REMARKS AS PREPARED FOR DELIVERY - SANDY K. BARUAH, ASSISTANT SECRETARY OF COMMERCE FOR ECONOMIC DEVELOPMENT - WILLAMETTE UNIVERSITY, MBA PROGRAM - SALEM, OREGON

TUESDAY, OCTOBER 3, 2006

AS PREPARED FOR DELIVERY

Introduction by Jim Goodrich, Dean, Graduate School of Management, Willamette University

Thank you, Dean Goodrich, for that kind introduction. It’s great to be back home in Oregon, and I’m particularly pleased to be back on Willamette’s campus as this institution has played an important role in my professional development. I appreciate the opportunity to see some old friends, bring back some fond memories and meet and talk to the students who are seated where I was just over a decade ago.

As students here at the Atkinson School prepare themselves for the 21st Century, I thought I’d do three primary things with our time together this afternoon.

First, I want to give you a lay-of-the-land – put America’s current economic performance into a bit of context.

Second, I’d like to describe for you 5 “new realities” of our 21st Century economy as I see them from my chair at the Commerce Department.

And finally, I’d like to describe a few of major efforts we are working on at the Commerce Department that will help our nation make the transition to the 21st Century economy.

THE NATIONAL ECONOMIC CONTEXT

Our economic performance today. At the National level, I’m pleased to report that the economic outlook is positive. Despite the terror attacks of 2001, corporate scandals, the bursting of the Internet bubble, devastating natural disasters, a global war on terror, and recent high gas prices – our economy is resilient and strong.

The U.S. economy created over 128,000 new jobs in August and about 2 million new jobs in the last year – and for those of you keeping score at home, that’s about 5.7 million new jobs created since August 2003.

Our unemployment rate is 4.7%, which many economists say is essentially full employment, and is lower than where we were at the time of the 2001 terror attacks.

Over the first half of this year, the U.S. economy grew at a 4% rate – faster than any other major industrialized country. Our growth rate is almost twice that of any E.U. nation and private sector forecasters expect solid levels of growth to continue for the rest of this year and into 2007.

Real, inflation adjusted after tax incomes have increased about 15% since January 2001 as wages grow faster than the past couple of years and are growing at about the same rate as in the late 1990s. And now employee compensation per hour has

More Americans own their own their own home than ever before – about 70% – which is a key economic driver.

Inflation and interest rates remain in check and near historic lows.

The Conference Board’s Consumer Confidence Index – a gauge of consumer sentiment – came in higher than expected in September as Americans are now paying less at the gasoline pump. The L.A. Times reported recently that a majority of Americans believe that our economy is on the right track.

And despite returning $880 billion to American taxpayers as part of President Bush’s tax cuts, tax revenues are up 11% in 2006 over last year and the Federal Government is collecting taxes at the highest level in history.

So, there is a lot of positive economic news out there, and while the bulk of the credit goes to American workers and businesses, I know that the pro-active steps President Bush has taken have put our economy on the right path.

THE FIVE NEW REALITIES

So, that’s the snapshot of our performance today – Let’s now look into the future. I’d like to add to this context by summarizing what I have learned traveling the country the past five years representing President Bush before audiences interested in economic development. As we move into the 21st Century, I believe there are 5 new realities of our new economy.

New Reality #1: While perhaps the most obvious, it’s the most important, which is that we are truly in a Global Economy, or as New York Times columnist Tom Friedman says, the world is – say it with me – flat.

In the new flat, global economy, competition is not just from the firm down the road, our competition comes from any person in any corner of the globe with a good education, a good idea, and a good Internet connection.

I know they promised you there’d be no math today, but I have a little globalization pop quiz for you: Which of the following cars is more “American:” the Ford Mustang, the Toyota Siena mini-van, or the Pontiac GTO?

• The Pontiac is actually Australian (GM’s Holden)

• The Ford and the Toyota are both built here in America, but the Mustang has about 60% American parts content and the Toyota has about 90% American part content.

Here’s good automotive tongue-twister: If you drive a Volvo station wagon, you are actually driving a Swedish Ford built in Belgium.

So, yes, our competition is indeed global, but with global competition comes opportunities for global partnerships – opportunities to expand our markets and increase our competitiveness. And, with 95% of potential customers for American products outside the United States, this reality becomes more important every passing day.

Of course, here in Oregon, you already know this. Thanks to Oregon’s governor in the 1980’s, Vic Atiyeh Oregon has grown into one of the top 10 States in the nation in terms of foreign exports as measured by gross state product. This is a critical competitive advantage for the State. And Oregon’s continued leadership in international trade will be one of the keys to ensuring its prosperity in the new flat global economy.

New Reality #2: Competition is intense, and the pace of change will continue to accelerate. It took 55 years for the automobile to spread to one-quarter of the U.S. population. It took 35 years for the telephone to do the same thing. The personal computer accomplished the same level of market penetration in 16 years, 13 years for the cell phone and only 7 years for the Internet.

There are good jobs that exist today that we couldn’t even dream up two years ago: Podcast manager…Blog writer…I-Pod accessory manufacturer…Satellite radio host.

Even the nature of innovation itself is changing: Innovation is becoming multidisciplinary as different technologies converge to create new fields that didn’t even exist a few decades ago. People smarter than me debate where bioinformatics or nanotechnology will take us, but all agree that they will become major drivers of the U.S. economy.

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.

Time is a master with no mercy. As leaders, we are all responsible for adapting and evolving our organizations to meet the challenges that time will bring. This is difficult, because with today’s rapid pace of change, change is often necessary before people are ready to embrace it – which is a particular challenge for governments at all levels.

New Reality #3: Yes, the world becomes a bit 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 competitiveness can no longer be pursued separately. Just as technologies are converging to create new fields of innovation, so are the components of competitiveness 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, and educational programs occurring in separate silos can no longer be tolerated.

The interconnected challenges of workforce, education, community and economic development must be tackled in concert – with each element leveraging the other.

Second, in our new 21st Century, Tom Friedman-the-world-is-flat reality, we must acknowledge what we all learned on the elementary school playground, that we are stronger when we stand together than when we stand alone.

We need to look beyond traditional 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.

New Reality #4: Public-Private partnerships becomes more critical every day. While governments at all levels and non-profit institutions can be 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 have not just a seat at the table, but should be actively engaged as full partners in strategies for economic growth.

The 5th Reality is that America is positioned to win in the 21st Century. This nation has never encountered a challenge it has not met. We are the most competitive, productive, and innovative country the world has ever known:

• The U.S. has just 5% of the world’s population, but 40% of global wealth;

• The U.S. employs fully one-third of the world’s scientists and engineers and accounts for 40% of global R&D spending;

• America continues to be the country of choice for millions across the globe who are seeking learning and economic opportunity. And we are the most important market on the planet.

And as I stated earlier in my remarks, the fundamentals of our economy are sound.

What will help us keep our edge is innovation – innovation focused on increasing the competitiveness of American workers, American businesses, American schools, and key American institutions including government. At the end of the day, innovation is our only possible sustainable competitive advantage.

BUSH ADMINISTRATION PRIORITIES

So those are the “new realities” of our new economy. There are several initiatives that we are working on that touch on these realities like immigration reform, intellectual property rights protection, our relationship with China, and others. But as you know, the Federal Government is a big place, and I’m going to mention just three priorities that might be of particular interest to this Willamette audience.

1. First, Free Trade. Free and fair trade helps create more higher-skill, higher-wage jobs for American workers by opening new markets for American products and services, bringing lower prices and more choices to American consumers, and attracting foreign companies to invest and hire in the United States. People like Lou Dobbs on CNN are good at telling us only one side of the story. America, and American workers are better off as a whole because of our participation in the world-wide economy. But even the most vocal free trade supporter must acknowledge that our rapid transition to the 21st Century has caused pain and disruption for several of our fellow citizens.

The President has acted aggressively to negotiate trade agreements that slash foreign tariffs and remove the barriers.

When President Bush took office in 2001, we had free trade agreements with 3 countries: Mexico, Canada and Israel. Currently, we have free trade agreements with 13 countries and we have 10 more in various stages of consideration. And this is important because our trade deficit is substantially less with countries where we have a free trade agreement in place.

Furthermore, beyond job creation alone, there is a long-term national security aspect to promoting free trade. Nations with strong commercial relationships don’t go to war with each other – their interests are too intertwined. The same is true with democracy – democratic nations don’t go to war with each other. And the number of nations in the world that live under democratic governments is exploding. In 1945, there were about two dozen democracies in the world. Today, there are 122. The march of democracy is on and the tide of history is strongly against the terrorists who have brought their radical ideology and fight to our doorstep.

2. Second, The American Competitiveness Initiative. In President Bush’s State of the Union Address in February, he announced the American Competitiveness Initiative – the “ACI.” The ACI is a bold proposal that will focus the Federal Government on specific activities that will help America keep its competitive edge.

Among the many things called for in the ACI is to double the Federal investment over the next decade in basic research – especially in the innovation-enabling physical sciences. This type of research is at the bleeding edge – the type of certified-smart-guy research that the private sector will not or cannot do. This Federal commitment to basic research will put the Federal research budget at the level, on a percentage basis, as it was during the Apollo Space program of the 1960s.

The ACI also contains elements that support math and science education and promote R&D in the private sector, especially in the applied research areas. This is important because two-thirds of all R&D in America is conducted by the private sector and if innovation is our only possible sustainable advantage as a nation, we need an even greater emphasis on R&D in order to sustain our competitive advantage.

And, finally, since this is a management school, I want to tell you about one of President Bush’s initiatives that I’m most passionate about: The President’s Management Agenda.

3. The President’s Management Agenda – or “PMA” as it’s called brings out my management geek side – which I use to balance my policy wonk side. I believe in being a well-balanced person.

Most presidents come into office to focus on policy. After all, policy is sexy. People remember successfully policy initiatives – they don’t remember that you made government run better. President Bush is committed to both the policy side and the management side like no other past president.

The PMA is focused on bringing accountability and strong management principles to government. And trust me, government needs a strong dose of accountability and management.

The PMA has spawned concepts such as performance metrics and balanced scorecards for Federal agencies. The President’s Office of Management and Budget is evaluating all Federal programs for results achieved and is posting this information on a new website, www.expectmore.gov. At this site, anyone can see how particular Federal programs are performing and how they ranked compared to other similar Federal programs.

This gets us beyond the emotion of what the goals of particular program are, or what the noble sounding title of a Federal program might be and moves the debate to results achieved. The way I see it it’s the difference between what’s a good use of taxpayer dollars versus what’s the best use of taxpayer dollars. If your standard is simply what’s a good use of taxpayer resources, you can justify just about anything that’s not pure waste, fraud, and abuse. If, however, you treat the Federal budget as finite resource, not an infinite resource, and your standard is “what is the best use of these resources,” you are in a position to begin to make tough but necessary prioritizations.

So, that’s my homecoming message for Willamette. Our five new realities of our new economy and three initiatives we are working on that address our relationship with the world-wide market-place, promoting our continued economic competitiveness, and what we are doing to fix how government operates and make it more accountable and efficient.

It is my distinct pleasure to back here at Willamette. I have had a wonderful afternoon visiting with students, meeting the new members of the faculty and catching up with old friends like Steve Maser, Mike Hand, Judy O’Neil and others.

Dean Goodrich, once again, thank you for your hospitality. I’ve enjoyed my day in Salem and look forward to your questions.

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