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2008 Speeches
W. James McNerney, Jr.

Jim McNerney

Chairman, President and Chief Executive Officer

The Boeing Company

"Globalization, Energy and the Environment"

Chief Executives' Club of Boston

Wharf Room, Boston Harbor Hotel

September 24, 2008

It's great to be here today, and I welcome the opportunity to speak at one of the premier forums for the exchange of ideas on business and management issues.

The club's partnership with the Carroll School of Management at Boston College is another reason I wanted to be here. Boeing has been a member of the college's Center for Corporate Citizenship since 1994. We believe that companies like ours must play a significant role as citizens beyond our role as corporations. We must lead responsibly to help our communities, our nations, and the world address challenges that are bigger than any one company's interests... and that includes bringing problem-solvers together and focusing them on action that helps economies grow in a sustainable manner.

With that in mind, I'd like to begin with a quick review of some troubling trends in the business world, setting aside for today the current financial crisis here in the U.S. (which we can certainly talk about later, if any of you want to weigh in during the Q&A):

A little over two years ago, 56 percent of Americans rated the condition of the U.S. economy as either "very good" or "fairly good." According to a Gallup poll taken just last week, only 13 percent of Americans give the economy a thumbs-up and an overwhelming majority--87 percent--give it a thumbs-down.

Interestingly, while most people regard "trade" in a fairly positive light, a clear majority of Americans now say that "globalization" (defined as an increase of trade and close working contact among nations) has gone too far and is now acting to the detriment of most people and businesses in the United States. Americans are not alone in feeling this way. Big pluralities in 21 of 34 nations polled by the BBC World Service last December agreed that "the pace of economic globalization" is moving too fast.

In many places around the world, there is a growing sense of dizziness and dismay over the pace of globalization; a feeling of "Stop the world, we want to get off."

Rightly or wrongly, there is a perception in the developed world that most or all of the benefits of globalization are going to people in energy-producing or fast-growing developing countries.

Conversely, people in the fast-growing places in Asia often think that they are the ones who are really being disadvantaged by globalization--arguing that they are doing the same work as people in Europe or the United States for a lot less money.

There is also a fear in certain countries that globalization is destroying important aspects of national heritage and distinctiveness.

A front-page story in the Wall Street Journal earlier this year reflected the situation well, proclaiming that "the era of easy globalization is over" and pointing to "a rise in nationalism" as the new trend in world affairs.

Will someone please step up and say something positive about international trade and globalization? Well, that's my mission here today. Tied in with that, I will comment on two of the things we need to do to take the economic growth that comes from expanded trade and increased globalization... and make it truly sustainable. One is tapping new sources of energy... and energy conservation. The other is doing a better job of protecting the environment.

Speaking as someone who has been involved for many years in the global marketplace, I believe that the benefits of growing economic integration far outweigh the costs, for both developed and developing countries.

And speaking as Boeing's leader, I feel no reluctance in telling you that we--Boeing--are a global company... in a global economy... driven by the belief that what we do and how we do it helps make the world a better place.

As you probably know, the aerospace industry is a major net exporter for the United States and helps to offset the nation's chronic trade deficit. Exports play a vital and increasingly important role in the U.S. economy, accounting for 40 percent of economic growth and 12 percent of total GDP in 2007. And with the vast majority of the world's consumers living outside the United States, Americans must stay engaged globally to prosper and grow.

Boeing is a good example of how that works. Forty-one percent of Boeing's 2007 revenues--and 70 percent of our commercial airplane business revenues--came from overseas sales. That percentage will almost certainly increase over the next six or seven years because nearly 90 percent of our commercial airplane backlog--which totals more than a quarter of a trillion dollars--is reserved for airlines outside the United States.

Our customers are in more than 90 countries around the world, and we have employees in about 70 countries--not to mention suppliers and other partners.

Next year, we will open a research-and-technology center in India--to go along with other R&T centers or branches we have already established in Spain and Australia. And in Russia, we have a design center with more than a thousand people who do engineering work on various Boeing commercial airplanes.

Still, about 95 percent of our 164,000 employees are in the United States. In fact, I think it's fair to say that roughly half of those jobs (some 80,000) which either directly or indirectly support our Commercial Airplanes business, would not exist if our company wasn't globally engaged and globally competitive. We've been able to achieve some measure of success in an increasingly global marketplace--and hire more than 12,000 people over the last three years alone--because we (and our supplier-partners around the world) have been diligent about finding ways to become constantly more productive while delivering the most innovative technologies to our customers.

Our approach is not without its challenges, however: witness the Machinists' strike against Boeing, now in its third week in the Pacific Northwest and Kansas. Now, I'm not going to make a whole speech about this or any other one of the 49 labor contracts we negotiate on a regular basis. But I do think it's important to acknowledge one vital and unrelenting reality: Jobs in today's global economy are created and sustained only through increasing competitiveness and innovation And, over time, jobs will be most plentiful in those regions--within the U.S. and around the world--where employment and related business conditions support rather than impede those two driving forces. In areas where such conditions inhibit the capacity of companies to go head to head with a growing list of lean, efficient and innovative global competitors, job growth will be constrained at best.

Let me cite one of our more important market segments--air cargo and the global air/ground express delivery business it feeds--as an example of how globalization works well and can bring jobs into the U.S.

All of us know FedEx and UPS (they are some of Boeing's biggest and best customers). For businesses and consumers alike, companies like these really do mean the "death of distance" as a restraining factor in purchasing goods or doing business in other cities or countries.

Today I'd like to highlight just one of them: With 358,000 employees inside the United States and another 67,000 outside this country, UPS is proof that it is possible to be both very big and very, very fast.

Every day of the work week, UPS hand-delivers more than 16 million packages and documents to some eight million customers ... within a service area that includes more than 200 countries and territories... and every known address in North America.

And it provides other services as well. If you send your Toshiba computer off to be repaired, UPS will not only pick up the computer from your home and return it to you later. It will also do the actual repair work.

That's right. Toshiba has outsourced this work to UPS--shortening the supply chain and improving customer service. What happens is that a UPS driver picks up your computer at your home, takes it to the airport, where it is flown (probably on a Boeing airplane) to the UPS hub in Louisville, where other UPS workers, trained by Toshiba, do a quick fix on your computer, and send it back to you--all within a few days. So, from an American perspective, this is a case of global in-sourcing.

The Peterson Institute has measured the net benefit of globalization for the U.S. at one trillion dollars per year. That's equivalent to a $10,000 benefit per U.S. household. Because of imports, virtually every household in America has a better and cheaper TV, computer, printer, toaster, etc.

And while every plant closing is--rightfully-- front-page news in the hometown paper, millions upon millions of Americans have benefited from the faster growth in incomes and employment that has come through globalization.

Meanwhile, if you look around the globe, there is no question as to which countries have fared the best. It hasn't been those with a strongly ingrained sense of entitlement or a stop-the-world-I-want-to-get-off attitude. Rather, it has been those which have been most attuned and plugged into the world economy--not solely the domestic or local economy, but the world economy.

No, we haven't done as much to artificially "protect" jobs in the United States as others have done... or, more accurately, tried to do. But look at the flip side of that coin: Our companies have been much more willing to hire new workers. That's why we have had strong job creation and lower unemployment in the United States, while much of Europe has had job stagnation and higher unemployment.

Globalization has been called the greatest anti-poverty program ever invented. It has helped to create a large and fast-growing middle class in many different nations that have executed the same 180-degree turn: Going from trying to protect local companies and industries against the threat of outside competition... to openly embracing global commerce. This list includes Columbia, Finland, Ireland and Turkey, along with Australia and the "Little Tigers" of Asia... as well as the emerging countries of Latvia, the Ukraine, Poland, and the list goes on.

I want to see people in the United States succeed. I also want to see people in India, China and other countries succeed. That can only be good news for the U.S. and global prosperity in the long run. We all benefit from more trade and greater positive interaction between people of different nations.

Right now, Boeing and UPS are teamed up as co-chairs of the business coalition working for the passage of a new trade agreement with South Korea. Signed over a year and a half ago, it has yet to go into effect because of a lack of Congressional action. The same fate has left free trade agreements with Colombia and Panama in a state of limbo. That's really unfortunate, because, according to data from the Business Roundtable, the United States has been running a trade surplus this year with those countries with which we have free-trade agreements.

When times get tough, there is always the temptation to turn inward. But it would be absolutely counter-productive and job-destroying if our nation--which has so long championed and benefited from free, open and fair trade--were to retrench and, in effect, cede the game. I firmly believe that nothing could be worse for the U.S. and world economies than a retreat into protectionism.

Sustaining our commitment to long-term global competitiveness has other important elements: namely, securing a long-term energy supply and respecting our environment. And innovation needs to be called for and supported in both areas. Both are critical to sustain the benefits of international trade and globalization.

Obviously, we face huge challenges--both in finding new sources of energy and in protecting the environment--that won't yield to quick, easy solutions. But the magnitude of a challenge, surely, is no excuse for doing nothing. We must take strong action today... to have any hope of addressing the energy needs of five, ten and twenty years from now. And we must be equally proactive in addressing environmental concerns and making sure that our planet--the 'pale blue dot,' as Carl Sagan called it--retains both its incredible beauty and the power to sustain that greatest of all gifts, which is the gift of life.

Painful as it is, the reality of oil hovering around $100-plus a barrel level is a true wake-up call, telling us that we can't rely forever on fossil fuels. But even if, as some people say, we can't "drill our way out" of this predicament, we can, and should, do more drilling. There is more oil and natural gas to be found--some of it in places that are readily accessible. We must go after it, but in ways that are responsible and minimally disruptive to the environment. Natural gas is the primary direct fuel used by manufacturers in our country. Experts tell us that there is enough natural gas to be found in the outer continental shelf to supply the United States for 20 years, but the suppliers of natural gas in the U.S. have been largely prohibited from drilling in the most gas-rich areas.

As a country, we in America also have to ask ourselves: Why is France able to satisfy about 80 percent of its requirement for electrical power from nuclear energy, while in the U.S. nuclear energy generates only about 20 percent of our electrical power? Nuclear power is a CO2-free fuel, and it has compiled a remarkable safety record over the past several decades. It deserves to be part of our energy-solution discussions at a scale beyond where it's being discussed today.

And even if we are able to open up new avenues for "traditional" energy sources like oil, natural gas and nuclear power, the U.S. still needs a clear policy for what until recently we've regarded only as longer-term "alternative" energy sources--such as wind, solar projects and sustainable biofuels.

Whatever the outcome of the November elections, we need a national energy policy. What we have now is what my friend, Andrew Liveris, the chairman and CEO of Dow Chemical, calls "a faith-based energy policy." In his words, "We pray for warm winters and cool summers," and hope that the price of oil will go back down.

Turning from energy to the related subject of the environment: Each of us in our different industries has a role to play in reducing the environmental footprint of our products and facilities, and a large part of that is practicing greater energy conservation.

Since 2002, Boeing has improved energy efficiency at our operations by more than 25 percent. We've been reducing energy consumption even as our business has accelerated, and have targets and plans in place to sustain that level of progress into the future. This has been a truly active process. It is the result not only of our deliberate investment in upgraded infrastructure but also of Boeing employees developing and sharing ways to drive out waste and inefficiency.

For our products in use--which is where we have the greatest impact on the environment--we are striving to achieve carbon-neutral growth--or holding net emissions constant even as more airplanes take to the skies. That's very difficult in an industry like ours, which is expanding at an average annual rate of 5 to 6 percent a year as it fuels growth in economies worldwide. We know we can make double-digit improvements in fuel efficiency and reductions in CO2 emissions, with each new generation of airplanes (and our new 787 Dreamliner's roughly 20-percent reduction in fuel burn proves that). We also know that a next-generation air-traffic control system could boost those numbers significantly. But meeting our goal will require additional technology advances, including the introduction of sustainable biofuels.

At Boeing and across our industry, we have a terrific legacy of integrating environmental performance improvements through technology advancements. Since the first generation of airliners, airplane CO2 emissions have been reduced by around 70 percent, and the noise footprint area has been reduced by approximately 90 percent.

In April, Boeing helped bring together customers, partners and competitors within the industry, and we jointly committed to the carbon-neutral growth goal I mentioned and the aspiration of a carbon-free future. People in our company and industry have mastered seemingly "impossible" challenges in the past--like supersonic flight and space travel-- and we will do so again.

You can already see it beginning to happen:

OK, I'm close to the end, now, and I've covered a lot of ground from the launch pad of globalization. If you remember nothing else of what I've said, I hope you will consider action in support of three things:

One: Ask your Congressional representatives to support the pending free-trade agreements with South Korea, Colombia and Panama.

Two: Help our leaders in the United States define a national energy policy--one that not only more aggressively and sustainably harvests traditional sources of energy but also encourages and rewards innovation in the development of new and non-traditional sources.

And three: If you get the opportunity, help argue for a modernization of our air traffic management system as a smart investment for our environment and our energy independence.

Finally, in the same spirit that I ask for your help in these three areas, I also request your support of education initiatives in science and technology. In the U.S. (and around the world, for that matter), there is a critical shortage of scientists, engineers and other technical talent. And the U.S. trend is worse than many other places in the world. Our competitiveness and productivity as a nation--and our ability to produce new workers and retrain current workers for the high-skilled, high-wage jobs of the future--depends on it. We are a nation of innovation like none this world has ever seen. Yet we are falling behind in education and putting our technological leadership at risk. But that's a topic and a speech for another day! Thank you, and I'll be happy to entertain a few of your questions.

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