America is Eating its Feed Corn

1. America is Eatingits Feed Corn Rich Thompson Professor Emeritus “TeleNet Program” University of Pittsburgh

2. Outline • Life cycle of an invention • Inventions & the economy • Eating the Feed Corn • The Job Market & Off-Shoring • Four things we can do about it

3. 1. Life cycle of an invention 2 important words: new products • Goal of R&D? • Significant inventions… A few more… (In computers, & American) Programming language Integrated circuit Operating system Microprocessor Modem Personal computer Internet Telephone Light bulb Phonograph Airplane CRT Plastic Transistor Optical fiber What do all these inventions have in common? They were all Invented in America What else do all these inventions have in common?

4. Each one had an extremely large impact on the US economy… • That was broader than the invention itself & Lasted for many years after the original invention. Consider a hypothetical interaction between Thomas Edison & Henry Ford • Edison invented the light bulb • And, he had them manufactured … • He contributed to the US economy for a few years by: • Manufacturing a marketable product & • Employing skilled workers at high wages. Fort Myers, Florida in the US Both these issues are extremely important to a nation’s economy

5. Edison & Ford, continued 2. Henry Ford may have wondered if … • Light bulbs could let him open his factories at night, • Which would allow him to employ more workers & manufacture a cheaper automobile. • But, accountants  light bulbs have to be cheaper… • HF: “Tom, if you could lower your price, I could make a car most Americans could afford.” • TE: “I’d have to automate or off-shore manufacture.” Edison could trade his large direct impact on the US economy for this even greater indirect impact. 4. But, what about Edison’s laid-off workers? • They could work for Ford… or make vacuum tubes, at an even higher wage

6. A real historical example • Who is the father of the computer? • Charles Babbidge (freelance inventor) • Who supported his work? • Textile industry in England & Belgium • Why? • Who wrote the “loom programs” • Was this good for textile workers? • Etymology of “sabotage” • What were they called in England? • Was it good for each nation’s overall economy? - To automate the loom – Ada Lovelace – Luddites

7. A more recent example • Import duty on Steel (temporary) • Should we have renewed it in 2001? • Unions in Pittsburgh – yes • Unions in Detroit – no • If you were president, • would you have renewed the tariff? • Were steel workers content with Bush’ decision? • “Manufacturing jobs” that should be out-sourced: • PCs, some program production, & other things

8. Jump to theBottom Line… • Do you see where this is going? • I will attempt to convince you that… • America’s problem is not off-shoring • We’ve been off-shoring for over a century • Off-shoring can be good for our economy  • Our problem is that… • The “R&D pipeline” is empty !!

9. Generalizing, Inventions have 2 phases:  1   2  time t0 t1 t2 • t0,invention  1 • Product is locally manufactured • Requires skilled labor • Expensive  small market • t1,improves nation’s productivity  2 • Huge potential market • So important  must lower cost • Outsource manufacture (light bulbs, steel, sw) • t2, out-dated & replaced

10. 2. Invention &the national economy • During1 • Skilled laborers get high-paying jobs • Reinforces the nation’s “middle class” • They “consume” • During 2 • All workers are more productive • All products are cheaper to manufacture • Effect continuesafterinvention period • The replacement invention augments

11. 2 Types ofNational Economies • “Inventor nations” • Many useful inventionsper year • Skilled (expensive) workers • Education & investment • “Producer nations” • Cheap workforce

12. Impact on anInventor Nation’sGNP • 1: • 2: • After 2 Is this oversimplified? Today, I can produce in 1 day what took 1 week in 1964 because of inventions invested in my productivity  dollars  ?  Constant?   ? “piggy back effect”  1   2  time t0 t1 t2

13. Impact on aProducer Nation’sGNP • 2: • Is the IN “exploiting” the PN? • No, it’s the PN’s only way out of the Stone Age  dollars  ?   1   2  time t0 t1 t2

14. Effect of multiple inventions • On a Producer Nation: • On an Inventor Nation: • Key point?  National economies grow from invention; not production

15. 3. Feed corn • Literally, what is it? • Part of a farmer’s crop that he invests in his herd • If the farmereats it or sells it instead, • The farmer can ruin his “future” by optimizing his “present” • In our analogy, “feed corn” is… • That part of US workforce that we invest in R&D • Who is eating it? • Companies & gov’t agencies that stop or cut R&D the herd dies.

16. How long? • … have we been doing it? • Demise of Bell Labs, X-Parc, IBM-Y, … • Decline of NSF’s “effective” budget • Yes, even during 1992-99 • Trigger? – perfect storm: • End of the cold war • Advent of mega-greed • Bipolar politics, with no rational “center” • … can we continue? >20 yrs In 2006, I said “another 10 yrs”. In 2008, I changed it to “5” In 2011, I revised it down again.

17. $ Hopeless? t • Young technologist’s view of US R&D funding: • The historical view … • Triggers: • WWII, GI bill • Sputnik  Apollo • Star Wars, etc • Please, something (hopefully, peaceful) soon… • Planned or reactive? • Look at 200-year history of American “policy” Korean “War” The “Happy Days” OPEC Perestroika Next trigger? 

18. Where’s the IEEEon all this? • Parent IEEE • Focused on international membership • Won’t publish my paper in Spectrum Mag • It’s “too pro-American” • The IEEE-USA • Lobbying to curtail outsourcing, • Instead of lobbying to promote invention • Except for Wyndrum, et al, in response to NAE’s “Gathering Storm” report

19. What will happen? • PN’s see opportunity & carpe diem • They will pick up the slack & become INs • (They already have better education) • IN’s1st alarm • When US feels we must raise the minimum wage to support our growing peasant-class • IN’s2nd alarm • When we use other country’s products? • When we use other country’s inventions! No

20. 1st three of six Three examples… • When American electric utilities build power plants that run, not on Coal nor Nuclear reactors, but … • Fusion reactors… • developed by the EU, not by Tokamak; • When our vehicles operate, not on gasoline, nor ethanol, nor batteries; but on … • MagLev… • developed in Munich, not Michigan; • When American’s replace all their digital electronics by faster appliances that use … • Ballistic transistors… • perfected in Kobe, not Cupertino;

21. 2nd three of six Three more examples… • When our computers all adopt a new … • efficient & reliable operating system … • developed in Siberia, not Seattle; • When the Internet abandons IP for a … • better networking protocol… • invented at IIT, not MIT; • When Americans use a whole new generation of products built from technology that evolved from • Physics research performed on a super-collider… • on Swiss/French border, not the one we started building (and abandoned) on the Texas/Arkansas border.

22. Then… • The US will be a nation of ... • Lawyers • Spin-meisters • Rock/movie/sports celebrities • & peasants • Our economy will implode & we’ll become … • a Producer Nation • Can it get even worse? Products that: • no other country wants • Don’t have positive long-term effect on our economy I hope not, but it could !  Warning: a little “over the top”

23. Is there historicprecedence? • Read Gibbon, • “The History of the Decline & Fall of the Roman Empire” • Seven reasons for the Fall of Rome: • Moral decay • Laziness & obesity • Financial problems • Outsourcing • Religious controversy • Division • Hoarding & deficit Do these look familiar? We see all 7 in the US today !!

24. Historic precedence continued • C’mon Rich, don’t over-react ! • You can’t compare the US to Rome • The Romans had Barbarians at their gate… • Waiting for them to get weak… • We don’t ! … Do we? Have you read Gibbon? Do you think he did?

25. 4. Job Market & Off-ShoringOutline • 40-year history (1980-2020) • Diminishing supply of workers • Especially, those with the right skills • Work-force Supply & Demand • Employer response

26. Supply of Workers will flatten:especially for “skilled” workers Population Women #US workers 100M 3% growth aged 25-54 54% growth Gap already started Baby boomers Uniformly distributed across age? 1980 1990 2000 2010 2020 • As Baby Boomers retire, workforce expansion will slow • = English Peasants Revolt of 1381, plague  40% of workforce • Been hearing about impact on Social Security • College: 4060% over 1980-2000, expected to stagnate • Factors combine  projected shortfall of skilled workers • = 14 million skilled jobs by 2020 Business 2.0 9/03

27. Putting it togetherSummarizing the previous data Future Seller’s job market Mortgage-crash Number of … Late 90s boom Qualified workers Smoothed trend Hopefully, a continued 7% economic growth Available jobs Return to Buyer’s job market Corporate culture shifted 1980 2000 2020 Year crossover crossover

28. What’s an employer to do? • Outsource some jobs to 3rd world  • This will and must increase • Add to the workforce pool • Increase immigration quotas (security?) • Encourage or legislate later retirements • Migrate some skills down to HS level • Get competitive in this seller’s market • ++ salaries, benefits, working conditions  You must carefully avoid these careers  Business 2.0 9/03

29. 5. What can/must we do?A. Take politics seriously • Vote based on character • Ike anecdote • Economy & Global politics are important • Run for political office • School Board • State legislature • US Congress Is this the “Tea Party” movement? No. Government has a role! Read the Constitution! Liberal Conservative The truth is In the center Is one side right?

30. What can/must we do?B. Rebuild America’s public education • To raise a new generation of inventors • Tax dollars  teaching, not administrators • Fire bad teachers & encourage good ones • Return to discipline & expulsion  6 hrs/day x 45 wks/yr = 1350 hrs/yr • Not counting lunch & study halls • Teach 2x more math & science - well • Content >> little Timmy’s self-esteem • George Washington >> Harriet Tubman

31. What can/must we do?C. Fix our R&D economy • Should federal government take over R&D? • Please, No !! • Our Senators would love to fight over this pork • But, the federal government can act • Not to “power the ship” • But to “steer the ship” • Steering takes less “energy” than powering • And is more effective How? 

32. Fixing our R&D economySTEP 1 • Encourage corporate investment in R&D • R&D tax credit (not deduction) • America’s “pin-heads” will call this “corporate welfare” • Make sure the money pays R&D engineers • Not managers, not sales engineers • There are many excellent professors out there • With very little available research support • But, first, the universities must end “royalty greed”

33. Fixing our R&D economySTEP 2 • Encourage long-term investment • Break the “today’s bottom-line” mentality • “Day trading” should not be a profession • Individually, nor by mutual fund managers • We must invest in companies for the long haul • Not in “the market” & move our money tomorrow • No “capital gains” tax break until > 5 yrs • Pay tax at the highest bracket for < 1 mo • Then, CEOs will need to show their “5-Year Plan” • Would also curtail “Commodity Futures” trading How? Easy! These people are “parasites” No contribution to the economy

34. What can/must we do?D. Entrepreneurship • Rebellion to solve 2 problems: • Skunk-works  ++ R&D / $ • Elevate Engineering as a career choice • Cleveland’s EEs will mobilize • Organizations that can help • 5-minute “commercials” in subs. CleSec events • Led off next month by Ben R. • TBA: 1-day “1-stop-shopping” event next fall

35. Conclusion • When I gave this talk in summer of 2008: • I said: “After 20 consecutive years of really poor leadership (a bipartisan statement), • the US has the luxury to elect one more bad president. • And it looks like we will (with either outcome). • But, only one more.” • My conclusion today: • That was pretty accurate • In 2012, we did it again  now we’re on ‘thin ice’

36. Other reading • Rising above the Gathering Storm, • National Academy of Engineering • The World Is Flat • A Brief History of the Twenty-First Century • Thomas Friedman Thank you for your attention