Don't Send Your Kids to College

Everyone from Occupy Wall Street to those who occupy the White House have noticed the widening of the gap between rich and poor.  It has fueled resentment throughout the country beginning with the TARP bailout of the Too Big To Fail banks and the tone-deaf tendency among its recipients to continue to pay multi-million dollar bonuses to their executives.

There will always be people who get rich on Wall Street. The problem isn’t that bankers make too much money and the solution is not for the government to redistribute wealth. 

The greater challenge is the economic prospects of the middle class.  A new study by the Organization for Economic Cooperation and Development (OECD) concludes, “with manufacturing and certain low-skill tasks increasingly becoming automated… the demand for information-processing and other high-level cognitive and interpersonal skills is growing”.  Throughout the 23 industrialized economies included in the study, “literacy, numeracy and problem solving skills” are lacking.  By now, we shouldn’t be surprised that the United States ranked 21 out of 23 in these critical skills. 

A few weeks ago, I wrote about manufacturing in the United States (The Ford Fusion and How the Media Got It Wrong (Again)).  I cited a study by the Boston Consulting Group (BCG) that projects that the US will again be a global center for manufacturing due to lower costs of labor, energy and transportation.  But, it’s not a bed of roses.  Among the risks cited by BCG is the skills gap among American workers. 

But, what skills are we talking about?  Yes, it’s true that our primary and secondary schools are failing us.  But, would fixing that problem solve the larger problem of a skills gap?

Don’t look to the government, the school board or the teachers’ union for the solution.  If you’re the parent of a school aged kid, the place to look for a solution is the mirror.  Start by second guessing an ingrained assumption.  Sending your kid to a four-year college will not guarantee him or her a good job.  College grads now handle our customer service complaints, check us in at the Marriott and help us setup our iPhones in the Apple Store.  None of those jobs are high paying nor are they the first step on the corporate ladder to the executive suite.  And, they don’t pay enough to raise a family or pay off student loans.

To solve the skills gap, we need to expand our idea of what constitutes an education.

Corporate executives can find all the engineers, financial analysts and marketing professionals they need by sending their recruiters to the top universities.  And, they do.  There is a well-established process by which this type of recruiting has been taking place for the last 60 or 70 years.  So, if your kid is an A student, by all means, send them to the best university you can afford. 

But, finding employees with the skills to support computer networks, assist on a medical research project or operate a CNC machine is a greater challenge.  None of these professions truly require a four-year degree.  They require technical skills coupled with a work ethic and personal habits valued by employers. 

The answer to this challenge will spring bottoms up from companies working with local governments and institutions like community colleges. 

In Texas, Houston Community College provides training and certification to work on oilrigs to satisfy growing demand in the energy industry.  In Minnesota, Anoka-Ramsey Community College works with local manufacturers to provide the specific training needed to work in a modern factory -- geometric dimensioning, process control and measuring tolerances.  A non-profit institution, Corporate Voices for Working Families has developed a set of best practices – a blueprint, if you will – for employers to work with local colleges and community colleges with a goal of increasing employment among graduates.

College tuition is increasing 8% per year, well more than inflation and certainly more than real wages, which have remained flat for more than a decade.  Parents are right to question the value of a degree that leaves them or their children saddled with debt.  But, we shouldn’t expect the solutions to come from Washington or the state capital.  Industry will drive the demand for training and education to close the gap.  Competitive enterprises will develop the programs to satisfy their needs.

It all starts with the students, the job seekers.  They must take responsibility for demanding the skills necessary to get a good job with strong career prospects.  They must have the support of those who pay most of the bills for their education – their parents. 

Blaming institutions of government for their failures will not get your kid a good job.  Taking responsibility for the outcome, discovering what employers want and getting the training and education you need, will.

WHO WILL LEAD?

The Ford Fusion and how the media got it wrong (again!)

2013 Ford Fusion

I had a pretty intense discussion with a guy from Detroit at a dinner party a couple of years ago.  Okay, so some would say it was more of a debate.  Well, it was an argument.

Anyway, the Detroiter, a visitor to South Florida, was decrying the tendency among the locals to buy foreign cars.  “Why not buy cars made by the Big 3 and create jobs in the U.S.?” he argued.  I might have asserted my preference for the design, features and quality of foreign cars; but I didn’t.  Instead I pointed out that it’s not so easy to figure out what’s a foreign car and what’s a domestic car. 

The Big 3 have focused their investments on foreign markets while manufacturers of “foreign cars” have been investing in factories in the U.S.  Capital investment creates jobs.  So, would you rather buy a Ford Fusion made in Mexico or a Honda Accord made in Ohio?

Well, pretty soon, the question may be moot.  Ford has announced that its Fusion sedan will no longer be made only in Mexico.  They will be expanding their capacity to produce their best selling car in Michigan. 

Ford’s decision is only one example of manufacturers investing and creating jobs in this country.   The media reported this story as though Ford was living up to a promise they had made to the unions to add 12,000 domestic jobs by 2015.  As usual, the media got it wrong.

I’m not saying that Ford didn’t make that promise.  I’m saying other forces drove their decision.  U.S. exports have been growing seven times faster than the economy at large since 2005.  Most of that growth has come at the expense of other large manufacturing economies in Europe and Japan.

To understand this, you need to wrap your head around a new set of economic facts.  By and large, Americans (fed by an uneducated media) focus on jobs and wages. It’s something we can all understand.  But the cost of labor in the economy at large is driven by productivity.  And productivity improves because of automation and labor regulation.  Robots populate automobile assembly plants where workers used to stand.  And, American employers have more flexibility than their European and Japanese counterparts to lay off workers when economic conditions dictate.  In Germany, for example, rules governing notice to workers and requiring severance pay drive costs to shut down a factory.  Lay off 1,000 workers and it may cost you more than $40 Million in severance in addition to mandated worker training and asset write-down rules.

If you are running a global manufacturing company, you have to consider these factors before you invest in a new factory.  So, in a way that some may consider perverse, the absence of those rules in the U.S. is creating more jobs.

A new study by the Boston Consulting Group (BCG) identifies the key drivers of this trend as lower cost of labor (when adjusted for productivity), transportation and electricity.  By their estimates, leading industrial nations – the U.K., Germany, France, Italy and Japan – will have costs ranging from 8 to 18% higher than the U.S. by 2015.  China? Their costs will be lower but the gap is closing.  At 95% of U.S. manufacturing costs, the added transportation cost to get products to our shores erases their advantage completely.

BCG cites some interesting examples of foreign manufacturers investing in plants here so they can export to other countries.  Chinese computer giant Lenovo has opened a plant in North Carolina.  Toyota is exporting Camry’s from Kentucky to China and Russia.  Rolls Royce is making aircraft engine parts in Virginia.  France’s Michelin is building a new factory in South Carolina. 

For sure, there are gaps that need to be addressed.  Technical education is one.  The shortage of degreed engineers and technically qualified factory workers will only grow as time goes on.  Importing engineers from other countries requires reform to our immigration policy.  But, there are ways to address these concerns.

Siemens AG, a German manufacturer of telecommunications equipment, has built a factory in Charlotte, NC.  Their decision to locate there was the result of state and local governments investing in infrastructure and working with local junior colleges to develop programs that will give local workers the skills they need to work in Siemens’ factory. 

Despite the valid complaints of many business people about government regulation, the U.S. still has a high degree of economic freedom.  Capital seeking a high return is coming back to the U.S.  But, the needed reforms to both education and immigration policy are tied to emotional debates between the hard right and the hard left.  A deadlock, as we know, that will not be broken soon. 

WHO WILL LEAD?