A Call to Economic Arms: Forging A New American Mandate Paul E. Tsongas Foley, Hoag & Eliot One Post Office Square Boston, MA 02109 (617) 482-1390 Index Introduction................................................. 1 I. Economic Survival - The Creation of National Wealth.......... 4 II. Education - The Meeting House of Our Society................. 26 III. The Environment - Equilibrium With Earth..................... 31 IV. Energy, Fossil Fuels - Someday There Won't Be Any............ 39 V. Foreign Policy - Time to Heal Thyself........................ 49 VI. The Culture of America - The Essential Need.................. 59 VII. Return to Purpose............................................ 72 Introduction America is greatness. It is the pursuit of excellence and the fulfillment of human capacity. America is not the casual acceptance of economic decline and social disintegration. Yet, that is what some are prepared to endure. We are better than what we are being asked to be by our leaders. We are a nation of goals, not a nation of limits. We must have leadership that is committed to world pre-eminence in the strength of our economy, in the cohesion of our society, and in the quality of our environment. To accept anything less is to do violence to the two centuries of our history. America is not just another country. It is not just another place. It is the embrace of fundamental human values that define what man can become. America is "We The People" as respectful keepers of the sacred trust that was forged by the blood and hardships of those who came before us. America has been bequeathed to us. It is a living heritage meant for us to preserve and then bequeath to other Americans, yet unborn and yet proven to be worthy. Today, that heritage is under attack. Its restoration is the great challenge of our generation. This is the mandate to which we must now attend. America faces great economic peril as our standard of living is threatened by Europe 1992 and the Pacific Rim. Once the world's greatest economic power, we are selling off our national patrimony as we sink ever deeper into national debt. The Reagan-Bush years have seen us become the world's greatest debtor nation. America is also witnessing the weakening of its social fabric as more and more families dissolve under the onslaught of a culture that glorifies the immediate and the shallow. As our historic values are disregarded by today's society-in-a-hurry, the civility of America has been lessened. Finally, America is adrift as our leaders flinch from the difficult decisions that will safeguard us from the energy and environmental threats that confront us. This nation's will is not being called upon on the home front because of a fear that our people are not ready for an honest and forceful response to these threats. I strongly disagree. The purposeful avoidance of difficult issues caused serious erosion to our society in the eighties. The eighties, fortunately, are over. The icon of indulgence that we worshipped during that decade has proven to be a false god. However, it has left behind a legacy of comfort and ease and the pursuit of self. That legacy is not what America is all about. That legacy contravenes the values of our ancestors. These forebearers created a nation with an enduring work ethic, a sense of personal discipline, and an acute appreciation of the common good. They had a sense of purpose that gave meaning to their lives and strengthened their nation. They defined patriotism as what they did, not what they avoided doing. They left that sense of purpose and that patriotism to our keeping. We have set it aside. Page 2 America is asking us to return to that purpose. The time has come for a New American Mandate, based on the precious values of the past but focused on a vision of the future. The New American Mandate is a positive response to America under siege. Saddam Hussein is an acknowledged threat, but he is not the only one. Just as we deploy our men and women in the Persian Gulf, we must deploy every American to stop our economic bleeding, to restore our social fabric, and to meet head on the environmental and energy threats to our well being. We must all be soldiers - everyone of us. Our men and women in the armed forces demonstrate their love of country by facing possible death in the sands of the Arabian peninsula. We must be prepared to love our country as well in our every day deeds and our every day commitments. America in 1991 needs our total devotion. This paper is meant to provide the battle plan to deploy that devotion in a way that will strengthen the nation we love. The 1992 Democratic Mission The mission of the Democratic Party in 1992 would normally be to put one of its own in the White House. But these are not normal times. What our country needs is not just a President - but a President with the necessary mandate. In many respects the mandate to correctly change our course is more critical than which party will oversee that change from the White House. One thing is clear. Democrats must avoid, at all costs, emulating the "Pledge of Allegiance/Willie Horton/Read My Lips" campaign of George Bush. That campaign was designed to win in November, not govern in January. There was no attempt to seek a mandate except, of course, the one on taxes which everyone knew was a cynical ruse. The rest was all hot button politics. It was philosophy by polling data. So George Bush rules, and the nation is without a sense of direction. His media consultants patted themselves on the back, pleased with a victory that would enhance their professional reputations. Having had no interest in creating a prevailing wind, the White House now acts as a spinning weathervane. The Persian Gulf is addressed but all else remains set aside. The country looks for some sign of the "vision thing," but to no avail. We Democrats, of course, could do the same thing. Winning would be thrilling as all victories are. But on January 20th the issues would be no less real. Perhaps our Democrat could be fortunate like Ronald Reagan and escape before the consequences of his policies were fully realized. But if that is our offering, why would the American people substitute one army of "feel-good" salesmen for another? Page 3 Let us use 1992 to articulate the cold challenges and the real threats to America that came before Saddam Hussein and will remain after Saddam Hussein. Let us seek to rally our nation to forcefully address these issues. Let us create a mandate, a mandate that will allow purposeful and effective governance. Without such a mandate, the White House will be a prison. And the President will be captive to economic and social forces he cannot control. With a mandate, the fortunes of America will truly brighten because the people will be deployed with purpose. This is the New American Mandate we must create. It requires the re-emergence of America as the world's pre-eminent economic power. It calls upon America to lead the fight for world environmental equilibrium. It demands that, once and for all, we achieve energy sufficiency. It seeks the repairing of the American social fabric so that we are spiritually one community. It positions America as the critical partner in achieving world peace but based upon the principles of true burden sharing. If we Democrats cause that to happen, we will have truly served our country, no matter who wins the election. The White House and a mandate. Both or neither. Let's get on with it. This paper will address six of the issues around which the strength of our nation revolves. They are: * Economic Survival * Education * Environment * Energy * Foreign Policy * Our Cultural Fabric My views reflect my ten years on Capitol Hill, my observations these past six years in the private sector, and my earlier experiences living outside the United States. Page 4 I. Economic Survival: The Creation of National Wealth There is no reason why the United States should not be the pre-eminent economic power on earth. No reason whatsoever. We have the land, the resources and the people. What we lack is the leadership. Our political leadership has chosen to ignore difficult economic realities. It has, instead, decided to finance short-term avoidance by placing the nation under crushing and unsustainable debt. As a result, America is facing great economic peril. We are daily witnessing this ever-mounting national debt, the inexorable sale of America to foreign interests, and the steady deterioration of our capacity to compete in the global marketplace. Yet, the alarm remains unsounded. Washington is recession proof. The rest of the country, however, is not. Washington talk about "it's morning in America" rings hollow in communities devastated by failing industries. To them it's high noon. Bravado talk about "we can out-compete, out-produce and out-sell" any country in the world without change in our national economic policies is a self-serving delusion. Washington politicians should experience service on corporate boards of companies that are trying to compete internationally. They should have their financial survival riding on a startup business struggling under the burden of the high costs of American capital. They should have close relatives seeking to manage companies under the quarterly gaze of Wall Street vultures and getting battered by foreign companies whose investors think in terms of years. They should watch a son or daughter sell off technological genius to the Japanese or Germans or Swiss because no American company is interested. This is what is happening outside the Beltway. America's manufacturing base is under attack and Washington treats it as just another issue. It is not just another issue. It is the issue. This problem is our collective kryptonite. An ever less competitive manufacturing base inevitably means cataclysmic erosion of our standard of living. If we are reduced to just flipping hamburgers and exploiting our raw materials, we will have an economy, but it will be a diminished economy of decline and defeat. The American people would never stand for such a prospect. As the recent MIT report on competitiveness put it, "In order to live well, a country must produce well." This is the slogan which should sit on the President's desk. It would perhaps be useful to put numbers on this concern. There are three major indices that tell the tale - the number of persons employed in manufacturing, our balance of trade and the federal budget deficit. Manufacturing employment: The United States today has only 17% of its total workforce in manufacturing, down from 26% in 1970. If defense industries are removed, we have only 15%. The Germans have 33% of their companies in manufacturing and the Japanese have 28%. Page 5 During the 1970's, the United States paid its production workers the highest wages in the world and still maintained a positive balance of trade. Today, nine other nations pay higher wages, yet our trade balance is chronically negative. Over the past five years, our average trade balance has been $133 billion negative while the Germans have averaged $61 billion positive. Yet, the Germany average production wage and benefits is $18.02 per hour compared with $13.92 in the United States. Overall productivity in this country grew at over 3% per year from 1960 to 1973 but has risen by only 1% per year since then. The average weekly earnings of the private nonagricultural workforce grew (in 1984 dollars) from $262 in 1949 to $336 in 1959 to $387 in 1969. Since then, it has declined to $376 in 179 and $335 in 1989. Balance of Trade: Hard as it may be to believe, the United States used to be a net exporter. In 1960 we had a net balance of trade surplus of $2.8 billion. In 1970 it was a surplus of $2.3 billion. In 1980 it stood at a surplus of $1.1 billion. The 1980's have seen deficits steadily grow. In 1990 our trade deficit totalled over $95 billion. This deficit accumulation totals some $910 billion since 1980. What does this mean? It means that $910 billion of our wealth has been transferred to someone else - either by resources leaving this country or by foreigners buying up America. At the current rate we will either be in total hock to the outside world or the outside world will own us. In contrast, the same timeframe saw Japan net a balance of trade surplus of $57 billion in 1989. (And this despite the fact that it is far more dependent on imported oil than we are.) Germany enjoyed a surplus in 1989 of $55 billion. These two countries lost World War II but they are the clear victors in the global economic wars of the present day. Again, this massive bleeding of America's economic base should galvanize a fierce collective response with Washington in the lead. Check your local newspapers to see when it was last mentioned and on which page it was printed. This is avoidance politics at its most destructive. Federal budget deficit: Someday, teachers of political history will relate the rhetoric and reality of the Reagan-Bush economic era. They will talk of two Republican conservatives who successfully bashed Democrats as wild spenders. They will speak of these two leaders adamantly calling for a Constitutional Amendment to force a balanced federal budget. They will recall the constant rhetoric of the need for the federal government to match expenditures with incomes "like every American household." The students will readily understand the sheer power of this political approach. Then the teacher will provide numbers. Page 6 All forty presidents before Reagan ran up a combined national debt of $994.3 billion. Reagan-Bush alone added another $2,623.5 billion. The much criticized Jimmy Carter ran an average budget deficit of $57 billion. George Bush has averaged $245 billion. George Bush in the FY 1990 budget alone ran a deficit greater than the deficits of Democratic Presidents Carter, Johnson, Kennedy and Truman combined. The students will not believe the teacher. How could this be, they will ask? How could Reagan and Bush have gotten away with balanced-budget rhetoric at a time of massive budget deficit realities? How could they lull the American people into accepting such staggering debt without widespread revolt? More pointedly, they will ask, why did people allow this enormous accumulation of debt which now burdens their generation? This, of course, raises the pointed question of generational morality. In FY 1991 the interest on the federal debt is $197 billion. By the year 2000, it is expected to reach 25% of the entire federal budget. This reality is morally reprehensible. It is the record of the Reagan-Bush years. The Democratic response must, above all, seek to reestablish our manufacturing capability at, or above, that of the Japanese. The Republicans, of course, have carefully avoided the articulation of any goals whatsoever. Some of them argue that the decline in our manufacturing base is acceptable because it will be replaced by a service-based economy. This is the avoidance politicians' drug of choice. There is no such thing as being a major financial center in the world without a vibrant competitive manufacturing sector. Again, numbers tell the story. The largest American bank is Citicorp. In 1970 it ranked 2nd worldwide. Chase Manhattan Bank was ranked 3rd. In 1980 they ranked 5th and 11th, respectively. Today, they rank 24th and 54th. Sixteen Japanese banks rank ahead of our biggest. In major financial transactions we are, in effect, dropping from the radar screen. It is no accident that the world's six largest banks are now Japanese. The Germans and French also have major banking entities and they are resolute in emphasizing manufacturing. A nation without a manufacturing base is a nation heading toward third world status. So much for morning in America. This economic silent spring is a disgrace. Yet, no word of alarm escapes from George Bush. "Read my lips, add more debt." Our forefathers labored mightily to establish America as the pre-eminent economic power on earth. We have allowed the fruits of their labors to be sold off to foreign buyers, one national treasure after another. We accept enormous trade deficits month after month, year after year, with hardly a murmur. We treat the staggering federal deficits as inevitable results of political gridlock. It's time we faced up to our peril. Page 7 This is where democracies rely upon the courage of their elected leaders. The normal political instinct is to always engage in happy talk. It is courage which allows a politician to take a people beyond that. It takes toughness to lead a people toward their preservation no matter how disquieting the journey may be. For avoidance of unpleasant reality is simply part of human nature. I learned that lesson once more in the aftermath of my cancer diagnosis in 1983. I found myself wishing for soothing reassurance, but what I needed was tough love. Not feeling ill, I wanted to just go home and live a normal life and not deal with the disease until I absolutely had to. For a while that's what I did. And it was possible to push away the awareness of the realities inside of me. By 1985, however, I was put on mild oral chemotherapy. This was done in hopes of avoiding the more toxic intravenous drugs. And I knew that after that would come radiation. And after that, perhaps, would come the still experimental bone marrow transplant. I even put myself on a macrobiotic diet in search of an effortless deliverance. My doctor was not impressed. When the time came for my late fall checkup my doctor was shocked at my deteriorated condition and upset with me for not seeking him out earlier than my scheduled appointment. The disease was voluminous in my body and was about to consume me. The next ten months contained no happy talk. Monthly sessions of intravenous chemotherapy were followed by target radiation. In late August, I was undergoing the bone marrow transplant with its massive chemotherapy and whole body radiation. For the next six weeks I was confined to a sterile hospital room, attempting to recover from these assaults to my body. These were weeks of fear and discomfort, of course, but they were also weeks of slowly realizing that I was now able to look at the monster full face. In early October I was released from that room. I was back to work by mid-November, thin as a rail, bald as a billiard ball and wonderous of my survival. I have often reflected back upon those ten months. I know that my hard-nosed, no-margin-for-error doctors saved my life. But I also know that I resented their tough approach during that period. My story is my own but there are millions of Americans who have had to learn the same lesson in countless other personal crises. Avoidance of hard truths makes the inevitable dealing with them all the more difficult. And what is true for individuals is also true for nations. In 1991 there is a need for us to acknowledge that we must get our financial house in order. The New American Mandate is, above all, an economic imperative. It is committing ourselves to the actions necessary to achieve full economic recovery and unassailable competitive strength. This involves what we do every day in the workplace and every day in the marketplace. It is thinking about these daily events as expressions of economic patriotism - as necessary prerequisites for the preservation of our standard of living. Page 8 Through the New American Mandate we will demand that our leaders articulate the policies for this economic regeneration. Not just the comfortable policies, but the difficult ones as well. Not at some distant time when it will be politically easier, but now, while we still have the capacity to control our destiny. We need a national economic policy. What we have today is a naive faith that our companies can compete without any public sector help as they struggle against foreign companies linked to governments with resolute industrial policies. Our companies are going forth to do one-on-one battle and are being mugged. Their competitors are aided by governments that aggressively seek out the advantages of uneven playing fields whenever possible. The Reagan-Bush response to all this has been benign neglect on a global basis. And the muggings continued unabated. We Democrats must do better. We must level the playing field. There are many components to a national economic policy. Let me list a few. Democratic and Republican Shibboleths Both political parties are going to have to abandon the rusty core elements of their economic philosophies and head off in new directions. These archaic old saws are much embraced by party chieftains. The affection for them expressed by party ideologues is matched only by our trading competitors' fervent hope that they will never disappear. These nations benefit by our politics of self-delusion. Democrats Democrats have always believed that their essential mission is social and economic justice. And so it is. Look for such advancements in the twentieth century and in almost every instance a Democrat's hand has been at work. It is a noble tradition. That tradition must never be abandoned. Underlying that mission, however, has been a rarely acknowledged but enduring notion. Wealth would be created by others and after its creation we Democrats would intervene to preserve fairness by the equitable redistribution of that wealth. During most of this century that may have been a logical battle plan. Not so any more. There is today one glaring truth. You cannot redistribute wealth that is never created. A party devoted to the purpose of carving up the economic pie should be alarmed by the reality that the pie is shrinking. Witness the devastation being visited upon critical social programs by the shortfall in tax revenues in most states in the country. Democrats are going to have to go back to the original act - the creation of national wealth. They are going to have to sit down with the business community and jointly establish policies of wealth Page 9 creation. It means giving up comfortable political nuclear weapons - such as the marvelous boost gained from routinely attacking corporate America and big business. Some recent Democratic rhetoric presents itself as traditional populism, an "us-them" view of the world where the "them" is anyone in the manufacturing, service or banking industries. Wake up, Democrats. Without viable manufacturing, service and banking sectors, there is no country. A marriage - note the word is marriage, not liaison - with corporate America is essential. Corporate America must survive, indeed thrive, if our Democratic social agenda is to have any hope of implementation. This does not mean that we put aside our concern about social and economic justice. That standard must remain in the forefront of our consciousness. But it must coexist with a resolute determination that America must create wealth in order to provide a decent standard of living for our people. To effectively deal with the problems of homelessness, of AIDS, of affordable housing, of catastrophic health care for everyone, of college scholarships, of all the human needs we care about there must be revenue flow from which to secure the necessary funds. The more we want to solve the great human injustices in our society, the more we are going to need a full throttle economic engine. One cannot exist without the other. Pro-business, some would call it. And so it is. Aggressively so. But commonwealth is what it is as well. There is a real political opening here for our party. Many in the business community are quite alarmed by the economic decline of America and want to fight back. They see an administration that has always devoted its energies elsewhere and offers no real hope that its disinterest will ever end. These business leaders, however, view the Democrats with deep skepticism. They do truly see us as "tax and spend" advocates who are instinctively hostile to business interests. Our task is to convince them that we really understand one simple reality. America's standard of living is totally dependent upon their capacity to compete and be profitable. It's about time we said so and acted accordingly. To me this is not an abstraction. My childhood was spent experiencing the economic decline of my home city, Lowell, Massachusetts. My father (a Republican) owned a dry cleaners and the entire family worked in the business. My father worked from 6:30 a.m. to 6:30 p.m., six days a week, 51 weeks a year. Sundays were spent doing the books and repairing the machinery. By any fair standard, this staggering workload should have resulted in just rewards for him. It didn't. No matter how hard he worked, no matter how conscientious he was, the forces of Lowell's economic decline were too much to overcome. The remembrance of those days has left me with an inability to view economic dislocation casually. Perhaps I have too good a memory. But when I see our nation's economic indices, I have a foreboding sense of not wanting these trends to run their course. I want to determine my own fate. I believe the business world is full of people who share this deep concern. We Democrats must reach out to them. Page 10 Republicans Whereas the Democrats must learn to embrace the world of industrialists, entrepreneurs and venture capitalists, Republicans are going to have to alter their views as well. At the Republican core is the almost religious belief that an unfettered free market is the best of all worlds. Industrial policy is seen as equivalent to child pornography. It is seen as the domain of such reprobates as Castro, the Sandinistas and the now discredited Communist planners. This view is unschooled. Industrial policies presuppose a market system. They show how to improve the competitiveness of private firms through public policies. Since Communist central planning systems have neither markets nor private companies, it is by definition a contradiction in terms to refer to them as having industrial policies. Republicans are going to have to refine their perspectives to realize that to embrace any component of an industrial policy is not to immediately be guilty of Soviet-style central planning activities. Industrial policy is what Japan has. It is what Germany has. It is what we must have as well. When I was involved with the Chrysler bill some eleven years ago, the attitude of the purist laissez faire proponents was, basically, "let it die." To argue the case for sustaining a company with a viable future product line was difficult because some felt it was government intervention. And it was. But if the company had gone under would America have been better off? Of course not. The government even made money on the deal when it was all over. But I never heard anyone say that they would have voted differently. An America with just two major auto manufacturers is not an industrial policy. Saving Chrysler was industrial policy. It worked and we should not be so quick to forget that fact. Republicans are well trained to look at potential military adversaries and demand weapon equivalence in defense of the nation. If these adversaries have a particular military capability, then by definition, we must put aside all other considerations to make our military capability even bigger and better. Today our economic enemies are our political friends. The war they wage is in the marketplace, not on the battlefield. America can be done away with by economic decay just as assuredly as by foreign invasion. The implosion of the Warsaw Pact was economic, political and social. It collapsed from its own internal weaknesses, not by the force of outside military attack. An ever diminishing standard of living in the United States will cause us to battle each other over diminishing resources. We will cease to be a major factor in world affairs as we focus only upon our downward spiral. For the Republicans as well there should be one glaring truth. American companies need the United States government as a full partner if they are to have any hope of competing internationally. That means Page 11 an industrial policy. Take a deep breath, my Republican friends. It's a brave new world out there. Adam Smith was a marvelous man but he wouldn't know a superconductor or memory chip if he tripped over one. Take another deep breath. The threat to America today is not only a diminished Soviet Union. It is not just Saddam Hussein. It is the threat of a different dimension. It is Japanese, German, Taiwanese, Swiss, French, South Korean, etc. Friends all. But just as capable of reducing us to impotence. They have already begun. The adrenalin that Republicans would call up at will to confront Soviets or Cubans or Sandinistas or East Germans or North Koreans or the Iraqi Republican Guard must be called up to confront our friends. This is war by another playwright. But it's still war. It doesn't take a genius to understand the post-Gulf War era. The Japanese and Germans will have emerged as even more formidable economic competitors. They chose to bypass the conflict while we made it our foremost national purpose. It is no accident that CNN and network coverage of the war was viewed by Americans on Japanese TV sets and was interspersed with ads from Japanese manufactured products. Republicans must acknowledge this and begin to mobilize accordingly. This means opening up to aggressive and resolute policies which will put the government in the foxhole with our beleaguered American companies. Republicans who focus on "defense strength" must be made to understand that such capabilities come from government funds. Government funds come from taxes. And taxes come from a vibrant economy. Kill the economy and you have no "defense strength." If the New American Mandate requires Democrats to embrace the creation of wealth, it also requires Republicans to see honor in asking the question "what works" and to see dishonor in slavish adherence to past economic dogma. For Democrats the political opportunity lies in the likelihood that George Bush will not act any differently about this than Ronald Reagan did. There are three reasons for this. First, the politics are an impediment. Avoidance politics have always been, and will always be, powerfully seductive. "Read my lips, no new taxes" was just the latest in a long line of homage to false gods. The Reagan-Bush line has been to gloss over the dangers ("morning in America") and simply ignore fundamental economic trends. Their concern is the immediate judgment of their electoral contemporaries not the judgment of historians - even if that history is rapidly coming upon us. It is my contention that the accumulation of hard data as to our economic dilemma has provided a base for electoral realism in 1992. That base can only expand. The 1992 Democratic campaign must take it on faith that Americans are prepared to wage this economic battle ferociously. The Republicans will presume the opposite and will continue their avoidance politics. Second, there is no sense of urgency. Most of the key economic decision makers in the administration come from circumstances of affluence. For them there will be financial insulation no matter what Page 12 happens. Their economic safety nets are made of steel cables. There is no foreboding. There is no perception that the economic ground beneath them can tremble. It is just too removed from their own personal histories and circumstances. This is not meant to suggest venality. It is meant to suggest that perception of a particular threat is more acute in those who have faced it before. Third, the trade deficit, the budget deficits and manufacturing employment numbers listed above are all Reagan-Bush. They occurred during their watch. They are the party of record. To reverse course would be to acknowledge that their unaided free market policies have been dysfunctional as we confront trade competitors who have their public and private sectors in resolute harmony. To reverse course is to admit error. It will never happen. At best they will work around the margins. A full blown frontal assault on the economic threat would require a self-analysis of the past eleven years that will inevitably sully the Reagan-Bush record. George Bush cannot, and will not, do this. His course was set more than a decade ago when he retreated from his declaration that Reagan's policies were "voodoo economics." Once he capitulated to that Republican realpolitik, his options were narrowed forever. We Democrats must insure that George Bush's dilemma is not America's dilemma. Recognize the Peril This is step one. This is where America and George Bush must part company. No one ever solved a problem he refused to acknowledge. Yes, we are losing ground, particularly in high technology, basic manufacturing, and financial services. Yes, it is the national crisis of the highest priority. Yes, it threatens to seriously reduce the American standard of living. Yes, it will destroy the economic foundation of our military national security. Yes, it will severely compromise our capability to play a peacekeeping role in world affairs. Yes, we now believe that government must be an active partner in this great challenge. Yes, America should be the pre-eminent manufacturing nation on earth again. Yes, Americans are the equal of any workforce in the world. Good. Now let's get on with it. Page 13 Be Prepared to Make Strategic Investments The notion of investing in the technologies necessary to create the Star Wars program was hotly debated. But it became national policy and billions were allocated to that purpose. Why? National security. What about investments in technologies that could impact our economic national security? Horrors. That's central planning. In the long run would America be better off with hundreds of billions invested in an improbable Star Wars system arrayed only against an imploding Soviet Union or by developing an insurmountable lead in ceramic engines, supercomputers and memory chips? Indeed, without a thriving manufacturing capability in these industries the economic base to fund military research can not exist. Many anti-industrial policy Republicans would say that the non-functionality of Star Wars against the Soviet Union is an unfortunate but necessary price of eternal vigilance against a foreign military threat. These people would also argue against major governmental investments in strategic technologies because, unlike the Japanese, "we can't pick winners and losers." What about the economic foreign threat? Again, it's a matter of mindset. Washington has been focused on the Soviet challenge for the entire adult years of most of its leaders. It rebels at the notion that in the 1990's there are real dangers that do not emanate from missiles or tanks or fighter aircraft. It must rethink threat. Threat can be venal such as a Saddam Hussein. But threat can come from people who are friendly and have no evil intent. The threat to America is economic as well. We must think of government and industry as partners with the same level of enthusiasm, indeed patriotism, that the military-industrial complex generates for its joint mission. Strategic investments in emerging technologies is part of an industrial policy which will result in some losers, yes, but will also result in some critical winners as well. These winners will be a major part of our economic future. Particularly now that American venture capital has shrunk dramatically, government has a contributing role to play in insuring that our push for technological competitiveness has a fair chance at success. Promotion of Science and Research This is one area where the rhetoric is in place but not the reality. The National Science Foundation, the National Institutes of Health, NASA, the Departments of Energy and Agriculture among others, are the mothers' milk of cutting edge research investigations. We should not be satisfied with marginal increases in these budgets. Again, its a matter of mindset. The Manhattan Project. The Apollo program. The war in the Persian Gulf. It's just a matter of recognizing the threat and responding to it. There will be no manufacturing sector without a powerful basic and applied research capability. Put these agencies at the top of our funding priorities. Page 14 In addition to the traditional areas of basic and applied research, we must devote more attention to applied engineering and manufacturing engineering. The economic war that we are losing is centered on process technologies. The taking of new ideas, indeed, even old ideas, and converting them to manufactured goods is the great trade battle ground. The winners here are those who can take high and low tech products and simply manufacture them better. It is the process of manufacturing that should also be the recipient of research monies since it is only the production of a technology which creates wealth. The initial discovery and development of a product are the stuff of Nobel Prizes and prideful articles in trade journals. But that is not enough. The prior definition of success embraced those who could conceive new product ideas. Today the definition of success embraces those who can take those ideas, wherever they may originate, and turn them into products quickly, efficiently, and with great quality control. The Japanese takeover of the American-originated VCR market is an obvious example. These are the cash cows. These are the providers of employment for a nation's people. They are equally worthy of intellectual inquiry and investigation. The need here is to exalt science in all its dimensions. There must be a White House effort to create an environment wherein young Americans choose science (and engineering) as a career. The society as a whole needs to acknowledge that we will survive as a viable economy only by the fruits of the minds of young American scientists. To have our best and brightest heading to law schools and Wall Street is a gross misallocation of resources. The best and the brightest should be in the laboratories and in the production facilities. The best and the brightest should be deployed to reinvigorate our manufacturing sector. This will require a sea change away from the values of the 1980's that drove our young away from occupations of production and into the occupations of the paper chase. A society which pays its 29 year old science researchers $25,000 a year and its 29 year old lawyers $100,000 a year and its 29 year old investment bankers $200,000 a year and its 29 year old left fielders $2 million a year is sending all the wrong messages. It is a formula for unrelenting decline. The young American scientist must be recognized as the fuel of any viable economic engine. Change Anti-Trust Laws Current anti-trust laws prevent American companies from joint venturing in almost any area including such critical ones as research and development. The rationale for this policy is rooted in America of years past, long before our companies faced foreign corporate behemoths. We need to pool our resources to be equal with our competition. We have to allow our companies to muscle up. Joint venturing is the sine qua non of that capability. It must become an everyday occurrence in order to equip these companies to compete in the global marketplace. Page 15 American companies should be released from anti-trust constraints in areas which impact on their capabilities in international trade. This is one area where our Japanese and German competitors view us with great mirth. To them the concept of group strategies is an obvious way of maximizing your strengths. Seeing America hobbled by her own hand must seem to be a heaven- sent advantage. Current American law pays homage to a period when all the producers were American and thus cooperation between them was clearly dangerous to the consuming public. Today most of the producers are foreign and they threaten to eradicate American producers. There must be a serious rethinking. The fact that our anti-trust laws were not changed years ago speaks to the absolute neglect of the cutting edge issues of competitiveness while we engage endlessly in the rhetoric of promoting competitiveness. Democrats are particularly vulnerable to this criticism. We must give our companies a more level playing field through policy changes that don't require massive federal expenditures. Increase Our Savings Rate Congress should pass laws which encourage savings over consumption. This will create a capital pool which will begin to match the resource base that countries with high savings rates enjoy. The lack of a capital pool is the economic equivalent of unilateral disarmament. The numbers here are staggering. Compare the United States, Japan and Germany in years 1980, 1984 and 1988. Our national savings as a percentage of GNP went from 18.8 to 17.0 to 15.1. Germany had rates of 21.7 to 21.7 to 24.5. Japan, of course, was in a class by itself. It had rates of 31.1 to 30.7 to 33.3. We need a dramatic improvement in our rate of savings in order to provide the much needed capital base for investment. A much greater abundance of capital will serve two purposes. First, it will reduce the cost of capital to U.S. companies. Currently the cost of capital in America far exceeds that of Japan and Germany. It renders corporate decision makers unable to make investments whose payout is long term. This financial barrier is lethal to the kinds of corporate strategies that are necessary in order to compete. Second, it will reduce our current hazardous dependence on outside sources of capital. These are sources which can quickly evaporate when these nations decide they have other more pressing uses for these funds: i.e. West Germany's current interest in investing in the restoration of former East Germany. Being dependent on foreign capital is not unlike being dependent on foreign oil. You don't control your own destiny. Various I.R.A.s for retirement, college expenses, home ownership are examples of pro-savings incentives. Other ideas should be aggressively explored. Page 16 Finally, the savings ethic must be fully ingrained in the American culture forever, not just to get us through this difficult period. That means our children must be part of it. Schools should work with banks to give each child a savings account or some equivalent. No matter how small, such accounts establish a thought process. Efforts should be made to allow the pooling of funds into Childrens Mutual Funds, wherein school groups could invest minor amounts of money at reduced service fees. This would have the additional benefit of directly involving children in learning about and caring about the American economic system. These would be latter day Economic Liberty Bonds. Young people would be taking a personal step in helping to provide the capital necessary in America's battle for economic survival. The secondary value of such participation by the young is the early awareness of how dependent America is upon the actions of individuals. Hopefully, this sense of personal relevance will be reinforced by other actions and lead to a more contributory attitude towards citizenship. Our people must perceive America's economic vulnerability and see their own essential role in safeguarding their nation. Investment Over Consumption There are a lot of indices that show the inevitable decline of American economic fortunes compared to those of the Japanese and Germans. Inevitable, that is, if these numbers are not changed. Probably the most significant are the numbers which reflect the differences in mindset relative to investment and consumption. Consumption is today. Investment is tomorrow. It is seed corn consumed versus seed corn planted. Nothing is more basic. Yet relative to our competitors, we are devoted to consumption, and they are devoted to investment. Again raw numbers. The investment rates of the United States, Japan and Germany. Public and private. Years 1970, 1980 and 1988. 1970 1980 1988 ---- ---- ---- United States: public 15.1 15.6 15.5 private 2.5 1.8 1.6 Germany: public 20.9 19.1 17.5 private 4.6 3.6 2.4 Japan: public 31.0 25.5 25.3 private 4.5 6.1 5.2 The reasons for this are historical. Japan and Germany were ravaged during World War II. Their leadership and their populations had known the horrors of economic disequilibrium - from runaway inflation to Page 17 personal deprivation. Out of this adversity came the intense Post-War determination to create patterns of economic behavior that value future stability and security over present day consumption. We saw the Post-War period as the time to reap the fruits of our victory. Present day consumption was seen as an earned reward eclipsing any widespread sense of providing for the future. The 1980's were the epitome of that mindset. It was assumed the future would always be economically secure. That assumption was wrong. The result of these national patterns if allowed to persist will be a much lesser America. Fewer good jobs. More foreign ownership. More social dislocation. Less world influence. More crushing debt, both personal and national. The savers will dominate the spenders. The investors will eclipse the consumers. The lean and hungry will always prevail over the comfortable and complacent. The problem here is not that all of this is not understood. The problem is that being understood by economists is one thing. Being understood by politicians is quite another. And transforming understanding into action is more difficult still. The economists will say that investment and consumption are like a seesaw. In order for investment to go up, consumption must come down. Herein lies the political dilemma. But herein also lies the opportunity for political leadership. Through the New American Mandate, our people will affirm their commitment to a policy that defines the common good as the promotion of investment over consumption. We need to create in ourselves the kind of steely will to survive economically that our Japanese and German counterparts still have. We must fashion a political environment wherein a drumbeat for necessary economic policies allows our elected officials to do what is right without fear of immediate ouster. Voting for needed economic reform must be demanded by the electorate. Continued avoidance of such reform must be clearly identified as unacceptable pandering by politicians who are putting their own re-election concerns above the national interest. This involves choices, few of which will be easy. Yet relative to the economic decisions being faced by countries like Poland and the Soviet Union they are far less onerous. Far less. It means looking at the entitlement programs, heretofore a political never-never land in American politics. Would the Congress support a policy of reducing the yearly increase in entitlements by one percent below the cost of living? It's not a great deal but it would establish a policy of economic response. But politically it will not pass, even for those above a certain income level, in the absence of a clear understanding as to the nation's need for such a measure. It must be seen as patriotic to rally all of us to this cause. The principle of shared sacrifice for the common good must be advanced. This is the "vision thing" that George Bush finds so hard to come to grips with. The policy must be made clear to every American. We must make the transition from a high consumption/low investment country to a lesser consumption/high investment country. Japan and Germany did so decades ago because adversity gave them no choice. Can America do the same without having experienced such deprivation? Can we act in time to lessen the impact of far more painful decisions in the future? Page 18 I believe we can if the political leadership is prepared to show the way. Reduce the capital gains tax for in