Building a More Competitive America - Remarks by Thomas J. Donohue

Albuquerque, New Mexico
March 23, 2006

** As Prepared for Delivery**

Thank you very much. It's great to be with good friends from New Mexico. The U.S. Chamber looks to Terri and Cindy's leadership and to members of the Albuquerque Chamber for grassroots support, and that support is paying dividends in Washington.

2005 was a highly successful year for the business community from a public policy standpoint. Class action reform, bankruptcy reform, a comprehensive energy bill, a major free trade deal with Central America, and a long-term highway spending bill were all signed into law – and it wouldn't have happened without a strong and united Chamber Federation working together.

Economically speaking, times are good. Corporate profits are up, we're generating lots of new jobs, workers are earning more per hour in real terms than they did at the height of the 1990s expansion, and household wealth is at an all-time high.

The unemployment rate is lower than the averages of the last three decades, nearly 70% of Americans own homes, and interest rates and inflation, though edging up recently, remain low by historical standards.

However, one of the greatest mistakes we could make right now would be to become complacent…to rest on our laurels and pat ourselves on the back for a job well done.

That's because our global competitors are growing stronger, and there is evidence to suggest that we could be losing our edge.

For example, China and India graduate many times the number of engineering students that we do.

Of 120 large chemical plants under construction globally, one is in the United States and 50 are in China.

The United States is far off the global lead in broadband penetration though we're number one in the world in tort costs.

China, India, and a host of smaller emerging nations are opening their economies, embracing free markets, encouraging entrepreneurs, building critical infrastructures, competing for energy and natural resources, challenging us in third country markets, and developing and educating their workforce.

In other words, they're doing all of the things that we've encouraged them to do for the past fifty years.

Yet we haven't been following our own advice. We need to adjust to the changing competitive environment across the world as well as a changing society here at home, a society that is growing older and running short of workers at all skill levels.

We need to create a more flexible, more open, and less bureaucratic economy.

We can no longer take our status as the world's strongest economy for granted.

We must constantly work to improve, modernize, compete, and move up the ladder of innovation.

And at the most basic level, we need to address the impediments and high costs that have simply made it too expensive to do business and create and keep jobs in the United States.

I'd like to talk about six major issues that need to be addressed in order to secure our economic future.

Legal Reform

The first is an environment of excessive litigation that drains $260 billion – the equivalent of 2% of GDP - out of our economy annually. By comparison, tort costs in Canada, Japan, France and the United Kingdom each equate to less than 1% of GDP.

Lawsuits cost American business $129 billion a year, and 77% of that total—an incredible $88 billion—is the cost to companies with $10 million or less in revenue.

For small businesses with $1 million or less in revenue, the cost is $35 billion.

There also are great opportunity costs associated with lawsuit abuse. Some contractors, volunteers, and emergency relief personnel decided not to get involved in Gulf Coast relief and rescue operations out of fear of liability.

Breakthrough and life-enhancing pharmaceuticals and vaccines never make it to market because drug companies don't want to get sued if someone has a bad reaction.

We don't want to deny justice to people who have been truly harmed. But we also don't want trial lawyers flooding our courts with bogus lawsuits and exploiting plaintiffs for personal gain.

We need to change the legal landscape in this nation, and business needs to lead the way.

Eight years ago, business wasn't even putting up a fight against the trial bar. In 1998, the Chamber started the Institute for Legal Reform, and business got serious about restoring balance and fairness to our legal system. Let me share with you some of our recent successes as well as our priorities.

ILR last year successfully worked to pass the Class Action Fairness Act, landmark legislation that moves some cases from state courts to more predictable and impartial federal courts. We also played a key role in winning meaningful legal reform victories in half a dozen key states.

We're educating voters about their choices for state Supreme Court and Attorney General because these elected officials wield significant influence over the legal system.

In the 2004 elections, ILR participated in voter education efforts in 16 important races across the country, and the pro-legal reform candidate won in 15 of them.

In a few races last fall, we had mixed results, which means we need to turn up the heat this year.

We're spearheading a campaign to rein in the growing number of securities class action suits.

And we're engaged in an effort to stop state attorneys general who are circumventing legislatures and regulatory agencies and sometimes acting like the fourth branch of government—single-handedly redefining industry practices; trying cases in the media; and threatening criminal prosecution to force settlements.

ILR has a comprehensive strategy to head off a new effort by trial lawyers to import foreign disputes to U.S. courts, where they can take advantage of our more permissive judicial system.

And finally, we're successfully challenging the validity of abusive lawsuits in court.
The Chamber's own law firm, the National Chamber Litigation Center, is considered the leading organization in challenging punitive damages and class action litigation and is building a formidable reputation in securities litigation issues.

Though we can point to many successes, we know that the trial bar is a persistent adversary, and so we must remain vigilant on legal reform.
Capital Markets
As a nation, we must also explore ways to make our capital markets and corporate governance system work for everyone involved – investors, management, directors, and regulators.

After Enron, some regulatory changes were certainly necessary for improving market transparency and investor confidence, and the Chamber supported them.

But all in all, the knee-jerk regulatory reaction to corporate misconduct has had an unintended negative effect on our economy.

In this new regulatory environment, companies are having difficulty attracting and retaining good board members and executives, especially CFOs.

Few candidates for these jobs are willing to take the chance of going to jail for making a simple accounting mistake.

Visionary business leaders have become number crunchers and spreadsheet analyzers. They are avoiding risks and playing it safe.

And why wouldn't they, with some prosecutors and attorneys general bent on criminalizing honest mistakes and legitimate accounting differences?

Like with legal reform, the Chamber is leading the challenge against overregulation because no individual company can.

We're fighting to preserve the basic right of due process so that businesses don't feel forced to negotiate a settlement when no wrongdoing has been committed.

This effort includes challenging the Department of Justice and the SEC to cease their demands for waivers of the attorney-client privilege—the legal doctrine that protects communications between attorneys and their clients.

We are suing the SEC – and winning – over some of its new rules, and we're challenging special interest groups—such as trial lawyers, labor unions, public pension funds and rating agencies—that are exploiting concerns about corporate governance to win concessions and advance their interests.

And finally, the Chamber has named an independent, high level bipartisan commission to consider the question of how to best regulate our markets in the 21st century.

The recommendations put forth by our Commission will be meant to ensure that the capital markets remain healthy and vibrant, and not the victim of overregulation.

Throughout this process, we will continue to remind lawmakers, regulators, and law enforcement types that capital can and will go where it is welcome, where it is safe, and where it stands a reasonable chance to earn a return on investment.

It can move out of New Mexico - and out of the United States – in a flash. And with it goes innovation and creation.

Health Care

A third competitiveness issue is the cost and accessibility of health care. Some of the best health care in the world is delivered in the United States, but the cost of providing it is hurting companies and putting coverage out of reach for a growing number of Americans.

General Motors spends more than $1,500 on employee health care for every vehicle it produces, while Toyota, which has low retiree costs for its U.S. operations, spends about $200 on employee health care per vehicle.

U.S. companies big and small provide health care coverage to 136 million Americans – not by law, but rather, voluntarily.

At the rate of health care inflation, how can American companies continue to do this and effectively compete with European and Canadian companies who aren't saddled with these same costs?

If your answer is a "single-payer" system, just remember who that single payer would be – the American taxpayer.

And think about what the necessary tax increases would do to our economy and what a government-run system would do to healthcare quality.

A combination of several market-driven initiatives can slow the rate of cost increases while improving healthcare quality.

We should:

Expand alternative health insurance products and vehicles for purchasing coverage…things such as health savings accounts, which give consumers greater control over their health care dollars, and small business health plans, which would allow small businesses to band together to purchase coverage.

Reduce medical liability, a significant cost driver; and,

Improve patient safety and the measurement of quality, efficiency, and outcomes through greater use of information technology.

As major purchasers of health care, businesses must put more thought into these issues and have a seat at the table as decisions about our healthcare system are made.

Energy/Environment

Let me move to the fourth issue – the lack of plentiful and affordable supplies of energy.

Twenty years from now, the United States will require a third more energy than we use today – even with continued improvements in efficiency.

Where are we going to get that energy? Are we going to continue to rely on such unstable exporters in the Middle East, Venezuela, Africa, and Russia?

That would be a big mistake. We must secure our economic future by developing greater energy supplies in our own country.

The energy plan that was signed into law last year is an important step.

It calls for increased domestic production of traditional energy sources and also contains 60 provisions targeted specifically at alternative and emerging energy technologies – wind, biomass, ethanol, hydrogen fuel cells, and hybrid technology, to name a few.

But we need additional legislation to increase refinery capacity, open up more federal land to energy exploration, and increase incentives to expand nuclear power plants – which by the way, do not emit the greenhouse gases believed to cause global warming.

When it comes to energy, we are a nation of contradictions. We demand cheap energy, but we forbid efforts to produce it.
If businesses can't get affordable energy in the United States, they will go wherever the can find it.

Globalization/Trade

The fifth of my six issues is a movement by some in this country to disengage the United States from the global economy. A move in that direction would have major economic consequences.

When you combine all forms of trade, we are the world's largest exporter, and its largest importer. Trade and returns on foreign investment account for a third of our economy.

It's vital that American show leadership on global trade by demonstrating openness and an eagerness to both export and import goods, services, and investment.

But in too many instances we're showing the wrong kind of leadership, as evidenced by the recent situation involving the Dubai port company, DP World.

Politics – rather than legitimate concerns about security – is what killed the deal. Some members of Congress saw it as an irresistible opportunity to appear tough on security issues whiling attacking the president.

But here are the facts: Our government agencies have and will always be in charge of port security.

Also, the United Arab Emirates, of which Dubai is a part, has been a strong ally in the war on terror, and DP World helps move U.S. military personnel and material in the Middle East.

The rejection of that transaction sends a message to Middle Eastern countries and to the rest of the world that our commitment to free trade and foreign investment softens under certain political circumstances.

It's a critical time for global trade and investment as leaders from the148 nations belonging to the World Trade Organization meet to negotiate further cuts in global tariffs and other trade barriers.

Will America lead, or will we send a mixed message of "we want trade, but only on our terms and when it's politically feasible?"

Their can only be one answer.

Education/Workforce/Immigration

Finally, ladies and gentlemen, we must tackle the enormous challenges surrounding the availability of qualified workers – now and in the future.

This is a two-part problem.

First, we simply won't have enough bodies to fill the jobs the economy is creating. 77 million baby boomers are nearing retirement age, and we do not have enough younger workers to replace them.

Part two of our workforce challenge is that many of our young people coming out of high school today are not prepared for college or the workforce – and those are just the graduates!

Nearly one-third of U.S. high school students fail to graduate in four years, and the percentage is higher in minority and inner city school districts.

Business can no longer sit on the sidelines and watch our students – tomorrow's workers - underperform.

The Chamber is tackling these issues on several fronts.

First, there is our Center for Workforce Preparation, which, working with local chambers, helps generate and disseminate the very best education and worker training programs and strategies.

Also, the Chamber, for the first time in its history, is taking steps to spur education reform on the state and local levels.

This year, we will work to facilitate positive change by ranking the educational systems in all 50 states.

We hope that by shining a spotlight on jurisdictions that are underperforming – and recognizing those that are doing well – we can contribute to educational reform.

Another important piece of the puzzle for workforce development is comprehensive immigration reform – an issue that I know the people of New Mexico have strong opinions about.

I understand the strains that immigration can have on a community's health care, education, and other community resources.

But I also know what would happen to our economy if we kept immigrants out and rounded up and deported the estimated 7 million undocumented workers who get up each day and go to work and pay taxes.

We need a new immigration policy that enforces our immigration and border security laws but that also gives immigrants an opportunity to come here and fill jobs that Americans don't want or won't take.

And that policy must give undocumented workers already here an opportunity to earn legal status if they pay their dues and follow the rules.

Our challenge is to achieve a balance between our security and our economic needs. This debate is heating up in Congress, and the Chamber is right in the middle of it.

Conclusion

Ladies and gentlemen, business is in a pretty good place at the moment. The short-term economic outlook calls for solid growth and job creation.

But we cannot make the mistake of becoming comfortable. We must continue to make our economy more productive because there are new global players out there who are working hard to catch up to us.

We have to reduce frivolous lawsuits …keep our capital markets accessible and competitive… increase access to health care …take care of our energy needs… engage the global economy… and develop a workforce with the numbers, skills, and education to compete in a global, high-tech economy.

The U.S. Chamber looks forward to your continued support of these goals. Thank you very much.