Thank you, Gil. And thanks also to the Indiana University School of Public and Environmental Affairs for inviting me to participate today. And to all the conference co-sponsors—and attendees—for making this event possible.
Our purpose today is to answer the question—What should the next President do about U.S. manufacturing?—and to recommend an agenda for the administration’s first 100 days.
I believe the best thing we can do as representatives of our industry is to invite the next President—and his or her administration—to our facilities to see first-hand what we do and what they can do to help us. In my case, I’d say, “Come to the waterfront.” I’d invite them to HII’s shipyards in Virginia, Mississippi and California and show them how they can make a positive impact on the future of our great country.
But here we are in Washington, D.C. And before I expand on my answer, I think it’s important to answer two other questions: What is the current state of manufacturing in the U.S.? More importantly: Why does it matter?
Not unlike election polls, the answers to these questions will depend on who you ask—or where you get your information. For example: The New York Times reported in April that our return to manufacturing greatness is a mirage. The story made the point that manufacturing is important for maintaining jobs and wages, but it quoted a Nobel Prize-winning economist as saying: “The likelihood that we will get a manufacturing recovery is close to nil. We are more likely to have a smaller share of a shrinking pie.”
Meanwhile, The Wall Street Journal reported in June that manufacturing employment is growing as the auto industry rebounds and domestic plants become more cost-competitive. The reporter noted that manufacturing is one of the best generators of wealth for an economy and that it’s needed to maintain an edge in research and product development.
So what are we to believe? Thankfully, we have unbiased data from the U.S. Census Bureau. The agency told us on Manufacturing Day last October that more than 11.3 million Americans produce goods that we consume domestically or export abroad. That makes manufacturing the fourth-largest industry in the U.S. And while manufacturing ranks fourth, the average wage in our industry ranks higher than the three industries that employ more people. In fact, the average manufacturing wage is two times higher than retail and three times higher than accommodation and food services.
Likewise, National Association of Manufacturers data shows that manufacturing contributes nearly $2.2 trillion to the U.S. economy—and that for every $1 spent in manufacturing, another $1.40 is added to the economy. That is the highest multiplier effect of any economic sector.
So what is the state of manufacturing in the United States? I believe it’s strong—but there are certainly things we can do to make it stronger. And what we do today to preserve a highly skilled, competitive manufacturing base is critical to securing our future.
I’ll use my company, HII, as an example. Come to the waterfront, and you will see that we design, build, maintain and inactivate ships for the United States Navy and Coast Guard. Our revenues have grown modestly over the last five years, but it has not been easy. Our customers’ budgets are under intense pressure, and we are challenged to reduce costs on every ship we build. We do that through innovation and process improvement. One great example is the advent of digital shipbuilding. I’m proud that we are leading the way in using augmented reality in heavy manufacturing. In fact, the aircraft carrier John F. Kennedy, which is in the early stages of construction, will be the first ship we build without paper drawings. It’s all about continuous improvement and staying ahead of our customers’ demands.
Of course, we’ve also committed to ourselves and to our shareholders that we will maintain our operating margin and increase dividends. Meeting these very different goals requires strategic investment. To that end: We invest more than $110 million a year in workforce development. We are also planning $1.5 billion in capital investments over the next five years to strengthen our performance and prepare for future programs.
I have said on many occasions: “There is no future of our company that doesn’t have Navy shipbuilding as our primary business.” To put that another way: “There is no future of our company that doesn’t have manufacturing as our primary business.”
But why does it matter? Again, come to the waterfront and you will see that the ships we build are statements of national purpose. They are a reflection of what makes America globally competitive. When one of our aircraft carriers sails the globe protecting us and our nation’s interests, it is a 100,000-ton symbol of America’s industrial strength and competitive edge.
We cannot be a nation only of ideas and services. We cannot depend on others to make the critical tools and machines we need to grow our economy and maintain our security.
Now you may not build ships or planes or tanks, but what you make still matters. What you make strengthens the “Made in America” brand. Most importantly, what you make allows the people who make it to achieve what we all know as the “American Dream.” The Pulitzer Prize-winning historian and author James Truslow Adams described it as: “A dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable … regardless of the fortuitous circumstances of birth or position.”
Come to the waterfront and you will see 35,000 men and women … young and old … a diverse population … with all levels of education … living out the American Dream.
Let me tell you about one. Reggie Holmes graduated from high school on June 20, 1983, and started working at our Newport News Shipbuilding division in Virginia the very next day. His first job was working as a rigger on Nimitz-class aircraft carriers. Today, he’s a construction supervisor in the Carrier Subcontractor Management Department. Which means he directly supports the suppliers that are helping to build and overhaul the Navy’s fleet of carriers.
Reggie says the shipyard has allowed to him to provide for his family—in spite of him not having a college education. You see, not long after he started working in the shipyard, he got married. He and his wife bought a house and raised three children. He says the system really works “if you put your heart into it.”
Reggie is six years shy of earning the distinction of “Master Shipbuilder.” These are HII employees who have at least 40 years of unbroken service. They work side-by-side with new employees and are the very embodiment of “institutional knowledge.” Would you believe we have more than 1,000 Master Shipbuilders between our three shipyards?
Reggie’s career is impressive enough on its own, but there’s more. His father, Powhatan Holmes Jr., worked as a machinist in the shipyard. His grandfather, Powhatan Holmes Sr., worked as a shipwright in the shipyard. And his great grandfather, also named Powhatan Holmes, began working in the shipyard more than 100 years ago—as a driller. There have been numerous uncles, aunts and cousins who also worked in the yard, but that is the direct line that makes Reggie a fourth-generation shipbuilder.
I mentioned Reggie’s three children. One of them, Jamell, graduated from high school and took a job with another local manufacturing company, but he was laid off about a year later. Jamell applied at the shipyard and got a job as a welder in the Sheet Metal Department, where he helps build Virginia-class attack submarines. That makes Jamell the fifth generation of the Holmes family to work in the shipyard. He works second shift—3:30 to midnight—and he loves what he does.
Reggie is rightly proud of Jamell, saying: “He’s good with his hands.” Jamell is proud to follow in his father’s footsteps. And I’m proud that he came to work with us—and that he wants to stay and work his way up in the company. Who knows—maybe he’ll get married like his dad and buy a house and have kids. That is the American dream. That is why manufacturing matters.
So with that as the foundation, what should the next President do to maintain and grow U.S. manufacturing? Well, Tom Duesterberg made a number of thoughtful proposals in his policy paper for this event. His first recommendation: “Starting with the President, national leaders should visit modern factories and research centers to highlight exciting new technologies, production processes and products.”
We are fortunate that Navy shipbuilding is a high-visibility industry and that many elected leaders, including sitting Presidents, have visited our yards for ceremonies and tours. To the next administration, I would simply repeat my invitation to “come to the waterfront.” Leave D.C. for a day and come see first-hand what we do and why it matters—to our customers and to our workforce. And I encourage all of you to do the same for your businesses.
I’ll highlight a few more of Tom’s proposals.
Importantly, he suggests we need to change the cultural perception of manufacturing. In fact, we are working hard to overcome the “steel bender” stereotype once associated with shipbuilding. And in spite of our multiple generations of employees, our shipyards today are not “our grandfather’s shipyards.” Simply put: Modern manufacturing requires more brains than brawn.
We often share this job description as an example: “Must be proficient in math/algebra/physics: Candidate must understand summation of moments. This is a four-step process to determine center of gravity. … Candidate should also be able to use trigonometry. … Candidate should be able to use geometry to calculate load weight.”
You might think these are the requirements for a designer, planner or even an engineer, but they are actually for a rigger—the same job Reggie Holmes took 34 years ago. Riggers are skilled trades workers who hook up loads and signal cranes to pick up and move components to locations aboard ships. At Newport News alone, we have more than 600 cranes—the largest of which can lift up to 1,050 metric tons.
So the stakes in shipbuilding are high, and the requirements to land even an entry-level job are pretty steep. At the same time, the number of high school graduates who meet the minimum qualifications is decreasing.
Just two weeks ago, The Wall Street Journal reported that in spite of anxiety about the disappearance of factory jobs, thousands of them are going unfilled across the U.S. Citing Department of Labor data, the story noted that the number of open manufacturing jobs has been rising since 2009, and this year stands at the highest level in 15 years.
Which leads to Tom’s next recommendation: We need to revive specialized skills training at our educational institutions. At HII, we view workforce development as a pipeline. If we’re not getting what we need out of that pipeline, we recognize the need to put something into it. So we partner with regional community colleges and technical high schools to develop trades-based curriculums. We also invest in science, technology, engineering and math education in K-12 schools.
More recently, we’ve recognized the gap at the very beginning of the workforce pipeline, so we’ve also begun investing in early education programs. That’s right: pre-K. It’s concerning to us that many high school graduates aren’t ready for work, but we think it’s just as important to focus on the fact that many 5-year-olds aren’t ready for kindergarten. We think this will have a direct correlation on getting work-ready candidates in the future. Sure, it’s not a quick return on investment. And we recognize it may be hard to determine the exact return later on. But we view this as part of our long-game strategy.
Next, Tom proposes that government can help by partnering with manufacturers and offering tax credits. I will tell you that HII was able to build two brand-new, state-of-the-art Apprentice School facilities in recent years through successful public-private partnerships in both Virginia and Mississippi. We’re also fortunate to receive state and local grants to help fund capital investments at both of our shipyards. These partnerships reflect the understanding that working together to address common needs results in mutually beneficial solutions.
Lastly, Tom recommends that manufacturers lean forward and create the change we are looking for. While we’re proud of all the things I’ve mentioned so far, this is where HII really excels—and probably the reason I was invited to speak today. At our two apprentice schools, we offer tuition-free training in a wide variety of shipbuilding disciplines, from welding and pipefitting to dimensional control and nuclear testing.
The Apprentice School at Newport News Shipbuilding was established in 1919 and celebrated its 10,000th graduate in 2015. Likewise, the Apprentice School at our Ingalls Shipbuilding division in Mississippi—rebuilt and rebranded in 2013 as the Haley Reeves Barbour Maritime Training Academy—boasts more than 4,000 graduates since it was founded in 1952.
Of course, the schools’ biggest selling point is the opportunity to “earn while you learn.” First-year apprentices at both schools make more than $35,000, and automatic raises are built in over the life of the apprenticeship. Newport News’ school was featured in U.S. News & World Report this year. The magazine noted that of 4,000 applicants, only 220 or so are admitted each year—an admissions rate that rivals Harvard and Yale.
Secretary of Labor Thomas E. Perez came to the waterfront last year and told our apprentices: “You’re in a great program that’s going to set you up for life.” He saw our work and the American Dream in action.
I’ll briefly mention a few other policy areas of interest to HII. They happen to align with the National Association of Manufacturers’ “Agenda for Economic Growth and American Exceptionalism.”
Transportation and infrastructure are vitally important to HII and the communities where we do business. In addition to the employees in 26 states who commute to and from work on aging roads and bridges and even through tunnels, we have a supply chain that includes more than 5,000 vendors in 48 states. You know what it’s like to wait for something you ordered to be delivered to your home. Imagine having to wait on literally millions of orders.
Health care is another area where we’ve leaned forward—way forward. Over the last year and a half, we’ve established telemedicine as an option for our employees and their dependents and opened two family health centers: one in Virginia and one in Mississippi. The centers are open to all employees and dependents covered by our health plans. A visit costs only $15, and all preventive care visits are free. While the health centers treat ailments, they are really designed to promote healthy behaviors and lifestyles – and enable the employees to take more accountability for their health.
Many companies are shifting accountability for health and wellness to their employees. We’re doing that as well, yet we are also giving them a variety of tools to help them be successful. Our commitment to the Family Health Centers and employee wellness is yet another example of our “long game” business philosophy. Employees are the single largest investment we make because they are our greatest asset. We see an immediate benefit in a healthier workforce today, and we expect returns to continue in future generations of employees.
Lastly: We support regulatory and legal reform. As a defense contractor, we are subject to Federal Acquisition Regulations and the defense supplement, DFARS. Importantly, in the eyes of the government, we are also accountable for all of the vendors in our supply chain. In fact, we operate in a culture where if someone makes a mistake, instead of holding them accountable, we write a new rule to prevent anyone else from ever making that mistake again. But we can’t bureaucratize the risk out of society. That’s arthritis.
At some point, the ever-increasing number of regulations just adds cost to our products without increasing value. It drags us all down. While compliance is ingrained in our culture—and always will be—we firmly believe over-regulation has the potential to stymie capital investment and innovation and discourage competition.
All that said, it shouldn’t surprise anyone that we remain politically agnostic at HII. If you think about it, we’ve built military warships for every commander-in-chief since Grover Cleveland. That’s 21 commanders-in-chief: 12 Republicans and nine Democrats. In fact, many of the products we build are named after Presidents. Seven of the 10 Nimitz-class aircraft carriers, for example, bear Presidents’ names, from USS George Washington to USS George H.W. Bush. And we’re very close to finishing the first ship in the new class, the Gerald R. Ford. We’re proud that they were all built in Newport News.
The carrier names are pretty well known. What you may not know is that we also built DDG 80, an Arleigh Burke-class destroyer named after Franklin and Eleanor Roosevelt. I mention FDR not only to plug our Ingalls shipyard, but because he plays a visionary role in the last story I’ll tell you today. It’s about a great industrialist, William S. Knudsen. He’s not as famous as Henry Ford, yet his influence was just as great.
Knudsen was born in Copenhagen, Denmark, in 1879 and immigrated to New York just shy of his 21st birthday. He went to work for a manufacturer in Buffalo that was eventually bought out by Ford. Over the next 10 years, he became an expert on mass production. He went on to serve as president of Chevrolet and General Motors.
Those of you who have advocated for a Secretary of Manufacturing will appreciate this plot twist. In 1940, FDR called on Knudsen and said: “I want to see you in Washington. I want you to work on some production matters.” After two years as chairman of the Office of Production Management, he was commissioned a lieutenant general in the U.S. Army and appointed Director of Production in what was then the Department of Defense.
Knudsen’s expertise—and FDR’s wisdom to capitalize on it—helped the U.S. exponentially increase its manufacturing capacity and win the World War II. If you want to learn more about him—and about the shipbuilder Henry J. Kaiser—I highly recommend the book, “Freedom’s Forge.”
In spite of his “Big Bill” nickname, Knudsen was humble and attributed his success to his technical education. He said: “The young man who has the combination of the learning of books with the learning which comes of doing things with the hands need not worry about getting along in the world today, or at any time.”
The ability to do things with your hands—the ability to make something—is timeless. From William Knudsen starting out 100 years ago in a shop in Buffalo to Jamell Holmes welding sheet metal tonight in Newport News, manufacturing has provided for generations of Americans and their families. And it will continue to do so—if we take care of it.
Manufacturing guarantees our economic prosperity. Indeed, manufacturing keeps alive James Adams’ American Dream “of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”
So what should the next President do about U.S. manufacturing? Come to the waterfront. And keep that dream alive.