Remarks and a Question-and-Answer Session via Satellite to the Young Presidents Organization in Tucson, Arizona

The President. Good morning.

It's a pleasure and a privilege to join such an accomplished group of producers and achievers. I almost thought about wearing snow clothes here, being in Washington. But you all became presidents of sizable corporations by the time you were 40. That says a lot about your energy, drive, and vision—some of us take a little longer.

You're the people most able to lead the coming economic recovery, increase its momentum, and bring renewed prosperity to America and the world. By definition, you are risk takers, capitalists, and entrepreneurs. Your comparative youth also indicates you're open to new ideas, ready to try new ways of doing things. And that's just the kind of attitude we need to guide America into her next period of economic greatness.

Those of you from the Midwest are well aware that the recession has hit hardest in areas dependent on what has been called our bedrock industries—autos, steel, chemicals. At the same time, some of our service industries such as banking, computers, and communications are not as affected by the slump. They are becoming pillars of our economy.

We're stepping into a new economic era and one of the most challenging and exciting decades in our history. High technology is revolutionizing our industries, renewing our economy, and promising new hope and opportunity in the years ahead.

America is emerging from a painful period of adjustment. We're paying the price for years and years of big spending, big taxing, and overregulation. We're also suffering the structural problems of an industrial society transforming into more of a service and information society. Our traditional basic industries are not about to die away. America must never abandon them. They're fundamental to our economic base. But each of us, from corporate president to government official to millions of men and women in the marketplace, must recognize what is happening so that we can harness the forces of change to help all of our people.

This technology phenomenon is not new, but it is accelerating. Since 1945 service industries have been providing an increasing share of American jobs. Between 1977 and 1980, jobs in computers and data processing increased by 64 percent. By the year I took office, nearly three-quarters of all Americans worked in the service industries. In 1982 the service and information sector of our economy made up 50 percent of our total gross national product. For this growth to continue, we must both revitalize our industrial complex and encourage the boom in our service industries. They depend on each other, and both have a vital role in tomorrow's free market economy.

Our basic industries must move into this new era by using and catering to new technology. Our factories must be retooled and recharged, and our systems must integrate high technology whenever possible. If we're to compete internationally, we must, as someone once said, "walk forward, not backward into the future."

You, the captains of industry and commerce, and we in government share the responsibility for moving our people and our economies over the threshold. We share an obligation to lift all our people into a new age of prosperity, bringing skills to the untrained and opportunity to those without hope. But as Franklin Roosevelt said, "We cannot attain a lasting prosperity in a nation half boom and half broke."

In the long run, if men and women like you fulfill your visions, economic growth will put our unemployed back to work, revive idle factories, and open the necessary doors of opportunity. As we've seen with the reopening of the Chrysler plants in Fenton, Missouri, and the rehiring of a total of 3,200 workers there, the developing recovery is beginning to provide jobs. But as I've said before, our people continue to hurt. Those of us in government and you in the private sector cannot afford to sit back. We must act. We'll not rest until every American who wants a job can find one.

In the short term, I have twice extended the unemployment benefit of workers whose insurance had run out. And I'm asking all Federal departments and agencies to study the prospects for speeding up already budgeted construction to provide jobs sooner than later. But there are other challenges. We must bridge the growing gap between the skills of today's work force and the future needs of business and industry. That's why last October 1 signed the Job Training Partnership Act which will train more than 1 million of our citizens every year in skills that local business, civic, municipal, and labor leaders say are needed in their communities.

Shortly, I will submit to the Congress the employment act of 1983, designed to get at the special problems of the long-term unemployed as well as aid young people trying to enter the job market. I'll propose extending unemployment benefits, special incentives to employers who hire the long-term unemployed, and support for programs for displaced workers, training, and relocation assistance. Our proposal will also include new incentives for summer youth employment to help young people get a start in the job market.

In our commitment to ensure that all of our people share tomorrow's opportunities, this administration is also moving to assure legal and economic equity for women. We will also seek extension of the Civil Rights Commission. And we will propose measures to contain the skyrocketing costs of health care.

Government must get a hammerlock on the budget monster that threatens the road to recovery. I recently sent to the Congress a budget that is fair, prudent, and realistic. It includes, first, the strong but necessary medicine of a Federal spending freeze; second, specific measures to control the uncontrollable entitlement programs; third, $55 billion in defense savings; and, fourth, to ensure the reduction and eventual elimination of deficits, a standby tax limited to no more than 1 percent of the gross national product, to start in fiscal 1986, but to start only if Congress has implemented the proposed spending cuts and if the deficit is more than 2.5 percent of gross national product.

At the same time, however, this administration will fight to preserve the third year of the tax break coming to working men and women this July and the tax indexing provision which will protect all Americans from inflationary bracket creep. We must not allow inflation to flare up again because of deficit spending, as it has in the past. But let's not lose sight of one vital point: America didn't run up a trillion-dollar debt because government didn't tax enough; we're saddled with a trillion-dollar debt because government spent too much.

I urge you, as leaders of the private sector, to join us in our campaign to forge a working partnership for recovery between business, labor, education, and government. Already, such a partnership is addressing the training needs of American workers. With the help of our Task Force on Private Sector Initiatives, thousands of working people at the community level have already made the shift from dead-end jobs and low-demand skills to the growth areas of high technology and the service economy.

There is so much more to be done. Together, we can claim this new world of technology and innovation for America and all of our people.

Now, I understand you may have some questions for me.

Moderator. Mr. President, first a question from Fritz Groupe, who is president of the Groupe Company.

The President. All right, Jack.

Heavy Industry in the U.S.

Q. Mr. President, you indicated in your address to us that we're seeing a trend towards the high tech and service industries, the information society. What role do you see the U.S. playing in heavy industry?

The President. Well, there's no question that this doesn't mean—or possibility that this means that we're going to do away with those industries, or see if we can do without them. That would be impossible; they are still a strong base. But this transition we're going through does not so much mean the disappearance of, say, one of the smokestack industries. It means that high technology is moving in, even there.

Recently, visiting the automobile company that I mentioned in my remarks, I stood at an assembly line that once used to be lined with workers—but the work was all being done by robots. In other words, we will still have the auto industry and the steel industry and all those things that go with it. We must have them. But they will not require the same number of workers they did before.

Moderator. We have a question from Jiggs Davis, president of Baron Data Systems.

Reduction in Capital Gains Tax

Q. Lowering the capital gains tax has increased the formation of new businesses in the United States. What else can be done to really increase that formation and to increase business in the United States and to help compete in the world market?

The President. Well, we have already put some things in place. One of them is that third installment of the income tax [cut] that I mentioned. But in our tax program of 1981, we made great changes, as you know, in business tax, to make it more possible-faster write-off, and so forth, for replacing plant and equipment. A number of things of that kind were done to have the same effect that the lowering of the capital gains tax has had. And that is the greater investment-as a matter of fact, government is getting more revenue as a result of the reduction of that tax rate.

So, we have a number of tax proposals in there that are already in place. We're looking at other things of the same kind.

And the improvement that has been made in personal savings—we're in the best situation in that, that we've been in since 1976. And that has added billions and tens of billions of dollars to the pool of private capital that is available for investment, so that when we can once get at the task of reducing these deficits, which we're going to do, but even with the deficits, there will still be money left for private investors, as well as to fund those government deficits.

Moderator. John Darden, president of Sands and Company.

Defense Spending

Q. Mr. President, among rising concerns about the cost of the arms race, how can you justify the large increase in your budget for defense spending for the next several decades?

The President. Well, now, I know there's been a constant drumbeat about defense spending, as if that's responsible for all our ills. And it makes me able to understand why such a question would come.

In the first place, we are spending a lower percentage of the gross national product on defense than has been customary in the past, with the exception of just the few years before we came here, when there was a real decline in defense spending and a real decline in our ability to protect the freedoms and the people of America.

Now, not only have we reduced the percentage to about 7 percent of gross national product—and back in the fifties and sixties, it averaged 9 and 10 percent of gross national product—but we also are taking a much smaller percentage of the budget as a whole. Defense spending that we've asked for is only 26.7 percent of the budget. Historically, defense spending has been around 50 percent. And in the time of John F. Kennedy, in his administration, it was about 46 percent.

So, we feel that it is necessary to do what we're doing. But the budget that has grown the fastest, that is taking the greatest share, is that of the transfer payments, the so-called entitlement programs, where the money is being taken from workers and earners by way of tax and is being distributed.

Now, we are going to be very careful and are careful that we preserve what we call the "safety net" and make sure that those transfers will continue to the people who are truly needy and who must, through no fault of their own, depend on the rest of us. But we have found that those programs had become so loose administratively that there were people that were sometimes better off than those who were being taxed to support them, who were receiving those transfer payments. We have done our best to tighten that up. We are making gains in this '84 budget, if the Congress will pass it, that will remedy the situation with those so-called uncontrollable items, the entitlement programs, these transfer payments.

But again, let me point out that the biggest amount of the defense spending is not, as some believe, the investing in great, new weapons systems. It is the simple fact that we began paying the military something a little more commensurate with the service that they're rendering to our country, and the result has been, in these 2 years, a fantastic improvement in the quality and the quantity in our volunteer military. As of 2 years ago, people were saying it was a failure and that we would have to resort to the draft. Today, we have waiting lines. Today, we have an intelligence level and a number, a percentage of high school graduates in the military that is higher than we've ever had before, even when we were using the draft.

But I don't see how those who are criticizing can justify it that we are spending an inordinate amount on the military. I've given you the figures on that, the percentages, and so forth, and I have to say that-and, incidentally, I pointed out in my remarks that over the next 5 years, we, ourselves, are cutting $55 billion out of our original program. We have already cut some 41 voluntarily—billion dollars—out of that, and the Congress has cut some more, which I wish they hadn't, because it did throw us off balance.

But we're going to continue to find the efficiencies and the economies wherever we can that will get the best out of every dollar that's being spent on defense.

Moderator. Ed Stanley, the president of Stanley Investment and Management Company.

Views on the Presidency

Q. Mr. President, all of us serve as chief executive officers of our companies. You're the chief executive officer of the biggest enterprise on the face of the Earth. We would be interested in your personal reflections on the job, how you deal with the decision-making process, and the pressures that make your job as difficult as it really is.

The President. Well, we do have a lot in common. And I think, maybe, one of the things I do that I learned as Governor of California is pretty similar to what you, as chief executives, have to do in your businesses.

First of all, I want all the input I can get. Now, I had learned over the years—or at least was informed—that Cabinet meetings in government, in Washington for example, were kind of once-a-month ceremonies where the Cabinet got together and various Cabinet members reported on the doings of their particular agency. Well, I changed that in California and changed it here. Our Cabinet operates as kind of a board of directors. And if the issue involves one particular agency, that individual just doesn't have the floor all to himself. Everyone is affected. So, everyone gets into the debate and the discussion as they would around a board of directors table.

Now, the one place where we differ is we don't take a vote. I realize that I have to make the decision. So when I've heard all the pros and cons—and I insist on hearing all views—when I've heard enough to feel that I am soundly briefed, I make the decision. Sometimes I wait a little bit and go back in the office and stew around with it myself for awhile; sometimes I make it right there at the Cabinet table.

But that, I have found, is one of the most effective ways to get things done and also to have some confidence that I had had all the input that there is on a particular subject. And, as I say, I think to that extent it's pretty much what you yourselves do. I have a staff just as you also do. And they're involved in all of this, and I hear their views, also.

Yes, it is an awesome responsibility. I am grateful for the 8 years that I had in California in that position, because it probably was the best training that anyone could have for this particular job—much the same thing on a little different scale. And, of course, we didn't have a foreign policy in California; we have that now. But, once again, the same procedure—the National Security Council, State, and Defense, and all. And this involves other Cabinet members, also-Treasury and the Commerce Department and all are involved in a great many of the international aspects of this job. So we've followed the same process with them. That's the way it works.

Moderator. Thank you very much, Mr. President. Thank you.

The President. Well, thank you. And together, let me say, we're turning America away from past policies of despair and stagnation. Yes, we still face tough challenges. But we know they're not insurmountable. Just as our forefathers tamed a wild continent and built unparalleled prosperity with their vision, courage, and hard work, so we can claim the promise of tomorrow. If we listen to our hearts, believe in ourselves, and pull together, nothing can stand in our way.

Thank you all very much, and God bless you.