Can America Compete with China?

by Marty Poehler

America’s business relationship with China has been in the news constantly over the last decade. This relationship has brought huge rewards to many people. The beneficiaries include American companies using Chinese factories to manufacture cheaply priced goods. Chinese owners of these factories have also reaped great rewards. Millions of ordinary Chinese who migrated from the countryside to cities to work in factories nave also benefited from a higher standard of living. But many have also been hurt by this business relationship. America and other countries have suffered massive job losses in manufacturing as companies have moved their production from their home countries to China with its huge supply of cheap labor.

Faced with the vibrant and ever-more efficient Chinese manufacturing dynamo, can American manufacturers continue competing on the world stage? This article will look at American business and the challenge it faces from China, and what if anything it can do to keep America a world-class manufacturing country. In the next article we’ll look at questions China must answer as it attempts to continue its incredible economic growth.

America Leads in Manufacturing

Despite all the talk of how Chinese business will undoubtedly bring American business to its knees, America is still the world leader in manufacturing. Its total manufacturing production is ahead of Japan’s, and is double the $700 billion of third place China. 1 America is also seeing its manufacturing productivity increase. The Economist reports that real output in American manufacturing has increased by 4% annually since 1996. This rate of productivity increase outstripped the overall rate of increase for America’s GDP (Gross Domestic Product) during that time span. 2

But America can’t afford to be complacent, because China’s economy is booming. Here are some figures to show the magnitude of China’s output: In 2005 Chinese factories produced more than 3 billion pairs of socks, 3 83 million television sets, 60 million air conditioners, and 300 million handsets. 4 China has also made great strides forward in the production of other goods as diverse as leather goods, jewelry, furniture, all manner of household goods and appliances, microchips, cars, and ships.

This manufacturing boom in China, and similar booms in countries such as Mexico and Viet Nam, has dealt a mighty blow to American jobs. Since 2001, an estimated 2.8 million American manufacturing jobs have been lost. 5 This represents a drop of 17% in manufacturing jobs in America. 6 Earlier we mentioned that American manufacturing productivity has increased by 4% per year over the past decade. That efficiency has come to a large extent through three things. First is the use of new computer software. Second is the greater use of robots to do jobs previously done by people. Third is the outsourcing of jobs abroad, which has allowed companies to be less dependant on relatively expensive American labor.

Outsourcing: Good, Bad, or Inevitable?

Some economists say outsourcing is a bad thing, but some say that it’s a good thing because it makes an economy more efficient. A definite negative effect of outsourcing is the short-term inconvenience and pain felt by those who lose their jobs, whether they are blue-collar or white-collar workers. A big problem is that this pain often isn’t short term. Many people who lose their jobs to outsourcing find it difficult to find jobs that pay similar wages or salaries. They often are forced to take lower-paying jobs. 7

Whether outsourcing of jobs is good or bad, it could very well be that outsourcing is inevitable. Let’s look at what often happens. If a company produces goods that can be produced more cheaply elsewhere, the company can decide to not move its operation but keep its current workforce and location. But some competitor will probably notice the good opportunity staring him in the face, and will relocate his manufacturing operation to the better location. It’s more than likely the first company will eventually have to lay off it’s employees—since the company won’t be competitive any more with the other company that took advantage of the favorable manufacturing conditions.

In addition to the pressure from better venues abroad, another cause for concern about the future of America’s manufacturing is: America’s education system for grades K-12. This system is severely hampered. It’s having difficulty preparing young Americans to thrive in the competitive global economy.

America's Educational System -- In Need of Mending

One reason K-12 education in America is hampered is because in many places it’s under-funded. All around the country property owners militantly oppose efforts to raise property taxes to maintain local schools. One striking example is California’s Bay area, home of tech millionaires and knowledge workers, which hasn’t set aside money for routine maintenance for its schools and has asked teachers to take pay cuts. 8 In my own local Raleigh, NC newspaper I recently read how parents complained they had to pay an extra $100 to buy paper for schools so teachers could photocopy lessons for students.

Many factors discourage talented people in America from becoming teachers. Former IBM chairman Louis Gerstner heads a group called The Teaching Committee. The group produced a report in 2006 called, Teaching at Risk. It notes that “our schools are only as good as their teachers,” yet this “occupation that makes all others possible is eroding at its foundations.” Top students are far less likely to go into teaching today; salaries haven’t risen, and nearly 50% of new teachers leave within five years. 9 In particular there’s a shortage of math and science teachers who have received special training in math and science. The higher-wage attractions of the private economy lure away many creative people whose skills are in these areas. This results in a school system where math and science are taught by people who didn’t study these areas in depth in college. 10

Trained in this system, it’s no surprise that students lack proficiency in math and science. In 2004 1.2 million graduating high school students took the ACT test, which measures learning over several subjects. Only one in five of these students had scores showing they were ready for introductory college courses in English, math, and science. Only a quarter had scores that predicted they would get a C or higher in their first college biology course. The numbers were slightly better in math, but still dismal, showing that only two in five American high school graduates could earn at least a C in a first-year college algebra course. 11

We’ve seen how dismally the American educational system is operating at the K-12 levels. Is it doing any better at the college level? Yes--it does seem to be. One way to measure how countries compare at the college level is to look at the number of engineers graduating from their colleges each year. In 2005 China graduated 352,000 engineers, while the number for America was 157,000. 12 When these numbers are compared to China’s total population of 1.2 billion and America’s of 300 million, it’s clear America still annually produces more engineers per million people than does China. However, China is catching up with America. So both at the K-12 and at the college levels, Americans can’t be complacent. They need to take bold steps to improve their educational system.

A Change of Heart Is Needed

What should America do? An obvious change needed, touched on earlier, is that Americans commit adequate funding for their schools. Americans who refuse to pay property taxes which fund K-12 schools set their young people adrift to fend for themselves in the future job market. Why are adult Americans doing this? So they can use the money they save on schools to spend it themselves, often for consumer goods. They are saving on schools so that they can buy goods and run up their credit card debt.

Any hope of improving K-12 American schools will have to include a change of heart and attitude from this selfish, “me generation” mindset that skimps on government school funding Representative Dan Lipinski, a member of the House of Representatives Committee on Science, and a trained engineer, has offered some specific recommendations to improve education in America.

He urges that the American government for K-12 levels of education:

Representative Lipinski recommends at the college level that the American government:

The Need to Teach Thinking

The final recommendation, a sea change for America’s education system is: teach students to think. A huge number of Americans’ jobs have been lost, or outsourced to other countries with jobs being replaced by:

  1. machines,
  2. lower paid workers, or, in the case of many white-collar workers,
  3. engineers or technicians in other countries who were paid lower salaries.

America needs to have its schools teach people to be “knowledge workers” -- to be problem solvers in whatever business they find themselves. Mere workers can be replaced by people doing the same jobs overseas, or by robots. Even white-collar computer programmers can see their jobs exported to India where programmers there will do the job for a fraction of the cost. What’s needed is schooling that trains people how to think, so they can solve problems and do jobs that didn’t even exist when they were receiving this schooling. People need to be flexible in their thinking, no matter what job they are doing, in order to keep their jobs and not have them exported abroad. The time is long past when America, the world’s strongest economy, can tolerate educating its people through high school and even college, and then find these people cannot think beyond the narrow confines of their current job.

Technology firms such as IBM, Accenture, Electronic Data Systems, and Hewlett-Packard acknowledge the importance of this “knowledge worker” approach. They take it a step further by using a discipline called service science -- which is a new way of looking at services. These companies employ sophisticated technology for their corporate customers to automate and streamline business tasks like purchasing, human relations, customer relations programs, and marketing. Using mathematical models and algorithms, service science optimizes use of time and resources in businesses to increase sales and profits.

Service science is high-end work that typically taps several disciplines and requires conceptual thinking and pattern recognition. It’s creative and intellectually challenging, cannot be easily exported to China or India, and pays the highest wages. A country with schools that teach people to be knowledge workers and to study and employ service science, will allow its economy to thrive and will keep its workers employed. 14 This is the path America needs to follow.

America still is Number One in the world in manufacturing, but it faces stiff competition, especially from China. For America to compete with China, it must fix its education system where that system obviously needs fixing. It will take a change in the national will to make education a priority like it was while the baby-boomers were growing up. Specifically, it will mean that those baby-boomers who have now become adults must decide to allow their money to be used to improve schools and to hire top-quality teachers, so that their children will have the same chance at success that they had. It will also mean that creative and flexible thinking need to be taught and nurtured in students so they can handle the now-unseen problems they will face in their jobs.

In the next article we’ll look at the challenges China must face economically and socially, as it yearns to continue on its astounding economic journey.

1. Industrial Metamorphosis; The Economist, Sept 29, 2005; also found at http://are.berkeley.edu/courses/EEP131/old_files/MiscellaneousArticles/manufacturingEmployment.pdf

2. Ibid.

3. The Rapid Rise of China’s Sock Town, by Quentin Sommerville, BBC News, Sept 29, 2005; found at http://news.bbc.co.uk/2/hi/business/4287398.stm

4. 2 China and the New World Order: How Entrepreneurship, Globalization, and Borderless Business are Reshaping China and the World; Zhibin Zu George, Fultus Corporation, 2006

5. Issues: Jobs; Working America, 2006; found at http://www.workingamerica.org/issues/jobs.cfm

6. Industrial Metamorphosis; The Economist, Sept 29, 2005

7. Trade: Outsourcing Jobs; Council on Foreign Relations; February 20, 2004; found at http://www.cfr.org/publication/7749/

8. China Inc.: How the Rise of the Next Superpower Challenges America and the World; by Ted C. Fishman; Scribner, 2006; p. 278

9. Facts and Folly; Thomas L, Friedman, March 29, 2006, The New York Times

10. Fishman, p. 278

11. Fishman, Pp. 277-278

12. Framing the Engineering Outsourcing Debate, December, 2005; Duke University; reported in The Washington Post, May 21, 2006: Heard the One about the 600,000 Chinese Engineers? by Gerald W. Bracey.

13. Remarks by Rep. Dan Lipinski before the National Science Board Commission on 21st Century Education in Science, Technology, Engineering and Mathematics; found at http://science.house.gov/press/PRArticle.aspx?NewsID=1215

14. Academia Dissects the Service Sector, but Is It a Science? Steve Lohr, New York Times, April 18, 2006

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