[Congressional Record Volume 142, Number 58 (Wednesday, May 1, 1996)]
[Senate]
[Pages S4564-S4566]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          A RECIPE FOR GROWTH

 Mr. DODD. Mr. President, I rise today to bring to my 
colleagues' attention a recent article by Felix Rohatyn titled ``Recipe 
for Growth,'' which appeared in the April 11, 1996, Wall Street 
Journal.
  Although he is a traditional Democrat, Flex Rohatyn has long 
advocated economic solutions and ideas that transcend political 
affiliation. And in a time when economic change and rising job 
insecurity are causing more and more American families to find that the 
promise of the American dream is increasingly unattainable his views 
deserve particular recognition.
  Throughout my State of Connecticut, and the Nation as a whole, 
thousands of families are sitting around the kitchen table wondering 
how are they going to pay their monthly bills. How are they going to 
make their mortgage payments?
  But the issue runs even deeper--to people's vision of the future. 
Will they have the money to send their kids to college? What happens if 
they lose their health care? How can they prepare for retirement when 
they barely have enough right now? These painful choices are leaving 
workers anxious and scared for the future.
  Let me be clear on one point: There are millions of Americans who are 
succeeding in this economy. Since this administration took Office, the 
American economy has seen the creation of 8.5 million new jobs, many of 
which are both full time and at an increased wage.
  However, while a significant number of Americans are succeeding, this 
rising tide is not lifting all boats. Many Americans are still 
suffering, and we must do more to deal with their plight.
  Surely, there are no easy solutions to America's problems. We need to 
have a debate on these issues. But, most important, we need to start 
finding ways to increase economic growth be it through balancing our 
budget, reforming our tax laws to create new jobs, relieving business 
of the burdens of wasteful regulation or lowering interest rates.
  I share the view of many responsible members of the business 
community who believe that our current growth rate of 2.5 per cent is 
far below the Nation's true capacity for growth. Our economy is capable 
of enhanced growth, and we must do more to realize this goal.
  The benefits of economic growth are clear: An increase of as little 
as one-half of 1 percent in the growth rate, would wipe out the 
deficit, provide millions of dollars for tax cuts and create enormous 
employment opportunities for millions of American workers. 
Additionally, increasing economic growth would allow us to balance the 
budget without the draconian cuts in education, the environment, 
Medicare, Medicaid, and other social programs that my colleagues across 
the aisle have advocated.
  Expanding economic growth may be the most important issue that faces 
our country and it is a challenge we all must undertake. Americans 
understand that when we all work together, from the public and private 
sectors to employers and employees we can face any challenge.
  Felix Rohatyn's ``Recipe For Growth'' serves as an excellent 
blueprint for bringing genuine and real growth to the American economy. 
If we are serious about expanding growth and bringing the promise of 
the American dream to all our people, then I believe every Member of 
this body should take the time to read this article and heed the advice 
of Felix Rohatyn.
  I ask that Mr. Rohatyn's article be printed in the Record.
  The article follows:

             [From the Wall Street Journal, Apr. 11, 1996]

                           Recipe for Growth

                         (By Felix G. Rohatyn)

       The American economy is now constrained by a financial iron 
     triangle, in part created by the Republican majority together 
     with the Clinton administration, from which it is difficult 
     to break out and which is beginning to generate serious 
     social tensions.
       The first leg of this triangle is the commitment to balance 
     the budget in seven years. Even though there has never been a 
     rational explanation for this time frame, it has now become 
     part of the political theology. It would be as dangerous for 
     either party to depart from it, say by suggesting that eight 
     or nine years would be equally logical, as it was for George 
     Bush to abandon his ``No new taxes'' pledge.
       The second leg is an extension of the first and is more 
     restrictive in its effect: It is the

[[Page S4565]]

     acceptance, by both parties and blessed by the Congressional 
     Budget Office, that our economic growth rate will be 2.2% for 
     the seven-year period. Even though projections are 
     notoriously inaccurate even over much shorter periods, this 
     particular projection is becoming both a prediction and a 
     self-limitation. It implies that this rate of growth is the 
     limit of what our economy is capable of without inflation. 
     Since this view has the support of the Federal Reserve, the 
     Treasury and the financial markets, it has become a de facto 
     limit on economic growth. The markets and the Fed react to 
     any appearance of acceleration with higher interest rates and 
     the economy then falls back to 2.2% or below.
       The third leg of this triangle is the impact of technology 
     and global competition on incomes and employment. THe lethal 
     political combination of corporation downsizing together with 
     ever-increasing differentials in wealth and income among 
     Americans of differing levels of education and skills, and 
     the huge rewards to capital as the result of the boom in the 
     securities markets, are creating serious social tensions and 
     political pressures.
       Unless we can somehow break out of this iron triangle, we 
     could face serious difficulties, and the best hope for a 
     breakout is to make a determined effort for a higher rate of 
     economic growth. Only higher growth, as a result of higher 
     investment and greater productivity, can make these processes 
     socially tolerable. In order to deal constructively with the 
     realities of technology and the global economy. Democrats and 
     Republicans may have to abandon cherished traditional 
     positions and turn their thinking upside down: Democrats may 
     have to redefine their concept of fairness, while Republicans 
     may have to rethink the role of Government.


                          economic insecurity

       The American economy is growing very slowly despite 
     occasional upward blips. Growth and inflation are both around 
     2%. Our main trading partners, Europe and Japan, are 
     undergoing serious economic strains of their own, with German 
     unemployment nearing 10% and French unemployment near 12%. 
     Fiscal contraction is taking place on both sides of the ocean 
     as the Maastricht criteria are maintained in Europe and 
     deficit reduction continues as a priority here, feeding a 
     general sense of economic insecurity. The winds of deflation 
     could be stronger than the winds of inflation.
       At the same time, the Dow Jones Industrial Average is near 
     its all-time high of 5700, mergers and restructurings are 
     still taking place at a record pace, and layoffs and 
     downsizing are continuing as the inevitable result of global 
     competition and technological change. And Pat Buchanan has 
     created a political groundswell, on the left as well as on 
     the right, by identifying real problems but proposing 
     solutions based on fear, xenophobia, isolationism and 
     protectionism. It is frightening to think of the political 
     impact of a Buchanan if unemployment were now 7.5 percent 
     instead of 5.5 percent. All that it requires is the next 
     recession.
       The social and economic problems we face today are varied. 
     They include job insecurity, enormous income differentials 
     significant pressures on average incomes, urban quality-of-
     life and many others. Even though all of these require 
     different approaches, the single most important requirement 
     to deal with all of them is the wealth and revenues generated 
     by a higher rate of economic growth. John Kennedy was right: 
     A rising tide lifts all boats. Although it may not lift all 
     of them at the same time and at the same rate, without more 
     growth we are simply redistributing the same pie. That is a 
     zero sum game and it is simply not good enough.
       The fact that our 2 percent-2.5 percent present growth rate 
     is inadequate is proven by the very problems we face. The 
     question of when, and especially how, to balance the federal 
     budget deserves a great deal more intelligent discussion than 
     the political sloganeering we have heard so far. The budget 
     is a document that reflects neither economic reality nor 
     valid accounting practices. If the budget is to be balanced 
     in order to satisfy the financial markets, only real 
     justification of this goal, then it must be done with growth 
     rather than with retrenchment. That higher growth, together 
     with controlling costs of entitlement like Medicare, Medicaid 
     and Social Security, will generate the capital needed to 
     provide both private and public investment adequate to the 
     country's needs.
       Bringing the rate of growth from its present 2 percent-2.5 
     percent to a level of 3 percent-3.5 percent would generate as 
     much as an additional $1 trillion over the next decade. It 
     could provide both for significant tax cuts for the private 
     sector as well as for the higher level of public investment 
     in infrastructure and education required as we move into the 
     21st Century. It would obviously generate millions of new 
     jobs. The present bipartisan commitment to balance the budget 
     in seven years, based on the present anemic growth, is 
     economically unrealistic and probably socially unsustainable. 
     In all likelihood, higher growth is in fact the only way to 
     achieve budget balance. The question is how to achieve it.
       The conventional wisdom among most academic economists as 
     well as the Treasury, the Federal Reserve Board and Wall 
     Street is that our economy cannot generate higher growth 
     without running the risk of triggering inflation. Now 
     everyone shares that view. In particular, the leaders of many 
     of this country leading industrial corporations believe that 
     we could sustain significantly higher growth rates based on 
     the very significant productivity improvements they are 
     generating in their own businesses, year-after-year.
       Economics is not an exact science as we have painfully 
     learned over and over again. It is the product of the 
     psychology of millions of consumers, of business leaders 
     making long term investment decisions, of capital flows 
     instantaneously triggered by events and ideas. We must do 
     away with the false notion that we must choose between growth 
     or inflation. Our experience, even in the more recent past, 
     shows that technology and competition can produce growth 
     without serious inflationary pressures. In the face of 
     today's totally new environment of almost daily revolutions 
     in technology combined with globalization, we should be 
     willing to be bolder, both in fiscal and monetary policy.
       As a traditional Democrat, I have always believed that 
     freedom, fairness and wealth, basic to a modern democracy, 
     required an essentially redistributionist philosophy of 
     wealth, that a fairly steeply graduated income tax was 
     required as a matter of fairness and that lower deficits 
     would guarantee adequate growth and a fair distribution of 
     wealth. The experience of the last two decades, with the 
     advent of the global economy, has very much shaken that view.
       Fairness does not require the redistribution of wealth; it 
     requires the creation of wealth, geared to an economy that 
     can provide employment for everyone willing and able to work, 
     and the opportunity for a consistently higher standard-of-
     living for those employed. Only strong private sector growth, 
     driven by higher levels of investment and superior public 
     services, can hope to providing the job opportunities 
     required to deal with technological change and globalization. 
     Only higher growth will allow that process to take place 
     within the farmework of a market economy and a functioning 
     democracy.
       We should have no illusions about the likelihood of 
     reducing the level of present income and wealth 
     differentials; they are likely to increase in the near future 
     as the requirements for skills and education increase. The 
     world is not fair; we must, however, make it better for those 
     in the middle as well as at the lower end of the economic 
     scale. The key is enough growth that, even if initially the 
     lower end does not gain as rapidly as the upper, it can 
     improve its absolute standard of living, and being a process 
     of closing the gap.
       Higher growth requires a tax system that promotes growth as 
     its main objective. It must encourage higher investment and 
     savings. That is not the case today. Today's tax system aims 
     at a concept of fairness dictated by distribution tables. 
     That may not be the best test. A tax system with growth as 
     its main objective may be a variation of the flat tax; or it 
     may be a national sales tax; or it may be another system 
     aimed at taxing consumption instead of investment such as 
     proposed by Sens. Sam Nunn and Pete Domenici.
       The power and dominance of global capital markets in 
     today's world would seem to aim in the latter direction. 
     Lowering taxes on capital would at first blush seem to help 
     the already wealthy, current holders of capital. But whatever 
     its effect on the distribution tables, it could unleash 
     powerful capital flows, both domestic and foreign, that would 
     lower interest rates significantly and make investment in the 
     U.S. even more competitive than it is today. At the same 
     time, they would maintain the strength of the dollar and 
     maintain low rates of inflation.
       Achieving the objective of higher growth could also include 
     the gradual privatization of Social Security in order to 
     create a massive investment pool with higher returns for the 
     beneficiaries and greater investment capabilities for the 
     private and the public sector. The key to economic success in 
     the 21st Century will be cheap and ample capital, high levels 
     of private investment to increase productivity, high levels 
     of education and advanced technology. It also includes higher 
     levels of public investment in building a national 
     infrastructure supportive of the 21st century economy.
       If the Democrats can redefine their concept of fairness, 
     Republicans, on the other hand, may have to abandon their 
     view of passive government. If growth and opportunity are to 
     be the prime objectives of our society, the government must 
     play an active role in some areas. The first is education; 
     the second is higher levels of infrastructure investment; the 
     third is in the maintenance of a corporate safety net.
       Public school reform, driven by higher standards, is an 
     absolute priority. Even though that is a state 
     responsibility, it is a national problem. These standards, 
     regardless of today's political conventional wisdom, will 
     ultimately be national in scope. Access to higher education 
     should be made available to any graduating high school senior 
     meeting stringent national test levels and demonstrably in 
     need of financial assistance. The equivalent of the GI Bill, 
     providing national college scholarships to needy students, 
     should be created and federally funded. It should be the 
     primary affirmative action program funded by the federal 
     government.
       As part of a higher economic growth rate, state and local 
     governments should provide higher levels of infrastructure 
     investment. In addition to the creation of private 
     employment, this could also provide public sector jobs to 
     help meet the work requirements

[[Page S4566]]

     of welfare reform, as well as to provide the support to a 
     high capacity modern economy. Financial assistance from the 
     federal government would encourage the states in that 
     endeavor. Higher growth would enable federal as well as state 
     and local budgets to take on this responsibility.
       A corporate safety net should be provided in order to deal 
     with the inevitable dislocations which corporate downsizings 
     and restructurings will continue to create. Business, labor 
     and government should cooperate to create a system of 
     portable pensions and portable health care to cushion the 
     transition from one job to another. Incentives should be 
     provided for business to make use of stock grants for 
     employees laid off as a result of mergers and restructuring. 
     If losing one's job creates wealth for the shareholders, the 
     person losing his or her job should share in some of that 
     wealth creation. Corporate pension funds, to the extent they 
     are overfunded as a result of the stock market boom, could be 
     part of a process to provide larger severance and retraining 
     payments for laid-off employees.
       Other than in areas such as pensions and health care, it is 
     counterproductive to try to legislate the social side of 
     ``corporate responsibility''; it is almost impossible to 
     define. To begin with, most large U.S. corporations are 
     majority-owned by financial institutions including the 
     pension funds of the very employees who are in danger of 
     displacements. These institutions, driven by their own 
     competitive requirements, were the source of the pressures on 
     management which resulted in the dramatic restructuring of 
     American industry over the last decade. Those restructurings 
     have made American industry highly competitive in world 
     markets; they must continue and we must continue the opening 
     of world trade.
       Boards of directors are not blind to the risks of political 
     backlash. The issue of executive compensation, made starkly 
     visible by its tie-in with the rise in stock market values, 
     will be dealt with responsibly or boards will find themselves 
     under great shareholder pressure. The use of profit-sharing, 
     stock options and stock grants to practically all levels of 
     the corporation will be significantly expanded and should 
     create greater common interests between executives, 
     shareholders and employees. However, the main role of the 
     corporation must remain to be competitive, to grow, to 
     invest, to hire and to generate profits for its shareholders; 
     a significant portion of employee compensation should be 
     related to the growing productivity of its employees.
       The benefits to business in such an approach are obvious, 
     but labor also has a large stake in such a re-examination. 
     Some of the proposals put forth at present would have very 
     negative results for working Americans. It is too late to 
     return to a protected American economy; the only result would 
     be to trigger a financial crisis that would harm America and 
     our trading partners. It is impossible to stop the effect of 
     global information, technology, capital and labor. What is 
     important for working people, union or non-union, is the 
     creation of more well-paying jobs as a result of high levels 
     of investment and high levels of education; to share in the 
     profits of their employers through profit-sharing and stock 
     ownership; to share in the benefit potential of pension funds 
     vastly increased by the boom in the financial markets; to 
     have access to permanent health care security and to high 
     levels of education and training to deal with the 21st 
     century requirements.
       Business and labor, together, should hammer out such an 
     agenda. If we are serious about balancing the budget in a 
     responsible manner, the president and the congressional 
     leadership could set a national objective that the economy's 
     rate of growth reach a minimum sustainable level of 3% 
     annually by the year 2000. They could ask the best minds in 
     the country, from government, from business, from labor and 
     from academia to provide a set of options which could lead to 
     such a result. Many of these options would be politically 
     difficult, both for Democrats and for Republicans, and some 
     would probably be impossible. But the only way to abandon 
     long-held notions that may no longer apply to today's world 
     is to discuss them within the framework of a very simple and 
     definite objective: higher growth.


                        a different perspective

       Setting the U.S. on a path to higher growth will require 
     coordination with our partners in the G-7. The Europeans 
     should welcome such an initiative since they are in greater 
     need for growth than we are. Nevertheless, the process will 
     be slow and it must be put into motion.
       The President's setting an objective of higher growth would 
     have an important psychological impact; the economy is, after 
     all, heavily influenced by psychological factors. If the 
     president were to set an ambitious growth objective, then all 
     elements affecting the economy would be subject to review 
     from a different perspective. They would include fiscal and 
     monetary policy; investments and savings; education and 
     training; and international trade. Most importantly, these 
     activities should take place within a framework in which the 
     Democratic Party redefines its concept of fairness and the 
     Republican Party redefines its concept of the role of 
     government. At present, neither is appropriate for the 
     revolution that technology, globalization and the inclusion 
     of an additional one billion people to the global work force 
     will bring about tomorrow.
       Ultimately, a rising tide will float all ships, and both 
     political parties can help bring this about. If they fail to 
     do so, at a minimum the present malaise will turn uglier, and 
     it is even conceivable that another tide will sweep away 
     existing parties. If that were to happen, arguments about 
     growth or fairness will be totally irrelevant.

                          ____________________