Tuesday, October 26, 2004

Suddenly, as Election Day nears, the high-tech sector of the U.S. economy is surging.

That may come as a surprise to CNN’s Lou Dobbs, who has been harrumphing for the past year about U.S. tech jobs being “shipped abroad,” and it’s certainly bad news for the John Kerry campaign, which has tried to exploit outsourcing fears.

In fact, the new data show that high-paying high-tech jobs are growing rapidly here at home. Yes, some U.S. companies are hiring people abroad to do their work, but those same companies — because they are the most dynamic — are hiring even more people back home.

The net effect? The Labor Department just reported that the unemployment rate in the information-technology (IT) sector in the third quarter plummeted to just 3.4 percent — down from 6.2 percent in the first quarter. “Some 408,000 more Americans worked in IT this summer than … six months earlier,” says InformationWeek magazine. That’s a spectacular increase of 14 percent.

Today, 3.4 million Americans work in IT — precisely the same number as in the spring of 2000 when the tech bubble inflated to bursting. The difference between now and then is that jobs are rising in healthy fashion as demand for new computer and communications gear increases worldwide. We have finally worked the Clinton-era excesses out of the system, just as we have in the economy overall.

What’s remarkable about recent IT growth is that the work force is undergoing a dramatic realignment, with higher-paying jobs increasing at home. While fewer workers are employed in the United States today as computer programmers and analysts, many more are employed as managers and network and database administrators. That’s just the way trade is supposed to work in the model developed two centuries ago by Adam Smith and David Ricardo.

Also last week, a new study for the Organization for International Investment by Matthew Slaughter, a highly regarded Dartmouth economist, found that “insourcing,” the hiring of Americans by U.S. subsidiaries of companies based abroad — many in the technology sector — has been rising. Such companies employed 5.4 million at last report, up from 2.6 million in 1987, and paid them 31 percent more than the U.S. average.

Insourcing companies account for an incredible one-seventh of all spending on research and development in the United States. Just one example: Pharmaceutical maker Novartis last year relocated its global research and development headquarters from Switzerland to Cambridge, Mass., where the company will have 1,000 employees by the end of this year.

Good policy helps. Under President Bush, federal research and development is up 44 percent; broadband access has quadrupled; capital gains, dividend and corporate rate cuts and the extended R&D credit are spurring investment.

Unlike Mr. Kerry, who put a trial lawyer on his ticket, Mr. Bush has been pushing hard for reform to stop runaway lawsuits, many of them directed at tech companies, and, as the Economist put it earlier this month, Mr. Bush “has gone out of his way to display his enthusiasm for trade — and thereby draw a contrast with Mr. Kerry.”

Another contrast: Mr. Bush personally opposes mandatory expensing of stock options — an accounting change that would force high-tech companies to drop their current broad-based employee incentive plans, with devastating economic consequences. Mr. Kerry supports expensing.

Still, if Mr. Bush is re-elected, he could invigorate high-tech further by boosting federal funding of basic research in the physical sciences, providing incentives to bring more foreign direct investment here (we are losing out to Asia, and the reason isn’t low wages; it’s tax breaks) and pressuring the Senate and his own economic team to block expensing of stock options.

Mr. Kerry has been on both sides of many key high-tech issues, including options expensing (first against, now for) and H1B visas for foreign workers coming to the United States (first against, then for, now unclear). He’s clearly against serious tax incentives (having opposed capital gains relief 16 times).

Mr. Kerry, as the Los Angeles Times put it earlier this year, “has seldom taken a direct role in shaping the major legislative decisions in technology during the 1990s.” He’s just not interested in high-tech, except to claim that his opponent has placed a “ban” on stem-cell research — when, in fact, Mr. Bush became the first president to allow federal funding of such research and opposes restrictions on research using private money.

It is surprising, but much of Silicon Valley still votes Democratic, perhaps for social or stylistic reasons. When you count the numbers, however, tech’s best friend is currently in the White House.

James K. Glassman is a fellow at the American Enterprise Institute.

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