REMARKS AS PREPARED FOR DELIVERY SANDY K. BARUAH ASSISTANT SECRETARY OF COMMERCE FOR ECONOMIC DEVELOPMENT - BOZEMAN, MONTANA “NEW FRONTIERS CONFERENCE”

MONDAY, June 2, 2008

AS PREPARED FOR DELIVERY

Introduction by U.S. Senator Max Baucus, Chairman Senate Finance Committee

I. OPENING

Senator Baucus, thank you for that kind introduction. Senator Baucus is a important figure in critical national issues. As Chairman of the Senate Finance Committee and Subcommittee Chair of the Environment and Public Works Committee, he plays an important role in supporting the work of the Department of Commerce’s Economic Development Administration. I thank him for his important work on issues central to our economic competitiveness and for his hosting this important conference today.

Last evening, I had the pleasure – for the first time – to meet Senator Jon Tester, one of the newest members of the United States Senate. I want to thank him as well for his commitment to public service as well as Congressman Denny Rehberg who has served this state with passion and honor for thirty years.

I am also pleased to be sharing the stage with one of the truly great leaders of technology and commerce in the 21st Century – Meg Whitman. My job as the Assistant Secretary of Commerce is to give away money, Meg Whitman’s knack was to make money – so we have a very good paring of speakers this morning.

Montana is a special place for me. I come from the West, Oregon, and yearn for Big Sky Country – which is a concept that is very difficult for me to explain to my wife who is from New York – who asks; “isn’t the sky the same size everywhere?”

Also, my grandmother and my departed grandfather lived in Kalispell for years and ran a successful TV repair business.

But Montana has come a long way from the days when we actually repaired TVs. What I see in Montana today is a state working hard to address the “what’s next” challenge of the 21st Century.

II. ECONOMIC PICTURE TODAY

We meet at a time when many Americans are facing challenges. They are concerned about the economy. Gas prices are high by U.S. standards ($3.94) – and seem to continue to rise. This is driving up the price of not only getting to work – a particular issue in places like Montana with vast distances between here and there – the run up in energy prices is impacting food and other costs. This is slowing our economic growth. After six years of record economic growth, our economy is indeed growing at a slower pace than the President, me, and you, would like.

Up until earlier this year, the U.S. was engaged in the longest job expansion in our history – over 50 months of continuous job growth. Even today, when we are all watching the economy closely and when real people are facing real challenges, our unemployment rate is just 5%. 5% is the rate that many economists, including the ones I had in grad school, considered to be the “full employment” level. In fact, in the 1990s, when our unemployment rate finally dipped to 5%, it was heralded as a clear indicator of a strong and growing economy. So I urge you to take the dire predictions of the talking heads on TV with a grain of salt.

Our economy is still growing – not something you’d realize by just listening to the media – led by booming U.S. exports. Last quarter, our GDP grew nearly 1% following 2.2% growth in 2007. While this is not set-your-hair-on-fire GDP growth, it is positive growth and demonstrates that our economy continues to function and is on a sound foundation.

Of course, the big news is the economic stimulus package – the $160 billion bi-partisan deal created by President Bush and Congressional leaders like Max Baucus – which is putting rebate checks into the bank accounts of hard working Americans of up to $1,800 for a family of four.

This economic stimulus is above and beyond the tax cuts President Bush enacted during his time in office. The Bush tax cuts have returned over $1 trillion to American taxpayers and small businesses – and despite these unprecedented tax cuts, tax revenues are up more than 37% over the last three years.

III. LOOKING FORWARD – FIVE NEW REALITIES

Of course, looking backward is all well and good – the question for Montana is where to from here? For it takes both smart pro-growth national policies and forward-looking regional action in order for economic growth to occur. As I see it, there are 5 realities of 21st century economic development we must understand and respond to.

Reality #1 of the 21st Century economy: While perhaps the most obvious, it’s also the most important; and it’s that we are truly in a Global Economy, or as New York Times columnist Tom Friedman says – the world is…flat. In our new flat global marketplace, competition is not just from the company next door, the city next door, or even the county or state next door; our competition today comes from any person on any point on this globe with a good idea, a good education, and a good Internet connection.

I know they told you there would be no math today, but I have pop quiz for you: Which is of the following products is the most American?

o Pontiac GTO

o Toyota Sienna

o Ford Mustang

What’s more American? A Toyota Camry built in the United States, or a Ford Fusion built in Mexico? We are not the only nation struggling with this question. You know, they build Fords in Germany. What’s more German, a Ford built in Germany, or a BMW built in South Carolina? Interesting questions, with perhaps no right answer.

Part of the reality of the flat global marketplace is that 95% of our potential customers as American businesses and workers live in a country not called America. The vast majority of our customers – current and potential – live outside our borders.

That’s why Free Trade Agreements – FTAs – are so important to those of us interested in economic growth and job creation. When President Bush took office, we had Free Trade Agreements with just 3 countries – Israel, Canada and Mexico. Today, we have free trade agreements with 15 countries with three more in the approval process.

FTAs help our companies, farmers, manufacturers, and workers gain access to new markets around the world – access to the 95% of our potential customers that don’t call America home.

One of the jobs that economic development organizations have is to educate companies on how to take advantage of the benefits of Free Trade Agreements – because only a small percentage of businesses today are exporting, and they are missing out on a world of opportunity. Businesses that export pay more than average wages and are more successful than non-exporting companies.

Reality #2: The pace of change will only continue to accelerate. We live in a dynamic, changing world. While some may wish for the simpler, slower times of our past, the world doesn’t work that way. Think of this: it took 55 years for the automobile to spread to one-quarter of the U.S. population. It took only 7 years for the Internet to reach that same milestone. Imagine how quickly we will adopt the next big thing.

The nature of innovation itself is changing: innovation is becoming multidisciplinary as different technologies converge, creating new fields…fields that didn’t even exist a few years ago.

This new reality where cycle times for products and ideas continue to shrink will require all institutions – public, private, educational, and non-profit – to continually adapt and change. Those that don’t are at risk. Those that do have the opportunity for reward.

Reality #3: The world becomes more complicated every day. In order to respond to this increased complexity, we must realize that we have reached a point where the components of economic competitiveness can no longer be pursued separately. Just as technologies are converging to create new fields of innovation, the components of economic competitiveness are merging to shape economic growth in the 21st century. This reality holds two important lessons for the local and regional level:

First, the idea of workforce development, community development, economic development, educational programs and research occurring in separate silos can no longer be tolerated. The interconnected challenges of these components of competitiveness must be tackled in concert.

Second, in our new 21st century global marketplace, we must acknowledge what we all learned on the school playgrounds of our youth, that we are stronger when we stand together than when we stand alone.

Standing together means that we need to look beyond traditional institutional and political jurisdictions – the city boundary, the county line, even the division between States – and work together. Because the competitiveness of America’s companies is in large part tied to the competitiveness of the economic regions in which they do business.

Right here in Montana there exists a best-in-class example of working together to pursue economic competitiveness. Eastern Montana’s Workforce Innovation in Regional Economic Development – WIRED – initiative is a prime example of multiple jurisdictions coming together with the private sector, institutions of higher education and the Federal Government, the U.S. Department of Labor, to work collaboratively to marry up economic development and workforce development and to work across city and county political jurisdictions to support leading-edge, “what’s next” companies in the bio-technology field.

Reality #4: Public-Private partnerships become more critical every day. While governments at all levels, universities and other non-profit institutions are important players, let’s not forget that the private sector is the most important element of any successful economic development strategy. Unless the private sector is ready, willing and able to invest in a community, economic growth simply will not occur, regardless of how much government spends.

The private sector should be helping to shape – within the parameters of public accountability, of course – the development strategies that will lead to more higher-skill, higher-wage jobs. If the private sector is not fully engaged as a partner for long-term economic development, it is the responsibility of the private sector to demand to be included in the economic development planning activities that will directly impact the economic fortunes of a region.

In addition to economic development organizations, universities can play a central role in convening the public and private sectors for the purposes of economic development. The fact that the Montana State University System is a co-sponsor of this event tells me that Montana’s institutions of higher learning recognize their important role as key drivers of economic competitiveness.

Reality #5: At the end of the day, it is the ability to innovate that is the only possible sustainable competitive advantage in the 21st century. It’s not location. It’s not the cost of doing business. Factors such as these will continually shift in a dynamic worldwide economy. But if a nation, region, or company can maintain its edge in innovation, it will grow and prosper.

America is clearly the world’s leader in innovation. From Edison's light bulb to Jarvik’s artificial heart to Steve Job’s iPod to Meg Whitman’s eBay to the frozen pizza, we have brought more technological breakthroughs to the marketplace than any other nation – and this has made not just America, but the world, safer, healthier, more productive, and more prosperous.

While there is no “one size fits all” strategy for advancing innovation, one thing is clear; universities are ideally suited to help.

In most parts of the world, the division between the world of Ivory Tower Academia and the world of Commerce are indeed worlds apart.

Universities in the U.S., however, are far more engaged with the private sector – and that is a competitive advantage for the United States. Universities, like companies, are engaged in a fierce battle for world-class talent – both for professors and students – and the basic work of universities is forward looking. By design, the role universities play in educating and shaping the leaders of tomorrow keep these institutions continually refreshed with new ideas and new approaches – what more critical tool for addressing the competitive challenges of the 21st Century global marketplace?

That’s why the Economic Development Administration supports university-led economic development. EDA is the Federal Government’s venture capitalist for innovative economic development, and some of our best investments support university-led initiatives. EDA has invested $300 million in universities to support 800 development projects since 2001.

EDA also supports a University Center Program to help leverage the vast resources that universities offer, including research capabilities, to help companies and communities enhance their innovative edge – and I’m pleased to report that EDA supports a University Center at Montana State University here in Bozeman.

Those are – as I see them – the five realities facing the economic development community in the 21st Century:

• We are in a global economy.

• The pace of change will continue to accelerate.

• The components of competitiveness can no longer be pursued separately – and we must work collaboratively.

• Public-private partnerships are more critical then ever.

• And innovation is the only sustainable competitive advantage.

This last point – about innovation – cannot be overstated or applied broadly enough. Some view innovation as the exclusive domain of private industry. But government, education, and non-profit organizations have the same responsibility to be innovative in their approach to fit the changing times. Innovation is just as important in the public and non-profit sectors as it is in the private sector.

In our dynamic, global economy, we can no longer rely on business models or government approaches designed for yesterday’s environment. If we know one thing about the future, it is that being able to adapt – at both an institutional and individual level – will be the key to our success. It comes down to our ability to innovate – answer the “what’s next” question.

And if innovation and the ability to adapt are the keys to our success, let’s be careful about where we look for solutions. Certainly, government is important – there is no doubt about that. But let’s remember that government, especially at the Federal level, is a blunt instrument. We are often slow to react, resistant to change, and broad in our approach. While this is by design, it is also problematic in our fast paced global marketplace.

Just a few days ago, the Secretary of Commerce and I hosted the National Summit on American Competitiveness. We brought in leading academics like Michael Porter of Harvard, innovative governors like Sanford and Napolitano, and corporate leaders like Jim McNerney of Boeing, Jim Owens of Caterpillar, Craig Barrett of Intel, Lou Gerstner the former CEO of IBM, Steve Chen of YouTube and others. Listening to these certified smart people, what struck me was their focus on the need for innovation in our public education system. Nothing is more central to meeting our competitive challenge than better preparing our children for the worldwide marketplace.

The most competitive companies, industries, and organizations are the one that have re-thought, re-engineered, and re-envisioned the way they do business. A challenge for us all regardless what industry or field of study we pursue, because we all have to answer the “what’s next” question.

IV. CLOSE

So, on behalf of the President of the United States, it has been my sincere pleasure to be with you and Senator Baucus today. My best wishes for an enjoyable and successful conference.

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