>> there's still a lot more opportunity in extent in particular to generate much better measurable results than we see today. >> i just want to give another example that might help answer that as well. in this working group that we've assembled, if you look at the idea of crowd sourcing which is done and social networking and how that might be applied over to the questions within the defense industry, the example that's pointed to is the grand challenge with the pentagon is spending billions of dollars, was not able to build an autonomous robot. it put out a $2 million prize to people outside the dod, seems like a lot of money, within the dod that's the copy machine

budget. and $42 million they got hundreds of high school and university teams that competed in this program, and it was won by a team from stanford, mit, and actually the i.t. department of the insurance company from louisiana. $2 million. what's interesting, the idea of spinning out innovation, the stanford team that won, the technology is not just being used in afghanistan today by soldiers, it's also being used by google and also by the there is smartcard programs -- smart car programs. we should really get more this crowd sourcing projects that are relatively cheap. let's get another question from this site here. anyone over your? back there. >> my name is josh. my question is i guess for

anybody, a very big fan of wires the war. one of the question that seems to come up, what exactly engineers and what exactly people are interested in defense get their permit education should actually be doing? what is it, engineered to do what? a lot of friends to go outside classes and work on their ph.d's, and it's a question. so what exactly am i putting my degree towards? and related, what comes up in the book, what about the other side when we talk about so what are the values that are so motivating these things? because i imagined in either your companies that would be no question this is where we stand and this is why we do what we're doing. but in terms of the national agenda, there seems to be less of that. so i'm curious, when we talk about example -- talk about china, what is sort of the stuff we are looking for, what we should be thinking about?

the two questions are, do we need engineers to do what? and on the other side, what should we be thinking about ethically, politically, et cetera, to manage this? >> i'm a social scientist which really means i'm not a scientist. so i actually want to turn to our panelists to weigh in on that. >> two things. solving hard problems that are a national interest, right? and in the context of the aerospace defense industry, solving hard problems that protect our freedom. those are really too simple values that you can't relate to young people. you're going to solve hard problems that are of national interest. they may be of global interest.

no matter how much you pay them, a basketball player at miami is not going to find a cure for cancer. not going to happen. if you want to find a cure for cancer, you better understand science, mathematics. that is a compelling issue, even for young people. that's a hard problem. keeping our nation safe is not a trivial issue either. and so, whether it's saic, honeywell, bae systems, rockwell collins, lockheed, fundamental to what those companies do is solve hard problems of national interest, or global interest. and i think those are the

compelling, those are the compelling conversations i have with a 17 and 18 year old. we are not building a robot first. we're finding a cure for cancer. we are creating the next global infrastructure. we are going to figure out how to do the next metro better. and everybody in this room knows there's a better metro to be built, right? that's what they are doing. >> real quickly, i just think i would ask of that. the priorities that the military has today when you apply to engineering, as would particularly from the panel, connects to the broader priorities that i think we see in the economy as a nation as all, whether its demand for green energy, which the military is a prime mover in that because it's the biggest spender on energy today. i shivered for mike, the ability

to fuse together dated and make quick decisions which is something the military needs to be able to do, which a manufacturing company needs to be able to do. we have time for one last question. right here in the front. >> bill is my name. i'm involved with an effort to create some cell phone apps emerging and developing countries. but my question to the panel is, you've hinted at it a little, but knowing what you know without giving away any confidential information, are you willing to speculate on sort of the next generation of products from the government that are going to be, let's say able to be commercialized in this area? >> not me. [laughter]

>> anyone else? >> yeah, i think you'll see some sensor technology, back to what michael was saying. there is without a doubt advancements, you get them today, right, when you hit google earth, right, the nature of the century center, the overhead sensor makes that, delivers that little picture that is google earth. it was in the defense industry and it's an enabler was the sensor, right? and i think the weather a full range of the electromagnetic spectrum where defense industry excels in technology and capability, you will start to see those kind of new kind of centers pop out. now, you may not recognize it as that, but it may be the

three-dimensional view from space. that's how it commercializes itself. so i think the sensor technology will continue to be spun out as commercial applications. you see those technologies in your gps. you don't seiji, i wonder how that works. most of us don't care. but everything from the display itself, right? the up and down links to the satellite, the algorithms to correlate the various differences, different pieces that come from the satellite is all government invested technology to the defense industry that frankly will be my great to the commercial sector. i think you'll see more and more of that.

>> the quick answer i would give him that is if it is smart, we might talk about smart weapons. we heard about previous panels talking about smart grid, and i think one of the evolutions of the sensor is smart sensors. that adjective i think applies to the discussion we've been able to have today, which is then a very smart discussion and enriching discussion. and we have brookings are told to drive home on not the three ages, three eyes in terms of ideas and impact and independence. and i think there's been a really show a good anecdote against the three, please join me in applause. [applause] [inaudible conversations]

[inaudible conversations] [inaudible conversations]

>> more now from the brookings institution forum on innovation. this panel looks at ways to expand u.s. manufacturing and exports. speakers include austan goolsbee, head of the white house council of economic advisers, and the ceo of alcoa. this is a little is than an hour. >> okay, let's get started. thank you all for being here and thanks very much to the panel, which is a stellar panel. i'm martin baily, the director of e-business initiative and senior fellow have brookings. i also work part of my time with mckinsey so somewhat mckinsey's fingerprints are

all over the session. one of the things i have done both as an academic at mckinsey's look at productivity and innovation, and i think that's going to be a key point that we're going to talk about today. i the things we are done at the business initiative, just to plug that group, we looked at a lot of financial crisis and financial reform. we have a new project that we are building trying to understand how private capital, private equity, is providing the finance for productivity and innovation. well, we heard earlier today one of the things that i think is a key issue, which is that the u.s. is a very strong hub of innovation, but a lot of manufacturing is not done here in the u.s. when i was in china i listen, and basically they said u.s. is

exploiting china because an ipod is made for $300 china gets four bucks out of that. 383 action is what the estimate was of what it takes to assemble an ipod. this was in 2005. and, of course, apple gets a whole lot more than $3.83 out of iphones and the rest of it. so i can see how they feel that they're being a little exploit. but, of course, the bad news, if you don't do a lot of the other manufacturing here in u.s., so we do get a lot of the income from these innovative products. we are not creating a lot of the manufacturing jobs here. let me now turn to the panel, and the first person on the panel is dominic barton who is the managing director of mckinsey. he spent many years working in korea, became the chairman in asia. he and i had, i had the privilege of working with

dominick in korea in the mid '90s when we get a productivity study of korea your discovery based in london. i believe you're a canadian citizen, so citizen of the world. and managing director of mckinsey. the next panelist is klaus kleinfeld who's a very distinguished business leader. is now chairman and ceo of the -- of alcoa. he has held the position since 2007. he is not on the huge successes successful business or but a very thoughtful statesman and spokesman on business issues. and then third panelist is austan goolsbee. he has i think one of the best jobs in the world although i'm not sure he feels that way quite at the moment. but hopefully by the next couple of years it will look a lot better. is currently chairman of the president's council of economic advisers. austan is from the university of chicago. he was a leading economic adviser to president obama in

his campaign, and was a member of ca prior to become a chair. last known to this audience is he is also a skilled stand up comedian, a skill i'm sure -- in this troubled time. i'm not sure if he's going to practice that on us today. i will testify he can be very funny as well. okay, let me start with dominic. and i think the question for you as we talked about, but we would like you to address a little bit is about innovation. mckinsey has done a lot of work, knows a lot of companies, has worked with a lot of copies on the issue of innovation. so maybe you would give a little bit of your perspective on that issue. >> thank you, martin. what i thought it might do is talk about innovation as relate to the u.s., based on work we're

doing with clients as martin mentioned and also we talked about 25 different organizations, multinationals looking at innovations. i would say sort of the governing thought of the take away, basically that we are quite bullish about the opportunity of innovation. to be able to capture that, two things have to be done and we think they have to be done pretty urgently. want is to what we would call level the playing field. you heard a bit about that this morning, just the gaps that are there in some of the essentials we'll talk about that for innovation to work. there are no gaps we are certainly getting the flat end of the s-curve if you will, for the u.s. compared to other countries. so we have to level the playing field. and we would actually argue for a second initiative which is around a public-private cooperation. it's not having government decide which industries to go after, but i think it is much

more collaboration and focusing on some very important things for the future. and they're looking at how to set standards, how to encourage and incentivize the investment and in the innovation, and then to some extent the jobs. so i think jobs are not, we all want more jobs, but the objective function is not too great to jobs. does come afterwards. so that's sort of the thought. we look at innovation from the work we've done, and people of different theories about this, we look out five things that really drive innovation. the first is a large come and i would argue demanding, group of customers. and i think the u.s. for a very long time has to be the biggest market in the world. it still is. we should recognize that even with the growth that is going on, but there are ships that are going on. having a very large significant market. it's not for the final demand, it's the feedback you get from those consumers.

and customers. the fact that you need a talent pool, around engineers in particular, which we would also think it's important. capital. the fourth is infrastructure. i would include in this digital infrastructure, but also infrastructure such as the roads, railways and so forth. those are quite important as well. i think the fifth element, i don't have to describe it, there's a sense, a culture of magic, entrepreneurial way and something that clauss and i've worked on. russia is very interested. and importing to silicon valley to the country. many of those don't work because they can put all the other ingredients in place, but then there's is one element that is not to which is quite difficult to do with. i think we should forget that. those are the five pieces. what we would say just to rattle through where we are today is that it isn't so much about what

we have done or not done. it's what the rest of the world is doing, and again, that was mentioned a bit this morning, at the pace with which other countries are moving on innovation is in a different order of magnitude that what we're seeing being done in use today. i'm talking about, i will go through all the five element, but even about the size of the market, there will be 900 million new middle-class consumers in next 10 years in asia primarily. they are not u.s. middle-class consumers, but about 15 to 20% of the disposable income. that is a significant group in which innovative, and that's why we're seeing a lot of multinationals do work in that area because that's where the market is. we've heard about the quality of the talent pools. just another figure on here. china is graduating about 10,000 engineering ph.d's a year compared to the u.s. at about 8000 eric our rankings in u.s. in terms of, if you look at the

education scores, things like math and science, i think we rank 48 in math and science. china is number 35. singapore is number one. again, i don't think it's going to shift overnight but these are long-term trends that we better start to focus on now. aghazadeh dominant about back of the people also looking overseas to take a look at people in what small countries are doing, singapore, israel, so forth, korea, with what small resources they have, the focus of putting on that and trying to attract people to come there is very significant. then on infrastructure, this is the railways and roads and the telecommunications and so forth, i will come back at the end. it is deteriorated, and i welcome to the rankings but they're pretty poor. the american society of civil engineers has given us a deed on our infrastructure saying we

need to spend about 1.6 trillion on that side. there's various different rankings. i'm quite bullish about what can be done there, and i think jobs can be created from it but we should just recognize a. if you look a what other countries are doing, and i rattle off some of them, korea, the new president of committeemen. he put out a 60 year vision. 60 years which i thought was a bit strange to do but this is sort of a long-term and it's about green growth. and again, there's a huge effort going on to try to encourage, organization in that country but also outside to be able to drive. china we all know but i will take beijing itself, the city of beijing is putting $8 billion in r&d spending. but again, it's around clean tech and what do we do about buying fleets and so forth. russia as i mentioned trying to put silicon valley in place,

drawing on people from all over the world to try to figure out how to make that happen. the e.u. with a blue car program, trying to attract more talent, especially science. tried to get i think 20 million people over the next 20 years. i could go through it, but i would say one thing i've noticed over the last i would say three to four years is a very significant uptick in countries, and it's not the government so much doing it. it's actually a government private sector linkage of people saying we've got to do something. and it's not -- it's that we have to do something to drive it forward. there are big opportunities out here. let's figure out how we can do it, take the opportunity is there. again, i'm very bullish about what the u.s. can do because we shouldn't forget that we still are the largest market in the world, and we will, you know, for quite sometime going forward, universal leadership,

13 of the top 20 universities are here. we've got a lot of things going. the demand, the demand for education in the u.s. and canada amongst asian postgraduate, post secondary students, is roughly five to 6 million people. i'm not suggesting that we absorb five or six my people but i just think the demand is there because we do have something quite good on that front. so again, just to close, i think that a couple of areas to work on. this leveling of the playing field. we've heard about tax, trying to hammer on the tax. that's an area we need to look at. the tax rates are being dropped, and so looking at how do we stack up on that site. we action that won a higher tax rates on that site. again, what other countries have done. whether we about on that side in

particular, a lot of the multinationals that have a lot of cash on hand, about 40% of that is outside the u.s., is very difficult for them to repatriate that back with the tax situation. i'm simplifying this probably too much than what it is. but that's one issue. a secondary that i think is as if not more important on regulation, i would just give you one vignette. i've talked with a medical devices company, u.s. medical devices company. it takes them one year to be able to develop and launch a particular product. it would take them for years in the u.s. to be the very greatest resides of thing. we've got very good regulations to protect people and so forth, but there is a lot of interference on that side that we need to be looking at. another vignette, we talked about health care before and this is not something we would be able to do in the u.s. now, but there are two organizations in india that have set up call centers with doctors.

one of them has about 100 doctors at a call center. at 5000 medical workers that have basically six-month training. so these are not people that will give you open-heart surgery or anything like that, but they can do with 70% of the medical issues. they cover a market of about two and half million people. didn't have anything to start with so it's always easier to start from a cheat sheet, but you've got to look at the sort of innovation does going on. i'm not suggesting we get rid of our regulations but we should at least benchmark where that is. the other vignette i was there you go to beijing and talk to the mayor of beijing. is a chart on the wall which is the number of days it takes to start a business from the idea to opening it. it's 37 days. i never knew that. he doesn't have the u.s. or other western countries. the people he compares it to his shanghai. they have the rivalries, but also singapore which is six days. and again, i'm embarrassed is that i don't know what the

number is for the u.s. or for canada. but i think we should look at that and try and make that as easy as possible, obviously with the caveat that we're not doing anything crazy. so tax, regulation, education i think we talked a lot about that, i'm very much the believer to emphasize more on the sciences. one of the bells was talking this morning and i was thinking about this, l.a. law, i don't think we have l.a. engineer. [laughter] >> the thing we do on that. but the final point is, i think there's a lot of areas for cooperation, very deliver cooperation between the public sector and private sector. we just identified six. i think there are many more, but these are huge business opportunities for the future. i would say the whole life sciences, but on health care, this shows a dramatic opportunity that site. we talk about the i.t. enabled

and health care that we need. look at things like the road density which i think is a world-class institution bringing different bodies, this is, kimes, and business people. i think that's a very large -- there's no reason why that shouldn't be owned completely here in terms of what we can do and where we are moving. advanced infrastructure, high-speed rail, you just look at what the opportunities, the air traffic control, we could go through a lot of that site. there's a huge opportunity. by the way, when you think about the capital that's required, one group that we don't think enough about or actually the chinese. think about china investment corporation. would actually like to invest money in u.s. infrastructure. and the challenges again the regulation and fears they have and so forth. but why wouldn't also be looking outside for capital to be able to do it? that may be a naïve simplistic view but i think is capital out there that would be interested

in doing that on the infrastructure side. clean tech, we talked about that. there's a very large opportunity. clean coal, nuclear, that's a very big bucket. then forth would be, next generation water technology. water is a huge issue for office in the world to move forward. there are various countries trying to push on a. there's no reason why that can be done here. and i would say advanced materials that are there. we heard that a bit on the defense i. those are just six, i think there are many more. those are big buckets of opportunities. and again, it's not suggesting that the government has to be there, utah invest a lot of money. it may just be about setting standards are providing the regulatory timeframe for people to invest or there may be some demands that we get from it. but i think a lot could be done that would attract the business leaders and entrepreneurs and so

forth, and even capital from outside the country. >> can i just come on one point, i think it was -- the labor cost of manufacturing of a lot of the products is very small, so it is not that much of a barrier. so in a sense, it wouldn't take that much to make greater production, economically, viable in the u.s. ..

>> i think there's a lot more. i think that's again when the dialogue would occur. i think that's what we compare what we are doing here, than other countries where there's the dialogue on the side. >> now to kleinfeld, i always feel better i listen to him. he has a positive view of innovation in the u.s. i think you are going to say how to revive the american success model. >> yeah, we talked about when you face the challenging situation, where it be in your private life or business life or even with a whole nation, my experience is you better build on your strength and don't wait until you can eliminate all of your weaknesses because you might not have survived it, taking the time to build on the weaknesses. the good news here, there are a lot of strength in the united states, and a lot of the point

dominic mentioned the five fundamental forces that you need for innovation. there's the reason why there is a gazillion of people around the world that look at the u.s. and praise the u.s. for the innovation model and growth and nourishment. we'll have to talk about some of them in the end that i could see as potential drawbacks. i mean let's start with the culture. it's probably the most difficult thing if everybody would want to copy that. so many people have tried. we always talk about singapore. those of us who have worked in singapore, we know that we have far, far from the engrained open culture that we have in the u.s. i would describe it when everybody you grow up and get to know, you better roll up your

sleeves and be on your own. doesn't matter where you came from, if you are good, you better find the way on the ranks. it's a society that's easy to pen strait. -- penetrate. if you are good, you can make it. if you are good, you are going to be highly rewarded. there's billions of examples. look at mark zuckerberg zuckerbe world and look at the reports. another big part is failure is not seen as deadly. that's a big, big difference to almost all cultures around the world. most cultures around the world if you start the business and stay in the business people would put print on your forehead. if you go around and talk to the venture capitalist, the general understanding when we look and put teams together, we put a lot of money behind them, we them to have some failures.

they learn best from failures, and they will never remeet them; right? those are things that are going big time for the u.s. the other thing that's going big time for the u.s., that's impossible, almost impossible to copy, and very, very hard to copy some clusters. we have the gigantic cluster called silicon valley and all of the elements and even more that dominates the industries that's encapsulated in a physical space and have unbelievable vitality. that i think is the reason, i wasn't here listening to the first panel. i was still digging myself out of the snow over in new york. so there's the reason why the first panel sat in the media industries. we have the ones. we are dominated. the reason for that, we have the gigantic clusters, we invest businesses every day. there are thousands of startups. that's one the examples.

you look at some of the technologies sites and some of those were mentioned before we have a similar cluster around boston in the medical space. which i think we are only passionately aware of. the question is are we talking about that enough; right? then we have a cluster in new york, where we used to be the leader. until we screwed it up; right? frankly the good news is people forget and forget usually goes pretty fast. the cluster is still there. i'm pretty optimistic about that coming back. right. [laughter] >> on one hand, i think we have a lot of great things. i could talk about the bad schools. but frankly, 20 of the best universities around the world, 13 of those are in the united states. if you look at the most

indicator for attractiveness for country and nation, you have no other country where more people on knocking on the door, wanting to become a citizen in the u.s. that's the case. yes, there's competition coming on. let's not ignore those facts. if we don't screw that up, and if we don't continue to emphasize the points, we can really screw it up big. i mean on some of those elements because we have been for the last year, because we went through the tremendous crisis, we have been emphasizing the negative. because it's stuck in our fate. so vital. lots of stuff going on there. let's emphasize the parts because we need this to create a better future. now let me focus on those elements where i think we probably need a little bit of reinventing. and this model, which i just described, works very, very well for some industries, and it

doesn't work so well for ores. the others typically have one indicator, one other element in it, and that is kind of government in -- i wouldn't call it regulation, but framing. i would call it a framing process. i give you an example. i mean i was born in the north of germany, and i used to go particularly all the change of the year up to the very north of denmark when i was just finished school and was visiting the university. and that was the early '80s; right? the early '80ed. -- '80s. we rented a farm. one day my friend said klaus, i will build a wind mill. i said that's a great idea. i said how? he said no idea, i'm going to do a little thinking. internet wasn't around at that time.

i saw the western movies and farms, they had the wind mills to get the water up. that's good, do you want to get the water up? we have running water on the farm. he says, no, no, the government has done something. they are talking about it. they think if you have a wind mill, and you produce more electricity than you consume, you will get paid by the utilities. they are considering putting that into law. i said, that's a good idea. next year i come back, he has a bloody wind mill. i said what has happened? one single piece of legislation has been put in there. that single piece super simple was if you have a wind mill and denmark, and you produce more energy than you consume, the utility will pay you for every kilowatt that you put into the network, the price that they charge to the end consumer.

so there's gazillions of farmers. they had a lot of goat building business. winter time, you don't know what to do. boat building is a manual process. you have a workshop. that's why the wind mills look the way they do. a lot of carbon fiber and basil woods. that's a process that stems from boat building. now coming to that, a little nation like denmark can dominate in the wind mill business; right? and not because the consumers have been so much in the demand. i mean it's because there was a little bit of a frame, smart frame, one single piece. one single piece can make a big difference; right? and that's the smallfully; right? now when you think about, for instance, a bigger issue like co2, code-fired power plants. many would say that's

impossible. yeah, well, we said flying is impossible. thanks to aluminum, we all fly welted. -- fly well today. [laughter] >> so i think you get what i'm saying. all right. i think if we were to say, let's have a program put together, some bright, intelligence scientist, and figure out a way how we can build a co2 free coal power power -- coal fire power plant, china would be -- it's hot in demand. it's very difficult for one company to do that. much of it uses brain power. because it really, really requires not flight to the moon project, but something half of the magnitude of this.

there are the type of large scale innovation where there's a huge demand on the planet, and where probably the u.s. could be dominating the world. you know? but where we have got the mechanics of what dominic, you describe, when a leader comes in, put the 60-year perspective on it. the co2 free fire plant, everybody knows it probably will require 20 years. if you want to have those type of big ideas, you need a long time frame. we have kind of deprived ourself of that conversation; right? i think we have to bring that conversation back. without this kind of after taste of oh my god, we're talking about industrial policy. right. because that has -- i learned the hard way, it has a very negative connotation in the u.s. that's not what i'm talking about. i'm talking about we want to participate in the future. and as we have always done. we invented here the airplane.

we invented the automotive. come on, give me a break. what's the next big thing? we always thought big. we flew to the moon. we can do it. all of the positive things that i said in the beginning, let's bring that back; right? okay. another thing, i think that's a strong point, dominic, you made a strong point. i believe it's a strong point. you said "l.a. law," it's one the better shows. i say intellectually better, at least it has substance, you know? >> really? >> when i look my older daughter to go on a college tour and we went to m.i.t., and looked at m.i.t., i was in the room. it was a room like this filled. i was probably the only western in that room. and it was filled with indian and chinese. i love that. i love that because it shows

that this place is gigantically attractive. but why do the kids, when you talk to the kids, i asked why did you come here? you see in their eyes, they inspire to come to m.i.t., m.i.t. is for them. if you can make it into m.i.t., you are there. that is their role model. why has a role model in their 13-year-old, 15-year-old been carved like that in india and carved differently here? i mean i don't think -- i don't believe that we cannot influence the kids in the positive way. they want to do something good. just think of where we were. we have to provide them some ideas on how the future can be. they love mark zuckerberg; right? they love steven jobs; right?

they love to look at a guy like bill gates. they even love to look at donald trump. it worked. it worked. suddenly, i think it's a great show. actually, i think it's a great show. but -- but -- because it emphasized -- because it emphasized some of the things that we need to emphasize to get the young society up to where we want it to be; right? but if we allow the snookis of this world, right, to dominate our societal discussion for the; young; right? i believe if we allow the infiltration of drugs in high school and colleges, we have to address it. it's looming from all of the teams. because we are all equally

concerned. i think that's another aspect where we have to talk about more about those that have been success and has tv shows on there. talk about those. those are great people and they are great role models. all right. let me close with that. >> thank you. [applause] >> very wise words. taste in tv, not so much. >> i like "the dating show" too. [laughter] >> let me follow up quickly. at least part of your message was we need this sort of smart regulation. we don't want regulation that's going to hold back entrepreneurship. at the same time, we do have a role for government in these major technology projects. >> i would say it further. i would say that you need a societal dialogue. it's not just the rule for government because you also need to capture the angst that is in the working people in america.

you know, you need dialogue that happens in the open; right? we have to go away from the point in manufacturing in the u.s. is not possible. i think what they said this morning is not correct. in our industry, manufacturing cost, labor cost, irrelevant. >> thank you. i'm going to turn to austen. there's a administration manufacturing policy, i think you've also put out stuff on innovation. but let me ask you to sort of respond to these comments and talk a little bit about do you think those policies are working, will work? and what do you see going forward? >> well, yes, they will work. and they are working. >> what policies were they? >> there is innovation. [laughter] >> you talk about currencies. i assure you they are working.

where i was going to start, i mean it's funny that we moved more and more into the cultural kind of explanations, about as far from where economist are, you know, as could be because we don't deal with humans. you know, we have economists. but i think there's an overwhelming bias in almost everybody, among economist, among your mom, among everybody. when i was in chicago, i used to drive the carpool of a bunch of kids down to school. one of them gotten this game "guitar hero," and they were passing the manual around. our daughter was in there. they had "guitar hero: '80s" edition. i said let me see that. yeah, i remember all of these songs. the kids said mr. goolsbee, you were alive in the 1980s?

did i know babe ruth personally or this kind of thing? we laugh of them for being 5 years old. we have the same mentality. you will remember we've gone through the last 25 years, two periods where the business cycle was ended, and there weren't going to be recessions anymore, and two periods where we had jobless recovery, and there would never be jobs. now we go into worse recession since the depression. the argument is we're toast, we're done, we can never come back. okay. now the data is coming in. people are looking fairly optimistic. there's a significant amount of money. corporate profits are setting records. it's true we have experienced a very traumatic event. but phrase one of government policy and economy feels to me like we've come to the end of

phrase one. everybody is afraid we're in free fall and there might not be an economy. the policy response was how do we stop a free fall? look, you can be on whatever side that you want. we can argue about each individual component of what the fed did, what the administration did, whatever. we aren't anywhere like

>> two, we've just gone through a boom that was fueled predominantly by excess consumption growth, faster than income growth, literally bringing the u.s. savings rate to zero and below. if you added up all of the personal savings of the united states, in ultimate quarters in the 2000s, it was less than nothing. so that was an artificial frothiness to growth. and the second was residential construction. fueled by housing bubble which was also not sustainable. we have to shift back to a more kind of additional business cycle, through business investment, education, innovation, and through exports. we want to increase exports from the u.s. one major component of which is stuff that we sell people in foreign countries here. we sell it here in the united

states. including education. if a foreign student comes to the united states of chicago to get an education, that counts as an export for the u.s. last year we exports nor -- more educations than computers and aluminum, and a whole lot of things. [laughter] >> in some ways, you can say that on both sides. the rest of the rec world recognized they have a good thing going. it's not that we've gotten dumber. it's that everybody else realized what they are doing is working. we led the world in a share of 25-year-old with a college degree. our rate has not gone done. it's just a lot of other countries said that's a good combination. if you have a lot of college

graduates trying to up their shares. in some statistic that we looked at, we were number 17. we were just below bulgaria, and just above puerto rico. look i'm not saying anything if you are saying if your educational level is between bulgaria and kosta cao is that k coo. you are income level will be close to that. that's not our thing.

as the fire starts heating up, people are going to feel a lot better. we were alive in the '80s. we weren't in the dumps like everybody said. we're a lot better off. remember, china is growing fast. we're 12 times richer than china. they could double their incomes. a lot of growth rate in developing countries comes from having a low base. there are a lot of strengths. i think in the language, it's kh and a. it's expanding the capital stock and encouraging investments where this is funding ready to come in. they didn't pay it out in dividends, they didn't say there are no investment opportunities in the u.s. business is set on the money, and they are now, i think, starting to use that money and trying to use tax policy and

others to encourage them to invest here at home. age is human capital, and investing in our own people, that includes innovation, r&d, as well as k-12 education and higher education. we know we have to do that to be competitive in the long run. and we should. a is technological advancement which the u.s. has been a historic leader, it has also had a major component coming from the government that government laboratories, the nih, a variety of researchers funded through the national science foundation, through arpa, and the energy department have always been basic building blocks that can be commercialized and turned into massive commercial success for u.s. companies. many of those benefits have saved our lives. they've lit our houses, done a bunch of wonderful things for our standard of living as well

as employed our people. we shouldn't forget that. the first thing to me, it feels like it's cut in a crisis are investment. because we have a bias to the president. we have no money. we can't afford that. let's deal with ten years from now when it comes. right now we have to consolidate. that's an impulse that we have to push back. we have to be about a growth strategy. if we are growing, there's virtually nothing we can't do. whether it's fiscal consolidation, whether it's innovation, whether it's making the investments that we need, motivating them to get higher education and engineering. if we are growing, people are loving it. if you are in the 1990s, and millions of jobs and people are getting rich in silicon valley, every kid wants to go to silicon valley. that's for me.

i want to live that lifestyle. if you are in the dumps, people are going to find something else to do. we're going to watch the super bowl. well, i guess i'll fall back on my second option. being a super bowl quarterback. put the focus in a different place. so i think kh and a are where we got to fundamentally be about that. and that's not just for a thin crust of people who have a phd in engineering. if you start looking at broad sectors of the american economy, retail, services, manufacturing, and different overs, improving productivity and innovation has delivered very high standards of living for average americans over time. the last five to ten years we've broken the change. the growth rate of the country is tied to the growth rate of the middle class. i'm sorry to go on longer.

that's my view. >> thank you opinion this is the second panel to take a swipe at sports. i want to acknowledge it's possible to be a sports fan and interested in technology. glen is an obvious example, i would put myself in that category. we have time for two quick questions. we've sort of run through time. can we get a couple of quick questions? yes, one here. can you make sure it's a short question? >> first and foremost, thank you to brookings for organizing this event. a lot of people came and spoke, i think was panel of the one of the best and most inspiring. everything that you described about being innovative and bringing in smart people, i think that me and a lot of people like me actually embodies that. even the panel, of the four people, one is from canada, and other from germany. one the most attractive things about the country, it attracts

smart people. same thing for m.i.t., i can voyage for that. >> i like what you say. but you got to keep it short. can you get to the question? >> yes, so one the things i try seeing very innovative people. as countries, you see your business a global business. why do you want to just focus on one country? because you are a global company. invest of just focusing in one market to see jobs in one place and see the whole world as your platform to grow up on. >> let's take the second question, then we'll get the response. >> thank you. my name is eddy. i'm part of the union movement. i've heard consistently that

labor costs are relevant. i've seen much more pain than in 2008. they have talked about how innovation can take place without labor. i'm asking the question as to when are we going to deal with the lower middle classes? :

>> clear on getting our immigration policy back in shape. and i think it has gone into the wrong direction after, after september 11, and we have to bring it back in shape. i mean, to get people educated here, attract hem here and -- them here and then send them back or force them to go back? not sending, we force them to go back because they would love to stay here. not a smart strategy and not a very good value creator. on this other one, i mean, my take on that, i said this at the end, i think we need a broad dialogue, and i think there's plenty of jobs, also, for people that are not so well skilled. and i've seen that, but you have to change the model on how you deal with unemployment. and you have to put more options around reeducation. i think you have to put more options around, also -- and it

can be done with the unions, in cooperation with the unions. the big question is what's the future role of the union. i believe one of that is to provide better guidance for how do you skill yourself? because companies, as much as they are socially responsible, cannot guarantee lifelong employment. that would be unrealistic to say that, all right? but what we can do is we can provide skills, all right this and i think to -- all right? and i think to help people navigate better through the jungle of what skills will be valuable in the future here, i think it's a great, great asset. and i've seen, i've seen, i mean, we currently have a situation where in the u.s. we have too few welders, you know? now, welding is not that difficult to learn, right? so i don't understand why that could happen, you know? we're seeing that the population is aging, you know? just try to find somebody who qualified to take care of your

mother or father when they are old, right? very, very difficult. the job to do that, actually, needs a human. it cannot be automated and, in fact, the elderly person cannot be moved. so it will not find the way of the outsource to india, but what we to need is we need qualified people that want to do that, right? and i have millions of examples of that. but i don't -- >> do you want to say a couple wordsesome. >> maybe two seconds. i think on the talent side, we clearly want to go where we can find the best talent in the world. we've got 13 of the top 20 universities being here. when we're hiring for our german office, nigeria office, we find a lot of people here, so i think it's part and parcel of the strength here. and i think good point on the proletariat side dealing with the lower-skilled workers. i think one area we don't talk enough about are actually polytech thicks. we focus -- polytechnics.

the welders, the radiologists, very important. i think this goes with the immigration, the service industry plays a very important role, i think, in this country in developing and training workers and the group through it. so i think polytechnics is an area where we can help build some skills quickly. >> and actually learn from other countries. >> right, right. absolutely. austan, do you want to have the last word? >> well, i'll just say to that 2000 was the first boom in u.s. history that we have data on where the median family's income pell by $2,000 -- fell by $2,000. a whole lot of bad things happen when the middle class is not tied to overall economic growth. if that is not broad-based, it's, in my opinion, facilitates asset bubbles, tends to be high concentration of investment driven in small sectors and

difficult to sustain. so i think we've got to embrace that broad-based mantra. and i think when the economy is coming back now, you are likely to see movement in the direction that people are going to be feeling a lot better about. we've gone through a period that appeared to pit the interests of businesses against the workers where they say, look, we've got to find ways to save money, and the best way for us to do that is get rid of all of our employees. and it appeared to pit productivity against labor. obviously, over the long cycle of u.s. history productivity growth has gone into wages. and i think we've got to get back to an environment where if business is growing, the workers are also benefiting, the middle

class is benefiting, and i feel like we are about to -- we saw that in the '90s, and it feels like we could be on the cusp of a beginning like that now too. >> thank you very much. well, we've run out of time. more than run out of time. i would like to thank our panelists who i think were absolutely terrific. [applause] >> former or british prime minister tony blair has been called back to testify again before the british inquiry commission looking into the iraq war which is examining british involvement in the war and what led to the 2003 invasion. mr. blair, who was prime minister from 1997 to 2007,

testified for the first time about a year ago. live coverage is here on c-span2 at 4:30 a.m. eastern. >> as the house debates repealing the new health care law, the national center for policy analysis is recommending nearly a dozen changes to the law. the center is hosting a briefing today that'll include health policy analysts from the heritage foundation, the american enterprise institute, cato institute and the american action forum. that's at noon eastern on c-span. and here on c-span2 at 1 p.m. eastern, the house democratic

steering and policy committee will look at the future of the health care law and gop efforts to repeal it. members have invited patients to talk about how the law has affected them. >> on television, on radio and online, c-span. bringing public affairs to you. created by cable, it's washington your way. >> the special inspector general in charge of overseeing spending for afghanistan reconstruction resigned last week. members of congress had urged president obama to dismiss arnold field z saying he had not aggressively looked into billions in spending. in a few moments, we're going to show you an hour of mr. fields' testimony from november. before that, some background from a reporter covering the story. >> john bennett, defense reporter of the hill newspaper. did general fields resign

voluntarily, or was he fired? >> by all indications it certainly looks like he was fired or an old washington parlor game, he was asked to resign. there was a lot of pressure from the senate especially, pressure from the other side of capitol hill as well. but a group of senators had really pushed hard last year, and the pressure got more intense as the year went on, it got more intense as more audits were done of the audits, more reviews of what general fields' organization was or was not doing and other, could government groups in washington also join the push for him to resign and the administration, it looks like, has given in here. >> senator mccaskill told mr. fields in november, quote, i don't think you're the right person for this job. what were the major criticisms of mr. fields? >> well, one of the things that

seems to be at play here is him coming from a military culture that is salute and get the job done, not rock the boat. and if you think about it as senator mccaskill has pointed out, that's not what you need a special inspector general of anything to do and certainly not someone who's leading an effort like studying afghan reconstruction dollars. you need someone who's going to question authority, you need somebody who's going to pull back the curtain and look at everything. that's not always the military's >> he had just fired two of his top deputies. why? >> to me, that looked like he was trying to kind of head this off at the pass, and it just wasn't enough. the are was too much. the pressure was too much, the political pressure. >> president obama had been under a lot of pressure to fire mr. fields since last summer, so why now?

>> well, i think this was just a matter of timing. i think now is a good time to do it. sometimes in washington we will see this, this situation crop up where there's a lot of public pressure, a lot of headlines, and the administration will, will back their guy. administrations of all stripes will back their guy and then when the dust settles, things quiet down, everyone is paying attention to other things, then they ask the individual ore sign, and -- to resign, and that's exactly what this looks like. >> any idea of who might replace him? >> we don't have a clear list oif candidates -- of candidates yet, but i think it's a fair bet to assume that we won't have another retired general or someone with a military background. i think we may see someone with a stronger auditing background. but a list of candidates is just

not clear at this point. >> john bennett, defense reporter for the hill newspaper. you can see his articles online at thehill.com. john, thanks very much. >> general fields, welcome. thank you for your attendance today. let me introduce you to the hearing. you have, general fields has served as special inspector general for afghanistan reconstruction since july of 2008. general fields previously served as deputy directer of the africa center for strategic studies at the department of defense and is a member of the u.s. department of state assigned to the u.s. embassy in iraq where he performed duties as the chief of staff of iraq reconstruction and management office. he retired as a major general from the united states marine corps in january of 2004 after 34 years of active military service. let me state for the record how

much your record speaks of you as an american, as a patriot and how much our country owes you a debt of gratitude for your many years of service. on behalf of the united states of america. it is the custom of this subcommittee to swear in all witnesses that appear before us, so if you don't mind, i would like you to stand. do you swear that the testimony that you will give before the subcommittee will be the truth, the whole truth and nothing but the truth so help you god? >> i do. >> we well -- welcome your testimony, general fields. you may begin. >> thank you, chairman. mccaskill and ranking member, senator brown. i appreciate this opportunity to be here today. i would say that it's a pleasure, but i would be telling

a lie if i were to say so. but it is a privilege as well as as an opportunity, and i wish to take full advantage of that opportunity. i have worked in support of sigar for the past, basically, year and a half. funding we received in june of 2009 full hi funded this organization. fully funded this organization. i have built sigar from nothing but legislation to 123 very well-informed and talented staff. of which 32 today are on full assignment for 13 months to a very dangerous place known as afghanistan. this work is challenging. i have to find people who are willing to put their lives in

harm's way in afghanistan conducting this work in the midst of a very competitive market of investigators and auditors. i'm proud of the staff that we have. we have conducted work in 22 of 34 provinces in afghanistan and 48 separate locations. we have produced 34 audits. over 100 recommendations. 90% of which have been accepted by the institutions of this federal government that we have scrutinized. they are using our work. i could cite many cases, but i will not at this point. but our work is, in fact, making a difference. i did, and i appreciate that the chairwoman, chairman acknowledged that i requested the siggy assessment.

we would not normally have undergone such a thing as -- the earliest would have been 2012. i wanted to make this organization what senator mccaskill would wish that it be, and that assessment for which i individually and unilaterally made request was intended to do just that. my leadership has been referred to as inept. that's the first time, senator, that in all my life a man of 64 years of age who has supported this federal government for 41 straight years of which 34 have been as a military officer. i don't even allow i -- my own auditors to refer to the people in afghanistan as inept because it's too general a statement. for any human being. i have met with many people in

afghanistan from the president of afghanistan to the little children in the province of goa and when i ask those little children what is it that this reconstruction effort that the united states has placed in afghanistan, and i want you to know that those children who were no higher than my knees said the a same thing that president karzai said as well as his ministers. they want energy or electricity or light. they want agriculture. they want education. and what really broke my heart is when those little children told me that what we really want is a floor in our school. that is what we are up against this afghanistan. we have created by way of this $56 billion an opportunity for the children in afghanistan who i feel represent the future of

afghanistan as well as the rest of the people. and i would be the last, senator mccaskill and senator brown, to condone in any form or fashion any activity that leads to the less than the full measure of that 56 billion being used for the purposes which made available. i want this subcommittee to, also, know that i take this work very seriously. why? because i raided up in south carolina -- raised up in south carolina in a family not unlike that in afghanistan where the level of education from both my mother and father was less than fifth grade. but nonetheless, the best training that i received in my life came from my mother who had less than a fifth grade education. i wish that someone had brought $56 billion to bear upon my

life. but here i am in a very important position and trying to influence what's going on in afghanistan to the best of my ability, using a very knowledgeable and competent staff by which to do so. i raised up hard, ladies and gentlemen, and poverty myself. i worked for less than $1.50 a day, about what the average afghan makes today in year 2010. on the day president kennedy was buried which was a no-school day for me, my brother and i shoveled stuff out of a local farmer's septic tank with a shovel for 75 cents per hour for the two of us. i know what it is to live in poverty. and i know what it is to have an opportunity, and be my country has given me that. and by which i'm pleased and very grateful. i will do my best, senator

mccaskill and senator brown, to measure up to your full expectations. i appreciate the emphasis that you've placed on contracting in afghanistan, but i want, also, to say that the legislation that i'm carrying out has three dimensions. contracts is not the exclusive one, but i will agree with you that is where the money is, and we should focus more on that. but i'm also tasked to look at the programs as well as the operations that support this tremendous reconstruction effort. and i promise you, senators, that i will do so. thank you. >> thank you, general fields. general fields, i certainly respect your life story and what you have accomplished, and no one -- i can speak, i think, confidently for senator brown and every other united states senator -- no one questions your commitment to the united states of america. that is not the question here.

the question here is whether or not the important work of the inspector general in afghanistan has been fulfilled and completed especially within the time frames that we are working with because of the contingency operation. you submitted 12 pages of written testimony for this hearing. less than one page of those 12 addressed the serious deficiencies found in your peer review i by other inspector generals trying to measure the work of your audit agency against the standards that are required in the federal government. you did say in your testimony that the findings have helped you strengthen your organization and that you have now made changes. let me talk about the law that you are operating under. the law that you are operating under, i'm sure you're aware,

requires a comprehensive audit plan. are you aware of that, general fields, that the law requires a comprehensive of audit plan? >> yes, i am. >> and when did you begin work on a comprehensive audit land? plan? >> we began work on a comprehensive audit plan, senator, when i published the very first report in which it contained our work in advance thereof of how we planned to proceed with this very new organization and be oversight entity. in that report delivered to this congress on the -- i'm sorry, in that report delivered to this congress at the end of october of 2008, i laid out exactly in general what we would pursue, and i'm pleased to say that at the top of that list is, in fact, contracting. that was followed up with the

hiring of mr. john brummet as my principle auditor -- >> and when did that hiring occursome. >> that hiring actually occurred the first week of january of 2009. that is when mr. brummet actually reported aboard. but we commenced the process of bringing him aboard, of course, much earlier than that. >> and you had been at the agency how long when he actually joined the agency? >> i had been at the agency -- >> since july of 2008, correct? >> that is when i was sworn in, yes, ma'am. >> okay. now, in the audit plan that the law requires, i'm sure that -- i hope the first thing that you did was to look at public law 110.181 and look at the statutory requirements of your job. that plan that was required lays out that it must be consistent with the requirements of subsection h. which are the audit requirements

that the congress placed on sigar. are you familiar with the audit requirements in subsection h, general? >> in general, yes, i am. >> could you, could you tell us what those requirements are? >> that we would conduct thorough audits of the spending associated with our contribution to reconstruction in afghanistan. >> i'm not trying to play gotcha here, general. but there are seven requirements in section h, and i'm going to lay them out for the record, and after i do each one, i would like you to tell me if that has been completed and, if so, when. >> yes, ma'am. >> the first one is -- these are the things, at a minimum, you're required to examine as special inspector general. the first one is the manner in this which contract requirements were developed and contracts or

task and deliver orders were awarded. has that been done by sigar? have you examined contract requirements in afghanistan and contracts are task and delivery orders how they were awarded, has your agency done that at this date? >> we have conducted several contract audits. each of those audits has addressed matters associated with how contracts came about. >> how many contract audits have you completed? >> we have completed about four contract audits. >> and how long -- you've done four contract audits, but isn't it true that all of those have occurred, essentially, in the last 12 months? >> that is correct. >> number two, the manner in which the federal agency exercised control over the performance of contractors. have you done that audit work?

>> we have examined in each of our audits the extent to which controls have been in place to forward against waste, fraud and abuse of the american taxpayer's dollar. in so doing, yes, ma'am, we have looked at those matters as they relate to contracts specifically in those areas in which we have conducted focus contract audits of specific initiatives for which funding is being available. >> all right. so the first requirement dealt with contract requirements and task and delivery orders, the second requirement, the matter of control over contractors of the federal government. number three, the extent to which operational field commanders were able to coordinate or direct the performance of contractors in the area of combat operations. has that, has that work been done? >> senator, the very first audit that we conducted was an audit

being -- a contract being supervised by the group responsible for the oversight of training and equipping the afghanistan security forces. that contract is worth $404 million to the american taxpayer. >> and how many audits have you done that address the oversight of contractors by field commanders? >> 40%, senator, of our audits have either been direct audit of focused contract audits or contract-relate audits. >> i thought you said you'd done four audits on contracts. >> can i said four audits because i was referencing four focused contract audits which were of multimillion dollar infrastructure initiatives, specifically associated with the standup of the afghanistan

security forces. but i will also say that we have looked at contracts from this -- not so much focused contract in that it did not necessarily address a specific infrastructure initiative, but those audits addressed contracts in general that relate to the standup of the afghanistan security forces and other might betives in the afghanistan. -- initiatives in afghanistan. >> number four, the degree to which contractor employees were properly screened, selected, trained and equipped for the functions to be performed. is there a report you could point me to where i could get reassurance that we're doing adequate selection, training, equipping and screening of personnel in afghanistan? >> senator, the very first audit, once again, that we published, the $404 million contract, we found in that audit that, first, the supervision of that particular contract was

inadequate whereby the actual entity, the expert in contract was living in maryland and not physically located on a permanent basis in afghanistan. >> how, how many contracts are operational in afghanistan right now? >> i don't know, senator. >> can you give me a ballpark? >> i know that there are, based on our most recent audit, between 2007 and 2009 of all contracts for which we could find information at that point in time 6,900 contracts among which i'm confident are a number of the type that you just mentioned. >> okay. so i've asked several questions, and each one you referred to the same audit of one contract. so of the 6,000 -- what did you say the number was? >> 6,903, senator. >> so we have almost 7,000

operational contracts, and there have been four audits completed of those contracts? >> the 6,900 is a roll-up of contracts in general regarding afghanistan between the years 2007 and 2009. how many of those might be defined as operational contracts, i don't know. >> but you don't have any reason to believe that's gone down, do you? >> no, ma'am, i do not. >> in fact, it's probably gone up. >> absolutely. >> absolutely. all right. the next one, the nature and extent of any incidents of of misconduct or unlawful activity by contractor employees. how many audits have you done that would reassure the american people that you have, in fact, looked for, found or are confident there is no unlawful activity by contractor employees? >> senator, i would say that in each of the 34 audits that we have conducted that those matters have been of concern. but each of those 34 auditses

may not necessarily have been directly related to a contract. >> how many findings have you issued dealing with misconduct or unlawful activity by contractor employees? how many findings in these audits? >> i don't think that we have identified misconduct per se. we have of identified issues that we have given to our investigators for further follow up. and i can specifically -- >> i'm sorry. excuse me. >> well, i'm sorry, senator. >> that's okay, go ahead. >> i can specifically tell you of a specific audit that we've conducted which started out as a general audit of the kabul power plant, an item worth $300 million to the american taxpayer, and during the course of that audit we found anomalies that we felt were investigatory

in nature. so we tailored and shortened the scope of our audit, and the rest of those matters were turned over to our investigators, and they are still being pursued. >> the remaining two with requirements in terms of audits that must be performed, the nature and extent of any activity by contractor employees that was inconsistent with the objections of operational field commanders and, finally, number seven, the extent to which any incidents of misconduct or unlawful activity were reported, documented, investigated and prosecuted. to what extent have you been able to produce a report as to how much unlawful activity has actually been investigated and prosecuted? >> i don't have an answer for that question at this time. but i will assure the senator that as we conduct our audit work and as we conduct our investigations work, all of those matters are, in fact,

taken into consideration. >> thank you, general. senator brown? >> thank you, madam chair. general, thank you once again. i mirror general -- general mccaskill. [laughter] senator mccaskill's kind words about your service. as someone who's still serving, i greatly appreciate that service, and i noted in your testimony you had great concern for the afghan children and the needs of the people of afghanistan, and i understand that. i also have, however, great concern about our soldiers and the men and women that are fighting and, also, the taxpayers who are providing that $56 billion. it doesn't grow on trees. and that being said, i know you've been in the position since july of of '08, and the last panel that you heard noted serious or deficiencies.

what major course directions are you currently taking to rectify these serious deficiencies? >> [inaudible] that was the month during which i was privileged to be sworn into this position. but funding for sigar did not really come until much later. that is why i pointed out that we did not get and receive full funding for this organization until june of 2009. but -- >> so noted, and that's a good point. thank you. >> thank you, senator. but in reference to course corrections, one of the reasons i asked for the siggy to come in early, about two years in advance of the the time it normally would have as we anticipated, was to help me set the course correctly for this organization.

and i am using the results of both the audit, the investigations and the so-called capstone review of sigar to help chart the course. so i have put in place as of the 30th of september of this year the recommendations and suggestions made by the review team. >> and how have you done that? what specifically as to the biggest thing where i think senator mccaskill and i are concerned about which is the money. i know you've done some good reports and investigations on other things that you've commented on which is policy issues relating to the, the ability for the afghan people to, you know, live and grow. but in terms of the things that many taxpayers right now are concerned about is the dollars. they're growing weary. they want to know where their money's going.

what actions based on the recommendations do you have in place? >> be thank you, senator. i am a taxpayer as well, so i have as much interest, if not more in my particular case as the individual american taxpayer. we are doing a better job of risk assessment. we found that to be a weakness to which earlier attention in a much more pointed way should have been turned. so we are improving the means by which we determine where it is that we should focus our effort. >> and where is that, where is that leading you now? >> well, it's leading us to a greater focus on contracts because that is, in fact, where the money is. but as the initial questioning by madam chairman, we have to also address the front end of this reconstruction effort. to what extent are the policies

being put in place by those who are implementing this $56 billion. >> no, and i understand that, and i respect that approach, but right now now that you've kind of been put on notice by everybody, hey, we understand the policies and all that stuff, but what specifically are you doing now based on the recommendations that you've been given, what are you specifically doing so i can tell the people back home this massachusetts and all of our viewers -- i don't know how many there are, but always viewers we have -- where are you focusing? give me some specific examples so i can advocate and say, hey, he's kind of learning, you know, he's learning and growing. he's taking his spot. he's gotten the funding after a year of being sworn in, he's now been given an independent, requested audit. so give me some specific examples as to what -- i don't want to beat a dead horse here, but i need to know where exactly are you focusing? are you focusing, for example, on how the taliban is allegedly

getting money from us taxpayers? are you focusing on that? are you focusing on the bribes and payoffs? are you focusing on the fact that the afghan army is not after the six-plus billion we've spent, it's still not up and running? where are you focusing exactly? >> sir, we are focusing on several broad areas, but at the top of that list happens to be contracting. >> i know, what specifically in contracting? what area are you doing? are you looking at bridges, roads? what are you doing specifically? i know contracting is so big. we heard, we have 7,000 contracts or more. >> yes, sir. >> have you actually initiated some investigations already? >> sir, we have 89 informations ongoing -- investigations ongoing as we speak. >> and where are they being focused? >> they're focused on fraud and theft. >> and based on that, what types of things are you investigating?

what examples could you give to me and the american taxpayers of what your initial, you're seeing? what made you go to that particular area versus another area? >> because that's where we feel that the vulnerability is for the american taxpayer's dollar. >> based on what, some tipoff? some prior types of contracts? i mean, why did you specifically want to go for that area? >> based on all of the above, sir. >> okay. can you share your thoughts about how we can strategically deal with this very complex challenge in that you, in your testimony you stated your concern about the role and cost of private security contractors specifically as it relates to fueling, corruption and financing insurgents or strengthening criminal networks. what tangible actions are required to try to defer this corruption? what do you think, what can you

tell me about thatsome. >> sir, i believe that the fight against corruption must take place on several levels and dimensions, the first of which we need to give consideration to what it is that we're doing in support of the reconstruction effort in the government of afghanistan. we, we are conducting a reconstruction effort in three broad areas; security, governance and development. and each of those, we feel, needs to be addressed. we are devoting and have devoted $29 billion to security in afghanistan itself, the standup of the afghanistan security forces, the police and the army. we have devoted $16 billion to governance and development. and therein lies the vulnerability of the american taxpayer's dollar. so we are pursuing audits and investigationsing --

investigations that will help mitigate the potential for the american taxpayer dollar to be wasted, frauded or abused. >> i note you're getting $46 million to complete your mission. that's a lot of money, and i noted here on the chart that senator coburn referenced you've, basically, identified many terms of fraud, waste and abuse about $8 million. so 46 you've been given, $8 million in the time frame, can you, can you tell me and us why there hasn't been more of a kind of a collection on that fraud, waste and abuse up to this point? >> sir, a contributing factor is the slow start that this organization had in standing up, a part of which i am inclined to attribute to the lack of funding on -- >> listen, i'm going to give you that one because that she's something i note, you're sworn in, you've got to get it up and

running. so let's just take the last nine month months. have you had any success you want to share with us? >> i feel we have. >> hard dollars? >> $6 million in our most recent report. we have an ongoing forensic audit of $37 million looking at over 73,000 transactions from which we intend to be vectored towards crime or potential crime, and we are moving in that direction. so we're using forensics as a means by which to fairly quickly identify the vulnerabilities, and then we are structuring audits and our investigations accordingly. >> and then one final andi'll turn it back. in your latest sigar quarterly report on page 6, it mentions that afghan private security mantra has been suspended and debarred after it was found

funneling large sums of money to insurgents. i've met with general petraeus on many occasions concerning our afghan policy, and i agree with him we must be better buyers and buy from better people. what oversight actions are you taking through your awd kits and investigation -- audited and investigation to prioritize general petraeus' directive, that those funds will be given to better people and and not to our enemies? >> first, first, i applaud general petraeus and the initiatives that he has taken to issues of corruption. the standup of task force 21 is one of those very significant initiatives. we are working very closely with task force 2010. we're also working with the international contract corruption task force in order to harness the investigatory initiatives of the federal agencies so that we can bring

our worth very quickly to bear upon the finding folks who are bilking the american taxpayer out of money. >> which okay. thank you, madam chair. >> um, general fields, in your testimony to me a few minutes ago you referred to the cstc audit, the cstc audit? >> yes. >> the first awd did you did. >> yes, ma'am. >> is that correct? that was the first audit you did? >> that is correct. >> and of that do you recall how long that audit was? how many pages? >> i don't recall how many pages, but i'm pretty sure it wasn't a very large audit, senator. >> does 12 pages sound right? >> that may be about right, the summary of that audit, yes, ma'am. >> yeah. and how many pages in this that audit actually contained the audit work? >> i would have to review that audit because -- >> be would four pages sound correct? >> maybe, senator.

>> okay. and the other audit you referred to in the previous testimony was the audit on the kabul power plant? >> that is correct. >> and hadn't a very similar audit been done by usaid exactly one year prior to the time that you did that audit? >> that is correct. >> and let's talk about the funding of your agency. usaid did a very similar audit to the one that you did one year prior on the kabul power plant. do you know what the funding for usaid has been in terms of their inspector general work in afghanistan over the last, oh, how many, five, six years? do you know what their total funding has been? >> funding for usaid in terms of its operations in afghanistan? i do not know -- >> $10 million. and do you see what they've recovered for a $10 million taxpayer investment? $149 million.

and you have received $46 million? is that correct, general? >> 46.2 to be exact. >> and you all have recovered $8 million? >> at this point in time, yes. >> can you understand as an auditor as i look at those numbers, it is very hard for me to reconcile the notion that a lack of funding has been your problem? >> senator, the recoveries that we have thus far experienced are small. but the full measure of the outcome of audits and investigations that are underway are, that full measure has not thus far been determined. and our forthcoming numbers will be much larger than the numbers that we submitted to the sigi and their rollup of work that the federal community in general, federal igs in the general had done for 2009. >> let's talk about contracting.

you know, one of the things that is very important is how audit agencies contract because your job is to oversee contracts. and your job is to determine if there are contracts that are not needed, put to better use, and i -- out of the $46 million that you have received, how much money are you spending to deloiotte and tush just to prepare your reports to congress? >> that contract, senator, started out at 3.7 million at a time when we had a paucity of people to do the very specific type of work for which we have contracted the company to help us. the intent of that arrangement was to facilitate the gaps in

our own personnel and the skill sets that were needed at that point in the time, and over a period of time we would commensurately reduce that contract as we were able to bring that particular level of talent aboard in sigar, and we are doing that, senator. >> okay. all right. you spent 3.7 million in the base year on deloiotte and touche and 2.7 million this year, and their only function is to produce reports to congress, correct? >> deloiotte provides, also, assistance to us and database management, that's one aspect of it. but they principally assist sigar in putting together the reports that we do submit to congress which is a very detailed report, a very important report, and we feel that the extent to which we have gone to insure that that report is put together correctly and is presentable to this congress is commensurate with the money that we have invested in deloiotte

and touche to do so. >> because i want to clarify this because i will tell you, candidly, um, i don't want to lay out my fellow members of congress here, but an investment of that kind of money in a report to congress when there's the kind of audit work that needs to be done and when you're using a lack of funding as one of the rationales because of why more audit work has not been cone and why it's taken so long for audits to really be performed or produced in a manner commensurate with the size of your agency, let's compare here. the contract total to deloiotte and touche is $6.6 million, and the total amount of funding to usaid is $10 million. and for that $10 million, we've got $149 million back. meanwhile, with the $6 million to deloiotte and touche all we've gotten are reports with pretty pictures for congress

most of which will never see it. do you understand why that causes pause, general fields? >> senator, we have been told by members of this very congress that they appreciate the report that we provide for them. similarly, the federal community elsewhere have told us that they appreciate the detail and the correctness of the reports that we produce. >> let's talk about the contract with joseph schmidts. now, you have an audit, and it's completed, your peer review, and it's not good. and, in fact, for only the second time in 50 peer reviews, you have been recommended to lose your law enforcement capability this an arena where desperately-needed law enforcement capability is absolutely essential. you've had this audit, and after the audit is done you hire someone, it's my understanding, to help you monitor compliance with the audit recommendations. is that a fair characterization of what your contract with joseph schmidts was supposed to

represent? >> that's a fairly fair characterization, senator. but we hired this independent monitor commensurate with a plan of action and milestones that i put in place in response to the results of the sigi in order to move sigar quickly along to putting in place corrective action that had been identified for us. i set that date at 30, september of this year. and we are a better organization, senator, because we had this external agency to come in and provide us this particular expertise during that period. >> and this was a no-bid contract. >> it was a sole-source contract for which we made request. >> that's a no-bid contract, sole-source. correct? >> that is correct. >> okay.

and what you said is you needed the immediate establishment of an independent monitor to independently validate and verify agency actions and compliance in response to issues contained in the sigi letter of july 15, 2010, to the attorney general of the united states. is that correct? >> senator, we -- >> that's the document that you, that -- the information in the document for the justification and approval of a no-bid contract. >> senator, we wanted to quickly correct the areas of concern pointed out by the peer review. we did not wish to lose or put in jeopardy any further the authorities for criminal investigations that had been provided to me by way of the department of justice. and we felt that this entity would provide that independent look at us, and we felt that would help mitigate any concerns

that this congress and the overseers on capitol hill of sigar might have as well as to reassure anyone else who might be interested in the outcome of that peer reval. >> isn't sigi back doing an independent monitor of whether you're doing it now? >> say it -- please, repeat the question? >> isn't sigi looking now to see if you've comply with the the audit? the aren't they the independent body you're looking for in terms of seeing if you have, in fact, corrected the deficiencies? >> sigi is looking at the audit piece, but the investigation piece has yet to get under way. nonetheless, i have made requests that they come back in. >> okay. and so army contracting command who awarded the contract on behalf of sigar said this contract was sole-sourced because there was only one person, mr. schmitz, who was available and qualified. did you reach out to any other retired igst if you were --

igs if you were going to hire someone else? >> not at that time. >> did you ask for suggestions from mr. rhymer or, more importantly, mr. moore? >> no, we did not. >> and did you talk to them about using mr. schmitz? >> >> did i what? >> did you talk to the group of independent peer review auditors that looked at your process and quality control in criminal investigation, did you discuss mr. schmitz with them, about hiring him? >> no, i did not. >> all right. >> someone may have tone p so on -- done so on my behalf, but i did not personally. >> when my staff spoke with your staff, your staff expected mr. schmitz would be entering into a contract with the former directer of the fbi who also works with him on the independent team for daimlerchrysler.

mr. freeh would be intimately involved, quote, in the outreach to attorney general holder. was that your understanding? >> that is not necessarily my understanding, and i cannot account for what folks may have communicated to your staff or to anyone else. my intent, senator, was to bring aboard an independent entity to provide the oversight of the plan of action that we were putting in place to move this effort quickly along so that we could come in compliance with the department of justice regulations. >> did you expect ha mr. freeh was going to be working on this contract, general fields? >> i did at the onset, yes, ma'am. i had confidence -- >> and what was mr. freeh's function as it related to what you expected him to do? a reachout to general holder? >> no, ma'am. i did not expect anyone to reach

out per se. i expected the oversight being provided by this entity to help sigar and the inspector general correct the issues that had been pointed out. >> well, your staff said to us that mr. freeh would be intimately involved in an outreach to general holder. you understand what this looks like, don't you? >> i would ask that the senator explain what you're referring to. >> it looks like that you all went out and found somebody who could get to louis freeh, who could get to attorney general holder and make sure you didn't lose your ability to exercise law enforcement function. it looked like you were trying to hire someone to help influence the attorney general of the united states. as opposed to fixing the problem and then having the same independent audit group come back and certify that you'd fixed the problem. >> senator, i as inspector

general had confidence in mr. freeh because he is a former directer of the fbi, because he is a former judge, and because as i learned along the way, mr. schmitz was associated with his firm. and in which i had confidence because of mr. freeh's contribution already to this government and, also, mr. schmitz's contribution to the government in a role that i was playing at that time. that was my line of thinking. it had nothing to do, senator, with any other potential influence in reference to the attorney general. i wanted to correct the issues that my, that had been pointed out to me by the peer reval, and that was my only objective. >> it's my understanding that mr. moore's team, this contract

was worth $100,000, correct? to mr. schmitz? he got 100 grand? >> no, senator. the contract was worth 95,000. >> excuse me. the contract was worth $95,000. and how many days did mr. scmitz work on this? >> approximately two months. >> so 60 days, and he got 95,000. >> that is correct. >> about $45,000 a month. >> senator, we followed the rules in engaging in this contract. we utilized the contract center of excellence in washington that many other entities use, and the $95,000 was the fair market value for the specific work that we were requesting -- >> with all due respect,

general, i gotta tell you the truth. you are supposed to be finding ways to save the american taxpayers' dollars. and, please, i don't think it's a good idea to say that it was fair market value to pay somebody $45,000 a month to try to fix a problem in your investigations unit to the satisfaction of the attorney general. isn't it true that mr. moore is going to complete the work in just a few days and isn't going to cost anything? in terms of determining whether or not you now have the proper procedures in place to do law enforcement work as, as the special inspector general of afghanistan? >> senator, i believe that the decision that i made at that point in time was a good decision. i did not anticipate all of the scrutiny that