High-Tech Leaders Weigh In on the Fiscal Cliff

During the last decade, high-tech leaders have focused on extending their supply chains to foreign countries at the expense of US economic growth. I thought about this manufacturing strategy when I read a letter the Technology CEO Council sent last week to President Obama and members of Congress.

The letter urged them to pass legislation that would prevent the across-the-board spending cuts and immediate tax increases often called the fiscal cliff. The council also urged lawmakers to implement pro-growth policies that engender fiscal sustainability.

The missive, signed by such luminaries as Dell Inc. chairman Michael Dell, IBM Corp. CEO Ginni Rometty, and Intel Corp. CEO Paul Otellini (who has since announced he will step down in May), offers an interesting assessment of how a stable US economy translates to a better business environment. At the same time, the letter prompts us to ask questions about how far the high-tech industry will go to prop up the US economy, given that so many companies have abandoned local manufacturing in favor of outsourcing or offshoring to Asia, Latin America, and Eastern Europe.

The fiscal cliff is no small matter. Economists say the US economy could plunge into another recession if the more than $500 billion of spending cuts and tax hikes Congress approved after the 2011 debt ceiling debate take effect in January. This scenario troubles high-tech leaders, who say letting these policies taking hold could undermine the economy and make it harder to restore growth and create fiscal sustainability.

What high-tech leaders want is stability. The letter prods congressional leaders on both sides of the aisle to come together around the recommendations outlined in the bipartisan National Commission on Fiscal Responsibility and Reform. The Technology CEO Council highlighted two key points stressed by the commission:

• Spending cuts should be strategic, rather than across-the-board. Investments in education, infrastructure and research have proven track records of spurring long-term growth. Additionally, modern business practices can help make government operations more efficient.
• Taxes should be reformed strategically and on a permanent basis, with the overarching goal of promoting the competitiveness of American workers and employers. With respect to business taxes, Alan Simpson and Erskine Bowles offered the proper formula, recommending lower rates, a broader base and territorial treatment of international income.

These are concerns worthy of our attention, but when examined against the decisions of the last decade, I'm not so sure high-tech leaders are genuinely focused on preventing public policies that will "harm American workers and families," as the letter says.

In fact, other things occurred during the first 10 years of the 21st century. After the largest terrorist attack on US soil, we asked our military men and women to fight two wars. And the George W. Bush administration implemented tax cuts in the hope that US companies would invest in their businesses, create jobs, broaden the tax base, and jump-start the economy. Instead of creating jobs in the US, the high-tech industry invested in expanding manufacturing and service capabilities elsehwere, primarily in Asia, where lower wages trumped lower US tax rates. This made it harder to create a broader US tax base, and it emboldened China to develop its economy, its high-tech industry, and its skilled labor force.

The high-tech industry cannot be blamed for all the economic problems that occurred under the Bush administration, but it can be said that companies like Apple, Dell, Hewlett-Packard, and IBM played their part in gutting US manufacturing, which didn't help the country's economic prospects during these years. In fact, this year's National Science Foundation Science and Engineering Indicators Digest showed that the United States has lost 28 percent (687,000) of its high-technology manufacturing jobs since 2000.

Assessing this recent history helps us to contextualize the high-tech industry's motives and gives us more insight into what it considers its most important task: making a profit at all costs. The letter concludes with an urgent plea to lawmakers to do all they can to find a solution to the nation's economic difficulties.

Few industries face greater global competition than America's tech sector, and few have stepped up to the challenge more aggressively. Our nation's difficult decisions are similar to the very hard questions tech sector leaders face in an unrelentingly competitive marketplace. Our history as a nation, and the history of successful technology companies, shows us the way. We urge you to act now.

The high-tech industry wants to have it both ways. It is asking lawmakers to implement policies that provide fiscal stability, but recent history shows that, when these companies had a chance to create manufacturing jobs in America, they chose to uproot their facilities to pay Chinese workers low wages. In short, the industry needs to take more responsibility for the US economy it says it wishes to create.

In the near future, we need a stronger commitment to the development of US technology manufacturing that will generate jobs along with a decent living wage. Only then can we take high-tech leaders' opinions on the economy seriously.