Take your questions and comments including his life on paul robertson. Thats a look at some of the author programs book tv is covering this week. Many of these events are open to the public. Look at them to air in the near future on book tv on cspan2. [inaudible conversation] good afternoon ladies and gentlemen. I am heidi young and i am the director of Corporate Partnership here at world affair. It is my pleasure to welcome you here today. This program is part of the Global Business form, an initiative of World Affairs that focuses on topics of commerce, technology, and society. We will be exploring topics along the line of financial inclusion, future of medicine, and the future of transportation. I hope you will join us for those programs as well. Today, to learn more about the forum, please please csi World Affairs. Org. Today we are pleased to have with us rana, assisting managing editor of time and author of new bookmakers and takers, the rise of finance in the fall of american business. A bit of housekeeping first before we get started, please take a few minutes to silence your cell phones and other noisemaking devices. Toward the end of the program, during the last ten or 15 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 . Those cards and it we will collect them throughout the program. As an alternative or addition to, we will have this microphone in front of me so you are invited to ask your questions live at the mike and we ask to make your way to the mike, please walk around to the back of the room given the camera set up that we have. We are recording for radio, furor our future broadcast which airs on monday nights at 8 00 p. M. Cspan is also recording this program and will be video recording for posting on our website. Now it is my great pleasure to introduce tim riley. Tim arrival he is our moderator this afternoon. He is founder and ceo of oreilly media inc. And a partner of the early stage venture firm. He is also on the board from or riley media, code for america, pr j and pop fox. He has a history of convening conversations that reshape the technology industry. If youve heard the term open Source Software or the Maker Movement or government as a platform or next economy, he has had a hand in framing each of these big ideas. His next economy summit will be held here in San Francisco on october 10 and 11th covers many of the same themes that we will be discussing this afternoon. Please join me in welcoming tim oreilly who will introduce our speaker. [applause] in afternoon. Thank you for joining us. I am delighted to see you all here. It is now my pleasure to introduce todays guest. Ron has been the assisting manager of time capitalist column and cnns Global Economic analyst. Before joining time and cnn she spent 13 years for foreign news editor. You can see her full bio in todays programs fire. She is the author of this remarkable new book called makers and takers. I had a galley of this book and i immediately contacted the publicist and said send me a box full of these things because they wanted to spread them around to other people and i proceeded to pass them along to many of the leading likes of Silicon Valley. Its really an important book. The subtitle really says a lot, the rise of finance and the decline of american business. It is very proactive, but it is something that i think all of us need to be thinking about. Thank you for joining us. Thank you for being here. Thank you to world affair. Being on the stage with you is quite an honor. Like to say that my reputation exceeds me. Rana, i have a line of questioning prepared but bricks it which is very relevant to this discussion has really come to the forefront. Breck sick, donald trump, how are these things related to this topic of the rise of finance and the decline of business and the middle class . I think they are related. In some ways, both the leave vote and donald trump is protest. Its not so much that the leave contingency in the uk, in my opinion had the answers for how to deal with some of the economic challenges that are racing advanced economies like the uk and the u. S. , many industrial countries in europe as well, but they are representing an antiestablishment movement in some ways. One of the things i cover in my book is how the development of financial capitalism in our country over 40 years has been, in some way, a closed a closed conversation. There have been rules that have been crafted that, by both parties, republican and democrat 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. To me that is what breck says all about. I personally very sad about brecks appeared i was was a Foreign Correspondent in europe for a number of years and both my kids were born there and i covered the beginning of the euro and it was such an optimistic time, it was a feeling of coming together in economic unity but there was always the sort of political hole at the center of europe. The europeans decided to not do the political that was necessary to make the unit eu sustainable and then when the bad times came , the 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 anything thats what youre seeing here in some cases. So lets unpack this a little bit for people who havent read your book. Lets talk a little bit about your fundamental notion of how financial his age and has changed the shape of business. Lets actually start where you start your book. It opens with a fairly blistering indictment of apple under tim cook. Yes. Because we think of apple as this great innovative company, to have them play a starring role in a book about whats gone wrong is a little edgy. Whats your beef there . Its funny my editor said that two. Are you sure you want to start with americas most loved company. I was like yeah, why not not. The reason i actually started with apple, had actually done a profile for time a few years ago on the big activist investor that is a rebranding which i get into a little bit in the book. He was, until quite recently holding a lot of apple stock and he was tweeting every few weeks telling tim cook in the board of apple to do more Share Buybacks which many of you probably no, when companies do Share Buybacks it artificially decreases the number of shares on the market and generally has the effect of bolstering the share price that doesnt actually really change everything in the underlying corporate story. Its interesting because not just apple but Many American companies do Share Buybacks at the very top of the market. When a stock has risen, when growth has happened in the company is at a turning point and they dont really have anything else in terms of their growth to sell to the public or wall street, its a way to to get more stock price hit. The problem is, apple was issuing debt to do these Share Buybacks and that in itself is a little ironic. You look at apple, one of the richest if not the Richest Company in the world that got about 200 billion were worth of cash sitting in Bank Accounts, and many of them overseas because they dont want to bring back the money to the u. S. And pay the higher than average tax rate on it. We could go off on a tangent about whether or not that is really fair given that so much of what makes the iphone smart was actually developed by the federal government, but i will leave leave that for another . Another panel. It was a deep irony to me, heres this company that doesnt need any capital and yet is more involved in the Capital Market than ever before. Over the past few years, apple has made promises to give back to investors in the form of Share Buyback and dividends almost as much as it has sitting in Bank Accounts abroad. Thats because it can do these very low interest bond offerings. Its very cheap right now to do that in u. S. Why is it so cheap . Because we had a financial crisis in 2008 and 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. Should it in, dumped money in the economy, kept rates low and corporations can now take on a lot of debt. This is a longwinded way to say you have the Richest Company in the World Holding more debt than ever before, paying out the wealthiest 10 of population which owns about 80 of the stock rather than investing, as i think steve jobs might have done in the new thing, in the big are indeed investment, in the Blue Sky Investment that will really change the economy. That to me as a good place to start exploring this trend. Theres another aspect to that which is of course the apple devices are made in lowwage countries as opposed to being made here with the argument that you have to do that in order to be competitive and yet heres apple with the most Profitable Company in the world saying well, if we dont use lowwage employers, if we actually do this in america, we wouldnt be competitive. Youre starting to dissect the stain of a problem here which is that corporate profit is made sacrosanct above all else. That goes back to something that law professor lynn stout has called the shareholder value, if you scratch any business person, they will basically repeat this idea that they have a fiduciary duty. Their primary duty is to manage their shelled holders. Turns out that there is very little legal requirements for this prayer they want to pursue social goals along term strategy and yet this doesnt happen. Thats a lot of what you talk about your book, why. Can you tell us why is it that people have kinda bought into this . So lynn stout is amazing, she did a big interview for the book and had some great stuff to say on this. Chapter four of my book actually look at this issue and this shareholder value was part and parcel of whats called the Chicago School of economic thinking. It was sort of a market, just focus on the share price and Everything Else will sort of follow, social good good will follow from that kind of thinking. note we are not making decisions rate for the Customer Base so we are in eroding the longterm potential market share of the company that is all about shareholder value. With after having lived edward tried to seize some of the models in europe by do this as not deal the way to do takes so misses a very recent conversation but people thought this is how capitalism works shareholders that is what you do but that is not what they do and germany of the stakeholder capitalism based around the ecosystems matt workers have a seat at the table Civic Society and government officials, there is a shared conversation which as i explained, can help corporations while the of the examples i get into absence of the financial crisis the Financial Sector laidoff the huge number of workers immediately. The germans did this a little differently. One had a different model some went on for lotis the extra time u2 do retrainee and upgrade the factories to upgrade when there was not a lot of work to be had some with the Global Economy started to recover and china was coming back with china was ready to go so they grab a lot of market share who had taken a shortterm to cut capital cost. Lets break this back around one to brexit. , and because it not have this much on these issues. So to go out from the underneath this european model. So perhaps with government over regulating bill also would distrust of globalization. That is another piece of the story i am of two minds because there is a powerful narrative about Companies Using the cheapest labor they can find. Effectively people are a cost to be disposed of whenever possible that is clearly driving up populism by yet there is another side which i see pointedly if you ever see the visualizations. Basically stages of world health or poverty over time clearly it has bought up our section of the world at the same time has suppressed the incomes of many former people. Soleil looks like we have a zero sum game so well looks like others cant get better but yet it is more complex. With the notion of profits to workers this another piece of the narrative. How do we tell the story correctly so we make the right economic prescriptions that is such a complicated topic. I had a conversation with Howard Schultz that was a founder leader that seek more about this a war with more leeway want to pursue the price that we had a conversation about this topic and said we are becoming a nation of makers sandpipers i have to make sure there are more buyers otherwise the math does not work. So what he says his the economy like ours where consumers spent. Host day , would people have not gotten a raise since the 1990s and many working people particularly those that were laid off one that havent gotten a real raise in real terms since the 70s to have a real problem. Not just economically but even politically so this is wage share how to get that up because of the last 40 years that is what is marketed. If you divide the economic pie into public kent corporate and the labor share keeps shrinking the corporate sector keeps getting bigger because of globalization which. But because of those choices which is partly that shortterm profit. Thats true and i am glad you rephrase that for me but it enables capital to flow to go to where it is with cheap this with those lowwage countries but we are added to pinpoint because a lot of those countries like china are having their own problems with jobs leaving their countries. Chinese factory jobs are now going to lower wage asian countries. If there is a day supply chain reevaluation of kuwait on. But to be to what will be sustainable to support local ecosystems . That is the action. This image is barely central to the buyers and the makers is to the shortterm thank you effectively when you take money and it goes to carl icahn it comes at of the real economy. He is able to venture capitalists and amazon. I am rich i am clear that customers create jobs. And if we dont pay people enough they cannot be customers. I can only sleep and in one bed or use one palo. I can take a surgeon number of vacations but not will it not 1 billion times as money many but the selfinterest review really put your figure is you have written the rules a beloved by the way of book his called rewriting the rules say prizewinning economist and says the economy is not like the law of gravity but colada that is tilted it cruelly they favor financial interest of the incentive structure for the corporate cio. So talk about the the tradeoffs that we make when we reward for angeles station over productive investment over hiring people this is the tradeoffs. His book is amazing and a plan that he has developed that is at backbone of the book in the pivot points but so the way that the tax code incentivizes behaviors that are not necessarily from the mainstream economy. It is not necessarily a productive at the corporate above all. With the mortgage interest Tax Deduction i am a huge beneficiary and i get to write a lot of that off of my taxes but if you look at who led benefits it is large middle and upper class. And also other perverse effects. Hooper so that has affected so allows people to get into a house he bracket where most keep the majority of their wealth. The same of the corporate level it is much easier to write off debt from taxes than to say do something productive with your capital than be rewarded for that investment i could go on. So who are the of members of the footage to class . Is starkly the argument is the firefighters if you looked at that but the pressures that time that the to shortterm kiki you talked about jack fogel and the Vanguard Index funds but they dont have the same pressures to outperform the of market. If you are the active front you are trying to maximize shortterm profits. So the mutualfund industry is fighting and fighting est interest. Jack google it is also a and is one of my primary sources of the book when we talked about one of the things that was fascinating snaky to people in the financial industry believe bakers and spoke to be a bridge arrested tended to be older in their seventies or eighties and they had seen the way the industry had changed at a time when they were still words of peoples money but when they cast the managers took their money. Did then was led out to business. That is how they imagine a recapitalization should do. E. Last 40 years that model has a tireless change. And now goes to business investment. Did all of which creates the bubbles we have seen over the last decade. Did to have a sustainable economy. Like anybody has see very quickly that hardly any actively managed funds outperformed the market. So because were in the forward k. Wheeler and the actively vintage runs so asset manager is the fastestgrowing part of the financial industry. We talked about too big to fail but it Asset Management is where a lot of visitors in is colleague with the largest pool of money. To put the ability of the index fund and forget about it they started to courage the numbers the average person has a retirement age in the active set of fund pays higher than average fees and it deals with the lower than average return will eat between 30th and 60 percent over lifetime. It is a scandal like big. That policymakers are starting to talk about. For those that dont have access. Theres also a point to be made that private retirement system would is not working so well. Has aspects that the head of the state is beginning to eat the tail as the