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September 1, 2014

Giving Business a More Effective Voice

Carlos Gutierrez, former U.S. secretary of commerce and CEO of Kellogg Co., on the importance of trade, new technology and getting heard in Washington

The Department of Commerce should be the one at the table advocating for business, ensuring that regulations don’t get in the way and markets are being opened so that U.S. companies can export,” says Carlos Gutierrez, his voice measured and deliberate. “Should be”—his word choice registers the frustration of so many executives who feel Washington stymies business growth. As the former CEO of Kellogg Co. and U.S. secretary of commerce, Gutierrez has seen the struggle between businesses and government from both sides. Now co-chair of Albright Stonebridge Group, a commercial diplomacy and strategic advisory firm, Gutierrez is still focused on helping businesses grow through increased international trade—even as Washington stalls and regulations pile up.

Gutierrez, whose family fled Cuba for the United States when he was 6 years old, joined Kellogg Co. in 1975 as a sales representative in Mexico City. By 1999, as CEO, he was turning around the then-faltering company’s fortunes.

After President George W. Bush appointed him secretary of commerce in November 2004, Gutierrez helped steer passage of the Central American Free Trade Agreement (CAFTA) through Congress, which significantly expanded U.S. trade with Central America and the Dominican Republic. He focused the agency on promoting business domestically and abroad, increasing exports and removing trade barriers.

Here, Gutierrez offers Forward his take on the current business climate—and what the government and business community should do next.

 

As secretary of commerce, how did you respond to opposition from Congress?
The best response was that our department creates jobs and growth. We had a terrible time getting the vote for CAFTA. We went member by member, convincing them that it’ll create jobs in their district. We finally got it by two votes. It really is all about the economy. The best arguments are backed up with job creation and economic growth.

With Washington in gridlock, do you see corporations developing strategies that bypass government?
The area of education is a great example of this. There’s a sense that the federal government has not kept up with the times. Our education system hasn’t changed in 40 years, but the world has changed dramatically. When we created the Department of Education in 1979, we had the highest high school graduation rate in the world. Today we’re ranked tenth. And U.S. high schoolers are ranked 27th in math proficiency out of 34 OECD countries. Clearly, the government’s approach hasn’t delivered results. So businesses like Boeing, Motorola and General Motors are establishing their own academies and corporate universities—they are solving the problems that government has not been able to solve.

Will governmental paralysis end any time soon?
Look, we have a political crisis in this country. People talk about an economic crisis, but a lot of that is a result of a political crisis. And we’ve got to start thinking about how to fix it, because the outlook isn’t good. Over the years, districts have been designed to be either Republican or Democrat. In a Republican district, the candidate isn’t worried about a Democrat opponent—he’s worried about a primary challenge from the right. And Democrats are worried about a primary challenge from their left. And that drives the parties to extremes, leaving the center wide open.

We should be looking at term limits. Once someone gets into a specific district and is re-elected and they’ve got rhythm to their fundraising, it’s very hard for that person to change. I think we also

need to look at California, which is allowing people to vote in both Democratic and Republican primaries, which will likely lead to more moderate candidates. The American people are in the center, but the problem is that the people who are involved and engaged are on the extremes.

 

The immigration reform bill that you supported as commerce secretary didn’t pass, and immigration is still stalled in Congress. What policies do we need in that area and why? Do you think that immigration reform will happen any time soon?
To answer the back half of your question, I don’t think so. The political environment doesn’t favor it. The reason we need immigration reform is that our economy needs immigration. Our workforce is not growing as fast as it should be, partly because families aren’t as big as they were. And a declining workforce is a declining economy, and a declining society. So we need a certain number of immigrants every single year.

Most people think of immigration reform as dealing with the 11 million undocumented people in the country. And obviously, that’s a very important part of it. But the most important part is designing a new system. Some people think the most important part is securing the border, but without a new system, it doesn’t matter how high the border wall is. Today, we have illegal immigration because we have a legal system that doesn’t work. The Senate passed an immigration bill with a lot of fanfare not long ago. [In May, the bill was blocked by Republicans in the House.] And the part of the bill that falls short is precisely the new legal system. It proposes a quota for agricultural workers of 112,333. The farm experts I work with estimate that we need between 700,000 and 1 million agricultural workers every single year. The quota for skilled workers is 110,000. [Deloitte and the Manufacturing Institute, among others, have estimated that 600,000 manufacturing jobs are going unfilled.] Where do we get the difference?

And a proportion of that immigrant workforce is crucial for manufacturing as well, right?
Absolutely. And it’s not just the person on the shop floor. It’s crucial for suppliers. It’s crucial for customers. I was talking to a restaurant owner the other day. He said, “Look, I own three restaurants. And if I had more immigrant workers to do the work that U.S. citizens won’t do, I would have eight restaurants. If I had eight restaurants, I’d have to hire more U.S.  citizens to help me supervise.” So the whole thing has a cascading effect throughout the economy.

You touched on CAFTA, which expanded manufacturers’ ability to do business throughout Central America. How would you rate the current administration on facilitating global trade?
I’m disappointed that we haven’t been more aggressive. In 2011, President Obama signed three trade agreements: Panama, Colombia and South Korea. The president hasn’t been given trade promotion authority [also known as “fast track” authority] by Congress, and he hasn’t asked for it. Without that authority, it’s very hard for trading partners to take you seriously because Congress can change proposed trade agreements. So we’re not going to make much progress.

We’ve got a big agreement under negotiation called TPP, the Trans-Pacific Partnership. It’s very big, very bold. But there’s no way we’re going to get it done without the administration having trade promotion authority. The other big idea is the Transatlantic Trade and Investment Partnership [TTIP], which is essentially a free-trade agreement with the European Union. But these potential partners aren’t taking us seriously because our president hasn’t been given the authority to negotiate.

We run the risk of our manufacturers being shut out if we don’t have free-trade agreements with more countries. While the rest of the world is forming free-trade agreements with as many countries as possible, we’re standing still.

You mentioned Asia, but are there other emerging markets, especially in terms of manufacturing, that we need to focus on facilitating trade with?
Latin America is very interesting; there are jobs coming back to Latin America that had left for Asia. One reason is the price of oil, which makes freight from Asia a lot more expensive. And the second is the region’s proximity to the United States and the fact that many of these countries have a trade agreement with us. Obviously, Asia is still an important area, especially for textiles. You’ll be seeing Africa emerge, although I think we’re going to have to be patient there.

 

I would urge manufacturers to be very selective, to look at individual countries. Mexico is a good bet these days. They’re reforming their economy and the energy sector, which will drive a lot of manufacturing: It’s estimated that Mexico needs about $1 trillion of infrastructure over the next 10 years because of energy-sector reforms. Brazil is going to double oil production by 2020. That’s going to have a ripple effect throughout the whole supply chain. Places like Colombia are becoming very attractive, and you wouldn’t have said 15 years ago Colombia was a good place to invest. Today, it’s a great place to invest.

 

Why has there been a backlash against trade and globalization in this country? What can be done about it?
Any time there is a financial crisis, protectionism tends to set in and people start worrying about trade and foreign competition. And I’ll tell you, trade is a very easy culprit, but all of the numbers suggest that trade has been very good for this country. If companies are worried that the United States is turning protectionist, that we’re not in the game of trade, I’d recommend that they talk to their employees. It’s very difficult to make a case for trade on a national level, but employees drive public opinion. It’s unfortunate, but unions have not been supportive of trade. We need to explain to the unions that their jobs could be on the line because without trade, we’re not going to be exporting as much.

As the cost of doing business in some foreign countries rises, we’re seeing some companies move operations back to the United States. Do you think that reshoring is a short-term trend or a deeper restructuring of the U.S. economy?
It’s a great question. Whether it’s a fad or whether it’s a trend will depend on us and on policy. So two things: One is, do we have the workforce? If you’re going to set up a big factory in the United States, you want to make sure that you have labor. What companies are looking for is specialized knowledge, but too often our students leave universities with general knowledge. So the business community needs to work with local colleges so that students are trained for specific jobs in the manufacturing world.

The second thing is energy policy. We have a once-in-a-generation opportunity to not only become self-sufficient in oil and gas but to become the largest oil and gas exporter within the next decade. If we do that, we will have cheap gas. Cheap gas will attract manufacturing. It will make the United States one of the most attractive places in the world in which to invest.

But the federal government isn’t helping this happen. Our production is growing because companies are using new technologies like hydraulic fracturing and horizontal drilling, not because of help from the federal government. And this is not an environmental issue: Natural gas is a lot better than coal. And we are able to do hydraulic fracturing and horizontal drilling better than any other country. So we need a more aggressive energy policy, and that will definitely bring more manufacturing back to the United States.

Shifting gears a bit: Automation technology and Big Data are enabling advances in shipping and just-in-time delivery. What other disrupters do you predict will shake up the economy and the manufacturing industry?
Big Data is huge. It will enable an increasing range of predictive capabilities, from sales forecasting to equipment maintenance schedules, all of which will make manufacturing much more efficient. The sales forecast variance is a number that’s given very little attention, but is probably the most important number for any business or manufacturer. If you forecast too much, you produce too much, you have too much inventory and your working capital grows. If you forecast too little, then you’re missing out on sales. Big Data will improve forecasting tremendously.

I see other big trends that will also impact manufacturing: The first is robotics. I think we’re going to see this emerge a lot quicker than we expect. It’s not 20 years down the road; this is coming over the next several years. It could make it more efficient, which could both hurt current jobs but also create new jobs. The second trend is remote monitoring and control technology. In the future, you’ll be able to operate a plant from an office. You won’t have to be inside the manufacturing facility. Whoever gets behind these trends first could end up with an advantage.

 

How much influence does the manufacturing sector wield to actually effect policy change? 
There are some very influential groups like the U.S. Chamber of Commerce and the National Association of Manufacturers. Those groups are out there constantly advocating for manufacturing and for business. But there are other groups, like labor unions, pushing for regulations and laws that don’t help business. Right now it seems like the environmentalists have the upper hand. There’s no question that the president has decided that his last two years he’s going to focus on environmental issues. That’s not a problem—we all need to take care of the environment. But when you take it to an extreme—to the point where your concern is actually hurting the country and people’s ability to find a job—that’s when it becomes ridiculous. And I think we are at that stage today.

What are the most effective lobbying tactics for businesses trying to get Washington to help or get out of the way?
From a tactical point of view, we’ve got to let members of Congress know how many jobs are in their district, how many jobs are at stake and how many jobs are being impacted by new regulations. [For metals industry job numbers in your district, use our interactive tool at MSCI.org/MetalJobs.] We also need to enroll employees. People have this perception that a business is the CEO who wants favorable regulations. But it isn’t. It’s about regular people who work at a company, who don’t want to lose their job. And finally, if public servants are working against the interest of business, businesses have the opportunity to hold back money from their public servants.

The strategy is jobs and the economy. There are some members who are so ideological that it doesn’t matter what you say. The crucial thing for businesses to realize when they go to the government is, you’re not going to change everything, and you’re not going to go in and show people how it’s done. You can make a contribution, but your expectations have to be realistic. At the end of the day, jobs are what count. And if we’re not delivering on jobs, we’re just not delivering.


Kelly Caldwell, a writer and editor in Chicago, is managing editor of Forward.