Computer Associates Global Forum - Address by Thomas J. Donohue

Remarks by Thomas J. Donohue
President & CEO, U.S. Chamber of Commerce

Washington, D.C.
March 3, 2004

Introduction

Thank you, Sanjay, for that warm introduction. We're grateful for your strong support of the U.S. Chamber of Commerce.

Computer Associates' commitment to the Chamber makes an important statement. It says that the Chamber—for all of its tradition and longevity—is not an "old economy" institution.

Rather, we are tackling the issues most important to the technology sector because we recognize that knowledge-based industries are the future of this country.

The question is: How do we best create an environment in which technology and software companies can grow and thrive? How can America retain its position as the world's leader in technology and innovation?

Many of the answers to those questions will depend on what happens in the public policy arena.

Many of the challenges and obstacles that must be overcome for your industry—and the American economy—to succeed will be decided in Congress and the regulatory agencies.

How can you be expected to succeed when our government over-regulates…when our companies are being targeted by class action trial lawyers…when our critical infrastructure is badly in need of investment…when good companies are punished along with the bad through sweeping and counterproductive corporate governance reforms…and when our products are being stolen, copied, and distributed illegally around the world.

The Chamber is working hard on a public policy agenda that will give our technology companies the level playing field they need to compete and win in the global economy, and tonight I'd like to share with you some of the key components of that plan.

But first, let me set the stage by talking a little bit about jobs and the economy, because they are framing the national policy debate and will continue to do so through the November elections.

ECONOMY/OUTSOURCING

If you get your news from the presidential campaign trail, you probably wouldn't know that the U.S. economy is doing quite well.

Interest and inflation rates remain low, consumer spending is strong, business investment is on the rise, and the stock market continues to make gains—the NASDAQ composite index improved by some 50% last year!

The job picture is also improving. The unemployment rate is declining—down seven-tenths of a percentage point since last summer—disposable income is rising, and the private sector created 420,000 new jobs over a five-month period ending in January.

But all of that has gone largely unnoticed by opponents of business, the administration, and globalization, who claim that "Benedict Arnold" CEOs are moving U.S. jobs overseas to take advantage of cheap labor.

The Chamber has not shied away from the sensitive issue of outsourcing. In fact, we're playing a prominent role in the media and in Congress by defending corporations whose commitment to their workers has been unfairly criticized.

We're debunking the myths surrounding this issue and setting the record straight.

The first step is putting things into perspective. Why such intense concern and debate at this particular time? Three reasons.

First, because the economic recovery now clearly underway has not yet generated significant numbers of jobs—although, as I mentioned, we are adding new jobs.

Despite relatively low unemployment compared to other economic downturns, today's jobless recovery has created concerns that there are systematic problems in the American economy unrelated to the ups and downs of the business cycle.

Second, outsourcing today seems different from outsourcing in the past—it's more global in nature and extends beyond manufacturing to the service sector.

Third, we are in a period of presidential politics and intense, bitter partisanship in which President Bush's opponents believe that they must talk down our improving economic performance and create fears about the future.

Big corporations and foreign countries make convenient targets in this environment.

So what are the facts? Is outsourcing to blame for lost manufacturing jobs? The answer is no. You want to know where the manufacturing jobs have gone? Not to China, and not India. But rather, they've been lost to a country called "productivity."

Here's an interesting statistic: 25 years ago it took GM about 500,000 workers to make 5 million cars and trucks. Today it takes fewer than 150,000 workers to make that same number of vehicles.

Is there a mass exodus of white-collar service jobs—such as computer programmers, software engineers, systems analysts, support specialists, and network administrators—from the United States to low wage economies such as China and India?

The short answer is no. An analysis by Gartner Inc. has determined that exported business services today account for less than one-twentieth of 1% of GDP. And most of the outsourced service jobs are low-skilled, low-paying jobs.

The gloomiest forecast predicts that offshoring will shift 3.3 million service sector jobs overseas over the next 15 years—in a workforce of about 140 million.

This worst-case scenario—for 2% of our workforce—represents a personal upheaval that shouldn't be discounted, but it is not a crisis in a $10 trillion economy.

Before we condemn the worldwide movement of jobs and capital, let's remember that we "insource" more than we outsource.

Foreign-owned multinational companies directly provide more than 6 million U.S. jobs—and as many as 20 million indirectly.

Take a company like Toyota, which employs some 30,000 workers here but accounts for nearly a half million jobs if you count all the dealers, distributors, and suppliers who get business from Toyota.

Plus, as companies improve efficiency and productivity by outsourcing some jobs here in the United States and others overseas, it means lower prices for U.S. consumers and higher dividends for investors.

With lower costs, firms will invest more in their core business, develop new and better products, and create more jobs here at home.

We've got our work cut out for us on this issue, and the business community has got to form a unified front to fight our critics.

The Chamber is leading the Coalition for Economic Growth and American jobs to fight federal legislation that would restrict foreign outsourcing by government contractors and limit visas for non-American workers with technology skills.

Some of the most contentious battles concerning outsourcing are occurring on the state level. About 80 anti-international outsourcing bills have been introduced in about 30 states.

Because of the Coalition's work, several of those have been voted down, and none to date have passed.

In an election year, outsourcing will continue to be a hot button issue. To meet this challenge, the Coalition is putting together a public education campaign and will examine the possibility of a media advertising campaign in the future.

Our message is simple: Our leadership in technology and other cutting edge industries is severely threatened if our businesses are shut off from the global economy. Foreign companies will do it better and cheaper than us if U.S. firms are not able to source around the world.

Immigration

The great irony about the outsourcing debate is that while people argue that there are too many workers chasing jobs right now, the fact is that in 10 years the United States will be short 10 million workers.

That's because 77 million baby boomers will begin to retire in a few short years, and we don't have enough workers to replace them and to sustain the "pay as you go" Social Security and Medicare programs.

You see, America has broken a sacred covenant. That covenant said, statistically, that we would work, retire, go on a cruise, and die.

The covenant has been broken because these days people work, retire, go on a cruise, play some golf, and then go on another cruise.

When the government designed Medicare and Social Security decades ago, people barely lived to the traditional retirement age of 65.

That was a pretty good deal for the government—we would pay into the system for all of our working lives and not stick around long enough to enjoy the full benefits.

Today, life expectancy is at an all time high – 77 years – and the birthrate is at its lowest level in nearly 100 years.

So we face a major challenge in finding workers to keep our economy going and to fund government programs upon which seniors have come to depend.

We won't be able to meet this challenge without comprehensive immigration reform.

President Bush, to his credit, has renewed the sensitive debate over immigration. It's sensitive because many Americans seem to be of two minds when it comes to immigrants.

They applaud the role of immigrants in the development of our country and celebrate their own family heritage and ethnicity.

But they don't necessarily want to see additional immigrants following in their footsteps.

Add to this legitimate concerns about security in the wake of 9-11, unease about jobs and the economy, and the justifiable belief that illegal entrants shouldn't be easily rewarded with benefits and citizenship—and you have the makings of an emotional and politically charged debate.

The administration recently unveiled a new immigration package that, while vague on many details, represents a significant step forward.

Also, Congress has introduced several proposals containing ideas that would make the president's proposal even more effective.

Predictably, political anger over this issue has erupted around the country, including, but not limited to, the president's strongest supporters from the right.

The Chamber's view is simple. Without reasonable increases in immigration, expanded visa and guest worker programs, and a plan to deal realistically and fairly with the millions of undocumented workers already supporting our economy, our country will not have enough workers or taxpayers to produce sufficient economic growth to handle the coming avalanche of retirees.

While there may not be a legislative solution in 2004, the Chamber will seize and create every opportunity to advance immigration reform and, in the process, remind Americans where they once came from and who built this country.

Legal Reform

Let me move now to a few other issues that are critical to the technology and software sectors and to a competitive U.S. economy.

The first is legal reform. I have nothing against lawyers—my son's one—but there are 200 to 300 class action trial lawyers who are sucking the vitality out of business.

They siphon away money that could be used to research and develop new products, to expand businesses, even to create new jobs.

Their frivolous suits drive up the prices of goods and services, depress stock prices, bankrupt business owners, and create an atmosphere of fear that prevents businesses from takings the risks necessary for economic growth.

These class action trial lawyers take their cases to litigation-friendly courts in small counties before impressionable juries and line their pockets with million dollar awards, often leaving class members—the people whose interests they claim to represent—with nothing more than coupons.

We are bringing to bear the full resources of the Chamber to stop these villains in their tracks.

Through our Institute for Legal Reform, the Chamber is engaged in hand-to-hand combat with class action trial lawyers on the local, state, and federal levels, from Madison County, Illinois—one of the strongest magnets of frivolous suits—to Congress, which is closing in on passage of class action legal reform.

In addition to forging legislative change in Washington and in statehouses across the country, we will continue to reach out to individual voters by educating them on the legal reform records of state judges and attorneys general.

We've also launched an anti-Global Shopping Forum initiative to fight foreign plaintiffs and trial lawyers from bringing their cases to the United States to take advantage of our extensive pre-trial discovery rules, our penchant for punitive damages, and frequently outlandish awards.

Corporate Governance

We also continue to fight for commonsense and cost-effective government regulations in the area of corporate governance and accounting reform.

In the year-and-a-half since the Sarbanes-Oxley bill became law, we've seen some good come out of new regulations.

We've also seen changes produce some serious unintended consequences.

Executives are spending more time filling out paperwork than running the company. Talented people are turning down board roles, and CEOs are finding it harder to get good advice from their lawyers and accountants.

Companies with the most innovative business models are finding it harder to attract qualified directors. And auditors are staying away because they can't get insurance to protect them from mounting liability.

The SEC, state attorneys general, and secretaries of state are engaged in a competitive game of "gotcha," instead of helping corporate executives understand and comply with the new rules.

And the class action trial bar is following on their heels with a new mountain of lawsuits.

We have to be for strong enforcement of existing laws without creating enforcement competition in which the simple launch of an investigation deflates market capitalization, destroying good companies along with the bad.

We must avoid creating a business environment in which CEOs are reluctant to take risks, take companies public, or acquire other companies—all of the things that characterize our free enterprise system, grow our economy, and create jobs.

The Chamber is working with the regulatory communities to ensure that future reforms and those presently in the pipeline don't further harm our free enterprise system.

We have already achieved some successes in ironing out potential contradictions in the rules which would have forced foreign-owned companies trading on our markets to break their home-country laws in order obey our new laws.

We are now working to counter the SEC's proposed proxy rule change that would allow large shareholders and shareholder groups to nominate rival candidates for board seats.

Though the intent is to "democratize" corporate governance, the result could be the election of directors driven by hidden agendas or lacking the right skills, and it could also create rival factions that would prevent the board from doing its job in a smooth and efficient manner.

We have submitted extensive comments to the SEC on this and other rulemakings, and I've been invited to give testimony before the SEC next week.

Technology Infrastructure

Expanding the nation's technology infrastructure is another key component to U.S. competitiveness.

Technology is the driving force behind innovation and productivity, yet federal regulators are stifling technological advances by managing competition in the marketplace.

For example, current disparities and costs in the regulatory system and the uncertainty they create are major reasons why the investment world has been cold on the telecommunications sector—and why that sector has lost more than 600,000 jobs in the past three years.

In addition, the country lacks a comprehensive approach to introducing broadband, which would provide benefits to nearly all sectors of the economy and allow us to remain globally competitive.

Even though countries such as South Korea are way ahead of us, Congress continues to stall in producing legislation that would enable rapid deployment of broadband technologies.

The Chamber recently joined with the Bill and Melinda Gates Foundation to encourage public-private efforts to provide free computers and Internet access at public libraries.

We'll continue to work through government and non-government channels to get technology into more homes and businesses – our global leadership depends on it.

Counterfeitting / IP Theft

Finally, let me share with you an exciting new Chamber-led initiative that we feel is absolutely essential to the success of U.S. business in the global economy—combating counterfeiting and intellectual property theft.

An increasing number of counterfeit products—especially software—are finding their way into legitimate retail outlets in the United States.

Some estimate that counterfeit products of all kinds cost U.S. companies alone $500 billion in annual revenue and 750,000 jobs.

In 1998, the U.S. software industry lost more than $2.9 billion in the United States and $11 billion worldwide—the figure is much larger today.

And it's about much more than just lost jobs and revenues. IP theft and counterfeiting have consequences for consumer safety and even our national security, as terrorist organizations have turned to these illegal activities to fund their operations.

With the support and expertise of the global business community, other trade associations, our friends in Congress, the Department of Justice, and the U.S. Patent & Trademark Office, we are now in the process of effecting change on this crucial issue.

Last month, more than 90 senior business executives and a host of government leaders gathered to discuss the Chamber's strategy and provide feedback on our three strategic goals:

• First, educate lawmakers, the media, and business leaders on the growing economic threat of IP theft and counterfeiting
• Second, protect our domestic supply chain from the proliferation of illegitimate goods, and
• Third, extend our efforts internationally in countries like China, Korea, India, and Brazil.

The forum at the Chamber made clear that the business community needs to unite on this issue, share information, and work together.

IP theft and counterfeiting is a serious economic threat that stifles innovation, destroys brand reputations, and undermines the millions of dollars companies spend on research and development.

Over the next few months, we will be building and expanding a coalition to advance our agenda.

It's going to take teamwork to make the case for greater enforcement and educational efforts, secure our domestic supply chain from fakes, and influence our international trade partners to address these critical issues.

We're leaning heavily on China. Last October, I met face to face with Chinese leaders and told them that we expect them to fulfill their World Trade Organization (WTO) commitments to bar the theft of intellectual property created and owned by U.S. artists, researchers, and companies.

Enforcement of IP theft cannot be considered effective until civil and criminal penalties are routinely applied to infringers of IP theft.

While China's government at the central and provincial levels carries out raids and other enforcement actions, there is limited coordination of these efforts and no commitment to pursue criminal prosecutions with deterrent penalties.

The Chamber is also working to see that our trade deals—like the successfully negotiated Singapore and Chile free trade agreements—contain strong provisions for IP protection and enforcement.

Conclusion

In closing, let me just say that Computer Associates—and all of you, as its current and future leaders—is on the front lines of a U.S. economy in transition.

Your innovations and inventions will create the jobs of tomorrow and make our companies more competitive, efficient, and productive.

You should consider the U.S. Chamber as your partner as you position this company for continued success.

We are working for you to take back our legal system from greedy class action trial lawyers, reduce the excessive regulatory burden, fight for greater investment in technology infrastructure, crack down on thieves who rip off your products and ideas, and protect your ability to compete fairly and equally in the global arena.

Thank you very much.