A short time after returning from India, I was approached in an airport by a young man who wanted to talk about some columns I had written from there. We had a nice chat, I asked him for his card, and we struck up an e-mail friendship. His name is Mike Arguello, and he is an IT systems architect living in San Antonio. He does high-end IT systems design and does not feel threatened by foreign competition. He also teaches computer science. When I asked him what we needed to do in America to get our edge back, he sent me this e-mail:
I taught at a local university. It was disheartening to see the poor work ethic of many of my students. Of the students I taught over six semesters, I'd only consider hiring two of them. The rest lacked the creativity, problem-solving abilities and passion for learning. As you well know, India's biggest advantage over the Chinese and Russians is that they speak English. But it would be wrong to assume the top Indian developers are better than their American counterparts. The advantage they have is the number of bodies they can throw at a problem. The Indians that I work with are the cream of the crop. They are educated by the equivalents of MIT back in India and there are plenty of them. If you were to follow me in my daily meetings it would become very obvious that a great deal of my time is spent working with Indians. Most managers are probably still under the impression that all Indians are doing is lower-end software development-“software assembly.” But technologies, such as Linux, are allowing them to start taking higher-paying system design jobs that had previously been the exclusive domain of American workers. It has provided them with the means to move up the technology food chain, putting them on par with domestic workers. It's brain power against brain power, and in this area they are formidable. From a technology perspective, the world is flat and getting flatter (if that is possible). The only two areas that I have not seen Indian labor in are networking architects and system architects, but it is only a matter of time. Indians are very bright and they are quickly learning from their interaction with system architects just how all of the pieces of the IT puzzle fit together... Were Congress to pass legislation to stop the flow of Indian labor, you would have major software systems that would have nobody who knew what was going on. It is unfortunate that many management positions in IT are filled with non-technical managers who may not be fully aware of their exposure... I'm an expert in information systems, not economics, but I know a high-paying job requires one be able to produce something of high value. The economy is producing the jobs both at the high end and low end, but increasingly the high-end jobs are out of reach of many. Low education means low-paying jobs, plain and simple, and this is where more and more Americans are finding themselves. Many Americans can't believe they aren't qualified for high-paying jobs. I call this the “American Idol problem.” If you've ever seen the reaction of contestants when Simon Cowell tells them they have no talent, they look at him in total disbelief. I'm just hoping someday I'm not given such a rude awakening.
In the winter of 2004 I had tea in Tokyo with Richard C. Koo, chief economist for the Nomura Research Institute. I tested out on Richard my “coefficient of flatness”: the notion that the flatter one's country is-that is, the fewer natural resources it has-the better off it will be in a flat world. The ideal country in a flat world is the one with no natural resources, because countries with no natural resources tend to dig inside themselves. They try to tap the energy, entrepreneurship, creativity, and intelligence of their own people-men and women-rather than drill an oil well. Taiwan is a barren rock in a typhoon-laden sea, with virtually no natural resources-nothing but the energy, ambition, and talent of its own people-and today it has the third-largest financial reserves in the world. The success of Hong Kong, Japan, South Korea, and coastal China can all be traced to a similar flatness.
“I am a Taiwanese-American with a father from Taiwan and with a Japanese mother,” Koo told me. “I was bom in Japan and went to Japanese elementary school and then moved to the States. There is a saying in China that whatever you put in your head and your stomach, no one can take away from you. In this whole region, that is in the DNA. You just have to study hard and move forward. I was told relatively early by my teachers, 'We can never live like Americans and Canadians. We have no resources. We have to study hard, work hard, and export hard.'”
A few weeks later I had breakfast in Washington with P. V. Kannan, CEO of 24/7 Customer. When it comes to the flat world, said P.V., he had just one question: “Is America prepared? It is not... You've gotten a little contented and slow, and the people who came into the field with [the triple convergence] are really hungry. Immigrants are always hungry-and they don't have a backup plan.”
A short time later I read a column by Steven Pearlstein, The Washington Post's business columnist/reporter, under the headline “Europe's Capitalism Curtain.” From Wroclaw, Poland (July 23, 2004), Pearlstein wrote: “A curtain has descended across Europe. On one side are hope, optimism, freedom and prospects for a better life. On the other side, fear, pessimism, suffocating government regulations and a sense that the best times are in the past.” This new curtain, Pearlstein argued, demarks Eastern Europe, which is embracing capitalism, and Western Europe, which is wishing desperately that it would go away.
“This time, however, it is the East that is likely to prevail,” he continued. “The energy and sense of possibility are almost palpable here... Money and companies are pouring in-not just the prestige nameplates like Bombardier, Siemens, Whirlpool, Toyota and Volvo, but also the network of suppliers that inevitably follows them. At first, most of the new jobs were of the semi-skilled variety. Now they have been followed by design and engineering work that aims to tap into the largest concentration of university students in Eastern Europe... The secret isn't just lower wages. It's also the attitude of workers who take pride and are willing to do what is necessary to succeed, even if it means outsourcing parts production or working on weekends or altering vacation schedules- things that would almost certainly trigger months of acrimony and negotiation in Western Europe. 'The people back home, they haven't got any idea how much they need to change if they want to preserve what they have,' said Jose Ugarte [a Basque who heads the appliance manufacturing operations of Mondragon, the giant Spanish industrial cooperative]. 'The danger to them is enormous. They don't realize how fast this is happening...' It's not the dream of riches that animates the people of Wroclaw so much as the determination to work hard, sacrifice what needs to be sacrificed and change what needs to be changed to close the gap with the West. It is that pride and determination, says Wroclaw's mayor, Rafal Dutkiewicz, that explain why they are such a threat to the 'leisure-time society' on the other side of the curtain.”
I heard a similar refrain in a discussion with consular officials who oversee the granting of visas at the U.S. embassy in Beijing. As one of them put it to me, “I do think Americans are oblivious to the huge changes. Every American who comes over to visit me [in China] is just blown away... Your average kid in the U.S. is growing up in a wealthy country with many opportunities, and many are the kids of advantaged educated people and have a sense of entitlement. Well, the hard reality for that kid is that fifteen years from now Wu is going to be his boss and Zhou is going to be the doctor in town. The competition is coming, and many of the kids are going to move into their twenties clueless about these rising forces.”
When I asked Bill Gates about the supposed American education advantage-an education that stresses creativity, not rote learning-he was utterly dismissive. In his view, those who think that the more rote learning systems of China and Japan can't turn out innovators who can compete with Americans are sadly mistaken. Said Gates, “I have never met the guy who doesn't know how to multiply who created software... Who has the most creative video games in the world? Japan! I never met these 'rote people'... Some of my best software developers are Japanese. You need to understand things in order to invent beyond them.”
One cannot stress enough: Young Chinese, Indians, and Poles are not racing us to the bottom
. They are racing us to the top. They do not want to work for us; they don't even want to be us. They want to dominate us-in the sense that they want to be creating the companies of the future that people all over the world will admire and clamor to work for. They are in no way content with where they have come so far. I was talking to a Chinese-American who works for Microsoft and has accompanied Bill Gates on visits to China. He said Gates is recognized everywhere he goes in China. Young people there hang from the rafters and scalp tickets just to hear him speak. Same with Jerry Yang, the founder of Yahoo!
In China today, Bill Gates is Britney Spears. In America today, Britney Spears is Britney Spears-and that is our problem.
Dirty Little Secret #3: The Education Gap
All of this helps to explain the third dirty little secret: A lot of the jobs that are starting to go abroad today are very high-end research jobs, because not only is the talent abroad cheaper, but a lot of it is as educated as American workers—or even more so. In China, where there are 1.3 billion people and the universities are just starting to crack the top ranks, the competition for top spots is ferocious. The math/science salmon that swims upstream in China and gets itself admitted to a top Chinese university or hired by a foreign company is one smart fish. The folks at Microsoft have a saying about their research center in Beijing, which, for scientists and engineers, is one of the most sought-after places to work in all of China. “Remember, in China when you are one in a million- there are 1,300 other people just like you.”
The brainpower that rises to the Microsoft research center in Beijing is already one in a million.
Consider the annual worldwide Intel International Science and Engineering Fair. About forty countries participate by nominating talent through local affiliate affairs. In 2004, the Intel Fair attracted around sixty-five thousand American kids, according to Intel. How about in China? I asked Wee Theng Tan, the president of Intel China, during a visit to Beijing. In China, he told me, there is a national affiliate science fair, which acts as a feeder system to select kids for the global Intel fair. “Almost every single province has students going to one of these affiliate fairs,” said Tan. “We have as many as six million kids competing, although not all are competing for the top levels... [But] you know how seriously they take it. Those selected to go to the international [Intel] fair are immediately exempted from college entrance exams” and basically get their choice of any top university in China. In the 2004 Intel Science Fair, China came home with thirty-five awards, more than any other country in Asia, including one of the top three global awards.
Microsoft has three research centers in the world: in Cambridge, England; in Redmond, Washington, its headquarters; and in Beijing. Bill Gates told me that within just a couple of years of its opening in 1998, Microsoft Research Asia, as the center in Beijing is known, had become the most productive research arm in the Microsoft system “in terms of the quality of the ideas that they are turning out. It is mind-blowing.”
Kai-Fu Li is the Microsoft executive who was assigned by Gates to open the Microsoft research center in Beijing. My first question to him was, “How did you go about recruiting the staff?” Li said his team went to universities all over China and simply administered math, IQ, and programming tests to Ph.D.-level students or scientists.
“In the first year, we gave about 2,000 tests all around,” he said. From the 2,000, they winnowed the group down to 400 with more tests, then 150, “and then we hired 20.” They were given two-year contracts and told that at the end of two years, depending on the quality of their work, they would either be given a longer-term contract or granted a postdoctoral degree by Microsoft Research Asia. Yes, you read that right. The Chinese government gave Microsoft the right to grant postdocs. Of the original twenty who were hired, twelve survived the cut. The next year, nearly four thousand people were tested. After that, said Li, “we stopped doing the test. By that time we became known as the number one place to work, where all the smart computer and math people wanted to work... We got to know all the students and professors. The professors would send their best people there, knowing that if the people did not work out, it would be their credibility [on the line]. Now we have the top professors at the top schools recommending their top students. A lot of students want to go to Stanford or MIT, but they want to spend two years at Microsoft first, as interns, so they can get a nice recommendation letter that says these are MIT quality.” Today Microsoft has more than two hundred researchers in its China lab and some four hundred students who come in and out on projects and become recruiting material for Microsoft.
“They view this as a once-in-a-lifetime income opportunity/' said Li of the team at Microsoft Research Asia. ”They saw their parents going through the Cultural Revolution. The best they could do was become a professor, do a little project on the side because a professor's pay is horrible, and maybe get one paper published. Now they have this place where all they do is research, with great computers and lots of resources. They have administrators-we hire people to do the dirty work. They just could not believe it. They voluntarily work fifteen to eighteen hours a day and come in on weekends. They work through holidays, because their dream is to get to Microsoft.“ Li, who had worked for other American high-tech firms before coming to Microsoft, said that until starting Microsoft Research Asia, he had never seen a research lab with the enthusiasm of a start-up company.
“If you go in at two a.m. it is full, and at eight a.m. it is full,” he said.
Microsoft is a stronger American company for being able to attract all this talent, said Li. “Now we have two hundred more brilliant people building [intellectual property] and patents. These two hundred people are not replacing people in Redmond. They are doing new research in areas applicable worldwide.”
Microsoft Research Asia has already developed a worldwide reputation for producing cutting-edge papers for the most important scientific journals and conferences. “This is the culture that built the Great Wall,” he added, “because it is a dedicated and direction-following culture.”
Chinese people, explained Li, have both a superiority and an inferiority complex at the same time, which helps explain why they are racing America to the top, not the bottom. There is a deep and widely shared view that China was once great, that it succeeded in the past but now is far behind and must catch up again. “So there is a patriotic desire,” he said. “If our lab can do as well as the Redmond lab, that could be really exciting.”
That sort of inspired leadership in science and engineering education is now totally missing in the United States.
Said Intel chairman Craig Barrett, “U.S. technological leadership, innovation, and jobs of tomorrow require a commitment to basic research funding today.” According to a 2004 study by the Task Force on the Future of American Innovation, an industry-academic coalition, basic research performed at leading U.S. universities-research in chemistry, physics, nanotechnology, genomics, and semiconductor manufacturing-has created four thousand spin-off companies that hired 1.1 million employees and have annual world sales of $232 billion. But to keep moving ahead, the study said, there must be a 10 to 12 percent increase each year for the next five to seven years in the budgets of key research-funding agencies: the National Institute for Science and Technology, the National Science Foundation, the Department of Energy's Office of Science, and the Department of Defense research accounts.
Unfortunately, federal funding for research in physical and mathematical sciences and engineering, as a share of GDP, actually declined by 37 percent between 1970 and 2004, the task force found. At a time when we need to be doubling our investments in basic research to overcome the ambition and education gaps, we are actually cutting that funding.
In the wake of the Bush administration and the Republican Congress's decision to cut the National Science Foundation funding for 2005, Republican congressman Vern Ehlers of Missouri, a voice in the wilderness, made the following statement: “While I understand the need to make hard cho
ices in the face of fiscal constraint, I do not see the wisdom in putting science funding behind other priorities. We have cut NSF despite the fact that this omnibus bill increases spending for the 2005 fiscal year, so clearly we could find room to grow basic research while maintaining fiscal constraint. But not only are we not keeping pace with inflationary growth, we are actually cutting the portion basic research receives in the overall budget. This decision shows dangerous disregard for our nation's future, and I am both concerned and astonished that we would make this decision at a time when other nations continue to surpass our students in math and science and consistently increase their funding of basic research. We cannot hope to fight jobs lost to international competition without a well-trained and educated workforce.”
No, we cannot, and the effects are starting to show. According to the National Science Board, the percentage of scientific papers written by Americans has fallen 10 percent since 1992. The percentage of American papers published in the top physics journal, Physical Review, has fallen from 61 percent to 29 percent since 1983. And now we are starting to see a surge in patents awarded to Asian countries. From 1980 to 2003, Japan's share of world industrial patents rose from 12 percent to 21 percent, and Taiwan's from 0 percent to 3 percent. By contrast, the U.S. share of patents has fallen from 60 percent to 52 percent since 1980.
Any honest analysis of this problem should note that there are some skeptics who believe that the sky is not falling and that scientists and the technology industry might be hyping some of this data, just to get more funding. A May 10, 2004, article in the San Francisco Chronicle quoted Daniel S. Greenberg, former news editor of the journal Science and author of the book Science, Money and Politics, who argues that “inside-the-Beltway science (lobbying) has always been insatiable. If you double the NIH (National Institutes of Health) budget in five years (as recently happened), they're (still) screaming their heads off: 'We need more money.'” Greenberg also questioned the science lobbyists' interpretation of a number of statistics.
The World is Flat Page 30