IT Industry Execs Slam Education, Dodge Offshoring

The battleground for the hearts and minds of the U.S. Congress was set last week, when the Computer Systems Policy Project, an affiliation of CEOs in the high-tech industry that was founded in 1989 and champions the causes of these companies, weighed in on the hot topics of the educational system, globalization, and offshoring. CSPP issued a report on how the United States could remain competitive, but it is clearly just the first salvo in what will be a sustained lobbying campaign in Washington to try to encourage Congress to see these issues the way the CEOs do.

The report that has everybody talking, “Choose to Compete: How Innovation, Investment and Productivity Can Grow U.S. Jobs and Ensure American Competitiveness in the 21st Century” (in PDF format), says that IT CEOs, working through the CSPP, will be proactive in working with the Congress and the Bush administration to come up with a plan to sustain U.S. competitiveness in IT, to attack emerging markets, to encourage investment in IT infrastructure at home and abroad, and to create jobs in America.

Craig Barrett, CEO of Intel, is chairman of CSPP, and he laid out the organization’s position quite clearly in a statement accompanying the report. “As the U.S. encounters new global realities, policy-makers face a choice: We can compete in the international arena, or we can retreat,” he said. “America can only grow jobs and improve its competitiveness by choosing to compete globally, and that will require renewed focus on innovation, education and investment.” That sentiment is shared by the other head honchos of IT cited in the statement, including Michael Dell (Dell), Joseph Tucci (EMC), Carly Fiorina (Hewlett-Packard), Sam Palmisano (IBM), Ed Zander Motorola ), Mark Hurd (NCR), and Larry Weinbach (Unisys). Twice a year, CSPP members go to Washington to meet with lawmakers, and they will be bringing up all of these issues with Congress in February, when they make their next trip.

The CEOs are in a tough spot, and that’s why they are making noise. (I had not heard of the CSSP until last week. I can’t be the only one.) IT consumers want cheaper and cheaper computing, and the CEOs run public companies that are yoked to Wall Street and must provide revenue and profit growth for investors and, among those IT companies that give compensation in the form of stock options, for employees. That means they have to crank up the volumes and lower costs at the same time in order to grow. This is a bad place to be. These unavoidable facts about the economy, as well as a few others, like the discrepancy of labor costs between the United States and other regions, is what drove the textile and manufacturing industries out of the United States, and they could similarly drive a lot of relatively high-paying professional and service jobs overseas in the next decade.

What IT CEOs undoubtedly fear in an upcoming election year is that a backlash is building over offshoring and outsourcing in the IT industry. In the 1990s, while the economy was booming, The IT industry could get what it wanted when it came to H1-B and other visas, which let them effectively “inshore” less expensive labor for engineering and programming work. But with the economy down and stalled at a lower level, and with many IT professionals looking for work and being angry about offshoring, if there is one thing the IT CEOs don’t want is laws about what they can and cannot do with their labor pools. When the manufacturing industry was offshoring, the rallying cry was “made in the USA.” How much it helped is debatable. This time around, the IT employees, who might have a lot more economic and political power than manufacturing employees did, because they are well connected and relatively well paid, could start a rallying cry of “paid in the USA.” This is shaping up to be a classic struggle between management and labor. And politicking is going to be at the very heart of the matter.

With 60 percent of IT revenues for U.S.-based IT companies coming from overseas, and that percentage poised to rise, thanks to consumption in emerging economies in Asia, Eastern Europe, and Latin America, the CSPP report contended that it is this overseas business that drives American jobs. And what the CEOs want is a policy that encourages a continual training and retraining regimen for the high-tech workforce in America that starts in schools and continues into the workplace. I think this is something that everyone can agree on. The report harped on the fact that the United States doesn’t graduate enough bachelor’s degrees in engineering–something the IT industry has used to jack up worker visas. For instance, the report says that in 1999, there were only 61,000 such degrees given out in the United States, compared with 103,000 in Japan, 134,000 in Europe, and 195,000 in China. The United States, it says, only accounted for 7 percent of the 868,000 engineering degrees given out that year. (This data is from the National Science Foundation.) The implication is that this discrepancy justifies the use of inshored and offshored labor, although the report doesn’t say this. It does, however, say that the IT workforce outside the United States is a serious threat.

“A growing number of workers in these foreign countries and companies are highly educated, skilled, and talented–a competitive challenge in their own right,” the report stated. “Americans who think that foreign workers are no match for U.S. workers in knowledge, skills, and creativity are mistaken.” That sounds to me as much of a statement of fact as it does a veiled threat. So does the statement that the IT industry sinks most of the $57 billion a year in research and development in facilities in the United States, and that the industry employs some 300,000 scientists and engineers, who have high-paying jobs here in the States. We all know this can change, and that it is changing. IT players are moving hardware and software engineering jobs right now, and have been for years.

Several things irked me about the report. What these CEOs want us to forget about is making stuff. The report comes right out and says it, as it justifies a pro-global trade stance:

“Without trade, Americans would have a lower standard of living. Think about the coffee that revs our bodies, the wines, foods, clothing, appliances and household furnishings that average families–not just the wealthy–enjoy every day. These affordable, high-quality imported goods would be more expensive or impossible to produce in the United States. Imports increase the variety of products available at good value to American consumers, thus contributing to our high standard of living. ‘Buy American’ policies may seem patriotic, but they are, in fact, impractical and even counterproductive. The array of products that Americans rely on for everyday life and work are not available in our backyards. Even if the United States could produce everything here, the costs would take a heavy toll on consumers, especially lower-income consumers, who would bear a disproportionate burden of price increases on basic items such as food and clothing. We are better off playing to our strengths–innovation, high skills and high value-added goods and services that we can export to great advantage–than trying to produce everything in the United States.”

No one in their right mind is suggesting that America can or should try to make all of its own stuff. That would be silly. But many of us are suggesting that there are limits to how much employment we can ship overseas. This is not so much against global trade as it is against global employment. After all, someone has to pay the tax bill, particularly since U.S. multinationals shoot the loopholes to avoid their tax burdens. The IT industry wants to link free trade with carte blanche for employment practices, and this is very dangerous to workers in the IT industry.

Another thing that bothers me is that no matter what, in any industry, any company will put its own needs ahead of the needs of a country or a society. This is the nature of market-driven, Wall Street-driven capitalism. The CSPP study cites statistics that indicate that increases in productivity averaged 1.4 percent per year between 1973 and 1994, which, it claims, would double the standard of living of every American (on average, of course), in 50 years, and it says further that the pace of productivity improvements was double that between 1995 and 2003, and that the average standard of living for an American citizen (again, on average) could be doubled in only 25 years at that pace. This sounds excellent, but I suspect that these productivity improvements do not double our standards of living so much as make a precious few people a lot better off and many people a lot worse off. Instead of talking about averages, we should be talking about cases as we forge any laws and policies that affect the IT industry, which includes many more workers than high-paid CEOs.

Let’s face it: Computers unemploy people. Period. And when these heavy-hitting, politically connected CEOs say that the education, retail, and healthcare industries have not yet gotten the full benefits of automation like the manufacturing and services sectors have, what it really means is that there are yet people who can be replaced by a machine running software. Computers have replaced clerks and operators of all kinds: telephone operators, toll booth clerks, workers monitoring manufacturing operations–you name it. The very act of automating something causes people somewhere to lose a job. This is the very essence of computing, and it is something you will never hear an IT executive say. This is where the elusive productivity gains come from. It’s no mystery. I am the president of a company who answers his own phone, gets his own coffee, writes his own letters, and manages his own Web site. I’m bringing up the averages, and I suspect you are, too.

That said, the creation of computing technologies employs people, too, and so does the use and maintenance of computing devices. The question I have is whether the rate of unemployment across all industries caused by computing is higher than the rate of employment by the IT industry and the rate of new jobs created in whole new ancillary businesses that can be created simply because computing exists. People are always yammering about worker productivity, using nebulous statistics that seem to imply that IT drives productivity, when what I would really like to see is how many jobs in the Western economies have been created and destroyed by the advent of information technology since 1957. There is no question that companies of all stripes have profited from automation because it eliminates expensive people from processes, and that IT vendors have similarly profited because they make and sell these automation products. And as much as I like this IT industry, I am not always so sure that our culture, our families, and ourselves have profited from such rampant automation. That doesn’t make me a Luddite. I like people, and I want to give them jobs with benefits. It’s that simple. I also want other owners, presidents, and CEOs to have the same attitude I do, which is asking a lot.

Despite all of my criticisms of the CSPP report, there is much to commend in the recommendations that it presents. First and foremost, it says that the government and the IT industry have to partner in order to face the threat of competitive pressures in the IT industry, which will surely underpin a lot of the productivity gains in the future U.S. economy, and indeed those of other Western and emerging nations. Here are the recommendations that the CSSP is making.

• The IT industry and the government have to pick up the pace in R&D, and CSSP is asking for a permanent and larger tax credit for R&D spending to stimulate this. The organization is also calling for a big increase in federal spending at American universities for research in the physical sciences and engineering. The IT CEOs also want to debate how best to get IT researchers to collaborate so they can improve the rate of innovation.
  
• CSSP also wants Congress to enact the Infrastructure Investment Act of 2004, which will shorten IT product depreciation schedules to better match the ever-shortening economic life of technology. CSSP is also calling for a permanent moratorium on any taxes on access to the Internet or business conducted over the Internet. The organization is also calling for changes in the federal tax code as it relates to foreign profits that are taxed in local economies. This is asking for a lot. It will be interesting to see what Congress does. This act might also include the implementation of a national broadband grid and the widespread adoption of e-business computing by the federal government.
  
• CSSP says we have to do a better job of educating our students at all levels because they will be competing with workers from around the world for higher-paying jobs in the coming years. The IT industry will help fund educational projects, but it’s asking Congress and state governments to better fund education so American workers can better compete in a global workforce. Specifically, CSSP wants laws to push math and science teaching and to give students and teachers better access to new technologies as they participate in the educational process. CSSP also wants Congress to create incentives for companies to invest in education and training in general and specifically for dislocated workers. The organization is very vague on what these incentives might be.