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What can software industry teach Washington? A lot

September 6, 2011 Leave a comment

The software industry is a remarkable microcosm of how economic wealth – shared by everyone (employees, shareholders, customers) – can be created and more importantly become a very powerful force to influence the creation of new markets … leading to more cycles of wealth creation.

Can the software industry teach Washington and perhaps Brussels (EU) something of value?

I rarely write about political topics (although I am very much engaged).   This is the first time I decided to write a blog entry which will hopefully resonate with everyone.

Let’s imagine a conversation where your child will ask you several questions.   Children have a rare, non-biased ability to see through the ‘mist’ and ask very direct questions.

1.   Daddy, I would like to become a software engineer in 10 years?   Will I have a job in the United States? 

Yes.   But only if you make a fundamental commitment to become the best problem solver first.   Then – you must become a master of technology who creates software that works correctly, the first time.   Nothing less will do.

Chances are you will be quickly hired by a small, dynamic company and later acquired by Facebook or Google because both companies cannot hire great engineers fast enough and choose to acquire smaller companies because of the talent these companies were able to find and develop.

Do not plan to enter the software industry because of high compensation alone.   The software industry is going through a fundamental shift:  software everywhere means more complex, 100% reliable software everywhere.    Mediocre engineering skills are no longer needed.

2.  Mommy, what if I don’t have enough money for college? 

In the US, official unemployment is approximately 9%.   Unofficial unemployment is much higher.    Yet, software companies cannot find enough qualified candidates.   Why?

“The mind is a terrible thing to waste”.    During the last 20 years, the United States educational system simply failed to produce enough engineering talent.

It gets worse.    Foreign-born engineers and entrepreneurs are moving back to their home countries and creating businesses there instead of the US.    Fewer business means slower employment growth and less revenue for the cities, states, and the Federal government.

Can it get worse?  Yes – public education spending is under severe pressure while private colleges are becoming more expensive, exceeding the rate of inflation by a wide margin.

Can it get any worse?   Yes – many parents took equity loans from their houses to finance the education of their children.    The housing crisis,  the recession of 2008, growing unemployment, and depreciating housing values left many parents no choice but to file for bankruptcy.

Message to Washington:   while running for office, almost every candidates talks about “better education for our children”.    Scorecard after being elected?   Poor at best.

3.   Daddy, what if I get sick after graduation and do not have a job yet?   What will happen to me? 

Very good question.    How does one put a price on a healthy work force?    Why does Switzerland see the healthcare problem differently than the US?

I know many small software companies that failed because they were simply not large enough to obtain the best prices for health care coverage for their employees.   What if they could obtain reasonable coverage for their small, but very bright work force?   How many future “Apples” are not longer in business?

Message to Washington:   please stop using labels, such as Obama Care without offering real and practical alternatives.    Please solve this problem.   Or – do not run for reelection to allow other, more capable citizens to work together and solve this problem.

4.   Mommy, what is better?   More government or less government?  

The real purpose of government has been forgotten in this debate.    The amount of air time dedicated to “what Obama should do to create jobs” has exceeded every record (if records were to be kept).

Unless Obama puts everyone on White House payroll, the debate will continue without any tangible outcome.

The real purpose of the government (any government):   create a regulatory and legal structure to deliberately influence the economic development in a certain direction.  Measure and adjust as needed.

Then – within this structure, the market and economic forces will flourish.

Does everyone remember the promise of “green jobs” during the last Presidential election?

Just recently, Solyndra – a  US based solar panel manufacturer in Fremont, CA – filed for Chapter 11 bankruptcy and laid off all 1,100 employees.  Solyndra was also a recipient of a $535M loan guarantee from US government with a very visible visit by President Obama in 2010.

During a visit to the Solyndra facility in 2010, Obama said the factory is “a testament to American ingenuity and dynamism and the fact that we continue to have the best universities in the world, the best technology in the world, and most importantly the best workers in the world.”

Ignoring for a moment the fact that Chinese competitors enjoyed bigger subsidies from Chinese government, that Tulsa billionaire George Kaiser, a key Obama backer who raised between $50,000 and $100,000 for the president’s election campaign, is one of Solyndra’s primary investors …

… what are the lessons learned?

Message to Washington:  the market consists of sellers and buyers, not just sellers of solar panels.   Do not stop at giving Solyndra money.   Create tax incentives for cities and home builders to use solar panels.   Create a market where sellers will begin to buy products from an emerging industry segment.

Be honest with competitors who get the benefit of deep subsidies.   That’s what trade tariffs  are for.     Moreover, treat taxpayer’s money like your own.   Manage the investment.

5.   Daddy, why is Apple so successful?  

Companies where innovation is the key enabler of success enjoy much higher gross margins than any other business.

Software is a high margin business.   Higher margins mean being able to hire valuable people who get paid more.   And these employees will have a larger impact on economy by being able to spend more.

It’s back to basics.    The economic impact of one $100K per year job is much greater than the economic impact of four $25K per year jobs.

Message to Washington:    please stop perpetuating the futility of empty economic promises  which have very little to do with a very difficult road ahead to put this amazing country back on the right track.

–       Focus on creating a legislative and regulatory environment where new high margin businesses can grow and prosper

–       Be honest with yourself.   Are you really doing everything possible “for the people and by the people”?

–       Do you remember the oath you have recited when taking office?

“I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.”

–       Do you have the strength to tell your constituents that someone else should be doing your job instead?

Message to voters:   on this Labor Day, get ready to vote in November.    Or – do not complain.

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