Testimony of Secretary of Commerce Donald L. Evans
On the State of
Before the
House Committee on Energy and Commerce
Mr. Chairman, thank you the invitation to participate in
this hearing on the state of American industry and the
I strongly believe that businesses are at the strategic
center of any civil society. There are more than 138 million Americans at work
right now realizing their aspirations for their families. Businesses in
The State of
With only five percent of the world’s population, the
Household wealth has soared
from an inflation-adjusted $7.8 trillion in 1950 to $44 trillion in 2004. We
all understand how important it is for people to own a home and build their own
savings. A record 72 million American families own their own home. More than 52 million, or nearly half of,
American households, own equities according to a recent survey released by the
Investment Company Institute and the Securities Industry Association. That represents a 7 percent gain, or 3.5
million more households, from January 1999.
The Resilience of the American Economy
The Bush Administration took office on the bust side of a boom-bust cycle that led to a recession and significant job losses. In fact, nearly 1.8 million jobs were lost before the President’s first year in office was complete: a year marked by a recession that had been brewing for months, the collapse of the dot-com bubble, the tragedy of September 11, and the discovery of years of corporate malfeasance.
It is difficult to estimate the effects of 9/11 on our
psyche or business confidence. But we
now know that in the 5 months following September 11, almost 1.2 million jobs
were lost: 51 percent of all jobs lost in overall payroll employment decline
since January 2001.
The President’s leadership has seen us through some of the most difficult
times in recent memory and resulted in remarkable economic resiliency.
Fortunately, the tax initiatives of 2001, 2002 and 2003 softened the blow from
the recent recession and set the stage for vigorous economic growth going
forward. Without the President’s tax
relief for families and small business, by the end of this year real GDP would be 3.5 to 4.0 percent lower and 3
million more people would be out of work, according to a Treasury Department
analysis.
The Joint Economic
Committee recently noted that the peak unemployment rate just after the last recession
was far lower than in prior recessions.
The 6.3 percent peak in unemployment during the last recession compares
favorably to 7.8 percent in 1980, 10.8 percent in 1982, and 7.8 percent after
the 1990-91 contraction. Indeed, the
current 5.6 percent unemployment rate is below the average rate of the
1970s, the 1980s, and the 1990s.
A look at the global economy also underlines the positive direction we see at home.
The latest data shows
European unemployment at 8 percent compared to 5.6 percent in the
Over the past three years, the American economy has grown
about twice as fast as the economies of
Several other indicators show that the economy is recovering from the shocks this economy has faced over the past few years. Just look at recent data:
· Jobless claims are at their lowest level since the recession began.
· Nominal after-tax income was up 3.4 percent in 2003.
· Productivity grew from 2001 to 2003 at the fastest 2-year rate in 50 years.
· Small business confidence over the past several months has been at 20-year highs.
· The equity markets added $4.2 trillion in new wealth from October 2002 to today.
·
The economy has created 364,000 jobs in the past
six months according to the payroll survey and
nearly one million according to the household survey.
·
The purchasing
managers index of manufacturing activity recorded its fourth month over 60 in
February, indicating the strongest sustained pickup in activity since 1983.
· And a recent employment survey shows that manufacturers are optimistic about hiring.
The last time a Secretary of Commerce testified before
this Committee was late 1995. A few months later,
Clearly, the President is taking the country in the right direction.
We do, however, have a lot of work to do, and neither the President nor I will be satisfied until every American who wants a job can find one. But both of us know that heaping additional burdens on business and closing markets always kills jobs. That was the painful lesson of the Depression, when raising barriers to trade compounded and prolonged the misery for working people around the world.
There is more to do. The government must continue to encourage economic growth through implementing the policies that support the principles I will discuss. The President has proposed an aggressive plan and I am pleased to be here today to discuss it.
Before
During those years, I was tested through business cycles. Identifying challenges and risks, and adapting to opportunities allowed our company to compete and win. We did not ignore challenges, did not try to stop change, and never gave people working with us false promises of avoiding change.
Mr. Chairman, I know that there is anxiety out there in
The
President and I are committed to creating the conditions for economic growth
and vitality so every single citizen who wants to work can find work. The President is defining
Mr. Chairman, I believe that we are at a time of
transition. Transitions are never easy
and this Administration knows there are workers experiencing pain. We are
directing resources and focusing our efforts on those who are hurting. For example, our Economic Development
Administration at the Department of Commerce has worked with the Labor
Department as they deploy “rapid response” teams to
The challenges of today will require policymakers to be forward-looking and innovative like never before. We have to understand and keep up with the rapid pace of change, because our businesses must continue to lead the world, enter new markets, control costs, and attract, train and retain the best people.
We are at a crucial time in our economic history and the decisions we make today will have profound impact. This morning, I want to talk about four key objectives that I believe are critical to our future success:
1. Ensuring that our economy remains the most competitive in the world;
2.
Promoting
3. Preparing our workers for the 21st century economy; and
4. Promoting strong commercial ties with the 95 percent of the world’s population that does not have the blessing of living in this country.
These objectives are fundamental. American companies and workers recognize they are the ingredients for our success. I have been to many states in the three years that I have had the honor of serving this Administration and people tell me time and time again – allow us to create, compete and seek new markets and we will get the job done every time.
These principles are also the foundation of the President’s six-point economic plan to promote economic growth and provide momentum for job creation.
As clear and intuitive as these principles sound, however, they are not universally held.
Some seek refuge in policies and rhetoric that promise winning without competition, job creation through economic isolationism, and small business fed by additional taxation.
I look forward to our dialogue about the challenges and
opportunities facing American industry and the steps that the Bush
Administration is taking to promote the principles of economic development I
just articulated. But before turning to
each of these subjects in more depth, I want to take a moment to provide a
framework for where the economy of the
Keeping our Economy the Most Competitive in the
World
As our workers equip themselves for new challenges and competition, and as American businesses cut costs, manage smarter and engage in new markets they rightly expect the government at all levels to work with them, not against them.
Rising costs of health care, litigation, energy and unnecessary regulation kill jobs. It is the steady accumulation of multiple burdens that has had the most severe impact on the competitive environment in which our companies operate.
While our businesses have tightened their belts and raised their productivity in an effort to succeed in the marketplace, they have seen that advantage and their hard-won productivity gains eroded by higher energy costs, medical and pension costs, tort liability costs, and excessive taxation and burdensome regulation. According to the National Association of Manufacturers, these overhead costs add approximately 22 percent to American manufacturers’ labor costs (nearly $5 per hour worked).
As Secretary of Commerce, I have spent considerable time
working with and listening to manufacturers all across the
Based on this effort, we released Manufacturing
in
These steps will help, but it will take a much larger, very sustained effort from policymakers to get some fundamental costs in line to assist our companies to continue to win in the world economy.
We all know that rising health care costs are eroding
competitiveness. In 1980, health care
was 8.8 percent of GDP. In 2000 it was
13.3 percent and in 2002 it was nearly 15 percent. It will be 16 percent of GDP within five
years. Businesses pay for their
employees’ health benefits because of tax incentives and because they see their
own interest served by a healthy and motivated workforce: 97% of the National
Association of Manufacturers’ members pay for employee health care
benefits. However, there is a
competitive cost of doing so: the
Regulatory compliance remains a huge burden in expense and
lost time. While the exact cost of regulation is uncertain, the total
cost is comparable to discretionary spending— about $640 billion in 2001,
according to the Office of Management and Budget (OMB). Regulation can increase
the cost of producing goods and services in the economy, thereby raising prices
to the consumer and placing jobs and wages at risk.
Regulatory compliance costs fall hardest on small and
medium-sized businesses. This
is a significant finding since small firms account for the vast majority of new
business growth. Small business ownership is a critical vehicle for all
Americans—and increasingly for women and minorities—to achieve greater economic
opportunity.
In 1999, the OECD
estimated that the economic deregulation that occurred in the
This country must build on a national energy plan that
will help us access new sources of supply and improve energy transmission. Businesses use nearly 40 percent of the
natural gas and 30 percent of the electricity consumed in the
I hear a great deal from businesses of all shapes and
sizes about the complexity of our tax system, and the disincentives that
complexity creates for doing business in the
One of the most egregious examples of government increasing costs comes out of the tort system in this country. In 2002, the lawsuit burden was $809 for each American. More than $200 billion is spent on our tort system, and only 20 percent of that goes toward economic damages. One issue of particular concern is the ongoing asbestos litigation. The continuing litigation has yet to help many of the individuals who were harmed by prolonged exposure to asbestos. At the same time, the litigation hangs over our economy, raising all companies’ insurance costs and dampening their ability to hire.
You cannot say you support creating the environment for job
creation unless you grapple with the underlying drivers of costs that
discourage hiring and depress investment.
That is why
Ensure the
The innovative
capacity of the
Innovation ensures the jobs created will be good
jobs. New products and production
methods continue to raise our productivity and competitiveness, and will raise
our standard of living to unprecedented levels.
Business leaders
want a continued commitment to R&D and assurance that the government
reinforces, rather than creates obstacles to, the process of generating new
ideas and of bringing innovations to the marketplace. That is why the
Administration continues to support the
unique capabilities of national labs and universities, including establishing
cooperative research programs for the benefit of small and medium-sized
businesses. In addition, this
Administration is promoting the process of manufacturing technology transfer to
ensure that the benefits of R&D are diffused broadly throughout the
manufacturing sector, particularly to small and medium-sized enterprises.
Innovation and investment are key drivers of the economy. One reason for the manufacturing sector’s early entry into recession was a sharp drop in business investment as industry pulled back from a period of heavy investment in technology. Not surprisingly, the industries with the most significant job losses in manufacturing are precisely those industries – telecommunications equipment and computing – that benefited most from the boom in investment of the late 1990s.
There is recent evidence that innovation will continue to propel the American economy. According to the Institute for International Economics, our economy shed 71,000 software programmer jobs paying an average of $64,000 between 1999-2002. But at the same time, 115,000 software engineering jobs paying $75,000 were created, a good sign that higher-paying jobs are replacing those being lost.
Americans should expect great advances in biotechnology, nanotechnology, and in many other industries across our economy. These advances will improve lives around the world and create American jobs. That is why the President is taking dramatic steps to promote innovation through R&D, with targeted spending at the record levels noted above. This money catalyzes the private sector’s ingenuity and creates the industries and jobs of the future.
Business leaders
emphasize the importance of adequately and effectively protecting intellectual
property rights, and the corrosive effect of the failure of some of our trading
partners to enforce these rights. Intellectual property protection is essential
in ensuring the virtuous cycle of innovation that raises our productivity and
meets the needs of consumers around the world.
That is why the Department of Commerce continues to strengthen the
Patent and Trademark Office, enhancing intellectual property protection and
increasing the availability of new products and services.
This Administration is promoting the technological
infrastructure of the 21st century. We have taken
concrete steps to create an economic and regulatory environment in which
broadband can flourish:
·
The President's
tax relief has given businesses powerful incentives to invest in broadband
technology.
·
The President’s
economic security package allows companies faster depreciation for
capital-intensive broadband equipment.
·
The President has
signed a two-year extension of the moratorium on Internet access taxes, and
urges the Congress to make the moratorium permanent.
·
Under this
Administration, the FCC has issued an Order freeing newly deployed broadband
infrastructure from economic regulation designed for a different era. This decision provides a powerful incentive
for incumbents and new entrants alike to invest in new broadband infrastructure.
·
The
Administration also supports policies that will ensure that Voice-over-Internet
Protocol is also free from unnecessary economic regulation.
·
The
Administration has doubled the amount of radio spectrum available for
unlicensed wireless broadband technologies and cleared the way for additional
licensed spectrum as well. And,
·
The
Administration is working to ensure that Broadband-over-Power Lines can be
beneficially deployed as quickly as possible.
All of these actions have helped to ensure that consumers
have a variety of choices for broadband, particularly in rural communities, and
will speed infrastructure investment in the
Other pro-growth policies will help American businesses create new industries, companies and jobs. When some propose raising tax rates, they are disproportionately taxing the engines of growth--small businesses. Small businesses owners pay almost 80 percent of the taxes in the top rate through pass-through tax entities. Small businesses create approximately 70 percent of the new private-sector jobs in this economy. Small businesses employ half our workforce. If taxes are raised on these firms, they will have less money to hire and invest.
Innovation, technology and entrepreneurship continue to create jobs and augment our standard of living and we must be committed to helping them flourish.
Preparing our Workers for the 21st
Century Economy
There are fundamental and structural changes under way in our economy.
To meet this challenge and benefit from the opportunities
that innovation creates, it is crucial that students, workers, job seekers and
communities are provided with the assistance and tools they need to succeed.
Employment in manufacturing has been declining since 1979.
The decline of manufacturing employment and the rise of service employment are
manifestations of structural change.
What many fail to note is that this phenomenon is global: almost all major industrialized economies
have lost manufacturing jobs. Some have tried to lay the blame solely on
low-cost labor in developing countries, but it is important to note that
In each one of your districts, new jobs are being created
every day. The Business Employment
Dynamics report indicates the American economy creates about 600,000 jobs a
week. Amid dynamic job “churning” in
this country, 39.2 million jobs have been created since 1980. According to
recent data from the Bureau of Labor Statistics (BLS), the
Add to this the fact that BLS also estimates that the average American changes jobs ten times from ages 18 to 36, and you get more insight into the shifting and dynamic work environment that Americans face.
We will need to
prepare for this ongoing transition. The talent and motivation of the men and women
who work in and manage
Some business
leaders I have spoken to express serious concerns about whether the
Preparing the next generation of
In addition, the President has a $250 million community college job training initiative, to train people for today's economy and help them find jobs. The President’s “Jobs for the 21st Century” initiative will prepare our economy and workforce for new challenges by expanding access to post-secondary education and fostering job-training partnerships between community colleges and employers in industries with the most demand for skilled workers.
This Administration is committed to investing in the types of ongoing retraining programs our workers need to develop the skills in our transitioning economy. The Administration’s 2005 budget proposes roughly $23 billion to fund 31 job training and employment programs government-wide. The bulk of this funding, about $19 billion, is administered by the Departments of Labor and Education primarily through the Workforce Investment Act (WIA), the Carl D. Perkins Vocational and Technical Education Act (Perkins), Vocational Rehabilitation Services, and Pell Grants for students enrolled in technical or two-year post-secondary schools.
We will also dedicate over $1.1 billion in fiscal year 2005 for training and cash benefits for workers dislocated by increased imports or a shift of production to certain foreign countries.
Government can do a great deal, but it is important to note the significant investment that American business is making in the future of the American workforce. The private sector spends about $60 billion a year to provide training and education for American workers. This investment is made in major corporations that have extensive programs akin to in-house business schools, and in small businesses that help with tuition for part-time classes and local seminars.
These public and private investments make a difference in the lives of
millions of Americans and they are essential to the competitive position of our
industry and workers.
Promoting Strong Commercial Ties with the 95 Percent
of the World that doesn’t have the Blessing of Living in this Country
I cannot talk about the American economy without talking about the important role of trade and the role of investment in a global economy.
Expanding trade and investment abroad are, and have
been, fundamental pillars of American economic success in the 20th
and 21st centuries. Trade
represents an unprecedented opportunity for our workers and our future. Americans welcome trade because it expands
opportunity and growth. Over 230,000 small and
medium-sized enterprises (SMEs) export from the
Since
the creation of GATT in 1948, real GDP has skyrocketed. World exports have grown from $58 billion to
nearly $6 trillion. Expressed in 2000
dollars,
Fair
trade helps to lower prices and raise American living standards. Over the past
decade, NAFTA and the Uruguay Round agreements have raised the income of the
average American family of four by up to $2,000 a year. A
Trade also drives competition and innovation, both of which are key to raising productivity and greater prosperity worldwide.
Trade and security go hand in
hand. Countries that trade together have more to lose in the event of conflict;
trade becomes part of a virtuous circle reinforcing peaceful international
relations and stronger economic development.
We have seen in the not-too-distant past that, when economies close
their doors, it has a ripple effect.
Other nations adopt protectionism and everyone loses. The world experienced this in the 1930s with
the Great Depression and the ensuing conflict of World War II.
The combined effects of rapid changes in communications, transportation technology, the end of Cold War economic divisions, and the global lowering of trade barriers have made the global marketplace a reality. That translates into expanded markets for American goods and services, but also stiffer competition -- both in export markets and here at home.
However, this is no reason to withdraw from the world economically. Our business leaders understand that their future growth depends on a global market and that their access to export markets depends on a willingness to engage foreign competitors here. And they do not shrink from the task.
I
do not hear an interest in economic isolationism from the business community,
whether in the form of tariffs or quotas.
Rather, our companies and workers see international trade as a simple
question of fairness. If the
Trade
Enforcement
This Administration will continue our efforts to eliminate tariff and non-tariff barriers to our exports through negotiation with our trading partners. We will also continue to vigorously enforce existing trade rules and American trade laws. Since January 2001, Commerce has initiated and completed 152 new antidumping and countervailing duty investigations resulting in 61 new orders placed on unfairly traded imports.
We
know that we have the best workers in the world, and that we can compete with
anyone. But the competition has to be
fair. The security and prosperity of our
nation and the world depend on the rules being perceived as fair.
In order to ensure this end, this Administration is taking
new and proactive measures to strengthen the enforcement and
compliance of our trade agreements. Within
the Department of Commerce’s International Trade Administration, we have created a new Unfair Trade Practices
Task Force that will expand and strengthen our ability to advance American
commercial interests by attacking the root causes of unfair trade. This office analyzes market trends and
foreign government and business practices to identify potential unfair trade
problems at the earliest stage possible.
The Task Force is presently analyzing the 30 largest categories of
Chinese imports, including computers, footwear, office machine parts,
furniture, and radio/TV equipment.
We are also creating a new Office of Investigations and
Compliance as an enforcement unit within the Commerce Department to make sure
our trading partners abide by their agreements and to combat violators of
intellectual property rights (IPR) around the world. Many of the investigators in the unit will
have law degrees. The unit will have a
team of experts in IPR, corporate accounting, investigations, and intelligence.
In addition, we are building an Office of China Compliance
to focus on antidumping cases involving imports from
Nothing
hurts innovation like having your ideas stolen from you. We are working hard to make sure that does
not happen. The World Trade Organization
(WTO) has agreements barring the theft of intellectual property. Piracy by foreign businesses, particularly in
I believe in the strong enforcement of our
trade laws, especially intellectual property protection, and we are taking
proactive measures to combat piracy. I
have tasked Commerce agencies, such as the Patent and Trademark Office and the
new Office of Investigations and Compliance, to coordinate their efforts to
vigorously pursue allegations of IPR violations wherever they occur, especially
in
The
Administration is committed to exercising the legal remedies available under
the WTO and under
This Administration also is working with industry through the vigorous enforcement of trade laws, and through consultations with the governments involved to address the efforts of other governments to confer an unfair competitive advantage on their industry.
In one such case, after discovering that a Chinese factory counterfeited its medical products, the American company involved contacted the Commerce Department with the problem. Working with the Chinese government, this Administration ensured that the counterfeiter and distributor were arrested on criminal charges, resulting in the elimination of the counterfeiting of medical supplies valued at roughly $15 million per year. Virtually all of the businesses I meet indicate that they are prepared to compete head-on with anyone in the global marketplace; what they are not prepared to do is compete against foreign governments as well.
While
I have mentioned just a few of the steps we are taking to bolster trade
enforcement and compliance, I need to address briefly and specifically our
trade relationship with
One
of the basic reasons for negotiating for 15 years with the Chinese over their
accession to the World Trade Organization was to knock down the many barriers
to entering
While
This Administration will continue to pursue
Around the world
this Administration will continue to fight so American workers will continue to
succeed in the global economy.
Working with the World Benefits Everyone
Before I conclude,
permit me to address a topic that has been much in the news: the impact of international competition on
job creation.
In addition to trading products, American workers now
compete in a global labor market. About 2.4 billion of the
world’s 6.3 billion people are currently part of the global workforce.
About 75 percent of these workers live and work in developing countries and
about 25 percent in the industrialized world.
These are staggering numbers and when you consider that, with only 5
percent of the world’s population, the
The
New foreign investments occur regularly, although they do
not seem to attract the attention devoted to investment offshore. But foreign investments made here are
creating many times more jobs than are being offshored from the
Foreign direct investment in the
Many of those 6.4 million jobs are at risk if this country
begins to engage in the isolationism that would cause us to close down global
labor markets.
Our advanced financial, legal, and educational systems
make the
It is important to have the facts: according to the Bureau of Labor Statistics, only one percent of job losses in large layoffs are associated with overseas relocation, with another two percent due to import competition. Contrast that to the 36 percent due to seasonal layoffs. Forrester Research projects a worst-case scenario that 3.3 million jobs will be lost over the next decade. Our economy creates nearly 3 million jobs each month. As the Washington Post noted, the jobs projected to go overseas represent about one percent of the job “churning” in our labor market.
IBM, for example, recently won a contract from Nokia, the Finnish telecommunications company, worth over $5 billion. Alone, this contract equals almost one-third of the entire Indian information technology software and services industry in 2003. Put another way, the Best Buy retailing chain has more revenues than the entire Indian IT sector.
In 2003, the
There are, however, some American workers who have seen jobs outsourced or are concerned about their jobs going overseas. We all share these concerns and we are all motivated to address them. Globalism and competition are concepts, but a paycheck is a reality, and this Administration is dedicated to providing the opportunity for every American to find a job and provide for his or her family.
We will continue to strengthen the programs I described
earlier to assist individuals and communities in the adjustment to a growing
global economy. We will continue to work
to ensure that American companies can continue to successfully compete with
anyone in the world. We will enforce our
trade laws and make sure others play by the rules. We will promote education and support
innovation. And we will not shrink from
these challenges or accept defeat. The
worst thing the
To achieve sustained growth for all Americans, the
American Industry and Workers Will Meet the
Challenges and Lead the World
Americans are innovative, pragmatic problem-solvers who thrive on competition. We have the future in our hands, and we control our own destiny through the choices we make.
The President
understands that economic security and national security are inseparable. In both areas he has laid out a complementary
vision of
The
Mr. Chairman and Members of the Committee it is an honor to be with you today and I appreciate your time and attention. I would be pleased to answer any questions that you may have.