The Real Economic Scandal

The biggest economic scandal of this decade has gone unremarked upon.

That is the inability of American technology companies to show stock market leadership.

Tech stocks have been in the doldrums since the Internet bubble collapsed. Intel is now down nearly 40% from its 2001 level, and remember that the bubble burst nearly 18 months before then. Microsoft is also worth less, despite an enormous campaign of stock buybacks.

You can say similar things about Cisco, or Applied Materials. AMD is an exception, up nearly 20% in part on Intel's weakness, and in part of the success of its Dresden, Germany foundry. The Philidelphia Exchange SOX index, which tracks the semiconductor industry as a whole , is still at near the level it achieved after an early 2001 collapse.

As goes the stock market so goes employment. Young people today are much less-likely to major in computer science than they were. American programmers are aging, fast. China and India are out-producing us in engineers, and will soon be out-engineering us (if they aren't already).

The only sector which has kept America afloat has been our Venture Capitalists. They have pushed many companies that launched in Europe to re-launch here, especially open source companies. But that success is limited. I was talking to Larry Augustin, still chair of VA Software (Slashdot) but now mainly a VC and company director. He confirmed that Chinese and Indian VC funds are growing fast, getting smarter, investing wisely. You just don't hear about them. Because they don't want the publicity.

The problem is not just that our big tech companies are slowing. It is that they are not being replaced. New “fab-less” companies like Atheros (Wi-Fi chips) and nVidia (graphics chips) are nice to talk about. But these are onesie-twosies. We need sevensies-eightsies. And a decade ago we were getting new outfits like this in the dozens. Worse, these companies, and the giants, are increasingly relying on foreign operations for their future. They're investing heavily in India and China and Taiwan and even Japan. They're not investing here. (That's an early drawing of the AMD Dresden plant. Think Kurt Vonnegut might want to visit?) 

The fact that we've had a few successes in social networking – MySpace, YouTube – doesn't make me feel all warm-and-fuzzy. These folks are re-using and marketing technology, not creating new breakthroughs.

It's true that Moore's Second Law bites. This holds that, as chips become more complex, the cost of getting production lines running rises. (Thus the fab-less fabs.) But even Moore's Second does not completely explain what is happening on the ground.

America is falling behind. If real estate and heavy equipment and defense contracting is what works, you're eating your seed corn. You're late-Roman empire, not early Roman empire. The world knows this.

And the day of reckoning on all this won't be pretty.