The Call of the Valley

Silicon Valley is critical to America's innovation-led economy. Tech leaders meeting there warned that we are losing our edge and exhorted the government to do something about it. This is interesting and ironic coming from free-marketeers - all the more reason we should listen to what they have to say. An article in Business Week reports on the Nov. 16 summit in San Jose, Calif., hosted by the bipartisan political-action network TechNet and moderated by public-television personality Charlie Rose. Here are a few excerpts and my take on them:

The need for broadband. Venture capitalist John Doerr chides the government for failing to agree on how to promote much faster broadband to the home. Jerry Yang, co-founder and chairman of Yahoo! (YHOO), points out that the U.S. remains far behind some Asian countries in broadband. Reed Hastings, CEO of the DVD-rental service Netflix (NFLX) fears the next phase of web services won't arrive here until our broadband networks are upgraded.

These are all valid points. But who is going to pay for implementing infrastructure in US? We've been deregulating our telecommunications industry since the Ma Bell divestiture in 1984. At that time we had the most advanced telecommunications network in the world. Now we don't. What happened? I thought free markets were supposed to spur innovation. Why is it that we have the most deregulated telecommunications markets in the world, yet we are now BEHIND the leaders in implementing the latest technology advances? We deregulated because it was supposed to keep us ahead - what went wrong? I worked for tech consulting firm Arthur D. Little at the time of the AT&T breakup. I remember one expert predicting that the U.S. would eventually lose its technological lead in communications as a result of deregulation. It appears he was right.

Not enough of the right talent. John Chambers of Cisco and others are concerned that "we", meaning the government, have cut back our R&D spending and that we are not doing enough basic research. But what about the commercial sector? They've been cutting back even more - they won't make long term investments in basic R&D but they expect the government to do it.

They also rail against immigration limits that they believe are beginning to drain the pool of talent in the U.S. America needs to be a magnet for the best and brightest minds from all the world to not only come for education but to stay and contribute to our economy. This is a fair enough point. The public sector has big role in making this happen. But what about Silicon Valley companies - what are they doing?

The unpopularity of science and math in America. John Chambers of Cisco pointed out that if top talent cant' stay here then companies will have to go overseas to hire them (and they already are). "Rose responded more passionately than he did with just about any other question he asked: "You guys are leaders," he nearly bellowed. "Are you doing enough?"

Go for it Charlie. Apparently the leaders offered little more than mumblings and generalisms about what the government can do to increase the pool of engineering and technical talent in the U.S. But they blamed the shortage on the mindset of American society at large that apparently discourages people from going into scientific and math-based careers. Gee, I guess these companies are doing all they can to make people want to go to work in the industry and for their organizations. The fact that they commit to no one or nothing for more a quarter at a time, I guess has nothing to do with why some people may not be attracted to working in their industry.

How to respond to China. According to technology guru Esther Dyson, "The country (US) has grown lazy and complacent...We've created a country where we've outsourced the intellect to other countries." Instead of trying to figure out how to beat the Chinese, she said, we need to try to "beat ourselves and help the Chinese" succeed, so that the U.S. has that huge market to sell to, she said."

The differences between how we are responding to China today and how we reacted to Japan in the 1980's are stark. Japan was viewed as a competitive threat. China doesn't appear to be. American companies have knocked each other over to get a foot-hold in China to both source product and to sell it. We did neither with Japan - although we couldn't because it was so closed to outsiders. China on the other hand is relatively wide open. Okay, that's one opinion.

Rose asked an excellent question about whether the concern about China's rise was as mistaken as similar concerns about Japan 20 years ago. "Japan was very different," responded Doerr, who noted that Japan's economy was much more closed. Moreover, the U.S. in fact did respond, with initiatives such as the Sematech chip-manufacturing consortium that strengthened the domestic semiconductor industry." Nothing of the sort seems to be happening now.

The innovation solution. In the end, the executives all seemed to agree that the only solution is to continue to innovate. Google was on everyone's lips as an example of the kind of pioneering attitude more companies need to adopt for the U.S. to stay in the lead.

These kinds of statements from executives anger me because they illustrate how business executives wash their hands of all responsibility and obligation to any country or community. "Can't do anything unless we can make the case to shareholders". True enough, but it still burns me up. What made this country an economic power was the freedom and support to innovate. Free markets don't seem very good at promoting long-term investment. Governments and educational institutions are the key players. And with this current crowd in Washington, I'm worried.