VSJ – July 2002 – Sounding Board

Robin Jones muses on the cotton industry. The cotton industry? Well, not just cotton. There’s steel and pigs too.

Two apparently unrelated news items crossed my desk the other day. The first reported that the Government has removed C++, Visual Basic and Java, among others, from the list of IT skills in short supply, so reducing the number of overseas workers entitled to fast-track visas. Good news, since many home grown specialists in these areas have been reporting difficulty in finding posts. The second observed that Pakistan is to set up a virtual IT university with a target of 25,000 students by 2005.

My view about the first item is that, while it’s true that it seems inappropriate to import skills that are available in this country already, making it difficult to do so is a little like slapping import duties on cotton goods, as we did 50 years ago. Or, come to that, like protecting one’s steel makers, as the US is doing at present. The danger of any protectionism is that it insulates its target from the world as a whole, but only for a while. At some point, the dam breaks and everybody is treated to a cold bath.

Now to the second article: why is Pakistan doing this? Well, it’s seen its neighbour, India, making very successful inroads into the software industry and, I guess, it would like a piece of the action, please. And there’s a lot of money to be made, isn’t there? This looks like a classic example of what economists call the hog cycle. If pig farmers are making money, other farmers notice and get into pigs. Sooner or later there’s a glut of pigs and the market collapses. Everyone moves to pastures new, there aren’t enough pigs, the price rises and the cycle is repeated.

There are two common strands to the cotton, steel and pig industries that are different for the software business: inertia and location. For cotton et al there’s considerable capital investment in plant. It takes time and money to develop the industry, so you need a very good reason to move or change it. And, even if you do go elsewhere, you’ve still got to get your goods to market. But in software, the cost of setting up shop in a new location is relatively low and that of getting the product to market is negligible. Few of us care (or, perhaps, know) whether the software we’re downloading originates in California, Calcutta or Clacton. So long as it’s fit for purpose and competitively priced, we’re happy. So it’s possible that the ‘software hog cycle’ has a very high frequency.

Maybe I’m seeing the light at the end of the tunnel and interpreting it as the headlamp of an oncoming train. Or maybe not. We’d like to hear what you think.

[Something you’d like to get off your chest? Email me (Robin Jones) at eo@iap.org.uk.]

Comments are closed.