in China and India, but also in Russia, Eastern
Europe and elsewhere. They are increasingly capable of doing many, if
not most, of the engineering and design jobs that have provided scores
of Valley workers a standard of living that is the envy of the world.
And they are willing to do those jobs for wages that are as little as
one-fifth of those earned by Valley workers.
The implications are dramatic, not just for this region, but also for
America's technologic and economic leadership. Policymakers and
industry leaders cannot afford to sit on their hands, and there is
plenty for them to do.
First, we share the view of most technology CEOs that the United
States must decide to compete. That resolve should anchor America's
response. Setting up barriers to trade will not work. It will only
undermine the ability of American companies to survive.
To compete successfully, the United States must live up to its
commitment to provide a world-class education system at all levels.
It's the only way to ensure that America's workforce remains ahead of
its rivals.
It also must revamp its investment in basic research and development,
which has been slipping. This is the government's down payment on
future innovation -- the kind of investment that helped create the
Internet and scores of other life-changing technologies. And it must
invest in critical infrastructure, such as broadband, or risk being
eclipsed by better-equipped economies.
Investments like these will help the Valley stay ahead and reap the
benefits of globalization. Farming out jobs overseas could allow local
companies to increase their competitiveness, and enable them to create
higher value-added jobs in the United States. Improvements in
productivity, profits and pay would follow.
Meanwhile, growing prosperity overseas will translate to more U.S.
exports. Such upward economic migration has happened here before, when
jobs in the disk-drive sector left the Valley, only to be replaced by
semiconductor jobs, which, in turn, were replaced by software jobs.
This is not the first time that Valley leaders have called for a
national commitment to funding education, research and infrastructure.
Yet little has happened. The challenge the tech industry ought to
shoulder is clear: It must raise its voice in unison in Washington,
where the competitive threat from China and India has not been fully
understood.
Twenty-five years ago, David Packard laid out the challenge clearly:
``Our job as CEOs is not to sit on the sidelines to either cheer or
jeer,'' he said. ``Our job is to get in the game and move the ball
forward.''
Because none of the competitive investment policies will deliver
short-term results, moving the ball forward will demand the sustained
leadership of Valley CEOs to keep Washington's attention focused on
the challenges ahead.
Industry leaders have been right to lobby to preserve broad-based
stock option plans and call for tax credits for certain investments.
Both have been central to the Valley's success. But that's not enough.
They must apply the same lobbying clout to oppose policies that
bankrupt the government, such as the excessive tax cuts of the past
three years. A government starved for revenue cannot invest in
education, infrastructure or R&D.
In the short-term, there's plenty government and business can do to
help those who first suffer the effects of globalization, the scores
of tech workers who have seen their jobs shipped overseas.
Government ought to expand its traditional role in funding retraining
programs and extending unemployment insurance. But businesses have a
role too. As Diana Farrell of the McKinsey Global Institute suggested
during a Mercury News roundtable, the savings that companies generate
by sending jobs offshore could be used in part to help retool their
workers. Some companies are already doing that, but the efforts need
to be more systematic.
Why should companies take on that burden? First, because it is in
their self-interest. Labor-market conditions could change quickly. The
retirement of the baby boomers, in particular, could create a sudden
demand for workers that offsets the job migration. If that happens, as
some economists predict, the companies that are perceived to have done
little for their workers in hard times will not have their loyalty.
Second, helping workers will help avert a growing backlash against
globalization trends and the inevitable protectionist policies that
would ensue.
These policy recommendations may not be sufficient, but they are a
good start. Over time, the public debate that is just beginning to
take place will certainly yield more suggestions. As Rep. Zoe Lofgren,
D-San Jose, said, that debate must be informed by better data, so we
understand which job losses are due to offshore outsourcing and which
to a prolonged cyclical downturn.
The insertion of 300 million skilled individuals into the global
workforce is a tectonic shift. The consequences of doing nothing will
be grim.
Downturns have come and gone, and the Valley has always risen on the
wings of the Next New Thing. This time, something more fundamental is
happening. And the Valley's special role is at risk. If we don't
respond, the ``sucking sound'' made famous by Ross Perot will grow
louder, draining more and more jobs from the Valley and beyond.
As Intel CEO Craig Barrett fears, American tech workers could be
facing a generation of lowered expectations. It's a future America --
and the Valley -- cannot afford to risk.
http://www.mercurynews.com/mld/mercurynews/news/local/7581736.htm
Sat, Dec. 27, 2003
Transcript of discussion
YARNOLD: Help us define the scope of the current globalization trend,
from a jobs perspective. We all know and understand that technology
companies need to send jobs overseas. Cost is the primary reason.
Access to foreign markets is another. Some economists believe that
virtually every job that can be sent overseas will be sent overseas.
Researchers at UC-Berkeley have said recently that 14 million U.S.
jobs are at risk. Do you agree with that?
HALLA: There's a tremendous migration of jobs to Asia -- to China, in
particular. That's just part of our lives and part of the way we
evolve. But we will create new jobs. Let me give you an example. It
used to be just HP and Fairchild were here, and that grew into Intel
and several other semiconductor companies. Today, we have a different
kind of job creation. We have companies for flat-panel displays. We
have graphics companies. They are all creating brand new jobs, all
because of innovation in our industry. That will go on.
What's happening today, however, is the technology industry is under
attack from -- present company excepted -- from the majority of our
politicians who are trying to eradicate stock options under the name
of stock-option expensing, which makes all things not equal anymore.
In China, stock options are flourishing. We fan the flames by putting
a cap on H-1B visas, so we send all the Ph.D.s home where they can
compete against us.
DOSSANI: To give you a sense of what's happening in India, at the
start of this year, in business process outsourcing, there were
170,000 jobs. By the end of this year, there will be 300,000. We
forecast it to go to about a million at the end of 2005.
That said, what's going offshore (is) the simpler kinds of work, stuff
that's increasingly subject to price deflation, competition,
automation. So I'm not really worried. I think Silicon Valley will do
just fine.
DE GEUS: You cannot only look at the equation of job loss, jobs
transfer. You have to, at the same time, say there are two massive new
markets being created -- the China market and the India market. There
are 200 million Chinese along the coastal region that are all going to
raise their standard of living. They will be consumers. We are all
there for the work force, but first and foremost, most of us are there
because of the potential business. Now the combination of the two has
to rebalance itself, because these are enormous numbers that change
the global balance.
LOFGREN: I think that the truth is that we don't actually have any
data on what jobs have gone offshore, where they've gone, the nature
of those jobs. We've got anecdotal information. I think it's essential
that we get a handle on the facts as much as we can. We should have
some national discussion and some policy issues emanating out of
whatever is going on. Without knowing what's going on, we're liable to
make some mistakes.
The concern I have is that investment in research and development has
been declining for the last five or six years. Our ability to attract
scientists and excellent students is now suffering; and our ability to
innovate in the tech sector is no longer unique. I think it would be a
mistake to assume that the next new thing will inevitably be ours and
the jobs inevitably will be created.
FARRELL: In this discussion, it's understandable that the focus is on
jobs, as that's what's disturbing and distressing to people who lose
them. But that's not the right discussion. A lot of what we're seeing
here through the offshore outsourcing is about increases in
productivity, innovations that are driving a higher level of wealth in
the economy by driving increasing savings, by allowing us to innovate
in the way we deploy resources, both capital and labor. That shift
away from a pure job mentality is necessary to really understand the
bigger picture.
YARNOLD: Sure, but offshore outsourcing and productivity increases
have implications for jobs in the Valley. What are they?
FARRELL: Well, it's a great story for the Valley, because what the Bay
Area represents in the United States is precisely what the United
States is representing in the world.
Productivity of the Bay Area person is twice as high as the average of
the United States. The Bay Area has achieved that by outsourcing lower
value-added activities. What you have here is a concentration of
high-value activities that explains the very extraordinary wealth
level that we enjoy. That is a microcosm of the U.S. situation,
vis-a-vis the rest of the world.
MORGAN: There are a lot of markets in the world that are just
emerging. Part of the job movement is to move resources into the areas
where the markets are, not to drop our costs. I think the ability to
understand that and prepare our people to support that so that you can
project capability from Silicon Valley to other places in the world is
an important thing.
I think we have to think about things in a systematic way. We're in a
competitive challenge as a region, and it isn't the United States
against China. It's Silicon Valley against Austin, it's Silicon Valley
vs. Shenzhen, it's Silicon Valley vs. Bangalore. The ability of
Silicon Valley to be successful (depends on its ability) to hone its
competitive skills.
There's a lot of opportunity here, but we have to make ourselves (a
place) that companies want to do business in, because they go where
they're wanted and stay where they're appreciated.
FONG: We are going through a little bit like what happened in the '80s
with respect to Japan Inc. vs. the semiconductor industry. High tech
has been commoditized. Silicon Valley is not the only high-tech center
of the world. Our market share is going down, but we can still be
leaders.
I've lived in the Valley for 50 years, and there was always a
discussion about gee, eventually with the land and real estate here,
there's only going to be Ph.D.s and people that have started companies
who have the money to buy houses here. We can't be smug about the fact
that we're always going to be the center; but I think we do have to
look at where the value added is. This is all about where value is.
HALLA: Japan is absolutely nothing like what's happening with China,
because Japan is a very tiny island, and they very quickly ran out of
people. Their cost of labor exceeded the United States', so they're no
longer the low-cost manufacturer. Also, Japan needed the U.S. market,
therefore, they had to obey our laws, particularly the laws against
dumping. Taiwan, the same thing. With China, they graduate more
(electrical engineers) in a year than all the other universities on
the face of the planet. They have a big enough market to sustain
themselves without coming to the United States.
This is more like the Industrial Revolution, only this time we're
Great Britain, and the great American dream is moving to Shanghai.
DARDIA: That's a great segue, because I wanted to bring up the history
of globalization. The second half of the 19th century saw the same
kind of increased globalization that we've seen in the last 20 or 30
years here.
I think your analogy is correct that the United States is to China
(what Britain was to the United States). Real wages in Great Britain
actually rose in the second half of the 19th century, because of
market broadening. In 1980, Japan's wage level relative to the United
States was 56 percent. In 2000, it was 111 percent. In the Asian
(economies it) was 12 percent in 1980, 34 percent in 2000.
The same thing's going to happen to China. As higher-value activity
goes there, they will become more expensive. They will become
consumers, and other markets will grow. Our challenge is to stay in
front of that. But China's not going to remain static in its situation
while sucking away all of this activity.
DE GEUS: So I think it begs a little bit the question for Silicon
Valley, now what do you do? And we need to understand that in high
tech, there's only one pathway, which is to race forward faster.
I propose that we have to pay attention to three I's: Innovation,
incentives and infrastructure. Innovation is what has driven
technology. There is new innovation in the Valley, but one of the ways
to actually take advantage of these markets is to be the leader in
that.
Incentives, I think Brian (Halla) already eloquently highlighted that.
If you cut the fundamental incentive driver of Silicon Valley -- stock
options -- you're going to destroy a very, very unique system.
And then infrastructure, I mean first and foremost education. And if
you look at education, Brian highlighted how strong these other
countries are. They are doing Silicon Valley plus plus, so we need to
do Silicon Valley plus plus plus.
BOSTROM: Just to add on to your infrastructure comment, we don't want
to forget broadband either. If you look at many of the countries that
the United States is competing with, they have much more extensive
broadband infrastructures.
Climbing the value chain
YARNOLD: One of the things that has changed most dramatically over the
past few years is the kinds of jobs that are leaving the United
States. It used to be very low-end, and it's now moved into the
engineering ranks. The presumption is that Silicon Valley is going to
continue to be able to distinguish itself by climbing up the value
chain. Can we do that? If not, will we simply have fewer people
employed here?
FARRELL: I think your question hits at the core of the concern that
many people have, which is that productivity gains necessarily come at
the expense of employment. So can you continue migrating, and continue
generating employment? The United States is a wonderful petri dish to
understand that. We have been, for a very long time, the productivity
leader in almost every sector, and we have been the employment leader
in almost every sector.
It's the process of innovation that drives productivity gains, and
it's the process of innovation that drives employment gains. And
that's the beauty of this system. We can have our cake and eat it too.
DOSSANI: Let me give you some background, again, looking at India. I
interviewed in the last two years, about 170 (companies) in the IT and
business-processing field. These companies covered about 80 to 90
percent of the value of work being done in India.
We found that India is pretty much still stuck at a certain level in
the supply chain of writing code. It currently does about 50 percent
of the labor in a typical software project, but only about 10 to 15
percent of the revenue.
So I think there's a lot of fear here that is unwarranted, in the
sense that sophisticated, innovative work is not shifting.
BOSTROM: I think there's a new nomenclature that's coming out with
regards to outsourcing; we really use the term ``out-tasking.'' What
we see in companies moving toward out-tasking, whether it be onshore
or offshore, are really the lower value-added activities, or things
that have been in process for a long period of time. In IT, it could
be maintenance of an existing software application. The new
application development could be here in San Jose or some other city
in the United States. To do great application development, you have to
be close to the business function that you're developing the
application for. Some companies have had the experience of outsourcing
a significant function and have realized they lose control and ability
to innovate. And sometimes they're trying to bring (the work) back.
YARNOLD: Really? It's only the low-end engineering work that's going
overseas? Kevin (Fong), you have a different opinion?
FONG: Take Intel. The development of the next Pentium chip is based in
Bangalore.
JARRETT: Well, we have several hundred people there. But we're
developing all over the world. We're doing chips in Israel. We're
doing software in India. We're doing software in Russia, in China, you
name it.
FONG: Wait a minute. One of your key Pentium designers is running the
design center in India with a charter for the next-generation server
processor.
YARNOLD: You're suggesting that's the kind of work that would have
been done in Silicon Valley previously.
FONG: Absolutely.
JARRETT: No. No.
YARNOLD: No?
JARRETT: No. No.
We started our design center in Haifa (Israel) in 1974. We've been
designing and doing a lot of technical work around the world for a
long, long time, and we'll continue to do that. In that sense, nothing
has really changed.
At the same time, we're continuing to invest here, and I'm talking
about the United States, not specifically Silicon Valley, to do
advanced technical work and advanced manufacturing.
We've just put in $24 billion in the last three years in new
factories, R&D, support for education and employee training, and
that's all in the United States.
Government's role
LOFGREN: To say that we should not have at least some thoughtful
strategy to maintain a prosperous, employed nation would be a mistake.
And that doesn't mean a heavy regulatory approach, necessarily. But
when chips were under attack, you know, Bob Noyce went off and led an
effort, and it was partly government supported, and industry driven.
And it was, I think most people thought, useful.
Although the economy is showing some signs of life, we are not
creating jobs in the United States sufficient to even keep up with
population growth at this point. The question is why? I don't know
that any of us really know all the answers to that. Some of the job
loss has been because of productivity gains here. Some of it appears
to be offshoring of jobs.
I think the policy implications for each of those scenarios is
different, and what we might want to do, in terms of nurturing
employees, especially the engineers that have been displaced in this
Valley. We need to have a strategy so that (displaced) people are well
treated instead of knocked off unemployment insurance, as we're about
to do; and retraining individuals so that they can keep up to date;
and nurturing American students so that they can be successful in the
hard subjects, math and science.
DARDIA: I think the plight of the laid-off workers is important. We
certainly don't want to, in reaction to the effects of globalization,
shut things down to much worse effect. One of the ways you avoid some
of that backlash is certainly by attending to people displaced.
That leads to the question of why (do we have a) jobless recovery?
There's some good work done in distinguishing between cyclical vs.
structural job losses in recessions. In the '70s and early '80s,
recessions ran about 50-50 between cyclical job losses and structural
job losses. In the early '90s recession, about 60 percent was
structural vs. 40 percent cyclical. In the current recession, the
estimate is about 80 percent is structural. Structural job losses take
longer for people to (adjust), whether it's by training or just
looking further afield. That's one of the reasons we see a relatively
slow increase in employment relative to output. And that's why we do
need to think about better ways to help displaced workers.
WHITE: There's economic evolution all the time. There's dislocation
associated with economic evolution, and that's definitely going on
right now. The challenge when that happens is to not panic and do the
wrong thing.
In a situation like this, you have to have the courage of your
convictions. You have to recognize that China's a great place. They've
got a lot of engineers, but they've got a political system that's
going to bump up against a lot of the things they're trying to do.
It's going to be difficult for a dictatorial state controlled by one
party to really allow the kind of sharing of information and other
things that have made our economy so successful.
You've got to let the market work this situation out without the
government taking pre-emptive action, because there's a less-than-even
chance that they're going to point you in the right direction.
FONG: One other thing, which hasn't been thrown in, is
intellectual-property protection. China's not going to play fair until
they feel that they're at a more even footing with us. So the
governmental pressure for them to play ball fairly is a pressure that
has to be continued as well.
YARNOLD: Whose job is that?
FONG: It's the government's job.
WHITE: We could do two things, focus on what the government does well,
like these trade pressures, and start to peel back some of the things
that we have done in the past. If you look at California in
particular, the challenge we face is basically to undo the effect of
resting on our laurels for a long, long time. We've loaded up the
business community year after year with disincentives for them to be
able to compete. We have a little bit of that at the national level,
too.
Choosing to compete
JARRETT: The mindset that we think really has to be implanted in the
United States among policymakers is that the United States really has
to choose to compete. We don't see enough sense of urgency. As we look
at policies like stock options and others, we need to be asking
ourselves, does this policy help or hurt the nation's ability to
compete? I don't think that kind of questioning is going on right now
in Sacramento and elsewhere.
MORGAN: Unless (we) collectively decide (we) want to compete, we keep
shooting at each other about all the problems. A good example (was)
Sematech. The government provided the seed, but really what was
effective is that the U.S. semiconductor companies finally started
working with their suppliers, the way the Japanese had been doing for
decades. You had a shift in mindset and a collective competitive
desire to be successful. And that made a big difference.
And so the local, state and federal (governments), and the industrial
interests, and the universities, and all the groups, we have to really
get focused (on being) competitive.
It's not (useful to) put up trade barriers. You saw what happened when
you had the Iron Curtain. Those countries were just disasters, from an
economic viewpoint.
The only way you're going to compete is to work more effectively
together.
BOSTROM: High tech is driven by innovation first. Cost is something
that you have to consider as part of the innovation. And so what
(things) can the government be doing to help fuel innovation? And one
of those things is making sure that basic R&D, which has been the core
of innovation for the country, that we continue to see funding at a
decent level.
LOFGREN: Our investment in science research has declined 29.5 percent
as a percentage of GDP. That is not good news for innovation and the
technology future. We need a strategy that advances competition and
technology development. Now it will never work for the local, state or
federal government to say, ``Well, here's the way it's going to be.''
That isn't how the Valley grew. But that doesn't mean there's no role
for the government to play.
YARNOLD: But the presumption here is that you're talking about a
competitive Silicon Valley. Does it really matter anymore whether
Silicon Valley is competitive, to your businesses? Very often I hear
CEOs say, ``We're driven by cost and by what it takes to produce the
goods that we manufacture. Where the dollars end up is irrelevant to
us because we're global.''
MORGAN: That may be true for companies, but that's not true for
Silicon Valley collectively. If Silicon Valley wants to be
competitive, to build jobs here, then we need to do some collective
things to try to make it attractive to be here.
YARNOLD: So does it matter whether Silicon Valley retains that
leadership role? Does it matter to your companies?
FONG: Absolutely.
DE GEUS: No question.
YARNOLD: Why?
DE GEUS: Because you can improve cost by 50 percent by going to other
places. You can improve your return by 100, 200 percent by innovating.
That's at the basis of Silicon Valley.
FONG: But I think David's point is if you could do it someplace else,
would you do it someplace else?
MORGAN: Our company, and me in particular, think this is (an)
enormously critical resource for the state and for the country. And so
it should be nurtured.
FARRELL: You know, I think it's easy, in the spirit of the last year
or two, to overstate the degree to which this area has lost its
competitiveness. Productivity is the measure of competitiveness, and
this region remains highly competitive. The things that put that at
risk are the things that make it harder to attract the people who have
made this the thriving innovative center of the world. That gets back
to basic government issues of land use that are driving real estate
prices and make it impossible for young, talented people to live here.
BOSTROM: I think the belief in continued opportunity is where
companies in the Valley can make a difference. Because I know one of
our areas of focus at Cisco has been how do we help transition our
employees, engineers or otherwise, to new, advanced technology
markets. Those skill sets are slightly different; and we're saying,
``Well, we should be accountable for helping with that transition with
that employee base.''
If we can encourage companies to help with that evolution, I think
that's one of the things that would make people feel like there's
continued opportunity in the Valley and in high tech.
SNEIDER: Let me come back the global-competition issues. There's a
pretty wide perception out there that gains (in India and China) are
coming at our expense. That's generating already tremendous political
pressure for public policies that probably everybody here would agree
are not such a great idea. But in the absence of really addressing
this problem, you leave the field open basically to protectionist
solutions.
WHITE: I'd like to take a quick crack at that, because I do think
there are two things you have to focus on.
No. 1, I think you're absolutely right that there's a lot of political
concern about job loss. But Americans expect their country to be
competitive, and they're willing to look for policies that help them
be competitive. And that's what's going to prevent this job loss from
being a big problem.
On the Chinese front, I just want to reiterate one thing I said
earlier. In the late '80s, people thought (Japan) was an unstoppable
juggernaut that was just going to run right over us and keep going.
The fact is that every society has its advantages and disadvantages
about the way it's organized, and those catch up with you after a
while. What's happened to Japan is they had some imbalances that
didn't really work over the long term.
One of the things we have to do is recognize that there's never been a
society on the face of the earth that is as hospitable to innovation
as the United States. We're doing a lot of things right. So you
wouldn't want to make a dramatic change to respond to somebody like
China in particular. They've got a lot of great things going on, but
they also have some things that are going to catch up with them. To
overreact would be a mistake.
HALLA: Having been one of the few people at this table that's been
through every cycle since the beginning of man, I can tell you that
this, too, shall pass. If we were having this session a year from now,
we wouldn't be having this session, because half the people would be
late because of the traffic jams. The industry will be booming. If
history is a teacher, Cisco was born here; Ebay; Google; Sun
Microsystems was born here; all these creative new industries and new
jobs. We are still the IQ magnet for the world. Berkeley is here,
Stanford is here.
In terms of government support, I agree with R&D tax credits, and
(there are) many proactive ways a government can help. I'd say a good
start would be (for) the government to please retire to a neutral
corner and not eradicate stock options and not cut out H-1B visas, so
that we can go on and continue this cycle that's been so healthy for
us.
This is a substantially different time for us, however. China is
completely different than any cycle we've ever been through. It's an
opportunity at the same time.
LOFGREN: If we don't have some policies in place, and if the American
public doesn't understand that we, No. 1, have an appreciation for
what's happening to them, then we're going to have some reactive
policies that will probably make our situation worse.
I have a neighbor who recently was sent to India to train a whole
unit. He has just been told that he's been laid off. The whole place
where he works is now going to the people he trained. He's got a
master's degree from an excellent university, in a scientific field.
He is feeling not very well appreciated here in America. Becoming more
insular is not the answer to prosperity. But that will be the
knee-jerk reaction, unless we have a better strategy.
Future of growing companies
YARNOLD: I had a conversation recently with a venture capitalist who
said more and more, companies that get started here have 12 people
here, the CEO, the CFO, the COO, the marketing director, and a few
other people. They're being asked by VCs, ``Why aren't you doing your
work offshore? How are you going to drive down your costs? How are you
going to be competitive?'' It raises the specter of shell companies
that are founded in the Valley but don't have very deep roots or very
big employment bases.
FONG: All of the dollars that I raise for our funds, which is $2
billion, goes to pay for R&D only. By the time you get to the
manufacturing, the company's at a different phase of life. But people
from France and Israel and China still come here to start a company.
People come here not just because -- we talked about IQ. Our way of
doing business here is as much a key part of it. People come here for
our capital markets. They can get liquidity. They can attract capital.
It's all those things. I was just meeting today with a company, and
they're moving from Brisbane. They're only talking about moving
marketing and sales and a few of the key people here. And so it is an
issue. I don't think it's a long-term, sustainability issue we have to
worry about.
DOSSANI: It's not such a bad thing that this is happening. Look at the
U.S. disk-drive industry, which was started here. By the early '80s,
it had lost a lot of market share to Japan. It was down to 30 percent.
And because they aggressively outsourced, it's back up to 80 percent
now. If you look at employment, it's less than half of what it was.
But the value-add is very high.
Market share, value addition, all these things will improve with
outsourcing. What won't is employment, if you're just looking at
numbers in a particular industry.
YARNOLD: So the Valley's employment won't come back to its pre-boom
levels or boom levels?
DOSSANI: Not in that industry, but in something else.
Helping displaced workers
JARRETT: I think just one point I'd make about policy prescriptions to
fix this problem. They tend to be sort of the policy equivalent of a
hand-off to the fullback. It's very straightforward stuff, and it's
very long-term. These are not quick fixes. We've been talking about
increasing the basic physical sciences R&D spending by the U.S.
government. That's not going to pay off tomorrow, and nobody in office
is going to be able to point to it in their current term and say,
``Here are the fruits of that investment.'' But it's still the right
thing to do.
LOFGREN: The good news in this Valley, though, is that the citizens
support those long-term investments, because our people know (they)
will pay off. I think where we're really missing the boat, though, is
to not take care of people who are being displaced for the first time.
They're willing to do their part. They're willing to get the
education. They're willing to be entrepreneurial. But there is some
dislocation, and we are not handling it well.
FARRELL: The magnitude of the savings that are possible as a result of
(sending jobs offshore) does provide at least the basis for some
shorter-term solutions that you're trying to generate here. What we
need to do is help employees find jobs faster, be willing to take new
and different jobs faster.
That can come, not as some big, inflexible program of the government,
but as a corporate program, to facilitate the change that they need to
go through. Why would companies do this? Partly because it makes
possible a transition that is very difficult, politically and
otherwise, and partly because it matches up with a trend that we
haven't brought up in this debate at all, but is critical to this
conversation, which is the demographic shift that is taking place in
the Bay Area and in the country, of the shrinking working-age
population, and therefore the need for companies to remain attractive
to employees. Having the programs in place that will help alleviate
the displacement becomes a very self-interested thing that can be
achieved at a relatively low cost (compared) to the savings that are
being achieved.
WHITE: It's so much more effective, to do that at the private level.
BOSTROM: Well, we do this at Cisco. We are invested in re-skilling our
work force for new market opportunities, new advanced technologies.
And the reason we do is it makes good business sense. First of all,
when the economy does recover, those are workers that you need. And
second, we really value the culture that we've created; the people
really know our products.
FONG: There's something at an individual level that people in the
Valley have to sign up to do, as well. In this globally competitive
marketplace, you have engineers in China that go to work from 8 (a.m.)
to 10 (p.m.). The company feeds them lunch, a great lunch. They have
great facilities, equal to the Valley. They serve them a great dinner,
and they work six days a week. They go home to be with their families
during a month during Chinese New Year. But after that, they're
working hard, and they're really dedicated to what they're doing.
And so we have to recover from the sense of entitlement. Individuals
have to want to get retrained. They're going to have to want to work
hard. Sometimes I wonder whether or not we've lost that in the Valley.
Corporate responsibility
SNEIDER: In an interview that Intel CEO Craig Barrett did with us and
a few other newspapers, he said, ``Look, as company, as a CEO, I can't
resist the compelling arguments for moving jobs and moving operations
overseas. But for the country, I'm not so sure this is such a good
thing.'' And I don't have his exact quote, but it was something along
those lines.
Is there a difference between the way you necessarily have to look at
this in the framework of a company, and the way we should look at it
in the framework of the interests of the nation? Is there a tension
there between those two, and how do we deal with that?
JARRETT: I think there's definitely that tension. You wear one hat as
a citizen and another hat as a CEO. We do care about the future of the
country, and that's why we're out trying to advocate policy changes
that we think will keep the United States competitive, long-term.
At the same time, you know, we've got 70 percent of our sales outside
of the United States; our fastest-growing markets are China and India
and Russia and Brazil and Mexico and Eastern Europe. We've got to be
there.
HALLA: All of us that are CEOs have to do that which makes our
companies competitive first. And, we all have community-support
programs and foundations and everything else to support the community.
My own feeling is that the best way to take care of a displaced worker
is, if he leaves Synopsys, to be able to go right across the street to
Google or Ebay and get another job, because there are many more
requisitions for new jobs than there are people. And that's when the
Valley is thriving again. And by the way, we're approaching that.
LOFGREN: Obviously, Craig is right; I mean, his obligation is to his
shareholders, not to the citizenry at large. That is the job of the
people who are elected.
And most of these companies, I know, are very generous. At Evergreen
Valley High School, there's a whole building that Applied (Materials)
built. All of you have foundations and do wonderful things. But the
societal obligation to make sure that the children are in school and
learning is really devolved to the school board and to other levels of
government. We need to find the money to pay for it, which may make
you feel not competitive, but these things do have to be paid for.
So we need to set a strategy that really responds to the citizenry.
That's not Applied (Materials) or National Semi's obligation, although
it cannot be done without your collaboration.
Three-year outlook
YARNOLD: OK. You have all done a very good job of mining deeply into
issues that you know very well. I'm going to ask you a very simple
question that I think our readers would be interested in. What will
the Valley look like in three years? What's your level of optimism?
HALLA: I think we'll absolutely be thriving. There'll be new
companies, and there'll be companies that are doing things in imaging
and sensors and RFID (radio frequency identification tagging); and
we'll continue to prosper.
FONG: I'm very optimistic about the Valley. And three to five years
from now, what I do hope is that China and India, the two most
populous countries in the world, will also have economic gains. At the
end of the day, from a global perspective, as a country our security
is best served by other people wanting to come after us and wanting to
emulate us and having a better standard of living. The Valley will
benefit from that.
BOSTROM: I'm very optimistic. If you look at the end consumer of the
products that we make, there is this continued demand and interest for
doing more and more, using technology as an enabler, whether it's
little IP (Internet Protocol) video cameras in our phones, or whether
it's enterprises that want to drive up levels of productivity.
LOFGREN: I think we could have either of two scenarios. We could have
the kind of roar-back that's been described, and I hope that that is
what happens. Or we could continue to have a very sluggish job
creation. I've lived here all my life. We've been counted out a
million times. And I'm not counting us out again. But the rate of
improvement, if we play our cards wrong, could be much slower than we
hope.
NATOLI: My guess is that the job growth is going to be modest.
Economy.com thinks that in the second half of next year we'll begin
growing jobs for the first time, but that the job growth will be in
the 1- to 2-percent range each year for the next three years.
As I look back over the last 20 years here, downturns tend to touch
parts of three years. We're now three years into this thing, and
there's no recovery in jobs in sight. I think this is structural. It's
different than what we've had before. Job growth here has come from a
combination of mostly small companies and some small companies that
become quite large companies and wind up having 6,000 employees here
or whatever. I don't think anybody's going to scale up to 6,000
employees here anymore. And I'm not sure that there would be enough of
the smaller-company growth, at least in the next three years. I think
it's going to take longer to sort of have that whole thing shake out.
I hope I'm wrong.
YARNOLD: But nobody saw Ebay coming either. And maybe it's the
exception.
MORGAN: No, it's not the exception. In 1975, you could have purchased
all the companies in Silicon Valley, except for HP and Varian, for
probably $350 million, including Applied Materials and AMD and Intel
and all of them. A lot of them, have market caps in excess of $20
billion today.
WHITE: I think job growth may be a little slower here than it is
elsewhere. But if I were writing the stories that you guys are going
to write as a result of this, I'd be a little careful that I don't
look too foolish a year from now. We're just at the end of a sluggish
time. There's been a lot of discussion about the jobless recovery.
It's entirely possible there won't be a jobless recovery six months
from now.
http://www.mercurynews.com/mld/mercurynews/news/editorial/7558316.htm
Sun, Dec. 28, 2003
San Jose Mercury News Globalization Roundtable
What's the Valley's future?
As the region begins to emerge from a brutal recession, questions
haunt the Valley. Will the jobs come back? Will we be able to maintain
our global leadership in technology? How many more jobs will be sent
offshore? What must the Valley -- and America -- do to remain
competitive. The Mercury News convened a roundtable discussion of
CEOs, venture capitalists, policy experts and legislators to begin to
answer those questions.
PARTICIPANTS:
o Jim Jarrett, VP of Worldwide Government Affairs, Intel
o Aart de Geus, Chairman and CEO, Synopsis
o Michael Dardia, VP, economist, Sphere Institute
o Kevin Fong, General Partner, Mayfield
o Brian Halla, Chairman and CEO, National Semiconductor
o Zoe Lofgren, Congresswoman, 16th Congressional District, House of
Representatives
o Rick White, CEO, TechNet
o Jim Morgan, Chairman, Applied Materials
o Diana Farrell, Director, McKinsey Global Institute
o Rafiq Dossani, Asia Pacific Research Center, Stanford
o Sue Bostrom, VP, Worldwide Government Affairs, Cisco
o Joe Natoli, Publisher, San Jose Mercury News
o David Yarnold, Editor (Editorial Pages) and Senior VP, San Jose
Mercury News
o Miguel Helft, editorial writer, San Jose Mercury News
o Daniel Sneider, Foreign Affairs Columnist, San Jose Mercury News
http://www.mercurynews.com/mld/mercurynews/news/local/7581734.htm
Posted on Sat, Dec. 27, 2003
Q & A: INTEL CEO CRAIG BARRETT
U.S. MUST ALTER COURSE TO REMAIN COMPETITIVE
Craig Barrett, CEO of chip maker Intel, holds a more sobering view of
Silicon Valley's future than most of the participants in the Mercury
News' competitiveness roundtable. Here is an edited version of his
recent discussion with a group of the newspaper's writers and editors.
Q: The U.S. tech industry is facing increased competition in a global
economy. How do you see its prospects going forward?
I always like to partition the dialogue on competitiveness into two
parts. One is corporate competitiveness or company competitiveness,
and I think that companies like Intel are very well positioned to
compete around the world. It's a much more difficult topic when you
talk about U.S. competitiveness and competitiveness of the U.S.
economy.
Q: Let's talk about American competitiveness and specifically Silicon
Valley's competitiveness. Starting at the national level down to the
Valley level, could you lay out the situation as you see it? And could
you also talk about what solutions we should be considering?
We probably have all read or seen a couple of books. One is Andy
Grove's book where he talks about strategic inflection points, where
he talks about seminal events that occur. I think one of these has
happened in the world in the last few years, and that's the
integration of India, China and Russia, and Russia's satellite
countries into the world's economic infrastructure. Ten years ago they
were absolute non-players. Today, they are active participants. If you
add up their populations, it approaches 3 billion people.
I don't think this has been fully understood by the United States. If
you look at India, China and Russia, they all have strong education
heritages. Even if you discount 90 percent of the people there as
uneducated farmers, you still end up with about 300 million people who
are educated. That's bigger than the U.S. workforce. So I think
there's a strategic inflection point.
I see the competition in jobs increasing. The big change today from
what's happened over the last 30 years is that it's no longer just
low-cost labor that you are looking at; it's well-educated labor that
can do effectively any job that can be done in the United States. What
the United States has done very effectively for the last 20 years is
(it has) always taken the next level of the value chain in terms of
where we concentrate our workforce. As long as everyone competes with
the same educational levels, there is no place else in the value chain
to go. And unless you are a plumber, or perhaps a newspaper reporter
or one of these jobs which is geographically situated, you can be
anywhere in the world and do just about any job.
I think that the United States has to do one big thing and then four
subsets of the one big thing. It has to choose to compete head on in
the world economy with this new workforce, (not) resort to legislative
protectionism. That is a government issue. If it chooses to compete,
then there are four things any government can do: Education is one;
research and development investment is the second; infrastructure
development is the third; the plea that governments do no harm is the
fourth.
The education system -- we do more talking, more writing, more
publicizing of the non-competitiveness of the K-12 education system in
the United States. But it is all talk and no action. If you look at
our results relative to international counterparts, we continue to
stay at the bottom.
If you look at how much the U.S. government spends in basic research
in the physical sciences, the sort of R&D that is carried out in
universities, it's about $5 billion a year and decreasing. And that's
the seed corn for the future. I like to call up the comparison of what
we spend in basic R&D in the physical sciences with what we spend in
agricultural subsidies, (which is at least $18 billion a year). We
just got rid of steel (tariffs).We still have soft lumber subsidies,
we have catfish subsidies, we have tomato subsidies. We subsidize all
the industries of the 19th century and increasingly de-fund research
and development in the industries of the 21st century.
Infrastructure is the third item. I'll use the tired cliche: We put
the interstate highway system in place some years ago, but we don't
have an equivalent for the knowledge infrastructure. Broadband lags in
the United States. We aren't putting in place the infrastructure to
compete going forward.
Lastly, government should do no harm with rules and regulations.
Expensing stock is a good example of doing harm. Regulations put in
place in California over the last 20 years are an example of doing
harm. They are making U.S. industries more non-competitive on a daily
basis.
It's always those four things. None of them is short term. None of
them captures the interest of politicians because they are not quick
fixes; they are not 30-day wonders.
Q: What are the implications specifically for the Valley?
Well, the Valley is unique in some respects. The Valley is an idea
center. You still have major universities here. You still have ideas
spinning off. But if you compare two aspects of the Valley, one where
venture capital money goes, we are the biggest high-tech venture
capital player in the world in terms of funding. Over half of our
funding now goes out of the United States to places like India and
China. So, increasingly, engineers with bright ideas (there) are going
to be competing with engineers with bright ideas here in the Valley.
The second thing, if you go to any venture capitalist today and
somebody has a bright idea, whatever it might be, probably the first
thing the venture capitalist says to the principals of the company is
``of course you are not going to do your R&D here in the States, you
are going to do it in India or China or someplace where the costs are
only 25 percent of what they are here.'' I don't expect Silicon Valley
to disappear. But I expect it to have serious competition.
Q: What will the Valley look like in three years?
I look at the job growth prospects being difficult in this
environment. Companies can still form in Silicon Valley and be
competitive around the world. It's just that they are not necessarily
going to create jobs in Silicon Valley.
If the jobs lost aren't being replaced, the Valley could see a
decrease in standards of living, a decrease in housing values, and
things of that nature.
Q: Aren't we talking about an entire generation of lowered expectations
in the United States for what an individual entering the job market
will be facing?
It's tough to come to another conclusion than that. If you see this
increased competition for jobs, the immediate response to competition
is lower prices and that's lower wage rates.
There is an alternate possibility, which is the California government
and the U.S. government choose to be more competitive and to get more
aggressive tax credits for jobs that are created here.
Right now, a tax break to a company to create jobs in the United
States is labeled corporate welfare. If you go to Malaysia, India,
China, the Philippines, Russia, it is labeled as an investment in the
future.
Q: Does Intel have a responsibility to help keep the United States an
attractive and competitive place?
Intel first and foremost has a responsibility to its shareholders and
employees to give them opportunity. Companies have to do what is
required from them to be successful. But underneath that, we have an
obligation to 50,000 U.S. employees to provide a competitive workplace
for them, and we have a responsibility to the communities where we do
business to try to improve the prospects of young people in those
communities. That's why we invest in one and only one thing: We
sponsor education events. Intel wouldn't invest over $100 million in
education if we didn't think it was important.
But if you ask does Intel have an obligation to suffer a financial
disadvantage to hire more American employees, as opposed to Indian
employees or Chinese employees, that's like asking does Intel have an
obligation to California, as opposed to Oregon or Washington or Nevada
or Colorado.
Q: This administration is very business-friendly. Why haven't they heard
your pleas?
I don't think it's on the radar screen of Washington. I don't think
they have internalized the strategic inflection point that I mentioned
before. If you go talk to Alan Greenspan, he would tell you that
people have been waving this flag for 100 years and the United States
has always risen to the next level. And when you raise the fact that
you have brought 3 billion new people into the workforce, and maybe
the equation changes, his eyes glaze over.
It seems that part of the problem is that the tech industry isn't in
agreement about this. A lot of your colleagues feel that we will
innovate our way out of this predicament. They don't share your sense
of urgency and alarm.
I think what is necessary is for all of us to speak with a common
voice, and we haven't done that.
It is extremely difficult when you see what's going on in the world
not to have a sound of alarm in your voice when you talk about this.