IBM's Stimulus Grab

IBM CEO Sam Palmisano seems to be upping the ante on Barack Obama. While the incoming president wants to spend more than $700 billion – or is it $800 billion, or $900 billion? - to help create 3 million jobs, Palmisano says he has a plan to create nearly 1 million jobs for a scant $30 billion. Let’s do the math:

Obama cost per job: About $250,000

Palmisano cost per job: About $30,000

That sounds pretty good. But if you plumb Palmisano’s plan - which he first presented privately to Obama, and outlined recently in the Wall Street Journal - it sounds as if all of those 1 million jobs might end up at … where else? IBM. Not to mention the $30 billion.

Palmisano’s argument is that money invested in technological innovation - the kind of stuff IBM happens to be good at - generates a lot more return than money invested in old-fashioned infrastructure like roads and bridges. Tech investment, he says, has a higher multiplier effect than physical investment, because it generates more economic activity.

[See 9 reasons this recession could be good.]

That sounds about right. Obviously we live in a fast-moving information age, with companies and investment clustering around the most wired, up-to-speed economies. Palmisano calls for about $10 billion in new spending in each of three areas: digitizing the power grid, networking medical records, and expanding broadband access and speeds nationwide.

Great goals. Here’s what else it might take to make such a plan feasible:

A plain English prospectus. Americans are fed up with their government spending staggering sums on things they don’t understand. And they should be. This will play out dramatically in the debate over what to do with the remaining $350 billion of bailout money that was supposed to be set aside to get the financial system functioning again.

[See why Obama should stop the bailouts.]

The bailout money spent so far has, to some extent, forestalled a financial panic, but the Treasury Dept (with a complicit Congress) has completely failed to explain why buying bank stock and guaranteeing mortgage-backed securities helps ordinary people who are losing household wealth and can’t get loans. Those same people will be rightly skeptical of billions poured into smart grids or digital records, if they don’t understand what it‘s being spent on or how it will benefit mainstream Americans. Obama’s Job 1 is fixing the economy, but Job 1(a) is explaining to a very confused electorate what the heck government is doing with the public treasure.

Truth in estimating. Palmisano’s numbers sounds awfully convenient - especially his $10 billion to modernize the power grid. It’s hard to overstate the complexity of this challenge, which basically requires overlaying massive amounts of new technology on massive amounts of old technology. And history tells us that such upgrades often become vast sinkholes.

Here’s one example: The FAA has been trying for years to displace an industrial-era system with a digital one, by upgrading the air-traffic-control system. It’s such a huge job that newly installed technology is sometimes obsolete by the time it actually comes online, which sends the cost spiraling upward. The project has been going on for more than 15 years, and the job isn’t even close to finished. Sometimes huge national priorities take decades, but let’s be honest up-front about the cost and time involved.

Less parochialism. Palmisano’s case would be more convincing if he were advocating programs that IBM woulnd’t have a stake in. Instead, he’s pleading the case for huge amounts of spending that would clearly filter down to IBM. I tend to agree with his ideas, and there’s nothing wrong with IBM benefiting from Obama’s stimulus plan. Lots of other companies surely will.

[How about no more welfare for rich guys?]

But isn’t this a new time of accountability and transparency in government? If Obama were to spend $30 billion as Palmisano suggests, it’s possible that the optimal benefit might come from incubating new tech startups or directing the lion’s share to small business, rather than Fortune 50 conglomerates. That's why Obama should say thanks for the great ideas, Sam. We’ll get back to you.