Faced with the deadly menace posed by transnational terror organizations, the nations of the world must redouble their cooperative efforts. The tasks ahead -- to disrupt terror groups and preempt their attacks -- require intense coordination among a multitude of national intelligence, national law enforcement, and military organizations. Unprecedented cooperation among all of the nuclear powers is needed to prevent nuclear weapons from falling into the hands of terror groups.

Yet, paradoxically, the two nations that have suffered the worst terror attacks -- the United States and Russia -- are regressing more and more to national strategies. They have been unwilling to make the extra effort to reap the benefits of real international cooperation.

I believe that the United States' strategic vision of the war on terrorism is flawed. I fear it is following the isolationist path of the United States after World War I rather than pursuing the broad international programs it successfully undertook to protect its security interests after World War II.

The terrorists posing the greatest threat to the United States and to Russia are transnational, with cells in many different countries. To support their training and operations, they raise funds in many countries and maintain these in international bank accounts. They use satellite-based television as their principal means of propaganda, the World Wide Web as their principal means of communication and international airlines as their principal means of transportation. Their efforts to get weapons of mass destruction are based on penetrating the weakest security links among the nations possessing these weapons, and their successful guerrilla operations depend on their ability to get support from sympathizers among the more than 1 billion Islamic people around the world.

An international operation is clearly needed to successfully deal with this threat. But the United States is not making full use of other nations and international institutions to dry up the terrorists' funds in international bank accounts, to gain intelligence on their planning for future attacks, to penetrate their cells so that it has a chance of preempting these attacks, to organize all nuclear powers with effective security of their nuclear weapons and fissile material, and to conduct counterinsurgency operations wherever they are needed. Dealing effectively with transnational terror groups that operate with impunity across borders requires an international operation with the full cooperation of allies and partners in Europe and Asia.

This is not "mission impossible." In 1993, the United States was able to get all of the former members of the Warsaw Pact to join up with NATO in forming the Partnership for Peace to cooperate in peacekeeping operations. In 1994, the United States with the full cooperation of Russia was able to negotiate an agreement by which all nuclear weapons were removed from Uzbekistan, Belarus and Kazakhstan and by which substantial improvements were made in the security of nuclear weapons in Russia. In 1995, the United States was able to get an agreement under which NATO took responsibility for the peacekeeping operations in Bosnia, an operation that was believed at the time to be as dangerous and filled with religious and sectarian strife as Iraq today, and it was able to get dozens of non-NATO nations -- notably including Russia -- to join it in that operation.

Securing Russian cooperation required listening to Russian views and making accommodations wherever possible. As U.S. defense secretary, I had to meet with my Russian counterpart four different times before I came to understand how to structure the command in Bosnia in a way acceptable to both Russians and NATO. The general lesson from this example, which is still applicable today, was best expressed by Winston Churchill, who observed during World War II, "The problem with allies is they sometimes have ideas of their own." But in reflecting on that problem, he also said, "The only thing worse than fighting a war with allies is trying to fight a war without allies."

What lessons can we learn from Churchill today? Had the Bush administration understood better the dangers of the post-conflict phase, surely it would have worked harder to get the support of those countries before invading Iraq. In any event, after the war it would have reached out to them and tried to achieve an accommodation that would have allowed their support during the reconstruction phase.

Instead, the administration took the position that any nation that was not with the United States during the war would not have a role in the reconstruction. To compound the problem, the United States did not seek meaningful assistance from the United Nations. Today, in the light of the difficulties experienced in restoring security in Iraq, the administration is reaching out to the United Nations and requesting that it play a major role in the political reconstitution of Iraq, but it is still not working effectively with the governments of France, Germany and Russia.

Just as the United States erred in believing that it did not need more international support in Iraq, so did the Russian government err in believing that it did not need more international support as it reconstituted its government after the Soviet era. The Putin administration believed -- correctly -- that it could turn around the Russian economy without significant assistance from other countries, and it believed that it could deal most effectively with its terrorist threat without interference from other countries. It also apparently believed that moving toward a level of democracy conflicted with the controls necessary for economic recovery and for fighting its terror war. So today we see a Russia that has enjoyed a healthy 7 percent growth rate each of these past five years, but has stopped -- indeed reversed -- its move towards becoming a liberal democracy. This reversal over the long term will have profoundly negative consequences for the Russian economy and for the Russian people, and unquestionably it is setting Russia on a course that will alienate it both from the United States and the European Union.

Both the Bush administration and the Putin administration have apparently made the decision that they can achieve their goals without broad international support. Both governments have erred in that judgment. But it is not too late to correct the judgment, and I fervently hope that both of governments will do so. The most important step in that process is reviving cooperation between the United States and Russia.

Roundtable Participants:

Jim Jarrett, VP of Worldwide Government Affairs, Intel; Aart de Geus, Chairman and CEO, Synopsis; Michael Dardia, VP, economist, Sphere Institute; Kevin Fong, General Partner, Mayfield; Brian Halla, Chairman and CEO, National Semiconductor; Zoe Lofgren, Congresswoman, 16th Congressional District, House of Representatives; Rick White, CEO, TechNet; Jim Morgan, Chairman, Applied Materials; Diana Farrell, Director, McKinsey Global Institute; Rafiq Dossani, Asia Pacific Research Center, Stanford; Sue Bostrom, VP, Worldwide Government Affairs, Cisco; Joe Natoli, Publisher, San Jose Mercury News; David Yarnold, Editor (Editorial Pages) and Senior VP, San Jose Mercury News; Miguel Helft, editorial writer, San Jose Mercury News; Daniel Sneider, Foreign Affairs Columnist, San Jose Mercury News

YARNOLD: Help us define the scope of the current globalization trend, from a jobs perspective. We all know and understand that technology companies need to send jobs overseas. Cost is the primary reason. Access to foreign markets is another. Some economists believe that virtually every job that can be sent overseas will be sent overseas. Researchers at UC-Berkeley have said recently that 14 million U.S. jobs are at risk. Do you agree with that?

HALLA: There's a tremendous migration of jobs to Asia -- to China, in particular. That's just part of our lives and part of the way we evolve. But we will create new jobs. Let me give you an example. It used to be just HP and Fairchild were here, and that grew into Intel and several other semiconductor companies. Today, we have a different kind of job creation. We have companies for flat-panel displays. We have graphics companies. They are all creating brand new jobs, all because of innovation in our industry. That will go on.

What's happening today, however, is the technology industry is under attack from -- present company excepted -- from the majority of our politicians who are trying to eradicate stock options under the name of stock-option expensing, which makes all things not equal anymore. In China, stock options are flourishing. We fan the flames by putting a cap on H-1B visas, so we send all the Ph.D.s home where they can compete against us.

DOSSANI: To give you a sense of what's happening in India, at the start of this year, in business process outsourcing, there were 170,000 jobs. By the end of this year, there will be 300,000. We forecast it to go to about a million at the end of 2005.

That said, what's going offshore (is) the simpler kinds of work, stuff that's increasingly subject to price deflation, competition, automation. So I'm not really worried. I think Silicon Valley will do just fine.

DE GEUS: You cannot only look at the equation of job loss, jobs transfer. You have to, at the same time, say there are two massive new markets being created -- the China market and the India market. There are 200 million Chinese along the coastal region that are all going to raise their standard of living. They will be consumers. We are all there for the work force, but first and foremost, most of us are there because of the potential business. Now the combination of the two has to rebalance itself, because these are enormous numbers that change the global balance.

LOFGREN: I think that the truth is that we don't actually have any data on what jobs have gone offshore, where they've gone, the nature of those jobs. We've got anecdotal information. I think it's essential that we get a handle on the facts as much as we can. We should have some national discussion and some policy issues emanating out of whatever is going on. Without knowing what's going on, we're liable to make some mistakes.

The concern I have is that investment in research and development has been declining for the last five or six years. Our ability to attract scientists and excellent students is now suffering; and our ability to innovate in the tech sector is no longer unique. I think it would be a mistake to assume that the next new thing will inevitably be ours and the jobs inevitably will be created.

FARRELL: In this discussion, it's understandable that the focus is on jobs, as that's what's disturbing and distressing to people who lose them. But that's not the right discussion. A lot of what we're seeing here through the offshore outsourcing is about increases in productivity, innovations that are driving a higher level of wealth in the economy by driving increasing savings, by allowing us to innovate in the way we deploy resources, both capital and labor. That shift away from a pure job mentality is necessary to really understand the bigger picture.

YARNOLD: Sure, but offshore outsourcing and productivity increases have implications for jobs in the Valley. What are they?

FARRELL: Well, it's a great story for the Valley, because what the Bay Area represents in the United States is precisely what the United States is representing in the world.

Productivity of the Bay Area person is twice as high as the average of the United States. The Bay Area has achieved that by outsourcing lower value-added activities. What you have here is a concentration of high-value activities that explains the very extraordinary wealth level that we enjoy. That is a microcosm of the U.S. situation, vis-a-vis the rest of the world.

MORGAN: There are a lot of markets in the world that are just emerging. Part of the job movement is to move resources into the areas where the markets are, not to drop our costs. I think the ability to understand that and prepare our people to support that so that you can project capability from Silicon Valley to other places in the world is an important thing.

I think we have to think about things in a systematic way. We're in a competitive challenge as a region, and it isn't the United States against China. It's Silicon Valley against Austin, it's Silicon Valley vs. Shenzhen, it's Silicon Valley vs. Bangalore. The ability of Silicon Valley to be successful (depends on its ability) to hone its competitive skills.

There's a lot of opportunity here, but we have to make ourselves (a place) that companies want to do business in, because they go where they're wanted and stay where they're appreciated.

FONG: We are going through a little bit like what happened in the '80s with respect to Japan Inc. vs. the semiconductor industry. High tech has been commoditized. Silicon Valley is not the only high-tech center of the world. Our market share is going down, but we can still be leaders.

I've lived in the Valley for 50 years, and there was always a discussion about gee, eventually with the land and real estate here, there's only going to be Ph.D.s and people that have started companies who have the money to buy houses here. We can't be smug about the fact that we're always going to be the center; but I think we do have to look at where the value added is. This is all about where value is.

HALLA: Japan is absolutely nothing like what's happening with China, because Japan is a very tiny island, and they very quickly ran out of people. Their cost of labor exceeded the United States', so they're no longer the low-cost manufacturer. Also, Japan needed the U.S. market, therefore, they had to obey our laws, particularly the laws against dumping. Taiwan, the same thing. With China, they graduate more (electrical engineers) in a year than all the other universities on the face of the planet. They have a big enough market to sustain themselves without coming to the United States.

This is more like the Industrial Revolution, only this time we're Great Britain, and the great American dream is moving to Shanghai.

DARDIA: That's a great segue, because I wanted to bring up the history of globalization. The second half of the 19th century saw the same kind of increased globalization that we've seen in the last 20 or 30 years here.

I think your analogy is correct that the United States is to China (what Britain was to the United States). Real wages in Great Britain actually rose in the second half of the 19th century, because of market broadening. In 1980, Japan's wage level relative to the United States was 56 percent. In 2000, it was 111 percent. In the Asian (economies it) was 12 percent in 1980, 34 percent in 2000.

The same thing's going to happen to China. As higher-value activity goes there, they will become more expensive. They will become consumers, and other markets will grow. Our challenge is to stay in front of that. But China's not going to remain static in its situation while sucking away all of this activity.

DE GEUS: So I think it begs a little bit the question for Silicon Valley, now what do you do? And we need to understand that in high tech, there's only one pathway, which is to race forward faster.

I propose that we have to pay attention to three I's: Innovation, incentives and infrastructure. Innovation is what has driven technology. There is new innovation in the Valley, but one of the ways to actually take advantage of these markets is to be the leader in that.

Incentives, I think Brian (Halla) already eloquently highlighted that. If you cut the fundamental incentive driver of Silicon Valley -- stock options -- you're going to destroy a very, very unique system.

And then infrastructure, I mean first and foremost education. And if you look at education, Brian highlighted how strong these other countries are. They are doing Silicon Valley plus plus, so we need to do Silicon Valley plus plus plus.

BOSTROM: Just to add on to your infrastructure comment, we don't want to forget broadband either. If you look at many of the countries that the United States is competing with, they have much more extensive broadband infrastructures.

Climbing the value chain

YARNOLD: One of the things that has changed most dramatically over the past few years is the kinds of jobs that are leaving the United States. It used to be very low-end, and it's now moved into the engineering ranks. The presumption is that Silicon Valley is going to continue to be able to distinguish itself by climbing up the value chain. Can we do that? If not, will we simply have fewer people employed here?

FARRELL: I think your question hits at the core of the concern that many people have, which is that productivity gains necessarily come at the expense of employment. So can you continue migrating, and continue generating employment? The United States is a wonderful petri dish to understand that. We have been, for a very long time, the productivity leader in almost every sector, and we have been the employment leader in almost every sector.

It's the process of innovation that drives productivity gains, and it's the process of innovation that drives employment gains. And that's the beauty of this system. We can have our cake and eat it too.

DOSSANI: Let me give you some background, again, looking at India. I interviewed in the last two years, about 170 (companies) in the IT and business-processing field. These companies covered about 80 to 90 percent of the value of work being done in India.

We found that India is pretty much still stuck at a certain level in the supply chain of writing code. It currently does about 50 percent of the labor in a typical software project, but only about 10 to 15 percent of the revenue.

So I think there's a lot of fear here that is unwarranted, in the sense that sophisticated, innovative work is not shifting.

BOSTROM: I think there's a new nomenclature that's coming out with regards to outsourcing; we really use the term "out-tasking.'' What we see in companies moving toward out-tasking, whether it be onshore or offshore, are really the lower value-added activities, or things that have been in process for a long period of time. In IT, it could be maintenance of an existing software application. The new application development could be here in San Jose or some other city in the United States. To do great application development, you have to be close to the business function that you're developing the application for. Some companies have had the experience of outsourcing a significant function and have realized they lose control and ability to innovate. And sometimes they're trying to bring (the work) back.

YARNOLD: Really? It's only the low-end engineering work that's going overseas? Kevin (Fong), you have a different opinion?

FONG: Take Intel. The development of the next Pentium chip is based in Bangalore.

JARRETT: Well, we have several hundred people there. But we're developing all over the world. We're doing chips in Israel. We're doing software in India. We're doing software in Russia, in China, you name it.

FONG: Wait a minute. One of your key Pentium designers is running the design center in India with a charter for the next-generation server processor.

YARNOLD: You're suggesting that's the kind of work that would have been done in Silicon Valley previously.

FONG: Absolutely.

JARRETT: No. No.

YARNOLD: No?

JARRETT: No. No.

We started our design center in Haifa (Israel) in 1974. We've been designing and doing a lot of technical work around the world for a long, long time, and we'll continue to do that. In that sense, nothing has really changed.

At the same time, we're continuing to invest here, and I'm talking about the United States, not specifically Silicon Valley, to do advanced technical work and advanced manufacturing.

We've just put in $24 billion in the last three years in new factories, R&D, support for education and employee training, and that's all in the United States.

Government's role

LOFGREN: To say that we should not have at least some thoughtful strategy to maintain a prosperous, employed nation would be a mistake. And that doesn't mean a heavy regulatory approach, necessarily. But when chips were under attack, you know, Bob Noyce went off and led an effort, and it was partly government supported, and industry driven. And it was, I think most people thought, useful.

Although the economy is showing some signs of life, we are not creating jobs in the United States sufficient to even keep up with population growth at this point. The question is why? I don't know that any of us really know all the answers to that. Some of the job loss has been because of productivity gains here. Some of it appears to be offshoring of jobs.

I think the policy implications for each of those scenarios is different, and what we might want to do, in terms of nurturing employees, especially the engineers that have been displaced in this Valley. We need to have a strategy so that (displaced) people are well treated instead of knocked off unemployment insurance, as we're about to do; and retraining individuals so that they can keep up to date; and nurturing American students so that they can be successful in the hard subjects, math and science.

DARDIA: I think the plight of the laid-off workers is important. We certainly don't want to, in reaction to the effects of globalization, shut things down to much worse effect. One of the ways you avoid some of that backlash is certainly by attending to people displaced.

That leads to the question of why (do we have a) jobless recovery? There's some good work done in distinguishing between cyclical vs. structural job losses in recessions. In the '70s and early '80s, recessions ran about 50-50 between cyclical job losses and structural job losses. In the early '90s recession, about 60 percent was structural vs. 40 percent cyclical. In the current recession, the estimate is about 80 percent is structural. Structural job losses take longer for people to (adjust), whether it's by training or just looking further afield. That's one of the reasons we see a relatively slow increase in employment relative to output. And that's why we do need to think about better ways to help displaced workers.

WHITE: There's economic evolution all the time. There's dislocation associated with economic evolution, and that's definitely going on right now. The challenge when that happens is to not panic and do the wrong thing.

In a situation like this, you have to have the courage of your convictions. You have to recognize that China's a great place. They've got a lot of engineers, but they've got a political system that's going to bump up against a lot of the things they're trying to do. It's going to be difficult for a dictatorial state controlled by one party to really allow the kind of sharing of information and other things that have made our economy so successful.

You've got to let the market work this situation out without the government taking pre-emptive action, because there's a less-than-even chance that they're going to point you in the right direction.

FONG: One other thing, which hasn't been thrown in, is intellectual-property protection. China's not going to play fair until they feel that they're at a more even footing with us. So the governmental pressure for them to play ball fairly is a pressure that has to be continued as well.

YARNOLD: Whose job is that?

FONG: It's the government's job.

WHITE: We could do two things, focus on what the government does well, like these trade pressures, and start to peel back some of the things that we have done in the past. If you look at California in particular, the challenge we face is basically to undo the effect of resting on our laurels for a long, long time. We've loaded up the business community year after year with disincentives for them to be able to compete. We have a little bit of that at the national level, too.

Choosing to compete

JARRETT: The mindset that we think really has to be implanted in the United States among policymakers is that the United States really has to choose to compete. We don't see enough sense of urgency. As we look at policies like stock options and others, we need to be asking ourselves, does this policy help or hurt the nation's ability to compete? I don't think that kind of questioning is going on right now in Sacramento and elsewhere.

MORGAN: Unless (we) collectively decide (we) want to compete, we keep shooting at each other about all the problems. A good example (was) Sematech. The government provided the seed, but really what was effective is that the U.S. semiconductor companies finally started working with their suppliers, the way the Japanese had been doing for decades. You had a shift in mindset and a collective competitive desire to be successful. And that made a big difference.

And so the local, state and federal (governments), and the industrial interests, and the universities, and all the groups, we have to really get focused (on being) competitive.

It's not (useful to) put up trade barriers. You saw what happened when you had the Iron Curtain. Those countries were just disasters, from an economic viewpoint.

The only way you're going to compete is to work more effectively together.

BOSTROM: High tech is driven by innovation first. Cost is something that you have to consider as part of the innovation. And so what (things) can the government be doing to help fuel innovation? And one of those things is making sure that basic R&D, which has been the core of innovation for the country, that we continue to see funding at a decent level.

LOFGREN: Our investment in science research has declined 29.5 percent as a percentage of GDP. That is not good news for innovation and the technology future. We need a strategy that advances competition and technology development. Now it will never work for the local, state or federal government to say, "Well, here's the way it's going to be.'' That isn't how the Valley grew. But that doesn't mean there's no role for the government to play.

YARNOLD: But the presumption here is that you're talking about a competitive Silicon Valley. Does it really matter anymore whether Silicon Valley is competitive, to your businesses? Very often I hear CEOs say, "We're driven by cost and by what it takes to produce the goods that we manufacture. Where the dollars end up is irrelevant to us because we're global.''

MORGAN: That may be true for companies, but that's not true for Silicon Valley collectively. If Silicon Valley wants to be competitive, to build jobs here, then we need to do some collective things to try to make it attractive to be here.

YARNOLD: So does it matter whether Silicon Valley retains that leadership role? Does it matter to your companies?

FONG: Absolutely.

DE GEUS: No question.

YARNOLD: Why?

DE GEUS: Because you can improve cost by 50 percent by going to other places. You can improve your return by 100, 200 percent by innovating. That's at the basis of Silicon Valley.

FONG: But I think David's point is if you could do it someplace else, would you do it someplace else?

MORGAN: Our company, and me in particular, think this is (an) enormously critical resource for the state and for the country. And so it should be nurtured.

FARRELL: You know, I think it's easy, in the spirit of the last year or two, to overstate the degree to which this area has lost its competitiveness. Productivity is the measure of competitiveness, and this region remains highly competitive. The things that put that at risk are the things that make it harder to attract the people who have made this the thriving innovative center of the world. That gets back to basic government issues of land use that are driving real estate prices and make it impossible for young, talented people to live here.

BOSTROM: I think the belief in continued opportunity is where companies in the Valley can make a difference. Because I know one of our areas of focus at Cisco has been how do we help transition our employees, engineers or otherwise, to new, advanced technology markets. Those skill sets are slightly different; and we're saying, "Well, we should be accountable for helping with that transition with that employee base.''

If we can encourage companies to help with that evolution, I think that's one of the things that would make people feel like there's continued opportunity in the Valley and in high tech.

SNEIDER: Let me come back the global-competition issues. There's a pretty wide perception out there that gains (in India and China) are coming at our expense. That's generating already tremendous political pressure for public policies that probably everybody here would agree are not such a great idea. But in the absence of really addressing this problem, you leave the field open basically to protectionist solutions.

WHITE: I'd like to take a quick crack at that, because I do think there are two things you have to focus on.

No. 1, I think you're absolutely right that there's a lot of political concern about job loss. But Americans expect their country to be competitive, and they're willing to look for policies that help them be competitive. And that's what's going to prevent this job loss from being a big problem.

On the Chinese front, I just want to reiterate one thing I said earlier. In the late '80s, people thought (Japan) was an unstoppable juggernaut that was just going to run right over us and keep going. The fact is that every society has its advantages and disadvantages about the way it's organized, and those catch up with you after a while. What's happened to Japan is they had some imbalances that didn't really work over the long term.

One of the things we have to do is recognize that there's never been a society on the face of the earth that is as hospitable to innovation as the United States. We're doing a lot of things right. So you wouldn't want to make a dramatic change to respond to somebody like China in particular. They've got a lot of great things going on, but they also have some things that are going to catch up with them. To overreact would be a mistake.

HALLA: Having been one of the few people at this table that's been through every cycle since the beginning of man, I can tell you that this, too, shall pass. If we were having this session a year from now, we wouldn't be having this session, because half the people would be late because of the traffic jams. The industry will be booming. If history is a teacher, Cisco was born here; Ebay; Google; Sun Microsystems was born here; all these creative new industries and new jobs. We are still the IQ magnet for the world. Berkeley is here, Stanford is here.

In terms of government support, I agree with R&D tax credits, and (there are) many proactive ways a government can help. I'd say a good start would be (for) the government to please retire to a neutral corner and not eradicate stock options and not cut out H-1B visas, so that we can go on and continue this cycle that's been so healthy for us.

This is a substantially different time for us, however. China is completely different than any cycle we've ever been through. It's an opportunity at the same time.

LOFGREN: If we don't have some policies in place, and if the American public doesn't understand that we, No. 1, have an appreciation for what's happening to them, then we're going to have some reactive policies that will probably make our situation worse.

I have a neighbor who recently was sent to India to train a whole unit. He has just been told that he's been laid off. The whole place where he works is now going to the people he trained. He's got a master's degree from an excellent university, in a scientific field. He is feeling not very well appreciated here in America. Becoming more insular is not the answer to prosperity. But that will be the knee-jerk reaction, unless we have a better strategy.

Future of growing companies

YARNOLD: I had a conversation recently with a venture capitalist who said more and more, companies that get started here have 12 people here, the CEO, the CFO, the COO, the marketing director, and a few other people. They're being asked by VCs, "Why aren't you doing your work offshore? How are you going to drive down your costs? How are you going to be competitive?'' It raises the specter of shell companies that are founded in the Valley but don't have very deep roots or very big employment bases.

FONG: All of the dollars that I raise for our funds, which is $2 billion, goes to pay for R&D only. By the time you get to the manufacturing, the company's at a different phase of life. But people from France and Israel and China still come here to start a company. People come here not just because -- we talked about IQ. Our way of doing business here is as much a key part of it. People come here for our capital markets. They can get liquidity. They can attract capital. It's all those things. I was just meeting today with a company, and they're moving from Brisbane. They're only talking about moving marketing and sales and a few of the key people here. And so it is an issue. I don't think it's a long-term, sustainability issue we have to worry about.

DOSSANI: It's not such a bad thing that this is happening. Look at the U.S. disk-drive industry, which was started here. By the early '80s, it had lost a lot of market share to Japan. It was down to 30 percent. And because they aggressively outsourced, it's back up to 80 percent now. If you look at employment, it's less than half of what it was. But the value-add is very high.

Market share, value addition, all these things will improve with outsourcing. What won't is employment, if you're just looking at numbers in a particular industry.

YARNOLD: So the Valley's employment won't come back to its pre-boom levels or boom levels?

DOSSANI: Not in that industry, but in something else.

Helping displaced workers

JARRETT: I think just one point I'd make about policy prescriptions to fix this problem. They tend to be sort of the policy equivalent of a hand-off to the fullback. It's very straightforward stuff, and it's very long-term. These are not quick fixes. We've been talking about increasing the basic physical sciences R&D spending by the U.S. government. That's not going to pay off tomorrow, and nobody in office is going to be able to point to it in their current term and say, "Here are the fruits of that investment.'' But it's still the right thing to do.

LOFGREN: The good news in this Valley, though, is that the citizens support those long-term investments, because our people know (they) will pay off. I think where we're really missing the boat, though, is to not take care of people who are being displaced for the first time. They're willing to do their part. They're willing to get the education. They're willing to be entrepreneurial. But there is some dislocation, and we are not handling it well.

FARRELL: The magnitude of the savings that are possible as a result of (sending jobs offshore) does provide at least the basis for some shorter-term solutions that you're trying to generate here. What we need to do is help employees find jobs faster, be willing to take new and different jobs faster.

That can come, not as some big, inflexible program of the government, but as a corporate program, to facilitate the change that they need to go through. Why would companies do this? Partly because it makes possible a transition that is very difficult, politically and otherwise, and partly because it matches up with a trend that we haven't brought up in this debate at all, but is critical to this conversation, which is the demographic shift that is taking place in the Bay Area and in the country, of the shrinking working-age population, and therefore the need for companies to remain attractive to employees. Having the programs in place that will help alleviate the displacement becomes a very self-interested thing that can be achieved at a relatively low cost (compared) to the savings that are being achieved.

WHITE: It's so much more effective, to do that at the private level.

BOSTROM: Well, we do this at Cisco. We are invested in re-skilling our work force for new market opportunities, new advanced technologies. And the reason we do is it makes good business sense. First of all, when the economy does recover, those are workers that you need. And second, we really value the culture that we've created; the people really know our products.

FONG: There's something at an individual level that people in the Valley have to sign up to do, as well. In this globally competitive marketplace, you have engineers in China that go to work from 8 (a.m.) to 10 (p.m.). The company feeds them lunch, a great lunch. They have great facilities, equal to the Valley. They serve them a great dinner, and they work six days a week. They go home to be with their families during a month during Chinese New Year. But after that, they're working hard, and they're really dedicated to what they're doing.

And so we have to recover from the sense of entitlement. Individuals have to want to get retrained. They're going to have to want to work hard. Sometimes I wonder whether or not we've lost that in the Valley.

Corporate responsibility

SNEIDER: In an interview that Intel CEO Craig Barrett did with us and a few other newspapers, he said, "Look, as company, as a CEO, I can't resist the compelling arguments for moving jobs and moving operations overseas. But for the country, I'm not so sure this is such a good thing.'' And I don't have his exact quote, but it was something along those lines.

Is there a difference between the way you necessarily have to look at this in the framework of a company, and the way we should look at it in the framework of the interests of the nation? Is there a tension there between those two, and how do we deal with that?

JARRETT: I think there's definitely that tension. You wear one hat as a citizen and another hat as a CEO. We do care about the future of the country, and that's why we're out trying to advocate policy changes that we think will keep the United States competitive, long-term.

At the same time, you know, we've got 70 percent of our sales outside of the United States; our fastest-growing markets are China and India and Russia and Brazil and Mexico and Eastern Europe. We've got to be there.

HALLA: All of us that are CEOs have to do that which makes our companies competitive first. And, we all have community-support programs and foundations and everything else to support the community.

My own feeling is that the best way to take care of a displaced worker is, if he leaves Synopsys, to be able to go right across the street to Google or Ebay and get another job, because there are many more requisitions for new jobs than there are people. And that's when the Valley is thriving again. And by the way, we're approaching that.

LOFGREN: Obviously, Craig is right; I mean, his obligation is to his shareholders, not to the citizenry at large. That is the job of the people who are elected.

And most of these companies, I know, are very generous. At Evergreen Valley High School, there's a whole building that Applied (Materials) built. All of you have foundations and do wonderful things. But the societal obligation to make sure that the children are in school and learning is really devolved to the school board and to other levels of government. We need to find the money to pay for it, which may make you feel not competitive, but these things do have to be paid for.

So we need to set a strategy that really responds to the citizenry. That's not Applied (Materials) or National Semi's obligation, although it cannot be done without your collaboration.

Three-year outlook

YARNOLD: OK. You have all done a very good job of mining deeply into issues that you know very well. I'm going to ask you a very simple question that I think our readers would be interested in. What will the Valley look like in three years? What's your level of optimism?

HALLA: I think we'll absolutely be thriving. There'll be new companies, and there'll be companies that are doing things in imaging and sensors and RFID (radio frequency identification tagging); and we'll continue to prosper.

FONG: I'm very optimistic about the Valley. And three to five years from now, what I do hope is that China and India, the two most populous countries in the world, will also have economic gains. At the end of the day, from a global perspective, as a country our security is best served by other people wanting to come after us and wanting to emulate us and having a better standard of living. The Valley will benefit from that.

BOSTROM: I'm very optimistic. If you look at the end consumer of the products that we make, there is this continued demand and interest for doing more and more, using technology as an enabler, whether it's little IP (Internet Protocol) video cameras in our phones, or whether it's enterprises that want to drive up levels of productivity.

LOFGREN: I think we could have either of two scenarios. We could have the kind of roar-back that's been described, and I hope that that is what happens. Or we could continue to have a very sluggish job creation. I've lived here all my life. We've been counted out a million times. And I'm not counting us out again. But the rate of improvement, if we play our cards wrong, could be much slower than we hope.

NATOLI: My guess is that the job growth is going to be modest. Economy.com thinks that in the second half of next year we'll begin growing jobs for the first time, but that the job growth will be in the 1- to 2-percent range each year for the next three years.

As I look back over the last 20 years here, downturns tend to touch parts of three years. We're now three years into this thing, and there's no recovery in jobs in sight. I think this is structural. It's different than what we've had before. Job growth here has come from a combination of mostly small companies and some small companies that become quite large companies and wind up having 6,000 employees here or whatever. I don't think anybody's going to scale up to 6,000 employees here anymore. And I'm not sure that there would be enough of the smaller-company growth, at least in the next three years. I think it's going to take longer to sort of have that whole thing shake out. I hope I'm wrong.

YARNOLD: But nobody saw Ebay coming either. And maybe it's the exception.

MORGAN: No, it's not the exception. In 1975, you could have purchased all the companies in Silicon Valley, except for HP and Varian, for probably $350 million, including Applied Materials and AMD and Intel and all of them. A lot of them, have market caps in excess of $20 billion today.

WHITE: I think job growth may be a little slower here than it is elsewhere. But if I were writing the stories that you guys are going to write as a result of this, I'd be a little careful that I don't look too foolish a year from now. We're just at the end of a sluggish time. There's been a lot of discussion about the jobless recovery. It's entirely possible there won't be a jobless recovery six months from now.

For months now, it's been popular in the United States to whack China for its trade and currency policies. But India could soon become the next political whipping boy because it has been snaring U.S. hi-tech jobs. Recently unemployed computer professionals, labour unions and politicians have become alarmed that U.S. companies are moving growing numbers of information-technology jobs to India.

The Politics of Unemployment

Joblessness among tech workers in the U.S. is stubbornly high. Meanwhile, U.S. firms are exporting tech jobs to low-cost India. As an election nears, American politicians see votes in complaining about offshore outsourcing. In mid-September, technology workers staged a protest at a San Francisco conference promoting offshore outsourcing of service jobs to countries like India. The protesters were backed by a unit of one of America's most powerful unions, the Communications Workers of America. The unit, called the Washington Alliance of Technology Workers, or WashTech, was set up to fight the exodus of jobs overseas. The protesters carried such signs as "Chip in, don't chip out." A new group of unemployed computer specialists calling itself the Organization for the Rights of American Workers, or Toraw, protested at a similar job outsourcing conference in New York in July.

These sentiments were bolstered in mid-October when Intel Chairman Andy Grove warned at a software conference that a huge number of IT jobs could move from America to countries like India and China in the next decade. The hi-tech pioneer added that his California-based semiconductor manufacturing firm had "no choice" but to continue sending work offshore because of rising costs and the pressure to increase productivity.

It would be one thing if the protests and dire warnings stayed confined to angst-ridden words, but now American legislators are getting involved. Faced with an election next year, many smell a populist, potentially vote-attracting issue. On October 20, the House of Representatives' small-business committee held a hearing on the exodus of white-collar jobs. "At what point will we send so many jobs overseas that we won't have any jobs here to buy the products, regardless of where they're made?" asked the committee's chairman, Donald Manzullo of Illinois.

One of those who testified was California engineer Natasha Humphries, who was laid off in August by hand-held computing-device provider Palm Inc. several months after she was sent to India to train Indian engineers to perform her job. Humphries, who joined TechsUnited.org, a group created to protest against the departure of U.S. hi-tech jobs, believes that "offshoring has created a devastating economic climate."

There is an irony in Humphries' words that goes beyond her travelling to India to train the people who may have taken her job. Only a few years ago, American technology companies were accused of stealing some of the best and brightest engineering and scientific minds from India to meet a severe talent shortage. But now that the global economy has struggled for many months, technology unemployment in the U.S. is high and the jobs are moving to India.

Some industry insiders blame at least part of the unemployment problem on the U.S. programme of granting temporary work visas to hi-tech workers from India. Ron Hira of the Institute of Electrical and Electronics Engineers told the October 20 hearing that many of those who come to the U.S. under this visa scheme go home to set up or work for companies that compete with American companies. He called the visas for these workers "a subsidy promoting the movement of American jobs overseas."

This concern has prompted legislators in at least nine states to join the fight to slow job migration. New Jersey took the lead in drafting legislation after lawmakers learned that a company hired to help welfare recipients had moved its help-centre jobs to Mumbai. Legislation requiring state government contractors to use U.S.-based employees is still stuck in various committees. But the threat of the new law was enough to persuade the welfare-help contractor, eFunds Corp., to move the jobs back to New Jersey.

A flurry of comparable bills in several states has prompted India's National Association of Software and Service Companies, an umbrella grouping of some 850 companies, to hire high-powered lobbying firm Hill & Knowlton. "India is being made to look like the enemy in some parts of the media," says Nasscom's president, Kiran Karnik. "The popular mood is reinforced by politicians, and those statements make customers wary. They're concerned, as are we."

So far, none of the state-level bills have become law. If they did, however, "purely on a business plane, it wouldn't matter at all," says Karnik, since the bulk of India's outsourcing comes from private-sector customers, not from government contracts.

Cheap, Tech-Savvy Workers

Seeking to cut costs, U.S. multinationals such as General Electric, Honeywell and Citigroup have for years moved jobs to India, seeking to capitalize on the country's inexpensive but technology-savvy, English-speaking workforce. Nasscom estimates that job outsourcing to India saved U.S. companies $10 billion-11 billion in 2001 and was accompanied by a $3 billion increase in American exports to India that year.

The migration of these jobs wasn't a big issue when the U.S. economy was roaring and companies had a hard time filling job openings. But that attitude changed abruptly with the dotcom bust in 2000 and subsequent recession in the industry. Today, despite a tentative recovery, U.S. technology jobs remain scarce.

The exact number of jobs that have moved to India isn't known. The Communications Workers of America estimates that 400,000 white-collar jobs have already been lost, particularly to India, and projects that a good proportion of 3 million more expected to migrate offshore by 2012 will go to India as well. "This is not about protectionism," says Marcus Courtney of WashTech, the union affiliate that organized the San Francisco protest. "We have to find a way to engage in globalization so that it doesn't come at the expense of our best workers."

More of Courtney's anger is directed at U.S. companies than at India. "This is an issue about how companies want to increase profits at the expense of highly-skilled American employees," he says.

Others believe the figures cited by labour unions are exaggerated. Economist Rafiq Dossani of Stanford University cites Nasscom statistics estimating that India had 171,500 "business processes" jobs by March 2003, up from 106,000 a year earlier. And that number is expected to grow annually by about 45% over the next five years to be nearly 1 million by 2008. But even that heady growth is substantially less alarmist than what labour unions warn will be India's job-grab from America.

"Am I concerned that the U.S. information-technology industry will end up in India over the next year?" asks Harris Miller, who heads the Information Technology Association of America that includes America's leading multinationals. "That's rubbish. Only about 6%-8% of the all information-technology outsourcing will move offshore. Now it's only 2%."

Miller argues that the best way to protect U.S. jobs is to promote free trade. He believes that there are steps the U.S. government could take to bolster job growth, including such measures as establishing a tax credit for companies that engage in research and development. Miller also says that the current surplus of hi-tech workers in the U.S. will dissipate as the baby-boomer generation retires.

Others add that sending work offshore leads to important benefits to the U.S. John Chen, who heads Sybase, the software giant, argues that "when we spend $1 in India and China, 65 cents comes back" in the form of orders for hi-tech equipment.

Still, the new breed of hi-tech activists can boast of at least one recent success. They helped persuade a majority in the U.S. Congress to let lapse on September 30 a measure that had temporarily tripled the number of foreign professional workers, many from India, admitted to work in the U.S.--to 195,000 a year up from the usual 65,000.

But this victory may be short-lived. Utah Senator Orrin Hatch, the influential chairman of the Senate Judiciary Committee, is in the early stages of floating a proposal that would introduce a variety of exemptions that would effectively circumvent the 65,000-visa limit. If the proposal succeeds--and that's not assured--the number of hi-tech workers admitted into the U.S., many from India, could again top 100,000 a year.

Any moves to expand the number of visas for foreign hi-tech workers will likely be opposed by groups such as Toraw, the one founded last December by recently unemployed information-technology workers. These are people like John Bauman, a computer expert who lost his job in Connecticut a year ago. Toraw is lobbying Connecticut and other state governments to pass legislation making it illegal for a company in the U.S. to bring in a foreign worker and lay off an American employee within six months. "We'd like to see tax incentives for companies that don't offshore work and tax penalties for every job offshored," says Bauman. "I'm going to tell my kids to go into [car] repair so they can't be offshored," he adds.

If tech jobs in the U.S. remain scarce, the biggest uncertainty as to whether the U.S. ultimately takes action on the issue of outsourced jobs is the U.S. election coming up in November 2004. "It's anyone's guess as to which way the political roulette wheel will spin," says Vivek Paul, vice-chairman of Wipro, one of India's largest software firms. "We will definitely see more posturing, but the question is: Will we see regulatory action?"

Still, even if outsourcing opponents are big election winners, analysts doubt that India will face the strident critiques that China is likely to experience in the months ahead.

"There's no constituency for bashing India," says James Steinberg, a foreign-policy analyst in the Brookings Institution think-tank. Steinberg, who served as No. 2 in the Clinton administration's National Security Council, points out that it's politically easier in the U.S. to attack Beijing's communist government than the world's largest democracy. On top of that, American politicians raise a lot of money from Indian Americans. Says Steinberg: "There are only two countries that get an applause line when they're bashed [in the U.S.]: China and France."