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Hubbard Identifies Opportunities and Game-Changers On November 4, 2002, Professor R. Glenn Hubbard addressed an audience of alumni and prospective students in Washington, DC. Hubbard, the Russell L. Carson Professor of Finance and Economics and academic director of the Eugene M. Lang Center for Entrepreneurship, is currently on leave while serving as chairman of President Bush’s Council of Economic Advisors. Referring to the boom of the 1980s and 1990s, Hubbard said that the emphasis on technology investment obscures a larger truth about the U.S. economy. Americans aren’t smarter than our trading partners, nor do we necessarily have better technology. "What we have is an institutional setting that promotes economic growth," he said, pointing out that the extraordinary post-1995 productivity gains were fostered by institutional adjustments that unleashed the economy’s potential. The 2001 recession was not policy induced, Hubbard noted, but was rather a case of over-investment-of the economy getting ahead of itself. He added that the slowdown was compounded by "headwinds" that initially went unnoticed, such as tax increases from the early 1990s and the gradually increasing regulation. Hubbard observed that classic entrepreneurs are not people who have come up with something entirely new. Rather, a successful entrepreneur "is someone who puts the pieces together better than the next guy." The United States has a high rate of business formation because we have an environment that allows for risk and failure. Defining features of that environment include labor-market and financial-market flexibility-the two factors identified by the OECD as key to economic growth. Hubbard emphasized four simple points about the dynamic nature of the U.S. economy: (1) Entrepreneurship is key to mobility and economic growth. Noting the strong correlation between business formation and economic growth, Hubbard said that entrepreneurial societies are associated with high rates of both success and failure. (2) We have growth and change because we allow risk. Hubbard stressed that in order for investors to take risks, they must have access to information and legal protection. (3) A changing labor market offers opportunity. People feared that the breakup of AT&T would lead to job destruction, but the reality was the opposite. Hubbard emphasized the need for labor policies that change with the times. (4) Never think in static terms. We cannot get into the mindset of large vs. small companies, employed vs. unemployed, rich vs. poor. Our society is more fluid than that. He also identified four transformational challenges ("game-changers") in the global economy: (1) The United States: Social Security must follow the private sector's lead. Personal accounts will enhance U.S. saving and asset ownership, making new pools of capital available for investment. (2) The European Union: Structural impediments limit a U.S.-type acceleration of productivity growth. Without changes in labor and financial markets, lagging productivity in the Euro zone will lead to a growing lack of competitiveness and lower living standards. (3) Japan: Failure to reallocate capital efficiently has dragged down the return on manufacturing assets, traditionally the strong sector in Japan. Restructuring thus offers an opportunity for tremendous gains. (4) Emerging Markets and Poor Countries: Private-sector capacity building through institutional reforms will help countries harness markets. The Bush administration’s Millennium Challenge program sets aside $5 billion per year to improve institutions in developing countries. Current Employment Statistics (CES) survey [Extra] ``Area of general economic distress'' shall be defined, for all urban and rural communities, as any census tract that has a poverty rate of at least 20 percent or any designated Federal Empowerment Zone, Supplemental Empowerment Zone, Enhanced Enterprise Community, or Enterprise Community. In addition, the Secretary may designate as an area of general economic distress any additional rural or Indian reservation area after considering the following factors: (1) Unemployment rate;
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