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Speech Transcript

For immediate use

Oct. 12, 2004 -- No. 491

Johnson discusses challenges
for UNC, higher education

Following are the prepared remarks delivered today (Oct. 12) by Dr. James H. Johnson Jr. during the University of North Carolina at Chapel Hill's annual University Day convocation. Johnson, a William Rand Kenan Jr. Distinguished Professor of management in UNC’s Kenan-Flagler Business School, discussed demographic trends and economic changes -- including offshore outsourcing of U.S. jobs -- and how universities can best respond. Johnson titled his remarks "People and Jobs on the Move: Implications for Higher Education."

I am deeply honored and I feel extremely privileged to have the opportunity to serve as the featured speaker on the occasion of the university’s 211th birthday.

My remarks this morning on the subject, "People and Jobs on the Move: Implications for Higher Education," are anchored primarily in research conducted over the past decade in the university’s own Frank Hawkins Kenan Institute of Private Enterprise. The findings document the profound demographic and economic changes that we are currently experiencing as a state, as a nation, and indeed as a global community.

Today, I will focus specifically on the challenges that higher education institutions and their graduates will face in the years ahead because of these shifts. I will conclude my remarks with a brief commentary on what I think the University of North Carolina at Chapel Hill can do to respond to the challenges.

The message I hope you will take away from here today is as follows: The way the world does business is changing rapidly and dramatically, and America needs to move rapidly to equip itself to compete successfully in the global marketplace. Higher education can play a critical role in preparing our increasingly diverse society for the new world economy, but only if it transforms itself into a more nimble, entrepreneurial, and catalytic agent for change.

Let me begin by providing a brief overview of the nature and magnitude of recent population and job shifts.

Demographically, two "colorful" processes are transforming the composition of our population. The first is what I term the "browning" of America, which refers to the increasing role that non-white ethnic minority groups, especially Hispanics, are playing and will continue to play in the years ahead in the growth of the U.S. population. The "browning" of America is driven in large part by both legal and illegal immigration to the U.S. from Mexico, other parts of Latin America, and Southeast Asia.

Census 2000 revealed that the U.S. population grew by 32.7 million, or about 13 percent, during the 1990s. Nationally, non-white ethnic groups, many of whom arrived from abroad, accounted for 65 percent of the net growth. Non-whites accounted for roughly half of the net population growth here in the state of North Carolina during the 1990s.

This trend has continued since 2000. The U.S. population grew by 6.9 million between 2000 and 2002, with non-whites accounting for 80 percent of this net growth. Between 2000 and 2002, North Carolina’s population grew by 271,000; non-whites accounted for 60 percent of this growth.

Because the non-white population is much younger and has a higher fertility rate than the white population, most population projections forecast that non-white population growth will continue to outpace white population growth at least until 2050.

This will result in a major color adjustment in America’s population. The white share of the total population is projected to decrease from its 1995 level of almost 75 percent to about 53 percent in 2050. Blacks, Hispanics, Asians, and American Indians together will account for 47 percent of all Americans, up from just over 26 percent in 1995. The largest growth will be among Hispanics, who are projected to account for almost 25 percent of the population in 2050.

What this means is that the racial and ethnic make-up of the applicant pool to this university and others in the years ahead will be far more diverse -- racially, ethnically, economically, religiously, and culturally -- than at present. And it will require a radical rethinking and re-engineering of the way we do the business of higher education.

The second "colorful" demographic process is what many call the "greying" of America, or the aging of the U.S. population, that is, the growing share of the population that is 65 or older. Within the next seven years, those of us who were born between 1946 and 1964, the post-World Ware II baby-boom generation, will begin aging out of the labor market. It will be a significant exodus with enormous implications for the human resource needs of public- and private-sector organizations, including higher education institutions.

This will be the case because the post-World War II baby boom was followed by a baby bust. That is, the native-born population, especially native-born whites, stopped having children in sufficient numbers to replace itself. Largely for this reason, one study forecasts a U.S. labor shortage of 10.6 million by 2010.

Here at the university roughly two-thirds of the faculty and staff are aging baby boomers. Does Carolina have a plan for replacing them when they retire? Where will we find their successors? And how will the university ensure the successful transfer of knowledge accumulated in the retiring baby boomers to the next generation of faculty and staff?

Economically, our challenges at both the national and state level are anchored in two waves of globalization. The first wave involved the offshore movement of blue-collar jobs. This shift began in earnest in the early 1960s and continues to this day. Nationally, 5.3 million manufacturing jobs have been lost to globalization since 1979. Roughly half of this manufacturing job loss occurred between July 2000 and July 2003.

But nowhere in the United States has the flight of blue-collar jobs been felt more acutely than here in North Carolina. During the second half of the 1990s, North Carolina lost an estimated 57,000 blue-collar jobs to foreign competition. And since January 2001, North Carolina has lost another 148,400 manufacturing jobs -- more than Michigan and New York, which have larger manufacturing workforces.

The public’s anxieties about the first wave of globalization are captured most vividly in the experience of one fictional but typical displaced blue-collar worker. We’ll call him Joe Smith. The description of Joe’s experiences is taken from an online chat room about the vagaries of globalization. It reads as follows:

"Joe Smith started his day early, having set his alarm clock (MADE IN JAPAN) for 6 A.M. While his coffee pot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG). He put on a dress shirt (MADE IN SRI LANKA), jeans (MADE IN SINGAPORE), and tennis shoes (MADE IN KOREA)/

After cooking his breakfast in his new electric skillet (MADE IN INDIA), he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today. After setting his watch (MADE IN TAIWAN) to the radio (MADE IN INDIA) he got in his car (MADE IN JAPAN) and continued to search for a good paying American job.

At the end of yet another discouraging and fruitless day, Joe decided to relax for a while. He put on his sandals (MADE IN BRAZIL), poured himself a glass of wine (MADE IN FRANCE) and turned on his TV (MADE IN INDONESIA), and then wondered why he can’t find a good paying job in . . . AMERICA."

Our mantra to displaced blue-collar workers has been to go back to school and re-tool for white-collar jobs in the information economy. But, ironically, the latest or second wave of globalization involves the offshore movement of white-collar jobs. This wave started in the early 1990s with U.S.-based corporations outsourcing, to offshore vendors, work related to the maintenance and upgrading of their computer programs. During the late 1990s, the trend accelerated as U.S. firms contracted with offshore vendors to address their Y2K programming needs.

More recently, in an effort to cut costs during the latest recession, U.S. corporations have engaged offshore vendors in what is known as business process outsourcing, which involves a range of business functions, including supply-chain management, operations, sales, marketing, and customer care. In addition, some state governments have contracted with offshore vendors for various services -- notably call centers for food stamp programs.

The most recent evidence suggests that the trend toward offshore outsourcing is moving up the value chain within U.S. firms to higher order, knowledge intensive functions -- what is known as knowledge process outsourcing. At present, this development is most evident in the financial services industry. One study estimated that "potentially 2.3 million American jobs in the banking and securities industries could be lost to outsourcing abroad."

No one knows for sure how many U.S. based white-collar jobs are likely to move offshore. The U.S. Bureau of Labor Statistics is just now beginning to gather data systematically to monitor the trend. However, one reputable study estimates that about 14 million U.S. jobs -- roughly 11 percent of the U.S. employment base -- are concentrated in occupations vulnerable to offshore outsourcing.

Estimates of North Carolina white-collar job losses to offshore outsourcing are not readily available. But what we do know is that an estimated two-thirds of the largest companies headquartered in North Carolina have engaged in offshore outsourcing of white-collar jobs -- mainly information technology work -- in recent years. And there is some evidence that increasingly higher value research and product development jobs in the financial services, pharmaceutical, and biotechnology industries are being outsourced offshore along with IT work.

In part as a result of these shifts, North Carolina has lost high-tech jobs at nearly twice the national rate since 2000. And given these trends, the Carolinas reportedly could lose 125,000 white-collar jobs and more than $5 billion in wages between 2000 and 2015.

Jim Brannon’s recent experience with his employer captures in laser-like fashion the reality of this second wave of globalization, especially as it has moved up the value chain in U.S. businesses. In contrast to the fictional blue-collar worker, Joe Smith, described earlier, Brannon is a real person who lives in Atlanta. He was an executive in a large information technology firm. His story, extracted from an investigative news report on outsourcing, reads as follows:

"At the top of his white-collar game, Jim Brannon worried little about his job. He was six-figure successful, an educated man with a jet-setting software job ... The vagaries of free trade and globalization couldn’t touch him. He was, after all, a vaunted executive…in a world-spanning information technology [company]. It was the blue-collar Joe, Brannon believed, who’d wake up one morning and discover his factory job had gone to Mexico or China.

Brannon, though, experienced just such a morning in February 2002. A letter ordered him to clear out his desk by day’s end. Gone were the fancy office, expense account, feeling of invincibility, and once-solid belief in the righteousness of Corporate America.

Brannon, now 52, represents one of the hundreds of thousands of American white-collar workers whose jobs have disappeared in the last three years. While [his former employer’s] desire to cut costs was partly to blame for Brannon’s unemployment, he says a major culprit was offshore outsourcing."

Most economists downplay the public’s growing concerns about offshoring of white-collar jobs. They contend that, as in the past, the U.S. will develop the next wave of innovations that will create even better and higher paying jobs than those lost to offshore outsourcing. Historically, the U.S. has demonstrated a high level of resilience in response to globalization and structural changes in the economy. But several recent developments challenge our innovation capacity -- and thus our ability to create the next wave of good jobs in the years ahead.

First, the global competitive landscape is changing. Consider the developing nations that are embracing capitalism and free trade -- China, India, and the former Soviet Union, among others. Collectively, these nations have a population that is 10 times that of the U.S. They produce annually more well-trained college graduates than we do as a nation. And their college graduates perform the same work as educated American workers -- albeit half way around the world -- for about a 10th of the cost. Moreover, these countries have invested in new technological infrastructure and created the business and regulatory environment necessary to compete with the U.S.

Second, immigrants to the U.S. have constituted much of the talent pool that has driven innovation in our economy. Immigrants led many of the high-technology start-up companies that fueled the economic boom of the 1990s. And, at both the undergraduate and graduate levels of U.S. higher education, international students and children of immigrants are principally responsible for nearly all of the enrollment growth in the physical sciences, math, and engineering programs -- the training grounds and scientific incubators for new advances that lend themselves to commercialization.

But security restrictions imposed after the 9/11 terrorist attacks constrain the flow of foreign talent into the U.S. and thereby threaten our ability to develop the next generation of innovators and innovations. Moreover, research indicates that some of the immigrants who were engaged in the development of innovations that drove the 1990s boom are now returning home and setting up businesses that will compete with U.S.-based firms in fields like biotechnology and nanotechnology.

Third, and perhaps most threatening, many U.S.-based firms are shifting a significant proportion of their research and development activities offshore. General Electric, one of America’s most revered firms, was one of the first companies to establish an offshore R&D facility in Bangalore, India in 2000. The John F. Welch Technology Centre hosts more than 1,600 scientists, engineers, and researchers -- two-thirds of whom have advanced degrees. Charged with developing "breakthrough technologies that translate into growth of GE businesses," the Center reportedly has "filed more than 150 patent disclosures for research and development activities" since 2000.

Following GE’s lead, a wide array of U.S. headquartered multinational firms have established R&D facilities offshore in India and other developing nations. Much of the work in drug discovery, for example, reportedly is shifting to Hyderabad, India, nicknamed Genome Valley.

These demographic and economic trends, especially the offshore movement of white collar jobs, raise compelling questions about the university’s role in training the workforce of the future and in fostering economic and community development in the state and the nation. How should UNC respond to these challenges?

On the demographic side, the university needs to re-double its recruitment efforts and re-engineer its admissions policies to ensure that future classes of incoming freshmen mirror the population diversity of the state and the nation -- broadly defined. Carolina Covenant, a university initiative "designed to allow eligible low-income students to attend the university and to graduate debt free," is a step in the right direction. But, we should push the envelope even further to identify other innovative ways to demonstrate the university’s commitment to diversity -- domestically and internationally.

One way that comes to mind immediately is to appeal to the U.S. Congress to re-consider the potential adverse impacts of post 9/11 immigration reforms on our ability to recruit talented international students. Another is to take steps to ensure that all students have equal opportunity of access to the majors of their choice once they have been admitted to Carolina. To achieve this goal, we must move away from an education access model based on selectivity to one based on inclusivity. The first step in such a shift is to re-evaluate the "gateway" courses to our most competitive majors. Currently designed to "weed out" students, these courses must be redesigned to ensure that they are sensitive to diverse cultural orientations and styles of learning of the student population of the future. If this is not done, we run the risk of excluding some students from majors of their choice based not on ability, but, rather, on flawed, culturally biased course designs.

With regard to the aging baby boomer problem, the university should devise a comprehensive succession plan for soon-to-be retiring administrators, faculty, and staff. It should include two components: a strategy for nurturing and mentoring high potential young talent from within the existing ranks of the university; and an aggressive worldwide search for human resources, with an eye toward recruiting a more diverse pool of talent.

To address the economic challenges that this state and our nation face as a function of globalization, the university must be transformed into an incubator for creative solutions to some of our most pressing societal problems. To do this effectively, the following steps are necessary.

First, the university will have to move away from the ivory tower and toward being an entrepreneurially oriented economic engine. This will require a re-engineering of the incentive and reward structure to embrace equally the traditional emphasis on basic research "as we know it" and a new emphasis on high-impact applied or action-oriented research.

Second, the curriculum must be fundamentally restructured to train students to become far more resourceful and innovative in creating "outside-of-the-box" solutions to pressing problems -- domestically and internationally. Given that rapid and unpredictable change is likely to be the only constant in the future, students will need to graduate with greater entrepreneurial acumen -- a demonstrated willingness to take incalculable risks and the ability to be agile, flexible, tenacious, and decisive in responding to unanticipated crises and opportunities. These skills are essential to thrive and prosper in the increasingly speed-driven and knowledge-intensive economy of the 21st century.

In revising the curriculum to prepare students successfully, the university administration and faculty must develop an appreciation of and demonstrate a major commitment to what is known as "Intellectual Entrepreneurship" -- a form of structured engagement and commitment to developing concrete solutions to "problems of the world around us." It involves:

… creating synergistic relations among academic disciplines and intellectuals on and off campus to make seamless connections among disciplines and between the academy and the public and private sectors. Intellectual entrepreneurship is about harnessing and productively utilizing intellectual energy and talent wherever it is located in order to promote academic, cultural, political, social, and economic change.

By developing and nurturing intellectual entrepreneurship, the university will teach students "not merely to understand the world, but to change it."

This shift toward intellectual entrepreneurship, I contend, will enable the university to create the next and succeeding generations not only of traditional entrepreneurs in business venturing, but also social and civic entrepreneurs who are committed to using their entrepreneurial talents to make meaningful change in the nonprofit and government sectors. We are moving down this entrepreneurial path here at the university by way of the Kauffman Foundation-funded Carolina Entrepreneurial Initiative, which is designed to infuse greater entrepreneurial content in the curriculum of the College of Arts and Sciences. We must take steps to ensure that the initial momentum and enthusiasm this project has generated among faculty and students continues in the years ahead.

Finally, as state governments approach their limits on annual financial commitments to higher education, university administrators will have to become far more entrepreneurial in their effort to raise funds to maintain and enhance the quality of education. University administrators, in essence, will have to become "academic entrepreneurs" in order to generate the financial resources needed to compete for the best and the brightest students and faculty in the years ahead.

Let me conclude with the following: Throughout its rich and storied history, The University of North Carolina at Chapel Hill, like the consummate entrepreneur, has demonstrated time and again the ability to turn adversity into opportunity in dealing with its own internal challenges as well as external threats to the state, the region, the nation, and the world.

As this nation’s oldest public university, we must respond to the current demographic and economic challenges in much the same way: by developing, nurturing, and most importantly unleashing the full entrepreneurial potential of the university community. Responding in this way, I believe, will pay great dividends in years ahead. Foremost among the payoffs, it will ensure that future graduates of this institution are able to compete successfully for employment and business opportunities in the knowledge economy of the 21st Century.

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