Silicon Insider: The Bangalore Backlash
July 10, 2003 -- — High-tech's newest innovation: finding a scapegoat for the turnaround.
Creativity has always been one of Silicon Valley's greatest strengths. New technologies, new products, new companies, new types of organizations. For 50 years, the Valley has led the world in new ideas.
But there is one area in which the Valley has remained recondite in its innovations: casting blame. Corporate greed, the Japanese, the Feds … Silicon Valley's betes noir have always been stock villains cast out of the old striped-pants capitalist playbook. For such a mercurial place, both the blame-casting and the bad guys have been shockingly predictable: every four years, as the chip cycle slumps and the Valley recesses, we seek out something familiar on which to download our problems.
But something has changed. The long boom of the '90s put us out of sync on so many things — apparently now even our bad guys. A year ago, at the bottom of the crash, the Valley was refreshingly honest in its self-appraisal. Sure, we tried to blame corporate greed (hence the absurd class-action lawsuit against dot-coms that was settled last week for a billion bucks) and the Gen-Xers. But in the end, most Valleyites just sort of shook their heads, made an ironic smile and said, "Yeah, well, we all went a little crazy, didn't we?"
It was an unexpected self-appraisal that had the added benefit of being the truth.
But now, just as unexpectedly, as Nasdaq starts to climb, the chip book-to-bill ratio is turning positive, and the Valley is beginning to heat up once again, we've instead started wailing about a new source for all of our problems.
Who is it? Of all people, the Indians.
Keeping the Slice for the USA
Apparently, the greatest threat to America's high-tech dominance is not the shortage of early-stage capital, the onerous tax and regulatory environment, the crappy public education system, the lack of major new national technology initiatives, the Federal obstructions to the widespread installation of broadband, vindictive anti-trust investigations, a rococo patent system or the fact that the latest killer consumer product has yet to appear on the scene. No, the biggest threat to the U.S. technology industry is a small army of code writers in Bangalore, India.
Suddenly, global terrorism is taking back seat to what is being billed as a new kind of "economic terrorism," the offshore movement of U.S. high-tech jobs to India (as well as China, Thailand, Indonesia, Poland, Costa Rica and Vietnam). The Forrester Research group predicts that 3.3 million U.S. service industry jobs — including one million IT jobs — will move to other countries over the next 15 years.
The response has been predictable. The usual cranks on the left and right are angrily posting messages calling for economic war against India and solemnly mourning the impending death of the United States. And, of course, politicians are dealing with this scandal du jour in their usual ham-fisted way: Instead of dealing with the root causes of the problem such as over-taxation, over-regulation and endless government intrusion, they are trying to re-jigger the result.
Five states (Connecticut, New Jersey, Maryland, Washington and Missouri) are already looking at legislation to prohibit off-shore outsourcing of state contracts. Meanwhile, U.S. Congressman Don Manzillo, R-Ill., has been holding hearings on the subject on Capitol Hill.
There's already talk of tariffs, barriers to off-shore contracts and hiring quotas. Everything but allowing the natural market forces to work. No, we've got to stop those damn Indians from taking our precious manufacturing and service jobs right now. Why? Because the tech pie will never again get bigger. As Sam Jadallah, general partner at venture capital firm Mohr, Davidow says, "I don't think ['90s-level tech spending] will come back in my lifetime."
It's a zero-sum job game out there folks, and we've got to keep the biggest slices right here in the U.S. of A.
An Inevitable Change — for the Better
Can we reassert some perspective here? Let's begin with Mr. Jadallah, whom I hereby nominate for the stupidest quote emanating from Silicon Valley in 2003. The fact is, give us one good new technology market and tech spending will not only come back in Jadallah's lifetime, but by next March. Another good boom will generate 10 times as many jobs as we're predicted to lose overseas. If Jadallah doesn't understand that, why is he a venture capitalist? What is he telling his poor entrepreneurs at board meetings — give up? The narrow-minded pessimism of his quote goes a long ways to explaining the current crisis of confidence in the venture capital industry.
Jadallah is hardly alone, as the America's Doomed crowd on the Web and the Chicken Littles in the various statehouses suggest. All are making the same, fundamental philosophical mistake: they are looking at the situation as both closed and static-state. But technology, by definition, is both open and dynamic.
Of course low-level customer service and programming jobs are heading off-shore. It was inevitable, as it was for printed circuit board stuffing and component assembly 20 years ago. Would the United States economy have been better off if we'd thrown up tariff barriers two decades ago against offshore PC assembly or contract semiconductor fabrication?
On the contrary, allowing that natural market process to occur drove down costs, which in turn opened the door to the creation of thousands of new U.S. tech companies, and millions of new domestic jobs. The key was that we kept the innovation and we maintained the world's best environment for new company creation.
Something else occurred, too — something little noticed by the economic Cassandras, then or now. It was that we not only got the better part of the business deal in the long run, but also the better half of the talent pool. Even as we've been shipping low-end jobs around the world the last 20 years, we've been gaining the best and brightest from those same countries. Ask yourself: would you rather be writing code for a few bucks a day in Bangalore, or becoming a billionaire in Palo Alto?
Stop the Scapegoating
Silicon Valley is now one of the most multi-ethnic communities on the planet — a world of PhDs from Poland to Pakistan. Cupertino, home of Apple Computer, is now a largely Chinese community. These ambitious people are building most of the hot new start-ups in the Valley these days. They will be providing most of the new jobs in the U.S. economy in the years to come. Instead of scapegoating, we should be embracing them.
And if you think they are going to take their riches and intellectual capital and go home someday, you should spend a day playing the Sims with my sons and their thoroughly Americanized Indian, Pakistani, Russian, Polish, Chinese and Korean buddies. They are as likely to return to the homeland for anything but a family visit as I am to put on the tweeds and go back to Donegal.
Will this transformation be painful? Of course it will; it always is. Many hard-working Americans (including a lot of those new Americans) will lose their jobs. But, history shows that those jobs will be eventually be lost anyway, no matter how many artificial barriers we put up to keep them. The hard fact is that we can only move on to new jobs. Whether those jobs will be better or worse depends upon the decisions we make right now.
If we try to hang on to jobs that are no longer competitive on the world stage, we will lose. But if we can leverage those lost jobs into future gains in new, better jobs and talented immigrants, then we win.
But that will only happen if we get back into the business of innovation, new products, entrepreneurship and new companies. And to do that, we need to stop fretting about lost jobs and set about creating new ones. We need government to stop worrying about international economic warfare and start stripping away all the bureaucratic impediments to domestic corporate health. We need to see some optimism and vision back in the investment industry.
And we need to stop blaming the very people who, ironically, may prove crucial to our future success.
Michael S. Malone, once called “the Boswell of Silicon Valley,” most recently was editor-at-large of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised.