Globalization and
the American Workforce
A Conversation with Gregory J. Hayes
COUNCIL ON FOREIGN RELATIONS, NEW YORK, NOVEMBER 1, 2016
The topic of globalization and free trade has come to the
forefront of the public consciousness, thanks in part to
commentary throughout the U.S. presidential campaign.
There’s a great deal of misinformation about this issue,
and in some cases a detachment from reality.
I see our discussion today as an opportunity to add my voice
to the broader dialogue on globalization. My perspective is
as a business leader who sees firsthand how the global
marketplace impacts companies and their global workforce.
I have the privilege of leading United Technologies, a
$57 billion business with 200,000 employees worldwide.
The company comprises four industry-leading franchises
that operate all over the globe: Otis Elevator, Pratt & Whitney,
UTC Climate, Controls & Security, and UTC Aerospace Systems.
Globalization and trade matter to me, and to United Technologies.
These are forces that have real impacts on the nation’s
economy and workforce. I believe our voice can make an
important contribution to the public discourse.
Gregory J. Hayes
Chairman and Chief Executive
Officer, United Technologies
Corporation
Retrospective
Twenty years ago George David, the former chairman
of UTC, stood in front of a similar group and talked
about the impacts of globalization and how productivity,
competition and innovation would profoundly affect the
economy, businesses and the workforce in the coming
years. While George was not omniscient, he clearly
understood that the genie of globalization could not be
put back in the bottle.
Looking back over the past few decades, globalization,
free trade, innovation and productivity have advanced both
business and social interactions in innumerable ways.
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•
Over the past 50 years, the global economy has
expanded sixfold, while average per capita income has
nearly tripled.
•
The average employee today generates 2.4 times as
much output as in 1964.
•
Twenty years ago, less than 1% of the world’s population
was connected to the internet. Today it’s close to 50% –
increasing 10X between 1999 and 2013.
We have seen the positive impact these advances have
brought to people around the world.
•
Poverty rates have fallen – in 1981, 42% of the world’s
population lived in poverty; that’s now down to about 10%.
•
In China alone, growth has pulled 680 million people out
of poverty over the last 30 years.
•
Globally, the middle class will more than double
between now and 2030, increasing consumption and
driving ever faster urbanization.
Coinciding with these changes is a rapid increase in technology.
•
A basic smartphone today has a CPU that’s at least
10X more powerful than a 1995 PC – and costs about
one-tenth as much.
•
Globally, mobile phone subscriptions increased from
2.2 billion in 2005 to 7.4 billion today. There are
99.7 mobile phone subscriptions per 100 people.
But we also recognize the challenges these trends create.
Technological innovation and process improvement have
transformed the way in which business operates by driving
productivity into the work place, both on manufacturing floors
and in back-offices.
In many cases, this productivity growth significantly reduced
the number of workers – and changed the types of skillsets –
required to perform certain functions.
The proliferation of these productivity initiatives also fundamentally altered our traditional notion of middle-class jobs.
In 1960, manufacturing represented about 24% of the jobs
in the U.S.…in 1980, it was 19%, in 2000 it was 13% and
today it’s around 8%. Having said that, U.S. manufacturing
output is growing; and our economy still supports more than
12 million manufacturing jobs today.
What is often overlooked is that these changes would have
happened even without globalization.
I think about my grandfather, who worked for Bell Aerospace
back in the 1960s. He was a machinist. He worked on a
manual lathe, building parts for the Apollo space mission. It
would take him a week to build a single complex machined
part. In this case, it was the thrusters on the outside of the
lunar module.
Today, that part goes on a five-axis milling machine, and it
probably takes about an hour. And the quality is equal to what
a master machinist like my grandfather could have done.
Even at United Technologies, we see the impact of productivity gains and innovation on our workforce. Take our Pratt &
Whitney business that is headquartered 114 miles from here
in East Hartford, Connecticut.
Our newest engine, the Geared Turbofan™, entered into
service on the Airbus A320neo in January of this year. This
is the most complex commercial engine we’ve ever designed
and built…and it will take us about 50% LESS time to
build this engine than the last engine we introduced almost
30 years ago.
Because of technology, innovation and process improvement,
the number of jobs we need to build engines and the nature of
those jobs has changed dramatically.
This is just one example of many.
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The move towards more highly skilled, higher paying jobs is
evident across many industries. The manufacturing job my
grandfather had 50 years ago is gone and those jobs are not
coming back.
The global flow of goods, services and finance contribute
between $250 billion and $450 billion of growth each
year to world GDP, which accounts for 15% to 25% of total
global growth.
Meanwhile, more advanced manufacturing jobs are left unfilled. Overall, openings for U.S. manufacturing jobs this year
have averaged 353,000 a month. Technology is changing
manufacturing processes – and companies need workers
who can navigate this new reality. Increasingly, manufacturing
operations require more advanced computer and machining
control literacy, as well as data acquisition and analysis.
Free trade is critical to the global economy, yet rhetoric in
the U.S., and around the world, decries it. The fact is,
developing an isolationist approach to the economy will not
create growth…it will not create jobs…and it will not make
any country great. It will simply take us backwards.
Globalization
Manufacturing jobs saw their largest decline in U.S. history
between 2000 and 2010. Approximately 88% of those jobs
were lost that decade due to productivity growth. It was not
free trade. It was not globalization. It was productivity.
The jobs of yesterday aren’t coming back because the
world has changed. But let’s be clear, the problem
isn’t globalization. The problem is that we, as a nation,
haven’t proactively dealt with the dislocation associated
with globalization.
There are many voices out there talking about job loss,
pointing to globalization and free trade…voices that say it
costs American jobs.
Those same voices also suggest that if we want growth and
job creation – we need to limit trade, impose trade barriers
and curb globalization.
To be clear, the primary cause of manufacturing job loss in
the U.S. is productivity growth…not globalization or
free trade.
Restricting free trade will actually hurt the economy and result
in more lost jobs.
Recent estimates suggest that in a full-out trade war, by
2019, private sector jobs in the U.S. would fall by almost
4.8 million – and that doesn’t even include the impact to
public sector jobs.
If you don’t believe those statistics…let me give you a real
example in my own company:
The world is growing rapidly and the forces of globalization
are real and inescapable.
Last year, UTC had $57 billion in sales. Approximately
$30 billion of those sales were made by our U.S. businesses.
Of that $30 billion, we directly exported about $10 billion,
predominantly in our aerospace businesses.
The genie is out of the bottle. It’s not open to debate.
Globalization has already happened – and it will continue.
That doesn’t even include the products we sell to our U.S.
customers who subsequently export them.
And it’s not just in the U.S. – it’s everywhere.
We have about 40,000 well-paying aerospace jobs in the
U.S. that support these direct exports.
Many of you will agree that this is absolutely wrong.
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We also have about 30,000 U.S. aerospace suppliers, in
every U.S. state. Those suppliers employ millions of people.
If our country implements barriers to free trade, many of those
U.S. jobs will be negatively impacted or lost all together.
In 1947, 23 nations signed the General Agreement on Tariffs
and Trade, or GATT. At the time, the average tariff was 22%.
Today, the WTO, the successor to GATT, has more than 164
members and the average tariff is 9%.
We all compete in this global marketplace. Backing away
from strong trade deals won’t help us – instead, it will give
competing nations an opportunity to undermine the global
system of trade that the U.S. has worked so hard to build.
Trade is not a one-way street. Any trade barriers we enact will
be met by equal or greater barriers from our trading partners
– making it more difficult for U.S. products to compete, and
putting more American jobs at risk.
People rally against TPP, TTIP and NAFTA because these
deals are perceived as exposing the U.S. to competition –
and they have become synonymous with U.S. job loss.
While globalization does create dislocations in both developed
and developing countries, we cannot overlook the benefits.
Global competition has inspired generations of leaders and
innovators to be their best, spurring innovation and ingenuity
that often results in breakthrough technology.
safety brake in 1853; Willis Carrier invented modern air
conditioning in 1902; and Fred Rentschler developed the first
Pratt & Whitney engine in 1925.
Even 20 years ago, UTC was a much smaller company. We
had $20 billion in revenue and about 170,000 employees,
40% in the U.S. We had operations around the world, but we
certainly weren’t the global company we are today.
It was innovation that inspired our founders, innovation that
drove productivity and innovation that allowed us to flourish.
Instead of resisting the forces of globalization and free trade,
the question we really should be asking ourselves is: how
do we inspire innovation that will enable us to effectively and
successfully compete in a global economy and create those
highly skilled, higher paying jobs that will support it?
Education
It is my belief that it starts with education and lifelong
learning.
One of the biggest challenges facing our U.S. workforce
today is the inability to adapt to economic change.
•
In the U.S., the share of the population with a university
degree has essentially been flat since the 1990s.
Today, 61% of adults in the U.S. have no degree past
high school.
United Technologies supports trade agreements that fairly
and equitably create such opportunities because it forces us
to continue innovating to stay ahead of the curve and to be
our best.
•
If current trends continue, the global economy could
face a potential surplus of up to 95 million low-skill
workers, and a shortage of up to 40 million high-skill
workers by 2020.
At UTC, our founders started the industries in which we
still compete today. Elisha Graves Otis invented the elevator
•
Nearly 8 in 10 middle-skill jobs require digital skills.
Trade agreements open up markets and encourage investment.
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•
Over the next decade, nearly 3.5 million manufacturing
jobs will need to be filled. A skills gap is expected to
result in 2 million of those jobs remaining unfilled.
Education and training can better equip people to adjust to
these shifts in manufacturing work that will continue as the
world moves forward.
Even the knowledge that change is coming is powerful
information.
Twenty years ago, we described the urgent need to educate
our workforce for the jobs of tomorrow.
Back then, UTC realized how quickly and decidedly the world
would change.
We recognized that while no company can guarantee lifetime
employment, we could guarantee our employees the opportunity to learn…not just for their current jobs, but for the jobs
that will exist in the future.
We wanted to create a program that encouraged employees
to develop new skills and take control of their careers.
And that’s exactly what we did with the launch of our
Employee Scholar Program 20 years ago. Looking today,
we are proud to say that more than 45,000 employees at
United Technologies have taken part in the program
representing more than 60 countries. They’ve earned more
than 38,000 degrees.
Among our workforce currently enrolled, nearly a quarter
are hourly employees and we constantly encourage more
participation.
Our program allows employees to obtain degrees from
accredited institutions in any field of study, even if it’s not
job related. It can be used to obtain a graduate degree, a
four-year degree, or a two-year degree, which can include
technical training.
We offer up to three hours of paid time off to study per
week and there is no requirement that employees stay with
the company for a specified period of time after completing
the program.
We have invested more than $1.2 billion in this program and
counting…why?
Because I have seen the benefits that this program provides,
not only to employees, but also to our company. United
Technologies makes complex products that are mission
critical. We need to have the best, brightest and most highly
educated employees for our business to be successful.
I often say that companies don’t innovate, people innovate.
And that’s exactly what the people of United Technologies
do. Like the Pratt & Whitney engineers who brought the
Geared Turbofan (GTF) engine to life. This engine reduces
fuel consumption by 16%, cuts regulated emissions by 50%,
and slashes the aircraft noise footprint by 75%.
The technology that makes all of this possible was long
accepted to be an insurmountable feat. But we ignored the
naysayers and went on to invest 20 years and $10 billion
making it happen.
The GTF engine went into service this year and it is a gamechanger. Its benefits are real…not only for airline operators,
but for travelers and the environment. We succeeded in what
many people thought was an impossible challenge thanks to
the drive to push boundaries, and never stop learning.
Or take the team of Carrier engineers that developed a
state-of-the-art heating, ventilating and air-conditioning
system for the Sistine Chapel. The Vatican Museums
reached out to us with a problem: Michelangelo’s frescoes
were being damaged due to the dust, humidity and carbon
dioxide brought in by the chapel’s six million visitors each
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year. Unless a solution could be found, the chapel would be
forced to restrict visitor access.
This was not an easy project. There were limitations based
on the historic nature of the site. The new system had to be
virtually invisible and maintain “church quiet” sound levels and
limit air motion around the frescoes.
Carrier’s project team – representing the U.S., France and
China – delivered an amazing solution with three times the
cooling capacity and twice the efficiency of the previous
system. It’s linked to an advanced video application to
anticipate visitor levels and adjust performance intuitively.
Thanks to the work of those employees, Michelangelo’s
frescoes will be preserved for generations to come.
What we do at United Technologies would not be possible
without a workforce that is educated and committed to
lifelong learning.
Stories like these are the reason we believe in and are committed to providing employees opportunities through education.
It’s one the most important investments we can make.
The Employee Scholar Program has helped us be successful
by supporting intellectual curiosity and the desire to figure out
how to do things better all the time.
You have no doubt heard a lot of commentary and discussion
from other CEOs about free trade, and why it’s important to
business. You have also heard dialogue about what needs to
be done to support jobs and spur economic growth.
But those things are not enough. We have to do more.
Every company needs to take responsibility for advancing the
skills of all their employees.
We all need to do a better job of helping our workforce
adapt to change and seize the opportunities that are and will
be out there.
The cost of in-state tuition at public national universities has
increased an incredible 296% over the last 20 years, making
higher education out of reach for more and more people.
And it’s difficult to tell someone who is advanced in their
career to go back to school and get a four-year degree to be
able to take a different job.
That may not be the right choice for them…and they may
not have the option of relocating to take advantage of other
opportunities made available to them.
But this is exactly why we have to do more.
Case in point…We used to have about 150 people at Pratt &
Whitney whose job included bringing carts from the receiving
dock and putting them into kits that were taken to the shop
floor to be assembled with the engines.
Three years ago we made a decision to move that work out
of Pratt & Whitney to a third-party provider.
As for the people affected, we offered to retrain them so they
could learn to do other things at UTC.
Some elected not to, and some opted to retire because they
didn’t want to be retrained. But some of these
employees went back to school and developed the skills they
needed…and they’re still working at Pratt & Whitney.
It worked for them and it worked for us because we needed
those people – we just needed them to do something different.
Of course, that won’t always be the case which is why we need
to have plans in place to support people who are displaced.
Many of you probably know that our Carrier business has
been the target of political rhetoric for our decision to move
1,400 jobs from Indianapolis to Mexico. In truth, we were
behind the curve because most of our competitors have
already moved to Mexico.
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But those 1,400 jobs that will be eliminated in Indianapolis
are real people, with real lives. And we, as a company, have a
real responsibility to these people.
Part of that was letting them know about the change three
years in advance so they could prepare.
We are also providing them educational opportunities through
our Employee Scholar Program to learn new skills – to help
them compete in this new world.
Call to action
Companies like UTC will continue to take steps to remain
competitive in the global economy. It’s always an incredibly
difficult decision to relocate work. Many in the nation reel at
the news of factory closures. But let’s harness that sense of
frustration, felt by so many, into action.
Employee education and skills training needs to be a priority
for our country.
As I said, all businesses need to take the lead. That means
partnering with state, local and federal governments, the
unions and educational institutions to develop programs that
will educate and retrain workers with skills that will be needed
for the careers of tomorrow.
There are barriers in front of us, and I’m sorry to say that
business is one. In my discussions with peer CEOs, I’ve
found that, for many, there is simply not an appetite for
educating employees. Many leaders feel this is not the role of
business – but rather the responsibility of government. This
needs to change. When business takes the lead in providing
employees with the opportunity to gain new skills, it is the
ultimate public-private partnership – delivering benefits to
companies, employees and broader society as a whole.
Government also has a role to play in incentivizing employee
education programs. Let’s start with the tax code. Twenty
years ago, we noted how strange it was that the U.S.
treated tuition reimbursement programs as taxable income
for employees. It’s still an issue today, and I urge lawmakers
to make a change. As a nation, we should encourage and
celebrate those who have the initiative to expand their
education – not punish them.
Another issue is tax deductibility of higher education. This is
not a new idea, but it has yet to gain traction. The U.S. views
home ownership as an important goal, so mortgage interest
is tax-deductible. We are overdue in recognizing the benefits
of a skilled, educated workforce. Let’s reform the tax code
and give education the gravitas it deserves.
The world is constantly changing and we all must stay
nimble. In the long-term, advancement in technology is
positive for the economy overall; but in the short-term,
individuals may struggle if they are not prepared to fill the
jobs of tomorrow.
We have great reason to be optimistic about the future, here
in the U.S. and around the world. The last 20 years have
shown us that. But we need to take steps today to ensure that
we have the workforce that can and will deliver that future.
It starts with acknowledging and accepting that our future
success is deeply rooted in education and lifelong learning.
It is our collective responsibility to this country, to our
shareowners and to our employees to provide that education
today so that we can be prepared for the world of tomorrow.
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Contact:
Alberto Canal
Vice President, Media Bureau
[email protected]
(860) 728-7000
OTIS
PRATT & WHITNEY
UTC AEROSPACE SYSTEMS
UTC CLIMATE, CONTROLS & SECURITY
@UTC
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