Brigadier General Harris: Response to Boston Globe Article on the F-35

As a member of the community and the Vermont Air National Guard, I find the accusations made in a recent Boston Globe F-35 article unsubstantiated and disturbing. Ms. Kathleen Ferguson, Acting Assistant Secretary, USAF Installations, Logistics and Environment responded, but I did not see it printed.

She states:

There are a number of inaccuracies and misleading comments in the recent article about the F-35 basing process.  Most concerning was the assertion that the Air Force made its decision based on “older data.”  That is not correct.  I clearly explained to the reporter, and the Air Force has assured local officials in writing, that the analysis from the site survey shows that Burlington Air Guard Station would have made the F-35 candidate list even with the revisions.

The Air Force is still analyzing data and has not yet made a final basing decision. This important fact is buried in the story, and the article implies the Air Force has made a final basing decision based on criteria screening data.  When the Secretary and Chief of Staff of the Air Force make a decision later this year, they will do so based on current, accurate information to include a comprehensive Environmental Impact Statement.

Also, it was disappointing that the article lent an extraordinary amount of credence to an “anonymous pentagon official” who characterized himself as having insight into the Air Force’s basing process.  This is unfortunate because, again, no final basing decision has been made.

The USAF strategic basing framework is centered around a highly staffed transparent, repeatable, and defendable process. The overall decision is the balance between 5 categories: cost, capacity, mission, environment (which incorporates noise), and military judgment. To categorize a “preferred alternative” basing decision process to replace F-16s with F-35s in Vermont as “fudged” ignores the cumulative effect of all five contributing categories and the Air Force’s layered strategic basing decision process.


Brigadier General Dick Harris

Assistant Adjutant General for Air

Vermont Air National Guard

Vermont for the F-35

Lately there has been quite a bit of discussion surrounding the potential basing of the F-35 fighter plane at the Burlington Air National Guard base.  The simplest overview of the situation is that the Air Force is retiring the F-16 fighter jet and replacing them with the F-35. The concern is that these planes are not exact analogues of each other; new and additional technology brings additional mechanical requirements. Thrust and weight alter, capabilities improve, and environmental impacts need to be modeled.

The argument isn’t about whether or not you support the men and women of the Vermont Air Guard; we all support them. The service they provide to our state and country through their duty, and the service they provide every day as members of our community. It’s not even about saying that they should have the best because they are the best, though that’s also true; our VTANG was selected as a preferred alternative due not just because of our location, but because of their quality.

What’s at issue for GBIC is really quite simple. It’s not the impacts as outlined in the Environmental Impact Statement, as almost all negative impacts are shown to lessen with a transition to the F-35. The issue is one of numbers, and one that we feel is quite easy to understand when the furor is stripped away.

This is about the 1100 guard jobs. It’s about the 53 million dollars in direct payroll. It’s about $2.4 million in fire and safety provided to the airport.

If the F-35 is based at the Burlington Air Guard, these things will stay and all of the associated economic activity from guard weekends, trainings, and community support will continue. It isn’t fear mongering to say that without these planes our VTANG as we know it would be on a limited time-table. The 158th are a fighter wing, and without a fighter plane the timeline for operations is a matter of what they have left, not what’s coming next.

Our Congressional delegation has shown support of the project in recognition of VTANG as one of the premier units in the country; Senators Leahy and Sanders as well as Congressman Welch recognize that the F-35 investment will secure the future of our VTANG for decades to come.  The net positive impacts on job retention, job creation and economic potential are too great to be ignored.

The Guard has been sensitive to the concerns of the community up to this point, and will continue to do so in the future. Flight operations with the F-35 will decline by more than 2500 patterns, flight times and days have been limited to mitigate impacts on the communities around the airport, and the current VTANG operations account for only 5% of the total traffic coming out of the airport today.

GBIC strongly supports the basing of the F-35 at the Burlington Air National Guard Base for the continued and significant community, social, and economic benefits provided by our Air National Guard.

Vermont has an Opportunity to Choose Prosperity

An op ed by Bruce Lisman

This financial crisis is a game-changing event that has Darwinian implications. We’ve already seen enough to know that something big has happened. And, it’s not done happening. Events this big are hard to process, but one sure thing is, that changes are under way wherever we look.

Countries we loved to applaud such as Ireland or Spain have been sent to the back of the pack and their citizens given a prescription for a lower standard of living. Countries we never spoke of, such as Peru and Estonia have an act we now applaud. The front side of the crisis brought ruin to countries, businesses, and individuals. The backside of the crisis brings a reversal of cosmic economic themes and a changed order of things.

We face headwinds that are bad for economic growth, bad for certain asset values, bad for personal income growth and bad for public policy that doesn’t grasp the changes afoot. All of this creates fabulous opportunities for those people and institutions that can see the outline of the new order of things. And, the history of America and for much of the world is that things get better over the longer term, no matter the dangers in the near term.

Adjustments are under way just about everywhere. Listen, Spain, Portugal, Greece and others are in the midst of re-structuring themselves and are giving recognition to the simple fact that a decade of spending programs was supported by economic growth built on an overheated financial system, real estate, and debt. Or put differently, it was economic growth that now seems illusionary.

The United Kingdom has promised to eliminate its budget deficit by reducing spending (80 percent) and lifting taxes (20 percent), and it’s being presented to the public in an alarming fashion—with remarkable transparency; Denmark is shrinking its social safety net; so is France; Sweden already has. Each of these countries is risking their citizens’ standard of living now in order to be ready for the next upturn. They are reversing a decade or more of public policy because revenues are lower than expected, deficits are large, and revenue growth may remain below expectations because of the structural damage caused by the recession.

In America the drive to reduce our deficit is setting us on a course to reduce current spending and long term obligations and placing standards of living at risk. Change indeed!

How is all of this different from what our states are experiencing? In some ways, it isn’t different at all. The same pressures exist: Large deficits from the sudden reversal of fortunes, the prospect of a drawn out recovery, a restive and angry citizenry concerned about the economy, jobs, how we got here, and what happens next. There aren’t riots here; instead, our citizens are demanding substantive change and demanding a new and different type of government. Sure, the Tea Party is one version of protest; but, so are the approval ratings of our national government and both political parties, and many incumbents at the state level. It reflects anger at a government that has become distant to its own citizens.

If the decades of the late 1990s and 2000s favored the states as recipients of vast increases in federal funds, higher real estate related taxes, higher income taxes, and capital gains taxes–then the years ahead will be very bad for most states, including ours as those trends are reversed.

Still, in Vermont we aren’t flat-lining like California or Illinois; our government isn’t dysfunctional such as in New York. And, we didn’t suffer the steep economic decline that has hurt other states. That’s good, and not the only thing that’s good in Vermont. We have a very diversified and sophisticated economy, a pair of powerful economic clusters—our hospitals and higher education institutions are outsized in our economy. We have among the best public education systems in America and a brand that is distinctive and well known.

Those are the kinds of things that dreams of becoming a more powerful center for job and income creation can actually be built upon. The states, including our own, and the feds are pursuing short-term remedies for a sluggish economy; simultaneously, our federal government and many states are attempting drag baseline spending back to 2008 or even earlier levels.

We should seize this moment to think bigger and imagine a bolder strategy that moves Vermont on a path toward becoming an economic powerhouse, but one that does not abandon values we hold dear. We can and should marry those essential Vermont characteristics of pragmatism and caring for our neighbors in support of that that essential theme: prosperity.


Jobs are good, but economic prosperity not only sounds better, it is better. It requires a thought process that recognizes that things today are different and don’t resemble the recent past, and require public policy that has a different orientation.

Think about the value of economic prosperity; it’s the end product of a vibrant economy. All kind of jobs are created and it means rising incomes for our citizens. Of course we want jobs, but 94 percent of Vermont workers and 91 percent of American workers have jobs. Beneath the current malaise is a far more basic theme: We want a return to the security and insulating cushion that economic prosperity creates; and, the sense that tomorrow will always be better than today.

Economic prosperity is a magnet for workers—in our country, the labor force goes where the jobs are. Economic prosperity creates the ladder for the poor to reach economic health; it can supply jobs for those who want them and with that, we can imagine solving issues around crime, substance abuse and domestic violence, events that take place where jobs are absent. It’s a vibrant economy that provides the means to clean our lakes, train our unemployed and underemployed, protect those who need protection and give help to those that require it. It literally is the fuel for our “Social Contract.” There is overwhelming evidence that the quality of life correlates highly with measures of economic prosperity.

It’s a theme of transcendent importance—it literally towers over everything else that we can imagine. It isn’t equal to a quality education system; it doesn’t share the spotlight with affordable housing or saving dairy farmers, or promoting alternative energy. Without economic prosperity we’ll be hard pressed to afford any of those very good “wants.” But, economic prosperity is a theme that is virtually unknown to states and scary to governors and legislators more comfortable with near term goals and decisions sometimes made without full context or without a way to measure those decisions.

Is it worth pursuing this theme of economic vibrancy? Of gathering a consensus that draws citizens and its government to a common cause? It is if you believe that the consequences of financial crisis can be both great and well, deadly. So, imagine then, our state choosing this moment, at the very edge of an unknown future to embark on a bold path that says with clarity of purpose and mission that we will pursue economic prosperity on behalf of our citizens, but in so doing we will not abandon our values! In doing so, we will also dispense with those arguments from the right that would decry the social benefits created by our economy and the left for decrying the value of the economic machine that produces those social benefits.

Let’s choose a new path that recognizes our strengths and values. And, let’s choose it because we can’t afford the old.

Getting on the path to prosperity:

• Build a strong consensus in our state for pursuing economic prosperity, a transcendent theme central to our long term health. No creaky planning sessions, please. This is the moment that requires gifted leadership and an enlightened and enthused legislative body.

• Support that theme by building a different kind of government. One that offers maximum transparency of its budget. It would show where the money is spent, how it is spent, and what we expect to accomplish. But, it would also tell us how well it is spent and compare goals with results. Move to a budget logic that measures results, puts accountability into the mix, and declares how well we serve our citizens. Transparency and accountability will neutralize the high tax burden that is likely to remain; it would re-enfranchise those who pay the lion’s share of taxes, inevitably it will create efficiencies, and improve the quality of our government. Structure abhors change; accountability undermines structure.

• Let’s focus on the elements of our Social Contract. It’s a capital S and C. We believe in it. It matters to us. It defines us. However, we can’t measure its size, its quality, or its results. If it matters so much, then we should understand it and take pride not in its size, but in the quality of its work. Protecting “vulnerable Vermonters” is a good cause, but a poor defense of spending when we are ignorant of its results.

• Let’s build an economic environment—the platform upon which our businesses operate—that is welcoming to employers of all kind. Give up the notion of choosing favored businesses or attempting to see a future we’ve already proven we can’t predict. Let’s not merge social policy with economic development, nor pursue legislation that has unknown consequences to our economy.

• Let’s focus on the full mosaic of what a strong economic platform includes. Tax structure and affordability matter a lot. So do 15 other items that include predictability of regulation, the quality of transportation systems, access to broadband, access to arts, public education, availability of a well trained workforce, to name some.

• Recast Economic Development as the Department for Economic Prosperity. Recharge it with a higher calling, redevelop it as a consultative service to our businesses and give it goals that support economic prosperity.

• Capital availability marks the limits to growth; make our sponsored capital providers—VEDA and VEGI—more robust and broaden their mandate. Eliminate ‘Corporate Welfare’ from our official vocabulary and replace it with ‘Corporate Accountability.’

• New products created from R&D pack a powerful punch; expand VCET’s capacity and make it Vermont’s incubator by opening in Southern Vermont.

• Move to a principled based regulatory framework that declares what the regulation is attempting accomplish and than provide bright line interpretation so that the purpose is not compromised, even as we provide clear paths for applicants.

• The quality of the workforce is the fuel for economic growth; re-cast job training by consolidating and streamlining the myriad of programs. Offer training to anyone receiving state funds so they can upgrade their skill sets. Get them (and us) ready for the next up cycle.

• If tax structure is so important—it’s not only the plumbing for the government it is the biggest long term influence on its citizens—how can we have a ‘Blue Ribbon Commission on Taxes” without a grand theme underpinning it? Who provided context? Direction? A strategic aim? A purpose? This is a “are you kidding me moment.” This is planning without context; it ignores the interconnected nature of decisions and the importance of … well, purpose. Three very smart and passionate people can’t overcome a bad planning exercise. Recharge that committee with a growth orientation and send them back to focus on property taxes.

• Let’s look at the hospitals and higher education institutions with new perspective—sure, as economic stabilizers, but also economic engines.

Accept these concepts and you accept the notion that we need a strategic calling in our state. It’s a calling that recognizes the interconnected nature of decisions and one that dispenses with shallow arguments that are a call to meetings but little action.

Israel wanted to be an economic powerhouse; it is. Indiana chose to become their version of an economic powerhouse; it is. America chose to rebound from 9/11, a divided country in the 1960s and 1970s, and a Great Depression. It did.

So can Vermont.

Bruce Lisman, retired chairman of the JP Morgan Global Equity Division. He previously served as a senior managing director of Bear Stearns Companies from 1984 to June 2008. He is native of Burlington.

Vermont’s Economic Challenge: Finding a recipe for Competitiveness while Maintaining our Quality of Place

As an organization chiefly concerned with aiding in economic development for Chittenden Country, GBIC often speaks with Vermont employers to figure out what helped encourage them to set up their business in our state. Our goal is that if we can find a common denominator to support, it will encourage other potential employers and entrepreneurs to choose to do the same. Yet after hearing of the many positives that make Vermont a great choice, what often comes out is that choosing to do business in Vermont sometimes is in part a decision made with the heart and not with the head (or at least not without rationalizing with your accountant). Every employer understands the cost environment in which they are establishing their business when the decision is made to take the risk of opening their doors. However, as Vermont continues to increase both real taxation rates and new areas of taxation, there is growing concern that little seems to be done to encourage the expansion of Vermont’s tax base, rather than simply drawing more from the same wells.

What is abundantly clear is many Vermont entrepreneurs and employers have such a genuine love for Vermont that initially deters them from seeking locations outside of our borders. The problem, as has been seen with some of the most successful Vermont companies, is that with success comes the pressure for further growth; boards, shareholders and continued competitive strains (that may or may not have ties to our state) force some traditionally Vermont based employers to move aspects of their operations to states or countries with more advantageous tax policies and structures. Competitiveness out-places love of place.

Vermont’s answer has tended to focus on asking more from the same pools of employers. The situation is analogous to sugaring: either extract more from the same trees, or establish an environment in which more saplings can thrive, be tapped and foster the growth of future forests. If you unsustainably overtap the productive trees, eventually they will die; in the case of our successful entrepreneurs, they just pick up their roots and move to Florida and/or other places that aggressively seek investment and job growth.

With the challenge of the aging demographics that our state faces, it would seem to be a prudent moment in time to examine how we can encourage entrepreneurial Vermonters (both native and who come to our expansive college and university system) to stay in the state and generate employment. If we are unable to accomplish this goal, a shrinking tax base will be forced to shoulder the weight of increased state expenditure. No one wants to see a decrease in meaningful and supportive public expenditure, but relying on the same sources for revenue will only lead to a more dramatic budget challenge in the long run. This unsustainable approach to income generation for the state, coupled with other increased cost burdens shouldered by our employers (health care, unemployment insurance etc), will surely force the hands of some Vermonters to move their businesses, and the people they employ, out of Vermont.

The Blue Ribbon Tax Commission has begun its work to look at Vermont’s tax structure and our overall competitiveness. GBIC and LCRCC have organized business people and Vermont entrepreneurs to meet with the Commission and share some concerns and ideas about how to retain our quality of place while we seek to be a place where entrepreneurs can be globally competitive.

IP Strategy and Building Company Value

On April 7th, GBIC is hosting a workshop on IP Strategy and how it can help your business today.  The event is free, but be sure to register as space is limited!

Good Ideas, Great Ideas, Valuable Information and Technology:
Have you identified and protected them?
Know how to maximize their value?

“IP Strategy and Building Company Value”
A workshop for area businesses on the subject of intellectual property and strategy.
Hosted by Greater Burlington Industrial Corporation (GBIC) for area businesses.

Many companies have a business strategy, fewer companies have an IP strategy, and even fewer companies integrate their IP strategy with their business strategy in a way that builds significant company value.

• The basics of an IP strategy, including consideration of how to develop and protect IP in a cost-effective manner;
• How an IP strategy can be integrated with a business strategy;
• How to make money or create value in your company using an IP strategy;
• Interesting case studies and approaches to implementing an IP strategy to enhance company value.

Larry Meier, Director and Chair of the Intellectual Property Practice at Downs, Rachlin and Martin PLLC;
Nancy Edwards Cronin, Principal Partner, ipCapital Group, Inc.; and
Mark Blanchard, Technology Development & Commercialization Advisor, Vermont Small Business Development Center.

Tuesday, April 7 2:00 to 5:00 PM at the Windjammer Conference Center, South Burlington.

Admission is free but attendance is limited and registration is required.
To register contact Curt Carter at [email protected] or call GBIC at 862-5726.

Start up the risk-takers

Tom Friedman has long been a proponent of nascent business and in a recent NY Times article he challenged convention in how we should revitalize the economy.  Whether or not he has the answer, the importance that start-ups play in driving our economy shouldn’t be overlooked.

Start Up the Risk-Takers

Reading the news that General Motors and Chrysler are now lining up for another $20 billion or so in government aid — on top of the billions they’ve already received or requested — leaves me with the sick feeling that we are subsidizing the losers and for only one reason: because they claim that their funerals would cost more than keeping them on life support. Sorry, friends, but this is not the American way. Bailing out the losers is not how we got rich as a country, and it is not how we’ll get out of this crisis.

G.M. has become a giant wealth- destruction machine — possibly the biggest in history — and it is time that it and Chrysler were put into bankruptcy so they can truly start over under new management with new labor agreements and new visions. When it comes to helping companies, precious public money should focus on start-ups, not bailouts.

You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves.

If we are going to be spending billions of taxpayer dollars, it can’t only be on office-decorating bankers, over-leveraged home speculators and auto executives who year after year spent more energy resisting changes and lobbying Washington than leading change and beating Toyota.

I’ve been traveling all across the country on a book tour, and every evening I return to my hotel with my pockets full of business cards from inventors in clean energy. Our country is still bursting with innovators looking for capital. So, let’s make sure all the losers clamoring for help don’t drown out the potential winners who could lift us out of this. Some of our best companies, such as Intel, were started in recessions, when necessity makes innovators even more inventive and risk-takers even more daring.

Yes, we have to shore up the banking system, which underpins everything; and finding a fair way to prevent hardworking people, who played by the rules, from losing their homes to foreclosure is both right and essential for stability.

But beyond that, let’s think, talk and plan in more aspirational ways. We’re down, but we’re not out. As we invest taxpayer money, let’s do it with an eye to starting a new generation of biotech, info-tech, nanotech and clean-tech companies, with real innovators, real 21st-century jobs and potentially real profits for taxpayers. Our motto should be, “Start-ups, not bailouts: nurture the next Google, don’t nurse the old G.M.’s.”

To be fair, the stimulus package that the Obama team and the Democrats in Congress recently passed — with virtually no Republican help — goes some way toward doing just that. Hat’s off for that. Now let’s do more.

The renewable-energy business — wind, solar and solar thermal — was almost dead in this country. Most new projects stopped last fall because they depended for their financing on selling their renewable energy tax credits to Wall Street firms. As those Wall Street firms went bust or suffered steep losses, they had no need for tax credits because they had no profits to offset. The stimulus package created a mechanism for renewable energy innovators to bypass Wall Street and monetize their tax credits directly through the U.S. Treasury, for any project that starts between now and the end of 2010.

The wind and solar industries in America “were dead in the fourth quarter,” said John Woolard, chief executive of BrightSource Energy, which builds and operates cutting-edge solar-thermal plants in the Mojave Desert. Almost five gigawatts of new solar-thermal projects — the equivalent of five big nuclear plants — at various stages of permitting were being held up because of a lack of financing.

“All of these projects will now go ahead,” said Woolard. “You are talking about thousands of jobs … We really got something right in this legislation.”

These jobs will be in engineering, constructing and operating huge solar systems and wind farms and manufacturing new photovoltaics. Together they will drive innovation in all these areas — and move wind and solar technology down the cost-volume learning curve so they can compete against fossil fuels and become export industries at the “ChinIndia price,” that is the price at which they can scale in China and India.

That is how taxpayer money should be used to stimulate: limited financing, for a limited time, targeted on an industry bristling with new technology start-ups that, with a little push from Uncle Sam, won’t just survive this crisis but help us thrive when it is over. We need, and the world needs, an America that is thriving not just surviving.

Government Efficiency and a Strategic Tax Code for Vermont

Our friend Bill Schubart shares his views on some of the ills facing our state:

Government Efficiency and a Strategic Tax Code for Vermont

by:   Bill Schubart

Nothing works for ever. Things run down and need repair. Aspects lose their utility. Sometimes they must be overhauled.

Vermont has reached that point in two critical areas. One is the architecture of government agencies and two is our tax code.

Let me express my bias from the outset so you can either continue or go shovel snow. I’m a proponent of both government and taxation. I believe in the capacity of government to benefit society and the economy. I believe in taxation. I just want both to function efficiently and accountably. In Vermont today neither do.

As a rule, Vermonters know where they’re going and what they believe in. We see it every day in the vibrant work done by citizens at the community level. And we need more of that dynamic in Montpelier, where the scale is greater and the risks are higher. We need our leadership in the legislature and executive branches to focus on the ailing machinery of government and less on running for office.

Nor do we need to study this further. We could re-insulate all our state buildings with the thoughtful, un-deployed studies done by Vermonters on efficiency in government and other strategies. We just need the legislature and executive branches to join forces and do the work.

From a vision for what we wish to become, we must set economic and social objectives, we must monitor and communicate our progress with data that holds us accountable. We cant tweak our way to success anymore.

Our willy-nilly tax code is an accumulation of temporal revenue imperatives built up over time that now discourage growth and initiative. Don’t for a minute think it’s just rich Vermonters who exile themselves for six months and a day to save on taxes as “part-time residents.” Many pensioners must do the same to call Vermont home. But apart from the arbitrary way they’re assessed, taxes are a necessary and appropriate investment in social, economic and environmental wellbeing – unless they’re spent inefficiently. We need a strategic redesign of the tax code that’s consistent with Vermont’s values and future. Taxation should encourage personal and business behaviors that strengthen us and dissuade those that weaken us. Today’s tax code does more to weaken us.

Likewise, the architecture of government agencies reflects what we have been rather than what were becoming. It is time for an overhaul that asks why we do this this way, or better, why we do it all. For example, do we need to put so many people in jail? And we must review again what services for-profit or not-for-profit entities might do more efficiently. We need to look at what efficiencies could be achieved online.

We can no longer afford to study and tweak. We must begin the hard work of redesign with transparency and accountability and, make no mistake, it’ll be hard and painful, but by doing nothing, we recede into our own fading past and will have to live on it rather than creating and living off a bright future.

Microsoft CEO Steve Ballmer’s Technology Speech

All across the country the development (or lack thereof) of STEM education is a topic of much discussion, and in Vermont it has been the same.  Microsoft CEO Steve Ballmer delivered a great speech February 6th that addressed a number of issues surrounding the topic.  It’s a little long, but the message is an important one.  The following is his speech in full:

Well, I want to thank Jay, I want to thank the speaker and all of you for the opportunity to be here today and chat with you. It’s a real honor to have a chance to share some thoughts on the economy and on innovation, and hopefully spur some thoughts on how we all participate in restarting long term economic growth.

As Jay was telling my story, so to speak, I thought I’d put in one parenthetic that might be of interest. When I got to Microsoft and we were this tiny little company, we didn’t have the budget to put people up in hotels, so I lived with Bill. And every time I sat down, in every corner, nook and cranny of couches, tables, I’d find these little yellow pieces of paper with Bill’s writing that had a bunch of people’s names and companies’ names and numbers.

So, finally–I think of myself as pretty good pattern matching. Actually I was sitting next to Congressman Frank, and we were both trying to see which of the six states that are going to be still bigger than North Carolina by 2015. So, we’re going through the pattern matching game, and I just couldn’t figure out what these numbers were.

So, finally I said to Bill, what is this? He says, Steve, I’m really always worried about whether we’re going to have enough cash to pay people. So, every night I write down everybody who works for us and how much we pay them, and every contract we have and how much it’s worth. I’ve got to count the pennies tightly and that’s why you’re here now.

In this economic climate, whether you’re talking about businesses or consumers, everybody I think is having the little yellow sheets of paper out, and counting pennies pretty tightly.

I’m going to make one thing clear up-front: I’m not going to claim to be an economist. On the other hand, I think it’s sort of the responsibility of every businessperson to really form a model of what’s going on in the economy, if you’re going to provide proper stewardship to your business; big company, small company, it’s important to have a model of what’s going on, and certainly have been thinking a lot about the economy in the context of how we think about and plan for the future of Microsoft.

For the past 25 years, the world has certainly enjoyed incredible, incredible global growth. Average incomes around the world grew at unprecedented rates, millions of people moved from out of poverty into the middle class for the very first time.

I think that expansion was built on three things: innovation, globalization, and debt, increasing debt.

American technology was certainly at the heart of the innovation that played the central role in the process. The PC, the Internet, fiber optics: Those things were things that continue to keep America at the forefront of technology, and really at the lead of a growing global economy.

But over time, over the last period of time, the balance has really shifted. Instead of innovation and productivity driving growth, it’s really been unsustainable levels, particularly of private debt, that have been a key driver of economic growth.

The hard truth is this, in my opinion: The private sector of our economy has borrowed too much money, businesses and consumers alike, fueled by the a lot of different things, some notion that housing prices would go up forever, that you could borrow money cheaply.

I gave a speech at Stanford Business School a few years back, and I was talking, we’re a company that has been conservative, per the yellow pieces of paper. We like to keep cash. And a very smart Ph.D. in the audience puts his hand up and said, “Why don’t you borrow money?” I said, “I don’t like to borrow money.” He said, “But it’s so cheap; you’re depriving your shareholders.” I think it reminds us that essentially consumers and businesses alike have really borrowed too much money.

The bubble has burst. We can no longer rely on consumption by refinancing our homes or inexpensive money to fuel economic growth, and that’s certainly had a huge impact.

At our own place, what we think about PC sales, they are discretionary in most home budgets, the second, the third PC. Consumer electronics has that characteristic. Fifty percent of capital spending in this country is on information technology. Less capital, less spend on information technology. No sector will be immune.

There’s a natural tendency to want to blame somebody for the economic crisis. In reality, I think you have to say we’ve all contributed to a culture of spending and private debt. And I distinguish private debt and government debt, because I think you have to be much more–the private sector has less ability to be thoughtful, and the government sector needs to be quite thoughtful. But there certainly has been too much use of debt.

At Microsoft, we’ve studied these developments. We believe this is a once-in-a-lifetime economic event, but it’s not unique frankly in U.S. history. The current situation looks a lot like several–not one but several previous cycles of long-term private sector debt.

In 1929, for example, just before the stock market crash, the private debt-to-GDP ratio was 160 percent. Last year, private sector debt as a percentage of the GDP: 300 percent; far more leverage. And you can see it’s been a steady increase basically since almost the end of World War II.

In my view, what we now have will be a fundamental economic reset. The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate.

This may not be the thing that people really want to hear, but it’s certainly what we’re planning on, and it’s the truth on which we’re basing sort of our model, if you will, at Microsoft.

In our opinion, in order to reach the reset point, three things need to happen. First, the economy must be deleveraged. Private debt as a percentage of GDP has to be reduced. Restoring health to the nation’s financial system is a fundamental part of this.

Just for historical note, not only during the Depression, but actually in 1837 and in 1873 we had similar style resets in the economy. We actually have at least three historic periods that we can study in which similar phenomenon occurred. I think it was 1873 where even the state of Florida filed for Bankruptcy. So, we need to be thoughtful about being students I think of the history.

Second, confidence must be restored. The stimulus package, in my opinion, is vital. It will provide a cushion as we reach the reset point and it will help restart our economic engine. I certainly want to applaud the steps that the House has taken under the speaker’s leadership to quickly pass a strong stimulus package and to help shore up our financial institutions.

Third, America really has to return to growth that’s built on innovation and productivity, rather than leverage and private debt. That must happen.

The good news is that the U.S. economy is still the world leader in innovation. Our universities are the envy of the rest of the world. The American workforce is the best on the planet, and U.S. companies continue to drive technological progress in almost every industry.

But the time has come when we need to renew our innovation capacity.

We went back and studied what innovation companies did during the time of the Great Depression. One company that stands out, if you study the Depression, is RCA.

Now, the fact that RCA is not around today, this has nothing to do with their behavior during the Depression. There’s probably good learnings for a lot of technology companies in that.

But during the time of the Depression, RCA was probably the most broad-based R&D-centric company in America. And while it cut costs certainly to survive the Depression, it never retreated from its commitment to core research and development. And as a result, after the Depression had ended, it really led and the U.S. led TV technology developments for the next 25 years.

That was good for RCA; it was good for America.

In my view, American companies aren’t going to be able to weather this economic downturn just by cutting costs either. You may have heard that Microsoft, our company has decided that we need to reduce 5,000 positions. What you may not know is that at the same time we’ve decided we’ll also create two to three thousand new jobs–mostly in the U.S.–as we continue to push into new areas that require investment.

In addition, despite the tough economy–I might even say because of the tough economy–our company will continue to invest more than $9 billion a year in R&D, because we think it’s that R&D spending that will cause us to remain strong.

People ask me, are you upbeat or not, and I say, about technology I’m super upbeat. The industry that we’re in, information technology, stands at the threshold of again a new revolution.

I joined Microsoft essentially for the PC revolution. The Internet revolution, we have the revolution of what I might call pervasive computing. Computers that are as thin and light as this on which you can have access to the world’s information will be kind of expected over the next five and 10 years.

So, being optimistic and positive about what technology can accomplish is very, very important.

If you take a look at it today, there is increasing ubiquity and power in the computing platforms. A laptop today has more computer power than a mainframe did when I came to Microsoft. Mobile phones today are more powerful than the PCs that existed 10 or 12 years ago, at the start of the Internet era.

But over the next few years, we’ll continue to go into uncharted territory as many-core chipsets and devices become common, and we develop new ways to write programs to help us model the world’s climate, the world’s population, the world’s energy needs; all of that will be super possible.

This is going to lead to breakthrough applications, more intelligent, more aware of their environment, and where we can really help anticipate the information you need and the capabilities that you really want to have.

The next few years are going to see dramatic changes in the way you interact with technology: touch, gestures, handwriting, speech recognition. Instead of telling my secretary to get me ready for my trip to the House Democratic Caucus, I’ll just type it in or speak it to my computer. It can look up, it turns out, who you all are, and where you’re all from, and it’s got all–it’s all out there. We just need to automate it in ways that real people can get access to information.

Some of this I’m sure sounds a bit like science fiction, but we’re rapidly nearing a time when interacting with technology really will be like interacting with people, which will make technology more accessible and really unlock the potential of computers to individuals and communities to help solve tough problems.

A third trend, as I talked about, is screens and displays. Literally every wall, every tabletop, you’ll be able to roll up your computer, if you will, and put it in your purse or put it in your pocket. That’s what we have to look forward to.

All of these trends are going to help create a computing platform that extends from PCs and phones and TVs out into the massive storage and connectivity out in the Internet.

All of this will enable us to transcend the barriers that exist between technology today, and seamlessly connect people to the information and applications that you’re interested in, no matter where you are, no matter what kind of screen you have in front of us.

It’s very important. As the computing environment becomes richer and more pervasive, and more universally useful, it will enable citizens to be more active participants in our national economic recovery. If we do our jobs right, the computer revolution will help amplify our ability as individuals and as a nation to tackle the pressing problems of society: education, health care, energy independence; and at the same time, continue to enhance our productivity and economic competitiveness.

They say GDP is consumption plus investment, plus government spending, plus productivity growth and innovation, and I’m very bullish on what will happen in our industry.

Imagine, for example, an intelligent energy system in your home that’s linked to a smart energy grid. With that infrastructure, your dishwasher and washing machine would know to run when electricity is cheapest. That kind of intelligence and control could really have a major impact on residential power consumption, which is a very large piece of energy consumption in this country.

There are similar scenarios in healthcare, where genomic research will open the door to personalized treatment; and in education for sure, where technology will enable all teachers to use the very best teaching methods and connect with students in new ways.

The truth though, we can barely guess what is possible. With the kinds of technologies we envision, other people, many people in many fields, fields of science and social science and many, many others, will come forth with an incredible outpouring of new ideas and innovation that will continue to expand the universe of what’s possible. So, the enablement not only of information technology and the productivity it brings directly, but other new forms of innovation I think will really be important for long term growth and prosperity across many, many fields of endeavor.

To harness this potential of this transformation, I think it’s going to take a lot more than investment by the private sector. We need investment and we need leadership by government as well. I don’t understand all of the issues and interests that you have to deal with. As I was sitting listening this morning, I understand more that there are hundreds of unwritten things that citizens just don’t really know about what it takes to catalyze these things to happen. But I would at least like to offer a couple suggestions on some things I think are important.

First, we really need the federal government to invest in human capital, in the citizens of our country.

I sit here and talk, talk, talk about innovation, but it’s people who turn ideas into positive and productive innovation. And in today’s knowledge-driven world, innovation will depend on people who are actually technologically sophisticated, have strong critical thinking skills, have expertise in math and science and engineering.

This is true not only for people who live in places like Seattle and work at places like Microsoft, but live in places like Detroit, where I grew up, and work for companies like Ford Motor Company, where my father worked when I was a child. I think this is going to be true for anyone, anywhere in this country, who hopes to earn a wage that can really properly support their family.

This means investment in education is critical, and I’m really encouraged by the very heavy emphasis on education that’s in the stimulus package.

We really need to transform math and science education in America. We need to improve teacher training, teacher quality.

I was talking earlier in the day with some folks about just how many of our math and science teachers don’t have the correct training and accreditation, and that stands in the way of us really breaking through.

For those who are already in the workforce, we need programs that provide ongoing education and training, so they can be successful in this knowledge-based economy. For those who are unemployed, we need new technical skills training to give those people a start back up the economic ladder. And we are going to need lifelong learning programs to keep people fresh, as innovation and technology continues to power the economy.

The second thing we need–and I’ll tell the Speaker this was written even before our meeting this morning–we need greater government investment in our nation’s science and technology infrastructure.

I came in, flew in red eye, was a little groggy this morning when I got here. I sat down with the speaker at 8:00 AM, and she woke me right up. She said there are four things I want you to make sure you understand are a priority: science, science, science, and science. I was awake by the end of the fourth science for sure, and I couldn’t agree more wholeheartedly.

Science and technology is the backbone for productivity and innovation; has been, not always information technology, but science and technology has been a driver of economic success. Government investment in science and engineering as a percentage of GDP is half, in this country, what it was in 1970, and it would be growing rapidly, particularly in countries in Asia, off a small base albeit, but in places like India and China and Korea the trend is the other direction.

We need to pursue breakthroughs over the coming years in green technology, alternative energy, bioengineering, parallel computing, quantum computing. Without greater government investment in the basic research, there is a danger that important advances will happen in other countries. This is truly I think not only an issue of competitiveness, but also in a sense of national security. Companies like ours and others can do our fair share in terms of funding of basic research, but government needs to take the lead.

This is also a moment when government should invest, I think, in information technology to help transform healthcare. We deliver information technology that we think can help create a connected health system that delivers predictive, preventive, and personalized care, a system that I think can improve the health of Americans and reduce the cost of health care in this country.

Government support for innovative development, rapid adoption of information technology in health care is important. I was talking to Congressman McDermott this morning. Government has a big role to play, including the fact that Medicare and Medicaid pay over 50 percent of all health. If Medicare and Medicaid want to take on some issues and use its authority to push health information standards, I’m sure this industry and this area of technology innovation can move even more quickly.

There’s always broadband. My number one encouragement to you is start with government itself. Every school, every hospital, every government building, is it wired, have we funded that infrastructure; very important.

This is a once-in-a-lifetime economic crisis. There is a lot of history around that, and frankly if you stop and think about it, 1837, ‘73, ‘29, 2008, it’s almost exactly a whole lifetime between each of the major economic difficulties that we face. But I think it’s also a once-in-a-lifetime opportunity to think about our priorities again and make the investments that put us on the right foot.

In his inaugural address, President Obama said we need to assume more responsibility and make the hard decisions that have been postponed for too long.

The president’s remarks actually reminded me of something I heard a lot from my dad when I was growing up. My dad was an immigrant to this country. He came from Switzerland after World War II. He went and was an interpreter with the US military at the war trials in Nuremberg; came to Detroit with some of the soldiers he had met there, who sponsored him in this country; went to work at Ford Motor Company, was there for 30 years. Never finished high school never went to college, but he had a simple model: “If you’re going to do a job, do a job. If you’re not going to do a job, don’t do a job.”

You could say, okay, that’s probably a good thing to tell a 10-year-old, but what it really came to mean to me was that if you want to accomplish anything at all, you’ve got to be committed, you’ve got to be motivated, you’ve got to be tenacious, you’ve got to be smart. And, of course, that’s not really just my dad’s message to me and my sister as we were growing up; it’s really the essence of the American work ethic, and I think it’s been passed down to millions of American children every generation.

This country has what it takes to succeed. We have talent, we have technology, we’ve got the track record. We’ve got to be really honest about where we are. We’ve got to take the kind of bold steps that the vice president so well characterized in his remarks this morning, and we certainly have to roll up our sleeves and put ourselves back on the path of the kind of innovation that will drive the kind of economic success that I know we all want.

I thank you again for the opportunity. It’s been my pleasure.