We Can All Do Better

by Bill Bradley

  Long-Term Jobs

  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 2009.9 Since 2001, the country has seen over forty thousand factories close and nearly 6 million workers lose their jobs.10 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 2011.11 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.12 Since the low in 2009, manufacturing production has increased 5.7 percent—the fastest pace of growth in a decade.13

  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.14 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.15 In 2010 the United States had the largest inflow of foreign direct investment of any economy in the world.16

  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.”17 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.18 American manufacturing is on the rise. That is good news for America’s middle class.

  Lifetime Education

  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.19 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 nearl
y 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 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.

  High-tech innovation and an educational system to support it are critical components of our long-term job strategy. But there has to be more. That’s where high-quality jobs come in—professional jobs such as engineering, research and development, finance and software production. When international trade expands, these areas grow disproportionately. For example, the U.S. trade surplus in business services has nearly tripled since 2003.20 Sophisticated data analysis and effective use of information technology will generate even more jobs. Coming down in the wage scale to quality service jobs but generating opportunity for further employment growth are jobs that meet real human needs: long-term healthcare for the elderly that is life-affirming instead of end-of-life warehousing will require trained workers; childcare that allows parents to work and children to flourish needs to be skilled; continuing education and travel and self-discovery all need specialized guides. High quality service jobs such as these, besides providing new jobs opportunities, will produce a more humane country.

  Freeing Up Business

  Beyond effecting deficit reduction, establishing a giant infrastructure program, making investment in basic research, and subsidizing community colleges, government should reduce the costs it imposes on businesses. Cutting the top corporate tax rate would be one way, but it would have an uneven impact, given the great variation that companies pay because of loopholes. The two most effective actions relate to healthcare and employment taxes. The United States is unique in the way it seeks to provide health care for its citizens. It burdens companies with the responsibility and gives them tax incentives to offset only some of the costs. A company’s chief social obligation should be to create jobs; providing for people’s healthcare and education ought to be the government’s responsibility. If the cost of healthcare could be borne by the federal government with something like a Medicare-for-all program, companies would have more money to pay higher wages to their workers. By eliminating the private insurer, you could save between $350 billion and $400 billion a year in administrative costs.21 If everyone was covered by the health care system, costs would be easier to control, and incentives could prompt health care providers to compete on price and quality. It could be a win for everyone.

  To raise our standard of living and create more jobs, we also need a dramatic shift in our tax system. The 22 million Americans who are counted as unemployed or underemployed hide the total number of people not working. The Bureau of Labor Statistics reported in 2009 that among the non-institutionalized adult population of 235 million, only about 140 million had jobs, which means that roughly 95 million people were not working. Bringing some of these people into the workforce would be a tremendous benefit, not only for them but for the whole economy. The answer isn’t a temporary cut in Social Security taxes. These cuts, done in the name of stimulus, have reduced unemployment very little, even as they have drained money from the Social Security Trust Fund.

  Today, 40 percent of federal revenues come from taxes on employment.22 Every job comes with a 15.3 percent tax in the form of Social Security, and Medicare. The employer pays half and the employee pays half. The employer alone pays the unemployment tax of as much as 2 percent. These taxes act as a tremendous disincentive for companies to hire workers, and mean that the employee has less take-home pay. Try explaining to a young person why the FICA deductions will be good for him in fifty years, and you will see a face full of incredulity. We know the price signal works, so if we want more jobs, we should cut the taxes on job creation. You do that not by cutting the top income tax rate on the “wealthy job creators” but by eliminating the taxes directly related to employment, which affect all companies and all workers.

  To replace the funding for these bedrock social programs, for which there is broad public support, we should enact a tax on “things.” “Change the relative price of people versus things,” says Ashoka founder Bill Drayton.23 It could be a value-added tax on everything but labor, or a gasoline-tax increase, or a set of taxes on specific pollutants, such as lead or nitrous oxide, or an energy inefficiency tax on, say, the 25 percent least efficient cars, appliances, and commercial buildings. The new taxes would be dedicated to a fund for Social Security, Medicare, and unemployment compensation.24

  For forty years, taxes on non-labor things or natural resources have been low. Drayton’s Get America Working! estimates that the combination of cutting taxes on jobs and increasing them on non-labor factors of production would result in a 30-percent price shift in favor of job creation. More elderly would return to the workforce (68 percent say they want to work25), as jobs proliferated. Dependency w
ould drop. In addition, the price shift, according to Drayton, would be so great that it could “increase employment over a capital cycle by roughly 40 million full-time equivalent, new, permanent, sustainable, chiefly good jobs.” As more jobs were created, there would be faster economic growth, thereby generating further revenues for government investment.

  The groups that will benefit from this tax shift are, first of all, the Americans who have been hit hardest by the recession or have been caught in the structural changes in our economy over the last thirty years. And then there are all those groups who don’t count in the narrow unemployment statistics, especially the elderly, the young, people with disabilities, minority dropouts, and women at home or temporarily out of the workforce. They, too, would benefit as the broad effect of the tax shift took hold.

  We are so far out of shape as a nation that what’s needed is no less than a revolution in our behavior and an overhauling of our patriotism. Galloping personal credit and runaway government deficits can no longer enthrall us. We can no longer entertain the belief that people are basically selfish and markets have all the answers. We need to see our connections, both to one another and between the actions we need to take and the results we desire.