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CU alumnus, author to appear at Conference on World Affairs

When Frank Islam talks about the American dream, he knows whereof he speaks.

Born in India, Islam immigrated to the United States at 15. He earned bachelor’s and master’s degrees in computer science from the University of Colorado.

After working extensively in the federal government, he founded QSS Group, an information-technology company.

“I believe if you aim high and if you work hard, you should be able to pursue your dream,” he told the Potomac Almanac last year. “Through hard work and initiative, I was able to build an information-technology business from less than $100,000 to over $300 million in 12 years and sell it to Ross Perot in 2007 for $250 million.”

Though he has lived the American dream, Islam believes that dream is in peril. He and co-authors George Muoz and Ed Crego make that case—and offer suggestions on how to reverse the trend—in a recently published book called “Renewing the American Dream.”

Islam, who will be a participant in this year’s Conference on World Affairs at CU, now serves as CEO of FI Investment Group LLC, which focuses on providing growth capital to emerging companies and manages specialized and branded funds.

Islam and his co-authors define the American dream as the opportunity of citizens to realize their potential and to succeed, which includes “getting educated and working hard in order to have a good job that pays decent wages, provides adequate benefits, puts food on the table and a roof over one’s head, and allows for retirement with dignity.”

Islam says the dream is at risk because the United States is losing its competitive advantage. Recently, he answered Clint Talbott’s questions about the dream, the risk and the potential solutions. That interview follows:

“Renewing the American Dream” argues that America is in economic decline and that the American dream is at risk. A recent issue of Time magazine handles this question with pro-con essays, one arguing that America is in decline and the other disagreeing. Do you think most American people realize that the American Dream is at risk? If not, how could they be persuaded that it is at risk?

As the poor economic conditions persist, more and more Americans have come to the recognition that the American dream is at risk. The real question confronting us is not whether America is in decline, but is the American dream in decline.

The answer to that is an unequivocal “yes,” because over the past three decades we have had a significant redistribution of wealth in the United States. We are becoming a nation of “ have a lots” (the top 1 to 2 percent of citizens), the “ have somes” (40 to 50 percent of Americans who feel relatively secure but are still nervous), and the “have nots” (50 to 60 percent of the populace—our growth segment) who are hurting as a result of structural unemployment, diminished net worth and economic insecurity.

We are becoming a nation without a middle. If we allow that to continue, the American dream will diminish and eventually disappear. The denialists are focused only on the macroeconomic perspective and the wealth of the nation and not the microeconomic perspective and what is happening in this country to educated people who are willing to work hard and play by the rules. Many of those people are suffering. If we allow this to continue, the American dream will die, and America as we have known it as the land of opportunity will die with it.

In interviews and essays, you have noted that the United States is suffering from several maladies: a dwindling supply of permanent, good-paying jobs; a shrinking middle class, struggling small businesses and a relatively small manufacturing sector. You note that the United States has lost almost 2 million manufacturing jobs in the past two years alone, and you suggest that tax incentives for businesses could help to reverse this trend. The question here is about the scale of the economic imbalance: Could tax incentives be devised that are large enough to offset the competitive advantage of using cheap, foreign labor? If so, how?

It’s not just about tax incentives. It’s also about leveling the playing field to ensure that we are involved in fair trade rather than free trade. Right now, the United States is the purest “free trading” country in the world because we are not very restrictive in our tariffs compared to all other nations. So, part of restoring our competitive advantage is to ensure that we are in “fair fights” that benefit not only American companies but also American workers.

Now back to taxes. It’s not the size of taxes but whether we use them strategically to keep jobs at home and to attract jobs here from other countries. Here are two examples: The United States bails out GM and requires job cuts as part of that but imposes no requirements on job growth in the U.S. GM begins to be profitable and turns around and invests in building new batteries in China and opening or expanding plants. In contrast, BMW and Volkswagen and other foreign nameplates are attracted to open new plants here because of state tax incentives, a quality work force and comparatively lower manufacturing costs (materials and human resources) here than in Europe and the mature Asian markets.

Example two relates to government-supported R&D. Right now we give American companies taxpayer dollars to innovate but have few requirements on where the product should be made. This is simply corrected by saying that if you invent it here, and are supported with tax dollars, you make it here.

You make a critical distinction between Gross Domestic Product and what you call IEW, or Individual Economic Well-Being. While GDP is rising, IEW is falling. In a recent essay, you noted that failing to build both GDP and IEW would mean that America would have “virtually no middle class.”  For most Americans, that is indeed a terrifying prospect. But given the current, divisive political environment, do you think the nation and its leaders have the ability to confront this issue?

I believe that the nation is ready, but most of our leaders are not. The Tea Party on one side and the reaction in Wisconsin to trying to eliminate collective bargaining on the other are indications that as citizens, we are wrestling with this issue. That is a good sign.

The contra-indicator is that we are dealing with symptoms such as the budget deficit in isolation or trying to blame government employees or big government as the problem instead of properly defining the situation and getting to root causes. My firm belief though is that we have begun the journey and that Americans are practical people and once you get past hyperbole and angst, we search for solutions.

The emergence of bi-partisan groups such as the No Labels movement accelerates the search process. That search, as long it is not controlled by the extremes on either side, will be led by 21st century, thinking citizens who will engage in productive engagement and the political leaders will follow. When no one in power speaks for the middle class, it must speak for itself.

You suggest a National Global Competitiveness Commission structured similarly to the 9/11 Commission and formed as a non-partisan rather than bipartisan group. While the 9/11 Commission made important contributions, many of its recommendations were not followed by Congress. If a National Global Competitiveness Commission were formed, do you think there is a way to structure it such that its recommendations carry more weight than those of the 9/11 Commission?

As we note in the book, we need to have more business leaders and citizens on the commission and fewer politicians. But the bottom line as we are now learning from the attempt to implement the recommendations from the Deficit Reduction and Budget Commission headed by Erskine Bowles and Alan Simpson is that we need fewer ideologues on commissions and in Congress. We need individuals who are willing to compromise and engage in authentic dialogue. In this regard, hats off to the Gang of Six in the Senate for their courageous attempt to bring sanity and thoughtfulness to a mostly mindless and Pavlovian process. They are engaged in the kind of bi-partisanship that we will need to restore the nation’s competitive advantage.

You and others have noted that small businesses create most of the jobs in the United States and that small businesses are having trouble getting capital for investments. What action would rectify this problem?

Consider establishing a new national bank such as an Infrastructure Bank or a Business Development and Investment Bank to lend to those businesses, or allow the government itself to make more direct loans to business. These banks could be supported with a blend of public and private sector capital—one thought would be to issue “war-type” bonds with incentives in them to high-net-worth individuals who invest in the banks.

The new small business act that was passed recently helps to address this problem. But it doesn’t go far enough. It is skewed to giving more capital to lending institutions with some new incentives and accountabilities without enough real traction to promote a dramatic increase in small-business lending. The primary beneficiaries from this act will be the regional and local banks that will use the loans to build up their balance sheets and not small businesses themselves.

The promotional material for your book cites several recommendations that you and your co-authors make. One of them is to establish an independent oversight body to monitor the Federal Reserve Board. Why is this important, and what would it accomplish?

As the recent hearings with Chairman (Ben) Bernanke attest, the Fed is under scrutiny, and it should be because of the events leading up to the economic collapse and the reaction thereafter. Up to this point, the Fed has been accountable to itself and a small group around it. So there is a need for balance.

On the other hand, the Fed has been the only institution to step into the void and almost singlehandedly try to push the American recovery forward with QE1 and QE2. We already see the result from England of attempting to cut too deep.

Some Libertarians want to eliminate the Fed altogether. I would not. If you did, you would move toward a form of Hayekian economics, which never has existed anywhere except in the minds of utopian philosophers and capitalist exploitationists, or an extreme form of Keynesian intervention or socialistic control, which would not benefit the United States or its citizens.

The promotional material also suggests that students in middle school be taught civics and civic engagement. Are these topics not being taught today, or are they not being taught well enough?

Today we emphasize teaching to the test in reading, math and science. Nothing else matters. Civics and civic engagement are basically shunted aside and into the shadows of the educational system—especially in the middle schools, where attitudes are formed about democracy and citizen participation. This lack of understanding is a crisis for our country and its future.

In one interview, you suggest giving a one-year payroll-tax holiday to employers and employees, which could preserve jobs or increase job growth. You suggest that employees would benefit and “boost much-needed consumer consumption.”  Given the U.S. trade imbalance, how significantly would such consumer spending boost the economy?

Quite significantly. Our domestic consumption has always been a key driver of our GDP. As we can see, the recent taxation changes are designed to free up consumer purchasing—and to some extent they have. Trade imbalances remain real issues that have to be dealt with. But, in spite of imbalances, our citizens need good-paying jobs, higher net worth, less debt and more disposable incomes to increase consumer consumption. This consumption has always been a driver for the American economy, unlike, say, that of Germany or Japan. Over the long run, we might change the equation. In the short term, we need to accelerate the return to a sense of normalcy and stability. Enough consumers with the ability and desire to consume can help accomplish that.

You have also said that U.S. corporations need to lower labor costs and boost productivity. What is the likelihood that reducing labor costs would work against a rising IEW?

 Lowering labor costs and boosting productivity should not mean lowering wage rates. In fact, increasing productivity should increase wage rates for those employees in the work force. Unfortunately, what has happened is that the decreases in labor cost and increases in productivity have resulted in profits that have been distributed disproportionately to owners and executives.

Something is wrong with this picture. The fewer people with more disposable income the more tenuous the overall economy. Henry Ford got this before there were unions. He wanted all employees to have a decent wage—not a Walmart or McDonald’s wage—so that they could afford to buy the cars they made. That’s the genius of capitalism at work. What we have going on today in the United States is entropy. Short-term growth and a reward structure that is tilted toward the few could bring the end to the American dream.

Additionally, you argue for fewer regulatory requirements. Could you note one or two federal regulations that impede productivity and investment in America?

President Obama has recently called for a review and examination of all regulations in this regard. I don’t know if he or some of his advisers have read our book. But I would daresay that if it has become part of the presidential agenda, it must most definitely be an idea worth considering.

As for a specific regulation that is problematic, the first one that jumps to mind is the one in the health-care bill that would have called for businesses to give 1099s to all those who did more than $1,000 in business with them annually. This reporting requirement would have been tremendously burdensome—especially on small businesses. I believe that it has been amended. But it is an excellent example of how something crafted in the halls of Congress or the bowels of the bureaucracy can impede productivity and be extremely costly for businesses to comply with.

One suggestion that I would have is that there should be a business ombudsman or group that does a cost-benefit analysis of all legislation and regulations prior to the enactment to ensure that we avoid putting laws and rules on the books that hamstring us. In regulating as in health care, an ounce of prevention is worth a pound of cure.

That’s not to say that all regulations are bad. We can see the need for regulations when we have disasters like the BP spill, the mining accident in Pennsylvania. The situation here was that we had the right regulations, but they were not enforced. The need for appropriate regulation is best made by James Madison, who wrote, “If men were angels, we wouldn’t need government.” We’re not angels—not even close. As exhibit 1 to make that case, I give you the excesses of Wall Street, which brought our economy to its knees and required those of us who are taxpayers to bail it out.

Like the National Academies, you suggest that the United States focus on improving science, engineering and mathematics education, which, the academies conclude, will make the American workforce more competitive and spur innovative research and manufacturing jobs here. This message does not seem to be gaining traction in Congress. How could this be changed?

Not being a congressional insider, all I can say is consider the evidence and set aside your biases. Let the facts set you free. The other thing I would say is become a life-long student and learner. Don’t assume that because you are at the top of the heap that you are not part of it (Bernard Baruch). Also, never assume that what got you here will get you there.

In the words of Bill Marriott, who endorsed our book, “Success is never final.”  Math, science and engineering have always been integral to our country’s success. Not to be among the best in the world in these categories retards the potential for success.

Let me put one caveat on this. Let us not mistake comparative performance on standard international tests as the ultimate litmus test in this regard. What we need to do is to ensure is that our “very best” outperform the “very best” worldwide and be willing to accept into our system the very best from other countries. The “very best” who are entrepreneurial or appropriately supported by government or industry will create our future. In the end, the math, science and engineering “wars” will be won on the playing field and not in the classroom. That is where we need to prevail.

To learn more about “Renewing the American Dream,” see . For more information on the CU Conference on World Affairs, see . To see the panels on which Islam will appear, follow this .