Chapter 9

Public Servants: The Government Can Be Part Of The Solution

“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”

—Charles Darwin, British naturalist and originator of the theory of evolution

Why not a permanent capital-gains tax credit?

The needs of our economy for capital investment during the next few years cannot be overemphasized. If the challenges of greatly increased foreign competition are to be met, and if domestic problems are to be solved, a tax structure must be developed that will encourage corporations and individuals to accumulate and invest capital.

Republicans and Democrats both recognize the importance of incentives for capital investment to create jobs and promote economic growth and productivity; however, neither party can reach agreement on how to achieve this goal. The Republicans prefer a permanent capital-gains tax cut; the Democrats prefer a temporary investment tax credit.

The solution is simple: combine the two ideas into a permanent capital-gains tax credit. With a permanent capital-gains tax credit, the capital gain will be exempt from any taxation if the entire gain is invested in land, buildings, or fixed assets (production equipment or pollution control facilities) within twelve months before or after sale.

In addition, the capital gain will be exempt from any taxation if the entire gain is invested in research and development, education and training, and health and safety within twelve months before or after sale. If the entire gain is not invested within twelve months before or after sale, the entire capital gain will be taxable at ordinary income-tax rates.

We need to encourage corporations and individuals to accumulate and invest capital. The capital-gains tax credit will offer all Americans the benefits of a productive and more competitive economy.

The Government Has The Potential To Unleash The Job-Creation Machine

The key to long-term prosperity is how quickly America can transform the results of corporate restructuring and technological advances into a job-creation machine. America has the potential to create new industries, new jobs, and new products that can compete effectively in global markets. Isolationism and protectionism aren't the answers. Among America's greatest assets is our free-market system, which provides the opportunity for the constant creation of new enterprises and new jobs. We must begin by investing in the development of America's West Coast. America's West Coast constitutes a major part of the rapidly-developing Pacific Rim. For the United States to play a pivotal role in its development, we must invest in education, infrastructure, science and technology, and training for displaced workers.

We need to encourage the development of high-tech regions similar to California's Silicon Valley and Boston's Route 128. We need to discover why cities like Cincinnati, OH-KY-IN; Las Vegas, NV; Orlando, FL; Phoenix-Mesa, AZ; Raleigh-Durham-Chapel Hill, NC; Seattle-Bellevue-Everett, WA; and Tampa-St. Petersburg-Clearwater, FL are thriving while cities such as Joliet, Illinois and Gary, Indiana are struggling to survive. In search of an answer, I looked over numerous publications on what a city like Raleigh-Durham-Chapel Hill, voted “The Best City for Business” by Fortune in 1993 and “The Best Place to Live in America” by Money in 1994, has to offer and found the following: abundant or quick access to natural resources, including labor; access to competitive financial resources; commercial space (hotel, industrial, office, retail); convention, exhibit, and meeting facilities; highly-educated population; low crime rate; medical and health-care facilities; reasonable tax burdens and relatively low cost of living; recreation, tourism, and cultural amenities; sound infrastructures, including communications (magazine, newspaper, radio, telephone, television), transportation (air, rail, road, waterways); utilities (electricity, natural gas, sewerage, solid waste disposal and recycling, water); and world-class colleges and universities, including Duke, NC State, and UNC-Chapel Hill. Is it any wonder Raleigh-Durham-Chapel Hill is ranked among America's best enterprise- and job-creation markets?

Reinventing Government: A Checklist For Positive Change

ÖAdopt conservative fiscal management policies. Slash our debt and discard Keynesian Economic Theories that support deficit spending and drain our nation of value. By borrowing to cover its own deficits, the government competes with private enterprise for precious capital. This reduces the amount of capital available for new plant and equipment and research and development. A smaller deficit will reduce interest rates and lower the cost of borrowing. This will lead to faster growth, which, in turn, will produce a net increase in government revenues.

ÖChange outmoded accounting standards. Inventory buildup is the most common cause of economic cycles. The economic booms and busts we blindly have come to take for granted as a necessary evil in a free-market economy must be eliminated. Most organizations, including real estate development corporations, build up inventory levels to buffer the organization against uncertainty. In addition, traditional cost accounting standards treat inventory as an asset. In reality, inventory is not an asset when you take into account the carrying costs (the cost of deterioration and obsolescence, insurance costs, the opportunity cost of tying up funds in inventory that could be used elsewhere, and storage costs) associated with it. The point is, inventory is just as much a liability as it is an asset.

ÖCut foreign aid and invest in America first. Why should we place foreigners above Americans? We must teach foreign nations they must depend on themselves and not on “American welfare.” America must take a return on investment approach to all foreign aid. Each time we invest abroad, we should ask ourselves are we getting our money's worth?

ÖDevelop a new “Made in USA” labeling system. Require 98% domestic content of both parts and labor to secure the “Made in USA” label. Allow the labels “Made in USA by an American Corporation” and “Made in USA by a Japanese (or some other foreign) Corporation” to be included on any product meeting the new domestic content standards. Prohibit American corporations who manufacture products in foreign nations, from marketing the products back home as “American made.” The products may be owned by an American corporation, but they're certainly not American made.

ÖElect competent leaders who add value to our society.

William Shakespeare’s King Lear and William Sandy’s Leadership Selection Criteria

Key learning from King Lear: If you can get past the point that leaders were not “selected” during Shakespeare’s time, but arose to power through hereditary succession, King Lear is a story about leadership selection and the tragic consequences of selecting the wrong leader. To drive this point home, Shakespeare develops a distinct double plot: The fates of King Lear, a mythical pre-Christian king of Britain, and his daughters (Goneril, Regan, and Cordelia) are paralleled by the fates of the Earl of Gloucester and his sons (Edgar and Edmund). Both Lear and Gloucester suffer from “filial ingratitude” and a fatal lack of insight, resulting in deceptive reports; false optimism; hasty judgments; rumors; and mistakes in communication, decision making, and planning. The notion of “sight” or “vision” as an important leadership trait is reinforced frequently throughout the drama; for example,

King Lear: “Out of my sight!”

Earl of Kent: “See better, Lear . . .”

According to William Sandy, performance improvement consultant and author of Forging the Productivity Partnership, there are several criteria or characteristics that are critical in selecting leaders. Pick a leader who:

Brings sense to the mission

Can build a team, figure out precisely what diverse contributors bring to the end result, and get the best out of them

Can give pinpointed counsel to strengthen output

Has high standards; cares about what happens

Is a good communicator, both for clarity of direction and to get people excited

Is credible and consistent; will earn the right to be listened to

Is willing to innovate and take measured risks to achieve breakthroughs

Is willing to listen

Is willing to measure what happens, take the heat and responsibility, and keep the focus on results rather than sideshows

Sees the possibilities of change

Understands the role of communication to help people understand

Understands the role of knowledge to help people grow

Understands the targeted audience and cares about their problems

Will patiently earn receptivity for new ideas; coach, teach, and lead by example; and make adjustments when required

Will share credit; will build upon other people's foundations, including the work of predecessors

(Sandy, William. Forging the Productivity Partnership. New York, NY: McGraw-Hill, 1990. Used with permission of The McGraw-Hill Companies.)

ÖEncourage American labor unions to organize labor in foreign nations, especially in Mexico. The critics of the North American Free-Trade Agreement (NAFTA) argue that cheap Mexican labor will create “a giant sucking sound” as American corporations head south. American labor unions would benefit by discarding this line of thinking and entering Mexico to organize their labor. The benefits of such an effort would be two-fold. First, America would benefit since these efforts should slow the downward movement of American wages toward a global average and quicken the upward movement of foreign wages toward the American average. Second, unions would benefit since these efforts would reverse decades of declining union membership.

ÖEnd world dependence on Middle-Eastern oil. Begin by uncapping the numerous closed oil fields in America's heartland, creating jobs for Americans and revenues for America. Next, form an oil consortium with other non-OPEC nations, including Russia, Norway, Mexico, China, the United Kingdom, Canada, and Brazil to compete directly with OPEC for world oil revenues. Lastly, encourage joint ventures between American automobile manufacturers and American oil producers to develop, manufacture, and mass market super fuel-efficient automobiles, as well as, commercially-viable alternative-fuel automobiles. Encouragement can be provided in the form of a joint venture research and development incentive.

ÖFortify the nation's infrastructure. Invest in communications, transportation, and utilities, especially in high-tech regions. Repeat the successes of Silicon Valley and Raleigh-Durham-Chapel Hill throughout the United States. Additionally, we must begin to build roads to last using high-tech materials and production technologies. If we build roads to last, we can spend less on routine maintenance and repairs and more on improvements and new projects to keep pace with economic growth and changing transportation patterns.

ÖFoster partnerships between American businesses and university laboratories, between science and industry. As the Japanese have proven, the industries of the future do not always emerge in response to market forces. Give American corporations first crack at the basic research (and the resulting patents) conducted in university laboratories. Boost funding for science and technical education of native-born Americans. Require foreign-born products of American universities to put in at least two years with an American corporation before returning home.

ÖMake all pensions and health-care programs portable.

ÖMake the government adhere to the same accounting principles and standards it imposes on American corporations.

ÖOverhaul the guidelines for immigration to America. At the turn of the century, we got highly-skilled immigrants from Europe; now we get un-skilled immigrants from Asia and Latin America. America no longer can afford to accept and support the world's huddled masses. If it can be proven the individual can add value to our society, then and only then, should he or she be given the opportunity to pursue the American Dream. Additionally, deport all criminal aliens and make all non-citizens ineligible for welfare and other government programs. Finally, tear down the fence between America and Mexico and dig a canal instead. For a cost far smaller than that of providing welfare and other government benefits to illegal immigrants, the American-Mexican border can be closed permanently. The benefits of such an effort would be five-fold. First, it would slow the flow of illegal immigrants across America's border. Second, unemployed American and Mexican labor could be employed to construct the canal. Third, the canal, connecting the Gulf of Mexico with the Pacific Ocean, would present the opportunity for inland states to take advantage of Pacific Rim developments. Fourth, it would reduce the world's reliance on the Panama Canal. Fifth, profits from the canal's operation would give a much-needed boost to the American and Mexican economies.

ÖPlace a cap on the amount of restructuring charges a corporation can take against income in a single year. This should serve to reduce unnecessary corporate restructurings. Additionally, limit the amount of interest payments on debt burdens resulting from leveraged buy-outs that can be deducted from taxes in a single year. This should serve to curtail leveraged buy-outs and reduce business debt.

ÖPut an end to America's unilateral free-trade policies. If the Japanese are going to put up barriers to American investment in Japan, we should put up barriers to Japanese investment in America. This isn't “protectionism,” it's good economic sense. We allow Japanese corporations to come in and acquire leading-edge American corporations on our open market, while any American attempt to acquire leading-edge Japanese corporations soundly is defeated. If Japan puts legislation in place to restrict American ownership of Japanese corporations, we should put legislation in place to restrict Japanese ownership of American corporations. Additionally, we allow Japanese corporations to sell to their full potential in America, while any American attempt to do the same in Japan soundly is defeated. If Japan puts legislation in place to restrict the number of automobiles General Motors (or Chrysler or Ford, for that matter) can sell each year in Japan, we should legislate the same restrictions against Honda, Nissan, and Toyota in America. I'm not suggesting we should blame Japan for our problems; we only have ourselves to blame. We presented Japan the opportunity to buy us out without any reciprocity and they did exactly that. I'm also not suggesting America should abandon its free-trade policies altogether; we should practice total free-trade only with nations who practice it with us. Also, I'm not suggesting Japan is the only nation taking advantage of our unilateral free-trade policies; in fact, European countries, including the United Kingdom and Germany, own far more of America than Japan does.

ÖPut an end to life-time appointments to the Supreme Court. Amend the U.S. Constitution to place term limits on Supreme Court justices. We must send a clear message that justices serve only to interpret the law, not to make the law.

ÖReduce barriers to new enterprise and stimulate entrepreneurial initiative by altering the tax code. Our tax code must reward entrepreneurship, risk taking, saving for the future, and work. We must promote business investment by allowing businesses to claim tax deductions as investments in equipment and research and development are made rather than writing them off gradually over several years. (Yes, depreciation is another outmoded American accounting practice.) Additionally, scrap all ideas for either a permanent capital-gains tax cut or a temporary investment tax credit; instead, enact the permanent capital-gains tax credit introduced at the beginning of this chapter. Finally, increase the average propensity to save and invest relative to the average propensity to consume, while simultaneously keeping inflation and unemployment in check. This can be accomplished by cutting income taxes, lowering interest rates, increasing consumption taxes, and forming government/business partnerships to expand exports relative to imports.

ÖReduce the regulatory bureaucracy and put an end to frivolous lawsuits. It doesn't make sense to saddle our corporations with oppressive regulations and frivolous lawsuits, especially when the same burdens do not affect our foreign competitors. The costs of excessive regulations are not borne by the corporation anyway, but rather they are borne by the consumer, in the form of higher prices for goods and services.

ÖReinvent government by privatizing operations and downsizing. Privatize federal assets and services, including federal loan programs, public housing, Amtrak, and the Tennessee Valley Authority, to name just but a few. Terminate unnecessary federal programs, as well as, incompetent, inefficient, or slothful employees. Do not be afraid to adapt the three-step value-delivery process revealed in the chapter on high-value added processes: establish a clear and commonly-understood purpose and identify the major lines of government and strategic activities the government will develop to fulfill its purpose, as well as the critical success factors; identify the core processes necessary to accomplish the government's purpose and establish the critical success indicators the government will use to track its progress; and overhaul the government's culture and structure to support the achievement of the government's purpose. You might want to keep in mind the overall purpose of government, like any institution, is to provide value to its customers. (Or, in the case of government, its employer. Think about that one for a moment.)

ÖRequire foreign corporations doing business in America to pay the same tax rates and to comply with the same regulations as American corporations.

ÖShift welfare funding into jobs programs, requiring work for benefits. Again, deny non-citizens welfare benefits. Do not provide any additional payments for additional children, or mandate the use of birth control among welfare recipients. I know this sounds harsh, but if American taxpayers are going to foot the bill, they have the right to dictate lifestyle choices. Afterall, it's their money. The “rule of one and two” should be applied to welfare participation: once a life and for two years only. It should be a program to help people get back on their feet, not a lifetime support system. Please keep in mind, it doesn't take a village, just strong family values.

ÖUpgrade public education and establish a national apprentice program to replace vocational training. America's failure to invest in human capital has damaged our ability to compete. Too many American workers lack the skills necessary to perform today's knowledge-intensive jobs. To begin, establish a national course of study: English language and literature (reading and writing); mathematics; science and technology; social studies, including history and geography; art, music, or another discipline designed to stimulate creativity and lateral thinking; personal and household finance; and commercially-viable foreign languages. Yes, the English language should be made the official language of America; however, all Americans should be required to learn to read and write at least one commercially-viable foreign language in the course of his or her primary education. In Germany and Japan, students are required to read and write in their native tongues as well as in English. To remain competitive in the global economy, students in America should be required to do the same. I hope you took special note of my recommendation for mandatory ‘personal and household finance’ coursework. It should be obvious by this point in the game that our most powerful ally in the battle to reduce mounting consumer debt is education. We teach our students how to read, write, multiply, and divide, but we do not teach them how to manage their money, credit, and investments – what a wasted opportunity! Good conduct also should be taught, shaped by in-school discipline, if necessary. Students arrested for violent crimes or for the possession of drugs or weapons immediately should be removed from the traditional school setting and enrolled in special military-style academies for the duration of their primary education. It's time to start rewarding students who exercise good conduct and punishing those who don't; students who exercise good conduct should be given the opportunity to learn in an environment free of fear. Dropping out from high school also must be discouraged. This can be accomplished by denying high-school drop-outs welfare and other government benefits, including the right to drive a car. Those who complete high school and decide not to go on to college, should be required to enroll in a national apprentice program for two to four years of schooling together with on-the-job training sponsored by local corporations. Under such a program, graduates would receive a technical certificate along with a school guarantee for technical competency. Finally, shift power from the administrators and unions to the parents and local corporations. To compete in a global economy, we must repeat the successes of Thomas Jefferson High School for Science and Technology in Alexandria, Virginia throughout the United States. Additionally, we must repeat the successes of Jaime Escalante, an immigrant math teacher in a tough, inner-city high school in Los Angeles and subject of the hit movie Stand and Deliver, throughout the United States.

American Values

It's been said that Americans have no shared national culture to unite them as the Japanese have. Baloney! Americans can succeed by returning to their roots. American values that served us well in the past, can provide us a source of competitive advantage now and in the future: accomplishment; entrepreneurialism, invention, and rugged individualism (tempered with a return to basic family and community values); freedom and initiative; optimism and opportunity; results-orientation; risk taking; a sense of destiny, direction, and discovery; and spontaneity.

Chapter Theme Song: “Raise a Little Hell,” Trooper

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ACTION ALERT!

Your Representative Needs to Hear from You!

See an idea you like in Chapter 9?

Call, write, or e-mail your representative today and let them know you saw the idea in Christopher M. England’s Outsourcing the American Dream!

(Or better yet, buy them a copy of this book and mail it to them with your favorite idea highlighted!)

General Addresses:

The President

The White House

1600 Pennsylvania Avenue NW

Washington, DC 20500

The Honorable ______________

United States House of Representatives

Washington, DC 20515

The Honorable ______________

United States Senate

Washington, DC 20510

(NOTE: More specific addresses can be found in the various Congressional directories available at your local library, or on-line. Check out http://www.house.gov/writerep for a sophisticated on-line repository of mailing addresses, phone numbers, and e-mail addresses.)