I L L U S T R A T I O N S B Y L L O Y D M I L L E R Health Care TOP PRIORITY: FIGHTING OBESITY R7 Energy & The Environment TOP PRIORITY: A BROAD ENERGY AND ENVIRONMENT POLICY R6 Finance & The U.S. Economy TOP PRIORITY: A QUICK STIMULUS PACKAGE R5 America in the Global Economy TOP PRIORITY: A NEW TRADE AGENDA R6 What should President Obama do? As he prepares to take office, The Wall Street Journal convened some of the country’s top CEOs and policy makers to come up with their priorities for the new administration and Congress. Inside, you’ll find what they think should be on that to-do list—and why. CEO C OUNCIL PLUS: Interviews with Henry Paulson, Robert Rubin and Lawrence Summers on the economy, and James Comer, Joel Klein and Louis Gerstner Jr. on education, R8 & R9 Shaping the New Agenda THE JOURNAL REPORT 7 7 s 2008 Dow Jones & Company. All Rights Reserved. THE WALL STREET JOURNAL. Monday, November 24, 2008 R1
THERE’S ADVICE, and then there’s advice. This report falls into the lat-ter category.
The Wall Street Journal last week convened its CEO Council, bring-ing together some 100 top CEOs and influential policy makers to discusswhat the new administration’s priorities should be. The attendees weresome of the biggest names in corporate America. And, as you’ll see, some ofthe most thoughtful.
Participants were divided into task forces in four areas: the U.S. economy,energy and the environment, the U.S. in the global economy, and health care.Each task force came up with what it thinks should be President Obama’s—and Congress’s—top five priorities. Then the full council voted to identifythe overall top five.
In these pages, you can find the CEOs’ arguments for why these actionsshould be on the president’s to-do list. You’ll also hear how senators who at-tended the conference reacted to the list.
Clearly, the new administration is going to have no shortage of sugges-tions on what they should tackle. Still, I think it’s fair to say there’s advice.And then there’s advice. —Lawrence Rout
U P F R O N T
The Journal Report welcomes your comments—by mail, fax or electronic mail. Letters shouldbe addressed to Lawrence Rout, The Wall Street Journal, 4300 Rt. 1 North, South Brunswick,N.J. 08852. The fax number is 609-520-7767, and the email address is [email protected].
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By Melissa Korn
When Americans are asked to-day to name the country’s big-gest problem, 77% of them sayit’s the economy. But how didpeople answer that same ques-tion in the past, as other newpresidents headed to the Oval Of-fice? Here’s a look back at theconcerns that faced presidents-elect or new presidents, basedon Gallup polls and interviewswith historians.
n HARRY TRUMAN: 1945Unemployment and jobs: 77%
War, peace and terrorism: 7%Poverty and homelessness/Social Security: 2% each
Although war had been atthe top of people’s minds whenPresident Truman took office inApril 1945, after the death ofFranklin Roosevelt, this Octo-ber 1945 poll showed howquickly things had changed.Once peace was declared, the na-tion turned inward, focusing onwhere returning GIs fit into thework force.
“There was a great deal of pub-lic concern about the end of thewar, what the world was going tobe like when it was over, particu-larly whether the Depressionwas going to come back or not,”says Alonzo Hamby, an Ohio Uni-versity history professor.
Significantly, by the time theelection rolled around threeyears later, as relations with theSoviet Union deteriorated,things had reversed again: Inter-national issues and foreign aidwere back on top, with 48% identi-fying those as the No. 1. problem.
n DWIGHT EISENHOWER: 1952War, peace and terrorism: 55%General economy: 20%International issues and foreignaid: 12%
The Korean War was frontand center, having reached astalemate. Communism was aconcern at home, too.
At the same time, a steel-millstrike in the summer of 1952 ledto a short-term panic in the autoand other manufacturing indus-tries, resulting in far-rangingprice increases, production haltsand massive layoffs.
n JOHN KENNEDY: 1960International issues and foreignaid: 36%Unemployment and jobs: 26%War, peace and terrorism: 19%
As the Cold War heated up,“thepublicwas askingnot just ‘Arewe weak?’ but ‘Are we about to getannihilated?’ ” says David Cole-man of the University of Virginia’sMiller Center of Public Affairs.“This is a period of existentialthreat.” He adds that foreign pol-icy “just about anywhere was castin this mantle of the Cold War.”
Meanwhile, unemploymenttopped 8% in early 1961 as thelate Eisenhower-era recessiondeepened. During his cam-paign, Sen. Kennedy oftenpromised to “get this countrymoving again.”
n LYNDON JOHNSON: 1963Racism: 52%International issues and foreignaid: 26%Unemployment and jobs: 7%
President Johnson inheritedmuch of the social unrest that hadbegun to stir under JohnKennedy. Martin Luther King Jr.and other civil rights leaders heldrallies and organized boycottsthroughout 1962 and 1963, and de-segregation efforts were metwith violence.
Then there was Vietnam:Though U.S. combat troopsweren’t being deployed quiteyet, the number of American mili-tary advisers was on the rise.
n RICHARD NIXON: 1968Vietnam: 41%Racism: 8%Inflation and cost of living: 8%
Racial issues were overshad-owed by the war in Vietnam,where more than 500,000 U.S.troops were now deployed. Ini-tial setbacks during the Tet Of-fensive in early 1968 led more ofthe country to put the war, and ahope for its rapid conclusion, atthe top of their list of concerns.
n GERALD FORD: 1974Inflation and cost of living: 23%Crime and violence: 14%Dissatisfaction withgovernment: 12%
Amid economic distress, Wa-tergate and divisive social con-cerns, the “top problem” was sev-eral. Inflation was in double dig-its, and the Arab oil embargopushed oil prices up fourfold to$10-$12 a barrel.
The country was looking forhelp everywhere. “They wereweary of the ’60s, of Nixon’s liesand Johnson’s lies and streets onfire and napalm,” says DouglasBrinkley, a history professor atRice University. “There was a fa-tigue of the era.”
n JIMMY CARTER: 1976Inflation and cost of living: 44%Unemployment and jobs: 34%Dissatisfaction with government:12%
Americans were still smart-ing from Watergate but wereeven more concerned about theirwallets. A long period of high in-flation and unemployment andscant productivity growth frus-trated people. Little wonder thatPresident Carter’s message thatGerald Ford had done nothingright for the previous two yearsresonated with voters.
n RONALD REAGAN: 1980Inflation and cost of living: 53%Unemployment and jobs: 11%International issues and foreignaid: 8%
Money was at the top again,with inflation at a staggering13.3% in 1979. (It slowed to 12.5%in 1980.)
The country was also wearyfrom world events such as the So-viet invasion of Afghanistan andthe Iran hostage situation. After444 days in captivity, the hos-tages were freed on the day ofPresident Reagan’s inauguration.
n GEORGE H.W. BUSH: 1988Drugs: 27%General economy: 16%Poverty and homelessness: 10%
The Soviet Union had lostmuch of its strength and the econ-omy was relatively stable, leavingthe public to worry about otherproblems. In particular, whilemarijuana and other drugs sawtheir highs fade by 1985, the moreviolent crack cocaine took hold inthe later part of the decade.
n BILL CLINTON: 1992General economy: 35%Unemployment and jobs: 22%Health care: 18%
“One of the things that had al-most always been a factor in elec-tions since really before WorldWar II was pretty much off theplate,” says Russell Riley of theMiller Center of Public Affairs.Withthe end of the Cold War, “peo-ple weren’t interested in foreignpolicy.” Instead the paramountconcerns were unemployment,the potential impact of globaliza-tion and large federal deficits.
n GEORGE W. BUSH: 2000Ethics, moral decline,lack of integrity: 13%Education: 12%Crime and violence/Government,Congress and politicians: 9% each
The country was peacefuland, despite the bursting of thedot-com bubble in March 2000,still relatively prosperous.
But the public had beenbruised by the Monica Lewinskyscandal and impeachment pro-ceedings. And the election sea-son brought new ethical ques-tions about fund raising andhanging chads. y
Last week, The Wall Street Journal assembled nearly 100 CEOsof large companies for a day and a half to discuss the policy choicesfacing the incoming Obama administration, and the effects thosechoices may have on business and the economy.
The CEOs divided into four task forces and debated priorities inthe areas of health care, energy and the environment, finance and the
U.S. economy, and international eco-nomic affairs. Using an electronic rank-ing system devised by the Journal,they chose five top priorities in eachsubject area.
Each task force then reported itspriorities back to the full council. Foursenior members of the U.S. Senatejoined in the subsequent discussions.
At the end of the conference, the chief executives revised and thenranked all the priorities from the four task forces, in order of their rel-ative urgency and importance.
The CEOs who attended the session were from a diverse range of in-dustries; as a group, they employ more than six million people and rep-resent roughly $2 trillion in annual sales. That should give their viewson these issues some added weight in the months ahead.
Here’s a look at their top five priorities.
1 FISCAL STIMULUSQuickly craft fiscal stimulus for
the U.S., in cooperation with parallelefforts by G20 countries, particu-
larly cash-rich economies with capacity toincrease domestic demand. For the U.S., astimulus package should exceed $300 bil-lion. It also should emphasize investmentin infrastructure, including environmental,education and low-carbon energy, butshould not worsen the long-term budgetdeficit. Avoid tax rebates and rely on morepermanent tax cuts, and use state and lo-cal government as a channel.
2 EDUCATEDWORK FORCE
President-elect Obama shouldask businesses to lead in the ac-
tions necessary to build a competitivework force for the immediate and longterm. Emphasis should be placed on im-proved K-12 education and intellectual-cap-ital creation. Enact national educationstandards and assessments, devote fundsto teacher excellence and improve teachereducation.
3 ECONOMIC VISIONPresident-elect Obama should
announce his economic teamsoon and convene a conference
with broad representation to recommendboth immediate priorities and long-termpolicy direction. He should communicate aclear message about the direction of pol-icy, including a program for long-term fis-cal responsibility.
4 COMPREHENSIVEENERGY ANDENVIRONMENT POLICY
Put national legislation inplace that starts us on the road to decar-bonize our economy and to create themost energy-efficient economy in theworld. Level with the American peoplethat ensuring an adequate and diverse en-ergy supply in a low-carbon world will notbe cheap or easy. But make the case thatthe transition must be transparent andfair to all Americans, and that linking theeconomy, the environment and energy pol-icy bolsters security for all three.
5 TAX POLICYChange the tax code to encour-
age employment, job creationand investment and enhance glo-
bal competitiveness in the short term. Con-sider raising taxes on gasoline and broad-ening the corporate tax base to lowerrates.
THE PARTICIPANTSThese business leaders attended themeetingof theCEO Council(chief exec-utives except as noted)
Fernando Aguirre, ChiquitaBrands International Inc.José Maria Alapont, Federal-Mogul Corp.Brad Anderson, Best Buy Co.Jeffrey L. Bewkes, Time WarnerInc.Lloyd C. Blankfein, GoldmanSachs Group Inc.Angela F. Braly, WellPoint Inc.Kevin Burke, ConsolidatedEdison Inc.Stephanie A. Burns, Dow CorningCorp.Charles Butt, H-E-BMorris Chang, Chairman, TaiwanSemiconductor Manufacturing Co.Jeff Clarke, TravelportMarcelo Claure, Brightstar Corp.Bill Cobb, J.M. Smith Corp.Howard S. Cohen, Chairman,BlueLinx Holdings Inc.Denis A. Cortese, Mayo ClinicDavid Crane, NRG Energy Inc.Michael T. Dan, Brink’s Co.Scott Davis, United ParcelService Inc.Paul Diaz, Kindred Healthcare Inc.Craig S. Donohue, CME Group Inc.Brian Duperreault, Marsh &McLennan Cos.Lynn Laverty Elsenhans, SunocoInc.Thomas F. Farrell II, DominionResources Inc.J. Brian Ferguson, EastmanChemical Co.Roger W. Ferguson Jr.,
TIAA-CREFChristopher T. Fey, U.S.Preventive MedicinePaul D. Finkelstein, Regis Corp.Jay S. Fishman, Travelers Cos.Douglas L. Foshee, El Paso Corp.Russell P. Fradin, HewittAssociatesCarlos Ghosn, Nissan Motor Co.,Renault SALarry A. Goldstone, ThornburgMortgage Inc.William D. Green, Accenture Ltd.Evan G. Greenberg, ACE Ltd.James W. Griffith, Timken Co.James Hagedorn, ScottsMiracle-Gro Co.John H. Hammergren, McKessonCorp.Ed Harbach, BearingPoint Inc.Lewis Hay III, FPL Group Inc.Paul Hermelin, Cap Gemini SALes Hinton, Dow Jones & Co.Michael J. Jackson, AutoNationInc.William D. Johnson, ProgressEnergy Inc.Richard C. Kelly, Xcel Energy Inc.Jeffrey B. Kindler, Pfizer Inc.Klaus Kleinfeld, Alcoa Inc.Robert W. Lane, Deere & Co.Steven F. Leer, Arch Coal Inc.Stephen P. MacMillan, StrykerCorp.Murray D. Martin, Pitney BowesInc.Scott A. McGregor, BroadcomCorp.Michael G. Morris, AmericanElectric Power Co.Rupert Murdoch, News Corp.Susan R. Nowakowski,AMN Healthcare Services Inc.Steve Odland, Office Depot Inc.Rodney O’Neal, Delphi Corp.Paul S. Otellini, Intel Corp.James W. Owens, Caterpillar Inc.W. Douglas Parker, US AirwaysGroup Inc.Antonio M. Perez, EastmanKodak Co.Nicholas T. Pinchuk, Snap-On Inc.Thomas J. Quinlan, R.R. Donnel-ley & Sons Inc.S. Ramadorai, Tata ConsultancyServicesDavid M. Ratcliffe, Southern Co.Stuart H. Reese, MassachusettsMutual Life Insurance Co.James E. Rogers, Duke EnergyCorp.Eric Schmidt, Google Inc.Stephen A. Schwarzman,
Blackstone Group LPGregg M. Sherrill, Tenneco Inc.Ralph W. Shrader, Booz AllenHamilton Inc.Henrik C. Slipsager, ABMIndustries Inc.Frederick W. Smith, FedEx Corp.Sir Martin Sorrell, WPPGroup PLCRobert K. Steel, Wachovia Corp.Douglas M. Steenland, formerCEO, Northwest Airlines Corp.Shivan Subramaniam, FM GlobalFredric J. Tomczyk, TDAmeritrade Holding Corp.James Turley, Ernst & YoungMyron E. Ullman, J.C. Penney Co.Daniel C. Ustian, NavistarInternational Corp.Joe Uva, UnivisionCommunications IncDaniel L. Vasella, Novartis AGDavid M. Walker, Peter G.Peterson FoundationTimothy R. Wallace, TrinityIndustries Inc.William C. Weldon, Johnson &JohnsonThomas J. Wilson, Allstate Corp.Yang Yuanqing, Chairman,Lenovo Group Ltd.William D. Zollars, YRCWorldwide Inc.
DAVID WESSEL: Far and away themost popular recommendationto President-elect Obama was afiscal-stimulus plan, and we’regoing to start with Roger Fergu-son discussing that.
ROGER FERGUSON: There arethree or four points that I’d liketo focus on [about a stimulus].First, you can see we say “quicklyimplement.” There is some con-cern that as soon as you start toget into fiscal stimulus, which in-volves both the executive branchputting forth a proposal and thelegislative branch deciding on it,and then the implementation,that the risk is that things will gomuch too slowly.
The second point to make isthe need to stabilize employ-
ment. Werecognizethat employ-ment cre-ates a num-ber of addi-tional bene-fits. One isthat peoplewho are lessworriedabout theirjobs willhave muchmore confi-
dence in terms of consumption—and two-thirds of the U.S. GDP isdriven by household consump-tion. Second, a number of otherpressures have hit households,including declining asset valua-tions, and so focusing on stabiliz-ing employment could have nu-merous benefits.
The third major topic waswanting to do this without signif-icant damage to the budget defi-cit. We decided that the most wecould hope for is to do so withoutworsening long-term budget def-icits. Clearly, one can improvelong-term budget deficits withthe kind of stimulus that one islikely to need here.
Infrastructure, we thought,was important for two reasons.One is it’s a great way to generatejobs, if done appropriately. Sec-ond, we would hope for infrastruc-ture to create a number of long-term benefits: elements of produc-tivity, for example, investmentsin newer technologies—thosewere all included in our conceptof the right kind of infrastructurethat we wanted, infrastructurethat will help us become a muchmore competitive economy.
We clearly focused on avoidingtax rebates, and a stronger look atthe more permanent tax cuts. Thisbuilds off basic economic thinkingthat individuals and businessesare forward-looking. If they see atemporary tax cut, then the ten-dency is that it does not get spent,and what we’re looking for is stim-ulus. And finally, we did recognizethat state and local governmentshave potentially a very importantrole to play as a channel for the fis-cal stimulus. They are, in manycases, the engines that drive atleast the early decisions about in-frastructure investment, obvi-ously working through private-sector business.
Unlocking Illiquid Assets
ROBERT STEEL: The second pointis to buy illiquid assets. If theseassets, which are really stuck inthe system, can begin to move, itwill affect both confidence andcapital. In particular, it frees upthis capital that’s now beinglocked in, where people justdon’t feel like they can recognizeand then realize the losses. And
so, the idea of using some of theTARP [Troubled Asset Relief Pro-gram] money focused on this.
The next point is the idea ofeconomic vision. President-elect Obamahas beenquite clearthat we haveone presi-dent at atime, andthat he’s notthe presi-dent. Butthat doesn’tprecludehim from re-ally gettingto w o r k .Let’s get the economic leadersworking today, outlining the is-sues, talking about the chal-lenges in a bipartisan way, andbeginning to lay out the plansthat they’re going to hit theground running with on Jan. 20.
MR. WESSEL: A feature of thatwas that he convene a conferencewith a broad set of people, biparti-san and business leaders, to helprecommend priorities, to helpbuild consensus. We also talkedabout longer-term tax policy.
JEFFREY BEWKES: There was a lotof discussion about incentives forindividuals versus incentives forcorporations and business. Werecognize that over the next sev-eral years, we’re going to need tofigure out, given the long-term fis-cal problems, how to create indi-vidual tax designs that don’t yieldlower taxes, but probably willneed to yield some higher taxes,in terms of individual taxation.But if you then move to the corpo-rate side, if we don’t figure out away to make corporate taxesmore effective and competitive,in terms of incentives and invest-ment, we will have trouble com-peting with other countries.
On the question of gas taxes,we decided not to self-censor. Wehad a lot of discussion where we
k n e w o rthought thatneitherparty wouldsupport sucha thing. It’sbeen talkedabout andnot done foryears. Butwe thoughtthat maybethis is a timewhen thiscould be
raised, and certainly, I think it wasgenerally agreed that gas or car-bon taxes would be likely to bemore direct and effective, unlesscompromised, than what maycome out of a carbon caps-and-trading scheme, just because eventhough you can design it, it’s hardto pass it in recognizable form.
Regulatory Overhaul
MR. WESSEL: Then, the final oneMr. Ferguson is going to presentis regulatory overhaul.
MR. FERGUSON: I think we all rec-ognize, both domestically andprobably also internationally,that the regulatory structure andschemes that existed before thiscrisis have proved to be inade-quate for dealing with the modernworld of finance. There have beennumerous efforts to modernizeregulation and regulatory struc-ture in the U.S. But still, one would
Please turn to page R7
FINANCE AND THE U.S.ECONOMY CO-CHAIRS:jeffrey l. bewkes President
and CEO, Time Warner Inc.lloyd c. blankfein Chairman
and CEO, Goldman SachsGroup Inc.
roger w. ferguson jr.
President and CEO,TIAA-CREF
robert k. steel President andCEO, Wachovia Corp.
SENATOR:maria cantwell (D.,
Washington)
1. FISCAL STIMULUSQuickly implement fiscal stimulus to
address short-term weakness and stabi-lize employment without worsening long-term budget deficit. Emphasize invest-ment in infrastructure and other pro-grams with long-term benefits, includingenvironmental. Avoid tax rebates and ex-pedite more permanent tax cuts. Considerusing state and local government as achannel.
2. BUY ILLIQUID ASSETSUse remaining money in Treasury’s
Troubled Asset Relief Program (TARP)and possible additional funding to buy il-liquid assets from financial institutions toprovide a light at the end of the tunnel andencourage renewed risk-taking and lend-ing.
3. ECONOMIC VISIONPresident-elect Obama should an-
nounce economic team soon and conveneconference with broad representation torecommend both immediate priorities andlong-term policy direction. President
should clearly communicate clear mes-sage about the direction of policy, includ-ing a program for long-term fiscal respon-sibility.
4. TAX POLICYChange tax code to encourage employ-
ment, job creation, investment, and enhanceglobal competitiveness. Consider raisingtaxes on gasoline and broadening corporatetax base to lower rates.
5. REGULATORY OVERHAULAppoint blue-ribbon panel to spend a
year considering changes to financial regu-lation and supervision aimed at (a) improv-ing safety, transparency and accountabil-ity, (b) avoiding overreaction to maintainU.S. competitiveness in global economyand (c) reducing procyclicality of currentregulatory and accounting regime. Imple-ment recommendations in first term of newadministration while Treasury, Fed andother regulators focus on providing liquid-ity, recapitalizing banking system, return-ing financial markets to normal function-ing and improving credit conditions.
The president-elect confronts a recession that some forecasters predictwill be as bad as or worse than the deep one of the early 1980s. Unem-ployment is rising, financial markets are fragile, the stock market is fall-ing, the Federal Reserve is nearly out of interest-rate ammunition, andcriticism of the Bush administration’s response to the credit crisis is inten-sifying. The chief executives gathered by The Wall Street Journal agreedthat even before President-elect Obama takes office, he needs to shore upconfidence and prepare a major dose of fiscal stimulus.
David Wessel, the Journal’s economics editor, moderated the task-force discussion on finance and the U.S. economy. Here are edited ex-cerpts of the presentation of their priorities to the CEO Council.
WSJ.com
Finance & theU.S. Economy
Jeffrey Bewkes
Robert Steel
Roger Ferguson
The Top Five Recommendations
ONLINE TODAY: Go toWSJ.com/Reports for the Journal’sCEO Council blog, including:n Videos: See excerpts from the fourtask-force policy discussions; a HenryPaulson-Robert Rubin-LawrenceSummers debate on the financialcrisis; CEO interviews; and more.n Podcasts: Hear the Journal’sJerry Seib and Erin White onhighlights and surprises of themeeting, and incoming WhiteHouse Chief of Staff RahmEmanuel’s remarks to the gathering.n News and analysis about theconference from Journal reporters.
THE WALL STREET JOURNAL. Monday, November 24, 2008 R5
GERALD SEIB: Let’s start with the itemthat was clearly at the top of ouragenda, which is trade.
YANG YUANQING: I believe most of us inthis room are in favor of free trade andglobalization. Actually, free trade isstill one of the foundations of today’sglobal economy.
Lenovo and very few other Chinesecompanies are in the U.S. market butyou see U.S. brands in China every-where—IBM, Intel, Google, Starbucksand McDonald’s.
For those global companies it isvery difficult to see growth here in theU.S. market, but they still could keepgrowing in other markets, especiallyemerging markets. So I think that isvery important for the U.S. economy.
Free trade is helping relieve the painof the crisis now.
Even though we are facing this severeeconomic crisis, we could not stop the
trend of free trade.So our group sug-gested that theObama administra-tion embrace andtry to close theDoha Round assoon as possible.
We also dis-cussed competi-tiveness. Decidewhat skills youneed to develop.Then establish a
better educational training system toensure long-term competitiveness.
MR. SEIB: So trade was at the top of thelist. Antonio is going to talk about somediscussions we had on taxes, which haveboth short-term and long-term effects.
ANTONIO PEREZ: With regard to taxes,we talked about corporate taxes and welooked at them in two ways, short termand long term.
When we looked at the short term,we were looking for something thatwould create an immediate stimulus tothe economy. Something that, in ourview, will be easier to implement andwill make most of the American compa-nies more competitive.
So we looked at three things. First,do not extend the corporate tax to off-shore earnings. Number two, create atemporary tax reduction for repatria-tion of earnings. This is very similar towhat was done during 2004, I believe,and it brought more than $300 billioninto the country.Obviously, thatamount of moneywould create, inour view, a veryhealthy stimulusto the economy.
And then third,expense the capi-tal expendituresimmediately.
The combina-tion of thosethree, we think, isgoing to create a very fast and largestimulus to the economy and will makeAmerican companies more competi-tive. And those things should be easy toimplement.
Then we moved into the long term.What should be the corporate tax ratefor American companies? The ultimateobjective for the group was whereverwe have to compete, we want to com-pete in a way that would level the play-ing field, whether it is in the U.S. or out-side of the U.S.
Obviously, the words “lower the cor-porate rate tax” appeared in almost any
scenario that we thought about, but theidea was that we do not want to be dis-advantaged with anybody in any placewhere we’re competing.
Global StimulusFREDERICK SMITH: The group feltstrongly that the U.S. could not recoverunless there was a global recovery. Andthat the president-elect at the G20 inApril should promote global stimulusin the cash-rich countries in order tostimulate their domestic demand.
Now a lot of that is already underway. China has a major stimulus pack-age, Russia has one and so forth. Butthat would be an imperative to get theU.S. economy back on track.
At the same time, there was a lot ofthought along the lines suggested byAmbassador Charlene Barshefsky[the former U.S. trade representative,who spoke in an earlier session] thatthe U.S. should consider unilateralelimination of tariffs on productsfrom developing countries. And Iwould reiterate what she said: thecountry collects in total about $26 bil-lion in tariffs.
About half—$13 billion—comes on5% of the imports. And those 5% comefrom the most impoverished countriesin the world, including countries where
there are significant national-securityissues, like Pakistan.
MR. SEIB: And then, finally, a lot of con-cern about an educated work force.
STEPHANIE BURNS: This was the fourthpriority from our group, and I link an ed-ucated work force to our global compet-itiveness and to our economic prosper-ity. It is so crucial for innovation, foreconomic growth and for ultimate com-petition on a global basis.
There weretwo major compo-nents around aneducated workforce. One cen-tered around re-training and re-ed-ucating peoplewho are displaced,whether it be dueto productivity orother actions. Weneed a mecha-nism, and we feelthat the private
sector should take a strong lead in part-nering in that mechanism to retrainand re-educate the work force.
And then second, the priority on ed-ucation itself. We felt so strongly
Please turn to page R9
JEFFREY BALL: We had what seemed a re-ally interesting microcosm of the fed-eral energy debate.
The discussions started out talkingabout going from technology to technol-ogy. So, do we want electric cars? No,we want natural-gas cars. No, we wantbiodiesel cars. Do we want nuclear? No,we want wind and solar. No, we wantclean coal. And at the end of the discus-sion, there seemed to develop a prettyclear consensus that that was thewrong approach, that what was neces-sary was a more comprehensive sort oftop-down view of strategy, as opposedto a bottom-up view of incentivizingparticular technologies.
So, why don’t we start with Jim Rog-ers, who will talk first about comprehen-sive energy policy.
JAMES ROGERS: We really focused on de-veloping the first notion of a compre-hensive energy and environmental pol-icy. Because we recognize that energyand environmental policy are inextrica-bly linked, and inextricably linked tothe economy. And the whole notionhere is we’re on a road, and President-elect Obama should put us on a road, todecarbonizing our economy, as well ason the road to creating the most energy-efficient economy in the world. Be-cause that is the way we really grow ourGDP per capita long term, particularlyas the rest of the world grows.
As James Schlesinger once saidabout energy policy, “We swing be-tween panic and complacency.” And asoil prices went up, we panicked; asthey’ve come down, we’re slipping intocomplacency. But the fact of the matteris we need a consistent policy to allowus to plan for the future.
I think the second area, and I say thisas someone who’s in the power sector,is that job one for the power sector is toprovide affordable, reliable, clean elec-tricity 24/7. But one of the aha’s that wehave is that virtually every power plantin our sector will be retired or replacedby 2050. And so if it’s the policy of our
country to decarbonize, we have the ca-pability to do that over the next 40 plusyears. But what’s important to recog-nize is that there are only so many waysto generate electricity. We can’t takeany off the table.
For instance, renewables are impor-tant, but it’s intermittent power andthey’re not often close to where the load
is. And to build thetransmission lines,we need federal em-inent domain tobuild it to wherethe load is. And it’snot a product thatwe can count on24/7. But it needsto be part of theequation, bothwind and solar.
Also coal: 50% ofthe electricity inthis country comes
from coal today. We need to look for waysto make coal clean, and we need to investin carbon capture and sequestration.That’s a technology that probably is a de-cade to 15 years off before it will be com-mercially available, but it needs to be partof the equation aswe look at decarboniza-tion by 2050, which most of the carbonlegislation calls for today in Washington.
Nuclear also has to be a key part. Infact, it’s the only technology today that
gives us power 24/7 with zero green-house-gas emissions. But we have yetto solve the storage issue.
And lastly, as we turn increasingly tonatural gas—and every time we ban acoal plant or we ban a nuclear plant, webuild a gas plant, because it’s an easything to build—at the end of the day itstill has a pretty significant carbon foot-print, 50% of that of coal. So natural gasis not a complete answer.
None of these in and of themselvesis a complete answer. Each plays an im-portant role, and each can contribute ina low-carbon world. All require furtherresearch and development, dollarsspent and new technologies developedto use them in a low-carbon world.
Energy EfficiencyMR. BALL: Thank you. Eric Schmidt, en-ergy efficiency?
ERIC SCHMIDT: As part of a comprehen-sive energy policy, the first thing reallyhas to be efficiency. Maybe the most bor-ing, but in fact the highest-return thingthat we can possibly do: just make thecurrent stuff more efficient. There aremany, many technologies that can be ap-
plied to do this, which we won’t review,but they’re all very compelling.
So how do we make it happen atscale? In fact, utilities—especially in thetwo-thirds of the states which have de-coupled regulations where the utilitiesare managed to efficiency goals ratherthan revenue goals—already have en-ergy-efficiency programs. But often theydon’t quite have it right. So an idea that Ithought was particularly compellingthat came out of the group was to allowutilities to think of the efficiency thatthey cause in their customers, to treat itin the same way as the capitalization thatthey do of a new plant. So from their per-spective it’s a good choice. It’s cheaper,it’s more effective, they get a better rateofreturn, and it makes their internal busi-ness logic make a lot of sense.
In a situation where utilities can cap-italize their investments, they’ll do itmore quickly. It’s also stimulative, go-ing back to the stimulus question, be-cause it’s something that’s done by allthose out-of-work construction peopleand so forth who are not buildinghouses right now. So all of a sudden,whether it’s federal buildings, state
Please turn to page R8
America in theGlobal Economy
The Top Five Recommendations
1. NEW TRADE AGENDAA new trade agenda will require enhancing U.S. competitiveness
through investment in basic R&D, health care and education, a better socialsafety net at home, and a focus in negotiations on the fastest-growing sec-tors. President-elect Obama should embrace and complete the DohaRound. That would counter fears of protectionism and display U.S. leader-ship, and completion is more feasible under a new administration. As anext step, lead the World Trade Organization to move on to sector-by-sec-tor agreements.
2. SHORT-TERM TAX CHANGESEnact short-term, pro-competitive tax changes that will have immedi-
ate stimulative impact. Make a temporary reduction or elimination of thetax on earnings that companies repatriate to the U.S., which will stimulatethe economy here. Expense capital expenditures immediately.
3. INTERNATIONAL STIMULUS PLANThe U.S. can’t recover economically without a global recovery. This will
require crafting an international effort to provide liquidity, coordinatestimulus plans. President-elect Obama should use the April G20 meeting topromote global stimulus in which capital-rich countries stimulate domes-tic demand. Unilateral elimination of U.S. tariffs on products from develop-ing countries.
4. EDUCATED WORKFORCEPresident-elect Obama should ask businesses to lead in the actions neces-
sary to build a competitive work force for the immediate and long term. Em-phasis should be on improved K-12 education, intellectual capital creation.
5. CORPORATE TAX RATEOver the long term, lower the corporate tax rate to increase American
competitiveness. Avoid double-taxing money coming into the U.S. fromAmerican firms bringing earning back into the country. These steps wouldlevel the playing field. Do not extend the corporate tax to offshore earnings.
Antonio Perez
James Rogers
Frederick Smith
AMERICA IN THE GLOBAL ECONOMYCO-CHAIRS:stephanie a. burns Chairman,
President and CEO, Dow CorningCorp.
antonio m. perez Chairman andCEO, Eastman Kodak Co.
frederick w. smith Chairman,President and CEO, FedEx Corp.
yang yuanqing Chairman, Lenovo
SENATOR:charles e. schumer (D., New York)
America faces an energy crisis, one the economic crisis makes harder to fix.The recent drop in oil prices and the broader economic slump threaten to divert at-
tention from the need to find more fossil fuel and to develop more alternative-energysources. But the members of The Wall Street Journal’s CEO Council want the newpresident and Congress to stay focused on energy and the environment, because theybelieve the underlying problems are only getting worse.
They want policy makers to level with Americans that finding new energy solutionswon’t be cheap or easy. They want the government to pursue a comprehensive strat-egy promoting a variety of technologies: cars that run on electricity, and powerplants than run on everything from nuclear energy to “clean coal” to wind and solarpower. They want the government to promote, and mandate, improvements in energyefficiency. All of this, they believe, will require a modernized electrical grid. And all ofthis will require more federal authority and assertiveness.
Jeffrey Ball, The Wall Street Journal’s environmental news editor, moderated thetask force’s discussion. Here are edited excerpts of the group’s discussion of priorities.
Yang Yuanqing
The Top Five Recommendations1. COMPREHENSIVE ENERGY AND ENVIRONMENT POLICY
Put national legislation in place that starts us on the road to decarbon-ize our economy and to create the most energy-efficient economy in theworld. Level with the American people that ensuring an adequate and di-verse energy supply in a low-carbon world will not be cheap or easy. Butmake the case that the transition must be transparent and fair to all Ameri-cans, and that linking the economy, the environment and energy policy bol-sters security for all three.
2. DECARBONIZE THE POWER SECTORLaunch a coordinated strategy to curb emissions from electricity pro-
duction that recognizes the need for a variety of energy sources. To facili-tate renewable energy, allow the use of federal eminent domain to sitetransmission lines, and increase federal spending to improve energy-stor-age technology. To allow the continued use of coal, promote carbon captureand sequestration technology by boosting federal R&D spending and bystreamlining procedures for the licensing and siting of facilities to storethe carbon dioxide underground. To expand the use of nuclear energy, re-solve storage issues. To promote all these technologies, create a cap-and-trade system for carbon emissions.
3. ENERGY EFFICIENCYChange current regulations to allow utilities to capitalize investments
in energy efficiency rather than just adding generation capacity. Increaseconsumer incentives for purchasing energy-efficient technology. Create afederal building-efficiency code. Toughen federal appliance-efficiency stan-dards.
4. INVEST IN INFRASTRUCTUREBroad federal investment in new infrastructure—including roads and
bridges, which would decrease traffic congestion. Include particularly in-frastructure to promote low-carbon energy. Ensure business participationin deciding how money is spent.
5. ELECTRIC CARSAim for electric cars to represent 10% of total car sales in 2020 and up to
50% in 2030. Provide long-term federal financing to facilitate the transi-tion, with a particular eye to two technological tasks: improving batterytechnology and developing lighter-weight materials.
ENERGY AND THE ENVIRONMENTCO-CHAIRS:carlos ghosn President and CEO,
Nissan Motor Co. / President andCEO, Renault SA
paul s. otellini President and CEO,Intel Corp.
james e. rogers Chairman,President and CEO, Duke EnergyCorp.
eric schmidt Chairman and CEO,Google Inc.
SENATOR:jeff bingaman (D., New Mexico)
The new administration preparing to take power in Washington faces not only adomestic economic mess but a global one as well. The world’s economies now areso intertwined that the problems in the U.S. have dragged down other nations, andthere’s little chance a new American president can oversee a full recovery at homewithout a parallel recovery abroad.
The members of the Journal’s CEO Council task force on the global economy sawin this situation some immediate needs. Above all, they called for a quick interna-tional economic stimulus plan, marked by efforts by cash-rich countries to pumpup demand, as well as moves by the new leaders in Washington to embrace freeand open trade practices. But they also called, with equal urgency, for long-termsteps to keep the U.S. competitive as the world recovers, especially a significantlybetter education system.
Gerald F. Seib, the Journal’s executive Washington editor, moderated the taskforce’s discussion. Here are edited excerpts of the discussion of their priorities.
Energy &The Environment
R6 Monday, November 24, 2008 THE WALL STREET JOURNAL.
LAURA LANDRO: We actually had a very,very tight race in health care and I thinkeven some of us were a little surprisedat the way things came out. I’ll first askDenis Cortese to start with what cameout No. 1 on our list, which was to fightobesity.
DENIS CORTESE: This was an interestingdiscussion. It came up in the realm ofprevention, but the obesity component
so highly reso-nated with thegroup that it roseas a point all by it-self. The issue ofeducation, the is-sue of physical ex-ercise, the issue ofhaving physical ex-ercise as part ofthe school activi-ties all became im-portant compo-nents of this dis-cussion, because
the estimates of unfunded liabilitiesthat we have into the future, particu-larly for Medicare, do not include theimpact of obesity. No one’s really esti-mated that just yet.
MS. LANDRO: The second one that cameup on the list—again, we were all a littlesurprised at this—was tort reform. DanVasella is going to explain in more de-tail about the vaccine model to reformmalpractice.
DANIEL VASELLA: The vaccine [busi-ness] has completely changed becauseof litigation. Companies left the indus-try, and only with the bird flu did peo-ple start to ask, why aren’t more compa-nies in the vaccine business? And itturns out that the whole litigation issuearound vaccines was a big deterrent forany pharmaceutical company to be inthat field, and onlywhen tort reformhappened—[whenwhat people couldget] was capped andit was made more dif-ficult—that reallychanged. Now moreplayers are inter-ested than theywere before.
We have to beaware that the tortsystem is estimatedto cost about $246billion a year in the U.S. In the health-care arena, PriceWaterhouseCoopersestimated that it’s about $124 billion ayear. So it’s not something you canlightly disregard.
I would also add from my own per-spective and learning of the U.S. systemthat it was extremely frustrating for mewhen we were told by the lawyers youhave to settle, even if we thought thatwe have done nothing wrong, becauseit was less expensive and less cumber-some.
So basically we have a judiciary sys-tem which I think is not really doing jus-tice in this regard.
ANGELA BRALY: One of the other thingsthat you’re going to hear from us isabout the concern that this litigation orthe threat of litigation stifles the qual-ity discussion, because we’re in an envi-ronment where we cannot as clearly dis-cuss errors and address them in a high-quality way.
What Is Quality?
MS. LANDRO: Defining and measuringvalue seems like a vague term. But forthe way we’ve defined it, we’re going toturn to Denis Cortese.
MR. CORTESE: When we talk about theNo. 1 problem with regard to healthcare, most people would say we’re notgetting what we pay for. And by sayingthat, you’re really saying the value equa-tion, and the question becomes what isin the numerator? We can measure thecost pretty well. But what’s in the nu-merator? What is the quality equation?Most people stumble and they say, howdo you really measure quality? Whatcan you really do?
It is very interesting. It’s real easy
for people to say we’re not getting whatwe’re paying for, which implies youknow what quality is. Somebody knowsit somewhere. So why don’t we begin tomeasure the elements of quality, andthose elements are actually quite mea-surable. They’re the outcomes that youdesire, particularly around a particulardisease. You can measure those.
We would propose that you mightstart with maybe the top five diseasesin the country. Those top five diseasesprobably account for roughly 60% to70% of all the spending, especially inthe Medicare environment.
You begin to measure the outcomes.Safety is another numerator element.Safety is easy. It should be zeros. Thethird is service: access for care, patientsatisfaction, etc. These are all measur-able. So making it an effort to really mea-sure, define and measure value is crucialbecause we’re going to propose that paybe related to the out-comes of those mea-surements.
Information tech-nology is listed inhere as one of thetools to help cap-ture that. And all ofyou in your busi-nesses, you actuallymake value-basedpurchases all thetime and you are be-ing advised on howto do that. So if wecan move Medicare to an environmentwhere they start paying for value, thatwould begin to drive the system. Medi-care is starting to pay based on value,and there are many sources of thosevalue-equation numbers.
JEFFREY KINDLER: There are a lot ofideas and discussions that cost money.We’re in a serious deficit environment.How are we going to pay for all this?One of the reasons I believe we have tomeasure value is because if we actuallybelieve that investing in preventionand wellness is going to improve pro-ductivity, is going to help with jobs, isgoing to support innovation, and every-thing else we’ve talked about, we betterbe able to measure that and prove thatwe’re doing it.
We will not be able to do comprehen-sive health-care reform without someapproach to the scoring of the bill thatrecognizes that these are investmentsrather than costs. Otherwise we’re
never going to get anywhere. Unless wecan define that value, understand whatit is, look at it on a somewhat longer-term basis and then recognize what weare getting for our investment ratherthan our cost, we will constantly be upagainst this pressure to cut short-termcosts, which is the exact opposite ofwhat we should be doing. We should beinvesting. We should obviously notspend money on wasteful things, butwhere we can invest in prevention, wemust be doing so because we believe inthe long run it will pay for itself. If wecan’t measure that and define it, wewon’t get anywhere.
MS. LANDRO: Right, which is why the ITthing comes into all of this, but really inthe payment-reform space. Angela, canyou explain that to the group?
MS. BRALY: We’ve been talking a lotabout value, and the issue is the waythat we pay for health care now doesn’tenhance and encourage value. Specifi-cally, we need to focus on paying for pre-vention. We’re going to have to trans-form the reimbursement system to fo-cus on paying forprevention. Wewant to make surethere are mecha-nisms in the reim-bursement systemto do that.
We also need tomake sure we’re re-warding the deliv-ery of evidence-based care, and wethink governmenthas a role to focuson not paying forwhat’s inappropriate or unnecessary orwasteful, and we encourage Medicareto continue to focus on a pay-for-valuemodel. Without doing that, we thinkwe’re going to be unable to address thevalue equation of cost and quality.
As part of that, too, we think the re-gional variation of health-care deliveryand the cost associated with that actu-ally helps us in that define and measurecategory, so we can see that there areplaces where health care is being deliv-ered with higher value and we ought tostrive for the models that producethose results.
MS. LANDRO: And finally, building thehealth-care work force, the concernabout the shortage of all kinds of medi-cal experts.
MR. KINDLER: We have a serious, seriouspotential shortage of primary physi-cians in this country because of theway medicine has evolved into beingmore specialty-focused. We need to in-vest in creating more jobs and more in-centives for primary care—be it fromphysicians, nurse practitioners or oth-ers.
If we want to stimulate jobs in thiscountry, one of our great opportunitiesand one of our great distinctions as acountry is in the sciences, in medicine,in well-paying jobs, and we can actu-ally strike a blow here for two of thethings we’re trying to accomplish. Wecan stimulate jobs and education andtraining, but focus on an area where wehave a huge unmet need of primary-care providers.
Universal CoverageALAN MURRAY: This is a very interestingpanel both for what floated up to thetop—fighting obesity—which I think it’sfair to say none of you would have pre-dicted. But it’s also interesting for
what’s not on the list of your top five,universal health-care coverage, some-thing that’s talked about a lot. Couldone of you talk about why you think thatpriority did not rise to the top five? [Edi-tor’s note: In subsequent discussionsthe task force combined two prioritiesand made universal health care No. 5 onits list.]
MS. BRALY: I want to say this is a pun,but fighting obesity is like motherhoodand apple pie. You know we all love theidea that we can do something as sim-ple as deal with obesity, make surewe’re eating right and our kids are exer-cising, and we’re going to avoid dis-ease. That had a unique appeal and onethat we could all get easily behind.
MR. KINDLER: I think all of us believedthat there needs to be universal accessto affordable and quality medicine. Andwe took a vote and we did not reallyidentify a way to pay for it. So that’swhere I think that became an issue.
The Senator’s PerspectiveMR. MURRAY: Senator Baucus, wouldyou like to respond to what you’veheard?
MAX BAUCUS: I believe strongly that theopportunity is here for us in America tofinally have a health-care system thatwe can really be proud of. But it’s got tobe one where everybody is involved. Ev-erybody: consumers, employers, pro-viders, health-insurance companies, ev-erybody. My judgment is that we’vespent way too much time with patch-work, fixing this part here and thatpart there, push on the balloon, it bub-bles up someplace else, and we just aregetting nowhere and we have what wehave—namely 40-some million peoplewho don’t have health insurance, 25million underinsured, a reimburse-ment system that is out of whack. It re-wards volume, not quality. We also arenot addressing costs, because costs aregoing up so much in our country. Coststo individuals, costs to businesses. Andalso the cost to the federal governmentwith the Medicare trust fund goingthrough the roof.
So my judgment is that first of allyou have to have universal coverage.It’s a disgrace that the United States isthe only industrialized country in theworld without universal coverage. And
the system cannot be repaired withoutuniversal coverage. I’m not saying sin-gle-payer system. I’m saying a uniquelyAmerican system which combines pub-lic and private coverage by expandingslightly Medicare, Medicaid, CHIP [Chil-dren’s Health Insurance Program], butalso making sure that health insuranceis available for everybody.
We have an employer-based systemin our country. That’s the American sys-tem. Some suggest scrapping it. I don’t.I think we build on it.
We probablyshould go look atthe employer-pro-vided exclusion inthe tax law be-cause it’s regres-sive. It’s a little in-efficient. But wealso need to giveincentives to smallbusinesses and in-dividuals so theyget health insur-ance, too.
We need big incentives in changingthe delivery system, and through Medi-care rewarding quality, workingthrough the National Quality Council,working with evidence-based out-comes, moving to again reward provid-ers, hospitals and physicians basedmore on quality.
We all have to keep an open mind onall this stuff, figure out how to get toyes. Everything is on the table. The onlything that’s not on the table is a single-payer system. That’s going nowhere inthis country.
I know the problem of obesity. I gotto tell you, I think that’s tepid. I justdon’t think the bully pulpit is going tobe enough to sufficiently fight obesity.We’re going to have to have incentivesin here. We’re going to have to haveteeth in here.
MR. MURRAY: Senator, where does themoney come from? You’re talking aboutuniversal health care. Depending onhow you do it, you’re talking aboutwhat, a trillion-dollar program over anumber of years?
SEN. BAUCUS: Oh, no, no, no, no, no.Much, much, much less than that. Muchless than that. Much less than that. Or-ders of magnitude less than that.
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Financehave to say that we, in the U.S., haveended up with quite a hodgepodge of fed-eral and state regulation that no longer re-flects the reality of financial institutionsand the growing complexity of financialmarkets and financial instruments.
Consequently, we know that there isgoing to be some change in the way regu-lation of financial services is done in theU.S. And so the first goal, in the face ofthe inevitable rethinking of regulation,is to try to make sure that the pendulumdoesn’t swing too far. Our tactics on thiswere as follows: One, appoint a blue-rib-bon panel, bring some experts insideand outside to focus on it. Second, givethat panel an entire year to really thinkabout what needs to be done—frankly, alittle bit of a cooling-off period. But notpostpone much beyond that. And so, wedid suggest very clearly that the new ap-proach to regulation that comes fromthe panel be implemented in the firstterm of the new administration.
ALAN MURRAY [deputy managing editorof The Wall Street Journal]: SenatorCantwell, would you like to respond towhat you’ve heard?
MARIA CANTWELL: On the points raisedabout fiscal stimulus, and obviously, thequick implementation: I do think it’s avery good point. Unfortunately, I thinkthe structure of the Senate that we havetoday and the decisions that are beingmade on the Hill will probably leave uswith a very small package—unemploy-ment benefits and maybe one or twootheritems,but not a large stimulus pack-age. Again, the new Congress is cominginto place. Many of those people are com-ing to the Hill for the first time today, andjust like President-elect Obama, they’retrying to figure out these policies. But itdoesn’tmean that you can’t work very dil-igently in the month of December to hitthe ground running in January.
I think there are many people on theHill that are thinking of the same itemsthat you are thinking about when yousay infrastructure. We do think of it invery broad terms. We think of it as tech-nology. I see people here from the en-ergy sector. And we certainly do viewthe states as our partner in the distribu-tion of these funds.
Anything thatyou all can do, in be-ing more specificabout the stimuluspackage, size andparticular areas ofinvestment, I thinkwill help get us thatpackage as soon aspossible. We, evenwith a Democraticmajority growing inthe Senate, are stillnot going to have afilibuster-proof Senate, so having goodbipartisan support means good inputfrom the private sector about its priori-ties in stimulus. So the more that youcan come with real specific numbersthat you support, the better that is.
On the illiquid-assets suggestion: Ev-erybody knows now that the programof $700 billion is being divvied up in var-ious ways. Obviously, some peoplewant it to be used for housing. Somepeople want it to be used for the bail-out. And I’m sure there are some thatwould still support the buying of illiq-uid assets. Just my personal opinion, ifthat’s really a priority of the individualsthat are here today as a key strategy forsolution, you have a lot of work to do togetting people to buy into that.
On the economic vision, I couldn’tagree more. Having been in business, my-self, for five years, and running a divi-sion of about 100 people and $40 millionin revenue, predictability, predictability,predictability, predictability. And rightnow, obviously, with a new administra-tion coming on board, where is the pre-dictability about the new administra-tion’s policies, as it relates to its priori-
ties for the economy? The sooner thatthat can be in the marketplace, the bet-ter. And so, I loved your idea about get-ting industries and individual groups tohelp assure that the president is commu-nicating a clear long-term message.
As a policy maker, I will tell you theone thing that I think that the businesscommunity could be more direct on is thespecificity of your proposals. When peo-ple say they support more investment injob training, it doesn’t mean as much as ifyou say I think the current budget that isflat, or the current budget that’s only 10%more, is not enough. We support thislevel of spending. That is what it’s goingto take to get the priorities through inthis tough fiscal time.
On the long-term tax policy, Icouldn’t agree with you more that weobviously have to encourage job cre-ation and investment, and specifically,the global competitiveness. I thinkthose are very good goals, and my col-leagues would be very responsive tothose from a tax-policy perspective.
The gasoline issue is something that Iapplaud you for your boldness. Depend-ing on what’s happening on Capitol Hill, Ithink many of my colleagues are sold oncap-and-trade. I’m a little more with youon the concept of how difficult that sys-tem is, and how a more clear-cut processmight play out more for the country.
I have quite a few views on regula-tory reform, but I will summarize themin a few words: transparency, transpar-ency, transparency, transparency. Andif you don’t work hard on transparency,you’ll get another Sarbanes-Oxley.That’s all I have to say.
What About the Deficit?
MR. MURRAY: Does one of you want to ex-plain what happened to that long-termdeficit in the group discussion?
MR. FERGUSON: It didn’t make the topfive. We did, I think, observe that we’dlike to have stimulus in a way that cer-tainly didn’t worsen that. That’s admit-tedly a low hurdle, but a recognition.
And second, if we could achieve thekind of stimulus that we’re talkingabout in a way that would have the pro-ductivity increases that we’re discuss-ing, it will eventually have some amelio-rating effect. But I think we recognizefrom a fundamental sense that theshort term is exactly that, short term.
MR. MURRAY: I think what was interest-ing is that long-term tax policy seemed torise above long-term deficit policy in thisparticular group as a long-term priority.
MR. STEEL: I think that there’s no reasonwhy long-term fiscal responsibilitycouldn’t be part of the economic vision,and so the idea that when the president-elect’s economic team lays out their pri-orities, this is what we’re going to do onJan. 20 and this is what we’re going todo longer term, that there is no reasonwhy a raise-your-right-hand-and-pledge commitment to that can’t bepart of the economic vision also.
MR. MURRAY: Changing the tax code, toencourage employment, job creationand investment and enhance globalcompetitiveness is fine. What are wetalking about here? Are we talkingabout cutting corporate taxes, or wetalking about changing the balance ontaxes between consumption and sav-ings? Can somebody put a little meat onthe bones of this new tax policy?
MR. BEWKES: We didn’t really debate andget to any agreement on what the ele-ments would be, but I think that therewas an acknowledgment that, on the per-sonal-tax side, this is long term, rateswould probably have to be a little higherthan they have been. We didn’t discussprogressivity within that. We didn’t getinto income tax versus other sources.That’s why we threw in the gas tax. Andwe were hoping that we could make thecorporate tax more competitive. It wouldbe somewhat lower, and more broadlybased, and wouldn’t, therefore, discrimi-nate as much as it does now on which in-dustries end up paying it. That’s about asfar as we got. y
Continued from page R5
Maria Cantwell
Max Baucus
Daniel Vasella
HEALTH CARE CO-CHAIRS:angela f. braly President and CEO,
WellPoint Inc.denis a. cortese, m.d. President
and CEO, Mayo Clinicjeffrey b. kindler Chairman and
CEO, Pfizer Inc.daniel vasella, m.d. Chairman and
CEO, Novartis AG
SENATOR:max baucus (D., Montana)
Angela Braly
Denis Cortese
Health CareThe U.S. spends $2.3 trillion per year on health care—
almost twice as much per person as other industrializednations—but we aren’t getting what we pay for. Studiesshow that fully a third of spending is wasted on treat-ments, drugs, and tests that don’t improve Americans’health outcomes and that adults receive recommendedtreatments for many illnesses only 55% of the time. Econ-omists warn that unless we can eliminate excess spend-ing and put health-care dollars to better use, risinghealth-care costs will present a growing threat to ourglobal competitiveness and long-term fiscal security.Laura Landro, an assistant managing editor at The WallStreet Journal, moderated the task-force discussion onhealth. Here are edited excerpts of the presentation oftheir priorities to the CEO Council.
Jeffrey Kindler
The Top Five Recommendations
1. FIGHT OBESITYUse the presidential office to drive home the prevention message. Make
reducing the obesity epidemic the top priority for the new surgeon generaland the Centers for Disease Control and Prevention, while addressing race-based health disparities in obesity and other health problems.
2. TORT REFORMReform malpractice, using the National Vaccine Injury Compensation
Program as a model. Create an environment that protects patients while al-lowing physicians to practice in high-risk specialties without facing prohib-itively expensive insurance premiums.
3. DEFINE VALUE, REFORM PAYMENTChange the reimbursement system to reward preventive care and evi-
dence-based care, and extend government efforts to no longer reimburseinappropriate, unsafe or wasted care. Move Medicare to a pay-for-valuemodel. Define and measure desirable outcomes for most common diseases.Include costs to government, private sector. Redistribute Medicare pay-ments to favor physicians who perform well. To collect data, wire the na-tion’s hospitals and doctor’s offices, with government-set standards for in-teroperability.
4. BUILD HEALTH-CARE WORK FORCEFocus on primary care. Include registered nurses, nurse practitioners
and allied professions, as well as M.D.s. Make sure there are enough profes-sionals to support increased access to care.
5. UNIVERSAL HEALTH INSURANCEEnact comprehensive health-care reform, including universal access to
affordable, quality insurance plans for those not covered by employer-based programs. Require individuals to buy insurance.
THE WALL STREET JOURNAL. Monday, November 24, 2008 R7
buildings, city buildings or homes,you’ve got this huge, huge market.
Along the way, you also need to dothings like raising consumer incentivesfor pursuing energy-efficient technol-ogy, a federal building code and federalstandards around energy efficiency. And
the reason youwant this form ofregulation is thatthe consumer andthe manufacturerand that wholetransaction cycledon’t bear the fullcost of it.
So the sum ofthat is, energy effi-ciency is clearlythe first place youput your money.It’s relatively
straightforward, but with some cleverregulation, we can build somethingthat we’ll sustain independent of thepanic.
MR. BALL: One quick thing that strikesme: There’s been talk about a federalbuilding code for years and it hasn’tgone anywhere. It’ll be fascinating tosee whether the energy situation wefind ourselves in leads to gettingthrough that gridlock.
OK, Paul Otellini on infrastructure?
Return on InfrastructurePAUL OTELLINI: This had to do with howthe stimulus-plan money would bespent. Our idea was to focus on infra-structure. And one comment was, let’smake sure the stimulus plan is not just apayout, that it rather is an investment. Ifyou think about ROI, return on infrastruc-ture ought to be something we look at aspart of deciding of how this gets spent.
There were two big areas. The firstwas, focus on roads, bridges, airports—allowing us to put people back to workbut also to decrease things like conges-tion. As the arteries are expanded, it al-lows us to be able to get cars, even asthey get more efficient, to be able tomove more rapidly and therefore wasteless energy.
A second big part of that had to dowith something that Jim coined, a green
stimulus plan. And this addresses thesupply side of renewables: What can wedo to really encourage a buildout, per-haps even slightly ahead of demand, onrenewable energy sources to ensure thatbecomes one of the five key elements ofthe decarbonization process?
And then the last comment on thiswas obviously self-serving: Let’s en-sure that there’s business participationin deliberating how the stimulus planwould be spent.
Electric CarsMR. BALL: Now on electric cars, CarlosGhosn.
CARLOS GHOSN: We started with a verygeneral topic: decarbonize the transpo-ration sector—try to eliminate as muchCO2, try to eliminate as much as possi-ble dependency onoil.
And we tookthe electric car asa very specific andmaybe eye-catch-ing example ofwhere the evolu-tion of technologyleads us to some-thing which wasunthinkable a fewyears ago: Weought to have veryspecific goals ofsaying by 2020, and if possible beforethat, 10% of total car sales should bezero emission—which means electriccars—reaching up to 50% of car sales in2030.
Now, by electric cars, I’m not talkingabout hybrid electric; I’m talking aboutcars with zero emissions, however youuse them. It’s not a car with a small en-gine to reinforce the battery. We’re talk-ing about the fact the consumer cannotemit any CO2 while he’s driving this car.And it’s a real car, it’s not a golf cart.
So, this technology today is aboutready to be launched. In 2010, 100,000cars will be on the market. I think theU.S. is going to receive the first lot ofthem. In 2012 many markets in theworld—we have counted about 40 coun-tries—are going to have an importantamount of electric cars.
But it’s not only about electric cars,because if you have 10% of cars beingelectric in 2020, it doesn’t solve theproblem. In the meantime, you stillhave to go through the continuous im-provement on gasoline engines, diesel
engines, flex-fuel, ethanol, and con-tinue to develop technology of the fu-ture that may be ready after the electriccar is being mass-marketed, like thefuel cell, using hydrogen as a fuel andthen you emit water.
So the electric car is a very specific is-sue. Obviously, there are going to be dif-ferent generations of technology com-ing, but the present technology ready tobe mass-marketed in 2010 is already suf-ficient to fulfill the basic needs of theAmerican consumer, the European con-sumer and the Japanese consumer.
MR. BALL: Two other quick things. If youremember back to this morning, the num-ber we started out with for electric carswas 5% of sales in 2020. We’re now at10%. There was an impassioned discus-sion in the room about what the rightnumber was, but a general sense that 5%was not being ambitious enough.
Lastly on the numbers, there was asense that we did not want to have justa 2030 or a 2050 goal, that there are toomany long-term goals that are not ableto be sort of grabbed onto. And so it’s im-portant to have a goal that’s in a muchshorter time frame.
ALAN MURRAY: I think it’s great you havethose specific goals in the electric caritem. But in the decarbonize power sec-tor item there are no specific goals, al-though Jim Rogers mentioned zeroemissions by 2050. And the secondthing is, it’s not clear how you get there.Can you get there without putting aprice on carbon emissions? Can you getthere without a cap-and-trade system?
MR. ROGERS: It would be my judgmentthat you need a cap-and-trade system.You need a cap on emissions to declineover time. You need a price on carbonfor long-term planning. But quitefrankly, to quote the Pentagon, which of-ten says, “A vision without resources is ahallucination,” I believe a carbon policywithout technology is a hallucination.
MR. BALL: There was, I think, a prettystrong consensus in the group thatwhere a lot of this needs to start is withsome political honesty and levelingwith the American people about the de-gree of pain and money and sacrificethat’s going to be required.
MR. GHOSN: Today coming to the car in-dustry—not only the Big Three but alsothe Japanese and Europe and every-body—and telling them, “You guys aregoing to have to invest billions of dol-
lars in transforming your car into zeroemission, and you have to invest in bat-teries”—well, they have practically noaccessible financing. I can tell you allthe car makers today have a problemwith credit.
That’s why I think ensuring long-term financing—and again, it’s not onlya U.S. problem—is absolutely fundamen-tal if you want these things to happen.
MR. ROGERS: I want to underscore whatJeff said: It’s not going to be cheap, it’snot going to be easy. Many environmen-talists and many political leaders areleaving the impression with the Ameri-can people that you can snap a fingerand there we are. But I think it’s goingto be expensive, it’s going to take invest-ment and it’s going to take a consistentpolicy in this country—something thatwe haven’t had, and we’ve been talkingabout energy independence and energypolicies since the 1970s. But we haveyet to actually implement a consistentpolicy.
MR. MURRAY: Let’s go to Senator Binga-man and let him respond to what he’sheard here.
JEFF BINGAMAN: The point that seemedto me to be unsaid is that all of theserecommendations involve a substan-tial accretion of more authority at thefederal level. A lot of what is currently
done with regardto energy effi-ciency, with re-gard to the powersector, with re-gard to the infra-structure, thosedecisions aremade by state reg-ulatory agencies.And that’s got tochange in order toput in place thekinds of long-termpolicies that I
think are being advocated.If you’re going to have federal siting
of transmission lines, if you are going todo the decarbonizing that you’re talk-ing about, if you’re going to have decou-pling of profits from improved effi-ciency, all of that is going to have to bedone federally if it’s going to have theimpact that we’re talking about.
So, I don’t disagree with the mainthrust of what’s being discussed. I dothink that an integral part of it is thecap-and-trade proposal, which has
been endorsed by our president-elect,and I think is going to be seriously con-sidered in this Congress. And I think itwill have an impact on carbon usagethroughout the economy, and it willoverlay in many ways the regulatorychanges that are being discussed here.
MR. ROGERS: Senator Bingaman remem-bers how difficult it was just to get thetype of legislation we have today interms of building transmission linesand interstate commerce. It’s a huge
pushback at thestate level with re-spect to that.
I do think youcanhavesomeover-arching principles,but the implemen-tation is going tohave to be at thestate level. This isgoing to take a col-laborativeeffort be-tween the federalgovernment withoverarching princi-
ples and state commissions actually im-plementing them.
A Sense of UrgencyMR. OTELLINI: I think there also has to bea sense of urgency built into it. Whenone thinks of federal regulation ormore power accreting to the federalgovernment, one doesn’t usually thinkof things moving faster. So there has tobe implicit in this a sense of urgency,and a sense of to some extent relief tobe able to do things more rapidly. Likebuilding a nuclear plant.
MR. SCHMIDT: There are many, many in-teresting technology projects just wait-ing for infrastructure that are hung upin local and state governments. As weall know, the states have no money forthe next year or two, and may not for along time. The only place where boththe authority and the financing will bepossible will be at the federal level, andit needs to happen quickly. The reasonit has to happen quickly is it’s a com-pounding effect. If you don’t get startednow you’ll lose those years forever.
SEN. BINGAMAN: I think implicit in myconcept of a comprehensive national en-ergy policy is the authority at the na-tional level to make energy policy. Andthat doesn’t exist in many parts of whatwe call energy policy today. y
Continued from page R6
Carlos Ghosn
Energy
Put two former Treasury secretariesand one current Treasury secretary to-gether, and you’re bound to get plentyof agreement—and disagreement.
Current Treasury Secretary HenryM. Paulson Jr., and two of his predeces-sors—Robert E. Rubin and Lawrence H.Summers—talked to The Wall StreetJournal’s Alan Murray about the short-term financial crisis and the country’slong-term economic needs.
Here are edited excerpts of their con-versation:
How Far We’ve ComeALAN MURRAY: On a scale from zero to10, where zero is we haven’t done any-thing yet to deal with the problem and10 is we have done everything we possi-bly could to deal with the problem,where do you think you sit right now?
HENRY PAULSON: Well, I don’t like to dealwith 1 to 10 scales. But I will say this: Ifthe issue was to stabilize the financial
system and pre-vent a collapse,and get by thepoint where themarket is rattledwondering whichbig institution willgo down next, Ithink on a scale ofone to 10 we arevery close to 10.
But in terms ofwhere we need tobe, we have a lot ofwork to do to re-
store the financial system, and restor-ing the financial system will go a longway in helping the economy recover.There is still a good bit to be done be-cause the economy is turned down.Housing prices are still declining. Thepositive is we have got the major na-tions and G20 [nations] working to-gether to address the problem, but it isone that we are going to be workingwith for a long time. There is going tobe stress in the capital markets for anumber of months here because hous-ing prices are still declining, and now Ithink it has moved beyond housing.
MR. MURRAY: Bob Rubin, let me try you.On a scale of 1 to 10, how close are we tohaving done what needs to be donefrom the government’s standpoint todeal with this crisis?
ROBERT RUBIN: I will respond to thequestion in my own way, which is theway I think about it. Take all of the pub-lic policy that has been put in place, andthen you take what will happen—whether it is now or when Sen. Obamabecomes president—which is a large fis-cal stimulus. You put all that together, Ithink that there is a strong probabilitythat the crisis piece of this—the psycho-logical crisis, the pervasive anxietythat we are in right now—will abatewithin a reasonable period of time.
MR. MURRAY: Within a reasonable pe-riod of time: weeks, months?
MR. RUBIN: Reasonable period of timewould be a period of time that is reason-able. But I think even after that is gone, ifyou go back to the period of, say, sixmonths ago or eight months ago or 10months ago, before it became a psycho-logical crisis of confidence, we were stillhaving very difficult times. And I thinkonce we get past this psychological cri-sis, we will still have difficult times. Wewill have to work our way through that,and I don’t know how long that will takeor how deep it will go, but clearly a lot ofdamage has been done, and it is going totake some time to get through that, cer-tainly well into next year.
MR. MURRAY: Are you saying the focusnow can be on the fiscal stimulus, thatthe financial system has been dealt with?
MR. RUBIN: No, I am certainly not sayingthat. I think the financial system is inbetter shape today than it was beforeHank and the people at the Fed acted inthe various ways they acted. Certainlythere are many issues lying ahead inthe financial system. I think the singlemost important thing we can do rightnow is a very large fiscal stimulus mar-ried with a commitment once the econ-omy is healthy again to put in place amultiyear program to get back to asound fiscal regime.
The Need for StimulusMR. MURRAY: Let’s talk about the fiscalstimulus. Larry Summers, I shouldmake it clear that you are here to speakon your own behalf. You are not speak-ing on behalf of the Obama team or theObama transition. You wrote a columnin which you argued that we don’t needto be mindful of the deficit in the shortterm, but we shouldn’t do anything inthe short term that is going to make thedeficit problem worse in the longerterm. Can I get you to elaborate a littlebit on that? Does that, for instance,mean that we don’t want to do any taxincreases in the short term?
LAWRENCE SUMMERS: I suggested in Jan-uary—and I think it was a reasonablesuggestion at that time—that fiscalstimulus should be timely, targeted andtemporary. I frankly think the situationhas deteriorated very substantiallyfrom that point, and so I would go forspeedy, substantial and sustained overa several-year interval. I think we aregoing to need some impetus to the econ-omy for two to three years.
More RegulationMR. MURRAY: There was a hearing lastweek where five big hedge-fund man-agers appeared before Congress, and amember of Congress said, do hedge fundsneed more regulation? Four of the five an-swered yes. We are clearly moving into aperiod where the regulatory role in theeconomy is going to increase.
MR. PAULSON: One of the strongest rec-ommendations we made was the Fedneeded to play the role of a macro stabil-ity regulator, being able to look acrossthe whole economy and look at risks itmight pose and then have the authorityto intervene if necessary. And as part ofthat program we would believe that thehedge funds that are big enough to besystemically important to have a char-ter, and that be the hook for the Fed tobe back to engage with them as a macrostability regulator.
MR. MURRAY: So Bob Rubin, how fardoes this swing of the pendulum go?How much more regulation are we talk-ing about? At what point does the regu-lation become a problem?
MR. RUBIN: I actually wrote a book thatcame out in November of ’03, in which Isaid that I thought that these revenuesand these products of financial engi-neering could serve very useful pur-poses, and did serve useful purposes un-der normal circumstance, but could cre-ate systemic risk under stress circum-stances, which is clearly what we havehad in the last number of months orthe last year. And what I said is that weshould have higher, substantiallyhigher actually, capital and margin re-quirements with respect to derivativesand other products of financial engi-neering. And I would guess that what-ever else is done in the reform area,that will be one item.
I think there is an overall principlethat should be applied, and it goes toyour question about the pendulum, andthat is the objective ought to be in-creased protection against systemic
risk, and in-creased protec-tion for consum-ers. But we alsohave a market-based financialsystem, and I thinkthat is the most-ef-fective way for oureconomy and forthe American peo-ple to have the fi-nancial system or-ganized.
So it seems tome that you have to find the optimum bal-ance between increasing protectionsagainst risk and maintaining the benefitsof market-based systems, as opposed tothe objective of minimizing or even elimi-nating risk. And it is finding that opti-mum balance that is going to be the greatchallenge not only substantively but po-litically.
Funding the DeficitMR. MURRAY: Even in the short term, youface the prospect of the U.S. governmenthaving to borrow phenomenal amountsof money to fund these programs.
MR. SUMMERS: One way I have put this topeople is to say if I spend a lot of money
on an incredibly elaborate vacation, Idon’t have that money anymore. If Ispend the same amount of money on ahouse, then I have a house. I am onlypoorer to the extent that I overpaid forthe house. So I think it is very importantto distinguish debt issued to finance gov-ernment spending of one kind or an-other from debt issued to finance gov-ernment acquisitions of financial assetsof one kind or another, and to focus in ef-fect on the net debt of the federal govern-ment. And I think that could become acritical concern at some point, andthat’s why I put the emphasis I did onlong-term fiscal sustainability.
At the same time, I think it is impor-tant to recognize what the market is tell-ing us today. And what the market is tell-ing us today is that there is an extraordi-narily wide spread [in yields] betweenTreasurys and anything else. Some ofthat is because they are worried aboutwhat anything else is, but some of it is be-cause there is a rather large flight toquality that is running into Treasurys.That is why there was one moment—and this illustrates when it becomespathological—when over a couple ofmonth period the interest rate on Trea-surys was actually negative, and thatwas because the mattress was kind of in-convenient and there was no other placeto store your money so people were actu-ally paying the government to storetheir money with safety. Fortunately, inpart thanks to the various steps thatHank took, that is no longer the case.
Lehman, in HindsightMR. MURRAY: Secretary Paulson, in retro-spect, given everything you have seenover the past 60 days, was it a mistaketo let Lehman Brothers fail?
MR. PAULSON: The reason I believe it wasnot a mistake is we didn’t have an option.People have a hard time understandingthis, because they think you are the gov-ernment, you can do anything. I can justsay to you the Constitution doesn’t giveTreasury the authority to do anything.We worked with Fed powers to make aloan that is secured to the satisfaction ofthe board of the Fed.
People often ask me to differentiatebetween Bear Stearns, Lehman Brothersand AIG, and to me it was very clear. Atthe time of Bear Stearns, we had a buyer.At the end of the day the buyer wouldn’ttake all the assets but they weren’t ad-versely selected. The New York Fedlooked at that and was quite confidentthat that was adequately secured andthey were going to get paid back.
After Bear Stearns went, I gave vari-ous speeches, [Federal Reserve Chair-man] Ben Bernanke gave speeches. Wesaid we do not have the powers and au-thorities we need to wind down a non-bank and keep them out of bankruptcy.We don’t have it. We testified as such toCongress. At Lehman, after they an-nounced their second-quarter earn-ings, it was really clear that the marketdid not have confidence. I believe themanagement tried very hard to pursueother things, look for buyers. Not onlydid we not have a buyer at the end, butthe potential transactions we lookedat, buyers came in and said these arethe assets we would need to leave be-hind and we value them as X and theyare on the books for Y. The difference be-tween X and Y was substantial and so Ithink it would have been impossible un-der any law I have seen for the Fed tomake that loan. We did not have the
TARP [bailout fund].When the Fed looked at AIG, they
again had operating businesses thatthey felt that they could make a bridgeloan against and they had the security.
Fiscal DisciplineMR. MURRAY: Let’s open this up. DavidWalker [president and CEO of the PeterG. Peterson Foundation], you have beentalking a lot about a subject that is closeto your heart, and that is the fiscal situa-tion of the U.S. Do you have a commentor a question for the panel on how thisperiod we are going through is going toaffect our fiscal situation?
DAVID WALKER: My question is that forthe first time in history the total liabili-ties of unfunded obligations of the U.S.now exceed the net worth of all Ameri-can households. And the hole is grow-ing deeper, faster than the net worth isimproving. So my question is, when andhow we will start dealing with the fed-eral government’s financial problem?All of you have talked about the need todeal with the short term, but to recog-nize that we have got a structural prob-lem over the long term that we need tocome to grips with. There never seemsto be a convenient time to deal with it.
MR. SUMMERS: There is no question thatwe have got a long-run fiscal problem.
A decade ago, people would havesaid it had many elements but theywould have put at the center the retire-ment of the baby-boom generation. Theretirement of the baby-boom genera-tion continues to be a critical issue. ButI think most people who analyze thelong-term problem today would put pri-mary emphasis on the fact that the gov-
ernment buys alot of health care,and that health-care costs grow4% or 5% fasterthan GNP, andtaxes grow atabout the samerate as GNP and sothe gap widens.
I think the cru-cial question is go-ing to be how wecan bring somegreater efficiencyto that system,
and the government as a coordinator,the government as the largest buyer,has, I think, a very large role to play.
Tax Cuts and the StimulusPAUL GIGOT [Editor of the editorialpages of The Wall Street Journal]:Given the need, Secretary Summers, forsubstantial stimulus, we have some taxcuts that are expiring, as you know in2010. I think you called for a substan-tial and sustained stimulus maybe for atwo or three year period. Where wouldtax increases fit into that stimulus cal-culation, and would it contradict thekind of stimulus you are talking about?
MR. SUMMERS: What matters for stimu-lus at this point is the total level of de-mand in the economy, and that goes tothe total size of the fiscal impulse, whichis about what the net deficit is, adjustedfor cyclical conditions. That really is theissue, not the particular composition oftaxes. It won’t surprise you if I share theview that the stimulative benefits of thetax cuts as they were designed in 2001and 2003 was in most respects very lim-
Please turn to page R9
Jeff Bingaman
Paul Otellini
Robert Rubin
Eric Schmidt
LawrenceSummers
Henry Paulson
Talking to TreasuryHenry Paulson, Robert Rubin and Lawrence Summers
discuss how far we’ve come—and how far we have to go
R8 Monday, November 24, 2008 THE WALL STREET JOURNAL.
Most people agree: Our educationsystem isn’t working. Too many of ourkids aren’t getting through high school.Our students score poorly on interna-tional standardized tests. The teachingprofession does not attract—or retain—enough of our brightest minds.
The trick is getting a consensus onhow to fix it. To talk about solutions,John Bussey, the Washington bureauchief of The Wall Street Journal, satdown with three people who have spenta lifetime thinking about education:James Comer, a professor of child psychi-atry at the Yale School of Medicine ChildStudy Center; Joel Klein, Chancellor ofthe New York City Department of Educa-tion; and Louis Gerstner Jr., former chair-man and CEO of IBM Corp. Here are ed-ited excerpts of that discussion.
JOHN BUSSEY: Lou Gerstner, we have amultitude of school districts spread outover counties, cities, states, over diversedemographies. The federal governmentdoesn’t have a lot of levers that it canpull. What should President Obama do?What would you recommend?
LOUIS GERSTNER JR.: The first thing Iwant to ask the president-elect to do isto ask the important question: Why?Why have we failed to reform the publicschools after all this time?
The first possi-bility is that wedon’t know whatto do. Well, let meassure you, weknow exactly whatto do to fix the pub-lic schools. Weneed high, rigor-ous standards, weneed great teach-ers supported byhigh compensa-tion for the very
best teachers. We need more time ontask, we need a longer school day, weneed a longer school year, and we needaccountability and measurement in thesystem so we can constantly adjustwhat’s going on. That’s it, it’s all weneed. So, the problem isn’t that wedon’t know what to do.
Next possibility is, Well, maybe wedidn’t work hard enough on it. Well, myGod, have we worked hard enough on it.We have had millions of pages of re-ports, thousands of task forces, theyjust come out like the spring flowers.We have every kind of report, and we’vestudied it to death.
And by the way, along the way we’vehad some great successes. We’ve hadsome great heroes. People like JoelKlein are heroes in our country. Thewoman who’s running the public-school system in Washington—
MR. BUSSEY: Michelle Rhee.
MR. GERSTNER: —is a great hero. Theguy running the school system in NewOrleans is a great hero today. We’ve hadlots of things that show that when wedo it right, it works, but systemically,the system continues to fail.
Change the Model
MR. BUSSEY: How would you alter thatsystem?
MR. GERSTNER: I’m going to say to thepresident-elect that the fundamentalthing we have to do is change the gover-nance model and accountability and ex-ecution model for education in thiscountry. And what I’m going to suggestis that he convene the 50 governors,and the first thing they do is they abol-ish the 16,000 school districts we havein the United States. Sixteen thousandschool districts are what we’re tryingto cram this reform through.
Now, when I took over IBM I found Ihad 81 profit centers. Oh my God: Howam I going to create change with 81profit centers? How’d you like to createchange with 16,000 profit centers?These organizations stand in the way ofwhat we want to do.
Now, the governors could decide,we’ll keep them as advisory, we can keepthem as community support, but theywill not be involved in the fundamentaldirection of public education in Amer-ica. Second, this group of governors willthen select 50 school districts, plus I’dsay 20 major cities, so we got 70 schooldistricts. Seventy instead of 16,000.
They will within one year develop anational set of standards for math, sci-ence, reading and social studies.Twelve months after that they will de-velop a national testing regime, so thatthere’ll be one day in America where ev-ery third, sixth, ninth and twelfthgrader will take a national test againsta national curriculum.
Third, these governors and mayorswill come together and develop a pro-gram of national certification for teach-ers. Teachers must have the capacity toteach, they must prove that they canteach, they must be tested that they canteach, and then we’re going to put a pro-gram in to pay the best teachers incredi-bly higher salaries—$40,000 to$50,000 more than they currently canmake for the very best teachers.
And finally, we’re going to then al-low all the school systems in the U.S. toinnovate, to go out and figure out howto get it done. Let those principals andteachers in those schools figure out allthe possible ways that they think theycan meet those standards, and stopchoking them with regulations and re-quirements. And so, we will do what wewould do if we were trying to create achange in an organization. We wouldset very clear goals, and then we would
free up our people to go and deliver, andif they don’t deliver we change them.
Those Who Can’t
MR. BUSSEY: Dr. Comer, it’s a businessmodel for the school systems, you seeeconomies of scale, standardization, re-ducing the profit centers. Does this work?
JAMES COMER: I agree with much ofwhat was said. What’s missing, I think, isa focus on preparing teachers and ad-ministrators to be able to support the de-velopment of students, to create the cul-ture that allows them to support the de-velopment of students. That’s not whatthey’re prepared to do right now. I don’tthink we will reduce or improve the grad-uation rate in inner cities and in difficultenvironments unless teachers and ad-ministrators are able to do that.
We don’t prepare them to supportthe development of children in part be-cause we have a model that is inappropri-ate. We’re using what is essentially abusiness model in schools, a manufactur-ing model. That works well if you’re deal-ing with inanimate objects, but whenyou’re dealing with children, young peo-ple, who are immature, underdeveloped,who must be moved from that underde-veloped state to well-functioning adultscapable of learning, applying that knowl-edge at work, family members, citizen-ship, it’s a more complicated process.
MR. BUSSEY: How is it done? Is it throughthe training of teachers?
MR. COMER: To get systemic change,you’re going to have to change the wayteachers and administrators are trainedin schools of education. And whereverthey’re prepared, they will have to knowhow to support development, and howto create cultures where you can sup-port development and help childrengrow. And how you embed the academiclearning and material in the activitiesthat you create to support their develop-ment; and simultaneously improve aca-demic learning, to the point that theycan meet the standards that we’re talk-ing about. And at the same time im-prove the kind of non-academic learn-
ing that’s necessary to be successful inschool and in life. And the kind that em-ployers keep calling for—the educationthat will give them imagination, curios-ity, personal discipline, responsibility,all of those things need to be built intothe curriculum and instruction.
MR. BUSSEY: Does standardization workwith this process?
MR. COMER: Sure it does. But in additionto standards, you have to focus on pre-paring teachers and administrators tobe able to help the kids grow, so thatthey can meet standards.
The Federal RoleMR. BUSSEY: Joel Klein, what can thefeds do to help?
JOEL KLEIN: There’s a reason why we’restill stuck in the same ditch. Thatdoesn’t happen by accident. There arestrong and powerful forces that main-tain the system, because it works wellfor lots of people, just not the kids.
And if the presi-dent were to askme, I would tellhim there are twothings that heought to focus on,both mentionedby Lou. The first isnational stan-dards and nationalassessments. Thetragedy is not sim-ply how many kidsaren’t graduating.The tragedy is how
many kids are graduating wholly unpre-pared for anything that follows. The eas-iest way to improve the graduation ratein America is to lower the standards.And lots of people have done that, andas long as we keep doing that, we’ll de-lude ourselves into thinking we have adecent graduation rate, but in fact ourkids will be wholly unprepared.
In New York City, and this is highlycontroversial, we put a letter grade onevery school, based on progress. Andwe do that to make the system transpar-
ent and actually allow people to bringthe house down on us. Because you puta letter F or a letter D on a school, andeven middle-class schools that think,because they have a lot of bright kidsthere, they’re doing a great job, butthey’re not remotely doing a great job.
Our kids in Ohio are not going to com-pete differently in a global economythan our kids in New York. It’s sort ofsilly to have all of these different stan-dards and assessments. And also, itmakes the attack on assessments easierbecause by having 50 different ones,you’re not really investing in getting theeconomies of scale.
The magic in-gredient in thegame I play is high-quality teaching.We don’t remotelyhave enough of itbecause we don’treward it properly,we backload thepay scale. The realmoney goes intothe people who arein the system along time, gets rolled up in a defined-benefit pension plan, makes it very hardto attract new talent. We don’t rewardexcellence, we don’t give hardship pay,we pay the same thing for a scienceteacher and a math teacher that we dofor a physical-education teacher. If anyuniversity did that, they’d go under.
I would repurpose almost all of thefederal dollars that are now in it. That’sa lot of money, $30 billion to $40 bil-lion. I would repurpose that to teacherexcellence.
MR. BUSSEY: Is the system that existsnow too cumbersome to remove teach-ers who are underperforming? Is that is-sue high on your list?
MR. KLEIN: I don’t think you’re going toget that until you have meaningful,widely accepted accountabilities. Andthen you tie it to teacher value added.But you can’t do everything from Wash-ington. There are massive collective-bargaining agreements out there. Butwhat you can do is make transparenthow underperforming the system is.
And then let the cities, let the states,whoever’s going to be responsible, dothe innovation, partner with the peoplethat Jim is talking about, and others. Anddon’t try to micromanage from, muchless from D.C., but not even from a largecentral school district. Give the peoplethe accountabilities, make it based onprogress. Don’t base it on what ZIP Codeyou’re in because those kids may start ata different level. Base it on progress.
MR. BUSSEY: Do you buy this idea ofshrinking the number of school dis-tricts so that you can standardize the50 state districts and maybe 10 or 20 ofthe big cities—
MR. KLEIN: It may be a good idea, but thatseems to me the least politically feasibleright now. On the other hand, nationalstandards, done with governors, donewith experts, benchmarking againstwhat’s going on, that will set the frame-work. If you don’t have the right horizon-tal and the right vertical axis, it’s veryhard to do the measurement.
Why Teachers Leave
MR. BUSSEY: Dr. Comer, back to theteachers for a second. Why is it that46% of teachers parachute out of theplane before five years?
MR. COMER: Well, the No. 1 reason thatthey give is that the administration ofthe programs and schools that they’rein, there are problems there. And sec-ond is that they have no ability to influ-ence what goes on in their buildings.
But the third reason is that theyweren’t really prepared to work withchildren. And that is the one that I’mmost concerned about. Learning reallytakes place in that interaction betweenthe teacher and the child. And we can doall we want beyond that. If we don’tmake it possible for that teacher to influ-ence the development, promote thelearning, then it doesn’t take place.
The teacher and administratorshave to be able to create the culture thatwill support the development of chil-dren. Last month, I was in a school, ahigh school in Virginia, that had had fiveprincipals in seven years. Total failure.The last principal has now been therefour years and has a terrific school. Sowhen we talked about what went on,this was someone who believed in devel-opment, who brought in a staff that be-lieved in development, and they createdinteractions among the teachers andthe students that helped them grow.And because of that, they were moti-vated to learn and they were able toachieve at a higher level.
MR. GERSTNER: I think there’s some-thing very important to understandhere. Up until 1960-65, we had a captivelabor force in our schools. Any bright,ambitious woman who wanted a careerwent into teaching or nursing. We hadthis incredible group of people that weunderpaid and they taught our kids.
What have we done since then? Wehave to compete now to get teachers.And what’s it like to be a teacher? Well,
Please turn to page R10
Global Treasuryabout it that we added it to our ownpriority here around an educatedwork force.
And that translates into enacting,through this education priority, stan-dards for assessing performance withinthe schools, standards for student per-formance, clear accountabilities for per-formance and funds for teaching excel-lence, pay for performance.
For this group, a priority on mathand science education was critical. Ilead a chemical company. The chemicalindustry employs 80,000 chemists andengineers in the U.S. We struggle to getthe talent out of the universities thatwe need here in America.
And many of the Ph.D. students com-ing out of the U.S. school system are for-eign nationals. They have difficulty get-ting green cards. They go back to theirhome countries. We have difficulty at-tracting and retaining that talent.
So a clear prior-ity on education.We believe that apartnership to helpdeliver on that pri-ority in the privatesector is worth ourtime, worth our in-vestment andworth our engage-ment. And we rec-ommend that thenew President andthe new adminis-
tration take this on in full force.We need a work force that is skilled
in delivering trade talent that is 21stcentury and beyond so that talent canoperate equipment, can do the kinds ofthings that are required in our facilitiesthat are very different than what wasneeded 50 years ago, in terms of tradesand talent.
And then there was a fair amount ofdiscussion around immigration policiesand the need to open those policies tobring foreign nationals into our schoolsystems, as well as give companies theflexibility to move employees aroundthe world, whether that be short-termor long-term assignments.
We are all bogged down in the bu-reaucracy and the inability to bringour work force to the countries thatwe need them to work in on a very flex-ible basis.
The Senator’s Response
CHARLES SCHUMER: What has createdthe change in this election is decliningmiddle-class incomes. The averageAmerican, the median, from 2001 to2007 went down from $48,000 to$46,000. That is before the recessionand all the economic problems.
The country was prosperous, but inthis global economy that is technologi-cally driven, the prosperity does nottrickle its way down the way it used to.That is because probably we deal in in-tangibles. The same kind of wealth iscreated and good ideas matter asmuch as they ever did but the creator
of the ideas is able to capture more ofthe income. And so how do we dealwith this?
Take Henry Ford’s great idea, thecar. He needed lots of people to makethe cars, sell the cars, service the cars.He became very wealthy, and he shouldhave. And then, he created a million peo-ple who made $10,000.
The bookend of that would be BillGates and Microsoft. They also massproduced something, a computer plat-form. Because it was fundamentally anintangible, he created 10,000 peoplewho made a million dollars.
Both are equally important to soci-ety. Both created wealth. That is ourproblem. It is technology that has cre-ated the global economy and globalcompetitiveness. And in a democraticsociety, if middle-class incomes are go-ing to continue to decline, you are notgoing to have people buy into the pro-gram. They are going to want somekind of change.
So how do you create constructivechange? Barack Obama realizes that, ofcourse, we have to trade in the globalworld and it should be to our advan-tage. We are an innovative society.
But to make the changes, you needto cushion the blow. We need businessto join in with us much more on cushion-ing the blow. There is no money fortrade-adjustment assistance. None.Three hundred steelworkers lost theirjobs in Syracuse. They have waited fouryears and they are still waiting.
Dealing with some of these short-term tax changes, certainly I would befor, and I think you will find most ofthe Senate and the House, Democratsand Republicans, being for cutting theshort-term tax rate on investment andinnovation, and that is probably avery profitable area to pursue earlynext year.
For the long term, the only real an-swer is education. And if I had one ma-jor criticism of the business commu-nity, we do not hear from you enoughon education, which is our future. It isnot just our future in terms of skilledjobs, which is important. If we have thebest education, we will stay No. 1 andthere will be lots of jobs that pay a lotand incomes will go up.
If you want to say teachers should beheld to higher standards, you are goingto have to pay them more. When yousay you are going to have tough stan-dards and we are going to have to fireyou and here is a 3% raise, forget it.
If you were to really raise the sala-ries and tie it to standards, you couldhave a grand compromise and reallyhelp improve our education.
And that would be my plea to you be-cause education in this campaign didnot get the priority it deserves for thefuture of America.
ALAN MURRAY [deputy managing editorof The Wall Street Journal]: Senator, fed-eral dollars in education are a fairlysmall part of the pie. There was a sugges-tion that we take what there is in federaldollars and devote that to teacher excel-lence. Would you be in favor of that?
SEN. SCHUMER: I would. But I would befor greatly increasing the pot. Schoolsnow are funded by property taxes.
The typical math teacher in Americais the English teacher who has taughtfor 12 years and the geometry teacherwho is 60, probably a woman or a per-son who went into teaching becausethey wanted to avoid the draft. Andthey say, OK, English teacher, read thegeometry book over the summer. Youare teaching geometry. She hates geom-etry. She does not know geometry and
the students thinkit is terrible.
So Lamar Alex-ander, RepublicanSenator from Ten-nessee, and Ipassed a bill. It isnow law. It is an au-thorization thatsays, if you get outof school and youhave majored inmath or science,the federal govern-
ment will pay for a nine-month courseto teach you how to teach. You have topass two tests. A knowledge test of thesubject—math, biology, whatever—and a pedagogical test.
And if you pass both those tests ev-ery year, the federal government aug-ments your salary by $20,000 a year.
And it is law. And guess who sup-ported it? The AFT [American Federa-tion of Teachers]. One of the two teach-ers’ unions. Because they were willing,for a significant increase in money, toget rid of their old shibboleth that agym teacher and a math teacher shouldbe paid the same.
We desperately need your help be-cause frankly, education is not a federalissue right now. And it will not get thepriority that it needs unless you reallyget involved.
MS. BURNS: We’ve got a heck of a lot ofpeople retiring. And I am just wonder-ing if there is not a way to engagethese retirees more, get them in theclassroom until the system catches upwith talented teachers who have ma-jored in their field, who are ade-quately paid.
SEN. SCHUMER: That is a very good idea.The No. 1 thing that influences how wella student does in school is their fami-lies and the values the families teachthem. Number two is quality, not quan-tity, of teachers. Bill Clinton was wrong.He said, reduce class size. The unionslike that. But I would much rather have,and I think the educators who studythis would much rather have, a reallygood teacher of 23 kids than a mediocreteacher of 18.
MR. SEIB: My perception here is of shipspassing in the night. This morning thediscussion of education started withsomeone saying, ‘I wish the new admin-istration would involve us in improvingeducation.’ You come and you say, you,in the business community, need to getmore involved in improving education.Why is this not happening?
SEN. SCHUMER: Well, all I can tell you is, Isee lots of businesses. And they come inand lobby on everything. And rare isthe business that comes in and lobbieson education. And here is what we re-ally need. y
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James Comer
Stephanie Burns
Louis Gerstner Jr.
Joel Klein
ited. We could have a general argumentabout the relative merits of supply-sideand demand-side approaches, but forthe duration of the recession the es-sence of what we mean is that the econ-omy is demand-constrained: con-strained by how much demand there is.And for that purpose tax cuts that are fo-cused on middle-income families are al-most certain to have a larger impact onspending, and therefore on demand andthe economy, than tax cuts that are fo-cused on those at the high end.
MR. PAULSON: I would just simply say look-ing forward I don’t think we are going tofind tax increases helpful here. More gen-erally the part of the tax code that con-cerned me the most in my time at Trea-sury was corporate taxation, because as Ithink about taxes, we obviously needtaxes. We need to be fiscally responsible.So I think about them and say now whatpercentage of GDP should be consumedby taxes? And then when you come tothat optimum amount, then say whatform of taxes should you have to put thesmallest drag on the economy? Whatform of taxes will give you the most jobsand growth? All the work that we did con-cerned me that among the most expen-sive taxes we raised in terms of the im-pact on the economy are corporate taxes.When I take a look at what is happeningaround the world and I look at how in theglobal marketplace others are taxingtheir corporations, that’s something elsethat gives me pause.
MR. SUMMERS: We have all been talkingabout the deficit. We have got substantialneeds for the financial sector. We have 50million people without health insurance.There are clear needs around health cov-erage, there are clear needs around theenergy sector. As you said, the financialprograms are going to cost a lot more.There are many people that feel that asthe unemployment rate has gone up thatwe are going to need to substantially putrevenue into unemployment insurance.Schools in America are on four-dayweeks. Would it be your view that a prior-ity use of federal resources right nowshould be corporate rate reductions?
MR. PAULSON: I didn’t say that. I did say,though, when we were talking abouttaxes, I think the right way to look at thisis to say, how big should taxes be? Howmuch can our economy support? Becauseat some level no matter where you are onthe spectrum, you are going to say thatthe taxation is too much of a burden. Andwhenever you get to whatever that levelis, then I think you need to say what is theright form of taxes. The only point I madewas I do believe that since fiscal disci-pline is going to be so important, and weare all going to have more taxes than wewould like, we need to look at not only thelevel but the composition of those taxes. Iwant to make sure that our companieshave what it takes to be competitive. y
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Charles Schumer
Failing Our ChildrenThree education experts on what needs to be done
in our schools, and why we haven’t done it
THE WALL STREET JOURNAL. Monday, November 24, 2008 R9
first of all, you go to a teachers col-lege, which are the backwaters ofa collegiate place. They are awful.If you don’t get into any otherthings, you go to the teachers col-lege, where they teach you teach-ing math. You don’t get math fromthe math department in the uni-versity, you get teachers math.And they don’t get the support,they don’t get the kind of trainingthat Dr. Comer’s talking about.
Andthen what do they look for-ward to? They look forward to, onaverage, 20 years later they’re go-ing to make $46,500 in the UnitedStates. And that’s the good news.Because the bad news is, they’regoing to make $46,500 regardlessof whether they’re good or bad,because everybody’s going to getthe same. So which half do youthink leaves in that first fiveyears? The half that has choices.
And so, we have got to startwhat Dr. Comer said, to changethe way we train teachers. We’vegot to make the profession onethat’s respected again. We’ve gotto pay them, the best ones, a lotmore money. And then we’ve gotto hold them accountable so thatthe teachers that are not perform-ing get moved out of the system.
MR. KLEIN: The countries that suc-ceed, they tend to draw theirteachers from the top quarter,top third of their graduating col-lege classes. These are peoplewho have been academically suc-cessful, who believe in assess-ment, because they’ve lived un-der it and it’s served them well.In the United States, we drawteachers from the bottom quar-ter of our college graduates, andour kids in high-poverty neigh-borhoods get the bottom quar-ter of the bottom quarter.
And all the incentives are mis-aligned. You wait for the 20 years,because then it’s actually when itstarts to get good, because you’regetting across-the-board payhikes. So whenever I pay a three-year, 10%, across-the-board payhike, the people who are lockedinto the system are getting$8,000 and $10,000 and $12,000raises, all rolled up in a definedbenefit, which means that I’m notgetting any return on that money.Whereas the people I’m trying toattract, the young kids who I wantto stay in the earliest years,they’re getting the same 10% on$40,000 or $38,000.
So, in effect, we’re rewardingthe wrong things. That’s why Ithink if the federal governmentwere to come in, tied to a real ac-countability system and said,“This is what we want to reward inteacher performance, we’ll usefederal dollars, and if you go to ourmost challenging schools, it’ll be1.5X; and if you do it in math andscience, it’ll be 2X.” And if it wereto use the federal billions in a waythat started to create excellence,you’d attract different people,they would be incentivized in dif-ferent ways, and you would beginto create a culture of excellence.
MR. BUSSEY: You mentionedMichelle Rhee. She’s the chancel-lor of the Washington, D.C.,school system. And she has ap-proached the union with an ideaof virtually doubling the pay ofthose excellent teachers, so longas the union was more willing toallow for firing of those teacherswho fell below standards. And theunion reaction to that was, “Look,you know, is it really fair to judgeteachers who are performingpoorly without considering thelack of resources that the schoolsystem provides them? And thelack of training?” So, there wasimmediate resistance there, and akind of a regression to the statusquo. Wouldn’t you run into thatsame problem with a broader—?
MR. KLEIN: Sure, sure. But in theend, the same two teachers withthe same kid get entirely differ-ent results. It’s no different atIBM, it’s no different at Yale, it’sno different in the New York Citypublic-school system.
I will show you the same kidsin two different schools, the verysame kids, getting entirely differ-ent outcomes. The key feature ofthat is the quality of the teach-ing, the engagement with the stu-dents, the personalization, all ofthose things. And what we needto do is start rewarding that. Sowhat Lou says, which half do youthink is leaving: We want the peo-ple who are hitting the ball out ofthe park to play for our team.
MR. GERSTNER: We’ve got to do it.Thirty-eight percent of middle-school students in the UnitedStates, in urban settings, aretaught a subject by a teacherthat hasn’t even minored in thesubject, let alone majored in thesubject. Can you imagine? TheAmerican people go to an air-port, and over the PA systemcomes an announcement, “Well,we don’t have any qualified pi-lots today, but we found theseguys out here who have agreedto fly the airplane.” That’s whatwe do to our kids every day.
MR. KLEIN: And make no mistake,that’s directly correlated to pov-erty. The kids with the greatestneeds don’t remotely get their eq-
uitable share. So, I have middle-class schools that find it quiteeasy for every vacancy to attractlots and lots of talent to thoseschools. And we have some ofthe best middle-class schools inthe country in New York.
On the other hand, I’ve gothigh-poverty schools where eachyear I’m sending in 15-20 newpeople, and it starts this down-ward cycle that Lou is describing,and that’s another reason peopleleave, because they find it demor-alizing. People want to be part ofa successful culture.
MR. COMER: I want to make onemore point about when we starttrying to weed out the unsuccess-ful teachers: I don’t think weshould wait until they’re teach-ing. We should be eliminatingpeople who aren’t good teachers,or don’t have the potential to begood teachers, long before theyever get to the school. I’ve al-ways said that about a third ofthe people are prepared to beteachers; about a third could,with better training, be teachers;but about a third should sell usedcars, maybe, or something. Butthey just shouldn’t get in there inthe first place, because theydon’t relate to children well. y
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HealthMR. MURRAY: How much is it go-ing to cost and where is themoney going to come from?
SEN. BAUCUS: Orders of magni-tude less than that. We’re goingto have to make some upfront in-vestment here if this is going towork.
MR. MURRAY: Which will cost youmoney in the short term, but saveyou money in the long term.
SEN. BAUCUS: Yes, that’s the goal,and we’re going to have an awfullot of oversight here and aggres-sively do the best we can to makesure we get those savings. Thefigure you used is—
MR. MURRAY: Do you want to giveus a number or you’re not thereyet?
SEN. BAUCUS: No.
MR. KINDLER: I just want to under-score the point Chairman Bau-cus just made. We have to facethe music on this. If we try to de-lude ourselves that somehow
we’re going to be able to do thisfor nothing upfront, it’s not go-ing to happen. That was thepoint I was making earlier. Wehave to really put our monieswhere our mouth is. If we be-lieve that by investing in preven-tion and wellness we will ulti-mately save money, increase pro-ductivity, increase jobs, im-prove the economy, then theCongressional Budget Officeought to be able to find a way tosupport that.
MR. MURRAY: Questions, com-ments? Anyone?
PAUL DIAZ [president and CEO ofKindred Healthcare Inc.]: I justwant to underscore something:the importance of IT as a meansby which to reduce costs, im-prove access and measure thevalue. But the importance of it,as we talked about, is to link it tothe payment reforms, becauseotherwise it won’t come to-gether and we won’t be able to ex-ecute on it. And it’s somethingthat touches on all five of thethings that we talked about.
SEN. BAUCUS: Everybody talksabout health IT. We all know weneed it. It hasn’t happened.Why? Partly because we’re
America. We’re not a single-payer system like the UK, whichcan say, you hospitals, you haveto put this in because we’re pay-ing your bills.
But we’re America. We’re go-ing to find our solution. We needto work with appropriate bodiesto develop interoperable stan-dards, then give incentives toproviders so they can put the ITsystems in.
MR. MURRAY: And that is one ofthe priorities of this group. Gov-ernment sets standards for in-teroperability. Denis Cortese.
MR. CORTESE: If we say the visionof what we’re trying to create isvalue—better outcomes, bettersafety, better service with thelong-term cost in mind—thenthe individuals who are provid-ing that care will have to dosome fundamental changes inthe way they do business. They’llhave to start thinking about howdo we engineer. Where’s the leanmanagement? Where are the sys-tem engineers that you will be-gin to bring into the system tohelp provide that better productthat we’re talking about?
You will then instantly startto rely on information technol-ogy. It becomes a tool to im-
prove the data, the resourcesthat you’ve got, the informa-tion and ultimately the knowl-edge distribution that is re-quired to develop that very bestproduct. You begin to find waysto simplify the administrativeactivities.
You begin to create some-thing this country needs. It is out-rageous in this country that wedo not have a safety reportingboard that is similar to what hap-pens in airline traffic. We crashthe equivalent of a 747 every dayand a half in this country fromhealth-care mistakes and errors.And we don’t report any of thatin any central location where sys-tems engineers analyze it, try tounderstand where the commonfaults are, and deliver it back outso people can act on that.
These tools that we’re talkingabout will fundamentally startto be demanded by the providersand the patients when you re-quire a pay for value and you re-quire the patient to focus onvalue also, which is the behaviorissue. You require it on bothsides, so this value is a very pow-erful concept I think that busi-nesspeople intrinsically know,and we need to infuse that inhealth care. y
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Education
R10 Monday, November 24, 2008 THE WALL STREET JOURNAL.
