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Economic Club of Detroit

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Friday, May 8, 1998

(As Prepared for Delivery)

Thank you, Mayor Archer, and I thank the Economic Club of Detroit for having me here today.

As I'm sure you understand, no one from the White House is free to discuss the particulars of the proposed Daimler-Chrysler merger, or any other proposed merger that may have to be reviewed under the Anti-Trust Laws. But I can say that because of your efforts, the American auto industry, from the factory floor to the design studios, to the showrooms, has never been stronger. Your efforts have helped lead an economic renaissance, not only here in Detroit, but across America. Ours truly is an economy that is now the envy of the world.

For those who doubted that American industry could lead the world again -- come to Detroit: the city where hope has defeated fear. Come to Detroit and see why opening markets is good for growth, and good for our workers. Come to Wayne County and see how we are competing and beating the whole world with a unionized workforce. Come to Southeast Michigan and see how business is lighting up our central cities and surrounding communities. Come to this Great Lakes region and see how we can lead the world in commerce, and have sparkling rivers and lakes at the same time.

When President Clinton and I brought about change toward a "new economy," some worried that it would work only for high-tech start-ups -- not for the region they wrote off as the "Rust Belt." Well, thanks to you, our new economy is also a renewed economy -- in which our core industries are more competitive, more innovative, and are themselves more high-tech and high-skilled. Thanks to you, the Rust Belt is now the Renewal Belt.

In the early 90's, this state was losing more than 18,000 manufacturing jobs each year. Now, you are creating more than 12,000 a year. Six years ago, America's economy was rated fifth in the world. Now, we're number one.

Just this morning, we received the newest evidence of our economic renaissance: our Labor Department reports this morning that unemployment has fallen to 4.3 percent -- the lowest in 28 years. In April alone, our economy added 262,000 new jobs, wages continued to rise, and inflation remains low and stable. Since January, 1993, our economy has created 15.2 million new jobs. America's economic engine is truly humming. It feels so good to be able to say: thank you, Detroit -- for keeping America growing.

Our economic success is about more than balance sheets and bottom lines. It's about empowering individuals, through the jobs and opportunities that are the heart of the American dream. It's about strengthening families, by helping them have the means to raise strong children. It's about empowering communities, by bringing private investment to untapped markets in our own backyards. It's about uniting our nation -- by ensuring that we all grow together instead of growing apart. It's about leading the world -- because we must engage the world beyond our borders to guard the prosperity we cherish here at home.

Here in Motor City, we recognize that cars have done more than fuel our commerce. Cars have freed the American spirit, and given us the chance to chase our dreams. To quote E.B. White, "everything in life is somewhere else, and you get there in a car."

I have great admiration for what many of you and your workers have done to turn the auto industry around. After fourteen years of trailing Japan, America has led the world in car and truck production four years in a row.

On this very day 119 years ago, the application was filed for the first automotive patent. Now, the industry that revolutionized the 20th Century is poised to revolutionize the next century as well. Once, Detroit built America's first mile of paved road. Now, Detroit is leading America down the Information Superhighway.

If you look at today's products, it's no wonder that, of all the private R&D in America, three-quarters is done by the manufacturing sector. Using 3-D models and computers, U.S. automakers have shortened production cycles from six years to 30 months. Through a massive "Extranet" computer network, linking thousands of suppliers and manufacturers, automakers are ordering parts, designing new products, saving enormous amounts of time and money. Raw materials are lighter, stronger, better-engineered to get less out of more. It's been estimated that while the physical weight of America's economic output has barely changed in a half century, its value has more than tripled.

Let me be clear: I believe very strongly that American manufacturing -- and Michigan's auto, truck, and high-tech industries -- must be at the center of any successful economic strategy for the 21st Century. That doesn't mean all of us in this room will always see eye to eye, or that we won't have disagreements in the future. But I've learned a lot from the people in this room -- and on so many issues, I hope we will continue to listen to each other, work with each other, to keep an open door and an open mind.

I know that today's American auto industry is committed to building not only the best and most competitive cars, but also the safest and cleanest cars in the world. For example, Ford's 1999 line of sports utility vehicles will actually surpass present emissions requirements.

That's not just the right thing to do, it's what consumers and the market are demanding. But I also know that new regulatory or environmental standards don't always come without cost to industry. For all our successful research to find cleaner technology, real progress depends on the industry's ability to make and sell cost-effective, competitiveproducts.

That is why, back in 1993, we tried a new approach. President Clinton and I joined with the Big Three to create a Partnership for a New Generation of Vehicles, to triple fuel-efficiency by 2004. Our National Labs, as well as your own researchers and engineers, have brought the industry new insights about technologies that can reduce fuel use; you've certainly brought us considerable insight about what industry needs to say competitive. So far, we've been creative about balancing those goals. Detroit is on the right track -- for our economy, and for our environment.

But the success of industry here should not tempt us into complacency. Times are so good, some are starting to believe prosperity can be self-sustaining. Let me share a quote from Time Magazine: "The amazing U.S. economy may defy even the laws of physics: what goes up need not necessarily come down."

That quote isn't from last week, last month, or even last year -- it's from 1969. The last time unemployment numbers were this low. That was the last time we thought our economy was invincible and the last time we had a budget surplus. That was the year we ended 106 months of unbroken economic growth.

The problems came when America took growth for granted -- when our budgets became flabbier; our investments flimsier. A vicious cycle began, with faltering growth leading to bigger deficits, and bigger deficits causing higher interest rates -- crowding out the private investment that is the real engine of growth and jobs. By the early 90's, we had deficits at record levels, $300 billion a year, stretching out as far as the eye could see. A quadrupled national debt. Every time businesses tried to invest and expand, the deficit would put pressure on interest rates and the recovery would stall.

For years, Americans heard there were only two choices: tax and spend, or cut and run. We knew there was a third way: invest and grow.

We put together a policy with elements that had never been tried in combination before: cut the deficit, open markets, and invest in our people. We replaced the vicious cycle with a virtuous cycle -- lower interest rates, more investment, more jobs, more growth --which fuels even greater investment in our future. America's new economic strategy is working. You could call it the law of intended consequences.

But already, there are voices urging us to take growth for granted -- to revive the complacency of the 70's, and once again pursue the misguided policies of the 80's. Even before the first surplus rolls in, some want to dump every dime into risky tax cuts, or new spending we can't afford. I believe we have to use good times to tackle even tougher challenges; to lead the world economy; to provide world-class education and training for a world-class workforce; to make permanent the disciplined, pro-growth policies that have enabled you to create good jobs and raise incomes. And I believe there are five core principles we must uphold:

First, we must maintain our newfound commitment to fiscal discipline. Our economic power comes from a vote of confidence in America, a vote cast in markets around the world that evaluate every government's policies every day, through billions of transactions. Forget the gold standard -- today's economy operates on the information standard.

If investors think you're playing fiscal games, interest rates climb almost instantly. It took a lot of painful decisions, and two herculean battles in Congress. But for the first time in thirty years, we have balanced the federal budget. It was the right thing to do -- right for our national economy, and right for our national spirit.

Our willingness to make hard choices based on real numbers helped us win the faith of financial markets -- and so did our refusal to play politics with America's financial system. Too often in the past, administrations have been willing to bash the Federal Reserve for a quick headline. Let's face it: bashing the Fed is a fool's game. It doesn't lower short-term interest rates, because the Fed doesn't respond to criticism. But it can raise long-term rates --because the market does respond to Fed-bashing.

I believe in sound fiscal policy. Barring an economic reversal, a national emergency, or a foreign crisis, we should balance the budget this year, next year, and every year. Not through a Constitutional Amendment that would clog up the courts, but through the resolve of our national leaders, and strong pressure from the American people. Our economy will be stronger in the 21st Century if our grandchildren never even learn the words "federal budget deficit."

But to make that dream a reality will take discipline. Already we see some in Congress trying to turn a much-needed highway and transit bill into a vehicle for more wasteful spending, larding it up until it's bursting with pork and far over budget. Let me be clear: America needs a highway bill. But we do not need a road back to the reckless spending of the past.

Second, we must use these good economic times to tackle tough, long-term economic problems -- and that means saving Social Security and Medicare while we have both the means and the will to do it. We've closed the budget deficit -- now we must tackle the generational deficit. I don't believe in waiting for the rain to start fixing the roof. Let's do it now, while the sun is shining. Let's reform Medicare and Social Security in the next few years, long before my generation of baby boomers reaches retirement.

In the next decade, projections show more than $1 trillion in surpluses for Social Security. But by 2013, the deficits open up -- and by 2032, Social Security becomes insolvent.

That's why President Clinton has proposed reserving every penny of any surplus until we have strengthened the Social Security system for the 21st century.

Even in the best of economic times, there aren't easy answers. Social Security isalready one of the most efficient insurance programs in the world, in terms of administrative cost. Reforming it is going to take some political courage. But through hard choices, we must make Social Security as strong for our children as it has been for our parents. Social Security is not just a government program; it is a solemn social compact between generations.

Third, we must continue the hard work of reforming and reinventing our government --so that it costs less, works better, and keeps pace with today's fast-moving economy. Just look at the faltering economies of Asia. Their own rigid regulatory structures are squeezing the life out of industry and preventing those economies from getting back on their feet -- and they failed to identify and prevent the abuses and the problems. America needs a common-sense government -- one that's flexible, and keeps up with new markets and technology.

That's why we took a long, hard look at the way American industry has reenergized itself in order to bring those lessons to government. So far, we have cut 350,000 federal employees, eliminated more than 200 outdated government programs, cut 16,000 pages of regulations, and 640,000 pages of internal rules. We have saved $137 billion -- which helped us to balance the budget.

We need to redouble our efforts to reform the regulatory system -- so that regulations are more cost-effective, fairer, and don't rely on a "guilty until presumed innocent" mentality. When it comes to all regulation, the best strategy is to pursue public health, environmental, and regulatory policies that grow our economy and improve our society at the same time. But when there are costs and trade-offs, and when we must move forward for the sake of the public interest, we must do so in the least burdensome, most cost-effective ways possible.

This is how we must meet the challenge of global warming. We all recognize the mounting evidence of global warming; many auto industry leaders have spoken eloquently about it. I believe that the consequences are so great, we simply must act. But we must act with common sense and realize that most of the solutions will emerge from industry. Private sector innovation can help us stop global warming -- without economic cooling. We owe it to our children to meet both goals.

Fourth, America must remain engaged with the world, and not pretend we can shut it out. It is in world economic affairs that our fear of complacency should be greatest. For one of the great and tragic ironies of our history is that we are prone to turn inward when our power is greatest; when our economy is strongest; when our interests are most secure.

Today, at the brink of a new American century, we are at a crossroads. Will we lead and shape the world economy, when our power to do so is at its peak? In 1993, with our recovery uncertain and anxiety high, we passed NAFTA, which deepened our ties with our two closest neighbors, and increased our auto exports to Mexico by a factor of nine. It was one of more than 240 new trade agreements we have reached. But last year, with growth strong and the economy booming, Congress denied the President the traditional trading authority -- commonly referred to as Fast Track -- which every modern President has had to negotiate new trade agreements.

And while it may be a controversial view among some here in Detroit -- many of them my dear friends -- I believe Congress was right in 1993 to approve NAFTA, and wrong in 1997 to reject traditional trade authority. Expanding trade has been vital to today's growth and prosperity, and reversing this course will only erode our economic progress.

In the last five years, over one-third of our economic growth has been due to exports. Do we really expect to grow by turning our backs on the world's consumers, by letting their economies grow without us? I believe we must do even more to tear down trade barriers --and to champion and expand our exports, as I was proud to do for General Motors in China last year. We must fight against the corrupt practices of foreign businesses and governments that tilt the playing field against our businesses. We must make the Internet a global free trade zone, to harness its explosive potential for growth.

Of course we will suffer if we throw up new barriers for our consumers overseas. But we will suffer even more if their own economies collapse -- if foreign customers can't buy our products -- if foreign currencies lose their value, and our competitors try to flood the marketplace with cheap, devalued goods -- hurting our businesses, our farmers, and our families.

That is why we need the IMF -- to work with countries that are at risk, before the risk spreads to us. The IMF needs reform of its own -- of that there is no doubt. But to cut off IMF support now is like shutting down the Fire Department when the house next door is on fire.

With almost a third of our exports going to Asia, we have a lot at stake. But the hardest work must be done by the nations of Southeast Asia themselves. And the place to start is Japan, which must jump-start its economy -- so it can lift up its neighboring economies, and buy more American products again. The Japanese government has put forward a positive proposal to stimulate its economy; they must implement it quickly. But that is not enough to solve Japan's problems. Japan must do more to strengthen its financial system and open and deregulate its economy, in order to build long-lasting, demand-led growth.

With the sun shining here at home, the storm clouds over Asia may seem far away. But a central fact of economic life in the 21st Century is this: we must stay engaged abroad if we are to be prosperous at home.

Fifth, and finally, we must continue to make the investments that give us faster growth, and also share our prosperity for the 21st Century. The price of opportunity is responsibility. This is where government, business, and all Americans must play a role. We must make the investments today that are the foundation of prosperity for tomorrow.

That is why we have proposed an aggressive increase in civilian R&D, to stay competitive in the world. We are fighting for lifetime learning for every American -- from pre-school to college to job training -- for the high-skilled workforce that is already in short supply here in Detroit. We are empowering our poorest areas -- because we know they havethe most untapped potential.

Industry here has been a leader in supporting these investments. As business leaders, you understand this fundamental bargain. By making our economy work for everyone, we can build and sustain a consensus for open markets, for international engagement, for aggressive leadership in the world. I was proud to stand with the Big Three as they announced a 50% increase in subcontracts to disadvantaged businesses. I applaud industry's leadership in building up Detroit's distressed communities. All of American business should follow your example.

Every American citizen has a bargain to live up to as well. In exchange for a strong economy, in exchange for education, and training, and the tools to succeed, we are right to demand responsibility -- through strong families and communities, through work instead of welfare, and by making the most of the opportunities good times bring.

There is another shared bargain we must all uphold. In exchange for sustained and sustainable economic growth -- in exchange for good jobs and rising incomes -- we must all seek to perfect our union, to reach across the lines that divide us, and to pass on our values to the next generation. No nation can achieve its full promise if unemployment is low, but child poverty is high -- if interest rates are low, but hunger rates are high. Let us seek growth that lifts up those who have been left out. Let us open closed markets around the world, but also around the corner. Let us use the power of markets to grow together, instead of growing apart.

I believe this must be our blueprint for growth in the 21st Century -- the means by which we empower individuals, strengthen our families and communities, unite our nation and lead the world. But that is not a record to rest on; it is a record to build on. We must fight the impulse to inaction, the temptation to withdraw from the world, the tendency to shrink from hard choices. To those who would unravel our fiscal discipline, derail our investments in education, and roll back our leadership in the world, I say: that's not a plan to extend our prosperity, that's a plan to end it.

Prosperity, after all, is not a destination, it is a never-ending journey. We must be even more focussed, even more aggressive, to keep it going. Not just for the sake of business, but for the young families entering the workforce, eager to build a better future. For the children hungering for the tools and skills to revolutionize the workplace of tomorrow. For a 21st Century of even greater promise and prosperity, for all our people.

Detroit and Michigan have been at the center of that promise for so much of this century. Let's keep it that way for the next century.

Thank you.

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