Reich’s Reality Doesn’t Have to Be True with Help from Commerce

Robert Reich at the Progressive Governance Conference 2009

Today in the Wall Street Journal Robert Reich, a Professor of Public Policy at the University of California at Berkeley and former Secretary of Labor under President Clinton, painted a bleak picture of the future of the US economy over the next decade.  Reich explains that the latest job numbers are a positive sign relatively speaking, but that “the bleeding hasn’t stopped.”  While the economy added some 162,000 jobs in March, 40,000 were temporary jobs thanks to the ongoing census.  That means 112,000 “real new jobs,” as Reich calls them, were created, which is below the 150,000 needed on a monthly basis just to keep up with US population growth.  Reich blames outsourcing in large part, and says that even with robust job growth of 300,000 jobs per month it would take between 5 to 8 years to return to pre-recession levels of employment.

As a former Labor Secretary Reich knows a thing or two about the economy and employment in particular.  I don’t frequently agree with him on policy, but it is hard not to notice the man’s intelligence and grasp of issues, even if you oppose him philosophically or ideologically.  The reality he paints is altogether true, unfortunate and extremely unnecessary.  He concludes that “those who have lost their jobs to foreign outsourcing or labor-replacing technologies are unlikely ever to get them back. And they have little hope of finding new jobs that pay as well.”  This may be true, but I know that it doesn’t have to be that way.  The outsourcing of jobs is largely in violation of US export laws and that seems to me to demonstrate the reckless disregard for the American worker rampant in Washington, DC.  The US government is not doing anything to enforce US export laws on the books and stop outsourcing that is in violation of US law.  Sadly, this is not a Democrat problem or an Obama Administration problem, rather it is a government problem.  The same US export laws were ignored under President Bush and when Republicans controlled Congress.

At the end of July 2008, I foolishly wrote that the USPTO ended patent outsourcing to India.  On July 23, 2008, the USPTO published a somewhat strange notice in the Federal Register, which was to remind patent attorneys and patent agents that the activities they are engaged, namely the sending of technological information abroad, was in violation of US export laws.  At the time I suspected that such a reminder notice was a precursor to actual enforcement of the laws and this was the shot across the bow giving fair warning to the industry to come into compliance.  Some 20+ months later nothing has changed, and in fact there is more outsourcing than ever.  At the end of July the Indian outsourcing of patent work was a $2.2 billion per year industry, and today it is undoubtedly more as most law firms that represent publicly traded companies can attest.

Yes, I know $2.2 billion per year is a drop in the bucket compared with our current financial crisis, but we have to start somewhere to stem the tide of job loss, right?  Ironically, $2.2 billion is more than the annual budget of the USPTO, which is sad in and of itself.  On top of that, if there is a $2.2 billion per year sucking sound of jobs from the patent preparation industry how big is the job loss in all other sectors combined? According to Reich outsourcing has increased dramatically during what he calls “the Great Recession,” and he doesn’t even mention India by name.  According to Reich:

Outsourcing abroad has increased dramatically. Companies have discovered that new software and computer technologies have made many workers in Asia and Latin America almost as productive as Americans, and that the Internet allows far more work to be efficiently moved to another country without loss of control.

Since the start of the Great Recession, which Reich and others say started in December 2007, the economy has lost 8.4 million jobs.  Even more staggering is that Reich explains the economy “failed to create another 2.7 million required by an ever-larger pool of potential workers.”  So much for the Obama “saved or created” language that was never anything more than linguistic games.  Reich’s comments in the Wall Street Journal today will likely not make him any friends in the Obama Administration.  I have long felt that Obama’s chief opponent in the Democratic Primary would be Hillary Clinton, who I suspect will step aside as Secretary of State at some point soon to lay the foundation for a challenge to Obama.  Could this op-ed by Robert Reich, a long time friend of Bill and Hillary Clinton, be a sign of things to come?

In any event, Reich reaches “the indubitable reality that many of the jobs that have been lost will never return,” but it doesn’t have to be that way.  Americans do not need to settle “for much lower wages and benefits.”  The Department of Commerce can instantly help by simply enforcing the US export laws on the books and stem the tide of outsourcing jobs.

An export is the actual shipment or transmission of items subject to regulation outside of the borders of the United States. More specifically, an export may also be the release of certain technology or software, including: (1) release of technology or software in or to a foreign country; or (2) release of technology or source code to a foreign national. Technology or software can be considered released for export through any of the following activities: (1) visual inspection by foreign nationals of United States made equipment; (2) oral exchanges of information in the United States or abroad; or (3) the application abroad of personal knowledge or technical experience acquired in the United States.

US export laws do contain a rather broad “fundamental research” exception. The fundamental research exception seeks to identify basic and applied research in science and engineering, where the resulting information is routinely published and shared broadly within the scientific community. Fundamental research must, however, be distinguished from “proprietary research,” the results of which are restricted for proprietary reasons.

There is a lot of “may be” and “could be” when reading through the US export laws. The goal is really to prevent the release of sensitive technology and information abroad that might have national security implications. Unfortunately, a careful reading of the maze of US export laws demonstrates that a good many things that most would believe could never have national security implications are nevertheless caught up by the US export laws and require a license issued by the US government before any export can be made.

There are safe harbor provisions, and if you go through the elaborate maze of regulations you may find that what you want to export is subject to a blanket license, but the truth is that many things that are exported are not covered by this blanket license and no license is applied for, making the exportation of technology and information contrary to US laws. This truth is confirmed by the USPTO Federal register notice, which said in part:

Applicants who are considering exporting subject matter abroad for the preparation of patent applications to be filed in the United States should contact the Bureau of Industry and Security (BIS) at the Department of Commerce for the appropriate clearances.

Under the current realities Reich is correct to say:

Given how many Americans are unemployed or underemployed, it’s hard to see where we get sufficient demand to support a vigorous recovery. Outlays from the federal stimulus have already passed their peak, and the Federal Reserve won’t keep interest rates near zero for very long.

It is time to recognize that the Obama stimulus did not work.  It is time to recognize that US laws currently on the books provide a mechanism to stop at least some outsourcing of technology and information, which if it happened would necessitate the hiring of US workers.  It is time to recognize that the Department of Commerce must aggressively enforce US export laws and keep more jobs from leaving and reclaim jobs that have left.  Reich’s reality, which is scary, doesn’t have to be true, but will be if no action is taken by our leaders.

Under Director David Kappos, the USPTO is becoming revitalized.  The USPTO can and should play an integral part in fostering a technology based recovery.  Proper funding of the USPTO by Congress together with enforcement of US export laws can and will create jobs — American jobs — and lots of them.

At a time when Congress debates hundreds of billions of dollars in spending as if we were talking about lunch money, and we are adding more than $1 trillion a year to the national debt, and Social Security and Medicare are facing unfunded liabilities to the order of about $50 trillion, the one agency of the Federal government that has the authority to create wealth out of whole cloth and without any risk of inflation — the USPTO — has an annual budget of less than $2 billion and has to practically beg for a few extra million to keep afloat.  This is ridiculous on a level that is absurd. Export laws should be enforced and the USPTO budget should be doubled.  After all, what’s the harm?  It isn’t our money anyway, we just borrow it from China and Japan.