The Great Skills Race

People shortages, trade imbalances, and a very large market opportunity.

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The next phase of the technology race will be fought with qualified people—but not necessarily the same people in the same markets or with the same skill sets.

For the past half century, technology wars have been won and lost with inexpensive labor and increasing amounts of automation. This can be traced from the United States in the 1960s to Japan in the 1970s, Korea starting in the mid-1980s, and Taiwan and China starting in the 1990s. In the early 2000s, there was some movement to Vietnam, Malaysia, Eastern Europe and Brazil, as well.

Contract manufacturers set up shop in China, eastern Europe and Mexico. Call centers were outsourced to India and the Philippines, among other places. In the semiconductor world, chipmakers went fabless and sent GDSII code to foundries in Taiwan and Singapore.

U.S. manufacturing, meanwhile, added more automation into the mix. According to a recent report in The Economist, American manufacturing output has nearly doubled since the Reagan era, with output rising 47% between 2002 and 2015. The report noted that American manufacturing became more competitive partly because of rising labor costs in China.

But most of these shifts were driven by maturing industries looking to cut costs. What comes next is not a logical progression for a maturing industry. There is no obvious cost-cutting in the near term because many of the technologies under development or planned for future development are brand new. There never has been an autonomous vehicle or anything like the IoT or personal robots. AI was something straight out of science fiction five years ago, and machine learning’s goal was to play games like chess or even Go better than people.

This is no longer about board games. It is about competition across broad markets with different end goals, and at this point there are no clear winners or any technology that seems to be firmly rooted. But there is certainly plenty of motivation for countries to rev up their research and training, and plenty of money pouring in.

A new report from SEMI shows that China will consume 45% of the semiconductors produced this year, resulting in a huge trade deficit that the Chinese government wants to close as quickly as possible. China’s IC production grew 25% per year between 2001 and 2016, and China now has more than 1,300 design companies. It also has 12% of the installed fab capacity, but with 24 new fab projects underway or planned in China, that will likely change the percentages. Add to that huge amounts of capital available from the government and private investors to build an indigenous technology industry. The most recent estimates are somewhere in the neighborhood of $150 billion.

Other countries aren’t standing still, either. Softbank, the owner of Arm, announced a deal in May with Saudi Arabia’s Public Investment Fund. The pair said they had secured $93 billion for the new “Vision Fund,” setting a goal of $100 billion by the end of this year.

So money is not the problem. Neither are labor costs, which are no longer that dissimilar when comparable skill sets, educational backgrounds and tooling and equipment are added into the picture. So for the foreseeable future, the real challenge will be about finding and training qualified people who can develop new technology for new markets.

To that end, California’s Gov. Jerry Brown signed a bill this month that will make the first year free at all community colleges in the state for full-time students. In April, New York’s legislature approved a measure to make tuition free for middle-class students (less than $100,000 per year, rising to $125,000 in 2019) at both two and four-year public colleges. This is just the beginning, and it will be echoed around the globe as the race to develop enough skilled people becomes increasingly competitive.

Engineers and scientists are in short supply again. The last time that happened, it resulted a massive education effort that drove one of the biggest and most protracted technology booms in history. It also created a period of sustained innovation that lasted for decades. From all indications, the next period of growth could be even bigger.