Deputy Secretary's Speech

Remarks by David A. Sampson Deputy Secretary of Commerce
St. Louis University Annual International Business Conference
U.S.-Russian Investment Symposium
St. Louis, Missouri

Good morning, everyone. I’m delighted to be here on behalf of President Bush. I want to begin by thanking Ellen Sherberg, publisher of the St. Louis Business Journal, for moderating I also want to thank Dr. Kim, director of the Boeing Institute, and the John Cook School of Business for inviting me to speak.

And I especially appreciate the stewardship of the Boeing Institute of International Business in preparing our young people for careers in today’s global economy. I look forward to a very stimulating morning.

In talking about U.S. trade and economic policy this morning, instead of a “set speech,” I want to share a few thoughts on innovation and competitiveness … the Innovation Context … the Innovation Mindset … and the Innovation Agenda.

And I couldn’t think of better place to do this than St. Louis , a city grounded in a history of innovation. From the invention of the ice cream cone at the World Fair in 1904 to the investors who underwrote Lindbergh’s “Spirit of St. Louis” transatlantic flight, St. Louis embodies the essence of American innovation and greatness. As I see it, innovation and competitiveness are the principles that have driven our economy in the past, that drive our economy today, and therefore must drive our economic and trade policy as we progress and move into the 21st century.

The Context for America’s Innovation Challenge
We start with a context in which the U.S. is in a position of strength. The U.S. is the fastest growing major industrialized economy in the world. Despite the hurricanes (the worst season on record), GDP grew a strong 3.8 percent in the third quarter. GDP grew 3.6 percent during the past four quarters, above the average of for the past three decades. In comparison, growth in the European Union was only 1.3 percent for the past four quarters. Exports are up 11 percent over the past 12 months; last year, the U.S. exported a record $1.1 trillion. And over 4.2 million new jobs have been created since May 2003 (when the labor market began to turn around).

Productivity grew 4.1 percent last quarter, the U.S. Department of Labor reported just this week.

But we must build on this strength. There is no reason for complacency. Clearly, we face many challenges.

The Mindset for Innovation
Some people believe that America has peaked, that our best days are behind us. They argue that other nations are turning up the heat, getting more competitive by imitating our strengths, opening up their markets, enacting new fiscal reforms and investing in their educational systems.

Isn’t that precisely what we encouraged and hoped countries would do during the 40-plus years of the Cold War? Just yesterday, Fed Chairman Alan Greenspan said that the integrating of China, India and the former Soviet Bloc is helping hold down inflation … a salutary affect on both the U.S. and the global economy.

Some believe China will overtake us in the next 10 or 20 years. To be sure, China is a tough competitor. And China doesn’t always play by the global trading rules.

But look at their economy, look beyond the numbers: much of their manufacturing platform is based on technology and products that originated in the U.S. And they are intent on moving up the value chain. But if you look at where are the venture capitalists and the entrepreneurs who make our economy the strongest industrialized economy in the world, they’re right here in the U.S.

Much of China’s industry remains state-owned and highly inefficient.

But China is more than just a tough competitor. China is also a growing customer, a great market. The more interaction we have with China … the more they appreciate American values.

And it’s no wonder. Take a look back at our history … past is prologue. I recently read a book that I recommend very highly: An Empire of Wealth: The Epic History of American Economic Power , by John Steele Gordon. He traces our two hundred years of economic history, proposing there is no equivalent to our position in the world today since the height of the Roman Empire some two thousand years ago. Our forefathers and ancestors built this mighty economic engine on the basis of innovation, open markets, education, and the rule of law. The U.S. built the Empire State Building in 13 months. We built the Hoover Dam in two years. And we built them without the help of a computer.

Now I ask, has the U.S. fallen so far behind in innovation and competitiveness vis-a-vis China or the rest of the world that we cower in fear behind walls of isolationism and protectionism? I don’t believe it.

But I am worried about a growing risk aversion. As long as we “incentivize” risk-takers, we’ll be okay. We must create an environment where failure is not fatal. Paul Galvin … who founded Motorola in 1928 and overcame a string of short-run failures to become an icon of American innovation … may have said it best: "Do not fear mistakes. Wisdom is often born of such mistakes. You will know failure. Determine now to acquire the confidence required to overcome it. Reach out."

So I say, never bet against America . Never bet against our entrepreneurs, scientists, great research universities, business schools and manufacturers – and their ability to find newer and better ways of doing things, or new or better products. Bet on American entrepreneurs. They can compete with China or any other nation the way we always have: by being on the frontier of innovation.

America would not be the economic leader we are today without them. America could not have been the inventor of virtually every major new technology in the 20th century. The people here today and companies like Boeing will lead us into the next chapter of our great economic history.

Let me give you a statistical fact that tells why innovation is the most important resource in our increasingly knowledge-based economy. A recent study shows that as much as three-quarters of the value of publicly traded U.S. companies … some $5 trillion … is derived from “intangible” assets, namely ideas and innovation. That’s up from 40 percent in the 1980s. Think about that. Five trillion dollars is close to half (42 percent) the value of the entire economy (or GDP).

In short, innovation and new ideas are the driving force behind our economic might. It is part of our cultural heritage as a nation. You might say innovation is part of our DNA.

The Agenda for Innovation
The federal government needs to address the long-term economic challenges if we are going to create an innovation “ecosystem.” And it has to be an aggressive, far-reaching agenda.

The federal government has a major role in advancing innovation and helping set the agenda. But it can’t solve all the challenges, nor should it. But it can unleash the power of individuals. It can set free the creativity and power of the private sector.

The field for innovation is wide open. It’s not limited to just high-tech information technology or biotechnology or nanotechnology, which will likely produce the next big wave of innovations. But also we need to work on innovation in service delivery and public policy.

Let me suggest several key public policy areas where the Bush Administration is leading the way on a bold agenda to create a culture conducive for continued American preeminence as an innovation society.

First, the nation’s education system must prepare a new generation of American workers to fill the jobs of the 21st century.

Second, to ensure that American workers can gain the skills needed for the best jobs, the government must modernize and strengthen education and training.

Third, the Bush Administration will continue to focus on addressing the nation’s most pressing energy challenges. Our overall energy efficiency in the U.S. increased nearly 50 percent over the past 30 years. Over the past decade, economic growth averaged 3.2 percent per year; energy consumption grew only 1.2 percent per year.

It took four years, but Congress finally passed the President’s energy policy bill this past summer … the first such measure in 30 years. This new law will reduce our dependence on foreign energy supplies. And it will encourage conservation and encourage American entrepreneurs to develop a new generation of alternative energy sources and more energy-efficient technologies. In turn, this will help keep our economy strong and resilient well into the 21st century.

Fourth, the U.S. must have a health care system that puts patients in charge of decisions, offers greater choice, and allows workers to control their own health care. Today’s rapidly rising health care expenses impose large costs on families and businesses, preventing many Americans from getting needed health care coverage.

The only way out of this dilemma is by applying innovational market-based principles to health care delivery. In addition, we need to invest in health care information technology to get the cost savings and productivity gains that have benefited many other parts of the economy, from manufacturing to financial services. We could cut health care costs by $165 billion a year if we had a true national health information network according to a new RAND study.

Fifth, the U.S. must also confront the long-term problems facing our entitlement programs. The experiences of nations in Europe and elsewhere show that a failure to control entitlement spending can become a significant drag on the entire economy.

Sixth, to keep the economy growing, innovating and creating jobs, the government needs to continue opening foreign markets to American goods and services. And we must not surrender to the misguided, discredited policies of protectionism and isolationism; these will not spur innovation or enhance our competitiveness.

But we will aggressively enforce intellectual property rights (IPR). Intellectual property theft around the world is getting out of hand. It costs U.S. businesses $250 billion every year in lost sales and loss of 750,000 jobs. The main problem is that some of our trading partners … such as Russia, China and India … are not enforcing their own laws against IPR theft.

The Department of Commerce at President Bush’s request is taking aggressive action to address this problem, appointing the first international intellectual property enforcement coordinator. The issue will be on President Bush’s agenda when he’s in China later this month, and it will be at the top of my list when I’m in China the week before the President arrives.

With a level playing field, American brands and ingenuity can compete and win against any other nation.

Finally, perhaps the most important item on the innovation agenda is a steady stream of R&D investment. For fiscal year 2006, President Bush is seeking a total federal R&D budget of $132.3 billion, an increase of $733 million over last’s record budget and a 45 percent increase compared to FY 2001’s $91.3 billion.

The President’s 2006 budget allocates 13.6 percent of total discretionary spending for R&D. That is the highest level in 37 years. Not since 1968 and the Apollo space program have we seen an investment in science of this magnitude. Of this, the budget earmarks 5.6 percent of discretionary outlays to non-defense R&D. This is significantly better than the 5.0 percent average over the past three decades since the beginning of the Carter Administration.

In closing, I would like to say how very proud I am to serve this Administration and President Bush, who is working aggressively to guarantee that America remains the best place in the world to do business, and the best place to innovate.

Seeing you here today, and the work that all of you are doing renews my optimism in America and in the ability of our scientists, entrepreneurs, educators, workers and companies to keep our economy as the center of innovation and the miracle of the modern world.

Thank you very much.