My topic today is the economic transformation
in our nation and world so dramatically affecting us all:
millions of jobs lost, significant and sustained widenings
in distributions of income and wealth, the losses of senses
of permanency and predictability in our lives, and a consequently
big increase in the stridency of our political rhetoric.
I have some views about what causes
this; some opinions on what not to do about it, and
some suggestions on what to do about it.
The challenge before us is education
and, specifically, dramatically increased investments in mid-career
education for a large percentage of the 120 million Americans
presently working full-time.
I am not speaking here of the usual
on-the-job training, or employee outplacement assistance programs
offered by all of us in corporate America; instead, I mean
the wholesale elevation of the American work force to a society
that creates rather than makes things, and that manages networks
of organizations staffed by others who make things.
These transformations of job loss
and change, increased globalization and competition, higher
technology content and, above all, opened information flows
among nations and institutions are truly reshaping our world.
Today, 80% of the world's wealth
belongs to the 15% of the world's population living in Europe,
Japan, and the U.S. This leaves 4.8 billion people outside
advanced economies with their attendant benefits of education,
health care, leisure, and retirement income security. But
don't expect me, for even a minute today, to embark on a foreign
aid theme. This speech is flatly about self-interest.
The truth of the next three decades
is that more, much more, of the world's population will enter
advanced economic status. It will go from the 15% today to
a likely 40% by the year 2025, more than an additional 2½
billion people worldwide. And even if we set China aside as
a special situation, the total is still more than a billion
newly advantaged and productive people.
This is also a markedly different
situation than the last 50 years. While everyone talks about
globalization today, the fact remains that only one nation
in the post-War period has crossed the threshold from a pre-capitalist
to an economically and technically advanced society, and that
is of course Japan. In contrast, the next 3 decades are going
to see 20 times the number of people cross that threshold,
and that is globalization.
Some hold the view that this globalization
will bring pauperization: the notion that others will get
rich on our backs, that there will always be some qualified
person somewhere willing to do the same job for less, thereby
depressing our own incomes, and that the solutions therefore
are Fortress America, Fortress Europe, fortresses that keep
the wealth in and the poverty out.
Nothing could be further from the
truth and, understanding that there may be alternative views
in the audience today, I recognize my burden to be persuasive.
Let's look at the downsides of these
transformations first. Since 1990, our company alone has eliminated
33,000 jobs in the United States, about one in three. During
that same period, we have added 15,000 jobs outside the United
States. We have no reason to believe this trend for corporate
America will change soon. If anything, it will accelerate.
And as this data might seem at the outset to play clearly
to the Fortress America theme, please be patient.
More broadly, and according to our
Government, some 9 million Americans lost their jobs between
1991 and 1993. In 1994, amidst our strongest domestic economy
in a decade, our largest manufacturing companies still laid
off about a half a million employees; two-thirds again more
jobs than in the recession year of 1990. In most cases, these
jobs are gone forever. And again, this may seem like Fortress
America is the answer.
We know the lost jobs were replaced
in the aggregate, because employment nationwide went up, but
we also know the problems with replacement jobs, which are
that they all too often trade down materially in skill and
wage content, in job security and continuity.
I received a letter from a former
employee recently that highlights this tough situation. The
writer, a 49 year old salaried employee with three children,
no college education and with thirty years of service with
our company, said being laid off can only be compared to losing
a body limb. This employee had had three job offers since
his layoff, all at a starting wage between six and eight dollars
an hour.
Now there is job creation
in the U.S., but the new jobs are generally no rivals to the
old ones. Over the next decade the leading job increase categories,
again according to our Government, will be retail salespeople,
cashiers, nursing aides, and orderlies. We will hire more
security guards in the next ten years than elementary school
teachers. We will add 200,000 new lawyers and judges, and
another 200,000 new corrections officers to sustain an ever
higher prison population.
There isn't anything wrong with creating
these jobs per se. What is alarming is that these are the
primary job categories that we are creating, as our diversified
economy begins to look more like one built around the three
institutions of hospital, prison and shopping mall. These
are not the jobs that build international competitiveness,
create wealth, or leave a better world for our children.
My three decades of steady travel
across the world bring me to the source of the problem: the
American economy is losing and will continue to lose dominion
over world markets. All over the world, people want the investments
and technologies to manufacture their own products, and very
often they can, and not even rarely at world-class levels.
But what is equally clear is that
American ideas, and ideals, are not losing leadership,
and will not, especially if we practice intelligent economic
globalism.
One of our subsidiaries, the Otis
Elevator Company, demonstrates well this approach. Otis has
impeccable American lineage, founded in Yonkers, New York
in 1853 by Elisha Graves Otis, a real Yankee inventor, and
as recently as the 1950's an export-driven company staffed
more than half by Americans.
Otis today has 66,000 employees,
and fewer than one in ten of today's employees is American.
Otis leads the elevator market worldwide, and in every region
of the world with the single exception of Japan, and even
in that toughest market in the world we have tripled our share
of market in the last 20 years. Otis has employees globally
in 1,900 cities, twice as many as the ubiquitous American
Express, and six times more than even the United States Department
of State.
This shift in Otis' center of gravity,
and similar but less dramatic ones in our other business units,
is flatly not in pursuit of lower labor costs and import substitution.
I hate that cheap labor argument because it is bogus and it
is false. By the way, lest my comments so far lead you to
conclude otherwise, our company exported $3.1 billion in total
last year, and $2.3 billion net of imports. We are in the
top ten in the nation on this latter measure, and our export
driven jobs are great, high tech, high wage, high benefit
jobs.
Instead, we and others create jobs
overseas fundamentally for market access, to extend our global
market leadership and thereby to make our company stronger
and to assure employment at home.
Our presence in China makes the point.
We employ 8,000 people in the People's Republic, principally
manufacturing air conditioning equipment and elevators. We
make money in China, and lots of it. Our company globally
is a stronger and better competitor, and better able to fund
investments like research and development, three quarters
of which we do here in America, consequent on our investments
in China and on employing 8,000 Chinese people.
We would not do that work with 8,000
Americans, or even a small fraction of that number, not in
a million years, because elevators and air conditioners for
China are going to be built in China, not the United States.
We can choose to be in the market or out of it, but if we
want to be in it, we're going to be in it with 8,000 Chinese.
So I reject emphatically this business
of chasing cheap labor, and invite you to reject Fortress
America with me. No one denies the real pain Americans feel
as we struggle to compete in global markets, but turning inward
to America brings us only transitional benefits, and real
losses long term.
The contrary argument is protectionism
and regulation, bumper stickered down to "Save Your Job,
Save Our Country," and we know what this leads to. In
fact, let's talk about protected economies for a moment. A
good and simple measure of protectionism is foreign content,
or lack of it, in an economy.
In the advanced economic world, this
figure is about 40%. In the former Soviet Union, the percentage
was zero for decades and is still less than a percent today.
And there are comparable experiences in the traditionally
more closed economies all over the world: India, the Latin
American economies and, for entirely different reasons, South
Africa.
Long the leading overseas investor,
our nation is now the leading host country for investments
by others in us. Our trade content has also increased dramatically
over the past decade, with exports (measured in constant dollars)
having more than doubled to $650 billion last year, or about
12% of our economy. And our export jobs are about as high
tech employment as found anywhere.
The world is globalizing, whether
we like it or not. And we should like it because we
are positioned to be big winners if only we embrace these
forces and shape them to benefit both others and ourselves.
But we must alter the character of
our corporations and their employees as this transformation
occurs. We must change ourselves from entities that make
things to entities that create things, and from organizations
that make things to organizations that manage others who make
things. We will move to knowledge work and to managerial work
and away from actual, physical production.
What must concern us is that we are
not preparing ourselves rapidly or effectively. While our
research and development, both public and private, have been
the dominant economic force globally in the post-War period,
we are today reducing our expenditures when measured in constant
dollars. And we have not even begun to deal with most of the
American work force, the upgrading of whose skills is the
precondition to the newly productive America.
Everyone talks about fixing public
and higher education, and that is a necessary task. But this
is by no means the only solution. Even if we had perfect schooling
across America today, the young men and women leaving those
educational systems will not hit their peak productivity at
work for twenty or more years, past the time we can really
leverage America's leadership in the world's economic transformation.
The immediate answer is a significant
investment in education for the millions of Americans already
in the workplace.
Return to that 49 year old laid off
after 30 years of experience. His loss, multiplied by millions,
is devastating for the nation. It is also the result of a
behavior that loads education into the first 21 years of life,
and then leaves the classroom essentially forever.
By rough estimates, young Americans
enrolled in schools and colleges spend about 71 billion hours
in the classroom each year. By contrast, employed Americans,
far greater in number, spend less than 2 billion hours a year
in traditional collegiate or advanced education.
This pattern no longer works for
an economy with the rates of change we experience and where
employment may be restructured, easily, several times during
a career. When we experience restructuring, we need knowledge
that is current, not the knowledge acquired two or three decades
ago.
There are about 120 million Americans
working today. As many as 30 million of these will be at risk:
18 million people in administrative support jobs prone to
automation, 10 million in manufacturing jobs susceptible to
foreign competition, and 2 million in additional white-collar
jobs that medium and large companies like ours, under the
pressure of competition, will learn to live without.
While no one of us as an individual
caused this crisis, it falls to us as individuals and companies
to respond. I do have some suggestions.
As a private employer, we cannot
guarantee anyone a job, but we are nonetheless obliged to
provide employees reasonable opportunities to reestablish
themselves, ideally on more favorable conditions, in the event
of job loss.
One effort we have as UTC is tuition
and associated expense reimbursement for study toward undergraduate
or advanced degrees. It costs us $11 million a year, and it's
open to substantially all of our U.S. employees. We currently
have about 4,500 people, or 6% of the eligible group, take
advantage of this opportunity. That result is about average
for large American corporations, but the very best ones, and
the best divisions within our own company, have 20% of employees
enrolled in such degree programs.
We might inquire why these percentages
are as low as they are. Part may be our fault, and employees
themselves after all have to take the initiative. What we
can do, and are doing now, is to work harder to generate program
awareness, to provide inducements to participate, and importantly,
to provide time off from work.
One inducement is straightforward,
and it's also new for us: earn an undergraduate or advanced
degree in our tuition reimbursement program, and with that
degree comes 50 shares of UTC common stock, valued yesterday
at just about $4,700.
We also share in the time commitments.
We all know that time remains the single incompressible constant
in our universe, and is therefore life's true scarce resource.
So we now provide half of classroom time as paid time off
from work: one half your time, one half our time.
In consequence, we hope to see our
education participation rate more than triple, to 20% over
the next five years. And I believe that this is indeed likely
to happen. The result will be among the highest for companies
of our size and type, and wouldn't that be nice.
Other companies will make their own
judgments about mid-career education, although I do express
the opinion that as a group America's corporations don't do
anywhere near as much as we could or should. I refer here
especially to mid-career education, distinct from the job
training efforts we all engage in, and I believe more essential,
much more, to our nation's future.
What about our Government? First,
the president and his most senior colleagues can use the bully
pulpit. I recall a conversation with Commerce Secretary Brown
this past summer, where I made the comment, not entirely in
jest, that our goal ought to be a Ph.D. for everyone in America.
We need to talk up education as a continuing national priority.
More immediately, we should back
up that talk with money. Budget negotiators should restore
baseline spending on federal student loan programs. The current
proposal cuts $5 billion over 7 years, and that is wrong.
Federal loan programs are the majority of all available student
aid, and benefit more than 5 million of our nation's 14 million
undergraduate and graduate students. Cuts even of this magnitude,
and larger cuts were proposed earlier, jeopardize higher education
for hundreds of thousands of Americans.
Let's also stop taxing as income
to employees the tuition reimbursement programs I mentioned
earlier. Isn't it bizarre that we do this? The reason why
is, of course, the symmetry in the federal tax code: deductible
to the employer, taxable to the employee. But if there ever
were a case for an exception, this is it. Beyond the societal
benefit of education, let's also note that 99 percent of the
people who would benefit from this tax break earn less than
$50,000 annually, and a third make less than $20,000. This
is, after all, America. Let's reward initiative, not punish
it.
And what about tax deductibility
of the cost of higher education? The idea has, of course,
been around for a long time. But we need to keep clearly in
front of us that college graduates earn, on average, 75% more
than non-graduates over their careers. We need to keep clearly
in front of us that unemployment among college graduates last
year was only 3%, while it was 7% among high school graduates.
What about the rate of return on
these tax deductions, recaptured in later years through higher
incomes and higher taxes? The answer is an easy 15% annually,
and this is just plain, basic finance, and it is persuasive.
Look at the possibility another way:
we happily subsidize home ownership via interest deductions,
and have since the beginning of income taxation in 1913, in
the belief that this promotes a stable and civil society.
Why can't we even more reasonably subsidize higher education
in the belief that it promotes a better and more competitive
society?
We know that even if we do all this,
we won't get to that all Ph.D. society I mentioned, at least
not anytime soon. But we will come a lot closer to that fantasy
town Lake Wobegon, where everybody can indeed be above average.
Initiatives like this are not new
to America.
The Morrill Act in 1862 created America's
network of land grant colleges by encouraging states to sell
public lands and use the proceeds to establish or expand colleges.
Ultimately, states sold 17.4 million acres of land, an area
greater than the combined states of Rhode Island, Connecticut,
Massachusetts and Vermont. Seventy of the best schools of
the country today are direct beneficiaries of the Morrill
Act and its successors, including Cornell, Purdue, Yale, Dartmouth,
MIT, Brown, and the state universities of Wisconsin, Minnesota,
California, Delaware, Ohio, North Carolina and Missouri.
The G.I. Bill is more recent and
as compelling. Its main benefit to higher education was a
$500 annual stipend for returning veterans. Lest that not
seem like so much in today's economy, realize that Harvard's
annual tuition then was only $600.
The results were straightforward
and powerful: U.S. college enrollments in 1948 were nearly
double pre-War levels, and G.I. Bill benefits ultimately led
to more than 2 million bachelor's degrees for veterans.
These remarks today are a call for
more higher education, a whole lot more, and targeted at an
already older work force. It's the only defense, and it's
the right defense, against the risk of globalization with
pauperization. And, like any good defense, it is in fact an
offense. The challenge is simply to elevate ever larger portions
of our population to knowledge work, to the ability to deal
in, and to work with, abstractions.
We do this with education of the
good old garden variety, not on-the-job training, not self-help
books and videos. We do it by teaching people to manipulate
ideas and abstractions, which we do in turn with language
and literature and math and science. We need structures to
accomplish this goal, and I have suggested some.
What we also need is will.
We need the will of individuals to
better themselves, and the recognition by them that they can.
We also need the recognition by society
and government of the nature and extent of the challenge.
We need the courage to look ahead;
to embrace opportunity, and not to defend a past that will
never return. America led the rebuilding of Europe and Japan
after World War II. The world's events have again given us
the opportunity to lead a mass migration of people into advanced
economies, and in the course of our leadership to have our
institutions and our employees benefit directly and personally
from the enormous wealth generation that will occur.
The agenda is to educate ourselves,
to enable ourselves to engage with the world, with confidence
and with vision. We've risen to plenty of challenges before,
and we'll rise to this one, too.
