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George Scalise: Ensuring US tech leadership through policy action
By Suzanne Deffree, Managing Editor, News -- Electronic Business, 10/7/2008
George Scalise, president of the Semiconductor Industry Association (SIA), a bipartisan trade organization, and member of the President's Council of Advisors on Science and Technology, speaks to Electronic Business about the upcoming elections and the policy issues affecting technology innovation and future leadership, including R&D funding, H-1B visas, keeping manufacturing in the United States, and the education system. What follows are excerpts of that conversation.
Electronic Business: Why is it so important at this time in America's history that our government help to ensure the country's future leadership in technology innovation?
Scalise: There's a historical component to that that I think needs to be understood and that is not well understood by the policy folks in Washington. If you go back to the mid-1940s when Vanover Bush responded to a letter from President Roosevelt and came up with a game plan and a vision that basically said that leadership in technology was going to be the foundation for improving the standard of living, increasing healthcare, enhancing our culture, improving over the long term national security—a whole host of things that really made this country a better place. That has translated into a number of programs and funded basic research at the university level and that continues through today. It also was the basis for establishing the National Science Foundation. … As we then implemented all of that and the technologies then began to flow and we began to take advantage of that through our entrepreneurial energy, our legal system that nurtured this kind of thing, a change to the tax program in the 1960s that made a big difference in terms of folks investing. All of that is a background for where we are today.
So it's not a new thing. … In semiconductors, we have not only been the technology leaders for the last 50 years but we have also maintained our leadership in the marketplace around the world. There was brief period in the 1980s when we lost that to Japan, but we resolved that and regained that leadership and maintained it ever since. We have about 50% of that worldwide market, which is now approaching $300 billion. As a consequence of that, we [semiconductor industry] are the No. 2 exporter in the US. That's some of the background that gives us the confidence that not only as a nation have we done a good job but we as a nation need to continue to do that job if we want to maintain and enhance the standard of living we all enjoy in this country.
Electronic Business: It's pretty clear that we're in an economic crisis at this point. How could our economic state be corrected through the tech industry and the next administration's actions toward that industry?
Scalise: First and foremost, if Congress today—and I mean before they recess or when they come back in their lame-duck session—would address the innovation agenda that both sides of the aisle have been supporting for the last two years at least and longer, that would go a long way to setting us on the right track once again. There are three simple things that need to be done. First, we need to double the funding of basic research of physical sciences at our universities across the country. If you look at the data from the mid 1960s up through the early 1980s, as a percentage of GDP, it was about twice what it is today. We've allowed that to slip way, way down, and as a consequence we are beginning to lose that edge we had—we haven't lost it, but we are beginning to lose it—to older efforts on the part of some of our competitors around the world.
Number two … the question I get [when lecturing at Chinese universities] is "why can't we get visas to come and study in the US?" We still have the best research universities in the world and we have to make it easy for students from around the world that are interested and capable of studying here to get here to study. But then following that, getting that green card, staying, living, working, becoming a citizen, and contributing to the economy as so many have over the last 50 years. That whole issue of immigration policy has to be addressed. They have fumbled with that now for years. We are well past the time where we can continue to say, 'Oh well, next year, it's not the right year, it's a political year.' None of that works. We are past that. We have got to get them to take action.
The third thing is, all of the things that I opened this conversation with have now been recognized by many of our competitors around the world. As a consequence, they are developing and have put in place very aggressive tax and incentive programs to attract investment in research, design, and manufacturing—all of these areas that are very important to maintaining technology leadership or in their cases trying to gain technology leadership. We're losing too much of that. We don't have to have perhaps as much as we had, but we have to maintain a critical mass here. Otherwise there is no reason for the universities to do the research, there's no reason for the students to take the courses, because the jobs won't be here.
We have to have an enlightened, aggressive, competitive tax policy, as well as the kinds of incentives and grants and subsidies that make it necessary for these companies to place their factories where they can be most competitive in world markets. These global markets are very competitive; you can't have a higher cost base and still think you are going to compete. But the inherent costs in manufacturing or research, for example, are little different. They are almost identical whether you put it in China or whether you put it here. It's going to cost about the same there as it will here. The thing that changes the decision as to where you put that is taxes, subsidies, and grants. They are huge. For a manufacturing facility, it costs about $3 billion to $4 billion to build that factory. You will earn about a billion dollars more with that factory by putting it in China or some other countries than by putting it in the US over a seven- to 10-year period. That's huge. You can't ignore that. We can no longer afford to be the highest corporate tax country in the world. It won't work. It will drive investment away. It will drive jobs away. And it eventually will erode our technology leadership. We have got to become competitive in all of these areas.
Electronic Business: Going back to the immigration reform, what's your view of the H-1B visa situation?
Scalise: You could make a lot of points there, but let me just focus on one issue alone. The H-1B visa is so important to maintain stability in the career path of young people that we have got to make it easy and obvious for them to get one once they have completed their studies. Once they have completed those studies they should be able to get that green card immediately. There shouldn't be anything that gets in the way of that. If we can do that, we are going to continue to take advantage of this source of bright young talent from around the world and maintain the leadership we enjoy in all of these areas today. The easiest way to do that would be to exempt those students who have graduate degrees in the physical sciences or the life sciences from the quotas that are associated with the H-1B visa program. You're only talking about a few thousand here, but unfortunately when they get caught up in the overall mix of things in the H-1B visas it doesn't matter how many there are, they still get absorbed in a day or two.
For more information on government policies impacting tech, visit SIA's Choose to Compete Web site.
Electronic Business: What should be done to expand the US' STEM (science, technology, engineering, and math) talent into the next generations, besides reworking the immigration system? What role do you think the federal government should play in preparing K-12 students for the science and technology careers?
Scalise: There are a few very simple things that need to be done. First of all, we need to have a school system that is functioning well. One that isn't an environment that is essentially a locked building for security reasons…. We have to find a way to get better with regard to a more open environment in our school system so that young people know that it's just a good, free environment like we grew up in. Somehow we have to get back to that.
Beyond that we have to have the kind of administration, the kind of oversight, to manage the school system more effectively. It's not just about money. It's also about how well one spends that money, how effectively one spends that money. The first thing that we ever hear out of any politician, any administrator, is "we need more money." There may be a need for more money. There may also be a way to utilize the money that is available already far, far better. …
The third point is we have to train teachers in the math and science arena that are truly passionate about teaching those studies and are willing to be there working with these students and helping them get this interest so that they build on that early interest and study math and science in college. … That probably also says that we need a different compensation package for the teachers, that one size doesn't necessarily fit all. We have to find some way to compensate those who are more effective, who are getting a better job done, who are teaching programs that are much more complicated and difficult to get teachers to become capable of handling. We have to look at that whole compensation system, just like you do everywhere else—you are competing for the best talent.
If we do those three things, I think we can get a program under way that is going to change the current situation where we don't have nearly enough of our young people interested in math and science. And as a result, in the universities, two-thirds of our graduate students in the physical sciences are foreign born. … Now we are almost completely dependent on these foreign students to come over here and fill these graduate seats.
Electronic Business: What are your thoughts on the current state of the America COMPETES (Creating Opportunities To Meaningfully Promote Excellence In Technology, Education, And Science) Act?
Scalise: It's stuck. That's the best thing I can say. It has not moved. It has to get freed up and there has to be enthusiasm on both sides of the aisle to get it passed and in place. It's not a lot of money. That's the interesting thing about this. You look at the farm bill and some of these things and that's big funding. We're not talking about that much money here. It's a few billion in some of these programs.
Electronic Business: The Senate recently approved the US R&D Tax Credit extension. The SIA applauded the action, welcoming passage of the two-year extension, but continued to press for permanent extension. Can you elaborate on why?
Scalise: If you are going to do research, you have to have a long horizon. Research isn't done in a day or a week or a month or a year. It takes years. There has to be certainty with regard to the funding. There's no certainty associated with it if it has to fight for its survival every year and, like last year and the current year, it doesn't get approved. The uncertainty associated with it destroys a large part of the value associated with the R&D credit.
Electronic Business: There's been talk of some sort of national science and technology advisor or national CTO by both presidential candidates, Republican John McCain and Democrat Barack Obama. What are your thoughts on such a position, and do you believe such a position could help steer the government toward recognizing tech again as such an important part of our economy and prosperity?
Scalise: What troubles me about that is we already have that office. We have the Office of Science and Technology Policy. Through that office there is the President's Council of Advisors on Science and Technology, which pulls together some of the very best talent we have in the country. The leader of that organization has always been very preeminent scientists and very well recognized. We have that, so why add another one? Why don't they just look at what we have and if there is something we need to add to it or change, let's do that. I happen to be on the President's Council of Advisors on Science and Technology and think it's working very well. In fact, a study we did [and] presented to President Bush provided the foundation for what he then put into his [2006] State of the Union Address that resulted in the America COMPETES Act. The mechanism, the organization, the leadership is already in place. There is no need to add another office of some kind.
Electronic Business: What can the average engineer do to encourage better policies for tech innovation?
Scalise: It's like everything else that we as individuals can do. The first place we can go is to our representative and make our case there. You can always do some of the other things like trying to go to a senator or to a Washington agency, but I think that gets a lot harder. The one thing that the representative can do is get access to the people that matter because when they call, the folks on the other end listen.
Electronic Business: Any final thoughts on the coming election or technology innovation?
Scalise: I do hope that some time in one of these debates or at some point in this process that the issue of maintaining our technology leadership becomes a central theme, a central concern that we begin to talk about. There is so much trivia that is talked about that doesn't matter at all, and the things that are critical that are really going to make a difference are going to be left behind. I would like to see a commitment on both sides of the aisle to a technology program, funding basic research, an immigration reform program, an investment program that allows companies, individuals to do the job they want to do here in the US and do it cost effectively so they can compete in world markets. Again, if we [semiconductor industry] can be the No. 2 exporter in our country, it's because we are good at what we do. There are lots of other industries that could be doing just as well as we are if we did that basic research, if we attracted those best students, if we had the immigration policies that nurture that and maintain the investments here in the US as opposed to going somewhere else. That's what I'd like to see happen.
