Building Global Prosperity

Stephen DeAngelis

December 8, 2009

With the recession lingering, unemployment hovering in double digits, and a new year just weeks away, the Wall Street Journal published a series of articles in which it explores “How to Rebuild Global Prosperity” [introductory article by Alan Murray, 23 November 2009]. Murray writes:

“A year ago, when The Wall Street Journal’s CEO Council gathered in Washington, the world was on the precipice of the worst economic downturn since World War II. The assembled global CEOs called on then President-elect Obama to enact a massive fiscal stimulus. And they got their wish—if not as carefully targeted as some would have liked. This year, with the economy showing hints of recovery, the CEOs had something else on their minds—concerns about too much government.”

The debate about government’s role in fostering economic growth will be endless. Massive government intervention began in the final days of the Bush administration and carried over into the Obama administration. Like others who have been watching for beneficial effects of the stimulus package, the Journal’s CEO Council isn’t seeing many jobs created. Murray continues:

“During a day and a half of deliberations, the group adopted as their top priority a call for ‘sustainable job creation.’ But they made clear that they weren’t talking about public employment, a jobs tax credit or any other sort of quick fix. Rather, they called on the White House to evaluate all its regulatory policies—including the sweeping changes being contemplated in health, finance, energy and taxes—with an eye on how those changes would affect private-sector employment. The implication was that many of those policies, as now envisioned, could discourage job growth.”

In a recent post entitled Jobs, Jobs, Jobs, I discussed the views of others who are also concerned about job creation, but who do see a government role. If Murray’s description of what the CEO’s meant by “sustainable job creation” is accurate, then “job creation” was really just a smoke screen for less regulation. I agree with the CEOs that government policies can help establish favorable business climates; but such policies only indirectly affect job creation. Today’s headlines remain filled with news about companies that are laying off workers even though the country seems to be emerging from recession. It would have been more honest for the CEOs to call a spade a spade instead of hiding their anti-regulatory agenda behind the job creation label. Murray continues:

“The CEOs were visited by a parade of top Obama administration officials, all of whom vowed that they were listening to business concerns. Yet in their questions and comments, as well as in their hallway conversations, the CEOs expressed continued concern that the current U.S. government, more than any in recent decades, was not attuned to the needs of the businesses that create the lion’s share of employment in this country. The purpose of the CEO Council is to encourage dialogue between the private and public sectors. … We hope it will help close the gap between business and government, and move us all toward shared goals.”

It was clear from reading other articles in the report that the divisiveness found in politics also defines the relationship between government and the private sector. The private sector wants to be left alone but concerned regulators don’t believe that business leaders can be trusted to operate ethically without oversight. Empirically, the regulators have a lot more evidence to support their arguments than do the business people. According to a new poll, past corporate excesses have resulted in people around the world wanting more regulation not less [“Survey finds a world sceptical of free markets,” by Alan Beattie, Financial Times, 23 November 2009]. Beatty reports that “across the sample, 51 per cent thought that free-market capitalism had problems that could be addressed by regulation and reform.” In many ways, the private sector concerns about too much government are all self-inflicted and now its leaders are unhappy with the consequences brought about by their own abuses.

During the course of the CEO Council’s deliberations, they looked at four primary areas: health care; energy and the environment; the economy and finance; and education. I will focus on the two areas that I have written about previously (energy & environment and education). The top five recommendations of the CEOs in the energy/environment sector were:

1. DIVERSIFY U.S. ENERGY
The U.S. should encourage all domestic energy supplies, including coal, expanded access to oil and gas coming from both conventional and unconventional sources, nuclear power and all renewables. Government shouldn’t pick winners; let the markets decide.

2. PROMOTE ENERGY EFFICIENCY
Establish a holistic approach, supported by business, that produces energy efficiencies, from production to consumption. Policies should include tax credits, accelerated depreciation, altered building codes and performance standards. Change utility regulatory structure so utilities can recover cost of investments. Educate consumers about energy-efficiency methods.

3. CAP-AND-TRADE BILL
Instead of the EPA regulating greenhouse-gas emissions, Congress should set a cap on carbon emissions that protects the U.S. economy. The cap should recognize that most energy will continue to come from fossil fuels. The U.S. should not act alone on global warming. There should be a trigger requiring a global framework.

4. FEDERAL PLAN FOR ELECTRIC GRID
Congress should enact federal authority to deploy a more efficient electric grid that enables the diversification of U.S. energy supplies, gives the federal government more authority to site transmission lines through eminent domain and gives the Federal Energy Regulatory Commission the power to allocate costs.

5. DIVERSIFY TRANSPORTATION SYSTEMS
In its tax, regulatory, and investment policies, the government should stimulate transportation systems consistent with the broad goals of diversifying energy sources and reducing greenhouse-gas emissions.

I noted that the word “jobs” wasn’t found anywhere in the recommendations. Not surprisingly, the recommendations were very self-serving for businesses — don’t regulate us too stringently but give us plenty of tax breaks so that we can make a profit. As the article points out, the private sector prefers dealing with Congress rather than with the Environmental Protection Agency because “it thinks it can lobby Congress to cushion the blow more easily than it can lobby the EPA.” Even though the recommendations are self-serving, most of them are sound. The government shouldn’t pick winners in the alternative energy field because, as I’ve written before, the government will inevitably get it wrong. The country needs electrical power to continue to grow and the companies that provide the power deserve to make a profit. What the public wants to be assured about is that they are not going to be gouged by companies more bent on increasing profits than providing service. I also agree with the CEOs that consumers play a role in how energy is used and that they must do their part by using it efficiently. I was a bit surprised that the CEOs didn’t reject cap and trade out of hand; but I wasn’t surprised that they didn’t embrace it. Clearly, the CEOs recognized that the “broad goals of any new legislation and regulation are clear enough: to cushion the volatility of energy prices and curb greenhouse-gas emissions.”

Education is a lot less controversial than energy and the environment. The top five recommendations in the area of education were:

1. EDUCATION IS OUR TOP PRIORITY
Education is our top national priority—well ahead of health care, climate change and financial regulatory reform—and government and business policies need to reflect that. If we don’t address this, we endanger our children, economy, businesses and national security.

2. COUNCIL FOR EDUCATED WORK FORCE
Create a national council for an educated work force comprised of the secretaries of education, labor and commerce, to coordinate government activity with business to put the U.S. in the top five countries in the world for education.

3. REWARD EFFECTIVE TEACHING
Government should devise, with the school districts and unions, a transparent method of recognizing and financially rewarding good teaching. Teachers deemed ineffective should be denied tenure and removed.

4. WORLD-CLASS TEACHER CORPS
Attract and retain the best and the brightest to be our teachers. We need a world-class teacher corps in the public schools with top credentials. We need to increase the stature of teachers, which isn’t possible without addressing the issue of pay.

5. MOBILIZE PARENTS FOR CHANGE
Educate parents about the consequences of the dire state of the education system for their children’s future. Mobilize them to invest their time in their children and in the system. Parents and the school system should have real-time data and insight into their child’s progress against standards and their global peers, to allow parents to intervene quickly.

At least the work force was addressed in these recommendations. I agree with all of them. The problem, of course, is that most school districts are controlled and funded locally. According to the 2002 Census of Governments, the United States Census Bureau enumerated the following numbers of school systems in the United States:

  • 13,506 school district governments
  • 178 state-dependent school systems
  • 1,330 local-dependent school systems
  • 1,196 education service agencies (agencies providing support services to public school systems)

Aligning all of those entities with the recommendations of the CEO Council will be impossible without a major change in how public schools are organized and funded. I doubt that many of the CEOs want the federal government to take control of the public school systems and, given the outcry over President Bush’s No Child Left Behind program, states don’t appear to be ready to make many changes either. Former Navy admiral and now Congressman Joe Sestak (D-PA), who took part in the CEO Council discussions, remarked:

“I think President Bush had it absolutely right—and I’m a Democrat—when he tried to do No Child Left Behind, and tried to instill accountability into our systems. Today, 69% of eighth-grade math teachers are neither certified nor have a degree in mathematics; 93% of all teachers in fifth through eighth grade who teach science are neither certified nor have a degree in science.”

Hopefully, education will become one area where Democrats and Republicans can put their ideologies aside and work together for the future of America. For more on this topic, read my post entitled Education and Employment. As you can tell from the recommendations noted above, the CEO Council was more about the U.S. economy than how to build rebuild global prosperity. I realize that the U.S. economy remains the world’s largest and that you can’t have global prosperity without a strong U.S. economy; but I would have liked to have seen more recommendations about how the U.S. can work with other nations to promote global development and growth.