ADVICEFROMTHETOP FixTaxes,Immigration...

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© 2011 Dow Jones & Company. All Rights Reserved. THEWALL STREET JOURNAL. Monday, November 21, 2011 | R1

CEO COUNCIL

MEMBERS OF THE WALL STREET JOURNAL CEO COUNCILwere confronted with daunting analysis of the short-termchallenges facing the global economy at their meeting inWashington, D.C., last week. Their briefings dealt with agrowing financial crisis in Europe, a political stalemate inWashington and a tricky leadership transition in China.

But the CEOs spent much of their time together lookingbeyond those sizable short-term challenges to longer-termshifts that will be necessary for ensuring global growth.

Among the questionsthey wrestled with:

How can the mostimportant bilateral re-lationship in today’sworld—between theU.S. and China—be puton a stronger footing?

How can the innovation necessary for strong growthbe both promoted and protected in global commerce?

How can the U.S., whose consumers have powered theglobal economy in recent decades, shift to more of an ex-port orientation?

How should the global competition for natural re-sources be managed in the years ahead?

How can the most pressing global health problems beaddressed effectively?

The council, which was first convened by the Journal in2008, meets annually to deliberate on measures that canbe taken by both business and government to encourageeconomic growth and prosperity. Its membership consistsmostly of CEOs of large, U.S.-based corporations, and thedeliberations reflected that composition.

The top priority of the group was to rewrite the U.S. cor-porate tax code, lowering the statutory rate and adoptinga territorial system that would make it easier for compa-nies to repatriate earnings for investment in their homemarket.

No. 2 on the list was to change U.S. immigration policiesto allow foreign students educated in the U.S. to stay andwork in the U.S. And No. 3 was to improve the U.S. educa-tion system to support technical careers and exportgrowth.

But the council this year reflected a growing representa-tion of companies based outside the U.S., including threeCEOs from companies based in China; three from the U.K.;two each from India, Russia and Canada; and membersfrom Japan, Switzerland, Norway, Germany, Australia, Is-rael and Italy.

The council’s priorities reflected that more global orien-tation. It called on U.S. authorities to encourage more for-eign investment, and it called on U.S. companies to set tar-gets and goals for increasing their participation in foreignmarkets.

—Alan Murray

ADVICE FROM THE TOP

Fix Taxes, ImmigrationAnd Education

At The Wall Street Journal CEO Council’s annual meeting,business leaders offered their recommendations for tackling the weak

economy and other key challenges. Inside, you’ll find their wish list—andthe reaction from some of the top policy makers in Washington.

‘We can stop legislationthat’s injurious to businessfrom getting across the

floor of the House.’ERIC CANTOR

R8

‘We’re facing a veryconsequential debate

about some fundamentalchoices as a country.’

TIMOTHY GEITHNER

R8

‘The investment dollarthat always just lands in

China is going to be lookingfor an alternative.’

JON HUNTSMAN

R14

‘As the CEO, you havean obligation to make sure

that women are able to moveup the ranks in your company.’

DEBRA LEE

R14

THE CEO COUNCIL’S RECOMMENDATIONS

Forging a StrongerU.S.-China Relationship

TOP PRIORITY

A NEW FRAMEWORK FORBUILDING TRUST

R4

Building a U.S.Export Economy

TOP PRIORITY

GLOBALIZE ATTITUDESOF U.S. BUSINESS

R4

Encouraging andProtecting Innovation

TOP PRIORITY

TOUGHER PROTECTIONOF INNOVATION

R5

ImprovingGlobal Health

TOP PRIORITY

TACKLE NONCOMMUNICABLEDISEASES

R6

Managing the GlobalCompetition for Resources

TOP PRIORITY

DRIVE MESSAGE OF ENERGYAS CRUCIAL TO GROWTH

R6

PLUSInterviews with Paul Ryan on deficit negotiations, Robert Zoellick

on Europe’s woes, Erskine Bowles and Alan Simpson on the lack of political will,Jack Lew on the reasons for optimism, Alan Krueger on the jobs outlook,Lawrence Summers, Glenn Hubbard and Zhu Min on how much more

Europe has to do, and Dick Cheney on the war on terror

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R2 | Monday, November 21, 2011 THEWALL STREET JOURNAL.

THE JOURNAL REPORT: CEO COUNCIL

The Journal Reportwelcomes yourcomments—by mail,fax or email.Letters should beaddressed toLawrence Rout,The Wall Street Journal,4300 Route 1 North,South Brunswick, N.J.08852.The fax number is609-520-7767, and theemail address [email protected].

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THE JOURNAL REPORT

Last week, The Wall Street Journal assembled nearly 100 chiefexecutives of large companies for a day and a half to discuss thepolicy choices facing business and government, and the effectsthose choices may have on the global economy.The CEOs divided into five task forces and debated priorities in

the following areas: forging a stronger U.S.-China relationship,building a U.S. export economy, en-couraging and protecting innovation,managing the global competition forresources and improving global health.Using an electronic ranking system de-vised by the Journal, each task force

chose five top priorities in its subject area.Each task force then reported its priorities back to the full coun-

cil. The chief executives then ranked all the priorities from the fivetask forces, in order of their relative urgency and importance.Here’s a look at their top five priorities.

1 CREATE GLOBALLY COMPETITIVETAX SYSTEMThe U.S. should replace its current

world-wide tax system with a territorialsystem to encourage companies to in-vest repatriated earnings into long-terminvestment. The U.S. should also lowerthe statutory corporate tax rate to glo-bally competitive rates and create cer-tainty around the R&D tax credit.

2 IMMIGRATION POLICIES SHOULDSUPPORT INNOVATIONVisa policy should encourage for-

eign students educated in the U.S. tostay and should welcome foreign in-vestment to create businesses and jobs.

3 IMPROVE HUMAN CAPITALFrom K-12 through college andadvanced-degree programs, the

U.S. must improve the skills of workersto aid in export growth. This includesthe promotion of technical careers foryoung people. The U.S. should also en-courage the immigration of the bestand brightest from around the world.

4 UPGRADE ENERGYINFRASTRUCTUREThe infrastructure built to trans-

port energy has passed its useful life.We need a broad-based, national effortto rebuild the infrastructure, includingoil and gas pipelines and the electric-ity-distribution grid. Government mustwork with businesses so that plannedprojects stop being deferred or can-celed.

5 INVEST IN R&DAssure sustained government in-vestment, intelligent legislation

and public-private partnership in en-ergy research and development acrossthe range of energy resources, ratherthan volatile and uncertain funding.For example: carbon sequestration,combined wind/solar/battery technolo-gies, intelligent buildings and innova-tive transportation. Government in-vestment should focus on basicresearch and technologies, not compa-nies or players.

(Chief executives except as noted)José Maria Alapont

Federal-Mogul Corp.Tom Albanese Rio TintoIsidoro Álvarez El Corte InglésGeorge S. Barrett

Cardinal Health Inc.Dominic Barton

Global Managing Director,McKinsey & Co.

Jeffrey L. BewkesTime Warner Inc.

Angela F. Braly WellPoint Inc.Glenn Britt

Time Warner Cable Inc.Kevin Burke

Consolidated Edison Inc.Michael Buscher

OC Oerlikon Corp.Natarajan Chandrasekaran

Tata Consultancy ServicesR. Marcelo Claure

Brightstar Corp.Vittorio Colao

Vodafone Group PLCMichael D. Connelly

Catholic Health PartnersDavid Crane NRG Energy Inc.Theodore F. Craver

Edison InternationalFred Crawford AlixPartnersH. Lawrence Culp

Danaher Corp.Adam D’Angelo QuoraPhilippe Dauman Viacom Inc.Oleg Deripaska

Basic Element Co.Douglas L. DeVos

President and Co-CEO,Amway Corp.

Paul J. DiazKindred Healthcare Inc.

James DimonJ.P. Morgan Chase & Co.

Craig S. DonohueCME Group Inc.

Francisco D’SouzaCognizant TechnologySolutions

Thomas F. FarrellDominion Resources Inc.

Christopher FeyU.S. Preventive Medicine

John Figueroa Omnicare Inc.Douglas L. Foshee

El Paso Corp.Jack A. Fusco Calpine Corp.Seifi Ghasemi

Rockwood Holdings, Inc.

Carlos GhosnRenault-Nissan Alliance

Robert J. GilletteFirst Solar Inc.

Russell K. GirlingTransCanada Corp.

Thomas H. GlocerThomson Reuters

Greg J. Goff Tesoro Corp.James H. Goodnight SAS Insti-

tute Inc.Robert Greifeld

Nasdaq OMX Group Inc.James Hagedorn

Scotts Miracle-Gro Co.George C. Halvorson

Kaiser PermanenteDaniel Hamburger DeVry Inc.Walter P. Havenstein SAIC Inc.Patricia A. Hemingway Hall Health

Care Service Corp.Jeffrey O. Henley

Chairman, Oracle Corp.Glenn Hutchins Co-Founder

and Co-CEO, Silver LakeJohn D. Johns Protective LifeWilliam D. Johnson Progress

Energy Inc.Alex Karp

Palantir TechnologiesGail Kelly

Westpac Banking Corp.Zion Kenan

Bank Hapoalim B.M.Klaus Kleinfeld AlcoaIdar Kreutzer Storebrand ASAEllen J. Kullman DuPont Co.T.K. Kurien CEO, IT Business,

Wipro Ltd.Neil M. Kurtz Golden LivingClaus-Dietrich Lahrs

Hugo Boss AGArmand F. Lauzon Sequa Corp.Steven F. Leer Arch Coal Inc.René Lerer Magellan Health

Services Inc.Robin Li BaiduLiu Jiren Neusoft Corp.Andrew N. Liveris

Dow Chemical Co.Peter S. Lowy Westfield GroupJack Ma

Chairman, Alibaba GroupLowell McAdam

Verizon CommunicationsWilliam L. McComb

Liz Claiborne Inc.Raymond McDaniel

Moody’s Corp.John B. Menzer

Michaels Stores Inc.Surya N. Mohapatra

Quest Diagnostics Inc.Robert Moritz

Chairman and Senior Part-ner, PricewaterhouseCoo-pers LLP

Denise MorrisonCampbell Soup Co.

Daniel H. Mudd FortressInvestment Group

Rupert Murdoch News Corp.Robert L. Nardelli Cerberus

Capital ManagementJ. Larry Nichols Devon EnergyDouglas Oberhelman

Caterpillar Inc.Rodney O’Neal

Delphi Automotive LLPJames O’Neil Quanta ServicesPaul Otellini Intel Corp.Vikram S. Pandit Citigroup Inc.Antonio M. Perez

Eastman Kodak Co.Nicholas T. Pinchuk

Snap-on Inc.James T. Prokopanko

Mosaic Co.David E. I. Pyott Allergan Inc.James Quigley Senior Partner,

Deloitte LLPThomas J. Quinlan

R.R. Donnelley & Sons Co.Robert Reynolds

Putnam InvestmentsTimothy M. Ring C.R. Bard Inc.James E. Rogers

Duke Energy Corp.Dan Rosensweig CheggBrent Saunders Bausch & Lomb

Stephen A. SchwarzmanBlackstone Group

David Seaton Fluor Corp.Mikhail Shamolin

JSFC SistemaMayo A. Shattuck

Constellation EnergyGroup Inc.

Steven A. ShawVolt Information Sciences

Gregg M. Sherrill Tenneco Inc.Ralph Shrader

Booz Allen Hamilton Inc.Barry E. Silbert SecondMarketHenrik C. Slipsager

ABM Industries Inc.Frederick W. Smith FedEx Corp.Gary B. Smith Ciena Corp.Martin S. Sorrell WPP GroupShivan S. Subramaniam

FM GlobalAnthony R. Tersigni

Ascension HealthFred Tomczyk

TD Ameritrade Holding Co.Marco Tronchetti Provera

Pirelli & C. S.p.A.James Stanton Turley

Ernst & YoungN.V. Tyagarajan GenpactMyron E. Ullman Executive

Chairman, J. C. Penney Co.Daniel Ustian

Navistar InternationalTimothy R. Wallace

Trinity Industries Inc.Maggie Wilderotter Frontier

Communications Corp.John David Williams

Domtar Corp.Ronald A. Williams Advisor,

Clayton, Dubilier & RiceThomas J. Wilson AllstateDavid M. Wood Murphy OilRoger J. Wood Dana HoldingJohn D. Wren Omnicom GroupYang Yuanqing LenovoZhang Xin Soho China

PARTICIPATING GUESTS

Charlene BarshefskyPartner, WilmerHale

Erskine Bowles Co-Chairman,National Commission onFiscal Responsibility andReform

Eric Cantor House MajorityLeader, U.S. Representative(R., Va.)

Dick Cheney Former VicePresident of the U.S.

Geena Davis Actor andFounder, Geena Davis Insti-tute on Gender in Media

Anthony S. Fauci Director,National Institute of Allergyand Infectious Diseases

Timothy Geithner Secretary ofthe Treasury

Glenn Hubbard Dean, ColumbiaUniversity Graduate Schoolof Business

Jon Huntsman Former Ambas-sador to China and FormerGovernor of Utah

Alan Krueger Chairman, Coun-cil of Economic Advisers

Debra Lee Chairman and CEO,BET Networks

Jack Lew Director, Office ofManagement and Budget

Paul Ryan Chairman of theHouse Budget Committee,U.S. Representative (R., Wis.)

Alan Simpson Co-Chairman,National Commission onFiscal Responsibility andReform

Lawrence H. Summers FormerSecretary of the Treasuryand President Emeritus,Harvard University

Deborah Wince-Smith Presidentand CEO, Council on Com-petitiveness

Daniel Yergin Chairman,IHS Cambridge EnergyResearch Associates

Zhu Min Deputy Managing Di-rector, International Mone-tary Fund

Robert Zoellick President,World Bank Group

CEO COUNCIL MEMBERS

The CEOs’ Top Priorities

THANK YOU!TheWall Street Journal would like to thank the 2011 CEO Council

sponsors for their generous support of the program.

Proudly Supported by

© 2011 Dow Jones & Company, Inc. All rights reserved.



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T he U.S. faces a tre-mendous trade gap.What can Washingtonand the private sectordo to fire up the ex-

port engines?The Wall Street Journal’s Da-

vid Wessel moderated the task-force discussion on the topic.Here are edited excerpts of thepresentation of its priorities tothe CEO Council.

Think LocalDAVID WESSEL: We had a verygood discussion about the obvi-ous need for the U.S. tostrengthen its exports of goodsand services if we’re going to re-balance the world economy.FRANCISCO D’SOUZA: Only 1% ofU.S. firms today are exporters. Ina sense, U.S. firms have neverhad the export muscle—or to theextent that they had it, thatmuscle has atrophied over time.

The first recommendation iscreating a mind-set within U.S.businesses of the importance ofexports and really moving awayfrom the notion that all productsand services are created equal.Products need to be tailored for

local markets, and U.S. firmsneed to engage deeply in localmarkets around the world if theywould like to be net exporters.

They should also encourageworkers, U.S. citizens, to gospend time around the world.We felt that was necessary in or-der to truly be able to partici-pate in the local market.

Finally, there was a feeling inthe group that small and me-dium-size businesses particu-larly in the U.S. just don’t havethe resources and capability tounderstand the nuances of localmarkets around the world. Gov-ernment can play a role there, tocreate a support structure andan ecosystem to assist small andmedium-size businesses to gettheir products and services intomarkets around the world.ELLEN KULLMAN: The second rec-ommendation is what the U.S.government can do in helpingexpand trade and hence exports.Two areas that we focused onwere intellectual property andtransparent trade practices.

Intellectual property, counter-feiting, enforcement are big is-sues around the world. It is

something that we spend a tre-mendous amount of resources onin my company. Our exports arelower because we are constantlybeing knocked off by counterfeit-ers in various countries. There’s

a lot that can be done, whetherit’s through the World Trade Or-ganization, trade agreements orinvestment treaties, to level thatplaying field and get a standardaround intellectual-property pro-tection and enforcement.

The second area is transpar-ent trade practices. Governmentprocurement roles come intoplay there. Do other govern-ments have transparency when itcomes to making their pur-chases, and should that levelplaying field be there? That cre-ates more opportunities forcompanies in the United Statesto participate there.

The next recommendation wetalked about was the U.S. taxsystem, which creates a disad-vantage for U.S. companies thatoperate on a global basis. Weneed to have comprehensive taxreform. My competitors, many ofyour competitors, are increas-ingly global or foreign and oper-ate under a very different tax re-gime—a territorial regime.

If we could create one in theUnited States, that would helpU.S. companies bring their off-shore earnings back, hopefully toinvest in U.S. manufacturing. We

believe that is a much morecompetitive system globally forour companies. We could arguewhat the rate should be, but itneeds to be lower than today.That’s something that we thinkhas to be benchmarked globally.

And the complexities have toeither go away or we have tocreate certainty around them.For instance, the R&D tax creditis one that we struggle with.This time last year, it wasn’tclear that we were going to getthe R&D tax credit for the year2010. How can we make deci-sions on what jobs that taxcredit could help create or in-vestments we could make if ev-ery year it is discussed and de-cided whether it comes in?

We believe that certainty andthe level playing field of a terri-torial system would go a longway to allow us to compete inthe world. We do believe thatwill help expand exports.

The Human TouchMR. D’SOUZA: The last recom-mendation is the issue of humancapital. It became clear thatwhere we can be most successfulin exports is in high-value, com-

plex manufacturing, high-valuegoods and services.

The raw material many timesbehind that is talented people tocreate these high-value goodsand services. We felt that there’sa need to look at the whole hu-man-capital chain, starting fromK-through-12 education. We needto reform that and create moreof an emphasis on STEMs—sci-ence, technology, engineeringand mathematics—careers.

On the other side, we need tolook at reshaping the U.S. immi-gration system to allow the bestand the brightest to come to theUnited States, build their careersand their lives here.

Building a U.S. Export Economy:Creating aNewMind-Set

T he U.S.-China rela-tionship is widely rec-ognized as the mostimportant bilateralrelationship in the

world, but it is fraught with im-balances and tensions. The WallStreet Journal’s Andrew Brownemoderated a task-force discus-sion aimed at strengthening theworking relationship betweenthe world’s largest debtor andits largest creditor.

Here are edited excerpts ofthat conversation:

A Gentle ApproachANDREW BROWNE: As reportersin China, we are well used tohorror stories from foreign busi-nesses operating in the world’ssecond-largest economy. Intellec-tual-property theft is the No. 1complaint. Not just that, butforced technology transfer, alack of access to the judicial sys-tem, corruption and so on.

Our group didn’t exactly ig-nore these problems. Neverthe-less, I think it’s fair to say thatwe were quite gentle on China. Itwas very high-level. It was a lotof discussion about win-win so-lutions—about collaboration,about learning.

The top policy takeaway wasthat we needed to establish agreater platform of trust.DOUGLAS DEVOS: This was basedon the world-view perspectivethat subject expert Larry Sum-mers set out: Either we’re goingto have tit-for-tat discussions onvery short-term issues everytime something pops up or we’regoing to form a long-term har-monious relationship. And thegroup said we want to go towardthe latter.

So we felt the first thing thatwas needed was a strategicframework. The term “bilateralinvestment treaty” was broughtup, but that’s not exactly it. Eco-nomic cooperation agreement,perhaps that sort of thing.Something between our two na-tions, because the World TradeOrganization relationship,merely being members of an-other global organization, isn’tthe right spot for us to gothrough issues that are going tobe long term and challenging.

The feeling was that therewould be some principles thatwould need to be part of this re-lationship or agreement, princi-ples that were going to be longterm, that were going to go fromadministration to administra-tion. There need to be dispute-resolution processes containedwithin it so disputes can get ad-dressed quickly.

We have to be patient, take astep-by-step approach. We’re notgoing to fix everything tomor-row. It has to be rules-based. Wehave to get to a point where wewrite it down on paper so wecan have discussions about

what’s written rather than whatwe thought we heard somebodysay.

And then it needs to be ac-tionable. You see in the thirdrecommendation, where wewanted to set targets. We haveto be able to follow up, and mea-sure ourselves, if we’re going tomake step-by-step progress.

JACK MA: My topic is about howthe U.S. should attract more Chi-nese investment. The U.S. shouldalso try to attract a lot of Chi-nese entrepreneurs with China’scharacteristics—they movefaster and create jobs in toughsituations.

When you go to China, youhave the same problems withChina’s government, withChina’s environment. And theChinese companies coming tothe U.S also have problems.Many private businesses come tothe U.S., like I do, and don’tknow how to deal with the taxissues, policy issues, and whatwe should do.

So there should be an organi-zation like the Economic Devel-opment Board, which helps allthe foreign investors who cometo Singapore. China also has avery strong organization helpingall the foreign investors whocome to China. What we suggestis that the U.S. have such an or-ganization to facilitate foreigninvestors coming to the U.S.

A Win-Win RelationshipGAIL KELLY: The fourth one wasaround the theme of reciprocity.We discussed that against theframework that Jack outlined alittle while ago of building a re-lationship of trust. So we usedthe idea of carrots and sticks to

start with. But we decided to re-fine that.

Against this backdrop ofbuilding a relationship of trust,we chose to use words such as“win-win” instead. And at theheart of this is both sides recog-nizing it requires patience. It re-quires seeking to understand theother’s point of view. And cer-tainly a key component of thisreciprocity is recognizing thateach country being strong isgood for the other. In particular,driving a strong consumption-based economy within China, thestrengthening of the middleclass, driving for more goodsand services, is good for the U.S.in terms of its manufacturingand in terms of job creation inthe U.S.

The key element of a recom-mendation out of this reciprocitygoes to building out specific in-dustry working groups. Therewas a view that only so muchcan get done at the government-to-government level. But as weall know, businesses are moreoutcome-focused and more prac-tical and pragmatic often in theway in which they tackle issues.

Forging a Stronger U.S.-ChinaRelationship:More Carrot Than Stick


RalphAlswangforTh

eWallS

treetJournal(3)

1 NEW FRAMEWORK FORBUILDING TRUSTEstablish a strategic

framework for building trustthrough an economic-coopera-tion agreement. Pursue a rules-based, long-term arrangementto address interests in busi-ness, education and culture.

2 BUILD AN INVESTOR-FRIENDLY APPROACHEstablish a full-service

agency to draw investment tothe U.S., creating procedures tohelp foreign investors navigatethe U.S. public and private sec-tors. The U.S. should study

China’s investor-friendly ap-proach to attracting capital.The private sector would workclosely with governments onpractical on-the-ground issues.

3 SET TARGET FOR FOR-EIGN DIRECT INVEST-MENT FROM CHINA

Establish a target for $250 bil-lion annually in foreign directinvestment in the U.S. fromChina.

4 STRESS RECIPROCALSUCCESSThe U.S. should welcome

investment from China, but

stress the importance of reci-procity for U.S. companies toemphasize the potential formutual success. Industry-spe-cific working groups couldmaintain pressure to ensurechanges in both countries.China should expand domesticconsumption further to providea market for U.S. goods. All ofthis would help defuse short-term tensions around currencyvaluation, trade access and in-tellectual-property violations.

THE TOP FOUR RECOMMENDATIONS

1 GLOBALIZE ATTITUDESOF U.S. BUSINESSTo ensure growth, U.S.

businesses should recognizethe importance of developingforeign markets, including lo-cally based products and serv-ices. They should set targetsand goals for increasing partici-pation in foreign markets andencourage more U.S. nationalsto live abroad for a period. Gov-ernment can help by providingsupport and education tosmaller and medium-size busi-nesses to increase their ex-ports.

2 INTELLECTUALPROPERTY PROTEC-TIONS/TRANSPARENT

TRADE PRACTICESA key to enhancing U.S. ex-

ports is to develop consistentinternational standards—and in-ternational enforcement—forprotection of intellectual prop-erty through investment trea-ties, trade agreements, theWorld Trade Organization andlaw-enforcement cooperation. AU.S. priority should be to en-courage partners such as Brazil,Russia, India and China to com-ply with government-procure-ment rules and to initiate a glo-bal investment framework tocreate more transparency andconsistency.

3 CREATE GLOBALLYCOMPETITIVE TAXSYSTEM

The U.S. should replace its cur-rent world-wide tax systemwith a territorial system to en-

courage companies to investrepatriated earnings into long-term investment. The U.S.should also lower the statutorycorporate tax rate to globallycompetitive rates, and createcertainty around the R&D taxcredit.

4 IMPROVEHUMAN CAPITALFrom K-12 through col-

lege and advanced-degree pro-grams, the U.S. must improvethe skills of workers to aid inexport growth. This includesthe promotion of technical ca-reers for young people. TheU.S. should also encourage theimmigration of the best andbrightest from around theworld.


WSJ.com>>See video excerpts from theCEO Council conference atWSJ.com/Reports.

FORGING A STRONGER U.S.-CHINARELATIONSHIP CO-CHAIRS

Jack Ma Chairman, AlibabaGroup

Gail Kelly CEO and ManagingDirector, Westpac BankingCorp.

Douglas DeVos President andCo-CEO, Amway Corp.

SUBJECT EXPERT:

Lawrence H. Summers FormerU.S. Treasury Secretary andPresident Emeritus ofHarvard University

BUILDING A U.S. EXPORTECONOMY CO-CHAIRS

Ellen Kullman Chairman andCEO, DuPont Co.

Francisco D’Souza President andCEO, Cognizant TechnologySolutions

SUBJECT EXPERT:

Deborah Wince-Smith Presidentand CEO, Council on Com-petitiveness

‘U.S. firms need to engage deeply in localmarkets around the world.’

FRANCISCO D’SOUZA

‘The level playing field of a territorial taxsystem would…help expand exports.’

ELLEN KULLMAN

‘We have to be patient, take a step-by-step approach.’DOUGLAS DEVOS, LEFT, WITH JACK MA AND GAIL KELLY



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F ew people would denythat innovation is oneof the keys to eco-nomic growth in themodern economy. But

the challenge for countries is toboth spur more innovation andfigure out how to protect the in-novation they already have.

The Wall Street Journal’sJohn Bussey moderated the task-force discussion on that topic.Here are edited excerpts of thepresentation of their prioritiesto the CEO Council.

The CudgelJOHN BUSSEY: One thing thatstruck me at the beginning wasthat this was about encouragingand protecting innovation, andthe group wanted to give equaltime to each. It wasn’t just aboutprotecting innovation and con-cern about technology transferto countries abroad. There was akeen interest in focusing on,“How do you encourage innova-tion at home?” And so you’ll seethat reflected in the recommen-dations that the group made.

The first one, seeking tougherprotection for innovation, wasprobably the closest thing tokind of a cudgel that emerged inour session. It calls for under-standing the policies and prac-tices of countries abroad. Itwasn’t just China. It was a gen-eralized concern about nationsabroad where this is happening,to understand the practices andpolicies that countries are usingto force technology transfer fromU.S. companies to their countryas a requirement, spoken or un-spoken, to get access to theirmarkets. It was about figuringout a response to that, and hold-ing the countries’ feet to the fire,most likely through enhancingthe abilities of the customs de-partment.

The recommendation was tostrengthen U.S. law in this re-gard and shape the foreign legalenvironment. That’s meant toencourage countries to developcourt structures within their owncountry; one of the biggest prob-lems with China is that there isno recourse now.

The recommendation alsocalls for encouraging global ap-preciation of what drives inno-vation. It’s best to have a cultureof innovation where intellectualproperty is protected in yourcountry, and not just a practiceof swiping it from other innova-tors.KEVIN BURKE: One of the keyitems in encouraging innovationis looking at the U.S. immigra-tion policy and visa policies.We’ve had some discussions inthe past about how we bring for-eign students over to the UnitedStates, we train them, and whenthey finish and get their degree,we tell them, “You can’t workhere. And in fact, you have toleave the country.” We thinkthat’s just a bizarre way of en-couraging innovation.

We’ve talked about the engi-neering schools, the scienceschools. But it extends beyondthat, whether it’s in media or inother areas, where you’d want tocontinue to encourage people tostay here and to innovate.

Another area we looked atwas to welcome foreign invest-ment. And in addition to large

foreign investment, we’re talkingabout encouraging entrepre-neurs to come to the UnitedStates. If they can bring somecapital, start a small company,get going, get some more jobsfor people in the U.S., we thinkthat should be encouraged, too.

National PrideVITTORIO COLAO: I have probablythe most exciting of all, which isnot just about specifying the fivenational innovation goals, butalso much more about creatingenergy, creating pride.

Things that have been men-tioned as goals have involveddigital infrastructure or biggoals in energy and energy pro-duction and clean energy—inno-vative disruptive technologies toprovide solutions to transporta-tion problems, for instance. Butagain, the great element of thisproposal is the involvement ofthe population at large.

The schools were mentionedas something that really can cre-ate a positive feeling. Now, prac-tically speaking, this will implydefining public-private sectorcontribution. There was a bit ofdiscussion as to whether this im-plied also defining recipes orwhose responsibility thingsshould be. And the answer is, no,not defining the responsibilities,leaving that to the market, butdefining how a partnershipwould work in terms of essentialgoals, what the private sectorcan bring, what the public sectorcan bring.

And again, like those greatexamples of the moon landingand interstate highways, creat-ing a sense of pride behindsomething that is long term—and rewards long-term invest-ments.JEFFREY BEWKES: On the lastone—protect tangible and intan-gible investment—you may won-der, “Well, what exactly are wethinking?” Tangible would basi-cally be infrastructure. Intangi-ble is intellectual property.

We started by recognizingthat we already have a hugeamount of innovation, certainlyin the U.S. but also in the devel-oped countries. How do we keepthat going, because it’s a high-value employment kind of thing?

There are two main areas tothis. Let’s do the tangible first.We want to encourage invest-ment in infrastructure—think ofenergy grids, transportationgrids, broadband systems—byaligning and reforming the regu-lations to support private invest-ment, because most of it shouldbe private investment, and to le-verage some amount of publicfunding. We all remember publicfunding of the highways, as wellas the Internet in the beginning.

So that’s essentially havingregulation help investment in in-frastructure rather than under-mine it or take it for granted.

Second, on the intangibleside, encourage the continueddevelopment of intellectualproperty, particularly in theUnited States but really in all thedeveloped economies by uphold-ing copyrights and patents.

There are two sides to it. Youheard it in the first, which isother countries that don’t inno-vate that plug their gap by tak-ing ours. And the second, really,is new disruptive Internet “tech-nologies” that undermine eitherthe payments for the content orthe payments to use the broad-band infrastructure that theyuse to do the disruption.

Encouraging and Protecting Innovation:ThinkMore Broadly

Ralph Alswang for The Wall Street Journal

1 TOUGHER PROTECTIONOF INNOVATIONThe U.S. should under-

stand policies and practicesused by foreign governmentsto force technology transfer totheir countries from U.S. com-panies and devise a responsethat reduces this transfer.Strengthen U.S. law, shape for-eign legal environments andencourage global appreciationof what drives innovation.

2 IMMIGRATIONPOLICIES SHOULDSUPPORT INNOVATION

Visa policy should encourageforeign students educated inthe U.S. to stay and shouldwelcome foreign investment tocreate businesses and jobs.

3 SPECIFYFIVE NATIONALINNOVATION GOALS

Energize and challenge thepopulation and schools towarda national agenda of innova-tion, in the spirit of JohnKennedy and the moon landingand Eisenhower and interstatehighways. Define public- andprivate-sector contributionsand encourage public-privatepartnerships that wouldachieve these essential goals.

4 PROTECT TANGIBLEAND INTANGIBLEINVESTMENT

Underscore and protect long-term value of tangible and in-tangible investment in innova-tion.


ENCOURAGING AND PROTECTINGINNOVATION CO-CHAIRS

Carlos Ghosn Chairman,President and CEO, Renault-Nissan Alliance

Kevin Burke Chairman,President and CEO,Consolidated Edison Inc.

Vittorio Colao CEO, VodafoneGroup PLC

Jeffrey L. Bewkes Chairman andCEO, Time Warner Inc.

SUBJECT EXPERT:

Charlene Barshefsky Partner,WilmerHale

‘The great elementof this proposal

is the involvementof the population

at large.’VITTORIO COLAO, RIGHT, WITH

KEVIN BURKE, LEFT AND

JEFFREY BEWKES

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W hen it comes toa d d r e s s i n ghealth care, thedebate in theU.S. is just a

drop in the global bucket. Thedeveloping world is facing a hostof health-care challenges—whoseeconomic effects reach all theway to America’s shores.

The Wall Street Journal’sLaura Landro moderated thetask-force discussion on globalhealth.

Here are edited excerpts of

the presentation of their priori-ties to the CEO Council.

Not Just a Moral IssueLAURA LANDRO: Global health isnot just a moral and ethical is-sue that we should be interestedin, but also a leading driver ofeconomic growth and productiv-ity or the lack thereof. The Glo-bal Health Initiative at the WorldEconomic Forum recentlychanged its focus from infectiousto noncommunicable diseases.As George Halvorson from Kai-ser-Permanente will explain, thatcame to the top of our list of rec-ommendations.GEORGE HALVORSON: Until rela-tively recently, the developingworld mostly suffered from is-sues of infectious disease. We’renow seeing the rest of the worldurbanizing. As people move fromthe countryside into cities,they’re going from eating localdiets and having a lot of physicalactivity to cities where they arebasically inert and eating whiterice, white wheat and different

food materials. So, we’re seeingan explosion of chronic condi-tions in the developing world. Amajority of deaths are comingfrom chronic conditions.

We need to do a number ofthings. One is to facilitate physi-cal activity, because when peopleare inactive, the body doesn’twork well. In order to work atmaximum levels, the body needsto move. We have to walk. Whenwe do that, the neurochemistryis better, the physiology is bet-ter, the psychology is better, de-pression levels go down.

We need to pass that informa-tion on to the world and createenvironments where physical ac-tivity is safe, possible and en-couraged. Rather than solving itat the back end with bettertreatments, we need to solve itat the front end by having fewerpeople becoming diabetic.

This feeds into the next rec-ommendation, technology. Tech-nology is significantly underusedin health care. We don’t have op-timal use of information flow.

We have a shortage of health-care providers in the world, anda problem getting informationabout care delivery to patientsin major parts of the world.

The only way we’re going tosolve that problem is by creatinga technology flow that will getinformation out to very basic-level caregivers in those set-tings, supported by primary-caredoctors upstream electronically,supported by specialists, sup-ported by electronic algorithms,supported by care systems.

What we need is a whole in-frastructure of care deliverywhere we have applications thatsupport care delivery. The worldright now is full of iPhones. Ev-erybody in the world is nowelectronically connected. That’san opportunity that we need totake advantage of. If we don’ttake advantage of that opportu-nity, we really won’t be able toimprove care in the world.

Supplying the CureMS. LANDRO: Dr. Lerer is going totalk to us about the third andfourth priorities, starting withvaccine-preventable diseases.RENÉ LERER: We know that thereare vaccines available for a num-ber of diseases that we seeworld-wide that could have amaterial impact. One of thegoals, clearly, is an industry-sponsored collaboration with thepartner countries and the hostcountries to build an infrastruc-ture for the development, the ac-cess to and then the delivery ofthe vaccines. By doing so in anaggressive way in partnershipwith those countries, we cantruly make a difference bothclinically and economically be-cause of the financial impact ofthese diseases on the countries.

The last recommendation—and one that probably everyonewould have thought would havecome first because it’s had thegreatest exposure when talkingabout health care—is HIV/AIDS.As we’ve gone into developingcountries and began to providecapabilities to treat patientswith HIV/AIDS, we become suc-cessful in one country and thenwe see it pop up in anothercountry. Developing countriesbegin to move forward in thecontinuum, and then other coun-tries have similar issues. Weknow that today HIV/AIDS is oneof the leading causes of death inthese countries, extremely com-municable, obviously.

The issue is not only thetreatment of AIDS. Really, thegoal is the prevention of AIDS.There are significant opportuni-ties to prevent AIDS by treatingthose who have it or by educat-ing folks on what it means to bepreventative in AIDS.

The second piece was to cre-ate an infrastructure within thecommunities to develop sustain-able health systems. Without ahealth system in a community,the ability to identify and deliverthe drug or the treatment or theeducation becomes extraordi-narily difficult. Historically, youspend a lot of time talking aboutpharmaceuticals, but what we’retalking about is building an in-frastructure with the country,educating folks on how to pre-vent a disease, primarily, andthen making available to themdrugs and to help in the treat-ment of this disease.

Improving Global Health:Focus on Chronic Disease


1 TACKLE NONCOMMUNI-CABLE DISEASESChronic diseases including

heart, lung, diabetes, mentalhealth and cancer are emergingas a leading threat to economicgrowth and account for 63% ofdeaths world-wide. Use tech-nology, workplace wellness pro-grams and health education tohelp treat and prevent thesediseases and the growing glo-bal problem of obesity. Focuson “best buys” for prevention:tobacco, alcohol, diet, physicalactivity.

2 DEVELOP GLOBAL USEOF HEALTHTECHNOLOGY

Encourage the growth of apublic-private global health-technology infrastructure. Ex-pand use of electronic medicalrecords, mobile applications forhealth monitoring, advice andeducation, wireless devices andtelemedicine for diagnosis andtreatment, particularly in under-served areas in the developingworld.

3 TARGET VACCINE-PREVENTABLEDISEASES

Create industry-sponsored pur-chase of vaccines and partner

with host countries in buildinginfrastructure needed to ensurevaccine delivery. This has thepotential to eradicate certaindiseases.

4 HALT SPREAD OFGLOBAL HIV/AIDSEstablish a public-private

partnership involving a consor-tium of multisector businesses,nongovernmental organizationsand the U.S. government to ap-ply scientifically proven inter-ventions to slow and ultimatelyend the global HIV/AIDS pan-demic. Strengthen sustainablehealth systems to improve ac-cess to preventive programsand pharmaceuticals.


IMPROVING GLOBAL HEALTHCO-CHAIRS

René Lerer Chairman and CEO,Magellan Health ServicesInc.

George C. Halvorson Chairmanand CEO, Kaiser Permanente

SUBJECT EXPERT:

Anthony S. Fauci Director,National Institute of Allergyand Infectious Diseases

‘We’re seeing an explosion of chronicconditions in the developing world.’

GEORGE HALVORSON

‘One goal is a collaboration with hostcountries to build a vaccine infrastructure.’

RENÉ LERER

MANAGING THE GLOBALCOMPETITION FOR RESOURCESCO-CHAIRS

Tom Albanese CEO, Rio TintoKlaus Kleinfeld Chairman and

CEO, AlcoaMikhail Shamolin CEO, JSFC

SistemaSUBJECT EXPERT:

Daniel Yergin Chairman, IHSCambridge Energy ResearchAssociates

1 FORMULATE AND DRIVEJOINT MESSAGE OF EN-ERGY AS CRUCIAL TO

ECONOMIC GROWTHEconomic and job growth willrequire growth in energyaround the globe. Energy com-panies must work together todisseminate a common, consis-tent vision across all forms ofenergy. Industry also can workto encourage efficiency andconservation.

2 CHANGE U.S. ENERGYPOLICY TO ENCOURAGERESPONSIBLE ACCESS

RATHER THAN LIMIT ITShift the policy emphasis fromenergy and resource imports to

responsible domestic develop-ment and self-sufficiency.Streamline the regulatory andlegal process top to bottom ina way that promotes responsi-ble regulation without discour-aging development.

3 INVEST IN R&DAssure sustained govern-ment investment, intelli-

gent legislation and public/pri-vate partnership in energyresearch and developmentacross the range of energy re-sources, rather than volatileand uncertain funding. For ex-ample: carbon sequestration,combined wind/solar/batterytechnologies, intelligent build-

ings and innovative transporta-tion. Government investmentshould focus on basic researchand technologies, not compa-nies or players.

4 UPGRADE ENERGYINFRASTRUCTUREThe infrastructure built

to transport energy has passedits useful life. We need abroad-based, national effort torebuild the infrastructure, in-cluding oil and gas pipelinesand an electric-distribution grid.Government must work withbusinesses so that plannedprojects stop being deferred orcanceled.


T he world has sevenbillion people, likelyheading to nine bil-lion in the next 30 or40 years, and an in-

creasing number of those peoplewant to live the lifestyle enjoyedby inhabitants of developedcountries. That’s putting seriousstrain on the world’s natural re-sources.

The Wall Street Journal’sMatt Murray moderated thetask-force discussion on pre-scriptions for ensuring fair useof those resources. Here are ed-ited excerpts of the presentationof their priorities to the CEOCouncil.

An Economic ImperativeMATT MURRAY: There wasn’t alot of argument in the roomabout the need for energy, forresources, or what kind. Therewas broader discussion aboutthe best policies to encouragethe energy we need.

We had most types of energyrepresented in that room and alot of debate and a little dis-agreement. We ended up with 15points and boiled it down tothese four.MIKHAIL SHAMOLIN: The first ba-sic point that all the participantsagreed to was that the role ofglobal energy and the vision forglobal energy needs to be sharedand well articulated among in-

dustry participants.The availability of energy is

absolutely essential to globaleconomic growth. If we look atvarious forecasts, we see de-mand for energy is going to al-most double in the next 25years. That means major threatsto global economic development,because if it’s not well-managedand well-regulated, this will leadto inevitable shortages, and in-

creases in price. And that couldhamper economic growth.

Therefore energy will beneeded in all forms, and govern-ments should not be decidingwhich form should be preferredover the other. There should bea place for gas, for coal, for nu-clear, for other forms of energy.

The majority of energy de-mand will come from countrieslike China and India. And they

will influence the global balanceof energy dramatically. So theworld needs to think about howthe energy demands by thosetwo countries will be accommo-dated, which technologies andR&D innovations will be used toboth supply demand and also en-sure global economic growth.TOM ALBANESE: During thecourse of our group, we were re-ally focusing on what can bedone differently in the UnitedStates. So the second recommen-dation became a domestic issue.And it reminded me of the con-versation we heard from JackLew [director of the U.S. Officeof Management and Budget] thismorning, when he said, “You inthe audience, you, being indus-try, you don’t have enough confi-dence in the U.S. economy tocreate jobs.”

And I was thinking to myself,“Well, I just can’t get the per-mits to create jobs.” And I thinkeveryone around the group wassaying, “We just can’t get thepermits. Or we’ve got a lawsuithere. We’ve got something here,here, or there.” There are many,many constraints at the nationallevel, at the local level, at the le-gal level that actually keep thesethings from happening.

Now, if we go back a couple

decades, when industrial policyin the U.S. was toward manufac-turing, was toward job creationin manufacturing, there was alsoa sense of needing to make surethat there was some self-suffi-ciency, whether it was energy re-sources, mineral resources, etc.It did provide a sense of stabilityand also created quite a numberof new jobs.

Over the past couple decades,we’ve had the luxury of saying,“We’ll rely on somebody else’senergy or somebody else’s re-sources as long as it’s not in mybackyard.” And that backyardcan be someone’s literal back-yard or it could be in a state orit could be at the federal level.We’ve seen policy, we’ve seenthe law moving toward a “not inmy backyard” type approach.

If resources become increas-ingly politicized, increasinglystressed or unavailable, maybewe should be looking again toour backyard. It’s there from ageologic perspective. We justhave to make it happen. And Ithink to some extent that wouldhave to do with federal policyand leadership at the top.

The Government and R&DKLAUS KLEINFELD: The thirdpoint was to invest in R&D.

There are a lot of things thathave happened in the last 20years with regard to new typesof energy, energy efficiency, newtechnologies. But we feel that weare by no means at the end ofthe rope.

We also feel that even thougha lot of companies are investingin it and have done great things,there are large fish to fry. And ithas to be done in a systematicway where the involvement ofthe government is essential. Weneed the government almost asa guiding post here to bring theplayers together from the pri-vate sector as well as from aca-demia in large-scale R&D pro-grams, taking care of some ofthe things that are so critical.

One of the discussions wasaround coal. The big question is,“How do you come up with cleancoal?” There are ways to do that.But nothing is yet at a scale thatis competitive in cost. That’s justone example.

Let’s move on to the next one,upgrading the energy infrastruc-ture. It is no secret that manyinfrastructure elements, includ-ing the energy infrastructure,are archaic. And that’s probablythe most flattering way to de-scribe it. For instance, take theenergy grid here and compare itwith the grid in China. I thinkthe latest statistic is that 50% ofthe households in Long Islandhave an emergency generator.And they are less than 35 to 45minutes away from New York. Ifyou would have that in placeslike China, people would stare atyou and would think: What agedo you come from? Are you sit-ting in the Middle Ages? That’sthe situation we’re in.

Managing the Global Competition forResources: StartWith aUnified Vision

‘If resources become increasingly stressed, maybe we should be looking to our backyard.’TOM ALBANESE, CENTER, WITH MIKHAIL SHAMOLIN, LEFT, AND KLAUS KLEINFELD

RalphAlswangforTh

eWallS

treetJournal(3)



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“I suggested in January—and I think

it was a reasonable suggestion at

the time—that fiscal stimulus should

be timely, targeted and temporary. I

frankly think the situation has deteri-

orated very substantially from that

point, and so I would go for speedy,

substantial and sustained over a sev-

eral-year interval. I think we are go-

ing to need some impetus to the

economy for two to three years.”

LAWRENCE SUMMERSFormer Treasury Secretary

FLASHBACK: CEO COUNCIL, 2008

S ince coming aboard asTreasury secretary,Timothy Geithner hasfaced wave after waveof crises—and they

show no sign of subsiding. Whatdoes he see coming in the daysahead, in the U.S. as well asChina and the troubled econo-mies of the euro zone?

Mr. Geithner discussed thesematters and more with The WallStreet Journal’s editor in chief,Robert Thomson. Here are ed-ited excerpts of their dicsussion.

A Stronger PositionROBERT THOMSON: Has the expe-rience of crises made it any moreeasy to deal with the current cir-cumstances?TIMOTHY GEITHNER: Even withall our challenges, I believewe’re in a much stronger posi-tion today to deal with what’sstill a challenging world. We didsome very hard things early toput out the worst of the finan-cial fires and force a hugeamount of private capital backinto our financial system toclean out the weakest parts ofour financial system.

We’re in a much better posi-tion because of those choicesthan we would be if we haddrifted through that period oftime, and either hoped the crisiswould burn itself out or tried topretend it didn’t exist. I’m surewe didn’t get everything right,but we did what this country al-ways does. This country, facedwith peril, has a remarkable ca-pacity to act and do hard things.

MR. THOMSON: Some would ar-gue that the peril hasn’t beenpoignant enough for profoundchange to really happen.MR. GEITHNER: We’re facing avery consequential debate aboutsome fundamental choices as acountry. Those choices are fun-damentally about what role cangovernment play and what rolecan government not play andshould not play in trying to cre-

ate conditions for strongergrowth and better opportunity.And how are we going back to apoint where we’re living withinour means as a country.

Most of the debates we faceas a country now are aboutthose two fundamental choices.How do we get more revenuesout of the economy, as part of abalanced fiscal plan, withouthurting incentives for growth?How do we do that in a way thatmakes the broader system morefair at the margin? How do weget our commitments on healthcare and pension funds moresustainable over time? How dowe do that while still preservingthat basic commitment we maketo Americans for retirement se-curity and health security?

We need to keep makingprogress toward those things,because the confidence in ourfuture as a country depends a loton demonstrating our political

system can do those things.

MR. THOMSON: Obviously, you’refocused on the unemploymentrate, but if you were to pick oneindicator in the short to mediumterm that you’re focusing on,would it be housing prices?MR. GEITHNER: Housing is stillvery tough. A lot of homeownersare innocent victims of choicesmade by others. There’s a goodpublic-policy case for trying tomake sure we reach as manypeople as we can and give thema chance, if they have hardship,to stay in their home. There’s acompelling economic, pragmaticand moral case. But housing nowmostly reflects the overall weak-ness in the economy. Housing isgoing to be harder longer, untileconomic growth is stronger andmore people have a chance toget a job.

MR. THOMSON: Which happens

first? The economy picks up andhousing recovers, or a bottomingand slight recovery in housinghelps the economy?MR. GEITHNER: You can’t engi-neer a recovery in housing thatcan lift the broader economy. Ithas to be the other way around.

MR. THOMSON: Whatever policiesare generated here, to a certainextent, are at the mercy ofwhat’s unfolding in Europe.MR. GEITHNER: Europe’s basicchallenge is how to make surethey stabilize their financial sys-tem and stabilize the ability ofItaly and Spain, in particular, toborrow at affordable interestrates—but at the same time,make sure that there is progresson these reforms to makegrowth stronger and to resolvethe basic fiscal challenges.

I think they’re gradually mak-ing progress. They have to dowhat countries always have to

do in this context, which is tofigure out a way to get enoughpolitical support for what has tohappen as quickly as possible, sothey don’t continually fall be-hind the market.

MR. THOMSON: How much influ-ence do you think you and thepresident can have?MR. GEITHNER: We have a bigstake in helping them get aheadof this problem. We are helpingthem both directly and indirectlythrough a range of things youknow about, financially. We havea lot of useful lessons from ourexperience that have some value.There have also been momentswhere they’re trying to use us tohelp resolve some of the difficul-ties. But this is Europe’s chal-lenge. And fundamentally theresolution of this is going de-pend on the choices they makegoing forward.

MR. THOMSON: Do you think infive years’ time that the eurozone members that we have nowwill be the same? Or that one ortwo countries may drop out?MR. GEITHNER: What I thinkdoesn’t matter. Their basic viewis that they will do everythingthey need to and everything theycan to hold the thing together.

Looking to ChinaMR. THOMSON: How concernedare you about the renminbi?How interested are the Chinesein a gradual appreciation?MR. GEITHNER: My sense is theChinese government believes it’sin their interest to continue toallow the currency to appreciateagainst the dollar. But they wantto move more gradually than Ithink makes sense for them andfor us and for the system. I thinkit would be better for growthprospects everywhere, not justfor Chinese inflation risk andother things, for that process tohappen more rapidly.

But the exchange rate is notthe only thing that matters.

China’s been running a prettydetermined strategy to say, “Ifyou want to sell here, we wantyou to come produce here. If youare going to come and producehere, we want you to transfertechnology, and we want you toserve your broader markets out-side China from China.”

It’s an untenable strategy,long term, for a country as largeas China. Our interests as acountry are in not just trying toget the exchange rate to movemore rapidly, which we’re havingsome success on, but trying tomake sure we’re getting China todial back those other very sub-stantial distortions they put intothe economy.

MR. THOMSON: The companies inthis room have a lot of cash.There’s a lot of cash, but actu-ally, it’s not in this room and notin this country. Should there beonce-only repatriation tax relief?MR. GEITHNER: Not outside thecontext of corporate tax reform.Repatriating costs money. Itcosts between $40 and $80 bil-lion. That’s a tax cut for Ameri-can companies. If you’re going tospend that money on a tax cut,you have to figure out how topay for it now. I don’t thinkyou’ll find the capacity to legis-late a tax cut as narrow as thatby raising taxes on other busi-nesses or individuals. And it’shard to make the economic casefor doing it at a time when wedon’t have unlimited resources.

I do think there’s an over-whelmingly compelling case forbroad-based corporate tax re-form. The basic imperative is toget the incentives better and thefundamentals better for peoplecreating and building things inthe United States. It was ourgreat strength. It’s still our greatstrength in many ways. But wecan do better at it. It’s hard todo that without looking at thetax system, and you can do itwithout adding to the burden ofindividuals or to future deficits.

It’s Time toMake Some ChoicesTimothy Geithner on the fundamental decisions the country has to start making

I t’s been a year of changeand budget brinksman-ship since the Republicansregained control of theHouse in the 2010 elec-

tions. Majority Leader Eric Can-tor talked with The Wall StreetJournal’s Gerard Baker about thepossibility of further fireworksin the two parties’ budget bat-tles, what the House can do toencourage job creation, and BenBernanke as political football.Here are edited excerpts of theirconversation.

Room in the MiddleGERARD BAKER: In a year of im-portant fiscal deadlines, we arecoming up on another one, forthe congressional supercommit-tee to devise a deficit-reductionplan. Can you assure people whofear Washington is simply notcapable of rising to this fiscalchallenge that it’s not so?ERIC CANTOR: We’ll attempt to.First of all, as far as pyrotech-nics is concerned, we’re not go-ing to see a repeat of what oc-curred in August on the creditlimit of the country. The reasonis we provided for a backstop incase Congress didn’t act on time,this so-called sequester that isput into statute at the end of theyear, taking effect a year later.

None of us want to see thatsequester be put into law. Manyof us have huge concerns aboutthe impact on the Pentagon andthe ability for this country to de-fend our interests. That havingbeen said, I remain hopeful thatwe can muster the will to cometogether to produce a result.

We’re sort of on this dualtrack because we really want togo about trying to make sure thegovernment stops spendingmoney it doesn’t have, and atthe same time do some justice tothe jobs issue and lack of eco-nomic growth that we’re facing.But we put on the table the so-called big deal. If you include thewar savings that everybodyseems to be counting, our sav-ings were over $6 trillion overthe 10-year period.

The deficit is being dispro-portionately driven by health-care entitlements. Every day,10,000 people turn 65 and be-come eligible for Medicare.Medicare receives its revenuestream or support from premi-ums and taxes. Well, the revenuestream only covers a little over50% of the program. That’s yourproblem. Every day, times10,000, you are at least 50% in

the hole. You can’t tax your wayout of that, you can’t grow yourway out of it. Which is why youhave to change the architectureof the plan.

We’ve not gotten anywhere interms of getting the other sideto join us in fixing the problem.So that’s a real divide. Butthere’s plenty of room in themiddle to try and set differencesaside so we can get at least tothe statutory charge of the com-mittee, which is $1.2 trillion to$1.5 trillion in deficit reduction.

MR. BAKER: Your party took con-trol of the House after a coupleof years in which a lot of peoplefelt that the Obama administra-tion had pursued an agenda thatwas quite tough on business. Doyou think you’ve managed tochange the environment in a waythat is perhaps more friendly to-ward business and investment?REP. CANTOR: One thing we cando for sure: We can stop legisla-tion that’s injurious to businessfrom getting across the floor ofthe House. There’s no more men-tion of card check, there’s nomore mention of a cap-and-tradetype of architecture, there’s nomore mention of another bill asfar-reaching and potentially dan-gerous as Dodd-Frank.

Our challenge is to try andstop the detrimental things thatwe believe are going on in theagencies, with what leveragethat we have. And our leveragecomes to us through the spend-ing process, gaining supportfrom the other side of the Capi-tol, and the aisle, to effect thekinds of positive change we needfor business in this country.

MR. BAKER: What measures par-ticularly would you like to seepassed quickly that would createa more business-friendly envi-ronment?REP. CANTOR: First up has to betax reform and lowering our cor-porate rates. I don’t have to tellthose of you at the helm of mul-tinational corporations based inAmerica, it’s becoming tougherand tougher to justify the domi-cile location of your headquar-ters, given our tax code. Bothsides of the aisle will say weneed to do this. That’s probablythe best thing we could do rightoff the bat for jobs.

MR. BAKER: If I can move on tothe Federal Reserve, we’re in anunusual position at the moment.We’ve got a Fed chairman who

was appointed by a Republicanpresident, reappointed by aDemocratic president, but whonow seems to be universally os-tracized by the Republican Party.Every single Republican candi-date stands up at every debateand says they will hang Ben Ber-nanke from the highest rooftopwhen they’re given the first op-portunity. Is it a healthy thingfor the Fed, this incredibly im-portant institution, to have be-come such a political football?REP. CANTOR: No, it’s not healthy.I don’t think it’s healthy to over-politicize the Fed in either direc-tion. Obviously, a lot of us havesome concerns with what is per-ceived to be loose monetary pol-icy and have expressed that.

MR. BAKER: Do you think Chair-man Bernanke should be reap-pointed if he asks, if he wantsanother term?REP. CANTOR: Mr. Bernanke issomebody who, there was no se-cret as to what he had pursuedacademically throughout his ca-reer. I mean, it was all out in theopen. So, again, I don’t know ifI’m prepared to say yes or no. Ido have a lot of respect for theman. And although we may fromthe outside disagree with whatappears to be very loose mone-tary policy, it is something that,if you look back in his writings,it shouldn’t be a surprise.

Iran and the BombMR. BAKER: At the Republican

foreign-policy debate, Mitt Rom-ney said a very striking thingabout Iran. I’m paraphrasinghere, but he said, “If PresidentObama is re-elected, Iran willhave a bomb. If you elect me,Iran won’t.” Can Iran be stoppedfrom getting a bomb, and will ittake more than just electing MittRomney to do so?REP. CANTOR: I’m going to get introuble either way with thatquestion. I do think we have got

to redouble our effort and focuson the existential threat thatIran poses to our allies in theMiddle East, from Israel to someof the other Gulf states as well.

We may reach a point atwhich the time is too late—and Ithink that’s where a lot of thediscussion is focused. Now, whenis that? When is the point atwhich we are going to be dealingwith a nuclear Iran, period? Idon’t think any of us want to get

there. So, yes, I do think we’reable to intervene. The questionis how, who and when.

MR. BAKER: If Israel decides, asit may well do for its own na-tional security, that it needs tostrike Iran, should the UnitedStates support Israel in thosecircumstances?REP. CANTOR: I’ve always saidthat Israel and the U.S., our in-terests are very much alignedwhen it comes to the war thatwe are in, in fighting the spreadof radical Islam and the rest. Aswe know, Iran has been on thelist of the state sponsors of ter-ror more than any other. It is thedestabilizer in the region, is onethat is still cooperating with theatrocities that are going on inSyria, and has a lot of influencein that region.

My concern right now is thatwe in America are sending thesignal that we’re willing andable to stand up with our alliesover there. And I’m worried thatour allies may come to a point atwhich they think they’ve got totake matters into their ownhands. And I think that if theydo so, and there becomes a pro-liferation and a nuclear armsrace in the region, we’ve got se-rious problems. So to your ques-tion about Israel and the U.S., asyou know, we work in concertvery closely with our ally there.And hopefully, we can see ourway forward together.

Budgets, Business and BernankeEric Cantor on what he hopes doesn’t happen with the budget, but may

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‘First up has to be tax reform and lowering our corporate rates.’ERIC CANTOR

‘How do we get more revenues out of the economy, as part of abalanced fiscal plan, without hurting incentives for growth?’

TIMOTHY GEITHNER


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5 pressing issues.

200 global CEOs.

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© 2011 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved.

From knowledge comes informed decisions. Thatís why business leaders

are looking for insight on todayís complex issues. And why we were the sponsored

research partner for last weekís Wall Street Journalís Annual CEO Council.

Itís where todayís most pressing business topics were discussedñeverything

from building a US export economy to improving global health.

To help spark ideas, we conducted a survey of 200 top global executives on

these topics, and key ˇndings were distributed to council participants to

provoke their insight. Find out what the CEO Council discussed at

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W hen it comes topolitical debate,the federal defi-cit is the $14trillion gorilla.

Republicans and Democrats arebutting heads about the bestway to deal with it—which alsomeans wrangling over balloon-ing programs like Medicare.

The Wall Street Journal’s Ger-ald Seib spoke with Rep. PaulRyan, a Wisconsin Republicanwho heads the House BudgetCommittee, about the prospectsfor an agreement and whatshape it might take.

Here are edited excerpts ofthe discussion.

A New Coalition?GERALD SEIB: Let me first dis-pose of the deficit question ofthe day: What’s Congress goingto do in the next week? In thenext month? Is the supercommit-tee going to have a deal, or arewe headed for another disaster?PAUL RYAN: I don’t know. How’sthat for your answer?

Our team put together a pro-gram with $1.5 trillion in sav-ings, a very serious effort. It wasdesigned with the idea of not of-fending Democrats. It put reve-nue on the table, but throughbase-broadening and gettinglower rates. And that was prettymuch rejected out of hand. TheDemocrats have yet to coalescearound a plan, so it’s challengingto negotiate with the other sidewhen they are still negotiatingwith themselves.

No matter what happens,though, we will put out anotherplan. We will budget in March.

MR. SEIB: In the months sinceyou put forward a plan in April,what have you learned about theviability of a serious plan?REP. RYAN: I feel great about it,actually. I feel, largely because ofthe infusion of energy from ournew freshmen, a little morecause, less career people. We’vedramatically moved the center ofgravity on this issue, especiallywithin our own caucus, and I seea center-right coalition to fixthis problem in the making. It’sErskine Bowles, Alice Rivlin-typeDemocrats who we agree with

on the elements of tax reform,on the elements of entitlementhealth-care reform, on the basicprinciples.

The problem is, those aren’tthe kinds of Democrats runningthe White House or in charge ofthe House and the Senate. Whatthat means is we might have towait for an election, but if theelection goes the way we want itto go, I see an opportunity towork with moderate Democratsto form a center-right coalitionwhere we once and for all fixthis problem.

The Tax QuestionMR. SEIB: If you want to drawthose kinds of people into thisexercise, don’t you have to makesome move in their direction onrevenues?REP. RYAN: Pat Toomey showedhow we would do that with hisoffer in the supercommittee,which is broaden the base, lowerrates for growth. The uniquething about our tax code is thetax base is quite narrow. Bybroadening that tax base and

getting us lower rates, you candeal with revenues that way.

But let’s not take our eye offthe ball. Spending is slated to goto about 42% of GDP by the timemy kids are my age. Revenuesstill climb as a percentage ofGDP, but nowhere near that.What I’ve learned in my 13 yearsin Congress is if you first go tothe revenue fix, it displaces theneed to deal with spending.

So let’s get the spending un-der control, let’s get the spend-ing back toward 20% of GDP, andthen let’s get fundamental taxreform that’s pro-growth.

MR. SEIB: You put on the table,for everybody to see, a premium-support alternative to the cur-rent Medicare program. You’veeither moved the debate, oryou’ve created the campaign adfor every Democrat in the coun-try next year. Maybe both.REP. RYAN: This is the plan thatBill Clinton’s bipartisan commis-sion to save Medicare recom-mended in the late ’90s. AliceRivlin and I in the fiscal commis-

sion authored this plan. I believethere’s a center-right coalitionthere for the making.

Premium support is, basically,the same thing federal employ-ees and members of Congresshave. You get a list of guaran-teed coverage options, whichworks just like Medicare Advan-tage or Medicare Part D, privateplans that are preselected byMedicare competing againsteach other for our business.

Then Medicare subsidizes ourpremiums based on who we are.More for the poor, more for thesick and the middle-income per-son than the higher-income per-son. Doing it that way, accordingto the actuaries, according to the

Congressional Budget Office,makes the program solvent andwipes out tens of trillions of dol-lars of unfunded liability, andkeeps our debt levels from get-ting out of control.

It’s the right way to go withreform because the alternative iscommand and control, with pricecontrols that come from an un-elected board of 15 bureaucrats.

What Will It Take?MR. SEIB: When you step backfrom the picture that we’ve beentalking about, I’m wonderingwhat you think has reallychanged in Washington.REP. RYAN: I’m a conservativeRepublican. We don’t have part-ners on the other side of theaisle who have brought plans ofequal measure to show how theywould do things differently.

We put out a specific planthat keeps the debt from gettingabove the 60s on GDP and goesdown from there. The presidentgave us a budget that was just arubber stamp of the baseline. It’sbeen over 900 days since theSenate passed a budget. Andwith the Budget Control Act, thedebt-limit deal, they deem them-selves their appropriation num-bers, so they won’t have to do abudget next year. They’ve de-cided, for three years now, don’teven offer a budget.

The other side is basicallyrunning against what we’ve of-fered, versus offering alterna-tives. The kinds of tax increaseyou would need to close this gapare huge, if you go down the50/50 route they were talkingabout, with 50% tax increasesand 50% spending. It’s a one-sided adult conversation hap-pening on our side of the aisle.There are moderate Democratswho do talk about these things;they’re just not in charge.

We’re getting there, and thefact that Democrats are havingpolitical downsides from not of-fering a budget, from not tack-ling the problem, speaks to thefact that we’re beginning to seerewards for actually puttingbold, specific plans on the table.

MR. SEIB: The art of politics iscompromise. One of the ques-tions that Democrats raise iswhether you could deliver acompromise of any variety giventhe makeup of your caucus andthe Tea Party influence.REP. RYAN: It’s tough to talkabout compromise when they of-fer nothing in return. They can’teven find agreement with them-selves in the supercommittee.It’s difficult to see where you aregoing to compromise when youhave nothing in the alternative.

MR. SEIB: Let’s open it up toquestions from the audience.AUDIENCE MEMBER: You witnessthe events in Europe where thereis significant meltdown. Many ofus now doubt that they will evenbe able to muddle through. Whatexternal event would shake peo-ple on both sides of the aisle intoaction in the U.S.?REP. RYAN: With the current gov-ernment, it would probably be areal credit-market crisis. Ourhope, and the point we’re tryingto make with our budget is, let’sdo fiscal consolidation, entitle-ment reform, on our terms. Butan election is probably going tohave to occur to do it the way Ijust described it.

Our hope is that the creditmarkets see that and they giveus time to have the election todo this. Europe is the big wildcard. If we have a real problemand that precipitates a contagionthat starts washing up on ourshores, that’s the fear we have.

Tackling the DeficitPaul Ryan on why he thinks Republicans are the adults in the room

‘The other side is basically running against what we’ve offered,versus offering alternatives.’

PAUL RYAN

E urope’s debt crisis ap-peared to take an om-inous turn last weekas investors dumpedthe bonds of even the

euro zone’s healthier economies,raising fears that the growingtroubles could rock the global fi-nancial system and damageworld-wide economic growth.

Against that backdrop, WorldBank President Robert Zoellicksat down with The Wall StreetJournal’s Francesco Guerrera todiscuss the global financial cri-sis, the outlook for resolving itand the implications for the fu-ture. Here are edited excerpts oftheir conversation:

Power ShiftFRANCESCO GUERRERA: A whileback you said, “The world is in adanger zone.” We meet on a daywhen the situation in Europeseems to have worsened. Howare you feeling?ROBERT ZOELLICK: We’re still in adanger zone. There are three is-sues that Europe is trying tostruggle with at once: competi-tiveness, the banking system andsovereign debt.

The three are obviously inter-related. But as they try to dealwith one problem—for example,debt reduction for Greece—itcreates the risk of uncertaintyfor sovereign debt for Italy andSpain. And the device they puttogether [European FinancialStability Facility, or EFSF], so asto try give a firewall for Italyand Spain, was clearly the weaklink. And so what you’re seeingright now is a lack of certaintyabout Italy’s and Spain’s abilityto roll over the debt. It also re-flects something quite interest-ing, which is that since Augustyou’re starting to see marketsmake judgments about gover-nance.

Three quick implications ofthis are worth paying attentionto. One is emerging markets. Thething to watch is whether thiswould start to affect consumerand business confidence in thosemarkets, in which case, sinceemerging markets have been keyto global growth, you’re in avery different situation.

Second, what the Europeansare still doing is providing li-quidity to buy time. I’m notagainst buying time, but it de-pends on how you use the time.And underneath this has to be agrowth strategy, which Europe-ans haven’t begun to address.

But the third one is thatthere’s some bigger power shiftsgoing on here. I couldn’t helpbut be struck, when I was in that

[G-20 meeting in Cannes], see-ing the emerging marketsaround the room watching theEuropeans basically be unable toget their act together and think-ing, “Well, these are the coun-tries that lectured us. These arethe countries that told us whatto do.” Maybe we’d be willing totry to help, but they’ve got tofigure out how they’re going tohelp themselves first.

If there was one feeling I leftwith, it’s that I never want tosee the U.S. in the position thatEurope was in at that meeting.

MR. GUERRERA: And if the Euro-peans can’t get their act to-gether, should someone else do itfor them? Is there any other so-lution other than the EuropeanCentral Bank becoming thelender of last resort?MR. ZOELLICK: Germany is goingto be the key to this. But Ger-many will not be able to do it byitself. It’s going to require somecareful diplomacy with France,the European Commission andother players.

Germany has a series of posi-tions that individually seem rea-sonable—they don’t want the[European Central Bank] bailingout countries that don’t makereforms, they don’t want to pourmoney down a hole with EFSF,etc. The problem is, what theGerman position comes down to

is that others in Europe need tobe more like Germany. And whilethat would be good as an eco-nomic matter, it does raise thequestion of whether it’s going tohappen and what it means forthe euro zone.MR. GUERRERA: What does thefuture look like for the EuropeanUnion and the euro zone?MR. ZOELLICK: On the one hand,there’s a feeling among the Ger-man public that they don’t wantto be taken as saps and otherpeople are going to have tostrengthen the reform process.But one should not underesti-mate the German commitmentto Europe and the EuropeanUnion.

I think what Chancellor An-gela Merkel is trying to do is tosay, “Where is this going? Whatsort of system are you going totry to create?” There are differ-ent ways you can have fiscalunion. You could assume thedebts for the past, but then al-low markets to determine forthe future. You can create vari-ous types of European struc-tures. I think this is the debatethe Germans are now pressing.

And frankly, I think you’renow at a point where Europe isgoing to have to decide.

MR. GUERRERA: There was somehope, even among Europeans,

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TheDanger ZoneRobert Zoellick on how it’s time for Europe todecide what its future will look like

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‘There are different ways youcan have fiscal union.’

ROBERT ZOELLICK

www.NASDAQOMX.com© Copyright 2011. The NASDAQ OMX Group, Inc. All Rights Reserved. Q11-1867

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“If you pile all of this that’s being

pushed through Congress—health

care, cap-and-trade, everything

else—what you will basically have

accomplished is, this completes the

vision of the New Deal. So what I

see us doing is, we’re practicing

1930s economics right now. We’re

learning all the wrong lessons from

that.”

REP. PAUL RYAN, Republican from Wisconsin

FLASHBACK: CEO COUNCIL, 2009T he U.S. has the re-sources to address itsfiscal problems. Butdoes it have the polit-ical will?

Erskine Bowles and AlanSimpson aren’t sure it does. Mr.Bowles, a former White Housechief of staff for President Clin-ton, and Mr. Simpson, a formerRepublican Senator from Wyo-ming, were co-chairmen of Presi-dent Obama’s bipartisan deficit-reduction commission. Their 10-year plan got a thumb’s-up from11 of the panel’s 18 members.

Messrs. Bowles and Simpsontalked to The Wall Street Jour-nal’s John Bussey about thecountry’s fiscal dilemma—andthe odds of doing somethingabout it. Here are edited ex-cerpts of that conversation.

The Lay of the LandJOHN BUSSEY: Can you take a

minute to give us a sense of thedimension of the issue now, andwhether you think the supercom-mittee is actually going to havethe political will to do somethingabout this.ERSKINE BOWLES: I think we facethe most predictable economiccrisis in history. It’s as clear asthe nose on my face that the fis-cal path they are on here inWashington is not sustainable.And worse yet, I know everymember of that fiscal commis-sion knows it, too.

The economics is very clear.The politics, very difficult. I’llgive you one little simple arith-metic example. If you take 100%of the revenue that came intothe country last year, every sin-gle dime of it was consumed byour mandatory spending and in-terest on the debt. Mandatoryspending in English is basicallythe entitlement programs, Medi-

care, Medicaid and Social Secu-rity. That means every singledollar we spent last year onthese two wars, on national de-fense, homeland security, educa-tion, infrastructure, high value-added research—every singledollar was borrowed, and half ofit was borrowed from foreigncountries.

That’s a formula for failure inanybody’s book.

And this is not a problem thatwe can solely grow our way outof. You could have double-digitgrowth for decades and notsolve this problem. It’s not aproblem that we can solely taxour way out of. And we can’tsimply cut our way out of it.

That’s why Alan and I cameup with what I think is a respon-sible, reasonable plan that takes$4 trillion out of our deficits—atrillion from revenue, $3 trillionfrom spending. The spending has

to come before the revenue sowe don’t get caught in one ofthose deals that Reagan did backin the ’80s. Today, where arewe? Obviously, what Alan and Iwant this group to do is to gobig—to be smart and to be bold.And I’m not sure they’re goingto do any of those three.ALAN SIMPSON: We say to peopleif you spend more than you earn,you lose your butt. If you spenda buck and borrow 41 cents of it,you’ve got to be stupid. And ifyou are borrowing today $4.6billion and doing that today andtomorrow and the next day,you’ve got to be dull with it.Now, that’s where we are.

Deadline DateMR. BUSSEY: So Nov. 23rd comesalong, and let’s say that wedon’t get a deal. And the triggersfire off—$1.2 trillion comes outof defense and discretionaryspending. Is that an acceptable,painful resolution of this?

MR. SIMPSON: Well, nobody willget blamed for it because theelection will be over. It takesplace in 2013, that’s why theyput this little package together.And don’t forget, if the heat getsreally big, they’ll just go backinto session and take the trig-gers away.MR. BOWLES: I think it’s a trav-esty if we end up at $1.2 trillionon these deductions. It doesn’tsolve a problem by any stretchof imagination. I’m afraid theAmerican people, some of them,will think it solved the problemand it certainly doesn’t.

Most people in the world willlook at us and they’ll think ofthis debt default fiasco we wentthrough in the summer. Andthey’ll think, well, this provesthese guys can’t govern. Andthen, if we put the sequester inand these guys turn around thevery next day and try to figureout how they can bust the se-quester, then I think they’ll re-ally come at us and you couldsee some really negative effectsin the market.

MR. BUSSEY: So what’s going tohappen come Nov. 23? No deal?A deal?MR. BOWLES: In my opinion,there’s probably a 10% chancethat these guys will go big.That’s about 9% higher than any-body else in town gives it. And Isay it’s 10% because, remember,all they have to do is get a sim-ple majority. We had to get a su-permajority, and we got it.

I think the politics haschanged some since last Decem-ber when we came forward with

our report because of what’sgone on in Europe—because ofthat whole debt default fiasco inthe summer. I think more peopleunderstand the problem.

And lastly, we’ve got thishammer coming in that makesthese across-the-board cuts, andacross-the-board cuts are neverthe smart way to get any budgetunder control. So, I think we’vegot about a 10% chance to gobig, and by go big I mean, doabout $4 trillion over 10 years.

I think we’ve got probably a25% to 30% chance that they’llactually come up with real cutsthat add up to $1.2 trillion or$1.5 trillion, which is their man-date. And hopefully, those won’tall be gimmicks. And that leavesat least a 50% probability thatthey won’t do anything, they’lljust completely fail.

The President’s RoleAUDIENCE QUESTION: Your presi-dential commission deliveredyour report in December. Howsurprised were you that yourcommission gave the presidenttremendous coverage to dosomething, and it wasn’t evenmentioned in the State of theUnion?MR. BOWLES: If you think youwere surprised, you should havelooked at us. I negotiated thebudget for President Clinton.And every investment bankerwill tell you the key to success isknowing your client and definingsuccess up front. So, I knewwhat success was on his part,and I could go in there and ne-gotiate the deal.

PleaseturntopageR12

AndNow aWord FromThe CommissionersErskine Bowles and Alan Simpson on whether Congresshas the political will it needs to cut the deficit

RalphAlswangforTh

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‘If the heat gets really big, they’ll just take the triggers away.’ALAN SIMPSON, LEFT, WITH ERSKINE BOWLES

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P resident Obama’s bud-get director, Jack Lew,is at the center of thedebate over the U.S.budget and how much

should be cut in the comingyears. A congressional super-committee is racing to identifyat least $1.2 trillion in budgetcuts over the next decade. If thecommittee fails to meet a dead-line of this Wednesday, auto-matic spending cuts could betriggered in 2013.

Mr. Lew spoke with GeraldSeib, The Wall Street Journal’sWashington bureau chief, aboutthe prospect for achieving sig-nificant reductions in the U.S.budget deficit. Here are editedexcepts of their discussion:

Relative OptimismGERALD SEIB: The group justheard from Erskine Bowles andAlan Simpson. I think you’veheard at least a variation oftheir presentation before. Andthey said things about the fed-eral deficit like “unsustainablepath, broken process, inability toget to the heart of the problem.”

And Erskine at one point said,“We’ll have a crisis before thoseguys figure it out.” I think by“those guys” he meant every-body in this town. Where I wouldstart, Jack, is simply by askingyou, can you offer a more opti-mistic scenario than that?JACK LEW: Well, it’s not hard tobe more optimistic than that. Er-skine Bowles and Alan Simpsondid an enormously importantpublic service this year in pre-senting a set of bipartisan rec-ommendations. While it didn’tget the job done, it helped shapethe debate. And a lot of us areworking in a world shaped bythe work they did.

I do tend to be a little moreoptimistic than that. It’s a parlorsport in Washington—callingprocesses “dead” before they’vehad their final chance. I’ve neverseen something complicateddone before the last minute inWashington. So the next fewdays are critical. Now I’m notgoing to sit here and say, “Ithink it’s 90% likely that a bigdeal comes out of the supercom-mittee.”

But I think it’s been writtenoff prematurely. If you look atthe negotiations that went onthis summer, the president andthe speaker were this close to areally historic agreement. Nowone could take the depressingview that it fell apart and there-fore nothing can happen. Or theystarted to show a way towardworking together. The workingtogether is ultimately, either thisweek or sometime in the future,going to be a balanced package.

As the Bowles-Simpson com-mission did, it’s a package thatputs revenue on the table, thatputs spending cuts on the table,that gets something big enoughdone that it inspires confidence.It’s not going to be done in alopsided way.

Over the summer PresidentObama was willing to do thingswhich were quite painful fromthe perspective of a Democratand Democratic president. Hewas willing to entertain changesin Social Security cost-of-living

adjustments. He was willing toentertain changes in the eligibil-ity age for Medicare, put in pay-ments for various services thatthere’s no payment for in Medi-care. At the end of the day wehit a wall—I think because ulti-mately Republicans in the Housewere unwilling to accept reve-nues as part of the package.

We put our views before thesupercommittee in a quite com-prehensive package that thepresident sent them in Septem-ber. They’re now struggling withthe same thing we were strug-gling with in July: What is thebalance between mandatory en-titlement savings and revenuesavings that’s fair, that’s bal-anced, that protects those whoare at the most unfortunate po-sition in life? And I’m not surewhat the outcome is going to be.

If one can read the tea leaves,they’re struggling to get to arevenue number that’s largeenough to have Democrats goforward for serious entitlement

changes. And it’s still not clearwhether they can sell that in aRepublican caucus.

Walking Backward?MR. SEIB: But you’re describing asituation in the summer in whicha deficit-reduction plan of $4trillion over the next decade wasunsustainable. Now, just a fewmonths later, we’re talkingabout whether a deficit-reduc-tion plan of $1.2 trillion is evenachievable. That sounds likewalking backward to most peo-ple.MR. LEW: Let’s remember whatwe did over the summer. We didnot accomplish $4 trillion as wehad hoped, but we did lock in $1trillion of savings in discretion-ary spending. That’s the annualappropriations. And as some-body who’s now putting togethera 2013 budget I can tell youthose caps have real meaning.

The measure of doing well inan agency will go from, “Did Igrow?” to “Did I get frozen at

last year’s level?” “Frozen” isgoing to be the new “I won.” Sowe’re in a different place thanwe were discretionary spending.

On defense, we’re close to$500 billion of savings. We’reworking on a strategic reviewwith the Defense Department.These are serious trade-offs.

The president sent a $4 tril-lion plan. I think the members ofthis committee are going backand forth as we did over thesummer.

In an odd way it’s easier to gobigger than smaller because ifyou’re picking just a few sacredcows, it’s very hard. If everyoneis in it together, in some ways itgets a little bit easier. I think insome ways they’re more likely toget a slightly larger number.They may not succeed at all, butthey may get a larger numberrather than a smaller number.

MR. SEIB: Are you suggestingthat, in its own messy way,Washington has turned the air-craft carrier on the big spendingdebate? In other words, is it sig-nificant that the discussion nowis not whether to cut spendingbut how much and how fast?MR. LEW: Well, I think we’vestarted. It’s not reasonable tosay, “The goal was $4 trillion.We did $1 trillion and we gotnothing accomplished.” Havingthe first quarter of it done issignificant.

Getting more than halfwaythere would be a very importantstep. I’ve been rooting for suc-cess for the supercommittee. Ithink it would be hugely impor-tant for the country and for con-fidence both to get the policy ac-complished and to show thatWashington can work.

It was a very bad thing fromApril to August to have a displayof dysfunction in Washington.Look at what the rating agencieshave said. We do not have an im-mediate economic crisis in ourdeficit. We have a problem thatwe can see staring us clearly inthe face just a few years downthe road. We have some time todeal with it.

The reason the downgrade ofthe U.S. credit rating happenedthis summer was not because we

didn’t implement immediatecuts. It was because the ratingagencies, as the American peopledid, saw a Washington that wasdysfunctional. That’s a very badthing. And I think breakingthrough that would be as impor-tant as the economic accom-plishment.

The Cynical ViewMR. SEIB: The cynical view,though, of the process at the mo-ment is the White House wouldbe more than happy to see fail-ure here because it sets up anelection year dynamic of a presi-dent who wants to do the rightthing against Republicans inCongress who won’t budge.MR. LEW: I think we’ve changedthe debate from one in the sum-mer where frankly a very smallnumber of extreme members ofCongress were able to hold ev-eryone in Washington and theAmerican economy on the edgeof a cliff. Would we be willing todefault on the bonds of theUnited States, or would we givein to the kinds of policy changesthat were unacceptable to us?

We said “no” to that. We said“no” to that for a good reason.You can’t deal on those terms.You cannot capitulate becausesomeone else is willing to drivethe car off the cliff.

We’re not in that situationright now. The reason it was soimportant for the economy andfor the country, really for theworld, for us to get agreementon the debt limit that went be-yond the election is we created awindow of time to have hope-fully a more civil debate. I thinkthere has been that kind of con-versation going on in the super-committee. They are strugglingwith this. They’re not done.They’re not there yet.

These are hard decisions. Toturn it just into a political issueis a mistake. It would be betterfor this to be done sooner ratherthan later. But when it’s done ithas to be done right. It has tomeet the same standard whetherit’s done now or later. Is it bal-anced? Is it fair? Is everyone be-ing asked to do their part? Anddoes it get something meaning-ful done?

It’s Crunch TimeJack Lew on why a budget agreement may have been written off prematurely


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‘I’ve never seen something complicated done before the lastminute in Washington.’

JACK LEW

that the Chinese might contrib-ute some money to the rescuepackage. Do you think they will,and if so, why?MR. ZOELLICK: To me, it is some-where between an embarrass-ment and foolhardy that Europe,where the average per-capita in-come is about $40,000 a year,should be going to China, wherethe average per-capita income isabout $4,000 a year, with a beg-ging bowl. In a world where I’mtrying to connect the economicand power and political rela-tions, that’s not a good thing.

Second, it wasn’t going tohappen. One Chinese official atCannes said to me, “Well, if Ger-many isn’t so concerned aboutthis, why should I be so worriedabout bailing it out?” And that’sthe message you’re going to getcoming out of East Asia.

Having said that, there will beinvestments. If people are goingto privatize, if there are oppor-tunities, that will come. WhatI’m talking about is big bailouts.

MR. GUERRERA: How concernedare you about the Chinese econ-omy?MR ZOELLICK: Inflation has beena risk. I think they by and largehave it under control, but I don’tthink it’s totally addressed yet.

I believe you’ll see some slow-down in the Chinese economy.

ContinuedfrompageR10 The best thing, by the way, forChina to do for the U.S. and Eu-rope is to keep growing.

But there’s something biggergoing on. The Chinese are recog-nizing that they can’t depend onexport and investment-ledgrowth in the future as theyhave for the past 30 years.

I am impressed that a countrythat’s grown at 10% a year for 30years has the presence to say,“Look, we’re going to have tochange the structure.” Becausemaybe some people in the U.S.and Europe ought to think aboutchanging the structure of theireconomies, too.

MR. GUERRERA: Where do youstand on the renminbi situation,and how does that fit into theplans by the Chinese leadershipto change the mix of their econ-omy?MR. ZOELLICK: It should appreci-ate, but I’m a practical personwho tries to deal with the worldas it is. If you bash them headon, I don’t think you’re necessar-ily going to get progress.

Many in the U.S. would seecurrencies as a price signal thatwould change structural behav-ior. In China, the view is, “If wehave price signals change andthe structure hasn’t changed, wecould have a lot of unemployedpeople and social unrest.”

So that’s where trying towork on the structural side,

while working on the price sideis the most effective means.MR. GUERRERA: The U.S.—espe-cially Congress—has been doinga lot of bashing, which hasn’thelped at all. Is there a morediplomatic way to work on this?MR. ZOELLICK: In diplomacy ingeneral, if you can find points ofmutual interest, you’re likely toget further than if you just try tooverwhelm somebody. And I’mnot sure in this case we’ll over-whelm them.

So the points of mutual inter-est are the types of things thatwe’ll be unveiling with the Chi-nese early next year that focuson some of the sectors that needto be changed, opportunities forservice-sector development, op-portunities for value-added pro-duction development.

And there will be other op-portunities. We’re starting towork with the Chinese now onthe possibility of some of thelow-value-added manufacturingmoving to third countries, in-cluding in sub-Saharan Africa.

That’s probably going to bemore fruitful, even though itmay not be as satisfying forsomebody as clubbing people.

But do you want to know thereal thing a country has to do?Quit blaming others; clean upyour own act. The U.S. needs tofix some things at home. Andthat will be the most importantthing it can do.

The Danger Zone

I did not know PresidentObama, and neither did Alan. So,we spent a tremendous amountof time with him and his eco-nomic team up front definingsuccess. And we negotiated adeal that got a majority of Re-publicans to vote for it, so hehad plenty of cover on the otherside. It also exceeded every sin-gle one of the goals that he hadgiven us.

I fully expected them to grabhold of this. If it had been Presi-dent Clinton, he would havesaid, “God, I created this, this iswonderful. It was all my idea.”

So we were really surprised.My belief is that most of themembers of the economic teamstrongly supported it. Like every

ContinuedfrompageR11 White House, there’s a small ca-bal of people that surround thepresident that he trusts andworks with, and I believe it wasthose Chicago guys, the politicalteam that convinced him that itwould be smarter for him towait and let Paul Ryan go first,and then he would look like thesensible guy in the game.

We then expected, before theState of the Union, that when hedid the stimulus, that that wouldbe a great time to say not only,look, we’re going to do this toget the economy moving for-ward, but we have to do itwithin the context of long-termfiscal reform and responsibility.And he didn’t.

If you remember the State ofthe Union, he talked about the

need for this country to invest ineducation and infrastructure andhigh-value-added research to beable to compete in a knowledge-based global economy. And he’sright about that. But he left off apart, that we have to do it in afiscally responsible way. We livein a world of limited resources,and limited resources meanchoices and priorities.MR. SIMPSON: The terrible ironyis the mandatory programs areeating a hole through those pro-grams. They are on automaticpilot. They can’t be stopped. Ev-ery day that they get deeper intheir train wreck, it takes it outof the things that PresidentObama’s speaking of. Thosethings will disappear. They willbe squeezed out.

AWord From the Commissioners



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J ust how far has Europecome in addressing thedebt problems that haveroiled financial marketsin recent months? Is the

broad package of measuresagreed to by European leaderslast month a foundation for alasting solution? And what stillneeds to be done?

Those questions were at theheart of a discussion that TheWall Street Journal’s Kelly Evanshad with Lawrence Summers,president emeritus of HarvardUniversity and former U.S. Trea-sury secretary; Glenn Hubbard,dean of Columbia BusinessSchool; and Zhu Min, deputymanaging director of the Inter-national Monetary Fund.

Here are edited excerpts oftheir conversation.

How Much Concern?KELLY EVANS: I’d like to knowwhat role the IMF is going toplay here in the European debtsituation, especially with regardto Italy.ZHU MIN: The whole frameworkis there. I think it’s moving in theright direction. We actually areworking very closely with Euro-pean members. And we are veryhappy there are new govern-ments in Italy and Greece, sowe’re looking forward to workingwith them.

MS. EVANS: But Italy’s 10-yeardebt is yielding above 7%, thelevel where in Greece, Portugaland Ireland there were IMF bail-outs.MR. ZHU: That’s very true. Butthe Italian government is deter-mined to further the deficit cuts.

They’re determined to do struc-tural reform. I think that’s all inthe right direction. The onlything is the Italian governmenthas to act, act now. There’s roomto work on it.

MS. EVANS: Larry, is there room?LAWRENCE SUMMERS: I’m dis-couraged by what my friend ZhuMin just said. The beginning ofhaving a real solution to thisproblem is recognizing that thethings that have been said beforehaven’t really been right, andhave been kinds of denial. And ifthe IMF is continuing to standwith the October framework, it iscontinuing to perpetuate the de-nial that has brought us to thispoint.

The great concern here iswe’ve seen major changes in gov-ernment in Greece and Italy.We’ve seen as much a vow ofcommitment to fiscal disciplineas we are likely to see. Fromhere, it’s likely to be erosion, notfurther building.

In every financial crisis thatbecomes most serious, there is amoment when people stop wor-rying about the fundamentals,and they start worrying aboutthe other guys and when they’regoing to flee. We crossed thatpoint about a week ago.

The prospects for success de-pend on discontinuous changewith respect to the nature of thesupport to prevent panic. And wejust haven’t seen anything likethat yet. Perhaps we will, fromthe European Central Bank. Per-haps we will from the IMF orsome coalition of countries. Butthis is not about road showsabout your measures on the defi-

cit. This is about incipient panicand whether it will be contained.

MR. ZHU: The Europeans recog-nize the issues. This is obviouslya starting point. But this is agood starting point. We at thefund have been pushing for acomprehensive program foryears. Now, finally they adopt aprogram. I think this is abso-lutely important.

I think that there’s room forus to move forward. But obvi-ously, we’re always encouragingEuropean governments to moveas fast as they can.

MS. EVANS: Glenn, what’s yourtake?GLENN HUBBARD: I share Larry’sconcern. To me there are twodiscussions. One is what do wedo to wall off the prospect of fi-nancial crisis. And that really isabout the EFSF (the euro zonerescue fund) and about the Euro-pean Central Bank’s bold actionsthat haven’t yet happened. Butthere is another conversation,too, about how do we initiateplans that provide growth aswell as austerity in peripheralEurope.

Both those conversations needto happen at the same time. Thisisn’t something where half mea-sures get you halfway there. Halfmeasures actually make it worse.We learned that in the U.S.; ap-parently we haven’t learned ityet in Europe.

China’s EconomyMS. EVANS: Underpinning a lot ofthe caution that investors haveon Wall Street about the outlookright now for the U.S., includingthe debt crisis, is a slowing inChina. How severe is that slow-ing going to be?

MR. ZHU: I think all the data sayChina is moving into a soft land-ing. We at the fund forecastroughly 9.2% GDP growth for thisyear and roughly 9% for nextyear. Obviously, compared to re-cent Chinese growth, it’s a lowerlevel, but compared to the wholeworld, this is very stronggrowth.

China is facing a lot of chal-lenges. And the most sensitive isChina has been implementingtightening monetary policy, andfiscal policy as well. WhetherChina will keep tightening orease, I think this is a big chal-lenge. It’s really got to be verycareful on that. Particularly, in-flation is still very high. So that’squite a big concern.

And the second big concern isinvestment is too strong. That’sreally obviously unsustainable.You’ve got to be very careful. Ifyou’re slowing down invest-ments, how do you maintaingrowth?

But overall we see a prettysafe soft landing in China.

The Need for UrgencyMS. EVANS: Do you think there’sa sense of urgency missing aboutdealing with the European debtcrisis?MR. SUMMERS: I wrote in the Fi-nancial Times some time agoabout how the best analysis of

the Vietnam War basically hadestablished that the way theVietnam War happened was pol-icy makers were presented withthree options.

If you do nothing, it’ll all col-lapse in the next month. If youdo A, B and C there’s a prospectof success in achieving our ob-jectives. And if you do A and abit of B, you can avoid disaster inthe next month, but no onethinks there’s a real chance forultimate success. And again andagain and again, they chose op-tion three—A and a bit of B—andeventually the policy collapsedaround them.

That’s the process we’ve beenwitnessing in Europe for the pasttwo years. And the challenge isto break out of that kind of ap-proach. Pieties about fiscal rec-titude have the enormously sub-stantial virtue of being right.There does need to be more fis-cal rectitude. But one should notconfuse accuracy with suffi-ciency. And they are not suffi-cient, given where this situationhas gotten, to stabilize the situa-tion.MR. HUBBARD: I think we have aday of reckoning coming in theU.S. as well. And I think our lead-ership needs to be as focused onhow do you blend austerity andgrowth, as the sermons we’regiving across the Atlantic.

AStart in Europe. But Just a Start.Lawrence Summers, Glenn Hubbard and Zhu Min on avoiding a European debacle

F or Alan Krueger, re-cently confirmed bythe Senate to bechairman of the WhiteHouse Council of Eco-

nomic Advisers, this is a secondtour in the Obama administra-tion. In 2009-10, he served asthe Treasury’s top economist.Last year he returned to Prince-ton University, where he is aprofessor of economics. ButPresident Obama called him backthis fall to join his economicteam, calling particularly on Mr.Krueger’s expertise on labor-market issues at a time of per-sistently high unemployment.

Mr. Krueger talked with TheWall Street Journal’s David Wes-sel about the nation’s economicchallenges. Here are edited ex-cerpts of their conversation.

Where Are the Jobs?DAVID WESSEL: Why aren’t wegetting more hiring now?ALAN KRUEGER: The recessionended in the middle of 2009. Jobgrowth started eight monthslater, which is actually quickerthan in the past two recoveries.The pace of job growth has notbeen as fast as one would like. Ithink that’s mainly because eco-nomic growth overall has beenso close to trend—in the 2.5%range, plus or minus—each quar-ter. We need faster growth toget faster job growth.

On top of that, once the Re-covery Act support started tophase out for state and localgovernments, we started to seefairly large cutbacks at the stateand local level. I think the im-portant thing is that we sustainthe recovery, that we quickenthe pace of growth. That willquicken job growth.

MR. WESSEL: Do you think regu-lation—from financial regulationto the health-care act—is slow-ing hiring?

MR. KRUEGER: We need sensibleregulations.What the presidenthas said—we need no more reg-ulations than are required to en-sure the safety and health in theAmerican people—is absolutelyright. He initiated a processwhere, administration-wide, weare looking back at regulationsto see what is no longer neces-sary. I don’t think a burst of reg-ulations or change in regulatorystance is what created the prob-lems we’ve seen for job growth.

MR. WESSEL: But look at every-thing the administration hastackled—financial regulation,health care, prospects of doingsomething on energy somedayand the tax code. Isn’t there apossibility that you add up allthese things, and it creates so

much uncertainty that the typi-cal businessperson says, “I thinkI’d rather wait six months beforehiring”?MR. KRUEGER: I certainly am con-cerned about that perception. In-vestment has been strong, prof-its have been very high.Investment has been impressive,given the pace of growth. So it’shard to square that with fearabout uncertainty over regula-tion and so on.

The fundamental problemsare related to the cause of thecrisis, the relatively weak con-sumer demand in this recovery,and weak residential construc-tion. Ordinarily, residential con-struction fuels recoveries. Butbecause of the housing bubbleand concerns about the housingmarket, we’ve seen many fewer

families purchasing homes. Ithink those are more fundamen-tal to the weak job growth.

Small-Business FormationMR. WESSEL: We’re not seeingmany small businesses created.Is this a problem going forward?MR. KRUEGER: It’s a serious prob-lem. It’s one of those problemsthat started even before the re-cession. I’ve been concerned thatthe U.S. economy is becomingless dynamic. It’s a little bit re-lated, I think, to the aging of ourwork force.

Economists have written that,following financial crises, thesmall-business sector suffers be-cause they’re very bank-depen-dent for financing. Their No. 1form of collateral is probably anentrepreneur’s home. Given the

drop in home values, that makesit harder to get credit to start abusiness. We’ve tried to supportsmall businesses to get startedwith Small Business Administra-tion programs, with the newsmall-business lending fund.

MR. WESSEL: We have 14 millionunemployed and millions morewho are on the sidelines of thework force. Yet, particularlyfrom manufacturers, I hear overand over again, “We can’t hire.”MR. KRUEGER: We’ve had a prob-lem building for a long time inour education and trading sys-tems’ not producing workers forthe wide range of skills the U.S.economy requires.But it’s not unusual at the begin-ning of a recovery to see an in-crease in vacancies relative tounemployment. The short-runchallenge is to sustain the recov-ery. That’s why the presidentproposed the American Jobs Act.If you look at the potential prob-lems coming from Europe andhow that might affect demandfor American products, the jobsact is the right medicine to sup-port demand: Continue the pay-roll-tax cut, extend support forunemployment insurance, andinvest in infrastructure, to putunemployed construction work-ers back to work.

The European ThreatMR. WESSEL: How big a threat isEurope to this slow but steadygrowth we’ve seen?MR. KRUEGER: The Europeanshave the capacity to solve theirproblems. It’s important thatthey act quickly because it’s athreat not only to Europe and tothe U.S. but to the world’s econ-omy.

MR. WESSEL: Can we continue togrow 2.5% a year, 150,000 jobs?Can we continue that, as Europeslides into recession?

MR. KRUEGER: Clearly all of theworld economies are linked; 20%of our exports, roughly, go to Eu-rope; 15% to the euro zone.

One of the reasons I thinkthe American Jobs Act is theright medicine now is to providesome insurance against theweakening in demand. And twocomponents, in particular, of thejobs act would help boost de-mand: the payroll-tax cut andthe extended unemploymentbenefits.

MR. WESSEL: This is continuingto pay people for up to 99 weeksof unemployment.MR. KRUEGER: In addition, thepresident proposed a broaderset of reforms for unemploymentinsurance, which would includeallowing companies to take peo-ple who are on unemploymentinsurance, put them in unpaidinternships, and give them sometraining and some other bene-fits. Hopefully, that turns into afull-time job. Even if it doesn’t,it helps give people experiencewhile they’re there, which willhelp them to find other jobs andlearn skills.

States can apply for waivers ifthey want to experiment withunemployment insurance. Theycould use some of the funds forwage insurance, where if some-body took a job which entailed avery big wage cut, the unem-ployment insurance funds wouldmake up some of the wage lossas a bridge back to work.

MR. WESSEL: What happens if weget to the end of the year andCongress doesn’t do the unem-ployment benefit extension,doesn’t do the payroll-tax cut?MR. KRUEGER: If they don’t ex-tend the payroll-tax cut, it’s go-ing to be a tax increase ofaround $1,000 for the medianfamily. That would be a drag ongrowth.

The President’s AgendaAlan Krueger on what’s holding back job growth—and what should be done about it


‘The fundamental problems’ include ‘the relatively weak consumerdemand in this recovery and weak residential construction.’

ALAN KRUEGER

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‘We’re encouraging European governments to move as fast as they can.’ZHU MIN, RIGHT, WITH GLENN HUBBARD, CENTER, AND LAWRENCE SUMMERS

“The message from the election is

that the uncertainty connected with

the tax rates was a primary issue. It

is something that hopefully we can

resolve prior to the end of the year,

something that I think the adminis-

tration understands cannot be done

by decoupling the rates for those un-

der $200,000 from those higher

earners.”

REP. ERIC CANTOR, Republican from Virginia




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T he economic future ofthe U.S. is bound upwith China. So howshould the govern-ment manage that re-

lationship—not only to boost theU.S. economy but win over Chi-nese leaders on key issues likehuman rights and intellectualproperty?

The Wall Street Journal’s AlanMurray spoke with Jon Hunts-man, former U.S. ambassador toChina and governor of Utah, andcurrently a candidate for the Re-publican presidential nomina-tion. Joining the discussion wereChinese entrepreneur Zhang Xinand Oleg Deripaska, a Russianbusinessman with extensive ex-perience in China.

Here are edited excerpts oftheir discussion.

No Need for a FightALAN MURRAY: Henry Kissinger’sbook on China raises the pros-pect of an epic rivalry betweenthe U.S. and China that parallelsthe rivalry between England andGermany in the 20th century. Doyou think that’s realistic?JON HUNTSMAN: I think it’s to-tally avoidable. As I heard re-peatedly serving as U.S. ambas-sador in Beijing, “We havepolitics in China, too.” To be suc-cessful in Chinese politics, youhave to have certain key constit-uencies behind you, and you’vegot to say certain things in therun-up to the Party Congress

that is going to put you in office,just like politics here.

Next year holds elections forthe United States. It also holdssweeping changes for China interms of leadership in the 18thParty Congress. So what do youexpect to hear in the run-up?Not that the United States is areliable, friendly partner, butthat we don’t like the militarypresence. We don’t like the trad-ing relationship. We don’t likethe unilateralism, the moralisticattitudes of the Americans,they’re hemming us in.

After the 18th Party Congress,Xi Jinping will rise up. After ayear of consolidating power,which will put us in 2013 orearly 2014, I believe Xi Jinping isgoing to have three years of runroom where we have an oppor-tunity, if we have the right lead-ership here, that would allow usto begin embarking upon a stra-tegic dialogue with the Chinese.

MR. MURRAY: But that’s a longtime to wait.MR. HUNTSMAN: That’s just thereality of where we are. It meansyou’ll have certain political reali-ties on the trade side. On the se-curity side, getting China’s coop-eration on Iran or North Koreawill become that much more dif-ficult, particularly when you’vegot candidates in the race whoare talking about slapping a uni-lateral tariff on China for cur-rency manipulation.

MR. MURRAY: You’re referring toGov. Romney.MR. HUNTSMAN: I’m referring toGov. Romney. There are certainthings that could make the situa-tion really bad for this countryat a time when we can least af-ford it. I say the currency issue’sgoing to take care of itself.

MR. MURRAY: Is currency manip-ulation a real problem?MR. HUNTSMAN: Of course. It’sgone on for a long time. The ren-minbi has appreciated 30% inthe last several years. It willcontinue to at a rate of maybe5% to 8%.

Because China is driven by itsown interests to revalue the ren-minbi based upon market reali-ties, they will arrive at a point inthe years to come where they’llhave more of a market-basedcurrency. Whether we tell themto do it or not, they will arriveat that point.

You certainly don’t imposetariffs. As a former trade ambas-sador, I’m not sure how you do itthrough the World Trade Organi-zation. There’s no provision thatallows one to do it through theWTO. It’s unprecedented.

And then what happens? TheChinese will then take the caseto the WTO. Two years arewasted on nonsense. And you’veblown through bandwidth thatotherwise should’ve been usedon intellectual-property protec-tion, expanding market access

for financial services and insur-ance, and working on regionalsecurity issues.

MR. MURRAY: Do you think any-one will cast their vote based onthe candidates’ views aboutChina?MR. HUNTSMAN: In those town-hall meetings we have, we talkabout rebuilding the manufac-turing muscle in America. Howis that going to happen? We talkabout the tax reform that will benecessary, the regulatory fixes tocreate a more transparent andpredictable environment. Youtalk to folks about rebuilding ourmanufacturing muscle by takingadvantage of the investment thatflows in a knee-jerk fashion intothe China market and has for along time.

That’s changing. Unemploy-ment’s going to spike in China.With unemployment you’ve got alarger itinerant work forceroaming the countryside. Thatputs pressures on the large east-ern cities, and that results in po-litical instability and uncertainty.

And I think the investmentdollar that always just lands inChina is going to be looking foran alternative. This countrywould be absolutely nuts if wedidn’t position ourselves to bethat alternative. It’s not going tohappen overnight, but we canstart taking the steps to manu-facture here.

MR. MURRAY: But then you needa strong Chinese market as therecipient.MR. HUNTSMAN: Of course. TheChinese market, with the largestconsumer class in recent history,is going to be a vacuum for ourproducts.

MR. MURRAY: How can we dowhat you’re talking about ifcompanies don’t feel their intel-lectual property is safe over-seas?MR. HUNTSMAN: We can make amore aggressive outreach to theemerging entrepreneurial classof China, saying, “This is notAmerica’s issue. This is yours.This is your intellectual propertythat increasingly you’re develop-ing that is viable on the globaleconomic stage.” Then you cou-ple that with selective outreachto the municipalities and theprovinces that actually want towork with you on it.

MR. MURRAY: What about humanrights?MR. HUNTSMAN: I think there isan opening here. Xi Jinping,who’s a fairly pragmatic guy, isgoing to consolidate power. He’sgoing to have two or three,maybe four years, of run room.Our job then in our U.S.-Chinarelationship is to infuse sharedvalues into the relationship togive it the glue and the stayingpower that will make it success-ful in the decades to come.

MR. MURRAY: On the scale ofchallenges that the next presi-dent of the United States willface, how high is this one?MR. HUNTSMAN: I would arguethat Iran is the most transcen-dent foreign-policy challenge,which could take a lot of band-width out of the Oval Office. Buton a day-to-day management ba-sis, when it comes to economics,security, trade and investment,there’s only one relationshipthat matters in the world. TheUnited States and China are nowon the world stage.

Losing Trust?MR. MURRAY: Xin, please respondto the governor’s vision aboutwhere we’re headed.ZHANG XIN: I think that Chinawill face major challenges in thenear term. With every genera-tion of leaders, the power basehas become weaker and weaker.

When you go on the Chineseblogs, you will see how littlecredibility the Chinese govern-ment has among the Chinesepeople. I think that will be themajor challenge. How do you ad-dress a country where the gov-erning power is losing the trustof the people?

MR. MURRAY: Oleg, we’ve seensome things in the last couple ofyears that might suggest the be-ginnings of a new Russia/Chinaaxis.OLEG DERIPASKA: Russia defi-nitely would like to benefit fromChina’s growth and Chinese eco-nomic development. We have ahuge economy hungry for re-sources. We have a new opportu-nity with components developedin China and which are very ben-eficial for our enterprise. It willbe an economic partnership. Itwouldn’t be a political partner-ship, just because we’re quitedifferent animals.

MR. MURRAY: Is it possible, giventhe problems in Europe and therelative stagnation in the U.S.,for China to continue to grow at8%, 9%, 10% or higher?MS. ZHANG: If you leave it to themarket, yes, no problem. The po-tential problem is the govern-ment. Right now, the govern-ment is moving backward fromreally loving the market to nottrusting the market.

ChinaHas Politics, TooJon Huntsman on why 2013 may be the perfect time to engagethe Chinese in constructive dialogue

W omen now grad-uate from col-lege in greaternumbers thanmen and enter

the work force at similar rates.Yet at every career stage, menare more likely to advance thanwomen.

In April, The Wall StreetJournal convened a group ofleaders to examine the causes ofthis disparity and identify keysteps businesses can take to re-tain and develop female talent.

The Journal’s Rebecca Blu-menstein sat down with threemembers of the task force forthe conference—actor Geena Da-vis, founder of the Geena DavisInstitute on Gender in Media;Debra Lee, chairman and chiefexecutive of Viacom Inc.’s BETNetworks; and Dominic Barton,global managing director of Mc-Kinsey & Co., the research part-ner—to further discuss the issueof women and economic compet-itiveness. Here are edited ex-cerpts of their conversation:

CEO AccountabilityREBECCA BLUMENSTEIN: Dominic,

what most surprised you aboutthe research that McKinsey didfor the task force on the role ofwomen in the economy?DOMINIC BARTON: First of all,this is an economic priority. Thisisn’t about being politically cor-rect. If you look back at our pro-ductivity growth, particularly inthe U.S. but in other countries aswell, from the 1970s until today,the fact that more women en-tered the work force was a bigdriver of GDP growth. In a snap-shot, the number of women par-ticipating in the work force wentfrom about 41% to 56% over a40-year period. If they didn’tjoin the work force, that wouldhave been a 25% hit to GDP.

But while we’ve seen a lot ofprogress over a 40-year period,our sense is that it’s begun toplateau. I look at our own firmon that front, where we’re tryingto find the best talent in theworld, and 25% of our intake arewomen, even though 58% of thecollege graduates are women.What’s going on?

The second thing that struckme was if you look at the corpo-rate world today, about 53% of

the workers coming in arewomen. Then it dwindles. Thefemale participation rate kind ofgoes 53% at the entry level, andthen 37% at the next level up—lower-middle management.Then, at the VP level, it’s 28%.And at the executive committee,it’s about 14% and then, 3%.

And when you try to find outwhy, it's interesting to see thatsome of the barriers are not thetraditional ones. There are is-sues about flexibility, but a lot ofthe barriers are actually aroundthe mind-sets of senior execu-tives. Can we really risk having asenior woman in this role? Whatif she leaves? What if she goesand has children? It’s never saidexplicitly, but it’s quite implicitin terms of what is happening.

MS. BLUMENSTEIN: Debra, youwere also on the task force lastyear. Can you share with ussome of the recommendations?DEBRA LEE: The first is holdingthe CEO accountable—that asthe CEO, you have an obligationto make sure that women areable to move up the ranks inyour company, whatever it takes,

whether it’s through mentoringprograms or taking a personalinterest in a couple of womenexecutives yourself.

The other is expecting thatthere’s a balance of men andwomen in the C-suite, and again,holding others at that level ac-countable.

There was a data point thatmen are promoted on potential,and women are promoted onperformance, which I had neverheard of before, but I thoughtwas very interesting.

And so, one of the recommen-dations is that women should bepromoted on potential. If yousee a young woman who youknow will go far at the company,she should be pushed along.Don’t wait for her to do some-thing amazing, which is usuallythe way it happens with women.

There are corporate boards,which everyone agrees providean amazing opportunity forwomen. CEOs should ensurethere are women on theirboards, but they also should rec-ommend women within theircompany to serve on otherboards.

When I became COO of BETNetworks, one of the great train-ing grounds for me was theboards I served on. Being able tosee other CEOs in action, andlearning from them, and gettingexposure outside my own com-pany, and being able to networkwere very important.

MS. BLUMENSTEIN: Geena, youare well-known for your movieroles, but you’ve been very busythese days with the Geena DavisInstitute on Gender in Media.Can you share with us what yourresearch has shown about howmedia shapes the way we allview the world?GEENA DAVIS: Everybody knowsthat in Hollywood, there arefewer interesting parts forwomen, and female charactersare sexualized a lot. But what Ididn’t know until I had a daugh-ter and started watching G-ratedmovies with her was that we areshowing kids a really almost ’50sversion of society where thereare far fewer female characters,and the ones that are there arehighly stereotyped. They don’tget to do very much. They’re

very much hypersexualized.The first study we did on G-

rated movies covered a 15-yearspan. We found that for everyone female character, there arethree male characters. In crowdscenes, there’s only 17% femalecharacters, which is verystrange.

We just completed a study onthe occupations in G-rated mov-ies and found that 80% of thejobs are held by male characters.And of the women who holdjobs, there are no scientists,medical professionals, lawyers,politicians, business executives.

Clearly, we’re transmitting avery disempowering and nega-tive message about girls to kids.

Choosing WomenMS. BLUMENSTEIN: Dominic, youjust laid out the McKinsey re-search. How is your companydoing on this front?MR. BARTON: We’re not doing aswell as we should be. If you lookat the numbers, we’re not wherewe need to be, so we’re losingon the talent side. Part of it isthe places we go to recruit—

PleaseturntopageR15

TheHigh Cost of the Gender GapDominic Barton, Geena Davis and Debra Lee on why CEOs need to focus more on women


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‘The fact that more women entered thework force was a big driver of GDP growth.’

DOMINIC BARTON

‘Our job is to infuse shared values into therelationship that will make it successful.’

JON HUNTSMAN

“We’ll have differences among us on

health care. That’s what healthy

public-policy debates are about. You

cannot control the deficit in this

country without dealing with health-

care costs. You can’t control what

happens in your company without

getting health-care costs under con-

trol. And that’s true for the United

States government.”

RAHM EMANUEL, then President Obama’s chief of staff


‘We are showing kids a really almost ’50sversion of society.’

GEENA DAVIS

‘It’s about making sure you haverepresentation on your executive team.’

DEBRA LEE



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I t’s been nearly threeyears since former VicePresident Dick Cheney leftoffice, but the elite Wash-ington insider and long-

time defense expert has notcome close to leaving the lime-light. With a presidential elec-tion approaching and security is-sues still high on the agenda, hewill no doubt continue to be afocus of much debate.

Mr. Cheney shared his obser-vations on foreign policy in aninterview with Journal EditorialPage Editor Paul Gigot. What fol-lows are edited excerpts of theirconversation.

Grading the War on TerrorPAUL GIGOT: What marks wouldyou give this administration infighting the war on terror?DICK CHENEY: Certainly they’vedone some things right. Thedeath of Bin Laden, for example.The use of drone attacks goingafter the leaders of al Qaeda,and so forth, with the Predatorsystem that we developed andused originally. I think that’sgone reasonably well.

The president had to make acouple of decisions. I don’t thinkthey were that difficult. I thinkwe would love to have had theopportunity to do that ourselves.

MR. GIGOT: You don’t think thedecision to actually pursue BinLaden inside Pakistan was aclose call?MR. CHENEY: No. It clearlyneeded to be done.

My concern has been I thinkthe Obama administration hasinappropriately characterizedwhat they inherited from us. Itwould have been nice if they’dsaid, “Yeah, we benefited fromwhat the prior administrationdid, by way of interrogation anddeveloping these original leadsthat ultimately put us on BinLaden’s trail.” But set that aside,that’s politics. The fact of thematter is I think it’s been policy.

I was very upset when we hadtalk by the Justice Departmentabout prosecuting the intelli-gence professionals who’d car-ried out our policies in the en-hanced-interrogation area.They’ve backed off that since.That’s good.

I worry that we do not havenow the capacity to interrogatehigh-value targets. I think thatprogram’s been shut down. Ifthere’s been a replacement putin place, I don’t know what it is.

One of the ways we alwaysbenefited from that program waswhen we took down a target—Abu Musab al Zarqawi, for ex-ample—we were able to capturehard drives and a lot of intelli-gence that could be quickly ex-ploited to run out several days’

worth of effort against the ter-rorist organization.

‘Reluctant Converts’MR. GIGOT: Guantanamo’s stillopen, military tribunals of enemycombatants are being pursued. Alot of the things that were very,very contentious in your admin-istration have been maintained.And yet, they’re not so contro-versial now. What do you makeof that?MR. CHENEY: They campaignedagainst most of those programs.They’re reluctant converts. But Ithink they’ve made the right de-cision with respect to Guantan-amo. It’s still open.

There are reasons why we didwhat we did, and they’re stillvalid. And I think they’velearned, over time, the benefit ofthat. And I’ll give them credit forthe enhanced drone program andthe fact that they have been verysuccessful in terms of taking outadditional targets.

MR. GIGOT: You spent a lot oftime on Iran and their nuclearprogram when you were in of-fice. They are back in the newsagain with the recent U.N. reportthat they are pursuing a weap-ons system. Do you have anydoubts that they are intent upongetting a bomb?MR. CHENEY: I don’t. I think theyclearly are committed.

MR. GIGOT: Remember in 2007,the national intelligence estimatewhich said with high confidencethat Iran had abandoned theirprogram in 2003. How do we getfrom 2007 to now 2011 wherethe U.N. essentially says, “Yes,they have been pursuing it

across this whole period”?MR. CHENEY: I remember whenthe N.I.E. came out, I was actu-ally confronted by friends of theU.S. who suggested that we hadarranged for that finding to alle-viate any requirement we mighthave felt to do something aboutthe Iranian nuclear program.That’s not what we were doing.

What the N.I.E. process pro-duced was clearly a flawed re-sult. It, in part, flowed out of thecontinuing legacy, if you will, ofthe national intelligence esti-mate on Iraq [weapons of massdestruction] that turned out tobe wrong as well. There’s a pro-cess that had been adhered to.But it produced a flawed result,without question.

MR. GIGOT: We have news reportsthat Israel is thinking againabout a strike on the Iranian nu-clear facilities. You faced a simi-lar situation regarding Syria.From your memoir, I know thatthe Israeli officials came to youand said, “Here’s the intelligencewe have about Syria.” Tell ushow it played out inside the ad-ministration.MR. CHENEY: This would havebeen early 2007. We acquired in-telligence that said the NorthKoreans had assisted the Syriansin building a nuclear reactor ineastern Syria. We, I, had greatconfidence that this was goodintelligence. I advocated a courseof action that would have in-volved a military strike by theU.S. to take it out.

It was a target all by itself inthe desert. There wasn’t likely tobe any collateral damage. Thereactor had not yet been fueled,so there wasn’t likely to be any

radioactive fallout. It was a verydoable proposition.

The decision was made not todo that. The president was reluc-tant. Partly, there were doubtsabout, “How good’s the intelli-gence?” Again, part of the legacyof the earlier failures on IraqWMD.

The Israelis decided they’dtake it out, and they did. Itworked perfectly. There wasnever any word at that time. Itwas a great opportunity for usto demonstrate to the Iraniansthat we were prepared to usemilitary force, if necessary, toblock proliferation or the acqui-sition of a terrorist-sponsoringstate of nuclear capability. Un-fortunately, I lost the argument.

MR. GIGOT: Do you have anydoubt that if the Israelis con-clude the U.S. will not act mili-tarily against Iran, they willstrike on their own?MR. CHENEY: I think there’s avery good possibility that the Is-raelis view this as a fundamentalthreat to their existence and thatthey will act.

MR. GIGOT: If you were president,

what would you do to dissuadethem?MR. CHENEY: I’m not sure Iwould. If they decide they needto do that, I would like to thinkthat the U.S. would be support-ive.

‘Head of the Snake’MR. GIGOT: Former Secretary ofState James Baker says he’s con-vinced Iran will get a nuclearweapon. He argues that it’s acontainable problem—that ifthey do get a nuclear weapon,you could put together an alli-ance and a containment strat-egy. Do you agree that Iran witha nuclear weapon would be con-tainable?MR. CHENEY: I don’t. I think it’s amistake to assume that Iran willoperate the same way the Sovi-ets did when confronted by theU.S. We followed a policy of mu-tually assured destruction thatled to deterrence, effectively.And both of us were reasonable,responsible, if you will, interna-tional actors. And it still was atime of considerable tension, ob-viously.

With Iran, it’s not at all clearto me that mutual assured de-struction would have the samedeterrent value. They are proba-bly the leading state sponsor ofterror in the world today. Theyare the prime sponsors of Hez-bollah and Hamas. The capabili-ties that they would acquire,were they to build an inventoryof nuclear weapons, frankly, area frightening prospect.

I had the experience of goingto Riyadh to visit with the Sau-dis and to Tel Aviv to visit withthe Israelis. And if you closedyour eyes and listened to the ar-guments, you couldn’t tell whichcity you were in. They both wereextraordinarily concerned aboutIran and the possible develop-ment of nuclear capability inIran. Both used the same anal-ogy. They said, “You’ve got tocut off the head of the snake.”

MR. GIGOT: But one says it pub-licly, and one says it privately.MR. CHENEY: Yes. There’s a fun-damental shift under way in thatpart of the world, in terms ofthe decline in U.S. power and in-

fluence. And it comes in theform of a rush for the exits inIraq and Afghanistan. The ad-ministration failed to followthrough on a new status-of-forces agreement with the Iraqisso we could have a stay-behindforce there that would help themwith their security requirements.

A nuclear-armed Iran isclearly going to be the dominantpower in that part of the world.And people that have tradition-ally and historically been goodfriends and supporters of theU.S. are going to have seriousquestions about whether or notthey can count on us going for-ward.

MR. GIGOT: So if the president didorder a military strike againstIran’s nuclear facilities, your re-action would be?MR. CHENEY: I would be inclinedto support him.

MR. GIGOT: You were famouslyquoted in the early part of theBush administration as sayingthat deficits don’t matter. That’swhen debt as a share of GDPwas about 40% or so, and defi-cits were about 4% of GDP. Nowit’s 9% of GDP as a deficit andcloser to 70% of debt as a shareof GDP. Do deficits matter morenow?MR. CHENEY: I think it’s impor-tant to put that comment in con-text. I had, during my 10 years inthe House, one of the most con-servative voting records. I thinkmy conservative credentials arewell-established, in terms of fis-cal policy. But this was in theearly days of the administration.I was referring to the beginningof the Reagan administration,when he simultaneously cuttaxes, reduced revenue and in-creased defense spending.

He didn’t pay a political pricefor the deficit that resulted. Itturned out to be sound policy,both in terms of the militarybuildup, as well as the change intax policy and the reduction inrates and so forth. And there arecircumstances under which justthe deficit per se doesn’t havethe kind of political conse-quences that we’re faced withnow, obviously.

Giving the President His DueDick Cheney on how the Obama administration has gotten some things right in the war on terror


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‘There are reasons why we did what we did, and they’re still valid.’DICK CHENEY

“When it comes to the deficit, the

Department of Defense is not the

problem. If you cut the defense bud-

get by 10%, which would be cata-

strophic in terms of force structure,

that’s $55 billion on a $1.4 trillion

deficit. And frankly, the idea that de-

fense would take half of the cut in

discretionary spending, particularly

given what we’re trying to do in

terms of preserving security, is a

problem for me.”

ROBERT GATES, then Secretary of Defense


there’s like 40% women in someof the business schools and soforth. But there’s more that wecan do, and we have to make it apriority. So if I think about ap-pointments that I would do, if Ihave a choice between a manand a woman and they’re equalin what they’ll do, I will defer tothe woman.MS. LEE: Yes, I think one of theimportant things is to keep fo-cused on it. After I had beenCOO for four or five years, Ilooked around my senior staffmeeting and it was 95% men.How did I let it get to this point?I had taken my eye off the ball.

And it’s not about quotas. It’sabout making sure you have rep-resentation on your executiveteam, and whether that’s minori-

ContinuedfrompageR14

ties or women, whatever it is,you have to retain a focus on it.

So the next several openings Ihad I just insisted that if therewas a female and a male, thatwe would lean toward the femalebecause I had to rejigger what Iwas dealing with in terms of anexecutive team.

I now have at least four orfive female executives, and it’sreally turned the companyaround in terms of how we dealwith each other.

MS. BLUMENSTEIN: Debra, to befair, a lot of this has, in the past,been written off to women andchildbearing. You have two kids.What role do you think that doesor should play in the equation?MS. LEE: With technology, youcan do your job from anywherenow. And if you’re committed tothe company, you’re going to putforth the effort.

I had two children during my

25 years at BET—my son is 22years old, my daughter is 18.They were always part of myprofession. They went to eventswith me. They knew what I did.They understood.

As an executive, you usuallyhave flexibility to determineyour schedule. If I had to take ared-eye back from Los Angelesto make it to the holiday pro-gram to see my son give oneline, that’s what I would do. Youmake it work.

The interesting thing I seenow is that men are dealing withthe same issues because of therate of divorce, because men arenow single fathers. I have maleexecutives coming to me at 3 inthe afternoon saying they needto leave for a soccer game. Soit’s not just women. It’s an issuethat companies have to deal within general, and it shouldn’t beused as an excuse of why womencan’t move up the ranks.

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