Remarks and a Question-and-Answer Session With Members of the Massachusetts High Technology Council in Bedford

January 26, 1983

Mr. d'Arbeloff. This really concludes our presentation, Mr. President. Since we are speaking without the press present, we thought we might have a question-and-answer period. [Laughter] And we certainly would be delighted to hear your comments and be, perhaps, responsive to some questions you might have.

The President. Well, that's just fine with me. All right. I see you have a couple of camera clubs, though, that dropped in. [Laughter]

No, and I've been most interested in some of the things that were said here and -- because of the problems that you mentioned -- when you mentioned in education and in the tax structure.

You know that we labor under a political climate that has been made popular over the years in which automatically there is a reaction to a suggestion, such as you made, about capital gains, that this is designed solely to benefit the rich, whoever the rich are supposed to be. We do know that every time that we have made alterations downward in the capital gains tax, the Government has increased its revenues from that tax by making capital gain investments and sales and so forth more attractive than they are. The same is true of some of the other tax things that we believe. And there is a tendency to forget that in the long run it is out of that growing gross national product that every individual and every worker in this country is going to benefit.

I know -- I have some figures, not with me here -- about several years ago, what had happened when the taxes and the marginal rates were increased, but particularly the capital gains tax, and how in the open market, the money markets, Wall Street, the billions of dollars that had been traded and sold in -- well, to capitalize industries like your own, particularly smaller industries that were getting started, the entrepreneurs and so forth. Within a very few years, just a couple of years at the new higher rates, that had dwindled down to just a few million dollars, $15 million, I think. And only a couple of those entrepreneur-type companies that had gone to the marketplace for funding.

I think one of the challenges facing all of us on all of this is, there is a great lack of understanding among otherwise well-educated and intelligent people on things of this kind and the marketplace, how it functions and what is required to make it work. And much of what remains is prejudice.

The educational subject that you brought up there and about the higher education, I'm wondering, again, and how do we get at this problem of whether we're getting all that the dollars invested should buy? Because with inflation down to 3.9 percent in 1982, we found there were two areas -- one we know of is health care, that was up several times as high in its inflation rate as the national average. Second to it was education, which was increasing in cost in 1982 at somewhere in excess well between 8 and 9 percent, not the 3.9 or even holding down there.

And here again, I wonder -- particularly in those tax-supported institutions and those that have government help -- have we done the same thing there that we've done to some individuals? Have we become -- it's so easy, be dependent on government that business practices that would be absolute imperatives in your own businesses are no longer applying, for example, in that field, to education.

I'm accused of telling anecdotes and so forth, but let me just give one example. While I was Governor of California, I visited a State-supported institution, higher education. It was up in the north of our State in what you would expect that a school of forestry and engineering and so forth would be the principal functions there. But having been in the business I'd been in before I was Governor, I was proudly shown through their theater arts department. And I was shown their TV studios. They even had a revolving stage so that they could have movable sets and so forth and a shop for building them and a complete theater. And I couldn't resist. I finally said to the man in charge who was so proud of this, I said, ``May I tell you that if any of your graduates ever make it big in show business, Broadway, Hollywood, television, they will never again perform in facilities equal to those that you've given them to learn in.'' [Laughter]

But, well, you said questions, and you probably would rather do that than my just teeing off here on the subjects. So, why don't you begin?

Mr. d'Arbeloff. Okay. Why don't I just ask for some hands in terms of somebody who'd like to -- yes, Milt?

Mr. Greenberg. I'm Milton Greenberg, and I'm president of GCA Corporation, Mr. President. Those of us in the high technology industry are very, very worried about the growing sentiment in Congress and amongst our world trading partners about protectionism, the imposition of nontariff barriers, et cetera, et cetera.

As you know, Mr. President, that one of the driving forces behind the growth of high technology industries everywhere, including this country, is our ability to export and to sell in a free and open fashion, based mainly on quality and effectiveness to the consumer, how can we be helpful to your administration to ensure that these markets remain free and open, and even increase for us?

The President. Well, when you put the question as to how you can be helpful, just simply in being supportive of what we're trying to do. We do believe in free trade, but it has to be fair trade, also. And we do know that there is a wave of protectionism. And there are countries that we deal with today that, through various devices -- regulations that don't have anything to do with tariffs -- make it very difficult for our products to enter their market.

I think that you're all well aware, as I am, that the high technology field is one in which, while we lead today, we are target for tonight -- in the phrases of World War II -- that other countries are zeroing in on this market, just as they have previously in other areas. I don't believe that retaliatory protectionism is the answer at all, because every time it's ever been employed, it's a two-way street. And it just ends -- it gets down to lesser trade and less jobs and less prosperity.

We have been -- it hasn't been widely publicized, because I'm a believer in more quiet diplomacy -- but we have had our people on our teams from Commerce and Bill Brock, Ambassador Brock's section, and other levels virtually in constant negotiations with our allies and our friends -- both Japan, Europe -- on persuading them to join us in a freer marketplace, to get rid of those restrictive regulations that they have. I should think, on the tariff basis, we should have learned our lesson in the Great Depression and the part that was played in that by the Smoot-Hawley tariff bills.

So, anything that you can do to be supportive of us in resisting, which we're going to have to do, I know, in the days ahead -- the protectionist wave that is growing in our own Congress -- will be beneficial, because, as I say, while we believe in free trade, we are still going to do our utmost to see that it is fair trade. But we don't believe that we can accomplish that by, then, automatically slamming the gates and joining them in protectionism.

Mr. d'Arbeloff. Thank you, sir.

Do we have time for one more question, Mr. President?

The President. Yes.

Mr. Cullinane. John Cullinane, Cullinane Database Systems. Mr. President, I was recently asked to chair a committee in behalf of the Massachusetts High Technology Council on computer literacy, kindergarten through the 12th grade. And more recently, I was asked to chair the advisory committee for Northeastern University's new college of computer sciences. So, many of us were quite interested in your comments last night about tax incentives or other incentives to parents and the average American in terms of, related to the cost of education and what could be done in that area.

Obviously, jobs are important for these children. And, naturally, the high tech community can benefit from that. And we wonder what your nuances of your program were and what we can do also to help in that particular cause.

The President. Well, we are exploring what we can do to make it possible for more families to contribute to the educational costs. If you look back at the history of the Government getting involved in everything from the work-study program to student loans to guaranteed loans to the outright Pell Grants and so forth -- and I know that we've been assailed as trying to cut back on that and in this way we're trying to deprive people that wouldn't otherwise get an education. No, what we were trying to do in whatever cutbacks we made was to see that the money was directed to those people whose family incomes were such that very obviously they could not get higher education without some kind of help.

But the truth of the matter is, as the Government has grown in billions and billions of dollars in these student aid programs, the percentage of family help to students has visibly declined. And the interest rates were higher than they are now. It wasn't hard to discover that some families who could otherwise afford to send their offspring to college were resorting to loan programs, because by borrowing the money at the low interest for a college loan, they could then put that money back in Treasury notes at the same Treasury where they had obtained the loans, at a higher rate of interest, use their own money to send the young people to school. They were making a profit on it. These were the things that we were trying to head off.

But we are studying right now programs that will make it more possible for the family to help. I mentioned one last night. Monday is when we will disclose the budget and what it is that we are proposing. But we do have in mind a program, a savings program in which there will be a tax incentive for people to start saving for their children's eventual college education, try and induce them to do that. That, at the same time, will, of course, aid in our amassing of capital, because that money will then be available for investment and so forth as it's put into the savings accounts. We want very much to see that happen.

We also are resisting a tendency that has even been encouraged in many institutions that the student who gets through school on student loans, if they're from the Government, doesn't need to pay them back. As a matter of fact, when I was Governor we even found some institutions that were giving instructions as to how they could avoid paying them back at the same time they were helping them process the loan applications. But this is important, and it must be done.

In connection with this and your remarks about education, I note that all of this and the fine help that you've been given is directed toward higher education. Are we ignoring a problem down at basic education that is a part of our problem, that we have seen it in our military forces. We've seen the high -- well, as a mother put it to me one day in a meeting that I had with a group of parents, and she said to me, ``Don't talk about busing my child to a school or anything else.'' She said, ``I want my child kept in the class he's in until he learns what he's supposed to have learned in that class, not graduated from that class and pushed into another one because he'd simply come to the end of the term.'' Now, there's a lot of that going on also in education today.

And then we find that we have to -- or have had to in the past -- and I think you'll be happy to know that the intelligence level and the capability in that regard of our Armed Forces today is remarkably higher than it has been in past years. But there was a time in which training manuals had to be written down to a reading level that was far down in the elementary grade level, and yet high school graduates were doing this. And, of course, the other thing we do know at the college level is, is there a university today that doesn't have a bonehead English course that freshmen have to take so that they can begin to handle the studies that they are going to get in, at that higher level? Are we, as I said last night, stopping to think that that child who hasn't had the proper amount of math and science by the time he's 16 -- which is getting up to 1 year away from high school graduation -- they're never going to be able to be a scientist or an engineer or hold the jobs that you'll one day be advertising for.

I recently went through the want-ads in the Los Angeles Times on a Sunday when I was out there on the last trip for the New Year holiday. And I was amazed at the -- in the 45\1/2\ pages of help wanted ads -- that how many of those ads were from companies like your own, in high technology. And they weren't just advertising they had an opening for someone; they were begging for people to come in. They were offering inducements: ``Please, come take our job rather that another.''

This problem confronts us now. I know that I'm preaching sermons here instead of maybe giving specific answers. But we think that we are going to come up with a program that will be helpful and that -- making it more possible.

I look back and I feel sorry for some of the young people today, because one of the better jobs I ever had in my life was the job I had working my way through college. I washed dishes in the girls' dormitory. [Laughter]

Have I overstayed my welcome? [Laughter]

Mr. d'Arbeloff. Not a bit. Not a bit, Mr. President. But I do know that your schedule is tight, and I know that you're running late. And I understand that you have some concluding remarks that you would like to make.

The President. Well, I want to thank you and tell how much this entire day has meant to me. I have been in a rarified atmosphere, beginning over there at that wonderful institution, OIC, where I saw those young people learning the computer science and all of these young people who heretofore had been denied the privileges of such things in their surroundings. They told me that they have just graduated 29 of these young people, and 12 of them are already placed in jobs. Four more have just been added to that number and that there are 10 more who are very likely to get jobs soon.

I've had the privilege of looking into America's future, I think, today, and the future looks good. And I know that you're aware I've given a bedrock speech or two about the principles that we must get back to in our country -- reducing tax rates, the growth of Federal spending, reviving the magic of the market, and bringing government closer to the people. The trouble is, sometimes those principles seem about as popular in Washington as mandating a 14-hour workday on Christmas. [Laughter]

I just wish that more people would come here. It wasn't too long ago that your State was known as Taxachusetts. And that social contract that you made that resulted in the more than 60,000 jobs for this State and its place now in the high technology field was the result of some changes in that tax policy. You had a vision; you took action; you turned the situation around. This is a living laboratory of progress and proof that the private sector can work with local governments to solve problems and move America forward.

I'm very impressed that your companies have trained or retrained so many people to produce high-tech products. You're changing people's lives, and that's a wonderful thing to do.

This country was founded and built by people with great dreams and the courage to take great risks. The company that I visited just before this one in the same field of high technology -- or in a different field, but high technology -- 25 years ago was started by three men. And today it's in a dozen countries around the world. It numbers its employees in the more than 60,000, and it does almost $4 billion in sales a year. Where in the world do things like that happen? But I think that pioneer spirit that we've had is still alive, only it isn't out on the prairie now. It's in institutions such as this.

I understand that a nearby radio station, WFMP and WFGL, launched its own programs to encourage more permanent private sector jobs by offering free advertising to the companies that create those jobs.

Two years ago, I asked our citizens to join together in a national crusade to make America great again. We've faced some awesome problems. But we've also made real progress in bringing down the crippling interest rates, inflation, and the tax rates that were smothering growth. Our crusade goes forward. We will take new steps to rebuild our country. We're still the technological leaders in the world. And we must not only keep that edge, we must increase it. So, I intend to open a national dialog on how our private sector can export more goods, and create more jobs at home and abroad.

To strengthen our firms to compete more effectively, we need to better mobilize the tools and resources of science and technology. So, let me tell you today, we will soon create a nonpartisan commission on industrial competitiveness. And I'll ask the commission to make specific policy recommendations to me. And I'm asking all of you to lend us your experience, your wisdom, and every bit of energy that you can spare.

Now, another piece of news for you: The budget that I'll be submitting to the Congress next week will reflect two key initiatives to spur research and development. We will propose unprecedented increases in fundamental research, because it offers essential support for our industries and our defense needs. And we will channel this research into the most promising areas -- those most likely to extend the benefits of American science expertise to industry.

As you know, research is the wellspring of ideas that leads to new technologies such as the transition and the laser. It's also the -- the transistor, I should say. And it's also the key source for the highly trained scientists and engineers that, as I've already mentioned, we will need to lead us into the next century. So, I hope you won't mind it if, during my travels, I become something of an apostle for your success story here.

To get back to the very beginning and a mention that had to do with the tax structure of our country -- I realize that there will be a great stirring, and I'll probably kick myself for having said this. But when are we all going to have the courage to point out that, in our tax structure, the corporate tax is very hard to justify its existence; that why isn't the so-called corporate tax simply passed on to the stockholders in which they then, based on whatever bracket they're in, will pay in individual income tax? And won't this do something about that educational map that we saw up there?

The endowments of institutions -- I saw how very slim that one up there was for how much those institutions, higher education gets from endowment. But those are supposed to be tax-free institutions. And much of their endowment is invested out there in industrial America. But if they're tax free, aren't they paying a 46-percent tax rate before they get the results, the dividends that they get from the holdings that they have? And, thus, wouldn't it be more fair to them, wouldn't it be more fair to the labor union pension funds invested in that same industry if they got, as dividends -- and they wouldn't have to pay tax on it because they are tax free. But other individuals, it wouldn't be a loss to the Government. I think there would be a net gain to the Government all the way around if we would look at that instead of sticking with what is literally a myth about corporations and what the taxing policy should be. [Applause]

I'll remember your applause when the press keeps questioning me for days now about that. [Laughter]

Mr. d'Arbeloff. Mr. President, it's interesting that some of the members of the American Business Conference have been really studying the issue that you addressed, in terms of corporate taxes and the cost of capital in this country. And I can assure you that your announcement of establishing a commission is very exciting to us. And ABC, the growth companies of this country, are going to be more than willing to help you.

The President. Thank you.

Mr. d'Arbeloff. Mr. President, I thank you so much for accepting my invitation. And you were so gracious to be here at Millipore.

The President. Well, I am most pleased to be here, believe me.

Note: The exchange, which began at 3:47 p.m., followed a presentation by Dmitri d'Arbeloff, chairman of the Millipore Corp., as well as remarks by other members of the council. The exchange was held in the cafeteria of the Millipore Corp. building.

Following his meeting with the council, the President met with Massachusetts Reagan-Bush supporters at the building.