Promat 2013 in Chicago kicked off its second day with a special keynote address from media mogul Steve Forbes, who spoke about the changing political and economic environment and manufacturing’s role in its future success.
Forbes is the president and CEO of Forbes Media and the editor-in-chief of Forbes Magazine who twice ran for the Republican nomination to be a candidate for U.S. president. Forbes’s keynote at Promat, entitled Navigating the New Political Climate for Business Growth and Success, took into account the recent bitter Congressional battles over the fiscal cliff and delved into some of his own political policies from his days of running for office.
Forbes started his talk by reassuring the audience that the manufacturing renaissance we’ve witnessed over the past few years is not a fluke and will only get better, but we have to figure out how to keep our enormous productivity gains and innovation skills booming. “In the next generation, the United States will be indisputably the top manufacturer in the world,” he said, while acknowledging that China and India are worthy opponents. “What’s going to bring this change are the things that always have: U.S. technology and U.S. brainpower.”
But how do we keep innovation happening? Forbes contends that to produce a creative society, we will have to look in more places than simply economic growth and education. Tackling this may be difficult, he said, but added that America and American industry emerge from similar — and worse — situations in the past.
From the end of World War II until 2007, when the recent world economic crisis began, the world had never seen so much growth, Forbes said. He noted that China, India, the Baltics, the Balkans and the United States grew at unprecedented rates during this period, but even though the United States was the biggest economy in the world, it still outpaced other, smaller economies in growth. During the 1980s, the U.S. economy grew at about 3 percent per year while Europe only grew at about 2 percent annually. And even though China’s economy grew at a higher rate, the United States’ growth was larger than the entire Chinese economy.
Why did this happen?
Forbes contends that it was America’s ability to develop new companies that were not only innovative, creative and individual, but also large. Companies like Southwest Airlines, Microsoft, Apple and other firms became huge and hugely successful because of their strength in R&D, innovation and new technology.
However, today, economic conditions and contentious political battles will negatively impact American manufacturing and innovation. In the upcoming debt ceiling talks, Congressional Republicans have proposed a deal to raise the borrowing limit for 60 to 90 days in return for a written budget from the Senate. Forbes noted that the Senate has not come up with a federal budget in several years because the hard decisions of saying yes to some people and no to others are not politically advantageous. But making hard decisions, which a written budget will require, is a good first step to solving some of the country’s economic problems, Forbes declared.
Forbes then switched into stump speech mode, providing his recommendations for further improving the economy. “These recommendations will bring about a new normal. I’m not talking about a subpar growth rate of 3 to 4 percent,” he said, “but a new normal of 7 to 10 percent growth.”
These recommendations are:
1. A change to U.S. monetary policy
2. A reduction in tax rates
3. A change to the tax code
Forbes joked to the audience with a travel tip, saying that if you are ever on a long flight and stuck in the middle seat, you can create armrest room for yourself by talking to your neighbors about monetary policy. Eyelids will grow heavy and you’ll soon have all the space you need. But, he insisted, the issue is important.
Echoing points made by Republican candidates in recent times like Paul Ryan and Ron Paul, Forbes recommended a return to the gold standard. He explained his reasoning through metaphor: “Currency makes commerce uncomplicated. Three thousand years ago, if you wanted some fish, you might try to trade your herd of goats. But if the fisherman wants sheep, you have to trade your goats for sheep. And then your goatherd wants red wine for his labor and you only have white wine so you have to find another place to trade. Currency makes this entire process less complicated and gold has long been a bedrock commodity to which currencies can be pegged.”
“It’s stable, but not inflexible,” Forbes said.
In another comparison, Forbes asked the audience to imagine if the government treated weights and measures like they do an unpegged dollar: “One day, an hour is 60 minutes, the next, 96 minutes, the next, 48 minutes. You try to bake a cake for an hour and you don’t know if you’ll end up with a lump of dough or a lump of coal.” He said because the dollar is floated, its value changes too much, making a “sick economy” where investments involve too much risk.
Forbes continued by explaining that the United States, and its businesses, are heavily overtaxed. “The thing to remember is that taxes are just prices. Income tax is the price you pay to work; profit tax is the price you pay for success. This is counterproductive: when you lower prices, you get more of the things you want.”
For the first time since the 1930s, countries around the world are raising taxes with few exceptions, Forbes explained. He noted Greece, which has been suffering staggering credit woes for the past few years. “In the past four years, 5,000 businesses have left Greece because it keeps raising taxes. They’ve moved to Bulgaria. Why? Bulgaria has a 10 percent flat tax.” The audience gave a knowing chuckle, as the flat tax was one of Forbes’s major policy proposals in both of his presidential campaigns.
To buttress this point, Forbes noted that while taxes raise revenue, they do so less robustly than economic success. “Do you realize that during periods of normal economic growth of 4 percent, that growth raises $500 billion more than increased taxes?” he said.
Continuing the point of taxes, Forbes recommended the United States simplify its tax code. “The Gettysburg Address had 270 words. The Bible has about 773,000 words. The United States tax code has over 9 million words,” he illustrated.
Forbes recommended switching to a flat tax, exempting the first $47,000 made by businesses and lowering business taxes to 17 percent. “Forget the benefits to economic growth, imagine how much money and brainpower will be preserved in the United States by not forcing people to fill out endlessly complicated tax returns,” he quipped.
These changes would result in huge returns for manufacturing, industry, healthcare and education, he claimed, but acknowledged that making them happen will be difficult.
Forbes closed his keynote with tempered optimism. “Democracies can be crazy, but we can emerge from this crisis,” Forbes said. “We don’t tolerate failure for very long in this country. We just have to remember, we can eat well or sleep well, but not both.”