Tech Central Station, January 30, 2004

The Department of Commerce recently reported that "U.S. IT producers remain the most competitive in the world." This is good news for the moment, but many, particularly in Silicon Valley, are wary about the future.

Eavesdrop on conversations at Ming's restaurant in Palo Alto, and you're likely to hear intense discussions concerning the greatest threats to the vitality of the U.S. tech sector over the next 10-20 years. China is one concern.

China is a huge emerging market, but many tech companies worry about barriers to access. The Chinese government has indicated it plans to favor purchasing China-made software products over others. Such protectionism would put a damper on U.S. technology growth. It would also hamstring the Chinese, as buying decisions would not be based solely on the best product for the job.

Another issue that's got the tech community abuzz is what's known as off-shoring, the practice of out-sourcing jobs to workers in lower-cost foreign markets like India or China. Workers in jobs such as computer programming and customer support are worried about losing their jobs to cheaper labor, and tech execs are anxious because they fear anti-competitive, protectionist measures from politicians looking to score points in an election year. Indeed, the issue has already come up.

Democratic Presidential candidate John Kerry recently said, "We're going to end the days when our government encourages big business to turn its back on America's workers. We need to end an administration that lets companies like Halliburton ship their old boss to the White House and get special treatment while they ship American jobs overseas." But even if President Bush wins the next election, tech entrepreneurs remember steel tariffs and farm bills that show his administration isn't always true to free-trade principles.

Andy Wilson, former Senior Vice President of Overture and Principal at Continuity Partners, says he's both worried about "the interventionist stance of the current administration" and the culture of entitlement that Americans seem increasingly prone to embrace. "There's a sense of entitlement and that breeds hubris," Wilson said, "grunt work is going to places like India and now we have to re-tool ourselves to be efficient creators of intellectual property. The world is a global marketplace."

Hewlett-Packard CEO Carly Fiorina was more blunt. "There is no job that is America's God-given right," Fiorina said. "We have to compete for jobs."

That's tough talk from one of America's toughest CEOs, but it's also true. Only in a competitive marketplace will companies be able to innovate and produce the best goods and services that ultimately attract investment and create jobs. When the economy changes, government protectionism only makes that task more difficult.

Add to this picture the fact that government is considering both new Internet taxes and saddling voice-over-Internet protocol (VOIP) services with old and outdated telecom rules. The combination of these two domestic policy choices would have a deleterious effect on broadband and the tech sector as a whole.

New Internet access taxes would make it more difficult for lower-income people to log on to the web, and VOIP regulations could bring to a halt an innovative and inexpensive way to make phone calls. Meanwhile, everyone is worried about the economy, but the best way to get out of a slump is not more government intervention.

America is engaged in a presidential election year when many promises will be made but results will be few. To help the U.S. tech sector succeed, the winner needs to help remove barriers to entrepreneurship.

The technology community needs an administration that will fight international barriers to trade, labor's harmful protectionist ideas, and domestic policies that hamstring innovations such as broadband. Only by creating a less-constrained environment will the U.S. continue to create jobs and remain the "most competitive in the world."

Sonia Arrison is director of the Center for Technology Studies at the San Francisco-based Pacific Research Institute. She can be reached via email at sarrison@pacificresearch.org.