Taking Care of Ohio First: Three Key Components of Competetiveness
William R. Timken, Jr.
May 25, 1993
Thank you very much for inviting me here to speak with you today. As you can tell by the title of my speech, I want to talk about Ohio and economic competitiveness.
What does it take for our state to be a winner in the high-stakes global game for investment, jobs and a higher standard of living for our citizens? I can tell you right up front, defending the status quo is a losing strategy. There are no dinosaurs alive today. They are dead because they could not adapt to changing conditions. Unless we Buckeyes adapt ourselves and our state to be competitive, we are doomed to economic mediocrity and all the problems that come with it My worldwide business experience requires me to know what is going on everywhere. I want to warn you, it is scary. Companies and states must make dramatic changes or be crashed by a competitive tidal wave. The good news is that today, by almost any measure, we are in a strong position from which to build.
I was born and raised in Ohio and have lived here most of my life. It is my home; it is in my heart. I am tremendously proud to be a Buckeye. I have been a loud verbal ambassador for our state throughout the United States and around the world. As my wife will tell you, I fly out of the chair when I hear airhead comedians make baseless jokes about anything in Ohio. And I have committed more than 30 years of my life to making Ohio me greatest state in the greatest nation on earth. In the process, I have come to know that Ohioans really want to compete for their job security and standard of living. Often it is only a case of knowing what to do or what enemies of success must be defeated.
Today I am going to identify some of those enemies, and I hope all of us will take the positive attitude of a certain Marine colonel during the Korean War. Some of you may remember the famous quote of Marine Colonel Lewis "Chesty" Puller. At the darkest moment for his Marines as they were completely surrounded by Chinese troops, Puller gathered his men and said: "The enemy is in front of us, behind us, to the left of us, and to the right of us. They won’t escape this time."
Colonel Puller had an attitude. Defeat wasn’t part of it. His men fought their way out and later distinguished themselves again and again. Today in Ohio, business is surrounded by enemies that we must take on and defeat if our people are to keep working and prospering. Today I would like to talk about three current enemies: our antiquated and terribly expensive Workers’ Compensation System that serves no one well; President Clinton’s proposed Btu energy tax; and soaring health care costs that are taking some of the competitive starch out of Ohio businesses.
These enemies may not have the tanks and artillery the Chinese had 40 years ago, but they have the potential to bring very worthy competitors to their economic knees. We must not let that happen.
Before proceeding further, let me step back for a few moments and look at the bigger picture beyond Ohio’s borders. Last fall’s election reminded me once again that too many Americans base their judgments on their instincts of the moment Too few invest much time trying to understand our economic system well enough to comprehend why things happen the way they do. We just wanted to be promised some quick fix with no pain.
The electronic and print media flood us with information and visuals about how we ought to feel, to a degree non-existent a few decades ago. Too many people don’t think beyond what they see or hear and thus, for them, perception becomes reality. The flood of information and opinion from the media has colored or shaped perceptions to a degree that distorts reality. We are encouraged to react emotionally rather than rationally. Opinions become more important than facts.
The media’s prattling would cause me little concern if I thought the American public had a solid understanding of our democracy, its foundations, our economic system and how it works. But that does not seem to be the case. Instead, the prevailing mentality seems to be that someone else should solve my problems. Government is sold as Dr. Feelgood, the problem-solver, the quick-fixer. Why bother to work up a sweat trying in get in competitive shape when someone promises to do it for you? Or to protect you!
How have so many people forgotten that the very reason for our American democracy is to provide personal liberty? Have they failed to learn that our forefathers fought for freedom for the individual, not to create bureaucracy? We are free people, not dependents of government Nothing is more important than this freedom. If we give it up, or lose it, we will have lost our reason for being. A better America must come from us as individual citizens, not from government.
What an irony. At a time when the fire of individual freedom is burning brighter in former dictatorships and socialist regimes, the flame seems to be flickering lower here in America where it once burned so brightly. Even worse, too many of us don’t seem to understand it is happening as we meekly turn to government for our well-being. You and I know that individual freedom and a private-property, market-driven, capitalistic economic system are indivisible. We cannot have personal freedom without economic freedom.
Economic freedom has its demands. It requires a competitive enterprise system where individuals make the decisions and are rewarded according to his or her contribution, not merely desire. We have to earn our future. It cannot be handed to us by government. As individuals, we must accept responsibility for ourselves and our families. Have you ever heard a politician say: "Yes, we in government will take care of your problems but, to do so, we will have to limit your freedom"? No, of course not. But, in reality, that is precisely what happens when government expands. Frederick Hayek rightly called socialist big government "the road to serfdom." Obviously, we as individuals or a nation must never strike such a devil’s bargain. Yet some people don’t seem to know it is happening. They believe we can and should take competitive out of the competitive enterprise system. They would substitute a government that is more powerful and more pervasive. From the White House
we are currently hearing the gobbledygook oxymoron "managed competition." It will not work. The marketplace must decide, not government.
Since I believe the only possible path is to have a competitive enterprise system, especially one open to international trade, then U.S. businesses must compete. That is becoming more and more difficult, but there is no sound alternative. We in business, we Ohioans, can and must do our part to improve the climate for business and be sure that competitiveness remains part of our enterprise system. And there are plenty of anti-competitive issues to attack here in Ohio. We are the ones responsible for eliminating them.
WORKERS’ COMPENSATION SYSTEM
One of the most insidious threats to the competitiveness of Ohio businesses is our Workers’ Compensation System. Ladies and gentlemen, it’s an abomination.
Governor Voinovich has called it a silent job killer, and he is not exaggerating. The system is stopping companies from moving into Ohio and creating more jobs, and it is driving some businesses out of Ohio. Whenever I discuss investment in Ohio with business people, this is cited as the #1 negative for our state.
It doesn’t have to be that way. That’s not how the system was meant to be. The system had an honorable beginning. In Ohio, it was founded in 1913 to strike a balance between the needs of employers and employees. It was a contract under which workers injured on the job received, on a timely basis, the benefits they needed to continue meeting their financial obligations. It was intended to be no-fault and to pay for the medical and rehabilitation care they needed to recover and return to full, productive lives. Pretty simple. Today it’s anything but. In fact, today it is a system in need of urgent, substantive reform. A single number graphically illustrates this need: From 1982 through 1991, the cost of workers’ compensation per employee in Ohio increased 212 percent, and that number is headed up faster than your taxes.
Originally, Workers’ Compensation had only two stakeholders — employers and employees. Today it has swelled into a festering mess that includes defense lawyers, claimants’ lawyers, medical providers, medical associations, third-party administrators, rehabilitation experts and vocational experts. You either know or can guess what the picture includes now: Special interest groups living off the system. A protracted and overcrowded hearing process. Considerable fraud and abuse. Unending litigation. Tremendous expense. And more. And, oh yes, injured employees who must wait intolerable lengths of time to receive benefits. Just getting someone at the Bureau of Workers’ Compensation to answer the phone is a major accomplishment. An estimated 6,000 callers every week receive only a busy signal.
Rising health care costs have ignited the explosion in workers’ compensation costs. Why? Because in the workers’ compensation system there are no built-in controls on runaway spending. People pay no deductibles. No co-payments are required. As a result, workers sometimes shift treatment of health problems from company medical insurance — which typically has built-in spending checks — to the workers’ compensation system.
Other reasons for escalating medical costs include unlimited employee choice of medical provider, the absence of medical fee provider schedules and doctor shopping with no approval of the treating physician. And there are other reasons, not the least of which are TV commercials in which lawyers urge injured workers to sue. Too many dollars paid into the system never reach the pockets of those in need — the injured workers.
All of this encourages abuse, including fraud, which drives up costs, drives down competitiveness, drives away business and drives truly deserving employees to distraction. If you think only private-sector employers are affected, think again. Public-sector employees are covered by the same system. You are paying higher taxes to pay for abuses. Put yourself in the position of an injured employee who makes a claim. Under the current system:
– You may not receive an accurate diagnosis or proper care.
– You may wind up paying a high percentage of your benefits to attorneys-who will not be especially eager to see you return to work.
– You may not begin receiving benefits for mouths.
Okay, we know what’s wrong with the system, but we also know that it’s eminently fixable. We know how to fix it. We have worked two years on analysis and a carefully thought-out solution.
State Senator Bob Cupp has introduced an Ohio Workers’ Compensation reform bill. His bill would go a long way toward simplifying and streamlining the system and make it work more effectively for the people it was originally intended to help. It would also lower the cost burden on Ohio employers and make our state more appealing to businesses that are attracted by Ohio’s many other economic advantages. A study by McKinsey and Company estimates that reform could produce annual savings of $900 million.
Everyone here can do his or her part to make workers’ compensation reform a legislative reality. Write, phone or fax your elected representatives in Columbus. Do it today. A short, to-the-point letter will count and can make a positive difference for Ohio. Join the chorus of voices supporting reform and trying to strengthen the competitiveness of Ohio businesses. This bill represents a sensible solution that we should not let slip by us. Make government work today. Make a phone call to: (state senator and rep phone numbers)
During the presidential campaign, Clinton was talking about two dollars of deficit reduction for one dollar of taxes. On February 10, 1993, President Clinton was discussing his deficit reduction plan. He said: "My plan is basically 50-50, spending cuts and revenues the first four years." Just one month later the Congressional Budget Office provided this analysis of the Clinton budget: Net new taxes: $267 billion. Net spending cuts: $55 billion. That is, 83 percent taxes, 17 percent spending cuts. The biggest tax increase in history. President Clinton’s big government costs money, and it clearly does not intend to cut spending.
Care to guess how the President plans to raise a big chunk of that $267 billion in new taxes? He plans to take it right out of the engine of our economy — business. In particular, manufacturing companies. The wrench that he wants to throw into the economic engine is his proposed Btu energy tax.
Ladies and gentlemen, of all the elements in the President’s deficit reduction package, none promises to be more harmful to American manufacturers and American workers than the Btu energy tax. Actually, I could just as easily-and more accurately-have said Ohio manufacturers and Ohio workers.
Let’s consider for a moment the importance of manufacturing to Ohio. When you look at all 50 states, the average percentage of gross state product generated by manufacturing is 18.7 percent. In Ohio, the figure is 27.5 percent, or nearly 50 percent above the national average.
The Btu tax hits hardest at energy-intensive businesses, such us manufacturing. Within the manufacturing sector, Ohio tends to specialize in energy-intensive industries. In fact, die energy intensity of Ohio manufacturing industries is about 25 percent higher than die national average.
If Congress enacts this Btu tax, you will see higher prices for gasoline, electricity and natural gas. The White House expects the taxes to be passed on to consumers. What is only beginning to be reported is the job-killing potential of the Btu tax. This ill-conceived tax could cost more than half a million Americans their jobs. For Ohio, the price tag would be about 25,000 lost jobs. We have an economy that continues to struggle; we have an unemployment rate that remains stubbornly high; and we have a President pushing a tax that would add a half-percentage point to the unemployment rate.
This tax would jeopardize the competitiveness of company after company. We estimate that it would increase our own company’s costs for electricity and natural gas by about $5.6 million each year. That is more than our company’s 1992 net income. Of that $5.6 million, an estimated $4.3 million would fall on our Ohio plants. It is important to keep in mind that this Btu tax would be on top of an estimated $8 million a year in cost increases resulting from the Clean Air Act of 1990, which takes effect in 1995.
Well, couldn’t we just pass these cost increases on to our customers? That’s what some people are saying. Those people are wrong. Because of intense worldwide competition in our markets, passing on extra costs is next to impossible. Somehow, we would have to eat those extra costs or lose the business to foreigners. Not very appetizing for the people of our company and the citizens of Ohio.
When those in Washington propose this kind of tax, it is clear they are forgetting about companies such us ours and many others like us who face foreign competitors — competitors whose governments do not impose such anti-competitive taxes. Sweden recently cut energy taxes on manufacturing companies by 85 percent. Why do I cite Sweden? It just happens to be home to one of our company’s major competitors. You can bet that many foreign competitors are crossing their collective fingers that the Btu tax becomes law. It’s a tax that would crash through our economy and could choke off any economic recovery.
Once again, there is no reason for us to sit idly by. You can help head off this tax by picking up your phone or taking pen in hand and calling or writing your federal representatives and senators and President Clinton himself. They need to hear just how concerned we are. The two most important today are our senators. Here are their phone numbers. Call them today.
John Glenn: (202) 224-3353
Howard Metzenbaum: (202) 224-2315
Let there be no mistake about it; this Btu tax represents a true crisis for Ohio industry. I hope you will join me in fighting to protect Ohio companies and Ohio jobs.
HEALTH CARE COSTS
For as long us I can remember, whenever someone talked about getting something for nothing — or for an absurdly low price — an old saying has come to mind. You’ve all heard it: There’s no such thing as a free lunch.
Today Washington is hell bent to reform our nation’s health care system. I couldn’t agree more about the need to do so. Soaring health care costs stand to cripple American competitiveness. At our company, for example, health care costs have been increasing at more than three times the rate of inflation, and our prices don’t begin to match inflation.
My friend, Stan Gault, noted the other day:
A recent survey of nearly 2,500 large — and medium — sized companies showed the cost of health benefits is equal to 50 percent of total corporate earnings. Health-benefit costs last year averaged almost $4,000 per employee, and that figures out to be about $1.90 per hour just for health care alone!
These soaring costs have put American firms at a severe and growing disadvantage compared to their competitors in countries such as Japan and Germany where per-capita health care cost is less than half of ours.
Just remember, when it comes to health care reform, no matter what approach is adopted. No matter how painless it is touted to be, there is still no such thing as a free lunch. Someone, more than likely business, will have to pick up the tab. The Congressional Budget Office puts all this very clearly. It estimates that since 1973 rising health care costs alone have cut real wage gains by half.
Ohioans have not been spared a ride on this high-speed cost elevator or its effects. The average family in Ohio paid 142 percent more for health care in 1991 than in 1980. In Ohio, nursing home care expenses grew three times faster than the national average.
Every dollar that goes for health care is one less dollar to invest in a business or pay in wages or causes higher, uncompetitive prices. We in business know this oh so well. Businesses pay one-third of our nation’s health care bill. More significantly, businesses pay two-thirds of all private health insurance costs.
Our company is trying to slow down this high-speed cost elevator, and we are trying to do so without simply shifting costs to our associates. Our company is absolutely committed to continuing to provide quality health care for them, but we also are determined to develop and implement innovative and cost-effective plans that will allow us to remain competitive. What concerns me is that a government-mandated reform program could more than wipe out the savings we will achieve. All of us in business have a big stake in health care and we must communicate that stake to Washington.
Given a ball pumped full with air and a level court, can America and Ohio compete? You know the answer to that. For example, during the last 10 years, America’s manufacturing productivity rate grew equal to Japan’s and exceeded all other major industrialized countries. A recent study confirms that we are the most productive nation on earth. We also are the greatest exporting nation in the world — some $620 billion for 1992.
At our company, we’ve reduced the time it takes to make a batch of steel from 6 hours to fewer than 90 minutes and have reduced energy consumption by close to 20 percent. Our products are approximately four times better than in 1981. Those products, on average, sell for the same prices they did in 1981. Other U.S. firms have made the same commitment to compete internationally with similar success. The beneficiary has been the American people.
I shudder when I think about President Clinton’s tax-based deficit reduction plan. To me it spells reductions all right — reductions in capital spending, reductions in competitiveness and reductions in jobs. But it needn’t be that way. Whatever legislation the President introduces should be required to pass a test — an effect on American competitiveness test. We know what kind of grade the Btu energy tax would get. Will the health care reform package be able to pass such a test? It doesn’t seem likely.
Here in Ohio, Senator Cupp’s Workers’ Compensation bill would pass with flying colors. His bill spells additions — additions to capital spending, competitiveness and jobs. His bill deserves and needs our support. It constitutes the type of true reform people are looking for from government. American business is becoming more competitive. But to continue, we need the support and participation of all Americans, including everyone here.
Our nation’s future is at stake; our state’s future is at stake; and we all must join the battle. Compete we must Compete we shall. My most important message today: We all must understand our economic system and play our proper part, including government. Those who don’t support the drive for competitiveness must be pushed aside. Our future standard of living will be determined by the path we take, and I invite you to travel with me on the road to ensure America’s and Ohio’s pre-eminence as competitive economic powers. We need to work together We will need plenty of intestinal fortitude, for the going is often rough. But the rewards for our nation, our state, our people, one children will be worth our finest effort.