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June 9, 2005

Rendell talks about loss of U.S., state competitive edge

America and the commonwealth are losing their competitive edge globally and something must be done immediately to reverse the trend, according to Gov. Edward Rendell.

Speaking May 27 at the University Honors College-sponsored American Experience lecture in Benedum auditorium, Rendell explained how unfair trade practices, soaring health care costs and inadequate education are dimming America’s future.

“America has always succeeded as a nation because for the longest period of time, we’ve been the most competitive country in all the things that earmark countries in the global economy,” said Rendell. “But I think we are facing a real crisis in terms of losing that competitive edge. It’s a crisis that if we don’t address soon, I think we will fall significantly far behind in catching up.”

Putting the crisis into historical perspective, Rendell pointed out that the 20th century was “America’s century.” But he countered, “If I were to ask you: ‘The 21st century, whose century will that be?’ I think most of you would probably say ‘not ours.’ Most of you would probably say that the 21st century will belong to China.”

In order to keep up with China and the rest of the world, Rendell detailed three major challenges to U.S. global competitiveness, beginning with the country’s looming health care crisis. “You might say ‘What does health care have to do with competitiveness and our ability to compete in the global market place?’ Well, it has a lot to do with it.”

Any U.S. company that produces goods or services sold throughout the world marketplace is in “deep trouble,” according to Rendell, because such companies devote 11-20 percent of their bottom line to pay for employees’ health insurance. “The worst news is that you’re competing against foreign companies whose bottom line for health care is zero percent because in virtually every country we compete with in the global marketplace, health care is provided by the government,” Rendell explained.

The burden of the high cost of health insurance is evidenced by General Motors, which recently announced it could not compete in the global marketplace in the production and sale of automobiles if it had to provide health care to its employees, according to Rendell. Bringing the story back home, he cited: “For the past seven years, percentages of small businesses in Pennsylvania that provide health care to their employees are plummeting. It is not far-fetched to say that a decade from now, we will either face a tremendous crisis because we will continue to fall behind or there will be no business-supplied health care.”

Americans need to worry about more than just health care costs when it comes to competing with better-educated work forces abroad, according to Rendell. The quality of U.S. elementary- and secondary- school education continues to lag behind other major industrialized countries. “Eighth graders were tested throughout the world in math and science; the U.S. placed 19th of all the countries in the world for math scores and 21st in science,” he said.

The number of students in science and math in higher education is slipping as well, Rendell said. “Even in our colleges and post-graduate fields, we’re starting to fall behind. America was always the place that produced the most engineers, the most scientists, the most Ph.D.s. We’re not anymore. In engineers and scientists, America now ranks third behind China and India. And we are having a harder and harder time recruiting people to engineering and science schools.”

According to Rendell, it’s not surprising that the United States is falling so far behind given the lack of emphasis on education here. The education process starts at age 6 or 7 in Pennsylvania while industrialized countries such as France, Germany and Japan start educating their youth at age 2 or 3. In those same countries, pupils go to school 11 months a year compared to 180 days in Pennsylvania. “It’s no wonder that we’re getting our brains beat in,” Rendell said of losing the education race to foreign countries.

“Every study shows that the earlier you start the education process with children, the more quickly they learn and the better they learn throughout life,” he said.

Shortly after he became governor, Rendell introduced new education programs including funding for pre-kindergarten programs and grants to reduce class sizes for pupils in kindergarten through the third grade. Despite the abundance of research showing the value of early education, Rendell noted his proposals were a hard sell with legislators. Although the Pennsylvania legislature is required to complete the state budget by the end of June each year, negotiations dragged on for the fiscal year 2003-04 budget “because the legislature refused to produce revenue for early childhood education and I wouldn’t sign the budget until they included it.” The governor and the legislature compromised, dedicating about $250 million to early education programs, about 40 percent of what Rendell wanted for the first year. “We’re now in the third year and we’re at about 30 percent of where I thought we should be,” the governor noted. “So we are falling dangerously behind in what is probably the most important thing of all today — and that’s [producing] skilled and knowledgeable workers.

To Rendell, Pennsylvania is not just competing against New Jersey, New York or West Virginia, but against other industrialized countries. No matter who the state competes against, multinational businesses that come to Pennsylvania to set up shop are most interested in the availability of a decent, consistent supply of knowledgeable workers, he said. For example, when Shire Pharmaceuticals of Great Britain brought its American headquarters, including research and development, to Montgomery County in suburban Philadelphia, the company came because of the “easy access to a ready supply of scientists,” Rendell said.

But the educational quality of labor markets differs across the state, according to the governor, who told another Pennsylvania story. As a candidate for governor in 2002, Rendell toured the Sony plant in Westmoreland County and talked with managers about the workforce. Sony culls high school graduates from five southwestern Pennsylvania counties, preferring to train them themselves. The managers reported a decline in the skills set of the graduates who are applying.

Another disadvantage facing the U.S. are the trade laws, according to Rendell. Although he supports the North Atlantic Free Trade Agreement and the concept of free trade in general, Rendell made a call for “fair trade.”

“China and other nations are manipulating their currency to absolutely make their goods infinitely more affordable here and our goods infinitely more expensive there,” he said. The country also manipulates the supply of materials that some manufacturers in the United States depend on, he added.

Rendell also cited intellectual property theft as a major international problem. “American businesses are losing billions of dollars a year because foreign countries are stealing our intellectual property.”

There are solutions to America’s lack of competitiveness in the global market, the governor said.

“We have to invest in things that make us more competitive as a nation. I believe that without any question that the time has come for us to have some form of national health insurance and I believe we will see it before the end of the decade. Not because of advocacy groups, but because American business is going to advocate it. The wolf is at the door and American business understands that.”

Rendell proposes basic, safety net health insurance coverage for catastrophic illness and preventive care for every American. The governor described his plan as a guarantee for a minimum amount of health care coverage, with U.S. residents eligible to purchase additional coverage.

Rendell said businesses and institutions that want to attract the best employees could offer an upgraded level of health care.

He advocates providing better education, starting with the best pre-kindergarten program. “Let’s make sure that every child goes to full-day kindergarten. It’s absolutely the single most important indicator of future success. Let’s make sure that our kids don’t go to school in classrooms in kindergarten through the third grade any bigger than 15 students.”

Rendell said that he believes in the federal educational initiative “No Child Left Behind.” “You should test every year because in the old days when we tested three or four years apart, when a child fell behind, we wouldn’t find out about it until three or four years and often that was too late.”

Rendell offered some general solutions to trade problems, noting that too few complaints on behalf of American companies are filed with the World Trade Organization (WTO). “The Bush administration has filed about one-fifth as many complaints as the Clinton administration has. Complaints against American companies have stayed fairly consistent. Why? Could it be because a small number of multinational corporations don’t want it changed? And those multinational corporations are headquartered here? I don’t know— it’s just a theory,” he said.

“I do know that in Pennsylvania, the heart of our manufacturing base is not U.S. Steel, it’s companies with up to 400 employees. Ladies and gentlemen, they’re getting the living daylights kicked out of them by trade.”

Rendell concluded with another story illustrating the state’s disadvantage in international trade: He recounted the tale of Pennsylvania House Furniture Co., which was bought by La-Z-Boy Inc.

“We lost the company because La-Z-Boy just decided they could make more money by contracting out the work to China. The state made an effort to raise money for an employee buy-out. [The company] didn’t want the competition and turned us down.”

But what amazes Rendell is that the company is shipping hardwoods from north central Pennsylvania to China for manufacturing. And that furniture is shipped back here to be sold. “[The Chinese] still do that more cheaply than we can build furniture here — absolutely stunning.”

Rendell concluded: “We have to fight back and rather than dumbing down our economy, I think that we should demand that those economies get upscale in terms of worker benefits and health protection and salaries. We have to fight back; it’s not being an isolationist. We want free trade; the world benefits from free trade.”

And, according to Rendell, the issue isn’t so much knowing what to do. “The only question is do we have the political will to do it?”

—Mary Ann Thomas

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