Competition in the New Global Economy

Competition in the New Global Economy

Remarks to the Greater Providence Chamber of Commerce

I would like to take this opportunity to speak about competition in the new global economy with a particular emphasis on manufacturing. Rhode Island has a proud history of manufacturing and a dynamic and successful cadre of present day manufacturers. I've had the opportunity to visit companies like VR Industries, American Biophysics Corporation, and Technical Materials. These companies, along with many others, are world-class competitors, but they face an increasingly challenging environment. And, this environment has prompted some companies, like AT Cross and ON Semiconductor, to move their manufacturing operations overseas. The vitality and viability of our manufacturing sector has tremendous consequences for our state and our nation. And, these consequences are not simply economic. Manufacturing provides the employment that reinforces the social fabric of our communities as well as the economic bottom line. We all understand that we are in a global economy and market forces will cause change; some of it beneficial, some of it detrimental. Globalization cannot and should not be halted, but its outcomes are not inevitable. We must make choices and decide the path that we will take in the future to ensure that there are good-paying jobs for Americans that create wealth for everyone, not just those at the top of the economic ladder. We need an economic strategy for America - one that creates jobs and builds American businesses. I believe that policy must incorporate - balanced and fair trade agreements, comprehensive energy legislation, affordable health care, investments in education and worker training, and support of research and development for continued innovation. We are rapidly becoming a service economy, not a manufacturing economy. We have seen significant shifts between employment sectors before. At the beginning of the 20th Century, about 40 percent of the US workforce was in agriculture; today it's about 2 percent. But, when workers moved from the farms to the factories, it was to improve their quality of life and their incomes. Today, when workers leave the factory, they may more likely end up in the unemployment line or at Wal-Mart. It makes a significant difference to the standard of living for Americans how income is generated. The Bush Administration is lauding four months of job growth, but we still have 2.4 million fewer jobs than when the recession began 32 months ago. And, we need to ask what we mean by a "job". Too often the newly created jobs are part-time with no benefits. In November, we added 57,000 new non-manufacturing jobs, but lost 17,000 factory jobs. The greatest job growth in November was in education and health services with an average weekly paycheck of $519. Contrast this to the hardest hit sectors, which were computers and electronics, and transportation equipment, where the average weekly wage is $693 and $900 per week. These shifts translate into a reduction in the standard of living for the average American household. Since the Bush Administration, the median household income has fallen by over $1,400 after adjusting for inflation. This has been the largest average annual decline in real median household income in the past four decades. But, it is not just about money-it is about communities. It is about vibrant companies that contribute to local charities and add to the tax base of towns. It is about the workers they employ who build homes and coach little league teams. It's all these intangibles that mean so much to our state and nation. We also need to worry about the loss of manufacturing and the impact on the trade deficit. Our annual trade deficit now exceeds 4 percent of GDP. As Warren Buffet put it: "In effect, our country has been behaving like an extraordinarily rich family that possess an immense farm. In order to consume 4 percent more than we produce…we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own." Manufactured goods accounted for most of the trade deficit. The nation ran up a deficit in manufactured goods of more than $1 billion a day in 2002 for a total of $369 billion for the year. We cannot afford to consume without producing. But the daunting impact of globalization is not just reflected in manufacturing. We have taken comfort in the growth of our service economy but with broadband technology even these jobs are going offshore. Just as China became the world's workshop; India is quickly becoming the world's back office. With the low cost of India's highly skilled work force, many businesses are moving service jobs there and to other countries. The Administration's response to these challenges has been unsatisfactory. It has not paid enough attention nor taken the problems seriously. In September, President Bush announced he would appoint a Manufacturing Czar. Four months later, there is yet to be an appointment and the Administration is supporting drastic cuts to the Manufacturing Extension Partnership Program, the only Federal program designed to help small manufacturing businesses. There is not a country in the world that American industries and workers can't compete against if there is a level playing field. But often the playing field isn't level. But we can't allow other countries to break the rules-our foreign trade partners must play by the same rules as we do, and feel the full force of our trade laws if they don't. China is a good example. The lack of protection of intellectual property rights is symptomatic of China's one-sided approach to international trade agreements. It is estimated that counterfeits account for 15 to 20 percent of all products made in China. When China joined the WTO, the government agreed to immediately bring its intellectual property rights problems laws into compliance with the WTO's rules, but China is not making significant efforts to enforce intellectual property rights laws. In 2002 alone, piracy of intellectual property in China cost U.S. firms $1.85 billion in lost sales. The U.S.-China trade deficit is increasing sharply each year and could reach $129 billion this year. One reason is China's under-valuation of its currency. Many economists estimate that the yuan is now undervalued by between 15 and 40 percent. China's currency manipulation is also forcing other East Asian economies to keep the value of their currencies low to compete with Chinese products. The result is a significant subsidization of China's and other Asian exports and a virtual tariff on U.S. imports. These are some of the major issues that we face in a global economy. Our challenge is to shape globalization so that it complements the energy and efficiency of American entrepreneurs who create the jobs that sustain our economy and our communities. As I said at the beginning, we need an economic strategy for America. I believe that strategy must incorporate - balanced and fair trade agreements, comprehensive energy legislation, affordable health care, investments in education and worker training, and support of research and development for continued innovation.

TRADE

Trade policies that don't establish a real threshold for labor and environmental standards are not working. A noticeable departure from this record was the recent U.S.-Jordan Free Trade Agreement that subjected environmental and labor provisions to the agreement's dispute settlement resolution to ensure that those commitments are met, giving labor and the environment parity with every other aspect of the agreement. We must insist on trade agreements that represent a comprehensive and balanced trade policy, and serve our economic interests, not merely our foreign policy objectives. It seems our trade policy takes a back seat to any and every foreign policy emergency. For example, in the two cases where the Department of Commerce found than an industry was being hurt by imports from China, the Administration refused to use remedies to protect those industries citing that relief was not in the national interest. We must more closely align our interests in trade negotiations with domestic manufacturers, not a few multinational corporations. For example, Congress is set to replace the Foreign Sales Corporation Act and one approach would link tax credits directly with domestic production either for sale in the U.S. or for export. It is exactly these types of incentives in free trade agreements that would primarily help domestic producers and will benefit the U.S. in the long term. We need to recognize that negotiating a trade agreement is just the beginning, not the end of the process. Time and time again over the years, an accord was struck with a trading partner, an announcement was issued, and the agreement was simply forgotten. We need to commit resources to ensure that our trading partners are living up to their agreements, and we must take action if they are not.

ENERGY

We need comprehensive energy legislation for the 21st century that is economically sound and will reduce our dependence on foreign oil. We are on a collision course that threatens our economic and national security. Worldwide oil consumption is projected to grow by 60 percent over the next two decades. For developing countries, this growth is expected to be much higher, possibly as much as 115 percent. Growing global demand will raise prices for U.S. manufacturers and consumers as countries race for the world's remaining oil supply. Efficiency is the cheapest energy source. In 2000, America used 39 percent less energy and 48 percent less oil to produce each dollar of inflation-adjusted GDP than in 1975. This reduction is equal to five times our annual domestic oil output. Taking steps to reinvigorate fuel efficiency standards for cars is the best way to produce the dramatic savings in oil consumption witnessed in the 1970s and 1980s, and for American car companies to remain competitive in the world market. China recognizes the need to reduce its oil demand from the Middle East and is preparing fuel efficiency rules that will be significantly more stringent than those in the United States. The Chinese standards call for new cars, vans and sport utility vehicles to get as much as two miles a gallon of fuel more in 2005 than the average required in the U.S. and about five miles more in 2008.

HEALTH CARE

We need to provide affordable healthcare for American companies, workers and families. In 1994, we mounted a national effort to enact comprehensive health care reform and that effort was blocked. A decade later, we have yet failed to take effective action and the problems remain. Health care premiums increased by 14 percent this year, the third consecutive year of double-digit increases. The number of uninsured Americans increased by 2.4 million last year, bringing the total number of uninsured to over 43 million. But what is shocking is that more than 80 percent of the uninsured have jobs. There is no simple solution to the challenge of providing affordable and accessible health care for all Americans. But, central to any solution is maintaining our employer based health care system. This means that we must give increased support and incentives to businesses that provide health care to their employees. Such support will also make us more competitive in a world economy where health care is substantially state sponsored or simply not provided in any meaningful way. EDUCATION American workers are competing in a global market where quality and productivity depend on the skills of the workforce. A skilled, trained workforce will be essential if the U.S. is going to compete successfully with low-wage, low-skill countries. Investing in worker recruitment, technical training and workforce development will ensure we have qualified workers for our future. We need to look at incentives for technical training over a worker's career and we need to integrate academic and technical learning in our schools to offer career options to our children.

RESEARCH and DEVELOPMENT

Increased public investment in research and development is critical to keep the U.S. competitive, especially in advanced manufacturing. According to the National Science Foundation, the Federal government is the largest investor in basic and applied research but its share declined by 26 percent between 1993 and 2000. This decline has several implications, including a reduction in academic research, neglect of the public and private R&D infrastructure, a hampering of student recruitment in the physical sciences, engineering and mathematics, and a potential reduction in innovative capacity. Since 1997, the number of science and engineering doctorates going to U.S. citizens or permanent residents dropped by 16 percent. As a nation, we need to design a long-term plan to increase funding for science and technology research budgets. This will help us generated new jobs in new industries. We invest $30 billion in Farm subsidies each year. We need to make the same level of investment to create the jobs of the future. U.S. leadership in innovation will ensure the strength of the domestic economy.

RESOURCES

Responding to the challenges of globalization requires new policies and significant resources. To date, the Administration's responses to our economic problems have been serial income tax cuts and continued pursuit of free, but not altogether fair, trade agreements. Both approaches will not, in my view, adequately prepare us for the global competition that is already upon us, nor will it strengthen our ability to maintain good jobs here at home. An adequate response to the global economic challenge will require significant resources not just good intentions. And, today we are faced with the largest budget deficit in our history. In 2001, the government predicted a $334 billion surplus for 2003, instead, increasingly due to the tax cuts, we face an astonishing $455 billion deficit. In just two years, we've seen a swing of more than three-quarters of a trillion dollars and that's just for this fiscal year. Over the not too distant horizon, we will find it increasingly difficult to finance the physical and human infrastructure that is necessary for successful competition. Moreover, there is the specter of persistent deficits curtailing economic expansion. Alan Greenspan repeatedly has emphasized that higher deficits do in fact lead to higher interest rates. As the Fed's monetary report to Congress stated, deficits have already led to a downswing in national saving, and "if not reversed over the longer haul, such low levels of national saving could eventually impinge on the formation of private capital that contributed to the improved productivity performance of the past half-decade."

CONCLUSION

We face great challenges. That is not something new for America or for American business. And, history shows that the character of our people is sufficient to meet these challenges. But, history also shows that we must face these challenges. We must recognize that global economic competition must be shaped by positive action, not by passive acceptance. We will forge the future through our wisdom and our sacrifice, today. In other words, borrowing the immortal phrase of Arthur Miller in his play, Death of a Salesman, "Attention must be paid."