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>> Good afternoon ladies and gentlemen and welcome
to the Nelson A. Rockefeller Center at Dartmouth College.
Today is our presentation of the Portman lecture
in the spirit of entrepreneurship.
My name is Andrew Samwick and I am a professor of economics here
at Dartmouth as well as the director
of the Rockefeller Center.
I'd like to take an opportunity to extend a special welcome
to the members of the Dartmouth class of 2016 and their families
who are visiting for Dimension's weekend.
I look forward to seeing you
at the Rockefeller Center open house tomorrow morning
and in the fall when you matriculate.
The Portman Lecture is an annual event
at the Rockefeller Center hosted in partnership
with the Amos Tuck School of Business through which we seek
to encourage a discussion of entrepreneurship
and the many challenges of starting, growing,
and running new enterprises in all fields of endeavor.
We are very fortunate today to welcome Carl Schramm
who recently finished a decade of service as the president
and CEO of the Ewing Marion Kauffman Foundation.
The Kauffman Foundation is the world's largest foundation
devoted to entrepreneurship.
Under Dr. Schramm's leadership,
it became the world's premier organization dedicated
to developing high growth firms
and understanding the role they play in economic growth.
Today, the mission of the Kauffman Foundation is
to foster opportunity through both education
and entrepreneurship.
At the level of any given individual,
either opportunity is a good one.
But for society as a whole, I would argue
that it's entrepreneurship that is in scarce supply.
There are many organizations focused on education.
There are far fewer focused on entrepreneurship.
Our pedagogies for education are well established
if not always well implemented.
We know much less about how to foster entrepreneurship.
And most importantly, I think, by itself,
education doesn't create jobs.
And education may qualify you for a job,
but it's entrepreneurship that creates jobs.
I listen frequently to political ideas and arguments about how
to grow the economy and I wonder why
that simple point is so often overlooked.
As we enter the thick of the 2012 presidential campaign,
no issue will loom larger than job creation.
A discussion of entrepreneurship should be front and center.
I'm happy that we get to begin our part
of that discussion this afternoon.
The link between entrepreneurship
and jobs has a more local and a more personal dimension as well.
In the spring of each year, many of our students are finishing
up their degrees and looking forward to finding a place
in the workforce beyond the comforts of Hanover.
As I have told some of them recently,
the entrepreneurship recruiters don't come to campus
to interview you like the management consultants
and the investment bankers.
You don't take a GRE or an LSAT and fill out an application
to go to entrepreneurship school.
The path is not so easy or so well-worn as that.
Going right to the original meaning
of the word entrepreneur, if you want to be an entrepreneur,
you have to undertake something.
At Dartmouth, it is clear what we hope our students
and graduates will undertake.
What is the admonition from John Sloan Dickey that was
so frequently that, "The world's troubles are your troubles
and there's nothing wrong with the world
that better human beings can't fix except the call
to undertake some endeavor
that reaches far beyond the narrow world
to which we've all become accustomed."
We aspire for our students and graduates
to be thinkers and doers.
Our stated mission is to prepare them for a lifetime of learning
and of responsible leadership.
I don't see how we could possibly deliver on that mission
if we do not foster a spirit of entrepreneurship
and a global consciousness among our students.
Today's lecture and discussion will help
to connect those two ideas.
Entrepreneurship and the Future of the Global Economy.
A recognized authority on entrepreneurship, innovation,
and economic growth, Dr. Schramm currently serves
as a visiting scientist at MIT and as a fellow
at the Bush Institute.
He is a Batten Fellow at the University
at Virginia's Darden School of Business and a member
of the Council on Foreign Relations.
A graduate of LeMoyne College, Dr. Schramm earned his masters
and doctoral degrees in Economics
at the University of Wisconsin.
He earned a law degree at Georgetown University.
He was a member of the faculty at the Johns Hopkins University
for 15 years before deciding
to broaden his career well beyond the academy.
His expertise has played a role in public policy
in both Democratic and Republican administrations.
Ladies and gentlemen, please join me
in welcoming Dr. Carl Schramm.
[ Applause ]
>> Thank you very much.
That way [inaudible] so enlightening
and introduction is possible.
He spent very little time on me
and did the substantive stuff related to the topic.
I especially liked your comment
that education might get you ready for a job,
but it's the entrepreneur that makes a job.
And-- that always happens when I scratch my head.
[Laughter] Are we okay?
>> Yeah.
>> I once saw a wonderful bumper sticker that said,
"Can't spell entrepreneur?
Become one and hire somebody who can."
And absolutely, the word is in fact somewhat confused,
it's the French phrase for undertaking.
Some people think that the connection
between venture capital and undertaker is appropriate.
I once marveled that George W. Bush commenting
to the premier of France.
But the problem with the French economy was they didn't have a
word for entrepreneur.
So anyway, my topic is about entrepreneurship,
it's Entrepreneurship in Global Growth.
And I think I want to treat this from two different perspectives.
First, I want to talk about entrepreneurship per se,
I want to talk about it in the numerical context
and then I want to talk about it in terms
of what it means in global context.
As professor Samwick said, if I could be happy
about one thing I did in my life,
it's basically take the study of entrepreneurship and seed it,
if you will, in the larger context of economics.
10 years ago when I went to the Kauffman Foundation,
if you had wanted to go and talk about entrepreneurship
in a serious way, in a policy way,
you couldn't almost go any place.
And indeed I would basically say you couldn't talk to anyone
with a few exceptions,
well Obama would be the principal exception.
The great thinkers that actually saw entrepreneurship
in the larger economic context of growth were dead.
The prime most example of that is Joseph Schumpeter
who died in 1950.
Schumpeter saw with his enormous clarity
and his great phrase making, an Austrian economist.
His great phrase of creative destruction.
It was Schumpeter who points out that in capitalism,
it is the entrepreneur
who challenges the incumbent businesses.
And Schumpeter says that the dynamics of our economy or such
that we will not grow without people creating new businesses,
bringing forth innovation and essentially disturbing,
upsetting, destroying, the incumbent businesses.
This is very, very important for us to understand particularly
at a moment like this in our economy when we have slowed this
so called great recession, is a very important lesson
for us in several regards.
The one that I think is of greatest consequence is
that for the first time in a post war recession,
the number of people starting businesses has not gone
up in the recession, but actually has gone down.
This is a very, very dangerous because it suggests there may
in fact be something going on in this recession
that has dampen the spirit of entrepreneurs
such that they don't go forward to start new businesses.
The reason this is critical is, and I will suggest to you
that you won't hear this from many other economists,
so you ought to come here to school because they have people
like me come here once in a while, okay?
Am I doing okay?
All right, I'm trying to swell a class of '16, okay.
All of our other post war recessions have been--
we have led the economy out by the creation of new firms.
Now that's probably easy to understand in the sense
that with recessions, we see upticks in unemployment.
And often, it's large firms that disemploy critical people
at the cutting edge of where the firm's innovative frontier
might be.
So those of you from Tuck understand that in times
like this, preparing you to become a business consultant.
You have a little playbook and says, "At times like this,
you tell our client companies go back to your core business."
What that means to the company is, fire all the engineers
who are doing all the innovative stuff.
And historically when we fire them,
they gleefully cheer saying, "This is my time
to take all the stuff I've been working
on at amalgamated consolidated.
They've given me intellectual property rights
over it 'cause they just want to get rid of this
as they go back to the core."
And new companies are born.
And the creation of these new companies is critical
because new companies do three things.
First, they actually are the vehicle for innovation
in our society and this is very important.
It's more important now and it has been for a long time.
So those of you who might have graduated want to--
I got out of college 40 years ago.
You knew that innovation happened
in big firm laboratories.
Del Laboratories or Merck & Co.
And in fact this was the way economists said it was supposed
to be.
In the Keynesian era, when John Keynes' great apostle,
John Kenneth Galbraith held his way at Harvard,
he in fact told us, as late as 1984, that all new innovation
in our economy would happen in large firm laboratories.
And indeed, as if this mistake wasn't bad enough
and I don't want to pick on Galbraith,
most economist make big mistakes.
We've had about 36, 37 Nobel Prizes in Economics,
at least 12 to 15 have been over turned.
That the theory on which somebody won the price is
subsequently been found to be wrong, okay, which suggests
that Nobel Prize in Economics is a little less of a Nobel Price
than sort of like chemistry or physics, it's not often
that the physics prize is an indictment
of the scientist inside some years later.
So Galbraith goes to Gilded Lily [phonetic] and says
to which again in 1984 that,
"The age of the entrepreneur is over.
Innovation will happen in big firms."
Now he says this even as the Nielsen Companies, Microsoft,
Intel, Genentech are all under way.
And to make my point in large macroeconomic terms,
a statistic that if we ring the doorbell
at the White House today and said,
"Let's talk to all the members of the Council
of Economic Advisers," no one would register.
They wouldn't get this answer right.
Another reason you ought to come here 'cause you're already ahead
of the game now, you trump renowned economist
in Washington.
And the question we put to them is,
how much of this year's GDP comes from firms
that didn't exist in 1985?
They'll get this answer wrong.
They'll give you a little smidgeon number like,
yeah, maybe 12 percent.
Remember, we're saving all our huge firms in Washington,
they are critical for making jobs that's why they allowed
General Motors, Chrysler, we got to preserve those jobs,
let them make new jobs.
A little historic foot note, okay,
General Motors now employs something in the new order
of 30-- 25 to 30,000 people less than it did
when it took the bail out money justified for--
on the grounds for saving new jobs.
Okay, so the answer is 40 percent of today's GDP comes
from firms that didn't exist in 1980.
This is astounding, they are the carriage, these new firms
of innovation, and most importantly,
they are the carriage of new job creation.
Almost all new net job creation in the United States is
in firms less than five years old.
So you can see why we're having such sluggish job growth.
We don't have new firm founding.
We don't have new jobs.
This is a [inaudible] the big issue.
The last thing of course that new firms do,
that entrepreneurs do, is they make new--
they make all the margin wealth.
The wealth in our society, which is critical.
And by the way, let's just look at our economy for a moment
and talk about the wave
of entrepreneurship that's going on.
Today, in a class, I spoke about this in terms
of the United States and its entrepreneurial penchant
or propensity in other nations.
And with the exception of Israel which is very small
and doesn't count that much in one way.
America produces on a per capita basis more new businesses
than any other country in the world.
We are a nation of entrepreneurs.
And we're getting more and more entrepreneurial sort
of the statistics since 2009 suggesting a downturn
in funding not withstanding.
We have more and more of the human capital resource necessary
to start this economy really good and maybe move it to four
or five percent annual GDP growth
to have a shocking sort of goal for us.
So these firms create these jobs.
And if you will, and we think of the United States,
we bring about 30 companies a year
to one billion dollars in sales.
It's really vital.
When I talk about creating new net wealth in he society,
it's this constant pipeline of new firms
that are growing to scale.
Israel brings about eight to nine a year,
all of Europe brings about two, all of Europe.
Europe's population is the size
of the size of the United States.
What does that tell us?
That's a great place if you're kind of wealthy,
middle class and wealthy.
It's a great place to visit and go on vacation, right?
We here that all time.
Well, it wouldn't be so bad if we're like Europe.
Yeah, that's a perspective of the people who are sort
of at 250,000 dollars of income and above.
You know, taking a boat to Capri in the Sidewalk Cafe,
outside The Muris, okay, over there at the flower market
in Rome, the Via Veneto, it's a nice life.
That's not how Europeans pants live.
Europeans live in an economy that grows one percent a year,
it has no new turn in terms of new businesses.
The reason is this is the policy of government.
It's industrial policy.
We favor big firms.
We favor big firms.
This is very, very dampening to the spirit of entrepreneurship.
It's one of the reasons why so many people from abroad
and including Europe try to get into the United States
to start their businesses.
We are a magnet for this type of human talent.
And our magnet is basically freedom, a wide open economy,
people won't care if you fail.
I used to be president-- vice president of Fortis,
I was president at several divisions in the United States.
Fortis is a big Dutch banking and Holland company.
And let me tell you, I spent a lot of time in the Low Countries
in Holland and it's a very confusing mess to me.
But [inaudible] is where I spent a lot of time.
If you have a failure as an entrepreneur,
in the Netherlands, you're done for life.
You're not going to start another business.
Are you going [inaudible], the banks knows,
the records are kept, you had a failure, you are not going
to have a second bite of the entrepreneurial apple.
That's pretty much all over Europe.
In the United States, we often regard failure as the school
for your second most successful company.
Think about it this way and this is very encouraging to you.
Pay attention, okay?
We think about entrepreneurs,
this is very important for everybody.
What's our archetype entrepreneur?
Well, if we apply the archetype, some of you who are young,
haven't graduated yet or graduated a year ago or maybe
over Tuck, your day is gone, okay?
If you're not Mozart, if you haven't learned the Concerto
by nine, it ain't going to happen, okay?
Our vision is you dropped out of college, you were so smart,
you couldn't finish college
because you're had an a raise [phonetic].
Before you were 21, you had
to had your big company started, right?
That's not true.
Entrepreneurship happens all through ones life.
Our 500 fastest growing firms in the United States are started
by people when they're 40 years old.
So the notion of entrepreneurship is focused just
on our young folks is not actually right.
We are an entrepreneurial society that's growing
like crazy.
So as we move to the next part, let's remember the three things
that entrepreneurs do, they birth the new,
they bring forth new jobs, a visit on that just
for one moment if you think
about General Motors eliminating jobs which we all want to do
over the last three years.
We really wanted to do.
Politicians in the Washington don't--
they tell us that we gave them all that money
to save jobs in Detroit.
But the other half of us when we think
about that money is investors, I wanted them to cut jobs.
It's a productivity gain,
productivity gain makes the companies more productive.
It's more valuable.
You know, productivity gain merely means all the money
that you make or all the cars that you produce,
all the revenue that comes in divided
by the number of workers.
If we can cut the workers and keep these numbers higher
and growing, we've made the company richer.
So the guys and their big chauffeur limousines running
down from Connecticut everyday to New York,
chomping on their cigars, speaking on 4 to 13 phones,
they are all saying on those phones, "Can't you get rid
of another 20 people at the division
over there in X, Y, or Z?"
That as investors is what we want them to do.
If you're an entrepreneur and you cut people, you got nothing
or put affirmatively, you have
to have people to make your firm.
And that's why we see all these hiring
and the creation jobs in new firms.
Now, let's see this on a larger scale of economic growth.
And as I said before, we now see entrepreneurship in that lens.
Now tell me who are here from Tuck,
how many people are here from Tuck?
Okay, I won't look, one person is here from Tuck.
It's profoundly illustrative, maybe two,
somebody is a little shy about that, okay.
I'm from Tuck here, okay.
And it's profoundly illustrative in the sense
that in our nation's business schools,
entrepreneurship is treated sort
of like a backwoods subject over here, okay?
I've visited many business schools in my last job,
we gave lots of money, millions, tens of millions of dollars
to universities to teach entrepreneurship,
we bribed schools to teach entrepreneurship.
You get to profoundly important business schools.
I've sat with the dean I said, "Now tell me
about who teaches entrepreneurship?"
Let's say, the-- well we got this guy.
I said, "Is he a tenured guy [inaudible]?"
"He's and adjunct guy, you should meet him."
His office is across the street in a bottom of a hotel.
He runs our entrepreneurship center for those freaky kids
who want to fool around with the business while they're here
at school, okay?
In this particular case, the person I have
in mind was a retired audit partner in a big 8 firm,
at the time now big 4 firm.
That's right, an audit partner in charge
of entrepreneurship teaching at this major university, okay?
Very famous university, very famous business school, okay?
People don't treat this subject seriously and in fact
if we think about how we teach it in business school,
you want to go to business school?
Maybe. You might not after I tell you this 'cause you'll have
all the secrets, okay, all right?
This is like going to the Wizard of Oz, okay.
They teach the whole starting a business
in this extremely mechanical rubric
of writing business plans.
Now to go back to our 500 fastest growing firms
that are started by people at the age-- average age of 40,
these firms are critically important
to the future of this country.
More than 60 percent never wrote a business plan.
So what are they teaching in business school?
Well, the business school plan is a very rigid mechanical
document that is invented in business schools some years ago
for the purpose of teaching entrepreneurship.
And they snitched a little
out of the strategy department 'cause they think about plans
and they snitch a little
out of the finance department called Venture Capital.
So the process of how we think an academic terms
about teaching people to start business is essentially boiled
down, half baked and half merged curriculum from business
where people learn how to write a business plan with the view
that high up there in the high meadow with the high clover,
seats three or four great judges, venture capitalists.
And if I write the great plan and I get up those stairs
on my knees, they'll give me money to start my company.
Again, a false narrative.
Our 500 fastest growing firms,
only 14 percent ever had venture capital.
So we have to teach this process
as if venture capital is the end of the road.
The messianic moment, the end of history.
It's crazy.
It's now how companies go.
It is now how companies are financed.
And long behold, we teach the wrong stuff.
So what we ought to do is think
about what we should teach people because the point
of this lecture is that we should have more people
doing this.
Now think about this.
We only create 700,000 new firms a year in the United States.
It sounds like a big number,
we do more in a per capita basis than anybody else.
But if we set this in the framework
that the whole enterprise,
the whole economic enterprise should be focused on growth.
So four percent GPD growth is better than three percent,
is better than two percent.
The United States is growing on average three percent a year
for a hundred years, never, ever equaled in human history.
Imagine we could grow four percent.
The net welfare gain that would come over this country
in the space of 25 and 50 years.
We could eradicate poverty.
We could never have a deficit.
We'd have all the money in the world to advance the frontiers
of energy consumption.
And as I said, we could eradicate poverty.
Other than that, we could probably help
out the world a great deal.
I'll just drop a footnote here.
One of the reasons you don't want to go to college, okay?
Is in college, you'll hear all these means, like, "Oh,
America is over, okay and we destroy the environment, okay.
And you shouldn't go into business
and growth is bad, okay?"
And what I'm going to say to you is use your head, use your eyes,
believe what your eyes tell you
and not what people tell you you're looking at, okay,
because growth is good.
We wouldn't be at Dartmouth
in a building some very rich person gave to this school
and subsidized tuitions and pay for faculty salaries
at Dartmouth and a thousands of other institutions like this
that are at the incubus, they're the incubator
for the human talent that makes the country grow
and get wealthier and improve human welfare.
All these came from somebody.
It was imagined by somebody.
And most of the buildings here and every other campus are
from grateful alums who made a lot of money in this system
and often times they are essentially the entrepreneurs.
People who saw and imagine something fantastic stick their
fortune on it, took the risks,
and made something fantastic for us.
This is what entrepreneurs do
and this is the force of what we're doing.
And if we have, my point being,
a view that we should have more wealth, high rates of growth
which we can get done, okay?
Have you read Thomas Friedman?
The world is flat, don't, okay, all right?
The world's very round.
It's very bumpy, okay.
And America's not done with, okay.
He wants to sort of suspend life
and let the Chinese communist model come to the United States
for just one day so brave bureaucrats can adjust all the
rules and we get wealthier, ain't going to happen.
If that was going to happen, it's going to happen
in free markets where people have the freedom to imagine,
to start companies, to bring those companies into the role
of making new jobs for people in making wealth
that he shared throughout the society and is shared in places
like this and improve some successive generations the
capacity of the society continue to grow
and expand human welfare.
So the question becomes, a very important question
in a university, how come we only have 700,000 people taking
this step every year?
And the question is, of--
it's almost never asked which is a great speculative question
that should be asked by all of you, should be asked
by you 'cause you don't know if you're in this box
yet and you should be.
And you should be there and you should take your friends
with you.
Perhaps we envisioned, which I think is fair to say,
not all the creative people start firms,
we have people running over here writing sonatas,
painting pictures, designing buildings.
But there are a lot of people
who express their human creativity
in commerce and business.
It's very important to understand.
It's their way of being authentic.
We run a business school on this campus for people
who are creative and want to be creative
in the world of commerce.
It is this high minded of purpose as writing a sonata.
It's where nature sent them, it's their proclivity,
it's where their talent can be actually leveraged,
actualized, in our behalf.
This is what happens in business.
So if we take just the people who are creative in business,
you could make the case that in any advanced society,
maybe some very small substrate of people are really responsible
for all the innovation and creativity
in entrepreneuring and job creation.
And let's say that number is five percent.
I have no idea what that number is.
You may have a better idea than I do, you may have no idea.
Let's just argue in though, say it's five percent.
Wouldn't it be great if one of our occupations
in universities was to think about how it was that we made
that number seven percent or 10 percent?
Indeed, I think this is one of the particular preoccupations
that we should focus
on in higher education for a lot reasons.
Not the least of which is, I'm certain we are going
to have a wealthier society down the road.
In many ways, the need for work
as we understand it now will dissipate,
attenuate, be diluted.
What are people going to do with their time?
I will let that question just hang there pregnantly 'cause I
don't have an answer, but it's a very important answer
for civilization.
What do people do in a wealthy society
that is actually constructive
and not mischievous, and not mischievous?
Okay, now let's talk about this in the context
of the large world, the global world.
We'll go into the world
that Thomas Friedman discovered to be flat, okay?
America in the other nations.
America has given a great gift to the world,
it is never recognized, certainly not
by Thomas Friedman's first book,
he start to begrudgingly gets there in his second book.
The world is bumpier, whatever it's called, okay?
I got to get off to Thomas Friedman kick, okay,
there are lot of people on the kick, I'm over it.
I just reviewed one of his books once and it was--
several pages were
so preposterous they just sort of burned in my head.
The United States have given a great gift to the world.
We've given our entrepreneurial model.
You know, all those graduate students from other countries
who are here, when you were in graduate school,
not here necessarily, but wherever you went
to graduate school and I went to graduate school,
those folks were here and not just becoming engineers,
physicist, chemist, they're here watching how the American
economy work.
And when they went home, if they went home,
and some of them were here, expressly, not as spies,
we had many people, delegations come,
they still come all the time,
just study the American economic system,
particularly its entrepreneurial system.
And we know for example that the Chinese reforms of 19--
the beginning of 1972 are expressly
to liberate the economy, so they can have an outbreak
of entrepreneurship like the United States.
Why do they come to the United States?
For the fact I suggested before, we know how to grow the economy.
Mao Tse Tung did not know how to grow the economy.
The Soviet Politburo did not know how to grow the economy,
and in fact, for those of you who pay an attention
to Chinese politics which is phenomenally interesting these
days, they know how to grow the economy,
but their political ideology makes them very nervous
about the chaos that will come in a free market economy
and have to settle the question of who owns this?
In the minute, the State doesn't own this,
you suddenly have people who can vote.
And maybe, they'll throw the Politburo out, okay?
You watched that drama with what's happen
with [inaudible] is famous disappearing family.
The window in China to look at it
from our perspective is it confirms very loudly their
observation about the power of entrepreneurship
as the key stone of a growth strategy.
Same thing in India, actually in India, some ways,
it looks like China in a sense you don't find entrepreneurship
every place in India, but you find very powerful
entrepreneurship in places like Bangalore.
Again, the Chinese imitate
and understand consciously the American system,
the Indians really are conscious of the American system,
our love affair back and forth with India, pays huge dividends
in India, pays them in the United States, too,
but there's an unabashed understanding of the importance
and power of entrepreneurs to the Indian economy,
and here's the great good news, this phenomenal news,
this is historically important news, I wish I had drums,
trumpets, and other stuff, okay.
We've watched in the last 30 years as a result
of the infection of this American perspective
of entrepreneurship, a reduction of between 25
and 30 percent [inaudible]
to poverty using the World Bank numbers in the last 25 years.
It's never, ever been achieved in human history.
We are making gains on poverty.
And the instrumentality of those gains is people starting new
businesses, particularly in China and particularly in India.
So I want to wrap up because I think meetings
like this are actually a lot more productive, both for you
and for me, and me and you.
If we do questions and answers,
but just making a couple observations
about what the future holds.
No matter what you think about politics is almost immaterial,
I believe that the power of entrepreneurs
in the United States, people who want to get on with the creation
of new businesses is so powerful it will not be dampened.
And I say that and you're going to say, "Yeah, but what happened
in the last few years since 2009,
and there's been this fall off?"
I think we've seen a lot of signals in Washington
that make it much more risky for people to start businesses.
I believe in a rational system where policy makers are going
to come to understand that if we don't have these new businesses,
we're not going to have growth, and if we don't have growth,
we're not going to have political stability.
That applies to either party.
The only caveat I want to put on there is we've been watching,
job's act passed three weeks ago,
we've been watching the government warming
up the policy, making policy to help entrepreneurs.
I can't sort of hold those two thoughts
in my head at the same time.
The government helping entrepreneurs get started
in making new businesses, and of course government will do this,
always under the rubric of reinvesting.
Now before we get deep into that and this will likely sound
in today's modern discussion of politics is
if I'm making a partisan comment,
I want to wash partisanship away and just say, "Solyndra to you,"
because Republicans could make the same mistake and they have.
I remember it was George Bush who bails
out the motor companies.
Solyndra is our postured child of the government saying,
"We're going to invest and we're going
to pick a business that's going to succeed,
an industry that's going to succeed."
And of course it didn't.
It had a lot of explanations for it afterward,
but the reality is, it was a bad bet and the proof
of my case is the first money in was venture capital money,
but the venture capitalist wouldn't put
in the next 500 million dollars.
No sir, they call all the senators and everybody else
and say, "Could you put in the 500 million dollars
and save our investment?"
And in fact save their investment we did,
because when it went down, we will ask collectively, as guys,
some down here have 560 million dollars, but those guys,
the first money in, the venture capitalist,
had their money protected, okay?
Now, why do we visit with this?
Because this is the archetype that you want
to carry in your head.
And when government says we're going to help entrepreneurs,
we'll have a venture fund, or we'll start to invest directly,
invest directly in the future, in this hot new area,
energy technology, okay?
You have to be cautious because they're not investing their
money, they're investing our money.
And when it's public money, nobody cares.
Now I'm a limited partner in venture funds,
Shreyman [phonetic] Company is an investor in 12 companies.
That's my money.
And when I invest through a venture capital fund,
if they say, "Oops, there's a venture,
there's a limited partner's meeting," right?
And it's not nice to be a managing partner
at those meetings because a lot of people grow very long teeth,
holler and scream 'cause it's my money you lost, okay?
Where is that great drama over Solyndra?
No, congress holds a hearing and some bureaucrat show up
and [noise], you know, it's a complex world out there
and [inaudible], Baltic and Chinese make better solar panels
than we ought to be and it blah-blah,
you have to blah-blah.
You're watching on C-SPAN, right?
Well, maybe you don't but I do.
I'm a C-SPAN addict.
I can't live without C-SPAN,
and that's the drama you see on C-SPAN.
Now, to our point, to our last point.
If I ask any of you to make our society better,
to improve human welfare,
you know that human welfare is connected to the capacity
of the society to make wealth.
Would you have a better answer
on helping people start businesses?
To encourage a social and economic network
where people take the risks to start businesses?
Think about this, for those of you who may have--
who maybe harboring some question
about this growth business.
In 1947, a professor at the Johns Hopkins, Henry Sigerist,
studies health over history.
He writes a book, Health and Civilization--
I'm sorry, Civilization and Disease.
It's a classic.
It's a classic because he observes historically,
when we watch secular gains and health status,
the single most important independent variable is the
increase, when it grows up, the driving variable,
its disposable personal income, not more doctors,
not more drugs, not more hospitals.
Give people disposable income and guess what,
they'll make good choices.
They'll buy better food, they'll house themselves,
they'll buy education.
Disposable income is just another word for wealth.
And the only way we know historically
in the United States, we have 200 years of this record, of--
it's the imagination of a new future, the risk taking
by individuals, pulls of individuals and investors,
the creation of new companies that disturb the old companies.
Now, let's talk about disturbance
and the last point I want to make,
to quote in here is let us be comfortable
with chaos [inaudible] we see all these huge companies
in Washington, General Electric, IBM, General Motors,
it's because they're protecting themselves from risk.
They're seeking government rents.
They are very concerned about instant death as a corporation,
it's a real phenomenon.
Between the years 1960 and 1985 on the Fortune 100,
we have 17 countries, 17 companies displaced.
To run a major company in the United States
in that 25-year period of time was like being in a vestibule
of heaven, very secure, very stable, nothing really
to worry about, no such thing as corporate death.
And the next 25 years, we have the reciprocal,
71 companies dropped out of the 100 list,
huge corporate velocity, companies die, okay?
We know, we can name airline companies die,
they're not around, a real, real threat to management.
Now, this is good for growth, but there's something in us,
our human nature is, we're not so sure we like all that chaos,
we certainly don't if we run a company
and we're shareholders in a big company.
I'm not so sure we like all that chaos,
but it is in the chaos that we have growth.
Schumpeter is right, create a destruction, the constant gales
as he gales of entrepreneurs knocking at the doors
of the big companies, bringing forth new innovations,
creating new and much more interesting jobs,
and making wealth in their wake is how we as a society proceed.
I'll end by just saying, "Listen carefully because the prejudice
in public policy is that the government can plan
out our future."
And if you think about everything I told you
about Europe and industrial policy
and govern the plans of the future.
And government has the insights
about how an economy is supposed to go.
What industries are supposed to flourish?
What are the good ideas that should get government backing?
You get one percent growth.
In the world of intelligence here, as I said before,
this is often wished away.
Well, one percent growth sounds pretty good to me.
When I visit the Little Piazza
in Arezzo is 'cause I'm a wealthy American.
To go to the rural farms in Italy or the backwaters
of Paris is what Europe looks like for most people.
And it's not the future you as Americans want
and put aside your Americanist.
It's not the future, you, as a citizen of the world want.
Last, last point.
We know since 1954 that the incidence of death
and organized violence warfare has falling dramatically.
To correlate to this is the per capita comes written enormously.
The wealthier people are, the less it seems that we are ready
to fight with each other, death and war goes down,
and human welfare flourishes.
There is no single force that stands in the way
of welfare gain like warfare.
So all that the entrepreneur has in his or her hands,
there's nothing less than the future world
and the peace among nations and people.
Thank you.
[ Applause ]
We have two microphones on one aisle so I'm going
to watch this pair with.
[Laughter].
You're going to go find people with questions.
There's a guy on the corner there, okay?
And don't make them too hard--
>> Okay.
>> And you're thinking up a good question, all right?
You better have 'cause I'm going to take your admission away
if don't have a great question.
>> Okay. [Laughter]
>> Entrepreneurship in the developing world--
>> Yes.
>> -- has been in the news in the last decade
with microlending and I wonder
if you know what the research says about the results of that
because initially, it was very exciting.
And I have heard more recently that the sustainability
of that growth depends on the infrastructure
in these countries as much as whether the little guy is able
to get hold of money to start a business.
>> Yeah, okay.
Now, I'm going to walk into a little hot water here, okay?
It's hard to talk about microlending and its impact
in empirical terms in university audience 'cause there are
certain things university audiences are wedded to.
But microlending is wonderful 'cause all the names that flash
out of it are-- it's women doing handy work, okay?
But it's not harmful to the environment.
We read books like three cups of tea and we fall in love
with this idea that, you know, we can change the future
of Afghanistan by building schools, okay?
The hard reality is microlending starts in Bangladesh,
Professor Yunus does it, he gets the Nobel Prize.
There's no evidence that per capita income has changed much
at all.
And think about it, think about it,
just ask yourself this question,
what did we miss in making America?
That make it-- made America looked like and say,
"Did we do the wrong thing?
Should we have had microlending to make America?"
We couldn't have.
But definitely, if we microlend as our stratagem, will a country
that embraces that ever have a modern university
or a modern hospital?
There's no scale gain and wealth is made in scale gain.
So I don't want to rain on the parade,
it's altogether important.
The use of cellphones to make markets is really a consequence.
You know, if I was king of the world, I'd put cell towers
over Africa because free information
and free communication is the predicate of growth these days.
But we have to be very serious
about what our prescriptions are.
It's very, very important.
Okay? I'd put it differently.
Okay, the next-- the followup question is, okay,
so what would you do for growth in the third world?
Okay? And the answer is I would create a holistic approach
that actually, first and foremost, envisioned growth.
And this is actually quite a radical departure 'cause
in the United States from 1950 forward, all of our theory
of AID, USAID, is not growth at all.
We are a schizophrenic country.
We propagate a notion of sustenance.
Actually, I think it's fully racist, by the way,
our government's policy in this regard.
Okay, so we go to an African country and we envision
that the best we can do for them is sort to make them live,
sustenance, sustain them.
We never say, "Hey, how about a growth economy?"
And if you want to run into the cause to this schizophrenia,
there are a lot of people in Africa, political leaders
and others, who are hugely resentful of the United States
for not bringing the message of growth there.
And it's a very important thing 'cause sometimes
in faculty clubs we say, "Oh, it'll be great to have sort
of a microlending world," right?
As the professor of economic development says, "Fred,
I want another crab cake, quick."
Okay? Do you get my point?
The cultural drift here or divide, okay?
Now, why don't you go to this gentleman with the beard, okay?
'Cause he's been nodding his head in ascent half the way
through the lecture and I got nervous--
>> No, no, no, you shouldn't--
>> I think I've gone nervous halfway.
>> You shouldn't be nervous, I was very pleased.
There's just an-- one thing that you were too nice to us about,
one of the big problems is that universities have failed test--
just devastating in mental innovation.
Let me give an example because--
>> Mental--
>> I'm getting new ideas that can drive change.
Simple example, I discovered that hydrogen could be made,
this is a defense department study, using solar energy
to just split water like hydrogen fuel cells,
drive a car, no pollution rather than put of oil.
This is an [inaudible] 'cause the hydrogen goes
out the other end, it hit oxygen and makes water vapor.
So you're actually storing solar energy, the hydrogen.
Nobody knows about this damn thing.
All right, Toyota is now making a hydrogen car,
where are they making it?
In Europe, why?
My colleagues here at Dartmouth don't care about the fact
that I do research, ever tired,
that deals with these technological innovations.
So that has to do with public policy like that.
>> Yeah.
>> But kind of putting water supplies
that increases the crime rate, but the issue is
that when you think outside the box,
you can generate new businesses and we are not helping you
because my colleagues aren't doing their work.
>> Well, now, it's my time
to shake my head in that sense, okay?
And go back from my remarks about--
imagine if the driving notion of the university,
let's say Dartmouth, if you were to come and matriculate here
in the fall, which I'm now getting a little doubtful about.
[Laughter] You know, if the president said,
"Welcome class of 2016."
I'll tell you our commitment in this university.
We are going to entice, prompt, deliver to you an environment
in which we expect more creativity out of you guys
in any freshmen class,
in any other institution 'cause that's what we're really about,
just what this professor says, okay?
I couldn't agree with you more.
And if you think about it,
here's a very startling number and, by the way,
this is really important for a lot of people
who might be invested in the notion
that government can invest and our future will flow.
I'm not a panel at the moment
where we're advising the department of commerce on how
to improve innovation.
I chaired the panel in the Bush administration.
We're the fastest, cheapest panel the government ever
put together.
I don't know that to be true
but we wrote our report way before our deadline
because it was a great report, we has a lot
of very important people on it.
Sam Palmisano was the chairman of-- IBM was on it and so forth.
We concluded we couldn't measure innovation
in United States and who cares, okay?
It's happening, but if you can't measure it,
you can actually take policy.
And so what I was hoping to do is appropriately bring us
to a conclusion so we didn't make any mischief.
Now, the current panel, basically,
a third of our panel are presidents of universities.
Some are venture capitalists.
What do you think their recommendations are?
"Give universities a lot more money."
That's simply it.
And here's something that troubles me about universities.
If you look at the rate
of new discoveries coming out of NIH, okay?
This is a little radical, but it's subtly,
secularly trending down.
And mind you, President Clinton doubled, doubled, doubled,
that is 2X, 2 magnitudes the budget at NIH.
And they were getting the marginal return
on our investment.
You know there are professors who say, "Well,
we sort of invented, doing, you know,
we've gone as far as science.
Well, let us go right now."
My view, it's okay, let's build roads then instead, okay?
I mean, let's wait for somebody to breakthrough with something.
But of course, that's not the mean among universities.
Just give us a lot more money 'cause this is
where innovation happens.
Well, that has been true.
But to understand economics
that which was the institutional arrangement 20 years ago is not
the institutional arrangement today.
So the big fat question that ought to occupy a bunch
of professors in some place is where is the optimal seedbed
for innovation in the society?
Is it free market or private firms like IDEO design firms?
Can design schools tell us more about how
to create new businesses?
That's one hypothesis that I carry.
But where this-- where is innovation going to come from?
But we don't have that dialogue underway.
Sir, your question is particularly well-taken.
Oh yes, here in the neighborhood, okay?
>> Thank you again for coming.
I have a question that's kind of directly relevant
to what you just addressed but-- so talking about the incubators
for innovation, currently, we see a lot of young people,
you know, under 20 coming
up with entrepreneurial ideas solely based
on say Facebook apps or iPhone apps.
And they're becoming increasingly specialized
and increasingly bizarre and you could call
that new value creation.
But at the same time, how do we produce the sort of innovations
that are based on a very specific
and necessary knowledge-based
that only comes from universities?
>> No, I agree with you, right up to the back end,
that only comes from universities?
That's not clear, that's not clear and in fact,
I think we are making a huge mistake by going
into the future thing as just universities that can do this.
I think we should stress test our universities like crazy
and you watch 'cause I'm watching it in this panel
and you watch it 'cause it's going out in Washington.
The current administration is very friendly
to big universities.
They have tortured for profit, education establishments, okay?
Tortured maybe a little big word but if you were running one
of those companies, you'd think you were tortured, okay?
'Cause it's presumed you're no good.
Now, there's a lot of abuse there, taking veteran's payments
and so forth in private sector area.
But clearly, you know, is it abusive to a student
to let them come to fine university and take a course,
take-- become a major in Leisure Management?
That person will never be productive,
that person going to take.
I mean a public sector job running a park.
A job that does not require a college education by the way,
but it brings up an awful lot of college resources
and they populate a campus with a lot of people
who sort of-- are they scientists?
I mean, are your colleagues, they don't teach you
and I hope-- I hope I'm making a right assumption here.
You're not coming here to become a leisure time study major, huh?
>> No.
>> Okay, all right.
I hope they don't do that here but there are a lot of colleges
in very splendid universities who would spend a huge amount
of the university resources on stuff where we're never going
to have any innovation.
Indeed, we have counter innovation.
Think, if you will, of graduate schools of education
that they are a counter revolutionary force,
if you will, or a counter innovative force
for starters, okay?
So don't just make the presumption
that at [inaudible] universities
that it's comfortable here, okay?
And I gave absolutely wrong answer.
But I've been assured that that door goes to the street, so.
[Laughter] Okay, but, you know, your question is really
where are we going to find this, right?
Where is it going to be instead?
And I think we have lots of little clues,
people running incubators, you know.
This year, by the way, we have more angel investors
and new firms than venture capital investors.
Angel investors are people like me who've been tried in firms.
They know a huge amount of technical, not me,
but a lot of people do huge amount of technical stuff, okay?
They can encourage and push innovation in these firms,
you know, a firm that I'm an investor in has 60 patents.
The innovation is going on totally outside,
it got kicked off of the University of Minnesota,
but it's going out way outside the University of Minnesota.
This is how your blood will be drawn
into a test facility, okay?
It will be painless, it will be a prick of a laser,
they'll take a microdrop of blood, you won't even know it,
and we will do 80 assays
in these five-ply pieces of plastic, okay?
It will revolutionize us.
Anyway, like technology, we put a lot of people out of business
so we can be sure the American Society of Phlebotomist will be
in congress saying, "Oh no, that can't be nowhere near
as accurate of me going, vial one, vial two, vial three,
not a little infection risk, yeah, we'll do four."
Okay? [Laughter] Right?
"Oh, I mixed up the vials, I'm sorry."
Right? "You don't have diabetes, I'm so sorry."
Right? I guess you get to live some more or whatever, okay?
All right, you had a question there, sir?
>> How many in your view, has the--
>> Microphone please.
>> In your view, is the hyperkineticism and overreaction
of financial markets
to particularly intellectual technology entrepreneurship a
good thing or a bad thing?
>> No, there's a great paper buyer, a former colleague
of mine at Kauffman called the "Financialization
of Entrepreneurship" and it makes the case
that we are wasting huge amounts of human capital
of our brightest kids go to New York and do innovations
in finance that we just plain don't need, okay?
And I don't know what we do about that.
You know, it's alarming.
It pays extremely well but maybe the first step we make
as we actually are conscious of it is, if you will,
I mean this is it's a little bit of hyperbole
but I actually believe this, it's a waste of human capital,
it's a waste of human talent.
Same thing, you know, if you think about--
did you want to be a doctor?
Good. [Laughter] It's a terrible way to live--
tell me, you're not going to be a lawyer.
>> No.
>> Good. Okay, that's very good, okay?
And think of all the extraordinary talent
that we push into medical schools.
You know, some subset of doctors have to be great,
some subset of doctors have to be really great
and be on laboratories.
You know, I spent 15 years at Johns Hopkins.
Those are stupendous doctors but you have to, you know,
it's a total societal ways.
I think Hopkins and Stanford are actually recognizing it now.
Stanford I know for sure is.
You don't get to Stanford if you intend
to practice medicine, okay?
Hopkins, same thing.
You know, if you go to-- it's a total social ways if you go
to Johns Hopkins and turn out you want
to be a practicing pediatrician.
I mean social ways is unbelievable, right?
And it's just an illustration of it.
So I think we've got a lot in our labor markets mixed up.
But the reality is we don't have a path
for extremely creative kids to go down.
Or put differently, you know,
my chance of getting rich are much higher at Goldman Sachs
if I'm a wizard mathematically or going
over to ABC hedge fund then going out
and trying to start a new firm.
Everything is loaded in that direction.
In my view is I'm sort of-- and I hope this isn't this--
ex-marketing, I'm sort of with you.
If we had a culture inside our universities
that was not just a laboratory, but actually,
we knew how to engage people in a way
that they became more creative.
We might draw a half of those people over here
and they could be doing extraordinary things.
I have this lady in the left,
I must have given her the wrong answer [laughter]
but she raises a question that's very much in the mind
of a lot of policy makers.
I'm not so sure I'm in that camp,
but there are people running around starting to see this--
my cell phone is away, but these cellphones
and all these new things, Groupon and, I mean,
they're all ephemera, they're not really breakthroughs.
They are right at one level.
This is not heavy duty advancing of our economy.
The cellphone itself is, and in fact, I think in our hands,
if we can imagine, I have one here, you know, not a lot longer
like measured at X, X minus five years.
We thought about this as a communicating device,
it's not a technological platform.
And my own view is, in a broad definition of infrastructure,
that's what we got and it won't propel the economy.
It's very important that we do this.
It should not be dismissed the way
as you see commentators do on TV all the time.
On the other hand, they're sort of half right.
You know, an analysis of returns in venture funds lead you
to one conclusion and that is when we had a breakthrough
in silicon and a breakthrough in cell technology, we made a lot
of money as an investor.
We have not had a subsequent enormous breakthrough
to year point, okay?
We're all the people fooling around with hydrogen
and new car type stuff.
But anyway, my own view is, when you bailed out a car company,
you'd needily snuff out all the human capital
that would run in that direction.
And my own view is that employment will be much lower
in Michigan, had we not bailed out those two companies?
You say, "Oh, but we need cars."
Yeah, [inaudible] guys would have been
in there in nanoseconds.
They'd have bought the Pontiac brand.
Somebody else would have bought Chevy truck,
somebody else would have bought blah, blah, blah.
And incidentally, every single one
of those things would be much better products today.
There'd be hugely better products
and you'd see innovation like crazy,
they would have killed enter--
they would have killed engineers left and right,
brilliant engineers out there.
We'd have 3,000 new companies in Michigan creating, you know,
transmissions that use half the energy to move power, the wheels
and stuff, new break systems.
We'd see stuff we couldn't even imagine.
But not when the government says, "We'll keep it like it is.
And oh, by the way, you want to produce some vault?"
[Laughter] It's not to say I'm against innovation,
there's not-- you never talk to anybody who's more committed
to innovation but the government's got going
to be able to design a car for us and the evidence
of it is look how many of us are buying it that's not
producing it?
[Inaudible] as they sold 140 of them
across the entire American nation.
So you could vote religiously for the car
which some people do, they're still on their car
at their garage, they're perfect.
Someday, it's going to be a huge market,
but absolutely, untouchable.
Run away off to Ebay and put your reservation in.
Okay, how many more minutes we have or is this it?
We got one more question?
>> One more question.
>> One more question.
The man in the back.
I'm sorry, that's not enough.
Do I hear 200?
>> You mentioned the value of forgiving
and encouraging failure of entrepreneurs
but why isn't the failure
of government-sponsored entrepreneurs equally valuable
for learning?
>> Because it's extremely costly.
Government can't do it cheap, okay?
If you and I started to fund, then we are going
to do Solyndra, we would not have first built a beautiful,
beautiful, gorgeous building.
We would have finely broken airplane hangar
of which there are [inaudible] in California
and spend a lot of money.
So I agree with you in half but when government does it,
the cost of the failure is extraordinary
and you can't find a kind of an example.
We're waiting.
>> But isn't there-- isn't it possible to simply have cops
on the amount of funding that the government provides?
>> Yeah, that'd be great
but politicians are not capable of doing that, right?
The Secretary of Energy wasn't going to say, "Well,
we're going to have a new fund,
we're going to recreate the energy future of America
so we're here ready to dole
out five-million dollar investments."
Would that have been the case?
Incidentally, would that have been the case?
'Cause, you know, if that had been the case,
it would have been an invitation to lots of people like you
to think you could have a shot at 5-million bucks.
In fact, I will now offer the empirical case.
All over the federal government, we have SBIRs
which is free money from the government.
If you got a good idea, you can get 700,000 bucks
and I think another 700,000 bucks and it's not--
the government doesn't take any equity, it's a grant
for small business innovation research.
And when the government said, "Hey, we're going to move it
from 700,000 up to seven million,"
I would have been there applauding
because it would have invited lots and lots of people
in who might have, you know, for seven million bucks,
there are people out there who could say,
"I can build a vault that's beautiful and works."
And the evidence I would suggest is look
at the Express Foundation.
Look at what just the tantalizing notion
of a two million, seven million dollar,
5 million dollar award is, how many people invest huge amounts
of money to get there?
And the innovation that's happening, you know the Express,
I used to be a director of the Express Foundation and one
of the great extraordinary things is there's a price
to develop a technology that come up with oil ***
if there's oil in the ocean.
And, you know, the entrance,
every single one the entrance I believe is doing 2X the
efficient gathering of oil is the existing technology.
And this is a very good point of--
why do we want contests, right?
When you got here as a freshman,
you sit down with freshmen and [inaudible].
This is an awful stogie.
You guys are sitting on your reputation up here
in the middle of nowhere, right?
And put this noxious away buster, okay?
How about tantalizing our freshmen class
with a two-million dollar bet that we can come
up with something that will revolutionize human welfare?
Overnight, you'd meet your colleagues like that,
you'd figure out who the smart engineers were,
you'd be at the dean's office saying, "You know,
we don't have the smartest people here,
we got to get quickly transfer in some kids from MIT
or some place," right?
CalTech, right?
Something like that, okay?
IIT, let's go international.
Okay, I think I'm at the end of what I have to say
and I appreciate all your attention,
you've been a great, gracious audience.
It's been a delight to be here, the food were great at lunch
and it's like I'm going to Cornel,
there's only one drawback here, no airport
but you're doing pretty well without an airport anyway.
So I wouldn't mess with the formula except it's going
to be your school so, all right?
And as a student, you own the school
and make sure you tell them that, okay?
Faculty don't believe that.
Okay, thank you.
[ Applause ]