Transcripts For CSPAN2 Makers And Takers 20161002

The head of the nra from colorado, thank you, ive got a book ive got to read. At least you have a legitimate, kindly way to say, dont bother me. You can watch this and other programs online at booktv. Org. [inaudible conversations] good afternoon, ladies and gentlemen, my name is heidi young, and im the director of Corporate Partnerships here at World Affairs. It is my pleasure to welcome you all here today. This program is part of the Global Business forum which is an initiative of World Affairs that focuses on topics at the nexus of commerce, technology, policy and society. We will be exploring topics along the lines of financial inclusion, future of medicine and the future of transportation in the fall, so i hope you will join us more those program for those programs as well. Today to learn more about the Global Business forum, please see us at worldaffairs. Org. Were pleased to have with us rana foroohar, author of the new book, makers and takers the rise of finance and the fall of american business. A bit of housekeeping first before we get started. Please take a few minutes or a moment to silence your cell phones and other noisemaking devices. Towards the end of the program, the last 1015 minutes of the program, we will be inviting audience members to ask questions. You can do this in two ways. There are blue question cards on your table. Please feel free to write your question on those cards, and well be World Affairs staff will be collecting them throughout the program. And as an alternative or in addition to, we will have this, we have the standing mic right in front of me, and so you are invite to ask your questions live at the mic. And we ask that you, to make your way to the mic, please walk around the back of the room given the camera setup that we have. We are recording for radio, for our future broadcast at World Affairs on kqed which airs on monday nights at 8 p. M. Cspan is also recording this program, and well be video recording for posting on our web site, worldaffairs. Org. Its my great pleasure to introduce tim oreilly, our moderator this afternoon, a partner of the Early Stage Venture Firm Oreilly Alpha tech ventures. Hes also on the boards of maker media which was spun out from oreilly media in 2012, code for america, peer j. Tim has a history of convening conversations that reshape the technology industry. If youve heard the term open Source Software or web 2. 0 or the Maker Movement or government as a platform or next economy, hes had a hand in framing each of these big ideas. His next economy summit which will be held here in San Francisco on october 10th and 13 19th covered 11th, covers many of the same themes well be discussing this afternoon. Please join me in welcoming tim oreilly who will introduce our speaker. [applause] good afternoon. Thanks for joining us. Im delighted to see you all here. And its now my pleasure to introduce todays guest. As heidi mentioned, ranas an assistant managing editor at time and is also cnns Global Economic analyst. Before joining time and cnn, she spent 13 years at newsweek as a Foreign Correspondent covering europe and the middle east. You can see her full bio in todays program flier. But shes also the author of this remarkable new book called makers and takers. I got a galley of this book, and i immediately contacted the publicist and said send me a box full of these things, because i want to spread them around to other people. I proceeded to pass it along to many of the leading lights of Silicon Valley. Its a really, really important book. And the subtitle, i think, really says a lot, the rise of finance and the decline of american business. Its very provocative but something that i think all of us need to be thinking about. Anyway, thank you for joining us, ra, this a. Rana. I just want to say thanks to tim, thanks to World Affairs. Being on the stage is quite an honor. Well, i like to say my reputation exceeds me. [laughter] so, rana, i had a line of questioning prepared, but brexit has really kind of which is very rell havent to this discussion relevant to this discussion has come to the forefront of the news. Brexit, donald trump, how are these things related to the rise of finance and the decline of business and, effect live effectively, the decline of the middle class . Yeah. Well, i think in some ways both the leave vote and Donald Trumps popularity are protest votes. Its not so much that the leave contingency in the u. K. , in my opinion, has the answers for how to deal with some of the economic challenges that are facing advanced economy like the u. K. , like the u. S. , many industrial countries in europe as well, but they are representing an antiestablishment movement in some ways. And one of the things i cover in my book is how the development of financial capitalism in our cup over 40 in our country over 40 years has been in some ways a closed conversation. Theres been rules that have been crafted, you know, by both parties, republicans and democrats, that have worked for some people, and i would argue a smaller and Smaller Group of people, but not for creating a kind of inclusive, sustainable Economic Growth and capitalism across the board. And to me, thats what brexit is all about. Im actually personally very sad about brexit. I was a Foreign Correspondent in europe for a number of years. Both my kids were born there. You know, i covered the beginning of the euro, and it was such an optimistic time. There was a feeling of coming together in economic unity, but there was always this sort of political hole at the center of europe. Europeans decided to not do the political integration that i think was necessary to to make the e. U. Sustainable and then when bad times came and you have the slow growth economy, i think that that tide pulls out, and you sort of get this feeling of people hunkering down and wanting to be a little bit more tribal. And i think thats what youre seeing there, and i think thats what youreing here in some youre seeing here in some cases. Lets unpack this a little bit for people who havent read your book. So lets talk a little bit about your fundamental notion about how financialization has changed the the shape of business. And, actually, lets start where you start your book. It opens with a fairly blistering indictment of apple under tim cook. Yep. And, you know, because we think of apple as this great, innovative company, to have them play a starring role in a book about whats gone wrong [laughter] is, perhaps, you know a little edgy . A little edgy. Right. Maybe talk a little bit, whats your beef there . [laughter] funny, my editor said that too. You sure you want to start with americas mostloved company . [laughter] im like, yeah, you know, why not . The reason i actually started with apple, id actually done a profile for time a few years ago on carl icahn, the big corporate raider activist investor. Thats a rebranding which i get into a little bit in the book as well, and he was, until quite recently, holding a fair bit of apple stock. And he was tweeting every few weeks telling tim cook, telling the the board of apple to do more Share Buybacks which many of you probably know when companies do Share Buybacks, it artificially decreasing decreases the number of shares on the market, but it doesnt actually change anything in the underlying corporate story. And its interesting because not just apple, but Many American companies historically tend to do Share Buybacks at the very top of the market. So when a stock has risen, when growth has happened and the company is at a turning point and they dont really have anything else in terms of their growth story to share to the public or to wall street, Share Buybacks are good to get a little more stock price hit. The problem was apple was issuing debt to do these Share Buybacks, and that in itself is a little bit ironic. Because you look at apple, one of the richest if not the Richest Companies in the world right now. Theyve got about 200 billion worth of cash sitting in Bank Accounts, many of them overseas in tax havens because they dont want to bring back the money to the u. S. And pay the higherthanaverage u. S. Corporate tax rate on it. We could go off on a tangent about whether thats really fair given that so much of what makes the iphone smart was actually adopted by the federal government, but ill leave that for another question or another panel. But it was a deep irony to me that heres this company that doesnt need any capital and yet is more involved in the Capital Markets than ever before. So over the last few years, apple has made promises to give back to investors in the form of Share Buyback and dividends am as much as it has sitting in Bank Accounts abroad. And thats because it can do these very low interest bond offerings, its very happy right now to do that in the u. S. Well, why is it is so cheap . Because we had a financial crisis in 2008, and because we had no real fiscal policy, and politicians were gridlocked and unable to come up with a real way to bolster the main street economy, the fed, the central bank, parachuted in, dumped a lot of money in the economy, kept rates very low, so corporations are can take on a lot of debt. Youve got the Richest Company in the World Holding more debt than ever before, paying out the wealthiest 10 of the pop laughs which owns population which owns about 80 of the stock rather than investing, as i think steve jobs might have done, in the big r d investment, in the blue sky invention thats really going to change the economy. And that, to me, is a good place to start exploring this trend of financialization. Well, theres another aspect of that which is, of course, you know, the apple devices are made in low wage countries as opposed to being made here with the argument that you have to do that in order to, you know, be competitive. And yet heres apple, you know, most Profitable Company in the world saying, well, if we, you know, dont lose low wage employers, if we actually did this in america, you know, we wouldnt be competitive. You know, youre starting to dissect the scene of a problem here which is that corporate profit is made sacrosanct above all else. Yes. And that goes back to something law professor lynn stout has called the shareholder value myth. You know, if you scratch, you know, any business person, theyll basically repeat this idea that boards have a fiduciary duty to enrich their shareholders. Turns out theres very little Legal Support for that, and boards and Company Officials have wide discretion to pursue social goals and to do to other things, you know, longterm strategy, and yet this doesnt happen. And really thats a lot of what you talk about in your book. Why. Can you kind of tell us why is it that people have kind of bought into this . So lynn stout is amazing. Shes a professor at cornell, and she actually did a big interview for the book and had some great stuff to say about this. Chapter three and four actually look at this issue, and this myth of shareholder value was part and parcel of whats called the Chicago School of economic thinking. It was sort of a markets know best, just focus on the share price and Everything Else will sort of follow, social good will follow from that kind of thinking. Im generalizing a little bit, but thats basically where Corporate America was over the last 40 years. And, you know, its not like there was one change point. Weve had a number of decades of small legislative, legal, regulatory changes that have created a system of incentives which now pushes any Public Corporation in these very, i think, shortterm directions towards outsourcing, towards job displacement, towards Financial Engineering rather than the real kind. And, you know, one of the reasons i wanted to write this book is ive been a business and economic journalist for 24 years now, and i would meet these really smart ceos and many times really good people, you know . They were doing philanthropy, and they were involved in their communities and, you know, i recognized them to be good people, but theyd be making these terrible shortterm Business Decisions that were basically all about maximizing share price and, you know, often times were devaluing Everything Else. They were devaluing their own workers, were not necessarily making decisions that were right for their Customer Base even and so were eroding the longterm potential market share of the company. And it was all down to shareholder value. And then i also had the perspective of having lived and worked a abroad and seen some of the molds in europe models in europe. I knew this was not the only way to do things. Until quite recently, i mean, this is a very nascent conversation still, people just thought this is how capitalism works. Shareholder capitalism, thats what you do. But its not what they do in germany, for example. Theres a model of stakeholder capitalism thats much more based around local ecosystems in which workers have a seat at the table, Civic Society and government officials have a seat at the table. Theres a shared conversation which, as i explain in my book, can really actually help corporations. One of the examples i get into is after the financial crisis the u. S. Manufacturing sector laid off a huge number of workers immediately. And germans did this a little differently. A lot of the german Manufacturing Companies near substitute guard had a different model. They put workers on furloughs, used the extra time to do retraining, upgrading of factories, basically pushing forward their own processes and upgrading them when there wasnt a lot of work to be had so that by the time the Global Economy started to recover in 2010 and china was coming back, the germans were ready to go. They were all up and running, and they grabbed a lot of market share from American Companies who had taken this much more short term, were just going to cut our capital costs, martial our capital at the expense of all else, and that turned out to be a bad decision in the long run. So lets bring this back around to brexit because, of course, part of what the brits were saying thiess the 50 of the at least the 50 of the brits or 50 president of those who voted, keep that in mind that we dont have enough people voting on these important issues [laughter] gotcha, yeah. But of this large poll effectively, 50 , slight majority said we want out from under this european model because we actually dont, you know, believe that the benefits of that model have been sufficient. And theres a couple of things there. One is the role of government perhaps overregulating. But theres also a real distrust of globalization. Yeah. Globalization is another piece of this story. And im really always of two minds about globalization because there is this very powerful narrative about Companies Using the cheapest labor they can find anywhere, and if they cant find cheap labor, their going to out theyre going to outsource to machines x. Effectively, people are a cost to be disposed of whenever possible. And thats clearly driving this populism. And yet theres another side of globalism which i see pointedly in our world many data, if youve ever seen the wonderful series of visualizationses out of oxford visualizations, you know, basically changes in world health and world poverty over time. Globalization clearly has brought up large segments of the world. And at the same time, it has actually depressed, you know, the incomes of many former people in middle incomes. And so it looks like we have a zero sum game, you know . Some people are getting worse so that others can get better. And yet, and yet i think the story is more complex than that. And what youve brought to it with this notion of, well, how much is going to corporate profits versus how much is going to workers is another piece of that narrative. Yeah. And how do we tell the story correctly so that we make the right economic prescriptions for our society . So its such a great question, and its such a a complicated topic. The thing that comes to mind is i had a conversation once with Howard Schultz who is one of the interestingly founderleaders, it tends to be founders, i think, that think more about or perhaps have more leeway to pursue goals beyond just share price. But we had a conversation about this very topic, and he kind of summed it in an interesting and pithy way. He said, look, were becoming a nation of latte makers and latte buyers, and i have to make sure theres more latte buyers because otherwise the math starts to not work. You know . And what hes saying is that in a economy like ours which is similar to most advanced economies where Consumer Spending makes up 70 of what happens, when people havent gotten a raise in real terms since the early 1990s and many working people aka, the trump voters, you know, particularly laidoff white men in the rust belt havent gotten a real raisins the 70s youve got a problem not just economically, but prettily as were seeing now. Politically. As were seeing now. How to get the wage share up, because you see if you divide the economic pie up into the prick sector, the corporate sector and labor, labor keeps shrinking, the corporate sector keeps getting bigger and bigger because of globalization. Not just because of globalization, because of choices true. Which is partly profit maximization. Thats true. And thats right. Im glad that you rephrased that for me. Global aitions one of the things that enables capital to flow where its, where it wants to which tends to be where its cheapest. Youre talking about yourself outsourcing to lowwage countries. Were at a Tipping Point for a variety of reasons. For starters, china is starting to have their own problems with jobs leaving their country. A lot of factory jobs are going to lower wage asian countries. Theres a sort of whole reevaluation of supply chains going on that i think will bring all this into question. But to me, its what policies are going to increase the wage share in a way thats sustainable and also support local ecosystems. I think thats where the action is. Yeah. I think this image of latte buyers and latte makers is fairly central, you know, to the shortterm thinking. You know, effectively when you take money and it goes to carl icahn, it comes out of the real economy. Right. My friend nicking nick hanna, one of the early investors in amazon, you know, im a rich guy, but im really clear that only customers create jobs. [laughter] if we dont pay people enough, they cant be our customers, and were all going to suffer. I can only sleep in one bed, i can only use one pillow. Yeah. I can take a certain number of vacations, more than an ordinary person, but i cant take a million times as many as an ordinary person. So theres this circular economy which is sort of part of the selfinterests part of what youre really putting your finger on is weve written the rules. And i love, by the way, a book i highly recommend for everyone is rewriting the rules. Joe stiglitz. Hes really put his finger on the notion that our city is not like the law of our economy is not like the law of gravity. There are economic laws, perhaps, but theres an awful lot of it that is tilted by rules that weve written for the economy. And those rules currently favor certain kinds of financial interests over, for example, labor. You know, the tax, the enough structure for corporate ceos. So maybe could you talk a little bit about, you know, the tradeoffs that we make when we sort of reward financialization over productive investment, when we reward financialization over, you know, hiring people who can also be customers. These are some of the kinds of tradeoffs you talk about in your book. Yeah, for sure. So stiglitzs book is amazing, and this plan that hes developed which was supported by the Roosevelt Institute is a bug part of the sort of backbone of my book. I get into some of the suggestions and the pivot points he talks about. One of the things that strikes me, and i have a whole chapter on this, is the way in which our tax code incentivizes behaviors that are not necessarily growing the main street economy. So, for example, tax code subsidizes debt in many ways, in ways that are not necessarily productive at both the consumer level and at the corporate level. So one example that i think most of us are familiar with is the mortgage interest Tax Deduction which im a huge beneficiary of. I live in a townhouse in brooklyn and, you know, get to write a lot of that off my taxes. But whats interesting is when you look at whos benefiting, its largely the middle and the upper classes from the vast bulk of the mortgage interest Tax Deduction. And it also has the other perverse effect because i can tell you housing prices would not be what they were if people werent able to write off all that debt on their taxes. So that has the effect of making it harder for younger people to get into the housing market, for example, which is still where the majority of americans keep their wealth. Same a true at the corporate level. Much, much easier to write off debt from your taxes than it is to say do something productive with your capital and 9 11 be and then be rewarded or incentivized for that investment. A so thats one example. I could go on, if you like. Yeah. It does bring up the whole question of, you know, who are the members of the financial class. Certainly, you know, historically, you know, the argument has been, well, this is, you know, the pensions of teachers and, you know, firefighters and, you know, you looked at that. But the pressures that come that lead to the shortterm thinking are not actually driven necessarily by those people. You talk a little bit about jack bogel and whats happened with Vanguard Index funds, and they dont have the same pressure that a managed fund has to outperform the market. Right. Because they say, no, we are the market. And so if you are, you know, an active, you know, fund, youre subject to the same kind of pressures of carl icahn where youre trying to actually maximize your shortterm profit this quarter so that youll get more investors, etc. , etc. So the Mutual Fund Industry actually fighting in some ways with the exception of the index funds, really fighting against the interests of its small shareholders yes. And to not to mention also charging extensive fees right. Talk about jack a little bit. So jack is awesome. Hes the founder of vanguard, and he was one of my primary sources on the book. As tim and i were talking about earlier, one of the things that was fascinating to me was when i was doing interviews for this book, many of the bankers and the financiers that spoke to me were interested and agreed with the thesis in the book tended to be older, in their 70s or even 80s, and they had seen the way the industry had changed. So they had seen a time when financiers were stewards of peoples money, you know . And banks were basically, you know, and Asset Managers took peoples money, banks took it, held it in the form of deposits and then lent it out to business. Thats kind of what adam smith imagined that capitalism should do. Im going to go astray and hen come back to Asset Managers. The killer stat in my book, by way, i think is based on some deep academic research. But over the last 40 years, that model has entirely changed. Only 15 of the money being held in u. S. Institutions now goes to business investment. So the rest of it is existing in this closed loop of trading, of bidding up of existing assets, all of which creates the kind of bubbles that weve seen pop over the last decade and makes it difficult to have a sustainable nonvolatile economy. So let me come back to jack bogel. So he started Vanguard Funds and, you know, like anybody in the Asset Management industry, saw quickly hardly any activelymanaged funds ever outperform the market. Its just, you know, once in a blue moon does it happen. And yet because most of us are in 401 k s, companies that we work for, Asset Management, by the way, is the Fastest Growing part of the financial industry. So we spend a lot of time in this country talking about too big to fail banks, but the action actually is in Asset Management. Thats where a lot of financial business is going. Its where the largest pool of money is. So bogel, whos a big believer in, you know, you put your money in an index fund and forget about it until youre 65 or 70 or whenever you need it, started crunching numbers and found that for the average person who is, has their retirement egg in an activelymanaged set of funds, pays those higherthanaverage fees and then deals with the lowerthanaverage returns, that will eat up between 3060 of your nest egg over your lifetime. So it is really a scandal, i think. And its something that policymakers are starting to talk about. Were starting to see push, as here in california, for staterun plans where folks that dont have access to investment vehicles can be put into noload index funds and so on and so forth. Theres also an argument to be made that, you know, Social Security should be strengthened. Its working. The private retirement system via activelymanaged funds is not working so well for most people. And ill just make one more statement which is that whats interesting is as so many aspects, as with so many aspects of the rise of finance, its as though the head of the snake is beginning to eat the tail. Asset managers themselves and Pension Fund Managers are starting to become panicked because they know were entering a period of lowerthanaverage returns. In my mind, thats because weve had a very financialized kind of growth, a faux growth over the last 40 years as opposed to real growth. And so returns are going to be lower than were expected and were promised to many retirees. Retirees were made promises of 8 returns, theyre going to be lucky to get 4, and theres going to be political backlash against all that. Yeah, you know, its very interesting because there was a real opportunity with low rates. I still remember hearing a Larry Summers rant when he was [laughter] which one . Saying if there was ever a time to invest in public infrastructure, you know, this was right after 2008, he says we have all these people out of work. You know, we have zero Interest Rates, effectively, why would you not do all this work now . And instead, we took those low Interest Rates and used them simply to reinflate the bubble of the trading economy which, as you point out, has supplanted real investment. You know, the original role of the Financial Sector was to support the real economy. Yep. And instead its become this bubble economy where, basically, theres a giant casino where theres more money to be made simply, you know, betting or taking a, skimming the spread yes. In, you know, in the Financial Markets rather than reinvesting in a real business. Yeah, for sure. So what do we do about this . What are some of the concrete recommendations [laughter] that you would make . Bleak enough for you yet . Were going to move into the solutions portion now. Well, so i have a Solutions Chapter in my book, but theres a broad array of conversations going on. Youre leading some of them. I would start, and i do start in my book, with i think that we need to the first thing we need to do is to change the narrative. There is the still a narrative in east coast policy making circles, in washington, in the treasury department, is certainly on wall street that the Financial Markets are the center of everything, that they really are the most important aspect of the economy, and its the sort of got a that save the banks gotta save the banks to save the real economy sort of argument. Well, i would flip it and say the Financial Markets, Financial Services and i stress the Word Services are meant to serve other industries. And one of the things i do in my book is to try and lay out all the tension points that exist now between finance and real businesses because whats happened is that not only has the Financial Sector changed its Business Model in such a way that its no longer supporting actual industry, in many cases its competing with industry. So if i can speak for just a moment, one of the chapters in my book, i believe its chapter six, is on commodities prices and how volatile theyve become because banks have gotten into the business of owning actual physical commodities. So, for example, that used to be illegal for Goldman Sachs to own half of the worlds aluminum as they recent hi did. You guys might have read the wonderful front page New York Times story from about three years ago. Goldman had cornered the worlds aluminum market, and there are rules out will to prevent people from hoarding materials that, you know, we need for basic businesses to create products and machines. In the case of wheat or rice or grain, to actually feed ourselves. You have to move those products in and out of warehouses every so often, and thats supposed to help us get around hoarding. Well, goldman was putting it on a forklift and moving it from one side of the room to the other. So they were getting around the rules that way. It drove up the price of aluminum wildly which hurts coke, coors, anybody who has to make aluminum cans. It also means you were paying more for your sixpack and your drinks. Thats a fairly mild example. I had a conversation with a woman who used to run the World Food Program, and she used to go around to places like davos where the big wigs hang out and talk about stuff. And she had a little red cup that she would take with her, and that cup held a days worth of grain that would be delivered via the World Food Program to hungry children. And she would stand in front of people, and she would say this was right around 2009, 2010 when commodities prices had spiked and she would say this is how much grain i can give each child around the world every day, and then she would pour out half of it. Thats how much i can give now because the cost has gone up so much, and its gone up because traders which now represent 30 of the commodities markets are driving those food prices up. So thats a very visceral example of how you have a Financial System that isnt just its not just not lending, its actively not supporting and degrading real business and society. And so weve got to change those things. Yeah. So thats really are, i think, that story is in a nutshell, we have a Financial Market that in many ways has become hostile to the real economy and that we need to reverse that. And i think it starts, i think you outline it certainly requires perhaps some new financial regulation, but it also starts with sort of a change in some of the incentives for corporate executives. It requires changes in the tax code. Are we going to get there . I think were starting to get there. Ill continue with this commodities example because its an interesting one. Thats real lowhanging fruit. The fed actually has the ability to change the rules that would allow banks to do those kinds of activities. They could simply say, you know what . Goldman sachs, you have no reason to be in the aluminum market. Forget it. You just cant own aluminum anymore. And they havent done that. Well, why havent they done that . I think under janet yellen you might start to see the fed become a little bit more active in its Regulatory Oversight role of banks. And it doesnt mean coming up with complicated new rules, it just means in some cases looking at all the activities the Financial Institutions are doing and saying, objection, that has social value a ya okay, that has social value, that doesnt. And i think the tax code is low fruit as well. Its politically contentious because theres so much lobbying from different special Interest Groups and that gets to the idea of Money Politics which is behind so much of this. One of the reasons that i wrote this book and this is the authors note that i put in the very front of the book is i was just stunned post2008 by how much power financial industry and how much money they were throwing at slicing up all the new rules, the doddfrank rules that were supposed to kind of reregulate the system. And it was so perverse because not only dud it make it difficult to did it make it difficult to implement some of the good rules, but it created a lot of complexity that made the regulation itself start to be onerous and something that neither side of the political aisle was happy about. So i had a conversation, by was in 2013 i was sitting in an offtherecord conversation with a former obamaed Administration Official that had been very involved in the bailouts. And we were having this conversation over money and washington and the lobbying power of the big banks, and i said do you think this has made it difficult to get doddfrank to work properly . Is it going to help . He said, oh, yeah, we got done what we needed to get done. And i said i just did a column looking at public records that showed 93 of all the meetings were done with the largest banks themselves, so how can you say its unbiased . And he looked at me with real confusion and said, well, who else should we have been talking to . [laughter] and i just thought, oh, my god. Wow. This was the other thing, a few nonfinancial beat reporters in the room which was telling because the medias been part of this. One of the reasons story didnt get reported well is that financial appropriators have to go reporters have to go back to this well again and again and again. If they piss somebody off, they may not get their story the next day. So its all this very vicious cycle. Yeah. So, obviously, were in a different political environment today. Do you think that, first of all, you know, bernie, Elizabeth Warren and then on the other side donald trump here in this country. Speaking with varying degrees of insight and intelligence. [laughter] that thats charitable. [laughter] yeah. But do you think this actually, you know, you say, well and then on the european side, you know, brexit actually came out in the opposite way that the elites expected. Yeah. Does this change policy . Does it make people more receptive, or do they just say, ah, we dodged a bullet, you knowsome. Yeah. Well, its really interesting. I moon, the reaction i mean, the reaction just over the the last three days in england where you see even some of the people like boris johnson, for example, in you know, a conservative in the u. K. Who was very proleave, suddenly sort of being like, whoa, okay. Maybe this isnt such a good idea, stepping back, thinking a little bit about what this would mean economically. I think its very possible that you might have a coolingout period, a new election, and if there were then a clear, clear mandate, a democratic mandate a proe. U. Leader and a proe. U. Government came in, you might have another vote that could go the oh way, and i think the other way, and i think that could be politically acceptable. Right. The question that im trying to get to though is, you know, brexit was a very crude tool yeah. To get across the message that, you know, for a class of people saying the economy may be working for you guys and it may be working for big companies, but its not working for ordinary people. Yeah. And, you know, the appeal of bernie most certainly has been around that issue and, you know, trump with a lot of other things mixed in. Yeah. Has also, you know, played on that message. And, you know, we have seems to me that we have one path where we feed that in all the worst ways which, you know, we have been seeing, and theres another path in which, you know, policymakers say, oh, actually, you know, there really starting to be a real problem here thats being highlighted. Yeah. Were going to we have to start thinking about how were going to deal with it. Yeah. Do you see any signs of that, or is it just like, well, weve got to contain this and get things back where they were, and itll all be okay. I feel like im starting to see nascent signs. I was very worried early on in the campaign about how Hillary Clinton seemed to be saying we just need to get back to the 90s, im going to put bill in charge, everythings going to be fine. That, to me [laughter] right. That, to me, was the kind of attitude that canning sometimes provoke anger that can sometimes provoke anger in the part of the population that have suffered from globalization and financialization. And then you began to get a population that feels not understood, not listened to, ignored. In recent weeks i think its been interesting, her last couple of economic speeches she did not say the 90s were great, she did not say im going to put bill in charge. She did start to actually break with even some of the Obama Policies which i think is not a bad thing for her to do, because i think she needs to if she wants to have a chance as an establishment politician and we know how establishment politicians everywhere are under a lot of pressure and that theres a trust gap i think she needs to really stake out a clear message and say, as you just did, globalization has increased prosperity at a global level, it has increased in many ways at a martial level, but there have been winners and losers in this process, and we need to make sure we retrain and compensate and come up with ways to take care of the people who have not fared as well in this process. I think getting Elizabeth Warren onboard too is an interesting thing to do. You need people to be able to speak clearly and authentically to those that have felt hurt by this process. So i think those are a couple of nays sent, potentially positive signs. Yeah. How about europe . Any movement there . Well, europe is going to depend on whether the continent takes how the continent takes this message. To me, so i covered europe for ten years. This idea that you could have a Currency Union without a real political union, i think, was always fragile because it works if good times, but the minute theres a downturn and countries need to be able to devalue or need to be able to have different fiscal and currency policies to be competitive in their own ways, the whole thing starts to fall apart, and thats exactly what youve seen in the last few years with the european debt crisis. The germans have done great because theyre sort of like the china of europe. They prosper at the expense of other nations, and then eventually as the peripheral nations become weaker and weaker and cant buy their stuff, they also start to have a problem with their economy. So i think, ultimately, europe will need to have a true fiscal political union, a kind of a United States of europe really to make it viable and to make the debt crisis go away. How many countries will want to be in that then becomes the question. Yeah. Because i think you can make the argument that the european projecting project became too ambitious in terms of the number of countries that were brought and in and just the huge cultural ditches. Even just getting the germans and friend onboard french onboard was no easy task. So let me turn a little bit towards technology and its role in all of this. Yeah. Obviously, this is something i focus on this, its the focus of my next economy summit that im working on. Theres a lot of concern that technology is going to take over where financialization left off, you know, and that Silicon Valley is going to be the next wall street, effectively, where, you know, the target of populist hatred, weve already seen it, the blowback against, you know, companies that really think of themselves as, wow, were the good guys. [laughter] were really trying to do good in the world and yet you look at, you know, the attacks about gentrification in San Francisco real estate prices and then even things, you know, like the risk of, for example, the latest being selfdriving cars. You had this great demo like a couple years ago we delivered flu shots. Once youve selfdriving cars, what will those cars be delivering . They could deliver all kinds of new services. Deliver Better Service to more people because that seems to me to be the heart of the challenge we face, this real economy challenge to talk about the real economy versus the financial economy. In the real economy when we put people out of work with machines, the Industrial Revolution we save we took them off the farm. We created this enormous new consumer goods market that didnt exist. People used to own one or two suits of clothes and now at least in the developed world many, many. Becomes a fashion and create an economy built on top of industrial economy. We also did things that were impossible. You spoke to those people in Industrial Revolution and said we are going to use the machines in dig a tunnel over to france, they would have been just oh, my gosh. What are the things we should be working on as a society . If we were to invest in a real economy, any prognostications about what we should be investing in . This is such a rich topic of what you know much more than i do but i will make a few comments. Definitely until pretty recently i had been very worried as all of that was in Silicon Valley which is going to pick right up from wall street. Because in part the biggest firms, apple, google, are not able to act in some ways like banks. In addition to just barbecued sums of money they also and read Corporate Bonds. They have so much cash on the Balance Sheet that is not being invested that they can go by a 50 of whatever new Corporate Bond offering is happening. So there is literally financialization of goering amongst some of the top firms. We know also that if you look at market share, this generation of tech firms creates fewer jobs competitively to market share than even the older generation, microsoft, ibm and serve much do they like gm, ge, so that is that downward trend. But i become really interested, i read this book by a british author called postcapitalism and it was a bit about financialization but it also had a relatively optimistic the about the possibility of Digital Technology to empower labor in the almost postmarxist away by making it possible for labor to have some the benefits of capital. You and i talked about this recently. I just did a piece on platform cooperatives that are springing up. Cooperatives have been big as a Business Model in the Agriculture Sector for some time. Its when groups of farmers come together like ocean spray, is actually, its not a typical company. Its a cooperative, a collective of 750 farmers who simply have kind of a company that lays on top of their organization that manufacturers and brands and sells the product. They are able to get a much greater wealth share than they would have working on their own and theyre able to charge about 45 a bushel for the cranberries versus the going price of 50 because of those economies to steal. Back to work i think in many ways into digital economy. You all received many cities in austin and described disgruntled over drivers going out of strength or own platform. I think this idea of going back to labor share, helping, technology helping of hard labor in way labor can take more of a chunk of wealth could be quite profound. We have to get the rules right. We need things like portable benefits. We need the government to create a framework that will make this happen in a way that is doable. We are running to the point of time where we would like to questions from the audience. We have been collecting questions on cards, but we also have opened up for the microphones. Lease, if you come to the microphone, go around to the back. That would be love your tie. I also want to get to the cards. Why dont you start a . My name is peter. Ive been interested in the subject. My question is about values and Media Coverage priority. Time did this come in an election, would like to see time to a similar article bishop focus on the congress. The reason why this both Defense Department bills in the house and the senate have passed resolutions to set up a commission. Auspices of the Defense Department. The senate is through Public Commission to look at National Service. The House Armed Service committee passed the resolution to include women in the registration process but the chair been removed that from the bill and the Senate Overwhelmingly passed a tendency. Now in july 2 of the joint committee to decide how theyre going to resolve those. I think time should help them resolve those issues. Could you point to the camera, and issue, this camera back there as well, its a cover issued by National Service. From 2007. We have copies of the Commission Online for your. Great. Thank you so much i love that cover. My old boss was there begun National Service and he works in government now. You mentioned briefly about coverage priorities. We are actually trying to go forward to do National Agenda type coverage issues. My book was actually excerpted in a piece questioning the future of capitalism and were trying to put together a series of the cover stories that look at the agenda at the next president and the next government should take on. We are on that and i thank you for the suggestion. I will attest to the fact theres a lot of work going on in first think tanks and so on as well. People working this guy was part of a commission on the future of economy. Reproducible called americas moment. A lot of work going on in the Aspen Institute and the Roosevelt Institute, new america. Its clear to every part of the discussion but specifically to point about National Service, i think its a really good question. I had a somewhat different perspective on that yesterday. I spoke with a man who is a former Financial Trader actually but is also clearly ask military. He was talking about the competitive spirit among Financial Traders which is sort of a way i had not thought about it. He said this is like the big leagues board. Every day you go to work and or someone else that there is trying to take all your money. And the kind of people who are very, very competitive. I have this flash can look at this guy, you are clearly ask military. Any connection . He said yes. Anthony benna path of the class of activities that we dont really have a channel four in our society. You think about the competitiveness of sports, the competitiveness of mini games, the competitiveness of business. I said i wonder actually if theres a connection, for example, in israel where Compulsory Military Service and theres a very entrepreneurial culture where they found a way to take young people, take that energy and then marry it with discipline so that then again, there could be some real benefits doing a National Service program that was universal and maybe even compulsory. You are shaking your head. You dont like to compulsory. No, but its interesting, i take your point. I get into this in the book. The brain drain to wall street because thats what the competition has been has been really profound. I had a friend who was a french mathematician who i thought about going into industry to develop green engines and end up doing kind of 12 dimensional algorithmic models for highfrequency trading house. Somehow if we could follow this talent and is striving to more productive areas. I can also give you a counter story of a friend who was wall street who left that job to take a job, and energy startup. This is a company that was started by my fellow was later was acquired by google. They do High Altitude wind energy. Is recently wanted to do it, he said the math is harder. So there is this our math is harder. I do think, for example, theres a big driver in Silicon Valley. People want a good do things that are hard. When i think about the next economy and the kind of leadership thats missing from our political discourse, it should be a lot more about things that are hard and necessary. We have inspirational moments. We see retired Business Leaders like bill gates saying we will go tackle malaria. Thats hard. You know . Over elon musk say we will go to mars. We were totally rethink transportation. Thats one of the really ip things that Silicon Valley is some of the big think. We need more big think across the board i think of how do we take all of this reservoir of talent . Had result thinking people as a cost and start thinking of them as an asset that we can deploy to do something useful that needs doing that must be done. Back to me is a big part of this. So we stop putting so much money into the casino and start taking it back towards productive investment. Because its going to require productive excitement, productive investments that excite people. When they were think were going to put a canal through the business of animal, that was like a Huge Investment businesslike hard, day, going to make the world richard. I do think that a big part of what we needed, that vision of how most we could spend that money besides just playing in the Financial Services casino. I did, i will say one thing, ill just say quickly i did an interview with the head of aetna and get a statement, he was saying Business Schools, he cant find we needs from Business Schools because it always teach leaders to marshal the capital and ignore human, but thats the cost rather than as a. He thinks it needs be shifted over into the asset part of the ledger and that you spend more on that and it is an asset that growth. I think a lot of Business Leaders feel that way. I have two more questions before we get to you. Once is to what extent has a stared and supplyside theory contribute to brexit post recession stagnation . So austerity. Key point. The second which is also about brexit on its is millennials were not supported in general of brexit. So how do you see millennials shaping the future of the eu . I will extend that out for the two just this whole question of shaping the future comic. Quickly on a stared at the i think was mistake. We can all see that now. Widely agreed to be a mistake. The European Crisis was a debt crisis and people needed to get, countries need to get their Balance Sheets in order but austerity in a recession, thats keynesian economics 101. You dont do that. The problem was, i was in germany during the debt crisis so i was reading the papers and during that debate. There is a strong sense in germany which is determined to have to get on board with that disgusting this program, otherwise the what theyre going to happen. There was a strong feeling in germany that he had the way, that theyve done the hard lifting, they got th the Balance Sheets in order and why shouldnt everybody else do the same . Italy and greece should get their act together and be more german. The problem is everybody cant be chairman because then theres no one to buy stuff, you know . That honestly its almost a moral issue amongst germans. To be fair its interesting because it dovetails with us i guess takeover versus shareholder capitalism. They do have some amazing corporations that are just models of how you want to run a corporation. The problem is if it aint macro level . Never not everybody can be exported. This goes back to think that the real political integration 12 wealth transfer the same way we do, the same way california sports mississippi sometimes in order to resolve the debt crisis. Insurance millennials, that is the big question. I just dont have the uk can stay for ever out of europe when the entire young population sees its future within europe. One of the issues that will be interesting, in spain, greece, italy year doubledigit youth unemployment. Youve got a group of very angry disenfranchised young people. Thats a tinderbox and i dont know how thats going to play out. The one question i have is when the selfinterest takeover and Companies Start realizing they have to invest in the local economies, as opposed to just optimizing for one thing . So over to you. In my name is austin, im an internet World Affairs and study economics so this is been really inspiring talk for me. Especially which is said about shaping the future come and how much we need to change it for a variety of reasons but im interested in if i middle economics and i think that could possibly be the big hard thing in the future. My question was more about do you think its possible to restructure our economy in such a way to handle a lot of the problems youve been talking about with labor force and basically any quality as well as handle some of the environmental challenges . I did something that comes to mind is platform cooperatives that would link up to smart energy grids. You could sort of come on sure there must be people in california already doing this done not aware of, but you could imagine everybody paying into an energy grid and then having sharing of resources, that being run by cooperative companies where labor was owned a larger chunk of the firm. I think theres tremendous possibility. A green Moonshot Program is the fastest way to deal with any number of things, climate change, job creation. Joe stiglitz a commitment a lot about this as have many others. One the issues, it has big global effort but china is increasing on board with this. There is late recognize environmental degradation is probably the biggest medium to longterm economic that they have so im optimistic about the possibility of collaboration with china on that. I had that same thought. Maybe i changed the rest of us from the wtf economy. Because we are going to do with it at some point and it will actually soak up a lot of capitalism. Exactly. Thank you. It looks like we have someone else coming up. My apologies for not having a colorful guy. Tie. Given to brexit was a crude instrument to put a point across, isnt donald trump symbol of a crude, way of getting our point across and how can we avoid that . Oh, boy. Yes, in a word, yes. You know, i think, i think that donald trump, to a lesser extent bernie sanders, just exemplify this frustration with political elite. Unfortunately, in the case of trump, i would just say, some of looks at economic are good i will see anything in his economic plans that would address into the problems weve just been talking about. In fact, it is kind of trickledown on steroids really. Its about tax cuts, no spending cuts, sort of a dash or two of populism around cutting loopholes for hedge funders to sort of please his voter base your but theres nothing that addresses these challenges. Hillary as this sounds a candidate, im hoping will continue to put forward as she did a couple weeks ago intersect economic speech a vision that really connects some of these gods, talks about the labor share, talks about the importance of stakeholder versus shareholder capitalism. She made an announcement i believe today, i havent looked closely at it, about making college debtfree for onto plan was, people who can go and create business. Thats another interesting were connecting the dots between education, the cost of education and entrepreneurial and economy. Hoping for more that so people can get excited about a future agenda. I think theres an interesting part of this entrepreneurial narrative, which is so dominated by Silicon Valley and big scalable companies. When, in fact, what we really need more of our Small Businesses that are part of a community and the people want to own for a long time. Because there is a financialization narrative in Silicon Valley as well, where the objective is really to exit which turns into a financial play as opposed to the Great Companies that, of course, be become operating companies that continue to deliver value and service in the real economy. But a huge amount of enthusiasm in Silicon Valley is again, its another flavor of the financialization game. I totally agree. Do we have another questioner . Then we will have to wrap up. You brought up the issue of money thats overseas with all these corporations and read about all the proposals. Do you have a recommendation about how it should be handled by the United States . A lot of people are calling for kind of a one time exemption to bring back some cash. We actually tried that in 2004 20042005. Cash get you back but the majority did not go into capital investment. It when you can Share Buybacks. Ive talked to tax experts is a it would be very but hard to craft rules for an exemption where you could track, yes, this is being put into retraining workers or this is being put into new r d spending. Its very difficult and cumbersome to do that or i o hra and for a somewhat lower Corporate Tax rate but all the polls close, make it more competitive internationally, shut down the loopholes, shut down the perverse incentives for debt. But it dont want an extension to bring back overseas cash is a good idea. Could you just spell out whats not competitive about our current tax code . Its about a 35 rate right now which is far higher than the oecd average. The problem is theres so many loopholes and its so huge and complex that the majority of S P Companies pay about 20 . The army, particularly in technology and Financial Services which a basic ip driven businesses, and you can relocate ip were ever that pay 12, 13 tax rate. Its not as if anybody is paying the 35 , but i think a much healthier way to deal with this would not create jobs for tons of tax or to jump in the loopholes of the with the rate, close the loopholes and get everyone thing what is a fair and globally appropriate standard for a rich country. I think thats a really good point. So there was a lot of discussion about tax avoidance has played well, for example, in the greek economy. It is one of those factors that we kind of look the other way and dont address. I think your absolute right that a more for tax policy is also perceived as fair will have a big influence on all of these issues. We are just about wrapped up, is that correct . Yes. Okay, thank you very, very much, rana. I hope it would else enjoyed this as much as i have. [applause] [inaudible conversations] heres a look at the fina