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Jeffrey R. Immelt: The Importance of Growth

U.S. businesses are fighting an economic war for exports. We need market access and tools to compete and win.

Speech as delivered to The Economic Club, Washington, DC, on June 17, 2015.

 

 

 

Last time I visited the Economic Club was 2011 when I was Chair of the President’s Jobs Council. That experience helped me to think more broadly about the country and the economy. Our country needed to evolve after the financial crisis. To find new ways to create jobs, opportunity, and prosperity in a context of extreme uncertainty and slow growth.

It also reinforced for me that we needed to continue to change GE. We have reshaped GE from a broad conglomerate to a more focused and competitive enterprise. Today, GE is a connected and high-tech industrial company — the biggest in the world. We compete in infrastructure markets like electricity, healthcare, and transportation because they are growing. And they are what drive economic growth and progress around the world.

We remain a technical leader. We’re placing big bets on the Industrial Internet — merging machines and analytics, harnessing the power of data to drive new levels of productivity in the industrial world. Every industrial company will have to be a software company in the future. We are restoring manufacturing. We are investing a lot in productive innovation, and we have opened 15 new plants in the last five years in the U.S. alone.

We are winning around the world. We are one of the country’s largest global enterprises; even at our size we can grow each year organically by at least 5 percent. And, we are investing about $15B each year to build our lead.

As CEO, I am comfortable with the bets we are placing. It’s the direction of the whole American economy that concerns me, and I have a feeling that the people in this room would say the same.

So, I come here today to discuss the common purpose shared by business and government: That is to create a faster growth economy … with benefits that can be shared by all.

Coming out of the financial crisis — and even in 2015 — the U.S. is growing too slowly. Almost all of our problems can be solved with stronger growth; we will create jobs and reduce the deficit. However, none of the country’s problems can be solved with the 2 percent GDP growth that we see today; we will not create middle class jobs; we will not reduce the deficit; we will not restore our economic standing in the world.

In that vein; let me give you a few ideas that can accelerate growth. Note, I am not going to mention any major reforms … things like taxes, education, immigration and the like … because they are just too hard to imagine right now. Rather, I would suggest that we create an optimistic tone — that could make all of the difference for accelerating growth.

First, play to our strengths, starting in energy. The United States now produces more oil and gas than either Saudi Arabia or Russia. The North American Energy Complex — including Canada and Mexico — is the finest in the world. We should integrate our regional strength through investments like the Keystone Pipeline. And we should build on our leadership and not try to constrain it.

We can all see the huge advantages that are now ours to maintain — energy security, jobs, market opportunities, and more. Investment in energy of all forms — along with the technology to keep it safe, clean, and low-cost — should be a permanent priority.

Another American strength, as yet unmatched, is the innovation that created the digital age. The U.S. leads the consumer internet with great companies like Apple, Facebook and Google. The next wave of growth is the Industrial Internet which will drive efficiency and productivity long into the future. We need to stay on that road, and we need to keep training and attracting the many thousands of scientists and engineers who give us our edge.

Likewise, if we’re really serious about higher growth in America, then we have to own the future of manufacturing. The sector is going through an incredible period of change. American manufacturing is coming back, and that could produce the middle class for a whole new generation.

I’ve worked for GE for 33 years and I have never seen a time when the U.S. has been more competitive in manufacturing than we are today. New technology like model-based design, advanced materials and additive manufacturing are creating competitive advantage.

We view manufacturing as a major U.S. advantage. Manufacturing is about innovation today, not a labor arbitrage. The U.S. can win this battle!

Policymakers should also think hard on the value and the future of small and mid-size businesses. I can tell you, nothing makes you appreciate what it takes to run a small company than running a very large one. What they don’t have is our staying power, our bargaining power and our scale advantages.

For every GE job there are eight SME jobs in the supply chain. There is a purposeful and unshakable bond between small and large businesses in the U.S. They all hear themselves praised and flattered in political speeches, but we’ve actually got a situation now with more small businesses going under than starting up. To point out the obvious, if government would leave them more freedom, we would see a powerful trend in exactly the opposite direction — giving America more startups, more hiring, and more growth.

So there you have three major themes that could ramp up the growth rate: leverage our strengths in energy while doubling down on the digital age; own the future of manufacturing; and treat SMEs as the heart of American free enterprise.

But there’s a fourth test we have to meet in this country, and it’s the biggest piece of economic opportunity in front of us right now. Nothing would put more life into this slow-growing economy than a firm, unequivocal commitment to trading, competing, and winning around the world.

Look, I joined GE in 1982. Eighty percent of our business was in the U.S. Time passed, I became CEO in 2001, and we were 70 percent inside the United States. Here we are in 2015, acquiring Alstom this summer, and at that point we’ll be 70 percent global. We are the country’s second biggest exporter heading towards $25B this year. American capitalism and exports can win; I know because I have led it.

Now, I wish I could tell you that this was some pioneering vision of mine. But all along it’s the plainest of realities.

Yes, the U.S. is the largest economy, with 25 percent of global output. But most of the world’s purchasing power — not to mention 95 percent of people — is to be found outside the United States.

As a purely economic proposition, the case for opening markets, removing trade barriers, and setting fair rules pretty much is about arithmetic. If you want to grow, you have to go where the people are

That’s why competition for new markets is getting so intense. That’s why all the major economies are moving so fast to get trade deals in place and promote their exports. And that’s why we in America have to decide our place in a global competition that is going to unfold whether we like it or not.

Right now, China is moving forcefully. Their “One Belt, One Road” policy is being supported by huge investments, and they are seeking to reshape the global economic architecture through new institutions like the Asia Infrastructure Investment Bank. They are playing to win. “Germany Inc.” is moving around the world behind a weak euro and favorable government support. When Chancellor Merkel gets off a plane in Beijing, 25 CEOs get off behind her.

As an American company, we need two things: market access and tools that help us compete on a level playing field. Right now, we have neither. We are struggling to pass Trade Promotion Authority, which is essential to completing the Asia and Europe trade agreements. Trade bills give us access. And our ExIm Bank will expire at the end of this month. ExIm levels the playing field versus global competition.

There is a mistaken impression that trade deals are put in place to aid only the GEs of the world — the large multinationals. This is not true. I support trade deals because they increase our influence, access and growth. But as a global company, GE is in very good shape to to navigate difficult international markets.

The real case for trade deals is that open markets and common standards reflect the interest of all concerned. And if any American companies are going to feel the results of a better trading environment, it’ll be the smaller ones. They may not have the access to the world’s fastest-growing markets. By taking down trade barriers, SMEs will have the ability to sell to new customers. For members of Congress, trade deals are a chance to show that their concern for small businesses is more than just talk — because if you’re on the side of SMEs, you should be voting for free trade.

And, there is a belief that the American worker suffers due to trade deals. This is despite the fact that trade-related jobs are the highest paying and offer the most growth. GE’s union workers will suffer if these trade deals do not pass. In our plants, most of the output is exported.

So let’s keep score. Who wins if TPA passes? Small businesses and export workers will win. This will create more jobs. And who wins if TPA fails? That is simple: our global competition. They have the market access and we don’t. They will set the rules … they will grab the future.

So here’s the situation on fairness. There are 60 government export credit agencies globally that help their countries finance exports. China has invested more in exports in the last three years than the U.S. has in the last 50.

Right now Congress is having a fractious debate over whether to reauthorize our own export credit agency, the ExIm Bank. If you had told me a decade ago that this would ever be something our country would eliminate, I would have said you’re crazy.

But here we are; ExIm bank will expire on June 30. In two weeks — in two weeks — the U.S. will have neither trade deals, nor an export bank. At that point, we will be in full retreat on the global economic stage.

The ExIm debate has not been rooted in reality. We all understand that, in theory, everything moves toward equilibrium with perfectly functioning capital markets. If you assume all that, and there is no need for export financing.

The problems begin when the real world gets in the way. We are fighting in an economic war for exports, not a debate club. And sometimes what you can prove on a chalkboard in an econ class just doesn’t survive in the world as it is.

In 27 countries including South Africa, India and Mexico, you are required to have ExIm financing just to bid on a large infrastructure project. With the risk profile of many of our growth markets, and with new banking regulations, commercial banks aren’t able to make those guarantees or invest. In country after country, you find the same thing:  deals are structured around export credit financing. And without it, in many cases, you can say goodbye to those deals and the jobs that go with them.

Who really gains if we get rid of ExIm? Who’s going to mark that as a win for themselves? Well, a few think tanks in Washington will send out the alerts that they have won. Over in Berlin and Beijing, meanwhile, they’ll really have cause to celebrate, because they can point on a map to all the projects and deals that American companies won’t have a shot at. And who wins if we continue to compete for exports around the world by reauthorizing ExIm? All of our suppliers and all of our communities and our workers … and, of course, American companies like GE.

For commercial rivals abroad, including some very aggressive ones, doing away with the ExIm Bank will basically clear the field of competition. Since 90 percent of direct ExIm users are small and medium-size businesses, they would be the victims.

They’re firms like Gaumer Process in Houston. Patrick Patel is the corporate controller for Gaumer and he is here in the room today. They manufacture control panels, fuel gas systems for power plants and natural gas drilling projects for customers around the globe — they have 150 employees. Gaumer supplies companies like GE and Shell who access ExIm financing. If ExIm shuts down, Patrick estimates they would have to lay off 60 employees and halt plans to expand their plant in Houston

Mike Cartwright is the Business Development Manager at National Peening, a GE supplier with facilities in North Carolina, South Carolina, Virginia and most recently, Ohio. Mike is here with us today.  GE is one of National Peening’s largest customers, and they do work for both GE Aviation and Power & Water. Mike says the company is growing and has been hiring new workers. In fact, the company hopes to build more facilities in the coming years, provided the ExIm Bank stays in business. I would also like to acknowledge Kevon Makell from SEWW Energy in NC and Mike Koesling from LAI International in Maine.

These are just four of GE’s SME suppliers — and all together, hundreds of firms and total purchases on the order of 13 billion dollars a year. This company buys 13 billion dollars from SMEs every year. They’re high-quality manufacturers, and they keep hiring and prospering because they’re gaining new markets abroad. If the bank goes, so do those markets — at least as far as these American companies are concerned.

Nationwide, we’re looking at more than a million jobs in companies that have benefited from the guarantees, buyer financing, and insurance that the Bank was created to provide. And in a world of competing countries, and competing credit agencies, we’re supposed to believe that shutting ours down is a good idea? Why, then, is ours the only government on earth — the only government on earth — even considering such a move?

As for GE, we would be left with choices of our own. Because we are not going to lose this business. We will build these products in places where export credit financing is available because we have to. What happens then? Good jobs in the U.S. will become good jobs in Canada and Europe. That’s a mighty high price to pay for ideological purity, and it doesn’t fit my idea of a national strategy for growth and jobs.

Over the last ten years, GE has grown our exports fivefold. We have invested in innovation and global growth. After 9/11 — if we depended only on U.S. Airlines — the American Aviation industry would have collapsed. Instead, we developed customers in the Middle East and China. As a result, the American Aviation industry is the envy of the world. Every day the GE team is working around the world; every weekend we are traveling away from our families; and we are investing in financing to create export jobs, and we’re competing hard, and we’re winning.

As we review our future investment decisions, we will look only at places where local and State leaders understand the global market place and the realities of competition that our businesses and workers face. If you are against trade and exporters, you are against our employees and suppliers; we will not invest in your state.

Beyond that, our economic influence in the world is slipping. I was recently at the Economic Summit for Egypt — a “pep rally” to convince global investors to partner in this critical part of the world. Our global competitors showed up. Most governments from the Gulf offered billions in loans; the German government offered €10B to promote exports from Germany. The U.S. economic presence was sparse. If you believe that American economic engagement is important in a volatile place in the world, then the U.S. has to show up. I can tell you first hand, others are doing more.

So, let’s work together to turn this around. Let’s try not to pretend we live in the 1950s; we’ve gotta grab the future. I know that American people can win around the world. I ask the people in this town to pass TPA and reauthorize the ExIm bank. I give you my commitment that, at GE, we will grow our U.S. exports around the world. We will sell more locomotives, more engines, more turbines and more MR scanners, made here, all around the world. We will gain share and bring our suppliers with us. We will use all of our innovation, and our balance sheet, to sell American products. We plan to grow export jobs. As a company, we will never be outworked. As a country, this room, this town, should be more confident. All we need is a fair chance.

ExIm debate has taught me an important lesson. While organizations here in Washington are important, the action is in the field. Going forward, our coalition will be between GE and our suppliers; the same is true for Boeing and Caterpillar and others. And, businesses should focus our efforts with the people in our extended enterprise — millions of them — in every district and state. They want to compete and grow. Together — large and small business — will fight for our future.

Here in Washington, we’ll know soon enough whether Congress can still be decisive and bipartisan when those qualities are badly needed. Trade Promotion Authority and ExIm Bank — these are easy calls, if the objective is growth on the scale this country is primed and ready to achieve.

Two “yes” votes won’t be an endpoint of all that needs doing to match our performance with our promise. But this much is certain: those clear signals would tell the world that the United States is in the game to stay — leading, competing, and winning.

We can grow. This country can grow again, but we need to play to our strengths in energy and digital. We need to win the future in manufacturing. We need to build a regulatory system where small businesses can win. And we can win around the world.

(Top image: Courtesy of Thinkstock)

 

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Jeffrey R. Immelt is Chairman and CEO of GE.

 

 

 

 

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