(FORTUNE Magazine) – BALDOR ELECTRIC was having a serious problem on its assembly line. The maker of industrial motors had just installed a high-tech ''flexible flow'' manufacturing system at its plant in Columbus, Mississippi, and the computer- generated work orders clearly told employees not to weld the shafts to the rotors of some new motors. Yet that's exactly what some employees were doing. Chairman Roland Boreham Jr. was puzzled: ''These were good guys. Why didn't they read the damn orders?'' Boreham went to the plant to investigate -- and came up against one of the toughest realities of today's work force. Many of Baldor's veteran employees simply couldn't read those instructions. In the old days, when assembly lines churned out the same product over and over, illiteracy wasn't an issue; a worker could learn by watching someone else. But in the new era of high-tech manufacturing, a single line may produce a dozen items, with different directions for each. Says Boreham: ''Now that the instructions are in print or on a CRT, the nonreaders are showing up.'' Welcome to the world of Manufacturing 101, 1990s version. The global shift to speedier, more complex factory methods has made blue-collar work more challenging -- but American schools are producing workers who are simply not up to the task. Of the 105 Baldor employees who volunteered to be tested for the company's new education classes, 80 needed help. At Motorola just 25 out of 200 employees passed a similar basic-skills test for jobs at a new, highly automated factory in Schaumburg, Illinois, that makes cellular phones. Companies can no longer be too choosy about whom they hire; nor can they easily fire or replace workers who don't measure up. Workforce 2000, an influential report on labor-market trends by the Hudson Institute in Indianapolis, estimates that in the 1990s demand for skilled workers will increase, but the labor market itself will grow at only one-third the rate of the 1970s. And if such trends as high dropout rates and low reading and math skills continue, these fewer workers will start their jobs unprepared and unqualified. CEOs now realize that their companies are becoming the schools of last resort. No matter who is to blame for falling standards, top managers are the ones who must ultimately deal with the crisis. Corporations are pouring millions into basic education and more advanced training for the people who work for them. From Ford to Texas Instruments, companies have launched basic- education programs (the words remedial or literacy are out -- too pejorative) to teach such courses as reading, elementary math, and English to employees. A survey of large corporations by the American Society for Training and Development found that 93% of respondents plan to offer some form of basic-skills courses to employees by 1993. Many companies have also formed alliances with local community colleges to upgrade workers' ''technical skills.'' In some instances, corporations are offering courses to potential job seekers -- so that they will have a better pool of applicants from which to draw. General Motors, Ford, and Chrysler, in conjunction with the United Auto Workers, are even making some education benefits available to the spouses of their employees. Though most companies claim to be still committed to improving the public schools, their managers are realists. Says Jim Holditch, a senior vice president at Texas Instruments: ''We can't wait five or ten years. We've got to do something now.'' With many industrialized countries turning out better-educated workers, U.S. companies feel at a disadvantage. A commission of the National Center on Education and the Economy -- based in Rochester, New York, and co-chaired by former Cabinet members William Brock and Ray Marshall -- sees important lessons in the way Japan, West Germany, Singapore, and Sweden prepare young workers for the labor force. In these countries, industries and government work closely to set educational standards for students who aren't planning to attend college. ''There has to be a much better school-to-work transition,'' says Ira Magaziner, an international business expert who is directing the research for the commission. ''There also has to be a fundamental level of education that can be assessed and which every kid ought to have.'' Deciding to implement basic education is one thing; doing it well is another. First of all, companies don't have much background in the three R's. The American Society for Training and Development reports that most of the $30 billion a year that corporations spend on employee training goes to educating managers, supervisors, salespeople, and scientists, not those further down the line. What's more, says Boreham, many managers don't want to face the unpleasant fact that a significant number of workers can't read. He says, ''It's like asking how many drug addicts or alcoholics you have working for you.'' Setting up a literacy project requires a delicate mix of candor and diplomacy. To run its in-house program in Mississippi, which covers team building and quality issues, Baldor hired Karen Overstreet, a former federal literacy program coordinator. The company made clear that no one would be fired for signing up. Says Boreham: ''A couple of brave guys stepped forward, and all of a sudden a lot of people said, 'I need a little help.' '' COMPANIES WORRY that workers who admit to educational problems will be stigmatized by their colleagues and bosses. Honeywell, which started a basic- skills program in Minneapolis early this year, decided to sidestep the issue by holding classes on neutral ground, at community centers near its plants and factories. Motorola has tied its basic-skills program to broader employee education efforts. Says Susan Hooker, director of retraining: ''We've positioned it under our statement that everybody needs skills improvement.'' To reinforce the point, Motorola announced that prospective employees must pass certain tests; current employees must also meet the same standards when taking on a new job. Motorola's minimum requirements: a fifth-grade level in math (including mastery of simple fractions) and a seventh-grade level in reading (the ability to follow instructions in sequence). At any given time, 700 to 1,000 of Motorola's 25,000 domestic production workers are in basic- skills training. The surge of immigration to the U.S. in the 1980s has added a new element to the basic-skills curriculum: English as a second language. Motorola reports that more than half the employees taking its basic-skills courses are foreign- born. Texas Instruments teaches English to Asians and Europeans at its plant in Attleboro, Massachusetts. Polaroid is also an old hand at English instruction. When it decided to convert a traditional camera manufacturing plant in Norwood, Massachusetts, into a computer-integrated manufacturing center, managers decided to retrain many temporary employees -- despite the fact that the collective nationalities ranged from Cape Verdean and Italian to Haitian and Portuguese, and all spoke only rudimentary English. What basic-skills programs work best? Company education officials agree that the curriculum should be tied as closely as possible to what workers actually do. Says Susan Hooker: ''The more the program is related to the work of the individual, the more they learn -- they see the impact.'' When Motorola workers practice arithmetic, for example, they are not asked how many pounds of grapes they can buy with $3; instead they may be asked to figure out how many circuitboards they have put through a machine and how many are left.

Since 1982 the United Auto Workers, in conjunction with Ford and GM, has offered after-hours employee education courses to workers (Chrysler joined in 1985). The elaborate program, which includes computer-assisted instruction in math, reading, and computer basics, proved so popular with Ford's mostly male labor force that last fall the company and the union decided to extend it to spouses of workers as well. Ford's glass plant in Nashville is one of seven locations offering the extension program. So far, 70 spouses have signed up. Denise Finney-Bryan, a mother of four, has enrolled in a class that will help her get a high school equivalency certificate. She's excited. ''I've been out of school 20 years,'' she says. ''The program has really been inspiring to me.'' Other companies have focused their educational efforts on what might be called early intervention -- getting to the workers before they walk through the door. When the plane manufacturers in Wichita, Kansas, worried about a shortage of skilled entry-level applicants, Boeing, Beech, Cessna, and Lear asked the Wichita Area Vocational-Technical School to help develop an introductory course in sheet-metal assembly. The companies helped design the course down to its smallest details, then contributed to selecting the instructors and screening the applicants. The program takes two weeks, runs a total of 80 hours, and can turn out 435 graduates a year. Almost all graduates get a job, starting at $7 to $12 an hour. The course has proved so popular that some students take vacations from their existing jobs to attend. COMPANIES in the Pacific Northwest set up a similar program. Honeywell, Boeing, Eldec (an aerospace electronics contractor), and other corporations teamed with the Applied Technology Center, a vocational school operated by two community colleges near Seattle. The result: a two-week course in electronics assembly for people who had never worked in a factory. Many students are women preparing to enter the job market for the first time; other participants include men who have been unemployed and recent high school graduates. Most graduates are subsequently hired at $6 to $6.50 an hour. ''The course is a reliable source of well-prepared entry-level employees,'' says John Vicklund, vice president at Eldec and chairman of the technology center's corporate board of advisers. All too aware of their limited expertise as educators, corporations have increasingly sought alliances with local educational institutions and community colleges. The schools welcome the involvement. In Wichita companies often go to ''Votech'' for help in developing and delivering specialized courses to their employees. Seattle's Applied Technology Center routinely contracts with local companies to train employees in both general and specific technology skills. At the same time, the center is working with IBM to develop a more hands-on course in computer-integrated manufacturing that is designed to improve the quality of manufacturing in the region. State governments are also getting on the training bandwagon. A high-quality work force is a competitive advantage: It can attract new industry, and it helps keep local companies from relocating. According to Alex. Brown Realty Advisors, ''The only way to prevent relocation is to provide massive funding for the only element of infrastructure that can truly make a difference, which is public education.'' In 1983, Iowa passed a law authorizing community colleges to issue bonds so that the colleges can offer free training programs to corporations. The colleges allot money to a company according to the number of new jobs that the training will create and the additional contributions these jobs will make to payroll tax revenues and property taxes. Here's how the legislation promoted an effective collaboration between Southwestern Community College in Creston, Iowa, and the Mederer candy maker of Furth, West Germany. When Mederer decided to set up a plant in Creston to manufacture Gummi Bears, a chewy candy beloved by (among many others) American | toddlers, Southwestern screened hundreds of job applicants and presented ten finalists for each of four key positions. The college arranged for the American managers and employees going to Germany for training to first receive German lessons, and similarly arranged English-language classes in Europe for German managers assigned to the Americans. The benefit to the community has been immense. From 13 employees producing 20,000 pounds of candy a day, the Mederer operation has grown in four years to 175 employees rolling out 110,000 pounds of Gummi candy each day. ''Everybody wins,'' says Thomas Lesan, assistant to the president of Southwestern Community. (Including the dentists.) Arguing that it can attract business ''with education, not tax incentives,'' North Carolina has also turned its community colleges into training centers. For example, when American Express located its new Credit Card Operation Center in Greensboro, Guilford Technical Community College went into action. Between July 1988 and June 1989 the state provided not only the use of the facility but equipment, instructors, and printing costs -- all free. Cost to the state for the period: $630,000. By the end of 1989, however, the credit card center will employ 3,000 tax-paying residents -- which should produce a healthy return on the investment. When Japan's Konica set up a $120 million photographic paper plant outside Greensboro in 1988, Guilford found instructors to teach statistical process control to new employees and helped modify Japanese-style classes (heavy on lectures) to suit the more hands-on American approach. According to Konica, Guilford's Ben Gray, who has the marketing-oriented title of assistant dean for business and industry, acted almost like an account rep. Still, as innovative as companies, states, and colleges are, their training efforts are a stopgap at best. The problem, experts say, is simply too immense to be solved on a piecemeal basis. Individual programs do not address the long-term employment needs of U.S. companies, or of the two out of three high school graduates who do not go on to college. Even now, most companies involved in basic-skills training concede that only 5% to 10% of their employee-training budgets are going to programs for blue-collar employees. Another problem: Smaller companies are hesitant to get involved. When the American Management Association surveyed 1,000 companies with sales under $50 million, it found that just 6% had tested their employees for basic skills and ; that only 25% of companies that tested workers required those who failed to take remedial courses. WHAT MUST be done? Ira Magaziner says that companies -- and the country -- need to realize that a choice must be made. Either industry can accept a low-skill work force, keeping jobs relatively simple and wages low, or it can become cost competitive through advanced technology and stringent quality controls. ''If we're going to have a high standard of living, the second way is our only choice,'' says Magaziner. ''But we're going to have to train workers.'' The National Center commission is scheduled to issue a report in June exploring what can be done to upgrade the skills of the U.S. work force. Among its expected recommendations: that industry groups set educational requirements for new workers so schools and students will know what is expected; that industries create more apprenticeships similar to those that exist in the construction industry; and that the federal government play a more active role in bringing educators and industries together to promote reform. Perhaps the biggest challenge remains that of convincing young Americans that they can find a profitable and satisfying career in a trade. Despite the well-publicized shortage of skilled craft workers, vocational experts see little movement of students toward these jobs. Says Lawrence Schrader, director of program operations for Wichita's vocational and technical schools: ''The perception of many students is that anything less than a college education is secondary status.''

Iowa's Tom Lesan has a slightly different worry: Students not headed to college don't give much thought to the future. ''We offer tool-and-die classes where you can make $14 an hour, and three kids show up,'' he says. ''We offer good old auto body, and we get 30 kids because they can fix their friends' cars. A lot of them will end up pumping gas.'' Until America can persuade its young workers to acquire the skills they, and the country, need, U.S. corporations will remain educators of last resort.

BOX: FACT

More than half the jobs created between 1984 and the year 2000 will require education beyond high school.