Return to Virginia Business - April 2004

by Jack Milligan
Virginia Business
April 2004

Editor’s note: Earlier this month, Virginia Business interviewed U.S. Treasury Secretary John Snow at his Washington office. A profile on Snow runs in our April issue. He’s the former CEO of CSX Corp.—a Virginia-based company for years before its relocation to Jacksonville, Fla. Below is a transcript of the interview, in which Snow talks about jobs, the economy and his continuing ties to Richmond.

Virginia Business: There is a dichotomy today between economic expansion and slow job growth. What’s going on?

Snow: The dichotomy is in some ways even larger than your question suggests. We have two surveys from the Bureau of Labor Statistics —the payroll survey and the household survey —and they’re both showing growth in jobs. But the household survey shows several million jobs being picked up whereas the payroll survey shows a much smaller number. And nobody’s come up with an entirely satisfactory explanation yet of the disparities and discrepancies between these two surveys. They each have strengths and weaknesses; no economic index is entirely correct. But it is curious that they’re not tracking each other better, and one explanation is that the household survey picks up self- employment, which the payroll survey doesn’t, and it appears that self-employment is becoming a more pronounced phenomenon. That wouldn’t explain the whole disparity between the two, but it would explain about a million jobs. That is, there are about a million jobs that the household survey says have come about in the last two years that aren’t in the payroll survey.

I like the numbers we’re getting on the household survey better than the numbers we’re getting on the payroll survey. The plain fact of the matter is we’d like to see more from both of these indexes. And how do you create jobs? Well, you create jobs by having a growing and expanding economy. That’s the key really. The central thing is making sure that conditions are appropriate for growth and expansion. When the economy is growing and expanding more people get drawn into the work force, businesses see their order books picking up, they hear their cash registers ringing, and as that happens they realize that to meet the increased demands of their businesses, they need more people. That’s when hiring goes on. So the first thing is a growing and expanding economy.

Secondly, because we live in this era of rapid change, people continuously need to learn new things, and society has an obligation to make sure that people have opportunities to upgrade job skills and keep job skills current. That’s where the President’s Jobs for the 21st Century [initiative] comes in. [Editor’s Note: This proposed program would increase aid to community colleges, among other things.] I spoke at Virginia Commonwealth University recently, at the commencement service there, and was struck by the extraordinary number of degrees that are being granted there, and how the Richmond business community is much engaged with VCU. VCU is becoming an incubator for business with its biotech centers and nano-technology stuff, but it’s also becoming a training ground for the work force that Richmond area employers need. That new engineering school is a terrific community asset, and as I travel the country I see that sort of model replicated with local colleges and community colleges working in concert with the local business community to support [companies] that are drawing on what the universities have to offer from their research and development, and then in a very close collaboration on job skills seeing that people have the job skills that they need to fill the jobs that are available and the jobs of the future. And that’s awfully important. Even today, although we’re not creating as many jobs as we’d like, I think there are at last count three or four million jobs looking for someone to fill them.

Virginia Business: What’s the appropriate role for the federal government in terms of helping people make the transition in an economy in which having portable job skills is especially important?

Snow: I think the first thing is making sure the economy is strong enough that if they have the job skills, they’re going to have work. Two, funding the education centers that focus on jobs for the future, the training skills for jobs of the future. You would want to see more attention focused on practical marketplace job skills than on eastern philosophy. People who want to study eastern philosophy should study it. It’s a wonderful field, but the government’s role here, I think, is to be more pragmatic about how people acquire skills for jobs that are available.

And people have to take some responsibility themselves. [There is] just a tremendous [number] of people in this country who take responsibility for their own careers, [and] recognize that by investing in themselves they can create better futures. I was down in Jacksonville [Florida] at a community college recently, and they told me this story of a fellow who was a taxi cab driver. He’d never done anything but drive a taxicab; never had had a paycheck [that] came from a full time job. He was basically self-employed. Most taxi cab drivers are. He always wanted a job where he could work 40 hours a week and get a paycheck, get a health care plan, get a pension and all the things that come with those sorts of jobs. He would go to class religiously but invariably there’d be a fare call, and he’d have to go pick up the fare. Then he’d come back to class, and this went on for three years and he finally graduated.

[After he found] a full time job, he came back to the school -- Jacksonville Community College -- and met with the president and the faculty, and told them that the school had opened up to him a whole new life of opportunity. He brought his family in and showed his appreciation for this life change. Now here’s a person that had a job, but he wanted a better job. And the business community in places like Toledo and Detroit and Cleveland and Richmond -- they’re connecting with the local educational institutions to put content into courses that make the graduate a real candidate for employment. The community colleges and universities that are doing this recognize that employers aren’t looking for somebody who’s put two years in; they’re looking for somebody who comes out and has the skills, and if they have the skills, they’re going to have a job. That’s the sort of bargain that’s getting struck. And that puts a lot of pressure on the institutions to really teach the skills.

Virginia Business: One issue that has become heavily politicized is outsourcing. Does government have a role in terms of either discouraging outsourcing or making benefits available to people who have been impacted by it?

Snow: I think it’s important that we avoid any return to economic isolation. The United States is 5 percent of the world population and 25 percent of the world economy. If we’re going to continue to create opportunities for American business and American firms and American workers, then we need to engage the rest of the world. We benefit when the rest of the world is growing, and they benefit when we’re growing. Trade creates opportunity for everybody to do better. And the United States has the most dynamic economy in the world, [with] the best workers, the best business leadership, the best technology, the most innovation, the best entrepreneurialship. We believe in these things -- innovation and entrepreneurialship. We set the stage for cutting edge development in the world economy. The last thing we want to do is cut ourselves off from the rest of the world.

So what do you say on the subject of outsourcing? You say we want to create as many good jobs in the United States as we can, and we’re not going to be satisfied as long as anybody is looking for a job and can’t find one. How do you make sure people have jobs? You make sure the economy is growing and expanding, and you make these tax cuts permanent. We know the tax cuts have put the economy on a much stronger path than it had been before, [the last half of 2003 was] the strongest growth in 20 years. All the forecasts are for strong growth for this year, [with] potential growth rates of 4 percent to 5 percent, versus the long-term potential of 3 percent. So the economy’s turned a corner. We’re really on a good growth path. And we’ve got to remind ourselves about our own economic history [which is] that we have, decade after decade, produced more good jobs at higher real wages, with relatively low unemployment and rising standards of living as we have shifted from lower value work to higher value work.

Virginia Business: What impact will the budget deficit have on the economy, and is it an issue that needs to be managed?

Snow: Yes, it has to be managed. I would say that deficits matter, they’re important, they’ve got to be watched, they’ve got to be dealt with and deficits [that are] too large need to come down. [It’s] understandable why we have [them] in light of the circumstances that have affected the American economy over the last three years, starting with the recession and 9/11, the war on terror and the meltdown of the stock market that took so much money out of the Federal Treasury, Afghanistan and Iraq and the extent of those engagements, and the [costs] of homeland security. So it’s understandable, but it’s too large and we’re committed to cutting it in half over the next five years —that is, bringing it from roughly 4.5 percent of Gross Domestic Product (GDP) today — which comes in at $450 to $500 billion -- to under 2 percent. Now at under 2 percent of GDP, the deficit is quite manageable and financial markets are not going to view it with any sense of alarm. But if you have large deficits that are entrenched in the financial structure of the country and they’re rising, then financial markets will react by requiring higher interest rates on the part of creditors to make money available to the government. We’re not going to let that happen.

Virginia Business: Do you have a view on Federal Reserve Chairman Alan Greenspan’s statements recently that it may be necessary to trim Social Security benefits at some point if the deficit isn’t brought down?

Snow: We’ve known for some time that the trust fund is not actuarially sound [and that] something has to be done. The president tried to get more attention to that issue during the last campaign when he suggested the need for additional funding sources through these personal accounts, as he called them, where you would take some of the money that you would otherwise pay into the Social Security fund and put it in your own personal account. He also set up a commission to look into Social Security and come back with some recommendations. Two of the three [recommendations] wouldn’t require any cut in benefits, [and] the president has said he would not support any reduction in benefits for the current retirees or people who are prospective retirees in the near future.

Virginia Business: How much access do you have to the President, and what role will you play in the re-election campaign?

Snow: My major focus right now is trying to make the tax cuts permanent. If we don’t get Congress to act this year, there will be a tax increase on a substantial number of Americans in 2005. Another major focus will be the World Trade Organization (WTO), [which] has determined that our treatment of American corporations engaged in foreign commerce amounts to an illegal rebate, [because] we try to offset some of the taxes that they pay over there with a tax cut. It’s important that we get this resolved. They have begun putting sanctions on the United States so [that] some of our businesses are going to find their products in Europe are more costly, and that would hurt our ability to export there. I think it started at a 5 percent increase, and it’s going to rise 1 percent a month for the next 12 months. We don’t want to see that happen. We’ve got to get legislation, so I’ll be working on that.

As for the president, that’s just regular; sometimes it’s twice a day and sometimes it’s three times a week, but there’s a continuous interaction between the treasury secretary and the president. I can’t give you precise numbers on it, but it’s frequent and regular.

Virginia Business: Is the economy something that President Bush pays a lot of attention to?

Snow: Very much so. He’s very engaged and we meet with great regularity on the economy, on health policy, on what to do with the government-sponsored entities —virtually all the major economic policy issues we engage in.

Virginia Business: What role do you think the railroad industry should play in helping Virginia solve some of its transportation problems, particularly along the I-81 corridor?

Snow: I probably ought to stay out of that. I am aware of the problems in Northern Virginia… but I probably ought to stay away from those issues now that I’m in this new role.

Virginia Business: As a former co-chairman of the Conference Board’s Blue Room Commission on Public Trust and Private Enterprise, are the changes that have come about through the Sarbanes-Oxley Act sufficient to return a sense of integrity to business?

Snow: I think Sarbanes-Oxley needs to be given the chance to play out. Corporate America is a fundamentally different place now than it was prior to Sarbanes-Oxley and that legislation was an absolute necessity to give confidence to investors that somebody was really concerned about bad behavior in the marketplace -- that the laws of the country would be enforced and that directors and officers [of corporations] must live up to their responsibilities. It’s hard to overstate the damage that those scandals, that egregious behavior, posed I think to corporate capitalism, because corporate capitalism depends on trust. That behavior eroded trust in the system itself, and the system is critical to our well-being and our prosperity and to creating jobs for the future.

I think it was absolutely essential both as a political matter and as a practical matter that Congress and the administration responded as they did. [Securities and Exchange Commission Chairman] Bill Donaldson and the administration went to great lengths to make it clear that this egregious corporate behavior was unacceptable. If you’re going to serve on the board of directors of some company, you’ve got to take your duties seriously. If you’re in management, you’re going to have to be honest and straightforward with the shareholders. If you’re an accounting firm, you have an obligation to the capital markets to see that [corporate financial] statements are correct. If you’re a CEO or CFO, you’ve got an obligation to tell the truth with your numbers. What Sarbanes-Oxley did was not so much create new law as reaffirm the old law and then put higher penalties on for failure to behave appropriately. It fundamentally reaffirmed the principals of corporate governance [that] we were straying far away from.

Virginia Business: What are some of the challenges in making the transition from the corporate world to Washington, particularly when you’ve been a CEO?

Snow: It’s a very different role. The president is the CEO and you’re a counselor to the president. You also realize that your words are watched much more closely and, as a principal spokesman for the administration on economic policy, it’s awfully important that you choose your words well and reflect well on the administration. I do an awful lot of speaking on behalf of the administration’s policies; testifying [to Congress] before committees; to the media, to the networks, and then just an awful lot of speeches. So a big component of a job like this is being an effective spokesman for the administration. The other component is being a counselor to the president on economic policy, and the president looks to us to come up with good ideas on the [tax] code. Treasury is responsible for tax policy administration, and the people in this building are the experts on running the models that relate changes in the code to economic outcomes, jobs, revenues and so on. Tax policy is really one of the things that this building is most noted for. And since tax policy has been very much in the forefront of this administration’s activities —the president has looked for ways to deal with the headwinds in the economy that he inherited —counseling the president on the broad economic policy is another major component of what you do. People say, “We sure like your economic policy,” and I say, “It’s not my policy; it’s the president’s policy.” I’m the counselor [and] advisor, but it’s the president’s policy. So getting that right is important.

Virginia Business: Going into the election, what do you think will be the biggest challenge for the president on economic issues?

Snow: I think the biggest challenge is just sustaining this [economic] recovery. We need to remain focused on doing the things that make the economy grow and expand, and then explaining it well. When I came in here a few months ago there was a lot of talk about the possibility of a double dip recession; there was a lot of talk back then of deflation -- the deflation word actually crept into some minutes of the Open Market Committee at the Federal Reserve and was much ballyhooed and talked about in the financial press. A year later, [thanks] to the president’s tax cut, we’ve got an economy that virtually everybody says is in a strong recovery, [with the] best housing market in years, one of the strongest construction markets in years, manufacturing coming back nicely, exports rising, capital spending picking up, real personal disposable income rising at a good clip. Virtually everywhere you look, you see the economy showing positive signs. So just keeping focused on the things that allow that to happen, and then communicating, I think will be important. I’d like to see us engage in trying to push through some initiatives that would make the economy stronger. One would be to get some tort reform. We need tort reform badly, because the current system serves as a tax on businesses. There’s legislation pending in Congress that would be helpful there, especially legislation dealing with malpractice suits that are a real threat to the health care system in this country. We need a better energy policy, [with] greater access to our own abundant supplies of energy. [We have] legislation up in the Congress, not directly under the treasury secretary, but it’s something that I try to push along.

Virginia Business: When you go back to Richmond are there favorite things you like to do?

Snow: One of the big differences wherever I am now…is the presence of a substantial number of people who go with me. So it’s not quite the same because where ever you go, to dinner or to a movie or to somebody’s house, you’re never without this [security] guard. They’re wonderful people, but it does change your life. I like going to museums, [and] the Virginia Museum is a favorite of mine. I like the Ginter Conservatory. I don’t know if you’ve been out there [but] that’s a nice place. I like the Reynolds Art Gallery. I probably shouldn’t mention any restaurants -- I’d give them an improper plug – but I like walking up and down Monument Avenue. I think Richmond is a wonderful city.

Virginia Business: Do you think you’d retire there?

Snow: Sure, that’s really home.

Return to Virginia Business - April 2004