BHQ Issue #9

BUSINESSHORIZONQUARTERLY

MICHIGANTHE COMEBACK STATEpg. 10

7 ELEMENTS OFECONOMIC OPPORTUNITYpg. 28

pg. 4

I S S U E N O . 9

PUBLISHERJOHN McKERNAN

EDITOR-IN-CHIEFRICH COOPER

ASSOCIATE EDITORMICHAEL HENDRIX

CONTRIBUTING ROLESANDREA BITELY SENIOR MANAGER, DIGITAL MEDIA

MELISSA GUAYRESEARCHER

BRIAN G. MILLERSENIOR MANAGER, PRODUCTION

DESIGN AND LAYOUT BYADFERO GROUP

A special thanks to the U.S. Chamber of Commerce Foundation and Chamber teams that made this publication possible through their creative contributions and hard work.

Letters to the editor:[email protected]

Copyright © 2013 U.S. CHAMBEROF COMMERCE FOUNDATION

There are opportunities regardless of where you go in life. Such are the lessons of a career in public service and business that have brought me to where I am today—the new President of the U.S. Chamber of Commerce Foundation. This opportunity, like many I’ve encountered in my life, came to me somewhat unexpectedly. Upon reflection, though, it is one I have prepared for throughout my career, and it’s one I could not be more pleased to have.

When you see what the U. S. Chamber of Commerce Foundation accomplishes, it is easy to see that it touches on a national mission of its own. It aims to build relationships across the country, prepare business leaders for the road ahead, and foster consensus on our greatest interests. These goals not only define the Foundation, but they reflect the cherished aspirations of our country across its history.

In meeting with the U.S. Chamber’s leadership, the Foundation’s staff, and many of the Chamber’s members these past months, I’ve thought back to the beginning of my tenure as the Governor of Maine and to an advertisement I put in The Wall Street Journal. The goal of the ad was to let people know who I was and where I looked to lead my home state. In large letters at the top of the page read the word, “Coast?” Immediately below read: “In Maine, it is something we have, not something we do!”

That message and mission for me has not changed.

We have a lot to celebrate with the Foundation, but going forward, we will be focusing even more on our mission to empower free enterprise and move our country forward.

The challenges we have before us as a nation are certainly daunting, but that has never held back our American dream. That was as true for the first Pilgrim settlers as it was for the westward pioneers. It is also true for today’s entrepreneurs who turn over the “Open for Business” sign on a daily basis.

The grand American experiment that our Founders gave to us is to keep it ever-vibrant and forever free—and to be ready to hand it off to new generations to keep our country going forward. That’s a mission the Foundation will proudly serve. I welcome your input along the way.

Sincerely,

John McKernan

A note from the publisher

The Emerging Issues program of

the U.S. Chamber of Commerce

Foundation provides research and

insight into the emerging issues

impacting the free enterprise

system and the business

community. Through its Scholars

& Fellows program, the Business

Horizon Quarterly, the Business

Horizon Series, and other content

platforms and programmatic

offerings, the Foundation seeks to

inform business and government

leaders as well as proactively

drive public debate in

a future-leaning manner.

The views expressed herein are those of the author and do not necessarily state or reflect those of the U.S. Chamber of Commerce Foundation, the U.S. Chamber of Commerce, or its affiliates.

1 | Letter from the Publisher BY JOHN McKERNAN

4 | THE NATIONAL MISSION: 4 | MODERNIZING U.S. GLOBAL ENGAGEMENT FOR THE 21ST CENTURY BY GEN. JAMES L . JONES, USMC (RET.) , PRESIDENT, JONES GROUP INTERNATIONAL

10 | MICHIGAN: THE COMEBACK STATE BY GOV. R ICK SNYDER (M I ) 16 | EMPLOYING THE WORLD’S YOUTH – THE MISSION OF OUR TIME BY JOHN RAIDT, SCHOLAR, U.S . CHAMBER OF COMMERCE FOUNDATION; SENIOR FELLOW, ATLANTIC COUNCIL

22 | THE POWER OF PRIZES BY MICHAEL HENDR IX , D IREC TOR , EMERG ING I SSUES & RESE ARCH, U. S . CHAMBER OF COMMERCE FOUNDAT ION

28 | 7 ELEMENTS OF ECONOMIC OPPORTUNITY BY AL FROM, PRINCIPAL, THE FROM COMPANY, LLC; MEMBER, EMERGING ISSUES ADVISORY BOARD 34 | BACK TO BASICS: RESEARCH FUELING INNOVATION BY MATTHEW JENSEN, FELLOW, U.S. CHAMBER OF COMMERCE FOUNDATION; RESEARCH ASSOCIATE, AMERICAN ENTERPRISE INSTITUTE

40 | BUILDING A DATA-DRIVEN NATION BY BRET SWANSON, SCHOLAR, U.S . CHAMBER OF COMMERCE FOUNDATION; PRESIDENT, ENTROPY ECONOMICS

ISSUE 9 // BUsiness Horizon Quarterly

1615 H St. NWWashington, DC 20062

TABLE OF CONTENTS

FEATURETHE NATIONAL MISSION

44 | THE EDUCATION IMPERATIVE – CLARIFYING COMMON CORE BY CHERYL OLDHAM, V ICE PRES IDENT, EDUCAT ION POL IC Y, U. S . CHAMBER OF COMMERCE ; V ICE PRES IDENT, EDUCAT ION AND WORKFORCE , U. S . CHAMBER OF COMMERCE FOUNDAT ION 50 | CAUTION: INFRASTRUCTURE WORK AHEAD BY JANET F. KAVINOKY, EXECUTIVE DIRECTOR, TRANSPORTATION & INFRASTRUCTURE, U.S . CHAMBER OF COMMERCE; V ICE PRESIDENT, AMERICANS FOR TRANSPORTATION MOBIL ITY, AND MAJOR GREGORY B. PACE, USMC; CMC NATIONAL FELLOW, U.S . CHAMBER OF COMMERCE

58 | Executive Profile: Elanna YALOW, KNOWLEDGE UNIVERSITY

62 | What you should know

66 | Scholars and fellows speak!

68 | FINAL WORD BY RICH COOPER, EDITOR- IN-CHIEF, BUSINESS HORIZON QUARTERLY; V ICE PRESIDENT, EMERGING ISSUES & RESEARCH, U.S . CHAMBER OF COMMERCE FOUNDATION

[email protected]

THE NATIONAL MISSION BUsiness Horizon Quarterly

BY GEN. JAMES L. JONES, USMC (RET.), PRESIDENT, JONES GROUP INTERNATIONAL

GLOBAL

As America undertakes the abiding national mission of advancing our interests and values abroad, our success depends on harnessing

a vital asset in the cause—our marvelous private sector. Properly enabled, U.S. businesses and non-governmental organizations (NGOs) can greatly expand America’s influence, particularly in strategically vital regions where our military presence is being reduced.

Despite what we sometimes think, leaders and people in vital regions around the world—including geo-political hotspots—remain eager for economic, political, and civil engagement with the United States. More often, however, they find the Chinese knocking at their door, exercising a “go-out” strategy to increase the country’s global influence, gain access to commodities, and win market share in up-and-coming economies. We are falling behind.

Prior to the 2012 U.S. presidential election, I authored an open memo to the candidates about the need to modernize the United States’ global engagement. In that memo, published by the Atlantic Council, I recounted the story of Iraqi Kurdistan’s President Masoud Barzani, who made the case for modernizing U.S. global engagement as succinctly as I’ve heard. “Don’t you know,” he said, “that the presence of four American companies (in Kurdistan) are worth two Army divisions” in building goodwill and sustaining influence in the aftermath of America’s military withdrawal from the area?

Despite this clarion call, the presence of the U.S. private sector is minimal in this secure, fast-growing, pro-American, and strategically vital autonomous region of Iraq. That is even though the opportunity in Kurdistan is enormous and the United States has sacrificed so dearly to bring freedom and development to its people. The question of “where are U.S. companies and entrepreneurs” is expressed not only in Iraqi Kurdistan but in many key areas across the globe where America would benefit from building greater influence.

To some degree, the private sector’s reluctance to vie for business in less-developed countries and regional markets stems from its inherent risk. In many cases, however, the retreat is also fostered by indifferent and in some cases obstructive public policy, out-of-date frictions between the public and private sector,

DESPITE WHAT WE SOMETIMES THINK, LEADERS AND PEOPLE IN VITAL REGIONS AROUND THE WORLD—INCLUDING GEO-POLITICAL HOTSPOTS—REMAIN EAGER FOR ECONOMIC, POLITICAL, AND CIVIL ENGAGEMENT WITH THE UNITED STATES.

AMERICA’S INTERNATIONAL STRATEGY MUST ADJUST TO THE REALITY THAT IN THE 21ST CENTURY, MILITARY MIGHT AND STATE DIPLOMACY ALONE ARE INSUFFICIENT TO ADVANCE OUR INTERESTS AND VALUES ABROAD.

and a mentality still stuck in the century just passed. America’s international strategy must adjust to the reality that in the 21st century, military might and state diplomacy alone are insufficient to advance our interests and values abroad.

Projecting power today depends heavily on improving lives, meeting human needs, and imbedding the United States in the social and economic fabric that yields sustainable international influence. As important as a capable military is, modernity requires a broader toolkit. In the new global paradigm, the private sector must play a prominent role, and the public sector must become better at unleashing the capabilities of America’s firms and NGOs.

We have a far better chance of promoting the interdependent pillars of human progress—security, economic development, and good governance—across the globe if our public and private sectors work together. The collaboration needed to move the needle on human progress abroad is more likely to yield the vibrant markets that are eager for our goods and services, generating huge

dividends for America’s security, geostrategic influence, and prosperity.

A World of Strategic Opportunity

Three key regions provide case studies in the vast potential of this approach—possibilities we can realize if we modernize our global engagement strategy.

Middle East. U.S. interests in the Middle East and North Africa remain keen, even as we harness the shale energy revolution to enhance America’s domestic energy sufficiency. Instability in the region has global reach that affects the critical flow of world trade and oil, the proliferation of weapons of mass destruction (WMD), and the spread of radical ideology. Unfortunately, crisis response—in which our options to influence positive outcomes are few and highly problematic—define our posture in hotspots such as Syria and Egypt.

We have, however, a prime opportunity to apply a broader, proactive strategy to influence a triangle in the heart of the Middle East, encompassing: Iraq, where

6 | B U S I N E S S H O R I Z O N Q U A R T E R LY // I S S U E 9


the United States has already invested many lives and billions of dollars for a better future; Iraq’s Kurdish region, where we have longstanding allies and shared interests; and Turkey, close NATO partners in whose security, prosperity, and goodwill we are heavily vested. Peace and stability in this envelope can serve as an anchor for regional peace. Conversely, festering tensions left unaddressed could yield conflict that would add exponentially to the region’s instability.

In 2009, we pulled our troops out of Iraq without a comprehensive strategy to fill the vacuum of influence in its wake. Political strains are endangering relations between the central government in Baghdad and the regional government in Erbil; between Baghdad and Ankara because of Turkey’s growing engagement with the Kurds; between the United States and Iraq because of the Maliki administration’s tilt toward Iran; and between ourselves and the Kurds over the U.S. policy that has sometimes seemed indifferent toward the longstanding U.S.-KRG friendship.

The fact is that there are commercial solutions to this highly consequential geopolitical challenge. With the help of the U.S. private sector, energy development—in particular, energy pipelines serving all three areas and connecting them more efficiently to world markets—can improve the region’s economic prospects and create shared interests as a basis for closer cooperation and better relations among the three parties. A broader spectrum of economic development projects must be part of such a unifying commercial approach. In addition to oil development, electricity production, agriculture expansion, mining, water development, and a full range of services entailing U.S. private sector participation can be harnessed to improve lives and enhance political stability.

The ties created by such economic engagement will place Erbil in a better position to preserve its peaceful

autonomy and Baghdad, its national sovereignty. Turkey would be able to wean itself from a dependence on Russian oil. All three would know the benefits of greater income and development, while the United States would generate jobs, build greater influence, and reap the benefits of a more peaceful and more secure region.

Africa. Africa is rich in human capital and natural resources, and offers unmatched social, economic, and political potential. Recognizing these realities, the Chinese are actively engaged across the continent. While China applies its full-court press for deals on infrastructure development, financial services, and access to commodities, the United States is perceived as generally passive and unengaged. The question “where is America?” rings across the continent. Let there be no mistake: Africa wants a U.S. presence in the form of the country’s companies and NGOs.

If America ignores the staggering opportunity Africa offers, others will fill the vacuum—and not just the Chinese but malefactors who wish to exploit human want and frustration to sell radical ideology and foster insurgency. The vulnerable Sub-Saharan region offers a large and enticing new market for extremism and a strategically located export hub for global terror.

// M O D E R N I Z I N G U . S . G L O B A L E N G A G E M E N T F O R T H E 2 1 S T C E N T U R Y | 7

GLOBAL

IF AMERICA IGNORES THE STAGGERING OPPORTUNITY AFRICA OFFERS, OTHERS WILL FILL THE VACUUM—AND NOT JUST THE CHINESE BUT MALEFACTORS WHO WISH TO EXPLOIT HUMAN WANT AND FRUSTRATION TO SELL RADICAL IDEOLOGY AND FOSTER INSURGENCY.

I submit that awaiting the development of the next Afghanistan in the southern reaches of the African continent is passive policy unworthy of our great nation. Moreover, it is poor diplomatic and economic policy, the consequences of which will be felt in loss of American jobs, strategic relationships, and influence.

Our public and private sectors must work together to open markets, establish a sustained presence, and economically engage Africans at the grassroots. The broader and higher-caliber global engagement is necessary to win hearts and minds. Only by doing that can we achieve the lasting defeat of radicals and predators, countering their use of the most accessible weapons of mass destruction known to man: corruption, poverty, hateful ideology, and affinity for discredited political and economic models. America’s influence and model is essential if this continent of the future—one which will soon be home to the majority of young people on earth—is to emerge as an economic miracle rather than a security nightmare.

Central and Eastern Europe. Free from the yoke of Soviet tyranny, Central and Eastern Europe is home to countries primed for greater economic growth and prosperity to accompany their hard-won freedom.

These countries, which chafed under the deprivations of communism, embrace modernity and seek to integrate fully into the global economy. In general, they love America and are eager to engage. Yet, the United States remains too remote there as well.

The infrastructure and other commercial needs of this expansive region are enormous. This massive demand offers America—the world’s greatest builders, manufacturers, and service providers—huge opportunities, if we seek them out. The stronger ties and increased influence that can be produced if we seize the opportunity will help ensure that Europe—whole and strong—remains America’s geopolitical and economic partner in a world where dramatic shifts in global GDP and population are swinging to other regions.

We would do well to remember that Europe is America’s largest trading partner. Our prosperity and global influence in the trade-based global economy is tied directly to Europe’s fate. The continent’s success, and indeed, the maintenance of a stable global order, depends on the fate of these still fledgling democracies and free market economies that desire and need America’s partnership, and especially the participation of our private sector.

Steps for Reforming Engagement

America cannot achieve its 21st century objectives without harnessing the synergies of its public and private sectors. This will require a more holistic, inclusive, and modern U.S. global engagement strategy. We can start by making four critical organizational reforms.

First, we need to incorporate better private sector perspectives, needs, and capabilities into the strategic planning processes of U.S. diplomats and our military’s geographic commands. The private sector possesses valuable expertise and insights that can contribute mightily to



WE WOULD DO WELL TO REMEMBER THAT EUROPE IS AMERICA’S LARGEST TRADING PARTNER. OUR PROSPERITY AND GLOBAL INFLUENCE IN THE TRADE-BASED GLOBAL ECONOMY IS TIED DIRECTLY TO EUROPE’S FATE.

better diplomacy and understanding of regional and local security dynamics. Moreover, the appropriate assistance and advocacy that our diplomats and military authorities can provide to our private sector can win America a greater share of business and influence abroad which, in turn, will feed right back into improved U.S. standing and security.

Second, the public sector can do a better job of identifying economic, social service, and civil society promotion opportunities in strategically vital countries. Our “country teams” can expand efforts to make this information available to our private sector while providing stronger advocacy in foreign capitals on behalf of U.S. enterprises vying against stiff global competition.

Third, we must ramp up the pace and breadth of our trade missions. We should consider programs, some of which I’m currently working on, that will promote the joint deployment of government officials, corporate leaders, and NGO representatives abroad. The use of “engagement missions” will enable these individuals to reinforce their unique but synergistic capabilities and value proposition. No other country is better suited to provide holistic approaches to comprehensive economic, political, and social problems than the United States. It is among our most potent comparative advantages, and we must harness it.

Fourth, the United States must vigorously expand its international trade and market access agenda. Not only do we need a broader scope of agreements to promote U.S. commercial access abroad, we must improve the scope and speed of our export promotion and financing systems. The Export-Import Bank and the Overseas Project Investment Corporation (OPIC) must be reauthorized and expanded to compete with China and others. We must match these efforts with modernizing our export control laws and policies so that American companies can better compete. Opening markets for the entry of U.S. goods and services gains our country little if we maintain undue barriers that prevent our innovations from exiting.

We live in a multi-polar world, one largely inspired by America’s model and catalyzed by our leadership. The world’s demographic and economic balance of power is shifting rapidly, and we now face new challenges to our accustomed role. These changes do not mean that we cannot be just as successful in this new century as we were in the last; it will nevertheless take work, discipline, tenacity, vision, and better strategy. Above all, it will take political leadership that—as a matter of national interest—sets a tone strongly supportive of government’s legitimate and important role in promoting the U.S. private sector’s interests and engagements internationally.

There is no doubt that the world still wants and needs America; the question today is whether America perceives the need to answer that challenge. Doing so is a national mission we dare not fail. The stakes couldn’t be higher—the quality of life for future generations of Americans and a more stable world. n

General James L. Jones serves as president of Jones

Group International. As the former commander

of U.S. European Command and Supreme Allied

Commander Europe, he led all military operations for

the North Atlantic Treaty Organization and later, as

National Security Advisor, he brought clear vision and

steady leadership to America’s mission in Iraq, the war in Afghanistan,

and the country’s interests around the world. Jones graduated from the

Georgetown University School of Foreign Service and was commissioned

into the Marine Corps in January 1967. On returning to the U.S., he

pursued a career in the Marines, attending the Amphibious Warfare School

in 1973 and the National War College in 1985, and serving as Marine

Corps liaison officer to the U.S. Senate. He was also commanding officer

of the 24th Marine Expeditionary Unit in Northern Iraq and Turkey on

Operation Provide Comfort; chief of staff, Joint Task Force Provide Promise,

for operations in Bosnia-Herzegovina and Macedonia; and commanding

general, 2nd Marine Division, Marine Forces Atlantic. He also served as

Military Assistant to the Secretary of Defense from 1997-99. He became the

32nd commandant of the United States Marine Corps in July 1999. Upon

retirement in February 2007, the combat veteran became the president

and CEO of the U.S. Chamber of Commerce’s Institute for 21st Century

Energy and, in 2008, served as the State Department’s Special Envoy

for Middle East Regional Security. From 2009 until 2010, he served as

President Obama’s National Security Advisor at the White House.

// M O D E R N I Z I N G U . S . G L O B A L E N G A G E M E N T F O R T H E 2 1 S T C E N T U R Y | 9

GLOBAL


BY GOV. RICK SNYDER (MI)

M ichigan is emerging from a “lost decade” marked by job losses and economic decline. In 2010, Michigan ranked 50th in many major national rankings. Those days are behind us, and now we’re moving up in those rankings by

working together and building a rock-solid foundation for the future.

The reinvention of Michigan requires us to do things differently. We’re not looking to simply fix the old system—we’re aiming to reinvent our state. With Lt. Gov. Brian Calley, our partners in the legislature, and supporters from across the state, our mission is to focus on creating more and better jobs, building a better future for our children, improving the quality of life for the state’s 10 million residents, and developing a business environment where job providers can thrive and grow.

As most Americans know, Michigan was the innovation and manufacturing center of the world for the first half of the 20th century. It wasn’t just the millions of cars and trucks that were built here that helped change the world. Michigan was the leader in furniture, cereals, and other products, but in some ways we were too successful. We were so successful that we became complacent.

We spent too much time looking in the rearview mirror and became too divisive. We stopped innovating. We stopped taking risks. Even as the state declined, we kept doing the same things that we had always done and waited for the success of the past to resurrect itself.

“MADE IN MICHIGAN” MEANS SOMETHING. Across the nation and around the world, that

label has long meant strength, durability, and

quality. To Michiganders, it also reflects the

pride of a resilient people who helped build this

country and now are at the center of a reinvention

that will restore our state to greatness.

MICHIGAN

The result was predictable: Michigan was afflicted for a decade by the economic problems that affected our nation in 2008 and 2009. We led the nation in unemployment and were the only state in the 2010 census to lose residents. We were a broken state with a broken government.

When I came on board as governor, I had ideas for a different kind of leadership to reinvent Michigan. They went beyond simply changing laws and regulations. These ideas meant bringing back a winning attitude and “can do” culture.

Accomplishing these ideas rested first on identifying Michigan’s core problems and then seeking to work together with the state’s key stakeholders on solutions. I believe that time should not be wasted on taking credit or blaming others. They do not solve problems.

Already some progress has been made. Nearly 223,000 new private sector jobs have been created in Michigan since the start of 2011. Michigan’s unemployment rate, which hit 14.2% at the state’s economic low point, had been cut by more than a third (to 9%) by the end of August 2013. The state’s improving economy is prompting more people to return to the marketplace in search of a job. That’s a clear sign of optimism and confidence in the state’s comeback.

We’ve made progress, but we need to do more. Another step in accomplishing our state’s mission is to reinvent the business environment in order to encourage businesses to invest in Michigan and help put more people back to work.

One innovative pilot program that we’ve developed helps those who face the greatest challenges in getting a job. Community Ventures provides a path to employment for people who have never had a job or have been without one for an extended period. In less than a year, this public-private partnership so far has helped more than 1,000 people get jobs.

Another key step for Michigan has been to put state government finances on a sound footing, starting by eliminating a $1.5 billion structural deficit. The state’s long-term liabilities have been reduced by more than $20 billion, which has helped in rebuilding the state’s reserve fund. The fund once dropped down to $2 million, enough to run state government for about 30 minutes. Today, it holds about $580 million, and we have long-term plans in place to continue adding to it.

Part of reinventing Michigan’s business climate was replacing the state’s business tax with a simpler corporate income tax of 6%. This new tax structure has improved our national corporate tax ranking from 49th



in the country to 9th. Most importantly, Michigan’s job providers have seen their state business tax burden reduced by 80% or more.

Beyond these reforms, structural challenges had to be addressed in Michigan. Among these issues was our state’s regulatory burden. The essential balance we looked to strike was between removing the regulatory hurdles that hold back businesses while maintaining the necessary protection and oversight our citizens deserve.

We’ve also shifted from economic “hunting” to economic “gardening.” Rather than chasing companies and throwing incentives at them to lure them to Michigan, we’re focusing on helping the businesses already in our state to grow and prosper.

A prime example of this is our Pure Michigan Business Connect program. The concept is simple—we ask Michigan companies to do more business with each other. The idea is if they can get the quality goods and services they need from a Michigan company at a competitive price, it’s better for the state’s economy than using out-of-state vendors. The program doesn’t offer any credits or incentives. It’s just common sense to ask Michigan companies to work together for the benefit of each other and the state.

So far, the state’s two major utilities, Consumers Energy and DTE Energy, have made $2 billion in commitments for in-state goods and services. It’s estimated those commitments alone will support 10,000 jobs. Additionally, several banks have made loan commitments, and other businesses, such as law firms and accounting firms, are offering pro bono services to help businesses grow and thrive. Pure Michigan Business Connect now has about $8 billion in total commitments, and that amount continues to grow.

As Michigan businesses expand and other businesses locate in our state, we’re seeing a disconnect in the job market, despite the incredible talent and good jobs that exist in our state. Some workers still are finding it hard to obtain employment. Moreover, some job providers are finding it difficult to get qualified talent to fill job openings. While we are making strides to better connect talent and opportunity, we must do better.

Government can and should work with the private sector and educational institutions to bridge the divide. Serving as a facilitator to work with these important sectors of the economy will help us achieve what I call the “Three Cs.” Those include: collaborating with the private sector to identify where the good jobs are today and where they will be in the future; creating talent by

// M I C H I G A N : T H E C O M E B A C K S TA T E | 13

MICHIGAN

working with educators to offer programs that produce graduates who will be ready with the relevant skills for those jobs; and connecting the available talent with the needs of job providers.

Our challenge is tough but not insurmountable. The government, business, and education sectors must work together to align the aptitudes and career passions of job seekers with the current and evolving needs of employers.

The solution is to reinvent the way students are prepared for successful careers, reshape how people look for work, and redesign the way employers obtain the skills they need. To this end, we have invested an additional $1 billion in our kindergarten-through-12th grade schools, but our approach to reinvention goes far beyond spending money. It includes developing accountability measures to help districts meet best practices and reforming teacher tenure to make sure the best educators are in our classrooms. Our state also has expanded educational options, including lifting a cap on charter schools and expanding dual enrollment opportunities so more students can earn college credits while still in high school.

We know it’s difficult for employees, especially those in low-wage jobs, to stay on the job when they get sick and don’t have healthcare coverage. With our partners in the legislature, we created the Healthy Michigan program, which will strengthen the state by bringing healthcare coverage to 470,000 people, most of them working and earning less than $15,000 a year. Reducing the $880 million annual cost of uncompensated care that hospitals now bear will mean lower insurance premiums for individuals and businesses, making Michigan more attractive for investment.

The Michigan resurgence must include the reinvention of Detroit. The problems in Detroit are not new. They have been apparent and growing for the past 60 years, and it’s time to fix them. The Motor City’s comeback has already



started. This revitalization is being led by innovators who are creating jobs, expanding the city’s economy, and reviving downtown and midtown.

In the past five years, $10 billion has been invested in commercial, industrial, and residential properties in Detroit. Investments by corporations, such as Quicken Loans and Blue Cross Blue Shield of Michigan, have added nearly 12,000 jobs in downtown Detroit in recent years. The Brookings Institute ranks Detroit 9th on its list of the “best recoveries” after the Great Recession.

There’s much more ahead for Detroit: a new $950 million bridge to Canada; a light rail line downtown; and a new $650 million arena for the Detroit Red Wings. These projects will create thousands of jobs, stimulate long-term growth in the city, and show the world a new and improved Motor City.

Restructuring the city’s government will remove the last barrier to Detroit’s recovery. Right now, the city is being held back by poor services, including police, fire, sanitation, and streetlights. We’re working as quickly as possible to address those issues and improve the quality of life for the 700,000 people who live in Detroit and encourage growth in the future. Our goal is simple: make Detroit a safe and attractive place for people to live, work, invest, and do business. This work is vital to our state’s

future because Michigan can’t return to greatness unless its largest city is financially sound and growing.

There are no quick fixes to Michigan’s problems, but our proud history tells us that Michiganders know how to roll up their sleeves and get to work. We’ve made tremendous progress. Michigan is indisputably the nation’s “Comeback State,” and we are not done. We are positive, working together, and looking forward with confidence that our best days still lie ahead of us, because they are. That’s the Michigan way. n

Rick Snyder was sworn in as governor of Michigan

on January 1, 2011. Snyder earned his bachelor’s

degree, MBA and law degree from the University

of Michigan—all by the age of 23. He started

his career in Michigan as a tax accountant with

the Detroit office of Coopers & Lybrand (now

PricewaterhouseCoopers) and, within six years, he made partner.

Snyder has significant executive leadership experience in the

private sector, including serving as chairman and CEO of the

computer company, Gateway. He also founded Ann Arbor, Michigan-

based venture capital and investment firms and an online health

and wellness company. He has been actively involved in economic

development as well, having served as the first chair of the

Michigan Economic Development Corporation.

THERE ARE NO QUICK FIXES TO MICHIGAN’S PROBLEMS, BUT OUR PROUD HISTORY TELLS US THAT MICHIGANDERS KNOW HOW TO ROLL UP THEIR SLEEVES AND GET TO WORK.

// M I C H I G A N : T H E C O M E B A C K S TA T E | 15

MICHIGAN


YOUTHEMPLOYMENT

THE MISSION OF OUR TIME

BY JOHN RAIDT, SCHOLAR, U.S. CHAMBER OF COMMERCE FOUNDATION; SENIOR FELLOW, ATLANTIC COUNCIL

T he “American Dream” is referred to routinely—almost casually—in our national discourse, so much so that we have blurred our understanding

of its meaning and the strategic priorities necessary to make it a reality. Among these priorities is ensuring an ample supply of productive and satisfying work for our young people.

Youth joblessness surged in the United States and around the world following the global financial crisis— a trend that shows little sign of easing. The result is an economic, social, and security time bomb that threatens not only the quality of life for the millennial generation but for us all.

Today, more than 16% of America’s youth are jobless, a rate double that of adults.1 For many of them, unemployment is chronic, and the ill-effects are long lasting. Jobless young people lose out on critical skills and social network development, earn significantly less over their careers than their employed peers, and strain public welfare programs.2

Without employment income, young people cannot pay off the staggering U.S. student debt, help sustain our deeply strapped Social Security and Medicare systems, or contribute to their own retirement savings that rely on early-year contributions to accrue returns. Moreover, the mix of high debt and joblessness fans disillusionment and frustration with our political and economic system, making the American dream seem more like an illusion and imposing huge societal costs. They include depriving our country of youth’s energy, fresh perspective, and inherent inventiveness.

Youth idleness is hardly just an American phenomenon. The Economist reports that nearly one-quarter of the world’s youth is either not employed, in training or in school.3 Indeed, youth unemployment is on the rise in 138 countries. In parts of Europe still

struggling to escape the continent’s economic malaise, youth unemployment tops 50%, with similarly appalling rates in some of the world’s most vulnerable security hotspots.

These conditions are more than sad—they’re dangerous. Studies show that teenagers who are neither working nor in school are more susceptible to criminal behavior, violence, and delinquency.4 On the international stage, economic hopelessness is a major driver in the instability gripping the Middle East

and North Africa, where youth bulges are creating a toxic economic and security dynamic in which radical ideologues and insurgents seek to exploit large numbers of needy and disgruntled youth.

What’s driving this disaster? The reasons differ from country to country, but a few common threads include anemic and uneven economic growth, poor governance, dysfunctional labor markets, the inability for economies to keep pace with rapid change, and the failure of leaders to appreciate youth unemployment as a top-tier strategic challenge. The World Economic Forum observes:

“Few countries have yet put forward comprehensive national youth employment strategies that include a vision shared by government, business, academia,

EMPLOYMENT

// Y O U T H E M P L O Y M E N T: T H E M I S S I O N O F O U R T I M E | 17

YOUTH JOBLESSNESS SURGED IN THE UNITED STATES AND AROUND THE WORLD FOLLOWING THE GLOBAL FINANCIAL CRISIS— A TREND THAT SHOWS LITTLE SIGN OF EASING.

and civil society, with clear metrics for success, and supported by resources that will tangibly increase youth employment.”5

FACTORS AND TRENDS IN YOUTH UNEMPLOYMENT

Adding to poor macro-economic fundamentals, several key factors contribute significantly to the problem domestically. In downtimes, when jobs are being shed, the “last in/first out” paradigm takes a

heavy toll on younger workers. Additionally, older Americans are extending their working life at that same time that automation is being harnessed to perform an increasing array of tasks, particularly those formerly executed by entry-level employees.

While technology is displacing workers in certain job categories, it continues to open expansive employment opportunities in a vast number of others, particularly those in which science, math, engineering, and technology (STEM) skills dominate. These fundamental changes in the job market are exposing a yawning mismatch between the skills employers demand and those possessed by the majority of our workforce. As the Business Roundtable notes, “Major structural shifts in the

economy are creating a widening disparity between the jobs and experience that workers have and those increasingly demanded by the workplace.”6

Of U.S. employers surveyed by CareerBuilder, 66% experienced difficulty finding qualified workers to fill vacancies.7 A 2013 Gallup poll of public opinion towards education found that nearly 50% of Americans believe high school graduates are not prepared for the working world.8 The pipeline does not appear primed to improve. Only one-third of eighth graders are proficient in math or science.9 Some 30% of the U.S. student population fails to complete the twelfth grade, and that rate hovers around 50% among African American and Hispanic students, cohorts that will soon compose 40% of the nation’s workforce. As a result, by 2020, an estimated 123 million high-skilled, high-paying jobs will exist, but just 50 million Americans will be qualified to take them.10

America has a tradition of rising to the occasion when our interests, values, and indeed, our future are at stake. We did so when freedom was under assault in two World Wars and during the long struggle of the Cold War, in the long and never-ending march to protect Civil Rights, and in the race to the moon. These were all campaigns to keep the American dream alive—a dream that is at risk for a new generation. It’s time to rise to the occasion again.

The first step in elevating youth employment to a bona fide national mission is to arouse America’s unrivaled passion and iron will. In applying our resolve, we must be guided by the understanding that this critical mission is not the responsibility of government, business, or academia alone. It requires mobilizing a grand “whole of society” partnership to execute a smartly orchestrated campaign—one centered on igniting economic growth. Some of the central factors in this nationwide initiative include:

THE FIRST STEP IN ELEVATING YOUTH EMPLOYMENT TO A BONA FIDE NATIONAL MISSION IS TO AROUSE AMERICA’S UNRIVALED PASSION AND IRON WILL.



Fostering Growth: By some estimates, the economy will need to expand by 3% to 4% every year in order to re-employ the millions of people tossed out of work by the Great Recession and accommodate the 150,000 young people who enter the U.S. job market every month. This level of growth is twice the average attained during the past four years.11

Achieving such thresholds must be private sector-driven and empowered by policies and practices that catalyze job-creating investment, entrepreneurship, and business expansion. These include reasonable tax rates, sensible regulations, ample access to affordable finance, plentiful energy, strong infrastructure, and a culture of innovation—all of which require major national initiatives to achieve. New job creation dominated by the public sector is an unsustainable palliative. It drives up the already overwhelming cost of government that taxpayers—and a large cadre of idle workers—are increasingly unable to finance, further eroding our economic fundamentals. But little growth—much less the 4% minimum necessary—can be achieved or benefit young workers unless they possess the basic tools demanded in the modern workplace.

Closing the Skills Gap: Bridging the skills gap begins with transforming our elementary and secondary school systems and centering on one clear goal—academic

excellence. This will require: adopting higher expectations of our educators, students, and parents; increasing school competition, collaboration, and accountability to drive performance; modernizing curricula to develop uniquely human capabilities and critical thinking needed in the age of automation; seeing education as a continuum that leads to the workplace; advancing best teaching and learning practices; and constantly improving the quality of our teachers.

While excellence in our traditional school systems is crucial to our future, so too is great vocational education. We must better incorporate vocational training into the last years of high school and embrace a culture of apprenticeship. Countries (such as Germany) that create strong links and bridges between education and work have the lowest youth jobless rates.

School transformation must be accompanied by an overhaul of our under-resourced and poorly performing job training system. Despite the critical role that job training plays in our economy and youth employment, we continue to underfund the mission, devoting only about 0.17% of GDP in 2010, according to The Atlantic.12 Meanwhile, Germany spends nearly five times as much of its GDP on worker training as it continues to be a manufacturing leader and global trader—despite its aging workforce, high wages, and stringent regulations.13

HUMAN CAPITAL IS AMERICA’S (AND HUMANITY’S) MOST PRECIOUS RESOURCE, AND NONE IS MORE VALUABLE AND IMPORTANT THAN OUR YOUTH TO WHOM WE BESTOW THE AMERICAN DREAM. THE DREAM HAS BECOME A GLOBAL ASPIRATION THAT, IF REALIZED, CAN TRANSFORM THE FUTURE OF OUR WORLD.


EMPLOYMENT

Improvement will require an approach that better aligns job training programs with local and regional work opportunities. This can be accomplished by utilizing community colleges to provide vocational and specialty training that is coordinated closely with local/regional employers, civic organizations, and economic development agencies. Greater public-private sector collaboration should include joint programming, shared resourcing, harnessing technology to enhance access to and the delivery of job training programming, and developing common foresight on changes in the job market so that skills development programming stays ahead of the “help wanted” curve.

Encouraging flexibility and mobility: The International Monetary Fund has reported the strong ill-effects that labor market inflexibility (notably, hiring and firing regulations that increase the cost, hassle, and risk of employing) has on reducing employment opportunities.14

Policymakers need to work with employers and workers to remove impediments to job creation. Rapidly evolving markets require flexible employers and workers and greater mobility among the workforce to fill opportunities where they arise. This places a premium not only on minimizing obstacles to hiring but on fostering the portability of benefits, including pensions and healthcare.

Providing mentoring: America’s young people are independent, entrepreneurial, creative, and ambitious. We need their talent and innovative prowess. They want to make a difference and govern their own destiny. The

information and communication technology (ICT) revolution—which young people understand well—is transforming our culture and economy. ICT will continue to spawn new industries, businesses, and jobs in which youth can excel. We must support their dreams and talents with access to opportunity, finance, and entrepreneurial support, maximizing youth’s capacity to be job creators, not just job takers.

Driving accountability and organization: Not all of the essentials for putting youth back to work fall on laws, policymakers, businesses, and institutions. Much of the responsibility rests in the hands of young people themselves and their families, such as through developing a commitment to hard work, a devotion to excellence, an appreciation for the dignity of labor, and greater humility. Popular culture tends to denigrate honest, entry-level work and create unrealistic expectations of instant success and its trappings. This is not a good sign; neither are surveys showing that while the U.S. student body is being outperformed on standardized testing by their international peers, our kids rate their own academic prowess generously high.15

Getting real must be accompanied by getting organized. Unlike older Americans, young people do not have the same powerful voice and organized advocacy in the halls of power. Even though Millennials seem averse to organized associations, perhaps it’s time for the American Association of Retired People (AARP) to be joined by the creation of an

WE MUST SUPPORT THEIR DREAMS AND TALENTS WITH ACCESS TO OPPORTUNITY, FINANCE, AND ENTREPRENEURIAL SUPPORT, MAXIMIZING YOUTH’S CAPACITY TO BE JOB CREATORS, NOT JUST JOB TAKERS.



American Association of Aspiring Taxpayers, which could watch over the Millennial generation’s interests.

A good part of the effort involves businesses themselves. Industry and commerce have an interest in leaning forward to provide young people with work and training opportunities, not as a matter of philanthropy but as a strategic investment in our country’s future—a bottom line in which we all have a stake.

Looking abroad: Our interests are served not only by improving youth employment at home but across the globe. Overseas markets where we hope to sell our goods and services cannot blossom in the shadow of idle and disgruntled youth. We must modernize U.S. global engagement to foster stronger bilateral economic relationships that help create broad opportunity abroad. It is time for our public and private sectors to work better together to broaden and deepen our economic and commercial ties. Engagement with a strong commercial component that helps developing markets and societies emerge—and with them, the prospects of their youth—will benefit our economy and security for many years to come.

Human capital is America’s (and humanity’s) most precious resource, and none is more valuable and important than our youth to whom we bestow the American dream. The dream has become a global aspiration that, if realized, can transform the future of our world.

It has become patently clear that in a highly integrated, trade-based global economy, youth poverty and idleness anywhere is a problem for us all. Putting youth to work at home and promoting the prospects of youth worldwide through wiser economic policy and more effective global engagement stressing participatory economic growth is a priority U.S. interest. It is time to make youth employment a true national mission. If history is any guide, once we do, we are sure to make America and the world a better place to live. n

John Raidt is a Vice President of Jones Group

International, serves as a fellow with the Atlantic

Council of the United States, and is a scholar with

the U.S. Chamber of Commerce Foundation. Having

23 years of public policy experience, he has served

as a professional staff member of three national

commissions, including the National Commission on Terrorist Attacks Upon

the United States (9/11 Commission), the Commission on the National Guard

and Reserves, and the Independent Commission on the Security Forces of

Iraq. In 2008, Raidt served as deputy to General James L. Jones, USMC (ret.),

Special Envoy for Middle East Regional Security, focusing on resolution of the

Israeli-Palestinian dispute. He has served as a senior staff member in the

U.S. Senate, including as the legislative director for U.S. Senator John McCain

and chief of staff of the U.S. Senate Committee on Commerce, Science, and

Transportation. Raidt holds a master of public administration degree from

the Harvard University Kennedy School of Government.

REFERENCES1 Sarah Ayres, “America’s 10 Million Unemployed Youth Spell Danger for Future Economic Growth,” The Center for American Progress, June 5, 2013.

2 “Generation Jobless,” The Economist, April 27, 2013.

3 Ibid.

4 Hanan Morsy, “Scarred Generation,” Finance & Development, 49.1, March 2012.

5 “Global Agenda Council on Youth Unemployment 2013,” World Economic Forum.

6 The Springboard Project, Getting Ahead-Staying Ahead: Helping America’s Workforce Succeed in the 21st Century, The Business Roundtable (December 2009): 11.

7 Diane Kurtzleben, “Surveys Find Employers Have Too Few and Too Many Qualified Workers,” U.S. News and World Report, March 28, 2013.

8 William Bushaw and Shane Lopez, “Which Way Do We Go: The 45th Annual PDK/Gallup Poll of the Public’s Attitudes Towards Public Schools,” September 2013.

9 The National Science Board, Science and Engineering Indicators 2012, National Science Foundation (2012). 10 Edward Gordon, “The Global Talent Crisis; Contrary to Popular Opinion, There are Plenty of Open Jobs. What’s Missing are Candidates with Skills.” The Futurist, (Sept-Oct 2009): 38. 11 Bernard Baumohl, The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities. New Jersey: Pearson Education, 2008, 32.

12 Bruce Stokes, “Is There a Future for ‘Made in America’?” The

Atlantic, December 9, 2010.

13 Ibid.

14 Lorenzo E. Bernal-Verdugo, et al., “Labor Market flexibility and

Employment: New Empirical Evidence of Static and Dynamic Effects,”

International Monetary Fund, 2012.

15 Secretary Arne Duncan, “Secretary Arne Duncan’s Remarks at OECD’s

Release of the Program for International Student Assessment (PISA) 2009

Results,” U.S. Department of Education, 2010.


EMPLOYMENT


BY MICHAEL HENDRIX, DIRECTOR, EMERGING ISSUES & RESEARCH,U.S. CHAMBER OF COMMERCE FOUNDATION

P rizes have existed since the dawn of man. As modern civilization grew, they become a tool for incentivizing progress. Yet, it was only in the past few centuries that we came to view prizes as some of the most effective—and overlooked—tools for incentivizing

breakthrough solutions.

Prizes are wrapped up in a quest for prosperity and economic growth, which in turn depends on the development of new ways of working, living, and thinking—in short, innovation. We need ways to incorporate more market gain into the personal incentive to innovate. Intellectual property does so by rewarding innovators with ownership of their work and a share of its value over time. Prizes also act as incentives by bringing forward a share of future gains from innovation into the present while releasing ownership of the work to the public.

What sets prizes apart is that they are applied to opportunities, both large and small, where a breakthrough seems within reach with just the right “kick.” By blending public aims with private initiative, prizes are able to “tap a primitive urge to win, and to be seen winning,” in order to make great things happen.1

By better understanding innovation prizes, we will begin to see why they may be more needed now than ever before.

WHAT’S THE HISTORY OF PRIZES?

Homer’s Illiad sets out one of the first descriptions of prizes in history. We see Achilles atop a funeral pyre, calling on his men to compete in honor of Patroclus, whose death he would glorify through sport. He proclaimed prizes of gold and horses, and “once Achilles finished speaking, swift charioteers rushed into action,” for they were “keen to win.”

We may be long past the time of Greek myth, but in more modern history, we have seen prizes spur action in surprising ways, none more so than with the great European contests of the 18th and 19th centuries. Over the course of the 18th century alone, prizes funded more than twice as many scientific efforts than were paid for by grants.2 And things were just getting started. William Masters and Benoit Delbecq write that “the early 20th century saw an even greater burst of prizes for breakthroughs in transportation and civil aviation, financed by newspapers and others.”3

PRIZES

Yet, these gains were short lived. A rising tide of government largesse in the wake of the Second World War soon swamped prize funding and relegated it to obscurity. Moreover, increasing amounts of research money were going to large-scale projects in the national security sphere that had little need for the publicity that prizes brought. It was not until the late 1970s that private funding of research and development (R&D) began to break away and rise above the levels of federal support.4

By the 2000s, large amounts of private capital were available to a growing range of innovative endeavors, proving to be a fertile ground for the further development of XPRIZE and others. Foundations were established to channel research funds toward social goods. Moreover, governments were searching for new ways to fund applied research beyond the simple grant-making framework.

Prizes are an idea whose time has come again.

WHAT ARE PRIZES, EXACTLY?

Prizes encourage innovative activity in pursuit of relevant problems. Sponsors articulate the challenge and the terms of success, and the innovator assumes the cost and risks while enjoying relative freedom in finding a solution. What matters most of all is that anyone can compete and win—the only thing that matters is performance.

Why compete? The biggest lesson from across centuries of contests is that people strive for attention as much as they do for the money. If it weren’t for both non-monetary and monetary incentives working in union, we wouldn’t see, for instance, the contestants of XPRIZE spending more than ten times the sum of the prize purse in order to claim it.5 Prize monies mostly serve to get innovators to the point of action—to meet their “natural investment threshold.”6

The democratic nature of prizes can stimulate a high degree of competition, often from surprising corners. Contestants range from companies and academics to entrepreneurs and garage-bound tinkerers. Sponsors are able to tap into these diverse pools of creativity and reserves of fresh ideas that they may not have been able to previously identify. As Bill Joy of Intel famously remarked, “No matter who you are, most of the smartest people work for someone else.”7

Prizes then are marked by boldness and tempered by reality, while avoiding the prescriptive focus that marks grant programs.8 No wonder the solutions are often just as unexpected as those in pursuit of them.9

ARE PRIZES SUCCESSFUL?

Prizes infuse the spirit of competition into efforts bent on addressing market failures and adding to public knowledge. Problems that were once ignored are given new life within a market-driven framework. Or consider the spillover effects alone. The human-powered Gossamer Albatross, which won the Kremer Prize in 1979 for its flight across the English Channel, helped demonstrate and lead to the adoption of Dupont’s Kevlar composite and many other now-vital synthetic products.10

A recent study offers the most substantive case for prizes leading to innovation. It reviews nearly 2,000 prizes awarded by the Royal Agricultural Society of England (RASE) over a one-hundred-year period, from 1839 to 1939.11 Those who won the prizes were much more likely to receive and renew patents, and doubling the prize purse led to upwards of a 33% increase in patented innovations. Even those who lost their contests cumulatively received more than 13,000 patents. As one British journal remarked in 1867 about the RASE prizes, “It is indisputable that these competitive trials have done, and are doing, much to raise agricultural engineering to the highest standards of efficiency and economy.”12



A more recent study of the crowdsourcing platform Innocentive found that its community of problem-solvers succeeded in winning 30% of the prizes on offer. These were hundreds of problems that quite often had stymied the research labs of leading companies and nonprofits.13

According to Innocentive, roughly 85% of the 1,700 external-facing challenges that it measured were successful, with credit going to their methodology and approach.14

WHAT’S THE MARKET?

The market for innovation prizes has grown dramatically over the past decade. Yet, it is surprisingly difficult to know for certain just how large the space is. McKinsey’s 2009 report on philanthropic prizes boasts the most accurate (if not the most up-to-date) data yet. According to the consultancy, the current prize sector is sized somewhere between $1 billion and $2 billion, with cumulative prize pursues having tripled during the 2000s to $375 million.15 Viewed over the span of the past four decades, prizes have enjoyed a 15-fold growth in value—much of these funds are from the private sector.

Since the time of McKinsey’s report, there has been a massive rise in the government use of prizes, particularly with the U.S. Congress’s passage of the America COMPETES Reauthorization Act in 2009.16 Whereas in previous years only NASA and the Department of Defense enjoyed the authority to commission and implement prizes, now every federal agency can assume the lead role in sponsoring a prize.17

While the public sector has moved more energetically into the prize space, traditional approaches toward incentivizing innovation have remained. Prizes continue to function as a compliment to other funding mechanisms, such as grants, and incentive structures, such as patents.

WHAT’S NEXT?

Much of the low-hanging fruit of innovation has already been plucked, particularly for prizes. The challenges that remain fall into two categories: the complex problems requiring large, cross-disciplinary teams, and those pushing for discrete, small-scale advances that are primed for crowdsourced solutions.

// T H E P O W E R O F P R I Z E S | 25

PRIZES

PRIZES INFUSE THE SPIRIT OF COMPETITION INTO EFFORTS BENT ON ADDRESSING MARKET FAILURES AND ADDING TO PUBLIC KNOWLEDGE. PROBLEMS THAT WERE ONCE IGNORED ARE GIVEN NEW LIFE WITHIN A MARKET-DRIVEN FRAMEWORK.

No matter the realm in which prizes are applied in the years to come, the most remarkable advance may well be how normal or obscure they become. That may pose challenges for creating publicity, but it will do wonders for establishing prizes within an institutional framework for spurring innovation.

We will likely see a greater trend in the outsourcing of research and development as companies look to balance scarce resources with greater needs for innovation. Similarly, we will see more reasons for the growth in public-private partnerships as agencies attempt to leverage greater investment and outsource key activities.

It is in the private sector where we will see a diverse range of prize structures and applications arise. There’s a much wider variety of applications and actors in the private marketplace, all while the increasing scope of technological gain increases the reward from innovation.

SO WHAT?

Prizes have long been more potential than reality. With a well-informed application to the most pressing challenges in innovation, prizes may soon become a more common way to incentivize our most inquiring minds.

What makes prizes so compelling today is that while we live on the innovation frontier with vast possibilities ahead, all we clearly see is a present humbled by the past. Where moon shots once lit up our skies, we’re left gazing down at our smartphone’s soft glow. Prizes open the imagination to what is unseen. n



PRIZES HAVE LONG BEEN MORE POTENTIAL THAN REALITY. WITH A WELL-INFORMED APPLICATION TO THE MOST PRESSING CHALLENGES IN INNOVATION, PRIZES MAY SOON BECOME A MORE COMMON WAY TO INCENTIVIZE OUR MOST INQUIRING MINDS.

REFERENCES

1 “Win-Win: Save the World and Become a Millionaire,” The Economist,

September 8, 2008, http://www.economist.com/node/12077182.

2 Robin Hanson, “Patterns of Patronage: Why Grants Won Over Prizes in

Science,” July 28, 1998, http://hanson.gmu.edu/whygrant.pdf.

3 William A. Masters and Benoit Delbecq, “Accelerating Innovation with

Prize Rewards: History and Typology of Technology Prizes and New

Contest Design for Innovation in African Agriculture,” International Food

Policy Research Institute, 2008, p. 5, http://www.agecon.purdue.edu/

staff/masters/MastersDelbecq_AcceleratingInnovation_Rev18Oct2008.pdf.

4 Congressional Budget Office, “Federal Support for Research and

Development,” 2008, p. 2, http://www.cbo.gov/sites/default/files/

cbofiles/ftpdocs/82xx/doc8221/06-18-research.pdf.

5 Masters and Delbecq, p. 14.

6 Shah Vikas, “Can Prizes Change the World?” Thought Strategy, June

3, 2013, http://thoughtstrategy.co.uk/2013/06/03/can-prizes-change-the-

world/.

7 Peter H. Diamandis and Steven Kotler, Abundance: The Future is Better

Than You Think, (New York: Simon and Schuster: 2012), p. 83.

8 Thomas Kalil, “Prizes for Technological Innovation,” The Brookings

Institution, December 2006, http://www.brookings.edu/~/media/

research/files/papers/2006/12/healthcare%20kalil/200612kalil.pdf.

9 Jüri Saar, “Prizes: The Neglected Innovation Incentive,” Lund University,

2006, p. 71, http://www.taaler.ee/vabalog/Saar,2006-Prizes.pdf.

10 Malcolm W. Browne, “Shaping Myriad Possibilities from a Ubiquitous

Element,” The New York Times, December 8, 1985, http://www.nytimes.

com/1985/12/08/weekinreview/shaping-myriad-possibilities-from-a-

ubiquitous-element.html.

11 Liam Brunt, Josh Lerner, and Tom Nicholas, “Inducement Prizes

and Innovation,” Norwegian School of Economics, December 2011,

p. 3, http://www.nhh.no/Files/Filer/institutter/sam/Discussion%20

papers/2011/25.pdf.

12 Zerah Colburn, Engineering: An Illustrated Weekly Journal, 4, (London:

Office for Advertisements and Publications, 1867), p. 39.

13 Tina Rosenberg, “Prizes with an Eye Towards the Future,”

The New York Times, February 29, 2012, http://opinionator.

blogs.nytimes.com/2012/02/29/prizes-with-an-eye-toward-the-

future/?pagewanted=print&_r=0.

14 Randy Burge, “Using Crowd Power for R&D,” Wired, July 13, 2007,

http://www.wired.com/techbiz/media/news/2007/07/crowdsourcing_

diversity?currentPage=all.

15 “And the Winner is… Capturing the Promise of Philanthropic Prizes,”

McKinsey and Company, March 3, 2009, p. 16, http://mckinseyonsociety.

com/downloads/reports/Social-Innovation/And_the_winner_is.pdf.

16 Heidi Williams, “Innovation Inducement Prizes: Connecting Research

to Policy,” Journal of Policy Analysis and Management, 2012, p. 2-3,

http://economics.mit.edu/files/7823.

17 Vijay v. Vaitheeswaran, “The Rise of the Prize,” Freakonomics, March

14, 2012, www.freakonomics.com/2012/03/14/the-rise-of-the-prize/.

As the director for emerging issues and

research at the U.S. Chamber of Commerce

Foundation, Michael Hendrix works with

scholars and key stakeholders to identify and

highlight emerging issues for the American

business community. Hendrix directs the

Emerging Issues team’s research-oriented

programming, communications, and publications; its scholars and

fellows program; a team of researchers; and digital content creation.

He serves as an associate editor for the Business Horizon Quarterly

(BHQ) and oversees the writing and editing for the Foundation’s blog

as well as contributes to a variety of policy-centric publications. In

addition to these roles, Hendrix is a 2014 National Review Institute

Washington Fellow.

Hendrix previously served as a program assistant at the Center

for International Private Enterprise from 2009 to 2011, where he

coordinated programs to institute market-oriented reforms around

the world. Hendrix is a graduate of the University of St. Andrews in

Scotland with an M.A. (Hons) in International Relations and holds a

Certificate in Strategy & Performance Management from Georgetown

University. He began his undergraduate education at the College of

William & Mary as a James Monroe Scholar.

// T H E P O W E R O F P R I Z E S | 27

PRIZES


BY AL FROM, PRINCIPAL, THE FROM

COMPANY, LLC; MEMBER,EMERGING ISSUES ADVISORY BOARD

During the 1932 presidential campaign, Franklin Roosevelt delivered to the Commonwealth Club in San Francisco

one of his most important speeches, addressing “the relationships of government and economic life that go deeply into our daily lives, our happiness, our future, and our security.”

The purpose of Roosevelt’s speech was to outline a new social contract for a country falling into economic depression.

“The Declaration of Independence discusses the problem of government in terms of a contract,” Roosevelt said. “Government is a relation of give and take, a contract, perforce, if we follow the thinking out of which it grew. Under such a contract rulers were accorded power and the people consented to that power on consideration that they be accorded certain rights. The task of statesmanship has always been the re-definition of these rights in terms of a changing and growing social order. New conditions impose new requirements on government and those who conduct government.”

By Roosevelt’s definition, that social contract was a dynamic set of arrangements among government, business, and the citizenry in which government’s role would be modified with each generation as conditions changed.

With the coming of the Industrial Revolution, government’s role was to help “men of tremendous will and tremendous ambition” build “an economic

machine, able to raise the standard of living for everyone; to bring luxury within the reach of the humblest; to annihilate distance by steam and power and later electricity, and to release everyone from the drudgery of the heaviest manual toil.”

During this period, Roosevelt contended “there was equal opportunity for all and the business of government was not to interfere but to assist in the development of industry” with policies like tariffs to foster infant industry and the subsidization of railroads with grants of land and money.

A “safety valve” had existed for those disrupted by industrialization. More than half the country lived on farms where they could make a living by cultivating their own property. And the Western prairie gave people thrown out of work by eastern economic machines the opportunity for free land and a new start.

But by 1932, Roosevelt believed that conditions had changed and “equal opportunity as we know it no longer exists.” Most people did not live on farms and free land had run out. Moreover, the policies of the age of expansion had resulted in concentrated economic power to the detriment of the economy and ordinary citizens. The increasing power of big corporations was narrowing the opportunities for small enterprises. Rising tariffs had resulted in retali-ation from our trading partners, forcing American exporters to manufacture overseas, reducing operations and job opportunities in their American plants. It was time for a new social contract.

OPPORTUNITY

To Roosevelt, the core principles of his new social contract were guaranteeing every American the right to make a living and the right to the safety of his savings. Business, he believed, needed to play a central role in achieving those goals. He argued before the Commonwealth Club that “private economic power is … a public trust,” that “the con-tinued enjoyment of that power by an individual or group must depend upon the fulfillment or that trust,” and that responsible heads of finance and industry should work together to achieve those common goals. Government’s role, he said, was to step in “only as a last resort, to be tried only when private initiative, inspired by high responsibility, with such assistance and balance as government can give, has finally failed.”



Advancing the Bargain of Opportunity

While government’s role expanded during the New Deal, total government spending—federal, state, and local—averaged only about 12% of gross domestic product during Roosevelt’s first term. After World War II, the role of government in our economy greatly expanded. By 2012, total government spending had rocketed to 34% of GDP (it was as high as 37.2% in 2009)—and the nature of that spending had changed dramatically. In 1955, defense spending was 62% of federal expenditures, while outlays on social welfare were 22%. Today, it’s reversed. Welfare spending—including Medicare, Medicate, food stamps, Pell Grants, and Social Security Disability (all programs started after World War II)—is 66% of all federal expenditures, while defense is 19%.

But it’s not just social welfare spending that has expanded. Government subsidies—whether direct or through the tax code—are intricately intertwined with nearly every facet of the economy. The Simpson-Bowles Budget Commission identified and recommended elimination of more than a trillion dollars in tax expenditures—subsidies through the tax code—that go to discreet interests. In the aftermath of the financial crisis and the recession, the Federal Reserve even subsidizes the bond market.

While elements of the welfare state might be tempered, it is unrealistic to believe that government’s role in the economy will substantially diminish. Members of both political parties like rewarding their friends far too much for that. But we do need a new iteration of the social contract to define the relationship of government and the economy in our time.

If Roosevelt’s goals were ensuring every American the right to make a living and the security of his savings, the goals of our new social contract should be growing the private economy, the pre-requisite to opportunity for all, and offering every American who works hard and plays by the rules the chance to get ahead by sharing in the fruits of that growth.

The role of government should be to foster that growth through tax, public investment, and regulatory policies and to help equip ordinary citizens with the tools they need to get ahead. To the extent possible, market-based incentives should encourage private sector solutions to achieve important national goals. Here are some elements of a new social contract:

1We need to create a sound environment for growth. We need to get our fiscal house in order. We need to adopt and enforce a blueprint that will cut the

deficit and build confidence in the private marketplace. Such a plan will undoubtedly require spending reductions, modernizing entitlements, and increasing revenue by reforming the tax code. It will also require investments in people, infrastructure, technology, and energy to help grow the economy.

2We need a tax policy that encourages growth, which is progressive but not confiscatory. We need to overhaul the tax code to lower rates

and eliminate costly loopholes. In closing loopholes, we should follow a simple policy of cutting and investing: We will invest in activities that help the whole economy grow but eliminate subsidies that go to individual industries, particularly subsidies to prop up dying ones.

3We should eliminate the payroll tax—the tax on work—and replace it with a carbon tax on polluters. The payroll tax is a regressive tax, and

it discourages employment. I know the argument that we can’t cut the payroll tax because it pays for Social Security.

// 7 E L E M E N T S O F E C O N O M I C O P P O R T U N I T Y | 31

OPPORTUNITY

I believe it’s a phony argument. For decades, we’ve been borrowing from the Social Security Trust Fund to pay for the general operating expenses of government, basically using the trust fund as a piggy bank to fund the deficit. No single action we could take would create more jobs than cutting the tax on work and lowering payroll costs significantly for employers. And replacing the payroll tax with a green tax would be an effective, market-oriented way to improve the environment by putting a real cost on polluting. If a carbon tax or another green tax does not raise enough revenue to keep Social Security in the black, then we could supplement it with general revenues raised from a reformed and more progressive income tax.

4We need to end the demagoguery on all sides and modernize entitlements. Fixing programs like Social Security and Medicare is necessary to save

them. Avoiding needed reforms under the guise of protecting beneficiaries is a fool’s mission. If we do

nothing, these programs will run out of money, and no one will receive benefits.

5To equip all of our citizens with the tools they need to get ahead, we need a fundamental restructuring of our public school system,

especially in the big cities. In the Information Age, what you learn is what you earn, and too many kids in inner city schools aren’t learning anything. America can’t afford to waste those human resources. I believe we need to follow the New Orleans model in every major city and make every school a charter school or charter-like school. Rather than have schools run by overstaffed, costly, and sclerotic school administrations, every school should be put on a five-year charter or performance contract.

6We need to expand AmeriCorps into a universal system of national service. I believe every American should do a year or two of service

either in the military services or in AmeriCorps. As

GOVERNMENT SHOULD ORGANIZE PUBLIC RESOURCES TO CREATE OPPORTUNITY

FOR ALL, AND CITIZENS HAVE A RESPONSIBILITY TO TAKE ADVANTAGE OF THAT OPPORTUNITY AND GIVE SOMETHING

BACK TO THE COMMONWEALTH.



citizens, we all have an obligation to give something back to our community or country. And we would benefit by having a common experience with our fellow Americans from all walks of life.

7We need to make a national commitment, once and for all, that no one in America who works full time year-round to support a family should

be poor. The earned income tax credit—or some other system of tax subsidies to people in full-time employment—needs to be expanded to meet that goal. If people work full time, they should not be poor.

Those seven proposals would advance America’s basic bargain of opportunity and responsibility. Government should organize public resources to create opportunity for all, and citizens have a responsibility to take advantage of that opportunity and give something back to the commonwealth. That bargain is the foundation of a new social contract. n

Al From serves as principal at The From Company,

LLC, where he offers strategic advice to private

clients. In March 1985, From founded the Democratic

Leadership Council (DLC) and led the organization

from its inception until April 2009. Before founding

the DLC, From was executive director of the House

Democratic Caucus, served in President Jimmy Carter’s White House, and

was staff director of the U.S. Senate Subcommittee on Intergovernmental

Relations. From serves on the Advisory Board of the Public Diplomacy

Collaborative at Harvard University, the Advisory Board of Directors of

the U.S. Chamber of Commerce Foundation, the Board of Trustees of

the Annapolis Symphony Orchestra, the National Advisory Board of

The Roosevelt Institution, and the Executive Board of the University

of Maryland’s Center for American Politics and Citizenship. He was

appointed to the U.S. Naval Academy Board of Visitors in 1999, and

served as chairman until December 2002 when his term expired. Born in

South Bend, Indiana, From earned a Master’s degree in journalism from

Northwestern University.

THAT BARGAIN IS THE FOUNDATION OF A NEW

SOCIAL CONTRACT.

// 7 E L E M E N T S O F E C O N O M I C O P P O R T U N I T Y | 33

OPPORTUNITY


BY MATTHEW JENSEN, FELLOW, U.S. CHAMBER OF COMMERCE FOUNDATION; RESEARCH ASSOCIATE, AMERICAN ENTERPRISE INSTITUTE

INNOVATION

F or much of history, profit-making typically meant profit-taking. Wars were fought for land and resources, while men grew rich from subjugating others. Money changed hands, but productivity barely budged. According to economic historian Joel Mokyr, whenever a society

managed to raise its standard of living, rent seekers “came either from within the economy in the form of tax-collectors, exclusive coalitions, and thugs, or they came from outside as alien pillagers, mercenaries, and plunderers.”1

Of course, rent-seekers exist to this day, but since the Industrial Revolution, productivity has climbed drastically across the West due to the creative work of a new breed of profit-maker—the innovator. Rather than playing tug of war for limited resources, innovators circumvent those limits by applying their knowledge of the world to devise methods that combine resources more efficiently. Due in large part to their work, real U.S. GDP per capita is more than 30 times higher today than it was in 1800,2 American life expectancy has increased from 46 years in 1900 to about 79 years today,3 and in the developed world, creature comforts abound.

WHILE INNOVATION IS THE PROXIMATE CAUSE FOR THESE STUNNING IMPROVEMENTS, ANOTHER ACTIVITY FORMS THE BACKBONE FOR MANY APPLIED INNOVATIONS: BASIC RESEARCH.



Basic research is the study of fundamentals; its main goal is to advance society’s understanding of the world. For instance, in the 19th century, scientists, such as microbiologist and chemist Louis Pasteur, questioned how diseases are transmitted, and their basic research into the matter led to the germ theory of disease.

Basic research is both a foundation for new discoveries and a guide to innovators that helps keep them from attempting the impossible. Without Pasteur’s work, surgeon Joseph Lister would likely not have searched for an antiseptic that could be used on human tissue and would not have discovered the use of carbolic acid to drastically reduce the incidence of infection during surgery. Isaac Newton might have devoted less of his genius on futile attempts to turn base metals into gold if chemistry had been more advanced.

The value of scientific knowledge for innovation remains strong to this day. An October 2013 working

paper by Frank Lichtenberg4 confirms the value of knowledge accumulation, finding that mortality rates by cancer are strongly associated with the stock of funded research papers published five and ten years earlier. For example, from 1985 to 1999, the stock of published, research-funded papers on lung cancer more than tripled,5 vastly expanding society’s knowledge of the deadly disease that accounts for more than a quarter of cancer deaths.6 Lichtenberg’s analysis suggests that this buildup of knowledge contributed to the 17% decline in lung cancer mortality rates between 1995 and 2009.

While some knowledge comes from the innovator’s experience in the world, much is discovered through the dedicated activity of researchers. Unfortunately, this activity—the creation of descriptive knowledge—confers little economic value to the creator. Basic research is a classic public good. Once knowledge is discovered, it is impossible to exclude others from using it, and its use by one person does not reduce its availability to anyone else.

BASIC RESEARCH IS BOTH A FOUNDATION FOR NEW DISCOVERIES AND A GUIDE TO INNOVATORS THAT HELPS KEEP THEM FROM ATTEMPTING THE IMPOSSIBLE.

// B A C K T O B A S I C S : R E S E A R C H F U E L I N G I N N O VAT I O N | 37

INNOVATION

Whereas the patent system can reward inventions with temporary monopolies, no such system exists for basic research—neither would such a system be practicable or wise. And though firms can tailor most investment to ensure that a project will be applicable to their business, the potential application of basic research is often difficult to predict. Businesses have an incentive to invest in applied research and development in their market areas because of the potential for profiting from a new idea. They have little reason, however, to pursue basic research because even if a commercial application is found, it may not be relevant to their market. What is more, a research finding that has applications in one field will usually have applications in many others.

Many governments have recognized the importance of knowledge for innovation and use public funds to accelerate its growth. The U.S. government is particularly aggressive in this regard, devoting more money to research and development than any other government in

the world. In 2012, the U.S. federal government spent about $131 billion on research and development, includ-ing defense-related spending and $60 billion without defense.7 Total (private and public) U.S. research and development spending was almost $420 billion in 2012, compared to $197 billion in China, the second highest-spending country. Outside of the U.S., the rest of the world combined spent around $1 trillion in 2012.8 There is good reason to believe that the U.S. has served as a role model in this area, and the more research undertaken around the world, the better off everyone will be.

Yet, there is good reason to believe that federal research funds in the U.S. are not being spent wisely. Rather than devoting resources to the generation of descriptive knowledge, the government plays innovator by funding applied research and development. In 2012, only 48% of non-defense federal research and development spending went towards basic research —42% supported applied research and 10% was devoted



BUSINESSES HAVE AN INCENTIVE TO INVEST IN APPLIED RESEARCH AND DEVELOPMENT IN THEIR MARKET AREAS BECAUSE OF THE POTENTIAL FOR PROFITING FROM A NEW IDEA.

to development.9 With defense spending included, more than half of all federal R&D spending is devoted to development—but this article does not broach the efficiency of defense spending.

The non-defense R&D allocation makes little sense. Applied research and development does not need funding to the same extent as basic research. Firms spend lavishly on development to create new products and applied research to learn exactly that which is needed to profit. In 2009, U.S. firms spent $197 billion on development and $34 billion on applied R&D.10 Shop floor innovation is not included in these numbers but contributes to many practical advances. Basic research on the other hand, constituted only $16.5 billion (or about 6.6%) of industry research and development investment.11

The case for non-defense development spending is particularly weak. Developing products should be the task of firms and innovators, as the ability to profit from product improvements is high.

There are some indications, however, that applied research could use a subsidy. Applied research is designed to solve practical problems. Lister’s experiments to find an antiseptic for use in surgery is an example of applied research. Today, applied research is conducted

widely by firms in pharmaceuticals, semiconductors, communications, and several other cutting-edge industries. The value of applied R&D is well documented with a recent Econometrica paper by Nicholas Bloom, Mark Shankerman, and John Van Reenen suggesting that applied R&D as a whole is two to four times as valuable to society as it is to the entity that conducted the research.12

Specific innovations can be linked to astounding welfare improvements. For example, according to research by Kevin Murphy and Robert Topel, the benefit of reducing cancer mortality by 1% has been estimated to be worth about $500 billion in present value. They note that, “a ‘war on cancer’ that would spend an additional $100 billion on cancer research and treatment would be worthwhile if it has a one in five chance of reducing mortality by 1% and a four in five chance of doing nothing at all.”13 Both basic and applied research could contribute to such an improvement.

As optimistic as this return on investment might be, two factors caution against direct government spending on applied research. First, in today’s tight budget climate, government resources should be devoted where government is most needed. The Congressional Budget Office recently released its 2013 Long-Term Budget Outlook, and many fears over debt and deficits were

// B A C K T O B A S I C S : R E S E A R C H F U E L I N G I N N O VAT I O N | 39

INNOVATION

confirmed. The budget deficits have dropped off for a short while, but spending and tax policy are still badly misaligned. Applied R&D is more likely to be paid for by industry than is basic research and less likely to provide the ancillary benefits, such as training graduates and developing networks of scientists who are able and willing to collaborate across national and institutional borders, spreading knowledge and inspiring creativity. If there is a limit to how much a society is willing to spend on research, then it’s likely the money is better spent on basic research.

A more subtle reason for focusing on basic research is that government is not well suited to direct applied research. Applied research, by definition, is meant to meet the defined needs of members of society, such as curing disease, generating abundant energy, or paving the way for the next consumer gadget that millions of people decide is worth more than what it costs them. Industry is better suited to identifying which areas are most pressing, because industry has profit to serve as a guide. Moreover, a large body of academic research indicates that industry-funded applied research likely leads to greater productivity gains than government-funded applied research. Rather than fund applied research directly, it would be better to overhaul the notoriously ill-designed and poorly implemented research and experimentation tax credit, as well as reduce regulations that kill that competitive spirit driving applied research and development.

Our nation should undertake a mission to reorganize its federal spending on research and development. Resources should be shifted to basic research in order to grow the stock of knowledge. Regulatory and tax policy should be refashioned to encourage applied research at the firm level. These changes will require careful thinking about difficult problems, such as where to focus basic research funds and how to ensure that the Research & Experimentation (R&E) tax credit is being spent on research rather than product development.

This effort is worthwhile, for spurring the generation of knowledge will feed today’s innovators and help to develop the innovators of tomorrow. n

Matthew Jensen is a research associate at the

American Enterprise Institute (AEI), where his re-

search agenda is focused on debt, taxation, and

innovation. Jensen also coordinates AEI’s

International Tax Database. He served a short

tenure in the finance industry before turning

to policy and economics.

At AEI, Jensen has recently studied the effect of federal debt

accumulation on households in different income groups; strategies

to promote growth using business tax reform; and how the methods

used for tax policy analysis affect tax policy outcomes. He is

currently investigating the way in which firm and industry

characteristics affect innovative output.

REFERENCES

1 Mokyr, Joel. “Long-term Economic Growth and the History of

Technology.” Handbook of Economic Growth. (2003): 1-78. Print.

2 “National Accounts Database.” Global Financial Data. 2010. Web. 5 Nov.

2013.

3 “FastStats Life Expectancy.” CDC/National Center for Health Statistics.

30 May 2013. Web. 5 Nov. 2013.

4 Lichtenberg, Frank R. “The Impact of Biomedical Knowledge

Accumulation on Mortality: A Bibliometric Analysis of Cancer Data.” NBER

Working Paper No. 19593. Oct. 2013. 5 Nov. 2013.

5 Ibid.

6 American Cancer Society. Cancer Facts and Figures, 2012.

7 National Science Foundation. Survey of Federal Funds for Research and

Development.

8 Figures on international R&D spending are from, R&DMagazine. “2013

Global R&D Funding Forecast.” R&DMagazine. Dec. 2012: 1-36. Web.

9 National Science Foundation. Survey of Federal Funds for Research and

Development.

10 National Science Foundation. 2012 Science and Engineering Indicators,

Appendix Tables 4-9 and 4-10.

11 Ibid., Appendix Tables 4-8, 4-9, 4-10.

12 Bloom, Nicholas, Mark Schankerman, and John Van

Reenen. “Identifying Technology Spillovers and Product Market

Rivalry.”Econometrica 81.4 (2013): 1347-1393. Print.

13 Murphy, Kevin M. and Robert H. Topel. “The Value of Health and

Longevity.” Journal of Political Economy 114.5 (2006): 871 - 904. Print.


BY BRET SWANSON, SCHOLAR, U.S. CHAMBER OF COMMERCE FOUNDATION;

PRESIDENT, ENTROPY ECONOMICS

Information technology is elevating and disrupting most of the economy, and its potential to transform public sector services

and lagging portions of the private sector is obvious and important. When governments do deploy IT, however, they often spend too much and increase complexity without improving service. Witness the botched launch of Healthcare.gov—perhaps the largest IT failure in history. In other cases, public policy discourages private firms and industries from investing in IT and using it to innovate.

Healthcare and education, in particular, lag behind the rest of the economy in productivity growth and innovation and have, to date, made poor use of information technology. Yet, each is on the cusp of major IT breakthroughs. Beyond traditional IT, the new tools we call Big Data seem perfectly suited to help revolutionize these large American industries. (Big Data refers to the new technologies and methods we use to capture, store, search, and analyze vast and diverse collections and streams of structured and unstructured information.) Getting policy right could thus help these sectors catch up and, because they are so large, boost overall economic growth.

Governments have deployed IT unevenly, at best. In 2004, when our family moved from Massachusetts back to our home state of Indiana, I went to the Bureau of Motor Vehicles (BMV) to get a new driver’s license. I only achieved street legality, however, after six weeks and seven infuriating trips to various

government agencies. Fast forward several years, and it’s time to register a new family car. I’ve heard the BMV has improved its operations—the new governor had made radical improvement of the BMV a top priority. I’m able to make an appointment over the Internet, but I’m skeptical. I arrive at the hour of my choosing, check in, wait three minutes for the clerk, and within another six minutes, am out the door. Three or four of those minutes, moreover, were spent thanking the very pleasant clerk for the vastly improved service. Six minutes versus six weeks. Better service at a lower cost is possible.

The failed Healthcare.gov launch, however, shows that IT, if poorly managed, can make things worse. Even if implemented skillfully, IT is no solution to underlying complexity and economic irrationality. Indeed, because it encourages one-size-fits-all insurance plans and business models, the Affordable Care Act could discourage many data-driven innovations in health financing, service delivery, medical research, and patient-centered personal technology.

If we reformed health financing, we could see health IT flourish. The perplexingly slow deployment of effective IT in healthcare is, in large part, due to the third-party payer problem that afflicts so much of the industry. When hospitals, clinics, and physicians don’t interface with patients directly and don’t compete on value, but instead are paid per visit or per pill, there is little upside to information technology.

DATA

IT is pure cost. If patients had a more direct relationship with the medical service providers, however, better service through IT would be a key customer (patient) consideration. Healthcare providers would race to innovate.

Our local orthodontist, who has the most efficient and high-tech operation you’re likely to see, is a prime example. When money comes out of the patient’s pocket, doctors fiercely compete for business and make smart investments in IT. The government’s push to implement electronic health records could improve things at the margin. But the complexity and bulkiness of a top-down mandate is likely to result in overspending on systems that will not keep up with the times. A more decentralized approach, like the personalized apps and services we see in the consumer cloud arena, is likely to deliver inexpensive and continuously updated cutting-edge services.

Big Data, compared to, say, electronic patient records, is an even bigger opportunity for healthcare. A deluge of patient data is coming our way, and it will transform the drug discovery, personalized medicine, and self diagnostics. When smartphones can sense and relay real-time biometrics, and with more fine-grained information from patients, genetic databases, and research trials, Big Data tools will radically speed the medical innovation process, delivering breakthrough discoveries and customized treatments.

Big Data may also be the foundation of an education revolution. Online education—from iPads that help children to read to advanced university courses on the Web—are already disrupting the industry. Some education experts, however, believe Big Data’s capacity to help us pinpoint each person’s learning style will be an even bigger breakthrough. In their new book, Breakthrough Leadership in the Digital Age, Frederick Hess and Bror Saxberg argue that better tech-enabled measurement and assessment, combined with our new understanding of the science of learning, will help “learning engineers” (teachers) design highly successful individualized learning plans for each student.

Technology that can take students to any corner of the knowledge universe, combined with customized courses of study and learning tools, could make education far more cost effective—and more effective period.

The data driven world is not without its pitfalls. The tension between national security and privacy is a prime example. Most citizens probably want their government to prevent attacks, terrorist or otherwise, and will sanction the CIA, NSA, FBI, and Pentagon to protect us. The revelations, however, that the NSA intercepted huge troves of Internet and phone data, including that of American citizens, ignited the most serious discussion on the topic in a long time.

TECHNOLOGY THAT CAN TAKE STUDENTS TO ANY CORNER OF THE KNOWLEDGE UNIVERSE, COMBINED WITH CUSTOMIZED COURSES OF STUDY AND LEARNING TOOLS, COULD MAKE EDUCATION FAR MORE COST EFFECTIVE—AND MORE EFFECTIVE PERIOD.



Even citizens who usually support the government’s efforts began to question whether an important line had been crossed. Personal data, from online transactions to digital photos, will only grow, and our adversaries will continue to find sophisticated ways to use data and digital technologies. The nation, therefore, will have to establish (or at least attempt) a new balance, and today, it is not clear where that new line will be drawn.

Technology will also present us with other challenging questions—say, how to regulate driverless cars, unmanned flying drones, and health related smartphone apps. Are driverless cars and drones more like remote control toy cars and planes? Or are they scary and subversive, if no longer science fiction? Will health apps, which are multiplying by the day, be considered simple, fun consumer items? Or will the FDA regulate them as medical devices? The questions of liability and regulation won’t always be clear or easy.

Another potential pitfall is the basic tension between technology and government. At its best, technology allows us to do more with less. Technology that puts many of the most important functions of government into software is good for citizens but may not be good for government employment. The widespread adoption of effective technology for public purposes may, therefore, meet fierce resistance.

On the other hand, the fastest growing component of Apple’s workforce is its retail store “geniuses,” or clerks. A government workforce that effectively deploys IT could earn the resources to sustain itself. The known incentives and information-deficits of government, however, don’t point in that direction.

We should focus on four areas of policy to ensure America’s success as a “Data Nation.”

1. Support policies that encourage investment in

broadband networks, technology education, and data

entrepreneurship.

2. Make prudent use of simple technologies to

deliver existing government services in a far more

efficient and user-friendly manner.

3. Help jolt healthcare and education to higher

levels of productivity by enacting policies that make

it economically rational for firms in these stagnant

sectors to make better use of IT and Big Data.

4. Be open to new data-driven industries,

encouraging experimentation and innovation—for

example, the combination of driverless cars and

smart traffic management.

The United States today leads the world in data-driven innovation—we have the most sophisticated broadband infrastructure (both wired and wireless), cloud companies, and Big Data start-ups. Yet, substantial portions of our economy—government, health, and education—don’t yet measure up to these high standards. With the right incentives and flexible policies, data-driven innovation could infiltrate these underperforming sectors and make us smarter, healthier, and wealthier. n

Bret Swanson is a scholar at the U.S. Chamber

of Commerce Foundation. He is also the

president of Entropy Economics, a research

firm focused on technology and the global

economy, and of Entropy Capital, a venture

firm that invests in early-stage technology

companies. In addition to serving as a scholar at the U.S.

Chamber of Commerce Foundation, Swanson is a “Broadband

Ambassador” of the Internet Innovation Alliance and is a trustee

and investment committee member of the Indiana Public

Retirement System (INPRS). Bret Swanson writes a column for

Forbes and often contributes to the editorial page of the Wall

Street Journal.

// B U I L D I N G A D A TA - D R I V E N N A T I O N | 43

DATA


BY CHERYL OLDHAM, VICE PRESIDENT, EDUCATION POLICY, U.S. CHAMBER OF COMMERCE; VICE PRESIDENT, EDUCATION AND

WORKFORCE, U.S. CHAMBER OF COMMERCE FOUNDATION

I n an increasingly flat world, the competition for markets, business, and human capital has never been greater.

Although we have made enormous strides in technology and business, there is one area where we have remained stagnant over the years: education. Our competitors overseas, however, committed themselves to making education a priority—and it is paying off.

According to the recently released PISA education rankings administered by the Organisation for Economic Cooperation and Development (OECD), the United States ranks 17th in reading literacy, 21st in science, and 26th in math.1 Furthermore, young Americans ages 25 through 34 rank 16th in college attainment globally—whereas we used to be number one.2 Public education systems in countries like South Korea, Canada, Norway, and Finland have all passed us by.

Since February 2011, there have been more than 3 million job openings every month across the United States going unfilled, in part because there aren’t enough qualified candidates. Employers are taking notice.3 Some 90% of the jobs in the fastest-growing professions—including biomedical engineers, physical therapists, market research analysts,

and veterinarians—require some postsecondary education and training.4 By 2020, there will be 120 million high-skilled and high-wage jobs in the United States, but we will have only 50 million workers qualified to fill them.5

These data points suggest that the current education system is not adequately preparing our students to succeed in college or the modern workforce. It is not delivering the

skilled workers that businesses need to drive stronger economic

growth. Furthermore, if the education system is

not helping advance America’s ability to compete and lead in the global economy, we risk our economic

leadership in the world.

In 2009, the National Governors Association and

Council of Chief State School Officers convened with educators,

policymakers, education experts, and community leaders to discuss ways to better prepare students for 21st century challenges.6 They set out to create standards that were consistent with a clear set of goals intended to provide students with the skills to succeed in college and a career. What they came up with was the Common Core State Standards—a set of benchmarks for what students should know and be able to do at the end of each year in math and English language arts.

If the education system is not helping

advance America’s ability to compete

and lead in the global economy, we risk our economic leadership

in the world.

EDUCATION

The U.S. Chamber of Commerce and a number of noted education and business leaders from across the country strongly support Common Core for a number of reasons:

First, Common Core is an elevated set of standards. By focusing on the building blocks of learning, such as reading and math, Common Core is designed to be rigorous and applicable in the real world in which we live and do business.

Second, Common Core establishes nationwide clarity and consistency. Under our current system, the United States is a patchwork of disparate state standards and uneven expectations. An ‘A’ in one state may be equivalent to a ‘C’ in another. States that opt into Common Core adopt a consistent set of goals that puts them on equal footing with their fellow states.

For a country that is as mobile as we are today, and for the many employers that have interests in multiple states, it is critical that students—wherever they live—are ready to enter college or career training upon graduation. Operating a high-tech piece of machinery is the same whether it takes place in Oklahoma or Oregon; coding is the same whether in New York or North Carolina. Under

Common Core, math and reading concepts will be the same from state to state.

Third, Common Core is on par with international standards. Rather than make excuses, Common Core raises education standards, which enables American students to compete with their global peers. The OECD reports that countries with high national standards (similar to Common Core) perform 16 points better on the Programme for International Student Assessment (PISA) test than countries where standards are subpar.7

Of course, any change to education comes with some opposition. There is the anti-testing constituency who believe that, since No Child Left Behind, teachers are solely “teaching to the test,” robbing children of their capacity to think. The Common Core State Standards should be a welcome change for this group. The strength of Common Core is the emphasis on a student’s ability to think critically, solve problems, and write clearly and persuasively. As one teacher noted at a recent event I attended, “a rigorous assessment aligned to the Common Core standards is a test I would be proud to teach to.” Additionally, if we don’t test children on their knowledge, how will we know whether they are meeting the standards and thus being prepared for success after high school?

Rather than make excuses, Common Core raises education

standards, which enables American students to compete

with their global peers.



EDUCATION

The critics of Common Core have gained traction in recent weeks and months by making claims that are untrue about what it means and how it is applied. Some state that Common Core will bureaucratize education and give the federal government central authority over schools. The truth is that Common Core was created at the state level—where our most innovative policies often originate—by governors and state officials. While Common Core does much to link our states together for improved educational excellence, no state is required to participate. In addition, it is important to make clear the distinction between standards and curriculum. The standards describe what a student should know and be able to do at each grade level. The curriculum is how to teach so that students meet those standards. Decisions about curriculum rest at the local level – with school boards, districts, school leaders and teachers. This does not change.

Another myth is that Common Core will actually dumb down existing state standards. The reality is that the Thomas B. Fordham Institute has been analyzing state educational standards and evaluating rigor for years, and in almost every instance, Common Core has offered a more rigorous curriculum than what existed before.8

A third falsehood about Common Core is that it allows big government to snoop on our children and collect (or even sell) sensitive data. These standards offered by this educational regimen do not change privacy policies. Data collection is at the state level, based on existing laws that have nothing to do with Common Core.

These myths may (temporarily) gain some traction. To the employer community that is looking for the best, brightest, and most prepared to be a part of its workforce, Common Core is really just common sense—rigorous standards, comparable across states, that are internationally benchmarked and designed to ensure we are all on track for success.

Now, it is important to note that Common Core is not a silver bullet. It will not solve all of our education woes overnight. Teachers have always been essential to student success—and Common Core has broad teacher support. In fact, both the National Education Association and the American Federation of Teachers have come out in support of Common Core.9 A recent study indicates that nearly 90% of teachers believe that setting high expectations for all students has a major impact on student achievement.10 Additionally, most teachers are confident

A recent study indicates that nearly 90% of teachers

believe that setting high expectations for all students

has a major impact on student achievement.



that Common Core will improve student achievement and will better prepare students for college and the workforce.11

All of us as parents and as Americans want the best for our children and our country, but being the best is hard work. It takes purpose, determination, and most importantly, it requires us to change and adapt to keep our edge. Forty-five states and the District of Columbia have opted to address the disappointing status quo of our educational system and raise the bar by adopting Common Core. In order to compete in the 21st century economy, we have to raise our standards so that all children have the high-quality, rigorous education that prepares them to be successful in life.

Implementation of Common Core and aligned assessments will be difficult—but anything worth doing usually is. It’s time to do the hard work and be the best in education again. Our country’s future depends on it. n

Cheryl A. Oldham is Vice President of Education

Policy at the U.S. Chamber of Commerce and Vice

President of Education and Workforce at the U.S.

Chamber of Commerce Foundation. Oldham has 20

years of experience in public policy development

as well as in project management and government

relations. Her previous experience includes serving for 8 years

in President George W. Bush’s administration. In July 2008, the

president designated Oldham to be acting assistant secretary for

postsecondary education while also serving as chief of staff to the

under secretary of education. In both roles, Oldham coordinated

the Department’s work in higher education and implemented the

recommendations of the Secretary’s Commission on the Future of

Higher Education, for which she served as Executive Director. Prior to

her time at the Department, Oldham served in the White House – in

both Cabinet Affairs and the Office of Presidential Personnel.

Oldham received her Juris Doctor from St. Mary’s University School

of Law and her Bachelor of Arts from Texas Christian University. She

resides in Alexandria, Virginia with her two sons, Jeffrey and Dylan.

REFERENCES

1 “PISA 2012 Results,” “Organisaton for Economic Cooperation and

Development.

2 “New State-By-State College Attainment Numbers Show Progress

Toward 2020 Goal,” U.S. Department of Education, 2012.

3 Lorraine Woellert, “Companies Say 3 Million Unfilled Positions in Skill

Crisis: Jobs,” Bloomberg, July 25, 2012.

4 Betsy Prueter, “Recovery: Job Growth and Education Requirements

Through 2020,” New America Foundation, August 13, 2013.

5 “A Citizens’ Solutions Guide Education,” Public Agenda, 2012.

6 “Fifty-One States and Territories Join Common Core State Standards

Initiative,” September 1, 2009, National Governors Association.

7 “Raising the Bar,” The Economist, June 15, 2013

8 Sheila Byrd Carmichael, W. Stephen Wilson, Kathleen Porter-Magee,

and Gabrielle Martino, “The State of State Standards—and the Common

Core—in 2010,” Thomas B. Fordham Institute, 2010.

9 “Statements About the Final Common Core State Stanards,” Common

Core State Standards Initiative, 2012.

10 “The MetLife survey of the American Teacher: Collaborating for

Student Success,” MetLife, 2009, pg. 6.

11 Ibid, pg. 6.

// T H E E D U C AT I O N I M P E R AT I V E : C L A R I F Y I N G C O M M O N C O R E | 49

EDUCATION


BY JANET F. KAVINOKY, EXECUTIVE DIRECTOR, TRANSPORTATION & INFRASTRUCTURE,

U.S. CHAMBER OF COMMERCE; VICE PRESIDENT, AMERICANS FOR TRANSPORTATION MOBILITY,

ANDMAJOR GREGORY B. PACE, USMC; CMC NATIONAL FELLOW, U.S.

CHAMBER OF COMMERCE

TRANSPORTATION

In 19In 1958, the Disney Company made a short film titled Magic Highway USA, which made several accurate predictions about what

transportation and transportation infrastructure of the future would look like, including the existence of Global Positioning Satellite technology and digi-tal highway traffic signs. If Disney were to remake Magic Highway today, what would it say about the future of transportation?

There are numerous infrastructure innovations already in development. Over the next 25 years, the nation’s transportation system will need to carry a diverse economy, changing demographics, and demanding customers. Unfortunately, our

transportation infrastructure has not kept pace with some current demands, let alone received the upgrades necessary to satisfy future needs.

America’s roads, rails, runways, and rivers require faster implementation of new technology and the capacity to offer far more dynamic support to a changing economy. It must connect the agricultural heartland with global customers while also help-ing small businesses remain competitive locally and internationally. The transportation system also has to deliver reliable, safe, and fast transportation service for online retailers while keeping the shelves

stocked in America’s brick-and-mortar stores. For the United States to speed into a profitable and competitive future, we must take our national foot off the break and get moving on transportation infrastructure improvements and upgrades.

DRIVING AN INNOVATIVE FUTURE

While the challenge is great, there are ground-breaking innovations on the horizon that could revolutionize how the country moves. Take current research on America’s future highways. Drivers could see innovations that make travel safer. Dutch design firm Studio Roosegaarde and the infrastructure management group Heijmans are testing glow-in-

the-dark roads that store sunlight during the day to light a driver’s path at night. They are also developing asphalt that changes colors to indicate road conditions.1

Other research is developing roads made from super-strong, solar-powered glass panels. Embedded heating technology powered by solar panels could do away with the practice of salting roads to remove snow and ice. Over time, municipalities could see cost benefits, such as savings from no longer needing road salt and some maintenance crews and equipment, as well as revenue from electricity generation.

IF DISNEY WERE TO REMAKE MAGIC HIGHWAY TODAY, WHAT

WOULD IT SAY ABOUT THE FUTURE OF TRANSPORTATION?

In 2009, electrical engineer Scott Bursaw was awarded a U.S. Department of Transportation contract to develop a concept that would yield pavement that generates power. Bursaw built a 12 foot square prototype solar road panel, and with a $750,000 2-year follow-up Small Business Innovation Research (SIRB) contact, he is building and testing a parking lot-sized version of his technology.

Still more highway innovation and research is taking place at Virginia Tech in Blacksburg, Va., where the university recently installed a 2.2 mile “smart road” to test and evaluate the latest highway technology. Weather-making machines line the track to simulate rain, snow, and fog. Also installed is a variable lighting test bed, an on-site data acquisition system, road weather information systems, a differential global positioning system (GPS), road access and surveillance, and even a fully functioning intersection.2 The smart road also boasts Virginia’s tallest bridge. Constructed of cast-in-place box girders, the bridge’s hollow interior can hold power and communication lines that allow researchers to gather information on infrastructure wear and tear.

As well as these groundbreaking innovations, the next 20 to 30 years could bring roads that charge electric vehicles while driving, wind-powered interactive lights, and “energy roads” that generate power from the vibration that vehicles make as they move.3

The reason these kinds of advancements and innovations matter is because enhanced infrastructure is vital to America’s competitiveness. Our roads, bridges, transit systems, railroads, waterways, seaports, airports, and air traffic control form the framework that makes America’s economic activity possible. A national transportation network that meets current and future demand enables mo-bility and supports seamless, reliable and safe supply chains. Conversely, a disjointed, unreliable, unsafe, and inadequate transportation network will hinder productivity and growth.

Noted author Larry LePatner said in a recent New York Times interview that a deteriorating transportation network presents challenges to future job creation and investment.4

“Any weakening of [infrastructure],” he said, “weakens our ability to stay commercially viable with our global competitors.”

When transportation networks support predictable logistics, there is a positive and strong correlation with job-creating foreign direct investment. Without a first-rate transportation system, we cannot maintain a first-rate economy. As the United States’ transportation infrastruc-ture becomes less competitive with the rest of the world, business will look to invest and employ people in other countries with more efficient physical platforms. To avoid such an uncompetitive future, the country needs leadership



WITHOUT A FIRST-RATE TRANSPORTATION SYSTEM, WE CANNOT

MAINTAIN A FIRST-RATE ECONOMY.

A NATIONAL TRANSPORTATION NETWORK

THAT MEETS CURRENT AND FUTURE DEMAND ENABLES MOBILITY AND SUPPORTS

SEAMLESS, RELIABLE, AND SAFE SUPPLY CHAINS.

// C A U T I O N : I N F R A S T R U C T U R E W O R K A H E A D | 53

TRANSPORTATION

to increase funding and financing for transportation in-frastructure and reduce the regulatory burdens that stifle innovation and project delivery.

Our transportation infrastructure lacks the resources and strategies to maintain current conditions, much less to make major technological leaps or significant expan-sions. Federal infrastructure investment needs to be about more than simply maintaining the past; it needs to be about making strategic, prioritized choices to continually grow transportation infrastructure, and by consequence, the U.S. economy.

FEDERAL FUNDING IN THE SLOW LANE

America currently sits atop the World Competitiveness Yearbook ranking; however, to maintain this position, we must address current infrastructure funding policies and increase our infrastructure investments. This means examining the composite and use of the Highway Trust Fund, the Inland Waterways Trust Fund (IWTF), and the budget for the Next Generation (NextGen) Air Traffic Control System.

When President Dwight Eisenhower and Congress created the Federal Highway Trust Fund (HTF) in 1956 to support the Interstate Highway System, it provided the right formula to support that national infrastructure. America has changed dramatically over the last 60 years ago, but the same cannot be said for the HTF. Because of inflation, the fund is undercapitalized, and the Congres-sional Budget Office (CBO) estimates that “the current trajectory of the Highway Trust Fund is unsustainable. Starting in fiscal year 2015, the trust fund will have insuf-

ficient amounts to meet all of its obligations, resulting in steadily accumulating shortfalls.”5

CBO’s projections show a $15 billion shortfall in 2015, and that is just the tip of the iceberg. The cumulative shortfall in the highway and mass transit accounts will be more than $80 billion by 2020 if spending levels are not dropped significantly. To satisfy today’s infrastructure needs, the HTF requires increased revenues, either in the form of greater funding sources (e.g., excise taxes on gasoline and diesel fuel, sales and use of heavy trucks) or new revenue sources.

Our highways are not the only infrastructure facing a budget squeeze. The IWTF, which supports our nation’s inland waterways, is in decline. In FY 2002, the IWTF coffers held $413 million dollars. As a result of project cost overruns and increased expenditures that outpaced fuel tax collections from 2005 to 2010, by the end of FY 2011, the trust fund contained just $45.3 million, with only $31.9 million available for new appropriations.6 According to the Congressional Research Service, “Future financing for the inland waterway system is uncertain. The IWTF is supported by a $0.20 per gallon tax on commercial barge fuel, but…without changes to the current financing system, IWTF spending is likely to be limited.”7

The nation’s Air Traffic Control (ATC) system also re-quires annual appropriations to keep operating and—most importantly—continue developing its NextGen Air Traffic Control System, which shifts ATC from radar to GPS-based systems. NextGen is the largest upgrade to



AMERICA CURRENTLY SITS ATOP THE WORLD COMPETITIVENESS YEARBOOK RANKING; HOWEVER, TO

MAINTAIN THIS POSITION, WE MUST ADDRESS CURRENT INFRASTRUCTURE FUNDING POLICIES AND INCREASE OUR

INFRASTRUCTURE INVESTMENTS.

aviation infrastructure since the 1940s, requiring about $1 billion a year. Yet, fiscal pressure is threatening even this technological evolution. A delay in NextGen implementation could mean tighter capacity in the aviation system, with more delays for travelers and more costs for passenger and cargo carriers and other aviation businesses.8

All of these descriptions point to a fact the American Society of Civil Engineers (ASCE) has documented in its comprehensive report card on America’s infrastructure. Our cumulative grade across some of the most critical economic engines of our country is a D+. Without proper investment and attention to our infrastructure, the Unit-ed States’ economic stability, potential for job growth, global competitiveness and quality of life are all at risk.

Delaying investment will not make the transporta-tion problem go away. Instead, conditions and per-formance will worsen. Materials, labor, and land will become more expensive, and our businesses will be less competitive. Opportunities to save lives will be missed. Americans are already paying dearly for inferior trans-portation, through lost productivity, wasted fuel, and tragically, accidents.

In 1961, when the nation’s pay-as-you-go inter-state system faced similar challenges, President John F. Kennedy justified interstate construction as a program of “security, safety, and economic growth, as well as national defense.”9

As President Kennedy did some 50 years ago, today we must make infrastructure a national priority, devel-oping top-notch, innovative infrastructure that enables the traffic of commerce to break out of the slow lane. To develop a transportation system that supports a 21st century economy, the United States needs a high level of investment targeted at improving performance across all modes and across the country.

To be sure, there is no such thing as a free lunch. We cannot avoid discussing how we pay for these advances. Fortunately, there is no shortage of research that looks at the questions of “who pays, for what, how much, and by what mechanism?” America has innovative solutions at hand.

LEVERAGING STRENGTHS FROM PUBLIC-PRIVATE PARTNERSHIPS

In the face of uncertain and declining federal funds, many state and local governments have stepped up to the plate to move along major projects, but needs continue to outpace available resources. Relying only on government (federal, state, or local) to design, build, finance, operate, and maintain infrastructure is economically

THE NEXT 20 TO 30 YEARS COULD BRING ROADS THAT

CHARGE ELECTRIC VEHICLES WHILE DRIVING, WIND-POW-

ERED INTERACTIVE LIGHTS, AND “ENERGY ROADS” THAT

GENERATE POWER FROM THE VIBRATION THAT VEHICLES

MAKE AS THEY MOVE.


TRANSPORTATION

untenable, and it misses opportunities for efficiently allocating risk, capitalizing on private sector innovation, and using contractual approaches to give the taxpayer more certainty, transparency, and accountability for how dollars are invested.

Public-Private Partnerships (PPPs) are but one of the tools at the government’s disposal to address America’s failing infrastructure; however, this tool has the greatest potential impact across all modes of infrastructure require-ments. In recent congressional testimony, Morgan Stanley’s Managing Director in the Investment Banking Division J. Perry Buffett said that “over $250 billion of private capital has been raised globally to invest in infrastructure projects (of which over $75 billion has not been invested).”

The private sector, known for its innovative problem solving, can bring upfront capital to bear on the nation’s most complex infrastructure challenges. PPPs are par-ticularly attractive because they can offer new financing sources (such as debt and equity paid back by user fees like tolls, or developer impact fees, special purpose taxes, or even general appropriations). PPPs can leverage public dollars by tapping the availability of private sector equity investment and borrowing capacity and combining that with the private sector’s innovative problem solving, technological innovation, and discipline. Indeed, PPPs can foster innovation and a long-term perspective that incorporates not just project construction costs but also ongoing operations and maintenance.

PPPs can also allow investment cost to be spread over the lifetime of an asset, as well as lower the cost of infra-

structure by reducing construction costs and shortening the overall lifecycle. They transfer certain risks to the pri-vate sector and provide incentives for assets to be properly maintained in an outcome-based approach.10 Moreover, PPPs have the potential to drive urgent and complex work forward and instill a long-term, accountable vision for infrastructure projects.

It is worth noting, however, that PPPs do not provide easy answers to tough questions. They are not substitutes for fixing the revenue problems facing the Highway Trust Fund and Inland Waterways Trust Fund. Rather, they are contractual agreements for financing project delivery, operations, and maintenance, and they require sources of revenue to repay lenders and investors. Nevertheless, tapping the growing interest in PPPs and other innovative financing arrangement of public dollars could be lever-aged to support a broad range of projects.

CHALLENGES AND OPPORTUNITIES AHEAD

Our infrastructure is the foundation of our economy and our quality of life, and repairing and modernizing it has exponential benefits. A well-designed, modern infrastructure enables economic growth. The nation needs a new path forward, one that embraces the private sector and its bottom-line, creating a contemporary and innova-tive American infrastructure strategy.

America’s infrastructure investments, however, are vacillating, and our infrastructure systems are not keeping pace with our current and future capacity requirements. If we are to realize a 21st century infrastructure that keeps America



OUR INFRASTRUCTURE IS THE FOUNDATION OF OUR ECONOMY AND OUR QUALITY OF LIFE, AND REPAIRING

AND MODERNIZING IT HAS EXPONENTIAL BENEFITS.

competitive globally, we must immediately address our failing infrastructure. Akin to how President Eisenhower championed the Federal Interstate Highway system, America needs a strong national commitment to repairing the existing infrastructure.

Furthermore, we much continue to think strategically and be innovative in our ideas to modernize future infrastructure. This means leadership at the federal, state, and local levels of government, by businesses and individuals, to communicate the importance of our nation’s infrastructure, to craft in-novative solutions that reflect the nation’s diverse needs, and to make the investments the system requires. By employing strategies to use every dollar more efficiently and by deploy-ing creative solutions to infrastructure development (such as PPPs), we can implement the right projects on time at the right price.11 We must commit today to make our vision of the future a reality — an American infrastructure system that is the source of our prosperity.

If Disney’s Magic Highway were made today, we would see a range of cutting-edge technologies being developed that would strengthen America’s competitive-ness for years to come. Most importantly, the movie would show more than just roads and cars but all forms of transportation, serving as a helpful reminder to look in an integrated way at America’s transportation needs. That would be more than just magic—it would be smart plan-ning for the future. n

Janet F. Kavinoky serves as executive director in the

Chamber’s Congressional and Public Affairs Division,

where she leads all transportation strategy, policy,

and lobbying efforts. She is also vice president

of the Chamber-led Americans for Transportation

Mobility (ATM) Coalition as well as developed and

leads the Chamber’s Let’s Rebuild America (LRA) initiative. Before

coming to the Chamber, Kavinoky served as project director for business

development and transportation finance at the American Association of

State Highway Transportation Officials, as a consultant at the California

Department of Transportation, and as special assistant to the secretary

at the U.S. Department of Transportation. She serves on the boards

of the National Association of Urban Debate Leagues and the Eno

Center for Transportation. Kavinoky received her bachelor’s degree in

political economy from the University of Wyoming, where she was a

Harry S. Truman Scholar. She earned a master’s degree in business

administration from the Stanford University Graduate School of Business.

Major Gregory B. Pace is currently serving as a

Commandant of the Marine Corps (CMC) Fellow to

The United States Chamber of Commerce. He has

over 23 years of military service, which includes an

eight years enlisted in the United States Army and

fifteen years as a Commissioned Officer in the United

States Marine Corps. He has served as a staff member at the Service

Component, Marine Expeditionary Force (MEF) and Division levels. He

has also served as a Division/Group/Battalion Supply Officer, Regimental/

Battalion Logistics Officer, Motor Transportation Officer, and Maintenance

Management Officer.

REFERENCES

1 “Netherlands Highways Will Glow in the Dark Starting Mid-2013,”

Wired, October 30, 2012, http://www.wired.com/autopia/2012/10/glowing-

roads/?pid=2414>.

2 “Virginia Smart Road,” Virginia Tech Transportation Institute, December

6, 2013, <http://www.vtti.vt.edu/smart-road/virginia-smart-road.html>.

3 “The Road of the Future,” OnElectricCars.com, http://www.

onelectriccars.com/tag/piezoelectric-energy-roads/.

4 Vivian Marino, “Barry LePatner,” The New York Times,

February 21, 2012.

5 Kip Crawley “Status of the Highway Trust Fund,” Congressional Budget

Office, July 23, 2013.

6 “Inland Waterways Trust Fund Status Report,” Inland Waterways Users

Board, August 29, 2012.

7 Charles V. Stern, “Inland Waterways: Recent Proposals and Issues for

Congress,” Congressional Research Service, May 3, 2013.

8 “U.S. Government Budget Cuts Threaten Next Gen Air Traffic Control

Upgrades,” Reuters, September 6, 2013, <http://skift.com/2013/09/06/u-s-

government-budget-cuts-threaten-next-gen-air-traffic-control-upgrades/>.

9 Richard F. Weingroff, “The Battle of Its Life,” Public Roads, 69, no. 6

(2006), <http://www.fhwa.dot.gov/publications/publicroads/06may/05.cfm>.

10 William D. Eggers and Tiffany Dovery, “Closing America’s

Infrastructure Gap: The Role of Public-Private Partnerships,” Deloitte

Research, 2007.

11 “2013 Report Card for America’s Infrastructure,” American Society of

Civil Engineers, March 2013.


TRANSPORTATION

OUR INFRASTRUCTURE IS THE FOUNDATION OF OUR ECONOMY AND OUR QUALITY OF LIFE, AND REPAIRING

AND MODERNIZING IT HAS EXPONENTIAL BENEFITS.


THEME BUsiness Horizon Quarterly

DR. ELANNA S. yALOW, ph.d, M.B.A.

Chief Executive Officer for Knowledge Universe Early Learning Programs

EXECUTIVE PROFILE

Foundation: What’s the biggest challenge facing education today? Yalow: What many educators and families face is a tremendous achievement gap before children even enter kindergarten. Too often that gap continues to grow throughout the early primary school years and leads to children unable to attain third grade benchmarks. These children are at risk of continuing to fall behind their peers. The good news is, studies show that by age 15, children who attended early childhood education programs perform better academically and cognitively (2010 study by the National Institute of Early Child Care and Youth Development). Children who receive a high quality early childhood education have been shown to narrow this achievement gap and yield long-term benefits. Access to quality early childhood education is the most cost-effective way to make sure children are ready and able to succeed in school and in life. These programs aren’t just a stop-gap; they’re an effective solution to a real problem.

Dr. Elanna Yalow is Chief Executive Officer for Knowledge Universe (KU) Early Learning Programs and a member of the Board of Directors of Knowledge Universe. She also serves as Professor of Early Childhood Education at the Asian International College, an institution for higher learning and teacher education in Singapore.

As the largest private early childhood education provider in the United States, Knowledge Universe plays a critical role in preparing our youngest children for school and a lifelong love of learning.

// A R T I C L E N A M E | 59

TRAINING

EXECUTIVE PROFILE

// f e a t u r e a r t i c l e n a m e | 59

ELANNA YALOW

// E X E C U T I V E P R O F I L E | 59

Foundation: How can private sector leadership change education for the better?

Yalow: There are many examples of successful public-private partnerships in support of education, including early childhood education. These mixed-delivery systems allow for every family to benefit by drawing on the strengths of each program and providing more options for parents. When it comes to private providers of Early Childhood Education, we play an important role in the overall landscape of choices for parents. The private sector offers a unique contribution to the field by having the nimbleness to innovate. The educational landscape changes as quickly as our lives change, and it is our goal to prepare children with versatile skills as a platform for a successful life – both in school and after. With the ability to stay on the cutting edge of curriculum content and teaching techniques, private providers help share those best practices with the whole field of ECE. We might be different in some structural ways, but all high quality providers—whether public or private—are focused on delivering great experiences to children and families. We really are all in this together. Foundation: Why is the private sector role important to delivering pre-K instruction to students?

Yalow: The vast majority of preschool-aged children in the U.S. are currently served by private providers, and are already an important and significant part of a mixed-delivery model that offers families choices. That expertise and capacity provides a tremendous amount of opportunity for leadership in the field, which infuses all our work with better practices and serves to strengthen the quality of care for all.

Continuity is as important as choice. Private providers are able to provide a continuity of care by serving

children from early infancy through the elementary years. This ‘seamless continuum’ of care from zero to 8 years of age is critical for social and academic success later in life (Leila Fiester, Early Warning Confirmed, 2013). We also know that the first three years of childhood are some of the most important for a child’s synapse formation (Charles A. Nelson, From Neurons to Neighborhoods, 2000). Providing a comprehensive early childhood education experience for children during these formative years sets them up for increased academic success.

Foundation: Why is the business community’s voice in the pre-K discussion so important?

Yalow: The business community knows that children are the future of our workforce. They see every day the rapid evolution of skills needed for competitiveness across industries. There is nothing in the field of education that yields better return on investment than the impact of early childhood. Children who attended early childhood education programs are more likely to graduate high school, go on to post-secondary education, and less likely to be involved in criminal activities (2010 study by the National Institute of Early Child Care and Youth Development).

Businesses have a vested interest in understanding workforce needs of the 21st century. Not only are they committed to building the workforce of tomorrow, but they understand that ECE is an important part of their workers’ lives today. Many employers know that it makes strong business sense to support their employees’ childcare needs to beneficially impact recruitment and retention.

The business community can also play an important role in bringing visibility to important, societal issues such as access to high quality education.

EXECUTIVE PROFILE


Foundation: What is the return on investment in pre-K programs?

Yalow: Long-term longitudinal studies like Perry Preschool and the North Carolina Abecedarian Project show rates of return somewhere between seven and 10 percent on prekindergarten programs. There is consensus that the rate of return is significantly higher on prekindergarten programs than for traditional investments, and that the earlier we invest in children the greater the return. Nobel Laureate James Heckman attributes the high rate of return to the fact that “skill begets skill” and notes that society as well as individual children benefit from investments in high quality early childhood education. In the short term, high-quality early childhood education results in lower expenditures for remedial education and creates a higher parent productivity level at work. In the long term, high quality early childhood education is associated with increased graduation rates, reduced rates of teen pregnancy, reduced drug and alcohol abuse, reduced likelihood of incarceration, and higher rates of employment, savings, and lifetime earnings.

Foundation: Which states are leaders in early childhood education?

Yalow: Georgia, New Jersey, Illinois, and Oklahoma were early leaders in early childhood education, but many states are starting to catch up. Each of these states have made concentrated efforts to invest in pre-kindergarten systems which focus on enrollment as early as 3 years of age and provide a mixed delivery system and choice for families. They track success along quality and Common Core State Standards also used by the private sector, and have made strides to benchmark their efforts with assessment. In early childhood education, it is relatively easy for a state to move from the back of the pack to the front, so many states like Pennsylvania, Delaware, Wisconsin, and Washington are developing innovative new programs in response to the growing awareness of the impact of investing in this age group.

Foundation: What’s the biggest change we will see in education over the next decade?

Yalow: In time, early childhood education will become the norm, rather than the exception and, with that growth, will come challenges. In response to the challenges facing K-12 and our future workforce needs, we are making the necessary investments in our next generation. We are honored and excited to be a part of this changing landscape because we have already provided many families with high quality care and can leverage our extensive experience.

At Knowledge Universe we’ve seen for decades the impact of this work for children and our community. As the field expands and becomes more visible, we’ll see stronger programs and stronger results by building a network of accountability and expertise. With a greater network of peers, all providers will be challenged to be better for our communities’ children. Foundation: What teacher and class inspired you to be doing what you do today?

Yalow: My inspiration did not specifically come from one of my teachers, but I was inspired when I was getting my MBA at the Graduate School of Business at Stanford. I had previously received my doctorate in education (also from Stanford) and had worked in education for several years. My older son was born at the beginning of my second year in the MBA program, and I faced the same challenges that many new moms face–trying to find quality care for their children while pursuing their professional careers. While I was extremely fortunate to be able to balance these goals, I was inspired to seek a career that allowed me to apply my expertise in education with my then newly acquired business skills. I have been incredibly fortunate to have a career that has allowed me to spend my professional time working to improve the lives of children and families.

EXECUTIVE PROFILE ELANNA YALOW

// E X E C U T I V E P R O F I L E | 61

In time, early childhood education will become the norm, rather than the exception and, with that growth, will come challenges.

To read more of Yalow’s Executive Profile, subscribe to the digital version of BHQ on your tablet.


RESEARCHThe American system synchronizes the collaboration of academia, government, and the private sector making us the global leader in delivering “biotechnological developments.” Our leadership, however, will be tested mightily in the years to come as demand grows and the competition stiffens. Maintaining our excellence in this field of the future is a strategic and economic necessity.

From Patents and Biotechnology: A New Take on Regulation by John Raidt

By taking a more expansive view of what their companies need—and can contribute back to a region—business leaders put an abundance mindset in motion instantly. This mindset enables communities to consider more planning models … that opens up possibilities for bigger and better futures for all groups involved and how those futures interact together within a grander ecosystem. When one ecosystem touches many other ecosystems, the ripple effect grows larger, and this is the power inherent in an abundant mindset.

From Reinventing Cities: Taking an Abundance Mindset to Expand Regional Vision and Impact by Tamara Carleton

The economic resilience of the American household makes for an inspiring story—and an important one given the role that resilience will play in righting our fiscal imbalance. While the resilience of the American household and the American worker is key to tackling our entitlement problems and the fiscal challenges that lie ahead for our country, our elected officials also must demonstrate political resilience.

From The Role of Economic and Political Resilience in Fiscal Reform by Alex Brill

WHAT YOU SHOULD KNOWCurated from recent U.S. Chamber of Commerce Foundation research, blogs, and events. emerging.uschamber.com

// W H AT Y O U S H O U L D K N O W | 63

emerging.uschamber.com

BLOGS http://emerging.uschamber.com/blog/

Shale oil and natural gas development, and the corresponding energy and economic benefits, are a manifestation of the technical innovation and entrepreneurial spirit for which the United States is known and admired.

John Raidt, Foundation Fellow and Senior Fellow, Atlantic Council and James Slutz, Foundation Fellow and President and Managing Director, Global Energy Strategies, LLC“Welcome to the New Energy World Order” | October 9, 2013

The value of basic research should not be underestimated. Basic research forms the backbone for many applied innovations and ought to be considered a fount of growth.

Matthew Jensen, Foundation Fellow and Research Associate, American Enterprise Institute “The Simple Economics of Basic Scientific Research” | October 4, 2013

If our nation’s infrastructure is like a person’s body, are we a finely tuned athlete or out-of-shape and struggling with illness? Our systems are probably more like a middle-aged, somewhat out-of-shape athlete.

James Slutz, Foundation Fellow and President and Managing Director, Global Energy Strategies, LLC“Are we satisfied with the health of our nation’s infrastructure?” | October 1, 2013

To central planners, entrepreneurs are like a bull in a china shop. They disrupt the status quo and undermine established job creators. In the end, they produce far more good than bad.

Michael Hendrix, Director, Research and Emerging Issues, U.S. Chamber of Commerce Foundation“Entrepreneurs are Crazy—and Right” | September 5, 2013

Even the smoothest running bureaucracy can be very good at enforcing bad policy. Uncertainty is indeed a problem. But regulations that are well defined and understood can be just as bad, or worse.

Bret Swanson, Foundation Scholar and President, Entropy Economics LLC“The Regulatory Breakthrough that Could Spur the Economy” | August 28, 2013

ISSUE 9

“Despite the fact that they’ve written manufacturing off in the last decade and said we really don’t need it, the good news is the tide is turning in this country, and manufacturing is approaching a new renaissance.”

Stephen V. GoldPresident and Chief Executive Officer, MAPIJuly 24, 2013

“This issue of our debts isn’t as bad as you think. It’s worse.”

Mitch Daniels President, Purdue University September 24, 2013

QUOTES

WHAT YOU SHOULD KNOW

Mitch Daniels, President, Purdue University

Phot

o by

Ian

Wag

reic

h /

© U

.S. Ch

ambe

r of

Com

mer

ce

Stephen V. Gold, President and Chief Executive Officer, MAPI


“Pretty soon about a third of all Americans will be retired and will spend a third of their life in retirement.”

Bruce Josten Executive Vice President, U.S. Chamber of Commerce September 24, 2013

Phot

o by

Ian

Wag

reic

h /

© U

.S. Ch

ambe

r of

Com

mer

ce

Bruce Josten, Executive Vice President, U.S. Chamber of Commerce

“I come from the private sector. If you ran your business like this…that business would be bankrupt in no time, and you’d be employing zero people.”

U.S. Senator Ron Johnson (R-WI) September 24, 2013

// W H AT Y O U S H O U L D K N O W | 65

Scholars and fellows SPEAK!

What Issue Could Business Leaders Mobilize Behind?

“America’s business leaders need to take a page from Germany’s vocational

education playbook and work much more closely with academia to ensure

graduates are better equipped to tackle 21st century employment, in particular

high-tech and design jobs. The disconnect between what is being taught and

what is needed is far too wide, and it also results in crushing student loan debt.”

- Leslie Bradshaw

“Business could mobilize behind solving the technological and economic

challenges that prevent 1.4 billion people from accessing electricity and thus

gaining in health, education, and prosperity. A new generation can be inspired

by science and innovation as well as goodwill to

their fellow man.”

- James Slutz

“In recent weeks, multiple groups have asked me how they can create a

sustainable culture of innovation within a constantly changing environment.

The opportunity exists to raise this dialogue to the national level, allowing

business leaders to share their latest examples of a successful workforce and

organizational innovation efforts with each other.”

- Tamara Carleton



“In FY 2012, $138.9 billion of federal R&D funding was devoted to meeting

intra-governmental mission requirements. Business should welcome aggressive

efforts to transfer this taxpayer-funded technology from inside government to

the public sphere.”

- Matt Jensen

“I fear businesses are increasingly pulled in opposite policy directions depending

on their orientation toward real entrepreneurship or toward Washington favors.

Yet, I’d say most could agree on a transformation of K-12 education.”

- Bret Swanson

“The business community should be united in modernizing the relationship

between government and industry. In a free and responsible society, the public

and private sectors must perform their distinct roles, but in the 21st century,

greater cross-sector synergy and partnership is required if America is to remain

competitive, strong, secure, and the global leader.”

- John Raidt


// S C H O L A R S A N D F E L L O W S S P E A K ! | 67


“Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.”

~ Mark Twain

Regardless of time or place, adventurers have always been told by someone, “You can’t do that.” Whether the pursuit is over mountains, at sea, or in the air, there is always a naysayer who tells the dreamer what cannot be done.

Cynics are akin to the person who, at the turn of the 20th century, sought to close the patent office because “everything that could be invented has been invented.”

I guess that’s why we so often revere the explorers and pioneers of yesteryear and today. They were able to tune out the people who told them, “No way,” and find a way to make the impossible happen.

In reading this issue, there is one particular thread that comes out—the singular, almost unshakeable focus that mission-driven leaders and entrepreneurs possess. Each one of them sets a goal, plans their mission, and begins executing it. Some missions can be singularly focused and driven, but it’s those that draw collective input and resources from diverse interests that seem to have the largest impact.

NASA’s Apollo mission to the Moon seems to be the default reference when thinking about big and bold pursuits that mobilize people and resources towards an ambitious goal. All too often, we look back at such efforts in a romanticized way, wishing we could follow pursuits like that again, while at the same time listing the excuses of why we can’t.

In looking back at that space-race era of American history, we somehow forget that President Kennedy’s goal of landing men on the Moon came after only one American manned space flight that lasted less than fifteen minutes. His immediate advisers and NASA officials may have had to pick their jaws up from the floor after hearing what the president intended to do. Yet, once their shock wore off, the rest, as they say, became history.

Risk takers have an inherent confidence that separates them from others. They don’t often break their composure when someone laughs or derides their idea as unreasonable or unbelievable. They all stand true to a belief that something is achievable and are willing to do whatever they can to make it happen. What often seem to get in their way are the negative forces that put up roadblocks—either intended or not—that impede the way forward.

That does not mean there is no value in offering skepticism or criticism of a proposed mission goal. There is tremendous value in pushing back and tire-kicking an idea. It encourages the risk taker to make sure he or she has thought through everything before reaching a point of no return. The problem arises when mission pushback becomes a push down that prevents an effort from even being tried or pursued. We see this in certain regulatory approaches, as well as in efforts to limit competition. There’s no benefit gained by either action because the status quo is not where anyone wants to stay if they want to get somewhere.

Think of that the next time someone shares a mission you think is out of this world. Before telling them it can’t be done, take a deep breath and offer a more substantive response beyond, “No way.”

Who knows where it might take you—possibly on the ride of your life.

Rich Cooper Editor-in-chief

FINAL WORD

DOWNLOADBUSINESS HORIZON QUARTERLYFROM ONE OF THESE DIGITAL STORES:

Amazon: http://amzn.to/18aEfOqiTunes: http://bit.ly/1aFEVmL

Google Play: http://bit.ly/18iZiCX

1615 H Street, NW | Washington, DC 20062

Documents

BHQ Issue #9