Awakening from Sleep Mode: Jobs, Growth and Innovation

Thursday, 18 April 2013, 10:30am – 11:30am

Panelists:

  • Colleen Hanabusa, US Congresswoman (D-HI)
  • Tim Pawlenty, President and CEO, The Financial Services Roundtable and former Governor, Minnesota
  • James Quigley, Senior Partner, Deloitte LLP and former CEO, Deloitte Touche Tohmatsu Ltd
  • Robert Romasco, President, AARP

Moderator:

  • Ed Luce, Chief Washington Commentator, Financial Times

Governmental uncertainty weighs on economy; innovation may buoy it

The US economy continues to suffer from uncertainty about the future of regulation, fiscal and tax policy, according to panelists addressing the topic of jobs, growth and innovation at the 5th annual Bertelsmann Foundation-Financial Times economic conference.

"People who control capital privately are hesitant to invest when there are great deals of uncertainty," said panelist James Quigley, senior partner at Deloitte LLP and former CEO, Deloitte Touche Tohmatsu Ltd. "While those uncertainties remain in the cloud and perhaps stuck in gridlock, then significant cash will stay on the sidelines."

When The Financial Services Roundtable surveyed members about their biggest concerns for the coming 18 months, "the number one answer by far was the uncertainty and burdens and cumulative weight of government policies," said panelist Tim Pawlenty, Roundtable president and CEO, and former Minnesota governor. In addition, the world's largest financial services firms would like to see policies that reduce the burden on capital risk taking and to experience demand for their services, products and investments.

Unfortunately for those in the private sector who would like to see a clear direction and unified policy from Washington, the political environment is likely to continue in its current state of gridlock and deep division, Pawlenty and other panelists said.

"There's no reward in the system for compromise," Pawlenty said, noting political analyst Nate Silver's assessment that 400 of the 435 US political districts are firmly held by one party. "If you're in one of those seats, you're not particularly concerned about losing the general election. You are concerned about getting outflanked further to the right or further to the left in the primary or caucus."

Congress tends to pass legislation behind the curve, rather than ahead of it, after the political winds are already clear, he added. For instance, broad immigration reform looks likely to pass during the current Congress, after years of gradually moving towards consensus.

"People recognize you must be for immigration. You cannot alienate the huge numbers of Hispanics, Latinos... and the Asian American community that is rapidly growing," said panelist Rep. Colleen Hanabusa, a Democratic congresswoman from Hawaii. "It becomes more a political reality than anything else."

Ideally, immigration reform would lead to more engineers and highly skilled workers coming to the US and contributing to the economy, Hanabusa said. The draft legislation contains provisions helping international students to stay in the country after their studies are completed, noted moderator Ed Luce, chief Washington commentator for the Financial Times.

"I really hope we take the remarkable college and university system we have and the remarkable talent we have and encourage them to stay," Quigley said. "We need those graduates to stay."

Beyond immigration, panelists weren't optimistic about the prospects for other legislation in the current political climate. "We may be entering an era where bipartisanship is defined as ‘we have it for a while, and they have it for a while, and over 10 years it works out,’" Pawlenty said. "It's not efficient."

While Congress must address the debt ceiling and sequestration to some degree, "I don’t think we'll ever come up to a situation where people will consider it to be a grand bargain," Hanabusa predicted.

The debate over fiscal policy and entitlement reform needs to focus on the realities of America's future, what kind of country policymakers want to build, and how to pay for it, said AARP President Robert Romasco. "We all want to live long and prosperous lives. We have a social-safety net that by comparison to other countries is pretty modest. We have a Medicare system that is particularly challenged."

AARP opposes proposals to link cost of living adjustments in Social Security to a less generous index than under current policy. "We've made it very clear we think chained CPI is bad policy," he said. "It's an inaccurate measure."

In looking for areas of agreement among possible policy changes, Pawlenty said, "at a minimum, people should be able to agree that our corporate tax rate is too high."

Panelists also expressed eagerness for a European-U.S. trade agreement, referenced by President Barack Obama in his State of the Union address. A belief that monetary or fiscal policy is a panacea may be at the root of the Great Recession, Quigley said, so when looking for growth prospects, it would be wise to look elsewhere.

"I'd love to see us come after trade policy for the significant opportunity I think that represents and a way to pull capital off the sidelines and into the game," he said.

To stay competitive, the US--like all countries or regions--must identify and hone its competitive advantage. America can't be larger or supply cheaper labor than China, Pawlenty noted.

"If we're not the biggest and we're not the cheapest, what are we going to be? We'd better be the smartest," he said, citing not just the higher education system but a culture of creativity and invention. "There's a correlation between freedom and innovation."

That means the US needs to invest in technical education and to ensure that every adult can contribute to the economy. "You can't have a country with a third of the people disconnected from the economy and becoming wards of the state because they lack the skills and education," he said, in response to an audience question. "The country has devalued technical education at a level that I think is strategically unwise."

In response to a question on European lessons for the US economy, Romasco cited "the value of a broad based fundamental safety net". Quigley cited the proportion of the economy being invested in areas such as infrastructure.

"We are underinvesting and therefore long term we are going to perhaps underperform," he said.