By Jeff Ferry, CPA Research Director
In a highly polarized nation, Facebook has accomplished the amazing achievement of getting itself intensely disliked by both right and left.
The right detests it because its newsfeed has demonstrated a distinctly progressive bias, reflecting the worldview of the majority of its 25,000 youthful employees, while the left resents it because it is seen as the prime social media tool by which the Russians attempted to influence American voters to favor Trump.
How could Facebook regain public and political support? Here’s a simple proposal: the company is spending $14 billion this year on capital spending. That’s a huge sum of money (and double its 2017 spend). The vast majority of it goes on the data centers Facebook is building in the US and worldwide. And the vast majority of that money goes on the servers, storage, and networking gear crammed, floor to ceiling, into those data centers. Today virtually all that money is going to Asian-manufactured IT equipment, simply because all that equipment is manufactured over there and almost none of it here.
What if Facebook said it would spend a quarter of its data center budget on US-manufactured equipment?
The US tech industry is like a head without a body. In the US, high-tech manufacturing employment has dropped from 1.8 million people in 2000 to just 1.0 million today—despite the ubiquity of technology in our work, play, and social lives. There is no substitute for the sort of support an industry gets when it has a manufacturing base dependent on that industry for its livelihood. The tech industry does not have the broad-based loyal support that the auto industry used to have in Michigan and aerospace in Washington. That’s a big reason why the public is so quick to see the tech industry as full of rich, out-of-touch, manipulative executives with little concern for ordinary Americans.
I’ve met Mark Zuckerberg and I know he’s not like that. He’s surprisingly modest and curious about the world beyond high-tech His philanthropic activities prove he is concerned about the state of society. He spent most of our conversation giving me advice about college studies for my daughter. Facebook recently announced some funding for inequality research and that’s nice. But Americans aren’t dumb, and they recognize that is mostly public relations. A fundamental change in the US manufacturing base would be something much more impactful and durable, and would be widely admired.
China has some 12.9 million people employed in high-tech manufacturing, according to a 2014 figure from the Chinese government. If Facebook committed to spend one quarter of its IT spend on US-made product, and was followed by other Internet giants, the US might soon have some 3 million people working on manufacturing the products that make the Internet hum. Google (aka Alphabet) also spends about $14 billion a year on capex, most of it also going on Asian-manufactured products. If both companies could rely on loyal US workforces making the products behind their technology, they would find they could spend less on Washington lobbying.
If those two companies said they were going to spend 25% of their data center spend on US-made equipment, it would immediately force the leading makers of servers, storage and networking gear (Hewlett-Packard Enterprise, Dell-EMC, and Cisco Systems) to start rebuilding their US manufacturing base.
Tax Reform and Manufacturing Investment
The Congress missed a huge opportunity to kick-start this process when it did not include a requirement for US investment as part of its repatriation plan. To take one example, Cisco last week announced a $25 billion stock buyback as a result of repatriating its $60+ billion of cash now sitting overseas. Even some Wall Street investors noted the irony of Cisco bypassing the opportunity of building a US manufacturing base because a buyback is a quicker way to goose the stock. Many Wall Street investors say privately that they would prefer to see those companies pursuing more long-term strategies instead of the constant short-term earnings boosters we see every quarter. Similarly, Apple is bringing back hundreds of billions of dollars, but announced no US manufacturing plans.
The US tech industry is a strange creature—a head without a body. We lead the world in software, social media, storage design, and networking gear design. But we don’t manufacture the tools people need to use this technology. You can’t build a successful football team on quarterbacks alone. You need every player on the team. We need a full supply chain in tech if we really want to continue to be the world leader in technology. In the tech business, it’s what the customer says that matters most. The two biggest US customers, Facebook and Google, have a chance to take the lead and reset the US industry.