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FAREED ZAKARIA GPS

Interview with Glenn Hubbard; Interview With Fawaz Gerges; Interview with Michael Porter

Aired June 3, 2012 - 13:08   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


FAREED ZAKARIA, HOST: This is GPS, the Global Public Square. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

We've got a great show for you today. We'll start with Mitt Romney's plans for the American economy. I have an exclusive interview with his senior economic advisor, Glenn Hubbard.

Then, Syria, what's next after that massacre of civilians almost 50 children killed? I will ask Fawaz Gerges, the noted expert.

Next up, the Harvard Business School's Michael Porter, he is the most cited author on business and economics in the world. He has a new study to talk about.

First, here's my take. Kofi Annan's mission in Syria, which appears to hope that Syria's President Assad will negotiate his own departure, seems utterly doomed. Instead, America and the Western world, indeed the civilized world, should attempt to dislodge the Assad regime. But is there a smart way to do it?

For a number of reasons, military intervention is unlikely to work in Syria. Unlike in, say Libya, Syria is not a vast country with huge tracts of land where rebels can retreat, hide and be resupplied. Syria is roughly one-tenth the size of Libya, but with three times as many people. Perhaps for this reason, the Syrian rebels have not been able to take control of any significant part of that country.

The geopolitics of military intervention are also unattractive. In Egypt and even in Libya, all the major regional powers, world powers, were on the side of dislodging the regime or at least passively accepting that it would happen. In Syria, that is not the case.

Iran and Russia have both maintained strong ties to the Assad regime. So were the Western powers to intervene, it would quickly become a proxy struggle, with great power-funded militias on both sides. That would likely result in a long, protracted civil war with civilian casualties that would dwarf the current numbers. Think of the Lebanese civil war of the 1980s that lasted a decade, killed over 150,000 people and displaced over a million.

The Syrian regime has stayed intact. There have been no major defections from the army, intelligence services or business community. Why? Well the regime is Alawite, a Shiite sect that represents about 10 percent of Syrians, and the key military and intelligence posts belong to Alawites.

These loyalists stick with the regime because they know that in a post-Assad Syria, they would likely be massacred. But Assad has also been able to stop defections among the Sunni and Christian members of the ruling elite, presumably with a mix of threats and bribes. Now, that's where the regime might be vulnerable.

Syria is not an oil state. The regime does not have unlimited resources with which to buy off elites. So were truly crippling sanctions to be put in place, including an embargo on energy, it is likely that the regime would begin to crack. That might mean a brokered exit for the Assad family or a full-scale collapse of the regime, but it seems unlikely that the regime can persist without cash.

It would be morally far more satisfying to do something dramatic that would topple Assad tomorrow. But starving the regime might prove the more effective strategy.

For more on this, you can read my column in this week's Time Magazine and on time.com.

Let's get started.

My guest, Glenn Hubbard, is the senior economic advisor to Governor Romney. In that role, he is the chief architect of Governor Romney's economic plan that will convince you either that the governor is either going to fix America's economic problems or not. He also has a day job. He is the dean of the Columbia University Business School.

Welcome.

GLENN HUBBARD, DEAN, COLUMBIA UNIVERSITY BUSINESS SCHOOL, SENIOR ECONOMIC ADVISOR TO GOVERNOR MITT ROMNEY: Thank you.

ZAKARIA: So let's get right into it. Governor Romney has an ad in which he says the first thing he's going to do is a big tax cut. Now, you've talked a lot about the debt and the deficit, he's talked a lot about the debt and deficit.

How can it possibly make sense if you're worried about debt and deficit, that the first act you would have would be a massive tax cut which will surely explode the deficit?

HUBBARD: Well, not really the case, Fareed. First of all, what Governor Romney said is first up is a spending reform that brings federal spending down to 20 percent of GDP by 2016.

On the tax side, he's not proposing a net tax cut. He's proposing something that's in the flavor of the Bowles-Simpson commission which is cut marginal rates, broaden the tax base. So, yes, marginal rates would be cut, but it's revenue-neutral.

ZAKARIA: But the ad, then, is misleading. I mean the ad says first thing he's going to do on day one is cut taxes.

HUBBARD: He is cutting marginal tax rates. He's doing so in the context of a tax reform, the kind of tax reform that economists on both sides of the political aisle have talked about for years.

But what's very important is he's doing that also in the context of a plan, day one, that would restrain federal spending so we get the budget back in order.

ZAKARIA: So let's talk about the specifics of some of these issues because that's where it becomes -- is often hard to figure out how it works.

To cut marginal rates, you would have to do it, as you say, the way Simpson-Bowles does it. Now, the way Simpson-Bowles is able to do it is they get rid of a lot of the deductions or so-called loopholes.

But the big money is in the very popular deductions. The deduction -- the interest deduction for mortgages, you know the deduction for employer-based health care. Is he going to get rid of those deductions?

HUBBARD: No. What Governor Romney has said is, "Look, first of all, we need to cut marginal rates." And he would cut them essentially to exactly the same levels in the Bowles-Simpson so-called compromise plan.

Part of that revenue is made up with economic growth, most of that though has to come from base-broadening about which he said two things. One, everything should be on the table, there's nothing eliminated, but everything on the table. And, second, that the bulk of the adjustment be borne by upper income households.

Remember that Bowles-Simpson was trying to raise close to 2 percentage points of GDP in revenue. Governor Romney is trying to be revenue-neutral, and so his tax plan wouldn't have to raise as much revenue from base-broadening as Bowles-Simpson.

ZAKARIA: But -- I mean, I want to press you on this because even if you're not trying to raise as much, it's very tough to get any significant revenue if you don't touch the big deductions. The big deductions are the interest on mortgages, the interest -- the health care and federal and state taxes - I'm am sorry, local and state taxes.

HUBBARD: Correct.

ZAKARIA: Those three, collectively are --

HUBBARD: Those are the big ones.

ZAKARIA: So is he willing to look at those?

HUBBARD: He has said so. He has said everything is on the table. He looks forward to working with the Congress to do it. There are many ways to do it. We have Domenici-Rivlin, we have Bowles- Simpson, we have President Bush's 2005 commission. There are lots of ways, but everything has to be on the table and, again, the adjustment really has to focus on upper income households.

ZAKARIA: When you look at the spending reduction, you're saying he's going to take spending down to 20 percent of GDP.

HUBBARD: Correct.

ZAKARIA: That is from about 23, 24 percent. That's a very big drop. In order to do that, what is he going to do specifically? What programs will get cut, particularly, again, the big money is all in Medicare, to a lesser extent, in Medicaid/Social Security. What would he do to Medicare?

HUBBARD: Well, he's got two parts to the spending plan. The first is the near term to 2016. Getting spending down to 20 percent is not as radical as it sounds. Spending was 20 percent of GDP or a bit less before the financial crisis so this isn't some radical rethink of the size of government.

How to do that would be cuts in discretionary spending and block- granting the Medicaid program. He's been very specific about that. Medicare and Social Security are longer terms issues. He's specifically said those are not short-term budget issues.

How would he do that? For Medicare, he said that he would support move to more of a premium support system which would limit Medicare support, particularly for more affluent seniors. For Social Security, he's talked about delaying the retirement age and slowing the rate of growth of benefits for upper income people.

So, again, the same kind of progressive solution that he's proposing on the tax side, there needs to be adjustment, but it needs to happen for upper income households.

ZAKARIA: You've worked with Governor Romney a lot now.

HUBBARD: Yes.

ZAKARIA: How would you characterize his economic philosophy? Is he a supply-sider? Is he a classic Republican kind of business-type? Is he sympathetic to the Tea Party? And don't tell me all of the above, because that's what people worry about, about Mitt Romney.

HUBBARD: No, I think the way I would describe Governor Romney is he's a problem-solver and I think the issue for him is, how do you raise economic growth in the country and how do you make it more inclusive and once you raise those questions, he's interested in practical solutions, not theoretical solutions. How practically can we do that?

And if you look at what he's proposing on the budget, on taxes, on regulations, on financial reforms, they're with those two things in mind. So I think of him as a practical problem-solver that has elements of all that you suggested, but he's not literally all of the above. ZAKARIA: We're going to come back and talk more with Glenn Hubbard, Mitt Romney's Chief Economic Advisor. We're going to ask him about the fiscal cliff, about Obamacare, more when we come back.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Glenn Hubbard, senior economic advisor to Governor Romney.

You've talked a lot, Governor Romney has, about the uncertainty -- the climate of uncertainty that makes it difficult for businesses to invest. I can't imagine something that would be more uncertain than this issue of the debt ceiling.

Do you believe that John Boehner and the House Republicans should make it clear that the United States will not default on its debt?

HUBBARD: Well, first, the United States is not going to default on its debt. We have a witching hour where the debt ceiling, budget sequestrations and the so-called fiscal cliff and tax rates are all occurring. And that will be part of a political negotiation.

As an economist, I would think that if we get to a situation where Governor Romney becomes the president, then the lame duck Congress ought to simply shift things down the road a few months to the enactment of Governor Romney's tax plan.

If the president wins reelection, that's a different negotiation, but it should center quickly on the appropriate tax policy. But there's no question that the nation isn't going to default on its debt.

ZAKARIA: But should we make that clear to prevent uncertainty? Should John Boehner make clear that the United States will not default?

HUBBARD: I can't give political advice to politicians. All I can say is the real economic issue here is both addressing the size of spending and then now you want to deal with the fiscal cliff.

ZAKARIA: Obamacare, this is a subject you know a lot about. You wrote a book about fixing health care. When I look at the problem, it does seem as though if you have an insurance-based system and you don't include everyone, you end up in a kind of negative spiral for insurance companies where they're trying to kick people off with preexisting conditions because they don't want to just have sick people on.

That is the reason that Governor Romney of Massachusetts decided you had to have a mandate. Doesn't it make sense then to preserve the individual mandate in Obamacare because that's what makes an insurance system work that you have healthy and unhealthy people in it?

HUBBARD: No, I don't think so, Fareed. First of all, you have to start with what's the goal of the reform? And I think, from an economic perspective, the goal of health care reform is to slow the rate of growth of health care costs to make both health care and health insurance more affordable. That, in turn, increases coverage.

You don't need an individual mandate to do that, but you do need to help markets work better and you identified some of the problems. You really do have to go after preexisting conditions. You have to make sure that the chronically ill are taken care of in a way that doesn't hurt the functioning of private insurance markets.

You have to change insurance regulation and make it possible to buy cheaper policies. If you do those things and you fix the tax bias against many ways of purchasing health insurance and health care, you can go a very, very long way toward cost reductions. That's really what a market-oriented health care reform is about and you don't need the individual mandate to do anything.

ZAKARIA: So was Governor Romney wrong to do it in Massachusetts because the philosophy behind it is exactly the philosophy behind Obamacare?

HUBBARD: No. What Governor Romney was doing in Massachusetts was taking a particular set of state circumstances and a particular --

ZAKARIA: Which are the same --

HUBBARD: No.

ZAKARIA: -- which is you don't have the young, healthy one buying insurance and that was kind of screwing up the insurance system.

HUBBARD: What he has said is that individual states may do all kinds of experimentations --

ZAKARIA: But, then --

HUBBARD: It doesn't follow from that that a national mandate makes sense.

ZAKARIA: But that only makes sense logically if you said the Massachusetts example, then, was a failure. Was the Massachusetts -- was Romneycare a failure because if it's a success, of course, the federal government should adopt it?

HUBBARD: I don't think you can say that. Again, it goes back to the question that you're trying to answer is the goal lowering health care cost, is it increasing the number of insured individuals? I think all of those are in the mix.

So I don't think you can draw the link between Massachusetts and the national system. I think what's on offer for the American people to decide is, effectively, Obamacare that would double-down on all the flaws that I mentioned; all the flawed insurance markets, or the flawed tax system or a more market-oriented health care system. That's really what's on offer.

ZAKARIA: What is the central focus of the Romney economic plan? How would you describe it very briefly? HUBBARD: I would say it's really single-mindedly focused on two things and an important byproduct. The two things are how do we get economic growth back to what this country is capable of and, second, how do we make that growth inclusive so that all Americans see the benefits of it?

The key byproduct of that will be job creation when people see that America's a country in which you should want to invest whether you're an American saver and investor or a foreign saver and investor. It's really that simple.

ZAKARIA: I had Paul Krugman, the economist, on recently and I asked him what he thought of Governor Romney's plan and he said, "Governor Romney's plan, as I understand it, is we need to cut government spending substantially to restore confidence in the markets. What he should look at is the experience of Europe where they have cut government spending. As a result their economies are in a tailspin, their budget deficits are widening, their debt is growing because by cutting spending you are, in effect, reducing demand, destroying the economy in a weak economic climate."

And that, to him, it's bizarre that given this evidence that Europe provides of countries from Spain to Britain, that they've cut spending and it hasn't worked, why should you adopt austerity-type programs in the United States.

HUBBARD: It is unfortunate, I think, in Europe and, to a lesser extent, even in the United States that policy-makers define austerity as being about this year's budget.

The real problem, particularly in the American setting, is how do we get the budget on a glide path towards sustainability? So in the U.S. case, to be concrete, how do we change and slow the rate of growth of entitlements in the long run? How do we gradually reduce discretionary spending; all the things we were talking about before?

If we do that right, we don't have to have such dramatic austerity this year. That's a valid point, but it is not a valid point to say that the act of austerity is growth-diminishing. The question is whether it's forward-looking, like getting government on the right path, or just budget cutting this year. That's really the question.

ZAKARIA: That suggests you would be comfortable with, you know, a much longer term plan where you would tolerate large deficits for a while as long as there was this long plan. And I would suggest to you that the Tea Party will not be happy to hear that.

HUBBARD: Well, and that's not what Governor Romney's proposed. If we can get federal spending to 20 percent of GDP by 2016, the deficit will be very small. A healthy tax system and a healthy economy would produce 18, 19 percent of GDP in revenue. So those won't be large deficits.

The very big deficits that the country should be very afraid of are the deficits that are coming in the next decade and the decade after that, and there we do have time for gradual adjustment.

But, no, we shouldn't tolerate enormous deficits today. My point is we simply don't have to make huge changes in our entitlement programs today. We can do those gradually. We do have time. But we don't have time if we wait four more years.

ZAKARIA: Glenn Hubbard, pleasure to have you on.

HUBBARD: My pleasure.

ZAKARIA: When we come back, why China has a problem with America's human rights record. I'll explain.

(COMMERCIAL BREAK)

ZAKARIA: Now for our, "What in the World" segment.

Last week, the U.S. Department of State released its annual report on human rights around the world. It covers nearly 200 countries, from Tunisia and Egypt and their uprisings, to North Korea and Cuba and the repression in those nations.

The report is an annual State Department tradition, going back nearly four decades. And for the last 13 years, it has been followed immediately by another tradition: a rebuttal.

China has released its own report on America. It says Washington is full of "overcritical" remarks about the world, but it "turns a blind eye to its own woeful human rights situation." Let's flip through the two reports.

The China section of Washington's publication begins by listing state-sponsored killings, political arrests, known cases of torture, and disappearances. The State Department's report says Beijing does not respect civil liberties. It documents known restrictions on freedom of speech, freedom of the press, and censorship.

Beijing's report, by contrast, talks about the Occupy Wall Street movement, that its protesters were treated in a "rude and violent" way. OK, not sure how that's a human rights violation.

Beijing's report also points to the homicide rate in the U.S. It goes into great length about how the U.S. is a world leader in gun violence. Again, that's not really a violation of human rights. That's what human beings sometimes do with rights. It may be bad public policy, but it's not tyranny.

But let's not simply dismiss Beijing's report. On the contrary, I think it would make fascinating reading for Americans because a lot of the problems the Chinese point out are indeed real problems, whether or not they are violations of human rights.

The report points out, for example, that with 5 percent of the world's population, we own between 35 percent and 50 percent of its civilian-owned guns. That's crazy and should make us all pause. The report says the United States has the largest prison population in the world per capita and the highest rate of incarceration. One out of every 132 Americans is behind bars. This is true and it's a terrible indictment of our justice system, one we should fix.

The Chinese report criticizes us for high unemployment, for widening the gap between rich and poor. Again, not a human rights issue, but an important critique of American society. The report goes on to criticize our health care system. It says 50 million Americans lack insurance.

It reports we've cut spending on education. School budgets in New York City have been cut an average of 14 percent a year for the last five years. The Chinese say minorities suffer disproportionately in America: 11 percent of Hispanics are unemployed, 16 percent of African Americans are jobless.

The report cites inequalities between the sexes, saying women get paid 77 cents on average for every dollar paid for men. These are all issues worth examining, discussing, and, when possible, improving. America has many problems it needs to fix.

We've put up a link to the Chinese report on our website so you can read what it has to say. Of course, it would be equally important for the Chinese public to read the State Department report on China. Now, could a Chinese news network put it on its website maybe?

No, of course not, the report is banned in China, and any website that would dare to publish it would be censored and punished. Now that is an abridgment of freedom of expression and, this is a message to the Chinese authors of that report on America, that is what a violation of human rights looks like.

We'll be right back.

(COMMERCIAL BREAK)

ZAKARIA: It has been well over a year since Syria's uprising began, but unlike with Egypt, Tunisia, or even Libya, there is no clear endgame. My next guest is the expert to talk about this. Fawaz Gerges has been in and out of Syria three times in the last year, and he says it looks and feels like a civil war. Fawaz is a professor at the London School of Economics, and he has a new book out, "Obama and the Middle East, the End of America's Moment." He joins me from Paris. Welcome, Fawaz.

FAWAZ GERGES, AUTHOR: Thank you, Fareed.

ZAKARIA: Fawaz, what do you make of this most recent brutal massacre? Does it tell us something about the regime? It feels like this is an attempt to really rule by a kind of terrible brutal example. What they are sending a signal throughout Syria is if any place tries something like this, you will be mowed down.

GERGES: Well, I see, Fareed, that Houla, the Houla massacre will not be the first and the last massacre. As you said, this is using fear as a tactics to terrorize the opposition and the population. My fear is that, in fact, the rock has set in. The significance of the slaughter in Houla is that it increases sector intentions between the minority-led government, the Alawite minority, President Assad, and the Sunni-dominated majority. What we are witnessing now, Fareed, is that the Syrian crisis, which was essentially a political crisis basically has turned into a protracted conflict. Chaos has spread all over Syria. The government, the Syrian government no longer has a monopoly on the use of force. It no longer controls many areas of Syria. And I believe that the writing is on the wall. We're going to see more and more violence in the next few weeks and next few months. My fear is that the armed, the protracted armed conflict could easily plunge Syria into all-out sectarian strife. This is the nightmare scenario in Syria.

ZAKARIA: Now, Fawaz, for a year, while many people believed and predicted that the Assad regime would fall quickly, you argued the opposite, you said that the regime did not seem likely to fall for a variety of reasons. You said that there were no defections among the military apparatus. Do you think that with this new situation, the regime can hold on?

GERGES: There are so many unknown variables. I mean, the first unknown variable is the basically costs of the sanctions that have been imposed on Syria in the last year or so. As you know, America is waging a war by other means, an economic war. A psychological war. Can Syria survive another harsh winter in terms of Syria needs gas, cooking oil, food.

Secondly, we don't know what's happening within the security apparatus. The extent of tensions between the military and the security apparatus. But the reality is the security forces in Syria have proved to be much more resilient than many observers and many western governments have believed. That the Syrian government, the Assad regime, despite everything that you have heard, retains a critical base of support. You have many Syrians, millions of Syrians, still support this particular regime. And more importantly, Fareed, the Syrian crisis has been caught in a fierce regional struggle between the Iranian camp on the one hand and the Saudi camp on the other hand. Syria is receiving tremendous support from both Iraq, America's ally, and Iran as well. Not to mention that the Security Council resolution - Security Council has been neutralized by a double Russian and Chinese veto. So internally, regionally and internationally, it seems to me that this is a highly complex and protracted conflict, and no, far from being his days numbered, I think Assad will be with us for a while, Fareed, unfortunately for the Syrian people.

ZAKARIA: Can I get you to expand on one thing you said there, Fawaz? You mentioned that this has turned into a sectarian, regional struggle, with the Saudi Arabia funding what is becoming essentially a Sunni insurgency against the Assad regime, Assad being an Alowite, which is essentially a Shiite regime, supported by Iran but also by Iraq. So our ally, the Iraqi government, Prime Minister Maliki, is supporting the Syrian regime. Is that correct? GERGES: It's absolutely correct. In fact, I would argue that the Tehran-Baghdad road (ph) has become the lifeline of the Assad regime. Syria is receiving tremendous support, material support, political support, and even military support, and Iraq sees itself as basically part of the alliance against the so-called the Turkish, Saudi, Sunni dominated alliance, but my fear is that what the Houla massacre has done, it has poured gasoline on a raging fire, and my fear is that the essentially political conflict in Syria could easily expand into a sectarian strife, destroying not only Syria, but also neighboring countries like Lebanon and Jordan and spilling over into Iraq as well.

ZAKARIA: Fawaz, what do you think the United States should do? Do you think, you know that there are people advocating military intervention? Mitt Romney is now saying the president should take a firmer stand, whatever that means. What do you think we should do?

GERGES: Well, Fareed, it's extremely difficult to watch the massacres like this Houla massacre and remain to be neutral. I really feel sometimes being morally complicit in saying that military intervention in Syria will most likely exacerbate an already dangerous situation. In fact, I would argue that military intervention in Syria will likely plunge Syria faster into all-out sectarian strife. Not to mention the fact that regional powers will come in, Hezbollah and Iran. This will turn into a region-wide conflict. And there is no Security Council resolution to intervene in Syria.

I think the Obama administration is doing the right thing. That is, trying to economically strangle the Assad regime. The only point here is that we know from the history of sanctions, to what extent have the sanctions exacted a heavy toll on the Assad regime? How long can the Assad regime basically maintain its posture, given the fact it's receiving support from its regional allies, Iran and Iraq, and also trade with Lebanon and Jordan and Turkey? So, the reality is all options are bad, Fareed. The menu of choice is very limited. I don't think the Obama administration has the luxury to basically decide -- entertain military intervention in Syria. This is really quite what I call the nuclear option for the United States and Syria and its neighbors as well.

ZAKARIA: Fawaz Gerges, pleasure to have you on. We'll talk to you again soon.

(COMMERCIAL BREAK)

ZAKARIA: How do you make a small business, a conglomerate or even a country competitive? My next guest answers that questions for CEOs and world leaders every day. Michael Porter is widely recognized as the world's most influential and most cited thinker on management and competitiveness. He is a professor at Harvard Business School, the author of 18 books. He is also one of the founders of the consulting firm Monitor. He joins me now.

Michael, you have this new study out that strikes me as very important. Describe what it is. MICHAEL PORTER, HARVARD BUSINESS SCHOOL: Well, Fareed, the Harvard Business School has decided as an institution to take on the issue of U.S. competitiveness. We feel there's something deeply troubling going on in the U.S. economy. It's not just a cyclical downturn. So about a year ago, we started to do a substantial body of research on this question of what's happening in the U.S. economy? What's changed? How do we stack up against other countries? And a core part of that work was a survey of all of our alumni, Harvard Business School alumni. We have many, many thousands of alumni around the world in very senior positions sort of making those decisions that drive the global economy, and we wanted to see what they thought, and so the results of that survey are really part of this body of work.

ZAKARIA: So the headline strikes me as 71 percent think the U.S. is slipping badly in competitiveness compared with its key competitors.

PORTER: That's right. But I think before we -- I think we have to also be very clear about what we mean by competitiveness. And the way we think about competitiveness is the way we think America must think about competitiveness. Competitiveness is manifested in two different things. No. 1, companies based here have to be able to compete successfully in international markets. That's part one. Part two is in the process, we have to have a high and rising standard of living for the average American.

If our companies compete by cutting wages and a cheaper dollar, we're actually not really competitive. That's a sign that we're not competitive. And so the question is how can we --

ZAKARIA: So Greece is becoming competitive by cutting its wages. You're saying that's not the path to prosperity.

PORTER: That's not the path to prosperity. The path to prosperity comes through productivity, through creating a business environment and a set of human skills in the workforce that allow you to operate very, very productively and justify a high wage, given all these other workers in the world and all these other countries that are making so much progress, we can only maintain, much less improve our standard of living if we can really drive productivity up.

And we've dropped the ball in America, frankly. We haven't been strategic. We haven't been working nearly as relentlessly to address our issues and weaknesses as so many other countries. And I can tell you a story after story about that.

ZAKARIA: And your alumni in this survey, it sounds like they're saying we are going to keep having to invest more abroad. We're going to have to shift production. What I was struck by was they said we're not just going to shift factories. We're going to shift R&D, research and development. So we tend to think the smart guys will still be here, will be inventing all the products, but it will be made by cheap Chinese labor. No, no, they're saying we're going to shift the research labs there. PORTER: The findings of this survey were, as you said earlier, about 71 percent of our alumni felt that the U.S. was going to face declining competitiveness, or was experiencing declining competitiveness. And if you take the two parts of that definition -- one part is companies, the other part is workers -- I think many of our alumni thought companies are going to muddle through. They can relocate. They can offshore. They can outsource. But it's the workers that are going to face the real challenges. It's going to be -- we see very great challenges in maintaining our standard of living.

And we did also survey companies on who -- you know, are you considering moving something in or out of the U.S.? And we found about 2,000 alumni that were personally involved in such a decision. And we were very interested in how they were thinking about those decisions. And we found that overwhelmingly, they were moving stuff out. There is starting to become a sort of trickle of activity moving back to the U.S. That's a very hopeful sign. There are some things working in our favor. But ultimately, there's some fundamentals here that we have let get out of whack.

ZAKARIA: When you asked those people, those 2,000, what are the reasons you are moving stuff out? What are the reasons you're investing more abroad? What do they say?

PORTER: Well, the No. 1 reason was that our workers were not productive enough to justify the higher wages. And so the lower wages abroad were a good deal.

You would be perhaps surprised to hear that about 30 percent said that they were moving out because they couldn't find the skills they needed in America. So -- and that's one of our challenges. We've let our skills slip. It's not that we don't have great talented Americans. We have lots of them. But compared to other countries, we don't have enough. And we're not renewing that pool. The retiring workers in America today tend to have more skill than the new workers coming into the workforce, which is quite a striking statistic.

ZAKARIA: What I was struck by finally is your -- when you asked -- when you looked in your survey and asked them, what do you really want? If you could only get one thing, what strikes me is that it wasn't the tax code or regulation. What they really ultimately wanted, what you call nonselfish things, which is improve the quality of the workforce.

PORTER: Right. Absolutely. I think the business community in America is starting to awaken to its role in where we are today. And I think that role has emerged partly because, as a many businesses globalize and put more and more of their activity outside of the U.S., which we want if it facilitates penetration of international markets, they stopped really thinking about America. And in our business school project, we like to talk about the concept of the commons. We all depend on the commons. The commons is our workforce, our supplier base, or infrastructure. And businesses really have not been as aggressive as they once were in investing in the commons.

And there's, I think, an untapped opportunity and now considerable activity going onto in the business community to start to invest in the workforce and start to invest in nurturing local suppliers and start to deal with the skill problem. Let's not wait for Washington anymore. Let's not wait for government. We in business through our trade associations and in our own companies can actually start tackling some of these issues.

That said, if we could make five or six major public policy steps, that would be transformational as well. So, I don't know. Hopefully you know, it looks like we're sort of stalled until the election, but hopefully -- and this is the major purpose of our project -- hopefully if we can start to talk about this problem openly and honestly, understand the real facts of how we're doing, what we're falling behind on, then the next president, whoever that is, can start to get some of the work done that we need.

We believe this country has amazing core strengths. There's no reason to be pessimistic. But if we can't fix simple things that we can fix quite quickly, we're in for a tough time in terms of our standard of living, and this jobs problem is just going to go on and on and on and on.

ZAKARIA: Michael Porter, pleasure to have you on.

PORTER: Fareed, thank you.

ZAKARIA: And we'll be right back.

(COMMERCIAL BREAK)

ZAKARIA: Queen Elizabeth II is of course marking her diamond jubilee this week. That brings me to the question of the week. When did the British royal family change its name to Windsor? Was it A, after Henry VIII broke with the Catholic Church. B, after the Battle of Waterloo and the defeat of Napoleon? C, during World War I? Or D, during World War II? Stay tuned, we'll tell you the correct answer. Go to cnn.com/fareed for more of the GPS challenge and lots of insight and analysis.

Also, you can follow us on Twitter and Facebook. Remember, if you miss a show, go to iTunes. You can get the audio podcast for free, or you can buy the video version. Itunes.com/fareed.

This week's book of the week is a reissue of a classic, one that is special for me. My first published article was a review of a book called "The Wise Men." The story of the emergence of America as a global power in the 1940s and '50s, but told through the lives of six great American statesmen who were also friends. It is a fantastic read, one of my favorite books ever. The title is "The Wise Men" by Walter Isaacson and Evan Thomas. Yes, that Walter Isaacson.

And now for "The Last Look." Furniture design is not our forte here at GPS, but take a look at this magazine rack that caught our eye. Abstract perhaps? Portraying the Alps? No. These sharp angles are the rise and fall of Italy's ten-year bond spread. The higher the peaks, the more it costs to borrow money. The highest peaks are from the Berlusconi era. The recent plummets -- the super Mario, Mario Monti era. So if you want someplace to put your "Time" magazines, send some euros Italy's way. It was designed in Sicily by a concern called the Nonexistence (ph) Studio. Perhaps then don't be surprised if your order doesn't arrive.

The correct answer to our GPS challenge question was C. The Windsor name was adopted by the British royal family in 1917 during World War I when Britain was at war with Germany. They are of course originally a German family, and the old Saxe-Coburg-Gotha moniker was dropped.

Thanks to all of you for being part of my program this week. I'll see you next week.