March 7, 2007: Perspective

Learning to compete
How the United States can prosper in a global economy

By Norman R. Augustine ’57 *59

Norman R. Augustine ’57 *59 is retired chairman and CEO of Lockheed Martin Corp. and a former undersecretary of the Army. The National Academies’ “Gathering Storm” report, prepared by the committee that he led, can be found at www.national-academies.org.

Several years ago, for an article about lessons people had learned from their first “real” job, The New York Times asked about my experiences. My first real job was spreading tar on roofs, and I answered that I had learned three things:

First, I learned that some very fine people spend their lifetimes spreading tar on roofs. Second, I learned that it takes an awful lot of tar to cover a roof. And third, I learned that the key to getting off the roof ... is education. Actually, this last point was not a revelation to me. Although no one in my family had gone to college, and only one person had attended high school, my parents were of a generation that understood the value of education — and they shared that understanding with their children. Thus, when a teacher at East Denver High School, with the encouragement of another acquaintance, sent me off to a place I had never even seen, called Princeton, I was eager to learn — as well as deeply appreciative of some folks who, through Princeton’s financial aid program, paid my tuition for four years. They changed my life.

Nearly 50 years later I served on the Hart-Rudman Commission, a bipartisan group that was established at the behest of Congress and instructed to assess our nation’s future national security needs. Many, perhaps even most, observers presumed that our recommendations would be to add more carrier battle groups, air wings, and infantry divisions; hence, our findings (produced prior to 9/11) surprised many. In fact, our two primary findings had little to do with the anticipated results. Instead, the first finding was, “States, terrorists, and other disaffected groups will acquire weapons of mass destruction and mass disruption, and some will use them. Americans will likely die on American soil, possibly in large numbers.” The report went on to recommend the establishment of a cabinet-level Homeland Security Agency to take the needed steps to protect the nation against terrorist threats here at home.

The second finding stated that “the inadequacies of our systems of research and (K-12) education pose a greater threat to U.S. national security over the next quarter-century than any potential conventional war that we might imagine.”

Turning the clock ahead a few years, in the summer of 2005 I had the privilege of chairing a committee created under the aegis of the National Academies at the direction of Congress (the National Academies of Science and Engineering and the Institute of Medicine were established to provide independent advice to government policymakers) to assess America’s evolving ability to compete for jobs on what writer Thomas Friedman has so aptly called “the flat earth.” The committee included among its 20 members

several university presidents, Fortune-100 CEOs, former presidential appointees, a state schools superintendent, and three Nobel laureates (it also included current Secretary of Defense Robert Gates).

Underlying the group’s findings is a trend referred to by journalist and economist Frances Cairncross as “the death of distance,” a phenomenon having its roots in science and engineering. Its essence is that parties to many transactions no longer need to be in close physical proximity to one another. For example, visitors to one commercial office building near the White House are greeted by a receptionist appearing on a flat-screen display — but she is actually in Pakistan. Similarly, in many U.S. hospitals, patients’ CAT scans are read by doctors in Australia or India. A surgeon in New York not long ago removed a patient’s gallbladder in France, using a robot. Many Americans, perhaps unknowingly, had their income taxes prepared last year by accountants in Costa Rica. I was recently provided over my cell phone very accurate real-time driving directions to a building near Washington, D.C., by a gentleman in Bangalore. And we are all familiar with call centers in India, where they now offer courses in speaking English with a Midwestern accent.

What this means to many Americans is that qualified candidates for the jobs they would like to hold are now located all around the world, just a mouse-click away. Furthermore, these candidates — whose numbers swelled by 3 billion after the demise of fundamental Communism — are willing to work for a fraction of the pay to which most Americans have become accustomed, are highly motivated, and are increasingly well educated. I recently visited a factory in Vietnam where 20 assembly workers could be hired for the cost of one in the United States. Six engineers can be hired in India for the cost of one in the United States; five chemists can be hired in China for the cost of one American.

Exacerbating basic wage scales are asymmetries in benefits and other costs; for example, General Motors now spends more on health care for its employees and retirees than on steel; Starbucks more on health care than on coffee; and U.S. industry as a whole more on litigation than on research and development.

The body of evidence regarding the impact of such developments is growing daily. For example:

• Seventy-seven percent of currently planned new research-and-development facilities in the world are to be located in India or China.

• IBM not long ago sold its personal-computer business to a Chinese firm.

• The remnants of what was once America’s greatest industrial research institution, the legendary Bell Labs, recently were sold to a French company.

• General Motors and Ford both have junk-bond ratings. In the last five years they have laid off more than one-third of their North American workforces.

• Toyota’s market capitalization is more than six times that of Ford and General Motors combined.

• Only one of the 25 largest initial public offerings last year occurred in the United States.

• Bethlehem Steel celebrated its 100th birthday in 2000 by declaring bankruptcy, with its number of employees having dropped by a factor of 14 down to 12,000 — but with 90,000 pensioners seeking benefits.

• The U.S. share of leading-edge semiconductors dropped from 36 percent to 14 percent in the last six years.

• Only three U.S. companies are in the top 10 receiving U.S. patents.

• In just a decade, the U.S. trade balance in high-tech goods and services switched from a positive $50 billion to a negative $50 billion.

Given such evidence, the unanimous answer of the National Academies committee members to the question, “How well are Americans going to be able to compete for jobs in the years ahead?” was a resounding: “Not well.” The highest priority for attention, in the view of the committee, is the substandard quality of K-12 public education in America. Microsoft’s Bill Gates put it this way: “When I compare our high schools to what I see when I’m traveling abroad, I’m terrified for our workforce of tomorrow.” Former Federal Reserve Chairman Alan Greenspan punctuated that notion, observing, “If you don’t solve the (K-12 education) problem, nothing else is going to matter all that much.”

It is, of course, a good thing that other nations are prospering; the National Academies would like for America to continue to be among that group. To that end, the committee made 20 specific recommendations addressing such issues as funding basic research; encouraging more of America’s most able citizens to pursue careers in science and engineering; repairing the environment for innovation in such areas as tax, visa, patent, and litigation policy; and fixing the K-12 public education system, particularly in the areas of math and science. The evidence that caused the committee members to conclude that the final task on this list should be first in priority is compelling. While there indeed remain some fine schools in America, by global standards we would have to improve considerably just to be average.

In one international test of students’ ability to apply mathematical understanding to real-world problems, U.S. 15-year-olds finished in 24th place. Our 12th-graders finished below the students of 21 countries in another test of basic math and science. Ironically, U.S. fourth-graders rank near the 80th percentile in science testing, but by 12th grade they plummet to the fifth percentile. It seems that the longer students are exposed to our K-12 education system, the worse they do ... particularly in the critical areas of math and science.

Providing public school teachers who are qualified and motivated to teach science and math is, by far, the greatest opportunity to reverse America’s declining competitiveness (significantly increasing the federal government’s investment in basic research at our universities being the second). Today, two-thirds of U.S. eighth-grade students are taught math by teachers without a degree or certificate in math. Nine out of 10 children in grades five through nine are taught physical sciences by teachers with no degree or certificate in the physical sciences. Even in high school, the odds are little better.

Too often, physical education teachers are assigned to teach physics — and their lack of interest in the topic, not to mention discomfort in addressing it, is contagious. And the situation is worsening. In 2004, my home state of Maryland had 523 math teachers resign. A monumental recruiting effort produced just 91 qualified replacements. In his inaugural address as president of the University of North Carolina, Erskine Bowles observed, “Think about this: In the past four years our 15 schools of education at the University of North Carolina turned out a grand total of three physics teachers. Three.”

Is it already too late for America to be competitive for jobs in the emerging global marketplace? Is the race, for all practical purposes, over? Electrical Engineering Times began its recent “State of the Engineer Survey” with the following words: “The single, young, energetic, upwardly mobile engineer constantly angling for better pay and greener pastures was for decades a Silicon Valley stereotype. But that image no longer holds true. The go-getters are now in India.”

The National Academies believe it is not too late — but it is getting late. Fortunately, there are prototypes that work. Ireland, Singapore, and Finland offer examples. Although the challenge we face will not afford us a wake-up call as did 9/11, Pearl Harbor, and Sputnik, America’s leaders are beginning to take some of the needed actions. Shortly after the National Academies released its “Gathering Storm” report, the president included several of its recommendations in his January 2006 State of the Union address and added funding to his budget proposal. Legislation stemming from the Academies’ report is pending.

The true test will be whether we as a nation, and especially our leaders, have the perseverance to provide the needed resources and policies over the long term. Failing to do so virtually will assure that, for perhaps the first time in our nation’s history, a generation of Americans will leave to its children a lower sustained standard of living than it enjoyed.

As I have traveled around the world, I have noted how seriously other governments are taking the “Gathering Storm” report. The cruelest irony of all would be if our efforts prodded them into further action, while we in America slept.