March 7, 2004
A response to The New York Times columnist Thomas Friedman's March 7th column, "The Secret of Our Sauce."
Enjoyed your column, as always.
This is one rare occasion where I have to disagree with you, however.
The "secret sauce" in American industry, to use your term, is software. We're giving away the recipe with every outsourced job.
Outsourcing of software development is fundamentally different from outsourcing of any vertical industry, because software is the fundamental differentiator for virtually every industry where the U.S. is still competitive.
Outsourcing software will undermine America's competitiveness across the board. It doesn't matter whether the industry is airplane design, finance, medicine (the Human Genome Project is basically one big software program), or even the movies (witness Pixar, where I think few people would argue that it's successful because of its great scripts).
The negative impact of outsourcing on software is going to happen extremely rapidly, by international economic standards, and is going to be dramatic. Already U.S. enrollment in technical degree programs is declining rapidly; witness Bill Gates' recent pilgrimage to MIT to encourage students to stay in those programs. Unemployment in programming is 40 percent above the national average, despite the fact that the number of people in that profession has declined rapidly for four years, and salaries are down 15 percent.
That's just the beginning.
As for your argument that we'll simply innovate ourselves out of the dilemma, your examples actually prove the weakness of that argument. Most technologists would say that there were a handful of true innovations in the 50s and early 60s—the laser, the integrated circuit, and the compiler (you can argue about the exact list)—and that the rapid technical advances of the next 50 years were merely implementations of those.
eBay is no more than a flea market based on an auction system built for Pez dispensers. A nice marketing job, but hardly an innovation. Historically, innovation happens in spurts at rather unpredictable frequency. We can't just order up some more of that innovation thing.
As Professor Michael Porter wrote in The Competitive Advantage of Nations, one of the keys for any national economy's success in a particular market is a strong, local demand for that commodity. We're giving away our local market for software design, and even encouraging the creation of local markets amongst our competitors that will drive future investment in, education in, and eventually innovation in technology—all to America's detriment.
Finally, a comment on your quote of Nilekani, Infosys' CEO: Clearly, he'd argue for outsourcing. That's like asking a fox if a henhouse needs more security.
When I've asked executives of firms outside the U.S. what America's key, competitive advantage is, they invariably say "software" (or some variation of the term such as "digital" or "computers"). Yet when you ask top executives of multinational firms located in the U.S., they never say that, instead stating some variation of "my great management skills."
Curious. I've never heard an executive from outside the U.S. say that U.S. industry succeeded because of all the MBAs in those companies.
Should you have time, I'd like to hear why you think exporting America's software industry is not a significant trend.