Blackboard Jingle

It seems as if every conference I attend on the subject of American competitiveness (and there are many -- the competitiveness industry is surely one of America's most competitive) begins or ends with a speech by a prominent chief executive of a large American corporation about business's stake in improving the quality of the American work force. The corporate public- relations staffs who write these things must compare notes, because the speeches are virtually identical: At the start, an upbeat assessment of the current state of American industry coupled with grim warnings about foreign competitors who are gaining ground. This is followed by an assertion about the importance of the American work force to American competitiveness in the future, why skilled and educated workers are crucial, why companies have more and more need for brainpower instead of brawn, and so forth.

At this point the CEO offers worrisome data about trends in the American work force. I've heard them so often I've committed them to memory First, the work force is shrinking. By 1995, there will be 17 percent fewer 18-to-24-year olds in the population than we had in 1985. That means fewer workers to choose from. Second, the work force is becoming less educated. One out of five 18-year-olds is functionally illiterate -- a higher percentage than in any other industrialized nation. Third, an increasing proportion of the work force is Hispanic, black, and/or female groups which, historically, have had less education and training, and fewer advantages, than white males. Although white males comprise 47 percent of today's work force, by 2020, two-thirds of the American work force will be female or minority. Finally, fewer Americans are becoming proficient in science and engineering. In 1989, more than half of all the engineering doctorates earned in American universities went to foreigners, most of whom planned to return home.

The logical conclusion is that American business must take the lead in ensuring that American workers get the education and training they need, because it is in corporate America's interest to do so. The speech ends with an inspiring list of examples of how American corporations (including, not incidentally, the speaker's own) are doing just that in their communities: awarding cash grants to outstanding teachers, funding educators who reduce dropout rates, endowing programs to train science and math teachers, and installing computers and other technologies in schools. There are hundreds, if not thousands, of business/school "partnerships," through which companies "adopt' local schools. There is an Alliance for Public Schools in New York, an Early Learning Partnership in Hartford, Neighborhood Progress in Cleveland, the Boston Plan for Excellence. More than 150 CEOs, under the aegis of the Business Roundtable, have made ten-year commitments to "partnerships" with governors in order to improve primary and secondary education.

On top of all this, the CEO notes that American firms are spending some $30 billion a year improving the skills of their employees. Personnel officers have been transformed into human resource directors, planning the intellectual development of their workers. Corporate training is the rage. The speech's ending is as upbeat as its start.

* * *

This corporate stump speech is comforting. It affirms core beliefs about America and American capitalism. Although serious problems he ahead, they are no obstacle when the private sector rolls up its collective sleeves and tackles them. The pursuit of private profit is completely consistent with the achievement of social good. These are venerable American themes. As Tocqueville noted more than a century and a half ago, "[A]mericans are fond of explaining almost all the actions of their lives by the principle of self-interest rightly understood; they show with complacency how an enlightened regard for themselves constantly prompts them to assist one another and inclines them willingly to sacrifice a portion of their time and property to the welfare of the state." Because American business has a pecuniary interest in the quality of the American work force, it is rising to meet the challenge.

I am sure that the CEOs who deliver these speeches are sincere. Some of them are actively committed to the task. And all the hyperbole and hoopla surrounding public-private partnerships and work force training notwithstanding, many of these programs are undoubtedly accomplishing some worthy objectives. But the suggestion that the private sector is taking over responsibility for investing in America's work force is dangerously misleading.

Consider the alleged $30 billion spent on corporate training. According to a recent Hudson Institute-Towers Perrin survey of how American companies actually spend their training dollars, only 8 percent of firms help their employees improve their verbal and mathematic skills. And this is about the only training that low-level employees ever receive. The American Society for Training and Development finds that employees with college degrees are 50 percent more likely to receive corporate training than are non-graduates. Executives with post-graduate degrees are twice as likely to get training as those with college degrees. In other words, corporate training is typically provided to employees who need it least.

There is also reason to be skeptical about the content of such training. Most firms include in their "training" expenditures the costs of retreats, conferences, and symposia for their top managers. This is a convenient accounting device for tax purposes. But I can attest, from having been a member of the "faculty" at several such gatherings, that much more "training" occurs on the fairways and tennis courts than inside the conference halls. In short, only a small fraction is actually spent for this purpose.

Or consider corporate America's highly touted generosity to American schools. A few companies are taking active roles, but the vast majority are sitting it out. The trend is not encouraging. According to the Council for Aid to Education, which surveys major corporations and analyzes IRS data, the rate of corporate giving to education has slowed markedly since 1983, when the U.S. Department of Education chronicled the poor academic performance of school-age youngsters in its well-read publication "A Nation at Risk." That year, corporate donations to education increased 22 percent over the previous year. But by 1987 the rate had slowed to 13 percent; 1988's giving was only 6 percent greater than 1987's; and in 1989, only 3.8 percent above 1988.

Most of these corporate donations to education never find their way to public primary and secondary schools anyway. Of the $2.6 billion contributed to education in 1989, only $156 million went to support the public schools (about 6 percent); the rest went to colleges and universities (especially the nation's most prestigious, which the firms' CEOs were likely to have attended), and to private preparatory schools (ditto). As a portion of total corporate charitable contributions in 1989, public primary and secondary schools received a paltry 1.8 percent -- hardly suggesting that public schools are a top corporate priority.

In fact, the balance of payments between American corporations and public schools actually flows in the opposite direction -- from the schools to the companies. Corporate contributions are small by comparison with the largesse, in the form of tax breaks and subsidies, that firms receive from the cities and towns where they have factories and offices, as a condition for setting up shop there, or as inducements for staying put. These fiscal policies, which are actively encouraged by the corporations, result in a reduction of the amount of revenue left over to support local services, like public schools.

* * *

The strategy is typified by the Hyster Corporation, a manufacturer of forklift trucks, which in the early 1980s notified public officials in the eight cities where Hyster had factories (five in the U.S., three abroad) that some of the facilities would be closed. Hyster invited each of the officials to bid to keep local jobs. By the time the bidding had closed, the American cities had surrendered a total of $18 million to preserve approximately 2,000 Hyster jobs.

The biggest winner (or loser, depending on your point of view) was Danville, Illinois. Danville, a city with a population of 39,000, agreed to provide Hyster with roughly $10 million in subsidies in return for 850 jobs. That meant that Danville had $10 million less to spend on public services -- including its schools, where the children of the workers in the Hyster plant were being educated.

These days, no self-respecting chief financial officer of a large American firm expects to pay the same rate of property taxes, in proportion to the assessed value of its offices and factories, as paid by local residents. It is easy to get a far better deal, simply by suggesting to municipal or state officials that without tax incentives or abatements the firm will leave town.

General Motors, which has frequently congratulated itself on its generosity to public schools, has been among the most relentless pursuers of local tax abatements -- with the result that GM is taking away from public schools much more than it is contributing. GM's successful effort to cut by over one million dollars its annual taxes in Tarrytown, New York, where the corporation has had a factory since 1914, has forced the town to lay off dozens of teachers and administrators. The loss of revenue has rendered Tarrytown unable to purchase school supplies and library books, or to provide routine maintenance in its schools.

It should come as no surprise that, as a result of all this bidding, corporations now contribute a far smaller proportion of local taxes than they once did. In 1957, corporations accounted for about 45 percent of local revenues; in 1989, around 16 percent. And because families in many poor and working-class communities cannot afford to make up the difference, the quality of public education, as well as other municipal services, suffers in these places.

What we find, then, is something of a paradox. American firms say they are having a harder and harder time finding workers with the adequate skills and educational backgrounds. Yet corporate America is doing remarkably little about the problem. In a sense, it is making the problem worse.

One explanation might be that while a skilled and educated work force is in the interest of corporate America as a whole, no individual company will reap much benefit from investing in the education of young people in its community or the training of its low-level employees -- apart from the obvious public-relations advantages. Well-educated kids, and employees who have gained broadly-applicable skills, can work for any company. Education and training are, in this sense, "public goods."

But if this is the inhibitor, you would expect companies to find ways to spread the costs of educating and training their workers over all firms. For example, the Business Roundtable, the National Association of Manufacturers, and other business organizations could lobby for a higher corporate income tax, or perhaps a special payroll tax, the revenues of which would comprise an education and training fund administered jointly by educators and corporate leaders. I know, however, of no groundswell of support for any such proposal.

The problem, I think, lies deeper -- in the premise. It is far from clear that the future profitability of corporate America depends on a skilled and educated American work force. In this case, Tocqueville may be inapplicable.

For one thing, American corporations increasingly are finding the skilled workers they need outside the United States, often at a fraction of the price. The multinational American firm is hardly new, of course; what is new is that a growing percentage of its foreign employees are now responsible for research, development, engineering, and complex production.

Texas Instruments, for example, maintains a software development facility in Bangalore, where 50 Indian programmers are linked by satellite with Texas Instruments' Dallas headquarters. (Spurred by this and similar ventures, India is building a teleport in Poona, to make it cheaper for other firms to send their software design specs to India's growing corps of software engineers.)

Engineers in Singapore, meanwhile, are developing a new generation of laser printers for Hewlett-Packard, and high-resolution video screens for Apple. (Singapore's illiteracy rate is only 4 percent, and over a third of all 18-year-old Singaporeans graduate from high school and go on to attend technical colleges or universities.)

American corporations are undertaking some of their most advanced research and development in Japan and Western Europe. The list of U.S. firms that have recently opened R&D labs in Japan reads like a Who's Who of corporate America: Eastman Kodak, W.R. Grace, DuPont, Merck, Procter & Gamble, Upjohn, and IBM, to name a few. And American firms are scrambling to set up labs in Europe. According to the National Science Foundation, American firms increased their overseas spending on R&D by 33 percent between 1986 and 1988 (the last date for which such data are available), compared to a 6 percent increase in R&D in the United States.

* * *

Complex production and engineering are also heading abroad. In August, Hewlett-Packard announced that it was moving its world headquarters for the production of personal computers to Grenoble, France. American auto makers increasingly rely on design engineers in Europe and Asia. According to figures compiled by the First Boston Corporation, American firms plan to boost their foreign capital investment in 1990 by 14 percent -- much of it involving sophisticated fabrication and production; in contrast, they will be boosting such investment in the United States by only 6.7 percent.

Moving overseas for skilled work is not a complete solution to skills shortages in America, of course. Many American firms must make do at home with the human capital available. There will continue to be a domestic need for wholesale and retail service workers, hospital technicians, skilled secretaries and clerical employees, and machinists, for example. But even here, American corporations are finding ways to get the skills they need without relying on the American work force. They are bringing skilled workers to America.

The Wall Street Journal, in a recent editorial, put the matter succinctly: "As long as we don't train enough [Americans] ourselves, immigration is a saving grace." The Bush administration came to a similar conclusion in its 1990 Economic Report of the President: "With projections of a rising demand for skilled workers in coming years, the nation can achieve even greater benefits from immigration." To get the skilled workers we need, all we need do is to "increase quota limits for potential immigrants with higher levels of basic and specific skills."

Well before the White House had endorsed this policy, the nation had already opened its borders wider to skilled immigrants. Faced with a shortage of skilled nurses in the 1980s, American hospitals began recruiting nurses from the Philippines and Ireland to come to the U.S. on temporary work visas. In 1989, Congress decided that the nursing shortage was sufficiently serious that these temporary nurses -- more than 10,000 of them -- should be granted permanent American citizenship.

A newly proposed amendment to the immigration laws, strongly supported by American business, would create a new category of "skilled immigrant," for whom extra visas would be issued each year. Under the recent Senate-passed version, the number of immigrants selected on the basis of their job skills (now about 23,000 a year) would rise to more than 85,000; under the House bill, the number is 75,000. Priority would go to foreigners between the ages of 21 and 44 with the best education and training and the longest work experience. Some version of this bill is sure to emerge and be signed into law by the President.

Immigration poses no direct threat to the wages of American workers. Studies have shown that, even in labor markets where immigrants concentrate, the average wages of American-born workers are only slightly lower than they would otherwise be. And surely Americans gain from the presence of additional skilled people who are eager and determined to build better lives for themselves in this nation, as were many of our ancestors. But this is not the point. To the extent that an influx of skilled immigrants reduces the pressure on American firms to train Americans in such skills, it undermines the wages these Americans would have had, had they received the training.

I do not want to suggest that corporate America has completely shed its dependence upon the American work force. Direct and easy access to skilled and educated workers will continue to be important. But one should not mistake the trend, and its motivation. Reliance on educated and skilled workers from abroad, either by way of increased foreign direct investment or immigration, reduces the dependency, and thus the importance to American business, of ensuring that the American work force is prepared for the future.

The standard CEO speech masks this emerging reality. It implies a congruity in the global aspirations of American managers and workers, which does not in fact exist. The problem is real; our current work force and the next generation of American workers are woefully unprepared to participate in the global economy. The responsibility for dealing with this problem rests with all of us, not just or even primarily with American business.

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