We Can All Do Better (12 page)

Over the last thirty years, companies have come to see eliminating jobs as the first way to cut costs. If a company finds it's cheaper to produce in China, it will just lay off workers. If a company can replace part of its labor force with a machine, it will just lay off workers. If the company has a problem because of a financial crisis, it will just lay off workers. If the company launches a product that the market rejects and the bottom line takes a hit, it will just lay off workers. From the perspective of the private sector, the ease of firing workers gives the United States more economic dynamism. Jobs in uncompetitive companies can shrink quickly, and they can make adjustments and regain their financial health. When labor costs are cut in response to a recession, the downsizing allows the economy to bounce back sooner, and when it does, jobs return. Historically, business cycles worked this way. During the last decade, however, those who were fired didn't find it easy to find another job. Often when they were replaced by foreign labor or by technology, they couldn't get a job with the skills they had developed working for their former employers. A more efficient company just didn't need as many workers. If labor mobility drives economic dynamism and dynamism drives economic growth, then it stands to reason that we shouldn't reduce that dynamism. But, without appropriate public policies, there is a serious human cost to such flexibility.

The frightened, angry middle class of today is an inchoate, unpredictable social force that is up for grabs politically. Its members tend to believe that no one in government understands their real
circumstances. They're struggling not to thrive but just to survive. They are fertile ground for demagoguery. The goodness of the American people is still there, but if you're convinced that you've been betrayed by whoever you believe controls the system (the wealthy, corporations, labor, government, bureaucrats, cultural elites, the Washington club), and if you're watching the American dream recede before your eyes, it's easy to turn negative and focus on the greed and incompetence of the powers-that-be.

The golden age of the American middle class lasted from World War II until the early 1970s. It was based on access to good public education, subsidized home ownership, generous wages and benefits obtained by unions, and a government that kept the leash on the financial sector. The manufacturing sector was the backbone of the middle class. Steel, autos, machines, electrical appliances—Americans knew how to make things (that was one of the reasons we'd won World War II), and the world envied the living standards that such work made possible.

Then competition arose from foreign companies, which didn't have the same labor costs, even though they had workers who were skilled and hardworking. Gradually, manufacturing—everything from glass to machine tools to printed circuit boards—moved abroad, until the number of employees in the manufacturing sector dropped from 25 percent of the labor force in 1970 to 9 percent in 2009.
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Since 2001, the country has seen over forty thousand factories close and nearly 6 million workers lose their jobs.
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In addition, there was a multiple of that number lost outside the factory, as supply chains that fed the factories dwindled. People threw their hands up in resignation. We couldn't compete with those labor costs unless we joined in a race to the bottom.

But a funny thing happened. Manufacturing began to have a rebirth. Today it currently represents 11 percent of real GDP, even though we achieve that level with fewer workers. The value of our manufacturing output is greater than China's and increased by nearly one third from 1997 to 2011.
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Today, our manufacturing is smarter and more efficient, and it is by no means on a downward trend. To the contrary, it is on the upswing. Three hundred and thirty four thousand manufacturing jobs have been created in the last two years—the strongest growth in manufacturing jobs since the late 1990s.
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Since the low in 2009, manufacturing production has increased 5.7 percent—the fastest pace of growth in a decade.
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Cars are still made in America. German, Japanese, and Korean auto companies that have situated their plants here have joined Ford, Chrysler, and GM, employing American workers. Direct foreign investment in America is responsible for two million manufacturing jobs. The German company Siemens has invested $25 billion in the United States in the last decade, employing sixty-four thousand workers across all fifty states. BMW sells cars made in the United States throughout South America. That trend is accelerating, in part because foreign companies want to site their production closer to the largest market in the world and in part because foreign labor has become more expensive. For example, Chinese wages are rising between 15 and 20 percent a year. According to an August 2011 analysis by the Boston Consulting Group, the higher labor costs in China, the higher productivity of American workers, the transportation costs between China and the United States, and the attendant supply-chain risks will, by 2015, have all but eliminated the difference between what it costs to manufacture goods (at least those that aren't extraordinarily high-volume and labor-intensive) in China and export them to the United States and what it costs to manufacture them here. If you add the reduced linguistic and cultural barriers, the strength of our intellectual property laws, and the opportunities to benefit from the world's
leading research universities, you can see why Ford, Caterpillar, and Master Lock, among others, are bringing jobs back to the United States from Mexico, and China. This trend won't mean that American companies will close their current facilities in China; the Chinese facilities can be used to produce goods consumed in a burgeoning Chinese market.

Moreover, our states and municipalities are offering foreign industry attractive incentives to establish facilities in America. Thirty-one states, ports, and municipalities have offices in China seeking investment. One Chinese company, AmericanYunchang, for example, just bought 6.5 acres of land in Spartanburg, South Carolina, for $350,000; in China, a similar plot of land costs four times as much. In South Carolina, electrical costs are four cents per kilowatt; in China it's fourteen cents.
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Wanxiang, an auto-parts company that has its U.S. headquarters in Chicago, is another Chinese company in America that is succeeding. In 1996, it began acquiring U.S. factories that were in liquidation or bankruptcy with capital it had earned or borrowed in America. As of this writing, it has acquired companies that now employ five thousand six hundred American workers at twenty-eight factory sites. By the estimate of Pin Ni, the president of Wanxiang America, eight hundred of the total number of jobs are new jobs created by growth. The rest are “saved jobs,” which could have disappeared without the Wanxiang investment. One in every three American cars produced here use parts made in the United States by Wanxiang. The company has $2 billion in revenue and continues to grow.

According to the U.S. Bureau of Economic Analysis, Chinese annual direct investment in the United States has increased 400 percent since 2008, to $5.9 billion in 2010, which more than doubled the amount invested in 2009. The Rhodium Group, which tracks Chinese investment in the United States, reports that the cumulative total of Chinese-owned U.S. assets is $16 billion—still
minuscule compared with the $2.3 trillion value of total existing foreign direct investment in the United States in 2008—the bulk of it from eight countries.
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In 2010 the United States had the largest inflow of foreign direct investment of any economy in the world.
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Whereas technology was once responsible for displacing American jobs, our companies are now coming up with productivity-enhancing new products and processes each year, such as 3-D printing, an efficient way to create all sorts of useful objects by layering material onto design forms, thus eliminating waste and tooling costs. You no longer need a factory in a cheap-labor country or even a contract manufacturer. You just “print” everything, from airplane wings to buildings to blood vessels. Suzanne Berger, chairwoman of MIT's panel on the future of manufacturing, told the
New York Times
: “All of the great new American companies of the past few decades have focused on research and development and product definition—Apple, Qualcomm, Cisco.” She pointed out that in those companies the industrial work could be done offshore. “Now,” Berger went on, “I think we're at a really different moment. We're seeing a wave of new technologies, in energy, biotechnology, batteries, where there has to be a closer integration between research, development, design, product definition, and production.”
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More manufacturing investment brings with it a whole ecosystem of economic activity; for example, 64 percent of the scientists and engineers in the United States are employed by manufacturers and 70 percent of our research and development takes place in manufacturing.
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American manufacturing is on the rise. That is good news for America's middle class.

To take advantage of our new competitive strengths, we need to increase the number of our modernized vocational schools. For decades, our young people have been told that a four-year college is
the only sure route to a good job—and indeed, college graduates do earn more than high school graduates. Currently, only about 50 percent of U.S. high school graduates complete college. That leaves half of our young people with little or no skill development after high school. The sons and daughters of steelworkers and autoworkers know the dignity of blue-collar work. They learned it from their parents. Now it's time for us, too, to reclaim our respect for them. They will be increasingly important to our national future. These are the individuals who, with a little training, would be able to staff the coming manufacturing renaissance.

Recently, the National Association of Manufacturers (NAM) established a program together with America's community colleges to train half a million skilled workers and connect them with a job in five years.
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The government needs to partner with the private sector to upgrade workers' skills at America's one thousand sixty seven community colleges in far greater numbers than envisioned by the NAM. When a company expands or situates a plant in an area, there ought to be immediate coordination with the local community colleges. For example, Siemens is working with community colleges in North Carolina to train workers for its new high-tech turbine factory that will employ nearly eighteen hundred people. Seimens pays workers who go to school and also supports the community colleges directly.

In addition to providing the skill upgrades, each college should have a significant childcare program so that we don't lose talented single parents who had children when they were too young. America should be a country of second chances. If your fate is cast by age twenty-five, you will lose the upward mobility that is your birthright. We have to deal with the world we have, not the world we wish was ours. Forty percent of children in America are born to a single mother, which means that young women, even if they graduate
from high school, end up with a triple burden: they need to care for their children, and they need to work for a living, and they need to get an education in order to get a job that enables them to better support their children. Low-skill factory jobs are dying. On-the-job training is no longer enough, because in fine precision manufacturing, the cost of mistakes in training is prohibitive. Only wise government policy that subsidizes vocational education and childcare attached to community colleges will maximize the skills of our future workforce.

The high-tech sector in America is a wonder. The combination of great scientific universities, vibrant capital markets, and iconoclastic geniuses has brought us constant innovation. The Internet, the digital revolution, social networking, genetic engineering, nanotechnology, ultrashort pulse lasers, artificial intelligence, data mining, robotics—each emerging technology has had disruptive potential. No one knows now what they will bring, but you can be sure they will create a different world for our children, even as they create new jobs in new fields. If there's a deep federal commitment to basic R&D across the board, we'll see a /files/13/18/24/f131824/public/private partnership that will serve America well.

Schools are essential if we are to take maximum advantage of the high tech revolution. They should be flexible enough to allow genius to find its own level and workmanlike enough to provide graduates with the basic skills that will prepare them for the jobs that genius will create. The people most responsible for developing those talents are teachers. There are 3,193,830 elementary, middle, and secondary school teachers in the United States. The economic future of the 312 million people in America depends on this 1 percent. Imagine 312 million Americans as a giant buffalo herd and America's teachers as a platform that covers an abyss. The only way the buffaloes can be sure they won't fall into the abyss is if the platform is strong
enough. We need to build the strongest possible educational platform to get our citizens from where we are now to the best possible jobs in the future. Investment in the platform, including higher teacher salaries and greater accountability, should be among our highest priorities.

In a world of rapid change a premium will be placed on adaptability. Those who thrive on change will succeed, which means our educational system must not teach to rote tests alone, but in addition to inculcating the basics, must develop students' abilities to adapt, listen and contribute to change—by, say, encouraging them to start a tutoring service or a new company or a new Website that serves their classmates, or a hundred other projects that give them a chance to learn how to innovate in collaboration with others. The first skill needed is empathy—the ability to see yourself in a context of other human beings and figure out how to help them with a task. Those who have learned how to innovate as teenagers will be ready as young adults to take on the changes that will be a staple of the future.