October 13, 2005
High-tech job migration - reality or mythBy Brian Schwarz
With China's successful launch into orbit of its second manned spaceship, claims and worries that America is losing its edge in many high—tech industries will no doubt increase. Democrats just love to hit the airwaves proclaiming the myth we are becoming a nation of hamburger flippers, as our best jobs get outsourced to Asia.
For the past thirty years, the American people have been treated to warning after warning of our impending mass servitude behind the McDonald's counter. In the 1980's it was Japan and the Asian Tigers that were stealing our good jobs. Then came Ross Perot talking about that giant sucking sound from Mexico.
Today, everyone seems worried about China and India.
After reading the doom and gloom picture painted by New York Times columnist Thomas Friedman in his latest bestseller The World is Flat, many readers will come away with impression that Intel and IBM can't wait to move more and more of their best jobs to Asia, where there is an endless army of talented and hardworking engineers and scientists.
To meet the challenge of "flatism", where many types of digitized work can be easily performed by cheaper foreign labor in India, China, or Russia, Friedman argues America needs a "comprehensive, energetic and focused response as we did meeting the challenge of communism."
Similar to the efforts made during the post—Sputnik space race in the late 1950's, he argues that if America is to maintain its competitive edge in many high—tech fields, our society must be devoted to studying harder in science, math, and engineering in order to reach the new frontiers of knowledge. Working harder at science, math and engineering is fine. But are we on the road to doom?
Even as America's GDP growth remains steady, the voices proclaiming America's decline increase in number. As reported in the Christian Science Monitor, Harvard University's Richard Freeman tackled the question, "Does globalization of the scientific/engineering workforce threaten US economic leadership?" He outlines several trends that suggest the answer is yes.
But in recent months, evidence coming out the Middle Kingdom continues to paint a slightly different picture. While it is undeniably true that China's rise creates a major challenge for the Western economies, it is important for us to keep this major power shift in perspective.
While it is true many labor—intensive industries elsewhere have been hit hard by growing Chinese exports (with textiles as a prime example), the reality is quite different from what many on the mainstream media would like readers to believe.
Its generations of students raised in educational system that emphasizes rote memorization allowing for little independent thought, it will many years before China has the pool of skilled business managers and scientists it needs to lead its companies in a world where creative thinking and innovation are of paramount importance.
According to a report recently released by the World Economic Forum, China's overall global competitiveness has, in fact, declined for the past three years.
And demographic trends are transforming China's labor market from "limitless supply" into "limited surplus' with labor supply gaps showing up in the manufacturing strongholds, most notably in the south city of Shenzhen.
Chip—maker Intel has announced plans to build a cutting—edge semiconductor plant in Chandler, Arizona. The plant, which will cost $3 billion, will employ about 1,000 workers when completed in 2007.
Despite claims made by labor unions and their liberal allies in the media, many other tech firms are building U.S. plants, too.
And giant IBM opened a huge chipmaking plant in New York in 2002.
While lower labor costs in Asia are indeed attractive, corporate executives must consider a variety of factors in their location decisions. When compared to these developing countries in Asia, our key advantages continue to be skilled labor, strong intellectual property protection, and local government tax breaks.
Needless to say, employees who manufacture extremely high—tech products such as computer chips, must be able to understand statistics and scientific principles. Despite Mr. Friedman's warnings about the decline high school achievement in math and science, Intel's Mr. Baker says, "We're very pleased with the education system here in Arizona."
Overlooked by Mr. Friedman, strict enforcement of patent and copyright laws is also critical consideration. The simple fact is the USA has some of the world's strongest, best—enforced patent—protection laws. As many tech companies have painfully realized, their intellectual property in other countries is not secure.
Another often overlooked factor is management control. Instead of moving overseas and dealing with numerous cultural and legal complexities, keeping a new factory close to the firm's headquarters allows managers to keep a close eye on it, and respond quickly when unexpected problems develop.
It is inevitable, and probably desirable that more countries join the ranks of advanced manufacturers. America's prosperity does not rest on a foundation of others' poverty and backwardness. Our flexibility, creativity, and responsiveness to market signals, along with our traditions of hard work and the rule of law will keep us ahead.
As the world becomes "flatter," America faces a new set of challenges and opportunities. While we must continue to make investments in education opportunities and public infrastructure, it is important not underestimate America's hidden strengths.
Brian Schwarz works in Shanghai, China, and blogs here.