In China's Shadow | Reed Hundt | Talks at Google

Okay, so it is my great pleasure to introduce Reid Hunt, who is the chairman of the Federal Communications Commission. After that, he became a consultant at McKinsey, a venture capitalist. He took over Moore's role on the board of intel and has had, obviously, a very illustrious career. He's written to two books, one of which you all have. But most importantly to me, Reed is the superb mentor of my life, for which I am very grateful. He was always an example of a person who gave amazing opportunities to everyone on his team. And when things weren't going the way we wanted, he invited us to his home and cut flowers from his garden for us. So much, much loved mentor. Thank you, Reed.

Thank you. Thank you very much. I'm really, really sorry that I'm so late. I had this guy who's driving me and I was talking on the telephone and we went to San Jose, which really shows that I'm a completely stupid person because if I looked up at any point in time, you might have been here on time. So you're very, very patient to stay this long other than from San Jose. I've come to you straight from the entertainment capital of the world, Washington, D.C. which, as you may notice, is X rated entertainment at the present time. But there's no time for questions and there's no time for anything except for me to take advantage of the shrunken time to do something that I'm really, really honored that you're willing to allow me to do. And that is to. To talk to you via these slides about this book. This book right here. This book right here. Now, I want to make sure that we have a sales orientation here to this. You don't really have to buy it. You can borrow one of Kim's copies, but if that isn't something you want to do either, just go on Amazon and say something nice about it. That would be if you could do that and if you could pass that around. And then if you could. Do you know anything about search, if you could have people search for that, have a lot of people search for that, that would really be great. And so that's really my mission here. And this book took about approximately three hours per word. It doesn't have that many words, but still, you know, so really, if you could just have people search for some of these words. This is the COVID of the book. That's my picture, which is. That is a communist red tie. That's where I used to work. An agency that has been copied now in its form, if not exactly in its function, by 69 countries all across the world, including China. That's where I work half time. And that's the book that I wrote about Kim. This is a picture of me presenting this book. The only other time I've done it in Japan, I think. Is there anyone here that knows Japanese? No. You? Could you. Does it say that I'm presenting this book? That's what they said that it said, but I'm not sure. It might say the idiot. It's very hard to know for sure. You can come back to it later. It's a little bit fuzzy. And the book is about that. And the book is about what that means. That meaning that means for Americans. It's not really a book about what it means for people in China. It's mostly a book about what it means for Americans. But the starting point is what is going on over there that might impact us? And one of the things that's going on is all of these technology companies, as you well know, are just illustrative of what's become being formed in China. And the basic proposition in the book, my basic proposition is this. If you're in information technology or biotech or steel manufacturer or automobile parts or anything else in the United States, you're going to be looking at 1, 2, 3, 10, 20, 30, 40, some number of rivals out of China over the next 20 years, which is why this is called In China's shadow. Yes. You may think, what about India? That's true. You'll also be possibly in some of these sectors looking at some rival out of India. What about Romania, where they have a lot of software writers. It's conceivable that in some niche there'll be Romania. But there's nothing like China in terms of the magnitude of the competitive challenge that's being mounted. And that's because China is well on the way to being the biggest consumption market in the world. By the year 2025, it will equal the United States in the sheer quantity of consumption in total. That is to say, in one generation. Some people say, no, it will only be the same size as Japan and it will cross the curve with the United States about 10 years later. It doesn't really matter. And what is already the case is what you see here in terms of striking number ones. Here's another one. There are more Mercedes sold in China now than in Germany. Everywhere in the world. Everywhere in the world, if you're in business, whatever is for you, the major consumption market. You're thinking about how that compares to China. Let's take intel as an example, in the beginning of the 1990s, intel in terms of shipments, shipped 70% of its chips to a U.S. destination, 30% overseas. And now it's the exact opposite. Now it's the exact opposite. And in terms of consumption, Asia is nearly 50% of the consumption of intel chips. Not just where they ship, but where the end use product actually is consumed. And, and of course, all the growth rates in all of the important segments are double digit and really, really high. Double digit. And what's driving that? What's driving that is the greatest migration in human history from rural to urban. In China it is, let me repeat this, the largest migration of people in the history of humanity by a long shot. Bigger when it's finished, when it's all over, when the roughly 800 million over the next generation will have completed this transition, it is a number that is going to be significantly bigger than the total immigration to the Americas over 300 years. As people make this migration, of course they're also moving from desperate poverty into a consuming middle class. And as, as they move into that middle class, not only are they going to be making more money, but they will be participating more and more in fueling the businesses that we've talked about. So that every business in the United States and in the west generally is looking at this and saying, okay, part of our strategy is we need to have a direct investment in China because we can't miss the consumption market in China. And they do believe that generally the Chinese government's view is if you don't invest here, you're not going to sell here. And if you invest here, maybe we will let you sell here. We're not saying it's certain, but you absolutely have to invest in order to be in a discussion about whether you will be permitted to engage in free trade in China. You might say, well, doesn't the American government have something to say about that? Well, our new Treasury Secretary, who's appointed himself the ambassador to China, that's not real, but it's sort of what he's done politically because after all, he's been in Washington long enough to know that he shouldn't be staying there. So there he is in China and what does he do? He's not talking about open standards, he's not talking about intellectual property rights. He's trying to encourage them to rejigger the currency by a small amount. That might be a good idea, it might be a bad idea. It has nothing to do with any of this. It's absolutely irrelevant to whether China becomes the destination for investment or whether this particular market is a market that's going to be aimed at by all Western countries. So China is not totally just attracting western investment. Of course it has 12 million businesses. And as these businesses get to be beefier and beefier and more and more successful, two and a quarter million small businesses in China will buy their first personal computer over the next 12 months. Two and a quarter million small businesses in China. The United States has 6 million businesses. We are the most businessed economy that the world has ever seen. Except for that China is twice as big. And the notion that you could have in any country in the world. Two million businesses buy their first personal computer and then begin the cascade of activity in software and hardware that follows from that. It's breathtaking. With this PC, not all of these firms will be involved in global trade. What we're going to see in China is intense domestic competition to see who the winners are. And those winners are going to be the ones that obtain the economies of scale and are able to compete against the United States. You often see in Silicon Valley that China has 7 times, 10 times, 11 times as many engineers as as the United States is not true. The number is only about 2.5 times. But it's a big number. You often hear that they're not educated as well as the high end in the United States. That's true. These engineers do not have PhDs in computer science from Stanford or the equivalent. It doesn't really make any difference. There are all of these engineers and all of the other hundreds of thousands of and millions that will come after them have plenty of job opportunities that fit the skill sets they're getting. And the skill sets are ramping up. You often hear if you go to China, particularly if you're a journalist or a diplomat. This happened to a friend of mine who's a journalist and one of the diplomats who was going over with Paulson that you sit down with them and the Chinese ministry says, well, you know, this era of low labor costs, it's going to end soon because we're having these tremendous increases in wages. You can increase 57 cents an hour at a very high percentage and not make much of a dent in the difference between $0.57 an hour and $21.40. And those curves don't cross for a generation. Meanwhile, the state owned enterprise sector is shedding its workers, putting them into the labor force, keeping the labor pool down. And besides, you've got a fairly large rural population yet to be tapped in terms of keeping your labor force fluid. So the foreign firms are not just going to get access to that domestic market, but they're drawn there because these labor costs are intensely appealing. You'll often hear a bunch of pooh pooers say, yeah, but they're going to go to Vietnam too. Well, you know, that's true. And intel is building an assembly factory in Vietnam. But the following part isn't true. Vietnam is not a big consumption market. So there's this double whammy here that is attracting more foreign direct investment to China than to any other country in the world. And it's today that foreign investment that is driving the exports out of China. This is a transitional phase and it will be the case over about 10 years from now that this will be reduced and China will be generating exports mostly from domestic invested companies. All of this is sometimes called offshoring. This is a New York Times quote. And now we say, so what? According to free trade people, doesn't really matter. The global pie is bigger, everybody competes for the slices, but everybody on average is better off. And that is true. And you could take the view that since the 20th century was the American century, maybe the 21st century probably will be too, or it could be American and somebody else and everything is really fine. And you could in fact look at this statistic and say, wait a minute, it was as recently as five years ago, over the last five year period, 98 to 2003, that the United States just overwhelmed everybody else in the world in terms of global growth. One of the reasons for this statistic is the strong currency. Our Treasury Secretary is trying to make sure that the currency value goes down, which will reduce the impact of currency. That's about a third of this growth. He's trying to make sure that Americans pay more for things. That's the meaning of adjusting our currency downwards. But I guess that's consistent with his political party's interests generally. However, this, you could say means that we really don't have any problems. Or you could look back at history and say for 200 years, look at the role that the US is on. This is a 200 year chart for GDP. And as you can see, the US has practically invented the concept of economic growth. And Great Britain in 1860, which was the world's leading producer of goods on a per capita basis, had the view that you might want to adopt now, which is there's no real problem here. But in fact what was the case is that everything I've just described about China relative to the United States was true. For the US relative to the Great Britain in the mid-1800s, a much, much bigger consumption market. People were pouring into it. Many, many, many new businesses were being started, tremendous foreign direct investment into the United States. It was money raised in London that built the railroads in the United States. And there are People from 1860 to 1900 in Britain who kept writing, this is a big challenge for us. Their population is, they said, going to be three or four times bigger than ours. The same proportion that's true of China relative to the United States today. But from the year 1900 up to approximately the mid-1980s, for that very long stretch, Great Britain went in terms of standards of living, in terms of relative power, into long, slow, drawn out, and many of those decades seemingly inescapable decline. Because in Great Britain, when this challenge was faced, they by and large did nothing. Now you may say, well, that can't, you know, nations are nations, but people are what really matter. Well, I would say to you that people tend to work in firms like this great firm and people make those firms. But you've got to look at this in terms of firm competition because it's not, it's just a journalistic myth to talk about nations competing. It's firms that compete in the marketplace and it's the people who work at the firms that feel the benefit or the harm of the firm's success in that competition. And you don't, in information technology get to have a nice second place finish. You've got to keep winning. We could take the following view. Baidu is no big deal. We could take the following view that, you know, they can be successful and Google could be successful too. I hope that's not your basis of your strategy. You know, I hope the view is rather we really want to win. Because every information technology firm I know, every biotechnology firm, has to have that be the basis of the strategy. You can't plan to finish second or to tie with some other firm. You could have it be that this status quo that we have right now would in your mind's eye continue forever. But it's not true. If you look back at, for example, take a look at the firms that make up the Dow Jones index, which is now back to where it was in 2000. It's back to where it was in 2000. But of the firms in that index, they have not in any way all performed in the same way. Intel stock is worth on an inflation adjusted basis. This is a fact. It's not something I'm bragging about. 30% less than it was 10 years ago. 30% less than it was ten years ago. Well, here's what happens in information technology because this is completely wrong. Somebody wrote some book that said it was right, but it's not right. This is completely wrong. Somebody sold 3 million copies of a book that said it is, but it isn't. This is what's true, and this is what's true about American firms. So the purpose of any national policy, if we had a national policy, wouldn't talk about the firms, it would talk about citizens, because what else would a nation, who else are the shareholders for the nation? Right? So it would be, let's have a high and rising standard of living. But the way to have that high and rising standard of living is to work at firms that are winning in global markets because you're better off working in firms that win. And this is a extremely simplified version of a very interesting and well argued book by economists Gomory and Baumol, which I put in fine print on the bottom left that more or less, if you grossly simplify the world to just two nations and imagine just those two nations, firms competing against each other, more or less, the answer is that the optimal condition for any one nation is to win in about six or seven. You don't want to win in all 10 because you want the other nation to generate enough competitive victories to generate enough wealth to be able to buy your products. So you need the pie to be of a certain size. But the optimal place in the pie is here for any particular nation. And so nations don't know this because nations are not people. And a lot of presidents, some presidents know these things, but some presidents don't know these things. You can make your selection on that particular point. But economists know these things and they can be bought. In fact, a lot of them publish their stuff for free. And you can read it. This is what it says. Here's another statistic that it is important to hold onto when thinking about the future of the United states. We have 5% of the workforce. We make 20% of the world's product. Now, I did this math. I think a lot of you are like your PhDs in wisdom and knowledge and stuff like that, right? So see if this isn't right. The world economy grows by 10%. America's share goes from 20% to 18%. Are we better off or worse off? What's 18% times 1.1 or 110? See, I do the math. I did this. I mean, I'm kind of racing these numbers by you, here's what I think it tells you. If the world economy grows 10% and our workers share of it goes from 20% to 18%, then quantitatively we're making 19.8 instead of 20 of the units. That's less, therefore we get paid less, therefore our national income goes down. Therefore, however we divide the national income, give it all to the rich, none to the poor, or have an egalitarian society, there's less of it. This is about competition. I can't tell you how many people I run into that say, well, you know, we'll be all right. You know, that 5%, you know, doesn't always have to make 20%. Well, it could be fun to be poor too. You know, we're not talking about whether we'll be all right and whether we'll find a different form of happiness. I'm just talking about income and, and how it translates to standard of living. And the answer is if we want our citizens to be better off, then in the United States we have to aim for that 5% to make not just 20, but 21 or 22. That has to be our goal. And that doesn't mean other people have to be poor. The pie can be bigger. But this proportion is the proportion that is the way to think about the reason why the standard of living in the United States is so great relative to other countries where the proportion isn't this way. So in India, I don't know what it is, but I would guess that it's something like 15% of the world's workforce and 4% of the world's product. It would be some number like that. And you could do this math for every country in the world, and it's going to correlate to income per capita and to the standard of living. So, you know, why don't we want to compete? All our firms do. Why doesn't our nation? And where. How does a nation think about competition? Well, it doesn't think about the government starting these businesses. They have to come from firms and they have to come from firms that are part of Schumpeter's process of creative destruction. They can't just be firms that are doing the same thing that all the other firms are. They have to be destroying any given market and replacing it with something new. They have to be either faster, better, cheaper, or brave new world. Those are the only two kinds of new firms that are faster, better, cheaper, or brave new world. And this creative destruction is good because it makes yesterday's capital equipment obsolete, which means that it brings in new capital equipment, which is productive. It's those productivity gains that are the reason the 5% can make 20%. That's called productivity. So we need more of this in order to have that 5% even stay at the 20% production share or become 21%. New corporate giants have to rise up to overthrow old leviathans. You gotta be a big winner if you're gonna be a winner. You can't just be like, well, this was really nice. I stimulated the big company to behave differently. You gotta take their place. This, this is a study by Fogel, Mork and Young that was done this year. This is what was said for from roughly the 1940s through to the 1990s in economic thinking. And it's not and we don't believe it. Now, one of the reasons we don't believe it is all the evidence of the 1990s disputed it. In fact, this is the same guys doing another study. It appears when you do analyses of national economies all around the world, that where they have dominant large businesses that hold, hold their incumbent power for a long time, that economy does relatively poorly. And where they have large old private sector businesses that wane, that is, they get destroyed. Like AT&T, the long distance company, which went from market cap of $100 billion when Kim and I were in the government to 10 billion. That's good. That money didn't just disappear. That value went to somebody else. That's exactly what you want to have in the economy. Now I don't remember anybody coming in and thanking us for that, but that is a good thing. So our firms have to start small, they have to grow big, they have to be big winners. They have to be big on a global level. Then they'll create lots of new jobs. They will by definition be adding productivity gains to the economy. But don't let anyone in that journalism business tell you that Americans all work in small firms and we're a small business country, blah, blah, blah, blah, blah. We are an incubator at the small business level. But this, these are the firms that create the real wealth. 2,500 firms, 44 million people, almost a third of the entire workforce. And what we want in this country in order to compete vigorously is to have every one of those 3,000 firms be under challenge by some very large number of the 5 million other firms. And we can't do anything about it. And we ought to accept the fact some large number of firms coming out of China and other countries as well. So where are we going to get these firms, these challenger firms. Well, we know China's generating them, but where? Within our own, within our own society are we going to get them? And my story to you is, it's a cultural answer. The answer is in culture. Well, where else would it be? You think it's in Washington, D.C. now, you might get an email from Washington, but don't open it. You might get an instant message. Don't read it, and I recommend that you destroy it. Don't forward it, and whatever you do, don't accept the invitation. That's true for emails and instant messages. It's true for economic planning, too. What are we going to do? Have our big firms all have a big meeting and say, how are we going to grow markets in the United States? We don't have other answers. What we have is we want firms that started just the way this great firm did, and we want thousands of them and we want them in all kinds of other sectors. And they need to thrive because the piece parts of success can be found in. In the culture. The culture is what? It's a web of beliefs and values. The values come from different sources. The beliefs come from business books and religious books. They come from consultants, God forbid. But they're based. These cultural beliefs are based on some kind of architecture. They're strung across an architecture. There's an architecture of law, there's an architecture of technology, and there's an architecture of leaders, a pattern of leaders. Does it make any difference who leads countries? Does it make any difference which one of those two people was elected over on the right? From President Bush's perspective, he says in the long run, people are going to say they're glad that I was elected. It might be true, it might not be true. But I'm not arguing that. I'm just saying this. It makes a difference. It makes a difference. Somewhere across these architectures, people draw their support for their beliefs, for their values. And the web of those beliefs and values is the common prevailing culture. There can be countercultures, there can be dissidents, but there's some kind of culture. Don't you always talk about a Google culture? You think nations don't have cultures. You think countries don't have cultures? Societies don't have cultures. Could it only be companies? There's such a thing as a national culture. That national culture in the legal area can be supported by many different kinds of laws. Every one of those laws can be written to support entrepreneurship or to discourage it. I was in 18 years as a lawyer. I guarantee you that you can write every one of those laws to open doors for entrepreneurs and startups or to close doors. The bankruptcy law that was passed less than two years ago is a door closer. It discourages entrepreneurship in America. It favors credit card companies against borrowers, and on a small business level, it punishes Americans for taking risks. Don't have to take my word for it. Elizabeth Warren, Harvard Law School, wrote a whole book about it. We could go through every one of these laws and we could see it has a bias. They're never neutral. Technology can do this too. This is really the meaning of the open standards debate. And I might add that it's the meaning of the network neutrality debate. Fundamentally, I think, is it that you want these networks to operate in a way that promotes entrepreneurship, or do you want them to operate in a way that discourages entrepreneurship? And leaders set goals. Their goals can be the kinds of goals that spark enthusiasm and encourage people to go out and do things that they didn't think were possible. Or they can be goals that cause them to be afraid. Very afraid. These leaders can come from anywhere. They can be dropouts. They can be people that didn't even get more than a second grade education. However, modern science tells us that their leadership apparently is genetic in some part and entrepreneurship apparently is genetic in some part. But where, even if you have that gene and even if you were in that culture, you need support. You need to be in a society where the culture will open the doors for you. So how do we keep it? Well, we know we had it in the 90s. We know that we had it from 1947 to 1973. And we know that from 73 to 95 we didn't have it. We know that for those 20 years, this was a low productivity gains country and a low growth company country. We know that before and after the golden 90s, the United States wasn't looking so hot. But we know in the good times that things all seem to work together to create a virtuous cycle. What condition then are we in right now? We can look at averages. We're richer than everybody. We have the highest productivity in the world. That's that 520 proportion I showed you before. But the averages don't mean a lot. Let's look at the trends, because it's on the margin that everything important happens. And what we're seeing with the trends is that we're seeing that there's a new and different way that income and opportunity seems to be allocated. In America, this is the top 10% by income. What Their share is it hasn't been the top 10% income in the United States. Haven't had so much of the total size of the income pie since before World War II. Making a million bucks a year not that long ago seemed like a really, really big deal. From 1981 to 2003, the number of millionaires went up sevenfold as a proportion of all the 1040s. But in 2003, we're now up to nearly 200,000 households out of 100 million in the United States that make that kind of money. But meanwhile, while that wealth is occurring at the very, very top, the median is actually dropping for fully employed men. Just looking at men over a 22 year period, there's been hardly any gain at all. And when you look at families, all the gain is attributed to women working more or longer hours or the family grouping having still other people who are going to work. We're seeing that part of this separation according to income means that there's a tremendous gathering of a percentage of the population around very low paid work. And overall for the working class, it's now been quite a long time since they could look back to any particular boom years. In fact, Even the top 10%, despite the statistics I've given you, haven't been doing that well relative to these incredibly tiny fractions at the bottom here. This income reallocation is matched by a shift in income from labor to capital. So corporate profits is up to a level again that hasn't been seen since well before the second World. And the corporations, of course, the idea of the public corporation in America is it makes its owners rich. But for most Americans, that has absolutely no meaning. For about 52% of Americans, it has absolutely no meaning. They are people who carry debt, they are not investors. This statistic, this little gray here, that is the percentage of the top slices income that is coming from capital, from stockholding as opposed to from wages. And that top percent is getting an increasing share of corporate wealth, which is the same statistic. So for the income ladder, for all of these reasons, we're seeing the rung stretch out and the ability to cross from rung to rung is diminishing. Now you may say, well, you know, college will do it for you, but at the elite colleges, you're just operating in that same top group. Except for if you're not in one of the elite colleges, you actually find that you're not part of that group. And it's no longer even true that a college education on average guarantees a rising income. So that's what's happening to Americans. And what are their employers doing? Well, this is what they're doing. They're investing less in the United States. They actually are dropping the percentage of investment in the United States because it's going into China and into these other emerging economies. And you can't say that that's the wrong thing for them to do. We went over that. They've got to be in these countries. They've got to be there because of the consumption markets. They can't be foreclosed. They've got to meet their rivals. This is the one place where it's true that you need to battle them over there to make sure you're not battling them at home. So it's. You can't say to these firms, we don't want you investing there. But you can't fail to recognize it has significance back here at home. Now you could just say, well, you know, we'll just give up. That's for those who don't know. Not Bob Dylan, but. Oh, come on, the greatest songwriter of his generation, Leonard Cohen. But what are we going to do? How are we going to, as a country, address this problem? We could say, well, let's just wait for democracy to prevail and all those who have been left out will pass tax policies that will take the money from the rich and redistribute it. We could take the view. No, the people at the top, they're really going to do this. They're going to be the ones who vote in favor of creative destruction and social mobility and making sure that they lose their place at the top in a significant manner. In fact, the inability from the left or the right of the traditional political spectrum to find an answer is producing these kinds of things that sociologists are finding in the American society today authoritarian and at the same time, isolated, libertine and at the same time, more puritanical. Sociologists are having a lot of trouble with this. They don't understand what's happening in the culture. It seems that paradoxical traits are being witnessed by the people that they're interviewing. But this is the conclusion that they're drawing from that, that they can't find a sense of solidarity. A different way to say it is people don't all think that they're part of a middle class, which is the way Americans did think all the way up into roughly about within about 10 years ago, that started shifting. So which way are people going to vote? Are they going to vote to say, well, we're all in the same boat, or are they going to start voting in terms of difference? Lots of times people say, you know, Washington is too partisan, you know, and some people say, no, it needs to be partisan. They need to stand up for things. This isn't about Washington. That misses the whole point. This is about the culture. This is about what do people believe in? And do they believe in a commitment to a common future, or do people believe everyone's in it for themselves? What are we going to do here? You think the have nots are not going to be following Robin Hood policies? You think that the haves really are going to favor creative destruction? You think that if, if we have a society in which the top elite is living a life this different from everyone else, that they then will refrain from strangling the newborn businesses and the challenging businesses that they don't control in their crib? Well, we know this. We know that we're not quite at the stage where we can't make decisions. And we know what the decisions would be if we made them. They would be about productivity gains and they would be about how to expand entrepreneurship. And we know that it was in fact, the effort of entrepreneurs attacking incumbents that proved these lessons. We also know this. We have one of a great strength of the American economy is that about 10% of its 6 million businesses die every year, and about 10% are born every year. But a positive birth rate, more born than die, tells us that something positive is going on. And it won't surprise you if I tell you that the births exceeded the deaths by about 1 to 2% in the 1990s. And it might not surprise you that it's just a coincidence. Under the two Bush presidencies, the deaths have exceeded the birth rate in business. But when you read about firms consolidating, you're reading just one little story that's part of this larger and important macro story. So we know we want new companies to become big companies, and we want the old companies to have to react to this. And we know we need new firms to meet this competition. So we need to find ways to start talking about how to get these new firms and how to take another look at our culture of entrepreneurship. Aren't these the values that we want our culture to have? Don't we want it to be that people generally believe that for the sake of all Americans, there ought to be universal skill sets, universal access to skills. Everyone ought to be able to get these skills. And. And at the same time, we don't want to treat people as groups we want to have it be that the focus here is on individuals and that individuals are encouraged to take risks, not going down to the local government office to find out what the state planner tells them to do, but to take the risks on their own. Now, to do this, we can look at examples. We could look at the way the Internet was deregulated and opened as a matter of law and as a matter of technology. And we can ask ourselves, what about energy markets, the biggest vertically integrated markets in the world. The same company takes the oil and pumps it out of the ground and pumps it into your car at the other end of the distribution chain, Exxon Mobil, British Petroleum. Doesn't have to be that way. There's not any reason at all why there can't be a law that opens those markets to entrepreneurship and innovation at the generation level, at the transportation level, at the distribution level. Same thing in health care, where we have allowed over the last 20 years incredibly large companies that discourage competition and entrepreneurship. And it doesn't have to be that way. These are some of the laws that you'd want to pass if you'd want people to be encouraged to take risks in their own career. You'd want them to be able to carry a pension plan from job to job. You'd want them to not have to stay somewhere because the health plan exists instead of taking a risk and joining a firm that didn't have a health plan. So you'd want it to be guaranteed by the government. You wouldn't want to have it be that the United States has what it has today, which is the most expensive college education of any developed country in the world, on average. You'd want to have it be that it had the cheapest. You'd want to implement all these things not because you're taking to the rich and giving to everybody else, but because what you're trying to provide here is not a change in tax policy, but a cultural change where people feel in their career, yeah, take four, five, six, seven jobs, move from area to area, move not just geographically, but more importantly, move in your career choice, because you've got all this support and all these people telling you that's what we do here in America. This is a commonplace in Silicon Valley. It's. It is extremely unusual in the rest of the country. 40% mobility rate higher in Silicon Valley than in the rest of the United States. Let's talk about education. Economists rightly say everybody ought to focus on this, but our education conforms to a system. Why don't we in Fact, have it be that because no two people are alike, every single person ought to actually be taught differently. I'm not saying the curriculum should vary. Why don't we have it be that we have individualized testing about learning skills and learning Methods costs about $4,000 today to get these kinds of tests done on average, across the United States for any particular student. If it was done at scale, it could be $40. Let's talk about technology. We spend an immense amount of money on patent rights. We end up after hundreds of thousands of dollars of lawyer fees guaranteeing people a right to court. And then they get to pay millions of dollars in settling cases. This could be changed. It's a tremendous discouragement against entrepreneurship. It's a tremendous advantage for big companies. It's particularly true for pharmaceuticals. The patent process in pharmaceuticals discourages innovation and entrepreneurship because it is so complicated and expensive that the big firms run it. And then there's the leaders, the leaders in the country. Where do these leaders come from? It's easy to talk about the president and whoever it is beat them up. But do you want the leaders to be from big businesses or big institutions? Or do you want them to be from next door or from the local coffee shop? Leaders can come from position, power, CEO, president, ce, Senator. They can come from being able to control great wealth, or they can come from outside, or they can come from below. And they can use the powers of the Internet through association and through ideas to make their case. But wherever they come from, this much has to be part of the culture. They have to take responsibility. They have to be accountable for results. That's Leonard Cohen again. That's one of his songs. And we know that however this comes out, these architectures are going to be shaped and reshaped, and the culture is going to change. And we know that the American dream, the dream that has always been a beacon to the entire world, is exactly what's at stake. And that as we spin our new value proposition, our new system of values across the United States, across a whole different population from the one that we had even 10 years ago, we know that this part is true. It is within our capability to have the American dream live forever. It is not the case that there is something in science or in economics that says that the world cannot at all times always be made better in the future from what it was in the past. The exact opposite. It's also true that the American dream can disappear, but the whole world can live it. And we in the United States are privileged right now to have the greatest capability to make that possible for ourselves and for others. And so I'm talking to you about China and how it ought to impel us to act. But even if it did not exist, these would be the steps that ought to be taken, and they ought to be taken right away because we're at the very cusp of a period of change that the United States has never been seen before. We would rather not always have to live in China's shadow. We would like both countries and all other countries to move into the sunny uplands of the American dream, living forever. Thank you very much. I have all the. All the time in the world, but you all were so immensely patient that you should leave if you need to leave or talk if you wish to talk.

Questions? I have a question. What's your opinion on why this big change didn't happen in the former Soviet Union?

Which big changes have happened in China.

And the positive development?

You mean after the breakup? Well, my opinion is that the United States. The United States made a very big mistake, which is that it. The United States had a great deal of influence at a crucial time. And what it chose to do was to use that influence to seek security and to make sure that there were somewhere strong figures that could assure that we were not on the verge of having a diaspora of nuclear weapons or a, you know, an era of renegade behavior from a military perspective. And I think that it would have been wise and maybe possible if instead we had not to say we shouldn't have done that, but if we had added to it a tremendous emphasis on creating a climate for small businesses. But we didn't do that. I don't, you know, I mean, you know, about Russia. Correct me if you think I'm wrong, but my sense is that that was. What I just said was not part of our policy. What do you think?

I think that's a big part of it. I think the other big part of it is we forgot. We were so focused on breaking it up so that the. On the danger of totalitarianism that we forgot about the importance of actually having a government that put laws in place that could foster the small businesses which led to big businesses.

Right.

And exactly the kind of bad cycle that you described. Are you speaking about the US Making the mistake? I'm thinking more about why did China pull it off to find the right laws to have all kinds of companies throughout the world come to invest and then use their market when Russia or Soviet Union had a third of the population and so.

Well, I can offer you an Observation about China. After Mao Zedong died, the Chinese leadership felt that not right away, but within a very few years, they felt that the Soviet Union was in decline. And through the 80s, they felt it with increasing conviction. And they felt that the reason the Soviet Union was in decline is that the Soviet Union had not embraced economic growth. And they felt that without economic growth, what was happening in Moscow would happen in Beijing. So that, I think, is the explanation. I'm not alone in offering that view for the leadership, for the government leadership in China. I think that it was the case that the same belief system existed in many other outside of Beijing, in many regions in China, particularly around Hong Kong, where it was extremely obvious to everybody that capitalism was generating a great deal of economic growth one step away. And that shouldn't be too hard to emulate. I think that in the same time period in Russia, there was not the same vivid awareness of what seemed to be an adjacent market, and Taiwan had the same impact. So I think the coincidence, if you will, of these two enclaves of capitalism in the sphere of Chinese awareness and the object lesson of Moscow produced this change. I also think that it's not true that Beijing is in any sense organizing capitalism in China today. It's not true that the government is able to manage or control much of anything. The government controls the communications industry, banking. That's about it. After that, it's near chaos. And that works out pretty well. You know, from a business perspective. You asked a question, you alluded to education toward the end, in order to create more kind of an environment of entrepreneurship where people have the skills that they need, not only to engage in the workforce that exists, but to break into these new kind of brave new world industries that are smarter, faster type of thing. Who do you think should take the lead role in adjusting the public education system to create that type of environment? You know, I think that the. It's a complex answer. I don't think you can have a single national law that changes the complex education system in the United States. I think that a friend of mine has been the education secretary for Governor Schwarzenegger, and before that he was the head of the school district in San Diego. And I had breakfast with him earlier this week. I'll tell you what he told me. He said, if you bring enough money to the table, you can get the teachers unions to change. And he said, you have to bring the money and you have to do a deal, but you can, in fact, introduce a lot of changes. When we collaborated in the government to put the Internet in Every classroom in the United States. You know, when we put the money on the table, we got people to do deals with us. 87% of all classrooms in the United States have the Internet. Not schools, classrooms. And it's not an accident that 84% of all students under 16 in the United States are on the Internet when in fact, less than 60% of their households are on the Internet. You know, they're not. You know, they're not. They're not all at Starbucks. I mean, it is schools and libraries that are providing that training for that generation. We had to put the money on the table. You know, we could talk about this and beat up unions and beat up the power structure, but at the end of the day, you know, we need to spend more money wisely, not just throw it at it. And also, I don't think we have the right leadership in education. I think the goal ought to be that every child should be taught in the way that's ideal and optimal for that child, which means that you have to understand that child. You know how they talk about how we don't keep electronic records for healthcare. We don't keep education records. You know, you go to any public school in the United States and you find some kid in seventh grade and you say, well, how did they do in fifth grade? And no one has any idea. There's no record. But, you know, that's not the way you treat your own kids. Right? You want to know how they, you know, what's been happening over the years. So this is. This is science. I mean, we don't. We don't. We don't use information technology in education or healthcare.

Thank you.

Thanks a lot, everybody.

You know, this fellow.