Brad Smith: Keynote Address for the 41st Annual Economic Forecast Conference

BRAD SMITH: Thank you. Well, thank you.

I first want to say that when your last name is Smith, the best thing in the world is to be introduced by somebody whose last name is Einstein. I am feeling smarter already.

I know it’s been an interesting and important meeting, and it’s a real pleasure for me to be here with so many people who play such important roles in the state, to be here and share a table with Susan DelBene, who I had the chance to work with when she was at Microsoft, and now have the pleasure to see her playing a new role in Congress. And to follow what Tayloe had to say, and obviously to follow in the footsteps a bit of what Claude was talking about.

I wanted to talk a little bit about where we are from my perspective when it comes to the tech sector in this state, the good, the bad, the present, and the future, because I think we need to take all of these things into account.

There’s a lot to be excited about as we start 2013. It’s a better January than a year ago. It’s a much better January than two or three years ago. There is no question about that.

And when you step back from the quarter-by-quarter or year-by-year analysis, I think that the most notable thing for Puget Sound is that we unquestionably, in my view, have established ourselves as the clear and undisputed No. 2 in the United States, if not the world, for the information technology sector. No one would confuse us with No. 1. We’re not Silicon Valley. But we have distanced ourselves from Massachusetts, and from Texas, and from North Carolina and Utah, and many other places that have also done well.

If we are going to continue to do well, we have some big challenges we need to address. We’re going to need to invest in our infrastructure, in our roads and bridges. We’re going to need to invest in our ports and our transit. But more than any single thing, we need to invest in our people, because in my opinion that is what the future growth in our sector in this state is going to be all about.

I say that in part from the perspective of the way our company looked when the clock struck midnight, and the fireworks went off at the Space Needle on New Year’s Eve, and we at Microsoft, in the United States, had 6,271 open jobs.

You might say that is fantastic. We’re out hiring for 6,271 new people, most of whom we hope will take jobs here in our own state. But the challenge is this, whether you’re talking about Microsoft or any other company that has a tech job, whether it’s in Washington state or in other states in this country – what we are doing as an industry is creating jobs that we are finding it increasingly difficult to fill.

At Microsoft, over 3,500 of our open jobs are for engineers. That’s a 44 percent increase over the number a year ago. And every number I look at tells the same story. The monthly data for the country from the Bureau of Labor Statistics shows that the unemployment rate in the computer and mathematical occupation has continued to fall. In November, it was only 2.8 percent. We happen to believe that any time an unemployment number is below 4.0 percent, we’re facing a shortage.

And we know full well that the current path and speed on which we are on is going to make this problem worse, not better, each and every year, as a country and as a state. Nationally, the Bureau of Labor Statistics has predicted that every year this decade our country’s economy is going to create 120,000 new jobs that will require a bachelor’s degree in computer science. But if you add up all the colleges and universities in America, and you put them together, you get only 40,000 bachelor’s degrees in computer science being produced each year. And that is, in fact, what we’ve seen over the last two or three years, and what we expect to see unfold over the coming years as well.

We have some new challenges to face, because the truth is, our economy in this state and this industry has grown in a very particular, almost unique way. We basically have created jobs, and then imported people to fill them. That is the history of the last three decades of economic growth in Washington state. We have imported people, in part, because when we started the 1980s, we didn’t have the capacity in our higher education institutions to produce the degrees that would be needed to take these new jobs. And why should we? We didn’t have an industry in this state that needed to be addressed.

But three decades later, where are we? We’re pretty much in the same place. Every study you look at will show you the following: we are one of the top five states in the country when it comes to the creation of jobs per capita that require a four-year bachelor’s degree. And we tend to be one of the bottom five states in the country when it comes to the production of four-year bachelor’s degrees.

Now, not all is wrong because of this. We’ve attracted a lot of people to come live here. And it’s been a wonderful thing. I’m one of the many who grew up in another part of the country who realized what a wonderful place this is. And it’s not just other people from other parts of the country. We’ve attracted people from around the world.

In many ways that’s a terrific thing, because it has enabled us to bring the best and brightest, and get them involved here. After all my view is simple: if Felix Hernandez is available, I want him to pitch for my team.

And the numbers have added up, and what an amazing difference they’ve made. Microsoft is, of course, the company that in many ways lit the fuse and set the spark that put all of this in motion, a motion that so many others have followed. We have about 41,500 employees here in Washington state. Of that number, 16,000 are like Claude; they’re immigrants. And they have with them today about 20,000 people who are their dependents. It means that we’ve helped create, just as a single company, a community of 36,000 people who came here from over 150 countries. And what a wonderfully diverse community and region they have helped us to build.

But one thing I know all too well, as you grow you start to hit the laws of large numbers. And it becomes increasingly difficult to assume that you will continue to grow simply by bringing people from other places to live here. At a minimum, we’re going to have to make some changes. And we’re going to have to look to the future and really assess dead-on what it is that we face.

If you are in the business of forecasting the economy of Washington state, I would suggest that there is one date, perhaps among all other dates in 2013, that you should pay attention to. It’s the first of April. Why? That’s the day that the H-1B visas will become available.

The way our H-1B visa program works is pretty straightforward. They become available on the first of April. There’s 85,000 visas available. And they’re available on a first come, first serve basis until they’re all used up. When we got into the recession, we found that there was a surplus of visas. And even two years ago, three years ago, it took ten months to use up the visas. Last year it only took 10 weeks.

I predict that we may well find that 2013 looks like 2007 and 2008. In those two years before the recession, the entire number of visas for the entire country was more than used on the first day. And when that happens, there’s a lottery. And it’s a pure lottery by chance; everybody is treated equally. But in 2008, for example, Microsoft lost the ability to bring to Washington state 40 percent of the people for whom we applied. We had jobs waiting. And we had to turn them away. That is what led us at that time to create a development center in Vancouver.

If 2013 is like 2008, then there will be 500 people who currently think they are going to move here this fall, over two-thirds of whom are studying on U.S. college campuses today, who think that they are going to come work for Microsoft in Redmond, who will suddenly find on that day that they don’t have the legal ability to do so.

And just assume for a moment that Microsoft accounts for half of these visa applications in Washington state. That would mean the number of people who think they are going to work here but cannot is not 500 but 1,000. And if you apply the multiplier effect for our industry, what you’d find is this: there’s over 5,000 jobs that either are going to be filled here by human beings of great talent this fall, or we’re going to have to help those people work in some other country. That is the challenge we face. And that will have a ripple effect on every part of our economy, and on the state’s revenue forecast over the next 18 months.

The real question is this: what are we to do?

We think that there are three things we need to focus on. Some of these are more for the long-term, and some are for the here and now. But if we focus on these things together, we can take the steps that are needed to ensure that this industry and our state can continue to grow.

The first thing we need to do is focus on the opportunities for our own kids. I have to admit, every day it pains me to see us creating more opportunities for kids who grow up in Boston than kids who grow up in Bellevue. That should not be the case. We need to invest in opportunities for our own kids. And that means doing more to improve education, especially STEM education in the K-12 system.

And this spring in Olympia, there will be important decision that will be addressed, and hopefully will be made. Will we implement the common core standards? Will we adopt the next generation science standards? Will we give our own kids the 21st century STEM education they need and deserve?

Will we as a country and a state give the next generation of kids the kinds of opportunities that Bill Gates and Paul Allen and Steve Jobs and Mark Zuckerberg had when they were growing up?

There is one thing that all four of those individuals had in common, and it is this: they all had the chance to learn computer science in high school. They were among the fortunate few of a generation that acquired the skills that catapulted not just themselves but the entire country into the future.

But the sad reality is that four decades after Bill Gates and Paul Allen went to high school, you still have to be one of the fortunate few in order to be exposed to this field as a high school student.

Even though computer science is now fundamental for so many other areas of the economy and fields in science and math, the reality is this: there are 42,000 high schools in America; 30,000 public and 12,000 private. But only 2,100 of them currently offer the AP course in computer science. And worse than that, that number, 2,100, is lower today than it was five years ago, when it was 2,500.

Now here, of course, we live in a state that thrives at the forefront of this important field. So, you might expect that what’s true for the state is not true for the nation. But the reality is this: there are 771 high schools in Washington state. And ask yourself this: how many last year offered the AP course in computer science? Thirty-five. We are lagging behind the very low rate that the country as a whole is experiencing.

And if the situation is unfortunate for well off white middle-income kids, it is so much worse for people of lesser economic means and people of color. Last year there were 542 students who took the AP course in computer science in this state, but only 13 of them were Hispanic. Only 10 of them were African American. They would have filled up only one table in this room. And if we invited all of the Native Americans in Washington state who had taken this course in our state last year to come to this lunch, that would require that we add one extra seat, because only one person fit that description. We need to ask ourselves, why is this the case? We need to do better.

And, of course, one other problem is closely related. Right now across the country, there are only nine of the 50 states that recognize that if you take computer science in high school it will count toward your math and distribution requirements. Washington is not one of them. It won’t count as a math course. It won’t count as a science course. It’s on the same level as woodworking. We need to do better there, too.

We need to focus on our high schools, and then we need to focus on our colleges, because a big part of our problem as a state and as a country is that we’re not producing the college graduates with the degrees that are needed to fill the jobs we’re creating.

Part of this is a capacity problem. The University of Washington unquestionably has one of the world’s best departments of computer science. I can tell you as a graduate of Princeton University, which has a world-leading department in computer science, that the University of Washington has a better one.

But the University of Washington has a big problem. The department of computer science and engineering is simply too small. At a time when jobs are staying open, right now, last year, this year, fewer than one in three of the freshmen who complete all of the prerequisites for computer science will, in fact, be permitted to major in computer science at the University of Washington, because they don’t have the space needed for these students. That’s a tragedy for our economy. And it’s even a bigger tragedy for our kids.

And if that is a tragedy, unfortunately there is a bigger one still. It is what I believe is the genuine crisis in our country when it comes to college completion. It’s fascinating to me that there has been so much attention in the last year on the problems that kids face if they graduate with a lot of debt. That is actually not the biggest problem for most people who are going to college. Their problem is this, statistically; they’re much more likely to drop out with a lot of debt.

Nationwide, the percentage of students who start a four-year degree program who will get that four-year degree within six years is only 51 percent. And while the University of Washington is far better than that, our other public four-year institutions face the same challenges that the rest of the country face. Their college completion rates pretty much mirror the national average.

And if the problem is significant on four-year campuses, it is even worse at our community colleges, nationally and locally. Nationally, only 30 percent of the kids who start a two-year associate’s degree program will get that degree in three years. The dropout rates are huge.

What’s changed? Well, it turns out our country has changed. When I went to college, I left home. I moved across the country. I moved into a dorm. I went to college. The reality is 75 percent of the students today who are going to college are working at the same time; many of them are raising kids. In community colleges over half of them are working over 20 hours a week.

And yet our colleges have not yet adapted to make it easier for people to balance work and study at the same time. In the business community, we’ve hardly even yet started to talk about this and ask what we can do to help.

The counseling resources are vastly insufficient to help people take the right courses to get the right degrees. A lot of people talk about the ratio of students to teachers or faculty. The real question in some ways is the ratio of students to counselors. If you go on the campus of the average community college in America, and you shake the hands of 700 students, you’re likely then to have the opportunity to shake the hand of one college counselor, because that’s the ratio of students to counselors, 700 to 1.

Why should that be the case? We can do better.

And we’re going to have to focus not only on the longer term in terms of creating more opportunities for our own children, we need to take some short-term steps as well.

For one, I think we have to get out and market ourselves more as a region. The last few years for the state were not kind to the state’s tourism efforts. This is a wonderful place, but one thing I encounter as I travel the country is this: there are many states where people think it’s rather rainy here. In fact, when I’m in New York, I sometimes feel as if the people that I meet think I’m a neighbor of Sarah Palin, and I must be able to see Russia from my house.

We live in a wonderful place. But the reality is if we’re going to keep growing with the laws of large numbers, we have a lot of work to go do to persuade people that they should want to come and live here. And if we’re going to do well in diversity, as I think we should, as we need to, I’ll tell you this: there are a lot of really stellar people at the historically black colleges in America who have real questions about whether this is a welcoming place for them. And the tolerance and the diversity that I get to see everyday is an unknown, and it will remain an unknown unless we get out and tell the world.

And, finally, we need desperately – desperately – to get Congress to improve our immigration situation. If we do not see changes in our immigration laws this year, if we see the H-1B visas used up on the first of April and go to a lottery; if we see 40 percent of the visa applications turned down; then it will be time to study the traffic heading north to Vancouver once again. Because that is where the jobs are going to go, to Canada, to the U.K., to Ireland, to Europe, to China, to India.

These are our jobs to keep, if only we’ll take the right steps as a country to enact the changes to our immigration laws so we can actually fill these jobs here.

And yet, for a decade, high-skilled immigration reform has been held hostage to the broader immigration debate, and we just looked at deadlock each and every year.

But this is a year where that needs to change or I believe jobs will start to move.

Now, what we’ve proposed as a company in Washington, D.C., an idea that I believe is gaining momentum, is to couple reform with more visas and green cards with some higher fees that will pay for the education investments here in the United States for our own kids in K-12 and in colleges and universities. We’ve proposed through that mechanism a means to raise $5 billion over the next decade, and send that money from Washington, D.C. to Washington state and other states and put it to work in schools and colleges and universities so we can give our kids the opportunity that they need and deserve.

We’ll fill the jobs here, and we’ll keep the jobs here. And we will create better opportunities for the future, if we can find a way to do all of this together.

But it’s also time to step back and reflect on this: it’s a new year. But we need more than a new year. We need to create a new day. We need to create a day where we come together with the kind of plan that will enable us, month after month, year after year, throughout this decade, to take the kinds of steps that will address the investments that our people need and deserve. We need to make this a day that will lead to a different year, and we need to make this a year that will make this a decade that counts. Because if we do, we have a very bright future, not only in information technology, but in all kinds of other scientific and technological fields.

But if we don’t, we may find ourselves at some day in the future waking up and saying, wow, we just became Detroit. We had our day in the sun. Wasn’t it nice while it lasted?

I believe that for all of us who were born here, for all of us who have come here from other parts of the country, for the tens of thousands of immigrants who have made this their home, we can do better. We should do better. We should make this the year when we start to make that difference.

Thank you very much.