Intel CEO: U.S. faces looming tech decline

Intel CEO: U.S. faces looming tech decline
by Declan McCullagh
August 24, 2010 10:59 AM PDT

Intel chief executive Paul Otellini offered a depressing set of observations about the economy and the Obama administration Monday evening, coupled with a dark commentary on the future of the technology industry if nothing changes.

Otellini's remarks during dinner at the Technology Policy Institute's Aspen Forum here amounted to a warning to the administration officials and assorted Capitol Hill aides in the audience:

Unless government policies are altered, he predicted, "the next big thing will not be invented here. Jobs will not be created here."

The U.S. legal environment has become so hostile to business, Otellini said, that there is likely to be "an inevitable erosion and shift of wealth, much like we're seeing today in Europe--this is the bitter truth."

Not long ago, Otellini said, "our research centers were without peer. No country was more attractive for start-up capital... We seemed a generation ahead of the rest of the world in information technology. That simply is no longer the case."

The phenomenon of technology executives advancing dismal predictions and offering pointed critiques of Washington politicking isn't new, of course.

For instance: In 2005, midway through the Bush administration, Microsoft's Bill Gates told a Washington audience that curbs on immigration and guest workers would provide a boost to research institutions in China and India.

A year earlier, then-Intel CEO Craig Barrett warned that the U.S. must dramatically improve its education system.

That never happened. Nor did politicians follow Gates' advice to rethink laws that led to foreign engineers being kicked out of the country as soon as they finish their degrees.

And now, six years later with no significant reforms, it should come as no surprise that the predictions have become more dire.

Deep in a 'Do' loop

Otellini singled out the political state of affairs in Democrat-dominated Washington, saying:

"I think this group does not understand what it takes to create jobs. And I think they're flummoxed by their experiment in Keynesian economics not working."

Since an unusually sharp downturn accelerated in late 2008, the Obama administration and its allies in the U.S. Congress have enacted trillions in deficit spending they say will create an economic stimulus -- but have not extended the Bush tax cuts and have pushed to levy extensive new health care and carbon regulations on businesses.

"They're in a 'Do' loop right now trying to figure out what the answer is," Otellini said.

As a result, he said, "every business in America has a list of more variables than I've ever seen in my career." If variables like capital gains taxes and the R&D tax credit are resolved correctly, jobs will stay here, but if politicians make decisions "the wrong way, people will not invest in the United States. They'll invest elsewhere."

Take factories. "I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States," Otellini said.

The rub: Ninety percent of that additional cost of a $4 billion factory is not labor but the cost to comply with taxes and regulations that other nations don't impose.

Cypress Semiconductor CEO T.J. Rodgers elaborated on this in an interview with CNET, saying the problem is not higher U.S. wages but anti-business laws:

"The killer factor in California for a manufacturer to create, say, a thousand blue-collar jobs is a hostile government that doesn't want you there and demonstrates it in thousands of ways."

"If our tax rate approached that of the rest of the world, corporations would have an incentive to invest here," Otellini said.

But instead, it's the second highest in the industrialized world, making the United States a less attractive place to invest--and create jobs--than places in Europe and Asia that are "clamoring" for Intel's business.

The comments from Intel's chief executive echoed statements made a day earlier by Carly Fiorina, the former HP CEO turned Republican Senate candidate.

America's skilled-worker visa system is so badly broken and anti-immigration that "we have to start from scratch," Fiorina said, adding that too many government policies push jobs overseas instead of making U.S. companies competitive against international rivals.

"Our corporate tax rates are the second highest in the world," and Congress has repeatedly failed to make an R&D tax credit permanent, Fiorina told the Aspen audience.

It's time to start "acknowledging the reality that companies go where they're welcome," she said. (The effective U.S. corporate income tax is 35 percent, far over the industrialized-nation average of 18.2 percent.)

Chris Marangi, associate portfolio manager at Gamco Investors in Rye, N.Y., said Tuesday: "Capital is agnostic. It doesn't have a religion. It doesn't have a philosophy. It goes where it finds the highest returns."

The problem, Marangi said, is that many other "countries have a more friendly regulatory regime than we do."

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