The Wall Street Journal Europe
May 2, 2000

By Salil Tripathi

Ireland and Germany want to ride the Internet wave. Both believe they have competitive advantages that can help catapult their economies into the big league of the new economy. Germany has the historic advantage of manufacturing prowess; Ireland has a set of incentives that has lured top software companies to base their operations there.

Both have a common problem, as well. Neither country has enough software engineers who can design web technologies, maintain source code, and bring new ideas to fruition, so that their economies can boom the way the real thing, a.k.a. Silicon Valley, has.

But they are going about their shared problem in contrasting ways. Irish companies and officials spent the better part of the last week traveling through the heat and dust of India, wooing Indian software companies to set up shop in Eire. Irish companies struck alliances with their Indian counterparts, and Dublin said it would make it easier for Indian information technology professionals to get visas to work in Ireland.

In Germany, Chancellor Gerhard Schroeder thought he was on to a good thing when he announced 20,000 green card-type visas, which would allow software professionals from other countries to come to Germany to work. Like the first steps of a cat walking on two feet, the maneuver has been clumsy -- spouses or children are not allowed to work, and candidates must have degrees from recognized universities. Such a restrictive definition would exclude many entrepreneurs who find their garages more inspiring than classrooms and campuses.

Particularly Divisive

Yet it's remarkable that it happened at all. Opposition to the move is strong. Juergen Ruettgers, a former education and technology minister now running a particularly divisive campaign to rule Germany's most populous state, North Rhine Westphalia, believes that Germany should invest in training schemes and education rather than bring in Indians. The view is popularized in the slogan Kinder statt Inder, which, we are told, is not meant as racist. Of course.

But whatever the outcome of that particular debate, Germany's prospects for attracting Indian talent are vanishing fast. Germany was never a prime destination for Indian engineers in the first place, and Kinder statt Inder is only going to make it harder to attract Indians. As one Chicago-based Indian software engineer wrote in an email: "They must be crazy if they think we are going to move to Germany, if this slogan represents their attitude." Back in India, Shuvam Misra, a software entrepreneur planning to set up overseas offices later this year, says: "We have too much to do that keeps us busy. Germany is not on the radar screen."

That's all the more a pity for Germany, given India's IT prowess. Domestic demand for engineers in India alone runs to about 55,000 a year, and Indian engineering schools turn out more than that. These professionals swell the ranks of the quarter-million engineers at home who are churning out programs and developing systems for clients across the world using satellite and Internet technology. Thousands of them go overseas, too, the majority to the U.S.

The benefit is mutual. Expatriate Indians founded about 10% of startups in Silicon Valley between 1995 and 1998. The British chancellor of the exchequer, Gordon Brown, has also seen light; his budget last month contained measures that would make it easier for computer professionals to get visas to work in Britain, a move likely to benefit IT-savvy Indian nationals.

To be sure, few deny that investing in training and education, as Mr. Ruettgers does, is a desirable policy. But that's long term. Start today and you'll have good engineers in 25 years. The gap between supply and demand will by then have grown into a mighty chasm, and who knows what the industry will need in that time? This is particularly important in a rapidly changing industry like information technology, where relatively young companies such as Yahoo! and Amazon seem positively establishmentarian when compared to other dot-com startups.

Fleeing to California

As it is, even giants like Microsoft have had to come up with innovative ways to retain bright young employees who are otherwise fleeing to California. For the engine of growth in the Valley is not just the fact that world-class companies have set up their base there (creating a textbook case of cluster-based development for Harvard professor Michael Porter), nor is it the easy access to venture capital alone. It is the Valley's ability to attract the best and the brightest to the campuses of Stanford and Berkeley and to the startups that dot the landscape around beautiful San Francisco bay.

This has changed the demographic profile of the Valley. As of 1999, whites no longer formed the majority of the population in the Valley. In San Mateo and Santa Clara, the two main geographic areas of the Valley, white school children account for only 39% of the student body, followed by Hispanic (31%) and Asian and Pacific islanders (26%). At the same time the Internet boom has given the Valley's personal income statistics a dramatic boost -- up 32% in the 1990s as against 13% for the U.S. as a whole. That should not be surprising. As the late economist Julian Simon once noted, each immigrant helps create 1.6 new jobs in the economy. Better still, the new wave of high-skilled, highly entrepreneurial immigrants moving to Silicon Valley has contributed to a shift away from the traditional manufacturing sector (microelectronics, semiconductors, and personal computers) to high value-added software development.

Ireland seems to have gotten the message, and gotten it right. "We have a huge shortage of engineers. We need them yesterday," says a medical software developer in Dublin. In the longer run, the more open-minded and commonsensical Irish strategy will succeed, given the more impressive track record of economies that are open to people and ideas.

In the late 1980s, a senior German banker in Asia told me that Germany must remain open if it's to avoid becoming a prisoner in Fortress Europe. Mr. Ruettgers and his followers would do well to take note.