A Prosperity Agenda for the 21st Century
Quick Links:
Tax Reform
Math and Science Education
Health Reform
Medicare & Social Security
The challenge of economic competition from China and India will require transformations in litigation, education, taxation, regulation, environmental and health policies for America to continue to be the most successful economy in the world and the best source of high paying jobs and enough economic growth to sustain the Baby Boomers and their children when they retire, especially the transformation of math and science education in America. This is the single greatest challenge to our continued economic and national security leadership. Without a profound improvement in math and science learning, America will simply not be able to sustain its national security nor compete for high value jobs in the world market.
For the last two decades, the Europeans have looked with scorn upon the American model of free enterprise. Their response to innovation and challenge has been economic isolationism, rule-¬rigging, and graceful decay. While they know that a welfare state and unionized work rules are expensive and inefficient, they’ve decided to live with them.
In the United States, there exists a coalition of union leaders who prefer protection over competition; environmental extremists who value nature over the well-being and prosperity of their fellow citizens; and liberal intellectuals who distrust the fluidity and uncertainty of the market and prefer the orderliness of command bureaucracies. This liberal coalition complains about companies’ outsourcing jobs while insisting on corporate taxes that encourage companies to go overseas. They prefer that government impose on business obsolete, absurd work rules, even though these raise costs, lower productivity, and make America less competitive in the world market. These liberals believe in expanding regulation even when it fails to meet any cost-benefit test and clearly drives jobs out of the United States. The Left refuses to reform litigation or create a better system of civil ¬justice even though it knows the explosion of lawsuits makes it less desirable to create jobs and invest in the United States.
The challenge to American economic supremacy from 1.3 billion Chinese and more than 1.1 billion Indians is vastly greater than anything we have previously seen. India’s embrace of capitalism and China’s bizarre combination of Marxist-Leninist government and free market initiatives will create a future where one-fourth of the world’s markets will be controlled by these countries. Those who advocate economic isolationism and protectionism are advocating a policy that could help China and India surpass the United States in economic power in our children’s or grandchildren’s lifetime.
AN AMERICAN STRATEGY FOR COMPETING IN A GLOBAL ECONOMY
Tax Reform
We need to change our tax policies to make American companies more competitive around the world. One example is the tax incentives for corporate headquarters location. There was a significant tax advantage for Daimler to acquire Chrysler but there was a significant disadvantage for Chrysler to acquire Daimler. By remaining blind to the consequences of our tax code, we are favoring market forces that will gradually lead to more takeovers of American companies by foreign firms (e.g. Siemens taking over Westinghouse). The European Union now blocks American mergers even between American companies (e.g., Honeywell and General Electric). If we want the United States to be the multinational headquarters of the world, we are going to have to rewrite our tax laws so that there are no tax disadvantages to an American firm acquiring an overseas competitor. Moreover, we might want to consider creating an incentive for American firms to make acquisitions so the United States becomes the center of executive talent in the world.
The United States is creating millions of jobs while the job market in Europe continues to stagnate. Moreover, the United States has a rising productivity rate that is beginning to pull away from the European Union. America’s new jobs have been to a large degree higher paying, cleaner, healthier, and more desirable than the jobs they replaced. The insourcing of new jobs is far greater than the outsourcing we hear so much about in political and news media rhetoric.
Taxes make a big impact on innovation and adaptation. The United States needs a tax code that favors work, savings, investment, productivity, and creative entrepreneurs. We should abolish the death tax permanently so that entrepreneurs, family farmers, and business owners no longer have to fear losing their life’s work to the tax collector.
Furthermore, we must eliminate the capital gains tax to encourage investing. Federal Reserve Chairman Alan Greenspan testified that the most economical rate for taxing capital gains is zero because tax-free capital gains will encourage much greater risk-taking and lead to more entrepreneurial behavior. This leads to more prosperity, a bigger economy, and better jobs.
We should create tax incentives that encourage research and development. The 50 percent research and development tax credit should be made permanent and be applied to companies that are willing to take on government’s “grand challenges” (for example, the first inhabitable moon base). Investments in new technology and machinery should also be expensed 100 percent in the first year. The present complex code of depreciation makes no sense in a time of rapid change. It is better to encourage overinvestment in new technology and new machinery to keep American workers at the cutting edge of opportunity. Our goal should be to ensure that American workers have newer, better, and more productive equipment than their foreign counterparts.
Investment in new knowledge to expand the human capital available should be 100 percent deductible as long as it is job or profession related. The deduction could be taken by either the company or the individual depending on who made the investment.
These changes would dramatically accelerate America’s competitive development, help us lead the world in productivity, and create high-value jobs.
Reform of Math and Science Learning
For over a century, the pace of progress in America has been driven by the discoveries of scientists and technologists, brought to the marketplace by entrepreneurs in the form of products and services. We have flourished and lead the world because we have adapted to the opportunities created by science and technology. Countries that have ignored these opportunities have fallen behind in standards of living and quality of life.
In April 1983, the Reagan administration warned America that our failure in education was becoming a major national security concern. In A Nation at Risk, we were told that America was literally at risk because of the failings of its education system. The report noted that “[o]ur once unchallenged preeminence in commerce, industry, science, and technological innovation is being overtaken by competitors throughout the world.” It went on to soberly conclude that “what was unimaginable a generation ago has begun to occur – others are matching and surpassing our educational attainments.”
America’s high schools are obsolete and cannot teach kids what they need to know to succeed today. Bill Gates recently spoke of his fears for the future in an address to the National Governors Association (NGA). He noted: “In math and science, our 4th graders are among the top students in the world. By 8th grade, they’re in the middle of the pack. By 12th grade, U.S. students are scoring near the bottom of all industrialized nations.” He concluded that “In the international competition to have the biggest and best supply of knowledge workers, America is falling behind.”
Winning the challenge of China and India will require profound domestic transformations, especially in math and science education, for America to continue to be the most successful economy in the world and the best source of high paying jobs and enough economic growth to sustain the Baby Boomers and their children when they retire.
The collapse of math and science education in the United States and the relative decline of investment in basic research is an enormous strategic threat to American national security. This is a strategically disappearing advantage. There is a grave danger that the United States will find itself collapsing in scientific and technological capabilities in our lifetime. In fact, the 14 bipartisan members of the Hart-Rudman Commission on national security unanimously agreed that the failure of math and science education is a greater threat than any conceivable conventional war in the next 25 years. The Commission went on to assert that only a nuclear or biological weapon going off in an American city was a greater threat.
Improving math and science education is the single greatest challenge to our continued economic and national security leadership. Without a profound improvement in math and science learning, America will simply not be able to sustain its national security nor compete for high value jobs in the world market.
This is among the most important decisions our generation will make about our country’s future and our children’s future. For the last twenty years, we have tried to improve education while accepting the fundamental principles of a failed system, guarded by the education bureaucrats and teachers unions. We must now transform math and science education or fall behind. It really is that simple.
One Solution Idea – A Pilot Project to Pay Kids to Learn Math and Science
Keeping America competitive in the twenty-first century is dependent upon having increasing number of students studying math and science. This will be an enormous challenge. Getting students to study math and science may be done through incentives. We should experiment with paying students for taking difficult subjects in math and science. In this world of immediate gratification, many young people in poorer neighborhoods look to athletes and musicians as their future and drugs and violence become their reality when their hopes inevitably most often fail. The long and difficult road to becoming a PhD. in math or chemistry has virtually no support in these neighborhoods nor is it presented as an attractive way out. But, if as early as seventh grade there were some economic reward for learning math and science, which competes head to head with McDonalds, the signal sent would be immediate and dramatic. If the rewards went up as the classes grew more difficult we would have students pouring into math and science instead of fleeing it.
We should therefore conduct a pilot project to see if this approach can be successful. And we should begin by targeting a poor inner city district where the potential for sending a strong signal is perhaps strongest.
Other Solution Ideas
The earning by learning approach to math and science outlined here is only one idea we should pursue in dramatically transforming math and science learning. Set forth below is a set of other ideas:
One, we should set a goal of eliminating fifty percent of the education bureaucracy outside the classroom and the laboratory and dedicate the savings to financing the improvements in math and science education.
There has been a steady growth in the amount of money spent on red tape, bureaucracy, and supervision. We now have curriculum specialists who consult with curriculum consultants, who work with curriculum supervisors, who manage curriculum department heads, who occasionally meet with teachers. The more we seem to spend on education, the smaller the share we spend on inspiring and rewarding those actually doing the educating.
Two, the students must have informed, enthusiastic, and confident teachers guiding them in difficult subjects. We therefore need to foster and encourage teacher specialists who have mastered a subject matter, such as engineers and mathematicians. They should be allowed to teach after taking only one course on the fundamentals of teaching. They should be allowed to teach part-time so that more professionals can have the opportunity to share their knowledge and experience in the classroom. Moreover, every state should pass a law establishing an absolute preference for part-time specialists with real knowledge over full-time teachers who do not know the subject. Finally, by the 2008 school year, no one should be allowed to teach math and science that is not competent in the subject matter.
Three, we should apply the free enterprise system to our education system by introducing competition among schools, administrators, and teachers. Our educators should be paid based on their performance and held accountable based on clear standards with real consequences.
Four, graduates willing to stay in math and science fields should pay zero interest on their student loans until their incomes reach four times the national average income. This would encourage students to stay in these needed fields and continue to pursue knowledge.
Five, we should reward the best and brightest high school graduates and fully fund their further education. Norman Augustine, the former Chairman and CEO of Lockheed Martin and former Undersecretary of the Army, recently testified before the House Committee on Education and the Workforce. He recommended an America’s Scholars Program to fully find the undergraduate and graduate education on the physical sciences, math, biosciences, or engineering of the top 1,000 high school seniors each year. These scholarships would be based on academic success and ability to maintain the highest degree of excellence throughout the remainder of their education.
Six, we should reward and encourage private sector participation in math and science education. We should provide a tax credit to corporations that fund basic research in science and technology at our nation’s universities.
Seven, Congressman Frank Wolf was exactly right in a letter he sent to President Bush in May that cited the urgent national security need to triple the federal budget allocation for innovation – basic science research and development -- over the next decade. America must act to rebuild our core strength in basic science research and development so that America can maintain its global position long into the 21st Century.
Our past achievements in science, technology, and economic growth will disappear if we fail to transform our system of math and science education and make more investments in basic research. The ability to provide jobs and the American way of life in the 21st century depends on our competitiveness with China and India, which in turn, depends on our success in leading the world in math and science education and continuing to be the world leader in innovation.
These ideas are designed to stimulate thinking beyond the timid “let’s do more of the same” that has greeted every call for rethinking math and science education. If the future and safety of our country really are at stake in the areas of math, science, and engineering, then we can do no less than respond with an appropriate intensity and scale.
Health Reform
Today, health costs are the largest sector of the economy and it will get bigger as new and expensive breakthroughs in medicine come on-line and the numbers of aging baby boomers explode. Some studies show health care growing from almost 14 percent of our economy today to 21 percent (or one out of every five dollars) in a few decades. Without dramatic change, the current system will gradually crowd out more and more spending on other items. Already governors are seeing their Medicaid and state employee health costs eat into education, highways, law enforcement, and other budget priorities. Many businesses now rank health care as their fastest-growing expense and believe that it is a serious burden in competing internationally.
If our country takes the right approach, baby boomers will live longer and better, cost their children less, and create an economic boom for America.
Yet there is also the possibility that we will take the wrong approach. Indeed, the approach favored by much of the news media, many politicians, and liberal government and corporate bureaucracies is the wrong approach.
Virtually every political story about health focuses on “reforms” for our problems: the rising cost of health care, the challenge of the uninsured, the state and federal budget crises, the high cost of drugs, litigation, nursing shortages, doctor unhappiness. The list goes on and on. The truth is that the current health system cannot be reformed because its approach is profoundly wrong in three specific areas. First, it emphasizes acute care rather than wellness, early detection, and prevention. Second, it focuses on third-party payments, an area in which the individual has little responsibility, little knowledge, and no control. And third, it relies on paper (i.e. paper medical records and paper prescriptions) rather than information technology. This has contributed to as many as 98,000 deaths in hospitals due to preventable medical errors.
We need to transform our health care system based on an entirely new set of principles. Our new 21st Century Intelligent Health System will be built around three big changes:
- Move knowledge from the doctor’s office and scientific laboratory to the individual as rapidly as possible;
- Help the health care system adopt top quality information technology systems to increase productivity, accuracy, and cut costs; and
- Center the process of health on the informed individual so he or she can have the knowledge, desire, responsibility, and opportunity to live the longest life, with the best health, at the lowest cost.
If these three big changes occur, we will live longer, healthier lives and spend less on health care than we do now.
Productivity has continued to explode in many of America’s industries. But health care has been wrongly insulated from the competition that brings about higher productivity and lower cost. The issue is not that health care is different. In fact, when there is a commercial market in health care, prices behave much as they do in any industry. Everyone has watched the cost of laser eye surgery decline as it has grown more common, more convenient, and safer. Studies have shown that the cost of cosmetic surgery, where people research quality and price, and pay out of their own pockets, has risen slower than the cost of living and in some cases has even decreased. When people are involved and quality and price information are available, people do in fact behave rationally in health care just as they do in purchasing other products and services.
The lesson of nearly four hundred years of entrepreneurial, technology and science-based free market capitalism is very clear. You should expect to get more choices of higher quality at falling prices. This is the opposite of the rationing mentality of some left-wing politicians and the scarcity mentality of too many bureaucrats.
We need to bring these concepts into health and health care. We must insist that doctors, hospitals, medical technologies, and drugs have both quality and cost information available on-line so people can make informed decisions. We can then shift the purchasing decision to the patient and his family so they can make their own cost and quality trade-off decisions.
There should also be an on-line drug purchasing system where patients, doctors, and pharmacists can choose the best product at the best prices, and it should be an after-pay system. Financial incentives could potentially bring down drug prices by 30 to 50 percent from the current marketplace. We should insist that every hospital have computerized order-entry for medication; bar-coding for drugs, technologies, and supplies; and automated medication dispensing.
Indeed, the health system must become paperless. Health information should be made available on-line and in real-time to both providers and patients so they can easily, conveniently, and inexpensively understand their options and their costs. This “right to know” about cost, quality, and outcome should be established in every state. And we should set a standard that doctors who become paperless get electronic funds transferred every night so they no longer lose money waiting to be paid.
If we insist on modernizing the health system and turning it into an entrepreneurial system with honest reporting of costs and quality, we will rapidly see dramatic changes. Hospitals will start billing based on real costs rather than on stunningly complex cross-subsidies no one understands.
We will also have to develop new models of compensation. A fee-for-transaction model is a bad model because it encourages the doctor to do just enough to bring you back for another transaction to earn another fee. Today we pay for visits and we get billed for visits. With new information systems, we can measure outcomes. When we pay for better outcomes, we will start getting more providers focused on wellness rather than acute care.
The wide-scale availability of information on the best practices and outcomes creates an opportunity to develop a new system of health justice. Malpractice insurance is driving doctors out of their practices. If we do not do something decisive to replace the predatory, personal injury lawyer-enrichment system with a more responsible system of health justice, we will end up as a country with richer and richer lawyers while the rest of us get poorer and poorer health care.
Promoting Active Healthy Aging
Medicare and Social Security Systems for the 21st Century
The very success of more people living longer will require dramatic transformation in pensions, Social Security and health so that seniors can have active, healthy aging and long term living without the demands on Social Security, Medicare, and related government programs collapsing the current system.
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