Tag Archives: manufacturing

U.S. Competitiveness: Time to Close the Skills Gap and Revive US Leadership

Any discussion about the United States’ lead in global competitiveness is intimately tied to the challenges of maintaining America’s competitive advantages. What are some of the statistics measuring competitiveness? The U.S. economy is suffering a relative decline in the world economy as measured by the WEF’s Global Competitiveness Report,[1] falling to 5th place from 1st in 2007. Similarly, in IMD’s World Competitiveness Yearbook,[2] although the U.S. maintains its number one position in overall competitiveness, the country’s ranking for Government Efficiency, one of the report’s four pillars of competitiveness, has seen a dramatic slide, falling from 5th place in 2002 to 25th last year (out of 60 economies). And if this isn’t worrying enough, a study published in 2012 by Harvard Business School indicated that no fewer than 71% of respondents of a survey sent to nearly 10,000 HBS alumni expected U.S. competitiveness to decline over the next three years. Other global rankings sound varying degrees of alarm: In the Heritage Foundation’s Freedom Index,[3] the U.S. ranks twelfth in the world in terms of economic freedom; in the World Bank’s Doing Business Report,[4] the U.S. ranks 4th in terms of the ease of doing business, including a dismal 64th place for the ease of paying taxes (no surprise for those who are brave enough to fill out their own tax returns!). And the Information Technology and Innovation Foundation (ITIF) highlighted in 2011 the fact that the U.S. ranked 4th in innovative-based competitiveness (out of 38 economies), but fell second to last in the rate of progress since 2000, ahead of only Italy.[5]

Consequently, amid the many calls for a new “Sputnik moment”, what should be the key focus of President Obama’s remaining two years? Washington’s urgent to-do list for domestic policy have included finding a bi-partisan solution to avert the fiscal cliff, upgrading infrastructure, introducing more “business-friendly” regulation, restoring America’s technological lead, improving the educational system and skills base, increasing exports and encouraging American companies to re-shore manufacturing activities. But I would suggest that the U.S.’ biggest priority should be investing in skills and education, which are ultimately the critical contributors to lifting and sustaining U.S. competitiveness. Consequently, this will entail tackling the education establishment’s institutional resistance to change. Strong teacher’s unions are constantly creating obstacles to needed changes to K-12 schooling instead of legislators shaping education policy around the critical needs of society and business.

If the United States is in the midst of an historical manufacturing revival as some experts suggest,[6] then developing a long-term skills’ strategy is vital to ensure that the U.S. can capitalize on this trend. What are the explanations behind this renewal? Mainly that outsourcing to low-cost countries is no longer as cost-effective with labor costs rising in many of these countries (the seductive “China Price” is slowly being eroded) and more expensive transportation costs due to higher oil prices. In addition, the U.S. is expected to benefit from an enormous energy windfall thanks to shale gas, helping to make it one of the lowest-cost countries in terms of energy. If you add the benefits of higher quality manufactured goods and state-of-the-art innovation capabilities, the U.S. has a fair chance of regaining its historical leadership in advanced manufacturing.

Meeting the challenges of this “manufacturing revival”, however, puts the onus on closing the skills gap via more and better-targeted investment in education and training. Due to the time lag involved in preparing tomorrow’s skilled workforce, the question remains: “Will the U.S. miss the train?” President Obama pledged to revitalize U.S. manufacturing, boost exports and create more jobs—an electoral promise critical in tackling America’s historically high levels of unemployment brought on by the financial crisis. But time is running out for the Obama administration to fulfill this promise. Closing the skills gap is essential to sustain any revival in manufacturing, whether it is American companies re-shoring production back to the U.S. (e.g. GE, Ford, Caterpillar) or foreign companies attracted to a more cost-competitive United States (e.g. Toyota, Siemens). In today’s globalized world, firms must take into account “total” costs along the entire supply chain, not only labor costs, but also the costs of holding inventories, transportation and energy costs, and the costs associated with how quickly a firm can respond to changes in demand in terms of lead times. The U.S. offers many of these advantages including access to the world’s biggest market, and a growing and dynamic market to boot, huge factors of attractiveness for companies worldwide.

Just one example, a manager from Boeing mentioned to me that the company was working round the clock to meet backlogged orders for planes, demand increasingly driven from overseas, but couldn’t find enough skilled workers to meet the growing needs. This is a story I often heard while at IMD: Companies in many Western economies are struggling to keep up with demand (increasingly from emerging markets), not because of a lack of capacity but due to an insufficient number of qualified workers. What can be done? Three recommendations were proposed in July 2012 by the President’s Council of Advisors on Science and Technology[7]  to support advanced manufacturing. This multi-stakeholder council, made up of business leaders, academics and scientists, called on President Obama to make good on his promise to create an “economy built to last” by: a) enabling innovation, b) securing the talent pipeline, and c) improving the business climate. Just to focus on the second recommendation, that of building, attracting and retaining talent, the Council recommended an advertising campaign to promote manufacturing as an exciting career path, building on the skills of returning veterans, investing in more community colleges, creating partnerships between industry and these colleges, as well as promoting manufacturing fellowships and internships.

I would add re-focusing career choices towards high value-added, knowledge-intensive manufacturing, and educational curriculum towards the STEM branches of science, technology, engineering and mathematics. Supplement this with more technical training during or after high school, similar to the apprenticeship programs found in Switzerland and Germany, and ensuring that young people finish their education (less than 58% of students in the U.S. graduate on time at four-year colleges).[8] Lastly, improve the quality of U.S. high school education. Despite the fact that more than half of the world’s 100 leading universities are American (and eight of the top ten),[9] American high school graduates rank poorly in international test scores: in the OECD PISA rankings, American 15-year olds ranked 26th in mathematics, 17th in reading and 21st in science (out of 34 countries).[10] No American President should sleep well with these results.

Since most experts acknowledge that advanced manufacturing is the best bet for creating high-paying jobs, with the additional advantages of contributing to innovation and reducing the U.S. trade deficit, President Obama would do well to heed the advice of his Council and set into motion the steps necessary to reverse the decline in U.S. manufacturing and technological leadership. Education and training are critical to provide an appropriately skilled workforce that will ensure long-term sustainable growth and restore the U.S. lead in competitiveness. Investing in the skills of the American people has got to be the overall objective of any U.S. administration, but for this to happen, the United States needs cultural change, especially a move away from an entitlement society, and strong leadership in government.

 

[1] Global Competitiveness Report 2013-2014, World Economic Forum.

[2] World Competitiveness Yearbook 2013, IMD.

[3] 2014 Index of Economic Freedom, Heritage Foundation.

[4] Doing Business Report 2014, World Bank and IFC.

[5] Atlantic Century II – Benchmarking EU and U.S. Innovation and Competitiveness,Information Technology and Innovation Foundation (ITIF), July 2011.

[6] The Boston Consulting Group claims that the U.S. is on course to regain its status as a global industrial powerhouse, boosting goods exports and creating between 2.5 and 5 million jobs by the end of the decade (“Rising U.S. Exports—Plus Reshoring—Could Help Create up to 5 Million Jobs by 2020”, BCG, September 21, 2012).

[7] “Report to the President on Capturing Domestic Competitive Advantage in Advanced Manufacturing”, Executive Office of the President, President’s Council of Advisors on Science and Technology, July 2012.

[8] U.S. Department of Education.

[9] The 2013 Academic Ranking of World Universities (ARWU), Center for World-Class Universities at Shanghai Jiao Tong University.

[10] Program for International Student Assessment (PISA), OECD, 2012.