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Bangalore, March 15, 2001
Click here for Interview with Miller The following are excerpts from
his speech..
New economy
and new economics
While the news headlines suggest a general slowing trend in the U.S. economy, I submit to you that this may be a healthy slowdown. The U.S. simply could not have sustained the growth levels experienced in 1999 and 2000 indefinitely. I cannot tell you with a straight face I am overjoyed with the current negative news. Consumer confidence in the U.S. is headed downward, and jobless claims are up slightly. Employment in the tech sector has seen layoffs hit, although we believe that technology workers are not being harmed the way that non-IT jobs within IT companies are. Next month, ITAA will release its annual survey of IT workforce vacancies, and I expect the number to be smaller than the 843,000 vacancies we identified in the spring of 2000. Having said all of that, I believe that the US economy and the IT outlook are stronger than they may appear. For instance, despite uncertainties of the current economy, most US IT executives are optimistic that IT spending will continue to rise. According to an Information Week survey of 300 IT Executives conducted in late 2000, nearly 7 of 10 said their IT budgets for this year would exceed that of 2000. Their number one technology spending priority would be network security. 78 per cent of these executives said they were confident that revenue growth in their company will be better than in 2000, with mid and large size companies more optimistic than small. I see a growing disconnect in the United States between the pessimism about the IT and Internet sector flooding financial markets and the continuing adoption of technology and Internet applications in the real economy. Some helpful data points to support
my thesis:
The bottom line for Indian technology businesses is that the overall economy is slowing, and that may negatively impact outsourcing contracts coming from the U.S. However, one can just as easily argue that increased emphasis on cost savings, given the need to cut costs and the need to show profits, may result in more businesses seeking contracts overseas, where the same work can often be done for less money. Indeed, the opportunities here are worth noting. The Asia Private Equity Review says that India is a global hotbed of venture capital activity that has gone unscathed by the recent downturn. According to the report, venture capital flowing into India this year will more than triple to $2.5 billion from $770 million last year. This follows a sevenfold increase last year compared to 1999, when India received just over $100 million in VC money. That figure puts India in the number five position of top Asian markets for venture capital, behind Hong Kong, Japan, Singapore and Taiwan. I think it is important to note that the global competition is growing and may soon be nipping at your heels. India is no longer the only large non-US provider of critical IT services. We see the market growing quickly in Eastern Europe, Russia, the Philippines, Vietnam and China. Our WITSA study of global Information and Communications Technology spending, Digital Planet 2000, shows Hungary, Romania and Poland all in the top ten fastest growing ICT markets in the world, with compound annual growth rates ranging from 15% to 25% in those countries in the 1990s, on parallel with India which had roughly 20% compound annual growth between 1992-1999. Vietnam and China have surged ahead of India in growth, reaching rates of 34% and 28% respectively. Finally, I must mention that many
leading Indian IT companies that started out as staff supplementation firms
and then moved on to project development now aspire to become full blown
IT solution providers, planning to compete with well-known US firms such
as EDS, Accenture, and !BM Global Services. That is a lofty and worthy
goal. But the challenges will be enormous, as matters such as business
knowledge and cultural factors become as important as technical skills.
I will watch this possible set of changes with great
But let's return to the big picture. What the failure of many dot coms has told us is that a New Economy does not equal New Economics. Business is still about making a profit. That is something many in the tech sector and investment community seemed to forget in recent years. While we went through a phase of "irrational exuberance", now we are seeing a necessary weeding out of completely unviable business models. I suspect we will continue to see this over the next 2-3 quarters. It is necessary for the long-term health of the economy. One or two online pet stores is healthy competition. Ten new pet stores are just not sustainable. While the dot com craze is over, the Internet, I believe, is just entering its adolescence. E-commerce is still growing rapidly as the "old economy" companies adopt, and better use, technology. And the New Economy companies that survive are developing business models to achieve profitability. We will move into a time in the not too distant futare where the Internet is everywhere. We speak of the "digital economy" in 2001. Yet today we still can only dimly perceive its true contours. In a truly digital world, using the Net for all intents and purposes will be unremarkable, transparent and invisible to us. Digital ubiquity means that we no longer consciously think about how we use and access information. Pervasiveness will be assumed, expected and elegant. Phrases like "always on" and "24/7" will be quaint. Just as we assume - unless we are in California these days - that the grid is there when we plug an appliance into the electric socket, we will have IP in and on everything. We are still in the very beginning of the famous "S" curve that will take us to ubiquity. The essential stage -- embedded microprocessing -- is all around us. In one vertical industry after another -- from autos to home construction to consumer goods - we are transforming products with digital capabilities. Yet, until very recently, these products remained intelligent islands. Most cannot talk to each other. And connection to the Net, when possible, is fragmented, usually dependent upon an intermediary platform like a deskbound PC. The history of PCs, however, teaches us what is in store. Ethernet, LANs and then the Net in 1994/95 unlocked huge hidden value in solo PCs. Massive wealth creation and whole new industries arose from Metcalf's Law - the value of the network grows exponentially with each new user. We will see an equaJly dynamic growth period when we learn how to connect these embedded devices. New business modeis and new opportunities will abound. On the infrastructure side, a major "limiting step" worldwide is the rollout of digital packet switched wireless networks. India and other leading countries in the wireless space now are deploying robust networks. And all of us await the promise of broadband wireiess, the so-called third generation or 3G systems. Yet Java, Jini and other cross-platform initiatives caution us that the heavy lifting is on the software/data interoperability side, ju,st as much as on the hardware side. If we can meet those challenges, the visions offered are seductive: intelligent buildings and rooms, offering us custom goods and services tailored to our tastes. Mobile commerce, location-based services and seamless data bubbles following us from our offices and cars to our homes and on the town, with no data drops. Think of an automobile so intelligent that it can diagnose its own problems before they occur, find and direct you to the nearest repair shop, send a message to that shop so that your repair order is ready when you arrive, and arrange for a taxi to pick you up at the repair shop and deliver you to your destination. Sound far-fetched. Not really. The technoiogy is ready, as companies such as HP can demonstrate. Getting the systems in place is the next great challenge. The technological trends toward ubiquity are inexorable. Yet beyond technical hurdles, other challenges also lie before us. The
Regulators' Influence
In the United States, we have a new President. All indications, based on his initial senior level appointments, his record in Texas, and his campaign messages, are that President Bush will continue a pro-competitive, generally hands-off approach to the Internet and Internet policy. ITAA and the U.S. industry believe that the concept of enlightened regulatory forbearance is central to our Internet agenda. Markets.not Washington nor Brussels nor New Delhi bureaucrats-are.best equipped to anticipate consumer needs, now and into the future. As we look at tech policy both in the U.S. and abroad, I would fike to briefly discuss seven facets of real or potential Internet regulation where eniightened forbearance on the part of lawmakers is critical: conduit, content, taxes and tariffs, privacy and security, guild mentality, globalisation and cyber crime, and immigration. Before doing so, let me expand on what I mean by regulatory forbearance. You all know those famous words from the Hippocratic oath for doctors-"first do no harm." Well, I advocate what we call the Internet Hippocratic oath for lawmakers and regulators-first do no harm to the Internet. When something is as big and visible as the Internet, the historical tendency of goverrnments is to regulate it. But that is the wrong direction. Only when clear and convincing evidence exists of market failures should regulafion even be considered. And pre-existing regulations that are harming Internet growth, especially in telecommunications, need to be removed rapidly. Conduit
Conundrum
The United States is supposed to be a global leader in telecom deregulation and competition. Yet, too often we lack meaningful competition five years after our own teiecommunications reform bill was signed into law. Conduit is a priority for industry in the U.S., and I submit that India must make it an equally high priority. India took steps in the late 1990s to reform the government monopoly that held a lock on telecommunications in this country. There are indications now that companies are in competition to bring bandwidth to India, where demand is rising quickly. Reliance Industries, Enron, Bharti BT and others are laying the fiber optic groundwork. Now is not too early for India to focus on the "first mile". While local services reforms have been slow, as recently as last November, the Chairman of the Telecom Regulatory Authority of tndia made recommendations to accelerate the opening of local services to competition. In the U.S. and here in India, our mandate as IT leaders is clear - bring competition to the first mile, and make sure that all competitors, not just the local incumbents, can be part of that competition. Content:
A Piece of Cake?
The piracy of software, music, and books via the Internet and other means is a major concern today and will only grow as increases in bandwidth capacity make duplication of other works, like videos, more practical. I commend my friends at NASSCOM for pressing the Indian government to take a harder line on software piracy here. I am reminded of my American CEO friend who said he had two licensees in India a few years back, yet when he came to speak at his company's user conference in Bangalore, there were 250 attendees! We certainly cannot accept the notion that intellectual property has no value. Free music, free videos, free books, free software sound great. But if we end the basic notion that creators of new content have no right to be compensated, we end the incentives for creativity. The French abolished copyright protection at the time of the French Revolution. What was left? Pornography
and political pamphlets
Taxing Questions
Much of this enthusiasm to tax no doubt springs from the fact that e-commerce is the new kid on the block. What better way to regulate an activity than to tax it? In the United States, the Supreme Court has already ruled that states cannot require catalogue and mail order sales companies to collect taxes on out-of state sales. So why do many states, localities, and some bricks and mortar businesses want to treat Internet based sales differently and collect taxes? This is a backward looking view, spurred on once again by entrenched brick and mortar interests. Missing from this calculation is the need to nurture not neuter this new form of commercial activity. Asking young companies to collect and remit taxes amidst a sea of conflicting state and local tax rules and regulations is as unrealistic as it is unnecessary. Why not allow a thousand flowers to bloom and gather additional tax revenues from increased business income and payroll taxes, income flowing back into ccommunities through increased e-commerce employment and spending, and related sources? Maybe even more to the point, why would we support a scheme of discriminatory taxation? Rather than a rush to taxation, we, both on a domestic and global basis (for example in the World Trade Organization) advocate for an Internet tax moratorium of several years. During the moratorium, we encourage all parties to seek a system, which is both simple and fair, keeping in mind that e-commerce takes place in a global context. Changes that one country makes to its tax system may have unintended consequences in creating competitive advantage for overseas firms or serving as the triggering mechanism for tax or tariff increases within particular countries or regions. In
the Name of Privacy
Acting if the name of privacy, government officials in many countries around the world seek to impose a host of Internet-specific privacy rules and assess disproportionate penalties for stepping out of bounds. They would ask Internet users to read and sign lengthy and tedious privacy declarations each click of the way to an electronic transaction, while holding website operators responsible for ad infinitum, ad nausea record keeping. And, they are proposing to impose these privacy rules on a state by state, locality by locality basis. Citizens and consumers have a right to privacy, but they also have an expectation that the private sector will respect this right without the heavy hand of government. The vast majority of commercial private sector websites in the US have responded to the public's privacy concerns by posting privacy policies. The information technology industry is also responding by providing the tools necessary to empower consumers to make their own privacy choices. The Platform for Privacy Protection or P3P, expected to be included in the next version of Microsoft's browser to be released later this year, is an excellent example of a technology that will allow users to set such preferences through their browser. Other technologies include browser controls on cookies, anonymizers, filters and more. In the online world, customer data is a form of currency that enriches both buyer and seller. Government regulators still don't get it. In Europe, we have already seen extreme examples of over reaching regulation of privacy, such as the European privacy directive. May I humbly suggest that this is not the way to encourage e-commerce and Internet use growth in your country. An informed consumer is a consumer enabled to make his or her own privacy decisions and establish his or her own level of comfort with providing personally identifiable information. Customers demand that comfort. The market is meeting those demands, and interference from regulators will again risk slowing growth, not promoting it. The
Politics of Fuzzy Dice
Guild mentality is the use of the
courts and legislatures by the establishment to preserve an exclusive franchise,
whether that means state licensing boards, wine growers associations, medical
societies, the legal bar, or authorised dealer networks. In the global
world, we usually call them non-tariff barriers.
In the global world, the US has been the leader in trying to eliminate non-tariff barriers to trade. While that effort needs to continue, as I will discuss in a minute, we also need to look within the United States itself to weed out state laws that limit consumer options. Cyber
Crime and the Boundless Internet
Crime-fighting is a legitimate role for government and we encourage countries to assess their cybercrime fighting capabilities. Clearly, it makes no sense for the laws of country A to be strong but the laws of country B next door to be weak. On the other hand, we are leery of sweeping international treaties develo~d in the name of crime-fighting but packed with provisions that place excessive demands for record-keeping on infrastructure providers while opening them up to new liabilities. We have established a global partnership on information security to address these issues-the Partnership for Global Information Security--and I encourage you to get involved. Our first Global InfoSec Summit was held in Washington, DC, last October and our next Summit will be in Belfast, Northern Ireland, this May. I encourage you to attend. Immigration
Policy
Let me give you an assessment of the current state of play regarding H-1 B's. We are expecting that the 195,000 number will be high enough for this year and the next two years. The previous cap of 115,000 was not enough, and in the previous two years, the US government stopped admitting H-1 B's part way into the year when the cap was reached. Many people saw the fight to increase the cap last year as an easy one because the final votes in the US House and Senate were close to unanimous. But let me assure you, as one who was in the middle of the battle, it was very hard fought, and I used a lot of my own political capital to get the increase. In the absence of further legislative action in the next two years, the cap reverts to 65,000 in 2004. The effort that will be necessary to get the cap increased again will be enormous, especially if US unemployment increases from its current level of slightly over four per cent, which seems likely. The immigration opponents are out to get me, and many of you. So my plea to you who use the H-1 B program to bring or send H-1 B's to the US is simple. Play by the rules. We can overcome many of our opponents' arguments, but the toughest ones to overcome have to do with abuses. Companies that bend the rules by underpaying or by inflating the resumes or by otherwise skating too close to the edge hurt every employer that wants to use the H-1 B program. So if anyone you know is even thinking about abusing the complicated rules of the H-1 B program, tell them "don't." They will not only be threatening their own business. They will also be threatening the future of many others. A
Global Digital Opportunity for India
I have been privileged to work closely with NASSCOM on many of the issues we have discussed today, and to represent ITAA member companies such as Satyam, Covansys, iGate, Tata, NIIT. Indeed, your country has made a name for itself in the international IT arena, and I encourage, you all to take that leadership role very seriously. I note that India has exceeded five million Internet users in this country, with projections of 15 million in just two years. You are at cross roads - with investments from major U.S. interests like AOL Time Warner at your doorstep, and an Indian CEO presence in many regions of North America, you have a great opportunity. The information technology services industry has a vital interest in the successful conclusion of the World Trade Organization services negotiations that have been bumping along very slowly, especially since the unfortunate WTO meeting in Seattle, Washington in December, 1999. Information technology, while a service industry itself, is critical to the success of the other services industries, which, in turn provide a substantial market for information services. As the services sector thrives so will the information technology services sector. The WTO's agreements on telecommunications,
intellectual property, and information technology goods have had a positive
impact on information technology services, but further liberalisation is
needed. For example, while substantive commitments by many countries in
the area of value-added services (information services), and computer and
related services are included in the General Agreement on Trade in Services,
some commitments are weak, while others are non-existent. The services
negotiations provide an opportunity to
India has a unique opportunity to be a leader on these issues in the WTO. As one of the largest developing economies, India's policies and attitudes on these issues influence the positions of smaller developing countries. I encourage the Indian IT, industry to work with your government representatives to take a positive, leadership role in the WTO to liberalise trade in services if you want to realise your vision of India as a global leader in the information technology market. I realise there are competing interests in India, just as in the United States, among agriculture and other industry sectors on how to position themselves in the WTO. The trade off should be clear - the new economy has delivered many benefits to India in just a short time and it is paramount that India take leadership to continue this success. The Internet is making its global
journey and raising a host of dazzling possibilities as well as leaving
thorny issues in its wake. We need to have the patience to let the marketplace
do its work. In closing, I ask you to find the courage to continue looking
forward, not back - to fight to break down global trade barriers; to accept
the responsibilities of global leadership; to understand that regulatory
forbearance is the key to enlightenment, and to be willing to let markets,
not regulators, find the answers.
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Harris
N Miller, President, ITAA, the ‘big brother’ of Dewang Mehta, was
in Bangalore to talk to IT companies here about the slowdown of the US
economy.Harry Miller is serving as the President of the Information Technology
Association of America (ITAA) since 1995. He is also the President of World
Information Technology and Services (WITSA). He has served for four years
in the United states House of Representatives on the Immigration Subcommittee,
and spent ten years representing various US business interests to promote
a more generous immigration policy.