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Silicon Valley's Call: Smarten Up, America!

The only thing tech industry leaders love to talk about more than innovation is why it's in jeopardy. True to form, an all-star cast of Silicon Valley execs is renewing its perennial call for a raft of changes in government and social policies.

At a Nov. 16 summit in San Jose, Calif., hosted by the bipartisan political-action network TechNet and moderated by public-television personality Charlie Rose, there was clearly more than a whiff of self-interest. TechNet members, who include such luminaries as Cisco Systems (CSCO) Chief Executive John Chambers and venture capitalist John Doerr, continue to voice their opposition to policies, such as expensing stock options, that appear very unlikely to change anytime soon.

Yet they also mentioned a host of other challenges that they believe are threatening the U.S. "We are falling further and further behind in innovation," said Doerr. He reeled off six problems that he says will cause the U.S. to lose leadership in technology and innovation if they aren't addressed: a neglected educational system; insufficient research and development; a lackadaisical push for high-speed Internet access or broadband; an anti-free-trade attitude; poorly organized health care; and the absence of a plan for lessening U.S. dependence on foreign energy sources.

BROADBAND DILEMMA. Doerr, who has backed Democratic candidates in recent years, didn't blame President Bush by name, but noted, "The leader holds the bully pulpit." He chided the government for failing to agree on how to promote much faster broadband to the home, in particular: "We didn't have leaders saying this is very important to the economy."

Jerry Yang, co-founder and chairman of Yahoo! (YHOO), pointed out that the U.S. remains far behind some Asian countries in broadband. Korea and Japan, for example, offer consumers far faster broadband connections than the standard in the U.S.

That's a problem, said Reed Hastings, CEO of the DVD-rental service Netflix (NFLX). Hastings thinks the next phase of the Web won't arrive until people in the U.S. can get bandwidth of 10 megabits per second, or about 10 times the common rate here, at a comparable price. Only then, for instance, will people really be able to watch video online comfortably. But he says that's now three to six years off.

LIMITED TALENT. Tech leaders fretted that falling R&D spending could cripple the U.S. in the future. "I'm very worried, as we cut back on our R&D, that we will fall behind the rest of the world," said Chambers. Doerr also lamented the lack of open-ended research at organizations like the Defense Advanced Research Projects Agency, which currently is more focused on specific programs.

Along the same lines, participants in the conference called for fewer limits on immigration. More stringent immigration limits, thanks to post-9/11 security concerns, are a big problem, said Doerr, because they're cutting the U.S. off from foreign research and engineering talent: "Imagine innovation without [former Intel (INTC) CEO] Andy Grove, without Jerry Yang, without [Google (GOOG) co-founder] Sergey Brin." Grove hails from Hungary, Yang from Taiwan, and Brin from Russia.

The result of immigration limits is that we're losing more foreign-born people who get educated here, said Esther Dyson, editor of the tech newsletter Release 1.0. "Right now, we're spending resources on people only to send them back to other countries," she said. "They used to stay here."

CHANGING AMERICAN MINDS. And if they can't stay here, said Chambers, companies will have to go overseas to hire them. Although he didn't present that precisely as a threat -- Cisco and others, of course, are already going overseas for engineering and research talent -- Rose responded more passionately than he did with just about any other question he asked: "You guys are leaders," he nearly bellowed. "Are you doing enough?"

While the leaders singled out education for the biggest criticism, they offered the fewest clear solutions on the matter. Doerr called for setting a goal -- matching one of the innovation-promoting proposals put forward by the Democratic Party the same day -- of adding 100,000 new engineers and scientists in the U.S. in the next four years. Yet specifics on the topic didn't emerge.

Ultimately, most of the challenges require a big change in mind-set in American society at large.

GOOGLE RESTART. That's where Dyson aimed her barbs. "The country has grown lazy and complacent," she said. "We've created a country where we've outsourced the intellect to other countries." Instead of trying to figure out how to beat the Chinese, she said, we need to try to "beat ourselves and help the Chinese" succeed, so that the U.S. has that huge market to sell to, she said.

While Rose was clearly in agreement with most of the sentiments the Valley leaders espoused, he asked whether the concern about China's rise was as mistaken as similar concerns about Japan 20 years ago. "Japan was very different," responded Doerr, who noted that Japan's economy was much more closed. Moreover, the U.S. in fact did respond, with initiatives such as the Sematech chip-manufacturing consortium that strengthened the domestic semiconductor industry.

Still, the solution may well come down to the usual thing the Silicon Valley does: A startup comes in and rips up the standard way of doing things, showing how to do it better. And, now, that's Google. Indeed, while Google may look like the prototypical startup in the Valley mold, Hastings noted that it's actually quite different from the Valley mold of the past couple of decades.

COST OF INNOVATION. Hastings says Google is "way out on the edge" of even the Valley's attitude that technology is worthwhile to develop, regardless of what the market for it turns out to be. "Google's the purest embodiment of innovation for its own sake," he said, like the Hewlett-Packard (HPQ) of old. "They differ in how they organize the company and think about technology," he said. "It's very fresh."

At the same time, the rise of Google has increased the cost of doing business for other companies. Hastings said software-engineering salaries have jumped 50% in the last couple of years, largely because Google's hiring so many of the best. Maybe that's the price of the disruptive approaches that keep innovation alive.


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