The US is losing its competitive edge

This trend has disturbing implications not just for the future of American technological leadership but for the broader economy. According to Federal Reserve Board Chairman Alan Greenspan, "we have developed a shortage of highly skilled workers and a surplus of lesser-skilled workers." And the problem is worsening.

In a recent article (summarized here) Tom Friedman, NY Times columnist and 3 times Pulitzer Prizewinner, is seriously concerned that the US is losing its competitive edge.

Everyone thinks that the primary cause of offshore outsourcing is cheap labor. But today, labor is only a small fraction of the total cost of products made in automated high-tech manufacturing plants. China and other third world countries are already leap-frogging ahead with big equipment investments. At the same time, other than high-tech, bio-tech and isolated businesses, US manufacturing plants are spending very little on new equipment, and are becoming antiquated. They simply cannot compete.

Dick Morley often reminds us that many foreign governments are eager for employment and the transfer of technology, offering huge tax holidays and lots of other benefits for US manufacturers. Meanwhile, an excess of unfriendly regulation inhibits almost any US manufacturing expansion.

These days, the Department of Homeland Security is making it very hard for legitimate foreigners to get visas to study or work in America. So, many are simply going off to study in Western European countries, and even China and Russia. This means that America's ability to skim the cream off the best foreign graduates is reduced. We are losing a whole generation of foreigners who would normally come here to study, and then would take American ideas and American relationships back home. In a decade that will change America's standing around the world.

Today, the percentage of Americans graduating with bachelor's degrees in science and engineering is less than half of the comparable percentage in China, Japan and India. Anyone who thinks that all the Indian techies are doing is answering call-center phones for Dell and HP customers is sadly mistaken. Indeed, Indian software development is not only cheaper, it is produced in shorter timeframes, and in many cases it is better – innovative features and tighter code. Because of this advantage, many US companies are already moving serious R&D to India.

Today, the U.S. still excels at teaching science and engineering at the graduate level, and also in university research. But as the Chinese get more students through their high schools and colleges, they will catch up within a decade. Meanwhile, the US is flat-lining, or cutting back investments in physical science.

Under the Bush administration, the Defense Dept. has been the primary beneficiary of US budget increases, and most of the funds have been spent, not on research, but on weapons development. Outside of Defense, research funding has largely been concentrated on the life sciences and info-tech research.

Right now the US should be investing heavily to develop a hydrogen-based energy economy — it's within reach and would serve our economy, our environment and our foreign policy by diminishing our dependence on foreign oil. Instead, the Bush administration says, "Let's go to Mars!"

Where is Congress? Discussing offshoring - how to stop moving low level factory jobs to China; no national competitiveness strategy.

And where is Wall Street? Looking for a recovery by counting next quarter's earnings.

Today, we are in the middle of two major struggles. One is against the extremist terrorists in Iraq and elsewhere, and the other is a competitiveness-and-innovation struggle against India, China, Japan and other "third world" countries. While the US is focused on Iraq and terrorism, it is completely ignoring the latter.

The only crisis the US thinks it's in today is the war on terrorism. It's not. The other, more significant and insidious crisis is going on right before our very eyes.....

Despite expensive financing, Invensys is still in the dumps

Invensys recently announced final results for the year ended March 2004: pretax loss of £368 million ($655.2 million), versus a (restated) £1.329 billion loss in 2003. Turnover fell 23% £3.89 billion. Yuck@*! On Monday, June 14, 2004 Invensys' stock fell to 16p, and market-cap fell well below the £1 billion mark (£910 million).

CEO Rick Haythornthwaite recently raised £2.7 billion debt to rescue Invensys from bank foreclosure. But the debt was VERY expensive and benefited only the banks, who laughed all the way to the bank.

Last week, Morgan Stanley, one of Invensys' key advisers, forecasted an 83% cut in earnings per share for 2004/05, and cut its price target to 24p, expecting that restructuring charges will remain high in 2005 and 2006 and earnings recovery will take "longer than expected". Of course, nobody expects Haythornthwaite to be around to see that happen.

Meantime, Haythornthwaite's preparations for a quick and tidy exit are not quite working out. After selling Powerware to Eaton (the deal has now been completed) Ulf Henriksson head of Eaton's hydraulic division was hired as the new COO (apparently not connected with the Powerware deal). He joined in May, but remarkably, there has been no feedback on him yet, good or bad, on the Invensys weblogs or anywhere else.

In the meantime, to the delight of many, Sasan Goodarzi (ex Honeywell) who was universally disliked for his myopic, heavy-handed management style, suddenly up and quit. Goodarzi had worked for ousted Leo Quinn, and some think that he was booted by Mike Caliel, who now runs Foxboro.

Now that he's supposedly in charge, Caliel is expected to trim back investment in Archestra, the Wonderware software money-pit. Haythornthwaite, who doesn't really know much about the process automation business, naively swallowed Archestra hook-line-and-sinker, thinking it would be his primary ticket to stardom. Now it's a toss-up whether or not Ulf Henriksson will bite. Most likely he won't. So, look for a lot of heads to roll at Wonderware.

Meantime, the Henriksson appointment is clearly the first step in Haythornthwaite's departure. It would be poor form for him to exit right away, particularly after the expensive refinancing. But insiders insist that 'Slick Rick' will be gone by the end of 2004. Expect him to orchestrate a soft landing, with an announcement of a nice, new position in early 2005.

Movie: The day after tomorrow

Everyone in the US tries to cross the border into Mexico. Ironically, the strange turn of events shows US "wetbacks" illegally crossing the Rio Grande. Then the President of Mexico graciously agrees to accept US immigration if all past debt is forgiven.

These are all scenes from the $125 million eco-disaster movie "The Day After Tomorrow", which has been showing since the end of May. Peculiar name for a movie about global warming. Environmental groups (like Greenpeace and MoveOn) jumped on the apocalyptic vision of climate change to promote their cause, lobbying moviegoers about the real danger of a climate crisis.

The plot is simple enough. Because of global warming, the Atlantic Ocean is being diluted as Arctic ice melts. This dilution turns off the vital ocean current, known as thermohaline circulation, that normally carries warm water from the equator deep into the northern hemisphere by means of the Gulf Stream. The timeframe is exaggerated, but the premise is one of the real issues of our day. The danger signs point to big shifts in these kind of processes, as opposed to slowly hotter weather. Makes one wonder whether we should be doing something about this now, instead of postponing it for future generations to cope with.

Lending credence to this scenario, a Pentagon report states that the gradual global warming we're experiencing could plausibly trigger an abrupt climate snap, and that its effects would be massive, perhaps catastrophic.

In the next few weeks, the US Senate will be considering a bill sponsored by Senators John McCain and Joe Lieberman that would commit the United States to taking concrete actions to reduce global warming.

My own view of the movie - not bad. Though I wish they could have come up with a more imaginative name....

Problem: Robots without ethics

1. Robots at war: The prospect of robot weapons raises ethical questions. Who is morally accountable for a robotic war crime? Are machines permitted to give orders? In a world of networked minefields and ever-smarter bombs, are we blundering into mechanized killing fields where no humans are "responsible"?
2. Brain augmentation: The actions of remote-controlled rats can be manipulated by humans who are miles away. Almost anything that can be done to a rat can be done to a human. So, who is responsible when a remote-controlled human commits a crime?
3. Physical (as opposed to mental) augmentation: Japan has a rapidly growing elderly population and a serious shortage of caretakers. So Japanese roboticists envision walking wheelchairs and mobile arms that manipulate and fetch. The peripherals are machines, but the controller is a human being: old, weak, vulnerable, pitifully limited, possibly senile. As the machines become smarter, and more powerful, who is really responsible for its actions?
4. Human reaction to the presence of the humanoid. After having great success with its dog-shaped Aibo, Sony is now introducing Qrio, a human-shaped, self-propelled puppet that can walk, talk, smile, touch and take pictures. At a recent concert held in Tokyo on 15 March 2004, the 23-inch tall robot led the Tokyo Philharmonic Orchestra in a unique rendition of Beethoven's 5th symphony.

Robots without ethics is already a serious ethical and social problem!

Future Facts

• US researchers at the University of Florida have created a smart bullet that can wirelessly transmit back information from the target.
• Biodiesel, which is cleaner and cheaper than normal diesel and runs on normal diesel engines, is increasingly available in the USA. The number of consumer biodiesel fueling stations rose 50% last year to 200.
• Cancer researchers have genetically modified a virus to explode cancerous cells, leaving normal cells unharmed.
• The world’s first genetic cancer therapy is being launched in the UK. Genetically-engineered retroviruses will inject an enzyme into cancer cells, and the enzyme then activates an inactive drug, killing the cancer cell from within.
• Japanese researchers from Kirin Brewery and US researchers from biotechnology company Hematech claimed to produce a cow immune to mad–cow disease.

eFeedback

"My view (and soapbox) is that public ownership of the means this productivity would be one possible result. (Dare I say Communism?) I keep wondering if there are any good thinkers writing about this, and I hope that in your travels, you have come across someone. If Marx could have seen robots producing goods, I can't help but think that he would have seen the perfect communist worker.

"In your comments on job loss caused by productivity gains, aren't you suggesting that ultimately, everyone will be working less hours for the same financial result. Taken to its extreme, ultimately, very few people will have to work, and no one will have to work for basic food, shelter and health care. With the first huge productivity jump, the so called industrial revolution, it took approximately 100 years for the benefits to filter down to the workers. This productivity gain, I would guess, will take far fewer years for the same effect.

"So, as fewer and fewer people are employed to produce the goods and services an economy demands, a larger and larger segment of the potentially employable people are doing what? How many table waiters and burger turners can the economy absorb?

"At some point this trend fails to produce a viable economy, as the employed can no longer consume the goods and services the ultra high productivity produces, and the whole economy fails. Income redistribution in some form, must happen."

"I too have a web site and receive countless SPAMs. I route all of my e-mail through two (redundant) e-mail servers: yahoo.com and netaddress.com. Both feature excellent SPAM filters which they maintain. For the first several months I reviewed the trapped e-mail in their 'Bulk Mail' folders looking for false positives. I found a few, and with a click told them that those were not SPAM.

"Now, in the past 6 months, I have found no false positives. They filter out all of the really bad stuff, and gradually get better at it. This frees me to use SpamBeyes on the rest that does a pretty good job on the 10% of my e-mail that is not trapped as spam, but I have very little to review for false positives."

"Having lived through two previous gas "crises", I am not worried. It is self-regulating. The first gas crunch caught Chrysler with it's CAFE rating down and a full lot of big pickups and luxury cars with no buyers. Now, across the board, all auto makers have economical cars as well as those for enthusiasts. People will migrate to whatever motivates them. Our capitalistic economy will shift accordingly.

"In my house, it is the price of water, NOT the price of gas, that worries me. Water from my local utility costs $1.64 per THOUSAND gallons plus some delivery surcharges. Some clever people take that water, stick it in a plastic bottle and actually SELL it to my wife for several dollars per gallon. My wife and stepdaughter pass by the nice, cold, pre-chilled water from the refrigerator door and reach for the bottled water that costs MUCH more than gasoline.

"My stepdaughter - the one with the five dollar a gallon beverage - wants Kerry to become President so he can open up the gas reserves to lower the prices and make us TOTALLY dependent upon Middle East oil. I think we should just wait another quarter wave or two until this perturbation gets damped out along with all the others we have seen in the past hundred years of high dinosaur consumption. In the end, the time domain integral of cash flow from my wallet will increase slightly but then, why should today be different? The bumper sticker on my car (the one parked in the garage) reads, "Driver does not carry cash - He's married".

"Now if you can get the price of Gin to reach $2 per gallon, then we have something to talk about...."