REMARKS AS PREPARED FOR DELIVERY - SANDY K. BARUAH, ASSISTANT SECRETARY OF COMMERCE FOR ECONOMIC DEVELOPMENT - ECOLE SUPÉRIEURE DE COMMERCE DE PARIS (ESCP EAP), EUROPEAN SCHOOL OF MANAGEMENT

WEDNESDAY, JUNE 28, 2006

AS PREPARED FOR DELIVERY

Introduction by Bernard Bizet, Professor, Urban and Real Estate Management, ESSEC

Introduction

Thank you, Professor Bizet, for that kind introduction. Please allow me to extend my most sincere appreciation to you, Dr. Bizet, and to E S C P - E A P for hosting today’s event. On behalf of President Bush and Secretary of Commerce Carlos Gutierrez, it is my pleasure to join you this evening.

As one of the very elite business schools in Europe, especially one that is well known for its international perspective, it is my honor to be given an audience by such a distinguished organization to discuss and to compare how the United States and France take differing approaches to our common goal of strengthening local regional economies.

I know that at times, the United States, especially those of us work for President Bush are looked upon as something of an oddity by our European friends. I hope that my appearance here will not lead to any loss of funding of the school by the French establishment or spur any student protests.

Speaking of protests, I understand you have had a bit of an issue with protesters this year. I must say, one of the things I noticed is that your young French protesters appear well dressed, so even during protests, the French retain their well-earned reputation for style and sophistication.

Before I proceed, please allow me to introduce my colleagues from the United States who have joined me this evening. Mr. James Yeager, Chief of Staff of the U.S. Economic Development Administration and Dr. Mark Drabenstott of the U.S. Federal Reserve Bank. While usually an official trip to Paris is considered a good thing, they fact that they are both here tonight having to listen to me instead of enjoying this beautiful Paris evening will likely cause them to rethink their decision. Please allow me to add that Dr. Drabenstott is widely recognized as one of America’s finest thinkers on economic development, especially in rural areas. By the time this evening is complete, you are likely to come to the conclusion that you have invited the wrong American to address you.

While France and the United States, like any two nations, have our occasional differences, we agree on much more than we disagree. Two grand democracies, our nations are united by a friendship that goes back more than 200 years, which makes France the oldest ally of the United States. From the battlefields of Yorktown to the beaches of Normandy, and through all the crises of the past half century, this strong friendship has survived.

Beyond our friendship, commercial ties between the United States and France are extensive, mutually profitable, and growing. With over $1 billion in commercial transactions taking place between our two countries every day, each country has an increasingly large stake in the health and openness of the other’s economy.

For your consideration this evening, I would like to share with you some thoughts on:

• The U.S. economic condition and general philosophy towards economic development.

• Five “new realities” of 21st Century economic development as I see them.

• The economic development perspective of the U.S. Economic Development Administration.

• And then I would like close with some questions for our discussion this evening on some of the key challenges and opportunities related to economic development in France.

U.S. Economic Performance

Looking at the larger national economic context, U.S. economic growth has been strong. Despite our terror attacks of September 2001, the bursting of the Internet bubble, and some unprecedented natural disasters, U.S. economic growth has averaged 3.4% for the past 4 years, we’ve recorded 18 straight quarters of economic growth, and last quarter the U.S. economy grew at 5.3%.

Our unemployment level is 4.6%, and the U.S. economy has created more than 2 million jobs in the past year and over 5 million new jobs since August 2003.

70% of all Americans own their home – a record – and homeownership is an important economic driver for any economy.

The challenge we face – that we all face – is that maintaining our economic strength in the world-wide marketplace will not just happen on its own. It will take effort. The overarching philosophy of the United States for addressing this challenge is represented by President Bush when he said that “the role of government is to create conditions in which jobs can be created.” What he means is that:

1. In the end, economic growth is about creating good jobs. For it is employment at good wages that increases our standard of living, provides more tax revenues, and gives our citizens an ownership stake in our society.

2. It is the private sector, not the government, which creates jobs. Government can help with job creation, but at the end of the day it is the private sector that provides the employment that drives an economy.

3. And that there is an appropriate role for government in helping to create the environment in which the private sector can succeed, but one must temper this desire to be too helpful – as not only can government help job growth, but it can also hurt job growth with overly burdensome rules and regulations.

As I execute my responsibilities for the Federal agency charged with promoting economic development, I keep the following five “new realities” at the top of my mind.

The New Economic Realities

New Reality #1: While perhaps the most obvious, it is the most important, which is that we are truly living in a Global Economy. In a global economy, our competition is not just the firm down the road. Our competition can come from anyone in any corner of the globe with a good idea, a good education, and a good Internet connection.

On the other hand, our partners too can now be anywhere on the globe. Global markets present not just new competition, but also new opportunities for partnerships. For example, the Renault-Nissan Alliance – which has global sales of 5.7 million vehicles a year representing more than 9.6% of the world-wide market – is a 21st Century international partnership between a French and a Japanese company. This partnership between two leading automobile manufacturers has made both companies stronger and more competitive.

Airbus’ Centres of Excellence, which were created to simplify and unify the company’s design and production management processes, include 160 design engineers in Wichita, Kansas in the U.S. who work directly with the Centre of Excellence for airplane wing manufacturing in Filton and Broughton in the UK.

Meanwhile, in the U.S., companies like Toyota and Honda are becoming a more integrated part of the American economy every day. Toyota operates several manufacturing facilities and employs 38,000 workers in North America.

All U.S. sales of Toyota’s top-selling model, the Camry, are from U.S.-based production facilities. In fact, a new U.S.-built Toyota minivan has more U.S.-sourced parts (90%) than the All-American sports car, the Ford Mustang (65%) – so even the American muscle car has gone global.

The global marketplace affords consumers across the world with choice and cost savings that are unprecedented, and can raise the standard of living for more and more nations as they become a part of it.

New Reality #2: Competition is intense, and the pace of change will continue to accelerate. It took 55 years for the automobile to spread to one-quarter of the U.S. population. It took 35 years for the telephone to do the same thing. The personal computer accomplished the same level of market penetration in 16 years, 13 years for the cell phone and only 7 years for the Internet.

There are good jobs that exist today that we couldn’t even dream up two years ago: Podcast manager…Blog writer…I-Pod accessory manufacturer…Satellite radio host.

This new reality where cycle times for products and ideas continue to shrink will require all institutions – public, private, educational, and non-profit – to continually adapt and change. Those that don’t are at risk. Those that do will be rewarded. Time is a master with no mercy. As leaders, we are all responsible for adapting and evolving our organizations to meet the challenges that time will bring. This is at times difficult, because with today’s rapid pace of change, change is often necessary before people are ready to embrace it.

New Reality #3: Yes, the world becomes a bit more complicated every day – but that’s a good thing – it shows the advancement of the human existence. Responding to this reality means that we have reached a point where we can no longer pursue the components of competitiveness separately. This reality holds two important lessons for local and regional governments:

First, the idea of workforce development, community development, economic development, and educational programs, occurring in separate silos can no longer be tolerated. One of the first steps to success in the 21st Century – besides acknowledging and embracing its new realities – is to begin to collaborate at all levels. The challenges of workforce, education, community and economic development must be tackled in concert – each element leveraging the other. These are important and precious resources and we must use them to full advantage.

Second, the competitiveness of nations will increasingly depend on the competitiveness of economic regions. In order for a company to be fully competitive, the economic region in which it does business must be competitive as well. We need to look beyond traditional political jurisdictions – the city boundary, the county line, even the division between nations – and work together. Because the competitiveness of our companies is in large part tied to the competitiveness of the economic regions in which they do business.

Pooling resources and developing unified regional development strategies that capitalize on those resources are perhaps the most important steps that regions can take to better compete in the world-wide marketplace. This is especially true as we work to develop clusters of innovation –interrelated industries in which a region specializes – which, as you know, is an important concept in 21st Century economic development – and one for which France is recognized as a leader.

In the United States, economic clusters and the regions in which they develop are not defined by the Federal government, but are driven by the private sector and local leadership. I know that these concepts of regional – or territorial – development and cluster development are an important part of the strategies for economic growth of France and the EU, and I will be interested to hear how your strategies advance these concepts.

New Reality #4: Collaboration with the private sector becomes more critical every day. While governments at all levels, and education and non-profit institutions can be important players, the private sector is the most important element of any successful economic development strategy. Unless the private sector is ready, willing and able to invest in a community, economic growth simply will not occur, regardless of how much government spends.

The private sector should have not just a seat at the table, but should be actively engaged as full partners in the development of workforce and economic development strategies. Businesses know best what will prompt businesses to invest. If government makes theses decisions for businesses, it is more likely that these decisions will be based on political goals, not practical business factors.

Educational institutions – including high school and local colleges – should be working hand-in-hand with business to ensure that there are sufficient local workers with the right skills for the job environment of today and tomorrow.

While biotechnology, or maybe nanotechnology, are the hot, new industries that everyone is talking about, if a region’s strength is actually in transportation logistics, advanced manufacturing or new energy technologies, workforce development strategies are best focused on those industries.

The private sector should be helping to shape – within the parameters of public accountability, of course – the development strategies that will lead to more higher-skill, higher-wage jobs.

New Reality #5: At the end of the day, it is the ability to innovate that is the only possible sustainable competitive advantage in the 21st Century. It’s not location. It’s not cost of doing business. Factors such as these will continually shift in a dynamic world-wide economy. But if a nation can maintain its edge in innovation, it will grow and prosper.

So, those are the realities – as I see them – that we all must deal with when we contemplate policies that are aimed at improving the economic condition of our citizens.

The Perspective of the U.S. Economic Development Administration

While my portfolio is a small part of the larger budget of the U.S. government, we have made significant progress over the last five years in helping local areas drive innovation by thinking of themselves as parts of a larger economic region. We have done so by promoting three types of investments:

• Supporting long-term, coordinated and collaborative regional economic development approaches;

• Supporting innovation and competitiveness;

• And encouraging entrepreneurship.

This final point on entrepreneurship deserves some additional discussion. One advantage America has is its pride as an entrepreneurial nation – stories of people who start out with nothing more than hard work and a good idea and become wealthy beyond their dreams are commonplace. But entrepreneurship is such a part of the landscape of America, it’s easy to overlook, but is too critical to overlook. I like to think of entrepreneurs as the engine for America’s economic growth, and innovation as the fuel for that engine.

Growth-oriented entrepreneurs lead the American economy in innovation – small firms innovate more than large ones do, producing about 13 times more patents per employee than larger firms. And, small firms are more likely than large companies to produce specialty goods and services and custom-demand items, which will be key for the U.S. in the 21st Century as we compete on value-added – not low-cost – products and services.

Furthermore, small businesses provide approximately 75% of the net new jobs added to the American economy, and represent over 99% of all our employers.

Thus, the strategy of the United States for competing in a 21st Century economy is built around the following equation:

Entrepreneurship drives innovation…

Innovation drives productivity…

Productivity drives higher wages and higher standards of living.

And a higher standard of living for more of our citizens is a goal that all nations share.

Questions for Further Discussion

During our time here this evening, I would be interested in hearing your thoughts on several questions that are of particular interest to me as they relate to the challenges and opportunities that both of our nations face in the 21st Century, and how we are addressing them.

First, we have heard in the international media about France’s challenges with the workplace environment. How do world-class French companies like Airbus maintain their competitiveness and meet the demands of French labor laws? Also, do you feel France is able to compete in the future with existing restrictions on hiring and firing workers?

Second, the U.S. is facing a challenge in the future solvency and stability of entitlement programs. For example, Social Security – a retirement program – and Medicare and Medicaid – two health programs – face a $42 trillion commitment over the next 75 years. France’s social welfare programs, meanwhile, are even more generous than those in the U.S. How is your nation addressing this challenge?

Third, in the U.S., the private sector and local government are more frequently turning to universities as partners in economic development initiatives. What is the level of acceptance of French universities to working with the private sector for economic development?

Finally, I have mentioned that in the U.S., while there is an important role for the government in creating an environment in which businesses and citizens can thrive, it is the private sector that leads economic growth. What do you see as the appropriate role of government for promoting opportunities for businesses and citizens?

With that, I leave with you my five new realities of 21st Century economic development:

1. We are living in a global economy;

2. The pace of change will continue to accelerate;

3. The components of competitiveness can no longer be pursued separately;

4. Partnership with the private sector is critical;

5. And innovation – as the fuel for entrepreneurship – is the only possible durable competitive advantage in a global marketplace.

And these four questions to spur our discussion. It has been my pleasure to be here, and I thank you and Professor Bizet for your kind invitation. I look forward to the robust discussion to follow. I appreciate your attendance this evening.

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