Breakfast Briefing: Gregory S. Babe, President and CEO, Bayer Corporation and Bayer MaterialScience LLC
10.13.2010
Presentation:
Making stuff and building stuff is in our blood. It's what we do. It's who we are. Unfortunately, the Common Working Man isn't so common anymore, and that's not good.
"If you're not making stuff, then you have your hand in someone else's pocket."
Gregory
S. Babe, CEO and President
of Bayer Corporation and
Bayer
MaterialScience LLC
Our dependence on foreign production is not a sustainable plan for America, and it's still increasing. We need to stop and reverse that.
Recommended reading: the recent article by Andy Grove, How America Can Create Jobs.
One prescription that we shouldn't try is taxing offshore traffic. We did that in 1930 with tarriffs, and ended up with a decade-long depression that we didn't fully recover from until the mid-1950's.
We can't win a trade war.
So if we can't tax our way out of our problem, and we can't wall out our competitors, how do we make an America that makes stuff again?!
This room is full of people who are working very hard to answer that question. We all know that our survival depends on overcoming the current economic situation, and starting to make things again. The question is: how?
Answers from 2 Economists
The answers can be found in the work of 2 economists: Angus Maddison and William Bernstein.
Angus Maddison
Angus Maddison spent 60 years looking at a single figure, the GDP per Capita. Adjusted for inflation, it looks like this:
GDP per
Capita from A.D. 0 to the present.
Click to view full
size.
This is a photograph of a PowerPoint slide, and hard to read. But basically this chart shows the history of the GDP per Capita from A.D. 0 to the present. The y axis numbers go from $400 to $4,000 (In 1900 Dollars). The point where the chart starts its astonishing climb is the beginning of the Industrial Revolution. Go figure.
Each generation following the Industrial Revolution has seen improvement in their lives. The graph is a dramatic picture, and shows that material progress is a new and radical idea.
William Bernstein
William Bernstein is an American financial analyst who wrote "The Birth of Plenty" and several other books. He has listed 4 conditions that are required for material progress:
- Property Rights. People have to be secure that the fruits of their labor will not be stolen by the State, by thugs, or by monopolists. This is the "Guardian of All Rights".
- Scientific Rationalism. Economic progress depends on scientific ideas emerging, from garages to labs. Empirical observation is needed to support innovation.
- Capital Markets. The mass production of goods and services needs vast amounts of other people's money. We need investment. We need a functioning financial system.
- Transportation & Communication. Fast, efficient, and readily available communication and transportation are essential. We need them so we can advertise and sell across distances. We need them for the movement of ideas and innovations, and for getting products into the hands of consumers. Great progress became possible when Sea transport became safe and efficient; when Land transport became safe and efficient with the railroads; when the telegraph made instant communication possible over great distance.
When all 4 conditions are brought into play, you begin to make stuff and you begin to build stuff for better lives. The solution to our problem today is this:
Apply these 4 forces to analyze our decline so that we know what we need to fix.
Recommendations
1. Keep the Fruits of Our Labor
The U.S. tax system is a major obstacle to being competitive. The corporate tax rate is currently approximately 35%. Only Japan's is higher. It will soon reach 40% at the Federal and State level combined. Compare this to the 26% paid in Europe.
We need to reduce this enormous tax burden.
Research & Development are vital! The Federal R&D tax credit is a huge incentive – and Congress keeps letting it expire. They've allowed it to expire 12 times since 1981. Then, we were No. 1. Now, we're 17th.
It takes 10 years and a billion dollars to bring a new drug to market. Some relief through the R&D credit would help a lot. We're not asking for a handout, just make it a little less hard. The Alternative Corporate Minimum tax is horrible. We need to encourage basic industries.
2. Instill a Spirit of Scientific Enquiry
The education necesssary requires a huge effort at every level. Bayer supports this through innumerable training and education projects.
3. Access to Capital Markets
We take this for granted in our country, but 2008 really took a toll. The biggest fear now is that lenders won't lend, and that credit will get too expensive.
The huge surge in government borrowing crowds out other investors and discourages foreign investment.
4. End the RailRoad Monopoly
The railroad monopoly is killing us. We are completely captive to them and we desperately need fairness and accountability to be reinstated.
We Can and Must Succeed
The decline of American manufacturing is not inevitable: we have a choice.
"A people who are possessed by the spirit of commerce can achieve anything." – George Washington
The Industrial Revolution is far from over. The question is whether we can keep it alive in America.
We have a choice. We can make stuff, or we can reach our hand into the other guy's pocket.
Thank you.
– From notes taken by Mary Ecsedy
