Thank you, Phil [Austin] for those nice words, and Larry [McHugh] and the Middlesex Chamber for the welcome. I'd like especially to thank Phil for the mention of the Rentschler Field stadium. That was one of the nicest things we've been able to do in the State of Connecticut for many, many years. I was also very impressed with the way Governor Rowland and the state came together to agree on the deal with us in almost no time flat.
I want to start with how important Middletown is to us. This year marks Pratt & Whitney's 80th anniversary. Fred Rentschler founded the company in 1925, and we broke ground in Middletown 30 years later. This is our largest manufacturing plant in the world. It's where we assemble the most sophisticated products we know how to build: F-119 engines for the F-22 Raptor and prospectively F-135 engines for the Joint Strike Fighter, engines for the C-17 for our government, and our higher-thrust engines for large commercial aircraft. It's a great plant with more than 2 million square feet and 2,500 employees. It's why it's easy to be here today.
I haven't had many opportunities to talk to Connecticut business people. The last time was to CBIA, here in this same hall in January 2004, and before that in 1997 to the same group. Both times I shared a few words on UTC and the challenges we and others in our state face, and I'll do some of the same this morning.
We have a very good economy in front of us, both in the United States and worldwide. Most important, we know the things to do to make our futures better. My message couldn't be more simple this morning: Big goals get big results. In the first half of my 30 years at UTC, I wasn't so sure about big goals. We'd always think about incremental gains, a few percent here and there.
But in the early 1990s, in the wake of some problems then, we began to think about much bigger goals: more like three, four and five times, sometimes even ten times. The trick is to have the confidence to set these huge goals, to base them on good workable theories, and to have a unified agenda and unified team stay in place long enough to see the accomplishments done. Then to do the same thing again and again, and that's what's happened in our company over the last dozen years.
I have a couple of suggestions for state government and I'd like to get these out of the way up front and then come back to UTC and end with some very optimistic comments. In 1994, I remember a phone call from then-Governor Weicker. He was calling to lean on UTC to amend our note receivable from the Hartford Whalers. We had financed the Whalers earlier along with the other major employers in Hartford, the loans were callable if the Whalers left town, and the governor wanted the notes amended to facilitate a sale of the team. He was tough and patronizing in his usual way. I'll never forget these words, he said, "You know, we're big boys, you and I. We're the two biggest employers in the state." But then he went on to say that as of that year for the first time, he was the larger employer.
I put the phone down and recall asking myself whether this was the right theory. Since 1992, our government's payroll has gone up 24 percent, from 43,000 to 54,000 people. At the same time, UTC's employment has moved to its current 26,000 level, about half the state's total. Over these same years of 24 percent growth in state employment, Connecticut's population has increased by only 2 percent with outward migration slightly exceeding births. State government spending has almost doubled in the same period, from $8 billion to about $15 billion. More recently, to help with budget shortfalls, we've moved to advocating and sometimes passing business-unfriendly tax measures.
These are the hard words in my remarks this morning. There was the 25 percent corporate income tax surtax passed in 2002, intended to sunset in 2004 but with no end currently in sight. The R&D tax credit, intended to promote intellectual property and higher income Connecticut jobs, was reduced by 30 percent three years ago. Governor Rowland opposed it and lost. The Homestead Act proposed a year ago was going to shift property tax burdens significantly from residential to corporate taxpayers.
Most onerous and topical today is SB1147, sometimes called "Play or Pay," currently in front of the Senate. We understand this to require employers of 5,000 or more to move their privately negotiated medical benefits plans up to levels for state employees or pay a corresponding tax on the difference. Let's note this would cover substantial and serious companies like UTC, General Electric, Pfizer, Travelers and Aetna. We believe our plans are solid already and that features in the state's plan may be excessive. Bottom line for UTC if this bill passes is a tax increase of more than $50 million annually, increasing our total Connecticut tax burden by well more than half.
We're in a state that already has the highest manufacturing costs in the nation according to a well respected UConn study. We also have one of the highest total tax burdens per individual of any jurisdiction in the United States. I want to be circumspect in responding to SB1147 but also to be clear with our legislature that there are choices in where we locate ourselves and where we locate our work. Beyond the tax increase, the fact of state intervention in otherwise privately negotiated agreements between employers and employees is a grave precedent indeed. This is a tough message and I want to be diplomatic in saying it. There's a better way, I think, than state employment rising by 24 percent over a 12-year period.
Productivity is the most powerful force in our economy across the country and in all parts of it, whether public or private. I have some lessons today from the state's largest private employer, and these are lessons of great optimism. We have a wonderful company. I'm intensely proud of 30 years in this organization. It's a fabulous enterprise, a research powerhouse, a market leader in almost everything it does, a huge company with 200,000 employees and operations all over the world. We have a tremendous reach, tremendous technology, and a tremendous record of productivity. Let me share some hard numbers that are the basis for real optimism in what can happen in a society.
Carrier Corporation, a UTC company, will build 10 million units of product this year, including air conditioners, furnaces and refrigeration equipment. That's up from 3 million units only 12 years ago on a work force 11 percent larger. Three times the volume with 11 percent more employees. Otis, another UTC company, will install three times more elevators and maintain twice as many as a dozen years ago with a work force only 21 percent larger. These are huge numbers. The evidence is all over the place. It's not just for UTC, it's for many, many other companies just like us.
Productivity is jumping at 5 to 7 percent per annum. Take out inflation, take out price change, it's raw, physical volume productivity, units per person. And there's no end in sight. This is the reason for the strength in our economy, period. In 1992, our revenues were $19 billion. They will be $43 billion in 2005. Our work force worldwide was 150,000 people in 1992, and it's 200,000 today. So more than two times the revenue with a work force 25 percent larger. Our market capitalization, that is the value of the equity shares of the company as traded, in 1992 was $6 billion and today it's $54 billion. Our operating margin has gone from 5 to 14 percent.
In short words, lean manufacturing, Japanese quality methodologies and big goals did this. Lean manufacturing process is the most powerful thing we've done at UTC in decades. It's simply process mapping and process re-engineering to convert work that used to be serial or sequential to simultaneous work co-located in manufacturing cells. It's that simple.
Second, it is managing linearity or uniformity in the manufacturing process to take the unpredictability out of operations and therefore eliminate the inventories, elapsed time and waste otherwise required. We manage flow around a simple concept we call pitch. A pitch is simple, just what a pitcher does, he throws the ball. Hear these words carefully: The pitch quantity is the manufacturing lot size. The pitch interval is the time between adjacent pitches. What we want are the smallest pitch quantities, the smallest manufacturing lot sizes, and the most even intervals between pitches. When pitch quantity is one, interval equals takt time for those of you trained in lean. [Note: takt is German for musical meter. It came to Japan in the 1930s when the Japanese were learning aircraft production from German aerospace engineers.] Many of you know these basic principles. But my guess is few of you really believe in how powerful this approach to manufacturing and operating a company like ours is.
Japanese quality methodologies are the essence of simplicity. They replace traditional end-of-line inspection with process control at the point of work. They build the confidence of employees making products though what we call turnbacks which are any kind of defect in the manufacturing process, whether missing work, bad gauging, lack of instruction, or anything else. The result is what our longtime Japanese advisor Ito-san called "bright shining eyes." His meaning was an employee's developing the confidence that when he puts up the flag and says, "This is problem," it will be fixed and fast. It's self-reinforcing and employees will do it again and again. It's bright, shining eyes.
The third element beyond lean and quality is big goals. Ask Middletown employees, and there are a number here in this room, and they will tell you we started with turnback rates in the range of 2,000 percent seven or eight years ago. Which means 20 failures per good part produced. And a failure is not a bad part, it's a defect or an impediment or a turnback in the course of building a part. The Japanese goal is to cut turnbacks in half in six months and by 90 percent in nine months. We did this and more.
Our environmental gains at UTC have been as great, and they're back to my point about big goals. We had admittedly a low base environmentally in 1992, when the EPA [Environmental Protection Agency] fined us $6.5 million for violations of the Resource Conservation and Recovery Act. Since then, our hazardous waste generation in the United States has gone down by 84 percent and chemical releases to air by 86 percent. Lost workday incident rate over the same time period went from four to four-tenths and we hope we're headed to half this current rate. That's amazing. These achievements and goals are 10 and 20 times improvements over 15 years.
This is partly puffing for UTC but more than anything it says that 10X can be done and again and again. Which is the reason for optimism in our nation today.
Gains like this have given UTC shareholders total shareholder returns approaching 1,100 percent over a dozen years. For reference this is the stock price increase with the assumption that dividends paid annually were reinvested to acquire more shares. That's about three times the returns for the Dow Jones Industrial Average and about three times those for the S&P 500. It's also a couple of times higher than our peer company down the road in Fairfield, General Electric.
Productivity jumped in corporate America starting around 1990, and it's not over yet by a wide margin. As significantly for us at UTC over the last couple of years is a step up in organic growth rates across the company. Going back four or five years, I and others with similar jobs would have said that 5 percent for a company like UTC is a good number. Last year, our revenues grew 21 percent. This year, they will likely grow another 15 percent. Seven percentage points in each year are due to acquisitions, but revenues grew organically 8 percent last year and likely will 6 percent this year. These are real steps up from what they were earlier, and there are solid indications they will continue for at least the next year or two.
We're affected in these higher growth rates in part by the fact that almost 60 percent of our revenues are outside the United States. That's up from only 25 percent 30 years ago. At the same time our commercial revenues, which for us are Otis, Carrier and now the new acquisitions of Chubb and Kidde, have gone from no percent of the corporation's revenues in the mid-'70s to 64 percent today. The rebalancing of UTC, internationally and across these commercial companies, and lean manufacturing and productivity are the reasons for the company we have today.
I'll close with some comments on our Employee Scholar Program. This was launched in 1996 and came out of the tough restructuring we had experienced in the prior five years with the aerospace downturn. The idea of Employee Scholar is straightforward. Job change for many people is a positive experience. Most people in this room have changed jobs in their careers multiple times. Most of the time it's a good deal. You get a promotion, a new place to work, a nicer office, higher rate of pay, and things are good. It's that way for educated people who are shaping their careers and shaping their lives. It may not be that way for people on the defensive. Education is the discriminator. It's a single word of great magnitude and great force.
Since 1997, this program at UTC has paid for more than 16,000 college and university degrees. Fifteen percent of the work force in the United States is currently enrolled, about 9,000 people. We pay all tuition and all fees. We provide paid time away from work on the basis that the scarce resource in a modern world is time not money. This paid time away from work is up to three weeks per year, doubling an employee's vacation entitlement to go to school. We set no limits on fields of study. And we provide a $10,000 grant of UTC common stock on degree attainment as a way of saying to employees "Congratulations and hurray for you." Our spending on Employee Scholars is currently $65 million a year. Finance gets after me that that's a lot of money and I tell them to go away. Total spending to date will be at the half-billion dollar mark a couple months from now. We've granted more than 2 million shares of UTC common stock over this eight-year period, currently valued at more than $200 million. Connecticut itself has benefited with 7,000 degrees earned here under the program and currently more than 4,500 enrollees.
The bottom line is there's lots of basis for optimism in our society and our company and our state. Our lessons are straightforward, clear and powerful in these last dozen years with UTC.
First, it's clarity of organization and total alignment among management on what we're trying to accomplish. We have a solid management team, we work well together, and we agree about our directions and disciplines and know how to make them work.
Second is big goals, and coupled with the conviction that big goals get big results and conversely that without the goals you won't get the results.
Third are the methodologies like lean and Japanese quality.
All this always within a framework of shareholder value and commitments to solid corporate citizenship. We're unyielding and unambiguous on this. We have the methodologies and the convictions, the team works well together, and that's why we have the company we have today.
I started with tougher comments on Connecticut and what I hope I have achieved with conviction is that we can do better. I read the media as we all do, and we know there are many and maybe too many negative mentions. We have difficulties balancing our budget, we have outward migration, we have some job loss, we have less manufacturing jobs. The way to get past is clear disciplines and big goals and to be tough about making them happen. If there's a single word underneath my points today, it's productivity and that it can jump in anything we do. We have great years in front of us in our state; all we have to do is grab the future with confidence and conviction.
