<html><body><P>American Enterprise Institute</P> <P>February 20, 2008</P> <P>[Edited transcript from audio tapes]</P> <P><BR> <TABLE cellSpacing=1 cellPadding=1 width="100%" border=0> <TBODY> <TR> <TD> <DIV class=BodyText>8:15 a.m.</DIV></TD> <TD> <DIV class=BodyText>Registration and Breakfast</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>9:00 </DIV></TD> <TD> <DIV class=BodyText><EM>Welcome:</EM></DIV></TD> <TD> <DIV class=BodyText>Henry Olsen, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>9:10 </DIV></TD> <TD> <DIV class=BodyText><STRONG>Panel I:</STRONG></DIV></TD> <TD> <DIV class=BodyText><STRONG>Pension and Entitlement Reform in Europe</STRONG></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Presenters:</EM></DIV></TD> <TD> <DIV class=BodyText>Aart Jan de Geus, Organisation for Economic Co-operation and Development</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Ole Settergren, Department of Pensions, National Insurance Board of Sweden</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Discussants:</EM></DIV></TD> <TD> <DIV class=BodyText>Henry J. Aaron, Brookings Institution</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Andrew Biggs, Social Security Administration</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Moderator:</EM></DIV></TD> <TD> <DIV class=BodyText>Richard Burkhauser, AEI </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>10:45</DIV></TD> <TD> <DIV class=BodyText><STRONG>Panel II:</STRONG></DIV></TD> <TD> <DIV class=BodyText><STRONG>French Energy Policy</STRONG></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Presenters: </EM></DIV></TD> <TD> <DIV class=BodyText>Jacques Bouchard, French Atomic Energy Commission</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Michael McMurphy, Areva NC </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Discussant: </EM></DIV></TD> <TD> <DIV class=BodyText>Martin Hoffert, New York University </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Moderator:</EM></DIV></TD> <TD> <DIV class=BodyText>Kenneth P. Green, AEI </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>12:15 p.m.</DIV></TD> <TD> <DIV class=BodyText>Luncheon</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>1:00 </DIV></TD> <TD> <DIV class=BodyText><STRONG>Panel III:</STRONG></DIV></TD> <TD> <DIV class=BodyText><STRONG>Markets and Transportation Policy in Europe </STRONG></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Presenter:</EM></DIV></TD> <TD> <DIV class=BodyText>Eugene Hoeven, Civil Air Navigation Services Organisation</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Discussant:</EM></DIV></TD> <TD> <DIV class=BodyText>Joshua Schank, Bipartisan Policy Center </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Moderator: </EM></DIV></TD> <TD> <DIV class=BodyText>Ronald Utt, Heritage Foundation</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>2:45 </DIV></TD> <TD> <DIV class=BodyText><STRONG>Panel IV: </STRONG></DIV></TD> <TD> <DIV class=BodyText><STRONG>Education Reform in Europe</STRONG></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Presenters:</EM></DIV></TD> <TD> <DIV class=BodyText>Tapio Christiansen, Kreab Washington</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Simon Steen, Verenigde Bijzondere Scholen </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Discussant:</EM></DIV></TD> <TD> <DIV class=BodyText>Matt Miller, Center for American Progress</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Moderator: </EM></DIV></TD> <TD> <DIV class=BodyText>Nina Rees, Knowledge Universe Education</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>4:15</DIV></TD> <TD> <DIV class=BodyText>Adjournment</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR></TBODY></TABLE><BR> </P> <P>Proceedings:</P> <P> </P> <P><BR>American Enterprise Institute<BR>Gaining Ground:  New Reforms from Old Europe<BR>February 20, 2008</P> <P><BR>[Note:  Speaker with heavy Argentinian accent is hard to understand in some places, hence the "indiscernible" notations.]</P> <P>Welcome<BR>Henry Olsen:  Good morning.  Thank you for coming.  I'm Henry Olsen, Vice President at the American Enterprise Institute.  I'm glad to see you bright and early this morning at our conference, "Gaining Ground:  New Reforms from Old Europe." <BR>When Donald Rumsfeld uttered that immortal phrase, "Old Europe," he expressed a sentiment that is all too commonly held among Americans, that Continental Europe is sclerotic, calcified, ossified, resistant to change, looking more to the past than to the future.  The implication was that the United States, and other nations, who do what the United States wanted, is better, energetic, innovative, dynamic, looking to the future and not to the past.  <BR>This strain of thinking is not new to Americans.  Almost from the moment of our founding, when our Puritan forbearers founded the Massachusetts Bay Colony and proclaimed it, the "city on the hill," there has been a strain of American thinking that is considered America to be "a light unto the nations," one that is found in political science, as "American exceptionalism."  That is a topic that we will discuss at a future conference, on April 22nd, where James Q. Wilson will premiere his new book, Understanding America with a collection of authors, who have looked at the differences and similarities between America and Europe in some detail. <BR>But it is worth noting that in addition to differences, we have many similarities.  America, both genetically and intellectually is, in many ways, from European stock.  We obviously derived our political system and adapted it from Britain.  Our higher education system, which is today called the envy of the world, is in fact an American adaptation of the 19th Century German Research University.  Political and social reformers have taken inspiration for centuries from Europe, and it's with great cause that we can talk about Europe and America as forming two pillars of Western civilization, a civilization that has achieved preeminence in the world today.<BR>And so with these similarities, we face similar problems.  We both face aging societies.  We both face the difficulties of delivering welfare services within those aging societies.  We both have difficulties with our energy supplies and seek energy independence.  We both are looking at how to deliver public services efficiently and effectively in an age when we have the same obstacles to reform entrenched interest, both special and popular, that have a vested stake in the status quo. <BR> The famous American baseball player, Satchel Paige, once said, "Don't look back, something might be gaining on you."  But Americans would do well to look back, because over the last decade and a half, Europe has been quietly, in America, gaining on us.  There are many areas where American domestic policy reforms and domestic policy challenges are unmet, whereas Europe's have moved forward.  We're going to be hearing about four such topics today, from a series of distinguished Europeans, with a series of distinguished Americans to comment, on what we might learn from our neighbors across the Atlantic.  And so we will be looking back to see who has been gaining on us, to see if once more, we can learn from our European brothers.</P> <P>Panel I: Pension and Entitlement Reform in Europe</P> <P><BR> Our first panel will discuss European innovations in Pension Reform and in Disability Policy.  That panel will be chaired by Professor Richard Burkhauser of Cornell University.  He is also a visiting scholar this semester at AEI, where he is writing a book on the reform of America's disability insurance policy.  Please join me in welcoming Professor Burkhauser. <BR>Richard Burkhauser [Moderator]:  Thank you.  It's a great pleasure to be on this panel and to welcome four real experts on disability and retirement, Social Security issues.  One of the tools of cognitive psychology used to encourage an addict to seek counseling is an intervention by the addict's family and friends.  Let me suggest that our first such session today is a public policy intervention for the United States Social Security system, led by two representatives of recovering Social Security systems, Aart Jan de Geus and Ole Settergren, and that we have much to learn from them. <BR> Thanks to very favorable demographic forces, primarily rapid increases of the younger working age population, relative to the older retirement population, for several generations it was possible to raise Social Security benefits far in excess of Social Security taxes and still stay in pay-as-you-go Social Security balance.  Such a system, where everyone wins and nobody loses from an actuarial perspective can be intoxicating, especially to politicians interested in winning elections.  But every party must end and the same demographic forces that drove Social Security policy expansions in most western industrialized nations now require some combination of tax increases, benefit decreases and/or increases in work to bring them into long-run financial balance.  <BR> Our speakers will tell us how the Swedish retirement system and the Dutch disability systems have begun adjusting to these new demographic realities.  While most of the audience is well aware of the not-so-distant problems facing the United States old age and survivors' programs, the problems as the oldest of the baby-boom generation that is born right after World War II, in 1965 -- I was born in December, 1945 -- I personify, that this is the face of the problem you see before you.  You may be less aware of the problems facing the U.S. disability system.  <BR>Figure 1, on your right, shows the growth in the two major Federal Disability programs in the United States -- disability insurance and supplemental security income, disability for adults and for older children.  Rapid growth in these two systems, in the 1970's, led to Congressional reforms at the end of that decade and a failed attempt by the Reagan administration to correct the underlying problems.  After about a decade of no, or slow growth, rapid growth occurred in the 1990's and this led to further reform efforts in 1996.  Once again, in this decade rapid increases in SSI and DI have occurred.  <BR>Figure 2 put this growth into perspective by showing the ratio of DI and SSI adult beneficiaries, that is, those aged 15-64 to ILO-defined active workers.  That is the actual number of workers employed in the United States between the ages of 15-64.  The U.S. once has the lowest ratio of this type among OECD countries, while the Netherlands had the highest.  As can be seen in Figure 2, the United States has climbed from around 40 people on DI and SSI per 1,000 workers in 1983, to nearly 80 per 1,000 workers in 2006, with most of that increase occurring over the last 15 years.  While this is still not in the range of the Netherlands, which at its peak was around 150 per 1,000 active workers, or that translates into about 14% of its working age population.  We, in 2006, are about half that, about 7.1%.  <BR>We have had more rapid growth in our system over the last few years than the Netherlands has had over the same period.  In the last 6 years, the Dutch have initiated a series of breathtaking reforms, which have dramatically reduced their beneficiary population.  So it's with great pleasure that I introduce Mr. de Geus, who will tell us about those reforms and what they mean for the United States.<BR> Aart Jan de Geus:  Thank you for this warm welcome.  My name is Aart de Geus.  I'm the Deputy Secretary General of OECD.  I am responsible for the project that we do on the so-called Political Economy of Reform in OECD.  The Political Economy Reform is about political gain to realize the reform, and that is especially difficult when you have a difference between the winners and the losers of reform, which is the case in many health reforms, labor market reforms, education reforms.  The people who benefit from the reform are people from a future generation and these people are not organized or institutionalized in interest groups, and the people who defend the interests of the past are very well organized and they are, to some extent, the losers.  But it is the political game of bringing this reform through.  And then for politicians, there is the risk that the electorate is not always recognizing what this means for the future.  So it's also for the politician, a risk to do reforms.<BR> And this project of the Political Economy of Reform is a new project in the context of OECD.  I'm happy to talk with you this morning about the disability reforms in the Netherlands.  And the title of my contribution is "Going Dutch?" -- with a questionary mark -- "Going Dutch?"  I have no slide presentations, but there is handout in your folder, so you can follow my presentation if you want to. <BR> Why were you talking about the Netherlands?  We were far, far behind every other country in the world with disability.  So what I'm telling you is some learning experiences.  But first of all, I have to tell you please learn from us, but don't copy us.  Don't copy us.  It would take 30 times to come to the results where we are now.  There was a case for change in the Netherlands.  We call it the Dutch disease:  1 out of 7 workers, employees, was disabled or mentally ill.  This is partially to do with the criteria.  <BR>We don't insure in the Netherlands.  Your medical or health status, we insure your income capacity, which is the same in the United States, which makes it comparable.  So it can be the case that someone who ends up in a wheelchair but can earn the same money in what he did before, that there is no disability pension.  And it can be the case that someone who has some mental disease, in which he cannot concentrate or cannot stand to concentrate for longer than 10 or 15 minutes, he cannot do any job, while he is healthy, a physically healthy citizen.<BR> The case for change was that we had, in 2002, low growth and weak participation.  There was a new government, Balkan and the central right government, and this government got a mandate, an electoral mandate for structural reforms.  The Christian Democrats were out of the government.  They had been out of the government for 8 years, and went back, came back with a strong ambition to do the reforms, and Mr. Balkan [sounds like] invited me to come and to speak about it.  <BR>He said, "Well, what do you think about this program?"  I said, "Well, it is ambitious, but necessary."  "Can we think of you, to realize the problem?"  I said, "Why me?  Because I was not in the parliament?  I was not in the Board of the political party?"  He said, "We need someone who knows, who knows the subject of disability, who knows the world of the social partners and we want a new generation of politicians."  I said, "Well, I cannot deny it.  For these three criteria, I would like to join you."<BR> In these four and a half years of reforms, 2002-2007, the role of the social partners was key.  The role advised, the role also in public support from time to time, and also the role of negotiating.  There were big fights also with the social partners.  My background, having been the Vice Chair of one of the Dutch trade unions was an advantage, but it turned out also to be a very big risk, because people said to me, "Well, Aart.  You know the trade union, so why are you proposing this?  Are you betraying us?"  Well, my position was very much criticized.  So it can be an advantage, but also a risk. <BR> The Disability Act of 1967 was discussed and revised since 1982.  We were, in 1982, more or less at the point that you, Richard, that you pointed out that you were, here.  So we only succeeded in having the reforms 20 years later.  At that moment, we started a process of discussing the reforms.  My role at that time was that I participated in this Social Economic Council on behalf of the trade unions.  <BR>In the government, we realized structure reforms up to the saving of 2% GDP, structural.  And it was a program where we not only handled the disability reforms, but also with early retirement, unemployment and more reforms.  You can find them in Matchtrack [phonetic].  I think it's, only if you have questions. I would like to tell about the whole package.  But it was important for the process, that there was a package of reforms.  If you have questions, I'm happy to answer them.<BR> The disability reform, the content of the reform was that we found a way to share the gain, but also to share the pain of the reforms.  Sharing the gain, sharing the pain is how to compensate the losers and how to build consensus among many, many stakeholders.  The first, and maybe most striking point, because it's very exceptional in the world, is that the public insurance only covers the risks after 2 years, 2 years of risk on the shoulders for the employers, and the workers.  And these first 2 years, the employers are obliged to pay 70% of the wage.  So the employer has 70% risk; the worker has 30% risk.  This idea of "Going Dutch" share the risks, where the employer and the worker cover the first 2 years, and then public insurance is coming in.  <BR>It turned out to be a big success in the Netherlands.  Of course, the small and medium enterprises complained because, "Oh, I have only 3 workers, if one of them gets sick, I cannot pay.  I cannot pay."  Then we say, "Well, you go to a private insurer."  And they did, and the private insurer were compelled to develop programs to reintegrate people to other work, so it was a good idea to buy in here the rule for the private insurers.<BR> After these 2 years, if your income capacity has a loss of less than 35%, there is no public insurance.  So there is a responsibility for the employer to give you another job, because he is not allowed to terminate the employment for that loss of capacity.  Above 35-80%, we defined the risk.  The risk of partial loss of income capacity, we defined it as not a type of pension, but as a type of special unemployment.  Unemployment, where some support is needed on the income side, but also on the accompanying side, the reintegration side.  And we brought in the money to help these people to come back to the labor market.  <BR>This is very important that everybody who is not totally disabled gets some kind of unemployment benefit.  It is designed in a way that the more you work, the more you earn.  Making work pay.  Only those who have total loss of capacity or earning a nice income have a so-called disability pension. <BR> In this middle part, the so-called unemployment for disabled people, we bring in also the private insurers, and there is -- the premiums for that insurance are experience-rated.  So the employer still has an interest in having less people, and that's key.<BR> Another part of our reform was that we reviewed all the disabled people under 50 years.  And then they came to me and they said, "Well, Mr. de Geus, maybe I have my capacity to earn some money in the labor market.  But do you have a job for me?  Can you guarantee a job for me?  I was out of the labor market for 12 years now."  I said, "No.  I cannot guarantee a job."  "Then how could you end?  How could you terminate my disability benefit?"  I said, "Well, you have some earning capacity."  "Yeah, but you don't have a job for me."  "Well, I'm not covering your unemployment risk."  <BR>"Well, is that fair?"  That was the question of social justice, also to a trade union.  And I said, "Well, it is fair enough, if we give you some time; if we give you help; and it is fair to help you to come back to the labor market, than to condemn you to be in this low pension from the age of 32 until the age of 65."  And then this was a change in the culture.  Think about people who are outside of the labor market and disabled.  Are they waiting for a new chance to come in?  Or are they waiting for their pension, their old-age pension?  So that part of the    the reform was to review the disabled people under 50 years. <BR> Some remarks about the process.  I was telling you the winners and the losers.  It's important to compensate them and it is also important to do the selling of the reform in the right way.  I remember that we worked with -- you know when you're crossing a street, you have the red figure, who is standing, and you have the green one who is marching.  You know that?  When you cross the street.  And in our campaign, we said, "It is not about what you cannot do anymore, but this is about what you can do."  We used that march.  And this is a way of thinking.  It is important that you bring in the capacities of the future, the remaining capacities, and there, the people can work with.<BR> In the process, the campaign was very important.  It came only after, I said, 20 years of attempts.  I would encourage the United States and other countries, please don't give up after the first three attempts.  People who stop smoking, on average, need two times, or two and a half times.  I needed three times to stop smoking, three attempts.  You have to go through several attempts and there OCD can help, because the learning process that you have to go through, you can learn from others.  And there, you can reduce your own learning curve and time.<BR> Well, it was important in the process that we had a unanimous advice of the Social Economic Council with employers and workers.  It was important that we had an electoral mandate and a clear agenda.  It was also important that during my tenure, we came to a package deal with the social partners.  Not only disability, but also early retirement and unemployment were a part of it.  And then they said to me, "Well, Mr. de Geus, you are asking too much from us."  I say, "Well, we need more participation.  We need the money as a government.  I'm sorry.  We need to do this."  They said, "Well, how can we make this agenda a little bit more, responding to the interests of our workers?" - the unions asked me.  <BR>I said, "Well, you can contribute by a standstill in the wages."  They said, "You asked me to support reforms and also to agree on a standstill on the wages?  So we are paying double?"  I said, "No.  You are asking me how can we adjust this reform program in a way that you want.  The only way is that you contribute by a standstill in the wages."  Then two weeks later, they come to me and they said, "Well, Mr. de Geus, we could have amended for a standstill in the wages, but then   " [audio glitch].  I said, "Okay.  Good.  Now we're talking."  <BR> We went to a new negotiation process, negotiations.  We went also through a crisis where half a million came to the Hague and were there and the government was almost unpopular as    let me take an example.  Mr. Sacrosi [phonetic] now is in France.  He's in [indiscernible].  I'm not commenting on the United States of America.  We were deep down there, but there was really an interest of the social partners to cooperate and they really agreed on a standstill on the wages for 2 years, which contributed and we could soften the reform package a little bit.  They saw that as a victory for the unions.  I commented, "Yes, it's a victory for the unions."  Because if the unions have a victory, for me, I prefer their signature over their flowers.  I don t need the flowers of the trade unions.  As a politician, I need the signature to go.  We built a consensus on that.<BR> After that, we had also to negotiate with the parliament and we had to overcome all administrative hurdles, and that was really annoying.  Because once you have the political consensus, you think, "Well, now we are there," but you are not.  Really, you are not.  You have to go through all this implementation questions and there, the politician has only one instrument for steering the process and that is the element of time.  Because as a politician, you are not an expert.  The only thing you can ask, "I want this to be done before January 1st of next year.  You tell me how to do it.  I tell you when it has to be finished.  It's impossible.  If you need me money, we can discuss."  <BR>But the time is really imperative, and that is where    I felt myself lonely from time to time, because also other parties, and also from my own parties.  They said, "Oh, Mr. de Geus, we're going in the right direction."  But there is to be a little bit more, "Can we postpone this for 1-2 years.  Huh?  Then we can think better about the good content."  I said, "It has to be done now.  It has to be done before the first of January."  That is also a very important part of the process. <BR> In the process, also the public opinion was very important.  The public opinion, where 1 out of 7 being disabled, we all knew a cousin, or a neighbor, or someone around that was benefiting and we could question, "Well, is this really socially and -- is this a solidarity that we want to pay for?"  When you come to your tennis club and you are playing a game and you are discussing, "Well, what is your living?"  "Well, I'm disabled."  "Okay.  Well, what's your complaint?"  "Well, mentally ill."  "Okay.  So you had a bad time with your employer?"  "Yeah, I had."  "Now you have no employer anymore?"  "No, I don t have."  "So you can work?" "No, I can't think about working because I'm not going back to my employer."  Okay.  Is this disabled?<BR> There was a case for change in the public opinion notes.  The result is that we ended up in a 50% reduction on the structural basis.  The influx of new cases was reduced and also the review had about the same result.  It was important that we had also the support of the doctors.  We developed new medical guidelines:  How to appraise; how to treat; how to help.  I think there, these medical guidelines, crosscutting all medical doctors into several parts of society, was a very, very important instrument.  I hope that there is something that the United States could learn from the Netherlands. <BR> I also think that the story of the reforms is not completely a success.  We suffer -- a large number of young disabled people, who start their career as disabled.  So there is not an employer you can make responsible; and there is no way to "go Dutch" with that people.  We have to think about it, and this is really on the agenda.  The story is not finished.  It is never-ending, but I am happy that I could contribute as the Minister of Social Affairs in the years that are behind, and I would really appreciate to discuss this further on.  And maybe we have also the opportunity to see each other in the context of OECD.  Merci. <BR> Richard Burkhauser:  Thank you very much.  Our next speaker, Ole Settergren, who is the head of the Pension Department at the Swedish National Insurance Board, and will talk about Swedish Pension Reform.<BR> Ole Settergren:  Thanks a lot.  Actually I'm no longer the head of that department.  I hope to get out of pensions and retirement policy before I retire, and I've got a new job Monday, working for the Ministry with sick pay and disability.  But the first question I got, was to go here to speak about what I do know a little bit about, mainly retirement policies in Sweden, which I have been working on the whole of my career. <BR> But this is an early morning.  I thought perhaps that we should start with some entertainment here.  If you look at the geography of this map, which shows the world as we know it, by surface.  But if we change it from surface to population, here the surface represents how large a share of the world population each nation has.  You see how China grows enormously and India grows, Japan also.  The U.S. shrinks a bit; Europe grows, highly dense populated areas.  Holland, not the least very highly populated.  <BR>If we go further and look - where do the old people live in the world?  It looks like this.  You can see Japan is perhaps the most striking example, but also Europe grows significantly.  If you go back to the surface, this is Africa.  It shrinks as you go to population.  And if you go to elderly, it shrinks a lot more even.  And to go all the way through the demographic pyramid here, we go to children.  Then Africa grossed bigger; America shrinks; India grows even bigger; and China shrinks; and Japan is very much smaller again.  <BR>This is a way just to, in a rapid sense, tell you a little bit about the background, about pension issues in OECD countries.  A lot of the pension discussion is about the demographic changes.  They hit us more or less the same way, with the exception I would say that they are a lot less strong effects in the U.S., as we could have seen if you captured these figures correctly.  The U.S. is exposed to less strong growth in its older population relative to other OECD countries.  <BR> Okay.  My presentation here will be about the Swedish Pension Reform and not about the world demographic situation.  To give you a little bit of background about Sweden, this slide shows you that the public pension scheme in Sweden is big. Relative to all pension payments, we have some 75% of all payments come from the public pension scheme; 15% occupational, 10% private.  However, the occupational schemes are growing.  They are important in Sweden, partly due to a, perhaps, strikingly low income ceiling within the public scheme in Sweden.  The ceiling is some 1.2-1.3 times an average salary in Sweden.  In the U.S., you have a lot higher ceiling for your Social Security benefits.  In Sweden, those incomes above the ceiling are insured and occupational schemes. <BR> In Sweden, we did this reform in the sort of yellow, or orange sector here.  The public, 75%.  And often in the European discussion anyhow, you make the distinction between parametric reforms, when you change some of the pyramids of the scheme.  Perhaps the retirement age, or how you index benefits.  Then there's another type of reforms, where you make structural changes.  The Swedish Pension Reform is an example of a structural change, where everything was changed, and not the pyramids of the old scheme.  Actually the word "reform" is wrong and it's only used for euphoric reasons, because the social democrats in Sweden, they could not tell their electorate that there was a new pension scheme coming in.  They told us, the bureaucrats and experts, to use the word "reform" and not "new pension system" because it was a new pension system.<BR> Okay.  Reform Objectives.  They are more or less the same all around the world, but the solutions are very different, perhaps with a little bit different focus in Sweden on this political stability issue.  I mean the main focus and the main reason for reforming the pension system was that it was an identified deficit in the scheme.  We saw we have a trust fund in Sweden, which like in the U.S., and in our projections, it would run down to zero in 2015, if the scheme was not reformed.  So this was the main driving force for changing the scheme.  <BR>But there was also political desire to achieve a pension system in a broad consensus, because the old pension scheme was the child of the social democratic party in Sweden and it was highly criticized from the right and center of Swedish politics, and perhaps a bit strangely, but we can come into it.  There was also big reasons for the social democratic party to want to change this pension plan.  That had been one of the reasons for why they'd be so successful in Swedish politics.<BR> Transparency.  It's a word that you hear a lot about.  It's perhaps more difficult to define.  But the old pension scheme in Sweden had a lot of income transfers within it, that were inefficient and also not very transparent, and that was a desire to change that situation. <BR> There has been an idea in this scheme, at least in the pay-as-you-go part of the scheme, to maximum intergenerational fairness.  You cannot say that about the funded part.  But in the pay-as-you-go part, there was such ambitions.  Also, of course, to create better working centers, especially for older workers.  And, of course, there was also a decide to maintain an old age basic income security, that resembled a lot of the features of the old system.  It's done in a technically completely different way, but the economic effects are that it's very much the same situation as it were before the reform.<BR> Okay.  Something about the reform process.  And it was long in Sweden.  It started, you could say, with the center to right government.  In Sweden, we rarely have center to right governments.  We have one right now, but traditionally there's democratic governments.  In 1991, there was a center to right government that came into power and they set off to try to reform the pension scheme together with the social democratic party, which was done in opposition.<BR> And in '91, a Commission was set up.  Already after one year, there was a draft of a new pension plan.  To me, it's very surprising to see, when I read that draft, how close the final legislation came to this draft.  It took only a year to do this draft, but it took a lot longer to develop the legislation.  It took until 1998, when the main legislation of the new pension plan was enacted.  And in 2000, the premium pension funds, which I will speak most about here, because that's what I heard that you were interested in, opened in 2000.  Money had been collected since 1995 for these funds, but they could not be placed by the individuals until the year 2000.  <BR> And since 2003, we are paying benefits according to the new rules, both from the funded part.  Very little money, of course, per person, almost nothing.  People get annoyed by saving a dollar or two from the funded portion, because they have not been in the system so long.  But in an economic sense, the transition from the old rules to the new rules is very rapid in Sweden.  For the working population, I would say they're almost 95% in the new system already.  <BR> Okay.  A little bit of theory here.  I hope you won't fall asleep.  Often when you discuss pension design, you have this distinction between how close is the time between the contribution paid by you or your employer and the accrued pension credit?  It could be 0%, if you have a flat-rate benefits system, where everyone gets the same pension irrespective of what they pay-in.  And you can have a very close tie, and it can be up to 100% in the defined benefit schemes.  But defined contribution, they are quite characterized by a one-to-one relationship between what you pay and the pension credit that you receive. <BR> Another dimension is, of course, the degree of funding.  This is what causes a lot of debate and a lot of emotions.  It's often an ideological question, of course.  If you have zero or only a little funding, as you have in Sweden, in the big scheme, there's a pay-as-you-go design; and you can have the 100% funded schemes that are funded.  This gives you four design options.  But of course, perhaps more correctly than this tie between contribution and accrued pension credit, where's the risk in the scheme?  How is it distributed?  Is it with the insured, as it is in this number 2 and 1 here, the DC scheme?  Or is with the insurer, which in a public pension system is the taxpayers, of course. <BR> Okay.  And the reform strategy in Sweden was to move from this traditional defined benefit scheme, the pay-as-you-go scheme, to 2 different types of defined contribution.  Many economists would deny that there is such a thing as a defined contribution pay-as-you-go system, while Swedish bureaucrats and politicians think that they can do this, and they've done this in the notes [sounds like] and defined contribution scheme, which is the big part of the Swedish plan, with 60% of the contributions is going into that scheme; 2-1/2% of salaries, is directed toward the premium pension funded scheme.  And to do this, you have to sort out the disability benefits and the minimum guarantee and the survivor pensions out from the other pension system, which was integrated in the old scheme, and that has been done also.<BR> Okay.  I have only a little time.  I'll skip this.  So, in Sweden, there's a Notional account scheme, individual Notional accounts.  You have credited contributions.  It works like a bank account.  It accumulates.  If you save in a bank, you have an interest rate and interest on your money, and since it's an insured system, you have survivor bonuses, and then I should have my salary, so there's a deduction for administrative costs.  This gives you a net indexation.  <BR>And when you retire, you have a fictitious account balance and that account balance is converted into the annuity by matching life expectancy at the time when you retire.  There's an interest rate imputed and this give you an annuity device, which is used to divide the account balance with, and gives you a pension.  That was the Notional account. <BR> But the funded scheme.  Now I changed the headline here.  The funded account works very, very much the same way.  It's just that the contribution is equal to the investment into the funds; and the indexation, which is in the Notional system is by the average wage growth.  There's now a return on investment.  You still have a survivor bonus and you have administrative fees, and it works the same way. <BR> So it's very much the same thing in the Swedish setup.  The monies is extracted by the taxation of this, and it's sort of, all the transfers are going very similarly. <BR> Okay, more details on the funded system.  There's an agency setup called the Premium Pension Authority.  You see PPM here, there in my slides.  That's not where I worked.  I work for the Swedish Social Insurance Agency, which was a separate agency.  But the PPM runs the clearinghouse established to run this Premium Pension system.  There are a lot of firms, as you can see -- 800 firms participating in this scheme.  <BR>The PPM nets all buy and sell orders of the pension service in this scheme.  Because insureds, they can have up to 5 funds each, and they can change them daily, on a daily basis, if they want to.  Some do.  To be able to join the PPM system, fund managers must comply with the EU legislation defining a mutual fund and they must also accept PPM's discount amounts and management fees.  Then they also need the information technology to be able to integrate with the agency.<BR> Okay, the fund managers, they do not see the end investor.  As far as they know, the PPM is their client.  Okay?  The Premium Pension system is an insured system; in the sense that if you die, it will not be your spouse who inherits your money.  It will be the survivors in the PPM system.  So the survivor bonuses is distributed among the insurance collector, not among your relatives.  When you retire, the Premium Pension authority issues 2 types of annuities.  It's a fixed annuity; interest annuity, a traditional one and a variable annuity, where your pension will vary with the value of your funds, of your investments.  <BR> Okay.  If you do such a scheme as this, as there was in Sweden, you have to take care of people who do choose to invest their money.  They get information that they have this money and they can invest it, and then they don't reply to you.  There was a default set up in Sweden, a default fund.  Some 30% of the capital is now in the default fund; 70% of the capital is within the actively chosen funds.  But there's a very highly concentrated into few of these 800 firms who have all the money, mainly the funds of large Swedish banks, who had a lot of marketing power in this process.  It's a very risky investment strategy that most have chosen.  Even the default fund, a lot of equity; 90% equity in this system.<BR> Okay.  Eight years of administrative experience.  It started in some sense, 1995, this scheme with the collection of contributions; but the funds were only chosen in 2000.  Sweden is a small country.  We have only 9,000,000 people.  I m very honored to be here, to speak to this large nation here.  There's only some 5.7 million servers in this system.  But it's almost everyone who's working, and some who aren't working as well.  There were some retirees in this scheme already.<BR> The number of funds has increased a lot.  It started out with a lot of funds already; 465, and now there's 785.  The percent of new savers who made an active choice fund has dropped significantly, from 67%.  This was a shockingly high figure, when the system opened, and then it has decreased every year.  There are good reasons for this but the decrease has perhaps been more important than one would have liked, or thought.  <BR> There is a lot of activity still in this scheme.  The number of loggings from personal accounts, in percent of total accounts.  Over 418%-something now, because there a few number of persons who are very active in this scheme.  Fund changes also are high, if you look at the aggregate number; but it's the same thing.  There's a few persons who are very active, and you can see the number from close to the service center is about 2%.  It's a very stable figure.<BR> What has the result been in terms of annual return?  Well, the first 5 years, they were invested in government bonds, before the placement in the private accounts.  Then you have a very volatile development since.  If you compare with the return in the Notional account system, it is a big difference.  But it's a higher return but more volatile.  A standard deviation of 15% as to 1% in the average earnings growth.  And of course if you have these 800 firms, people invest differently, so there's distribution of this return also.  You can see that the majority lies in the 2-4% average annual return.  Some do better, some do worse. <BR> Fees.  The PPM charges now 0.13% of capital, and the fund managers, they charge at present 0.33%.  That makes a total, or a combined of 0.46%.  This is quite high fees still.  Even though this system is among the more efficient in Europe.  In the U.S., you have much more efficient systems than this.  But in Europe, this is quite the local scheme.  Costs are projected to drop significant, as managed capital grows.  But costs should come down first. <BR> Okay.  More on politics then.  In Sweden, the introduction of this funded part was very controversial and the social democratic hardliners opposed it a lot.  They did not want this funded part.  So you could perhaps ask yourself, "How come, that they accepted it?"  Because 85% of members of parliament voted for this scheme.  Well, the right side of Swedish politics, they wanted the funded part for ideological and historical reasons.  Conservatives and liberals in the Old World sense, more like a conservative perhaps in the U.S. have disliked pay-as-you-go, and wanted funding, and preferably individual funding, and this brought to promote individual ownership; personal responsibility; economic rationality and to make pensions more safe from political decisions.  <BR>Core constituencies would not have accepted an agreement on pensions in Sweden, but in some aspects actually, it increased and expanded government social policy.  This was done in collaboration with social democratics.  This was tough.  Though to do for some conservatives, and they demanded this fund, that the parts to go along with the others parts of the pension reform.  So it's very much a compromise agreement. <BR> Then I think also the left and the right, they could perhaps agree that there was a possibility to give high pension from high returns, introducing this funded part.  I think there was some agreement on the upside having a rich distribution within the public pension scheme that was more spread.  Some small part in the capital market and the one big part in the Swedish economy and its wage growth. <BR> Reasons for the left accepted the fund.  The DC pension, was that it reduced by some social democratic politicians, risk for a low contribution rate, and thus low public pensions.  There was a potential here for an add-on, if you I think use that expression in the U.S., rather than a carve-out.  The funded part was considered to be reassuringly small.  Then also, they thought this will not expand.  Many conservatives think or hope that the funded part will expand.  Many social democrats who are opposed to this, think that it will not expand due to the design of the new pay-as-you-go system.  <BR>It's very difficult to direct contributions from the new pay-as-you-go system to increase funding.  That will immediately cause big problems and visible problems in the pay-as-you-go scheme, due to its design.  And perhaps most importantly, it was absolutely necessary for the social democratic party to accept this to get an agreement.  They would have not have gotten the agreement without it.<BR> Okay.  More factors that made the reform political possible.  I mean, the post-World War II history on pensions was a very negative political expansion and pension policy.  Very controversial; very much one party owned the whole system.  The system did not work well.  I think that was the reasons for reform, and to reach an agreement.  It was clear goals and a clear will to create a long-term solution among politicians.  <BR> I have zero minutes left, so I'll go rapidly through this.  There was a knowledgeable, strong, engaged and hardworking politicians.  And I think, at least from my 15 years in the bureaucracy, I've never seen politicians of this quality in Sweden that took on this issue.  They were extremely dedicated and hardworking in this field.  They became a tight group, who sort of opposed their opponents within their parties, rather than among themselves.  <BR>And, of course, there was an ongoing severe economic crisis in Sweden in the mid-1990's and this crisis brought about the general crisis awareness.  But you should also say that the crisis was an obstacle for the reform.  Because this reform actually increased government spending initially, to decrease it in the future.  To do this in the middle of a severe economic crisis was, of course, fiercely opposed by the Minister of Finance.  So the pension reform was much a battle between the social policy deciders and the Minister of Finance. <BR> That's my last point here.  Also, the existence of a large buffer fund, in the pay-as-you-go system, made a financial and political room for maneuver, to introduce these funded parts.  Without it, I think the Premiere Pension system would have been difficult to introduce.<BR> Okay.  The one undisputable success of the Swedish Pension Reform.  I think that it happened, I think.  That was the one undisputable success.  In a scientific sense, we will not know if it has been a success or not, because we have no counter experience.  But the general mood about the Swedish Pension system and the Swedish Reform in Sweden is, on average, more positive than negative.  Thank you.<BR> Richard Burkhauser:  All right.  Quite an interesting discussion of the Swedish Pension System.  We'll have a chance to talk much more about this in the Question period.  <BR>I'd like to now turn the floor over to Andrew Biggs, who until recently was the Deputy Commissioner of the Social Security Administration, where he headed the agency's representation to the Social Security Trust between his workers' group, and did other good things.  He will join us as an AEI Fellow, a resident Fellow in March.  Andrew, 10 minutes.<BR> Andrew Biggs:  Oh, thank you very much.  Usually in something like this, I have to state that I'm speaking for myself and not for my organization.  But given I'm in a brief, but a very happy period of unemployment between SSA and AEI, I don't have to say that.  I'm speaking only for myself today, and happily so.<BR> I'm going to speak mostly about Sweden today.  I may touch on -- given time, I'll touch on the Netherlands a little bit on the end, that's mostly because I'm primarily somebody who works in the retirement end of things.  So more things about Sweden pop out to me as interesting or relevant to the U.S.  But certainly the Netherlands, a lot to say on disability as well. <BR> I'm just looking through a number of main points.  Given I have 10 minutes, I'm going to try to go through quickly here.  In looking at Sweden, I was really surprised at how many interesting topics and points it brings up that are relevant to the U.S., not in a specific sense, of saying, "Oh, well, we should adopt the Swedish system wholesale."  But in terms of thinking about different things that might be applicable for Social Security in the U.S.<BR> The first question -- this came up before -- was really how much should we require people to save?  The Social Security program, at least in the U.S., does a number of things.  The main thing, in my opinion, is simply forced savings.  Myopic people who wouldn't save, it forces them to put aside a certain amount of money.  It also forces annuitization, which it has some efficiencies.  It does some redistribution.  But the main thing, in my view, is essentially requiring people to put aside a certain amount of their money for retirement. <BR> When you first look at the U.S. versus Sweden, the tax rates strike you as very different.  The U.S. is about 12 1/2%; Sweden is around 18 1/2%.  What is not remarked on, is really that the ceiling in the U.S. is quite a bit higher than in Sweden.  The ceiling on which taxes apply in the U.S. is about 2.9 times the average wage.  In Sweden, it's only around 1.3 times.  <BR>This is relevant only in the U.S. because there are proposals to lift or eliminate that top.  Among OECD companies, Sweden is on the low end.  The U.S. is on the high end of the ceiling.  But I think it raises interesting questions of social policy, but essentially, how much should we require high earners to save for their retirement?  How much should we simply leave it to them to do?  Sweden leaves more towards high earners to make their own choices.  We push them more towards participation. <BR> Another question which we've been interested in quite a bit with Social Security and the Social Security Trustees is the resiliency of the solvency of the system.  The Social Security Trustees make projections going forward of how the system will fare in the future based on economic and demographic factors.  But we know those are highly uncertain.  Uncertainty has a cost to people.  It has a cost to the government.  It makes it difficult to set policy or set expectations going forward.  <BR>Sweden's system adjusts for that automatically.  Essentially the rate of return on the contributions earned the Notional Defined Contribution part is equal to the growth rate of average wages.  So if wages grow faster, then the accounts earn more.  If they grow less, they earn less.  So you're automatically indexed there.  Also the annuity factor, the amount that you would get in a monthly benefit from your account or retirement is also adjusted for mortality.  That's another source of great uncertainty for us.  A number of people have talked about putting this sort of auto-correction mechanisms into place in the U.S.  I've run a few numbers, which I think would show how much doing, so could reduce the uncertainty of the system.<BR> What we have here is a chart that's derived from the Social Security Trustee's Report.  It looks at the uncertainty of the U.S. Social Security system's cash flows.  While they all show a decline into deficits in the future, the median outcome shows a surplus around 1-1/2% of payroll today, to a deficit of around 4 1/2% of payroll in the future.  We see that could have a great deal of variation.  There's a 1% chance we may be back almost to positive cash flow over 75 years.  There's also around a 1% chance we'd have a deficit of around 12% of payroll.  So you have a great deal of uncertainty here.  Given the Social Security reform is about really smoothing burdens between generations, this sort of uncertainty makes things difficult, in terms of coming up with a best policy.<BR> But here are some simulations I ran, where I indexed benefits to changes in the worker to beneficiary ratio.  Doing that accounts for mortality, because essentially longevity, because that changes the number of retirees.  It accounts for fertility as well.  The benefits of Social Security are already indexed wages.  You can do a very similar exercise if you index the tax rate to the worker beneficiary ratio.  It doesn't make much difference.  But what you can see here is you really tighten the range of outcomes quite a bit, so we have much, much less uncertainty in the system.  I got the idea for doing this from looking at the Swedish system.  I think there's a lot we can learn from that, in terms of auto adjustments.<BR> The rate of return on a pay-as-you-go system is essentially equal to the growth of aggregate wages.  This is a finding from a Henry Aaron paper from quite some time ago.  That's implicit in Social Security in the U.S.  It's made explicit in the Notional Defined Contribution system of Sweden.  In a sense then, the pay-as-you-go element could be treated just as another financial asset.  <BR>But from that, we can say, "What sort of allocation of assets do we want to have?"  For those of you who don't know finance, you have something called the "efficient frontier," which is essentially a line showing, a recur [sounds like] showing "for any given level of risk, what is the maximum rate of return you can get from a different portfolio?"  I ran that, looking at stocks, bonds, corporate bonds and wage growth in the U.S., treating it as a portfolio.  What this shows is, the "X" access shows the expected rate of return that somebody would desire.  Then the "Y" access shows the percentage of their total portfolio they would want to have in each given asset. <BR> What you can see is for somebody who's looking for a very low risk portfolio for retirement, the pay-as-you-go asset, the sort of pay as you bond really has an important role to play.  It could be the dominant asset in your portfolio.  However, as people start looking for higher returns, the pay-as-you-go bond becomes less important.  Things like stock, that have higher returns, become more important.  <BR>Now, I think it's important to emphasize that while you can treat the pay-as-you-go bond or the Notional Defined Contribution as an investment asset.  We can't simply reallocate between the two at no cost.  As Ole pointed out, once you start doing that, the pay-as-you-go element is unfunded; the others are funded.  So you come into this issue of transition costs, and there's really a very, very important thing.  <BR>But if you are thinking of doing a partially funded system, I think an exercise like this can tell you, "Well, what sort of allocation do we want to have between them?"  Ole pointed out that most people in their personal accounts in Sweden are choosing what would be characterized as fairly risky portfolios.  You know, going very heavily into stocks.  But at the same time that account is only about 15% of the total, so it probably makes sense for them to do something like that.<BR> Prediction risk.  This is referred to before as transparency.  The Swedish system is far simpler than the U.S.  It's a fairly straightforward affair, if people understand how benefits are accumulated, how they're paid out.  In the U.S., the system is much, much more complicated.  The typical person could never calculate it by themselves.  So what you find is that many Americans really don't know what they're going to get from Social Security until they actually reach retirement.  Now if Social Security were a very big system; if it covered your entire retirement income, that wouldn't be a big problem.  But when we have a relatively small system, where people have to coordinate their other savings decisions with Social Security, it's important that they be able to understand what they're going to get from the system.  <BR> We send out annual statements, much like your orange letter that goes out, which is designed to help people understand it.  Even then though, a lot of people don't really know.  This chart shows -- this is based on the HRS Survey, where people in their mid- to late-50's were asked to predict what their Social Security benefit was going to be, and then this was compared with what their actual benefit turned out to be.  You can see at the median, that the fiftieth percentile, people are almost exactly right.  So you have a large number of people who significantly over-estimate their benefits; a large number who significantly under-estimate them.  Neither is a good thing.  Both are showing that you're not optimally smoothing your consumption over your lifetime.  <BR> The findings from this study show that it tended to be low-income people who most over-estimated what they were going to get from Social Security.  That's very problematic.  I think when we think about reform in the U.S., going for something that is simpler and easier to understand, has some real merit.<BR> The question here is targeting of benefits.  The Swedish system is less progressive.  It targets benefits less than in the U.S.  It's a fairly straightforward affair, in terms of what you're going to get.  It's largely based on your own earnings, your own contributions.  There is a guarantee benefit for lower earners.  But your typical person, it's really based on your own earnings.  The U.S. Social Security system is much more targeted.  It targets based on earnings levels, based on whether you had a long marriage, 10 years or more; based on relative earnings between spouses.  The question I think about is what are we gaining from that targeting, relative to a simpler system like Sweden?  <BR>This chart shows something.  The vertical access shows people's replacement rates.  Their Social Security benefits relative to their pre-retirement earnings; and the horizontal access shows the lifetime earnings percentile.  You can see, because the line is sloping downward, it essentially shows we have a progressive system.  This has some benefits to it.  In a sense, you're providing people insurance against having low lifetime wages.  That's something that could be valuable because the markets don't provide that.  <BR>But I ran this with a micro-simulation model.  This essentially shows the average.  When you actually fill in the data points, you can see that the targeting is really, in my view, all over the place.  At any given level of lifetime earnings, you have enormous dispersion in the replacement rates people receive.  In other words, you have some very low-income people who get very low replacement rates.  You get some high-income people who get very high replacement rates.  So because the system is not well targeted, I'm not sure we're getting all the bang for the buck we could be in terms of assisting low income people.  <BR>I think a simpler system, something that had something like the guarantee benefit in Sweden, plus a purely earnings-related element, might actually give you a more efficient social insurance program in a much simpler way.<BR> Okay.  I'm running late, so I'll just quickly talk about disability.  I'm certainly not an expert on this.  Henry and Richard would be much stronger.  I think one interesting thing is although we've seen a rise in the number of people on the disability insurance program in the U.S., the disability incidents rate has not really risen all that much.  A lot of it is because of demographics.  People are entering the prime years, in their 50's, for claiming disability.  Even then, I find this a little bit counterintuitive.  <BR>You say, "Well, if we were back in the days when people were working in steel mills and coalmines, they should become disabled."  Today, you have somebody using a mouse and maybe getting carpal tunnel syndrome.  At the same time though, in a service economy, if you have mental or emotional problems, it really makes it a lot harder for you to work.  You could work on a factory line; you couldn t work in a call center or something like that.  <BR>I think partly, you know, the Netherlands has very generous benefits relative to the U.S.  The U.S. is sort of middle of the pack, but at the same time, some work done by Doug and Otter [sounds like] finds that because of the increase in income inequality in the U.S. and because our benefits are indexed to average wages, replacement rates for low income people are tending to rise, and so the incentives to claims rise.  <BR> So I think there's a number of things we can look at from the Netherlands that could be helpful in thinking about how to reform things in the U.S.  I particularly like the idea of getting the employers involved in trying to keep people on the job.  What we found is once somebody gets on disability, it's almost impossible to get them off.  So really, anything you can do in terms of redirection would be very, very helpful.  I will stop now.  Thank you.<BR>Richard Burkhauser:  Thank you, Andrew.  Our final speaker is Henry Aaron, who is a long-term fixture at the Brookings Institution, who I remember most fondly as my first boss at Ashby in 1977.  Henry, the floor is yours.<BR> Henry Aaron:  It's a bad sign, when one is a former boss of somebody with as much white hair as you have.  I'd like to start off with an anecdote, which is a true fact.  Years ago, I was in a conference at Brookings, where Bob Solo, the Economist, was discussing on something related to monetary policy.  At some point, he said somebody had evoked Milton Freidman.  He said, "You know, everything in the world seems to remind Milton of money.  Well, everything in the world reminds me of sex, but I don't build my economics around it."  The reason I tell you that story is that everything in the world, these days, reminds me of the fiscal challenge posed by the U.S. health care system.  Although this is a session on disability and retirement pensions, I'm going to get back to the issue of health care. <BR> We have three outliers under discussion today, nations that are outliers.  The Netherlands was an enormous outlier with respect to disability benefits, partly because it served three functions:  One, it provided genuine long-term disability benefits; second, it provided short-term and partial disability benefits -- a service that we don't have really at all here in the United States; and it provided extended unemployment benefits as well.  And since we don't even provide any unemployment benefits to more than about 30% of the unemployed, you can see that with respect to the United States, at least, the Netherlands had a far more generous system. <BR> Sweden was, and to a significant extent, still is, a huge outlier in terms of overall fiscal burden.  They have an ingenious new pension system that was described.  If some of you didn't get it all but are familiar with cash balance plans here in the United States, think cash balance.  The system is very much like that.  I would only add at this point, cash balance plans legally in the United States are called Defined Benefit Plans.  I think that's something to keep in mind in interpreting the Swedish system.  <BR> A number of countries around the world have done vastly more than we have here in this country, to deal with the challenges of disability and retirement pensions.  We've heard about the Netherlands, where there's a major reform.  I still remain a little unclear.  Perhaps you can clarify as to whether all of the reduction in disability is genuine or is some of that reduction shifted over into what are called unemployment benefits?  But nonetheless, the transformation is enormous, and I'll come back briefly to that.<BR> In the area of old age pensions, a number of countries have done absolutely huge changes.  We heard a lot during the years of Margaret Thatcher, about the change in the pension system in Great Britain, which was truly revolutionary.  Of more interest perhaps to the United States is what has been done in Japan, where the generosity of pensions has been cut, hugely, going forward with an element of indexation; a relatively weak element of indexation. <BR> I'm not an expert on disability.  Rich is the one on the panel who really has that distinction.  I do know enough about the U.S. system to know that it is very seriously flawed at all steps of the system.  We have a uniquely cumbersome bureaucratic method of determination of eligibility; a multi-stage appeal process, where something on the order of half at each stage get approved.  So if you have three or four stages, you can do the math.  Most people get approved, but the question of whether it is a rational determination, I think is very much open to question.  The Dutch systems sounds like they have made a huge improvement, relative at least to that in the United States, and relative to their own system.  <BR> They've also made revolutionary changes with respect to encouraging people to get off the rolls.  I think that is critically important, both for the actual rolls, but for the whole ethos associated with the receipt of benefits.  It isn't a sinkhole.  It's being treated as a way station, to the extent that that spirit can be brought into the system.  It's good for applications.  It's good for people who are receiving benefits; and it's good for encouraging people to get off.<BR> On the subject of pensions, just one other point on the Swedish system.  The administrative costs of about a half a percent of funds on deposit per year is actually extremely low by comparison with standard private management fees here in the United States.  There are outliers, Vanguard for example, and some other companies that have driven down management fees way below that, but most U.S. funds charge a great deal more.  A critical question in the design of any public defined contribution plan will be administrative costs.  It's a subject to which a fair bit of analysis has been devoted.  There's a very careful study by the National Academy of Social Insurance. <BR> Thank you.  Let me turn now to the subject that I really wanted to get to, which is the issue of how we account for the long-term costs of pensions here in the United States.  The reason I want to focus on this is that I think it is fraught with confusion.  We have two completely distinct ways of looking at the costs of pensions, and I would add of health care, here in the United States.  They lead to very different modes of discussion, but they get jumbled together and produce a lot of confusion.  <BR>One is the trust fund approach, where the pension or the health benefit is a self-contained entity financed by taxes that are earmarked to it.  The trust funds direct us to focus on this method of accounting.  And then there's the budget accounting framework.  This is one that's used by the Congressional Budget Office, if you look at their long-term projects.  They lead in quite different directions.<BR> Let me start with the trust fund framework.  I'll ask you a question.  "Going forward, considering all Social Security -- that is, old age survivors and disability benefits that will be paid in the future -- will they be paid to workers who have paid enough in taxes, themselves or their employers, to cover those benefits, or will they not?"  I'm willing to bet that virtually everybody in the room would say, "No, not enough.  There's a big deficit going forward."  That's wrong.  <BR>The actuarial projections indicate that for benefits going forward, they will be fully paid for by taxes levied on workers and their employers, 100%.  Almost exactly 100% of the very real deficit in the Social Security system is attributable to benefits that have been paid, that for which taxes were insufficient to cover those benefits.  The so-called legacy deficit of the Social Security system.  I want to suggest that that deficit is on all fours with the public debt, and there's really no good reason for thinking about that deficit within the trust fund in terms any different from those in which we think about the standard public debt.  <BR>I'm not making these numbers up.  You can look them up in the Trust Fund Report, which comes out each year.  There's a single table that will verify exactly what I just said.  Now, that doesn't suggest we don't have a shortfall in the trust fund that needs attention, but it raises a question of what the appropriate public policy response is to that deficit.  <BR> I'd like to shift now to the budgetary framework.  And here, I'm presenting a chart, which is based upon the most recent long-term projections of the Congressional Budget Office of fiscal shortfalls in the United States.  What I've done is decomposed the Congressional Budget Office's alternative fiscal scenario.  Their baseline scenario, they acknowledge, doesn't make a lot of sense, because they make a lot of assumptions where they are constrained by current law that everybody knows is going to change.  For example, the physician fees are projected to go down like a rock, which people know isn't going to occur.  Politically, Congress has caved every year and there's no sign they're going to stop caving.  There are big differences on the revenue side as well.  The alternative scenario has more reasonable assumptions. <BR> The slashed bars show you the Congressional Budget Office projections of the size of the primary budget deficit, that is revenues less expenditures, excluding interest on the debt; going forward, if you include everything in the budget.  What you can see is that the projected deficit is huge, as we move further into the century; so huge it just really cannot occur.  If those kinds of deficits arose, the interest rates would skyrocket; foreigners would have a run on the U.S. dollar, dumping them.  We would look like Argentina did a few years ago.<BR> What happens if you take out the contributions of that deficit from the projected excess growth of health care spending?  What you're left with are the black bars, virtually nothing.  No deficit, according to CBO's long-term projection.  Those black bars include Social Security.  They include disability benefits.  They go up as a share of GDP, but some other things are projected to go down as a share of GDP and basically they fight each other to a draw.<BR> What this chart says is, we, in the United States, have a big health care financing problem, not just public, but private as well.  That's the problem we need to focus on, from a fiscal standpoint.  And if we deal adequately with that, there is no remaining long-term fiscal problem arising from Social Security, from disability benefits, from anything else, unless policy changes in ways that are different from those that the Congressional Budget Office has built into its long-term projections.  Yes, there is still is a trust fund problem.  We do need to address it, but we need to have our glasses on and look at it clearly.  Thanks.<BR>Question & Answer Session<BR>Richard Burkhauser:  All right.  We've managed to save 10 minutes for questions.  Anyone from the audience who has a burning question to ask?  We have a person over there.  Would you say who you are and who you represent?<BR> Matt Miller:  My name is Matt Miller.  I'm with the Center for American Progress, and I write for Fortune magazine also.  I'm curious.  I'd love to hear, just briefly, how does the automatic correction work in the Swedish Reform System and how was that sold politically?  Was there political discussion about that?<BR>Ole Settergren:  I'm very happy you asked me that question, because that's my main field of work the last 10 years, to design that balanced mechanism.  Actually it works quite simple, in the sense that all the debts, all the liabilities in the systems is aggregated together, calculated. Just nominal figures actually.  Those Notional account balances are added together and there's an estimate also of what the nominal debt for persons being paid are.  That liability is contrasted to an estimate of the value of the contribution flow, is estimated in a little bit strange, and then perhaps you could say innovative way.  So there's a consolidation figure.  <BR>If the assets, the value of the contribution flow is larger, together with a buffer fund.  If those assets are larger than the liability, you have a solvency ratio above 100% and the indexation runs as it's supposed to by average wage increase.  And if this solvency ratio is below 100%, the indexation is reduced in such a way so that solvency is regained at 100%.  So that's the technique.  It's simple and it's sort of registrated and communicated in an annual report of the system, which looks quite    it attempts to look like a normal insurance company annual report.<BR> Politically, yes, it was difficult to sell.  I think there was a very small, narrow window of opportunity to introduce such a mechanism in Sweden.  If we would have been a few years earlier, it would not have been possible.  If it was a few years later, it would not have been introduced.  That's my perception of things.  <BR>The whole Swedish Pension Reform, especially on the pay-as-you-go scheme, you could say, was extremist in the way that the system should be 100% financially stable.  So I do not agree with the slide that says that we do not take into account the fertility of the economy.  We do take care of the fertility with balance mechanism.  We take care of everything in the balance mechanism.  Even things that you have not heard of mostly in pay-as-you-go schemes.  <BR>So there was a window of opportunity where the people responsible for this reform were    they had problems if they could not prove that this pay-as-you-go system was 100% financially stable.  And also, the Minister of Finance was fighting this plan fiercely because they did not trust the social politicians to construct the pay-as-you-go scheme that was 100% financially stable.  So they were more or less forced to go ahead to introduce this balance mechanism, to prove that they were sincere about doing such a tough scheme.  Because if the economy goes down, this indexation will be quite tough on the retirees.  Whether that will happen or if legislation will be changed, if it happens, remains to be seen.  Thank you.<BR> Richard Burkhauser:  Question over there.<BR> Lucy Robertson:  Hi.  Thank you.  My name is Lucy Robertson.  I'm here from ASCD.  That's a local education non profit.  My question is for Mr. Settergren.  You mentioned that the rapid decrease of contributors to the Premium Pension Plan, the active option one, was a foreseen but negative result.  Why is that negative, and what do you see the impact being?<BR> Ole Settergren:  It's a good question.  For me, it's not a problem, that there's a low activity in choosing funds.  For choosers, it's actually very rational to be not so engaged in this.  Because the forward [sounds like] fund is, in expectancy, just as good as doing anything by yourself.  But, of course, if you want people to be actively engaged for some reason in this scheme, you want to see a high number of persons who actively choose funds.  But to me, it's not a problem.  And it's not a problem in a sort of mechanistic sense.  But it's perhaps a PR problem in some sense, that if you have this huge option 800 funds and nobody uses them, why run the scheme with so many funds?<BR> Male Voice:  Why indeed?<BR> Richard Burkhauser:  Another question?<BR> Ole Settergren:  I should also, per se, that one reason few choose, of these newcomers to the scheme, is that they had worked their first year in their career.  They have virtually nothing on their account to place, so it's not surprising that there's a low percentage that do choose.  After they work and they've been working some, 10 years perhaps, they would have a fair amount in their account in the default fund, and perhaps they would want to choose then.  So it's not surprising in that sense.<BR> Richard Burkhauser:  Let me give Andrew a chance to respond.<BR> Unknown Male:  On this point or --?<BR> Andrew Biggs:  I was actually going to touch back with -- One of the things, which I think is very interesting or helpful about the auto adjustments, or auto correction in the U.S. context, is that -- when people talk about Social Security, often there's a great deal of skepticism about the assumptions that are made to Social Security trustees, or about CBO going forward.  People say, "Oh, it's debts and it's overstated."  With these auto-correction mechanisms, it's a way of telling people, "Well, if the deficit turns out not to be so bad, we're not going to over-correct for it."  <BR>People are reluctant to take large steps today in anticipation of a problem that might not come about.  These sorts of mechanisms make sure you don't over-balance or don't under-balance.  I think in that way, helps smooth things a little bit better across different [indiscernible]. <BR> Henry Aaron:  On the auto-correction, I agree completely with what Andrew just said.  There is, however, bound to be a huge political fight over what those auto-correction mechanisms will be.  On the one hand, you can say, "We will adjust taxes to cover any deficits."  On the other hand, you could say, "We will adjust benefits to cover any shortfall" or you could so a combination of the two.  Since, and this comes to the second point, defaults matter hugely, this initial decision has profound significance.  <BR>Yes, of course, the legislature could change its mind later on, but moving away from whatever the status quo is, takes a bigger nudge politically than staying where you are.  The selection of that auto-correction provision is critically important.  That explains, I think, in large measure, the inertia why people have shifted to the default fund to a significant degree.<BR> If you look back at that chart that was shown to us, Sweden had the bad luck to start the investment at the time when the stock market fell out of bed -- by what? -- 30% or something like that.  People got stung badly.  They had, I think, to a significant degree, chosen aggressive investment vehicles.  And so the reaction was to recoil and say probably something like they know best.  The default is a balanced portfolio.  It's prudent to go into.  I'll stay there until and it's analogous to changing the default rule as an adjustment mechanism, until there's some strong reason why I should do so.<BR> There's an abundance of research on the powerful importance of default, which led Richard Thaler and Cass Sunstein to write a fascinating article called "Libertarian Paternalism" on the significance in influencing what people do by choosing defaults that they can reverse virtually costless.  So they're not real constraints, except where you set the default has a powerful do you define    do you say that people choose a joint and survivor pension automatically?  Yes, you can sign off and have a single life annuity.  Or do you say it's a single life annuity and you can switch to joining the survivor?  <BR>In experiments, where an enormous difference in the share of what actual pension choices, were hinged on that default.  Richard Thaler has fathered savings plans where the default is "you are enrolled in your IRA" rather than the default is "you aren't and you have to go and apply."  Huge differences in enrollment percentages, although it's virtually costless to reverse the presumption.  So I think the importance of defaults is critical and I also think 800 is too many.  One is too few.  The truth lies somewhere in between.<BR> Richard Burkhauser:  Well, thank you, and with that, I want to thank our speakers today.  We'll close the session and we'll start the next one in five minutes.</P> <P>Panel II: French Energy Policy</P> <P><BR> Kenneth P. Green [Moderator]:  If you all could take your seats, ladies and gentlemen.  We're ready to begin the second panel.  Well, thank you.  Good morning.  I'm Kenneth Green.  I work here at AEI.  I'm a resident scholar and I study energy, and environment and climate change.  I apologize if I am coughing today.  As you've probably heard, traveling around the city, this year's cold has manifested itself as a cough.  My environmental activities riding the Metro come with consequences.<BR> Over the many years I've studied and written about climate energy and environment policy, one subject has always been a conversation stopper.  Even a meltdown trigger, which is the subject of nuclear power.  Whenever you brought up nuclear power, whether you were talking about conventional air pollutants in the 1980's and '90's, or whether you were talking about climate change, in recent years, you run immediately into discussions of Three Mile Island; Chernobyl and nuclear waste, and you rarely get past that to actually have a meaningful discussion of what nuclear power might contribute to climate change and energy solutions.<BR> It's been very frustrating for me, since I grew up with asthma and I've always liked the idea of clean power.  Now that climate change is a looming reality, I've always felt that it's sort of a test of sincerity.  That is, I have a bit of doubt about people who want to press regulatory schemes on climate change, but who are unwilling to accept those things, which are on the shelf now, available, possibly economical, because of their political views.  It makes me wonder if the regulatory scheme they want is more based on their political views than about solving the problem as well.<BR> In the last couple of years, I've seen some cracks appearing in this though, and people are beginning to discuss the nuclear power options.  It's only half-heartedly.  That it's going to be a part in any future scenarios.  So in the hopes we can learn some new things about nuclear power, it's going to be my pleasure to moderate the panel today.  We're going to hear about both, the two most important elements of the question, which is the technology of safety and the technology and efficiency; or the three elements of the question.  And then the question of fuel availability, which is often overlooked, even if you managed to get into discussions of safety and economic liability.<BR> Our first speaker, therefore, will be -- we're going to go according to the program today.  Jacque Bouchard is a Special Advisor to the Chairman of the French Atomic Energy Commission.  He joined the Commission as an Engineer working primarily on pressurized water reactor technology and physics for fuel cycle applications.  In 1982, he became head of the Fast Neutron Reactor Department in Cadarache.  In 1990, he was appointed head of the Commission's Nuclear Reactor Division.  From '94-2000, he was the Director of the Military Application Division; and from 2002-2004, he was in charge of the entire Nuclear Energy Sector at the Commission.  <BR>Mr. Bouchard was President of the French Nuclear Energy Society from 2001-2003.  He is a Professor at the Ecole des Mines in Paris, and also serves on the Boards of several companies.  In November 2006, he was elected Chair of the Generation for International Forum, a gathering of 12 countries and the European Union involved in the development of future nuclear energy systems.  With that, I give you Jacques Bouchard. <BR> Jacques Bouchard:  Thank you.  Good morning, ladies and gentlemen.  It's a real pleasure to be here this morning to try to give you some facts about the French Energy Policy, at least the French Nuclear Energy Policy, I would say.  Because the rest it too much to discuss.  Anyway, I will try to focus on a few elements, and then to let time, sufficient time to address questions.  Because I think the most important is to answer to what you can question. <BR> Let me say, give a few figures first to recall that France is not a very big country, so we are only consuming approximately less than 3% of the world's energy supply.  What is important is that we have a clear deficit in energy, that means we are producing only approximately half of what we are consuming, even with our big nuclear energy program.  This is mainly due to the fact that we have no resources at all:  No coal, no oil, no gas, at least not a sufficient size.  The rate of energy independence has considerably increased when we have decided to start this nuclear program.  We'll come back on that.  <BR> We are the second nuclear electricity producer, just after the U.S., of course.  As you can see, we are also the second producer per capita.  Sweden is effectively the first one, at the current time.  But anyway, let's say that with more than 50 reactors and with this important -- what is mainly important is that it means approximately 80% of our electricity production at the present time. <BR> Of course this important prediction from nuclear energy led to a [indiscernible] of electricity supply, mainly because of steady prices for a long time.  But now, it shouldn't do that, because of the increase, of course, of the [indiscernible], the other energies.  The main factor, of course, of the electricity production was utilized to get, first, steady prices.  Then we have also the [indiscernible] was to be the first [indiscernible] exporter in the world, because our power plant has been quite successful.  As you can see, so we have a lot of electricity we can sell to other European countries.  What is quite important to mention is that if we did not have nuclear energy, our energy bill will be very high, because we would be obliged to import all our energy.  We will produce 150,000,000 tons of CO2 additionally each year.  <BR>This brings us to this release of CO2.  You can see that even if we are among the main producer of energy -- sorry.  We are only the 21st for the emission of CO2, a very low level, and it's the same if we look to the ratio, to the GDP, it's here that we are in a good situation because of this nuclear energy program.<BR> The independence, the energy independence, which was in the '70's, which has been considered as an important factor.  Because in the '70's, we were very dependent of the import of energy and we had only a 25% energy independence rate at the time, and the reconstruction of the nuclear plant, for one, has led us to approximately 50% of independence.  As I said before, we are producing approximately half of what we are consuming for what [indiscernible].<BR> A brief record of the story of the French nuclear program.  In fact, it was started just after the Second World War.  The third generation of nuclear electricity has been done in '56, which was behind, of course, the [indiscernible] in this country, of course.  But it was quite soon in Europe.  The big decision, which has led to the present situation was made in the '70's, in relation with the oil prices of the time.  Just a few pictures of the past to record that we have started the reactor in '48.  We have made the first electricity production with this plant in '56; and then we have moved to another kind of plant quite soon, with the '70's decisions.  <BR> I don't know if you are familiar with what we call the generation of the nuclear power.  It is straight, the story of nuclear power in the world by those four generations.  The first generation was put up and the first power plants in the '50's and '60's.  Then the second generation is all the industrial program, which has been built in '79 and '80's around the world.  Most of these plants are still operating, so most of the existing power today is Generation II systems.  <BR>And Generation III of the plants, which are built now with some improvements and, in particular, for we are concerned, the safety.  So those plants will be built for, still many years.  And after that, we are working on Generation IV design.  We'll come back later on that.<BR> But if I pursue with this story, what we call the [indiscernible] program research was in fact the main decision of building this rush for a nuclear program in France.  The decision was taken in '70's.  So Ismael was the Prime Minister of the time, so it gives the name to the program.  But I mean the main decision comes from the oil prices of '73-'74.  At the time, we had we were, it was clear that we had no oil in France and we needed to take another direction than purely importing energy because of the cost and the [indiscernible] risk.  And so it was decided to order 34 reactors of practically the same type.  The decision was taken once, I would say.  Even after that, it means 10 years to build them.  But a decision was taken at the time.  <BR>We have continued after that with larger plans in such a way that today the EDF, our UTT generation fleet includes 58 power reactors, and that means that nuclear represents approximately 65% of our electricity capacity.  That s more than 88% of our electricity production.  This is due to the fact that we are some fossil fuel.  We are a fossil fuel plant, which are the only to backup in case of a real need of energy.  You can see also that we are an important part of hydro-electricity, but the rest of the [indiscernible] are still    it's a very, very [indiscernible], and even if we have been building a lot of windmill in particular. <BR> The distribution of the plants in France is shown there.  You can see the 58 reactors are practically everywhere in the country, in such a way that we are not too much problem with the distribution of electricity.  All these plants are of the same types.  They are light water reactors.  They're pressurized light water reactors and there have been a lot of standardization made in the construction of this reactor, in such a way that it has allowed to, of course, decrease the cost of construction first, but also to facilitate the maintenance and to facilitate the fuel supply and so on.  All the reactors are of three types.  In fact, we are 900 electrical megawatts, 1300 electrical, 1500 electrical megawatts, and for each of these category, we have a lot of plant, which gives us all the advantage of this standardization. <BR> Closing the fuel cycle has been, from the beginning, one of our main concerns.  Once more, because we are not in a very large country, it was clear for us that we needed to make the necessary steps in order to reduce the waste and to burn all what can be burned.  It has been the policy from the beginning now for more than 25 years.  We have been reprocessing the fuel, most of the fuel at least.  <BR>You can see the figure there; the amount of fuel which has been recycled is very, very high.  And we are recycling systematically the plutonium produced by those reprocessing.  We are recycling it in light water reactors, in such a way that we have no [indiscernible] shared you see.  But on the contrary, we have a compliment of electricity, our energy production from this plutonium burning.  So this policy is, of course, is continuing for the future.  We'll start in Libya, an important future of the next step.<BR> Just to try to explain how it has been done, because the question was, in particular how it is related to the private sector and the public sector in all this program.  Let's say that we have several factors in the frame.  Several, but not too much.  I would say one on each problem.  We have a policy, which is defined by the government, which was defined by the government.  It was a policy of energy supply.  It was one small problem of independence.  Today, it's also a problem of a risk of climate change.  But at the time, in the '70's, it was not yet -- this genre was not built on that.  It was made on the fact that we needed to have an independent energy and a supply of energy with steady prices. <BR> So we have a policy once more fixed by the government.  We have a safety controller, a safety authority completely independent with a lot of precaution taken.  Clearly, we have a waste management agency, which is in charge of all this problem of waste management, after we're processing.  It means after extracting all, what can be recycled.  We extract first what can be recycled and then we put the rest in the waste and we have an agency for treating these waste.  Of course, we have a research and development organization, which is in Syria.  We have the UTT here and we have the main suppliers for all the nuclear business and a [indiscernible].<BR> I will give so much details on the organization of safety.  If you want, you can certainly inspection.  Just if you will, about the waste management.  Of course the waste management is not an easy issue for nobody.  It has been a real crisis in France in the beginning of the '90's.  It was such a crisis that the parliament at the time decided to [indiscernible] a special situation to fix, a given time -- 15 years -- to make more strategies and to decide what to do.  <BR>And after those 15 years, last it was in 2006, 2 years ago, they have made a new law, which gives all the following steps.  It has been well accepted because during all this time, there have been a public debate with agency and so on.  And at the end, we have a new Act, which gives all the principles and in particular, which fix how we'll be the [indiscernible] of final disposal for all of the waste.  We have already a final disposal for all of the waste.  We have a new one for high-level waste, but the law fixed also the finance arrangement.  The R&D to pursue in order to still improve, I would say the cleaning of the waste.  That means to still improve the extraction of everything which can be recycled.<BR> The French people's confidence in nuclear energy is not spectacular, contrary to often a price position.  We have just a positive opinion, but not very -- as you can see there, it's not very strong.  It values, and it's [indiscernible].  In some years, the beginning of this century, when it was just the reversal.  It's quite easy to criticize nuclear, when you have 80% of your electricity coming from that.  It's not a big issue.  <BR>But anyway, I would just like to mention the fact that the success for one, has not been due to a special confidence of the people, even it never been in a stronger position.  The success of the program came mainly from the political aspect, and from the fact that whatever the side of the political governments, the position has been the same, to continue the program and to build all these plants. <BR> Now as I said, we're on the path for the [indiscernible] type of a plant.  One of them is in construction in Fransia [sounds like].  In one of the plant [indiscernible], we are building now besides 2 older reactors.  We are building a new EPR, what we call EPR, the Evolutionary Power Reactor.  The pressurized reactors, right?  Which is proposed, however, and which is also in construction presently in Finland, on the site of Olkiluto, which will also be built in China and we hope in other countries.  But I mean, which is important that even with more than 80% of electricity coming from the diplomacy, we are still continuing to build.  We don't intend to stop to build.  We intend to cover the expansion of the needs and we intend also to renew the existing plant when the times come, in order to keep with the advantage of the system.<BR> Finally, as I mentioned, the law under the new Act on the waste, which has been brought in 2006, gave a lot of precise direction to the final execution of the waste management.  Some of these directions are newer in the system, which are partly made in the frame of these Gen-IV program for the European future energy systems.  Gen-IV, I will not give too much detail, but we have an international forum, an international forum gathering 13 members, as you observe the flag on the right.  <BR>We are already working for systems, which will be built on an industrial scale in the 30's or even in the 40's.  We need that in order to prepare, to face all the consequences of a new phase of nuclear energy used in the world.  It was not exactly the topic of my presentation, which was more focused on the French program.  So thank you very much for listening.  I'll let Mike give another view of the same program.  Thank you.<BR> Kenneth Green:  Thank you very much.  That was very fascinating.  I enjoyed seeing all the data.  It was wonderful.  Our next speaker, Michael McMurphy, is President and CEO of Areva NC, an industrial firm that offers services related to nuclear power generation.  I won't read you the entire thing.  I think it's in your packet.  Mr. McMurphy is also President of Areva, Inc., the Areva Group's U.S. entity and Areva TND, Inc.  He has a long list of prestigious affiliations and he was in the Office of the Chief Counsel for the Department of Energy's Oakridge Operations, from 1979-1983.  He served 10 years active duty in the Air Force, and an additional 10 years in the Air Force Reserves.  This is my pleasure to turn this over to Michael McMurphy.  Thank you.<BR>Michael McMurphy:  Thanks.  I was really pleased this morning actually, to open up the packet and find something in here that I didn't expect to find, which is "America Needs Atomic Anne."  Well, Atomic Anne is my boss.  Her name is Anne Lauvergeon.  She's more than a decade younger than I am.  She's much more dynamic.  She's much more articulate.  But I'm honored to be here on her behalf, and I'm also proud to be in such distinguished company, especially as I m clearly not French, and I'm clearly not an expert on a lot of things that Jacques Bouchard is an expert on and that Dr. Hoffert is an expert on.  I'm also excited to be with Marty, who is a self-styled technology optimist, which I really appreciate. <BR>Also, finally, I'm honored to be from Vermont.  Why am I honored to be from Vermont?  Because Vermont is the only political entity in the world that gets more of its electricity generation per capita than France.  With one 630 megawatt reactor in Vermont, it's more than 80% of their power generation.<BR> Just a very quick introduction, just so you know what Areva is.  I won't make a sales pitch here, even though I get very enthusiastic and love to make sales pitches.  I represent Areva in the U.S., as was mentioned.  Many of you are aware of Areva, some of you are not.  Areva is a company that's involved in the complete cycle, the complete nuclear cycle:  Starting with uranium mining; through uranium conversion services, so that it can be used for fuel; through uranium enrichment, so that the isotope is usable in fuel; through fuel manufacturing; through reactor design; through reactor maintenance; through used fuel management, the management of the spent fuel; and then, as Jacques mentioned, the recycling of the fuel to recover the energy products.  <BR>We're involved in every step of it.  We're also deeply involved in getting more deeply involved in the renewables, which we will be making some announcements about in the U.S. very soon.  Because we're absolutely convinced that every kind of electricity generation is going to be needed going forward. <BR>As I hoped you can detect, I really like something that Katherine Graham once said.  And Katherine Graham said, "That to love what you do, and feel that it makes a difference.  How could anything be more fun?"  Why do I feel that what I do matters?  This is the context that we're looking at today.  Right now, when you think about it, and I'm not going to read the slides to you, because I assume that everybody here can read and I assume that everybody here is used to multitasking, so you can read and listen at the same time.  So I'm not going to read the slides.<BR>But basically when you look at electricity generation, for every 80% increase in GDP, you have 100% increase in electricity demand.  Right now, nuclear in the U.S. is about 20% of U.S. generation.  But the U.S. has the largest nuclear fleet in the world.  France is approximately 80% nuclear generation, but the U.S. has 103 reactors on line and operating, almost two times the number of reactors as in France.  So it's very important to us.  The U.S. electricity demand is projected to grow by 40 50% during the next two decades alone.  So solar, wind, biomass, we need them all.  They're all very interesting.  They don't provide base load generation and nuclear must be part of the answer.<BR> So let's take a brief look -- and Jacques has already addressed this -- so I'm going to look only very briefly at the French program, about which you've already heard quite a bit.  He spoke to you of the facts that are on this slide.  The French nuclear program has proven to be phenomenally successful.  About 80% of electricity generation in France is nuclear, and the political will, as he mentioned, to stick to this policy has transcended administrations.  It's transcended parties.  It's been consistent since inception, and for me, that's the key hallmark of the French program.  <BR>So what has that achieved?  Again, Jacques addressed the achievements.  This slide shows just some of the benefits.  But basically energy independence, security of supply, lower cost.  Nuclear, by the way, is currently the lowest cost generation in the United States; and increasingly important, limitation of CO2 emissions.  <BR>In France, they're reaping the benefits of this consistent strategy over the last 3 decades and the recent achievements in the U.S. are also quite significant.  Right now, the generating cost for nuclear is $1.75 per kilowatt hour, which is lower than even coal.  The capacity factor in the U.S., the efficiency is around 90%, which is the highest anywhere in the world, and the U.S. will build new nuclear plants going forward, just as they're already being built elsewhere.<BR> The first new French reactor, Generation III, is in construction at Flamanville, and also in construction in France is the evolution of the infrastructure that's necessary to support the nuclear programs going forward.  But in France, the policy also includes -- as Jacques mentioned -- the recycling of nuclear fuel.  The advantages that recycling -- I skipped one.  <BR> The advantage that recycling provides are basically:  First, conservation of energy resources by recycling reusable uranium and, yes, plutonium.  Second, by making the waste more manageable and stabilizing them and incorporating them in a very stable glass form, which if you see, it looks like kind of an artificial obsidian.  And third, by optimizing the use of the final repository; because whether you recycle or not, eventually you need a final repository and it reduces volume significantly. <BR> Bru Barron, the retiring Chief Nuclear Officer of Duke Power, recently observed that, "in the U.S., we have 54,000 tons of spent fuel in storage.  If we recycled only once in the U.S., that would be 7 years of electricity generation for the U.S."  <BR>This is a shot of the fuel pool in our plant, but basically uranium is being reprocessed.  It's recycled as mixed oxide, uranium and plutonium fuel.  The uranium from it is also being re enriched to go back into uranium fuel.  These recycling programs increase in importance as uranium has become more expensive in the last couple of years.  So basically as a red, white and blue American, rather than a tricolor Frenchman, I'm really proud to be associated with Areva and with the French program that's achieving these things.<BR> Jacques mentioned the Generation III.  If you noticed on his slide, there's also a Generation III to recycling and it's called COEX.  It's co extraction of uranium and plutonium at the same time, to reduce the perception of proliferation risks.  So what application, if any, does the French experience have in the U.S.?  And that's primarily what I wanted to address.  <BR>Basically the EPR technology that Jacques mentioned is only one of the new reactors that's being promoted in the U.S.  It's French-derived, but in the U.S., it's fully Americanized.  It's a fully Americanized technology, and about 80% of its content will be U.S. content.  We're also embarked on projects to help rebuild the infrastructure in the U.S., including building a new uranium enrichment plant, in a State, which is yet to be determined or announced.  But it'll be a new uranium enrichment plant to support the U.S. nuclear infrastructure.<BR> We have renewed and healthy debates in the U.S. about the value of recycling.  The Bush administration, of course, had the Global Nuclear Energy partnership, part of which is a focus on recycling, either evolutionary or revolutionary.  A lot of the Democrats now are starting to talk about recycling and talking increasingly about nuclear, because of the CO2 challenges and because of the energy security challenges that we have, that are facing us going forward.<BR> I read a really interesting paper.  It was probably back in April, published by the Third Way, and the Third Way, some of you are familiar with.  It's a moderate Democratic think-tank policy group.  And the title of the paper was, "Another Inconvenient Truth:  Nuclear Is Necessary."  I think that people are increasingly recognizing that.  Areva technology is being used in all of these programs, and as I said, that's one of the reasons I'm really proud to be part of Areva and proud to be here.<BR> So fast-forwarding, what do we finally conclude?  You can read this slide, as I said.  As Jacques mentioned, the approval ratings in France hover around 50% for nuclear.  The latest UPI polling on nuclear, which was more objective than the polling done by either NEI or the Opponents of Nuclear, found that 62% of Americans are in favor of continuing nuclear, and also found that the number is 70% or above within a 10-mile radius of existing nuclear plants.  So public acceptance for nuclear is fairly good in the U.S. right now.<BR> For me, this slide says almost everything that needs to be said in conclusion.  But for me, there are four major contributions that the French program can make to the U.S. energy future.  The first is that there's got to be a real energy policy.  And in 1973 or so, the French adopted a real energy policy.  The second is that there has to be a real political will to stick to that energy policy and make it work, and we've seen that in France.  <BR>The third is that we need to standardize as much as possible.  I'm not saying that we need to limit to one kind of reactor, but what we have to do is not repeat the mistakes of the '70's and '80's, where we customized the reactors essentially for every site that they were going to be put on; for every utility who was buying one.  We should have just a few standardized designs and implement those designs fleet-wide.  <BR>And then fourth, finally -- and this is probably the portion that will engender the most debate -- we should recycle the fuel.  We should recycle the fuel for the advantages that I mentioned on there.  We should recycle the fuel to optimize the energy use.  And for me, recycling is inevitable.  It's not a question of whether we should recycle.  For me, it shouldn't be a question of whether we should recycle.  There is a legitimate question of, "When should we recycle?"  And there's a legitimate question of, "What technologies should we use to recycle?"  But recycling is inevitable and should be implemented for the next generations in the U.S.  So thank you very much.<BR> Kenneth Green:  Well, we're a little bit ahead of our schedule, so we'll have time for Q&A.  So I encourage you all to think up and jot down your questions for our panelists.  Now it's my pleasure to introduce our Commentator.  He's described as a Discussant.  Martin Hoffert, Professor Emeritus of Physics, former Chair of the Department of Applied Science at New York University.  He also has a long list of prestigious affiliations, including NASA's Goddard Institute; Curtiss-Wright Corporation; the General Applied Sciences Laboratory and so forth.  <BR>He's published widely in fluid mechanics, plasma physics, atmospheric science, oceanography, planetary atmospheres, environmental science, solar and winds, energy conversion and solar space power.  So if you have any questions about nuclear physics or planetary atmosphere, jot those down as well.  His research in alternate energy conversion includes wind tunnel and full-scale experiments on wind turbines, photovoltaic generation of hydrogen and wireless power transmission applied to solar power satellites.  I will leave the rest for you to read.  It is my pleasure to introduce Martin Hoffert.<BR> Martin Hoffert:  Hi.  Let me start by expressing my thanks for having the opportunity to address you at AEI, an institution I've been interested in for a long time.  Let me start by saying that my interest in this problem actually emerges, more or less, organically from my interest in engineering and physics.  Although I have something in my background, I have a Ph.D. in aerospace engineering, but I did also have an episode in my earlier life where I studied sociology and economics at the New School for Social Research in New York City.  Because I felt there has to be more than just all these fascinating equations to understanding how the world works. <BR> I'm still trying to grapple with that frankly.  But I got interested in the problem of energy and climate back in the '70's, when -- some of you are old enough to remember -- there was an embargo on oil into the United States.  I had just finished working at NASA on climate change.  We basically developed, at New York University; we had a department where we were working on alternative energy.  We were working on solar and wind energy.  We gave courses in nuclear power.  <BR>Jimmy Carter was President at the time.  I remember giving a course in solar energy.  We thought we'd get 15 graduate students.  So many people signed up for the course that we had to move it into a huge lecture hall.  Many of my students -- who have later on gone on to become, some of them professors themselves, and started companies -- believed that we were going to change the world, that there was going to be a revolutionary change in the energy system.  That was before we realized how important climate change would turn out to be.  Because in the '70's, the earth was still cooling, even though we were predicting that it would begin to warm from the greenhouse effect.<BR>So that interest that I have in nuclear is part of this belief that has evolved in myself and many of my colleagues, that we need, in this century and starting sooner rather than later, to have a fundamental and revolutionary transformation in the world energy system, away from one that's based on fossil fuel, as ours is something like 85% from fossil fuel.  Of course, I agree with the previous speakers, that nuclear has to be a part of this mix. <BR>But I would like to, in this analysis, talk a little bit about some of the technical issues and why I think we need an even more aggressive nuclear policy, nuclear technology policy, than has been discussed thus far.  Of course perceptions matter.  The picture of a nuclear power plant in the upper left-hand corner actually comes from this TV show, "The Simpsons" where a nuclear power plant is not depicted in a particularly favorable light.  And in the lower left-hand corner is an image of a possible catastrophically altered world from global climate change.  It's not the nukes that are causing the climate change, it's the nukes that might be preventing the climate change in this case.<BR> May I have the first slide please?  Oh, I have a remote. See, I don't understand anything about technology.  Okay.  Here we go, guys.  I have some much to say that I'm going to force myself to be brief, but even that brevity, there's a lot. <BR> First, let me talk about the climatic implications for, the implications of climate change for energy technology.  This is sort of a consensus.  I don't have time now to explain or explicate or defend why I believe in global warming, any more than I have time to explicate or defend why I believe that nuclear power is fundamentally a good thing for us to develop.  So let me just give some conclusions.<BR> To prevent the 2 degrees Celsius warming, which there is an emerging consensus, would above that warming, we might expect the icecap melting, which is already in progress, to become irreversible, is something that's been attributed to my former colleague, Jim Hansen, the Director of NASA Goddard Space Flight Center, but is increasingly being adopted by the European Union    Tony Blair, et cetera    as what one means by saying, "dangerous, anthropogenic human interference" with the climate system. <BR> In order to do this, this means that something like 100 300% of the primary power that we consume -- this is, the world consumes -- has to come from some combination of non-CO2 emitting energy sources.  And what Amory Lovins calls megawatts, that is non-consumed energy, where you get the same end use, but you are able to do this with more efficient technology.  This has to be done by mid-century.  <BR>Some people say this is basically equivalent to phasing out essentially 80% of all the global CO2 emissions by mid-century.  And this has to be done at the same time that global GDP is growing 3% year, and global energy use is growing at 2% a year.  So you have 2 divergent curves, the growth of the world economy; the growth of energy use, and at the same time the decline of emissions, which are coming from that energy use.  That's an immense technological problem.  It's also a social and political problem.  <BR>I'm focused on the technology.  Let me wear my geek hat now.  There are a lot of things we can do in the near term.  We should be looking at hybrids, particularly plug-in hybrids, and that gets us back to electricity for recharging those batteries, with some form of carbon-neutral electrical recharge.  Green buildings are important, a very important political objective, I think, is somehow [indiscernible] the buildup of massive conventional coal plants in China and India and the U.S.  There are 900 of these plants that are being built and those plants are going to overwhelm the Kyoto CO2 emission reductions by a factor of 5, if Kyoto even happens. <BR> In parallel, I believe, and many of colleagues, and we've written letters to all the members of Congress and all the presidential candidates to see if they're willing to support this.  We believe we need targeted research development, demonstration and deployment of 3 classes of carbon-neutral primary power.  This would, we believe, be targeted at allowing this 3% GDP mean global growth at the same time we would be phasing out the CO2, and those classes are one in co gasification; combined cycle power plants; producing electricity and hydrogen and storing the CO2 underground.  I have no time to talk about that, but that's a program that we had called "Future Gen."  It was just more or less cancelled by this administration.<BR> The second one, which I've written in red because it's the topic we're interested in here.  There's new generations of operationally safe, proliferation-resistant and waste-managed nuclear reactors, burning fuel, bred from U 238 and thorium and eventually fusion.  Now, I think those are different kinds of reactors than the ones that we've heard talked about here, which burn U 235.  U 235 is an isotope of uranium, which is less than 1%.  It's .7% of natural uranium.  The energy content in U 235 reserves and resources worldwide, is about the same as the energy content in natural gas, and that's not much because we're going to be out of gas and out of oil, pretty much cheap gas and oil by the end of the century.  If we were to generate the levels of power that we need, which are the 100-300%.  Let's say 10 thermal terawatts, we would use up this U 235 pretty fast, between 6 30 years, depending on whether we're talking about reserves or resources. <BR> And the third class is renewal energy, primarily solar and wind energy, which suffer from their inability to address base load problems, as has been mentioned.  But we need to develop an entirely new transmission system and storage technology that would operate at the global scale, including one of the technologies I'm interested in -- and I won't speak about today -- space-based solar energy.  <BR> Now the point is all of these 3 classes have major technological and course hurdles to overcome.  None of them, in my opinion, are sitting on the shelf.  Remember, even in the nuclear case, where we do have reactors on the shelf, and I'm going to mention the Gen-IV reactors that the Department of Energy is working on, is adequate at this point, to take on this load, although they could be with a targeted program with a government policy.  I agree with the previous speaker, the most important thing, for example, in France's success with nuclear power, has been the commitment of government -- starting all the way back with de Gaulle, but primarily emphasized in the 1970's    of energy independence.  <BR>I do think that the French people have more trust in general in the decisions by their government and I do think that the government of France tends, on the average, to be more scientifically literate, much more, than our own government.  Many of the people who run the country in France, went to their eco-poly technique systems.  They've studied engineering and they understand what the issues are.<BR> As somebody who's briefed Congressional Aides and people in Congress, I can testify that we don't have that level of understanding, and that's why the legislation that comes out in both sides of the aisle tends to be very unsophisticated, and that's a major job.  I hope AEI could play a role in that.<BR> Let me go on to the next.  The little photograph in the lower left-hand side is actually "Yours Truly" having an argument with Amory Lovins.  For those of you who may not know who Amory is, he is an advocate of increased energy efficiency.  This is afterwards.  Back in '98, we published a paper in Nature, myself and 12 coworkers, where we tried to estimate how much power we would have to generate from non-CO2 emitting sources in order to stabilize the climate.  We hadn't gotten that 2 degree, "keep the warming below 2 degrees" criteria yet.  <BR>But what that graph shows is the horizontal axis, which is called the "Weight of energy intensity decline."  The energy intensity is the energy per unit of GDP.  In other words, how much energy do you have to use to generate a dollar's worth of GDP?  That number has been declining approximately 1% a year in the last century.  Amory thinks it can decline much faster, that we can make much more GDP with using less energy.  Other economists who we work with think it's going to be hard to even sustain the 1%.  But the point is the vertical axis is the power that we would have to get from carbon-neutral sources.  <BR>At present, we're using about 12 terawatts of power.  But if you look at that graph, by the year 2050, we would need to be getting about 15 terawatts of carbon-neutral power, even if we keep improving the efficiency of declining energy production.  Since we're using about 12 terawatts now, that means that we need some source that can produce of the order of 15 terawatts.  Actually recent experience is showing that we're going to need closer to 30 terawatts.  The reason is that these calculations did not take into consideration the fact that we're reaching peaks in our ability to extract coal and oil, to produce coal and oil, the so-called "peak oil phenomenon."  <BR>As the demand for fossil fuel, in general, increases, primarily from China and India, there is shift within the fossil fuel mix to coal, away from oil and gas.  Historically, we've gone from coal, to oil, to gas.  We're now going backwards.  Both China and India are recarbonizing their energy supply.  The U.S. is at a point of inflexion so-called, where we're about to go in that direction.  That is suggesting that we're going to need more energy.<BR> Now what Amory was telling me is we're going to be able to solve this problem by just continuing to make more efficient end use.  Indeed, if we could make the energy intensity, the ratio of energy to GDP decline at the same rate that GDP was increasing.  In other words, if it could decline at 3% a year, as GDP was increasing by 3% a year, we would keep our energy use constant and at least for that time we might keep our CO2 emissions constant.  But eventually we have to get rid of it.  <BR> I told him, I said, "Emory, look.  I think you're a brilliant guy.  I'm not denying that energy use is important, but we're not going to solve the problem that way.  We're going to need a mixture of -- slowing global warming will require both massive carbon-neutral power and massive efficiency gains.  <BR> Actually I think he shows this graph now, so maybe this was a good discussion.  By the way, he has a banana in his pocket because he lives in Snowmass, Massachusetts, where it's very cold.  And he lives in a house that has sort of 3-foot thick walls, very insulated, and tripled-glazed insulation, which he can keep heated by his own basal metabolism of 100 watts.  There's a long story to that, but his house was built for practically nothing by student labor.  <BR> Anyway, breeding nuclear fuel is essential, I maintain, for a sustainable nuclear power at the 10 terawatt level.  U 235 has less energy in identified resources than natural gas.  It means either that we make plutonium out of U 235.  By the way, the recycling that's been discussed by the previous speakers is basically recycling the plutonium, which is naturally made in uranium fuel rods, because when the uranium splits -- when the nucleus splits, it gives off 2 neutrons, 1 neutron -- more than 2 neutrons, but let's say at least 2 neutrons.  1 neutron is used to generate power and the other neutron is absorbed by the U 235, which is 99% uranium and converts it into plutonium.  <BR>So even if you have a reactor, which isn't optimized for breeding, a breeder reactor, or a breeder processing plant, would be able to convert not all 99% of the Uranium 235, but maybe 60% of it, to nuclear fuel.  You get maybe 1-2% of the U 238 as nuclear fuel, so you can get perhaps one recycle out of the nuclear waste at the end of its -- you know, when the plant is decommissioned.  That is what is being considered.  Only five minutes.  Oh, I would love to negotiate for more.<BR> Anyway, breeders are very important, because they have a high efficiency.  I'm not going to read that.  That's a conclusion for a report that was issued    very authoritative    in the late 1970's, on the need for breeder reactors if you're going to run the world, for basically the reasons I've been giving.  But that was then, and this is now.  The most authoritative recent report is by Deutch and Moniz.  It was issued at MIT, "The MIT Study on the Future of Nuclear Power."  They stayed as far as possible from breeders.  <BR>Their argument is, "We conclude that at least over the next 50 years, the best choice to meet -- and these are the classic problems that people perceive, not the    here's the part that I think is important cost, operational safety, waste disposal and weapons proliferation challenges is the open once-through fuel cycle."  This once-through fuel cycle might have one recycle it in.  And most with one mixed oxide recycle of waste plutonium, as to France plans.<BR> Now, for various reasons, which maybe we'll get into in the discussion, because I'm out of time France discontinued their full-scale Phoenix and Super-Phoenix Plutonium Breeder Reactors.  So there's really no country that's building breeder reactors.  My choice is to build Thorium Breeder Reactors.  Thorium is 3 or 4 times more abundant than natural uranium is and you can make nuclear fuel the way you do from U 238, by radiating it with neutrons.  You could even make nuclear fuel from thorium infusion.  There's a test fusion, experimental test reactor being built in the south of France that will be producing a lot of neutrons.  You might be able to put thorium into the blanket of that reactor, and for example, test out the possible breeding of thorium fuel to U 233 by fusion as an early application, before the 40 or 50 years, where you have a full-scale fusion reactor. <BR> And in the Generation IV program, which is the Department of Energy program that I certainly support.  I think the most interesting technology to come out of it is the so-called Pebble Bed Modular Reactor, which is inherently safe, even if you had an accident where there was an explosion and these pebbles, which are graphite implanted fuel, were to fall on the floor of the reactor, you would still be safe.  <BR> The light water reactors, which are a legacy of Hymen Rickover's nuclear submarine reactor, which is what 85% of all of our reactors are in the world, they've had operational safety and cost and waste problems, and proliferation problems.  I haven't even touched on proliferation, which all the axis of evil countries were perceived as being the axis of evil countries because their ability to enrich uranium beyond what they needed for their power reactors to weapons.  <BR>The new helium-cooled Pebble-Bed Reactor, which is shown on the right, is theoretically immune to loss of coolant, which was the TMI accident, and the criticality accident, which was Chernobyl.  I believe, as a technological geek, that all of these problems are solvable.  I think cost is solvable.  I think waste disposal is solvable.  I think that operational safety is solvable, and I even think proliferation is solvable.  <BR>And if I had enough time, I would be happy to spend 45-50 minutes discussing the specific technologies that might solve those problems.  But we don t have them yet, and to get them, I think we need an up tick in energy research, to about $30 billion a year in the U.S., from the present $3 billion a year.  That may sound like a lot of money, but it's not very much money when you compare it to the fact that the U.S. is already spending $150 billion a year on all R&D.  I probably took way too much time, but thanks a lot.<BR> Kenneth Green:  Thank you very much.  Join me in giving a round of applause to our speakers.  I think before we go to Q&A, we should give the other panelists an opportunity to respond to some of what they heard from each other.  So why don t we go in the same order.  Jacques Bouchard, if you have comments in response to what you heard from others, please share them with us.<BR> Jacques Bouchard:  Certainly, I could have a lot of comments.  Now let me just clarify one point, because you mentioned to the effect that we have stopped Super-Phoenix in France at the end of the 90's.  It was, of course, a big event.  Let me say first, that -- okay, politicians can make mistakes.  In fact, it was the case.  From this time, everybody has agreed on the fact that it was a mistake to stop Super-Phoenix.  It has not bring anything to the fact that we have continued to work.  In fact, we are still operating Phoenix, by the way.  You mentioned Phoenix as a stop also.  No, we are still operating Phoenix.  The Japanese, we're starting [indiscernible].  There are still a prospect of operating in Russia.  I mean, no.  It was a mistake because, in fact, there was no reason to stop this plant.  No reason from the safety point of view; no reason from the economy point of view.  <BR> At the time, it was clear that the price of oil was still very low, so many people were saying, "Okay, it's no urgency to go faster in the development of nuclear energy, so we don't need breeders in the short-term," and so on.  Okay, in fact, today, everybody agrees on the fact, as you have mentioned, that we need to develop breeders.  It's a large part of the Gen IV program, I mean, in the U.S. but as well as in the world.  <BR>We are working together and we are, in particular, discussing at the present time.  In the frame of our international forum, we are discussing the fact that we are already 3 projects, of new prototypes of fast reactor, which has been decided in the U.S., in France and in Japan.  And we are looking to the best way to repair this future.  Let's say that the fact that we have been obliged to stop Super-Phoenix at some time has been unfortunate, because it has slowed down the development for 20 years.  But now it's quite -- I would say it's [indiscernible].<BR> For what concerns -- I won't be too long.  But what for concern the choice of the uranium or thorium for developing for the future.  Clearly, they expressed, in the Generation IV forum, has made the choice of uranium because, mainly because of the experience.  There's already a lot of development to our breeders, to our new recycling plant and so on.  The thorium cycle will bring some advantage as you mentioned.  Maybe the fact that there are a lot of thorium available in the past.  But on the other hand, it will mean a lot of newer expenditure to develop a new fuel cycle and so on.  At least, at the present time, we consider it as not urgent.  But of course, it's still possible. <BR> Male Voice [Martin Hoffert?]:  For many people involved in the debate over what kind of new reactor? I'm just happy to hear that that debate is going on and people are talking about what kind of new reactor is necessary.  But when we look at the Generation IV that Jacques talks about and that holds great promise for our future, that's a little bit ways down the road.  When we look at thorium, that's even farther down the road.  And one of the main questions that's being asked now is, "When do we need to deploy a large amount of CO2 and a free base load generation?"  And most of the people who are looking at this, believe that we need to do it sooner than Generation IV or thorium reactors will be available.<BR> There are a lot of issues still to be resolved with thorium reactors, as there are with any new program, and the money should be put in to develop these things.  For example, thorium is a gamma-emitter.  And what does that mean?  That means that it's very, very difficult to make the fuel for any thorium reactor.  Because essentially you have to do in a hot cell under completely protected capabilities, and that makes it not only difficult, but more expensive.  But thorium holds a lot of promise.  I would agree completely.  Thorium holds a lot of promise for the future.<BR> Where I would depart a little bit is on the characterization that uranium supplies are inadequate to support what we need for a nuclear generation.  If we were looking only at currently proven reserves, I would have to agree.  But according to the way that the OECD looks at it, they look not only at current reserves in identified projects, but they look also look at inferred resources in those already identified projects.  Then they look at something that has a really, to me, a funny name, because isn't really what it means.  They call it "undiscovered."  And what they mean by the undiscovered, is the prognosticated resources, on the basis of known geological evidence.  When you look at all of that, they conclude that there is 14,750,000 tons of uranium available in those different resources.  And their Red Book, which will be issued this year, will update that and add more resources.  Because uranium prices are such that exploration and development is once again being supported.<BR> Now what does that mean?  That means that if they are accurate, that if there's more than 14,000,000 tons of conventional uranium resources    we're not talking about seawater or anything esoteric like that    conventional uranium resources, that that's 200 times current uranium demand.  So most experts would project that that's plenty of uranium to take us well into the next century and to support the current Generation III reactors that are needed for limitation of CO2 free admissions at the same time that we're increasing electricity demand; and at the same time, provide the necessary time that's needed for the Generation IV reactors.  Whether it's the Generation IV reactors that Jacques is talking about; or whether it's the thorium reactors, to takes advantage of the large amount of thorium.  It gives the time to have the generation we need, C02-free and implement the R&D programs and the development and eventual deployment of the new kinds of reactors.<BR>Question & Answer Session<BR> Kenneth Green:  Thank you very much.  Before we get to a rebuttal to the rebuttal, I think we should take a few questions.  I have a list of about, actually 8 myself, if other people don't.  So I warn you, I will throw in my own questions, if we don't have others.  <BR>There are intrepid AEI Interns with microphones, at least one over here.  So please wait for a microphone before you ask your question.  I ask you remember the "Jeopardy" rule.  Please ask your question in the form of a question, rather than in the form of a statement.  Please keep it brief.  Speak your name and affiliation.  This is being taped for the Internet, and also broadcast.  Over here.<BR>Michael Nix [phonetic]:  Hi.  Michael Nix, Energy Consultant here in town.  I very much enjoyed all three presentations.  Two quick questions.  First, Mr. McMurphy, a new enrichment plant?  We've been doing gas diffusion.  The Russians were doing centrifuge.  The new plant, is that going to be --  What's the technology that's going to be there?<BR>The second question to the entire panel.  The work that I've done in the past for this, in trying to get new plants, we're told that Wall Street has a lot of objections financially.  They think nuclear is a bad risk.  I remember losing a bet with my Nuclear VP back in the '90's, that we would build a new nuclear plant in Wisconsin before our then-CEO retired, and I lost a $100 bet to the Nuclear VP.  What do we need to do?  <BR>You've made a great presentation about the great work that's being done in France and the new technologies coming on.  What do we need to do here to get Wall Street more comfortable with this?  I see Dominion going forward.  I see Echelon going forward.  I bet you Duke's going to do it, with Jim Rogers and the great nuclear people they have.  I don t see this as being widespread and it seems very sporadic in how we're going forward.  Thank you.<BR> Michael McMurphy:  Let me first try to address the technology question about enrichment.  Right now, the technology of choice for uranium enrichment is the centrifuge technology.  Why?  Because it's very simple, and it's very, very     It's not energy-intensive, I guess that's the best way to put it.  It's not nearly as energy-intensive as the old ways of enriching uranium.  The gaseous diffusion that you mentioned, for example.  And there will continue to be research and development, undoubtedly, on laser separation; but laser separation is not ready for a deployment yet.  Centrifuge is.  <BR> The U.S. Enrichment Corporation, which was spun off from DOE several years ago, and is now operating as a corporation, is implementing a centrifuge program that was developed by the Department of Energy in the late '70's and early '80's and USEC is deploying that now. <BR> A company called the Louisiana Energy Services, which interestingly enough is building its plant in New Mexico    it was originally going to build in Louisiana    is also using centrifuge.  We are actually using exactly the same centrifuge that's being used for the plant in New Mexico.  Why?  Because we did a complete review of all of the technologies available; decided that this technology was not only the most efficient, but had the least problems with maintenance and could keep its rooters balanced the most easily.  In other words, it was the best currently-available technology, with a great history of operations.  And so Areva invested in buying the technology from its competitor actually, Urenco.  So Areva owns the rights to the technology and can deploy the technology.  So a centrifuge is what's being used.<BR> We can let somebody else talk about Wall Street probably, but I would just mention that -- You're absolutely right.  Duke, Echelon, Dominion are all looking at going forward with new reactors.  But there are actually now 31 announced new reactor programs in the U.S.  Will all of those go forward?  Probably not.  What they're doing is looking at the new combined construction and operating license regime of the Nuclear Regulatory Commission and they will go through the COL, as it's called, phase and they will make reasonable determinations as they go and reach certain milestones, whether they're actually going forward with the program. <BR> But the one that's actually leading the way right now, I would say is Constellation, which is right in our backyard.  We have a joint venture with Constellation called UniStar to build 4 reactors.  So I think the programs will go forward. <BR>Jacques Bouchard:  I will not give an opinion on that on the U.S. side.  I will just mention that on the French side, for construction of the nuclear plant, of course, the financing has been one of the important points.  At the time, the only guarantee, which was a given, was a loan guarantee by the State, which has been very efficient in fact, because it has allowed the UTT to [indiscernible] that's required to low rate.  <BR>In fact, it has cost nothing to the State and nothing to UTT.  That means that it wasn't only been a low rate of loan.  It was quite successful.  Unfortunately, I would say that it's more and more difficult to have this kind of policy in Europe now because there are some, let's say fears, of fear about the fact that there should not be any kind of help for the development of an energy business.  What is surprising for me, because if I quite understood, in the U.S. now, there is at least for the first Generation III plant will be a loan guarantee, in fact.<BR> Michael McMurphy:  Yes, correct.  And actually that helps a lot with Wall Street.  There will be loan guarantees for the first 4, I think it is, new reactors that are built, to demonstrate that the licensing regime works and the reactors can be built.  Actually, I also have heard that Wall Street is skeptical.  And I've talked to people from Wall Street who are very skeptical.  But I've also talked to people from Wall Street who are quite bullish.  I think that the financing ultimately is not going to be a big issue.  <BR> You know, I would just say, if you look, for example, at our partner in this business.  If you look at Constellation Energy, who is the CEO of Constellation Energy?  Mayo Shattuck.  Where did Mayo Shattuck come from?  He came from Wall Street.  Do you think he would be investing his company's money, even in the first phases of this, if he didn't believe that it could ultimately be financed? <BR> Martin Hoffert:  I just have a brief comment.  This'll probably be controversial.  But I think all the energy alternatives to fossil fuel require a massive amount of effort, and many of them aren't going to work.  I mean, technological evolution is like biological evolution.  Most mutations are unsuccessful, but without mutations evolution stops.  So the question is, "How do you get financing and funding for a new class of innovative energy systems that we need to replace the current fossil fuel system, that aren't going to pay off beyond    if they do pay off, it'll be beyond the 3-5 year time frame of venture capital.  Venture capitalists want their money back in 3-5 years, and they want to make 10 times their investment. <BR> And the really long-term investment by the government, for example, infusion, which is sort of 40 years away, and yet the world is investing $20 billion to build an experimental reactor in the south of France.  But all the interesting things, including innovative R&D, in different kinds of reactors.  For example, the Thorium Reactors, that I like.  You can't get any money for it from private industry and you can't get any money from DOE.  <BR>I know for a fact that Edward Teller, before he passed away a few years ago, and Lowell Wood, and a Lab Director at Lawrence Livermore Labs, had come up with a very innovative design for a thorium reactor that would be buried underground and supply passive heat to turbines at the surface, that would address many of the problems that we've been talking about.  They couldn't get any money for it, within the Department of Energy. I think that's the reason we need an energy program, where we have public debates of issues, including technical issues, like this issue of whether we need more fuel to address what problem.  That's all I want to say now.<BR> Kenneth Green:  This raises an interesting question that was on my list and I'll also inject it.  In France, how much of the R&D on the technology side, with regard to recycling, with regard to the Gen-IV, how much of the R&D funding has come from government, versus how much has come from the industries that are looking to build these facilities?<BR> Jacques Bouchard:  That's a good point.  We have, I would say approximately half and half.  All the R&D, 80%.  It's 80% of the R&D for the long-term, Gen-IV Systems, for instance, is coming from the government.  It's coming from the taxpayer.  It's clear that the industry cannot invest in the government, which will not give any return before 30 years from now.  So in fact, it's mainly taxpayer money. But on the other reverse, all the R&D, which is directly related to industrial application, present industrial application, is from the 80% by the industry, either by Areva, or by ADF, or by other customers.<BR> Kenneth Green:  Over here, and then we'll go back to the back.  I think I saw a finger raised up back there.  Remember name, affiliation, question, please.<BR> Gordon Thompson [phonetic]:  In that order, I'm Gordon Thompson, Lidman [phonetic] Foundation.  A question with regard to recycling.  Monsieur Bouchard has told us about France's success.  Mr. McMurphy has told us, what I think is rather staggering, that a single recycling of America's current supply would produce enough fuel to last us for 7 years.  What are America's major objections to recycling?  How will the people who object become so powerful to stop it?  And what will it take to overcome these objections and get America started in this process?<BR> Kenneth Green:  A very good question.  Thank you very much.  Why don't we take this?  Who would like to address the question of --  Michael, do you want to go first?<BR> Michael McMurphy:  I'm not aware that there are objections to single recycling.  I mean, it is part of the national energy plan that the Bush administration put out several years ago.  The recent MIT Report that I cited by Deutch and Moniz, which you might think of as coming from the liberal establishment, also advocates this one [indiscernible] reactors with one recycle, similar to France. I don't think there's an objection to the limited amount of recycling, although it's a lot.  You've got to be careful when you say it's enough to run the United States for 7 years, but at what rate?   Primary energy that's generated by nuclear power worldwide is about 5%.  It's 18% of electricity.  But there are other energy sources.  <BR>We're going to have to convert to electricity, for example, for running cars.  If you want to have rechargeable cars, you may want to run them with nuclear power.  If you want to make gasoline out of the CO2 in the atmosphere is something which was recently proposed from Los Alamos.  You need the energy to come from some place, and that will increasingly require more power coming from nuclear energy.  That's, by the way, a partial answer to some of the questions the people raised of why we need to start thinking about breeding right now.  I don't think there is a big objection to recycling.  I could be wrong, but I don't think there is.<BR> Gordon Thompson:  Then why isn't it being done? <BR> Male Voice [Martin Hoffert?]:  Let me respond for a second, and I think Jacques would probably be more comfortable if I respond to this question of U.S. policy, since he's the expert on French policy.  He's very familiar with U.S. policy.  Yes, there are objections to recycling in the U.S.  Those objections to recycling have a long history.  It started with the Ford administration.  In the very last month of his administration, where he stopped the U.S. recycling program to review the question of whether recycling poses either a non-proliferation risk or a perceived non-proliferation risk.<BR> When Jimmy Carter was elected, he made that ban on recycling permanent.  Why?  Because during one step of recycling with the technology that was used at the time, called the Purex, during one step of the recycling, there is actually separated plutonium.  The separated plutonium is very different in nature from the plutonium that's used in weapons.  But some U.S. scientists say that that plutonium could arguably be weapons-useable.  And therefore, there has been a valid, legitimate debate over many years of what are the proliferation aspects of recycling?<BR> Now a lot of other studies have been done.  One by Dr. Burton Richter, for example.  Dr. Richter is a Nobel Laureate and he did a study for IAEA last year.  I don't even pretend to understand his mathematical models.  But his conclusion was that there is effectively no difference between the current way that the U.S. approaches the nuclear business and recycling, in terms of non-proliferation effects.  Especially for me, as an American, the argument is a little bit strained, because the U.S. is a weapon state anyway.  <BR>Is the U.S. going to proliferate by doing recycling?  No.  And, in fact, I think that the recycling can actually contribute to positive aspects of non-proliferation because what we really need to do is in the responsible countries like the U.S., that have a policy that optimizes the use of the fuel and makes sure that the fuel is available to other countries, so they won't start clandestine uranium enrichment programs, for example, as we see in Iran right now.  But, yes, there has been a legitimate debate over many years, over recycling.  And now the debate is open and healthy again; and as I said, I believe that recycling, in one form or another, is inevitable.<BR> Jacques Bouchard:  Just a comment, not on the U.S. situation but on the problem, the general problem of recycling.  I would say at first, if we don't recycle, what is the alternative?  The other choice is to bury.  To bury is to spend fuel, and to bury is to spend fuel as a whole.  Nobody has succeeded to do that, nobody, nowhere.  So I think that we are have first to think through that.  We should solve the problem of waste and the only way we have found to solve it in France has been to say clearly that we will recycle everything which we can recycle.  This is the first comment. <BR> The second on is on the Deutch and Moniz study you had mentioned.  I've been fighting a lot with them at the time, on the fact that there was not [indiscernible] to say we will increase the use of nuclear energy; and at the same time, while we will see later, what we do with the spent fuel.  No.  We have to decide now, what we do with the spent fuel.  I think it's a very important point.  <BR> Kenneth Green:  This is underlying the ironies of environmental discussion, which is you can't think of any other situation in which they would oppose recycling.  Right?  Except for this one, which makes no sense whatsoever to me, but what do I know?  Next question?  Otherwise, I have a quick one myself.  Back there.  One moment.<BR> Dave Torres:  My name's Dave Torres, I'm with the USDA. But this is a very personal question to Mr. Bouchard.  You have a lot of difficulty with what we call NIMBYism here.  That is to say, "Build a nuclear power plant.  Build a local facation plant, but not in my backyard."  Does France have those kind of siting problems and how are they dealt with?<BR> Jacques Bouchard:  I would say we were not so much in this [indiscernible] situation.  In fact, as it has been said, it was like people living around nuclear plants and reactors or dual cycle facilities are very happy and they are not arguing on the fact they have these plants in their vicinity.  But on the other hand, if you ask people, "We intend to build a new plant in your area," very often it's more difficult.  <BR>I would say the experience we have in this frame is that it's quite different.  If it's bringing jobs; if it's bringing activity and it's the case of a reactor or a nuclear plant, it's also the case of a large [indiscernible] facility, very often we can convince -- at least the people in the charge of the community and they help to explain to everybody that it's not a real danger.  It will bring a positive action.<BR> Which is more difficult is the problem of waste, because a waste facilities don't bring jobs; don't bring economy.  And so you have to find a way to convince the people that it's in their backyard that you would put the waste and it will not dangerous, of course.  But it's not sufficient.  Not sufficient [indiscernible].  You have to find a way to show them what it brings for them, and this is one of the important part of the policy going on to open and find a disposal for high level waste.  We are all in a general plan of discussion with local authorities, the local population on what we can bring to help them in complimentary, and say to the fact that they accept the opening of this waste disposal.<BR> Kenneth Green:  And I don't think NEMBY is nearly as big a problem as we've seen in some areas of the U.S., which I call the "No banana problem," which is no building anything near anyone nor anywhere. <BR> Kenneth Green:  That's why I had the banana as built absolutely nothing anywhere near anything.  It's obviously a multiuse acronym, or NUA.  Do we have another questions out there?  I have a quick question, which is with the rate of the current growth of electricity rates and the potential for laying on electric vehicles.  How many of these are we talking about?  The displaced coal?  If we're looking at displacing coal almost entirely by the year 2050, which I think is virtually impossible.  But let's assume that was -- Let's take that at face value seriously.  How many reactors are we talking about?  Of course, where?  They would have to be -- I'm assuming they would have to be distributed.  <BR>And then which countries are we going to turn into the isotopic [indiscernible] OPECs?  Where are we going to be getting the fuel from that we're moving from, if we're moving from coal or from oil to fuel our vehicles?<BR> Jacques Bouchard:  Let s say, I will take the problem another way.  When we look to the development of nuclear energy in the next 20-30 years, we consider that a reasonable objective for electricity production will be to increase by a factor of 4, the electricity and nuclear electricity production in the world, which means that the part of nuclear in the electricity production was double, because in between the electricity production will double.  So this is the first point.<BR> If we intend, in addition to that, to replace part of the energy for transportation, that means producing hydrogen.  Because in fact, we go through hydrogen.  Electrical [indiscernible] there is one possibility but it was in limited in amount.  But the most important development will be to produce massive quantities of hydrogen and then let the oil companies organize a market with the 632 fuel or something like that.<BR> If we go there, they approximate, estimated that it will be the same amount as for electricity production.  So you see, for electricity production we are looking for a capacity around let's say 1,500 erectors in the world by 2050.  If we succeed, in particular, the development of high compression erectors to produce hydrogen on a massive scale, it could double this number of erectors.<BR> Unknown Voice:  How many are there?<BR> Kenneth Green:  How many are there?<BR> Jacques Bouchard:  440 -- 440.<BR> Kenneth Green:  So we need 1,000 more reactors?<BR> Jacques Bouchard:  Yes. <BR> Male Voice [Michael McMurphy?]:  Actually my answer is bigger than that.  I would place it closer to 6,000 reactors over the next 50 years.  I mean, that means we would be building a new reactor every couple of days or something like that, or every week or something.  That's actually about the rate that China is building coal-fired power plants.  So the issue really is whether we're going to get conventional coal-fired power plants in this massive buildup of GDP, or we're going to get nuclear.  I mean, we couldn't do it, in my opinion, with conventional nuclear.  Because there isn't as much energy in U 235 as there is coal, anywhere near.  <BR>I mean, and that's one of the reasons why, because these plants, once you build them, you sink the capital for 50-75 years.  We have to think now about where we're going.  People don't want to do that.  I mean, people normally, when they look at energy, they look at the most expedient near-term thing.  This is why people are investing in ethanol, for example.  But I think it's really important to try to imagine what the future of our energy system is going to be like, because it very much impacts what we do right now. <BR>  Male Voice [Martin Hoffert?]:  Well, I don't pretend to be nearly as expert as my friends up here.  This is really a personal observation.  I don't see how we can replace, completely replace coal by 2050; and I'm personally not convinced that we should completely replace coal by 2050.  I believe climate change is real.  I believe that CO2 free generation is necessary.  I believe that for electricity generation, we will continue to need coal in the United States and what we should be doing is putting the money into developing technologies that make the coal cleaner to use.  Those technologies don't exist yet, but they are under development.<BR> What we have to keep in mind in the U.S., from a practical standpoint, is that coal is responsible for approximately 50% of all electricity generation right now, and we cannot easily replace that. <BR> Kenneth Green:  Well, actually, I still have more questions but we don t have more time, so I'm going to not keep you from your lunch. I'd like you to join me in thanking our panelists for a rousing discussion.  I'd like to personally thank you, gentlemen.  That was well done.<BR>[Luncheon]</P> <P>Panel III: Markets and Transportation Policy in Europe</P> <P><BR>Henry Olsen:  Okay.  I'd like to call the proceeding to order for our third panel.  Our panel now is going to be discussing transportation policy and markets in Europe.  We are unfortunately had a last minute cancellation from Philippe Sirah [phonetic] of VINCI, the company that runs the French toll road system.  His extensive PowerPoint will be on the website, so you can read and look through the presentation that he would have given, had he been able to come.  But we are fortunate in having our other panelists and discussants.  Our panel is going to be moderated by Ron Utt, a senior fellow at the Heritage Foundation.  I'd like to turn it over to Ron. <BR> Ronald Utt [Moderator]:  Our government is small and inconsequential and it doesn't interfere with the market process and so on and so on.  And Europe, by contrast, is bogged down in regulation, a heavy legacy of socialism, partnerships with state-supported monopolies and so on and so on and so on.  And some concerns about foreign ownership and whatnot, and therefore we're the freer economy and it shows with binomism [phonetic] and so on and so on.  Now, that may be true in some sectors, in some places and at some times for both countries, but in other sectors, in other places and other times, it's not necessarily an accurate description of what's going on.  And, in fact, precisely the opposite may characterize the situation.<BR>And as somebody who spends some of his professional life doing transportation policy issues, transportation policy and the operations of the system is one of those systems where Europe is very much advanced in a number of key areas, in comparison to where we are in the United States.  Now that situation did not always hold.  Up until let's say the late 1970's, our transportation was far more private.  And as a result of the Carter deregulations, far more market-based and more competitive than were the counterpart modal operations in Europe. <BR> But beginning about 1980, with the advent of fairly aggressive privatization and applications of market solutions, two transportation in many of the European countries and also in many Asian countries and Latin American countries as well.  Europe, I think, leaped, began to very quickly catch up with us and in many sectors have moved past us.  And we're now in a situation where we can learn from them.<BR> Now, we originally had two speakers covering European issues.  Philippe Sirah was going to talk about toll roads and private roads and private public partnerships in France.  He was not able to make it.  But as Henry said, his PowerPoint presentation, or his presentation will be up on the AEI website, probably within about 24 hours.  <BR>So we are now with one speaker, Mr. Eugene Hoeven, who has extensive experience and an extensive long career in aviation, not only from the private sector but also from the, kind of the NGO sector and interacting and representing the private airlines before governing bodies, international governing bodies and issues of air traffic control and airport access and fees and such things.  He'll be talking about focusing on the advances in commercialization that have taken place in many European countries.  <BR>The focus will be in Europe, but these have also taken place in Asia as well.  It's an area that these other countries have moved far in advance of where we are in the United States.  Their systems have been freed of the burden of being part of the budget and therefore decisions can be made on a cost-benefit basis, as opposed to needs for deficit reduction in the future and other competing budgetary issues.<BR> The United States did take a fairly serious stab at this in the early 1990's, about 1993, when as part of Al Gore's reinventing government, a lot of discussion and reports were put out either privatizing the air traffic control system or commercializing the air traffic control system.  It was fairly clear, however, that there was very limited interest in doing that in Congress from either party.  And in fact, to be fair, there was probably wholesale opposition to anything beyond the current status quo, and that's where we remain today, notwithstanding efforts by forums such as this and the Heritage Foundation and the Reason Foundation, which have published numerous papers on air traffic control reform and airport operations reform.  There is still considerable disinterest, if not opposition from both parties in Congress.  Nonetheless, we all keep plugging away, and it's to AEI's credit that this issue is being surfaced again.  <BR>We'll begin this presentation on this by Mr. Hoeven; and that will be followed by remarks from Joshua Schank, who also has extensive experience in transportation, both working for Senator Clinton as a Transportation Adviser.  He was at USDOT in the IG's office and is now Director of the Transportation Studies at the Bipartisan Policy Center.  Is that in Washington, DC?  Yeah, okay.  And he will also be commenting on not only the air traffic control session, but I've asked him to come prepared to talk about the whole range of issues, including toll roads, and to also spend some time talking about that.  Then we'll turn it over to questions and answers and interactions and see where we go from there.  But anyway, thank you for attending and thank you for your attention, and I turn it over to Mr. Hoeven.  Thanks.<BR> Eugene Hoeven:  Thank you very much.  I'm the only speaker here.  I feel like I have to do a bit of a song and dance to fill in the time, which I'll do my best.  I'd like to start, first of all, by thanking the American Enterprise Institute for this invitation to speak to you today.  What I'm about to speak about is something that should be dear to all of your hearts, if you are a frequent traveler and if you've been stuck in the queues on taxiways and so forth, I'm sure this is going to be dear to your hearts, at least that's what I hope.<BR> Back in the 1820's, U.S. Senator John Randolph stated, "Everyone thinks of changing the world, but few think about changing themselves."  I think this particularly true in the case of aircraft control, when you hear about the political debate that's going on in Congress and there's a need for new thinking, political thinking in this field. <BR> So my contribution this afternoon will reflect on Europe's ATC commercialization experience and what the U.S. can learn from the accomplishments in this area.  For those of you not familiar with CANSO, we are a global trade association; the world's air navigation service providers and we count the FAA among our 48 members who provide air traffic control services around the world.  CANSO's mission is to provide a global platform for customer and stakeholder-driven civil air navigation services with a primary emphasis on safety, efficiency and cost effectiveness.<BR> This is basically what our members covered, in terms of the world surface.  The red areas are the areas covered by the services being provided by our members.  We've got four offices worldwide.  Our headquarter is in Amsterdam; the regional office in Brussels; myself in Montreal, where I liaise with the International Civil Aviation Organization and we have plans for this year, to open an office in Singapore. <BR> In an interview with the economists last year, Bob Crandall, the now retired boss of American Airlines was reflecting on a state of affairs of the U.S. airline industry. He stated that the industry is in complete state of disrepair.  He had a ready culprit.  For the most part, this is a function of deplorably bad government policy.  He cited the Chapter 11 Bankruptcy Code with astringent labor laws and the government's failure to recognize the importance of having a prosperous airline industry in the United States.  Well, CANSO agrees with him, but we would add a fourth problem, and that is the failure of lawmakers to, in fact, recognize the importance of air traffic control as an integral part of the air transportation system in the United States, and indeed the rest of the world.<BR> As you probably will have experienced yourselves, delays attributed to air traffic control congestion happen every day, and to our mind, are only set to get worse here in the United States if the government structure and institutional framework within which the FAA ATO -- or Air Traffic Organization -- within that framework that it functions does not change.<BR> Oops -- the wrong slide.  Hold on.  America's air traffic control system will face a rise in the number of flights from 45,000 day today, to 61,000 by 2016.  The FAA itself projects that the growing demand for traffic and cargo flights will lead to a further doubling of air traffic by 2025.  The main elements of the U.S. air traffic control system date from its inception in the 1950's, organized around one-way lanes in the sky, along which airlines or aircraft fly under the radar control, while navigating over a fixed beacon, radio beacons on the ground and communicating with air traffic controllers.  In recent years, system capacity has increased by adding more equipment and hiring more controllers, but there is limited scope left to continue along this path.<BR> The U.S. is at a point of diminishing return.  The air traffic system is in a desperate need of complete overhaul and a new view of thinking is required of the aircraft control business.  Operational solutions lie in new satellite-based aircraft centric technologies, which allow pilots to communicate better with each other, see where their aircraft are in relation to each other and navigate more precisely.  More precise navigation will allow for a reduced separation between aircraft, which in turn would allow more aircraft to be accommodated in the same amount of air space.  However, the problem, as some of you will have heard, is that this costs money.  Many billions of dollars we're talking about and as a result, much of the debates here in Washington has focused on FA funding.<BR> America's air traffic control system is financed by a trust fund, which is funded mostly by passenger taxes but also by a fuel tax levied on general aviation.  However, funding from passenger taxes bears little relation to the length of the flight or the cost of handling it.  Moreover, there's been a dramatic increase in the use of private and executive aircraft.  So airlines, which contribute to more than 90% of the trust income now consume only two-thirds of its services.  <BR> In February of last year, the Bush administration proposed legislation called "The Next Generation Air Transportation System Financing Reform Act of 2007."  It would replace the rather Byzantine system of collecting ticket taxes with a cost-based, stable and reliable funding program that relies on the combination of user fees, taxes and a government contribution, thus providing FA with a sound financial footing.  If accepted, the proposal would bring in the funding of FAA more in line with the rest of the world.  <BR>However, as you will have heard, the Congress has yet to approve the new funding system and some lawmakers are not keen, many of whom represent America's allegiance of private pilots.  The business and general aviation community fears that fees for service will cost them more and therefore continues to oppose any proposal for FAA user fees, favoring instead the current fuel tax system.<BR> Other lawmakers are, of course, worried about the loss of jobs for their constituencies when aircraft control centers are consolidated.  It will reduce the pork barrel.  You've already saw the slide so here is my punch.  It took a long time to find that one.  The result is that the FAA is currently in an awkward position of waiting for the reauthorization legislation to pass, as its authorization officially expired on September 30th and temporary authorization was set to lapse on February 29th, when the FAA's tax authorization was extended until the last day of this month, and it's been extended till June 30th. <BR> The Senate has also effectively put on hold the confirmation of the Acting Administrator, Bobby Sturgell, having been nominated by President Bush four months ago, citing flight delays and runway incursions as a reason for not confirming him, at least at this time.  In essence, the Senate is not prepared to grant him the authority to fix the very problems that he's been trying to fix. <BR> The question of FA funding and the constant tussle between Congress and the administration, whether Republican or Democrat, has been going on for close to two decades now, and with no end in sight.  As our famous philosopher would say, Yogi Berra, he would say, "This is d�j� vu all over again."  To come back to Mr. Crandall's point, the real issue is that FAA, just like the airlines, is a victim of bad government policy, constant political meddling and bipartisan politics.  <BR> Is commercialization the answer?  I should first make very clear that when we talk about commercialization, we are not talking about selling anything.  We're not talking about privatization.  What we are talking about is granting FAA greater autonomy to manage its affairs in an efficient and effective way so that it can respond, better respond to the needs of the aviation community while it remains fully owned by the U.S. government.  Frankly, the current public policy debate about FA funding is missing the point entirely in our view.  It's really a red herring.  Yes, funding is an important element to address, but it's only one aspect of a much needed wider public policy debate about the governance of FAA.  It is about creating the right institutional environments that will make the U.S. air traffic control system more responsive to the needs of the nation. <BR> With the funding debate, we are not grabbing the bull by the horns, so to speak.  We're in fact chasing its tail.  Let me explain what I mean by that.  Air traffic control has traditionally been government owned, operated and regulated.  However, over the last 20 years, many governments around the world have realized that this is no longer sustainable, and many have shifted the responsibility of service provision to independent air traffic control providers and navigation service providers and there are several good reasons behind this decision. <BR> The unprecedented increase in traffic spurred by airline deregulation since the late 1970's meant that many air traffic control services were facing severe capacity shortages.  The government budgetary constraints meant that States were unable to allocate sufficient funding to upgrade their ATC infrastructure, to match the growth and demand, the result was severe delays for airlines.  This sounds very familiar to you.<BR> So over 40 countries worldwide have successfully commercialized their air navigation services and great examples can be found all over Europe, but also in Canada, Australia, New Zealand, Thailand, Saudi Arabia and South Africa.  Most have established a government corporation separate from the government bureaucracy and operated along commercial lines, based on business principles.  Examples of such corporatized entities are DFS of Germany; Austro Control of Austria; Airservices Australia; Airways Corporation of New Zealand.  The U.K. established NATS, which is a public private partnership, where the government retains 49% shareholding and a golden share and the airline group consortium holds 46% and the staff holds the remaining 5%. <BR> NAT Canada is an example that I'm most familiar with, because I was involved with the wholesale of the air navigation service in Canada.  NAT Canada is a not-for-profit non-share capital corporation.  It's the only fully privatized ANSP.  So it's the one and only example of a privatized ANSP, as we call it.  <BR>So what has been the result?  Where governments have let go of ANS provision and granted greater autonomy for ANSPs, there has resulted a greater responsiveness to the needs of the aviation community.  Council members such as NAT Canada have proven to be dynamic.  Responsible corporate entities keen to prove themselves as reliable partners and efficient operators and valued employers.  NAT Canada, Airservicse Australia and in Europe, Austro Control, DFS of Germany, the Irish Aviation Authority and LSV of Sweden have all been recipients of the airline industry's prestigious IATA Eagle Award in recognition of the value for money and quality of service offered to their airline customers.<BR> The ability to set fees in line with the service provider has introduced a new dynamic to what has traditionally been a bureaucratic approach to service delivery.  Airline operators have rightfully demanded greater accountability with user pay comes user say, and a greater sensitivity to customer needs has developed.  There is no longer any doubt as to who the customer is.  Today's ANS environment has moved away from the traditional administrative and supply-driven approach of service delivery to one that is performance oriented and demand-driven. <BR> Safety is still paramount, but so is efficiency and customer responsiveness.  The working relationship between customer and provider has become transparent and flexible.  In a performance-based environment, incentives have become intrinsic, whereby the use and provision of the services is more efficient.  A win-win engaging relationship has resulted for both customer and provider.  Compare this to the rather traditional rigid bureaucratic environment where little transparency exists and absolutely no incentives exist for better ANS provision.  Where ANSPs have been granted greater autonomy, we have seen accompanying change in the role of government and the nature of regulatory oversight.<BR> Governments have traditionally legislated and regulated the aviation industry as if it consists of separate unrelated and fully independent sectors or activities.  Airline deregulation and marked liberalization has stimulated economic growth for that sector of the air transport value chain, but this has led to increased friction for the total system, as expectations for performance and profitability are not met. <BR>Aviation policymaking must be seamless across all sectors of the value chain.  The policymakers and the regulators must consider the broader impacts of policy decisions across all sectors of the industry.  We cannot allow one sector of the system to develop and grow while constraining the other links in the chain from reacting to change.  Within the aviation system, there is no room for uncoordinated action, not at a national level, nor at a global level, and the air transport system is probably the most global of all global networks, when you think about it.  <BR> So with autonomy and commercialization of ATN we have witnessed the paradigm shift in the in-service provision, if you like, which more clearly balances the interests and the responsibilities of both the State and the service provider.  The key components of this paradigm shift are separate of the service provision function from the regulatory oversight function, which continues to be the responsibility of the State; ensuring that services are provided in a safe and efficient manner.  <BR>The adoption of a business approach has been the next step.  The airline operators expect a level of service at a cost that can be provided through a commercial approach to ANS provision.  So ANS providers have started to see airlines as their customers and see themselves as a service provider in the air transport value chain, no different really from other servicing firms, like fueling companies, catering or aircraft servicing firms.<BR> We then start to see an increased focus on efficiency, both by the regulator and the provider and begin to consider regionally harmonized solutions to common challenges.  An example of this is the Nordic Air Traffic Management Service Concept, a cooperative venture between 6 Scandinavian ANSPs, the overall objective of which is to provide harmonized and cost efficient services to customers with a constant focus on safety, cost and the quality of service.<BR>Finally, we see a transition to the next stage of regional and global integration, which is what Europe is pursing right now under the Single European Sky Initiative and this is our project.  It will result in a reorganization of European air space into functional air space blocks and the eventual consolidation of ANSPs.<BR> In our industry, it has become clear that further safety capacity and efficiency improvements can only be achieved and environmental benefits realized through regional cooperation and integration.  I'm not suggesting that the European Initiatives are to integrate and defragment the air space is an example for the U.S. to follow.  You operate in a very different environment here geographically.  But what I am saying is that the United States Air Traffic Control Service, as a government service provider, is still squarely stuck in stage one of ANS development, which puts it institutionally at par with state providers in the less developed world. <BR> So how do we achieve a better performing air traffic management system in the United States?  As I said before, the answer rests with only one thing, and that is governance.  Our starting point needs to the clarification of the public interest in air navigation, which has long been associated with public safety, national security, system availability and efficiency, traveler convenience and environmental responsibility.  <BR>But no matter what industry we are talking about, modern governments have insured that the public interest is protected through efficient and effective safety regulation, economic oversight, financial regulation, labor laws, consumer protection legislation and environmental laws.  Effective governments put their faith in the legal and institutional framework to protect the public interest.  They do not meddle in the day-to-day operations of industry. <BR> The second point of clarification is the definition of the customer of air navigation services.  In the case of commercialized ANSPs, there is no question that the customer is the aviation community, and ultimately the flying public.  It is not government, nor is it the legislature.  In today's FAA, the customer is not clearly defined, as it must try to address the needs of the aviation community while at the same time, it must satisfy government socioeconomic and political objectives related to capital procurements programs and employment.  This clearly undermines efforts to build a customer-oriented and performance-based organization.  It has been observed that good ANSP performance results from good governance, and good governance in turn results from good policymaking.  <BR> The public policy choices therefore do make a difference.  Permit me to show you some elements of best practice.  Governance policy must clearly state the mandate and objectives of the ANSP, and the emphasis needs to be on safety, capacity, cost efficiency, customer-focused service and increasingly environmental responsibility.  The enabling legislation must create an appropriate institutional framework within which the ANSP is free to function, specifying the roles and responsibilities and its obligations in observance of internationally agreed standards, set by AICA.  It should also identify the safety regulator and prescribe the form of economic oversight that will afford customers the ability to influence costs, investments and fees. <BR> A professional, independent and unbiased supervisory Board should govern the overall direction of the ANSP ensuring that the management is responsible and held accountable.  An empowered and qualified management is central to the success of any organization and for an ANSP to deliver services in line with expectations, it's management has to possess the professional talent in all business areas -- human resources, operations, procurement, finance, customer service.  A mature, transparent and meaningful customer provider relationship that seeks agreement on the goals and objectives relating to safety, capacity, quality of service, cost efficiency is central to superior ANSP performance and can serve as a substitute for more interventionist regulation by government.<BR> Finally, as labor distractions will have a serious impact on service quality and a serious financial consequence for customers, the mature and constructive employer/employee relationship that fosters communications on work-related issues, exchanges of opinion, consultation and negotiation.  It's seen as an essential element for better governance. <BR> In conclusion, has ATC commercialization been successful?  I think the answer is an unequivocal and resounding yes, and providing autonomy to the ANSPs has resulted in a correct orientation.  Instead of treating government and staff as the primary customers, the needs of the aviation community, and indeed the economy at large, have become central to the business.  Statistics clearly indicate that the level of safety has improved as facilities and services have been modernized and steps have been taken to improve the efficiency and quality of the service.<BR> Today, the U.S. is still facing the policy decisions that have long been addressed in Europe and elsewhere and unfortunately, the public policy debate of the FAA Reform has, today, only polarized a different stakeholder interest.  We believe it's time to set aside partisan politics and special interests and really work together in the benefit of the U.S. economy.  There you have it.  Thank you.<BR> Ronald Utt:  Thank you, Eugene.  As I said, if we can hold all questions and comments until after our formal commentator has had his opportunity to present his views on, not only on air traffic control issues, but hopefully other public private partnership, privatization and commercialization opportunities as well, in transportation policy.  Joshua?<BR> Joshua Schank:  Thanks.  I thought that was an excellent presentation, Eugene.  I think there are so many parallels.  I've worked in aviation before, but right now my focus is on service transportation policy.  I have to say the parallels between the two are extraordinary in many ways.  I'll get to some of those.  Let me just give you some off-the-cuff reactions I have to what you said.<BR> One thing I think it's important to recognize -- and this is obviously not the subject you were dealing with -- but I think there's a lot of delay and congestion in the aviation system that's not necessarily a result of air traffic control.  I think that's something to put out there.  A lot of it is the result of another policy that is a strong need of reform, which is the way that landing fees are charged at airports.  There's a strong parallel between what you've presented and that issue, which is that in both cases, you have entrenched interests that are preventing you from pretty much pricing the system accurately in a way that responds to customers and is performance-driven.  With airport runway pricing, you have a theory of how to solve airport runway congestion, that's been around for 30, 40, 50 years, and has not seen widespread implementation really anywhere in the world.  <BR>There have been very few successes.  That's because it challenges entrenched interests across the board in trying to change the landing fee structure, such that airlines and people in the aircraft in an airport are charged on the basis of time and day, and not necessarily on the basis of the weight of the aircraft, which is how they typically charge.  It sounds like there's a lot of parallels there between how we're currently-- how in this country at least, we're currently accessing fees that are used by the FAA to run the air traffic control system.<BR> I take a very practical approach to this.  I worked in the Senate and right now I work at a think-tank that likes to call itself a "think-do tank" because we try to implement our policies.  I couldn't help but think about, "Well, what are the real barriers in the Senate, and in Congress in general, to implementing such a thing?"  I think we can write off a little bit of the resistance to the Bush FAA Reauthorization Proposal as resistance to anything that Bush is proposing at all right now.  So we could probably give some of it there. <BR> But there are strong interests that do not want to see this type of reform because they are benefiting from it.  I draw a parallel, again, to the airport pricing scheme because I think that there's something interesting that can be learned from that.  In airport pricing, the entrenched interest, and not all that different, general aviation, tends to be opposed to airport pricing.  And depending on how the airport pricing scheme is devised, you can have groups of airlines that are proposed to it.  In certain cases, it's been smaller carriers.  It's typically the smaller carriers who are opposed to it. <BR> And in the case of airport pricing, my contention is that you can't satisfy those entrenched interests.  As somebody was saying at the dinner last night, they compensate the losers in the pricing scheme.  You can't do it very easily in the case of airport runway pricing because those people who are trying to get those planes in at a certain time of day are doing it because they need to, in most case, meet another flight.  And it's not as simple as just saying, "Well, we're move them to the off-peak."  Well, then you've kind of defeated the purpose of the flight in the first place.  It's not as simple as you're saying, "Well, GA should land somewhere else," if they don't have an adequate alternative.<BR> So you have to compensate the losers in some kind of more expansive way then just saying, "Figure it out.  The market will sort out the winners and losers."  I think that same thing happens here in air traffic control.  Now I'm not sure how to do it.  I don t have the answer for you.  But I can tell you, the entrenched interests, as I see them, are GA and NATCA.  If those entrenched interests, and we know what both of their goals are and what they're trying to achieve.  And if we're going to think about how to reform air traffic control policy, we have to think about how we're going to accommodate those interest groups because quite frankly in the Senate -- I mean, even the most reform-minded Democratic Senator is loathe to take on NATCA.  That's a real big fight that they don't need, and they don't want. <BR> So I think was a really interesting parallel.  I really liked what you said about the form of the organization not really being the issue.  Because I think that we often get caught up in whether it's private, or whether it's public, or public-private, and really those aren't the issue.  I think there's a parallel here to road pricing, and PPPs with respect to roads.  Because I think we often get caught up in public-private partnerships.  And people on the Democratic side of the aisle typically, you know, worrying about PPPs and the potential negative impacts.  <BR>People on the Republican side of the aisle are bestowing the virtues and talking about how great they are and really missing the point, which is that you need some kind of system that is performance-based and responsive to the customer, and whether you're doing it privately or publicly is not really the issue.  And you do that with a system of charging customers that aligns with the customer demand, which we're certainly not doing on roads, by and large, in this country, and in which Europe does a much better job of.  It's not necessarily whether you're privatizing it or whether you're just doing it as a government policy.  That's almost irrelevant.  The question is, "Are you trying to create a performance-based system?"  <BR> You know, particularly in the PPP debate on roads, there's a lot of concern about asset monitorization, and I think there's a parallel between asset monitorization and the selling off of air traffic control towers.  Asset monitorization makes people mad.  Right?  They get very angry.  They think of the Indiana Toll Road.  They think of the Chicago skyway and they think, "You're selling off our assets to foreign investors, and this is terrible."  I'm not saying whether they're right or wrong.  I'm just saying that that's creating contentiousness that is not necessary.  It's just not necessary, because that's not the issue.  The issue is, "Are we going to make it performance-based?" <BR> Now, I also think that there are parallels to the ground transportation system in the sense that the current -- for those of you who don t know how the service transportation policy works in this country, I can give you a quick rundown.  The current system is fuel taxes are collected; and then everybody fights over who gets the money.  That's our transportation policy.  <BR>It sounds like, in air, it's not as much about pork barrels, although obviously there is a pork barrel element.  But it's the same concept, in that people are trying to figure out how to allocate funding on the basis of formulas and power and who's aligning with whom and how you, you know, trying to create coalition so that they can get the most funding for themselves.  No one is considering the idea -- or until recently, they weren't considering the idea of trying to allocate the funding in a way that aligns with national interests, which is kind of    a lot of what you were saying is, "Well, what are the interests of the public?  What are we trying to achieve with this policy?  And can we align the way that funding is distributed and collected with those goals?"<BR> And in surface transportation, I think there's a real opening right now because, in part, because of the last transportation bill, which passed in 2005, and really soured the American public on transportation policy.  For those of you who don't remember, the famous "bridge to nowhere" was part of that bill.  There was a lot of backlash from that, and it contributed, in part, to the Republicans losing the Congress in 2006.  I think that similarly the collapse of the bridge in Minneapolis, though not at all linked to transportation funding in any way, was a symbol of the crumbling infrastructure of the country.  <BR>People kind of said, "Well, what are we doing about transportation policy?"  And they said, "Oh, we're just having a fight about who gets the most money."  And I think that that created an opportunity for -- the optimistic in me thinks it created an opportunity for some kind of real reform and how that funding is distributed.  I'm wondering if there might be a parallel in air traffic control, as a question of, "At what point do we have to get to?  How bad does it have to be, before you see some kind of reform proposals that are strongly considered by Congress?  And where they have the initiative to really compensate, or at least deal with, the entrenched interests that are trying to prevent that reform?"  <BR> Those are my main points on policy.  I'm happy to talk more about service transportation or air transportation.  I think I see a lot of parallels there.  I think the points you made were excellent and transcend across modes.  Thank you.<BR> Ronald Utt:  So you ended up on the issue of performance-based systems, which is all the rage now, if you talk to transportation experts and talk to the DOTs.  They all mean different things to different people.  I've taken an interest in them and some of my colleagues and I have produced some model legislation last year.  So we got to review a lot of performance-based systems, even the Federal Highway Administration has come up with some performance measures.  <BR>What I have found is that there are so many performance measures there that no one will ever be held accountable and in fact what you end up with is this sort of, they've taken the same problems of how to spend money into    you know, everybody wants to make sure they get their piece of the action.  They don't really care what the overarching thing is.  "We've been getting a half a percent of the Federal Trust Fund since the beginning of time and we want to keep getting it."<BR> In the performance measures, all those people have moved over and said, "Okay, well, we want a performance measure for this, this and this."  So, for example, in the case of the Maryland Performance Measures, which are very interesting and very thoughtful and very well laid out and covered the range of everything, you have as one of the performance measures, the number of bike racks on buses, for example.  As opposed to what we would think would be the key thing, would be things like safety, congestion relief, standards of maintenance.  Those are the big ones, and then these other things are kind of interesting. <BR> The consequence is that, you can say, "Well, we screwed up on congestion," which everybody goes, "But boy, did we get a lot of bicycle racks on those."  Or a whole range of things like that.  Or yes -- if you look at the Federal one, it's like, "How many conversations did you have with stakeholders?"  I mean, you could do that forever when your performance measure is up there.  <BR> And even Virginia has recently taken that and they've put in things like economic development in there, which covers anything.  Okay.  So you can take some of your money and it goes to an isolated new airport for general aviation to be built and say, "yes."  Of course nobody's using it, but it's for economic development.  It's all linked together, multi-modal, dah-dah dah-dah-dah.  So you can never hold these accountable.<BR> So I guess the suggestion, and obviously the same thing occurs in aviation, and what should the air traffic control system be doing?  And I guess how do you resolve what I see is the pending problem of sort of transferring all those from one system over to another with just sort of different clothing and different colored ties and everything.  The end result is sort of the same, is that everybody has their piece of the action.<BR> Joshua Schank:  If I knew the answer to that, then I wouldn't have to do the research I'm going to do for the next year.  But I think, my instinct is that if you agree on the national goals and the role of the federal government in the policy you're creating, then you might be able to agree on the performance measures that actually make sense for achieving those goals.  So, for example, in Maryland, if they said that their goal in Maryland was to increase the number of bike racks, then that's the right policy, is to make sure there are more bike racks on buses.  I'm guessing they probably didn't say though that was the goal.  If they did, then they weren't really thinking about their goals properly; or they were just captivated by a special interest group. <BR> I think the key is to think about and put forward national goals.  This is certainly true in air traffic control, which is even more of a national system than service transportation, where essentially the real problem for service transportation is going to be in metropolitan areas rather than a national connection issues.  If we are going to try to reform either system, you have to first try to achieve some kind of consensus on what the goals of your policy should be.  <BR>So often, we get caught up in these modal battles in service transportation between bikes, and between transit and highways and all these things.  Because people think that their mode is the best at achieving the goal.  Well, that's actually a knowable quantity.  You can know whether your mode is able to achieve the goal.  The first thing you have to do is agree on what the goal might be, and then you can go back to accessing whether one mode accomplishes their goal or another mode accomplishes that goal and which one accomplishes it better.  But I think the goals have to be clear and they have to be clearly linked to the performance measures.  If we can achieve that, then we can potentially get beyond some of those problems you're describing.<BR> Eugene Hoeven:  Yeah.  To add to that, the point I made was that we really need to look at air transportation and all the transport modes as a system.  And we need to look at inter-modality, which is a big thing in Europe.  We need to look at aviation policy within the context of the broader context of transportation policy.  How do we get people from Point A to Point B; goods from Point A to Point B, in the most efficient cost-effective manner?  And increasingly, in the most environmentally friendly manner?  That's really what it needs to be about, within that broader context. <BR> The PBO concept, the Performance Based Organization -- well, the FAA ATO is a PBO.  Yes, and there has been a lot of focus on measurement.  It really got people to start thinking about, you know, "How are we doing?  Are we doing things in the most efficient manner?"  So a lot of emphasis has been on measurements as you said.  But it really is a halfway house.  It's an incomplete mission, if you will.  Because we still, the FAA still is functioning within that constrained and stiff environment.  It doesn t really have the mandate onboard to be able to handle the flights, you know, the flight demand in the future. <BR> It is a halfway house.  It really needs to have the financial autonomy to function as a business.  Now, within that context is, "Well, does it need to be, you know, like fully privatized?  Profit or non-profit?"  That's really an academic discussion, because even a non-profit organization generates some kind of return on assets, you know, internal.  So that's an academic debate.  It really is about getting the FAA to operate like a business and to be fully integrated in the system, which right now it is not.  That's a real topic too.<BR> Joshua Schank:  Let me just add this --<BR> Ronald Utt:  I'm sorry.  No, I got it.  And so this available on Heritage's website, Heritage.org, if you're interested in getting any more details on that particular subject.  I'll give that copy to you.  Anyway, questions?  Comments?  Yes, sir.<BR> Unknown Voice:  And do we want to identify?<BR> Robert Utt:  Sure.<BR> Michael Replogle:  I'm Michael Replogle.  I'm Transportation Director at Environmental Defense.  I'm interested in the ways in which we can better establish this linkage of funding flows to performance.  One of the innovations that we see a lot of in public-private partnerships in the European Union and Canada, and starting now in the U.S., is performance linked availability payments for managing infrastructure services.  <BR>In the U.S., a lot of our public-private partnerships have basically followed this, the quarry model, where you put a big bag of gold on the table and then the Concessionaire gets to keep the toll revenues for 75 years or whatever, with the performance really being almost an afterthought that's detailed in the contract structure."  I'm wondering how in public-private partnerships, the U.S. can learn more from the European performance-based contracting models.<BR> And secondly, how in public sector financial flows, between different levels of government, we can begin to adapt those same kinds of accountability structures, so that, for example, State DOTs or regional operating entities for roads or public transport or the aviation sector have incentives to actually measure their performance, or have their performance measured, and to have their ongoing funding flows dependent, not on what they promised to do in the future, but on what performance they actually deliver on national goals, for example.<BR> Eugene Hoeven:  I'd like to answer that question.  The PPP example in aircraft control, there's only one, which is NATS in the U.K.  Now it's subject to a regulatory regime.  It's a price regulation scheme, which essentially says, you know, its rates or fees and charges.  It's got a rate of inflation minus an efficiency factor, which is essentially negotiated between NATS and the regulator -- in this case, the CAA.  <BR> The same kind of approach applies to BAA, that owns the 3 airports.  So you've got a regulated business, which is the provision of services to the industry.  That's the regulated cost space.  But they you also have an unregulated cost space, which is any ancillary activities that NATS may be involved in, when it comes to consulting or perhaps selling technology and such, that is fully commercial, if you will, and outside the regulatory regime. <BR> So in that way, efficiency is brought into the system through the pricing regime.  In other words, it cannot increase fees just like that.  It actually has to gradually reduce the fees in real terms.  So that drives the efficiency.  I don't know if that answers all of your questions.  Other examples that exist.  I mean, in Canada, for example, there is no economic regulatory framework.  It is really a consultive engaging relationship that's been developed between the provider, and it happened on a regular basis, when it comes to investments; when it comes to fees.  <BR>No one ever buys to fees.  So there is an engaging relationship that puts quite a bit of tremendous pressure, you know, sitting on the other side of the table, putting a lot of pressure on NAT Canada to reduce the cost space.  That continues to be -- [audio glitch].  The community is also pushing the need for new technology so an example was that there was no coverage, radar coverage in the Hudson Bay Area.  <BR>What NAT Canada wanted to do is install essentially radar sites around the region.  I said, "Well, look.  We've got ADSB, which is a satellite-based technology that allows controllers through a data link, to know exactly where an aircraft is situated.  That technology has been addressed and set in, in the ground infrastructure that allows for that data to be processed into their system. So the radar investment, if you will, was put aside.  So those are kind of examples of different situations where, depending on the regime that is in place, you can drive efficiency.<BR> Joshua Schank:  Yeah.  I would make the point that I think we're learning and we're getting there.  If you look at where we come, from say SR 91, right, which those of you don't know is State Road 91 in California.  One of the first successful PPPs, but of course in the contract, there was a non-compete clause and that created a stir when the State really wanted to expand capacity on a parallel road. <BR> So I think that we learned from there that you can't have non-compete clauses.  And I think we learned from Indiana and Chicago that if you try to just sell the asset for a big bag of money, you have to include some kind of performance measures in the contract, and you have show how you're going to spend the money on transportation, quite frankly.  Or else you're not going to have a political chance of getting them implemented.<BR> As much as the demonization of asset monitorization and PPPs and it's going to set it back for a while?  I think that when it does start to happen again, potentially in the Pennsylvania Turnpike, but who knows where.  It will happen with a much stronger oversight of what that contract looks like and that will have to include performance measures.  Democracy works, slowly. <BR> Ronald Utt:  Following up.  One of the problems with using performance-based measures in a system that's entirely public, or almost entirely public, is that it's very difficult to enforce measures of accountability as you can with the private contract.  So all of these performance-based measures that we talk about, that Maryland has set up, or that Texas set up, or Virginia is about to set up, are all in the area of "I hope we do this."  But if we don't, well, we try better next year.  Because there are no -- given that you're dealing with bureaucracies and public monies and these things are allocated, there's no way to penalize or reward anybody involved in this for poor performance or excellent performance.  This is in contrast to some of the contracts that exist in the private sector.  <BR> About 3-4 years ago, Amtrak lost its contract to run the Boston commuter rail system and it was lost to a French company called Conex.  They're an American subsidiary, which is operating it now.  And the contract that was negotiated has all these key performance measures on downtime for trains; on-time performance; safety performance and things like that, that are qualified, expected to be met, and if they're not met, there are financial penalties that Conex will bear.  Conex, in turn-- Conex was perfectly happy with that.  <BR>What Conex, in turn, has done is that they have institutionalized all these performance measures within their own workforce and management.  These broad performance measures that the Boston Metropolitan area, whoever's negotiators -- the Boston DOT or whoever negotiated the contract -- has imposed on the company.  The company then internalizes them so individual managers would end up with some responsibility or role in meeting some specific part of the performance are, themselves, held accountable.  They suffer, maybe not so much financial penalties, but their bonus and ultimately their job, depends upon meeting the performance measures.<BR> So everybody is on a performance basis.  It's not just something that we chat about when do the contract, and shake hands and then forget about it.  It guides the day-to-day operation of that.  It's just very difficult to do that in the public sector.  I mean, I don't know how you would penalize the FAA, for example, and particularly given the separation, the powers, you know, if they didn't perform.  The idea of separate commercialized entities with separate budgets and arm's-length negotiations and private-like forms of behavior tend to lend themselves to meaningful performance measures as opposed to performance measures that just make us all feel good. <BR> Joshua Schank:  I'd like to just make one comment on that.  I think that's a really great point.  To plug our study, what we're trying to do at the Bipartisan Policy Center, is we're trying to figure out how to tie Federal Transportation funding to those performance measures so that there is some actual incentive, rather than just saying, "Here's what we think we should accomplish."  It's not an easy task to tie that, but that's what we're trying to do.<BR> Eugene Hoeven:  To follow-up on this line of discussion, I think there are a couple of precedents that I think we can cite in the public-public realm, that come to my mind.  One is the urban partnership agreements that the US DOT, with Mary Peters, just signed with New York City, for example, which makes contingent, a $352,000,000 grant to the city for congestion pricing on the City and the State taking actions to implement some kind of a congestion pricing initiative, that gets at least a 6.3% reduction in VMT -- Vehicle Miles of Travel -- in Central Manhattan, and also raising through that measure, at least a quarter of a billion dollars in financial flows to help fund bus rapid transit improvements in the city.  To me, that's a potential model for a future performance-based funding initiative, that we could see, for example, on the next transportation bill.<BR> Another example might be in the New Starts Agreements that were signed with Portland, Oregon 10 or 12 years ago, for the Westside Light Rail, which conditioned the FTA grant on local governments changing their zoning around the stations to support transit-oriented development so that the FTA would give credit for the economic development benefits around transit.  Again, performance-based funding.  So perhaps we can build on this.<BR> Jeragon Renout [phonetic]:  Jeragon Renout [phonetic] of the American Enterprise Institute.  I'm wondering if any of the panelists, whoever of you is able to address this issue if you can, the issue of the politics behind some of these reforms.  Maybe Eugene, you can tackle this.  I would imagine -- I'm not a specialist in the area of transportation policy -- but I would imagine that at one point in time, many European countries had sort of centralized government-controlled aviation bureaucracies.  I would imagine that maybe over the past 15 20 years or so, a lot of reforms have taken place that have led us to where we are today.  How exactly did this come about?  How was the opposition of interest groups overcome in this process?  How difficult was it for some of these countries to reform their aviation management structures?<BR> Eugene Hoeven:  Like I mentioned in my talk, we've seen a change in the way States look at their role.  It's become -- it used to be provider, funder, regulator; and it's now become more a regulatory oversight function.  Within the context of Europe, with the European Commission taking on a greater role in aviation, after the third package of liberalization, we now see the safety, for example, the safety oversight being turned over more and more to ESAS, which is the new European Safety Agency.<BR> So the European States, in terms of their individual oversights, is being reduced in aviation.  Now that's Europe.  That's not here.  There's another element, in terms of -- that I'd like to talk about very briefly and we touched on yesterday during the dinner we had with the speakers, is there's always winners and losers in change.  One of the biggest voices that we've heard is from the General Aviation sector and the concerns they have of going through a fee-based system. <BR> It's becoming very clear that that group needs to be accommodated somehow.  Their concerns need to be addressed somehow.  We can, perhaps, draw some parallels with 2 other countries that have a similar kind of user-base, if you will.  That's Australia and Canada.  Both have a fairly large General Aviation interests.  <BR>In the Canadian situation, we were fortunate in that this moved to commercialize and actually privatized the ANS in Canada was led by industry.  It was led by one particular group, which was the Air Transport Association of Canada, which in and of itself, its membership is a broad-based    it's not like ATA here in the U.S. which is    ATA here in the U.S. represents the big guys, the big airlines.  ATAC in Canada represented a very broad base from flying schools to the private pilot groups, etc.  So that membership was very broad.  I think that allowed greater cohesion in the community to accept and to move forward.  It also brought with it -- because it was a closed system.  <BR>Essentially what it was, was selling the ANS system for $1.5 billion dollars to a new entity, NAT Canada, and it had to get another loan of $1.5 billion dollars, so $3 billion dollars in debt to cover operating costs in first couple of years. Because it had, the same as here in the U.S., Canada didn't have a user-fee structure in place, other than an over-flight fee, which is the same as here.  So it had to go from a ticket tax system -- exactly like here -- to a fully funded user fee system.  That required some time.  But because it was sold, it was a closed system.  The government no longer was a party.  The government wasn't there as a financial backer, if you will, other than granting monopoly status to the ANSP, which became attractive for lenders.<BR> But within that closed system, the user community basically ended up cross-subsidizing each other.  So the big guys paid more into the system than the little guys; and the little guys were probably getting more service from the fees that they were paying.  That's been accepted, but over time it's kind of    over time, it equalized itself.  So we've got services being catered more specifically to the different user segments. <BR> In the case of Australia, the government there decided to continue on with its tax fee system and effectively continued to subsidize part of the system, but those taxes will be repealed by the end of this year.  Two different scenarios and perhaps something for application here in the U.S., because we do have such diversity and a very polarized view.<BR> Jeragon Renout:  That was very helpful.  My other question has to do with commercialization versus privatization.  Joshua, you said in your presentation that it was more about the way that these institutions operate that matters in your view, rather than whether they're privately owned or efficiently publicly managed, so to speak.  I'm wondering if all three of you could address the issue of commercialized versus privatized air traffic control organizations?  Which ones you prefer.  And if there's any meaningful evidence that one might be better than the other, or if it really is just a matter of working efficiently, rather than the type of ownership.  And that's for all three.<BR> Ronald Utt:  Briefly, I think that in many of these, it's a strategic, probably a political decision that is -- you know, things in government and things in the public sector change very, very slowly.  The public sector is, in the traditional sense, very, very conservative.  And to go through a wholesale change in how you access fees; how you do your operations, and at the same time leap into the private sector from the public sector has often been viewed as something a little bit too much to digest. <BR> For example, Bob Pool has been a strong advocate or privatizing the air traffic control system, but increasingly, he's talking about the same thing through commercializing.  It's not that he views commercialization as better, but it's a strategic position to get the scary issue of privatization off the table and simply talk about the mechanics of how to rearrange the incentive system and the performance of the system, which is the most important.  <BR>I think as Joshua said, often, it's not so much who owns it, but how it operates.  As long as you can operate along what we call market principles, then there's some sense of property rights and responsibility and accountability.  You've gone a long way toward improving the system.  Maybe not as far as you would like, but you've made vast improvements, and at least you've got them done.  Rather than sitting there and worrying about, "Oh, we can't have for-profit people doing this."  You know, forgetting the fact that for-profit people are flying the airplanes.  Anyway --<BR> Joshua Schank:  Yeah.  I agree with that.  I think it's a really good point, because there's definitely a strategic element to it.  You can bang your head against the wall and try to let the perfect be the enemy of the good for eternity, but you're not going to accomplish anything.  <BR>But to address your question a little more directly, I think in order to know whether privatization would be a benefit, and I think this is a general rule of thumb.  You have to ask yourself, "Is there going to be some kind of competition?  What is the competition?  Or what's the source of that competition?"  Because private companies doesn't inherently perform things better than government unless they are motivated to do so, and they're motivated to do so by competition.  I think that that's the big question to ask.  I think that question never really gets asked, because of all the political fighting and ideological fighting that goes on around privatization.  But that's the essential question to ask.  If you can find an answer to it, let me know.<BR> Eugene Hoeven:  Like I mentioned, organizational forum and ownership really, it's a red herring.  It's not something that drives performance necessarily.  What really does drive performance -- and I hope that came out clearly in my presentation -- is what's the governing structure?  What is the primary focus of this organization, this entity supposed to be?  If the focus is to be on the customer, on efficiency, on service, and you've got a governance structure that supports that, then you will get a much more efficient service being provided.  Whether it's a for-profit, a not-for-profit, it really doesn't matter.<BR> I think you're right, and therefore I've made it very clear at the very beginning.  I think going down the privatization route in the U.S. is just a non-starter.  I think we need to look at introducing business approaches to service delivery in FAA.  That's what commercialization is about.  It's not about organizational form.  It's really about how do you manage the business in a much more efficient and effective manner?<BR> Jeragon Renout:  I have one final question, and then I'll turn it over to you, Evan.  That has to do with the politics, again behind the reforms, but then in the United States.  From what you know, and you all are much better informed on this issue than I am.  What are the chances of the FAA adopting any meaningful reforms in either the near future or maybe 5 10 years from today?  Are there people at FTA, the agency itself, or    Joshua you mentioned    you've a good deal of Congressional experience.  Are there people in Congress who seek more gradual changes perhaps, but changes that would nonetheless would be very helpful in the short run.  If indeed, we don't need full privatization in order for there to be meaningful benefits.  Just a manner of operating much more efficiently perhaps.  What are the possibilities that you see for meaningful change in the years ahead?<BR> Joshua Schank:  I often say this -- it's quite cynical but I think it happens to be a reality.  I think change has to come from the executive branch.  The reason I say that is I think Congress is just too tied to their local interests to really think about national change.  These are national changes.  In that sense, you know, John McCain is the kind of person who could be a president who would care about implementing those kinds of reforms, and that's encouraging.  <BR>I think that the current president has not really focused on that kinds of reforms as a method of achieving national goals.  He's focused on those kinds of reforms as a method of appealing to his base, and there's a very big difference.<BR> Congress, certainly committee staff, are very focused on the needs of their individual Senators and Congressman.  They're thinking about what goals they could point to in a press release.  Quite frankly, that does not lend itself to achieving national goals.  That lends itself to achieving state and local goals.  That's how our federal system is set up and I think that's why the executive branch is where the initiative needs to come from.<BR> Evan Sparks-Ellis [phonetic]:  Hi.  I'm Evan Sparks-Ellis with AEI.  I'm just wondering if -- especially Mr. Hoeven, if you could go through some of the, kind of quantifiable benefits of commercialization in countries where it's implemented.  Canada, Australia, European countries.  In terms of, you know, how much of this process expanded capacity?  What kind of cost savings it's offered?  Improved efficiency; the implementation of better technologies; improved safety records.  If you could speak to some of those issues?<BR> Eugene Hoeven:  Probably not with numbers.  Certainly, one thing that I know for sure, in the case of NAT Canada.  In real terms, their user fees have actually been going down.  But more than that, it's their cost base, because user fees are based on the cost base divided by the number of flights that you've got.  So it's dependent on traffic.  But, no, the cost space has come down in real terms. <BR> Efficiency has certainly improved.  Perhaps more importantly is the adoption of new technology.  It has been much more -- the drive for efficiency has driven the need for better technology, more efficient ways of doing things.  This has really, resulted in, to a much more -- you know, the dialogue that I spoke about earlier, the dynamic.  The customer provided dynamic has really evolved and change dramatically from the days of the bureaucracy of Transport Canada in providing its services today that NAT Canada provides. <BR> There are plenty of studies out there, as I've indicated.  In our website, there are a number of studies on the website, from GAO to MBS Ottawa, which is an Aviation consultancy, who has actually done a very thorough study on the quantifiable elements of -- so I invite you to take a look of that.  It's come out with some clear results, in terms of improvement to safety; cost efficiency, etc. <BR> Male Voice [Evan?]:  This is just for all the panelists.  I'm wondering if you all have any thoughts or comments on Bobby Sturgell's nomination to be FA Administrator and the holds that have been placed on it by New Jersey Senators?<BR> Joshua Schank:  I have to say, I'm not informed enough on the issue to really comment on that.  I'm sorry.<BR> Eugene Hoeven:  Nor do I.  It just shows that, you know, who's really pulling the strings here.  I think it's clear that there's just too much meddling in the agencies, in terms of how it functions.  I think that's a key issue that needs to be discussed and debated and addressed.  This whole issue, "Who's the client?  What is the FAA's supposed to be producing, or delivering in terms of service?  And what's the most effective and efficient way to do that?"  Those are fundamental issues that are for a public policy debate and discussion.  Once you've got that basic premise, of, "Who's the client and how's the organization to function?"  Then, I think from there, you go down the road.<BR> Ronald Utt:  Yeah. I just think it's a problem with the politicization of what otherwise is a government agency performing a commercial function, and an essential commercial function, that is the natural process of being part of the Federal government.  It gets caught up in budgetary dilemmas.  I'm sure that you could get a widespread agreement, that the air traffic control system, both parties and both wings of both parties, that we need technological investment.  <BR>We need the substantial investment in new technologies in the air traffic control system, but we won't get it because it's part of the budget process.  And so the billion dollars, or $2 billion, or $7 billion, that would be needed to do this, is $7 billion that isn't going to be sent on pre kindergarten education, health care, Medicare, and so on and so on.  And you get caught up in that, and you get caught up in all your appointments and simply the posturing of politics where, you know, "We'll teach you a lesson but you have to come to me."  And this is no way to run a railroad, and yet that's how we do it.  It's amazing, under the circumstances, that the system functions as well as it does, at least from a safety perspective.<BR> Male Voice [Henry Olsen?]:  Time for one more question, before we have to break?<BR> Ronald Utt:  How about this gentleman here?<BR> Gordon Thompson:  Gordon Thompson, Littman [phonetic] Foundation.  I want to talk about railroads.  We probably plug railroads into this overall transportation policy equation and since we're here to learn about and --<BR> Ronald Utt:  It gets a little bit off track, but just sort of very briefly -- the --  I'm going to finish.  You have seen, particularly in Britain and now in Germany, a considerable amount of turning toward the private sector, not so much in ownership, but in forms of concessions.  Essentially they're contracting out lots and lots of the services, so that the State entity is really kind of the general contractor and you have subcontractors running anything.  Notwithstanding the view that it's perceived as a U.K. experiment, it's perceived as a failure in the United Kingdom.  The socialist government has never tried to unwind it.  In fact, a similar version is now being implemented in Germany on rail. <BR> One of the things that's missing, as we move to performance, is that we don't know anything about how much any of this is costing us.  I mean, you can't talk about performance and using alternative resources and modes to reach overarching goals of mobility unless you know how much everything costs, because some things are cost-effective and some things are not.  <BR>Congress understands that, which is why the U.S. Department of Transportation did one study, one time, in 2004 on the Federal Subsidy Per Mode and they have never been permitted to do it again.  Okay?  [laughs] Simply because it was so unattractive.  And why it was unattractive is that the cost of   For Amtrak, for example, in comparison to every other mode, was off the charts for year after year.  I think in order to start getting modal choices, made in a more rational way associated with performance goals, we need the full equation of all the information that's relevant and available. <BR> Joshua Schank:  I just have, I guess, two quick comments.  I think you were talking about past railroad.  In terms of freight, I think there's a lot that Europe can learn from the U.S.  In terms of past years, I think that    I was at a similar panel at Brookings yesterday, and someone from the U.K. was talking about the Eddington Report, which is a transportation study the U.K. did.  <BR>What they found in -- they were looking at the prioritization of transportation investments, and where you got the biggest bang for the buck for investing in transportation.  What they found was that, if you put a high-speed rail line between two cities in the U.K., the benefit of that per cost is way lower than if you put a new commuter rail line in, into London from a U.K. suburb.  <BR> I think that's an interesting finding, because it tells you that the focus needs to be on urban metropolitan transportation investments, if you're talking about how to prioritize in that.  Not that intercity transportation doesn't matter.  It's obviously very important economically.  I think there tends to be a lot of wistful looking at Europe from the U.S. and saying, "Oh, look.  They have high-speed rail, and why don't we have that?  If we only put it in here."  I love high-speed rail too but there is a huge cost to high-speed rail and in this country, there are very few limited corridors where it makes sense.  So I guess I would that say if I'm going to prioritize my transportation policy investments, I think that upgrading to high-speed rail is probably a little further down the list than solving the metropolitan transportation problem.  I think that's part of why we're going to be lagging behind Europe in that area for a long time.</P> <P>Panel IV:  Education Reform in Europe</P> <P><BR> Henry Olsen:  Okay.  I'd like to get started for the final panel today.  We will be talking about education reforms in Europe, with a particular emphasis on the Dutch and the Swedish systems.  Our panel will be moderated by Nina Rees, the Senior Vice President for Strategic Initiatives at Knowledge Universe Education.  Prior to her current position, she was an Assistant Deputy Secretary for Innovation and Improvement at the U.S. Department of Education, and a Domestic Policy Advisor to Vice President Cheney.  So please join me in welcoming our panel and Nina Rees.<BR> Nina Rees [Moderator]:  Thank you very much, Henry.  It's a pleasure for me to be hosting this final panel, the most interesting topic of the day, of course, which is on Education Reform and the lessons of some Western European countries for the United States.  Now, when we talk about education reform and the lessons that other countries tend to offer to the United States, we tend to focus in the U.S. on our economic counterparts and countries, such as China, Japan, Singapore and North Korea.  It's often not the case for us to talk about countries in Western Europe.<BR> But in going back and looking at some of the test scores on international exams, such as the PISA and the Pearl [phonetic].  One of the things that was fascinating to me was the fact that the Netherlands and Sweden also have outperformed us when it comes to tests like the PISA and Pearl over the past few years.  So to me, it was interesting, because even though we tend to spend more funding on education in the United States as a percentage of our GDP compared to countries like Sweden and the Netherlands, our test scores still lag behind these two countries and those of a great number of other countries, and a lot of our economic counterparts. <BR> A lot of individuals, when they look at these test scores, tend to blame out decentralized school system for this problem.  They blame the fact that we don't have national standards; we don't have a national curriculum; we don't have a national exam of sorts to measure student performance against state standards.  But very few individuals also look at another component, which makes our country different from those of Eastern Europe and some of the countries featured on this panel today, which is the level of choice that the consumers of education get in some of these countries.  <BR> And again, what's even more interesting is the fact that our school system attempts to attract a very diverse student population.  So you would think that because of the diversity of the student population and different needs of these students, that we would be more prone to offering a differentiated instruction and utilizing the private sector as a means to offering a diverse instruction to our students, but we tend not to do that. <BR>In fact, historically speaking, if you look at the history of school choice in the United States, the first school choice program was enacted in the U.S. in the 1980's in Milwaukee, Wisconsin.  Nearly 20-some-odd years later, we only have about 140,000 students or so participating in some form of school choice program right now in the U.S.  So in different States, the school choice programs are only serving 140,000 students.  So private schooling in the U.S. is largely confined to wealthy and those who have access to other sources of funding to subsidize that education.  This is also despite broad public support for school choice in the United States.<BR> So here to discuss with us the lessons that the Netherlands and Sweden have to offer to the U.S. are two individuals, who have studied the educational system in these two countries very carefully.  These two countries also happen to have far more options available for their students than we do here in the U.S. <BR> Our first speaker is going to be Simon Steen.  You have his bio, so I'm not going to read the entire thing.  He is the Director of the Dutch Association of Private Schools and a member of the Executive Committee of the European Council of the National Association of Independent Schools.  Following Simon    unfortunately, Anders Holton [phonetic], who was originally going to be with us today, wasn't able to join us due to an illness.  <BR>Replacing him is Tapio Christiansen, from the Kreab in Washington, DC, who's going to tell us a little bit about the Swedish school system.  Here, to wrap things up, and lead us into a provocative discussion is Matt Miller.  Most of you probably know Mr. Miller through his columns in Fortune Magazine or through his insightful book, The Two Percent Solution.  But he's also, today, with us in his capacity as a consultant for McKenzie Consulting and as a former Clinton Administration official.  So please join me in welcoming our panelists.  I will turn it over to Simon afterwards.<BR> Simon Steen:  Okay, thank you.  Yes, it's working.  I'm honored by the invitation and by your interest in the Dutch system of independent schools.  It's always good to know there are people abroad, especially people in America, who want to know more about the historical background and the current dilemmas of the independent schools in the Netherlands.  <BR> Well, during my preparation of this presentation, I made use of some articles I wrote with other authors in the Netherlands.  Professor [indiscernible] Dextra [phonetic]; Professor Franz [phonetic] Defalder [phonetic] and Dr. Arnabet Dextra [phonetic].  Mr. Dextra, the last one, he is a Staff Inspector of the Inspectors for Education in the Netherlands.  <BR>Before I start, I want to say that last week, it was very recent, a parliamentary commission published the report, "Time for Education About Resource of Innovation in the Netherlands over the Last Three Decades."  And the Commission is -- it was a parliamentary commission.  It's very negative, about the role of the government in the merely political-driven innovations, which of course have to implement the last 30-year with a lack of commitment of teachers and without sufficient resources and time. <BR> So our education system is not paradise on earth.  Well, maybe we can come back on this later on in the discussion.  But I have given my presentation the subtitle, "Freedom of Education" and "Freedom of Parental Choice."  Because these are the two basic freedoms, which the independent schools are based on.  I will give a short overview of my presentation.  I will get into the cultural and historical background of public and private schools.  I'll look at some data about the independent schools, the private schools compared with the public schools in the Netherlands.  I will say some words about the meaning and limitations of the freedom of education in the Netherlands.  Of course, I will pay attention to the social results of private schools.  I hope there's time to say some words about the freedom of education at the European level.  <BR> Before I make my final remarks, about what I call "beyond the old debate," I will say something about the new approach in education for the disadvantaged, because that's always interesting.  If you have private schools or public schools, what is the position for the children of the underprivileged families?<BR> Well, to start with culture and historical background, and I'm not going into details.  I can only mention some milestones in this presentation and I'm not doing this because I adore the past.  But I think it's nice if I can show you that we had to overcome quite some political resistance before we start with this system of freedom of education and freedom of parental choice, which gave such large room to independent schools.<BR> Well, the current education system in the Netherlands is very strongly interwoven with the development of the Dutch state since the Middle Ages.  This has everything to do with who is in authority for education.  Well, from the Republic of Seven United Netherlands, that was the beginning of the 16th Century, primary education was more and more organized by the local and provincial government, whereas previously the church had played an important role. <BR> Then after that period, we got the Batavian Republic.  It started in the beginning of the 18th Century; and then education from that moment on -- the beginning of the 18th Century    became under a national governing board and then we got the first education laws.  From then on, education was regulated by the government and the government received the exclusive right to found schools. <BR> I go to the second point.  Because it's interesting to see that the first private schools, in a way, were Jewish schools in the Netherlands.  The foundation of independent schools was, in that time, not considered necessary by the government.  An explanation was made for the education of Jewish children.  The wish by then then-almost entire Orthodox Jewish population with their own religious education was taken into account.  The group got the right to use half the school hours to teach the religious education with support from the Treasury.  <BR>In addition, the children had to follow all the subjects in the public school, unless circumstances made that impossible.  So you can see that this exceptional clause became law.  Due to the public subsidizing of the Jewish school -- and I'm talking about the midst of the 19th Century -- because this public subsidizing of the Jewish schools, they were called public schools.  But in reality they were, you can say, the first private or independent schools.  Because a crew of people got the right to start their own schools subsidized by the State.<BR> Well, on the one hand, this independent education, the aim of emancipation -- and I will come back on that -- on the mainly poor Jewish population was realized.  But on the other hand, it seemed clear that the intention of one school for all children met with obligations. <BR> Well, till the year 1848, the authorization from the government -- and I call it there "the license to operate for a private school."  The authorization from the government was necessary for founding an independent school.  This authorization was nearly always refused and this led to a large dissatisfaction with the Orthodox Dutch Reform and the Roman Catholics in the Dutch society.  The satisfaction with the position of the public school led to the preparation of a committee under the leadership of a liberal statesman that was [indiscernible] to incorporate a freedom to provide education and a proposal for the new Constitution in 1948.<BR> Well, apart from the Orthodox Protestants, the freedom to private education was also important for the Roman Catholics.  Because their church had only been tolerated in the Republic for the Seven United Netherlands in the beginning of the 16th Century, and they felt discriminated against.  <BR> Halfway to the 19th Century, the new constitutional freedom to provide education was incorporated in an education law.  It was stipulated that the public education was neutral and accessible for every child.  And in addition, it was accepted that independent schools could be freely established without authorization of the government.  The school could determine its own curriculum and a proposal from the government to also allow independent schools to qualify for subsidy from the municipality was rejected, and that meant that the system of subsidizing as an exception of the Jewish school was in that time judged as illegal and the Jewish schools almost vanished from the national school population over a period of approximately 5 years.<BR> Well, after the new legislation came into force, independent schools were founded by Orthodox priests and groupings and Roman Catholics and I say because I'm from an association of the non-denominational independent schools.  So I wanted to add to that, we should not forget they were also established these new independent schools by a mutual foundation for the benefit of the society as a whole, which was more inspired by humanistic failures.  <BR>But still the financing of the independent schools often became a difficult problem.  Only when the politicians accepted that this problem had to be solved while we could, under the leadership of another liberal statesman in 1917, the Cabinet decided to approve in the Constitution, in the new Constitution, the right to equal public funding of independent schools in the same way as it counts for the public schools.<BR> Well, the freedom to provide education includes the freedom to found a school; the freedom to direct; and the freedom to determine the content of instruction.  The term direction means religious.  For instance, Protestants or Catholics.  But don't forget Islamic schools.  I will come back on that.  And Hewbrewstani [phonetic] schools.  But also the possibility to start a school on an ideological basis.  We call them the free schools, and to give a group of parents a chance to found the school on another than religious, or philosophical framework.  <BR>The nondenominational independent direction was recognized.  In this direction, there came a lot of new pedagogical and identical perceptions as a basis for new schools.  Like I mentioned the Yayna [phonetic] schools; the Montessori; the adult only or the Steiner [indiscernible] schools and these are examples of what we call the traditional pedagogical reform movement.  But also, we have now independent schools on the basis of what I called modern pedagogical entrepreneurship.  <BR>Well, the growing number of non-denominational independent schools with new pedagogical ideas.  It keeps the system open for newcomers and also for, let's say experiments with innovation, because of the motivation of both the newcomers who organize themselves and who start a new school, which then can be subsidized by the State.<BR> Well, then, I want to say some words about what I call the modern case of the Islamic schools, as private schools with public funding.  There are some 50 Islamic schools in the Netherlands nowadays, particularly your primary education and two exceptions, secondary education.  The Dutch school system, which private schools are wholly funded by the government seems an optimal context for the rise and development of Islamic education within a Western education system.  <BR>This makes the Dutch situation probably an instructive experiment that may provide insights into the contribution that Islamic schools maybe expected to what's the realization of the core functions of education in a modern society, and also of the associated problems, I can say.  These core functions of education in a modern society, which also counts for Islamic schools, like I mentioned, the qualification and socioeconomic emancipation, the construction of identify and a transfer of shared and specific values. <BR> Well, there's a search going on in my country nowadays to find a new balance between room in education for the development of the identity of the old group and the transfer of the common pluralistic values, which are essential for the continuity of the democratic society as whole.  <BR>I'll give you some data about our system.  In total, there are 1,800 School Boards for primary education, private and public all together and 375 more for schools for secondary education.  We have 1.6 million students in primary education and more than 900,000 in secondary education.  There are more than 7,000 schools for primary education, private and public all together, and more than 600 for secondary education.<BR> There's such a deep percentage, almost 70 percentage.  All the schools for primary and secondary education are private or as we say "independent" schools, so more or less 30% of those schools are public schools.  You can see how this is built on within the independent sector, Protestants, Roman Catholic and the non-denominational schools. <BR> Well, I just mentioned the rights, which the freedom of education includes.  You can read them, but of course it's the right to establish independent schools with equal funding of the State in the same way as the public schools are funded by the State, the right to choose the religious or philosophical foundation of the school; the political direction.  The right to determine the content of teaching and the teaching. The right not to choose and the textbooks as well.  You can also add special subjects to the standard program and, very important, the right of parental choice of a school.  Of course, this freedom of education, the right to start your own school is not an absolute right.  It has limitations.  <BR>The financing, that counts also for public schools as well for private school, is dependent on a number of conditions, such as the obligatory number of students and the creditability of other schools in the same direction in the region.  In addition to these conditions, the school must satisfy the school standard requirements, and this includes, among other things, the education is provided in the Dutch language by teachers who have their qualification of a teacher training institute or pedagogical academy and there are also requirements for the content of the education.  The functioning of the schools, the independent schools as well, is thoroughly monitored by the Inspectors of Education.<BR>About the social results of private schools.  Well, I think, and I want to stress on that, it's their contribution to the process of emancipation.  For instance, I told you from the beginning of our system, the Catholic population, the Catholics and the Dutch society were, in their time, you could say an underprivileged social group. They succeeded just by staring their own schools.  They were very successful; let's say it in that way, to organize social mobility as Catholics in the Dutch society.  And of course, this has all to with growing self-esteem and self-awareness and that leads to integration.  This takes decades and all the time there is the fear for segregation.  <BR>If you give groups in society, with the possibility to organize themselves and to start their own school?  On the one hand, we can show that this has really been successful for the integration of these groups in society.  On the other hand, there is the fear for segregation, and especially if immigrants, and especially if immigrants of the religion, which was not so -- we are not so familiar with, the [indiscernible] immigrants, if they make use of the same fundamental right to start their own school.  So the social struggle with imminent segregation in the Netherlands is not caused by the freedom of education but it's one of the aspects we now are discussing in the Netherlands. <BR> I say integration in society stands or falls with effective disposal of educational disadvantages.  How could growth be achieved in integration without going down?  In my country, very    it's a crucial trick of the unforced distribution of students.  <BR> And that brings me to the point of the social cohesion and active citizenship.  I told you before; our right to start your own school is not an absolute right.  But because of this fear for segregation, there is now a substantial new requirement brought in the law.  It was just in the February 2006, two years ago.  And that means that schools have to promote active citizenship and social integration.  That means that-- This was on the basis of a very big majority in our parliament.  This gives us the possibility to keep up with the freedom of education.  <BR>But on the other hand, all schools, so also all the dependent schools, and especially also the Islamic schools, they have also to learn children that they are just growing up in a multicultural society and they have to take into account that they cannot only learn the children at the specific values of their own group.  But they have also to learn the children the common failures in a democratic society. <BR> In short, something about the freedom of education at the European level.  That means in Article 14 of the Chart of Fundamental Rights of the European Union.  This was stated in the year 2000, in the Treaty of Nice.  There is an article about right of education.  That means that also on the left, you'll see [indiscernible] union -- there is recognized the freedom of parents to found educational establishments with due respect for democratic principles and the right of parents to ensure the education and teaching of their children in conformity with their religious, philosophical and pedagogical [indiscernible].  It should be respected.  That's in the text.  In accordance, of course, we are talking about the European Union in accordance with the national laws governing the exercise of search, freedom and rights. <BR> So the Dutch freedom of education is still working with these general guidelines of this chart of fundamental rights, at the European level, is a recognition of our freedom to organize education in the way we do and to give room for such a large independent sector.  <BR> The second aspect of this freedom of education at the European level is about the PISA.  That's a program of the OECD.  It's about the International Student Achievement Assessment.  It's a kind of benchmark.  There was a fairly recent report, from November 2007.  It's from the University of Munich, and they studied the way, some aspects of the educational system at the national level are directly connected with the student achievements.  <BR>The results show that there are strong, positive interactions between school level private operation and both country level masters of economy.  And that is privately operated schools perform even better if schools in the system are generally autonomous, be it in formulating the budget, or in staffing decisions.  These results from this research, from this investigation, suggest that the incentives created by parental choice of private schools work particularly well if all schools in the system have the autonomy to respond to parental demands in such systems which include competitiveness, privately operated schools face particularly strong incentives to perform well.  They get the best student achievements. <BR> Well, the last word about this for panel discussion.  You've heard, I'm talking about private schools and I mean the whole sector, the non-public school sector.  But we also talked about independent schools, to make clear that they are not owned by the State.  They are owned by a foundation or associations, or people in society who take the initiative to start their own school.  In other words, we are used for it, the social enterprise school or the specific society school, to make clear that those schools are socially owned by the people themselves but it's all on a non-profit basis.<BR> Well, I can only mention now, because looking to the time, some aspects of what I call new approach in education for the disadvantaged.  We are now working with an experiment with ethnic-mixed schools in the older part of our big cities, where a lot of people of the non-Western immigrants are living in the older part of our big cities.  Then you get the concentration of their children in schools and we are trying on a voluntary basis to get more ethnic-mixed schools in the older part of the big cities.<BR> There's another thing which is very important.  A preschool language program, an appropriation between school, childcare institution, sport and social welfare institutions.  Well, we try to stress the importance of the partnership between parents and the school.  So it's also important in our system that we really decrease the number of pupils who leave the school without a certification.  What we also realized, we have to focus more on the normalcy, mathematics and language teaching in private education and we are working with extra public funding for schools who have a concentration of children of the underprivileged families.  It's the same for private as for public schools.<BR> And now my final remarks, and I hope I'll be able to debate, because I thought, "Well, then, maybe I can keep your attention, because what's beyond the old debate?"  You never know.  Well, I want to summarize and I want to say we often talk about institutions.  But more and more, it's important to focus on the role of the teacher, because the teacher will be the new key figure in a knowledged society.  <BR>If you want to be successful, to challenge children to develop all their talents, we need teachers.  We need the inspiration, creativity and pedagogical entrepreneurship of teachers.  In my country, I've taken an initiative for experiments to give to let the school be managed by a cooperative of teachers.  Then you can see what teachers find important.<BR> Finally, what I told you, that 70 percentage of our schools in primary and secondary education are independent schools and 30 percentage are public schools.  But now the government wants to copy the success of the independent schools by giving room for the process of privatization of the public schools.  This is already going on.  So you can see that in our system, giving room to people and to take responsibility and to privately run the school, in connection with the public funding of the school, we'll get good results.  It keeps the system open for newcomers and challenges the system for integration.  This was so successful that public schools will be privatized in our country.  I think within 10 years, all the public schools will be privatized.  I thank you for your attention.<BR> Nina Rees:  Are any of these schools for-profit schools?<BR> Simon Steen:  No. I'm only talking about the non-profit sector.  There's a whole range of this 70 percentage private schools are founded on a non-profit base.  It's our foundations and associations of parents who once started those schools.  Yes, thank you.<BR> Nina Rees:  Thank you.  Tapio.<BR> Tapio Christiansen:  Thank you.  As Nina pointed out, my name is Tapio Christiansen and I'm here to replace Anders Hultin, who was ill and could not make the flight yesterday.  Anders Hultin is the Executive Director of a company in Sweden called Kunskapsskolan, which is the largest chain of independent schools in Sweden.  As it happens, the founder of Kunskapsskolan is also the founder of my company, which is called Kreab, which is a public affairs, public relations consultancy group, and that's why they gave me a call to give these remarks today.<BR> In one of those strange twists of fate that happens sometimes in life, I actually have some firsthand experience with the Swedish educational system.  I attended elementary school in Sweden during the early '80's, and I have some firsthand experience as to the failings of the Swedish educational system during that time, which led to the rise in the reform movement, which are the going to be the subject of my remarks.<BR> I think that you'll see some similarities with Simon's presentation, but one of the main differences is that we are going to be talking mostly about for-profit independent schools.  Kunskapsskolan, the company of which Anders is the Chief Executive until recently, and which he is now trying to export abroad, was founded in 1999 and has since developed rapidly and is now the largest chain of independent schools running secondary education in Sweden.  <BR>Let me start by giving you some background to Swedish education politics and how Sweden, a country well-known for its welfare state and tax system, gave birth to a unique school system of vouchers.  Traditionally, the idea behind Swedish education is "a school for all," a monolithic system with equality as the guiding principle. All the students were basically considered to have the same needs and able to be taught the same things at the same time.  <BR>That was my experience.  For the first 9 years of schooling, they were supposed to be together in the same classroom.  New pedagogical approaches and ideas had to be first approved at the top and then implemented everywhere so that the principle of equality was preserved. <BR> Most of Sweden's private schools shut down in the '70's and '80's largely as a consequence of the leftist-inspired student unrest, which swept Europe in 1968.  The public education system then placed less importance on a pupil's knowledge and grades than on social skills.  Then in the late '80's, a reaction set in, prompted by the poor results in the state controlled system.  New ideas and methods for learning were introduced.  At the time, private schools existed mainly in the capital of Stockholm and in 2 or 3 other large cities, but only the very well-to-do could afford the high tuition fees. <BR> Some local municipalities started to give partial financial compensation to private schools.  The amounts varies greatly between these authorities.  They rarely covered more than a tiny part of the actual costs.  But it did provide ammunition for discussion and debate.  The idea that parents had a right to choose a school became more popular as parents developed increased awareness step-by-step.  "Maybe one should have the right to choose a school for one's children," they say. "Maybe the decision about which school to choose should not be left to politicians, and maybe competition among schools can actually improve the level of instruction." <BR> In the 1991 election, the non-socialist parties came to power after 15 years in opposition.  Implementation of the school voucher system in 1992 was one of the first reforms the new government carried out.  Initially the voucher system allotted independent schools only 85% of the cost of a student in public school.  <BR>When the social democrats, who were originally against the voucher system, returned to power in the early 1990's, they increased the value of the voucher to 100%, at the same time they eliminated the possibility for schools to charge tuition fees.  The general feeling at that point was that independent schools would be more an exception than the rule, and would only attract a few students.  However, interest in the new freedom of choice was much higher than anticipated. <BR>The number of independent schools increased from fewer than 100 in 1992, to more than 800 days; and the number of students from 10,000, to almost 110,000 today; from about 2% of all students, to more than 10% today.  In some municipalities, the percentage is as high as 30%, and it has been said in these districts, the long-term target is for 100% of education to be publicly financed, but privately operated.<BR> Now it's something of anomaly that Sweden, basically known as a socialist country, has become a frontrunner when it comes to private sector involvement in the state school sector.  The voucher system reform, combining freedom of choice with taxpayer funding was a stroke of genius.  The idea was to provide a competition-neutral voucher system that would enable public and independent schools to compete on a level playing field.  <BR>No top up fees are allowed; and there is no cherry picking by admission examinations.  Anyone who applies to an independent school has to be admitted on a first-come, first-serve basis.  This rules out the kind of system, which favors people who can afford to pay a premium for child education. The independent school reform has given meaning to the guarantee that families all have freedom of choice over where their children are educated.<BR> Now that 15 years have passed, since the reform was introduced, the number of independent school has increased by roughly 800.  It is also evident that the independent school sector has become a place for innovation, modernization and method development, not only because the rules and regulations are fewer, but also because many of the new independent schools start from scratch and are able to put in new approaches to teaches and learning.<BR> Let me give a few examples of this through Kunskapsskolan, which this school year runs 30 schools with 9,200 pupils. Kunskapsskolan has developed and put into practice, an educational concept, which is based entirely on personalized education.  The old structures have been replaced by a system where the starting point is the pupil's own level of knowledge and the ability to make progress.  The main starting point in the old school was the teacher.  That was the only source of knowledge and the classroom is the place where knowledge was imparted and the factor determining the speed of the teaching was the progress made by the class as a whole.<BR> In many respects, our educational concept, that being Kunskapsskolan is exactly the opposite.  In Kunskapsskolan, each pupil has his or her personal learning goals set up for the whole school period, for each year, for each term, and for each week.  These goals are set by the teacher in consultation with the pupil and the parents.  The traditional school curriculum, which steered the pupils according to a logic whereby the teachers and the premises were utilized in an optimal manner doesn't exist.  Instead the school offers a selection of educational situations and one of the primary tasks of the teacher is to match the individual pupil's needs to the selection.  <BR>The role of the teacher is thus changing in several ways.  It is the teacher's responsibility to see that the pupil reaches the goals, and this means that the teacher devotes considerably more time to a personal follow-up of the pupil's achievements and that this personal supervision is just as important as the teaching.  This is achieved primarily in a weekly meeting lasting at least 15 minutes.  The tutor and the pupil evaluate the week, which has passed; check the level of goal achievement; discuss strategies for the coming week, and on the basis of this, decide on a personal timetable for the next week.  <BR>To further support this new structure, each pupil has a logbook, in which the schoolwork is documented.  This book is to be signed each week by the parents.  Would this broaden the role the teacher and add new tasks?  At the same time, we are therefore forced to withdraw certain items.  Our changes can be said to, "We're fine in the teaching profession."  Just as many other professionals have developed, often for the use of modern technology.  In our case, the preparation and post-lesson tasks have been streamlined thanks to the fact that we have built-up a knowledge portal, which carries out many of the routine and mundane tasks, which were once a burden on the teacher.  Simple instructions; the distribution of educational material; tests and correcting are examples of tasks, which we saw with modern technology, rather than with highly educated and expensive staff members. <BR> The physical environment in our schools reflects the idea that learning is individual and requires a multitude of methods if it is suit everyone.  A wide variation, large and small rooms, quiet and lively environments, open areas and closed rooms.  School environments are important for learning and they would therefore be allowed to be expensive.  But school environments are often inefficient and our expensive environments are financed by efficient utilization.  We have reduced the overall are to 6 square meters per pupil, compared to 12 in the State schools.<BR> So far Kunskapsskolan has delivered the quality of education, which they have been striving for.  The grades achieved in Kunskapsskolan schools are well above the State schools.  The Swedish evaluation system uses a scale from 0 320 to measure student attainment.  Kunskapsskolan students scored 230 compared to 205 for the State schools, and 225 for other independent schools.  95% of students are qualified for further studies, compared to 90% in the State sector.  <BR>On average, Kunskapsskolans lie in the top 20% category in Sweden.  Twelve of the 16 secondary schools, with final grade students, have the highest grade results in their local district.  Kunskapsskolan has achieved these results while also being profitable.  For the last 4 years Kunskapsskolan has returned a profit to its investors with a relatively high yield in decent margins.<BR> Now, I suspect that many of you may be skeptical and wonder how it is possible to both maintain a higher quality than others and also to achieve a profit without the use of more resources.  The answer is that running schools as a business is a question of identifying and realizing scale advantages.  The educational concept is therefore not only an expression of our ideas, of how modern education should be carried out, but also the essence of the business is a company operating a chain of similar schools in towns across Sweden. Personalized learning is a strong and successful idea for better educational results; to deliver a consistent, high quality personalized education.  <BR>Kunskapsskolan has a very strong central management.  All the schools follow the same educational concept.  We make the same promises to all our pupils.  Our buildings and classrooms look very similar.  All our pupils work with the same tool.  The web portal comprises 40,000 pages and is becoming a complete learning platform for all pupils and teachers.  Thanks to the common educational concept, Kunskapsskolan can share the cost of the investments across many schools and deliver improved education for more pupils.  This is one contributes to Kunskapsskolan's profitability.  <BR>Another aspect is benchmarking and sharing of best practices.  In Kunskapsskolan's system, they have eliminated the possibility of using differences and abilities and circumstances as excuses for variations in quality.  This will provide them a uniform baseline, that they are then able to use in assessing the quality of teaching and the learning of the students.  Today, Kunskapsskolan has 30 schools in Central and Southern Sweden.  Next year, they aim to start another 3-4 schools.  <BR>In the long-term, they hope that they can expand on the Swedish market with about 80 schools, with 25,000 pupils, and a turnover of roughly 200,000,000 Euros.  At the same time, they are looking at the possibility of expanding abroad.  We are right now working with a business plan for an international expansion.  The main strategy is to translate the concept into the English language, to adopt an international exam regime and to bring this educational concept to a number of markets, in Europe, but perhaps even more to growing markets in Asia, India and the Middle East. <BR>We are convinced that the global macro trend is away from political top down management to a more customer-oriented focus.  Freedom of choice, private individuals and now at least industrially oriented operators who build national and international chains of schools will dominate the educational system of the future.  We also believe there's a macro-trend that the financing of education in the future will still be primarily through the national taxation system.  Kunskapsskolan serves as an example of a business built up in a voucher and free-choice environment.<BR>In conclusion, our main experience for 15 years in a voucher and free-choice system shows a number of things:  First, the voucher system has introduced competition into the school area and the level of satisfaction among parents and pupils has increased greatly.  So far, there isn't a clear evidence of improvement of educational results generally.  This is likely due to the fact that most experts in this area are very skeptical of competition as such and that no one has conducted any serious studies in this area.  <BR>The voucher system has meant decentralization of the system.  Schools are not primarily asking politicians for their views and thoughts anymore.  They look around to understand the views and thoughts of parents and pupils.  The voucher system has brought pluralism to the school systems.  Many ethnic and religious minorities make good use of the opportunity that freedom of choice is offered them.  I hope that the Kunskapsskolan school and example has showed you that the voucher system also brought a new and fresh experimental approach to education.  Traditionally education has been on the agenda of bureaucrats exclusively in Sweden.  Now, entrepreneurs help development on its way.<BR>I also hope that the Kunskapsskolan example showed you that the voucher system has provided a new kind of industrial thinking coming into this school area.  The meeting between the skills of teachers and the approach and experience from investors has meant a new focus on intellectual property, benchmarking and best practices. <BR>The voucher system has been a platform for a number of companies to grow.  It's developed a number of new methods and concepts.  These will be exported abroad.  Andres' belief is that school business will be an important export area for Sweden in the future.  Kunskapsskolan will be the new Ikea or H&M of Andres' dreams.  <BR>However, the voucher system has not been a cost-cutting program.  In the short-run, the overall cost could even increase when a voucher system is introduced.  The reason is that a well-functioning market must provide surplus capacity; otherwise the freedom of choice is simply theoretical.  But in the long-term and taking all aspects into consideration, the voucher system will be good investment for any country trying to improve their educational system.  Thank you very much.<BR>Nina Rees:  Thank you. <BR> Matt Miller:  I guess I'd like to use my time for some observations, but also for some questions.  I'm very curious and was fascinated by both of the presentations.  You know, I'm just starting to think about what this might mean for the U.S.  I should credential myself first, by saying I'm a Democrat who is approvingly quoted in Milton Friedman's insight that you can have a public school system where a financing is public, but the actual operation of the school isn't done by the State.  So that makes me AEI's kind of Democrat, I guess?  Right.<BR> And I also, in my consulting life, I should say    I consulted to Chris Whittle when he was in Edison Schools some years ago.  A very controversial and I think in many ways a frustrating experience for some of these ideas in the States that you may have ideas or lessons to.  I guess the first thing I'd like to get clear on is, is there    while we're obviously -- one purpose of this session is to appreciate and value the role of the competition and independent schools, non-state run.  The publicly funded -- it could -- to the quality of education is important.  But it seems to also worth noting and I want to make sure this is true, is a premise that in both the Netherlands and in Sweden -- is it true that there is the identical per people funding for all the schools?<BR> In other words, do you have -- in America, we have tremendous disparities in per people funding, between rich neighborhoods and poor neighborhoods, in public school systems.  My assumption is that's not true in Sweden and in the Netherlands, am I right about that?  Is it identical?  Are there any other regional variations?  <BR> Simon Steen:  There are no regional variations.  It's a national funding system.  The only thing is that on the basis of the educational level of the parents.  So children from parents, which has from themselves, a low education, they are -- the schools are paid extra for them.  Because the idea is those children are underprivileged and the school has to take more activities.  There has to be more activities to reach the same goal as these children.<BR> Matt Miller:  What about in Sweden?  Do you know?<BR> Tapio Christiansen:  Well, my understanding is that you are correct, and that a company like Kunskapsskolan cannot spend more pure pupil than the public schools.  Obviously you have to check with Unders [phonetic] for the definitive answer.<BR> Male Voice [Henry Olsen?]:  I'm assuming it's roughly right.  I think it's worth calling out at the beginning, that that's a simple fact, which is kind of an egalitarian value in both these states.  Even though it's funding a private school, makes it already a radically more, in my view, just system than the one we have in the U.S. where because of the huge role of local finance, either local property taxes or the state finance.  Together those make up 91% of school funding in this country.  <BR> As you all know, we have vast disparities between typically high poverty neighbors in big cities.  And Washington, DC, by the way is one of those singular exceptions. It doesn't prove the rule because it's one of the highest per people spending but not much comes out at the end and there's a whole agenda that Michele Rhee is working on now to try and improve that.  <BR>But basically in the country, in most of the high poverty neighborhoods, they're surrounded by nearby affluent suburbs.  They can spend $5,000 per pupil more; $10,000 per pupil more.  And because teachers and Principals are the biggest cost of any school district; that means that it's no surprise that the best teachers and talent, which drives student achievement go to best suburban schools.<BR>So right away, the way that these systems are financed makes them radically more equal, I would say, then what we face in the U.S.  That's first lesson that we should take, in terms of reforming our own system.  And yet, if you observe the Presidential campaign, for example, or any other campaign.  This issue is virtually taboo.  You will not hear Democrats talk about increasing the role, except at the margins, of the Federal role in school finance.  And the Federal role is 100% in the Netherlands.  As opposed to here, where it's 9%.  Nowhere is it written in the Constitution that Federal funding has to be 9% of K 12 education.  That's an initial observation I would make.<BR> I'm curious also about the -- what it seems to me, because the research already I've done on this stuff tends to -- I guess maybe I looked at the same studies as the PISA things you were reciting, where if you have clear national standards but incredible autonomy at the local level, that gives you the best results.  If you don't have the standards and you have autonomy, you don t get as good results.  <BR>If you have the standards but don't have autonomy, you don't get great results.  But clear standards with real autonomy lets you have the diversity of offering that customizes it to what parents want but still some accountability for the overall performance.  Now in both States are there national standards of some kind? <BR> Tapio Christiansen:  Yes.<BR> Mike Miller:  Do you mind if I do this?  Just as kind of  - is that okay?<BR> Nina Rees:  Yeah.<BR> Mike Miller:  How does it work?  So, for example, the Inspectorates, you were talking about in the Netherlands.  They're a team of people who visit schools once ore twice a year?  Can you say a little bit about how that works?  And here, I just want to raise, at least for an AEI audience, this is the specter of those awful federal bureaucrats coming into your school to make sure that you're complying somehow.  Right?<BR> Simon Steen:  Yeah.  It's --<BR> Mike Miller:  I'm being ironic, but just trying to point out.  This is the hybrid system that may blend the best of both things.<BR> Simon Steen:  Yes.  There is freedom of education.  We have this large number of independent schools.  But it's, let's say, freedom within let's say, a lot of legal requirements.  That has to do with what you say.  If you have very concrete national standards, then there is more room in the way you fulfill your standards.  The inspectorate, who fills a very important role, just by monitoring the resource of the school during the oncoming process.  So the inspectorate looks in their visits, once a year, to the way the schools are let's say organizing their own educational program, the way they are let's say registering their own progress, and also let's say the pedagogical climate.  <BR>When they see there are some risks, especially when let's say the school cannot clarify because they don't have a good registration system themselves for the achievement of the students, then you are criticized publicly.  It's on the internet by the Inspectorate.  So the judgment of the Inspectorate about the way the school is functioning, publicly, it's on the internet.  Well, this works well in a way that you, of course you try to avoid the judgment that your school is, in a way, a weak school, and once you are that list, well you put all your energy in it to get off that list.  <BR>Well, more and more our Inspectorate goes to the system that they, let's say want to detect the risks.  Only the schools who don't perform well, they get extra attention of the Inspectorate.  This works the same for independent schools as for public schools.<BR>Mike Miller:  How does capital investment actually build the new school work?  Does the State fund any group that wants to start?  An Islamic school or a new private school --<BR>Simon Steen:  Yes, yes, yes.<BR>Mike Miller:  -- is there an allocation of capital there?                                                                                                                 <BR> Simon Steen:  Yes, yes.  There is.  Let's say you have to form, a legal form.  A foundation or an association and this foundation or association, they kept the stock subsidy from the States.  It's the local authority, they finance the buildings.  The cost of the building are financed by the local authority but all the other costs, they are subsidized by the national state.<BR> Mike Miller:  It's interesting just to -- as Nina knows, one of the issues in charter schools in the States is it's often hard for them to get adequate financing to do their capital investment to startup.  How about in Sweden?  Do guys pay for your own?<BR> Tapio Christiansen:  Well, first of all, in Sweden, with regards to the national standards and what you were just talking about.  One of the frustrations of Kunskapsskolan is that, from my understanding, there is no way to measure schools, in relation to each other.  That is simply not done.  The only test is an annual exam of students, and that's how you get a score.  But in terms of these other variables, that doesn't exist.  In terms of capital investment, I do not [indiscernible] to talk about that. <BR> Matt Miller:  Is there tests then in core subjects in the Netherlands?<BR> Simon Steen:  For secondary education, we have let's a national examinations at the end of the school for secondary education.  For primary, we don't have.  But when I started, I mentioned this report of the parliamentary commission, the report "Time for Education?"  This parliamentary commission, as I said, was fairly negative about the role of the national government.  They just formulated what I call political driff [phonetic] innovations, without any commitment of the teachers in the schools.  <BR>While we suffer from this, and they said it was good that the schools, and especially the invent [sounds like] schools, they have, let's say, a kind of assistance from themselves against this policymaking for innovation and education.  So let's say it more undiplomatic.  They just went on with the normal business and they left those kinds of innovations as the government wanted schools to implement because there was no commitment for those innovations.  There was no time and no resources. <BR>But on the other hand, this Commission is sent up, we have to let's say go through the system of a national examination after the school for primary education.  This one gets a lot of discussion in the Netherlands.  I, myself, I think, the more clearer it is what the standards are, you have to respond to.  And the way it is monitored, if you do respond as a school to those standards?  The bigger your freedom is in the way of the pedagogical, didactical, approach you choose; and the textbooks and the way teacher s books.  This is very controversial in the Netherlands, if it should go over to a system of national examination, at the end of the school for primary education.  It will be quite a debate in the coming years.<BR> Matt Miller:  Now, can you talk a little bit, both of you, about teacher preparation and training in both countries?  Because I'm curious.  One of the biggest problems in our system, in the U.S., is the huge disparity in teacher quality between better off schools and poor schools, as I was alluded to, it just related so much to the financing.  Is that a big issue for you all?  <BR> Tapio Christiansen:  One of the points that I think was in the remarks is that often failures by students or poor education is blamed on teacher quality.  In Kunskapsskolan school's model, they eliminate that as an excuse for failure. In other words, they try to create an incredible uniformity among teacher qualifications.  How exactly they go about that, I'm not sure.  But that would seem to me to indicate that there is a great deal of variability in teacher qualifications throughout the state system.<BR> Mike Miller:  How about in --<BR> Simon Steen:  No, with us, that's not the problem.  We have, let's say good standards for teaching and training institutes.  There are the same requirements for teachers in public as in independent schools.  Our problem is more that --we are facing, [indiscernible] shortage of teachers in the coming 5 10 years and that's mainly due to the fact that -- let s say the role of the teacher as a professional, and I'm interested in your comment on it as well.  Because I understood that your schools are -- I say "your schools" but what you described is organized as a kind of franchise, so you have central module, and the whole concept is centralized and the teachers have to fulfill their role in a centralized system.  <BR>In our country, in West County, we did some research and our idea is that we have this shortage of teachers, because young people don t choose so much anymore for this teacher training institute.  Because there is the feeling that the teacher as a professional is overruled on the one hand, by those political driff [sounds like] innovations, they just had to fulfill.  On the other hand, by let's say the fact that we have had the situation of enlarging the scale of the School Boards.  <BR>Now we have Boards of independent schools, sometimes with 50 schools.  Then you get the situation that the teacher is more or less -- you get the alleviation [sounds like] of the teachers.  They don't feel themselves anymore as the professionals who can take the decisions themselves.  Because what they find best for the group of children they are responsible for.  Because those decisions are taken elsewhere, in the top of the organization.  <BR> Our system is clear, about the requirements, the minimum requirements all teachers have to fulfill.  But our problem is how can we change the role of the teacher as a professional?  That's why I said, we are now going to stimulate to form a cooperative of teachers, and we try to find schools who want to take the responsibility for these cooperative teachers.  And of course they have to be accountable to a controlling body of parents or external persons.  <BR>But then there is more room for the teacher as a professional, and then we hope that young people will see that it's a very good job to do.  But I'm interested, of course, in the system you are talking about, because this is very centralized, and what does this mean for the role of the teacher as a professional if it's allowed? <BR>Henry Olsen:  Of course, yeah.<BR> Tapio Christianson:  I think you're absolutely right.  The teacher's role is essentially he or she is essentially not able to freelance, most more implementing a centralized curriculum and a centralized program.  But the role of the teacher -- I mean I can recall, when I was in school, the role of the teacher was to make sure that no one got too far ahead and no one got too far behind.  But the role of the teacher in this model is much more to oversee the independent progress of each pupil.<BR> Matt Miller:  That's actually fascinating.  This is an issue all the advanced countries and even the developing countries are facing, is how to get the next generation of teachers motivated and staying in the profession.  It's interesting.  I mean, the one thing that struck me listening to Tapio's presentation is that the vision of -- how do you say the say the name of the school chain again?<BR> Tapio Christiansen:  It's Swedish.  It's called Kunskapsskolan, which means basically "School of Knowledge" or "Knowledge School."<BR> Matt Miller:  His vision is -- he must know Chris Whittle or they must -- because Chris Whittle and his book, Crash Course, that came out a couple of years ago -- had this whole chapter.  You know, people thought it was radically beyond the pale about the future being global chains and best practice schools that would offer branded schooling internationally.  And the idea that -- I'm sure.  Is your boss considered a sort of a radical or controversial?  Or the founder of the --<BR> Tapio Christiansen:  Yes.  He's considered quite radical and controversial in the fact that he is a Swede who would prefer to be an entrepreneur.  But yeah, with regards to the Edison School and speaking with Andres, he did mention the Edison School as an organization very similar.  What the differences are precisely I don't know, to speak of.  But he did mention that, yeah.<BR> Male Voice [Henry Olsen?]:  Well, one might be, Chris really used to say, "We've been at it for about 15 years in these for-profit schools and we haven't seen a profit yet.  So why are people complaining?"<BR>Matt Miller:  How do you guys manage to do -- are you able?  Again, I don't want to take you beyond the -- because I know you're not him.  Do you have any more insight into the reallocation of the dollar that somehow allows some of the innovations you're talking about but still leaves room for a return on investment?<BR> Tapio Christianson:  I think it all has to do with the economies of scale.  In other words, you create a model and then just replicate it as a franchise model, which is I think the word you used.  Yeah.  I don't think we're talking about enormous profit, but decent margins.<BR> Matt Miller:  In the Netherlands, did the independents have to accept the public amount as the full tuition?  You can't add on --<BR> Simon Steen:  You can't add on, but you cannot refuse a pupil if the parent says, "Well, I can't afford it."  So there is room to make appointments with parents, to pay some extra fee, because of the extra activities that you organize; because you organize the education in smaller groups.  Because only if you do it in smaller groups.  <BR>For instance, the Steiner [phonetic] of all those schools?  They need to, let's say, to organize it in smaller groups, because otherwise this philosophy of their education, they can't organize it.  But this counts also for public schools.  So what you see is there is a small extra fee, which is necessary to, let's say finance all the activity of the school.  If you want to respond to the demands of the parents, and there is some freedom in our system to do so.<BR> Tapio Christiansen:  Well, I guess I'm going to bump up my little colloquy.  I think these are very interesting -- it s fascinating to learn about.  They're very interesting models, this combination of public funding but diversity and local empowerment and how it's run.  It makes me think of -- you know, in the U.S., there's even a bipartisan consensus now among many of the policy elites who traditionally were thought to be at odds on the Republican-Democrat side, on something called "student-centered funding."  Isn't that the phrase?  "Student-weighted funding."  What's the --<BR> Nina Rees:  Student Funding.<BR> Matt Miller:  Weighted Student Funding so you that would actually might have dollars to follow the students to, I guess whatever public school, sort of where the consensus is now, with greater money for those who are more at risk or come from disadvantaged backgrounds.  Now the idea of elite interest or consensus on that.  The distance between that and it being implemented anywhere in a meaningful way, may take beyond our lifetimes, you know, at the pace things go in the U.S.  I think that's interesting.  <BR>I think in the U.S., the religious school aspect of the public funding would be a Constitutional issue that would create certainly complications and a huge political controversy.  It doesn't mean it shouldn t be something that's on the table or part of the discussion.  And there's even an analogy, I think, to some of the virtual charters that, you know, I mean in your own professional life now.  Where you have these States that are providing some kind of per-pupil stipend, to people who want to just use online education at home?  Because I think the virtual charter school providers who are providing the online things, they would like to get the full poor people funding, even though they're not building a school or having any physical facilities, which some would say might be a bit of an overreach.  <BR> In the social cohesion thing, I think that's a challenge.  Where I live in L.A., there are 80 languages spoken in the schools; in New York and these other places, you know, social cohesions, a huge U.S. issue for all this stuff.  But let me leave my inclusive but admiring observations there.<BR>Questions & Answer Session<BR> Nina Rees:  Thanks, Matt.  We are going to move into questions and answers.  We have 20 minutes or so, I believe. I'm going to actually start with the first question.  So in the United States, as I said earlier, even though we've had school choice programs for quite some time in those places where we've had these programs, despite the studies done; the randomized field tests and what have you.  You still have a lot of political resistance to the concepts.  Can you just talk a little bit about that in your countries?  Is it pretty much a national consensus that these programs are doing a good job?  Or do you have an organized group that's out to destroy your way of disseminating funds to private schools?<BR> Simon Steen:  Well, in my country, it's very strongly supported, the whole idea of freedom of education, which means the freedom to start your own school in connection with the freedom of parental choice.  And also with the equal public funding, because if the last subject shouldn't be there, you get the selection of students because only the parents who can afford to pay a high fee can then send the child to a private school.  But because the private schools are equally funded, publicly funded, as the public schools, they are open for all the parents.  But now your question.<BR> It's very interesting.  I told in my short historical overview that in two times, when we had a very strong political resistance.  Because it's important to know our system.  We didn't get it from heaven and we had to create ourselves and we had to overcome a very severe political assistance.  And of course, another country can't copy our system.  <BR>But what you could learn from it is that it has sense to set steps, the next steps, to bring in competitiveness, more competitiveness in your system.  Competitiveness has all to do with parental choice.  Because if there is parental choice, then schools are challenged to profile themselves.  Of course, you have to let's say organize the requirements, so that they can't neglect those requirements for everyone.  But still, it is parental choice.<BR>If there is equal funding and then there is the chance to profile yourself and that thinks there is competitiveness and competitiveness.  This was this European study I was mentioning.  Let's say we'll bring in the system.  The search for better quality.  The strange thing is that it were the Catholics and the Protestants in our country in the former Centuries, who took the initiative for this new Constitution, to get the right to start their own schools.  <BR>But in the moments that count, when there were really a very strong political debate, it were liberals who built the bridge between those groups and they realized that if we call it specification; if we could end this struggle for the school, for the school on a religious basis, then we would be energy-free to invest in positive energy so that you can work on the best educational program.<BR>Nowadays, we have the situation that it is the liberal party who is criticizing our system of independent schools.  [indiscernible] especially, because they fear the Islamic schools.  They think if you give the Muslim population the right to start their own schools, who can control if they are also, let's say socialized?  Their children within this failures of the modern Democratic society.  So in former days, it were the liberals who made this possible, so we could have the specification and we could have this political decision-making about the freedom of education and our Constitution.  <BR>And nowadays, they are just struggling with this.  Well, my point of view is that we can't neglect this fundamental right in our system to immigrants who are just now in the same Netherlands as we are ourselves.  This is a very delicate aspect.  There was a lot of political debate.  But what we have done is the Inspectorate and then it's good that is such an Inspectorate.  They did really a very severe investigations and our security service did severe investigations.  While what is practiced in Islamic schools in the Netherlands, there was never found let's say evidence that they were just transferring knowledge, which is in conflict with the values we find very important in the modern democratic society.<BR>Matt Miller:  You asked a really interesting question.  I mean, Sweden is a country that with the exception of 5 years, has essentially been run by the social Democrats since the end of World War II.  In the late '80's, it became really apparent that the Swedish education model was essentially the lowest common denominator.  And it took the moderates, when they got control in 1991, they had a brief period of control there.  They were the ones that introduced the voucher system. That was one of their first and early reforms.  <BR> Interestingly, when the moderates lost the next election  - you know the moderates had come in and said, "Okay, we'll pay for 85% of independent schools.   The social Democrats came in and they said, "You know what?  This seems like a pretty good idea.  We'll pay for 100%.   Since that time, the number of independent schools has greatly and greatly increased.  I think that there would be some latent opposition, but I think that the trend is overwhelmingly in favor of independent schools [indiscernible].<BR> Nina Rees:  So you guys don t have the people for the Dutch way, or people?  But the Swedish were standing in the way?  We have a group in the U.S. called "People for the American Way" who opposes these efforts.  I'm just wondering if there's a united organization that opposes.  And the answer is no, it seems like.<BR> Simon Steen:  No.  It is over.  Now we have started.  It made rule in the educational law so that public schools can transform themselves and they will be run privately in the same way as independent schools are functioning.<BR> Nina Rees:  Questions from the audience.  Yes?  And could you please identify yourself and the organization that you're with?<BR> Lucy Robertson:  Sure.  I'm Lucy Robertson from ASCD.  That's the Association for Supervision and Curriculum Development.  And my question is a clarification of something Mr. Christiansen said.  Whose target was it that 100 --<BR>Tapio Christiansen:  I wasn't necessarily-- Oh, that's the target of some -- it was Anders' conclusion that there were a number of municipalities, which currently have 30% of schools privately run to reach the 100% mark, but precisely which those municipalities are, I do not know.  But I'd be happy to provide you with my contacts, so we can then follow-up with that question.<BR> Charles McCullen [phonetic]:  Charles McCullen, from the National Board for Professional Teaching Standards.  You spoke to teaching quality from the induction point of view, as far as making sure that teaching quality was a priority in schools of education.  But in continuing on, once you are a teacher, is there a national means -- and it's either a big in from the government or a little in, just something done uniformly throughout the nation -- that allows for a continuing professional development for teachers, such as an advance certification that we have here in the United States?  And also on that end, what about for Principals?<BR> Simon Steen:  Yes.  There is a lot of attention indeed.  Because we are coming from the period that teachers, once they were qualified, they were qualified for the rest of their professional life.  Well, I don t want to insult anybody, but it can make people lazy to know, "I'm there.  I will be always there, and I m qualified."  Part of those new plans we have to cope with this shortage of teachers in the next 5-10 years, is that we want to make a national fund and that teachers, themselves, let's say can ask for a subsidy from this national fund to, let's say, following training programs; or to work on their own professional development.<BR> And in connection with that, we want to change the salary system for teachers, so that the extra training programs and certifications they get during the fulfilling of their job is also part of the increase of their salary.  <BR>And then the same counts for Principals.  We are now -- we have some pilots with a new form of registration of Headmasters.  So if you are a registered Headmaster, you follow extra trainings and courses, this will be registered in the system and this can lead to extra payments.  So this is the way we try to stimulate teachers and Headmasters to, let's say, go on with their own development.  I always say the teachers and Headmasters, they are not only responsible for the learning process of the others, the child, but also -- and first of all, for their own learning process, because you are more authentic to the children if you show that are learning and are eager to learn yourself.<BR> Nina Rees:  Jeff?  Actually Jeff first and then Jack.<BR> Jeff Goodman:  Jeff Goodman with the Alliance for School choice.  I have a question for Simon Steen.  The question I had was related to religious schools.  Do they have to accept students from other religions or can they be selective?  And then like a second part, which is kind of related to that.  Do the schools have freedom, in terms of what they teach, in terms of tolerance?  I know the Dutch society prides themselves in their tolerance.  But I wondering, can they say maybe certain lifestyles are in more?<BR> Simon Steen:  The first question is that, indeed, it's the freedom to start your own school, includes the freedom to select the students.  But having said that, this is a very formal answer, but it's important that politicians accept that this is really a part of this formal right.  On the other hand, in the Netherlands, once a school exists, it's important that you have enough new students every year.  <BR>In most cases, each school is open to all the students.  There are some group of schools, especially let's say the more Orthodox reformed schools and Orthodox Jewish schools -- we have some of them still.  They are entitled to refuse students of families who are not themselves dedicated to let's say this Orthodox religious belief.  But it's more a dispute for politicians than it's something that occurs in practice.  But you asked me if there is the right to refuse students who are not, let's say, from families who are not dedicated to the principles, which the school is founded on, then the answer is yes.  Your second question was?<BR> Jeff Goodman:  It was just about -- you said that all schools had to teach democratic participation and --<BR> Simon Steen:  Tolerance.  Yes.  Well, let's, first of all say, that we have been a well-controlled dream, because we thought ourselves also, that we were tolerant and the Netherlands is famous for its tolerance.  But I think the last years, maybe sometimes we thought we were tolerant but in reality we were indifferent.  We had something as, "Well, organize your own life. Start your own school.  Don't bother me."  Well, that is not what you mean with being tolerant.  <BR>On the other hand, we have this fear in our society, also something to do, of course, with the 11th of September.  There's fear in society, especially for non-Western immigrants.  They dress themselves in another way.  They conduct themselves in another way.  There is some fear in our society.<BR>On the other hand, it's very essential that you show to those persons that they have the same fundamental rights as the others.  So they can start their own school as well.  That s why it was so important that there came this new legal requirement that all schools -- all schools has to pay attention to the fact that children are growing up in a multicultural society and that means -- and there are guidelines for that.  It's not an open aspect.  There are guidelines for that, and the Inspectorate is monitoring that, that you -- <BR>For instance, what I said.  You have to pay attention to other religions and other philosophical convictions which are established in a society, then the religions of your own school and you have to organize in a way, meetings with persons of other cultural and religious background to make clear to the children that they are living in this multicultural society.  And that we expect, as a multicultural society, that they will become an active citizen and they will respect the democratic values, instead of only respond to the values of their group. <BR>Nina Rees:  Did that answer your question?  I think-- I don't mean to paraphrase what you were asking.  But I think what he wants to know is if all the schools have to teach that, you know, the concept such as "Simon can have two mommies."  Are there limitations around, you know, those types of things.<BR> Simon Steen:  Of course, it's finding a balance.  What I tried to say is that it's -- there are guidelines of the inspection and the inspection will monitor if you let's say make really work of this new requirement about social cohesion and active citizenship.  Having said that, it's of course, also, you have room for convictions, which, let's say, are a part of the values of the group who started their own school.  At the moment there is a conflicting of those values.  It is important that you have to respect the values, the pugilistic values of the modern western society.<BR> Nina Rees:  Jack?<BR> Jack Wright:  I'm Jack Wright, from the Office of Non-Public Education and the Department of Education.  I used to work with Nina.  Thank you both very much for your presentation, and Matt, for your comments.<BR> Some years ago, I was in Beijing, at a conference on private education.  A Communist party official said, "We're looking to the U.S. to tell us how you apply the market system to education, so that we can use it here in China."  And of course, the irony was that they were much more open to a market system of education than we are in this country.  I think the presentation we have heard is very useful for showing that within a context of social democracy and what would be considered a much more western approach to education in Europe, that you had combined both freedom and choice and a high degree of freedom in schools with democratic values.<BR> I think we need to hear that more in this country because of the ideological resistance to the kinds of things that you were talking about.  The question I have to do is to pick up on the question that was just asked.  That is the social controls that might be exerted on private schools, if they become part of the system of public funding.  In this country, when we have debates about this, part of the resistance to public funding is from those who are ideologically opposed, but also there is a caution on the part of private schools that feel they might lose their independence.  <BR> These questions of pluralism, teaching diversity, might not in fact, take away freedom of choice from parents who want their children to be in a school that does teach a particular worldview, for example.  So if you teach what the government would consider to be a tolerant worldview, are you taking away from parents the freedom to have their children taught in a way which might not be approved by the government?  <BR> And then as part of a large question about whether there's any downside from the part of the private schools in Sweden and the Netherlands about the controls that they do live with. Private schools in this country would value their independence on admission to students, the ability to charge tuition that they see fit; the ability to control their curriculum; the ability to hire teachers that they -  and to judge what are the appropriate qualifications of teachers and forth.  So the question is, are there any negative parts from the point of view of private views to the government fund?<BR> Simon Steen:  Yes.  First of all, I think from looking from the point of view here, of the ones who are for ideological or political reasons criticize it, the fact that private schools are publicly funded because you never know what they really do.  I would say, yeah.  Only if they are publicly funded, they are under all the legal requirements and funding is a way of getting them embedded in the system.  Having said that, there is also the possibility to start a private school, privately financed.  It's possible.<BR> Nina Rees:  Are there a lot of those.<BR> Simon Steen:  Not a lot.  You see it especially for pupils; let's say from the last two years in secondary education.  Because sometimes, parents then see, "My child won't get through the examinations," although I think myself that the child is good for it.  But then they need a special program.  They need to be disciplined.  Then there are those private institutes.  They offer the last 2 years of the program for a school for secondary education, in 1 year.  They have almost the kind of individual program, and of course this costs a lot of money.  Well, if you can afford, then you can send your child to such a private institute and therefore it is successful.  <BR>Because that's something else, I think.  Once you pay for it, you are more dedicated about quality as a parent.  And when it is paid for you, because the government is paying, well, most of the time parents    well, they hope the best for it. That's a positive point, if it's private finance.<BR> The other thing is it's a kind of selecting, because only the parents who are the wealthy ones can afford this.  The point I wanted to say is that the freedom to start a private school privately financed, is also limitized [phonetic].  Because if it's for compulsory education, then there are the legal requirements, which counts for private schools, which are publicly funded, are the same as for private schools, which are private finance.  Because there is the duty for parents to send their child to a school in this period of compulsory education. And the Inspectorate has to judge.  If the program is a private school, which is private Finance Office.  <BR>And they looked into the content of the program, to the way it s structured, the progress of the students who are registered and to the qualifications of the teacher.  Only if there is an approval of the government, then the parents are -- the parents can send their child to this private school, which is private finance.  Because otherwise, it's illegal because they have to send -- that's compulsory education    their child to a school which has a program and qualified teachers, which responds to the legal requirements.  <BR> So the freedom to start a privatized, private-finance school is limitized in the Netherlands, because of this judgment of the Inspectorate.  If it's really, let's say a good alternative for the public school, or the independent school, which is publicly funded.<BR>Nina Rees:  One last question.  Yes, sir.<BR> Eugene O'Nasta:  Eugene O'Nasta, the [indiscernible] Center for Education.  I think one of the big things about competition; I have this point on it.  They're competing at a national level, not for a limited.  So the problem would be, well, I'm the competition, [indiscernible].<BR> Simon Steen:  Right.  You said the importance of the level playing field.  That's also in the PISA study I mentioned.  It's only because of the, if you combine the freedom of education in the way you can start independence schools with an equal public funding for these schools, as the public schools, and then nationwide?  Well, then you don't have this selection of students.  And then competition is, let's say a fair competition because it's competition on the core business of the school and that's who has let's say the best program?  Who can show the outcome in terms of the progress of the student and the achievement of the students is the best. <BR> Well, in our system, that's what I said earlier.  Don't copy us.  Don't think we don't have our problems.  Our system now stands for more than a Century, and I think that's due to these factors -- that we combined freedom:  Freedom of education, freedom of parental choice, there's equal public funding and then you see that these independent schools is embedded in a kind of social network and that means that the parents and the Headmaster, and also the teacher, they are dedicated to this school.  It's their school.  It's their own decision for the teachers to work in this school.  It's important, of course, that you are open for adjustments.  I felt something about those adjustments, the adjustments like the citizenship and the social cohesion and you have to be-- It s very important that there are clear legal requirements on the standards you have to achieve.<BR> Tapio Christiansen:  I was just going to offer a last thought, which is, to your point.  I think one of the main messages that advocates of choice in the U.S. should take from this panel, is that the bargain to try and offer publicly is financial equity in exchange for choice.  And the advocates for choice almost never talk about the deep, deep financial injustice between wealthy districts and poor districts in the U.S.  And I think until the conservative side of the debate makes that a centerpiece of its argument, it won't get anywhere.<BR> Nina Rees:  So with that fine comment, our conference has come to an end.  Please join me in thanking the panelists and thanks for being here.</P> <P>[End of Transcription]</P> <P> </P></body></html>