Invest in America Alliance

Well, some signs of life on the private innovation front. From Ars Technica:

Intel has announced a $3.5 billion plan to boost US job growth and innovation by investing alongside 24 of the country’s top venture capital firms in industries like bioinformatics, clean technology, and IT.

The article went on to say:

I’ve talked to more than one semiconductor startup who has corroborated what I’ve observed from reporting on the tech industry’s response to the financial crisis: R&D has been a major casualty of the downturn, as companies across the industry have axed programs and cut jobs in an effort to boost profits on little income. (Intel is the notable exception here; the chipmaker has continued to invest in R&D throughout the recession.) It’s also the case that startups have had a hard time raising money in this environment. These two factors have combined to sow the seeds of a technology innovation drought that will hit in the next two years, as the products come to market and the innovation pipeline empties out without being refilled.

The innovation drought is already here, folks.

Comments

  1. Eh, an innovation drought is the natural result of stupidity, you can no more wish it away than you can a real drought. These startups that aren’t getting funding have no business model, better they’re dumped in the early stages now, rather than continuing to suck up funding only to crater with more money later on. Of course some good ideas may get thrown out with all the bad ones, but that’s better than continuing to fund all the dumb ones. As an example, I just went to a popular tech news blog and chose the first article about a startup going bankrupt and found this article about a company that lets users “invest” in musicians who then send them CDs. First off, why would anyone think shipping CDs is a good idea in this day and age? Second, what makes them think they’d succeed selling music when piracy is rampant now? Yet, they were successful in getting $5 million in funding, only to run out of money. VCs in IT invest much more in these idiotic consumer startups than they do in real R&D-based startups, so it’s actually a good thing that VCs are dying off, along with the dumb startups they were dumping money into.

  2. Michael,

    What is your primary concern today? Is it that innovation, as a return on investment in intangible capital, is lower than what we may have thought, or is it just that investment in intangible capital has slowed?

    It seems that there would be a big difference how serious one of these issues might be over the other. If the return on intangible investment has dropped, I’d be much more nervous than I would be if it is just a matter of intangible investment declining…

    If intangible investment is anything like its tangible brother…then it would suggest that it is highly cyclical and much more volatile than GDP….and should turn back up as the economy firms up.

  3. CompEng says:

    Another related commentary from Thomas Friedman:

    http://www.nytimes.com/2010/03/03/opinion/03friedman.html

  4. Eh, Otellini is talking his book. I like how Friedman says Otellini is talking about startups, only for him to go into the normal corporate crap asking for more handouts and idiotic education policy, as though that helps startups. Intel needs more math/science adepts so the entire US education policy should configure itself to make more of them available to him, thus driving down their price? How stupid. The fact of the matter is math/science is only useful in certain niches, like Intel or Google, but most innovation nowadays is in online startups, where it’s all about observation, reason, and logic, skills that have never been taught in colleges and maybe can’t be. As for Friedman’s assertion that China is doing so many things right, what Friedman doesn’t know about China would fill volumes. China is having a nice surge from abject poverty but their banking system is a mess and rule of law is iffy, guess what that’s a recipe for? A Chinese depression, when their bubble inevitably bursts. I hope that doesn’t happen because another tech boom begins and they clean up their act during that boom, but it is more likely they will simply put it off for later and fall harder once the next boom ends.

    • CompEng says:

      I mostly agree with your commentary. The interesting tidbits for me related to the reiteration that investment in the US vs. abroad was not primarily driven by labor costs in the high-tech hardware industry.

      • Yeah, I saw that connection to our previous discussion😉 but again, I think he’s just talking his book. It is laughable to suggest that labor costs- perhaps regulatory costs too for a company like Intel that is essentially an industrial manufacturing concern- are not the main reason to go abroad and that he’s just doing it for the better tax breaks. That’s the story such CEOs sell local govts to get more breaks, “We can go anywhere in the world now and it all costs roughly the same, so you have to give us tax breaks or their breaks will make the difference.” Don’t confuse CEO “rhetoric” for the facts, only the numbers tell that story and we all know the numbers for salaries abroad are much lower.

  5. Ajay,

    Don’t believe CEO rhetoric? A valid point. However, I’ve talked to a couple people who do have those numbers, and they say the bottom line is that the price for productivity really is fairly close at home and abroad. My question was, point blank, “How do I compete with someone who makes 1/3rd of what I make?” and the answer was, “fairly well”.
    Of course, that wasn’t long after this:
    http://www.theregister.co.uk/2005/10/28/intel_whitefield_india/

    I’ll refrain from explaining what really went on there.

    • I find that hard to believe. Cost of living is much lower abroad and there’s much more competition for those spots, both of which drive prices down. It’s possible that Intel is incredibly inept at hiring in those new marketplaces and those talent search costs keep their productivity down. As for that episode you linked to, best I can make out the employees there were submitting invoices for stuff they weren’t really getting, which isn’t very relevant to the overall issue we’re discussing –

      http://bangalorebuzz.blogspot.com/2005/10/two-global-biggies-log-out-of-it-city.html

      • CompEng says:

        Can’t give details, but the bottom line with Whitefield is the team blew it big time: as you say, the audit was neither here nor there in my mind. Team issues include high turnover, excessive politics, and a lot of smart individuals who didn’t work well with others. Of course, there’s still a growing team there, so some of that has probably been worked out.

        But really, if labor wasn’t priced appropriately in India, wouldn’t the market say jobs would flow there as fast as a company could hire? That may be happening in BPO and call centers, but not in chip design. Other countries have other stories, but the bottom line is that, as long as we have H1B’s, America seems to be competitive.

      • Whitefield may have blown it 4 years ago but the team is bigger than ever today so I’m not sure that mattered much. Your entire phrasing of labor being “priced appropriately” is wrong. As we have discussed before, there is no natural price for anything, people make bids for work based on their situation and the fact is that people in India are willing to do the same work for less in return, partly because they can in turn buy their food and houses for cheaper but mostly because they just don’t have as many opportunities.

        However, if you’re going to make a strict mathematical calculation of output divided by price, yes, the result is higher there, which is why the jobs are growing so fast there. Cringely and others have long been wringing their hands about IBM and others moving a lot of work to India. If that’s not happening in chip design as much, perhaps it’s because it’s a niche which relies on narrow credentialism, ie only hiring VLSI PhDs😉, much more than it should. As for H1Bs, visas are neither here nor there. What we’re seeing today is a global marketplace reaching its full potential, you either invest abroad in places like Whitefield or Dalian or they will put you out of business someday soon.

  6. CompEng says:

    Ah, so I *do* have to move to India. Got it.🙂

    • Nah, it depends. If you still provide value for your salary, you may be fine, as Intel seems to think. If not or if Intel can’t tell the difference and moves your job there, you may have to get into something else, but moving to India is only for the few who actually want to live there.

      • CompEng says:

        There’s very little knowledge work that couldn’t be performed in a low-cost locale, so if there’s no locale-correlated productivity advantage, getting into something else probably won’t help much: US knowledge-based wages (and cost of living) would have to drop.

      • I see, so you think Intel’s current US locations are there because of “locale-correlated productivity advantages”? What precisely would those be? There is always going to be high-value information work that can be sustained in more expensive locations, just as Wall Street bankers didn’t care that New York was so expensive because they were making so much money off their high-value information work. Just because India is cheaper doesn’t mean there instantly exist thousands of skilled people to immediately take all that work away, that’s a longer process as they train to do the work. However, what I said above is that those who are on the low-value end here will not have work for long, as that work will move abroad quickly as it’s much easier to train for. We have already seen this happen with manufacturing, where low-productivity work is sent abroad leaving the high-productivity work here, as we’ve discussed before. All those who whine that they’re underemployed today will be freed up to try their hand at more challenging work. Many won’t cut it and will have to go do something else. Yes, average US wages will drop, that is inevitable, but likely not by much and it’s not going to matter much when the price of everything is dropping.🙂

  7. CompEng says:

    In the past, “locale-correlated productivity advantages” have meant access to a large number of students from all over the world who wanted to live in the US, relatively light regulation, access to cheap electricity, access to reliable transportation (I’m told Bangalore is still working on that), cheap clean water, proximity to other tech companies (short supply chain and large labor pool), etc. Going forward, some of those still exist, and some don’t.

    You do make a good point about bankers, except that traditional banking was always best done in proximity to money and power. The internet is changing that a bit.

    “Just because India is cheaper doesn’t mean there instantly exist thousands of skilled people to immediately take all that work away, that’s a longer process as they train to do the work.”
    Very true. On the other hand, there are a huge number of graduates in India hungry to take on that work. The yield doesn’t even have to be very high to produce a large and talented work force quickly.

  8. Immigration law is shutting out more students and Congress, Bush, and Obama have tried to do their best to increase regulation.😉 Electricity and water are not that big a deal to get right nowadays and transportation and tech proximity don’t matter much when most will be telecommuting. The US still has a freer market than most and maintains that advantage, but I didn’t think that was the type of broad locale-correlated productivity advantage you were referring to. Glad to hear you make my point that India’s work force will do a lot very soon, but it’s silly to suggest that leaves no work for anybody else.😉

    • CompEng says:

      Actually, I think that’s part of the point Mike is taking on with his innovation blog: the question of how to make work for everybody else. It’s not that it’s a zero-sum game globally, but there is a question about whether in the process of creative destruction, the creative forces are keeping up with the destruction.

      In the short term, I’m not concerned for my own job. I perform well, and if this particular position should disappear (which doesn’t seem likely at the moment), I’m well qualified for others. Intel is investing overseas, but not dis-investing in the US at a comparable rate, and other companies in the industry are behaving similarly. But I like to keep an eye on the future to see where the winds are blowing.

    • “make work”? Careful with your wording there.😉 There is no doubt that there are periodic phases where certain locations, say New York today, have a lot less demand for their work than before, because the constantly churning job gains and losses occasionally come out negative, rather than slightly positive like they do most of the time. The question is whether the govt, that normally shits away our taxes on useless crap most of the time, is the right entity to figure out what to do in such a situation. History has shown that govt has acted horribly in these situations, causing far more damage than benefit, including FDR’s goons killing chickens while people were starving in the streets during the Great Depression, in order to keep poultry prices up! Such stupidity has not faded, as that is exactly what the idiotic cash for clunkers program and various programs to prop up home prices are doing today. However, if we would just let people alone, we will be fine, as people’s minds are focused in tough times and they naturally think up ways to get out of them. There are many benefits to recessions, such as all the worthless companies now going under and the VC industry being decimated🙂, there are valid reasons for such business cycles, both up and down. As for your situation, Intel is a juggernaut, perhaps the true tech standard-bearer of the last 20 years. They will fade and fall, as all things do, but they certainly look good today.🙂

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