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The "Geek Gap": the erosion of America's manufacturing base is undermining our research and development capacity--and, unless reversed, will lead to a shortage of hi-tech engineers.

In May 1961, shortly after the Soviet Union placed Yuri Gagarin into orbit, President John F. Kennedy issued a challenge to send an American to the moon before the end of the decade. Roughly eight and a half years later, Neil Armstrong and Buzz Aldrin left their footprints--and planted a U.S. flag--in lunar soil, thereby securing an American victory in the "Space Race" with the Soviets.

The eight-year campaign that led to the Apollo 11 lunar landing consumed $150 billion in today's dollars. That money was spent on a complex, multi-phase effort to build and test an entirely new set of technologies. The effort also enlisted tens of thousands of top-flight engineers in numerous fields. Since Apollo 17's Lunar Module Challenger lifted off on December 14, 1972, no human being from any nation has set foot on the moon. NASA has announced an ambitious plan to return to the moon, this time using an expanded and updated "Crew Exploration Vehicle" capable of taking four astronauts, rather than two, to the lunar surface.

Where the 1960s Lunar Program accomplished its objective in less than a decade, however, NASA's 21st-century revival, which was announced last fall, doesn't anticipate a return to the moon anytime before 2018. By the time Americans once again leave footprints on the lunar surface, it is possible that others will have gotten there before us.

"India's 20,000 space workers are readying [an unmanned] lunar orbital mission set for 2007," reported the February 12 Los Angeles Times. "Japan plans to send a robotic rover to the lifeless rock by 2013, and the European Space Agency has a probe, SMART-1, orbiting the moon." Only two countries, the United States and Communist China, are seriously discussing a manned mission to the moon. China, which recently completed its second successful orbital mission, "says it wants to land two 'taikonauts'--as Chinese astronauts are called--as early as 2017."

In anticipation of a manned landing, China is preparing to launch the Chang'e 1 probe in 2007, which would make orbital studies of the lunar environment. Beijing also plans a robot sample-return mission in 2012. All of the planned lunar missions will pay particular attention to the lunar poles, which Ben Bussey of Johns Hopkins University calls "the most valuable [non-terrestrial] pieces of real estate in the solar system" because of the possibility that water could be found there. Other probes may serve as prospectors for valuable resources, such as platinum-group minerals.

Unlike the two-sided Cold War Space Race, the Moon Rush of the early 21st century promises to be a multi-party competition. And the United States has spotted our competitors--particularly China and India--an early lead.

Getting back to the moon would require a substantial manufacturing base, an extensive research and development capacity, and a deep pool of engineering talent. Whatever one thinks of the wisdom of Washington's space program in the 1960s (which was carried out, it must be acknowledged, without constitutional warrant), its success attested to the fact that the United States led the world in all of those crucial categories. This is no longer the case, in large measure because of decades of federal policies apparently designed to undermine our manufacturing sector.

The Widening Gap

While our nation still produces a large population of talented research engineers, the manufacturing base that would provide them with lucrative careers has shrunk dramatically--and as that base has contracted, the same has happened to our R&D efforts.

Increasingly, U.S.-based manufacturers are investing in R&D efforts abroad, particularly in China and India. Each of those countries annually graduates several times as many engineers as the United States--and that pool of engineering talent is composed of bright, capable people who will work for a fraction of what their American counterparts make.

Business Week, which believes that pessimism over our declining population of engineers is exaggerated, admits that "the US graduates only 70,000 engineers a year, and enrollment in engineering schools is declining fast. India, meanwhile, turns out 350,000 engineers annually, while Chinese universities produce 600,000, by some estimates. Indeed, with Asian techies earning anywhere from a quarter to a tenth of what their Western counterparts do, doomsayers ask why any intelligent young American would pursue engineering."

Not everybody is convinced that the "Geek Gap" between the U.S. and its industrial rivals is a serious problem. Tech entrepreneur Vivek Wadhwa, presently the executive in residence at Duke University, has produced a study that suggests "estimates of Indian and Chinese numbers [of engineers] can be wildly exaggerated, while America's are understated," reports Business Week.

In an effort to attract foreign investment, China inflates its population of engineers, in some instances including such low-tech workers as automotive workers in that cohort. "The numbers seem to include anybody who has studied anything technical," Wadhwa says. However, he admits that his relatively optimistic assessment of career prospects for U.S. engineering graduates is challenged by those actually working in the field, who describe "the grim reality they're witnessing in downsized American R&D labs," notes Business Week. "And other studies point to different signs of ebbing American dominance in science and technology: The US share of scientific papers is declining.... And even though American engineering schools may be producing more grads than some data might indicate, many of their students come from overseas."

Signs that America is losing the initiative in scientific innovation are particularly ominous, given the division of labor practiced by an increasing number of U.S. tech firms: outsourcing practical engineering abroad, while hiring American engineers as "innovators" and "architects."

Outsourcing R&D

Conexant, a cutting-edge broadband digital communications company headquartered in Newport Beach, California, offers a case study of this business model in action. The company was launched in 1999 after Rockwell International Corporation spun off its Rockwell Semiconductor System to a group of shareholders. Rockwell was perhaps the most significant contractor in NASA's lunar program, building the mammoth Saturn V boosters that thrust the Apollo spacecraft to the moon.

In an interview with the Orange County Register, Conexant chairman Dwight Decker reported that "half the company's engineers now are located in Asia, up from 10 percent 18 months ago," as the paper summarized. "The model now, he said, 'is for the innovators and architects' to be in America, with the 'implementation' by Asian engineers."

Commenting on Decker's observations, Register editorial writer Steven Greenhut pointed out that the division of labor he describes will have a dramatic negative impact on America's manufacturing sector and economy at large. "Yes, America will still be home to the innovative elite, where the innovators and architects of technology will be gainfully employed and handsomely compensated," writes Greenhut. "But engineers and even assemblers will be located overseas, which will knock several rungs off the nation's economic ladder." This arrangement will also cultivate an innovative elite abroad, who will supplant our own "innovators and architects"--and will likely do so much sooner than most people anticipate.

With an ongoing recession in the U.S. manufacturing sector, industry funding for R&D has declined sharply. According to US Manufacturing Innovation At Risk, a recent study published by the Council of Manufacturing Associations and the Manufacturing Institute, "Manufacturing businesses performed $123 billion of domestic R&D in 2003, 42 percent of total US R&D. That share is down about 10 percentage points from the late 1990s."

Federal R&D subsidies, largely for defense and space-related research, declined drastically in the 1990s, but have grown in recent years, chiefly due to increased military spending. But private R&D funding drives innovation, and where domestic research is concerned, that pool of funds is drying up. "In real terms," observes the Innovation At Risk report, "funds available for industry R&D have fallen 1.6 percent per year during 2000-2003, largely due to a decline in the funding provided by the companies themselves."

A different trend can be seen in "funding of R&D abroad by US companies," the report observes. "Funds provided for foreign-performed R&D have grown by almost 73 percent between 1999 and 2003 with a 36 percent increase in the number of firms funding foreign R&D.... This increase in funding for foreign-performed R&D indicates that industry investment in R&D is not quite as weak as indicated by domestic numbers alone."

Commentator Paul Craig Roberts, a former Treasury Department official who has become a one-man economic truth squad, describes those findings bluntly: "US industry is still investing in R&D after all; it is just not hiring Americans to do the R&D. US manufacturers still make things, only less and less in America with American labor. US manufacturers still hire engineers, only they are foreign ones, not American ones. In other words, everything is fine for US manufacturers. It is just their former American workforce that is in the doldrums."

Insourcing Foreign Workers

While U.S. firms are increasingly outsourcing R&D, they are also insourcing foreign engineers to work in this country. Notes the Innovation At Risk report: "The percent of foreign-born workers among doctoral degree holders in the US science and engineering workforce approaches 30 percent." Many of them have been brought to the U.S. on H-1B and L-1 visas, which permit U.S.-based companies to import high-skilled foreign laborers to work in this country below the orevailing wages. The H-1B visa program was created to address a supposed shortage of specialized workers in technical fields. Of course, that "shortage"--like the supposed lack of U.S. citizens willing to do the manual labor performed by illegal immigrants--would disappear if the wages being offered made the jobs attractive to qualified American workers. Under the H-1B program, foreign workers brought to the U.S. are supposed to be paid the prevailing American wage. However, the program artificially expanded the labor supply by including millions of foreign workers, thereby removing the incentive to increase U.S. wages to a level that would attract talented, qualified U.S. engineers.

The L-1 visa program built on that betrayal by permitting U.S.-based multinationals to transfer foreign workers to the U.S., and continue paying them the wages that they made abroad. In this fashion, Asian hi-tech workers who often make one-third what their U.S. counterparts earn are brought to this country, where the Americans spend the last few weeks or months of their employment training their foreign replacements.

"Loopholes in the L-1 visa law or negligence in its enforcement allow US corporations to contract with foreign companies to supply them with [hi-tech] workers," relates Roberts. "This keeps the foreign workers off the US corporations' payrolls and permits the corporations to confine their dealings to the foreign 'consulting' firms that provide the replacements for US employees. This allows US corporations to claim that they are paying 'prevailing wages' to all employees."

Bright, ambitious young Americans who aspire to become engineers or work in other challenging hi-tech fields must commit to a lengthy and expensive educational path. Presently, the end of that path finds many American engineers, saddled with huge student loans to pay off, in competition with foreign workers who will work for a fraction of what Americans would earn. The result is a glut of salesmen, clerks, and Wal-Mart workers with engineering degrees. Not surprisingly, increasing numbers of young Americans who would otherwise choose an engineering career end up selecting a different career path.

Dependence and Interdependence The growing "Geek Gap" is a reflection of federal policies that have undermined our manufacturing base--from tax and regulatory burdens that artificially increase production costs, to immigration policies that put American hi-tech workers into artificial competition with foreign workers, to direct subsidy of foreign competitors by way of the World Bank and its satellite institutions. Washington must begin to fix the problem by undoing these policies.

The Bush administration's agenda to enhance U.S. competitiveness is built around a package of bills collectively known as the Preserving America's Competitive Edge (PACE) initiative. That cluster of bills, notes Alan Bock of the Orange County Register, is an outgrowth of a report commissioned by the National Academy of Sciences. That report concluded that the United States will surrender its global leadership in science and technology "without government intervention." In fact, Bock points out, "what threatens U.S. competitiveness is more a surfeit of government intervention, through high taxes and pervasive regulation, than a deficit [of the same]."

Nonetheless, the PACE agenda--to which at least 60 senators have lent their support--would open up a new gusher of federal subsidies. S. 2197 would create new programs through the Department of Energy to underwrite physics research and promote math and science education. S. 2198 would fill the education lobby's trough with billions of dollars in new subsidies and grants for the putative purpose of producing 10,000 more math and science teachers.

Incredibly, given the damaging role that has been played by corporate outsourcing of R&D, and insourcing of foreign engineers, that bill includes a "visa reform" provision intended to attract more foreign math and science graduate students.

PACE promises lucrative new subsidies for federal bureaucracies and the teachers' lobby. It would further expand the pool of foreign hi-tech workers. It would divert another huge increment of capital away from the private sector, some of which otherwise would be spent on R&D efforts. And it would leave our hi-tech manufacturers even more dependent on Washington.

While most Americans were thrilled by the accomplishments of the U.S. Space Program, it illustrated the concept of a national industrial policy--essentially a polygamous marriage between Big Government and a number of large corporate interests. This arrangement, while profitable to both the Leviathan State and its consorts, actually stifles innovation by devouring resources that would otherwise be used in private research efforts.

As the 21st-century Space Race escalates, the growing "Geek Gap" between the U.S. and its foreign competitors may result in an international industrial policy. In the drive to return to the moon, "no country, including the United States, can afford to go it alone--financially or technologically," contends the Los Angeles Times.

The U.S. flag planted by Armstrong and Aldrin testifies that in 1969, the United States was a manufacturing powerhouse capable of reaching the moon by itself. As our manufacturing and engineering base disintegrates, it becomes increasingly likely that if we return to the moon in 2018, it will be as part of an international effort to build a "global lunar village," perhaps under the flag of the United Nations.

But it need not be so. By implementing a wise immigration policy, lowering the costs imposed by government, and decreasing regulatory burdens, America could again become the dominant force in the hi-tech world.
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Title Annotation:INDUSTRY
Author:Grigg, William Norman
Publication:The New American
Geographic Code:1USA
Date:Apr 17, 2006
Words:2456
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