In his speech at the Democratic National Convention in Denver, former President Bill Clinton correctly said that the two most important issues in this election are the future of the U.S. economy and America’s standing in the world.
On the future of the U.S. economy, there is a clear contrast between the two candidates. Senator McCain would keep taxes on investment and income low; reform mandatory entitlements so that we can make investments in infrastructure, R&D, and human capital that will make us more competitive in the future; reform immigration to allow talented people from around the world to remain in this country after receiving their degrees; and reform education to allow school and teacher performance to improve. This is a prescription for growth.
Senator Obama, on the other hand, would raise taxes on both investment and income; ally himself with teachers’ unions which are inalterably opposed to any reforms which would improve public K-12 education in the United States; and leave untouched the unbridled growth of Medicare, Medicaid, Social Security and other entitlements which will make investment by the government in future productivity impossible. He seems absolutely unaware that the economic growth of the last 25 years has produced substantial gains productivity and, importantly, in standards of living for Americans – and that these gains were produced by a regime of lower taxes (beginning with the substantial cuts in marginal income tax rates signed by President Reagan in 1981), low inflation and an embrace of open global flows of goods, services and capital (which helped make the low inflation possible) – all of which helped the innovation economy.
On the second issue, America’s standing in the world, Senator McCain is a strong supporter of free trade. This is essential at a time when the impressive growth of the world economy has been fueled in part by the explosion of global trade. Other nations in the world, many of which have accepted and adopted the American model of investment-led capitalism in the last quarter century, are now actively pursing and executing new bilateral and multilateral trade agreements. This is certainly the case with China, the EU, and many of the world’s most successful emerging economies. Given the importance of both exports and foreign direct investment to creating jobs in America, it would seem that America too should continue on the path of working to expand trade.
But Senator Obama has adopted an extreme anti-trade position, one that would be extremely damaging to America’s relations with its trading partners and allies, and that would create a serious danger of moving America backwards into protectionism and a potentially deep recession. Senator Obama has called for an abandonment of the current North American Free Trade Agreement (NAFTA), which has dramatically boosted U.S. exports to both Canada and Mexico, and has opposed granting the President “fast track” authority which is a pre-condition to negotiating successfully a new multilateral trade agreement under the Doha framework. In doing so, he proposes to abandon a bi-partisan, fifty year-long tradition of American leadership in advocating a more open approach to trade and a reduction of barriers thereto. A question that should be asked of Senator Obama is this: how will it help America’s standing in the world to abandon both our most important trading partners and America’s longstanding commitment to open trade?
Senator Obama is undoubtedly an attractive and articulate candidate. But his policies are doctrinaire, orthodox, and representative of the most liberal and partisan wing of the Democratic Party. His voting history is extremely clear: the respected an non-partisan National Journal ranked him as the most liberal member of the U.S. Senate, to the left of such stalwarts as Barbara Boxer, Edward M. Kennedy, and even Bernie Sanders.
At a time when America desperately needs creative, bi-partisan solutions to a new set of national and global challenges, Senator McCain is a moderate and someone who has demonstrated a history of proposing and achieving compromise solutions that can generate both Republican and Democratic support.
On global warming, Senator McCain was the chief sponsor in the U.S. Senate of the McCain/Lieberman “cap and trade” bill, which would cap greenhouse gas emissions, establish a system of trading emissions allowances so as to do so in an economically efficient way, and put the United States on the path to joining in the international community in addressing climate change.
On immigration, Senator McCain was again the chief sponsor of legislation which would both create a legal path to citizenship for the 12 million immigrants who are contributing to our economy today, and at the same time establish the desperately needed higher cap on the number of H1-B visas to supply technology and other growth industries with the skilled talent they need.
Senator Obama, in contrast, has never been the chief sponsor of any significant legislation.
The venture capital community has always advocated a set of policies that favored investment and capital formation. Senator Obama would raise taxes capital gains tax rates from 15% to a likely 28% rate that prevailed at the beginning of the Clinton Administration. The VC community has always favored investment in university research and reform to encourage excellence in K-12 education. Senator Obama opposes reform of entitlements which would make such investment possible; opposes No Child Left Behind, which promotes accountability in schools; and opposes merit pay for teachers to encourage excellence in teaching. The technology community has always been a significant source of American exports. Senator Obama opposes the expansion of trade agreements to open markets to American technology products.
Senator Obama certainly sounds and looks good. But this important election is about policies, not personalities. And on the issues most important to venture capitalists – capital formation, taxation, economic growth, job-creating investment, free trade, and access to highly skilled workers – it is actually Senator John McCain who has advocated and voted for policies that will protect and restore the key building blocks of innovation and investment success.
<em>Robert E. Grady is a Partner at The Carlyle Group and Chairman of Carlyle Venture Partners. He is former Chairman of the National Venture Capital Association (NVCA).</em>