Innovation and Free Enterprise, Remarks by Thomas J. Donohue President and CEO, U.S. Chamber of Commerce
How States Are Leading the Recovery
U.S. Chamber’s 2011 Governors Summit
June 20, 2011
Thank you very much, Margaret, and good morning everyone.
I’d like to begin by expressing my appreciation for our two co-chairs, Governor Hickenlooper of Colorado and Governor McDonnell of Virginia. We could not have chosen two more innovative and effective governors in the nation today.
In Colorado, Governor Hickenlooper is aggressively cutting red tape, fostering private sector development, leading the way on green energy, and working hand-in-hand with cities and localities to build a better business environment in his state.
Governor McDonnell has done the seemingly impossible, turning a $2 billion deficit into a $400 million surplus in a very difficult economic environment.
At the same time, he has nurtured his state’s high-tech industry and established a state bank to leverage private capital for infrastructure projects—definitely something we should be doing at the federal level, where $190 billion of private capital is sitting on the sidelines.
Our two co-chairs today are also strong supporters of trade. Another of our guests, Governor Branstad, co-authored a letter with Governor Gregoire of Washington State last month urging the president and Congress to pass the pending trade agreements with Korea, Colombia, and Panama, along with Trade Adjustment Assistance.
Another 25 governors signed on to that letter, including our co-chairs today. Thanks in part to that support, I’m bullish the Congress will approve these agreements this summer.
So our co-chairs are bringing innovation, accountability, and economic growth to their states and to our country. We appreciate their leadership.
I’d also like to join Margaret in thanking all the governors, state chambers, and business people for attending this event. Together, they represent the three most important groups to our economic recovery and long-term growth.
The importance of the private sector is self-evident—it’s the only thing that can create the 20 million jobs we need in the next decade to make up for those lost in the recession and to accommodate a growing population. Companies are creating the products, innovations, and services people at home and abroad want to buy, and that’s fundamentally what drives our economy and jobs.
State chambers are critical because they play a fundamental role in advancing economic development. They help businesses get started, promote their growth, and advocate for good public policies. And they can bring the private and public sectors together to formulate shared goals, coordinate actions, and solve challenges. The chambers represented here today do all those things exceptionally well.
And the governors? The state level is where the rubber meets the road. That’s where the tough decisions are made. Remember, states have to balance their budgets—they can’t just print more money like the federal government. As Justice Brandeis said, states are the “laboratories of democracy.” You are more likely to get commonsense solutions, innovation, experimentation, and bipartisanship at the state and local level than here in D.C.
This we know for certain: A robust economic recovery will come from the ground up—from states and cities—and not top down from Washington.
What unites everyone here today is our pursuit of a single goal—creating jobs. But when it comes to job creation, the question is—what works and what doesn’t? What can states learn from one another? What are economically successful states doing that others should consider? What can the federal government learn from the innovation in our “laboratories of democracy”?
That’s what we are here to talk about today.
The Challenges Before Us
It’s no exaggeration to say this is among the most difficult times for states in recent history. Not only have we suffered the worst recession since the Great Depression, we’re now suffering the worst recovery since the Great Depression.
Growth is tepid and uneven. The housing market is worse now than in the 1930s. The percentage of the workforce with jobs is at its lowest point in decades. The unemployment rate is 9.1%—which doesn’t include the millions of folks who have given up looking for a job or who are underemployed.
Money printed by the Fed and pumped into the states in the form of stimulus is running dry. The federal government is beyond tapped out. States are on their own.
On top of that, the federal government has weighed down states with more taxes and regulations. For example, the financial reform law will restrict access to credit for Main Street businesses, discourage capital formation, and undermine our global competitiveness.
When it comes to the health care law, it speaks volumes that more than half the states are involved in some type of lawsuit to overturn it.
And there are deep, structural problems that have built up over the years under both Democratic and Republican administrations and Congresses. Massive debts and deficits … a dangerous over-reliance on imported energy and lack of a commonsense national energy strategy … a crumbling infrastructure ... a troubled K-12 education system.
These are federal problems that deeply impact the states—but the states also have their own problems. For many states the short-term prognosis is dire. Altogether, 44 states and the District of Columbia are projecting budget shortfalls for 2012 of $112 billion.
The upcoming fiscal year will be one of the states’ most difficult budget years on record. Retiree benefits for state employees add yet another strain, with the states facing a $1.3 trillion shortfall.
Ain’t it great to be a governor!
The Path Forward
With Washington effectively forced to the sidelines, states will now have to address fundamental economic issues on their own. That means cutting spending or raising taxes—or both. And states must balance those decisions against the need to retain and attract private enterprise. No private enterprise, no jobs.
States have a choice in how to deal with these challenging times. They can tax, spend, and regulate. They can treat businesses as nothing more than cash cows. They can turn to an all-powerful federal government that will effectively make all their decisions for them.
Or, they can innovate, invest, and inspire—nurturing businesses, fostering job creation, and empowering people to make their own decisions.
One approach is based on the belief in a benevolent federal government that knows what’s best for us. The other is based on free enterprise, individual initiative, and personal responsibility.
Today we are releasing our second annual study that shows that states who pursue a course based on free enterprise principles fare better than those who don’t. The study, called Enterprising States, highlights successful state strategies for job creation and economic growth.
It focuses on what makes certain states attractive places to locate, relocate, and expand in this uncertain economy; the unintended consequences of cutting certain items from a state budget; and what types of investments the public and private sectors can make now to improve the economy in the future. It cites specific examples of innovative state policies—based on free enterprise—that have attracted more business, more economic activity, and more jobs.
By sharing these success stories and lessons learned we hope to create a roadmap to economic revitalization and an ongoing dialogue that makes every state stronger.
What do economically vibrant states do, according to the study? They keep taxes low. The study found high tax rates do not lead to either healthy economies or budgets. On the contrary, many states with the highest tax rates and most onerous regulatory regimes have experienced the worst budget crises. Taxpayers and businesses are leaving these states.
They target investments in infrastructure projects and create growth-friendly environments in communities. They work hard to attract science- and technology-based companies that will generate the jobs of tomorrow. They help companies large and small export. They welcome foreign direct investment, not shun it. They cultivate people through workforce development and strong schools.
One of the most interesting debates at the federal and state levels is how to strike the right balance between fiscal responsibility and investment. The truth is we can neither cut, nor spend, our way to prosperity.
Fiscal responsibility is essential. For example, unsustainable public payrolls and pensions in many states have generated a lot of heat. Different governors have different ways of addressing these issues, but one thing you can’t do is ignore the reality of the problem.
That’s why you see Republican and Democratic governors in states as different as Massachusetts, Ohio, Wisconsin, and New York making some very tough decisions and taking the knocks for it.
Fiscal responsibility is essential, but austerity alone won’t cut it. We must never forget the importance of growth—growth helps solve all of our problems.
We need good infrastructure. We need worker training. We need abundant and affordable supplies of energy. We need well-paid teachers who get results and can be held accountable. We need to help our small businesses export
Those things cost money, but they offer an exceptional return.
So, in short, we cannot cut off our nose to spite our face. We need to channel more of the resources we have into jobs-producing initiatives and other factors that will lead to long-term growth. This is a very tough balancing act. They are not getting it right in Washington—not yet, anyway.
As governors across the country weigh these tough choices, just one friendly reminder—businesses will examine your policies and vote with their feet. Companies, capital, and jobs go where they are welcome. If states want strong economies and jobs for their workers, they must embrace free enterprise principles that will help businesses grow, prosper, and hire.
So states have a choice—promote private enterprise and create jobs and growth, or embrace a statist agenda that will force businesses out of your state, repel capital, and decimate job growth.
This isn’t about partisan politics or rigid ideologies—it’s about what works.
As our study shows—and as we have learned from experience—states who embrace free enterprise principles are economically stronger than those who don’t.
The bottom line is we need smart policies at the state level to get our economy performing to its potential.
We need state leaders like you to foster the free enterprise system.
We need federal leaders to remember the 10th Amendment to the Constitution: “The powers not delegated to the United States by the Constitution … are reserved to the states respectively, or to the people.”
States need the freedom to innovate and experiment. They must not be unduly constrained by federal mandates and the unintended consequences of massive federal legislation.
As the people who most shape the business environment at the state level, governors must lead.
As the facilitators of partnerships between the public and private sectors, state and local chambers must lead.
And as the world’s largest business federation, the U.S. Chamber must lead.
The message we must carry is that free enterprise is the solution, not the problem. That given the freedom and incentive to do so, states and businesses can jumpstart our economy, create millions of new jobs, and put us on a path to long-term prosperity. And most of all, that our recovery will come from the bottom up, not the top down.
Again, I thank you for being here and I look forward to our discussion.
# # #