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PUBLISHER MARGARET SPELLINGS EDITOR-IN-CHIEF RICH COOPER ASSOCIATE EDITOR MICHAEL HENDRIX CONTRIBUTING ROLES ANDREA BITELY DIGITAL CONTENT MANAGER JACQUELINE CARL MARKETING MANAGER HILARY CROW MANAGER, PROGRAMS EDUARDO ARABU RESEARCHER A special thanks to the rest of the NCF and Chamber team that made this publication possible through their creative contributions and hard work. Design & layout by Adfero Group
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Copyright © 2012 National Chamber Foundation
TABLE OF CONTENTS
FALL 2012 // BUsiness Horizon Quarterly
The National Chamber Foundation (NCF), a non-profit affiliate of the U.S. Chamber of Commerce, is dedicated to identifying and fostering public debate on emerging critical issues. We provide business and government leaders with insight and resources to address tomorrowâ€™s challenges.
4 | AMERICAN COMPETITIVENESS
10 | GROWTH
16 | DEBT
20 | ABUNDANCE
24 | ENERGY
28 | INNOVATION
32 | MILLENNIALS
38 | MANUFACTURING
BY J O H N RA ID T
BY BRE T S WA N S O N
BY A L E X BRI L L BY TA M A RA C A RL E TO N
BY J A M E S S L U T Z BY N I C K S C H U L Z BY L E S L I E BRA D S H AW BY S T E P H E N G O L D , M A P I
44 | WORKFORCE DEVELOPMENT BY SANDR A WESTLUND-DEENIHAN,
Q U A L I T Y F L O AT W O R K S , I N C .
50 | ENTREPRENEURSHIP BY S H E E L T YL E , E RI C M E YE R A N D H A BI BE H A K I Q I
The views presented herein are those of the individual authors and do not represent the views or policies of the National Chamber Foundation, the U.S. Chamber of Commerce or their affiliates.
1615 H St. NW Washington, D.C. 20062
54 | EMPACT100 infographic 56 | Executive profile 58 | Scholars and fellows 66 | What you should know 68 | recent events 71 | Upcoming EventS 72 | FINAL WORD
FEATURE mEMOS TO THE FUTURE In the first years following the aftermath of World War II, a young and relatively unknown American diplomat named George Kennan wrote a series of memos that changed the post-war world. Assigned to the U.S. Embassy in Moscow, Kennan observed the expansionist interests of the then-Soviet Union and, seeing cause for concern, wrote to his superiors detailing ways to address the threat he saw emanating from Joseph Stalin and his Communist lieutenants. The approach that Kennan outlined became known as the “containment strategy” that was utilized by the United States throughout the Cold War era. Every president from Harry S. Truman to George H.W. Bush based their national security strategies on the cornerstone of Kennan’s memos, the most famous of which was published under the pseudonym “X” in Foreign Affairs in July 1947. The power of Kennan’s memos inspired NCF to ask its Scholars and new class of Fellows as well as a select group of guest contributors to each write a memo to the future detailing their insights in ten select areas. Detailed on the ensuing pages are “memos to the future” from these notable individuals who share their insights on where we need to go in the years ahead to be successful. Rich Cooper Editor-in-Chief
George F. Kennan
mEMOS TO THE FUTURE
BUsiness Horizon Quarterly
A NATIONAL COMPETITIVENESS STRATEGY:
THE SEVEN PILLARS BY JOHN RAIDT
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hroughout a long and contentious election
its place of global leadership and influence in the 21st
season, fractious campaign messaging has
century. Each of these musts will be well-served by a
focused on highlighting the “differences”
strategic campaign featuring seven essential pillars.
between the political parties and their candidates. Amid the partisan fray, however, the party platforms reveal refreshing accord on a top national priority: improving the global competitiveness of the American economy. National consensus on this objective is an encouraging first step. Now comes the more difficult part—achieving our aim. There’s no better time than a presidential
ONE – A cogent definition of purpose. Our purpose, simply stated, is achieving unmatched competitive excellence. The road to success needs a clear understanding of what it means for us to be an economically competitive nation. Fundamentally, it’s defined by the country’s ability to foster vibrant commercial enterprise and to excel in bringing desirable goods and services to market, at home and abroad,
inauguration and the start of a new Congress to launch
in the face of relentless international competition. It
a future-defining national project, provided that after
means that when job creators decide where to take risks,
the oaths of office are sworn the parties elect to unite
invest capital, and employ people, they will choose the
for action, rather than retreat to their political corners
United States. It means that when consumers abroad
to regroup for the next electoral scrum. A mission of
are purchasing products and services, we give them
such magnitude is best commenced with a presidential
every reason to buy American. Competitiveness, at its
declaration of commitment that inspires public
core, is not a zero sum game of capturing value that
enthusiasm and marshals our national energies, akin
would otherwise go to another. It’s about creating value,
to President Kennedy’s pledge to land an American on
pushing the limits of human achievement, meeting
needs, and harnessing the power of freedom.
Even the noblest goal without a realistic plan to
TWO – Clearly understood stakes. A global economy
achieve them, however, is just vanity. The quest for a
isn’t a choice—it’s a reality. America’s competitive
more competitive and successful national economy,
excellence will produce stronger economic growth,
like any major undertaking, demands a well-conceived
more well-paying jobs, healthier public treasuries,
strategy. For many years the United States has deftly
greater security, continuing global leadership, and a
strategized to advance our physical security. We possess
better place for our kids to live and grow. It means
a comprehensive, regularly updated battery of plans
that the United States will remain a nation of great
superintending the nation’s defense, military, and
consequence and leadership that is able to advance
homeland security policies and programs. Yet, at a time
our values and principles by example and practice.
when our ability to compete is definitional, we have no
Flagging competitiveness means a declining America of
equivalent “national competitiveness strategy” in service
unfulfilled potential, hobbling our ability to provide a
to our nation’s economic security.
higher quality of life at home and necessary leadership
If such a strategy is to be successful it must be realistic, comprehensive, disciplined, and adaptable. It
abroad. Either we compete or retreat. What’s needed is a whole-of-society drive alerting America to this reality.
must energize and inspire the nation by its common
THREE – Better organization. We must organize
sense and practicality. It must empower America to earn
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primary engine of U.S. global competitiveness is our
that will cultivate a more fertile American business
private sector, but as Jeffery Macher of Georgetown and
environment and by teaming between the public and
David Mowery of Berkeley observe, “Nations matter.”
Our policymakers will either foster a competitive national economy or foil it. Government mustn’t just “get out of the way.” It needs to participate in creating the way and, often, take the lead in clearing the way. Good governance engenders the trust and
FOUR – Sound foundational planning. Our strategy must be structured with well-conceived national plans to promote trade, innovation, infrastructure, manufacturing, and other prerequisites for competitive success. We have no such
confidence of risk takers through
set of comprehensive blueprints.
wise and consistent policy
This isn’t to suggest the failed
instrumental to sound business planning. Currently, no senior U.S. official is responsible for overseeing national competitiveness per se and no executive apparatus is chartered
UNMATCHED COMPETITIVE EXCELLENCE
to coordinate across the
presuppose the creation of new “czars” or additional layers of bureaucracy. Instead, it demands that we vest accountability for this portfolio in longstanding but modernized seats of authority. Similarly, Congress must be organized to address issues bearing on U.S. competitiveness holistically, rather than through jurisdictionally stove-piped committees deft at churning out discombobulated and confusing policy. Improved national-level coordination must be accompanied by greater synchronicity between federal, state, tribal, and municipal governments
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recognizes that government plays a central role in creating the conditions for success. A strong business environment is created by vision, thoughtful planning, and the execution of programs that elevate national
and implementation of We need both assets. This does not
central planning. Rather, it
enlightened laws, policies, and
interagency the development competitiveness-related policy.
approach of economic
performance in the fundamentals. FIVE – Strong fundamentals. National competitiveness policy and planning must laser in on eight widely recognized factors that attract job creators and investors: Access to customers. Without access to customers businesses fail, jobs aren’t created, and economies flounder. Achieving market access requires the pursuit and ratification of mutually beneficial international trade pacts. Without them we can’t tap demand for our goods and services in the fastest growing consumer markets abroad, thereby spurring employment growth and prosperity at home. While China and Europe are
vigorously pursuing trade agreements spanning the globe,
Affordable and accessible capital. Entrepreneurs
the United States is negotiating only one—albeit a sizeable
must have the financial resources necessary to hire,
one in the form of the Trans-Pacific Partnership.
build, and grow. Access to affordable capital is being
Reasonable costs. The cost and complexity of our tax and regulatory systems must stack up well against other countries. Yet, we have the highest business tax rates in the OECD. The U.S. internal revenue code is a tangle of quantum complexity and gamesmanship. The Code of Federal Regulations is a fast-accreting mass of duplication, confusion, and inefficiency. Both codes are major liabilities
impaired by new and contradictory financial and tax rules, economic and policy uncertainty, and the threat of higher interest rates from outsized public debt that rivals the biggest deadbeats in Europe. Each of these obstacles needs immediate attention so that financial lifeblood can flow to our entrepreneurs and enterprises, big and small. A highly-skilled and mobile workforce. Our
and must be modernized. Reasonableness in the cost of
employers require access to the world’s most skilled
universal inputs such as health care, energy, labor, and
workers if we are to excel in today’s technology-
liability can contribute mightily to a national economy
based economy. America’s student body is lagging
able to sustain strong purchasing power, employment, and
in the disciplines of the future: science, technology,
productivity; it will make our offerings more attractive
engineering, and mathematics (STEM). Our workforce
abroad. International market access will produce little
is aging, relatively immobile, and ill-prepared to fill the
benefit if we can’t compete vigorously on the bases of both
better-paying jobs in the modern economy.
cost and quality.
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World-class infrastructure and reliable energy.
“fiscal cliffs,” our way to a more prosperous future
America’s prospects depend on having modern networks
is through a sensible glide path to a more balanced
and ample, affordable power to keep our people and
goods on the go and operations humming. Other
Good governance, rule of law, justice, and civil
countries are investing heavily in state-of-the-art
society. Job creators wish to locate where public
transportation, communications, and public utility
institutions are dependable, honest, and effective, where
systems. U.S. infrastructure is aging, underfunded,
legal rights are protected, and where a
and falling behind. Retooling America’s
safe and stable civil society supports
infrastructure will take time and
a high quality of life. The
resources, and the time to begin
United States is an economic
WHETHER IN GOVERNMENT OFFICES,
precisely because of our
BUSINESS SUITES, UNION HALLS,
OR OTHER SEATS OF CIVIC
in many of these areas.
Even the most elaborate systems, however, can’t compensate for an
and political safe haven
RESPONSIBILITY, WE NEED OUR
economy that doesn’t
LEADERS TO EMBRACE A
have sufficient energy.
LONGER-TERM VISION AND KEENER
are undermined by
America has a wealth
SENSE OF TEAMWORK.
of resources and know-
including poor public-
how to meet the growing
sector efficiency and
domestic and global need for
productivity, slow and
clean, abundant energy and energyefficient goods and services. Harnessing these assets wisely to meet our national economic,
cumbersome permitting and approval processes, a tort system that leads the world in cost and excess, significant cyber-
security, and environmental needs is essential to
vulnerabilities, and an unacceptable rate of violent crime
achieving competitive success.
and social division.
A responsible fiscal environment. Explosive levels
A fertile culture of innovation. No economy can
of government debt impair economic growth, repel
remain vibrant without a fertile ecosystem for spawning
job creators, and undermine national competitiveness.
the advanced goods, services, and solutions that fuel
America’s swelling tidal wave of red ink portends
prosperity. Other countries are rapidly enhancing
higher taxes, rising interest rates, and inflation. Debt
their creative capacity. Strengthening innovation, long
service continues to gobble up a growing portion of a
the engine of U.S. economic achievement, requires a
nation’s annual budget, siphoning resources that would
national commitment to academic and professional
otherwise be available for purposes that support a
excellence in STEM, intensive cross-disciplinary
healthy and competitive economy, such as education,
collaboration, ample public and private R&D
training, and infrastructure. Rather than leaping over
investment, a strong patent system, and the vigorous
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protection of intellectual property. In each of these
U.S. leadership abroad, however, is unsustainable
categories the United States is performing well below our
without excellent leadership at home. Whether in
potential and swiftly losing ground to competitors.
government offices, business suites, union halls, or
SIX – Benchmarks and measures. As important as each of the above fundamentals are, we can’t expect to excel in any of them without honestly benchmarking our competitive performance and continuously measuring progress. The United States tracks a multitude of economic indicators; none, however, are designed specifically to assess our comparative global competitiveness—a richer and deeper evaluation than traditional economic barometers. Charting our position and progress will enable us compare our standing with the competitive performance of other economies. The important task of analyzing U.S. global competitiveness shouldn’t be relegated to the World Economic Forum, World Bank, OECD, or United Nations. Achieving national excellence is our responsibility. It’s incumbent upon us to chart our own course, establish our own benchmarks, and measure our own headway.
other seats of civic responsibility, we need our leaders to embrace a longer-term vision and keener sense of teamwork. Too many of our institutions and those who lead them are fixated on short term gratification— looking to the next election, the next quarterly earnings report, or the next negotiation—rather than on building solid fundamentals for success that will stand the test of time. The essence of good leadership is keeping faith with lasting principles—political and economic freedom, the rule of law, the sanctity of human rights, the dignity of the individual, civic responsibility and the values undergirding the document that begins with “We the people.” If we match our fidelity to this code with adroit strategy to right the nation’s economic ship and remain on course, America will surely set the pace for progress in a challenging yet opportunity-filled 21st century and beyond. n John Raidt serves as a Scholar at the National
SEVEN – Leadership. The indispensable element that pulls it all together is leadership. America must prosper in order to lead and we must lead in order to prosper.
Chamber Foundation, the Advisor to the Chairman of the U.S. Chamber of Commerce, and as a Senior Fellow at the Atlantic Council. Raidt has over 21 years of public policy experience, including national and homeland security, energy, the environment, and natural resource management issues. He has
A trade-based global economy can’t function fruitfully without principled norms, rules, and best practices that guide international economic, political, and security relations. Evolving challenges such as
served as a professional staff member of three national commissions, including the National Commission on Terrorist Attacks Upon the United States (9/11 Commission), the Commission on the National Guard and Reserves, and the Independent Commission on the Security Forces of Iraq. In 2008, Raidt served as Deputy to General James L. Jones
terrorism, corrupt trade practices, and state capitalism
(USMC-Ret.), Special Envoy for Middle East Regional Security, focusing
won’t fix themselves. They require an America at its
on resolution of the Israeli-Palestinian dispute. He has also worked as
best and at the fore in a world where nations are
a senior staff member in the U.S. Senate, including as the Legislative
necessarily vested in one another’s prosperity, stability, and success.
Director for U.S. Senator John McCain and Chief of Staff of the U.S. Senate Committee on Commerce, Science and Transportation. Read his full biography on page 63.
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BEYOND THE NEW
NORMAL A NEW ERA OF GROWTH BY BRET SWANSON
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he United States is mired in the slowest
of Rome asserted in its famous 1972 “Limits to
economic recovery since the Great
Growth” report was a long state of decline. It was
Depression. Worse, we are told by many
time to downgrade expectations, rein in ambitions,
economists and policymakers that things are not
and hunker down for the lean decades ahead.
going to get much better. We are experiencing,
At first, the stagflationary 1970s seemed
they say, the “New Normal,” a permanent
to vindicate this projected scarcity.
downward departure from America’s historic 3% growth rate. New Normal projections are an understandable response to the trauma of the financial panic, the European debt crisis, deleveraging, and downtrending demographics, summing to a suggestion of slower growth—maybe 2% per year–as far as the eye can see.
In the late 1970s and early 80s,
THE GREAT LEADERSHIP CHALLENGE OF OUR TIME IS TO SHOW
however, the United States (along with the UK and China) said “enough.” This downgraded future was not
THE FUTURE IS STILL POSSIBLE
Indeed, with existing policy and leaders telling us to prepare for slower growth ahead, the New Normal is probably an
AND TO CHART A PATH OF ECONOMIC RESURGENCE.
accurate prediction. The New Normal, however, assumes we are powerless to do anything about it. Its fatalism runs counter to the American ethos. The great leadership challenge of our time is to show the future is still possible and to chart a path of economic resurgence. We’ve seen this play before. Forty years ago, things also looked bleak. Inflation was starting to break out. Vietnam had dragged on for nearly a decade. Watergate was burbling. Oil prices were beginning a dramatic climb. We had entered what the Club
acceptable. The United States stood up and chose a bold, new, distinct path across a range of policies, unleashing waves of growth and technology not only in America but across the globe. In the 1980s and 90s, the
United States was one of the freest economies on earth. It consistently
ranked, for example, among the top four nations in the Fraser Institute’s annual World Economic Freedom report. Economic growth averaged 3.4%. In the 2000s, however, regulation and spending accelerated. The quality of our legal environment and monetary policy declined. Combined with growing freedom around the globe, America’s relative competitiveness plunged. By the 2012 World Economic Freedom report, the United States had fallen to 19th. Noting scholarship linking economic freedom with
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economic growth, the Fraser Institute’s latest ranking
1980s. (Many cite the argument by Kenneth Rogoff
“implies that, unless policies undermining economic
and Carmen Reinhart that it takes economies longer
freedom are reversed, the future annual growth of the
to recover from a financial crisis than might otherwise
U.S. economy will be half its historic average of 3%.”
be the case in a normal downturn. However, Michael
Such an outcome would dramatically downgrade the possibilities for American workers, investors, families, retirees–and, crucially, federal and state budgets. Economic growth is the force that provides opportunity for the young, ensures security for the old, and allows America’s diverse families and communities to pursue their idea of the American dream. Consider the disaster the New Normal implies. Annual GDP growth of 2% over the next 30 years, compared to a continuation of the recent 3% growth trend, would result in an economy some $13 trillion smaller (in 2005 dollars) in 2042. Such an America would be a qualitatively different place. A great challenge for leaders today is to explain this vast gulf in possible American futures—and to show how we might reinvigorate America’s growth engine. Nearer term, the New Normal will continue to place a lid on employment. At today’s feeble 2% growth rate, we might add a hundred or two hundred thousand jobs each month. Over the next five years, that’s around seven million jobs—barely enough to keep up with population growth. Three percent growth might yield around 10 million net new jobs. Yet a 3% growth rate itself is slower-than-usual recovery speed; it is not an ambitious objective. Emerging from the current slump, we should grow at 4, 5, or 6% for several years, as we did in the mid-
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Bordo and Joseph Haubrich took a closer look and found that the U.S. economy actually tends to grow faster after a financial crisis—that is, once growth arrives.) A strategy for implementing 4% growth for the next five years could add 14 million net new jobs— meaning that in 2017 seven million more Americans would be working compared to today’s plodding 2%. For jobs, budgets, and broad opportunity, economic growth towers over every consideration and should inform every policy debate. So how do we spur such a growth track? A simpler, flatter, more efficient tax code that rewards rather than punishes investment and entrepreneurship would divert capital from gold and Treasuries into new businesses and bring home trillions in foreign sourced earnings and global capital. Unfortunately, some in Washington and the states are proposing higher tax rates, new carve-outs, and favors that will make real tax reform impossible. Washington can’t keep consuming an ever greater share of the economy. Harvard’s Alberto Alesina, looking at nations across the globe, shows robust negative effects on growth as a government’s share of the economy expands. Sadly, the federal governmenteconomy ratio has jumped from 20% to 24%, and the current budget path makes this ratio worse over time. Does anyone believe the sprawling U.S. regulatory apparatus promotes economic growth? In each of the last two years, the Federal Register has grown by more than 81,000 pages. Rather than reforming or refining
A great challenge for leaders today is to explain this vast gulf in possible American futures –
and to show how we might reinvigorate America’s growth engine. existing regulations to keep pace with the times and
Innovation, however, requires agility, investment,
circumstances, Washington is busy draping vast new
and deep commitments of time and energy to pursue
blankets of regulation over finance and health care and
ambitions whose outcomes are unknown. Too often
finding dozens of ways to interfere with our energy
regulations and taxes cement in place the current way
economy—a sector poised to deliver explosive growth
of doing things; predetermine the structure of entire
in coming years. Federal Communications Commission
industries, and protect the status quo while deterring or
micromanagement of broadband and mobile networks,
prohibiting provocative upstarts.
meanwhile, could slow growth at the margins or, depending on regulatory whim, disrupt an entire innovation ecosystem. A chief duty of America’s leaders will thus be to
In many cases, the benefits of regulation are negligible while the costs to American citizens are enormous. No estimate of regulatory costs can precisely gauge the impact of all our governmental rules in a dynamic
explain why we can’t afford these ever-expanding
economy, yet in a 2010 report the government’s own
layers of taxes and regulation. For an economy like
Small Business Administration estimated annual federal
the United States that operates at the technological
regulatory costs of $1.75 trillion.
frontier, experimentation and entrepreneurship are essential. New firms, new products, and new ideas are the essence of growth.
Another way to look at it: if misguided regulation slows economic growth by just half a percent per year, the 2042 American economy would be $5 trillion
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smaller (in 2005 dollars). It is difficult to justify
but has generated more than 8,000 pages of
the bulk of today’s regulatory state against a possible
additional rules and regulations, according to a
$5-trillion-per-year dividend to our generation’s children.
report by the law firm of Davis, Polk & Wardwell.
Real leaders—policymakers, yes, but also businessmen and entrepreneurs—need to show that with the right policy framework that supports entrepreneurship and investment, we can relight America’s lamps of innovation. In addition to comprehensive tax reform, a top-down regulatory rethink, and shrinking the government-toGDP ratio, a pro-growth agenda should include: • The promotion of international trade, thus
expanding markets for American firms and
keeping prices low for American consumers. • Facilitating legal immigration, which is the
source of so many new ideas and entrepreneurs. • Reversing the trend of big government decisions
through regulation that channels capital according
to political influence, creates too-big-to-fail
firms, and deters real entrepreneurship. A
complex and shifting regulatory framework;
increased regulation at the local, state, and
federal levels; and a rise in litigation surrounding
this regulatory trend is overwhelming business
as well as those assigned to do the regulating.
As CFO Magazine reported, “understaffed and
• Stabilizing U.S. monetary policy, so that American
firms, consumers, and the global financial system
can count on a predictable value of the dollar. Some look to the Federal Reserve to pump up
nominal GDP with never-ending zero interest rates. Do these actions create real wealth? More likely, it steers money directed by big government to businesses, thus creating winners and losers, diverting attention from the real fiscal and regulatory obstacles, and possibly fueling the next financial mishap or even crash. Might real factors beyond our control result in a potential growth rate lower than we’ve enjoyed these last few centuries? Sure. The converse, however, is also possible. What if today’s relatively freer, more connected world allows good ideas to be created and shared at an even faster pace than before—at an even larger scale— resulting in a higher top-end growth potential? What if we choose to unleash, rather than tie down, America’s deep human capital assets?
overwhelmed regulators—at the Securities and
Exchange Commission, the Federal Reserve, the
Commodity Futures Trading Commission
(CFTC), the Federal Deposit Insurance Corp.
(FDIC), the Office of the Comptroller of the
don’t know the answer, but what we can do is set the
Currency, and elsewhere—had finalized only 110
levers within reach for “full speed ahead.” If we max out
of the 398 regulations they were tasked with
at 2.5%, that’s far better than the 1.5% that could result
crafting” after Dodd-Frank was passed into law.
with today’s unacceptable “limits to growth” policies.
This regulatory juggernaut has implemented just
Matt Ridley, author of The Rational Optimist, surveyed
30% of the required rulemaking for Dodd-Frank,
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What if we reinvest, rather than draw down, our deep reservoirs of wealth? What if growth greater than 3% is attainable? We
ANNUAL GDP GROWTH OF 2% OVER THE NEXT 30 YEARS, COMPARED TO A CONTINUATION OF THE RECENT 3% GROWTH TREND, WOULD RESULT IN AN ECONOMY $13 TRILLION SMALLER IN 2042.
economic history going back thousands of years and
Bret Swanson is President of Entropy Economics,
persuasively showed that, well, optimism is rational—
a research ﬁrm focused on technology and the
that progress surprises to the upside. Progress, however, requires freedom, flexibility,
global economy, and of Entropy Capital, a venture ﬁrm that invests in early-stage technology companies. Swanson is also a “Broadband Ambassador” of the Internet Innovation Alliance
experimentation, and a constant reexamination of our
and is a trustee and investment committee member of the Indiana
institutions. Those who think we can achieve great
Public Retirement System (INPRS). Bret Swanson writes a column for
things by continuing to dig deeper holes are deluded.
Forbes and often contributes to the editorial page of The Wall Street
Likewise, the New Normal pessimists can probably
Journal. Read his full biography on page 65.
achieve a self-fulfilling prophecy. A “rational optimism” that acknowledges hard realities and rebuilds the foundations of innovation and invention, however, can obliterate the New Normal and relaunch another American era of growth. n
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mEMOS TO THE FUTURE
BUsiness Horizon Quarterly
A Debt Strategy for the Next Thirty Years
BY ALEX BRILL
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he United States is on an unsustainable fiscal course. This year marks the fourth in a row
Understanding the National Debt
that the U.S. federal deficit will exceed $1.1
trillion. Since the end of 2007, the federal debt, now $11 trillion, has doubled as a share of annual GDP—from 36% to 73%. The long-term outlook is even worse. The deficit is likely to improve in the next few years,
The gross magnitude of the federal deficit and federal debt is incomprehensible to most citizens. One way to put the debt burden in a more digestible framework is to compare the borrowing levels appropriate for a household to those of the government.
but it will then turn upward again due to the projected rise in federal spending on Medicare and Social Security. According to the Congressional Budget Office (CBO), spending on those two programs will rise from 8.7% to 12.2% of GDP by 2037. The good news is that U.S. lawmakers and policy experts from across the political spectrum have begun in earnest to outline possible strategies for tackling this looming debt crisis. Unsurprisingly, many suggestions—
The conventional personal finance advice is that one’s mortgage should not exceed three to four times one’s annual income. This rule of thumb can be adjusted depending on expected future income growth, interest rates, or other expected expenses, but it is a reasonable starting point. For example, a household earning $100,000 would be well advised to buy a house for no more than $375,000–$500,000, assuming a 20% down payment.
from the Left and the Right—are misguided or not particularly constructive. For example, a number of leftleaning think tanks have recently supported a “financial transactions” tax that would cause huge distortions, raise far less revenue than projected, and push more of the industry offshore. Similarly unhelpful, some conservative groups have advocated abolishing various small spending programs on the grounds that such cuts will improve the fiscal outlook, even though their elimination would have only a trivial impact on the overall federal budget. Given the plethora of ideas being floated, it is critical that policymakers—both liberal and conservative—zero in on a framework that effectively addresses our fiscal challenges and permits specific policies to be properly evaluated. Outlined below are three key principles that are essential to this endeavor and offer concrete policy applications based on these principles. First let’s provide some context for understanding the size of the problem.
The government’s income, total taxes, are expected to be $2.4 trillion this fiscal year. Given that the federal debt is $11 trillion, the government’s debt is already more than four times greater than its income. If the debtto-GDP ratio rises to 200%, as CBO forecasts for 2037, the situation changes dramatically, with the debt-toincome ratio rising to more than 10. This would be the equivalent of a family who earns $100,000/year buying a $1.25 million house.
Three Elements of a Successful Debt-Reduction Framework The key metric is the ratio of debt to GDP, not 1 the absolute debt level. This ratio rises when the
federal government’s borrowing is a higher fraction
of existing debt than the rate at which the economy
grows—that is, when the numerator grows
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faster than the denominator. If the nominal level
rate of entitlement, or “mandatory,” spending, which
of economic growth is 4% per year, for example,
consists primarily of Medicare, Medicaid, and
then, starting from a point at which debt equals 60%
of annual GDP, any deficit above 2.4% of GDP
increases the debt-to-GDP ratio. Given the
Over the last several decades, health care costs have
enormous deficits of the last few years, that goal may
been consistently rising at a rate higher than
seem impossible. On the other hand, from 2001 to
inflation—about 4.9% per year in real terms between
2008, the federal deficit averaged just 1.8% of GDP.
1965 and 2005. According to CBO, spending on
major federal health programs is scheduled to
increase from about 5% of GDP to 10% of GDP in the
next fifteen years.
While an economic growth agenda alone will 2 not solve our problems, the solution must include
growth-oriented policy changes. Our pending debt
crisis poses a threat to our country’s ability to
continue to grow and prosper. High debt burdens
impose high costs, as the annual obligation to service
that debt (interest costs) limits our ability to fund
other programs or reduce tax burdens.
Applying the Principles: Establish Policy Objectives In applying the principles outlined above, policymakers face three questions:
Critical to any successful set of reforms to tackle
the looming debt crisis is a laser focus on the
economic growth consequences of policy changes
to federal programs, entitlements, and the tax
system. In particular, any reforms to the tax system
must be structured in a manner consistent with
encouraging capital formation and human capital
development. The tax burden on capital income—
dividend and capital gains taxes and the corporate
income tax—has been shown to discourage
investment in the United States and therefore is
contrary to a growth agenda. High marginal tax rates
on entrepreneurship can also stifle innovation.
3 and Social Security, there is no solution. While the
Without changes to Medicare, Medicaid,
level of discretionary spending has spiked
significantly in recent years and should be scrutinized
carefully, the only real solution to our looming debt
crisis comes from fundamentally slowing the growth
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What goal should be set for a debt-to-GDP ratio, 1 and in what year should it be met? What level of tax receipts and spending outlays 2 should be targeted to achieve that goal? What tax reforms will promote growth and 3 provide sufficient levels of revenue, and what
changes to federal health and retirement spending
will reduce Medicare, Medicaid, and Social
Security outlays to sustainable levels? Policymakers need to be realistic in the goals they set
and then pursue those goals as aggressively as they can. Reasonable people can disagree over the answers to the above questions but for me, I would give these answers:
Deficits today represent the decision to pay for
things tomorrow. Therefore, the higher the debt-
to-GDP ratio, the more our children will be taxed in
the future to finance today’s spending. There is no
private sector’s ability to respond to incentives will
certain answer to this question, but I recommend
doctors, hospitals, other providers, and patients seek
setting a goal of achieving a debt-to-GDP ratio of
out better, more cost-effective treatments.
60% by 2035.
Incremental change in that direction occurred when
The Peterson Institute recently asked think tanks
health savings accounts were established in 2003. The
across the political spectrum to develop
necessary fundamental change to Medicare is likely
comprehensive strategies to stabilize the debt-to-
to be some version of the “premium support” model,
GDP ratio. I collaborated with several colleagues at
whereby the government provides financial assistance
the American Enterprise Institute, and we submitted
to ensure that all seniors can afford to purchase their
one such plan called “Fiscal Solutions: A Balanced
own health insurance, much like the concept behind
Plan for Fiscal Stability and Economic Growth.”
Medicare Part D. Any realistic reform will require
Though it was by no means a simple task, we
those beneficiaries who are able to do so to bear
limited the debt to 60% of annual GDP in 2035,
primarily by curbing the growth of the nation’s
Given changes in the demographics of our
Conclusion The task of confronting the national debt is
country and the difficulty in holding health care
challenging, but it is quickly becoming unavoidable. The
spending growth to the rate of the overall economy,
strategy that I propose here would help policymakers face
tax burdens will likely need to rise. Critical to such
the problem head on. By bringing the real issue into focus
a change will be ensuring that as the tax system
(the debt-to-GDP ratio), policymakers can set accurate,
grows, it becomes more efficient. This means lower
meaningful goals. By emphasizing economic growth,
effective tax rates—especially the tax rate on capital
they can avoid creating a growth problem as they solve
income—and a broader tax base. Specifically, the
a budget problem. By being honest about the primary
corporate tax rate, the dividend tax rate, and the
cause of the problem—entitlement programs—they can
capital gains tax rate should be made as
move to address issues that will only become more painful
low as possible. The hundreds of tax credits,
if we delay. n
deductions, and exclusions should also be carefully
reconsidered, with many of them repealed, reformed,
or otherwise reduced.
Alex Brill is a Fellow at the National Chamber Foundation and a Research Fellow at the American Enterprise Institute (AEI). A former policy director and chief economist of the House
Addressing entitlement reform in an effective
manner is paramount. Simply reducing the payments
to health care providers without fundamentally
restructuring the incentives for providing affordable,
quality care will never yield the desired results. Only
by harnessing the forces of competition and the
Ways and Means Committee, Brill also served on the staff of the President’s Council of Economic Advisers (CEA). Brill is also the founder of Matrix Global Advisors, a boutique consulting firm that provides legislative and strategic analysis of public policy matters to Fortune 500 companies engaged in Washington strategies and financial services clients making investment decisions. Read his full biography on page 60.
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BUsiness Horizon Quarterly
BY TAMARA CARLETON
he notion of abundance is very American. As a people, we generally like to consider the glass as half-full. We believe cheerfully that there is a future, and that not only we benefit in planning for the future, our actions should lead to a better tomorrow. When historian Alexis de Tocqueville visited the United States in
1831, he observed then that optimism defines our country. Our positive thinking continues to be a powerful inherent advantage, which most other nations do not possess, and so it is fitting that we consider a long-term strategy for national abundance. The United States is currently in a favorable position. In the Spring 2012 issue of Business Horizon Quarterly, Joel Kotkin writes that the United States may be poised for its greatest era of opportunity due to the confluence of multiple economic, demographic, and political trends. He points to the vast available raw materials, growing foreign investment, and open immigration policies, among other factors, that fall to our nation’s advantage. Smart leaders will ask: how can this power position be sustained? The optimist angle extends that question further: how can we grow this position? Talent, capital, and markets are three basic levers required to influence our nation’s abundance, and with the right actions, the United States can boom in all three areas over the next 30 years. Let’s consider each area in turn.
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An abundance of talent Unlike most countries, the United States has a huge cohort of ready talent. With nearly 314 million people, it is the third most populous country after China and India, which have 1.3 and 1.2 billion people, respectively. By 2050, the United States will add 35 million working-age persons, according to United Nations projections. In contrast, nearly all other firstworld nations face large aging populations that will overwhelm the number of workers who can support their elders’ pensions and healthcare costs. In 40 years, Europe will see its working-age population shrink by 37 million. By 2050, one in five Europeans will be over age 65. Small European nations with low birthrates—such as Austria, Belgium, Denmark, Norway, and Sweden—will drop off the list of the 30 biggest economies by 2050, says London-based bank HSBC. In Asia, Japan will lose 30 million workers, and
Why does this matter in the long-term? While some argue that demographics is destiny, factually demographics is economics. Countries with fewer people must join the worldwide competition for skilled workers, and the more enterprising (or desperate) nations will find creative or costly ways to import talent and labor. Biology notwithstanding, it takes time to produce more people of working age, and the United States should fully capitalize on its abundance of raw talent through the next few decades. Our nation will benefit from more workers, more consumers, and more taxpayers. It also means more potential entrepreneurs creating new businesses that hire people and grow the economy. In practical terms, a talent strategy requires addressing generational needs. For instance, removing the double tax on work abroad will help spur the innovative output of talented Gen Xers and Millennials, who will only work more as distributed global teams and in multiple foreign cities as they age. Businesses will need to supplement the schooling
China will lose 100 million. Although India is
gaps of Millennials and the Homeland Generation
experiencing a demographic dividend, it faces an
(which are often noted as being born roughly from
enormous challenge to undo archaic labor laws, recruit
2005 to 2025) through creative measures, including
more women into the workforce, and invest in training
more advanced co-op and internship programs, digital
and education. India’s share in the world’s population
badges and certificates with various learning partners,
will then peak in 2030, after which it will decline,
and industry-led courses.
and then the growth in the world’s population from then on will be fuelled by Africa, according to UN projections. While heavily populated, most African countries face a myriad of pressing issues, including poor food production, unstable and corrupt governments, and extreme poverty that will thwart their attempts for genuine economic growth.
Better support and resources for parents, especially at the workplace, will help retain more workers during childrearing years, plus help indoctrinate good values and healthy habits in our young during their most formative years. Already some countries are introducing programming as a basic skill at the preschool level.
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An abundance in capital Beyond talent, the United States has ample cash reserves. Non-financial U.S. companies held a recordbreaking $1.24 trillion in cash as of December 2011, up 3% from 2010, according to Moodyâ€™s Investors Service. These amounts reflect the strength of emerging markets, the negative tax consequences of repatriating the money to the United States, and the disproportionate use of stateside funds to pay for dividends and acquisitions, Moodyâ€™s said. Over half of these cash stockpiles, nearly $700 billion worth, is being held overseas. For example, Microsoft has sidelined $54 billion, Google $43 billion and Cisco $42 billion offshore. Money flows through robust economies, and the opportunity over the next 30 years is to provide more incentives to American firms that channel their cash back into research and development (R&D), new capital investment, and deal making. Like the end of the Cold War, a future of abundant growth requires a new model of thinking. One radical step is to simplify and even replace the entire corporate tax code, which will motivate businesses to tap into their cash vaults, particularly those held abroad. Venture capital (VC) provides another source of cash as dry powder. Even as the VC industry wrestles with different
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business models, the United States nonetheless remains the role model globally. U.S. venture capitalists invested nearly $30 billion in 2011, according to the National Venture Capital Association, compared to $5.3 billion raised in Europe. Over the last 10 years, venture firms have held nearly $119 billion in reserve, which represents about one-third of total funds raised in that period, reports research firm Preqin. All this reserve cash is earmarked and available for new business growth and innovation. Apart from tax incentives, governments can support the spending of venture capital by either funding startups directly through government agencies or investing jointly in privately managed funds. However, viable avenues for capital growth need to also exist. The classic high-growth path is the initial public offering (IPO), yet the outlook for IPOs looks dim in the future. Acquisitions represented more than 90% of all exits for VC-backed companies, based on a 2011 report by consulting firm Ernst & Young. Between 1986 to 2008 (and adjusting for the dot-com period), researchers Susan Chaplinsky and Swasti Gupta-Mukherjee found that acquisition (M&A) deals soared from 25 to 63%, while the number of IPOs fell sharply from 75 to 37%. Although IPOs offered better returns on investment than M&A exits, the researchers point to the Sarbanes-Oxley Act (SOX) as a major obstacle. Many venture capitalists and entrepreneurs view SOX, which was passed in 2002 after the Enron and Worldcom scandals, as a big headache due to the
costs and regulations involved. This year Congress is
Or take a new market vision from the Bill and
considering revising SOX regulations to make it easier
Melinda Gates Foundation. They shocked educational
for private companies to go public. However, legislative
experts and industry analysts when they said they
reforms are only as effective as the boards at the
would fund new inventions for massive open online
companies that incorporate them.
courses (MOOCs) for remedial learners, not the typical
Ten years after legislated reforms, we still read about corporate governance scandals in the news. As companies
overachieving students. On a more fundamental level, corporate R&D
work to address them, their boards must also play an
produces the inventions that find new markets. Business
active role in leading them forward.
accounts for a large and growing share of U.S. R&D
An abundance of markets Capital pays for new ideas to turn into inventions, and American firms have a knack for creating many markets for their inventions. Even if business leaders may miss the first window—for instance, IBM’s president Thomas Watson once declared that no world market would ever exist for computers—they soon create or possess a new opportunity that escalates an entire industry. Consider the technology company Apple. Apple has continued its record success streak, selling a total of 250 million iPhones since 2007 and 67 million iPads since 2010. Once Apple overtook the emerging market for consumer tablets, it could not keep up with market demand without the help of Taiwanese electronics manufacturer Foxconn. Lamenting American manufacturing misses the broader impact. Foxconn provided a complete electronics infrastructure, full access to Asia’s supply chain, and a million workers instantly. With these efficiencies of scale, Apple jumped from 20th to seventh place in CNNMoney’s last annual ranking of the most profitable companies in the world. This is a dazzling case of American ingenuity defining and owning a market through strategic global partnerships.
spending, financing about two-thirds of the total spending in 2008, according to the 2012 Corporate R&D Tax Credit report commissioned by the Center for American Progress. A big strategic step is to standardize the corporate research tax credit permanently, which will ensure regular investments in new technologies. Congress has retroactively reinstated the credit nine times, even though studies show that the credit stimulates at least as much R&D activity as a direct subsidy. The United States remains the land of plenty. Other aspects of abundance exist to our future advantage, including natural ones (such as habitable land and natural gas) and more worrisome ones (such as the amount of regulation and debt). The three basic levers of talent, capital, and markets will be vital in moving our nation forward and fortifying our nation’s abundant position. n Tamara Carleton, Ph.D., is a Fellow at the National Chamber Foundation and is the founder and Chief Executive Officer of Innovation Leadership Board LLC, a global leader in the design of tools and processes that enable radical innovation. Previously, she was a fellow with the Foundation for Enterprise Development and also for the Bay Area Science and Innovation Consortium. A former management consultant at Deloitte Consulting LLP, Carleton specialized in emerging solutions in enterprise applications, customer experience, and marketing strategy. Read her full biography on page 61.
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OUR ENERGY WEALTH â€“
PAST AND FUTURE DECADES OF BOUNTY! Energy Policy in an Era of Abundance
BY JAMES SLUTZ
ver the past few years new oil and natural gas discoveries have been made in places like Ohio, Pennsylvania, and North Dakota. In just a few years, North Dakota has become the second largest oil producing state in the United States, behind only Texas. Pennsylvania is becoming a leading natural gas
producing state. What does this mean for U.S. energy policy? For nearly 40 years, U.S. energy policy has been contemplated in an atmosphere of scarcity. Fear of rising energy costs. Fear of relying on imported oil. Fear of running out of energy. Policy created in an air of fear, shortage, and scarcity is an atmosphere that limits options. We have created a lottery energy policy mentality seeking the next big payoff, the silver bullet. That is not the history of our country. We are a country of abundance. Natural abundance endowed by our creator and abundance enabled through innovation, such as the current shale oil and gas revolution. Perhaps the greatest opportunity offered by recent shale oil and gas production is that we can envision our future from the prism of wealth, plenty, and abundance. Energy policy developed in an atmosphere of abundance is developed on optimism, growth, and a bountiful future.
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ENERGY The first oil well was drilled in America in 1859 by
It is difficult to find a precedent for this type of
Edwin Drake. From that time, the United States has
change in U.S. energy outlooks. Clearly, we are in an era
always been a leading petroleum producer. It might
of abundance in natural gas resources while also having
surprise many Americans that the United States supplied
growing oil production.
more than 85% of the oil for the Allied armies during World War II. Based on the hand wringing over energy policy of
In energy, there is always a close linkage between abundance and innovation. Current estimates of production are based on technically recoverable resources,
the past 40 years, one would think the United States is
so as technology improves, a greater amount of the
running out of energy. The facts are: the United States is
resource can be produced. Technology doesn’t just involve
the largest natural gas producer, the second largest coal
production capability, but also how we use energy. To
producer, the number three oil producer, and the largest
illustrate this, in May 1857, Scientific American stated:
geothermal energy producer in the WORLD! In addition to the actual energy produced in the
“We believe that no particular use is made of the fluid
petroleum, from the ‘tar springs’ of California, except
United States, we are leaders in energy technology.
as a lotion for bruises and rheumatic affections. It has
This technology capability has been instrumental in
a pungent odor, and although it can be made to burn
continuing to grow our energy supply, both the actual
with a pretty good light, its smell is offensive.”
volume of energy and the improvements in efficiency which allow us to gain more productive capacity from every BTU of energy. There have been many times when our society has been concerned that we would be able to meet our energy needs. Every time, when markets were allowed to work, innovation and new technology unlocked
Energy policy developed in an atmosphere of abundance, and has developed on optimism, growth, and a bountiful future.
new energy production. The latest such technology breakthrough has been the oil and gas production from shale, which applied the technology innovations of horizontal drilling with multi-stage hydraulic fracturing. To illustrate the magnitude of this impact, we only need to look at five years of energy projections from the Energy Information Administration (EIA). In 2007, EIA projected that by 2030, the United States would be importing more than 20% of our natural gas supplies. In 2012, EIA is now projecting that by 2022, the United States will be a net natural gas exporter.
Two years after this assessment, Edwin Drake successfully drilled the first well in Titusville, Pennsylvania. For the first 50 years or so of oil production, the primary use was for lighting. Henry Ford’s mass production of cars and Thomas Edison’s innovation with electric lighting changed the direction and use of oil for the next 100 years—innovations that had nothing to do with oil production. We don’t know what the next innovations will be that will change our history or dramatically alter energy use.
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Viewing the United States and the world through
solar. When market forces have been allowed to work,
the lens of abundance, we can craft an energy policy
high prices and perceived shortages have been turned into
that allows business and entrepreneurs to discover the
surpluses and abundance. Relying on markets as a key
technologies that will add value and transform our societyâ€”
energy policy principle will result in the highest value for
raising standards of living around the world. To accomplish
the country and individuals. The value for Americans is
that, we need an energy policy that maximizes the value of
realized by maximizing the value of the nationâ€™s resources,
our resources today and enables innovation to prosper.
avoiding imprudent expenditures of taxpayer dollars, and providing consumers with the lowest energy cost.
The complexity of the global energy market and the inability to predict technology advances or even transformations requires a reliance on markets to make investment decisions.
2) Straightforward and consistent tax policy; no
preferential or punitive treatment Energy investment decisions are complex and have
very long time frames. New energy developments and energy facilities typically have lead times of five to ten years and a life expectancy of 20 years or more. A decision today impacts corporate finances for up to 30
The energy policy to lead the United States to abundance must be based on a stable foundation. This foundation can best be achieved by establishing a set of principles which can be applied universally, regardless of the type or source of energy. This will result in maximizing the value of our current energy sources and allowing the market to develop energy technology that adds future value to society. The core government principles for energy policy are: 1) Trust the market, maximize value
for Americans The complexity of the global energy market and
the inability to predict technology advances or even transformations requires a reliance on markets to make investment decisions. The government must avoid preferential treatment of any energy source or the desire to choose winners. Over the past 40 years there are many examples of failed government decisions to support uneconomic energy projects from coal gasification to
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years. To ensure investments are made in all aspects of the energy value chain, from research to exploration/testing to operation, the nationâ€™s tax and fiscal policy must be clear and consistent. Difficult to interpret, preferential or uncertain tax policy is a key inhibitor to investment throughout the energy industry. Tax policy that is designed to encourage one form of energy over another creates unintended consequences and results in inefficiencies. 3) Clear and transparent regulatory policy
and processes Stewardship of our environment and protection
of public health and safety are essential. Regulations are required to ensure this goal. It is in the interest of the government, industry, and citizens that regulation be accomplished efficiently, without duplication or unnecessary burdens. Unnecessary requirements not only increase costs for consumers, but also allocate resources away from higher threats. Unnecessary regulations also discourage, slow, or limit investment; increasing the
costs of future energy. Two important practices to ensure regulations are effective and efficient are implementing regulations at a state/region level and use of performance
Conclusion The five principles of the outlined national energy
based practices, rather than prescriptive requirements.
strategy are not a policy that advocates the development
4) Communicate in factual and informative terms
principles, we will maximize the value of our resource
endowment that we as Americans possess. Removing the
with the public The government has a role to be an honest broker of
information. Too many times, interest groups have their objectives represented by government. Governmentâ€™s role is to be objective, honest, and fact based. This also requires listening to the public and helping understand the real issues underlying concerns. Facts need to outweigh rhetoric to understand the realities and potential of what can be achieved through energy development and distribution, as well as the risks these operations pose. Only then can effective and informed decisions be made. 5) Invest in long term research, not short term
applied research The U.S. government has a fundamental role in
long term research whereas companies need to focus on applied research with near term commercial opportunities. Government, in partnership with universities and research
of a specific energy source. If the country follows these
focus on which energy sources are better or preferred will benefit businesses and consumers. Using an approach of fundamental principles for developing our energy policy will enable the country and our citizens to re-establish key priorities for our future. We are a country with a very rich resource endowment and an unmatched capacity for innovation. We should carry that abundance, opportunity, and optimism into our energy policy. By doing so, we will produce more oil, gas, coal, and other energy sources. We will also create a consistent, stable, and predictable investment environment resulting in alternative energy technologies that we have not yet imagined. In the near term our nation will produce more energy and lower consumer energy costs. This means more competitive U.S. industries; improved energy security; and more jobs and greater economic growth to power another American century. n
institutions, also has a unique role to advance the science
James Slutz is a Fellow at the National Chamber
and engineering that provides the foundation for future
Foundation and is the President and Managing
breakthroughs. Research planning should be done with a long-term perspective and the government should commit to the term of the research. Cases where the
Director of Global Energy Strategies LLC, focusing on energy project development and technology commercialization, primarily with oil and gas environmental applications. He serves on the
government has changed course or been unable to meet
Advisory Boards of Hart Energy Publishing, the Canada Institute
multiyear research funding commitments is not effective
of the Woodrow Wilson International Centre for Scholars, and the
for accomplishing research goals or serving as a reliable partner with universities and institutions. Research should
University of Southern Californiaâ€™s Center for Geothermal Studies. Slutz is also a Distinguished Associate of FACTS Global Energy. Prior to founding Global Energy Strategies, Slutz served in roles as the
not be an avenue for short-term political objectives. For
Assistant Secretary of Energy in the United States as well as as the
effective energy policy, research goals should be looking
Indiana Oil and Gas Director. Read his full biography on page 62.
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hen editors of Life magazine ranked Thomas Edison first on the list of “the most important people of the last 1000 years,” they were recognizing the importance of innovation to improving the material condition of mankind.
Make no mistake, innovation is what drives productivity. It is what makes us wealthier and healthier (if not wiser). It is impossible to conceive of modern America today without appreciating the waves of innovation that made the United States the most powerful and dynamic large nation in history. Innovation matters so much it’s worth pausing to ask how we get it and to wonder how we might get more of it. In this essay, I’ll propose a strategy to ensure robust American innovation over the next thirty years.
FOR THE NEXT THIRTY YEARS
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INNOVATION 1) Getting Our Priorities Right There are many reasons the nation must confront its
2) Tackling the Abundance of Regulation While no one denies that an economy as advanced and
large and accumulating debt. Yet, one reason that doesn’t
complicated as America’s will need some regulation, the
get enough attention is that it’s harmful to American
question is, what is the proper scope and reasonable cost
innovation. Here’s why:
of regulation? On this score, there’s bipartisan agreement
Innovation is powered by many factors, one of which is the total stock of knowledge in society. The federal government helps build the stock of knowledge through its support of basic research and development. The problem today—and for the last several years—is much federal research and development comes out of the government’s discretionary spending. The growth in entitlement spending is crowding out its discretionary
that America’s current system of regulation is a mess and ripe for an overhaul. Serious regulatory reform will be a boon for innovation. After all, regulation is designed to homogenize activities, among firms and individuals. It’s designed to get businesses or individuals acting in precisely the same manner to achieve a desired outcome. Yet think about the essential character of innovation
spending, meaning there’s less room for investments in
for a moment. Innovation, by its very nature is
research and development (R&D).
heterogenous. It means doing something different than
Some of the areas ripe for additional R&D spending that would boost innovation down the road include the National Institutes of Health, the National Science Foundation, NASA, and the National Institute of Standards and Technology. As a report from the research group Third Way notes, “as the cost of entitlement programs like Medicare and Social Security has skyrocketed, we’ve spent less and
before; something different than from how everyone else does something. It is designed to break with the past, to disrupt established patterns of production and activity. In that way, faulty regulation can be an innovation killer by leaving too little room for new ways of doing business, for new business models to emerge, for new techniques to take root in the marketplace. Good regulation protects consumers, workers, and the
less of our budget educating kids, building roads, and
environment while still making it possible for companies
and consumers to experiment, to engage in trial and error,
As a nation we have prioritized entitlement spending over spending on research and development. No one is arguing that the nation shouldn’t have an adequate safety net. But if it comes at the expense of productivity enhancing innovation, then everyone is made worse off. Entitlement reform will be good for its own sake; but it will also mean the nation can spend adequately on improving
and to pursue new enterprises and initiatives. 3) Fix Immigration In some ways, innovation is simply an odds game. Good innovations arise when ideas are combined with human effort in ways that satisfy the needs of companies and customers.
the nation’s knowledge base, thus bolstering innovation.
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To get more innovation then, it helps to have more
Former Microsoft technologist Nathan Mhyrvold
brains and more diverse perspectives focusing on an
has said “We live in a society where technology is a very
economy’s problems and opportunities.
important force in business in our daily lives. And all
Of course, we have a lot of that already in the United States. But we can always use more. As Dr. Linus Pauling said, “The best way to have a good idea is to have a lot of ideas.”
technology starts as a spark in someone’s brain. [emphasis added] An idea of something that didn’t exist before, that once they have invented it—brought it into existence— could change everything.” That’s why we need to bring— and keep—more brains here in the United States.
“Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.”
- Peter Drucker
4) Get Incentives Right The writer Edward Conard has noted that “people create innovation by finding ways to make improvements and by implementing those improvements—both incremental improvements and major changes.” It’s important that entrepreneurs have the access to capital they need to experiment and grow, and that the broader ecosystem of investment and risk-taking is one that is conducive to
This is one reason we need to fix America’s approach to immigration. Right now the United States brings to its
capital formation. Implementation of innovation is one area where
shores some of the most talented and enterprising people
incentives come in to play, particularly with respect to tax
from across the globe. Many of them come to study in
policy. As it stands now, the United States has the highest
our top-flight research colleges and universities.
corporate tax rate in the developed world. Other developed
At the same time, we make it more difficult than we should for those people to remain in the United States, to start companies, to get married, and to feel as if America is their home. As a result, many of them are returning to their native countries in pursuit of new opportunities, or simply to avoid putting up with visa and other hassles. The loss of these people—of all that human capital— means a loss of potential new innovation. That’s why it will help to reform our nation’s immigration laws to make it easier for skilled immigrants to come to America and build meaningful, satisfying lives here.
nations have, over the last fifteen years, been lowering their corporate tax rates. They understand that, at the margin, a high corporate tax rate is a disincentive to capital formation and to resultant innovation and productivity enhancements. The United States has also experienced an alarming decline in initial public offering in recent years. There are many reasons for this, but one of them is surely the disincentives to launching an initial public offering (IPO) created by laws such as Sarbanes-Oxley. The decline in IPO activity gives those of us concerned with innovation great pause. Many innovations are pushed into the commercial marketplace by new firms that were created precisely to drive disruptive innovation.
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Companies like Google and MasterCard are some of
AN INNOVATIVE FUTURE
the innovative companies to have tapped public equity markets over the last decade. No one should be satisfied
The great student of industrial capitalism Peter
with an anemic environment for IPOs. Getting the
Drucker once noted that “Innovation is the specific
incentive mix right—to remove barriers that discourage
instrument of entrepreneurship. The act that endows
growing firms from making a public debut—must be part
resources with a new capacity to create wealth.” This is
of any comprehensive innovation strategy.
why innovation is so important to the United States. As the wealthiest and most advanced of all the industrial
5) Adequately Fund the Patent Office
democracies, the United States cannot create new wealth by copying the habits and practices of other nations. It
The U.S. Constitution tells us that patents are
must drive new innovation if it is to create new wealth.
designed “to promote the progress of science and useful arts.” In other words, they are designed to help drive innovation.
This is why the climate for innovation matters so much in the United States. Any person in the policy community would be prudent to view his or her
Unfortunately, such promotion is badly slowed if the office designed to process applications, in our case
proposals through a lens that asks, “will this advance or retard the innovative capacity of the United States?”
the U.S. Patent and Trademark Office (US PTO), is insufficiently equipped and staffed to do the job.
Too often the temptation is to forget about the effect or new laws on innovation and to only see the short-term
For too long Congress has treated the funds dedicated
benefit of a new law or a change in rules and regulations.
to the US PTO as a political football. It should instead
To ensure a brighter future at home—and for the rest of
see those funds as indispensible feedcorn to help bolster
the world that depends on the success and vitality of the
United States—innovation and new enterprise must be at
A pro-innovation Congress will ensure that the PTO
the center of all that we do. n
can adequately compensate its examiners, hire enough of them, and encourage capable individuals to work at
Nick Schulz is a National Chamber Foundation
the patent office. Otherwise, an innovation bottleneck is
Scholar and a frequent contributor to the Business Horizon Quarterly. He is the coauthor
created, where productive ideas in biotech, life sciences,
of From Poverty to Prosperity and serves as
materials science, mechanical engineering, and more are
the DeWitt Wallace Fellow at the American
held in limbo and unable to get financing.
Enterprise Institute. Read his full biography on
It’s worth noting that there’s a robust discussion taking place about the proper scope of patent protection. Patents that are overly broad, for example, can become a hindrance to innovation. So, one reason to make sure the patent office has the resources it needs is to ensure that only patents of high quality receive protection. // S T R A T E G Y F O R I N N O V A T I O N | 31
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like to think that 30 years isn’t a particularly long time. Maybe that’s because I was born exactly that many years ago, as were millions of my cohorts in the first class of Generation Y, otherwise known as
“Millennials.” In its first 30 years, my generation has experienced firsthand the advent and evolution of the Internet. Over the next 30 years, our generation will have an ever-increasing impact on the economy, the workplace, and the way we conduct business. We don’t know much about how the world will look in 2042, but we have plenty of ideas about how we, as a Generation, want to shape it.
MI LLEN N I ALS I N 2 0 4 2
Just six years ago, I launched my own Internet-based company just as Facebook took off. What my company and Facebook have in common is that they were both founded by Millennials and rely heavily on a workforce that, like us, is digitally native. We tapped our cohort to help us think differently and build a different kind of company. We aren’t alone in taking such actions as more of us are building a similar future.
BY LESLIE BRADSHAW
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What are the actual idiosyncrasies that define
are, happen to be better at managing the always-on
Generation Y and will continue to do so over the next
connectivity of modern life than our Boomer parents,
30 years? To borrow a wonderfully perceptive phrase
who were better at navigating mass media than their
from the McLuhanite media scholar John Culkin, “We
parents, and so on.
shape our tools and thereafter they shape us.” Like every other generation, the technologies we’ve grown up with have made us who we really are, and who we’ll always be. Television was the breeding ground for Baby Boomer culture, giving that generation its collective consciousness of both social awareness and consumerist individualism. Gen X was raised on personal computers, video
What sets us apart, though, is that we’re the first generation to see multiple massive technological shifts within our lifetimes. Consider how long it took for certain game-changing 20th-century technologies to go from 10% adoption rates in American households to 60%: the telephone took roughly 45 years; the automobile did in 15; color TV in 10 years; and Internet and mobile phones were adopted by a
games, and cable TV, and subsequently developed a
majority within five years. Facebook, which didn’t even
penchant for interaction and cultural heterogeneity.
exist at the start of 2004, recently reached its billionth
We Millennials were the first to grow up with
home Internet, smartphones, and constant, real-time digital connectivity, and these are the tools that have shaped us. We’re a tech-savvy generation. In a 2010 Pew / Edelman study, when Millennials were asked what makes their generation unique, the number one response was “technology use.” In MTV’s Millennials
W E ’ R E
TECH-SAVVY G E N E R A T I O N
survey, 85% of Millennials said their tech expertise made them faster than older coworkers; 76% said their bosses could learn a lot from them, and two-thirds thought they should be mentoring older co-workers on technology. It’s nothing new for the youngest adult generation of an era to be substantially more adept with the latest technology than their parents. In 1970, Alvin Toffler penned Future Shock, describing the rapid pace of technological and societal change and the struggles of older generations to keep up with “information overload.” Millennials, the “digital natives” that we
Take a look at the digital tools at our disposal: Wikis, social media, Web 2.0, the Internet of Things (objects embedded with data, sensors, or microchips that allow them to be networked), mobile Internet. Then look at all the form factors we can use to consume them: desktops, laptops, smartphones, tablets, gaming consoles, TVs–even cars now. These things have all shaped Generation Y, not only in how we’ve managed to move quickly from one thing to the next, but also how we’ve learned to use all of them at once.
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These tools haven’t rewired our brains, but they’ve
of African Americans, say they want to start a business.
changed the ways we communicate, access information,
Among our ranks, 8% of us have already launched
and manage our lives. Millennials, more than any other
companies, outnumbering the 7% of their peers currently
generation, behave like nodes in networks—interacting
working for Fortune 500 companies.
and filtering and sharing across myriad social, familial, community, and commercial pathways—rather than terminals that simply get information beamed at them and are occasionally expected to beam something back. We’ve seen it change the face of marketing: 48% of Millennials say word-of-mouth influences their product purchases; only 17% say TV ads do. Over the next 30 years, we’ll see it change the face of business. Why do 76% of Millennials think their bosses could learn a lot from them? Part of it is the ethos of social technologies (e.g., social media, Web 2.0, and collaboration platforms): everybody has a voice, even if no one else is listening. Among the many lessons of Twitter, we’ve learned that Millennials don’t mind communicating without the expectation of being heard, but in such
“Owner” is the fifth-most-popular job title for Millennials. Over a third of recent college graduates have started a side business in addition to their primary job. These are all positive signs for the economy, considering startups generate almost 20% of gross job creation despite accounting for only 3% of total employment. There’s a big difference between starting a business selling hand-knitted socks on Etsy and starting Etsy itself, and the latter type calls for mentorship from Boomers and Generation Xers who have been there and done that. As skilled as Millennials are at leveraging social and digital capital, our impact over the next 30 years depends on the intergenerational transfer of knowhow to manage real and organizational capital.
situations we communicate with the hope that if what we say resonates somewhere, it will be duly noted. The other part is the efficiency of social technologies and Millennials’ understanding of how to get the most
SO HOW DOES THIS SHAPE THE NEXT 30 YEARS?
out of them. According to a July 2012 McKinsey report, social technologies, if fully implemented in American businesses, could improve productivity to the tune of $1.04 to $1.13 trillion in value, a savings of up to 12.3% of the total cost of employment and a 7.5% boost to U.S. GDP. While our tools-of-choice provide this boon to existing businesses, Millennials will also be thinking ahead to the next wave of enterprise—our own. We’re already entrepreneurs in spirit, if not yet in practice. More than half of Millennials, including 64% of Latinos and 63%
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Prediction 1: The speed of business will increase, as more things happen in real time, but workers will be able to slow down as they delegate more tasks to technologies. We can’t predict with any kind of certainty what the next few waves of new technologies will look like or how they will be implemented in the workplace, but we will most likely be able to automate more processes, and automation means speed. We do know that younger workers generally understand technology
MILLENNIALS MILLENNIALS ARE COMMUNICATION-AGNOSTIC: THEY DON’T INHERENTLY PREFER EITHER DIGITAL OR FACE-TO-FACE COMMUNICATION; THEY SIMPLY PREFER WHATEVER IS
FASTEST AND MOST EFFICIENT.
better and older workers generally understand
As stated earlier, we know that Millennials value
organizational strategy better, so intergenerational
collaboration and networks, and see themselves
collaboration is key. Today Millennials are on one
as nodes rather than terminals, which means
end of that collaboration; in 30 years they’ll be on the
they place a high value on being engaged in their
work. We also know that Millennials are skilled at
Prediction 2: Technology will increasingly blur the boundaries between locations and the tasks we associate with them. Millennials will have to choose between blending work, home, school, and social life together at all times or establishing new unwritten social rules to keep them separate. Prediction 3: Telecommuting and remote collaboration will become easier, but will only become more widespread if they provide substantial benefits for workers and employers alike. Increased and improved productivity, effective collaboration, and work/life balance are the benefits to watch.
collaborating remotely, as native users of instant messaging, multiplayer online gaming, Google Docs, Basecamp, Skype, and such—but they are also skilled at collaborating in person, having grown up with emphasis on play groups and team sports. What makes this development so difficult to predict is that Millennials are communication-agnostic: they don’t inherently prefer either digital or face-to-face communication; they simply prefer whatever is fastest and most efficient. This means that Millennials won’t necessarily trend toward staying closer to home via telecommuting or
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KEY AREAS FOR TEACHING MILLENNIALS: • Strategy, goal setting, and benchmarking • Resource (human and capital) allocation and management • Task planning and prioritization
KEY AREAS FOR LEARNING FROM MILLENNIALS: • Communicating/collaborating through technology • Business to Consumer (or Org2Constituent) two-way engagement • Diversity and inclusiveness
satellite micro-offices unless those are actually more
(STEM). Roughly one-third of U.S. college students’
efficient. We may see work move closer to home, but
first degrees are in one of these fields, compared to more
we’re just as likely to see home move closer to work
than half in Japan and China. Engineering is particularly
dismal by comparison, comprising 4% of all bachelor’s degrees in the United States and 31% in China.
SO HOW DO WE GET THERE?
To close this gap, we need to increase the sheer numbers of students in STEM programs. One way to do so is to guide more women into the field. Overall, female graduates in the United States outnumber
Prescription 1: Plant the seeds for STEM growth.
males 3 to 2, and they earn a majority of life science, chemistry, and math degrees as well. However, only 1 out of every 5 degrees in physics, engineering, and computer science is awarded to a female, a figure that
We know that Millennials are deft technology
has been more or less steady since the mid ‘80s, even
adopters and eager businesspeople, but in order to
though the ratio of boys to girls in the top .01% of SAT
capitalize on the full potential of this generation
math scores has fallen from 13:1 to 3:1 over that time.
to grow the U.S. economy and maintain global competitiveness, we need to steer the best and brightest
Both the White House and Congress have declared
toward the domains where they can innovate the most:
and funded STEM education as a national priority. It’s
science, technology, engineering, and mathematics
not enough to throw tax dollars at the problem or to
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simply open doors. We need our nation’s current crop
management from experienced professionals, can
of innovators to be waiting with open arms on the
in turn offer lessons on newer technologies and the
other side of those doors.
proper mindset for using them. It’s absolutely critical
One potentially successful model for STEM in higher education can be found at Stanford University. Nationwide, the most popular undergraduate major is business. The most popular major declared in the past year at Stanford, on the other hand, was computer science. Part of the program’s popularity is likely due to its location in Silicon Valley, surrounded by highprofile companies like Apple and Google. Department chair Jennifer Widom credits Stanford’s revamped
to understand the mental model for technology use: it won’t do any good to install a powerful piece of software that no one in your organization knows how to use effectively or create an account on a social media platform without actually engaging anyone through it. Unless the pace of technological change slows to the point where it no longer creates generation gaps, we will forever need these kinds of two-way internships and mentorships to bridge those gaps.
curriculum, which highlights the synergy between computer science and other fields in the real world. Younger Millennials clearly show a strong interest in the application of technology, but in order to bring them into the workplace as innovators in
WHILE OUR TOOLS-OF-CHOICE PROVIDE THIS BOON TO EXISTING BUSINESSES, MILLENNIALS WILL ALSO BE THINKING AHEAD TO THE NEXT WAVE OF ENTERPRISE—
every field, we need to connect them with business
leaders and their chief scientists, technologists, and engineers, who can mentor them on the importance of developing STEM skills. Silicon Valley may have unique advantages as a high-tech community, but I believe every major community in the United States has enterprises and leaders who, while they may not be building high tech themselves, are nonetheless using it for critical functions and can teach youngsters about their value.
Prescription 2: Make the new internship the two-way internship.
We can do better–we have to do better–so that today’s Generation Y can spend the next 30 years developing in America the tools on which our next generation of “spoiled-brat technophiles” will be raised and change the rules again. n
Leslie Bradshaw is a Fellow at the National Chamber Foundation as well as serves as the President, COO, and Co-founder of JESS3, a creative interactive agency specializing in data visualization, UX,
The aforementioned educational pairing doesn’t have to be a one-way street and it doesn’t have to be informal either. Students and young professionals, while learning the ins and outs of business and
social strategy and visual storytelling. Bradshaw was named one of the top five female executives in the technology industry by Fast Company and one of the top 30 entrepreneurs under 30 by Inc. Magazine. Read her full biography on page 59.
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A U.S. MANUFACTURING STRATEGY FOR THE NEXT THREE DECADES
BY STEPHEN GOLD PRESIDENT AND CEO, MAPI
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merican manufacturing needs a national
country. Had even a handful of those recommendations
strategy. It once had one—more than 200
been adopted, the story of American manufacturing—
years ago. The architect was Alexander
including the search for greener pastures overseas, the
Hamilton, among the most foresighted of the Founding
20% contraction during the Great Recession, and the
Fathers. The world of 2012 is dramatically different
inability of manufacturers today to find enough skilled
from that of 1791, and yet Hamilton’s words are eerily
workers for their shop floors—might have taken on a
reflective of the current evolution of public opinion:
different tone. Unfortunately, for the most part, the
“The expediency of encouraging
recommendations were ignored
manufactures in the United
States,” he told Congress in his
Without a national strategy,
Report on Manufactures, “which
manufacturing employment in
to be pretty generally admitted.”
declined, as has manufacturing
That statement is as true in
was not long since deemed very questionable, appears at this time
the early 21st century as it was that was ignored by policymakers or even mistakenly given up for dead a decade ago is now viewed as key to our country’s economic survival. After all, among other more economic activity across society, invest more in research and development (R&D) and
innovation, and export more than any other sector. Because of this welcome change in public perception
Not surprisingly considering (according to the United
WE SHOULD HAVE ONE AS WELL.
things, manufacturers generate
as a percentage of U.S. GDP. this downward drift, in 2010
in the late 18th century. A sector
the United States has steadily
Nations), the United States gave way to China as the world’s top manufacturing economy in turns of output. Given its singular focus on creating a global export platform, China’s rise as a manufacturing powerhouse was
likely inevitable; America’s manufacturing decline was not. Rather, as Rob Atkinson and Stephen Ezell of the Information Technology and Innovation Foundation
of the factory sector, over the past few years a growing
(ITIF) have advanced, unlike the dwindling footprint of
number of influential factions have called for a
agriculture that came from higher productivity, American
national manufacturing strategy. While such a focus on
manufacturing’s decline has resulted purely and simply
manufacturing is long overdue, industrial strategies are
from a loss of international competitiveness.
not completely novel in the United States. In January 2004, the Bush administration released its version, a list of 31 thoughtful recommendations culled from a series of manufacturing town hall meetings held across the
Other nations have manufacturing strategies. We should have one as well. Note that, in this context, an industrial strategy is not the same as an industrial policy.
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Industrial policy involves politicians “picking winners”—
Thus, instead of politicians creating narrowly based
that is, favoring specific industries and technologies
incentives for specific companies and industries, a
over others through incentives and the reallocation of
national manufacturing strategy should involve broadly
resources. It is true that the federal government is well
based policies that support a more alluring climate for
situated to assist directly and indirectly in the research
production and innovation across the board. If the
and development of nascent technologies—for example,
world’s best manufacturers are scrambling to build
the spillover effects from the Apollo space program
factories, invest in R&D and capital equipment, and
are well known. The combination of politics and
create new jobs in this country, such a strategy will raise
bureaucracy makes most industrial policies wasteful of
living standards far higher and broader than a narrow
taxpayer dollars at best, and breeds corruption at worst.
Markets are far more efficient and effective at picking winners because, as James Surowiecki observed in his popular book The Wisdom of Crowds, they involve the aggregation and dissemination of information by groups, resulting in decisions that are typically better than those made by any lone politicians or regulators.
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There’s no need to reinvent the wheel—a number of manufacturing strategies have been proposed in recent years. While there isn’t space here to review the hundreds of policy proposals now being promoted, here are some broad concepts to propel American manufacturing well into the future.
Tax and Regulatory Reform A national strategy must first be grounded on the
Better Education and Continuous Training America’s advanced manufacturing processes of today
principle that, in the words of the National Association
require a high level of science, technology, engineering,
of Manufacturers (NAM), “The United States will be the
and mathematics (STEM) skills. Yet according to a
best place in the world to manufacture and attract
skills gap survey by The Manufacturing Institute
foreign direct investment.” To that end, the nation
and Deloitte, two-thirds of manufacturers say they
needs a tax and regulatory climate that encourages
can’t find enough workers with sufficient skills. This
R&D and production here while still serving the
translates into roughly 600,000 open manufacturing
purposes of government. The United States has
jobs at any one point in time. Without a steady
the highest statutory corporate tax rates among
supply of qualified employees here, manufacturers
developed countries, at 39.2% (federal and state
will go abroad to make their products.
combined). Moreover, according to a joint study by the Manufacturers Alliance for Productivity and Innovation (MAPI) and NAM, America’s pollution abatement costs are higher than those of any of its major trading partners. The NAM’s Manufacturing Renaissance: Four Goals for Economic Growth (October 2011) challenges politicians to create a better tax climate and perform more effective costbenefit analysis on federal regulations. On the tax side, this includes reducing corporate rates to at least 25%, ensuring lower individual income tax rates for the 70% of manufacturers who operate as passthrough entities, and increasing the R&D tax credit to 20% and making it permanent. On the regulatory side, this includes requiring federal agencies to select the lowest-cost alternative among regulatory options, strengthening the Regulatory Flexibility Act to ease the burden on small businesses, and strengthening Executive Order 12866 to include cost-benefit analysis on the 90% of rules that will have less than a $100 million impact on the economy.
Creating a more educated, better prepared funnel of students must be part of a national manufacturing strategy. In Why Does Manufacturing Matter? Which Manufacturing Matters? (February 2012), the Brookings Institution points to Germany’s approach to education as a model. That approach includes a so-called “dual educational system” that channels students who aren’t interested in a postsecondary diploma into a vocational school and an apprenticeship with a company. Our country made a serious mistake decades ago when it virtually abandoned the vocational education track in our high schools. A national manufacturing strategy should include a coordinated approach in which secondary schools work with industry to help re-introduce this opportunity. Community colleges will play an increasingly important role as well, and organizations such as the NAM’s Manufacturing Institute are helping by developing a standardized Manufacturing Skills Certification System for use in two-year post-secondary schools.
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American students once led the world in these areas; now their aptitude scores rank in the bottom half of the developed world. If the United States is going to maintain its leadership in innovation, it also must help re-engage its youth in STEM. The nation needs a coordinated focus by elementary and secondary teachers, government leaders, and the private sector to develop a long-term plan for improving our nation’s math and
export assistance program, which helps small and mid-size manufacturers sell goods abroad. Trade promotion isn’t enough. As events of the last decade demonstrate, a growing number of countries are adopting China’s mercantilist approach to trade. Without enforcement of the rules that have governed global trade for the past half-century, the market-friendly
system that ensured mutual advantages to all will
Open Markets and Enforcement of Global Trade Laws
strategy will have to include a stronger response to
U.S. manufacturers presently account for more than half of all exports from this country. In plain economic terms, without the more than $1.1 trillion in receipts for exported manufactures, this country would be forced to increase its borrowing or foreign investments to offset the well over $2 trillion in imports. A more activist trade policy must be part of any manufacturing strategy moving forward. As ITIF points out in its September 2012 National Traded Sector Competitiveness Strategy, such a policy should include both expanded trade promotion and trade enforcement components.
break down completely. Any national manufacturing currency manipulation, intellectual property theft, and comparable “win at all costs” tactics as practiced in emerging markets.
Federal Support for Basic and Applied Research To achieve the kinds of breakthrough advancements needed to maintain our industrial competitiveness, federal funding for manufacturing-specific basic and applied research are essential to any national strategy. Manufacturers invest more in R&D than any other sector, particularly in areas related to their specific customers and markets—but in tough economic times, companies become more riskaverse with their business decisions. As physicist Geoffrey
While the aforementioned policy changes would
West observed in a recent interview with Edge.org, “It’s not
encourage “reshoring” and thus help our balance of
surprising to learn that when manufacturing companies are
trade by decreasing imports, ITIF notes several ways
on a down turn, they decrease research and development,
the federal government can boost exports. First and
and in fact in some cases, do actually get rid of it, thinking
foremost is forging new trade agreements. As this country
this is ‘oh, we can get that back in two years we’ll be back
is currently negotiating one new agreement, the EU is
on track.’” Moreover, as Harvard Business School professors
in negotiation with the Association of Southeast Asian
Gary Pisano and Willy Shih explain in their HBR report,
Nations (ASEAN), the Gulf Cooperation Council
“Does America Really Need Manufacturing?” (March
(GCC), and five separate countries—including India and
2012), the private sector has less incentive to invest in basic
its market of 1.3 billion consumers. Congress should also
or applied research because, “the payoffs are too far in the
expand our Manufacturing Extension Partnership (MEP)
future and too diffuse.”
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That’s why since World War II the federal
current piecemeal approach, Congress needs to adopt a
government has played a substantial role in basic and
long-term strategy to target and pay for the refurbishing
applied research—funding that has helped stimulate
of our transportation infrastructure. An integrated
manufacturing innovation in the U.S. For example,
approach involving federal and state incentives and
as Pisano and Shih note, it was government-funded
private-sector investment would ensure the creation of a
research in metallurgy that enabled American jet
21st-century electricity and communications system.
engine manufacturers to develop advanced materials and ceramics capable of withstanding extreme heat and pressure. The Defense Department played an important role in the development of the Global Positioning System and, of course, it was the applied research of the Advanced Research Projects Agency that ultimately led to the creation of the Internet.
The New America Foundation also promotes policies that ensure lower energy costs as a critical factor in maintaining a competitive manufacturing base in the United States. No sector is more dependent on plentiful, inexpensive energy supplies—manufacturers consume about one-third of the energy in this country. With the varied resources
Federal funding for basic and applied research
now available across North America—including
has declined over the past decade, and the President’s
new gas and oil reserves that modern technology
Council of Advisors on Science and Technology has
can safely secure and transport—U.S. policymakers’
called for ramping the level of funding back up—
conscious evasion of a long-term national energy plan
particularly in such manufacturing-related areas as
is nothing short of a dereliction of duty.
robotics, nanotechnology, and biomanufacturing. If policymakers want U.S. manufacturing to compete in the coming decades with their global counterparts, a long-term commitment to funding basic and applied
Never before have so many organizations and policy experts harmonized so clearly on the need for a long-term manufacturing strategy. It’s time to set
research is a must.
aside political differences and work together to ensure
Infrastructure and Energy Strategy
decades to come. n
American manufacturing remains competitive for
Stephen V. Gold is President and CEO of MAPI. Over the past three decades he has
No national strategy would be complete
represented U.S. manufacturers in a variety
without ensuring the long-term fitness of America’s
of senior-level roles in nonprofit membership
infrastructure—not just its roads, rails, ports, and bridges,
organizations, including in government
but its electricity and telecommunications grids as well. In a strategy unveiled in April, titled Value Added: America’s
relations, communications, and operations. While at the National Association of Manufacturers in the early 2000’s, he helped launch NAM’s Campaign for the Future of U.S.
Manufacturing Future (April 2012), the New America
Manufacturing, and served as executive director of the Coalition
Foundation notes that reducing infrastructure congestion
for the Future of U.S. Manufacturing. He has also served as an
and bottlenecks and creating “smart” transportation
occasional guest columnist for The Washington Times and is
and communications systems are important factors in reducing the costs to U.S. manufacturers. Rather than the
presently a contributing columnist for IndustryWeek. Gold sits on the Board of Trustees of The Manufacturing Institute.
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e recently survived another campaign
I have participated in numerous forums, symposiums,
season in which we saw rigorous battles
panel events, conferences, and roundtables focused on
for President, Congress, Senate, and state
solving the workforce skills gap. This is not a new issue. Those
legislative races across the country. Record money was spent,
of us in business have a pretty good handle on what needs
the ads were negative, and tensions between both parties
to be done when it comes to the challenges facing workforce
remain at epic levels. I will leave it up to the pundits to
development. Friends, this isn’t rocket science. If our leaders
dissect the political ramifications coming out of this election,
in Washington are serious about putting people back to work,
but at the end of the day these leaders have a job to do.
having America’s educational system placed at the front of
The time for rhetoric is over, especially when it comes to
the class, and building a growing economy for generations to
establishing important public policy to solve the skills gap
come, there are some simple things we can implement right
and crafting a workforce development strategy that keeps the
away to solve the skills gap and develop a strong foundation for
United States competitive in the global marketplace.
today’s workforce and generations to come.
BY SANDRA WESTLUND-DEENIHAN PRESIDENT AND DESIGN ENGINEER, QUALITY FLOAT WORKS, INC.
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mEMOS TO THE FUTURE
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Buy-In From Our Educational Institutions: As employers, we need to be prepared and take advantage of opportunities to work with education systems to establish “employer-driven” programs. They would be designed to train our workforce with the skills needed to compete successfully in the workplace. Oftentimes, college curriculum is not geared towards
Implementing a coordinated effort shepherded by our educational institutions will help streamline the training process.
Although employers should serve as the driving force, it is imperative that our state and national elected officials embrace a policy agenda that supports adult and non-traditional students—such as dislocated workers, immigrants, veterans, and incumbent workers—to get the training they need to re-enter the workforce. These are populations that are continuously overlooked as viable candidates for skilled positions. This agenda should include prioritizing post-secondary training, providing financial aid to part-time adult workers, and collaborating with community colleges on providing aid for specialized training. The public workforce system is currently being juggled through an array of separately funded employment and training programs that are well intentioned, but are typically operated without effective coordination or collaboration. Implementing a coordinated effort shepherded by our educational institutions will help streamline the training process. With the unemployment rate continuing to struggle at record highs, this is a great way to get people back into the work force. We can only retain all the highly skilled, high paying jobs through innovation and
manufacturing or vocational students, nor does it consist of the type of training needed for today’s worker and workplace. To this point, employers and community colleges should work together in identifying, educating, and employing a workforce that may not necessarily come from a traditional four-year university. Employers need to “fastrack” workforce development by putting our own resources into training and encourage government leaders to prioritize the need for post-secondary training for working adults and non-traditional students. In the end, employers will benefit and candidates with ample skills will be available to fill skilled positions.
STEM: We must reach students at an early age and ensure they are properly equipped with the needed skill sets to succeed. Unfortunately, our girls and young women are often forgotten when it comes to recruiting efforts in fields requiring a strong skill set in science, technology, engineering, and mathematics (STEM). Considering our nation’s needs, we can’t forget any part of our population when it comes to filling STEM jobs.
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FASTRACK Last year, I worked in collaboration with The
This is a great model for tapping into resources and
National Alliance for Partnerships in Equity
opportunities at the local level to plant seeds that
Education Foundation (NAPE-EF) and my local
will continue to grow for years to come. This is a
Illinois School District, ISDU-46, to secure funding
great vehicle for focusing our energy, resources, and
through an innovative grant program operated
training to create a pipeline of workers, leaders, and
by Motorola Solutions to provide students the
entrepreneurs for the next generation.
education, job training, and experience to further their learning in STEM fields. Through the grant, a â€œSTEM Equity Pipelineâ€? program was created, resulting in higher test scores and increased female enrollment in Advance Placement, STEM coursework, as well as a desire to pursue careers in related fields. At the end of the day, we need to see more publicprivate partnerships like this being developed to establish learning opportunities in STEM education.
Credentialing/ Certification: The credentialing process has become an invaluable tool to me as an employer in the manufacturing industry. National Career Readiness Certification (NCRC) is highly valued as it lets me know the person has credentialed and certified skills needed for the
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mEMOS TO THE FUTURE
BUsiness Horizon Quarterly workplace with applicable skills for our shop room floor. National Institute of Metalworking Standards (NIMS) Credentialing is also very important as it validates for me, the employer, whether my employee has the right skills to perform to quality standards. By encouraging our elected leaders to establish a national standard requiring our learning institutions to proactively implement certification and credential programs, employers will have a large talent pool of welltrained and skilled individuals who are ready to work. This ensures that our workforce has the same set of basic skills and understandings, putting everyone on an equal playing field.
Digital Literacy: The United States is lagging behind other countries in implementing digital policies and establishing a curriculum to develop technology literate students. Letâ€™s be honestâ€”literacy in technology has become equally as important as literacy in the English language. In response to this growing need, employers can take steps to keep their workforce up to speed with the latest developments through implementing on-site training programs like I have done at Quality Float Works, Inc. We have made the investment in technology to provide distance learning opportunities to ensure employees grow and learn along the way as new advancements are made. There is an abundance of online learning tools offered from professional member associations as well as free government resources, including several great programs through the U.S. Department of Laborâ€™s Employment and Training Administration (ETA), providing continuing education and certification opportunities. Though all of these resources have been made available to us, it is our duty as employers to make sure our employees remain upto-speed in order to compete in a global marketplace.
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We need to work together by making an
in our workforce and taking advantage of every opportunity to create a strong talent pool of employees.
Business Incentives: As our elected officials move forward in exploring new ways to solve the skills gap and spur economic growth, all options should be on the table. Programs like the Employer Training Investment Program (ETIP) in Illinois, a competitive program for Illinois-based manufacturers and service companies to facilitate upgrading the skills of their workers, is a great example of the government working with business to create extra incentives for growth. This innovative program enables companies to compete, expand, explore, and implement new and efficient practices into their operations. Participating companies can apply for ETIP grants reimbursing them for up to 50% of eligible costs related to training employees. Programs like ETIP need to be implemented at the national level as this provides the best way to ensure we stay competitive moving forward. It
a system that meets the immediate needs of employers today and adequately trains and prepares the workforce for generations to come. This will establish a solid educational foundation for the duration of a student’s participation in the public education structure. If we are going to compete in the global marketplace and develop a solid plan for shaping the workforce development agenda in this country, we must work together and share best practices to make a difference with the skills gap. We cannot become a nation that relies on others to manufacture, create, and innovate. If we do, we will fail. We need to work together by making an investment in our workforce and taking advantage of every opportunity to create a strong talent pool of employees. If we do this, everyone wins and the American workforce will continue to be the world’s leader. n Sandra Westlund-Deenihan serves as President and Design Engineer of Quality Float Works, Inc., the premier metal float and assembly manufacturer in the county located in suburban Chicago, IL. Products are used to level liquid controls in the gas, oil, plumbing and
dedicates resources to establishing and investing in a
agriculture industries. In 2011, Westlund-Deenihan was appointed
well-trained and abundant workforce.
to Chair the Illinois State Board of Education’s Gender Equity
The election is over and the rhetoric needs to transform into action. The overarching goal is to create
Advisory Committee—a committee with the purpose to advise and consult with the Illinois State Board of Education to ensure all students have equal educational opportunities to pursue highwage, high-skill occupations leading to economic self-sufficiency.
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mEMOS TO THE FUTURE
BUsiness Horizon Quarterly
BY SHEEL TYLE, ERIC MEYER, AND HABIBE HAKIQI 50 | B U S I N E S S H O R I Z O N S Q U A R T E R L Y // F A L L 2 0 1 2
or decades, America’s entrepreneurs have led
expanding private sector. New communication and
the way in cultivating many of the innovative
commerce technologies allow entrepreneurs to reach
ideas that have fueled our economy and
a truly global marketplace, and a national focus on
changed the world in countless ways. That leadership
promoting entrepreneurship can harness the spirit of
role is now being challenged in new and inventive
enterprise. To realize this future, the U.S. strategy for
ways from an increasing number of competitors. If
entrepreneurship should include tactics and initiatives
our country is to remain at the forefront of the world
in some critical areas.
economy, we will need a long-term and dynamic strategy for fostering entrepreneurship in America. As young entrepreneurs, we have a unique insight into what our country’s plan should include, addressing the challenges we have already encountered and observed in our own entrepreneurial careers. We are graduates of the Young Entrepreneurs Academy (YEA!), a year-long program that teaches young people how to develop bright ideas, build business plans and secure investor capital. There is a growing number of YEA! programs and graduates across the country, and many of us have launched companies, earned business degrees from top U.S. schools, and gone on to pursue entrepreneurial careers. Many of America’s future entrepreneurs are in school today or just entering the workforce, and there are generations of business leaders and innovators behind them. We face a dynamic economy and hitech business landscape, and our national approach to entrepreneurship needs to address the challenges and opportunities we encounter today, as well as those in the future. American enterprise also depends on how the country continually prepares and encourages countless new entrepreneurs, creating the innovative products and services that can drive U.S. business success for decades to come. We envision a future where industries form quickly, and national GDP growth is driven by an
Promote Education Our access to entrepreneurial instruction and support through YEA! made a big difference in our decision to pursue business and innovation, shaped our educational experiences, and helped guide our professional careers. Yet, to build the country’s entrepreneurial capacity, we need educational opportunities like these in middle and high schools (as well as colleges and universities) across the country. Courses would cover the benefits of starting a business and the positive impact entrepreneurship can have in the community, and for the nation’s overall economy. It would use case studies on successful startups, revealing the tactics and ideas that helped them grow. By introducing entrepreneurship to all of America’s students through effective programs, we can take a critical first step in attracting our country’s most talented young minds to worthwhile occupations.
Encourage a Pro-Business Environment As young entrepreneurs, we are concerned that the type of environment that helped America become home to the world’s greatest innovations is in jeopardy. What is needed is a national tone that celebrates achievement, hard work, and business success.
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mEMOS TO THE FUTURE
BUsiness Horizon Quarterly
This more positive national tone requires
and many foreign-born potential entrepreneurs are
corresponding legislation and reform that supports small
being turned away because of a visa issues. We must
business and entrepreneurship. Entrepreneurs, startups,
align the U.S. immigration and visa system with the
and other small businesses can benefit from incentives
country’s entrepreneurial goals.
that promote small business growth. Starting a business should be easier and less burdened by regulation, bureaucracy, and tax penalties.
Inspire and Motivate Young People
The country can also boost entrepreneurship through funding innovations and competitions. This could
Some of the most important attributes for an
mean allocating funds to research organizations, like the
entrepreneur are a positive attitude and a limitless
Defense Advanced Research Projects Agency (DARPA),
drive to succeed. To build America’s entrepreneurial
or competitive initiatives, like the X-Prize. These efforts
potential, the country’s long-term strategy should
should evidence public-private collaboration, with advisory
encourage and inspire young people to start their
committees including entrepreneurs and investors.
own businesses. All entrepreneurs need an enduring passion for their startup, one that breeds dedication,
Strategic immigration reform Fostering entrepreneurship includes attracting skilled talent from abroad. Many of the world’s best and
commitment and sacrifice. It also fosters a winning attitude, which can inspire employees and drive business success. The country’s strategy should nurture this positivity and passion. A pro-business environment, ongoing education
brightest come to the United States to pursue higher
in entrepreneurship, and other strategic initiatives
education. Unfortunately, after graduation, many are
contribute to a widespread positive perception of
not able to acquire a U.S. visa that would allow them
entrepreneurship, which can attract new generations of
to remain in the United States, start new businesses and
American innovators and business leaders. The promise
develop innovative products. By forcing them out of
and allure of an entrepreneurial career path must
America, these entrepreneurs take their ideas, energies,
outweigh the risks that come with starting a business.
and opportunities to our competitors—thus making the competitive landscape even tougher. America needs the boldest minds to help create and
From experience, it is difficult for a young person to forego more traditional jobs in favor an entrepreneurial venture, particularly after spending thousands of dollars
build new enterprises and technologies. For that, we
on a college education. There is a fear that one’s résumé
need an effective immigration policy that welcomes
could become uncompetitive if their startup fails. At
foreign entrepreneurs and fast-tracks their visa process.
a time when other young professionals are climbing
Why limit the legislation to support foreign Ph.D.
corporate ladders and developing as employees in
graduates? Many of our best companies have been
various fields, entrepreneurs take a risk by pursuing
created by immigrants educated in the United States,
their own ideas and businesses. If their startup fails, can
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young entrepreneurs still land a job? This is one of the
markets. He was actively involved in Skybox Imaging, Matrimony.
biggest deterrents to a thriving entrepreneurial culture
com, Black Swan Solar, and Snapdeal.com.
among young people. We must communicate to younger generations, and
Tyle is the co-founder of ReSight, a nonprofit that democratizes the distribution of eye care services by turning unemployed rural women into employed Vision Guardians who screen others for
all of those out there thinking about starting their own
vision impairments. He is also the co-founder of S2 Capital, a seed
businesses, that in the industry of entrepreneurship,
stage social fund that invests in young entrepreneurs throughout
you will fail. You may fail 5 or 10 or 100 times along
the developing world.
the way, but you must not give up. The successful entrepreneurs and business owners we see today are the
Tyle earned a Bachelor of Arts degree from Stanford in three years with double majors in human biology and public policy. He also
men and women that worked through those failures
earned a graduate certificate in product creation and innovative
and kept going. It will not be easy, but if you have
manufacturing from the Stanford School of Engineering.
the passion and perseverance, you will get there. As
Eric Meyer is a graduate of the Young
entrepreneurs, we have a real impact on our
Entrepreneurs Academy, having started a
businesses—we have the final say in our company
company called Spotlight Video Productions
strategy and operations, we use our creations and ideas
as a sophomore in high school. He ran the
to build better businesses and potentially change lives.
company for six profitable years, started a second company, and employed 16 people in two states.
There are numerous benefits that outweigh the risks, and we invite you to join us and take the plunge.
A young entrepreneur, Meyer’s idea-driven leadership has enabled him to launch, manage, and grow businesses and organizations in
Our message to lawmakers and community leaders is clear: a strategic approach to cultivating future generations of innovators and business leaders will take
the private and non-profit sectors. He has been recognized for his achievements in business and civic engagement, and is a strong advocate of entrepreneurship education in America.
our country to greater heights of entrepreneurial activity
Meyer recently graduated magna cum laude Phi Beta Kappa from
and economic growth, and will sustain America for
the University of Rochester and currently works with Phillips
decades to come. n
Seafood Restaurants, Inc. in Baltimore, Maryland on exciting new restaurants and operational efficiencies.
Sheel Tyle graduated from the Young Entrepreneurs Academy in 2006 having
Habibe Hakiqi is a graduate of the very first
launched Holiday Helpers when he was 13
Young Entrepreneurs Academy class where, as
years old. Holiday Helpers made and sold the
a high school student, she launched Bubble Tea
“holiday helpers” clip, which allowed someone
Mania!, a distributor of specialty drink kits.
to easily hang outdoor holiday lights. Hakiqi is currently a first year Master of Currently, Tyle is an associate at New Enterprise Associates and is
Business Administration student at the Harvard Business School.
focused on consumer technology, energy technology, and emerging
She graduated from the University of Rochester magna cum laude
market investments. Previously, Tyle worked for Bessemer Venture
Phi Beta Kappa in 2009 with a dual degree in Economics and Political
Partners, where he engaged in due diligence, investment sourcing,
Science. Before Harvard Business School, Hakiqi spent 3.5 years
and portfolio company management across numerous sectors
as an equity research associate at Manning & Napier, covering the
including consumer internet, mobile, cleantech, and emerging
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EXECUTIVE PROFILE Gayle Jagel Founder & CEO, Young Entrepreneurs Academy, Inc. (YEA!)
“Every day I feel tremendously blessed because I know that in leading YEA!, I am doing exactly what I most want to do.” NCF: What were some of the lessons you took from your first job? Gayle Jagel: When I was about 8 years old, I noticed that my neighbor had some beautiful tomatoes growing in her garden, but she didn’t seem to be picking them or eating them. It seemed to me that it would be a shame for all of those tomatoes to go to waste. So I picked the tomatoes and put them into my wagon, which I then pulled around my neighborhood, selling the tomatoes to everyone on my street. My mother, who knew that we did not even have a garden, let alone one in which lovely tomatoes were growing, was a bit less pleased. She reminded me the
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tomatoes were not mine to sell, that they belonged to my neighbor, and that she expected me to make it right. So I swallowed my embarrassment and went to my customers/ neighbors, returning their money in exchange for the “hot” tomatoes. Through this, I learned more than a lesson about not stealing and accountability. I also realized that I was good at seeing and taking advantage of opportunities. I also learned that the best way to deal with a problem is directly, immediately, and to make it right with anyone who was wronged.
GAYLE JAGEL NCF: Which entrepreneur/innovator inspires you most? Jagel: Benjamin Franklin. He was influential in so many aspects of our nation’s early history and not just for his efforts as a statesman. He was an innovator and entrepreneur. He helped establish the University of Pennsylvania and also greatly enjoyed the arts and culture. He demonstrated the importance and value of a wellbalanced life, rather than expending all of his talents and energies in a single direction. In everything he did, Franklin embodied the ideas that make up the motto of the Young Entrepreneurs Academy (YEA!) – “Embrace Your Passion. Live Your Dream. Change the World.” He did all three, and he absolutely changed the world. NCF: What business do you wish you could own/ operate today?
the program available to every middle and high school student in the country. NCF: What three people would you most like to invite to a business/networking lunch? Jagel: I’d pick Walt Disney, Oprah Winfrey and Taylor Swift. Each of them has succeeded in an important way that I am trying to emulate. Each of them has done extremely well professionally, and they have done so while at the same time making the world a better place, a nicer place, a happier place for the rest of us. Each of them has had the vision, ambition and drive to make their own dreams a reality. I think it would be fabulous to speak with them about their differing challenges, opportunities, strategies and struggles as they went through the process of identifying their professional goals and then making them a reality. NCF: What was your biggest professional success?
Jagel: Every day I feel tremendously blessed because I know that in leading YEA!, I am doing exactly what I most want to do. I created the YEA! program at the University of Rochester in 2004. The program shows kids how to develop their big ideas, create actual business plans, pitch their plans to a panel of “investors” that make the decisions to put real money into the students’ ideas based on merit, and then help the students turn those ideas into real businesses or social policy organizations. YEA! ran successfully right out of the box. I started connecting the local chambers of commerce with the academic folks in the communities we served with our program, and we started getting calls from chambers of commerce across the state and from other states interested in launching their own academy in their community. This fall, we are working with more than 50 locations in 22 states. My goal is to have YEA! operating in all 50 states, working with chambers and business partners to make
Jagel: My biggest professional success has been to have a lasting, positive impact on young people in America and to help re-energize the entrepreneurial spirit. I take a lot of pride and satisfaction in the success of our program, but the successes themselves belong to the kids; they made it happen, not us. It is fantastic to have been part of the spark that led to successes graduates have had. My YEA! team is small, and we all are working incredibly hard to expand the reach of our program. There are times when the work part is challenging, or that a particular hurdle seems too big to clear. I don’t know how many times, when right in the midst of one of those really challenging moments, we have heard back from a YEA! graduate, who has had some tremendous personal or professional success. It puts everything, especially the challenge, into perspective and renews again our zeal to move forward. n
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profiles 2013 CLASS OF SCHOLARS & FELLOWS In 2010, NCF initiated the Scholars & Fellows program to bring together experienced thought leaders and business professionals to identify emerging issues that will impact the business community. The success of that first class of thinkers and innovators brought NCF and its constituents new insights and details on economic opportunities, the prospects for manufacturing, demographic changes, better risk understanding and more. Building on that solid foundation, the 2012 - 2013 class will help explore four strategic areas, including economic growth, debt and deficits, innovation, and the responsibilities associated with an abundance of resources. This year’s class of Scholars & Fellows is being tasked with producing unique research products and presentations via NCF’s award-winning BHQ, Business Horizon Series, NCF website, social media, iPad and iPhone Apps, and FreeEnterprise.com.
fellows • Leslie Bradshaw, Co-founder, President & COO, JESS3; Principal and Partner, Bradshaw Vineyards • Alex Brill, Research Fellow, American Enterprise Institute (AEI); Founder, Matrix Global Advisors, LLC • Dr. Tamara Carleton, Founder & Chief Executive, Innovation Leadership Board LLC • James Slutz, President and Managing Director, Global Energy Strategies LLC
Scholars • John Raidt, Advisor to the Chairman, U.S. Chamber of Commerce; Senior Fellow, Atlantic Council • Nick Schulz, Editor in Chief, The American; DeWitt-Wallace Fellow, American Enterprise Institute (AEI) • Bret Swanson, President, Entropy Economics LLC
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Leslie Bradshaw is a widely recognized expert in new media and entrepreneurship. The Wall Street Journal called her a “Top Woman in Tech Under 30,” Inc. named her one of the top 30 entrepreneurs under 30, and she was chosen as one of the top five female executives in the technology industry by Fast Company. Bradshaw is the President, COO, and Co-founder of Washington, D.C.-based JESS3, a creative interactive agency specializing in data visualization, social strategy, and visual storytelling. She was described by Inc. Magazine as the “operational energy” behind JESS3’s explosive growth and industry-wide success. Some of the company’s notable successes include helping an astronaut check foursquare from space and building social media convention hubs for C-SPAN in 2008.
Starting at age 24, Bradshaw was able to take a oneperson company and build a transnational operations system to coordinate across two physical offices, 30 fulltime employees, and hundreds of contractors worldwide. Previously, Bradshaw held a producing role at The McLaughlin Group and worked on new media projects with C-SPAN and National Journal. Bradshaw studied economics, gender, and anthropology at the University of Chicago, graduating with a B.A. in 2004. A native of Northern California and Oregon and farmer at heart, Leslie also writes for Forbes on the topic of female entrepreneurship and is frequently invited to speak on social media. As an NCF Fellow, Bradshaw will tackle issues of innovation, economic growth, and abundance. She will also provide a unique perspective on the up-and-coming Millennial generation.
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ALEX BRILL overseeing efforts to reform the revenue estimating process, and monitoring critical trends in labor, trade, and business. In 2006, Brill was the top committee staff negotiator on several important pieces of legislation: the Tax Relief and Health Care Act, the Pension Protection Act, and the Tax Increase Prevention and Reconciliation Act. In these, he led the most significant rewrite of pension legislation in more than 30 years and an extension of the capital gains and dividend rate cut through 2010. Before Congress, Brill was an economist at the White House Council of Economic Advisers (CEA), providing analysis on economic policies and appraisals of the economy. His work for the White House also included developing policy proposals through interagency working groups, as well as contributions to the 2002 Economic Report of the President.
Alex Brill is a distinguished economist and policy expert with experience in the legislative and executive branches of government, as well as in the private sector. He will take the lead for NCF on the cost and consequences of debt to economic growth in America. Previously, Brill was policy director and chief economist for the House Committee on Ways and Means. On the Hill, he served as the top policy and political advisor to then-committee Chairman Congressman Bill Thomas. He was also the chief economist for the committee, managing economic analyses for legislative proposals, 60 | B U S I N E S S H O R I Z O N Q U A R T E R L Y // F A L L 2 0 1 2
Since leaving government, Brill has worked as a consulting economic policy adviser for Buchanan Ingersoll & Rooney, offering insight and analysis on taxes, trade, health policy, and a range of other matters. Brill is a research fellow at the renowned public policy think tank, the American Enterprise Institute. At AEI, he studies the impact of tax policy in the U.S. economy; the fiscal, economic, and political consequences of stimulus legislation; health care reform and pharmaceutical spending; and other issues. In 2010, Brill served as a tax policy adviser on the bipartisan National Commission on Fiscal Responsibility and Reform. The President charged the commission with identifying policies to improve the fiscal situation and achieve fiscal sustainability in the long run. Brill has been a term member with the Council on Foreign Relations since 2007 and is the recipient of the Tufts University Birger Lecture Award. Brill received his M.A. in mathematical finance from Boston University and B.A. in economics from Tufts.
TAMARA CARLETON Carleton works with organizations around the world to foster best practices in innovation. Carleton was previously a fellow with the Foundation for Enterprise Development, which promotes the business principles and practices that encourage free enterprise and advance science and technology innovations. In a foundation-sponsored study, Carleton explored the conditions needed to foster entrepreneurial behavior and stimulate creativity. She was also a fellow for the Bay Area Science and Innovation Consortium (BASIC). The consortium works to advance the San Francisco Bay Areaâ€™s leadership in science, technology and innovation. There, Carleton studied Silicon Valleyâ€™s unique role in global innovation networks. Carleton is a teacher and researcher at Stanford University. She teaches organizational innovation and foresight strategy at Stanfordâ€™s School of Engineering executive education program. Her research focuses on invention and innovation at the organizational level, building on her pioneering study of innovation practices at the U.S. Defense Advanced Research Projects Agency. Carleton also works with the Stanford Center for Design Research, which is focused on understanding engineering design innovation, and the Stanford Center for Foresight & Innovation, a strategic think tank. Dr. Tamara Carleton, Ph.D., joins NCF as a Fellow this year to explore how emerging technologies and resources have created abundance for individual wellbeing and job creation. Her academic and professional work focuses on fostering innovation and spans more than a decade in corporate strategy, technology development, and marketing roles at large companies and startups alike. As founder and CEO of Innovation Leadership Board, LLC, an advisory firm specializing in the processes and structures that enable radical, technological innovation,
Carleton is a former management consultant at Deloitte Consulting. There, Carleton specialized in emerging solutions in enterprise applications, customer experience and marketing strategy. She holds a Ph.D. in mechanical engineering (design research) from Stanford and an M.S. in public relations from Syracuse University. Her work has been published in business media outlets and technical journals. Recently, she edited the book Sustaining Innovation: Collaboration Models for a Complex World (Springer, 2011) that explores institutional models of sustainable innovation from multiple viewpoints. // P R O F I L E S | 61
JAMES SLUTZ Before founding GES, Slutz served as the U.S. Assistant Secretary of Energy. In that position, he led the Office of Fossil Energy, which includes the coal, oil, and natural gas business lines in the Department of Energy, and served as the primary policy advisor to the secretary on fossil energy issues. He also oversaw the nation’s Strategic Petroleum Reserve (SPR), filling it to 99% of its capacity with one of the most cost-effective purchases of oil in the reserve’s recent history. In 2005, Slutz created and led the government’s natural gas production recovery team after Hurricanes Katrina and Rita hit the American coastline. He has also held positions as Deputy Assistant Secretary for Oil and Natural Gas, and as Indiana Oil and Gas Director, regulating the state’s upstream oil and gas industry. While in Indiana, Slutz organized a creative initiative designed to foster citizen involvement in regulatory programs.
NCF Fellow James Slutz is the president and managing director of Global Energy Strategies LLC (GES). GES focuses on energy project development (oil, gas, and geothermal) and technology commercialization, primarily with oil and gas environmental applications. As an NCF Fellow, Slutz will examine what an abundance of energy could mean for the American economy as well as issues of energy innovation.
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Slutz serves on the Advisory Board of the Canada Institute of the Woodrow Wilson International Centre for Scholars, a leading institute that advances understanding of the U.S.–Canada relationship together with a strong focus on trade issues. He is a member of the leadership team of Environmentally Friendly Drilling Systems (EFD), a non-profit organization that has been a leader in applying emerging technologies to reducing the environmental impact of shale gas extraction. Slutz has been instrumental in EFD’s international outreach, including EFD’s selection to assist USAID with its work in Ukraine. Slutz also serves as a Distinguished Associate of FACTS Global Energy. He holds an MBA degree from the Ohio State University Fisher College of Business. In 2009, Slutz received the Secretary of Energy’s Exceptional Service Award, the department’s highest recognition.
JOHN raidt John Raidt brings more than 21 years of public policy experience in national and homeland security, energy, the environment, and natural resource management. Raidt is also an advisor to the chairman of the U.S. Chamber of Commerce as well as a senior fellow at the Atlantic Council. At the Atlantic Council, Raidt directs the On the Horizon Project, an initiative to identify, analyze, and report to policymakers and other leaders on emerging trends, threats, and opportunities that could influence U.S. security in the next three to five years. The project also recommends practical steps that can positively influence future challenges. Previously, Raidt was a professional staff member of three national commissions: the National Commission on Terrorist Attacks Upon the United States (9/11 Commission), the Commission on the National Guard and Reserves, and the Independent Commission on the Security Forces of Iraq. In 2008, Raidt served as deputy to General James L. Jones (USMC-Ret.), Special Envoy for Middle East Regional Security, focusing on resolving the IsraeliPalestinian dispute. He was the lead Senate staff member establishing the U.S. Institute for Environmental Conflict Resolution. In the Senate, he also served as Legislative Director for U.S. Senator John McCain and Chief of Staff of the U.S. Senate Committee on Commerce, Science and Transportation. Raidt is a public policy and strategic planning consultant and a fellow at The George Washington University Homeland Security Policy Institute. He holds a Masters of Public Administration from Harvard Universityâ€™s Kennedy School of Government and has been widely published in trade, academic, and mainstream publications.
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NICK schulz Nick Schulz studies a range of policy, politics, and economic issues. He is the DeWitt Wallace Fellow at the American Enterprise Institute for Public Policy Research, where he is editor-in-chief of The American, AEI’s online journal focusing on business, economics, and public affairs. Schulz was previously the editorial director of TechCentralStation, an online think tank and magazine. Prior to this, he was the politics editor of Fox News online in New York, where he coordinated coverage of the 2000 election, postelection deadlock, and September 11 attacks. He was also the politics and opinions editor for Voter.com, a start-up political website, and is an an award-winning television producer. He produced or co-produced several documentaries, including The Stockholder Society, The First Measured Century, and Déjà vu All Over Again: The Life of Yogi Berra. In the 1990s, Schulz was a policy analyst and aide to former vice presidential candidate Jack Kemp and former Secretary of Education William Bennett. During this time, he was also a consultant at the Software Publishers Association, as well as a consultant to Platinum Technology, a relational database management firm. Currently, Schulz is a columnist for Forbes, where he writes the Economics 2.0, examining technology-led economic growth, politics and public policy. He has been a media fellow at the Hoover Institution at Stanford University and is on the board of advisors of the Ewing Marion Kauffman Foundation’s survey of economics bloggers. Schulz is the co-author of From Poverty to Prosperity: Intangible Assets, Hidden Liabilities and the Lasting Triumph Over Scarcity (Encounter Books, 2009), an acclaimed book on modern economic growth and development. Schulz publishes widely in national newspapers and magazines, including The Washington Post, The Wall Street Journal, The Los Angeles Times, USA Today, and Slate.
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bret swanson Bret Swanson studies innovation, globalization, the stock market, entrepreneurial economics, and numerous other issues. He is president of Entropy Economics, a research firm focused on technology and the global economy. He is also president of Entropy Capital, a venture firm that invests in early-stage technology companies. Some of the groundbreaking research Swanson has presented to audiences around the world includes: a new theory of China’s economic rise; a projected “exaflood” of Web video, leading to rapid Internet traffic growth; deep monetary errors behind the 2000 and 2008 financial crashes; and a new concept linking information theory and entrepreneurial economics. As well as an NCF Fellow, Swanson is a visiting fellow at Digital Society, a think tank studying culture, commerce, the digital economy, and free markets. Previously, Swanson was a senior fellow at the Progress & Freedom Foundation, a think tank dedicated to studying the digital revolution, and served as a director and senior fellow at the Center for Global Innovation. He also enjoyed eight years advising technology investors as the executive editor of the Gilder Technology Report. Swanson also previously served as economic analyst for former Rep. Jack Kemp (R-NY). Swanson authors the Maximum Entropy column on Forbes, and he often contributes to The Wall Street Journal editorial page on topics like broadband networks and monetary policy. He is a “Broadband Ambassador” of the Internet Innovation Alliance and studied economics at Princeton University.
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WHAT YOU SHOULD KNOW Curated from recent NCF research, blogs, and events.
RESEARCH The new geography of growth reflects many of the intrinsic strengths of the U.S. economy often missed by many policymakers and commentators. After a brief lapse, the country is already outperforming all its traditional high-income rivals in Europe, as well as Japan, as it has done for most of the past two decades. Key U.S. assets include surging agricultural and energy production, the general rebound in U.S.-based manufacturing, and unparalleled technological supremacy. The country remains attractive to both foreign investors and skilled immigrants. For the U.S. to be successful, this new geography of growth needs to extend across the 50 states and expand for long enough to significantly lower the high rate of unemployment. This will require something more than a single-sector focus. Attention must be paid to both basic and advanced industries since innovation and technology growth alone cannot turn around most regions and states. From the Enterprising States 2012 report
“The most important element of U.S. economic competitiveness in the 21st century is a properly skilled workforce.” ~ John Raidt, NCF Scholar
After 9/11 (as well as after Hurricane Katrina), private sector preparedness received a lot of attention. There are no magic spells to prevent “bad days” from occurring, but what makes a difference on those days is summed up in the old Boy Scout motto: “Be Prepared.” Rich Cooper, Vice President of Research & Emerging Issues, NCF “The Lingering Shadow of ‘That Day’ – Business Preparedness Lessons from 9/11” September 11, 2012
With a fundamentally new policy direction on taxes and regulation, real GDP in the U.S. could be “between $2.1 and $3.1 trillion higher in 2022 than it would be under a continuation of current slow growth.” Bret Swanson, NCF Scholar and President, Entropy Economics LLC “The $3 Trillion Opportunity for 2022” August 16, 2012 Any prolonged economic pain is bound to change behaviors and the way those most affected view the world. With many recent graduates hurting for work, it is well within the realm of possibility that the Millennial generation’s relationship to the marketplace is being permanently changed.” Michael Hendrix, Research Manager, NCF “3 Reasons Millennials Are America’s ‘Cheapest Generation’” September 12, 2012
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QUOTES “Canada is the U.S.’ best friend whether Americans know it or not.” ~ Hon. Perrin Beatty President and CEO, Canadian Chamber of Commerce July 31, 2012
“Any uncertainty, not just government uncertainty, but uncertainty in Europe or anywhere in the world has an impact.” ~ Governor Scott Walker Wisconsin June 13, 2012
“The economy is not doing well. It’s chugging along at a subpar rate.” ~
Martin Regalia, Ph.D. Senior Vice President and Chief Economist, U.S. Chamber of Commerce August 2, 2012
“Until we put some certainty on the long-run [economic] outlook, it’s always going to be a temporary investment or a temporary hire. We have to create an environment where people are willing to be here permanently and hire people.” ~ Douglas Holtz-Eakin, Ph.D. President, American Action Forum August 2, 2012
Gov. Gary Herbert (UT), Gov. Scott Walker (WI), and Tom Donohue, U.S. Chamber of Commerce
Douglas Holtz-Eakin, President of the American Action Forum
Hon. Rob Merrifield, MP Yellowhead, Canadian Parliament // W H A T Y O U S H O U L D K N O W | 67
RECENT EVENTS PHOTOGRAPHS COURTESY OF THE THE U.S. CHAMBER OF COMMERCE, ©2012
(left to right) Canadian Chamber President and CEO Perrin Beatty and David Chavern, Executive Vice President and COO of the U.S. Chamber of Commerce.
Business Horizon Series: Canada July 31, 2012 With important economic, governmental, and private sector changes, Canada has achieved rapid growth and weathered the recent recession better than most countries in the Organization for Economic Cooperation and Development (OECD). To understand the lessons Canada’s success holds for the United States, on July 31, 2012, NCF held the latest installment of its Business Horizon Series, titled “Canada: The Northern Light: A Partner for Growth and Opportunity.” Bringing together experts
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and leaders from both the United States and Canada, the program tackled challenges facing North America, opportunities for collective growth, and ways both countries can better compete on the international stage. Bruce Josten, the U.S. Chamber of Commerce’s executive vice president for Government Affairs, opened the program by describing the long list of improvements and successes Canada has realized since the 1990s. Both the United States and Canada share common ideals and a respect for free enterprise. They are also major trading partners permanently linked through their presence on the North American continent. Opportunities abound if steps are taken to strengthen the U.S.-Canada relationship.
(left to right) Canadian Chamber President and CEO Perrin Beatty and David Chavern, Executive Vice President and COO of the U.S. Chamber of Commerce, and Nick Schulz, NCF Scholar.
As the Hon. Rob Merrifield, member of the Canadian Parliament for Yellowhead, said in his keynote speech: “This is North America’s time—not just America or Canada. We can do it, but we need to do it now, competing for trade opportunities that are out there and growing our way to success. If we do it now, we will achieve wonderful things for our kids and grandkids.” Energy is the cement that binds the United States and Canada, said Karen Harbert, president of the Chamber’s Institute for 21st Century Energy. She moderated a panel on key decisions that have enabled Canada to produce more energy, spurring manufacturing and growth. Panelists were David Wilkins, former U.S. ambassador to Canada, and Kendall Dilling, manager of regulatory and government affairs for Laricina Energy.
Canada is the United States’ largest trading partner, as panelists said during a discussion on taxation and trade, moderated by Margaret Spellings, president of the Chamber’s Forum for Policy Innovation. The panel included Dr. Christopher Sands, a senior fellow at the Hudson Institute; John Murphy, the Chamber’s vice president of International Affairs; and Dr. Bev Dahlby, a distinguished fellow in tax and economic growth at the University of Calgary. While energy production, taxes, competitiveness, trade, and other matters were highlighted throughout the event, the common theme underlying all issues was the strength of the U.S.-Canada relationship. This was at the heart of comments from Canadian Chamber President and CEO Perrin Beatty and David Chavern, executive vice president and COO of the U.S. // R E C E N T E V E N T S | 69
Chamber. During a conversation moderated by Nick Schulz, NCF Scholar and DeWitt Wallace Fellow at the American Enterprise Institute, Beatty and Chavern elaborated on how a strong relationship is central to seizing the opportunities available to their respective countries. “Canada has two types of international relationships,” said Beatty. “There is the relationship with the United States, and there is the relationship with everyone else.” Beatty called the U.S.-Canada trading relationship the most important in the world, generating $1 million a minute in economic activity. With a shared history, values, and commercial ties and by working together, the opportunities are “unlimited,” according to Beatty.
To view U.S. Chamber Executive Vice President Bruce Josten’s comments on Canada,visit ncf.uschamber.com/ CanadianLessons
Quarterly Economic Briefing August 2, 2012 When it comes to the U.S. economy and growth, expect more of the same. That was the message from U.S. Chamber Chief Economist Marty Regalia speaking at the Quarterly Economic Roundtable Series held on August 2, 2012. Regalia predicted economic growth in the foreseeable future to range from 1% to 2%—a modest rate of rate of growth that is simply “not fast enough” to bring down an unemployment rate that is still hovering around 8%. “The economy is not doing well. It’s chugging along at a subpar rate,” said Regalia.
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Martin Regalia is Senior Vice President for economic and tax policy and chief economist at the U.S. Chamber of Commerce.
Regalia, along with Kate Warne, Ph.D., CFA, Investment Strategist, Edward Jones and Douglas Holtz-Eakin, Ph.D., President, American Action Forum, agreed that while the United States is not in a recession, it could be pushed over the edge by either “going over the fiscal cliff or Europe blowing up,” Regalia warned. Holtz-Eakin went into further detail on the fiscal cliff, which he called the “automatic austerity” facing the country at the end of the year as tax rates for middle and upper income individuals go up and federal spending cuts go into effect unless Congress acts before 2013.
upcoming events DECEMBER
BALANCING ACT: tOUGH DECISIONS in the face of fiscal challenge
This event will highlight a report by the State Budget Crisis Task Force, co-chaired by Richard Ravitch, former lieutenant governor of New York, and Paul Volcker, former Federal Reserve Board chair. The report examines California, Illinois, New Jersey, New York, Texas, and Virginia and how they have approached six major fiscal threats: Medicaid, federal deficit reduction, underfunded retirement, taxes, local government fiscal stress, and state budget laws and practices.
In addition to the report, the event will feature a state panel to hear from chiefs of staff to governors around the country on how their states are balancing the need for fiscal responsibility while investing in a strong economic future. There will also be a federal panel to facilitate a robust discussion on the challenges facing our country, and to answer the looming question: what must we do to avoid the fiscal cliff?
Business Horizon Series: Agriculture
Letâ€™s Rebuild America Summit
Quarterly Economic Roundtable
12th Annual Aviation Summit
Fo r mo re deta i l s a n d reg i str a ti on informat ion on all upcoming e v e nt s go t o ncf.uscham b er.c o m
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BHQ A LETTER FROM THE PUBLISHER B Y M A R G A R ET S P EL L IN GS
The Leadership Stance If you ask people what quality they appreciate and admire most about their co-workers, business partners, and community members, one thing you are likely to hear them say is, “That person gets things done.” It is a metric everyone values. Too often these days we see jobs unfinished, decisions kicked down the road, promises not kept and direction not given, let alone followed. It isn’t an option for businesses. We can’t afford to put decisions off. Whether the decisions are big or small, business leaders have to make some tough calls that ultimately shape the future of their enterprises, their employees, and their communities. That’s part of the price of leadership. Unfortunately, many people only see leadership as a corner office with a picture window, a fancy title with a larger paycheck, or the big chair at the table. Those are the trappings that come with an elevated position; but true leadership is ultimately about taking responsibility for making decisions of consequence in good times and in bad. Whatever the decision, there will always be those willing to debate the call. If there is one lesson that should stand out about effective leadership, it is power of accountability.
The willingness to step forward, offer a vision, work to implement that vision, and then be measured on performance is what leaders live and breathe on a daily basis, from the moment they turn over the sign ‘Open for Business’ until they turn the lights off at the end of the day. Successful business leaders live by a high standard. They know they have to perform because they are measured every day by their sales, stock prices, customer satisfaction, and more. It’s one reason why more and more business leaders are starting to give even stronger voice to the issues that will shape our nation’s future. Every one of them wants quality schools for our kids and needs a skilled workforce ready to compete. They know real leadership means facing head on tough problems with tough decisions and not walking away. Leaving decisions to someone else abdicates the responsibilities that leadership requires. We all know that America’s “Inbox” is full when it comes to challenges—from fixing our economy to fixing our schools. Addressing those issues with the President, the Congress, and on state and local levels will not be easy but business leadership across America has demonstrated its willingness to step up to the plate. That courage has built the greatest marketplace and innovation that is the envy of the world. By following business’ lead, America will only grow stronger. Sincerely,
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DISCOVER WHAT 2013 HAS TO OFFER! NCF continues its work with notable thought leaders to produce the latest in research across a variety of issues pertinent to U.S. businesses.
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