Software Arbitraging the World

Corporations have been arbitraging the world for a century, and not in a good way.

Manufacturing industries see labor as fungible. They see pollution or waste as a cost. They seek a legal environment that assures maximum profit and tax regimes which let them keep that profit.

American corporations have been playing this game ever since the first textile mill moved south, and then on to China, India and the Philippines. Every industry does it. There are both positive and negative side effects. Hundreds of millions of people in the developing world have been raised out of poverty in this century, but low-skill jobs in the developed world have disappeared.

Tech companies have done this as well. Intel didn’t move to Mexico, and then on to China, just for lower labor costs. They moved there so they could ignore the pollution costs of what they were doing, so they could dump their waste without consequence.

What companies want from government varies by location and by industry, but companies all arbitrage the world. Oil companies want low royalty rates, access to the resource, an assurance of non-interference, no pollution controls, and any wars kept on a low level.

Tech hardware companies want low labor costs, compliant workers, and a stable government that can get their capital costs recouped.

Software and bio-design companies have different requirements. They need high quality human capital. They need infrastructure to get people back-and-forth to work, and a high-quality standard of living. They want good schools, at least for their workers’ kids.

Right now, all this is in very short supply. Technology doesn’t pay Silicon Valley’s costs because they like to. They pay Silicon Valley’s costs because it’s the only way they can get the abundant talent they need to succeed in a fast-moving industry. And they don’t move, when they move, to the country with the lowest costs. They move to Singapore, to Taiwan, and to Israel for the highest-quality minds.

What the cloud, software and biology industries need to grow is in very short supply. That is why these industries are concentrated in a few big cities. Biodesign is more diffuse, because there are research universities all around whose work, and political allies, can keep start-ups nearby, for a time. But that will change as the industry evolves.

The point is that the industries of the future have been growing in America because our system provided more high-grade human capital than anyone else, and what we didn’t make we could import.

Donald Trump changes the equation.

It’s the arbitraging of this new reality that will drive politics, not only in America, but in the rest of the world, over the next few decades.

The industrial policy preferences of software, cloud, and biodesign companies are implicit in the politics of their leaders. They’re Democrats. They’re liberal. They want the safety of good cops, honest judges and fair sentences. They want good schools for their kids, who represent new talent. They want immigration, because not all the talent they need resides here. They support science, and oppose bigotry as a waste of good people.

In all these areas, they are opposed by Trump. Trump opposes the growth drivers of the U.S. economy at every turn.

It is time for technology’s policy preferences to become explicit, and for the industries to start arbitraging this country, arbitraging the world, as manufacturers and resource companies have done before them.

This must be done in the right way, however. The way it was done in Indiana and North Carolina, in the opposition to pro-discrimination statutes, was a stick, and probably helped Trump win those states in the end. Tech needs to be smart, and apply carrots. You do this and we’ll move in, not you do that and we’ll move out.

I’m thinking here of Steve Case’s “Rise of the Rest” tour. Case says he wants to engage with Trump, but Trump won’t engage because he’s tied hip-and-thigh to resources and manufacturing. The answer isn’t to just oppose Trump on a national stage. It’s to go into these “rest” towns with some demands. You want to be Silicon Valley, you say? Prove it with your policies. Give us better schools, better infrastructure, and good public safety. Do what Silicon Valley has done and we’ll invest. Or don’t and we’ll go elsewhere.

This is a political call, an economic call, that can be applied around the world. Why are Hong Kong, Singapore and Israel leading in the race for technology dollars? It’s because they have policies that nurture talent and let it grow. They have good schools, and roads, and public safety. They have political stability. We’ll go, and we’ll grow, where we find these things. We won’t go where we don’t find them.

Right now, the requirements for software growth are only found in a few places. But if technology is to keep growing, it needs to find these things in more places. What was implicit, the demand for more high quality human capital, needs to become explicit, a political demand.

It is in this way that technology will regain the power it lost last year. Tell America what you need, and demand we give it to you, and tell us you’ll go somewhere else if you don’t get it.

Stop playing defense with Trump. Go on offense. Make him respond to you, and you’ll have him on the run.

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A personal note. This column represents the 20^th anniversary for what began as A Clue…to Internet Commerce, my tech newsletter and primary personal outlet. It became A-Clue.Com, in 1998, migrated to this blog platform in 2006, and no longer carries the Clue moniker, except for those who select A Clue from the subject headings of this blog. Hard to believe I’ve done this over 1,000 times, but that’s what time does, and I’m prouder of this work than anything else I’ve done, even if no one else is.

Thanks for being part of the ride. — db