Archive for the ‘Public Policy’ Category
Have you heard enough about job creation yet? In this election year, it seems that politicians can’t stop talking about it. In fact, the Senate is now debating proposed legislation called the JOBS Act (although it has more to do with cutting regulations on going public than it does with creating jobs.)
So it doesn’t surprise me that a tech industry trade association is touting how many jobs technology creates. What does surprise me is that it has chosen to highlight cloud computing as the great jobs engine.
Last week, the TechAmerica Foundation held an event in Washington, D.C., to release and discuss a report on just that subject. The trade group, which represents a broad swath of the tech industry, didn’t give a reason for the report or its timing, but such events are routine in D.C. as a way to “educate” federal policy makers and members of Congress. TechAmerica wants to keep up the tech industry’s reputation as a job creator.
The report, written by consulting company Sand Hill Group and sponsored by software company SAP, says that cloud computing companies in the United States are expanding their employment at five times the rate of the tech sector overall. Other numbers from the study:
• Cloud companies could generate as many as 472,000 jobs in the next five years.
• Venture capital investments could create another 213,000 jobs through the creation of cloud-related startups.
• The adoption of cloud could save U.S. corporations hundreds of billions of dollars, which they could reinvest to create new jobs.
After reading the report, I have lots of questions about how Sand Hill comes up with its numbers. For example, the report does not even define what constitutes a “cloud company,” nor does it explain how or why it focuses on 11 companies ranging from Google to Concur (a $400-million company that does online travel and expense management). But the biggest flaw in the study is its contention that most of these jobs will be in the United States. They may be today, but as the world becomes more and more connected, cloud computing is more likely to spur new business and job growth around the world than in America. After all, the basic advantage of cloud computing – the fact that you don’t have to provide your own computing but can buy it from others on an as-needed basis – means that you don’t really care where that computing comes from. It doesn’t have to come from the United States.
And those VC-backed startups? There’s no guarantee that they will be in the United States rather than China, India or other regions of the world. In fact, there is evidence that startups grow faster and become more profitable when they are based outside of the United States, writes Glenn Solomon, a partner at GGV Capital, in a recent blog post. “Lately, as several foreign economies have been on a rapid growth curve, a crop of non-U.S. startups has been particularly good at producing both [growth and profitability]. Perhaps U.S. entrepreneurs seeking high growth and high profits would do well to look outside the U.S. — expanding their businesses into high-growth markets.”
The report also fails to factor in how the cloud eliminates jobs. That significant cost reduction that cloud computing brings to corporate IT? Part of it comes from the fact that the company will have less IT in-house and thus will be cutting IT staff, perhaps significantly. Another part comes from a dramatic reduction in the number of servers, PCs, storage systems and other equipment that companies have to buy. That could decimate the revenue of traditional hardware companies and lead to huge layoffs, even bankruptcies. And don’t think that the big cloud providers will make up for those sales by buying gazillions of servers for their data farms. Many of the cloud companies, including Google, are designing and building their own hardware. Traditional software companies could also suffer. In fact, the study acknowledges that the cloud’s “pay-as-you-go” subscription model has already started cannibalizing licensed software revenue.
Finally, cloud computing continues the world-flattening started by the Internet, enabling work to be done anywhere in the world. It will likely increase the outsourcing of all kinds of jobs, from low-skilled data entry to high-end electronics design.
This all seems so obvious, it left me scratching my head at the end of the roundtable. Perhaps the trade group believes that Congress won’t understand the full implications of cloud – which is probably true. It’s nothing new, but I find it sad and disappointing when trade associations that purport to be educating government are in fact obscuring the true picture. Even so, if the tech industry’s goal is to promote how it creates jobs, surely it can find a better angle than this.
The Internet enables my career, and to an increasing extent, my life. I spend hours online every day communicating with sources, editors, colleagues and friends not only by e-mail but also via social networks like Facebook and Twitter. I spend even more time using Google to conduct research for various stories. (Remember when we reporters actually had to use the telephone and go to the library?) I do a substantial amount of my shopping online. I do virtually all of my banking online.
But what if someone suddenly pulled the plug on the Internet? My work and much of my life would come to a halt. I’ve been thinking about that ever since Wikipedia and other sites went dark a couple of weeks ago to protest the Stop Online Piracy Act (SOPA). An effort to fight online violations of copyright and intellectual property, SOPA would have expanded the power of U.S. law enforcement over Internet service providers (ISPs). It would’ve allowed the government to bar ISPs and search engines from linking to or conducting business with websites suspected of aiding and abetting violators, and could require them to block access to such sites. (A good explanation of SOPA can be found here.)
I agree with the opponents of SOPA, who said that the bill threatened free speech and innovation. I’m glad the bill was defeated. But it wasn’t defeated because opponents won the argument. It wasn’t even defeated by lobbying muscle. (Google last year spent $9.7 million on lobbying, an increase of 88 percent over 2010.) Rather, it was defeated by extortion.
Google purportedly considered shutting down its search engine for a day, but the company wisely refrained. It settled for covering its logo in black to protest the proposed legislation. Even without the participation of Google, the Internet strike peeled back the curtain to show how dependent we’ve all become on the Internet in our daily lives. As Larry Magid put it in The San Jose Mercury News, “Tech companies flexed their muscles Jan. 18 and we found out that they’re a lot more buff than many had thought.” Virtually all of the key players on the Internet – including Microsoft, Yahoo, Facebook and Twitter – opposed SOPA. What if they had all shut down? For that matter, what if the major wireless providers also joined in? Just try going through a day without using wireless technology and the Internet. How would you find your way to that off-site meeting? Still got a paper map in your car? But what about traffic jams? Turn on that AM radio. Need to call because you’re running late? Dust off your phone books, if you still have them. And good luck finding a pay phone.
I know what it’s like to be at the mercy of a service provider. My neighborhood is on a bad part of the electricity grid. We have old lines and large trees, so when the wind blows we sometimes lose power. It’s infuriating that my service literally depends on which way the wind blows. But I’ve found that I can get by without air conditioning, refrigeration or heat (we have a fireplace). The real worry for me was my lost connection to e-mail and Internet. So now I use 3G. When the power goes out I can still get e-mail on my iPhone and access the web on my iPad
Now my informational lifeline feels threatened. My access to electricity may depend on the vagaries of weather, but my utility has never threatened to cut my power because they don’t like proposed legislation. My access to the Internet depends on a few powerful technology companies. And they have made that threat. Whether they carry it out apparently depends on the vagaries of the political winds.
Republicans and Corporate America frequently argue that reducing corporate taxes will lead to investment in the United States and the creation of more U.S. jobs. They say that if corporations could retain more of their earnings, they would spend it in ways that benefit the U.S. economy. First, that ignores the fact that American companies are sitting on mountains of cash. (The Federal Reserve reported that non-financial companies held more than $2 trillion in cash at the end of June, the highest level of cash as a percent of corporate assets since 1963, according to the Wall Street Journal.)
Secondly, it plays into the fallacy that today’s corporate entities are loyal to any nation-state. Although companies love to drape themselves in the U.S. flag whenever they lobby the government, there is no Corporate America. There are just huge multinational corporations with operations and sales all over the world, whose only goal is to make money. They will invest wherever they get the best deal, period. And that’s usually not in the United States.
So, when Congress gives them these special deals, we need to pay more attention to what happens afterward. A recent study by a congressional subcommittee does this. The only reason this wonky report, covering an arcane tax provision from 2004, caught my eye was because the technology industry had lobbied hard for it back in 2004, when I was covering public policy for Electronic Business magazine. Following my inner wonk, I downloaded and read “Repatriating Offshore Funds: 2004 Tax Windfall for Select Multinationals,” by the U.S. Senate’s Permanent Subcommittee on Investigations. (You can download the report from this page on Senator Carl Levin’s website.)
By passing the American Jobs Act of 2004, Congress dropped the top corporate tax rate from 35 to 32 percent, which was largely symbolic because U.S. companies find ways to manipulate tax laws to significantly reduce their taxes. In fact, a 2008 report by the Government Accountability Office found that 55 percent of U.S. companies paid no federal income taxes during a least one year out of a seven-year period studied.
More significantly, the 2004 legislation created a tax holiday, cutting for one year the tax rate on foreign earnings brought back to the United States, from 35 percent to just 5.25 percent. U.S. companies are taxed twice – at least theoretically – on profits earned abroad: once by the country in which they are earned and then again by America when those earnings are brought back to the States. Companies had argued that this double-taxation kept them from bringing such revenues back home and investing in the United States.
In early October, the Senate subcommittee published its report on what happened. Rather than creating U.S. jobs or increasing R&D spending, “the 2004 repatriation tax provision was followed by an increase in dollars spent on stock repurchases and executive compensation,” says the report. This, despite the fact that the law specifically prohibited the use of those funds for either of those expenditures. The tax break “provided a windfall for multinationals in a few industries without benefiting the U.S. economy as a whole.”
Of course, there’s no way to prove that the exact funds that these corporations repatriated were used to buy back stock or give CEOs huge raises. “Because money is fungible and corporations were not required to track expenditures of repatriated funds, it was impossible to determine if the surveyed corporations used their repatriated funds to increase planned expenditures for worker training and hiring in the United States or for R&D, or instead used the repatriated funds for expenses that had already been planned and would have been made in any event, and then used freed up funds to pay for prohibited purposes such as increased stock repurchases or executive compensation,” the report explains.
In my coverage back in 2004, I noted that the law required companies to draw up a “domestic reinvestment plan,” approved by the senior management and the board of directors, for how to spend the money. That plan could include worker hiring and training, infrastructure improvements, R&D, capital investments or “the financial stabilization of the corporation for purposes of job retention or creation.” I put that in because it sure sounded like a loophole. Indeed, I quoted a tax expert saying, “anyone in their right mind is going to make that plan as broad as possible” to cover all potential uses for the money.
The report shows that the repatriated profits most definitely did not go to investing in the United States. A total of 843 corporations repatriated $312 billion as a result of the tax break. The top 15 companies in terms of repatriated funds, which accounted for 52 percent of the total amount repatriated, included IBM, HP, Intel, Motorola, Microsoft and Oracle. Of those 15 companies, 66 percent recorded job losses from 2004 to 2007. Eighty percent increased their stock repurchases, by an average of 16 percent from 2004 to ‘05 and by an average of 38 percent from ‘05 to ‘06. Executive compensation at the 15 firms, which had increased 14 percent the year before the tax break, increased 27 percent in 2004-05 and another 30 percent in 2005-06.
Recently, the Republicans and big corporations have started another campaign to get taxes reduced or dropped on foreign earnings, using the same arguments as in 2004. I can only pray that our government and the American people look at the facts and the corporate track record this time around.
Every now and then, I hear a tech executive say something so astonishingly oblivious to what’s going on in the rest of the world – the world of us average, common people – that at first I think he’s kidding. Then my jaw drops as I realize that he is completely serious. He’s certainly not stupid. In fact, most of these people are very smart. But the tech cognoscenti can get so wrapped up in their insular world of cool inventions that they don’t see obvious problems and dangerous pitfalls.
Case in point: At Forrester Research’s Content and Collaboration Forum, held last week in Washington, D.C., a Microsoft executive described how the company’s employees use their in-house podcasting platform, called Academy Mobile. The platform is like a “private YouTube network,” where employees can post video clips to share their knowledge, said Christian Finn, director of SharePoint at Microsoft. To demonstrate, he showed a webcast created by a Microsoft salesman to share tips on demonstrating and selling a particular product. There is the intrepid salesman, greeting us from behind the wheel as he drives at a speed of probably 65 mph down a busy interstate highway somewhere in North Carolina. Speaking to a webcam mounted on his car’s dashboard, he introduces the other sales reps in his car – taking his right hand off the wheel to move the webcam and show his passengers – and tells us how the three of them are going to share some of their most effective techniques.
The clip isn’t long, probably about 30 seconds. But it’s long enough to show that the driver is paying much more attention to the camera than to his driving. Already alarmed at what I saw, I was horrified when I heard Finn joke about the fact that they were webcasting while driving. He warned the audience to watch out for these guys. “If you’re driving down in North Carolina,” he chuckled, “be careful!”
Apparently neither Finn, Microsoft’s marketing team nor the traveling salesmen saw anything wrong with a) a driver conducting a webcast from a moving vehicle or b) Finn using this as an example in a public presentation of the technology. Multi-tasking while driving is so common, acceptable and probably even expected in the technology world that they either forgot about or decided to ignore the mounting evidence that distracted driving is killing people. In 2009, 5,500 people died and 450,000 were injured in America because of distracted driving, according to the U.S. Department of Transportation. That represents 16 percent of the total deaths on U.S. roadways. And that’s considered a conservative estimate because many police reports don’t document whether driver distraction played a role in the crash.
They should know better. Microsoft’s own home state of Washington is one of eight states that prohibit drivers from using handheld mobile phones, according to the Governors Highway Safety Association. (North Carolina is not among the eight.) Even if these laws don’t ban webcasting while driving (yet), how can these guys be so tone deaf? Just last month, the Department of Transportation held the second annual National Distracted Driving Summit in D.C. Ironically, DOT Secretary Ray LaHood talked about the joint efforts of the government and the Network of Employers for Traffic Safety to get U.S. corporations to adopt policies to discourage distracted driving among their employees. Apparently, Microsoft didn’t get the memo.
Just because drivers can use these products in their cars doesn’t mean they should. Rather than encouraging us to take our hands off the wheel, tech executives had better put their own ears to the ground. They just might hear the rumblings of an oncoming public relations crash.
I wonder how much difference the new healthcare legislation is going to make in a system in which doctors are indifferent to costs and in fact often favor expensive and elaborate treatments over individualized patient care and common sense.
When I see a doctor, I pay attention to prices. My high-deductible insurance plan means I pay for the first $2,600 of my health costs every year. Often, the healthcare system doesn’t like it when I insist on knowing what things cost. This story is an extreme but telling example.
I went to a specialist for treatment of my herniated discs. The specialist was highly rated by a local magazine, so I expected top-notch care. What I found was a practice that seems designed to minimize contact with the patient while maximizing the amount of insurance money it can extract.
When I made the appointment and asked how much it would cost, the response was: “insurance will cover it.” When I explained that I would be paying for it and asked again for the cost, they claimed they couldn’t give me a price because it would be based on the doctor’s diagnosis after our consultation.
My first appointment was hardly a consultation. In fact, the doctor and his staff barely talked to me. I had been asked to fill out a 10-page questionnaire in preparation for our meeting. When I arrived, I reminded them of my concern over cost, and the receptionist assured me that I’d be presented with the price after the doctor had determined my treatment. I waited 45 minutes to see the doctor, who finally breezed in and spent all of 10 minutes with me. He then explained the procedure he recommended, and something about the way he said it made me think it was the exact same recommendation he would give to the 35 other patients he would see that day. Then he handed me a printout of the other things I should buy to treat the problem: a prescription pain patch, a back brace and a home transcutaneous electrical nerve stimulation (TENS) machine to relax back muscles and reduce pain. I wonder how much of a kickback he is getting from the manufacturers.
Again I asked what all this would cost. Again the standard response: “insurance will cover it.” He brushed me off when I tried to explain why that wasn’t an adequate answer.
No one ever gave me a list of the costs. I went ahead and had the procedure, because I was in pain and desperate (I later found out it cost more than $2,000), but didn’t follow the rest of his recommendations right away. I checked with my pharmacist and the pain patches cost $200. Each. When I went back for what turned out to be a five-minute followup, the nurse practitioner chided me for not following the doctor’s orders. And when I tried to explain to her my concern about cost? You guessed it: “insurance will cover it.” When it was clear I wasn’t buying, she yanked the info sheet on the TENS machine out of my hands and told me I could wait on that, but insisted I get the back brace. It came in the mail the other day. It looks expensive, but I won’t know how much it is costing me until the doctor bills my insurance company, and the insurance company in turn bills me.
My primary care doctor doesn’t even take insurance. I find that liberates both of us to cut through the insurance bullshit. He’s straightforward about costs. His rate is $90 per half hour. Period. He’s not trying to push more tests, procedures or pills on me. In fact, when I needed an MRI for my back, he gave me two different labs to call. He advised me to call both, explain that I was a “self pay,” and then dicker with them on the price. The first lab wouldn’t come down on the $1,100 sticker price. The second one dropped the price to $500.
Why is there such a lack of transparency, not to mention logic, in healthcare prices? Somebody in this system is making a lot of money from the fact that “insurance will cover it,” and those people have an obvious interest in obscuring costs. Until more patients have to pay more directly for their healthcare, which will in turn force all the players to be more accountable, I doubt that the system will change.
A story of mine in this week’s Electronic News reports on a trend that many in the U.S. high-tech industry find disturbing. The latest 10-year jobs forecast from the U.S. Bureau of Labor Statistics says that U.S. semiconductor manufacturing is going to lose 146,000 jobs, or more than 30 percent of its workforce, by 2018. That’s the second highest job loss of any industry, just behind retail department stores. It even beat out such passé industries as printing and newspaper publishing (projected to lose 95,000 and 81,000 jobs, respectively.)
The fact that manufacturing jobs are moving offshore is old news. On close examination, however, the BLS statistics indicate a flight of high-level jobs. Not only research and design engineering, but also top management functions, are leaving the country. In fact, in the management category of semiconductor and electronic component manufacturing, the BLS projects a 35-percent loss in the number of jobs. For chief executive officers in particular, the projection is 41 percent.
Some will quibble about how the BLS arrives at this forecast, but anecdotal information from a few executive recruiters backs up the trend. Tim O’Shea, group leader for the semiconductor industry practice at Heidrick & Struggles, has clients asking him to find executives willing to move offshore. “Management is being displaced,” agrees Al Delattre, global market managing director of technology at Korn/Ferry International.
The recruiters are alarmed about the trend. The semiconductor industry warns that the United States is losing its competitiveness. My livelihood is threatened. The industry that I’ve covered for 25 years might disappear from this country, taking with it a lot of the trade and technical publications that are my customers.
But if you take out the jingoism and think in terms of pure capitalism, it all makes perfect sense. Twenty years ago, manufacturing jobs moved to places where costs were lower and labor plentiful. Now, it looks like knowledge workers are going through the same transition. Anyone who’s read Thomas L. Friedman’s “The World is Flat” shouldn’t be surprised. The Internet and telecommunications technology make it possible to do many types of knowledge work from anywhere, so knowledge workers in low-cost areas are going to get a good portion of these jobs. Recognizing this, companies are starting to shift their knowledge workforce, not only by hiring offshore workers, but also by moving their current workers to low-cost regions. Last April, for example, I reported on IBM’s Project Match, whereby the company offered to hire laid-off North American workers for jobs in India and other low-cost countries.
The flight of U.S. executives will continue. After all, how many good reasons can you think of for keeping these executives in the United States? Most of the semiconductor industry’s customers are in Asia. Even if the CEO lives in the States, he spends most of his time traveling to visit customers, business partners and suppliers. Thanks to Wall Street’s meltdown, American finance is increasingly owned by foreigners. Plus, as semiconductor industry lobbyists love to point out, U.S. tax law and regulations make this country a less and less attractive place for business. In fact, one recruiter tells me that the executives of at least one chip company are thinking about moving its headquarters to Singapore because of the high costs of being a U.S.-based public corporation.
Maybe I should move, too. From a business point of view, there’s no reason to stay in this country. It’s not like I have to report to some green-eye-shaded editor wielding a pencil and shouting at the typesetter. I already work with all my clients via the phone, e-mail and Internet. Less and less of my work is actually printed on paper in a factory. It’s all online. U.S. newspapers and news agencies already outsource some of their journalism work to India. To remain competitive, I should move to a low-tax nation in a good climate with excellent Internet and telecommunications service.
The world is changing – quickly and dramatically. I don’t think there’s any stopping this. Businesses are recognizing this. Journalists, accountants and x-ray technicians are recognizing this. Government and industry leaders around the world would do well to recognize these forces and work with them, rather than raising fears and fomenting unrest about the offshoring of American jobs.
In late June, a U.S. District Court judge denied IBM’s attempt to bar one of its former executives from working at Dell Inc. (See Court Denies Preliminary Injunction Sought by IBM Because Former Employee Signed Non-Compete Agreement in Wrong Place.) Read the rest of this entry »