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03.08

Outlook for 2008

By George McClure

In the short term, forecasting is hard to do, matching a development with a timeline. That said, here is the outlook for changes and trends in eight categories that are likely to affect all of us, in one way or another, in 2008: technology, energy, climate change, work force, employment benefits, immigration, infrastructure and the economy.

Technology

• MIT's Technology Review provides its latest list of ten emerging technologies that are "most likely" to change our lives ["Special Reports: 10 Emerging Technologies 2008," TechnologyReview.com, Technology Review, Inc., 2008, Available  www.technologyreview.com/specialreports/specialreport.aspx?id=25].

• The National Academy of Engineering (NAE) has proposed fourteen "Grand Challenges for Engineering," which fall into four categories: environmental sustainability, human health, reducing vulnerability of human society, and adding to the joy of living. NAE is soliciting public comments on the Grand Challenges Web site [www.engineeringchallenges.org/cms/8996/9221.aspx].

• In his 2008 State of the Union address, President Bush called for expanded federal spending for basic research in the physical sciences. One goal is to double the expenditure over five years, mirroring a gain already posted for research in the life sciences.

• Spending on information technology (IT) will be down this year. As reported in February by Computerworld, Forrester Research Inc. has lowered its expectations for U.S. and global IT spending this year, due in part to the "worsening U.S. economic situation." In five months, the forecast has been successively reduced from 8 percent growth, to 4.6 percent, to 2.8 percent. Globally, IT growth is pegged at 6 percent, down from 12 percent in 2007. Gross National Product grew at 0.6 percent in the fourth quarter 2007, down from 4.6 percent in the third quarter, compared to an average of 2.5 to 3.0 percent. [www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9061878]

• In 2007, Kleiner Perkins Caufield & Byers awarded its first $50,000 "Prize for Greentech Policy Innovators." KPCB will also offer a $100,000 "Prize for Greentech Innovation." [www.csrwire.com/News/9249.html]

Energy

• $100/barrel oil? Extraction from the Alberta tar sands is economically feasible now, but raises environmental concerns. [http://search.ft.com/ftArticle?queryText=alberta+pollution&y=8&aje=true&x=16&id=071109000081&ct=0]

• The discovery of a new, large, deep ocean oil and gas field off Brazil adds 5 million to 8 million barrels to the recoverable oil, from total reserves in the new Tupi and Jupiter fields of 12 million to 30 million barrels. For comparison, the total recoverable oil from all of Norway’s fields is 8.5 million barrels. Recovery won’t be easy — the fields are under 1,200 feet of water and another 2,400 feet below the sea floor. [http://worldnetdaily.com/news/article.asp?ARTICLE_ID=58682]

• Expectation is for energy prices to drift lower this year, to around $75 to $80 per barrel for oil, and $8 to $9 per thousand cubic feet for natural gas.

• A fleet average 35 mpg CAFÉ standard (by 2020) will reduce vehicle fuel consumption. High-tech diesel engines from Europe can provide at least 30 percent better fuel economy. With more than 40 mpg for combined city-highway driving, these diesels will meet pollution standards in all 50 states. Expect introduction into the United States by Volkswagen, Mercedes-Benz, and BMW, starting with the VW Jetta diesel this year. [http://online.wsj.com/article/SB120338446532575863.html]

• Worldwide uranium production falls short of the demand from the 442 nuclear power reactors operating worldwide plus the 28 being built and the 34 additional planned. [www.ft.com/cms/s/0/f6707320-e03c-11dc-b0d7-0000779fd2ac.html] Last year in the United States, there were four applications for seven nuclear power plants. In 2008, 15 applications for 22 plants are expected, and another two applications for three plants in 2009, for a total of 21 applications for 32 units. [www.nrc.gov/reactors/new-licensing/new-licensing-files/expected-new-rx-applications.pdf]

• In February, the U.S. government withdrew support from FutureGen, an effort to develop a "clean coal" power plant. This will make it harder for the utility sector to slash carbon-dioxide emissions and keep coal in the running as a cheap electricity source. It could also help push the nation toward greater reliance on nuclear power. Costs had nearly doubled, to $1.8 billion, but proponents planned to take their case to Congress. [http://online.wsj.com/article/SB120192661667637793.html] Half of U.S. electric power and three-quarters of China's electric power is generated from coal.

• Cellulosic ethanol is a better bet than grained-based ethanol, which uses considerable energy and water in its production. [www.hoover.org/publications/digest/13871832.html]

Climate change

On the premise that man is responsible for warming of the planet, attention is being focused on trading of carbon credits, and on carbon sequestration. Global temperatures have been falling slowly since 2002, but the cooling has accelerated during the last year. The NOAA satellite data from Remote Sensing Systems and University of Alabama - Huntsville Climate Science Center have been showing the accelerated cooling for quite some time. The Pew Center on Global Climate Change has a good collection of data [www.pewclimate.org]. There continues to be controversy over the accuracy of the computer models used for climate change forecasts. [http://newsbusters.org/blogs/matthew-sheffield/2007/11/01/u-n-scientist-rejects-nobel-prize-share-denounces-alarmism]

There are two questions: Is the earth warming? And, If so, is human activity responsible? The data are not all clear. If the global warming theorists are correct, the CO2 control measures will be immensely beneficial. But, if human activity is not responsible, then CO2 control schemes, such as a carbon tax on emitters, and a cap and trade system to buy and sell rights to pollute, are of questionable value. [http://scienceandpublicpolicy.org/sppi_originals/fallacies_about_global_warming.html]

In Canada, the government is being warned not to expend resources on dubious initiatives to offset global warming. [http://canadafreepress.com/index.php/article/1699]

Green technologies are a growth area. In 2006, $3 billion was invested, growing to $4 billion in 2007. According to John Doerr, partner in Kleiner, Perkins, Caufield & Byers (KPCB), a venture capital firm investing in the field, the major areas for improvement,  are cars, coal and conservation. For the National Governors’ Association, he outlined a five-point plan:

1. Use a cap and trade system for carbon — we emit 70 million tons per day. Replace the employment tax with a carbon tax, as is done in British Columbia.

2. Extend the federal investment tax credit and production tax credit for ten years, so it can be counted on to be there. Without that, investment in renewables is risky.

3. Set standards for a renewable energy portfolio, as 27 states do now.

4. Fix the rules governing regulated utilities, to permit net metering, so that buildings with photovoltaic or other energy generation can sell their excess energy back to the power company.

5. Set tougher building standards for conservation — the potential exists to cut energy consumption there by 50 percent.

Work Force

• New projections of demand by occupation to 2016 have been published. See [www.bls.gov/emp/mlrappendix.pdf]. The six technical jobs with highest demand over that decade are computer-related and information technology, with growth ranging between 25 percent and 50 percent. These jobs are easiest to send offshore, raising questions about whether U.S. students would gamble on studying for them rather than another major.

• Offshoring of jobs and manufacturing is an issue in the presidential debates. There are 140 million jobs in the United States today, with up to 40 million of those in the service sector and at risk from offshoring. There is a backlash from free trade appearing now, with income stagnation seen for all the middle class, except those with doctoral or professional degrees. Protectionist sentiment is rising in those areas that have lost the most manufacturing jobs [www.foreignaffairs.org/20070701faessay86403/kenneth-f-scheve-matthew-j-slaughter/a-new-deal-for-globalization.html].
  
  Some firms in India have developed as suppliers of H-1B workers in the United States as outsourcing alternatives to firms seeking to reduce their own payrolls. GE, MetLife, and State Farm are among the firms using these tech services. The top four firms in India received 14,836 H-1B visas in 2006. Microsoft rounded out the top five, with 3,117 visas. Patni Computer Systems in Mumbai is a defendant in a lawsuit alleging systematic underpayment of Indian tech workers placed with U.S. clients — 607 last year. A computer programmer promised $44,000 received a base salary of $23,310. The company billed its clients in excess of $100,000 per worker. The prevailing wage for a mid-level programmer/analyst was $43,867. A Labor Department investigation uncovered some of the mistreatment.
  
  An extensive treatment of offshoring and its impact was published in “Foreign Affairs” (March/April 2006). The author is Alan S. Blinder, a former governor of the Federal Reserve Board [www.foreignaffairs.org/20060301faessay85209/alan-s-blinder/offshoring-the-next-industrial-revolution.html].

• Phased retirement is receiving more attention [www.urban.org/publications/411584.html] . Surveys by AARP and others show sentiment among many to continue working after normal retirement age. Another 30-year career from age 55 to 85 is a possibility for those who have the interest, health, and inclination. As the “boomer bulge” moves through the work force, many senior engineers are becoming eligible for retirement. This has been identified as a problem in the aerospace industry.
  
  About 40 percent of senior electrical engineers and shift supervisors in the electric power industry will be eligible to retire in 2009, according to a Hay Group study.

• Is America Falling Off the Flat Earth? is the title of a new book by Norman Augustine.
  [http://books.nap.edu/openbook.php?record_id=12021&page=R1] It follows up on the findings from Rising Above the Gathering Storm. The executive summary notes:
  
  “The aviation and telecommunication revolutions have conspired to make distance increasingly irrelevant. An important consequence of this is that U.S. citizens, accustomed to competing with their neighbors for jobs, now must compete with candidates from all around the world. These candidates are numerous, highly motivated, increasingly well educated, and willing to work for a fraction of the compensation traditionally expected by U.S. workers.
  
  “If the United States is to offset the latter disadvantage and provide its citizens with the opportunity for high-quality jobs, it will require the nation to excel at innovation — that is, to be first to market new products and services based on new knowledge and the ability to apply that knowledge. This capacity to discover, create and market will continue to be heavily dependent on the nation’s prowess in science and technology.
  
  “Indicators of trends in these fields are, at best, highly disconcerting. While many factors warrant urgent attention, the two most critical are these: (1) America must repair its failing K-12 educational system, particularly in mathematics and science, in part by providing more teachers qualified to teach those subjects, and (2) the federal government must markedly increase its investment in basic research, that is, in the creation of new knowledge.
  
  “Only by providing leading-edge human capital and knowledge capital can America continue to maintain a high standard of living — including providing national security — for its citizens.”
  [http://books.nap.edu/openbook.php?record_id=12021&page=1]

Employment Benefits

• Health care insurance is a hot issue now. According to the most recent U.S. Census data, 68 percent of the population receives their health insurance through the private sector — predominately through the work place — and 27 percent receive their care through the public sector. This leaves an estimated 15 percent of people without health care coverage [www.heritage.org/Research/HealthCare/hl997.cfm]. While proposals for either mandatory or voluntary participation in government-sponsored health care insurance schemes are being discussed, no movement is expected this year.
  
  Health care is a hot issue in presidential electioneering, but don’t expect any change this year.

• Defined contribution plans are supplanting defined benefit plans. The emphasis is shifting to the employer's self-reliance. How well are you doing?
  
  The Pension Benefit Guarantee Corporation (PBGC) is shifting its investment strategy in hopes of covering a $14 billion shortfall in reserves, compared to liabilities. It will increase equity allocations in its $55 billion in reserves from 28 percent (at the end of 2007) to 45 percent, with another 10 percent in hedge funds. The other 45 percent will be invested in fixed-income securities. The change should increase the probability of eventually meeting its obligations from 19 percent to 57 percent. The administration is also requesting an increase in the premiums charged underfunded defined benefit pension plans in its FY2009 budget to help cover the shortfall. The PBGC guarantees the benefits of 44 million workers, and is paying benefits to 700,000 retirees [www.ft.com/cms/s/0/51023502-de5e-11dc-9de3-0000779fd2ac.html].
  
  The value of lump-sum payouts of defined benefit pensions will be lower in the future. The Congressional Research Service calculates that the reduction, to comply with the new Pension Protection Act, could be as much as 25.3 percent. A new mortality table must be used starting in 2008, showing longer life expectancy. In addition, future calculations must use corporate bond interest rates rather than 30-year Treasury bond rates. The change will be phased in from 2008 to 2012, with progressively lower lump sums as the change is implemented [http://assets.opencrs.com/rpts/RS22765_20071203.pdf]. A plan that continued to use the treasury bond interest rates in calculating lump sums would incur a one-time increase in plan liabilities of about 5 percent.
  
  The U.S. Supreme Court has held unanimously that a 401(k) plan-holder can sue for losses if instructions for shifting assets in the plan were not followed. In the case heard, the plaintiff lost $150,000 profit because his instructions to shift from tech stocks in 2001 to other investment classes were ignored. Some 50 million workers hold around $3 trillion in 401(k) accounts [http://online.wsj.com/article/SB120355797559081769.html].

Immigration

• Work continues on the 700-mile southern border fence, amid litigation with landowners. The 28-mile virtual fence has not worked out and likely will not be extended. While a bill has been introduced in the House — the SAVE Act (Secure America with Verification Enforcement) — to improve border security and to provide for employer verification of workers, expect no substantial legislation this year. The concern may be more valuable as an election issue.

Infrastructure

• The collapse of the I-35W bridge in Minneapolis dramatized the infrastructure problem in terms of surface transportation. That bridge is scheduled to be replaced in 14 months, but there are more than 700 other bridges in Minnesota alone in need of replacement. Nationwide, according to the National Surface Transportation Policy and Revenue Study Commission, repair of the surface transportation infrastructure is projected to require $225 billion per year for the next 50 years [www.nytimes.com and www.reuters.com] For the complete report see [www.transportationfortomorrow.org/].

• The National Infrastructure Protection Plan, developed by the Department of Homeland Security, includes seventeen sectors identified in Homeland Security Presidential Directive 7. Most of the plans include the required elements of the NIPP risk management framework. [www.dhs.gov/xprevprot/programs/gc_1179866197607.shtm]
  
  The risk management philosophy for combating terrorism is described at [www.gao.gov/new.items/d02150t.pdf]

• A daily open source infrastructure report is available at [www.dhs.gov/xinfoshare/programs/editorial_0542.shtm]

• In the event of a pandemic, 16.9 million critical personnel have been identified whose services will be critical [www.dhs.gov/xlibrary/assets/niac/niac-pandemic-wg_v8-011707.pdf].

• Reliability problems in the electric power grid have been pinpointed. As demand for power grows, these problems can be expected to become more acute. [http://uk.reuters.com] A “Smart Grid” would help, but who should assume responsibility? Should that be a federal expenditure for the benefit of shareholders?  [http://mydocs.epri.com]

Economic outlook

• The end of the last recession was in March 2001 [www.nber.org]. There’s a new debate now — have we entered another recession? The collapse of the housing bubble, led by insecure subprime mortgages, where continued upward movement was counted on to bail out the borrowers, led to a global shakeout and the loss of hundreds of billions of dollars among lending institutions. Northern Rock Bank in the United Kingdom experienced the first run on deposits in a British bank in 142 years, resulting in a government takeover of the bank. The Bank of England aided liquidity by advancing a half trillion dollars to banks.
  
  Consumer confidence is at a 16-year low. Is a recession looming? Some 86 percent of consumers think so.

• In the United States, the Federal Reserve walks a fine line between easing credit and stimulating inflation. The core inflation rate (without energy and food) is fairly stable, but both energy and food costs are increasing much faster than in past years. It could take several years for housing prices to flatten out to inflation-adjusted 2000 prices.

• The Alternative Minimum Tax has been patched, but not abolished. Because it was not indexed for inflation, it affects more taxpayers each year. The new patch, by raising the exemptions, will keep it from affecting 20 million more taxpayers.

• It’s not clear that the economic stimulus package — $168 billion targeted toward individuals and businesses — will have the desired effect. As a wealth transfer, it could be a zero-sum game, demotivating high-income taxpayers. The provision to expand investment write-offs will likely not be sufficient on its own to encourage new investment spending [http://online.wsj.com].

• Foreign sovereign wealth funds have accumulated U.S. dollars, thanks to our imbalance in foreign trade. Over four years, developing countries have accumulated aggregate current account surpluses of almost $2.5 trillion. This will likely increase by $625 billion in 2008. The funds have been used by Abu Dhabi, China, and Singapore to rescue Citigroup, Merrill Lynch, and Morgan Stanley after their subprime losses.

• Economist David Hale projects that, at current growth rates, consumer spending in the 17 largest developing countries could exceed that of U.S. consumers by 2015. [http://online.wsj.com/article/SB120364005662584563.html]

George F. McClure is Technology Policy editor for IEEE-USA Today’s Engineer and a member of IEEE-USA's Committee on Transportation and Aerospace policy. Comments may be submitted to todaysengineer@ieee.org. Opinions expressed are the author's.