Rising Above the Gathering Storm, Revisited: Rapidly Approaching Category 5 (2010)

It is instructive to ask which of the following two job candidates one would hire:

Candidate “A,” ranks in the lower quartile of the high school class, expects to be paid a wage of $17 per hour (the lifetime average wage of a United States high school graduate) with an additional one-third of that amount in benefits.¹ Candidate “B” speaks two languages fluently, ranks near the top of the class and is eager to work for $1.50 per hour.

This scenario, although oversimplified, is nonetheless a reasonable representation of the challenge faced by the average United States high school graduate seeking a job in the global job market—setting aside altogether the one-quarter of United States youths who have not received a high school diploma by the time their class graduates.²

Members of the boards of directors of corporations increasingly face a corresponding decision when considering where a new factory, logistics center, maintenance facility or research laboratory is to be located. The members of the Gathering Storm committee have collectively participated in thousands of board meetings and have observed that with increasing frequency the decision is made, usually very reluctantly, to go abroad. Initially

such choices primarily affected assembly workers, but as time has passed the migration impacted back-office administrative workers, logisticians, engineers and, more recently, researchers, architects, and accountants … among a growing list of threatened skills. If the growth markets are abroad, research is performed abroad and manufacturing is abroad, “U.S.” companies can still prosper financially, shareholders can benefit, and management can be rewarded…but no jobs are created domestically. While there are recent examples of United States firms repatriating some activities that had previously been moved overseas, particularly those requiring close management controls, the number of such jobs is overwhelmed by the number moving or being created elsewhere by U.S. firms.

The Gathering Storm report concluded that, “Market forces are already at work moving jobs to countries with less costly, often better-educated and highly motivated workforces, and more friendly tax policies.” From a shareholder’s perspective, a solution to America’s competitiveness shortfall has already been found—but it is at the expense of those seeking employment here at home. This represents a major dislocation of interests and loyalties that has as yet not been widely addressed or in many cases even recognized. The overwhelming body of United States law provides little latitude for management to stray beyond the economic interests of a publicly-owned firm’s shareholders when making decisions. Similarly, generally accepted economic principles do not support protectionism. But as Ralph Gomory, former senior vice president for science and technology at IBM, stated, “… what is good for America’s global corporations is no longer necessarily good for the American people.”³

From America’s perspective, events that have occurred over the past five years have both positively and negatively impacted the nation’s competitiveness stature. On the positive side, there is a much greater awareness of the peril implicit in continuing in the direction the nation has been drifting for several decades. This is a non-trivial development, given that the basic nature of the competitiveness challenge does not lend itself to any sudden “wake-up call”—such as was provided by Pearl Harbor, Sputnik or 9/11. Also on the positive side of the ledger are past actions that have been taken by the federal government, particularly as part of the American Recovery and Reinvestment Act of 2009. Perhaps of even greater import, a number of states have undertaken their own

Gathering Storm assessments with findings that echo those from the study conducted by the National Academies—and in some cases the states have followed their findings with concrete actions.⁴

Unfortunately, a number of adverse developments with regard to the nation’s competitiveness have also occurred. Prominent among these has been the economic collapse triggered by the proliferation of sub-prime mortgages. Although not rooted in the same fundamental practices as the economic reversal described in the Gathering Storm report, the fallout from this relapse has further weakened America’s ability to respond to the long-term challenges it faces—including those addressed in the Gathering Storm report.

Further, for the first time in many decades the nation’s higher education system is being seriously challenged. This is a consequence of the decline in operating funds attributable to reduced endowments and declining tax revenues. Finally, although no nation has escaped the recent financial crisis unscathed, some have fared better than others and have focused additional sums on competitiveness. For example, last year China sustained an annual real GDP growth rate of 9.1 percent while India and Vietnam achieved 7.4 and 5.3 percent, respectively.⁵ The United States real growth rate was a minus 2.6 percent. The abovementioned three foreign countries of course have smaller GDP’s than the United States (India, for example, by a factor of four in purchasing power terms). But they also have a lower standard of living to maintain—and new funding sources are being generated, the fruits of which can be relatively quickly allocated as the nation’s leadership deems appropriate.

In balance, it would appear that overall the United States long-term competitiveness outlook (read jobs) has further deteriorated since the publication of the Gathering Storm report five years ago.

Today, for the first time in history, America’s younger generation is less well-educated than its parents.⁶ For the first time in the nation’s history, the health of the younger genera-

tion has the potential to be inferior to that of its parents.⁷ And only a minority of American adults believes that the standard of living of their children will be higher than what they themselves have enjoyed.⁸ To reverse this foreboding outlook will require a sustained commitment by both individual citizens and by the nation’s government…at all levels.

The Gathering Storm is looking ominously like a Category 5…and, as the nation has so vividly observed, rebuilding from such an event is far more difficult than preparing in advance to withstand it.

“Second only to a weapon of mass destruction detonating in an American city, we can think of nothing more dangerous than a failure to manage properly science, technology and education for the common good… ”

United States Commission on National Security for the 21st Century, 2001

This page intentionally left blank.