Free cspan radio apps. A conversation with Donald Trumps former National Security adviser hr mcmaster and bridgewater ceo David Mccormick, talked about the us economy and National Security hosted by the hoover institute. Welcome to the inaugural episode of statecraft innovation and leadership and we are fortunate to have with us David Mccormick, ceo of Bridgewater Associates responsible for overseeing strategy, governance and operation. David joined bridgewater in 2009, previously served as president and coceo of the forthcoming ceo this year, before joining bridgewater david with u. S. Treasury undersecretary for International Affairs in the george w. Bush administration during the Global Financial crisis and prior to that served a senior post on the National Security council and the department of commerce. From 19992005, david was the Technology Entrepreneur serving as ceo and president of publicly traded software companies, free markets inc. And prior to that was a consultant at mckinsey and can become a graduate of the United States military a company at west point and phd from Woodrow Wilson school of International Affairs at princeton university. He is an army officer and veteran, soldier, statesman, and scholar. He is the offer of the recent paper. And statecraft, with james cunningham. It is an important idea. And, and the associated, and you have a unique combination of vantage points over the past decades. And, the ceo of bridgewater. What motivated you to write this paper, to renew and sustain economic power now. It is honor to be here at hoover and it has been something im thinking about for some years. It came out of my time in the government, the National Security team, different roles in the white house and the treasury and so forth. Over time as i reflected on the changes in the world and the design of our government, questioning with the United States is set up for success, and the number of trends questioning whether america had a strategy for maintaining its Economic Life which is tied to its National Security strategy which says that you wrote that it is National Security. Those trends and technology that winner take all technology offered Huge National advantage, and National Security benefits. The economic interdependences of the global economy, we see that with the interdependence and supply chain. The ubiquity and challenges corrected by cyberspace we see, some most of what was on their mind was the rise of china which is a significant force in the world. As i started to reflect on that, it became clear to me, china in particular, a strategy for primacy and leadership in the world and integration of National Security, it would not feel like the United States did. What the policy agenda should be and how the government might be organized to be more effective. In this competition, real emphasis on supporting that model and advancing their interests. What i liked about your paper is what youve done is try to preserve competitive advantages. And the vulnerabilities and weaknesses the Chinese Communist party is exploiting. These summarize how to build and apply economic power as a key element of Foreign Policy and strategy, part of these three pillars that are very useful, we want to ensure we remain competitive as you put it. And with economic circumstances. There are at various times many have predicted the decline. When i think about the question of National Power there are many dimensions which i dont touch on, military power, the power of our ideals but i did focus of paper i did with my colleagues on the intersection of Economic Security and National Security emanating from my own experience and there are three pillars that were most important, the notion of innovation policy, emerging technologies are creating unique winner take all advantages, 5g is a good example of that. The implication of it being the infrastructure platform for a National Security perspective but thats not the only area. Quantum science, ai, a number of technologies which are crucial to economic might, but give enormous National Security and military advantage. The notion of dual use technologies is no longer a relevant way to think about it. Developing innovation policies that ensure the United States have appropriate funding and support technology in these areas, that raises lots of questions, was an important part of the strategy. The second part of the strategy closely integrated with the first is the notion of economic statecraft, in particular the idea of bringing together various aspects of our economic policies that touch on National Security, invest in policy, export control policy, the policies that affect how we invest in and give access to a Core Technology need to be closely integrated and thought about. There is new legislation being implemented but by and large those policies are much outdated and they need a more holistic view in terms of how we view those policies engaging with the rest of the world. The third part is the notion of key allies in innovation policy, how we think about investment policy and export control. This is a game where we are not going to be successful if we isolate ourselves it is highly dependent on trusted alliances, they will be concentric circles where the closest allies have unbelievably tight sharing and on the other end we have significant trading relations around the world that including china. The idea is not to stop being a free Market Driven country but more nuanced how we think about National Security and economic might. This isnt just a government problem. It is a government and private sector problem. We have to Work Together on this. We are here, hoover is here you are here virtually right now in the heart of innovation in Silicon Valley and a program here at hoover called tech track dialogue, we have formed a venue for industry to come together with top government officials, the department of defense, it has been eyeopening for both sides. On this innovation pillars the innovation model has changed over the last couple decades. Can you comment on why it is important for the private sector to be as involved as government in innovating in these technologies . They apply to their military civilian Fusion Program and made in china 2025 program. How do we Work Together better across the public and private sector to compete more effectively . One of the great historical and presentday advantages of the United States is the enormous dynamism of Capital Markets and our companies and tech leaders so the enormous innovation coming out of there is at the core of americas competitiveness. The most important thing in many ways is to get out of the way and let those companies do the things they do and the American People in us economy is the beneficiary of that. The private sector is at the core of innovation more broadly. What the government can do in that case is make sure ultimately there is no overregulation that stand in the way of that innovation, support immigration of highly skilled individuals with the appropriate caveats around protecting them on the National Security side which we can talk about if you like but those immigrants, skilled immigrants have been a great source of dynamism for the tech sector and that is one of the areas the tech sector is most in need of Government Support. The thing i am talking about which is uncharacteristically and something i wrestled with as i thought about the world as it is, not as i wish it would be. This new generation of technologies have some disproportionate advantage to the winners at the National Level, not just the corporate level but the National Level and we see that playing out in real time with china in particular, our current model, we need to not take away from current models of innovation but to add to it in the following way. Im advocating a much more significant increase in federal r d funding, if you look at the Tech Leadership around the country they would advocate the same thing. In relative terms our investment on the National Level, it has declined by half over the last 50 years. Theres an opportunity to bring that level of investment back. The second thing i am arguing for is to have Government Support and Government Investment in critical technologies, particularly helping Companies Reach scale, they are of such strategic value, a set of principles can be applied that ensure government capital in a way that can bring Real National advantage. These are typically sectors where there are heavy capital subsidies, sectors which give enormous strategic advantage, ai as an example and where the benefits of winning or having leadership are of such strategic significance that we said we cant ignore the competitive landscape. The final point on this am a to do that well, you have to be principles and careful but this area opens up all the risk of politicization and bad Capital Allocation and corruption. To carefully manage, and it has to introduce freemarket principles and there are ways to do that where the private and Public Sector partner in ways that ease the flow of capital into these areas but also have privatesector dynamics. A good example of that is a fund for Artificial Intelligence where the government takes first loss and has limited castes upside. It makes that investment more attractive, attracting private capital. There is a world on the current course, current trajectory that we have done what weve done for the past 10 years, there is so much more we should have done to ensure that we are competitive in this new world. My colleagues wont let me allow you to get off easily on this particular topic. Where do you draw the line and what safeguards you put in place to make sure we dont create incentives that lead to waste of investments or any efficiency and so forth. Hoover is where Milton Friedman for many years hung his hat, very testing was Nobel Laureate and quotation that when talking about this, the concerns it might raise about the prison industrial policy, what is mccormick proposing here . Thanks. Thats a question that is both appropriate and what that ive wrestled with an adult think i have all the answers, just to start with. If i go back to 20072008 timeframe, and i think about my experience in a negotiating through the Strategic Dialogue with the chinese but this is a point of making far beyond the chinese. And i thought about our freemarket agenda, open markets agenda, are policies and even our innovation policies. And a look at the world as it is evolved in the last decade plus, whats true is were in a whole new environment and whole new world. And i think having the wisdom to test ideological thresholds is necessary to be able to be effective and compete in this new world. So i would almost turn the question around a little bit and say theres a world where Technology Leadership is giving outsized National Power and advantage. On the current course its indisputable that Technology Leadership is likely to emerge in many of these key technologies already has in china but also in other places. How do we confront that National Challenge in terms of preserving and building on our own Economic Vitality without sacrificing or undermining their principles that have made our economy so successful . Thats what i come into this debate, recognizing that the risk of government overreach is significant, the risk of misallocation of capital is significant. The only way i can think about doing that is through some sort of principlebased approach and thinking that would help guide a number of key decisionmakers to make quality decisions. I experienced that to a large degree in the cfius process, thus that is a cfius process is perfect and doesnt all sorts of significant issues but that is a process that brings the government together to review investment policies, all the risk of corruption and misallocation and politicization and so forth. And for the most part that process works with a lot of integrity. This process would have a lot more at stake and have a lot more risk but there are examples where the government has been very effective at partnering with key partners that it made huge strategic advantage. Let me just point to two, along a a significant relationship with the government Silicon Valley as you know, and the commitment from the government has allowed him to prosper. The second is spacex or longterm incentives and longterm support has allowed a real breakthrough in commercial space travel which will be of great advantage to the United States. So i think your economist friends at hoover has every right to press, to be concerned, to be skeptical at a think that skepticism will hopefully lead to good thoughtful debate. But my character that would be like to imagine the alternative, which is current course and a think thats an unacceptable set of possible outcomes. Thats how im wrestling with this. Theres a lot of continuity to it that you want to propose. Think back to some of the darker projects, arpanet, the components of the iphone that they were spun into the civilian economy. Whats. Whats interesting is your saint innovation model now, these technologies are developed in large measure in the private sector and they already have military and National Security implications not to mention the implications for who is going to be at the proponent position composition proponent future data economy and so forth. You sold me on it and i think the key is as you mentioned the safeguards that are put in place. Theres an element of conventional wisdom these days i hear all the time, americas going it alone, we are not working with allies. We do have some vitriolic exchanges at higher level of government at times with allies but below that i seen a lot of cooperation, especially in the area chinese economic aggression, and now especially i think with the way china has handled the covid19 crisis, the wolf warrior Information Warfare operations against free and open societies and effort to create survival relationships through these debt traps theyre there. I sense an opportunity now. What would you recommend that we do in this area with your proposal in terms of fostering International Cooperation and working together with allies, partners likeminded countries . I agree with you that theres all sorts of collaboration and cooperation thats operating at Different Levels of the government on a wide range of topics. I guess the first point i would make is while i think the recommendations that i am making certainly are apropos and appropriate in light of some of the issues with china but it dont think this is solely a response to china. By that i mean the recommendations i am making are the necessary thing to maintain leadership privacy in a rapidly changing world. I would want to make that point. Im trying to cast and that does much more terms that we should operate. Those alliances have existed in the way you said that they havent existed both within the context of the u. S. Government and through our allies in a coherent integrated way. That brings together all the aspects of our economic statecraft, the export control regime, investment regime, the cybersecurity initiative, the innovation policies, the r d. All of these are separate stovepipes within the u. S. Government with wellmeaning people that are working their agenda, working their brief, sometimes to collaboration. My first point is we dont face off to the world in an integrated way and we dont operate within her own policy regime and own policy process in an integrated way. Thats one point. You know this is what from the recent expense in government. We have varying degrees of confidence and security within our alliance, among our allies. Theres a subset of our allies that were so closely collaborating with the most Sensitive Technology projects or joint r d could easily be undertaken with and if we pr