A Word From the Wise by Thomas Friedman

By Thomas Friedman
I was traveling via Los Angeles International Airport — LAX — last week. Walking through its faded, cramped domestic terminal, I got the feeling of a place that once thought of itself as modern but has had one too many face-lifts and simply can’t hide the wrinkles anymore. In some ways, LAX is us. We are the United States of Deferred Maintenance. China is the People’s Republic of Deferred Gratification. They save, invest and build. We spend, borrow and patch.

And this contrast is playing out in the worst way — just slowly enough so the crisis never seems acute enough to take urgent action. But, eventually, infrastructure, education and innovation policies matter. Businesses prefer to invest with the Jetsons more than the Flintstones, which brings me to the subject of this column.

I had a chance last week to listen to Paul Otellini, the chief executive of Intel, the microchip maker and one of America’s crown jewel companies. Otellini was in Washington to talk about competitiveness at Brookings and the Aspen Institute. At a time when so much of our public policy discussion is dominated by health care and bailouts, my public service for the week is to share Mr. Otellini’s views on start-ups.

While America still has the quality work force, political stability and natural resources a company like Intel needs, said Otellini, the U.S. is badly lagging in developing the next generation of scientific talent and incentives to induce big multinationals to create lots more jobs here.

“The things that are not conducive to investments here are [corporate] taxes and capital equipment credits,” he said. “A new semiconductor factory at world scale built from scratch is about $4.5 billion — in the United States. If I build that factory in almost any other country in the world, where they have significant incentive programs, I could save $1 billion,” because of all the tax breaks these governments throw in. Not surprisingly, the last factory Intel built from scratch was in China. “That comes online in October,” he said. “And it wasn’t because the labor costs are lower. Yeah, the construction costs were a little bit lower, but the cost of operating when you look at it after tax was substantially lower and you have local market access.”

These local incentives matter because smart, skilled labor is everywhere now. Intel can thrive today — not just survive, but thrive — and never hire another American. Asked if his company was being held back by weak science and math education in America’s K-12 schools, Otellini explained:

“As a citizen, I hate it. As a global employer,I have the luxury of hiring the best engineers anywhere on earth. If I can’t get them out of M.I.T., I’ll get them out of Tsing Hua” — Beijing’s M.I.T.

It gets worse. Otellini noted that a 2009 study done by the Information Technology and Innovation Foundation and cited recently in Democracy Journal “ranked the U.S. sixth among the top 40 industrialized nations in innovative competitiveness — not great, but not bad. Yet that same study also measured what they call ‘the rate of change in innovation capacity’ over the last decade — in effect, how much countries were doing to make themselves more innovative for the future. The study relied on 16 different metrics of human capital — I.T. infrastructure, economic performance and so on. On this scale, the U.S. ranked dead last out of the same 40 nations. ... When you take a hard look at the things that make any country competitive. ... we are slipping.”

If the government just boosted the research and development tax credit by 5 percent and lowered corporate taxes, argued Otellini, and we “started one or two more projects in companies around the country that made them more productive and more competitive, the government’s tax revenues are going to grow.” With the generous research and development tax credits and lower corporate taxes they receive, Intel’s chief competitors in South Korea basically have “zero cost of money,” said Otellini. Intel can compete against that with superior technology, but many other U.S. firms can’t.

Does the Obama team get it? Otellini compared the Obama administration to a “diode” — an electronic device that conducts electric current in only one direction. They are very good at listening to Silicon Valley, he said, but not so good at responding.

“I’d like to see competitiveness and education take a higher role than they are today,” he said. “Right now, they’re going to try to push this health care thing over the line, and, after that, deal with the next thing. God, I’d just like this [our competitiveness] to be the next thing. Something has to pay for” everything government is doing today.

We had to do the bailouts, the buy-ups and the jobs bills to stop the bleeding. But now we need to focus on the policies that spawn new firms and keep our best at the top. “Having run a company through a major transition, it’s a lot easier to change when you can than when you have to,” said Otellini. “The cost is less. You have more time. I am a little worried that by the time we wake up to the crisis we will be in the abyss.”

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