Monday, March 31, 2003
12:00 pm - 2:30 pm MON 3/31
A revolution is taking place in medical research that will lead to fundamental changes in the way people are treated — from individualized medicine to preventative measures that will result in longer, healthier lives.

But the amazing advances in technology that drive these changes also raise difficult questions about how doctors, scientists and society will approach research so that we can find cures and treatments sooner.

In a luncheon panel discussion that inaugurated the Milken Institute′s new Center for Accelerating Medical Solutions (CAMS), six distinguished leaders in biomedical research joined Chairman Michael Milken to outline its future and recommend ways to improve efficiencies in the medical research apparatus.

They described a future in which a simple blood test would reveal which diseases you are predisposed to developing — and prescribe treatment to prevent you from getting it; where we can analyze individual cells to determine the effects of new drugs — and then optimize their use; where we can even begin not only to control, but eliminate some of our most deadly diseases, such as cancer.

"This is going to change the nature of medicine," said Dr. Leroy Hood, Director of the Institute for Systems Biology.

CAMS is a new think tank that seeks to improve the efficiency of the medical research process. It will develop and recommend proposals to insure that the process of advancing medical solutions is functioning as effectively as possible so that we can shorten the time it takes to find treatments and cures for our most deadly and disabling diseases.

In their discussion, six health care experts and moderator Michael Milken outlined some of the issues that CAMS will address, such as:

  • Will extending patent lives accelerate science? (Gordon Binder, former CEO of Amgen, the world′s largest biotech company, said that extending the 20-year patent by even one year will make a big difference in creating new drugs.)
  • How can we improve coordination among government, the private sector and academic institutions — an issue all the panelists agreed was critical.
  • What are the most effective incentives to encourage participation in clinical trials, for which there is an enormous need.

"CAMS is an idea whose time has come," said Andrew von Eschenbach, Director of the National Cancer Institute.

He and the other panelists agreed with the main premise of the Center, which is that while bio-medicine promises many amazing advances in coming years, the medical research machinery needs revamping to realize them.

Among their ideas for speeding up the time it takes to find medical solutions were:

  • More collaboration from a variety of organizations and disciplines to solve medical problems, and less reliance on individual research breakthroughs.
  • More focus on solving medical problems and not just on making discoveries.
  • More attention to incentivizing the "best and brightest" students to study medicine and science, and then give them the training they need to practice medicine as the future will demand.
  • Integrate the medical research infrastructure in a more efficient way.

CAMS will mobilize economists, medical researchers, clinicians, ethicists, computer scientists and many other disciplines to evaluate what can be done to accelerate the war on these diseases. What economic incentives, for example, would help push discoveries along? Finding ways to shorten the path to cures, better treatments and effective prevention of these diseases will not only relieve human suffering, but would also be a tremendous boost to the economy through longer lives and increased productivity.

Michael Milken, Chairman, Milken Institute; Chairman, CaP CURE; Co-founder, Milken Family Foundation
David Baltimore, Nobel Laureate, Medicine, 1975; President, California Institute of Technology
Gordon Binder, Managing Director, Coastview Capital; former CEO, Amgen
Leroy Hood, President, Director and Professor, Institute for Systems Biology
Richard Merkin, CEO, Heritage Provider Network
Alan Robinson, Vice Provost, Medical Sciences and Executive Associate Dean of the UCLA School of Medicine
Andrew von Eschenbach, Director, National Cancer Institute
4:00 pm - 5:15 pm MON 3/31
Stuart Eizenstat, author of Imperfect Justice: Looted Assets, Slave Labor and the Unfinished Business of World War II, addressed a rapt audience to tell the improbable story of how 50 years later, the victims of the greatest robbery in history, were compensated — if imperfectly. It is the story of deposits made by Jews to Swiss banks for protection from the Nazis that were never returned; of corporations held accountable for slave and forced labor — fifty years later; of stolen art reunited with its rightful owners or their heirs and insurance policies never paid.

What began as a seemingly simple request to return property to newly emerging religious communities in Europe so that they could rebuild 50 years after the end of WWII turned into a six year quest that lasted right up to the last minutes of the Clinton administration. It involved political intrigue, threats of sanctions, presidential interference, behind the scenes negotiations, all to get Swiss banks and former wartime "employers" to pay restitution. Though Eizenstat′s mission generated a decidedly unenthusiastic response from the European community, that did not deter him.

This effort was seen by the U.S. as a chance to rectify the moral cloud hanging over it for doing so little to help Europe′s refugees either during or after the war, coupled with the knowledge that in the face of concrete evidence, there was no definitive statement by either Roosevelt or Churchill against the genocide that they knew was taking place.

What raised the issue that was dormant for five decades, prompting an investigation that turned Switzerland on its head and rocked the U.S. from coast to coast? The confluence of three events:

  • The realization by survivors of the Nazi holocaust that they had only a few years of life remaining.
  • The end of the Cold War, which freed up energy for attention to other matters. Archives were opened and people became aware of previously undisclosed events.
  • A series of 50th anniversary celebrations across Europe and the U.S., prompting a look at what Eizenstat calls the unfinished business of World War II.

The payoff of this investigation, Eizenstat emphasized, was the emergence of the truth. Eizenstat served as intermediary between the Swiss banks, lawyers representing plaintiffs in class action suits, the Swiss, German and French governments, insurance companies and the United States government. What became clear was that Switzerland acted as financier for the Third Reich, depositing gold it knew the Germans looted from the banks of the countries it overran. This encouraged the Swiss to be forthcoming in its efforts to return the contents of more than 20,000 dormant accounts to their rightful owners.

The German government forced 10 million people — nonJews from other countries — into slave and forced labor in its factories to keep its economy going while its own citizens were fighting the war. The compensation to the victims was minimal — $2500 for those in forced labor and $7500 for those in slave labor — but the act offered a modicum of closure and acknowledgment for those wronged.

In many respects, Eizenstat said, there can be no final accounting. This was an imperfect justice because it did not help at all the millions who died during and after the war, and imperfectly helped those who survived. He likened the process to the civil side of the Nuremberg trials, advancing the cause of human rights, prompting education and perpetuating truth.

The most honest commissions, he said, were the Swiss and the French — the only Western democracy to willingly transport its own citizens to their death. After decades of denial, the ultimate admission by Jacques Chirac that the Vichy government was indeed French, enabled a new honesty.

The negotiations, said Eizenstat, "opened a window for a new form of foreign policy" — the democratization of foreign policy.

Stuart Eizenstat is a partner at the law firm of Covington and Burling. He was also Deputy Secretary of the Treasury, Under Secretary of State, Under Secretary of Commerce and U.S. Ambassador to the European Union during the Clinton Administration and Chief Domestic Policy Advisor in the Carter Administration.

5:30 pm - 6:30 pm MON 3/31
6:30 pm - 9:00 pm MON 3/31
The first session of this year's conference, "The Long View — Is History Destiny?" followed opening remarks from California Governor Gray Davis. Mike Milken, who moderated the panel, was joined by Paul Ehrlich of Stanford University, University of Chicago Nobel Laureate Robert Fogel, MIT′s Steven Pinker and Alvin Toffler, author of the best-selling book, Future Shock, to debate the importance of history to the future of mankind.

Noting that predictions are not possible but that broad generalizations are, Toffler touched on a number of important current themes that were unified, in his view, by the rise of the United States as a new type of civilization. America is, Toffler contended, increasingly the "odd man out" especially in the industrial-age international institutions such as the United Nations.

Paul Ehrlich is well known for his pessimistic predictions in The Population Bomb, a best-seller in the 1970s, and Mike Milken asked him to reflect on the failure of many of those predictions to come true. Ehrlich insisted that, in fact, many of his predictions have come to pass and that "a lot of grim things" have occurred in the years following the book′s publication.

Steven Pinker, MIT professor and acclaimed author, reflected on the fact that all political philosophy contains within it a theory of human nature. Insofar as this is true, developments in the theory of human nature cannot fail to have political repercussions.

Robert Fogel agreed with Toffler′s view that change is an accelerating phenomenon, noting that half of all increases in human life expectancy have occurred in the last 100 years of our species′ 200,000 year history. Technological change will, he argued, continue to drive America′s success and the failure of national statistics to capture increased quality of life due to improved technology have led to a massive understatement of economic growth.

Paul Ehrlich challenged the positive future foreseen by Toffler and Fogel. While GDP is rising, human happiness is static at best and may be falling. Added to this, he reminded the audience, growth puts at risk the ecosystem services critical to the economy′s functioning. Toffler defended his optimism contending that assumptions of fixed limits to growth and progress fail to take into account man′s ability to apply knowledge to emerging problems. Steven Pinker agreed noting that there are a great number of unknown future inventions and developments and that this is one of the reasons why pessimistic predictions often prove to be flawed.

Ehrlich stressed that redistribution was more important than growth, a view disputed by Fogel. While the developed world should share technological developments with the poor, it is important, he noted, that the lot of the poor has improved remarkably over the past 100 years. However, Ehrlich was correct in challenging the view that happiness and wealth are necessarily correlated closely according to Fogel. One need only watch the movies of the Great Depression to see that the rich can be unhappy. Indeed, "being rich doesn′t mean you never have to see a psychiatrist." Pinker noted that there are diminishing returns to wealth. In poor countries, happiness is closely correlated to wealth but as countries develop, getting richer doesn′t make you much happier.

Mike Milken followed this discussion by posing the question of what history has taught us. Robert Fogel noted that history does not tell you the future but it is our legacy. It provides us with a starting point that shapes our vision of the future and our opportunity set. Toffler noted that one cannot think without analogy and in providing analogies, history allowed one to think about the future. Steven Pinker considered the history of human nature and noted that while a belief in human nature has historically been seen as being associated with pessimism, it was in the gap between thought and behavior — the ability of man to control impulses — that optimism was possible. Paul Ehrlich viewed history as a "partial guide" to the future and noted that in fact history offers examples of seemingly impassable barriers and challenges resolved.

The panel was brought to a close by Mike Milken asking whether man has free will. Steven Pinker noted that while our brains are physical systems, there is another sense of free will. Man is able to evaluate his environment and make predictions about the consequences of his actions. Paul Ehrlich agreed with this view suggesting that "for practical purposes we have free will." An economist′s view was added by Robert Fogel who remarked that man is capable of making choices under constraints and that this ability combined with the ability to correct choices amounts to free will. Finally, Alvin Toffler agreed, suggesting that we have "what appears to be" free will although constraints — be they biological or cultural — remain important.

Michael Milken, Chairman, Milken Institute; Chairman, CaP CURE; Co-founder, Milken Family Foundation
Paul Ehrlich, Bing Professor of Population Studies; Professor of Biological Sciences, Stanford University
Robert Fogel, Nobel Laureate, Economic Sciences; Charles R. Walgreen Distinguished Service Professor of American Institutions, University of Chicago, Graduate School of Business
Steven Pinker, Professor of Psychology, Department of Brain and Cognitive Sciences, Massachusetts Institute of Technology
Alvin Toffler, Author, Futurist
6:30 pm MON 3/31
Governor Davis welcomed the attendees to the first day of the Milken Institute Global Conference noting that the makeup of the audience mirrored an important characteristic of the State of California. In the room, Governor Davis noted, were two politicians and seven Nobel Laureates. This statistic, he said, summed up the state. California was not about "rubber chicken dinners" but was rather a place where people were involved "inventing the future." the Governor reminded the attendees that California has the most research universities of any state and it's working hard with the private sector to build the system′s research capabilities. The Governor ended by reminding the attendees of the sacrifices of the American troops in Iraq.
Tuesday, April 1, 2003
6:30 am - 8:00 am TUE 4/1
6:45 am - 7:45 am TUE 4/1
8:00 am TUE 4/1
8:00 am - 9:45 am TUE 4/1
The discussion this year focused primarily on the distinctions between today′s economic environment and that of the early 1990′s. While the current administration′s stimulus package — including elimination of the double taxation on dividends — is certain to have a positive impact on U.S. equity markets, the panel agreed that an economic recovery will be slow in coming. The geopolitical risks related to the war and the continuing efforts to thwart terrorism globally, coupled with rising oil prices and an increasing budget deficit, could easily wipe out the benefits of any tax cuts that investors anticipate will help pull the U.S. economy out of recession. Suzanne Nora Johnson summed up this sentiment by stating that investors "should not be lulled into the thinking the economy will recover quickly even after the war is over."

The common view stressed throughout the discussion was that the war is not the only headwind facing the economy. Glenn Hubbard and Joseph Neubauer emphasized that business leaders need to continue training and retraining "knowledge workers" in order for the U.S. to retain its economic leadership position. They pointed out that to promote continuing flexibility in the U.S. economy, business leaders must be given incentives to invest in people and in equipment. Hubbard argued that the removal of the dividend tax is a positive step in the direction of effective incentives because it "promotes flexibility in the economy…and allows for business decisions to be driven by business issues rather than the tax code."

Several panelists also pointed to the overall effect globalization continues to have on the U.S. economy, including resource allocation and pricing issues. In addition to trade imbalance issues, the growing budget deficit remains a very real threat to an economic recovery. In her comments regarding the distinction between past structural and cyclical bear markets, Ms. Johnson reminded the audience that a significant increase in oil prices could result in the shrinking of the GDP by as much as 1 percent.

Overall, the panel suggested that there is still significant room for a downward setting of expectations for quick economic recovery in late 2003. Diane Swonk went as far as to predict that the latter half of this year would see measured improvement in leading economic indicators, with a fuller recovery not likely until 2004. She was, however, optimistic about the momentum currently being observed in the data reflecting increased equipment spending, improved liquidity in the small business market along with notable improvements in consumers′ access to credit. In short, the panelists agreed that the dividend tax cuts, coupled with an additional 50 basis point reduction in the Federal Funds rate, should serve as effective stimuli to keep consumers and corporations spending at increasing levels and refinancing debt opportunistically.

While the topic of the rate of the U.S. economic recovery permeated most of the discussion this year, panelists also touched on the issue of corporate governance. Sharon Allen highlighted several positive features of the newly enacted Sarbanes-Oxley legislation including attempts to improve transparency between corporate executives and investors. The general sentiment among the panelists, however, was that rules do not necessarily change behavior. Neubauer took his own experiences as a CEO and as a board member on several other corporate boards to stress that legislators could be more effective in reducing fiduciary misconduct by increasing the SEC budget for enforcement efforts. Several others added that the standardization of internal control systems is not only expensive to develop, but also extremely difficult to implement given the differences between manufacturing and service businesses operating in a global context. Finally, one panelist reminded the audience that most of the disclosure requirements set by the new legislation have always been available in SEC filings made by corporations. He intimated that investors (both large and small) have a responsibility to review such information, rather than cry fowl when bad news comes out of the corporate boardrooms.

In summing up the remarks of the panel, Steve Forbes remarked that the elimination of the double taxation on dividends would be one of several positive drivers of an economic recovery. While the current recession is very different from that of 1991, the overall sentiment expressed throughout the discussion was that consumers are in much better shape today relative to the same period in the earlier downturn. The clear consensus among the group was that spending required on the continuing war on terrorism could very well be the U.S. economy′s Achilles heel. If the U.S. government can be effective in getting other countries to share in that burden going forward, the last and most critical component of a full U.S. recovery will be the return of a more nimble and outperforming equity market.

Steve Forbes, President and CEO, Forbes; Editor-in-Chief, Forbes magazine
Sharon Allen, Chairman of the U.S. Board of Directors, Deloitte & Touche
R. Glenn Hubbard, Former Chairman, White House Council of Economic Advisers; Russell L. Carson Professor of Economics and Finance, Columbia University
Joseph Neubauer, Chairman and CEO, ARAMARK Corp.
Suzanne Nora Johnson, Director, Investment Research Division, Goldman Sachs
Diane Swonk, Director of Economics/Chief Economist and Senior Vice President, Bank One Corporation
10:00 am - 11:15 am TUE 4/1
To begin, session moderator Joseph Boystak laid out a brief summary of the Biotech/Pharmaceautical market of the last three years. It showed a sharp decline from its booming $37.2 billion in 2000 to a mere predicted $6.8 billion for 2003. Yet, Boystak was optimistic about where the industry is headed in the near future.

"Many companies are going to find themselves within a purely Darwinian environment," stated Boystak. The rise of small companies with market caps of less than $250 million can be seen as quite dramatic. The formation of strategic alliances will prove themselves important as well in 2004 and 2005.

To begin the panel discussion, Dr. Anna Barker directed her comments specifically toward the relationship between technology and cancer. The National Cancer Institute, which she represents, is working toward cutting off cancer in its early stages, rather than spending too much money too late. She believes that with their $4.6 billion budget, the NCI, "should be doing significantly more," and went on to say, "We are at an inflection point that will require an enormous amount of change in the system." The fact that there are thousands of potential targets for new drugs poses a significant threat due to the difficulty of creating an attractive market.

Dr. Barker went on to talk about the "big problems" facing the industry today. She pointed out that there is a lack of communication among scientists, which yields slower drug development. And as usual, the FDA is an issue. The fact that the FDA only approves "survival" cancer drugs is a wall that must be taken down in order to march forward. Barker made clear that prevention drugs were the future and that partnerships might absolve some of the risk involved in the current market.

Dr. Charles Homcy was the next panelist to address the audience. He posed an important question immediately, "Why haven′t we seen many new innovative products?" The main reason, he suggested, was the number of targets already met. In the 70′s, the industry set a large number of targets that were unable to be achieved until very recently. He stressed that "We can′t wait to build a biological scaffold. We don′t have 30-40 years to reach targets." Finally, Homcy stated that the industry must find new techniques and set targets that are within the industry′s grasp.

Dr. Leonard Firestone provided the audience with "a view from the frontline" of the small pharmaceutical company sector. He referred to the relationship between the large and small companies as "symbiotic" in behavior, as it is a much smaller task to manage funds and identify costs of drug development at the smaller scale. Firestone was very straightforward in saying that the smaller companies do not possess the option of sticking with what looks to be a failing drug. Due to their decreased size, the exit strategy that they abide by is much different and yields far fewer losses. In closing, Dr. Firestone stressed that, "These companies are crucial to the industry. We cannot afford to starve companies of this size."

Next was Dr. Richard Bank who began by describing his feelings about the industry as "very optimistic." To explain the sharp decline following 2000, he said that the slowdown in the number of new drug approvals was directly related to the absence of a "captain of the ship." Bank felt that with the chaos and movement of positions within the FDA, many drugs awaiting approval were passed over. Yet, the FDA was not entirely to blame. The fact that there was a significant decrease in phase two clinical trials suggested that companies might have been rushing in to the development process and not being cautious enough to ensure approval.

Mr. William Slattery followed with his views of the current situation from an investment standpoint. He too, was optimistic and presented the audience with his favorite company, Genentech. With numerous drugs awaiting approval this year, Slattery pointed out that Genentech′s asthma drug Xolair has the potential to bring in $250 million in revenue. Alongside Xolair were Tarceva, Avastin and the much talked about 2C4. Mr. Slattery closed by saying, "I think that the future will be held with many opportunities, both long and short."

Lastly, Alan Mendelson decided to concentrate on the increase in mergers and acquisitions within the biotech and pharmaceutical industry. A promising deal appeared to be Amgen′s purchase of Immunex for close to $16 billion, one that is predicted to produce $9-10 billion in revenue within two years. Other deals mentioned include Johnson and Johnson′s acquisition of Scios for $2.4 billion, along with HYSEQ and Variagenics merging to create Nuvelo. These deals, Mendelson said, are paving the way for the future of the industry and that the driving force behind these deals is, "Products, products, products."

Boystak noted in closing that the "number of strategic alliances has increased," and that biotechnology and pharmaceuticals is an "industry with terrific promise."

Joseph Boystak, Managing Director, Health Care Finance Group, Jefferies & Co.
Richard Bank, President, Managing Director, First-Tier Biotechnology Partners
Anna Barker, Ph.D., Deputy Director for Strategic Scientific Initiatives, National Cancer Institute
Leonard Firestone, CEO, President, Chief Medical Officer, Director, Manhattan Pharmaceuticals, Inc.
Charles Homcy, Senior Research & Development Advisor, Millennium Pharmaceuticals Inc.
Alan Mendelson, Partner, Corporate Department, Latham & Watkins LLP
William Slattery, Partner, Deerfield Management Company
10:00 am - 11:15 am TUE 4/1
Old divisions between the United States and Europe, hidden for decades, have now been brought to light by the crisis in Iraq.

The U.S. and European governments differ on their approach to fighting terrorism, dealing with the proliferation of weapons of mass destruction, combating rogue states, the role of the United Nations and the appropriate use of military force. According to panelist Rockwell Schnabel, "today, Europe is less friendly [towards the U.S.] than it has been before."

Wolfgang Ischinger noted that the crisis with Iraq created two disagreements between Europe and the U.S. First, there was a disagreement as to whether Iraq was as critical a threat as the U.S. claimed and whether it should be the top priority of the United Nations. Once the U.N. unanimously passed resolution 1441 and it was generally agreed that Iraq was such a threat. The second disagreement arose over whether or not Iraq′s noncompliance warranted the immediate use of military force.

Ischinger believes that for Europe and the U.S. to avoid future conflicts, they must have a debate that will prioritize a common strategy for dealing with international crises. During the Cold War, there was a common enemy that took priority. Today, it is less clear which threats the U.S. and Europe should focus on first.

The issue of Iraq has not only shown the divisions between the U.S. and Europe, but it has also revealed differences within Europe and the European Union. Twenty-two of the 25 nations and candidate nations of the EU support action in Iraq. This raises questions as to how the EU will be able to coordinate a common foreign policy, as well as a common strategy on European defense.

George Argyros noted that historical, social and economic differences throughout Europe continue to play a role in European policy making. Spain, for example, with the decades of isolationism it experienced under Franco, did not participate in World War II and did not partake in the economic resurgence experienced in post-war Europe. Today, Spain′s struggle with the Basque separatists shapes its outlook on fighting terrorism. At the same time, Spain′s economy is now growing at a much faster rate than that of the European Union. Thus, Spain has a much different view of Europe and its role in the world than other member nations. And similar differences can be found though out the E.U.

The panel was unanimous in its view that Europe and the U.S. have far too much in common to let their relationship flounder. Economic, historical and political ties bind their relationship and makes cooperation between them crucial.

Rockwell Schnabel believes that Europe and the U.S need one another to pursue justice and democracy in the world, as well as to attack problems of global poverty, a contributing factor to international terrorism. Wolfgang Ischinger reinforced this point and said that despite the current divisions "we are still allies and partners." The panel was also unanimous in its belief that the U.S. and Europe will cooperate though the U.N. to rebuild post-war Iraq.

Stuart Eizenstat, Partner, Covington & Burling; former Deputy Secretary of the Treasury; former Ambassador to the European Union
George Argyros, Ambassador, American Embassy, Madrid, Spain
Wolfgang Ischinger, Ambassador of the Federal Republic of Germany to the United States of America
Rockwell Schnabel, Ambassador, U.S. Mission to the European Union
10:00 am - 11:15 am TUE 4/1
The tragedy of 9/11 has had a lasting and dramatic effect on all American lives. With the rising fear of future terrorist attacks, industries such as travel and tourism have taken a enormous hit in major U.S. cities such as New York and Los Angeles. From salary cutbacks to bankruptcy, many U.S. companies have had to restructure their financial portfolios as well as increase security measures. The F.B.I., C.I.A, the newly formed Department of Homeland Security, and the government are in the process of finding ways to prevent such attacks while maintaining American freedoms.

To begin the panel discussion, David Gordon, Director of the Office of Transnational Issues for the C.I.A, took a moment to speak on how the world has changed since 9/11. He commented on the growing challenge of nuclear weapons with nonstate actors creating a new source of weapons of mass destruction. Referring to the Middle East, he commented that "regions marked by conflict are likely to follow suit," proliferating weapons of mass destruction. Gordon also spoke of "economic vulnerability." He believes that we must pay careful attention to open market transactions, specifically on our U.S. ports. According to Gordon, other areas of vulnerability we should prepare for include cyber attacks on the Internet and on our financial banking systems.

When asked by moderator Glenn Yago of the Milken Institute, what his recommendations would be for increasing homeland security, Jules Kroll, Executive Chairman of the Board for Kroll Inc., responded with a four-fold layout. First, he stated "we must set standards for what is expected at places that hold large numbers of people such as stadiums." In agreement with David Gordon, Kroll also believes that "U.S. ports are where standards need to be set higher." Third, he explained that IT security is extremely important and that the use of firewalls is critical. More specifically, Kroll mentioned that research universities with laboratories need more protection than what already exists. Lastly, he stressed that teaching people how to properly leave a facility in the event of a problem is very important.

John Miller, Commanding Officer for Homeland Security Bureau for the Los Angles Police Department, expressed his thoughts on 9/11. Having previously interviewed 9/11′s suspected mastermind and leader of the Al Queda terror cell group, Osama bin Laden, Miller believed that "although the FBI and CBI [of India] collectively had all the information to prevent such an attack on the U.S., they were unable to connect the dots." He reminded us that bin Laden waged war on the U.S. five years ago when he bombed the U.S. embassy in Tanzania. At that time, the Clinton administration launched missiles in retaliation, but failed to take on bin Laden and his terror network then, when success was likely.

Prior to 9/11, Miller states that people living in California expected terrorism to be an "East Coast issue," but that is no longer the case. Now, the city of Los Angeles is doing its best to increase its budget for the war on terrorism.

Miller believes that before we move on, the conflict between Israel and the Palestinians must be resolved. Ending this conflict would "relieve nearly 95 percent of what′s going on," he stated.

Gary Wilson, Chairman of Northwest Airlines shared his views on the faltering airline industry. The high cost of security and declining revenues have crushed the industry financially, he said. With fear of flying on the rise, coupled with lengthy lines at airports, people are discouraged from flying. Wilson points out that "from the $250 they charge per ticket, $80 dollars accounts for taxes, and $12 for the 9/11 security fee." He added, "The industry can′t take much more of this and is in desperate need of a tax relief." Wilson also suggested the need for a "traveler program" that would eliminate excess waiting time at airports.

Constance Rice, co-Director of the Advancement Project in Los Angeles, believes that we must act on any terror threats right away, rather than after an attack has taken place. Expressing her disappointment with the country′s security and intelligence groups, she says, "we are not being strategic" and that "we need to rethink a counterattack." In suggesting how we can reduce future threats, Rice believes that "we must hold more public hearings, as well as encourage more opinions and expertise on counter terrorism." She feels that we must find what it takes to give up our civil liberties in exchange for security.

Furthermore, Rice pointed out that although poverty does play a key role in terrorism, terrorist leaders in the Arab-world come from the richest backgrounds. "Their reason for terrorism against the U.S. is based on humiliation, not money," she said.

Rice maintained that the answers lie in establishing a human network, the ability to infiltrate, collaboration, and more aggressive FBI involvement. "How we do it is just as important as why," she claimed. Rice closed the panel by saying "we′re overreacting and underreacting, and we′re going to pay for it."

Glenn Yago, Director, Capital Studies, Milken Institute
David Gordon, Director of the Office of Transnational Issues, Central Intelligence Agency
Jules Kroll, Executive Chairman of the Board, Kroll Inc.
John Miller, Commanding Officer for Homeland Security Bureau, Los Angeles Police Department
Constance Rice, Co-Director, Advancement Project, Los Angeles
Gary Wilson, Chairman, Northwest Airlines
10:00 am - 11:15 am TUE 4/1
Responding to the challenges of risk and uncertainty in the modern economy, the panelists described the necessary evolution toward a combination of growth in size and accuracy of information available to companies. In recent years, the development of appropriate analytical systems and capable personnel to process incoming information has aided sound decision-making. The panelists repeatedly stressed the importance of maintaining and improving the skills of managers at all levels while remaining wary of rigid systems and sacrificing flexibility.

Ash Vasudevan astutely noted that without the presence of relevant and appropriate processes for digesting the vast amount of information available, all managers are doing is "making old economy mistakes at new economy speeds." Tom Wright agreed with this, noting the exceptional performance of his managers at Cathay Pacific Airways during the crisis of 9/11. No amount of contingency planning could have prepared his staff for those events; yet, they were able to minimize the losses from the unforeseen events through efficient internal action.

The panel contrasted the personnel characteristics they emphasized with formulaic decisions and responses. Complex mathematical models developed in recent years have produced complicated results that unfortunately do not correlate reliably to actual practices, they contend. The complexity of these models is their weakness according to Martha Amram. What is needed are simpler, more available models that, though they leave out many variables, produce less clouded, inconclusive results. Here the importance and relevance of capable personnel and appropriate decision-making processes become clear.

The panelists also agreed that all of this emphasis on personnel was not to downplay the importance of accurate and timely information. Ash Vasudevan noted the development of supply tracking at every stage in association with technological advancements such as R.F.I.D. Supply chain visibility and transparency is then essential to form the basis for sound decisions. However, Vasudevan reiterated the point that information is worthless without the proper analytical processes and capable people to take the proper course of action based on available information.

Despite the improved information available, uncertainty still pervades supply decisions coupled with the imperfect knowledge of demand factors affecting the economy. External factors led the panel among the influences driving increased focus on protecting value. Increasing globalization was among those concerns expressed as a source of uncertainty in light of 9/11 and its aftermath. Manufacturing outsourcing and increasing intensity of competition, both as a result of globalization, also concerned the panel as sources of uncertainty. Internally, many of the risks of uncertainty are solved through capable personnel, just as external risks.

Increased velocity of information availability and decisions have caused external events to be more near term than they have been in the past. A result, says Martha Amram, paralysis is often a response to uncertainty, which is just as detrimental as the effects of a causal shock. Companies too often respond like a "deer caught in headlights," said Navi Radjou. Investment has been stymied in Japan because of such paralysis; no amount of reassurance has been able to alter expectations of uncertainty and poor returns. To counter this, the panelists encouraged flexible proactive planning as opposed to reactive measures to take into account future unexpected events.

The panel focused directly on the present and the extremely uncertain state of the economy. In final comments, they were asked to specifically name companies that have dealt adroitly with risk and uncertainty. Chris Gopal began by describing the system Dell has used to become an industry leader in recent years, commenting that the company has effective multiple scenario planning, and responds quickly to market fluctuations. Walmart also arose as an effective supply chain manager, flexible and efficient enough to absorb shocks, though using markedly different techniques than Dell.

The human focus of the panel in implementing risk-mitigating techniques complements the already extensive focus on real-time and accurate information used to address the uncertainty of the economy. This proposition addresses both the uncontrollable external events that may effect production and operations and the internal uncertainty associated with personnel and supply chain.

Navi Radjou, Senior Analyst, Business Applications and Services, Forrester Research, Inc.
Martha Amram, Author, Speaker, Consultant; former CEO, Vocomo Software Corp.
Chris Gopal, Vice President, Global Supply Chain Management Practice, Unisys
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Ash Vasudevan, Vice President of Strategic Initiatives, CommerceNet
Tom Wright, Senior Vice President Americas, Cathay Pacific Airways
11:30 am - 12:45 pm TUE 4/1
Obesity is a rising epidemic in America. Currently, 60 percent of adults and 13 percent of children are overweight or obese. The panelists′ approaches to correcting this rising public health issue differed, but all agreed that improving the health of the American population needs to be addressed. Solutions to obesity from weight loss drinks to diet pills could not substitute for a healthy diet, they maintained. Two approaches to dieting discussed in the session were a low fat, complex carbohydrate diet, in which the consumption of fiber rich foods is encouraged, and the popular Atkins diet, a high-protein, controlled carbohydrate diet. Both diets claim to help people lose weight, prevent disease such as cardiovascular disease and diabetes, and improve overall health.

The problem is that the current population is consuming more fat and simple carbohydrates than ever before. Dean Ornish, M.D. believes that by switching from simple to complex carbohydrates people will be able to eat more without gaining weight. Simple carbohydrates contain less fiber and are more easily absorbed, which promotes the production of large amounts of insulin. By consuming more vegetables and whole grains the body becomes fuller faster one can avoid fats that contain nine calories per gram compared to the four calories per gram found in carbohydrates. Advocates of this type of diet criticize the Atkins diet for a number of reasons that include side effects such as constipation, halitosis, headaches and hair loss. Another main point of criticism was that meat contains no dietary fiber and a high protein diet does not help increase blood circulation. High fiber diets claim to improve overall health and have been proven to prevent and mitigate the effects of heart disease and diabetes.

The Atkins Diet, favored by Stuart Trager, M.D., advocates the restriction of all carbohydrates and an increased consumption of protein. The diet is meant to provide a means in which people suffering from obesity can modify their diet practically, safely, and effectively. The appeal of the Atkins diet is that it promotes the consumption of protein and fat and still allows people to lose weight and lower triglyceride levels. Critics argue that a number of things such as smoking can cause weight loss but might not necessarily improve health. Dr. Trager explained that the Atkins diet was a an alternative to intensive lifestyle change and a tool to help battle obesity.

Both diets have proven to be effective in weight loss, and only further research will substantiate the advantages and disadvantages of the two.

David Heber, M.D. pointed out that it is the responsibility of business leaders to provide incentives for improving the health of the people who work for them. By increasing the overall health of Americans, less money will have to be spent on the medical problems associated with obesity and more money can be invested into the economy. Creating a healthy work force would benefit all aspects of our culture and would greatly benefit our economy.

Miochi Kushi advocated a macrobiotic diet, with occasional consumption of animal protein. He focused on an overall approach to health that included attention not only to what one eats, but to maintaining a less stressful lifestyle and living in a nontoxic environment.

What direction our eating habits will take in the future is uncertain, but that they must change is unquestionable. In order to improve the health of Americans, the entire culture must shift gears and take some of the social pressure to indulge away from the individual.

S. Ward Casscells, the John Edward Tyson Distinguished Professor of Medicine (Cardiology) and Public Health; Vice President for Biotechnology, The University of Texas Health Science Center at Houston
David Heber, Director, University of California, Los Angeles Center for Human Nutrition
Michio Kushi, Chairman, Kushi Institute; Senior Advisor to Tsubasa System Co.
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Dean Ornish, Founder and President, Preventive Medicine Research Institute; Clinical Professor of Medicine, University of California, San Francisco
Stuart Trager, Orthopedic Surgeon, Pennsylvania Hospital; Founder ELITE Health & Wellness; Consultant, Atkins Nutritionals, Inc.
11:30 am - 12:45 pm TUE 4/1
This panel of business school deans focused on the evolution of MBA programs in the United States, particularly since the 1990s; the implications for MBA graduates, trends among applicants, and the responsibility of top U.S. MBA programs to develop future global leaders.

The past 10 years saw a significant increase in the number of MBA degrees awarded. In the year 2002, the top 30 MBA programs enrolled about 20 percent of all MBA students with the remaining 80 percent in other schools. The top 30 MBA programs only accept, on average, 20 percent of applicants. Data regarding these 30 programs in the year 2002 served as the basis for comparison on general business school trends.

The data revealed a shift in demographics with an increasing number of women and international students enrolled. Approximately 24 percent of MBA students currently enrolled across the 30 schools are women, and 33 percent, international students. This latter statistic raised the issue of what responsibility U.S. MBA programs have to educate and impact global leaders.

One trend among students was that the average work experience of the applicant pool was two and a half years — a fact that has not changed significantly from the past. Another trend in MBA programs has been the demographic content and general quality of the applicant pool. According to Dean Willison, qualifications of applicants to The Anderson School in terms of GPA and GMAT scores improved significantly. Both Deans mentioned that the number of international student applicants is declining, though there has been a significant increase in applicants from countries such as China, who hope to bring some of the concepts of democracy and market capitalism back to their own countries. The cause for the decline in applicants from other non-U.S. countries is the knowledge that attaining a visa to work in the U.S. upon graduation has become exceedingly difficult.

Annual tuition across the schools averaged $29,539 while starting salaries for MBA graduates has declined significantly in the past three years. An estimated 68.9 percent of 2002 graduating MBA students from the top 30 schools had job offers.

Some argued that in true discounted cash flow terms, i.e. taking into account the two years of negative cash flow while out of the industry, earning an MBA does not pay-off. However, comparisons of pre- and post-MBA salaries do indicate significant absolute returns in the form of increased salary.

Panelists noted that an MBA is not necessarily a prerequisite for senior leadership. Approximately 30 percent of current CEOs have an MBA, while 70 percent do not. This trend has not changed significantly from 1999-2002.

With regard to top MBA programs in general, several major shifts in program content have been noted since the 1990′s " bubble and pre-Enron" era. There has been a major shift toward a return to fundamentals and basics. The 90s were an inflated period that was not necessarily "healthy" for MBA programs, the Deans noted. Many traditional theories and fundamental business concepts in core curricula were not considered "applicable" to the over-inflated economy. There was a tendency to want to, in the words of Dean Harker, "pull back the drawbridges" and focus on business with a U.S. domestic, rather than global, perspective.

Graduating MBA students were offered over-inflated starting salaries and a multitude of employment opportunities in this period and top MBA programs became, in the words of Dean Harker "…order takers instead of leader makers." The current economic situation is bringing business schools back to a "healthier" environment for all concerned where fundamentals such as the mechanics of business, global perspective and ethics are the primary focus.

Some debate centered on the propriety of teaching ethics in business school. The argument was made that ethics cannot be taught, although top MBA programs, such as the Anderson School at UCLA, are taking measures to underscore ethics in their traditional core courses. Ethics has also become a major issue in the application process and the selection of new candidates. The Anderson School uses an intense application and interview process to screen applicants. Low acceptance rates have often driven applicants to falsify information and the Wharton School of Business is one of several in the U.S. that recognizes that this act is inconsistent with ideal future ethical global leaders. Wharton performs random detailed background checks to validate information on applications. Enrolled students found to have falsified applications are expelled.

With regard to the responsibility of business schools to develop global leaders, Dean Willison emphasized that MBA programs are focusing on educating leaders, in their communities and globally, and not just managers. It is no longer sufficient to have an international department, but rather a global focus throughout the entire curriculum. Dean Harker emphasized how top MBA programs have a fundamental obligation to spread the concept of market capitalism in terms of investigating and demonstrating how business can be a force for positive and successful change in the world.

On the topic of business school rankings, both Deans shared the same perspective that the existence of almost 20 different ranking agencies, all with different qualifications for ranking, has caused them to be leery of the rankings as a basis for making major adjustments to their programs. The Anderson School has aggressively met with companies around the U.S. to obtain direct feedback about their expectations of graduates as employees and is using this feedback in order to make program improvements. Similarly, The Wharton School gives more weight to what they call "stakeholder surveys" in making changes. Dean Harker emphasized that prospective students should not look so much to rankings, but rather what unique aspects the school has to offer and whether or not they are preferable or appropriate for the individual.

The goal for Deans of leading business school programs, the agreed, should be to increase the greater pool of potential applicants; a focus on rankings works against this.

Joseph Neubauer, Chairman and CEO, ARAMARK Corp.
Patrick Harker, Dean, Wharton School of the University of Pennsylvania; Reliance Professor of Management and Private Enterprise, University of Pennsylvania
Bruce Willison, Dean, The Anderson School at University of California, Los Angeles
11:30 am - 12:45 pm TUE 4/1
Moderator Timothy Dattels kicked off the discussion commenting, "If you don′t know what is happening in China today, you don′t know anything." That sparked a discussion showcasing China′s emergence in the global economy.

Several facts and myths were summarily raised and dismissed by the panelists: On a Purchasing Power Parity (PPP) basis, China is the world′s second largest economy. China is the number one destination for foreign direct investment in the entire world. In addition, fears of China′s exporting trends, and all that they imply, have been vastly overstated. Contrary to paranoid belief, China is not going to be taking over the world anytime soon, if ever.

Dattels pointed out that China is a low-cost producer and net IT importer, focused on the manufacturing intensive, labor intensive side, in the interim at least, noting that Ricardian logic is working here. With that statement, Dattels turned the floor over to the panelists, starting with Milken Institute economist Perry Wong.

Wong was quick to respectfully disagree with the statement that China is a low-cost producer. He did, however, grant the fact that the roots of Chinese manufacturing are embedded in low-cost manufacturing that has, as of late, spun into a mix of low-cost and value-added manufacturing ventures. Wong also pointed out the experience of Shenzhen — a region characterized by a booming population and exports in excess of $50 billion per year — a large part of which is the export of electronics. In light of the quality of goods produced in China — third, immediately after Thailand and Malaysia, and Hong Kong and Korea on the upper end, Wong is concerned with the speed with which China will catch up to the former and eventually compete with the latter where product value is directly tied to value-added products and services. In response to the question of whether China can become the world′s factory, Wong replied, "Maybe. Maybe not. But current trends certainly indicate so."

Tom Wright, Senior Vice President of Cathay Pacific Airways noted China′s sheer size and influence, particularly in the Pearl River Delta, on the local and global transportation of both passengers and cargo. Hong Kong is the world′s third largest airport with access to half the world′s population within five hours time. With respect to cargo transportation, the Hong Kong airport is the largest port in the world.

M.K. Wong, Vice President of China Trade of Orient Overseas Container Lines (OOCL), believes that China′s most daunting challenge lies in the area of connectivity — both regional and global, and both tangible and intangible. Success of the Pearl River Delta is not merely a function of foreign direct investment, he said, but also one of multi-governmental and multi-port cooperation to link transportation hubs. A link between Taiwan and Hong Kong is of utter importance to Chinese economic growth. That said, Wong believes the future of China lies in Shanghai. Currently unreachable by large sea vessels, Shanghai holds the key to trade between Asian countries as well as between Chinese regions, he maintained. In closing, Wong suggested that coupling disconnected pockets of cities and one railroad in all of China, and the Chinese resolve to rapidly build an advanced infrastructure, China′s Western regions are poised to become an Asian version of the American Midwest in 35 years time.

With China′s ascension to the World Trade Organization (WTO) and its rapid rise into the upper echelons of world trading partners, Zhengyu Tang, Partner at Sidley Austin Brown & Wood, revealed that he regularly receives six to seven new pieces of legislation pertaining to Chinese economic business practices. Such trends have led the Chinese economy to become more and more transparent, though much ground remains to be covered, especially in the field of intellectual property and copyright laws (an area in which the WTO has applied pressure). That being said, Tang stated that the Chinese are notorious for issuing laws and regulations, however, laws passed at the central level are oft-times in direct contradiction to those passed at the local level — a current example of which are the latest M&A laws. In closing, according to Tang, the impartiality and ethical behaviour of the Chinese judicial system is the biggest challenge. As of late, most Shanghai judges have actual law degrees, a practice that generally had not been followed in the past.

Other issues raised by the panelists with the help of the audience were China′s management of the current SARS health crisis, the issue of a floating RMB (China's currency), the military′s role in the future of China, and Microsoft/China relations.

In closing, according to the panelists, the greatest risks Chinese leadership needs to pay attention to are the integration of Western China into the Chinese engine, China′s transition into the global marketplace, the role of Hong Kong and its world-class banking system, low levels of cost of production which neither the Chinese nor the world expect to remain constant, and the Chinese judicial system.

Timothy Dattels, former Partner, Investment Banking, Goldman Sachs
Zhengyu Tang, Partner, Sidley Austin Brown & Wood
M.K. Wong, Vice President, China Trade of Orient Overseas Container Lines (OOCL)
Perry Wong, Research Economist, Milken Institute
Tom Wright, Senior Vice President Americas, Cathay Pacific Airways
11:30 am - 12:45 pm TUE 4/1
Bigger does not make better, rather better makes bigger, Leslie Biller stated, and with that they opened the discussion on why and how best to execute a merger.

Ideal Drivers of Mergers

The question of "organic" growth versus acquisitive growth should be addressed, Mark Sirower suggested, by determining whether the value of merger synergies are greater than the premium paid; that is, whether or not the combined entity beats the implied trajectory that already exists per the global market valuation. Biller added that outperforming the pre-merger trajectories can be particularly difficult among the chaos of product and culture shifts that come with a merger.

Further, Kathryn Swintek pointed out that attention should be paid to the source of a company′s growth before the merger and whether this growth is repeatable or just a one-time phenomenon, using as an example a popular beverage producer whose growth during a national product rollout was used by an acquirer to determine the longer-term trajectory of the company′s top-line growth.

Central to a manager′s decision of whether or not to merge should be acceleration of EPS growth by the redeployment of excess operating capital, said Biller. And what′s unique to a merger as a form of investment, Sirower commented, is the greater risk from paying the entire investment up front, the need to exceed the expectations of both the target and the acquirer already in place — quantified by the 30-40 percent premium typically paid in an acquisition — and the high exit costs should the investment fall short of the raised expectations. By definition, the acquiring organization "pays more than anyone else in the world," Sirower noted, and as such new ideas should be brought to the table in order to extract the value needed to justify the merger.

Additional focus should be paid to total relative shareholder value, Biller proposed, and that a premium should be put on top-line growth — as cost cutting is limited to zero — and years beyond the typically studied three-year horizon.

Historical Drivers of Mergers

Waves of mergers have not been driven by the presence or lack of opportunities, i.e. good or bad fits, but rather the changing regulatory and market environment over time, Trimbath noted.

Biller added that justification for mergers has changed over time. Regulation promoted mergers of the early 1980s (e.g. protections of banks in the southeastern U.S. from acquisition by banks of other regions), financial problems fueled the merger surge in the late 1980s as mergers were in effect bailouts from the savings and loan crisis, and in the mid- to late-90s, mergers resulted from high P/E multiples and the will of target companies to accept this "confederate currency."

As the merger train gathers speed, CEOs not involved in deals look around and feel that they must do something, said Sirower, and their reactive approach "injects inexperience into the markets." Paul Reilly agreed that such environments promote loose pocketbooks and bigger bets, as managers want to compete with leaders, though he contested Sirower′s assertion that this "country club effect" is primarily at work, adding that other factors, such as cheap capital, play a large role.

Separately, Reilly pointed out that greater size and responsibility, and not EPS growth, drive many managers to acquire.

As efficiency and the cost to generate revenue are used to measure the effectiveness of mergers, potential targets for such acquisitions are typically those with the greatest potential for improvement. Though they may be, as Swintek calls them, "low hanging fruit," the fact remains that the "most cost inefficient companies are targets," said Susanne Trimbath.

Experience at Work

Finally, Biller discussed his own merger experience with Wells Fargo and the effect of the attitude of those lowest in the company who often act as the customer interface. He chose to not announce layoffs through the press, as many companies do, so as to not create undue anxiety among employees who are largely the face of the firm; the result, he found, was that informed but confident employees, not stirred by press spin themselves, reassured customers, thus minimizing revenue degradation due to customer defection.

"Heart-share plus mind-share equals market share," he stated.

Frank Do, Principal, American Capital
Leslie Biller, Retired Vice Chairman & chief Operating Officer, Wells Fargo & Company; Advisory Director, PG&E Corporation and Pacific Gas and Electric Company Boards of Directors and Director of Ecolab Inc.
Paul Reilly, Chairman and CEO, Korn/Ferry International
Mark Sirower, Corporate Development Advisor, Boston Consulting Group; Global Leader, BCG Mergers & Acquisitions Practice
Kathryn Swintek, Managing Director and Head, U.S. Leverage Financing, BNP Paribas
Susanne Trimbath, Research Economist, Milken Institute
1:00 pm - 2:30 pm TUE 4/1
Michael Milken introduced the luncheon discussion with a series of telling charts, revealing to the audience a significant increase in the number of medical degrees earned as compared to physical and life sciences degrees, the latter being those typically responsible for scientific breakthroughs. Milken also presented data about the amount of money spent on medical research, which is decreasing as a percentage of GDP and is 40 times less than the amount of money spent on health care.

In light of those facts, Milken posed the question, "Would a company that is having problems with its product spend money on customer service?"

The distinguished panel of Nobel laureates spent the next hour responding, touching upon how the scientific community has dealt with and is dealing with issues ranging from the ecosystem to disease and the importance of considering humanity in scientific progress, in spite of the lack of investment.

Steven Chu, Nobel laureate in Physics, was the first to shed light on the past, present, and future of science and medicine, focusing his comments on global warming and climate change. Chu noted that the mass global consumption by the industrialized world of the least abundant energy sources has caused the recent global warming trend; the climate change that is so widely discussed is really "more weather than climate," as he brought up a slide showing a one degree Celsius increase in the climate over the last 100 years. Chu′s main concern was the increase of carbon dioxide in the atmosphere, which is highly correlated with a rise in temperature. Carbon dioxide increased by 18 percent in the past 44 years, a spike that had never been seen before. Chu warned that a continued trend in this direction would be catastrophic, with effects that include the submersion of lands in coastal areas including the Bay of Bengal, the Mediterranean Sea, and the Gulf of Mexico.

Ahmed Zewail, a Nobel laureate in chemistry discussed how scientists tackle problems in molecular medicine. While scientists are relatively advanced in medical technologies, they find themselves "back at the drawing board" when it comes to understanding macro molecules. It is important for scientists to grasp the architecture of molecules, including their sequencing, and most importantly, their behavior over time. Understanding these concepts and being creative about the research will result in tremendous opportunities in medicine. However, Dr. Zewail, a native of non-industrialized Egypt, warned that the developed world makes up only 20 percent of the planet and new technologies should incorporate all of humanity, to ensure peace.

The next panelist to present his view of the future of scientific discovery was Sydney Brenner, Nobel laureate in Medicine. Brenner explained his lack of slides for this discussion in his quip, "Slides are about the past and we want to talk about the future." He spoke of sequencing the genome, the research that led to his Nobel recognition. Brenner pointed out that many people compared DNA genomics to putting a man on the moon, agreeing that it is easy to get a man on the moon; the difficulty is in getting him back. Likewise, it is easy to sequence a human genome, but difficult to know what to do with it afterwards. Brenner cited two major challenges for scientists to overcome — communicating knowledge to the world and studying humanity and its differences. A third challenge was directed to society at large; Brenner was concerned with the intense conservatism of people who fund research and want to know in advance whether it will work. In order to find innovative solutions to today′s problems, Brenner said that it was vital to create funding for innovative scientific research, half-jokingly comparing it to a gamble.

Milken concurred with Brenner, observing that "perhaps the gamble is in not giving the money," and introduced the final panelist, Joshua Lederberg, Nobel laureate in Medicine.

As Lederberg promised to carry audience members to "cloud nine" with his discussion of germs and genes, he discussed the history of scientific attitude toward germs, which tended to separate them from genes as microbes that freely entered and exited the body. Lederberg claims that there is a sharing of the body between germs and genes and both play a large role in health and disease, taking the audience through a description of humanity′s relationship with germs. Lederberg noted that society has been successful in overpowering many types germs (or parasites), as is evident by the declinein mortality from infectious disease, but is naïve in its belief that humans are an equal match for the determined and capable parasites that inhabit human beings. While most germs are easily able to kill their host, their restraint is for the purpose of their own existence. This is a fact that takes its toll on society, which focuses most of its research on hyper-virulent germs, such as AIDS instead of researching more moderate germs, that could lead to many answers.

Milken followed the panelists′ presentations with a question and answer session that touched upon the ineffectiveness of quarantines in many cases, the importance of scientists' dealing with global issues, the need to focus on prevention, and the improbability of the permanent eradication of diseases.

Michael Milken, Chairman, Milken Institute; Chairman, CaP CURE; Co-founder, Milken Family Foundation
Sydney Brenner, Nobel Laureate, Medicine, 2002; Founder, Molecular Sciences Institute
Steven Chu, Nobel Laureate, Physics, 1997; Chair, Department of Physics, Stanford University; Theodore and Frances Geballe Professor of Physics and Applied Physics, Stanford University
Joshua Lederberg, Nobel Laureate, Medicine, 1958; Professor Emeritus, Rockefeller University
Ahmed Zewail, Nobel Laureate, Chemistry, 1999; Linus Pauling Chair, Professor of Chemistry and Physics, California Institute of Technology
2:45 pm - 4:00 pm TUE 4/1
Moderator Richard Jacobs set the stage for discussion about Russia by asking two questions: why does Russia matter and where is it in its evolution?

Jacobs opined that it was a U.S. mistake to believe that once the USSR fell, Russia would be like the United States. This mistaken belief fueled a lot of initial investment and led to a hype-based bubble. Still, the 1997 crisis, in his opinion, was a healthy event.

He briefly contrasted the situation in Russia ante-crisis and post-crisis highlighting the positive aspects of the post-crisis period:

  • Increased self-confidence as a nation;
  • Russia was the second best performing market last year (after Pakistan);
  • Shift from import to domestic production;
  • Large foreign currency reserves; and
  • The start of recycling activities.

Michael Intriligator continued by evaluating Russia′s development in time. The recent past seemed to be encouraging from the economic point of view:

  • 4-5 percent real GDP growth;
  • Stabilized inflation;
  • Decreasing unemployment;
  • Moody′s Sovereign ratings;
  • Growing oil reserves and production; and a
  • Rising stock market.

However, the present is still far from perfect, mostly because Russia has not yet succeeded in implementing three necessary factors that according to Intriligator, are required to become a market economy:

  • Institutional reforms;
  • Elimination of government corruption; and
  • An environment that fosters free competition.
  • ,

In addition to these requirements, Intriligator suggested that Russia′s success in the future will also depend on a shift from a commodity/minerals exporter to a high-tech exporter, or, quoting Putin, "e-Russia." He mentioned that several international companies - such as Sun, Boeing, Motorola, GE and Intel - are already taking advantage of Russia′s skilled workforce to set up R&D operations there.

Sarah Carey picked up on the positive side of the topic by citing the reasons why Russia matters. In her view, Russia is important:

  • Politically, as a stable power in the region, especially in light of the rising war with terrorism;
  • Economically, as a source of vast natural resources (as diversification of oil resources in light of current Middle Eastern crisis), metals, technological know-how (stem cells research, alloys etc), human capital (highest literacy rates);
  • As a partner in space development, especially in light of the recent Shuttle tragedy; and
  • Culturally.

Carey concurred with Jacobs' positive outlook highlighting significant legal developments e.g. its constitution and the biggest privatization in the world′s history in such a short time, that made the Russian infrastructure acceptable to Western business practices, return of "flight" capital and Putin′s welcoming attitude to returning expatriates. She concluded her remarks by stating that "today Russia is normal."

This opinion in dramatical contrasted to Stewart Paperin's position who said that "Russia is seductive and romantic, yet disappointing." He emphasized that although things appear to be "normal" on the paper, the requirements put forward by Intriligator were still far from being satisfied in reality:

  • Corruption, although not as high as in China, is still a given;
  • Legal reforms are incomplete and judicial corruption is rampant;
  • Media is still influenced by the government and far from being "open, fair and free;"
  • Infrastructure — education, healthcare, social structures — in good condition under the Soviets, is in ruin now, especially in rural areas;
  • Chemical/nuclear safety;
  • Drugs, coming from Afghanistan and Central Asia.

Paperin concluded that Russia is still a country in transition, "not a finished work."

Jacobs summed up the session by concluding that Russia does matter and is suitable for investment in public stocks and strategic alliances, while private equity remains highly risky and thus unadvisable.

Richard Jacobs, Financial Advisor, Glazer Family Interests
Sarah Carey, Partner, Squire, Sanders & Dempsey LLP
Michael Intriligator, Senior Fellow, Milken Institute; Professor of Economics, Political Science and Policy Studies, University of California, Los Angeles
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Stewart Paperin, Executive Vice President, Open Society Institute
2:45 pm - 4:00 pm TUE 4/1
After the stock market bubble burst in 2000, real estate has regained its position as the "gold" standard of the 21st century. Moderator Joel Kotkin began the session by pointing out that real estate investment surpassed investment in equities and asked panelists if this trend would hold and attract more investors in coming years. Indeed, panelists agreed that today′s real estate market is not a short-term boom but an expansion that could well sustain itself beyond the current economic recession.

Panelists believed that real estate isn′t a question of whether to invest, but rather of where within the real estate market, to invest. A diverse set of real estate investment opportunities were explored. Office space investment was one sector noted as having performed well in primary markets such as San Francisco and New York while some panelists noted positive results from secondary markets like St. Louis and Atlanta. Opportunities in tertiary markets like Cleveland and Indianapolis, should not be overlooked either, noted panelists.

Richard Kincaid of Equity Office Properties Trust, found job growth to be the engine in secondary markets. He emphasized that companies need to cater to the knowledge-based worker in San Francisco and San Jose while noting that manufacturers would continue to face pressure. Job-creation is of particular importance to insuring that real estate fares well in upcoming years.

Despite the performance in primary and secondary real estate markets, one panelist stressed the inability for some investors to benefit because of barriers to entry. Some panelists viewed San Francisco′s office market as one with large amounts of office space, while others questioned its underutilization, noting that leased buildings in downtown San Francisco contain empty floors unavailable to potential tenants. Contrary to conventional wisdom, this situation has been profitable for some real estate companies and they view the current situation as one that will continue to stabilize itself regardless of vacant space in these buildings.

Other issues addressed by the panel included public real estate such as shopping centers and malls. Andrew Coppola of the Macerich Company urged investors to consider investing in real estate companies with holdings in retail centers. He noted the ability of these "consumer driven" real estate holdings to weather an economic storm because of the sales productivity originating from these locations. Demographic statistics were shown highlighting the growth of minority populations in the U.S. and Coppola reminded the audience to not overlook tailoring retail shopping centers to these communities. The Macerich Company′s investments in retail centers targeting minority consumers have proven successful.

Finally, panelist Scott Syphax of the Nehemiah Corporation focused his attention on highlighting the importance of home ownership, especially in the inner-city communities. Syphax stressed importance in improving the social conditions of low-income communities by leveraging access to capital and home ownership. He believes that providing this demographic group with access to financial instruments could help improve their economic well-being since asset creation is driven by home ownership which then could lead to prosperity. Overall, there was a generally positive tone towards real estate investment today and in upcoming years. Panelists covered several important real estate topics, provided insight as to where opportunities currently exist, and where new opportunities may arise.

Joel Kotkin, Senior Fellow, Milken Institute; Senior Fellow, Davenport Institute for Public Policy, Pepperdine University
Arthur Coppola, President & CEO, Macerich Company
Richard Kincaid, President, Equity Office Properties Trust
Roy March, President, Senior Partner, Eastdil Realty, LLC
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Andrew Segal, President & Founder, Boxer Properties, LLC
Scott Syphax, President & Chief Executive Officer, Nehemiah Corporation
2:45 pm - 4:00 pm TUE 4/1
Panelists painted a pessimistic portrait of the current United States healthcare system. Following a brief introduction, panelist Ernie Milstein cited recent Dartmouth studies showing accumulating evidence that the higher levels of healthcare spending are causing higher levels of economic waste without increased healthcare benefits.

Moderator Leslie Michelson, added the following factoid: Physician error has been attributed to approximately 100,000 deaths per year. Predicting a grim future, Thomas Priselac commented that "the American healthcare system is headed towards where the American high school system is today."

The panel addressed both what has caused the formation of such a broken system and also what can be done to rectify the problem.

Healthcare expenditures are spiraling upward. It is projected that in the next decade, 17.2 percent of GDP will be spent on healthcare expenses, up from the current level of 14.3 percent. The increase comes primarily from two sources: changing demographics and the higher level of utilization that accompanies aging. According to Wendy Everett, President of New England Healthcare Institute, "In each decade after 30, we consume twice as much healthcare as in the previous decade."

It would be expected that such increases in expenditures result in increased care. However, there is little evidence that that is the case. According to the panelists, there has been an irrational under-investment in studying the medical and cost effectiveness of new treatments. Without performance sensitive consumers to motivate continuous reengineering by healthcare providers, there is little incentive to restrain spiraling costs. Without reform, there remains a possibility that medical breakthroughs will not be utilized or current cost effective practices will be replaced by cost inefficient, but new, practices. Milstein asserted, "We are on a path toward paying more for worsening quality, reliability and efficiency."

As doctors today often focus on treating acute symptoms while ignoring underlying causes, so does the general public miss out on that aspect that will most effect the future of healthcare - effective treatment. Wendy Everett compared the problem to a floating iceberg; only the tip can be viewed, while 90 percent of the iceberg remains concealed under the surface. And as history has shown, a missed iceberg can fell even the mightiest of ships. Representative of this problem is the misappropriation of monies. While studies have shown that behavior is responsible for approximately 50 percent of healthcare problems, be it smoking, exercise or diet, less than 10 percent of national health expenditures go to modifying behavior while 80 percent goes to treatment of acute problems.

Minimizing the cost of healthcare in America is not a new problem, from Nixon′s wage and price controls to modern managed care, various methods of cost containment have been proposed and implemented. Bill Bracciodieta joked that, "There are three key things to solve the problem we are facing, except no one knows what they are." Luckily for the future of American healthcare, the panel was able to propose some measures that could help reform the broken system.

First, there must be a reevaluation of medical practices, eliminating those that are shown to be cost ineffective. Second, in conjunction with greater transparency for the performance of treating doctors, consumers must be better educated as to their options for treatment. Third, the costs of the uninsured should be better accounted for and a basic level of insurance should be provided. Finally, incentives for the entire healthcare industry must be altered to better reflect consumers′ needs.

While the United States may be one of only two industrialized countries, the other being South Africa, not to have a basic nationwide health care insurance system, it is in the advantageous position of having the deepest pockets of any nation in history. The resources are available for policy makers to enact system wide changes to fix "the Health Care Conundrum."

Leslie Michelson, President and CEO, Cap CURE
Judith Bello, Senior Adviser, Pharmaceutical Research and Manufacturers of America (PhRMA)
Bill Bracciodieta, Chief Medical Officer, Western Region, Health Net, Inc.
Wendy Everett, President, New England Healthcare Institute
Arnold Milstein, National Healthcare Thought Leader, Mercer Human Resource Consulting
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Thomas Priselac, President & CEO, Cedars-Sinai Health System
Andy Slavitt, President and CEO, HealthAllies
4:15 pm - 5:30 pm TUE 4/1
Are there business opportunities in the developing world? This is the crucial question that will determine the success of international microfinance, a growing financial industry offering capital access to citizens in the developing world.

The four panelists responded with a resounding "yes," citing a pragmatic, profit-oriented approach to microfinance based on self-interest and promising returns for investors rather than social responsibility alone. High interest rates, quick turnover, and payback rates hovering around 98 percent — far higher than most commercial banks — all make microfinance a very attractive investment option.

But if microfinance makes good business sense and good ethical sense, why hasn′t it been embraced my mainstream investors? A number of factors scare them away, not least of which is the common belief that microfinance is little more than philanthropy for "do-gooders." The four panelists vehemently disagreed, arguing that charity and international aid have both failed in alleviating global poverty.

"If it′s philanthropic, it will fail," stated Stewart Paperin of the Open Society Institute. Money donated by international aid organizations actually allow badly run businesses to survive. Microfinancial institutions, by contrast, rate potential lenders using a credit rating system based on basic cash flow. "We are in the business of building good businesses," explained Craig Cohon of Globalegacy.

The microfinance industry as a whole is growing at 30 percent annually but there is still an enormous unmet demand. "There is a huge market for microfinance, because the vast majority of the world is poor and wants these financial services," said Cohon. It is estimated that currently microfinance institutions are meet only 5 percent of the total world demand. In other words, microlenders are looking to tap into an enormous financial market, and they are combining "profits with social mission," according to Prisma Microfinance′s David Sattherwaite.

The industry cannot truly take off on a massive scale, however, until the thousands of existing microfinance institutions scattered around the globe begin to consolidate. Once the lenders with better business practices begin to absorb the less efficient ones, they will achieve economies of scale, and be able to provide better services in more locations. Until this maturation of the industry occurs, mainstream investors will remain jittery about putting their money there. Another pitfall is that microlenders are not rated by uniform systems such as Standard and Poors. Finally, there must be better transnational diversification — banks lending in more than one developing country — to better insulate them against economic shocks that can occur and cause large numbers of defaults.

If these improvements can be made, investors will look with increasing favor on microfinance, which has risen as a parallel and more efficient lending alternative to the Bretton Woods institutions. In fact, microfinance offers a paradigm shift on how we perceive the world′s poor.

Moderator Betsy Zeidman summarized the combination of ethical and business benefits of microfinance: "Investors can now view the poor not as a problem, but an investment opportunity."

Betsy Zeidman, Director, Milken Institute Center for Emerging Domestic Markets
Craig Cohon, CEO, Globalegacy
Jean-Philippe de Schrevel, Director, BlueOrchard Finance s.a.
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Stewart Paperin, Executive Vice President, Open Society Institute
David Satterthwaite, President, CEO & Co-Founder, Prisma MicroFinance, Inc.
4:15 pm - 5:30 pm TUE 4/1
Moderator Michael Wolf′s introductory statements addressed the future of intellectual property. Major tasks lying ahead for industries such as entertainment and media include how to protect and exploit their products. Given the recent backlash against piracy, Wolf felt strongly that, "History is on the side of the copyright holder," and in order to surmount challenges ahead, the use of technology can and should be used for commercial gain as well as educational purposes.

Wolf went on to point out that the world is becoming increasingly digital as 80 percent of information throughout the globe is stored in a digital format. But digital dominance comes at a price. 10 percent of potential revenue is "stolen" each year. Much of this stems from music as "consumers want ubiquitous access to networked music services." Wolf concluded his overview by noting that, "The key issue is how to protect copyrighted material, while taking advantage of digital technology."

First of the panelists to address the issue of piracy was Peter Chernin, stating that online piracy concerns him most. A number of products have hit the market that indirectly encourage piracy, he said. These include the relatively low-priced CD-writable drives or burners. However, Chernin noted that that same technology also brought the industry DVDs, the fastest growing consumer electronic product in history. In turn, with technology constantly moving forward, there is a concurrent need for rich media content.

David Renzer was asked about legal solutions to piracy, specifically, whether or not he was satisfied with the efforts being made. Renzer noted that the lawsuits brought against peer-to-peer file sharing programs, unlike Napster in the sense that they do not contain a central library or index, do not appear to be as promising. He felt that the next step is to prosecute the individuals who steal music, sparking a bit of commotion amongst the audience and prompting Wolf to ask, "Do you really want to put the consumers in jail?" Renzer laughingly replied, "No, because then my children would go to jail."

But this topic was not taken as lightly by Chernin. "Why shouldn′t we put them in jail?" he challenged, a parent himself.

Sandy Climan posed a question to the audience. "Who here snuck into movies when they were children? You want consumers. They are our fans," Climan continued. "The challenge is to find a way to deal with the root cause, as opposed to letting it work its way even further." The modern "pirate" is organized and has the ability to mass distribute. "Prosecute those people, then filter out to P2P," Climan concluded.

Wolf proceeded to move the topic away from problems and toward solutions by asking about the viable alternatives. Chernin responded quickly, "I think where piracy begins to thrive is where products are not readily available," the latter being the key goal of his business. From movies, to rentals, to video-on-demand, to pay-per-view, products that are everywhere are easiest to purchase. However, he admitted that even significantly low prices can never compete with something free. Some piracy, he conceded, will always exist.

The next question was for James Wiatt. "How do you feel your clients interests are affected by piracy?" Wolf asked. "We are totally reliant on companies like Peter′s [Chernin] for protection. We call ourselves the gatekeeper of [intellectual property]." Contrary to popular belief, the recording industry experienced its most profitable year to date in 2002, despite the level of piracy. Wiatt noted that his clients have been experiencing the benefits of incredible record sales.

Wolf turned to Chernin with the question, "Do you feel the legal system around the world is adequate to handle the efforts against piracy?" Chernin responded, "I think the legal system is generally pro-copyright, but lags with respect to technology," explaining that the process from development of technology, to legislation, to public education, to enforcement is much too slow. The legal system struggles to keep up with changes and advancements in technology. "There is no silver bullet," Chernin stated. "We must push the legal system to catch up with the technology."

The fairly recent lawsuit filed against Napster had been left untouched up to this point. Wolf put his next question bluntly, "Why did you put Napster out of business?" Renzer took the question and answered by stating that he would have enjoyed incorporating the company into his business, however Napster′s parent company, Bertelsmann, had allegedly admitted to Napster′s illegal behavior, thus destroying its credibility.

Climan continued with a more ethical argument, "You have to teach your kids not to steal." The piracy occurring amongst teens could be attributed to parents setting immoral precedents early on and not teaching their children what is ethical.

Wolf went back to solutions, "What technology is the RIAA currently looking at?" Renzer answered that encryption of CDs is relatively unsuccessful as many fail to play in certain CD players themselves. When asked if his record company was involved in "spoofing," the action of naming a certain MP3 with a popular name in hopes of frustrating the downloader and decreasing piracy, Renzer was unable to comment. He went on to mention that the introduction of temporary streaming use of singles has created a small market, but that nothing had been entirely successful to date.

For the investors in the audience, Wolf asked how the change would affect the economics of the industry. Chernin proceeded to state that the windows of time between theatrical release and availability of DVDs or VHS tapes were currently being reduced.

Wolf posed the final question to each of the panelists. "If you could change one thing about the current situation, what would it be?" Admittedly wishful thinking, Wiatt ideally hoped for a technology that could prevent piracy altogether. Renzer went on to say that, "There is a huge appetite for music," and that "a business model will emerge." He hopes that suits against P2Ps like KaZaa will prove successful. Next, Climan hoped "that a balance between technology companies and foreign governments will promote growth." Lastly, Chernin proclaimed that, "it is a tremendously optimistic time," and the industries have an "incredibly bright future."

Michael Wolf, Director and Managing Partner, Media and Entertainment Practice, McKinsey & Company
Peter Chernin, President, Chief Operating Officer, News Corporation; Chairman & CEO, the Fox Group
Sandy Climan, Managing Partner, Entertainment Media Venture
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David Renzer, Worldwide President, Universal Music Publishing Group
James Wiatt, President & Co-CEO, William Morris Agency
4:15 pm - 5:30 pm TUE 4/1
Low economic growth, stagnant employment, nearly zero interest rates, impaired banking, a weak financial sector and solutions to all of these are some of the issues the panelists for this session discussed. The troubled Japanese economy is currently searching for the "right model," to diversify its financial system from a bank-centered to a more financial market-centered system.

About 75 percent of the businesses in Japan are classified as small- and medium-sized business enterprises (SME) and they will be the main thrust of economic development in the future. In the past, most of the SME lending was collateralized by a real estate price bubble. Since the booming trend in real estate reversed, SME′s found it more difficult to obtain funding for their businesses. The lack of access to credit coupled with fierce competition from China and large troubled companies up the supply chain left SMEs in bad shape. Though capital is cheap, most of it has been spent on survival and not on creating added value.

Though many Japanese banks increased the write-off of nonperforming loans, the rate at which additional bad loans are being added to the balance sheet is weakening banks further. Richard Katz, senior editor of The Oriental Economist Report predicted that "Japan′s banking system probably will not crash, but rather continue relentless corrosion. This is where dangers lie."

Many of the problems facing the Japanese economy can be traced to the lack of competition. Competition creates a wealth of knowledge by providing incentive structures to challenge the status quo. Many industries in Japan, including finance, are highly protected either by government or the oligopolistic structure of the market. The entry of new players and exit of failing players is not standard practice in Japan.

The lack of competition in Japanese industry is also evidenced in the rigidity of the labor market, which presents yet another challenge for Japan. The inability of labor markets to mobilize across companies, let alone industries, is a major obstacle to generating growth.

The solution to many problems facing Japan today is to increase competition. Though the concept seems simple, this could prove difficult for many Japanese who are the beneficiaries of existing protection schemes. Competition means that people, government and financial systems must accept and be ready to deal with the birth and death of companies. New firms must be able to access capital though venture or high-yield funds, and failing firms must be able to reorganize, foreclose and liquidate assets. People must be able to lose and find jobs based on their ability to perform; firms must hire and fire employees according to their merits.

Katz also predicted that reforms will take at least 10 years to occur. However, other panelists argued that steps toward solving the problem and envisioning the solutions have been well addressed by the current government.

Rob Koepp, Research Fellow, Regional and Demographic Studies, Milken Institute
Peter Early, Chief Executive Officer, Big Sky Capital
Takeo Hoshi, Pacific Economic Cooperation Professor of International Economic Relations, UCSD Graduate School of International Relations & Pacific Studies
Kirk Inoue, President, Kinetic Group
Richard Katz, Senior Editor, The Oriental Economist Report
Bernard Munk, Principal, Munk Advisory Services
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4:15 pm - 5:30 pm TUE 4/1
An educated populace and a number of public amenities indicate a successful city. This was the conclusion reached by the panels, Mayor Jerry Brown of Oakland, Mayor James Hahn of Los Angeles, and Mayor Anthony Williams of Washington, D.C.

Cities are presently facing a number of difficulties. Large cities show a slower growth rate than that of surrounding suburbs. Cities tend to be bimodal, having large numbers of affluent people on one end and a large numbers of poor people on the other. Mayor Williams, who was CFO of the District of Columbia before he became mayor, describes his city as a "tale of two cities" type of situation. His describes his city as having "some of the richest" and "some of the poorest," with some of its residents having only a third-grade reading level.

Poverty is a symptom of troubled cities, not a cause. Cities must have competitive assets and be competitive to flourish. Los Angeles remains a creative center, but also has the most people living in poverty by number. After the 1992 Los Angeles riots, the city grew in population nearly every year, while simultaneously losing jobs in each of those years. As a result, the ratio of residents to jobs increased every year from 1992 to 2000.

New York′s economic success began when New York was "perceived as safer," says Hahn. He is pleased with his appointment of William Bratton as Chief of Police and expects him to make good progress in reducing crime. He views an appearance of safety as the first step in attracting investment and jobs to the region.

Oakland had the "benefit of a lot of regional growth" during the nineties, according to Brown. The tech boom that benefited many Bay Area cities also benefited Oakland. Brown wants to see Oakland continue to thrive. He hopes to see Oakland′s airport surpass the size of San Francisco′s over the next thirty years. While airport traffic at San Francisco International Airport decreased after September 11th, traffic at Oakland International Airport increased. Brown sees this as a sign of Oakland′s vitality and intends to foster its growth.

In order to achieve this aim, Brown wants to improve education and spur economic development. There are "a lot of people who aren′t going to be in the knowledge economy," he says. Many of those people will instead fall into a crime economy, which is an inefficient and unsustainable model for Brown. The prison system is a "way to manage people in a very inhumane and unworkable way."

The mayors each agreed that educating their residents is essential to promoting economic growth. "Literacy is the biggest barrier to job entry," says Williams. "Job readiness is hugely important." Hahn adds that in order to create skilled workers in Los Angeles, people "need to finish school," and the city needs to "do something about the high dropout rate."

Even third-generation, immigrant families are not going to college in Los Angeles. Hahn attributes this to a misperception that college is too expensive. He noticed that Los Angeles County ranked near the bottom of counties in California accessing the Cal Grant and created programs to address this. Hahn believes the success of Los Angeles′ economic future is tied to educating the city′s residents. "We′ve got to do something drastic to get kids graduating high school and getting to higher education," he says. He adds, "Older adults, not just kids, are going to city colleges." He cites city colleges as "hugely important" in providing an educated workforce able to participate in the knowledge economy.

Brown wants more structure in the urban school system. "There′s a lot to be done," he says. "The money′s not there; the structure′s not there." Brown argues that the current educational system weighs the mediocre with the bad and the excellent. This is "not a formula for moving forward," says Brown. He would like more control of the educational system to enact greater reforms.

Aside from education, the key to economic development success for Brown is first attracting small shops to build a local retail economy. Brown argues that a person needs a pretty free hand for economic development. The primary ingredient for economic development is "someone with money and an idea." Immigration is essential for maintaining cities′ vitality and maintaining economic growth.

Hahn argues that in order to have economic growth, private companies must be willing to invest. "At the end of the day, nobody wants to spend any of their money." Private companies are essential both for bringing jobs and increasing tax revenue in a region.

Los Angeles has the highest business tax of any community in the region and has 64 categories of business tax. Hahn would like Los Angeles to be a home to small business in which "taxes are not an obstacle." To further this end, he has implemented an amnesty on business tax for new businesses for the first two years.

Each of the mayors agrees that the current economic climate is making his job more difficult: the downturn expressed itself in the reduction of tax revenue. Williams says, "We are so much subject to what is happening on the macro [and] federal levels." Hahn concurs, saying, "We are at the mercy of what happens at the state or national level." Brown argues that while the federal government is slicing away at grants to cities, state government is exacerbating the problem and cities must cut their budgets to remain solvent.

Still, each mayor wants to improve his city and leave it better than when he took office. Williams asserts that a successful city is marked by "great neighborhoods, a great downtown, great arteries of commerce and a great waterfront." Washington, D.C., is "very much a planned city," says Williams, originally designed in the image of Versailles. Williams′ vision is "revitalizing and making a first-rate waterfront." He has set a 10- to 20-year time horizon and wants to make an impact.

Hahn says that Los Angeles has had 225 years of success as a largely unplanned city, but that this lack of planning has also created many problems. He wants the port of Los Angeles to be both a great seaport and neighbor. He thinks it′s possible to have both a functional port and an attractive waterfront. Hahn wants to redevelop and beautify the Los Angeles River.

Brown too, seeks to beautify his city and leave a lasting legacy. He cites the citizens approving a $200 million bond issue to improve Oakland′s lake and surrounding water amenities. "If you′re near water, you build on that," says Brown.

These priorities were reflected in the final question to the mayors, in which each mayor was asked to spend a hypothetical billion dollars on his city. Brown said that he would fix the Fox Theater and "build stuff," like an art center and other amenities. Hahn would improve transportation, the freeway system and public transit and would build housing. Williams, too, would build housing, expand the tax base and create greater choice in schools for middle-class parents.

Ross DeVol, Director, Regional Economics, Milken Institute
Jerry Brown, Mayor, City of Oakland; former Governor of California
James Hahn, Mayor, City of Los Angeles, California
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Anthony Williams, Mayor, District of Columbia
5:30 pm - 7:00 pm TUE 4/1
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7:00 pm - 9:30 pm TUE 4/1
What is the America′s role in the world? That question spawned many more. Why should the U.S. go into Iraq? Are we making the world a better place by being more active? Has the preemptive doctrine created a more unstable world? Why are many countries in the world against the United States in the war to liberate Iraq? Should we go after every dictator? Are we on a highly slippery slope?

The last century was the bloodiest in the history of mankind. The world is in another chapter of war and conflict. America′s role, according to William Bennett and Robert Bartley, is greater than it was before 9/11. In their view, the war is the result of failed and civilized negotiation. And in the long run, the U.S. role in this war will lessen the threat to the humanity and increase our security. The countering view, presented by Stephen Richter and former Senator Gary Hart, was that the war may lessen U.S. power and its ability to deal with international conflict by cooperative means. Richter was not certain that the world will be a better place because of this war.

Bartley read from a letter issued by the Bush administration expressly stating its intent to pursue an activist role in the world. Both Bennett and Bartley felt strongly about America's activist role, citing instances in which they felt restraint worked to our detriment. Both felt that the war in Iraq was an example - and a justified demonstration - of that policy.

Hart and Richter agreed that America should act when the danger is clear and present, but neither was convinced that the timing of our invasion into Iraq was ideal. Richter also emphasized that even when right, America must be sensitive to global perceptions of its actions. Failure to be sensitive to those perceptions could result in failed policies in the future, Richter feared.

As both a social and military power, all panelists agreed that when we must use force, we must use it "justly, wisely and emphatically."

All four panelists were optimistic about the role of the U.S in the future. With the rule of law intact, checks and balances, and the principals upon which the U.S. was founded, it was felt that America will come through the current conflict and take a positive leadership role in the world.

Bennett closed the session by quoting the late Senator Patrick Daniel Moynihan: "We are not a perfect democracy, but find me a better one."

Larry King, Host, "Larry King Live"
Robert Bartley, Editor Emeritus, The Wall Street Journal
William Bennett, Former U.S. Secretary of Education; Co-Director, Empower America; Chairman, K12
Gary Hart, Senior Counsel, Coudert Brothers; former U.S. Senator, D-CO, and Presidential Candidate
Stephan Richter, Publisher and Editor-in-Chief, The Globalist
Wednesday, April 2, 2003
6:30 am - 7:30 am WED 4/2
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7:15 am - 8:15 am WED 4/2
7:30 am - 8:50 am WED 4/2
The pace of globalization continues to accelerate, but despite the new opportunities presented by the global economy, the United States still leads the way. Panelist Rupert Murdoch stated: "Any way you look at the world, you need U.S. leadership."

According to the panel, the world is witnessing a European economy that continues to wallow in bureaucracy, a Japanese economy that is laboring beneath structural rigidity and a Chinese economy looming with ever-present potential.

Europe and the expanding European Union possess great potential for taking advantage of global opportunity, yet they struggle to reduce unemployment and attract investment because of complex and rigid regulations. Robert Hormats voiced concern that Europe is regulating itself to a point of noncompetitiveness.

Eastern Europe, on the other hand, has a different attitude toward governmental regulation and identifies with the pitfalls of an overburdened, less competitive economy. The panel cautiously suggested that as the European Union expands eastward, the more competitive and less regulated Eastern European economies might influence their Western counterparts and in fact be a model for European deregulation.

Japan, which has struggled with its stagnant economy for over a decade, continues to show economic weakness. Foremost among Japan′s most pressing problems is its aging population and strict rules limiting immigration. The limits on human capital in Japan could mean grave consequences for its economic future.

Rupert Murdoch pointed out a silver lining for Japan noting that many Japanese companies are far better off than the Japanese economy. Despite Japan′s structural problems, many of its local companies manufacture products that continue to be in high demand around the world.

The Chinese economy continues to generate high interest. Its potential power is already attracting foreign direct investment in the region and siphoning off capital from the Asian Tigers and Japan.

China is not without its flaws. Transforming a nation of one billion people from a central planned economy to a market-based economy is a risky matter. Despite the economic success of certain Chinese cities in the east, much of the nation′s population still resides in the impoverished countryside. Distributing economic growth throughout the population might prove to be a formable challenge.

The panel concluded by reinforcing its belief that U.S. leadership prevails in the global economy. Despite the current short-term problems facing it, the U.S. economy continues to have the strongest infrastructure with the least amount of government regulation.

Summarizing the theme that pervaded the panel′s discussion, Thomas Hughes reminded everyone that in a global economy "capital will go to the place with the least amount of restrictions."

Donald Straszheim, Vice Chairman, Milken Institute; Founder, Principal, Straszheim Global Advisors
Robert Hormats, Vice Chairman, Goldman Sachs (International); Managing Director, Goldman, Sachs & Co.
Thomas Hughes, Global Head Asset Management; Member, of Group Executive Committee, Deutsche Bank
Rupert Murdoch, Chairman and CEO, News Corporation
9:00 am - 10:15 am WED 4/2
Carlos Garcia began his description of the American public school system by quipping, "Everybody is an expert about schools, because everyone went to school." It should be expected then that with hundreds of millions of experts, the level of education would be exceptional. However, the current state of the educational system leaves much to be desired. From ever-increasing expectations, to sub-optimal levels of funding, to the increasing diversity of students, the distinguished panel discussed both the problems and possible reforms for the American public school system.

Expectations have changed dramatically since the 1950s when a high school would been praised for sending 50 percent of its students on to higher education. At both ends, students are expected to achieve more than ever before: kindergartners are expected to read, and exit exams are required for a high school diploma. Furthermore, a high school diploma no longer represents the end of a respectable education; America has upped the bar to at least a two-year college education.

In response to such problems, Eugene Hickok was appointed by President Bush to spearhead "No Child Left Behind," a program designed to help schools meet these expectations. By instituting a standard set of educational metrics, and increasing the amount of choices available to parents, "No Child Left Behind" hopes to capture the power of the American competitive spirit to develop the best possible schools. Hickok views education "as the leverage that could change everything forever."

However, such drastic change will only come with much work. Fully 63 percent of African American fourth graders read below the basic level; 50 percent of new teachers in the Los Angeles school district were hired with emergency credentials. In order to raise student achievement, Robert Lally stressed the importance of "continuing to improve teacher training programs as the children most at risk are often served by the lowest paid and least skilled teachers." In the Clark County School District, one-half the budget is spent on continuing education for teachers. As the state budget deficit grows, continuing education is often one of its first casualties.

The public school system was designed to provide the American child with an educational background from which it could grow and prosper. While the public school system was designed to level the playing field, it has instead perpetuated inequalities among entering students. Those children who come from professional families tend to have better vocabularies and experience more encouragement at home. These imbalances have a direct and meaningful effect on the future education of these children. According to Lally, those with excellent, and often expensive, pre-K education start at a higher level of ability and progress at a faster rate. This is known as the the "Matthew Effect."

Future success will include both reform in the schools and reform in the home. New programs are being developed and tested to harness parental involvement that has waned in recent years. Panelists agreed that the parent is the first and most critical teacher a child will ever have. Bennett commented that parents are the greatest resource possible; they are like "unpaid adjunct faculty" whose engagement is crucial to future success.

By concentrating on basic reading and mathematical proficiencies, developing a focused curriculum, training teachers and providing for accountability through data driven systems, educational reform is possible and attainable.

However, no easy solution exists. More money, more parental involvement and greater accountability are all required to reform a troubled system. The problems are deep and well ingrained, as Lally articulated, and the panelists affirmed that "you cannot solve the K-12 problem until you solve the 0-5 problem."

Barry Munitz, President and CEO, The J. Paul Getty Trust
Arlene Ackerman, Superintendent, San Francisco Unified School District
William Bennett, Former U.S. Secretary of Education; Co-Director, Empower America; Chairman, K12
Carlos Garcia, Superintendent, Clark County School District, Nevada
Eugene Hickok, Under Secretary of Education, U.S. Department of Education
Robert Lally, President, LeapFrog SchoolHouse
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Roy Romer, Superintendent, Los Angeles Unified School District
9:00 am - 10:15 am WED 4/2
This panel session discussed the use of branding as an effective method for gaining a competitive edge over competitors. Moderator Victor Imbimbo, Jr. began the session with a brief presentation. It included several commercial video clips that had made a difference in the success of various consumer products. Later, the panelists, each representing different industries, were given an opportunity to describe how branding is used in their respective companies as an effective tool for selling their products.

Steve Burd of Safeway Inc. provided the grocery industry′s point of view by covering his company′s branding strategy. He believes that branding is a more fluid concept in this industry than in others. In the grocery industry, the shopping experience is by far the most important factor since the "product" consists of a diverse array of food and food-related brand name products. According to Burd, Safeway attempts to distinguish itself from other grocery stores by creating a unique merchandising approach — offering fresh and high quality products available in different sizes to its customers. The produce, meat and bakery departments generate the highest impulse purchasing and should therefore draw the most attention by maintaining high quality characteristics. Burd also emphasized friendly, helpful service by store management as a way the chain positions itself to attain a long-term competitive edge.

Burd also discussed the launching of Safeway′s premium brand Select and the success it has had at Safeway and beyond. Select has been able to compete next to brand named labels such as Chips Ahoy and Pepsi.

Lynda Resnick of Roll Corporation felt that creating a brand identity was key in strengthening her products. She used Pom Wonderful, a juice drink, as a recent example of how her company took a commodity in pomegranates and converted it into a value-added product that has achieved much success. Resilience in pushing this product to its potential despite the high initial costs, made the difference. It now sits among its peers as the top selling juice drink in the high-end of its category in Southern California.

Starwood Hotels & Resorts Chairman and CEO Barry Sternlicht described his product as one significantly different from those of the previous panelists. Sternlicht explained that lodging customers usually first look for location, then price and finally brand. Also, hotels are not out to sell a traditional consumer product. So far, Starwood′s success has come in the form of loyalty programs or discount programs, that have enabled it to weather the current industry climate. This approach has served as a marketing tool and provided the means to market their product to key customers who have maintained loyalty. Sternlicht reiterated what Burd said by emphasizing the importance of the customer′s "experience." For this reason customer service has continuously been improved.

Sharon Patrick noted that her company built a trusted brand name around a given hobby - improving your household. Its brand seeks to forge an "emotional connection" with its users. This approach has proven successful and Patrick stated that they intend to spread this success into new products.

Speaker Peter Grauer stated that singularity was Bloomberg′s most important branding strategy involving a commitment to high quality customer service. Bloomberg′s branding intentions are to nurture this strategy of customer service and continue to prioritize its clientele.

The closing remarks by moderator Victor Imbimbo, Jr. echoed the views of most panelists. He reinforced the importance of providing customers with a unique "experience" that would increase customer loyalty and satisfaction. Communication and management′s ability to relay its policies to employees who carry out customer service, was also viewed critical to branding.

Victor Imbimbo, Jr., Executive Group Director, TBWA\CHIAT\DAY
Steven Burd, Chairman, President and CEO, Safeway Inc.
Peter Grauer, Chairman, Bloomberg L.P.
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Sharon Patrick, President & COO, Martha Stewart Living
Lynda Resnick, Co-Chairman, Roll International Corporation
Barry Sternlicht, Chairman and CEO, Starwood Hotels & Resorts Worldwide, Inc.
9:00 am - 10:15 am WED 4/2
Emerging domestic markets — the people, places or enterprises in the U.S. with low income and high potential for growth, but without access to needed capital -are a tremendous opportunity for investors and businesses. They include ethnic- and women-owned firms, urban and rural communities, companies serving low- to moderate-income populations, and other small- and medium-sized businesses. They represent the fastest-growing segment of the U.S. economy and population.

This demographic reality, coupled with low returns in public equity markets, has led more private capital firms to explore these markets. What are the opportunities? How can financial innovations enable capital to enter emerging domestic markets and mitigate risk? How can government, business and community organizations leverage their resources and expertise? What is the best role for institutional capital?

Emerging domestic markets (EDM) have historically been overlooked by mainstream investors. Betsy Zeidman led this panel of investors who find innovative ways to place capital and resources with people, places, and enterprises that are not only able to provide market and above-market returns for their investors, but are also seen as major drivers in the resurgence of the economy.

The panel opened with a pointed review by Zeidman of statistics showing the stark level of under-investment in emerging domestic markets relative to so-called "mainstream" investments, the inherent opportunity that exists in investing in EDM, and successful investment in this market.

This introduction was followed by Nancy Pfund′s overview of the JPMorganChase-managed Bay Area Equity fund that closed its $45 million dollar fund in January 2003, utilizing private equity institutional and foundation capital to gain market venture capital returns with social and environmental goals. Pfund pointed out that her fund also provides resources to entrepreneurs through partnerships, educating low-income individuals in the use of public job training and educational programs that are currently in use by large institutions such as JPMorganChase, but are not familiar to low-income entrepreneurs, to whom these programs are often targeted. Pfund emphasizes that this fund is not interested strictly in creating any new jobs, but quality jobs for low-income people in the Bay Area, and eventually other parts of the nation.

John Given of the CIM Group presented the audience another type of investment in EDM — real estate investment. CIM Group is a full-service real estate investment and development firm that acquires, invests in, and operates mixed use properties located in urban cores and rural regions in California. It utilizes equity investment in joint venture structures to facilitate other comparable investments. Given believes that CIM is bringing market returns to social investment and is optimistic that his fund will be able to expand to $400 million dollars and begin to invest nationwide.

Todd Cohen of CRAFund Advisors is a portfolio manager who oversees CRA qualified investments into emerging domestic markets. Cohen, too, echoed other panelists, stating that community development investment is a sound and secure financial investment, often with above-market returns. Cohen supports his assertion with examples of his firm′s investments, including targeted mortgage-backed securities that have produced returns on AAA-rated bonds that range from 6-6.6 percent.

Commenting on the people side of EDM investors, John Rogers of Ariel Capital Management, Inc. addressed the African American entrepreneurial perspective, particularly in Chicago which is well-regarded as a "beacon for creating black entrepreneurs." Despite this, Chicago still has a dearth of successful African American businesses. Citing Crain′s 2003 book of lists, Rogers noted that none of the 169 top public companies were African American-owned and only 1.6 percent of the 315 private companies listed were African American-owned; these were mostly entertainment-based. As he displayed a slide showing Ariel Capital Management′s three-year return of 18.9 percent, Rogers strongly urged investors to place capital into minority firms for their mutual benefit.

Luther Ragin of the Heron Foundation followed in this vein by explaining the unique model that his foundation took in allocating their endowment. While most foundations generally allocate only 5 percent of their endowment, Heron invests a larger portion of its endowment, gaining returns of up to 15.5 percent through EDM-based mission related investing. Ragin stressed that investors should know that huge growth and returns are available through EDM investing, particularly in this economy.

Zeidman posed a series of questions to the panelists that followed up on their claims of success in emerging domestic markets, pointedly asking, "Why isn′t everyone doing it?"

The answer overwhelmingly pointed to investors′ misconceptions, unaware that social returns can be correlated with financial returns. This situation makes branding a necessity, creating a reputation for this type of investment that is associated with social and financial profitability. Positive branding, the panelists offered, can be hastened through partnerships with currently successful community development programs, mainstream institutions, and developing programs of scale. Scale was mentioned as an important factor because of the added profitability inherent in larger investments and the importance of supporting potentially large-growth EDM firms.

The panel was concluded with a positive outlook for the near future. Though their outlooks on the overall economy varied, the panelists were optimistic that the next three to five years would be full of opportunity and growth for EDM. As Pfund stated, "This is a great opportunity for a new fund; there are no shortages of good managers and companies," adding that people are more level-headed than they were in the "go-go years."

Betsy Zeidman, Director, Milken Institute Center for Emerging Domestic Markets
Todd Cohen, President, CRAFund Advisors
John Given, Senior Vice President, Development, CIM Group
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Nancy Pfund, Managing Director, JP Morgan H&Q
Luther Ragin, Jr., Vice President, Social Investing, The F.B. Heron Foundation
John Rogers, Chairman and CEO, Ariel Capital Management, Inc.
10:25 am - 11:40 am WED 4/2
The vision of financial innovation lies in the understanding that there are financial solutions to social problems. Financial innovation addresses asymmetric information problems between investors and borrowers. The past 30 years have seen tremendous growth in financial innovations and their benefit to society.

In this session, four distinguished financial innovators gave their in-depth insight into the difficulties of financial innovation and their common experiences as they described a vision of innovation for the 21st century.

Lewis Ranieri said that the motivation for financial innovation is not all about capital returns. He listed housing affordability, risk exposure mitigation, job creation and educational advancement among the motivators.

The panelists all agreed that for financial innovation to develop, a society must have rule of law and property rights. Difficulties in creating financial innovation arise in connection with changing regulations and taxation. Regulators tend to put blanket restrictions on new products such as futures, options and high-yield securities when firms incorrectly use financial products to manage risk. The restrictions imposed on these securities make it more difficult for companies and financial intermediaries to manage risk. Regulation, lack of education about financial products, lack of pricing mechanisms and transparency were some of the main issues faced by these innovators.

To create a market, one must have the ability not just look at the historical performance, but forward as well. Thus, advancement in financial theory, and better and more data collection are needed to sustain innovation into the 21st century.

Many financial innovations could change of the world, panelists believe. For example, were the citizens of Mexico able to securitize mortgage obligations and open its housing market to foreign investors thereby creating an affordable housing market, there would likely be much less illegal immigration to the United States.

Beyond housing, the innovations of the 21st century include financial solutions to solve environmental problems, and resolve hunger and human capital issues, which will have a multiplier effect on prosperity.

Glenn Yago, Director, Capital Studies, Milken Institute
Michael Milken, Chairman, Milken Institute; Chairman, CaP CURE; Co-founder, Milken Family Foundation
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Lewis Ranieri, Chairman, Hyperion Capital Management; Chairman, Ranieri & Company, Inc.
Richard Sandor, Chairman and CEO, Chicago Climate Exchange, Inc.
Myron Scholes, Nobel Laureate, Economic Sciences, 1997; Managing Partner, Oak Hill Capital Management
10:25 am - 11:40 am WED 4/2
As share prices of post-secondary education companies rise, more than doubling since 1998, discriminating investors are considering investments in those companies that themselves specialize in the single greatest capital wealth in existence today: human capital.

As the number of industrializing economies roared forward throughout the twentieth century, so did the importance of higher education. "Human capital is by far the most important form of capital in the global economy," asserts Nobel Laureate Professor Gary Becker of the University of Chicago. Seventy percent of the nation′s capital is human capital, as 17-25 percent of the United States GDP is spent on schooling, on-the-job training, health services and adult education.

The advantages to a higher education experience have grown enormously as well: in 1950 the additional benefit to higher education was 40 percent throughout the life of the student, compared to 70-80 percent today. This is illustrated most tangibly by the doubling of average income and 2/3 less unemployment that comes with a master′s degree over a high-school diploma today.

Becker further emphasized the growing need for higher education by discussing what he sees as the three industrial revolutions of the modern world: the first in 1840 — the traditional industrial revolution, the second in the 50 years following the invention of the electric motor in the early 1880s, and the third being that of the last 30 years, sparked by computers and technology. This revolution has greatly accelerated productivity growth, particularly in I.T. and healthcare, an acceleration that, unlike previous productivity growth periods, has continued through an economic downturn. This shift in productivity, the general workplace environment and the need for updated skills, has intensified the incentive for higher and continued education throughout one′s life. Becker proposes that this need for education demands a greater number and variety of educational facilities and even a change in the educational structure to which we are accustomed today.

Other panelists underscored Becker′s comments by relating their own experiences in the post-secondary education field. Rene Champagne of ITT Educational Services, Inc., discussed opportunities in Asia for education companies, particularly in China where the attrition rate is zero in post-secondary education facilities. He notes that there are 320 million students in China today though China spends one fifth of the percent of GDP that the United States spends. He further observes that there has been a 40 percent increase in college enrollment since 1990 and that the rapidly growing Chinese middle class will fuel the continuing demand for post-secondary education in China.

J. Jorge Klor de Alva of Apollo International Inc., a global education company with particular focus in Latin America, finds that the greatest success comes through the utilization of local partners and joint ventures with local accredited institutions. Localization creates particular branding and recognition, as well as a greater connection with the students themselves. This proves invaluable to the longer-term success of its program. Klor de Alva spoke of the great demand for such higher education, illustrating that in Brazil alone there were 80,000 applications annually for 4,000 post-secondary education seats.

Robert Silberman of Strayer Education Inc. revisited the income effect of education, observing that from the early 1970s to today the lifetime annual yield of a male′s high-school diploma fell from $37,000 to $32,000 as the United States economy shifted its focus from manufacturing to services. As for getting adults into the classrooms, Silberman emphasized the need for convenience in the programs, in addition to commonly discussed points of academic quality and rigor. Strayer found greater success with a broader global market as he moved from synchronous online classes, with live professors online, to those that are asynchronous and as such available at the convenience of all students globally.

The need to "fill the skills gap" of the 90 million Americans without a higher education was addressed by David Moore of Corinthian Colleges, Inc. He noted that only 6 percent of the money spent on post-secondary education represents 51 percent of the country′s workforce, signifying a terrific growth opportunity in the years to come.

As to the question of whether a post-secondary program such as those discussed by the panel stack up to the traditional college experience, Moore asserted that 2 percent of students of so-called research universities actually have access to those resources, to which Becker added that only 100 of the roughly 3,000 universities in the U.S. are actually research institutions, contrary to popular perception. Moore asserts that for the remaining 98 percent there would be virtually no disparity in quality of education between the programs he represents a traditional college. There is a difference only in the demographics of the student populations, as these post-secondary education companies typically welcome students later in life.

Said Klor de Alva: "Education is the most effective tool to mine human capital throughout the world."

Gerald Odening, Managing Director and Senior Analyst, Knowledge Services, Jefferies & Co.
Gary Becker, Nobel Laureate, Economic Sciences, 1992; Professor, Economics and Sociology, University of Chicago
Rene Champagne, Chairman and CEO, ITT Educational Services, Inc.
J. Jorge Klor de Alva, President and CEO, Apollo International Inc.
David Moore, Chairman and CEO, Corinthian Colleges, Inc.
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Robert Silberman, President and CEO, Strayer Education Inc.
10:25 am - 11:40 am WED 4/2
Since 9/11, the travel and tourism industry has been affected in many ways. The industry most negatively affected was the airline industry. No profits have been made by Northwest Airlines and many others since 9/11, and the current war with Iraq has heightened Americans′ unwillingness to travel. Several of the older airlines have been forced to cope with the lack of travelers by cutting fixed costs and liquefying any assets that can be spared. With the outlook for improvement in the industry appearing grim, the poorer companies will be weeded out of the market leaving only those companies able to absorb mounting negative costs. Gary Wilson stated during the session "We are all drowning. Some of us are just a little closer to the surface."

One major problem that the airline industry faces now is the high percentage of taxes they must pay the government, on top of the $2 billion in new security costs that they are forced to absorb. In 1972, there was a 7 percent tax on the airline industry; that number increased in 2002 to 26 percent. In a highly elastic industry like the airlines, high taxes could force many companies into Chapter 7 proceedings.

Another obstacle imposed by the government is its refusal to allow mergers within the industry. Some companies have gotten around this problem by forming alliances that increase revenue efficiency.

Gary Wilson is pessimistic about the future of the airline industry and believes that it may never fully recover. With many airlines' assets being used to cover their negative expenses, one can expect fewer hubs with less capacity and a pricing structure under which the average customer will be paying more.

Conversely, the gaming and lodging industries have not suffered as terribly since 9/11. The gaming industry has seen an increase in its profits since 9/11, while the lodging industry has used the lack of business to tighten up management and increase company efficiency. Most companies see the recession as part of the cyclical phases of the market, and expect their profits to return more strongly than before. While the companies wait for demand and pricing power to return, many are scrupulously managing their capital, while still trying to preserve customer loyalty.

One phenomenon that is affecting all three industries is the Internet. Both lodging and the airlines are being forced to accept the fact that prices across the two industries have become extremely transparent. By being able to compare and view all the prices available to them, consumers will drive down prices, which will in turn lower earnings even more for the two industries. The airline industry will be most affected by this type of price transparency, only adding to the sea of difficulties they already face.

The gaming industry, however, has the potential to gain significantly from the Internet. Currently, online gambling is a $5 billion business around the world. To put this in perspective, the entire United States gaming industry only generates $40 billion. Only nine countries allow online gambling and the United States is not among them. However American companies, like the MGM Mirage, already have sites constructed that supply the few countries where online gambling is legal. Another area in which many gaming companies are looking for growth is in Asia and the United Kingdom. In essence, the gaming industry has remained successful despite 9/11 and can be expected to yield greater profits in the future.

All three industries have been forced to adapt to the trying times our country faces and will continue to face in the future. For some, like the airline industry, the turnaround will be more gradual, but the gaming and lodging industries believe they will weather the storm and emerge even more profitable than before.

Kapila Anand, Partner, National Industry Director - Hospitality, KPMG
Stephen Bollenbach, President & CEO, Hilton Hotels Corporation
Jacques Brand, Managing Director and Global Group Head of Real Estate, Gaming and Lodging Investment Banking, Deutsche Bank Securities Inc.
Terrence Lanni, Chairman and CEO, MGM MIRAGE
Barry Sternlicht, Chairman and CEO, Starwood Hotels & Resorts Worldwide, Inc.
Gary Wilson, Chairman, Northwest Airlines
10:25 am - 11:40 am WED 4/2
The demographics panel focused on U.S. trends with a particular focus on the booming Latino population.

Bill Frey, a Senior Fellow with the Milken Institute, kicked off the panel with a brief yet descriptive synopsis of the today′s demographic picture in the United States. He pointed out three important factors that not only have contributed to the country′s current demographic structure but will continue to influence it in the future. One is the huge immigration into the U.S. particularly in the last decade. Frey said that "despite 9/11 and new immigration laws that followed as a result, immigration in the U.S would continue to rise." Second, is the phenomenon of "aging of baby boomers" and third, "the flight of the middle class."

Frey went on to illustrate his demographic perspective of the nation, which he sees as divided into three broad regions: A "Melting Pot" region, "New Sunbelt" areas, and "Heartland" communities. 70 percent of the country′s foreign born population, most of them Hispanic, live in these "melting pot" states. He stressed that immigrants are more likely to move into racially diverse "melting pot" states such as California and New York, while internal migrants are more likely to relocate into "new sunbelt" areas such as Nevada and Arizona. According to Frey, those attracted to a low density environment are more likely to move into these "new sunbelt" areas. Twenty percent of these people in the U.S. are Whites, and most of them elderly. As for the "heartland" regions, Frey does not believe that we will see migration into these areas.

Joaquin Blaya, chairman and CEO of Radio Unica Communications Corporation, shared his viewpoints. "Mexicans are reconquering the states that they had once lost," he said. "The new demography is just the old demography." Blaya commented on the significant Latino presence in the media — television, radio, etc.

"Hispanics have found that they don′t need to surrender their values and can still speak English," Blaya explains. He believes that although Hispanic teenagers are "the most difficult group to reach out to," they eventually "recapture their identity" down the road.

Finally, Blaya went on to point out that with over one trillion Hispanic mortgages, the richest Hispanic population now resides in the U.S.

Jose Legaspi, president of the Legaspi company, forecast that the next thirty years be even brighter for the Hispanic population than the last thirty years. He believes that the opportunity for Hispanic companies to open up businesses in the U.S. is phenomenal and would continue to escalate with the current market structure. While new opportunities are being fulfilled, he pointed out that many Mexican companies are still willing to relocate to the U.S. According to Legaspi, 25 percent of the sales in new Hispanic supermarkets in the United States are to Latinos.

Legaspi also commented on the generational differences in the Hispanic community. He believes that these differences can be widely attributed to the changes apparent in the subcultures of different regions.

Referring to the rising Hispanic population, he concluded by saying, "it′s a wave that is going to stay, so we might as well swim in it."

Tom Tseng, Director of Marketing for Cultural Access Group Inc., reported the findings of a survey conducted by his company relating to the Hispanic population. Among his findings, 57 percent of Hispanic youth indicate having a stronger preference in English rather than Spanish and 91 percent prefer English on internet sites. However, he believes that it is likely that although the respondents might prefer to speak English outside the home, Spanish is what they speak at home.

Tseng concluded the panel by expressing his opinion that America′s ethnic orientation would be altered in the next generation.

Joel Kotkin, Senior Fellow, Milken Institute; Senior Fellow, Davenport Institute for Public Policy, Pepperdine University
Joaquin Blaya, Chairman and Chief Executive Officer, Radio Unica Communications Corp.
José de Jesús Legaspi, President, The Legaspi Company
William Frey, Senior Fellow, Milken Institute; Visiting Fellow, Brookings Center on Urban and Metropolitan Policy; Research Scientist, Population Studies Center, University of Michigan
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Thomas Tseng, Director of Marketing, Cultural Access Group, Inc.
11:45 am - 1:05 pm WED 4/2
In the current economic atmosphere of corporate corruption and the war on terrorism, the number of corporations filing for bankruptcy has increased exponentially, both in size and in scope. Despite the myriad issues and questions surrounding corporate reorganization, however, there is one inescapable solution: good management.

A good management team is not expected to be predict the future; rather, it is expected to respond quickly and effectively to present challenges. Adaptability and liquidity are keys in a winning strategy.

According to Jack Dunn, the three biggest causes of corporate failure are faulty management, financial fraud — as with the WorldCom and Adelphia scandals and loss of market base, such as products becoming obsolete or a loss of credibility with customers. Often a company can survive when it is beset by a single problem; it is when multiple problems arise that a crisis is triggered.

Then what? Is there any way to save a struggling corporation with no cash savings without going to bankruptcy court? Yes, says Craig Mulhauser, who faced just such a challenge with Exide Technologies. "The most important thing you can do as leader of the corporation is to restore confidence from the inside out." Mulhauser advocated designing a specific, concrete game plan and constantly monitoring the company′s progress. All unnecessary expenditures, including personnel and entire divisions, must be eliminated. It is also essential to engage the employees, to inspire them and get them to believe in both the company and its mission. Lastly, clear, effective communication must be present throughout the company in order to ensure that everyone understands their role and decisions can be made quickly.

Though resuscitating a dying corporation sounds daunting, Mark Patterson insisted that it is a relatively simple process. In fact, one of the most common problems in struggling companies is the management′s refusal to acknowledge the problem. "Denial is a terribly common phenomenon," he said, but an honest assessment of the situation is vital to solve the problem. "Find out what the true value of the company is, then exercise your operating options: defer accounts payable as long as possible without violating contractual obligations." The restructuring of aggregate debt is a number one priority, and the fiduciary obligations shift from the stockholders to the creditors.

Sometimes, however, there is no other option than court. The process is extremely difficult and expensive, and things "become polarized between creditors and the corporation," said Mulhauser. The role of the judge is to sift through the emotions and conflict to determine the real worth of the company, and then to divide that sum fairly among the interested parties — creditors, employees, management, and shareholders.

But the role of management, both in corporate success and failure, cannot be overstated. "Management got you into the problem," said Dunn, "and only management can get you out."

Richard Nevins, Managing Director, Jefferies & Company
Jack Dunn, IV, Chairman and CEO, FTI Consulting
Craig Muhlhauser, Chairman of the Board, President, Chief Executive Officer, Exide Technologies
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Mark Patterson, Chairman, MatlinPatterson Global Advisors LLC
Linda Riegle, Judge, U.S. Bankruptcy Court, District of Nevada
11:45 am - 1:05 pm WED 4/2
The discussion centered around issues surrounding the consolidation and explosion of rival voices — such as 24-hr cable channels and news websites — within the media sector. The conflict in Iraq served as the main context during the exchange among the panelists. Robert Bartley summed up his own introductory views by stating that media organizations are at an inflection point in terms of news coverage. More specifically, Bartley maintained that the "extra adversarial edge of the attitudes of the press may be going away."

Joel Kurtzman built on this view by stating that the coverage in Iraq is reflecting a soldier′s view of the world because of the imbedding of journalists within specific military units. He argued that "as citizens we need to get the entire perspective of what is going on in the Middle East" through journalists weighing in with more varied political and ethical considerations. In the case of the LA Times′ coverage of the war, John Puerner emphasized that the imbedding process is only one component of an integrated reporting mechanism they have set up on the ground with troops, at the Pentagon and command center, and in neighboring countries near the conflict.

The discussion then turned to recent trends in media ownership and consolidation in which two views emerged. Peter Passell joined Mr. Puerner in suggesting that the increasing concentration among media players has failed to tarnish the credibility of any of the reporting of news. In fact, both argued that a diversity of news has emerged that has never been seen before. Mr. Puerner used his Los Angeles news conglomerate as an example to highlight the fact that "a larger platform allows us to take news to a larger group of people…resulting in better, more integrated coverage along with better access gained by journalists across national and global boundaries." Mr. Kurtzman shared an alternative view stating that the consolidation within the media sector has destroyed shareholder value, in light of the souring over high profile mergers such as the AOL/Time Warner transaction. He pointed out that while the concentration in the media sector increased significantly, penetration rates for new viewers or readers of news content has not increased.

Dennis Kneale moved the debate forward by asking the panel to offer their views on whether or not consolidation had reduced the diversity of voices within the media sector. The panel agreed that in fact today′s journalism is more vibrant than ever with 24-hour news coverage and website distribution of content. Mr. Puerner argued that the revamping of cross-ownership rules, particularly between print and broadcast ownership, is long overdue. He went as far as to characterize as "ridiculous" the government prohibiting a business from owning a news and television outlet in the same market. From his perspective, the single biggest concern for emerging news organizations should be their ability to handle complex news stories that develop over several years. By having a larger, more integrated platform across different mediums (print, television and the Internet), Mr. Puerner suggested his organization was better positioned to handle important developing stories like the effects of China′s industrialization on the Southern California economy.

Mr. Bartley rounded out the conversation by discussing the advantages of offering "paid content" on the Internet for various news organizations. While The Wall Street Journal is one of the few news outlets which has been successful on this front, all of the panelists agreed with one panelist′s view that "paid content has the potential to erode the audience and transfer the viewers focus from a profitable to an unprofitable vehicle".

Dennis Kneale, Managing Editor, Forbes Magazine
Robert Bartley, Editor Emeritus, The Wall Street Journal
Joel Kurtzman, Partner, Global Thought Leadership and Innovation, PricewaterhouseCoopers; former editor, Harvard Business Review
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John Puerner, Publisher, President & CEO, Los Angeles Times
11:45 am - 1:05 pm WED 4/2
The overarching difference between the major economic centers of the industrial age and those of the 21st century is that geographical location is not of crucial importance now as it was then. While during the industrial age economic success was directly tied to ports and natural resources, success in today′s economy is most directly tied to the region′s ability to grow, retain, and attract human capital. While Los Angeles, New York, Washington D.C., and Silicon Valley have been the major hotbeds in the post-industrial age, they — especially Silicon Valley — have had the misfortune to experience the first ever "services-led" recession. Silicon Valley particularly, is plagued by high rates of unemployment, currently hovering around 7 percent, though most troubling is the hidden 20 percent unemployment rate among the Valley′s executives. Furthermore, vacancy rates among the Valley′s office sector are in the millions of square feet, an aggregate square footage larger than the entire stock of office real estate in Toronto, Canada. In spite of such sobering realities, this is not the first time Silicon Valley has been through a down cycle; though perhaps the lessons learned will prove beneficial not only to Silicon Valley but also to other regions that aspire to imitate its success.

Ross DeVol advanced the discussion by introducing the Institute′s annual release of the Best Places to Do Business Index. With it, DeVol made a case in stating that future Silicon Valleys must include sustainability in its economic practices in order to be successful. While joint investment in research and development has proven to be necessary, it is hardly sufficient. Investment in R&D must be coupled with investment in human capital and entrepreneurial capacity. Of most importance, according to DeVol, is a region′s ability to grow, retain and attract the creative talent that fuels economic growth in a knowledge-based region. The leading global regions to keep an eye on in coming years are San Diego, California; Austin, Texas; Cambridge, England; Bangalore, India; and Shenzhen, China, he said.

Bringing the discussion back to Silicon Valley, Ram Gupta described the region as "a magical place where dreams can come true." Consistent with DeVol′s argument, Gupta acknowledged that the heartbeat of Silicon Valley lies not in its research parks or world-class universities, but in the people that walk the halls of these places. Due to the two major trends affecting Silicon Valley — globalization and the economic downturn — Gupta was quick to point out that people need not be in Silicon Valley to take advantage of its research and innovation. As a result, American leaders must be very careful not to "fall asleep at the wheel" given current and potential international competition for the products, services and human capital flocking to and from Silicon Valley. According to Gupta, special attention must be paid to countries like Russia, Israel, China, India, and Brazil that are "full of talented, hard-working, bright people ready to rock n′ roll."

Bruce Karatz raised the constraints and challenges posed by a real estate industry in California that has not been able to build enough homes to sustain its population. According to Karatz, in the mid-1980s, the industry as a whole built an average of 160,000 homes per year. Currently, the industry is building roughly 30-40 percent less homes per year. Karatz doubts the industry will be successful in catching up to its mid- 1980s performance. According to Karatz, this phenomenon, coupled with high incomes, is what has driven real estate prices through the roof in major California markets. A theory posed by Karatz is that continuous population growth will force the real estate industry to turn to building homes in the inner regions of the state. Such action, said Karatz, must then lead us to break ground on major and multi-million-dollar mass public transportation projects throughout the state.

Given Karatz′s proposition of inland real estate development and a mass transportation system, Navi Radjou responded positively to the technological possibility of a remote office. With increasingly faster and more sophisticated technologies, it is only a matter of time before the American employee splits the work week between office and home. With that said, Radjou stood in full agreement with the notion that geography matters less and less than in previous times. On a global perspective, Radjou reminds us to keep an eye on South Korea, China, and Southern India as possible "next technological frontiers."

With all the talk about international possibilities, Steve Westly made a strong case for Silicon Valley. Perhaps the most important success factors for Silicon Valley are its research universities, a culture of accepting and embracing risk, local heroes and publications that promote them, the ability to make lots of money, and its international intellectual/capital migration from all corners of the world. Risking failure is a key element of Silicon Valley′s fabric. According to Westly, it is much like moving to Detroit if you want to be the best car manufacturer. If one wants to be the best stock broker, he moves to Wall Street. If one wants to be the best actor, he moves to Hollywood and if one wants to be the best entrepreneur, he moves to Silicon Valley. A cause for concern, according to Westly, is the possibility of a slow transition by Silicon Valley should the technology industry undergo a structural shift where another region achieves critical mass and resources re-allocate accordingly.

Rich Karlgaard, panel moderator and publisher of Forbes magazine challenged the panel by stating that in spite of it superb technological and engineering superiority, Silicon Valley remains a phenomenon of capital markets. Silicon Valley is, by far, the quickest region to launch an initial public offering (IPO). But what if there are no more IPOs? What if the notion of profitability was required by those holding the purse strings before lending money?

Gupta strongly agreed that once the dust of this economic downturn settles, profitability will be the key dealmaker. In addition, according to Gupta, Americans in general must not make the grave mistake of ignoring the fact that there are people offshore whose governments are spending billions of dollars to create knowledge-based economies. These people are not only hard-working, talented, and highly educated, but they are also willing to work for one-tenth the salary their American counterparts demand.

In closing, panel members provided regional development insight that may not be so easily identified. Ross DeVol and Rich Karlgaard urged the audience to pay special mind to smaller, college towns like Madison, Wisconsin, whose creative talent and existing resources have arguably not been channeled most efficiently as of today. Ram Gupta urged us to pay special attention to the lessons taught by the history of development and human capital. Bruce Karatz pointed to regions with high densities of Hispanic populations such as the cities and towns of the Rio Grande Valley in Texas. Navi Radjou advised us that recreating Silicon Valley would be nearly impossible. And Steve Westly ended by saying that what makes Silicon Valley successful is the fact that it welcomes talent from all over the world; that the day Bangor and Shenzhen learn how to imitate this practice is the day they will become extraordinary.

Rich Karlgaard, Publisher, Forbes
Ross DeVol, Director, Regional Economics, Milken Institute
Ram Gupta, Executive Vice President, Products and Technology, PeopleSoft
Bruce Karatz, Chairman & CEO, KB Home
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Navi Radjou, Senior Analyst, Business Applications and Services, Forrester Research, Inc.
Steve Westly, Controller, State of California
11:45 am - 1:05 pm WED 4/2
The Latin America panel discussed that region′s future outlook. In 1993, as Christof Weber recalled, the region was considered the land of opportunity by foreign investors offering incredible investments at bargain prices. It was a region with depressed asset prices making steady progress towards a market economy, determined to eliminate one of its biggest problems, corruption. By 1998, most countries seemed to have embraced capitalism, and the international capital markets were rewarding the region with record breaking capital flows.

However, today, the picture is quite the opposite. Under mounting pressure of a widening income gap and deteriorating economic conditions, much of the steps towards capitalism have been reversed by emerging populist regimes, with Venezuela being the basket case.

Sergio Munoz, who moderated the panel, opened the session by stating that the region has deteriorated enormously and giving a brief overview of the current state of the main countries. On an optimistic note, he mentioned that Peru, a country that endured more than a decade under an oppressive regime, has now shown GDP growth of more than 4 percent. On the other hand he mentioned Colombia as being the most embattled country in the region, mainly due to the resurgence of fighting between the army and the guerillas. He concluded his opening remarks by stating that unfortunately for the region, the increased importance of homeland security since 9/11 and now the conflicts in the Middle East, have taken much of Washington′s attention off Latin America.

Following Munoz′s comments, David Kastholm gave an overview of the current economic situation in Latin America, pointing out that Latin America is facing a very tough business environment. Only two countries, Chile and Mexico, have investment grade sovereign debt ratings, and half of the countries in the region have a negative outlook (indicating a greater than 50 percent chance that their sovereign debt rating will be further downgraded in the next two years). In this environment, companies continue to be downgraded, as default risk rises and their already high risk-premium continues to increase.

Furthermore, the acute lack of investor confidence, both national and international, makes funding the large investments needed, all but impossible. International capital markets have shuttered for Latin America, and the region continues to suffer from a very low savings rate.

Following Kastholm′s review of the region, Nelson Ortiz focused on the Venezuelan situation, stating that the country is an example of how you can perform poorly despite having money available. The country enjoyed positive current account balances in all but three years from 1990 to 2002, and the cumulative balance through exceeds $46 billion.

However, he stated, this country has experienced one of the biggest "peace-time" wealth destructions in history. The market capitalization of the Caracas Stock Exchange dropped by more than two thirds between 1991 and 2002, from over $12 billion to less than $4 billion, much of this accounted for by foreign investors who took control of two large utility companies. All the while, daily trading volume dropped from more than $15 million in 1997, to its current level of around $100,000.

After Ortiz, Manuel Suárez-Mier introduced his scorecard, where he measured the degree of implementation, or lack of, economic reforms in selected countries in the region. On top of the list was Chile, which got 42 points out of a possible 45, followed by Mexico a distant 2nd with only 21 points. On the bottom of his scorecard, he placed Venezuela with 0 points in reforms, not because they were not introduced, but because they have been, for the most part, reversed.

The first category of his scorecard was public finances, where both Argentina and Venezuela scored 0. The former country received this score because of its inability to close its fiscal deficit, which was once covered by privatizations. But, when there was nothing else to privatize, they chose to finance the budget deficit with increasingly expensive debt financing. That proved to be the Achilles Heel of the once admirable Argentinean Economy. In regard to pension reforms, most countries performed poorly. He stated that most countries are no longer in the business of using pension funds as now they must manage the rapidly increasing pension liabilities.

Next, Christof Weber talked about underlying socio-economic problems, adding that the reform process did not yield the fruit promised and, thus, support for further advancement of reforms had weakened. Official estimates place average unemployment in the region at more than 14 percent with gaps in income and wealth growing wider and wider. For instance, in Brazil and Mexico, around 60 percent of national income reaches only 20 percent of the population.

Referring to Mexico, Suarez-Mier mentioned that a commission in charge of eliminating red tape in the government was proceeding very rapidly, but was challenged by the introduction of new "red tape" faster than it could remove the old red tape.

Talking about closed economies versus open economies, the panelists agreed that interestingly, the economies that were performing best, Brazil and Chile, were at opposite ends of the spectrum, with Brazil being the most closed, and Chile the most open.

Panelists agreed that one of the problems for Latin America in attracting foreign investor interest right now is that it seems to have fallen off the radar screen. Another problem is a cultural one, in which the population finds it easier to blame Washington, rather than accept that most of their problems lie within their own countries.

To finalize the session, Munoz posed with the question of whether the outlook for Latin America was positive or negative. One of the panelists quoted Mexican comedian Cantinflas, "Maybe yes, maybe no, but most likely, who knows."

Sergio Munoz, Correspondent, Los Angeles Times.
Daniel Kastholm, Managing Director, Fitch Ratings’ Latin America Corporate Finance Group
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Nelson Ortíz, President, Caracas Stock Exchange
Manuel Suárez-Mier, Senior Economist, Bank of America
Christof Weber, Senior Vice President, Global Research Team, Latin America, Trust Company of the West
1:05 pm - 2:45 pm WED 4/2
The debate on global economic issues touched on topics as comprehensive as the mandate of the session′s title. Michael Milken commenced the debate, asking the distinguished panelists to identify the pervasive problems in the world′s second largest economy, Japan.

Stagnation was immediately identified as the root of many of the problems in the Japanese economy. Specifically, the panelists noted the stagnation of income and people within the closed Japanese system. Though there are benefits to a closed economy such as little exposure to economic risk internationally, panelists were concerned more with the detriments of such an economy. Japan imports very little from the rest of the world and receives relatively little foreign direct investment. Japan also lends very little to the rest of the world as a result of its banking system, which has resulted in Japanese lenders lending to companies that have no chance of repaying the loan.

Kenneth Arrow further identified the liquidity trap as an issue hurting Japanese investment. During its downturn, Japan experienced high personal savings rates forcing down interest rates, however, the lower interest rates have not stimulated effective investment, foreign or domestic. Arrow recommended that Japanese lenders abandon policies keeping investment in failing domestic companies and lending more money abroad.

Panelists described the response of the Japanese government to the crisis as an additional cause of current stagnation. The Japanese government misidentified the problems plaguing their country initially and implemented a Keynesian program of discretionary fiscal spending to stimulate growth. The projects have been both unproductive in themselves and unproductive in aiding the economy. This policy only accomplished driving the debt-to-GDP ratio to 120 percent, unsustainable for any substantial time. This discussion of the Japanese economy concluded with Milken recommending that Japanese institutions pursue improvements in financial and regulatory technology.

Milken then led the panel to discuss the issues in the world′s third largest economy, Germany, which arose in the 1990s after the fall of the Berlin Wall. Following World War II, West Germany was a paradigm of economic growth and prosperity. Problems arose in the 1990s during the unification process. One source of the economic turn-around was the politically motivated policy of exchanging one East German mark for one West German mark despite unequal exchange values. Another problem that persists in the German economy is the geographical variation in unemployment rates estimated to be 20 percent in former East Germany and only 8 percent in former West Germany. The replacement ratio policy for the unemployed implemented by Germany to equalize income distribution following unification fuels the persistence of geographic variance in unemployment.

The panelists also identified Germany′s recent transition to the euro as a detrimental policy affecting their economy. In this, Germany surrendered power over its banking system to the European Monetary Union central bank in Brussels. The needs of the German economy even at the time of this transition were different than the needs of other economies in Europe. As a result, policies implemented by the central bank were contradictory to policies that would address the needs of the German economy. The European Monetary Union has also curbed the range of fiscal policies that can be pursued by member states. Budget deficits must be kept below 3 percent of GDP. This has prevented Germany from effectively following policies that address the issues within its economy.

Kenneth Arrow briefly dissented to these opinions regarding the depth of the problems in the Germany economy. Adjusted for longer vacations, more leisure time, more medical coverage and more equal income distributions, Germany′s economy is more comparable to that of the United States. The one problem that Arrow did acknowledge is the high unemployment caused by the high replacement ratio.

Continuing the discussion on Europe and the European Monetary Union (EMU), Milken challenged the panelists to discuss the United Kingdom and its hypothetical entry into the EMU. The panel agreed that free trade among the European nations is an advisable and beneficial policy, however, did not recommend the entry of the U.K. into use of the euro. The economies of Europe are too heterogeneous as exemplified by the experience of Germany to allow for effective monetary policy to be implemented universally from Brussels. A flexible exchange rate was recommended by Kenneth Arrow as a way for each country to maintain control over their respective monetary policies. Myron Scholes contended that for a single currency to be appropriate, both labor and capital must be mobile within the single currency region. That is not the case in Europe and the United Kingdom.

The discussion then returned to northeast Asia and the hypothetical unification of the two Koreas. Here the panelists recommended the pursuit of unification. However, the pangs of such a policy would likely be much greater than that of the case of Germany. The panel estimated the income and infrastructure gap between North and South Korea to be ten times greater than that between the former German states. The unification process then would take much longer and be much more difficult than the experience of Germany.

The panel moved to discuss the current growth and growth possibilities of China as a developing market. Panelists remarked that the situation of China is favorable to economic growth, being underdeveloped industrially and having a heterogeneous population. When adjusted for the inefficiencies of state owned enterprises and other negative effects on the Chinese economy, the actual state of their economy is closer to a growth rate of 6-8 percent. The panelists felt confidant that Chinese growth did not take business away from American industry as China mainly competes in low-cost manufacturing and that continued growth in China will affect both world and U.S. GDP positively. Recommending policies of market liberalization and political reform, the panel saw great potential in China for the foreseeable future.

Michael Milken and the Nobel Laureates concluded the panel by exploring trends in the global economy as a whole and recommendations for the future. Growing income and development inequality demands attention both in the U.S. where real purchasing power in poor income brackets is decreasing and internationally, where countries such as those in sub-Saharan Africa continue to fall further behind in social development. In order to improve this situation, social and economic structure must be equalized across borders, while protectionist policies pursued by developed countries especially in agriculture must by abandoned in order to allow advantages to be realized by less developed countries. The panel continually emphasized the importance of education and specialization in achieving goals of an uninhibited international economy.

Michael Milken, Chairman, Milken Institute; Chairman, CaP CURE; Co-founder, Milken Family Foundation
Michael Milken, Chairman, Milken Institute; Chairman, CaP CURE; Co-founder, Milken Family Foundation
Kenneth Arrow, Nobel Laureate, Economic Sciences, 1972; Professor of Economics & Operations Research (Emeritus), Stanford University
Kenneth Arrow, Nobel Laureate, Economic Sciences, 1972; Professor of Economics & Operations Research (Emeritus), Stanford University
Gary Becker, Nobel Laureate, Economic Sciences, 1992; Professor, Economics and Sociology, University of Chicago
Gary Becker, Nobel Laureate, Economic Sciences, 1992; Professor, Economics and Sociology, University of Chicago
Myron Scholes, Nobel Laureate, Economic Sciences, 1997; Managing Partner, Oak Hill Capital Management
Myron Scholes, Nobel Laureate, Economic Sciences, 1997; Managing Partner, Oak Hill Capital Management
3:00 pm - 4:15 pm WED 4/2
This discussion focused on corporate governance and the role of large institutional investors in providing oversight to the actions of corporate management and boards. Where were regulators at the time of WorldCom, Enron and Adelphia? What more needs to be done? What should investors, particularly institutional investors, be doing?

Often corporate governance actions can be seen in a fashion similar to investing: trying to predict future outcomes and assess value of actions. It is easy to look back and see missed opportunities. Another issues cited as problematic was that large institutional investors are often uneasy about confronting management, especially when a company is performing well, a prevalent trend in booms and asset bubbles. The paradox in equity investment is that investors tend to pay less attention to them as they increase in value — victims of their own success.

A question arose in light of all that has happened recently about falsified information and company mismanagement. Shelley Smith opined, "I don′t think that corporate America is missing a moral compass." There are a few "bad apples" but in general they do not represent the majority. The key solution is governmental regulation, especially since often, investors cannot micromanage individual stock positions and purchase the index. However, at the same time, institutional investors do need to be more vigilant.

On that point, it was noted that it is hard for investors to make an impact on company decisions. There was general agreement that the entire system of nominating independent company boards of directors needs to be revisited, along with the shareholder voting process in general. Oftentimes, shareholder votes are not effectively counted in management decisions as the SEC views these as inappropriate shareholder involvement.

In terms of pension funds providing corporate governance it was noted that as a fiduciary, pension funds do not want to be in the role of taking a stand publicly on electing management, especially should it prove later that management did not fulfill its fiduciary responsibility.

The panel also discussed what the "right" composition of a corporate board might be. Mutual fund boards were not a good model, they said, because though they are independent, they are often not effective. The best combination would be one of board members who are independent and not independent, including some with personal financial interest in the company, the key being that an independent director should not mean a disinterested director. It was felt that the private equity market provides a model for where the public equity market should be, but without the same liquidity and investment restrictions that private markets face.

The issue of corporate governance and the actions of senior management brings to light the classic "agency problem," an issue since the 1930s. Making management owners along with investors was thought to be one solution. A major point of contention along these lines was executive compensation and stock option plans for senior managers. Stock options are used to align company owners′ interests with those of CEOs. However, there are those who feel that stock options cause CEO′s to focus on short term profits and EPS, rather than aligning their interests with those of long-term investors. One way to deal with this is to expense options. On the other hand, the investor class is paying for earnings management and it is the board′s responsibility to ensure that senior managers are rewarded for good company performance.

Another suggested solution was to ensure that the shareholder voting process is more effective and efficient. In particular, shareholders should have a say in decisions regarding CEO compensation such as "golden parachutes." Cumulative voting was another recommendation.

Dennis Kneale, Managing Editor, Forbes Magazine
Michael Flaherman, Senior Advisor, New Mountain Capital, LLC; former Chair, CalPERS Investment Committee
Orin Kramer, Chair, Investment Council, State of New Jersey; General Partner, Kramer Spellman LP
Patrick McGurn, Vice President & Special Counsel, Institutional Shareholder Services, Inc. (ISS)
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Shelley Smith, President, Los Angeles City Employees' Retirement System
Caroline Williams, Chief Financial and Investment Officer, The Nathan Cummings Foundation
3:00 pm - 4:15 pm WED 4/2
Philanthropic foundations are at the forefront of social change. While agreeing with this statement to differing degrees, each of the panelists, described by moderator Michael Milken as "five representatives of our country′s greatness," held this statement to be largely true. Foundations provide a social vision and "build bridges to future generations."

To Lewis Coleman, president of the Gordon and Betty Moore Foundation, social change is evolutionary rather than revolutionary. It is a gradual process whereby the time needed for change is often greater than the lifespan of the donor. Given the long-term horizon, it is difficult to measure social change and evaluate the efficacy of foundations. Philanthropic foundations must always ask themselves whether their institutional goals match those of their founders.

Coleman is unique to the philanthropy industry for three reasons: he is relatively new to his job running the Moore Foundation, having started as recently as 2000; the founders of his foundation, Gordon and Betty Moore, are alive and active members in society; and he brings private-sector banking experience to his job, having served in the banking industry for 37 years.

Adam Meyerson, President of The Philanthropy Roundtable, a national association of grant makers consisting of 600 member organizations, likens his job to no less than moving the world. Referring to Archimedes, he says, "We in the philanthropy business are in the fulcrum business;" we seek to build freedom and personal responsibility in individuals′ lives.

Meyerson sees several opportunities presently in the philanthropic sector, each of which has broad social implications. He sees opportunities in K-12 education and helping to ensure that each child of every social and ethnic group receives access to adequate K-12 education. He sees opportunities in improving the quality of the environment and restoring marriage as the basic building block of society: there is no greater security and safety net for children than having a supportive, intact family unit. And Meyerson sees opportunities helping countries and freedom-loving individuals triumph over terrorism.

Meyerson′s "mission is to foster excellence in philanthropy." He argues that "donor intent is central to philanthropic integrity." Philanthropy is an expression of an individual′s financial decisions.

Susan Urahn, Director of the Knowledge Resources and Education Program at The Pew Charitable Trusts, looks for "issues ready to pop." The Pew Charitable Trusts have been around long enough that Urahn asserts that philanthropy can be at the forefront of social change. Their aim, stated in tagline rather than a formal mission statement, is "investing in ideas, returning results."

Grants are their primary, but not sole, tool. The Pew Charitable Trusts have two main approaches. The first is to be an "honest broker of information." They conduct polling and research, without an expressed agenda, and supply it to people who use information to formulate public policy. They enact social change by researching issues that matter. The second approach, one they consider a position of social importance, is to take an advocacy approach to bring the issue to the forefront of social consciousness.

Foundations "have to be able to apply leverage" in reasonable ways, according to Urahn. They need to search out "ripe" issues "amenable to change" where a small amount of money can make a large difference. Under-resourcing projects is a big problem in the philanthropy sector. The Pew Charitable Trusts use a "portfolio of grants" approach that attacks an issue from several different fronts.

Hank Brown added that in regard to giving grants, the issue is not whether a grant is "good or bad," but whether the fund might "pass up something that was better." While each grant is attractive, every fund is working with a limited pool of resources and must carefully select those issues that can return results.

Urahn sees her role as Director of the Knowledge Resources and Education Program as pertinent for the following three reasons: there is an abundance of new research emerging regarding brain development in children, the public is aware of this research and its importance, and 80 percent of 3- to 4-year-olds are getting out-of-home care. Furthermore, Urahn adds, "80 percent of the care settings are at best adequate." With so many children in need of early education and so many potentially inadequate settings, more advocacy is needed to get children adequate early education.

In order to provide greater access to preschool, Urahn takes the following four approaches. First, she funds grants for objective, rigorous research to make the case for early education. Second, she sets up advocacy centers to establish preschool grants from the state of Pennsylvania, which currently does not have such grants. Third, she educates lawyers fighting for rights to preschool under equal education provisions; finally, she funds constituencies such as businesses and superintendents with an interest in this area.

Hank Brown, President and CEO of the Daniels Fund, runs the largest philanthropic fund in Colorado, serving the four states of Colorado, New Mexico, Utah and Wyoming. The fund focuses its efforts on social improvement through education in three areas: a scholarship program focused on low-income young people, changing K-12 education by expanding choice in K-12 education and assisting charter schools and school readiness for children.

Barry Munitz, President and CEO of The J. Paul Getty Trust, agrees with Coleman that there are very few great philanthropic moments within recent decades, but added that Getty is one such rare example. When J. Paul Getty died in 1976, he left $1,000,000,000 to the trust. "The man who dies rich dies disgraced," said Munitz, echoing the words of Andrew Carnegie.

Munitz argues that distinctions such as "new philanthropy," "venture philanthropy" and "social philanthropy" are needless and all refer to the same general concept. Munitz would like to improve assessment in the nonprofit sector. "Media coverage of the nonprofit world is terrible…Transparency and disclosure are crucial." According to Munitz, how the work is done is just as important as what work is done.

To Munitz it′s more important to make effective grants than to cover a philanthropic area of interest. Philanthropic organizations should spend money on "risk capital." They need to take more chances and test new ground. Two important issues to Munitz are "reaching out early" on key concerns and "being honest." Some societal problems, he admits, cannot be solved, even collectively amongst foundations.

According to Meyerson, a large shift is occurring in the philanthropic world: the donor-advised fund industry has grown. Just as mutual funds greatly expanded the investing industry, so donor-advised funds will revolutionize philanthropy, he predicts. A person can identify a foundation that matches one′s interests and participate in philanthropic giving without establishing one′s own foundation or fund. Already there are as many donor-advised funds as foundations.

The panel concluded with a brief discussion about the management of philanthropic money. "We would never attempt to manage any of our own money," Munitz says. He exclusively uses private advisors and adds that he would not know how to hire and involve investment professionals within his organization. Urahn took the same stance as Munitz. Coleman, however, disagreed when it came to his foundation. "Having professional managers does not take you out of the investment management business." Left 175,000,000 shares of Intel by Intel co-founder Gordon Moore, Coleman and the foundation made the decision when to diversify the foundation′s holdings. "We made the calls on when to sell the Intel," he says.

Despite their differing ideas on the management of their respective endowments, Meyerson added that a vibrant private sector is essential to generating philanthropy dollars. Strong returns are a cornerstone of philanthropy both for the initial giving and subsequent preservation of that capital.

Michael Milken, Chairman, Milken Institute; Chairman, CaP CURE; Co-founder, Milken Family Foundation
Hank Brown, President / CEO, Daniels Fund
Lewis Coleman, President, Gordon and Betty Moore Foundation
Adam Meyerson, President, The Philanthropy Roundtable
Barry Munitz, President and CEO, The J. Paul Getty Trust
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Susan Urahn, Director, Knowledge Resources and Education Program, The Pew Charitable Trusts
4:15 pm - 5:30 pm WED 4/2
Moderator Patrick Mitchell introduced the panelists, all of whom were currently or have been chief investment officers or managers of significant portfolios of retirement assets. Broadly framing the panel's issues, he noted that the U.S. population is rapidly aging and returns on pension assets have been negative for the past several years, bringing into question standard assumptions about the savings rates required to provide for retirement. In the U.S. and around the world, there is a clear need to find new sources of investment returns if the assumptions of pension plans are to hold.

The use of historical data to provide clues about future performance was the first issue raised by the panelists. The use of past data, Jim Berens noted, can be highly misleading. This point was amplified by Christianna Wood who further remarked that the standard historical benchmark — the data on returns provided by Ibottson — has been called into doubt and one could be no longer certain of the future returns of equities. Michael Rosen shed further light on the topic by decomposing the returns on equity into their respective components. Returns above inflation were due to two factors, he stated, dividend growth and price to earnings growth. Assuming 2 percent inflation and dividend growth at the rate of economic growth, it is hard, he contended, to see equities providing much more than 8 percent unless p/e ratios rise.

The nature of risk was the next question posed. Tom Shanklin stressed the importance of political risk to the Taft-Hartley market in which his firm is a leader while Lewis Coleman noted that for foundations the key concern was to minimize volatility and be able to make legally stipulated lending targets. The value of alternative assets with low betas was raised by Coleman and this was expanded on by Jim Berens. Hedge funds — his own investment vehicle — looked attractive he noted, but only due to the poor performance of traditional assets. They were simply, he quipped, the "tallest midget in the room."

Alternative assets remain a source of suspicion to Taft-Hartleys, Tom Shanklin argued, as do foreign assets. An example of what economists call "home bias," was the fear of unions that exporting capital was equivalent to exporting American workers′ jobs. Michael Rosen viewed the need to consider foreign assets on par with the need to consider broad economic trends and the need to find opportunistic investments as one of the three key issues institutional investors need to consider.

Patrick Mitchell closed the discussion by inviting the panelists to discuss whether the current climate was one in which further conservatism was best or whether it called for a more aggressive approach. Tom Shanklin stressed the need to be aggressive and noted that fixed income would not provide investors with the returns they needed. A good deal of portfolio rebalancing was wrongly delayed also, he argued. Unless ones′ views of asset classes have changed, one should still stick to ones′ investment strategy.

Patrick Mitchell, Managing Director, MW Post Advisory Group, LLC
Jim Berens, Managing Director, Pacific Alternative Asset Management Company
Lewis Coleman, President, Gordon and Betty Moore Foundation
Michael Rosen, Principal and Chief Investment Officer, Angeles Investment Advisors
Thomas Shanklin, President & Managing Director, Investment Performance Services
Christianna Wood, Senior Investment Officer - Global Equity, CalPERS