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Business Impact

Q&A: Paul Otellini

Is the U.S. losing its competitive edge? Intel’s boss thinks so.

As CEO of Intel, Paul Otellini knows a lot about the value of investments. And these days he’s worried that the United States, after a decade of neglecting support for education, research, and digital infrastructure, is falling behind much of the world in its ability to compete economically and technologically.

Last year, during some of the grimmest days of the recession, Otellini announced that Intel would spend $7 billion to build fabrication plants in Oregon, New Mexico, and Arizona. While the move was meant to create manufacturing capacity for its new 32-nanometer chips, the timing, which came as Congress debated President Obama’s stimulus bill, was also meant to signal its willingness to invest in the United States. This February, Otellini announced that Intel and a group of venture capital firms would supply $3.5 billion to U.S.-based technology startups over the next 18 to 24 months; a related initiative committed Intel and other high-tech companies to doubling their hiring of U.S. college graduates in 2010.

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Fretting over U.S. competitiveness is nothing new: such concerns seem to make headlines every few years, peaking during poor economic times. So Technology Review editor David Rotman asked the Intel CEO why he is worried now.

TR: Why does it matter where innovation comes from? After all, about 75 percent of your revenues are from outside the U.S.

Paul Otellini: [To us] as a global company, it probably doesn’t matter. And as a multinational corporation, we have the ability to hire people from anywhere on earth. But there are still some fundamental concerns. I think that America is the best place in the world for innovation when it is done right. Historically, the infrastructure, capital markets, acceptance of failure, and the willingness to try again are uniquely American.

TR: What’s at stake for the U.S.?

PO: As a country the issue is: are we going to be prepared for the industries of the 21st century, which are fundamentally knowledge-based industries? The alternative is to go back to 19th-century industries and get back to [manufacturing] steel and those kinds of things, but then you have to do it at costs that are comparable with the lowest costs in the world. That would require a reset of the standard of living, and most Americans are not willing to do that. If you want to maintain our standard of living, you need to adapt the workforce for the jobs of the future.

TR: Do you see signs of this loss of competitiveness already?

PO: You can measure the gradual erosion with something as straightforward as how our kids are doing in math and science. It’s clear the best of the best coming out of our schools are world class. It is the average that I’m concerned about.

TR: Has this begun affecting the U.S. economy?

PO: It is so hard to tell. If we didn’t have this giant recession, you might be able to measure [the effect] more accurately. But you can surmise that if the quality of skills of the workforce is eroding, it’s a huge productivity loss.

TR: What government policies would help?

PO: Governments are best positioned to fund basic research. But there’s been a decade-long erosion in the amount of that funding. It’s now on a path to grow, and eventually the goal is to double it. But it takes a long time to do that. Secondly, we would like to see the R&D tax credit made permanent and returned to levels that are competitive with the rest of the world. Lastly, we have corporate tax rates that today are the second highest in the industrialized world.

TR: Aren’t there dangers when governments get involved in supporting innovation?

PO: One potential pitfall is government picking industries and technologies. The job of government is to fund basic research and let scientists do their work and let the innovation fall where it may. I just think there has been insufficient funding, and we need to get it back to levels that are much more consistent with our historical norms.

TR: Investing in startups is what venture capitalists are supposed to be doing. Why did they need encouragement?

PO: Yes, it is their business, but the narrowness of the focus [on clean tech and high tech] and the narrowness of the investment period was also important. We wanted to show [startup companies] that the venture capital industry was open for business.

TR: One of your recent speeches was titled “Reinventing America’s Economic Future.” What did you mean?

PO: The fifty-thousand-foot view is, it’s all about competitiveness. It is something that, as a country, we too often take for granted. We take for granted that capital will flow in, we take for granted that we will have the best workforce in the world, we take for granted that capital formation is there, that startups can have an exit through the IPO [initial public offering] market. None [of that] is to be taken for granted anymore. It was nurtured over 30 to 40 years, and for a variety of reasons it has either atrophied or been constrained. If we refocus our energies on competitiveness as a country, then other good things accrue: capital accrues, jobs accrue, investments accrue. It’s really a recipe for what makes nations prosperous.

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