While the Memorial Day holiday is a reflection on our history, it's also a perfect time to assess our future in a very competitive global economy. That was the thinking behind the National Summit on American Competitiveness, held this past week in Chicago.

Organized by Commerce Secretary Carlos Gutierrez, the meeting brought together panelists including current and former corporate chairmen of Intel, IBM, Boeing, Deere, Caterpillar, and Office Depot. Also contributing were government officials ranging from Chicago's Mayor Daley and Treasury Secretary Henry Paulson to the governors of Arizona and South Carolina, as well as top professors from Harvard and Dartmouth.

All were addressing the issues that will keep America competitive in a world that is changing quickly.

As former IBM Chairman Lou Gerstner commented at the outset: "America should be very worried because economic strength is at the heart of America's future. Our freedoms depend on our economic strength. Now, other countries understand how to build competitive, knowledge-based economies."

In other words, there was a general recognition that the global competition is heating up. And a general agreement that the United States is falling behind in some key competitive areas, mostly revolving around the need for a skilled workforce. Here are the top issues recognized by the conference — and some proposed solutions.

If America is to compete, we need a skilled workforce. But there was agreement on the sorry state of K-12 education, which is not turning out high school graduates who have the basic skills to work in the knowledge-based industries of the future. In fact, 30 percent of our children don't even graduate from high school!

Gerstner put it bluntly: "We are becoming a nation of ignorant people. One in five American adults thinks the sun revolves around the earth!"

Re-making our educational system to compete with other countries is a huge national challenge. Some suggestions:

— Create and measure national educational standards, and take power away from local school districts to create the curriculum.

— Increase compensation and incentives for teachers, while doing away with union restrictions that protect ineffective teachers.

— Create competition in our school systems, much as it exists in higher education.

— Establish a national "skills strategy" to make sure that there are workforce paths to jobs of the future.

Clearly, these ideas would require a public outrage over our current educational system. Craig Barrett, Chairman of Intel, suggested we'll be on the right track when state governors decide not to give out driver's licenses without a high school diploma!

This is America's strong suit as we move into the new global growth century. We create new stuff — products, processes, technologies and uses for those inventions. Last year, America had 80,000 patents granted, while China had only 700, and India only 500, according to noted Harvard professor and author Michael Porter.

Our ability to innovate is critical, said Boeing Chairman, James McNerny, Jr.: "In today's world, innovation is our only fundamental source of competitive advantage."

The government has a key role in innovation. After all, many technological and scientific advances were made possible by government-supported research at NASA and the National Institutes of Health. But while innovation can be fostered by government, it does not take place within government.

For that we need the entrepreneurship of the private sector, which brings new products to market and creates new jobs to boost economic growth. And, in turn, that spirit of entrepreneurship requires a financial and regulatory climate that both incents and rewards risk-taking and innovation.

America needs to be the preferred location for the world's smartest people, so that innovation and growth can be fostered. Yet many of our current policies, as well as the public opinion trend, are moving in the opposite direction.

For example, we allow students to be educated here in the highest levels of science, applied mathematics and technology — but then refuse to give them a green card to work here. So they return to their homelands and create business there!

We can't control our illegal immigration, so we focus on the immigration problem by limiting legal visas for skilled workers, thus depriving our technology industry of the resources to grow and dominate the global competition.

Yet, Michael Porter made a tough point when he said: "We can't use immigration as a substitute for equipping Americans to succeed through education."

History shows that every time America has raised trade barriers, our country has suffered. And that every time we have faced up to our competition, we have unleashed our competitive spirit to create new and growing sectors of our economy. Unfortunately, public opinion is currently led by an emotional appeal to protectionism, not a recognition of history.

Deborah Wince-Smith, the president of the Council on Competitiveness pointed out that we are in a global competition that has a 24-hour labor arbitrage. That is, work will be done where it can be done most cheaply, so we can't compete on low wages or on commodity products.

But we can't build a trade wall around ourselves because in just a decade, 80 percent of all consumers in the world will be outside the United States!

Fairness is critical in any trade agreement. Porter explained that the United States is in the business of "producing intellectual property" for sale. But while we're buying goods from China, they're "stealing" our products, our intellectual property. Trade agreements must deal with that issue, he stressed.

The two key ingredients in this discussion were healthcare costs and legal costs. The fact that our companies pay twice as much as other countries for healthcare distorts business decisions and lowers wages.

One key remedy for our healthcare system would be to equalize the tax treatment of health insurance purchases. Currently businesses can deduct the premiums while individuals can't. Another suggestion is more regulation of insurance companies to make sure they deliver the promised coverages and can't cancel when an insured becomes ill.

Put in perspective, the issue of healthcare costs is apparent. Healthcare costs are increasing at $220 billion per year. Said one panelist: "It's our Achilles' heel in our fight to remain competitive."

The audience of business executives nodded in agreement throughout much of the discussion. But the sad fact, noted one panelist, is that these issues are not being discussed in our national political debate. Instead our Congress is focused on short term solutions such as passing out $180 billion in $300 checks!

Will it take a massive decline in our standard of living over the next decade to get America to focus on these key strategic issues? Sadly, it's been our history that we only rally in a crisis.

Even worse, will we waste our resources on trying to protect the past, instead of competing for a new global future? It's something to consider as we celebrate this Memorial Day holiday.

Let Gerstner have the last word: "We need to focus on our greatness, not try to tear down their greatness — because that will not happen!"

And that's The Savage Truth.

Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. She appears weekly on WMAQ-Channel 5's 4:30 p.m. newscast, and can be reached at www.terrysavage.com. Her new book, "The Savage Number: How Much Money Do You Make?" has just been published. To find out more about Terry Savage and read her past columns, visit the Creators Syndicate Web page at www.creators.com.

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