REMARKS AS PREPARED FOR DELIVERY SANDY K. BARUAH ASSISTANT SECRETARY OF COMMERCE FOR ECONOMIC DEVELOPMENT UNIVERSITY OF CALIFORNIA – DAVIS INNOVATIONACCESS “CLEAN ENERGY SHOWCASE” - DAVIS, CALIFORNIA

THURSDAY, OCTOBER 11, 2007

AS PREPARED FOR DELIVERY

Introduction by: Gary Simon, Chairman, CleanStart

OPENING

Thank you, Gary, for that kind introduction. I would also like to thank Jon Gregory of Golden Capital Network for the invitation to be here today.

The Department of Commerce appreciate Jon’s leadership in promoting innovation and entrepreneurship, and the great work Golden Capital Network is doing to fund future high-growth companies. Golden Capital Network is an innovative approach to spurring entrepreneurship and I am pleased that the Department of Commerce is able to support Jon’s efforts.

I appreciate UC Davis’ commitment to advancing the twin pillars of American competitiveness in the 21st century – innovation and entrepreneurship – by connecting its world-class research assets to the marketplace through UC Davis InnovationAccess – and by serving as host for events like this today.

Entrepreneurship is the engine for economic growth in the 21st century, and innovation is its fuel. And as we consider strategies today for advancing both, a little context can be helpful. I would like to help frame our discussions by, first, providing a snapshot of the national economic environment and priorities, and then discuss the environment in which we all are working.

OUR ECONOMY IS STRONG AND GETTING STRONGER

At the national level, our economy is strong, with robust indicators at every level. Our national unemployment level is at a low 4.7 %, which most economists say is lower than the full employment rate, and the economy has created over 8 million new jobs since August 2003.

The American economy grew at about 4% in the second quarter of 2007, and we’ve had nearly 6 years of uninterrupted economic growth. All this shows that we have a very resilient, diversified, and flexible economy.

EXPORT GROWTH

One of the key reasons for America’s economic strength is the growth in U.S. exports – a reflection of our nation’s ability to succeed in the 21st century worldwide marketplace.

U.S. exports have increased by 11% over 2006. And the trade deficit has narrowed nearly 8% or $30 billion compared to the same period in 2006. And a key to this export performance is exports of environmental technologies – where California in particular is a leader – and the Sacramento region.

Here in California, exports in 2006 totaled nearly $128 billion. California companies are selling their goods and services in 224 countries.

Nationwide, exports are growing more than twice as fast as imports, which is a strong indication of America’s workers’ and business’ ability to successfully compete in the worldwide marketplace.

This is important, because the jobs associated with exports have higher wages than other jobs, which helps drive our national prosperity.

That’s why it is important to open worldwide markets to U.S. goods and services. A key tool to accomplish this is Free Trade Agreements – FTAs.

When President Bush took office, we had Free Trade Agreements with just 3 countries – Israel, Canada and Mexico. Today, we have free trade agreements with 16 countries with 4 more under consideration.

FTAs help our companies, farmers, manufacturers and workers sell American goods and services to new markets around the world.

The critical role exports play in our economy highlights the importance of the Free Trade Agreements the President is pursuing with Columbia, Panama, Peru and South Korea. These FTAs will provide U.S. companies, farmers, manufacturers and workers access to over 126 million consumers in emerging markets across the globe – representing a combined GDP of over $1 trillion.

So, thanks – at least in part – to our strong export performance, it is clear that the American economy is resilient and strong. This is good news not just for the nation, but for your region as well – because a strong, growing national economy allows economic regions and individuals to tap into this expanding economic pie and share in our national prosperity. It takes both smart national policies and forward-thinking regional action in order for economic growth to occur.

THE 5 NEW REALITIES OF 21ST CENTURY ECONOMIC DEVELOPMENT

So, with a strong national economic foundation and the realization that our economy is interconnected with the rest of the world, what is the environment that we will encounter as work to strengthen our regional economies in the 21st century?

I believe that there are 5 realities of the 21st century we must understand and respond to.

Having just mentioned America’s strong export performance, let’s begin with New Reality #1 of the 21st century economy: While perhaps the most obvious, it’s also the most important; and it’s the that we are truly in a Global Economy, or as New York Times columnist Tom Friedman says – the world is…flat. In the new flat global marketplace, competition is not just from the firm down the road; our competition comes from any person in any corner of the globe with a good education, a good idea, and a good Internet connection.

Here are some examples of how interconnected our economy is today:

• We think of Airbus as a European manufacturer of airplanes – while this is true, did you know that some of the most important components for the Airbus products are built in the Midwest – in Kansas?

• The number one selling car in America is a Toyota – and all those Camrys sold in the United States are built right here in the United States.

• Toyota’s mini-van and the Ford Mustang are both built here in America, but the Toyota has more U.S. produced part content than the Mustang.

• Some people say, “sure, but Toyota is based in Japan.” True, but who owns Toyota? Toyota, like Ford, is a publicly traded company – on NASDAQ – and some of you may have Toyota stock in your portfolio.

• Sticking with my automotive theme, the Chrysler Crossfire is built off a Mercedes platform and assembled in Germany. The Chrysler 300 is built in Canada. The Pontiac GTO is – of all places – Australian. The new, popular Ford Fusion is built in Mexico, using a Mazda platform. And Mazda, by the way, is owned by Ford.

• The Pontiac Vibe and the Toyota Matrix are essentially the same vehicle – assembled side-by-side by American workers in joint U.S.-Japan owned factory in California.

So, yes, our competition is indeed global, but with global competition comes opportunities for global partnerships – opportunities to expand our markets and increase our competitiveness. And, with 95% of potential customers for American products outside the United States, this reality becomes more important every passing day.

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 only 7 years for the Internet to reach that same milestone. Imagine how quickly we will adopt the next big thing.

The nature of innovation itself is changing: innovation is becoming multidisciplinary as different technologies converge, creating new fields. Fields that didn’t even exist just a few decades ago. People smarter than me debate where bioinformatics or nanotechnology will take us, but all agree that they will become major drivers of the U.S. economy, just as clean energy technology will play an important role in driving the growth of the Greater Sacramento region.

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 have the opportunity for reward.

New Reality #3: Yes, the world becomes a bit more complicated every day. In order to respond to this increased complexity, we must realize that we have reached a point where the components of competitiveness can no longer be pursued separately. Just as technologies are converging to create new fields of innovation, so are the components of competitiveness merging to shape economic growth in the 21st century. This reality holds two important lessons for the local and regional level:

First, the idea of workforce development, community development, economic development, and educational programs occurring in separate silos can no longer be tolerated. The interconnected challenges of these components of competitiveness must be tackled in concert.

Second, in our new 21st century global economy, we must acknowledge what we all learned on the school playgrounds of our youth, that we are stronger when we stand together than when we stand alone.

Standing together means that we need to look beyond traditional political jurisdictions – the city boundary, the county line, even the division between States – and work together. Because the competitiveness of America’s companies is in large part tied to the competitiveness of the economic regions in which they do business.

New Reality #4: Public-Private partnerships become more critical every day. While governments at all levels, universities and other non-profit institutions are important players, let’s not forget that 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 not just have a seat at the table, but should actively be engaged as full partners in strategies for economic growth.

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 even the cost of doing business. Factors such as these will continually shift in a dynamic worldwide economy. But if a nation can maintain its edge in innovation, it will grow and prosper.

Companies – by necessity – must continually innovate to stay one step ahead of their global competitors, especially as the pace of change in our global marketplace continues to accelerate. If they don’t, they will cease to exist. There are no pit stops in this race. And the challenge will not go away by ignoring the reality or by closing off America to the rest of the world.

Meanwhile, government, university, and nonprofit leaders at all levels have the same responsibility to adapt their approach to fit the changing times. Government – by design – moves slowly, and that can be a problem in our fast-moving economy. Unless government can offer flexible and innovative programs and tools to economic regions, we risk putting these areas that we are responsible for at a competitive disadvantage in the global marketplace. Innovation is just as important in the public and nonprofit sectors as it is in the private sector.

ENTREPRENEURSHIP

Innovation and entrepreneurship go hand in hand. Entrepreneurs are the engine for America’s economic growth, and innovation is 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. The growth in our economy is in very large part due to entrepreneurs – that’s where the job growth is coming from…it’s not from the big companies.

I believe the strategy for the United States in competing in the 21st century 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 we all share.

Solving this equation is difficult and important work, and I applaud your efforts to link entrepreneurs, academia, Government, industry, and finance to advance innovation and entrepreneurship in emerging areas such as new clean energy technologies.

It’s been my pleasure to be with you today on behalf of the President of the United States. Have a great conference.

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