Offshoring and Lowered Expectations

Computerworld ^ | March 8, 2004 | Dan Gillmor

[Mini-14]

MARCH 08, 2004 - One of the best things about living and working in Silicon Valley is the quality of the people. I'm frequently the least-knowledgeable person in the

room, and probably the stupidest. I get to learn from the ultrasmart and creative folks I meet.

So why do I have an uneasy feeling these days about the place, even as an economic recovery for the technology industry starts to gather steam?

One factor abounds with irony. A few years ago, I wondered if the Valley was sowing the seeds of its demise by creating the communications and collaboration tools that would make it much less necessary to be there in a physical sense. The near-unanimous consensus at the time among the top people in the field was that the Valley had nothing to worry about.

I never entirely bought their faith, though the Valley has repeatedly shown an ability to rebound to new heights after deep economic downturns. The recent evidence, notably the surge of offshoring, makes me ask again -- about the Valley and the entire nation.

And I wonder if something is genuinely different now.

Intel CEO Craig Barrett put his finger on it a few weeks ago when he stopped by my newspaper for a long chat with some reporters and editors. What's new this time, he told us in a persuasive way, is the nature of the global workforce.

For the first time in human history, Barrett said, a truly gigantic pool of well-educated, technically adept and eager-to-please labor is being created. This pool of talent, which will include hundreds of millions of people in China and India (many of whom speak English fluently), has another characteristic: a willingness to work for a fraction of what Americans expect.

This is not because they like living poorly. It's because local conditions and currency exchange rates make what would seem like a pauper's salary here a highly attractive one there.

The U.S. largely came to grips with a similar crisis in low-end manufacturing. We moved up the value chain as a society, painful as this was for the less-educated, hardworking people who lost middle-class jobs and had to settle for lower-paid service employment.

How high can we move on the value chain now?

I travel widely. One thing I know for sure is that Silicon Valley and the U.S. have no monopoly on brains or energy. We do have an advantage in promoting a culture of risk, of entrepreneurialism. But other places are beginning to adopt even that value, too.

The spectacle of politicians promoting trade wars in the name of stemming job losses is disturbing, if understandable. I wish they'd devote that energy to telling the harder truth: that the U.S. will need to buckle down in unprecedented ways, with vast new investments in education and infrastructure, plus a new commitment to the best aspects of entrepreneurialism.

We may be facing big trouble in the near term, no matter what we do. That's the kind of news few politicians dare deliver.

Barrett, running for no office, offered a hard truth. As he gave his litany of why conditions truly are different this time, we asked if this suggested a generation of lowered expectations in the U.S. "It's tough to come to another conclusion than that," he replied.

[CasearianDaoist]

I have either been the CTO or the CEO several software companies and believe me it has been decades since you could start a software company in a garage. Software creation now in multi million dollar propostionsand you know it. I am not talking about niche markets or system integration work, I am talking about the big bucks because that is all there is left, the small problems have mostly been solved. And you know as well as I do that there is no real profitable X11/Motif market out there for vendors, that is an internal systems market in corporations that have legacy systems. (BTW, My officemate in grad school was on the design team that wrote the predecessor to X, it was called "W," that is how "X" got its name - They chose "X11" for the name of the next version because they did not want to call it "Y.")If you think that you can start a profitable software company in a garage in this day and age you should do so, cause every one else is spending million even with outsourcing. And I have been in the business over 30 years and have work at places like IBM, Bell Labs HP and Accenture, as well as a few of my own. I have dealt quite abit with offshore R & D resources and know of what I speak in these areas, thank you very much. I do not like what I see happening.

And if you need to get insulting about it, I really do not care what you think I know about wealth creation. I certainly did not work for 22 years as a Unix programmer, I soon advanced in my profession to senior management.

[hedgetrimmer]

Here is a picture of the unconstitutionally created trade minister Robert Zoellick. He is on the offensive against the United States to get us to drop tax credits for corporations. Everyone agrees that high taxes are one of the reasons corporations are fleeing the United States. Whose side is Mr. Zoellick on?


European Union (news - web sites) Trade Commissioner Pascal Lamy, right, meets with U.S. Trade Representative Robert B. Zoellick, left, before the signing of an agreement on marine equipment between the U.S. and the European Community Friday, Feb. 27, 2004 in Washington. For the first time, the United States will be hit with trade sanctions approved by the World Trade Organization (news - web sites) because of a fight in Congress over how to restructure $5 billion in corporate tax breaks. (AP Photo/Charles Dharapak)

Congress is restructuring the tax break at the behest of the EU, not the American people. Who do you think the 2003/2004 Congress represents?

[Filibuster_60]

Well, foreign PhD's are a critical source of technology transfer for their native countries. It used to be they had no choice but to permanently settle in US since the conditions back home were so lagging. . . nowadays however, R&D facilities are exploding in Asia, more scientists end up going home to start their own projects. This creates powerful incentive for people of such nations (China, India) to study science & engineering even as young Americans are increasingly disinterested in such disciplines. Once a critical mass is reached, more & more corporations will offshore R&D like they offshore production. I can see this happening in next 20 years.

[eno_]

Compensation for the officers of all publicly traded companies is avilable on Yahoo Finance and similar sites.

In many cases you will find that almost all their compansation is in options that don't have any value unless the stock price goes up.

For some truly stupendously huge companies, like RJR and GM, you find salaries of $1.5M to $7M.

A fair number of top sales execs earn over a million. But that's all performance-related compensation. Their base salary might be $50k, or sometimes a dollar.

If my little company goes big and get acquired for $20M or more, I have a $1M+ payout coming my way, and 40% of that gets taken in taxes. But that will happen no sooner than two years form now, and I'm a year into it. It could all amount to zero. In general only if you gamble with your own money in real estate or a small business is there a big payout.

Microsoft made thousands of millionaires. But they earned it by building a heck of a business. And the high growth days are over. Microsoft's salaries are pretty

[sixmil]

We moved up the value chain as a society,

I was kind of hoping he would explain this, but I guess we should be used to free trade/open borders platitudes by now.

[searchandrecovery]

And if you need to get insulting about it,...
First, let's just take a deep breath and tone down the rhetoric a bit. It's not about insults, it's about the truth. Let's try to find it.

BTW, My officemate in grad school was on the design team that wrote the predecessor to X, it was called "W,"...
Very cool.

I soon advanced in my profession to senior management.
Good for you (seriously). Past performance may not indicate future returns (as you know).

I do not like what I see happening.
Why not? (your prolix is limited to 2-3 short areas). (also, I worked briefly at bell labs undersea cable unit, before it was sold off - holmesdel? holmesberg? I forget. big damn building in nj).

[searchandrecovery]

...even as young Americans are increasingly disinterested in such disciplines.

Well, that may be so. If the really bad public school system in America is turning off so many kids to science and math, well, we as a nation will pay the price. I don't actually know, though - it seems like the really gifted kids kind of have a natural interest in the "hard stuff" (sorry). A generation or two of engineers may become plumbers, but I don't think we'll lose our geeky scientists so easily. (I could be wrong).

[sixmil]

Unless we cut taxes, we will lose.

Unless we cut the cost of regulations, we will lose.

Unless we fire corrupt sandbagging public sector employees we will lose.

We have a lot of advantages over China and India. If we cut down our disadvanatges, our advantages will keep us ahead.

More "investment" in government programs is exactly the wrong thing.

I'd love to see the numbers, but if you take out all the taxes, all the regulations, everything, you will still not be able to compete with the rest of the world on wages. This is nothing more than another corporate subsidy. Unfortunately it is not invested in anything, so the money is gone for good. It's not even politically impossible. The only sure thing is getting run out of office trying to ram this down Amercia's throat.

[citizen]

Don't you worry then the democrats create a crisis, then they are the only ones to have a solution?

I worry that we are in a perilous time:

greey corporations and expectant shareholders
the boot of government regulation and taxation on the neck of businesses
the pressure to cut costs [and homeland jobs] by offshoring
aiding in our demise w/ tech transfer to cheap labor countries
kids hooked on MTV, rap, video games, drugs, prom night, keg stands
Less students aspiring to engineering degrees
PC run amuck
Spend! Spend! Spend!
the coming SS and Medicare meltdown
the French [a little humor]
the monolithic leftist machine
Muslim terrorists
the coming abuse of the 'full faith and credit' clause of the 4th amendment
the disarming of the 2nd Amendment
the poverty importation via Hispanic migrants
the FTAA stealth UN/WTO monster
Bush/Kerry's One World/Globalism tendencies
the apathy of the American Sheeple (Why should I vote?)
the political ignorance of the American Sheeple
the willful short-sightness of American politicos, reelction above all else
the polarization of the two parties these days
America's No-Difference two party system.....

[searchandrecovery]

Where do you come up with these pictures? Nice work. The problem with trade is that seems to be un-managed, and really screwing the American worker.

I myself am kind of a moderate-protectionist. Time-delimit tariff's to give U.S. workers a chance to retool. At least give notice that they're job is at risk.

[mlmr]

we are not about to go bavk to the middle ages.


I think in some ways we will go back to the Middle Ages. I think that people will commit to companies and people who can ensure their survival. I think that eventually the current welfare structure will collapse and we will be a third world nation with teaming poverty, cheap labor and service and a small group of affluent. If not medieval, then defintely 1880's England.

[hedgetrimmer]

In many cases you will find that almost all their compansation is in options that don't have any value unless the stock price goes up

Many executives get their stock price negotiated at a lower level than the asking price. Sometimes a lot lower. Sometimes almost as low as the founders share price, if the company isn't that old.

So the stock price doesn't have to go up at all, they could join and if they vest immediately, and that also can happen in some stock deals if the board of directors approves, they can make a lot of money selling their stock right away.

[mlmr]

Could there be another solution? Bringing overseas cost of livings up to near our standard. Face it we don't compete with Europe because it is expensive there. And it is expensive in Hong Kong too,


Your thoughts?

[hedgetrimmer]

China makes a suite of bedroom furniture for $1500,in America that same suite is built for $2200 and is better quality. American wages are 50 times more than Chinese furniture workers but the price of a suite of American furniture is not 50 times higher than Chinese furniture.

If taxes and regulations were lowered and relaxed, there would be absolutely no problem keeping jobs here at American wage levels.

[citizen]

Why does it matter if Phd's are from America or not - they work for the highest bidder. Corporations don't care where the talent comes from.

Good grief, are you serious? They should care.

[hedgetrimmer]

I feel that it is important to show pictures of these people. We have a right to know who is harming us or helping us in the current world crisis. So, I post pictures when I find them.

[searchandrecovery]

I'll take that as a "no comment".

[searchandrecovery]

I'll take that as a "no comment".

Sorry, Browser, isp error. Re-loading...

[searchandrecovery]

They should care.

Who is They? Why should they care?

[CasearianDaoist]

I am not a pessimist, I am an optimist about American science and technology and a realist about globalism

I have work as bench scientist in some quite fancy places, and I disagree with your assessment about American competitiveness in science and technology. We spend more just out of federal coffers alone than the other top 41 nations combined. Believe me, if we had the political will the nuke plant we could put together would be wonderful, we would just have to have the Navy and General Atomics build them together. Look you should check out the strategic plans for the next 18 years or so at the DOE (cannot remember the url offhand.) In fact, look for an announce ment either late this year about a next generation of fission plant coming from, yes, American sources. If you do not think that we can build a better nuclear reactor than the French then you have never been inside a US Nuclear sub. We are going to be sending one to Jupiter in a few years. THe EU and Japanese do not want us in ITER just for our bucks, we have some of the best fusion people. around. I will grant you that we are lagging in HEP but I would what the real payoff of that will be in the next decade or so.

Meteorological instruments I know nothing about so I will grant you that.

Cutting edge wireless is mostly coming from American vendors tn both the chip set and package levels, with some notable exceptions, and most of the core cutting edge research is coming from us. What Darps is doing for the FCS will readically change this industry, and in reality we invented those protocols, no matter what bone we had to throw to the Euros during the selection process. I would not confuse the international variance in reinvestment cycles in telcom industry with technical advances. In fact verison is about to put up the fastest wireless network in the world and on a scale much larger than Korea. This wireless business is way over hyped, if you ask me. Look at the idiot mistakes the Euros made in the g3 market the last 6 years or so. Do you really think that the inventor of the cell phone and the Internet could not be the best should it become a priority? The handset business will wuickly become a commodity business anyway. There are country wide research networks in this country that are operating at 10gig to the desktop that cluster emmense HPC resources that no other nation can provide. The NEC super computer "leap" was mostly a fluke in rollout planning and new stuff out soon beat it by an order of magnitude.

We lead in almost all basic science and patents across the board. And this will only increase if we do things right in the future. The EU is floundering in their science "programmes", just look at the joke the ESA is. Nothing seems to stop their brain drain to the US. There is not in all of the EU an institution like MIT and we have at least a half a dozen of them (please do not tell me about Delft or the Planck institute becase they are not evenin the same league.) Where is the Japanese Intel? It turns out that they did not have the structural depth to beat us in technology and science, that is what we found out in the late 60s and the 90. I do not buy into your point.

BTW, in industry right now foreign engineers make up about 17 percent of the work force. If people want to come here and get Ph.Ds let them. I do not see how this stops our progress. I would think that you position would militate against outsourcing, if we outsource they will not come here. If we stopped outsourcing and lowered taxes we would have even more people come. People have traditionally come here because the US is so friendly toward science. certainly much more so than the EU or Japan.