Ed Rapp, a Missouri native and CFO of Caterpillar recently gave a talk on U.S. competitiveness at the University of Missouri. He started out by saying the world is not how is was 50 years ago. Fifty years ago you worked hard and you earned what you worked for. The U.S. was the hardest working nation in the world, and the biggest world power.
Today, you work really hard and then at the last second, someone moves the cheese (or changes the goal). Things are a lot more competitive, and there are a lot more countries competing.
Many view this as a bad thing. How can we compete against a country like China whose population is 4.3 times larger than the United States? What can we bring to the table against third world countries willing to pay workers 5 times less?
Ed Rapp, as a businessman, sees competition as a good thing. In business, and his experience, competition pushes companies to innovate and to move forward, to become better than they were. His question is: Do we, as a country, have the wrong attitude?
We should be pushing ourselves, adapting to our foreign competitors. If we can’t beat them on price, what are we better at? Do we have better technologies, better quality, better customer service? Are we providing better, faster solutions? If not, then how do we achieve these things? (Interestingly, there has a been a recent trend, called “re-shoring” of many companies who outsourced manufacturing to other countries a few years ago returning to the US. They site narrowing long-term cost gaps and better quality products as top reasons for returning to America. Here is a CNN Money article on the subject)
Mr. Rapp has a few suggestions on things we need to do gain back our competitive edge:
1. Growth and Taxes – What does it take to get the growth side of our country going? Do we have a competitive tax system that attracts capitol to be invested?
Mr. Rapp feels the playing field is skewed in a world view, limiting US growth through poor tax structure. The last US major tax reform was in 1986. Since 1986, things have changed but we have not. Other OECD (Organization for Economic Co-operation and Development) countries have lowered weighted average corporate tax rate by 19% and moved to territorial system. A territorial tax system is where if you make money in another country than you pay money in that country.
It is estimated that there is a trillion dollars of money in taxes trapped off shore because we don’t have correct tax systems. Tax returns need to be simpler – Caterpillars 2010 tax return is 4700 pages. It needs to be predictable – people and companies cannot make good investment decisions if taxes keep changing. A correct tax code would drive investment.
2. Trade – Are we as engaged in competing around the world as we should be?
The US represents 5% of the world population. You cannot be a global leader with walls up around your country. We have to play on a global stage and promote the platform of global trade. Free movement of goods and services lifts growth.
We have Free Trade Agreements with 17 countries and we have a trade surplus with all 17 of those countries in the category of manufactured goods. Our gap in trade is with manufactured goods that we trade with non- free trade agreement countries. Recently the US has passed Free Trade Agreements with Columbia, Panama and Korea.
An example of how this can promote growth: The #9 export market for cat product is Columbia. Before the Free Trade Agreement, Caterpillar was paying $300,000 per truck sold. With the FTA, they no longer have to pay the $300,000 penalty/truck.
3. Infrastructure – Infrastructure – does our infrastructure support what it takes to be globally competitive?
Usage of US highway system has increased 90% but improvements = 7%. Infrastructure is in a state of disrepair – Today when you travel overseas you feel that US is crumbling. From 1930 -1970 GDP growth and infrastructure investment matched. From 1970 – 2010 infrastructure has been under-funded by $2 trillion.
4. Education – Where do we stand in the area of Education?
Mr. Rapp believe education is America’s only long term sustainable advantage. Today the US is #5 in proportion of population that are college graduates at 43%. In math we are 25, 17 in science and 14 in reading world-wide. If those are our rankings can we really compete and win? Half of US employees work in factories. There are 3 million jobs today that cannot be filled because of lack of skills.
We spend highest about of money in education per capita than anywhere else in the world. Can we rest on our laurels? He believes the entire education system needs to be revamped. It’s not about the money being put in, it’s about the delivery of the information and discipline of the students.
Mr. Rapp’s overall message is that we have become too satisfied with ourselves as a country. Other countries are adapting and changing, innovating and competing, and the US needs to do this too. Standard of living is directly related to competitiveness. In the World Economic Forum global competitive index we are trending downwards. It will lead to a lower standard of living.
EPIC is a company that believes in Moving American Manufacturing Forward. Through innovation, creative problem solving and hard work, we believe that manufacturing in the US will grow and compete on a world stage. EPIC also believes in doing things the right way; making sure projects we complete are high quality and therefore lasting.
To learn more about EPIC Systems, please visit our website: www.epicsysinc.com
Below is Ed Rapp’s speech in full: