FAST FORWARD: Will the U.S. Fall Behind in Tech?

Fortune Magazine ^ | David Kirkpatrick

[glorgau]

At last week's Agenda technology conference, many in the audience pricked up their ears when Pat Gelsinger, Intel's chief technology officer and head of research, began passionately complaining on stage about U.S. technology competitiveness. "Perhaps the current downsizing of the U.S. IT industry is not a temporary thing," Gelsinger said. "Maybe we are headed for becoming a second-class citizen in the world of IT." He mentioned China and India among countries he said were more committed to IT as a national priority than is the U.S.

It was shocking enough to many in the audience, including me, to hear Gelsinger's worries. But that night at a reception I found myself standing with both him and Craig Mundie, chief technical officer and strategist for Microsoft. I asked Mundie if he shared Gelsinger's fears, expecting a tepid endorsement or a mere statement of respectful disagreement. Instead, I got full-bore enthusiastic, even insistent, agreement. "If the U.S. cedes its leadership in IT there will not be a second chance," opined Mundie, with Gelsinger nodding approvingly.

What has top executives of arguably the world's two most important tech companies saying that the U.S. may soon cede its tech leadership? Three fundamental concerns: what both see as a disastrous diminution in national commitment to IT research and development, a dearth of engineering graduates, and the low penetration of broadband compared with other countries.

"We see a fundamental shift away from IT investment in the U.S.," Gelsinger had said onstage. Lamented Mundie that evening: "The percentage of gross domestic product spent on government-funded R&D is less than half what it was in the 1950s. In software R&D, Microsoft outspends the total Defense Department by a factor of three -- though its slogan is 'Military superiority through information superiority.'" I asked them if state-sponsored spending was really as necessary as it once was, given that the tech industry has grown so large and companies like theirs spend huge amounts on R&D themselves. (Last year Microsoft spent $4.3 billion, Intel $3.8 billion.) Not sufficient, they both replied, noting that government spending seeds university and corporate spending, even as it symbolically underscores national priorities.

Another worrier was Ray Bingham, CEO of the U.S.-based Cadence Design Systems, whose software helps automate design of sophisticated semiconductors, the heart of modern IT. "China produces 600,000 engineers a year and 200,000 of them are electrical engineers," he said in his presentation. By contrast, the U.S. last year granted 70,000 undergraduate degrees in electrical engineering and 37,000 graduate and doctoral ones. Compounding the problem: many U.S. graduates are not Americans and end up returning to their home countries. Last year 54% of engineering doctorates went to foreign students. Bingham added that the Chinese engineers "are being put in place so the semiconductor design of the future will take place there. If we continue not to invest ourselves, we're in trouble." Mundie, echoing this concern, noted that this year China will be opening 35 special software universities. "Yikes," I replied.

Then there's broadband Internet access. "As a company we're incredibly disappointed by the slow deployment of broadband," Intel's Gelsinger said. "Our national infrastructure is hideously behind what you're seeing in Korea and Japan and China and elsewhere." He continued, sarcastically: "Other countries didn't get the memo that beefing up the IT infrastructure couldn't contribute to economic growth." Gelsinger and others think broadband is critical because it is the platform on which powerful applications of the future will be developed, and because adoption will pull with it huge amounts of spending on hardware and software. He noted that the cost of broadband access in Japan is frequently much lower than it is in the U.S., even as services there deliver higher speeds.

All this led me to recall the first story I ever did as a writer on FORTUNE's computer beat, back in the June 17, 1991 issue, called "Who's Winning the Computer Race." It was a time of great hand-wringing on U.S. technological competitiveness, and I attempted a painstaking evaluation of who was ahead in six areas: processor design, software, data networks, optoelectronics, chipmaking equipment, and displays and printers. After talking to dozens of industry experts here and abroad, I concluded the U.S. would stay ahead in just the first three. Many then held views in line with those of Frank Carrubba, director of Hewlett-Packard Laboratories, who said, "We see the possibility of [the U.S.] losing ground rapidly and completely." Not much different from what Mundie and Gelsinger are saying today. But not long after my 1991 article, adoption of Windows 3.0 sparked a dramatic return to growth for the entire tech sector, a trend soon reinforced by the Internet explosion. The U.S. actually stayed strong in just about all the areas I wrote about back then.

So should we be worried? One could cynically argue that Intel, Microsoft, and Cadence talk this way because they would be among the big commercial beneficiaries of renewed government spending on technology. Regardless, it's apt that these executives are suddenly speaking out. Too little national attention is focused on the reality that technology is global, and that many, many countries see it as key to competitiveness. One thing that has changed since 1991 is the willingness of U.S. government to get involved. An increasingly tech-illiterate leadership in Washington has come to assume our long-robust private sector will keep us ahead. But if we were truly to fall behind in usage and development of IT, it would have deep consequences for jobs, economic performance, and our broader national standing as a global leader.

[glorgau]

Nice article, but the numbers of China getting 600K EEs to U.S. 70K is like the numbers the USSR used to put out.

[RLK]

The babble is always centered on IT. There is an entire engineering, scientific, and technological world other than IT. That is where we are also hurting. But maybe with the technological industries heading out of the country some of these a-holes should ask themselves why anybody in their right mind would want to study engineering. Anyone would be crazy to go into engineering and expect to woek in this country now.

[RLK]

Nice article, but the numbers of China getting 600K EEs to U.S. 70K is like the numbers the USSR used to put out.

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The numbers are real.

[general_re]

For those interested in the executive summary of this article, this is it - "IT Industry to US Taxpayer: 'Give Us a Dollar'."

[DB]

Chinese software, now that's an oxymoron...

Can anyone think of any Chinese high tech discoveries or products in the last 5 years using those 600,000 engineers a year?

[Lorenb420]

Can anyone think of any Chinese high tech discoveries or products in the last 5 years using those 600,000 engineers a year?

Code Red? :)

[Eternal_Bear]

Far more important for our students to study rap and diversity. Science was invented by "dead white males". It's not relevant any more.

Seriously, this could become a real problem. I guess we just have to keep importing Chinese and Inidan engineers.

[dfwgator]

The problem is that Chinese and Indian engineers are much cheaper than US engineers. Inevitably this will be a further disincentive for Americans to study engineering. We will be reduced to becoming a nation of salesmen and lawyers.

[Jake0001]

Only the IT industry is cheap enough to buy "cheap" engineers. They already have exemptions allowing them to import engineers from India and China with few strings attached to do their programming for them (which they've been doing for years).

Unlike the software industry; manufacturers, consulting firms and commercial entities are accountable for their products and would like to have someone who speaks English AND knows what they are talking about to explain what happened when something goes wrong.

200,000 EEs you say? Would that be inclusive of the CSEs? Of course that leaves 400,000 for the other disciplines, mechanical, civil, structural, aerospace, metallurgical, etc.........

Our problem stems from the fact that their objective is to catch up while ours is to break new ground. It's much easier to solve a problem KNOWING there is a solution than trying to solve something entirely new. With that in mind we need more engineers to achieve our goals than they do.

The unfortunate circumstances facing domestic engineers is a general public disdain and apathy towards technical issues. And it is no secret that engineers make less than lawyers and doctors and are much more vulnerable to litigation than the same. Plus we are generally not good salesmen or promoters.

We can supplant our problems temporarily by continuing to increase defense expenditures which draws a good portion of the nation's engineers. Unfortunately this is only a temporary fix, as it prices the private, commercial and public sectors out of competition resulting in further erosion of quality and competitiveness of our products and endangers our infrastructure.

True this results in upward wage pressures and SHOULD encourage more Americans to get into engineering but it does not. Why? Engineering is not a particularly high paying or glorious profession, can mean long hours and it has never ending responsibility. Plus not everyone is mentally or psychologically qualified to be an engineer.

To summarize, China's and India's advantages:
Big populations = bigger pool of possible engineers.
Low standard of living = more interested in a respectible and modest paying profession.

Our disadvantages:
Smaller population = smaller pool of possible engineers.
Comfortable living standard = more interest in lucrative high paying jobs.

[RLK]

Chinese software, now that's an oxymoron... Can anyone think of any Chinese high tech discoveries or products in the last 5 years using those 600,000 engineers a year?

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I remember when Americans laughed at the thought of the Japanese selling automobiles.

[DB]

Well that's true. Japenese cars in the 60's were something... It took quite awhile for them to perfect their products. But the Japanese had basic freedoms.

The bigger point is that the Chinese form of government has more to do with creativity and engineering than they think. As long as they remain in their present form, bombs are the only real thing to fear from them not true economic power IMO.

Bad govenment can and will destroy any once creative people. Look at the Germans today...

[RLK]

I know it's not going to change your mind, but I'll say it anyway. The superficial and jingoistic thinking of you, and those like you, is going to destroy this nation.

As someone who spent decades in broad aspects of the technical and engineering field, and who has dealt with many many Chinese, I need to tell you you are dead wrong. If that hurts your feelings, so be it.

[RightWhale]

Scientific articles published by Americans dominated the world for a while. Lately the percentage has fallen. It is still more than 50%, but the trend is clear. America is world leader only because of tech and science. Lose that leadership and America is done as a superpower. We're doing this to ourselves.

[RLK]

Forget the George M. Cohen vaudeville monologue.

I eat at a lot of Chinese restarants. The food is excellent. It's a good place to learn about the realities of politics. Near universities a lot of the waiters and waitresses are students from China. They are a lot brighter and more highly motivated than our clunkerheads. They are good. They believe in the future of China. They return there to teach and work.

I also keep track of what's going on there.

[RightWhale]

we just have to keep importing Chinese and Inidan engineers

Even with that, and we have been importing scientists for several decades, we are gradually losing our pre-eminent status. When I say American scientists, I mean scientists wherever they come from who do their work in the US. Even with that, the trend is down.

[DB]

Did your read what I posted?

I didn't say the Chinese were either stupid or bad. I said as long as they don't have basic freedoms, i.e. their government is a communist dictatorship, they will not be free to create and become a true economic power. Yet you call me names and disagree…

I too am an engineer with long and wide experience in electronics. Fifty percent of my company's exports are to Russia and China.

[DB]

As third world (and other) countries become more modern and free (which is what we fought for so long.) of course they're going to become more competitive. It is the result you would expect. Our technological lead has shrunk significantly due to this mechanism alone. That isn't to say we are doing all we can do to stay on top but is expected and not necessarily all bad.

[DB]

BTW, I'm not talking about the Chinese race; I'm talking about China, the Chinese country. That should have been obvious.

I'm not destroying America, if you think I'm the enemy you really are screwed up.

[RLK]

I can see it's going to be a long hard winter.

[DB]

Between us?

I hope not!