[Congressional Record Volume 142, Number 54 (Wednesday, April 24, 1996)]
[Senate]
[Pages S4085-S4086]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               PREPARING STUDENTS FOR THE COMING CENTURY

 Mr. SIMON. Mr. President, every study that is made suggests 
that the United States has to do a better job in the field of 
education.
  No one disputes it.
  And yet at the congressional level and candidly also at the State 
level we are going along blissfully ignoring this reality, mouthing 
pious statements about education, but not really doing much.
  One of many economists who has been telling us that we have to do 
better in the field of education is Lester Thurow of the Massachusetts 
Institute of Technology and probably the most widely read economist in 
the country.
  He is also one of the most thoughtful.
  Recently in the Washington Post he had an article titled ``Preparing 
Students for the Coming Century,'' which I asked to be printed in the 
Record after my remarks.
  I am sure some of my colleagues read it, but since it was in the 
Education Section of the Sunday edition of the Washington Post, some of 
you may not have read it.
  It is worth reading for Senators, for House Members, for staffers, 
and for anyone who may pick up a Congressional Record and go through 
it. The article follows:

                [From the Washington Post, Apr. 7, 1996]

               Preparing Students for the Coming Century

                         (By Lester C. Thurow)

       Consider an alphabetical list of the 12 largest companies 
     in America at the turn of the 20th century: the American 
     Cotton Oil Company, American Steel, American Sugar Refining 
     Company, Continental Tobacco, Federal Steel, General 
     Electric, National Lead, Pacific Mail, People's Gas, 
     Tennessee Coal and Iron, U.S. Leather and U.S. Rubber. Ten of 
     the 12 were natural resource companies. The economy then was 
     a natural resource economy, and wherever the most highly 
     needed resources were to be found, employment opportunities 
     would follow.
       In contrast consider the list made 90 years later by the 
     Japanese Ministry of International Trade and Industry, 
     enumerating what it projected to be the most rapidly growing 
     industries of the 1990s: microelectronics, biotech, the new 
     material-science industries, telecommunications, civilian 
     aircraft manufacturing, machine tools and robots, and 
     computers (hardware and software). All are brainpower 
     industries that could be located anywhere on the face of the 
     earth. Where they will take root and flourish depends upon 
     who organizes the brainpower to capture them. And who 
     organizes the power most efficiently will depend on who 
     educates toward that objective best.
       But back to the industries for the moment: Think of the 
     video camera and recorder (invented by Americans), the fax 
     (invented by Americans), and the CD player (invented by the 
     Dutch). When it comes to sales, employment and profits, all 
     have become Japanese products despite the fact that the 
     Japanese did not invent any of them. Product invention, if 
     one is also not the world's low-cost producer, gives a 
     country very little economic advantage. Being the low-cost 
     producer is partly a matter of wages, but to a much greater 
     extent it is a matter of having the skills necessary to put 
     new things together.
       Wages don't depend on an individual's skill and 
     productivity alone. To a great extent they reflect team 
     skills and team productivities. The value of any single 
     person's knowledge depends upon the smartness with which that 
     knowledge is used in the overall economic system--the 
     abilities of buyers and suppliers to absorb that individual's 
     skills.
       In an era of brainpower industries, however, the picture is 
     even more complicated: The economy is a dynamic economy 
     always in transition--the companies that do best are those 
     able to move from product to product within technological 
     families so quickly that they can always keep one generation 
     ahead. Keeping one jump ahead in software, for instance, Bill 
     Gates's Microsoft had a net income running at 24 percent of 
     sales in 1995.
       If a country wants to stay at the leading edge of 
     technology and continue to generate high wages and profits, 
     it must be a participant in the evolutionary progress of 
     brainpower industries so that it is in a position to take 
     advantage of the technical and economic revolutions that 
     occasionally arise. Knowledge has become the only source of 
     long-run sustainable competitive advantage. Recent studies 
     show that rates of return for industries that invest in 
     knowledge and skill are more than twice those of industries 
     that concentrate on plant and equipment. In the past, First 
     World citizens with Third World skills could earn premium 
     wages simply because they lived in the First World. They had 
     more equipment, better technology and more skilled co-workers 
     than those who lived in the Third World. But that premium is 
     gone. Today's transportation and communications technologies 
     have become so sophisticated that high-wage skilled workers 
     in the First World can work together effectively with low-
     wage unskilled workers in the Third World. America's 
     unskilled now get paid based on their own abilities and not 
     on those of their better-trained co-workers.
       Industrial components that require highly skilled 
     manufacturers can be made in the First World and then shipped 
     to the Third World to be assembled with ``low skill'' 
     components. Research and design skills can be electronically 
     brought in from the First World. Sales results can be quickly 
     communicated to the Third World factory, and retailers know 
     that the speed of delivery won't be significantly affected by 
     where production occurs. Instant communications and rapid 
     transportation allow markets to be served effectively from 
     production points on the other side of the globe.
       Multinational companies are central in this process: Where 
     they develop and keep technological leadership will determine 
     where most of the high-level jobs will be located. If these 
     firms decide to locate their top-wage leadership skills in 
     the United States, it will not be because they happen to be 
     American firms but because America offers them the lowest 
     cost of developing these skills. The decisions will be purely 
     economic. If America is not competitive in this regard, the 
     market will move on. The countries that offer companies the 
     lowest costs of developing technological leadership will be 
     the countries that invest the most in research and 
     development, education and infrastructure (telecommunications 
     systems, etc.).
       If the person on a loading dock runs a computerized 
     inventory-control system in which he logs delivered materials 
     right into his hand-held computer and the computer instantly 
     prints out a check that is given to the truck driver to be 
     taken back to his firm (eliminating the need for large white-
     collar accounting offices that process purchases), the person 
     on the loading dock ceases to be someone who just moves 
     boxes. He or she has to have a very different skill set.
       Factory operatives and laborers used to be high school 
     graduates or even high school dropouts. Today 16 percent of 
     them have some college education and 5 percent have graduated 
     from college. Among precision production and craft workers, 
     32 percent have been to or graduated from college. Among new 
     hires those percentages are much higher. In the last two 
     decades, the linkage between math abilities and wages has 
     tripled for men and doubled for women.
       The skill sets required in the economy of the future will 
     be radically different from those required in the past. And 
     the people who acquire those skill sets may not be the 
     unskilled workers who currently live in the first world. With 
     the ability to make anything anywhere in the world and sell 
     it anywhere else in the world, business firms can ``cherry 
     pick'' the skilled or those easy (i.e., cheap) to teach 
     wherever they live. American firms don't have to hire an 
     American high school graduate if that graduate is not world-
     class. His or her educational defects are not their problem. 
     Investing to give the necessary market skills to a well-
     educated Chinese high school graduate may well end

[[Page S4086]]

     up being a much more attractive (i.e., less costly) 
     investment than having to retrain an American high school 
     dropout or a poorly trained high school graduate.
       Take Korea for example. In a global economy, what 
     economists know as ``the theory of factor price 
     equalization'' holds that an American worker will have to 
     work for wages commensurate with a Korean's wages unless he 
     works with more natural resources than a Korean (and no 
     American can, since there is now a world market for raw 
     material to which everyone has equal access); unless he has 
     access to more capital than a Korean (and no American can 
     since there is a global capital market where everyone borrows 
     in New York, London and Tokyo); unless he has more skilled 
     co-workers than a Korean (and no American can claim to 
     since multi-national companies can send needed knowledge 
     and skills anywhere in the world); and unless he has 
     access to better technology than a Korean (and few 
     Americans have, since reverse engineering--tearing a 
     product apart to learn how it is made--has become an 
     international art form, highly refined in Korea). Adjusted 
     for skills, Korean wages will rise and American wages will 
     fall until they equal each other. At that point, factor 
     price equalization will have occurred.
       The implications for the future are simple. If America 
     wants to generate a high standard of living for all of its 
     citizens, skill and knowledge development are central. New 
     brainpower industries have to be invented and captured. 
     Organizing brainpower means not just building a research and 
     development system that will put us on the leading edge of 
     technology, but organizing a top-to-bottom work force that 
     has the brainpower necessary to make us masters of the new 
     production and distribution technologies that will allow us 
     to be the world's low-cost producers.
       To do this will require a very different American 
     educational system. And building such a system is the new 
     American challenge.
       Progress has to start by ratcheting up the intensity of the 
     American high school. The performance of the average American 
     high school graduate simply lags far behind that found in the 
     rest of the industrial world. Those Americans who complete a 
     college course of study end up catching up (the rest of the 
     industrial world doesn't work very hard in the first couple 
     of years of university education), but three quarters of the 
     American work force doesn't ever catch up.
       The skill gap doesn't end there. Non-college-bound high 
     school graduates elsewhere in the industrial world go on to 
     some form of post-graduate skill training. Germany has its 
     famous apprenticeship system; in France every business firm 
     by law has to spend one percent of its sales revenue on 
     training its work force; and with lifetime employment as a 
     fact of life, Japanese companies invest heavily in the work 
     force's skills since they know that it is impossible to hire 
     skilled workers from the outside. In America, government-
     funded programs are very limited in nature, and, with high 
     labor-force turnover rates, American companies quite 
     rationally don't want to make skill investments in people who 
     will leave and take their skills elsewhere. The net result is 
     a compounded skill gap for those Americans who do not 
     graduate from college. Closing this gap and giving the 
     country a competitive edge should be America's number one 
     educational priority.

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