Thursday, November 4, 2010

One Million Engineers A Year - And Counting

I recently returned from a trip to India, my second one this year. As I was getting on the return flight to Mumbai, I could see hundreds of armed guards being deployed throughout Mumbai - in anticipation of President Obama's first official visit. Even though his trip was a few days away, it was evident that the Indian government was not going to take any chances. Security would be air tight in a city that, like New York, experienced the "26/11" terrorist attack. Obama will then proceed to New Delhi, the capital city, to meet with the government officials, and address the Indian Parliament, among other things.

Buried in all the hubbub was what was NOT included in his agenda. Despite several recommendations in both countries, Obama will not be visiting Bangalore, a city that he has often tried to put down in his speeches. Bangalore, after all, is the high tech capital of India, home of several internationally renown IT companies like Wipro and Infosys. In his speeches, Obama often points to Bangalore as the place where the American corporations ship jobs to, supposedly creating unemployment here in the US. But let us step back a bit from the rhetoric and look at the facts, which in my opinion point to a totally different source for the current woes in this country.

First, let us review some axioms that I will use for this blog. Simply put, every economy needs people with different skills. Some, like scientists, engineers, technicians, researchers, create new intellectual property (such as patents) which can be turned into new and unique products (such as iPods, iPhones etc.), which can be sold for a profit in the marketplace. Some others, such as doctors, nurses, accountants, etc. help keep people and corporations healthy and humming. But by themselves, they can only reach a peak of 100%, and no more. Then there are others that, suffice to say, redistribute the wealth that is created by other professions. Currently, hedge fund managers come to mind as the favorite villains, but the entire government machinery, which taxes some to send benefit checks to others, while taking a cut to maintain its bureaucracy, falls in this category. The entire legal system also falls in this category, although austensibly it exists to maintain "fairness" in society. But it needs to be perfectly clear that the wealth creating part of every economy MUST create and sustain enough wealth so the other parts can function as designed. When the wealth creation engine starts dying, the others start dying as well.

When we look at the current state of our economy, it is amply evident that we have too many people in the latter two categories, and too few in the first. It is a forgone conclusion that our manufacturing base has been systematically dismantled and shipped to other countries, mostly China. But even more dismaying is the fact that our engineering schools have been graduating an ever smaller crop of future wealth builders. The number of bachelors' degrees in this country has slowly eroded from about 85,000 per year at the end of the '70s to about 70,000 in 2010. By itself, this does not mean much unless you compare it to emerging countries. China is said to have a capacity of around 600,000 to 700,000 engineering graduates per year, which explains why everything worth manufacturing is done in China. The come-from-behind story is India, where five short years ago, the capacity was around 500,000. By 2010, it has shot up to a million. Five southern states of Maharashtra, Andhra Pradesh, Karnataka (where Bangalore is situated), Tamil Nadu, and Kerala account for nearly 70% of this capacity, mostly initiated by the state governments by allowing private foundations to start schools. Just to understand how mind boggling this number is, it will take only two years for India to produce as many engineers as the US did in the last 30 years! And what will these engineers be doing in India? Anything that IBM, Cisco, Microsoft, Intel, Boeing, GE, and hundreds of other Fortune 500 companies want them to do. And let us not forget local companies like Tata Group, Reliance Group, Infosys, Wipro, HCL, and hundreds of government owned enterprises (including the space agency which recently sent a probe to the moon), and small enterprises. Even if the Obama administration ends tax breaks for companies that hire people in other countries, the genie is out of the bottle. Companies in the US simply have more choice and lower costs when it comes to hiring in India. If the US companies do not have a presence where the talent is, they lose to other European, Asian and Indian companies which hire profusely in India. A side benefit for the Indian economy is the 10 million or so high school seniors who study several years of physics, chemistry, math and computer science, aspiring to be engineers, doctors or scientists, but end up in other jobs such as technicians, accountants, and bureaucrats, with a much higher cognitive base compared to their foreign couterparts. This reality is unlikely to change any time soon.

So, what can the US do to counter this tsunami of engineering talent? First of all, turning off the tap of foreign talent alone will not jump start the economy here. We need to gear the education system to produce more wealth builders, a task that is easier said than done. Capacity to educate engineers is hard to come by, with fewer qualified professors and expensive facilities. Also, with around 90% of our children being educated in public schools, fewer and fewer students come to college with the knowledge and skills, let alone enthusiasm, to study engineering. With public schools coming up with a million reasons why they cannot change, the only way out appears to be to create a parallel system of schools that is more nimble and responsive to the economic realities. To their credit, both president Obama and his education secretary Arne Duncan have been promoting charter schools, which when done right, can accomplish what is needed. But even if someone were to wave a magic wand today, and made every school in this country a charter school, I think it will take at least a decade or longer to see measurable change in wealth creation. Add to this the gentrification of population, we have a long and bumpy ride ahead.

Welcome to the 21st century!