Small Business

Keeping Research and Leadership at Home


Nine leaders offer their opinions on what the U.S. should do to hold onto its braintrust and stay on the cutting edge of innovation

Globalization is reality. U.S. businesses see tremendous opportunities abroad and will increasingly locate their operations closer to growth markets. They will also outsource engineering jobs to reduce costs and move their research functions closer to their offshore development sites. It is not clear what the long-term impact of this trend will be, but what is clear is that at stake is the U.S. standard of living and world economic leadership.

In a previous column, I wrote about globalization research that my students and I had completed at Duke University (see BusinessWeek.com, 11/7/06, "The Real Problem with Outsourcing").

Our research showed corporations saw great advantages in offshoring. They saved money on salaries and overhead, were able to create 24/7 development cycles, and gained access to new markets and customers. They weren't going abroad because of a shortage of engineers in the U.S. or deficiencies in the U.S. workforce, they were simply doing what gave them an economic and competitive advantage.

Postcards for the Edge

The risk with this is that the next jobs likely to be outsourced are in research and design, and the U.S. will lose its ability to "invent" the next big technologies. We may already have lost our edge in telecom—University of Texas professor Ted Rappaport's research shows that all but five of the 57 major telecom research initiatives over the past few years were located outside the U.S. He believes that as a result, U.S. students have lost interest in entering graduate school to pursue research in the telecom field.

Cisco's (CSCO) recent announcement that it would move 20% of its senior managers from Silicon Valley to Bangalore by 2010 shows the trend is accelerating. So, what can the U.S. do to keep its edge? We asked nine business experts what they believe the U.S. should do to keep research at home so that the next technology discovery is made here, rather than in the countries that are building a core competence because of our outsourcing.

Intel (INTC) Chairman Craig Barrett believes we have already lost the race in primary and secondary education. We are losing our position as a top educator of science, technology, engineering, and math students. We are losing our lead in university research, and we have "our head in the sand on government policy."

Education for All

Barrett, Sun (SUNW) Chairman and Co-founder Scott McNealy, IBM (IBM) Executive Vice-President of Innovation and Technology Nick Donofrio, Microsoft (MSFT), Senior Vice-President of Research Rick Rashid, and former MIT President and President-elect of the National Academy of Engineering Charles Vest stress the need to improve K-12 education, encourage students to study more math and engineering, bring in the best and brightest talent from around the world, and up the ante in basic research. Each person has a unique perspective, but all agree on what must be done.

McNealy also says we should "open-source education"—let everyone, everywhere, learn as much as they want, as fast as they want, about any subject they'd like.

Yet CNN anchor Lou Dobbs predicts utter disaster for our middle class and says that Corporate America has chosen to put our middle-class workers into direct competition with the cheapest labor in the world. He says CEOs have to be talking about how to drive innovation in the U.S. and find a conscience, or Washington will have to adjust public policy.

Motivated Workforce

Ralph Wyndrum, president of the Institute of Electrical and Electronics Engineers (IEEE-USA), looks at the problem from the perspective of U.S. engineers and worries about the manufacturing sector being outsourced and taking engineering design and R&D with it. He says engineers must hone their competitive edge through continuing education to keep pace with changing technology by focusing on productivity, innovation, and entrepreneurship.

Rockefeller Foundation President Judith Rodin believes a highly motivated, productive workforce confident in, and committed to, employer success is crucial to U.S. competitiveness. She believes that the solution starts with the workers who make the U.S. what it is. She prescribes a comprehensive look at Social Security, private retirement savings, and health care.

Sycamore Networks (SCMR) Co-Founder and Chairman Gururaj "Desh" Deshpande believes that the $200 billion the U.S. spends yearly in research isn't spent effectively. He says innovations happen in a vacuum, so he donated $20 million to MIT to change the way research is commercialized by bringing academics and entrepreneurs together.

Can the U.S. maintain its edge? If so, how? Edited excerpts of each of the nine leaders' answers follow.

Scott McNealy, Sun Chairman and Co-founder

Here's a good first step: Lift the cap on H1B visas. The current policy in the U.S. is flatline thinking. Talk about a barrier to entry—literally. The 60,000 visas the government offers each year is an arbitrary number and is long-depleted before the government's fiscal year even begins. Imagine if Vinod Khosla and Sergei Brin had not been able to stay in this country. No Sun, no Google. Fewer jobs in Silicon Valley, and a heck of a lot less taxpayer dollars for Uncle Sam.

Here's another idea: Open-source education. People always ask me how we can get our kids interested in math and science; how we're going to develop the engineers of tomorrow. There's a surprisingly simple answer: share. Why not open-source education and let anyone, anywhere learn as much as they want, as fast as they want, about any subject they'd like.

They'd find out what they're good at (maybe it's math, maybe it's science, maybe it's economics), and we could get them into the workforce sooner. They could work at solving some of the biggest problems, like finding the cure for bird flu. This is beyond No Child Left Behind: It's no child, parent or teacher held back.

Lou Dobbs, CNN anchor

Corporate America has chosen to put our middle-class workers into direct competition with the cheapest labor in the world. If the business practice of outsourcing jobs to cheap foreign labor continues unabated there can be only one outcome, and that is utter disaster for our middle class.

Competitiveness, productivity, and efficiency have become nothing more than corporate code words for the cheapest possible labor. CEOs should be talking about how to drive innovation in the United States, to become increasingly creative in the development of new products and services that would be attractive to consumers in foreign markets, and in so doing, begin to reverse 30 consecutive years of trade deficits.

This country's foolhardy and faith-based free-trade policies have led to $5 trillion of trade debt, which is now growing faster than our national debt. This year's [2006] current account deficit will approach 7% of our GDP, which is clearly unsustainable and which has sent the dollar reeling against other major currencies.

The Bush Administration's economic team has maintained now for years that outsourcing of good-paying American jobs is simply part of international trade. More accurately, outsourcing is as mindless and ineffective as the trade policies we've followed over the last 10 years. Fortunately, we are beginning to see signs that the political and business establishment is awakening to the dangers they've created.

Deloitte Consulting now says corporations don't fully realize the risks of political instability and supply-chain disasters, and acknowledges that the outsourcing model has nothing to do with revenue growth and everything to do with cost reduction. Another important new study by the Conference Board questions the cost benefits, saying the profit potential from overseas outsourcing is not as great as first promised when adjusting wages for productivity.

Either Corporate America will find a conscience and adjust its business practices or Washington will have to adjust public policy on outsourcing and injurious free-trade policies, or we will all face a difficult and painful market adjustment.

Craig Barrett, Intel chairman

The U.S. needs to decide to compete. Right now we are riding on past investments and not investing for the future. We have to decide that investing in innovation is key to our future and then do the following to achieve competitiveness.

On the research question, there is clearly no single silver bullet in this space—but it is certainly hard to argue against making our education system better when we rank in the bottom 20% or so of math and science comprehension among the top 20 to 30 industrialized countries in the world. If we continue to do such a poor job of educating young people about math and science, then is it any wonder that they don't want to pursue careers in these topics later in their life?

Read the Rising Above the Gathering Storm Report (at www.nap.edu/catalog/11463.html#toc) for what the U.S. needs to do to keep research in the U.S. It talks about increasing the spend on basic research & development (R&D) and making the U.S. a better place to do basic research (for example, make the R&D tax credit permanent, provide tax incentives for investments in innovation as every other country does, and do something about the U.S. corporate tax rate, which is currently the highest in the world and discourages investment).

If the government continues to fund basic research in the engineering and physical sciences at the same level as 30 years ago while other governments are ramping up their investments in basic R&D, then by definition the next great ideas will come from outside the U.S.

Currently we have lost the race in K-12 education, we are losing our position as a top educator of science, technology, engineering and mathematics students, we are losing our lead in university research, and we have our head in the sand on government policy.

Ultimately, we need the best education system in the world, the best basic R&D machine in the world, and then sensible government policies to let smart people with smart ideas get together.

Gururaj "Desh" Deshpande, Sycamore Networks co-founder and chairman

The U.S. invests about $200 billion in research, more than any other country. The question is whether this money is being spent effectively—what is the best way of conducting research efficiently and making an impact on the innovation economy?

My belief is that the current system is broken. Innovations get done in a vacuum and are inventoried. Some may be useful a year later, some in 20 years and some in 100 years. Innovation cannot be mandated, but is there a better way to sequence innovation so that it has greater impact?

My wife, Jaishree, and I invested $20 million in an experiment at MIT to find out, establishing the Deshpande Center for Technological Innovation in 2002. Based on all of our successes to date, I believe we have found a way to connect innovation with relevance.

Let me explain the issue: Every professor or innovator with a great idea wants to see its impact. However, if you meet the same person two months down the road, he will probably have 10 more ideas. And, of course, he can only pursue one of them. The key question is how does one decide which idea to pursue? In the current system, a professor typically chooses a path that is attractive to his peers either in the university, or the Defense Dept., or the National Institutes of Health, etc. However, these people are not connected to the market, and therefore in the process, the original intent of having a big impact normally gets lost.

My center at MIT connects the professors and innovators with the business community so that they have the guidance necessary to create inventions that solve real needs. We provide funding for proof of concepts and education in best practices. We serve as a liaison between MIT and business, and showcase MIT technologies via symposia and workshops. We catalyze university/business collaboration.

We believe that all of this greatly increases the chances of a particular innovation having impact. Such sophisticated systems can only be developed in the U.S. because it is the only country with both flexible thinking and free markets. If we do this correctly, we can multiply the economic impact five-fold, and get $1 trillion of research for our $200 billion investment.

Judith Rodin, Rockefeller Foundation president

A highly motivated, productive workforce confident in, and committed to, employer success, is crucial to American competitiveness and to increasing returns on critical business investments in human capital. We at the Rockefeller Foundation believe that reestablishing the economic security of U.S. workers is one key to achieving this objective. Moreover, our society has a long way to go in strategically redressing the balance of responsibilities for maintaining economic security between government, industry, and workers themselves.

Evidence that these responsibilities are out of balance today is all around us, but sometimes we overlook it. Here are a few basic, but deeply troubling facts:

Fully 59% of all U.S. workers lack any employer-based retirement savings plan.

For those with a 401(k) plan, the median balance would translate into a monthly income of less than $100. Even for those nearing retirement, the average balance would yield only about $385 per month. And for some groups, this sad story understates the issue: The net worth of the average African American is less than one-tenth that of the average white.

More than one in six working Americans lack any health insurance. For low-wage workers, the figure is one in three. For Latinos, it's two in five.

And even if our leaders often gloss over these realities, our workers know them: A survey we sponsored on Election Day found that half of all voters lack confidence that their own retirement plans, along with Social Security, will provide an adequate standard of living when they retire. In part as a consequence, 74% of voters described themselves as "worried" about their overall economic security.

For too long, policymakers have considered the problems of Social Security, private retirement savings, and health-care costs as separate issues, to be considered only in their silos. If we are to ensure the competitiveness of the U.S. workforce in our own time, and our children's, we need to begin considering these questions of economic security comprehensively, and in the whole.

Rick Rashid, Microsoft senior vice-president of research

The U.S. set a standard for technical innovation over the last 50 years by making critical investments in basic research and higher education. The combination of peer-reviewed research supported by the National Science Foundation, innovative research funding from the Defense Advanced Research Projects Agency, a willingness to attract the top talent from around the world to our universities, and a flexible venture-capital system, created the technical revolution that has powered our economy.

Countries around the world aspire to provide a better standard of living for their people. Many believe technology is one avenue to a better future. These countries have realized that if they are to be successful, they need to make the same kinds of investments in education and research that the U.S. did beginning in the 1950s and 1960s. As a result, you see countries in Asia and Europe doing many of the same things the U.S. historically did to bolster its university systems and create innovative research cultures. Those investments are beginning to pay off in new scientific discoveries and technological innovation.

The spreading of the technology revolution around the world is ultimately a good thing for everyone. Innovation around the world will lead to healthy economies with new business and more jobs.

If the U.S. wants to continue to play a significant part in the world's technology economy, it has to continue to lead in the investments it makes in the future. That means investments in education and a greater emphasis on producing a diverse community of students with strong math, science, and engineering skills. That means working hard to attract the best and brightest talent from around the world to U.S. universities and companies. And that means upping the ante in basic research, recognizing that the country is competing in an ever-more-vibrant global economy.

Nick Donofrio, IBM executive vice-president of innovation & technology

As the Congress reconvenes in January, it has important work to do to enact legislation vital to U.S. competitiveness. Specifically, the Congress needs to improve basic research funding for the National Science Foundation, the Energy Dept.'s Office of Science, and the National Institute of Standards & Technology. The good news is that this funding is supported by both parties and would renew stagnant long-term discovery research at universities and national laboratories. It would underpin future U.S. innovation as it has done for generations. We just need to get it done.

Building a talent pool of educated knowledge-based workers that have the right skills for the 21st century workforce remains an imperative for the U.S. But developing the right set of skills will take time—so action is needed now.

Our leaders must pass legislation that will:

Train more students in science, technology, engineering, and mathematics.

Encourage cross-disciplinary study and research for a services-oriented economy.

Enable companies to harness intellectual capital more effectively.

Attract and retain the best talent worldwide.

Make the research and development tax credit permanent.

Why is this agenda so important? Because we live in a connected global economy that's driving change in the ways that companies operate, create value, and generate jobs. Political leaders, business people, and individuals all around the world are asking: What will cause work to move to me? On what basis will I differentiate and compete? For an advanced economy like that of the U.S., the answer lies in our ability to continually create new value —to innovate.

Charles Vest, former president of MIT, president-elect of the National Academy of Engineering

The U.S. must maintain its standard of living while competing in the 21st century global knowledge-based economy. This requires strategies and investment for the long haul.

The issue isn't near-term fluctuations in demand or wages for engineers in current industries. Rather, the issue is building the educated leadership, work


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