American Decline or Economic Renewal?

Experts discuss CFR's Renewing America initiative issues: the U.S. fiscal cliff, government regulations, the state of U.S. infrastructure, and the economic consequences of political polarization.

ROBIN LUSTIG: OK, good afternoon, ladies and gentlemen, and welcome. My name is Robin Lustig. I work for the BBC, and I am going to be moderating this afternoon's event.

I should explain a little bit about how it's going to work because it's more than just a discussion; it is also a radio show being taped for transmission on the BBC tomorrow afternoon your time, tomorrow evening our time. That means that I'm going to have to do a few bits and pieces which will make absolutely no sense to you but which I hope will make sense to our listeners in the way of promos and introductions and bits and pieces. So I'm just going to have to ask you to sit quietly and patiently while I do that.

Once we get under way, I'm going to divide the discussion into three different segments so that we can keep control of it. And at the end of each segment, I'm going to ask you for your contributions, your questions, your points. So it'll be two roving mics. Obviously, I would ask you to wait until the mic reaches you, identify yourself by name and affiliation if you have one, and we will take it from there. It's going to be very free-ranging, very informal. Because it's radio and not TV, the only way our listeners will know that you exist is if you say something or react in some audible fashion to something that you hear said. So feel free to do all of that.

Also, given that this is radio, I have to ask you, I'm afraid, to turn off your cellphones, not just put them on silent, because an incoming signal makes a very nasty noise on the air. So if you can bear to be out of touch for an hour or so, we would be extremely grateful.

Before I get under way, I'm going to ask each of our panelists to say a few words into their microphone just to make sure that all the microphones work, because if they don't, we have a problem.


EDWARD ALDEN: Welcome, Robin. Glad you're here. Thank you, everybody, for coming.

ANDREW STERN: Thank you also. I'm Andy Stern.

JENNIFER HILLMAN: Thank you. My name is Jennifer Hillman.

DOUGLAS HOLTZ-EAKIN: I'm Doug Holtz-Eakin. I'm delighted to be here.

LUSTIG: I think they all work. Jack (sp), do they all work? Jack (sp) is our sound engineer who's sitting over there, who has been here since the crack of dawn setting all this up. Dan is our producer, who is going to whisper in my ear or possibly even yell in my ear when I go badly off message.

Right, are we all happy? Are we satisfied? Jack (sp), I can't even see you. Oh, there you are. Yeah, all right.

So I'm going to do my little promos first. Ignore me. I won't go away, but -- (inaudible).

I'll be in Washington for a special program to report on America's future. Whoever wins the presidential election in just three weeks' time will have to tackle some of the deep-rooted problems that many here fear could threaten American dominance in global manufacturing and innovation. Does its mountain of debt mean it can no longer afford to spend what it needs to improve its transport infrastructure, its education system and invest in cutting-edge technological innovation. That's a special edition of "The World Tonight": Renewing America, from the Council on Foreign Relations in Washington tomorrow evening.

And now I'm going to do it again, with one very small change, if you can tell. This is for tomorrow night's promo.

Tonight I'm in Washington for a special program to report on America's future. Whoever wins the presidential election in just three weeks' time will have to tackle some of the deep-rooted problems that many here fear could threaten American dominance in global manufacturing and innovation. Does its mountain of debt mean it can no longer afford to spend what it needs to improve its transport infrastructure, its education system and invest -- does its mountain of debt mean it can no longer afford to spend what it needs to improve its transport infrastructure, its education system and invest in cutting-edge technological innovation? That's a special edition of "The World Tonight": Renewing America, from the Council on Foreign Relations in Washington in half an hour.

That was fun, wasn't it? Right, now the program itself gets under way.

Happy, Jack (sp)? Yes, good.

It's 10:00. This is a special recorded edition of "The World Tonight" with Robin Lustig in Washington. We're devoting all of tonight's program to one of the biggest questions facing America's future: Can it afford to remain a global economic superpower? Are countries like India and China, Brazil and Turkey catching up so fast that soon America's decaying infrastructure and its underperforming schools will threaten its superpower status? Is America on an inexorable downward path, or can its energy, its can-do culture and its entrepreneurial spirit see it through the difficult times ahead?

We're at the Council on Foreign Relations, which is running a research project called Renewing America. With me is a panel of distinguished experts and an audience. We'll hear from them in just a moment, but first back to London for the BBC News from Kathy Clugston. We'll hear from them in just a moment, but first back to London and the BBC News.

News, news, news, news, news, news, news -- six minutes -- (laughter) -- news, news, news. Right.

You're listening to a recorded edition of "The World Tonight" with Robin Lustig in Washington. Is America destined to lose its status as a global superpower? Is it so weighed down by debt that it'll soon be overtaken by upstarts like China and India? If it is, what would that mean for the rest of us, so used to looking to America for new ideas and new products, the Internet, the iPhone, Google and Facebook? All were born here in the U.S. But where will the next generation of good ideas be born? We're going to be discussing what the problems are and whether they can be fixed or whether, just as the 20th century was America's, this century will be someone else's.

President Barack Obama says he's determined that the U.S. must renew itself to build for the future.

(Recording plays.)

PRESIDENT BARACK OBAMA: I don't have to tell you. We've got roads and bridges all over this country in desperate need of repair. Our highways are clogged with traffic. Our railroads are no longer the fastest in the world. Our skies are congested. Our airports are the busiest on the planet. All of this costs families and businesses billions of dollars a year. That drags down our entire economy.

(Recording ends.)

LUSTIG: So let me introduce our panel. Edward Alden is a senior fellow here at the Council on Foreign Relations, and he leads their Renewing America research program. Douglas Holtz-Eakin is a former chief economist with president George W. Bush's Council of Economic Advisers. He was also chief economic policy adviser to Senator John McCain during his presidential campaign four years ago, and he's now president of the economic think tank the American Action Forum.

Jennifer Hillman is a former senior U.S. international trade negotiator and is now with the German Marshall Fund of the United States, which aims to promote better understanding between the U.S. and Europe. And Andrew Stern is the former president of America's second-largest trade union, the Service Employees International Union, which has nearly 2 million members, working mainly in health care and other public services.

Welcome to all of you. I want to start by asking each of you simply this: Do you believe that there is an inevitability to American decline relative to other newly emerging economic powers? Ted Alden.

ALDEN: I think certainly there is going to be some relative decline, but the challenge for the United States really is, in an era of intense global economic competition -- the rise of China, the rise of India, the rise of Brazil in the developing world -- the United States has not responded very effectively. And if you look at the statistics over the last 30, 40 years, you know, what we've seen is a U.S. economy that's gone from sort of 10 percent trade dependent, fairly self-sufficient economy, to one that's now over 30 percent trade dependent.

And in that period of time, we haven't done terribly well. Wages have been fairly flat. Multinational corporations, particularly over the last decade, have created a lot of jobs overseas, many fewer in the United States. So I think it's clear that the United States has a competitiveness problem that it has not addressed adequately and that that needs to be much higher on the agenda than it is currently.

LUSTIG: Jennifer Hillman. An inevitable decline?

HILLMAN: Here I would -- I'm not -- I would not say -- it's an inevitable decline as a percentage of world output. I mean, I don't think there's any question that if you look at the end of World war II, U.S. was 50 percent of the world's output; today we're at 20. So I mean I think those kind of declines are inevitable. But what they say about manufacturing and about production in the U.S. I'm not sure is the same. I mean, if you look at the numbers, I mean output -- U.S. manufacturing output is today 2 1/2 times what it was in 1972, I mean at one point $6.5 trillion. We've seen an actual increase in manufacturing output value added here in the United States. So as an amount of what we're producing and how effectively we're producing it, we are continuing to grow. It's just that we're not growing relative to where everyone else in the world is.

LUSTIG: Andy Stern, does it matter to America if it does decline relative to other powers?

STERN: I don't think it's just a question of what it means to America. I think it's a question of what it means to Americans. And I think the fact that we are on the verge of having the first generation of American children not do better than their parents is a far better measurement about where we may stand economically as a country --

LUSTIG: And when you say do better, you mean do better financially.

STERN: Do better economically, owning a home, raising a family, being able to retire with dignity, send your kid to college; you know, all of the basic things that I think people strive for for their kids and their family. And I say we are in a position if we don't do something that dream will end, and I don't think that will be good for Americans.

Doug Holtz-Eakin, it's not a message that American political leaders like to put out there, is it, that America is no longer destined always to lead the world?

HOLTZ-EAKIN: Certainly that kind of phraseology you will not find on the campaign trail, I agree. But we should welcome the rise of many of the countries around the globe. It's the eradication of global poverty. It's an enormous accomplishment. And it's a good thing. And it might look like relative decline, but it's actually one of the best things that's going on.

I'm with Andy Stern. You know, you welcome the fact that elsewhere in the globe, children are doing better than their parents, but the concern is that at home we're not going to pass along an economy that's larger and stronger than the one we inherited.

LUSTIG: OK, let's explore some of those ideas in more detail in just a moment.

I want to start, though, by looking at the whole issue of infrastructure because I've just spent the past couple of weeks driving many hundreds of miles along a lot of American highways, and I have to admit not all of them were in great shape. I spent some time in Ohio, which is not only one of the key battleground states in this year's presidential election, but also where I found firsthand what the economic impact can be of inadequate investment in infrastructure.

So let's hear now from Ohio.

(Begin recorded segment.)

ANNOUNCER: Good morning. Deadly car crash near the Brent Spence Bridge causes traffic backup in northern Kentucky. Covington police tell us the --

ANNOUNCER: Traffic is still a nightmare on the Brent Spence, not just as emergency crews try to make emergency repairs, but also with this lousy rainy weather. Take a look at what --

MARK POLICINSKI (executive director, Ohio-Kentucky-Indiana Regional Council of Governments): The bridge is failing. Not that it's going to fall in the water, but it's failing in the sense that it cannot handle the traffic. It carries not only twice as many vehicles as it was built for, but it also carries about seven times the number of trucks it was built for.

LUSTIG: The voice of Mark Policinski, local businessman and economist and a leading light in the campaign to get a new bridge built and built now.

So to the bridge.

I'm with Sarah Blazak, who is going to take me across the river.

Sarah, it's, what, 8:00 in the morning, height of the rush hour. We are traveling very slowly. Why?

SARAH BLAZAK: It's congested. It doesn't enough lanes to carry the amount of traffic that crosses it every day. Everyone has to weave back and forth, and that causes a lot of slowdowns.

LUSTIG: And you do this journey every morning?

BLAZAK: Every morning and every afternoon.

MR. : (It's killing us ?).

MR. : As congestion grows, jobs are going to go away. They're going to go areas of the country where they can get their goods delivered more efficiently. So it's hurting us. It's hurting us badly. It cuts off our airport from our central business district. So the impacts are great.

LUSTIG: Sorry, just describe for us, who is crossing this bridge? What routes does it serve?

BLAZAK: It serves Interstate 75, Interstate 71 and then all local traffic to downtown Cincinnati.

LUSTIG: And it's two levels?

BLAZAK: Yes. Southbound is on top and northbound is on the bottom.

LUSTIG: And if somebody breaks down, what happens?

BLAZAK: There is no emergency lanes on this bridge. So if somebody breaks down, everything's stopped.

LUSTIG: And it creates chaos, presumably.


LUSTIG: Well, we're moving very slowly. Now there is a couple of police cars up ahead that have actually blocked two of the lanes. Clearly, something has happened. One of the problems here -- oh, there's something smashed right into the side of the bridge.

So they do need a new bridge. But who's going to pay the $2 1/2 billion price tag? The government in Washington is broke; so are the states of Ohio and Kentucky on either side of the river, which leaves tools, not an option that appeals to local politicians like Kentucky State Representative Joe Fischer.

JOE FISCHER (Kentucky state representative): I don't have all the answers yet. And I'm willing to listen to be informed about the alternatives. But so far, I have not heard any alternative except for local tolls on this bridge. However, I don't think the people in my district are ready for that. I don't think they've reached the conclusion that that is the only way of proceeding with this project.

ANNOUNCER: A crash today approaching the bridge adds to the frustration of drivers trying to get across the river. Today engineers on both sides of the river announced --

LUSTIG: At Xavier University in Cincinnati, on the north side of the bridge, the political scientist Gene Beaupre does have some sympathy for the politicians' dilemma.

GENE BEAUPRE (professor, Xavier University): It's a huge amount of money, and you're not going to go to your local bank and get it. So it's just a plethora of different interests.

LUSTIG: What's the likelihood, do you think, of local political leaders at some point saying, we have to make A decision about this; we will make a decision regardless of what it might do to our electoral chances?

MR. : I think there'll be enough pressure on them. Remember that the business leaders are also the people that help fund their campaigns. You know, I think that's a factor. And the value is in -- doing it in a legislative body is that they can be somewhat protected by being one of several and the legislature doing it.

LUSTIG: So what would your hunch be 10 years from now when we come back? Will there be a new bridge?

MR. : Oh. When you come back, I think there will be a bridge. There is a(n) enormous pressure to get this thing built. So yes, I think there'll be a bridge built by then.

LUSTIG: And we've done it. We have crossed the bridge. Do you have a great sigh of relief every morning?

BLAZAK: Usually, I feel a little bit safer once I'm over it.

LUSTIG: You're safer and you are closer to your destination.

BLAZAK: (Chuckles.) Yes.

(End recorded segment.)

LUSTIG: So journey's end at the Brent Spence Bridge. Back now to our panel here in Washington.

Ted Alden, how typical do you think that tale is?

ALDEN: Yeah. I think unfortunately all too typical. I mean, U.S. spending on infrastructure, of all sorts of transportation, is half, again, as low as most of the other major developed countries. So we've got a big backlog of projects. And many projects like that are looking at waits of 10 years or more before federal funding comes free. So it's a very typical story.

LUSTIG: And federal funding, Doug Holtz-Eakin, is the key, isn't it? Because that bridge that I crossed across the Ohio River was built largely with federal funding. And what they're saying now is it's just not available.

HOLTZ-EAKIN: Well, I think it's reflective of a larger problem the United States has, which is the federal budget is dominated by the large spending programs, Medicare and Medicaid, Social Security, which are legacies of the past. And they are crowding out the funding for national security infrastructure, basic research, education, which are core functions of government. So we're literally letting our past eat up our future, and those priorities have to be changed.

And this is all an issue of priorities. I mean, we can build bridges. It's a matter of making that a priority. It's priorities at the local level too. No one likes to fight a bridge near them. You know, we have enormous obstacles to building infrastructure projects. That's why it takes 10 years to build one. So we simply have to make up our mind to be serious about this and fix it.

LUSTIG: How would you fund a bridge?

HOLTZ-EAKIN: I would fund it the way we fund it right now. We actually have lots of infrastructure money in the federal budget. We don't use it all very well. And if you could convince us we were using it well and we needed more, we could just allocate the money there.

LUSTIG: Andy Stern, is it actually quite simple; America can't afford to renew its infrastructure because America is broke?

STERN: I think it's -- as Doug said, it's simple in the sense that this is not about chance; it's about choices. We've made a series of choices. For instance, our military infrastructure far exceeds anyone else in the world. We've spent as much on military as the rest of the world combined in a very different era and spent and spend a lot of money on infrastructure there. So I think it is simply about plans and choices, and I also think it's about having some dedicated funding streams. I think we do better when we have gas taxes and other kinds of user fees that allow everyone to share in the cost of funding infrastructure than we do when we just try to keep grabbing money out of the federal budget without increasing revenues.

LUSTIG: But there's a strange thing about gas tax or petrol tax, isn't there? Because the more efficient car engines become, the less fuel they use, the less tax comes in to government, the less money there is available to pay for things like new bridges.

STERN: That is, and I just think as we think about the future, you have to just take that into account because there are many other ways you can -- could account for that. I mean, there has been talk about an infrastructure bank. There have been talks about other kinds of ways to fund infrastructure in a much more holistic way. And I think that's about having a plan.

LUSTIG: Jennifer Hillman, how great an effect do you think on the economy as a whole infrastructure deficiencies like an out-of-date bridge across the Ohio River really are?

HILLMAN: Well, I think the data is clear that it's quite substantial. And if you look, there's been a whole series of studies done on some manufacturing that is returning to the U.S., and you see a number of plants being built throughout the country. And if you look at -- and ask companies, why, why did you choose to locate -- during the Democratic convention, there was an article about a Siemens plant that located in Charlotte, North Carolina, and you asked, why did you locate there? And the number one response was, because there happens to be a good rail structure in Charlotte and a good airport.

And you see this throughout all of these studies about why companies choose to locate where they do, where access to infrastructure, be it roads, be it rail, be it -- be it airports, is among the top three factors that every company cites in its decision. So I think as that sinks in that this is what is driving investment or reinvestment in -- at least in manufacturing in the U.S., it has to go higher on the priority list. If we're going to -- if we are going to reinvest in manufacturing in the U.S., it starts with reinvesting in our infrastructure.

LUSTIG: Doug Holtz-Eakin.

HOLTZ-EAKIN: Yeah, I want to echo that point. There's an enormous amount of evidence that it's the connections between modes of transportation that really hamper the U.S. system. From ports to railroads in particular, we have some real bottlenecks. And that's a natural place for the federal government to have a role in this. But we have a hundred transportation funding programs in the Department of Transportation that have no particular federal purpose, and they need to be identified as contributing to economic growth and contributing to national connectivity. They're not -- and if they're not, we got to do something else.

LUSTIG: Ted Alden, one of the points that was made to us in Ohio was that the Obama fiscal stimulus, which was meant to encourage spending on things like infrastructure improvement, went only to projects which were so-called shovel-ready, short-term could see a return very quickly. Something like building a new bridge, which was six, eight, 10 years, didn't get any help.

ALDEN: Well, I mean, anything that required advance planning at that point essentially fell off the list. I mean, the idea was to get money out into the economy as quickly as possible. And the planning time for a lot of these projects is in years. And so therefore if it wasn't ready to go, the money wasn't there. And now, you know, that these projects are coming to the point where they're ready for financing, now the money isn't there.

LUSTIG: Let me open this up to the audience at this point. Any thoughts -- talk about infrastructure for now. We'll move on to some other things in a second. Any questions about what you have heard already? Any points that you would like to make?

Yeah, gentleman down here at the front. There's a microphone coming on your right.

QUESTIONER: Thank you. My name is Travis Atkins (sp). I'm with the National Democratic Institute. And my question is if the panelists could speak to America developing a new sense and a new definition of what is meant by national security, because I think usually when we hear about it, we're talking about external threats. But the notion that we spend so much on our military -- we have one of the largest standing armies, most powerful in the history of the world, but yet our own infrastructure is collapsing. And we're talking about the decline in the educational system, the decline in the economy and so forth so that we might be safe from external threats, but the decline is actually something that is an internal decay. And if you guys could speak to that.

LUSTIG: Let me just make -- let me just make sure I understand the point that you're making. You think that a lack of investment in infrastructure has a sort of security element to it, and that security is too often seen as something that comes from outside rather than inside as deficiencies.

QUESTIONER: Absolutely.

LUSTIG: OK. Andrew Stern?

STERN: I mean, I think Secretary Clinton has a made a speech that said she believes our economic problems are probably our greatest national security threat, as has the Joint Chiefs of Staff. So I think the issue is not whether we understand or at least our policymakers; it's, what are we going to do about it?

And at the same time we keep wanting to spend money in the military because it's our only jobs programs in America, so we throw money at -- things that generals don't even want because every congressman has a plant or something in his or her district that needs jobs. And so until we have a real jobs program, the military spending happens to be our jobs program, and it's not dealing -- in fact, it's counter to what our leaders are saying is our national security challenge right now.

LUSTIG: Ted Alden.

ALDEN: I mean, I would just add that, you know, if you want to understand why America became the greatest military power in the world, it's because it had the strongest economy. And if that doesn't remain the situation over time, our military power will erode. It's inevitable.

LUSTIG: I see nods from both Doug Holtz-Eakin and Jennifer Hillman, so --

HOLTZ-EAKIN: What they said.

LUSTIG: Yeah. (Laughter.) Anybody else in the audience?

Yes, gentleman there.

QUESTIONER: Irving Williamson, U.S. International Trade Commission.

I was just also wondering about the failure to cite -- maybe to look at the real cost of things. I mean, Mr. Holtz -- Doug mentioned, we can't afford our social programs and infrastructure. Well, I don't think that's right because if you got a 2 percent interest rates and you think about what are the return on the infrastructure, what are the returns on having adequate health care and adequate education, I really think we can afford it. But you do have to have a discussion about what are the costs, what are the long-term returns and then look at it.

LUSTIG: OK. Doug Holtz-Eakin.

HOLTZ-EAKIN: Well, I mean, certainly, I don't think it's in dispute that we cannot continue the current law, social programs, domestic spending programs and tax programs. They simply don't add up. And so we have already debt that's larger than the size of the economy. We are in the next decade going to reach crisis proportions. And it may be the case that we have currently low interest rates, but if we don't change something, that's going to change fast and it's going to be very painful.

So I'm -- I really believe that we have to be very, very focused on economic growth right now, that we will not solve any of these problems without growth and that the near-term growth problems are dwarfed by the fundamental long-term inadequacies, especially in the education and infrastructure areas.

LUSTIG: We're going to get onto education in just a moment. But before we do, Jennifer Hillman, I wonder if perhaps, it strikes you as it has struck me over the last couple of weeks that the political debate here in the U.S., particularly during a presidential election campaign, does not reflect any of the sort of realities that you've just all been talking about?

HILLMAN: Well, I obviously -- you know, I think there is a political reality that both parties accept, which is that we have got to make these investments in infrastructure, that we have got to make the investments in education, that the way that you are going to keep the American economy competitive is to make sure that you do do all of this investing. And the question, I think, where the huge debate comes down in terms of the political parties is how to pay for it --

LUSTIG: Exactly -- (inaudible) --

HILLMAN: -- and where you see -- where you see on the Democratic side, I think, more of a sense that it has to be a balanced package between raising some revenues, particularly tax revenues on, again, the most high-income Americans, with a balanced package of tax cuts and a balanced sense of reorienting the priorities towards more money in education, more money in infrastructure and less money as a percentage into the military, as contrasted with the Republican position, which is very much no new tax revenues at all and continue and, in fact, increase spending on the military. So that is, I think, where you see the debate is -- I think agreement on where the priorities ought to be for competitiveness but great disagreement about how to raise the funds to pay for it.

LUSTIG: Andy Stern, do you think that any candidate really is saying to American voters, if you believe that more has to be spent on this, you have to accept that that means that less will be spent on that?

STERN: I mean, I think people are saying that as they are talking about infrastructure, education, all the things as pablum. You know, they're sort of thrown out there in very general ways so that everybody nods their head and says that's exactly right.

But I think, as Jennifer said, when we get to, well, what are we going to do about cutting health care spending because the trajectory seems too high, or what are we going to do about funding infrastructure, or even what is the role of education, how much is job-oriented, how much is college-oriented, there's huge differences. And then when it comes to funding it, I think that people just go in completely opposite directions.

LUSTIG: Ted Alden.

ALDEN: Yeah. I was just going to say quickly, unfortunately the politics of this are really bad. I mean, if you ask voters do they want to spend more on infrastructure, two-thirds will say, yes, we need to invest in infrastructure. And then you ask them, well, do they want gas taxes to be higher, and 70 percent say no. Do they want new tolls? Two-thirds say no. So people want things, but they're not willing to pay the price for them. And that's something that, in a political season, politicians are not likely to challenge.

LUSTIG: Let's move on, then, and have a look at education and training because it is plainly a huge issue. It's an issue that both the candidates have been talking about during the election campaign. This was Mitt Romney, who has been emphasizing education in his campaign.

(Begin recorded segment.)

MITT ROMNEY (former Massachusetts Governor (R), Republican nominee for president): The real key is leadership in drawing the best and brightest to the profession, giving them the right incentives, promoting the very best, helping our students have discipline in the classroom, insisting on the participation of parents.

(End recorded segment.)

LUSTIG: Another place that I've been visiting on my travels was Chattanooga in Tennessee. That's where the German car manufacturer Volkswagen have invested a billion dollars in a brand new factory, where they got together with the local state community college to help to fund training courses in the sorts of skills that they need their workers to have.

And I was wondering, Jennifer Hillman, if you think that that idea, that foreign companies come to the U.S., invest in new plant here but then also invest in educating the workers that they need, is that the shape of things to come?

HILLMAN: Well, certainly it would be the shape of a lot of the investment that's come in, where you see this commitment to trying to work with -- whether it's the community colleges or the local universities, and it's on both the issue of educating a workforce and on the issue of research and development support, where again, I think coming out of Europe there is a very different sense of a much closer relationship between the universities and the research communities than you typically find in the U.S., where you would have, for example, in Europe -- quite common that you would have, you know, every Ph.D. thesis coming out of the local school being -- local universities being very practically directed to a particular manufacturing need or technological problem that gets solved in this very close relationship.

We don't quite have that in the U.S., where there is much more of a -- of a -- a little bit of a hands-off relationship between, if you will, applied research and engineering kinds of things and our university sector. But I think a lot of the foreign investment that is coming into the U.S. is starting to push that needle more in a, if you will, European kind of a model, where there is a strong link between the university education communities and particular employers and corporations.

LUSTIG: Andy Stern, what do you make of this idea that if a foreign company does come and commits a substantial amount of money to investment in this country, it will also have to be prepared to invest in educating its own workers, that it can't assume that that pool of skilled workers will be there?

STERN: Well, I think the assumption issue really isn't the issue. There isn't enough skilled workers in certain places, so people are going to do it. But I think this is more of a challenge to the entire American education system, which is you have a certain number of jobs, that we talk too much about, are the million jobs that are highly skilled that we can't fill. But then we have all kinds of jobs where there's going to be growth, in health care and retail and business services, that we need an education system that feeds people into it. And then there's clearly sort of the more liberal arts, academic, problem-solving education.

I think the middle part is completely not aligned with the future of this country. People are going to be health care aids in the future, not working in hospitals. It's the fastest-growing occupation. We have no sense of how to train all those people for those new jobs. So I think the future of our education system has to be more job oriented and less kind of generalist.

LUSTIG: One of the points they were making in Chattanooga, Ted Alden, was that if you get yourself an engineering degree from what they call the Volkswagen Academy, this joint training program that's been put together, you are much more likely then to get a high-paid job than if you had a university degree in a liberal arts subject.

ALDEN: Well, I think, you know, it's going to take time to work through some of this. Because I think, you know, if you look at what's happened over the past 20 years or so, because a lot of manufacturing work was moving overseas or companies were expanding overseas and not expanding in the United States, as opposed to literally moving facilities, I think the message that went out to young people who were looking at engineering careers was, this is not a very secure career. You know, if you train in this, you might well find that your job is gone.

So, you know, a lot of our best and brightest have gone into finance, for instance, where the returns were much higher and the job prospects much better. I think we're starting to see something of a shift back, and I think it's important to have initiatives like this, that say to young people, look, if you train for a certain kind of work, it's going to be available for you.

Now, you know, there's no sure thing, right? The economy can still change. But I think we need to change the message that went out that basically said, you know, there's no point in training for manufacturing work because manufacturing work is disappearing.

LUSTIG: Is it a good idea, though, in your view, for that training to be funded at least in part by foreign manufacturers?

STERN (?): I have no problem with that. I think it needs to be funded however we can get the money for it.

LUSTIG: Doug Holtz-Eakin, what do you make of this idea?

HOLTZ-EAKIN: Well, I think there's a real need for skilled trades that investors in the United States find again and again, whether it's Siemens or Volkswagen or others. But I would like to echo what Andy Stern said, and I don't think we should exclusively focus on manufacturing. The future is going to be as much services as it is manufacturing, and the question is will people have job skills for an occupation in the future. And that has been missing from the American education system. The notion of vocational education became a second-class status, and we're paying for it.

LUSTIG: So Andy Stern, is the lesson then that schools -- that the American education system, if it is to help future economic growth, will have to focus more on the kind of education that produces jobs?

STERN: Or the kind of education where jobs are going to be -- absolutely. I think this is a portfolio that we need of different kinds of institutions providing different kinds of skill sets. But clearly, much more has to be focused on the jobs that are going to be in the future, particularly in the service sector.

LUSTIG: Ted Alden, in other countries around the world, there is sometimes a very vigorous political debate about whether it is the responsibility of government, whether national or local, to provide education or whether it is a broader responsibility in which private enterprise, private manufacturers can also play a part. Now, the Chattanooga example was of a kind of partnership. Do you see that as something that is going to develop more in the coming years?

ALDEN: I mean, I think it will at the community college and even at the university level. I think at the basic level of K-to-12 education, I think that is fundamentally a government responsibility, and I think it will remain that. But I think, you know, as you get into this level of preparing young people for particular sorts of careers, I think there has to be a way to respond to market signals, and some of that is going to involve having companies involved in this in different ways.

LUSTIG: Jennifer Hillman, one of the interesting things -- one of the interesting things about talking to the Volkswagen people in Tennessee was that they were able to see the similarities and the differences between a German system, which does have a very strong emphasis on apprenticeships and on technical training, and an American system which perhaps emphasizes more free thinking, entrepreneurship and so on. And there was that if you put those two things together, then you did really get something that was worth having.

HILLMAN: Yeah, I mean, obviously, that is -- I mean, and I think what we have to step back from -- and I would agree with Ted -- is to take account of the fact that we have a very diverse, you know, postsecondary system. I mean, we do already have a fairly thriving community college system, and they are making some adjustments to try to fill this kind of gap between being a purely training, apprentice kind of a program versus being a broader, more liberal education. I mean, you are seeing a big shift in a lot of the community colleges here now in terms of making sure they're preparing people for the kind of jobs that they want. You then have the broad array all the way up through, you know, hard-core Ph.D. engineering programs where, again, you're starting to see, on the R&D end of it, a little bit more engagement with the corporate community in terms of what their needs are.

So I would agree with Ted that we have to make this pivot to having our education system respond very directly to what the needs are within the corporate community but at the same time recognize that we have in place a very broad, diverse set of institutions out there today.

LUSTIG: Doug Holtz-Eakin.

HOLTZ-EAKIN: I'm more worried about the K-to-12 education system that feeds --

LUSTIG: You'd better define that for non-American listeners.

HOLTZ-EAKIN: Yeah, this is the primary education, beginning at the age of 5 or 6, up through the 12th grade in the United States. And it is -- it is the core piece of our education system. And it would be wonderful we -- if we had to have a debate between having it fill occupation-oriented institutions or filling institutions which are research-oriented and led to entrepreneurship. But the sad reality is it's not doing either well, and that's the big problem.

LUSTIG: But Andy Stern, if I understood you correctly, you're saying don't put all your eggs into the manufacturing basket because that may not be where future jobs growth really comes.

STERN: Well, it -- I mean, if you look at the McKinsey report of where jobs are going to be by 2020 or 2025, we are going to lose jobs in manufacturing. We may get more production because we're getting more productivity out of technology, but we're not getting more jobs.

LUSTIG: Let's see what members of our audience have to say about that.

Yes, the lady there.

QUESTIONER: Hi. Thank you. Sarah Moran, the National Democratic Institute. I'd be interested to hear from the panelists where you see the relative responsibility falling on these issues, both infrastructure and education, between state and national government and, projecting into the future, how you see that responsibility changing, where incentive structures should be shifting such that, you know, Chattanooga, Tennessee, provides a better environment for a, you know, Volkswagen to come than, say, North Carolina.

LUSTIG: Ted Alden?

ALDEN: I'd like -- I like state-level competition for investment. I don't have a problem with that, and I think it encourages states to think about where their competitive advantages are. But we do need a kind of national coordinating function. I mean, on infrastructure, so much of infrastructure spending is just completely bottoms-up, you know, what local politicians and community leaders are saying is needed in that spot, and we don't think kind of more broadly about how can we make the United States a more competitive location to do business, how do we link up states in different ways, how do we link up ports with rail with roads. Is there a continental dimension, for instance? Where do Canada and Mexico fit into this? So I have no problem with the -- with states having a primary role, but I think there needs to be a much better kind of coordinating function at the national level than we've seen so far.

LUSTIG: Doug Holtz-Eakin, what's your view about the relationship between federal and state?

HOLTZ-EAKIN: I think that -- I want to echo what Ted said. There was a group I was engaged with, the National Transportation Policy Project, which really said the federal role is national connectivity. We do have to have effective connective -- across modes of transportation, across regions. And that's the economic growth component of federal decision-making. Past that, the money should go to states and localities to make decisions for their purposes. And I think that's a model that we've had in the past, we should really use again in the future in infrastructure.

Education -- there's a long tradition of local control over K-to-12 education. I would similarly make the observation, we're not very happy with how our core education is working, so I think the traditional model might need some rethinking.

LUSTIG: Jennifer Hillman, it's interesting, of course, about how the states operate in this sphere is that they compete with each other. I mean, we were told that the Volkswagen plant went to Tennessee after something like 300 cities bid for it. I mean, they all wanted it, but for whatever reason, Tennessee was able to offer an environment which was attractive to Volkswagen. Now, if everybody's trying to cut a deal which advantages them as opposed to their neighbors, is that a good way to go?

HILLMAN: I think at the extremes, it might have some downputs. But I would generally agree with Ted that I think the competition has been -- has been very healthy. I mean, it has encouraged -- I mean, and again, you look at where all these companies are making their decisions. It is based on where they think they are best suited. They're looking at a variety of states, and they're looking at it on the basis of these things that we're discussing: Where can I find a skilled enough workforce readily available; where can I find the best infrastructure for what I need. There may be some other things, depending on what industry they're in, that would govern those choices, but I think that competition is really encouraging states to make sure they are the best host for these, and that competition is driving, I think, more investment in infrastructure than you would otherwise get.

Obviously, at the very extremes, you know, it can make it very difficult for the states that are already behind to have a fair chance at catching up and may leave them in a very difficult position over the long haul if they are never the winning bidder on any of these things. There you're going to run into some long-term troubles.

LUSTIG: Andy Stern, the way things are at the moment, is America's education system failing its future economic prospects?

STERN: Yeah, I think so. I mean, I think we don't have a sense of -- anymore of what it takes to educate kids in K to 12. I mean, just the outcomes are bad compared to the rest of the world, and --

LUSTIG: We're talking about basic skills, reading, writing, basic --

STERN: No, not at all. I would just think how we teach these -- I don't think you can have 13,000 school boards in the United States, all run many times by elected officials, trying to make decisions about something that needs to be much more common and much more standardized. I think, you know, democracy is great, but it doesn't necessarily always produce the outcomes. And I here -- think here we're failing dramatically.

LUSTIG: Ted Alden.

ALDEN: I would just add, I mean, as with a number of these things, there are very different stories in different parts of the United States. At the top end, our education system is a very good one. Certainly at the university end, it's -- (inaudible) --

LUSTIG: (Inaudible.)

ALDEN: But we also have far too many really terrible schools, and there's that enormous inequality, which is a huge problem across the country.

HOLTZ-EAKIN: If I could add one thing?

LUSTIG: Yeah, Doug Holtz-Eakin.

HOLTZ-EAKIN: What's often forgotten in this debate is that manufacturing is actually an urban activity. That's where our core economics are. And the failing schools are in urban areas. And it is not a surprise those had trouble with the inequality given that sort of spatial thing.

LUSTIG: OK, gentleman down here.

QUESTIONER: My name is Tom Miller. I'm from an NGO called International Executive Service Corps. I'm impressed by the intellectual heft of this discussion, and I'm deeply saddened by what we see in our political arena. At least two of our panelists have a past of having been involved in the political arena, and this discussion kind of reminds me of we'll -- of Winston Churchill's -- and I'm going to paraphrase this because I forget exactly how he said it, but we'll always -- America will always do the last -- the right thing after it's tried everything else. I would like to hear, particularly from Andy and Doug, your comments on how we get out of this mess.

LUSTIG: There we are. Andy.

STERN: So, I mean, to me, the success we've had in trying to foment change only is -- there has only been two ways we've done it in recent history. One is we have a crisis or, in the case of sequestration, we create a crisis, we build a wall behind it so our back's up to it, so we're forced to do something, which is kind of a crazy way to make decisions.

And the other is, I think, when people outside of government begin to come together and sort of frame out answers to problems. And whatever you think about the health care, the way that it got into the debate is you had people like myself and Wal-Mart and Intel and the business round table and providers saying something should be done, which gave Congress more of a sense to act.

And so I think rather than sit around and sort of hold the Nuremberg trials on Congress, which I think we do a lot here in Washington, people have to get out there and build their own coalitions for change. And people like Doug and I, I think, have -- find ourselves having much more common ground, and I certainly did on Simpson-Bowles with Paul Ryan and others. When you really get in a room and you pull up -- pull up your sleeves and you sort of deal with a real problem, you can find some real solutions.

LUSTIG: Doug Holtz-Eakin.

HOLTZ-EAKIN: And so I want to say first about the politics, like on the campaign trail, I actually told John McCain never to talk about infrastructure because in the end, if you mention that word, the local guys will raise their hand and say, we want this. And you end up being in the handout factory, and it's disastrous for policy. And so I think there is something to be said for leaving that to governance.

But we govern poorly. I think Andy's right about this. If you get people in a room, you can get the solutions. But we don't require people to get in the room because we don't actually require that federal government have a budget, right? Even when things are working right -- you pass in the House, you pass in the Senate -- you never have the White House, the House and the Senate one budget, which means you never actually have to make real decisions, which means you never actually get in the room and figure out the areas where you do agree and the areas that are so contentious you can't agree. That's what's missing, a regular process whereby those areas of agreements are identified and funded. And we don't do it.

LUSTIG: I'll take one more question on this before we move on. (Inaudible.)

QUESTIONER: I'm Dan O'Flaherty, with the International Foreign Trade Council.

The panel's analysis of the -- of the educational system was pitched at the national level. That is to say, it was generalized. The solutions, however, seem to be mostly at a local level. So I'm wondering, what governmental agency, what governmental process you see as addressing this national problem?

LUSTIG: Who'd like to go on that?

HOLTZ-EAKIN: Well, I mean, there is --

LUSTIG: Yeah, Doug Holtz-Eakin.

HOLTZ-EAKIN: There are efforts like the Common Core where states have voluntarily gotten together to develop the education, both standards and the curriculum that will lead to meeting those standards. So it's not exclusively done at the national level. It's done at the state level and fed down within them. But I do think there is an important role for the federal government, which does provide funding, particularly for low-income schools, to hold those schools accountable for using the taxpayers' dollars. And we haven't done that well in the past, and that is a place to do it in the future.

LUSTIG: Ted Alden?

ALDEN: I'll defer to Andy on this.

LUSTIG: Oh, right.

(Cross talk.)

STERN: No, I have to say I think the missing link here is the states, who, I think, have a central role to play in a -- in a nonfederalized setting, who have way too little power, you know, over things -- I mean, it's great when they do do core curriculum, but they should have much more authority to implement --

MR. : It's a (project ?). (Chuckles.)

STERN: -- you know, much more authority to implement and not just guide and fund and (cajole ?) because in the end, someone has to be responsible for the education in the states. It's a lot easier to negotiate with 50 governors than however many school boards there are in America.

LUSTIG: Ted Alden. Nope? OK.

Let's move on then to the third area, which I think we should discuss, which -- lot of concerns being expressed about technological innovation in the U.S. If you look back over the past hundred years or more, electric light bulb, transistors, communication satellites, laser technology, all of them invented and developed here in the U.S.

The question is, what about the next hundred years. I've just been at the Georgia Institute of Technology in Atlanta, where Stephen Fleming, who heads their innovation institute, said that other countries are already catching up fast.

STEPHEN FLEMING (Enterprise Innovation Institute, Georgia Institute of Technology): (From recording.) Certainly, they're doing spectacularly well. And it's not just China and India; it's Brazil; it's the Eastern European countries and so forth. There is many more opportunities available there than there used to be. And if an immigrant or a potential immigrant sees that it's becoming more difficult to create a company in America and easier to create the company back in China or India or Brazil or what have you, then they may take their degree, which earned from Georgia Tech or whatever school they've gone to, and go away. And that's certainly bad for the American economy, and I think it's bad for innovation in general.

LUSTIG: Jennifer Hillman, do you worry that America is losing its innovative edge?

HILLMAN: I think there is a still a huge general sense that our education system produces creativity, I mean, produces -- I mean, if you look in a lot of the countries around the world where their succeeding is in taking a lot of the very innovative ideas that the U.S. has generated and maybe figuring out a more efficient way to manufacture whatever is coming out of that idea -- out of those ideas.

And, you know, the second thing I would note is I still think there is a huge amount of, if you will, theft of a lot of the intellectual property that has come out of the United States. If you look at, you know, just blatant theft coming out of places like China, where you see somewhere between 50 (billion dollars) and a hundred billion dollars of intellectual property from the U.S. being taken, I think worldwide it would be larger than that.

So I think the ability for the United States to both continue to innovate, I think, is very high. I mean, I still think we have -- you know, and our education system -- again, at this high level -- is still very oriented towards the creative mind, the innovator, the out-there thinker.

The question is whether we are going to continue to be able to capture the economic gains that come from that innovation and retain it at home, either in terms of applying it to manufacturing or other service-sector enterprises and/or whether we are able to successfully capture what ought to be ours in terms of the intellectual property.

LUSTIG: Andy Stern, lots of the innovators in America today, particularly those in Silicon Valley in California, were born overseas. A lot of the best and the brightest minds seem to have been people who were not born here in the U.S. We're told that it's becoming increasingly difficult, either for foreign students to come here to study or to stay here once they have studied. Is that something which you think needs to be addressed in this innovation discussion?

STERN: Absolutely. It's ridiculous. I mean it's ridiculous we have a country where people come and study at the greatest universities and basically get thrown out when they're done because they can't get a work visa, you know, to contribute to our country. And I appreciate it -- you know, there's a little bit of complication about how you would adjust for that and adjust for the other job needs and immigration, but, you know, we are crazy to have a country where people have money, talent and ideas and want to come here, can't figure out -- we can't figure out a way to get them here.

LUSTIG: Ted Alden.

ALDEN: Yeah, I was going to say this is one of the classic examples of political dysfunction in Congress, because you really do have a consensus. You have an overwhelming consensus in the Democratic Party and in the Republican Party that we should make it easier for foreign students who graduate from U.S. universities, particularly with so-called STEM degrees -- science, technology, engineering -- we should make it easy for them to stay in the United States and either work here or start companies. You could get 400 votes in the House of Representatives tomorrow on a bill like that, and you still can't get it through Congress because of the partisan maneuvering for advantage. So it's really frustrating because I think that is an issue on which there is indeed a strong consensus here.

LUSTIG: Doug Holtz-Eakin, do you think America is at risk of losing its innovative edge?

HOLTZ-EAKIN: I think certainly. I mean, we have, for example, been the center of advances in medical science for decades now. It wasn't always true. Germany once was. There's no God-given right that the United States retain that. And we are systematically making it more difficult to do that kind of innovation in the United States. I am all for --

LUSTIG: How making it more difficult? Why is it more difficult?

HOLTZ-EAKIN: Well, I think we do a couple of things on the broader scale. First, we should have an immigration policy that's a tool of economic policy, and the failure to do that's a serious weakness for the future.

The second is, you should want to start a company in the United States, but we're instead losing companies. Our tax system's at odds with the tax systems in other countries. In any international merger, the headquarters goes to another country for those reasons. When the headquarters goes to another country, the R&D quickly follows.

And it's important to remember that R&D is a private-sector function. There is government funding, but R&D is really in the private sector. When it goes, the jobs then go. So we're driving things overseas. This is an inhospitable place to invest. And that's a risk.

LUSTIG: I wonder, though, Jennifer Hillman, whether this discussion sounds slightly odd to a lot of foreign ears, to non-American ears. After all, the biggest innovations of the last 20 years, whether it is Google or whether it is the iPhone or whether it is Twitter, they all came from the United States. Innovation is still coming from this country.

HILLMAN: And again, that's what a lot of foreigners would say. And like I said, a lot of what is happening is the sort of follow-ons to all of that. I won't call it all copying, but there is a lot more of foreign -- looking at the ideas that have been generated here and figuring out a more efficient way to produce it or a more effective way to market and sell it where those innovative ideas get played out in a marketplace outside of the U.S.

LUSTIG: But I suppose what I was suggesting, Andy Stern, is that perhaps the concerns are overdone here, that maybe there isn't so much to worry about, given that lot of good ideas are still coming from the U.S.

LUSTIG: Yeah. I mean, I think there's two different problems about innovation, which -- you know, one is it's not the answer to our jobs problem. If you look at, you know -- you know, we are the creators of the world of technology, and yet if you add up the number of American jobs in Apple, Intel, Hewlett-Packard, Microsoft, Sony combined, it's less than Foxconn. And if you look at a company like Apple, which is now the largest market capitalization, the kids who sell their products, which average $430,000 of sale each, make 12 (dollars) or $15 an hour.

So we'd have to be careful to think that innovation's important to an economy, but it's not an answer to distribution, and it may not be an answer to the jobs problems either.

LUSTIG: Ted Alden, I suppose there is an assumption that many people make that if you are good at innovating, you will be good at economic growth. I mean, Andy Stern's point is not necessarily so.

ALDEN: Well, I mean, I think innovation is key to economic growth, and I think if you look at the history of the last century, there's no question that -- the problem is, for the United States, is that the innovation lead doesn't buy you the same commercial advantage that it used to 50 or 60 years ago. And so as well as thinking about how does this remain a good environment for creative people, which it by and large is -- I mean, the United States is still -- you know, partly because of our university system, partly because of the venture capital system, which makes it relatively easy to raise funding for -- still a good place to come up and try out new ideas, but it's those next steps. How do you take those and build them into much larger businesses that have general benefits for the U.S. economy? I think that's where the real challenges are here.

LUSTIG: And the point, Jennifer Hillman, that some of the people in Georgia made to us was that increasingly, you're seeing other countries which are getting quite good at that as well. They're looking at how America has fostered that kind of culture, and they're doing it themselves. I mean countries like Brazil, for example.

HILLMAN: Well, or look even in Europe, where, you know, again, the issue is not about wages. I mean, you look at what's happening -- I used to be a textiles negotiator, so you look at what's happening, for example, in the -- in the German world, where they, like the United States, lost their textile jobs, but they kept the manufacturing of the machinery that did the weaving and the knitting and the braiding. So what are they doing now? They're weaving and knitting and braiding carbon fiber at a nanotechnology level. So you draw on this old strength and now move into 21st century technology, where, you know, again, you're going to see a lot of these old textile companies become the ones that are producing these very high-tech composite items that are used in everything from aerospace on down. So you do see these innovative cores stay, but they're moving very much into a very new world in terms of what they're actually producing with that technology.

LUSTIG: Let's take some questions on innovation. Yes, gentleman down here.

QUESTIONER: Prakash Khatri, formerly with Homeland Security in senior leadership. And had a question to follow up on what Jennifer said. Jennifer mentioned the stealing of intellectual property by other countries. But as more and more R&D moves overseas due to the lack of immigration policies that favor bringing people in, as we have done for many, many years, by the brain drain in this direction, the reverse is happening. How is that going to change? Because obviously, if intellectual property is developed overseas, we're no longer going to be stealing -- or the other countries will no longer be stealing it, but rather, we may be forced to do that.

LUSTIG: Jennifer Hillman.

HILLMAN: Well, I'll only comment -- I mean, for a long time the perception was that we would see a turnaround in, for example, how China approaches intellectual property, when the day came that China was itself creating more patents than we were. We haven't seen that day yet. I think there was still a lot of hope that as these countries begin to be the innovators themself and they begin to have property, intellectual property, that they want to protect it, that we will see a better regime than we have right now.

I don't know, but again, I don't think we've seen it yet where there has been enough indigenous development of technologies within the Chinas and the Indias of the world that we have not yet seen them really step up to a very strong enforcement of intellectual property.

LUSTIG: Gentleman down here.

QUESTIONER: Thank you. Shanker Singham with Squire Sanders. You've talked a lot about the role of the government in some of these problems today, infrastructure, education and innovation. Could you talk a little bit about the role of -- or the force of competition, the power that the competitive force might play in solving some of these problems? In education, for example, the best education system at the university level is a highly competitive one, whereas at the K-through-12 level, there's no competition. Infrastructure -- the role of private sector in solving some infrastructure problems.

LUSTIG: Doug Holtz-Eakin, the role of competition.

HOLTZ-EAKIN: I think you cannot overstate the importance of competition. You know, monopolies are bad, whether they're in the government or outside. You need competitive forces.

I do think one of the most important things that the United States needs to do is to recognize this should be welcoming place for human capital, a welcoming place for financial capital and then have a competitive system so it -- so it really does compete for innovation, compete for its uses. And right now we're just not a very hospitable place for either the human capital, because of immigration, or the financial capital, because people don't want to start businesses here the way they used to. And I don't think the government needs to solve the innovation problem by picking winners and losers. I think we need to fix the environment and then just let the competition take care of it.

LUSTIG: Andy Stern?

STERN: I mean, I do think that we do need to understand the market just doesn't work the way it used to be and we have to figure out what are the right interventions into the marketplace.

But I think at times we've sort of deified the market. If we just say government gets out of way, and it will work its wonders, it really hasn't been true. If it worked, it should work in infrastructure. Education it clearly hasn't worked. There is not competition. That is, people know how to build things, right? It's not a competition. There's not money. You know, no one is funding the infrastructure, and without money the competition's kind of a worthless competition.

LUSTIG: Ted Alden?

ALDEN: I was just going to add, you know, when you think about competitiveness, if you talk about it at the corporate level, U.S. companies are generally doing pretty well. I mean, they're operating globally. They're very profitable. They're very competitive in the places they operate.

I think the problem is a problem for the United States as a physical location. You know, what is happening to the people who occupy the piece of land known as the United States? And they have not been doing nearly as well as they need to do, and that's the real competitive challenge that we face.

LUSTIG: I want to ask each of you, finally, one last question, which is just this: I want to know how confident you are that the kinds of problems we've just been discussing, particularly these three -- education, infrastructure, innovation; there are others, of course -- will be dealt with relatively soon by whoever leads the incoming administration after the election next month.

Doug Holtz-Eakin.

HOLTZ-EAKIN: I think, sadly, these will be stacked in line behind the need for tax reform, the need for big reform of the entitlement programs. Then you can get to questions of infrastructure policy, education policy, innovation policy. It is no longer the case that administrations have the luxury of choosing what they do. There are imperatives that cannot be avoided.

LUSTIG: Jennifer Hillman?

HILLMAN: I guess I would share some pessimism. I think -- because I do think there has been a long time a consensus that these issues need to be addressed, and notwithstanding the financial crisis and everything else that we've been through, we have not yet gotten the political will and the overall ability, through the combination of the Congress and the executive branch, to really resolve them.

And the other part that I think makes it particularly difficult is these are fundamentally long-term problems that require long-term investments and a long-term commitment, and I think that is something that we have become notoriously bad at making.

LUSTIG: Andy Stern?

STERN: I would say that if we followed normal legislative processes, virtually no chance these things will be dealt with very quickly.

On the other hand, as we saw in the stimulus, sometimes something starts moving along where there is a lot of consensus. Electronic health records was thrown into the stimulus plan. There were a lot of things that had been waiting in the queue, so to speak, and then something comes along.

There -- the only chance I see is, something comes along and someone says, let's throw some big things that we all agree in (sic) into the deal, because without it, issue by issue, I don't see it having much chance.

LUSTIG: Ted Alden, every political speech I have heard during this presidential campaign has included the line "America is the greatest nation on earth." What you seem to have been saying is that that may not be the case now and it may even more so not be the case in future. Do you see it being turned round, or do you think it's too late?

ALDEN: No, I don't -- I don't think it's too late at all.

My problem with that phrase is there's sort of an assumption that we just are the greatest nation on earth and there's no point in having a conversation about it. I think it's -- the United States has been the most successful modern nation, and I think it has every ability to continue doing that. But we're going to have to work a lot harder, a lot smarter, and we're going to have to govern a lot more effectively than we've been doing.

As Doug said at some point in this conversation, there's nothing inherent. You know, we don't own the greatest spot by default. We have to earn it.

LUSTIG: There, I think, we are going to have to leave it.

So I want to thank all of our panelists: Ted Alden, Jennifer Hillman, Andy Stern, Doug Holtz-Eakin. My thanks also of course to the Council on Foreign Relations for having hosted this discussion and to our audience as well.

That is the world tonight. This is Robin Lustig in Washington. For now, from me, good night.

Thank you very much indeed! (Applause.) Most grateful to all of you. Most grateful to our panelists. Thank you so much. You're a great audience.

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