THEWALLSTREETJOURNAL. Monday,November19,2012| R1 ... · PDF fileYELLOW R2 |Monday,November19,2012 THEWALLSTREETJOURNAL. The Journal Report welcomes your comments—by mail, fax or

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© 2012 Dow Jones & Company. All Rights Reserved. THEWALL STREET JOURNAL. Monday, November 19, 2012 | R1

CEO COUNCIL

Concerns over falling off the “fiscal cliff” dominateddiscussions of the fifth annual meeting of The WallStreet Journal’s CEO Council last week in Washington,D.C.

Nearly three-quarters of the chief executives attend-ing the event listed the fiscal cliff as their biggest worryon the global landscape—above Europe’s financial trou-bles, a China growth slowdown and uncertainty overconflict in the Middle East. They took little comfortfrom the comments of a parade of government officials,including Treasury Secretary Tim Geithner and Ohio Re-publican Sen. Rob Portman, who spoke with them dur-ing their meeting.

“Going off the fiscal cliff would create a period of fi-nancial and economic instability,” the CEOs said in anaction item they adopted as their top priority. Theyurged President Obama and Congress to “take advan-tage of the chance for a grand bargain” on tax and

spending issues “so businesses and consumers can planfor the long term.”

Most of the CEOs in attendance had no hesitancy inendorsing higher taxes on affluent people like them-selves, provided those tax increases were accompaniedby serious and enforceable cuts in government spend-ing.

Ninety percent indicated they would favor a packagethat included at least one dollar in tax increases for ev-ery four dollars in spending cuts.

In their comments, they mostly expressed frustrationthat political leaders in Washington could not do whatneeded to be done—even though what needed to bedone was so abundantly clear.

The chief executive officers, who represent compa-nies with nearly $2 trillion in revenues and more thanfive million employees, called for an overhaul of corpo-rate taxes by broadening the tax base, lowering taxrates and adopting a territorial tax system. They calledfor a comprehensive overhaul of the immigration lawsthat would remove barriers to immigration of skilledworkers and encourage foreign students to stay in theU.S.

They also called for a “closer working relationship”between business and government to encourage thelong-term competitiveness of the U.S. economy. Andthey urged the president to “support oil and gas devel-opment to promote energy diversity.”

BY ALAN MURRAY

ILLUSTRATION BY JULIE TENINBAUM

CEOs to Washington:Strike a Deal—and

Do It Now

José María Aznaron what Europeansneed to do to pullout of their economictailspin, R12

Jon Leibowitzon giving consumersmore control overtheir personaldata, R12

Timothy Geithneron why he’s optimisticthat this time therereally will be abudget deal, R13

Henry Kissingeron the challenges theU.S. faces in dealingwith China, Iran andSyria, R14

Kent Conradon what hebelieves a fiscal-cliffagreement mightlook like, R14

Rob Portmanon what Republicansneed to do now, inboth style andsubstance, R15

Christopher VanHollen Jr. onstarting with theSimpson-Bowlesframework, R15

An Agenda forGrowth

TOP PRIORITYPlace fiscal policy on asustainable path, R4

Restoring Confidencein Finance

TOP PRIORITYBalanced deficitreduction, R6

RemakingHealth Care

TOP PRIORITYPopulation healthmanagement, R8

Big Data:Opportunities and Risks

TOP PRIORITYDon’t restrict the growth

potential, R10

Toward a NewConsensus on Energy

TOP PRIORITYSet a road map to energy

security, R11

PLUS Voices from the conference and a look back at the priorities from past CEO Councils

THE CEO COUNCIL’S RECOMMENDATIONS

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R2 | Monday, November 19, 2012 THEWALL STREET JOURNAL.

The Journal Report welcomes yourcomments—by mail, fax or email.Letters should be addressed toLawrence Rout, The Wall StreetJournal, 4300 Route 1 North, SouthBrunswick, N.J. 08852. The faxnumber is 609-520-7767, and theemail address is [email protected].

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REPRINTS AVAILABLE

(Chief executives except asnoted)Diana N. Adams

Ambac Financial Group Inc.Tom Albanese

Rio Tinto GroupMukesh Dhirubhai Ambani

Chairman and ManagingDirector, Reliance Industries

Tim Armstrong AOL Inc.David Barger JetBlue AirwaysGeorge S. Barrett

Cardinal Health Inc.Dominic Barton

Global Managing Director,McKinsey & Co.

Mark T. Bertolini Aetna Inc.Jeffrey L. Bewkes

Time Warner Inc.Leon David Black

Apollo Global ManagementSamir Y. Brikho AMEC PLCGlenn A. Britt

Time Warner Cable Inc.Lynn Britton Mercy HealthJohn F. Brock

Coca-Cola Enterprises Inc.William M. Brown Harris Corp.Kevin Burke

Consolidated Edison Inc.Lewis B. Campbell

Navistar International Corp.Terrence W. Cavanaugh

Erie Insurance GroupR. Marcelo Claure Brightstar Corp.Michael D. Connelly

Catholic Health PartnersSteven A. Cossé Murphy OilRoger W. Crandall

Massachusetts Mutual LifeInsurance Co.

David W. CraneNRG Energy Inc.

Fred Crawford AlixPartnersH. Lawrence Culp Danaher Corp.Francisco D’Souza Cognizant

Technology SolutionsDouglas L. DeVos

President and Co-CEO,Amway Corp.

Brian DuperreaultMarsh & McLennan Cos.

Thomas F. Farrell IIDominion Resources Inc.

G. Steven Farris Apache Corp.Lex Fenwick Dow Jones & Co.Roger W. Ferguson Jr. TIAA-CREFE. James Ferland

Babcock & Wilcox Co.

Jack A. Fusco Calpine Corp.Richard Gelfond IMAX Corp.Seifi Ghasemi

Rockwood Holdings Inc.Carlos Ghosn

Renault-Nissan AllianceGreg J. Goff Tesoro Corp.Rick V. Goings

Tupperware Brands Corp.James H. Goodnight

SAS Institute Inc.William David Green

Executive Chairman,Accenture

Robert GreifeldNasdaq OMX Group Inc.

James HagedornScotts Miracle-Gro Co.

George C. HalvorsonKaiser Permanente

Thorsten HeinsResearch In Motion

Patricia A. Hemingway HallHealth Care Service Corp.

James Hogan Etihad AirwaysJoseph L. Hooley

State Street Corp.John D. Johns

Protective Life Corp.William D. Johnson Future CEO,

Tennessee Valley AuthorityAlex Karp PalantirGail Kelly Westpac GroupZion Kenan

Bank Hapoalim B.M.David P. Kirchhoff

Weight WatchersInternational

Klaus Kleinfeld Alcoa Inc.Andrey Leonidovich Kostin

President and Chairman ofthe Management Board,JSC VTB Bank

T. K. Kurien Wipro Ltd.Armand F. Lauzon Sequa Corp.René Lerer

Magellan Health Services Inc.Gerardo I. Lopez

AMC Entertainment Inc.Peter S. Lowy

Westfield Holdings Ltd.Rob Lynch VSP GlobalTimothy J. Mayopoulos

Fannie MaeLowell C. McAdam

Verizon Communications Inc.William E. McCracken

CA TechnologiesRaymond W. McDaniel Jr.

Moody’s Corp.Robert A. McDonald

Procter & Gamble Co.Liam E. McGee Hartford Finan-

cial Services Group Inc.Larry J. Merlo

CVS Caremark Corp.Beth E. Mooney KeyCorpDenise Morrison

Campbell Soup Co.Rupert Murdoch News Corp.Robert L. Nardelli

Senior Advisor, CerberusCapital Management

Vineet NayarHCL Technologies Ltd.

Indra K. Nooyi PepsiCo Inc.Douglas R. Oberhelman

Caterpillar Inc.Rodney O’Neal

Delphi Automotive PLCJames F. O’Neil

Quanta Services Inc.Ronald O. Perelman

MacAndrews & ForbesHoldings Inc.

Nicholas T. Pinchuk Snap-on Inc.James T. Prokopanko

Mosaic Co.David E.I. Pyott Allergan Inc.Thomas J. Quinlan

R.R. Donnelley & Sons Co.Ren Zhengfei

Huawei TechnologiesRobert L. Reynolds

Putnam InvestmentsJames E. Rogers

Duke Energy Corp.James P. Rogers

Eastman Chemical Co.Dan Rosensweig Chegg Inc.Ravi K. Saligram

OfficeMax Inc.

Barry SalzbergDeloitte Touche Tohmatsu

Brent L. SaundersBausch & Lomb Inc.

Stephen A. SchwarzmanBlackstone Group

David T. Seaton Fluor Corp.Gregg M. Sherrill Tenneco Inc.S. D. Shibulal Infosys Ltd.Ralph W. Shrader

Booz Allen Hamilton Inc.Barry E. Silbert

SecondMarket Inc.Henrik C. Slipsager

ABM Industries Inc.Frederick W. Smith FedEx Corp.Gary B. Smith Ciena Corp.Martin S. Sorrell WPP Group PLCStephen D. Steinour

Huntington Bancshares Inc.Shivan S. Subramaniam

FM GlobalAnthony R. Tersigni

Ascension Health AllianceTidjane C. Thiam

Prudential PLCFred J. Tomczyk

TD Ameritrade Holding Corp.James Stanton Turley

Ernst & YoungNV Tyagarajan Genpact Ltd.Daniel Vasella

Chairman, Novartis AGTimothy R. Wallace

Trinity Industries Inc.Gregory D. Wasson Walgreen Co.Brett White CBRE Group Inc.Thomas J. Wilson Allstate Corp.Roger J. Wood

Dana Holding Corp.Yang Yuanqing Lenovo

PARTICIPATING GUESTS

Roger C. AltmanExecutive Chairman,Evercore Partners Inc.

José María AznarPresident, Foundation forSocial Studies and Analysis(FAES); Former Prime Minis-ter of Spain

Michael J. BoskinT.M. Friedman Professor ofEconomics and HooverInstitution Senior Fellow,Stanford University

Kent ConradU.S. Senator (D., N.D.);Chairman, Senate BudgetCommittee

Timothy GeithnerSecretary of the Treasury

Austan Goolsbee Robert P.Gwinn Professor of Econom-ics, Booth School of Busi-ness, University of Chicago;Former Chairman, Councilof Economic Advisers

Henry A. KissingerFormer Secretary of State

Jon Leibowitz Chairman,Federal Trade Commission

Joseph Lieberman U.S. Senator(I., Conn.); Former VicePresidential Nominee

Trent LottFormer U.S. Senator(R., Miss.); Former SenateMajority Leader

Rob PortmanU.S. Senator (R., Ohio)

David J. RothkopfPresident and CEO,Garten Rothkopf

James R. Sasser Former U.S.Senator (D., Tenn.); FormerChairman, Senate BudgetCommittee

Mark D. Smith, M.D. Presidentand CEO, CaliforniaHealthCare Foundation

Christopher Van Hollen Jr.U.S. Representative (D.,Md.); Ranking Democrat,House Budget Committee

Daniel YerginVice Chairman, IHS Inc.

Mark M. Zandi Chief Economist,Moody’s Analytics Inc.

Robert B. Zoellick Senior Fellow,Belfer Center for Scienceand International Affairs,Harvard University; FormerPresident, World BankGroup

CEO COUNCIL MEMBERS

THE JOURNAL REPORT: CEO COUNCIL

The CEOs’ Top PrioritiesLast week, The Wall Street Jour-

nal assembled more than 100 chiefexecutives of large companies for aday and a half to discuss the mostpressing public policy and businessissues.

The CEOs divided into five taskforces and debated priorities in the

following areas: increasing economic growth, restoring confidence in thefinancial system, remaking health care, dealing with the risks and oppor-tunities of the proliferation of personal data, and working toward a newconsensus on energy.

Using an electronic ranking system devised by the Journal, each taskforce chose four top priorities in its subject area.

Each task force then reported its priorities back to the full council. Thechief executives then ranked all the priorities from the five task forces inorder of their relative importance and urgency.

Here’s a look at their top five priorities.

1 BALANCED DEFICIT REDUCTIONThe president and Congressmust recognize that going off

the fiscal cliff would create a periodof financial and economic instability.They should take advantage of thechance for a grand bargain so busi-nesses and consumers can plan forthe long term. This agreement shouldbe balanced between spending cutsand revenue increases.

2 BUSINESS TAX REFORMGovernment should pursue rev-enue-neutral business tax re-

form to enhance U.S. competitiveness,including lower marginal tax rates, abroader base and a territorial system.

3IMMIGRATION REFORMGovernment should pursuecomprehensive immigration re-

form that addresses legal and illegalimmigration, removes barriers to im-migration of skilled workers and en-courages foreign students to remainin the U.S.

4 COMPETITIVENESSA closer working relationship isneeded between business and

government for the long-term com-petitiveness of the U.S. economy—in-cluding bringing businesspeople intogovernment and creating a better cli-mate for entrepreneurship.

5 PROMOTE SHALE OIL AND GASThe administration should sup-port oil and gas development

to promote energy diversity. Itshould: 1) support state regulation ofdrilling, 2) collaborate with industryto bolster public confidence, 3) facili-tate leasing on public lands, and 4)facilitate construction of new mid-stream pipeline systems.

Flashback: Compare prioritiesfrom previous CEO Councils, R13.

© 2012 Dow Jones & Company, Inc. All rights reserved. 4C452

THANK YOUTheWall Street Journal would like to thank

the 2012 CEO Council sponsorsfor their generous support of the program.



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THEWALL STREET JOURNAL. Monday, November 19, 2012 | R3

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The U.S. has had tocontend with anemicgrowth in recentyears as well as a lossof competitiveness in

some industries. What can Presi-dent Obama and Congress do toincrease long-term growth andU.S. competitiveness? Can thepublic and private sectors worktogether in promoting growth?

The Wall Street Journal’s Da-vid Wessel moderated the task-force discussion on generatingeconomic growth. Here are ed-ited excerpts of their presenta-tion of their priorities.

FRANCISCO D’SOUZA: The con-sensus of the group was thatthere hadn’t been a lot of debateabout what fundamentally drivescompetitiveness and how gov-ernment and business can worktogether to further that agenda.

In particular, there was a lotof conversation around the roleof small business and what wecan do together—between thepublic and private sectors—todrive the competitiveness ofsmall business. For example, ac-cess to global markets, whichsmall business tends to havelimited, if any, access to.

There needs to be a greaterpublic-private partnershiparound the issue of competitive-ness so that the public and pri-

vate sectors working togethercan further the competitivenessof the U.S.

JEFFREY L. BEWKES: We thoughtthat growth policies wouldn’t re-ally work well if we don’t have asustainable fiscal path. If growthis low, then the fiscal path ap-pears less sustainable. And if thefiscal path appears less sustain-able, it causes a lot of circularproblems on growth.

If it appears that the overall

level of debt is going to continuerising or not go down, you’lleventually face one of several al-ternatives, or all of them to-gether. You’re going to havehigher interest rates, perhapsdramatically at some point, andthat will put more pressure onthe whole system. You’ll haveentitlement programs that be-come undermined or in question.

If you have high levels of debtand slow growth and tax bur-dens rising, then the question iswho’s bearing that burden. If it’sa large tax burden due to slowgrowth, it’s going to be borne bythe middle class eventually.

We have to have a fiscal paththat’s sustainable in order tohave any growth policies thatwill work.

ROBERT A. MCDONALD: Wethought business tax reform wasan important part of competi-tiveness. Right now the U.S. hasthe least-competitive tax systemin the world, and we have thehighest corporate tax rate.

We also have a world-widesystem versus a territorial sys-tem. A world-wide system meansthat if you earn money abroad,you can’t shift that money fromone country to another or evenrepatriate it to the U.S. withoutpaying the higher U.S. tax rate inaddition to the tax you alreadypaid.

We’ve got general agreementfrom both parties and from thelegislative and executivebranches that we do need tolower the tax rate. To do thatwe’ll need to broaden the base inorder to make it as revenue-neu-tral as possible.

MR. D’SOUZA: We’ll wrap up withimmigration reform. For compet-itiveness, we believe you have tohave a skilled workforce and anadequate supply.

There’s clearly a skills gap inthe U.S., particularly in the so-called STEM disciplines—sci-ence, technology, engineeringand mathematics.

In addition, we are at a pointwhere we have the single largest

number of folks who were bornoutside of the U.S. living in theU.S. on an absolute basis of anytime in our history. Approxi-mately 38 million people livinghere were born outside the U.S.

There’s a real human issuearound family reunification,about folks who live here beingable to bring their families here.And so the suggestion is com-prehensive immigration reformthat includes temporary visasfor skilled individuals and greencards for folks who come here.

Foreign students who come tothe U.S. have trouble stayinghere. We bring them here, weeducate them in some of thebest universities in the worldand then we send them home.We ought to be able to keepthem here.

And then finally looking atthe folks who are in the U.S. ille-gally—looking at the issues of apath to citizenship and dealingwith the children of folks whoare here illegally through issueslike the Dream Act.

AnAgenda For Growth: GovernmentAnd Businesses Need toWork Together


RalphAlswangforTh

eWallS

treetJournal

‘You have to have a skilled workforce.… There’s clearly a skills gap in the U.S.’FRANCISCO D’SOUZA, CENTER, WITH JEFFREY L. BEWKES, LEFT, AND ROBERT A. MCDONALD

CEO Council Videos>>Scan this code forthe full lineup ofCEO Council videointerviews withtop economistsand political

leaders on the fiscal crisis, theglobal economy and more, or goto WSJ.com/CEOCouncil.

1 FISCAL POLICYPlace federal, state and lo-cal fiscal policy on a long-

term sustainable path, gradu-ally reducing public debt.

2 BUSINESS TAX REFORMPursue revenue-neutralbusiness tax reform to

enhance U.S. competitiveness,including lower marginal tax

rates, a broader base and a ter-ritorial system.

3 IMMIGRATION REFORMPursue comprehensiveimmigration reform that

addresses legal and illegal im-migration, removes barriers toimmigration of skilled workersand encourages foreign stu-dents to remain in the U.S.

4 COMPETITIVENESSFoster a closer workingrelationship between

business and government forthe long-term competitivenessof the U.S. economy, includingbringing businesspeople intogovernment and creating a bet-ter climate for entrepreneur-ship.

THE TOP FOUR RECOMMENDATIONS

View From the TopCEO Council participants saidthe growth rate for the U.S.economy next year will be:

Greater than 3% growth5%

2%-3%growth44%

Barelypositive51%

The Wall Street Journal

Jeffrey L. BewkesPresident and CEO,Time Warner Inc.

Francisco D’SouzaCEO, Cognizant TechnologySolutions

Robert A. McDonaldChairman, President andCEO, Procter & Gamble Co.

SUBJECT EXPERT

Mark M. ZandiChief Economist,Moody’s Analytics Inc.

AN AGENDA FOR GROWTHCO-CHAIRS

In rocket science, there’s a formula for every eventuality.How about in the science of investing?

LET’S FINDOUT.

Copyright © 2012 by S&P Dow Jones Indices LLC, a subsidiary of The McGraw-Hill Companies, Inc., and/or its affiliates. All rights reserved.

S&P Dow Jones Indices LLC is a subsidiary of The McGraw-Hill Companies, Inc. Standard & Poor’s, S&P, S&P 500 and GSCI are registered trademarks of Standard & Poor’s Financial Services LLC, a subsidiary ofThe McGraw-Hill Companies, Inc. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). All Trademarks have been licensed to S&P Dow Jones Indices LLC. It is not possibleto invest directly in an index. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates (collectively “S&P Dow Jones Indices”) do not sponsor, endorse, sell, or promote any investment fund orinvestment vehicle that seeks to provide an investment return based on the performance of an index. This document does not constitute an offer of services in jurisdictions where S&P Dow Jones Indices does nothave the necessary licenses. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties.

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F our years after thecollapse of LehmanBrothers became asymbol of the recentglobal financial crisis,

confidence in the financial sys-tem remains shaky. What can thepresident and Congress do to re-build that confidence?

The Wall Street Journal’sFrancesco Guerrera moderatedthe task-force discussion on thistopic. Here are edited excerptsof the group’s presentation of itspriorities to the CEO Council.

Avoid the CliffFRANCESCO GUERRERA: I’ve gotto give credit to the CEOs in theroom. There wasn’t a lot ofvested-interest talk, and wecame out with some prettystrong recommendations. We’llstart with Stephen Schwarzmanon our priority No. 1, which isabout balanced deficit reduction.STEPHEN SCHWARZMAN: Whatwe concluded is that driving offthe fiscal cliff just to do it hasunpredictable outcomes, few ofwhich could be good. And it’sunclear how consumers, marketsand other constituencies wouldreact to that, which adds an ad-ditional dynamic to trying to geta deal done.

Some would say that instabil-ity creates the pressure to get agrand bargain done at somepoint. But destabilizing the sys-tem is probably not the mostproductive way to approach anegotiation.

So, we’re in favor of the nextCongress doing things in an or-derly way without introducingthe kind of uncertainty thatprobably will occur.

MR. GUERRERA: The second rec-ommendation was about regula-tory clarity.ROGER FERGUSON: The kinds ofthings that we’re thinking abouthave to do with making sure thatregulators are clear about theirguiding principles.

The regulations themselvesare bound to be complex. Itmight be helpful if a regulatorsaid, “These are the three orfour or five things that we reallyare trying to achieve,” so thatthe industry and consumersknow what the goals and objec-tives are without getting lost inthe weeds of the regulationsthemselves.

We have another concern—that regulators have got to becareful not to create a one-size-fits-all regulatory environmentthat could lead to instability asopposed to stability. So, recog-nizing the fundamental differ-ences across industry types—in-surance, securities firms, banks,etc.—is very important.

We know that they’re strug-gling with some of the elements.The Volcker rule, for example,comes up—where they have lit-erally hundreds of pages and areasking hundreds of questions totry to sort out the fine distinc-tion between proprietary tradingand market making. So there’sobviously a great deal of uncer-tainty that exists in this space.

MR. GUERRERA: The third pointwas that the panel feels verystrongly that there has to be arecognition by the political arenathat finance is a vital part of ahealthy economy. And then therewas a discussion about what thefinance industry would do al-most in return for that.JOHN JOHNS: On the one hand,our group would call on thepresident and our leaders inCongress to tone down the rhet-oric. To stop the demonization,if you will, of the financial-serv-ices industry, and recognize—very publicly and forthrightly—that having a very healthy,robust financial-services indus-try is critical to job creation andeconomic growth.

At the same time, we think itwould be probably a good ideafor them to reach out to leader-ship in the various segments offinancial services and call onthem to heal themselves—tolook within, to recognize thatmistakes were made pre-finan-cial crisis.

And some rethinking andchanges are needed in terms ofsome basic business models toensure that products and serv-ices and strategies are designednot only to maximize share-holder value but also to servethe best interest of consumers,particularly the middle-class andworking-class people in thiscountry.

The Small InvestorMR. GUERRERA: And then the fi-nal priority focuses on one of themost pressing problems in finan-cial markets today, which is theflight of the small individual in-vestor.MR. FERGUSON: We need a cou-ple of things to restore investorconfidence. One is the macro is-sues where we started. But thereare also a number of technicalmicro fixes that have to takeplace in the markets to create amore level playing field betweenprofessionals and individuals.

And we think regulators andfinancial-services firms need tointroduce some new rules andregulations around self gover-nance—the way markets them-selves function, the way marketparticipants function—so thatthey’re a source of stability, notinstability, and therefore individ-uals can trust equity markets inparticular with their lifetimesavings.

Restoring Confidence in Finance:Start ByDealingWith the Deficit

‘Our group would call on the president and leaders in Congress to tone down the rhetoric.’JOHN JOHNS, RIGHT, WITH STEPHEN SCHWARZMAN, CENTER, AND ROGER FERGUSON

RalphAlswangforTh

eWallS

treetJournal


1 BALANCED DEFICITREDUCTIONRecognize that going off

the fiscal cliff would create aperiod of financial and eco-nomic instability. Take advan-tage of the chance for a grandbargain so businesses and con-sumers can plan for the longterm. This agreement shouldbe balanced between spendingcuts and revenue increases.

2 REGULATORY CLARITYSimplify and clarify fi-nancial regulation. There

are too many regulators andtoo much ambiguity. Make surethe regulatory regime reducesrather than accentuates volatil-ity, avoid rules that inadver-tently hamstring firms in timesof crisis, and restructure com-pensation systems to discour-age unnecessary risk-taking.

3 RECOGNITION ANDHIGHER STANDARDSWashington should rec-

ognize the finance industry’simportance to the economy.And the industry should raiseits standards. Business modelsmust serve the long-term in-terests of investors and con-sumers. Products should besimpler, corporate governanceimproved and compensationmore aligned with long-termperformance.

4 RESTRUCTURE THEMARKETIndividuals have been

withdrawing from U.S. equitymarkets. Make the marketmore of a level playing field forinvestors. Both financial lead-ers and regulators should havea plan for restoring investorconfidence through, for exam-ple, improved market structure.


The View From the TopCEO Council participants said…

uWhat is your biggest worryon the global landscape?

u Are you optimistic or notoptimistic about your businessprospects over the next year?

U.S. fiscal cliff73%

Eurocrisis12%

Chinaslowdown8%

Middle East energy crisis2%

Other4%

Optimistic56%

Notoptimistic44%


Roger W. Ferguson Jr.President and CEO,TIAA-CREF

John D. Johns Chairman,President and CEO,Protective Life Corp.

Stephen A. SchwarzmanChairman and CEO,Blackstone Group

SUBJECT EXPERT

Roger C. AltmanExecutive Chairman,Evercore Partners

RESTORING CONFIDENCE INFINANCE CO-CHAIRS

DELTA.COM

LEGROOM ISN’TJUST FOR EXITROWS ANYMORE.MORE LEGROOM WITHECONOMY COMFORT.™



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I n the debate over the na-tion’s finances, health careis one of the biggest itemson the agenda. How do webring down soaring costs

as more people get coverage andmore baby boomers head into re-tirement?

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

ing health care. Here are editedexcerpts of their presentation ofpriorities to the CEO Council.

Eliminate WasteLAURA LANDRO: Mark Smith,chief executive of the CaliforniaHealth Care Foundation, gave ussome initial proposals. We endedup with some very provocativeideas about national standardsfor quality and price transpar-ency, even looking at the agricul-tural subsidies that might con-tribute to bad habits likesmoking and consumption ofhigh-fructose corn syrup. A lot ofpeople are also very concernedabout the limited time that wehave to get state insurance ex-changes. How are we going toget insurance to our employees?Should we be taxing people forhealth benefits above a certainamount? For our top priorities,I’m going to turn over the firsttwo to Mark Bertolini.

MARK BERTOLINI: The Institutesof Medicine last year published areport that said we have $750

billion a year of waste in thehealth-care system. If we solvethat problem, over the next 10years we solve half of the na-tion’s deficit. And if we just get20% of it, which is a 6% changein health-care costs, we pay forthe Affordable Care Act.

What happens in our systemis if you get paid by a unit of ser-vice, you do more units of ser-vice. Our notion was to shift topopulation management. You as-sess the disease burden, the de-mography and the trends in thecommunity and build a systemand budget around that. You re-ward the system for improvingthe productivity and health ofthe population they serve.

If we were to say, “Here’s thebudget you have to take care ofall these people. It is yours. Youmanage it effectively,” then thesystem should organize itself ap-propriately and look for opportu-nities to make it better. Seventy-five percent of the next $10trillion in the nation’s debt isMedicare and Medicaid. If wecan stem the increase, we can

work on the deficit.The second notion is transpar-

ency. We need to have a truemarket where people understandwhat the prices are for healthcare. Today, that’s concealed.

Imagine a supermarket whereyou go in with your cart and pullitems off the shelf with no priceson them. You take it up to thecounter. It’s scanned. The clerkswipes your card and says, “In30 days you’ll get your credit-card bill, and you’ll know howmuch your groceries cost.”Would you shop there? But that’show the health-care systemworks. We need to create trans-parency in the system so peoplecan understand how much healthcare costs.

The Role of Care GiversLARRY MERLO: The third one thatwe talked about is new deliverymodels, focusing on the role oflicensed health-care profession-als such as nurses and pharma-cists. This is responding to ashortage of primary-care physi-cians that exists today and is ex-pected to continue to grow.

What we can do is to harmo-nize the licenses of health-careprofessionals to a scope of prac-tice that is based on their educa-tion, training and experience

versus just the regulationswithin the state where they prac-tice. At the same time, thiswould allow for the cross-licen-sure of these professionalsacross states. Only 16 states havestandardized scope-of-practiceregulations to allow nurse practi-tioners to practice independentlyand really complement primary-care physicians. At the sametime, you look at the ability toexpand pharmacist-administeredimmunizations. It’s inconsistentacross the states.

The goal is to increase accessto care, reduce costs and im-prove the quality of care. Tied tothis is health-care information-

technology connectivity. Thiswould enable health-care provid-ers at all points of care to engagepatients, to see if they’re adher-ing to prescriptions and havingpreventative checkups.

The fourth one is primarycare, and it picks up on thetheme of today’s shortage of pri-mary-care physicians. We talkedabout incentives to improve thebalance between specialty andprimary-care physicians, like ed-ucation and emphasizing reim-bursement rates. At the sametime, there’s forgiving medical-school loans. Some of these sameprinciples would also apply tothe nursing profession.

RemakingHealth Care:Change theWay Providers Are Paid


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‘We need a market where people understand what the prices are.’MARK BERTOLINI, LEFT, WITH LARRY MERLO

1 POPULATION HEALTHMANAGEMENTExplicitly gear our system

around population health. Cre-ate public-private partnershipsto encourage healthy behavior,and identify specialty popula-tions with unique needs, suchas the seriously mentally ill. Re-shape financial incentives tomeet the goal of populationhealth, and build capacity andreimbursement systems to sup-port it. Have the administrationclarify how to deal with thehuge shift into insurance ex-changes.

2 TRANSPARENTSTANDARDSThe Center for Medicare

and Medicaid Services shoulddevelop, and require all public-health programs to adopt, uni-form standards for health-careservice quality, performanceand price transparency so con-sumers can make value choices.And it should encourage statesto follow suit.

3 NEW DELIVERYMODELSUse the full continuum of

care givers, such as nurses andother professionals. Create uni-form standards for licensing

care givers across the country,and encourage more care in re-tail clinics, pharmacies andother sites. Require patients’medical data to be availableelectronically.

4 PRIMARY CAREProvide incentives to cor-rect the imbalance of

specialists to primary-care doc-tors by changing reimburse-ment rates, increasing fundingfor undergraduate and graduatemedical education for primarycare, and forgiving medical-school loans. Increase focus onadvanced nurses and nursepractitioners as care providers.


Rising BillsU.S. health-care spending as a percentage of gross domestic product

Source: OECD Health Data 2012 The Wall Street Journal

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010024681012141618%

Mark T. BertoliniChairman, President andCEO, Aetna Inc.

Larry J. MerloPresident and CEO,CVS Caremark Corp.

Brent L. SaundersPresident and CEO,Bausch & Lomb Inc.

SUBJECT EXPERT

Mark D. Smith, M.D.President and CEO,California HealthCareFoundation

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C ompanies around theworld increasingly col-lect and process vastamounts of customerdata, particularly data

tracking consumer behavior onthe Web.

It’s a phenomenon commonlyreferred to as Big Data, and ithas generated widespread de-bate over a host of issues. Whatshould companies do with suchdata? How can it be used profit-ably? How should it be treated?Should there be laws governingits use? Internationally recog-nized safeguards for consumerprivacy? And how do U.S. com-panies stay competitive as morecountries learn how to processand interpret such data?

The Wall Street Journal’sJohn Bussey moderated a task-force discussion about just suchissues. Here are edited excerptsof their presentations to the CEOCouncil:

Opportunity FirstJOHN BUSSEY: Our group endedup with essentially two princi-ples and two action items. Domi-nic, if you could take our first,please?DOMINIC BARTON: Our group feltvery strongly that this is a hugeopportunity, and we shouldn’tfocus on how to protect or regu-late Big Data before we recog-nize how important it is. Compa-nies that use Big Data effectivelyget about a 6% productivity im-provement versus others.

We’re at the early stages. It’sin every sector. And we all felt itcan be the next wave of produc-tivity growth if we use this dataeffectively.

Depending on how you pro-tect or use data, it can actuallylead to a country’s competitiveadvantage. We’ve got small city-states like Singapore and AbuDhabi that are allowing, for ex-ample, consumer medical infor-mation to be publicly availableto get innovation.

So let’s not lose sight of howimportant it can be for produc-tivity improvement as we thinkabout the protection.

MR. BUSSEY: Marcelo, our secondprinciple.MARCELO CLAURE: First of all, wehad a fascinating group. We hada tremendous amount of interac-tion. And we quickly realizedthat all of us live in a hyper-con-nected world. By that I meanwe’re passing a huge amount ofdata every day through a con-nected car, a connected cell-phone, a connected tablet, a con-nected home.

We see it as a tremendous op-portunity, but what is the gov-ernment role?

Some members of our groupargued that governmentshouldn’t be allowed to regulateor do anything related to BigData. But the rest of the groupagreed that we’ve got to definethe basics of what the govern-ment is going to do.

And where we came out atthe end was, government shouldhave the role of defining what islegal and what is illegal in theuse of Big Data. And that’swhere the government shouldstop. We think it should be leftup to the consumer to definewhat he or she wants to shareand doesn’t want to share, whatis public and what is private.

Limiting government controlto what’s legal and illegal will al-low the consumer to make morechoices. As a consumer, youshould be able to determine howmuch of your Facebook profileyou want to share, or whether

you want to share informationabout where you shopped last.

Security and TreatyMR. BUSSEY: And Tim has ourtwo action items.TIM ARMSTRONG: The first one isprobably more important than itseems on the surface, especially

for private companies. I think westarted this as kind of a govern-ment conversation, but mostlyit’s private companies that actu-ally own the infrastructure thatmakes the company or the coun-try work.

So cybersecurity is somethingthat really needs to be dealt

with. And specifically, havingstandards around this is impor-tant in two different directions.

One is standards of what hap-pens when something gets at-tacked. How do you report it,and what is the infrastructure tohelp companies with that?

The second piece which is im-

portant and which came up inour discussion is when your datalives outside the country, orwhen you’re going to do thingswith data in other countries.There are groups like CFIUS [theU.S. government’s Committee onForeign Investment in the U.S.,which reviews foreign invest-ment deemed to have an effecton national security] which areinside the government, which, ifyou haven’t dealt with them, youwill, over these type of data as-sets. Cybersecurity is really im-portant.

The last action item is comingup with a global data treaty. TheU.S. is probably the largest econ-omy involved in Big Data rightnow, and we think it’s importantfor the U.S. to take a leading rolein defining what some of the BigData policies and standardsshould be in such a treaty. Wewould hope that we, the U.S.,could define a basic treaty tostart off, and then other coun-tries could either adopt or aug-ment the treaty over time.

BigData:BeforeYouStartRestricting It,BeAware ofAll theOpportunities

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‘We think it should be left up to the consumer to define what he or she wants to share.’MARCELO CLAURE, RIGHT, WITH TIM ARMSTRONG, CENTER, AND DOMINIC BARTON

1 BIG DATA ISOPPORTUNITYIndustry already recognizes

that the advent of Big Data is apotential engine of significanteconomic growth. Policy makersmust address issues such as se-curity and privacy but not re-strict this opportunity. Consum-ers, government and companiesall have a role to play in defin-ing policy. Countries need torecognize that the treatment ofdata is ultimately an issue ofnational competitiveness.

2 CREATE RULESOF THE ROADThe government should

define which activities concern-ing data are legal or illegal. Foractivities that are legal, consum-ers should then define what ispublic or private in their owncases through opting in or outin terms of what they chooseto reveal about themselves.

3 ENACT CYBERSECURITYSTANDARDSThe private sector, gov-

ernment, the military and con-

sumers should jointly developdetailed standards and inci-dence-reporting practices for cy-bersecurity, building on existingindustry best practices.

4 CREATE A GLOBALDATA TREATYThe U.S. should play a

leadership role in coordinatingwith international bodies topass a treaty to establish clear,universal standards on data pri-vacy and ownership.

BIG DATA: THE TOP FOUR RECOMMENDATIONS


Tim ArmstrongChairman and CEO, AOL Inc.

Dominic BartonGlobal Managing Director,McKinsey & Co.

R. Marcelo Claure Chairman,President and CEO,Brightstar Corp.

SUBJECT EXPERT

David J. RothkopfPresident and CEO,Garten Rothkopf

BIG DATA: OPPORTUNITIES ANDRISKS CO-CHAIRS

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The collapse of globalefforts to regulatecarbon emissions andthe rise of natural-gasproduction have

transformed the energy picturein the U.S.

The Wall Street Journal’s Jo-seph White moderated a task-force discussion aimed at identi-fying what the U.S.’s mainpriorities should be in wake ofthis changing energy landscape.Here are edited excerpts of theirpresentation to the CEO Council:

A Long-Term JourneyJOSEPH WHITE: We had a diversegroup of people in the room, in-cluding energy producers, energyconsumers, people involved withtechnology and people involvedwith infrastructure. I really dothink we reached a consensus onwhat the priorities should be.DAVID SEATON: Priority No. 1 isto create a road map to energysecurity. That means setting anational, comprehensive energypolicy with measurable goals.There are a few aspects I wouldcenter on. This is a long-termjourney, not a destination. Timesare going to change. Markets aregoing to change. This has to becomprehensive, and it needs togo past the next election, pastpartisan politics.

MR. WHITE: The second prioritywas to encourage diversity.CARLOS GHOSN: That’s a very im-portant element, which in a cer-tain way ties in to point No. 1,which is that we can’t continueto rely too much on very limited

sources of energy or specificways of using energy. We use theexample of the car industry,where today almost the entireindustry relies on one technol-ogy, the combustion engine, andone commodity, oil. Transporta-tion accounts for more than 60%or 70% of all oil use in the world.

This can’t continue. There area lot of technologies available.What is required is support forthe development of new energysources, as well as new ways ofusing energy. We need to sup-port development of these tech-nologies through tax incentivesand public-private association.

MR. WHITE: Priority three is topromote shale oil and gas. Butthere is more to it than that.MR. SEATON: I would like to talkabout shale in a different form,in relation to the free-marketsystem and letting those mar-kets work. If you think about theemergence of shale gas as a

commodity, it came upon $10 to$12 natural-gas prices. So thefree market suggested that ifyou could punch a hole, youcould make money at $10 to $12per million BTU.

The fact is that innovationand investment changed theprice forever, in my opinion,

down to the $2, $3, $4 range.What that has done is promotethe emergence of manufacturingin the U.S. Think about the pet-rochemical and the gas-to-liquidmarkets that are being promotedwithin the Gulf Coast alone. Mycompany is working on some-where in the neighborhood of$30 billion worth of investmentin the Gulf Coast. And that isdue to letting the free-marketsystem work as it relates toshale gas.

Letting Markets WorkMR. WHITE: The fourth prioritywas to streamline regulationsaround energy, but for severalpeople in our group, this wasprobably the No. 1 priority.MR. GHOSN: A lot of members ofour team are complaining aboutthe fact that from time to timefederal regulation contradicts lo-cal and state regulation. So wecame to the conclusion that ifwe really want to do somethingserious, we need to make surethat they are all consistent. Andthe only way to ensure consis-tency ties back to point No. 1,which is that there needs to besome kind of vision and policyabout energy that really super-sedes all the initiatives that aretaking place at the local level.

Toward aNewConsensus on Energy:YouNeed to BeginWith a RoadMap

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‘What is required is support for the development of new energy sources.’CARLOS GHOSN, RIGHT, WITH DAVID SEATON

1 ROAD MAP TOENERGY SECURITYSet a national road map

for a balanced approach to en-ergy security, including long-term measurable goals, throughcomprehensive energy legisla-tion.

2 ENCOURAGE DIVERSITYThe administrationshould focus on all en-

ergy sources to ensure diver-sity. Promote research and sup-port development across theenergy spectrum via tax incen-tives and regulatory clarity,among other things.

3 PROMOTE SHALE OILAND GASThe administration should

promote shale oil and gas de-velopment to foster energy di-versity. It can support stateregulation of drilling, collaboratewith industry to bolster publicconfidence, facilitate leasing onpublic lands, and facilitate con-struction of new midstreampipeline systems.

4 STREAMLINEREGULATIONSpeed up permitting and

regulation to spur energy pro-duction. Address regulatoryoverlap between state and fed-eral governments. Ensure con-sistency between regulatory en-tities and the neededcomprehensive energy strategy.

ENERGY: THE TOP FOUR RECOMMENDATIONS


No More HelpWhat should happen to federalsubsidies of renewable energy?Most WSJ.com readers in anonline poll favor ending them.You can weigh in atWSJ.com/Reports.

Theyshould beeliminated60%

They shoulddecline5%

They shouldremain the same

4%

Theyshould beincreased31%


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

David T. SeatonChairman and CEO,Fluor Corp.

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Daniel YerginVice Chairman, IHS Inc.

TOWARD A NEW CONSENSUS ONENERGY CO-CHAIRS

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As the euro crisisdeepens, nationaleconomies are on theverge of collapse andthe European Union

faces the possibility of a split.Can Europe come back from

the brink? And what lessonsdoes that struggle hold for theU.S.?

The Wall Street Journal’s Ge-rard Baker spoke with formerSpanish Prime Minister JoséMaría Aznar about the problemsand the prospects. Here are ed-ited excerpts of their conversa-tion.

The Road AheadMR. BAKER: In Washington, muchof the discussion is about the fis-cal cliff. In Europe, you’ve al-ready gone over the fiscal cliff.You were prime minister ofSpain for eight years before thiscrisis broke. How serious are Eu-ropeans, and what needs to bedone to come out of this tail-spin?MR. AZNAR: The history of theeuro during the first decade wasa combination of flexibility onone hand and discipline on theother hand. If you combine both,the results are good. If you for-get that discipline, you have aproblem. You have a very seriouscliff.

MR. BAKER: Let’s look at what’shappening in Spain right now.You’ve got a situation in the pastcouple of months where thereseems to have been some stabili-zation in the bond market sinceMario Draghi [president of theEuropean Central Bank] madehis commitment that the ECBwill buy up the bonds of Spainand Italy and other countries ifthere is a bailout.

The markets have assumedthis is going to happen. And yet,we’re still waiting for MarianoRajoy, your successor as primeminister, to ask for this bailout.He seems to be reluctant to doso. When is he going to bite thebullet so that we can actuallystart to do things that the mar-kets seem to think are necessaryto get Europe on a more stablepath?MR. AZNAR: With bailout orwithout bailout, Spain needsmore reforms. But at this mo-ment I don’t consider the bailoutsuitable for the country. Theprice that you pay in politicalterms and economic terms to ac-

cept the bailout will be morethan the necessities of the coun-try.

Second, the bailout dependsnot only on the will of the Span-ish government, but on the ap-proval of the rest of the govern-ments—in particular, Germany. Iam convinced that Germany willreject any bailout. Before theGerman elections, nothing hap-pens in Europe.

MR. BAKER: The German elec-tions aren’t for another year.That’s a long time. The marketsare clearly expecting somethingbefore then.MR. AZNAR: But this is reality.This is one of the reasons wemust do a lot of reforms, to re-gain more credibility. Ten yearsago, Spain was a triple-A coun-try, and today it is a triple-Bcountry. These are two differentcountries.

A Structural ProblemMR. BAKER: If the Germans arenot going to back a bailout,doesn’t this point to a funda-

mental weakness in the structureof the euro? You have fundamen-tally different economies andfundamentally different politicalsystems, and you don’t have thepolitical legitimacy.

People in Spain don’t acceptthe idea that Germans can tellthem how many hours theyshould work each week, or whenthey can retire. And the people in

Germany don’t accept that theSpanish should be able to dowhat they want to do and expectthe Germans, in the end, to bailthem out.MR. AZNAR: The original successfor Europe was to make it possi-ble for different countries withdifferent histories to coexist andshare objectives. If you createthe euro, if the euro is an advan-

tage for European countries, youmust finish this operation.

MR. BAKER: But you’ve created asituation now where Germanywill be peaceably controlling Eu-rope.MR. AZNAR: It depends if you canexert influence along the Euro-pean institutions or if you decideto impose decisions. The prob-lem in Europe today is that therearen’t balances. The U.K., for ex-ample, is out of the decisions inEurope.

It’s extremely important thatthe U.S. look to Europe. Our feel-ing in Europe is that this admin-istration is looking only to thePacific, to Asia. This is a mis-take. For instance, we have theopportunity to create in the nextmonths a very important free-trade area between Europe andthe U.S. That would send a mes-sage of stability to the rest ofthe world.

The Future of NationalismMR. BAKER: In Spain you’re go-ing to have an election in Catalo-

nia in the next couple of weeks.Are the Catalans going to votefor independence?MR. AZNAR: No, Catalans areSpanish. We’ve lived together forthe past 500 years now. Nation-alism is a problem in Europe. Af-ter the fall of the Berlin Wall,the former socialist states ran tobecome nationalist. What is theresult? The Balkans.

MR. BAKER: But people feel dis-connected from their leadershipand disempowered. What theeuro seems to have created is asystem that lacks political legiti-macy.MR. AZNAR: In some parts of Eu-rope, nationalists and secession-ists are looking at the map ofEurope and thinking, “Well, themap in the future will be differ-ent. This is our opportunity, ifwe want to be independent.”

It is very easy to establish anegative campaign to destroy acountry. It is more complicatedto establish a good program andgood policies to recover theeconomy or the position of acountry. I believe in this policy.

MR. BAKER: Does Europe have afuture? For a thousand years,Europe was the center of civili-zation. But great civilizationsfade away. There’s a view in theU.S., perhaps unfairly, that Eu-rope doesn’t have dynamism,that it has demographic prob-lems, productivity problems, fis-cal problems.

If you look at the next 50years, is Europe going to be ableto come back and be a signifi-cant economic region?MR. AZNAR: We are still the mostimportant economic area in theworld in terms of market. Weare the third-largest populationin the world after China and In-dia. We have lots of rich coun-tries. It’s fantastic living in Eu-rope.

The question is, do we havethe will to defend our system ofvalues? Look at the map of theworld. Western values continueto be wonderful values in theworld. And we’re going to de-fend this.

It is not true that the futureis only in the Pacific. If you lookat four pillars—Europe, NorthAmerica, South America and apart of Africa—you can create anAtlantic base. Not against any-thing, but in favor of the moststability in the world.

Can Europe Get Its Act Together?Former Spanish Prime Minister José María Aznar on what Europeans need to do to pull out of their tailspin


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‘If the euro is an advantage for European countries, you must finish this operation.’JOSÉ MARÍA AZNAR

More than anything,Jon Leibowitz,who has been thechairman of theFederal Trade

Commission since 2009, has re-shaped how American corpora-tions look at their data prac-tices—and in particular onlineprivacy. In recent years, the FTChas charged Google Inc., Face-book Inc. and Twitter Inc. withprivacy and data-security viola-tions and won consent decreesgoverning their future behavior.

Julia Angwin, senior technol-ogy editor at The Wall StreetJournal, sat down with Mr. Lei-bowitz to discuss the FTC’s pushfor better privacy practices. Hereare edited excerpts of the con-versation:

Providing an OutMS. ANGWIN: You have been ahuge advocate for somethingcalled Do Not Track. Could youtell us about the proposal andwhere it’s headed?MR. LEIBOWITZ: We try to take abalanced approach to privacy.

We recognize the value proposi-tion of the Internet ecosystem,which is funded on free advertis-ing, and no one wants to changethat. But we also believe con-sumers should have some choiceabout where their data go. Andso we have proposed a self-regu-latory notion that the businesscommunity has generally em-braced called Do Not Track,which would allow consumers toopt out of third-party tracking ifthey want to.

It’s a much more moderateapproach than, say, the Euro-pean Union, where they’re de-bating whether to allow any sortof collection of information at alland if so, to do it on an opt-inbasis.

MS. ANGWIN: Everyone hadhoped this deal would be doneby the end of the year. It’s prob-ably fair to say it’s faltering abit. What is your assessment?MR. LEIBOWITZ: This has been aprocess in which we have movedtwo steps forward and one stepback throughout, but we’re still

making progress. The question iswhether Do Not Track is goingto allow consumers not to haveinformation collected aboutthem. We’re still workingthrough that process.

I think companies want to beon the right side of consumers.And if being on the right side ofconsumers means allowing somemodest opt-out for Americanswho don’t want their informa-tion collected, then I think at theend of the day we’ll see moresupport in the business commu-nity.

We already have all of thebrowser companies—Microsoftand Google and Mozilla and Ap-ple—supporting Do Not Track.And we have a lot of online pub-lishers. So I continue to be opti-mistic.

MS. ANGWIN: The advertisingcommunity itself isn’t in agree-ment about Do Not Track, right?What if a partial commitmentemerges, with some advertisersagreeing to it and others not?MR. LEIBOWITZ: I don’t think

that’s a good end point. Butagain, if industry doesn’t giveconsumers some modest controlover where their data go, theyrisk a legislative backlash thatwill be much more prescriptivenext year.

One of the few issues thatisn’t partisan in Congress is pri-vacy. So I think it’s very possibleyou’ll see privacy legislation go-ing forward if members of Con-gress aren’t satisfied that com-panies are giving consumerssome choice about where theirinformation goes.

Parental ConsentMS. ANGWIN: You’re updatingyour rules on children’s onlineprotection. It has been contro-versial because it requires pa-rental consent to track children’sonline behavior, which is actu-ally difficult to implement. Manyin the industry have voiced con-cern. Where does that stand?MR. LEIBOWITZ: It’s an update ofthe Children’s Online PrivacyProtection Act [or COPPA]. Weare looking at all of the com-ments that came in and weigh-ing how to tweak the regulation.We’ll finish it up by the end ofthe year, I’m pretty sure.

Certainly there are peoplewho want to be able to mine thedata of children without parentalconsent, and they’re entitled totheir views and to stir up a bitof controversy. But for the mostpart, I think companies that tar-get young children would sayCOPPA has set the right balance.

It doesn’t stop advertise-ments to children. It only stopsparticular types of collection ofinformation and selling it tothird parties and using it to ad-vertise back to children.

Cop on the BeatMS. ANGWIN: You got the largestfine ever from Google, $22.5 mil-lion, to settle charges it by-passed the privacy settings ofsome users of Apple’s Safarisoftware. Do companies changetheir behavior when they seethese kinds of fines?

MR. LEIBOWITZ: The notion thatthe FTC is engaged here in a fairand balanced way, but that ifyou violate the law we’re goingto come after you, is a fairlymeaningful one. We like to thinkthat we are a cop on the beatprotecting privacy.

But also, we have called formore privacy by design. Whenyou’re designing those cool newapps, make sure that you buildin privacy protections—more

choice and more transparency.

MS. ANGWIN: The EU has a verydifferent approach to privacy,and there has been concernabout whether we’re going tomove in that direction. What’syour view?MR. LEIBOWITZ: My sense is youmight see Europe moving a littlebit more to our approach of al-lowing some advertising and al-lowing some collection of data.

ASearch for Privacy in aNonprivate AgeFTC chairman Jon Leibowitz on the effort to give consumers more control over their personal information

‘I think companies want to be on the right side of consumers.’JON LEIBOWITZ

“I think there’s a pretty serious danger

they go over the fiscal cliff in the short run,

because they’re the same people and it’s

the same dynamic as what happened last

summer. One thing I’m pretty confident is

not going to happen is the president is not

going to agree to something that’s going

to just kick the can months down the road

and put everything back again onto the

debt-ceiling negotiations, which still have

to come in February or March.”AUSTAN GOOLSBEE, Robert P. Gwinn professor of economics,Booth School of Business, University of Chicago, and former chair-man of the Council of Economic Advisers

VOICES FROM THE CONFERENCE

Different PathsReal GDP percentage change from previous year forselected economies

Source: OECD Economic Outlook 91 database. The Wall Street Journal

2012 2013

-6-5-4-3-2-10123%

France

Germ

anyGre

eceSp

ain

Euro

zone

U.K.

U.S.



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Washington isgearing up foranother battleover fiscal pol-icy. But this time

Democrats and Republicans arefacing a daunting deadline—thefiscal cliff of potential tax in-creases and spending cuts.

The Wall Street Journal’s Da-vid Wessel and Alan Murrayspoke to Treasury SecretaryTimothy Geithner about whathas changed since the last wran-gle, and the possibility of com-promise. Here are edited ex-cerpts of their discussion.

Signs of HopeMR. WESSEL: Do you think we’regoing to go over the fiscal cliff?MR. GEITHNER: There’s every rea-son to believe this is a solvableproblem. We have a lot of chal-lenges as a country, but I thinkthere’s a lot of support for tryingto do things that will help makethe economy stronger in theshort term. There’s obviouslyuniversal support for extendingthe middle-class tax cuts. Doingthat would remove the greatestsource of anxiety and much ofthe greatest risk in the fiscalcliff. There’s a lot of support forfinding bipartisan consensus onother things that would make theeconomy stronger, like a set ofcommitments to finance a higherlevel of public investment in in-frastructure and education.

MR. WESSEL: There’s one thingabout which there does not ap-pear to be a lot of agreement:Should the Bush tax cuts on theover-$250,000 crowd be ex-tended?MR. GEITHNER: The president’sposition is very simple. Let’s ex-tend the middle-class tax cuts,removing probably the greatestsource of uncertainty and dam-age from the fiscal cliff. Let’s putin place a balanced set of fiscalreforms that recognize the real-ity that Republicans now em-brace, that the most fortunate2% of Americans are going tohave to pay a modestly largershare of income in taxes.

But he’s not prepared to ex-tend the upper-income tax cuts.If you look at the amount of defi-cit reduction you have to put inplace over the next 10 years, ifyou recognize what’s a realisticshare of revenues you’re going tohave to contribute to that, and ifyou believe as the president doesthat we shouldn’t be asking mid-dle-class Americans to pay morein taxes, then I don’t see howyou do this without higher rates.

MR. WESSEL: It’s not possible toraise money from upper-incomepeople by closing loopholes, get-

ting rid of deductions, limitingcredits and stuff like that?MR. GEITHNER: To restore fiscalsustainability, to be careful ofwhat you do to the long-termgrowth prospects of the countryand to make sure we’re not add-ing to the burden on middle-class Americans, you’re goinghave to do so with a mix ofhigher rates and deductions. Ithink that’s what the politicalconsensus ultimately will be.

A Tough RoadMR. WESSEL: Are you saying ifRepublicans don’t agree to raisetop rates back to where theywere when Bill Clinton left office,we’re going over the fiscal cliff?MR. GEITHNER: I think it’s prettyencouraging you’ve seen Repub-lican leadership recognize thatwe’re going to have to generatemodest additional revenues fromhigh-income Americans, andthat’s a good recognition.

But we’re just at the begin-ning. This is going to be tough,but it’s something we have to gothrough. If we’re going to makesure we’re supporting thingsthat will improve long-termgrowth prospects, we have tofigure out a way to resolve thedivide on these basic questions.

MR. WESSEL: What happens if wego over the cliff? What happensif Republicans can’t bring them-selves to raise the top rates?MR. GEITHNER: I don’t see whythey would make that choice.Why would you want to put theeconomy through that? Afterconceding that revenues are go-ing to have to go up and conced-ing that revenues are going tohave to go up on the most fortu-nate Americans, why would youtake the economy over the cliff?

MR. WESSEL: Why should I be-lieve this will end any more posi-tively than the summer of 2011?MR. GEITHNER: You have Republi-can leadership acknowledgingthey’re prepared to agree to anincrease in revenues as part ofan agreement that helps restorefiscal balance. You have a muchgreater recognition that theeconomy would benefit from acarefully designed agreement onfiscal reform. And if you listencarefully to what people in thebusiness community and manypoliticians are saying, there’s alot of consensus on it.

MR. MURRAY: Democrats keepciting Clinton-era rates. Why areClinton-era rates relevant for in-come-tax rates but not forspending levels or spending as arate of GDP? I will sign up forClinton-era income-tax rates ifObama commits to Clinton-era

spending levels.MR. GEITHNER: You can’t repealthe aging of the population. Thedemographic changes ahead ofus, millions and millions ofAmericans becoming eligible forMedicare and Social Security, arenot something you can ignore.

But in the president’s budgetthe levels of spending for non-defense discretionary spending—which are all parts of the govern-ment outside defense andMedicare, Medicaid, Social Secu-rity—are very low as a share ofthe economy relative to Clinton.

MR. MURRAY: Why should we be-lieve an administration that hasballooned the deficit so sharplywill, after winning an election sosoundly, attack the deficit withany vigor?MR. GEITHNER: It’s true that thedeficits have gone up. They go upsignificantly because of the costsof the Bush tax cuts and the ex-pansions on spending that we in-herited. They go up significantlybecause of the cost of the crisisand the recession. The peoplewho attribute the increase indeficits to the policies of thispresident are mistaken.

It’s DifferentThis TimeTimothy Geithner on why he isoptimistic about a fiscal deal

‘There’s universal support for extending the middle-class tax cuts.’TIMOTHY GEITHNER

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Priorities From CEO Councils PastHow much have the CEO Council’s priorities changed over thepast five years? Some, but certain priorities crop up repeat-edly. Here’s a look at the priorities since 2008.

20081. Quickly craft a fiscal-stimulus plan.2. President-elect Obama should ask businesses to take thelead in building a competitive work force.3. The president-elect should establish and communicate hiseconomic vision.4. Pass legislation that starts decarbonizing our economy andcreates the most energy-efficient economy in the world.5. Change the tax code to encourage employment, jobcreation and investment.

20091. Government should focus on policies that stimulatesustainable job creation.2. Government and business policies must reflect the primaryimportance of education.3. Change the tax code, in a revenue-neutral way, toencourage savings and investment.4. The U.S. should encourage the diversification of thecountry’s energy supply.5. Address medical malpractice by capping awards and legalfees, and creating health courts.

20101. Aggressively promote a global marketplace that benefitsU.S. businesses and consumers.2. Presidential leadership is crucial in creating a healthybusiness environment.3. Address medical-malpractice reform, as well as largerproblem of defensive medicine.4. Businesses and government should stimulate long-terminvestment in the U.S.5. The U.S. should reduce its budget deficit and sustainincreases in private savings.

20111. The U.S. should create a globally competitive tax system.2. The country’s immigration policy should support innovation.3. The U.S. must improve the skills of workers to aid inexport growth.4. National effort is needed to rebuild the country’s energyinfrastructure.5. Government must offer sustained investment in basicenergy R&D across the range of energy resources.

FLASHBACK

©2012 Dow Jones & Company, Inc. All rights reserved. 4EFFT223

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O ne of the key playersin the looming fiscalfight thinks we canput together a deal—and keep America

away from the fiscal cliff.North Dakota Democrat Kent

Conrad, retiring chairman of theSenate Budget Committee, spokewith The Wall Street Journal’sJohn Bussey about why he’shopeful, and what he thinks adeal could look like.

Here are edited excerpts oftheir conversation.

MR. BUSSEY: You’re optimisticthat there’s going to be a resolu-tion of all this. Could you give usyour sense of what that wouldlook like?SEN. CONRAD: I think we’re goingto be in the range of a $5 trillionpackage. What’s been done sofar has been all on the discre-tionary-spending side of theequation, which is less than 20%of the overall budget. It’s criti-cally important we move to re-forming entitlements and therevenue side of the equation.

There will be additional do-mestic discretionary savings.There will be additional entitle-ments other than the main enti-tlements, Social Security andMedicare. Social Security, Ithink, will be handled separately,and any savings will be part ofextending the solvency of SocialSecurity itself.

MR. BUSSEY: And that’s donehow?SEN. CONRAD: One of the ways isto extend the cap in terms ofwhat income is exposed for

funding Social Security. The agewill certainly be extended. You’llalso change the so-called bendpoints. That’s a technical way ofdetermining what Social Secu-rity payouts are. There will alsobe an inflation adjustment.

MR. BUSSEY: Should there be ameans test?SEN. CONRAD: That goes to thequestion of bend points andwhat revenue is used to supportthis system. But, no, I think peo-ple who pay in should certainlybe eligible to get something out.

Health and DefenseMR. BUSSEY: On the Medicarefront, what is a resolution likelyto look like?SEN. CONRAD: I think the mostlikely resolution is somethingthat slows the growth of spend-ing to the growth of the econ-omy. There are a whole series ofsteps that can be taken to dothat. More copays, going back toproviders and asking them totake less of an increase, raisingthe age of eligibility. I thinkthat’s something we could ac-complish.

MR. BUSSEY: What happens tothe defense budget?SEN. CONRAD: I think the defensebudget is going to be asked totake additional savings. Defensehas already taken savings ap-proaching $500 billion over 10years. The sequester wouldmean another roughly $535 bil-lion of savings, but it’s done in away that really makes almost nosense. It’s just across the board.There’s no prioritizing.

My own anticipation is thatthe number will be reduced, butthere will still be a request foradditional defense savings, prob-ably in the range of $200 billionto $300 billion.

MR. BUSSEY: Talk to us aboutprocess. Here’s the fiscal cliffjust a few weeks away. What dowe get come Dec. 31? And whendo we begin to approach a reso-lution of the sort that you justdescribed?SEN. CONRAD: Here’s what I’vebeen trying to sell to my col-leagues. No. 1, a down paymentin the range of $400 billion onthe revenue side and on thespending side. Those are thingsthat would be done now that onecould be assured are actually go-ing to happen because they’d bepassed now.

No. 2, a framework that setsout for the committees of juris-diction how much money they’reto save, how much moneythey’re to raise and what thebalance is between the two.Those committees of jurisdictionwould then be given six months,something like that, to work outthe details and to provide thespecifics.

Third, there’s a fail-safe thatgoes into effect if Congress doesnot produce the savings and therevenue agreed to in the frame-work.

Reality Sets InMR. BUSSEY: We’re counting onthe cudgel of the markets to beatpeople into line, right? If thisisn’t done in a responsible, ra-tional way, the markets are go-

ing to step in. Is that a compel-ling argument within Congress?SEN. CONRAD: I think it is hover-ing over this. But there’s a moreimmediate prod—the reality thatis going to confront every mem-ber of Congress. These tax cutsfrom the Bush era are all goingto expire. That’s in law. The se-quester, that’s in law. The alter-native minimum tax is going togo from affecting 4 or 5 millionpeople to affecting 30 millionpeople. The doctors who treatMedicare patients are going toface a 28% cut.

These aren’t somebody’simaginings. They are going tohappen. In addition, there’s adebt-limit extension that is go-ing to have to be addressed.

MR. BUSSEY: What exactly is dif-ferent post-election than pre-election? What has changed thatgives you optimism that somedeal will be struck now thatcouldn’t have been struck beforethe election?SEN. CONRAD: Well, first of all,the president’s re-elected. Hadhe not been re-elected, you’d

clearly have to wait for the newpresident. Now you don’t have towait.

No. 2, we are days closer toall of these things actually hap-pening. The end of the tax cuts,the alternative minimum tax, thesequester, the automatic spend-ing cuts—all of those things arevery close to being upon us. Andthat doesn’t deal with unemploy-ment insurance and the payroll-tax holiday, which are also set toend. So, there is a growing mo-mentum that I think will compelmy colleagues to act.

What aDealMight Look LikeSen. Kent Conrad predicts what will result from the fiscal-cliff negotiations


“If I were a CEO, what I would be worried about is that

these people just talk to each other as opposed to negoti-

ate, and kind of pontificate about their positions, which is

what we see now. Then I think the president will be very

tempted to say, ‘Let the tax cuts expire.’ He will think it

will give him some different leverage going into next year.

Now, that’s gutsy given the state of the economy. But I

think people need to be prepared for it.”

ROBERT B. ZOELLICK, senior fellow, Belfer Center for Science and International Affairs,Harvard University, and former president of the World Bank Group


‘There is a growing momentum that I think will compelmy colleagues to act.’

KENT CONRAD

F ew names in diplo-matic circles are as fa-miliar as that of for-mer Secretary of StateHenry Kissinger. His

involvement in some of the mostpressing global issues of ourtimes, whether in government ormore recently as a private con-sultant, span half a century.

The Wall Street Journal’s Ger-ald Seib spoke with Mr. Kiss-inger about the challengesAmerica faces today as thereigning superpower, includingthe rise of China and the poten-tial threat of a nuclear Iran.

China’s New LeaderMR. SEIB: What will China’s tran-sition in power bring?MR. KISSINGER: Stability and in-stability. We tend to look attransitions in China like transi-tions in the United States. Some-body comes in and then has theright to give orders, and have anassurance that at least an effortwill be made to execute them.

That is not how transitionsare now working in China. Thepower of Xi Jiping is much lessthan that of the president of theU.S. He has to govern throughthe consensus of the standingcommittee. He’s the chairman ofthe board. He is the most power-ful person. But he has to formcoalitions within that system.

If there is a consensus inChina on anything, it’s that therehas to be more transparency,less corruption, more of a legalsystem. But it’s not clear whatform this will take. I would per-sonally assume that the transi-tion 10 years from now will notbe conducted by the same meth-ods as the current one.

MR. SEIB: You have met Xi. Doeshe strike you as a leader whocan be a reformer of corruption?MR. KISSINGER: He strikes me asa leader who understands theproblem. I’ve had five or six con-versations with him. I think he isstrong enough to attempt it. Pre-

mier Li Keqiang is another manof considerable intelligence. Idon’t know whether they can doit. The stability of China will de-pend on it. I hope so.

MR. SEIB: What should we watchfor to tell us whether corruptionis being addressed, whether Xi isfully in charge of the military?MR. KISSINGER: He’s likely to bemore fully in charge of the mili-tary because of the backgroundof his family. His father wasclose to the military. He is famil-iar with the military.

The strategic doctrine thatthe military develops publicly ismore confrontational than thepolitical doctrine one hears. I

think he has a better chance ofbringing the two into harmony.

Iranian ChallengeMR. SEIB: What do you think willhappen in Iran? What are thechances for conflict in 2013?MR. KISSINGER: American Presi-dents over 10 years have as-serted that the Iranian nuclearmilitary program must bestopped. But there are termsthat show different shades ofmeaning. Some say they mustnot have a nuclear-weapons ca-pability. Some say the nuclearcapability must be stopped.

In the debates between thetwo candidates, these termswere used interchangeably.

Drawing a line at the weap-ons—the warhead develop-ment—is not a meaningful line,because the jump from enrich-ment to weapon is so short.

Apparently, negotiations aregoing on. Where the negotia-tions seem to be going is to es-tablish some line beyond whichenrichment will not take place.

So, the two quick debates areshould you negotiate with Iranat all, and secondly, how do youhandle the enrichment problem?

Some negotiation has to beattempted, whichever course wego. If we are prepared to go towar, or a blockade, we need togo through this process. But wehave a limited time. It has to be

done within 2013, or the techno-logical progress in Iran, it’s out-running events.

MR. SEIB: What’s the strategicapproach to the Syrian conflictthat protects U.S. interests?MR. KISSINGER: It is certainly inour national interest that thesupport of the Shi’a in Lebanonvia Syria be interrupted, andthat Syria not become a baseand a projection of Iranian pol-icy. So from that point of view,an Assad victory would beagainst the American nationalinterest, and some arming of therebels is desirable. But we haveto be careful not to repeat inSyria what we did in Afghani-

stan—arming groups which ifthey achieve total victory couldrepresent a significant threat.

Role of the U.S.MR. SEIB: What is the right lead-ership role for the U.S. today?MR. KISSINGER: I have seen andbeen involved in four wars thatwe started with great enthusi-asm, and which turned into adebate about the speed of with-drawal—with no other outcome.

We must develop a policywhere, if we engage ourselves,we prevail. This means a revi-sion of our military strategy,which has so far been based onphysically stopping aggressionby overwhelming it. It got usinto a position where the enemycould control the pace of opera-tions, and the length of the war.

We have to develop a periph-eral strategy. When the Britishfought Napoleon, they did not gointo the continent of Europe.The strategy in Spain drainedFrance without putting Britaininto a position where it was risk-ing its cohesion and its capabili-ties. I think we need a strategicconcept of that nature.

Right now, when you say “thepurpose of foreign policy mustbe to pursue the national inter-est,” that, in an academic con-text or even at a New York din-ner party, is quite unacceptable.

But you have to begin withthat. You can define the nationalinterest broadly. You can say itmust have many moral elements.But we need a diplomacy and astrategy in which we can mea-sure what we’re attempting todo, and what our resources arein relation to it.

This applies to the outcome ofthe Arab Spring, and the new en-ergy pattern on the front page ofyour newspaper today [a fore-cast by the International EnergyAgency that the U.S. will be theworld’s largest producer of oilby 2020]. It’s going to bringabout a change of strategic pri-orities for many countries.

AVeteranDiplomat Looks at theWorldHenry Kissinger on how the U.S. should deal with challenges posed by China, Iran and Syria

‘We must develop a policy where, if we engage ourselves, we prevail.’HENRY KISSINGER

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The View From the TopCEO Council participants on the outlook for a budget deal and itspossible impact

u Do you believe there will besome form of constructivedeficit deal in Congress beforethe end of the year?

u If there is a deal, how areyour investment plans likelyto be affected?

Yes33%

No67% Increased

investment77%

Decreasedinvestment

0%

Staythe same23%




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A s the ranking Demo-crat on the HouseBudget Committee,U.S. Rep. ChristopherVan Hollen Jr. is the

point man for his party on at-tacking Republican budget plans.But as Washington nears the so-called fiscal cliff, it is also hisjob to help reach a compromisethrough which both parties canbegin a sustained and orderly ef-fort to balance the budget andease the deficit.

Mr. Van Hollen spoke withThe Wall Street Journal’s AlanMurray about what has to hap-pen in the coming weeks for theU.S. to avoid another budgetarycrisis and a possible recession.Here are edited excerpts.

Tax and CutMR. MURRAY: Several peoplehave pointed out that Democratshave the advantage in the fiscalcliff. Is there any possibility thatyou would go over it in order toforce action if necessary?REP. VAN HOLLEN: Well, there’sno desire to. There’s always arisk. There are two parts. One isthe sequester piece. I believethere’s a very decent chance we

can resolve that piece, becausethere’s universal agreement thatit’s a bad idea to have theseacross-the-board, indiscriminatecuts. If you look at the amountof deficit savings over a year,you’re talking about $110 bil-lion—$55 billion defense, $55billion nondefense—we couldcome up with an alternative wayto achieve that deficit reductionwithin the budget window.

The tax piece gets tougher,because we also have the objec-tive of beginning to reduce thedeficit in a balanced way. I sup-port the framework of Simpson-Bowles in terms of their reve-nues and cuts, and the ratio ofrevenue to cuts. And if you lookat the Simpson-Bowles frame-work, their starting point pre-sumes the amount of revenueyou would achieve if you allowedthe top rate to go back to 39%,the Clinton-era levels.

MR. MURRAY: Republicans ex-press willingness to see tax reve-nues from high-income peoplerise, but a preference to do it byeliminating deductions instead ofraising rates.REP. VAN HOLLEN: The issue is

how do you do tax reform in away that eliminates preferencesand other things but alsoachieves deficit reduction in abalanced way.

If you look at the deficit-re-duction numbers Simpson-Bowles hit, they assumed thisadditional revenue that we’retalking about. So we should putour heads together and figureout how we get the revenue thatis projected to come in throughSimpson-Bowles as well as thecuts that they offer.

MR. MURRAY: Is there a way toget a trillion dollars of deficit re-duction from revenues and stillbring down tax rates? You’retalking about eliminating deduc-tions and raising rates.REP. VAN HOLLEN: No. I’m talkingabout what is our starting pointin terms of the rates. And whatare we negotiating down from,35% or 39%?

Reforming MedicareMR. MURRAY: What are you will-ing to do to Medicare?REP. VAN HOLLEN: We need tomove Medicare away from a fee-for-service system. It contains

no incentives to contain costs.We’ve begun to put in place

the building blocks to get there:accountable-care organizations,bundled payments. We can makesignificant savings in the area ofdual-eligibles: people who are onMedicare and Medicaid. It’s arelatively small percentage ofthe overall Medicare/Medicaidpopulation but a very high per-centage of the costs.

MR. MURRAY: One way to getaway from fee-for-service is apremium-support plan. Here’show much money you get, go outthere, shop in the marketplaceand buy what you can.REP. VAN HOLLEN: The nonparti-san Congressional Budget Officelooked at that and concluded itdoes not contain costs, it trans-fers costs. They concluded it willsave Medicare money, but by re-quiring premiums to go up dra-matically on individuals whosemedian income is $23,000.

MR. MURRAY: What about raisingthe retirement age?REP. VAN HOLLEN: We shouldlook at ways to create incentivesfor people to be working longer.That means doing things like in-creasing the early-retirementpenalty, which has the joint ben-eficial effect of reducing someSocial Security costs but alsokeeping people working longer.

MR. MURRAY: What do you haveto do in the next few weeks?REP. VAN HOLLEN: First, come upwith at least an alternativemechanism to generate $110 bil-lion in deficit savings. We puttogether a proposal that com-bines things like getting rid ofsome of the bigger agribusinesssubsidies. We also had a pro-posal that said eliminate sometax breaks for oil companies.

MR. MURRAY: Why not just do it?REP. VAN HOLLEN: Well, you haveto talk to our Republican col-leagues, right? We didn’t evenget that to a vote.

Then you’ve got to come to anagreement on the tax piece.You’ve got to create a very clearstructure and timeline whereyou get a grand bargain doneover a six- to nine-month period.You need expedited procedures.

Let’s StartWith Simpson-BowlesChristopher Van Hollen Jr. on the deficit-reduction balancing act

A s a Republican sena-tor from the electoralbattleground of Ohio,Rob Portman wasdeeply involved in

Mitt Romney’s presidential bid,chairing the campaign in thestate he represents. That gavehim a front-row seat for the Re-publican defeat.

What went wrong, and whatdoes the party need to do now?Sen. Portman discussed thosequestions with the Journal’s PaulGigot. Here are edited excerptsof their conversation.

A Failure to CommunicateMR. GIGOT: Our title today is“The Future of the RepublicanParty.” This assumes, of course,it has one. Let’s start by talkingabout the election. We’re nowseeing reports that the campaignis very surprised by the outcome,because their polls were showingsomething different. Is that true?SEN. PORTMAN: The turnout forDemocrats among their base wasbetter than we expected. So theydid a better job than we did ingetting their voters to the polls.

Second, we were not able totake our message to the levelthat people thought it made adifference in their lives.

There are certain things weshould do in our economy thatare growth-oriented, includingtax reform, regulatory relief andenergy policy, and other thingsthat were talked about in thiscampaign. But I think we haddifficulty convincing indepen-dent voters.

MR. GIGOT: Was that a functionof a misguided strategy? Or wasthat just a failure to articulate itin the right way by the candidateor the overall campaign?SEN. PORTMAN: I think it’s both.Let me add a third element first:We were outspent, and particu-larly outspent early on.

But back to your questionabout how do you take thesepolicy issues and translate themln a way that people care about.It’s a huge challenge for us.

There has been a lot of dis-cussion about the Hispanic vote,the African-American vote. Iagree with a lot of that discus-

sion. But I think it’s part of thislarger issue. There’s a great op-portunity for us to explain thisin a way that is more accessibleto people, that’s more inclusive.

MR. GIGOT: Just to pursue theminority question, is immigra-tion an issue that the partyneeds to change on, for example?Or is it the size-of-governmentquestion, where these folks arelooking for government to play amore active role?SEN. PORTMAN: If you look at theexit polling, I don’t think it’s asize-of-government issue. Peopleare looking for a constructive re-lationship with government. Butit’s not they’re looking for gov-ernment to solve their problems.

In terms of Hispanic voters,and probably the drop-off in theAsian vote, immigration’s part ofit. That’s a policy issue thatneeds to be addressed. But that’sjust part of it. It’s also aboutwho the spokespeople are. It’s amatter of outreach that includeshaving the right people speakingfor the Republican Party.

And finally, it’s a matter oftone, making people feel thatthese policies are inclusive, andthe way to grow this economyand create more jobs and oppor-tunity for everybody is to havethe policies that were enunci-ated in the five-point plan thatMitt Romney laid out.

MR. GIGOT: Do you think that thecomments by the senatorial can-didates Todd Akin and RichardMourdock mattered? Did theycarry through at a national leveland affect the polling that yousaw for Republicans broadly?SEN. PORTMAN: Yes. Hard tomeasure. But obviously the gen-der gap that we have on our sidepersists. It is a challenge we faceas Republicans. And I thinkthose comments exacerbatedthat gender gap.

Dealing With ChangeMR. GIGOT: There was a lot ofdiscussion in the press that youdidn’t make as many inroads asyou thought you would amongvoters under 29. The presidentstill won about 60% of that vote.Is this partly a cultural-issue

message? Is gay marriage, forexample, one of those issues nowthat makes the Republican Partylook out of touch with those vot-ers? And do you think you haveto change the way Republicanstalk about that issue?SEN. PORTMAN: Yes.

MR. GIGOT: That’s a very big con-cession. Because a lot of yourcolleagues would disagree withthat and say, no, it was a closeelection. Their turnout was bet-ter. We don’t need to change athing.SEN. PORTMAN: Well, no. It wasa close election. But the realityis, a party that gets less than 8%of the African-American vote,less than 30% of the Hispanicvote and less than 40% of thevote of those people who arecoming up through the system—

this is a party that needs to ad-just.

Some of it is policy. A lot of itis tone. A lot of it is just a moreinclusive message and figuringout how to take our positions onthe economy and growth and op-portunity, and translating that ina way that young people, in thiscase, understand and appreciate.

And then, I think some ofthese social issues are also veryimportant to that generation.They look at these issues differ-ently than our generation. Ithink you have to acknowledgethat and deal with it.

The Tax FightMR. GIGOT: If the president in-sists that tax rates go up forthose making over $250,000,what would your recommenda-tion be to the Republican confer-

ence in the Senate?SEN. PORTMAN: It makes nosense whatsoever to take our ex-isting inefficient code and addmore layers on top of it to createthis disincentive for small busi-nesses to invest and to be ableto create jobs. I would be veryconcerned about that.

I’m a huge advocate of tax re-form. That means that while youlower rates, you do things interms of the preferences in thecode—deductions and creditsand exemptions. It makes ourcode more competitive, and thatallocates resources more effi-ciently.

For us to say, no, instead,we’re going to take this currentcode, this ossified code, this an-tiquated code, and we’re goingto allot more taxes on top of it—it makes no sense. So I hope the

president will see that.What we ought to do is say,

OK, let’s do tax reform. Let’s seta date. I think July 4 is a niceday for us to do it.

Let’s make a commitmentnow: We will have the currentcode in place for six months. Atthat time, we will have tax re-form and entitlement reform todeal with these bigger issuesthat we have to deal with.

In the meantime, let’s make adown payment. The down pay-ment should be spending cuts todeal with the sequester, at leastfor that six-month period—somewhere between $50 billionand $100 billion.

And the president needs to bepart of this process. That wouldmake a huge difference. Withoutleadership, it’s not going to hap-pen.

ARepublican Looks Back—andAheadSen. Rob Portman on what his party needs to do now, in terms of both policy and tone


RalphAlswangforTh

eWallS

treetJournal(3)

‘It was a close election. But the reality is, this is a party that needs to adjust.’ROB PORTMAN

‘The tax piece gets tougher.’CHRISTOPHER VAN HOLLEN JR.

“It certainly appears that these extraordi-

nary types of quantitative easing, nontradi-

tional measures, hit diminishing returns a

while ago and are doing very little good

now. And the more that’s done, the harder

the exit strategy will be. The question is

whether the complexity of it all and the po-

litical pressure will wind up causing serious

problems down the road. They’re going to

be in a situation where they’re going to

have to be raising interest rates and taking

capital losses on their portfolios simultane-

ously. That’s awkward.”

MICHAEL BOSKIN, T.M. Friedman professor of economics andHoover Institution senior fellow, Stanford University


The View From the TopCEO Council participants on the shape of a budget deal and rolemodels for President Obama

u The right ratio of tax increasesto spending cuts in a U.S.deficit-cutting package should be:

uWhich president would yourecommend Barack Obama useas a role model?


1:113%

1:227%1:4

50%

1:108%

02%

Clinton52%

Reagan40%

Johnson6%

T. Roosevelt2%



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