Innovation Shortfall and Hiring

Well, the 1998 numbers were at an unusual high at the time, so the falloff from there can still be termed as a reversion to the mean.

Secondly, many of those jobs were done by people on H1-B visas, who, due to immigration xenophonbes, have left America due to visa shortages, leading to employers moving the jobs to them in India and China.

So morons who don't want H1-B visas 'taking American jobs' (a stunning statement of economic idiocy), uprooted people who at least were paying US taxes and spending as US consumers, so that employers took the jobs to them, in India.

H1-B visas, if kept at the high 1998-2000 level, would have saved consumer spending and US tax receipts. Instead, those same people now live in their homelands.

The xenophobes thought that the job and the candidate could be kept apart. They could not. The job was mobile too.

Also, the innovative sector is the one that is most vulnerable to the expansion of the unproductive public sector.

We know that higher taxes kill jobs. Guess which jobs get killed (particularly since these jobs are heavily dependent on people not born in the US, and hence not sentimentally attached to the US. When the economics become unfavorable, they go home).

In all of the categories to do with semiconductors and electronics, the explanation can be summarized as consolidation and offshoring. (Together with commodification, which plays into both.)

Other aspects, all related to the above and not independent phenomena, are a rising bar and complexity of the subject matters and related need for upfront investment and financing of operations, which puts many things beyond the reach of smaller players. The coincident phenomenon of diminishing returns puts a large risk premium on investments that is not matched by ROI.

In other words, competing with Intel *today* from scratch is an increasingly impossible proposition. AMD could do it back then for a good while, but Intel caught up, and they have nothing to outrun them with, as they are both in the top end of the technology S curve. Intel was focusing a lot of their resources on the (arguably) wrong things (keyword Itanic), while AMD was eating their lunch on the things they could have done instead, producing superior desktop processors. At some point Intel woke up and was able to recover, now offering desktop/mobile processors at least at par with AMD's.

Kartik: In my world, those that moved back to India didn't go because of xenophobia. Most of them had a GC or one in the pipeline. The general tenor was better opportunity in India, mixed with (credible) family reasons. The not so polite translation is in India they could get an advanced or management position and a professional lifestyle (I'm sure you know what I mean), whereas here they would have mostly stayed bottom-rung contributors with the US version of the professional lifestyle.

Jobs are not the criterion. We are all better off because of the increased productivity and offshoring of semiconductors, computers, and telco equipment. The only reason computer programming and design services added so many jobs is that it's often a scam, where the same work is either recreated or resold again and again at high "custom" prices. What should have driven the economy for the past decade is the internet sector. It didn't only because they were too stupid to deploy a micropayments system. One advantage of this downturn is that the ad-driven fantasies have been sullied and people are talking about micropayments again, with the WSJ developing their own.

Ajay,

Jobs are a criterion in the sense that they measure the ability to grow an effort by applying new resources. Consolidation and increasing productivity are an achievement, but a different achievement that providing an opportunity for growth.

That's why we respect entrepreneurs so much: they not only find the places in the economy where new improvements can be made, they can set up organizations that allow more people to positively contribute than otherwise would have been able to.

Kartik: In my world, those that moved back to India didn't go because of xenophobia.

CM,

I am talking about the xenophobia of Americans, who are economically ignorant. They think that keeping out skilled immigrants will keep those jobs in the US, and thus these Americans are even worse off when the jobs themselves leave the US.

If a foreigner comes to the US to work, he still pays taxes in the US, and spends his money in the US. But the xenophobes didn't like this, and thus ensured that the job itself has left the US.

One factor that is apparent from the areas where significant growth is occurring is that more and more work is being done by service firms, rather than in house. The point made about the net position is valid, but there is an efficiency in not committing to permanent R&D infrastructure and organization, but seeking out service providers to provide low cost solutions within their area of expertise and going away when the job is done.

Kartik: I understand what xenophobia you are talking about, I come from Europe and there it's much worse, in most places.

I'm talking about the SF Bay Area, and I do maintain that those *that I know* who left (or considered it but stayed) were not motivated (primarily) by xenophobia.

In these parts there is a good deal of verbally expressed xenophobia and especially contempt for supposedly-incompetent or supposedly-ineffective tech workers stereotyped as Indian and Chinese (regardless of actual origin), but this translates relatively little into practical discrimination or violent crime in a culture where the money of relatively well remunerated techies talks loud and clear, and also those particular communities have extensive and very effective local support networks, which other ethnicities (including the "locals") largely lack.

There was one period after 9-11 though where some Sikhs were afraid to wear their turban in public for fear of being mistaken for "Arabs".

Brian: Subcontracting (commodity) vendors is pretty much antithetical to R&D, or at least the "R" part of it. Outsourcing works in subject matters that are understood, standardized, or where known solutions are applied to known problems that could be formalized if one were to go to the (usually unnecessary) trouble -- quite close to the definition of commodity.

OTOH, this type of outsourcing could potentially free up internal resources to focus on the "R" - but I would yet have to see any place where it is successfully applied at scale or at a sustained rate.

There is the alternative paradigm of large companies purchasing "surviving" successful R&D startups. That is done for "risk control" or because the big company has lost the ability (and need?) to innovate - difficult to even define the difference. Essentially it is the outsourcing of risk for the "fee" of paying the risk premium in the acquisition (unless you get a "steal" of buying a company with a good product that couldn't survive on its own - but then it's more likely than not that the very same people who prevented its success in the market will kill or neuter it internally).

Brian: Afterthought - there have been examples of "R" outsourcing, sometimes in a context of industry subcontracting academia, and not too rarely poaching PhD students for a subsequent job. That's basically the internship/probation paradigm.

There are also smaller shops that provide R&D services, but that tends to be more on the "D" or "applied R" side in practice.

Of course, as it appears to be increasingly the case that industry doesn't want to "make" its own expertise but "buy" it (compare also "we cannot find talent"), R&D outsourcing is probably just a facet of the general outsourcing trend.

But perhaps that's just what you were talking about.

At the end of the 1990's we suffered from automation and innovation burnout. With the opening of China, chasing cheap labor was the new thing, the new way to boost profits.

Today, I think we are suffering from cheap labor burnout. Long supply lines, different cultures and decreasing wages of home customers and instability.

The next decade will probably bring s return to automation and innovation as a way to boost productivity and profits. If you can automate a local factory without the costs and headaches of a long supply line, you will be a step ahead of your competition.

Cm,

Oh, I agree about America being a lot less xenophobic than Britain, Germany, etc.

The violence against Sikhs after 9/11 was actually surprisingly low (about 5-6 instances or murder), considering everything. It could easily have been thousands of hate crimes, particularly since it is asking a lot for the average white person to know what the real difference is between the appearance of a Pashtun Muslim and a Sikh. The average Indian would not be able to really tell the difference between a German and a Russian, on appearance, or even accent, alone.

In India itself, in 1984, after Indira Gandhi was assassinated by her Sikh bodyguards, Hindus massacred several hundred innocent Sikhs. This is IN India itself.

So the US is still the most tolerant place.

BUT, the hostility towards H1-B visas in the US is pretty dumb, I must say. These are LEGAL, SKILLED immigrants. The anger should be exclusively towards ILLEGAL, UNSKILLED immigrants (much is, but too many Americans get surprisingly confused about the difference between legal and illegal immigration).

"I am talking about the xenophobia of Americans, who are economically ignorant. They think that keeping out skilled immigrants will keep those jobs in the US, and thus these Americans are even worse off when the jobs themselves leave the US."

I see the problem stemming from weak schools, weak tax base to support schools, economic elites buying their way out of public education, and soaring college costs.

The result is that middle class American families sacrifice to get their kids an engineering education and there are no jobs, no money for retraining, and piles of debt.

Meanwhile the corporations who suck up trained labor would rather hire H1-B's, many of whom were educated at (foreign) state expense. These corporations also campaign against tax increases for education.

The system is fake. I think companies who don't want to be a part of the American system, including paying taxes to support educational development of youth and retraining for adults, should leave.

Let them have: the Indian or Chinese or Vietnamese legal system, workforce, taxes, and the like. Goodbye and good riddance.

Kartik, Lark: One aspect that is probably little known is that a good number of Indian/Far Eastern visa workers have a degree from a US institution - undergraduate/Master from their home country, and Master/PhD from the US. So they are not necessarily entirely foreign educated, and also if they decide to go back (after a stint in the US), they have a quite prestigious record of US schooling plus US "business experience" - plus business contacts if applicable, which qualifies them for an advanced position back home, in many cases.

I heard from a number of people that there was a good "window of opportunity" a few (about 5?) years back for people to move back home, and in fact employers with offshore offices would encourage/solicit this and sweeten the deal quite a bit, to get scarce "management talent" offshore who could those armies of graduates we keep hearing about fresh out of school but with no industrial experience, and experience in generally young industries being thin to begin with.

Only few (about 2-3) years later things changed - moving back was no longer actively encouraged, and I started hearing reports of "all good spots being taken" (what's the point of moving back as a bottom-rung contributor), and the Bangalore area bursting at the seams with air quality problems, intractable traffic, and RE price run-ups. Then there were those who expected to live a frugal US lifestyle, save a chunk of money, and move back wealthy, who got stiffed by currency rate moves (relative USD declines) on top of pricing-in of money moving back.