On jobs, Obama needs to be a radical
By vivekwadhwa on 13 Oct 2011
Bailouts for banks. Subsidies for chosen industries. Tax breaks for the rich.
These are some of the remedies that our government has used in its attempt to fix the economy and reduce unemployment. As we’ve seen, they don’t work. The President’s Council on Jobs and Competitiveness is now proposing that we increase the number of engineers that we graduate — a strategy driven by fear of a mythical engineer shortage.
It’s clear that we’re just grasping at straws. Meanwhile, globalization continues to wreak havoc on employment. Eventually, it is going to cause entire industries to disappear and force American workers to compete with their counterparts all over the world. The only way we can keep Americans fully employed and maintain our global lead is by constantly improving their productivity and skills.
In a bygone era, the skills you learned in school could carry you through your career. But today, lifelong learning is a necessity. Americans have to understand that education doesn’t end when they graduate from college. That is when it begins.
American companies must be provided with the incentives to invest in their workers as they used to. As recently as the 1970s, America’s most respected companies would make significant investments in workforce training. IBM, for example, took non-technical workers and taught them technical skills. They then trained these technicians to be computer programmers, sales reps, or product managers. New recruits received a year or more of training before they were expected to become productive.
Today, nearly all American companies, including IBM, expect new hires to be productive on day one. These employees are given a day or two of “orientation” at best. Companies routinely fire people whose skills are obsolete and hire replacements with the right skills to maximize quarterly revenue and profits. Employers often fear that if they spend too much on skill development, employees will become more marketable and leave.
This logic is based on false assumptions. Industry learned this lesson in one of the most unlikely places: India.
India learned that “workforce education” actually increases productivity, decreases turnover, and leads to greater economic growth.
In the late ’90s, India’s IT industry began to grow rapidly. The growth was in response to demand from Western companies to help them fix the Y2K software bug. But Indian industry faced a severe problem: It needed to hire hundreds of thousands of engineers— a far greater number than its engineering colleges could produce. In 1999, India graduated only 76,000 engineers, and most had received a low-quality education.
Indian industry was forced to rethink the way it recruited, trained, and developed its workforce. It started by adapting the best practices of Western companies that were outsourcing to India. Then it started improving on these techniques and methods. India’s top firms — in industries as diverse as IT, banking, and pharmaceuticals — built their own surrogate education system to train new recruits and retrain older workers.
When college graduates join companies like Infosys, Tata Consulting Services (TCS), or HCL Technologies, they are required to undergo three to four months of intense training before starting work. They are taught not only technical skills, but also the basics of customer management, communications and team building. The Infosys program is regarded as the equivalent of a computer-science degree and costs more than $6,500 per recruit — close to a year’s salary. The company spent $120 million to build an education center in Mysore that spans 335 acres, has 2 million square feet of space, employs more than 300 full-time faculty and can train 13,500 employees at a time. Tata Consulting Services (TCS) runs 10 training centers across India that can train 30,000 people at a time.
That’s when the training begins in Indian companies. In fact, most Indian companies mandate that every employee receive between one and three weeks of formal education, every year, to learn new skills. Employees are required to frequently attend seminars and complete online training. And they receive extensive day-to-day mentoring and hand-holding.
The results of this investment speak for themselves. India’s IT industry has grown from almost nothing in 1990 to $88 billion in 2011. Attrition rates remained steady or dropped from the high teens to an average of 13-15 percent — among the lowest in the world in the IT services industry — even as these companies were growing at 30-40 percent per year from 2003-2009. Companies could afford to increase salaries by 10-15 percent per year as productivity and billing rates increased. And they steadily increased their margins.
Today, Indian engineers are designing aircraft engines, automotive components and manufacturing plants, next-generation microprocessors, telecom products and medical devices for Western companies. India’s engineering research and development (R&D) services industry has grown from $1.4 billion in revenue in 2004 to $9 billion in 2011, according to Indian trade group NASSCOM. Most of these R&D workers don’t have master’s degrees or PhDs. They were trained on the job.
America needs to take a page from India’s book and invest in workforce training. If India can take the output of a weak education system and turn its workers into world-class R&D specialists, imagine what America can do with a workforce that already has received the best education in the world.
On Thursday night, President Obama delivers his jobs plan. Here is my prescription: We need to provide a safety net to unemployed workers to be sure. But rather than continually extending unemployment benefits, we should offer these people scholarships, giving them a chance to learn new skills in our community colleges or trade schools. We can teach factory workers how to maintain computer systems, technicians how to read radiology reports, grocery store clerks how to answer phones at call centers. We can teach just about anyone with interest and potential the basics of starting a small business and becoming an entrepreneur.
That’s the kind of radical thinking we need from the White House.
This article appeared in Washington Post
Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. Follow him on Twitter at @vwadhwa.