Thursday, December 18, 2008

Lose to China and India or Transform America

John R. Houk
© December 18, 2008

Thanks to Newt Gingrich’s e-newsletter entitled Winning the Future, I found a link to a December 5th speech he gave to the American Legislative Exchange Council.

The specific e-newsletter is entitled “Big Government Breeds Big Corruption.” Now this is a good read in itself; however the link to the speech, well let’s just say the speech is awesome.

Newt speaks that America needs more than a “Change.” America needs to sustain its values but more importantly America needs to transform its paradigm of business from planned obsolescence to planned innovation via incentives.

Newt believes if government maintains a mindset of propping up the current paradigm which is based on a half-a-century old paradigm, then America will become substandard because she won’t be able to compete with China and India in capitalistic markets.

Now I am far from an economist, thus I may have not given an excellent summary of Newt’s speech. Nonetheless, just as a Joe American, this speech is remarkably inspiring! I encourage you to click the link above to listen to the speech while it is still up.

Below is the transcript of the speech, but really the verbal inflections coupled with the content will get you to thinking.

If you are a Conservative disillusioned by the majority of American voters falling for the charisma of a prevaricating liberal (who probably does have good intentions for America) then this speech could re-ignite your Conservative fervor.

Listen to Newt or Read Newt, whatever you do contemplate on the potential possibility of true American transformation that will keep America strong for years to come.

JRH 12/18/08

Entering a New World

Newt Gingrich Transcript
To: American Legislative Exchange Council
December 5, 2008

How many of you find it almost unimaginable that your government has acquired $7.7 trillion of liabilities this year? I once said to somebody I campaigned very hard to stop John Kerry because I knew he was to the left of Teddy Kennedy, and I was afraid he might nationalize the banks.

Now what I want to do in a very short time… I’m going to give you an outline rather than a speech. But what I want to start with is a book by Peter Drucker called The Age of Discontinuities, which he wrote back in the 1960’s. And in The Age of Discontinuities what Drucker argues is that you have trend lines until you hit a discontinuity, and when you hit a discontinuity you actually don’t know what comes out the other side, and you don’t know what the new lines are like.

So if you think about being really good at thinking through stage coaches, and then somebody comes along and invents the railroad, railroads aren’t just marginally faster stage coaches. They’re fundamentally different institutions. And if you got reasonably good at transcontinental railroad travel for passengers and somebody comes along and invents the airline, airlines aren’t just railroads that can fly. Airlines have fundamentally different patterns.

I want to argue that I think it would help all of you—and when you go back home it would help your legislatures—if you took a deep breath and stopped. Because what we’re doing right now—and you see this in the bailout process—what we’re doing right now is we are trying to prop up the past rather than accelerate the invention of the future. Now this is strategically a dead loser. And it’s very painful to go through what I’m about to describe to you, so politicians try to avoid the pain. But what they do by trying to avoid the pain is they actually deepen it and extend it.

The Japanese went through a crisis after 1988-89, and they managed to turn it into a 13-year recession because they couldn’t bring themselves to solve their problems. Now we have been piling up problems for at least two decades. I have two missions. One is to ensure that my two grandchildren—Maggie who is nine and Robert who is seven—when they are in their 40’s, I want them to live in the most prosperous, most productive country in the world, which would also make it the safest country in the world. For that to happen we have to be prepared to compete with China and India, and for us to compete with China and India, we have to reform litigation, regulation, taxation, education, infrastructure, energy and health.

So the reason I helped created American Solutions is I think it’s this big. I just want to start with that. You are entering a new world. The sooner you and your fellow legislatures and your governors understand it’s a new world, and the sooner you start thinking anew—to paraphrase Abraham Lincoln in December of 1862 who said "as our situation is anew, we must think anew”—the sooner you can do that the faster you are going to be able to get to real solutions, which will not resemble marginally better or worst examples of the current system because the current system is incapable of competing with China and India.

The second major mission that we’ve undertaken at American Solutions is very simple. If you go to and you click on Platform of the American People, we took nine national surveys looking for tripartisan issues. That is, issues that had a majority of Democrats, a majority of Republicans and a majority of Independents. We found over 100 so far, so instead of red versus blue we can talk about red, white, and blue. And it turns out that the natural center-right majority of this country runs between 63 and 92% depending on the issue. And yet we are governed by a machine on the left. And so our second major assignment is to reach out on a tripartisan basis to Democrats, Republicans and Independents to develop a governing mechanism that would actually reflect the values of the American people.

I’ll give you three simple examples you can take home with you. The first is that by 89% the American people favor English as the official language of government. That’s an absolute majority of Democrats, Republicans and Independents, and an absolute majority of Latinos. By about 92% the country thinks we should be investing more in math and science education, and by about 91% the country believes that “one nation under God” should remain in the pledge of allegiance.

So you can begin to imagine how you would build a base that said A) I want to compete successfully with China and India economically and B) I want to be able to have my values represented in the courts, and my values represented in the bureaucracy, and to be really daring, I’d like my values to be represented in the classroom so that the people we pay to teach our children actually reflect the country that’s paying them.

Let me talk briefly about the scale of the bailout, which I have consistently thought was a big mistake, and I think it’ll prove to be a total mess. I want to encourage all of you to look at Congressman Louie Gohmert from Texas, who has developed a proposal, because he figured out about a week ago that the second half of the proposed bailout, the $350 billion, actually can translate into an income and FICA tax holiday for all of January and February.

That is, you could either loan the money out to the auto companies, and the banks, and whatever or every American could have all of their take home pay—both income tax and FICA—and every small business could keep their FICA match for all of January and February. Now if you added to it Speaker Pelosi’s proposed $700 billion stimulus package, you would have an income tax and FICA tax holiday through June.

I happen to like this proposal for a couple reasons. Theoretically I’m in favor of a permanent tax cut, I understand that argument. I actually wrote an article a week ago with Peter Ferrara in the Wall Street Journal favoring a permanent tax cut. But I like what Gohmert did for two reasons. The first is he scales the size of the money to a human proportion. He suddenly says: these guys want us to send to Washington for them to spend every penny you’re going to pay in FICA and income tax for all of January and February. And that’s just the bailout. And then they want you to send every penny you’re going to pay in March, April, May and June in order to have a stimulus package designed by politicians, implemented by bureaucrats.

Now you could have a fair argument back home by asking a simple question: which do you think would stimulate America more? Let you keep your own money so you get to pick which auto company you want to bail out, or have the politicians and the bureaucrats do it?

So any of you who’d like to go home and talk about the Gohmert plan, I recommend it highly. I do a newsletter every week, which is free. It’s at, it goes out to about 850,000 people, and this week’s was on that topic. If you don’t get it, and you’re interested in what we’re doing, just go to and sign up.

Second, all of you are going to face budget problems. Let me suggest a very radical first idea that perfectly fits the reason ALEC was founded. If you would go home and identify every stupid thing the federal government is requiring you to do which wastes money, and offer them a swap: if they would pass the omnibus smart-government-and-waste avoidance act that liberated you from all the federal regulations that are stupid, you wouldn’t need them to pass you a stimulus package to send you cash because you would save more than enough cash by not having to let them micromanage you.

Now my hunch is if you went back home and looked around at every federal requirement that cost you money, for example if you have an idea for a better way of running Medicaid, and you looked at how long it takes you to get CMS to approve it, and you figured out the cost of waiting. But just take all the different things, take all the different federal regulations that make running state government more expensive and simply propose back to Washington that if they would allow you to not suffer from what they are costing you, they wouldn’t have to send you the amount of money they currently have to send you to pay for the stuff they’re making you do. You would start an entirely new debate, and there’s a practical reason this is important. You cannot compete in the world market with the current price structure of the United States and with the current red tape.

We won the Second World War in forty-four months. From December the 7th 1941, when the Japanese attacked Pearl Harbor, to victory over Japan in August of 1945 is three years and eight months. We beat Fascist Italy, Nazi Germany and Imperial Japan in three years and eight months. It recently took 23 years to add a fifth runway to the Atlanta airport. You can’t compete in the world if you are determined to be stupid. It’s a very major problem.

We are very interested in gathering up all of the things that the Congress ought to repeal, or modify dramatically, and Fred Asbell and Michael Krull, who are both here from American Solutions, would be delighted to hear from you and to work with you. If any of you would like to get us your favorite list, or if you could get, for example, your legislature at the beginning of January to adopt a resolution calling on the Congress to pass certain things, I think it would start a whole new conversation about downsizing the cost of federal bureaucracy rather than increasing the payment for it. It’ll be a fundamentally new conversation.

I believe politically and historically the number one issue for the next two years is jobs. I would recommend to all of you: erase whatever you were used to thinking about and put in the word jobs. Somebody reminded me recently that Governor Jim Rhodes of Ohio had a 36-year career, and he only had two themes. The first theme was jobs, and the second theme was he would take out his wallet and he would say “you know there are politicians who take money out of your wallet, and there are politicians who put money into your wallet. You decide which kind of politicians you like better.”

I believe that in the kind of economic environment we’re going to be in people are going to want to know: what are you doing to create jobs? And people are going to want to know: what are you doing so I have enough money that I can stay in business or I have enough money so I can pay what the cost of living for my family?

And I would really start re-thinking everything you’re doing, and it leads to a great crisis because frankly the embedded cost of government is so great that all of you are under pressure to find more money for government even at the expense of the entire rest of your state. So you have to confront head-on the requirement of finding ways to do things less expensively.

In terms of jobs let me suggest to you that you should look at what Mitch Daniels has done in Indiana, which has the lowest unemployment rate in the Midwest, what Governor Huntsman has done in Utah, which has the lowest unemployment rate in the West, and what Bobby Jindal has done in Louisiana, where last month in the middle of this economy they added 10,000 jobs.

Now there are people doing the right things. And the right things are: retrain the bureaucracy so it’s pro-investment and pro-business. The right things are: cut taxes and create incentives. The right things are: have the kind of education program that produces people who can actually work. And you start doing those things it turns out people want to increase jobs. And the right thing is to reduce the cost of being self-employed and to reduce the cost of being a small business because those are the biggest job creation centers of the future. So I would urge you to start from a jobs and take-home-pay model.

I believe that in order to save money at the state level, I strongly urge you to—and we’d be glad to help you with this at American Solutions—take a look at Dennis Smith and the concept of metrics. Metrics were used by Rudy Giuliani in New York City and by Chief Bratton to develop a policing model, which is the most powerful ever developed. New York City today has 75% less crime than it had in 1993. It’s the safest big city in America. Chief Bratton took that model to Los Angeles—it is today the second safest city in America. So first of all, if you have a big city in your state that’s not safe, I would urge you to figure out a way to get them to study what Chief Bratton does because it works. It’s only great virtue is it works.

Second, the model of metrics, which we are working very hard to develop and implement at American Solutions, is one I strongly recommend because it allows you to figure out what you want to get done, and it allows you to start measuring whether or not the bureaucracy is being productive. And that forces you to change. I want to suggest to all of you—many of you’ve been friends for a lot of years, and you’ve heard me try to develop ideas—I think there are four words that are going to be the center of American politics for the next twenty years. And I think these four words are fundamentally different than what you’re used to talking about.

The first word is honesty. And I’ll come back to it, but the first word is honesty. The number one reason we have the current financial crisis is we lied to ourselves over and over and over. We said you can give houses to people who can’t pay for them, you can force banks to make loans they’ll never recover, you can have really clever people on Wall Street with paper that has no value, and somehow it’s all going to magically work. Well it doesn’t.

We watched the auto companies and the UAW lie to themselves for 30 years. You go to BMW in South Carolina, you go to Mercedes or Hyundai or Kia in Alabama, you go to Toyota in Kentucky, you go to Nissan in Tennessee, and you go to Honda in Ohio. The fact is for 30 years the big three didn’t want to change. And we’ve got to decide. I am for facing the facts, changing the system, and getting America back to being productive. So the first word is honesty.

And you’re going to find when you go back home, your staff is going to tell you, well you can’t say “X” because it’s better to be pleasant than it is to be honest. Well that’s the road to this country dying, and we had better be honest.

The second word that’s going to really going to matter is effectiveness. When the Detroit public schools graduate 26% of their entering freshman on time, it should be a national scandal, and we should change the Detroit schools today. Not in a year, not in five years. Today. And every one of you has places in your state where you are paying good money to get bad results and nobody has the nerve to challenge it.

The third word is productivity. The key to the Toyota production system—which is frankly Deming’s use of Western Electric— is an 80-year old American model adopted by the Japanese after WWII when we got too lazy to use it. The key to the Toyota production system is continuous improvement. So you show me any part of your state government today, and tell me how much more productive will it be in a year. What’s its plan to be 5% more productive in a year? Take your state university, what’s its plan to be more productive? I mean these universities are grossly over-expensive because we have sloppily allowed them to add administrators and to add faculty who don’t teach in order to have buildings that aren’t occupied so the students don’t have to worry about it because after all it’s essentially a social relationship with occasional brief interactions with knowledge.

You could take 20-40% out of the cost of going to higher education if you had the nerve to actually go out and look at it. Which is different than: how do I load even more money so they can charge even more so they can hire even more administrators?

Take a look at a brand new book that’s out by two young people on the end of adolescence. I wrote an article about this in Business Week about a month ago. Rethink many of your core thoughts about your high schools and rethink many of your core thoughts about what it means to be young because frankly it isn’t working. If you get a chance, every one of you should encourage your state legislature as a group to watch the movie Two Million Minutes. You can see it at Two million minutes is four years of high school. It takes two Indian high school students, two Chinese high school students, and two American high school students, and at the end of the movie you will understand that we are aggressively preparing for the 1956 Olympics. There are no scores in 1956 that would work today.

So you got to really look at that and say to yourself: so how are you going to change things? I’m going to give you one no-cost example: all of you could go back home and pass the following bill, and it would cost your taxpayers nothing. Any student who can graduate from high school in three years automatically gets the fourth year’s account as a scholarship. Any student who can graduate in two years gets two years of a scholarship. This costs you nothing. If you can graduate in one year, you get three years.

Now what it does is two things. It totally breaks up the current mindless Carnegie Unit curriculum structure that basically says: I don’t care how bored you are, we’re not covering that until Wednesday. And it re-centers the school away from football and away from the prom, and puts the school back to focusing on learning and rewards the kids who learn and doesn’t cost your taxpayers a penny. But it fundamentally changes the underlying value structure of going to school. And you can do that in January, and it wouldn’t cost you a dime, and within two years you would have fundamentally re-shaped what kids pay attention to.

My daughter, Jackie Cushman, just did a project—we’re actually looking for a foundation to help us do it again—but a good friend of ours gave $50,000, and they took two very poor neighborhoods in South Fulton, and they paid the poorest kids the equivalent of working at McDonald’s to do their homework. And it had a dramatic impact because guess what, it turned out really poor children respond to money. I know this is bold. I know it’s out on the edge. But it turns out they watch rock stars, and rap stars, and baseball players, and movie stars, and they see negotiations, and they see how much people get paid, and then we tell them but you ought to be happy because we’re going to give you a piece of paper with letters on it. And they’re poor.

And again all of you could go and look at taking one or two neighborhoods in your state for almost no money. Pay the kids and see what happens. It’s a lot better than sending them to jail. And that’s what we’re doing to them today in poor neighborhoods.

A couple last big points on health. First of all, Senator Judson Hill is here. He is somebody I recommend to all of you. We worked with Judson for the last four years in Georgia—he’s done remarkable work on transforming Georgia.

We are launching at the Center for Health Transformation a health-based health reform model that I’d urge all of you to try to get your committee—whatever committee on health you have in your state legislature—should look at health-based health reform— simple model. The Gundersen Lutheran hospital system in LaCrosse, Wisconsin is the least expensive place in America for the last two years of life. According to the Dartmouth Health Atlas, it cost $13,600 for the last two years of life at LaCrosse. It costs $58,000 dollars at UCLA. They have a higher satisfaction rate than UCLA; families feel better about the experience. And they do four things. Over 90% of their patients have an advance directive, they have an electronic health record so the staff knows what the directive is, they have palliative care so they take care of people who are in pain, and they have hospice care. Now if you simply went out and found the best practices in your state, and insisted that over the next three years all the hospitals and doctors would migrate to best practices, you would take out virtually all the cost increase in Medicaid and in your state employee health costs.

But it’s a new model. It’s a model that says don’t cut across the board, don’t use a meat axe, accelerate the adoption of the best practices to lower the cost and improve the outcome which is what we historically have done in manufacturing for 200 years. But we don’t do in health. So it’s a fundamentally new model.

Second, let me go back to honesty. The New York Times reported a couple years ago in a four part series that Medicaid in New York is 10% pure fraud. Not waste, not abuse, not judgment, but a dentist who filed 972 procedures in one day. A dental office which had a person standing out front who said if you’ll loan us your state Medicaid card for 30 seconds, we’ll give you a free DVD player. We have had no serious effort in taking fraud out in this country. And I’m not saying this is true of every state, but there are a lot of states that would save billions. In New York State by the way, 10% is $4.4 billion a year in fraud. And Jim Frogue, who’s here from the Center for Health Transformation, many of you know Jim from over the years, Jim would be eager to work with you on Medicaid reform because we think there is a ton we can do there.

The third point I’d make is both for Medicaid and for your state employees, go to incentivized systems. Alegent Hospital System in Omaha, Nebraska has 93% of its employees now signed up for incentives, so if you’re diabetic and you’re compliant, you get rewarded. Every person does an assessment of their health every year, every person is rewarded for doing well, and they’re not rewarded for not doing well. They’ve had a very big impact on the cost of health care for their employees—they have 9,000 employees. All of you should have an incentivized system for health so that every person knows their own health status; every person is involved directly in minimizing their costs.

Finally, you look at community-based models, we have a project in Columbus, Georgia which Laura Lynn and the Center for Health Transformation has undertaken on diabetes and on obesity, which we’d recommend you look at. There is also a project in Oklahoma City, where the mayor Mick Cornett decided that he would never lose weight; he’s always been 40 pounds overweight. So he announced last January that the entire city would now lose weight. He has had a citywide project on diabetes and obesity, and the city as of September has lost 176,000 pounds. It is a great case study that all of you ought to look at because obesity and diabetes is now probably the largest single health problem we have in the country it’s really worth you’re looking at.

Let me just say two last things and I’ll get out of your hair. Part of our economic change has got to be energy. We are developing at American Solutions an all-fronts energy solution. We wrote a book called Drill Here, Drill Now, Pay Less, many of you know that at American Solutions we launched the petition drive Drill Here, Drill Now, Pay Less. This is the first time in 27 years that it’s not illegal to look for energy offshore.

My wife Callista and I did a movie recently called We Have the Power to make two points. First of all we have the power as the American people to change government when it’s stupid. But the second is we don’t have an energy problem, we have a policy problem.

We have 27% of the world’s coal, and left-wing environmental groups are now running ads against coal. We have three times the oil reserve of Saudi Arabia in oil shale in Colorado, and the Congress made it illegal to develop it. We have in deep shale 1200 years’ supply of natural gas. We have new technological breakthroughs in electric vehicles; I recently drove the Tesla in San Jose, CA, an electric sports car which goes 0-60 in 3.8 seconds, and is faster than any internal combustion car except for the most expensive Ferrari. We have breakthroughs in solar, breakthroughs in wind, breakthroughs in hydrogen, and we have government policies that are just stunningly self-destructive.

We’re developing a project on clean coal being transformed so that you capture the carbon, and you use the carbon for enhanced oil recovery, and there are 100 billion barrels of oil in American reservoirs that cannot be gotten out at the current pressure that you could get out if you had enhanced recovery. So you both get clean coal, which is cheaper, and we have 27% of the world’s supply, and you’d get to recovery in America oil so you don’t have to buy it from Saudi Arabia or Venezuela.

There are so many things we could do if we were determined to do it. And I would hope all of you would look seriously from the standpoint of your state. That also means you’ve got to rebuild the electric grid because I keep telling all of my left-wing environmental friends: if you want people to drive electric cars there has to be electricity. I know I’ve always gotten a reputation for being out on the edge, but it’s pretty important.

Last thing I’ll just leave you with: all of you at some point should get a copy of an amazing book by Tom Evans called The Education of Ronald Reagan. Which his about the eight years that Reagan spent at General Electric where he gave 375 speeches to General Electric employees and where he learned about free markets and technology while he also learned how to be stunningly effective at answering questions and communicating.

The reason I’d like you to read it is that at American Solutions we’re talking with Michael Reagan about launching a project where we would come into your state—ideally with the help either of your state chamber or some other group—and we would actually train a generation of CEO’s and do what General Electric did. General Electric set out the largest education for their employees ever done in America, and it started in 1949 at the Harvard Business School Alumni day when the head of employee relations at General Electric—which back then had 380,000 employees—a guy name Lemuel Boulware got up and said if we don’t teach our employees, our customers, and our stock holders about free markets and productivity, we will become a socialist country.

I think there has been no time since the election of Ronald Reagan where we have had as deep a need to re-engage the business community of this country as there is today. And I think if you read that book, we’d love to work with you, we’d like to create a series of workshops and training programs starting with CEO’s, and we believe the time has come to fundamentally reset the country; to recognize what you’re currently seeing is a mess. It’s going to get worse not better.

Therefore, let’s talk about building the future, not propping up the past. And let’s talk about demanding honesty, effectiveness, productivity, and creativity because those are the four words that are going to define whether or not we’re successful in government, whether or not we’re successful in the private sector, and whether or not we’re successful as a country. I look forward very much to working with ALEC and to working with you. And again, we look forward to welcoming you in Atlanta in July. Thank you very, very much.


Lose to China and India or Transform America
John R. Houk
© December 18, 2008

Entering a New World

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