Andy Grove: US losing High-Tech Lead, Jobs going to China and India

Forbes ^

[BlackJack]

One of the founding fathers of the nation's high-technology industry warned in dire terms yesterday that U.S. dominance in key tech sectors is in jeopardy, threatening the country's economic recovery and growth.

Speaking via satellite to a global technology summit in Washington, Intel co-founder and chairman Andrew S. Grove said that the software and technology service businesses are under siege by countries taking advantage of cheap labor costs and strong incentives for new financial investment.

"I'm here to be the skunk at your garden party," Grove said, noting wryly that his remarks coincidentally fell on the same day as one devoted to promoting nationwide screening for psychological depression.

Grove, 67, singled out China and India as key threats. India's booming software industry, which is increasingly doing work for U.S. companies, could surpass the United States in software and tech service jobs by 2010, he said.

More ominously, Grove said, the software and services industries -- strong drivers of U.S. economic growth for nearly two decades -- show signs of emulating the struggles of the U.S. steel and semiconductor industries.

In the case of steel, U.S. companies never recovered, dropping from nearly 90 percent of worldwide market share to roughly 10 percent. The semiconductor industry, Intel (nasdaq: INTC - news - people )'s core business, faced similar challenges in the 1980s, when it began its drop from 90 percent to 40 percent of the world market, Grove said, before aggressive trade and other U.S. policies helped it recover and stabilize at about 50 percent.

Grove said that even as the U.S. economy is improving, tech employment is not.

According to industry data, more than 500,000 technology jobs were lost between mid-2001 and mid-2003. Many of these were due to a contraction of the tech sector in the wake of the bursting of the dot-com bubble in 2000.

But Grove acknowledged under questioning that the tech industry itself is responsible for numerous jobs leaving the United States, as firms take advantage of considerably cheaper labor costs in India and elsewhere.

Grove said he is torn between his responsibility to shareholders to cut costs and improve profits, and to U.S. workers who helped build the nation's technology industry but who are now being replaced by cheaper labor. Grove did not offer a solution, saying only that the government needs to help decide the proper balance between the two. Otherwise, he said, companies will revert to their obligation to increasing shareholder value.

Recent estimates from financial consulting firms paint a stark picture of "offshoring," which allows companies to get software development and other services at one-third to one-sixth the cost.

The Gartner Group (nyse: IT.B - news - people ), a market research firm, estimates that 10 percent of jobs at U.S. information technology vendors will move offshore by next year.

Throughout all U.S. companies, Forrester Research (nasdaq: FORR - news - people ) predicts the loss of roughly 3.3 million jobs by 2015.

Grove said that the move offshore has been aided by the telecommunications bubble of the late 1990s. So much infrastructure for high-speed Internet connections was laid, much of it never used, that the cost of achieving high-speed communication plummeted. As a result, Grove said, "the engineer sitting 6,000 miles away might as well be in the next cubicle."

Grove chided U.S. policymakers for all but ignoring the problem.

"What is the U.S. public policy?" he asked. "I am hard put to find a document" outlining a policy strategy.

He said he had detected no recognition of the problem from any of the presidential candidates.

Grove also criticized the nation's overburdened patent system, which he said is causing an abundance of innovation-slowing litigation.

He said that the inability of patent examiners to handle the workload has led to a backlog of important applications, but also less than thorough vetting of patents that perhaps should not be granted.

Grove also said the country lags dangerously behind in popular use of high-speed Internet connections, funding for science and technology research, and education.

[BlackJack]

Sorry to hear about Rush today.

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[ZeitgeistSurfer]

Andy Grove is the insider's insider. When he says we're in trouble, believe it. I recommend a visit to any computer science class at a top university to really understand where the country will be in ten years. Almost all the students are foreign born. Smart American kids understand that only our legal kleptocracy offers the kind of financial rewards that compensate for dilligent study. However, the upside is that we will be able to sue the world into poverty.

[agincourt1415]

In the end we will all be DAY TRADERS.

[LADYAK]

same here in Alaska most of the students I know from India are in their early 20's and working on their double masters degree....almost all of them in engineering...

[Hodar]

Grove did not offer a solution, saying only that the government needs to help decide the proper balance between the two. Otherwise, he said, companies will revert to their obligation to increasing shareholder value.

Andy is dead on the money . As an engineer, I WANT my company to succeed; as it was started by Americans, built by Americans and services the world. However, as a stockholder I DEMAND that it be profitable. 'Demands' outweigh 'wants' every time. Unless a balance is created, we will continue to hemorage high tech jobs overseas.

[Voltage]

Why not try the usual solution...increase taxes on the truck driver, shoe salesman, house painter, etc..then give them money in 'grants' to high tech companies? They can use it to offset their 'gov't' costs (IRS, EEOC, OHSA, EPA...), legalized extortion by trial lawyers...you know all the NORMAL costs of doing business in the USA, i.e. the costs they would not have to struggle with in China and India

[harpseal]

ping

On or off let me know we have some truth from a CEO.

[BlackJack]

We could conquer the world with our litigation. Nobody can
out sue the US. We will let the world do all the work and just litigate our way to global domination. I like it.

[harpseal]

How to balance want and demand via proper government policy

Acknowledgement RDB3 who helped hammer out this plan.

In no particular order of importance.

1. Get rid of government subsidies for offshore investment of US companies. OPIC is the first such program which should go but support of World Bank programs that subsidize the outflow of Capital would be another.

2. Use tariffs on those nations which are engaged in unfair trade practices such as currency manipulation (China and India for example), those nations which refuse to open their markets to US products (China for example with its 50% tariffs on US consumer goods and non tariff barriers), those nations that subsidize competition to American Industry (airbus for example) and those nations which have slave conditions for their workers.

3. Use tariffs and other means to prevent the relocation of jobs offshore that are essential to the national defense. If necessary take control of the company seeking to export vital technology or industry by means of eminent domain (No I do not like this last option and I will only defend its use as an absolute last resort like say in the case of rare earth magnets essential to smart bomb technology). Provide a hardened, widely distributed infrastructure to supply all that is needed for our military units and civil defense that can be continued to be deployed in the event of any military attack.

4. An immediate end to guest worker programs. If people wish to come to the USA to work and make a life let them immigrate according to the rules.

5 Provide economic development zones where the corporate income tax is zero for operations within these zones. In order to operate in this zone a company must agree to only purchase American components if available and employ only American citizens or legal immigrants in these operations. These economic development zones shall be eventually be expanded to include every bit of every state once the benefits are shown I would like them to be totally implemented immediately but I realize that may be overreaching. It must be stated for clarification that simply being in the geographic area of the zones does will not subject any company to any new mandatory regulation. Everything is voluntary for getting the exclusion from corporate taxation. The profit attributable to direct imports is subject to the same rules that exist everywhere else in this nation for corporate taxation. Only free from such taxation is the profit attributable to American content and any American improvement. In short no new mandatory regulation will be a part of this. It is my opinion that there will not be a lack of companies seeking this tax relief. And no the regulation implied is absolutely minimal in order to get this through.

6. Scale back unnecessary regulation including the tort system. Institute a cap on punitive damages, limits on class action suits, and limits on liability to the actual percentage of liability with no plaintiff able to collect if said plaintiff was involved in the commission of a felony at the time of the alleged tort or was more than 49% negligent in the alleged tort. Note that the loser in a frivolous lawsuit shall pay the attorney fees of the winner. There are many other regulatory structures that also need to be included that need to be included such as repealing the Family leave mandate, getting rid of OSHA etc.

7. Increase the domestic content in purchases by the Department of defense and give absolute preference in non-domestic content to proven allies of the USA over say the French or Germans. The only reason any content for DOD purchase may come from non US allies is that content is not available elsewhere and is essential.

8. Do not allow expense involved in moving operations overseas to be included in business expenses under the IRS code.

9. Prosecute for perjury anyone who has made a false statement in order to employ an H1B or L1 visa worker. I will be lenient on the actual perjurer if he/she was ordered to make this false statement and he/she provides testimony to aid in the conviction of the person ordering the perjury. Just because a person is a CEO does not give them a pass on criminal behavior.

10. Prosecute anyone who orders the transfer of vital defense technology or funds a R&D project that could be of use to our military overseas except to strong allies of the USA. Make the necessary enhancements to our espionage laws so that continued support or funding of any R&D in a nation whose government has threatened the USA is guilty of espionage. The UK and Australia come to mind as meeting these criteria for being eligible for transfer of technology first. There will be other nations and a gradation of what can be transferred to which specific nation. Under no circumstances may technology be transferred to any nation whose government has threatened the USA within five years without a complete change of government or specific exemption from Congress and the administration.

11. Deport all illegal aliens immediately and take measures that prevent the entry of any more illegal aliens. Fine all companies knowingly employing illegal aliens Criminal sanctions should be imposed on anyone helping an illegal alien stay in the USA in violation of our laws.

12. Decrease the punishing levels of taxation on companies and eliminate the double taxation on corporate dividends. See effects of item 5 for how minimal this will be if item 5 covers the entire USA. Eliminate all IRS provisions that inhibit free use of independent contractors by businesses for example section 1706.

13. Eliminate the minimum wage so that the worker can be paid based on productivity. Overtime compensation will remain the same but instead of 150% of the "wage" the worker would receive 150% of the production pay. If one through 13 are enacted # 14 becomes an irrelevancy as no one will be working for that low a wage.

Now since I started posting this plan another idea has come up that in my opinion is a very good policy that stands on its own. Now I give credit to Jim Gibson and Freeper Ed_in_NJ for coming up with the idea, separately to the best of my knowledge. However I can be corrected on that. The tariff phrasing is from Jim Gibson.

“I suggest that the US Customs Department charge a $1,000-per-container inspection fee on every container entering the United States. This fee would be used to completely fund the cost of inspections. If we assumed that a four-man team could fully inspect two containers a day or about 500 per year, it would require 48,000 inspectors. Allowing for at least 2,000 support personnel, we would need at least 50,000 workers. Because these workers would require high intelligence and skill levels they should earn at least $30 per hour. At 40-hour weeks plus benefits, I estimate the cost per worker to be over $75,000 per year, all paid by the foreign manufacturers. Even so, this would still leave over $2.25 billion to cover all other costs. Any revenue not used would be used to compensate American workers displaced by foreign imports. “

I urge and encourage everyone who agrees with this plan and or the terror tariff idea to communicate this to every politician you can think of.

[BlackJack]

We can all day trade China growth stocks.

[harpseal]

A better solution is my 13 point plan which swould involve tariffs on Indian and Chinese goods reflecting their high tariffs on US made goods. The Chinese minimum tariff on normal goods with teh VAT revenue tariff on top of it makes for over a 70% markup in a Yuan that is undervalued by 40% according to our treasury dept. Now India has higher tariffs than China so perhaps by a combination of reforms in tax policy and proper application of tariffs we can maintain a viable America. The alternative is Hillary Clinton in the White House at least as of Jan 2009.

[lelio]

we have some truth from a CEO

That's ex CEO. The distinction is because we need some current CEOs saying the same thing. But its always good to hear some clear thoughts from people in the business world.

[ZeitgeistSurfer]

We could conquer the world with our litigation.

It's just Ricardo's theory of competitive advantage taken to the limit. We clearly lead the world in tort lawyers. Turn them lose on the rest of the world and just sit back and let the good times roll!

[Voltage]

“I suggest that the US Customs Department charge a $1,000-per-container inspection fee on every container entering the United States.

More Government Jobs! That's the ticket...worked well in the USSR.

[Zathras]

As much as I respect Andy as one of the greatest CEO's ever, some of his data is flawed.

First, Craig Barret flushed Billions in bad investments which then worker bees in design were expected to recover the loss with new products. The worker bees got fired and Craig got a boost in his options.

It is now almost impossible for a non-Indian engineer to get a job at Intel's Santa Clara site. The Indian managers simply will not hire them.

Intel's Itanium processor software development was used as a slush fund to promote and actively recrute Indian imigration into the US and outsource more jobs to India.

The most obvious sign is if Andy worked as a Sr. Engineer in Santa Clara right now, he couldn't get a job at Intel.

[Zathras]

As much as I respect Andy as one of the greatest CEO's ever, some of his data is flawed.

First, Craig Barret flushed Billions in bad investments which then worker bees in design were expected to recover the loss with new products. The worker bees got fired and Craig got a boost in his options.

It is now almost impossible for a non-Indian engineer to get a job at Intel's Santa Clara site. The Indian managers simply will not hire them.

Intel's Itanium processor software development was used as a slush fund to promote and actively recrute Indian imigration into the US and outsource more jobs to India.

The most obvious sign is if Andy worked as a Sr. Engineer in Santa Clara right now, he couldn't get a job at Intel.

[ikka]

The flip side is that Intel is going to get its clock cleaned by AMD. How many Indians AMD has, I don't know.

[CasearianDaoist]

Can someone sue them for discrimination.

[sam_paine]

Shut up Grove. Your Intel Strategy to commoditize the PC architecture was a primary enabler for the Foxconns, ASUSs, FICs, Compals, etc to flourish and gut the US PC design/mfg business. Now you whine about the fruits of your labor and demand, "Where's the government to save us?"

Sickening.