Despite a late start, Pakistan's information technology entrepreneurs and the government are hoping to make it big in the global marketplace for outsourcing of IT-enabled services. How have other countries succeeded and where does Pakistan stand?

Naween A. Mangi spoke from New York to Ron Hira, professor of public policy at the Rochester Institute of Technology, and Rafiq Dossani, senior research scholar at the Walter H. Shorenstein Asia-Pacific Research Center at Stanford University.

Software exports, call centres and medical transcription firms have become all the rage over the last three years. Young entrepreneurs are returning after years spent working at major tech firms in the US to start up their own ventures and the government is forecasting that IT will be the next big thing in Pakistan's economy.

So far, the numbers tell a less-than-compelling story. In 2004, although the software and IT enabled services business was worth $300 million, (including hardware the figure is $600 million), exports and outsourcing made up for just $33 million of that. By comparison, India logged $12.8 billion in software and services exports in 2004.

Still, the Pakistan Software Export Board, a federal body set up to promote outsourcing, forecasts that the business will grow by at least 45 per cent annually for the next five years. A lot of that growth will come from call centres and business process outsourcing which last year made up one-fourth of total exports. In the next ten years, the PSEB aims to be at the top of the class of tier two global IT companies.

But as experts and practitioners agree, Pakistan will need more than ambitious aims to meet that goal. Prof Ron Hira, whose new book Outsourcing America assesses the impact on the US job market, says the outsourcing industry is set for rapid growth in the next few years and if done right, developing countries like Pakistan could benefit from the boom.

Hira is an expert who has testified before the US Congress on the implications of outsourcing. "Pakistan isn't on the map yet," he says. "India dominates what most people think about [when it comes to outsourcing]."

Rafiq Dossani, an expert on outsourcing and a senior research scholar at Stanford University says there are several reasons for that. First, is the poor quality of infrastructure.

"When the Internet tanked recently, that created a really bad perception that the country has not thought through even the most rudimentary aspects," Dossani says. "Deregulation in this area is too limited." He says that while voice services have benefited from the deregulation, data services are still uncompetitive.

He says there are too many stumbling blocks since bandwidth is more expensive than in other countries. "The costs are outrageous at four or five times what they should be," he says.

Dossani identifies the thin segment of English speakers as a second hurdle in the way of a flourishing outsourcing industry in Pakistan. "Of the 30 per cent of the population that lives in urban Pakistan, one tenth speak English that's good enough to work at a call centre," he says. "And of those five million or so, only about one million are available to come into this field as the rest are working elsewhere."

Then, he says poor marketing also holds the industry back. "You just don't see the trade body [in Pakistan] working like India's Nasscom to project a positive image," he says. "The Pakistani diaspora has done well and there is a great need to better use that network."

He forecasts that the outsourcing business in Pakistan can be at least $1 billion in size but says this is only possible if alliances are formed with countries like India and China.

"The Philippines has done well by understanding that it cannot reach critical mass on its own and therefore forming alliances and pitching themselves as a second location to offset country risk," he says. Dossani also says Pakistan has the advantage of a highly skilled group of entrepreneurs which "is the reason why the tiny industry does exist."

Hira adds that since Pakistan entered into the industry late, playing catch up is an inevitable need. However, the sector can take advantage of the circumstances in other countries. "India has done a lot of things right," he says. "They have been successful at not just attracting foreign investment but also building their own companies and leveraging the large Indian diaspora," Hira says.

"India is also so talked about that people are comfortable doing business there. But since wages are rising, Pakistan can use that as an entry point." He says that while countries like India have accumulated critical mass and scale, others are distinguishing themselves in different ways.

Eastern European wages are slightly higher than Pakistan and companies in that region have specialized in near-shoring by targeting the European market. Russia, meantime, is aiming at the U.S. market in both services and manufacturing while the Philippines and Malaysia are targeting services.

"The question really is how you separate yourself from the pack," Hira says. "You can compete on price to a certain extent but you have to offer something more to distinguish yourself."

He says U.S. companies are now moving from pilot stage outsourcing to full deployment which indicates both the success of the pilot projects and the rapid growth that is likely to come in the outsourcing market for the next few years. "There will continue to be a backlash from U.S. workers, but by and large there has not been any real policy movement to restrict outsourcing so there is still a large opportunity," he says.

Hira admits that the extent to which a growing outsourcing industry ties into the broader economy in terms of job creation remains unclear but he says, other advantages emerge. "In India, for example, it remains unclear that they've been able to link the benefits [from outsourcing] back in, but the big benefit is that they have created world class management which can then move into other sectors."

Therefore, Hira recommends that Pakistan take a long-term vision not for the next three or five years but for the next two decades. "Right now you can try to pick up the low hanging fruit and absorb the excess demand but don't just think about attracting the individual company to come [to Pakistan]," he says. "Think about how this will fit into the larger set of skills for your country so that you can differentiate yourself much later down the road."

PALO ALTO, Calif. -- The European Union is increasingly showing a new independent stance on foreign-policy issues as the logic of its industrial and economic integration plays out in the international arena.

Already the EU has taken a distinct and independent approach to both the Israel-Palestinian conflict and the nuclear crisis in Iran. Now it has broken ranks over the Korean Peninsula, fed up and concerned with the failure to resolve the ongoing crisis over North Korea's development of nuclear arms.

Reflecting this new stance, the European Parliament this week passed a comprehensive resolution on the Nonproliferation Treaty (NPT) and nuclear arms in North Korea and Iran:

• It urges the resumption of the supply of heavy fuel oil (HFO) to North Korea in exchange for a verified freeze of the Yongbyong heavy-water reactor, which is capable of producing weapons-grade plutonium, to avoid a further deterioration in the situation. At the same time it is calling for the European Council and Commission to offer to pay for these HFO supplies.
• It urges the Council of Ministers to reconsider paying 4 million Euros of the suspension costs for KEDO (the Korea Energy Development Organization) to South Korea to ensure the continued existence of an organization that could play a key role in delivering energy supplies during a settlement process.
• It demands that the Commission and Council request EU participation in future six-party talks, making it clear that the EU will in the future adopt a "no say, no pay" principle in respect to the Korean Peninsula. Having already placed more than $650 million worth of humanitarian and development aid into the North, it is no longer willing to be seen merely as a cash cow. This view was backed in the debate by the Luxembourg presidency and follows a line initially enunciated by Javier Solana's representatives last month in the Parliament's Foreign Affairs Committee.
• It urges North Korea to rejoin the NPT, return to the six-party talks and allow the resumption of negotiations.

The EP cannot substantiate U.S. allegations that North Korea has an HEU (highly enriched uranium) program or that North Korea provided HEU to Libya. It has called for its Foreign Affairs Committee to hold a public hearing to evaluate the evidence. "Once bitten, twice shy" is the consequence of U.S. claims that Iraq possessed weapons of mass destruction.

The world order is changing; the EU -- like China -- is emerging as a significant global power economically with the euro challenging the dollar as the global currency (even prior to the latest enlargement from 15 to 25 member states, the EU's economy was bigger than that of the United States). Speaking at Stanford University earlier this month, former U.S. foreign policy adviser Zbigniew Brzezinski pointed out that the EU, U.S., China, Japan and India will be the major powers in the new emerging global order. Since the new Asia will have three out of the five major players, he stressed the importance of engaging with it.

How will those already in play respond? Some may claim that statements by North Korea welcoming the EU's involvement and participation are merely polite, inoffensive small talk that cannot be taken seriously. Yet there have been a spate of pro-EU articles appearing in Rodong Sinmun, the daily newspaper of the Central Committee of the Korean Workers Party, since 2001.

Of 128 EU-related articles between 2001 and 2004, a majority praised Europe's independent counter-U.S. stance, emphasized its increasing economic power and influence, and heralded its autonomous regional integration. Rodong Sinmun portrays the EU as the only superpower that can check and balance U.S. hegemony and America's unilateral exercise of military power.

North Korea's perception of the EU is well reflected in articles such as: "EU becomes new challenge to U.S. unilateralism"; "Escalating frictions (disagreements) between Europe and U.S."; "European economy (euro) dominating that of the U.S."; "Europe strongly opposing unilateral power play of U.S.," and so forth.

Concurrently, North Korea has pursued active engagement with the EU by establishing diplomatic relations with 24 of the 25 EU member states (the exception being France). It is not necessary to read between the lines to recognize North Korea's genuine commitment to engagement with the EU based on its perception of the EU's emerging role on the world stage.

The Republic of Korea has publicly welcomed the prospect of EU involvement, while China wishes to go further and engage in bilateral discussions with the EU on its new policy toward the North. Russia will follow the majority. The problem is with Japan and the U.S.

In Japan, opinion is split by hardliners in the Liberal Democratic Party who view problems with North Korea as a convenient excuse to justify the abandonment of the Peace Constitution. They don't want a quick solution until crisis has catalyzed the transformation of Japan into what advocates call a "normal" country.

The U.S. expects an EU financial commitment, but not EU participation. The neocons believe that EU participation would change the balance of forces within the talks inexorably toward critical engagement rather than confrontation.

The question is whether the EU's offer will point the U.S. into a corner or trigger a breakthrough. Will U.S. fundamentalists outmaneuver the realists who favor a diplomatic rather than military solution? Only time will tell.

Glyn Ford, a Labour Party member of the European Parliament (representing South West England), belongs to the EP's Korean Peninsula Delegation. Soyoung Kwon is a postdoctoral fellow at Stanford University's Asia-Pacific Research Center.

After an intensive selection process, the Korean Studies Program (KSP) at the Asia-Pacific Research Center (APARC), Stanford Institute for International Studies at Stanford University has selected the first class of its Pantech Fellowships for Mid-Career Professionals. Philip W. Yun and John Feffer will be in residence during the 2004-2005 academic year and collaborate with the faculty and fellows at KSP and APARC. The fellowship was made possible by generous gift from Pantech Group.

Philip Yun received his law degree from Columbia University and was a Fulbright Scholar at the Yonsei University Graduate School of International Studies. Yun has had a remarkable career working both in the private and the public sector. While holding high-level positions at the U.S. Department of State, Yun worked closely with the Secretary of Defense, Dr. William Perry, to develop broad expertise on international negotiations, strategic planning and problem solving. He has practiced law both in Korea and in the U.S., worked in private equity investment, and provided comments and opinions for the media on North Korean issues. While in residence, he will work on developing an outline of a comprehensive roadmap that will lead to a secure and prosperous Northeast Asia that would include North Korea.

John Feffer is an accomplished writer and editor who has written on numerous topics such as the politics of food, Asia, Eastern Europe, Russia, foreign policy, economics, and nationalism. As a frequent traveler to North Korea (and to South Korea), he has a rare knowledge of and balanced perspective toward North Korea. His most recent publication is "North Korea/South Korea: U.S. Policy at a Time of Crisis". He is a former associate editor of World Policy Journal and has worked for the American Friends Service Committee, most recently as an international affairs representative in East Asia. He serves on the advisory committees of the think tank Foreign Policy in Focus and the Alliance of Scholars Concerned about Korea. While in residence, he will concentrate on examining food policy on the Korean peninsula.

KSP and APARC look forward to their joining us in the fall.

China's government has sentenced two of its citizens to life in prison for their role in securing prostitutes for hundreds of male Japanese visitors in the southern city of Zhuhai last autumn. The Chinese government is also pressuring Tokyo to turn over the Japanese businessmen who allegedly requested the prostitutes. This story made headlines around the world, and fits well with how the world press typically covers Sino-Japanese relations. Regrettably, such incidents recur with enough regularity to feed the media machine that continues to stir a nationalism rooted in conflicting historical memories. Japanese Prime Minister Junichiro Koizumi's annual visits to the Yasukuni Shrine -- which is widely viewed as a symbol of Japan's former militarism -- is a conspicuous example of this. The publicity that the press gives to these visits has helped impede an invitation to Koizumi from China's leaders for a state visit. Recently, the discovery of mustard gas canisters left behind by Japanese forces during World War II has also served to keep memories of the Imperial Japanese Army's wartime conduct alive among older Chinese. Moreover, rival Sino-Japanese claims to the Senkaku (or Diao Yutai) Islands resurfaced last year when the Japanese government leased three islets in the chain from private parties. The action, purportedly undertaken to reduce the prospect of landings and demonstrations by Japanese right-wingers, set off a brief, though frenzied, reaction in China, as well as in Hong Kong and Taiwan. Meanwhile, differences over Taiwan also foster tensions periodically, such as when former Taiwanese President Lee Teng-hui sought to visit Japan for medical treatment. But this is not the whole story. Although such incidents reveal a troubling level of mistrust between the Chinese and Japanese that is not merely a product of media coverage, it is noteworthy that both governments have worked consistently, diligently, and with considerable success to resolve such problems and contain their political fallout. Of course, official relations between the two countries are marked by much political and economic competition -- some of it healthy, some of it a possible harbinger of future strategic rivalry. The competitive strain in Sino-Japanese relations is especially visible in energy politics. Demand for oil in Asia is growing rapidly, and with China and Japan increasingly dependent upon imports, each has naturally sought to improve its energy security by diversifying sources of supply. Both countries covet access to Russian reserves, especially those located in the Angarsk fields of Siberia. Last spring, China appeared to have locked up a Russian commitment to build a pipeline to service the China market at Daqing. Japan, however, raised the ante with new offers of financial incentives. Its bid for an alternative pipeline to Nakhodka to serve Japanese, Korean and other markets remains alive, creating another point of competitive friction. In their rivalry for leadership in promoting Asian regional cooperation, meanwhile, China has taken an early lead. Nearly two years ago, China trumped Japan by offering a Free Trade Agreement to the members of the Association of Southeast Asian Nations, while front-loading its own tariff concessions. But this backdrop of contention and competition masks emerging collaborative aspects of Sino-Japanese relations that are profoundly important. For example, trade and investment flows continue to expand rapidly. Bilateral trade topped $100 billion in 2003, as Japan's exports to China increased by more than 10 percent, fueled by semiconductors, electrical equipment and automobiles. Meanwhile, China replaced the United States as Japan's biggest source of imports, and is now one of the few non-members of the Organization of Petroleum Exporting Countries with which Japan runs a trade deficit. Similarly, direct investment by Japanese firms is increasing as they relocate production facilities to China to capitalize on lower labor costs and high-quality engineering talent. Of course, there is no assurance that today's expanded commerce will preclude eventual strategic rivalry, or succeed in erasing lingering wartime animosity. But both countries now place a premium on extending their economic interdependence. Ultimately, the historical wounds that have long divided China and Japan, and the more current diplomatic flash points that the global media inevitably trumpet, tell only part of the Sino-Japanese story. There are economic and geopolitical rivalries between China and Japan that dwarf in importance the high-profile insults to national pride that make headlines. But there are also compelling economic and political inducements toward cooperation that prevent these rivalries from developing into full-blown crises.

Silicon Valley cannot be replicated-not even in the US, leave alone India.

But there is no underestimating the complex and high end nature of information technology work that's increasingly being done in India.

There is almost nothing that is not doable, except certain high investment, high value manufacturing, like microprocessors.

This year stands out for the speed with which India, still very much a poverty ridden developing country, has emerged as a partner of mature econom-ies in a wide ranging field that covers information technology, business processes and research and development.

Unsurprisingly, such a major development has been accompanied by drama, excitement, anguish and misunderstanding. The rapid acceleration in trends, which in some cases date back to over 10 years, has given little time to players on both sides to rationally assess and adjust to new realities.

Some don't seem to know what has hit them and have therefore gone on to make unrealistic assumptions.

In the west, particularly in the US, there is a backlash against outsourcing to countries like India, China, the Philippines and Russia, with India being the most visible and so taking most of the rap.

Correspondingly, there is an element of euphoria in India in the belief that it has arrived. Some are making unrealistic assumptions that it is on the way to becoming a new Silicon Valley to the world.

Significantly, the knowledgeable and those who are in the vortex of change have a realistic view of what exists on the ground and an enlightened foresight of the shape of things to come.

In this survey of opinion leaders in the information technology industry, we try to come to grips with the new, rapidly emerging reality what is the exact nature of the high tech work taking place in India in information technology and what are the precise contours of the emerging cross border partnerships?

First, the Silicon Valley red herring. Sridhar Mitta, managing director of the incubating firm e4e Labs, almost snorts at the mention of Silicon Valley.

He recalls how the good professors at Stanford University started to get too many visitors who came and asked the same questions what makes Silicon Valley tick and can we replicate it in our country?

They undertook a methodical study for a couple of years and helped define the uniqueness of the creative process that occurs in a small geography 30 miles by 10 miles, near the Californian city of San Francisco.

To Mitta, the Valley's defining characteristic is that some of the best brains in the world are concentrated in a small geography. "It is an innovative high tech cluster. There is an ecosystem of companies which add value to each other."

In Silicon Valley people are willing to share ideas and are not worried about theft. Business discussions are concluded very fast as people want to get on with a project. A project can be started in a week.

There is no concern over individual ideas being stolen as it is assumed that if you are bright you will have many more worthwhile ideas. In the Valley, people don't care about religion, creed or nationality. "There is only one religion, business," Mitta says.

Another industry insider concurs. "Silicon Valley is not a service, but a risk taking model, whereas the Indian software model is largely based on cost effective and efficient delivery of services," he differentiates.

Many of tomorrow's problems are first defined in US universities and then get crystalised as business opportunities. "Firms in the Valley work closely with those universities to quickly grasp the business ideas that emerge from diagnosing and solving a technical problem, for example."

Where does Indian expertise and capability stand then? "The Indian environment still lacks the original ideas that create the new business models. This is because of the lack of proximity to markets," the industry insider explains.

"Once an engineering problem is defined, it can be executed in India." The key and growing Indian competency now is that it has crossed the technical hurdle, there is little that cannot be technically done in India.

If Silicon Valley scores 100 for the purpose of our present discussion, Mitta gives Bangalore 15.

"Bangalore has passed criticality in technical prowess but is still abysmally low in interaction. The culture of networking is better in Bangalore than in the rest of India but nowhere near what exists in the Valley. Here a major part of the load is carried by multinationals which guard their secrets very jealously," Mitta says.

Bangalore also scores on its educational institutions which can deliver the raw materials or skills. Like the Valley, it has some of the best brains, relatively speaking, and some companies have reached criticality of size. Some complex work gets done here in a serial way within companies.

"I know that a US company can start a complex work group here which involves doing many things, though not all. But I don't know what the company on the floor above mine is doing," notes Mitta.

Subroto Bagchi, COO of MindTree Consulting, who is based in the US, explains that in the 1990s people thought that any work that required a high degree of customer knowledge and collaboration, design and architecting had to be done exclusively in the US.

"Anything that required innovation had to be done near the water cooler. So now there is hardware, software and wetware the coffee machine and what's between your two ears, as most of the human brain is water."

But the big change has come with the availability of high bandwidth which has made the water cooler virtual.

"If earlier we looked at India for just development or maintenance work, now we are able to look at co-development and co-architecting," Bagchi notes.

Till two human beings meet, trust is not established. Innovation-related activity, co-development and co-architecting are not done by two entities but by two human beings.

Two techies have to accept each other as "buddies" before they can innovate together. "That happened after Y2K. It established the cross cultural comfort. In a nutshell, India has become legitimate," Bagchi adds.

Higher value add projects are now coming to India and company boards across the world are increasingly being asked, 'What is your India strategy?' Investors in venture capital funds are asking them, 'What are your plans for India,' and they in turn are asking companies 'What are your India development plans?'

The software insider says India's current role is to "complement" not "replace" Silicon Valley. "If present trends continue, maybe India can equal Silicon Valley in seven to 10 years. But the approach cannot be 'We versus they.'"

Another authority adds his support to this scenario, making a deft distinction between what is on and not on.

Says Madhukar Angur, David M French distinguished professor at the Flint School of Management, University of Michigan: "Today almost nothing is too high-tech for India. In technology (IT, designing, R&D) India has taken significant strides. It is pretty close to self-sustaining growth. But it is not quite there. So MNCs will look at India as a location for startups but not standalone ones."

So they will also seek out partners, as Intel has done with startups like Tejas Networks.

The cooperation and joint development approach is underlined by K P Balaraj, managing director of WestBridge Capital Partners.

He feels that "the vast majority of the work being done by start-ups in India is led by teams located in the Valley. What is changing though is the timing of an India ODC (overseas development centre) which is being set up much earlier in the life cycle or even at the seed stage."

What is more significant is that as multinationals which follow the example of early leaders such as GE, TI, Intel, Oracle and others start to do more cutting edge work here, there will be a large base of India-based engineers and managers who will have the experience of building and bringing a world-class product to global markets, primarily the US.

"From this base, we will see a future generation of product entrepreneurs emerge who will have the vision and market credibility to attract high quality VC funding for their plans," Balaraj adds.

Innovation means developing new technology or products. Product development in India is already taking place but as a secondary exercise.

Sanjay Kalra, CEO of the HCL-Deutsche Bank joint venture DSL Software, explains the sequence of what came first and then what followed. At any point of time more than 70 percent of spending takes place on sustaining investments in existing technologies.

This, like work on new technologies, also requires high end work that is innovative. But a majority of the effort is in tasks that are process and procedure bound.

In such tasks, innovation is focused on how to deliver the subcontracted tasks better (process improvement, quality).

High end startups are now beginning to allocate and locate a high percentage of employees (or contractors) in India.

In the past it was the large technology players that leveraged the lower costs and high availability of talent. The smaller startups would contract to small and large players on a need basis.

But of late a lot of smaller startups are also beginning to factor in India as an integral part of their business plans right from the beginning.

What is more, several start-ups are now using India as the base to also conceptualise and then produce in India for markets in Asia.

The good news on products is that Intel is in India in a big way and is going in for the joint effort startups that hold the key to the future. Intel's own agenda, says Ketan Sampat, president of Intel India, is to establish leading edge design capability.

Says Sampat: "At Intel's development centre (its largest non-manufacturing site outside the US), we are engaged in some of the most advanced development activities not just in India but anywhere in the world. For example, the flagship next-generation enterprise processor that Intel will have in volume production is being designed entirely in Bangalore."

But he sees an important milestone that has to be crossed Indian firms still have not broken into the ranks of product companies with their own intellectual property and branded product lines.

"The i-flex's of the world are still too few and far between," Sampat says. So Intel Capital, the company's strategic investment programme, has been an investor in several Indian technology companies. Sampat mentions the investment in Sasken Technologies.

"Its product GSM/ GPRS software stacks complements our "Manitoba" (wireless Internet on a chip) product and it has customers worldwide."

He also mentions another telecom company, Tejas Networks. "It is starting with the Indian market which is sizeable now and is using it as a springboard to the global market."

Sanjay Nayak, CEO, Tejas Networks, sees only the beginnings of high end startups in India, like his company. "It will take some time before we see a major shift in startups originating in India, though the enablers are all there."

The most common trend is to have an "engineering backend" in India of a US originating startup. Within this, the major amount of work that is being done is "software" centric not much system design or hardware design work is done.

He expects that "once we have a few success stories of high-end product companies from India, it will accelerate the trend." In the past, countries like Israel and Taiwan have witnessed such trends.

Srini Rajam, chairman and CEO of Ittiam, another startup product company, sees high end start ups becoming increasingly dependent on designs done in India.

"There is a strong push coming from the investors of the start ups to locate a large part of their design team in India or source their key designs/IP from Indian companies, in order to improve R&D budget utilisation and time-to-market."

He sees early revival worldwide in one segment-the semiconductor and embedded systems. "This is in turn is enabling the growth of chip design, embedded software and system design activities in India."

Several factors are likely to encourage more high end work to come to India and help it become an increasingly important partner of Silicon Valley.

First, the reverse brain drain or brain gain that has been taking place in the last few years, especially since the tech bubble burst in early 2000 and the recession that set in in Silicon Valley.

One person who has been plotting it carefully is Rafiq Dossani, a senior research scholar at the Asia-Pacific Research Centre of Stanford University.

"My guess is that 6,000 jobs have been lost from Silicon Valley in IT to India. Looking ahead, the flow will depend on both opportunities in India and here."

The Silicon Valley economy is picking up rapidly and hiring should soon increase, feels Dossani. In addition, it remains unbeatable on new product development because of its global reach of talent and proximity to markets.

So the younger and more innovative will be attracted to the Valley. India will continue to attract those in the 30-40 age group interested in raising families in India and those interested in a rapid rise up the executive ladder through a stint at a senior level in India.

Also, a key security factor is enabling high end work to shift to India, argues Angur. India will be a country of choice for location of partnerships on considerations of economic stability.

"Multinationals gamble on technology but are cautious on geography. Even China and Taiwan have a security downside. India-Pakistan relations is indeed perceived as a security risk but still India is on the preferred US list."

He sees a significant historical parallel. Technology and IT will be to India what the automobiles industry was to the US.

"One out of every three in the US has something to do with automobiles. The IT revolution has the seeds of becoming something like that. In the immediate future mutlinationals will consider India more and more for high-tech startups and there will be more high tech jobs."

Bagchi shares a deeper insight rooted in Indian history and social development. India, he feels, has two cards up her sleeve: "One is the power of diversity and two the power of pluralism, imparted to it by its institutions."

The future of the global economy is in more trade but post 9/11, the west is also looking for a sense of comfort a degree of security and cultural fit.

How many countries are there with world class capability in IT services from which an American company can source? Out of the choices available, how many countries are both diverse, so that there is a democratic-cultural fit, and believe in institutional pluralism - executive, judiciary, legislative system? "These institutions give a guarantee of continuity," he says.

To become an innovation partner to Silicon Valley, an economy must innovate. Innovation is invariably linked to diversity. The US has been at the cutting edge of technologies because it has such a pro-immigration policy.

"We did IT services for 15 years and moved up the value chain. But the next big value chain is about innovation. That innovation depends on the fertility condition on the ground. That condition is necessarily about diversity," Bagchi adds.

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.