The recent elections have made Business Roundtable chairman Harold (Terry) McGraw III hopeful that a less partisan political atmosphere can lead to real progress in addressing America’s economic challenges. “The election is over,” said McGraw, chairman, president and CEO of The McGraw-Hill Companies, in a Wharton Leadership Series lecture two days after the November 7 election. “I’m tempted to add, ‘Thank goodness.’ It wasn’t necessarily our finest hour, given all the mud that was thrown around.

“Perhaps if we can turn that mud into a new layer of topsoil, we can begin to plant the seeds that will form more productive policies. But now it’s time for our political leaders to get to work.” The Business Roundtable includes CEOs from 160 of the country’s largest companies, with $4.5 trillion in annual revenues and more than 10 million employees. Member companies represent nearly a third of the total value of the U.S. stock markets. McGraw talked about the Roundtable and related business issues during an interview with Knowledge at Wharton before his presentation.

Speaking at the Leadership Lecture, McGraw called for enactment of wide-ranging measures to lower trade barriers, improve the competitiveness of the country’s work force and “level the playing field” for U.S. companies doing business abroad. In his speech titled, “The Real World Is Neither Red nor Blue,” he noted that “strengthening competitiveness remains a bipartisan challenge. It is not a Democratic or Republican, or liberal or conservative issue.”

McGraw is encouraged that the Democrats won Congress by choosing “candidates, largely, who were moderate and conservative on many key issues …. Perhaps, if we’re lucky, the real majority could be moderates from both parties.” He called the election “one of the most exciting moments in American democracy…. People voted because they wanted change. They sensed that something just wasn’t right. You see this maybe two, three times in your lifetime.”

He praised President Bush for saying, “The people voted. We heard ’em,” but also warned that “American competitiveness was at risk before November 7 and it is still at risk today. Forty-eight hours after the election, we still face challenges from new, powerful trading nations like India and China. Our long-time rivals are newly energized. Energy prices, which have moderated lately, are still a major concern. Our K-12 students still lag behind those in other nations, and so on.” Worldwide competition “is here, it’s fierce and Washington needs to recognize it.”

Competing in a Global Economy

With all the changes brought by the election, McGraw said, “one thing that is unchanged is the strength of the American economy” as reflected in steady gains in GDP growth, job creation and worker productivity, and the lowest unemployment rate in five years.

But “as good as it is,” he said, “the American public does not seem to connect to the strength of the economic record. Why?” Cost of living increases “have certainly made inroads [and] for most Americans, disposable income has gone down. Consumer consumption remains at an all-time high, while savings rates are at historic lows, in fact are negative. The lack of any reform on federal entitlements increases costs and inhibits innovation. And more protectionist tendencies hold back our ability to open new markets and foster more active trade, which would allow for more economic growth.”

According to McGraw, it is politically unrealistic to expect a major effort to rein in entitlement spending until after the 2008 elections or beyond. But he set out an ambitious agenda for the current Congress and the one to be sworn in next January.

First, he said, “we must prepare America’s workforce to compete in the world economy. If we want to win in the global marketplace, we must be able to train, attract and retain the best and the brightest…. In at least one critically important area, we’re not getting that job done. We’re not producing the number of college graduates in science, technology, engineering and math that we need. Without them, we can’t sustain our scientific and technological leadership. We are already seeing danger signs that a talent gap will soon take a toll on our economy.”

McGraw noted a steady drop in the percentage of students planning to be engineers and said that over half of all engineering degrees awarded by U.S. colleges are to international students. “Although U.S. fourth graders score well against international competition,” he said, “they fall near the bottom or dead last by 12th grade in math and science.”

He quoted a remark by Norman Augustine, the retired chairman and CEO of Lockheed Martin, who headed a committee of the National Academies of Science: “The building blocks of our economic leadership are wearing away.”

He called on the next Congress to:

  • “Strengthen pre-K and K-12 education by reauthorizing the “No Child Left Behind” Act and increase funding for K-12 math and science programs.

  • Raise the caps on H-1B visas and employment-based green cards. He said the 65,000 person cap on H-1B visas should be doubled or tripled. There are more Chinese engineering students in Britain, he said, than in the U.S.

  • Increase basic research funding at the National Science Foundation, National Institute for Standards and Technology and the Department of Energy to encourage development of alternative energy sources.

In the area of trade, McGraw noted than when he attended Wharton — he earned his MBA in 1976 — U.S. exports totaled $143 billion. “Last year, the total was almost nine times that, $1.2 trillion.” Prosperity resulting from free trade, he added, is increasingly necessary given the volatility of today’s international political climate. “When people are more prosperous and are part of a cooperative system, they are less likely to engage in disruptive behavior and hostilities. Giving hundreds of millions of people new hope and a better life can only make the world safer. Unfortunately, in the last 10 years, trade has, more than ever, become a partisan issue. But it shouldn’t be. I guarantee you that the jobs generated by trade are in both ‘red’ states and ‘blue’ ones.”

In the area of trade, McGraw called on Congress to:

  • Immediately enact permanent normal trade relations with Vietnam.

  • Approve the U.S.-Peru Trade Promotion Agreement.

  • Reauthorize the President’s Trade Promotion Authority, due to expire next year, which lets trade agreements be put on a “fast track” to Congressional approval. McGraw called this “a critical tool for maintaining the momentum of past agreements.”

“In the longer term,” he said, “the Doha Round of World Trade Organization (WTO) negotiations must be reenergized and completed. The timetable here is very tight. The first half of 2007 will decide its fate. And Congress should take up a range of other bilateral and multi-lateral trade agreements that will remove barriers to growth.”

In international competition, McGraw added, “Our economy’s performance is weighed down by burdens many of our trade rivals don’t have. It’s as if we’re trying to win a race with a foot on the brake. This new tone, this new Congress, can get us back on the accelerator.”

Digitizing Health Care

He cited health care costs as “one of the biggest drags on our economy,” pointing out that the U.S. now spends nearly $4,900 per person annually on health care  compared with $2,800 in Germany and $2,100 in Japan. He called the situation “a powerful barrier to economic growth” and said that one out of every four dollars of the country’s economic growth in the past 10 years “went back to pay for rising health care costs.

“That is why the Business Roundtable believes, as a first step, that Republicans and Democrats should agree to complete legislation to bring the benefits of our digital society to our health care system…. Health care is still using 19th century technology. How many times have you gone to a doctor’s office and filled out a form using pen and paper?

“Congress should digitize health care by creating a nationwide, interoperable health information technology infrastructure. This one step would save our health care delivery system an estimated $165 billion annually, meaning an extra $2,200 in the pockets of the average family. It’s called Health IT and it already has been endorsed by Democrats and Republicans and could be voted on now — in the remaining weeks of the current Congress.”

He also called on Congress to approve technical changes governing Health Savings Accounts and make permanent a strengthened R&D tax credit.

According to McGraw, the agenda he proposed would more likely be enacted if the business community actively supports it. The Business Roundtable “was founded in the belief that the business sector should play an active and essential role in public policy. Until now, the voice of business has not been strong enough or loud enough.

“One of the reasons … is that the recent corporate scandals have made it such an easy sport to attack business. While there are certainly some bad actors, the vast majority of the 16,000 shareholder-owned businesses are not only delivering value every day, but also are behaving ethically. In many ways these businesses are the envy of the world…. If the business community is only reactive and not proactive, if we only get involved in public policy in pursuit of narrow self-interest, we will be perceived by government leaders and the public as just another special interest group.”