CEO Council The journal report - images.conferences.wsj.netimages.conferences.wsj.net/ceo2016/wp-content/... · CYAN s 2010 Dow Jones & Company, All Rights Reserved. THE WALL STREET

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s 2010 Dow Jones & Company, All Rights Reserved. THE WALL STREET JOURNAL. Monday, November 22, 2010 R1

M embers of The Wall Street Journal CEOCouncil responded to the call for “jobs,jobs, jobs” from voters and politiciansthis election year with a clear retort oftheir own:

If the U.S. wants sustainable job growth, it muststrongly embrace global trade.

Government and business leaders should “aggres-sively promote a global marketplace that benefits

U.S. busi-nesses andconsumers,”the nearly 100big-companyCEOs said inthe top prior-ity that theycrafted andadopted dur-ing their an-

nual meeting in Washington. They called on businessleaders and political leaders to launch a public-pri-vate effort to promote free-trade agreements, en-courage exports, and keep U.S. market open to im-ports. They also called on the U.S. government to“equalize” the corporate tax—for example, loweringit to match other countries, in order to encouragecompanies to make their profits in the U.S. And theyurged that immigration laws be eased to allow theworld’s best and brightest to come work in the U.S.

The call for open trade came after GOP pollsterBill McInturff warned the group that the words “freetrade” have become toxic in the nation’s political dis-course. Voters view the term as synonymous withoutsourcing, which in turn, they believe, costs Amer-icans jobs.

The CEOs, however, focused on the logic of thecurrent global financial predicament. The U.S. mustcut its budget and trade deficits in order to rebal-ance a world economy in which huge U. S. deficitsare financed by the surpluses of China and Germany.For the U.S. to grow and create jobs while the tradedeficit is shrinking, exports must lead the way. Andto increase exports, the CEOs believe, the U.S. mustwholeheartedly embrace and promote an open globaltrading system.

The CEOs also called on President Obama to exer-cise leadership by advocating “a competitive busi-ness environment to create healthy companies, jobsand rising standards of living.” If the presidentwants to create private-sector jobs, they argued, hemust become “an advocate for business in general.”

The third annual CEO Council meeting came at atime of strained relations between the business com-munity and the White House, and it followed a his-toric election in which Republicans took control ofthe House of Representatives. The group heard fromtop members of President Obama’s cabinet, as wellas soon-to-be leaders of the House.

The discussions between the business leaders andpolitical leaders from both sides of the aisle werefrequently intense. But all agreed that the challengesahead required better cooperation between businessand government.

—Alan Murray

The journal reportCEO Council

ADVICE FROM THE TOP

More Trade, More JobsAt The Wall Street Journal CEO Council’s annual meeting,

business leaders set out their agenda for dealing with the sluggisheconomy and other key challenges facing the world today.Inside, you’ll find their wish list—and the reaction from

some of the top policy makers in Washington.

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PLUSInterviews with Lawrence Summers on health care and China, John McCain on

the message of the election, Robert Gates on security threats and budget cuts, MichaelBloomberg on what Republicans should do now, and Arne Duncan on reforming education

Restoring ConfidenceIn Business

TOP PRIORITIESA NEW STAKEHOLDER APPROACHLONG-TERM RECOMMENDATIONS

R3

CreatingSustainable Jobs

TOP PRIORITIESPROMOTE RULES-BASED TRADING

OVERHAUL TAX POLICY

R3

The FutureOf Global Finance

TOP PRIORITIESREDUCE DEBT, FORTIFY DOLLAR

FOSTER GLOBAL TRADE

R4

Energy &The Environment

TOP PRIORITIESDEVELOP DOMESTIC ENERGY

SUPPORT R&D

R4

Next StepsIn Health Care

TOP PRIORITIESCHANGE DELIVERY INCENTIVES

MAKE DATA TRANSPARENT

R5

THE CEO COUNCIL’S RECOMMENDATIONS

‘It would not be responsible toleave this level of uncertaintyhanging over the economy

going into next year.’—TIMOTHY GEITHNER, R9

‘The message that the electorategave us: Stop even thinking

about raising taxes onanybody right now.’

—ERIC CANTOR, R9

‘You’re going tosee actions

right off the bat.’—KEVIN MCCARTHY, R11

‘How do we take stuffthat’s totally reasonable and

make that law?’—AUSTAN GOOLSBEE, R6

C M Y K Composite

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R2 Monday, November 22, 2010 THE WALL STREET JOURNAL.

(Chief executives except as noted)José Maria Alapont Federal-Mo-

gul Corp.Tom Albanese Rio TintoMukesh Ambani Chairman and

Managing Director,Reliance Industries Ltd.

George S. Barrett CardinalHealth Inc.

Dominic Barton GlobalManaging Director,McKinsey & Co.

Jeffrey L. Bewkes TimeWarner Inc.

Pramod Bhasin GenpactLeon Black Founding Partner,

Apollo Management LPWilliam Borne Amedisys Inc.Angela Braly WellPoint Inc.David R. Brennan AstraZeneca

PLCGlenn A. Britt Time Warner

Cable Inc.Kevin Burke Consolidated

Edison Inc.Gary C. Butler Automatic Data

Processing Inc.Natarajan Chandrasekaran Tata

Consultancy ServicesLouis Chênevert United Technol-

ogies Corp.Jeff Clarke TravelportMarcelo Claure Brightstar Corp.Vittorio Colao Vodafone Group

PLCRoger W. Crandall Massachusetts

Mutual Life Insurance Co.David Crane NRG Energy Inc.Theodore Craver Edison Interna-

tionalPhilippe P. Dauman Viacom Inc.Doug DeVos President and Co-

CEO, Amway Corp.Robert Diamond President and

Deputy Group Chief Execu-tive, Barclays PLC

Paul J. Diaz Kindred HealthcareInc.

Craig S. Donohue CME GroupInc.

Francisco D’Souza CognizantTechnology Solutions

Brian Dunn Best Buy Co.Brian Duperreault Marsh &

McLennan Cos.Lynn Elsenhans Sunoco Inc.John Faraci International Paper

Co.Thomas F. Farrell II Dominion

Resources Inc.Roger W. Ferguson Jr. TIAA-CREF

Christopher T. Fey U.S. Preven-tive Medicine

Russell Fradin Hewitt AssociatesJack A. Fusco Calpine Corp.Carlos Ghosn Renault-Nissan

AllianceRobert J. Gillette First Solar Inc.Thomas H. Glocer Thomson

Reuters PLCGregory J. Goff Tesoro

CorporationJames H. Goodnight SAS

Institute Inc.Kris Gopalakrishnan Infosys

Technologies Ltd.Hugh Grant Monsanto Co.William D. Green AccentureRobert Greifeld NASDAQ OMX

Group Inc.James Hagedorn Scotts Miracle-

Gro Co.Charles E. Haldeman Jr. Federal

Home Loan Mortgage Corp.George C. Halvorson Kaiser

PermanenteWilliam A. Hawkins Medtronic

Inc.Lewis Hay III NextEra Energy

Inc.Paul Hermelin Cap Gemini SALes Hinton Dow Jones & Co.Joseph M. Hogan ABB Ltd.Glenn Hutchins Co-Founder and

Co-CEO, Silver LakePablo Isla InditexJohn D. Johns Protective Life

Corp.William D. Johnson Progress

Energy Inc.Christopher J. Kearney SPX Corp.Muhtar Kent Coca-Cola Co.Klaus Kleinfeld AlcoaHenry Kravis Co-Chairman and

Co-CEO, Kohlberg KravisRoberts & Co.

Neil Kurtz Golden LivingMichael W. Laphen CSCAnne Lauvergeon Areva SASteven F. Leer Arch Coal Inc.Peter Lowy Westfield LLCTimothy Manganello BorgWarner

Inc.Mark Mays CC Media Holdings

Inc.William L. McComb Liz Claiborne

Inc.William E. McCracken CA Tech-

nologiesLee A. McIntire CH2M HILL Cos.Thomas V. Milroy BMO Capital

MarketsSurya N. Mohapatra Quest

Diagnostics Inc.Michael G. Morris American

Electric Power Co.Daniel H. Mudd Fortress Invest-

ment GroupAlan Mulally Ford Motor Co.Rupert Murdoch News Corp.A.M. Naik Chairman and Man-

aging Director, Larsen &Toubro Ltd.

David W. Nelms Discover Finan-cial Services

J. Larry Nichols Devon EnergyCorp.

René Obermann DeutscheTelekom AG

Steve Odland Former Chairmanand CEO, Office Depot Inc.

Rodney O’Neal DelphiVikram Pandit Citigroup Inc.Girish Paranjpe Co-CEO, Wipro IT

Business, Wipro TechnologiesAntonio Perez Eastman Kodak

Co.Nicholas T. Pinchuk Snap-on Inc.Joel Quadracci Quad/Graphics,

Inc.Thomas J. Quinlan III

R.R. Donnelley & Sons Co.Robert L. Reynolds Putnam

InvestmentsJames E. Rogers Duke Energy

Corp.

James Rohr PNC FinancialServices Group

David Rubenstein Co-Founderand Managing Director,Carlyle Group

Brent L. Saunders Bausch &Lomb Inc.

Stephen Schwarzman BlackstoneGroup

Greg Sebasky Philips ElectronicsNorth America

Ivan Seidenberg VerizonCommunications Inc.

Mayo Shattuck ConstellationEnergy

Steven Shaw Volt InformationSciences Inc.

Gregg Sherrill Tenneco Inc.Ralph W. Shrader Booz Allen

Hamilton Inc.Barry E. Silbert SecondMarket Inc.Henrik Slipsager ABM Industries

Inc.Frederick W. Smith FedEx Corp.Sir Martin Sorrell WPP Group PLCShivan S. Subramaniam FM

GlobalMichael Szymanczyk Altria

Group Inc.Fredric Tomczyk TD Ameritrade

Holding Corp.Myron E. Ullman III J.C. Penney Co.Joseph Uva Univision Communi-

cations Inc.Daniel Vasella Chairman, Novar-

tis AGTimothy Wallace Trinity Indus-

tries Inc.Gregory Wasson Walgreen Co.Ronald A. Williams Aetna Inc.Thomas J. Wilson Allstate Corp.David M. Wood Murphy Oil Corp.John Wren Omnicom Group Inc.PARTICIPATING GUESTSRoger C. Altman Chairman,

Evercore Partners Inc.Evan Bayh U.S. Senator (D., Ind.)Michael R. Bloomberg Mayor of

New York CityEric Cantor House Majority

Leader-Elect, U.S. Represen-tative (R., Va.)

Jim Cooper U.S. Representative(D., Tenn.)

Arne Duncan Secretary ofEducation

Robert M. Gates Secretary ofDefense

Timothy F. Geithner Secretary ofthe Treasury

Bill George Professor ofManagement Practice,Harvard Business School

Austan Goolsbee Chairman,President’s Council ofEconomic Advisors

Chuck Grassley U.S. Senator(R., Iowa)

Peter D. Hart Chairman, Peter D.Hart Research Associates

Douglas Holtz-Eakin President,American Action Forum;Former Director, Congressio-nal Budget Office

Risa Lavizzo-Mourey RobertWood Johnson Foundation

John McCain U.S. Senator (R.,Ariz.)

Kevin McCarthy U.S. Representa-tive (R., Calif.)

Bill McInturff Partner, PublicOpinion Strategies

Alice M. Rivlin Senior Fellow,Brookings Institution

Lawrence H. Summers Director ofthe National Economic Coun-cil and Assistant to the Pres-ident for Economic Policy

Allen West U.S. Representative-Elect (R., Fla.)

Daniel Yergin Chairman, IHSCambridge Energy ResearchAssociates Inc.

Mark Zandi Chief Economist,Moody’s Analytics

Ernesto Zedillo Director, YaleCenter for the Study of Glo-balization

Min Zhu Special Advisor to theManaging Director, Interna-tional Monetary Fund

Last week, The Wall Street Journal assembled nearly 100 chiefexecutives of large companies for a day and a half to discuss thepolicy choices facing the nation, and the effects those choices mayhave on business and the economy.

The CEOs divided into five task forces and debated priorities inthe areas of job creation, energy and the environment, health care,

business confidence, and globalfinance. Using an electronic rank-ing system devised by the Jour-nal, they chose five top prioritiesin each subject area.

Each task force then reportedits priorities back to the fullcouncil. At the end of the confer-

ence, the chief executives revised and then ranked all the prioritiesfrom the five task forces, in order of their relative urgency and im-portance.

The CEOs who attended the session were from a diverse range ofindustries; as a group, they represent more than $3 trillion in mar-ket capitalization. That should give their views on these issuessome added weight in the months ahead.

Here’s a look at their top five priorities.

1 FOSTER GLOBAL TRADEAggressively promote a global

marketplace that benefits U.S.businesses and consumers. Emphasizefree-trade agreements, equalize corpo-rate taxes and launch a joint public-private effort to promote trade. Re-main open to imports that providelower-priced goods to U.S. consumers,fueling job-creating spending.

2 PRESIDENTIAL LEADERSHIPThe president must advocate

for a competitive business envi-ronment to create healthy companies,jobs and rising standards of living. Hemust be an advocate for business ingeneral.

3 TORT REFORMIn addition to addressing mal-

practice, attack larger problem ofdefensive medicine, the overuse of caresolely due to fear of lawsuits. Ratherthan focusing only on award caps,overhaul liability laws to create a safeharbor for physicians who follow evi-dence-based practice guidelines. Ex-plore alternative dispute-resolutionmechanisms and venues.

4 INVEST IN AMERICA NOWWinning public confidence is

all about job creation. Businessand government should stimulate long-term investment in the U.S. and makeU.S. companies more competitive glo-bally. Should include: cut of 10 per-centage points in corporate tax rate;100% depreciation on capital equip-ment through 2012; permanent R&Dtax credit; cut in taxes on repatriatedearnings, provided earnings are rein-vested.

5 REDUCE DEBT, FORTIFY DOLLARU.S. should reduce its budget

deficit to stabilize its debt-to-GDPratio and should sustain recent in-creases in private savings. Deficit re-duction should include spending cuts,tax increases and credible budgetrules. Tax policy should encourage pri-vate savings. U.S. should recognize thevalue of the dollar’s reserve-currencyrole by avoiding policies that depressits value or undermine the credit-wor-thiness of the U.S.

The Journal Report welcomes your comments—by mail, fax oremail. Letters should be addressed to Lawrence Rout, The WallStreet Journal, 4300 Route 1 North, South Brunswick, N.J. 08852.The fax number is 609-520-7767, and the email address is [email protected].

The CEOs’ Top Priorities

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THE WALL STREET JOURNAL. Monday, November 22, 2010 R3

T he economy is limp-ing along, and thegovernment is facingcrippling deficits. So,how can the country

start creating jobs—and onesthat last?

That’s what the CEO Council’stask force on sustainable jobstried to sort out. Among theirproposals: a renewed push forfree trade, tax-policy changes,revising immigration laws andspending more smartly on infra-structure.

Here are edited excerpts ofthe task force’s presentation oftheir recommendations to theCEO Council, which was moder-

ated by The Wall Street Jour-nal’s Gerald Seib.It’s Up to BusinessGERALD SEIB: Mark Zandi fromMoody’s Analytics talked a littlebit about the job situation. Thereis not a lot of job creation goingon. All the indicators are slump-ing, with one exception: The onlyimportant indicator that has re-turned to pre-crisis levels is cor-porate profits.

Hence this group, and thisdiscussion about what can hap-pen in the world of corporateAmerica, with some help fromthe government, to spur job cre-ation. Tom, you offered some im-

portant overview thoughts at theoutset.THOMAS WILSON: We had a con-struct in mind, which was, if youlook at jobs, is it a demand prob-lem, so there’s just not enoughjobs? Was it a supply problem,in that you didn’t have the rightnumber of people to do the jobs?Or was it a matching of thosetwo?

Starting with the demand is-sue, I think our overall conclu-sion was it’s up to business to dosomething about this. We cameup with five policies that wethought would be helpful.MYRON ULLMAN: Our first find-ing was around trade, and it’s

clearly easy to understand whyincreasing exports would helpjob creation. Probably not asreadily discussed is the fact thatimports actually help job cre-ation as well.

I’m biased because I’m in theretail sector. Apparel has beendeflationary for 18 years, so youcould argue that apparel wasmade in the United States, thenit was made in Hong Kong, thenXinjiang, then moved to Shang-hai and then Beijing and then fi-nally Bangladesh. The effect ofthat was lower and lower costsof apparel, and it’s about to re-verse itself, perhaps next year,because of cotton.

But the fact that the consum-ers are able to buy things atlower prices obviously givesthem more discretionary incometo buy things they want or need,but it also gives business bettermargins to invest in new ideas,new technologies and presum-ably ideas that create jobs thatare sustainable.

So we think that the global-ization of trade is in the best in-terest of the country, it’s in thebest interest for creating exportdemand as well as imports forlower costs.Tackling TaxesMR. SEIB: The next recommenda-tion, Tom, you were going to talkabout was tax policy.MR. WILSON: The next was re-form tax policy, which I wouldjust call priming the pump.There was a lot of conversationabout foreign tax laws and mak-ing it equivalent in the UnitedStates, which ties into Mike’searlier point about global trade.It could be an R&D taxcredit—allow people to sell thetax credits.MR. SEIB: And then the third had

to do with immigration.MR. WILSON: The third was onrevising immigration laws. Ithink there was a great deal ofconsistency among our group ofhow supportive we were of it.This is what I would call freetrade in people.

No reason to educate peoplehere and send them back to theirhome country. We ought to beable to import people where wehave skills gaps. That’s the sup-ply part of the conversation increating jobs. And we thoughtthat there needed to be less fric-

Please turn to page R7

Creating Sustainable Jobs:The Answer Is Trade

G iven the state of theeconomy, it perhapsisn’t surprising thatpublic confidence inbusiness is so low.

The question is: Other than wait-ing for the economy to improve,what can companies do about it?

The Wall Street Journal’sJohn Bussey moderated the task-force discussion on restoringconfidence in business. Here areedited excerpts of the presenta-tion of their priorities to theCEO Council.

JOHN BUSSEY: Our conversationranged pretty widely. A lot of ithad to do with finding ways topromote growth as a way of re-invigorating public confidence inbusiness.

The group took to heart thepoll data that showed very lowapproval ratings or confidencein business. That was albeit inlarge corporations. The numbersare much higher, interestingly,for small business.

Martin Sorrell will take ourfirst two recommendations.MARTIN SORRELL: First was anew stakeholder approach. Com-panies should talk less about thebenefits to shareholders ofshort-term profits and focus oncustomer needs, investment inlabor, and sustainability. Weshould be talking about benefitsprovided to our employees, cus-tomers and to the public. Thiswill boost public confidence inbusiness.

From a legal point of view,our responsibility is to ourshareholders. But I think everyclient in our business acknowl-

edges the importance of corpo-rate social responsibility—soci-etal, environmental oreducational issues—and acceptsthat if they want to build long-term brands and products andservices, that is embodied in ev-erything they do.

Another observation: There isno voice of business. There is noB-20, as opposed to a G-20. Busi-ness is too fragmented. There isthe Business Roundtable, thereis the Business Council, there isthe International Business Coun-cil, World Economic Forum.There are all these bodies, butthey are not united.

No. 2 was business needs toadvocate for long-term solu-tions, such as education reform,research and development.Changing the U.S. visa policy,for example, to keep foreignstudents here, working in theU.S. after they graduate fromschool.

I think business has to pro-mote and push deficit reduction,not dissimilar to what we’veseen the coalition governmentdo in the U.K. Focus on deficitreduction and taxation reform inthe short term. Technology, edu-cation, research and develop-ment, and infrastructure are is-sues that in the longer term wehave to push.Global RealitiesMR. BUSSEY: There was also onerecommendation that businessshould take very clear—and if

necessary, provocative—standson issues such as deficit reduc-tion, immigration reform, tax-code reform. And be very clearand out front on it to demon-strate to the public what it is do-ing is a pro-growth strategy.

No. 3 was face reality: howAmerica needs to address globalcompetition and market integra-tion.ANTONIO PEREZ: We really calledit “Grow Up.” America needs togrow up. Then we felt that wastoo aggressive for the audience.

You know, the facts are thatthe U.S. is only 5% of the popula-tion of the world. There is a glo-bal labor market, whether welike it or not. And there is theirrefutable fact that the differen-tiation of the U.S. is basic intel-lectual capital. So there’s reallyno reason to be against global-ization.

Not only should we accept allof these facts as a country, butwe should embrace them so wecan benefit from them.

And the responsibility of do-ing this, which is not an easytask, lies first with the Obamaadministration. We believe theyshould be open and clear andloud that these are the facts ofthe world in which we are living.We’re not an island. We live withthe others, and this is what it is.

As chief executives, we haveto do a much better job showingnot only to our own employees,but also to the communitieswhere we are and to the world

in general, why this is good forAmerica.Lost VoiceMR. BUSSEY: There were somevery strong feelings expressedabout the Obama administrationand about presidential leader-ship over the last four years.That led into a discussion ofwhat is the role of governmentand what should we expect ofour leaders to help business re-store confidence in business. Forthat I’m going to ask Ivan Se-idenberg to speak.IVAN SEIDENBERG: We talked a

little bit about self-enforcement,values-based management—allthe things we as businesses dothat we don’t feel are gettingthrough the clutter.

For the past two years—asMartin said—we’ve lost ourvoice. In my whole entire busi-ness career, I’ve never experi-enced business not having avoice with government. And sothis starts with the president.

The president and his admin-istration need to articulate whathe expects of business. And thenwe need to rally around what hesays and give him the support so

we can lift the public’s percep-tion of the partnership thatneeds to exist between businessand government.

Right now, we’re all fightingwith the president over differentissues. Over taxes or rates orconfidence or uncertainty. Andevery American watches this lit-tle war and it doesn’t make ev-erybody feel any better.

So the first item under thisidea of presidential leadership isfor us to encourage the presi-dent to articulate his vision ofwhat he expects. He went to In-dia and Asia. He went on thissort of trade mission. He didpretty good. He was unequivocal;he focused on the task at handand he was good.

Now, he needs to do thatacross the spectrum of all thebusiness issues we face anddemonstrate the vision he hasfor what he expects of us. Andthen we need to rally aroundthat.

The last item we talked aboutwas invest in America now. Thebusiness community has a lot ofasks on the table. What we needthe administration to do is to co-alesce all of the things, decidewhat they want, focus on it. Andthen what we need to do as thebusiness community is put ourrisk capital, put our resourcesbehind these issues and makesure we create jobs.

We need strong leadershipout of the White House; we needto be complicit with that. Andthen we need to make sure allthese short-term issues aroundjobs and spending get focusedon creating work in this country.

Restoring Confidence in Business:Not Just About Shareholders

Sir Martin Sorrell, Antonio Perez and Ivan Seidenberg: President Obama needs to spell out what he expects of business.

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Thomas Wilson, Myron Ullman and Glenn Hutchins: Global trade both creates demand for U.S. exports and lowers prices for Americans consumers.

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WSJ.comONLINE TODAY: See videoexcerpts of interviews withleaders at the Wall StreetJournal’s CEO Council, and readabout highlights of thesummit, at WSJ.com/Reports.

1. A NEW STAKEHOLDERAPPROACH

Companies should talk lessabout benefits to shareholdersand short-term profits and in-stead focus on customer needs,investment in workers and sus-tainability (from ecology to ed-ucation). We talk too muchabout benefits we provide toshareholders. We should betalking about benefits providedto our employees, customersand to the public. This willboost public confidence in busi-ness.

2. LONG-TERMRECOMMENDATIONS

Business needs to advocatefor long-term solutions such as

education reform, more re-search and development, chang-ing the U.S. visa policy to keepforeign students working in theU.S. after they graduate fromschools here. The discussion istoo focused on the short term.

3. FACE REALITYThe U.S. needs to engage in

the global marketplace, ratherthan complain. This effortneeds to be led by the Obamaadministration and business.The public needs to understandthat there are benefits to behad from engaging globally, andbusiness needs to do a betterjob of explaining what we’re do-ing well in the internationalmarket.

4. PRESIDENTIAL LEADERSHIPThe president must advocate

for a competitive business envi-ronment to create healthy com-panies, jobs and rising standardsof living. He must be an advocatefor business in general.

5. INVEST IN AMERICA NOWWinning public confidence is

all about job creation. Businessand government should stimu-late long-term investment inthe U.S. and make U.S. compa-nies more competitive globally.Should include: cut of 10 per-centage points in corporate taxrate; 100% depreciation on capi-tal equipment through 2012;permanent R&D tax credit; cutin taxes on repatriated earn-ings, provided earnings are rein-vested.

The Top Five Recommendations

1. PROMOTE RULES-BASEDTRADING

Aggressively promote a glo-bal marketplace that benefitsU.S. businesses and consumers.Emphasize free-trade agree-ments, equalize corporate taxesand launch a joint public-privateeffort to promote trade. Remainopen to imports that providelower-priced goods to U.S. con-sumers, fueling job-creatingspending.

2. OVERHAUL TAX POLICYPromote a territorial tax sys-

tem; allow expensing of capitalequipment and software; changethe capital-gains tax (reduce itto zero over four years) so itapplies to everyone, includingnonprofits.

3. REVISE IMMIGRATION LAWSLiberalize visa and quota al-

lowances in the U.S. to attract

and keep the best and brightestfrom the rest of the world.

4. INVEST IN INFRASTRUC-TURE

Create programs marryingpublic money with private capi-tal to fund economically impor-tant infrastructure projects, par-ticularly in energy policy. Leadingexamples: smart grid and alter-native energy.

5. IMPROVE FINANCINGAdopt policies to provide

more debt and equity capital tosmall businesses (could be pub-lic, private or joint effort). Createa more effective venture/microfi-nance market for new busi-nesses with appropriate regula-tion based on companystructure.


RESTORING CONFIDENCE INBUSINESS CO-CHAIRS:Antonio Perez Chairman and

CEO, Eastman Kodak Co.Ivan Seidenberg Chairman and

CEO, Verizon Communica-tions Inc.

Sir Martin Sorrell CEO, WPPGroup PLC

SUBJECT EXPERT:Bill George Professor of Man-

agement Practice, HarvardBusiness School

SUSTAINABLE JOBS CO-CHAIRS:Carlos Ghosn Chairman and

CEO, Renault-Nissan AllianceGlenn Hutchins Co-Founder and

Co-CEO, Silver LakeMyron E. Ullman III Chairman

and CEO, J.C. Penney Co.Thomas J. Wilson Chairman,

President and CEO, AllstateCorp.

SUBJECT EXPERT:Mark Zandi Chief Economist,

Moody’s Analytics

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T he U.S. needs to di-versify its energysupply. That’s a given.But it also must workto restore its leader-

ship in developing and exportingenergy technology, not just tocurb waste at home but to createmarkets abroad.

Those were just a few of thethemes that emerged from thetask-force discussion on energyand the environment, moderatedby The Wall Street Journal’s Jef-frey Ball. Here are edited ex-cerpts of their presentation ofpriorities to the CEO Council:Reducing Oil’s RoleJEFFREY BALL: There was, run-ning through all of these priori-ties, a call for certainty in whatgovernment is going to do or notgoing to do. Tom Albanese, whydon’t you start on the firstone—domestic energy.TOM ALBANESE: Mayor [Michael]Bloomberg said it best todaywhen he said we need to weanourselves off foreign oil; weneed to stop sending money tothe terrorists who are trying tokill us.

So we talked about nuclearpower: How can that be rampedup? There was a good discussionabout avoiding that short-termoffshore-drilling moratoriumfrom becoming a long-term defacto moratorium through com-plex and confusing regulation.We talked a bit about coal andthe importance of coal in terms

of the U.S. power system, andhow carbon capture and seques-tration needs to be a part of thatpicture. Good discussion on nat-ural gas, particularly shalegas—the availability of shale gas,the technology for that, and pos-sibly also the ability to exportthat technology overseas. Therewas some discussion about etha-nol and some of the incentivesthat are around ethanol. And fi-nally, renewables were dis-cussed, particularly solar, andwhy solar should be a biggerpart of it.

Despite the fact that some ofthese energy sources arecheaper than others, there was awholesale agreement on theneed for some type of diversifi-cation of that supply base andthat markets should be the onespicking the winners. Governmentshouldn’t be trying to pick thewinner.

Carbon was brought up onand off. There was sort of a lackof fortitude about when carbonwill come through the regulatory

process, but there was a recogni-tion that some type of carbonpricing will be needed, if only toget things like the technology ofcarbon capture and sequestra-tion off the ground.

Of course shale gas is going tobe a very topical subject. I thinkwe all recognize it potentiallybecoming that energy godsend.But it was also recognized thatutilities may potentially over-rely on that at the expense of di-versifying the rest of their sup-ply base.

MR. BALL: Alan, what about re-search and development?ALAN MULALLY: We really fo-cused on the fundamental en-abling technology that wouldhave the most synergy for eco-nomic development, energy in-dependence and security, andalso environmental sustainabil-ity.

One example that we movedway up on our priority list werebatteries. We’re talking a lotabout an electric future and the

infrastructure to go with that inaddition to the vehicles, and howimportant it is that we have bat-teries that would work in a sys-tem solution, meaning we would

be able to generate the electric-ity clean. We’d be able to storeit. We’d be able to move electric-ity from our homes to our vehi-cles to the grid, and what that

enabling technology that’sneeded to make that happen.

We also really agreed on thevalue of a long-term public-pri-vate partnership.Need for ConsistencyMR. BALL: Consistency of federalregulation was something thatwas pretty uniformly endorsed.Lew, do you want to get intothat?LEWIS HAY: Climate change is anissue that’s not going away. Weall recognize that cap and tradeis dead for the moment, may bedead forever, but we’re going toneed some kind of a signal oncarbon. Sometimes we talkabout a price on carbon; othertimes we talk about incentivesfor clean. We need consistency.

One of the themes we’veheard at this conference hasbeen the impact of uncertaintyon business, and in particularthe uncertainty on businessesbeing willing to invest.

And in the energy field, this isa huge issue. I think there’s hun-dreds of billions of dollars that

Please turn to page R7

Energy and the Environment:More Certainty, More Innovation

W hat’s the futureof global fi-nance? The an-swer dependsheavily on how

well America deals with its bud-get deficit and debt problems.

That’s one of the conclusionsreached by the task force on fi-nance, which also looked atproblems in the housing market,emerging protests against freetrade and how the U.S. can cometo grips with China’s growingeconomic clout. The Wall StreetJournal’s David Wessel moder-ated the task-force discussion.Here are edited excerpts of thepresentation of their prioritiesto the CEO Council.Tackling the DebtDAVID WESSEL: The good news is

that unlike a couple of yearsago, there was a strong consen-sus in our group that global fi-nance does have a future. Twoyears ago, that wasn’t so obvi-ous. David, do you want to startwith the first item?DAVID RUBENSTEIN: It was ourview that the most importantthing in global finance is dealingwith the U.S. budget-deficitproblem and the related debtproblems. The deficit now isabout 41% of the overall budget,and that’s likely to continue foranother decade unless some-thing happens.

So, our thinking was we haveto deal with the deficit, whichwill help us deal with the debtproblem. And that will help usdeal with the other related prob-lem, which is the dollar. The dol-lar is the only reserve currencyin the world at the moment. Butthe value of the dollar is likely togo down, and its status as theonly reserve currency will be di-minished, if we don’t deal withthe deficit and the related debtproblems.

MR. WESSEL: Bob Diamond.ROBERT DIAMOND: We found outthis morning that with thehighly educated in America, peo-ple are questioning whether ornot free trade is a good thing ora bad thing. There’s clearly a ris-

ing tide of protectionism and na-tionalism—not just here, but inmany developed economies.

And yet, somewhere on theorder of 50% of the revenues andprofits of the S&P companies inthe U.S. come from outside theU.S. If we really do care aboutthe objective of economicgrowth and job creation, thenwe have to care about trade. So,it’s good to hear the presidentmention trade recently.

We didn’t have all the solu-tions, but we think that therehas to be something done forbusinesses to take an active rolein educating people about theimportance of trade and the ben-efits of trade to both jobs andeconomic growth.Setting RulesMR. WESSEL: Do you want totake the global financial regula-tion piece, which I know is closeto your heart—and your wallet?MR. DIAMOND: Until banks canreally begin taking risk and lend-ing in a way that’s supportive toeconomic growth and job cre-ation, we need certainty.

The second thing that we feltwas important is we finally havean opportunity to have a levelplaying field, at least amongstthe G-20 in terms of the capitalstandards in Basel. And, finally,how do we resolve too big to

fail? There’s two ways to resolvetoo big to fail. We don’t have bigbanks or we find a way to allowthem to fail. And there was aclear consensus that we need todo the latter, which is resolutionand recovery schemes.

So, the objectives of financialreform from the beginning werehow to make the system saferand sounder, and there’s a lot of

evidence that that has happenedand it’s a safer, sounder systemtoday. But the other part of thatis, how do we have a bankingsystem that fosters job creationand economic growth?

And working closely together,the private sector and the banks,and picking up the mantle forgrowth in this country is incred-ibly important, but we’re not go-ing to have an active financialsystem or an active banking sys-tem until we get clarity in termsof what the rules are aroundcapital and a commitment to arace to the top, not a race to thebottom, in terms of a level play-ing field.

MR. WESSEL: Mr.Donohue—housing finance?CRAIG DONOHUE: Well, it’s clearthat housing finance was cer-tainly one of the major contribu-tors to the economic and finan-cial-markets crisis, and yet itremains probably the single larg-est area that has not yet beendealt with, either from a policyor legislative or regulatory per-spective.

The conclusion of the groupwas we really need to establish ahousing-finance market in whichprivate capital is really the mainfocus and government can be re-focused on valid national hous-ing policy and perhaps extendingsupport for first-time buyers.We also need a more effectivesystem to restore liquidity in thesecondary market, which reallydoesn’t exist anymore as a resultof the crisis that we had.The China QuestionMR. WESSEL: Finally, on thequestion of China and emergingmarkets?MR. RUBENSTEIN: China, for 15 of

the last 18 centuries, was thebiggest economy in the world,and then in the 1700s it wentdown. China now, as it’s re-emerged into the world eco-nomic scene over the last 30years or so, has gone from an af-terthought in the global eco-nomic scene to the second-larg-est economy in the world, andby the year 2035, by GDP mea-surements, will probably be thebiggest economy in the world,replacing the United States.

The United States hasn’t yetquite adapted to that, and wehave to recognize that China isplaying such an important roleon the global economic scenethat we have to do much more toengage China and to deal withsome of the problems that havearisen in the United States.

So it was our view that theU.S. government should do, assensibly as possible, things thatwill encourage the Chinese toconsume more and to have moreservice industries and to exportless. In the United States, 70% ofour GDP is consumption and 30%is government or exports orother related things. China is thereverse, and we would like themto see a greater shift into con-sumer production in China andconsumption so that their cur-rency will appreciate a bitagainst ours without artificialmeans that the U.S. governmentwould try to use.

Our view is that China andthe United States have to engagemuch more frequently and domany more things that are goingto put the U.S. and China on apath to greater cooperation andnot lead to any kind of tradewars or currency wars thatcould be disruptive to the globaleconomy.

The Future of GlobalFinance: Yes, It Has One

Robert Diamond, Craig Donohue and David Rubenstein: Business needs to educate people about the benefits of trade

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Tom Albanese, Alan Mulally and Lewis Hay: Clarity on regulation could unleash hundreds of billions of dollars in energy investments

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GLOBAL FINANCE CO-CHAIRS:Robert Diamond President and

Deputy Group Chief Executive,Barclays PLC

Craig S. Donohue CEO, CMEGroup Inc.

David Rubenstein Co-Founderand Managing Director,Carlyle Group

SUBJECT EXPERT:Roger C. Altman Chairman,

Evercore Partners

1. REDUCE DEBT, FORTIFYDOLLAR

U.S. should reduce its budgetdeficit to stabilize its debt-to-GDP ratio and should sustain re-cent increases in private savings.Deficit reduction should includespending cuts, tax increases andcredible budget rules. Tax policyshould encourage private savings.U.S. should recognize the valueof the dollar’s reserve-currencyrole by avoiding policies that de-press its value or undermine thecredit-worthiness of the U.S.

2. FOSTER GLOBAL TRADERebuild the consensus around

free trade by emphasizing thebenefits to the developed world.Encourage the flow of intellectualcapital through immigrationacross borders. Business should

talk more about the jobs createdfrom trade and the benefits toconsumers and support retrainingfor those adversely affected andeducation for future prosperity.

3. GLOBAL FINANCIALREGULATION

Central banks and other regu-lators must be more forceful indefining and enforcing Basel IIIand other financial regulationsconsistently across countries.New financial regulations, includ-ing Dodd-Frank, must be imple-mented carefully, quickly andtransparently to provide the cer-tainty that market participantsneed. Create rules that allow fail-ure of big institutions.

4. RESHAPE HOUSING FINANCERestructure housing finance in

the U.S. to narrow the govern-ment’s role to maintaining mar-ket stability and targeting groupssuch as first-time home buyers.This means gradually reducingthe role of government, includingthe government-sponsored enter-prises in housing; reviving theprivate mortgage market; and re-ducing tax breaks for the mort-gage-interest deduction.

5. CHINA DOMESTIC-LEDGROWTH

The U.S. and allies should en-courage China and other emerg-ing markets to adopt incentivesfor domestic-led growth, includ-ing incentives for consumption,the development of services in-dustries, beginning a socialsafety net and allowing the yuanto rise.


1. DEVELOP DOMESTIC ENERGYPromote development of all

domestic resources with appro-priate environmental safeguardsand a regulatory system that istimely and predictable and avoidsa back-door, de facto moratorium.Don’t pick winners.

2. SUPPORT R&DEnsure long-term commitment

by the federal government to ba-sic research and development fornew energy sources and carbonmitigation, and provide stable in-centives for R&D in the privatesector and universities. Energystorage is crucial, yet technologi-cal breakthroughs are necessarybefore deploying batteries and

fuel cells at scale. Focus on R&Dto bring down costs rather thanmandates and subsidies for im-mediate deployment.

3. CONSISTENT FEDERALREGULATION

A comprehensive energy pol-icy that provides consistency andpredictability for investment.Clearer policy on auto fuel effi-ciency, siting of electrical trans-mission, and carbon con-straints—avoiding a patchwork ofstate rules. Consider the coun-try’s massive natural-gas re-sources and create a path for nu-clear and renewables. Be honestabout the continued primacy offossil fuels and costs. Pause and

think before issuing new regula-tions.

4. COMPETITIVENESSRestore U.S. companies’ lead-

ership in developing and export-ing energy technology around theworld. Remove tax policies andother burdens that impede U.S.firms’ global competitiveness.

5. ENERGY EFFICIENCYPut the U.S. at the forefront

of energy-efficiency technology,both to curb waste at home andto create markets abroad. Poli-cies should include buildingcodes, appliance standards andincentives to deploy new energy-efficient technologies.


ENERGY AND ENVIRONMENTCO-CHAIRS:Tom Albanese CEO, Rio TintoLewis Hay III CEO, Next Era

Energy Inc.Alan Mulally CEO, Ford Motor Co.

SUBJECT EXPERT:Daniel Yergin Chairman, IHS

Cambridge Energy ResearchAssociates Inc.

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Advertising Feature

CEOs Now FindThat PrinciplesAnd Profits Can MixWell

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Historically, the mainconcern for chief execu-tives was the efficientrunning of their organiza-tions and creating a profit.

But in the past decade, the attention ofCEOs has shifted to include a muchbroader range of global issues.

In New York, in June, UnitedNations Secretary-General Ban Ki-moon,acknowledged this change when headdressed the Global Leaders CompactSummit — a group of some 8,000business leaders that is committed tohuman rights and good labor andenvironmental practices. “Corporatesustainability is becoming a byword incompanies across the world. The busi-ness community is coming to understandthat principles and profits are two sidesof the same coin,” he told them.

There may still be some way to go,however, before all CEOs are won over.Sir Ken Robinson, the Los Angeles-based,internationally recognized leader in thedevelopment of creativity, innovationand human resources, says: “When Italk about sustainability not all CEOsget it. They are very concerned aboutthe short term and getting to grips withrecession. But sustainability will becomeabsolutely central and business peoplewill have to think differently in the future.It is not just about profit margins.”

He adds: “There are currently 6.5billion people on earth — by the middleof this century there will be nine billion— that is more people than in the historyof humanity and it will have an enormousimpact on businesses.”

The need to address corporateprinciples and profits and global issuesthat will have a real impact on busi-ness — were main topics last weekwhen a select group of the world’sleading CEOs and senior policymakersmet in Washington at The Wall StreetJournal CEO Council. They discussedthe issues that will shape the futureand have profound and enduringeconomic, social and political conse-quences that will affect us all. Thecouncil’s wide-ranging debate encom-passed the challenges of financial stability,an aging global population, sustainability,the growing demands on health-care,increasing urbanization and the role of

businesses in addressing them.Despite the fact that the global

economic crisis has been the worstthat many business leaders have everexperienced, confidence among CEOsis, generally, now returning.

PricewaterhouseCoopers’s 13thAnnual Global CEO Survey publishedearlier this year, found that 81% ofCEOs world-wide are confident abouttheir prospects in the next 12 months.Dennis M. Nally, the New York-basedchairman of PwC says: “The fears of aglobal economic meltdown havereceded and CEOs are more upbeatabout their prospects.”

However, there are other problemslooming on the horizon for CEOs, notleast of which is the prospect of anaging work force. The U.N. forecaststhat by 2050, 33% of the population ofdeveloped countries will be over theage of 60; and one person in three willbe a pensioner. The InternationalMonetary Fund warns that the cost of

the global financial crisis will benothing compared with the costs of anaging global population. The laborforce will shrink and output growthwill drop unless productivity increasesfaster. Meanwhile, health care costswill increase sharply and there will bea vast shortfall in pension provision.

Changing DemographicsAccording to the London-based

Chartered Institute of Personnel andDevelopment (CIPD), many CEOs are“woefully unprepared” to cope withchanging demographics. Its chiefexecutive Jackie Orme, says: “Manyorganizations have neither a strategyin place for managing an aging workforce nor a coherent range of provisionsto respond to emergent issues. Failure toact, will undermine not only businessgrowth, but business survival.“

And Katy Hartley, director of ThePhilips Center for Health and Well-being,which is based in The Netherlands,and who works with independentexperts, global agenda setters,

policymakers and opinion leaders tofind solutions to the problems that theglobal community faces, says thatcompanies have to ask themselves anumber of questions: “How do youkeep new talent flowing through thecompany if people don’t retire? Will aCEO appointed at the age of 45, still bedoing that role when he is 80? As yet,many organizations and their CEOshave failed to find an answer.”

Business leaders — particularlythose in the U.S. where the brunt ofhealth care costs are borne by employersand are spiraling — will increasinglyhave to focus on the health of this agingwork force. This was once seen as anissue for individuals and governmentsbut will be a major challenge for CEOs,says Ms. Hartley.

Another challenge for businessleaders is the issue of the sustainabilityof the earth’s resources. Gavin Neath,London-based senior vice president forsustainability at global consumer prod-

ucts company Unilever, says: “With aglobal population at 6.5 billion we arealready consuming resources at a rate farin excess of nature’s capacity to replenishthem. Water is becoming scarce andglobal warming and climate change areaccelerating. These trends if ignored bycompanies will have a material effecton their economic performance.”

A survey of 766 CEOs publishedthis summer by the U.N. and Accenture,the global management consultancy,indicates that 93% of them believe thatsustainability will be critical to thefuture success of their companies.“CEOs told us they have by necessitybeen on the defensive during thedownturn but they now feel that nowis the time to get on the front foot inaligning stability with core businessstrategy and execution,” says MarkFoster, Accenture’s New York-basedgroup chief executive.

Ms. Hartley of The Philips Centerfor Health and Well-being, which isexploring the concept of livable cities,says that more than half the world’s

population lives in cities and that ispredicted to rise to 70% by 2050.“What does that mean for schools,hospitals, commerce? How do compa-nies move their goods around? How dopeople get to work?”

Business OpportunitiesShe adds that while rapid urban-

ization is a challenge, it also presentsbusinesses with opportunities: “It willmean that there are more people tobuy your products but it also meansthat companies can have a real impacton shaping our future.”

Other companies such as IBM andCisco Systems are focusing on helpingcities to become smarter. IBM, forexample, is working with city authori-ties, universities and businessesaround the world to develop ways ofmanaging transport, communications,water and energy.

And Cisco Systems, which is basedin San Jose, California, is helping todevelop the infrastructure for brandnew smart cities, like Incheon in SouthKorea, where IT systems will helpimprove public safety and security,commerce, health care, manufacturing,transport and education.

Says Wim Elfrink, Cisco’s executivevice president: “We envision a futurewhere successful communities andcities will run on networked informa-tion and where IT will help the worldbetter manage its energy and environ-mental challenges. Many innovativecities are now thinking about this asthe platform for economic develop-ment, better city management andimproved quality of life for citizens.”

The role of businesses in tackling awhole range of global issues is vitalsays U.N. Secretary-General Ban. Hetold business leaders: “You are at theforefront of globalization. That meansemphasizing sustainability across youroperations and in your investmentstrategies. And it means thinkingdifferently about how and where weinvest, thinking differently aboutcreating markets of the future andcreating opportunities for growth.”

Aging, growing global population focuses attention on corporate responsibilityBy Helen Jones

The U.N. forecasts that by 2050, 33% of the population

of developed countries will be over the age of 60;

and one person in three will be a pensioner.

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T he CEOs have spoken.Now the question iswhether the WhiteHouse hears whatthey are saying, and

whether the administrationagrees. To get a better sense,The Wall Street Journal’s AlanMurray spoke with White Houseeconomic adviser Austan Gools-bee. Here are edited excerpts ofthat discussion.

ALAN MURRAY: There is a prettystrong sense among the CEOsthat while they had lots of en-gagement with President Obamaover the course of the last twoyears, lots of opportunities to becalled into the White House andto have conversations, they don’tfeel like they have much influ-ence. I wonder if I could get youto comment on that generally.AUSTAN GOOLSBEE: I would say Ithink that’s a bit unfair. I know alot of people feel that way, butthe most important thing thatwe can do now—and I thinkthere’s a lot of room for agree-ment—is get ourselves growingand get us on a path so we endup where we need to be,whether it’s five years or 10years from now.

I’m not a relationship expert,but if you spend all your timetalking about the status of yourrelationship, it’s not a good signfor your relationship. And whatwe need to do is go out and dosomething together that we en-joy. We like going to the movies?Let’s go to the movies together.

The election’s over now. Thepresident went to Asia with a lotof business leaders. I think thespirit of that trip, that we’ve gotto all get on the same page andmake America a place to invest,I think there’s a lot of room foragreement.Promoting TradeMR. MURRAY: Is there a way forthis group of CEOs to work withthe president to provide leader-ship on understanding why jobsand trade are closely related?MR. GOOLSBEE: I definitely thinkso. The Export Council has hadsome early success on thatfront—both that we’ve got good

policy ideas from them as wellas they’ve been good ambassa-dors to the world, saying, look,we’re growing, we’re hiring peo-ple, and the reason we’re hiringpeople is because we’re going tosend [products and services] tofast-growing parts of the world.

It’s clear within the Demo-cratic Party and now within theRepublican Party there is a lot ofa division about what are thebenefits of trade. If the presi-dent says, here’s how exportscan be important and we oughtto sign a trade agreement withKorea. Europe’s got a free-tradedeal with Korea, Japan andChina are in negotiations, andthe U.S. should not be left be-hind in that. If business is notwholeheartedly going to standup and say, we agree and we’regoing to hire people and grow,this is going to make for goodgrowth in the United States,

then it’s just not going to hap-pen.

I’m not a political expert, I’mjust an economics professor. Butany political expert is going totell you, unless you can put sometangible points on the board,here is why it’s good for you, no-body is going to be for it.

MR. MURRAY: A closely related is-sue is immigration. Thereseemed to be a strong sense inthis group of why in the worldwould we not let the world’s bestand brightest—many of whomwant to come here to go toschool, many of whom do comehere to go to school—why in theworld would we not let themcome and live and work here?MR. GOOLSBEE: This is an issuethat we must confront. You hearit everywhere you go, certainlyfrom high-tech companies, butanywhere across the board: Tal-

ent is a pretty mobile resourceand is extremely important.

MR. MURRAY: Is the presidentwilling to expend some of his po-litical capital on that issue?MR. GOOLSBEE: The question is,how do we enact policies thatthe president is for that maybeeverybody can’t agree on, but75% of people agree that thiswill help us grow, help grow jobsand make us more competitivenow and over the next 10 years?How do we take stuff that’s to-tally reasonable and make thatlaw?

MR. MURRAY: But neither freetrade—which pollster Bill McIn-turff said this morning the publictends to equate with outsourc-ing—nor open immigration fallwithin that circle right now. Sothere are things that are withinthe circle but then there may be

things that require leadership toget moved within the circle.MR. GOOLSBEE: We will have tosee. Now the election’s over;there has been a change of con-trol. There’s a different powerdynamic. If the president ismeeting halfway or more thanhalfway and saying, here arethings that a lot of people agreeon, ideas that we’ve gotten fromadvisory committees, from busi-ness, from workers, from wher-ever, is somebody on the otherside going to say, OK, yes, let’smake that law?

Or is it going to be, as I char-acterize it, the old East Germanjudge, where it doesn’t mat-ter—you hit a triple flip, they’restill going to give the guy a 2 be-cause he came from the U.S. Ifthe president’s for it, they’reagainst it. And so we’ve got toget out of that dynamic.Deficits and DebtMR. MURRAY: Cut the deficit, re-duce debt was the top item fromthe global finance group at thismeeting. That sounds like onethat may fall within the circle ofcommon interests.MR. GOOLSBEE: Yeah, as long aswe separate the medium- tolong-run fiscal challenge and im-balance in the country from theshort-run fiscal crisis that we’vefaced.

The long-run fiscal challengefacing the country is serious. Wehave known about it for 30years—the aging of the popula-tion and the acceleration ofhealth-care cost inflation. Andthat has not materially gottenworse in the last two years, pe-riod. That problem must be con-fronted.

What has gotten dramaticallyworse over the last 2½ years isthe state of the economy, andthat’s why we have a short-rundeficit. And as long as we’re notconflating those two things andjeopardizing the recovery rightnow, we should be confrontingthat long-run bit.Boosting the EconomyNICHOLAS PINCHUK, CEO of Snap-on Inc.: What are the most im-portant things that government

can do in the next, say, 120 daysor four months that would accel-erate the economy?MR. GOOLSBEE: I think the mostpressing issue facing us rightnow is getting the economygrowing faster than the kind ofmoderate to measly 2% pace thatwe’re on.

Number one, the 98% of thetax cuts have got to be extended.

Two, some variant of thepackage that the presidentstarted outlining in the fall ofthis year of investment incen-tives, a focus on infrastructure, afocus on trying to unleash small-business credit, and focusing onpublic-private partnership in thebroadest sense of the word—thegovernment taking steps to en-courage private activity. That’sthe space that I would be con-centrating on and I think wouldbe the best.

There is one possible oppor-tunity in coming out of this re-cession. Normally when youcome out of recession there’s noobvious source of funds to fi-nance business investment, to fi-nance a bunch of the things thatyou’re trying to do. Everybody isboot-strapping. And right nowit’s different, because there’s abig accumulation of cash sittingthere. It’s sitting there on thebalance sheet.

There is an opportunity tofund business investment if wecan change—let’s call it the busi-ness climate, or business confi-dence or something. If we getdemand up, there is a path todramatically increase businessinvestment.

The other side of the issue isif they don’t use the money, thecorporate raiders are comingback, and they’re going to say,we’re going to take people overand get the cash out of there. Ifthey’re not going to either sendit back in dividends or use it forinvestments, give it to us.

I think that’s a problem. If weget into that model so that it’s amassive wave of merger and ac-quisitions, that wouldn’t begreat for the employment pros-pects of the country, if pastwaves of that are an indicator.That’s the downside.

The View From the White House

T he health-care over-haul has passed, butcosts continue tosoar, weighing downboth small and big

businesses. How can companiesand governments keep costsdown and improve the quality ofcare?

The Wall Street Journal’sLaura Landro moderated thetask-force discussion on healthcare. Here are edited excerpts ofthe presentation of their priori-ties to the CEO Council.

LAURA LANDRO: We had a spir-ited discussion this year, and atthe very end, we raised the issue:Should we put “repeal Obama-care” on our list, or maybe“amend Obamacare”?

The decision was made thatthat’s not going to happen, andwhat we need to do is workwithin the system. The industryneeds to work with governmentand to try to change some of theways that health care is struc-tured right now, change the wayit’s delivered and change the in-centives for employers, physi-cians and consumers.

Angela Braly is going to talkto us about our first priority,which was to change delivery in-centives.ANGELA BRALY: This really getsto the fact that right now wehave a fee-for-service paymentsystem, so we pay for quantityrather than quality. And very im-portantly, we think we need toredesign the way in which we re-imburse for health care.

When we do that, we need totake into account the right time,so preventive care, hopefully;the right setting, which might bea hospice at the end of life, itmight be a different setting alto-gether; the right team, so a co-ordinated, team-based approachto the way that health care isdelivered; and the way we reim-burse. Reimbursement could

come in the form of accountablecare organizations or patient-centered medical homes or pay-for-performance or risk sharing.There are a number ofways—and we didn’t want to becompletely prescriptive in termsof what that reimbursement for-mula would be.A Question of TransparencyMS. LANDRO: Two other prioritieswere making data transparent,and engaging and empoweringemployers to do something toget their employees healthier.KLAUS KLEINFELD: Let me firsttalk about the transparency as-pect. It was very informative tohear from those that are in theindustry how big a variation youhave in practices across theboard.

If I were to look at a set offactories that make the samething, and one does it in fivedays and the other one in 10days, and the one that does it infive days is cheaper than the onethat does it in 10 days, whywould I not bring everybodydown to the five days?

So the question is, what hin-ders the health-care industryfrom applying the same mechan-ics? There was agreement thattoday for every important dis-ease category there are alsoquality indicators that are ac-cepted that you could use to seewhat is the quality delivered.

Once you control the process,once you bring the quality up,the costs go down. To make thattransparent for the consumers,that’s the whole idea. So if peo-ple get diagnosed, they couldlook up who the doctors are inthe country, in my neighbor-hood, who have a lot of cases.What are their performances?

MS. LANDRO: You’d have to havenot only their performance dataon the plus side but also the per-formance data on the negativeside.

Now, in terms of engagingand empowering employers…MR. KLEINFELD: Most of thesefolks are working for somebody,and the employers pay a lot ofthe health-care checks. So it is inour interest to educate the em-ployees around things like obe-sity, smoking, lifestyle aspects.Also, to build that into some ofthe practices that we show atour workplace, and at the sametime to become a force in thehealth-care debate, as the em-ployers, to drive innovation.Carrots and SticksMS. LANDRO: The idea that thereshould be carrots and sticks andthat the health-benefit designshould enable you to do that cre-atively.

And then of course we havetwo other recommendations. Onewas the idea of using prevention

programs, finding out what thebest preventive-care practicesare, and making sure that doc-tors use those. And also, thething that comes up every year,which is tort reform, malprac-tice.WILLIAM HAWKINS: Contrary topopular belief, we actually havevery good medical care in thiscountry, and with the prolifera-tion of evidence-based medicine,we have determined that thereare best practices for how wecan treat hypertension or some

of the neurodegenerative dis-eases or diabetes. And the real-ity is, as you look across differ-ent systems, there’s a lot ofvariability in what people aredoing.

We talked about the impor-tance of publishing or being veryclear about what are the bestpractices for dealing with hyper-tension, and then making surethat we have the means bywhich people will be held ac-countable moving forward inthat area.

And then on the area of tortreform, we talked about the factthat in the health-care-reformlegislation, this did not make itsway into it to the degree thatmany of us felt that it should.The reality is today that a lot ofthings that are done in medicineare done for the wrong reasons.They’re done for defensive rea-sons.

This whole area of practicingappropriate medicine could havea significant impact in terms ofreducing costs.Empowering ConsumersMS. LANDRO: One of the thingsthat ran through consistently al-most everything was the issue ofobesity. Risa Lavizzo-Mourey,who was our subject-matter ex-pert from the Robert WoodJohnson Foundation, had someinteresting ideas about how tostart at the youngest level, suchas 60 minutes a day of vigorousactivity [in schools].MR. HAWKINS: One of the otherthings we talked about was thisidea of enabling consumerism.We’re in an era now with tech-nology that we can give peopleinformation that will enablethem to better manage theircare.

We’ve got to really ensurethat we’re encouraging innova-tion in the field of science andtechnology, to make available in-formation so individuals can un-derstand the consequences ofwhat happens if they eat thewrong foods or if they’re notgetting exercise.

Health Care: Change the Incentives

Angela Braly, Klaus Kleinfeld and William Hawkins: Give employers a greater voice in health care.

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Austan Goolsbee: The president’s trip to Asia showed ‘there’s a lot of room for agreement’ with business.

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HEALTH CARE CO-CHAIRS:Angela Braly President and CEO,

Wellpoint Inc.William A. Hawkins Chairman

and CEO, Medtronic Inc.Klaus Kleinfeld Chairman and

CEO, Alcoa

SUBJECT EXPERT:Risa Lavizzo-Mourey President

and CEO, Robert WoodJohnson Foundation

1. CHANGE DELIVERYINCENTIVES

Reimburse for quality out-comes rather than volume. Incen-tivize team-based care (includinggreater use of nonphysicians andnovel delivery mechanisms suchas accountable care organizationsand medical homes). Reimburse-ment should encourage alterna-tive care settings including homeand hospice care.

2. MAKE DATA TRANSPARENTHelp employers, insurers, em-

ployees and providers easily getpublic and transparent data on allproviders’ performance, measuredagainst nationally accepted stan-dards. Incentivize use of provid-ers with best outcomes/practices.

Enable consumers to use data onoutcomes to make better choicesabout health.

3. BEST PREVENTIVE-CAREPRACTICES

Use disease management orprevention programs for majorchronic conditions such as hyper-tension, diabetes, depression. Ag-gregate information on successfulapproaches from employer inno-vators and other countries toserve as best-practices models.

4. ENGAGE/EMPOWEREMPLOYERS

Bring employers’ perspectives,ideas and voices to the health-care realm—including grantingthem freedom to design innova-

tive benefit plans that includesticks as well as carrots forhealthful behaviors. Create work-place wellness programs for is-sues such as obesity, smoking,disease prevention—emphasizingactivity.

5. TORT REFORMIn addition to addressing mal-

practice, attack larger problem ofdefensive medicine, the overuseof care solely due to a fear oflawsuits. Rather than focusingonly on award caps, overhaul lia-bility laws to create a safe har-bor for physicians who follow ev-idence-based practice guidelines.Explore alternative dispute-reso-lution mechanisms and venues.


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tion in the system on immigra-tion laws.Infrastructure SpendingMR. SEIB: Glenn, do you want totalk a little bit about investmentand infrastructure, which wasNo. 4 on our list?GLENN HUTCHINS: I must say thatI had proposed balancing thebudget as the most importantthing we needed to do. I wassummarily voted down—I’m verypleased to see one of the othergroups put it in.

When I advocate both balanc-ing the budget and investing ininfrastructure, people tell methat’s inconsistent, and I thinkit’s not.

One of the things that govern-ment does not do is make an im-portant distinction we all makebetween capital spending andoperating expenses. This is theversion of our national capitalspending which, if we do it right,generates a massive kind of aplatform on which we can havemassive economic gains.

We talked about how a lot of

Continued from page R3 the infrastructure spending todate has been in roads, andthat’s a temporary phenomenon.If we’re thinking about sustain-able jobs, this should be more inareas like energy policy, smartgrid, those sort of places whereit will create sustained jobs.

This is also an area wherethere were real opportunities forpublic and private partnerships,a mixture of public and privatecapital incentives.

MR. SEIB: Finally then, Glenn, im-proved financing.MR. HUTCHINS: Many businesses,particularly small and mediumbusinesses, have trouble access-ing the capital they need tomake the investments to createthe jobs.

Venture-backed companieshave created a lot of jobs, butmost of those jobs were createdafter the initial public offering,when they have access to capital

for growth.Today, there are something

like 5,000 to 7,000 venture-backed companies that are morethan five years old and still pri-vate, and that’s in large part be-cause there’s not a market herefor those companies that don’tqualify for listings on our securi-ties exchanges. There are securi-ties exchanges outside theUnited States, particularly inCanada and London, that give

access to capital for venture-backed, for entrepreneur or ear-lier-stage companies. Wethought that would be some-thing to adopt.

There’s also some microfi-nance opportunities for smallerbusiness, where we can adoptsome of the microfinance tech-niques that have been developedoutside the United States to helpfinance smaller businesses.

And, finally, there was a view

that we need to have a regula-tory structure that addresses thesize, complexity and skills in theparticular companies.

Applying Sarbanes-Oxley tothe very smallest companies im-poses a much, much larger bur-den on them, and thinking aboutadjusting our compliance to thescale and complexity of the com-pany would be an importantthing to free up their access tocapital as well.

Creating Sustainable Jobs: The Answer Is Trade

companies are ready to invest ifthis uncertainty could getcleared up.

There was a lot of talk abouthow a patchwork of state regula-tions makes for a much less effi-cient business environment,makes it much tougher for busi-nesses to do business. So we’relooking for federal leadershiphere. There is kind of a cryingout for clarity and consistency infederal regulation.

MR. BALL: It was very interestingthat there was a dilemma thatshale gas presents, which is thatthere was a sense that it makesother alternatives much moredifficult to make viable, or some-what more difficult to make via-ble. That is, nuclear and renew-ables have a relatively harderrow to hoe when gas is $4 thanwhen gas was $8 or $12.MR. HAY: We all agreed that westill need a diverse energy sup-ply, and that’s been one of thestrengths of the U.S. So there isa concern about this dash to gasand the need, one way or an-other, through the market mech-anisms or other incentives or aprice on carbon, to allow for adiverse energy supply.Creating New JobsMR. BALL: The fourth priorityhad to do with looking outwardrather than inward. Tom, do youwant to talk about that?MR. ALBANESE: There’s a neednot just to connect R&D for in-novation for American technolo-gies and American applications,but also to push technologiesoverseas, to create a new type ofexport-driven job.

I see the Germans pitching allsorts of clean technologies veryaggressively all over the world.China celebrates its engineers.They’re taking the lead in solarpower. They’re putting moneyinto it; they’re putting moneyinto the next generation of bat-teries. The Japanese, the Kore-ans are going gangbusters. Butyou don’t see, to the extent youreally need to see, Americanproducts being aggressivelypushed around green power, al-ternative energies.

And what are the reasons forthat? Part of it has to do withcompetitiveness. Part of it is go-ing to be branding. As long asAmerica is seen to be late com-ing to the party on carbon, it’sprobably going to be seen latecoming to the party on carbon-based innovation.Encouraging EfficiencyMR. BALL: And, lastly, energy ef-ficiency. Tom?MR. ALBANESE: We’re all familiarwith the need for increased en-ergy efficiency and how the U.S.really is, on a per-capita basis,one of the biggest users of en-ergy.

We saw energy efficiency assomething that could help oureconomy lower costs for custom-ers but also, through leadershipin energy efficiency, create op-portunities to sell technologyand products overseas. So itwasn’t just an inward lookingperspective.

There was some discussionabout building efficiency. Oneperson pointed out that there’ssomething like 40 to 50% poten-tial for energy savings just inbuildings.MR. BALL: There was a palpablesense of frustration in the roomon this point of the competitive-ness of this country in the globalenergy picture, a sense that ifthings don’t change, this countryand its companies are going tolose out in the ability to competein a way that’s going to be verydifficult to recover from.

Continued from page R4

Energy

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L awrence Summers, di-rector of the U.S. Na-tional Economic Coun-cil, has announced hisintention to leave his

position at year-end. A key ar-chitect of the administration’sefforts to dig itself out of theeconomic and financial crisistwo years ago, Mr. Summers isalso one of its most fervent de-fenders.

Mr. Summers spoke to TheWall Street Journal’s Alan Mur-ray about those policies, as wellas where the U.S. stands glo-bally, and how China is the coreissue of our time. Here are ed-ited excerpts of that conversa-tion.ALAN MURRAY: Two weeks agothere was an election. It wasfairly historic—more than 60House seats went from the Dem-ocrats to the Republicans. Iknow you had already an-nounced your plans to leave be-fore that happened. But whenyou look at that and look at eco-nomic policy over the past twoyears, is there anything youwould have done differently?LAWRENCE SUMMERS: I thinkyou’ve got to start from wherewe were two years ago. Theeconomy was imploding. Depres-sion looked like a real possibil-ity. The financial system washanging on by a thread. And itwas not a matter of nuance. Itwas a matter of doing every-thing one could to turn that situ-ation around.

The major judgments—sub-stantial fiscalstimulus; sub-stantial trans-parency with re-spect to thefinancial systemand substantialprivate-sectorcapital raising,but no wholesalelurch to nationalization; automo-bile companies through bank-ruptcy, but with government asa large-scale DIP financier asrapidly as possible; major ac-tions to buttress the IMF, tomaintain open trade and to pushthe world toward global growth;substantial efforts, consistentwith a broad agenda of supportfor contract and property rights,to resist foreclosures and to sup-port the housing market; majornew financial regulation.

Those were the major deci-sions. And those were the cor-rect major economic decisions toturn the economy around.The Health-Care CureMR. MURRAY: And health care?MR. SUMMERS: There are manyissues about health care andwhat that meant for politics in amoment when there was alreadya large agenda. I will leave thoseissues for political experts to de-bate.

I will say this from an eco-nomic point of view. Health careis 17% of GDP. It goes up by 1% ofGDP every two years. The public-sector share goes up by 1% everyfive years. Fifty million Ameri-cans were without health insur-ance.

That system needed substan-tial change and renewal, startingfrom making access universal ifanything else was going to hap-pen. There was no window forthat other than the beginning ofthis presidency. The presidentwas courageous. The presidenttook substantial political risk tobring about that change.

I believe the legislation pro-vides a framework for renewingthe health-care system, which iscentral to renewing the competi-tiveness of the economy. Afterall, GM’s largest supplier isn’t asteel company or a tire company.It’s Blue Cross of Michigan. Mostof the compensation increaseshaven’t been wage increases.They’ve been increases inhealth-benefit costs.

I believe that the ultimatejudgment on the legislation willdepend upon how that legisla-tion is implemented. Is it imple-mented in a way that focuses oncost as well as access? Is it im-plemented in a way that is sensi-tive to businesses’ needs to becompetitive? Is there the appro-priate sensitivity to small busi-ness? Is the private health-insur-ance industry enabled, throughthe broadening of this market, toperform a vital service in a bet-ter way? Or is it excessively bur-dened?

There’s certainly room to de-bate and discuss how best to im-plement it. That’s a much betterstrategy, I think, than having adebate about whether it shouldbe reversed. I don’t see how youcan be for going back to a statusquo that spends twice as much

as any other country in order toinsure only five-sixths of thepopulation with results thatstack up extremely poorly by in-ternational standards.A Weakened Leader?MR. MURRAY: The president justgot back from the G-20 meeting.I wouldn’t say it was a shellack-ing, but I don’t think you wouldsay it was a stunning success.And there seemed to be threefactors at play that challengedhis ability to influence that fo-rum and exercise leadership onthe economic front.

One is a perception that thecrisis we’ve just been throughshowed the weakness of theAmerican model.

Two is the deficit, which isgetting larger and is piling updebt for the next decades, andit’s not easy for obligor to try toteach the obligee.

And then the third is nowquantitative easing. You’ve gotthe Fed pursuing policies thatother leaders claim are not sub-stantially different than the poli-cies we’ve been critical of inChina.

Do those three things affectthe president’s ability to exerciseleadership on the global eco-nomic stage?MR. SUMMERS: There is a way ofjudging summits, which isfrankly the way you in the pressare partial to, which is that youhave a success if you create anexpectation that nothing willhappen, and then something

happens. Thenyou’ve had asmashing suc-cess. You’vepulled a rabbitout of a hat.

If, on theother hand, youset your sightshigh and you

achieve 80% of what goal youhad set, then you guys focus onthe 20% and call it a failure.

So I would look at this in adifferent way. I would say thatwe have the most serious frame-work in place for addressing glo-bal imbalances that a group ofcountries has ever put in place,and the most far-reaching com-mitments in place that have everbeen established across so widea range of countries.China and the FutureMR. MURRAY: Talk about the rolethat China is playing in this newglobal economy. We have thismajor player on the economicscene that takes a very differentapproach to capitalism. In yourview, what are the effects of thatover time?MR. SUMMERS: I think that whensomebody writes the history ofour time 50 or 100 years fromnow, it is unlikely to be aboutthe great recession of 2008. It isunlikely to be about the fiscalproblem that America con-fronted in the second decade ofthe 21st century.

It will be about how the worldadjusted to the movement of thetheater of history toward China.

At the most rapid rate in U.S.history, our standards of livingwere doubling about once a gen-eration, in 30 years. Standardsof living in China have, for 30years now, grown at a ratewhere they double every decadeor a little bit less. That is a rateof growth for a share of human-ity that is unprecedented.

I don’t think it will, but ifChina grew at 10% a year for an-other 40 years, it would have40% of global GDP.

How they use that potential,how the global system respondsto both the opportunity and thechallenge that it represents, iswhat the history will be aboutwhen it’s written 75 years fromnow. A reading of the longsweep of history suggests thatrapidly transforming economiesin a rapidly transforming globalsystem produce histories thataren’t always happy ones. So ourwisdom, their wisdom, the wayin which we interact, is going tobe of the utmost importance.

Ultimately there’s going to beone thing that’s most important,and that is going to be how theworld sees the power of our ex-ample. It will be the power ofour example and the power ofour economy that will ultimatelybe this challenge. And that’swhy, frankly, the question of howthe United States relates toChina in this world and what ourexample is, is so much more im-portant than the question of howthe media relates to Washingtonor even the question of howDemocrats relate to Republicans.And it is the central Americanchallenge going forward.

PartingWordsLawrence Summers points to the mostimportant issue of our time: China

Lawrence Summers (right): The health-caresystem ‘needed substantial change and renewal’

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How the U.S.relates to Chinawill be vital.

© Copyright 2010 Dow Jones & Co., Inc. All rights reserved. 4EFWM0903

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F or the past two years,Treasury SecretaryTimothy Geithner hashad to battle a finan-cial crisis, a recession

and questions about his ownpersonal role as the crisis un-folded. Now he enters a newphase likely to be dominated byinternational challenges, as wellas a tough political climate athome in which he has to drivethe administration’s effort toachieve budget stability.

Mr. Geithner spoke to TheWall Street Journal’s GerardBaker about a number of thesehot-button topics, includingChina’s currency, U.S. tax policyand the administration’s desireto smooth relations with thebusiness community.

Here are edited excerpts ofthat conversation.China’s GradualismGERARD BAKER: Larry Summerslast night said that the most im-portant thing that history wouldrecord when it looks back in 50or 100 years will be how the U.S.handled the emergence of thisextraordinary new economicpower, China.

You’ve spent a lot of timedealing with exactly that issue,particularly with the currency is-sue. China has, as we know, beenreluctant to revalue its currency.You’ve just come back from im-portant meetings in Asia.

Can you tell us now what wecan realistically expect China todo?TIMOTHY GEITHNER: China is let-ting its currency rise. It’s mov-ing very gradually. They are veryaverse to a precipitous largemove, which I understand. Butthey’re letting it rise because ifthey don’t let it rise, then allthat fundamental economic pres-sure is going to end up in infla-tion or it’s going to end up in as-set price bubbles—things thatcould threaten their capacity togrow in the future.

They’re having a big debate inChina about how fast theyshould let it rise. And you’re go-ing to see that debate play outover time.

Sometimes it’s going to resultin a move toward gradualismand inertia. Sometimes you’regoing to see it result in favor ofpeople who want to let the mar-ket flow through the exchangerate.

MR. BAKER: Most economistswould say that the currency is atleast 10% to 20% undervalued. IsChina actually going to let thecurrency go to a level that seemsmore appropriate?MR. GEITHNER: I think they will.I think they have to. The ques-tion is how it happens.

It’s either going to happenthrough inflation or it’s going tohappen through inflation push-ing up the real value of the cur-rency or it’s going to happen by

letting the nominal exchangerate move.Moral AuthorityMR. BAKER: The U.S. has beencriticized very heavily in the lastfew weeks. The Germans havecomplained about quantitativeeasing. They’ve complainedabout U.S. economic policies.The Chinese have, too. Has theU.S. in these international de-bates lost some of its moral au-thority?MR. GEITHNER: I think it’s impor-tant to recognize as an Americanthat the crisis caused a hugeamount of damage to our credi-bility. People looked at theUnited States slip into crisis, andthey thought, have we lost thecapacity to manage our financialaffairs prudently? And it’s goingto take us a while to dig out ofthat loss of credibility. Andthat’s probably why we’veworked so hard and so quickly tomake sure that we were address-ing the biggest weaknesses inour financial system, so that ourfinancial system was no longer asource of risk and threat to theglobal financial stability.

And it’s why it’s so importantthat we keep working very hardto make sure we’re not just dig-ging out of this hole much morequickly, but that we start to ad-dress our long-term fiscal chal-lenges.

MR. BAKER: Don’t the critics havea point that the U.S. is basicallydoing the same—devaluing itscurrency—in just the same waythat the Chinese are?MR. GEITHNER: You’re trying toget me to speak about monetarypolicy, which I won’t do.Tax CertaintyMR. BAKER: One of the themesthat came across very stronglyat this meeting last year wasbusiness uncertainty about pol-icy. And we’ve obviously just hada big election, which arguablymay increase the uncertainty.But there’s one particular areawhere everybody’s still cryingout for some certainty, which isthe Bush tax cuts that are due toexpire on Dec. 31.MR. GEITHNER: We want to see apermanent extension of what wecall the middle-class tax cuts,which go to 97%, 98% of Ameri-cans. We want to make sure weextend the classic mix of incen-tives for business investment.We would not favor an extensionof high-end tax cuts because wedon’t think it’s the best way toprovide support for the econ-omy. We’d be very much againsta permanent extension becauseit’s just very expensive.

MR. BAKER: The nuance is thatyou would not favor any exten-sion of the high-end tax cuts.

You’d be absolutely against thepermanent. That seems to sug-gest that the wiggle room here isfor a temporary extension ofthose tax cuts and that’s what’sbeing talked about right now inCongress.MR. GEITHNER: I would love toresolve this right here. We havesome smart people in the room.We could work it out. It’s notrocket science. We could proba-bly work this out kind of quickly.But I don’t want to negotiate.

MR. BAKER: But if you don’t dosomething permanent, aren’t youjust punting? You’re just increas-ing the uncertainty, if you do endup with a two-year extension ofthe high-end tax.MR. GEITHNER: No, you can re-solve uncertainty lots of differ-ent ways. You can resolve it byproviding clarity about the dura-tion of the extensions, too. Thatprovides certainty, too.

I will say that it is not a sen-sible way to run a country tohave this magnitude of tax is-sues left to annual uncertaintyabout extensions.

MR. BAKER: Is this going to bedone before the end of the year?MR. GEITHNER: It has to be done.I think it’s very important thatCongress act on this before theyleave town. It’s not rocket sci-ence. It’s not a complicated thing

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to solve. It would not be a re-sponsible act of government toleave this level of uncertaintyhanging over the economy goinginto next year.

MR. BAKER: And would that ap-ply to those other issues that arestill outstanding, the estate tax,the alternative minimum tax fixthat comes up…?MR. GEITHNER: Absolutely.Winning Over BusinessMR. BAKER: After the election,President Obama gave his pressconference, acknowledged thathe’d taken a shellacking, as hecalled it. And he acknowledgedthat, perhaps, he hadn’t gottenthe balance quite right betweenensuring that business plays bythe rules and that the rules areright, and at the same time, en-suring that people understandwhat an important role the pri-vate sector plays here.

What are you going to do tomake sure that there is a sensethat business and this adminis-tration are working together,and to repair what appears tohave been quite a fractured rela-tionship in the last couple ofyears?MR. GEITHNER: I think it’s impor-tant to point out that if you lookat the profitability of Americancompanies, if you look at whathas happened to the market’s

confidence and their futureearnings, if you look at thestrength of private investmentgrowth in the early stage of re-covery and if you look at the ba-sic strength of the corporate bal-ance sheets of the United States,the American private sector is ina very strong position, and avery strong position to profitfrom the extraordinary growthwe’re going to see in the mostpopulous economies of theworld.

And that is partly because ofthe basic underlying resilienceand dynamism of the Americanprivate sector, but it’s substan-tially the result of the fact thatthe president, working with Con-gress and alongside the Fed, wasable to break the back of this fi-nancial panic very quickly, verysuccessfully, and restart eco-nomic growth at a much earlierstate than any of us thought waspossible.

But this perception, I think, isvery damaging. And it’s impor-tant that we work very hard torepair it.

And what we’re going to tryto do, as you’re seeing us do, isto make sure that we are layingout proposals for economic pol-icy that are going to be good forbusiness incentives and good forthe basic underlying strength ofthe U.S. business community go-ing forward.

Money TalksTreasury Secretary Timothy Geithner on China, taxes and smoothing things over with business

Timothy Geithner: ‘The American private sector is in a very strong position.’

T he Republicans don’tintend to be the partyof no, says Eric Can-tor, the second-rank-ing GOP House leader

and the chamber’s majorityleader come January. But whatspecifically will they say yes to?

The Virginia Republican spokewith The Wall Street Journal’sRobert Thomson about theagenda the party intends topush. Here are edited excerpts oftheir conversation.The Right IncentivesROBERT THOMSON: How impor-tant is it that the Congress beseen to be doing something? Is ita sufficient policy just to say no?What signals are you going tosend that this is going to be aperiod of great productive activ-ity?ERIC CANTOR: I think it’s impor-tant that Congress say no toanti-business, anti-growth regu-lation. But at the same time,we’ve got to go about putting inplace signals and policies thatare incentives for capital forma-tion.

Ultimately, we’ve got to lowerthe price of risk for all of you.

MR. THOMSON: Certainly, onearea of uncertainty is the exten-sion of President Bush’s tax cuts.And if we were to read betweenthe lines of what the Treasurysecretary, Tim Geithner, told us,it was, the two-year extensionfor all cuts is probably fine, butopposition at this stage for apermanent extension for wealthyrecipients. Does that give you

something to bargain with overthe next few weeks, and wouldyou agree to a two-year exten-sion and then use that period fora broader-based reform of thetax system?REP. CANTOR: The message fromthe election is that the uncer-tainty connected with the taxrates was a primary issue.

It is something that hopefullywe can resolve prior to the endof the year, something that Ithink that the administration un-derstands cannot be done by de-coupling the rates for thosemaking under $200,000 fromthose higher earners. That’s a di-rect signal that higher earnersare going to experience a taxhike with however long the ex-tension is.

The argument that we madeduring the election is that it’snot only the likes of you in thisroom that are running the verylarge corporations, but it is thesmall-business people. If youlook at the numbers, 50% of thetaxpayers over the $200,000 in-dividual mark get at least 26% oftheir income from entities thatare small businesses, and thehigher that percentage goes, themore jobs are created.

And I think that is the mes-sage that the electorate gave us:Stop even thinking about raisingtaxes on anybody right nowwhen we’re facing these eco-nomic times.

MR. THOMSON: But if you werelistening to the mood music com-ing out of the White House now,are you reasonably optimistic

about a deal, and would you ac-cept a temporary extension?REP. CANTOR: Right now, I thinkit is best for us to focus on how-ever long we can in terms of ex-tending these rates so that un-certainty is diminished. And thathas to be the goal, and I’m hope-ful that we can work togethertoward that end.Two Dirty Words?MR. THOMSON: You’re someonewho has spoken publicly in favorof free trade, and yet it’s fair tosay that “free trade” are becom-ing almost tainted words. Whatcan be done to change the na-ture of the debate, to broadenthe understanding of free trade,and is it possible for Congress atthe moment to even consider, forexample, the Colombian pact orthe rescinding of the ban onMexican trucks?REP. CANTOR: I think that youcan count on a Republican-ledHouse to push some free-tradebills this session, because we be-lieve very strongly that there area lot of jobs to be gained if wecan get back on track towardfree trade. Now, politically thatalso means we’ve got to addressthe sense of fair trade, makingsure that we are applying therules under which the interna-tional community engages inmultilateral or bilateral trade.That seems to be the politicalchallenge that we’ve got, be-cause somehow, the electorate,especially in the states that havesuffered manufacturing losses,seem to think that all that’s hap-pening is growth of jobs over-seas without any sense of jobgrowth at home.

MR. THOMSON: If you were onthe Federal Reserve Board,would you have voted in favor ofquantitative easing?REP. CANTOR: I am not an econo-mist. I’m not yet convinced thatit is a policy, at $600 billion of

late, that is going to deliver onthe job creation or the wealth ef-fect that perhaps the Fed thinksit will.

I do think that we need to bemindful of the potential thatwe’re enabling the facilitation ofthese fiscal policies that we’vebeen about in this town. I’m notnecessarily under the belief thatthe cause and effect is reallythere, but there are dangersigns, obviously, as we do that,and keeping our eye focused onwhat the goal should be.Adult DiscussionsMR. THOMSON: Bearing in mindfiscal sustainability, the deficitcommission report—did you seemuch succor in that?REP. CANTOR: There is someroom for us to begin some adultdiscussions, finally, around thatdocument. Certainly, there aresome formulaic suggestions onthe entitlement end that we re-ally ought to take a look at. Ithink it’s a positive thing thatperhaps we’re out of the politi-cal realm and we can begin totalk about what’s good for thiscountry long term.

MR. THOMSON: Are you in favorof increasing the retirement ageover the short to medium term?REP. CANTOR: I think the discus-sion has to be: There is a differ-ence between those nearing re-tirement and those who areseniors right now. And thosewho are younger are not goingto see the benefits that seniorstoday are just by virtue of appli-cation of the statute. The for-mula is such that benefits will bereduced.

So if we do not do somethingto extend retirement age, if wedo not do something formulai-cally in terms of the top end orthe top tier of income earners,you’re not going to have thisprogram. You’re just not goingto have it. That’s reality.

The Party of Yes and NoEric Cantor talks about taxes, free trade and deficit reduction

Eric Cantor: ‘We’ve got to lower the price of risk for all of you.’

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H ow upset arevoters, really?What are theyupset about?And who are

they mad at? Two leadingpolitical pollsters, Peter Hartfor the Democrats and BillMcInturff for the Republi-cans, talked to The WallStreet Journal’s Matt Murrayabout the mood of the U.S.electorate and other pollingresults in the wake of the re-cent historic elections. Hereare edited excerpts of theirconversation.

MATT MURRAY: What haveyou seen change during thedownturn in people’s atti-tudes and views? In whatway would you expect an im-provement of the economy toaffect the voters?BILL MCINTURFF: We’re in theworst period since the De-pression. That’s how thispublic is viewing it, and theyare very grim.

We’re seeing kind of anend of American exceptional-ism, which is a really power-ful force in this country, withpeople saying China is theemerging power, not the U.S.We are a long, long, long wayaway from returning con-sumer confidence.

So when you read aboutthe billions that your corpo-rations are holding in cash,in some ways that’s prudent,because I don’t think thiselectorate is ready to saygood times ahead. This is along-term process that is re-shaping attitudes in impor-tant, fundamental ways.PETER HART: You have halfthe American public sayingthat we’ve been deeply af-fected by the recession. Peo-ple recognize that whatwe’re facing is going to be abrand new era and a brandnew way. That’s exceptionallyimportant.

I was out doing focusgroups last week with Obamadefectors, and it all comesback to jobs. They’ve lostjobs, they’ve had their in-come changed, and they areinsecure and uncertain. Theyneed help, and they don’t seehelp coming anywhere in thenear future. It is a sense ofinsecurity and uncertainty.That’s what’s out there morethan anything else.Who’s to BlameMR. MURRAY: Who do peopleblame for that alienation?Business, government, every-body?

MR. HART: It’s all institutions.In the exit polls, first andforemost they named WallStreet and business, I think itwas something like 35%. Sec-ond was the Bush adminis-tration, and third was theObama administration.

But of those who said thebusiness community, theyvoted more Republican thanDemocratic, so go figure.What it really comes backaround to is we’ve lost confi-dence in every single institu-tion. The only institutionsthat sort of remain are themilitary, firefighters, para-medics, that kind of thing.

But you look at the newsmedia, you look at the busi-ness community, you look atbanking and you look at WallStreet, it’s now about 10%confidence. It used to be40%, 50%, 70%. A lot of it hasto do with a sense of, who’sfighting for me and who un-derstands where I’m at?Trading DownMR. MURRAY: Have Ameri-cans lost some faith in free-market economics?MR. MCINTURFF: One of thereally profound things that ishappening is a sharp dropover the last decade in sup-port for something calledfree trade. There is a grow-ing sense that other coun-tries have taken advantage ofus, and that free trade hasbecome synonymous withoutsourcing, with shippingjobs overseas. When you askpeople, has free trade helpedthe economy, by a 2 to 1 mar-gin they say it has hurt. Re-publicans, upper-incomehouseholds, people with thelargest assets have droppedprecipitously in their supportfor free trade.

MR. MURRAY: What do youthink business leaders needto know as they look at thislandscape?MR. HART: Pure and simple, itall comes back around tojobs, jobs, jobs and jobs.What you have seen politi-cally doesn’t stop in the po-litical marketplace. Businessleaders need to understandhow quickly things are mov-ing and the willingness ofthe public to go beyond yourestablished brands. I mean, ifwe had said three years ago,we want to talk about theTea Party, you would havethrown us out, you wouldhave taken away our con-tract. That’s how quicklythings are moving.

The Mind ofThe ElectoratePollsters Peter Hart and BillMcInturff on the grim moodin the country

D efense SecretaryRobert Gates hasserved in some ca-pacity under eightpresidents over

more than 40 years—experiencethat no doubt serves him well ashe deals with numerous conflictsand security threats around theworld and pressure at home tocut the military budget. Hetalked about these issues withThe Wall Street Journal’s GeraldF. Seib. Here are edited excerptsof their conversation.Afghanistan and PakistanGERALD SEIB: Let’s start with Af-ghanistan. President Hamid Kar-zai made some fairly startlingstatements in an interview withthe Washington Post, in which hetalked about the need for theU.S. to ramp back military oper-ations to stop special operations,operations in the south, whichhave been very effective. What’syour reaction?ROBERT GATES: First, PresidentKarzai is our partner. And wewill continue to partner withhim through this conflict. Presi-dent Karzai is reflecting the im-patience of a country that’s beenat war for 30 years.

President Karzai was articu-lating the desire to see Afghani-stan get to the way it was in the1950s and ’60s, when the pri-mary American presence was adevelopment presence. We sharethat desire. The problem is wecan’t get from here to there to-morrow.

I think he understands whatwe have to do to get to thatpoint. And the Afghans are play-ing a significant role already.There’s been dramatic improve-ment both in the numbers and inthe quality of the Afghan secu-rity forces over the last year.

MR. SEIB: But is there a gapemerging between the approachthe U.S. wants to take over thenext eight to nine months andwhat President Karzai’s politicalneeds seem to dictate that hehas got to ask for?MR. GATES: No, I think we’ll beOK.

MR. SEIB: What about Pakistan?Is the arc of the political andmilitary relationship with Paki-stan going upward or down-ward?MR. GATES: I think it’s going up.If you had told me two years agothat Pakistan would have140,000 troops on its westernborder fighting the Taliban andthe various other terroristgroups in that area, I would havethought that impossible.

Is it as fast as we would like?No. But I think there is a grow-ing common understanding ofthe mutual threats that we face.Middle Eastern ThreatsMR. SEIB: How serious is the ter-rorist threat in Yemen? Whatkind of tools do we have to dealwith that threat?MR. GATES: As we’ve broughtpressure on al Qaeda in NorthWaziristan [in Pakistan], the ter-rorist movement has metasta-sized in many ways. So now wesee them in Somalia, in Yemen,in North Africa. And our biggesttools, particularly with respectto Yemen, are the partnershipcapacity of the Yemenis them-

selves and enabling them to goafter these guys. We don’t needanother war.

The Yemenis have shown awillingness to go after AQAP, alQaeda in the Arabian Peninsula.They’re working with us andwith the Saudis and with others.One of the big themes over thelast couple of years for us hasbeen giving them the equipmentand the training so they can dothe job themselves.

MR. SEIB: Let me continue the arcof trouble spots in that area ofthe world by asking you aboutIran. Is there anything that yousee that suggests that the pathtoward nuclear-weapons capa-bility is anything except straightand narrow for the Iranian gov-ernment?MR. GATES: I believe that theyare still intent on acquiring nu-clear weapons. But also the in-formation that we have is thatthey have been surprised by theimpact of the sanctions, this lat-est round—not just the last U.N.Security Council resolution, butthe actions taken by individualcountries using the U.N. Security

Council resolution as a platformor as a foundation. And we evenhave some evidence that [Iran’ssupreme leader, Ayatollah AliKhamenei] now is beginning towonder if [Iranian PresidentMahmoud Ahmadinejad] is lyingto him about the impact of thesanctions on the economy

The only long-term solutionin avoiding an Iranian nuclear-weapons capability is for the Ira-nians to decide it’s not in theirinterest. Everything else is ashort-term solution.

And if it’s a military solution,as far as I’m concerned, it willonly bring together a divided na-tion. It will make them abso-lutely committed to attainingnuclear weapons.

So the political/economicstrategy is the one that we haveto continue to pursue andratchet up and create an exit forthem.Budget IssuesMR. SEIB: You’ve got some man-agement and budget challengesthat are significant. You’ve es-sentially told the Defense De-partment we have to find $100

billion in savings over the nextfive years if we’re going to keepthe force structure that we havein place. You also told Congressthat they have to learn to livewith that. How are those twomessages going down?MR. GATES: Within the building,I have gotten incredible coopera-tion. This has been done in part-nership with the military.

I believe given the kind ofchallenges that the U.S. is likelyto face around the world and theunfortunate reality that most ofour allies are reducing their mil-itaries, that the burden on us

and the security challenges aregoing to remain unchanged andpotentially even increase in thefuture, and therefore, the needto sustain force structure.

This means taking $100 bil-lion out of overhead and invest-ing it in the tooth side, if youwill. One way that I think we’vedone this and gotten the cooper-ation of the services is I’ve basi-cally assured them that all thesavings that they can find intheir overhead within their ser-vice, they can reinvest on theirmilitary capabilities.

In addition to that, I hope tofind somewhere between $15 bil-lion and $20 billion in savingsoutside of the military servicesthat I can then reinvest in theservices. And I’m asking the ser-vices, what are your priorities?Where are you going to investthis money? And what are ourpriorities if I find more moneythat I can give to you?

That has incentivized the ser-vices to really look very hard atthe way they do business.

MR. SEIB: Your political problemnow is that the chairmen of thedeficit commission, Alan Simp-son and Erskine Bowles, have es-sentially said that’s great, we’lltake your $100 billion and we’llraise you another $100 billion orso, over time. What’s your mes-sage back to the commission?MR. GATES: I’m sympathetic withthe challenges that we face interms of the deficit. But when itcomes to the deficit, the Depart-ment of Defense is not the prob-lem. If you cut the defense bud-get by 10%, which would becatastrophic in terms of forcestructure, that’s $55 billion on a$1.4 trillion deficit.

And frankly, the idea that de-fense would take half of the cutin discretionary spending, par-ticularly given what we’re tryingto do in terms of preserving se-curity, is a problem for me.

No End of TroubleSecretary of Defense Robert Gates on conflicts, security threats and budget cutting

Robert Gates: ‘When it comes to the deficit, the Department of Defense is not the problem.’

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W hat is the mes-sage from the2010 election? Itdepends, ofcourse, on whom

you ask.The Wall Street Journal’s Alan

Murray discussed the resultswith Sen. John McCain, an Ari-zona Republican; Sen. EvanBayh, an Indiana Democrat whois retiring; Sen. Chuck Grassley,an Iowa Republican; Rep. JimCooper, a Tennessee Democrat;and Allen West, a Republicanwho was elected to the Housethis year from Florida.

Here are edited excerpts oftheir discussion.

ALAN MURRAY: Sen. McCain, Iwonder if you could tell us, fromwhere you sit, what the messageof this election in the UnitedStates is.JOHN MCCAIN: It was a revolt. Itwas not a revolution. Revolu-tions take a long time. It was re-volt on the part of the Americanpeople who believe that theirgovernment has lost touch withthem and they have lost touchwith their government.

And any Republican whothinks that it was a vote in favorof Republicans should look atour approval ratings. Last time Ichecked, it’s around 17%. Whenyou get down that low, it’s bloodrelatives and paid staffers.

I predict that unless Republi-cans act in response to theAmerican people, they will rejectRepublicans. And they have ev-ery reason to be skeptical be-cause when we were in charge,we let spending get out of con-trol. We engaged in the earmark-ing and pork-barreling, which iscorruption. So if the Republicansuse their power in the fashion,frankly, that we did when previ-ously we were in the majority,then I think you will see theemergence of a third party.People Like ThemMR. MURRAY: We’re fortunate tohave one of the stars of this newclass of House members, Con-gressman-to-be Allen West fromFlorida, the first Republican Af-rican-American House memberto be elected from Florida sinceReconstruction. I wonder if youcould tell us what the message

of this election is.ALLEN WEST: The American peo-ple are looking for individualsthat resemble who they are, whoare not part of what they nowsee as a ruling-class elitism, apolitical class.

And I think that is why yousee 83 new GOP House members.It was not so much about re-warding the Republican Party,but rewarding people that theythought were different fromwhat Washington resembles.

People stood up and said, it isthe indomitable entrepreneurialspirit of the American small-business owner and corporatebusinessmen and women thatwill give us long-term, sustain-able economic growth. That isthe message that won in 2010.

MR. MURRAY: Sen. Bayh, if youlook at what happened, the Dem-ocratic Party emerged muchmore ideologically pure than itwas before. You decided not torun. Where’s the center? Can youdo this without a center?EVAN BAYH: I’ve never see theparties more polarized than theyare today. You had Bob Bennettin Utah taken out in his ownconvention because he sup-ported the TARP bill. You hadLisa Murkowski come back as a

write-in candidate, but defeatedin her primary in Alaska.

And Delaware, same sort ofthing with Mike Castle—finemoderate Republican taken outin his primary. And in my ownparty, in Arkansas, organized la-bor and MoveOn.org spent $12million against Blanche Lincolnbecause she was not 100% downthe line. I think that was largelyto send a message to the rest ofthe moderate Democrats: If youdon’t subscribe to party ortho-doxy, here’s what you’ll get.

So the bases of the two par-ties are very intolerant of anydissent at a time when mostAmericans—that vast middlethat are looking for practicalproblem-solving—really arecompletely alienated.

I think we are likely to see aprolonged period of politicalchurning. In 2006 and 2008,they were change electionsagainst the Republican establish-ment. This was a change electionagainst the Democratic Party es-tablishment.CHUCK GRASSLEY: People areworried about the economy, jobsand the legacy of debt that we’releaving to our kids.

And there’s a moral issue in-volved. Should this generationlive and not worry about who’s

paying for it? And so what theywant us to do is deliver on whatwe ran on, not to dissect thiselection.‘It Was Sleaze’SEN. MCCAIN: The extension ofthe Bush tax cuts—there has tobe some certainty there. And itwas just unconscionable that weshould go out to campaign whenwe’re leaving companies all overAmerica unable to plan for thefuture.

I don’t know what’s going tohappen with health-care reform.But I know my constituents ob-jected strenuously to this pro-cess. It was sleaze. I won’t call itanything else because peoplewent into Harry Reid’s office orto the White House and they cutdeals and they came out sup-porting this legislation.JIM COOPER: What we’re hearinghere tonight is the continuationof the campaign. And part ofthat is due to the fact that thecamera is on. Campaigning is sodifferent than governing. In gov-erning, as you all know, runningyour corporations, you have tomake deals.

Sen. McCain, this isn’t thefirst time that deals were madein Washington. Compromise isnecessary if you’re going to gov-ern a great and diverse nation ofover 300 million people. The keyis whether the policy works.Now, procedure helps. I wish thepresident would ask six or eightgreat businessmen to be on thecabinet. I think that would do alot to align interests and reducethe uncertainty.

There’s a deep disillusionmentas we see the American dreamfade, as we see both parties losetheir credibility, as we see thecorporate world lose its credibil-ity. The elites have to performhere and produce and get re-sults. And that is achievable. Butwe’re not discussing real sub-stance. The media almost pre-cludes that today with thesound-bite culture.

I’d encourage you, as corpo-rate CEOs, as businesspeople, toget more involved in the process.Not just through your Washing-ton minions, but really under-stand what’s going on becausewe need your deep involvement.And I think you might see yourminds change sometimes. Youmight get a new point of view.But it’s going to take a quiet dis-cussion—probably off-camera—for that to happen.

What Did It All Mean?Five members of Congress talk about the message fromthe election—and what needs to be done now

John McCain says the 2010 election represented a ‘revolt.’

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E ducation, just abouteveryone seems toagree, is broken in theU.S. The country hastumbled down the in-

ternational rankings in severalmeasures of educational excel-lence. Education Secretary ArneDuncan talked with The WallStreet Journal’s Rebecca Blu-menstein about what’s beingdone to fix the system and whatstill needs to be done.

Here are edited excerpts ofthat discussion.Plenty of ObstaclesREBECCA BLUMENSTEIN: Thereare going to be a lot of budgetcuts, there are going to be movesto curb property taxes, and theunions are going to be an obsta-cle to change. Is PresidentObama, and are you, willing tofully confront the unions, whichobviously are a key constituencyof the Democratic party?ARNE DUNCAN: Well, let me tellyou what has happened. Thanksto Race to the Top, you have 37states that historically dumbeddown standards—essentially notbecause of unions but due to po-litical pressure, due to politi-cians wanting their students tolook good—we’ve seen all thesestates now adopting commoncollege- and career-ready stan-dards. This is an absolute gamechanger.

We have this next generationof assessments coming. We sawmore than three dozen states re-move barriers to charter schoolsand innovation. We had a couplestates that had laws on theirbooks that prohibited the linkingof student achievement toteacher evaluations; all thoselaws have been eliminated. So

there’s been a massive amountof change. And we’re going tocontinue to push for dramaticchange.

MS. BLUMENSTEIN: New YorkMayor Michael Bloomberg justsaid that when layoffs do hap-pen, that many states have lawsthat basically require that themost senior teachers are keptand the least senior teachers go.Often, the best, most energeticteachers are young and theschools don’t have an ability toget rid of who they want to. Areyou going to push for changes tothose laws?MR. DUNCAN: Well, those actuallyare changing and have changedin many places. Much broaderthan that, we’ve had very few in-

centives and lots of disincentivesfor the best teachers and thebest principals to go to neigh-borhoods that need the mosthelp. And so if we’re seriousabout closing achievement gaps,we have to close what I call theopportunity gap. And we’re put-ting a huge amount of resourcesinto figuring out how to system-atically get the hardest-working,the most committed teachersand principals into underservedcommunities.

MS. BLUMENSTEIN: Are you andthe president willing to confrontthe unions if they stand as ob-stacles to change in various ar-eas?MR. DUNCAN: We’re going to con-front everybody and have

been—including the unions. Andeveryone has to change, so any-one who thinks that unions arethe only challenge is missing theboat. We have to challenge par-ents; we have to challenge stu-dents themselves; we have tochallenge school-board mem-bers; we have to challenge politi-cians at the local, state and fed-eral level.

Our Department of Educationhas been a huge part of theproblem. We’ve been this large,compliance-driven bureaucracy,and we’re fundamentally tryingto change the business we’re in.We’re trying to become this en-gine of innovation and scale upwhat works, putting a hugeamount of discretionary re-sources behind districts, states,

nonprofits and local schools thatare doing things in a very differ-ent way.Legislative ProspectsMS. BLUMENSTEIN: Education isthe one area where people see arealistic shot at some bipartisanagreement in the new Congress.What is your priority? Are yougoing to be pushing for reformon the No Child Left Behind Act?MR. DUNCAN: Yeah. I thinkthere’s a lot in the current lawthat’s broken. There are piecesthat work, but there are lots ofreally perverse incentives in it.

We’ve worked very closelywith House and Senate leader-ship, Republicans and Demo-crats, for months. I actuallytalked to the incoming speaker[Rep. John Boehner] today. Andwe’re committed to workingvery, very closely.

MS. BLUMENSTEIN: Why shouldreforming No Child Left Behindbe the top priority over perform-ance pay or any other measures?MR. DUNCAN: It’s not over any-thing. All that’s part of it.

What worked in No Child LeftBehind is there was a laser-likefocus on the achievement gapand disaggregating data. Histori-cally, our country loved to sweepthose sorts of tough facts underthe rug. And thanks to No ChildLeft Behind, that’s never goingto be the case.

Having said that, lots ofthings are broken. It was verypunitive. Almost no rewards forsuccess. It was very prescriptive.It was top down from Washing-ton. It led to a dumbing down ofstandards. And it led to a nar-rowing of the curriculum. So wecan reverse all of those things.

We can reward excellence, re-ward great teachers, great prin-cipals, great schools, districts,states.

We have folks beating theodds, raising achievement forstudents every single day. Weneed to shine a spotlight andgive them more resources.

We want to put $1 billion be-hind what we’re calling a well-rounded education. So yes, read-ing and math are fundamental;they’re foundational. But weneed science, we need socialstudies, we need foreign lan-guage, we need dance and dramaand art and music and [physicaleducation].The Role of BusinessMS. BLUMENSTEIN: What can thepeople in this room do to influ-ence the outcome?MR. DUNCAN: I think the mostimportant thing this room cando would be to challenge us andchallenge the country to makethis the country’s priority in thenew year. Your leadership in de-manding and drivingchange—we have not, frankly,had enough passion, enoughpush from the business commu-nity. And your collective voice isextraordinarily powerful.

MS. BLUMENSTEIN: PresidentObama has a goal of increasingcollege graduation rates. I be-lieve the U.S. has now sunk toNo. 9 in the world and he wantsto make us No. 1 by 2020. How ishe going to do that, given thestate of public education?MR. DUNCAN: We’re putting ahuge emphasis on early-child-hood education, which is a long-term play. We’ve talked a lotabout K-to-12 reform.

We’ve also put a huge amountof money to make college moreaffordable, have increased Pellgrants, lots of money behindcommunity colleges. And so witha comprehensive—we call it cra-dle to career—continuum ofchange, we basically need aboutanother eight million young peo-ple to graduate.

Teach Your Children...BetterEducation Secretary Arne Duncan on how to fix a broken system

A s mayor of NewYork, MichaelBloomberg has hadto cope with thefallout from the fi-

nancial crisis while pursuing ahost of ambitious goals. In aconversation with Paul Gigot,The Wall Street Journal’s edi-torial-page editor, MayorBloomberg talked about the re-cent elections and one of hisnew projects, immigration re-form. Here are edited excerpts:

PAUL GIGOT: We just had a bigelection where Republicans willcontrol the House. What mes-sage were voters trying to sendWashington?

MICHAEL BLOOMBERG: I don’tthink it was an “I love Republi-cans” kind of message. I thinkit was “I don’t like the statusquo, there’s too much partisan-ship, nothing is getting done.”

MR. GIGOT: So what one or twothings would you suggest toRepublicans that they ought toaccomplish to help the NewYork economy?MR. BLOOMBERG: For the coun-try and for New York, we needimmigration reform. That’ssomething that your publisher,Rupert Murdoch, and I havebeen working on. We’ve formedan organization of business-people and mayors to explain

to senators and congresspeoplethat we have to have more peo-ple coming from around theworld so the next industriesare created here, so that smallbusinesses are created here.

The second thing, I think, isthe public wants to think thatthe monies are being spentwell and honestly. That willgive people a lot more confi-dence. There is a belief amongthe public that everything ispork barrel.

Most importantly, if I werethe Republicans, I cannot bethe party of “no.” I think NewtGingrich learned that. Closingdown the government was notsomething that was popular.

So they have to have someconcrete, proactive plans thatare reasonable and that theyhave some chance of gettingthe other side to come to thetable and at least discuss andmaybe compromise on.

MR. GIGOT: With the passage ofDodd-Frank and in the after-math of the financial panic andthe restrictions that are in thatbill, are we seeing a permanentshrinking of the financial busi-ness and its effect on the NewYork economy?MR. BLOOMBERG: No, I believethat Wall Street has an awfullot of very smart people whowill find ways to make money.

How the Mayor Sees ItNew York’s Michael Bloomberg on what Republicans should do now

Michael Bloomberg: Republicans ‘cannot be the party of ‘no’.’

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Arne Duncan: ‘We’re trying to become this engine of innovation and scale up what works.’

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E arlier this month, Re-publicans swept topower in the House,and a lot of the creditfor that goes to Kevin

McCarthy, a California congress-man who led the effort to recruitHouse Republican candidatesthroughout the country.

Rep. McCarthy spoke to TheWall Street Journal’s Gerald F.Seib about the party’splans—and how those match upwith the wish list members ofthe CEO Council hammered outat the conference.

Below are edited excerpts ofthe conversation.Trade and PrioritiesGERALD SEIB: Kevin McCarthywas the guy in charge of recruit-ing House Republican candidatesin every district in the country.And his guys are the ones whowon the election, except forthose cases where the Tea Partyhad somebody else in mind.

So what are you going to donow? I’m going to start askingthat question in the context ofthese priorities that the CEOs inthis room have said are at thetop of their list. Let’s start withthe one that got the most votesof all: foster global trade.REP. MCCARTHY: We can continueto do that, and we’ve got three[trade bills] sitting out there.

But if you gave the same listto Congress, or if you gave thissame list to the Republican con-ference, that wouldn’t be ourfirst. Our first is pretty muchwhat the Pledge to America is,that we’re not going to changethe tax system in a recession.

The second is going to go intothe competitiveness. We have toend the uncertainty out there;you have to rein in regulation.One of our first bills is called therein act, where we would say noagency can enact a major rulingwithout a vote of Congress, totry to end some uncertainty.

If you took a free-trade voteinside even a Republican confer-ence, it’s not what we all think itis. It is a time where it is a fightstill. It is something that wehave to continue to explain, andthat’s why I think the overall

competitiveness as a whole putsus in that better perspective.Fixing TaxesMR. SEIB: Let’s talk a little bitabout taxes. This item says,“Promote a territorial tax sys-tem; allow expensing of capitalequipment and software; changethe capital-gains tax. Reduce itto zero over four years so it ap-plies to everyone, including non-profits.” Can you do that kind ofthing in this Congress?REP. MCCARTHY: I think anything,when you do it this large, you’re

not going to do it in six months.We have to, during this time,

set a structure—no new taxesnow, reform the budget andstart throwing those ideas outthere. And at the same time thatyou’re putting the ideas outthere, you have to have a trueaccounting of where we are, sothey also see the challenge, sothe idea doesn’t become theproblem, but the problem be-comes so big that the idea is notso bad; let’s try it.

The more entrepreneurs wehave in this country, the better

off—why don’t we have an en-trepreneur IRA? Why can’t youtell a kid that’s working at theChick-fil-A that saves his money,one day you can buy one. Themore people that start dreamingabout themselves becoming en-trepreneurs—that’s what makesthis country strong, but todaywe don’t do that. The systemdictates behavior, and the behav-ior takes away the entrepreneur-ship.

So, we’re going to put a list ofentrepreneur bills, we’re goingto put a list of competitiveness

bills and just try to change theculture.

I don’t think this gets done intwo years, but the debate has tostart now, and the debate has tostart around where we’re going.Out of the RedMR. SEIB: I want to take it to pri-ority No. 5, “Reduce the debt;fortify the dollar.” There is adeficit commission. Its chairmanjust said some interesting things,some of which are music to yourears, some of which may not be.What’s your reaction? The defi-cit-reduction game, how does itplay out?REP. MCCARTHY: If you watchedthe Pledge to America, the firstthing we do is roll back spendingto pre-stimulus, pre-bailout.That’s $100 billion.

I did a lot of the Sunday talkshows and everybody attackedme: “Oh my God, how are yougoing to do that? You’re going tocut Head Start or somewhereelse.” The debt is $1.4 trillion.You can’t do $100 billion. You’renever going to be able to getthere.

So you’re going to see actionsright off the bat. You’re going tosee the Appropriations Commit-tee actually change. It’s no lon-ger going to be the spendingcommittee. You’re going to findplaces that we’re going to beable to alleviate.

The other thing that we putinside the pledge that peoplearen’t really paying attentionto—the size and scope of gov-ernment, the work force. I say,for every person who retires,you get 0.5, so two people haveto leave before you get one. Theysay, “Oh, but this department,we need it for enforcement.”Well, that’s fine. It’s all in onebig pot. Take it from the Depart-ment of Labor and put it overthere.

Move it to where you need it.But you’ve got to start settingthe framework to get there.

Wish List vs. Wish ListRep. Kevin McCarthy on how the Republican agenda differs from the CEOs’ agenda

The Appropriations Committtee, says Kevin McCarthy, is ‘no longer going to be the spending committee.’

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BLACK

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Dream. Do.

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Dream it. Do it.SM

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