“If you’re the Chinese government, you’ve got a Faustian bargain that you have to make,” Syron argued. “Either I’m going to try to keep those people working in the interior of China, which means I’m going to run up a bigger current account surplus with the U.S., and I’m probably going to lose on it. But I don’t have to mark that loss down to market and I’m probably not going to lose politically on that. On the other hand, if those 200 million people who are still living in caves don’t find jobs, I could well be hung up in a square.”

So the stage is set for a continued exodus of manufacturing jobs out of the U.S. to China and elsewhere. “About 70 percent of our manufacturing is not in the U.S.—only 30 percent is left here,” said Battenberg, who heads the world’s largest automotive supplier. “I see that declining continuously as the baby boomers retire. They’re just not going to be replaced. Many of the contracts of the 1960s and 1970s, which had lifetime provisions for health care, pensions and retirement, will never be replaced.”

Can currency shifts help U.S. manufacturing survive? Manufacturers certainly hope so. “We’re one of the ones who don’t mind seeing the dollar weaken,” said GM’s Cowger. “A strong yen looks pretty good from this vantage point. If you look at the goods that we’re selling up against, a $50,000 Lexus comes in at 10 percent or 20 percent under the cost to make it. That’s a lot of money that Toyota can take in profitability, use to add extra content or put back into product development.”

And GM is carrying a much heavier cost burden than Toyota does. “You add that to health care costs that we’re carrying, which no other competitors carry,” said Cowger. “We’re the poster child for that, given that we support 1.1 million retirees and families. You’re starting in a pretty steep hole, competitively speaking.

Positive Outlook for Technology

One force that could greatly buoy the overall U.S. economy is technology. CEOs believe they have found better ways to link technology to their underlying business objectives (see page 60) and that they will be able to stimulate growth by capturing emerging technologies (page 74). Telecommunications, in particular, is set for an exciting wave of new offerings. “The price curves are phenomenal, the innovation just continues, and I think in an increasingly digital, affordable personal kind of world, we’re going to continue to see all kinds of technology enablers and technology capability,” said Lucent Technologies’ Pat Russo.

Overall technology spending seems to be increasing, she noted. “We’re seeing some spending come back as companies look to get to the next generation of technology, which is all packet and IP enabled.”

One paradox the CEOs considered was whether sourcing of IT and software functions to India is part of the problem or part of the solution. Vivek Paul of Wipro, which is at the epicenter of the outsourcing trend, argued that only 2 percent of the job loss in the U.S. over the past few years is attributable to outsourcing.