CNBC published a transcript of Jim Cramer’s interview with Greg Hayes, the CEO of United Technologies, the parent of Carrier. It is enlightening on many levels.
First, it is an introduction to what life will be like under a thoroughly incompetent President. Hayes is an actual business leader, not a low-rent grifter or TV star. As he describes his interactions with the President and his plans for the company you get a sense of just how easy it will be for any half-competent businessman or diplomat to outclass the leader of the free world.
Hayes is no genius. He’s not a standout super-CEO. He’s just a solid performer who worked his way up through the ranks of business management to a leadership position. In other words, he is far more qualified than our President to do anything outside the entertainment or marketing industries. And as you read carefully through the interview you discover that it will be pretty easy for an average American CEO to take our next President to the cleaners.
Because he’s not an idiot, Hayes set the frame for this interview session by conducting it front of a giant aircraft engine the company builds in the US. This doesn’t happen in low-income, low-value facilities like the Carrier plant in Indiana. This work is done by skilled professionals in a highly automated facility in high-income, high-tax, high-regulation Connecticut. This work is not heading to Mexico. The bulk of the money UT invests in that product goes into engineering, not assembly. Those engineering jobs are based in the US, but not in places like Indiana.
Think about this engine. We’ve spent about $10 billion developing the technology around these engines. It starts with the gear. And we have a star gear system which allowed us to do something we’ve never been able to do before, which is to spin the fan in the front at a third of the speed of the turbo machinery in back.
Billions of dollars invested with billions more to come. The vast majority of it in the US. Much of that investment (and salaries for professionals) fueled by savings in the manufacturing process, leading to competitive advantages made possible through trade agreements.
Hayes is happy to take some free money from the State of Indiana to delay the disappearance of low-skilled jobs in Indiana. But what’s the future for United Technologies and those low-skilled jobs?
You’ve got a workforce here [in Connecticut] highly skilled– highly, highly skilled; highly trained. I think the average employee here on the shop floor has got about 26 years of experience. Right? Very difficult to do. But these are the kind of jobs that we can do in America because they require high skill and high value add. The assembly lines in Indiana– I mean, great people. Great, great people. But the skillset to do those jobs very different than what it takes to assemble a jet engine.
Yea, “great people” in Indiana. Real salt of the earth. And no amount of government subsidy is going to keep them earning $20+/hr for work that can be done for $5/hr for the next few years in Mexico. Meanwhile, the company invests a few million dollars to automate those jobs out of existence altogether. That’s right, we’re only a few years away from seeing those workers in Mexico replaced as well.
We’re gonna make up $16 million investment in that factory in Indianapolis to automate to drive the cost down so that we can continue to be competitive. Now is it as cheap as moving to Mexico with lower cost labor? No. But we will make that plant competitive just because we’ll make the capital investments there. But what that ultimately means is there will be fewer jobs.
And that’s how it works. Move the jobs offshore for a while in order to facilitate the retooling of plants in the US. It is actually very difficult, if not impossible, to automate manufacturing processes while there are still human workers operating on the line. It’s cheaper to just shut down, operate offshore for a while, then bring the manufacturing processes back under an automated scheme. The investment comes back. The jobs don’t. What does Trumpian intervention accomplish in this cycle? Wasting taxpayer money to buy a few votes, while those voters get poorer.
Instead, we could let this process play out and witness how it makes Americans wealthier. How it creates fantastic new jobs that did not exist before. Again, from Hayes:
Look, we invented this engine here in Connecticut, right, just up the road in East Hartford where we have 6,000 engineers. There’s another 1,100 engineers– you can’t see them in the plant. And there’s 1,400 mechanics that work on these lines every day.
Take a close look at those numbers. The Carrier plant is currently using more than 2000 manufacturing workers to build air conditioners. Soon it will be down to just 700 (not the 1000 that were promised). Give it another year or two, once the President is distracted, and it will probably drop to 0.
This new manufacturing facility in Connecticut has almost 10,000 employees, but only 1400 of them are on the factory floor. Just as a quick reference, median household income in Connecticut is over $65K, compared to 48K in Indiana. The deal Mike Pence and his idiot President-elect just engineered helps explain that gap.
What should be done to help workers adapt to this new world? United Technologies, like thousands of other companies, is already doing it.
45,000 people have been through our employee scholar program. 38,000 degrees. We’ve spent $1.2 billion over the last 20 years educating our workers. We’ve got 7,000 people currently enrolled in this program. And the whole idea improve your own marketability. Improve your own skills. Because the skills that you have today are not the skills that are gonna get you through tomorrow.
Corporations are not waiting for government to catch up. They are doing what they can to upskill current workers. They are taking on the costs of education to make a higher skill workforce available for future growth. If the Carrier affair is any indication, we aren’t going to get answers or progress from the upcoming Administration. Education investments from corporations are not going to filter down to workers like the employees at the Carrier plant. Saving their economic future will depend on smart, insightful political leadership embracing some bold changes – like a universal basic income. For the next few years expect these workers to be used as the backdrop for lots of photo ops while their jobs slowly and quietly fly away.