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Where’s My Job?

Council on Competitiveness head Deborah Wince-Smith on the impact of high-tech “offshoring.”
April 1, 2004

Deborah Wince-Smith
Position: President, Council on Competitiveness
Issue: “Offshoring” of high-tech jobs. Many companies have begun moving programming and engineering jobs overseas to lower-wage countries like India and China, following the trend set 20 years ago in manufacturing. What does this mean for U.S. leadership and competitiveness in technology? Personal Point of Impact: Helped the council, a nonpartisan coalition of industrial, academic, and labor leaders, launch its National Innovation Initiative to devise ways the United States can stay ahead of emerging global competitors

Technology Review: IBM and other high-tech companies have recently drawn headlines by moving white-collar programming jobs overseas. Does this mean that the United States is losing its dominance in technological innovation?

Deborah Wince-Smith: No. In fact, if you look at the types of jobs that IBM is outsourcing, these are IT jobs, but they are not at the cusp of technological innovation. They are much more associated with the back-room operations, such as customer support and call centers. The really advanced work that IBM is doing, whether it’s their new chip, or in high-end and high-performance computing, is in the United States. There’s actually been a net gain in the number of jobs at IBM, and most of that new hiring will be in the United States.

TR: So this “offshoring” of technical jobs isn’t a problem?

Wince-Smith: I do think there is cause for concern because so many American electrical engineers and software programmers have lost their jobs. These workers face some of the highest unemployment rates of any job sector in the U.S. Everyone says we’ll train them to different jobs. Well, what jobs? If young people see that computer science and engineering are not stable professions with long-term job opportunities, they’re going to be reluctant to go into these professions.

TR: What about more high-level design and engineering jobs? Couldn’t they start moving overseas?

Wince-Smith: There are already a lot of so-called high-tech jobs, in design and engineering, moving overseas, particularly to China. The current level of programming and services offshoring to India is not yet at the level we might consider advanced technology, but certainly in the area of semiconductor design, engineering, and manufacturing, there’s a very serious level of work being done in China. We’re seeing a tremendous surge of U.S. companies participating in China in the manufacturing of very advanced systems. This type of offshoring, along with the advanced design and engineering that usually go with it, is a much more serious long-term competitiveness issue for the United States.

TR: What will the impacts of this type of offshoring be on U.S. competitiveness?

Wince-Smith: I think this offshoring is a very serious issue because it’s really accelerating the emergence of nations like China and India as first-tier competitors in many of the most advanced, high-value economic activities. For example, the resources that China devotes to these types of activities are huge. Still, if anyone says that this is okay or not okay, we don’t know. We don’t have the data yet.

But one of the good things about this is that when China, India, and other countries begin to participate in this innovation activity in which there’s a lot of economic value and employment at stake, I do believe that it will bring them more rapidly into the disciplines and business practices of developed economies, such as rule of law, transparency, and intellectual-property protection, most of which have historically been very weak in these nations. As China becomes more of an innovator, they’re not going to be too keen on having their intellectual property stolen the way they’ve been appropriating other countries’ intellectual property. There’s been a tremendous amount of outright theft, where a U.S. design has actually showed up in a competing Chinese product. And it’s not a zero-sum game. Prosperity and growth in standard of living in other regions and countries, including Southeast Asia and India, is in our and everyone’s interest, because they empower consumers abroad to buy U.S. products and services.

TR: What’s driving this movement?

Wince-Smith: The trend is part of globalization, there’s no question. In the case of China, it’s not only a huge market in the future, but because so much original work is being done in China, many companies feel that they have to participate in the innovation that’s occurring there. Cost is also a driving factor. The Chinese government has provided many incentives to these firms. The cost of doing business in the United States is very high now. And China and India have some educated, talented people who earn considerably less than their American counterparts. Over half of all the U.S. graduate students in engineering are not Americans, and more and more of them are going home.

TR: High-tech manufacturing-as opposed to design work-has been happening overseas for a while. What are the implications for U.S. competitiveness on this front?

Wince-Smith: I don’t think it’s serious for your basic computer chip and other mass-produced commodities. But we do not want to lose the capability in the United States for the most advanced manufacturing of very complex systems, because that is directly related to the innovation process. In the course of manufacturing, you often create an innovation that takes you to the next generation. I’m concerned about the strategic implications of our very advanced microprocessors-those types of components that really differentiate a product-all being manufactured outside of the U.S.

TR: What should the U.S. do to stay ahead?

Wince-Smith: We want to ensure that we have skilled people at the forefront of design and engineering in the United States. We need to have more of our young people go into math, science, and engineering. We need to ensure that we have strong federal investment in the knowledge enablers of the future-in the mathematical, physical, and material sciences. There’s been an imbalance in that investment, with the life sciences receiving favor for many years. Life sciences are important, but innovation there depends on investments in the physical sciences, too.

We need a regulatory environment, both at the national and state levels, that encourages and rewards entrepreneurial activities and doesn’t impede our ability to create new businesses and see them flourish. One example is our product liability laws. As they stand, they are really anti-innovation. A whole set of requirements puts the burden of damages all the way back onto the first supplier, even if someone further up the chain was responsible. Also, many incentives are given to U.S. companies to relocate their operations to developing countries. That’s good because we want to bring up the standard of living of the world and not have huge disparities in wealth, but at the same time, it almost makes the U.S. outpriced in some ways. So perhaps the U.S. can provide tax incentives to its own companies to stay in the U.S.

TR: In the long run, does it really matter where innovation comes from?

Wince-Smith: The only way the U.S. can maintain its standard of living and quality of life, and then ultimately, our security, is through productivity growth-and that depends on innovation capacity. We can’t compete on low-cost labor, on natural resources, on standardized products. The products and services and capabilities that are going to come out of the research being done today in our universities, in our labs, and in industry are going to be huge wealth generators in the years ahead. We want the U.S. to be in a leadership role in those new industries of the future. And at the same time, we need to be prepared to capitalize on cutting-edge innovation wherever it occurs. That requires a sea change in approach and attitude for the United States, which has traditionally seen itself as the unrivaled leader in virtually every field.

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