"State of American Business 2003"

Address by Tom Donohue
President & CEO, U.S. Chamber of Commerce

Washington, D.C.

January 15, 2003

Introduction

Thank you, Bob (Merry) and good morning, ladies and gentlemen. Welcome to the U.S. Chamber of Commerce.

We're very pleased to have the National Chamber Foundation once again partner with Congressional Quarterly to bring you Outlook 2003 — the State of American Business.

Over the course of the morning, we're going to hear from a broad array of experts from industry, the economy and politics. And if you really want to know what issues are going to be driving the Bush administration this year, don't miss Budget Director Mitch Daniels' speech at lunch.

This is the beginning of a very busy and exciting year for the National Chamber Foundation — as it will host conferences like this one on the travel and tourism industry, trade, health care, entitlement reform, transportation, and workforce issues.

Through these and other activities, the Foundation will continue its success in bringing important issues to the attention of business, policymakers and the public — and hopefully, spur us all to action.

Today's discussion concerns the state of our economy, the outlook for business, the issues that will shape 2003, and what we as a business community can hope to accomplish this year.

2002 — A Quick Wrap-Up

We've certainly attracted the right audience, because the people in this room will play a vital role in determining our success in meeting the challenges and opportunities discussed here today.

We need look no further than 2002 to see what a strong and united business community can do. The organizations and companies you represent, working with the Chamber...won passage of Presidential Trade Promotion Authority...a federal terrorism insurance backstop...an economic stimulus package for business...and the designation of Yucca Mountain, Nevada as a permanent nuclear waste facility.

We got a comprehensive energy bill through both Houses of Congress. We also laid the groundwork in Congress for class action, asbestos and medical malpractice liability reform.

A new Department of Homeland Security was created, and we made sure it included a special assistant to the Secretary whose job will be to ensure that in the pursuit of security we don't lose our mobility and our economic freedom.

Business also blocked onerous regulations in health care and pensions that would expose companies to increased costs and liabilities, forcing many to discontinue or limit those benefits.

The Chamber even succeeded in pursing improvements to the Sarbanes-Oxley bill. And let me tell you, considering the legislative and media feeding frenzy we were in last summer, that wasn't easy.

We had a busy and successful year in court too — suing the regulatory agencies and others. The National Chamber Litigation Center won 18 important victories that will add to the $100 billion dollars a year in savings achieved through previous court victories.

And then there's politics. The Chamber launched its most aggressive effort in history, and I know many of our business allies did as well. We targeted the closest, toughest races in the country and helped win 22 out of 27 races in the House and 8 out of 10 in the Senate. That's not a bad batting average.

In state judicial and attorney general races, the Chamber's Institute for Legal Reform supported educational efforts in 18 contests. 17 pro-legal reform judges and attorneys general were elected.

So despite all the challenges of 2002 — an up-and-down economy, corporate scandals, and the constant distraction of international turmoil and the threat of domestic terrorism — we made important progress on the policy front and in the political arena.

These successes will help us tackle even greater challenges facing us in the coming year and beyond.

THE ECONOMIC OUTLOOK

Let's start with the economy. I don't recall an economy that has been more perplexing and difficult to get a handle on.

Throughout 2002 and up to today, the economy has had two faces.

One face looks pretty good. We quickly emerged from the brief recession of 2001 and showed remarkable resilience after the devastating attacks of September 11th. The economy has been growing ever since.

We have record low interest rates, low inflation, a strong housing market, and productivity increases that continue to beat all expectations.

Consumers have hung in there despite international turmoil, economic uncertainty and the continued threat of terrorist attacks.

The other face is a little ugly.

The stock markets declined for the third year in a row. Business investment has remained relatively weak. Some of our core industries, such as the airlines, are on the ropes.

Consumer confidence, strong in the beginning of the year, has weakened in recent months.

And we have not been growing fast enough to generate new jobs for the unemployed, raising the specter of a jobless recovery.

A climate of uncertainty has dampened our economic performance. What's going to happen in Iraq and North Korea? Will there be another terrorist attack? Where are oil prices going? What are the new rules on corporate governance and accounting going to look like once they're finally written? When will the markets start recovering for real?

These uncertainties have caused many investors and companies to delay business decisions.

In the early months of 2003, both faces of this confusing economy will continue to make themselves apparent. We will see more signs of progress and more signs of distress.

But most importantly, the Chamber sees an economy that will steadily gain momentum as the year progresses.

We anticipate roughly 2-1/2 percent growth in the first half and 3 —1/2 percent growth in the second half. Overall, growth for the entire year should push 3%.

Now, that would be a respectable performance, but we can do much better—if both business and government take strong action this year to really fire up the economy and set us on a course of sustained growth for the future.

The 2003 Business Agenda

And what steps should we take? The Chamber has identified eight key challenges, which, if the business community puts serious assets and effort behind, will significantly improve our economy and restore our nation to full prosperity.

Our 2003 agenda is built on the simple but irrefutable premise that economic growth, more than any other factor, will shape the future of our country.

Americans must be constantly reminded that it is economic growth generated in the private sector that pays all the bills in our society.

Only by creating enough growth can we possibly meet our national security and homeland defense needs, help care for an aging population, or provide good schools and good jobs for our children.

And for those who worry about rising budget deficits —and I do—let me say that spending discipline is critical. But at the end of the day, it is economic growth that will rescue the states and balance the federal budget.

So with growth as our imperative, let me briefly outline the eight challenges that will drive our work on behalf of American business in the coming year and beyond.

One: Pass a Jobs and Growth Package

First, we can make a great beginning by working to pass a jobs and growth package as daring in scope as the president has proposed.

President Bush's package would provide immediate short-term relief by putting more money in the hands of consumers. Equally important, it will spur new investment and set us on a course of fundamental tax reform.

The engine of prosperity is the small business sector. By accelerating income tax rates cuts —which is how millions of small companies pay their taxes—and by increasing expensing, we can help get that engine firing on all cylinders.

And we enthusiastically support eliminating the double taxation on dividends. This is a fundamental issue of tax fairness for Americans, including millions of senior citizens — who have taken the risks and exercised personal responsibility by investing for their families and their retirements.

The Chamber plans to put a tremendous effort behind the President's package — just as we will also work to make the Bush tax cuts of 2001 permanent — especially the repeal of the death tax.

Two: Enact an Energy Bill

Second, we need to secure America's energy future. Recent global events have underscored the dangers of being too dependent on foreign sources of energy.

Our country must have a national energy policy that boosts domestic production, modernizes our power grid, and encourages both conservation and the development of new energy technologies.

We came close to achieving this goal in the last Congress until the politics of the election got in the way.

Three: Achieve Significant Legal Reform

Third, would it surprise you to hear me say that a top Chamber priority in 2003 will be legal reform?

The Chamber and our Institute for Legal Reform will push for legislative solutions to abusive class actions, asbestos litigation and medical liability.

We will continue to defend Securities Litigation Reform from legislative and trial lawyer attack. The Institute will continue its successful voter education program in state judicial and attorney general races with a vigorous program in the 2003 election cycle.

And remember what happened last year in Mississippi? The Chamber took the unprecedented step of singling out its unfair legal system as a major impediment to business and job creation in the state. Lawmakers and the governor responded to a lot of pressure in a positive way with significant legal reforms. You will soon see us shift the spotlight to other states where there is an urgent need for reform.

Four: Improve Transportation and Technology

The fourth challenge is to improve and expand the nation's infrastructure — particularly in transportation and technology. There will be a major campaign through the Americans for Transportation Mobility coalition to renew the core funding programs — TEA-21 and AIR —21. The infrastructure is continually challenged by greater use and demand, but spending has not kept up.

And in technology, we'll seek a national broadband policy that encourages investment and deployment of high-speed Internet products and services. We must not squander our global leadership in technology by falling behind in this critical area.

Five: Solve the Health Care Crisis

Fifth, there must also be strong action this year to address the health care crisis. Premiums for employers are skyrocketing at a double digit pace. An additional 1.4 million Americans lost coverage in 2001. We have a medical liability crisis in at least a dozen states.

Employers provide health coverage for 176 million Americans. Business therefore has a huge stake in addressing these problems. There should be tax deductions for individuals who pay their own premiums, tax credits for low and moderate-income Americans, and provisions to allow and encourage associations to extend health coverage to individuals and small businesses.

We'll continue to fight efforts to pile new mandates and more liability onto health plans and the companies that provide them. And we are going to seek a federal solution to the growing medical liability crisis.

Six: Expand the Workforce and Reform Entitlements

The sixth challenge is to expand the pool of available workers. Now, some of you may be thinking, "What in the world is Donohue talking about? We've got 6 percent unemployment — why do we need more workers?

In fact this economy faces a shortage of workers at all skill levels that will grow more severe in the coming years. That's because birth rates have declined with relatively fewer people entering the workforce.

We need flexible workplace rules, so that parents with young children, Americans with disabilities, and senior citizens can enter the workforce or stay there longer.

And yes we need more immigration — lawful immigration by law-abiding people who want to better their lives and make a contribution to our society. A pathway to legalization for undocumented workers should be created, along with new and revamped special visa programs to bring in the workers we need.

There's another reason we need more workers. We need them because we need more taxpayers to support the coming avalanche of retirees entering the Social Security and Medicare systems. Without major reforms, these entitlement programs are headed for a demographic train wreck.

It's nice that politicians can talk about providing a prescription drug benefit for seniors. We happen to think that makes sense. But we will insist that any such benefit be accompanied by serious Medicare reforms to put the program on a sounder financial footing.

Business should also continue to champion the need for Social Security reform, including a private investment component, as well as measures that encourage private pension and savings plans.

Seven: Expand International Trade and Support Globalization

Seventh, we must expand international trade and support globalization.

The Chamber will push for approval of agreements with Chile and Singapore, while urging the administration to aggressively use its renewed trade promotion authority to strike additional deals with other important trading partners.

It is critically important that we stay on track to achieve a Free Trade Agreement in Central America, followed by a Free Trade Area of the Americas agreement by 2005. And, the United States must take the lead in the Doha Round of WTO talks to ensure its success.

Now think about this: Did you know that there were more long distance calls made in a single day in 2001 than there were in all of 1984?

Globalization — which to me is really about the speed at which goods, people, capital and ideas cross our country and circle the globe — has fundamentally changed our lives — and yes, it has significantly improved the condition of mankind.

Three decades ago, 35% of people in developing countries were starving, and just 30% had access to clean drinking water.

Since then, the percentage of starving people has been cut in half, and more than 80% now have access to clean drinking water.

Despite these and other signs of progress, there is a lot of opposition to globalization because people are afraid...afraid of losing control, influence, power, markets, sovereignty, jobs, and capital.

These are understandable concerns that must be confronted by better communicating the benefits of globalization — and by equipping developing economies with the tools and capacity to fully participate in the global economy.

The question remains: Will U.S. business and our government lead by promoting increased trade and foreign investment and all the benefits they bring? Or will we allow the opposition to define globalization and us?

It's a challenge that will be with us for some time.

Eight: Fighting Terrorism and Balancing Security and Mobility

Finally, we must learn to accept new realities associated with the war on terrorism while striking the right balance between security and mobility.

The war on terror is unlike any we've ever fought, and it's here to stay. We're dealing with a foe that wants to cripple the spirit of America and therefore cripple our economy.

The business community and government must work together to ensure that the country doesn't surrender to the fear of terrorism.

The decision by Americans to cancel travel, delay purchases and pull investments, while the government sealed our borders and shut down aviation after 9/11, was understandable at the time.

But we cannot allow that kind of self-imposed paralysis to define our response in the future.

Business should continue to fully participate in the war on terror, supporting increases in military manpower and necessary call-ups of the Reserves and the National Guard.

At the same time, we understand that the law creating a new Department of Homeland Security was just the beginning of a process, not an end.

The Chamber will launch a major effort this year to ensure that in its policies, initiatives and personnel, the new department acts to protect the economic security of Americans along with their physical security.

Our return to prosperity depends on the free flow of lawful commerce, transportation and immigration. Mobility and security must go hand-in-hand. Sacrifice one for the other and we'll pay a horrific price.

Conclusion

Those of you who follow the Chamber's work on a regular basis know that in addition to the topics I've highlighted, we are regularly engaged in dozens of regulatory, tax, international and legal issues on behalf of our members.

For example, we'll be working very hard to clarify and improve all the new governance and accounting rules that will come out of the SEC, the markets and the implementation of Sarbanes-Oxley. Just last week, we submitted 14 pages of detailed recommendations to the SEC based on input from our members.

In fact some of our most important work this year will occur not before Congress but in the regulatory agencies, in courts of law, and increasingly, in international seats of power, where we petition foreign leaders to open their markets to American companies and treat them fairly.

How much of this agenda can business accomplish this year? Our success in the November elections and the makeup of the new Congress may help us get a fair hearing for our proposals, but it brings us no guarantees.

This is still a narrowly divided Congress with a broad philosophical spectrum. Victories will have to be won the old-fashioned way — by building coalitions of votes from both sides of the aisle on an issue-by-issue basis.

But those of us here today have a pretty good track record doing that, and I believe we stand a good chance of success this year.

Some might suggest that with all the uncertainties and preoccupying issues we face, that this is not a good time for an ambitious reform agenda.

I disagree. There has never been a more compelling time. The agenda must be bold because the challenges we face are so great.

The principal message we have to carry is simple. It's time to get this economy moving again in a big way — and a great opportunity is at hand to do just that.

Reform taxes and regulations. Change the legal system. Improve the infrastructure. Open new international markets. Address the health care crisis, expand the workforce and face up to the need for entitlement reform. Fight and win the war on terror by protecting both security and mobility. That's what the Chamber is committed to doing.

We won't get it all done. These are long-term challenges facing our society. But if government, working with business and the public, takes some serious steps to meet these challenges in 2003, we'll have a great year.

But, as a final note, let me add that no amount of policy or legislative success can restore prosperity without decisions by business leaders to take risks, invest capital, and hire new people.

My message to companies is that if you wait too long, someone's going to eat your lunch. We live in an era of uncertainty, which will most likely define the business climate and our way of life for years to come. "Waiting until..." is not a prescription for success. Acting now is.

Fundamentally, we need business leaders who are prepared to start taking risks again—and I am confident we have such leaders in the American business community.

We are a nation of risk-takers...of doers. Our ancestors risked everything coming to this country, and they worked hard and made great sacrifices to build it and defend it. Now history calls on us to do the same. We must rise to the occasion and I'm confident that we will.

Thank you very much.