[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
SHARPENING OUR EDGE--STAYING COMPETITIVE IN THE 21ST CENTURY
MARKETPLACE
=======================================================================
HEARING
before the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
FEBRUARY 9, 2006
__________
Serial No. 109-122
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
JON C. PORTER, Nevada C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia ELEANOR HOLMES NORTON, District of
PATRICK T. McHENRY, North Carolina Columbia
CHARLES W. DENT, Pennsylvania ------
VIRGINIA FOXX, North Carolina BERNARD SANDERS, Vermont
JEAN SCHMIDT, Ohio (Independent)
------ ------
David Marin, Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
C O N T E N T S
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Page
Hearing held on February 9, 2006................................. 1
Statement of:
Gutierrez, Carlos M., Secretary, U.S. Department of Commerce. 19
Ruiz, Hector de J., Ph.D., president and chief executive
officer, Advanced Micro Devices; M. Brian O'Shaughnessy,
president and chief executive officer, Revere Copper
Products; Richard S. Garnick, president, North American
Services, Keane, Inc.; Deborah Wince-Smith, president,
Council on Competitiveness; and Dave McCurdy, president,
Electronic Industries Alliance............................. 57
Garnick, Richard S....................................... 77
McCurdy, Dave............................................ 103
Ruiz, Hector de J........................................ 57
O'Shaughnessy, M. Brian.................................. 70
Wince-Smith, Deborah..................................... 89
Letters, statements, etc., submitted for the record by:
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 124
Davis, Chairman Tom, a Representative in Congress from the
State of Virginia, prepared statement of................... 16
Garnick, Richard S., president, North American Services,
Keane, Inc., prepared statement of......................... 82
Gutierrez, Carlos M., Secretary, U.S. Department of Commerce,
prepared statement of...................................... 22
McCurdy, Dave, president, Electronic Industries Alliance,
prepared statement of...................................... 106
Mica, Hon. John L., a Representative in Congress from the
State of Florida, information concerning various charts.... 6
O'Shaughnessy, M. Brian, president and chief executive
officer, Revere Copper Products, prepared statement of..... 73
Ruiz, Hector de J., Ph.D., president and chief executive
officer, Advanced Micro Devices, prepared statement of..... 60
Turner, Hon. Michael R., a Representative in Congress from
the State of Ohio, prepared statement of................... 46
Wince-Smith, Deborah, president, Council on Competitiveness,
prepared statement of...................................... 93
SHARPENING OUR EDGE--STAYING COMPETITIVE IN THE 21ST CENTURY
MARKETPLACE
----------
THURSDAY, FEBRUARY 9, 2006
House of Representatives,
Committee on Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 9:09 a.m., in
room 2154, Rayburn House Office Building, Hon. Tom Davis
(chairman of the committee) presiding.
Present: Representatives Tom Davis, Ros-Lehtinen, Mica,
Gutknecht, Miller, Turner, Issa, McHenry, Foxx, Cummings, Van
Hollen, Ruppersberger, and Norton.
Staff present: David Marin, staff director; Ellen Brown,
legislative director and senior policy counsel; John Hunter and
Jim Moore, counsels; Rob White, press secretary; Drew Crockett,
deputy director of communications; Brien Beattie, professional
staff member; Teresa Austin, chief clerk; Sarah D'Orsie, deputy
clerk; Leneal Scott and J.R. Deng, computer systems managers;
Krista Boyd, minority counsel; Adam Bordes, minority
professional staff member; Earley Green, minority chief clerk;
and Jean Gosa, minority assistant clerk.
Ms. Ros-Lehtinen [presiding]. The committee will come to
order. We thank the Secretary of Commerce Carlos Gutierrez for
appearing before us this morning. Congressman Davis is on his
way. I apologize for my casual attire, but we have a retreat in
Maryland. The buses leave in just a few moments.
Some of the Members are going to stay around, Mr.
Secretary, to hear your testimony as well as to hear from our
private panel as well. And they will be going to meet us in a
little bit.
But I wanted to open up the meeting and give Members an
opportunity to make opening statements, and I would just like
to say what a delight it is for me to be with you, Mr.
Secretary, because certainly our economy is in great shape, and
I think that has a lot to do with the steady hand with which
you have dealt with your department to stimulate the economy,
to diversify our workforce and to make sure that we can do all
we can to have all of the economies of the world be free. And I
notice that you refer to that freedom quotient in your
testimony from the Heritage Foundation, and I thank you for
that.
You have a compelling personal story that in my
congressional district is well known, and I think it speaks to
the many opportunities that are available here in the United
States of America for any immigrant, for any refugee who wants
to come here, study, work hard, play by the rules and become an
America success story. And that, Mr. Secretary, you truly are.
You're a role model for all of us, and we take great pride in
my congressional district especially to see you sitting here
being the Secretary of Commerce. It's always a pleasure.
With that, I'd like to turn to Congressman John Mica, my
Florida colleague, for opening statements, for the beginning of
them.
Mr. Mica. Thank you, Madam Chairwoman, and good morning. I
am pleased to have Secretary Gutierrez with us this morning and
two other distinguished panels. I too will be joining my
colleagues on the majority side of the aisle as we convene to
plan our agenda for the balance of the year, and actually one
of the most important questions that we could consider is
staying competitive in the 21st century marketplace and
sharpening our edge, which is the title of this morning's
hearing.
I think it's particularly important, I have been on
Government Reform with Ileana Ros-Lehtinen I think for 14
years. I don't know that we've really spent much time focusing
on this. We did look at a trade and business commerce
reorganization back in the 90's. But I think this is extremely
important.
I commend the President on looking at how we focus on a
workforce for the future, and I think some of the elements that
have been proposed as far as increasing our capability with
science, math, education and job training are absolutely
essential elements and will strongly support the
administration's proposal.
I think that--actually, I read all of the testimony last
night, and it was very enlightening. You have a great array of
expert witnesses who actually deal in business and commerce and
some of the cutting edge of where the opportunities are for the
future. And they have also identified tax policy, health care
and a number of other challenges that we face in the global
marketplace to keep up with some very good expertise witnesses.
What I wanted to do is just take a few minutes though and
talk about one thing that isn't here. It's one of my favorite
subjects. As we all know, we have a $700 billion trade deficit.
We are projecting this year about a $400 billion budget
deficit. I am more concerned about the trade deficit than I am
the budget deficit. We'll work our way through that. In the
Reagan era, when we dealt with the challenge of international
communism, we had to spend money to protect and defend and also
keep us secure. We are doing the same thing now in the war on
terrorism. But a $700 billion trade deficit should really be of
concern, and some of the proposals the President put forth are
longer term.
Now, one of the things I think we need to do and I want to
focus just a second, I think we have the Secretary--I thought
we had somebody, too, from the Department of State was on this
before, but they--I don't see them now but we'll get a copy of
this because they both play an important role in international
trade as far as the government is concerned. How do we increase
trade and deal with this deficit? It's pretty simple. You deal
with trade assistance, trade promotion, trade finance and trade
negotiation on the international scene.
Unfortunately, I still maintain--and some have heard this
song and dance before--that the way the United States conducts
international trade, business and commerce is somewhat
dysfunctional. I have a chart that's up there, and you can see
it. It hasn't changed much. We have put a little bit of
lipstick on the pig, but it is still a rather dysfunctional
array of activities where negotiation is out here; finance out
here. Commerce has something; State has something, and a host
of other agencies that we see. We try to coordinate it, but we
don't always get the best results.
One of the additional problems that we have in addition to
having a dysfunctional trade organization is that our
competition, China, the European Union, have actually come
together, are more organized for trade, for trade finance. You
can't tell where business, government, finance and trade
negotiation begins and ends. And that is the competition that
we face, and we don't have a structure to deal with that in the
21st century.
I want to talk a little bit about trade assistance and
promotion and one of the challenges we face right now. I have
another chart. If you look at really what we spend on trade
assistance--international trade administration accounts for 4
percent of the Department of Commerce budget. If we look at the
40,000 people we have in the Department of Commerce, you might
say that 1,200 directly deal with business and trade. So the
Department of Commerce is somewhat a misnomer. It's sort of a
weather department, and also NOAA, Bureau of Census, take up 65
percent of the resources, very little with trade.
What is even worse is that the amount of money that we are
spending, the net amount of money--if you could put chart 4
up--because of some of the things Congress has done--you can't
see that very well--but trade administration started out in
2005 with $403 million, went down to $398 in 2006. This
wouldn't be bad enough, that we're reducing the amount of
resources dedicated to promoting trade, business assistance and
the activities to sell overseas, but we also have a capital
cost sharing requirement, and that means that they are being
charged against their budget for security and improvements that
are usually wherever this foreign commercial service operation
is located overseas. So actually you have a net reduction in
the amount of money that's spent. And, actually, I have heard
of offices, potential offices being closed.
So these are on the front line of doing business overseas,
and we're decreasing our resources, not the Secretary's fault.
It's the Congress' fault, OMB and others who deal with these
issues.
I wanted to also say that, in addition to a net reduction
in our resources to assisting business, most of this is not
directed to the Ford's or to the--well, God knows, Ford has its
problem and the large U.S. corporations, because most of them
can deal overseas, but to medium and small business, which have
the most difficulty in competing overseas, then the structure
that we have as far as foreign commercial service operations--I
have a chart, foreign commercial service operations by region.
And we have a total of 79 foreign commercial service
operations. And in some countries, we have them where we
probably don't need them. We have about 80-some countries where
we have no foreign commercial service operation.
Now that wouldn't be bad enough if those who have the
responsibility--we don't have a foreign commercial service
operation; we have the responsibility given to the Department
of State. The Department of State has--I queried the Department
of State, and I think we have 290 foreign commercial service
officers under the Secretary located overseas.
The bulk of the positions overseas that deal with the
economic assistance and promoting U.S. business and aid to
business overseas, we have 497 officers who are economic
officers under the Department of State.
If this doesn't have you confused, I'll totally confuse you
in a minute. We have a total of 1,319 economic officers,
foreign service officers. That's within the Department of
State. So they're not located overseas, so most of those are
probably in Washington or wherever. So 497.
Then we asked, what do they do? And this is the response
and the way they said it: The difference is accounted for by
the fact that many economic officers are entry level officers
who in their first one or two tours in the foreign service fill
rotational or counselor positions. So that's what we're sending
in the areas where we have no foreign commercial service
officers, sort of our rookies to assist business.
So the structure is dysfunctional, the resources are being
cut back, and then we send rookies in to do the job. When you
want to promote business, assist business, you have to have
people who know what they're doing, and we send in sometimes
the least capable.
We do have the same problem in Congress. Nobody is
responsible specifically for putting together a comprehensive
trade and business package. We have the same jurisdictional
problems Department of Commerce has with dealing with State and
the myriad other agencies we saw.
Just, in conclusion, for example, in the Baltic areas,
Lithuania, Estonia, Latvia, I think we have one foreign
commercial service officer for three of the biggest emerging
markets, and we're about to lose that person.
Some years ago, through some political wheeling and
dealing, I got a foreign commercial service officer assigned to
the Slovak Republic. When we did that--you can see the figure
when he first came in was $225,000; this is with one position--
up to a quarter of a billion dollars of U.S. business. In
addition to what you see here and not accounting for are about
six Boeing aircraft worth more than $1 billion. That's in a
short period with one person.
So in most countries, again, we have no foreign commercial
service officer or rookies. In the emerging markets, we have
very limited resources. And to do business--put back up the
embassy. Having been in international trade for 7 years in the
private sector--where is the picture of one of the embassies?
I defy you to try to conduct business as an American
businessman or someone overseas--this is one of our embassies--
and penetrate from that gate to get into the foreign service
commercial offices. Most of the assistance is located within
the embassy. This isn't the Citadel that most of them are, but
it was difficult as me as a former chief of staff in the U.S.
Senate with sort of credentials to even penetrate into this and
talk to anybody, again, with my standing.
So this is the system that we have in place now for
assisting U.S. trade and business. Mostly the small guys. On
top of that, we have a system of penalizing them. We charge
them a fee. Most countries do not charge a fee. Some underwrite
their international trade and business efforts, not to mention
research and development and all the other things that are
done.
So not many people are familiar with this structure. I
raise this as something continually that we need to pay
attention to. I thank you for allowing me the time, Mr.
Chairman. We filled a little with your coming in.
What we're talking about here today is very important. I
support the initiatives proposed. I think we need to even look
beyond that. Thank you.
[The information referred to follows:]
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Chairman Tom Davis [presiding]. Mr. Secretary, you have
limited time here; is that correct? You have a limited period
of time.
Secretary Gutierrez. Yes.
Chairman Tom Davis. Let me ask Members if we can hear from
the Secretary and do questions, and then I'll put my statement
in the record.
[The prepared statement of Chairman Tom Davis follows:]
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Chairman Tom Davis. So why don't you proceed at this point.
It's our policy we swear you in before you testify, so raise
your right hand.
[Witness sworn.]
Chairman Tom Davis. We very much appreciate you being here.
This is an important hearing. This not only fits into what the
President mentions in the State of the Union but something a
lot of us have been talking about for a long time, a changing
world economically and America's being ready to compete in that
world. Go ahead. Thank you.
STATEMENT OF CARLOS M. GUTIERREZ, SECRETARY, U.S. DEPARTMENT OF
COMMERCE
Secretary Gutierrez. Thank you, Mr. Chairman. I appreciate
the opportunity to be here. Members of the committee, I am very
pleased to have this opportunity to discuss American
competitiveness, and with your permission, Mr. Chairman, I'd
like to make a brief opening statement and submit my written
testimony for the record.
Let me say at the outset that American companies and
American workers are the most competitive and innovative in the
world. And I would like to just repeat that because it's often
good to remind ourselves again and again that we are the most
competitive economy on the face of the Earth.
Our GDP per capita is among the highest in the world. Over
the past 4 years, the United States has experienced faster
growth in real GDP than any other major industrialized nation.
Our 2005 GDP per capita is higher than that of Japan, the UK,
Germany, France, Italy and Canada. So therefore we have the
highest GDP per capita of any other G7 nation.
Just to give you an idea, the U.S. economy is growing well
over twice as fast as the European Union, so the European Union
being a very large economy in the worldwide context, our
economy is growing twice as fast as that of the European Union.
Our unemployment rate is 4.7 percent. This is lower than
the unemployment rate in Canada, in Italy, in Germany and in
France, and in many of those countries the range there is
anywhere from 6.5 all the way up to 9 percent.
The United States is the world's leading exporter of goods
and services. U.S. productivity has had one of the fastest 5-
year periods of growth in almost 40 years. We have created over
4.8 million jobs since April 2003. An estimated 72 percent of
the world's total venture capital spending is invested in U.S.
companies.
So America's willingness and ability to compete has made
our Nation's the most powerful economy, and the great thing is
that we have the numbers and we have the results and we have
the facts to show it. The challenge of course is, how do we
maintain our leadership role as the most competitive economy in
the world? How do we keep it going? And how do we step it up
even more in light of the fact that the world is getting more
and more competitive?
In his State of the Union address, President Bush announced
an ambitious American competitiveness initiative. The
centerpiece is the President's commitment to doubling funding
for Federal research and development in the physical sciences
and engineering over the next 10 years. To maintain our
economic leadership, we need to generate new technologies. We
need to continue to invent the future the way we have been
doing so for decades and decades.
The American Competitiveness Initiative calls for a 24
percent increase in funding for our world class laboratories at
the National Institute of Standards and Technology. This
funding will allow scientists there who have won three Nobel
Prizes to advance research in such promising fields as
nanotechnology, hydrogen and quantum information. This could
lead to new cancer therapies, fuel cells to power pollution-
free cars and unbreakable codes to protect electronic financial
transactions, among many other innovations. Research on
nanotechnology data alone is crucial to the private sector
success in a market that could reach $1 trillion over the next
decade.
The second major component is investing in human capital.
President Bush is proposing investing $380 million in fiscal
2007 to improve math and science skills in K through 12
schools. His plan also provides for job training, supporting
universities that offer world class education and research
opportunities, and attracting and retaining the best and
brightest high skilled workers from around the world by
supporting comprehensive immigration reform.
In addition to the American Competitiveness Initiative, the
President is committed to fostering a business environment that
encourages entrepreneurship and risk taking, and we know what
it takes to have an environment that is innovation friendly.
We need to continue to keep taxes low, and we need to make
the President's tax cuts and the Congress's tax cuts permanent,
and we need to recognize that not making them permanent is the
same as taking a tax increase, and the last thing our economy
needs today is a tax increase.
We need a regulatory climate that is responsible and
reasonable. We need to ensure that entrepreneurs who are
creating a business and trying to create new products and
creating jobs aren't sabotaged by frivolous lawsuits.
We need a health care system that is efficient, affordable
and portable. We need to protect innovation through
intellectual property rights, and we need an economy that is
open to the global marketplace.
Compared to other countries, America has a powerful
business environment, and that is why we are leading the world,
and that is why there is no other industrialized Nation that
comes close. But we are not complacent, and we know we still
have work to do. When we open our markets to 3 billion new
consumers, we also open up to 3 billion new competitors. To
thrive in an open world, economies like ours compete on the
basis of innovation, on the basis of talent and on the basis of
the business environment that we create.
Mr. Chairman, the President, the Commerce Department, and
this administration are committed to maintaining America's
leadership and competitiveness in today's dynamic global
economy. I want to thank you and the members of this committee
for your support. I want to recognize your foresight, Mr.
Chairman, in calling these hearings, and I would welcome your
comments and suggestions, and I'd be pleased to take your
questions.
[The prepared statement of Secretary Gutierrez follows:]
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Chairman Tom Davis. Thank you very much. I think you noted
accurately that, compared to Europe and the Western Hemisphere,
we're doing very well economically, but a lot of new
competition we're seeing now is from the other direction, from
the Pacific Rim. In terms of the production of engineers,
scientists, computer scientists and the like, basically, we see
jobs migrating to those areas. The one thing we seem to have,
as I talk to technology leaders in my district and around the
country, is a lot of the innovation is still coming from the
United States. You can put it in a box and give it to engineers
in China and India and somewhere else, and they can solve the
problem but the innovation really is coming from here because
that's part of our culture, that's part of our economic system,
and it's not just something they have grown into at the same
rate.
But there is a problem when I talk to my tech leaders about
getting qualified leaders in some of these high end areas.
We're producing fewer engineers than we did a generation ago. A
majority of the graduate students in engineering, the physical
scientists and computer scientists in American universities are
foreign born, and it's going to take some integration of
immigration policy and a change in education to try to keep us
holding the edge that we have in some of those areas. Because
there the test is not just Europe, as you noted, but also from
the Pacific Rim.
Any thoughts on that?
Secretary Gutierrez. Sure. Today we have--and I think what
you're saying is exactly why we have the best economy in the
world and why we are determined to keep it that way is because
we are never satisfied; we are never complacent. I think many
countries around the world would marvel at this conversation
that we're having, given the state of our economy.
What is becoming very clear in this day and age is that the
business environment that countries create can have a big role
in how much innovation is done in that country. We know that
innovators prefer to do innovation in the United States because
the tax laws are transparent, because the rule of law is
transparent, because they're not going to get hit with
frivolous regulations, because their intellectual property will
be protected. We know in many countries around the world that
isn't happening. So that's another advantage that we have.
We have 5 percent of the world's population. We have one-
third of the world's engineers and scientists. The key thing is
we have to keep it going, and that's exactly why the President
has issued not just an initiative but what I would call a
national calling to get behind math and sciences, to get behind
education, to get behind our business environment; that every
company ask the question, what can we do to become more
competitive? That's what the President is calling for at this
point in time so that we can continue to be the greatest and
most competitive economy on Earth.
Chairman Tom Davis. If you go back 100 years, a visionary
in 1900 might have seen that oil would in fact be a dominant
force in economic growth in the 20th century. And it was the
companies and individuals and countries who had the oil, who
could get it out of the ground, refine it, get it to markets
that dominated much of the economy.
But you fast forward 100 years, the oil of the 21st century
is information. And it is indeed those countries, those
companies, those individuals who are able to get that
information, collate it, transfer it across lines that are in
fact the fastest growing companies. The fastest growing economy
in the Middle East is Jordan, with no oil, surrounded by Syria,
Palestine and Iraq. A tough neighborhood. But they get it.
Where our concern, is these areas continue to grow. Every
company is an IT company now. Burger King is an IT company.
Their product component is burgers but in terms of getting it
and being productive and so on.
Our question is, we are going to need to continue to
produce people not just at the innovative level--that's our
niche--but also below. What suggestions do we have really for
getting more of these engineers either through immigration or,
more importantly, educating through our own system that's
producing fewer engineers than 20 years ago?
Secretary Gutierrez. That's a great question, and if we go
back to the President's No Child Left Behind Act, which that's
really where it started, the recognition that we need to do a
better job from K through 12. We know that our students at the
fourth grade level are doing great versus other countries and
somehow as we head toward the senior year of high school, we
slip. So the President is saying, let's raise standards, let's
ensure that all students have the benefit of our confidence
that they can achieve higher standards. We are already
beginning to see results.
Chairman Tom Davis. Our problem is getting qualified
science and math teachers into some of these areas.
Secretary Gutierrez. That's correct.
Chairman Tom Davis. I don't know if we need to look at
special incentives for that or whatever. If you're good in math
and you're good in science, you can make a lot more money doing
something other than teaching.
Secretary Gutierrez. What the American Competitiveness
Initiative calls for is 70,000 new qualified math and science
teachers. The other thing we'd like to pursue which we believe
is part of this national calling is to get retired executives,
engineers, folks who have been in the actual practice of
engineering, in the math and sciences to dedicate time and
volunteer and come out to the schools and teach our children.
So it's not just the teachers we hire but also to tap into
the great talent that we have throughout the country who want
to contribute to this calling that the President has asked for
which we call the American Competitiveness Initiative.
So it starts in K through 12. We need to start at the
pipeline level. And we believe that math and science is an
important starting point, as well as what you say, which is
computer sciences. We shouldn't forget that because, you are
right, Burger King is an information company, and every
manufacturing company has a huge component of services, and
very often it's down to information.
Chairman Tom Davis. Thank you very much.
Mr. Van Hollen.
Mr. Van Hollen. Thank you. Thank you, Mr. Chairman, and
thank you for holding this hearing on this very important
issue.
Welcome, Mr. Secretary. Thank you for your testimony. I
would like to commend the President for his initiative in the
State of the Union address on the American Competitiveness
Initiative. It is an issue that many of us here in the
Congress, as the chairman said, have been concerned about for
some time. There are a number of pieces of legislation that
have already been introduced that would implement parts of what
the President is calling his American Competitiveness program.
A number of us unveiled something called the innovation agenda.
I think there is bipartisan support in the country for
moving forward on this. Of course the whole question of
globalization has been popularized in many ways by one of my
constituents books, Tom Friedman's book, the World is Flat,
where he makes the important observation that Beijing, Bangor
and Bethesda, MD, in my congressional district, are all really
neighbors now in the good sense of being able to share
information, but also in the sense we're now major competitors,
and we want to make sure that competition works to the benefit
of everybody instead of having big winners and losers. And if
we're not in front of this issue, we are going to be losing
out. And I would just quote from what I think was a very
important report put together by a group that was assembled by
the National Academies of Sciences and Engineering, chaired by
Norm Augustine, former chairman and CEO of Lockheed Martin,
where they, last October, came out with a report which I think
was really sounding the alarm on a range of issues, and they
made a number of recommendations. But just let me read from the
report because it underscores the seriousness of the issue.
This was a bipartisan group of experts in our country, and they
said: ``It's the unanimous view of our committee that America
today faces a serious and intensifying challenge with regard to
its future competitiveness and standard of living. Further, we
appear to be on a losing path.''
They go on to say: ``One need only examine the principle
ingredients of competitiveness to discern that not only is the
world flat, but, in fact, it may be tipping against us.''
And then they go through a number of criteria and
measurements to make their case, including what the chairman
alluded to. For example, about two-thirds of the students
studying chemistry and physics in U.S. high schools are taught
by teachers with no major or certificate in the subject. In the
case of math taught in grades 5 through 12, the fraction is
one-half. Many students are being taught math by graduates in
physical education.
They also go on to point out that the number of graduates
in our universities are more than well over half of them or
close to half are foreign born and that those students are more
and more thinking about returning to their home countries
because there are greater opportunities there than there were
before in countries like India and China and many others.
So I think we're agreed on the problem, and the question
is, what are we going to do with it? And I think the
President's initiative was good as far as it goes, but when the
budget came down the next day, I must say, I'm not sure whether
the reality of the budget met the rhetoric of the State of the
Union speech.
About 75 percent of the investment the President's
proposing to make in this area is simply a 1-year extension of
the R&D tax credit. I'm a supporter of that, but if you look
elsewhere in the budget, what you're finding in many areas is
taking money out of one pocket, even in the education area, and
putting into another.
For example, in the math and science area, we're talking
about $380 million for that initiative; $115 million comes out
of a program called Even Start, which is intended to give
youngsters a good start in life, which I think any scientist,
including neuro scientists, will tell you is an important time
to make that kind of investment.
I also, while I applaud the increase in NIST, I think that
is a very important investment, and the increase in physical
sciences, which I do think have been neglected in terms of
basic R&D, I think it's a mistake to essentially have a
decrease in real terms in our investment in the biological
sciences. If you look at the NIH budget, 18 of the 19
institutes see a cut in funding, and I think that if we're
going to be competitive in those areas going forward, that's a
mistake.
So I would like to ask you, Mr. Secretary, with respect to
the investment in education, which I really do believe is an
investment in the sense that it provides a national return, and
one of the things that Norm Augustine and his panel pointed out
is, what other countries are doing now is sort of learning the
lessons of the United States. Investments we have made in the
past in science engineering and math are a big reason for why
we are doing well today, and if we don't continue to make those
investments, we will not be ahead in the future.
So I'd ask you really two questions. One is the No Child
Left Behind funding, because I agree No Child Left Behind has
been a positive initiative in our country, but if we want to
make sure that we have our local school systems in a position
to hire the teachers who are qualified in math and sciences and
engineering, who have many other opportunities, they are going
to have to be in a position to pay those teachers a decent
salary.
My question to you is, the Congress passed the No Child
Left Behind legislation and set forth a marker as to what we
thought would be necessary funding. The Education and Work
Force Committee which I serve on had an authorized level. The
Senate passed it. The President signed the bill. Shouldn't we
as a Nation fully fund the amounts that were authorized for the
No Child Left Behind in order to meet the goals that we all
agree we need to meet for our Nation's competitiveness?
Secretary Gutierrez. I appreciate the question, and,
respectfully, Congressman, I believe your question is better
answered by the Secretary of Education. I will say that the
American Competitiveness Initiative adds $380 million to the
area of education and is very targeted at math and sciences, K
through 12, and really building on the No Child Left Behind.
There's an important component on community colleges, which is
also part of our competitiveness; worker retraining. So the
subject of education is very, very much part of this
initiative. And I would be very glad to take up the specific
question about funding for No Child Left Behind.
Mr. Van Hollen. If I may, Mr. Chairman, this is the
Secretary of the Department of Commerce, and your role in the
competitiveness issue, would you not agree that it makes sense
for the Congress and the President to fund the No Child Left
Behind initiative at the levels that were set out in the
authorization bill?
Secretary Gutierrez. I believe that the passion that the
President and Secretary Spellings have for this project and for
this initiative and the recognition of the importance of it,
that if they have put a number to it and they believe that is
what it takes, I am fully supportive of that.
Mr. Van Hollen. I guess you're supportive of it being $15
billion less a year than what the Congress authorized and $55
billion short since the bill was signed. I think we need to be
honest with the American people.
Chairman Tom Davis. Thank you.
Mrs. Miller.
Mrs. Miller. Thank you, Mr. Chairman. And, Mr. Secretary, I
certainly am delighted to see you here today. We share the same
background coming from Michigan, so I'm so happy to see you
here, and we miss you in Michigan, but we're delighted to share
you with the rest of the country here. You're doing a
remarkable job certainly for the country.
In Michigan, of course, we have some rather unique dynamics
in our economy right now; most of them negative, quite frankly,
in a very frightening way. We're going through a
transformational economy, what's happening to the automobile
industry. We have the highest unemployment in the Nation,
lowest personal income growth in the Nation. Bond rating
obviously is bad in the State. A number of different things
that have happened to us in a relatively short period of time
and yet we look to the Federal Government to provide the
environment so businesses can do what they do best, which is to
incentivize for job creation and investment and those kinds of
things.
I do think that the President's economic growth package has
been, and some economists have said it, has been historically
the best-timed package to really stimulate the economy, and so
we see that happening. The best economy of any of the
industrialized nations, etc., but obviously, in Michigan, we
have, as I said, some rather unique dynamics that have our
total attention at this particular time.
One of the things that I think hampers--I look at the
automobile industry--but in so many different businesses is the
very onerous burden of regulatory kinds of things that the
government places on our businesses; their ability to compete
and their ability to be competitive in a global marketplace.
The old saying, I'm from the government, I'm here to help you;
I think the businesses dive under the desk when they hear that,
but when you look at the National Manufacturers Association, I
know we're going to, on the second panel, have some
representatives from them, doing a study that shows that our
structural costs for American manufactured goods are 22 to 23
points higher than foreign competitors, Canada, Mexico,
wherever, and small business looking at $7,000 to $8,000 per
employee just to comply with the regulatory burden. My
question, I guess, would go to, how closely does your
Department interact with the other agencies that are
promulgating some of these regulations?
And I give you just one example that I'm aware of,
hexavalent chromium, which is maybe not the most interesting
subject in the world unless you're involved in aerospace or
metal finishing or these kinds of things. Our government, the
EPA is currently promulgating a rule that will take the
standard that was 50 points per billion--I believe is how they
measure it--from 50 to zero. There will be thousands of jobs
that we are going to lose as a result of that. I have a lot of
consternation about that.
The smaller mom and pop shops, I have a lot of those in my
district. Many of them have said they're going to close up
because of that. I'm wondering, how closely does the Commerce
Department work with some of these other agencies? We need to
have regulations, of course, but they need to be reasonable.
Secretary Gutierrez. I totally agree with what you're
saying. We do get involved in impact assessments of
regulations, and I can't talk specifically about the impact
assessment of that regulation, but we're all tied to the
President's direction, and that is that if we have new
regulations, they should add value. And regulations should not
be put in place that simply create an obstacle to doing
business and that we should recognize that what drives this
economy and what drives our country, what drives our growth is
private sector risk taking, entrepreneurship and people wanting
to go out and make a difference.
To the extent that regulations get in the way of that,
we're not following that lead. So the President has been very
clear on that, and it's being followed throughout the
administration.
Mrs. Miller. I appreciate that. I do think there always has
to be a cost-benefit analysis of some of these things being
done, and I sort of think if some of the other agencies,
particularly your agency, could be a little more interactive,
because it does impact commerce, obviously.
My final question would be, and I appreciate it in your
opening statement when you were talking about hydrogen fuel
research. Again, being from Michigan, we light up when we see
that. I think it is so important. I absolutely believe that
understanding security equals economic security actually equals
national security. They are all interrelated. It is so
important. So I was delighted to hear the President say openly
we are a Nation addicted to oil, and we have to get off this
dependence on foreign sources of oil. You see what's happening
around the Nation.
I'll conclude here. Ethanol and biodiesels and some of
these other kinds of sources of energy are so important for us
to continue to advance. So I am very appreciative that you are
picking up the mantel as the President has requested you to do
so.
Secretary Gutierrez. If I may say, I think that's one of
the boldest statements that was said that evening during the
State of the Union, a lot of bold statements, but a very very
bold statement is to say that through technology we are going
to reduce our dependence on oil. And we are going to look back
20, 30 years from now and realize that statement and that
determination set us on a course that will do just that. He
said we're going to do it through technology, and part of that
is why we are investing more in the Department of Energy. And
you can see it throughout the country. I see it in
manufacturing plants. I was at the Ford plant in Kansas City.
They are already producing hybrid cars. I believe you are going
to see a wave of investments and interest in this area as part
of the President's calling. I appreciate that.
Chairman Tom Davis. Thank you very much.
Mr. McHenry.
Mr. McHenry. Thank you, Mr. Chairman. Thank you for calling
this important hearing. Secretary Gutierrez, thank you so much
for taking the time to be here, and I appreciate your
leadership in the Department of Commerce. It's been very good
working with you. I think you are one of the outstanding Bush
administration appointees, and I certainly appreciate your hard
work and dedication. Thank you.
The initiative we're talking about today, the
Competitiveness Initiative is very important. My district in
North Carolina, western North Carolina, is going through a time
of immense change. Overall unemployment nationally is somewhere
around 5 percent. That's wonderful. Historic lows.
In North Carolina, we are facing nearly full employment. In
some cases, some economists would call it beyond full
employment. Unemployment around 4.7 percent. My district,
however, is facing a time of change. We have been traditionally
relying on textile and furniture industry jobs, manufacturing
jobs. I have two counties that led the State in unemployment.
One faced last year for a few months an unemployment rate of
around 13 percent. Another country faced an unemployment rate
of around 11 percent at its height. That's mainly due to loss
of furniture industry jobs.
Now certainly there are trade issues that we are dealing
with, competitiveness issues with China, the fact that China
won't float their currency. That's a question I'll leave up to
Secretary Snow at the Department of Treasury. I will not burden
you with those questions.
The focus that I have tried to place in my district is on
getting the skills and the training necessary to compete going
forward. We can't be reliant on yesterday's jobs, we have to
train for tomorrow's jobs and today's jobs.
As a district, representing a district that is termed in
the Almanac for American Politics as the most blue collar
district in America, we are certainly going through change.
I wanted to ask you, what would you propose for a district
like mine? What can I go home and tell my people that we should
be doing?
Secretary Gutierrez. I recall we talked about this when we
traveled together to North Carolina, and at that time, you were
talking about a national education coordinating council, which
I believe is the sort of initiative that you need throughout
the country but especially in communities, as you said, where
there is change that's happening because what ultimately will
help our people is to upgrade their skills, adjust their
skills, but enable them to move forward with the economy and
enable them to move to jobs of higher paying wage but give them
the ability to constantly be training and retraining.
So I would just say that your foresight on that and your
vision on that is absolutely right to the extent that we can
help to execute that vision, that will--that should help.
Because that's what we've seen in communities that have made
the transition. It has been about getting----
Chairman Tom Davis. Can you pull that mic closer?
Secretary Gutierrez. Getting the right programs in
community colleges that are tied to the jobs that are
available, and that's the sort of execution that needs to take
place locally.
On textile, as you know, we just signed an agreement with
China for 3 years. Hopefully that will give, and it's intended
to give, both retailers and manufacturers transparency and
predictability as to what's going to happen over the next 3
years to enable them to do what needs to be done to become more
competitive.
So I hope that has been helpful, but I would urge you to
stay on this coordinating council, and I think it's the right
focus.
Mr. McHenry. I appreciate that. I did enjoy speaking with
you. We had about 2 or 3 hours that day to talk on that trip,
and I appreciated that opportunity.
Is there any expertise in the Department of Commerce you
could point to that folks, my folks at home, could reach out
and get help with?
Secretary Gutierrez. Depending on the specific area, but I
would point to the ITA area where we do have an office for
textiles, specifically focused on textiles. And I would also
lead you toward Economic Development Administration [EDA],
because their role is about economic development and helping
communities create jobs, becoming more attractive to private
sector investment. So I would start there, and I think those
two areas could be very helpful.
Mr. McHenry. My predecessor had the foresight to actually
work with the Department of Commerce to get a Regional Economic
Development survey done to point us in the right direction, so
we're very much appreciative, through an issue we call Future
Forward for my region.
A final question for you, where do we need to go in terms
of changing the Tax Code to be competitive internationally,
around the world. There are a number of different initiatives.
A previous statement pointed to the fact that we are held back
by regulation and taxation in this country and lawsuit abuse
that actually hampers our ability to sell products around the
world because the added expense and cost of that.
Secretary Gutierrez. I would say two things there; one is
just the recognition that the tax cuts that Congress and the
President enacted have worked, and there is no question that
the basic principle of putting more money in the hands of
business and putting more money in the hands of consumers and
that they will be able to allocate that money better than a
centralized body is working. The challenge now is to make those
tax cuts permanent and to recognize that, if we don't make them
permanent, we're raising taxes. Because that will also
incentivize investors to bring more capital to the country.
And then on the innovation front, we have the R&D tax
credit. We believe there's work that can be done to simplify
it. It is a little bit complex. It's subject to some
interpretations, and we believe we can make it more effective
so that it yields more innovation. Those are two things I would
do to work on tax policy.
Mr. McHenry. Thank you, Mr. Secretary.
And thank you, Mr. Chairman.
Chairman Tom Davis. Thank you.
Mr. Turner.
Mr. Turner. Thank you, Mr. Chairman. Thank you for having
this important hearing on an issue that is on the minds of many
Americans. As they look to our economic recovery, many people
are concerned about how our ability to sustain economic growth,
specifically in the manufacturing area, will be faced in the
future.
Mr. Secretary, I want to thank you for being here and for
your dedication to probably what is the most important function
that we can do as a government, and that is encourage an
environment for job creation.
I want to encourage you in your support of both General
Motors and Adelphi and the automotive industry as they look at
their transition. I know that you are aware that those jobs are
very important not only to families throughout our country, but
they provide opportunities for economic mobility. They are
important for the innovation culture that we have.
Many of the innovations that we have arise out of the
automobile industry, its engineering and its manufacturing.
It's important for our defense industry, as we look to our
manufacturing capability. My community has a very large
presence of General Motors and Adelphi. In fact, Adelphi, as
you know, is the former Delco. The D in Delco is from Dayton,
OH; it is from Dayton with the Dayton Electronics Corporation.
So our community is very tied to the future of the automobile
industry, and your attention there would be very much
appreciated.
I also want to thank you and your staff for assistance in
another industry sector that is important to my community, and
that is the aerospace industry. Eric Stewart of your staff and
others have been very supportive of an international air and
space trade show that we are looking at trying to promote our
aerospace industry.
One of the components, of course, for our success in
international markets is our ability to market ourselves. The
many industry sectors that have trade shows have those trade
shows outside of the United States, which does not permit
second- and third-tier suppliers to effectively market their
goods in international markets.
Our ability to encourage those types of trade shows where
we can show off innovation, technology that is here in
companies that are smaller companies, that can't necessarily
participate in the large international shows off our shores, is
important, and your support and the support of your staff, as
we look to how we might support the aerospace industry.
I want to put one footnote on this. I am on the Armed
Services Committee, and a stunning response to a question,
General Jumper was before the Armed Services Committee, and
they asked him what one of the greatest threats was to our
ability to maintain a preeminent Air Force. Many people thought
it might be some issue of technology, some emerging country
that was our threat. His answer was the ability of the U.S.
aerospace industry to continue to support the Air Force in
leading technology and in production. So it's so important not
only for jobs, families and economic mobility, but also, as you
know, our defense that we maintain our manufacturing base.
So I want to thank you. I would love to hear your thoughts
on both the automobile industry and the aerospace industry.
[The prepared statement of Hon. Michael R. Turner follows:]
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[GRAPHIC] [TIFF OMITTED] 26331.028
Secretary Gutierrez. Well, we have all been very close to
the automobile industry, and I can tell you that any time we
read about layoffs or jobs lost that it hurts, and these are
great companies. These are industries that not only are large
from an economic standpoint, but they are also large
symbolically. We have, and I can tell you I believe, that they
are going to pull it through.
They are going through a lot of tough choices. This is a
very tough time for them, but they are focused on innovation.
They are focused on getting their costs down. They are focused
on getting the right types of products on to the marketplace. I
believe they will be able to do that, because these are great
companies, these are great workers, these are great people, and
they are going through a rough time.
But we need to continue to give them the environment and
create the environment that allows them to pull their companies
through. They don't need a tax increase. They don't need
regulations that simply create an obstacle. At this point they
need a playing field where they can innovate, create new
products, and focus on the future and unfortunately get through
this very tough period they are going through.
Chairman Tom Davis. Thank you very much.
Ms. Norton, any questions?
Ms. Norton. No, thank you.
Chairman Tom Davis. Mr. Ruppersberger.
Mr. Ruppersberger. I am sorry, I just came here late.
The issue of regulation, I think, is very important, I
think. To have a good business attitude, partnerships between
business and government are extremely important.
I do want to get into the issue, though, if you are going
to talk about tax cuts, you have to talk about deficit, and the
impact of the deficit--I think one of the last things that
Greenspan--the issue--one of the issues he raised is that if we
don't deal with the deficit, and the interest rates go up, that
is going to be less investment in business, and that we have to
deal with that issue.
How would you compare the tax cuts to the deficit, and what
would you do to resolve that issue as it relates to what we are
talking about here today?
Secretary Gutierrez. Sure. I would think about the deficit
as the short-term deficit from now to the year 2009, and then
the longer-term deficit that we have to face. We are on track
to cut the deficit in half by 2009. Last year our deficit came
in about $100 billion better than what we had expected, because
tax receipts are coming in so much better than we had expected.
So it's quite an irony that after we reduce taxes, we are
getting more revenues from taxes. And last year we had record
levels of tax revenues.
So we are confident that we can manage through the next
several years and cut the deficit in half. We will see some
fluctuations in the short term. We have had to deal with the
gulf coast spending, and that will have an impact next year.
But we are headed down the track of cutting the deficit in half
by 2009, and that would put us at a position where the deficit
is--as a percent of GDP is actually below our historical
average.
Where we should be concerned is the deficit 15, 20, 30, 40
years from now, with programs such as Social Security, where we
are going to have more retirees than what the current system
can support. That's not going to happen over the next 4 years,
it's not going to impact us over the next 4 years, but it will
impact us over the next 20, 30 and 40 years.
I am confident that we can manage our way through cutting
the deficit in half by 2009. I would just say what we should be
concerned about is longer term, 20, 30, 40 years from now, sir.
Mr. Ruppersberger. How are you going to deal with the issue
of cost as it relates to health care then? My concern is if you
have to cut taxes, you have to stop spending. One has to go
with another, or it's not going to work. With all of the
obligations of the war, Katrina, we haven't really gotten into
the health care issue yet. It is something we need to look at.
But let's get back to the issue of where we are, and we are
all concerned about that. We are all concerned about China
graduating more physicists, mathematicians and engineers. You
know, if we don't invest in our future, if we don't invest in
education, it's going to start to impact on our national
security, it's going to impact on what we do in business, and
it already has.
I think the way we turn that around is through education.
To give you an example, Allison Transmission, which is in the
district I represent, one of the most modern manufacturing
plants in the United States. What happened, how that developed,
is that there was an older plant in Baltimore that was closed
down, but the workers at the older plant were retrained on how
to operate and to work in a plant that deals with robotics and
technology. As a result of that, that allows Allison, and
Allison Transmission, to be able to compete worldwide, which is
what we have to do with respect to technology and training.
My concern--I don't see a program out there yet that really
is focused on educating, giving incentives to the--our younger
generation to get into the area of engineering, math, science,
physics, things of that nature. I think we have a lot more to
do. We need to roll up our sleeves in a bipartisan way to do
it.
To cut right now, if we are going to cut, cutting
priorities, to cut in the area of scholarships, it's not going
to work unless we reinvest. Do you have any comment on that?
Secretary Gutierrez. Well, I totally agree that this is the
focus, and this is the focus of the education piece of the
American Competitiveness Initiative. I think you are absolutely
right. It has to be done in a bipartisan way. Sometimes a
savings in the budget, or a reallocation to make the money work
harder, can be perceived as a cut, but not all reductions are
just sheer cuts of activity. I would look at some areas where
it looks like a cut, but it's actually a savings. We are doing
things more efficiently, we are doing things more effectively.
We are reallocating the money to areas where we get more bang
for the buck.
I think those are the types of things that we will have to
do to address your concern of how do we deal with the deficit
and at the same time not raise taxes. So it's always a matter
of choices. And every day there are tough choices, and that is
the challenge of managing through our current budget.
I believe we can do it, and I believe we can do it in a way
that increases our competitiveness the way the President has
called for.
Mr. Ruppersberger. So far we haven't been able to do it. I
hope we can do it for the benefit of our country as far as the
spending side is concerned. But, again, I think everyone wants
a tax cut, and I don't disagree with you that it can help the
economy, but sometimes you can't afford--and the issue that we
have with respect to the war, with respect to Katrina, some of
these costs, and then there's some things that aren't getting
done, like what we are talking with today, doesn't mean that we
maybe--we might even want to consider a postponement.
What, in your opinion, would a postponement of a tax cut do
until we are able to take care of our existing expenses and
take care of our priorities now? Do you have any opinion of a
year or two after a tax cut?
Secretary Gutierrez. Well, what the President proposes is
just to make the cuts that have been made permanent. It's not
really a further cut, but let's just make the cuts permanent.
And if we don't do that, what we are saying is we are
increasing our taxes.
Part of the issue here--and I saw this managing a smaller
company, obviously not a company the size of the Federal
Government, but very often a tax cut brings in more money, and
that money will be spent, and it may--it may give us the
impression that we have a lot of money coming in, and,
therefore, the challenge is to spend more, not to cut more.
One of the advantages of having our taxes where they are is
that it will force us to be more efficient. It will force us to
do better things with taxpayers' money. I believe that's the
big challenge, it's the big management challenge. Every company
in the country has that challenge, and there's no reason to
believe that we in the Federal Government don't have the same
facts.
Mr. Ruppersberger. But the facts are that hasn't happened
yet. That's my concern. Is the discipline there with the
administration to be able to do that?
One more question, then I will stop. It's my understanding
that we have one of the largest deficits in the history of our
country, and that 50 percent of that deficit is based on the
tax cut, the revenue not coming in. Is that your understanding?
Do you have a comment on that? Am I correct in my assumption?
Secretary Gutierrez. I haven't seen those numbers, sir. As
I mentioned before, the tax revenue in absolute dollars last
year were an all-time record. So what we are finding is that
when we cut taxes, the economy grows faster, and that yields
more revenues.
Mr. Ruppersberger. Again, it's my understanding--I think we
will relook at the numbers, I am sure, because this issue will
be before us again in the next couple of weeks, that 50 percent
of the deficit is based on the tax cut, the revenues that would
normally come in that would not.
The issue that I raise with you is if, in fact, the tax
deficits will continue to have interest rates move up, that
lack--because of that, there will be a lack of capital
investment in our business, which, in the end, will negatively
impact on what we are trying to do here today. Do you care to
comment?
Secretary Gutierrez. Again, I am not familiar with that 50
percent cut, but in terms of businesses, the way to continue to
motivate business is to invest in our country, is to keep the
tax rate low, to make the R&D tax incentives permanent.
You know, we have renewed the R&D tax incentive 12 times.
The problem with that is it doesn't give business the certainty
that they like, because an R&D investment, as you know, is a
10-year investment, but they don't know if they are going to
have that tax incentive for 10 years. We give it to them one
chunk at a time, 1 year at a time, a couple years at a time.
We should make it permanent and let them know that we are
committed to a long-term incentive that will really take our
country in the future with a long-term continuous plan and not
a stop-and-start plan which doesn't really do the job. So I
would just----
Mr. Ruppersberger. That's a good point.
Chairman Tom Davis. Thank you.
I think one of the problems, though, is that you could look
at these; if the tax level were at this point, we could expect
X number of revenues, but that doesn't take into account the
economic activity because of the tax cuts. One of the problems
in scoring at CBO and at the Office of Management and Budget is
that they don't have dynamic scoring models for that.
So if you were to raise the taxes, that doesn't mean that
you halve the deficit, because you get decreased economic
activity? I think that's the question.
Secretary Gutierrez. That's exactly right. That's exactly
right. It's a little bit like do you sell more if you raise
prices? Not always.
Chairman Tom Davis. Mr. Gutknecht.
Mr. Gutknecht. Mr. Chairman, as a former member of the
Budget Committee, I just want to clarify. I think under the
Congressional Budget Office's static scoring, they estimate
that only about 20 percent of the current deficit is related
directly to the tax cuts. The rest has been a change in
economic activity or, I must say, more spending. I think that's
something that Congress needs to do more about.
I want to thank you for coming today, because I think--I
actually, believe it or not, just finished the Earth is Flat,
and I think it does raise some pretty tough questions about
policy in the United States. I think there are factors within
the economy that can't be accounted for in just the terms that
the author outlined.
I think there is an issue, though, that I would like to
have you talk about a little bit, and that is this whole issue
of affordability. In some respects, and we have heard you talk
a little bit--well, we have to spend more on education. I think
that's always something we all say. But I think at some point
we have to ask ourselves, OK, how much does it cost, in some of
these other countries, to educate a Ph.D. in physics or even to
educate a high school student? I think one of the things that
the Commerce Department could really provide for us that would
be beneficial would be an honest and objective comparison of
what it is costing to educate people in the United States
versus Europe, versus India, versus China, versus Japan.
I think what we would find is--the reason I say this--we
have gotten a lot of criticism recently about student loans.
Well, there was an article in the Minneapolis paper last week
that said over the last 5 years, the cost of higher education
to students in the State of Minnesota has gone up 60 percent.
That's an average of over 11 percent per year. Now, that's even
faster than the cost of health care has gone up.
So at some point I think we have to have an objective
measure in terms of how much we pay and what ultimately we get
in return. I think we have to put some pressure on the folks in
that part of our economy to find efficiencies as well.
The other issue of affordability, I think this is
important, and I think we can do something about this, that is
the cost of energy. It was mentioned by Mrs. Miller from
Michigan. I understand right now, for example, on the
equivalent basis, we are paying about $13 or $14 per million
cubic feet for natural gas. People in China and India and other
parts of the world are buying it for as little as $5. That's a
big difference, particularly if you are in the petrochemical
business. As a result, we are losing a share of that.
Finally, in terms of these ideas, I would like to have you
bounce them off--in terms of energy, I would like to have you
come out to Minnesota sometime. We will show you some plants
where we are producing today ethanol for $0.95 a gallon.
I am told--and the refineries are a little bit slow to give
us the information--but the real cost of producing a gallon of
unleaded gasoline today is north of $1.50 a gallon. Even on a
BTU-basis-to-BTU-basis, right now ethanol is cheaper than
gasoline.
That's a story that almost no one knows. It is better for
the environment, it is better for the economy, and, by the way,
it is cheaper. We need to get that story told. People say,
well, if it is cheaper, why aren't we using more of it?
Well, the answer is, I think, because the oil companies
currently have 98 percent of the market, and they are not going
to give up market share voluntarily. I think we have to have
not only a goal, but a specific matrix to measure how well we
are getting to that goal, because we have had a goal of energy
independence since 1974, and we are in worse shape today than
we were then.
Finally, the last point, and this was raised by a union
leader in my State, but it's a very good point and one I think
we have to at least think about and discuss. He said one of the
problems with dealing with countries like India and China is
they haven't learned the Henry Ford principle.
The Henry Ford principle--and I think this is a great one.
He said that people in factories have to be paid enough that
they can afford to buy what they make. Until those countries
begin to learn the Henry Ford principle, it strikes me that we
are always going to be way behind the eight ball.
I wonder if you could just react to a couple of those
points, and I would appreciate it. Thank you.
Secretary Gutierrez. And these are great questions, and
hope to add a little bit of value to what you have already
stated. But, yes, on the education piece, the one thing I would
say is that qualitatively, we have the best advanced education
system in the world. That's why students from all over the
world want to come to the United States to study.
What the President has proposed and what he talked about in
the American Competitiveness Initiative is that we should be
keeping some of those students, the best and the brightest, to
work in our country instead of training them in the best
universities money can buy, and then sending them home to
compete with us. So there is a qualitative aspect to our
education system that I would just add to the comments that you
made.
Natural gas is an interesting one. You mentioned that we
have had a goal of energy independence since 1974. We have not
built a natural gas terminal since the 1970's. We have not
built a refinery since the 1970's. As you well know, this
requires decisions, and it requires a commitment to energy
independence. The President laid out a plan 5 years ago, and it
was deemed to be a little bit too long-term in nature, but here
we are 5 years later, and I wish we would are have had it in
place 5 years ago.
So when price--when oil prices are up, we would like a
solution immediately; when oil prices were down, the only one
talking about a long-term energy plan was the President.
But it is interesting, 1974, we said energy independence,
we haven't built a natural gas terminal since the 1970's, and
we haven't built a refinery since the 1970's. I don't have the
answer. I would just ask, as a challenge to all of us in the
Federal Government, what do we need to do to change that?
Mr. Gutknecht. Mr. Secretary, let me correct you though. We
have built 93 refineries in the last 5 years. They are called
ethanol plants. We can build a lot more. The truth is there's
not a city or a town or a county in a State in the United
States that wouldn't welcome more ethanol plants. They are
refineries. They do exactly the same thing.
Secretary Gutierrez. You are absolutely right. If you
recall, the President mentioned ethanol in his State of the
Union Address, and this is part of the drive to get us off the
addiction of oil.
Part of the challenge that we have today is cars that take
ethanol and consumers don't know it; then consumers who know it
but can't find ethanol. So we do need to have enough
communication, and an education to ensure that we take
advantage of things like ethanol, and the President is right
there. He talked about it in his State of the Union Address.
It's a huge opportunity. It's one of those leaps that we can
make beyond oil.
Mr. Gutknecht. Mr. Secretary, a goal is a dream with a
deadline. It strikes me that I appreciate what the President
said, and I appreciate what you are saying, but we have to set
a specific goal. Then we have to measure our progress. I would
submit we tonight have to spend a lot more money. With oil at
$60 a barrel, right now there is plenty of money in the energy
pipeline to encourage people to produce alternate forms of
energy. What they need is access to the market.
The oil companies are never going to do this voluntarily.
They want to solve the energy problem when they have sold the
last quart. If you really want to get at this problem, you have
to begin to specifically require certain percentages of our
fuel supply, as the State of Minnesota is doing right now, and
you will be amazed at how many people will invest in alternate
energy if they know that there is an access to market.
I yield back.
Mr. Gutknecht. If I may add, I think that when the
President of the United States says that we are going to wean
ourselves off the addiction to oil, I think we will also be
surprised at the impact that will have.
Mr. Issa [presiding]. Thank you, Mr. Secretary, and
certainly I share with the President the view that weaning
ourselves off or at least percentage-wise cutting back on that
specific fossil fuel also encourages, Mr. Gutknecht, I am sure,
would agree, competition where there isn't competition for
alternative for oil.
I am proud to say that every Indy car that goes around the
track at the Indianapolis 500 doesn't use a drop of gasoline.
So there are a few notable places.
Like Mr. Gutknecht, I just finished the World is Flat. But
maybe a little differently, because I come from a business
background, I may have gotten different interpretations, in
some cases, of what action we should take.
I am reminded that when I first started in business, one of
my first salesmen, when describing my product versus the
competition, said, you know--his first meeting, he said, well,
you know, it is just like the product I was selling last week,
except now I am representing this guy. It is basically the same
thing, it has only got two differences. It's a little bit
better and more reliable, and it's just a little bit cheaper,
but other than that, it's the same thing.
As you travel and I travel, and we have often bumped into
each other around the world, that really is the difference of
whether or not we succeed versus any European or any other
competitor is are we just a little bit better? We don't have to
be a lot better.
Bringing together what some of our colleagues to my left
and right both asked about, which was sort of this education
and skilled workforce, and particularly your last comment
related to people that we educate here, that we recruit from
around the world, the best and the brightest, but then they go
home to help their home countries compete, because we don't
allow them to stay here.
I know immigration policy is a hot button. It's a hot
button on this side of the dais, and certainly it's a hot
button for the administration. But what are your views as the
Secretary of Commerce, looking at our competitiveness of how we
should restructure our immigration policy vis-a-vis the half
million that come here illegally every year, the half million
or so that are allowed to immigrate here legally, the makeup of
those people--and I think in fairness, disproportionately at
the bottom of the economic rung, education rung, historic
opportunity rung--versus the kind of people that you just
talked about that you noted that we should try to retain or
potentially attract? How big a shift is that if, let's say, a
half million people a year were suddenly the best and the
brightest people, already with education and drive, versus such
a disproportionate amount of family unification or basic
workers?
Secretary Gutierrez. There are two aspects to immigration.
There is the high-skilled and then the lower-skilled workers
that I believe you are talking about.
I would say two things, Congressman. One is we need to be
more aggressive about enforcement, and I think that's just a
very logical position that we should know who is coming into
our country, who is working, especially at a time when national
security is such an important factor. So that is one aspect of
the immigration dilemma.
The other aspect is we have jobs that are available that
are necessary and that Americans don't want. I think it says a
lot about our economy that we have moved on, we are seeking for
other jobs, we are seeking higher-paying jobs, but these jobs
are available.
Therefore, why not recognize that reality, recognize that
it says a lot about our economy, and give these workers a guest
worker's program, and not--because there is demand for the job,
not force them to be coming in the dark of night and then
hiding and having to be subject to people smugglers and all
that is happening that we can get rid of by enforcing our
borders and recognizing the economic reality that we have.
Mr. Issa. I appreciate that. I certainly share with the
President the need to enforce the borders and find a long-term
solution for the labor force. But, if you will--and I know this
is a conjecture, but, obviously, you are the Secretary for the
next generation. What you do today will mostly be felt a decade
from now.
As we consider immigration reform, if we were to
fundamentally change the ratio and, let's say, reduce by
100,000 a nondescript group of legal immigrants and replace it
with 100,000 designated best-of-class hires, what would be the
impact to the economy of 100,000 or 200,000 net increases in,
if you will, preferential hiring, for people who come with
classically the H1B-type skill sets, the best, the brightest,
those either with education or those who have been educated
here that would otherwise return home?
Secretary Gutierrez. Well, specifically on the numbers--and
I don't know what 100,000 more would do or 100,000 less. I
think conceptually what we have seen throughout our history is
that students will come to our country. They fall in love with
the freedom, with society, with the tolerance. They decide to
apply their skills here, they contribute to our society, they
have a family. Their children become first generations, and
they become as American as any of us.
That has been our history, and they add energy, they add
ideas, they add a sense of hope, and they see that there is
more promise here than maybe back home, and, therefore, they
try as hard as they can to contribute. And I don't think I am
saying anything new; I think I am simply just reciting the
history of our country.
Mr. Issa. Well, in closing, would you say then even if you
can't quantify it, that a little bit like that salesman that
taught me the business, we would be just a little bit better if
we had that change?
Secretary Gutierrez. I think that new ideas, attracting the
best and the brightest, making this the country that people
yearn to live in is very good for us. It has been very good for
us in the past. It's been very good for us in the future. I do
believe that in this day and age we have a national security
component that we didn't have in the past, so we have to be
more diligent. We have to be more deliberate about it.
Mr. Issa. Thank you, Mr. Secretary.
Chairman Tom Davis [presiding]. Thank you very much.
We talked about the deficit. I think my friend over here
talked about the all-time highest deficit, but as the economy
grows, the deficit in absolute numbers grows, but as a
percentage of GDP, I think we are historically in line with
where we have been. Isn't that correct?
Secretary Gutierrez. That's correct. That's correct.
Chairman Tom Davis. Doesn't mean we don't want to get it
down, or we shouldn't strive to get it down.
Let me just ask, although this may be a little bit outside
your expertise, there's always a concern that with the size of
the deficit, which is compared to some of our European
competitors, and this is like not out of whack, but that there
comes a tipping point where foreign investors in American
dollars may take their money somewhere else. I don't know where
they will take it at this point. The euro obviously has
problems, but that is one concern about the deficit. Do you
have any thoughts on that at all, or would you refer that to
the Treasury Secretary?
Secretary Gutierrez. Well, I would refer any questions
about currency to the Treasury Secretary.
I would just say that we have--as you were saying, Mr.
Chairman, where else--the question is, is there a better place
in the world in which to invest than the United States? What we
are trying to do with the American Competitiveness Initiative
is to continue to make the answer to that question no. The more
we can do that, the better off we will be.
Chairman Tom Davis. Well, I want to thank you very much.
Secretary Gutierrez. Thank you.
Chairman Tom Davis. We are going to let you go. We are
going to convene the second part of our hearing. I am going to
try to move our second and third panels together, so we can
move it in one set of questions. We will take about a 3-minute
recess to get that ready. I will be back. I think Mr. Issa will
reconvene in about 3, and I will be back in about 5 altogether.
[Recess.]
Mr. Issa [presiding]. Ladies and gentlemen, I appreciate
your all being here so that we could do a combined panel. I
must apologize, because there's no votes on the floor today,
the Members will be going in and out as they prepare for, on
one side of the aisle, a retreat, and on the other side of the
aisle, I suspect, a retreat back to their districts.
But I am pleased today to welcome all of you. Dr. Hector de
J. Ruiz, I hope I did that somewhat right, president and CEO of
Advanced Micro Devices; Brian O'Shaughnessy, who will be
joining us, who has joined us, perfect timing, president and
CEO of Revere Copper Products; Mr. Richard S. Garnick,
president of North American Services for Keane, Inc.; Ms.
Deborah Wince-Smith, president of the Council on
Competitiveness. I will do this one without reading--and former
Congressman Dave McCurdy, presently president and CEO of the
Electronic Industries Alliance, which includes the vast
majority of divisions involved in consumer, industrial defense.
Dave, good to see you. I have to confess, I was a member of
his board for a number of years, so we go back--I don't go back
to Congress when he was here, but I do go back to the industry
when he joined us.
As is the requirement of this committee, I would ask that
you all rise to take the oath.
[Witnesses sworn.]
Mr. Issa. Dr. Ruiz, we would be honored if you would lead
off this panel.
STATEMENTS OF HECTOR DE J. RUIZ, Ph.D., PRESIDENT AND CHIEF
EXECUTIVE OFFICER, ADVANCED MICRO DEVICES; M. BRIAN
O'SHAUGHNESSY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, REVERE
COPPER PRODUCTS; RICHARD S. GARNICK, PRESIDENT, NORTH AMERICAN
SERVICES, KEANE, INC.; DEBORAH WINCE-SMITH, PRESIDENT, COUNCIL
ON COMPETITIVENESS; AND DAVE McCURDY, PRESIDENT, ELECTRONIC
INDUSTRIES ALLIANCE
STATEMENT OF HECTOR DE J. RUIZ
Dr. Ruiz. Thank you, Mr. Chairman, members of this
committee. Thank you for the opportunity to be here before you
today. As chairman and CEO of Advanced Micro Devices, the
question of competitiveness is of particular interest to us,
and to the semiconductor industry as a whole.
AMD is a Silicon Valley company--and just a brief
description of what we do. Every segment of the economy of any
country is now based on the information technology, from
agriculture, to the health industry, to transportation, and, of
course, to computers.
We are one of the two companies that make microprocessors
in the world. The other one is Intel. So we view ourselves as
being at the heart of every segment of the economy, of every
single part around the world. For we are also aware that the
world is changing, because we witnessed it firsthand, and we
know that past performance is no guarantee of success in the
future.
And we know that America's ability to compete in the 21st
century economy hinges on one factor more than anything else,
and that is our ability to innovate. Those of us in the
semiconductor industry understand that better than anyone. The
products that we make are the fuel that power the technology-
driven economy.
We understand that leadership and innovation requires
innovative leadership. AMD applauds President Bush's new
American Competitiveness Initiative, and we believe that recent
proposals by Members of Congress are similar steps in the right
direction. We also applaud Mr. Chairman Davis' leadership in
this particular arena. AMD fully supports these important
efforts, and we urge all the makers to enact them.
We must increase Federal support for basic research. We
must make permanent the R&D tax credit, and we must improve the
quality of education, particularly in our K-12 schools. We must
create a regulatory environment that is streamlined, effective
and responsive to business, and we must enhance our public
policy infrastructure to encourage and support innovation in
both the public and the private sector.
But there is more. To this end I want to focus today on
three critical points that I believe to be the three keys to
enhancing American competitiveness in this increasingly flat
world. First, you cannot have competitiveness without
competition. Second, government procurement is competitiveness
policy in action; and, third and finally, investing in
education is building competitiveness for the future.
Let me explain. First, you cannot have competitiveness
without competition. All of the investment, research,
specialized education in the world will not amount to a
growing, dynamic economy without competition. We know that
America's abilities to compete and lead in the 21st century
economy and enhance the standard of living of citizens depends
upon our ability to innovate.
Companies that fail to embrace innovation as a core
business value will fail, as global competitors will do.
Innovation is how we can take and maintain the lead, and
competition is the heart and soul of innovation, because
innovation happens when we feel like we have no choice but to
think and act in different ways.
Competition drives us to push past all limits, to extend
our vision beyond what we believe to be possible. It pushes us
to achieve something greater, and it is competition that turns
innovation into the real advantages that allows us to compete
on a global scale.
We need competition to drive us to think outside the box.
Fair and open competition is a necessity for our share of
success, and we have a responsibility to ensure that no one is
sheltered from competition. Everyone, every company and every
nation deserves an equal chance to compete and succeed on the
merits of the innovation that they offer to the world.
Enforcement of antitrust laws and standards of market
conduct are critical to a competitive society, and the United
States must serve as an example for the rest of the world in
promoting free trade and protecting fair and open competition.
At the same time, our public sector must serve as an example
for our private sector.
That brings me to the second key. Government procurement is
competitiveness policy in action. AMD recently commissioned a
study, the results of which were released yesterday, showing
that the Federal Government, and U.S. taxpayers, would have
saved between $281 million and $563 million by adopting
performance-based procurement standards for microprocessors. At
a time when we face budgetary belt-tightening across the board,
government contracts should favor the best technology at the
best price, not a single company or a best-known brand.
The final key to ensuring U.S. competitiveness is one which
is of great personal importance to me: investing in the
improvement of our K-12 education system. Too often we think of
competitiveness policy only in terms of graduate and
specialized education, but I know from my own experience that
our entire educational system is critical to our competitive
business. It begins with making a considerable investment in
improving our K-12 education system across all subject areas.
But I believe we must go even further. We have to plant the
seeds for future economic growth. In this respect the private
sector has a responsibility to lead. With that in mind, AMD has
begun to form partnerships with leaders around the world. We
invested a great deal in our 50x15 Initiative, a commitment to
empower 50 percent of the world's population with affordable
Internet access by the year 2015.
Today that number is less than 15 percent, so we currently
have a great deal of work to do in the next decade, but I
believe we can accomplish this goal, and, perhaps more
important, to maintain U.S. competitiveness in this century, I
am saying that we must achieve that goal.
We are developing new technologies and solutions that will
make Internet access and computing affordable and accessible in
places that are far removed from this promise. The first step
has been the development of a personal Internet communicator,
which provides Internet access to first-time technology uses,
and this is a sophisticated device that sells for around $200.
Without having any familiarity with computers, people in lower-
income and remote locations can, within minutes, access endless
amount of information and stay in touch with family members and
search the Web.
In Brazil, Russia, China, India and my native Mexico, our
goal is to connect billions of people with a chance to--
Internet providers to learn about the world, communicate with
others, and become part of the growing economy.
We are bringing hope and possibility to places that have
not simply been left behind, but have been completely left out.
It may sound like charity, but it is not. It is central to our
business strategy for the future, because while we are
connecting people in the developing world to a greater
opportunity, we are also building long-term relationships with
infrastructure providers, government institutions and consumers
themselves that are going to reap the benefits for many years
to come.
In closing, let me leave you with one final thought, an
explanation of why this issue is so important to me. I grew up
in a small village in Mexico, and, to me, America beckoned as
the land of opportunity. Each day I walked across the border to
attend high school in Eagle Pass, TX, knowing that I was on the
path to a better future. Education in the United States was my
opportunity, the key to unlocking my potential.
But far too many of today's children don't have that
opportunity that I was granted. With a public education system
that consistently falls behind the rest of the world, the
United States is failing our children right here at home in the
most fundamental of ways. We have a responsibility to them and
to future generations to ensure that America remains the land
of greatest opportunity.
Indeed, America is still a Nation where opportunity not
only exists, but a balance. The key to competitiveness in this
century lies in giving our citizens the tools that will allow
them to capitalize on that opportunity, the tools that will
allow them to innovate, to compete and to lead.
Thank you, Mr. Chairman.
Mr. Issa. Thank you, Dr. Ruiz.
[The prepared statement of Dr. Ruiz follows:]
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Mr. Issa. Mr. O'Shaughnessy.
STATEMENT OF M. BRIAN O'SHAUGHNESSY
Mr. O'Shaughnessy. Good morning, members of the committee.
My company, Revere Copper Products, was founded in 1801 by Paul
Revere. We believe we are the oldest manufacturing company in
the United States. We don't make pots and pans anymore. That
was sold to Corning about 20 years ago. So for about 75 years,
we made them. The rest of the 205 we made sheet, strip and coil
products of copper and brass. Think about an aluminum rolling
mill and those big coils that you see. We do the same thing,
but we make them out of copper and brass. We do that in Rome.
We have a small plate mill over in New Bedford, MA, not far
from the original plant built by Paul so long ago.
Now, you are thinking, here is an old-line manufacturing
company, right? Let me explain something. Eighteen years ago,
when I acquired the company--I am somewhat of an entrepreneur--
we had a payroll of about 750 people. Three had degrees in
engineering and computer science. Within 3 years, our payroll
was 550, and we had 55 people who had degrees in engineering
and computer science.
We are not a low-tech company, we are a high-tech company.
When you look at our rolling mills, you will see a lot of
electronics on those rolling mills. We are customers for those
PCs and other chip devices to run our machines. When you look
behind our machines up on the wall, you will see a glass
window, and behind that window you will see $3, $4, $5 million
worth of computers to run that one machine, that one mill.
Now I want to talk about why are we losing manufacturing
jobs to the rest of the world? The numbers are about to come
out. I think it will be somewhere around $200 billion deficit
with China on manufactured goods in the United States. The EU
is going to probably come out $150 million. I am just rounding
off to the nearest $50 million there, because I don't know----
Mr. Issa. Please, stay with the billion, I get confused.
Mr. O'Shaughnessy. I am sorry, did I say million?
Mr. Issa. It happens here all the time.
Mr. O'Shaughnessy. All right. First of all, let's talk
about what it is not. A local furniture company up in
Booneville, NY, shut down, and they consolidated their
operations down into the Carolinas somewhere. They had five
plants; they went down to three. They announced they were
consolidating and doing all of this. Their press release didn't
say that they were now buying furniture from China and shipping
it in.
My point here isn't about outsourcing. I think outsourcing
is a phony issue. I think it has--it's an effect, not a cause
of our problems. The point I am trying to make is that the
press release the company put out didn't mention that we are
not making those products here now because the costs are too
high and this and that; we are going to make them in China.
Similarly, a lock set manufacturer in California, and in
this case I will mention the company's name, Schlage Locks--do
you know what lock sets are? Those are on doors where you get
the door handle, the brass plate, the whole mechanism. That is
all called a lock set.
Well, they said they were moving closer to the market, and
so they and every other lock set manufacturer in the United
States left the country. Nobody has left to serve this market.
But that isn't true. You walk into any big box store, you walk
into Wal-Mart, Kmart, Ace, and pick up anything that is made of
brass, and you will see it is made in China.
So again my point is the press release doesn't tell you the
story. I don't think America knows the full story of what is
going on in manufacturing and what is causing this big deficit.
So, if it's not us--and I will answer questions on that
later if you like. It is certainly not the tax policies, the
dividend cuts, the death tax cuts, the income tax reduction.
No. Those are all good things, and those are things that need
to continue.
Several years ago I started walking down a path that led me
to understand better what was going on in manufacturing and the
competitive situation of the United States. Our plant in New
Bedford was facing very strong competition from a plant in the
U.K. We were competing with them in the Middle East, in Japan
and South Korea, and in the United States. But the owners of
that plant were having a tough time because we were
outperforming them insofar as productivity. The owner decided
he had enough, and he wanted to sell.
So we looked at his books. What we discovered were, to our
chagrin, to our amazement, was that his tax load was much
smaller than ours. We couldn't believe this. It just happens
that the VP and general manager of my plant in New Bedford is
British. So he said, well, Brian, look at it, here is the
situation. In that country, they have a VAT tax structure that
takes up part of the costs of manufacturing. When they export
to the United States, we have to face them here, they get that
back, and they do everywhere else.
So I started looking around and discovered this huge
discrepancy that has to do with VAT taxes, and that we are the
only major industrial country that does not have a VAT tax
system.
Now, what I would like to do is to put into the record my
view of what a good VAT tax structure is. But, I want to make a
very strong cautionary note here. It's very easy to make things
worse. Here is what you can do. You can put a VAT tax in and
leave the existing system and use VAT taxes to try to close
some deficit.
You will make it worse for manufacturing. That would be a
horrible, horrible approach to take. If you are interested in
reviewing this document, you can also go to reverecopper.com
and just click on VAT USA.
I quickly want to go into another couple of major points on
energy. The sad truth about windmills is, you know, when they
first came out, everyone was concerned about environmentalism.
We wanted them to work. We wanted them to be effective. But the
windmills, if we increased our number of windmills 10 percent a
year for 20 years, the effective addition to our Nation's
capacity would amount to 1 percent. Windmills are one of those
incredible things where 1 and 1 doesn't make 2, because if the
windmill is operating, the standby plant shuts down. When a
windmill doesn't operate, the standby plant comes up; 1 and 1
doesn't make 2, it actually makes about 1.08.
Now, some States have pushed that up to 12 percent, even 20
percent. I suspect some of those people are the ones that did
the calculations on the dam in New Orleans.
Finally, on currency. China's Government recognizes the
great truth that an entity that provides or creates skilled
jobs is a precious thing. It is not something to be taxed, sued
and regulated to death. The challenge, the impact of the
regulated currency on the United States and the rest of the
world is astonishing, and the world is sleeping.
So I will just ask you one question. If Paul Revere rode
into this room today, what do you think he would say? The
Chinese are coming. Unfortunately, they are already here, and
they are taking our jobs. Thank you.
Chairman Tom Davis [presiding]. Thank you very much.
[The prepared statement of Mr. O'Shaughnessy follows:]
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Chairman Tom Davis. Mr. Garnick.
STATEMENT OF RICHARD S. GARNICK
Mr. Garnick. Thank you very much, Mr. Davis and members of
the committee. Thank you very much for holding this important
hearing. I applaud you and your committee for your leadership
in the area of concern of American business and family.
The United States economic competitiveness and technology
in the years ahead is at stake. I am president of Keane, Inc.,
a Boston-based information technology and business process
servicing organization.
As to my performance in the context of my comments, I would
like you to know that prior to joining Keane late last year, I
spent 4-plus years as a senior executive for one of the leading
IT services firms based in India, serving as the only American
on the management board of any major Indian IT services firms.
Thus, I think I have a unique perspective of the global
landscape and the competitive threat to U.S. providers.
Many of the comments of the World is Flat I have lived over
the last decade. I am also here today in another capacity, and
that is as a board member of the Information Technology
Association [ITAA], which represents over 325 member companies
in the information technology industry.
These are the companies that are the enablers of the
information technology economy that Dr. Ruiz spoke about. These
range from startups to some of the largest corporations in
North America, and they serve companies on a truly global
basis. We are united by our concern that if the United States
is to remain at the forefront of global high tech economy, we
must take practical, prudent steps to preserve our
competitiveness today and tomorrow.
I would like to begin my remarks by stating that I truly
believe the way forward is clear. Without disciplined,
purposeful action, the Nation's high tech future and therefore
its economic future is at risk. To remain globally competitive,
America must at least double the number of science, technology,
engineering and math--or I will use the term ``STEM''--
graduates over the next 10 years, from approximately current
levels of 430,000 to 860,000. If we don't create a more
equitable platform for global competition and a larger, better
equipped technology workforce, we will surely lose much of the
economic edge we have enjoyed for the past 50 years.
Consider, global environments where global collaboration
enabled by powerful high speed networks level the traditional
barriers to domain expertise and professional interaction. A
burgeoning appetite for white collar employment pits country
against country in a race to perform services in competitive
bidding heretofore unimaginable, target national investments in
science education, develop a large cadre of STEM workers to
pursue those global opportunities and in the process rewrite
the rules of global economic engagement.
The big question in front of us is can a high standard of
living country like the United States compete in this
transformed business environment? Unequivocally in my opinion,
the answer is yes. But innovation and creative scientific
engineering and technical disciplines may be the last line of
defense against an otherwise uncomfortable future.
In the past, scientific discovery could yield practical
knowledge in commercial products capable of sustaining an
entire community for years. Scientific innovation has produced
roughly half of all U.S. economic growth in the last 50 years.
Foreign suppliers certainly contributed to the value chain
during this time, but they did not supplant it.
The road to the future, STEM. In the early days of the
Republic, the Nation's manifest destiny lay on the trails and
canals running West. Pioneers used these difficult avenues to
pursue a still more difficult American dream of individual
freedom and national strength. Today and into the foreseeable
future, the road to global competitiveness, and therefore
America's destiny, runs through education and the STEM fields.
We fundamentally need more trailblazers from our entire
diversified community of Americans, and they will be needed
because the more we have, the more trails we can blaze.
The power of computers, software communication is enormous
today, but will be dwarfed by computational resources available
to typical users 10 years from now, again due to the thanks of
the semiconductor industry and all the providers of technology
platforms like Dr. Ruiz's company. This computational power
sets the stage for enormous discoveries in virtually all
aspects of human endeavor, ranging from preventing diseases to
modeling behavior of markets. Advances in technologies like
data mining, data storage, high speed networks, etc., will
launch a new information revolution and endow these societies
able to harness this power with global economic leadership.
STEM graduates will channel this force and allow the United
States to realize its fullest potential. As Brian spoke about
earlier, he lowered his number of total workforce but increased
the high quality of his workforce and improved productivity of
his business. But there are warning signs out there. U.S. self-
sufficiency in math and science is at issue.
We spoke about it through earlier sessions, but American
universities granted 50 percent of the doctorate degrees in
computer science to foreign born students working in industry.
The percentage of doctoral degrees in engineering is even
higher; 22 percent of our science and engineering jobs in the
United States are now held by the foreign born. While the
Nation may be able to meet short-term labor shortages by
relying on this talent pool, such workers may ultimately decide
to repatriate, taking with them their advanced degrees and
American industry experience.
The number of undergraduate degrees awarded to science and
engineering students is falling. Between 1985 and 2000,
bachelor degrees awarded to engineering and math and computer
science, etc., had fallen by 18.6 percent. Roughly one-third of
the students declaring an engineering major switch prior to
graduation. The number of newly declared computer science
undergraduates has dropped 33 percent, and computer science
master's degree candidates have declined 25 percent since only
2002.
In addition, tighter customs and immigration controls in
response to homeland security concerns are dissuading foreign
students from study in the United States. A 2004 survey by the
Council of Graduate Schools found that a number of foreign
students in U.S. science and engineering programs is down 24
percent in terms of the former and 20 percent in terms of the
latter. Moreover, foreign students who are electing to study
hard science disciplines may face a harder time with visa
screenings and the entire processes.
So this brings us to the question: How do we sharpen
America's competitiveness and edge in the 21st century? From my
perspective, it means that we need to begin by focusing on
three things: Education, government policies and industry
efforts in partnership.
Education. The STEM workforce. The key is expanding this.
Again, we have to at a minimum double the workforce over the
next 10 years. This seemingly monumental goal will still put us
at a competitive disadvantage in the way of pure numbers to the
STEM workers in India, where I spend so much time, China, where
I spend a lot of time, as we continue to lose ground due to
demographics and emphasis of their overall economy.
In 2004, the Academy of Natural Sciences reported that
350,000 students from China graduated with bachelor of science
degrees, compared to only 140,000 in the United States.
Last, India is graduating over 300,000 engineers in 1 year
alone and that is expected to continue to grow to over half a
million. And that compares to our graduating of less than
75,000 engineers a year.
Competition is a numbers game, and at a minimum doubling
the number of STEM graduates is necessary to best position the
United States for economic prosperity.
Government policies. How can the government step up and
lead? You can help by helping facilitate the doubling of the
STEM workforce. Doubling this will pull adequate student
enrollments from groups that are currently underrepresented in
the math and science professions. We have a major disconnect.
Women are one dramatically underrepresented group. The percent
of women in the IT workforce declined from a high of 41 percent
in 1996 to 32.4 percent in 2004, while the total number of
women getting college degrees has grown.
Just 3 percent of 12th grade African Americans and 4
percent of Hispanic Americans are proficient in science, a
situation that doubtlessly limits the number of minority
students in the STEM college programs and the STEM workforce
over all.
The actions I have described today will play out over many
years. There are, however, practical steps that can be taken in
the near term to hone the Nation's competitive advantage. One
such step is in the area of increased access to foreign born
talent.
Congress should move to make the current limits on
business, immigration programs reflect real world conditions.
In the real world, the 65,000 visa cap placed on the issuance
of H1B visas in 2006 was reached 2 months prior to the start of
the fiscal year.
Other important policy steps to double the number of STEM
graduates: Extending training and assistance to workers in
services industries, to workers when they are displaced through
other means of economic transformation, controlling health care
costs. In addition, there are other fundamental policies that
need to be evaluated, policies that support free but fair
trade. We need economic policies that support an equitable
platform for stimulating investment for enterprises.
Companies out of India, software services companies, pay
zero taxes on revenues and profits for the services that they
render. That creates a disequilibrium in their ability to
invest back into their businesses.
Our industry is a national agenda item for many countries
or regions of the world, including China, India, Eastern
Europe, South America, just to name a few, because our industry
is truly transforming their economies.
I would like to correct the record earlier today. One of
the Congressmen spoke about the Henry Ford principle. One of
the things that our industry is doing in India is creating a
stronger middle class that is creating potential markets for
free trade, so Dr. Ruiz can sell chips to the PC manufacturers
that sell PCs to companies like I that put them on the desktops
for companies and the employees that are over in India and for
the computers that they build on their own. However, there is a
competitive disadvantage due to some tax burdens and other
factors that the government has put in place.
Industry. What role do we have? In addition to the action
by government, the industry can play a role through community
involvement, scholarships, mentorships, internships. The STEM
workforce will grow only to the extent that young people see a
future in career opportunities. U.S. high tech companies must
help the newcomers see the potential of careers, interesting
work and interesting opportunities.
One of the things I have done since joining Keane is we are
going to be initiating programs to ensure that we attract the
best talents and give opportunities to the best and brightest
out of colleges and universities here in North America. We are
investing programs to recruit and train college graduates for
positions throughout North America and help in the next
generation of managing teams globally, and truly making global
work work.
So in conclusion, true leadership requires reasoned
responses to present evidence. Despite its many comparative
advantages--a democratic tradition, a system of laws, access to
education for all, protections for intellectual property and a
culture which nurtures and rewards entrepreneurship--the United
States has entered an era of unprecedented global competition.
At the same time American students are turning away from math
and science programs that would equip them to compete for the
future.
The Nation's best response to the new competitive reality
posed by these nations is to apply American ingenuity and
innovation across the spectrum of human endeavor. As a
businessman who has been involved deeply in the international
high tech marketplace, I can tell you that the global race has
not only started but that countries, including China and India,
are pulling ahead in many areas. They are making the investment
in education. They are producing world class research and
development, and they have the will to win. And so must we.
I would like to thank the committee for this opportunity
and I look forward to working with you on legislative proposals
to eliminate our disparities in education and workforce
development.
Chairman Tom Davis. Thank you very much.
[The prepared statement of Mr. Garnick follows:]
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Chairman Tom Davis. Ms. Wince-Smith.
STATEMENT OF DEBORAH WINCE-SMITH
Ms. Wince-Smith. Chairman Davis and members of the
committee, thank you for this opportunity to present testimony
on the competitiveness of U.S. businesses and the pivotal role
that government can play in supporting America's business
success at home and successful competition in a fiercely global
economy.
I would like to thank Secretary Gutierrez for his
leadership because he truly is a champion of economic
competitiveness, as is the Deputy Secretary. They are indeed
forceful advocates for the innovation imperative that will
drive our productivity and ensure prosperity for all Americans.
I would also like to commend my colleague and friend Dave
McCurdy, and he serves on the leadership council of our
National Innovation Initiative. But I want to also recall his
leadership back as a Congressman when he was one of the
sponsors of the 1988 National Super Conductivity
Competitiveness Act. And I was working in the Reagan White
House at the time. And it was a fabulous example of bipartisan
moving forward, which really signals today where we are with
the bipartisan legislation, with the Innovate America Act and
the new PACE legislation. So really we are at a threshold, or a
tipping point, for national awareness, commitment, and
bipartisan action.
In the State of the Union address last week, in the
President's unveiling of his American Competitiveness
Initiative, he really clearly set forth a policy and an
investment platform for students, for workers, for
entrepreneurs and our global business, and the Council on
Competitiveness commends the President and his administration
for this groundbreaking initiative.
The Council, by the way, is entering its 20th anniversary,
and our CEO, University Presidents and labor leaders are all
committed to developing an action agenda to drive
competitiveness and productivity. Indeed, it is our enduring
mission and the reason we were created by John Young over 20
years ago.
In January, we welcomed our new chairman, Chad Holliday,
the president and CEO of DuPont, who succeeded Duane Ackerman,
the chairman of BellSouth. And I can't help but mention that
from its inception DuPont's business has been innovation
driven. And indeed, some of the talk this morning about the
transformation in energy renewables, sustainability, moving
away from petroleum based products is already underway at
DuPont, and we are going to see that really permeate our
business in the years ahead.
The National Innovation Initiative is a flagship work of
the Council and it is entering its third year and we are very
proud. It is led by Craig Barrett, the chairman of Intel and
Bill Brody, the president of Johns Hopkins. These are leaders
that have taken forward the work that we launched back in 2004
under the leadership of Sam Palmisano of IBM and Wayne Clough
of Georgia Tech. But this is an initiative that galvanized over
500 leaders across the country to probe the changing nature of
21st innovation and then construct a policy agenda for America.
Now when it comes to competitiveness, I think Americans
tend to veer between complacency and hysteria. On the one hand
many Americans find it hard to conceive of a world where we are
not the world innovation leader, but others recognize that our
leadership is being challenged by other nations who are taking
our model to heart.
Indeed, if current trends continue--and we have heard many
of these trends and statistics this morning--our economic
prowess and national security will be seriously compromised.
The United States is still the global leader and benchmark for
competitiveness. As the Secretary described this morning, our
economy continues to deliver unprecedented productivity growth
while productivity growth in the rest of the world is
relatively stagnant. And we have low unemployment and our
creativity and entrepreneurship and business models and
business innovation is indeed the envy of the world.
Yet we know that the waters we must navigate in the future
21st century that we are in today are not those that propelled
us to a safe harbor in the 20th century. The pace of
technological change, its rapid deployment across the globe,
the emergence of new competitors, fueled by a demand driven
economy with powerful consumers in charge, means that the
policies of the past cannot be the policies of the future.
Low wage nations around the world are developing high
skilled, high performing workforces, investing in their talent,
in their R&D and in their infrastructure and creating optimal
business climates and tax incentives to indeed propel their
innovation. They are hungry for the world's work. And let's
accept the reality. Every day it is easier to ship that work
around the globe in bits and bytes. Indeed, at the Council we
believe and know that if work is routine, rule based, digitized
and reliably codified, there will be a source of labor
somewhere in the world to compete for that investment and that
job. So we cannot compete on standardized services, commodity
products, only on innovation.
And let me define innovation, because I think we all talk
about it but what is it really? At the Council we say it is 1
to the fifth power. It is the intersection between ideas,
imagination, insight, invention and implementation, and it is
ultimately about new value creation.
We have to have an innovation ecosystem with a highly
skilled, creative and flexible workforce, the investment in the
long-term basic research at the frontiers, and this
infrastructure of regulations as well as the physical and
digital world that enables our people and businesses to harness
their knowledge and new ideas and technology to indeed be
competitive globally. The recommendations in our NII agenda
reflect this, and indeed we look at the whole system as a very
dynamic innovation ecosystem.
But we are not stopping still. While we will continue to
push on the legislation and the President's initiative, we are
already undertaking what we refer to as the over horizon
innovation challenges, with new initiatives to propel America
into the leadership role in 21st century manufacturing. There
is indeed a renaissance in manufacturing. It is in
transformation, with the power of desktop fabrication, T to T
sensing, the use of supercomputing in design and the power of
logistic supply chain control.
We are also focused on how to have the users and the demand
side of the energy equation drive our independence and
sustainability.
In implementing our NII recommendations, we also are
focusing on what is going on in the United States in our
regional innovation capacity. Working with the Department of
Commerce's Economic Development Agency and the Department of
Labor, Secretary Chao rolled out right after the State of the
Union a fantastic new initiative called WIRED, regional
economic development for workforce innovation, and we believe
that this is going to catalyze and trigger across our country
the emergence of innovation hotspots consistent with the
public-private partnerships that we are talking about today.
And I might say that every week at the Council we are
having requests from all over the world to talk about
innovation hotspots and why in the United States we really have
a lot of the ingredients and road map for that.
But of course the government also has a very, very
important role across the continuum of talent investment and
infrastructure. The government has to ensure that in the United
States we have this optimal, high performing, innovation
friendly climate for our enterprises to develop and compete at
home and abroad.
And this deals with the whole issues of the balance between
risk and reward, our regulatory system to protect our citizens
but not hurt our companies. We really need to get the R&D tax
credit permanent. It's been on the book for years and years and
years. It is kind of time to put that, I think, behind us. And
of course the protection of intellectual property, ensuring the
rule of law and transparency globally, all of these things the
government has a strong responsibility for.
And let me say that with our commitment for STEM education
and ensuring that our children have the skills, the analytical
capability, and the creativity to go forward, we have to
increase this investment in the frontiers of knowledge through
NSF, the Office of Science mission, and our DOD world.
But I want us not to forget that we should draw on our
culture of creativity. I believe that America is indeed a place
that has a mix of creativity that is unsurpassed in the world.
And so as one of our members said, we need artists who can
think like engineers and engineers who can think like artists.
And finally, let me share with you, it was not--I think it
was very powerful that the President mentioned two areas in his
speech, nanotechnology and supercomputing. We are leading in
nanotechnology. Are we going to capture the value here in the
United States or will it be in China and other parts of the
world? Our manufacturing prowess depends on that. And clearly
supercomputing and enabling that down to the level of our small
suppliers and entrepreneurs will give us a huge competitive
advantage. And again we are on a renaissance in that world.
Let me conclude by sharing with you a comment from one of
our members, Roger Enrico, the former CEO of Pepsi and now the
CEO of Dreamworks Animation. He recently talked about the
importance of making big changes to big things, and change in
progress, he explained, will never come if we don't free
ourselves from the tyranny of incrementalism. Dramatic results
do not come from undramatic action, and innovation is a race
with no beginning and no end. And it is time for all of us to
get started and ensure that we create a legacy for our children
that takes the power of innovation to the next level.
And I would be happy to answer any questions and look
forward to working with this committee.
Chairman Tom Davis. Thank you very much.
[The prepared statement of Ms. Wince-Smith follows:]
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Chairman Tom Davis. David, welcome back.
STATEMENT OF DAVE McCURDY
Mr. McCurdy. Thank you, Mr. Chairman. I want to
specifically thank you for your leadership. It feels like old
home week when I come to testify before you and Darrell Issa. I
don't know of two Members of the House that have more
experience in high technology and bring business acumen to this
process and only wish half the other Members had as much
experience and your dedication to technology.
I know time is short. I guess I am the cleanup batter here,
so I am not going to take the whole bucket of balls here. I
just ask that my statement can be admitted into the record.
Chairman Tom Davis. Without objection.
Mr. McCurdy. I would like to just make a couple of quick
points. As you know, EIA has been deeply involved in the issue
of innovation. As a matter of fact, since we do represent such
a wide range of the technology in this country and high tech,
we frame all of our initiatives within the context of
innovation and global competitiveness because that is where our
industries succeed. We have a foundation.
You know, everyone talks about math and science education.
In 1981, actually my first legislative victory and
disappointment was to have an amendment attached to the Higher
Education Act. Carl Perkins was the Chair, and it became
authorized to provide scholarships to math and science teachers
and summer internship programs with industry in order to
supplement their income and provide some real-world experience.
Unfortunately, in this place, you not only have to worry about
authorization, you have to get the appropriations, and it was
not appropriated, and I think we have missed some
opportunities.
So as much as we have this momentum, and I think there is
good momentum for innovation in the innovation agenda, we have
to be very diligent and continue to keep an eye on where this
actually ends up.
Our foundation at EIA called NSTEP, National Science
Technology Education Partnership, has been working; and Darrell
Issa has contributed and others not only financially but to
provide mentorship for young Americans to understand math and
science and how it affects them in their daily lives.
TIA, our communications sector, has an incredible research
division. Meredith Singer is here, and they have a CTO Council
which has provided in incredible detail about the decline of
research and development in the communication side and where we
need to provide some emphasis.
Last, I just want to mention just a quick commercial. Over
2\1/2\ years ago, we published this document based on a
prosperity game that we played with CEOs and academics and
industry leaders and members of government that came up with a
series of 40 recommendations to improve innovation; and even
though I am an absolute passionate advocate of innovation, I
think we have to be very, very careful about our rhetoric and
the hyperbole.
I think most of us agree--and Deborah and I have worked on
this issue a long, long time. She has provided incredible
leadership. But we are really not at a crisis yet. We are
really at a crossroads, and I think now is the time for the
leadership of our country to step up and say we do have some
tough choices to make. We need to make the investments now.
That is why I agree with everyone that has appeared before
this panel today, the Secretary of Commerce and my association
colleagues, when we say that the Secretary is right, the
President was right. We are pleased that he raised the level of
attention in this State of the Union for innovation.
But there is a very important movement here on the Hill, in
the Senate. We see extremely strong leadership with Senator
Ensign and Senator Lieberman with their bill.
After the Augustine report, we see very broad-based
legislation from Senators Alexander and Bingaman and others,
with over 60 cosponsors in the Senate, bipartisan. I know the
Democratic leadership in the House has advocated an innovation
agenda, and I understand that the Speaker and Mr. Goodlatte
will be unveiling the Republican leadership proposal on
innovation perhaps today.
My only hope is that from past experience and one who
admires this Institution is that we do our best to make this a
bipartisan effort. This should not be a partisan issue.
Quickly, in just one quick insertion on a thought, as much
as we want this legislation to pass and the budgets can be an
improvement and we want to see the prioritization and the
emphasis, I would certainly urge your leadership in strong
support for reducing the number of congressional earmarks when
it comes to research and development in science, which I think
really does hamper the ability to have an effective U.S.
leadership.
I mentioned R&D. We all support making permanent the R&D
tax credit. It is costly. But I think it is one of the best
investments we as a Nation can make. I will mention again there
are a number of very good proposals not only with the
President's outline but also in these key bills.
But I want to give one example of an area when it comes to
business climate, and this is the one point I will finish with.
That is innovation, and the key to innovation is having IT
diffused throughout the economy. That is why we have an
advantage over other countries. But they are reading our
blueprints on our success, and they are going to try to copy
it.
They have had these--Europe has their six framework, China
has a 5-year plan, Japan had a 5-year plan. They all have these
plans, and the United States is yet to really step forward with
a clear vision for innovation, and that is why we encourage you
to provide leadership on.
But the one area, an example, is from the semiconductor
space, and Dr. Ruiz talked about the need for competition.
But it is a simple fact that when the cost of a new fab
production capability for semiconductors costs $1 billion more
in the United States to build and operate than it does in
China, Israel, Ireland, parts of Asia--two-thirds of the No. 30
millimeter fabs are being built in Asia--but when there is such
a discrepancy in the cost, it is no longer a question of are
you protecting American jobs or are you a patriot--and we heard
those arguments, those fallacious arguments in the past about
the Benedict Arnold CEOs. That is wrong. That is not the case.
They are real business decisions when you are talking about
that kind of investment and that kind of change. So those
differentials are important.
I know this is not the Ways and Means Committee, but I do
think we need to look at some of the proposals of where these
incentives are being laid out, why the United States has a 35
percent corporate tax rate and in Ireland it is 12.5 percent.
China provides a fab 5-year tax holiday and then, after that
holiday, half the normal rate of taxes for the next 5 years.
Israel has a 20 percent capital grant. A new fab going up in
Israel.
An example I heard the other day, a real-life example, the
State of Arizona is having a new fab built in the State that
provided up to $20 million in incentives. It is good. It is
positive. Same plant in Israel has a $700 million set of
incentives. So, at some point, the shareholders themselves
start to say, how can you disregard the economics? So I think
there is a very important point.
And, last, we don't want to forget about small business.
They live and the startups live and die by the sword of
innovation, and we shouldn't just ignore their capabilities as
well.
Mr. Chairman, thank you; and I will be glad to answer any
questions.
Chairman Tom Davis. Thank you very much.
[The prepared statement of Mr. McCurdy follows:]
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Chairman Tom Davis. Let me just start. You ended your
comments on small business. Sometimes the only way a small
business can get into the marketplace is with a congressional
earmark.
I just met with a company yesterday out of Syracuse, NY,
that is doing work on IEDs. They have a breakthrough technology
that we think has proven far more effective. They couldn't go
through the Defense Department and get any kind of traction, so
they had to go through the Appropriations Committee who brought
them to front.
The difficulty with earmarks is there are good ones and bad
ones. Many times we use the earmark process for a full
employment process for Members' districts, and that is not
good. On the other hand, we have a responsibility to kind of
bring new technologies to the fore that if they work their way
through the established chains in the bureaucracy get shut
down. So I don't know what the right balance is. But I would
hate to throw the baby out with the bath water when we talk
about Congress' ability to intervene. It helps when some of
these emerging technologies that may not be able to get their
way through the minimal process.
Mr. McCurdy. Mr. Chairman, can I make one quick comment on
that?
I agree there are many times--I was on the R&D Subcommittee
of the Armed Services. I was on the Science and Space
Committee. I chaired the Intelligence Committee. It is
important for Congress to raise the level of awareness on many
types of technology, but I do hope that we can work with--
something is wrong when the Department of Defense and these
other agencies are not recognizing that their acquisition
policies are biased against some of these new capabilities. In
fact, we also are constantly talking to some of our large
multinational corporations to don't forget the R&D and some of
the real innovation that is coming out of the small business.
Chairman Tom Davis. Absolutely, and any time we do the
Trade Agreements Act and Buy America, it cuts down our ability
to get out there. Yet there is a strong urging with some
Members that we ought to be buying America, not recognizing
that when we do that other countries set up barriers in
retaliation; and, No. 2, that means we may not get the best
body armor for our troops if it is not American made, if we
don't do the best in everything in this day and world, and our
taxpayers deserve to get the best product for their tax
dollars. I agree.
I want to go to this idea of innovative friendly climate,
because there has been a thread throughout the testimony today
in both panels that America is still the innovators, that they
can produce the scientists and engineers abroad, but we are the
innovators because we have a political culture and economic
culture that is different from other countries, and I guess to
some extent that is true.
But Mr. Garnick, let me start with you. Other countries--
although we have had 200 years in the free enterprise
experience and in the democratic experience and some of these
other countries are getting it in a kind of hopscotch fashion,
just because we have been successful as innovators doesn't mean
that we will stay that way. Can you talk a little bit about
your experience as you go around the globe with that?
Mr. Garnick. Sure. I don't think it is an entitlement that
we dominate the innovation and continue the self-fulfilling
prophecy that we will always dominate it. I think it comes down
to economics and an environment where it is a game of numbers.
In India, for example, it is recognized clearly they have
made tremendous progress since they opened up their economy in
only 1991. It has only been 16 years since they really started
liberalizing their economy. The rate of change of their
infrastructure is so fast and with so much investment and
resources available, just human resources, that they are
capable of I think over the next couple decades of displacing
or at least inhibiting our career leadership in that area.
Is that a bad thing for America? I don't think it is
necessarily a bad thing. It is just a changed environment that
we need to deal with.
Competition, as Dr. Ruiz said, is critical to continue to
raise the bar for our own economy and our own companies serving
that economy. However, it should be recognized that these
countries recognize that innovation is critical. They have
created an environment where they are extremely bright,
motivated individuals that aspire not to be viewed as back-
office engineers just doing coding or body shopping as often
relayed or doing just work that is redundant and repeatable,
that is digitized and moved over. The workforce is motivated to
changing their environment and changing their environment in
such a way that they are reading our blueprint. That again is
something we should be proud about but recognize the reality
that is what we are facing.
You know my own old organization, we had an organization of
45,000 people that worked for me. We had the ability to
dedicate over 1,000 engineers almost to the innovation segment
of the business that in my current company, with 10,000
employees and a different economic model, I am not capable of
matching that 1,000 people head count in innovation. Over time,
that will inhibit or create a different economic value
proposition.
The company I was with in the past is about a $2 billion
company on a trajectory of rapid growth. Today, this current
company I am with, Keane, is a $1 billion company. We are
accelerating the growth, but our ability to invest, because of
the economic platform that is in front of us, is different. We
have to think through different ways of solving the problem;
and it is both technological, it is business model, and it is
economic. But we will get there. But I think we have to
recognize that we do not own a patent on innovation in the
world.
Chairman Tom Davis. Anyone else want to comment?
Ms. Wince-Smith, I like your comment about artists thinking
like engineers and engineers thinking like artists, because
that is really what innovation is, as opposed to just the
drudgery of performing the work. Our tax system, to some
extent, as we see from some of the testimony is not helpful in
this area. We have a Tax Code that was designed for a different
time in a different era. In the chip business we are seeing the
chip business in America just migrating over to Korea and to
Japan and other areas. And if China will ever get their
intellectual property rights together, the chip business, they
dominate that and we see us losing in those areas as well.
What is the future for American manufacturing as we stand
today? Anybody want to comment on that? Mr. O'Shaughnessy?
Mr. O'Shaughnessy. I would, because Revere Copper prospered
from Revere and Son to Revere Cooper Products over 200 years
because the country had low-cost energy. And one of the
solutions that we need is, in my opinion, nuclear energy.
France uses--80 percent of it is nuclear; Sweden is about 35;
South Korea, I was told the other evening by a South Korean
businessmen, is about 40 percent. China is building 20 new
nuclear plants in the next 20 years. We need to do the same.
What we ought to do is the Federal Government ought to pre-
certify site selections. Pick out five sites and then use a
BRAC-type process to get it done. Because nobody wants any kind
of a facility in their backyard, nuclear or otherwise. I mean,
there are cows, citizens opposed to windmills. So I think the
Federal Government has to step in with site selection, get
energy right, make it cheap. The fundamental way you raise a
country up is to provide it with good, low-cost energy; and we
can do it.
Chairman Tom Davis. We get a crowd out in Fairfax to oppose
cell towers going up. You get better cell phone service, so I
can talk to my kids on the bullet train in Japan faster than I
can driving through Bethesda or Vienna.
Mr. Van Hollen.
Mr. Van Hollen. Thank you, Mr. Chairman.
Let me thank all of you for your testimony and just really
pick up where Chairman Davis left off.
We, in this country, have been able to keep ahead in many
ways because of our technological edge, our innovation. Despite
the fact that other countries have been able to produce
products at lower wages, we have been able to keep that edge
through productivity gains and other issues.
Now, Mr. McCurdy referred in his testimony to the fact that
there comes a point where simply the cost of manufacturing a
product overseas is cheaper. And as you have these others--you
know, we don't have a monopoly on innovation. We have been a
leader, and we need to invest to keep ahead, but we don't have
a monopoly. As you know, the population in India and China and
others sort of adopt our model and invest in education. That is
why we are here today, is to talk about that loss of edge,
which means that the actual cost of economics is obviously a
big issue.
You mentioned different corporate tax rates. Another big
issue we well know is the question of health care. We haven't
talked about it a lot this morning, but we all know and we have
heard the figures. When GM rolls a car off the plant, the first
$1,500 whatever goes to provide health care. We recently saw
that IBM decided to discontinue some of its pension benefits.
We, for historical reasons, have had a system where we have
an employer-based health care, and yet at the same time we
spend more as a percentage of GDP on health care than any other
country in the world. And at the same time we have 40 million
Americans unemployed.
How do we deal with this issue going forward? It seems to
me that many of our competitors, as the employers, don't have
to pay that cost to health care; and yet, at the same time, I
think we all agree that one of the things we want to do in this
country is to provide health care universally as possible that
is our goal. How do we deal with this very important issue as a
Nation?
Dr. Ruiz. If I could, you know, I am the farthest thing
from an expert on the health care, but I do understand the cost
of health care in our business. And the one thing that seems
apparent to me in not only health care but many other issues
similar to that is that we have not put technology to its
fullest use to solve those issues.
I happen to know, for example, Mr. Paul O'Neill, who used
to be in the government here, a Secretary, who has done some
research and found that--and I have seen the work--he is very
compelling that through the use of IT technology as we know it
today, without making any improvements to the technology, that
health care costs could be reduced by 40 percent. And I think
one of the things perhaps we could find a way to collectively
encourage and embrace is the use of technology to solve these
issues.
IT, information technology, is very powerful; and I believe
that it could go a long way to address health care rather
rapidly. But it would take a very concerted effort between
industry, government and just the population at large.
Mr. McCurdy. Mr. Van Hollen, I spent a good deal of my
career working on health care issues. I am married to a
physician. I have a daughter in medical school, and my wife
sometimes wonders why my daughter wants to go into medical
school, considering the changing nature of health care and
litigation and some of the costs.
It is an interesting fact that we in the United States pay
more on litigation than China spends on R&D as a nation. I
would love to sometime talk about just China, because there is
a great deal of reaction to what China is doing. I think the
thing that we need to realize is with China physics it is
really not the mass right now that is the issue. It is the
velocity of their growth. It is the velocity of growth, pace of
change which is so dramatic. They have mass with the potential
for this huge market and the labor force. But we have some
advantages, but I am not sure we are maximizing that advantage.
In America, we are going to grow--we have grown rich before
we are growing old as a Nation, but our baby boom generation is
approaching the older age, and we have this savings mismatch in
the world. There is a world imbalance with regard to national
savings. We are the richest nation in the world, and yet we
have negative savings. And you go to China, one of the poorer
nations of the world, believe it or not, and they have a huge
savings rate. Why? Because they haven't had the institutions of
Social Security, Medicare and others. They are going to hit a
wall there, and I will tell you this is not going to be 10
percent annualized growth indefinitely. I had a CEO tell me the
other day that he believes that right after the Olympics you
are going to see some really major problems. Experts have told
me in 6 to 8 years you are going to see huge roadblocks in
China's development. Now there are international implications
of that and potential nationalism and all the rest, but I think
we have to be very mindful of what is happening there.
We have to look at--and someone earlier in the committee
talked about the trade deficit meaning more than the national
deficit. Much of my background is in international economics;
and, quite frankly, I would reverse that and say the way you
start dealing with trade deficits is you get the national
savings rate and the deficits here under control, because that
has a huge impact on the cost of money and the potential cost
of money over time.
So, actually, I spend most of my time dealing with China;
and I would like to get on that at some point.
But I think the point you raised about the cost of health
care, our industry is not going to remain competitive if they
are strapped with this huge cost. The question is where they
shift it to. If the Federal Government is where we see it
currently--and I don't care about halving the deficit. I am
talking about the need to have true savings and the ability,
flexibility to deal with this burgeoning crisis which--it
doesn't effect just individual consumers and the elderly. These
businesses cannot compete. Our industry cannot remain the best
if all of a sudden they become a pension manager, an insurer of
last resort and the provider of health care.
Ms. Wince-Smith. I'd just like to take the Chinese analogy
a little bit and carry it into health care, because it's ironic
that our system is really like a Chinese rice bowl. If the rice
bowl is broken, you don't have health care.
So the whole portability issue I think is absolutely
critical. And, this is one of a few sectors in our economy that
is not consumer driven. It's almost an inverse relationship
between--as more innovation comes, the costs go up, and there
is a specter of rationing and quality.
So clearly when we think of innovation, we need a lot of
innovation in the design of this health care system to meet
some of the realities that we're talking about and really bring
it back to a patient-controlled system, which it is not right
now.
And the other link into manufacturing with this is that
there are very advanced sectors of manufacturing where nobody
can beat us in the world. And when you look at those, there are
a number of reasons why. I mean, Proctor & Gamble, they are
producing what you would think of as low-value consumer
products, toothpaste, potato chips, diapers. Here in the United
States, competitive throughout the world, they're using high
performance computing to completely change the cycle, and the
value of a lot of their manufacturing is in the design; it's in
the logistics supply chain.
And also we have to factor in what's going on in labor.
Timkin has, I'm told, I have not seen it, one of the most
advanced facilities in North Carolina for this T to T sense
manufacturing where within minutes or hours they can move from
very, very complex fabrication. And then we have the other
situation in Ohio with the real hostile relationship between
business and labor.
So there are a lot of things going on in manufacturing. But
if Brazilian companies can be competitive in the United States,
owning steel mini-mills, there's some things that are going on
here.
But back to the health care, I think looking at this sector
and the productivity that will come from some innovative design
I think we have to really do, and that's a big, big challenge.
Chairman Tom Davis. Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman.
Dave, a little bit like Europe, not using the whole bucket
of balls. I notice I'm last over on this side of the dais. I'd
like to wrap up a couple of things I heard here today and make
sure that we are all as unified as I think this panel has been.
I would like to congratulate you. Often we have an A-B panel in
which one side is saying one side and the other side is talking
completely past, and that doesn't seem to be the case today. I
think I have heard far more similarities. Matter of fact, I
haven't heard any real differences in any subjects, which is
good. Of course it also isn't very bright. It's kind of gloomy,
all your predictions, but at least we're on the same sheet of
music.
Mr. O'Shaughnessy, I don't have a question for you, but I
do have a comment. I really believe that when the trademark
dispute that was--had your company in bankruptcy for so many
years, hoping to be able to preserve the identity, the unique
identity of your--formally your copper clad product, I wish
that had been decided in the opposite way in which Revere
Wear's unique look would have been recognized by the courts.
Having said that though, the question I have is, do you
think if they had, if you were still in that business, or let
me rephrase, if whoever was still in it had that protection,
intellectual property protection, do you think those pans and
pots would be made here in the United States or would they have
gone to China regardless?
Mr. O'Shaughnessy. First, when I acquired the company,
Revere Wear had already been sold, and they had the use of that
logo, and I could use it for our type of products but not for
cookwear for 5 years. So we could have gone into cookwear.
What happened is Corning bought the company, and after
producing the cookwear in the United States for an additional 5
or 7 years, they moved the facilities to, I believe, Thailand,
and then they sold them.
In their case--I think you make a good point in general,
and I agree with it, but in their case, in that particular
product line, technology passed them by. Copper is still the
best conductor of heat that there is, but all of those
beautiful ceramic dishes and new cookwear, that's what did them
in.
Mr. Issa. I see. I always wanted to because I still believe
it's a fine product.
Mr. O'Shaughnessy. Thank you.
Mr. Issa. And, besides, I thought it was the best example
of a secondary meaning; when you said Revere Wear, it really
meant a particular product.
Dr. Ruiz, I asked the Secretary, and this question is open
to all of you, but I asked the Secretary earlier if a change in
immigration policy--and I think your testimony is very on
point, you were among the best and the brightest and most
ambitious to cross the border each day to seek out an education
and relentlessly try to better yourself, and today you're at
the pinnacle of the corporate ladder.
However, our immigration policy today, I'm talking about
legal immigration, is a business, a family reunification. It
does not in any way, except for the H1B and some other limited
areas, it does not promote a best of X type competition.
If you have a Ph.D., or even a lesser degree, but if you
are incredibly skilled through whatever process, including a
U.S. education, you're not at a particular advantage in getting
that 500,000 or so opportunities to become an American on a
permanent basis.
In your opinion, particularly with a technology company
like this, if we were, during our debate on immigration reform,
to provide either new, significantly new, several hundred
thousand, large quantity, or take a different approach to the
existing amount and increase a net, let's say 200,000 highly
skilled, highly educated as a preferential class in immigration
in this country, what would that do to your business and to
your ability to recruit and succeed against global competition?
Dr. Ruiz. Well, we have a near-term problem, in industry,
particularly in high tech, is we are short of talent in this
country. Any immigration reform that allows us to fill that
stop gap problem or stop gap the challenge that we have would
be very helpful to high tech and I believe that, without a
doubt, would have a very positive impact on industries such as
ours. There's no question about that.
One of the reasons, whether you call it an H1 visa or
whatever, there is a method by which you can get a Ph.D. from
India or China or Germany to come work in this country in our
industry, that would be a welcome immigration reform that would
certainly help our industry. However, I would like to emphasize
that our whole industry is also strongly encouraging the fact
that while that may be a short-term solution, that the long-
term view of this problem, which is we still have minorities
and women in this country not being able to go to get the kind
of education that they need, that we could make a huge impact
in the shortage of the people that we need over the long run if
we just could address our own deficiencies in our education
system.
Mr. Issa. I certainly agree with the latter, but I asked my
question narrowly, recognizing even half a million immigrants
with high skills would pale in comparison to a shift in U.S.
education. But because immigration reform is at the top of the
President's agenda and it's high on the agenda of the House, I
was hoping to get a comment from each of you. Go right down the
line.
Mr. O'Shaughnessy. I absolutely agree with you. Revere has
taken immigrants and run them through the process to get
electrical engineers and so on. I'm Canadian originally; maybe
you're aware, with the experience Canada did out of Hong Kong.
Mr. Issa. I actually--my suppliers from Hong Kong are now
some of the Vancouver residents.
Mr. O'Shaughnessy. I totally agree with you. It's so
logical.
Mr. Garnick. For our business, it's paramount. I think it's
critical we create ease of access to find talented people. I
fully support that endeavor, but I would reiterate Dr. Ruiz's
comment about long term. We've got to build a foundation to tap
into our vast untapped community that needs to migrate to a
technology community. It's interesting from a standpoint of
what we do graduate here in North America. We promote an
environment that is rewarding areas of industry and other
facets that are just not producing long-term productivity
results to the economy, including litigation. We produce more
lawyers than many other countries in their entirety. Nothing
negative about lawyers, but we need to repartition a large
portion of that population seeking that career into the
technology community to improve the outlook long term.
Ms. Wince-Smith. I would support what my colleagues have
said but I would add to that one of the very powerful pieces of
our network for retraining our workers as these jobs change,
which we should not ignore investing in, are our community
colleges. We know people are going to have many jobs and many
skills over their life. It's hard to think of someone who's 50
or 55 in a displaced manufacturing environment moving into one
of these, but we certainly should be targeting our young people
in their 20's and 30's.
One of our proposals at the council that was a little
extreme, but we had a lot of support for it, even inside the
administration in talking with people, was when we invest in
the education and our colleges and universities, the best and
brightest from all over the world, we are investing in these
people as taxpayers. And when they receive their degrees, we
think they should be given an automatic green card. And
everything that's done on the security checks should be done up
front when they apply.
And so when they come in, it's as if a business person, you
invest in an asset, and you're ready now to reap the reward,
and you say that's gone. So I think that would be something
that would really kind of be very, very transformational, and,
again, it's a bold thing to address a bold need.
Mr. Issa. Only in this body could someone be forced to say
something was extreme when it was clearly common sense.
Dave.
Mr. McCurdy. I want to commend and associate myself with
Deborah's statement with regard to the green card. There is an
interesting statistic, though, and this is where you all have
jurisdiction and probably could help some, too. We cannot find
a Federal agency that can tell you how many and where the
students are in graduate schools around the country, especially
in the areas of math, science, physics and others.
The one person who has that is at Oak Ridge National Labs,
and there is a group there, and the statistic is that 58
percent of foreign born postgraduate students remain in the
United States. Now that's still a fairly significant number,
and so that's a good investment because that is the best and
brightest from around the world, but we should be able to raise
that number, notwithstanding all the other issues, long term,
improving our own supply here.
Another interesting fact is that a lot of these H1B caps
are used by family members of the person with the special
skills, and they should not be counting against--why have a
family of four count for really the one person who is the Ph.D.
That needs to be the attracted person here. We don't want to be
separating families.
Mr. Issa. If I can, just one small followup. Dave, with
your intelligence background and following up on the chairman's
statement, you know the predator system was an earmark. And I
would certainly say that we need to find a way to make sure
that those of us who look at so many more projects do preserve
certain rights to look for innovative products in some well
thought out way even if it's not 14,000 well thought out ways a
year--for good earmarks and against bad earmarks.
Mr. McCurdy. You need to change the term earmarks. I think
there is a misperception about the ability of committees to do
its constitutional right in the Armed Services Committee or
wherever, and Predator was one.
Let me just put one bug in your ear before we wrap up for
perhaps a future hearing. I keep coming back to this because
this is my favorite topic, but with regard to China, the single
biggest issue that the technology industry faces vis-a-vis
China is intellectual property. And we as an association--and
our industry is working and will soon release similar to this
play book we did on innovation, which was broadly embraced by
Congress and many people, we're doing one on intellectual
property protection and working with some experts that have
great experience in the trade world and China. And I think that
at some point it would be worthwhile for this committee perhaps
to spend some specific time on that issue because I think it
has great leverage for us.
Chairman Tom Davis. Let me just say, Tom Friedman has been
a leader in writing about observing what globalization has
done, but if you go back a generation to when I was in college,
Toffler wrote about the third wave and basically talked about
how this would be similar to the Industrial Revolution, that
every major institution would end up changing. And from hearing
you today, our tax system has to be overhauled to keep us
competitive, immigration system, educational system. That's
where we're going.
The sooner we do it, probably the better. Because they get
closer and closer and closer. These aren't ifs, it's whens.
And, hopefully, the parties can come together on this. We've
had some arguments over trade that were needless, in my
opinion, but we had them. But on some of these other areas, we
need to work together as Americans or the American economy as
we know it is going to be running third or fourth place.
Mr. Garnick. If I could just add a comment on that. We see,
as we consult with many companies on IT and business processes,
there's a fundamental shift with many companies transforming
themselves. And I think much to your point, the government and
our systems need a full transformation to compete on this new
global landscape. Not to throw, as somebody said, the baby out
with the bath water. We're doing so many good things. But you
can't wait until, in a business or an economy in a country, we
can't wait until the problem is beyond us and we'd have to do
it in a period of weakness. It's better to transform in a
period of strength. And we recommend corporations that we help
transform to take decisive action to recognize the facts, to
not stick your head in the sand and deal with the issues on a
fact-based environment, and transform in a period of strength
versus waiting until you're in a period of weakness.
So think through that and if we can as an organization, as
a corporation and as an association help the process, we would
be glad to participate in any way we can.
Chairman Tom Davis. Let me just add, I mean from my own
experience, January 1, 1992, I took over as the head of the
county government in Fairfax County, VA, which is across the
river. We were in desperate shape. We didn't have enough money
in the bank to make our payroll the next month. Our commercial
tax base had dropped over 30 percent in 1 year. We had, from a
real estate perspective, a depression.
The thing I asked in every decision we made, are these
decisions going to attract capital or chase capital away from
the county? When Tony Williams took over as a mayor, I said,
you need to ask that fundamental question. You have all these
issues coming at you that are unrelated; social issues, justice
issues. But fundamentally, you have to ask these questions,
either attract capital or chase it away?
We just can't be making decisions as a government that's
going to chase it somewhere else. Because once it migrates
there, it stays there and gets a hold, and those are just
fundamental issues we ought to ask. We can disagree on social
issues or we can disagree on some other issues, but on those
issues, we need a competitive policy that is going to continue
to attract capital, keep our dollar where it is and everything
else.
I think this has been very helpful toward that. I would
just add, in Fairfax now I think our economy is the envy of the
world. Succeeding boards have continued to ask those kind of
questions. It doesn't mean no regulation or no taxes, because
you have to invest. We've asked intelligent questions, and
ultimately, we asked, is this going to attract capital? That's
what we need to continue ask here because our competitors are
doing that around the globe. They're doing some innovative
things we wouldn't even think of doing.
Mr. Ruiz, as you said, competition is good. We're going to
get better as a result of this. But competition isn't just
among companies; it's among nations. And we need to stay on
top. And this has been very, very helpful, and I appreciate
everybody being here today.
The hearing is adjourned.
[Whereupon, at 12:10 p.m., the committee was adjourned.]
[The prepared statement of Hon. Elijah E. Cummings and
additional information submitted for the hearing record
follow:]
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