american businesses remain competitive, and perhaps more importantly, what steps should the government take to create the right climate to allow american corporations to be competitive. our panelists today will examine these and other issues. our panel will be headed by nick schlutzultz, and he will introde the other panelists. please join me in welcoming him. [applause] . .

>> the president seems interested in expanding the conversation about american competitiveness. late last month, he gave a major

speech about competitiveness. he said that we need to nurture the industries of the future and we need to train our workers to compete for those jobs. nations around the world have already realized this and have put more emphasis on math and science. they are building a high-speed railroads. they are making serious investments in clean energy because they want those jobs. this is required to compete in the 21st century. competitiveness is very much on the minds of many people. competitiveness has been a little bit of a slippery motion, not sure exactly what it means. i will give you this. most people know him as a trade calmest.

he says that countries do not compete with each other the way corporations do. only a negligible fraction go to coca-cola workers. if pepsi is successful, the major industrial countries are each other's export markets. if the new york economy does well, it may not be at coke's expense. you can see a little attention where people were about competitiveness.

to try to put some backbone into this notion of competitiveness, we are trying to better define what it is and what it means in various contexts. we will turn it over to our panel that we have assembled here to talk about the research effort a little more. our first -- one i am going to do is introduce our speakers. we will have a conversation turned we want this to be a general discussion. if you are listening to what we are saying, what them down. microphones will be going around and we will open it up to the floor. our first speaker is glenn hubbard. he is former chairman of economic advisers. he is currently the dean of

columbia university's school of business. he specializes in finance and financial markets. he has written more than 90 articles including tw of textbooks. in the political world, he advised former governor mitt romney in his presidential campaign. he previously served as a deputy assistant secretary at the u.s. treasury department, called a consultant to, among others, the federal reserve board -- and a consultant to, among others, the federal reserve board and the fed for reserve bank of new york. -- federal reserve bank of new york. >> good morning, everyone. it is almost impossible to be opposed to the term "competitiveness."

it is like mothers and apple pie. how could you not want to be competitive? the question is what does it mean? we just went through a wrenching national debate on health care reform, and part of the reason that was so complicated, at least from an economic perspective, is that it seemed to mean different things. for some people in means coverage leading to cost reductions, and for others it means no, cost reductions needed to coverage increases. getting a definition right matters. for competitive is, it is ultimately about our living standards, and it is easy to see why we care. in the very difficult economic environment we find ourselves still in, it makes clear the need to never lose focus on long-term competitive fundamentals and the short-term problems that we face. competitive economies are those that have in place at all level

of individual sectors -- at the level of individual sectors the factors that allow prosperity to build, and sectors and markets that can actually win competitions. we contribute to competitiveness weather in cyclical downturns -- competitiveness in cyclical downturns, leading to better economic performance. it can lead to some mischief. the word competitiveness is often used to justify it what most economists would call industry policies. in continental europe, this would be the idea of national champions, that we should take industries that we want to win.

in the u.s., these terms tend to be blander. the notion that we could have the government be a venture- capitalist or green our way to prosperity. old-fashioned mercantilism is dressed up in the word "competitiveness." what exactly is competitiveness? if you survive and you have surpluses, you are competitive. if you lose money or go out of business, you are not competitive. this is not difficult. despite what you hear in some elements of the media, and even in some of the nation's leading business schools, it is much squishier for our country than the paul krugman quotation suggested. in an essay about the same time

as the one nick talked about, he said that it is dangerous to predict that trade balance with the countries bottom line. for a firm, running a surplus is a good thing. that element of competitiveness is not necessarily true for our country. sometimes trade deficits can be a sign of competitive health. for anybody who was worried, that is my last reference to paul krugman this morning. [laughter] there are two issues that are being buried here, and they are both important. one is productivity, and the other is competitiveness in the sense of winning competitions. in action that improves productivity, it helps raise output and living standards. that is a good thing, and it

tends to show up and leads us to rank countries by various things. productivity growth, living standards. but you are competing only in the sense of serving as a point of reference. that is not necessarily what economists think of as competition. there was a very high profile study by the world economic forum really focused only on productivity when they think about competitiveness. indeed, the world economic forum and economists consulted define competitiveness as the institutions, policies, and factors that determine the level of productivity in our country. it takes one piece of what i said, productivity, without reference to the ability to win a competition. one could say that there is not necessarily anything wrong with

talking about productivity. and the factors that economists use with studying productivity inform competitiveness. i think of them as being grouped in three categories. one is providing a foundation for growth. this is the familiar discussion of the institutions and basic education and skills. a second category i would think up as building efficiency. this i would think of as higher education and efficiency in markets -- markets for labor, markets for goods, markets for finance. a third factor i would call driving the growth, and here i have in mind the quality of management and innovation. we are starting to get to things where actual competition can take place. for the united states, our high productivity growth is certainly -- our heart

productivity growth certainly expands our relative prosperity, and it explains our resilience. there was recently estimated output losses from the financial crisis. the u.s. did the best of oecd countries but it didn't go through a great deal of pain? yes, but because of flexible markets and resilience, it will actually be ok. it really does not get to the heart of competitiveness as policy makers want to think of it. it is probably too broad. competitiveness, i would urge you, and studied with respect to areas that have an actual competition -- can be studied with respect to areas that have an actual competition. it is not about economies, it is about particular sectors. it is an article of faith among economists, at least outside of washington, that the optimum tax on capital is zero.

it is tied to a discussion on productivity. there is also an interesting discussion, and evan will talk about this, about international tax cut addition, that there are things on which we compete in addition to the article of faith. you look at additional examples with education policy, and the basic underpinning would be improving primary education. but there is a competition to be had in attracting the best graduate students, the business that i happen to be in. another is a financial regulation. transparency is a general thing that is associated with financial market stability -- financial markets' ability to deliver productivity growth. i would argue that there is a public policy research agenda here -- taxation comes most easily to mind but i would argue that there are other areas as well, i reeducation, immigration, how we compete with -- hire education, immigration, how we compete with countries around will to be successful. how can we do the kind of cost-

benefit analysis that enables us to have the smartest regulations. financial markets and competitiveness -- how can we make sure we are not over- burdening financial tax actions -- financial transactions. and how we make sure that we have the markets and institutions and industries that not only advanced development, but carry out what i think of as the non-linear true process of innovation on the shop floor. of course we should do things that advance productivity growth, but we should also be fine in every ridgeway competitions that enhance -- we should also define in a rigorous weight competitions that enhance that and competitions that we can win. that is a way of helping policy makers with the task at hand.

penalties for bad policy are more severe when the nation can take advantage of mistakes. in the current policy debates, which will seat 3 heavily discussed in competitiveness. there are financial regulations, which are the denude job one. at third, the playing out of new mandates that we have put on the labour market. in closing, a concern that i have about getting this right is that we make sure that we do not do this with industrial policy as opposed to competition. there is a witty economist. bob said that there were all lot of industries where there are $4

worth of social output with $1 of private output. my colleague at columbia famously said that it is hard for policy makers and very easy for lobbyists to decide which industries have spillovers. we need to do to fans. first, at the door wheaties. but also, a practice good competitiveness to win. >> before we moved to kevin, what to touch on one point that you raise about competing for graduate school students. i think that the united states does pretty well on that. our universities attract the best talent from around the world.

the piece goes on to say and that folks from columbia come from the better business schools in the united states. they do not have to worry from a competitive standpoint. at the moment students graduate, they see the best opportunities abroad. >> in that article, there was a picture of a graduate. it is certainly good news for business schools because it means that the global reach is still there. this is the true for most of our best students, that there would like to work in asia. i think they are seen as the most dynamic economies. i do not think that that has to be the story, but that is

definitely the story on campuses today. >> our next panelist is kevin. he serves as a director of economic policy. his specialty is our tax policy. before joining, he was at the federal board of reserves governors. he was a policy consultant to the treasury department and advised george w. bush. he also writes for a myriad of publications. kevin, the floor is yours. >> this is really kind of a kickoff event.

we must see if it is possible to live a competitiveness. i think that what motivated us to start this is the observation that it is impossible to see an economic speech by a politician and not hear them mentioned the word competitiveness. competitiveness is misused. review the challenge. we try to see if there are definitions of competitiveness that are useful. the could help policymakers think about what the competition is fed is going on. what we have done in this project is solicited leaders in

the economic iprofession. what is the competition that is going on? what is the score? i hope that these papers will be fruitful. i am sure that there will be holding as well. there are some nice examples that should influence policy. states are beginning to influence policy. one example that i would like to walk us through is the example of taxes. before i do, i would like to say that it is urgent -- we told our offer is that they need to be ready by december. the unemployment rate is so high.

there is a serious risk that we will create a whole generation of people. there are a lot of folks that are not getting jobs. you could create an entire generation of people. it is really hard to get back in. we need to work hard to do this. if we do not, the future of this nation will be fundamentally different. in the late depression, there were hobos that word traveling from city to city because they were separated from society. what are we doing wrong? how're we doing? now, i mentioned that i was one to talk a little bit about tax policy.

i wanted to talk a little bit about the corporate tax rate in the u.s.. i have a whole bunch of research on this. we looked at competition across the country's and so the impact. there is an early paper that shows the point of view of the health of the nation. this may be useful for thinking about the profitability of the nation. every morning, the wake up and have to compete with people from other nations.

the people who are playing by the rules of other nations often have the advantages and disadvantages that are presented from that association. another thing that has changed the most radically is the corporate tax climate. these are countries that have changed radically. if you look at the green line, you're looking at 34-40% for it -- a 35%-40% -- 35% to 40%. what has been going on is that pretty much every other nation on earth is reducing its corporate tax. the red line is the average rate.

the average for trading partners were above us. you can see that this is a logical thing to do. if you see that the average is below 25, to be below the average, we have to reduce our corporate tax rate by 11%. that is an interesting member because that is the reduction that is proposed. that would restore the equality with our trading partners. why is the corporate rate several that? if you are a u.s. auto maker and you're trying to decide which state your to your plant in, there are a lot that are based

on the state's tax treatment. we observe that states to all sorts of plans. the corporate tax to be thought of as the average tax that someone will pay when they locate activity in that place over time. this is a key factor. the fact that we are now so hot, we have serious consequences. what that means is that there is a competition going on. this is one way to think about using the notion. the competition is the investment in plants. the thing that other countries are using are the core rate.

i show this as the whole distribution of tax rates and you can see this back in 1981 when the corporate tax rate was just about a little above the median. in 1994, we were just about at the median, but now we are there. this is an important factor. i am going to skip that chart because we are running little late. what does this mean? what is the score? in this chart, we show you

foreign direct investment inflows as a percentage of gdp. you have japan in the u.s. and then i compare them to the oecd average. you can see that japan and the u.s. have the blue bars which are really high corporate taxes and they have very low in flow relative to gdp. the oecd average is a low blow bar and a high red bar. -- a low blue bar and a red high bar -- i high red bar. -- a high red bar. this is the whack-a-mole that did not get hit.

the good news is that this is not a partisan issue. i am pleased to see that this is the hot tax reform bill in washington right now. democrats and republicans agree that we have to do something about this competition. my hope would the that this kind of low hanging fruit is going to be the first of many such policy proposals that flow. >> they give. -- a thank-you. -- thank you. before joining a group -- a rise and -- before jordan's verizon he served on the energy

and commerce committee. he served on the board of directors and the executive committee. this was an organization for an interim young people. -- for mentoring young people. >> it is always a bit intimidating to follow two great intellectuals. i do not think about countries being competitive or nations being competitive or governments being competitive. i think that it is important that we reflect upon the fact that country's war government's best create a climate of competitiveness. these a