Ro Khanna, formerly one of the highest-ranking Indian Americans in President Barack Obama’s administration, has written a new book, Entrepreneurial Nation: Why Manufacturing Is Still Key to America's Future, which was released by McGraw Hill Aug. 17. In an interview with India-West, Khanna, who is amassing a war chest for a possible congressional run in 2014, shared his vision for America’s economic future. Excerpts of the interview follow:
IW: The premise of “Entrepreneurial Nation” is that expanding the manufacturing sector and finding new export markets are key to getting the U.S. out of its economic slump. Yet the manufacturing sector has been largely hamstrung for at least the past three decades. How do we move past the factors that limit growth in this sector and create sustainable jobs that propel our economy forward?
RK: One of the remarkable aspects of American manufacturing is that we are still a world leader. We are neck and neck with China, each producing about 20% of the world's output. Far from stagnating, our manufacturing output has almost doubled in the past 30 years. The problem is that jobs have not kept pace because of automation and outsourcing. The challenge for our nation is to figure out what type of high end manufacturing jobs are sustainable in America — jobs requiring specialized, complex skills — and then to prepare an American workforce to fill those jobs. I give specific examples of what we still can make in the United States in the book.
IW: In terms of finding new markets for American goods, could you address the oft-repeated notion that the world does not want to buy what America has to sell? What are examples of American products that are attractive to consumers abroad? And is the U.S. attempting to address consumers at the bottom of the pyramid — a huge and largely untapped market — who, despite extreme poverty, do have some level of disposable income?
RK: It's just not true. From my experience at Commerce, I can tell you that "Made in America" still has cache. It signifies quality to many people in Asia and Latin America. It often carries a cache because of the impact of American popular culture and advertising. The challenge is that only 1 percent of American companies currently export. We need companies to get beyond their comfort zone and recognize that 95 percent of the world's consumers are overseas. If our companies make a bigger effort to export, they can be very successful. I give an example of a candy manufacturer in Alabama who through sheer diligence has found buyers across the world.
I do agree that we need to be sensitive to the price for consumers at the bottom of the pyramid, and continue to understand the cost constraints for many of the world consumers, and operate under those constraints when designing exports. Our best exporters are doing that. But, here American executives can do better and need to spend more time overseas understanding the market.
IW: Following up, you surmise that American-made products are innately better, using the model of Starbucks frappuccino blenders which are custom-made in the U.S. by Vitamix. Are U.S. consumers really concerned about who makes their blenders or do they just want their frozen drinks at the lowest price? Does the quality of a product really factor in to the average consumer's decision to buy it and does quality outweigh cost?
RK: Quality factors in when Starbucks is buying the blenders because it's a business decision. Starbucks doesn't want the blenders to make too much noise, or consumers will not linger in their store. Starbucks also does not want frappuccinos to have ice chips. Their research shows consumers will be less likely to buy those drinks if they have ice chips. So, Starbucks made a business decision that better quality blenders — even though they may cost more — will lead to more sales and ultimately greater profits. I discuss this fascinating case study in detail in the book. Ultimately, you need to make the business case for manufacturing in the U.S.
IW: Following up again, you quoted Ben Bierman of the failed solar power initiative Solyndra, as saying his thin-film solar panels could not compete with those made in China, at 1/20th of the cost. How can the U.S. manufacturing sector move past the high cost of making its goods to become competitive in a global economy? The cost of labor alone seems daunting, but if we reduce those costs, can we create sustainable jobs?
RK: Cost of labor is often only 10 percent of a product's cost. What the U.S. needs to do is focus on economizing production and being more efficient. Second, we should customize products to meet consumer needs. Third, we need to always be at the head of the innovation curve, making products that others have not conceived. Almost all the manufacturers I profile are doing those three things, and that's why they have a path to success.
IW: What types of jobs in the manufacturing sector are sustainable and what is the current administration — in which you served — doing to encourage young people to train for those types of jobs? If a teenager came to you for career advice, what kind of profession would you propel him towards?
RK: Great question. I would tell the teenager to get as much education as possible, no matter whether she wants to go into a finance career, other service career, or manufacturing career. The evidence is indisputable — the more education one has the better her career prospects in a global economy.
If the student showed a genuine passion and aptitude for manufacturing, I would certainly make the case that there still are exciting, good paying jobs available in manufacturing. In fact, there is a shortage currently of nearly two million manufacturing workers for jobs that are available. I would encourage the teenager to get as much theoretical education, and combine it with practical experience working in a modern factory or taking classes in metal working or operating CNC machines. Frankly, I think every citizen would benefit from some manufacturing classes, regardless of their profession. It just makes us better rounded people. I wish I had more in school!
IW: While you served in the Obama administration, the U.S. manufacturing sector was dealt a big blow in 2011, when India pulled out of a $10 billion deal with Boeing/Lockheed Martin. Can you shed some light on the failure of that deal?
RK: I really had no role on that deal so am not in a position to offer any meaningful comments. I can say that India presents a huge export market for the United States, and we have defense manufacturers and clean technology manufacturers selling into the market. President Obama has done a great job in convincing many Americans that India can be a market where we can export goods to create jobs back here at home. We need to keep working on strengthening the export market in India, cutting the regulatory red tape over there, and recognize that the bilateral relationship does not hinge on any one deal.
IW: Did the failure of that deal contribute to Ambassador Roemer's departure from India? In an interview with India-West at about the same time, you had also hinted at your own imminent departure from Commerce. Did the failed deal play any part in your decision to quit Commerce?
RK: Certainly, not my decision. Like I said, I was overseeing our 109 domestic offices so I had very little role in U.S.-India trade relations. I did lead one trade mission there on clean technology which was very successful. But, other than almost all my focus was domestic.
I left Commerce because after over two years in Washington, I wanted to bring my skills back home to the East Bay and help my local community. Those jobs are 80 hours a week and all consuming. So, most people leave after a little over two years. I have no idea why Tim Roemer left.
IW: Addressing outsourcing in terms of growing the U.S. economy, along with shipping jobs overseas, do we not create new consumer markets as more people become employed in middle-income jobs? Is India a good example of this notion?
RK: Our first priority should be to create jobs in the United States. That's the obligation of United States policy-makers. Now, I realize we can't save every job, and these will be business decisions. But, what we can do is have the best educated workforce, the right tax incentives, an efficient regulatory system, and proper investment in infrastructure and technology, to attract the best businesses to create jobs here in America.
IW: Finally, you address foreign direct investment as a potential contributor to U.S. economic growth, but what makes the U.S. an attractive market for FDI? Many of the issues we've discussed would seem to discourage investment from abroad…
RK: We are a world leader in FDI. We still have the most people in the world who want to immigrate here. We have, I believe, the largest foreign investment still —or one of the largest. I reject the American declinists. We are still the most entrepreneurial nation in the world, with the best universities, with the most freedom for innovation, and one of the best functioning capitalistic democracies. We have incredible diversity. In the long run, I would not bet against the United States. That's the central point of my book which I make through 15 concrete case studies.
IW: Any final thoughts?
RK: I really feel proud of “Entrepreneurial Nation” because at its core it's a story of why I believe in America. It ends with a section on why my father, a chemical engineer, came to this country, and the opportunities he had. In many ways, his story is symbolic of the Indian American diaspora. I have so much admiration and respect for those in my father's generation — all the IIT graduates and other prestigious university graduates — who came here and made a contribution to this country and to humanity's technological progress. This book is a tribute to them. I look forward to hearing people's candid reaction to it, and welcome their feedback.