Mr. Greenspan comments on the importance of technological development
and the value of education for economic growth in the United States Remarks by the
Chairman of the US Federal Reserve System, Mr. Alan Greenspan, at the Building Dedication
Ceremonies at the Kenan-Flagler Business School, University of North Carolina on 12/9/97.
I welcome the opportunity to join Dean Fulton, President Broad, President
Emeritus Spangler, Chancellor Hooker, Hugh McColl, and the many other distinguished guests
on the podium today. It isn't every day that we have the opportunity to dedicate a new building
devoted to the research and training that our young people need for conducting business in a
global setting. This new facility -- the McColl Bulding -- has been equipped with state-of-the-art
information technology that will enhance the ability of the faculty and students of Kenan-Flagler
to prepare for an exciting future in our global economy.
The University has made this important commitment at a time when our
businesses and workers are confronting a dynamic set of forces that will influence our nation's
ability to compete worldwide in the years ahead. One of the most central of these forces is the
rapid acceleration of computer and telecommunications technologies, which can be reasonably
expected to appreciably raise our standard of living in the twenty-first century. In the short run,
however, the fallout from rapidly changing technology is an environment in which the stock of
plant and equipment with which most managers and workers interact is turning over increasingly
rapidly, rendering a perception that human skills are becoming obsolete at a rate perhaps
unprecedented in American history. I shall endeavor to place this most unusual phenomenon in
the context of the broader changes in our economy and, hopefully, explain why the value of
education, especially to enhance advanced skills, is so vital to the future growth of our economy.
Wealth has always been created, virtually by definition, when individuals use
their growing knowledge to interact with an expanding capital stock to produce goods and
services of value. Assisted by the whole array of market prices, entrepreneurs seek to identify
the types of products and services that individuals will value, especially the added value placed
on products and services that customers find better tailored to their particular needs, delivered in
shorter time frames, or improved in quality.
This striving to unbundle the particular characteristics of goods and services in
order to maximize their value to each individual inevitably results in the shift toward value
created through the exploitation of ideas and concepts, rather than simply the utilization of
physical resources and manual labor. Indeed, over the past century, by far the smallest part of
the growth in America's real gross domestic product reflects increased physical product
measured in bulk or weight. Most of our gains have been the result of new insights into how to
rearrange physical reality to achieve ever-higher standards of living. We have dramatically
reduced the physical bulk of our radios, for example, by substituting transistors for vacuum
tubes. New architectural, engineering, and materials technologies have enabled the construction
of buildings with the same space, but far less physical material, than was required 50 or 100
years ago. Most recently, mobile phones have been significantly downsized as they have been
improved.
The increasing importance of new insights has, of course, raised the value of
information creation and transfer in boosting standards of living. Thus, it should be no surprise
that new computer and telecommunications products have been accorded particularly high value
by consumers and business and, hence, why companies that successfully innovate in this field
exhibit particularly high stock market values.
Breakthroughs in all areas of technology are continually adding to the growing
list of almost wholly conceptual elements in our economic output. These developments are
affecting how we produce output and are demanding greater specialized knowledge.
The use, for example, of computer-assisted design instruments, machine tools,
and inventory control systems has given our former, more rigid factory assembly lines greater
flexibility. Businesses now can more quickly customize their production to changes in market
conditions; design cycles are shorter, quality control has been improved, and costs are lower.
Offices are now routinely outfitted with high-speed information-processing technology.
The accelerated pace of technological advance has also interacted with the rapid
rise in financial innovation, with the result that business services and financial transactions now
are transmitted almost instantaneously across global networks. Financial instruments have
become increasingly diverse, the products more customized, and the markets more intensely
competitive. Our nation's financial institutions, in turn, are endeavoring to find more effective
and efficient ways to deliver their services.
In this environment, America's prospects for economic growth will greatly
depend on our capacity to develop and to apply new technology -- a quest that inevitably will
entail some risk-taking. One lesson we have clearly learned is that we never can predict with any
precision which particular technology or synergies of technologies will add significantly to our
knowledge and ability to gain from that knowledge. Moreover, America's ability to remain in
the forefront of new ideas and products has become ever more difficult because of the rapid
international diffusion of technology. Nonetheless, to date, we have not fallen behind in
converting scientific and technological breakthroughs into viable commercial products.
But, to be fully effective in realizing the gains from technological advance will
require a considerable amount of human investment on the part of managers and workers who
have to implement new processes and who must be prepared to adapt, over their lifetimes, to the
ongoing change that innovations bring.
Clearly our educational institutions will continue to play an important role in
preparing workers. While we all are concerned about the performance of American elementary
and secondary schools compared with those in other developed countries, there is little question
about the quality of our university system, which for decades has attracted growing numbers of
students from abroad. However, the notion that formal degree programs at any level can be
crafted to fully support the requirements of one's lifework is being challenged.
A great deal of innovation and development has been occurring in the business
sector where firms are striving to stay on the cutting edge, in an environment where products
and knowledge rapidly become obsolete. Education, as a result, is increasingly becoming a
lifelong activity; businesses are now looking for employees who are prepared to continue
learning, and workers and managers in many kinds of pursuits had better look forward to
persistent hard work acquiring and maintaining the skills needed to cope with a dynamically
evolving economy.
The recognition that more productive workers and learning go hand-in-hand is
becoming ever more visible in both schools and in the workplace. Linkages between business
and education should be encouraged at all levels of our education system. Your business school
is an excellent example of how our educational institutions are building bridges to the private
sector that will have payoffs in how well graduates are prepared to meet the challenges of an
increasingly knowledge-based global economy. The growth of high-tech industry here in the
Research Triangle, as well as in Silicon Valley and Boston -- all areas rich in educational and
research institutions -- is no accident.
In the private sector, a number of major corporations have invested in their own
internal training centers -- so-called corporate universities. Some labor unions have done the
same. More broadly, recent surveys by the Bureau of Labor Statistics indicate that the provision
of formal education on the job has risen markedly in recent years. By 1995, 70 percent of
workers in establishments with 50 or more employees had received some formal training during
the twelve months preceding the survey. The incidence of training was relatively high across age
groups and educational attainment. Most often this training was conducted in-house by company
personnel, but larger firms also relied importantly on educational institutions.
At the same time, we must be alert to the need to improve the skills and earning
power of those who appear to be falling behind. In the long run, better child-rearing and better
basic education at the elementary and secondary school level are essential to providing the
foundation for a lifetime of learning. But in the shorter run, we must also develop strategies to
overcome the education deficiencies of all too many of our young people, and to renew the skills
of workers who have not kept up with the changing demands of the workplace.
The advent of the twenty-first century will certainly not bring an end to the
challenges we are facing in a rapidly changing world. Americans will surely adjust to a frenetic
pace of change, as we have in the past, but we must recognize that adjustment is not automatic.
All shifts in the structure of the economy naturally create frictions and human stress, at least
temporarily. As those frictions dissipate, however, I have no doubt that the economy will emerge
healthier. And, if we are able to boost our investment in people, ideas, and processes as well as
machines, the economy can operate more effectively as it adapts to change. This holds the
potential to create an even greater payoff of a broadly based rise in living standards over the
longer run. Your new Kenan-Flagler facility will enhance this University's ability to meet the
challenge.