[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


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                               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

                              ----------                              
                                                                   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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