The solution to ‘offshoring’ problem: Innovation

Thomas Friedman recently wrote an excellent New York Times column on the topic of “offshoring.” He concluded, “This is a wake-up call for U.S. workers to redouble their efforts at education and research. If they do that . . . it will spur a whole new cycle of innovation, and both [the U.S. and India] will win.”

He’s right, with one important caveat: It’s not U.S. workers who need to redouble their efforts. It’s the U.S. government.

Before you write me off as another supporter of wasteful government spending, let me explain. Today’s Internet infrastructure and concomitant productivity enhancements are the direct result of targeted government spending during the 1980s and early 1990s, when the National Science Foundation directly underwrote the cost of connecting universities to the ‘Net.

Why? Scientists and engineering researchers had discovered that Internet connectivity so vastly improved their productivity that a gap was opening between Internet “haves” and “have nots.” Interconnected departments could conduct research and generate new ideas in a fraction of the time that unconnected folks required. So they went to the government and demanded a level playing field for all researchers (which, as a fledgling particle physicist at the time, I deeply appreciated). Next, businesses wanted in on the game – and the Internet as we know it was born.

This is a common cycle. It happened with computers – whose primary purpose initially was to solve military and scientific problems – the Internet, the Web (which was invented by particle physicists) and now grid computing. Technology innovation is often launched by a few government-funded laboratory geeks. As a technology gains wider industry acceptance, it creates well-paying jobs for a much larger group. Over time, as the technical skill set commoditizes, salaries go down and the jobs go offshore – but a new cycle of innovation creates a new round of high-paying jobs in another technology area.

The key to maintaining this cycle lies in continuing research and development investment. We’re not talking exorbitant sums – the Internet backbone’s operational budget was a measly $10 million per year in the early 1990s. Although commercial research facilities can pick up some slack, there’s an inherent conflict of interest between the good of corporate shareholders and the good of the economy. IBM or Cisco can’t be expected to foot the bill for technology innovations that might potentially reduce their market value.

For that reason, the government plays a small but indispensable role in sustaining innovation. This isn’t a partisan issue. Offshoring isn’t good because it helps business, or bad because it hurts U.S. workers. It’s the result of a predictable economic cycle that can benefit everybody by creating new industries and continually streamlining productivity.

So if you’re trying to decide who to vote for, keep in mind that investing in technology R&D is the best way to improve business productivity and ensure a steady job supply – and grill your candidate of choice for his position on the topic.