[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
THE GLOBALIZATION OF R&D AND
INNOVATION, PARTS I-IV
=======================================================================
HEARINGS
BEFORE THE
COMMITTEE ON SCIENCE AND TECHNOLOGY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JUNE 12, 2007,
JULY 26, 2007,
OCTOBER 4, 2007,
and NOVEMBER 6, 2007
__________
Serial No. 110-39,
Serial No. 110-49,
Serial No. 110-62,
and Serial No. 110-71
__________
Printed for the use of the Committee on Science and Technology
Available via the World Wide Web: http://www.house.gov/science
______
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COMMITTEE ON SCIENCE AND TECHNOLOGY
HON. BART GORDON, Tennessee, Chairman
JERRY F. COSTELLO, Illinois RALPH M. HALL, Texas
EDDIE BERNICE JOHNSON, Texas F. JAMES SENSENBRENNER JR.,
LYNN C. WOOLSEY, California Wisconsin
MARK UDALL, Colorado LAMAR S. SMITH, Texas
DAVID WU, Oregon DANA ROHRABACHER, California
BRIAN BAIRD, Washington ROSCOE G. BARTLETT, Maryland
BRAD MILLER, North Carolina VERNON J. EHLERS, Michigan
DANIEL LIPINSKI, Illinois FRANK D. LUCAS, Oklahoma
NICK LAMPSON, Texas JUDY BIGGERT, Illinois
GABRIELLE GIFFORDS, Arizona W. TODD AKIN, Missouri
JERRY MCNERNEY, California JO BONNER, Alabama
LAURA RICHARDSON, California TOM FEENEY, Florida
PAUL KANJORSKI, Pennsylvania RANDY NEUGEBAUER, Texas
DARLENE HOOLEY, Oregon BOB INGLIS, South Carolina
STEVEN R. ROTHMAN, New Jersey DAVID G. REICHERT, Washington
JIM MATHESON, Utah MICHAEL T. MCCAUL, Texas
MIKE ROSS, Arkansas MARIO DIAZ-BALART, Florida
BEN CHANDLER, Kentucky PHIL GINGREY, Georgia
RUSS CARNAHAN, Missouri BRIAN P. BILBRAY, California
CHARLIE MELANCON, Louisiana ADRIAN SMITH, Nebraska
BARON P. HILL, Indiana PAUL C. BROUN, Georgia
HARRY E. MITCHELL, Arizona
CHARLES A. WILSON, Ohio
------
Subcommittee on Technology and Innovation
HON. DAVID WU, Oregon, Chairman
JIM MATHESON, Utah PHIL GINGREY, Georgia
HARRY E. MITCHELL, Arizona VERNON J. EHLERS, Michigan
CHARLIE A. WILSON, Ohio JUDY BIGGERT, Illinois
BEN CHANDLER, Kentucky ADRIAN SMITH, Nebraska
MIKE ROSS, Arizona PAUL C. BROUN, Georgia
LAURA RICHARDSON, California
BART GORDON, Tennessee RALPH M. HALL, Texas
MIKE QUEAR Subcommittee Staff Director
RACHEL JAGODA BRUNETTE Democratic Professional Staff Member
COLIN MCCORMICK Democratic Professional Staff Member
TIND SHEPPER RYEN Republican Professional Staff Member
PIPER LARGENT Republican Professional Staff Member
MEGHAN HOUSEWRIGHT Research Assistantcontents deg.
C O N T E N T S
June 12, 2007
Page
Witness List..................................................... 2
Hearing Charter.................................................. 3
Opening Statements
Statement by Representative Bart Gordon, Chairman, Committee on
Science and Technology, U.S. House of Representatives.......... 6
Written Statement............................................ 7
Statement by Representative Ralph M. Hall, Ranking Minority
Member, Committee on Science and Technology, U.S. House of
Representatives................................................ 8
Written Statement............................................ 9
Prepared Statement by Representative Russ Carnahan, Member,
Committee on Science and Technology, U.S. House of
Representatives................................................ 10
Witnesses:
Dr. Alan S. Blinder, Director, Center for Economic Policy
Studies; Gordon S. Rentschler Memorial Professor of Economics,
Princeton University
Oral Statement............................................... 10
Written Statement............................................ 14
Biography.................................................... 17
Dr. Martin N. Baily, Senior Fellow, Peter G. Peterson Institute
for International Economics, Washington, DC
Oral Statement............................................... 18
Written Statement............................................ 21
Dr. Ralph E. Gomory, President, Alfred P. Sloan Foundation
Oral Statement............................................... 28
Written Statement............................................ 30
Biography.................................................... 35
Dr. Thomas J. Duesterberg, President and CEO, Manufacturers
Alliance/MAPI
Oral Statement............................................... 36
Written Statement............................................ 39
Biography.................................................... 54
Discussion....................................................... 55
Appendix 1: Answers to Post-Hearing Questions
Dr. Alan S. Blinder, Director, Center for Economic Policy
Studies; Gordon S. Rentschler Memorial Professor of Economics,
Princeton University........................................... 64
Dr. Martin N. Baily, Senior Fellow, Peter G. Peterson Institute
for International Economics, Washington, DC.................... 65
Dr. Ralph E. Gomory, President, Alfred P. Sloan Foundation....... 68
Dr. Thomas J. Duesterberg, President and CEO, Manufacturers
Alliance/MAPI.................................................. 84
Appendix 2: Additional Material for the Record
Statement of the Computing Research Association.................. 92
C O N T E N T S
July 26, 2007
Page
Witness List..................................................... 100
Hearing Charter.................................................. 101
Opening Statements
Statement by Representative Bart Gordon, Chairman, Committee on
Science and Technology, U.S. House of Representatives.......... 104
Written Statement............................................ 104
Statement by Representative Ralph M. Hall, Ranking Minority
Member, Committee on Science and Technology, U.S. House of
Representatives................................................ 106
Written Statement............................................ 108
Statement by Representative Brian Baird, Chairman, Subcommittee
on Research and Science Education, Committee on Science and
Technology, U.S. House of Representatives...................... 104
Written Statement............................................ 106
Prepared Statement by Representative Jerry F. Costello, Member,
Committee on Science and Technology, U.S. House of
Representatives................................................ 108
Prepared Statement by Representative Eddie Bernice Johnson,
Member, Committee on Science and Technology, U.S. House of
Representatives................................................ 109
Witnesses:
Dr. David J. Skorton, President, Cornell University
Oral Statement............................................... 110
Written Statement............................................ 112
Biography.................................................... 125
Dr. Gary Schuster, Provost and Vice President for Academic
Affairs, Georgia Institute of Technology
Oral Statement............................................... 125
Written Statement............................................ 127
Biography.................................................... 131
Mr. Mark G. Wessel, Dean, H. John Heinz III School of Public
Policy and Management, Carnegie Mellon University
Oral Statement............................................... 132
Written Statement............................................ 134
Biography.................................................... 139
Dr. Philip G. Altbach, Director, The Center for International
Higher Education; J. Donald Monan SJ Professor of Higher
Education, Boston College
Oral Statement............................................... 140
Written Statement............................................ 142
Biography.................................................... 167
Discussion....................................................... 167
Appendix: Answers to Post-Hearing Questions
Dr. Gary Schuster, Provost and Vice President for Academic
Affairs, Georgia Institute of Technology....................... 184
Mr. Mark G. Wessel, Dean, H. John Heinz III School of Public
Policy and Management, Carnegie Mellon University.............. 188
Dr. Philip G. Altbach, Director, The Center for International
Higher Education; J. Donald Monan SJ Professor of Higher
Education, Boston College...................................... 191
C O N T E N T S
October 4, 2007
Page
Witness List..................................................... 194
Hearing Charter.................................................. 195
Opening Statements
Statement by Representative David Wu, Chairman, Subcommittee on
Technology and Innovation, Committee on Science and Technology,
U.S. House of Representatives.................................. 198
Written Statement............................................ 199
Statement by Representative Phil Gingrey, Ranking Minority
Member, Subcommittee on Technology and Innovation, Committee on
Science and Technology, U.S. House of Representatives.......... 200
Written Statement............................................ 201
Prepared Statement by Representative Harry E. Mitchell, Member,
Subcommittee on Technology and Innovation, Committee on Science
and Technology, U.S. House of Representatives.................. 202
Prepared Statement by Representative Laura Richardson, Member,
Subcommittee on Technology and Innovation, Committee on Science
and Technology, U.S. House of Representatives.................. 202
Witnesses:
Dr. Martin Kenney, Professor, Department of Human and Community
Development, University of California, Davis
Oral Statement............................................... 204
Written Statement............................................ 206
Biography.................................................... 220
Dr. Robert D. Atkinson, President, Information Technology and
Innovation Foundation
Oral Statement............................................... 220
Written Statement............................................ 222
Biography.................................................... 232
Mr. Steve Morris, Executive Director, Open Technology Business
Center (OTBC); Managing Director, OregonStartups.com
Oral Statement............................................... 233
Written Statement............................................ 235
Biography.................................................... 240
Mr. Mark M. Sweeney, Founder, Co-Owner and Senior Principal,
McCallum Sweeney Consulting
Oral Statement............................................... 241
Written Statement............................................ 243
Biography.................................................... 245
Dr. Jerry G. Thursby, Professor and Ernest Scheller, Jr. Chair of
Innovation, Entrepreneurship, and Commercialization, Georgia
Institute of Technology
Oral Statement............................................... 245
Written Statement............................................ 247
Biography.................................................... 261
Discussion....................................................... 261
C O N T E N T S
November 6, 2007
Page
Witness List..................................................... 272
Hearing Charter.................................................. 273
Opening Statements
Statement by Representative David Wu, Chairman, Subcommittee on
Technology and Innovation, Committee on Science and Technology,
U.S. House of Representatives.................................. 276
Written Statement............................................ 277
Statement by Representative Phil Gingrey, Ranking Minority
Member, Subcommittee on Technology and Innovation, Committee on
Science and Technology, U.S. House of Representatives.......... 277
Written Statement............................................ 279
Prepared Statement by Representative Harry E. Mitchell, Member,
Subcommittee on Technology and Innovation, Committee on Science
and Technology, U.S. House of Representatives.................. 280
Prepared Statement by Representative Adrian Smith, Member,
Subcommittee on Technology and Innovation, Committee on Science
and Technology, U.S. House of Representatives.................. 280
Witnesses:
Dr. Michael S. Teitelbaum, Vice President, Alfred P. Sloan
Foundation
Oral Statement............................................... 281
Written Statement............................................ 284
Biography.................................................... 290
Dr. Charles W. McMillion, President and Chief Economist, MBG
Information Services
Oral Statement............................................... 291
Written Statement............................................ 293
Biography.................................................... 306
Dr. Harold Salzman, Senior Research Associate, The Urban
Institute
Oral Statement............................................... 307
Written Statement............................................ 309
Biography.................................................... 335
Mr. Paul J. Kostek, Vice President, Career Activities, The
Institute of Electrical and Electronics Engineers-United States
of America
Oral Statement............................................... 335
Written Statement............................................ 337
Biography.................................................... 341
Mr. Henry S. Becker, President, Qimonda North America Corp.
Oral Statement............................................... 342
Written Statement............................................ 344
Biography.................................................... 347
Discussion....................................................... 347
THE GLOBALIZATION OF R&D AND INNOVATION, PART I
----------
TUESDAY, JUNE 12, 2007
House of Representatives,
Committee on Science and Technology,
Washington, DC.
The Committee met, pursuant to call, at 1:10 p.m., in Room
2318 of the Rayburn House Office Building, Hon. Bart Gordon
[Chairman of the Committee] presiding.
hearing charter
COMMITTEE ON SCIENCE AND TECHNOLOGY
U.S. HOUSE OF REPRESENTATIVES
The Globalization of
R&D and Innovation, Part I
tuesday, june 12, 2007
1:00 p.m.-3:00 p.m.
2318 rayburn house office building
1. Purpose
On Tuesday, June 12, 2007, the Committee on Science and Technology
will hold a hearing to consider the implications of innovation
offshoring for U.S. workers and the economy. Technological innovation
is the key to improving America's standard of living, but science and
engineering work--the fundamental building block of innovation--has
become increasingly vulnerable to offshoring. This hearing will explore
the implications of this trend on the U.S. workforce, the U.S. science
and engineering education pipeline, competitiveness, economic growth,
and our innovation system.
2. Witnesses
Dr. Alan S. Blinder is Professor of Economics at Princeton University
and director of Princeton's Center for Economic Policy Studies. He
served as Vice Chairman of the Board of Governors of the Federal
Reserve System from June 1994 until January 1996.
Dr. Ralph E. Gomory is President of the Alfred P. Sloan Foundation. He
was Director of Research at IBM Corporation from 1970 to 1986.
Dr. Martin N. Baily is senior fellow at the Peterson Institute for
International Economics and senior adviser to McKinsey Global
Institute. He was Chair of the President's Council of Economic Advisers
from 1999 to 2001.
Dr. Thomas J. Duesterberg is the President and CEO of the Manufacturers
Alliance/MAPI.
3. Brief Overview
Some analysts estimate that between 30 to 40 percent
of all U.S. jobs will be vulnerable to offshoring. This
vulnerability means that a large share of previously non-
tradable jobs are now tradable, putting downward pressures on
wages for U.S. workers in those occupations. Other analysts
dispute these estimates, claiming they are too high.
Science, technology, engineering and mathematics
(STEM) jobs are amongst the most vulnerable to offshoring, with
computer programming topping the list of all occupations.
According to a study conducted by Alan Blinder, nearly all (35
of 39) STEM occupations are offshorable, including 10 of 12
engineering disciplines.
High-wage jobs, requiring advanced education and
skills, are also offshorable, so more education and training
will not necessarily immunize workers against offshoring.
Instead, some have suggested that we refocus our educational
investments towards training for jobs that will be difficult to
offshore.
There is no consensus on the likely impacts of
offshoring. Some argue that it will be as dramatic as the
industrial revolution, requiring significant policy changes,
while others view it as a minor phenomenon. The ambiguity is
aggravated by the very poor quality data we have about
offshoring.
China, India and other developing countries have
government policies to actively attract innovation jobs and
work. For example, the Chinese government often requires
technology transfer as a condition on investments in China by
multinational corporations, and India offers tax holidays for
any exports from its information technology services industry.
3. Background
Several analysts, using a variety of estimating methods, have
separately concluded that a significant share of U.S. jobs is
vulnerable to offshoring. Vulnerability means that jobs that were once
safe from being relocated offshore or competition from workers in other
countries are no longer so. While the independent estimates by
economists such as Alan Blinder, Lori Kletzer, Robert Atkinson, and
Ashok Bardhan, cover a wide range, from 20 to 40 percent of U.S. jobs,
even the low-end estimates indicate that tens of millions of jobs can
be affected by offshoring. Dr. Blinder finds that nearly all (35 of 39)
STEM occupations are offshorable. Particular occupations are highly
vulnerable. For example, seven of the 11 computer-related occupations
are considered highly vulnerable, with computer programming topping the
list for all occupations. Dr. Blinder also finds that 10 of the 12
engineering occupations are offshorable, including biomedical and
electronics engineering; fields where the U.S. currently holds
technological leadership. The two exceptions are aerospace and health
and safety engineering.
Newspaper reports and company announcements seem to confirm that
the offshoring of high-skill high-technology work is increasing, with
even research moving offshore. For example, Accenture's CEO announced
that it will have more workers in India than any other country,
including the U.S., by this August. And IBM is projected to have
100,000 workers in India by 2010, more than one-quarter of its
workforce, rivaling the U.S. as the leading country for workers. At the
same time, firms are investing in plants and R&D facilities in low-cost
countries. Companies like General Electric, Eli Lilly, Google, and
Microsoft are expanding R&D centers in India and China, which will work
on cutting edge research and new product development rivaling their
centers in the U.S. A recent University of Texas study found that of
the 57 major announcements of locations of global telecom R&D
facilities in the past year, more than 60 percent (35) were located in
Asia, whereas, a meager nine percent (five) were located in the U.S.
The consequences of these changes are still being sorted out. Some
predict that in the long run we will be better off at the new
equilibrium, but the road to that new equilibrium will be very bumpy,
causing great hardships for many. Others agree that the new equilibrium
will be better but also assert that the scale and speed of offshoring
has been exaggerated. They emphasize the flexibility of the U.S.
economy and labor markets, buffering workers from any significant
hardships, and they point to all of the new opportunities and markets
that globalization create. Still others disagree with the notion that
the new equilibrium for the U.S. will actually be better with
offshoring. They say losing our technological leadership in STEM fields
could make us worse off as offshoring erodes our comparative
advantages.
Nearly everyone agrees about a few things. First, the quality of
the data on offshoring is very poor. This makes it difficult to discern
the trajectory for offshoring. Second, technologically driven
innovation is the key to improving America's standard of living. Third,
STEM education will play a key role in our future competitiveness. But
according to the Computing Research Association (CRA), enrollment in
computer science programs is down an astounding 40 percent over the
past four years. One of the reasons that students shy away from these
and other STEM majors is the fear and uncertainty surrounding long-term
career stability. In response to concerns about offshoring, a number of
universities have changed course curricula for vulnerable fields. Some
are substituting management courses for technical ones or creating
interdisciplinary programs; for example, integrating biology into
traditional electrical engineering curricula. Both measures are
predicated on the hope that they will better inoculate students from
offshoring. However, the changes are based on little objective
information, leaving open the question of whether students, educators,
and workers are making informed decisions.
4. Issues and Concerns
What is the scale and the scope of offshoring in science and
engineering jobs and work? What is its potential?
The amount of offshoring will determine the impact on the U.S., but
we do not have reliable data and forecasts. Some analysts believe that
offshoring's impact will be something akin to the industrial
revolution, while others claim it is too small to worry about.
What are offshoring's expected effects on the U.S. economy and
workforce?
While many believe that increased international trade guarantees a
`win-win' for both countries, economic theory is more ambiguous. A
country that loses its comparative advantages to trading partners can
experience lower standards of living. Given that science and
engineering is our core competency and drives our comparative
advantages, will offshoring R&D and innovation undercut these
advantages, resulting in losses for the U.S. as a whole?
How much R&D is being offshored?
A recent University of Texas study found that of the 57 major
announcements of locations of global telecom R&D facilities in the past
year, more than 60 percent (35) were located in Asia, whereas, a meager
nine percent (five) were located in the U.S. Since innovation is key to
economic growth, should we be especially concerned by these trends? Do
we need policies to keep R&D in the U.S.? For R&D that is being done
offshore, do we have the infrastructure to capture and assimilate it?
Does offshoring of science and engineering lead to lesser spillover
benefits from R&D?
The primary rationale for government subsidies of R&D is the
capture of downstream benefits by companies operating in the U.S. Does
offshoring of science and engineering work mean that those benefits are
more likely to quickly leak outside the country?
What policies are other countries using to attract innovation work?
China, India and other developing countries have government
policies to actively attract innovation jobs and work. For example, the
Chinese government often requires technology transfer as a condition on
investments in China by multinational corporations, and India offers
tax holidays for any exports from its information technology services
industry. Do these policies meet the principles of free trade? Should
we be adopting similar measures? What criteria do companies use to make
decisions about locating their innovation work?
What STEM fields are most vulnerable?
Computer science undergraduate enrollments are down 40 percent in
the past four years, but not because our K-12 education system has not
adequately prepared students. Instead, the culprit has been fear by
students that their future jobs might be offshored. Is this fear well-
founded? Students, educators and workers need better data and estimates
to make informed career and educational choices. How do we ensure that
STEM fields are still attractive?
Should we be investing in all STEM fields or only those where we expect
will be rooted in America?
Should a reallocation of resources be made to concentrate efforts
on the fields that are most likely to stay in the U.S.? Should
educators adjust their curricula to teach skills that buffer workers
from offshoring? If so, what content should it have?
What happens to STEM workers who are displaced?
One of the expected outcomes of offshoring is displacement of
incumbent STEM workers. How many of these workers re-enter the STEM
workforce? At what pay level? Are STEM workers hurt even worse than the
typical worker by extended periods of unemployment given how quickly
technological obsolescence occurs?
Do corporate interests diverge from the country's long-term interest in
offshoring?
Companies seek competitive advantages by moving operations
offshore, but increasing the competitiveness of a company may not
directly translate into increased competitiveness of the country. Where
do these interests diverge and how should they be reconciled?
Chairman Gordon. Welcome, everyone, to this afternoon's
hearing on the offshoring of research, development and
innovation.
I also want to welcome our very distinguished witnesses.
All are leading experts in the impacts of globalization, and we
look forward to hearing your thoughts.
As is widely recognized, our competitiveness and our high
standard of living are derived largely from our technological
superiority. But almost on a daily basis, we read announcements
that more high-tech jobs are being offshored to developing
countries.
For example, Accenture's CEO announced that it will have
more employees in India than in the United States by August.
At the same time, many firms are investing in R&D
facilities in low-wage developing countries. These centers are
working on cutting-edge research and new products development
rivaling their U.S. centers. A recent University of Texas
study, you will appreciate, found that of the 57 major
announcements of locations of global technological R&D
facilities in the past year, more than 60 percent were located
in Asia versus a mere nine percent located in the United
States.
But this seems to be only the tip of the iceberg. One of
our witnesses, Dr. Alan Blinder, has estimated that more than
one in four American jobs are vulnerable to offshoring. Even
more striking is his finding that most American science and
engineering jobs are vulnerable to offshoring.
We have already seen how offshoring is adversely affecting
student choices to pursue science and technology careers.
According to Computing Research Association, enrollment in
undergraduate computer science programs has dropped an
astonishing 40 percent over the last four years.
And I will make clear that I am not casting blame.
Companies are simply responding to an increasingly globalized
marketplace and high-tech workforce. What we want to do is make
certain that companies find that the U.S. engineers, scientists
and students are the best in the world. That is the Committee's
goal. We want to make sure that we enact policies that keep us
from having to offshore our future.
Unless the United States maintains its edge in innovation,
which is founded on a well-trained, creative workforce, the
best jobs may soon be found offshore. If current trends
continue, for the first time in our nation's history our
children may grow up with a lower standard of living than their
parents.
There is no single cause for this concern being raised.
There is no single policy prescription available to address
them. But looking the other way and hoping for the best is
irresponsible. The stakes are simply too high to adopt a
``don't worry, be happy'' approach.
In this Congress, we have already done a lot of work to
address this set of issues. We have passed a number of
legislative initiatives based on the recommendations of experts
from the National Academies. But this should be viewed only as
a necessary start. There is much more work to be done.
Today's hearing is the first in a series of fact-finding
explorations of the implications of offshoring to U.S.
competitiveness. We will listen to all sides, soliciting the
best expertise and advice so that we can develop the policies
that will lead to a strong economic future for our country.
[The prepared statement of Chairman Gordon follows:]
Prepared Statement of Chairman Bart Gordon
I want to welcome everyone to this afternoon's hearing on the
offshoring of research and development and innovation.
I also welcome our distinguished witnesses--all are leading experts
on the impacts of globalization. We look forward to hearing your
thoughts on the impacts of offshoring science, engineering, and
innovation jobs and work.
The Science and Technology Committee has been working hard to
address one of the country's most pressing issues, U.S.
competitiveness. We began addressing this issue in the 109th Congress,
and are eager to continue our legislative and oversight work.
As is widely recognized, our competitiveness and high standard of
living are derived largely from our technological superiority.
But almost on a daily basis we read announcements that more high-
tech jobs are being offshored to developing countries.
For example, Accenture's CEO announced that it will have more
employees in India than the U.S. by this August. And IBM is projected
to have 100,000 workers in India by 2010, more than one-quarter of its
worldwide workforce.
At the same time, firms are investing in R&D facilities in low-
wage, developing countries. Companies like General Electric, Eli Lilly,
Google, and Microsoft are expanding R&D centers in India and China.
These centers are working on cutting edge research and new product
development, rivaling their U.S. centers.
A recent University of Texas study recently found that of the 57
major announcements of locations of global telecom R&D facilities in
the past year, more than 60 percent were located in Asia, versus a
meager nine percent located in the U.S.
But this seems to be only the tip of the iceberg.
One of our witnesses, Dr. Alan Blinder, has estimated that more
than one in four American jobs are vulnerable to offshoring. Even more
striking is his finding that most American science and engineering jobs
are vulnerable to offshoring.
We're already seeing how offshoring is adversely affecting student
choices to pursue science and technology careers. According to the
Computing Research Association, enrollment in undergraduate computer
science programs has dropped an astonishing 40 percent over the past
four years.
Are we offshoring our future?
I want to make clear that I'm not casting blame or making
accusations. Companies are simply responding to an increasingly
globalized marketplace and high-tech workforce.
What we want to do is make certain that companies find that U.S.
engineers, scientists, and students are the best in the world. That is
the Committee's goal. We want to make sure that we enact the policies
that keep us from offshoring our future.
Unless the United States maintains its edge in innovation, which is
founded on a well-trained, creative workforce, the best jobs may soon
be found overseas. If current trends continue, for the first time in
our nation's history our children may grow up with a lower standard of
living than their parents.
Providing high-quality jobs for hard-working Americans must be our
first priority. Indeed, it should be the central goal of any policy in
Congress to advance U.S. competitiveness.
There is no single cause for the concerns being raised, and there
is no single policy prescription available to address them.
But looking the other way and hoping for the best--not to mention
suppressing government studies--is irresponsible. The stakes are simply
too high to adopt a ``don't worry be happy'' approach.
In the last Congress and in the first hundred days of this
Congress, we've already done a lot of work to address this set of
issues. We fought hard to get an offshoring report released from the
Commerce Department which the Administration tried to suppress, and
we've passed a number of legislative initiatives based on the
recommendations of experts from the National Academies. But this should
be viewed only as a necessary start. There is much more work to be
done.
Today's hearing is the first in a series of fact-finding
explorations of the implications of offshoring on U.S. competitiveness.
We will listen to all sides, soliciting the best expertise and advice,
so that we can develop the policies that will lead to a strong economic
future for our country.
Chairman Gordon. Now I would like to recognize my
colleague, the Ranking Member from Texas, Mr. Hall, for an
opening statement.
Mr. Hall. Mr. Chairman, I thank you, and this must be a
special group here, a highly recognized group because it is the
first time in my 27 years I have been here that they have given
you 10 minutes to state your position, and I am anxious to hear
it, so I will be as quick as I can--thank you, Mr. Chairman.
I appreciate you holding this hearing on globalization of
R&D and innovation, an issue that is going to affect our
country and economy as we know it for a lot of years to come,
and this could be one of the most important hearings that we
have had in a long, long time. I am looking forward to the
hearing and the statements from all the witnesses, each of whom
is considered an expert in the field, and I know it is going to
be an educational and very informative debate.
I think what we hear today is going to dovetail with some
of the testimony heard from the authors of ``Rising Above the
Gathering Storm'' report, and a lot of people have argued that
we really know very little about the types of jobs that are
being offshored. Once upon a time, it was thought that only
low-skilled jobs were in danger of being offshored. However, it
seems that highly educated people in good-paying jobs are now
just as threatened by the phenomenon of offshoring.
Last year China graduated 219,600 engineers representing 39
percent of all the Bachelor's degrees in that country. The
United States, on the other hand, graduated only 59,500
engineers, or five percent of all the Bachelor's degrees.
Furthermore, 58 percent of all degrees awarded last year in
China were in physical sciences and engineering compared to 17
percent in the United States, a figure that is dropping by
about one percent a year.
Of the U.S. science and technology workforce, 38 percent of
the Ph.D.s were foreign born in the year 2000. I don't know
what it has been in the years since that time, or if there are
any figures on that, but in this global economy, our children
are going to be competing head to head with Chinese and Indian
students, but many say that they aren't taking the necessary
classes or making their education work for them. When our
children graduate from high school they have taken consistently
fewer classes in math and science than their contemporaries
across the globe. And yet, how much do we really know about
offshoring?
Many have argued that we haven't adequately measured the
effects of offshoring on our workers or on our economy. Our
government needs to do a better job developing metrics that
will give us the information we need to make informed decisions
about trade and the economy.
Many jobs and many plants have been offshored over the past
several years and we all know examples from our home states,
but I think what is even more concerning is the amount of R&D
that is being permanently offshored and will not be coming back
to the United States.
As the authors of ``Rising Above the Gathering Storm''
wrote, and I quote, ``It is easy to be complacent about U.S.
competitiveness and preeminence in science and technology. We
have led the world for decades and we continue to do so in many
fields. But the world is changing rapidly, and our advantages
are no longer unique.''
So if we continue to lose our R&D and high-tech work to
foreign competitors, we are going to have a long, steep hill to
climb to keep our economy going.
Mr. Chairman, I still applaud you for holding this hearing
to highlight the issue of globalization and offshoring and I
look forward to working with you in subsequent hearings on this
important issue, and I thank these four gentlemen for the time
it took them to get to the position where they are as important
as they are and to take their time off here to give us the
benefits of their knowledge and the time it will take to get
back to their homes today. I appreciate them and I appreciate
you.
I yield back.
[The prepared statement of Mr. Hall follows:]
Prepared Statement of Representative Ralph M. Hall
Thank you Mr. Chairman. I appreciate you holding this hearing on
the Globalization of R&D and Innovation. This issue will affect our
county and economy for years to come. Indeed this may be one of the
most important hearings we have all year.
I am looking forward to hearing the statements from all of the
witnesses, each of whom is considered an expert in this field. I know
this will be an educational, informative debate.
I think what we will hear today dovetails with some of the
testimony heard from the authors of the ``Rising Above the Gathering
Storm'' report.
Many people have argued that we really know very little about the
types of jobs that are being offshored. Once upon a time it was thought
that only low-skilled jobs were in danger of being offshored. However,
it seems that highly educated people in good paying jobs are now just
as threatened by the phenomena of offshoring.
Last year China graduated 219,600 engineers, representing 39
percent of all the Bachelor's degrees in that country. The U.S., on the
other hand, graduated 59,500 engineers, or five percent of all
Bachelor's degrees. Furthermore, 58 percent of all degrees awarded last
year in China were in physical sciences and engineering, compared to 17
percent in the United States--a figure that is dropping by about one
percent a year.
Moreover, of the U.S. science and technology workforce, 38 percent
of the Ph.D.s were foreign born in 2000.
In this global economy our children will be competing head-to-head
with Chinese and Indian students, but they aren't taking the necessary
classes or making their education work for them. When our children
graduate from high school they have taken consistently fewer classes in
math and science than their contemporaries across the globe.
And yet, how much do we really know about offshoring?
Many have argued that we haven't adequately measured the effects of
offshoring on our workers or our economy. Our government needs to do a
better job developing metrics that give us the information we need to
make informed decisions about trade and the economy.
Many jobs and many plants have been offshored over the past several
years--we all know examples from our home states. But I think what is
even more concerning is the amount of R&D that is being permanently
offshored and will not be coming back to the U.S.
As the authors of ``Rising Above the Gathering Storm,'' write:
It is easy to be complacent about U.S. competitiveness and
pre-eminence in science and technology. We have led the world
for decades, and we continue to do so in many fields. But the
world is changing rapidly, and our advantages are no longer
unique.
If we continue to lose our R&D and high tech work to foreign
competitors, we will have a very steep hill to climb to keep our
economy growing.
Mr. Chairman, I really applaud you holding this hearing to
highlight the issue of globalization and offshoring. I look forward to
working with you in the subsequent hearings on this important topic.
Chairman Gordon. Thank you, Mr. Hall. We will hear more
about that University of Texas report today, too.
If there are additional Members who would wish to submit
opening statements, your statements will be made a part of the
record.
[The prepared statement of Mr. Carnahan follows:]
Prepared Statement of Representative Russ Carnahan
Mr. Chairman, thank you for hosting this hearing to examine the
implications of offshoring technological innovation on the U.S.
workforce, STEM education, American competitiveness, and economic
growth.
As American science and engineering jobs become increasingly
vulnerable to offshoring, the predicted impact of such relocation is a
matter of contention. Numerous analysts over the past few years have
concluded that 30 to 40 percent of U.S. jobs may be susceptible to
overseas outsourcing, threatening tens of millions of jobs. China,
India, and other developing countries are actively seeking to attract
high-skill high-technology jobs through government policies,
threatening America's comparative advantage.
Today's hearing focuses on the expected effects of technology
offshoring on the U.S. economy, as well as possible resource re-
allocation to maximize educational curricula and retain innovation
work. I am eager to hear our witnesses' assessments of offshoring's
economic implications so that we can reflect on the successes and
inefficiencies of our policies and programs, and seek to make
modifications for improvement. Your first-hand experiences are vital to
maintaining U.S. competitiveness.
To all the witnesses--thank you for taking time out of your busy
schedules to appear before us today. I look forward to hearing your
testimony.
Chairman Gordon. We are very lucky to have this very
distinguished panel of witnesses before us today to launch the
first in a series of hearings addressing the topic of
offshoring. Dr. Alan Blinder is Professor of Economics at
Princeton and former Vice Chair of the Board of Governors of
the Federal Reserve System. Dr. Ralph Gomory is President of
the Alfred P. Sloan Foundation and was head of IBM Research for
16 years. Dr. Martin Baily is senior fellow at the Peterson
Institute of International Economics and senior advisor to
Mackenzie Global Institute. And Dr. Thomas Duesterberg is the
President of the Manufacturing Alliance and former Assistant
Secretary of International Economic Policy at the Commerce
Department. You are a very distinguished group, and as Mr. Hall
said, it is unusual that we are expanding our time but we want
to hear from you.
Let me give the Members and our witnesses a little update.
It is expected that we are going to have votes at 2:00, which
means at about 2:10 we are going to dash out of here, and
unfortunately, it is going to be a series of votes and a
photograph, and so, if we can, I think that we need to do our--
in full respect to you coming here, but I think we will be
better off to try to accomplish this before then, if we can, so
that we don't have to let our panel continue to wait.
And with that, I will be quiet and call on Dr. Blinder.
STATEMENT OF DR. ALAN S. BLINDER, DIRECTOR, CENTER FOR ECONOMIC
POLICY STUDIES; GORDON S. RENTSCHLER MEMORIAL PROFESSOR OF
ECONOMICS, PRINCETON UNIVERSITY
Dr. Blinder. Thank you, Mr. Chairman, Members of the
Committee, and thanks for the opportunity to take part in this
hearing. I was asked to talk about the offshoring of American
jobs in general, and with specific attention to science and
technology issues; and I want to start with some general
observations and then get to some specifics.
To start with, Americans don't have any biological
superiority to workers in developing countries and yet we earn
much higher wages. So why is that? Well, one factor is that we
are, on average, much better educated. But the average is not
the only relevant thing. Millions of skilled workers in
developing countries are educated about as well and, in some
cases, better than Americans are, and importantly, those
numbers are bound to increase as poor countries continue to
participate more vigorously and effectively in the world
economy.
Apart from better education and skills, the other main
reason why U.S. workers earn so much more than workers in, say,
India or China, is that Americans work with much better
technology and with much better physical capital, again on
average. But physical capital, financial capital, and
technology are all increasingly mobile these days. So, in
particular, the capital and the technology can move to where
the cheap labor is, and we see that this is happening.
This is all very old hat. It describes a situation that has
been familiar to U.S. manufacturing workers and businesses for
decades as millions of manufacturing jobs have been offshored
from the United States and also other rich countries--this is
not an American story to an ever-changing list of poorer
countries which, if you go way back, included Japan, which is
not a poor country anymore, but these days, of course, is
headed by China.
The new wrinkle today is in services, where a similar
process is unfolding, or I really should say just beginning to
unfold. Advances in electronic communications have decreased
and, in some cases obliterated, the advantages of physical
proximity in a wide variety of service jobs simply because the
work can be performed anywhere and delivered by telephone or by
Internet or by some other method.
While still in its infancy, electronic offshoring has
already begun to move well beyond traditional low-end jobs like
call center operators to highly skilled jobs such as computer
programming, engineering, and security analysis, just to name a
few. I think there is little doubt that both the range and the
number of jobs that will be able to be delivered electronically
is going to increase greatly as the technology improves and as
countries like India, China, and others educate more and more
skilled workers. In the case of India in particular, these are
going to be English-speaking workers, which is quite germane.
So what is novel about service offshoring? At the basic
conceptual level, the pure economics, nothing much. The same
basic market forces that govern trade in goods also govern
trade in services. The novelty, to my mind, comes at the
practical level. Specifically, I have in mind three things.
First, there are many, many more service jobs than
manufacturing jobs in all the rich countries. In the United
States, the ratio is about five to one, five times as many
service jobs as manufacturing and construction jobs. Second,
unlike factory workers, the people who hold these jobs are not
accustomed to competing with low-cost foreign labor, and you
can be sure that they are not going to like it any more than
the manufacturing workers did when this phenomenon hit
manufacturing. And third, many of the white-collar
professionals who will feel threatened by offshoring, if they
don't already, are vocal and politically engaged.
You can all judge for yourselves better than I can, but
this strikes me as a potentially potent political brew.
With that said, I want to turn to some specifics. First,
which service jobs are the most vulnerable to offshoring? It
would be nice to say that only low-skilled jobs are vulnerable
while high-skilled jobs will remain in America. And as Mr. Hall
said, we may have believed that once, but it doesn't appear to
be the case. My research finds hardly any correlation at all
between either the educational attainment of an occupation or
its average wages on the one hand and the degree of
offshorability of the occupation.
So what is the critical factor that determines which jobs
can easily be offshored and which cannot? I argue that it is a
little discussed and often unnoticed job characteristic: the
importance of face-to-face contact. I mean by that face-to-face
contact with people outside the work unit, not with your fellow
workers. For lack of a pre-existing vocabulary, I have called
the jobs in which face-to-face contact is vital to performing
the service personal services and the occupations in which it
is not impersonal services.
So, for example, services that can be delivered by
telephone or Internet, like call centers and financial
analysis, are by this DEFINITION impersonal, and that means
they are potentially tradable across national borders just like
manufactured goods. But services that have to be delivered
physically, or face-to-face, like driving a cab or brain
surgery or serving in Congress, I might add, or services whose
quality deteriorates markedly when they are delivered
electronically--such as, say, high school teaching or
psychoanalysis--those are personal services. They are not going
to be traded internationally, at least probably not.
My central claims about this phenomenon are two. The first
is that market pressures emanating from trade and globalization
will force, and I want to underscore the verb force, more and
more Americans to leave impersonal service and manufacturing
jobs and to seek employment in personal service jobs instead.
And second, that we will be better off as a nation if
government, businesses and the schools approach the coming
occupational migration--and that is what it is, a large-scale
occupational migration--deliberately, thoughtfully, and with
appropriate policy responses rather than letting it take us by
surprise.
Now, in voicing those views, I seem to have created a bit
of a media stir, as some of you may know. So I would like first
to quickly avoid three confusions that are often made.
Some people have misinterpreted my estimate of 30 to 40
million U.S. jobs as potentially offshorable to mean that all
those jobs will be lost. They won't be. We haven't lost all
manufacturing jobs, and they are all offshorable. We will not
lose all of these impersonal service jobs.
Second, some have interpreted my writings as being hostile
to trade. That is just not true. I have always been an advocate
of open trade, and I still am. Protectionism is a loser's game.
It's not a game that America should be playing.
Third, some people have misinterpreted my writings as
hostile toward India in particular. I mentioned the relevance
of India. That is not true. On the contrary, I applaud India. I
think they are doing exactly the right thing for their people:
exploiting the comparative advantage they have in English,
building up service offshoring industries, and not
incidentally, in the process contributing vitally to the
reduction of world poverty. This is all terrific.
On the other hand, the one criticism of my work to which I
do plead guilty, but I want to explain, the guilt is
emphasizing the downsides of service offshoring rather than the
upsides. There are both. I do that for a very simple reason:
because I think that Americans in general and especially
American policy-makers need to focus on and think about
ameliorating the downsides of offshoring, both for basic
fairness reasons and if we are to preserve the open trading
system against the forces of protection. The people who win
from offshoring won't object to it one little bit, and the
markets will produce the upsides without the government lifting
a finger. But offshoring, and trade more generally, don't look
so attractive to the people that lose their jobs in the
process. And that is where the government needs to help.
Having just ruled out the ``Stop the world, I want to get
off'' approach, the question is what Congress can do to make
this transition a bit easier. I actually see three large policy
agendas, and given the time, I am just going to be able to tick
them off, basically. Maybe we can come back if there is a
question period.
First, there is a safety net agenda. Put very simply, the
U.S. Government now offers disgracefully little help to workers
who are displaced from their jobs, whether that is because of
trade or for any other reasons. Without going into great
detail, I am talking about stingy unemployment insurance, very
weak trade adjustment assistance, the prospect of losing your
health insurance and your pension rights, and so on, and also,
by the way, very scant opportunities for retraining. I can't
believe that our country can't do better than that, and I know
other countries do better than that.
Second, there is an educational agenda. I would like to put
it this way. We built our educational system in the 19th
century to produce legions of factory workers for the first
Industrial Revolution. It was a great success, but that success
is over, and we haven't really adapted yet to the second
Industrial Revolution, which is the shift to services. Having
not done that, we now have to adapt to what I think might be a
third Industrial Revolution, which is the shift away from
impersonal services to the personal service jobs that will
remain in America. And virtually nobody in this country is
thinking about how to do this right now.
Third, and closest to the hearts of this committee, I
believe, is the innovation agenda, and I would just like to
give an illustrative example of why this is important. If you
think about the television manufacturing industry, not
television shows but TV set manufacturing, it began here; and
once upon a time, lots of Americans had good jobs making
televisions, but then, as this became a commodity, it migrated
offshore, and as I am sure you all know, the number of TV sets
made in America is zero and has been for years. As a result of
that, television manufacturing often held up as an example of
industrial failure--because we started it and then we lost it.
I think it is important that we think of that as an example of
industrial success instead. The leader, and that is our role,
must constantly innovate and move on like the cowboy in the
Westerns, and that is just what we did in this case. We got
there first, then we left as the industry migrated aboard. Both
parts of that process are very important: getting there first
and then letting go when it is time to let go. Fifty-two
seconds?
Mr. Blinder. I am sorry.
Chairman Gordon. Yeah, go ahead and conclude.
Mr. Blinder. I just want to conclude with what does that
mean? It means that we have to remain the hotbed of business
creativity and innovation in the United States. So that goes to
support for basic research, for industrial R&D, for creative
business management, for the entrepreneurial culture that we
are so good at, for open and vibrant but honest capital
markets. These are the things I think that we need to think
about in order to move forward and maintain the leadership
position that America has had for so long.
Thank you all for listening.
[The prepared statement of Dr. Blinder follows:]
Prepared Statement of Alan S. Blinder
Mr. Chairman, Members of the Committee, thank you for the
opportunity to take part in this hearing. I was invited here to talk
about the offshoring of American jobs in general, with special
attention to science and technology issues. I'd like to start with some
general observations about offshoring, and then go on to some
specifics.
Looking across the world, if you hold occupation and education
constant, Americans earn much higher wages than workers in developing
countries. But we Americans have no biological or neurological
superiority to these foreign workers. It is true that we are far better
educated on average. However, millions of skilled workers in developing
countries are educated about as well as Americans are. And those
numbers are bound to increase as poor countries, notably China and
India, continue to participate more vigorously and effectively in the
world economy.
Apart from better skills and more education, the other main reasons
why U.S. workers earn so much more than workers in, say, India or China
is that Americans work with much better technology and with much more
physical capital. But in an increasingly globalized economy, physical
capital, financial capital, and technology are all increasingly mobile.
So, in particular, the capital and technology can move to where the
cheap labor is, thereby raising labor productivity (and wages) there.
All this is old hat, and none of it is controversial. It describes
a situation that has been familiar to U.S. manufacturing workers for
decades. One consequence of these forces has been the offshoring of
millions of manufacturing jobs from the United States (and other rich
countries) to an ever-changing list of poorer countries--a list that
once included Japan, but is now headed by China.
Today's new wrinkle is in services, where a similar process is
unfolding. Advances in electronic communications have decreased or
obliterated the advantages of physical proximity in a wide variety of
service jobs, where the work can now be performed abroad and the work
products delivered to the U.S. by telephone or computer networks.
Notice that ``shipping'' electrons is a lot easier and cheaper than
shipping physical goods.
While still in its infancy, electronic offshoring has already begun
to move well beyond traditional low-end jobs, such as call center
operators, to highly-skilled jobs such as computer programmers,
scientists and engineers, accountants, security analysts, and some
aspects of legal work--to name just a few. And I think there is little
doubt that the range and number of jobs that can be delivered
electronically is destined to increase greatly as technology improves
and as India, China, and other nations educate more and more skilled
workers--in the case of India, English-speaking workers.
What's novel about service offshoring? At the conceptual level,
nothing much. The same basic market forces that govern trade in goods
also govern trade in services. The novelty comes at the practical
level. Specifically, I have in mind three distinguishing features:
First, in the U.S. and other rich countries, there
are many more service jobs than manufacturing jobs. In the
U.S., there are about five times as many.
Second, unlike factory workers, the people who hold
these jobs are not accustomed to competing with low-cost
foreign labor. They will not welcome this new competition any
more than manufacturing workers did.
Third, many of the professionals who are seeing, or
will see, their jobs become offshorable are vocal and
politically engaged.
You can judge for yourselves, but this trio strikes me as a
politically potent brew. Members of Congress will hear from many actual
and prospective job losers, clamoring for protection.
Now let me move to specifics. First, which service jobs are the
most vulnerable to offshoring? It would be nice to say that only low-
skilled jobs are vulnerable while the high-skilled jobs will remain in
America. We may have once believed that, but it does not appear to be
so. I have estimated that there is very little correlation between the
educational attainment of an occupation and its susceptibility to
offshoring.\1\ It would be similarly reassuring if low-wage jobs were
more vulnerable to offshoring than high-wage jobs. But that, too,
appears to be untrue. According to my estimates, there is no
correlation between an occupation's average wages and its degree of
offshorability.
---------------------------------------------------------------------------
\1\ This and the other estimates in this paper come from Alan S.
Blinder, ``How Many U.S. Jobs Might Be Offshorable?,'' CEPS Working
Paper No. 142, Princeton University, March 2007. (March 2007).
---------------------------------------------------------------------------
What, then, is the critical factor that determines which jobs can
easily be offshored and which cannot? I have argued that it is a
little-discussed, and often unnoticed, job characteristic: the
importance of face-to-face contact with people outside the work unit
(whether upstream suppliers or downstream customers). For lack of a
pre-existing vocabulary, I have labeled the jobs in which face-to-face
contact is important as personal services and the occupations in which
face-to-face contact is unimportant as impersonal services.
For example, services that come (or could come) to their end-users
by, say, telephone or Internet (e.g., call centers, financial analysis)
are impersonal. They are tradable across national borders, just as
manufactured goods are. But services that must be delivered physically
or face-to-face (e.g., driving a cab, brain surgery) or whose quality
deteriorates markedly when they are delivered electronically (e.g.,
high school teaching, psychoanalysis) are personal and cannot be traded
internationally. Serving in Congress is a personal service job. I leave
it to you to decide whether giving Congressional testimony is a
personal or an impersonal service.
My central claims--which apparently are controversial--are two:
first, that market pressures emanating from trade and globalization
(especially international differences in labor costs) will force more
and more Americans to leave impersonal service and manufacturing jobs
and seek employment in personal service jobs instead. And second, that
we will be better off as a nation if government, businesses, and the
schools approach that occupational migration deliberately,
thoughtfully, and with appropriate policy responses, rather than
letting it take us by surprise.
In voicing these views in recent months, I seem to have created
something of a media stir. (You should see my fan mail!) So, before
going further, I'd like to dispel some possible confusions.
First, some people have misinterpreted my estimate
that 30-40 million U.S. jobs are potentially offshorable to
mean that all of those jobs will actually be lost. They won't
be, any more than globalization has eliminated all
manufacturing employment in the U.S. (It hasn't.) Besides we
will also be gaining jobs from globalization. Mass unemployment
is not in America's future.
Second, some have misinterpreted my writings as
hostile to trade. Nothing could be further from the truth. I
remain an advocate of open trade, just as I have always been.
Protectionism is a loser's game, and I believe our country
stands to be a big winner from globalization--eventually.
Besides, how do you stop electrons at the border?
Third, some have misinterpreted my writings as
hostile toward India, where many of the offshored service jobs
are going. I am not. In fact, I applaud India for doing exactly
the right thing for its people--exploiting its comparative
advantage in English, building up its service offshoring
industries, and in the process, contributing to the reduction
of world poverty.
There is, however, one legitimate criticism of my writings on this
subject:
Some people have accused me of overemphasizing the
downsides of service offshoring--such as job losses and
downward pressures on wages--and under-emphasizing the
upsides--such as job gains and cost reductions.
There is truth to this criticism, but I have a reason. I believe
that American policy-makers must focus on and ameliorate the downsides
of offshoring--both for basic fairness reasons and to preserve the open
trading system. The winners from offshoring will not object to its
upsides, which markets will produce quite handily without any
government assistance (other than avoiding protectionism). But
offshoring, and trade more generally, will not look so good to the
people who lose their jobs. That's where the government needs to help.
Having just ruled out the ``Stop the world, I want to get off''
approach, what can Congress do to make the transition to large-scale
service offshoring more palatable and less painful? While I realize
that many of the appropriate policy responses fall outside the purview
of this committee, I see three large policy agendas, each of which
encompasses many specific policy initiatives.
First comes the safety net agenda. Simply put, the U.S. Government
now offers disgracefully little help to workers who are displaced from
their jobs--whether by trade or for other reasons. Without delving into
the details, I am referring here to such problem areas as stingy
unemployment insurance, weak trade adjustment assistance, loss of
health insurance, pension rights that are often not portable, and scant
opportunities for retraining--to name just a few. I can't believe that
my country can't do better. We know that other rich countries do.
Second, there is an education agenda. Put starkly, our K-12
education system was designed in the 19th century to produce cadres of
factory workers for the First Industrial Revolution. It succeeded
mightily, but it has barely adapted to the Second Industrial
Revolution: the shift from manufacturing to services. Having failed to
do that, it now needs to gear up for a possible Third Industrial
Revolution: the offshoring of impersonal service jobs. I believe we
need to educate more young people for the personal service jobs that
will account for a rising share of U.S. employment. But hardly anyone
in the education business is now thinking about how to do this. And, by
the way, similar changes are called for in the community colleges and
perhaps even in the four-year colleges.
Third, there is the innovation agenda. Since this one is closest to
the concerns of this committee, I will deal with it at greater length--
starting with an illustrative example.
The television manufacturing industry began here and, decades ago,
provided good jobs for many American factory workers. But as TV sets
became ``just a commodity,'' their production moved offshore to
locations with much lower wages. And for years now, the number of
television sets manufactured in the United States has been zero. In
consequence, TV manufacture is often held up as an example of
industrial failure: We started the industry, then lost it. Actually it
should be viewed as a success story. The world's industrial leader--the
United States--must constantly innovate and move on, like the cowboy
hero in the Western movies. In the case of TV sets, we got there first,
but then left. Both were appropriate.
This example illustrates an important point: It is crucial for the
United States to remain the incubator of new business ideas and the
first mover when it comes to providing new goods and services. If we
are to remain big exporters as the rest of the world advances, we must
specialize in the sunrise industries, not the sunset ones. We must do
this not because we like the job destruction in the old industries that
we lose, but because we want and need the job creation in the new
industries that we gain, even if those jobs won't stay here forever.
Trying to name concrete examples of future industrial winners is a
fool's errand, and I won't go there. Who could have told President
Jefferson in 1802 where the new jobs would come as the share of
Americans earning their living on farms collapsed from 84 percent to
two percent? Moving up in time, who could have told President
Eisenhower in 1953 where the new jobs would come from as the share of
Americans earning their living in manufacturing dwindled from 32
percent to 10 percent? But both industrial transitions happened, and
Americans found plenty of work to do.
While I'm not foolish enough to try to name the new industrial
winners, we all know that many new goods and services will be invented
and/or commercialized in the coming decades. As the world's leading
nation, the United States must grab the first-mover advantage in a
disproportionate share of these. And that, in turn, requires that we
remain a hotbed of business creativity and innovation. To accomplish
this, basic research, industrial R&D, creative and aggressive business
management, an entrepreneurial culture, an active venture capital
industry, and the like must all remain integral parts of the American
success story. But that does not seem too tall an order. It is, after
all, how we got here in the first place.
Most of the necessary changes will be accomplished by the private
sector, which has proven its flexibility and adaptability time and time
again. Nonetheless, there are a number of vital roles for the Federal
Government in such areas as fostering basic science and R&D, supporting
scientific and engineering education, returning both the tax code and
the budget to sanity, maintaining competition and open trade, and
keeping the capital markets vibrant but honest. (This list is not
exhaustive.) Several of these areas fall under the purview of this
particular Committee. And all of them fall under the purview of the
U.S. Congress. There is much to do, and the time to start is now.
Thank you for listening.
Biography for Alan S. Blinder
ALAN S. BLINDER is the Gordon S. Rentschler Memorial Professor of
Economics at Princeton University and Co-Director of Princeton's Center
for Economic Policy Studies, which he founded in 1990. He is also Vice
Chairman of the Promontory Interfinancial Network, and Vice Chairman of
the G7 Group.
Dr. Blinder served as Vice Chairman of the Board of Governors of
the Federal Reserve System from June 1994 until January 1996. In this
position, he represented the Fed at various international meetings, and
was a member of the Board's committees on Bank Supervision and
Regulation, Consumer and Community Affairs, and Derivative Instruments.
He also chaired the Board in the Chairman's absence. He speaks
frequently to financial audiences.
Before becoming a member of the Board, Dr. Blinder served as a
Member of President Clinton's original Council of Economic Advisers
from January 1993 until June 1994. There he was in charge of the
Administration's macroeconomic forecasting and also worked intensively
on budget, international trade, and health care issues. During the 2000
and 2004 presidential campaigns, he was an economic adviser to Al Gore
and John Kerry. He also served briefly as Deputy Assistant Director of
the Congressional Budget Office when that agency started in 1975, and
testifies frequently before Congress on a wide variety of public policy
issues.
Dr. Blinder was born on October 14, 1945, in Brooklyn, New York. He
earned his A.B. at Princeton University in 1967, M.Sc. at London School
of Economics in 1968, and Ph.D. at Massachusetts Institute of
Technology in 1971--all in economics. Dr. Blinder has taught at
Princeton since 1971, and chaired the Department of Economics from 1988
to 1990.
Dr. Blinder is the author or co-author of 17 books, including the
textbook Economics: Principles and Policy (with William J. Baumol), now
in its 10th edition, from which over two million college students have
learned introductory economics. He has also written scores of scholarly
articles on such topics as fiscal policy, monetary policy, and the
distribution of income. From 1985 until joining the Clinton
Administration, Dr. Blinder wrote a lively monthly column in Business
Week magazine. Currently, he is a regular commentator on PBS's Nightly
Business Report and appears frequently on CNBC, CNN, Bloomberg TV, and
elsewhere.
Dr. Blinder is the immediate past President of the Eastern Economic
Association and was previously Vice President of the American Economic
Association. He is a member of the Bretton Woods Committee, the
Bellagio Group, and the Council on Foreign Relations, and a former
governor of the American Stock Exchange. Dr. Blinder also serves on the
academic advisory panels of the Federal Reserve Bank of New York, the
FDIC Center for Financial Research, and the Hamilton Project.
He has been elected to the American Philosophical Society and the
American Academy of Arts and Sciences.
Dr. Blinder and his wife, Madeline, live in Princeton, NJ. They
have two sons, Scott and William, and two grandsons, Malcolm and Levi.
Chairman Gordon. Thank you, Dr. Blinder.
Let me also remind everybody that this is being televised,
so all the folks, while different committees and things are
going on, our staff, as well as Members, are watching from here
so more are gaining this information than just the ones here
directly.
So Dr. Ralph Gomory, please--oh, it is Dr. Baily? All
right. We will go--then Dr. Baily.
STATEMENT OF DR. MARTIN N. BAILY, SENIOR FELLOW, PETER G.
PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS, WASHINGTON, DC
Dr. Baily. I will start. Thank you, Mr. Chairman, and thank
you to the Committee for giving me this opportunity to talk.
Like Alan, I was a member of the Clinton Administration and I
support virtually all the policies that he described. I am very
much in tune with that part of what he said, and I suspect I
will probably agree with many of the policies that Dr. Gomory
proposes. On the other hand, the tone that I want to use is a
bit more favorable towards globalization and its benefits to
the United States than Alan--the remarks Alan made, and I
suspect the ones that Dr. Gomory is going to make, based on his
opinions that I have heard before. Alan mentioned that the
benefits of globalization are going to come anyway. In other
words, you don't have to advocate those; you are going to get
them and it is important to point to some of the costs that do
need to be ameliorated by actions in the policy environment.
Well, to some extent I agree with that, but globalization
is getting such a bad rap at the moment that I want to try to
level that intellectual playing field a little bit because it
has brought tremendous benefits to the United States. It has
made the United States much more competitive, more productive.
We have had access to better technology. We have access to
capital, and by the way, I would mention that one of the
comments that Alan made, other people make it as well: U.S.
capital is going to flow overseas. The fact of the matter is,
about 80 percent of the available capital in the global economy
is actually coming to the United States, only 15 percent to
other countries, so we are benefiting from a tremendous inflow.
There are costs to that inflow also.
The problem is, a couple of things. One is that we have
gotten our exchange rate out of whack, and that is one reason
that globalization has got a bad name because it has made it
very hard for manufacturers, and now service industries, to
compete. We have a natural comparative advantage in service
industries, which you can see even today in the trade surplus
that we have in services. So, we are actually inshoring service
sector jobs to the United States and have been for many years.
But we are facing an uphill struggle there because of the
exchange rate, and that has certainly been true of
manufacturing where we have got a huge deficit and have had for
a long time. The other problem, and I agree with the one that
Alan mentioned, is that we do very little to help with training
workers, with adjustments of workers. I am actually just back
from a trip to Europe, and I met with a number of leaders in
Brussels, including those form Denmark, that developed a so-
called flex security system there, which gives their workforce
a great deal of flexibility, but it also gives it a great deal
of security that you get trained, you get pushed towards
another job. It is a very tough-minded system. You can't just
stay on benefits for forever. You have to go get another job.
You are required to do that. But at the same time, you are not
left out there on your own. I think the United States is very
good at the flexibility side. It has not been so good at the
security part. Europe is very good at the security and has not
been very good at flexibility. And both have to be there. I
don't think we could transmit the Danish system, as it is, to
the United States, but there are some important lessons to be
learned there.
Let me turn now more on the science and technology side,
and I am going to mention more on the benefits, and then, I
will deal with what I see as some of the challenges or
problems. The United States actually has benefited
substantially from an inward brain drain. The OECD in a report
published in February of this year notes that nearly 26 percent
of the doctorates in the United States are foreign born. Of
these, 54 percent have become naturalized U.S. citizens. I am
one of them, I might note. Most of these come from Asia and
Europe and many of them actually received their doctorates with
foreign educations. So we are actually, even though we are the
richest country or the richest large country in the world, we
are actually benefiting from the education that is being
provided to people overseas. There are actually very few U.S.
citizens that go overseas, and the people that come to the
United States cite the economic opportunities here and the
tremendous infrastructure that we have here, the scientific and
technological community that really leads the--continues to
lead the world.
Okay. Let me talk on the challenges side. A lot of the
concerns about offshoring are around the computer and high-tech
industry and programming industry, and I understand why. There
are huge numbers of jobs being created in R&D centers and
programming centers overseas including China and India. This is
an industry that has, for a number of years, been very
globalized. It really is. The production, the manufacturing, a
lot of that is done overseas. A lot of the companies are
American but that has been--you know, that industry has been
sliced and diced and put overseas. One thing I would say though
to qualify that, and that is in Table 1 in my testimony
developed by one of my colleagues at the Institute, and it
shows that even in the computer and high-tech fields,
employment is growing in the United States in the higher level
areas. It has gone down in a lot of basic programming areas and
some of the call center stuff. Those kinds of jobs have gone
overseas and they are not--I wouldn't want to minimize the cost
of that, but a lot of those high-tech jobs are still growing in
the United States even though the high-tech sector itself has
seen a substantial kind of downturn since 1999, the period that
I start with.
I also want to say that the United States benefits from
low-cost hardware that is produced around the world, and we
benefit from the software that is made around the world. As
software is developed in India and China and used here in the
United States, we gain the benefits of that for the
productivity of our companies.
On the policy side--I see I am racing through my time
before I got halfway through my comments here. On the policy
side here, at some level we have to embrace the fact that
science and technology is a global endeavor. It really is. I
don't think we can shut it off in any way. That means we have
to allow foreign-born scientists and engineers to come to the
United States, and I have talked to some of them. They get
pretty lousy treatment when they apply these days. So there are
scientists and technologists that want to come to the United
States, want to become Americans, want to create American jobs,
and they get treated guilty before they have--and have to prove
their innocence. So, I think that is something that needs to be
done there. Obviously we have to protect the United States. We
can't have another 9/11. I understand that concern, but I don't
think it is necessary for us to treat those people badly.
Second point is, we certainly have to fund scientific
research, and we are funding scientific research. I know this
Committee is in favor of that, so I am preaching to the choir
here. But obviously, in a time of budget tightness, we really
do need to make sure that we keep up our scientific community.
We put a lot of money on medical research, and that is fine. We
just need to make sure that things like material science and
the whole scientific endeavor gets adequate funding.
And then, as Alan said, on education support, India has
done a good job of training its college gradates, its computer
programmers. I would note that the Indian education system, as
a whole, is pretty awful. They have huge rates of illiteracy.
So I don't think we would look to the Indian system as a good
system, but one part of it that is good that really has been
the push of their education system is at the higher end, and
they have done a good job of creating programmers and people
with mathematics and science skills, and here in the U.S. we
need to do a better job in that dimension. Now, a lot of
Americans don't want to study those things. They don't want to
take mathematics and science, and so what we can we do there?
Well, I think there is a certain amount that can be done with
funding on that area. If we provide scholarships, I think more
people will go to graduate school in science and technology.
And finally, the other part of embracing the global nature
of this is that, both as businesses and as a society, we need
to be open to the innovation that is made around the world.
Somebody has called that rather inelegantly blowback
innovation. That is an unfortunate name, but it means that a
lot of stuff that is going on around the world can come back
and make the United States more productive.
Let me say a word about offshoring. I was involved in a
study that looked at offshoring. We did a lot of interviews of
companies. We went and looked at those people with their
educational qualifications, all the engineers coming out of
China, how many of them really have serious engineering
qualifications, how many of them can speak English, would
actually substitute for American workers, how many people are
involved in face-to-face stuff like that. We came up with a
more conservative number than Alan did. Now, part of this is
the time horizon, but I don't think that is the ultimate
question because we concluded that only 11 percent of jobs
could ultimately be offshored, not the number that Alan has.
The number that will be offshored over the next few years is
certainly smaller, as Alan agreed.
Let me conclude by saying that I think the United States
has been, and still is, a great place for science and
technology and innovation. It has been one of our huge
strengths. So the issue should be to let us build on this
strength. Let us not be too scared of what is happening around
the world. Let us build on the strength we have and make sure
we remain in that position.
Thank you.
[The prepared statement of Dr. Baily follows:]
Prepared Statement of Martin N. Baily\1\
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\1\ The author is a Senior Fellow at the Peterson Institute for
International Economics in Washington DC. He was previously the
Chairman of the Council of Economic Advisers and a member of President
Clinton's cabinet (August 1999 to January 2001). He has also served as
a Member of the Council. The views expressed here are those of the
author and should not be ascribed to the trustees, or other staff
members of the Peterson Institute.
---------------------------------------------------------------------------
Globalization has provided many benefits to the U.S. economy. My
Peterson Institute colleagues, Gary Hufbauer et al., have estimated
that the U.S. is a trillion dollars richer today than it would have
been if there had been no reduction in trade barriers after the end of
World War II.\2\ Many studies of productivity carried out at the
McKinsey Global Institute have shown that productivity in an industry
is enhanced when it is exposed to global competition, particularly
competition against the world's leaders.\3\ You have to compete against
the best if you want to be the best. The Organization for Economic
Cooperation and Development found that openness to international trade
had provided an important stimulus to growth among the member countries
of that organization.\4\
---------------------------------------------------------------------------
\2\ Scott Bradford, Gary Clyde Hufbauer, and Paul Grieco ``The
Payoff to America from Global Integration,'' in C. Fred Bergsten ed.,
Foreign Economic Policy for the Next Decade, Peterson Institute for
International Economics, 2006.
\3\ For a list of productivity studies see www.mckinsey.com/mgi
\4\ OECD Economic Policy Reforms: Going for Growth 2007, Paris,
2007.
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The United States benefits from globalization because it results in
lower prices for U.S. consumers, provides greater access to new
technologies and business practices from around the world, allows U.S.
companies to take advantage of economies of scale, and because it
forces companies to improve their own performance. One sign of the
benefits of the open and competitive market in the U.S. is the fact
that productivity growth has been strong for the past ten years. From
1995 to 2006 output per hour in the non-farm business sector of the
U.S. economy has been nearly 2.9 percent a year, much faster than the
pace achieved for 20 years prior to 1995 and faster than most other
advanced economies.
At the same time, there are legitimate concerns about the impact of
globalization on Americans. There is concern is over the impact of
globalization on the skilled workforce and on the science and
technology base of the U.S. economy--the topic of this hearing.
Strength in science and technology has been a key part of the success
of the United States over its history. In addition there is concern
over the huge trade and current account deficits and the slow growth of
wages and incomes for lower skilled workers.
Scientific Research has Always been a Global Endeavor
The history of science tells us that major contributions have been
made to scientific knowledge from countries and regions around the
world. The United States came to the fore in scientific research during
the 20th century, relying on its great universities and taking
advantage of outstanding scientists and engineers that came to the U.S.
from the rest of the world. Today, the U.S. remains unquestionably the
global leader in science, judged by the size and quality of its
research community and on the metric of Nobel prizes.
U.S. leadership is not unchallenged, however. Other countries are
determined to build up their own scientific research and are funding
research projects. What are the lessons for U.S. policy?
Scientific research is not a zero-sum game.
Scientific breakthroughs made around the world have benefited
Americans and will do so in the future. One of the strengths of
the U.S. economy has been its ability to learn from
developments made elsewhere and adapt them to the needs of the
economy.
Maintaining U.S. strength in science depends heavily
on embracing its global character. This means that trained
scientists from around the world must be able to come to the
United States and participate in the research being carried out
here. It means that students from around the world must be
allowed to come to U.S. graduate schools and remain in this
country for post-doc work.
It is not just a matter of the number of visas
granted. The treatment given to people applying to enter the
U.S. has sometimes been unpleasant in ways that do not
materially assist our national security. Ultimately this will
weaken our universities and our scientific base.
Scientific research depends upon funding from the
government and foundations because no private company finds it
worthwhile to support large-scale research that does not
provide it with proprietary returns. The U.S. government does
support scientific research and must continue to do so, even
during periods of budget tightness. Moreover, the allocation of
funds must be on the basis of the underlying science and
technology. Allocating too large a share of scarce research
dollars to celebrity diseases or big spectacular projects
should be avoided.
There is also a case for government support of pre-
commercial technology development. This is research that is
closer to commercial application than pure scientific study,
but that is too broad and general for companies to do. There
are areas of material science, for example, that fall into this
category. This type of research must be carefully handled,
however. Sometimes such projects continue too long because it
is not easy to admit failure. Failure is part of research, but
that means that projects must be turned off as well as turned
on.
Off-shoring Services and Science and Technology
Historically, the United States has been a preferred location for
employment in science and technology and has a robust comparative
advantage in services. In 2006 the U.S. ran a $72 billion surplus in
services trade, despite the fact that goods trade was in a huge
international deficit. As part of the $72 billion services surplus, the
U.S. ran a surplus of $35 billion in royalties and licenses, much of
that coming from technology, as well as movies and other media. These
figures in fact greatly understate the global revenues generated by
technology activity in the U.S. U.S.- and foreign-based multinational
companies draw on the technological base they have developed through
R&D and business development here in the U.S. and use it in operations
throughout the world. The returns come back as net income to U.S.
companies.
The U.S. also runs a trade surplus in education reflecting the
foreign students that are educated in U.S. institutions. The only major
service categories in which the U.S. ran a deficit were insurance and
transportation.
The very large trade deficits in manufactured goods experienced by
the U.S. have been the result largely of a value of the dollar that has
made U.S. production too expensive relative to other countries and the
dollar has also hurt U.S. services trade. The values of the Euro, the
British pound, the Canadian dollar and other currencies have adjusted
upwards and this has made the U.S. a more competitive economy for
locating production facilities and also R&D and other technology
facilities. This should help to boost U.S. employment in technology
fields going forward. Some Asian currencies, notably the Chinese
renminbi and the Japanese yen, remain undervalued, according to several
of my Peterson Institute colleagues, and if these currencies adjust
upwards in the future this will add to the desirability of the U.S. as
a location for high technology research, as well as tradable services
more broadly.
On balance, the U.S. service sector as a whole has sustained its
position as a net exporter through a challenging overall environment
for trade. Many countries around the world have off-shored their R&D
and technology employment to the U.S., pharmaceutical R&D by U.S. and
European companies in New Jersey, for example.
This is not to downplay the competitive challenges now facing the
U.S. service sector and the pressure being felt by some mid-level
occupational categories in the U.S. Table 1, prepared by the Peterson
Institute's Jacob Kirkegaard, shows employment in a number of computer
and technology related occupations, as well as employment in lower-
skilled service occupations that are subject to relocation off-shore.
The upper half of the table reveals that call-center type occupations
and low-wage technology workers have experienced a substantial decline
in employment, about 800,000 between 1999 and May 2006. This decline is
in part the result of off-shoring, moving these jobs to lower-cost
locations. Not all the employment decline is trade-related, however.
Some of the largest declines are for data entry keyers and word
processors and typists. These occupations have been heavily affected by
changes in the technology itself, making it easier to read and transfer
data electronically and allowing many white-collar workers to enter
their own documents or spreadsheets directly into the computer,
bypassing the need for secretarial assistance.
This is an important point. The book by Frank Levy and Richard
Murnane points out that the characteristics that make it possible to
off shore a particular job also make it possible to automate that
job.\5\ This means that off shoring and automation are often
alternatives. It is misleading to look at jobs that have ``moved'' to
India and assume these jobs would have remained in the U.S. In many
cases, the jobs would have been automated if there had not been the
opportunity to buy the service overseas.
---------------------------------------------------------------------------
\5\ Frank Levy and Richard J. Murnane, The New Division of Labor:
How Computers are Creating the Next Job Market, 2005
---------------------------------------------------------------------------
The lower part of the panel shows employment for mid-level workers
and high-wage technology workers. The mid-level employment has risen
nearly 52,000 and the high-wage workers have increased by about 428,000
between 1999 and 2006. Despite the impact of the technology crash in
2000-2001, and despite the impact of service sector off-shoring,
employment in these job categories on average has increased
substantially--by nearly 20 percent. Within the high-wage categories,
however, there is one that stands out: computer programmers have seen a
decline in employment of about 133,000. The decline in employment in
this area comes because of the end of the tech boom, but also because
many programming jobs have been re-located off-shore. The person who
heard that programming was the way to ensure a good job and took some
courses to learn the basics has found that the jobs are not there.
Those that upgraded their programming and computer systems skills have
been in demand.
The Economics of Service Sector Off-Shoring\6\ One of the things
that scare Americans is the idea that almost any job today could be
off-shored. That is not true. A careful estimate has found that about
11 percent of all jobs could theoretically be carried out in a remote
location. There are higher estimates around, but these do not take into
account adequately some of the difficulties of performing tasks
remotely, including the difficulty of complex, one-on-one interactions
that are required in many operations.\7\
---------------------------------------------------------------------------
\6\ This section draws on The Emerging Global Labor Market, 2006, a
study of the McKinsey Global Institute on which I was an advisor, see
www.mckinsey.com/mgi
\7\ Alan Blinder in ``Off-Shoring: The Next Industrial
Revolution,'' Foreign Affairs, March-April 2006, makes a rough estimate
that 28 to 42 million jobs are susceptible to off-shoring. Blinder does
not mention the possibility of service jobs that come to the U.S. as a
result of trade. J. Bradford Jensen and Lori Kletzer in ``Tradable
Services: Understanding the Scope and Impact of Services Outsourcing,''
Peterson Institute, Working Paper 05-9, September 2005 use an original
empirical approach and indicate a pretty large number of jobs that
could theoretically be off-shored, although the authors believe only a
fraction of this total are actually vulnerable.
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Even though 11 percent of employment is a lot smaller than some of
the scare-numbers out there, it is still a very large number of jobs.
Civilian employment in the U.S. was about 146 million in 2006, so 11
percent would be over 16 million. But in fact the likely number of jobs
that will be off shored over the next few years is much smaller than
this. The main determinant of the number of jobs off shored is the
extent to which U.S. businesses judge that it is economic to do so. For
some sectors the cost advantage from moving off shore is very small and
not worth the risks involved. This is becoming increasingly true for
off shoring to India, where wages are rising very rapidly for skilled
workers. For many sectors it is not possible to disaggregate their
value chains and move parts of them overseas because the business
processes are just not suitable. Many small businesses do not have the
scale to make off shoring worthwhile. For some sectors there are issues
of regulation or intellectual property protection that preclude off
shoring. On balance, it can be expected that no more than four million
jobs will be off shored over the next five years, or about 2.7 percent
of civilian employment in the U.S. Figure 1 illustrates the different
factors that influence the off-shoring decisions companies make.
Overall, the growth of off-shoring is demand driven because there
is an adequate supply of workers located in other countries that are
qualified to perform the tasks that U.S. companies will look for. There
are a couple of important qualifications on the supply side, however.
One of the arguments often used to argue that U.S. jobs and wages are
threatened is to claim that there are billions of new workers in the
global labor market competing directly with American workers. This is
not the case. After careful interviews with a number of companies, the
McKinsey study found that the number of suitable workers available is
much, much smaller. Based on educational qualifications alone there
were about 33 million workers available in 2003, but after assessing
their language skills and suitability and availability to work for
multinational companies, the number dropped to about four million. The
number of suitable workers is growing over time, of course, and so the
overall supply will be more than adequate to meet the U.S. demand of
around four million over the next five years, but talking about
billions of competing workers is just misleading.
The second qualification is that the number of suitable engineers,
particularly software engineers, in the global economy may not be
adequate to meet demand, leaving unmet engineering needs and/or rising
relative wages for this group. Countries such as India and China are
growing at an amazing pace and increasing their own demand for skilled
workers. High tech in the U.S. is a rapidly growing sector again. If
demand growth exceeds current estimates there will be a shortage of
trained workers globally.
Globalization and Technology: Evolving Models The nature of service
sector off shoring is changing. Initially, companies took part of their
value chain and sent it overseas--call centers or basic programming.
What is happening now is that U.S. companies are forming partnerships
with companies in India and elsewhere. The new models have the
following characteristics:
Cooperation--both parties work together to achieve
the goals of a common work force
Productivity and innovation--drive for productivity
gains and the centralizing of key processing capabilities
Transparency--sharing both financial and operating
details
Movement between operating models--The client can
move processes (and staff) between the operating models to meet
changing business demands
Third party vendors--May be deployed to perform
specialist services
Multiple sites--Operations across multiple physical
centers and geographies
As is to be expected, the opening up of service activities to
globalization has triggered a new round of interactions. The overseas
suppliers of services are developing skills that allow them to work
with U.S. multinationals to increase productivity, the range of
activities that can off shored and the different geographies that
supply services. As off-shoring matures as an activity, it takes on new
roles which focus on improving productivity and efficiency in U.S.
operations, not just moving jobs. Note also that leading Indian off-
shoring companies are rapidly increasing their operations in the U.S.
and Europe. Many of the outsourced services being provided to U.S.
companies are being supplied by employees of outsourcing companies that
are based in here in the U.S., creating American jobs.
The Shifting Mix of Jobs The U.S. economy has sustained low rates
of unemployment for the last twenty years and currently has an
unemployment rate of 4.5 percent, so our economy can create jobs,
indeed many companies report they have trouble recruiting workers. The
challenge for the U.S. labor market is that the distribution of wages
has become much wider over time. How serious this problem is and the
extent to which it is the result of trade or technology is a matter of
controversy that I will not address here, but there is no question that
the off-shoring process has resulted in a shift in the composition of
employment. As we saw in Table 1, in computer and other occupations
that have been subject to off-shore competition, there has been a
decline in basic jobs and an increase in higher skill jobs, on balance.
Although off-shoring is not large enough to be a main driver of the
distribution of income in the U.S., it will contribute to some extent.
Policy Implications of Off-Shoring
The most important features of the U.S. economy that
make it attractive as a location for science and technology
production are the tremendous base of activity already in
place; the favorable climate for business; the range of
customers eager to make use of new technologies; and the
flexibility of the economy that encourages business
experimentation. Policy must make sure that these advantages
stay in place. Efforts to regulate against off-shoring would
discourage companies from locating science and technology jobs
in the U.S. and undermine the very jobs these efforts were
attempting to save.
One of the most acute problems facing the U.S., one
that is likely to worsen over time, is the rising cost of
health care. To the extent that support and technical jobs in
this sector can be performed at lower cost overseas, this will
help not only the fiscal deficit, but all Americans that use
the health care system. Policy-makers should encourage the use
of the global economy to increase competitive pressure in the
health care market and cut costs. It makes no sense to lament
the fact that so many Americans lack health insurance and then
stand in the way of measures that could lower health care costs
by taking advantage of the global economy.
The U.S. is already a major exporter of services and
could become a larger exporter if foreign markets were more
open. The U.S. has a lot to gain from trade negotiations that
would open up service sectors around the world.
Compared to most other advanced countries the U.S.
spends very little on worker training. Many companies report
that they are unable to find skilled workers but many companies
are unwilling to provide the training that would create the
needed skills. Given the high rate of turnover in the U.S.
labor market that is not surprising because companies do not
want to train someone only to see them move to a competitor. An
important step that Congress could take to help U.S. workers
find better jobs and compete in the global market is to create
financial incentives for companies to train workers, and
financial penalties for companies that do not train. Our best
companies today that do train their workers would benefit from
such a policy.
Education, Globalization and the Science and Technology Workforce
We know that the American education system is not providing
adequate skills to many Americans, skills that would allow them to get
better jobs and that would increase the number of people that can work
in R&D and technology jobs here in the U.S. This is a hard problem to
fix, and part of the difficulty is that many students are unwilling to
study technical subjects. We could help, however, by increasing
opportunities and incentives. Higher education has become more
expensive for low-income families because the value of government
scholarships and awards has not kept pace with rising education costs.
Congress could help solve this problem by providing additional grant
money for students that lack the resources to attend.
Americans do respond to incentives. Many people, including myself,
believe that it is in the interest of the economy as a whole to have an
increase in the number of people educated in science and technology and
hence a case for public support of science and technology education.
Having a strong science and technology workforce based in the U.S.
helps generate good jobs and preserve our current strength in this
area. Congress could add to the size of this workforce by providing
more graduate scholarships in science and technology subjects that are
available to U.S. citizens and permanent residents. It is contradictory
to talk about the need to protect our technology infrastructure if we
are unwilling to pay the modest amounts needed to strengthen it
directly.
Conclusions
Globalization is being blamed for problems that have been created
by failures in other areas. The U.S. does not save enough; job
transitions are too costly because they can cause a loss of health
insurance; workers that lose or leave jobs are not given adequate
income or retraining support to help them find new jobs that are better
than the ones they may have lost. Denmark has developed a system of
``flexicurity'' that gives them a flexible labor market but provides
substantial but tough-minded support for workers. Most of the rest of
Europe has income support but not enough flexibility. The U.S. has
flexibility but not enough support. The Danish model is not one that
could be translated directly to the U.S., but there are lessons for the
U.S. here. Denmark has more people employed than does the U.S.,
relative to population, and sustains a lot of good jobs.
For a number of years the value of the U.S. dollar against many
currencies was out of line with the level that would allow U.S. workers
to compete effectively and exploit the underlying strength and
productivity of the U.S. economy--it is still out of line against some
currencies. The most important way to make sure the U.S. economy
retains its strength as a center of technology jobs is to increase
national saving and reduce our dependence on capital inflows from
overseas, inflows that are the counterpart and enabler of our trade
deficit. The Federal Government has run very large cumulative budget
deficits for many years. We need a fiscal policy in which there are
budget surpluses during periods of full employment.
Trying to strengthen the R&D and technology jobs base of the U.S.
by subtle or overt protectionism is a mistake. The U.S. is already an
attractive location for these activities and it will become more
attractive if we can take advantage of the global economy to reduce
costs. In particular, Americans will be much better off if we can use
the global economy to reduce the crushing costs of health care.
Chairman Gordon. Thank you, Dr. Baily.
And now Dr. Gomory, we will now get to you.
STATEMENT OF DR. RALPH E. GOMORY, PRESIDENT, ALFRED P. SLOAN
FOUNDATION
Mr. Gomory. Thank you, Mr. Chairman.
Mr. Chairman, Members of the Committee, thank you for the
opportunity to take part in this important hearing. The
subjects we are going to discuss today are the ones to which I
have devoted much of my life, and so this opportunity means a
great deal to me, and I thank you.
I will make only one basic point in all my testimony, and
it is this: In this new era of globalization, the interests of
companies and countries have diverged and this divergence of
goals enormously complicates the issue of national
competitiveness. Countries have always looked to their
companies to be productive and, thus, to be able to be provide
productive and high-paying jobs and contribute strongly to the
total output of the country, its GDP, gross domestic product.
GDP is what countries want from their companies. Companies have
always needed profits, both to survive and to do something for
their shareholders, and these two different sounding goals were
once tightly linked, but that has changed. Globalization has
now made it possible for global corporations to pursue their
profits by building capabilities abroad. Instead of investing
in the United States and using R&D to increase their U.S.
productivity, corporations today have the option of producing
goods and services abroad using low-cost labor and import the
goods or services into the United States. But in creating their
profits in this way, they are building up the total output of
goods and services of other countries while breaking their once
tight links with America's own GDP, America's output.
The effect on the United States of the internationalization
of the scientific and technical enterprise must be understood
as one part of this revolutionary process of globalization. The
role of science and technology in globalization is very
special. S&T does not contribute to a nation's wealth by
employing large numbers of people in high-value-added or high-
wage jobs. It contributes by supporting a relatively small
number of people whose work is intended to give a competitive
edge to the end products, whether those end products are goods
like cars and computers or services like call centers or
advanced medical services. It is these end products, not the
R&D itself, that make up the bulk of a country's output and
most of a corporation's revenues and support of the jobs and
wages of its employees. It is the competitive edge that is
obtained from R&D.
If in the process of globalization the production or
delivery of services and of the end product moves overseas, so
do the wages. Even if R&D should remain behind, which in the
long run it tends not to do, the vast bulk of value creation
has moved to another country, and it is there that it supports
the wages and GDP of that country, and this is an important
shift. The productivity, the ability to produce goods and
services of both countries have changed. It is at this point
that a common confusion enters. The theory of free trade is
invoked to say that although such shifts are painful to those
who lose their jobs, they will find new ones, and the result is
cheaper and better goods that benefit consumers so that,
overall, the country comes out ahead. However attractive this
idea, it is in fact an incorrect characterization of the theory
of free trade.
Free trade owes its deserved appeal to the sound notion
that if all countries produce the things at which they are
relatively best and then trade these goods and services with
countries which themselves produced what they supply best, then
the global community and all its people will benefit. This is
free trade, and I am a supporter of it. But in the economic
analysis that produces this very favorable view of free trade,
productive capabilities to make goods and services are taken as
fixed. It is goods that are traded, but the ability to produce
them is fixed, and that is not just a limitation of the theory,
because it is easy to show that the uniformly benign results of
free trade theory simply do not apply if there are also
productivity shifts. Globalization, therefore, is not free
trade because it does involve productivity shifts.
When the United States trades semiconductors for Asian
sneakers, for example, that is trade, and the conclusion of
economic theory is that this type of exchange clearly benefits
both countries, but when U.S. companies build semiconductor
plants and R&D facilities in Asia rather than the United
States, then that is a shift in productive capability and
neither economic theory nor common sense asserts that that
shift is automatically good for the United States. Since
globalization, as I said, does involve productivity changes,
free trade theory does not apply, and the forecast of a benign
outcome is not based on that theory. Again, globalization is
not free trade.
However, economic theory is not a blank on this subject.
What economic theory does show about productivity shifts is
they tend to benefit the home country when its trading partner
is a relatively undeveloped country. As the trading partner
becomes more developed, the benefits decrease and pretty soon
you reach a point where further development of the trading
partner is detrimental to the home country. You are losing more
to the new competitive ability of your trading partner than you
gain from cheaper goods. Although it is common to propose
tariffs under these circumstances, the only real antidote in
this situation is to do the things that increase U.S.
productivity, and in a globalized world, that is not easy. The
desire to increase productivity often translates into asking
for improved education and more money for R&D, often K-12
education. Proposals of this sort about education and R&D can,
in themselves, only be helpful. They can only be harmful if
they create the belief that these measures are enough to deal
with the problem. They are only a first step but a good one.
The difficulties in improving education are well known, and
those improvements are slow to come by, and also, there are
limits to what can be done by education. We cannot expect
education to turn out Americans who are so productive that they
are worth hiring in place of the four or five Asians that can
be hired for the same amount of money. More R&D, too, can only
help but the R of R&D, basic research, that knowledge is spread
around the world rapidly today so it becomes the common
property of those who are developed enough to know how to use
it, and there are more of these than ever before. Development,
the D, may well result in greater productivity, but that
productivity may well today in a globalized company itself be
abroad, and it will not result, therefore, in the greater
productivity of American workers or of the American economy.
These measures are all good. They were even better in the past,
but in today's globalized world their effect is somewhat
weakened by globalization.
However, there are measures that work, even in a globalized
world, because they tend to align company and country
interests, and in looking at such approaches, we will be
following in the footsteps of the Asian countries themselves.
The Asian countries have made it profitable, and that is what
companies need, for foreign, often U.S. corporations to create
high-value jobs in their countries, and they do this by
offering tax and other incentives as well as an undervalued
currency that make it profitable for corporations to locate
high-value jobs in their countries, and we should consider
incentives that reward companies in the United States for the
same thing. If we want high-value-added jobs, let us reward the
companies for producing such jobs whether they produce that
through the use of R&D, through the use of more-efficient
manufacturing, through marketing, through a better way to
deliver a service or through any form of American ingenuity by
any means, at all. Let us reward the end result.
To show that incentives exist, let me briefly outline one,
and this is only suggestive. We could have a corporate tax rate
that would be scaled to the value added per American worker,
full-time-equivalent worker, of corporations operating in the
USA. Companies with high value add per U.S. employee would get
a low rate, a low tax rate. A company with low value add per
U.S. employee would get a high rate. This tax could be made
revenue-neutral--very important. It would be an incentive for
companies with high-value-added jobs to locate and keep their
operations in the United States and it could be as strong or as
weak an incentive as desired.
Let me finish by saying that in this country, we have had a
remarkable culture of entrepreneurship that has helped ideas to
become reality and which provides rich rewards for those
accomplishments. Though we have had corporations in which it
was recognized that it was in their own interest to invest
alongside the U.S. workforce and make it possible for that
workforce to increase its productivity, we need to consider
incentives such as the tax mentioned above to realign the
profit interests of corporations with interests of the country,
and since we are dealing with globalization, not free trade,
that alignment today is not automatic.
Thank you very much for listening.
[The prepared statement of Dr. Gomory follows:]
Prepared Statement of Ralph E. Gomory
Mr. Chairman, Members of the Committee, thank you for the
opportunity to take part in this hearing. The subjects that we are to
discuss today are the ones to which I have devoted much of my life. I
was for almost 20 years the head of the research effort of a major
international corporation, (IBM), for the last 17 years as the head of
a major foundation (Alfred P. Sloan) deeply interested in science and
technology. In addition, for almost my entire adult life, I have been
active as an individual researcher first in mathematics and more
recently in economics, I am pleased and honored to be here today and to
have this opportunity to testify.
I will make only one basic point in my testimony: In this new era
of globalization the interests of companies and countries have
diverged. In contrast with the past, what is good for America's global
corporations is no longer necessarily good for the American people.
The effect on the United States of the internationalization of the
scientific and technical enterprise can only be understood as one part
of the revolutionary process of globalization, which is fundamentally
revising the relation of companies to the countries from which they
have originated. In this new era of globalization the interests of
companies and countries have diverged. What is good for America's
global corporations is no longer necessarily good for the American
economy.
In 1953 when General Motors Chairman Charlie Wilson told the U.S.
Senate that ``For years I thought what was good for the country was
good for General Motors and vice versa''; he was articulating a
philosophy and belief that when American corporations were successful
it was generally good for the American people. But that was before
globalization.
What ``Engine Charlie'' Wilson thought was largely true then
because American corporations invested and prospered right alongside
the American worker. Whether it was in GM manufacturing plants or in
IBM's research and development labs companies gave American workers the
tools to outproduce the rest of the world.
Companies thrived by having the best plants and equipment and
information processing, not through having the longest work year in the
world. And the workers and the American people more generally shared in
that productivity and prosperity.
Misalignment of Company and Country
But over the last decade, what is good for the country and what is
good for corporate America have gotten out of alignment. Today, most
companies emphasize, to the exclusion of nearly everything else,
corporate profitability and shareholder benefit. By measuring
themselves only on profit in a globalized world, American companies may
be able to succeed, but America the Nation and American workers cannot.
We understand that profit is a creative force. Companies come into
existence to create profits, and in turn they create GDP, the goods and
services that constitute a nation's economic output. And in constantly
striving for more profits, companies become ever more efficient and
create ever more GDP. As Adam Smith pointed out, ``It is not from the
benevolence of the butcher, the brewer or the baker that we expect our
dinner, but from their regard to their own interest.''
But globalization has now made it possible for global corporations
to pursue their profits by building capabilities abroad. Instead of
investing alongside U.S. workers and using their investment and R&D to
increase their productivity, corporations today can produce goods and
services abroad using low-cost labor and import them into the U.S. But
in creating their profits this way, they are building up the GDP of
other countries while breaking their once tight links with America's
own GDP.
All of this is part of the process of globalization.
Globalization of Science and Technology
The role of science and technology in globalization needs to be
understood. S&T does not contribute to a nation's wealth directly by
employing large numbers of people in high value-added or high wage
jobs. It contributes by supporting a small number of people whose work
is intended to give a competitive edge to the end product, whether that
is goods or services. It is these end products, whether they are cars
or computers or medical services that make up the bulk of a
corporation's revenues and support the wages of its employees.
If in the process of globalization the production (or delivery in
the case of services) of the end product moves overseas, so do the
wages. Even if R&D remains behind, the vast bulk of value creation has
moved to another country and it is there that it supports the wages of
employees. This is an important shift. It is important, because in the
long run a country cannot consume more value than it produces and this
shift decreases the value it produces.
Of course what we see is that R&D is also moving offshore, so that
form of value creation is also moving to other countries.
It is at this point that a common confusion enters. If these
production, delivery of services and/or R&D shifts occur as the free
and unfettered actions of corporations the theory of free trade is
invoked to say that although this is painful for those who lose their
jobs, the result is cheaper and better goods that benefit consumers, so
that overall the country comes out ahead.
However that is an incorrect characterization of the theory of free
trade.
Trade and Productivity Changes--Globalization Is Not Free Trade
Free trade owes its deserved appeal to the sound notion that if all
countries produce the things at which they are best, and then trade
those goods and services with countries which themselves produce what
they supply best, then the global community and its workers will all
benefit. Economic theory uses the phrase ``the gains from trade'' to
describe this.
In their analysis of trade economists usually take productive
capabilities as fixed and describe trade in the goods and services that
those capabilities provide. It is this narrow meaning of trade that
economic theory clearly shows to be superior for both parties over
failure to trade. Hence economists emphatic rejection of tariffs and
other barriers to trade.
But when productivity capabilities are not fixed but are changed in
the countries that are trading with each other, as they are in
globalization and as they are changing today especially in Asia, the
world finds itself in a whole new ball game. The end result of that
change, even when the period of adjustment is over, may be better for
one's country or it may be worse, depending on the circumstances.\1\
And globalization is clearly replete with productivity changes.
---------------------------------------------------------------------------
\1\ In Reference [5] Gomory and Baumol discuss when productivity
shifts are mutually beneficial and when there is in fact a conflict in
national interests.
---------------------------------------------------------------------------
Conclusions about trade in the narrow sense with fixed capabilities
should not be confused with conclusions about the effect of
productivity shifts. There is nothing in either common sense or
economic theory which says that improvement in the productivity
capabilities of other countries is necessarily good for your country.
This observation holds true even if these productivity shifts are
brought about by the free and unfettered actions of corporations.\2\
---------------------------------------------------------------------------
\2\ In fact the economic literature has a long history of both
general theories and specific examples by distinguished economists
showing that improvements in the productivity of a trading partner,
even if unaccompanied by a diminution of productivity at home, can be
harmful to the home country. References [1], [2], [3], [4] and [5].
---------------------------------------------------------------------------
When the U.S. trades semiconductors for Asian t-shirts, for
example, that is trade in the narrow sense.\3\ And the conclusion of
the most basic economic theories is that this exchange clearly benefits
both countries. But when U.S. companies build semiconductor plants and
R&D facilities in Asia rather than in the U.S., then that is a shift in
productive capability, and neither economic theory nor common sense
asserts that shift is automatically good for the U.S. even in the long
run.
---------------------------------------------------------------------------
\3\ Generations of economist have been trained on the England makes
textiles, Portugal makes wine model. In these discussions no
productivity shift was involved.
---------------------------------------------------------------------------
Since globalization is free trade plus productivity changes the
benign conclusions of the free trade model with fixed capabilities
simply do not apply to globalization.
However, even in these circumstances theory does continue to point
steadily to the benefits of free trade. If there is a productivity
change, the free trade outcome with the pre-change productivities is
better than one with tariffs, and the free trade outcome with the new
productivities is a also better than it would be with tariffs. Free
trade does not guarantee that the productivity change is good for both
countries, but both the before and after outcomes would be worse
without it.
Harmful and Helpful Productivity Shifts
Productivity shifts have often figured in the common discussions of
trade. For a long time it was an article of faith that whenever a
productivity shift occurs the U.S. will automatically be certain to
export unproductive low paying jobs, while our workers are moved up to
more productive, more highly paid positions--and for an equally long
time, this was, indeed, a reasonable description of the productivity
shifts that the U.S. experienced. But that is not the picture before us
today.
Since productivity changes are an essential element in
globalization, and they can be harmful as well as helpful it is
evidently essential to determine when they help and when they harm.
Together with well-known economist William Baumol I have written a book
[Ref. 6] and a number of papers on this subject using the most standard
of economic models [References], and I will summarize our conclusions
below. However, first we need to discuss just why the answer matters.
As we pointed out in our book [Ref. 6, pp. 71-73] there can be a
divergence of interests between multinational firms and their home
country. An overseas investment decision that results in productivity
increases abroad may prove to be very good for the profits of a
multinational firm, but it is far from automatic that it will also be
good for the firm's own country as a whole. So the answer does bear on
what people are seeing and are concerned about.
Our analysis shows that the impact on the home country of
productivity increases in its trading partner can be favorable if the
productivity increases occur in a very low wage country. American
imports from that country become cheaper, trade expands for both
nations and the result is mutual gain. But this becomes less true as
the developing nation acquires greater capabilities and assumes a
larger share of world production. At some point further development of
the newly developing partner becomes harmful to the more industrialized
country. Then, a firm that is moving production of goods and services
overseas may find that it is generating greater profits for the
company, but the same action can also result in an actual loss of
national income for the company's home country. The home country will
still be better off than it would be if trade were cut off altogether,
but its position will be inferior to what it was before the improvement
in the productive capacity of its developing trading partner.
Why Does This Happen?
We obtain this result unequivocally from a careful mathematical
analysis using the actual and standard equations employed by economists
in their study of economic equilibrium. But the logic can also be
understood in common sense terms.
In the simplest models of trade,\4\ wages of countries reflect the
proportions of world value they produce. A country that produces more
than its population share of world value\5\ will be a high wage
country; one that produces little will be a low wage country. Consider
a low wage developing country, Devland, with which the more developed
Homeland is trading a variety of products. Suppose that Devland
succeeds in increasing to near Homeland levels the productivity with
which it produces a commodity, clothtex that it has been importing from
Homeland. Because of its low wage, it can now produce clothtex at a new
low price and so it succeeds in taking over all or part of the clothtex
market. As the new situation settles down we would expect the wage in
Devland to have increased relative to the wage in Homeland as Devland
now makes a larger proportion of the world's goods.
---------------------------------------------------------------------------
\4\ Often referred to as Ricardian models.
\5\ As measured by current prices.
---------------------------------------------------------------------------
The overall economic effects on Homeland are then: (1) consumers in
Homeland get clothtex at lower prices and (2) because of the new higher
relative Devland wage, the prices of the other goods imported into
Homeland from Devland go up. With clothtex having become cheaper for
Homeland consumers, while the other imports have become more expensive.
This can either be a good or bad outcome for Homeland, depending on how
much the price of clothtex has declined and how much else is being
imported from Devland. For this reason such productivity shifts may
often not be benign.
We emphasize that a negative outcome for the home country is not
exceptional or rare. The simplest example is provided by the standard
England (cloth)--Portugal (wine) model often used to illustrate the
benefits of free trade. If we add to that familiar model the effect of
production shifts by allowing a cloth industry to emerge in Portugal,
the effect is to lower the standard of living of England and raise that
of Portugal. [see Endnote]
More generally how do these two effects balance out? The favorable
effect of each individual industry shift is not likely to grow as
Devland develops since Devland is most likely, to take over the
industries in which low wage matters most, or industries in which they
have some level of natural advantage such as climate or culture.
However, the unfavorable effect will steadily become more important as
the Devland develops further and Homeland imports more and more from
them.
We can now see why the result we described above occurs. At some
point ever-further development of the newly developing partner becomes
harmful to the more industrialized country.
Where Are We Now?
Our calculations tend to show that we move from benefit to loss
when the wage of a country with which we are trading rises to one-
fourth or one-third of the U.S. wage. The size of the trading partner
also matters, and we get into losing territory earlier when the trading
partner has a large population. If we had to guess, we would venture
that we are now at that point in relation to some of the Asian
countries.
Of course, one may well argue that even that is a benign outcome
for the world. Perhaps we are too rich and we should give up something
to those who are poorer. That is a perfectly defensible position.
However, that is not the way globalization and offshoring are usually
described to the American people. Rather, we are assured that it is
bound to make us richer in the long run, after the pain of change has
been absorbed.
To summarize: The most standard basic economic theory deals with
the universal benefit of free trade between countries with fixed
productivities. Most discussions, however, lump that conclusion with
those valid for the effects of developments that change the
capabilities of the trading partners. The uniformly benign features of
the fixed productivity case are then claimed for the more general one
as well. There is no basis for these claims. Analysis shows that the
results can go either way, so the people of this country should not
count on some long-range outcome that must inevitably make up for
present pain. That day may never come.
Alan Blinder recently pointed out in Foreign Affairs,\6\ that the
effect of the production shifts that are likely to occur may well be so
large that it is hard to think of them as even reasonably benign. Our
calculations show the same thing, a developed country trading with a
much larger (in population) country that is initially undeveloped and
then increases its productivity capabilities, can suffer a precipitous
drop in its standard of living. But our analysis shows no reason to
expect that to be only a temporary pain.
---------------------------------------------------------------------------
\6\ Reference to Blinder article.
---------------------------------------------------------------------------
Protectionism and Globalism
One might well wonder how two such mistaken concepts,
protectionism, in which we forgo the gains from trade, and the
automatic win-win view of globalization which we will refer to as
``Globalism'' which at times put our economy at risk, can persist with
so little rational underpinning, but the answer is not hard to find.
Protectionism thrives, and will continue to thrive, because of the
support it gives to the immediately affected domestic manufacturers and
their employees. Similarly globalism is thriving today at least partly
because it supports and gains support from a group that is very
powerful today, the multinational corporations. For that reason we
think that both protectionism and globalism will be with us for a long
time to come whatever the rationality of these views from the point of
view of economic theory.
In addition both protectionism and globalism have a natural
structure that contributes to their persistence. Tariffs and other
impediments to trade may provide large benefits to the limited set of
firms in the protected industries and their employees, while the
diffused damage to the rest of the Nation, though far greater in total,
may only have a small effect on each of the many individuals upon whom
the burden falls. Similarly, outsourcing may substantially benefit a
small group of firms at the expense of widely diffused costs falling on
the rest of the Nation to a degree hardly noticed by each affected
individual. Thus, the proponents of socially damaging trade protection
or socially damaging outsourcing are likely to be organized and
strongly motivated, with little effective opposition from the remainder
of the community, though the latter, in total, bear the brunt of the
damage.
Can Anything Be Done?
This testimony does not pretend to take on in any systematic way
the task of answering the question, ``What is to be done?'' I will be
content if I can contribute to clarification of the some of the issues.
However just the distinctions about trade we have made are suggestive.
To obtain the benefits of trade in the narrow sense we need free
trade. This means, in particular, that we need to address the major
distortions in the market caused by the systematic mispricing of Asian
currencies. If we do not have a free market in currencies we cannot
claim that the benefits of free trade are being achieved.
At the same time, turning back to the issue of changing
productivities, we must continue to improve U.S. productivities
relative to those of the Asian nations. This often translates into
asking for improved K-12 education and more money for R&D. Improved
education is hard to come by and it is hard to imagine an improvement
in education so profound that it turns out Americans who are so
productive that they are worth hiring in place of the four or five
Asians who can be hired for the same wage. More R&D can only help but
it should be clear from the discussion above that R&D, even if it
remains in the U.S., can have only a limited impact. Proposals of this
sort about education and R&D can only be helpful. They can only be
harmful if they create the mistaken belief that these measures can deal
with the problem.
I think that effective measures will have to tackle the problem
more directly. Asian countries have made it profitable for foreign
(often U.S.) corporations to create high value added jobs in their
countries by offering tax and other incentives that make it profitable
for corporations to locate high value added jobs in their countries. We
need to look hard at incentives that reward companies in the U.S. for
the same thing. If we want high value added jobs let us reward the
companies for producing such jobs whether they do that through R&D, or
just plain American ingenuity or by any means.
One such possibility is a corporate tax rate that would be scaled
by the value added per FTE by the workers of corporations operating in
the U.S. A company with high value add per U.S. employee would get a
low rate, a company with low value add per U.S. employee would get a
high rate. This tax could be made revenue neutral. It would be an
incentive for companies with high value added jobs to locate and keep
their operations in the U.S. It could be as strong or as weak an
incentive as desired.
Many incentives, some natural and some much less so, have worked in
the U.S.'s favor and have helped to create a long history of economic
growth. We have had a great range of natural resources, and a
remarkable culture of entrepreneurship that helps ideas to become
reality, and which provides rich rewards for that accomplishment. We
have had corporations in which it was recognized that it was in their
own interest to invest alongside their U.S. workforce and make it
possible for them to increase their productivity. We need to consider
incentives, such as the tax mentioned above, that realign the profit
interest of corporations with the interest of the country. In short, we
think it likely that there is a major problem facing this country and
we also think there are actions, most as yet largely unexplored, that
can make a significant and beneficial difference.
References
[1] Hicks, J.R. 1953. An Inaugural Lecture. Oxford Economic Papers
5:117-35.
[2] Dornbush, Rudiger W., Stanley Fisher, and Paul A. Samuelson, 1977
Comparative advantage, trade and payments in a Ricardo model with a
continuum of goods, American Economic Review 67 pp. 823-829.
[3] Krugman, Paul R. 1985. A ``Technology Gap'' Model of International
Trade in K. Jungenfelt and D. Hague eds. ``Structural Adjustment in
Developed Open Economies,'' New York, St. Martin's Press pp. 39-45.
[4] George E. Johnson, Frank P. Stafford ``International Competition
and Real Wages,'' American Economic Review, Vol. 83, No. 2, Papers and
Proceedings of the Hundred and Fifth Annual Meeting of the American
Economic Association (May, 1993), pp. 127-130.
[5] Samuelson, Paul A, 2004, Where Ricardo and Mill Rebut and Confirm
Arguments of Mainstream Economists Supporting Globalization, Journal of
Economic Perspectives, Volume 18, Number 3, pp. 135-146.
[6] Ralph E. Gomory and William J. Baumol, 2001, Global Trade and
Conflicting National Interests, MIT Press.
Endnote
Even the familiar England-Portugal textile-wine model shows this
effect. We assume, as usual, that England is much more productive in
textiles and Portugal is much more productive in wine. With free trade
and no productivity shifts England makes all the textiles and Portugal
makes all the wine. If consumers spend a larger proportion of their
incomes on textiles than on wine, England's wage will be higher than
Portugal's, but both countries are better off than if they did not
trade.
Now let us consider globalization that adds productivity shifts to
the free trade model. Through globalization Portugal learns textile
manufacturing and enhances its productivity in textiles to something
close to England's. Because of its lower wage, Portugal can now enter
the textile market. However textiles are still England's only products.
To remain in the textile market and meet the new lower price for
textiles, wages must go down in England relative to Portugal, so there
is a new exchange rate.
At the new equilibrium, because of the exchange rate shift, the
price of wine has gone up in England and consumers in England can
afford less wine. English consumers with their new lower wage may
consume about the same amount as before of the now cheaper textiles.
However, with less imported wine, their standard of living will have
fallen under globalization.
Portugal still exports wine to England and imports textiles. But it
imports a smaller quantity of textiles, since it now has the home grown
product as well. Portuguese consumers can now afford to consume more
textiles because they are cheaper. They consume the same amount of wine
as before. Their standard of living will have improved.
Biography for Ralph E. Gomory
Ralph E. Gomory has been President of the Alfred P. Sloan
Foundation since June 1989 Gomory received his B.A. from Williams
College in 1950, studied at Cambridge University and received his Ph.D.
in mathematics from Princeton University in 1954. He served in the U.S.
Navy from 1954 to 1957.
Gomory was Higgins Lecturer and Assistant Professor at Princeton
University, 1957-59. During this period he invented the first integer
programming algorithm. He joined the Research Division of IBM in 1959,
was named IBM Fellow in 1964. In 1970 he became IBM Director of
Research with line responsibility for the IBM Research Division. Under
his leadership the Research division made major contributions to the
computer industry, such as the invention of the Relational data base,
and also won two Nobel Prizes. While retaining responsibility for IBM's
Research, Gomory became an IBM Vice President in 1973 and Senior Vice
President in 1985. In 1986 he became IBM Senior Vice President for
Science and Technology. In 1989 he retired from IBM and became
President of the Alfred P. Sloan Foundation. There he has led the
foundation into areas involving the scientific and technical work
force, the study of individual industries, and issues of globalization.
Gomory has served in many capacities in academic, industrial and
governmental organizations, and is a member of the National Academy of
Science, the National Academy of Engineering, and the American
Philosophical Society He was elected to the Governing Councils of all
three societies. He was a Trustee of Hampshire College and of Princeton
University. He served for a number of terms on the National Academies'
Committee on Science, Engineering and Public Policy (COSEPUP). He
served on the President's Council of Advisors on Science and Technology
(PCAST) from 1984 to 1992, and from 2002 to the present.
Gomory has been a director of several Fortune 500 companies
including the Washington Post Company, the Bank of New York, and
Lexmark International, Inc., and of two small start-up companies. He
was named one of America's ten best directors by Director's Alert
magazine in 2000.
He has been awarded eight honorary degrees and many prizes
including the Lanchester Prize in 1963, the John von Neumann Theory,
Prize in 1984, the IEEE Engineering Leadership Recognition Award in
1988, the National Medal of Science awarded by the President in 1988,
the Arthur M. Bueche Award of the National Academy of Engineering in
1993, the Heinz Award for Technology, the Economy and Employment in
1998, the Madison Medal Award of Princeton University in 1999, the
Sheffield Fellowship Award of the Yale University Faculty of
Engineering in 2000, he was elected to the International Operations
Research Hall of Fame in 2003 and awarded the Lardner Prize of the
Canadian Operations Research Society in 2006.
Gomory has remained an active researcher with interests in
mathematics, computers, and economics. In recent years, he has written
on the nature of technology and product development, industrial
competitiveness, technological change, and on economic models of
international trade. He is the author of the MIT Press book (with
Professor William J. Baumol) entitled ``Global Trade and Conflicting
National Interests.''
Chairman Gordon. Thank you, sir, and Dr. Duesterberg.
STATEMENT OF DR. THOMAS J. DUESTERBERG, PRESIDENT AND CEO,
MANUFACTURERS ALLIANCE/MAPI
Dr. Duesterberg. Thank you very much, Mr. Chairman, for
having me at this important hearing, and in the spirit of your
admonition that this is a fact-finding hearing, I provided a
lot of facts and figures in my testimony and I will refer to
some of the charts in my testimony as I go through my brief
synopsis.
The subject of this hearing is of vital importance to
manufacturers for the simple reason that this sector is more
engaged in the global economy than the much larger services
sector. It is also a leader in innovation, accounting for over
60 percent of private-sector research and development in the
United States and more than three-quarters of patents granted
in the United States. Moreover, it has been subjected to
foreign competition for the last 30 or 40 years so the
experience of the manufacturing sector may shed some light on
the future trajectory of the impact of globalization.
In fact, the pressures of globalization have forced
manufacturers to become leaders in finding ways to adapt to
this competition. One of the major results of this competition
has been to require them to find new ways to do things in a
much more efficient way. They have realized the benefits of
strong productivity gains. Figure 3 on page 3 of my testimony
illustrates the strong acceleration of manufacturing labor
productivity since the 1980s and the superior performance in
productivity of the manufacturing sector in our economy.
Productivity gains have created what is often referred to
as a paradox of manufacturing. The sector is smaller in some
very visible respects, such as employment and percentage of
GDP, but it is much more global. While smaller, manufacturing
has maintained its global marketshare, the chart, which is on
page 5, shows that the U.S. share of global manufacturing
output has actually increased slightly from about 22.9 percent
in 1980 to 23.8 percent in 2003. More impressively, Figure 7
shows that the U.S. manufacturers' share of global high-tech
output increased from approximately 25 percent in 1980 to 42.5
percent by 2005, which is the latest year for which we have
data, which is a subject in and of itself.
A few myths and beliefs about globalization viewed from the
perspective of multinational manufacturers who are the most
engaged in the global economy in the first place, there is not
a rapid offshoring on a net basis of jobs. Figure 9 shows that
the employment share of U.S. parent multinationals has remained
relatively flat as a share of total non-bank private industry
between 1988 and 2004. The data show that an increase in
employment at foreign affiliates is positively correlated with
growth in jobs at the domestic parent. While overall job losses
do affect the domestic manufacturing sector, they are not
amongst the most globally engaged parts of the manufacturing
sector.
There are myriads of benefits from engagement abroad, not
the least of which is access to foreign markets, which are in
many cases the fastest growing on a relative basis in the
world. And in fact the reason, the primary reason for locating
a manufacturing facility abroad, is for access to local and
regional markets. In fact, 90 percent of the production of
foreign affiliates of U.S. manufacturers are sold into the
local markets and less than 10 percent back to the United
States. Finally, I would note that 64 percent of U.S. employees
of foreign affiliates are in high-wage countries such as Europe
and Japan and Canada, and overall, the employment at
multinational corporations, including the United States records
that about 90 percent of the employment is still in high-wage
countries.
Now let us turn to a little bit of data on the
globalization of innovation. In fact, most of the data that we
have refers to research and development. R&D is the least
globalized activity of U.S. multinationals. Foreign affiliates
represent 31 percent of all sales and 28 percent of employment,
but R&D only represents about 13.7 percent among foreign
affiliates. This is up slightly from 11 percent in 1990.
Furthermore, more R&D is insourced into the United States than
is outsourced. Companies such as Siemens and others do a great
deal of research as well as the German auto companies, Japanese
auto companies. The growth of R&D spending by U.S. parent
companies in the United States increased at a 6.1 percent
annual rate since 1990, while the increase in R&D spending
among foreign affiliates grew at a 6.2 percent rate, so that
the vast amount of the research remains in the United States,
and again, I would emphasize that more R&D is insourced than is
outsourced.
In sum, while R&D activity and technological excellence is
being globalized, and there is evidence that, as I believe the
Chairman cited and the Ranking Member cited as well in the
Texas study, there is some evidence of increased globalization
of R&D in countries such as China, partly through tax
incentives and other means of increasing their R&D activity,
but nonetheless, the U.S. maintains a commanding presence in
research and development activity.
I would emphasize, though, that while R&D activity is
certainly of interest, it is only one component of a very
complex ecosystem that produces what has come to be known as
innovation. Whether R&D offshoring, if it accelerates, is
indicative of the true globalization of a broad class of
activities that enter into the innovation process is, at the
moment, a very open question. Many other factors--technical
work force, legal protection for intellectual property,
financial innovation and more qualitative factors such as
propensity for risk-taking--all figure prominently into the
generation of innovation. Unfortunately, there is a paucity of
data available that has left many crucial questions about the
globalization of innovation activity basically unanswerable at
this point in time.
We at the Alliance have done a little bit of research to
try to understand better the complex activity of innovation.
Without going into a great deal of depth, we have tried to
explain both product innovation and process innovation, the way
you make things, which is of equal importance. Our results show
that variables such as capital investment, university-industry
linkages and the employment of science and engineering
personnel are important ingredients for innovation. The results
of our empirical work that are particularly interesting are
those regarding basic R&D expenditures at universities and
colleges. Our research indicates that a 10 percent increase,
for example, in nominal dollar expenditures on basic science at
universities and colleges generates after a lag a 4.1 percent
increase in utility patent approvals and with a little bit
longer lag of four years a nearly two percent increase in the
multi-factor productivity growth in manufacturing. All of this
suggests that we need to do a great deal further work on fully
understanding the process of innovation and the data is just
not available yet. A lot of data needs to be gathered in order
to accomplish this. This is especially true given the anecdotal
evidence of the potential globalization of R&D activities and
the fear that innovation will be outsourced in its wake. We at
the Alliance are undertaking some of this research along with
many other institutions around the country.
Finally, in terms of the policy implications of what I have
reported here today, we think that our efforts should be
directed to expanding the extent of free trade while working to
end the many unfair trading practices that still plague our
ability to access foreign markets. It is a poorly understood
fact that only five percent of the trade deficit in
manufactured goods, which is of course 75 percent of our
overall deficit, is with countries where we have free trade
agreements while these same countries account for 30 percent of
our imports and over 44 percent of our exports. To remain
globally competitive, we need, first and foremost, to keep our
domestic economy strong with a sensible monetary policy that we
have been blessed with for a number of decades and maintain the
low-tax, spending constrained, low-deficit fiscal policy that
still satisfies the needs of crucial social goals. Over time we
will need to increase national savings both to curb our trade
deficit and to fund needed capital and social investment.
Moreover, we need to be increasingly mindful of the structural
costs that our businesses face in a world where capital is
increasingly mobile, an issue investigated in depth in some of
our studies. In particular, we need to address high
differentials in corporate taxes, tort litigation costs--of
course, we spend more on tort litigation than we do on R&D in
the United States--high natural gas costs, health care costs
that are borne by employers and regulatory burdens of U.S.
firms as compared with our leading global competitors. Finally,
we need to combat the mercantilist policies, such as
maintaining undervalued currencies, which Martin alluded to,
theft of intellectual property and subsidizing export
industries practiced by competitors, such as China and other
Asian nations.
Finally, we need to put our own house in order, as the
others have mentioned. We need to ratchet up investment in the
sciences and engineering disciplines so crucial to innovation
and to attracting domestic students to these fields, and
finally, we need to think seriously about creating a better
career path for U.S. scientists and engineers.
Mr. Chairman, thank you very much for this opportunity to
appear before your group.
[The prepared statement of Dr. Duesterberg follows:]
Prepared Statement of Thomas J. Duesterberg
Mr. Chairman and Members of the Committee, I want to thank you for
holding this hearing on a subject of vital and timely importance to
U.S. manufacturers. My organization represents over 500 leading
manufacturing firms whose products range from basic materials to
advanced manufacturing and leading-edge technology and associated
services. The Alliance itself is primarily a research and executive
education provider, but we do advocate public policies benefiting our
member companies. Notwithstanding the support of our member companies,
the views I will present today are mine alone and do not necessarily
represent the unanimous opinion of our members.
I. The U.S. Manufacturing Sector: Evolution and Adaptation
The subject of the hearing today is of vital importance to
manufacturers for the simple reason that this sector has been much more
engaged in the global economy than the much larger services sector. It
is also a leader in innovation, accounting for over 60 percent of
private sector research and development (R&D) in the United States and
more than three-quarters of patents granted in the United States. For
this reason, it is necessary to understand the manufacturing sector's
response to globalization in order to fully appreciate the many issues
surrounding the globalization of innovative activity. Figures 1 and 2
illustrate the strong pattern of manufacturing globalization of the
past two decades. As shown in Figure 1, capital goods exports as a
share of U.S. manufacturing output grew from 11 percent in 1985 to 26
percent by 2006, while the share of consumer goods exports quadrupled
from two percent to eight percent during the same time frame. Both
innovation and constant research and development efforts are required
to stay competitive. For capital goods, the path of import growth has
been somewhat similar to the path of export growth. As shown in Figure
2, capital goods imports as a share of manufacturing output grew from
eight percent in 1985 to 26 percent by 2006, while consumer goods
exports skyrocketed from nine percent to 27 percent. As a result, the
trade deficit, which is 75 percent or more in manufactured goods, is
largely a function of our imbalance in consumer goods and raw materials
such as oil. We are roughly in balance--and fairly competitive in
capital goods--particularly those which embed high technology and
require substantial scientific and engineering resources.
The pressures of globalization have forced manufacturers to become
leaders in finding ways to adapt to international competition. They
have quickly realized that cost containment and the relentless pursuit
of both process and product innovation are the keys to survival.
Constant improvement programs such as lean manufacturing and six sigma
have rapidly become the norm in multinational manufacturing
enterprises. Partially as a result, the manufacturing sector as a whole
has realized the benefits of strong productivity gains, although some
argue that these gains are limited to R&D intensive, high-technology
industries. Figure 3 illustrates the strong acceleration of
manufacturing labor productivity growth since the late 1980s. And while
the data aren't strictly comparable, it is quite evident that
manufacturing productivity growth has far exceeded productivity gains
for the economy as a whole. There is anecdotal evidence that service-
sector firms are beginning to mimic manufacturing productivity
improvement practices. In fact, some studies show that those service
industries most closely tied to manufacturing, such as wholesale trade,
are the leaders in productivity enhancement.
Productivity gains have created what is often referred to as the
``paradox of manufacturing.'' The sector is smaller in some very
visible respects but more global. Figure 4 shows that the manufacturing
share of the U.S. economy has declined from 18.6 percent in 1987 to
12.1 percent by 2006. Part of this decline, but by no means all, is
explained by the productivity induced price effect engendered, in turn,
by global competition. Additionally, global competition has restrained
pricing power in manufacturing to a much greater extent than in
services, so that manufacturing's nominal share of GDP declines despite
continued growth in physical output at about the same pace as the
overall economy. Figure 5 shows the even more dramatic employment
decline. As shown, the manufacturing workforce has declined from 20.7
percent of the U.S. workforce in 1980 to 10.4 percent by 2006. And in
fact data show that manufacturing employment has been declining as a
share of the U.S. workforce since the early 1950s, suggesting that the
reasons for the employment decline are fundamental to the factory
sector's evolution and are not simply a result of the current
challenges presented by emerging markets. But while smaller,
manufacturing has maintained its global position. Figure 6 shows that
the U.S. share of global manufacturing output has actually increased
slightly from 22.9 percent in 1980 to 23.8 percent in 2003. And more
impressively, Figure 7 shows that the U.S. manufacturers' share of
global high-tech output increased from approximately 25 percent in 1980
to 42.5 percent by 2003 (the latest year for which data are available).
Clearly, the sometimes painful domestic adaptations have allowed the
U.S. manufacturing sector to survive and compete in the global business
environment in which it now operates.
II. U.S. Multinational Foreign Direct Investment: Myths and Benefits
While the macro data presented above illuminate the broad sectoral
response to globalization, a fuller understanding of the key issues
related to jobs, capital investment, and innovation requires a more
focused study of the multinational firms that dominate the U.S.
manufacturing sector. Along these lines, MAPI's Chief Economist, Dan
Meckstroth, recently published a comprehensive essay on the role of
multinationals and the benefits and costs of multinational activity.\1\
Popular myth often creates the incorrect perception that multinational
corporations (MNCs) are the agents of U.S. job and capital loss in a
globally integrated world. But Dr. Meckstroth's paper provides a wealth
of data and empirical research to show that the business dealings of
U.S. multinationals with their affiliates abroad complements rather
than substitutes for the domestic economic growth. Figure 8 illustrates
the large footprint that multinationals (including foreign-owned MNCs
operating in the United States) have in the manufacturing sector in
spite of only accounting for less than one percent of all manufacturing
firms. As shown, during 2004 multinationals accounted for about two-
thirds of manufacturing employment and about 85 percent of U.S.
manufacturing GDP.
---------------------------------------------------------------------------
\1\ Daniel J. Meckstroth, ``Globalization Complements Business
Activity in the United States,'' Manufacturers Alliance/MAPI, ER-624e,
January 2007. I wish to thank Dr. Meckstroth, Cliff Waldman, and Ernest
Preeg for their assistance in preparing this testimony.
Contrary to common myth, multinationals aren't transferring jobs
out of the United States, even as they increase production among their
foreign affiliates. Figure 9 shows that the employment share of U.S.
parent multinationals has remained relatively flat as a share of total
non-bank private industry employment, while foreign-owned multinational
employment in the United States actually increased slightly between
1988 and 2004. Domestic employment growth in both manufacturing and
non-manufacturing MNCs generally equals or exceeds the growth of other
companies in the same sector over the past 20 years. Finally, the data
show that an increase in employment at foreign affiliates is positively
correlated with growth in jobs at the domestic parent. While overall
job losses do affect the domestic manufacturing sector, they are much
less among MNCs.
As the Meckstroth paper explains, expansion abroad through foreign
direct investment is the only way to accelerate the pace of growth
beyond what is possible in the domestic marketplace. Demand is growing
rapidly around the world in such places as China, India, and Southeast
Asia at a faster pace than in the United States. The data of the past
three decades show clearly that multinationals invest abroad primarily
to gain access to fast-growing markets for their products and services.
Table 1 shows considerable growth in affiliate sales as a share of
total global sales for MNCs, from 1999 to 2004 foreign affiliate sales
grew at a 10 percent rate, faster than the 3.5 percent rate of domestic
parents. Figure 10 shows the destination for the sales of U.S.
manufacturing affiliates since 1989. In 2004, only 10 percent of these
affiliate sales were back to the U.S. parent corporation, and that
share has declined modestly over the past 15 years. Although not shown
separately in the figure, only one percent to two percent of U.S.
foreign-affiliate sales are exported back to the United States to third
parties. The vast majority of the sales of U.S. affiliates, about 90
percent are either to the country in which the affiliate is located or
to the nearby region. This pattern dates back at least to the 1920s and
1930s when U.S. automakers began to produce in Europe and elsewhere to
access local and regional markets. These problems apply to the sales of
non-manufacturing affiliates as well.
The issue of low-wage country arbitrage is perhaps the most
contentious and difficult one in analyzing outsourcing. Figure 11 shows
that the share of U.S. majority-owned foreign affiliate employment in
high-income countries remained large in 2004 at 64 percent. But it
nonetheless fell steadily from a peak of 75 percent in 1989. Further,
Table 2 shows the considerable growth of employment of U.S. majority-
owned foreign affiliates in China, India, and to a lesser extent
Mexico. If China and India are excluded, affiliate employment growth in
the low and middle income countries is marginal, reinforcing the notion
that foreign investment largely seeks fast-growing, large markets like
China and India.
While the trend toward low-wage country foreign direct investment
is growing, Dr. Meckstroth's paper notes that anecdotal evidence
suggests that market expansion, not costs, is the primary driver of
U.S. entry into these high-potential emerging market countries. The
absence of understanding of this simple fact has created misguided
perceptions about job exporting that are often belied by actual data.
For example, the fear that manufacturing jobs are ``being lost to
China'' is somewhat undermined by the weakness in manufacturing
employment growth in China during the late 1990s and early 2000s, shown
in Figure 12.
The MAPI study also highlights the indirect benefits to the
domestic U.S. economy from multinational global profit-seeking
behavior. U.S. businesses and consumers gain from lower cost products,
improved services, higher quality goods and services, longer product
life cycles, higher profits, and higher quality jobs. U.S. firms are
motivated to produce abroad to avoid tariffs and other barriers to
adapt products to those markets, and--as I will discuss later--tap
local talent and other resources. And far from being substitutes for
domestic activity, the paper points to credible research which shows
that when foreign affiliates expand, their U.S. parents also expand
domestic operations. Finally, many studies show that low wages and fast
growth in foreign countries do not in and of themselves attract foreign
investment. That is why foreign investment is still high in developed
countries, including increased investment into the United States.
Ninety percent of the employees of U.S. MNCs are in high wage
countries, including employment at the domestic parent plants.
III. The Next Wave: The Globalization of Innovation
While much public debate has been centered on the consequences of
globalization for U.S. job and investment growth, the potential
globalization of innovation supply chains has received far less
attention. The reason is quite clear. At the moment, as pointed out by
the Meckstroth paper, R&D is the least globalized activity within
multinationals. Foreign affiliates represent 31 percent of all sales
and 28 percent of employment among U.S. multinationals. These firms
have, however, been reluctant to globalize research activity for fear
of losing intellectual property protection for what are often their
core competences. Consequently, foreign affiliates' share of
multinational R&D spending has not changed appreciably during the 13
years from 1990 when it was 11.4 percent to 2003 (the latest data
available) when it was 13.7 percent. Figure 13 shows the total R&D
spending by U.S. MNCs at the parent and among foreign affiliates. It is
also worth noting that more R&D by non-U.S. firms is insourced than is
outsourced by U.S. firms; the United States remains an outstanding
destination for R&D by European, Japanese, and other Pacific Rim
developed countries.
To understand the motivation for and the benefits of expanding
production and the limited offshoring of R&D networks around the world,
some extended discussion is warranted. Global production and sourcing
can, first, improve the rate of return on product innovation by
extending the life cycle of products. New products (such as computers
or medical diagnostic devices) introduced in the United States, Western
Europe, and Japan tend to have high value propositions. Early in the
product life cycle, production costs are relatively high because firms
are producing first-generation products on a small scale, using
relatively high-skilled workers and employing specialized capital
equipment. The relatively high price of products at the early stage of
a product's life, however, compensates for the start-up costs and risk.
Over time, newer product generations are introduced, and the market for
the older generation matures. The longer the products embodying old
technology stay on the market, the more likely competitors will be to
commoditize them. Intense competition may lead to falling prices, and
eventually products in the mature stage of the product cycle do not
have a large enough market and revenue stream to support U.S.
production costs. Globalization, however, can preempt discontinuation
of such mature product lines and provide them with a new life. An old-
technology product or a significant portion of the product can be
manufactured using less expensive capital and low-wage labor in
developing countries.\2\ Otherwise the product would simply be
supplanted by foreign competitors. The ability to generate profits on a
product over a longer life cycle increases the rate of return on
innovation and promotes more new product development in industrialized
countries.
---------------------------------------------------------------------------
\2\ Craig K. Elwell, Foreign Outsourcing: Economic Implications and
Policy Responses, Congressional Research Service Report for Congress,
Order Code RL32484, June 21, 2005, p. 15.
---------------------------------------------------------------------------
Research evidence also finds that multinationals benefit from
global research and development and from an expanded international
knowledge network. Economists Chiara Crascuolo, Jonathan E. Haskel, and
Matthew J. Slaughter\3\ examined data on several thousand firms in the
United Kingdom and found that globally engaged firms generate more
innovation outputs than firms not globally engaged. In the 1998 to 2000
time frame, only 18 percent of firms with domestic-only operations had
made some significant product or process innovation. The average number
of patents applied for among the non-multinationals was just 0.1 per
firm. Among firms that were multinational parents, however, 45 percent
reported either product or process innovation during the time period,
and they averaged ten patent applications each.
---------------------------------------------------------------------------
\3\ Chiara Crascuolo, Jonathan E. Haskel, Matthew J. Slaughter,
``Global Engagement and the Innovation Activities of Firms,'' National
Bureau of Economic Research, Working Paper 11479, June 2005, pp. 1-46.
---------------------------------------------------------------------------
An important finding from the research on how globalization
improves innovation concerns the way multinationals achieved superior
knowledge generation. MNCs are more innovative than non-multinationals
not just because they have more researchers, but because they have an
expanded global knowledge network. In the case of patents, increased
innovation is derived from collaboration and networking with other
researchers in universities around the world. When it comes to
production process and product innovation, multinationals are able to
learn more than non-multinationals from both domestic sources of
applied knowledge and a wide network of international sources, such as
suppliers, customers, and their foreign affiliates\4\ The resulting
productivity gains from multinationals' innovation directly benefit
Americans' standard of living, and the knowledge spillover indirectly
benefits domestic firms that supply and/or are customers of
multinationals.
---------------------------------------------------------------------------
\4\ Ibid, p. 5.
---------------------------------------------------------------------------
The availability of technical talent overseas and the rapid growth
of foreign markets provide further incentives for U.S. multinationals
to expand international research centers. The reason that foreign-
affiliate R&D shown in Figure 13 is such a small proportion of the
total is that R&D is a core value generator for U.S. multinationals.
U.S. multinationals are reluctant to globalize the activity and risk
losing protection for their intellectual property.
Another way to illustrate the point that the United States is not
rapidly offshoring R&D activity to foreign affiliates is to look at R&D
spending growth. From 1990 to 2003, R&D spending by U.S. parent
companies increased at a 6.1 percent annual rate of growth, and
majority-owned foreign-affiliate R&D spending grew at a 6.2 percent
annual rate of growth--expanding essentially at the same pace.
Although R&D spending by U.S. parent companies kept pace with R&D
spending by foreign affiliates from 1990 to 2003, there is some
evidence that the future pace of R&D globalization may be accelerating.
The United Nations Conference on Trade and Development (UNCTAD) found
in a 2006 survey that developing countries are likely to grow in
importance as R&D locations for multinational firms. Fifty-seven
percent of multinational firms surveyed already have an R&D presence in
China, India, or Singapore,\5\ and 67 percent of U.S. firms indicate
that their foreign R&D is set to increase over the next five years.\6\
While the lion's share of global R&D clearly remains with
industrialized countries, emerging economies, most notably China and
India, are becoming more important innovation centers. A recent survey
of 186 of the world's largest firms found that 77 percent of R&D
centers over the next three years are likely to be in China and
India.\7\ My colleague Ernie Preeg has shown that China is expanding
R&D expenditures at the rate of 22 percent per year, far above the six
percent in the United States and five percent in the European Union and
Japan.\8\ Of course some of the attraction to perform R&D in China is
due to the tax breaks and other subsidies provided by both Beijing and
regional governments. Additionally, China frequently tries to leverage
research and knowledge transfer in return for access to its huge and
fast-growing market.\9\
---------------------------------------------------------------------------
\5\ United Nations Conference on Trade and Development, UNCTAD
Survey on the Internationalization of R&D, Current Patterns and
Prospects on the Internationalization of R&D, UNCTAD/WEB/ITE/IIA/2005/
12, December 12, 2005, p. 1.
\6\ Ibid, p. 11.
\7\ See ``R&D Outsourcing,'' Business Week, May 10, 2006.
\8\ Ernest H. Preeg, The Emerging Advanced Technology Superstate,
Manufacturers Alliance/MAPI, June 2005.
\9\ Ibid, pp. 46-50, for a discussion of Chinese tax and other
incentives to attract investment in the semiconductor industry.
---------------------------------------------------------------------------
Despite the enthusiasm for developing country R&D, the United
States remains a commanding R&D presence in the world, although China
especially is becoming more attractive when future investments are
considered. When UNCTAD asked non-U.S. multinationals from around the
world what their preferred location was for new R&D projects abroad,
the United States was listed second most often. China was mentioned
most often, and India was listed third most often, followed by Japan
and the United Kingdom.\10\ The survey demonstrates that the United
States is a preferred location for R&D among multinationals
headquartered in other developed and emerging countries.
---------------------------------------------------------------------------
\10\ UNCTAD, op. cit., p. 13.
---------------------------------------------------------------------------
In sum, while R&D activity and technological excellence is being
globalized, the United States maintains a commanding presence at this
time. An often overlooked fact is that the United States has a surplus
in R&D and service payments among multinationals. Figure 13 shows that
foreign-owned firms spend more on R&D in the U.S. than foreign
affiliates of U.S. multinationals spend abroad. As noted earlier, R&D
insourcing thus exceeds outsourcing among multinationals in the United
States. Furthermore, the United States has a trade surplus in royalties
and licensing fees ($62 billion in receipts versus $26 billion in
payments in 2006) and a trade surplus in business, professional, and
technical services ($41.3 billion in receipts versus $33.2 billion in
payments in 2005). At the same time that U.S. multinationals are
looking abroad for technology, research, and collaboration, the rest of
the world is coming to the United States for the same services.
Globalization thus clearly complements innovation in the United States.
While R&D activity is certainly of interest, it is only one
component of a complex ecosystem that produces what has come to be
known as innovation. Whether R&D offshoring, if it accelerates, is
indicative of the true globalization of the broad class of activities
that enter into the innovation process is, at the moment, an open
question. Many other factors, technical workforce, legal protection for
intellectual property, financial innovation, and more qualitative
factors such as propensity for risk taking all figure into the
generation of innovation. The potential emergence of innovation supply
chains that originate in the U.S. and other major manufacturing centers
raises a number of questions for U.S. policy-makers. Research is needed
to expand understanding of the globalization of innovation and to
provide needed insights to inform the domestic U.S. policy response.
Unfortunately, a paucity of data has left many crucial questions about
the globalization of U.S.-based innovation activity unanswerable.
The existing literature on the globalization of innovation suffers
from a number of crucial shortcomings. First, the myopic focus on R&D
as the sole indicator of innovative activity has distorted results and
hidden key policy implications. The absence of a coherent framework and
statistical robustness has also plagued these studies. For the moment,
it is reasonable to conclude that we fall far short of a full
understanding of the innovation globalization dynamic as well as the
forces that are driving innovation offshoring decisions.
IV. MAPI Innovation Research Program: Conclusions and Implications
To contribute to understanding of the forces that impact innovation
in the manufacturing sector, both domestic and international, two of my
MAPI colleagues, Cliff Waldman and Jeremy Leonard began collaborating
on a significant innovation research program in the early part of 2006.
The purpose of the initial work was to specify and estimate a simple,
yet utilitarian model of innovation in the U.S. manufacturing sector
and to derive comprehensive indicators of product and process
innovation.
Their research provided robust statistical evidence that the
drivers of innovation extend well beyond the business R&D spending that
is typically thought to be the principal source of innovation.\11\ Our
results show that variables such as capital investment, university-
industry linkages, and the employment of science and engineering
personnel are also important ingredients for innovation. The results
were particularly interesting with regard to basic R&D expenditures in
universities and colleges. Our equations indicate that a 10 percent
increase in nominal dollar expenditures on basic science research at
universities and colleges generates a 4.16 percent increase in a four-
year moving average of U.S. utility patent approvals after a lag of six
years and a nearly two percent increase in multi-factory productivity
growth in manufacturing five years hence. Basic R&D in universities and
colleges as well as the employment of science and engineering personnel
proved to be important ingredients for both process and product
innovation.
---------------------------------------------------------------------------
\11\ Jeremy A. Leonard and Clifford Waldman, An Empirical Model of
Innovation in the U.S. Manufacturing Sector, Manufacturers Alliance/
MAPI, ER-614e, August 2006, and Leonard and Waldman, Innovation and Its
Determinants: A Review of the Literature and Outline of a New Model,
Manufacturers Alliance/MAPI, ER-601e, February 2006.
---------------------------------------------------------------------------
To aid those who need to track innovation growth we used these
equations to develop composite indicators of both product and process
innovation. These indicators show the fluctuation in productivity and
patents (which we used to proxy process and product innovation) if
those variables were only influenced by our postulated innovation
drivers. The authors corrected for such things as changed patent laws,
which impact patent activity, and the multitude of cyclical and
institutional factors that impact multi-factor productivity. The two
indicators are nothing more than the fitted values of their respective
equations. For each year, it is the equation's prediction of either
productivity or patents. By using the fitted value series as a measured
index, we are allowing the user to view the fluctuation in productivity
or patents as if they were only influenced by our postulated innovation
indicators. Neither productivity or patents are pure measures of
innovation output. Productivity is impacted by the business cycle and
institutional factors. And patents are impacted by patent law. But by
creating a fitted value series for our equations, we are coming as
close as we can (both statistically and theoretically) to observing
pure innovation output series.
Figures 14 and 15 present the results of our predictions for the
innovation proxies. They show that our product and process indicators
appear to map out a plausible history. Clearly the 1970s and early
1980s were troublesome times for U.S. manufacturing product innovation.
As shown in Figure 14, sizable year/year declines in product innovation
characterized numerous years of this period. The reasons are clear.
Manufacturing R&D intensity fell below three percent during the 1977 to
1979 period. The growth of funding for basic university R&D decelerated
from 11.3 percent during the 1965 to 1969 period to 5.9 percent during
the 1970 to 1975 period. But the growth of the U.S. tradable goods
sector and the resulting growth of international competition
subsequently forced domestic changes. Manufacturing R&D intensity grew
from 3.0 percent in 1980 to 4.6 percent during 1987. And the growth of
academic research expenditures accelerated from 5.9 percent during the
1970 to 1975 period to 10.5 percent by the 1980 to 1985 period.
Consequently, product innovation growth, while it has been volatile,
has averaged a solid five percent since 1987.
Regarding process innovation growth, shown in Figure 15, the 1970s
were characterized by wide annual swings in growth but the average over
the decade was a paltry 0.5 percent. During this period, high inflation
eroded the real value of investment and academic R&D, and international
competitive pressures were much less severe than they are today (indeed
the United States typically ran a trade surplus in manufactured goods).
There were far fewer incentives for business process improvement.
During the 1980s, manufacturing process innovation growth accelerated
to an average of 1.0 percent, but much of this was in the early years
of the decade. The particularly sharp accelerations in 1983 and 1984
were undoubtedly catalyzed in part by the dramatic tax cuts of 1981,
which, among other things, accelerated depreciation of capital spending
and boosted investment growth. Considerable concern about the future of
the U.S. manufacturers at the beginning of the 1980s refocused
attention on competitiveness, though little progress was made in the
latter half of the decade. Finally, the rapid growth in unit labor
costs, driven by double-digit inflation that occurred from mid-1979 to
late-1981, forced manufacturers to reorganize production methods to
remain profitable. The 1990s saw a further acceleration in process
innovation growth, particularly in the latter half of the decade during
which process innovation consistently grew in the two percent to three
percent range. The 2001-2002 decline in process innovation growth was
primarily due to a sharp decline in investment during the 2001
recession.
While our statistical work adds considerably to understanding the
manufacturing innovation process, we realize that the global dynamic
must be studied much more extensively to complete our understanding.
This is especially true given the anecdotal evidence of the potential
globalization of R&D activities, and the fear that innovation will be
outsourced in its wake. Thus, our next project addresses the void of
data and understanding on innovation globalization through the use of a
large-scale survey of manufacturers. We will design a survey to gather
data on manufacturer's innovation offshoring activities (going well
beyond simply measuring R&D location) as well as the factors driving
those activities. We further intend to gauge the innovative capacity of
key target countries for U.S. manufacturing innovation investment by
reconstructing our U.S. product and process indices where data are
available, or by performing innovation case studies for countries where
the necessary data are not available. The results of this new proposed
study will allow for an assessment of the implications of innovation
offshoring for the domestic U.S. manufacturing base, particularly as to
whether emerging markets post significant competitive threats.
V. Some Policy Implications
As globalization proceeds, many public officials, frustrated
especially by the slow progress with China on such issues as currency
and intellectual property protection, have begun to call for policies
to protect markets via trade barriers and other means. Nothing could be
worse for U.S. economic progress in a globalizing world. By closing
markets, we negatively impact global economic growth, thus negatively
impacting our own export opportunities. Export demand, in recent years,
has been a key source of growth in the manufacturing sector, due
partially to surprisingly muted domestic business investment demand.
Further, by erecting protectionist barriers, we lose the growth, R&D,
and productivity benefits that exposure to foreign markets has clearly
afforded us. We might also lose the ability to access talent pools and
new technology being developed around the world.
Our efforts should instead be directed to expanding the extent of
free trade while working to end the many unfair trading practices that
still plague our ability to access foreign markets. It is a poorly
understood fact that only 5 percent of the trade deficit in
manufactured goods is with countries where we have free trade
agreements, while these same countries account for 30 percent of our
imports and 44 percent of our exports. But an avoidance of blatantly
protectionist policies does not, in any way, imply that U.S. policy-
makers should not be putting forth an aggressive set of policies for
maximizing U.S. competitiveness in the ever-changing global
environment.
To be globally competitive, we need first and foremost to keep our
domestic economy strong with the sensible monetary policy that we have
been blessed with for a number of decades and with a low-tax, spending
constrained, low-deficit fiscal policy that nonetheless satisfies the
needs of critical social goals. Over time we will need to increase
national savings both to curb our trade deficit and fund needed capital
and social investment. Moreover, we need to be increasingly mindful of
the structural costs that our businesses face in a world where capital
is increasingly mobile, an issue investigated in great depth in two
MAPI studies.\12\ In particular, we need to address the high
differentials in corporate taxes, tort litigation costs, natural gas
costs, health care costs born by employers, and regulatory burdens of
U.S. firms, as compared to our leading global competitors. Finally, we
need to combat the mercantilist policies, such as maintaining
undervalued currencies, theft of intellectual property, and subsidizing
export industries, practiced by competitors such as China and other
Asian nations.
---------------------------------------------------------------------------
\12\ Jeremy A. Leonard, The Escalating Cost Crisis: An Update on
Structural Cost Pressures Facing U.S. Manufacturers, Manufacturers
Alliance/MAPI and The Manufacturing Institute of the National
Association of Manufacturers, September 2006.
---------------------------------------------------------------------------
To put our own house in order, we need to ratchet up investment in
the sciences and engineering disciplines so crucial to innovation and
to attracting the domestic students to these fields. Our research shows
a clear link of university research with innovation. The experience of
the massive investment in sciences in the 1960s, when nearly one
percent of GDP was devoted to federally funded, non-defense, scientific
research, which led to many of the technological breakthroughs at the
core of American manufacturing success in the 1980s and 1990s, should
also guide our thinking. We also need to think seriously about creating
a better career path for U.S. scientists and engineers.
The need for a globally competitive level of innovation to compete
with both low-cost producers and technologically advanced competitors
by expanding our product offerings and market opportunities is clear.
But economists do not have a full understanding of the innovation
process and there is a particular void as regards the globalization of
innovation activity. Recent MAPI research supports the notion that an
innovation policy extends well beyond a focus on R&D investment. While
private sector R&D is clearly important, we have provided robust
statistical evidence regarding the high returns that can be realized
from investment in university and college R&D. Further, we have learned
that the science workforce and capital spending matter to innovation
output, as well. Anecdotal evidence that emerging market nations might
grow as significant global innovation centers shows the critical need
for data and analysis on the globalization of innovation. Only then can
we understand the extent and nature of the dynamic, the factors that
are driving location decisions, and the implications for the domestic
U.S. economy.
Biography for Thomas J. Duesterberg
Dr. Thomas J. Duesterberg is President and Chief Executive Officer
of the Manufacturers Alliance/MAPI. He also serves as President of The
Institute for Technological Advancement, an affiliate of The
Manufacturers Alliance; and is a member of the Board of Directors of
The Manufacturing Institute, an affiliate of the National Association
of Manufacturers. Prior to joining the Alliance, Dr. Duesterberg was
Senior Fellow and Director of the Washington Office of the Hudson
Institute. Former positions include serving as Chief of Staff to
Congressman Chris Cox (1995-96); U.S. Assistant Secretary of Commerce
for International Economic Policy (1989-93), where he was responsible
for international trade and investment issues, trade promotion, and
advocacy programs to assist U.S. exporters and investors;
Administrative Assistant to U.S. Senator Dan Quayle (1981-89); Senior
Research Analyst, International Business Services (1979-81); and
Associate Instructor, Stanford University (1978-79). Dr. Duesterberg is
co-author of two books and numerous magazine, journal, and op-ed
articles on international trade, information technology, and global
economics. He also edited and wrote chapters in two books: Riding the
Next Wave: How This Century Will Be a Golden Age for Workers, the
Environment, and Developing Countries (Hudson Institute; 2001); and
U.S. Manufacturing: The Engine of Growth in a Global Economy (Praeger;
2003). He writes a regular column for Industry Week called ``The
Competitive Edge.'' He graduated magna cum laude from Princeton
University in 1972 and received an M.A. and a Ph.D. from Indiana
University.
The Alliance is a policy research organization with approximately
500 member companies representing a broad spectrum of industries from
machinery and components, primary metals, automotive, chemicals, oil
and gas, electronics, telecommunications, computers, office systems,
aerospace, and similar high-technology industries. The Alliance
conducts original research in issues critical to the economic
performance of the private sector and offers an executive development
program with more than 2,000 senior executives participating.
Discussion
Chairman Gordon. Thank you to the panel. There were a lot
of common denominators, a little bit of controversy, but a lot
of common denominators. As we discussed earlier, we do have
something of a time crunch. I had a chance to make a statement
earlier, so I am going to yield my question time to Mr. Baird,
who I think was our first person to come in.
Mr. Baird. I thank the Chairman.
Chairman Gordon. And I would ask maybe we might try to keep
it to three or four minutes, rather than five, and hopefully,
we will have most people get a chance to participate.
Mr. Baird. I thank the Chairman very much. I have got a
number of questions, but I will be brief.
Dr. Gomory, I thought your point about the possible export
of technology and innovation was interesting, but it seems
companies are in a bind. Let us suppose you make an aircraft
and the country says, ``We won't buy your aircraft unless you
outsource a portion of your manufacturing process,'' and so you
say, ``Okay, you can make the compass wings.'' Then they
acquire the knowledge of the compass wings. How do you deal
with that?
Dr. Gomory. Well, that is a very good point, and I would
like to stress that the problems here are system problems. The
companies are doing what anyone else would have to do. It is
not that they are disregarding. It is that the incentives that
are provided are irresistible, and I think basically we have to
provide counter incentives. There is just no other way.
Mr. Baird. What will a counter incentive look like?
Dr. Gomory. In that case, I would have to think. I just
don't know.
Mr. Baird. Okay.
Dr. Duesterberg, this point you made at the end, I am not
sure I fully understand it. Maybe you can explain it to me a
little bit. It is a poorly understood fact that only five
percent of the trade deficit of manufactured goods with
countries we have free trade agreements, but et cetera, et
cetera. Elaborate on that for just a second.
Dr. Duesterberg. Well, we have NAFTA, we have CAFTA, we
have some free trade agreements with smaller countries. The
only point of this was that our trade deficit with the
countries with which we have FTAs is only a very minor part of
our overall trade deficit.
Mr. Baird. Explain what----
Dr. Duesterberg. Well, the overall majority is, of course,
with the Asian countries. We don't have FTAs with them. So the
simple point is that countries with which we have FTAs, we seem
to do better with.
Mr. Baird. Your point being that an FTA alone is not the
cause for our trade deficit----
Dr. Duesterberg. That is correct.
Mr. Baird.--or the export of jobs?
Dr. Duesterberg. That is correct.
Mr. Baird. How are we to proceed in keeping innovation
domestically? If you could do one thing, what would it be, very
briefly, each of you, starting with Dr. Blinder. What would the
one thing be? Dr. Baily.
Dr. Baily. Well, I think that is right. That is probably
the one thing I would do. We have to make sure that our
corporate tax system does not encourage people to move jobs
overseas also.
Mr. Baird. Dr. Gomory.
Dr. Gomory. I think if we reward the creation of high-
value-added jobs with a low tax rate, we will see a surge of
invention, of ways to take things that are today very labor
intensive and make them into high-value jobs. It is the need
for end jobs that drives both invention and ultimately
scientific and engineering jobs. Many people are shying away
from scientific and engineering jobs not because of lack of
education. More people enter college wanting to get an
engineering or science degree than we would ever know. That is
a fact. That it not a well-known one. But they do not see a
good career. So we have to create a demand if we are going to
have a larger stream, and just having, you know, fellowships
and things won't do it.
Mr. Baird. So just encouraging people to do more math and
science and all the stuff we have been----
Dr. Gomory. I think that is all good, but if there is no
demand, people are too smart to do that.
Mr. Baird. Dr. Duesterberg.
Dr. Duesterberg. Well, this is not original, but I would go
back to the experience of the 1960s and 1970s when we had an
excitement about science and technology programs, partly driven
by the threat of Sputnik, first of all. Then we had the Apollo
program, which was visionary. We spent nearly three-quarters of
one percent of GDP on the Apollo program at its height, so we
need to have adequate level of funding for the basic research,
but we also need to value at a national level the sorts of
tasks, jobs, training that go into motivating people who want
to be a part--make the sacrifices to be a part of the process.
Mr. Baird. Thank you.
I yield back, Mr. Chairman.
Chairman Gordon. Thank you, Mr. Baird.
Mr. Hall.
Mr. Hall. Mr. Chairman, thank you.
Dr. Blinder, you estimated that there are potentially 30 to
40 million jobs that could be offshored, but then as you read
your testimony on through, it seemed like you ameliorated that
a little bit by saying that not all will be. How do you arrive
at that number, and what do you mean by not all will be? What
changed that?
Dr. Blinder. Sure. Let me take the questions backward. If
you think about the manufacturing sector, where we have had
offshoring for a very long time, we still have about 10 percent
of Americans working in the manufacturing sector. We have not
lost all those jobs. All, or almost all, of them are
potentially offshorable in the sense that one could build a
factory to do this or that in another country and then ship the
goods back to America. The crucial defining characteristics to
me, in trying to make the separation between potentially-
offshorable and not-potentially-offshorable jobs, are two. The
less important was requiring physical proximity. So, if you
sell hot dogs in Yankee Stadium, you have to be at Yankee
Stadium. That is the less important one. The more important
one, covering many more jobs, is the importance of face-to-face
contact. If it is either absolutely essential that it be done
face-to-face, or if the task is done very much better face to
face, so that if you try to electronically deliver it you lose
a lot in the process, then those jobs are not very likely to be
offshored. So that goes to cultural sensibility, feel and
touch, that kind of thing. Jobs that require that as essential
inputs are not going to be replaced by Internet messages.
Mr. Hall. Dr. Duesterberg, in your testimony you say that
an increase in employment at foreign affiliates is possibly
correlated with growth in jobs in its domestic parent. How does
this mesh with the overall American manufacturing job losses
over the past decade, and how would you characterize the role
of domestic entrepreneurship and the innovation strategies of
multinational companies? What is happening here? You gave good
advice to Chris Cox and Dan Quayle just yesterday. How about
giving us some leadership on this?
Dr. Duesterberg. Well, the seeming paradox is that the
companies that are most globally engaged tend to be the ones
that are avoiding job losses, and in fact, increasing in a very
slight way their----
Mr. Hall. Like?
Dr. Duesterberg. Well, like Intel, like a Microsoft, like a
Nike, like a General Electric. I will offend everybody else by
not mentioning them, but globally engaged companies that are
successful. Boeing is another example. The ones that are hurt
are the companies that are unable to make the sorts of
investments both here and abroad to be competitive with the
growing competition from low-cost producers in China and
elsewhere. So the job losses tend to be concentrated in those
sorts of smaller--frequently smaller industries that just don't
have the wherewithal to become as globally engaged as they
could. What should we do? We should do everything we can to
maintain the environment here in the United States that
supports innovation. We are a very litigious society. We have
all talked about the problems with the education system. We are
not providing enough good scientists, engineers. There are very
real issues with access to foreign markets as well. Martin
mentioned the currency undervaluation of China and for many
years many other Asian currencies. That is a real problem.
Subsides to production abroad are a very real problem. After
all, China used to give, a few years ago, a five-year tax
break, full tax break to companies that located there for the
purpose of exporting outside of the country plus five more
years at half tax rates. They have recently changed that, but
that sort of activity certainly doesn't help. So it is a two-
pronged approach: do what we can to make the environment for
innovation and for entrepreneurship strong here, combat unfair
trade practices abroad.
Mr. Hall. Let me just wind up with one last question. We
are talking science and math and how we are going to do to get
these kids interested in it and participating in it and how
great it is going to be for them and paying teachers more and
all that. Other than that, what can we do to change our
educational system so our students are going to be ready to
compete with the youngsters from China and India and anywhere
else? Dr. Duesterberg.
Dr. Duesterberg. Well, as I mentioned in an earlier
question, I think sort of the culture is not necessarily as
supportive as it should be of people entering these fields. I
mean, I remember I went to college in the 1960s. Everybody
wanted to be an aerospace engineer because we were doing the
Apollo program. It was exciting. Commercial aviation was just
taking off. It was a very remunerative field. Or they wanted to
go into IBM where Ralph was working because we were, you know,
inventing the computing industry. Now things have changed. We
don't value that sort of activity as much culturally. There are
a million other things that we could do to strengthen our
educational system. I happen to like Chairman Gordon's idea of
helping to produce better math and science educators at the
secondary and elementary school level.
Chairman Gordon. You are such a wise person. I hate to cut
you off, but I would like as many people to participate as
possible.
So Dr. Wu, you are recognized.
Mr. Wu. Thank you, Mr. Chairman, for always giving me that
promotion to doctor. My mother really appreciates it.
For the witnesses, I have been thinking about the aspect of
offshoring R&D and academic work. I mean, you all have talked
about service jobs and manufacturing jobs. I used to represent
academic institutions, and I know that there are certain deals
that folks cut. The Federal Government supports research. It is
unlikely to support research at foreign institutions, but the
private sector supports much more research, and that money is
hot money. It is mobile money. It can go to a U.S. university
or it can go elsewhere. Are you all concerned about foreign
institutions, educational institutions in essence cutting our
private sector or global companies a better deal on R&D and the
true outsourcing of innovation so that, for example, with
respect to this panel, if we were to do hearing in 10 or 20
years, instead of having someone from Princeton, we would have
someone from Prague. Instead of the rest of you all, you know,
we would be bringing in experts from New Delhi or Beijing
instead. Is that a real issue or not?
Dr. Blinder. Well, of course, nobody really knows the
answer to that, but my guess is, at least for the time being,
it is not too much of an issue. We still--I don't want to say
we have a monopoly, which we don't have a huge comparative
advantage in higher education. The great preponderance of the
great research universities of the world are in the United
States, and I think that is likely to be true for a long time.
That said, it is only natural for the rest of the world
gradually to catch up to us. So, we can't expect to hold this
hegemonic position forever.
Dr. Baily. I agree with Alan on that. I am willing to bet
there are quite a lot of foreign graduate students in your
classes so I suspect Alan's own job actually is a little
dependent on the global economy. If we maintain the strength of
our universities, not just, you know, the top ten, which are so
strong, but a lot of our State and local universities as well,
we will maintain our position. And as Alan said, there is
nothing wrong with other countries doing academic research, and
by the way, there are foreign companies that support academic
research in the United States.
Mr. Wu. I yield back.
Chairman Gordon. Thank you.
Ms. Biggert.
Ms. Biggert. Thank you, Mr. Chairman, and thank you all for
really a very informative presentation. We in this committee
have been talking about the globalization, about being
competitive in a global economy, but I think you put all the
pieces together, and I don't think we are doing a good enough
job. I don't think we are doing a good enough job in education.
You are talking about the universities, but I also serve on the
Education Committee, and we have been looking at the results of
No Child Left Behind, and I think it is pretty dismal actually.
We have increased average yearly progress, we have increased
performance, but when you think about that it is only 40, 45
percent of the students even meeting grade level, and we say
that that is great. We are not going to attract kids to science
and math if we are not really giving them the basic education
starting out and the will to study. Look at China, and the kids
are going to school all year long. They are practically
sleeping at their desks and there is a real drive, you know, to
excel and to surpass us, and I don't think that we want the
quality of life for our kids to go to school seven days a week,
24 hours, but I think that we do need to maybe--we have a
nation at risk, and you are talking about Sputnik and all the
things that challenge us, but what can we do to really change
that and make--people have a love of learning, I guess, that
they don't seem to have now. We have got a love of leisure and
grade inflation and things like that that really troubles me,
besides our immigration policies that we are not bringing in
students from other countries, mainly because we cut off a lot
of that since 9/11. We talk about that innovation and
creativity are the only ways that we are going to stay ahead,
and yet, we are not. I think Members of Congress have finally
realized research and development is so important, but a lot of
people don't realize that yet. Can somebody help me out with
that, or is that too broad?
Dr. Blinder. I will take a little stab. I can't really give
you detail because this is a huge question and there aren't
clear answers. But to hearken back to something I wrote in the
testimony, I think we need to move away faster, than we are
doing from the 19th century educational system that we put in--
which features sitting at your desk, being quiet and rote
learning where you fill in the little box with the electronic
pencil. Life is not like that. And to the limited extent life
is like that, it is either done better by a computer or by a
low-wage person in a developing country rather than by an
American. We need to get our kids doing more playing with
ideas, more creativity, less rote learning. If you don't mind
my saying so, since you mentioned you are on the Education
Committee, that is not because of accountability reasons, which
I am all for, but because of the focus on standardized rote
learning tests and the teachers teaching to those tests, which
we see all over America. No Child Left Behind is pushing us in
the wrong direction, I believe that.
Ms. Biggert. Thank you.
I yield back.
Chairman Gordon. Thank you.
Since you were so nice, let us let Mr. Reichart have the
remaining portion of your time, two minutes.
Mr. Reichart. I will just make it real quick. Thank you,
Mr. Chairman.
Russia has lightweight strong titanium. Boeing manufactures
the struts for the 787 in Russia. Is that the cheapest way to
do it, manufacture in Russia and ship the finished struts to
the United States or is it cheaper to ship the titanium and
manufacture in the United States? And a follow-up question, our
Coast Guard helicopters are re-engining, and they are buying
their engines from France, and I am told that the only reason
they are buying them from France is because it is the only
place that makes them. Why doesn't the United States make
engines that fit our Coast Guard helicopters?
Dr. Duesterberg. Those are two different questions.
Mr. Reichart. Yes.
Dr. Duesterberg. With respect to how Boeing carries out its
sourcing, it is frequently constrained by the demands of
countries, which are its customers, to do part of their
production in that country so that they can sell. This sort of
activity is by and large, if not discouraged, it is made
illegal by the global trading system, but it is often left
unchallenged and not sanctioned. Whether it is the best way to
produce is a technical question, and I am not capable of
answering, but I think we ought to look very carefully about
the requirements by foreign countries for local production as a
reason for buying the product. And along those lines, we need
to think more seriously as a nation about what our core
competencies are in technologies that are related to our
national defense. I don't think we have done a very good job of
that in the past, and that is something that we are not capable
of assessing, but somebody at the Pentagon and elsewhere, while
they look at these, should be spending, I think, more time
looking at these sorts of questions.
Chairman Gordon. Thank you, Mr. Reichart.
Dr. Baily. Can I quickly make a quick comment?
That industry, the aircraft industry and, of course, the
military hardware is something where the United States has a
fairly substantial advantage. Obviously Boeing is in a struggle
with Airbus, but quite a lot of the Airbuses are actually made
in the United States, I mean, the engines are made and a good
part of the aircraft, a significant part of it. So I think we
are also the beneficiary of some of that.
Chairman Gordon. Thank you. And let me suggest that all
Members will have the opportunity to submit questions and all
panelists will have opportunity to submit additional testimony,
and Mr. Lipinski, I would like to yield the balance of our time
and whatever nerve you have to stay as long as you would like.
Mr. Lipinski. How much time do we have left in the vote,
Mr. Chairman? All right.
Well, I will try to keep this short. I will shorten to a
couple quick comments and a question. The first thing is, as I
waited for the vote that I thought was going to happen earlier,
I listened to all your testimony from back in my office. I
appreciate all your very thoughtful testimony. A critical
issue--I want to point out one thing, Dr. Gomory. The high-
value-added jobs, I think that is critical that we keep talking
about high-value-added jobs because I understand, and I am not
sure everyone does, that some jobs are better jobs than others,
not just individually for those that are employed there but for
the implications, the multiplicative impact they have on the
economy, especially on local communities. As I see
manufacturing jobs leave from my district just because a guy
can go down the street, get a job flipping burgers, he makes
much less money but also has an impact on the community that is
very significant and other jobs that are there. So, we have to
keep focusing on that, and I also think that it is important
that we can take care of our national defense, because when it
comes time, we are--I don't want to rely on another country to
produce things for us for our national defense. We need to take
care of our exchange rates. I thank Dr. Duesterberg, Dr.
Gomory, doctor and doctor, for mentioning those things.
Exchange rates, we need to have fair trade.
The question I have very quickly, and maybe get some
comments later from you in writing, Dr. Duesterberg talked
about the impact that basic research has on our economy. I just
want to open that up. I want to ask you if you have any more
information on that, if you can provide any more, and maybe I
will just invite everyone else on the panel, if you have
something really quick to say right now, let us know and, if
you can provide any additional information on what impact do we
see, do we have facts and figures on the impact that this
research done at our universities has on our economy. Does
anyone want to say anything quick, or we are just going to----
Dr. Baily. There has been quite a bit of academic
literature written on the spillovers from university research
to private sector research, and you can see that in action. I
mean, Silicon Valley is in some sense a reflection of the
strength of Stanford and Berkeley. You see around Boston the
strength of the high-tech sector there, Austin also with the
strength of the University of Texas. So there has definitely
been quite a bit written about the benefits that you get, the
spillover benefits. If you have a very strong academic center,
you also get private sector benefits and private sector jobs
created.
Mr. Lipinski. [Presiding] Thank you. Mr. Gordon has to
leave so we have to run for votes. I can stay here and ask more
questions. I think I am going to slow down my run. I want to
thank you for your testimony, and if I can adjourn the hearing
from here instead of over in that official chair, I adjourn
this hearing. Thank you.
[Whereupon, at 2:29 p.m., the Committee was adjourned.]
Appendix 1:
----------
Answers to Post-Hearing Questions
Answers to Post-Hearing Questions
Responses by Alan S. Blinder, Director, Center for Economic Policy
Studies; Gordon S. Rentschler Memorial Professor of Economics,
Princeton University
Questions submitted by Chairman Bart Gordon
Q1. During your oral testimony you recommended that we increase the
number of students in math and science fields, but your research finds
that these fields are highly vulnerable to offshoring. How do students
pursuing these fields buffer themselves from having their jobs
offshored? Should we be iuvesting in all science, technology,
engineering, and mathematics (STEM) fields or only those that we expect
will be rooted in America?
A1. I do believe that we should try to increase the numbers of U.S.
students in science and math, even though many scientific jobs are
vulnerable to offshoring. But, if we are to be smart about it, we will
specialize in producing engineers and scientists for the jobs that are
more difficult to offshore. For example, in the computer programming
field, writing code for canned software programs is extremely easy to
offshore. But it is very hard to offshore the jobs of people who
customize software for use by specific companies and/or organizations,
and who may therefore have to interact personally with people in those
organizations to understand their business needs. It is wiser, in my
view, to try to train people for these sorts of jobs, many of which
blend people skills and business knowledge with scientific skills, than
it is to try to decide which scientific fields are more promising.
Q2. Could you comment on how your view of the economics of
globalization differs from Dr. Gomory? Specifically, do you agree with
Dr. Gomory's assessment that productivity shifts through globalization
could make America worse off?
A2. At the conceptual level, I don't think Dr. Gomory's views on
globalization and mine differ much, if at all. In principle, it is
definitely possible that increased trade brought about by productivity
improvements abroad could make America worse off, as he says. However,
I am a bit skeptical that this has happened much in practice.
Q3. During your testimony you mentioned that one of America's major
sources of comparative advantage is its superior higher-education
system. A number of universities are opening, or are considering
opening, overseas campuses in the very countries getting many of the
jobs being offshored. How does this activity affect the national
economy?
A3. I don't have a clear answer to this question. It seems to me that
the answer depends almost entirely on what goes on at these overseas
campuses. For example: Do we attract top students from abroad, who then
want to bring their skills to America? Or do we encourage top-flight
American students to emigrate? (I suspect there is more of the former
than the latter.) Similar questions arise related to the research done
at these campuses.
Q4. Are there specific steps that this committee should do to address
the offshoring of STEM occupations?
A4. Like most economists, I believe that incentives (some, but not all,
of them financial) have powerful effects on career choices. If the
market refuses to reward scientists and engineers more highly, there is
not a lot the Federal Government can or should do about it. But the
government can do quite a bit to reduce the costs of getting a
scientific education--e.g., graduate fellowships, undergraduate
scholarships, grants to universities to subsidize scientific teaching
and/or laboratories, and so on.
Answers to Post-Hearing Questions
Responses by Martin N. Baily, Senior Fellow, Peter G. Peterson
Institute for International Economics, Washington, DC
Questions submitted by Chairman Bart Gordon
Q1. How is my view of globalization contrasted with that of Dr.
Gomory? And specifically, what is my view on the issue of whether
globalization can make the U.S. worse off.
A1. I agree with Dr. Gomory that globalization creates winners and
losers. In order to gain the full benefits of globalization, I believe
that US policy-makers must put in place adequate programs to help
workers change jobs when needed and to acquire the skills for good
jobs. Many employers today, including manufacturing firms, are crying
out for skilled workers. There are good jobs out there. There would be
more good jobs if the U.S. would balance its budget, save more, let the
dollar adjust and reduce the trade deficit. I believe that on balance
the U.S. benefits from globalization, where Dr. Gomory is more
skeptical.
If I understood him correctly, Dr. Gomory cited a recent article by
Professor Paul Samuelson to the effect that globalization could hurt
the U.S. as other countries develop economically. Professor Samuelson
was one of my teachers at MIT and I respect him enormously. I thought
that this particular article was technically correct but very
misleading in its implications. In a key model in the article, the rich
country (the U.S.) suffers when the poor country (China) grows rapidly.
The reason for this is that in the initial situation (when China is
still very poor) there is a substantial amount of trade from which the
U.S. benefits greatly. As the poor country develops, the level of trade
declines, according to the model. The rich country (the U.S.) is hurt
by the reduction of trade between the countries. I see no relevance of
this article to the situation of the U.S. and China where trade is
expanding rapidly. This article actually points to the benefits of
trade.
Dr. Gomory wants to make sure that U.S. corporations face the right
tax incentives to encourage them to locate production in the U.S. With
some qualifications, I agree with him on this point.
Q2. Is the OES Data valid for time series comparisons?
A2. There have been definitional changes, but I believe the conclusions
from the table remain valid. This table in my testimony is taken from
my colleague Jacob Funk Kirkegaard. He was kind enough to write an
extended response to your question, which is attached at the end of
this document.
Q3. The question refers to the McKinsey Global Institute estimate that
the U.S. gains 12 cents on every dollar of off-shoring. Doesn't it show
that workers lose as a result?
A3. As noted earlier, trade creates winners and losers but can be
expected to provide net positive gains to the U.S. The McKinsey study
provided a pioneering effort to quantify both the gains and potential
losses from this form of trade, facing up to both sides of the story,
but concluding there are net gains to the U.S.
The estimates made of cost savings of 65-70 percent were based on a
very careful analysis, a series of company interviews and visits to
Indian offshoring locations. Actual gains may vary depending on the
activity being offshored and the skill with which the offshoring is
carried out. Some companies may report smaller savings, as your
question indicates. In addition, wages are rising rapidly in India for
persons engaged in offshored work and the U.S. dollar is falling, so
the cost savings may well be changing year by year.
I note that if the cost gains are in fact smaller than McKinsey
estimated, as small as 15 percent, then the amount of offshoring in the
future will be very small. Dire predictions about massive impacts from
offshoring are absurd if the costs gains are in fact so small.
The McKinsey estimate of the losses to workers was deliberately
chosen to emphasize potential problems, and in fact may be too high. It
assumes that any activity involving service imports results in a
displaced worker in the U.S. and that the employment experience of such
workers matches that of ``displaced'' workers as studied by economists
such as Lori Kletzer of the Peterson Institute.
a. In practice, some offshoring will not result in job losses,
as workers are deployed to other activities. For example, there
have been predictions that ATMs and offshoring would sharply
reduce jobs in banks. In practice, banks are finding it hard to
recruit enough people.
b. The turnover rate in U.S. call-center operations is
extremely high. A key to business success in U.S.-based call
centers is figuring out which potential hires will be willing
to stay more than three months. Many of the people leaving call
center jobs are leaving voluntarily.
c. Companies that offshore some activities can reduce costs,
become more competitive, and increase other employment in the
U.S.
d. The U.S. has had full employment for most of the past
twenty years; indeed it has had close-to-full employment since
1945. There is no overall shortage of jobs. The expansion of
international trade over the past sixty years has not adversely
affected the overall level of employment.
That said: I agree that we need to be aware of the painful losses
encountered by some workers as a result of job displacement, whether
this displacement is caused by goods trade, service sector offshoring,
technological change, or the rise and fall of different U.S. companies.
As I said in my testimony, the U.S. has a very flexible labor market,
with advantages that go with this, but it does not provide adequate
security or training. In addition, workers need health insurance and
pensions they can count on.
Q4. Is the number of high-wage technology jobs below the BLS
occupational projections?
A4. Data of this type is uncertain and projections are even more
uncertain. As I said in my testimony, it appears that employment in
basic programming jobs in the U.S. has been reduced by offshoring to
India. Overall, technology employment is growing, but the technology
industry has grown much more slowly since 1999 than was predicted
before the technology bubble burst. This is primarily due to the slower
growth of demand here in the U.S.
Q5. Policies used by other countries to encourage innovation.
A5. Other countries have poured money into science and technology
research and into venture capital funding. These efforts have made some
difference but there have also been moneys wasted. Government efforts
overseas to mimic the U.S. venture capital industry have not been very
successful. Flagship technology projects such as the CERN accelerator
or the space station may or may not be worth the money, but are
unlikely to provide major benefits to commercial technology.
Innovation is largely demand driven and occurs where there are
flexible and competitive markets and customers that are looking for new
products and services and are pressing for cost reductions. When
combined with its remarkable strength in science and technology, the
U.S. provides a wonderful cauldron for innovation.
When locating R&D, companies look at the availability of a trained
workforce and they locate where there customers are located. They want
to locate where other companies locate their R&D and where there are
strong universities. They consider the tax consequences of their
decisions and the regulatory environment.
Q6. Science and technology workers displaced.
A6. I have not studied this question specifically. My understanding is
that in locations such as Silicon Valley workers whose companies go
bankrupt can often find jobs with other companies in the same industry.
However, in the technology crash in 2001, there were many workers who
lost very high paid jobs and have not recovered from this.
Q7. The surplus in services.
A7. Yes it is true that trade in services is hard to measure. Both
imports and exports may be understated in the official data. Note,
however, that BEA works hard to capture services trade. Recently,
several people, including me, argued that BEA was understating service
imports from India in comparison to data provided by the Indian group
NASSCOM. BEA investigated this claim and found that NASSCOM was
counting a lot of activity that was not in fact exported to the U.S.
BEA defended its estimates very well.
Response to Question 2 by Jacob Funk Kirkegaard of the Peterson
Institute.
The Bureau of Labor Statistics at the Occupational Employment
Statistics, Frequently Asked Question #27 (http://www.bls.gov/oes/
oes_ques.htm#Ques27) lists several methodological
considerations that may cause employment or wage comparisons of OES
data over time to be less valid. The BLS lists seven different
methodological concerns;
1) Changes in occupational classification;
2) Changes in industrial classification;
3) Changes in geographical classification;
4) Changes in the way the data are collected;
5) Changes in the survey reference period;
6) Changes in mean wage estimation methodology, and;
7) Permanent features of OES methodology.
However, these methodological considerations are, for the following
reasons, not of a magnitude that jeopardizes the conclusions drawn in
this testimony;
a. Data Presented Covers Only Data For Occupations From the
Same Occupational Classification System--the 2000 SOC; Prior to
the data presented in Table 1, the OES survey used its own
occupational classification system through 1998. The 1999 OES
survey data provide estimates for all the occupations presented
in Table 1 in the 2000 Standard Occupational Classification
(SOC) system. Hence the data in Table 1 is not affected
directly from changes in ``1) Changes in occupational
classification.'' However, only in 2004 did the OES survey
estimate all ``residual categories'' and a small indirect
effect from different estimations of ``residual categories,''
spread out over the period from 1999-2004 cannot be ruled out.
Yet, any such indirect effect is likely to be very small and
not materially affect the data presented in a systematically
biased manner.
b. Data Presented Unaffected By Four of Seven Methodological
Concerns; Given the national coverage of the data used,
immediately 2) and 3) are of no concern. As little if any
seasonal variation in the occupations used can be expected, 5)
is also less of a concern. Table 1 has no time comparison of
mean wages, and hence 6) is of no concern.
c. Data Presented Not Systematically Biased By Changes the Way
OEC Data is Collected; The BLS voices concern in 4) that ``In
the past, employment in some occupations in an industry may
have been reported in a residual category rather than in the
specific occupation.'' Given that all occupations presented in
Table 1 has been collected throughout the 1999-2006 period, it
is unlikely that this concern can lead to any systematic bias
in the results over the period.
d. Data Presented Compares a Seven-year Time Span and Is Thus
Less Affected By 7)'s Permanent OES Feature of Three-year
Rolling Averages; The OES data set at any given reference
period is a benchmark of six consecutive semi-annual panels and
hence represents a moving average of the entire U.S. economy.
Hence sudden changes in employment and wages will only show up
gradually. However, given the seven-year span of the
comparisons made in Table 1, the longer-term trend captured by
the comparisons should not be materially affected by this
feature.
Answers to Post-Hearing Questions
Responses by Ralph E. Gomory, President, Alfred P. Sloan Foundation
Questions submitted by Chairman Bart Gordon
Q1. In one of your remarks you seemed to imply that there is no
shortage of American scientists and engineers. This is important as
much thought has gone into recommendations to increase the supply of
U.S. scientists and engineers. Please give us your opinion on this
subject.
A1. You have correctly interpreted my remarks. There is little or no
evidence of any shortage of scientists and engineers.
The House Science and Technology Committee should be especially
aware of this possibility since it already has had the embarrassing
duty of investigating false claims of shortages that it had accepted in
the past. For a good historical survey of present and past shortages
claims, including the role played by this committee, I am attaching an
article by the well known demographer Michael Teitelbaum who heads the
Sloan Foundation program in this area. For further discussion of this
set of issues I suggest the well known labor economist Richard Freeman
of Harvard who has spent a number or years heading a project on the
Science and Engineering workforce.
Q2. Could you explain how your view of the economic theory and
implications of globalization differs from Dr. Blinder and from Dr.
Baily?
A2. On theory I am not sure that Alan Blinder and I are terribly
different. He says that according to his view there can be a huge
negative impact on the U.S. from globalization and the benefits will be
so long in coming that they may not matter. He thinks that new areas
will eventually be found to replace the huge array of industries and
services that will be lost but thus may take decades. I don't see in
any of the standard theory any indication that there will be a
resurgence after the terrible loss. Nor do I from my long exposure to
industry think that it is likely that we can replace the loss of so
much of our services and production with equally remunerative and
productive employment. Our differences however are about the distant
future.
Martin Bailey doesn't see that there is an overall problem at all.
In addition he uses the terms globalization and free trade
interchangeably. There is no basis for saying this as can be shown by
the simplest examples. See for example my testimony which shows the
difference between free trade and globalization in the most standard
economic model, the standard England-Portugal Textiles-Wine example.
And the difference is of the utmost importance, free trade will benefit
us, globalization will almost certainly hurt. (See my written
testimony.)
Q3. What is your opinion on free trade?
A3. I am an advocate of free trade. However I am aware, as most people
are not, that economic theory points to the fact that the home country
may be worse off trading in a free trade environment with a trading
partner that has become more developed than when it was trading with
that trading partner when it was less developed. In our case that
trading partner is Asia. Therefore I point out very clearly in my
written testimony that under globalization, which includes the
development of many Asian industries and services, we can be worse off
than before, not because of free trade, but because of the emergence
and development of many rival industries in Asia that were not there
before. I point out clearly that not having free trade is worse yet,
and that the only real path to retaining prosperity is increased
productivity in the U.S., and that will not be obtained through
tariffs. I advocate a productivity focus as a response to the
industrial development in Asia.
Q4. You express concern about the long run impacts on the U.S.
economy, but aren't these the same things that were said about Japan,
and we've done just fine with Japan?
A4. I am not at all sure what is meant by the statement ``we have done
just fine with Japan'' I am not aware of any analysis that can show
with all the other nations in the world interacting and growing that we
have done either fine or not fine with Japan. Certainly we have lost
major shares of electronics, computers, steel, etc., to Japan and
Taiwan. These losses have both a beneficial and a negative effect and I
am not sure how anyone can sort that out and untangle that from the
effect of just plain technological progress.
More importantly I don't quite understand how ``things that were
said about Japan'' even if they were not correct bear on the present.
The effect of Japan was on manufacturing and one result is that we have
today a smaller manufacturing sector as a proportion of our economy
than do Germany or Japan. Is this good? People will argue about that
but the Science and Technology Committee should be award that is where
most R&D is.
However the challenge today is not from a small country with a
limited labor force specializing successfully in a few industries, but
from populations that dwarf ours and an across the board approach that
leaves no room for escape. Furthermore the progress of communication
technology has made services contestable as well as manufactured goods.
The developing Asia of today is certainly not the developing Japan of
the 1970's and 1980's and that difference shows up if one analyzes the
standard trade models as well as uses common sense.
Answers to Post-Hearing Questions
Responses by Thomas J. Duesterberg, President and CEO, Manufacturers
Alliance/MAPI
Questions submitted by Chairman Bart Gordon
Q1. Dr. Gomory says that multinational company interests are not
always aligned with America's. Do you agree with his assessment? In
which areas do you believe he is correct?
A1. This is a very broad question which can only be partially answered.
Dr. Gomory's argument largely turns on his analysis that productivity-
enhancing activities are increasingly being sent offshore by U.S.
firms, so that the mutual benefits of trade are reduced in favor of
non-U.S. operations. I generally do not agree with his assessment for
several reasons. First, as I demonstrated in my testimony, productivity
in the United States, especially in the globally engaged manufacturing
sector, has done very well in recent decades, and especially since
1995. In terms of its relative performance, the United States has
gained against most global competitors in terms of productivity in this
period.\1\ Second, the large majority of research and development
activities by U.S. firms, especially those related to cutting-edge new
products or processes, are still performed in the United States.
However one measures national performance, per capita income, national
wealth, relative market shares, relative purchasing power, or raw GDP,
the United States is continuing to advance in both absolute and
relative terms. I also argued in my testimony that it is in the
interest of U.S. firms to be active in foreign markets due to the
superior growth prospects in areas such as China and India and listed a
variety of ways in which such participation strengthens U.S. firms--and
hence our domestic economy. The one area where we do need to be
vigilant, which I emphasized in my oral testimony and in response to
questions, is in industries and products related to national defense.
The national interest in maintaining superiority in defense-related
industries and products clearly must be carefully aligned with the
interests of U.S. firms in gaining world market share. We have
sufficient policies in place to accomplish this balancing act, but they
are in constant need of updating to reflect changing global
distribution of capabilities.
---------------------------------------------------------------------------
\1\ See Krzysztof Bledowski, Industrial Performance of Europe
Versus America: Trends in Labor, Productivity, and Costs, Manufacturers
Alliance/MAPI, ER-635e, July 2007.
Q2. A recent BusinessWeek cover story says that the real costs of
offshoring are being under-counted, and that domestic production has
been overstated. How does this finding affect the figures in your
---------------------------------------------------------------------------
testimony?
A2. In response to this question, I offer as an attachment a recent
paper by my colleague Jeremy Leonard addressing the BusinessWeek
analysis. At this point, not enough work has been done to cause us to
think that the data used in my testimony can and should be revised.
Q3. What share of the millions of American manufacturing jobs lost
over the past seven years has been due to offshoring? What share was
due to other causes?
A3. Little, if any data exist to accurately address this offshoring
question. The Bureau of Labor Statistics maintains a Mass Layoff series
whereby closings and layoffs of 50 or more from business establishments
that employ 50 or more workers are identified with the use of
administrative data. Employer interviews are conducted to identify
events that last more than 30 days and to supplement administrative
data with information on the nature of the layoff itself, including the
reason for the separation.
Beginning in January 2004 the BLS, motivated by growing interest in
the outsourcing issue, added two questions to the employer interview
component:
1. Did this layoff include your company moving work from this
location(s) to a different geographic location(s) within your
company?
2. Did this layoff include your company moving work that was
performed in-house by your employees to a different company
through contractual arrangements?
If employers responded ``yes'' to either question, then they were
asked ``Is this location inside or outside the United States?'' and
``How many layoffs were a result of this relocation?'' ``Offshoring''
is indicated by movement of work out of the United States, while
``outsourcing'' the movement of work that was conducted in-house to a
different company which may be inside or outside the United States.
As shown in Figure 1, the share of mass layoff events and
separations in the U.S. manufacturing sector that has been accompanied
by movement of work overseas has been below 10 percent since the series
was initiated in 2004. (These data are not seasonally adjusted and thus
we use first quarter data from each year to display the trend.) The
first quarter 2007 shares are well below those seen in 2004, with the
events share falling more than the separation share. BLS cautions that
these data represent a new series, that many employers refuse to answer
the questions or do not know if layoffs were associated with
outsourcing, and thus are subject to major refinement in coming years.
Data related to the services sector show even fewer reports of mass
layoffs accompanied by movement of work outside the United States.
Between 1.6 percent and 1.4 percent of such services sector layoffs
meet this criterion.
The data generated by these new questions, and by the Mass Layoff
survey in general, have, at best, a limited use. For one thing, mass
layoffs are only a subset of the larger job loss picture. Further,
these data do not reflect the trend in hiring, which many analysts
believe to be a more critical component of the manufacturing job
dynamic since 2000. Nor do they reflect jobs not created in the United
States due to growth of market share by foreign firms. But, more
importantly, conceptual problems prohibit the use of any data to make
precise inferences about the substitution of a foreign for a domestic
job. A March 2004 study prepared by an analyst at the Bureau of
Economic Analysis clearly explains the issues as they pertain to U.S.
multinationals, which have a large footprint in the U.S. manufacturing
sector.\2\ As noted in the Meckstroth paper cited in MAPI's June 12
testimony, U.S. parent multinationals (MNC) account for 55 percent of
all employment by U.S. manufacturing firms and about 70 percent of U.S.
manufacturing value-added. The article notes that while BEA's data on
the operations of U.S. MNCs indicate a relatively stable mix of
domestic and foreign operations, the inferences that can be drawn from
these data about production strategies and the ultimate impact of
multinational activity on the U.S. and foreign economies are limited.
The U.S. parent share of U.S. MNC activity can change for a number of
reasons and these changes do not uniformly correspond to either
additions or subtractions from production and employment in the United
States. Specifically, the impact of new direct investment abroad by
U.S. MNCs will vary depending on the form of the investment and the
reason it was undertaken. Affiliate employment will always rise
regardless of whether the form of the direct investment is a Greenfield
plant (i.e., built from the ground up), the acquisition of a successful
existing enterprise, or the acquisition of a failed enterprise. But the
impact on host country employment will differ. And the host country
impact is not simply a function of MNC operations alone. It is
determined by a wide range of macroeconomic factors that include the
total level of employment. Many studies show that in the United States,
in the aggregate, growth in foreign affiliated employment is generally
accompanied by growth in domestic employment.
---------------------------------------------------------------------------
\2\ See Raymond J. Mataloni, Jr., ``A Note on Patterns of
Production and Employment by U.S. Multinational Companies,'' Survey of
Current Business, March 2004, pp. 52-56.
---------------------------------------------------------------------------
A consideration of the reasons for the direct investment by the
U.S. MNC is instructive. Affiliate employment shares will rise
regardless of whether the direct investment is a result of the shifting
of production from parents to affiliates or because of the opening of
new overseas markets that can only be serviced through a local
enterprise. In the case of production shifting, the rise in employment
might come partially or totally at the expense of parent employment.
If, on the other hand, overseas markets are generating new affiliate
activity, domestic U.S. employment might rise because of the need to
provide new headquarter services. Further, many other factors might be
associated with a change in the parent and affiliate shares of MNC
activity. These include different rates of productivity growth in U.S.
parents and affiliates and changes in foreign government policies
toward direct investment.
Finally, the article notes a significant data limitation in
tracking employment changes in U.S. parents and affiliates. Except for
the data (collected during benchmark study years) on the number of
production workers of foreign affiliates in manufacturing, BEA does not
collect data on the types of jobs held by employees of either U.S.
parents or foreign affiliates. Consequently, it is not possible to
determine the relative changes in the types of jobs offered by parents
and affiliates either in terms of the occupation or the skill set
required for the job. On top of the above-discussed market complexities
of domestic and foreign job changes, this data limitation prevents any
inference at all about the substitution of foreign for domestic jobs.
From a policy point of view, an understanding of the forces that
have been impacting manufacturing employment is more valuable than
estimates regarding the precise impact of offshoring on domestic
employment, which is murky at best. In a 2004 paper, Kristin Forbes,
currently an Associate Professor at MIT's Sloan School of Management
and formerly a member of President Bush's Council of Economic Advisers,
discussed a number of the forces that catalyzed the large manufacturing
job loss that occurred between 2001 and 2004.\3\ The unusual character
of the 2000-2001 recession and subsequent period of slow growth needs
to be understood to appreciate the reasons for the severe factory job
losses. As measured by the decline in real GDP, the recession was quite
mild by historical standards. But business investment and exports, the
two primary demand generators for U.S. manufactured products, suffered
disproportionately. The significant business investment decline came on
the heels of what many economists still view as an investment bubble
that reached a peak in the latter years of the 1990s. The sizable
export decline was, in large measure, due to stubbornly persistent
growth difficulties in the Eurozone and Japan.
---------------------------------------------------------------------------
\3\ Kristin J. Forbes, ``U.S. Manufacturing: Challenges and
Recommendations,'' Business Economics, Vol. 39. No. 3, pp. 30-37.
---------------------------------------------------------------------------
But on top of these short-term issues, Forbes discusses the long-
term improvement in manufacturing productivity growth accompanied by
the very long-term decline of manufacturing employment. She notes that
during the second half of the 20th century, manufacturing productivity
growth has been stronger than for the economy as a whole. And, very
strikingly, the manufacturing share of total employment actually peaked
in the early 1940s. As noted in MAPI's testimony, the very long-term
nature of the manufacturing employment decline suggests that the
reasons are fundamental to the factory sector's evolution and not
simply a result of the current challenges presented by emerging
markets, a point that is accentuated by the fact that many of the
challenges facing U.S. manufacturers are not unique to the United
States. Other large economies such as Japan and China also suffered
large manufacturing job losses in the early years of the 21st century.
Q4. Do we need policies to keep R&D in the U.S.? If so, why?
A4. I don't believe the United States needs any new policies to keep
R&D in the country, but existing ones can and should be strengthened.
This is especially the case since R&D is currently the least globalized
activity of multinationals, as less than 14 percent of R&D is conducted
by foreign affiliates, up very modestly from 11.4 percent in 1990.
First, the research and experimentation tax credit should be simplified
and made permanent. Second, the current high (relative to most
internationally competitive economies) corporate tax rate discourages
the capital investment needed for commercializing R&D, and, in some
cases, discourages location in the United States. The corporate tax
rate should be lowered to provide a level playing field for U.S. firms.
Third, federally funded basic research in the physical sciences and
engineering has languished, in relative and absolute terms, in recent
decades. This class of research is important to manufacturers and needs
to be increased. Fourth, the education system that supplies trained and
creative talent to conduct cutting-edge R&D needs to be improved, and
creative ways to enhance the career paths of aspiring scientists and
engineers need to be conceived and put into place. Fifth, the legal
regime (both domestic and international, through the World Trade
Organization) which encourages and protects intellectual property,
needs to be strengthened and updated. It is, finally, worth noting that
we need to allow our global corporations to capture the positive
benefits of emerging innovation clusters around the world, which may
require some local investment. Likewise, some local R&D presence may
aid in adapting products to local markets. There is no reason that
positive spillover impacts, which are well documented in the research
literature, could not arise from overseas universities and industrial
research clusters as well as those in the United States. Such
spillovers, too, could strengthen domestic U. S. firms.
Appendix 2:
----------
Additional Material for the Record
THE GLOBALIZATION OF R&D AND INNOVATION, PART II: THE UNIVERSITY
RESPONSE
----------
THURSDAY, JULY 26, 2007
House of Representatives,
Committee on Science and Technology,
Washington, DC.
The Committee met, pursuant to call, at 10:05 a.m., in Room
2318 of the Rayburn House Office Building, Hon. Brian Baird
[Acting Chairman of the Committee] presiding.
hearing charter
COMMITTEE ON SCIENCE AND TECHNOLOGY
U.S. HOUSE OF REPRESENTATIVES
The Globalization of R&D and
Innovation, Part II:
The University Response
thursday, july 26, 2007
10:00 a.m.-12:00 p.m.
2318 rayburn house office building
1. Purpose
On Thursday, July 26, 2007, the Committee on Science and Technology
will hold a hearing to consider how globalization affects America's
universities, and its implications for the U.S. science and engineering
enterprise. The U.S. higher education system is a principal source of
America's preeminence in science, technology, engineering, and
mathematics (STEM) fields. As STEM offshoring increases competition for
U.S. STEM workers, universities are responding by modifying their
curricula to help their STEM students better compete. Globalization
also enables American universities to venture abroad--to build programs
and campuses overseas to serve the growing demand of foreign STEM
students. This hearing will explore the globalization and
internationalization of American universities and the implications for
America's competitiveness.
2. Witnesses
Dr. David J. Skorton is President of Cornell University.
Dr. Gary Schuster is Provost and Vice President for Academic Affairs of
Georgia Institute of Technology.
Mr. Mark Wessel is Dean of the H. John Heinz III School of Public
Policy and Management at Carnegie Mellon University.
Dr. Philip Altbach is the Director of the Center for International
Higher Education and the J. Donald Monan SJ Professor of Higher
Education at Boston College.
3. Brief Overview
Enrollments in some STEM fields, particularly
computer sciences, are down significantly over the past few
years in part because students believe these jobs are
vulnerable to offshoring. In response, universities are
modifying STEM curricula in order to give their students an
advantage over emerging competitors from low-cost countries.
Some curricular strategies include: substituting technical
classes with business ones; offering interdisciplinary
technical degree programs such as bio-engineering with
electrical engineering; and, providing international exposure
to technical students such as study abroad, foreign language
trainings, and collaborative projects with students in other
countries.
According to the American Council on Education (ACE)
approximately one percent of American students participate in
study abroad programs. For engineering students the number is
even smaller, so some engineering colleges are encouraging more
of their students to participate in international experiences.
Rensselaer Polytechnic Institute (RPI) has set a goal to send
25 percent of its 2010 class overseas through partnerships with
universities around the world.
America's higher education is considered the best in
the world. The Economist reports that America has seventeen of
the top twenty universities and employs 70 percent of the
world's Nobel prize-winners. American academics also produce 30
percent of the world's peer-reviewed scientific and technical
journal articles, according to the National Science
Foundation's (NSF) Science and Engineering Indicators 2006.
American universities have traditionally attracted
large numbers of foreign students, particularly advanced degree
STEM students. Now, some American universities are taking their
education to foreign students by building campuses and offering
STEM degree programs in other countries. While there are no
definitive counts of foreign campuses and programs established
by American universities, experts believe that more
universities, particularly high-prestige ones, are venturing
abroad. The World Bank estimates that 150 of the 700 foreign
degree programs operating in China are American.
The American Council on Education (ACE) identifies
eight different drivers of the internationalization of American
universities, including: increasing revenue, enhancing
prestige, enhancing international research collaborations,
serving rapidly growing demand from China and India, and
enhancing study abroad opportunities for U.S. students.
4. Issues and Concerns
What factors lead universities to establish branch campuses overseas
and how widespread is this trend? What are the benefits and costs of
this trend to the U.S. national interest in maintaining an edge in
international economic competitiveness--and to overall U.S. national
interests?
Experts predict that the number of foreign campuses and degree
programs operated by American universities will increase significantly
in the near future. The goals of these operations include increasing
revenue, enhancing prestige, serving rapidly growing demand from China
and India, and enhancing study abroad opportunities for U.S. students.
The World Bank estimates that 150 of the 700 foreign degree programs in
China are from American universities.
Do STEM educational programs offered at foreign campuses slow down or
speed up the offshoring of STEM jobs? Are we exporting one of the
principal sources of our comparative advantage? Are we training
American workers' competitors?
The burgeoning demand for quality STEM education in India and China
is driven in part by the rise of offshoring technology work to India
and manufacturing work to China.
As U.S. STEM workers increasingly compete directly with workers based
in low-cost countries, much of their competitive advantage will come
from superior education. Have U.S. universities made curricular changes
to give U.S. STEM students a durable advantage? Are the changes common
across most U.S. universities and are they effective?
Some STEM programs are substituting technical classes like computer
science with business classes such as project management. Other
programs are combining technical disciplines like biomedical
engineering with electrical engineering to create interdisciplinary
graduates.
How do foreign educational programs and campuses affect the flow of
foreign graduate students to American universities?
If foreign students are able to get the same degree in their home
countries for less money, they may forgo studying in the U.S. On the
other hand, foreign campuses may expand the pool of students seeking
graduate degrees in the U.S.
5. Background
The U.S. higher education system is a principal source of America's
preeminence in science, technology, engineering, and mathematics (STEM)
fields. The Economist reports that America's higher education is the
best in the world, home to seventeen of the top 20 universities and 70
percent of the world's Nobel prize-winners. The National Science Board
reports that American academics produce 30 percent of the world's
science and engineering articles. But globalization is re-shaping how
and where STEM work is done, and American universities are adapting to
globalization and offshoring by internationalizing STEM curricula and
by increasing their global footprint.
American STEM students face increased competition and career
vulnerability in the wake of offshoring and globalization. As a result,
U.S. students are shying away from STEM fields they deem vulnerable to
offshoring. The most prominent example is computer science, where
undergraduate enrollments are down 40 percent over the past four years.
Universities are responding to those concerns by modifying their STEM
curricula and offering more international exposure for their U.S.
students.
To make their students more desirable in the job market,
engineering colleges are providing more international experience for
them. Currently, engineering students participate in study abroad
programs in disproportionately small numbers, so a number of
engineering colleges have set goals to increase these numbers. About
half of Worcester Polytechnic Institute's (WPI) graduating class goes
overseas in some capacity. And through partnerships with universities
around the world, Rensselaer Polytechnic Institute (RPI) has set a goal
to have 25 percent of its 2010 class study or travel abroad. Other
universities, like the University of Rhode Island, are approaching
internationalization of STEM education by emphasizing foreign language
training. Still others, like Purdue University, match up its students
with students in other countries on international design teams.
American universities are also seeking to increase their global
presence by venturing abroad--building campuses and STEM degree
programs overseas. American universities have traditionally attracted
large numbers of foreign students, particularly in STEM fields at the
graduate level. Now, American universities are taking their education
to foreign students by building campuses and offering STEM degree
programs in other countries. Some, like Cornell, already identify
themselves as ``transnational universities.''
As part of its strategic plan to increase its global footprint
Carnegie-Mellon has established programs in Greece, Japan, Taiwan,
South Korea, Australia and India. Georgia Tech is building a campus in
Andhra Pradesh, India, to offer Master's and Ph.D. degree programs. And
Cornell University operates a medical school in Qatar.
Offshoring is giving high quality foreign students job
opportunities in their home countries they never had before, making it
less desirable to come to the U.S. to study. As a result prominent
universities are expanding their global footprints, to tap a more
geographically diffuse student pool especially in India and China.
While there are no definitive counts of foreign campuses and
programs established by American universities, experts believe that
more universities, particularly high-prestige ones, are venturing
abroad. And the World Bank estimates that 150 of the 700 foreign degree
programs operating in China are American. ACE identifies eight
different drivers of the internationalization of American universities.
Some of these include: increasing revenue, enhancing prestige,
enhancing international research collaborations, exponential growth in
demand in emerging economies of China and India, and enhancing study
abroad opportunities for U.S. students.
The hearing will explore the trends, motivations, and consequences
of the globalization of American universities on the U.S. science and
engineering enterprise.
Mr. Baird. [Presiding] I call the Committee to order, and
welcome everyone to this morning's hearing on globalization of
American universities and the impact on national
competitiveness.
I want to offer welcomes to our distinguished witnesses,
all leaders and experts on the emerging trend of university
globalization, and we look forward to hearing your thoughts on
the globalization of universities and the implications for
American competitiveness.
Chairman Gordon, did you want to offer some comments? I
know you have to leave early. Did you want to offer some
comments before I offer my introductory remarks?
Chairman Gordon. Thank you, Mr. Chairman, and I thank you
for continuing this. As you know, this is a very important
issue to us. We have been working on this in a bipartisan way
for the last few years. I am very hopeful that we are close to
an agreement with the Senate on our Competitiveness Bill. I
know that you are very aware of the Rising Above the Gathering
Storm, and I think we are going to be able to get that done. I
hope that you will soon see the results of it, and may come
back and visit us in a year or so, to let us know how it is
working, and how to fine-tune it, and how we need to move
beyond that.
Today is also going to be a very interesting hearing
concerning STEM education. As we know, just to get a STEM
education these days, even from a substantial university, like
we have here today, is no guarantee of a lifetime of good
employment. And so we want to learn more about that. We want to
learn what you are learning from overseas, and maybe lessons
that can be brought home to us.
So, again, we thank you for being here, and as Chairman
Baird said, I have a markup shortly, and I will have to leave,
but I will be staying in touch, and want to learn more about
what you have to say. So thank you.
[The prepared statement of Chairman Gordon follows:]
Prepared Statement of Chairman Bart Gordon
I would like to thank the witnesses for appearing at today's
important hearing on the university response to the globalization of
R&D.
The Science and Technology Committee has been a leader in creating
policies that strengthen science, technology, engineering, and
mathematics education in the United States. The institutions
represented on this panel are key contributors to our country's
preeminent STEM education enterprise.
However, as they know all too well, having a STEM degree, even from
a top school, no longer guarantees lifelong employment in a well-paying
job in the United States. Our students are increasingly competing with
well-trained, low cost employees in countries such as India and China.
Universities are our first line of defense in ensuring our
leadership in the global economy by giving our scientists and engineers
the special skills they need to set themselves apart from the global
competition. I am eager to hear about the new efforts you are
undertaking to prepare students for the 21st century economy.
I also am curious to learn more about international programs being
established by American universities to educate foreign students in
their home countries.
While opportunities for international exchange are a key part of
improving curriculum, I am eager to hear what the motivations were for
your universities to establish campuses offshore, what sorts of
opportunities and challenges you are now facing, and what effects you
anticipate in the years to come.
Mr. Baird. Thank you, Mr. Chairman. Mr. Gordon, as you all
know, has been just fantastic working here along with Ranking
Member Hall and Mr. Ehlers and others on both sides, in a
bipartisan way, on expanding STEM education in a host of
important ways, and we are grateful for your participation.
As you all know, corporations have been globalizing for
decades, and we know the effects on U.S. competitiveness are
complex, including positives, such as lower prices for
consumers, but also, some negatives, as job and wage loss have
impacted other American workers.
But we know relatively little about how university
globalization will impact America's competitiveness. America's
higher education system is a principal source of our
preeminence in science, technology, engineering, and math
fields, so-called STEM fields, and as The Economist reports,
U.S. higher education is the best in the world, home to 17 of
the top 20 universities and 70 percent of the world's Nobel
Prize winners. I think we swept those prizes last year, in
fact. The National Science Board reports that American
academics produce 30 percent of the world's science and
engineering articles.
However, off shoring is reshaping how and where STEM
education work is done. As a result, international competition
has shifted increasingly to the individual worker level, and
multinational companies are responding to competition by using
more workers in lower cost countries. Those companies' American
workforce now compete against workers in low cost nations like
China and India.
American workers must respond by either increasing their
productivity or lowering their wages. Obviously, the only
acceptable solution is for our workers to increase
productivity, but this is becoming more difficult as a larger
share of jobs become vulnerable to offshoring, and many of
workers' traditional advantages, infrastructure, better tools
and technology, proximity to largest consumer market, are also
being eroded.
Therefore, our higher education system will become an even
more critical factor in helping American workers differentiate
themselves from workers in lower cost countries. At the same
time, American universities are beginning to globalize in new
ways, which we will hear about today. With many more jobs
requiring international work teams, universities are preparing
their STEM students by providing more international experience
through study abroad and other cross-border collaborations.
Universities are also modifying their STEM curricula to
better prepare students for jobs that will stay in America. In
some respects, American universities have been global for many,
many years. We have attracted large numbers of foreign
students, particularly in STEM fields, at the graduate level,
but offshoring is giving high quality foreign students
outstanding job opportunities in their home countries. This may
make it less likely that foreign students will stay in the U.S.
after graduation, and may make it less desirable to come to the
U.S. to study in the first place.
Therefore, American universities are taking their education
to the foreign students by building campuses and offering STEM
degree programs in other countries. Today, we will hear what
our witnesses have to say about the trends, motivations, and
consequences of globalization of universities on our U.S.
science and engineering enterprise, its workforce, and our
nation's competitiveness.
With that, I would like to now recognize my friend and
colleague, the Ranking Member, Mr. Hall from Texas, for an
opening statement.
[The prepared statement of Chairman Baird follows:]
Prepared Statement of Chairman Brian Baird
I want to welcome everyone to this morning's hearing on the
globalization of American universities and its impact on national
competitiveness. I want to offer welcomes to our distinguished
witnesses--all leaders and experts on the emerging trend of university
globalization.
We look forward to hearing your thoughts on the globalization of
universities and its implications for America's competitiveness.
Corporations have been globalizing for decades. And we know its
effects on U.S. competitiveness are complex, including positives such
as lower prices for consumers as well as negatives such as job and wage
loss for some American workers. But we know very little about how
university globalization will impact America's competitiveness.
America's higher education system is a principal source of
America's preeminence in science, technology, engineering, and
mathematics (STEM) fields. The Economist reports that U.S. higher
education is the best in the world, home to seventeen of the top twenty
universities and 70 percent of the world's Nobel prizewinners. The
National Science Board reports that American academics produce 30
percent of the world's science and engineering articles.
But offshoring is reshaping how and where STEM work is done. As a
result, international competition has shifted increasingly to the
individual worker level. Multinational companies are responding to
international competition by using more workers in lower-cost
countries. Those companies' American workforce now competes against
workers in low cost countries like China and India.
American workers must respond by either increasing their
productivity or lowering their wages. Obviously, the only acceptable
solution is for our workers to increase their productivity. But this is
becoming more difficult as a larger share of jobs become vulnerable to
offshoring. And many of our workers' traditional advantages--better
infrastructure, better tools and technologies, and proximity to the
largest consumer market--are being eroded. Therefore, our higher
education system will become an even more critical factor in helping
American workers differentiate themselves from workers in low cost
countries.
At the same time American universities are beginning to globalize
in new ways. With many more jobs requiring international work teams,
universities are preparing their STEM students by providing more
international experience through study abroad and other cross-border
collaborations. And universities are modifying their STEM curricula to
better prepare their students for the jobs that will stay in America.
In some respects American universities have been global for many
years. They have attracted large numbers of foreign students,
particularly in STEM fields at the graduate level. But offshoring is
giving high quality foreign students outstanding job opportunities in
their home countries. This may make it less likely that foreign
students will stay in the U.S. after graduation, and may make it less
desirable to come to the U.S. to study in the first place. So, American
universities are taking their education to foreign students by building
campuses and offering STEM degree programs in other countries.
We look forward to hearing what our witnesses have to say about the
trends, motivations, and consequences of the globalization of
universities on the U.S. science and engineering enterprise, its
workforce, and America's competitiveness.
Mr. Hall. Mr. Chairman, thank you very much.
You have covered it very well, and I am amazed at the
gentlemen we have before us here, their background, their
ability, and their willingness to give. I certainly know that
there is no doubt that the American higher education system is
one of our nation's crown jewels, and an increasing demand for
U.S. degrees and escalating use of our higher education system
as a model by other countries reflects decades of hard work and
investment by the American people and by dedicated
professionals, like you four men on the panel and others that
will be before us.
While congratulations are in order, I think we should take
care not to rest on our laurels, while the world around us
continues to invest and improve their research and educational
facilities.
Today, I look forward to discussing one way in which U.S.
institutions of higher education are trying to continue their
record of leadership. Scores of universities are now looking
overseas for opportunities to expand. Many have partnered with
foreign universities to offer joint programs and degrees, while
others have opened new branches, complete with classrooms,
laboratory space, and dormitories. Some universities offer a
limited curriculum overseas, and require students to complete
their training in the U.S., while others offer complete degree
programs abroad.
This wide range of models makes it difficult, I think, to
confidently predict how the globalization of higher education
might affect U.S. institutions and the U.S. economy overall.
However, we have a panel before us today that can help us map
out the pros and cons of these trends.
In addition to the schools represented here today, I would
like to take a moment to mention the work of Texas A&M in some
faraway areas. I think that it is highlighted in the American
Council of Education report, Venturing Abroad: Delivering U.S.
Degrees Through Overseas Branch Campuses and Programs. Starting
under the presidency of Secretary of Defense Robert Gates,
Texas A&M continues to build a substantial engineering program
in these areas. The inaugural class began in September of 2003,
with 29 students, and has grown from there. Currently, Texas
A&M offers four engineering degrees in this one area, in one
location, with a faculty of 52 and student body of 200.
This course work meets the same standards of those in
College Station, including a course on Texas history. I hope he
leaves out the part that Sam Houston had to burn the bridge to
be assured that his folks wouldn't abandon him until the battle
was over, and had to tell them there was no retreat. That is
kind of embarrassing, as I look back on it, but there, and I
have had a lot of people, Tennesseans and folks from Kentucky
really saved Texas. Really, but for them, there wouldn't be any
Texas, and the answer, I think, that Chairman Barton gave to
me, well, there wouldn't be a Texas anyway if the Alamo had had
a backdoor in it, so I don't know if that is so or not, but we
are going to stand up for Texas.
There are a few questions that I am eager to have addressed
today. First of all, who are the students that take advantage
of U.S. programs abroad, and where do they go after graduation?
Do significant numbers work for American firms after
graduation, either in their home country, or in the U.S.? Do
more U.S. students abroad study abroad when branch campuses are
available?
Next, I am interested in our panel's thoughts on the
ability of their international efforts to serve as centers for
business development. Do these centers provide a foot in the
door for U.S. businesses, or do they largely stimulate growth
only within the foreign country?
Finally, I think we should also consider the role these
international arrangements have in further projecting America's
image. Many of these programs are located in areas of the world
where the U.S. has a strategic interest in being on the ground.
These are some questions that I think probably you will answer,
and I look forward to hearing them. I do look forward to your
testimony, for the opportunity to continue this discussion
during the questioning.
And Mr. Chairman, I yield back.
[The prepared statement of Mr. Hall follows:]
Prepared Statement of Representative Ralph M. Hall
Mr. Chairman, there is no doubt that the American higher education
system is one of our nation's crown jewels. An increasing demand for
U.S. degrees and an escalating use of our higher education system as a
model by other countries reflect decades of hard work and investment by
the American people and by dedicated professionals like those on the
panel before us. While congratulations are in order, we should take
care not to rest on our laurels while the world around us continues to
invest and improve their research and educational facilities.
Today I look forward to discussing one way in which U.S.
institutions of higher education are trying to continue their record of
leadership. Scores of universities are now looking overseas for
opportunities to expand. Many have partnered with foreign universities
to offer joint programs and degrees while others have opened new
branches complete with classrooms, laboratory space, and dormitories.
Some universities offer a limited curriculum overseas and require
students to complete their training in the U.S. while others offer
complete degree programs abroad. This wide range of models makes it
difficult to confidently predict how the globalization of higher
education may affect U.S. institutions and the U.S. economy overall.
However, we have a panel before us today that can help us map out the
pros and cons of these trends.
In addition to the schools represented here today, I would like to
take a moment to mention the work of Texas A&M in Qatar, which is
highlighted in the American Council of Education (ACE) report,
Venturing Abroad: Delivering U.S. Degrees through Overseas Branch
Campuses and Programs. Started under the presidency of Secretary of
Defense Robert Gates, Texas A&M continues to build a substantial
engineering program in Qatar. The inaugural class began in September,
2003, with twenty-nine students and has grown from there. Currently,
Texas A&M offers four engineering degrees in Qatar, with a faculty of
fifty-two, and student body of two hundred. The course work in Qatar
meets the same standards of those in College Station, including a
course on Texas history, I might add.
There are a few key questions that I am eager to have addressed
today. First of all, who are the students that take advantage of U.S.
programs abroad and where to they go after graduation? Do significant
numbers work for American firms after graduation, either in their home
country or in the U.S.? Do more U.S. students study abroad when branch
campuses are available? Next, I'm interested in our panel's thoughts on
the ability of their international efforts to serve as centers for
business development. Do these centers provide a foot in the door for
U.S. businesses, or do they largely stimulate growth only within the
foreign country? Finally, I think we should also consider the role
these international arrangements have in further projecting America's
soft power. Many of these programs are located in areas of the world
where the U.S. has a strategic interest in being on the ground.
I look forward to our panel's testimony and for the opportunity to
continue this discussion in earnest during the question and answer
period.
Mr. Baird. I thank you, Mr. Hall, and as is the custom of
this committee, if other Members wish to offer opening
statements for the record, we will accept them into the record.
[The prepared statement of Mr. Costello follows:]
Prepared Statement of Representative Jerry F. Costello
Good morning. Mr. Chairman, thank you for calling this important
hearing to continue to examine the globalization of science technology,
engineering, and mathematic (STEM) fields, and to further look at the
impact of our universities expanding their campuses overseas. These
actions will affect American students, U.S. competitiveness, and our
overall economy.
In 2005, Congressman Gordon and I hosted a roundtable discussion to
examine the offshoring trend. At that time, we learned from our
witnesses that it is difficult to determine how many jobs we have
actually lost because of a lack of sufficient and accurate information
on the problem. However, while the overall effect of offshoring jobs in
our economy is still uncertain, it has become clear that it is hurting
American workers. What is good for America's global corporations no
longer necessarily means good-paying jobs for American workers.
Today, we are focusing on high prestige universities building
campuses and expanding their programs overseas. I have major concerns
with this direction and the effect this will have on our students, U.S.
competitiveness and our economy today and in the future. I want to be
sure that we continue to make the maximum effort to recruit and retain
American students in the math and science fields.
Yesterday, the Chicago Tribune ran an article, ``As wages fall,
workers slip from middle class.'' The article talks about a woman who
realized her $30-an-hour assembly line manufacturer job was not going
to be around forever. She took the necessary steps to prevent financial
devastation and completed a Bachelor's degree before the plant closed.
Even with a four-year Bachelor degree, she is currently making far less
than before, a plight that has reached highly skilled technology
workers as well.
Mr. Chairman, I look forward to hearing from our witnesses on how
these actions will impact America's competitiveness and, more
importantly, what steps the universities are taking to strengthen the
U.S. STEM curriculum to ensure American students remain competitive in
these areas.
[The prepared statement of Ms. Johnson follows:]
Prepared Statement of Representative Eddie Bernice Johnson
Thank you, Mr. Chairman.
In October 2005, this committee held a hearing on out-sourcing of
technology jobs in the United States.
During that hearing, Norm Augustine, principal author of the Rising
Above the Gathering Storm report, stated that,
``Eight different studies conducted in recent decades indicate
that public investments in science and technology have produced
societal returns that range from 20 to 67 percent per year.
Various other studies have concluded that between 50 and 85
percent of the Nation's growth in GDP per capita during the
last half-century can be attributed to science and engineering
progress.''
Multiple indicators tell us our nation is falling behind, when it
comes to world competitiveness in science, technology, engineering and
math.
Congress and the President must support universities, industry and
the public education system to remain competitive.
I am interested to know how globalization affects America's
universities.
Today's witnesses will provide an important perspective on how
universities are responding to the growing pressure and also how they
have addressed the growing influx of international students on campus.
Thank you, Mr. Chairman. I yield back.
Mr. Baird. So again, I am very delighted by this extremely
distinguished and accomplished panel of experts here to
enlighten us.
Dr. David Skorton is President of Cornell University. Dr.
Gary Schuster is Provost and Vice President for Academic
Affairs at the Georgia Institute of Technology. Mr. Mark Wessel
is Dean of the Heinz School of Public Policy at Carnegie Mellon
University. Dr. Philip Altbach is Monan Professor of Higher
Education and Director of the Center for International Higher
Education at Boston College.
Thank you gentlemen very much for being here. As we
discussed, the custom of the Committee is to allow five minutes
of testimony, far too brief for something this important, but
that will be followed by a very good give-and-take. There is a
small box on your table there that illustrates when your time
is running low, and as my dear friend Dr. Ehlers used to say,
if we pass much past five minutes, a trap door emerges and you
disappear--something you wish you had in your faculty meetings,
I am sure.
Please, we will begin with Dr. Skorton, and thank you all
for being here.
STATEMENT OF DR. DAVID J. SKORTON, PRESIDENT, CORNELL
UNIVERSITY
Dr. Skorton. Good morning Chairman Baird, Ranking Member
Hall, and Members of the Committee. My name is David Skorton. I
am President of Cornell University. I want to start, Mr. Hall,
by saying that Cornell does not have a position on Texas
history at the Alamo.
Cornell is located in Ithaca, New York, with campuses or
programs in New York City; Geneva, New York; Appledore Island,
Maine; Arecibo, Puerto Rico; France; England; Italy; Singapore;
China; Tanzania; Qatar; and 45 other countries as Cornell
Abroad destinations. It is not only the largest and most
comprehensive school in the Ivy League, it is also the Land
Grant university for New York State.
Our enrollment is approximately 20,000, with students from
every state, and more than 3,000 students from 120 other
countries, studying under an internationally renowned faculty.
We are one of the most international of American universities.
I thank you for having the hearing, and for inviting me to
share one university's perspective on the globalization of
research, development, and innovation. You have asked us to
address three questions, the first regarding our motivations
and decision factors in establishing overseas branch campuses.
The second, how our internationalization impacts the global
research enterprise, and the third, how we prepare our students
to compete in a globalized marketplace.
The most important message, though, that I want to
emphasize today, is the enormous role higher education plays
and can play in intercultural exchange, and thereby, in
American diplomacy. I firmly believe that international
education, research, and capacity building are among our
country's most effective diplomatic assets.
I have answered each of the Committee's questions in detail
in my written statement and two appendices, but will summarize
the key points for you now.
First, the Weill Cornell Medical College in Doha, Qatar, is
the first American medical school to offer an M.D. overseas. In
2001, we were invited to establish this campus by the
government of Qatar through the Qatar Foundation for Education,
Science, and Community Development in Education City, which
also houses campuses of Virginia Commonwealth University,
Georgetown University, Texas A&M University, and Carnegie
Mellon University.
As with all of our long-term academic alliances with
international entities, we ask ourselves two key questions:
one, what makes the relationship worth pursuing; and two, what
will make the relationship work? The guiding principle is
always twofold. The benefits must be compelling, and the risks
must be manageable, and we have made public in the appendix to
my comments the exact checksheet that we have used in
negotiating and considering other branch campus or joint degree
activities.
Cornell saw the Qatar Foundation's invitation as an
opportunity for students from the Middle East to obtain a
quality medical education in their own region to improve the
quality of health care in that region. In addition, we saw an
unprecedented opportunity for our faculty to teach and
understand another culture, and to broaden their research to
investigate the unique medical problems of the region.
The Qatar Foundation assumes all the expenses of the
building, operating the school, and we estimate that to be $750
million over the first decade of operation. We are looking
forward to awarding the first medical degrees in Doha in the
spring of 2008, and we will be carefully monitoring the success
of the degree candidates on standardized tests, and on
employment placements as two measures to gauge the rigor of the
program.
The second question. It is not clear what the effect of our
branch campuses will be on the global science and technology
enterprise, as Mr. Hall mentioned. It is still too early and
there are too many variables, but while globalization may be a
new concept in the public rhetoric, Cornell and these schools
have a long history of internationalization, in our case, going
back to our first international students in 1868, and now
involving all of our colleges and professional schools, and
nearly every program on campus.
Based on this long experience, we know that any cooperation
across borders can play an important role in promoting cross-
cultural understanding, and that real and substantial benefits
accrue to the U.S. and to the process of innovation, the driver
of our global economic competitiveness.
The third question. Much of what we do as a university is,
of course, aimed at ensuring the success of our graduates. In
this regard, we are responding to the demands of our students
in STEM fields for instruction in critical needs languages,
such as Arabic, Mandarin, Russian, Hindi, and Farsi, which are
among the more than 40 languages taught at Cornell.
We encourage students to study abroad, and we have created
internationally focused undergraduate programs, such as a new
major in China and Asia-Pacific studies, which is designed to
train leaders equipped to negotiate the delicate complexities
of U.S.-China operations.
Just as important as sending students overseas, Cornell
welcomes thousands of international students each year. These
students contribute to the diversity of the campus, to the
community, and to education of all students. Our international
graduates who stay in this country, especially in science and
engineering fields, help fill a crying need for scientific and
technical talent not currently being filled by American
students.
Those who return home often maintain contact with Cornell
or other American colleagues, laying the foundation for
continuing collaboration. In addition, our many international
collaborations help prepare Cornell students for a place in the
global economy, by addressing problems and issues in which both
societies have a stake.
I want to make the Committee aware that in keeping with the
conversation with India's Prime Minister in January, Cornell
will be working with other U.S. universities and Indian
counterpart institutions to create a faculty-led Indo-U.S.
Working Group to develop joint research agendas on critical
challenges of interest to both nations.
In concluding my remarks, I want you to consider, please,
the concept of universities as the catalyst for capacity
building in the developing world. The initiatives aimed at
strengthening competitiveness and education in STEM
disciplines, both from this committee's leadership and from the
Administration, are pointing us, as a nation, in the right
direction, but just as you are right to be concerned about the
U.S. losing ground potentially to China and India, we must also
be concerned about the socioeconomic inequalities that threaten
our country and our world.
Universities are perfectly positioned to play a central
role, like the Marshall Plan did 60 years ago in Europe.
Through aid and joint planning, the Nation's great research
universities, working with governments, the private sector,
NGOs, and our colleagues overseas, can offer a more focused
application of our own resources to improve the quality of life
here and abroad.
Chairman Baird, thank you again for inviting me to
participate. I am pleased to answer any questions the Committee
may have.
[The prepared statement of Dr. Skorton follows:]
Prepared Statement of David J. Skorton
Good morning Chairman Baird, Ranking Member Hall, Members of the
Committee. My name is David Skorton. I am the President of Cornell
University. Cornell University, located in Ithaca, N.Y., with campuses
or programs in New York City, Geneva, NY, Appledore Island, ME,
Arecibo, PR, France, England, Italy, Singapore, China, Tanzania, Qatar
and elsewhere, is the largest and most comprehensive school in the Ivy
League and is the land-grant university of the State of New York.
Founded in 1865, it is composed of 10 privately endowed and four State
contract colleges, including seven undergraduate colleges and seven
graduate and professional units. Our four contract colleges are units
of the State University of New York (SUNY). Enrollment is approximately
20,000, with students from every state and more than 120 countries
studying under an internationally renowned faculty. Forty Nobel Prize
winners have been affiliated with Cornell University as alumni or
faculty members, and three Nobel laureates currently are on the
faculty, in chemistry and physics.
Cornell is among the top 10 research universities in the Nation,
based on research expenditures. It is home to four national research
centers, in physics, astronomy, and nanotechnology. In addition, it has
many interdisciplinary research centers, covering advanced materials,
manufacturing, agriculture, astronomy and atmospheric science,
biotechnology, electronics, environment, computing and mathematics.
Cornell also boasts the Nation's first colleges devoted to hotel
administration, industrial and labor relations, and veterinary
medicine. The university's Weill Cornell Medical College in New York
City is a pioneer in biomedical technology, with special-treatment and
research facilities including the Center for Reproductive Medicine, the
AIDS Care Center, the Hypertension Center, the Institute of Genetic
Medicine, and the Burn Center.
Thank you for inviting me to share one university's perspective on
the globalization of research, development, and innovation. I commend
the Members of the Science and Technology Committee for your continuing
interest in this important and timely issue. This committee, along with
your Senate counterparts, directed the National Academies to produce
the Rising Above the Gathering Storm report. I am proud of Cornell's
contributions to that effort--our Vice Provost for Research, Dr. Robert
Richardson, was a member of the Committee that produced the report.
In many ways, that document provided a wake-up call for policy-
makers by compiling a lot of the things we already knew about American
competitiveness in one place, and, more importantly, by making a series
of recommendations for actions we must take to maintain our position as
a world leader in technology, research, and innovation. In the area of
higher education, the Gathering Storm focused on things we can do at
home: increasing federal funding for basic research; providing
undergraduate scholarships and graduate fellowships for science, math,
and engineering students; and rationalizing the immigration process for
international students, faculty, scientists, engineers, and researchers
who study and work in U.S. universities and industry.
The Science and Technology Committee has gone a long way toward
implementing those recommendations, and I thank you for your efforts. I
am also grateful that the Gathering Storm is just the starting point of
your inquiry into globalization. By calling this hearing, you recognize
that it is not just what we do at home that matters; it is what we are
doing in the rest of the world that will ultimately determine whether
we succeed in the twenty-first century.
COMMITTEE QUESTIONS
The Committee has asked me to address three questions:
1. What was the general motivation for your institution to establish
branch campuses overseas? What factors did you consider in making the
decision to expand overseas, especially in terms of locations, costs,
staffing, and the impact on the home campus?
2. What do you anticipate the effects of these overseas branch campus
programs will be on the overall global science and technology
enterprise, especially in terms of jobs available to your home and
branch campus graduates? What sorts of data and information are you
collecting to determine if the effects are matching your original
goals?
3. How are you adjusting your home campus science and engineering to
better respond to the increasingly globalized economy?
I will address the first question, as it relates to Cornell's
branch campus in Education City, Doha, Qatar, later in my testimony.
Regarding the second question, let me say that it is not yet clear
what the effects of branch campuses will be on the global science and
technology enterprise. The opportunity to expand the pool of knowledge
for interactions, collaborations, and the exchange of ideas will
benefit all nations. The specific outcomes will depend on several
factors beyond the purview of higher education including the regulatory
environment, the political environment, the economic climate supported
by the host country and foreign investment, as well as our ability to
attract and retain American students in STEM fields. Our past
experience, though, indicates that institution-to-institution
cooperation can play an important positive role in promoting cross-
cultural understanding and that real and substantial benefits accrue to
the U.S., to our institutions, to our students, staff and faculty, and
to the process of innovation, which is the driver of our economic
competitiveness in a globalized world. Data will be gathered concerning
performance on standardized examinations and employment outcomes of
students in the branch campus programs.
Regarding question three, concerning adjustments we are making on
our own campus to the challenges of globalization, we are responding to
the increasing demands of our students for language instruction,
including in the critical need languages of Arabic, Mandarin, Russian,
Hindi, and Farsi. We are encouraging students to pursue study abroad,
and we have created new undergraduate programs, such as our
undergraduate major in China and Asia-Pacific Studies, which is
designed to train future leaders who are equipped to address the
inevitable challenges and negotiate the delicate complexities in U.S.-
China relations. Our faculty are encouraged to undertake collaborative
research and engage in joint teaching ventures. We consider it
imperative that both our students and faculty learn to understand world
cultures as well as business practices and norms.
GENERAL COMMENTS ON INTERNATIONAL COLLABORATIONS
Before I elaborate on the questions posed by the Committee about
Cornell's international programs, I would like to emphasize that the
issue of globalization for universities is much broader than whether
and in what form we export our students, educational programs, and
research enterprise. Science and engineering are already international
and have been to an increasing extent for decades. University
scientists and engineers collaborate with colleagues from throughout
the world. Specialized ``big science'' facilities like CERN in
Switzerland and Cornell's High Energy Synchrotron Source attract an
international cadre of researchers. International scientific and
professional meetings provide opportunities for scholarly exchange and
networking. All these enterprises help advance knowledge and provide
learning opportunities for American students and faculty members as
well as for their colleagues from other nations.
International collaborations also provide unique research
opportunities for American faculty in fields from population genetics
to economics, sociology and global health, and they can provide unique
resources, such as genetic material that can be useful in breeding more
stress-resistant, flavorful or productive crops. They can also address
problems and issues in which the U.S. and international collaborators
both have a stake. For example, in keeping with a conversation with
India's Prime Minister Singh in January of this year, Cornell will work
with other U.S. universities and Indian counterpart institutions to
create a faculty-led Indo-U.S. working group to develop joint research
agendas on critical challenges of mutual or complementary interest to
the two nations.
One of the greatest contributions that research and land grant
universities have made over time is the development of human capacity
through the dissemination of our research, teaching, and outreach. I
understand that the Science and Technology Committee does not have
jurisdiction over foreign affairs or international aid programs, but I
do not think we can talk about what universities are doing overseas
without considering our capacity to address global inequalities.
I firmly believe that the enhancement of human capacity relies on
and ensures political stability, security, robust public health, and
effective education, which, in turn, lead to inquiry, discovery, and
innovation in places where they are most needed. Since the Industrial
Revolution, and increasingly in the last half century, innovation has
led to enormous economic growth; the foundation of innovation is
research; and the seat of fundamental research is the university. The
university is also the seat of undergraduate, graduate, and
professional education--education that leads to new generations of
those who inquire, who discover, who innovate.
For the U.S. to retain its strength in science and technology and
its leadership in the global economy and to contribute meaningfully to
the solution of the world's problems, we must attract the best and
brightest students, staff and faculty members to our universities and
to our business and industry irrespective of their national origins; we
must instill an international perspective in all our students; and we
must collaborate with others internationally as never before--for their
benefit and ours and for inter-cultural understanding. I firmly believe
that international education and research are among our country's most
effective diplomatic assets.
The Science Committee has jurisdiction over the programs that fund
the research that can be deployed by universities, through their
international programs, and by governments, NGOs and others, to raise
living standards, improve health, provide economic opportunities, and
promote peace in the poorest nations in the world. I believe we can
draw on a lesson from our nation's history. Just as Secretary of State
George Marshall proposed a massive program of aid and redevelopment for
a war-ravaged Europe, I am calling for a new national approach, with
university teaching, research, and outreach at its center, to address
the socioeconomic inequalities that threaten our nation and the world
and to spur economic growth through innovation and capacity building as
the Marshall Plan did 60 years ago through aid and joint planning.
CORNELL'S APPROACH TO GLOBALIZATION
While ``globalization'' is a relatively new concept, Cornell, like
many American universities, has a long international history. Ours
dates back to our founding, when five international students enrolled
in the first class in 1868. Since then, Cornell has educated thousands
of international students. Currently we enroll more than 3,000
international students from 120 countries on campus. We rank thirteenth
among the top 25 leading host institutions for international students
in the U.S., even though our total enrollment is much lower than many
of the other institutions on that list.
Whether these students return to their home countries or stay in
the U.S. to work or continue their studies, they contribute to
America's strength. Those that stay in this country, especially in the
sciences and engineering fields, help fill a real need for scientific
and technical talent within universities and in industry. Those who
return to their home countries often maintain contact with their former
professors and students in their academic programs, laying the
foundation for continuing collaboration and admissions referrals to our
graduate programs.
While enrolled at Cornell, international students contribute to the
diversity of the campus community and contribute positively to the
education of all students. This helps broaden the US students'
knowledge and understanding of world cultures, which they will need as
they enter the marketplace and seek jobs in our international economy.
Today Cornell's international programs involve all of our colleges
and professional schools and nearly every program on campus. Most
visibly--and perhaps of greatest interest to the Committee--we opened a
branch campus of our medical school in Doha, Qatar in 2001. We offer a
joint degree program in Singapore (hotel/hospitality) and dual degree
programs in China (Asian studies/political science) and India
(agriculture). We operate our own study abroad programs in France,
Rome, Tanzania, Nepal, Berlin and Tokyo. About 500 Cornell students
each year enroll in a Cornell study abroad program or at an
international university, with assistance from Cornell Abroad, for a
semester or a year.
In forging long-term academic alliances with foreign entities, we
ask two key questions: What makes the relationship worth pursuing? What
will make the relationship work? The guiding principle governing the
evaluation, planning, negotiation, approval, establishment and
operation of an academic alliance abroad is two-fold: the benefits must
be compelling and the risks must be manageable. (See Appendix A)
Our approach to globalization is essentially one of building
capacity--we believe that as part of our mission we have a
responsibility to carry out research on issues where new knowledge
could make a difference, to extend ourselves to institutions of higher
learning in other parts of the world, and to ensure access to our own
system of higher education here at home. As I noted above, we do this
in a number of ways:
through our branch campus in Qatar;
through interdisciplinary majors and joint or dual
degree programs with overseas universities chosen to be of
mutual benefit;
through formal agreements with overseas universities
to promote international exchanges in specific programs;
through foreign study at Cornell centers in other
countries; and through study abroad programs that focus on one
student at a time.
Through organizations like Engineers for a Sustainable World, which
was founded at Cornell and is now a nationwide organization, students
can apply their engineering knowledge to address the needs of
communities in the developing world. Many of our students have a strong
interest in engaging in public service as part of their academic
programs, and programs of this sort provide opportunities to learn
while performing service on an international scale.
We offer instruction in more than 40 languages including the
critical need languages of Arabic, Hindi, Farsi, Mandarin, and Russian.
Four of our area studies programs--East Asia, South Asia, Southeast
Asia, and Europe--are recognized as National Resource Centers by the
U.S. Department of Education. This designation signifies the breadth
and excellence that these programs maintain in areas critical to U.S.
national interests. Supported in part by federal funds, the programs
directly promote the teaching of languages and also make their
expertise available to the regional community by presenting films;
organizing lectures, seminars, and workshops; and publishing books and
working papers.
International Outreach and Collaboration
Cornell's first significant international outreach project--the
Cornell-Nanking Crop Improvement Program--began in the 1920s with three
Cornell plant breeders who led a team that developed new strains of
higher yielding rice, wheat, and other staple crops. Its most important
legacy was the development of a generation of Chinese plant breeders
who could carry on the work in China once Cornell's formal involvement
ended. You may have read about the project--Pearl S. Buck, M.A. '25,
accompanied her husband John, an agricultural economist, to Nanking and
wrote about her experiences in The Good Earth.
Today we have well over 150 agreements for programs in more than 50
countries that run the gamut of arts and sciences, engineering, the
professions, agriculture, and labor relations. Our peers offer many of
the same types of international programs as we do, but Cornell is among
the leaders in the scale and scope of its international efforts.
Research and extension carried out abroad can provide valuable
assistance to the host country while frequently also creating knowledge
that can be applied to problems in the U.S. In the case of agricultural
research, for example, cooperation with agricultural scientists abroad
creates opportunities to share germ plasm that can be used to enhance
pest resistance, flavor, drought or cold resistance, productivity and
other characteristics that can increase the value of U.S. crops. To
improve apples, for example, genetic diversity is critical for such
important traits as insect resistance and fruit quality. Toward this
end, researchers from the Cornell University-based Plant Genetic
Resources Unit at Geneva, New York have organized and led expeditions
to Kazakhstan's wild apple groves since 1989, and now maintain a living
library of apple species that is used by researchers at the Experiment
Station and worldwide.
Our work in India goes back more than 50 years, and with the
formation of the new Indo-U.S. working group I mentioned earlier, we
see potential for addressing issues and research areas that will
benefit both nations. Similarly, we need the capabilities of other
universities to address such world problems as global climate change,
alternative energy, AIDS/HIV and other global health issues.
In engineering and other high technology fields, a strong presence
internationally helps us attract the very best students in the world to
study in the U.S. While some of these students will return to their
home countries, others will find employment with U.S. companies,
contributing to the ability of those companies to innovate. This will
be increasingly important to U.S. companies as the current ``baby
boom'' generation of scientists and engineers nears retirement age.
Yet, even now, fewer of the best students from Asia are coming to
the U.S. to study. We will not have the workforce to conduct necessary
research that leads to innovation and prosperity without international
students. We will also have a hard time replacing the current
generation of faculty members at our universities and scientists and
engineers in our industries without international students. We must
continue these international collaborations and exchanges as we build
our capacity as well as capacity overseas.
The Committee's questions suggest that in creating international
collaborations and partnerships, we are giving something away. Let me
stress again, as strongly as I can, that the benefits of these
collaborations accrue to the U.S. at least as much as to our partners
abroad. A new national plan to build capacity at home and abroad is, in
my view, essential to establishing strong and economically vibrant
nations and to ensuring world peace.
EXAMPLES OF INTERNATIONAL PARTNERSHIPS
The following examples of Cornell international programs are
illustrative of the types of our overseas initiatives. It would be
impractical for me to list every one of our international programs in
my written statement--the Mario Einaudi Center for International
Studies, which has coordinated Cornell's international programs since
1961, has compiled an exhaustive list of our international centers,
programs, and initiatives in its 121-page annual report. I am providing
a copy of this report for the hearing record. Interested readers can
read or download the annual report at http://www.einaudi.cornell.edu/
initiatives/ar.asp
Branch Campus--Weill Cornell Medical College-Qatar
Weill Cornell Medical College in Qatar (WCMC-Q) is the first
American medical school to offer its degree overseas; it is also the
first coeducational institution of higher education in Qatar. It is one
of five American universities to be represented in Education City,
Doha, Qatar. The others are Carnegie Mellon University, Virginia
Commonwealth University, Texas A&M University, and Georgetown
University.
Cornell was invited to open our medical school by the government of
Qatar through the Qatar Foundation for Education, Science and Community
Development. The school was established in April 2001 as a partnership
between Cornell and the Qatar Foundation. The Qatar Foundation is a
private, non-profit organization set up in 1995 by Sheikh Hamad Bin
Khalifa Al-Thani, Emir of the State of Qatar, and headed by his wife,
Sheikha Mouza Bint Nasser Al-Misnad. The Foundation assumed all the
expenses of construction, operation, and maintenance of the campus.
Those costs are estimated to be $750 million over ten years.
Cornell saw this invitation to establish a new medical school in
Qatar as an opportunity to provide medical education in an important
region of the world and thereby become part of the developing trend in
medical education, which takes advantage of modern communication and
transportation, and enhances Cornell's reputation as an international
university. The new school provides an opportunity for students from
the Middle East to obtain a quality medical degree in their home region
of the world and improve the quality of health care in the region. It
provides opportunities for our faculty to experience the challenges of
teaching in another culture and to investigate the unique medical
problems of the region through research in population genetics and
other fields. Just recently Qatar announced that they would devote 2.8
percent of the country's gross domestic product to research. It is also
a potential source of international patient referral to our medical
center in New York City.
Cornell has full authority and discretion to select and supervise
the academic and administrative staff; admit, enroll and instruct
students Cornell deems qualified; establish manageable personnel
appointment and student enrollment benchmarks and time lines; ensure
equal opportunity and non-discrimination anchored in U.S. and New York
State law to students, faculty and staff; and prescribe plans and set
standards governing the operation of the pre-medical and medical
programs of Cornell caliber and quality.
Pre-medical faculty hold appointments at Cornell University;
medical faculty are members of academic departments at Weill Cornell
Medical College. The pre-medical program is a non-degree set of courses
in the sciences basic to medicine, with seminars in writing and medical
ethics. The medical program, which replicates the curriculum taught at
Weill Cornell in New York City, features a variety of learning
experiences, including problem-based learning, case-based conferences,
journal clubs, lab work, and lectures.
The pre-medical program began in 2002, with 25 students enrolled.
The medical program matriculated its first class of 16 students in
2004. By 2006, the pre-medical program had matriculated 46 first-year
students, while the medical program had matriculated 26 first-year
students. We are looking forward to awarding the first medical degrees
in Qatar in the spring of 2008, and we will be monitoring the success
of the degree candidates as a way to gauge the rigor of the program. We
are hoping that many of these students will stay in the Middle East,
which desperately needs more qualified physicians.
More information about Cornell's branch campus in Qatar and the
medical education program at WMCC-Q is available at http://www.qatar-
med.cornell.edu/ and in Appendix B.
Joint Programs
Singapore. The Master of Management in Hospitality
Program is a joint degree program. This year long, three-
semester program can be taken either completely in Ithaca or by
spending six months in Ithaca and six months at the Nanyang
Institute of Hospitality Management at Nanyang Technological
University in Singapore.
India. The Agriculture in Developing Nations Course
is a joint Cornell-India distance education course. Students in
the course, from Cornell and from three Indian universities,
listen to the same lectures. The Indian students come to
Cornell at the end of the fall semester for a two-week tour of
agriculture/agribusiness facilities on the Cornell campus in
Ithaca and at Cornell's New York State Agriculture Experiment
Station in Geneva, and elsewhere in the Central New York area.
In January, Cornell students in the course join their
counterparts in India for tours of Indian agricultural and
agribusiness sites and prepare team projects. The College of
Agriculture and Life Sciences has offered this course for 30
years, to prepare students to work in a global economy. A
complementary (and older) version of the course focuses on
agriculture in South and Central America.
Tanzania. The Weill Bugando University College of
Health Sciences and the Weill Bugando Medical Center in Mwanza,
Tanzania have formal affiliations with Weill Cornell Medical
College. Through this affiliation, Weill Cornell Medical
College students and faculty gain valuable international
clinical and research experience. This program helps address
the immediate health needs of people in Tanzania and train more
physicians for a country that currently has only one doctor for
25,000 people compared to one per 400 people in the U.S.
Scholarly Exchange Programs
China. The Tsinghua University-Cornell College of
Engineering Partnership is a scholarly exchange program,
primarily involving faculty, in areas where both institutions
have knowledge to share. Building on many years of informal
faculty and graduate student exchanges, Cornell and Tsinghua
University signed a formal exchange agreement in 2004. My
predecessor, Hunter Rawlings opened the first Tsinghua-Cornell
workshop, which focused on information science and computer
engineering, in Beijing in November 2005. A group from Tsinghua
came to Cornell the following spring (2006) for sessions on
nanotechnology. Faculty from the Cornell Center for the
Environment went to Tsinghua in June 2006 to share perspectives
on environmental research. This year Tsinghua will send some 30
faculty members to Cornell for sessions on energy,
environmental quality and global climate change. We have a
similar agreement for research collaboration and scholarly
exchange with Jiao Tong University in Shanghai.
Developing Nations. The Cornell International
Institute for Food, Agriculture, and Development (CIIFAD) is an
international extension and outreach program that pairs faculty
and students from Cornell's College of Agriculture and Life
Sciences with partners in Africa, Asia and Latin America. The
CIIFAD program initiates and supports innovative programs that
contribute to improved prospects for global food security,
sustainable rural development, and environmental conservation
around the world. Many of these programs seem to increase food
security in developing countries by linking scientists and
farmers in Asia, Africa, and South America with agricultural
researchers in advanced labs in developed countries. CIIFAD,
for example, help promotes a system of rice intensification to
increase the productivity of irrigated rice by changing the
management of plants, soil, water and nutrients. The system,
which can double yields while requiring only half as much
water, is now being tried in nearly 40 countries around the
world.
United Nations University Food and Nutrition
Programme for Human and Social Development (UNU-FNP). The UNU-
FNP, created to address issues of world hunger, has been housed
at Cornell University since June 1996. It has developed
networks of scholars and universities which include nutritional
scientists, food scientists, agronomists, biochemists,
biostatisticians, epidemiologists, economists, sociologists,
and others, to assist in the application of nutrition knowledge
to combat hunger and address global nutrition issues. Cornell
works jointly with Wageningen University, the Netherlands and
Tufts University, to administer the UNU-FNP.
France. Cornell University Center for Documentation
on American Law in Paris is a scholarly partnership with the
French court system. The center, which opened two weeks ago on
July 16, is located within the court in the Palais de Justice.
It houses 13,000 law books from Cornell's Law Library and
offers special training and instruction in online research by
Cornell law librarians. This new partnership supplements
Cornell Law School's current relationships in France, including
its 14-year joint venture with the University of Paris 1
(Pantheon-Sorbonne), the Summer Institute of International and
Comparative Law in Paris, and a four-year American/French law
degree program.
Undergraduate Majors
China-Asia Pacific Studies. The China and Asia-
Pacific Studies Program is an interdisciplinary, international
undergraduate major for Cornell students. The CAPS program
combines intensive study of Mandarin, Chinese history, culture
and foreign policy with study and work/internship experiences
in Washington, D.C. and at Peking University in Beijing. It is
designed to equip students for leadership roles in a variety of
fields including business, government service, diplomacy,
education and journalism. A maximum of 20 students are admitted
as CAPS majors each year.
Cornell International Facilities
Italy. The Cornell in Rome Program is an educational
program for Cornell students based at a Cornell facility. For
20 years, Cornell's College of Architecture, Art and Planning
has offered students an opportunity to study in Rome with a
home base at a Cornell facility. The curriculum for the Rome
Program includes art and architecture studios, core courses in
planning, art and architectural history, theory and criticism,
photography, drawing, Italian language and culture, and cinema.
On average about 55 students participate each semester.
Study Abroad
The Cornell Abroad program offers Cornell
undergraduate students a way to spend a semester or an academic
year abroad as an integral part of the undergraduate
experience. Study abroad programs are largely tailored to
individual students' needs, and may be run directly by Cornell,
by other American colleges and universities, by free-standing
study abroad agencies, or directly by programs that have been
developed to meet the special academic interests of Cornell
students. Every year, approximately 500 Cornell students
participate in this program, studying in 45 countries around
the world.
CONCLUSIONS AND RECOMMENDATIONS
As I conclude my remarks, I would like to go back to the concept of
universities as the catalyst for a new approach to capacity building in
the developing world. Much of the work and resources must come from
governments through traditional vehicles, such as the U.S. Agency for
International Development, as well as promising new approaches such as
the Millennium Challenge Corporation and others. The initiatives aimed
at strengthening competitiveness and STEM education, both from this
committee and the administration, are pointing us as a nation in the
right direction. However, universities must play a central role--
through capacity building based on comprehensive programs of teaching,
research and outreach--to assist countries struggling to meet the needs
of their citizens.
Indeed, the development of human capacity is the basis for the most
robust strategies for ameliorating global inequalities and is one of
the most significant contributions that our great universities make. No
single university, acting alone, can achieve what will be needed in
tomorrow's world. Together, however, the Nation's great research
universities--public and private, land grant and Ivy league--working
with our government, the private sector, NGOs and, most critically, our
colleagues overseas--can offer a more focused application of our own
resources to reach out, materially and directly, to assist and improve
the quality of life elsewhere.
Chairman Baird, thank you again for inviting me to testify at this
hearing. I would be pleased to answer any questions the Committee may
have.
APPENDIX A
FORGING LONG-TERM ACADEMIC ALLIANCES WITH FOREIGN ENTITIES
James J. Mingle
University Counsel and Secretary of the Corporation
Cornell University
Key questions:
1. What makes the relationship worth pursuing?
2. What will make the relationship work?
Main features of proposed program:
degree granting program?
major research collaboration?
both?
U.S. university degree?
dual degrees by U.S. and foreign universities?
joint degree?
long-term or
short-term relationship?
Guiding principle governing the evaluation, planning, negotiation,
approval, establishment and operation of an academic alliance abroad:
1. the benefits must be compelling, and
2. the risks must be manageable
Three-phased approach:
I. exploratory phase
II. due diligence and planning phase
III. decision and contract formation phase
I. EXPLORATORY PHASE
identify potential benefits
check with other U.S. universities who have programs
in the foreign country (or considered, but declined)
gauge university's negotiating leverage
visit the foreign venue and meet the potential
partners
determine the principal players: who will commit
financial resources to the project, and who will contract on
the foreign entity's behalf:
the government?
governmental agency?
a university?
private organization, foundation?
combination of these entities?
take stock whether ``distance,'' ``climate'' or
different ``culture, customs'' are positives or possible
impediments
deal with the ``deal breakers'' upfront--threshold
conditions, commitments before launching the due diligence
phase:
ownership of capital assets?
academic freedom and non-discrimination?
nature of degree (sole, joint or dual)?
academic autonomy (standards, curriculum,
admissions)?
operational control (complete or shared)?
financial resources? management fee?
accrediting and licensing implications?
legal relationship (subsidiary corp'n,
management contract)?
use of university name?
governance arrangement? joint advisory board?
term and exit strategies?
other?
settle on planning costs (who pays?) and due
diligence timetable
craft, sign ``fundamental principles'' letter
brief president, board and faculty leadership
II. DUE DILIGENCE AND PLANNING PHASE
map things out:
drawing from ``fundamental principles''
letter, outline key ``academic,'' ``business/finance,''
and ``legal/risk'' issues
form internal project team and assign areas
of inquiry; designate chair
engage external consultants as needed (e.g.,
business, legal, security, architects)
enlist a few board members as advisory group
anticipate and address ``daunting'' aspects of
project:
attracting ample pool of prospective students
developing or adapting curriculum
faculty and administrative recruiting,
staffing
dilution of home campus management time/
energy
dealing with distance, climate, different
cultures
immigration, local sponsorship issues
probe, protect against ``main risks'':
reputational risk
academic control?
governance oversight?
financial risk
no real property ownership?
operational costs covered?
tax exempt status?
legal safeguards?
exit strategies?
geopolitical risk
dependability of partner?
education a priority?
hospitable, stable environment?
develop budget, business plan for full term of
relationship
brief governing board and invite suggestions
negotiate detailed ``term sheet'' with foreign
partner, confirming all key ``academic,'' ``business/
financial,'' and ``legal/risk'' elements
is project team convinced concerning ``compelling
benefits'' and ``manageable risks''? Is university leadership
on-board?
III. DECISION AND CONTRACT PHASE
review, approval of appropriate faculty governance
groups
school/college faculty?
university faculty senate?
both?
review, approval of university governing board
standing committee?
executive committee?
full board?
craft comprehensive contract covering all points in
``term sheet'', plus specific legal safeguards:
letters of credit
indemnification and insurance
early termination for ``cause'' or
``emergency''
disengagement costs
monetary damages limitations
internal dispute resolution and international
arbitration
U.S. law controls
intellectual property ownership
local (foreign venue) ``liaison office''
contract signing and press releases
appoint program director
program implementation
APPENDIX B
The Weill Cornell Medical College in Qatar
Rationale
Cornell presence in an important part of the world
Increase quality of education and health care in the
regionAn inn
Innovative and pioneering project
A first for an American university
Research opportunities
Unique partnership with the Qatar Foundation
Potential source of international patient referral to
NYC
Governance and Operational Control
Governance
The Dean of the Weill Cornell Medical College in
Qatar (WCMC-Q) reports to the Dean/Provost of Weill Cornell
Medical College (WCMC) and through him to the President of
Cornell University (CU), WCMC Board of Overseers and CU Board
of Trustees.
The Cornell Boards of Overseers and Trustees are
responsible and provide oversight for the operation of the
academic programs. Cornell University has final authority on
all budgets.
The Qatar Foundation (QF) provides and is responsible
for oversight of the facilities.
To advise and assist the parties and the Dean of
WCMC-Q, a Joint Advisory Board has been established with four
members selected by the Cornell Boards and four by the QF. An
additional three independent members are selected jointly.
The Joint Advisory Board meets twice annually. The
first meeting was held on December 9, 2001 in London. Currently
the Board is co-chaired by Dean Gotto and H.H. Ghalia Bint
Mohammed Al-Thani, M.D., Chairperson of the Board of Directors
of the National Health Authority of Qatar.
Operational Control
Cornell has full authority and discretion to:
Select and supervise academic and administrative
staff.
Admit, enroll and instruct students Cornell deems
qualified.
Establish manageable personnel appointment and
student enrollment benchmarks and timelines.
Ensure equal opportunity and non-discrimination
anchored in U.S. and New York State law to students, faculty,
and staff.
Prescribe plans and set standards governing the
operation of the pre-medical and medical programs of Cornell
caliber and quality.
Curriculum, Academic Freedom and Non-Discrimination
Corneli has autonomy in:
Developing and adapting a suitable curriculum that is
comparable in quality and structure to the program in New York.
Applying principles of academic freedom that animate
classroom teaching and research.
Establishing a program of study that will be co-
educational.
Academic Credits and M.D. Degree
Transferable credits for two-year Pre-medical
Program.
M.D. degree will be granted by Cornell University
upon completion of four-year Medical Program.
Key Academic and Business Provisions
Implementation Timetable
Academic Bridge Program\1\ 2001-2002
---------------------------------------------------------------------------
\1\ Designed by the Texas International Education Consortium
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Pre-medical Program 2002-2004
Medical Program 2004-2008
Program History
Pre-medical program initiated on schedule in
September 2002 in temporary facilities.
Program moved to permanent facilities during Summer
2003 in time for start of second year of Pre-medical program in
September 2003.
New building dedicated October 2003.
Medical program initiated in September 2004.
First medical class will graduate May 2008.
Faculty Appointments
Review of credentials and appointment of faculty to
WCMC-Q by CU faculty in accordance with CU policies and by WCMC
faculty in accordance with Medical College policies.
Students Per Class
Capacity exists for 60 students in each of the Pre-
medical classes, and for 50 students in each of the Medical
classes.
A higher number may be admitted to the Pre-medical
Program, assuming a sufficient number of qualified applicants.
Pre-medical Program First Year Matriculated Students:
2002--25 students
2003--31 students
2004--48 students
2005--58 students (inclusive of 5 students repeating
the first year program)
2006--46 students
Medical Program First Year Matriculated Students:
2004--16 students
2005--18 students
2006--26 students
Qatari Admissions Priority
WCMC-Q will admit to its Pre-medical and Medical
programs classes that reflect at least 70 percent
representation by Qatari citizens, assuming a sufficient number
of qualified applicants. Current student body composition
reflects approximately 17-18 percent Qatari students.
Students who successfully complete the pre-medical
program have priority for admission to the medical program.
Admissions
WCMC admission standards apply, including principles
of need-blind admissions and non-discrimination.
WCMC-Q recommends candidate students to the WCMC
Admissions Committee for admission to the Medical program.
Teaching Facilities
Basic Sciences (pre-medical and medical)
New building was erected in Education City by the
Qatar Foundation and was completed July 2003.
Approximately 400,000 sq. feet built to Cornell
specifications.
The WCMC-Q building was officially opened October
12, 2003.
Clinical Sciences
Hamad General Hospital
Sidra Medical and Research Center (planned for
commissioning in late 2010)
Primary Care Clinics (n=22)
Biography for David J. Skorton
David J. Skorton became Cornell University's 12th President on July
1, 2006. He holds faculty appointments at the rank of Professor in
Internal Medicine and Pediatrics at Weill Cornell Medical College in
New York City and in Biomedical Engineering at the College of
Engineering on Cornell's Ithaca campus. He is also Vice Chair and
Chair-Elect of the Business-Higher Education Forum, an independent,
non-profit organization of Fortune 500 CEOs, leaders of colleges and
universities, and foundation executives.
A seasoned administrator, board-certified cardiologist, biomedical
researcher, musician and advocate for the arts and humanities,
President Skorton aims to make Cornell a model combination of academic
distinction and public service. He has vowed, among other goals, to
continue and accelerate the transformation of the undergraduate
experience in order to make Cornell the finest research university and
provider of undergraduate education in the world; to integrate the
activities of the Weill Cornell Medical College campuses in New York
City and Doha, Qatar with the activities of the university's Ithaca and
Geneva campuses in order to encourage interdisciplinary collaboration;
to support appropriately the arts, humanities and social sciences, as
well as scientific, technical and professional disciplines; and to use
the university's vast and varied resources and talents to positively
impact the world. In support of these goals, he launched, in October
2006, the most ambitious fundraising campaign in Cornell history, a $4
billion, five-year effort.
Reflecting his personal commitment to diversity, President Skorton
joined with Cornell Provost Biddy Martin to establish and co-chair the
University Diversity Council. He serves as a house fellow at the Carl
Becker House, one of the West Campus residential houses for continuing
students. He also writes a monthly column for the Cornell Daily Sun and
a bi-monthly column for the Cornell Alumni Magazine, and hosts a
periodic radio program, Higher Education in the Round, on WEOS-FM, a
local public radio station.
Before coming to Cornell, President Skorton was President of the
University of Iowa (UI) for three years, beginning in March 2003, and a
faculty member at UI for 26 years. Co-founder and Co-Director of the UI
Adolescent and Adult Congenital Heart Disease Clinic at the University
of Iowa Hospitals and Clinics, President Skorton has focused his
research on congenital heart disease in adolescents and adults, cardiac
imaging, and computer image processing.
He has published over 200 articles, reviews, book chapters, and two
major texts in the areas of cardiac imaging and image processing.
President Skorton has been the recipient of over 30 grants for
research.
A national leader in research ethics, President Skorton was charter
President of the Association for the Accreditation of Human Research
Protection Programs, Inc., the first entity organized specifically to
accredit human research protection programs. He has served on the
boards and committees of many other national organizations, including
the American College of Cardiology, the American Heart Association, the
American Institute of Ultrasound in Medicine, the American Society of
Echocardiography, the Association of American Universities, the Council
on Competitiveness, and the Korea America Friendship Society. He has
traveled widely in Europe and Asia on behalf of both academic and
community projects, and he engages in service to the community, and
particularly in regional and State economic development, as a member of
the board of directors of the Metropolitan Development Association of
Syracuse and Central New York, Inc.
President Skorton earned his Bachelor's degree in psychology in
1970 and an M.D. in 1974, both from Northwestern University. He
completed his medical residency and held a fellowship in cardiology at
the University of California, Los Angeles.
Mr. Baird. Thank you, Dr. Skorton. Dr. Schuster.
STATEMENT OF DR. GARY SCHUSTER, PROVOST AND VICE PRESIDENT FOR
ACADEMIC AFFAIRS, GEORGIA INSTITUTE OF TECHNOLOGY
Dr. Schuster. Chairman Baird, Ranking Member Hall, Members
of the House Committee on Science and Technology. I am the
Provost of Georgia Institute of Technology, and I am honored to
speak about Georgia Tech's overseas programs.
Georgia Tech's international activities fall under the
rubric of its mission, which is to define the technological
research university of the 21st Century, and educate the
leaders of a technology-driven world. Recognizing that
innovation increasingly happens all around the globe, we are
developing mutually beneficial research and education platforms
overseas, with high quality international partners, whose
research and educational interests align with ours.
In selecting the locations and partners for these
platforms, Georgia Tech observes a number of core principles.
Platforms are chosen to provide a strategic advantage for
Georgia Tech, and they have a research-driven motive, and a
clear educational benefit for our own students. They operate
within the parameters of the laws of the United States and
Georgia, as well as the host nation. The activities must
preserve the quality and integrity of Georgia Tech's
reputation. Finally, we strive to operate them in a self-
supporting and revenue-neutral manner, relative to our other
operations.
Our oldest and largest international campus is Georgia Tech
Lorraine in Metz, France, which was founded in 1990, and
includes research as well as graduate and undergraduate
education programs. A unique research unit between Georgia Tech
Lorraine and the French National Center for Scientific
Research, which is the largest and most influential research
agency in Europe, allows us to collaborate with French
researchers, and gives us early access to technology being
developed in France. As an example, because France has a high
level expertise in aspects of network security, we stand to
gain from what we can learn from this partnership, to benefit
the State of Georgia and the United States.
Similarly, Singapore, where Georgia Tech also has a
research and education program, is more advanced in some
aspects of transportation logistics than the United States is,
and we can benefit from our partnership there. This program
includes research and logistics funded by the Singapore
government agencies, and the first Master's degree in the
region in logistics and supply chain management.
In addition to the unique research opportunities provided
through our foreign partnerships, our students also benefit
from these relationships. As one of the Nation's top ten public
universities, and its largest producer of engineers, we focus
on educating graduates who understand technology in a global
context. The nature of science and engineering curricula make
study abroad difficult to accommodate, but our international
platforms help us offer a wide array of opportunities. More
than a third of our undergraduates study or work abroad.
Seventeen of our undergraduate degree programs offer an
international designator. This means special courses and
overseas experience add a global context to their field of
study, and that fact is noted on their diplomas. Our graduates
are highly sought after by employers, and our alumni report
that the international aspects of their education add value to
their careers.
Georgia Tech also works closely with the State of Georgia
in economic development, and our international programs provide
a point of access for the State to develop international trade
and investment relationships. For example, in 2005, the
President of Lorraine and the Governor of Georgia signed a
formal agreement, under which Georgia Tech Lorraine will serve
as a facilitator for business to business contacts. Georgia
Tech's international activities have also attracted foreign
corporate research labs to Atlanta to locate adjacent to our
campus.
In summary, our international platforms enable Georgia Tech
to be a partner and collaborator in research discoveries
happening in other parts of the world, and make our faculty and
students citizens of the world.
Thank you for the opportunity to testify before the
Committee. I would be happy to answer any questions.
[The prepared statement of Dr. Schuster follows:]
Prepared Statement of Gary Schuster
Chairman Gordon, Ranking Member Hall, Members of the House
Committee on Science and Technology, it is an honor to be here today
and have an opportunity to discuss the impact on American universities
of the globalization of R&D and innovation, and the university response
to it. I am provost of the Georgia Institute of Technology, and have
been asked to speak to the experience of my own institution in creating
and operating international campuses.
The Georgia Institute of Technology, familiarly known as Georgia
Tech, is a 120-year-old technological university that is consistently
ranked among the Nation's ten best public universities by U.S. News &
World Report. The university is especially known for its engineering
program, which is not only the Nation's largest, but is also ranked
among its very best. Georgia Tech's selectivity is reflected in the SAT
scores of its incoming freshmen, which average among the top five
public universities in the Nation, and in the fact that the freshman
class of 2006 contained a higher percentage of National Merit Scholars
than any other public university in the United States. The quality of
its faculty is demonstrated by the fact that Georgia Tech is among the
Nation's top ten universities in National Academy of Engineering
membership and recipients of the Presidential Early Career Awards in
Science and Engineering (PECASE), and second in the Nation in
recipients of National Science Foundation CAREER Awards. Among research
universities with no medical school, Georgia Tech ranks among the
Nation's top five in volume of research, both overall and federally
funded. It is home to or partner in 20 federally funded national
research centers of excellence. Recognized by numerous studies as a
leader in technology transfer, Georgia Tech launches twice as many
start-up companies as the norm for its volume of research and is home
to the Nation's first university-based business incubator, which is
also widely recognized as one of the Nation's best.
Like business and industry, research universities are faced with
the challenge of competing in a new global environment. History shows
us that the arts, sciences and technology have always advanced the
fastest in trading centers. In an economy in which knowledge has
emerged as the most valuable economic asset, universities are the
knowledge trading centers. Historically viewed as ivory towers elevated
above the workings of the everyday world, universities are now called
upon to adapt to new roles and challenges as drivers of innovation,
economic development, and prosperity in a global economy.
Georgia Tech's international activities fall under the rubric of
its aspiration and mission, which is to define the technological
research university of the 21st century and educate the leaders of a
technologically driven world. In today's economy, this goal becomes a
matter of defining a new academic paradigm that is effective in driving
innovation and promoting economic well-being. How do we conduct
research that generates innovation and educate our students in ways
that enable our graduates to succeed and thrive in this environment?
How do we as a public university of the State of Georgia serve the
needs and efforts of our state and the United States to maintain and
improve economic competitiveness? How do we contribute to solving
seemingly intractable global problems that are critical to our well-
being, from fresh water supplies to terrorism to global climate change?
These are the motivating questions behind our efforts to develop a
global university with a presence in strategic places around the world.
Like a number of American research universities, Georgia Tech
engages in research on global problems and provides expanded
opportunities and encouragement for its students to study abroad. Where
Georgia Tech seeks to take a unique and more complex approach is with
our international campuses. In short, we are shifting our mindset from
a 20th century context focused exclusively on attracting the best
talent to our home campus to a 21st century model of mutual exchange
and partnership. Our goal is to build one of the world's few truly
global universities.
The fundamental research that underlies innovation, which is
conducted largely at research universities, thrives in an environment
of openness and collaboration. Even researchers who are vying with each
other to be the first to make a particular breakthrough discovery,
often share information and are sometimes even collaborators. As
developing nations establish world-class universities and research
programs, breakthrough discoveries will occur in many locations around
the world, rather than being concentrated in the United States and
other developed nations. Georgia Tech's goal is to be present in those
other locations--to be a partner and collaborator in discoveries that
happen in other places, so that we here in the United States can
leverage and benefit from the discoveries of others, just as others
have and will leverage and benefit from discoveries made in the United
States.
To achieve that goal, we are developing research and education
platforms around the globe that are consistent with Georgia Tech's
vision, mission, and strategic endeavors. In establishing these
campuses, we look for a strategic advantage for Georgia Tech, a
research-driven motive, and a clear educational benefit for our own
students. We have been approached on numerous occasions by other
nations looking primarily for a ``provider'' of engineering degrees to
their citizens and have declined. While we believe that widespread
educational opportunity is a good thing, we also recognize that there
is a limit to the number of international initiatives that we as an
institution can maintain, and we intend to be strategic and focused
about what we undertake.
In selecting locations and developing formats for strategic
international research and education platforms overseas, Georgia Tech
observes a number of principles:
1. They are in the best interests of and to the benefit of
Georgia Tech and our faculty and students, and they complement
what we do in Atlanta.
2. They operate in accordance with the laws of the United
States and the state of Georgia. This requirement is
comprehensive, ranging from export controls to IRS rules, from
the requirements of the Bayh-Dole Act to regulations regarding
a drug-free workplace.
3. They operate within the laws and respect the culture of the
host nation.
4. They operate in accordance with the rules governing Georgia
Tech's accreditation.
5. They are consistent with Georgia Tech's charter, by-laws,
policies, and academic and ethical standards. We will not
sacrifice either quality or integrity.
6. They will operate in a self-supporting and revenue-neutral
manner relative to our other operations. We do not undertake
international activities to make money, nor do we invest any
state or federal tax funds in the operation of these endeavors.
The Hearing Charter for this morning indicates that ``Georgia Tech
is building a campus in Andhra Pradesh, India, to offer Master's and
Ph.D. programs.'' I assume that this statement is based on news
accounts in the Indian press, and I would like to respond by noting
that from Georgia Tech's perspective, the description by the Indian
press of this project was somewhat premature. What we have actually
agreed to is non-binding discussions that could culminate in a
potential research and graduate education platform in Andhra Pradesh.
However, as indicated above, we have a list of significant conditions
that must be met, and we will not go forward until all of those
conditions are met in Andhra Pradesh.
So, I would like to focus this discussion on the three
international research and education platforms that we already have in
operation: Georgia Tech Lorraine in Metz, France; Georgia Tech's
program in Singapore; and Georgia Tech Ireland. Georgia Tech Lorraine
is the oldest, established in 1990, and the most fully formed. It
includes graduate and undergraduate education programs, research
operations, and a ``franchise'' of Georgia Tech's business incubator.
Our program in Singapore is younger and smaller, with research and
graduate programs in conjunction with the National University of
Singapore and Nanyang Technical University. Georgia Tech Ireland opened
in June of 2006 in partnership with the Industrial Development Agency
of Ireland and in collaboration with seven Irish research universities.
This newest international site has begun as a research program and as
yet has no educational component.
The research strengths and interests of each of these locations
align well with Georgia Tech's research strengths and interests, and
the primary driver for establishing these international platforms is
enhanced research opportunities that provide a strategic complement to
the major research thrusts on which Georgia Tech is focused. These
campuses are mutually beneficial partnerships. In each case, we are
there because we were invited based on our own strengths and interests.
In each case, we are given indigenous support and have access to
research funding from indigenous sources. In each case, we stand to
gain from the research expertise represented by these locations.
For example, France has a high level of expertise in aspects of
network security. Georgia Tech's campus in Metz, France, is a research
partner with Centre National de la Recherche Scientifique, the French
National Center for Scientific Research, which is the largest and most
influential research agency in Europe. Our unique joint international
research unit with CNRS is focused on secure and high-speed
telecommunications and provides us with rapid access to French research
and technology that would otherwise not be available to Americans.
Georgia Tech Lorraine has strong research connections to the main
campus in Atlanta, and we stand to gain from what we can learn there to
the benefit of the state of Georgia and the United States.
Georgia Tech Lorraine is an ``affiliate'' of Georgia Tech rather
than a branch campus. It is supported by the governments of Lorraine
and Metz and has partnerships with several national research
organizations, ten other European universities in France and elsewhere,
and several French corporations. Its graduate enrollment approaches 175
students, and it has granted close to a thousand Master's degrees to
date. The undergraduate program at Georgia Tech Lorraine began as a
summer study program for our Atlanta-based students, offering
engineering majors a unique opportunity to study abroad while keeping
up with their curriculum. By summer of 2006, the program had more than
150 students and 14 professors teaching dozens of courses. In the fall
of 2006, we began a very small year-round undergraduate program in
electrical and mechanical engineering and computer science, which we
hope to grow to more than 50 students by 2008.
Similarly, one of the world's premiere locations for experience and
expertise in logistics is Singapore. Georgia Tech has long been
recognized as the top university in the United States in systems
engineering and logistics, which have become increasingly critical as
the economy has grown increasingly global. However, there are aspects
of logistics--transportation, for example--in which Singapore as the
world's busiest port is more advanced than we are. Again, Georgia
Tech's program in Singapore has a very strong research connection to
the Atlanta campus, and we stand to gain from what we can learn there
to the benefit of the state of Georgia and the United States.
Georgia Tech's Singapore platform has a comprehensive supply chain
research program and the first Master's degree program in the region in
logistics and supply chain management. In addition to research
opportunities for Georgia Tech's faculty in systems engineering and
logistics, it provides a critical component of Georgia Tech's executive
Master's degree program in international logistics, which is based in
Atlanta. In Singapore, Georgia Tech also offers a THINK Series, which
includes seminars, workshops, and short courses designed to bring
together logistics experts, business executives, and academic leaders
for discussion, knowledge dissemination, and thought leadership
positioning. Georgia Tech's Singapore program is supported by five
agencies in the Singapore government, with its primary research support
coming from the Singapore Agency for Science Technology and Research
(A*STAR).
Georgia Tech's international platforms are directly involved in the
international economic development activities of the State of Georgia.
Georgia Tech was created in 1885 by State law to give the state an
economic base and workforce in science and technology, and we have been
actively involved in economic development activities since our
inception. Georgia's State Department of Economic Development is
located on the edge of the Georgia Tech campus in Atlanta, adjacent to
Georgia Tech's own business and economic development outreach
activities, and there is close collaboration. In particular, Georgia
Tech has a full-time international specialist on its staff of economic
development advisors whose job is to help the state take advantage of
the economic development opportunities presented by Georgia Tech's
international activities. For example, in September of 2005, Georgia
Governor Sonny Perdue and Lorraine President Jean-Pierre Masseret
signed a formal agreement that opened the way for technology companies
from both places to develop business relationships with each other. The
lynchpin of the agreement is Georgia Tech Lorraine, which will help
French companies make business contacts in Georgia and give Georgia
companies a platform to develop operations in Europe. Similarly, within
a year of the opening of Georgia Tech Ireland in June of 2006, Ireland
President Mary McAleese had visited Atlanta and the Georgia Tech
campus, and Georgia Governor Sonny Perdue had made an economic
development trip to Ireland. The City of Atlanta has always been a
transportation hub, and a 2001 Clusters of Innovation study of the city
by the Council on Competitiveness helped the local business community
better understand the economic opportunities presented by logistics.
The Metro Atlanta Chamber of Commerce has now launched a logistics
initiative aimed at expanding this sector of the city's economy, which
is benefiting from Georgia Tech's presence in Singapore.
It is very important for our faculty to have an international
perspective on their area of expertise, and many of our Atlanta-based
faculty spend time on our international campuses. Their time abroad
allows them access to international opportunities without disrupting
their research or career trajectories, and allows us to help ensure a
positive experience for their spouses and children. It simultaneously
enriches them professionally and helps to assure the consistency and
quality of the Georgia Tech reputation at our international locations.
Georgia Tech's international campuses also represent an important
opportunity for our students. As the Nation's largest producer of
engineers and one of its best, we face the challenge of preparing our
students to contribute to and compete in a global economy based on
innovation. It is clear to us that it is in the best interests of the
United States economy for our education programs to produce citizens of
the world who are comfortable with diverse cultures, languages, and
ways of thinking and solving problems. Although Georgia Tech is a
global institution at both the graduate and undergraduate levels, most
of the undergraduate experience is campus-based in Atlanta or Savannah,
Georgia. The hands-on lab and practicum nature of science and
engineering curricula make study abroad difficult to accommodate, but
we have nevertheless developed a wide array of international
opportunities for our undergraduate students. During the course of
their studies, more than one-third of our undergraduate students study
or work abroad, some of them more than once. Seventeen undergraduate
degree programs offer an International Designator, in which a context
of global economics, international affairs, and foreign language is
added to the program of study. Almost 40 percent of Georgia Tech's
undergraduates study foreign languages, despite their not being
required for any major save one, modern languages. This level of
international exposure for our students is sustained through our own
study abroad and internship programs; through dual degree agreements
with the Technical University of Munich in Germany, the Technical
Institute of Monterrey in Mexico, Imperial College in England, and
Shanghai Jiao Tong University in China; and through opportunities on
our international campuses.
Feedback from alumni and strong employer interest in our students
indicate the value of an international perspective to their education.
In a 2005 survey, young alumni reported that the experience had helped
them develop leadership skills, made them more comfortable in a
culturally diverse environment, and enhanced their ability to resolve
disagreements and mediate interpersonal conflict in teams or groups. We
believe these are important skills for our graduates and increase their
ability to thrive in a global economy. The value of our students'
education is also reflected in the strong interest by the 550 corporate
and government recruiters who came to campus to conduct nearly 10,000
job interviews during the past academic year. Some interviewed students
as early as six months before they graduated in an effort to get a jump
on the competition.
At Georgia Tech, we also believe that the technological research
university of the 21st century will lead the way in improving the
quality of life for all of the Earth's inhabitants, and our faculty and
students are actively engaged in this endeavor. The nation of Liberia,
struggling to recover from a devastating civil war, recently announced
a new national information and communication technologies policy,
developed with the assistance of Georgia Tech Public Policy Professor
Michael Best and graduate students in public policy and computing.
Civil and Environmental Engineering Professor Aris Georgakakos has
worked with multiple nations to develop water management plans for many
of the world's largest river systems. Civil and Environmental
Engineering Professor Joseph Hughes and his students are helping the
nation of Angola with water resource problems, while Research Scientist
Kevin Caravati led a student team in the development of a solar-powered
dry latrine that can be made from local materials to promote sanitation
in Bolivia. City Planning Professor Michael Elliott has trained
environmental experts from both Israel and Palestine in methods of
resolving conflicts over water, a critical resource that plays a role
in the political tensions of the Middle East. These are just a few
examples of many faculty and students whose efforts are making a
difference around the world. We believe that quality of life and
economic opportunity promote political stability, which is to the
advantage of the United States as well as the nations we assist.
Finally, it is important to understand that the process of
establishing international platforms is a two-way street, and Georgia
Tech's international character is an important factor in attracting
foreign research labs to Atlanta. For example, in 2005 the Samsung
Electro-Mechanics Company located a research lab adjacent to our campus
that is working on the next-generation radio-frequency integrated
circuit. This lab is expected to become the company's primary North
American research location. Later the same year, Milan-based Pirelli
located a North American branch of Pirelli Labs, the company's advanced
research center, adjacent to our campus, and then consolidated the rest
of its North American corporate staff activities to the same location.
These undertakings are consistent with data reported by the National
Science Foundation in the 2006 Science and Engineering Indicators.
According to NSF, from 1997 to 2002, R&D investments made in the United
States by foreign firms grew faster than R&D investments abroad by
U.S.-based multinational corporations. In 2002, U.S. affiliates of
foreign companies accounted for 5.7 percent of the total U.S. private
industry value, but R&D conducted by U.S. affiliates of foreign
companies accounted for 14.2 percent of the industry R&D conducted in
the United States.
In summary and response to the specific questions posed:
1. What was the general motivation for your institution to establish
branch campuses overseas? What factors did you consider in making the
decision to expand overseas, especially in terms of locations, costs,
staffing, and the impact on the home campus?
Georgia Tech's primary motivation in establishing overseas campuses
is to enrich our research thrusts and leverage research expertise
available in other parts of the world and prepare our students to
thrive in the global economy. Our international platforms are mutually
beneficial partnerships with high-quality international partners whose
research interests align with ours. They benefit our university by
enabling our faculty to operate in a global context and helping our
students prepare to thrive in a global economy. They benefit the state
of Georgia directly by serving as conduits for international economic
development relationships. They are operated in accordance with the
laws of the United States and the host country; accreditation
standards; and Georgia Tech's own charter, by-laws, and policies. They
are designed to be financially self-sustaining, so that tax revenues
are not used nor are resources diverted away from other Georgia Tech
programs. As a result, they are not technically ``branch'' campuses in
the financial sense, because they will have no financial impact on the
home campus.
2. What do you anticipate the effects of these overseas branch campus
programs will be on the overall global science and technology
enterprise, especially in terms of jobs available to your home and
branch campus graduates? What sorts of data and information are you
collecting to determine if the effects are matching your original
goals?
Our overseas campuses offer us an opportunity to participate in
research with partners whose expertise exceeds ours in particular areas
and allows us access to international research opportunities and
technologies that would otherwise be unavailable to Americans.
Specifically in terms of our graduates, these campuses enrich our
ability to produce citizens of the world, educated by professors who
operate in an international context and presented with opportunities to
study abroad that are not available to typical engineering and science
students. The importance of these opportunities to our students is
reflected in the strong interest by corporate and government recruiters
in hiring them and in reports from our graduates themselves, who say
that their international experiences as students contribute to their
careers in significant ways.
3. How are you adjusting your home campus science and engineering to
better respond to the increasingly globalized economy?
Georgia Tech aspires to be a truly global university that
contributes to the economic competitiveness of Georgia and the United
States through partnerships with other top international universities
and research organizations that provide access to innovations and
technology being developed in other parts of the world. The faculty and
students of our home campus participate in these partnerships, and the
knowledge and experience they gain enrich Georgia Tech's home campus
and carry over into the relationships we have with American industries
and with international partners who seek us out and create partnerships
with us here in Atlanta. Georgia Tech is also committed to
strengthening the international elements of the education we offer our
students, and we have added an International Designator to many
undergraduate majors, incorporating a global context into the course of
study.
Biography for Gary Schuster
Dr. Schuster is currently Provost and Executive Vice President for
Academic Affairs and the Vasser Woolley Professor of Chemistry and
Biochemistry at the Georgia Institute of Technology. Previously, he
served as Dean of the College of Sciences.
Dr. Schuster holds a BS in Chemistry from Clarkson College of
Technology (1968) and a Ph.D. in Chemistry from the University of
Rochester (1971). After twenty years in the Chemistry Department at the
University of Illinois, he became Dean of the College of Sciences and
Professor of Chemistry and Biochemistry at Georgia Tech in 1994. He was
a NIH Post Doctoral Fellow at Columbia University, a Fellow of the
Sloan Foundation and a Guggenheim Fellow. He has been awarded the 2006
Charles Holmes Herty Medal recognizing his work and service
contributions since his arrival at Georgia Tech.
Dr. Schuster has published more than 230 papers in peer reviewed
scientific journals on topics ranging from biochemistry through
physical chemistry. One of his best-known discoveries is called
Chemically Initiated Electron Exchange Luminescence. It provides the
mechanistic basis that allows the understanding of the bioluminescence
of the North American Firefly. This discovery forms the basis for new
clinical diagnostic procedures that have recently been commercialized.
His current research interests focus the interaction of light with
matter and investigation of small molecules that bind and cut DNA
selectively when irradiated with light. This work has application to
understanding the origin of certain diseases, such as cancer, and
aging.
Dr. Schuster and his wife, Anita, have two sons, a granddaughter,
and grandson. Eric lives in Atlanta and Andrew lives in Chicago,
Illinois. Their family enjoys downhill skiing and travel.
Mr. Baird. Dr. Schuster, thanks for your remarks. You will
recognize, of course, you have been joined by a fellow Georgian
on the dais here, Dr. Phil Gingrey. Thank you, Dr. Gingrey, for
joining us.
Mr. Wessel, thank you.
STATEMENT OF MR. MARK G. WESSEL, DEAN, H. JOHN HEINZ III SCHOOL
OF PUBLIC POLICY AND MANAGEMENT, CARNEGIE MELLON UNIVERSITY
Mr. Wessel. Chairman Baird, Ranking Member Hall, Members of
the Committee, thank you very much for this opportunity to
submit my thoughts on the topic of the university role in the
globalization of innovation, research, education, and
development. It is a consuming issue for almost every major
American university campus today.
One might legitimately wonder why a Dean of a policy school
is testifying before a Committee on Science and Technology. I
guess I have two answers to that question. One is, at Carnegie
Mellon, we think of policy as a science as well as an art, but
the other is probably half of what we do at the Heinz School
involves information technology management, both in our
research and education programs. And it is these programs, more
than any other that we have, that are driving our globalization
efforts at the Heinz School.
But this globalization, while I believe it to be a
tremendously beneficial impact for our institutions and for the
United States economy, it does challenge us to answer critical
questions about the impact of our efforts, on the American
economy, the effect on the generation of new technology and
innovation for our citizens, and our obligations as
institutions to people, culture, societies, and economic
systems beyond our borders.
What is new, generally, in my opinion, about what is
happening, is that American universities, while they have
always had a strong international connection among faculty for
research and in our student body, today universities are
engaging the issue of becoming global institutions as part of
our overall strategies.
There are many forces driving this, but I see three primary
forces. One is, of course, the increasing globalization of
economic and policy activity around the world. The second is
that the American tertiary education system has been globally
recognized as a driver of economic success, and increasingly,
governments and businesses are coming to us from around the
world to access that expertise. And finally, there are clearly
competitive forces in our industry, which increasingly require
us to be entrepreneurial to support the kind of quality and
research and education which has been our hallmark for decades.
Beyond these general forces, what any university or college
chooses to do on this front is a manifestation of that
institution's particular circumstances, capabilities, and
values. My university has made great strides in becoming a
global institution. In 1997, other than study abroad programs,
we offered only one academic program outside the United States.
Today, we offer 12 different degree programs in 10 countries,
and have institution building, joint degree program, and formal
collaborative research activities in Singapore, Taiwan, India,
China, and Portugal. Additionally, we have official presences,
which can be characterized as branch campuses, in Greece,
Qatar, Japan, and Australia. And that list is growing, and I
expect it to grow in the future.
It is important, then, to point out that there is no single
model that is optimal as an instrument to achieve our goals. We
evaluate every global opportunity according to its ability to
support us in achieving the following objectives: building
alignment with the important organizations and individuals who
are leaders in the global economy and policy environment;
reaching new student markets that are unlikely to access our
education by coming to Pittsburgh; create opportunities for our
existing students to expand their professional education
through integrated professional experiences abroad; improve our
curriculum by broadening our exposure to global policy and
business issues; build a globally aware faculty with an
institutional environment capable of supporting intellectual
inquiry into the emerging issues posed by globalization; and
finally, to create new sources of revenue that can support our
activities both abroad and at home.
You have rightly asked what outcomes we expect from our
efforts to become global institutions. This is a new activity
and a bold activity for institutions like mine. Nevertheless,
we have some expectations. We expect increased recognition
around the world of the potential constructive impact of our
institution on the efforts of societies to fulfill the
aspirations of their people, and a consequent increase in our
brand equity. We expect increased financial support for our
efforts from both public and private sector entities that are
convinced of this value. We expect the ability to deliver
education to highly qualified students whom we would not have
been able to serve previously. We expect improved quality of
education for all of our students, as we modify our curricula
to reflect what we learn in partnerships around the world, and
provide opportunities for true professional development in
these contexts. We expect better research and innovation
outcomes, as we expand our reach to include new intellectuals
from around the globe, and we expect the ability to experiment
with and learn from new models and modes for research and
education in a highly decentralized and distributed
environment.
I would now like to briefly take a moment to address an
important issue, which I know has been of concern to the
Committee. As universities become more global, we are
effectively, if unintentionally, increasing the capacity of
firms and individuals abroad, to do jobs currently done here in
the United States. That is an arguable point, but it is my
opinion that although this effect is likely to be quite small,
it deserves an honest answer, and that honest answer is that it
probably is so. Nevertheless, I think that it is also my
opinion that in aggregate, the benefits to the U.S. economy and
to American workers from our activity far exceeds the cost.
Ultimately, our global efforts will create jobs in the United
States through improved education and innovation in our
institutions.
Without taking too much time, we believe the benefits will
come in four primary forms: more innovation as a result of our
ability to build more vibrant networks of intellectuals,
drawing on high human capital individuals around the globe;
graduates who are better trained to lead innovation in global
business and policy enterprises of the future; more resources
generated through our international efforts to support our
institutions as a whole; and better, more outward-looking
universities that are more connected to business and society,
and have a greater ability to transfer knowledge outside their
walls.
In my view, this globalization effort is simply a part of a
broader movement in academia to reach out and become more
engaged with companies, governments, and societies, and to be
more directly concerned about the responsiveness of our efforts
to the needs of society.
As evidence of this, Carnegie Mellon has not only gone
abroad, it has gone to the West Coast. We now have a West Coast
campus in the Bay Area that responds to that area's technology
hotbed there. And my school, the Heinz School, has a new campus
in Los Angeles to respond to the film industry, and will be
opening a campus in Washington, D.C. within a year, to be more
tied to our national policy mechanism.
Perhaps I have persuaded you, but perhaps not. Well, one
thing I would like to say in closing is that Chairman Baird
mentioned The Economist report that had 17 of the top 20 global
universities coming from the United States.
But we are not immune to competition. If we ask what
happens if we don't do this, I think the answer for us as
institutions is actually quite grim. In 20 years, if we do not
assiduously pursue globalization, I think you can easily expect
half of the institutions that we see today in the top 20 to
drop out. This would ultimately provide serious damage, both to
the U.S. economy and to the U.S. political system.
Thank you very much.
[The prepared statement of Mr. Wessel follows:]
Prepared Statement of Mark G. Wessel
Chairman Gordon, Ranking Member Hall, Members of the Committee.
Thank you for this opportunity to submit my thoughts on the topic of
the university role in the globalization of innovation, research and
development. It is a consuming issue on almost every major American
university campus today.
I am Mark Wessel, Dean of the H. John Heinz III School of Public
Policy and Management at Carnegie Mellon University. As many of you are
aware, Carnegie Mellon University is one of the Nation's leading
private research universities. The university consists of seven schools
and colleges with more than 10,000 students and more than 4,000 faculty
and staff. Founded in 1968, the School of Urban and Public Affairs
(SUPA) set as its purpose an aggressive effort to understand the causes
of critical problems and to train individuals to use knowledge and
technology to bring about positive change. In April of 1991, SUPA
became the H. John Heinz III School of Public Policy and Management in
honor of the late Pennsylvania Senator H. John Heinz III. The Heinz
School is consistently rated as one of the premier public policy
schools in the Nation.
The globalization of R&D and innovation is critical to the future
not just of our institutions but of the economic success of the United
States. It also challenges us to answer a critical question about our
obligations as institutions to people, cultures, societies and economic
systems beyond our borders.
To my knowledge, no university has ``solved'' this challenge. We
each proceed in idiosyncratic ways based on our individual cultures,
needs, capabilities and existing positions in the global marketplace.
This is as it should be. Experimentation breeds innovation and the
competition among these experiments will ultimately determine which
models are most likely to be successful. Still, ultimately we must find
ways to share information about our many individual experiments and
gain a collective understanding on how to capitalize effectively on the
opportunity globalization provides to enhance our capability to achieve
our core mission--the advancement of knowledge and the training of
citizens for productive roles in society. The efforts of this committee
to understand this activity in universities can be critical in that
process of coming to consensus.
The Heinz School and Carnegie Mellon have long been known for
fostering practical problem-solving in an interdisciplinary environment
that blends technology and the sciences with the arts, humanities,
business and policy. Without question, innovation and collaboration
characterize our success. Now more than ever, these strengths match up
with important, emerging needs in our complex world.
I would like to specifically highlight the great strides the
university has made globally. In 1997, the university offered just one
academic program in three countries outside of the United States.
Today, it offers 12 degree programs in 10 countries and has student
exchange and joint-degree programs in Singapore, Taiwan, India, China,
and Portugal. Additionally, we have an official presence in Athens,
Qatar, Kobe, and Australia. My college participates directly in three
of these four ``branch campuses.''
General Forces Influencing University Globalization Initiatives
You have asked us to comment on what is driving efforts by our
universities in responding to globalization. Let me start by saying
what is NOT driving this effort. Over the last 50 years there has been
no lack of global collaboration in research. Particularly at the level
of the individual researcher, international collaborations to advance
knowledge and spur innovation have been profoundly important and often
unnoticed components of the engine of the American university
innovation machine. There has been no shortage of willingness of
researchers across the globe to seek out others in their fields that
can advance their understanding of problems of interests. In addition,
particularly at the graduate level, major American universities have
typically been open and welcoming environments for foreign students
coming to seek the benefits of our educational system. In both these
senses, American universities have always been intimately tied to a
global system of innovation and knowledge transfer.
The difference today is that the institutions that are these
researchers' and students' homes are deeply engaged in the process of
globalizing as institutions. The process of engaging global economic
and social systems is becoming part of the strategy for universities,
not simply an outcome of what we do. This has taken many, many
different forms. But the forces that are driving these efforts are
reasonably clear.
Globalization of Economic Systems and the Public Good
One of the realities we face as universities is that the
fundamental conditions around our value proposition have changed on
several dimensions. For much of the latter part of the 20th Century
governments at both the State and federal level accepted the
proposition that universities were a ``public good''--i.e., that the
research and education output of American universities would make the
society stronger in ways that would not be captured if not for the
public subsidy. While this basic proposition is still accepted, the
degree to which the public sector is willing to provide subsidy for
this activity has declined--at least relative to the overall cost of
providing these outcomes.
The implication is that (if we are smart) we must be far more
conscious of the value added we generate that customers will pay for.
And the nature of those customers' needs has changed fundamentally as a
result of globalization. Every business of any scale has been
transformed by technology-driven global supply chains, by the emergence
of new competitors in every market and by the increased need for
continuous process and product innovation--innovation that can now come
from anywhere and anybody. Responding to the needs of these
organizations requires us to change much about the way we do things. It
is not sufficient that we just study the phenomena driving economic
globalization. Because of the rapidity of change in this environment
(often driven by rapid change in technology), we must partner with
firms to determine the sources of potential innovation. Moreover, those
firms are no longer North American or European firms. Being present (or
at least more proximate) with these new players in the world economy is
critical.
This new economic system has other important implications for our
students. For our traditional base of international students the
advantages of coming to the U.S. for a university education are
diminishing--not because the quality of our education or employment
opportunities are declining but because the quality of those options in
their home countries are improving. As emerging economies generate
globally competitive industries, the opportunity for students from
those countries to build their careers in their home countries
increases and the relative value of access to U.S. labor markets (a
traditional motivation for international students) declines. As foreign
countries invest increasingly in tertiary education of high quality,
the difference in the value added of our education relative to theirs
declines.
For U.S. students, the likelihood that you might spend your entire
professional career in the United States has declined. Education MUST
become more global to accommodate the demands of their careers. And
this ``globalization'' of education is fundamentally different than the
traditional mode of staying at home and studying international business
(with a possible semester abroad). It requires, at least to some
degree, the ability to actually study their professional fields in the
contexts in which they will practice.
Finally, this new economic system and the rapidity of innovation
and change that drive it require the ability for firms to upgrade the
skills of their employees more or less continuously. And because the
value in the marketplace of human capital is higher than ever, this
requires universities to deliver this capacity where the employees are
globally resident rather than requiring them to come to us exclusively.
While distance learning can serve some of these needs, it cannot meet
them all for any of a number of reasons.
The demand of our mission that we serve the public interest
generates even more impetus for us to include globalization in our
strategic objectives. For all intents and purposes, there are no
domestic policy issues any longer. The interconnectedness of economies,
societies and the welfare of individuals cannot and should not be
undone. Understanding the ways in which this interconnectedness will
change our view of how good policy is made is critical. Moreover, our
society depends on the willingness and ability of emerging societies to
develop modern systems of governance--systems that are responsive to
their internal constituents, weigh alternatives rationally, are
invested in the future of the global economic system and are informed
of the collective as well as the parochial interests in policy-making.
For universities to contribute to the emergence of rational governance
we will need to view ourselves as partners with the individuals and
institutions in theses societies that are moving in that direction. I
believe that requires physical presence.
The World Has Come to Us
The second force influencing American universities' desires to ``go
abroad'' is that the world is adopting our model of tertiary education.
Many governments around the world have come to recognize the role the
American tertiary education system has played in supporting the
innovation and productivity that have generated the most powerful
economic system ever known. Public and even private investment in what
aim to be high quality university systems around the world is truly
impressive. This creates both opportunities and threats for us. The
opportunities come because many of these governments have come to our
universities for assistance in establishing these systems. These new
institutions will become increasingly effective, they will become
centers of innovation and knowledge creation in their own rights and
our faculty and students will increasingly benefit from connection to
them. Moreover, these institutions will create cadres of individuals
with significantly higher capabilities that we might then engage in our
own pursuits. My view is that the more assiduously we pursue
institutional relationship with these new entities, the more likely our
faculty and students are to benefit from their emergence.
But, of course, these new institutions are or will be competitors.
They will inevitably compete with us for the faculty, students and
resources that support us. Our advantage is that if we can assist these
societies in fulfilling the role they might otherwise fill by creating
new competitors we will be better off. And to the extent that requires
us to modify how we do things to accommodate the local demands of these
societies, the richer we will become as institutions on every
dimension.
Our Industry Structure Will Change
My provost and former dean of the Heinz School, Mark Kamlet, is
fond of saying that higher education is the last service industry in
the world to undergo major structural change--but it is coming.
Arguably, there are simply too many universities in this country. To
put it another way, if we were largely for-profit institutions one
would likely see significant merger activity in our sector. What that
means for our discussion, I believe, is that the emergence of new
markets abroad--i.e., markets that can't easily be accessed in our
traditional educational and research delivery models staying at home--
offer opportunities to take advantage of inherent economies of scale
without jeopardizing the branding and selection fundamentals of our
business model at home. Thus, for many of us, going global is simply
efficient.
These are, in my mind the three most important general factors in
driving the push for American universities to seek opportunities
abroad. Of course, this is all enabled by advances in communication
technology that in innumerable ways have facilitated building global
institutions in many endeavors of life.
Specifics of the My Institution's Efforts
Beyond those general principles, what any university or college
chooses to do on this front is a manifestation of that institution's
particular circumstances, capabilities and values. I will speak with
respect to the goals, objectives and strategies of the Heinz School but
will reference broader activities at Carnegie Mellon. The Heinz School
is a graduate professional school with two major areas of emphasis: a)
public policy analysis and implementation; and b) information systems
management and strategy. Our core aspiration in pursuing our
globalization effort is to have a significant impact on both the
evolution of the global IT-driven economy and to influence the process
and structure of governance in emerging societies that have and will
become such an integral part of this global system. We believe our
comparative advantages are a commitment to objective, empirically
driven, interdisciplinary inquiry and education and a commitment to
innovation to produce value added for our constituents.
It should also be said that there is no single model that we
believe is optimal as an instrument to achieve our goals. In reality,
the replication of the model represented by our home campus in anything
like the scale of the original has so far proven impractical and far
too risky for our tastes and resources. At Carnegie Mellon, we do have
what might commonly be referred to as ``branch campuses'' but they are
smaller and more specialized than our home campus. However, we have
sought to build real presence in the other nations I previously
mentioned through a very wide variety of other means.
We evaluate every global opportunity according to its ability to
support us in achieving the following objectives:
1. Build alignment with the important organizations and
individuals who are leaders in the global economy and policy
environment;
2. Reach new student markets that are unlikely to access our
education by coming to Pittsburgh;
3. Create opportunities for our existing students to expand
their professional education through professional experiences
abroad;
4. Improve our curriculum by broadening our exposure to global
policy and business issues;
5. Build a globally aware faculty with an institutional
environment capable of support the broadest possible
intellectual inquiry.
Of course, this is not an unconstrained problem. The primary
constraints we pay attention to are:
1. The constraints on the managerial capacity of a small
institution to deal with issues generated by a globally
distributed organization;
2. The absolute need for every global venture (and all
ventures collectively) to exhibit a high probability of
positive financial returns and very low down-side financial
risk;
3. The necessity of maintaining quality standards in research
and education consistent with our home campus.
You have rightly asked what outcomes we expect from our efforts to
become global institutions. Ultimately, I believe that this is a bold
but necessary activity whose full dimensionality will not be known for
some time. Nevertheless, we expect some or all of the following to
result if we are successful:
1. Increased recognition around the world of the potential
constructive impact of our institution on the efforts of
societies to fulfill the aspirations of their people and a
consequent increase in our ``brand equity'';
2. Increased financial support for our efforts from both
public and private sector entities that are convinced of this
value;
3. The ability to deliver education to highly qualified
students whom we would not have been able to serve previously;
4. Improved quality of education for all our students as we
modify our curricula to reflect what we learn in partnerships
around the world and provide opportunities for true
professional development in these contexts;
5. Better research outcomes as we expand our reach to include
new intellectuals from around the globe;
6. The ability to experiment with and learn from new models
and modes for research and education in a highly decentralized
and distributed environment.
I believe that these outcomes that we expect as one institution
reflect what we might hope to achieve collectively in this effort. We
will produce citizens better equipped to deal with the changing
economic environment that has accompanied globalization. We will build
partnerships that will increase knowledge generation and facilitate its
transfer to society. Our universities will be financially stronger and
require less government subsidy. We will become more efficient
individually as we leverage existing infrastructure. We will support
innovation in firms that fuel global economic growth.
These outcomes are difficult to measure. It is even more difficult
to prove conclusively causal connections between university
globalization efforts and these types of generalized social welfare
outcomes. However, at the institutional level I believe we will be able
to determine if we are successful. Successful global universities will
have the following characteristics:
1. The number of our students who are able to spend portions
of their education at our facilities or partners abroad in
gaining education and experience in curricula and practicums
that are fully integrated across campuses will increase;
2. Revenues generated from activities abroad can be used to
support education and research at home campuses;
3. Our graduates will be sought out because of their ability
to translate what they have learned to solve global economic
and policy challenges;
4. We will have built a network of research partners with
multiple collaborations across faculty and institutions
globally;
5. We will have many private sector partners for whom our
educational offerings are an integral part of their training
and development efforts and who provide us with access to data
and intelligence about emerging issues in technology and
business;
6. We will have government and other academic partners around
the world who rely on our expertise in developing their
institutions and tertiary education systems, with whom we share
infrastructure for the benefit of our students and faculty, and
from whom we learn how our organization and system can adapt to
be more effective in their environments;
7. Our board of trustees and advisory committees will be
increasingly populated by influential business people and
policy leaders from around the world.
Carnegie Mellon's globalization efforts have been a remarkable
experience and we have learned much, even at this early stage. Largely
because we are inexperienced at this, there have also been surprises--
particularly at how difficult this task proves to be. Some of the major
challenges for our future efforts are predictable. Because we are
generally not-for-profit organizations, we do not have access to the
kinds of financial markets that are capable of providing risk capital
to these kinds of ventures. Most of us can or will only tolerate a
limited amount of financial risk in almost any venture. Hence we will
be constrained in our ability to pursue many of our goals by the degree
to which we can identify partners with philanthropic or public interest
motivations willing to provide us with this kind of capital.
A second source of challenge for us is that we have built a model
for research activities that is dependent on a highly idiosyncratic
environment and culture that is not well adapted to the global
enterprise. At a policy level, many of the public agencies that fund
research at universities will not fund foreign-based faculty--making it
difficult to structure an integrated global research environment. Tax
treatment for foreign-based research enterprises is uncertain, at best.
Locally, our systems of supporting, evaluating and promoting faculty
have relied heavily on a high degree of personal interaction and
mentoring that is difficult to replicate in a global environment. To a
significant degree, our educational programs have relied on extracting
students from their homes and other productive activity to educate them
in fairly isolated environments. Our management systems from finance to
human resources to student services are all largely structure on the
assumption of a geographically proximate environment.
We are also challenged to adapt to a highly varied global
regulatory environment. Each nation in which we consider operating has
a different set of requirements with respect to the operation of
tertiary education environment and in many of these countries the
sector is completely closed to external entry. Even understanding the
implications of these differing regulatory and policy environments is
very challenging for us.
Finally, the management challenges of inherently small institutions
achieving global scale are truly daunting for us. This is more than a
question of management and efficiency. Ultimately it is a question of
whether we can globalize and still maintain the quality standards in
research and education that has been the core of the success of
American universities.
Thank you for the opportunity to testify on this important topic. I
would be happy to answer any questions the Committee might have.
Biography for Mark G. Wessel
Mark G. Wessel has been named Dean of Carnegie Mellon University's
H. John Heinz III School of Public Policy and Management, where he has
served as Acting Dean since February of 2003.
``I am very pleased that Mark Wessel will assume the deanship. He
will provide strong leadership and superb management skills. I look
forward to continuing to work with him,'' said Carnegie Mellon
President Jared L. Cohon.
As Dean, Wessel will direct the school's academic programs in
public policy and management, two university-wide information systems
and technology management programs, and six research centers.
Wessel, who came to the Heinz School in 1993, has served in
administrative capacities such as Director of Health Care Programs,
Associate Dean, Senior Associate Dean, and Chief Operating Officer.
His responsibilities have included management of the operational
functions of the Heinz School program development and management,
development and oversight of the School's Master's programs in
information technology management, and student advising.
``For more than a decade, Mark Wessel has provided consistent
leadership and vision while serving the Heinz School in a wide variety
of key posts,'' said Carnegie Mellon Provost Mark Kamlet, who was Dean
of the Heinz School from 1994 to 2000. ``He will continue to build upon
the Heinz School's strengths, particularly at the intersection of
policy, management and information technology.''
Wessel is a former economist and financial analyst for the United
States Department of Energy. Prior to coming to Carnegie Mellon, he was
a development specialist with the Mon Valley Initiative, where he
developed community-based regional economic and social development
strategies and projects for distressed communities in Western
Pennsylvania.
He served as Assistant to the Associate Dean and undergraduate
economics advisor at the University of Wisconsin at Madison, where he
earned his Master's degree in economics. Wessel earned a Bachelor of
Science degree in Foreign Service from Georgetown University.
Wessel is married to Linda C. Babcock, the James M. Walton
Professor of Economics at the Heinz School. Also a former Acting Dean,
Babcock specializes in research conducted at the interface between
economics and psychology and received the Heinz School's Emil Limbach
Award for teaching excellence in 1991.
According to Wessel, ``if they want another dean in our family
they'll have to get our five-year-old daughter, Alexandra!''
An avid golfer, he is teaching his daughter the game and has been
known to beat Mark Kamlet when they hit the links together. Wessel also
loves sailing in the Caribbean, playing the classical guitar, and,
according to his wife, has a passion for ``big, ugly cars.''
In U.S. News and World Report Magazine's 2001 ranking of graduate
schools in public affairs, the Heinz School ranked seventh overall and
first in the specialty area of information technology. The Heinz School
has built an international reputation for excellence in educational
programs and faculty research.
Its programs in information technology, criminal justice policy,
policy analysis, finance and environmental policy are respected across
the Nation and internationally as among the elite. Programs in health
care and medical management, educational technology and other areas
continue to grow and take national prominence.
Heinz School graduates serve in key managerial positions across a
wide range of government, business and non-profit organizations. The
school still takes a flexible and interdisciplinary approach to teach
students to look at societal problems from many different perspectives,
using technology, quantitative and qualitative analysis and group
dynamics to arrive at innovative solutions.
Mr. Baird. Thank you, Mr. Wessel. Dr. Altbach.
STATEMENT OF DR. PHILIP G. ALTBACH, DIRECTOR, THE CENTER FOR
INTERNATIONAL HIGHER EDUCATION; J. DONALD MONAN SJ PROFESSOR OF
HIGHER EDUCATION, BOSTON COLLEGE
Dr. Altbach. Thank you. Chairman Baird, Ranking Member
Hall, and colleagues. My role this morning is to provide a bit
of broader perspective. I am not here to talk about the efforts
of my own university in internationalization, but to provide a
broad perspective on what I think some of the key issues are.
As my colleagues have said, the future of universities, of
the excellent universities around the world, is a global
future. There is no question about that. And if we, as
institutions, and if we, as States and the Nation, don't take
this seriously, we are going to fail in the future. So, that is
key. We need to be globally competitive in higher education.
Universities have always been international, indeed global,
institutions. From the medieval universities, which used, we
should remember, a common language of instruction, Latin, and
which attracted foreign students and faculty, they didn't call
them that in those days, they were truly global institutions.
The United States, in fact, if you look at our higher
education system, we have imported models from all around the
world. Our university system is based, really, on three ideas:
the British Colonial college, the German research university of
the 19th Century, and the truly American idea of university
service to society. Those are the three key elements that have
shaped American higher education, and I should say, shaped the
world's higher education today, because the American university
is the global model. If you look around the world, and we all
see every day, not every day, but frequently, colleagues from
different countries coming to our universities and finding out
how we do it, because we, in our higher education industry, are
the gold standard today. So, that is very important.
A few definitions which I think are important, because we
bandy about globalization, internationalization, and so on, and
we often don't define them carefully. What I mean, and what
many scholars have talked about globalization to mean are the
broad economic and social trends that affect the world
environment, including, of course, information technology, the
growing role and use of the English language, which I think
gives us, in the U.S., a very significant advantage
internationally in higher education, worldwide demand for
access, and so on. These are factors over which we have little
control, and which are part of the broader environment.
What I mean by internationalization, and my colleagues have
talked about aspects of this this morning, are the specific
policies of governments, universities, schools, colleges, and
even people, to adapt, define, and contribute to this global
environment. Academic institutions, as well as states and
nations, have different ideas about adapting to the global
environment, and I would say, as a comparative educator, that
if you look around the world, our major national competitors,
deeply engaged in an academic foreign policy, are ahead of us
in the U.S., in terms of thinking about their approaches,
national approaches to higher education, exports to higher
education policy, in a global environment.
What is meant by multinationalization, and here is where
branch campuses come in, multinationalization encompasses
academic programs and institutions, including the branch
campuses, that are offered by academic institutions in one
country, in another. Some people have called this McDonald-
ization, and part of is franchising, in truly McDonald's
fashion. Now, that is not what the universities represented at
this table do, but there is some of that around the world, and
it is important to watch, because all of the global trends, the
international trends, are not of tremendously high quality
today.
Let me mention a few things, a few kind of, one particular
case study that I know is of interest to this committee, and
that is the interesting issue of branch campuses. There are,
according to the rather incomplete research, at least 82 branch
campuses that operate today around the world, and the number is
probably significantly higher than that. The United States is
the largest single country that contributes to the branch
campus phenomenon, with approximately half. Branch campuses are
largely a North to South phenomenon. That is, universities in
rich countries are opening branch campuses in developing or
middle income countries. Most branch campuses worldwide, with
very few exceptions, operate in English overseas, even from
countries like the Netherlands, which is not an English-
speaking country. Their branch campuses operate largely in
English. With the opening of China and India, both highly
complicated regulatory environments today, the branch campus
phenomenon is likely to become even more important.
What are the motivations, very briefly, to senders? To earn
money? That is part of it. To build a brand image overseas. To
help to recruit students from other countries to come to the
home campus. To provide a destination for study abroad for our
own students. And broadly, as part of an internationalization
strategy.
And finally, a couple of problems. The failure to earn
money is a problem. The University of New South Wales in
Australia just recently closed its branch campus in Singapore,
after less than a year, and the expenditure of a very large
amount of Australian money, and by the way, Singapore money,
too, because enrollments were not what they wanted. The failure
to maintain the standards of the home campus abroad. Again, the
institutions at this table would not be part of that
phenomenon, but it is there. It is important. How do we get our
own faculty to go abroad to teach for periods of time?
Difficulties of dealing with host governments and institutions.
Regulatory environments overseas are quite difficult. Managing
quality control at this end of things, through our accrediting
system, which is used and very effective in contributing to the
quality assessment and control within the United States, is
less able to do that abroad.
Well, these are some of the issues, and I hope I have
provided at least a little bit of perspective to get our
discussion going here this morning.
Thank you.
[The prepared statement of Dr. Altbach follows:]
Prepared Statement of Philip G. Altbach
GLOBALIZATION AND THE UNIVERSITY:
REALITIES IN AN UNEQUAL WORLD
Mr.Chairman, and Members of the Committee. Thank you for the
opportunity to participate in this hearing. The broad theme of the
internationalization of higher education has immense relevance for
American colleges and universities and for U.S. leadership in higher
education worldwide. It is the case that the United States has,
overall, the best higher education system in the world, and that
American ideas about higher education are influential worldwide. For
this reason alone, we have a special responsibility to play a
responsible role in international higher education. It is also the case
that we cannot take our dominant position for granted--other countries
are building higher education capacity and are aggressively moving into
the global academic market.
The analysis here is intended to provide a broad overview of
internationalization trends. I define key terms and then analyze how
these trends affect higher education in the international context.
In the past two decades, globalization has come to be seen as a
central force for both society and higher education. Some have argued
that globalization, broadly defined as largely inevitable global
economic and technological factors affecting every nation, will
liberate higher education and foster needed change. Technological
innovations such as the Internet, the forces of the market, and others
will permit everyone to compete on the basis of equality. Knowledge
interdependence, it is argued, will help everyone. Others claim that
globalization strengthens worldwide inequality and fosters the
McDonaldization of the university. All the contemporary pressures on
higher education, from massification to the growth of the private
sector are characterized as resulting from globalization. There is a
grain of truth in each of these hypotheses--and a good deal of
misinterpretation as well. This essay will seek to ``unpack'' the
realities of globalization and the related concept of
internationalization in higher education and to highlight some of the
impact on the university. Academe around the world is affected
differently by global trends. The countries of the European Union, for
example, are adjusting to new common degree structures and other kinds
of harmonization that are part of the Bologna process and related
initiatives. Countries that use English benefit from the increasingly
widespread use of that language for science and scholarship. Of special
interest here is how globalization is affecting higher education in
developing countries, which will experience the bulk of higher
education expansion in the next two decades (Task Force on Higher
Education and Development, 2000).
From the beginning, universities have been global institutions-in
that they functioned in a common language, Latin, and served an
international clientele of students. Professors, too, came from many
countries, and the knowledge imparted reflected scholarly learning in
the Western world at the time. Since universities have always figured
in the global environment, they have been affected by circumstances
beyond the campus and across national borders. This reality is all too
often overlooked in analyses of 21st century globalization. A long-term
perspective when considering the university reveals the deep historical
roots of the ethos and governance of universities. As Clark Kerr has
noted, of the institutions that had been established in the Western
world by 1520, 85 still exist--the Roman Catholic Church, the British
Parliament, several Swiss cantons, and some 70 universities. The
universities may have experienced the least change of these
institutions (Kerr, 2001, p. 115).
Today's globalization, at least for higher education, does not lack
precedents. From the beginning, universities have incorporated tensions
between national conditions and international pressures. While English
now dominates as the language of research and scholarship, in the 19th
century German held sway, as did Latin in an earlier era. Students have
always traveled abroad to study, and scholars have always worked
outside their home countries. Globalization in the 21st century is
truly worldwide in reach--few places can elude contemporary trends, and
innovations and practices seem to spread ever faster due to modern
technology. But, again, similar trends have occurred in other periods
as well.
It is also the case that all of the universities in the world
today, with the exception of the Al-Azhar in Cairo, stem from the same
historical roots--the medieval European university and, especially, the
faculty-dominated University of Paris. This means that the essential
organizational pattern of the contemporary university worldwide stems
from a common tradition--this is an important element of globalization.
Much of the non-Western world had European university models imposed on
them by colonial masters--academic systems in India, Indonesia, Ghana,
and the rest of the developing world stem from common Western roots.
Even those countries not colonized by Western powers--such as Japan,
Thailand, Ethiopia, and a few others--adopted the Western academic
model (Altbach & Selvaratnam, 1989). This is the case even where, as in
China, well-established indigenous academic traditions already existed
(Hayhoe, 1999).
The American university itself, so influential worldwide,
constitutes an amalgam of international influences. The original
colonial model, imported from England was combined with the concept of
the German research university idea of the 19th century and the
American ideal of service to society to produce the modern American
university. Foreign models were adapted to domestic realities in
creative ways. As the European Union moves toward the harmonization of
national higher education systems in the ``common European space,''
foreign influences again emerge--degree structures, the course-credit
system, and other elements in modified form--to produce evolving
academic patterns. Just as Japan adapted German academic models and
some American traditions as it built its modern university system after
1868, the European Union is looking to ``best practices'' worldwide in
2004.
Given the centrality of the knowledge economy to 21st-century
development, higher education has assumed a higher profile both within
countries and internationally because of its roles in educating people
for the new economy and in creating new knowledge (Altbach, 1998a). As
evidence, the World Trade Organization is now focusing on higher
education. Currently, a debate is under way concerning the General
Agreement on Trade in Services (GATS). Multinational corporations and
some government agencies in the rich countries are seeking to integrate
higher education into the legal structures of world trade through the
WTO. These developments indicate how important universities and
knowledge have become in the contemporary world (Larsen, Martin, &
Morris, 2002; Knight, 2002; Altbach, 2002).
Definitions
It will be useful to define some of the terms in the current debate
about globalization. For some, globalization means everything--an
inchoate catch-all for the external influences on society. For others,
it includes only the negative side of contemporary reality. This essay
examines the international environment of higher education and seeks to
analyze how that environment affects national higher education systems
and individual academic institutions. Thus, the focus is not on the
detailed issues of the management of academic institutions--changing
administrative structures or changes in the specific nature of academic
appointments for example, although these may be influenced by global
trends. Rather, we are concerned with how societies and universities
have dealt with mass enrollments, privatization, and the new
technologies, among others.
In this discussion, globalization is defined as the broad economic,
technological, and scientific trends that directly affect higher
education and are largely inevitable in the contemporary world. These
phenomena include information technology in its various manifestations,
the use of a common language for scientific communication, and the
imperatives of society's mass demand for higher education
(massification) and for highly educated personnel, and the `private
good' trend in thinking about the financing of higher education.
Academe is affected by, for example, patterns in the ownership of
multinational publishing and Internet companies, the investment in
research and development worldwide, and international currents of
cultural diffusion. These, and other, trends are part of
globalization--they help to determine the nature of the 21st century
economy and society. Although globalization is by no means a new
phenomenon--the medieval universities were affected by the global
trends of the period--it has increased salience in interdependent world
of the 21st century. All are affected by these trends, and must take
them into consideration as part of higher education policy and reality.
Internationalization refers to specific policies and programs
undertaken by governments, academic systems and institutions, and even
individual departments to undertake student or faculty exchanges,
engaged in collaborative research overseas, set up joint teaching
programs in other countries or a myriad of other initiatives.
Internationalism is not a new phenomenon and indeed has been part of
the work of many universities and academic systems for centuries. With
much room for initiative, institutions and governments can choose the
ways in which they deal with the new environment. Internationalism
constitutes the ways that contemporary academe deals with
globalization. While the forces of globalization cannot be held at bay,
it is not inevitable that countries or institutions will necessarily be
overwhelmed by them, or that the terms of the encounter must be
dictated by others. Internationalization accommodates a significant
degree of autonomy and initiative (Knight, 1997; Knight, 2005; Scott,
1998; De Wit, 2002).
Another new trend in higher education trend is
multinationalization, which refers to academic programs or institutions
located in one country offering degrees, courses, certificates, or
other qualifications in other countries. The programs are often
sponsored jointly with local institutions, but this is not always the
case (Teather, 2004). A joint-degree sponsored by institutions in two
or more countries, often called ``twinning,'' is an example of a
multinational academic enterprise. Offshore institutions constitute one
variation of the trend--this may be carried out through franchising
(sometimes referred to as ``McDonaldization'') or simply by opening a
branch institution (Hayes & Wynyard, 2002). The American University of
Bulgaria, offering U.S.-style academic programs in English in Bulgaria
and accredited in the United States is an example. Increasingly, the
Internet is used in the delivery of multinational academic programs.
Globalization cannot be completely avoided. History shows that when
universities shut themselves off from economic and social trends they
become moribund and irrelevant. European universities, for example,
ignored both the Renaissance and the Industrial Revolution and ceased
to be relevant. Indeed, the French Revolution swept away the
universities entirely. Napoleon established the grandes ecoles in order
to provide relevant training for the leaders of society and to
contribute to science and technology. Von Humboldt had to reinvent the
German university model in 1809 in order to make them relevant to the
development of science and industry in Prussia (Ben-David and
Zloczower, 1962). Institutions and systems possess great latitude in
how they deal with globalization and other social influences--at times
they have effectively coped with such changes. At other times, the
innate conservatism of academe prevented this. Thus, those who argue
that there is just one model for higher education in the 21st century
are clearly wrong.
Centers and Peripheries
The world of globalized higher education is highly unequal.
Concentrating on developing countries and on smaller academic
systems immediately reveals the specter of inequality. While the
Internet and other manifestations of globalization are heralded as
disseminating knowledge equally throughout the world, the evidence is
mixed on the outcomes. In some ways, globalization does open access,
making it easier for students and scholars to study and work. But in
many respects, existing inequalities are only reinforced while new
barriers are erected. The debate in higher education mirrors analyses
of globalization generally. Economists Joseph Stiglitz and Dani Rodrik,
among others, have argued that in some respects globalization works
against the interests of developing countries, reinforcing
international inequalities (Stiglitz, 2002; Rodrik, 1997; Rodrik,
1999). Neither is opposed to globalization--and both see it as
inevitable--but their critiques reveal critical problems that tend to
be overlooked in the dominant perspectives on the topic.
The powerful universities and academic systems--the centers--have
always dominated the production and distribution of knowledge. Smaller
and weaker institutions and systems with fewer resources and often
lower academic standards--the peripheries--have tended to be dependent
on them. Academic centers provide leadership in science and scholarship
and in research and teaching. They are the leaders with regard to
organizational structure and mission of universities, and in knowledge
dissemination. The centers tend to be located in larger and wealthier
countries, where the most prestigious institutions benefit from the
full array of resources, including funding and infrastructures--such as
libraries and laboratories to support research, academic staff with
appropriate qualifications, strong traditions, and legislation that
supports academic freedom. The academic culture fosters high
achievement levels by individual professors and students, and by the
institutions themselves. These top institutions often use one of the
major international languages for teaching and research, and in general
enjoy adequate support from the state.
The world of centers and peripheries is growing ever more complex
(Altbach, 1998c). The international academic centers--namely the
leading research-oriented universities in the North, especially those
that use one of the key world languages (particularly English)--occupy
the top tier. High quality universities do exist elsewhere--for
example, in Japan and several smaller European countries. A number of
universities in China, Singapore, and South Korea aspire to the status
of top research institutions. Even within countries at the center of
the world academic system in the early 21st century--the United States,
Britain, Germany, France, and to some extent Australia and Canada--
there are many peripheral institutions. For example, perhaps 100 of
America's 3,200 postsecondary institutions can be considered research
universities. These institutions receive more than 80 percent of
government research funds and dominate most aspects of American higher
education. The rest of the American higher education system lies on the
periphery of the research centers--these segments, including the
comprehensive universities, community colleges, and others play
important roles in both the academic system and in society--but they
are not considered to be leaders in the academic system. While hardly a
new development, this stratification has probably become more
pronounced in recent years. Countries that had relative equality among
universities are fostering diversification--the U.K. has created a
ranked system, and Germany is moving in that direction.
Other countries possess similarly stratified academic systems.
There are also universities that play complex roles as regional
centers, providing a conduit of knowledge and links to the top
institutions. For example, the major universities in Egypt provide
academic leadership for the Arabic-speaking world and are links to the
major centers, while contributing relatively little themselves. China's
key universities are significant producers of research, mainly for
internal consumption, while at the same time serving as links to the
wider world of higher education.
In many ways, it is now more difficult to become a major player in
international higher education--to achieve ``center'' status (Altbach,
1998b). The price of entry has risen. Top-tier research universities
require ever greater resources, and in many fields scientific research
involves a large investment in laboratory facilities and equipment.
Enabling institutions to remain fully networked for the Internet and
information technology is also costly, as are library acquisitions--
including access to relevant databases. Universities in countries
without deep financial resources will find it virtually impossible to
join the ranks of the top academic institutions. Indeed, any new
institution, regardless of location, will face similar challenges.
Academic institutions at the periphery and the academic systems of
developing and some small industrialized countries depend on the
centers for research, the communication of knowledge, and advanced
training. The major journals and databases are headquartered at the
major universities--especially in the United States and the United
Kingdom--since international scholarly and research journals are
largely published in English. Most of the world's universities are
mainly teaching institutions--in developing countries virtually all are
in this category--that must look elsewhere to obtain new knowledge and
analysis. Many smaller developing countries, for example, lack the
facilities for research, do not provide degrees beyond the Bachelor's,
and are unable to keep up with current journals and databases due to
the expense. Structural dependency is endemic in much of the world's
academic institutions.
A New Neocolonialism?
The era of the Cold War was characterized by the efforts of the
major powers to dominate the ``hearts and minds'' of the peoples of the
world. The Soviet Union, the United States, and others spent lavishly
on student exchanges, textbook subsidies, book translations,
institution building, and other activities to influence the world's
academic leaders, intellectuals, and policy-makers. The goals were
political and economic, and higher education was a key battlefield. The
rationale was sometimes couched in the ideological jargon of the Cold
War but was often obscured by rhetoric about cooperation (Altbach,
1971).
The programs included many that offered considerable benefit to the
recipients--including scholarships to study abroad, high-quality
textbooks, scientific equipment, and other resources. Participation in
programs took place on an entirely voluntary basis, but in a context of
scarcity assistance becomes difficult to decline. Acceptance meant
increased ties to the donor countries and institutions and long-term
dependence on the countries providing the aid. Installation of
laboratory equipment or computers, for example, meant continuing
reliance on the supplier for spare parts, training, and the like.
We are now in a new era of power and influence. Politics and
ideology have taken a subordinate role to profits and market-driven
policies. Now, multinational corporations, media conglomerates, and
even a few leading universities can be seen as the new neocolonists--
seeking to dominate not for ideological or political reasons but rather
for commercial gain. Governments are not entirely out of the picture--
they seek to assist companies in their countries and have a residual
interest in maintaining influence as well. The role of the governments
of such countries as the United States and Australia in advocating the
interests of for-profit education providers and others in their
countries in the World Trade Organization with regard to the General
Agreement on Trade in Services (GATS) and other matters is but one
example. As in the Cold War era, countries and universities are not
compelled to yield to the terms of those providing aid, fostering
exchanges, or offering Internet products, but the pressures in favor of
participation tend to prevail. Involvement in the larger world of
science and scholarship and obtaining perceived benefits not otherwise
available present considerable inducements. The result is the same--the
loss of intellectual and cultural autonomy by those who are less
powerful.
The Role of English
English is the Latin of the 21st century. In the current period,
the use of English is central for communicating knowledge worldwide,
for instruction even in countries where English is not the language of
higher education, and for cross-border degree arrangements and other
programs. The dominance of English is a factor in globalization that
deserves analysis if only because higher education worldwide must
grapple with the role of English (Crystal, 1997).
English is the most widely studied foreign language in the world.
In many countries, English is the required second language in schools,
and the second language of choice in most places. English is the medium
of most internationally circulated scientific journals. Universities in
many countries stress the importance of their professors' publishing in
internationally circulated scientific journals, almost by definition in
English, placing a further premium on the language. Internet websites
devoted to science and scholarship function predominantly in English.
Indeed, English serves as the language of Internet academic and
scientific transactions. The largest number of international students
go to universities in English-speaking countries.
English is the medium of instruction in many of the most prominent
academic systems--including those of the United States, the United
Kingdom, Australia, Canada, and New Zealand--all of which enroll large
numbers of overseas students. Singapore, Ethiopia, and much of
Anglophone Africa use English as the primary language of instruction as
well. English often functions as a medium of instruction in India,
Pakistan, Bangladesh, and Sri Lanka. Other countries are increasingly
offering academic programs in English--to attract international
students unwilling to learn the local language and to improve the
English-language skills of domestic students and thus enable them to
work in an international arena. English-medium universities exist in
many countries--from Azerbaijan and Bulgaria to Kyrgyzstan and
Malaysia. In many countries--such as Japan, the Netherlands, Germany,
Mexico, and so on--universities offer English-medium degree programs
and courses at local universities. Many European Union nations offer
study in English as a way of attracting students from elsewhere in the
EU. English is clearly a ubiquitous language in higher education
worldwide.
The role of English affects higher education policy and the work of
individual students and scholars. Obviously, the place of English at
the pinnacle of scientific communication gives a significant advantage
to the United States and the United Kingdom and to the other wealthy
English-speaking countries. Not surprisingly, many scientific journals
are edited in the United States, which gives an advantage to American
authors--not only are they writing in their mother tongue but the peer
review system is dominated by people accustomed to both the language
and methodology of U.S. scholars. Others must communicate in a foreign
language and conform to unfamiliar academic norms. As mentioned
earlier, in many places academics are pressured to publish in
internationally circulated journals--the sense being that publication
in the most prestigious scientific journals is a necessary validation
of academic work. Increasingly, international and regional scientific
meetings are exclusively in English, again placing a premium on fluency
in the language.
English-language products of all kinds dominate the international
academic marketplace, especially journals and books. For example,
textbooks written from a U.S. or U.K. perspective are sold worldwide,
influencing students and academics in many countries and providing
profits for publishers who function in English. The English-language
databases in the various disciplines are the most widely used
internationally. Universities must pay for these resources, which are
priced to sell to American or European buyers and are thus
extraordinarily expensive to users in developing or middle-income
countries. Nevertheless, English-language programs, testing materials,
and all the other products find a ready market in these countries.
Countries that use ``small languages'' may be tempted to change the
medium of instruction at their universities entirely to English. A
debate took place in the Netherlands on this topic, and it was decided
to keep Dutch as the main language of instruction largely out of
concern for the long-term survival of the Dutch language and culture--
although degree programs in English are flourishing in the country.
Where collaborative degree programs are offered, such as in Malaysia,
the language of instruction is almost always English and not the
language of the country offering the joint degree.
English is supplanting such languages as French, German, and
Spanish as the international medium of scholarship. These other
languages are in no danger of disappearing in higher education, but
their world role has shrunk. The use of English tends to orient those
using it to the main English-speaking academic systems, and this
further increases the influence of these countries. Regardless of the
consequences, however, English will continue as the predominant
academic language.
The Global Marketplace for Students and Scholars
Not since the medieval period have such a large proportion of the
world's students been studying outside their home countries--more than
1.5 million students at any one time--and some estimate that the number
of overseas students will grow to eight million by 2020. Large numbers
of professors and other academics travel abroad temporarily for
research or teaching, and substantial numbers of academics migrate
abroad as well to pursue their careers. Aspects of globalization such
as the use of English encourage these flows and will ensure that growth
continues. As academic systems become more uniform and academic degrees
more accepted internationally, immigration rules favor people with high
skill levels, and universities look to hiring the best talent
worldwide, the global marketplace will expand.
The flow of academic talent at all levels is directed largely from
South to North--from the developing countries to the large metropolitan
academic systems. Perhaps 80 percent of the world's international
students come from developing countries, and virtually all of them
study in the North. Most of these students pursue Master's, doctoral,
and professional degrees. Many do not return to their countries of
origin. Close to 80 percent of students from China and India, two of
the largest sending countries to the United States, do not return home
immediately after obtaining their degrees, taking jobs or post-doctoral
appointments in the United States. The years since the collapse of the
Soviet system has also seen a flow of scientists from Russia to Western
Europe and North America. Students from industrialized countries who
study abroad typically do not earn a degree but rather spend a year or
two in the country to learn a language or gain knowledge that they
could not acquire at home.
Most international students pay for their own studies, producing
significant income for the host countries--and a drain on the economy
of the developing world. According to estimates, the money spent abroad
by students from some developing countries more than equals incoming
foreign aid. These students not only acquire training in their fields
but also absorb the norms and values of the academic systems in which
they studied. They return home desiring to transform their universities
in ways that often prove to be both unrealistic and ineffective.
Foreign students serve as carriers of an international academic
culture--a culture that reflects the major metropolitan universities,
and may not be relevant for the developing world.
In 2002, universities in the United States hosted almost 85,000
visiting scholars. Although statistics are not available, it is
estimated that visiting scholars number 250,000 worldwide. The
predominant South-North flow notwithstanding, a significant movement of
academics occurs among the industrialized countries and to some extent
within other regions, such as Latin America. As part of the Bologna
initiatives of the European Union, there is more movement within
Europe. Most visiting scholars return home after their sojourns abroad,
although a certain number use their assignments as springboards to
permanent emigration.
The flow of highly educated talent from the developing countries to
the West is large--and problematical for Third World development. For
example, more Ethiopian holders of doctoral degrees work outside of
Ethiopia than at home, and 30 percent of all highly educated Ghanaians
and Sierra Leoneans live and work abroad (Outward Bound, 2002, p. 24).
Many African countries experience this pattern. South Africa is losing
many of its most talented academics to the North, while at the same
time it is recruiting from elsewhere in Africa. This migration has
seriously weakened academic institutions in many developing countries.
Migration does not affect only developing countries. Academics will
go abroad to take jobs that offer more attractive opportunities,
salaries, and working conditions, as illustrated by the ongoing small
but significant exodus from the United Kingdom to North America. To
combat this trend, U.K. authorities have provided funds to entice their
best professors to remain at home. Being at the center of research
activity and having access to the latest scientific equipment sometimes
lures scholars from small but well-endowed academic systems, such as
those in Denmark or Finland to the metropoles. In some fields, such as
engineering specialties and computer science, the percentage of
professors from other countries working at U.S. universities is very
high--reflecting the fact that almost half the doctoral students in
these fields are foreigners. Academic migration takes place throughout
the academic system, especially in the sciences, engineering,
information technology, and some management areas. Such migration
occurs both at the top of the system, with some world-famous scholars
attracted abroad by high salaries, and at the bottom, where modest
salaries are able to draw foreigners to jobs that are unappealing to
local applicants.
Academic migration follows complex routes. Many Egyptian,
Jordanian, and Palestinian academics work at Arabian Gulf universities,
attracted by better salaries and working conditions than are available
at home. Indians and Pakistanis are similarly drawn to the Gulf as well
as to Southeast Asia. Singapore and Hong Kong attract academics
worldwide. Mexico and Brazil employ scholars from elsewhere in Latin
America. South Africa, Namibia, and Botswana currently recruit Africans
from elsewhere on the continent. Some of the best scholars and
scientists from Russia and a number of Central European countries have
taken positions in Western Europe and North America. The existing
traffic among member states will likely grow once the EU implements
policies to harmonize academic systems, a process now underway.
The most significant ``pull'' factors include better salaries and
working conditions and the opportunity to be at the centers of world
science and scholarship (Altbach, 2003, pp. 1-22). The discrepancies in
salaries and conditions between North and South mean that in most
developing countries academics cannot aspire to a middle-class
lifestyle or have access to the necessary tools of research and
scholarship.
One of the many ``push'' factors involves the limited extent of
academic freedom in many developing countries. Academics can be subject
to restrictions and even arrested if they stray from officially
approved topics. Favoritism and corruption in academic appointments,
promotions, and other areas further erode the environment of the
university. In many higher education systems, job security or stability
are unattainable. Conditions at Third World universities stem largely
from the scarcity of resources and the pressure of increased student
numbers on overburdened academic institutions. While the ``pull''
factors at the centers will retain their influence, the ``push''
factors can be moderated. Overall, however, the migration of academic
talent will continue in the current globalized environment.
People have long equated the migration of talent with brain drain.
The life stories of emigrants have changed (Choi, 1995). Many academics
now keep in close contact with their countries of origin, maintaining
scientific and academic relationships with colleagues and institutions
at home. Growing numbers of academics have even gone back after
establishing careers abroad as economic and political conditions at
home have changed. Some academics from South Korea and Taiwan, for
example, left United States to accept senior academic appointments in
their home countries once academic working conditions, salaries and
respect for academic freedom had improved. More commonly, expatriate
academics return home for lecture tours or consulting, collaborate on
research with colleagues in their country of origin, or accept visiting
professorships. Facilitated by the Internet, these links are
increasingly accepted as appropriate and useful. Such trends are
especially strong in countries with well-developed academic systems,
such as China, India, and South Africa, among others.
The migration of academic talent is in many ways promoted by the
industrialized countries, which have much to gain. Immigration policies
are in some cases designed to encourage talented personnel to migrate
and establish residency--although at least in the United States
security concerns in the aftermath of 9/11 have changed the equation to
some extent. In many countries, academic institutions make it easy for
foreigners to fit into the career structure. Countries that place
barriers to foreign participation in academe, such as Japan and now
perhaps the U.S. may find it more difficult to compete in the global
knowledge sweepstakes. Industrialized countries benefit from a large
pool of well-educated scientists and scholars--people educated by
developing countries--who choose to take their talents and skills to
the highest bidders. In this way, the developing world has supported
the North's already overwhelming lead in science and scholarship. The
renewal of links between academics who migrate and their countries of
origin mitigate this situation somewhat, although developing countries,
and some smaller industrialized nations, still find themselves at a
disadvantage in the global academic labor market.
The Curriculum
The field of business administration exemplifies the global
dominance of ideas by the major English-speaking academic systems. In
most countries, business administration is a new field, established
over the past several decades to prepare professionals for work in
multinational corporations or in firms engaged in international
commerce as well as in local business. The dominant pattern of
professional studies is the M.B.A. degree--the American-style Master's
of business administration. This degree originated as the way to
prepare American students for work in U.S. business, based on American
curriculum ideas and American business practices. A key part of many
M.B.A. programs is the case study, again developed in the U.S. context.
The M.B.A. model has been widely copied in other countries, in most
cases by local institutions, but also by American academic institutions
working with local partners or setting up their own campuses overseas.
While the programs sometimes are modified in keeping with the local
context, the basic degree structure and curriculum remain American.
Another example of the export of the curriculum is the proposed
incorporation of some general education in the first-degree. Part of
the U.S. undergraduate curriculum for two centuries, general education
provides a broad background in the disciplines along with critical
thinking skills. Higher Education in Developing Countries: Peril and
Promise, an influential report sponsored by the World Bank and UNESCO,
advocates general education as an alternative to the existing largely
specialized undergraduate curriculum common in higher education
worldwide (Task Force on Higher Education, 2000). The future of general
education as a curriculum reform is not clear.
There is an increasing use of common textbooks, course materials,
and syllabi worldwide, stimulated by the influence of multinational
publishers, the Internet, and databases, as well as the growing number
of professors who return home after their study abroad with ideas
concerning curriculum and instructional materials. These materials
originate mainly in the large academic systems of the North--especially
the United States, the United Kingdom, and France.
Disciplines and fields vary in terms of how globally homogenous
they have become. Such fields as business administration, information
technology, and biotechnology are almost entirely dominated by the
major academic centers. Other fields--such as history, language
studies, and many areas in the humanities--are largely nationally
based, although foreign influences are felt in methodology and
approaches to research and interpretation. The internationalization of
the curriculum, like other aspects of globalization, proceeds largely
from North to South.
The Multinationalization of Higher Education
The emergence of a global education marketplace exhibits itself in
the form of a variety of multinational higher education initiatives--
ranging from ``twinning'' programs linking academic institutions or
programs in one country with counterparts in another to universities in
one country setting up branch campuses in another. Cross-border higher
education ventures include many that use the Internet and other
distance education means to deliver their programs. Many for-profit
companies and institutions have invested in multinational educational
initiatives, as have a range of traditional higher education
institutions (Observatory on Borderless Higher Education, 2004).
History shows that the export of educational institutions and the
linking of institutions from different countries generally represented
a union of unequals. Earlier ``export models'' involved colonialism--
the colonial power simply imposed its institutional model and
curriculum, often diluted and designed to for intellectual
subservience, on the colonized (Ashby, 1966). In almost all cases, the
institution from the outside dominated the local institution, or the
new institution was based on foreign ideas and nonindigenous values.
Examples include the British in Africa and Asia, the Dutch in what is
now Indonesia, and French initiatives in Africa and Asia. The Spanish
monarchy asked the Roman Catholic Church to set up universities in
Latin America and the Philippines; religious orders such as the Jesuits
undertook what might now be referred to as multinational higher
education. In the 19th century, American Protestant missionaries
established universities based on the U.S. model in Lebanon, Egypt,
Korea and Turkey, among other places--for example, the American
University of Beirut. During the Cold War, both the United States and
the Soviet Union exported their academic institutions and ideas, mainly
to the developing world, generally tied to foreign aid, and in some
cases set up universities reflecting their views--such as the
University of Nigeria-Nsukka (Hanson, 1968).
The same inequality is characteristic of the 21st century, although
neither colonialism nor Cold War politics impels policy. Now, market
forces, demands for access, and monetary gain motivate multinational
higher education initiatives. When institutions or programs are
exported from one country to another, academic models, curricula, and
programs from the more powerful academic system prevail. Thus, programs
between Australian and Malaysian institutions aimed at setting up new
academic institutions in Malaysia are always designed by Australian
institutions. Rarely, if ever, do academic innovations emanate from the
periphery out to the center.
The export of academic institutions from one country to another is
a growing but not entirely new phenomenon. Of course, both traditional
colonialism and the government-sponsored foreign assistance programs of
the Cold War era exported institutional models, practices, and
curriculum from the metropole to developing countries. In the past
decade, the number of institutional exports based on non-governmental
programs have risen, usually on the initiative of the exporting
country. In the 1980s, for example, American colleges and universities
directed their attention to Japan as a higher education market. Several
hundred U.S. institutions explored the Japanese market, and more than a
dozen established campuses--usually in cooperation with a Japanese
institution or company (Chambers & Cummings, 1990). A small number of
Japanese institutions looked into the feasibility of a U.S. connection,
with a few even setting up branch campuses. However, most Japanese
programs involved bringing Japanese students to the United States for
study, while U.S. programs focused on educating Japanese students in
Japan. Generally, the institutions engaging in export activities were
not the most prestigious schools. By 2000, very few of the branches
were still operating. In Japan, the difficulty of obtaining Ministry of
Education certification for U.S. programs proved overwhelming, and the
initiatives on both sides were affected by the protracted economic
slowdown in Japan. The U.S.-Japan initiatives were unusual in that both
sides were industrialized countries.
Some of the export initiatives taking place today are indicative of
global trends. A small number of prestigious American universities are
establishing campuses worldwide, usually in popular professional fields
such as business administration. The University of Chicago's business
school now has a campus in Spain that offers Chicago degrees to Spanish
students and students from other European countries, using the standard
Chicago curriculum--taught in English mostly by Chicago faculty
members--with an international focus. It includes a period of study at
the home campus as well. Some other U.S. universities have developed
similar programs.
An unusual but interesting model of multinationalization is being
undertaken by Singapore, which is inviting a number of prestigious
foreign universities, such as the University of Pennsylvania's Wharton
School, to start programs in Singapore. The government carefully
selects the institutions and provides incentives to encourage them to
come to Singapore. Another trend has been the establishment of U.S.-
style universities in such countries as Kyrgyzstan, Qatar, and
Bulgaria, among other places. These schools typically originate through
local initiative, and many have strong links to American universities.
Some are supervised by the U.S. partners and accredited in the United
States. The language of instruction is English and the curriculum U.S.
based. The quality of these American clones varies considerably, with
some simply capitalizing on the cachet of an American-style education.
In keeping with the standard export model, a university in an
industrialized country will set up a program abroad, often but not
always in a developing country, at the invitation of a host
institution. The host may be an educational institution or a
corporation without any link to education, or some combination of the
two. Many examples of these arrangements have been set up in Malaysia
to satisfy unmet demand by local students. Universities from Australia
and the United Kingdom are most active in Malaysia, but the new
programs have generated complaints of low quality, poor supervision, or
inadequate communication between the providers and the hosts. In
Israel, a number of small American colleges and universities (some of
lesser quality) began to offer academic degrees when the market was
opened up in the 1990s by the Israeli government. After considerable
criticism, restrictions were later placed on the programs--many of
which have ceased to exist.
In another export model, foreign academic degree programs are
``franchised'' by local institutions. The foreign university lends its
name provides the curriculum, some (often quite limited) supervision,
and quality control to a local academic institution or perhaps business
firm. The new institution is granted the right to award a degree or
certificate of the foreign institution to local students.
Unfortunately, these franchising arrangements have led to many abuses
and much criticism. Many articles have appeared in the British press
charging that some U.K. institutions, mostly the less prestigious ones,
involved in overseas programs are damaging the ``good name'' of British
higher education. Meanwhile, ``buyers'' (fee-paying students) overseas
think that they are getting a standard British degree, when in reality
they are receiving the degree but not the level of education provided
in the United Kingdom.
There are a large number of ``twinning'' programs worldwide. This
arrangement links an academic institution in one country with a partner
school in another. Typically, the university in the North provides the
basic curriculum and orientation for an institution in the South. In
such arrangements, academic degrees are often jointly awarded. Twinning
has the advantage of aiding institutions in the South in developing new
curricular offerings, with the stamp of approval of an established
foreign university. Again, the higher education 'products' come from
the North, often with little adaptation to local needs.
As can be seen in this brief discussion, there are many facets to
the 21st century multinationalization of higher education. However,
some common perspectives and motivations can be identified. With few
exceptions, a central goal for all of the stakeholders, especially
those in the North, is to earn a profit. Institutions in the South that
are attracted to multinational initiatives may also be interested in
making money, but they also want to meet the growing demand for higher
education and for new degree programs that may not be available in
local schools. As with other aspects of globalization in higher
education, multinational arrangements between institutions are marked
by inequality.
Information Technology
The information age carries the potential of introducing
significant change in higher education, although it is unlikely that
the basic functions of traditional academic institutions will be
transformed. The elements of the revolution in information technology
(IT) that are to transforming higher education include the
communication, storage, and retrieval of knowledge (Castells, 2000).
Libraries, once the repositories of books and journals, are now equally
involved in providing access to databases, websites, and a range of IT-
based products (Hawkins & Battin, 1998). Scholars increasingly use the
Internet to undertake research and analysis and to disseminate their
own work. Academic institutions are beginning to use IT to deliver
degree programs and other curricula to students outside the campus.
Distance education is rapidly growing both within countries and
internationally. IT is beginning to shape teaching and learning and is
affecting the management of academic institutions.
IT and globalization go hand in hand. Indeed, the Internet serves
as the primary vehicle for the globalization of knowledge and
communications. As with the other aspects of globalization, significant
inequalities exist. Inevitably, the information and knowledge base
available through the Internet reflects the realities of the knowledge
system worldwide. The databases and retrieval mechanisms probably make
it easier to access well-archived and electronically sophisticated
scientific systems of the advanced industrialized countries than the
less networked academic communities of the developing countries.
For scholars and scientists at universities and other institutions
that lack good libraries, the Internet simplifies the obtaining of
information. This change has had a democratizing effect on scientific
communication and access to information. At the same time, however,
many people in developing countries have only limited access to the
Internet (Teferra, 2003). Africa, for example, has only recently
achieved full connectivity to the Internet.
The Internet and the databases on it are dominated by the major
universities in the North. The dominance of English on the Internet
also affect access and usage of information. Multinational publishers
and other corporations have become key players, owning many of the
databases, journals, and other sources of information. Academic
institutions and countries unable to pay for access to these
information sources find it difficult to participate fully in the
networks. Tightening copyright and other ownership restrictions through
international treaties and regulations will further consolidate
ownership and limit access (Correa, 2000).
Distance education, while not a new phenomenon, comprises another
element of higher education profoundly affected by IT. The University
of South Africa, for example, has been offering academic degrees
through correspondence for many decades. The Open University in the
United Kingdom has effectively used a combination of distance methods
to deliver its highly regarded programs. IT has greatly expanded the
reach and methodological sophistication of distance education,
contributing to the growth of distance education institutions. Of the
10 largest distance education institutions in the world, seven are
located in developing countries, and all use IT for at least part of
their programs. Universities and other providers in the industrialized
nations are beginning to employ IT to offer academic programs around
the world, a significant portion of which are aimed at developing
countries. Entire degree programs in fields such as business
administration are offered through distance education on the Internet,
and many providers view the international market as critical for the
success of their programs. These providers include corporations, such
as some of the major multinational publishers, for-profit educational
providers like Sylvan Learning Systems, and others. Some universities
now offer degree and certificate programs through the Internet to
international audiences. Firms such as Microsoft, Motorola, and others
are offering competency certificates and other training programs in
fields relating to their areas of expertise.
As with the other aspects of globalization discussed in this
analysis-the leading providers of IT consist of multinational
corporations, academic institutions, and other organizations in the
industrialized nations. The Internet combines a public service--e-mail
and the range of websites to which access is free--with a commercial
enterprise. Many databases, electronic journals, e-books, and related
knowledge products are owned by profit-making companies that market
them, often at prices that preclude access by those in developing
countries.
Nevertheless, developing countries have been able to take advantage
of IT. For example, most of the largest universities using distance
education are located in developing countries. The African Virtual
University is an effort by a number of African nations to harness the
Internet and other distance techniques to meet their needs. AVU's
success so far has been limited, and many of the courses and programs
are based on curriculum from the North. E-mail is widely used to
improve communication among scientists and scholars and to create
networks in the developing world. While the information revolution will
neither transform higher education, nor is it a panacea for the higher
education needs of developing countries, it is one of the central
elements of globalization in higher education.
International Agreements and Frameworks
In the new era of globalization in higher education, new
international agreements and arrangements have been drawn up to manage
global interactions. The arrangements between countries range from
bilateral agreements on student and faculty exchanges to the mutual
recognition of degrees--for example, the many binational commissions
governing the American Fulbright scholarship and change programs. Of
the current international agreements in higher education, perhaps the
most comprehensive are the European Union's: the comprehensive Bologna
framework, designed to introduce changes to harmonize the higher
education systems of all EU member states, and specific exchange and
scholarship programs such as ERASMUS and SOCRATES. In contrast, NAFTA,
the North American Free Trade Agreement, ASEAN (the Association of
Southeast Asian Nations), and others have few implications for higher
education.
An indication of the potential impact of globalization is the
debate over the inclusion of higher education in particular and
knowledge industries within the framework of the WTO through the GATS
proposal. While GATS has not yet been fully formulated and is not part
of the WTO framework, it is relevant not only because of its influence
but also for what it reveals about the reality of globalization. GATS
seeks to establish ``open markets'' for knowledge products of all
kinds--including higher education. The idea behind GATS and, for that
matter, the concept of globalization is that knowledge is a commodity
like any other and should be freely traded around the world. The
proponents argue that free trade will benefit everyone by permitting
competition in the marketplace of ideas and knowledge products.
GATS and related arrangements also seek to provide a legally
binding framework for the circulation of educational services and for
the protection of intellectual property (Knight, 2004, pp. 3-38). Thus,
GATS and the WTO are very much related to TRIPS (Trade Related
Intellectual Property) arrangements and copyright regulations. The
motivating force behind all of these regulatory frameworks is to
rationalize the global trade in knowledge and to ensure open markets
and protections for the owners of knowledge products. The WTO and its
related agreements, as well as international copyright, have the force
of law--they are international treaties supported by a legal
enforcement regime. These arrangements were created to protect the
sellers and the providers, not the buyers and users, and as a result
they have negative implications for developing countries (Raikhy,
2002). For example, copyright laws have been further strengthened to
protect the owners of knowledge, while failing to open access through
``fair use'' provisions or meaningful special arrangements for
developing countries.
Those favoring GATS and the regulatory framework in general are the
sellers and owners--multinational knowledge companies, governments
focusing on exports, and others (OECD, 2002). Testing companies such as
the U.S.-based Educational Testing Service, multinational publishers,
information technology and computer firms, for-profit educational
providers such as Sylvan Learning Systems, and others are examples of
businesses involved in global education that see GATS as benefiting
their interests. In many countries, government agencies most focused on
GATS include not the ministries of education but rather departments
concerned with trade and export promotion. In the United States, it is
the Department of Commerce that has taken the lead and not the
Department of Education. In the United Kingdom, the Department of Trade
and Industry has been in the forefront. Education groups in the United
States, Canada, and a number of other countries have been skeptical or
opposed to the GATS proposal. The American Council on Education, which
represents most university presidents in the United States, for
example, has spoken out against GATS. Developing countries have
generally not yet taken a position on the concept of free trade in
education and knowledge products.
While the complicated details of a GATS treaty have not been worked
out, the basic issues are straightforward. Should education in all of
its manifestations be considered as a commodity to be traded in the
marketplace, regulated in the same fashion as are automobiles or
bananas? As Lawrence Summers, the former U.S. Treasury Secretary and
current President of Harvard University put it in a recent interview,
``I'm skeptical as to whether bringing educational issues under the
auspices of trade negotiations would be helpful. . .. To start with,
many educational institutions are nonprofit, their motivations are
different from the motivations of commercial firms that we think of in
a trade context. There may be some egregious practices that should be
addressed, but I would be skeptical about treating education in a way
that had any parallels with financial services, with insurance, or with
foreign investments'' (The World According to Larry, 2002, p. 38).
While GATS would bring developing countries into a global framework
of commerce and exchange in higher education, it would remove aspects
of autonomy from educational decision-making. Extending the principle
of free trade to education would open national markets in signatory
countries to testing companies, providers of distance education, and
many other organizations. Regulation or control of these entities would
prove difficult if not impossible to achieve. Institutions or companies
could, in principle, count on having access to foreign education
markets. Since developing countries typically import rather than export
their educational products or institutions, it is unlikely that GATS
would promote their exports. Developing countries represent the markets
that sellers from the industrialized world are eager to target. Most
developing countries, having few educational ``products'' to export,
would be at the mercy of the multinational providers.
Current arrangements--in which all countries retain authority over
educational imports and exports, subject to some regulatory arrangement
such as international copyright, patent treaties, local accreditation
and licensing arrangements, and the like--nonetheless permit a great
deal of international higher education exchange, as this essay
illustrates. It can be argued that international education markets are
already appropriately open, and additional legal requirements to open
them further are not needed. Cross-border educational transactions of
all kinds are being actively pursued worldwide. At present, the
developing countries are the main importers of products and services
from abroad--and they would be most directly affected by GATS.
Conclusion
Globalization in higher education and science is inevitable.
Historically, academe has always been international in scope and has
always been characterized by inequalities. Modern technology, the
Internet, the increasing ease of communication, and the flow of
students and highly educated personnel across borders enhances
globalization. No academic system can exist by itself in the world of
the 21st century.
The challenge is recognize the complexities and nuances of the
global higher education context--an academic world fraught with
inequalities in which market and commercial forces increasingly
dominate. The traditional domination of the North over the South
remains largely intact. The task of ameliorating inequalities in the
context of mass higher education is not an easy one. Yet, it is
important to ensure that globalization does not turn into the
neocolonialism of the 21st century.
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Appendix 1
Twinning and Branch Campuses: The Professorial Obstacle
Philip G. Altbach
Branch campuses, twinning arrangements, and other manifestations of
cross-border higher education are booming. Universities in Europe,
Australasia, and North America see a huge market by offering their
degrees in other countries. At the same time, Singapore and several of
the states in the Arabian Gulf have identified themselves as
educational centers and are attracting international higher education
providers. In the Gulf, there is even competition for attracting
overseas universities. China has opened its doors to foreign
institutions, and India is moving in this direction.
While there are no accurate numbers, more than 500 branch campuses
exist worldwide--plus thousands of ``twinned'' programs. In addition,
the phenomenon of the ``American University of . . .'' manifests
another trend in cross-border higher education. There are a dozen or
more such universities, some of which have a direct link with a U.S.
university while many simply use the name ``American'' and offer a
U.S.-style curriculum in English in a non-U.S. setting. If the General
Agreement on Trade in Services (GATS) becomes part of the structure of
international academic arrangements, the numbers of all kinds of cross-
border institutions will increase even faster.
One significant problem exists with these arrangements. Who is
teaching the students at these branch campuses? What does a degree from
a university signify if the teaching staff are not from the university
offering the degree? To use the McDonald's analogy--is the meal
(degree) a true McDonald's hamburger if only the recipe (the
curriculum) comes from McDonalds. The rest of the process--the
ingredients (facilities) and the cooks (professors)--are local, rather
than from the sponsoring institution. Should a university in the United
Kingdom (or another country) claim to offer a degree overseas if only
the curriculum is from the sponsoring school, perhaps along with an
element of quality control?
With little data indicating the proportion of faculty members from
the home universities teaching at branch or twinning campuses,
anecdotal evidence shows that the numbers are small and most of the
teaching is carried out by professors who are not faculty from the
sponsoring institution. Even when they do come from the home
university, faculty teaching at branch or twinned campuses are
generally not the ``star'' research-active professors.
It is not known if some of the recent high-prestige universities
that have entered the branch campus business--the University of
Chicago, the Cornell University Medical School, the University of
Nottingham, and others--have a different profile than the many more
average institutions thus far engaged.
The Background of Teachers
Many faculty members are hired locally--some ``moonlighting'' from
a local university. Other ``local hires'' are full-time staff, obtained
from the local academic market or attracted away from local or regional
institutions. Some faculty are natives of the country of the sponsoring
university but not faculty members at that institution. For example, an
American university in Singapore might hire an American working in
Japan or Taiwan. Ph.D. holders who are teaching part time or on short-
term assignments in the home country may also be attracted to work
overseas. The sponsoring university generally tries to ensure that
these faculty have a doctoral degree from a respectable institution--
insofar as possible from the country where the sponsoring university is
located.
Attracting Top-Quality Faculty
At branch campuses this task may not be easy, particularly on an
assignment of a year or more. Except for a few specialists in the
culture where the branch is located or professors committed to learning
about foreign cultures, an overseas assignment as a full-time member of
the academic staff at a university in Europe, North America, or
Australia may not lure prominent faculty. In addition to the challenges
of uprooting families, finding schools for children, and the like, an
overseas assignment disrupts the rhythm of academic life. For younger
professors seeking to obtain tenure and promotion, an overseas
assignment is particularly dangerous. It will inevitably disrupt a
research agenda and in the sciences may make research impossible given
the lack of equivalent laboratory equipment and staff. Since branch
campuses are always oriented toward teaching rather than research,
teaching loads are often higher than at the home university. Libraries
and other facilities are never the same either.
Many branch campuses offer faculty members from the home university
additional perquisites--such as housing, transportation for families,
payment of school fees, and others. In some cases, salary supplements
are provided, and there is usually a tax advantage. But even these
benefits may not produce a sufficient attraction.
As a result of these factors, the professors teaching at branch
campuses are seldom full-time research-active faculty from the home
university. If from the home institution, they are often senior staff
close to retirement or those with fewer commitments at home. Most are
not from the home university. Relevant academic departments at home
often must approve the academic qualifications of these professors and
offer them some kind of temporary appointment to legitimize their
appointments.
Conclusion
Does an academic degree mean that a student has studied at the
university offering the degree? Does it mean that he or she has been
taught by the faculty of that institution? Does it mean that the
curriculum and language of instruction of the home university have been
used? Is it enough that the home institution has approved the
qualifications of the teaching staff and that the general conditions of
teaching are considered to be satisfactory? Should teaching be provided
by faculty members who are actually on the home institution's staff, or
is it acceptable that an itinerant but qualified collection of teachers
do the work? Is it acceptable that the prestigious universities whose
fame in their home countries is based on excellence in research as well
as teaching provide an academic environment in the branch campus almost
exclusively devoid of research? Cross-border academic cooperation and
transnational higher education are characteristics of the 21st century,
but it is necessary to carefully examine the realities in order to
assess quality and effectiveness.
Philip G. Altbach is Monan Professor of Higher Education and
Director of the Center for International Higher Education at Boston
College.
Appendix 2
July 2007
International Branch Campus Issues
Laura E. Rumbley and Philip G. Altbach
This memorandum is intended to provide an introduction to some of
the key issues relating to the phenomenon of branch campuses worldwide.
We mainly summarize some of the key points made in L. Verbik and C.
Merkley, (2006). The International Branch Campus: Models and Trends,
published by the Observatory on Borderless Higher Education, London.
Additional insights are added as well. This memo and the OBHE report
provide an overview of branch campuses, with data from a variety of
countries. A new report specifically on U.S. branch campuses abroad,
Madeleine Green, et al., (2007). Venturing Abroad: Delivering U.S.
Degrees Through Overseas Branch Campuses and Programs, published by the
American Council on Education, provides some detail on the U.S.
experience. The authors note that there is no comprehensive analysis of
this theme anywhere and no reliable statistics concerning the extent of
the phenomenon. The demise, just a month ago, of the Australian
University of New South Wales' campus in Singapore after considerable
investment and effort by UNSW, and problems with other Australian
initiatives, is an indication of the volatility of this sector.
Overview
Significant growth over past decade
U.S. leads internationally with in terms of overseas
branch campus activity but ``more and more countries are
engaging in branch campus development'' (p. 2)
Diverse geographic spread of initiatives, but
``financial incentives'' do seem to spur activity in particular
countries/regions
three main approaches to establishing/funding branch
campus are identified:
1. self-funding
2. external funding-more common among newer
initiatives
3. provision of facilities-more common among newer
initiatives
U.S. has had branch campuses overseas since at least the 1950s
Originally designed for institutions' own study
abroad students or locally based U.S. military personnel
Since 1990s--much bigger operations (in terms of both
academic activities and physical plant) catering to local and/
or international students
Why?
Concerns over quality and ed provision abroad in
situations where the home institution didn't have total control
Incentives--external support and/or regulatory
environments favoring branch campus developments
Interest in diversifying and becoming less dependent
on international student recruitment to the home campus
Other issues driving/informing OBHE study
No official, comprehensive list of international
branch campuses appears to exist anywhere.
Lack of global consensus on a definition of branch
campuses.
``little to suggest that branch campus development
has peaked'' (p. 24), although it may have reached a
``saturation point'' in some places, such as Singapore and Hong
Kong.
Growth driven by opportunities for external funding,
increased competition in int'l ed and greater regulation of
transnational ed around the world.
However, nothing indicates that ``fully-fledged
branch campuses will become the dominant type of transnational
education in the near future'' (p. 24), given their resource
intensiveness and the ``significant financial and reputation
risks'' (p. 24) that accompany them.
Definitions
Some subjectivity involved in determining what exactly a branch
campus is. The OBHE puts forth the following as a definition of a
branch campus:
``. . .an offshore operation of a higher ed institution which
fulfils the following criteria:
The unit should be operated by the institution or
through a joint-venture in which the institution is a partner
(some countries require foreign providers to partner with a
local organization) in the name of the foreign institution.
Upon successful completion of the study programme,
students are awarded a degree from the foreign institution.''
OBHE's report excludes
joint degree programs
institutions where one or more foreign or domestic
institution's programs are offered
programs offered through a partner institution
branch campuses that have evolved into fairly
independent institutions in their own right
``foreign-backed'' universities (p. 4)
``international universities'' modeled on a foreign
country's higher ed system but without formal ties to a
specific institution (American University of Beirut, of Cairo,
etc.)
Opportunities
Rationales
To diversify modes of delivery to international
students and be less dependent on recruitment to the home
campus
To collaborate more easily with foreign academic
institutions and industries
To generate revenue
For strategic internationalization
To reach new markets and students
To contribute to HE capacity building in countries
with less developed HE sectors
To enhance overall international profile and
reputation
To reclaim/reframe historical linkages to
contemporary advantage
Benefits
Control over ed provision and quality
Simplicity--no need to enter into potentially
complicated partnerships
Establishment of ``a full and distinctive corporate
presence in another country''
Brand name enhancement
Competitive advantage over competitors' offerings
Risks
Info about risks appears to be more widely available, and more
regularly accessed, now than in previous years.
Branch campus development must be understood as an entrepreneurial
activity that (a) implies a certain amount of risk that must be
understood and accepted going in, and (b) may not yield positive
results (espec. financially) for some time, although ``brand
recognition'' and reputation enhancement may come more quickly.
Risk areas include:
Financial loss--these risks tend to be greatest
Operational challenges
Market fluctuations
Damage to institutional reputation--these are also
fairly considerable risks
Regulations:
Complex and fast-changing landscape for national
regulation of transnational provision
Relatively few countries have specific regs in place
for foreign providers, but this number is growing--South
Africa's effort to tighten its regulatory framework has had a
major impact on foreign providers there by demanding a much
higher level of commitment to quality, planning, oversight, and
transparency of operations (OBHE Breaking News Article--6th
August 2002)
Also growing are the numbers of countries seeking to
regulate the export activities of their HE institutions (major
examples being the UK and Australia)--trying to ensure that
provision abroad is comparable in quality to provision at home
Major Players
Branch campus providers:
OBHE's report identifies 82 international branch
campuses.
North to South trend dominates
U.S. clearly dominates (50 percent), followed by
Australia (12 percent--has been more active than the UK for a
full decade), the UK (five percent--more recently pursuing
branch campuses than Australia), and Ireland (five percent)
South to South activity is rare (India and Pakistan
the rare exporters to places like Dubai's Knowledge Village)
Why U.S. dominance?
History--have been setting up overseas operations for
several decades
Invitations--have been actively courted by proactive
hosts (Singapore, Qatar, etc.)
Post-9/11 environment-perception is it may be easier
to take the ed overseas than get the students into the U.S.
Branch campus hosts:
UAE (20 percent)--almost all in its Knowledge Village
Qatar (nine percent)
Singapore (seven percent)
Canada (six percent)
Malaysia (six percent)--[good overview on situation
in Malaysia in OBHE Breaking News Article--11th November 2004]
China (five percent)
Support, funding, and infrastructure make all the
difference in terms of attracting branch campuses
Providers and hosts:
UK
Australia--[A lot going on here. On the one hand,
Australia has had some highly public setbacks in terms of
overseas failures in the last year and is seen to be reigning
in this activity to some degree, shutting down some operations
abroad (see OBHE Breaking News Articles--1st June and 10th July
2007) and applying tighter quality assurance controls (see
Aussie govt's Transnational Quality Strategy). Meanwhile, the
development of South Australia's `University City' initiative
raises Australia's profile as a branch campus host in its own
right.]
Canada
Netherlands