U.S. Competitiveness At A Crossroads

Monday, May 2, 2011 - 09:27

With the exception of brief introductory remarks, the Editor presents Mr. McNerney's speech in its entirety.

I admire very much the work of the Atlantic Legal Foundation, your willingness to stand up for the principles you believe in, and the way you use your expertise in the legal realm to support others fighting for those same principles. In particular, I commend your commitment to a civil justice system that respects free enterprise and economic liberty.

Let me also acknowledge Dan Fisk and Bill Slattery for their leadership of the Foundation. Like them, I lead an organization of very high performers, and I understand both the rewardsand the unique challenges inherent in doing that!

Tonight, I'd like to spend some time talking about a topic that's important to both our professions: U.S. competitiveness - why I believe it is at risk, and what we need to do to re-ignite and sustain it for the long term.

When it comes to strengthening U.S. competitiveness, I believe there are many areas where common ground exists, or at least should exist, and where the business community, government and groups like the Atlantic Legal Foundation can come together for the benefit of the nation. There is no question, though, that hard work, careful consideration of the best ideas from across the spectrum, and a little courage will be required.

But we also need a sense of urgency. I think it's important we heed the advice of one of our nation's most famous lawyers, President Abraham Lincoln, who said, "The leading rule for the lawyer, as for the man of every other calling, is diligence. Leave nothing for tomorrow which can be done today."

The work of securing the United States' long-term competitiveness and economic strength is far too important to be put off or overwhelmed by partisan concerns. Our global leadership and prosperity - in essence our very way of life - are what's at stake.

We all know these are tough times for people and communities across the country as they struggle with persistently high unemployment and the lingering effects of the financial crisis. This also has affected budgets across all levels of government, and within public and private community organizations.

The antidote, as I see it - whether at the local, state or national level - is economic growth and job creation. We simply aren't growing the economy fast enough to produce the jobs needed to employ the unemployed and absorb the annual influx of new working-age adults.

While there are many pressing issues involved, we will do ourselves and future generations of Americans a huge disservice if we look at the situation as a short-term problem only. Unlike past recessions, we have emerged from this latest one into a much more competitive and truly global economy.

Rising incomes and rising standards of living and education around the world have created billions of potential new customers for U.S. goods and services - a welcome opportunity for growth, to be sure. But those same forces have also given rise to aggressive new competitors seeking to further improve their place and their position in the world. As a result, many U.S. companies must compete globally, not only for customers but also for ideas, talent, technology and capital.

In aerospace, for example, for decades Boeing has faced only one other company, Europe's EADS / Airbus, in the market for large commercial airplanes. Today, we are preparing for the inevitable entry of as many as four additional low-cost, state-supported competitors in this market space - companies from China, Russia, Canada and Brazil.

They all see the same opportunities that we do - a market that Boeing forecasts will support delivery of nearly 31,000 new commercial airplanes worth $3.6 trillion over the next 20 years. We expect that roughly 80 percent of those airplanes will go to customers outside North America. Just for perspective, only 10 years ago, about 45 percent of all commercial airplane deliveries were made outside North America.

And on the defense-and-space side of our business, which is about half of annual Boeing sales, the share of revenue from international customers has doubled over the last few years and continues to rise. Within the next few years, we expect international sales to reach 25 percent of our defense revenues, up from 7 percent just a few years ago.

At the same time, about 95 percent of our 160,000 employees are based in the U.S., where we also contract with 22,000 U.S. businesses supporting more than 1.2 million supply chain jobs.

So you can see that, for Boeing, as for many other companies, winning at home in the 21st century (in terms of creating jobs and growing our economy) now means winning abroad on all those points. And that raises the bar in many ways for U.S. companies and U.S. workers.

Now, I am optimistic that as a nation we can compete. And I believe that the innovation and productivity of American businesses and the American worker will remain the keys to our growth and prosperity. But sustaining these historic competitive advantages in a global marketplace under difficult economic circumstances compels us to take action to strengthen the system that supports them both.

In my view, we as a nation need to focus our efforts in three areas: first, revitalize the U.S. economy and enable innovation-fueled growth; second, level the playing field for international trade and increased U.S. exports and third, strengthen our industrial base and prepare our future workforce for tomorrow's jobs and careers.

To the first point, suffice it to say that our unsustainable levels of federal spending, deficit and debt need to be brought under control quickly if we are to remain the world's largest economy. As many of you know, even under the most optimistic current projections, we will have debt exceeding 100 percent of our economy by 2020.

The actions taken over the course of the past couple of years to stabilize our financial system included some difficult (from a free-market perspective) but necessary decisions on the part of both the Bush and Obama administrations. I applaud both presidents and the Federal Reserve for averting economic catastrophe. And there is no doubt in my mind that they did.

Most business leaders and economists will tell you, however, that the combined effect of these choices and other spending decisions has us heading down an unsustainable path. Many of those same people will also tell you that our necessary drive toward fiscal restraint must not come at the price of our long-term competitiveness. Our deficit spending is unsustainable, but we have to make smart, rather than wholesale, choices about how we address it.

Nothing in the budget should be totally off limits, but there are some things - like education, certain tax regimes, and areas of basic research - that help us compete around the world and can make the U.S. a more attractive place to do business. Let's be sure not to gut the things we need to sustainably grow our own economy and put Americans to workin exchange for budgetary expediency.

For instance, to stimulate our economy we need tax and regulatory policies that encourage innovation in the private sector and make it as easy to grow a business at home as it is to do elsewhere. Tax incentives for businesses that encourage innovation make sense for everyone - the business community, labor and policy makers.

The tax agreement reached earlier this year between the administration and Congress, which included extension of the R&D tax credit and other growth-oriented provisions, was a step in the right direction. But more work remains to be done to provide the kind of certainty and sustained confidence that U.S. businesses need to unlock greater potential investment in innovation - and in America - over the long haul.

The more we innovate, the more competitive we become, the more sales we generate, the more people we employ, and the faster we replenish the treasury with tax receipts. It's a pretty simple formula.

At Boeing, we see innovation as the way we will win against the growing list of competitors I mentioned earlier. We invest billions of dollars annually in research and development on the kind of game-changing innovation that will provide our customers a substantial competitive advantage over their competitors.

A great example is the Boeing 787 Dreamliner, which is the best-selling new jetliner of all time with 843 orders from 57 customers in 37 countries around the world. Those sales totals are no accident. They reflect the huge gains the 787 will bring in operating efficiency and passenger comfort, and significant reductions in the environmental footprint of airplanes.

As the world's first commercial jet built predominantly of light-weight, carbon composite material, the 787 will use about 20 percent less fuel and be about 30 percent less expensive to maintain than the airplanes it will replace; this in an industry where gains of 4 or 5 percent are considered breakthroughs. And its advanced materials and manufacturing technologies will change the way airplanes are built for many years to come.

Once we get it delivered - which, admittedly, has been no small matter - it will help our customers profit while providing their customers an exceptional experience.

Ultimately, we believe that airlines everywhere will want to buy products and services that provide their customers the best experience and their business with the best value, and we intend to be their supplier of choice by leading in innovation.

That brings me to the second area for action: trade and exports. For much of the last 100 years, the U.S. economy has been the bedrock of growth for companies all over the world. But today, with 95 percent of the world's people and control of greater than 70 percent of its purchasing power now outside the U.S., the world no longer relies on the U.S. as the sole engine for world economic growth. In fact, as we're seeing in the aerospace industry, the reverse is now true: nearly half of the revenues and profits of the S&P 500 now come from international markets.

To his credit, President Obama is on the record supporting an aggressive trade and export policy to revitalize the U.S. economy. Many international markets have recovered faster and are growing more rapidly than the U.S. market, and they offer the best opportunities for accelerating our own economic recovery.

The President's Export Council, which I am privileged to lead, is tasked with developing recommendations to expand exports, drive job growth and move us toward the president's goal of doubling U.S. exports in five years. Doubling our exports over five years is an ambitious goal, but if we can clear the way for U.S. businesses to do what they naturally do best, which is to compete, I think it's achievable.

In 2009, the baseline year for the President's goal, U.S. exports totaled over $1.5 trillion, which was down, due to the recession, from $1.7 trillion in 2008. And through November 2010, U.S. exports expanded by 17 percent. Exports are about 12 percent of our GDP, and about 10 million U.S. jobs are tied to them.

Manufacturing companies like Boeing account for about $1 trillion of our annual exports and support millions of direct jobs (and many multiples of that in the case of indirect jobs) across the country. With the majority of the world's consumers living outside our borders, the magnitude of our export opportunity is limited only by our failure to pursue it.

Last year, the President's Export Council made concrete recommendations that could boost exports by about $350 billion. This year - beginning with our meeting [on March 11, 2011] - the Council will present ideas worth an equal or greater amount. Among the areas we're focusing on are international tax policy, export-control reform, visa and immigration reform, the protection of intellectual-property rights, veterans retraining, reauthorizing and growing the Export-Import Bank, and getting small and medium-sized businesses more engaged in exporting.

This work is all about leveling the international playing field for American workersI'd like to highlight just one of the recommendations that the Export Council has made:advancing stalled free-trade pacts. This is an area that offers substantial near- and long-term opportunities for economic growth and job creation. While we have seen some progress on this front - as evidenced by last fall's agreement with Korea - there's still quite a lot more to be done, including getting that agreement ratified by Congress.

Free trade agreements often get drawn into the crossfire of political debate. But as many here already know, FTAs actually normalize trade relations and allow the U.S. to get into new markets, while our FTA partners tend, typically, to already have access to the U.S. market. FTAs also level the playing field with trade competitors from Europe and other places who already have agreements in place in markets where we do not. So inaction only hurts us.

The U.S. had a manufactured-goods trade surplus with its FTA partners of $21 billion in 2008, $26 billion in 2009, and another $21 billion in 2010. Our manufactured-goods trade deficit is with non-FTA countries. FTAs are part of the solution, not part of the problem.

For example, under the Korea agreement, U.S. officials estimate that our exports to Korea will grow by nearly $11 billion and thousands of U.S. jobs will be created. It will eliminate a big competitive disadvantage for U.S. workers by removing the current tariff of 11 percent that is applied to U.S. exports to Korea - a benefit that many of our trade competitors with Korea already enjoy.

So Congress should move to ratify this agreement as soon as possible. It is also important that we seize this moment, now that we have demonstrated that solutions can be reached, to help advance our other stalled FTAs (Panama and Colombia) and negotiate new ones, such as the Trans-Pacific Partnership.

At its core, trade is a policy issue where business, labor and government leaders can and should join hands for mutual benefit. Expanded trade will mean expanded opportunities for everyone - although it must be governed by a strong set of rules, including intellectual property rights protection, that are rigorously enforced. We need to pursue both goals simultaneously.

Finally, the third area for action reflects two pressing concerns that I have about our future in this more integrated and competitive global economy:first, a shrinking U.S. defense and space industrial base, and second, an even faster shrinking pool of U.S. workers who are skilled in the problem-solving fields of science, technology, engineering and math.

Our defense and space industrial base historically has been one of the United States' greatest strategic assets. In addition to providing for our national security and expanding our knowledge of the Earth and beyond, defense and space innovation has spawned countless technological advances that have both created and invigorated other industries - think digital electronics and microprocessors, microwaves, cell phones, GPS, the Internet, and much more - all of which has helped sustain our economic might and global leadership in innovation.

However, as a result of increasing budget deficits and program terminations, the U.S. defense and space industry is in danger of atrophying our ability to do leading-edge development work. For the first time in a century, there is no U.S. team actively working on a major all-new Department of Defense airplane development program. In addition, there is no active new rotorcraft development program, nor is there a new NASA human space flight program.

This comes at a time when global competitors are making defense and space development top prioritiestake note of the recent unveiling of the first Chinese stealth fighter.

Now, we know that the U.S. defense investment accounts are likely to get smaller, rather than larger, and that there is tremendous pressure on all other areas of discretionary spending, too. At the same time, though, decision makers in Congress and the administration need to remember the vital connection between our nation's economic power; its military strength and its capacity to innovate, explore and discover. At the core of that connection is the need for a sustained and strong defense and space industrial base.

Closely related is that other cause for concern:the shrinking pool of U.S. workers skilled in science, technology, engineering and math. While some countries, including India and China, are funneling more and more of their best and brightest students into these so-called STEM areas of study, the number of U.S. students graduating with engineering degrees, in particular, has stagnated - and in some cases, declined.

Further aggravating the situation is the lack of progress on immigration reform. For example, because of immigration restrictions imposed in the last decade, the best and brightest U.S.-educated foreign students tend to go home to compete against U.S. companies, instead of staying here to help energize American competitiveness (as many of them would prefer to do).

As a result, despite everything you hear about the "jobs shortage" in the U.S. (and, don't get me wrong, unemployment is very real problem), Boeing and other technology-based organizations are facing an impending "skills shortage." That is to say, we can't find enough qualified engineers, scientists and other technical workers to meet our needs.

When many of us in this room were growing up, our generation was inspired by the mission of sending a man to the moon and beginning to explore the universe. That drove huge increases in the number of students pursuing engineering and science degrees. I hope that we as a nation will find another mission, or missions, to inspire and employ today's young people and that as a nation of immigrants ourselves, we will find a way to address national security concerns while still welcoming to America talented, hardworking individuals who share our dreams and ideals.

Nothing is more fundamental to sustaining our ability to compete and win against enterprising new competitors than a strong pipeline of future American innovators.

In closing, there's no question that the issues and challenges we face today are big and complex. Resolving them effectively will require unprecedented cooperation between the public and private sectors - between business and government - aided by the courage to set aside personal or political agendas to focus on the good of the nation.

Every American has a vested interest in ensuring our competitiveness, so each of us needs to do what we can to support it. And we need to follow the example of Lincoln and do it now. Thank you again for inviting me here tonight.