HOW ECONOMIES GROW: The CED Perspective on Raising the Long-Term Standard of Living
AStatement by the Research and Policy Committee of the Committee for Economic Development
May 2003
CED is a nonprofit, nonpartisan organization of business leaders and educators that has worked for sixty years to address the critical economic and social issues facing American society. HOW ECONOMIES GROW: The CED Perspective on Raising the Long-Term Standard of Living
AStatement by the Research and Policy Committee of the Committee for Economic Development
May 2003 Library of Congress Cataloging-in-Publication Data
How economies grow : the ced perspective on raising the long-term standard of living : a statement on national policy / by the Research and Policy Committee of the Committee for Economic Development. p. cm. Includes bibliographical references. ISBN 0-00000-000-X 1. Economics—United States. I. Committee for Economic Development. Research and Policy Committee.
QA00.L00 2003 510’.71’073—dc21 2003043432
First printing in bound-book form: 2003 Paperback: $15.00 Printed in the United States of America Design: Rowe Design Group
COMMITTEE FOR ECONOMIC DEVELOPMENT 261 Madison Avenue, New York, N.Y. 10016 (212) 688-2063
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www.ced.org CONTENTS
RESPONSIBILITY FOR CED STATEMENTS ON NATIONAL POLICY...... iv
PURPOSE OF THIS STATEMENT...... viii
CHAPTER 1: ON ECONOMIC GROWTH...... 1 Concepts of Growth...... 2 Increasing Long-Term Productive Capacity Versus Using More of Existing Capacity ...... 2 Total Income, “Per Capita” Income, and Productivity...... 3 Measured Growth Versus “Welfare” ...... 3
CHAPTER 2: THE FUNDAMENTALS OF GROWTH...... 4 Invention ...... 4 Investment ...... 5 Reorganization ...... 8 A Note on Markets...... 9 Invent, Invest, Reorganize: The Process in Action ...... 10
CHAPTER 3: “STAGE SETTING” POLICIES...... 13 Macroeconomic Policy...... 14 Openness...... 16 Corporate Governance and the Quality of the Markets...... 18 Culture as an Economic Asset...... 19 Public Investment...... 21 Unresolved Issues ...... 21
CONCLUSION...... 23
ENDNOTES...... 24
OBJECTIVES OF THE COMMITTEE FOR ECONOMIC DEVELOPMENT...... 26
iii RESPONSIBILITY FOR CED STATEMENTS ON NATIONAL POLICY
The Committee for Economic Develop- specific legislative proposals; its purpose is to ment is an independent research and policy urge careful consideration of the objectives set organization of some 250 business leaders and forth in this statement and of the best means of educators. CED is nonprofit, nonpartisan, and accomplishing those objectives. nonpolitical. Its purpose is to propose policies Each statement is preceded by extensive dis- that bring about steady economic growth at cussions, meetings, and exchange of memo- high employment and reasonably stable prices, randa. The research is undertaken by a sub- increased productivity and living standards, committee, assisted by advisors chosen for their greater and more equal opportunity for every competence in the field under study. citizen, and an improved quality of life for all. The full Research and Policy Committee All CED policy recommendations must have participates in the drafting of recommenda- the approval of Trustees on the Research and tions. Likewise, the trustees on the drafting Policy Committee. This committee is directed subcommittee vote to approve or disapprove a under the bylaws, which emphasize that “all policy statement, and they share with the research is to be thoroughly objective in char- Research and Policy Committee the privilege acter, and the approach in each instance is to of submitting individual comments for publica- be from the standpoint of the general welfare tion. and not from that of any special political or economic group.” The committee is aided by a The recommendations presented herein are those Research Advisory Board of leading social sci- of the Trustee members of the Research and Policy entists and by a small permanent professional Committee and the responsible subcommittee. They staff. are not necessarily endorsed by other Trustees or by The Research and Policy Committee does nontrustee subcommittee members, advisors, contrib- not attempt to pass judgment on any pending utors, staff members, or others associated with CED.
iv RESEARCH AND POLICY COMMITTEE
Co-Chairmen GEORGE H. CONRADES CHARLES R. LEE Chairman and Chief Executive Officer Chairman PATRICK W. GROSS Akamai Technologies, Inc. Verizon Communications Chairman, The Lovell Group Founder and Senior Advisor RONALD R. DAVENPORT ALONZO L. MCDONALD American Management Systems, Inc. Chairman of the Board Chairman and Chief Executive Officer Sheridan Broadcasting Corporation Avenir Group, Inc. BRUCE K. MACLAURY President Emeritus JOHN DIEBOLD NICHOLAS G. MOORE The Brookings Institution Chairman Chairman Emeritus John Diebold Incorporated PricewaterhouseCoopers
Vice Chairmen FRANK P. DOYLE STEFFEN E. PALKO Retired Executive Vice President Vice Chairman and President IAN ARNOF General Electric XTO Energy Inc. Retired Chairman Bank One, Louisiana, N.A. T.J. DERMOT DUNPHY CAROL J. PARRY Chairman President CLIFTON R. WHARTON, JR. Kildare Enterprises, LLC Corporate Social Responsibility Former Chairman and Chief Executive Associates Officer CHRISTOPHER D. EARL TIAA-CREF Managing Director VICTOR A. PELSON Perseus Capital, LLC Senior Advisor UBS Warburg LLC W. D. EBERLE Chairman PETER G. PETERSON REX D. ADAMS Manchester Associates, Ltd. Chairman Professor of Business Administration The Blackstone Group The Fuqua School of Business EDMUND B. FITZGERALD Duke University Managing Director NED REGAN Woodmont Associates President ALAN BELZER Baruch College Retired President and Chief Operating HARRY L. FREEMAN Officer Chair JAMES Q. RIORDAN AlliedSignal Inc. The Mark Twain Institute Chairman Quentin Partners Co. PETER A. BENOLIEL BARBARA B. GROGAN Chairman, Executive Committee President LANDON H. ROWLAND Quaker Chemical Corporation Western Industrial Contractors Chairman Janus Capital Group ROY J. BOSTOCK RICHARD W. HANSELMAN Chairman Emeritus, Executive Chairman GEORGE RUPP Committee Health Net Inc. President Bcom3 Group, Inc. International Rescue Committee RODERICK M. HILLS FLETCHER L. BYROM Chairman ROCCO C. SICILIANO President and Chief Executive Officer Hills Enterprises, Ltd. Beverly Hills, California MICASU Corporation MATINA S. HORNER MATTHEW J. STOVER DONALD R. CALDWELL Executive Vice President President Chairman and Chief Executive Officer TIAA-CREF LKM Ventures Cross Atlantic Capital Partners H.V. JONES ARNOLD R. WEBER JOHN B. CAVE Managing Director President Emeritus Principal Korn/Ferry International Northwestern University Avenir Group, Inc. EDWARD A. KANGAS JOSH S. WESTON CAROLYN CHIN Chairman and Chief Executive Officer, Honorary Chairman Chairman Retired Automatic Data Processing, Inc. Commtouch/C3 Partners Deloitte Touche Tohmatsu DOLORES D. WHARTON A. W. CLAUSEN JOSEPH E. KASPUTYS Former Chairman and Chief Retired Chairman and Chief Executive Chairman, President and Chief Executive Officer Officer Executive Officer The Fund for Corporate Initiatives, Inc. BankAmerica Corporation Global Insight, Inc. MARTIN B. ZIMMERMAN JOHN L. CLENDENIN CHARLES E.M. KOLB Group Vice President, Corporate Retired Chairman President Affairs BellSouth Corporation Committee for Economic Development Ford Motor Company
*Voted to approve the policy statement but submitted memoranda of comment, reservation, or dissent, See page 41
v A NOTE ON THIS STATEMENT
This Statement, approved by the Committee for Economic Development’s Research and Policy Committee, is drawn from previous CED policy statements on a variety of topics. These include:
American Workers and Economic Change, 1996 Improving Global Financial Stability, 2000 FRANK P. DOYLE KATHLEEN B. COOPER Chair, Subcommittee on U.S. Immigration Policy Co-Chair, Subcommittee on International Financial Retired Executive Vice President Stabilization General Electric Company Former Chief Economist and Manager, Economics & Energy Division America’s Basic Research: Prosperity Through Exxon Mobil Corporation Discovery, 1998 GEORGE F. RUSSELL, JR. GEORGE H. CONRADES Co-Chair, Subcommittee on International Financial Chair, Subcommittee on Sustaining American Basic Stabilization Research Chairman Chairman and Chief Executive Officer Sunshine Management Services, LLC Akamai Technologies, Inc. Investing the People’s Business: A Business Proposal The Digital Economy: Promoting Competition, for Campaign Finance Reform, 1999 Innovation, and Opportunity, 2001 EDWARD A. KANGAS IRWIN DORROS Co-Chair, Subcommittee on Campaign Finance Reform Co-Chair, Subcommittee on Electronic Commerce Retired Chairman and Chief Executive Officer President Deloitte Touche Tohmatsu Dorros Associates GEORGE RUPP ELLEN R. MARRAM Co-Chair, Subcommittee on Campaign Finance Reform Co-Chair, Subcommittee on Electronic Commerce President Partner International Rescue Committee North Castle Partners Modernizing Government Regulation: The Need From Protest to Progress: Addressing Labor and for Action, 1998 Environmental Conditions Through Freer Trade, 2001 RODERICK M. HILLS EDMUND B. FITZGERALD Chair, Subcommittee on Reforming the Regulatory Process Co-Chair, Subcommittee on Globalization Chairman Managing Director Hills Enterprises, Ltd. Woodmont Associates PAULA STERN Co-Chair, Subcommittee on Globalization President The Stern Group, Inc.
vi A New Vision for Health Care: A Leadership Restoring Prosperity: Budget Choices for Economic Role for Business, 2002 Growth, 1992 PETER A. BENOLIEL JOSH S. WESTON Co-Chair, Subcommittee on the Employer’s Role in Chair, Subcommittee on the Federal Budget and Health Care Economic Growth Chairman, Executive Committee Honorary Chairman Quaker Chemical Corporation Automatic Data Processing, Inc.
JEROME H. GROSSMAN A Shared Future: Reducing Global Poverty, 2002 Co-Chair, Subcommittee on the Employer’s Role in Health Care EDMUND B. FITZGERALD Senior Fellow Co-Chair, Subcommittee on Globalization John F. Kennedy School of Government Managing Director Harvard University Woodmont Associates STEFFEN E. PALKO PAULA STERN Co-Chair, Subcommittee on the Employer’s Role in Co-Chair, Subcommittee on Globalization Health Care President Vice Chairman and President The Stern Group, Inc. XTO Energy Inc. Welfare Reform and Beyond: Making Work Work, 2000 Preschool for All: Investing in a Productive and Just Society, 2002 REX D. ADAMS Co-Chair, Subcommittee on Business, Welfare Reform, and ROY J. BOSTOCK the Low-Wage Labor Market Co-Chair, Subcommittee on Education Policy Professor of Business Administration Chairman Emeritus, Executive Committee The Fuqua School of Business Bcom3 Group, Inc. Duke University EDWARD B. RUST, JR. MATINA S. HORNER Co-Chair, Subcommittee on Education Policy Co-Chair, Subcommittee on Business, Welfare Reform, and Chairman and Chief Executive Officer the Low-Wage Labor Market State Farm Insurance Companies Executive Vice-President TIAA-CREF Reforming Immigration: Helping Meet America’s Need for a Skilled Workforce, 2001 CHRISTOPHER D. EARL Co-Chair, Subcommittee on U.S. Immigration Policy Managing Director Perseus Capital, LLC H.V. JONES Co-Chair, Subcommittee on U.S. Immigration Policy Managing Director Korn/Ferry International
vii THE PURPOSE OF THIS STATEMENT
CED has, over the six decades of its exis- ACKNOWLEDGEMENTS tence, commented frequently and forcefully We would like to thank the Russell Sage on various policies that concern the nation’s Foundation for their generous support for prospects for economic growth. But it has this project. never tied together these efforts into a single We appreciate as well the efforts of many volume regarding how the economy grows members of our Research and Policy and, more generally, what must be done to Committee who helped to craft and guide this improve its long-term prospects. study, as well as those members of our Understanding how the economy grows Research Advisory Board, who reviewed the and how it raises our standard of living has various drafts. We are indebted to the project never been more important. Our nation now director, Everett M. Ehrlich, CED Senior Vice- debates a range of issues related to growth — President and Director of Research, to Elliot from the fiscal deficit to corporate gover- Schwartz, CED Vice-President for Economic nance, to the influence of trade, technology, Studies, and Van Doorn Ooms, CED Senior and immigration. How do all these issues fit Fellow, for helpful comments, and to David together? How do they influence future Kamin, Therese Scharlemann, and Rebecca generations’ prospects for success? Solow for research assistance. This document seeks to link these issues together — to provide that “story of growth” Patrick W. Gross, Co-Chair — built on the three themes of invention, Research and Policy Committee investment, and reorganization — in a fashion Chairman, The Lovell Group the average, non-technical reader will find Founder and Senior Advisor convenient and accessible. It refers, when rele- American Management Systems, Inc. vant, to previous CED work and recommenda- tions on the topics it presents. The reader is Bruce K. MacLaury, Co-Chair encouraged to consult these statements for Research and Policy Committee more detailed analysis and discussion of President Emeritus these issues. The Brookings Institution
viii Chapter 1
On Economic Growth
Economic growth is the force that drives into many different policy areas, from the ini- almost all aspects of American society. Beyond tial formulation of the Marshall Plan, to its its contribution to higher standards of living, ongoing support for expanded world trade, to economic growth enables the nation to its commitment to quality education for all, to accommodate change more readily, to be its leading role in campaign finance reform. more tolerant and inclusive, to feel more con- fident playing a leadership role in the world, to invest in the future, and to achieve a variety THE MARSHALL PLAN of other goals. Moreover, the expectation of “We…recommend that the United States sustained growth is built into our institutions should undertake a broad program of and beliefs; our society is premised in many economic cooperation with Western Europe. regards on the assumption that growth will We believe that American cooperation is needed to accomplish two things: allow personal and intergenerational mobility 1) Relief to tide Western Europe over and will support a meritocratic and entrepre- its present distress and allow it time to neurial society. This, in turn, will encourage accomplish the necessary expansion of the investment, risk-taking, and values that production; 2) Help in the rebuilding and reinforce growth. development necessary to reknit the economic fabric of Europe.…” In the sixty years of its existence, the Committee for Economic Development SOURCE: Committee for Economic Development, An American Program of European Economic Cooperation (CED) has been primarily concerned with (New York, NY: Committee for Economic Development, promoting the institutions and policies that 1948), pp.10-11 will support economic growth and equitably distribute its gains. This central goal has led it The breadth of CED’s agenda reflects, in turn, the diverse origins of economic growth. CED’S MISSION The sources of American economic growth The purpose of CED “…is to develop, have varied with the economy’s stage of devel- through objective research and informed discussions, findings and recommendations opment and historical setting. Yet there are for private and public policy that will important common themes across all these contribute to preserving and strengthening periods. Indeed, this report argues that eco- our free society, achieving steady economic nomic growth has its roots in indentifiable growth at high employment and reasonably factors, most of which are long-term in nature; stable prices, increasing productivity and a faster rate of long-term economic growth is living standards, providing greater and more equal opportunity for every citizen, the result of specific aspects of the economy and improving the quality of life for all.” and society working well over sustained periods of time. SOURCE: Committee for Economic Development, By-Laws, revised 1999, p. 8
1 HOW ECONOMIES GROW
Economists have developed many insights to provide the public with a coherent descrip- into the process of economic growth, but their tion of the process that leads to economic understandings do not inform the public growth. As the paper lays out this story, it will debate. The focus of the nation’s economic recap relevant positions CED has taken over policy debate is too often placed on short- the years. Its purpose is to bring CED’s views term phenomena. The Federal Reserve’s mon- on the “story of economic growth” into a etary policy takes effect by changing short- single volume that will enable the public to term market conditions. Budget and tax better understand many of today’s critical policy changes are too often implemented economic policy issues. without consideration of their long-term effects. Trade policy, while theoretically geared to long-term liberalization, is often CONCEPTS OF GROWTH intended to ameliorate short-term adjustment When discussing “economic growth,” some effects. Public-sector investments are often important distinctions must be made at the underfunded due to the mismatch between outset. the short-term nature of their costs and the longer-term nature of their payoffs. In all of Increasing Long-Term Productive these cases, when seen from the perspective of Capacity Versus Using More of Existing long-term growth, the horizons of the Capacity economic policy debate are unduly and often “Economic growth” as commonly used can counterproductively short. mean either of two very different things. It This policy myopia is widely shared. can mean increases in the productive capacity Households continually demonstrate short- of the economy, which occur gradually over sightedness by undersaving. The financial many years. Or it can mean increases in the media find short-term policy stories and actual level of economic activity, such as sharp anecdotes more dramatic than far more rebound from a recession or the slowing of important long-term trends. CEOs focus on activity near a business cycle peak, which are the next quarter’s “bottom line,” and investors generally viewed in a shorter time frame. In look to quarterly results to allocate their stock this discussion of the sources of long-term liv- portfolios. The political process is too often ing standards, we are concerned with the first caught in an endless cycle of fund-raising and concept and use the term “growth” to campaigning that makes long-term considera- discuss the economy’s long-term potential. tions a casualty. Moreover, growth is hard to Economists take the economy’s “potential” “appropriate;” a higher rate of growth will cre- rate of growth to mean a rate roughly equiva- ate benefits, but they will be broadly dispersed lent to the maximum rate at which the econo- in the future, and we cannot know today who my can grow without producing significant will receive them. And policies that foster inflation. The economy’s actual growth record growth may impose short-term transition reflects both its potential and the extent to costs on specific groups that lead them to which that potential has been realized. An obstruct those policies politically (trade liber- economy may fall short of its potential for sig- alization is a frequent example). Thus, even nificant periods of time because of “negative though the benefits of growth will be widely shocks” such as oil price spikes or natural dis- shared, there is no dedicated “interest group” asters, because its fiscal or monetary policies that speaks on behalf of this broad economic are flawed, or because it has regulations, busi- future. ness practices, or traditions that encumber its The Committee for Economic Develop- performance. ment (CED), therefore, has produced this An economy’s ability to operate near its volume to be such a “voice for growth” and potential is obviously important. The prob-
2 On Economic Growth
lems created by inappropriate fiscal or mone- But this kind of improvement is bounded tary policies can be catastrophic; the Great — only so many people, to use the example, Depression is an example of the failure of eco- will be able to work. The real key to long-term nomic policy rather than a collapse of the growth is productivity, or output per worker. economy’s potential to grow. The quality of Only higher levels of activity per worker can fiscal, monetary, or regulatory policies has an sustain long-term improvements in the stan- obvious impact on the long-term standard of dard of living. living. But how do these policies promote or inhibit increases in productivity? What are the Measured Growth Versus “Welfare” intervening or underlying steps? These are the Another important distinction to be made subject of this report. is between growth and human welfare, or well- being. For example, many activities that Total Income, “Per Capita” Income, contribute to people’s well-being — from and Productivity homemaking and parenting work to knowing There are two ways to measure economic that the environment or species diversity has growth — as growth in aggregate output, or been preserved for future generations — are on a per capita basis. Aggregate growth is not included in market-based measures such helpful in its own right; even if economic out- as Gross Domestic Product. Moreover, while put grows only as fast as the population, it growth is “good” for all of the reasons cited allows growing human needs to be met. But a above, it can also have negative consequences higher standard of living and all it entails — such as environmental degradation, social requires more income and output per capita. inequality, sprawl, or reduced public amenities Per capita income can grow for various rea- — if it is not accomplished on the right terms. sons. For example, if a larger proportion of And, as Robert Kennedy once famously coun- the adult population were to take jobs, output seled, measures such as Gross Domestic would grow faster than population. And, in Product do not allow for the health of our fact, per capita income would rise, as more children or the joy of their play, but do count families would add a second income-earner, the locks we place on our doors and the jails for example. This is precisely what happened we build for those who break those locks.1 in the late 1970s and 1980s, when many of the Thus, while growth is to be desired, it must baby boom age group and female workers always be evaluated in a fuller context. entered the labor force.
3 Chapter 2
The Fundamentals of Growth ➫➬
One way to understand how economies invention. Third and finally, there must be grow is to consider them on their simplest reorganization once the backhoe is put to use terms. For example, consider an economy in — the ditch diggers must be replaced and the which there are only a few activities: people way ditch-digging is organized must change. can either dig ditches (say, for purposes of In fact, these three steps summarize the irrigation), haul water out of the ditches, or growth process: invention, investment, and reor- plant food trees that are irrigated by the ditch- ganization. Taken together, they are the central es. The ditch-diggers each have a shovel, the elements of the process by which long-term water-haulers a bucket, and the tree planters a improvements in the standard of living occur. shoulder bag for seeds. On their way home, Moreover, these three elements are all interde- people pick food from the trees, eat it pendent, in that each strand of the process contentedly, and rise the next day to return depends on the others — the presence of to work. invention creates opportunities for investment How does such a society become “better and reorganization just as the ability to invest off,” that is, become more productive? The and reorganize affects the incentives to invent. ditch diggers can learn how to configure the And they are all endogenous, in that none is a ditch, the water-bearers can determine the “given” in the economy.‡ fastest rate at which they can haul water with- out fatiguing, and the tree planters how to best space the seedlings to get them to grow. INVENTION But sooner or later, these “tricks” will be mas- Technological change lies at the heart of tered and these sources of improvement a sustained rise in the long-term standard tapped out.† of living. Absent changing technology, There is, however, one way a sustainable America would still be a nation of artisans improvement could be readily obtained — by and mule-drivers, with a standard of living to using a backhoe. But in order for a backhoe match. New ideas — inventions — are the to raise the standard of living of our simple wellspring of that progress. economy, several things have to happen. First, A member of the ditch economy inventing somebody must invent it. Second, somebody a backhoe de novo would be nothing short of must be willing to put the backhoe in place — miraculous, but its unlikelihood is instructive. there must be investment accompanying the Inventing a backhoe requires a basis in metal- lurgy, mechanical engineering, energy trans- † This is as described in the renowned growth model developed by Robert Solow in the 1950s. Solow found that capital accu- mulation was far less important than technical progress in ‡ In this sense, the growth process described here is similar to long-term growth. Capital has “diminishing marginal returns,” the “endogenous” growth models pioneered by Paul Romer and so capital accumulation alone — in this case, buying in the 1980s. In these models, technological progress was the more trees, making more buckets, etc. — can only get the product of decisions made by economic actors, as opposed to society in the example so far. a pre-ordained given.
4 The Fundamentals of Growth
variety of fronts. It has often discussed how “It is widely recognized that economic “…technology plays a critical role in productiv- growth depends upon investments in ity growth,”3 and stressed the importance of research and technology….” public and private investments in technology.4 SOURCE: Committee for Economic Development, It has noted that the large social returns to Restoring Prosperity: Budget Choices for Economic Growth innovation make it an “extremely productive (New York, NY: Committee for Economic Development, 5 1992), p. 8. use of taxpayers’ money.” But as CED has also noted, America’s success in science and tech- nology stems not just from spending, but from fer, and a variety of other areas. In fact, rather other factors as well. These include the quality than a stand-alone invention, a backhoe, like of the entrepreneurial and competitive envi- any other advance, is a synthesis of previous inventions and advances; most innovations “A principal component of the system occur because inventors take existing compo- that supports innovation…is protection of nents or previous inventions and rearrange intellectual property, including copyrights, them or add some element to produce a new patents and trademarks.” breakthrough. The automobile is a good SOURCE: Committee for Economic Development, The example of such a breakthrough, which Digital Economy: Promoting Competition, Innovation, and Opportunity (New York, NY: Committee for Economic explains why several inventors (such as Development, 2001), p. 23. Daimler, Benz, and Olds, and later Ford) independently achieved it within a short peri- od of time. This is one of the reasons why the social benefits of innovation exceed the private ronment offered to American innovators and the availability of scientific skills in the labor or personal gains realized by the inventor — 6 because each new invention becomes part of force. CED has also noted that the economy’s the mass of “components” that allow for subse- innovative track record relies on an intellectu- quent inventions. In fact, economists widely al property system that balances the ability of innovators to profit from their work with the accept the idea that society undervalues 7 invention because of widely-cast benefits that ability of others to use their innovations. inventors can not capture.2 The process of invention is based on exper- INVESTMENT imentation, tinkering, and incremental effort. These require inventors to spend time and If invention and new ideas alone were to resources on their pursuits, meaning that they determine economic success, then nations’ must have some incentive or compulsion to standards of living could be predicted with do their work, as well as the skills and training confidence by the number of patents or scien- needed. This raises a host of issues, all of tific Nobel Prizes they have won. But that is which will play some role in the economy’s not the case. The step after invention is often rate of technological progress, including the system of intellectual property protection, the “Investment is necessary for economic incentives offered to researchers, the rationali- growth; countries that have grown most ty with which investment in research and rapidly over long periods have devoted a development are financed, the level of scien- high percentage of GDP to investment in tific skills in society (and, therefore, the quali- human and physical capital.” ty of math and science education), and other Source: Committee for Economic Development, issues. Improving Global Financial Stability (New York, NY: CED has been a long-standing advocate of Committee for Economic Development, 2000), p. 7. investments in science and technology on a
5 HOW ECONOMIES GROW
called innovation or dissemination — spread- spirits” (as Keynes termed it) of firms. But ing the results of inventions through the econ- CED has repeatedly pointed out steps that omy, or, in other words, putting inventions to government could take to promote invest- use. And the most important way this occurs is ment. The right combination of fiscal and through investment. monetary policies can produce such incen- Economists define investment as the acqui- tives. This can be achieved by a prudent fiscal sition of “goods that help us make other policy — one that aims to achieve a balanced goods,” such as machine tools, computers, or budget over the entire business cycle — with transportation or energy equipment. That an accommodating monetary policy — one definition, albeit entirely appropriate, leads us that encourages credit to be gradually expand- to think about investment solely as a way to ed.† Together, these can produce what econo- accumulate wealth. mists call “crowding in,” that is, reducing gov- But investment is also the primary vehicle ernment’s borrowing requirements and mak- through which inventions or new ideas enter ing the funds it frees up available at a lower the economy, because new investment gener- cost for business purposes. This strategy was ally embodies new technology. When an old followed to great success in the expansion machine wears out or is ready to be scrapped, of the 1990s. the new one that replaces it is usually far more CED’s support for such a policy mix is advanced.8 Today’s backhoe, for example, is based on its recognition of the importance more powerful, flexible, and lighter-weight of a high rate of national saving. Saving than its predecessor, with better hydraulics creates the wherewithal to finance investment. than it had a decade ago. Improved quality Domestic saving can come from one of three frequently means some kind of intelligence by sources — from household saving, from busi- way of microelectronics — equipment such as ness profits, or from government surpluses. machine tools, material handling equipment, Several years ago, CED advocated raising the or even construction equipment has sensors net national savings rate (combined public and electronic controls that make the current and private) to its pre-1980s level of 10 per- generation far superior to its predecessors. cent of net national product.9 Shortly there- But this is only one kind of investment — after, national saving rose sharply as the feder- physical investment. Focusing only on this kind al budget was briefly brought into surplus, as of investment leads us to overlook a second seen in Figure 1. However, in 2001-2002, the and equally important form of investment — societal savings rate has declined again to a investment in human capital, the abilities and historically low level, as Figure 1 illustrates, of skills of our people. If the ditch-digging econ- less than 3 percent. Many households appar- omy were to switch to backhoes, its workers ently felt that a rising stock market made it would be challenged to learn many new skills possible not to save for retirement or other — starting with machine operation and needs. The market has now fallen, but saving machine construction — in order to make the has yet to rise substantially. investment work. Thus, physical investment and Corporate profits peaked as a share of eco- investment in human capital are tied together, nomic activity in 1997 and have been revised even if the way they occur is different. downward in recent years as additional infor- Economists have long debated the determi- nants of physical investment. Most simply, † A “balanced budget over the business cycle” implies deficits at the bottom of the cycle and surpluses at the top. Some econ- firms invest in search of profit, usually because omists believe, however, that this rule is not prudent enough they anticipate growth, or to respond to in the current budget content, due to large and unfunded innovation among their competitors. The future obligations related to Social Security and Medicare. Putting away resources for these needs in the next several decision to invest, therefore, is a combination decades would require fiscal surpluses over the course of the of economic calculation and the “animal business cycle.
6 The Fundamentals of Growth
FIGURE 1 The Erosion of U.S. Net National Saving (Percent of Net National Product)
16%
14% U.S. Net Private Saving
12%
10%
8%
6%
4%
2% U.S. Net National Saving
0% 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Year SOURCE: Bureau of Economic Analysis, National Income and Product Account Tables 1.9 and 5.1, available at
7 HOW ECONOMIES GROW
and bust was largely investor-driven, as invest- is particularly true when reorganization is ment in this sector became a mania that sub- considered together with invention and sequently lost its luster. But investment also investment. can be misallocated by tax incentives or other For example, return to the idea of a ditch- policies that distort resource allocation. Poor digging economy. If someone were to invent a regulatory policies led to unsound lending backhoe and invest in one, its benefits could- practices by the savings and loan (S&L) insti- n’t be fully realized — or realized at all — tutions in the late 1980s, and a $124 billion unless the ditch diggers were replaced by the S&L bailout was the result.10 CED has also equipment. Otherwise, the economy would argued that the U.S. economy overinvests in carry the burden of a large, unproductive residential housing due to its tax treatment segment of its labor force — the ditch-diggers and has called for limitations such as eliminat- would sit around and do nothing. Moreover, ing the favorable tax treatment for second there is now something new and more pro- homes.11 ductive for them to do — they need to make The way investment in human capital is the backhoes that will revolutionize ditch- determined is rooted in many of the same digging. Thus, the economy’s ability to incentives, but has critical differences. When reorganize itself will determine whether the firms appraise investments in physical capital, invention and investment it has undertaken they do so knowing that it will always be theirs. will bear fruit. But if firms invest in the human capital of their workers, there is always the reality that those workers will one day depart for other “…We must not resist economic change…. firms and occupations, taking their new-found Our only sensible course is to embrace change and adapt to it with public and pri- skills with them. vate policies that secure its benefits while Thus, workers must invest in their own mitigating its costs.” skills. But given that workers often begin in SOURCE: Committee for Economic Development, marginal economic circumstances, and that American Workers and Economic Change (New York, NY: skills, being non-transferrable and intangible, Committee for Economic Development, 1996), p. 3. make a poorer collateral than a physical asset, investments in skill-building are harder to finance than investments in physical capital. Reorganization takes place on other levels Moreover, a higher level of human capital as well. For example, let’s presume our econo- creates a more productive environment for my has “firms” — companies that dig, haul, or physical capital, hastens the development of plant. If so, the companies that dig ditches inventions, and allows greater social mobility. will now be larger, because it’s easier to coor- For all of these reasons, human capital has an dinate the work of a few backhoes than of element of social benefit as well as the individ- hundreds of diggers. And if there are ditch- ual benefits it generates. Thus, government digging companies, then the terms on which has historically played an important role in they compete will change. The most successful building human capital, from providing a companies once were those that coordinated public school system to subsidizing loans for their diggers. Now, they will be the ones who college students. most quickly bring backhoes into production. In fact, economic research provides com- pelling evidence that these effects occur. REORGANIZATION Using a data set compiled by the Census The organization of production is often Bureau in which thousands of plants were not considered an element of the growth tracked over two decades, researchers have process, but it is in fact an essential one. This noticed that innovation, reorganization, and
8 The Fundamentals of Growth
growth are closely linked. Firms that bring seeking trade protection. It has called for new technologies into production, for exam- restructuring the unemployment insurance ple, were found to grow faster, be more prof- program to increase coverage and long-term itable, and have faster growing employment benefits and for “wage insurance” that would than those that don’t.12 Moreover, researchers give interim income relief to workers whose discovered that two-thirds of the productivity incomes were reduced by economic change.14 gains in manufacturing experienced over long These measures respond to the need to periods of time occurred not because individ- enfranchise all workers in the face of econo- ual firms became more productive, but mic change, regardless of its source. But they because higher-productivity firms grew faster are also driven by the realization that if society and took market share away from lower-pro- protects those who hold “old” jobs from the ductivity firms.13 Taken together, these results forces of change, those same forces will be show that economic growth, on the one hand, unable to create “new” jobs, and the economy and change and displacement, on the other, will be poorer as a result. are inseparable — an economy grows when new activities supplant old ones and more productive, innovative firms out-compete A NOTE ON MARKETS their rivals. One problem with the ditch-digging economy model is that it fails to emphasize the central role of markets. From Egyptian “…[The] process of resource redeployment pyramids to Roman aqueducts to Gothic is essential to economic growth. In the end, cathedrals, centrally-planned (non-market) it leads to better jobs in more successful economies have produced isolated and indi- industries and higher incomes with better vidual successes (usually at a social cost borne standards of living. These gains for the soci- elsewhere in their economies). But as did the ety at large make it both equitable and pos- Soviet Union, they have proven themselves sible to assist those displaced by economic change.” unable to maintain this record of success over the long-term. In fact, as economic activity SOURCE: Committee for Economic Development, From Protest to Progress: Addressing Labor and Environmental becomes more complex, markets become Conditions Through Freer Trade (New York, NY: evermore essential to the growth process. Committee for Economic Development, 2001), p. 6. Markets are an ingeniously efficient way to organize economic activity. By providing infor- mation, through prices, to all an economy’s The same holds true in the labor market. participants, they allow each of those partici- The economy becomes more productive when pants to make plans and choices that best suit new occupations and skills supplant old ones. their needs and abilities, and by doing so, The more rigid labor markets of continental have the potential to lead them to increase Europe and Japan are often criticized on pre- the output and well-being society can derive cisely this score. By making it difficult to move from its resources; this is the essence of Adam workers from old jobs to new ones, these Smith’s “invisible hand.” When they do so, economies choke off the very process of they also lead competitors to innovate in change that allows new jobs and activities to order to compete with each other, and sup- supplant the old. plant less productive firms and activities with Displacing workers and jobs is clearly a more productive ones. problem that requires a response. CED has The theoretical perfection this theory advocated a series of measures to facilitate describes is impossible to achieve. In fact, mar- economic change by alleviating the burden on kets can experience a host of problems — an those unprepared to respond to change and undesirable distribution of income, imperfect
9 HOW ECONOMIES GROW
information, monopoly, misattribution of such effects as pollution, so-called “public goods,” INVENT, INVEST, REORGANIZE: and crime or fraud. Focused efforts by govern- THE PROCESS IN ACTION ment can often correct many of these “market When explained against the simple back- failures,” although such focused and intelli- drop of a ditch-digging economy, the way gent efforts cannot be presumed. We address invention, investment, and reorganization some of these issues later in this report. lead to economic growth is easy to see. But in Still, the underlying ability of markets to the real world, the process occurs in an histor- direct resources is widely accepted throughout ical context and is filled with the details of the economics. The deregulation of industries moment — the specifics of the technology, such as transportation (both air and truck- the form investment takes, the way the econo- ing), telecommunications, and finance, for my is currently organized, or the specific example, has brought tumultuous change, changes that occur. But when these details and in some ways might have been managed are stripped away, the underlying process can somewhat differently (a statement we might again be seen. yet make regarding electricity deregulation). Consider two examples from U.S. history. But the contribution of these market deregu- One is the period of industrialization in the lations to the long-term growth of output by late 19th and early 20th century, when large lowering the cost of doing business and industrial combines were being formed in expanding the range of consumer choice is most of the day’s manufacturing industries undeniable. In essence, deregulation allowed A good example is steel. In the late 19th markets to reorganize those activities in order century, there were many producers. But at to produce more and get more out of our the turn of the century, about forty of them resources. were rolled up by Judge Gary and financed by But beyond providing society with a system J. P. Morgan, to form the nation’s first billion for economic organization, markets are them- dollar corporation, U.S. Steel, of which Gary selves a set of social relationships. Efficient became chief executive. markets are premised on honest representa- U.S. Steel did not come into being simply tions and the free flow of information. When because Morgan and Gary were more avari- this assumption is violated, markets can pro- cious or ruthless than any preceding business- duce undesirable results. When buyer and sell- men (although their avariciousness and ruth- er lack the same information, for example, lessness were no doubt formidable). Rather, the potential for exploitation exists: indeed, technologies, beginning with the Bessemer some economists identify uneven information 15 furnace, had come into being, allowing much as a cause of the persistence of poverty. The more steel to be made in one location, and consequences of the breakdown of informa- requiring larger production volumes to justify tion flows and deviations from an underlying the investments. As more and more firms culture of honesty are also seen in the effects leapt to embrace this technology and expand- of the recent corporate reporting scandals. ed capacity, substantial overcapacity resulted. The misstatement of corporate reports and This gave U.S. Steel’s founders their opportu- the underlying culture of corruption that nity. In essence, there was invention and accompanied many of these misstatements led investment, but there needed to be reorgani- investors to allocate investment funds on false zation before the benefits of more efficient premises and left the economy worse off. steel-making technology could be fully real- All this suggests that markets require some ized. The result of that reorganization was underlying regulatory structure to function U.S. Steel, and subsequently, the other large, effectively. We will return to this topic in a integrated steel producers, who monopolized later section.
10 The Fundamentals of Growth
the industry for most of the following century. matically and continually changed the struc- The creation of U.S. Steel was not without ture of the steel industry. problems. It raised the question of market A comparable example of the growth power and monopoly (indeed, this era gave process can be found in the current economy. rise to the development of anti-trust law), of Digital technology is providing the economy workers’ safety and pay (although Judge Gary with a strong stream of inventions, the effects was fairly progressive in these regards), and of of which cannot be overstated. For example, union representation (where he was not). when James Watt invented the steam engine These issues reiterate a point made elsewhere in the 18th century, he cut the price of in this paper — that economic growth itself is mechanical work in half. Today, the price of not the only goal, and that the failure to dis- information processing effectively is cut in tribute that growth equitably may require a half every five years. policy response. But U.S. Steel was a good As is obvious, those inventions are spread- example of how invention, investment, and ing through the economy in the form of new reorganization come together to grow the investment. The bursting of the technology economy. In fact, it is both a good example stock bubble has slowed the investment and an ironic one, insofar as new technologies process, but the shifting composition of invest- for directly reducing steel from scrap metal ment underscores the importance of invest- have given rise in recent decades to so-called ment as a means of spreading new inventions “minimills” (such as Nucor Steel) that have through the economy. As shown in Figure 2, reduced significantly the market share of the as recently as 1990, private investment in com- “integrated” steel producers, such as U.S. puters and other information processing Steel. Thus, technological progress has dra- equipment was only 15 percent of the econo-
FIGURE 2
The Computer Age and Investment: Private Investment in Information-Processing Equipment and Software (Relative to Total Private Investment in Real Terms)
40%
35%
30%
25%
20%
15%
10%
5%
0% 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Year
SOURCE: Bureau of Economic Analysis, National Income and Product Account Tables 5.3 and 5.5, available at
11 HOW ECONOMIES GROW
my’s new private investment in real terms. By components as well as its finished products (as 2001, however, that proportion had shifted to did, for example, firms in the automobile and 35 percent.† Again, we think of investment computer industries). Why did that high level as a way to accumulate wealth and to give of integration persist throughout American workers more tools to do their jobs. But this industry? At root, it was because it was more growing importance of information technolo- efficient for one company’s bureaucracy gy investment demonstrates that investment is (organizational “pyramid”) to coordinate the economy’s central means of disseminating those various activities through memos and tools that embody new technology. planning meetings than a string of different And, again, the gains from the new tech- companies acting together, coordinated by nology cannot be realized without reorganiza- markets. But as the price of information pro- tion. One effect we associate with new infor- cessing falls, it becomes easier for different mation technology is the downsizing of mid- firms to coordinate their activities using com- dle management inside large organizations. puter networks and video conferencing. These organizational information “pyramids” Today, automobile and computer companies were formed a century ago in order to man- design, assemble, and sell their products, but age the information flows associated with the components of those products — be they large-scale production; General Motors was a transmissions or printed circuit boards — are pioneer in creating this kind of organization. generally made elsewhere. Thus, the manufac- But computers can now process, verify, and turing sector has become far less integrated — share information far more cheaply than large it’s now common for firms who supply each numbers of bureaucrats inside companies. other to share production information, design Thus, modern companies have adopted a specifications, and other information via infor- “flatter” and more “networked” organizational mation technology networks. As a result, the chart, as information technology allows them information revolution has allowed for more to get by with a smaller internal staff. The specialization in the economy, and therefore “middle-management” layer of the corpora- productivity, because the economy has reorga- tion has become like the ditch-diggers con- nized itself to accommodate it.16 fronted with a backhoe. Other inventions and periods in U.S. eco- Other less obvious but equally compelling nomic history also display this pattern — be organizational changes in the economy have they related to interchangeable parts and the also been triggered by information technolo- cotton gin, electricity and the electric motor, gy. For example, U.S. manufacturing tradition- or the current promise of biotechnology. ally had a very high level of vertical integra- Inventions such as these have fed the growth tion; an individual firm made its parts and process and raised the U.S. standard of living. And yet, U.S. economic history is usually † Strictly, these proportions cannot be thought-of as recalled in terms of other events, whether pol- “shares,” since they use chain-weighted, “real” dollar icy failures such as the Great Depression and values. The chain-weighted components of investment do not necessarily add-up to total real investment. Smoot-Hawley tariffs, or successes such as the Nevertheless, real values most accurately show the rise of public education, the interstate high- increasing importance of information technology way system, and the Marshall Plan. If growth is investment at a time when the relative price of infor- mation technology was falling rapidly. For further about innovation, investment, and reorganiza- information on the use of chain-weighted dollar tion, how do these economic policy issues values, see http://www.bea.gov/bea/dn/nipaweb/ relate to the growth process? NIPAHelp.htm#Chain.
12 Chapter 3
“Stage Setting” Policies
Economic growth stems from society’s abil- English had wool and made cloth; the ity to invent, invest, and reorganize, a process Portuguese had grapes and made wine. These centered in the private sector. But at the same resource endowments played a large and obvi- time, a variety of other public policies influ- ous role in determining the way these ence the growth process, from fiscal and mon- economies produced, traded, and grew. etary policies to policies governing trade, reg- But as modern economies have evolved, ulation, corporate governance, investments in they have come to depend less on natural education, and the like. How do these policies resources (such as farm or energy produc- relate to the growth process? How can they tion) for their wealth. And a similar transition best be managed to promote it? is now underway regarding physical capital This chapter discusses policies such as: itself. As Federal Reserve Chairman Alan sound macroeconomic policy; policies that Greenspan has famously noted, total econom- produce “openness,” such as trade, cross-bor- ic output “weighs less” — it has fewer goods der investment, and immigration; corporate and more services and intangibles, from governance and financial market structure; finance to software to professional services, business “culture;” and public investments. which are not inherently tied to a particular These policies cannot produce sustained, climate or terrain.17 long-term growth in the standard of living on The decline in the importance of natural their own, but they can enable it, by allowing resources, the rise in intangible assets and society to use its assets wisely and positioning products, and the international flows of infor- the economy to capture the full benefits of mation and technology have changed the invention, investment, and reorganization. In nature of international exchange. Fueled by essence, these policies “set the stage” — they virtually free sharing of information, compa- create an environment that leads to better nies around the world are capable of forming technological change and investment (in relationships that allow them access to almost terms of both their level and composition) any resource or technology, through joint ven- and more appropriate organization, at the tures, research consortia, out-sourcing or co- level of both society and the individual firm. production arrangements, mergers or market- The links between these policies and the ing arrangements, electronic markets, or any growth process will be discussed below. of a number of other relationships. While These stage-setting policies take on even national preferences still exist — capital, for greater significance in the modern economy example, does not move across national due to the importance of global economic boundaries with the ease it does internally — integration. In earlier times, the natural global production is being reshaped into a resource and other endowments of individual latticework of relationships that allows almost nations were more important in determining any firm to secure access to almost any pro- what they produced and exported. The ductive resource.
13 HOW ECONOMIES GROW
This development challenges our views of fore allow greater labor force mobility. And trade and, more importantly, of growth. With improvements in public health would allow such enormous mobility of resources of all the workforce to be more productive. Thus, a kinds, how does a nation now find its role in more efficient health care sector would lower the international economy? business costs and raise incomes, improve pro- Certainly, differences do exist between ductivity, and allow more mobility in the work- high-wage and low-wage countries, differences force (as fewer people remained in specific that can readily be attributed to differences in jobs solely to obtain benefits). In short, all of the abundance of labor, capital, human capi- these effects would help to create an environ- tal, and resulting worker productivity. But, ment in which firms could better invent, while very important for many low-income invest, and reorganize. A comparable example developing countries, wage differences do not of a “domestic” policy with broad-ranging explain large parts of the pattern of global effects is Japanese land use policy (zoning), trade, especially among industrialized which affects the structure of the retail indus- economies. try and, in turn, the penetration of foreign If most resources are mobile around the goods. world and, therefore, are available every- Thus, the level of integration in the world where, then a nation’s economic success will is such that there are few if any truly “domes- have more to do with how its business organi- tic” policies in the world. In fact, given the zations put those resources together. Anyone, reality that trade is a “positive sum” game — for example, can gain access to sugar, cocoa, that it makes both countries better off — sig- and milk on world commodity markets, but nificant policy reform in one nation has the only a few companies produce commercially potential to lead to economic gains around successful candy bars. The same is now true in the world. such products as computers, automobiles, With that caution expressed, there are sev- pharmaceuticals, and others, but in these eral realms of economic policy that are partic- examples, instead of cocoa, milk, and sugar, ularly important in “setting the stage” for the inputs are components, engineering, and growth, that is, in creating an environment in technology. The question becomes: what are which firms can best invent, invest, and reor- the characteristics of an environment that ganize. These include: macroeconomic policy, lead a nation’s firms to enjoy this success? economic “openness,” corporate governance In one sense, there are few characteristics and the quality of capital markets, culture, of a nation’s environment that do not affect and public investment. this outcome. Consider, for example, the delivery of health care. This is a fundamental domestic policy issue for all the leading MACROECONOMIC POLICY economies. But reducing the great inefficien- Fiscal policy moved straightforwardly into cies in health care delivery in the U.S. would the area of economic “stage-setting” with the change our economic opportunities in impor- advent of John Maynard Keynes and the subse- tant ways. Given that health care accounts for quent post-war view that government could 14 percent of GDP, an efficient system would “fine tune” the economy’s cycles, or as the late both improve the quality of care and free up Arthur Okun put it, that the economy’s down- significant amounts of resources for other pro- turns were more like plane crashes than hurri- ductive uses.18 Insofar as most health care cov- canes — fundamentally preventable.19 Much erage is provided by employers, reform would has occurred to change this view, including the lower business costs or raise employee com- OPEC price shocks, a finer understanding of pensation. Viable reform would also make the role of expectations, and the apparent workers less dependent for health coverage on inability of the political system to carry out their ties to a specific workplace, and there- these policies in a timely and efficient manner.
14 “Stage Setting” Policies
ment. If the economy is more open, then it “The federal government should adopt an can borrow from abroad to make up the investment-oriented federal budget and difference, but this creates obligations to investment-oriented deficit reduction foreigners that must be serviced from future program that will build capital…and income. This not only mortgages future enhance productivity growth.” income, but it creates a new source of poten- SOURCE: Committee for Economic Development, tial instability in international capital flows. Growth with Opportunity (New York, NY: Committee for Economic Development, 1997), p. 13. Second, when foreigners buy U.S. assets, they have to buy dollars to get them. This “bids up” the dollar relative to other currencies (the Fiscal policy, in particular, has been an ineffec- exchange rate). This harms U.S. exports, tive tool for “fine-tuning” short-term fluctua- which are the very industries in which the U.S. tions and has instead become an important has an international advantage. Thus, by determinant of long-term growth, as will be dis- inhibiting exports, deficits restructure the cussed below. Economists have waged similar economy towards untraded, and generally less theoretical debates over the efficacy of mone- productive, goods and services — less high- tary policy, but it has nonetheless proved an tech output, more haircuts and restaurants. effective (albeit rather blunt) tool in practice. As Figure 3 illustrates, recent experience Macroeconomic policy — primarily fiscal shows that private investment in the economy policy — affects long-term growth in many has moved in line with federal budget deficits, ways. One of these is the phenomenon of or reductions thereof. But some of this “crowding out.” In an economy unaffected correlation is no doubt due to the larger by the rest of the world, government borrow- macroeconomic backdrop of the period, ing to finance deficits will divert capital from which affects both. other uses, thus “crowding out” private invest- No discussion of deficits can be divorced
FIGURE 3 Crowding-Out and Crowding-In: Federal Deficit/Surplus and Net Private Domestic Investment
(Percent of Net National Product)
10%
8%
6%
4% Net Private Domestic Investment 2%
0%
-2%
-4%
-6% Federal Deficit/Surplus (NIPA) -8% 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Year SOURCE: Bureau of Economic Analysis, National Income and Product Account Tables 1.9 and 5.1, available at
15 HOW ECONOMIES GROW
from a discussion of tax policy. Recent tax storage that exist side-by-side with export pro- cuts have changed the long-term direction of motions. Alternatively, the composition of fiscal policy, particularly when coupled with expenditures determines a variety of direct likely long-term spending increases for nation- incentives. CED has expressed its concerns al and homeland security. These cuts are often that federal spending, for example, is tilted defended as part of a “pro-growth” strategy in towards current consumption (for example, which lower tax rates, by encouraging individu- Social Security) and away from investment in als to provide more labor, increase future eco- both its private and public forms.22 Similarly, nomic capacity and incomes by enough to off- tax incentives for homeownership have, over set the anti-growth effects of “crowding out.” time, given us a relatively larger residential However, the available evidence does not stock and smaller productive stock of capital support this view. While some “second earn- than other advanced nations and do not dis- ers” such as married women, and low-income tinguish between owner-occupied homes that single workers, appear to seek jobs or work stabilize neighborhoods versus beach homes longer hours at lower tax rates, economists and mansionized residences.23 find little such “elasticity” in labor supply among male heads of households or middle- to-high income single workers.20 As a result, “Changes in the composition of Federal any effect on total labor supply is likely to be expenditures have encouraged private modest and too small to offset the anti-growth consumption and reduced public invest- effects of the larger deficits associated with the ments. The most conspicuous shift in tax cuts.21 Of course, tax cuts, like spending spending priorities has been the rapid increases, may provide a short-term boost to expansion of transfer payments in entitle- ment programs… go[ing] predominantly the economy by raising short-term demand to middle- and higher-income rather than for goods and services, but such demand poor beneficiaries.” increases do not enhance long-term growth. SOURCE: Committee for Economic Development, Monetary policy has been more effective Restoring Prosperity: Budget Choices for Economic when used to spur or restrain economic activi- Growth (New York, NY: Committee for Economic ty (and thereby employment and inflation) by Development, 1992), p. 33. changing demand in the short-term, when compared to fiscal policy. In the longer term, however, monetary policy’s primary task is to Finally, direct incentives can stimulate parts find the fastest rate of growth consistent with of the growth process, as do incentives for price stability. Inflation is a debilitating force research and development or for investment. for economic growth. When inflation or the But these must be designed carefully in order expectations of it are strong enough to affect to avoid conveying direct and deadweight sub- business thinking, it distracts business from sidies to activities that would have occurred in the activities — such as invention and invest- the private sector regardless.24 ment — that lead to growth. The same can be said for deflation, a steady decline in prices, which can have just as pernicious an effect. OPENNESS But beyond the broad sweep of monetary If the global economy offers any producer and fiscal policy, the details can also be impor- access to (almost) all of the world’s productive tant. The composition of government spend- resources, and if economic success depends ing can also have important consequences. on assembling those resources in order to add Policies at cross purposes will waste resources, value to them, then an economy’s openness as do, for example, agricultural policies that must be a fundamental determinant of its encourage overproduction for government standard of living.
16 “Stage Setting” Policies
In the modern context, however, “open- “International trade and investment ness” means more than simple trade. It means improve global economic welfare through accessibility to capital and foreign investment, specialization, increased competition, to technology, and to human resources via economies of scale, and smoother economic immigration. adjustment.” Foreign direct investment is the dominant SOURCE: Committee for Economic Development, From manner in which resources are transferred to Protest to Progress: Addressing Labor and Environmental 25 Conditions Through Freer Trade (New York, NY: the developing world. While the U.S. and Committee for Economic Development, 2001), p. 1. Europe are the world’s major recipients of for- eign direct investment, the impact of foreign investment is greater in the developing world. Of course, “openness,” over the long sweep Beyond the traditional benefits of investment of history, has sometimes meant precisely the — an expanded stock of productive capital reverse to many peoples — colonialism, and enhanced embodied technology — for- oppression, and enslavement. But even in dis- eign investment adds to the level of competi- tant historical periods, openness based on tion within an economy, increasing the incen- mutual benefit and voluntary exchange has tives firms have to innovate and become more been a catalyzing force in producing wealth productive. It may also deliver new ideas and betterment. Trade helped to make regarding organization, consumer satisfaction, Venice, Portugal, and then Holland the most or other operating precepts to the local labor advanced economies of the seventeenth cen- force. Again, we associate this phenomenon tury. Moreover, expanded trade interacted with direct investment in the developing with technological progress, investment, and world, but it holds true in advanced countries organization, as awareness of distant opportu- such as the U.S., where foreign firms have nities led these societies to improve their ship- been important innovators in such industries building, banking and finance, and other as automobiles or electronics. technologies, to invest in these opportunities, Openness to investment often equates to and to adopt new forms of organizations openness to technology, since investment (such as the first banks, or such early public often conveys new technology. But the bene- stock companies as the Dutch East India fits of openness in technology can also be Company), all of which raised the standards seen in failed attempts to substitute domestic of living of their societies dramatically. efforts for abilities that already exist else- CED’s historical commitment to open bor- where. Two noteworthy failures in this regard ders is based on its understanding of trade’s were Plan Calcul, a French government pro- compelling benefits. These benefits are tradi- gram to develop a French mainframe comput- tionally expressed in terms of a nation’s “com- ing alternative to leading American firms parative advantage,” that is, its ability to find (such as IBM) in the 1960s, and the Japanese some set of activities it performs relatively Fifth Generation Computing Program, in (when compared to other activities) better which the Japanese government and comput- than do other nations. This relative ability ing industry banded together to develop a allows every country, however unproductive in Japanese computer operating system to absolute terms, to specialize in something replace MS-DOS and Unix in the 1980s. In and, in turn, improves global welfare. both cases, policy attempted to create eco- Moreover, trade allows a nation’s firms to nomic activity where the private sector had develop specializations that reflect its compe- shown no innate ability to outperform foreign tencies, and to avoid recreating within its competitors. Not only did both of these efforts boundaries what can already be purchased, fail, but they distracted their domestic indus- and on better terms, elsewhere in the world. tries from finding activities at which they had
17 HOW ECONOMIES GROW
a sustainable advantage. With its strength in technique for allocating resources that puts computer components and its ideographic them to the best use. But markets are, at their language, one would expect Japan to be a core, a set of social relationships, in that they leader in computer graphics. In fact, it isn’t. define the way people will interact and what One reason may be the policy-led distractions they may reasonably expect of each other. associated with reinventing what had already When markets “work” — when they do their been accomplished elsewhere in the world, resource allocation job well — it is because and the commensurate waste of time and those relationships work. resources. The recent corporate reporting scandals are an excellent example of the importance of this standard. Perhaps the most important “As the impending long-term national labor market in the economy is the capital market, shortage approaches and the relative pro- the market for funds used by businesses at all ductivity and importance of skilled workers stages of development, whether in the form continues to grow, immigration will become increasingly important as one means of of stocks, bonds, loans, or more speculative addressing economic change.” forms, such as private equity, venture capital, or start-up money. The corporate reporting SOURCE: Committee for Economic Development, Reforming Immigration: Helping Meet America’s Need for a scandals (and the associated malfeasances of Skilled Workforce (New York, NY: Committee for some Boards of Directors) were an affront to Economic Development, 2001), p. 38. the economy because they demonstrated that investors could not rely on the information they received, whether through obfuscation As the world’s economy becomes more or outright fraud. integrated, the benefits of openness extend to Like the thirteenth chime of a clock, cross-border movements of labor as well. the presence of some misinformation in a Census data from 2000 reveal that the contri- market casts doubt on all the other informa- bution of foreign workers — both legal and tion provided to market participants. This undocumented — may have been far more presents markets with a new and unanticipat- substantial than at first thought.26 With the ed source of risk; the effect of this risk was costs of transportation falling around the evident in the precipitous declines in the world, workers have the ability to travel to vir- value of stocks and resulting slowdown of tually any place and apply their skills. Influxes economic activity. While much or most of of foreign workers may now become a hall- the financial information provided by mark of the advanced economies, particularly many or most firms was not corrupted, the in the United States, where the education sys- faith investors had in the information of tem is producing inadequate quantities of sci- each particular firm was suddenly called entists and engineers. As of 1999, fully 41 per- into question. Thus, the presence of some cent of new doctoral degrees in science, math- misinformation and the failure of some ematics, and engineering given in the U.S. market participants to uphold agreed-upon were being awarded to foreigners.27 Without standards of behavior (even if those these workers, the U.S. economy would be standards are imposed externally by unable to realize its innovative potential. regulation and the threat of litigation) poses a risk for all concerned. The losses experienced by the shareholders of Enron, CORPORATE GOVERNANCE AND Worldcom, or other such companies, while THE QUALITY OF THE MARKETS grievous, are small in comparison to the As discussed earlier, economists tend larger, economy-wide losses that occur to focus on markets as a process, that is, a when the “quality” of markets is impaired.
18 “Stage Setting” Policies
The severity of the corporate reporting myopia, churning, and other counterproduc- scandals can be seen in this paradox: while tive tendencies — has some merit. The U.S. the conduct of corporate management endured a sizable bubble in the late 1990s, impaired markets, it is markets themselves although its causes may not be wholly related that are supposed to discipline the behavior of to the failure of its agency-based economy; the corporate management. The U.S. (or more recent collapse of the telecom sector in the generally, countries that subscribe to the U.S. was paralleled in the other industrialized “Anglo-American model”) has an “agency regions, regardless of institutional features. economy,” that is, an economy in which cor- Thus, bubbles are not unknown to other porate managements act as agents for their countries — in the Japanese case, they are shareholders. Shareholders, in turn, discipline spectacularly well known — and their corporate managers, both directly (in theory) economies have demonstrated neither the through their ability to select them, and indi- growth record nor the history of corporate rectly, by evaluating their performance profitability the American system has shown. through buying and selling their shares. The Governments influence the characteristics intent of this system — a “contestable market of their economies’ systems of governance for corporate control” — is to make corporate and capital allocation through the conduct of managers willing and responsive agents for regulation and law and, ultimately, by permit- their stockholders. When they are such ting the prospect of litigation. Granted, regu- agents, corporate managers are most likely to lation is an imprecise policy instrument with engage in vigorous competition — inventing, often-unintended consequences. Regulations, investing, and reorganizing their firms. This for example, requiring independent boards of is the growth process as it is experienced at directors and stipulating their behavior can the firm level. But the system breaks down if bolster the disciplining role of boards, but can managerial behavior is corrupt, if Boards of also make it difficult to recruit new board Directors are captive, or if stockholder members, or make the corporate form too vigilance is lax, which creates a need for expensive for middle-size companies. regulation and its enforcement. Similarly, regulations governing accounting A closely-related subject is the structure of standards or the ways stock exchanges relate capital markets. The purpose of capital mar- to their traders may meet specific domestic kets is to direct funds towards the most objectives, but fail to conform to international promising activities in the economy, whether norms and create other disadvantages. But to the largest corporations or the smallest these problems are not reasons to avoid need- start-ups. But this task can be accomplished ed regulation. Instead, when regulatory poli- in any number of ways. In Japan, for example, cies are vital to assure the proper functioning in most critical sectors, capital is allocated of markets, they must continually be reviewed largely through interconnected families of to make sure they are most consistent with companies; in continental Europe, banks fre- the long-term growth process of invention, quently provide capital and play the role of investment, and reorganization. stockholders and managers. Both systems have been justified in the past on the basis of the farsightedness they allow in corporate man- CULTURE AS AN agement, as keiretsu members or banks are ECONOMIC ASSET capable of looking to the long-term when for- Markets serve an economic purpose, but mulating investment plans. are a social phenomenon; thus, culture will The implicit criticism of the American sys- affect them. And while economists traditional- tem — that a free market for corporate con- ly have not been predisposed to consider trol is susceptible to speculative frenzies, culture as an economic phenomenon,
19 HOW ECONOMIES GROW
there is now a growing recognition that it system. Japan came to dominate the produc- is important, as evidenced by the work of tion of fax machines, for example, because its David Landes and others.28 “industrial families” made all of the necessary Culture can be defined as a set of values parts and were able to plan, as a group, to and beliefs shared widely in society. America’s absorb their capacity with this new produc- cultural predisposition towards individualism tion. The tax system also favored this plan, has played a central role in its historical devel- since personal income was taxed at a very opment. It has fostered an environment in high rate while capital gains were taxed at a which inventors and investors anticipate very low one, leading firms to reinvest as rewards and entrepreneurs are predisposed much of their available profit as possible to take risk. rather than distribute it. Thus, the culture, Much of the invention that has powered corporate structure, and tax environment American growth has its roots in this culture. combined to induce the Japanese to produce From Eli Whitney to Edison and the Wright fax machines, even though, on the whole, brothers to Xerox and Hewlett-Packard, they probably made no money doing so. American technological progress has strong A further aspect of culture that relates to roots in this individualism. The same culture economic growth is the political system. In the assigns individual investors responsibility for absence of open political competition, a self- their decisions and rewards them with gains perpetuating political establishment is prone and losses, which underpins the agency to being captured by specific interests whose economy and the contestable market for interests are not served by change.29 The cur- corporate control. rent economic crisis in Japan provides ample That is not to argue that America’s culture demonstration of the paralysis that can occur is the only possible culture consistent with when entrenched interests oppose policy economic progress. But it does argue that cul- changes needed to restore growth. ture and economic organization play a strong CED has been a champion of political role in determining how resources are used, reform, from campaign finance reform to the and therefore how growth occurs. Critics have improved selection of judges. It does so raised important concerns about the U.S. cul- because of a long-standing commitment to an ture of individualism, from its unwillingness to improved democracy. But the same political purchase adequate public goods (such as edu- reforms have economic consequences — they cation or public health), its short-sightedness create a more open political system, which (as witnessed in a low savings rate or willing- makes it more difficult for individual interests ness to tolerate environmental damage, or the potential for whipsaws or “bubbles” in its mar- kets), or its countenance of inequality. But the same culture offers compelling “A vibrant economy and well functioning business system will not remain viable in an strengths. Perhaps the proof of this proposi- environment of real or perceived corrup- tion lies in comparing the U.S. to other tion…. If public policy decisions are made advanced economies. Japan and continental — or appear to be made — on the basis of Europe, with cultures more oriented towards political contributions, not only will policy consensus and collective action, have been be suspect, but its uncertain and arbitrary character will make business planning less unable to develop the new businesses needed effective and the economy less productive.” to reorganize society around new technolo- gies; where are the European or Japanese SOURCE: Committee for Economic Development, Investing in the People’s Business: A Business Proposal for Microsofts and Dells? When Japan was an Campaign Finance Reform (New York, NY: Committee for economic power in the 1980s, its strengths Economic Development, 1999), p. 1. came from its very integrated and closely-held
20 “Stage Setting” Policies
to capture the policy-making apparatus and for educational results is also necessary, in slow the growth process. CED’s view.31 Similarly, more spending on Thus, much of the explanation for the way infrastructure could facilitate growth, but also economic activity takes place in any country ignores the need to manage what we now has to do with governance, finance, and tax operate effectively, though such policies as policy, but culture plays an important role as pricing roads or airports to reduce the well, if only because it influences these other demand for them at peak hours or generally factors. to charge appropriate user fees. Public investments such as these have a variety of rationales, over and above their con- PUBLIC INVESTMENT tribution to growth. Schools are a vehicle for A final set of government policies worthy social mobility. Mass transit potentially obvi- of mention is public investments. These are ates pollution and allows low-income workers investments that private actors could not rea- to reach places of employment. Research and sonably be expected to perform, either development allows those who use innovations because their benefits would be impossible to to benefit in ways that do not accrue to the appropriate fully (for example, basic innovator. While these benefits can be com- research), because they have large start-up pelling, they need to be demonstrated con- costs and would require some element of cretely to justify the investments that create monopoly to recoup the investment (e.g., them. roads and other public infrastructure), or because they are viewed as both a precondi- tion to private economic activity or as a social UNRESOLVED ISSUES right (public education, the legal system, A growing economy helps to create a police and fire protection). better society, but it does not lead to a perfect Education and infrastructure are frequent- one. Specifically, there are economic issues ly noted as essential elements of the growth growth alone does not resolve. Two of these process, and CED has frequently commented are of immediate concern here: equity and on these.30 distributional considerations; and environ- mental preservation and more generally, sustainable development. The “right” level of equality or inequality is “Productive economic activity depends upon private and public investment…. subjective and ultimately a matter of political Effectively chosen and designed public judgment. To some extent, inequality and investment in physical capital, R&D, and growth are inseparable. Growth itself is an act human capital (such as education and train- of change and displacement, as new activities ing) are essential to economic growth, as supplant old ones, and therefore changes the they have been throughout our history.” distribution of societal rewards. Moreover, so SOURCE: Committee for Economic Development, long as incentives are the primary reason for Growth with Opportunity (New York, NY: Committee for Economic Development, 1997), p. 14. economic behavior, some degree of inequality would appear necessary. But we nonetheless believe that the recent increase in inequality As CED’s previous work demonstrates, in our society needs to be scrutinized. “more” public investments do not always CED’s historical approach has been not to mean “better.” While more spending on edu- focus on the degree of inequality as an out- cation in some instances — particularly on come in its own right, but to address the spe- pre-school programs — might well deliver cific needs of populations in poverty, with an sizable benefits, improving the accountability emphasis on identifying the tools necessary to
21 HOW ECONOMIES GROW
provide them with the skills and means to implement in practice: the “true” value of pol- help them function in the labor market.32 This lution or, more generally, “external effects” is involves training, job search, transportation, often uncertain; many of the benefits (such as health care, and other instruments to facilitate species diversity or the preservation of scenic their becoming employable and productive wilderness) may be difficult to assess or to enough to earn an adequate living. Regardless turn into monetary values; monitoring emis- of one’s views of the “correct” level of equality sions or administering the most theoretically in society, this is a needed first step. efficient policy may pose difficulties or costs; A final general problem concerns environ- or there may be benefits to coordinating the mental issues, or more generally, “sustainabili- societal response through such devices as stan- ty.” CED has stressed its commitment to effec- dards, information programs, technological tive regulation and, in particular, regulation programs, or other devices. But just as unabat- that specifies outcomes such as clean water ed pollution imposes costs that impede and air but leaves open the means to achieve growth, so can regulation that is inflexible or them.33 poorly targeted. But, as was the case for corporate gover- Some observers believe that resource nance, the need to temper the strategy of reg- scarcities will ultimately force limits on the ulation does not mean regulation should not growth process. In fact, history has shown the exist. Indeed, regulation may be required opposite to be true. Society has substituted for when markets fail to perform their functions scarce resources by increasing its stock of effectively, either because they do not provide knowledge and finding new means for accom- the right signals or because people respond to plishing the same ends, that is, by inventing them incorrectly. and investing. There are some natural A good example of a failure to provide resources — for example, particular biological “the right signals” is pollution. An air polluter species — that should be preserved in the imposes costs on others, through illness, prop- interest of ecological balance and values and erty loss, and other injuries. But the polluter, those species’ potential effect on human wel- absent regulation, has no incentive to mitigate fare. Similarly, the deforestation of Africa this damage. Ideally, regulators would have resulting from the use of wood as fuel is a the ability to establish the “right price” for pol- matter of markets failing rather than working. lution and force polluters to pay that price for But the fact of scarcity in and of itself is not their emissions. This ideal, however, is hard to a reason to anticipate slower growth nor to put arbitrary limits on consumption. Oil poses environmental and security risks — these risks “The American people overwhelmingly — ought to be “priced” — meaning a value and correctly — believe that government established for them — and duly regulated. regulation is needed to achieve many impor- tant economic and social goals. Regulations But were oil environmentally benign and spring directly from the desire for clean air, more abundant domestically, its scarcity alone drinkable water, reliable financial markets, would not merit it special treatment. improved medicines, and competitive indus- Economists have substantial faith that, in tries…. Nevertheless, the current regulatory these cases, markets can foresee these geologi- system produces too few benefits at exces- sive cost.” cal or other “natural” limits and correct for them on their own, by developing alternatives SOURCE: Committee for Economic Development, in anticipation of future price increases. The Modernizing Government Regulation: The Need for Action (New York, NY: Committee for Economic Development, true “limits to growth” are about limits on 1998), p. 3. invention, investment, and reorganization — not about resource scarcity.
22 Conclusion
American society is premised on continu- pro-savings fiscal policy, a sound monetary ing economic growth. But long-term econom- policy, an open international environment, ic growth itself is rarely the explicit object of strong corporate governance, rational public policy. Growth, across time and across soci- investment (particularly in education), and an eties, inevitably is the product of three com- honest political system. These “set the stage” pelling factors — invention (generating new for growth by allowing invention, investment, ideas), investment (putting those ideas into and reorganization to flourish. practice), and social reorganization (allowing These policies are often thankless political- the full ramifications of those ideas to take ly — they sometimes require sacrifices or effect). occur at the expense of a particular group’s The extent to which this growth process interest. But CED, both over the 60 years of its will take place also depends on the environ- existence and into the future, will continue to ment within which it occurs. This environ- be a “voice for growth” that brings this central ment includes among other components, a economic issue to the public debate.
23 Endnotes
1. Robert Kennedy, “Address, University of Kansas” 16. Erik Brynjolfsson and Lorin M. Hitt, “Beyond (March 18, 1968), quote available at
24 Endnotes
25. Committee for Economic Development, A Shared 29. Dennis P. Quinn and John T. Woolley, “Democracy Future: Reducing Global Poverty (New York, NY: and National Economic Performance: The Committee for Economic Development, 2002), Preference for Stability,” American Journal of Political p. 26. Science, vol. 44 (July 2001), pp. 634-57. 26. Michael Fix and Jeffrey Passel, “U.S. Immigration at 30. CED, Growth with Opportunity, p. 14. the Beginning of the 21st Century” (August 2, 2001), available at
25 OBJECTIVES OF THE COMMITTEE FOR ECONOMIC DEVELOPMENT
For 60 years, the Committee for Economic foundations, and individuals. It is indepen- Development has been a respected influence dent, nonprofit, nonpartisan, and nonpolitical. on the formation of business and public policy. Through this business-academic partner- CED is devoted to these two objectives: ship, CED endeavors to develop policy state- To develop, through objective research and ments and other research materials that com- informed discussion, findings and recommenda-tions mend themselves as guides to public and busi- for private and public policy that will contribute to ness policy; that can be used as texts in college preserving and strengthening our free society, achiev- economics and political science courses and in ing steady economic growth at high employment and management training courses; that will be con- reasonably stable prices, increasing productivity and sidered and discussed by newspaper and maga- living standards, providing greater and more equal zine editors, columnists, and commentators; opportunity for every citizen, and improving the and that are distributed abroad to promote bet- quality of life for all. ter understanding of the American economic To bring about increasing understanding by pre- system. sent and future leaders in business, government, and CED believes that by enabling business lead- education, and among concerned citizens, of the ers to demonstrate constructively their concern importance of these objectives and the ways in which for the general welfare, it is helping business to they can be achieved. earn and maintain the national and communi- CED’s work is supported by private volun- ty respect essential to the successful function- tary contributions from business and industry, ing of the free enterprise capitalist system.
26 CED BOARD OF TRUSTEES
Chairman DEREK BOK, President Emeritus CAROLYN CHIN, Chairman Harvard University Commtouch/C3 Partners ROY J. BOSTOCK, Chairman Emeritus, National Chair, Common Cause Executive Committee * JOHN L. CLENDENIN, Retired Bcom3 Group, Inc. LEE C. BOLINGER, President Chairman Columbia University BellSouth Corporation
Vice Chairmen ROY J. BOSTOCK, Chairman Emeritus, FERDINAND COLLOREDO-MANSFELD, Executive Committee Chairman and Chief Executive Officer 3 GEORGE H. CONRADES, Chairman and Bcom Group, Inc. Cabot Properties, Inc. Chief Executive Officer Akamai Technologies, Inc. JACK O. BOVENDER, JR., Chairman and GEORGE H. CONRADES, Chairman and Chief Executive Officer Chief Executive Officer JAMES A. JOHNSON, Chairman and Health Care of America Akamai Technologies, Inc. Chief Executive Officer Johnson Capital Partners JOHN BRADEMAS, President Emeritus JAMES P. CORCORAN, Consultant New York University ARTHUR F. RYAN, Chairman and Chief DAVID M. COTE, President and Chief Executive Officer JOSEPH BRANDON, Chairman, Executive Officer The Prudential Insurance Company of President and Chief Executive Officer Honeywell International Inc. America General RE Corporation STEPHEN A. CRANE, Chairman, FREDERICK W. TELLING, Vice President WILLIAM E. BROCK, Chairman President and Chief Executive Officer Corporate Strategic Planning and Policy Bridges LearningSystems, Inc. Stirling Cooke Brown Holdings Limited Division Pfizer Inc. THOMAS J. BUCKHOLTZ, Executive W. BOWMAN CUTTER, Managing Vice President Director Beyond Insight Corporation Warburg Pincus
REX D. ADAMS, Professor of Business MICHAEL BUNGEY, Chief Executive PAUL DANOS, Dean Administration Officer The Amos Tuck School of Business The Fuqua School of Business Cordiant Communications Group Dartmouth College Duke University TONY BUZZELLI, Deputy Managing RONALD R. DAVENPORT, Chairman of PAUL A. ALLAIRE, Retired Chairman Partner the Board Xerox Corporation Deloitte & Touche LLP Sheridan Broadcasting Corporation
COUNTESS MARIA BEATRICE ARCO * FLETCHER L. BYROM, President and JOHN T. DEE, Chairman and Chief AAC American Asset Corporation Chief Executive Officer Executive Officer MICASU Corporation Volume Services America IAN ARNOF, Retired Chairman Bank One, Louisiana, N.A. DONALD R. CALDWELL, Chairman and JOHN J. DEGIOIA, President Chief Executive Officer Georgetown University MERRILL J. BATEMAN, President Cross Atlantic Capital Partners Bringham Young University ROBERT M. DEVLIN, Former Chairman DARALD W. CALLAHAN, Executive Vice and Chief Executive Officer JAMES S. BEARD, President President American General Corporation Caterpillar Financial Services Corp. ChevronTexaco Corporation JOHN DIEBOLD, Chairman HENRY P. BECTON, JR., President and DAVID A. CAPUTO, President John Diebold Incorporated General Manager Pace University WGBH Educational Foundation SAM DIPIAZZA, Global Chief Executive FRANK C. CARLUCCI, Chairman PricewaterhouseCoopers THOMAS D. BELL, JR., President and Emeritus Chief Executive Officer The Carlyle Group LINDA M. DISTLERATH, Vice President, Cousins Properties Global Health Policy JOHN B. CAVE, Principal Merck & Co., Inc. ALAN BELZER, Retired President and Avenir Group, Inc. Chief Operating Officer IRWIN DORROS, President AlliedSignal Inc. RAYMOND G. CHAMBERS, Chairman Dorros Associates of the Board PETER A. BENOLIEL, Chairman, Amelior Foundation * FRANK P. DOYLE, Retired Executive Executive Committee Vice President Quaker Chemical Corporation ROBERT CHESS, Chairman General Electric Company Inhale Therapeutic Systems, Inc. MELVYN E. BERGSTEIN, Chairman and PHILIP DUKE, Executive Vice President, Chief Executive Officer MICHAEL CHESSER, Chairman and Retired Diamond Cluster International, Inc. Chief Executive Officer Lockheed Martin Corporation United Water
*Life Trustee FRANK DUNN, President and Chief EARL G. GRAVES, SR., Publisher and SHIRLEY ANN JACKSON, President Executive Officer Chief Executive Officer Rensselaer Polytechnic Institute Nortel Networks Black Enterprise Magazine WILLIAM C. JENNINGS, Chairman T. J. DERMOT DUNPHY, Chairman WILLIAM H. GRAY, III, President and US Interactive, Inc. Kildare Enterprises, LLC Chief Executive Officer The College Fund JEFFREY A. JOERRES, President and CHRISTOPHER D. EARL, Managing Chief Executive Officer Director GERALD GREENWALD, Chairman Manpower Inc. Perseus Capital, LLC Greenbriar Equity JAMES A. JOHNSON, Chairman and W. D. EBERLE, Chairman BARBARA B. GROGAN, President Chief Executive Officer Manchester Associates, Ltd. Western Industrial Contractors Perseus LLC
ROBERT A. ESSNER, President and PATRICK W. GROSS, Chairman, L. OAKLEY JOHNSON, Senior Vice Chief Executive Officer The Lovell Group President, Corporate Affairs Wyeth Founder and Senior Advisor American International Group American Management Systems, Inc. DIANA FARRELL, Director ROBERT M. JOHNSON, Chairman and McKinsey Global Institute JEROME H. GROSSMAN, Senior Fellow Chief Executive Officer John F. Kennedy School of Government Bowne & Co., Inc. G. STEVEN FARRIS, President, Chief Harvard University Executive Officer and Chief Operating VAN E. JOLISSAINT, Corporate Officer RONALD GRZYWINSKI, Chairman Economist, Retired Apache Corporation Shorebank Corporation DaimlerChrysler Corporation
KATHLEEN FELDSTEIN, President JUDITH H. HAMILTON, Former H.V. JONES, Managing Director Economics Studies, Inc. President and Chief Executive Officer Korn/Ferry International Classroom Connect E. JAMES FERLAND, Chairman, PRES KABACOFF, President and President and Chief Executive Officer WILLIAM A. HASELTINE, Chairman and Co-Chairman Public Service Enterprise Group Inc. Chief Executive Officer Historic Restoration, Inc. Human Genome Sciences, Inc. *EDMUND B. FITZGERALD, Managing EDWARD A. KANGAS, Chairman and Director WILLIAM F. HECHT, Chairman, Chief Executive Officer, Retired Woodmont Associates President and Chief Executive Officer Deloitte Touche Tohmatsu PPL Corporation HARRY L. FREEMAN, Chair JOSEPH E. KASPUTYS, Chairman, The Mark Twain Institute WILLIAM HENDERSON President and Chief Executive Officer Former Postmaster General Global Insight, Inc. MITCHELL S. FROMSTEIN, Chairman Emeritus RICHARD H. HERSH, President WILLIAM E. KIRWAN, Chancellor Manpower Inc. Trinity College University System of Maryland
PAMELA B. GANN, President JOSEPH D. HICKS, Retired President and THOMAS J. KLUTZNICK, President Claremont McKenna College Chief Executive Officer Thomas J. Klutznick Company Siecor Corporation JOSEPH GANTZ, Partner CHARLES F. KNIGHT, Chairman GG Capital, LLC HEATHER HIGGINS, President Emerson Electric Co. Randolph Foundation E. GORDON GEE, Chancellor CHARLES E.M. KOLB, President Vanderbilt University RODERICK M. HILLS, Chairman Committee for Economic Development Hills Enterprises, Ltd. THOMAS P. GERRITY, Dean Emeritus C. JOSEPH LABONTE, Chairman The Wharton School HAYNE HIPP, President and Chief The Vantage Group University of Pennsylvania Executive Officer The Liberty Corporation BENJAMIN LADNER, President FREDERICK W. GLUCK, Of Counsel American University McKinsey & Company, Inc. DEBORAH C. HOPKINS, Chief Corporate Strategy Officer KURT M. LANDGRAF, President and CAROL R. GOLDBERG, President Citigroup, Inc. Chief Executive Officer The AvCar Group, Ltd. Educational Testing Service PAUL M. HORN, Senior Vice President, ALFRED G. GOLDSTEIN, President and Research ROBERT W. LANE, Chairman and Chief Chief Executive Officer IBM Corporation Executive Officer AG Associates Deere & Company MATINA S. HORNER, Executive JOSEPH T. GORMAN, Retired Chairman Vice President W. MARK LANIER, Partner TRW Inc. TIAA-CREF The Lanier Law Firm, P.C.
RICHARD A. GRASSO, Chairman and PHILIP K. HOWARD, Vice Chairman CHARLES R. LEE, Chairman Chief Executive Officer Covington & Burling Verizon Communications New York Stock Exchange, Inc. ROBERT J. HURST, Vice Chairman WILLIAM W. LEWIS, Director Emeritus The Goldman Sachs Group, Inc. McKinsey Global Institute McKinsey & Company, Inc.
*Life Trustee IRA A. LIPMAN, Chairman of the Board SANDRA PANEM, Partner EDWARD B. RUST, JR., Chairman and and President Cross Atlantic Partners, Inc. Chief Executive Officer Guardsmark, Inc. State Farm Insurance Companies JERRY PARROTT, Vice President, BRUCE K. MACLAURY, President Corporate Communications ARTHUR F. RYAN, Chairman and Chief Emeritus Human Genome Sciences, Inc. Executive Officer The Brookings Institution The Prudential Insurance Company of CAROL J. PARRY, President America COLETTE MAHONEY, President Corporate Social Responsibility Associates Emeritus MARGUERITE W. SALLEE, Chairman Marymount Manhattan College VICTOR A. PELSON, Senior Advisor and Chief Executive Officer UBS Warburg LLC Brown Schools EDWARD A. MALLOY, President University of Notre Dame DONALD K. PETERSON, President and STEPHEN W. SANGER, Chairman and Chief Executive Officer Chief Executive Officer ELLEN R. MARRAM, Partner Avaya Inc. General Mills, Inc. North Castle Partners PETER G. PETERSON, Chairman BERTRAM L. SCOTT, President T. ALLAN MCARTOR, Chairman The Blackstone Group TIAA-CREF Life Insurance Company Airbus Industrie of North America, Inc. TODD E. PETZEL, President MICHAEL M. SEARS, Senior Vice ALONZO L. MCDONALD, Chairman Azimuth Alternative Asset President and Chief Financial Officer and Chief Executive Officer Management LLP The Boeing Company Avenir Group, Inc. RAYMOND PLANK, Chairman JOHN E. SEXTON, President EUGENE R. MCGRATH, Chairman, Apache Corporation New York University President and Chief Executive Officer Consolidated Edison Company of ARNOLD B. POLLARD, President and DONNA SHALALA, President New York, Inc. Chief Executive Officer University of Miami The Chief Executive Group DAVID E. MCKINNEY, President JUDITH SHAPIRO, President The Metropolitan Museum of Art HUGH B. PRICE, President Barnard College National Urban League DEBORAH HICKS MIDANEK, Principal WALTER H. SHORENSTEIN, Chairman Glass & Associates, Inc. GEORGE A. RANNEY, JR., President and of the Board Chief Executive Officer The Shorenstein Company HARVEY R. MILLER, Managing Director Chicago Metropolis 2020 Greenhill & Co., LLC * GEORGE P. SHULTZ, Distinguished NED REGAN, President Fellow ALFRED T. MOCKETT, Chairman and Baruch College The Hoover Institution Chief Executive Officer Stanford University American Management Systems, Inc. JAMES Q. RIORDAN, Chairman Quentin Partners Co. JOHN C. SICILIANO, Director, Global NICHOLAS G. MOORE, Senior Advisor Institutional Services Bechtel Corporation E. B. ROBINSON, JR., Chairman Dimensional Fund Advisors Emeritus DIANA S. NATALICIO, President Deposit Guaranty Corporation RUTH J. SIMMONS, President The University of Texas at El Paso Brown University JAMES D. ROBINSON, III, General MARILYN CARLSON NELSON, Partner and Founder FREDERICK W. SMITH, Chairman, Chairman, President and Chief Executive RRE Ventures President and Chief Executive Officer Officer Federal Express Corporation Carlson Companies, Inc. ROY ROMER Former Governor of Colorado JOHN F. SMITH, JR., Chairman MATTHEW NIMETZ, Partner Superintendent, Los Angeles Unified General Motors Corporation General Atlantic Partners School District DAVID A. SPINA, Chairman and Chief THOMAS H. O’BRIEN, Chairman of the DANIEL ROSE, Chairman Executive Officer Executive Committee Rose Associates, Inc. State Street Corporation PNC Financial Services Group, Inc. HOWARD M. ROSENKRANTZ, Chief ALAN G. SPOON, Managing General DEAN R. O’HARE, Chairman and Chief Executive Officer Partner Executive Officer, Retired Grey Flannel Auctions Polaris Ventures Chubb Corporation LANDON H. ROWLAND, Chairman STEPHEN STAMAS, Chairman RONALD L. OLSON, Partner Janus Capital Group Inc. The American Assembly Munger, Tolles & Olson NEIL L. RUDENSTINE, Chair, ArtStor PAULA STERN, President ROBERT J. O’TOOLE, Chairman and Advisory Board The Stern Group, Inc. Chief Executive Officer The Andrew Mellon Foundation A.O. Smith Corporation DONALD M. STEWART, President and GEORGE RUPP, President Chief Executive Officer STEFFEN E. PALKO, Vice Chairman and International Rescue Committee The Chicago Community Trust President XTO Energy Inc.
*Life Trustee ROGER W. STONE, Chairman and Chief STEPHEN JOEL TRACHTENBERG, MICHAEL W. WICKHAM, Chairman and Executive Officer President Chief Executive Officer Box USA Group, Inc. The George Washington University Roadway Express, Inc.
MATTHEW J. STOVER, President TALLMAN TRASK, III, Executive Vice HAROLD M. WILLIAMS, President LKM Ventures President Emeritus Duke University The J. Paul Getty Trust LAWRENCE SUMMERS, President Harvard University JAMES L. VINCENT, Chairman, Retired L. R. WILSON, Chairman Biogen, Inc. Nortel Networks Corporation RICHARD J. SWIFT, Chairman, President and Chief Executive Officer FRANK VOGL, President LINDA SMITH WILSON, President Foster Wheeler Corporation Vogl Communications Emerita Radcliffe College RICHARD F. SYRON, President and Chief DONALD C. WAITE, III, Director Executive Officer McKinsey & Company, Inc. MARGARET S. WILSON, Chairman and Thermo Electron Corporation Chief Executive Officer HERMINE WARREN, President Scarbroughs HENRY TANG, Chairman Hermine Warren Associates, Inc. Committee of 100 JACOB J. WORENKLEIN, Global Head ARNOLD R. WEBER, President Emeritus of Project & Sectorial Finance FREDERICK W. TELLING, Vice President Northwestern University Societe Generale Corporate Strategic Planning and Policy Division JOSH S. WESTON, Honorary Chairman KURT E. YEAGER, President and Chief Pfizer Inc. Automatic Data Processing, Inc. Executive Officer Electric Power Research Institute JAMES A. THOMSON, President and CLIFTON R. WHARTON, JR., Former Chief Executive Officer Chairman and Chief Executive Officer RONALD L. ZARELLA, Chairman and RAND TIAA-CREF Chief Executive Officer Bausch & Lomb, Inc. CHANG-LIN TIEN, NEC Distinguished DOLORES D. WHARTON, Former Professor of Engineering Emeritus Chairman and Chief Executive Officer MARTIN B. ZIMMERMAN, Vice University of California, Berkeley The Fund for Corporate Initiatives, Inc. President, Corporate Affairs Ford Motor Company THOMAS J. TIERNEY, Founder RICHARD WHEELER, Chief Executive The Bridgespan Group Officer EDWARD ZORE, President and Chief InContext Data Systems, Inc. Executive Officer STOKLEY P. TOWLES, Partner The Northwestern Mutual Life Insurance Brown Brothers Harriman & Co. Co.
*Life Trustee CED HONORARY TRUSTEES
RAY C. ADAM, Retired Chairman ROBERT R. DOCKSON, Chairman ROBERT W. LUNDEEN, Retired NL Industries Emeritus Chairman CalFed, Inc. The Dow Chemical Company ROBERT O. ANDERSON, Retired Chairman LYLE EVERINGHAM, Retired Chairman RICHARD B. MADDEN, Retired Hondo Oil & Gas Company The Kroger Co. Chairman and Chief Executive Officer Potlatch Corporation ROY L. ASH THOMAS J. EYERMAN, Retired Partner Los Angeles, California Skidmore, Owings & Merrill AUGUSTINE R. MARUSI Lake Wales, Florida SANFORD S. ATWOOD, President DON C. FRISBEE, Chairman Emeritus Emeritus PacifiCorp WILLIAM F. MAY, Chairman and Chief Emory University Executive Officer RICHARD L. GELB, Chairman Emeritus Statue of Liberty-Ellis Island Foundation, ROBERT H. B. BALDWIN, Retired Bristol-Myers Squibb Company Inc. Chairman Morgan Stanley Group Inc. W. H. KROME GEORGE, Retired OSCAR G. MAYER, Retired Chairman Chairman Oscar Mayer & Co. GEORGE F. BENNETT, Chairman ALCOA Emeritus GEORGE C. MCGHEE, Former U.S. State Street Investment Trust WALTER B. GERKEN, Retired Chairman Ambassador and Under Secretary and Chief Executive Officer of State HAROLD H. BENNETT Pacific Life Insurance Company Salt Lake City, Utah JOHN F. MCGILLICUDDY, Retired LINCOLN GORDON, Guest Scholar Chairman and Chief Executive Officer JACK F. BENNETT, Retired Senior The Brookings Institution Chemical Banking Corporation Vice President Exxon Corporation JOHN D. GRAY, Chairman Emeritus JAMES W. MCKEE, JR., Retired Chairman Hartmarx Corporation CPC International, Inc. HOWARD W. BLAUVELT Keswick, Virginia RICHARD W. HANSELMAN, Chairman CHAMPNEY A. MCNAIR, Retired Health Net Inc. Vice Chairman MARVIN BOWER Trust Company of Georgia Delray Beach, Florida ROBERT S. HATFIELD, Retired Chairman J. W. MCSWINEY, Retired Chairman ALAN S. BOYD The Continental Group, Inc. of the Board Lady Lake, Florida The Mead Corporation ARTHUR HAUSPURG, Member, Board ANDREW F. BRIMMER, President of Trustees ROBERT E. MERCER, Retired Chairman Brimmer & Company, Inc. Consolidated Edison Company of The Goodyear Tire & Rubber Co. New York, Inc. PHILIP CALDWELL, Retired Chairman RUBEN F. METTLER, Retired Chairman Ford Motor Company PHILIP M. HAWLEY, Retired Chairman and Chief Executive Officer of the Board TRW Inc. HUGH M. CHAPMAN, Retired Chairman Carter Hawley Hale Stores, Inc. NationsBank South LEE L. MORGAN, Former Chairman ROBERT C. HOLLAND, Senior Fellow of the Board E. H. CLARK, JR., Chairman and Chief The Wharton School Caterpillar, Inc. Executive Officer University of Pennsylvania The Friendship Group ROBERT R. NATHAN, Chairman LEON C. HOLT, JR., Retired Vice Nathan Associates, Inc. A.W. CLAUSEN, Retired Chairman Chairman and Chief Executive Officer Air Products and Chemicals, Inc. J. WILSON NEWMAN, Retired Chairman BankAmerica Corporation Dun & Bradstreet Corporation SOL HURWITZ, Retired President DOUGLAS D. DANFORTH Committee for Economic Development JAMES J. O’CONNOR, Former Chairman Executive Associates and Chief Executive Officer GEORGE F. JAMES Unicom Corporation JOHN H. DANIELS, Retired Chairman Ponte Vedra Beach, Florida and Chief Executive Officer LEIF H. OLSEN, President Archer-Daniels Midland Co. DAVID KEARNS, Chairman Emeritus LHO GROUP New American Schools RALPH P. DAVIDSON NORMA PACE, President Washington, D.C. GEORGE M. KELLER, Retired Chairman Paper Analytics Associates of the Board ALFRED C. DECRANE, JR., Retired Chevron Corporation CHARLES W. PARRY, Retired Chairman Chairman and Chief Executive Officer ALCOA Texaco, Inc. FRANKLIN A. LINDSAY, Retired Chairman Itek Corporation WILLIAM R. PEARCE, Director WILLIAM M. ROTH EDGAR B. STERN, JR., Chairman American Express Mutual Funds Princeton, New Jersey of the Board Royal Street Corporation JOHN H. PERKINS, Former President WILLIAM RUDER Continental Illinois National Bank and William Ruder Incorporated ALEXANDER L. STOTT Trust Company Fairfield, Connecticut RALPH S. SAUL, Former Chairman RUDOLPH A. PETERSON, President and of the Board WAYNE E. THOMPSON, Past Chairman Chief Executive Officer Emeritus CIGNA Companies Merritt Peralta Medical Center BankAmerica Corporation GEORGE A. SCHAEFER, Retired THOMAS A. VANDERSLICE DEAN P. PHYPERS Chairman of the Board TAV Associates New Canaan, Connecticut Caterpillar, Inc. SIDNEY J. WEINBERG, JR., Senior EDMUND T. PRATT, JR., Retired ROBERT G. SCHWARTZ Director Chairman and Chief Executive Officer New York, New York The Goldman Sachs Group, Inc. Pfizer Inc. MARK SHEPHERD, JR., Retired ROBERT C. WINTERS, Chairman ROBERT M. PRICE, Former Chairman Chairman Emeritus and Chief Executive Officer Texas Instruments, Inc. Prudential Insurance Company Control Data Corporation of America ROCCO C. SICILIANO JAMES J. RENIER Beverly Hills, California RICHARD D. WOOD, Director Renier & Associates Eli Lilly and Company ELMER B. STAATS, Former Controller IAN M. ROLLAND, Former Chairman General of the United States CHARLES J. ZWICK and Chief Executive Officer Coral Gables, Florida Lincoln National Corporation FRANK STANTON, Former President CBS, Inc. AXEL G. ROSIN, Retired Chairman Book-of-the-Month Club, Inc. CED RESEARCH ADVISORY BOARD
RALPH D. CHRISTY ROBERT W. HAHN RUDOLPH G. PENNER J. Thomas Clark Professor Resident Scholar Senior Fellow Department of Agricultural, Resource, American Enterprise Institute The Urban Institute and Managerial Economics Cornell University HELEN F. LADD CECILIA E. ROUSE Professor of Public Policy Studies Professor of Economics and ALAIN C. ENTHOVEN and Economics Public Affairs Marriner S. Eccles Professor of Public and Sanford Institute of Public Policy Woodrow Wilson School Private Management Duke University Princeton University Stanford University Graduate School of Business ROBERT LITAN JOHN P. WHITE Vice President, Director of Economic Lecturer in Public Policy BENJAMIN M. FRIEDMAN Studies John F. Kennedy School of Government William Joseph Maier Professor of The Brookings Institution Harvard University Political Economy Harvard University WILLIAM D. NORDHAUS Sterling Professor of Economics Cowles Foundation Yale University
CED PROFESSIONAL AND ADMINISTRATIVE STAFF
CHARLES E.M. KOLB President
Research Communications/Government Relations Finance and Administration EVERETT M. EHRLICH MICHAEL J. PETRO LAURIE LEE Senior Vice President and Vice President and Director of Chief Financial Officer and Director of Research Business and Government Policy Vice President of Finance and and Chief of Staff Administration
JANET HANSEN MORGAN BROMAN GLORIA Y. CALHOUN Vice President and Director Director of Communications Office Manager of Education Studies CHRIS DREIBELBIS HOOJU CHOI ELLIOT SCHWARTZ Business and Government Policy Database Administrator Vice President and Director Associate of Economic Studies SHARON A. FOWKES CHRISTINE RYAN Executive Assistant to the President VAN DOORN OOMS Program Director Senior Fellow JEFFREY SKINNER ROBIN SAMERS Senior Accountant/Grants Administrator MELISSA GESELL Assistant Director of Communications Research Associate RACQUEL TUPAZ Senior Accountant/Financial Reporting DAVID KAMIN Development Research Associate AMANDA TURNER MARTHA E. HOULE Office Manager JEFF LOESEL Vice President for Development and Research Associate Secretary of the Board of Trustees PATRICE WILLIAMS Receptionist NORA LOVRIEN CAROLINA LOPEZ Research Associate Manager, Development
Advisor on International NICHOLE REMMERT Economic Policy Development Associate
ISAIAH FRANK RICHARD M. RODERO William L. Clayton Professor Director of Development of International Economics The Johns Hopkins University STATEMENTS ON NATIONAL POLICY ISSUED BY THE COMMITTEE FOR ECONOMIC DEVELOPMENT
SELECTED PUBLICATIONS:
Learning for the Future: Changing the Culture of Math and Science Education to Ensure a Competitive Workforce (2003) Exploding Deficits, Declining Growth: The Federal Budget and the Aging of America (2003) Justice for Hire: Improving Judicial Selection (2002) A Shared Future: Reducing Global Poverty (2002) A New Vision for Health Care: A Leadership Role for Business (2002) Preschool For All: Investing In a Productive and Just Society (2002) From Protest to Progress: Addressing Labor and Environmental Conditions Through Freer Trade (2001) The Digital Economy: Promoting Competition, Innovation, and Opportunity (2001) Reforming Immigration: Helping Meet America’s Need for a Skilled Workforce (2001) Measuring What Matters: Using Assessment and Accountability to Improve Student Learning (2001) Improving Global Financial Stability (2000) The Case for Permanent Normal Trade Relations with China (2000) Welfare Reform and Beyond: Making Work Work (2000) Breaking the Litigation Habit: Economic Incentives for Legal Reform (2000) New Opportunities for Older Workers (1999) Investing in the People’s Business: A Business Proposal for Campaign Finance Reform (1999) The Employer’s Role in Linking School and Work (1998) Employer Roles in Linking School and Work: Lessons from Four Urban Communities (1998) America’s Basic Research: Prosperity Through Discovery (1998) Modernizing Government Regulation: The Need For Action (1998) U.S. Economic Policy Toward The Asia-Pacific Region (1997) Connecting Inner-City Youth To The World of Work (1997) Fixing Social Security (1997) Growth With Opportunity (1997) American Workers and Economic Change (1996) Connecting Students to a Changing World: A Technology Strategy for Improving Mathematics and Science Education (1995) Cut Spending First: Tax Cuts Should Be Deferred to Ensure a Balanced Budget (1995) Rebuilding Inner-City Communities: A New Approach to the Nation’s Urban Crisis (1995) Who Will Pay For Your Retirement? The Looming Crisis (1995) Putting Learning First: Governing and Managing the Schools for High Achievement (1994) Prescription for Progress: The Uruguay Round in the New Global Economy (1994) *From Promise to Progress: Towards a New Stage in U.S.-Japan Economic Relations (1994) U.S. Trade Policy Beyond The Uruguay Round (1994) In Our Best Interest: NAFTA and the New American Economy (1993) What Price Clean Air? A Market Approach to Energy and Environmental Policy (1993) Why Child Care Matters: Preparing Young Children For A More Productive America (1993)
*Statements issued in association with CED counterpart organization in foreign countries Restoring Prosperity: Budget Choices for Economic Growth (1992) The United States in the New Global Economy: A Rallier of Nations (1992) The Economy and National Defense: Adjusting to Cutbacks in the Post-Cold War Era (1991) Politics, Tax Cuts and the Peace Dividend (1991) The Unfinished Agenda: A New Vision for Child Development and Education (1991) Foreign Investment in the United States: What Does It Signal? (1990) An America That Works: The Life-Cycle Approach to a Competitive Work Force (1990) Breaking New Ground in U.S. Trade Policy (1990) Battling America’s Budget Deficits (1989) *Strengthening U.S.-Japan Economic Relations (1989) Who Should Be Liable? A Guide to Policy for Dealing with Risk (1989) Investing in America’s Future: Challenges and Opportunities for Public Sector Economic Policies (1988) Children in Need: Investment Strategies for the Educationally Disadvantaged (1987) Finance and Third World Economic Growth (1987) Reforming Health Care: A Market Prescription (1987) Work and Change: Labor Market Adjustment Policies in a Competitive World (1987) Leadership for Dynamic State Economies (1986) Investing in Our Children: Business and the Public Schools (1985) Fighting Federal Deficits: The Time for Hard Choices (1985) Strategy for U.S. Industrial Competitiveness (1984) Productivity Policy: Key to the Nation’s Economic Future (1983) Energy Prices and Public Policy (1982) Public Private Partnership: An Opportunity for Urban Communities (1982) Reforming Retirement Policies (1981) Transnational Corporations and Developing Countries: New Policies for a Changing World Economy (1981) Stimulating Technological Progress (1980) Redefining Government’s Role in the Market System (1979) Jobs for the Hard to Employ: New Directions for a Public-Private Partnership (1978) CED COUNTERPART ORGANIZATIONS
Close relations exist between the Committee for Economic Development and independent, nonpolitical research organizations in other countries. Such counterpart groups are composed of business executives and scholars and have objectives similar to those of CED, which they pursue by similarly objective methods. CED cooperates with these organizations on research and study projects of common interest to the various countries concerned. This program has resulted in a number of joint policy statements involving such international matters as energy, assistance to developing countries, and the reduction of nontariff barriers to trade.
CE Circulo de Empresarios Madrid, Spain
CEAL Consejo Empresario de America Latina Buenos Aires, Argentina
CEDA Committee for Economic Development of Australia Sydney, Australia
CIRD China Institute for Reform and Development Hainan, People’s Republic of China
EVA Centre for Finnish Business and Policy Studies Helsinki, Finland
FAE Forum de Administradores de Empresas Lisbon, Portugal
IDEP Institut de l’Entreprise Paris, France
IW Institut der deutschen Wirtschaft Koeln Cologne, Germany
Keizai Doyukai Tokyo, Japan
SMO Stichting Maatschappij en Onderneming The Netherlands
SNS Studieförbundet Naringsliv och Samhälle Stockholm, Sweden Committee for Economic Development 2000 L Street, N.W., Suite 700 Washington, D.C. 20036 Telephone: (202) 296-5860 Fax: (202) 223-0776 261 Madison Avenue New York, New York 10016 Telephone: (212) 688-2063 Fax: (212) 758-9068 www.ced.org