Globalization and the American Workforce: A Conversation With Gregory J. Hayes

Globalization and the American Workforce: A Conversation With Gregory J. Hayes

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from CEO Speaker Series

Chairman and Chief Executive Officer of United Technologies Corporation Gregory J. Hayes joins CFR Board Member Zoe Baird to discuss trade, globalization, and the development of a competitive and educated workforce in an evolving global economy. 

The CEO Speaker Series is one way that CFR seeks to integrate perspectives from the business community into ongoing dialogues on pressing policy issues.

BAIRD: Good morning. Welcome to today’s Council on Foreign Relations breakfast. I see many familiar faces. It’s a pleasure to have you all join this morning. I’m Zoe Baird, for those of you who don’t know me. I’m CEO and president of the Markle Foundation, and founder of SKILLFUL, which is an effort to build a skills-based labor market nationally to create many more opportunities for good jobs for those who don’t have a college diploma.

We are very fortunate this morning to have Greg Hayes, the chairman and CEO of United Technologies to speak with us, and then to take a few questions from me and then questions from our members as well. So I will now turn over the microphone to Greg for a few opening remarks, and then we’ll have our question and answer session. Thank you.

HAYES: Thank you, Zoe. And good morning, everyone. Thank you so much, also, to the Council on Foreign Relations for hosting this important conversation this morning. And while Richard Haass isn’t in attendance today, I would like to recognize his outstanding leadership of the Council on Foreign Relations.

This morning I’d like also like to talk about globalization and free trade, which have come to the forefront of public consciousness lately. There’s a lot of misinformation out there, and in some cases a detachment from reality. But I would also like to talk about the responsibility of business to help deal with the outcomes of globalization and free trade. Today I’ll add my voice to the broader dialogue, sharing my perspective as a business leader who sees first-hand the global marketplace impacts on companies and their employees.

Globalization and free trade do have a real impact on the world economy and our workforce, as you all know. But it’s far from a new issue. Twenty years ago, George David, the former chairman of United Technologies, spoke to a similar group about the impacts of globalization, how productivity, competition, and innovation would profoundly affect our world. Back then, he understood the genie of globalization could not be put back in the bottle. He also knew that we needed to help solve the problem these macro forces created.

There’s certainly no question that globalization, free trade, innovation, and productivity have advanced the world. It’s an amazing story. Over the past 50 years, the global economy has expanded sixfold, while per-capita income has nearly tripled. More importantly, poverty rates have fallen dramatically from 42 percent as recently as 1981 to about 10 percent today globally—amazing progress. In China alone, this growth has lifted 680 million people out of poverty. And these trends will continue into the future.

Globally, the middle class will more than double by 2030 from 25 percent today to approximately 60 percent of the world’s population, increasing consumption and driving urbanization. But we also need to recognize the challenges these trends create. From a business perspective, technology and process improvement has been transformational. Productivity has reduced the number of workers and changed the type of skillsets to perform most jobs.

In 1960, manufacturing represented about 24 percent of the jobs in the United States. By 1980, 24 percent was down to 19 percent. Twenty years later, in 2000, that was down to 13 percent. Today it is 8 percent of the U.S. workforce. That 8 percent, however, still represents about 12 million very good paying jobs, but also means that the U.S. lost about 5 million manufacturing jobs between 1990 and 2010.

But it wasn’t NAFTA or free trade that caused the preponderance of job losses. Approximately 88 percent of the jobs were lost these last two decades due to productivity growth. The move towards more highly skilled, higher paying jobs is evident across many industries. And the low-skilled manufacturing jobs of yesterday are not coming back.

Our problem today is that more advanced manufacturing jobs are left unfilled. The skills that drove our manufacturing prowess over the last century will not help us in the next century. The problem isn’t globalization, per se, it’s simply that our nation hasn’t dealt proactively with the dislocation associated with globalization.

Many voices out there are saying that globalization and free trade cost American jobs, suggesting the key to job growth and job creation is limiting trade and imposing trade barriers and curbing globalization. I hope you’ll agree that this is absolutely wrong. The forces of globalization and real and they are inescapable. The genie truly is out of the bottle and it’s not really open to debate. Globalization has happened and it will continue apace.

Developing an isolationist approach will not—I repeat—not create growth or jobs, nor will it make any country great. It will simply take us all backwards. Trade is not a one-way street. Trade barriers that we enact will be met by barriers from our trading partners, making it more difficult for U.S. products to compete and putting more jobs at risk. 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 compete in the global economy and create highly skilled, highly paying jobs that support it?

It’s my belief it starts with education and lifelong learning. Twenty years ago we described the urgent need to educate our workforce for the jobs of tomorrow. Back then, we recognized how quickly and decidedly the world would change. We saw that while no company can guarantee lifetime employment, we can guarantee that our employees have the opportunity to learn new skills, not just for their current jobs but for the jobs of tomorrow.

We wanted to create a program that encouraged employees to develop skills and take control of their careers, and that’s exactly what we did with the launch of the employee scholar program 20 years ago. Looking today, I’m proud to say that more than 45,000 employees at United Technologies have taken part in the program, representing over 60 countries. And they’ve earned more than 38,000 degrees, an amazing number.

It hasn’t come cheap. We’ve invested over $1.2 billion in this program over the last 20 years, and counting. Why? Because we’ve seen the benefits that this program provides, not only to the employees but to our company and to our communities. United Technologies makes complex mission-critical parts, from elevators that lift people to the world’s highest buildings to the world’s most fuel-efficient jet engines.

We have the best, brightest, and most highly educated employees and we need those people to be successful not just for today, but for tomorrow. That’s why we see education as one of the most important investments that we can make. And that’s also why I believe business needs to do a better job of helping our workforce seize the opportunities that are only available through education.

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 Monterey, Mexico. In truth, we were behind the curve, as most of our competitors had already made the move to Mexico in the last 10 years. But, understand, those 1,400 jobs are real job. And there will be impacts on real people in their lives. And we as a company have a responsibility to those employees.

Part of that was letting them know three years in advance about the change so that they could prepare. But just as importantly, we are providing them educational opportunities under the employee scholar program—opportunities to learn new skills that will help them compete for the jobs of tomorrow. In fact, any UTC employee losing his or her job due to the impacts of offshoring will be given the opportunity to obtain a four-year college degree or technical training of their choice on our tab—tuition, books, and fees. We take our responsibility seriously.

And this is not a new program. This is something we’ve had in place for the last 20 years. As I said, all businesses need to take the lead, and that means partnering with state, local, and federal governments, partnering with the unions, and partnering with educational institutions to develop programs that will educate and retrain workers with skills that will be needed for the careers of tomorrow.

We have great reason to be optimistic about the future, I believe, but we need to take steps today to ensure that we have the workforce that can and will deliver on that future. It starts with acknowledging and accepting that our future success is deeply rooted in education and lifelong learning. I quote, “Education is the passport to the future, for tomorrow belongs to those who prepare for it today.” That’s actually a quote from Malcom X.

And I share it with you today not to make a political statement, but rather to illustrate that the need for education crosses all political divides. It is our collective responsibility I believe to this country, to our shareholders, and to our employees to provide that education today so that we can be prepared for the world of tomorrow. Thank you very much. (Applause.)

BAIRD: OK, so since its on everyone’s mind—and Greg knows I’m going to do this—let’s dig a little bit into this issue of moving that facility to Mexico. So UTC’s a $57 billion global aerospace and building industries company. Pratt & Whitney, Otis Elevators, Carrier Air Conditioners—I know this company well, because I used to live in Farmington, Connecticut, where they’re based. And I’ve probably left out some other really important businesses. It’s also a very large government contractor.

This issue has you right in the crosshairs of the political campaign. I think you’re the one thing that both side agrees on—from Bernie Sanders to Donald Trump—which is a really surprising place to be. Closing this Indiana plant and moving the business to Mexico has everybody attacking you. So tell us, why are you doing it?

HAYES: (Laughs.) You know, Zoe, it’s a great question. And it was a very tough decision that we made to move the work out of Indianapolis. This is not a decision that we took lightly at UTC. We studied it for several years. We tried to work with the local unions and local governments to try and help out in terms of making the facility more competitive. At the end of the day we couldn’t do it. As I said, most of our competitors in the air conditioning business had already moved production to Mexico. Most of our supply chain had also moved to Mexico.

One of the driving forces of that has been regulation, where we’ve seen more than 200 new regulations introduced around efficiency standards for air conditions, which have been driving the cost of the air conditioning systems up for the consumers. And the only way to be competitive in the marketplace was to reduce labor costs. So it was a difficult decision. I would tell you it was one of those things where we talked about it with our board of directors, but at the end of the day it was the right thing to do for the business for the rest of the 200,000 employees at United Technologies in order to make sure that we’re going to be competitive for the long time.

Now, the impacts, I got to tell you, are real. You know, I have talked to people in the steelworkers’ union there. We’ve had long discussions about how we’re going to help them assimilate back into the workforce. And we do have this employee scholar program, which is not new. We’ve always offered people that are impacted by offshoring the opportunity to get a four-year college degree. We’ve added technical training to that. But this is something, I think, that, you know, we as—

BAIRD: Yeah, I really want to dig into that program later, because that’s a really interesting program that deserves respect independently of this issue of Mexico. And I want to dig into it and understand that. I don’t want to cut you off.

HAYES: No, it’s fine.

BAIRD: but I don’t want to mix the two either, because I think you do deserve a lot of respect for that program. But let’s just try to understand the Mexico decision a little bit. When you first announced the program, you said about half your competitors have moved offshore already. And you’ve also moved a plant back to South Carolina, where you’ve had a lot of difficulty with the quality of the workers—at least as reported in the press. You’ve got this great labor force in Indiana. So why would you not just—explain this more. It’s just—it’s a little confusing.

HAYES: So about five years ago we made a decision to close a facility that we had in Mexico at Guadalajara and move it back to Florence, South Carolina. This is an Otis Elevator factory. The reason behind that was labor costs in the elevator manufacturing business are less than 3 percent of the cost of the product itself. Most of it is in the logistics and the supply chain. And frankly, the supply chain and logistics, it was much cheaper, since most of the business is in the East Coast, to have a facility on Florence.

We did have a difficult time, though, attracting the workforce. And we spent a lot of money and time training the people in South Carolina. Today it’s one of our best elevator manufacturing facilities. The jobs in Indianapolis, however, just were not transferable. In other words, we have jobs in Foley, Alabama. We’re hiring people in East Hartford, Connecticut. We’ll probably hire 2,000 people this year alone. But the skills that the people had in Indianapolis don’t transfer to the jobs that we have in the rest of the company. We’re certainly willing to train people, but for the most part people didn’t want to leave Indianapolis. And that’s—

BAIRD: And the problem causing you to move the facility to Florence wasn’t that the workers in Mexico weren’t doing the job well enough?

HAYES: No, it was strictly based on cost. And again, the labor, because it’s such a small piece of an elevator, was not significant. So we could afford to pay higher wages in Florence, which is offset by the lower cost of the logistics.

BAIRD: So are all these decisions made only based on cost?

HAYES: Cost and service and the ability of trained workers, quite frankly. We actually—in Mexico, we have over 5,000 people today building air conditioners. We have been doing that for more than 10 years. It’s one of our most productive factories, probably one of the best-performing workforces that we have around the globe, in fact.

BAIRD: So one of the questions that people have been asking is, what percentage of these air conditioners that are made in Indiana and that are now going to be made in Mexico are going to sold in the U.S.?

HAYES: Almost all of them. If you think about—well, and we should keep in mind, when we talk about air conditioners they actually—it’s a bit of a misnomer. These are air conditioning coils that go into a furnace—that go into a carrier furnace unit that’s part of an air conditioning system. The actual air conditioning condenser units are actually made in another factory in Collierville, Tennessee, where we have about 2,000 employees. This is probably one of the most efficient factories that we have around the world. We produce an air conditioner in Tennessee every six seconds off the line—amazing productivity in that factory. And we have looked at—you know, labor’s, again, a big cost there, but we have been able to take the efficiency of the workforce up to a point where we could make it economical to stay—continue to work in Tennessee.

BAIRD: So the plant you’re closing in Indiana is going to—

HAYES: That work will move primarily to Monterey, Mexico.

BAIRD: And then the coils will be sold in the U.S.?

HAYES: They will be sold in the U.S.

BAIRD: And that’s—you have no issue of whether that’s fair?

HAYES: Well, I don’t know if fairness comes into it. The fact is when people buy an air conditioning system from us, the first thing they’re going to ask is what does it cost. And the fact is, most of the components are still made in the U.S., that is coming out of our Collierville facility. But I think, you know, when cost is your first question that a consumer asks then quality, you have to drive for the lowest cost if you want to stay in business. Air conditioners are, for the most part, a commodity product. And in a commodity, you have to have the lowest possible cost.

BAIRD: Where are your competitors for air conditioners? Are they companies from other countries? Are they U.S. companies?

HAYES: So we complete globally in the air conditioning business. In the U.S., there are—we have competitors like Trane, or American Standard, YORK, Lennox. Those are U.S. companies, most of which have their manufacturing also outside the United States. We also compete against the Japanese with Daikin. So it is truly a—it’s a global supply chain. But because the air conditioners are so large, logistics, again, play a big part in the cost of those units. And so North American manufacturing is essential.

BAIRD: So let me ask you to put this in a—(coughs)—excuse me—in a broader context. You’re a former CFO. You’re buying back a lot of stock because you’ve said that—I mean, I don’t want to put words in your mouth—but you’ve said that as you look at acquisitions versus buying back UTC stock, you see a lot of value in buying back your own stock. There’s a good deal of discussion by CEOs and others about the pressures put on CEOs for the short-term value of your stock versus long-term investment in your business and in your employees. What’s your view of this? What kind of pressures you do feel for short-term shareholder value versus long-term investment in your business and in your employees?

HAYES: United Technologies is in an interesting position. The products that we sell, like jet engines or elevators, generally have very long life cycles. As I think about the jet engines that we’re selling today, we’ve invested about $10 billion here developing this new jet engine. We will be selling these engines for the next 30 years. We’ll be servicing them for 30 more years. These big investments with long life cycles are important to keep in mind. Even on an elevator, where you don’t make much money when you sell the elevator, you service that elevator 30, 40, 50 years. So very long cycle businesses.

There is always pressure—and I think any CEO would admit—there’s always pressure to grow earnings on a quarterly basis. I have told our investors that we’re making investments. We’re not going to grow earnings this year. We won’t grow earnings next year. Some investors don’t like that, which is fine. But investors have a choice. And I would tell them, you know, we are in this for the long term. It’s why we spend so much money on education, why we spend so much money training our workforce. We need to be in this business for a very long time.

If I think about it, you know, innovation is the heart of UTC. And our company was founded by innovators. Willis Carrier, 1907, developed the modern air conditioner, which is today Carrier Corporation. Elisha Graves Otis, 1952, here in New York, invented the safety elevator, right? Otis is still around and will continue to be around for another hundred years. Fred Rentschler invented the modern radial engine, which made Pratt & Whitney what it is today. But all of these people, all of these innovators had a very long-term perspective. And you have to continue to keep that perspective in mind. You have to invest for today.

We’ll spend over—about $2.3 billion this year on R&D, right? And we can grow earnings this year. All I have to do is cut the R&D or I could cut the employee scholar. But we’re going to do the right things for the long-term good of the business. And that’s a pressure I think all of us need to stand up to, is when investors push you do to dumb things, you have to say no. We’re going to do what’s right for the business over the long term.

BAIRD: OK. So let’s go to something you’ve been doing that is not focused on reducing costs, seems counterintuitive to that, and yet is a significant investment. And you mentioned it and I cut you off a minute ago, because I really want to ask you to dwell on it now. We at Markle did a poll with Pew that revealed a surprising hidden American consensus that 87 percent of American believe that it’s important that throughout their lifetime they keep training to get the skills they’ll need to be competitive in the market.

And you have this unusual program for a company, your employee scholar program, where you actually invest in your employees getting training, not necessarily requiring them to use it for their jobs. They can get a two-year or a four-year degree and even a technical training of their choosing. So tell us a little bit about how people are using that program at UTC to move up within the company, how they’ve been using it to go elsewhere to succeed, maybe a couple of stories of some people who have succeeded in the last 20 years in using this program?

HAYES: You know, it’s a—it is a wonderful program. And I think it’s probably one of the best out there in corporate America today in terms of its generosity. And again, I give tribute to George David for coming up with this program 20 years ago. But he recognized, as we do, that the skills that you have today are not going to help you tomorrow. And you have to continue to build those skills. You need to think about how you can better yourself. As I think about the program—we spend $60 (million) to $70 million a year on this. As I said, 38,000 people have earned their degrees, 7,000 people currently enrolled in the program. About half of those people are getting advanced degrees.

If you think about the products that we make, these are highly technical in nature. I’ll give you an example. Two years ago we had a call from the Vatican. The Sistine Chapel, the frescos were deteriorating. There is about 6 million people a year that are going through the Sistine Chapel. And all of the traffic is creating an indoor environmental issue for the frescos. We were able to put a team of Carrier scientists and technicians together, six people from all over the world. We went, and we came up with a system that could allow us to monitor on a second-by-second basis the amount of foot traffic, adjust the flow of air going in, adjust the amount of humidity in the Sistine Chapel. And we did it all at night while the chapel was closed. We did it over the course of a year. And we did it all on—well, we did it for free, too.

But we did it, I think, to demonstrate the capabilities of what our people can do. And many of the people on that program were graduates of the employee scholar program. Again, we need to have the most technically sophisticated workforce to solve these very difficult problems. Whether it’s air conditioning the Sistine Chapel or building the most efficient jet engine, it requires an educated workforce. And I think that’s just one of the things we have continue to push our people, is you need to change your skillset.

You know, I started—I came out of college in 1982. I know that seems like a long time ago. And I went into public accounting. And there were no personal computers in public accounting in 1982. It wasn’t till two years later that I got my first IBM, a great big—not even a laptop—a great big machine with two floppy disks. Today, I run the business on an iPad. Amazing what technology has done. But the skills that I came out of college with are not the skills that I need today to be successful. And it’s like that across the organization.

I think back to my grandfather, worked at Bell Aerospace in the 1960s. He was a master machinist, a member of IAM, in fact. And he worked on the Apollo space mission. He was a lathe operator. And he would spend a week building a thruster for the lunar module. And he was very proud of that. It took him an entire week to build an assembly for the lunar module on a milling machine by hand. Today I have five-axis milling machines that are much more precise, much more—and can do that work much more quickly. I can do lights-out manufacturing that they couldn’t even dream of 50 years ago. The world has changed. I’m sure if my grandfather were alive today he would—you know, he would be perplexed at the sophistication of what our machinists do. But it’s not what they do with their hands. It’s what they do with their computer skills. And that’s the difference. I mean, we have to evolve from that hands-on labor to the digital economy.

BAIRD: So increasingly people need rapid retraining. And are they able to get that—(coughs)—excuse me—within the employee program while they’re on the job, so that they can go to boot camp, go through a union apprenticeship program, get the rapid retraining they need, and move up in the company?

HAYES: You know, it’s interesting. We talk about the employee scholar program. We actually spend more than double that on everyday training of our employees. If you want to have a job on the shop floor in Middletown building jet engines, we have an apprenticeship program that we will put people through over the course of a year to learn how to build a jet engine. The other thing, importantly, about the employee scholar program is we give people time off from work every week. We pay them for the tuition, the fees, the books—all of that.

And what we have found over time is that the attrition rate for people in the program is about half of what the attrition rate is for the rest of the workforce. It’s not because they’re required to stay at UTC after they earn a degree. They’re not at all. They’re free to do anything they want. It’s just that the skills that they develop put them on a much faster path towards promotion, and so they see a lot more opportunities. And when they see those opportunities, they’re going to stay with the company.

BAIRD: A lot of employers are concerned about finding the workers they need. And there are many middle-skilled jobs—jobs in advanced manufacturing and information technology and across all kinds of sectors, health care, finance, IT generally—that are going unfilled. And yet, employers aren’t investing in training in the way you are or in the way Starbucks did with is college achievement plan, something that grew out of our work. What incentives do you think employers need to invest more in employee training? Should it be more part of their responsibility? Do we need tax incentives? What do you think it will take for employers to invest more in training the workforce?

HAYES: Yeah, as I think about, Zoe, I think of the 200,000 people at UTC, those are the most important assets that we employ every day to satisfy our customers. And I think if people take the attitude that the employees really are the linchpin of success—companies don’t innovate. Employees innovate. And I think we have to take a longer-term view. Look, it’s not cheap to do this. It’s not cheap to train people. It’s not cheap to invest in the employee scholar program. But if you have a long-cycle business like we—long cycle businesses like we do at UTC, it’s imperative that you take that longer-term investment horizon. It’s the same thing if I’m building a new jet engine I’m going to spend $10 billion over 10 years.

I’ve got to have a long view. And I take the same view in terms of our employees and their development. You need to take the long view. And I think too many times people get caught up in short-termism. It’s an easy thing to cut. We can cut employee training. We can cut, you know, benefits and things like that. It’s the wrong thing to do. You need to figure out how to be competitive with the people.

BAIRD: OK. I’m going to open up the floor to your questions. And I would ask the members who would like to ask a question, just raise your hand we’ll get a mic to you. Please stand up and identify yourself, your name, your affiliation, and be sure to make it a brief question so that we can get in everyone’s question in the time we have. Right here.

Q: Thank you. Thanks for your comments very much. I’m Dee Smith, CEO of Strategic Insight Group, and a national CFR member.

What about the impact of automation in terms of overall jobs and in specific terms? Is that not a much bigger driver of job loss than offshoring? Thank you.

HAYES: It’s a great question. I think, as I mentioned in my opening comments, as we looked at job losses from 1990 through 2010, we lost 5 million manufacturing jobs in this country. At the same time, we had NAFTA and we had all these free trade arrangements. Our study would indicate that about 88 percent of those job losses were due to productivity. As I think about Pratt & Whitney, 30 years ago it would take us twice as long to assemble a jet engine as it does today. Today we can build a jet engine in three days, and they’re significantly more complex. So automation has played a role in that. Productivity has played a role in that. Lean manufacturing has played a role in it.

Again, I go back to an example of these lights out machining cells that we have, where we can literally drop off raw material billets at the front end of a cell, the robot will take the billets, put it on the machine. The machine will mill these billets down to whatever part we’re making. The robot will take it off the line. The robot will inspect it. And the robot then will deliver it to the stocking station to be assembled. That process used to take dozens and dozens of people. At the same time, you know, I think we have to have an obligation to our people, though, that get displaced.

And we did—had an arrangement last year with United Parcel Service where we outsourced all of our logistics at Pratt & Whitney. We had about 150 people in the factory that their sole job was to unpack parts, put them into stocking locations, and then deliver them to the shop floor. These were jobs that were paying the same as a master assembler, about $38 an hour. We eliminated those 150 jobs in East Hartford, but all of those people ended up on the shop floor doing more highly value added work. So automation, productivity, all that, it comes at a cost. I think the key for us is how do make sure that the dislocation associated with all that, we can find things for people to do with more value added.

BAIRD: There was a question over here.

Q: Stephen Blank.

When you spoke of the educational program you mentioned that half the people in it are getting advanced degrees, which is really a key to a lot that’s going on there. But a certain number of those people, a certain percentage of people will not get advanced education or any education. They’re older. They don’t have the educational base to begin. In many cases, they’re simply not mobile. Even with more education, they’re not going to leave their community where their housing is probably falling in value because the whole community suffers when an organization like yours leaves. Not just at UT, but in general this is huge issue for the United States. What, in your view, happens to these people—the people who are not going to go on for higher education, not going to be mobile, but are going to stay in communities left behind?

HAYES: Well, I think it’s a great question. And again, I’ll take us back to Indianapolis with the 1,400 jobs that are going to be moved in the next three years. There is a percentage of those individuals who do not want to go back to college. If you’re 55 years old and you’ve been working there for 20 years on an assembly line bending sheet metal, you’re probably not going to want to go back and get a four-year college degree. At the same time, while we have jobs in Foley, Alabama, we have jobs in Riverside, California, and we’re hiring in East Hartford, Connecticut, people aren’t mobile—some for the reasons that you mentioned. Home prices are falling. Others for family reasons. And so what do we do with the people that are left behind, as we say?

That’s where you have to have this technical training ability, the ability to go in and offer people digital skills—nothing that requires them to go off and do computer programming, but I think about even skills like welding. I have a nephew who was not a great student. In fact, he was a lousy student that barely made it through high school. But he loved to tinker on cars. He went through a one-year program certification. He learned to become a welder. Today he’s making $80,000 a year as a welder. He loves what he does. He’s never going to be a great student. He’s never going to go back to college and get his Ph.D. But he learned a skill. And I think that’s the obligation that we as companies have, is we have to find ways to give these people that are left behind skills that can help them do something other than flip hamburgers.

And, you know, Indianapolis is a great example. The unemployment rate is about 4 percent there. There are jobs to be had. It’s just that the skills that some of the people on the shop floor have today may not be transferable. Interestingly, we’re still going to have about 700 engineers in Indianapolis when all this is done. We’re keeping all of the intellectual property work, all the IP, all the innovation there, because we’ve got a great pipeline of universities in the Midwest to feed this pipe. But it is a problem that I think, you know, we as corporations have to address. How do you retrain people that are otherwise not mobile?

BAIRD: So are you working with the community colleges to get people into training programs there?

HAYES: We work with—we do. We work with the community colleges around the country where all of our plants are located trying to direct people from high school into these community college training programs. And the key there is, you know, not everybody probably should go to a four-year college. There is a certain subset of the American public that would prefer to work with their hands, that would prefer to do some of these different skilled jobs.

Not everybody wants to be a computer programmer. Not everybody wants to go off and do accounting or engineering. But if you can find the right local community colleges, and we have developed curriculum with those community colleges that prepare people over the course of a year to step into jobs on the shop floor. And just because you start on the shop floor doesn’t mean that’s where you end your career. There are lots of opportunities to become shop stewards, to go into line management over time. And it’s just a process of a lifelong learning. They have to continue to evolve their skills.

BAIRD: In a situation like Indianapolis, is there—are there things that you could do to help people get into your supply chain—like helping them start small businesses that could become part of your supply chain, or just otherwise helping them start small businesses?

HAYES: Yeah, we have not gone so far as to help people start businesses. We have a very large supply base in Indiana. We have encouraged the suppliers, where they have job openings, to look to our employees to fill those jobs. Again, a bit of a mismatch on skills. Most of those suppliers are on the aerospace side. So some of the skills—some of the technical skills required on the machining is different than what we had on the assembly line in Indianapolis. But people can be trained to do those jobs. And that’s why we can use the employee scholar program to give them that training such that in within a year or so they can actually be qualified for that new job.

BAIRD: There’s a question back there.

Q: Thank you. Kevin Sabet. I’m a term member.

Next week we’re not only, obviously, voting for a new president, but several states will vote on whether or not to legalize drugs, specifically marijuana. Having just visited Colorado, I know they’ve had a hard time filling construction jobs because they can’t find people that can pass a drug test. And it’s a real issue. And with the opiate epidemic, also I know that in Virginia, Kentucky, the mining companies, and coal, they’re having a hard time as well, filling—because of the opiate abuse issue. Do you—I just wanted to know a little bit more about your substance abuse workforce policy and if you’ve, at all—United has been impacted by the recent trend—uptick in both marijuana and opiate abuse.

HAYES: (Laughs.) It’s not a question I get every day. (Laughter.) Interestingly, one of the challenges that we have, because we’re in the aerospace business, is all of our employees are subject to random drug testing. So that creates a problem right there for certain college kids coming out of school who have some bad habits. We actually have programs in place for substance abuse if we have someone—whether it’s alcohol or drugs. We have programs in place to help people deal with those issues as part of our typical benefits package. I have not yet seen a shortage of skilled workers coming into the company because of this opioid epidemic.

I’ll also tell you that a big chunk of our new employees on the shop floor are coming out of the armed services. About 15 percent of all employees that we hire are coming from the armed services. And again, a little bit better in terms of the discipline, but also they understand, you know, the necessity of hard work, and they also understand the necessity of avoiding drugs.

BAIRD: Joan.

Q: Joan Spero, Columbia University. Thank you for your comments.

This idea of worker retraining, or whatever name you give it, has been around a long time. It’s been included in a lot of trade bills, but it doesn’t seem to get traction. And I’m wondering if there are other countries that are following your model, if there are ways that this can be taken to scale.

HAYES: It’s a great question. One of the reasons we decided we wanted to come out and have this conversation today was to encourage companies to start thinking about this. Now, you know, we have not heard a lot about education from the presidential candidates, unfortunately. I think, you know, Mrs. Clinton has talked about free college education for everyone. That’s probably not the right answer. But at the same time, I think we have to figure out a way across the country to engage businesses with local community colleges, with local and state governments to help create these jobs.

You know, not a week goes by where there’s not a governor who calls and says, hey, come to our state. We will pay for training. We will do that. What we don’t see are the governors in the existing states we’re working saying let’s see how we can work to keep you in Connecticut, let me see how we can help you stay in Indianapolis. I think we have to have a more proactive approach with local governments, because at the end of the day these are local jobs. A big federal mandate, probably not going to work. But you need to have at the grassroots level, community colleges. And this is where you need to get the governors involved, where you need to get the local universities involved.

They want their students to be successful. They want them to have careers. And I think, you know, it’s partnering with those educational institutions in the state and local governments that ultimately will be more successful than a federal mandate.

BAIRD: There’s a question back there.

Q: Is this on? Yeah. Paula DiPerna, NTR Foundation. Also Carbon Disclosure Project. So I applaud you on what I know is a very good record on climate change, which of course is very deeply connected to jobs and training.

But my question—I want to flesh out—go back to the points that Zoe made twice, and that you made twice, about resisting investor pressure for short termism. You said, you know, you just have to say no to a dumb idea. So you’re kind of coming out today on the training question. Just can you flesh out, like, what do you actually do—you know, what about chief investment officers? What about associations? Do you go and talk to senators about this, because the whole thing does come down to what’s a long-term, what’s a short-term view? And certainly in climate, that’s become quite a bit discussion with investors, but we need perhaps to go beyond it. So I just would like a little more detail on that. Thank you.

HAYES: Thanks. It’s an interesting question. (Imperative ?) that corporations take the lead. And we’re in the buildings business and we’re in the aerospace business. The newest jet engine that we have developed reduces fuel consumption by about 16 percent. But more importantly, it also reduces particulate emissions by about 50 percent. If you think about the buildings around the world, they consume about 40 percent of the world’s energy. Our HVAC systems consume about 40 percent of the energy in a building. So about 16 percent of the world’s energy is used for HVAC systems. The ability to put in more efficient systems, the ability to reduce greenhouse gases is imperative if you’re going to be competitive in the future. And so we’re making big investments today in technology that will help, you know, lower emissions as well as to lower the carbon footprint of our products.

We have had a lot of conversations in Washington about sustainability. We’ve talked a lot about this educational program. I’m probably as frustrated by Washington as anyone who’s out there because we have—while we talk a lot, not a lot gets done down in Washington. It’s just—(background noise)—

BAIRD: Sorry.

HAYES: It’s frustrating. But I think, you know, we have to keep trying. We have to go on. We have to have these conversations. We have to continue to educate not just the people in Washington, but we need to educate the public.

BAIRD: Question here.

Q: Thank you. Dick Huber, InVina Wine Group but also did some time in Hartford.

BAIRD: (Laughs.) That’s true.

Q: We tried several times to create jobs in inner cities. You know, in self-interest, of course, but to help the dynamic of inner cities. And even with massive investments in training, it was, without an exception, a failure. Has UT done anything in that sphere?

HAYES: Thank you for that question. And in fact, there are two things that we have done. We are actually the largest employer in the country of INROADS students. INROADS are typically diverse, disadvantaged youth, typically from their senior year of high school through college. And we bring in a large number—probably the largest, in fact, of any company in American, trying to give this population a leg up, if you will, in terms of understanding what goes on in the corporate world, understanding how to be successful.

We recently decided to partner with the city of Hartford. And for those of you that know Hartford, we have a new mayor, Luke Bronin, who’s been given a very tough hand. The city’s essentially bankrupt. But they also have a population that’s approximately 80 percent minority and diverse. So Luke has a challenge. And what he’s challenged the local business communities to do is to put money together to have a program to start educating the high school juniors and seniors. And so we’ll contribute, along with Travelers, and Aetna, and several other companies in Hartford, to this program.

We started it last year with limited success. But I’ll tell you, the only way we’re going to make progress in the inner cities is if we teach kids that they got to get up in the morning and they got to get to their job on time and they’ve got to do—they’ve got to work. There’s no free lunch here. And it is creating those entry-level jobs that I think is imperative for these disadvantaged students in these inner cities. You have to get them started to understand what does it mean to get up and go to work? What does it mean to take responsibility for what I’m doing? And that’s a challenge.

But again, I think this is a question of partnering with the local governments to find programs that work. We’ll try this. If it doesn’t work, we’ll try something else. But it’s imperative that we continue to try and help these kids.

BAIRD: Right here in front.

Q: Greg, thank you for your comments.

Going in a different direction, I’ve heard—

BAIRD: Could you identify yourself, please?

Q: Oh, Pug Winokur, Capricorn, a Council member. Thank you.

Heard Admiral Mullen and Ash Carter talk about the importance of the Trans-Pacific Partnership to national security, and the fact that the economic impact won’t be large but the security impact will be large. After next Tuesday, what are you and the business community going to do if you think it’s as important as they do, because it’s kind of fallen off the radar screen for a while?

HAYES: You know, I think TPP is imperative for the U.S., from a policy standpoint, not just for the trade benefits but, to your point, this true pivot to Asia, from a foreign policy perspective, is important. If TPP fails, and our trading partners are left out there, they’ll have no choice but to turn towards China. And I think, you know, we need to think about TPP not just as a trading vessel but also as a way of, to your point, furthering our U.S. foreign policy in the area.

We have been talking to Congress—I’ve been down talking to the speaker about this, trying to get it on the agenda for lame duck. I think that the only chance we have to get TPP passed is going to be in that five- or six-week period after the election. And of course, a lot of it will depend upon the outcome of the election. I also hope that Mrs. Clinton, should she become president, would reconsider her position on TPP, because she was a strong advocate of TPP not that long ago. The benefits of free trade are obvious to almost everyone. And I think, again, once we get passed the silly political season, hopefully we can get some adult supervision and readdress it.

BAIRD: There’s a question in the back here, on the left.

HAYES: Sorry. (Laughs.)

Q: Bhakti Mirchandani. I work with a hedge fund and I’m a term member. Thank you for your comments.

My question was similar to the question before. What are your thoughts on TTIP? There’s a significant amount of competition from Europe. Would you benefit more from integrated supply chains with Europe, or do you think competition would trump that? And also, are you doing any contingency planning in case Trump wins and NAFTA gets ripped up?

HAYES: (Laughs.) On TTIP, I think that we have been strong advocates of TTIP for the last several years. I think the chances of TTIP actually happening are lower than the TPP. It’s unfortunate. You know, the businesses that we operate are global, the supply chains are global. So having barriers to trade is a problem. We have the same issue if you think about Brexit in the U.K., where we have a very large manufacturing presence there, we’ve got about 8,800 employees, and we export about a billion dollars out of the U.K. into Europe. Trade barriers are not helpful.

So again, I think generally speaking, you know, TTIP probably won’t happen. But I think we have to continue to work to minimize the barriers to trade. At the same time, while I export out of the U.K., I import elevator parts. I import air conditioners into the U.K. All of that requires free trade. And it will be a problem if trade barriers go up.

Sorry, the second part of your question was?

Q: (Off mic.)

HAYES: Oh, contingency planning. (Laughter.)

BAIRD: You wanted the second half.

HAYES: No, we’re not doing any contingency planning. At the end of the day, we will work with whichever administration is elected. I think that’s the only answer that we can give. I don’t expect that either candidate would pose a problem for our businesses in the long term. If there are short-term issues that we have to deal with in terms of NAFTA, we will figure out a way to deal with those, as we always do. But there really can’t be any contingency planning. I think we’ll just figure out how we’re going to work with the next administration.

BAIRD: There’s a question in the back, in the center.

Q: Thank you. Earl Carr, representing Momentum Advisors. We’re an international wealth management firm.

What kind of training do you give to employees to ensure that they are successful when they travel or work in other countries and offices, with respect to language training or cultural competence training? Can you talk a little bit about those aspects? Thank you.

HAYES: Sure. You know, obviously, we operate in 180 countries around the world. Our employees travel around the world on a daily basis. We have a number of people in expat assignments, be it in China, or Vietnam, or Indonesia, or wherever. And part of that process that we have in terms of relocating people is cultural assimilation training. We’re doing actually hands-on training. We provide language training skills to employees.

The problem is if you’re an American moving to Shanghai today you’re not going to learn Mandarin in a week. In fact, maybe not even in five years. But we do provide language training skills to these employees. We’re fortunate that English is the language of business around the world. It is the language that we do business in at UTC around the world. But recognize, if you’re in France, you better learn to speak French if you’re going to go to the factories. If you’re in Poland, you better speak Polish. So we try and assimilate these people into their local communities.

Ultimately the answer, though, is we have predominately local nationals running our businesses in all of these countries. Eric Zhang, who runs our China business for Otis is a Chinese national. George Li who runs the Carrier business, Chinese national. All of these countries, the goal is not to put Americans in place or Europeans in place, but to put the local nationals because they understand the customs better than we can teach them.

BAIRD: Over there.

Q: Peter Gleysteen, Progow Corp.

What are the biggest impediments to having employees improve their skills at the individual level, social level, governmental level?

HAYES: You know, I think people need to—the biggest challenge we have is getting people to understand how rapidly the world is changing, and the need for them to improve their skills. You know, we have the programs in place if they want to do it. Many people just don’t see—they don’t want to change. As you know, change management is a difficult thing. But the world is changing and it’s changing rapidly. If you think about the Internet of Things, right, 2 billion connected devices today, 20 billion connected devices by 2020. The world is going to change a lot more quickly going forward. If we don’t make the case to our employees on the need to change, many of them won’t take the initiative to do that. Again, what we try and promote across UTC is intellectual curiosity and lifelong learning. And that’s how we’ll ultimately be successful at UTC. But it’s a challenge.

BAIRD: Right here.

Q: Thank you. Jacob Worenklein, US Grid Company.

Very few companies have as extensive and thoughtful a program as you’ve described for adjustment assistance, in connection with the Indianapolis situation and others. From a national point of view, in thinking about federal governmental, or state governmental policy, I wonder what your thinking is about the role that government should and can play with respect to adjustment assistance, with respect to extended unemployment insurance, as we see massive dislocations coming from the combination of the necessity, as you describe it, of cost-based relocations, productivity requirements, et cetera, and the loss of jobs. And I’d very grateful for your comments in terms of government—the role of government in all of this.

BAIRD: And if I could add to that, you’ve made the comment that we don’t have a national policy for globalization and for our workforce in the context of globalization. So maybe you could answer that question in the context of what you’d like to see that national policy be.

HAYES: That is really—it’s a great question. You know, the idea of extending unemployment insurance, per se, I think is probably not the answer. But I think if we could figure out a way with unemployment insurance to tie that to job skill training or job skill enhancement—such that if someone needs to take two years to learn a new skill we can extend their unemployment benefits for that two-year period such that they actually have the time to learn a skill, to develop that skill. Just extending unemployment, I’m not sure that does much of anything unless people are actually taking the time while they’re receiving the assistance to learn that new skill set.

So I think there are things that we can do with the government. Obviously, you know, there has to be a social safety net out there. We understand that. It’s imperative—you know, people—you know, we have a lot of programs in place to ensure that. But at the same time, you want to encourage people to reskill and to retrain while they’re receiving assistance. And I think that’s the linchpin here. It’s not just unemployment insurance, but it’s tying that to real training opportunities.

BAIRD: And do you want to make any other comments on what kind of national policy you’d like to see us have for globalization?

HAYES: Well, I think—you know, I’m not one for big, prescriptive government programs. I think I would prefer to call out to the business community to figure out ways to invest in their employees for the long term to be successful. And not every company can do what United Technologies can do in terms of the investment. But I think companies, even without big investments, can work with local community colleges, can work with state and local governments to come up with curriculum and training programs to help fill the jobs that they’re creating for the technologies of tomorrow. So I don’t know that there’s a one-size-fits-all answer. I do know that you need to take the long view. You cannot succumb to short termism as it comes to your employees. You have to invest in these people for a very long term.

BAIRD: Great. We have time for one more question. Maybe right in the middle there.

Q: Thank you. Nise Agwha (ph) of Pace University.

In my opinion, the challenge is navigating the economics and political nexus. What I mean, is that we all know that global trade and automation benefits everybody. So the benefits are diffuse. The costs, on the other hand, are acute. And voting patterns reveal that, whether it’s Brexit, Sanders, and so forth. How do we address that issue, if you could share your thoughts on that?

HAYES: Yeah. I think it just goes to the heart of what we’ve been talking about this morning. The fact is, there is a significant cost—I’ll call it dislocation—associated with globalization, dislocation associated with productivity. And that’s why it’s so important that we train our people, because—you know, I go back to my grandfather who was a master machinist. He couldn’t—he couldn’t be successful today, he couldn’t raise his family today with the skills that he had back in 1960. The costs are real.

Those jobs, those lower-skilled manufacturing jobs are not coming back to this country. There is a real cost to those people. Those 5 million manufacturing jobs that were lost were good-paying jobs over the last two decades. The question is how do we retrain those 5 million people to be productive in the digital economy? And that is a challenge, I think, that we all have to take on individually as companies and as local governments.

BAIRD: Well, I want to thank our speaker and thank your members. (Applause.)

(END)

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