Please note: The following article is an excerpt from a report titled “The Slow Demise of American Information Technology” completed by Rex Brooks & Russell Ruggiero that has been granted a Library of Congress Copyright. This 24 page report has been formally requested by the offices of 13 governors, 2 senators, and 26 mayors across America. The latest full-length version of the report may be viewed at ThePolicyTree.com:
In our report published in late 2004 titled “Offshore Outsourcing: Short Term Gain or Long-Term Disaster” we focused on a number of key areas of the American economy and how they would be negatively impacted by offshore outsourcing. Unfortunately the assumptions were correct. Over the past decade America has witnessed the steady loss of jobs as important technical innovation migrated away from these shores.
Should we blame the practices of Bush Administration, the greedy Multinational Corporations, or President Obama? Or is the need to clearly and correctly identify our problems lost when we look to assign blame? Blame in political terms usually means that some intent to influence future votes is in play. This tends to lock our ability to successfully solve our problems into another round of throwing out the current crop of elected officials rather than penetrating the armor of political partisanship to achieve genuine solutions. Meanwhile the latest Economic Stimulus Package also known the American Recovery and Reinvestment Act of 2009 of ARRA may be a too little and too late.
President Obama has done a more than decent job keeping this country up and running, but as he and his administration point out, it is simply insufficient. We know that the Bush Administration and Congress promoted an “Anything Goes” laissez-faire approach to allow big business a measure of creative freedom intended to sustain the unprecedented growth of the economy that seemed destined to outstrip the grandest ambitions while the Dow Jones Industrial Average (DOW) escalated past the 14,000 milestone. Now we know that this unrestrained creativity exemplified by firms like AIG, Bear Sterns, and Lehman Brothers is where the underlying problems first manifested itself. However, this report is not about laying blame with Government, Big Business, Democrats, Republicans, Liberals, and or Conservatives. It is about exposing how we got into this mess and how to possibly correct it. Our task is not to assign blame. No one is blameless in the supercharged political and economic arena. Our task is to try to find a way out of this situation that has a good chance of success.
To that end, we as Americans “ABSOLUTELY MUST” revive and reinvigorate the ability of the economy to generate innovation and leadership regarding Information Technology.
Why We Should Be Mad
The United States has just witnessed the worst stock market performance for any decade in recorded history. Not only has stock market performance been affected, but millions of Americans are out of work. Of those jobs lost, it is agreed by many experts that over 1 million technology jobs evaporated over this time period. Let us look at two key questions on why Americans should be upset on how things have transpired since the start of the New Millennium.
Question One: Is there a correlation between the stock market’s dismal decade performance and the loss of technical innovation over this time period?
Answer: The correlation is unavoidable. Just attempt to reference a set of innovations generated in the United States in the last five years such as the Apple i-phone, which is just one fairly isolated example. There have been numerous “Efforts” from competitors, but has any new ground been broken? In essence, have we only seen the inevitable attempt to commoditize sub-aspects of mobile communications? What else? Have we seen more than social networking Websites, and cell phone coverage maps? Combine this with a whole tremendously wasteful exercise introducing High-Def TV via Government mandate to underwrite a technology not even remotely innovated in the United States. Let’s also understand that a great deal of the consumer electronics development actually done in the United States depends heavily on foreign workers brought to the US on H1-B Visas. Additionally, their cut-rate salaries are largely sent to their families in their home countries whilst these highly educated workers learn the few lessons American expertise in manufacturing management can teach. Then they take these lessons back home with them once their work here has run its course.
Question Two: Has offshore outsourcing and the lack of technical innovation depleted America’s ability to compete in areas like aerospace, automobiles, and information technology?
Answer: Not only have many “Old-Line” companies lost billions of dollars over this time period, but they also outsourced key elements of their business like software development and customer support to places like Canada, India, and Eastern Europe. This is a direct result of policies promulgated by a combination of front-office and back-office management ineptitude, a breed of institutional incompetence which cost many jobs losses across the United States. Companies not only lost their shareholders money, but they have also managed to get rid of domestic workers who are an important part of the American economy. These are the people who own homes, cars, and keep the flame of the American Dream going. One camp will stoutly proclaim that stocks were trading at approximately 40 times earnings and very overvalued entering the decade, and that our current 20 times earnings is more commensurate with reality. Another camp will ask how 20 times earnings is anything but a prescription for further economic adjustments which result in more job losses? This, of course, begs the question of whether our estimating formulae need revising. Regardless of how we interpret the numbers, one conclusion is unavoidable.
While people are surely entitled to their opinions, the fact remains that antiquated tax laws and management ineptitude have resulted in major loss of jobs across many industries in America over the past ten years.
Government and Big Business should be ashamed to offshore American jobs to other countries, while turning their backs on our domestic workforce. Ask yourselves: Is it true that the young Latino in Los Angeles does not have the same intelligence as a foreign worker whose first language is not English? Is it true that the young Africa-American in New Orleans does not possess the talent to work in a valuable technology like Flash? Is it also true that the young White in Dayton cannot master the skills to build network routing equipment? On the contrary, we have been handed a bill of goods telling us that the youth of America cannot compete with foreign workers. Hence, we have had to literally finance our own decline through taxpayer support for the administration of a system to issue H1-B Visas to foreign workers to temporarily relocate to the US and take our jobs.
This betrayal of the American worker is tragically unforgivable. The truth of the matter is many businesses have fired American workers, farmed some of their jobs overseas while importing workers to take other jobs in the US, and paid top executives big fat bonuses above paychecks.
They are pandering to the powerful offshore interests which are exploiting these cheap labor markets at the same time that they take advantage of the utter lack of sustainable environmental policies. We are paying lower prices for technologies that are engineered to be both disposable and obsolete, and their manufacturing processes are polluting and poisoning the very labor pool that is being exploited. That’s double the shame for this first shameful practice.
In essence, this type of behavior is disrespecting consumers worldwide by producing shoddy merchandise built to be replaced instead of being of such high quality that it will stand up to many years of use and be repairable in those years of service. It is insulting that these products are not designed in environmentally conscious ways such as being built to be recycled when the product’s useful life is exhausted. The excuse that technological advances are making yesterday’s technologies obsolete is simply vicious and untrue.
The excuse is vicious because it further damages the workforce used to manufacture shoddy products and untrue because the next generation technology is always in the pipeline. Matching upgrades to genuinely appropriate new technologies would cost no more than rolling out yearly rearrangements of existing technologies to milk those technologies. Cell phones introduced over the last five years are clear evidence of this practice. Trendy technologies are rolled out yearly when they could easily be postponed in favor of designing better products and only introducing new technologies when have matured to the point that they genuinely add value and will last.
One consumer, who resides in Berkeley, California paid full price in 2006 for only three years of service watching a poor quality medium-priced Magnavox 15-inch flat screen from Sears, which could not be repaired when it failed in spring 2009. As it turned out, Phillips bought Magnavox and was not supporting its products with replacement parts. The Sears set was subsequently replaced with a low-priced Radio Shack, non-brand name 22-inch set that offered HD. Unfortunately, the new set suffered from numerous technical problems such as smearing from day one. Adding salt to the wound, it cost over $120 just to get the Magnavox unit diagnosed, which was more than half the purchase price of the new TV!
This type of horrendous product and support is not acceptable.
What is the end result when you have absurdly, and unconscionably cheap labor? All other values get skewed out of any proportion. These two shameful practices stand in addition to mismanaging the educational pipeline of American workers. Business is not communicating to the educational system what its needs are. This in itself is evidence that business has been too involved in reducing its costs by off-shoring rather than cultivating an appropriately trained domestic workforce.
Meanwhile, American workers are always assumed to be more expensive, regardless of the education or experience needed. It may be up to the American worker to show that they are willing to accept more competitive wages and salaries, provided we educate our offshore competition about the unsustainable ways they are being exploited and find ways to empower them to get their governments to provide better, more sustainable environmental regulation policies.
In a nutshell, the American worker needs to become internationally savvy in more ways than simply attempting to stay ahead of the technology curve, which we now understand is simply not possible. However, regardless of this corollary case, we’re still talking about changing an entire economy by focusing on innovation in knowledge management, not merely IT management. We haven’t gotten to that yet. Venting is necessary, but trying to find workable solutions is the key to our future success as a nation.
The Past – The Present – The Future
While turbine or jet powered cars of the 1950’s are not in the cards in the near future, trying to form a cohesive strategy between Government and Big Business to get this county back on the right track is. We must first try to put America first and greedy behavior second. The bottom line is to make America a better place to live and work. Yes, this is idealistic and lofty, but that is also what America was built on. A strong and honest work ethic, combined with forward thinking. People like Lincoln and Kennedy come to mind in the public sector, while people like Carnegie, Mellon, and Morgan come to mind in the private sector. I doubt that anyone of them would have put up with the nonsense that has been recently going on in America if they were still alive.
It is not about being a Democrat, Republican, Conservative, or Liberal. It is about being an American.
The American people must also shoulder the blame for various excesses that include buying homes, cars, and other material things we could not truly afford. Was it the mortgage companies and banks that made millions sign on the dotted line to buy new homes? Did the lending institutions make us go on expensive vacations and splurge on countless luxury items? Not everyone behaved in this manner, but many millions did. Bad behavior should not be rewarded. As a result, millions will lose their homes to foreclosure and ruin their credit scores for years to come. Case in point: Since the peak of the residential real-estate market, which by valid estimates occurred sometime in 2006, consumers’ “Net Worth” had fallen by about 12 trillion dollars. It is also estimated that over twenty-five percent of Americans owe more on their homes than those homes are now worth.
The next shoe to drop is the commercial real-estate market. Overbuilding, unrealistic valuations, and excessive debt are certain to be a recipe for new real-estate debacles. The aforementioned commercial real-estate scenario, combined with residential foreclosures is the economic quicksand from which it will take America many years to emerge.
Forget the hyperbole; we need to make some drastic changes to help put this country back on track. While the American public deserves part of the blame for the mess we are in, the financial institutions are the major culprits. Very lax lending standards in both residential and commercial real-estate, difficult to value mortgage-related securities, and other deceptive practices were the major contributors to the current economic fiasco. America must not follow Japan’s failed efforts in the 1990’s to artificially prop up an economy whose base had weakened irretrievably. We must pass new regulations that will fix and mend our financial institutions.
Additionally, this re-regulation must be aimed at the long-term. Short-term measures like a zero interest rate policy can only last so long, Let’s not take our eye off the ball, for America must issue $2.4 trillion dollars in Treasury securities in 2010 to help pay for our mushrooming debt from Troubled Asset Relief Program or TARP ($700 billion) and ARRA ($787 billion). As difficult as it is to grasp and appreciate, we start the new decade with a 1.4 trillion federal budget deficit. These are gigantic debts, but when viewed as percentages of the GDP it is not quite as daunting. However, we must still face the fact that we and future generations will have pay for this, so no manner of “Spin Doctoring” can write this any other way.
It is far better to admit to mistakes rather than to evade them. While we have tried to identify root causes and suggest some paths to workable solutions, there is a truth to face. The truth is that conjuring up elaborate excuses to hide the true state of affairs only exacerbates our situation. Washington and many businesses are to blame for the mess we are in regarding high unemployment and declining global prowess. Greed and the perception of entitlements, combined with arrogance and stupidity in a toxic brew that has given us a serious case of economic indigestion. “Make Hay While the Sun Shines and Flip That House” was the Mantra practiced by many. Who are the parties that have suffered most? While companies like AIG, Bear Sterns, and Merrill Lynch garnered many of the top headlines, the true victims of this period of excess are the millions of people out of work exhausting their limited unemployment benefits across America. These are the American people who are taking brunt of the “Great Recession”. It must be noted that more than 20 million Americans collected unemployment benefits in 2009, which ended with a 10% overall unemployment rate. 15 million are still unemployed, which is putting many state coffers in dire straits. The next ten years will be both a pivotal and important time for America.
Now it is up to both the public and private sector leaders to get this country back on-track. The clock is ticking.