Posted 12:51 PM, December 23, 2003
"The U.S. is No. 3 now in the world and falling quickly behind No. 1 (India), and No. 2 (China) in terms of computer-science graduates." —Steve Ballmer, Microsoft CEO, 2003
Last week I had dinner with the CEO of a $27 billion company and a former telecom executive who sits on four boards. I was dragged along to a social event and didn't expect work to come up, but the conversation turned to offshoreing.
Discussing this face-to-face brought to life the issues faced by the profession, as well as the U.S. and Europe. When I mentioned that not only did offshoreing of programming jobs impact many workers, but that this trend threatened to undermine the competitiveness of the U.S. and EU, that elicited a lengthy exchange, if little agreement. (Since this wasn't on the record, I'll restrain my rusty Roger Moore ambush-journalism-instincts and keep their names private.)
The response to the first part was as expected, the standard litany of "Corporate Darwinism": "It's a global market. Protectionism doesn't do any good, because then we'll simply lose business to foreign competitors and that result will be even worse," the CEO said.
To my argument, the multiboard member said, "We'll just have to innovate."
The CEO added, "A rising tide raises all ships."
There are several problems with the Corporate Darwinism logic. First, a rising tide may benefit multinationals that can spread their risks and income sources around, but there is ample evidence the argument doesn't hold for geographic regions: Witness the U.S. "rust belt," which atrophied during decades of overall national growth. As for the glib directive to innovate, innovation doesn't happen linearly, let alone on demand. Many would argue that the last 50 years have seen extensive commercialization of fundamental innovations in the fifties and sixties, but precious little innovation. Inventing the laser, integrated circuit, and compiler were innovations, not repackaging a hard drive in an iPod and offering multiple, metallic colors on the case.
About the only thing we agreed on was that offshoreing of software was at least civilized. Unlike the slavery-like exploitation of Nike and other clothing companies, the "Zippies" of India and their parallels elsewhere are enjoying rapid improvement in their lives that is having a positive impact throughout their countries.
Frankly, I agree with much of that. Protectionism doesn't work well, and is usually aimed at preserving jobs that are low priorities for the country as a whole. If the protectionists had their way, we'd still be a nation of farriers and farmers.
But their reaction to the second part of our discussion surprised me. I argued that outsourcing software posed other risks, because it essentially exports and helps nurture competition in the one area that is a key, strategic advantage for the U.S. and, to a lesser degree, Europe. Software IP is the key differentiator for our economies, a technology whose impact is pervasive. From the human genome project to Pixar's movies, software is the core technology that makes it work.
This drew baffled looks. "Programming is a commodity, grunt work," said the board member. "Software isn't different from the textile industry," the CEO said.
That attitude strikes me as a fundamental problem. When I've asked executives from outside the U.S. what they see as U.S. industries' key competitive advantage, they invariably say "software," or some variation such as digital, or computers. In several conversations with a CEO of a Japanese multinational he said, "Our biggest challenge is that we trail U.S. companies in digital technology." His company has since invested heavily in partnerships with U.S. and other Japanese companies to combat that competitive disadvantage.
Yet, when you ask U.S. executives outside the computer industry what their competitive advantage is, you get a fuzzy combination of their great management skill coupled with industry knowledge. Not once have I heard an international competitor say U.S. industry was tough to compete with because of its wealth of MBAs. Not once.
Finally, we got to the "well, what would you do about it?" stage. Here, we finally did reach some agreement, on the need for increased R&D spending, which is being gutted across the U.S. from government to industry, and the need for training.
But the large, multinationals' action belie that consensus. In a recent interview, Carol Bartz, long-time CEO of Autodesk, Inc. in San Rafel, Calif., defended her company's extensive offshoring of U.S. software jobs, chanting the same Corporate Darwinism dogma.
Then later in the interview, Bartz decried the lack of high-tech students at colleges. Even Homer Simpson would utter his trademark "Doh!" at that logical inconsistency. Bartz is cutting software jobs, is participating in the trend to cut pay for high-tech professionals, then wonders why enrollment in technical majors is declining. Only executives (and politicians) can be that hypocritical and self-serving with a straight face.
At FTP, we do annual surveys on technical trends. While many trends change every year, one constant for the past four years has been cuts in corporate training budgets. For corporations to stop investments in upgrading the skills of its workforce, then ship jobs offshore is shortsighted, unfair to the workers and destructive of the U.S. industrial base.
Maintaining leadership in software is critical to the economic health of the United States. There are several initiatives that can be taken now to help stem the brain drain:
- Reduce tax deductions for payroll expenses of U.S.-based corporations that move jobs offshore. The argument is two-fold: There is a high social cost with job loss, reduction in tax base, and need for retraining. The company benefiting from offshoring should share its benefits to help both the country and the displaced workers adjust to the dislocations.
- Retraining. Large corporate investment in retraining of existing IT staff has been eviscerated. Tying other tax credits to retraining would turn this around overnight and make existing U.S. IT workers more competitive.
- R&D. Both government and multinational investments in R&D have shrunk. Washington needs to make resuscitating R&D a priority. If there are tax deductions for Hummers, there can be tax deductions for real R&D.
- Wage Insurance. This would provide temporary protection for workers moving to new careers or retraining. Annual cost is estimated at $5 billion.
- Broadband. Why is it easier to get broadband connections to India than to portions of the U.S.? Al Gore was right on this one. The RBOCs have butchered it. While 75 percent of South Korean homes have broadband with speeds of up to 20 MPS, only 18 percent of U.S. homes have broadband topping out at 3 MPS.