November 3, 2005
Democrats' Opportunity
By Bernard L. Schwartz

Too much of the conversation among Democrats concerns our party's failure to project an optimistic message. A reporter for The New York Times has pointed out that the language of the Democratic Party is defeatist. In the face of the serious issues that define the world today, Democrats succumb to an epidemic of pessimism that doesn't do the party or our country any good.

The war in Iraq, galloping twin deficits, a decaying infrastructure, a failed social safety net, heated global competition, and a perceived decline in our economic and technological superiority have clouded our vision, dampened our confidence as a nation, and, apparently, tongue-tied Democrats. The media haven't helped. In fact, along with the think tanks, they fuel the pessimism. A good example is Fortune magazine's July 25 cover depicting Uncle Sam as a 97-pound weakling unable to hold his ground in the emerging global economy. The press is full of articles about, among other things, competition from China, the terrible consequences of outsourcing, and the impact of immigration.

I think we should take a different approach. Against this backdrop of doom and gloom, the Democrats have an opportunity to be heard. We should demystify the issues and define America by its strengths instead of by its weaknesses. There is truly much to be optimistic about, and we need to get that message out.

The Republicans, of course, try to make it sound simple. People will thrive with less government intervention, they never tire of saying. Citizens, not government, will manage their own retirement programs, spend their own after-tax income as they wish, and get more out of the private schools they control. Our citizens will have a future arranged by the people and for the people. No matter that things are getting worse for all (except the rich). The Republicans are optimistic, and it sells.

Thomas L. Friedman's recently published book, The World is Flat, suggests that human development periodically experiences quantum leaps in technology that change the world forever and that the growth of information technology during the last 30 years is such an event. He has it right when he describes the remarkable changes enabled by the information revolution. Not only will all peoples have equal access to all information, but they will also have access to advanced technology and intellectual property, he says. Knowledge will enrich and democratize all the inhabitants of the globe. This is what Friedman means when he claims that the world is flat.

But, here is where I part ways with Friedman. Regardless of the advances he describes, not all societies or all economies are equal. Having equal access does not mean that all participants have the same starting place, or, more important, have the same vision of where the finish line is. No, Mr. Friedman, the world is not flat.

The concept of flatness implies that data, knowledge, people, and capital flow freely, of their own momentum, leveling out many advantages presently enjoyed by advanced nations. These advantages include an industrial infrastructure; a broad knowledge and technical skill base; universal access to education; advanced techniques of distribution; a culture of mobility for people and goods; highly developed, efficient, and abundant capital markets; the largest base of invested capital; a tradition -- indeed, an expectation -- of equal opportunity; and, most particularly, the imbedded intellectual capital, the know-how to convert pure science into affordable and easy-to-use products, and the ability to insert new development into manufacturing or consumer markets.

I am talking about the free enterprise system, supported by the rule of law, a stable currency, a judiciary that enforces contracts, transparent financial reporting, accountability, governance, and regulatory oversight. In the United States, we operate in a stable and free environment -- socially, economically, and individually free, in which all citizens benefit from economic growth and all have equal opportunity for advancement. These qualities are America's unique strength. They should not be undervalued.

Now, the notion that we should better prepare ourselves to be overtaken or surpassed by China because U.S. industry is outsourcing various backoffice services and computer software functions is just a notion. Most problematic is the idea that the current challenge will cause permanent employment dislocation in the United States or, perhaps, lower our standard of living. This thesis totally ignores our strengths.

Outsourcing and globalization are not new. They have been on the scene for about 30 years in their present form, and yet, the U.S. economy has pros- pered, unemployment is low and stable, and job recycling is robust. There is no evidence that our businesses are not up to the challenges, or that our adaptability and inventiveness are failing.

This is not just an academic debate. Many policymakers and economists seem to have bought into this notion that America is losing its edge, its superiority. They spout the rhetoric, adopt an attitude of "let's pack it in -- it's all over for us." They crank up the pessimism, which in turn leads to the development of such bad policies as protectionism and high tariffs.

Unfortunately, many Democrats seem to have signed on to this defeatist theme, too. They are hooked on what they've identified as the twin forms of disaster -- a disastrous domestic economic policy that will destroy our prosperity and wealth, and disastrous international competition that will steal our edge and erode our standard of living. But this excessive pessimism is unwarranted.

Take China, as an example. It is important to keep in mind that, while it has made many important advances, China does not have an easy road ahead. Remember that China is not a free and open society. It faces an almost unfathomable challenge in converting 1 billion unskilled laborers into an industrial skill base, while urbanizing its population. Remember that it took the United States 100 years to relocate 70 million agrarian Americans from the farms to the cities, at enormous human and financial cost. We have not yet fully absorbed the resultant costs of urban blight and overburdened educational and social institutions.

Will China be able to maintain civil order while facing the challenge of relocating 600 or 700 million people? This is the reality: China is a statemanaged economy that does not have a modern banking system, a robust market mechanism, or a mobile society. China is also heavily dependent on the United States for growth capital, innovative technology, and regional stability, and for a large and prosperous consumer market.

The world is not flat economically, socially, militarily, or politically -- in large measure because of America's comparative strengths and the emerging countries' many weaknesses.

And the United States will continue to maintain an edge over other nations. The technologies that will drive economic growth in the future are medical technology and biotechnology, aerospace technology, oceanography, agricultural science, next-generation information systems, and environmental and energy technology. These are the sweet spots of American scientific capability. The United States will lead in the further development of all the vital technologies and will uncover other applications where our inventiveness and entrepreneurism will give us the advantage. After all, these qualities have been the engine of our economic dominance for more than 200 years. It's our American genius.

So, in this context, where will the Democratic Party position itself on globalization, on outsourcing, on competitiveness? Will it choose pessimism or hope?

Despite the media's constant drilling on fiscal and trade deficits, the low level of savings, the potential bursting of the real estate bubble, the dependence on foreign loans -- our economy continues to perform well. We suffer no inflation. We're experiencing a 3.5 percent growth rate this year. We have good corporate earnings and balance sheets. Our interest rates are low. Unemployment is only 5 percent. We have highly available money and credit.

I'm optimistic. Maybe the pessimists have it wrong; maybe it's not a zero sum game. I believe every player wins with globalization. The pie gets bigger; there's more to share. After all, the predicted creation of 700 million Chinese and Indian middle-class consumers cannot be bad for America. But to realize the promise of continued prosperity and growth, we must have good policies.

Surely the United States will resist protectionist policies. And the Democratic platform will advocate tax reform that lightens the burden for the middle class, while encouraging savings and reducing the deficit. We also must pursue policies that shrink the number of families who live below the poverty level and stimulate income growth for low-wage earners.

We must enforce education reform, encourage and support advanced studies, and broaden tuition-financing programs. The Democrats must support scientific programs that face declining budgets. These include the National Aeronautics and Space Administration, the National Institutes of Health, the Jet Propulsion Laboratory, and the Defense Advanced Research Project Agency.

We must strengthen investment in the environment and alternative forms of energy. The successful development, production, and deployment of energy alternatives will increase American manufacturing jobs, decrease dependence on foreign oil imports, rebalance trade deficits, and help the environment.

There is much to be done. And therein lies the opportunity and the challenge for Democrats. The solutions lie in American ingenuity, our entrepreneurial tradition, our genius for invention, our can-do spirit, our optimism, and our adaptability.

This must be the Democratic program -- positive, hopeful, realistic, and a big idea.

Bernard L. Schwartz is chairman and CEO of Loral Space & Communications and chairman of Blueprint's advisory board.

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