Global Conference 2008
Sunday, April 27, 2008
Sun 4/273:00 pm - 9:00 pm
Monday, April 28, 2008
Mon 4/286:30 am - 7:30 pm
Mon 4/286:30 am - 9:00 am
Mon 4/286:45 am - 7:45 am
Mon 4/287:00 am - 8:00 am
Improving America's Health Through Labor and Management
By invitation only
Mon 4/288:00 am - 9:25 am
Credit: Yesterday, Today and Tomorrow
Milken started with a wide-ranging review of credit history stretching back to the 1600s, elaborating on different forms of credit risk, including real estate and interest rate risk. All the panelists agreed that today's credit situation has a markedly different character from the crises of the 1980s and the 1990s.
Wesley Edens of Fortress Investment Group noted that this credit cycle is more severe than other recent downturns. Investment-grade bonds are trading at remarkable spreads over Treasuries. "The bulk of it has been due to a tremendous liquidity crisis," he said. "It's what happens when the buyers of the assets all become sellers."
To expand on the impact of the credit crisis on the international market, Rajeev Misra of Deutsche Bank discussed his recent visit to Asia. He cited the fact that almost 80 percent of Indian companies have relatively little debt on their balance sheets. He also stated that the emerging markets have not developed complex financial tools and still lack the qualified human resources to manage these tools — and the lack of leverage in this asset class may have saved them. "The lack of these two things helped the emerging market avoid the pain of the credit crisis," he noted.
Misra went on to note that there is currently an unusually large spread between cash bonds and credit-default swaps in the investment-grade space. It is a sign of strange times indeed when such a huge spread with little default risk does not have immediate takers. He observed that it's a relatively small slice of highly risky subprime loans bundled into CDOs, but they were structured in such a way that they undermined vast sums of solid debt.
Noel Kirnon of Moody's Investors Service expressed his concern that financial tools have become so complicated that the market sometimes could not evaluate their risks. But he also noted that today's structured finance is still less volatile than corporate debt in the mid-1980s.
Analyzing the situation from the perspective of credit cycles and market efficiency, Steven Tananbaum of GoldenTree Asset Management predicted that we might see improved returns within a two-year period. Logic says that most credits are not going to default, so if investors can identify those opportunities, there are excellent yields to be had.
Richard Sandor of the Chicago Climate Exchange posited that the talent in major financial markets was now smarter than before and could handle the financial tools better. But Milken interjected that this new talent has a short memory.
Regulation of the new financial tools can be a mitigating factor in responding to concerns about a lack of transparency. "Regulation is a good thing," insisted Sandor. "The tools are helpful but should not be misused."
Referring to Charles Dickens's famous line that "It was the best of times, it was the worst of times," Milken argued that these might actually be good times. He cited the fact that market capitalizations in the United States and Japan accounted for 68 percent of world totals in 1950s, while by 2007, that proportion had declined to only to 37 percent. Economies in the rest of the world are not as vulnerable to downturns in the United States as before.
The session ended with Milken asking each panelist for their outlook on future opportunities and risks. Kirnon responded that high-yield volatility was still the major risk and that tightening regulation will create new opportunities with the start of a new cycle.
Chairman and CEO, Fortress Investment Group LLC
Executive Vice President, Global Structured Finance, Moody's Investors Service
Managing Director and Global Head of Credit Trading, Securitization and Commodities, Deutsche Bank AG
CEO and Chief Investment Officer, GoldenTree Asset Management LP
Mon 4/288:00 am - 9:25 am
Forum on the Future: How the 21st Century Will Change Your Health
Considering the dynamic balance between humans and microbes, it is inevitable that new infectious disease will continue to emerge worldwide, said Anthony Fauci of National Institute of Allergy and Infectious Disease. "While humans will not be wiped out by microbes," he said, "we will never kill all of them, either." The health-care system will face dual challenges of combating relatively recent threats, such as HIV, and established diseases like West Nile virus, which probably emerged about a thousand years ago and undergoes cycles of outbreaks. The known diseases, he said, are relatively predictable and preventable, even though they may kill thousands of people a day. But unknown diseases can create sudden and dangerous pandemics. Even though Fauci said he was optimistic about the progress of an HIV vaccine, he cautioned that recent failures in therapy experiments underscore the difficult task ahead.
How we gather, manage and disseminate information to develop effective treatments and cures will be a major challenge for health care in the 21st century, said Peter Neupert of Microsoft Corp. On the down side, he said, $50 billion to $60 billion is spent by the National Institutes of Health and pharmaceutical companies in R&D, while only $1 billion is spent for developing health-care IT solutions.
As a positive example of the possibilities that exist, he said, Microsoft has acquired a company that provides health-care IT solutions for a hospital in Bangkok that sees 1.3 million patients a year — patients who speak 19 different languages. In this hospital, he said, 60 percent of the patients are local Thaïs, and 40 percent are international, including 75,000 U.S. citizens. In addition, 40 percent of the patients are walk-ins. Yet their average wait time is just 17 minutes, and they have a guaranteed one-hour wait time for basic blood tests and radiological exams. The same hospital fills 12,000 outpatient prescriptions a day and bills are generated in just 10 minutes. These kinds of advances in information technology, said Neupert, will ultimately influence health care in the rest of the world.
Eva Vertes from Weill Medical College of Cornell University addressed the need for "rationally designed therapies," especially for cancer. Health care today offers cures that are limited to chemotherapy and/or radiation. "But there's a fine line between killing the patient and killing the tumor," she said. According to Vertes, cancer is the body's uncontrolled response to an injury — for example, to excessive ultraviolet light, radiation or smoke inhalation. Current therapies focus on eliminating the cancer cells but do not address underlying cause for the cancer itself, she said. Future research in this area will need to understand the difference between a controlled vs. uncontrolled response to injuries.
On a global scale, said Neupert, "health delivery systems work well for the rich, but it is unlikely that we can scale the 'wealthy world' health delivery systems to people to the developing countries." Software could improve how information delivery systems are integrated into software solutions, and this will be the key to deliver health care on a large scale. Most of the challenges are economic, he added, and this creates barriers.
Mon 4/289:35 am - 10:50 am
The Future of Oil and Gas
Karen Harbert of the U.S. Chamber of Commerce stated that the demand for energy will increase 50 percent between now and 2030, with 70 percent of that figure coming from developing nations. India and China alone will account for a significant portion of increased demand. To address the problem, she said, approximately $20 trillion in new investment across various technologies is required. Unfortunately, there are several barriers to get the money flowing, including resource nationalism. She also emphasizes on the lack of sufficient investments necessary to meet the demand.
What does this mean to the price of oil? Antoine Halff of Newedge predicted that price volatility is here to stay. According to him, producers no longer find it necessary to increase production to maximize profits; now they are focused on capturing the rent (controlling the market), even if it means curtailing production. He also believes that renewable sources will constitute a small fraction of the overall energy supply.
Robert Cavnar of Milagro Exploration cited access restrictions to energy sources as a supply impediment, noting that most of the wells his company drills these days are at least 14,000-16,000 feet deep, up to a mile deeper that wells that were dug just a few years ago. In contrast to Halff's assertion that renewables will constitute a small niche in the overall future energy supply, Joseph Stanislaw of the JAStanislaw Group said he was certain that renewables will emerge to become one of the main sources of U.S. energy. Although passionate about renewable energy, both Stanislaw and Harbert agreed that the United States cannot get away from reliance on traditional energy. Nor is it good to demonize oil and gas, which continue to fuel the existing infrastructure. Instead, they suggested, oil and gas will have to become bridges to a renewable-rich future.
The panelists also discussed the relative advantage that the national oil companies have over their international counterparts. Yet despite having access to huge reserves, national oil companies are reluctant to invest in exploration. This must change, the speakers agreed.
Another important factor affecting the growth of the energy sector is the availability of talent. "We're having a difficult time sourcing technical people," said Robert Cavnar of Milagro Exploration, who added that while experience is valuable, his average engineer is 55 years old. Russia, he said, has done a tremendous job of training skilled petrochemical engineers, but international oil companies find it hard to recruit them.
Nuclear energy, panelists agreed, is the elephant in the room, capable of filling the energy gap between supply and demand. But the nuclear industry suffers the same problems: a lack of materials (uranium), engineers and capital.
In conclusion, panelists concurred that the political environment isn't yet even conducive to a long-term focus on energy demand. Changes in the regulatory, fiscal, legal and diplomatic realms will have to come first.
President and CEO, Milagro Exploration LLC
Deputy Head of Research and Head of Commodities Research, Newedge
Executive Vice President and Managing Director, Institute for 21st Century Energy, U.S. Chamber of Commerce; Former Assistant Secretary for Policy and International Affairs, U.S. Department of Energy
Founder and CEO, The JAStanislaw Group; Independent Senior Advisor on Energy, Deloitte LLP
Mon 4/289:35 am - 10:50 am
Real Estate: Where Is the Bottom?
All eyes turned to iconic Sam Zell of Equity Group Investments, who stressed how crucial it is to recognize that the real estate market is "heterogeneous," with impacts varying by market sector. "The single-family residential (SFR) market is dead," he said, noting that the cause of death can be traced to failed federal policy. "For forty years, every single time the federal government has tried to increase home ownership above 62 percent — and it went up to 69 percent this decade," he added, "the policy fails, and home ownership retreats and a recession ensues.
"Buy all the SFR you can at 40 cents on the dollar," he added, "because there is a huge oversupply."
In the commercial real estate (CRE) market, strong demand exceeds supply for assets like Class "A" office buildings. This market is in relatively good shape, Zell said, adding, "I have seen the numbers on losses and they are overstated in this area." Still, he warned, construction could effectively stop by the end of this year. Why? Because a loss of confidence has frozen lending since July 2007, and it takes about nine months for CRE work to start drying up due to a lack of capital.
Brian Fabbri of BNP Paribas noted that banks are tight, but with reason: "Builders are still building more SFR than people are buying," he said. "We should be concerned because all the losses to date incurred at full employment absent a recession. If we lose 1.5 million jobs in a recession, it is going to get worse." He predicted that the SFR market won't bottom out until well into 2009.
Current federal programs support a bunch of people who never should've bought houses,"interjected Zell. "They should not be getting our sympathy because they have no equity invested in the property and got loans without financial means tests. They must be cleared from the SFR market for it to return to good health. They can liquidate their asset or choose the foreclosure process." The federal government, he said, "is hurting the SFR market by helping those who never should've got their house in the first place."
"This housing bubble fed itself through borrowing from the pool of future homeowners for the next 10 years," noted Bobby Turner. "The market incentives encouraged overbuilding in suburbs in outlying areas, where land was cheap and transportation costs were 9 to 14 percent of disposable income." Now that transportation costs are hitting 25 percent of disposable income, he said, people can't afford to live in outlying areas and commute to work, and this is making urban areas more attractive.
Michael Van Konynenburg of Eastdil Secured spoke of the great run CRE investors and bankers did enjoy from 2002 to 2007. Throughout this period, he said, commercial lending didn't loosen its standards, as the SFR market did. But the SFR impact on the CRE market, along with the declining dollar, a recession and not much CRE to sell, has a chilling effect on CRE lending: down 80 percent from 2007 to the first quarter of 2008. If the CRE investment market doesn't recover, he predicted, there could be material stress in CRE by late 2010. "We have a recession, and investors are waiting for the federal government to show its hand," he explained. "Does the government take steps now to make matters worse? Or does the federal government give clear signals that enable the markets to unfreeze themselves?"
The panel was pessimistic that foreign investors will "save" the real estate market. "There are always opportunities," said Zell, "but there isn't always scale. While there's a demand for high-quality office buildings, there is excess supply in houses. There simply is no scale to buying up SFR. This is compounded by the fact the U.S. liquidity problem is not a worldwide problem. There is plenty of investment going on external to the U.S."
Investors in the Middle East would be the most capable investors, said Fabbri, noting that they are savvy and invest wisely. While they have invested big in the past, they like to visit to see what they bought. U.S. politics (visa and security challenges) make it much more difficult to come to the country relative to travel ease in EU countries. The U.S. tax regime is also somewhat unfriendly, he continued.
"The domestic challenge," said Bobby Turner of Canyon Capital Advisors, "is getting current investors, most notably pension funds, to focus on opportunities and not on current problems."
The panel's discussion was specific to asset prices, not rents, and their shared belief that the country is in recession. Feldman asked each to pick one opportunity for investing, and Fabbri picked international investments for the best returns. Turner opted for domestic urban rental housing that benefits from immigration trends. Van Konynenburg said he likes major hotels in urban infill, while Sam Zell stated that he's bullish on Brazil, suggesting it may exceed China as an economic power in 30 years.
Chief U.S. Economist for North America, BNP Paribas
Managing Partner, Canyon Capital Advisors LLC
Michael Van Konynenburg
President, Eastdil Secured
Chairman and President, Equity Group Investments LLC; Chairman and CEO, Tribune Company
Mon 4/289:35 am - 10:50 am
Do Mid-Cap Private Equity Funds Have an Advantage in Today's Markets?
Although Ellis Jones of Wasserstein & Co. was quick to admit that the "large-cap guys don't have a monopoly on overpaying or stupidity," the panelists noted that because mid-cap funds are targeting firms with a market cap of $150 million to $1 billion, they can often fly under the radar to identify emerging trends and can pursue the purchase of strategic firms before the rest of market sees what's coming.
Opinions differed slightly on deal timing. Ted Virtue's firm, MidOcean Partners, tries to tie up firms before they're publicly for sale, while Jones's firm buys some of its highest-performing companies at auction. Richard Cashin of One Equity Partners added that mid-cap managers can make more deliberate, more focused investments because the best investors in large-cap funds are often too busy raising money to spend sufficient time deciding where the money should be invested.
Although the panelists generally felt they had good access to potential investments, there was some concern about large-cap funds moving into the mid-cap space as capital markets continue to tighten.
The panelists conceded that large-cap funds often have big-name, "icon CEOs" who run their portfolio companies, but they argued that mid-cap fund strategy is not necessarily dependent on iconic management expertise. John Mapes of Aurora Capital Group noted that Lawrence Larry Bossidy (the former CEO of both Honeywell International and AlliedSignal, as well as chairman of General Electric) runs one of its firms, but that Aurora Capital's turnaround strategies are based more on using price, volume and productivity than on Bossidy's reputation.
Virtue also added that large-cap funds deal with portfolio companies that have been fine-tuned by professional management and consultants for decades; on the other hand, mid-cap portfolio companies tend to be less efficient and require a different type of management team, one that can move in and quickly improve inefficiencies. Cashin noted that the real value in mid-cap funds is the ability to strategically combine firms rather than focus on incremental operational improvements. Since their target firms are smaller, mid-cap funds have more leeway in ""mixing and matching" firms to maximize returns for their limited partners.
In addition to the sourcing and operating advantages of mid-caps, the panelists cited another advantage in the smaller size of their fund portfolio firms. One Equity Partners buys companies that other companies will in turn want to buy from it. Large-cap funds are buying large, publicly traded firms, and their only feasible exit is in the public market. Cashin called this kind of exit a reliance on "the kindness of strangers" by banking on exits in the public markets. Meanwhile, mid-cap funds can exit their firms through public IPOs or through mergers and acquisitions in the private markets.
The panelists noted that mid-cap funds sell well to foreign investors, who tend to avoid buying large-cap firms due to political interference. This appears to be an increasingly important issue since the majority of the exits mentioned on the panel were to foreign firms buying mid-cap U.S. firms in order to access the American market.
Mon 4/289:35 am - 10:50 am
A Conversation With His Royal Highness Prince Michael of Kent GCVO
His Royal Highness, who first visited Russia in 1992 and established a foundation there in 2004, believes that — in spite of its challenges — Russia has made great strides. Some of the largest issues currently facing the country are its dependence on natural resources, political instability, an outdated infrastructure and an overabundance of poverty.
However, he sees a brighter future ahead for Russian business and culture, and points to the country's young people, who have "a newfound sense of confidence and pride," and to the increase in wages — up eight times in recent years, as key indicators of the country's potential.
"Considering its position today," he said, "any country that feels it can turn its back on Russia is doing itself a disservice."
Prince Kent also spoke of the importance of entrepreneurship, especially in the developing world. "While people focus on the multinationals," he noted, "and medium-sized businesses are going to be the engine for development and a way to reduce poverty." In China there are currently 30 million small and medium-sized businesses (SMEs), compared to about 25 million each in Europe and the United States, and only 1 million in Russia.
The prince has made several visits to India and believes that among developing nations it has a greater advantage due the widespread use of English there and its legal system, which maps closely to the western world. The country's entrepreneurial spirit also gives it an advantage — entrepreneurs make up 17 percent of India's adult population, compared to only 5 percent in Europe and the United States.
A longtime philanthropist, Prince Michael said he sees an increasing interest in philanthropy across the globe, especially among young people. "The 'haves' have far more interest in the 'have-nots' than ever before," he remarked. "And even in places that are used to receiving aid, people are giving than ever before." He noted that more than 90 percent of the upper-middle class in India is involved in some sort of philanthropy.
He has also noticed different focal points within different regions. While education is an important philanthropic area in both China and Russia, the Russians tend also to focus on promoting their heritage and culture, while the secondary focus of the Chinese tends to be health care.
Another subject that the prince said he holds dear is road safety. Since developing an affinity for auto racing at an early age, he has been interested in raising the profile of road safety in the minds of politicians, businesses and the public. A member of the Road Safety Commission, an international organization working to improve automobile safety and licensing standards, he noted that globally 50 million people are injured and 1.2 million killed each year on the road — and 90 percent of those are from developing nations.
"Road safety has always been a low priority in the developing world," he said. "But with numbers like these — which are similar to the number of people infected with malaria and tuberculosis — this is an issue of great importance."
In closing, the prince discussed three major themes that all nations, developing and developed, should keep in focus as the world changes around them: respect for the family, education and faith.
He explained that the developed world experiences an abundance of wealth but is "nearly bankrupt" in terms of its personal relationships. In the developing world, while money and material goods are in short supply, "there is a tremendous focus on family and wealth of personal relationships," he said.
Mon 4/289:35 am - 10:50 am
Urban Champions: Professional Athletes Reinvesting in Inner Cities
The spectator sports industry has grown twice as fast as the U.S. economy as a whole. Television has created an immediate medium connecting fans to athletes. Employment growth in the industry has shot past average U.S. growth even as it has shifted to specialized channels. "Imagine if there were an A-Rod Network," mused moderator Larry Carroll of KFWB.
But he went on to note that many athletes have trouble moving from their "lavish" system of sports to the reality of building their own wealth. That has not been the case for these panelists, all of whom have found business success off the playing field and all of whom make it a point to invest their time and resources back into their communities.
For athletes who are not superstars, prospects are bleak after their sports career ends. Many face tremendous physical problems and find themselves with no financial support down the road. Donald Latson of World Entertainment & Technologies, a former NBA player, noted that athletes have a divorce rate of 73 percent and a shortened life expectancy of only 62 years. Many athletes, he said, also spend time in prison or face bankruptcy. But Leonard Wheeler of Wheeler Enterprises, a retired NFL player, pointed out that a fraternity exists between professional athletes, enabling them to speak to one another as brothers. How, then, can retired athletes help current athletes built a successful life after they hang up their shoes?
Latson felt that much of the problem lies with perception. "Everyone looks at the pretty pictures that are painted of professional athletes; however, the hardships are not projected as highly after their career."
Panelists noted that there are gaps in the social development of many athletes and a sense of entitlement. Tate George of The George Group, a former NBA player, commented that many 30-year-old athletes act with the social capacity of 16-year-olds. This creates hardships for them in pursuing other avenues of wealth to make a living after they retire. Tate felt that professional sports thrusts a system upon its players, allowing them luxuries while they play the game but tossing them to the curb after their services are no longer needed.
Dale Davis, a member of the Detroit Pistons and founder of Pro Player Holdings, felt that former athletes should mentor those currently playing professional sports, helping them to understand insurance, mortgages and other realities of life. "It's tough for an athlete to be connected to the financial world."
The panelists are utilizing their past experience to help athletes transition from sports to business. Latson said that one of the biggest fears for athletes "is not knowing what to do." He felt that parents should offer their children a wider range of choices. "The biggest blessing was being reared in a loving environment. My parents prepared me for life after sports." The panelists all agreed that many athletes never have the options available to make the right decision. George mentioned a study showing that professional athletes are less equipped to develop a successful strategy for a sustainable life than athletes who stop playing in college.
These panelists focus on empowering their fellow athletes and pursuing business and philanthropy ventures that give back to inner cities. George noted that urban communities can adapt to offer children better choices in life, and these neighborhoods can offer athletes the ability to go home and reestablish their life when their playing days are over.
Finally, Latson noted that, "Oftentimes people in our position don't make ourselves accessible or available." Davis offers mentoring to athletes, teaching them how to build character and prepare for success in life after sports. "The hardest thing for some athletes is to transition to being successful off-field. We help them do that."
Mon 4/289:35 am - 10:50 am
Project Rebirth: Rebuilding Lives, Rebuilding the World Trade Center
To create this remarkable documentary, Whitaker formed a non-profit entity called Project Rebirth that will capture the history of 9/11 before it is lost and follow the construction of the Freedom Tower.
The filmmakers have been following ten individuals affected by the tragedy, chronicling their road to recovery. Each year these participants take part in candid three- to five-hour interviews to explore the developments in their lives. Four of these individuals were featured in the film excerpt that Whitaker screened.
One of the subjects interviewed was a woman who lost her fiancé, a New York City firefighter. She described the process of growing stronger each year until reaching the point where she felt her life was back on track. She ultimately found a new relationship and married a man she calls "her knight in shining armor" — but she still wears her original engagement ring in remembrance of the love she lost.
Also featured in the film was a young man whose mother worked in one of the Twin Towers and was killed in the attacks. The son was accepted to Yale University in the fall of 2001 and felt the pain of being unable to share the experience with his mother. Throughout the course of the film, the audience witnessed his growing strength and acceptance of his loss. "The hardest thing about my mother being gone is my inability to hold her," he confides. "Worst of all, she won't be there to see me graduate, get married and have children. She would have been the greatest grandmother alive."
Another featured subject was a woman who was in the World Trade Center that fateful morning. She survived but endured serious burns that left her with extensive scarring and paralysis of the right side of her body. The audience watched as she recounted the struggles she has faced in the intervening years, including 30 reconstructive surgeries.
Lastly, the audience was introduced to a man who lost everything and everyone he knew on 9/11. After the disaster struck, he picked up and headed West. While living in California, his apartment building flooded — which he took that as a sign that he was meant to return to New York and start over. "It is so hard to be back here," he said. "But I am dealing with it. Day by day I am dealing with it."
The audience members had an intensely emotional reaction to the film, with many left in tears. Whitaker will continue to follow his subjects for the next few years, while also recording progress at the World Trade Center site. Project Rebirth has 12 cameras trained on the construction, and plans to use time-lapse photography to capture a visual image of the new towers rising.
The final version of Whitaker's film will be a part of the World Trade Center memorial and museum. Proceeds from the film will fund the Project Rebirth Center, which will offer therapeutic, educational and training resources to support the victims of future events that cause traumatic loss.
Mon 4/289:35 am - 10:50 am
Education Reform: Learning From the Competition in Asia
The session began with a video providing an overview of the daily experience and cultural attitudes of students in India, China, and the United States. It noted some of the key indicators that show the failures of the U.S. educational system in recent years, such as high school drop-out rates, math scores and teacher training. High school students in India talked about their typical 12-hour school day, and those in China also displayed a work ethic that was not seen in U.S. students, who, by contrast, were portrayed as focusing more on the need for school-life balance and extracurricular activities.
Stewart framed the general problem. "In the 20th century, the United States was the world's leader in education," she commented. "We were dominant educationally, and that was a big part of our economic advantage. But in the last 20 years, a lot of countries have worked hard and moved ahead of us." Noting that the cultural and student commitment to education in China was very impressive, she added, "Every country in the world feels that globalization challenges their educational systems. I think the East Asian countries are moving much faster to address that than we are."
Slone furthered her point on globalization. "The world is flat now. I can hire somebody almost anywhere in the world now, even if the work is going to end up being in Asia." He did not directly attribute India's success to its educational system, but rather to corporations' willingness to invest in training employees in India. The work ethic in other countries is stronger, and workers are less demanding than in the United States, he observed, and corporations are taking advantage of this situation.
Lampkin commented on the role of standards, expectations and the level of rigor in schools. "There's a cultural barrier in the United States about attacking a problem like that, in terms of a global response," he said. Slone added, "In the United States, people can make a pretty decent living not getting to the next step." However, in Asia, there's a huge incentive to get to the next step, so the pressure is high.
"The United States has rested on its laurels for too long," said Williams. He stated that political will was the missing ingredient, and called for a major paradigm shift. "Unless decisive action is taken," he said, "the international competitiveness of the U.S. economy is at stake." Stewart agreed that political will was critical, saying that we are doing our students a disservice by not sending strong messages about the negative implications of low achievement.
Williams provided slides highlighting the key failures of the educational system, and its importance in economic development. He shared data that convincingly showed the United States is failing in many different measures of educational success that are linked to economic success, with low graduation rates being the most troubling.
Some of the specific features of successful education that panelists mentioned included: greater student interest in math and science, a focus on foreign language skill, and teacher recruitment, training, and salary. Most other countries stand head and shoulders above the United States in these areas, and panelists attributed much of those successes to these examples.
Complacency in the United States was a recurrent theme. Williams compared educational reform to climate change, saying that since the decline of U.S. education has occurred over the long term, a sense of urgency is lacking. Stewart agreed that there has been a long time lag between recognizing the problem and acting upon it, and she called for stronger national leadership.
The session concluded with Lampkin asking the panelists whether the core problem with the U.S. educational system was cultural, systematic or somewhere in between. Slone cited low expectations, and also emphasized the importance of boosting communication skills. Stewart focused on ambition, both culturally (for students and parents) and systemically. "The United States, more than any country in the world, has the capacity to bring about a significant paradigm shift," commented Williams in closing. He added that the necessary technology is available, but the political will is needed to transform schools.
Mon 4/289:35 am - 10:50 am
Capitalizing on Momentum: Israeli Financial Reform
Yossi Hollander of the Israeli Institute for Economic Planning addressed some of Israel's challenges, noting, for example, that it is "unique among all western nations (because) it will have the highest rate of (projected) population increase in the world — from 7.5 million today to nearly 9.5 million in the year 2025." To serve its citizens, he said, there must be a 50 percent increase in available jobs, from 2.6 million to nearly 4 million in the next three to five years. GDP must increase 4.5 percent annually each year, compared to 1.2 percent each year for the past 30 years. Israel must also maintain an 8 percent annual growth in high-tech exports, from $71 billion to $230 billion in the next five years. He summed up the challenges, warning that "Israel must learn how to turn into a global financial center and international headquarters for the developing world in order promote social cohesion and avoid poverty gaps and unemployment within the state."
Guy Ben-Ishai of LECG and Tal Keinan of KCPS & Co. highlighted the Bachar Reforms, improving credit allocation and the birth of Israel′s bond market. "In the last four years," said Ben-Ishai, "Israel has been increasing economic growth by 5 percent each year, and has moved from an A to an A+ by Moody's."
"From the land of milk and honey, Israel became the land of milk and financial startups," said Ben-Ishai, "and is now becoming the land of milk, financial startups, and finance." As the audience chuckled, Keinan quipped, "It's a double mitzvah! To make aliyah (as a Jew, to immigrate to Israel) and help the economy of Israel at the same time." Israel is closer to emerging market partners in Eastern Europe than is London, and its less expensive resources are a boon to new opportunities in finance and investment.
The country is fast becoming a global center for investment, Keinan added. In 1990 the nation had no tech industry, but it took just a decade for the industry to blossom. ""What Israel has on its side," he explained, "is an impressive human resource allocation, a solid higher education system, expertise and experience gained internationally and concentrated locally, and an amazing and resilient entrepreneurial spirit — not to mention western legal and accounting procedures."
Neri Bukspan noted that government support is crucial to the success of a country's advancement and financial growth, and that Israel has that support. He offered his recipe for a "stew of success," which includes solid regulatory infrastructure, skilled personnel, open access to consumers and clients, good corporate governance, efficiency of markets, tax incentives, infrastructure and government support. Not to be excluded from the list are quality of life, Zionism, language and culture, he said, adding that "Israel has the right ingredients. Now it just needs to keep it cooking."
Israel is a land of creativity, innovation and idealistic thinking, the panelists agreed, and these characteristics have helped to create the progress we see now and will propel Israel into the future.
Managing Economist, Global Competition Practice, LECG; Visiting Fellow, Milken Institute
Chief Financial Officer, Government of Israel Economic Mission
Chairman, Israeli Institute for Economic Planning
Chairman and CEO, KCPS & Company
Mon 4/2811:00 am - 12:15 pm
The Globalization of Capital Markets: The Rise of New Financial Centers
Gapper asked the panelists what has been the catalyst for the rapid rise in of capital and influence in the Middle East and Asia. David Knott of the Dubai Financial Services Authority replied that Dubai has created a financial market that has become a stabilizing force in the emerging world. "Dubai is the [financial] gateway to the Middle East," he stated, noting that it is a safe haven for investment and its economy has shifted away from oil dependency. Knott felt that Dubai's success stems from the fact that it is the most liberal, tolerant and hospitable location in the Middle East for Westerners.
Magnus Böcker of NASDAQ OMX Group looked to another part of the world, noting that Scandinavia has developed financial markets that create stable investing options. He felt that a key to this stability is the standardization of all financial markets within those countries.
Guy Saxton of First London Securities PLC rejected the notion of comparing different markets at all. "I don't buy into the notion of separate markets. They are quite simply the same participants, just different locations."
That observation begged the question: What makes a financial center? Craig Donohue of CME Group said that it's important to consider how the financial service sector has changed. The number of employees in the sector has doubled in the last 10 years, and this growth is a phenomena because the sector is regularly taxed twice as much as other sectors for its employees. Donohue felt that what defines a financial center is its "intellectual capital, financial capital and infrastructure."
Can emerging markets handle these needs to develop and sustain a truly global system? Knott said that in most cases these issues mark the next stage of development for emerging markets.
Using the Middle East as an example, Knott stated that that there is "only room for one financial center in most geographic segments." He felt that success depends on who creates the best and builds the most global links. Donohue responded, "People don't literally care about where the contracts are traded. It's about technology and infrastructure. We live in a global world."
The strategy at CME, for instance, is to partner and establish joint ventures, so the exchange can figure out global markets and find the most profitable growth opportunities. Yet Donohue acknowledged that there is still concern about the globalization of capital exchanges.
Böcker said that for NASDAQ's most recent merger, the two exchanges "dated for 10 months before successfully marrying. We tested the marriage before actually getting married, which actually help build a relationship." He believes that mergers are more successful when relationships are nurtured and developed, and he predicted that NASDAQ will see the benefit of going global, rather than being U.S.-centric.
Gapper continued the discussion by asking the panel of their thoughts on regulation. Knott said that because Dubai is a newer market, it could observe different regulation policies and choose to develop the best options; Dubai "doesn't have a legacy problem." Many countries, he says, have an over-inflated bureaucracy, creating regulation that is not needed. Donohue said that too much as been made of U.S. regulations, yet the most important concern is security and the SEC's inflexibility.
Gapper asked the panel if they believed U.S. Treasury Secretary Paulson's initiative to create streamlined regulation would work. Donohue said the U.S. system is too complex, and he would like to see a move toward principles-based regulation. Saxton noted that the United Kingdom is flourishing because it uses such a system. He pointed out that going rules-based is very expensive; principles-based regulation codifies everything into a manageable set of guidelines. He used the U.K. firm Evolution as an example, noting that when Evolution conducted illegal business, the market — rather than regulators — responded, and the company lost 83% of its business. "How much can the government actually control participants?"
Saxton noted that he would like to see a global regulator streamline global markets, allowing exchanges to enter many countries without the burden of navigating differing regulatory policies.
"The greatest message of hope of global markets is happening in the Middle East," Knott concluded. Gapper concurred, pointing that this phenomenon is a great realization of the global world.
Mon 4/2811:00 am - 12:15 pm
Energy Independence: From Wall Street to Washington
Congressman Rick Boucher, a Virginia Democrat and chairman of the House Subcommittee on Energy and Air Quality, stated flatly that "the debate about 'yes-no' climate change legislation is over," and for two reasons: From scientific point of view, he said, there is no longer doubt that carbon dioxide contributes to global warming and climate change. Second, the Supreme Court has ruled that CO2 must be classified as an air pollutant, and that unless the Environmental Protection Agency can prove that it does not pose a health threat, it must be addressed and regulated.
It is clear that there the United States will see federal legislation to put mandatory controls on CO2 and other greenhouse gas emissions, said Boucher — what is not certain is when legislation will come. He said he hopes for bipartisan agreement, following the tradition of previous clean air acts that protected businesses against economic disruption and therefore obtained wide industry support.
Boucher put the odds of passage at about 50 percent this year and 80 percent in the first two years of the next congressional session, but said the current plan is not to forward any draft legislation until there is support from industry and across the two aisles of the House.
The ongoing drafting process is complex and must be written to address all economic sectors, he said. The goal is to make sure that "no sector of the economy will be dislocated." Legislation would include both transportation and stationary sources of greenhouse gas emissions.
The proposed "cap and trade" system could be similar to the sulfur dioxide program now implemented in the United States. The goal by 2050, said Boucher, is to reach a 60 percent to 80 percent reduction in emissions from current levels. Legislation must take into account the U.S. dependence on coal for electricity.
Moderator Richard Saines of Baker & McKenzie then turned to the different industry representatives. Greenhouse gases and climate change are certainly "a huge issue coming down the road," said Joseph Pettus of Safeway Inc., which already invests in such clean technologies as solar panels and a bio-diesel truck fleet. In California, where legislation has already been enacted to require greenhouse gas reductions starting in 2012, companies are looking at ways to become compliant with the state law while still remaining profitable.
Richard Sandor of the Chicago Climate Exchange, emphasized that it is critical to start looking at carbon as a commodity. But in order to do that, he said, "we first need to define the commodity." He pointed out that legislation must be careful to define what is included and what projects qualify as credits and offsets. He also stated that legislators must become well informed in order to address the complex issues involved. "We don't want to discourage companies from investing in carbon reduction technologies," he said, adding that finding the right middle point is a challenge.
Blake Schaefer of Stark Investments talked about price caps on carbon emissions. A price cap "can prevent the international linkage," he said, noting that on an international level, the United States must show that it is taking climate change seriously. Panelists generally agreed that it is important to include monitored and verifiable international offsets, and to make sure U.S. markets have linkage with the EU, Japanese, and Australian carbon markets. Schaefer mentioned that there is now a good assurance that projects are verified and that "a saved ton is a saved ton," which would support the inclusion of international projects as part of offset mechanisms.
All emphasized the need to reduce emissions in the cheapest way, without punishing polluters. They also discussed carbon sequestration as an important part of the package that need to be considered, as does the problem of deforestation.
Pettus, who said that Safeway is committed to a 6 percent reduction in its emissions by 2010, urged legislators to allow companies to be pro-active and warned of the consequences if a cap-and-trade program ended up looking more like a cap-and-tax program.
Mon 4/2811:00 am - 12:15 pm
An Unhealthy America: Obesity and the Economic Implications of Chronic Disease
Obesity has increased significantly in the United States over the past few decades. In 1991, explained Ross DeVol of the Milken Institute, none of the 50 states had average obesity levels greater than 20 percent. By 2006, only three states had an average obesity level less than 20 percent. The highest levels tend to be concentrated in states with the lowest socioeconomic levels, supporting other research that has confirmed the relationship between obesity and socioeconomic status.
Panelists discussed several reasons for the increase in obesity. Tomas Philipson of the University of Chicago explained that increases in agricultural productivity have resulted in a declining price per calorie of food, and that full-time employment requires less physical activity now than in the past; many people are now sedentary in their jobs. Rather than exercising as part of the workday, they now pay to exercise, at health clubs and gyms, or as part of their leisure and family time.
Francine Kaufman of the University of Southern California Keck School of Medicine discussed her research, which is demonstrating links between obesity and diabetes, and the biological and genetic factors that contribute to a person's propensity for obesity. While diet and exercise are the most significant determinants of obesity, genetic characteristics for different U.S. populations also affect the likelihood of becoming obese.
Public policy can have unintended effects on health and obesity, and former Surgeon General Carmona noted that there is a need to consider the consequences of a government health policy before implementing it. Steven Burd of Safeway Inc. offered an example: Many public schools have eliminated physical education as a means to reduce costs and to improve academics. But the result of this policy has been a decrease in academic performance, in addition to the expected general decrease in physical activity among young people. Commenting on the increased prevalence of chronic diseases among children, Carmona said, "We're taking middle-age diseases and ratcheting them down to children."
The government, private sector and individuals can all take actions to reduce obesity. Panelists suggested various government incentives, such as compensating physicians for time spent helping patients prevent obesity rather than only treating its effects.
Representing the private sector, Burd said that "information is important, but insufficient." He outlined several steps Safeway is taking to reduce obesity among its customer base and work force. Specifically, Safeway allows loyal customers to download nutritional information for purchases made over the previous six months and compare it to established standards. Businesses can also encourage their employees to take part in nutritional and exercise programs.
Mark Mastrov of 24 Hour Fitness explained that individuals can combat obesity by introducing more movement into their lives during the day, such as walking, taking the stairs or spending time outdoors. He also discussed the importance of being accountable to others for weight-loss goals. 24 Hour Fitness emphasizes the role of trainers, using workout buddies and group classes to remain committed to exercise regimens.
Panelists agreed that obesity is a significant problem in the United States, and that it will take the cooperation of individuals and organizations to prevent further deleterious effects on individual health and the economy.
Richard H. Carmona
17th Surgeon General of the United States (2002-2006); President, Canyon Ranch Institute
Professor of Pediatrics, Keck School of Medicine, University of Southern California; Head of the Center for Endocrinology, Diabetes and Metabolism, Childrens Hospital Los Angeles
Founder, 24 Hour Fitness
Mon 4/2811:00 am - 12:15 pm
Financing Social Entrepreneurs: Transformative Models for the Future
But Muhammad Yunus, winner of the Nobel Peace Prize in 2006 and Managing Director of Grameen Bank, turned that notion on its head with a simple question: "Why can't we accept that we can create business without any interest in making money out of it?"
In this session, tension arose between the majority of panelists who accepted the idea that social entrepreneurs can do good for the world and profit at the same time, and Yunus, an economist by training, who argued that we use the "wrong lens" to view the social problems of the world.
"These are not opportunities for profit," he said. "Rather, they present opportunities to fix what is wrong with the human condition." In his view, "the social business is a non-loss, non-dividend company with a social goal. The bottom line for the social firm is, 'How much benefit did you bring to your people?' This is a new class of business."
There are many issues not being addressed in the mainstream markets. "If you look at serious diseases, some of these have very good vaccines," said Yunus. "But no one produces them because these are diseases of the poor and there no market. These are the 'orphan diseases' that never get addressed. This is a place to create a business! "Now, you ask, why should anyone want to do that?" he continued. "They do it when they feel that people deserve to be vaccinated! We (humans) are not money-making machines ... but we see the world through the money-making lens. With a social business lens, the world looks very different. We can produce these vaccines through social business so that people don't die, and we don't need to make a profit. This is something we wanted to do."
The argument garnered applause and presented a thought-provoking contrast to the positions of the other panelists.
Among the remaining panelists, there was consensus that social entrepreneurship could grow, but the problems it faces are more complex than simply raising more capital. The panelists offered opinions about what it takes to make social entrepreneurship sustainable, and they tended to agree that large-scale, systemic social change occurs best through institutions, rather than the individual. It's difficult for small-scale or individual investors to conduct sufficient due diligence, for example. Kevin Jones of Good Capital explained that his firm has formed a market collective to reduce the costs of conducting due diligence on potential projects. There is also a need, he said, for market intermediaries to address the lending risks resulting from basic lack of information.
Foundations and NGOs have developed numerous methods to support social entrepreneurship and tolerate different levels of risk in these endeavors. According to Debra Schwartz of the John D. and Catherine T. MacArthur Foundation, her organization targets early-stage social entrepreneurship ventures through a grant-making program, with the expectation that the grant will be repaid after 10 years at an interest rate of 1 percent to 3 percent per year. Chicago;s community development bank Shorebank was funded this way, she said. On the other hand, Shari Berenbach of the Calvert Social Investment Foundation said that she targets social entrepreneurship models with moderate to conservative levels of risk through an investment tool called a community investment note. The note allows everyday people to provide micro-loans to social entrepreneurs around the world.
Good Capital requires a return on capital, said Jones, but also a high social impact. The firm targets businesses that would traditionally be of interest to venture capitalists, but have a social capital focus. This "new asset class" attracts investors who want not only a return, but a higher social return, he said, who "look at their money in a more holistic way — more risk, lower return."
In the end, panelists concurred that while "there is no hierarchy of virtue," there are clear market failures that social entrepreneurship can address. Indeed, the market is not the solution for everything, they said. To make social entrepreneurship grow, a spectrum of approaches is needed. The common thread is meaningful commitment to social change.
"The value of traditional grants and the value of government dollars should not be lost," said Schwartz of the MacArthur Foundation. "These other sources are important, as are government regulations and incentives." Smart policies, smart subsidies and smart grant-making remain real challenges. "Sometimes," she added, "the problem is not capital, but institution building, and the ability to absorb capital."
Mon 4/2811:00 am - 12:15 pm
Terrorism and Counterterrorism: Public and Private Responses
Ronald Noble, Secretary General of Interpol, was not able to attend as planned, but he sent comments that were read aloud by Carroll. What keeps Noble awake at night, he notes, is the increasing number of fraudulent travel documents. Interpol currently has the only stolen travel document database in the world, with 14 million entries. But only a handful of nations, including the United States, consult the database when travelers enter. There are still more than 150 countries that do not consult the database, providing an opportunity for potential terrorists to cross the borders of those countries illegally.
Brian Jenkins of RAND brought up the pessimistic realities of the U.S. focus on building walls and fences. "We are in danger of creating a security society," he observed. The United States could continue down a path of fortifying itself in the face of terrorists that have the philosophy of "war is life," but going that route has costs, including a loss of information exchange and commerce. Instead of building moats and walls to protect failing infrastructure, he says, we should instead look at solutions that are more sustainable.
When asked to share his nightmare scenario, Peter Katona of UCLA brought up nuclear and biological weapons. He noted that when there were only 22 cases of anthrax cases, there was psychological trauma. Furthermore, in the face of large catastrophes such as Hurricane Katrina, the United States lacked well-tested regional plans for response. These examples have led him to believe that a full-fledged attack could be much more devastating.
Michael Intriligator of UCLA brought up flaws in the current Department of Homeland Security (DHS). As a major port, Los Angeles is a prime target for a terrorist attack. But DHS continues to focus narrowly on airline security, not moving forward with addressing other areas of potential terrorist attacks such as seaports. Meanwhile, Al Qaeda is continuing to franchise its organization much like a business model, using the latest technologies, while the United States still lags behind in working multilaterally and using new creative techniques and services.
The panel offered solutions for tackling the issue. John Sullivan of the Los Angeles Sheriff's Department acknowledged the importance of space. By having a community take ownership of a particular space, even something as prosaic as a taco stand on a corner, that community bands together in promoting economic progress. They will also recognize those that do not belong in that space, and report them to the proper authorities before something dangerous happens.
Prevention is difficult, Jenkins noted, so it's best to look for investments that bring benefits. Jenkins commented on the U.S. mechanisms for prevention, saying, "Be very afraid but keep shopping." He called for educating and engaging the public, which in the end is the best way to handle and defeat terror.
Professor Emeritus of Economics, Political Science and Public Policy at the University of California, Los Angeles; Senior Fellow, Milken Institute
Senior Adviser, RAND Corporation; Terrorism Expert
Associate Professor of Clinical Medicine, David Geffen School of Medicine, University of California, Los Angeles
Tactical Planning Lieutenant, Los Angeles Sheriffs Department
Mon 4/2811:00 am - 12:15 pm
Bartle Bull of Prospect, felt that the fiscal situation is excellent, and Iraq will soon be living up to its economic promise. In fact, he expressed unmitigated optimism that Iraq would shed the legacy of more than 30 years of a state-run economy. Bull focused on overall economic growth, infrastructure development, new construction and oil production. He was also emphatic that Iraq remains a single, cohesive country with a shared identity, offering the analogy of America's own turbulent origins, which remained unresolved until after the Civil War. "Anyone who would have challenged the United States' ability to succeed would have been proven wrong . . . Iraqis have proven us wrong." Bull highlighted the very real sacrifices that Iraqi Kurds have made in order to remain part of the union when conventional wisdom suggested at times that they might try to form their own country.
Ambassador Lawrence Butler expressed similar enthusiasm about Iraq's future. The U.S. government is spending less on Iraqi reconstruction, and the Iraqis are spending more. More important, large corporations and U.S. venture capital firms are finally starting to seriously invest in Iraq's future. Inflation is down, and oil production is up. Butler observed that Iraqis are very entrepreneurial, but this generation of businessmen is learning how to operate in a capitalist society for the first time. "For every step forward, they often take at least a half-step back," he said. However, they have progressed to the point of achieving sustainable improvement. While he did point out the challenges of the new economy, he said, "Corruption is capitalism unbridled by the rule of law. As the rule of law increases, corruption decreases." Iraqis are learning that they have to play by the established international rules regarding trade and economic development, and as they learn, all parties benefit.
Nibras Kazimi of The New York Sun observed that most Americans see the situation in Iraq as either a disaster or an overwhelming success, depending on their political view. While there are many persistent problems in Iraq, they are fixable and many sincere people are working towards their solution. Kazimi believes that most problems regarding the economy relate to a lack of transparency and the sheer newness of the environment. "The old rolodexes are out," he explained, as Iraqi citizens and investors try to find their way through a rapidly evolving economy. Kazimi also argued that the Iraqi government has done an excellent job of restoring order and providing services. Furthermore, the Iraqis have come together as a unified country, rebuffing numerous attempts by their neighbors to influence progress. Regarding the dying insurgency and the limited influence of Iran, Kazimi remarked that the easiest way to denounce religious and militia leader Muqtada al-Sadr is to remind people that he currently lives in Iran. This echoed Butler's point that even though Shiite Iraqis share a sectarian bond with Shiite Iranians, the more important factor was that Iraqis are Arabs and Iranians are Persians. This ethnic divide ensures that Iraqis stick together.
Throughout the session, the moderator seemed incredulous regarding the panelists' optimism. At every opportunity he directly challenged the panelists, and they pushed back. When Marquez asked about the possibility of al-Sadr's Mahdi Army reemerging, Ambassador Butler shot back, "And the Earth could be hit by a meteor, too, but we are dealing with realities." Marquez's most pointed shots were directed at those who hold up Basra as a model of Iraqi success. He correctly pointed out several major inaccuracies in reports that the Iraqi government had independently and successfully assumed control over Basra following the withdrawal of British forces. However, the panelists presented compelling arguments to support their case that Iraq is, indeed, open for business.
Two final points require acknowledgement. First, the educational system in Iraq never faltered. Even when the insurgency was at its worst, the Iraqis valued education enough to keep sending their children to school at all levels. Furthermore, while the business community fled Iraq due to violence, teachers and professors stayed. Finally, many foreigners are now investing heavily in Iraq at the expense of U.S. firms that are not benefiting from our dominant military position there. In particular, Chinese, Saudi and Russian firms are benefiting from the emerging stability, while many U.S. companies will not be able to share in future prosperity if it is achieved.
Mon 4/2811:00 am - 12:15 pm
China's Balancing Act: High Growth vs. Sustainability
Andy Rothman of CLSA Asia-Pacific Markets placed the new development in the context of several waves of policy and economic growth. In the 1980s the trend was capitalizing on cheap labor, while increasing privatization defined the 1990s. Now, in this third wave, China has clearly decided "we no longer want to be the world's sweatshop for junk." This means closing down factories that use dirty old technology or pay below minimum wage, ending export subsidies and preparing to take the economic hit that will come with restructuring industry. It also means getting past the problem of "lacking a leading ideology other than to get rich," as Jim McGregor of JL McGregor & Company put it.
Despite a reputation for announcing broad goals and then failing to meet them, the central government is serious this time, according to Rothman, and it appears they will be effective in their new aims. Specifically, they are actually working to change the incentive structure at the local level, so that, unlike with many past initiatives, it is now the case that "political and career incentives now aligned with policy."
Rothman later illustrated the importance and effectiveness of this incentive alignment with a stark example. In visiting many cities around China several years ago, he noted a conflicting response to two high-level directives: one to close down high-tech zones, and one to close down steel mills. There was 100 percent compliance in shutting down high-tech zones, but zero compliance for the steel mills. It turned out that those responsible for implementing the changes would be "sacked tomorrow" if they didn't shut down the high-tech zones, while little incentive was put in place to comply with the steel mill directive. The government has now recognized the important role of these incentives and is using this mechanism to ensure compliance at lower levels, though "extreme party discipline at all levels" will still be required, according to McGregor.
"The Chinese government is not as powerful as we believe," posited Bobby Chao of DFJ DragonFund China. McGregor agreed, pointing out that even within the central government, "People who run China today are not dictators. They're people who have to operate on consensus." However, he added, when it comes to implementation, leaders tend to be more powerful in their second term after they have gained more influence relative to lingering appointees from previous administrations — thus we can expect the central government to further pick up the pace of implementing its change the longer Hu Jintao remains in power.
A healthy environment is central to sustainable growth and China's vision of a harmonious society. On this topic, Wong suggested that perhaps China has suffered "a confusion between growth and development."
James Boettcher of Focus Ventures agreed, but with some optimism about China internalizing the message and working to address it. According to him, the Chinese realized "we cannot follow the paradigms that the West followed for the last 100 years." They now recognize the need for innovative and leapfrog technology to allow growth without negatively impacting their environment and health. There are signs of this in many places, including the goal of producing five gigawatts of wind energy by 2010 (a benchmark they expect to meet early). Boettcher also highlighted the importance of cleanly utilizing coal, and combining coal with fuel-cell technology to essentially double the efficiency of one of China's primary resources.
Environmentally friendly technology is not the only element of balanced growth. Chao characterized several types of "old" growth models for China, most of which were focused on some combination of low-cost labor, imitating other business and capitalizing on local markets. The goal now is to aim for world-class innovative technology for global markets — and that will require more intellectual capital, intellectual property rights and venture capital. Chao neatly summed up what is happening as China transitions to a new mode of growth: "They've become pretty smart now."
Mon 4/2811:00 am - 12:15 pm
Economic Mobility: Is the American Dream Still Alive?
John Morton of The Pew Charitable Trusts noted that current research has exposed provocative new data. He noted that the American dream depends on both absolute mobility and relative mobility, or inter-generational shifts in economic status.
Isabel Sawhill of the Brookings Institution explained that what is distinctive about American society is that "we believe that we are the land of opportunity." She drew on the results of research comparing beliefs about economic mobility in the United States and 27 other industrialized countries, noting that more Americans believe that hard work and intelligence are more likely to cause economic mobility than economic background and sheer luck.
The research also noted that fewer Americans believe that the government should work to reduce the gaps between the poor and the rich. Germany, France and Canada have more relative mobility than the United States; research shows that middle-class families in those societies have good chances to move up or down the income quintiles. Yet the research also points out that an African-American child is less likely to move up and more likely to move down the income quintiles than a middle-class white child. Sawhill pointed out that current rates of inequality mirror the 1920s. She concluded that the government is not doing enough to decrease inequality and promote opportunity for all.
Eugene Steuerle of the Tax Policy Center has researched federal spending on Social Security and Medicare projects. He noted that too little of the federal budget is allocated for programs that would enhance upward mobility for children. Steuerle began by explaining the difficulties of researching federal spending on mobility, given the controversies about which programs are actually regarded as mobility projects. For example, subsidy programs are not considered mobility-enhancing, as "these programs transfer acquisition of private goods towards public services." Most mobility spending operates through the tax system, and thus is not even available to the lowest quartile that does not pay taxes. Moreover, sometimes the programs actually restrict mobility, because even though income redistribution benefits low-income households, it does not promote participation in the workforce or private investment in education. Steuerle concluded by saying that the future growth of the budget is not concentrated on educational projects, and he called for strong legislation that would reprioritize spending.
Paul Gigot of The Wall Street Journal maintained that "America is by in large dynamic, and has mostly upward and inward mobility." Gigot claimed that over the past decade the income mobility statistics have remained similar, and an upward and downward inter-generational economic mobility shift is evident. When referring to U.S. Treasury research, he noted that between 1996 and 2006, the upper half of all taxpayers moved up to a higher income quartile, yet among only 25 percent of the people in the highest income quartile remained there in 2006, while 75 percent moved down the economic ladder. Gigot also noted that today, there are higher returns for technology and education, so the most important goal should be improving education.
Eugene Robinson of The Washington Post said that he is intrigued by "the disconnect between the degree of mobility in society as compared with other industrial countries and what Americans believe." Noting that issues of race influence inequality in America, he drew on figures Sawhill mentioned earlier showing that middle-class African Americans are less likely to stay in the middle quintile than white families. This is a result of cultural factors, racism and structural barriers in society, all of which are obstacles in the road toward fulfilling the American dream.
All panelists agreed that over time, the returns for economic success have tremendously increased while the penalties for failures have become much more severe. Increased spending on initiatives such as education and child care will level the playing field and enhance opportunity for every American.
Columnist and Associate Editor, The Washington Post
Senior Fellow and Co-Director of the Center on Children and Families, Brookings Institution
Mon 4/2811:00 am - 12:15 pm
Building Successful and Sustainable Public-Private Partnerships for the Future of Los Angeles
"Los Angeles is living with an infrastructure designed to support half our current population," said Dale Bonner, Secretary of California's Business, Transportation and Housing Agency. "While we could be heading for disaster, the positive side is that we have we have a number of long-term plans at the local, regional and state levels designed to manage this issue — but we still have the issue of funding."
This panel explored how the public-private partnership model can be used to fill the gap in resources necessary to implement much-needed improvements in the Los Angeles infrastructure. Such partnerships, known as 3Ps, create infrastructure improvements without dipping into transportation budgets, which have been increasingly shrinking in recent years.
Los Angeles City Council Member Jack Weiss offered his support of 3Ps but expressed caution about the political difficulties that could result from trying to implement the partnerships in Los Angeles. He cited long-standing public resistance in California to privatization of public services but predicted that the public will eventually recognize that alternatives just do not exist. The federal and state governments will not provide enough resources to support an adequate transportation network in Los Angeles, he said, but local sales taxes that might help cover improvements will be just unlikely to attract voter support. Thus, Weiss argued, "We need to create a new paradigm —that private financing for transportation is possible — and have a public discussion about that."
David Fleming of Latham & Watkins offered examples of regional projects that could be built using public private partnerships, among them the long-planned freeway under the Santa Monica Mountains and a east-west toll road in central California that would run parallel to Highway 58. According to Fleming, this toll road would reduce the truck traffic in Los Angeles by 20 percent.
Maria Contreras-Sweet of Promérica Bank explained that 3Ps can encompass more than private- sector capital investment in infrastructure; for instance, one firm has set up public use bicycles in Austria. As a former California secretary of business, transportation and housing, she said she had looked at 3Ps during times of both economic strength and weakness.
Richard Katz, Director of the Los Angeles County Metropolitan Transit Authority, rounded out the session by offering a pragmatic vision for L.A.'s transportation future. There is no silver bullet for alleviating the stress on transportation infrastructure, he said, and Los Angeles will have to take different approaches, including 3Ps. "Solutions for how to fix California's infrastructure problems are there," he said, "but there has been a lack of political leadership to implement these solutions."
Managing Director and Head of North American Infrastructure, The Royal Bank of Scotland
Secretary, State of California's Business, Transportation & Housing Agency
Founding Chairwoman, Promérica Bank
Counsel, Latham & Watkins LLP
Director, Los Angeles County Metropolitan Transportation Authority
City Council Member, Los Angeles
Mon 4/2812:15 pm - 2:15 pm
Lunch Panel: Global Overview
In response, Nobel laureate Gary Becker stated that although America's economic problems are worsening, he does not expect a major depression. He said that one must distinguish between the real sector of the U.S. economy and the financial sector, where the problem is contained. Becker argued that the United States has faced a variety of major crises and survived, and it can similarly overcome the current credit crunch.
Jean-Paul Betbèze of Crédit Agricole addressed what he called a "global cooling" in the economy. He observed that Europe is managing to benefit from the U.S. slowdown and inflation in other countries.
The panelists argued that European policy-makers must face the challenges of reducing expenditures and enacting tax reforms. Becker argued that European political leaders needed to cut taxes first to place pressure on the tax system.
Michael Neal of GE noted that he was surrounded by pessimism, but he offered an optimistic view. He cited the success of exporting firms and agricultural machinery manufacturers in the United States, arguing that the economy would likely turn around for the better by the first quarter of 2009.
Ruben Vardanian discussed the Russia's successful growth and new opportunities. He cited the burgeoning Russian middle class who are "going abroad buying" and "want goods and services."
Becker discussed the issue of inequality within societies versus the inequality between countries. He argued that globalization is leveling the playing field between rich and poor countries, but increasing the gap between skilled and unskilled workers within individual societies. He summed up by saying that world inequality is declining.
On this same note, Vardanian argued that Russia needs to compete on the global scene by developing more human capital and better managerial skills. He even argued that corruption in Russia is less of a threat to economic prosperity than is a lack of managerial skills.
The panel addressed the issue of rising prices for commodities, including biofuels, oil and natural gas, and the impact of this spike on the price of food worldwide. The panelists agreed that unlike the commodities boom of 30 years ago, the current rise is driven and sustained by increased demand.
Betbèze offered a final tongue-in-cheek comment: To avoid economic crises in the future, people must "solemnly promise that they will never do this again."
Chief Economist and Head of Economic Research Department, Crédit Agricole S.A.
Vice Chairman, General Electric; President and CEO, GE Commercial Finance
Chairman and CEO, Troika Dialog Group
Mon 4/282:30 pm - 3:45 pm
Ahead of the Curve: Where Institutional Investors Are Headed in 2008 and Beyond
Scott Minerd of Guggenheim Partners Asset Management, the moderator of the panel, launched the discussion by referring to the topic du jour, the subprime-mortgage-driven credit crunch. Participants by and large agreed that the crisis is not over yet. Robert Kleine of the State of Michigan specifically remarked that we are not near the end. Joseph Dear of the Washington State Investment Board added that the ripple effects of the crisis had yet to hit regional banks. William Lee of Kaiser Permanente commented that going forward, there should be a lot of opportunities due to large volatility.
Christopher Ailman of the California State Teachers' Retirement System (CalSTRS) noted that depending on their positions, market participants tend to have diverging views on the state of the crisis: Investors specializing in public markets are more optimistic, while those focusing on private equity and real estate are less so.
The ensuing discussion centered on increasing complexity in the investment world and its effects on strategies and governance. Minerd commented that intersections among asset classes are growing, with distinctions blurring. Ailman argued that this amounts to increased pressure across the board, for trustees, investment managers and analysts. As a result of the complexity, investors need to be more nimble in defining and reacting to opportunities. This especially has implications for pension plan boards, which try to manage the portfolios themselves. "Looking forward, this is no longer a part-time job," quipped Ailman.
Dear remarked that complexity is a huge issue in terms of the implications for governance structures: "It's about trust; it's about sharing power." Governance models developed in the 1970s and 1980s are no longer adequate. More complexity also translates to an urgent need for installing sound risk-management systems, and there are no shortcuts or recipes for this.
The issue of alternatives as an asset class garnered considerable attention from the panelists. Dear noted that the allocation the plan can provide to alternatives depends on the liquidity requirements; if the manager can accommodate restricted liquidity, alternatives promise high returns otherwise not achievable. "Unconstrained investments have better prospects, but the trick is to build a risk-management program," he remarked. Dear's plan has been investing up to 25 percent of its total portfolio in private equity since 1981, while Kleine's plan invests up to 15 percent in private equity. However, the plans don't invest in hedge funds generally due to limited transparence. Minerd presented the findings of academic studies showing that the average mutual fund underperforms the market, and the average hedge fund underperforms mutual funds after fees.
The moderator challenged the panel with the following intriguing question: "Do you believe in alpha?" Lee confirmed that he believes in alpha but added that in the future, we need to emphasize beta at least as much as alpha. Kleine was also an alpha-believer, but he argued that the investment climate from returns to taxes would be less favorable in the future compared with the past decade or so. Dear remarked that institutional investors need alpha and need the managers who will produce it. Ailman noted that getting alpha was becoming more expensive, coupled with a difficulty of making it consistent.
Another important topic for state pension funds might be potential obligations for investing within their home state, not least due to political concerns. Dear was adamant that the pension plan's fiduciary duty is only to its participants: "There is this single criterion, and we're not going to make exceptions based on zip codes." He acknowledged that political pressure naturally comes with the job.
Ailman noted that the job does involve a lot of pressure and pointed out some potential inefficiencies associated with political investing. For instance, investing in and operating a toll road in the home state might actually result in the pension fund working against the welfare of its constituents by keeping tolls high. He emphasized that pension plans cannot have multiple goals.
Kleine, on the other hand, acknowledged that his state is just about to launch a $300 million fund to be invested in local firms, which is just a drop in the bucket considering total investment size of $30 billion. According to Kleine, if done right, it can work out for both plan constituents and the local economy.
Executive Director, Washington State Investment Board
Treasurer, State of Michigan
Chief Investment Officer and Vice President, Pensions and Foundation Investments, Kaiser Permanente
Mon 4/282:30 pm - 3:45 pm
A Nation Paralyzed: Is the United States at Risk of Losing the Education Race Worldwide?
Former Colorado governor and former superintendent of the Los Angeles Unified School District Roy Romer blamed our current dismal performance on a lack of political leadership. He believes that state governors should be empowered and then held accountable to develop and enforce meaningful state educational standards. Romer also shared his belief that our current educational shortfall is so bleak that it will affect our prosperity and quality of life for at least a generation. He also made this plea to parents: "Your most important economic asset is your eighth grader."
Eli Broad of The Broad Foundation placed the blame squarely on the American people for being complacent. After World War II, the United States was on top of the world and the G.I. Bill ensured that we would stay on top by providing higher education to our returning soldiers. We are now lagging because we got overconfident. Broad would like to see a national science curriculum to help address the problem. Unfortunately, each of the 15,000 local school boards in America has the ability to set their own curricula and achievement standards. Furthermore, teachers in high-demand subjects and tough schools are not properly compensated.
Lowell Milken of the Milken Family Foundation, Knowledge Universe Education and the Teacher Advancement Program expanded on Broad's comments. He argued that more than a century's worth of lessons regarding management and performance have been ignored by the teaching profession. Teachers have no incentives for better performance. There is no career progression; there is minimal continuing education. High turnover and burnout are but a few of the symptoms. Most teachers come from the bottom half of their graduating classes in college. Inner-city schools get hit the worst because their teachers are generally the least qualified, the least prepared and the most overwhelmed. Meanwhile, older teachers settle into the easier jobs — without any further prompting for improved performance.
Milken called for more parental involvement and improved teacher effectiveness. However hard it may be to change the characteristics of a child's family involvement, teacher quality is something that we can fix. Milken believes this is possible through applying proven recruitment, compensation and management principles that work in other fields. He argued that teacher effectiveness is the single overwhelming indicator of educational outcomes.
Michael Morris of American Electric Power Company expressed his concern about the quality of education because it affects the quality of his work force. Today's teachers lack subject matter expertise and passion, he felt, and there are fewer quality teachers from the hard sciences and technical fields. Coming from a CEO, his advice was well-received: "If you raise expectations, then people will meet them Raise the bar as high as you can, and they will exceed it every time." Morris opened up a copy of the Financial Times and read from its pages about a charter school in Cleveland that holds classes from 7:00 AM to 5:00 PM for eleven months a year with phenomenal results. "Kids love the rigor, and they step up to the challenge." Morris also suggested enhancing vocational programs in schools to ensure that students who do not excel academically could still receive decent work force preparation.
Gary Becker, a Nobel Laureate from the University of Chicago, at one point noted that our educational problem is due to poor economic incentives for teachers. At another moment he said that our K-12 teachers have let us down. He indicted the entire public school system, highlighting the importance of school choice. The room fell silent, however, when Becker reversed his earlier claims and suggested that our educational quality is just fine, but national averages are being brought down by the poor, urban minority students who lack the desire to do well in school. Becker bluntly maintained that those few students among this group who do possess the ability or innate desire to do well are ridiculed by the rest for "acting white." Most of the panelists steered clear of Becker's comments, but Broad responded: "We'd rather blame everyone else than look in the mirror."
Founder, The Broad Foundation; Founder-Chairman, KB Home and AIG Retirement Services Inc.
Chairman and Co-Founder, Milken Family Foundation; Co-Founder, Knowledge Universe Education; Founder, Teacher Advancement Program (TAP)
Chairman, Strong American Schools; Former Governor of Colorado
Mon 4/282:30 pm - 3:45 pm
Market Solutions to Climate Change: The European Experience
The ECX currently provides cap-and-trade for 11,000 industrial plants, representing approximately half of all carbon emissions from the entire EU. There has been free banking and borrowing during each period, but not from one period to the next (which turned out to be problematic as prices dropped at the end of the first phase in anticipation of the transition). This has produced six preliminary results according to Christian de Perthuis of Caisse des Dépôts and the University Paris-Dauphine.
1. First, in less than three years, the ECX has become the largest carbon market in the world, expanding from 7.9 billion euros in 2005 to 38.3 billion in 2007.
2. Europe now has a real carbon market price.
3. Europe has seen between 5 megatons and100 megatons of carbon abatement per year from 2005 through 2007.
4. There has been limited impact on electricity prices, despite previous fears.
5. As an open market with an established carbon price, the ETX has driven the creation of new environmental projects elsewhere around the world.
6. Any link between future U.S. carbon abatement programs and the EU would exponentially bring opportunities on all sides, the United States still being potentially the largest carbon market on earth.
Neal Eckert of Climate Exchange PLC noted that $600 million a day is currently traded on the ECX. The total should increase further, thanks to recent incursions of big investment firms that offer structured plans to consumers. Eckert explained that "fuel switch" is the big driver in energy trading, and that "thanks to the ECX, if you trade energy today, you need a carbon desk." The ECX has two separate programs, one domestic, and one international, and Eckert said it was his one big wish that the United States would become involved in the international program.
According to Tim Yeo, Chairman of the Environmental Audit Select Committee of the U.K. House of Commons, if one is to fully understand the trajectory of policy regarding carbon trading, one must understand it within the context of the urgency of global warming, which every day appears to be happening at a much faster rate than previously understood. If we continue "business as usual," he said, the planet could hit its tipping point within 50 years. Yeo maintained that limits far in excess of Kyoto will be necessary to avert calamity. What the past two-plus years of ECX activity have shown is that market incentives coupled with government regulation (i.e., cap-and-trade) are the best way for this to occur. The ECX includes 27 countries, and that given the scope and size of the players in the market Yeo said, the first lesson to be learned is that caps have to be tight enough to force reductions in the face of enormous lobby pressure to the contrary.
The second lesson, according to Yeo, is that the auction of allowances is the most effective way to incentivize trade. By comparison, the existence of heavy taxation on engines in Germany, and the total failure of the same to effect production of cars, are perfect examples of why a carbon tax will not work.
The third lesson, said Yeo, is that the market must include as many industries as possible, and as quickly as possible. Lastly, low carbon industries will show the fastest growth under the market conditions established by the ECX. Yeo beseeched the Americans in the audience to get the United States on board with a cap-and-trade program ASAP.
Electricity is responsible for 40 percent of carbon emissions in the EU, but it is important to recognize the role of electricity in reducing carbon emissions in other sectors via clean-tech electricity generation, such as solar power, and in turn fuel switching from different sectors, e.g., coal. In contrast to Yeo′s assertion that market forces are the fastest way to achieve carbon abatement (and while agreeing that more auctioning would be the best way to facilitate growth), Jean-Yves Caneill of EDF Group asserted that specific policies will be necessary to allocate money from auctioning into R&D for clean tech.
Returning to the theme of electricity as part of the solution, Erich Merkle of Solar*Tec AG cited solar-generated electricity as a zero-emissions source. With a one-time investment, solar panels will yield a fixed income for 20 years, he said. The total cost of production will be levied on consumers at the rate of only 2 euros per month on average. More than 50 percent of all photovoltaic (PV) installations are currently in Germany and have gone up in only the past few years, prompting other nations, most notably Spain and Portugal, to join in. In 2006, he said, more than 214,000 jobs were created in PV, with a 23 billion euro turnover per year, representing 100 million tons of carbon reduction. PV now represents an investment opportunity in its own right, he said, adding that power generation occurs during daylight hours, the hours of peak usage.
In response to a question from the audience about the potential for carbon asset trading to bolster pollution rather than alleviate it, by allowing the bigger polluters to buy their way out of abatement, all panelists asserted that market forces will bring about greener technologies on their own and that policy-driven reduction on caps is essential to the entire experiment. Personal or individual trading will incentivize the greening of the housing and transportation infrastructures, said Yeo, but he conceded that this too must ultimately be policy-driven.
How exactly this fits into any dogmatic attachment to a free and unregulated market is unclear. What is clear, however, is what is getting results in Europe — and in turn what must be done in the United States, regardless of whether it upholds the popular economic model of the hour.
Head of Environmental Affairs, EDF Group
Christian de Perthuis
Director of Climate Mission, Caisse des Dépôts; Associate Professor, University Paris-Dauphine
CEO, Solar*Tec AG
Member of Parliament (U.K.); Chairman, House of Commons Environmental Audit Select Committee
Mon 4/282:30 pm - 3:45 pm
Innovator: Unlocking the Mysteries of the Human Brain With Jeff Hawkins
With this bold declaration, Jeff Hawkins began to explain his visionary conception of how the brain operates. In a dialogue with Michael Merzenich, whose research at the University of California, San Francisco, focuses on brain plasticity, Hawkins addressed where we are in our understanding the brain. To those people who say the brain is so complex it could take another hundred years to understand it, Hawkins responded that "the claim of complexity is simply a symptom of not understanding."
Hawkins demystified the workings of the neocortex, the outer layer of the cerebral hemispheres, and described it as the locus of all high-level cognition, as well as a memory system comprising 30 billion cells. In effect, he said, the neocortex is an organ of memory that builds a model of the world with continuous inputs of knowledge. Whipping out a large blue dinner napkin, Hawkins explained that this was the area the neocortex would occupy if you "ironed it flat." Using the napkin to bring science home, Hawkins said he wasn't lecturing — his napkin was merely talking, and the crowd's napkins were processing the actions of his napkin.
Hawkins has a gift for pattern recognition and, early in his career, developed an interest in pattern-recognition puzzles and problems. At the same time, he realized that the patterns of the brain could be overlain with the brain-like algorithms he was writing for software. Thus, intuitively, he saw both how the brain "operates" like a machine and, conversely, how it could be the model for "smart machine."
The brain processes and stores knowledge in a methodical way, he says, in a hierarchical and temporal memory system — by sorting and storing sequences of patterns. Everything the brain takes in is stored as sequences, and then sequences of sequences, and we are constantly coalescing and storing these time-based sequences throughout our life. This is known as brain plasticity, referring to the brain's ability to reorganize neural pathways based on new experiences.
Merzenich addressed brain plasticity in a discussion of how well we continue to acquire, sort and store information as we age. Older brains can keep growing stores of knowledge, he said, but after age 60, the majority of what we see and hear is lost. He is developing software that exercises the brain and reverses mental decline due to aging. Through repeated computer activities similar to video games, the brain undergoes fundamental plasticity processes; and through repeated exercising, the neural connections are strengthened and the brain actively evolves.
Hawkins and Merzenich offered slightly different views on brain plasticity, with the former citing the importance of early pattern exposure in childhood that leads to learning proficiencies later in life (learning to play music, for example, or learning multiple languages). Mezenich, on the other hand, claims that brain plasticity allows for lifelong learning and minimizes the role of early learning in establishing brain patterns that affect learning later in life.
The applications are numerous for each of these new fields of brain research. Plasticity exercises are expected to quickly become part of remaining competitive in the second half of life. In some seniors, improvements of about a decade in cognitive processing have been realized in controlled tests. The exercises have also shown therapeutic value in studies with schizophrenia at Yale. Measures of impulsivity linked to addictions have also been studied and show promise in withholding response.
Hawkins's vision will be applied in the development of brains for "machines" that will be a million times faster than the human brain and capable of taking in sensory information directly without filtering it through the domain of thought. In the near future, these machines will be as important as computers are today, he said. When he designed the PalmPilot, Hawkins explained, it was "really nothing new." He just combined existing information differently. Creativity, he added, is the process of building slightly different patterns over existing patterns that the brain already recognizes. Ultimately, the new smart brain machines will owe their design to the human brain and also be able to perform inferences, predictions, self-training and a host of other processes.
The sense of positive potential was palpable in the room as the session ended. Who can doubt the power of Jeff Hawkins′s visionary creativity? All we have to do is look at Palm Pilots and Blackberries, smart tools we can no longer live without.
Mon 4/282:30 pm - 3:45 pm
The University at a Crossroads: How Higher Education Can Meet the Demands of Today's Entrepreneurial Economy
Nancy Cantor, Chancellor and President, Syracuse University recalled that upstate New York was once viewed as the Silicon Valley of the East, with robust growth and an abundance of high-tech companies, but that prosperity has faded. To revive the region's glory days, Syracuse has been strategically investing in its core strengths, collaborating with other schools and reaching beyond its geographic boundaries. In order to succeed, Cantor recommends breaking down "silos" (organizational walls that often prevent different departments from coordinating research and innovation) as well as creating a pipeline of inclusive human capital.
Cantor elaborated on Syracuse's partnership with JPMorgan Chase. This $30 million university-industry collaboration will produce technology centers aimed at reviving urban neighborhoods and engaging the region's young people; it will pool intellectual capital to make an immediate difference in industry, higher education and the surrounding region.
We need to create a new paradigm for the university, or a "New American University," as Michael Crow of Arizona State University called it. He stated that education (including the bureaucracy of education) will need to change to embrace the new knowledge economy. ASU has introduced new programs and centers that foster innovation and creativity in disciplines such as music, nursing, journalism, engineering and more. ASU has made it a priority to promote the entrepreneurial spirit, defining itself as a "technopolis" that can meet both corporate and academic interests.
Edward Guiliano of the New York Institute of Technology (NYIT) posited that we need to think even bigger than Crow's "New American University." He endorses idea of a "Global University" that is not bound by any geographic region. Just recently, universities in the United Arab Emirates and Canada have signed agreements allowing NYIT to set up and operate new campuses. Joint collaboration will enhance the exchange of knowledge and talent between nations.
The panelists agreed that this is a moment for universities to embrace change and actively pursue reforms that will nurture entrepreneurs. They predict that other colleges will employ distance learning programs and experiment with other collaborative environments catering to all levels of students, such as the successful University of Phoenix education model.
Mon 4/282:30 pm - 3:45 pm
Is the Pharmaceutical Well Drying Out? How to Keep New Drug Discoveries Coming
Director, Spielberg Family Center for Applied Proteomics; Research Director, Louis Warschaw Prostate Cancer Center, Cedars-Sinai Medical Center
Senior Vice President, Healthcare Insight, IMS Health Inc.
Andrew von Eschenbach
Commissioner, U.S. Food and Drug Administration
Mon 4/282:30 pm - 3:45 pm
The Future of Print Media: How to Adapt to the Digital Age
If you wonder whether newspapers will be an integral part of America′s digital society, look at businessmen like Sam Zell, who has taken the helm at Tribune Company, and Brian Tierney, a local businessman who recently became publisher of The Philadelphia Inquirer. When executives like these enter the news business, it′s evidence that claims of the demise of the print medium are, indeed, greatly exaggerated.
But newspapers today face twin challenges: how to adapt to and monetize digital distribution and advertising revenue; and how to meet the Fourth Estate's obligation of "feeding them spinach with the ice cream" in the interests of a civil society.
"Newspapers are 'news media' companies," said Brian Greenspun, President of the Las Vegas Sun. "We're just witnessing how news will be delivered a little different from the past, and in an enterprise fashion." Some people will still receive their news in print with their coffee, he added, while others will expect to read it over the Internet. Publishers are working to align distribution with consumer preference, but print media, he maintained, will be around for a long time. "The future will also include integrated and stand-alone rich media, primary source materials, and community participation," Greenspun continued. "The Las Vegas Sun ceased print news years ago through a joint operating agreement with our former rival newspaper, which still prints and distributes a morning paper. This freed us to become the newspaper we wanted to be and put the capital 'J' back in journalism through investigative and in-depth reporting.
"The challenge is monetizing the Internet," he added. "It may take three to five years from now, but we'll figure it out."
Tierney's confidence is equally unflinching. "The number of newspapers in America has not changed appreciably in a century," he explained. At the Philadelphia Inquirer, we have 470 journalists serving the community. Where local radio or television put five people on a Phillies game with maybe one minute of evening news coverage, I have journalists who can cover the game from all angles and give the consumer instant access to statistics and Phillies-related information with a depth no radio or television station can provide. We have branding, and The Inquirer produces much of the Philly news available via the Internet." To get through the current period, he continued, the secret is to focus like a laser beam on cost. "We renegotiated a number of contracts, eliminated wasteful habits and realigned resources to grow online revenue, stabilize print news, improve quality, create niche products, incorporate local video, online radio and ask what else we can sell from our web presence."
Gone are the days of print's incredible profit margins, Tierney said. Ad revenue is way down. "It's extremely difficult to create print advertisement, compared to radio or television ads," he said. "It's not very glamorous either, so many advertising agencies ceased doing print ads. ... Our advertising staff now goes to ad agencies and businesses to show them what can be done with print ads and to do the technical layout for them. 'You want to buy a Phillies ticket for tomorrow based on today′s game? To the left of the story is a link to buy your Phillies tickets now.'"
Online reporting has its advantages. "In Las Vegas, the Sun's reporting on the Monte Carlo (casino fire) commenced before the Las Vegas Fire Department arrived on the scene, and in a multimedia approach with depth over several days," said Greenspun. "We had over 40 million web hits on this event alone. No one else generates that level of click volume in the Las Vegas market. Advertisers are smart and they'll go where they'll be successful in getting their ad seen."
Ted Olson is co-chairing an Aspen Institute study on the community information needs of a democracy. "The product is not in decline," he stated, "but the old form of delivery is. The consumer's appetite is there for news, and newspapers are well positioned to serve those needs once they figure out the revenue challenge associated with the new forms of distribution."
Perhaps it is no surprise that as a former solicitor general, Olson's views of newspapers are quite grounded. "In a democracy the most important thing we have is good information," he said. "Newspapers have traditionally served our democracy well in that capacity." Anyone can call himself a journalist and publish something on the web, said Olson, but newspapers possess the resources to provide a depth and breadth on issues that is difficult to replicate. This benefits democracy, he continued, and if the Internet facilitates distributing that information or contributing more depth, so much the better.
"But the web raises important First Amendment questions related to what constitutes a journalist from others who report on an event," he continued. There are shield laws in 49 states protecting journalists from revealing sources. Does that protection extend to anyone publishing any text on the Internet? Who decides? Who credentials? What is privacy? What do you do about serving the needs of small communities? It's branding that has traditionally distinguished a journalist from a note-taking gadfly.
While today's young people may read printed news less than a generation ago, it was noted that not many young people read newspapers 30 years ago either. Youngsters today may be more adept at multimedia and locating information online, but Greenspun notes that when they do come to the point where they want information, that Google search often leads them to a newspaper article. The challenge is to "feed them spinach with the ice cream" so what they read is not only attractive and satisfies their "light" tastes, but offers substantive thought that contributes to their education as citizens.
Mon 4/282:30 pm - 3:45 pm
Urbanizing India and China: How to Move 1.5 Billion People
China, with 40 percent of its population concentrated in urban areas, and India, with 25 percent, have some of the densest and dirtiest cities in the world, and they're growing ever larger as populations migrate from the countryside to urban areas in search of opportunity. But these two nations are encountering different sets of conflicts and issues as this trend continues.
The recently built Beijing Airport was originally designed to accommodate 13 percent growth in capacity, but the reality of 22 percent growth quickly outstripped the pace of development. Charles Liu of HAO Capital spoke about the great opportunities inherent in this incredible growth, from people buying LCD TVs to goat herders texting with cell phones. "In the 20th century it a took generation or more to become an urban consumer. Today it takes a year," he said.
Michael Woo from the University of Southern California turned the discussion to whether China can preserve the environment in the face of such massive a building boom and infrastructure development. The average income in China has risen from $293 in 1985 to $2,029 in 2006. This growth in discretionary income has created a vast population of more aggressive urban consumers. By 2020, some 700 million people will be in or ready to join the consumer class in China. Woo went on to explain that the auto industry's potential in the years to come, as 11,000 new cars hit the roads every day. China is experiencing the greatest wave of urbanization in world history, and the pace of development is not sustainable.
For India, unlike China, a democratic system of government has its own restrictions. Anuj Gupta of South Asian Real Estate spoke about Indian developments being inadequate for the 21 century. He mentioned that zoning laws in Indian cities that prevailed for 50 years were changed only recently. The World Bank has warned the Indian government that in the decade to come, some 70 to 80 percent of the Indian population will migrate to urban areas. Every Indian city has been stretched to the limit in terms of capacity, infrastructure development, electricity, roads and water. Gupta recommended an integrated urban planning system that coordinates government and the private sector for better sustainability.
The Indian government has been involved in the development of new satellite cities and the expansion and promotion of two-tier cities, but Gupta felt that planning has lack cohesion. By the time the typical project is completed, it is swamped by explosive population growth or a lack of foresight becomes apparent. He cited the example of Gurgaon, a satellite city near New Delhi built some 20 years ago by an Indian real estate company called DLF. Today Gurgaon is GE′s home in India and has a population of 750,000. But until recently, only one road connected Gurgaon to New Delhi.
In India's 40-odd large cities, needed infrastructure development is projected at $400 to $500 billion, of which 50 percent will be in developing new resources of power and electricity. "Urbanization is inevitable and presents a whole host of challenges and opportunities for governments and private capital to partner in a holistic manner," said Gupta.
Mon 4/282:30 pm - 3:15 pm
Book Signing: Muhammad Yunus
Creating a World Without Poverty
Mon 4/282:30 pm - 3:45 pm
Global Health: In an Interconnected World, Failure Is Not an Option
Anthony Fauci of the National Institute of Allergy and Infectious Diseases became involved in global health issues via his work with HIV/AIDS. Its prevalence brought to his attention the interconnected nature of all infectious disease. Christopher Elias of the Program for Appropriate Technology in Health has also played a role in the evolution of global health programs and has "watched the worlds come together," representing a real shift in perceptions. Seth Berkley of the International AIDS Vaccine Initiative remarked that the global nature of the HIV/AIDS crisis helped to bring about innovations in program management.
Changing treatment and prevention priorities have led the global health community to grapple with the political and economic burdens created by disease. Kari Stoever of the Sabin Institute commented, "The economics of disease and diseases of poverty have tremendous effect on the development of emerging markets and productive work forces." She noted that there is a larger return on investments in public health programs in the form of productivity and overall economic growth.
Elias commented that while the global health community is motivated by a desire to alleviate suffering, hard economics point to the fact that the developing world would be acting to protect its own self-interest by investing in improved global health systems.
Fauci stated, "If you get a president who understands the need, they will make it happen." Citing the president's Emergency Plan for AIDS Relief (PEPFAR) as a recent success story, he explained that the program stemmed from the belief that the United States has an obligation to assist. Berkley noted that effective global health programs must be sustained politically in order to be successful.
The necessity for action and the importance of involving developed nations in the effort to reduce global disease incidence led Simon to pose the question: "Whose idea was it to call these diseases neglected and how are we going to get them un-neglected?" Stoever stated that resources have not been directed at these "diseases of the poor" because they affect neglected populations. She went on to add that 1 billion people, or 1/6 of the world's population, are infected with one or more "neglected" diseases, a fact that affects their political and human rights and highlights the disparities in access to care.
Berkley pointed out the frustrating fact that we have the ability to make urgently needed drugs but lack the incentives to do so. Elias pointed out that he is working with developing nations that have tremendous potential and rapidly maturing systems for pharmaceutical production. He explained that different opportunity costs for these nations serve as incentives for developing pharmaceuticals to combat the diseases that plague their own populations.
While global health problems affect populations worldwide, there is much work to be done within the United States. The panel agreed that rejuvenating the public health system is imperative to deal with current and future health threats. A critical component will be promoting behavior change, especially in at-risk communities. As Fauci pointed out, "Education and behavior modification are not the same."
President and CEO, International AIDS Vaccine Initiative
President, Program for Appropriate Technology in Health
Director, Global Network for Neglected Tropical Disease Control, Albert B. Sabin Vaccine Institute
Mon 4/284:00 pm - 5:15 pm
The Future of the Mortgage Market: Where Do We Go From Here?
"What went wrong with securitization?" asked moderator James Barth of the Milken Institute. The spectrum of answers from the panelists, as well as their prescriptions for federal intervention (or not), reflected the uncertainty associated with the U.S. mortgage market.
Lewis Ranieri, founder of Hyperion Private Equity Funds and one of the pioneers of securitization, took the first stab at answering Barth's question, articulating three problems with securitization. First, he said, the structure of securitization bonds has a built-in tendency to collapse if the financial environment turns unfavorable. Second, "at some point we started to confuse complexity with innovation," he added, arguing that many of the securitization funds became so byzantine that rating agencies had a hard time keeping up and scrutinizing them sufficiently. Third, the lack of transparency in the way securities were packaged and resold left investors at a disadvantage.
Offering a different viewpoint, Ethan Penner of CB Richard Ellis argued that securitization funds were the victims of their own success. "The delegation of underwriting worked," he said, but that was when securitization funds held assets of $1 trillion or $2 trillion, not $12 trillion. "The huge explosion in the market exposed the cracks in the system." The goal of policy-makers, he stated, should now be to examine the system and modify it to mend these cracks.
Ellen Seidman of the New America Foundation attributed the current crisis to a "giant hole in regulation" that regulates brokers, at best, "on a complaint basis." She argued that mortgage brokers were not inadequately educated or intentionally deceitful, but they nonetheless placed many homebuyers in unfavorable mortgages they could not afford.
The current crisis is the result of many factors, said Tad Rivelle of Metropolitan West Asset Management, but he maintained that these factors were driven by misplaced assumption that "trees can grow to the sky." He described how people blindly assumed that real estate values would continue to rise and relied on rating agencies to assess the value of securitization bonds without examining the models on which these organizations based their assessments. Scott Minerd of Guggenheim Partners Asset Management shared Rivelle's assessment that investor naivete about bond ratings produced serious consequences.
Stuart Gabriel of UCLA's Anderson School agreed that there is enough culpability to go around for the current crisis and described it as a negative feedback loop resulting from the simultaneous deterioration in capital and housing markets.
When the panel turned its attention to policy prescriptions that could help spur a market recovery, opinions again varied. Ranieri said it is economically preferable to promote policies that allow people who in foreclosure to remain in their homes, but he also cautioned against policies that promote a moral hazard that "entices people who could pay to not pay in order to get on the gravy train."
Lowder Eminent Scholar in Finance, Auburn University; Senior Finance Fellow, Milken Institute
Director of the Ziman Center for Real Estate, Arden Realty Chair and Professor of Finance, Anderson School of Management, University of California, Los Angeles
Executive Managing Director, CB Richard Ellis Investors LLC
Prime Originator and Founder, Hyperion Private Equity Funds; Chairman, CEO and President, Ranieri & Co. Inc.
Founding Partner, Chief Investment Officer and Generalist Portfolio Manager, Metropolitan West Asset Management
Director, Financial Services and Education Project, Asset Building Program, New America Foundation; Executive Vice President, National Policy and Partnership Development, ShoreBank Corp.
Mon 4/284:00 pm - 5:15 pm
Surviving and Thriving in the Midst of Market Volatility
When addressing the volatility in financial markets, it is important to recognize that the fluctuations in stock markets do not necessarily reflect a proportionate change in individual companies within the market.
Richard d'Albert of Deutsche Bank stated that risk measurement has become critical. This has caused the proliferation of indices that have been "helpful in defining prices of otherwise unobservable assets."
Discussion of volatility yielded to discussion of the growth in BRIC countries and throughout Asia. James McCaughan, having just returned from Asia, described the economic optimism in China as "tangible."
Mitchell Julis of Canyon Partners compared the market to a pendulum, adding that at the bottom of the pendulum, we have leverage that exacerbates the market's volatility. He described the model of neoclassical finance, which assumes that men are rational beings, and contrasted that against behavioral finance, which acknowledges men as irrational actors. Ultimately, he argued that people are determined organizationally, meaning that "where you stand depends on where you sit."
Liquidity is the primary cause of today's market volatility, noted Max Darnell of First Quadrant. He contended that what is currently happening in markets is a direct result of the dramatic growth in liquidity during recent years. He cited the fact that emerging countries are growing their savings, a trend that can be seen in the growth of central bank reserves (currently valued at more than $6 trillion globally). Additionally, sovereign wealth funds stand at more than $2.25 trillion. Combined, these two actors account for between 6 percent and 8 percent of global publicly traded assets. Darnell lamented that the solution adopted by many in the United States is to control volatility by adding even more liquidity, a move he compared to throwing gas on a fire. He continued to discuss significant housing booms in places like southern China, India, Australia and Spain.
Julis commented that the fight for resources may become a geopolitical issue as opposed to a function of capitalism, creating a concern for many in the financial markets.
Overall, the panel agreed that market volatility is an issue that we rarely bother to explore during periods of economic growth. But the swings are manageable if companies and investors prepare sufficiently.
Mon 4/284:00 pm - 5:15 pm
Beyond Petroleum: Challenge and Opportunities in Russia
Most of the panelists agreed that now is a good time to invest in Russia. Asadov emphasized opportunities outside the oil and gas sector, noting that other industries are ripe for innovation and have little competition.
Gregory Karpovsky of Eurokommerz, the largest factoring company in Russia, used his own story to illustrate the degree of opportunity that is available. A young, self-made entrepreneur in an industry outside of the oil and gas sector, he started a company at age 22 and is now a CEO at 28.
Dmitry Mosin of Sochi 2014 described the upcoming Winter Olympics and Paralympics as an opportunity to showcase a new country to the world, attracting investment and commerce. Mosin cited the Olympic Games as a priority for the prime minister; as a result, all investments will be guaranteed by the government. Private funding will drive construction of the needed infrastructure and hotels.
Vadim Asadov described his experience in Russia's technology sector. A physicist turned investment banker, he established NeurOK in 1998 as an angel incubator for technology financing and commercialization. To nurture the human capital necessary for innovation, he has also founded advanced institutes for physics and mathematics.
Evgeny Zaytsev of Asset Management Company affirmed that there is a great deal of potential in Russia's life sciences sector. Consumer demand is rising, especially in health care. The problem, he says, is the shortage of managers in Russia.
That issue is being addressed by Wilfried Vanhonacker, Dean of the Moscow School of Management. The Russian government has made it a priority to stimulate entrepreneurial talent and leaders who can manage a fast-moving economy. Although Russia's president-elect, Dmitry Medvedev, is chairman of the school's advisory board, the school is entirely privately financed.
When asked about Russia′s negative image abroad, Asadov said that he is surprised at how inaccurately the Western media portrays Russia. "This contradiction of reality is bad for Russia but even worse for America," he said, noting that it leads U.S. investors to shy away from investment opportunities. "Russia is a best-kept secret."
"Russia has been doing a pretty poor job of managing its PR as a country," said Zaytzev. He discussed the lack of awareness by Westerners of all the positive developments in business, education and the arts.
Vanhonacker noted that the problem of Russia's image has some cultural origins, observing that Russians are very direct and don't always consider the audience they are speaking to. He has found this issue a challenge in building the business school. "I have no problem selling the projects to get faculty. The problem is selling Russia."
"Communication is everything. It's all about how you are going to communicate your country," said Moisin. He cited his experience with winning the Olympic bid for Sochi, calling it in effect a global election. "Intense, targeted, and motivational communication is key is in how you want to present your story. It can be done."
Despite the challenges, Vanhonacker reaffirmed that Russia is where the opportunities lie. "Russians are proud and highly educated, with a maturity and understanding of what goes on the world." The country only lacks soft skills such as management. "But these are the challenges that come when faced with high growth and different talents," he said.
Mon 4/284:00 pm - 5:15 pm
Reducing the "Risk" in At-Risk Youth: The Economic Benefits of Early Prevention
Four longitudinal studies have shown tangible economic benefits from investing in early childhood care and education, running from an 8 percent to a 20 percent internal rate of return, depending on the quality of the early childhood program. Arthur Rolnick of the Federal Reserve Bank told how these enviable returns have captured the attention of CEOs, causing many of them to become actively involved as champions of early childhood spending.
Moderator Neil Eckert of Climate Exchange PLC turned to tennis legend Andre Agassi and asked him to recount his experience in offering educational opportunities for at-risk youth in Las Vegas. Agassi prefaced his remarks with a simple statement, "If we say we care, then it's real simple: We have to act." He continued, "You can always find people who will say it cannot be done."
Agassi and fellow panelist Elaine Wynn, the national chair of Communities-in-Schools, hail from Nevada, the state with the nation's highest dropout rate, and both are determined advocates for education reform. Agassi shared stories of his college prep academy, a public charter school that raises hopes and expectations in one of the most challenged neighborhoods of Las Vegas.
He compared the hard work of a quality education to his success as a professional athlete. "There are no shortcuts in education. Just like in tennis, if you want to be good, you have to spend the time," said Agassi. Students at his charter school have eight-hour school days, resulting in 16 years of total schooling compared to the traditional 12 years. He summed up his philosophy on teachers: "No teacher tenure. If you're good, you stay; if not, you're fired." His school now has a seven-year record of academic success and Agassi has a statement to make nationally. He intends to continue his work to halt the downward spiral of students at risk through quality education.
Elaine Wynn reiterated Agassi's urgent commitment by stating, "Let's just stipulate that it's much more expensive to ignore these issues." Wynn's work has grown from Nevada to the national level. She elaborated on the dire state of education in Nevada, where "we lead with all the wrong statistics. One third of our kids drop out and half of those are ethnic and minorities." Her work in Nevada with multiple government and private agencies led to her current focus on a single point of service delivery. Although there are multiple support programs for students in need, Wynn questioned the feasibility and functionality of these initiatives. "We expect the children who are least capable to be program specialists, which makes no sense." The best place to get services delivered to children in need is in schools. She is currently working on legislation for integrated services in Washington, D.C., and raising more state money to improve schools in Nevada.
Panel members nodded as Wynn stated, "Programs don't save people. People save people. In the absence of the humane, which is the key aspect of the word 'humanitarian,' many people most at risk will not make it."
Carlos Bremer of Value Grupo Financiero told stories of mobilizing the humanitarian capacity of virtually the combined professional athletic teams of Mexico to help children. Eckert asked Bremer how one individual managed to rally such extensive support for this cause. Bremer replied that he observed the myriad problems of poor Mexican schoolchildren, including the prevalence of drugs in public schools; he also noted many empty seats at professional sporting events simply because most poor people cannot afford to attend. Bremer set up a program to reward students in grades 3 through 9 with tickets to sporting events if they achieve good academic results. Then he called on professional basketball, baseball and soccer teams, ultimately getting 70 of the nation's 76 pro sports teams to donate seats. Nationally, 2 million Mexican children take math, science and Spanish tests annually — and 1.5 million seats have been made available to those who do well.
Though his program is now a national campaign, Bremer's modesty was apparent when he was asked how he had done all this. He shrugged and said, "You just need a good idea. Share it, and others will help."
Tennis Champion; Founder, Andre Agassi Charitable Foundation
Senior Vice President and Director of Research, Federal Reserve Bank of Minneapolis; Associate Economist, Federal Open Market Committee
Senior Officer in State Policy Initiatives, The Pew Charitable Trusts
Mon 4/284:00 pm - 5:15 pm
Econobloggers: Real-Time Information and Analysis From the Keyboard Next Door
After his surprising opening (which was fully intended as a compliment), Rotbart asked how many audience members read blogs at least once per week. The answer was an impressive 75 percent. Of those that did, 50 percent read blogs once per day, and 15 percent were bloggers themselves. And that percentage is anticipated to grow substantially while the popularity of print media continues to decrease.
"Bloggers are informed and opinionated," stated Paul Kedrosky, who writes the "Infectious Greed" blog. "I needed more awareness politically. It makes me feel like I am contributing to society by enlightening the public to what is really going on with the economy. Not whatever they see in print media ... I combine both old and new developments in economics, things I couldn't say in a classroom. It lets me vent, primarily. And there are, in fact, many institutional investors that read it, believe it or not."
Yves Smith, who writes the "Naked Capitalism" blog, had ample experience on Wall Street with Goldman Sachs. She felt that there was a "real disconnect between what was being reported in the press with common sense." She stated that there "was a lot of frothiness in the market ... and the way the dots were connected were incomplete — the mortgage crisis, for example, was very 'snarkly.' In blogger language, that means unclear."
Felix Salmon of Portfolio.com felt that media needs to make things more fun to read in order to captivate and sustain an audience's attention. "Stuff bugged me," he said. "It is my own therapy. My wife told me to 'put it somewhere else, and find someone who cares.' My readership grew organically and developed into a quarter of a million readers per month."
Mark Thoma, author of the "Economist's View" blog, agreed with Smith. He felt that there "was a tremendous amount of information not getting put into print, due to source conflicts, space constraints, etc., and blogs allow for the total picture. This makes a story much (easier) to be whole and complete."
Rotbart posed another interesting question to the panelists: "Who holds bloggers accountable for what they put up?"
Most all the panelists agreed that credibility was extremely important for them, as well as integrity in what they wrote. "I put up articles that link to factual info to support where my opinions are based from," commented Thoma. Smith added that bloggers earn their respect by what they write, noting that even The Wall Street Journal relies on statements by trusted sources. Smith felt that "a blogger should be able to strip the arguer from the argument, and both should be able to stand on their own." Kedrosky believed that some blogs are purely for entertainment, while other may be "factual, impressionistic, etc., and that's okay." He added that blogs are complements to print, not substitutes.
When the subject of blogging for money came up, the crowd became a little rowdy. Salmon announced, "Blogging should come from the heart and mouth, not out of a lust for money. Bloggonomics 101: Never do it for the money." Rotbart noted that traffic is the monetary sum of blogging through ads.
Whether it's for the money or not, the panelists all had a lot to say about what was not being said before.
Mon 4/284:00 pm - 5:15 pm
Tech Centers of North America: How to Build and Sustain a Knowledge Economy
Moving away from the traditional norms and practices that guaranteed success in an industrial economy, today's economy values expertise and intellectual property more than land or natural resources. Such an economy thrives on, and in fact requires, highly intelligent and educated people.
After brief introductions by each member of the panel, Ross DeVol of the Milken Institute placed the discussion in a larger context. Through a variety of slides that summarized years of research, DeVol hypothesized that a community's economic success is driven by its ability to retain human capital. While "it is critical to have large tech firms . . . [we] need people who know how to start new companies to have long-term success." A community that can lure and keep entrepreneurs will maintain a long-term competitive edge.
This sentiment was echoed by nearly every member of the panel. Lynde Coit of Plasco Energy Group emphasized the importance of the "special sauce" that led his company to place its headquarters in Ottawa, Canada. Plasco's technology, which converts waste into synthetic natural gas that can be used to generate electricity, was developed over a 20-year period in Ottawa. It was Ottawa's "long history of innovation and entrepreneurship" that made it an ideal locale for Plasco's plant.
Salvador Malo of the Mexican Institute for Competitiveness explained that, for the first time, Mexico has "a sense of competitiveness and innovation at the federal level of government, and local governments are trying to attract all forms of capital." He highlighted the state of Guanajuato, which has a population of less than 5 million but an ambitious "six economic corridors plan" to attract energy, biotechnology, nanotechnology, aerospace, information and automotive industries to the area.
David Fransen of the Institute for Quantum Computing further elaborated on the specific types of people necessary to create an entrepreneurial environment: "rich people and nerds." (DeVol jumped in to remind the audience that these groups were not mutually exclusive.) And not all rich people are created equal. Fransen believes that people who have made their money in today's economy — as opposed to "legacy rich" who have inherited money — are more likely to appreciate risk and investment in research. Such people tend to be less outcome-based and appreciate all aspects and benefits of the entrepreneurial environment.
Mayor Gavin Newsom of San Francisco agreed that "the competitive differentiator is talent." As mayor, he adheres to a philosophy of "reinvent or die." He highlighted the various tactics San Francisco employs to create a thriving city where the most talented people will want to live and work: "anchoring the connection to Asia" by supporting Chinatown, Little Saigon and Japantown; mapping out a new area in Mission Bay for the University of San Francisco; and training community college students for specific jobs that major corporations say they will need to fill in five to ten years.
At one point Newsom and Fransen clashed briefly over the importance of diversity if the aim is to create an economic engine. Fransen posited that "rich nerds" do not require diversity; only superior minds and superior technology will lure them to a given place. Newsom countered that "openness to new ideas," be they cultural or technological, is imperative to attract top minds.
The moderator, Lesa Mitchell of the Ewing Marion Kauffman Foundation, kept the conversation lively, moving briskly speaker to speaker and offering insights of her own. She emphasized the importance of universities in attracting talented young minds to a given area, but she noted that the responsibility of retaining them eventually shifts back to the locality. Every city or town must work to keep its graduates living and working in the area if they want to capitalize on the intellectual property.
Executive Vice President, Corporate Development, Plasco Energy Group Inc.
Executive Director, Institute for Quantum Computing; Associate Vice President, Strategic Relations, University of Waterloo
Director of Research, Mexican Institute for Competitiveness (IMCO)
Mayor of San Francisco
Mon 4/284:00 pm - 5:15 pm
Revisiting Nuclear Energy
Lady Barbara Thomas Judge of the United Kingdom Atomic Energy Authority noted that the political environment in recent years has prevented her agency from building plants; now they are exclusively in the business of decommissioning them. But she believes that nuclear power is now back on the agenda in her country. Citing a statistic stating that nuclear power could be "cost effective at $40 per barrel," she asserted that current oil and natural gas prices make nuclear energy an important part of any country's energy portfolio. She further pointed to France, which derives 80 percent of its energy from 59 nuclear power plants, as a nuclear power success story.
Richard Meserve of the Carnegie Institution discussed U.S. regulatory issues from his perspective as the former chairman of the Nuclear Regulatory Commission (NRC). He noted that the existing nuclear plants provide by far "the cheapest power on the grid right now," providing power without worsening climate change. Nuclear should make sense but it faces regulatory hurdles that politics may keep in place.
Meserve also described reform of the nuclear plant licensing process by the NRC. Historically, a plant operator would have to acquire a license to build a plant and then a second license to operate the plant once it was built. Nuclear power opponents would hold up this second licensing process, creating substantial regulatory risk for plant developers. The new process streamlines the two procedures into one, but may still pose significant delays that will affect the economics of plant investment.
The perspective of the private sector was provided by Michael Morris of the American Electric Power Company. He agreed with Meserve's comment about the tremendous cost advantage of power generated by existing plants but cited the economic challenges of new investments. He offered the example of North Carolina-based Progressive energy, which filed for a license to build a $17 billion plant, while their market cap was only $12 billion. Nevertheless he noted that China and India are currently building a combined 43 nuclear plants, and he felt that not doing so for political reasons was a mistake.
Marianne Walck of Sandia National Laboratories emphasized nuclear energy's technological viability, focusing specifically on the safety and security testing undertaken by Department of Energy labs with respect to waste transportation and storage. She described rigorous testing of the transport containers that included dropping them on reinforced steel surfaces with spikes, and setting the containers on fire. She is confident that the technology and safety controls are there, concluding that "most if not all of the barriers we face to nuclear energy are political."
Lady Barbara Thomas Judge
Chairman, United Kingdom Atomic Energy Authority
President, Carnegie Institution; Former Chairman, U.S. Nuclear Regulatory Commission
Director, Nuclear Energy Programs Center, Sandia National Laboratories
Mon 4/284:00 pm - 5:15 pm
Revolutionizing Health Care and Research in the Developing World
Nobel Peace Prize laureate Muhammad Yunus discussed the state of health care in Bangladesh, where he founded Grameen Bank, making small loans to poor people — 97% of whom are women — to start their own micro-enterprises. "Income is the best medicine," Yunus stated.
He described prevalent health problems in Bangladesh and the tactics that the Grameen Bank has used to address them. For instance, night blindness among children was a major problem caused by vitamin A deficiency, a problem that has typically been addressed by providing supplements. Grameen Bank decided to sell seeds to families so that they could grow their own vitamin-rich vegetables, eliminating the risk of deficiencies and allowing the families to sell the surplus. Night blindness vanished (and Grameen became the number one seed-seller in Bangladesh).
Grameen Bank has also been involved in working to address water shortages, the need for sustainable housing, sanitation and malnutrition, all of which are major sources of health problems in Bangladesh as well as in other developing countries. Through joint "social business ventures" with private companies such as Dannon and Veolia Water, Grameen has been able to tackle childhood malnutrition and arsenic in well water, respectively. As Yunus put it, "Health is not just medicine coming from a doctor; health is something that you build."
That is exactly what Grameen Bank has been doing through such social business projects with private partners and its new health-insurance program, which allows members of Grameen communities to pay premiums of $1.50 for primary-care services and telemedicine (telephone consultations with doctors, made possible by the expansion of technology). Yunus hopes to see other private and public enterprises venture out of the profit-maximization model and into the world of social businesses to alleviate global poverty.
Eugene Williams of Translational Medicine India addressed the issue of sustainability of programs and services for the poor. These cannot be provided solely as charity, since that model is not self-sustainable. He believes that the poor must participate in health services by paying for it, even in small amount. When asked what he sees as a tangible outcome in 25 years, Williams stated that he would like to see "a health-care system in the developing world that we wish we had in the United States, with continuous improvement and sustainability."
Tomas Philipson of the University of Chicago directed attention to the problems of delivery, which he said are more important than the availability of technology. The costs of delivery must be considered in any viable solution to providing health care in developing countries. He remarked that profit motives are very important to the development of health care and research in the developing world, and financial rewards should be present for those that seek opportunities to contribute to this work.
Anne Wojcicki of 23andMe is interested in collaboration with organizations such as Grameen Bank to improve the quality of health care globally. Through such collaborations, a global community can be created to direct the revolution in health care in the developing world.
The question of whether for-profit companies can effectively participate in developing world programs came up in the discussion. For the panelists, the answer seemed to be a matter of the design and intent of the for-profit's participation. For instance, Wojcicki stated that if 23andMe were to take on a project in India or Bangladesh, it would not have a for-profit purpose. It would be separate from the profit centers of the company, but take advantage of those entities' capabilities and knowledge. Yunus stressed the importance of maintaining profits within the "social business" and eliminating shareholders that could influence the work of such a venture.
When asked what she sees as a tangible outcome for the future, Wojcicki replied with a plan for her own company. She stated that 23andMe wants to work with global development organizations such as Grameen Bank to identify the most pressing health issue in the developing world and begin tackling it.
Chairman, Translational Medicine India
Co-Founder, 23andMe Inc.
Mon 4/284:00 pm - 4:45 pm
Book Signing: Carl Schramm
Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity
Mon 4/284:00 pm - 5:15 pm
Taking Account: Convergence With International Accounting Standards
Alfred King of Marshall & Stephens moderated the panel, which addressed the need for convergence, the various paths toward convergence and the challenges involved. The session began with a detailed presentation by Robert Herz of the Financial Accounting Standards Board on the need for convergence and the possible use of International Financial Reporting Standards (IFRS) in the United States. The need, he said, is market-driven -- companies are going global, capital flows are global, and therefore a single global standard not only makes sense but also reduces costs and complexity.
To achieve this goal, he presented three possible paths: by mandate; through a structured convergence process; or through competition among standard-setters. He cited Europe's lead on adapting IFRS, and the memorandum of understandings signed and updated between the U.S. Federal Accounting standards Board (FASB) and International Accounting Standards Board (IASB), which has adopted the IFRS. At present, he added, more than 100 nations require or permit IFRS, with many others planning to follow suit. However, in the United States, more work is needed.
Some of the challenges, he said, stem from too much available literature and the different starting points of FASB and IASB. Differences in regulatory, business and cultural environments have to be overcome. In addition, one has to deal with the politics, lack of funding, staffing and governing resources at IASB.
Herz said he doesn't think there will be a mandate for all companies to make the transition simultaneously, but that those with a majority of operations outside the United States or with many subsidiaries of foreign parent firms will lead the transition.
When asked if it is true that the IFRS is principles-based, whereas the U.S. GAAP (Generally Accepted Accounting Principles) is rules-based, D.J. Gannon of Deloitte & Touche pointed out that a numerous exceptions are hidden behind the principles. The major difference, he said, is that IFRS has fewer details (2,000 pages versus 25,000 pages for US GAAP). The IFRS has chosen to take a minimalistic approach. The question, said Gannon, then becomes, "What happens to the material contained in the other 23,000 pages?"
Neri Bukspan of Standard & Poor's pointed out that the transition to the leaner IFRS benefits some nations immediately because their own standards were poor to begin with. By omitting 23,000 pages, he said, it is important for the standards committee to ensure that users will not get less than they started with. He also stressed the importance of disclosure, an integral part of any accounting procedure.
Jerry de St. Paer of the Group of North American Insurance Enterprises agreed with Bukspan on disclosure, adding, "Disclosure is the heart of what this (the push for convergence) is about." He also included other areas that pose significant challenges, such as developing standards for financial statement presenting, revenue recognition and insurance.
Moderator King seized the moment to ask if disclosure is a substitute for accounting, to which Herz replied that recent executive stock options scandals have demonstrated that important details can be buried in disclosure statements. Bukspan said he doesn't see many analysts trying to reconcile disclosure statements; instead, they take financial statements for what they're worth and make their calls. To him, reconciliation is valuable more from an academic perspective.
In closing, the panelists agreed that the international convergence of accounting standards will be monumental task involving many stakeholders rather than a few arbiters behind closed doors. They added that the transition itself must be undertaken in a fully transparent manner.
Vice Chairman and Senior Technical Director, National Financial Valuation and Consulting Practice, Marshall & Stevens Inc.
Jerry de St. Paer
Chairman, Group of North American Insurance Enterprises (GNAIE); Senior Vice President, Finance American International Group
Partner, Deloitte & Touche LLP
Chairman, Financial Accounting Standards Board
Mon 4/285:30 pm - 6:45 pm
Principal Global Investors and Post Advisory Services Reception
By invitation only
Mon 4/285:30 pm - 6:45 pm
Crédit Agricole Reception
By invitation only
Mon 4/285:30 pm - 6:45 pm
Reception for Speakers and Sponsors
Sponsored by The Beverly Hilton Hotel
By invitation only
Mon 4/285:30 pm - 6:45 pm
Mon 4/287:00 pm - 9:00 pm
Dinner Panel: Pursuing Your Passion
Peter Diamandis of the X Prize Foundation described the $10 million competition he designed to create a manned space vehicle. The prize program energized a variety of private-sector actors in aeronautical engineering. Its success has spurred the creation of the next prize competition — one to create a commercially viable passenger vehicle with fuel efficiency greater than 100 miles per gallon.
Elaine Wynn of Wynn Resorts described how she and her husband played a role in the development of Las Vegas. She described the city when they moved to it as one that was "democratic with a lowercase 'd.'" The freedom of thought and career pursuit that she found in this environment inspired her to becomes a determined advocate for improving education. She described the life she has lived as a privilege, and she has been striving to pay it forward, placing others in a position where they are free of constraints that might get in the way of their own dreams.
Milken gave Quincy Jones a lengthy and at times comical introduction. Jones winced when Milken mentioned that he had graced the earth with his presence for the last 75 years, but the balance of the accolades directed toward the guest was serious and impressive. A brief video entrance listed Mr. Jones's many accomplishments, including producing Michael Jackson's Thriller and "We Are the World," scoring films, directing The Color Purple, and having former Secretary of State Colin Powell admit to being a Quincy Jones groupie.
Each panelist spoke of specific individuals and events that inspired their own entrepreneurial pursuits. Diamandis cited President Kennedy's promise to put a man on the moon at a time when "no one knew if the human brain could survive in space." Wynn included President Reagan and educational advocate Bill Miliken as major influences and Jones looked to Nelson Mandela for his courage and example.
Finally, the speakers spoke of the importance of taking chances. Diamandis said he believes that America is "killing itself" with risk aversion; he encouraged the next generation of leaders to "be audacious with your dreams." Similarly Wynn said she thought that taking chances was the only way to get things done.
Jones was direct with his advice. Citing a figure showing that only 11 percent of Americans (and 25 percent of members of Congress) own passports, he said, "You have to go to know." He described a rapidly changing world that demands engagement and understanding to ensure that every child around the globe shares "a common destiny."
Mon 4/289:00 pm - 10:30 pm
Tuesday, April 29, 2008
Tue 4/296:00 am - 8:30 pm
Tue 4/296:30 am - 9:00 am
Tue 4/296:30 am - 7:45 am
Business Leader's Toolkit: How Business Executives Can Influence Education Reform
The average U.S. 15-year-old performs poorly in math and science. Out of 30 countries involved in the 2006 Programme for International Student Assessment, the United States placed only 21st in science and 25th in math. American students are falling significantly behind their international peers, and by the time a parent or teacher is recognizes there is a problem, it is often too late.
Many students enrolling in college are ill prepared. More than one in three college freshman are required to take remedial courses to gain the skills they should have learned in high school. In the California State University system, more than half of incoming freshmen in 2006 had to take remedial courses in English or math.
These deficiencies are becoming apparent as young employees enter the workplace. Local trade unions are having difficulties finding qualified employees. The lack of skills is making itself felt in the form of declining economic growth. Many major firms are establishing international outposts to hire the talent they need in locations such as India and China.
To address this systemic failure, a coalition called Strong American Schools has launched a campaign called ED in '08. Its goal is to raise awareness of the deficiencies in our schools and issue a call for meaningful reform. The campaign is meant to bring education reform to the top of our domestic agenda, rallying private citizens, presidential candidates, political figures and business leaders to improve and transform our public schools. The organization believes that if U.S. students could match the skills of their international peers over the next ten years, America would be better prepared to compete globally and its GDP would grow by an additional 4.5 percent within 25 years.
"We need political leaders who rise above special interests and ideology by partnering with governors, mayors, local officials, business leaders and mostly communities throughout America to help with education reform," said Heye. ED in '08 believes we need to set high expectations and rigorous standards, deploy effective teachers in every classroom, devote more time and support for students to learn and find new ways to keep students engaged and active.
"The missing ingredient is not more commissions or reports. It is political," said Heye. "Without the national leadership to help enhance education, states and local school systems can't overcome the obstacles to improve our nation's pubic schools."
Tue 4/296:30 am - 7:45 am
A Look Inside a Brazilian Growth Engine: A Discussion With Gov. Luiz Enrique da Silveira, State of Santa Catarina
Santa Catarina is most certainly an engine for growth in Brazil. The state's growth rates have exceeded the national average of 5 percent each year during the country' recent economic boom.
With ambitious plans to expand and improve infrastructure, Santa Catarina offers an educated work force and tax incentives to foreign businesses seeking opportunities in southern Brazil. Its maritime ports make Santa Catarina the Brazilian state with the most container traffic in the country, the governor said.
Santa Catarina is unique in Brazil due to its high standards in education, health and income distribution. Additionally, the state has adopted a county system, similar to the American model — something not practiced in the rest of Brazil — and has positioned itself as one of Latin America's regional centers of venture capital.
Santa Catarina's tax policy offers incentives to attract foreign investment, including a waiver of VAT for foreign companies during their first 10 years in the state. The state government also facilitates the opening and organization of businesses, he said, by providing an efficient licensing process, in fact, the fastest in Brazil.
The state is interested and committed to public-private partnerships, or PPPs, and is one of only two states in Brazil that use PPPs. Partnership opportunities exist for foreign investors in hospital, freeways and port construction.
Governor Silveira said he expects Brazil to continue growing at a healthy annual rate of around 5 percent for the next 15 years. Growth will be sustained by recently discovered submarine petroleum deposits, as well as the biofuel industry. With regard to alternative energy, the governor argued that wood ethanol would soon prove to be more efficient than other biofuels, including ethanols derived from corn and sugarcane. Also, he said, Brazil's economy is such a powerhouse that it accounts for more than three-fifths of the economic activity in South America. As the world's fifth most populous country, Brazil offers an attractive opportunity for foreign investors and business leaders.
Tue 4/296:30 am - 7:45 am
Tue 4/296:30 am - 7:45 am
Investing in China Workshop
"In China, there are cultural and regulatory barriers to entry, with cultural being the easier to penetrate," explained Jim Lavelle of Houlihan Lokey. "To do business in China, there are several hoops to jump through." For example, some sectors of the economy (such as transportation, defense and media) are closed to foreign investment, withstanding China's political shift from communism to socialism. Real estate investment is restricted as well.
"So where do you start?" asked one attendee. "Good question! And I have an answer for you," replied David Tang of Kirkpatrick & Lockhart Preston Gates Ellis. "It all starts with a catalog ... available to the public that lists out and divides industry groups available for foreign investment." Some examples of encouraged sectors for investment include high tech, new tech and some legal opportunities. There are substantial R&D incentives backed by China's government to help facilitate growth and expansion.
"There are ways to work around the loopholes," insisted Mitchell Nussbaum of Loeb & Loeb. "The Chinese are very warm and helpful people. It is the government officials that are a bit harder to work with unless (you) have a financial services license." He continued: "There are three ways to facilitate foreign investment in China and maintain a long-term presence there. First, have a representative's office there. Second, do a joint venture with a Chinese company already established there. And third, create a 'WOFE,' or wholly owned financial enterprise."
It is civil law that one must have a license to entity in order to open up a bank account. "No license, no account, no business," Tang explained. He continued to explain how joint ventures can be equity 90/10 partnerships, or flipped to be 10/90 in certain cases (50/50 is deemed undesirable due to potential deadlock). Access to local market expertise and good relations with local officials can translate into new funding for projects by government, expanded manufacturing capacity and assistance in exit opportunities and domestic listings.
"Relationships with government and local officials really help speed through the red tape always present in a growing economy," Nussbaum explained. "There is a lot of capital floating around, and China is always looking for ways to expand its economy. With half a trillion in reserves, there is always room for Western assistance."
Growing issues in China's economy led to the 2007 anti-monopoly laws. On January 1 of this year, new labor laws have gone into effect, governing severance, pay, rights and benefits. "The market's flexibility has waned a bit," commented Sandler. "The government is involved in the front side as well as the operating side." The best strategy for investors always involves cooperation, planning and foresight.
Managing Director and Group Head of Industrial and Environmental Technologies, Houlihan Lokey
Partner and Chair, Corporate Securities Practice Group, Loeb & Loeb LLP
Tue 4/298:00 am - 9:15 am
U.S. Overview: A Perfect Storm Ahead?
Moderator Paul Gigot of The Wall Street Journal began the discussion by commenting on the sharp increase in commodity prices since August 2007, the record low value of the dollar and the risk aversion exhibited by investors. When asked whether the United States is in a recession, Peter Orszag of the Congressional Budget Office replied that we are experiencing negative growth, but the potential impact of the tax rebates that are being issued over the next quarter should not be overlooked. The stimulus totals more than 1 percent of annual GDP, but the rebates will have the effect of 4 percent of GDP since they are being administered in a single quarter. Regarding the housing market, Orszag said, "There was the potential for a 30 to 40 percent decline in housing prices, and we haven't come anywhere near that." He does expect another 10 to 15 percent decline in housing prices before values begin to recover.
Commenting on the likelihood of further write-downs by major banks, Suzanne Nora Johnson, formerly of Goldman Sachs, explained that mark-to-market accounting practices will result in additional write-downs as underlying assets (such as mortgages) continue to decline in value. "I think we are at the end of the beginning," she said. "We had a snakebite called leverage and are now starting to find the antidote."
Felicia Thornton of Knowledge Universe Education U.S. said that while middle-class residents of California, Arizona and Florida are experiencing noticeable effects from the economic downturn, "nobody is panicking." Thornton has seen a slowdown in turnover among the 50,000 employees in her organization due to an increased desire for job security.
Allan Hubbard of E&A Industries interjected that "it's very unclear that we're actually in a decline." He highlighted the Federal Reserve's aggressive action to cut interest rates in recent months, saying, "You can't criticize them for being inactive or inattentive." He also pointed out the role of allowing temporary, faster write-offs for business investments as part of President Bush's stimulus package.
Some panelists questioned the actions that Congress is taking to address the mortgage meltdown. Under legislation currently being considered, Hubbard expects that banks would keep the soundest mortgages and turn only the most risky loans over to the Federal Housing Administration. Johnson added, "The challenge is that Congress is in a very tough spot to show households that they are doing something to achieve parity."
Gigot turned the discussion to the long-term issues that the United States needs to address to sustain growth. Thomas Donohue of the U.S. Chamber of Commerce explained that "America is its own worst enemy." Education, immigration, energy, infrastructure and trade are all issues "that America can take care of itself." Hubbard called for the renewal of President Bush's tax cuts, while Orszag pressed the need to eliminate unproductive health-care spending. Thornton called for improving the quality of America's teachers, especially in the earliest grades. Johnson spoke of the need to invest in infrastructure — in the nation's physical as well as its human capital — to ensure that opportunity is available to all Americans and is not stifled by ineffective policies.
Chairman, E&A Industries Inc.; Former Assistant to the President for Economic Policy; Former Director, National Economic Council
Suzanne Nora Johnson
Former Vice Chairman, Goldman Sachs Group
Tue 4/298:00 am - 9:15 am
Steve Wynn on Building and Sustaining Great Customer Service
After a fond introduction by Michael Milken, Wynn embarked on an inspiring and thought-provoking discussion, punctuated with warmth, humility and enthusiasm that served as reminders of the great goodness in mankind and how important it is for service businesses to institutionalize processes that enable every employee at every level to receive recognition for the positive differences they make.
Wynn's ability to achieve this simple concept on a grand scale is in no small part why Fortune magazine ranked the Mirage Corporation the second most admired company in America under his leadership; and today his namesake Las Vegas hotel, the Wynn, is the only resort casino in the world to earn, and then earn again, the highest honors awarded in the hotel-resort industry.
"The people who work at the Wynn achieve notable accomplishments that few are able to attain," he said, "and they do it with consistency. They achieve this because they apply common sense and consideration of the guest as a person, and this is the most fundamental affirmation a customer can receive. It is the dominant experience of their stay because people are moved by these wonderful experiences, and every act of personal consideration, every act of kindness, is never forgotten."
Achieving that spirit among his employees, said Wynn, is both the challenge and one of the greatest joys of his work. "If any of us in the service industry could get one wish, it would be for employees who related to the customer as people. Who wouldn't want that in their employees? For someone to walk up to you as a guest and be able provide them with instant gratification, and to do so unsupervised and when no one else is watching. To surprise and delight. ... These employees could change the history of the entire service enterprise, because if you have the people who relate to your customer person-to-person, they will never go anywhere else."
Wynn attributes the successes at Wynn Las Vegas to his human resources manager, Peter Early. "It was brilliant," he explained of the management innovation they established. "In our business, our line supervisors hold meetings throughout the hotel-casino before every shift, three times a day, seven days a week. These line supervisors are the core of the company. They carry the culture of the institution and know what's going on in their area and how well their people are doing for the 12 or so employees they oversee.
"Before discussing the business of the day," he continued, "every supervisor asks if anything of interest happened the day before. An employee stands up and tells something good that occurred. Within our internal network throughout the hotel-casino, we publish it, extol and glorify it. The individual gets immediate gratification, and the next day, everyone is out looking for ways to do good deeds they can report and get recognition for, as well.
"Pretty soon all these people were lit up with storytelling," Wynn recalled of the hotel's early efforts, "and it continues through today. It is storytelling: enabling and encouraging people to share their experiences, celebrate the good things they do and provide positive examples for others."
His success didn't magically happen. It took a superb human resources management, training of line supervisors and the contribution of many others to put the system in place. Yet the obvious advantage is that it overcomes one major liability of traditional "employee of the month" program by eliminating the need for a supervisor to observe the good behavior in order to earn recognition. "After all," said Wynn, "we all want employees who do the right thing when they think no one is watching. My success will always depend upon the people around me and their ability to behave in a considerate and compassionate way. "It is always about the people," he said. "It is also the most fun, for nothing is more personally enriching and enlightening than the enrichment and enlightenment of other people."
When asked about how to build a single culture among employees to achieve these results, Wynn replied, "We don′t." Every one of the Wynn's employees' names should be on the Wynn Hotel, he said, and "while their diversity represents a challenge, it also is our strength. We seek a higher ground that allows people to be different while asking they be at their best."
When asked if his employees are made or born to this higher calling, Wynn answered, "Does it matter? It is what it is, and whether it is the natural person who lights up the room or the person we empowered to blossom, they are wonderful. We recruit for personality and train for skill, but they come to work for many reasons and our employees are fundamentally no different than those found elsewhere. We found something, sort of Buddhist, sort of common sense, and I am excited about it at 66 years old. Storytelling and the chance for people to be responsible for their own recognition is real stuff!"
His philosophy on those who make mistakes? "The fiction of infallibility is our worst enemy because it leads to cover-ups. I′m not talking about the person we shouldn't have hired," he added, "but everybody has bad days. Let us acknowledge it and trust that it is OK to tip off your supervisor and co-workers so they can cover for you that day. We're not afraid of screw-ups, and the difference between saying it and making it exist among 7,400 employees is what good businessmen do."
On business in Asia and future ventures, Wynn noted, "Most Americans don′t get what is going on in China. The government is diligently working toward creating a better life for its citizens, and they are sharp, they want the real thing, not copies or fakes. Some of the stores in our Macau casino do as much business as stores 10 times larger in New York City." He said he was looking forward to putting a Wynn Hotel in Beijing and in other Asian capitals when the conditions are right. "I like to build fetching hotels," he said, "and the casino helps pay for them."
In response to a question about the legacy he′d like, Wynn replied, "A legacy is something for an old man, and I plan to grow old ungracefully and cling with the desperation of a drowning man to my immaturity. "Thankfully, I have a wonderful wife who makes that possible," he said in closing. "I think of hotels as an exercise, about getting one more hotel down that is just perfect, and when that's done, there seems to always be another. If I could be known for being consistent and setting a good example, if people said they were well treated and I had something to do with it, that would be enough."
And with a standing ovation, the audience celebrated.
Tue 4/298:00 am - 9:15 am
Philanthropy Advisory Service (PAS) Focus Group
By invitation only
Tue 4/299:30 am - 10:40 am
The Year After the Year of Private Equity: What Now?
Leon Black of Apollo Advisors was quick to quip: "I'd have preferred if the title had been 'before the year of private equity' because that would imply a hope that things will be better next year." To be sure, there was a quantum jump leading up to 2006 driven by several factors: Sarbanes-Oxley motivated firms to go private, CEOs did not want to stay public with their compensation packages, and the aggressive credit market lead to bigger and bigger buyouts. Now the first two of these effects still hold, but the credit market is broken. Black emphasized that that this is not the first time such a crunch has happened. When Apollo started operations, it was a pretty similar environment. According to Black, there will always be good opportunities for private equity. Right now there are moves to be made, particularly in the distressed buyout market. There are also regular private equity opportunities depending on when banks go back to business.
David Jackson of Istithmar World Capital remarked that "2006 and 2007 were bizarro world." He did not think that credit markets are broken and felt that deals that make sense are still going through. The only issue is that "jumbo" deals are not happening. He also drew attention to the globalization of the leveraged buyout business. "There's life outside the U.S.," he noted, mentioned the rising importance of Asia, the Middle East and Turkey.
According to Thomas Lee of Thomas H. Lee Capital, the downturn in the private equity business was by and large a securitization issue. From 2001 to early 2007, the share of CLOs grew from 10 percent to 70 percent of total loans, which in effect created $10 trillion of liquidity that was in turn pumped into areas like private equity, boosting deal volumes. These days, banks are busy clearing the credit backlog instead of offering new liquidity. He also noted that in terms of availability of financing, there was no longer much difference between investment banks and commercial banks. There might be some re-regulation in the direction of Glass-Steagall. Elaborating on the extent of current deals in the market, Lee remarked: "What I'm doing now is mid-cap deals, and I call that back to the future." In fact, that's what the industry used to do in the regular past.
Jackson seconded Lee, stating that mid-cap is really the typical private equity deal. He referred to data indicating that average deal sizes have fluctuated around $100 million over the last decade. Most notably, even in the boom year of 2006, deals averaged $240 million. These days, the nature of some of the relationships in the industry has changed; now the PE shops are trying to sell the banks the deals, instead of the other way around.
David Solomon of Goldman Sachs noted that capital has started to form in order to take over bad assets, and he gave as an example some very recent deals happening with large commercial banks. With this capital recycling process, assets can now be better marked to market. He also made a distinction between access to capital and the state of the economy, and argued that going forward, the bigger issue will be how consumers behave.
Another interesting topic revolved around high returns usually associated with private equity. What should investors expect in the current environment and in the near future?
Leon Black conceded that closing deals of the conventional type will be more difficult, but then again, "there are many roads to Rome." For instance, Apollo has invested $4 billion since last October, and some of these don't require any leverage at all. Black noted that the distressed buyout market provides many opportunities, which is actually a de-levering process that has happened many times before, as in the early 1980s and near the end of the 1990s. Not surprisingly, some distressed-private-equity funds had their best performance in times like this. He argued that for better private equity returns, equity prices needed to come down and we might have to wait six to eight months for that.
Thomas Lee referred to a chart displaying annual average private equity returns. While such returns were around 20 percent during most of the 1990s, they dropped to zero later on and came back to the 20 percent level in the mid-2000s before nose-diving to the negative area last year.
Black also elaborated about the Blackstone event. He argued that Schwarzman had built an excellent firm and what went wrong was that people had just invested in the IPO at the top of the cycle. According to Black, the market is still confused about what private equity does, putting too much value in quarterly reports. Over time, distinctions will be made between short-term issues and the long-term performance that private equity can deliver. Most limited partners in PE funds come in for a period of 10 years, in stark contrast with quarterly earnings expectations in public markets.
In closing, Bartiromo asked panelists about what opportunities to chase and what to avoid in private equity. The panelists had pretty convergent opinions on this topic. One common thread was increasing geographical spread, with special emphasis on Brazil, Asia and Eastern Europe. According to Solomon, "The world just feels better as you get away from Manhattan." Jones enthusiastically remarked that Brazil has become a net creditor country for the first time.
The globalization of PE is driven not only by availability of local funding, such as from sovereign wealth funds, but also by the increased sophistication of local institutions which have succeeded in adopting the financial toolkit to their circumstances. "U.S. institutional involvement is no longer required for deals," noted Jackson.
According to Leon Black, the crucial issue is how good the investee company is. The math of deals is not complicated, but finding a good company is. At a market-wide level, Black's view was memorable: "Volatility is not one's enemy as an investor." The remaining panelist sounded along the same lines with Black: they do not specify a particular sector or geographic region. The opportunity always depends on the specific investee company, and sectorwide considerations are typically limited to the timing of the investment.
Tue 4/299:30 am - 10:40 am
Campaign 2008: The Long Road to the White House
There was consensus among the panelists that the most likely scenario for the general election is an Obama/McCain contest, though no one was willing to count out Clinton completely. When evaluating the strategies of the three candidates, and of candidates who have exited the race, the panelists held a wide array of views.
Bill Carrick of Morris & Carrick pointed out that neither Obama nor McCain was their party's "heir apparent." Carrick, the former campaign manager for Richard Gephardt, stressed that the Democratic policy of the proportional distribution of delegate "makes it harder for Democrats to win when they actually win." It was the Republican winner-take-all policy that helped McCain sew up the nomination months ago.
Michael Barone of the American Enterprise Institute summed up McCain's winning strategy as "waiting for the other [Republican] candidates' strategies to fail." And fail they did. Nicholas Baldick of Hilltop Public Solutions said Giuliani committed "the single stupidest event in history by skipping the first five races." Baldick, the former national campaign manager for John Edwards in 2004, continued that by sitting out the early contests, Giuliani looked lazy. Any candidate who wants the nomination must fight early and fight hard, especially in a pivotal primary state such as New Hampshire.
Barone, also a senior writer with U.S. News & World Report, thought it was inexplicable that Clinton had not fought harder in the caucus states, given that ¾ of Obama's pledged delegate count lead came from caucus states. Baldick felt that Obama's edge came from his ability to draw large numbers of voters to the polls. Typical voter turnout for the Iowa caucus is roughly 130,000 people. Obama "changed the political universe" by attracting 230,000 to this past Iowa caucus.
Frank Luntz of Luntz, Maslansky Strategic Research provided edgy humor throughout the discussion. Not a man to mince words, Luntz said of McCain, "Stevie Wonder reads a teleprompter better than McCain." Regarding the Clinton campaign, he declared, "Bill Clinton is a bigger distraction than Reverend Wright." A self-proclaimed Obama supporter, Luntz refrained from verbally attacking his favorite candidate.
Not surprisingly in this impassioned campaign season, tensions flared about 45 minutes into the debate. Decker asked the panel what advice they would give the opposition candidate. Barone said that Obama "needs to prove that he loves America." Carrick pondered how McCain would translate "his straight talk express into the free trade express" as he campaigns in mid-America. Luntz stressed the importance of framing the discussion. McCain will fair better, Luntz predicted, if he frames the Iraq war in terms of the "consequences of defeat if we walk away," though Luntz remained confident that Obama will be the next president.
Then again, if this campaign has proved anything, it's that the pundits don't know everything.
President and Founder, Hilltop Public Solutions; 2004 National Campaign Manager for John Edwards
Senior Writer, U.S. News & World Report; Resident Fellow, American Enterprise Institute
Founding Partner, Morris & Carrick; Former Campaign Manager, Rep. Richard Gephardt
Tue 4/299:30 am - 10:40 am
Innovator: Kevin Walsh on Financing the Future of Renewable Energy
Hardy's questions for Kevin Walsh, known by many as "the sugar daddy of renewables," ranged from the soundness of green investment in areas that so far have yielded small returns to whether or not the whole notion of "green" is merely hype.
Responding to Hardy's question about the limited returns on green investments, Walsh insisted that returns must be sound or the innovations will fail in the marketplace. GE applies the same due diligence and rigor to green projects that it applies to any other investments it underwrites. But he pointed to one indication of his belief in the security of this new direction: His team began with six people handling $800 million of investment and has grown to 38 people and $4 billion.
Walsh repeatedly emphasized the need to maintain a global perspective on climate change and green technologies. GE must maintain national competitiveness in the face of enormous growth of renewables in Europe and elsewhere, he said, noting that investment in renewable power sources also provides protection against rising oil prices. The president of OPEC recently declared that the price of oil may well hit $200 a barrel, and while renewable energy is no "silver bullet," it can act as a buffer against the full impact of oil price fluctuation. Naturally, in this light, the greater the percentage of renewables of the total energy budget, the better.
In a discussion about the volatility of the energy investment climate and, specifically, the relationship between the dollar and the price of oil (if the dollar strengthens, the price of oil falls), Walsh responded simply that the volatility of the dollar is exactly why investments in solar and wind technology — which beyond initial outlays for infrastructure are not pegged to the dollar — are the nation's best bet for future energy security.
Proven technologies make the soundest investments, said Walsh, in response to a question about which technologies in particular interest him. And sound investment is his top priority. Tidal, or lunar, energy is interesting, but it's a relatively risky investment. His preferred technologies include not only solar and wind power, but also geothermal, biomass and hydroelectric energy. GE is interested in partnering with other companies, such as Google, that may have higher comfort levels with risk, he said.
Speaking to the question of biofuels, Walsh called for the "electrification of transportation." Ethanol from corn is simply not efficient enough to be sustainable with an energy balance of roughly 1.3:1, compared to a ratio of 8.3:1 in ethanol from sugar cane. Biodiesel, he said, is better, but a biodiesel hybrid might be the best type of transitional technology as the United States heads toward fully electric-, solar- or wind-charged vehicles.
Is green just the flavor of the month? Hardy asked. Walsh responded that the entire international scientific community is on board with the reality of climate change, and left it at that. And to a final question about whether a greening of America's energy budget an electrification of transportation is just "too visionary," Walsh replied emphatically that "it's a risk worth taking."
Tue 4/299:30 am - 10:40 am
Business Aviation: Providing Tools, Not Toys
Private-sector attitudes about business aviation have changed dramatically over the past 25 years, said Knebel. Just a few decades ago, he explained, "the cost of aviation was seen as indefensible, but today its use is seen as indispensable." Two trends have accompanied this rise in interest, he said. First, there is a growing menu of options for chartering aircraft. Traditionally, companies who wanted to use private air travel were required to either purchase a block of time on an aircraft or buy their own fleets. New arrangements, like air taxis and fractional ownership of aircraft, have allowed companies to employ business aviation more effectively and inexpensively. Second, new types of aircraft designed for business aviation have come to market, also increasing efficiency and decreasing the cost of travel by allowing businesses to tailor their fleets to their needs.
As a result of these developments, businesses have been able to use private aircraft to meet a variety of needs. While the public perception has been that executives are the primary users of these aircraft, in fact, only about 86 percent of passengers traveling on business management jets are at the executive level. Co-panelist Gary Hoffman of Corporate Aviation Management explained that one of his clients, an oil company with interests around the world, used a variety of business aviation tools to increase productivity. The company purchased its own jet to fly skilled engineers from Anchorage, Alaska, to remote areas of the state and chartered international flights for its executives.
Alvaro Pascotto of Morrison & Foerster LLP said his clients have turned to private aviation as a result of the declining efficiency of commercial aviation. In the wake of 9/11, it grown increasingly inconvenient and time-consuming to travel, making business aviation an attractive option. Pascotto pointed out that the private equity sector has recognized this growing industry and invested in it, being particularly inclined toward business aviation-related firms because of the segmentation in the market.
That rapid growth can be seen especially in Europe and the developing world, said Brant Dahlfors of Bombadier Aerospace. "Prior to 2003 the U.S. represented 70 percent of the world market," he said. "Today demand outside the United Sates has reached 70 percent." Markets for business aviation in China, India and Eastern Europe are expected to grow substantially in the near future.
In closing, the panel highlighted two major issues facing the business aviation industry today. First, the industry is considering how to reduce its environmental impact. Second, private aviation businesses are fighting against commercial aviation groups over the relative portion that each sector should pay in contributing to the maintenance of America's airports.
Tue 4/299:30 am - 10:40 am
Mr. and Mrs. Asia: Demographic Trends That Are Transforming a Continent
"China is producing far fewer children today than in the past, almost half as many as in 1990," said William Meaney of The Zuellig Group. "Money is being poured into cars, real estate and property, as well as luxury goods formerly unavailable to a growing middle class." He went on to note that growth is not confined to China. "The Filipino population is growing faster than any country in the world per capita, including India . . . although India will soon overtake China as the most populous nation on earth."
The panelists discussed some interesting demographic trends and opinion polls. China values education, and parents prefer that their children become involved in government and public service, while in India it is prestigious to become a doctor or engineer. In Japan, more value is based upon science and mathematics. While citizens in Japan and the Philippines see their governments worsening, there is growing satisfaction with government among Singapore's citizens (rates in Thailand and India remained the same).
The GDP of Asian countries, collectively, is increasing by at least 10 to 15 percent each year for a total rise of 57 percent since 1995. "The growth potential is tremendous," observed David Murphy of CLSA Markets. The total population of East, Southeast and South Asia amounts to more than half of the world's population, and India's middle class is the largest in the world.
The middle class in China is growing at even a faster rate than in India's. "Luxury goods in China, Thailand and India are selling faster than in any other country in the world per square foot," noted Kriengsak Chareonwongsak of Harvard University. "People have money, and they are willing to spend it. They work hard, and want to treat themselves . . . and show their new status."
"China is becoming very materialistic," agreed Meaney. "The new generation wants to show off its newly created wealth with luxury items."
A rivalry is growing between the Asian countries, with Vietnam challenging China's dominance in the manufacturing of furniture and shoes. Vietnam has a highly skilled labor force, lower costs and solid quality. And Singapore is trying to overtake Hong Kong as Asia's financial capital. "But Singapore will never be able to do that," predicted Murphy. "Hong Kong will always be the destination for financial markets in Asia. Singapore and Shanghai may be good for multi-national corporations and banks."
Overall, the best investments in Asia are education, leisure spas, medical tourism, golfing and retirement villages or anything to do with serving the aging population. "Thailand's hospitals are fancier than most five-star hotels in New York, and at a fraction of the cost," said Chareonwonsak. "Now that's a vacation."
Founder, President and CEO, Univessence Digital Studios
Senior Fellow, Center for Business and Government, and Associate, Weatherhead Center for International Affairs, Harvard University
CEO, The Zuellig Group
Head of China Micro Economic Research, CLSA Asia-Pacific Markets
Tue 4/299:30 am - 10:40 am
Seizing the Opportunity to Eliminate Malaria as a Global Health Threat
There was an uncontested agreement among all panelists that the costs of the disease can be seriously minimized in about 5 to 10 years. Tedstrom cautioned that there is "one dark cloud" that threats prospects for eradication of malaria: inefficient access to therapies and preventive measures.
Sir Richard Feachem of the University of California, Berkeley, called for an aggressive global initiative that will shrink the "malaria map." He recommended implementing four key strategies that have been proven to dramatically improve child mortality rates. The first is a system of rapid diagnosis and treatment, using effective drugs that cost only 37 cents per child. The second principle is that every women and child in a malaria-prone area should sleep under a bed net, protected from the mosquitoes that carry the disease; that simple preventive measure costs approximately $2 per person per year. The third goal is to have indoor residual spraying, while the fourth strategy is offering anti-malaria therapy to pregnant women. Feachem also noted a fifth method of prevention, which involves draining the breeding sites of mosquitoes adjacent to residential areas.
Feachem described the global challenges of fighting malaria. Over time, humans develop resistance to anti-malarial drugs, so new drugs must be introduced. Moreover, mosquitoes similarly become resistant to insecticides. Another obstacle he mentioned was the sustainability of the overall effort. "Success is our enemy," he noted, fearing that a significant alleviation of the disease will divert public interest to some other cause. But the battle against malaria will have to be a sustained multi-decade effort. Feachem also noted that the need to create incentives for the research and development of drugs and technologies.
Blaise Karibushi of the Access Project in Rwanda explained the success of recent anti-malaria efforts, noting that the initiative was led by community organizations. Their strong political commitment and coordination increased the percentage of households using bed nets from 15 percent to 74 percent in just one year. Rwanda's mortality rate from malaria has decreased by 66 percent, and malaria-related visits to health centers are down dramatically. This translates to a tremendous "freeing up of health facilities" that can now focus on treating other illnesses. Karibushi noted that it is vital to enlist the local community, concluding that health services should be managed as self-sustaining businesses to insure long-term viability.
Belinda Stronach, a member of Canada′s Parliament, commented that "it is important to inspire and educate the pubic about the issues of malaria because it will create political will." She recounted her experiences in founding Spread the Net, an organization that partners with UNICEF Canada to subsidize the purchase of bed nets for poor households in developing countries affected by malaria. She recalled the positive public response to the organization's projects, including 35,000 unique visits to its web site and $200,000 raised from youth initiatives and high school programs. Yet Stronach noted pointedly that "there are still 120 million nets that we need to buy." She calculated that "$1 billion of preventive spending translates to a $12 billion return in productivity."
Peter Chernin of News Corporation agreed that political will is a crucial element. As chairman of Malaria No More, he felt that increased coordination is needed among the many initiatives working to tackle this challenge. Chernin referred to malaria as today's "most compelling global health crisis" and called for greater involvement by business leaders. He believes there should be a concerted effort to rally public attention, donations and political commitment. Malaria No More has already begun to shine a spotlight on the issue through high-profile media partnerships that have reached a wide U.S. audience.
The panel concluded with some remarks about the economics of the disease. Chernin noted that there is not enough commitment from industrialized countries such as Germany, Italy and Japan to eradicate the disease. Feachmen added that Africa's economy can benefit from local production of bed nets, which would create jobs and reduce the price of transportation.
Sir Richard Feachem
Professor of Global Health, University of California, San Francisco; Professor of Global Health, University of California, Berkeley
Co-Founder, Spread the Net; Member of Parliament, Newmarket-Aurora, Ontario
Tue 4/299:30 am - 10:40 am
The Latin American Economy and the New Left: Where Are They Heading?
The positive news is that there is a general move toward democracy and stability. But Lowenthal urged outside observers not to believe that Latin America is becoming homogeneous. He offered five "dimensions" in which Latin American countries differ from one another:
1. The nature and degree of economic and demographic interdependence with the United States (Mexico, the Caribbean and Central America have the highest, while the southern cone region has the lowest).
2. The extent to which countries have geared their economies to international competition (Chile has strongly pursued this).
3. The development of democratic governance, including accountability and rule of law (strongest in Chile and Brazil, and on the increase in Mexico).
4. The relative effectiveness of political and civic organizations besides the state (strongest in Chile, while deteriorating in Venezuela).
5. The integration of the region's more than 30 million disadvantaged indigenous peoples, who are becoming more self-aware and mobilized.
Carlos Bremer of Value Grupo Financiero argued that although there are some major challenges in the region, there are also many opportunities and reasons for optimism. He addressed the need for improving and expanding education to increase social equality and prosperity. Bremer criticized the leftist populism that is gaining traction in Mexico and throughout Latin America, and offered suggestions for the business community in Latin America. He argued that corporations must be concerned with socially responsible practices and economic openness to offer a better standard of living across the board. This would result in improved conditions for everyone in the region and the United States.
Pompeo Andreucci Neto of the Brazilian Embassy portrayed a rosy picture of Brazilian growth and stability. He stated that Brazil is interested in strengthening ties with other Latin American countries by supporting Mercosul, a regional trade agreement. Although there is concern about an economic slowdown in the United States, Brazil is optimistic about foreign direct investment, which increased dramatically in recent years. Inflation is under control, and a greater availability of credit has become very important, helping to fuel a sales boom in the country's housing market. He suggested that his country needs to reform its tax system and encourage innovation to solve its challenges.
Viviana Araneda, a trade commissioner for the Chilean government, gave the audience an overview of the successful economic growth and openness of her country. Chile has relatively low tariffs overall, while it grants most favored nation status to all. It has been ranked the eighth freest economy in the world, and number one in Latin America, with more than 50 free-trade agreements in force with countries around the world.
Finally, Ambassador John Veroneau argued that the U.S. Congress should pass the Colombia Free Trade Agreement. He criticized Congress and U.S. labor unions for their opposition to free trade, arguing that it contributes to economic growth and prosperity far more effectively than other options.
President Emeritus, Pacific Council on International Policy; Professor of International Relations, University of Southern California; Senior Fellow, Brookings Institution
Tue 4/299:30 am - 10:40 am
Innovative International Education Models That Produce Excellence
The link between education and economics in a globally connected world was explored by panel members in a wide-ranging discussion of Eastern and Western models. India, with 360 million school-age children, currently educates only 140 million students, but has ambitious goals to provide universal education in the next decade. Preliminary goals are still basic: increasing enrollment, improving the quality of instruction and improving basic services in schools, such as clean water and bathrooms. Anshul Arora of Edvance Learning suggested that the most exciting trend in Indian education is the increase in vocational schools, with 11,000 now in operation and many more planned to meet the growing demand. India, like the United States with its long-awaited K-12 reforms, struggles with implementing change in a democracy.
Singapore's education system is a widely admired model of education in a global economy. Its education system is a blend of public and private enterprise that has evolved in three stages: from being survival-driven during the 1960s and 1970s to being efficiency-driven in the 1980s and 1990s and finally, from 1997 to the present, becoming ability-based and aspiration-driven. Singapore now takes a learner-centered approach, which the panel agreed is the best practice for molding well-prepared workers in the global economy. "The goal now for Singapore's educators is to teach less and have students learn more," according to Jonathan Lim of the Singapore Economic Development Board.
In Singapore, education programs complement economic development. The tertiary model in Singapore is a particular source of pride. Lim explained that 16 of the world's top universities have campuses in Singapore, including Stanford, MIT and Duke. He cited examples of collaboration and global vision for education, including the decision by INSEAD, an elite French business school, to expand internationally in Singapore. The Singapore Department of Education had anticipated that the student population at these universities would draw from Singapore and the surrounding region, but instead they attract a truly international student body, an indication of the business potential in well-designed tertiary education models.
William Yiu of the Piaget Academy shared a model of excellence as old as recorded history: that of a well-educated parent who wanted the best for his own children. He recalled that being sent abroad as a child was lonely, and though he received a superb education in England, he wanted to keep his own five children in Indonesia, where his business interests were based. So he took it upon himself to develop a school that would meet the highest standards in the world. The success he achieved with the Piaget Academy has been replicated in five schools that are prized in their communities for combining the best of East and West. Like Piaget, the school's namesake and a great champion of early child development, Yiu has made a contribution of excellence to the world of education. He passionately advocates for a combination of traditional Asian pedagogy and a process that nurtures creativity.
The panel concluded with a consensus that the private sector is small and nimble, but the governments of the world still bear the ultimate responsibility for educating the masses. The much-watched YouTube video "Two Million Minutes" was referenced as an outdated snapshot. The video depicts some Asian students studying for 2 million minutes, doubling the totals of U.S. students. But millions in Asia still lack access even to good basic schools, and online education has not yet taken off in Asia. As Maslen concluded, "With education we are not yet scalable with a multinational model that's available over the world."
As we move to a knowledge-based society, the educators agreed that the search for excellence begins with what Singapore has discovered: a pedagogy that serves the global community yet fits the needs of the individual learner.
Managing Director and Group Head, Business and Education Services, BMO Capital Markets Corp.
Tue 4/299:30 am - 10:40 am
SAVE Update: Can Financial Innovations Pave the Way to Energy Independence?
Moderating the session was Joel Kurtzman, SAVE's executive director, who was joined by SAVE co-chair G. Chris Andersen of G.C. Andersen Partners, along with Richard Kauffman of Good Energies, Jonathan Malkin of ATP Capital, Joseph Pettus of Safeway Inc., Richard Pietrafesa Jr. of Destiny USA and Thomas Urban of CellFor. Inc.
Kurtzman explained to the audience the basic principle behind SAVE: that capital markets are better equipped than government mandates to help achieve energy independence. "Organizing the private sector and educating it about the advantages of disconnecting from fossil fuels is the goal of this initiative," said Kurtzman, who then highlighted some facts in support of this view, such as the rising rates of investment in clean technologies, the relentless rise in oil prices and the volatility of many oil-rich nations.
It is especially crucial now to advance alternative energy sources, said Anderson, adding that the private sector can take charge in making a difference as the country moves energy independence to the front burner. The private sector is the springboard for creativity, ingenuity and innovation, he added, pointing out that while his own company is investing in alternative energy technologies, alternative energy companies and ideas established just a few years ago haven't revisited their pricing strategies in light of rising oil prices and other current economic signals. The scale of involvement must increase dramatically, he said, and it is equally important to educate the public about the urgency of the issue.
Kauffman of Good Energies, one of the largest independent investors in renewable energy, spoke in defense of solar energy and explained some of the latest technology developments in that field. Good Energies has invested $500 million in solar energy over the past year and now possesses the largest solar portfolio in the market, he said.
Malkin addressed how ATP Capital's investments in new gene technologies would result in more productive and faster-growing crops and trees, which would lead to a "new era in forest sustainability and productivity" and improve carbon sequestration potential. He went on to describe the two projects on successful agriculture genetics, which he views as only the beginning of agriculture's contribution to the energy solution.
Urban explained how CellFor, the world's leading independent supplier of high-technology seeds to the global forest industry, uses genetic technology to provide higher yields in corn, improving productivity. At the core of the business, he explained, is the transformation of gene types for crop development that provide superior products with tangible value that is attractive to investors. This attraction has been validated by the millions of improved seedlings that have already been planted.
Introducing innovations in construction, Richard Pietrafesa described the creation of Destiny USA, a multibillion-dollar theme park and resort destination under construction on a 150-acre reclaimed brownfield in Syracuse, N.Y., which "traditional" developers would shy away from, given the higher costs of improving the land quality. Where others saw increased costs, business should see a unique market opportunity, he said. Destiny USA is being built and operated completely free of fossil fuels through the use of biodiesel. He pointed out how business can take a liability, such as a nearby sewage plant, and turn it into an asset by converting the outgoing waste into energy.
Safeway grocery stores have also taken drastic steps toward going green, said Joseph Pettus, who added that his company has signed a contract with Chicago Climate Exchange with the goal of decreasing carbon emissions completely. Safeway has already decreased 1.5 percent of its carbon emissions per year. The store used biodiesel for all its fuel purposes, and all of the electricity is converted via gasoline. Safeway has clearly set goals to take initiatives to promote better livelihood and has created not just brand, but an example for the complete industry to follow. "All this stuff is easy," he said. "Taking initiative and having the determination to execute it will show the rewarding results. And each of these results make companies proud ... because they are developing a greater future for the rest of the world."
G. Chris Andersen
Founder and Partner, G.C. Andersen Partners LLC
CEO, Good Energies
Managing General Partner, ATP Capital LP; Managing Member, Malkin & Co. LLC
Richard Pietrafesa Jr.
Managing Director, Destiny USA
President and CEO, CellFor Inc.
Tue 4/2910:55 am - 12:05 pm
Sovereign Wealth Funds: The Global Transfer of Capital
Tue 4/2910:55 am - 12:05 pm
Water: The Global Battle for the World's Most Precious Resource
Booky Oren of the Arison Water Initiative pointed out the "urbanization challenge," suggesting that in times when more people live in urban areas than in rural areas, water scarcity is not confined to the developing world, but is a worldwide problem that cannot be solved by infrastructure alone. Increasing system efficiency and figuring out the "water supply puzzle" creates clear opportunities in the near future.
Andrew Benedek of Zenon Environmental compared innovative membrane water-filtration technology to chip innovation; he believes that it has the potential to solve water quantity and quality issues on small and large scales. Applying the right technology can alleviate the water crisis. "If a country is well managed, technology is here to solve water problems," he stated. "It is all about governance and management now."
Earl Jones of GE Water and Process Technologies connected water issues to technology, service, scale and globalization. He divided the water problem into the following pieces: supply strategy, demand management, energy nexus, public policy and "eco-system collaboration." Arguing for the need to take pro-active measures, he stated that "hope is not a method we can adopt" in relation to water.
Éric Lesueur of Veolia Water suggested viewing water as a public good. "At the end of the day, the mission is to provide water service to the people and achieve efficiency in managing the water cycle." He also recognized that water is a very different commodity than oil. Whatever we do, the amount of water on earth stays the same; what changes is the state and quality of the water.
The panel then addressed the pivotal question of how to bring clean water to the world's poor. Seabright suggested partnering with NGOs to work on scaling and replicating projects. Benedek stated that the membrane technology can be adopted at the household level and has the potential to be affordable for poor communities. Oren implied the need to view water as an economic problem, not a natural resource problem; he felt it must be addressed with a holistic approach.
The panel agreed that it is critical to understand the energy-water nexus. Food issues must be considered as well, especially where there are competing claims on crops for energy vs. food applications. The concepts of "waste to value" and "waste to energy" were discussed as an important part of the equation. It was pointed out that having a large supply of water is not enough; quality and accessibility are critical components. From an investment point of view, Jones suggested that we must find the right value proposition of water in order to promote sustainable development. Water reuse was brought up as an example of "water production." Wastewater treatment and reuse is especially applicable for agriculture and industrial applications, and the sociological barrier of using treated wastewater for drinking must be alleviated as well.
The panel concluded by suggesting approaches for solving the global water crisis. Oren brought up the need for sharing information on best practices and mistakes to avoid. Seabright added that investing in water efficiency is critical in order to be able to "produce more with less." The panel agreed that the issue of water pricing is a high priority, and the notion of "free water" can't continue. Water subsidies provide disincentives for investments and work against the market's pricing mechanism. When asked about water as a commodity, Lesueur described water as a very local matter.
With the example of water rights and transfers, the panel concluded that there is no simple answer. What works in one region might not work in another, especially if the consequences of water-rights trading are not well understood. Finally, innovations in distribution infrastructure and technology breakthroughs in treatment and desalination processes were brought up as future opportunities that hold promise.
Founder, Chairman and CEO, ZENON Environmental Inc.
General Manager, Global Commercial Development, GE Water and Process Technologies
Project Director, Veolia Water
Vice President, Environment and Water Resources, The Coca-Cola Company
Tue 4/2910:55 am - 12:05 pm
Generation Next: Preparing Tomorrow's Leaders Today
Greenhouse asked Anne Ruddy of WorldatWork to elaborate on how younger employees view their careers. "The future generation wants three things: job enrichment, flexibility and career development," said Ruddy, adding that globalization and omnipresent technology are major sources of opportunity.
Ruddy spoke about virtual businesses and how legacy business models could use a boost in technology to further develop networking capabilities and client enrichment. Younger workers are more adept at utilizing technologies such as MySpace to create virtual relationships. She said there is a new dynamic in finding the right people and exploiting the right talent. Most important, she explained that firms need to find the appropriate mix of motivators and managers to construct a more efficient work force.
Jeffrey Cohn of Spencer Stuart discussed how businesses can identify the right candidates for future leadership roles and how companies should conduct the interview process. He advised companies to question whether prospects have "executive intelligence." Can candidates solve real-life problems and see the big picture? Can an interviewee walk into a cold room, size up the audience, figure out their agenda and customize a message tailored at selling to these individuals? Companies should also evaluate a potential executive's ability to self-evaluate and adjust to environmental changes.
Because the United States has an aging population, Peter Searle of Spring Group felt that America needs to reinvest in grooming its own talent through motivation and growth. "Financial motivators are not the most important thing in attracting individuals to your company," he advised, adding that career opportunity, development and working with winning leaders have become the most important ways to attract talent. Searle says people care about personal prestige and they want to identify with the company they work for. Therefore, he said, it is important for companies to brand the right culture for success. "People like working with good people and companies need to convey that."
Philip Jennings of UNI Global Union said that the United States needs to reconsider its own strategy for developing a domestic workforce. "What's happened to the American dream?" he demanded. He said labor markets are changing, with two thirds of the work force found in Asia and 90 percent of new jobs being created in developing countries, rather than in mature environments. Jennings emphasized that it is critical for the United States to create more security for its work force and improve labor policies. He felt that the United States needs a fresh approach to rewards, because productivity gains are going only to top executives and not being shared with all employees.
Panelists agreed that globalization is the new trend and companies should tailor their interviewing practices, training and development to create diverse talent. Stephanie Bell-Rose of Goldman Sachs said that companies should still look domestically to improve talent. There is a 42 percent high school dropout rate in the United States; she suggested addressing that by having companies partner with schools to conduct talent searches and supplement academic offerings. Bell-Rose said there are clear opportunities to maximize inner-city talent growth, and companies should instill programs such as entrepreneurial training to build success in a younger generation.
Finally, companies can invest in proper training to create a more dynamic work force. Cohn suggested the creation of corporate universities, mentoring programs and new positions that will nurture talent. Ruddy solidified the discussion by stating, "The greatest organizations are ones that bring people into leadership roles with the opportunity to pull an organization up, rather than hit a fixed need."
Tue 4/2910:55 am - 12:05 pm
Mind If We Get Personal? The Role of Genomics in Your Life
Moderator Margaret Anderson of FasterCures asked Venter about his reaction to seeing his own genome decoded. "Everything surprised me," he responded. Venter emphasized that it is a naïve to look at single genes to predict diseases; it is essential to look at the whole genome along with how the environment affects genetic predispositions.
Joan Scott of the Genetics and Public Policy Center echoed Venter's sentiments: "It is not just about genes. It is also about gene-environment interaction." She then introduced the topic of the current economics behind genetic testing, noting that it is still expensive to adopt these tests on a large scale. Scott also mentioned the need to improve how we use and apply notions resulting from genetic information: "Transitional research [needs] to connect all the dots generated by genetic testing." Finally, she commented that for genomics live up to its potential for improving our health, it will be necessary to change the health-care infrastructure to account for the costs and benefits of genomics.
Ryan Dow of Stark Investments predicted a strong future for the genomics industry. "People want to know," he commented. Dow believes that the market for genetic testing is on the verge of explosive growth, and even pharmaceutical companies will increase their focus on genetic testing. He also cautioned against the potential for consumer deception. Dow noted that the health-care infrastructure needs to change, including increased training for health-care professionals in this exciting new field.
Mari Baker of Navigenics, a company that recently started to perform whole genome scanning to look at thousands of DNA sequence variations (SNPs), commented on the trends of the industry, noting that "the number of SNPs per dollar is doubling every month." Navigenics provides genetic testing for consumers that screens for disease risk, and Baker noted that the company is working with the Personalized Medicine Coalition to define standards for this industry. Patients can utilize this service as an early screening tool for diseases that might otherwise go undetected in regular medical exams. Additionally, having access to genetic information allows individuals to modify their behaviors to improve their health and wellness. "People have to engage and take responsibility for their health," Baker commented.
Venter noted that understanding our own genomes will allow "the democratization of medicine." The challenge will be to educate the health-care work force to understand the value of genomic tools. "The information needs to be more complete and currently that's not in place," said Venter.
The panel closed by addressing the need for private funding to enable the sequencing for thousands of genomes. Such efforts will provide enough data to allow scientists to associate genomic information with traits of diseases. Baker predicted that soon genetic information "will become integrated in what we do in our daily lives."
Tue 4/2910:55 am - 12:05 pm
Business Aviation 101
By invitation only
Tue 4/2910:55 am - 12:05 pm
Japan: Which Direction for the World's No. 2 Economy?
Junichi Ihara, consul general of Japan, greeted everyone with positive news on Japan's growth. There has been a decrease in Japan's non-performance loans, which dropped from 8.7 percent in March 2002 to only 1.5 percent. Japan now has a "quality economy," one that is environmentally friendly, provides universal healthcare for its citizens and maintains a sustainable pension system.
"I am not worried about the future," announced Kunio Kojima of Keizai Doyukai. Exports and personal consumption are on the rise in Japan. He noted the potential for a political impasse in the Japanese government, but he believes that once this impasse is resolved, reforms can be put in place in order to handle many environmental problems. He listed four key areas for change: decentralization, administrative reform, regulatory reform and fiscal reform. In addition, he noted that Prime Minister Yasuo Fukuda recently promoted a plan to address global warming that will be presented at the G8 summit this summer in Hokkaido, Japan.
Keitaro Matsuda of the Union Bank of California offered a few concerns. The increasing strength of the yen is affecting exports to the United States. In addition, the slowing U.S. economy is adversely affecting Japan, since the United States is a major trading partner. Japan is also experiencing a slowdown in the construction of new residential homes, but this is not a reflection of a subprime loan problem; in fact, it is due to stricter building codes imposed in 2007 to protect against earthquakes. Lastly, as with other countries, rising oil prices are making a dent in Japan's economy.
There were some positives from Matsuda, however. Japan is beginning to broaden beyond its economic partnership with the United States. China has become Japan's top exporter in 2007 and Japan's overseas production share to China is now close to 20 percent. "The U.S. may have a cold, but Japan will barely sneeze," Matsuda commented. Because of these factors, Japan is changing its focus globally and environmentally, developing new strategies in a competitive world. The Japanese are achieving what may be a third Industrial Revolution, a vision that Matsuda dubbed "the Japanese Dream."
Yu Tanabe of Nikkei America brought up a new style of management in Japan that combines Japanese tradition with international standards. The Japanese once worked with much more of a group mentality than their Western counterparts; from this notion there grew a system of staying within the same company from graduation until retirement. But this lifetime employment system is changing, bringing greater dynamism and flexibility to the Japanese economy.
Woodrow Clark II
Senior Fellow, Milken Institute; Founder and Managing Director, Clark Strategic Partners
Tue 4/2910:55 am - 12:05 pm
Keep America Moving: Designing a Transportation Infrastructure to Enhance Competitiveness
Thus, it should come as no surprise that what reverberated throughout this session was "integrate, integrate, integrate" when it comes to national transportation policy. "The biggest need is a holistic approach," said Douglas Duncan of FedEx Freight Corp. Addressing roads, railways, ports and airports independently is no longer affordable, he warned, nor will it produce the national transportation system Americans need.
Moderator Amy Liu of the Brookings Institution burst that bubble quickly. A holistic approach would be difficult to achieve when national legislation is absent a meaningful purpose or mission statement, as is the case at present. She outlined the major challenges facing the nation through six issues that foster imperatives for reform: (1) infrastructure age (2) traffic congestion (3) growing freight traffic (4) energy consumption/emissions/climate change (5) rising fuel costs and (6) a lack of financing. Studies calling for support of the "Rebuild America" initiative of California Gov. Arnold Schwarzenegger, Pennsylvania Gov. Edward Rendell and New York Mayor Michael Bloomberg are positive, but much more is needed and the danger of waiting is real.
"Over the past two decades," said Liu, "transportation has pulled inventory out of the supply system and into the supply chain, creating significant cost savings. Those savings have flattened out the past few years and are in danger of reversing themselves through increased congestion and higher costs if we continue with 'business as usual.' If we allow that to happen, it will make America less competitive and doom us to smaller markets because we simply won't be able to move domestic product to major markets as competitively as foreign suppliers will."
"In the last 20 years we consumed the infrastructure windfall that Eisenhower created in the 1950s and '60s," said Steven Koch of Credit Suisse. "Not only do we need new infrastructure, but we need to recapitalize the existing infrastructure" if this nation is to remain competitive.
Funding new infrastructure and recapitalization is difficult, said Koch. For the past 30 to 40 years, infrastructure hasn't been a significant political issue. Today, incidents like the recent Minneapolis bridge collapse may temporarily draw the public's attention to our aging or inadequate infrastructure, but other political issues overshadow them. In addition, the public has a solid mistrust of politicians who come asking for infrastructure funding but who then divert the funds for other purposes.
In addition, the public has great difficulty visualizing the interrelated nature of facilities, said Kevin Klowden of the Milken Institute, especially the relation of infrastructure to their personal life. "They understand rush-hour traffic congestion, but not the impact Katrina had on the New Orleans area ports and movement of goods throughout the region and up and down the Mississippi that have a tangible impact on their personal economic well-being."
Better use of local public-private partnerships (PPPs) as delivery mechanisms can help, said Steve Allen of Macquarie Capital Group. "There are plenty of private investment funds available, and pension funds love infrastructure because it provides a stable return that meets or exceeds their target rates on contracts running 25 to 99 years." There are thousands of miles of roads that private capital does not care to invest in, he said, because the economic returns are lacking, but an economic return exists when PPPs can free up municipal funds for the construction and maintenance of those roads. PPPs can also be more efficient managers of roads for private equity worries. Roads are very expensive to build or rebuild, but maintenance is inexpensive. Private equity ensures appropriate construction and maintenance to minimize life cycle costs; municipalities that suffer from competing priorities and erratic funding over time would find these projects more difficult to complete.
"Look north to Canada and the Asia-Pacific Gateway and Corridor Initiative as an example of a successful PPP that emphasized local and national collaboration," said John Higginbotham of Transport Canada and an adviser to the initiative. By establishing a purpose-specific fund and signaling its commitment with $1 billion upfront funding, the Canadian government combined private and public resources to create the integrated system that now serves Canada and Midwest United States down to New Orleans. The initiative enabled selecting projects based on merit and innovation, with particular focus on security and environmental issues that sometimes proved challenging.
The panelists agreed that the United States must change its approach to planning, legislating and funding infrastructure projects if it is to achieve anything that approaches Canada's success and meet its pressing and readily observable future needs.
Executive Director and Global Head of Infrastructure and Utilities Advisory, Macquarie Capital Group
President and CEO, FedEx Freight Corp.
Principal Advisor, Asia Pacific Gateway and Corridor Initiative, Transport Canada
Managing Economist, Milken Institute
Co-Chair, Global Mergers and Acquisitions, Credit Suisse
Tue 4/2910:55 am - 12:05 pm
The Changing Demographics of the Muslim World: Implications for the Future
Author and scholar Reza Aslan noted that by 2010, three-fourths of the population in the Muslim world will be under the age of 35. This trend is having a profound effect on the authority structures in these countries, as political clerics are becoming marginalized. Furthermore, these young populations are technologically savvy and politically aware. "We in the United States have misplaced the core and the location of radicalism," said Aslan. "We are looking in the wrong place when trying to figure out what to do with radicalism."
Author Jared Cohen approached the topic from an immersive, ethnographic perspective. He spent a great deal of time in Muslim countries studying youth identity, the motivational needs of youth and the influence of grassroots movements. Cohen agreed with Aslan, asserting that "the United States does not understand the youth of the Muslim world." Satellite television, the Internet, mobile phones and other technology are so commonplace that their effects on this young population must not be underestimated. Technology serves recreational, interactive and social networking purposes, as well as a medium for information transfer regarding civil liberties. Furthermore, underground book clubs, political groups and other networks are being formed through information technology channels.
Dalia Mogahed of the Gallup Organization offered her expertise based on extensive opinion surveys, since Gallup conducted randomized surveys in 40 majority-Muslim countries. Mogahed was especially interested in the opinions of youth and women toward radicalization, democracy and the relationship between the West and their own societies. The women surveyed expressed "a desire for greater liberties and rights, which grow organically from within their own societies, not from outside."
The survey results indicated that the process of radicalization was not institutional in nature but rather a product of exposure to the Internet and other forms of information. Furthermore, those surveyed who felt that the attacks of 9/11 were not justified based that belief on the Koran. Survey respondents who felt that 9/11 was completely justified almost uniformly cited political rather than religious reasons. This indicates that radicalism does not correlate directly with religious fervor.
All of the panelists agreed that youth in the Muslim world want democracy, but they do not want to term it "democracy" because of the negative connotations now attached to the word. The disagreement arose over the route by which democratic change can be achieved in these countries. Cohen phrased it as a "battle of alternatives." Namely, by providing youth with alternatives to extremism and creating a demand for these alternatives through grassroots mechanisms such as information technology, an organic process of change can occur from the bottom up within these societies.
Aslan felt that the most effective way to influence democratic change in Muslim countries is to provide youth with access to the global free market economy. The United States has an important role to play in this case; isolating countries like Iran might contribute to keeping the political elite in place by leaving the population economically powerless. "U.S. policy should encourage development, [rather than] encourage 'democracy,'" said Aslan.
Scholar; Media Analyst; Author, No god but God: The Origins, Evolution and Future of Islam
Author, Children of Jihad: A Young American's Travels Among the Youth of the Middle East
Senior Analyst and Executive Director, Gallup Center for Muslim Studies, The Gallup Organization; Co-Author, Who Speaks for Islam?: What a Billion Muslims Really Think
Tue 4/2910:55 am - 12:05 pm
Improving Education Worldwide: Where Are the Business Opportunities?
Demand for educational services is skyrocketing for a variety of reasons. Greg Capelli of Apollo Group pointed out that outsourcing has led Fortune 500 companies to employ fewer but more highly educated employees in the United States, driving many candidates to pursue additional education through online learning just to remain competitive. At the K-12 level, Capelli said, the widespread poor performance of the U.S. public education system has led parents to pursue alternative methods for educating their children. Ronald Packard of K12 Inc. mentioned that educational productivity has dropped by 50 percent over the past 45 years, creating market opportunities for more agile new entrants.
Although there is significant demand for alternative educational services in the United States, the demand metrics in China and India are staggering. According to Louis Hsieh of the New Oriental Education & Technology Group, the Chinese government has limited the number of bachelor's degrees issued by Chinese universities, resulting in only 25 percent of the 10 million potential students finding spots in local colleges and universities each year. The government is allowing the number of degrees to rise by 15 percent per year, but since around 30 percent of Chinese college graduates still can′t find jobs six months after graduation, the government is hesitant to open up the floodgates. Chinese families have always listed education as their top priority and their primary reason for saving. Now that 600,000 Chinese citizens are moving from the farms to cities every day and middle-class income is exploding, the demand for education will continue to mushroom for years to come, he said.
In India the situation is very similar. Shantanu Prakash of Educomp Solutions Ltd. stated that the majority of India's significant GDP growth has gone directly to the 400 million members of India′s middle class. These families have always valued education highly, and now they have the money to pay for it. Unfortunately, India's public education system has not been able to keep up. Although there are currently 220 million children in India's 1.1 million schools, he said, the need for 200,000 more schools has left 100 million children on the street.
When asked how business was using technology to respond to this massive global demand, the panelists focused primarily on the major role that online learning will play in filling this gap in the market. Packard noted that U.S. citizens can currently get a K-12 education online and that many states are using these services to ensure equitable distribution of educational services in blighted areas of the nation. Hsieh described how his firm is currently using satellite services to bypass China's inadequate ADSL internet infrastructure and added that he has begun delivering his content by audio through Nokia wireless phones to students during their morning commutes. In India, there is still a massive shortage of relevant technology. The fact that only 1 percent of the 1.1 million public schools are technologically enabled will provide a significant infrastructure opportunity for the next decade.
The panelists agreed that governments have an important role to play in solving the global education crisis, but they also agreed that governments will not be able to succeed without help from the private sector. In 2003, China passed the Private Education Promotion Law, opening up grades 10 through 12 to private education service providers. The government also caps tuition at $1,500 per year per student and uses nationally administered computer testing to determine which students have the chance to go to high school and college. India's government also controls the educational market with a heavy hand by limiting content delivery to primarily Indian-financed nonprofit groups.
When it came to the transferability of business models, the panelists agreed that most online educational services could be scaled and delivered to multiple markets. English, Mandarin, math and science were the easiest to transfer, while more culturally sensitive subjects, such as world history, would require significant customization. Packard stated that if Internet penetration moves fast enough, online learning may transfer so quickly that it leapfrogs brick-and-mortar schools similar to the way cell phone technology leapfrogged land line infrastructure in developing nations.
All four panelists were bullish on the business opportunities provided by the worldwide education crisis. They expect demand to continue to grow in all markets and an increasing percentage of the world′s population to get a large part of learning content via online delivery methods. Whether one is building online content, technologically enabling schools or designing culturally customized content, they agreed, it is a good time to be in the educational market.
Tue 4/2910:55 am - 12:05 pm
Tue 4/2910:55 am - 12:05 pm
Investing in Small and Medium-Sized Companies to Create Global Prosperity
Invoking a classic irony of the developing world, Thomas Gibson of the Institute for SME Finance noted that "SMEs can address one problem of developing countries: that the local grocery shelves stock imported mango juice in a country that is covered with mango trees."
Anecdotally, he said, we know that a local entrepreneur can create a palm-processing plant and effectively capture the domestic cooking oil market in Sierra Leone with a simple import substitution business plan and $500,000 of his own money. But when thinking about how to grow SMEs, Gibson asked, "Why did he have to use his own money?" and concluded that "getting that half million would have been impossible through the financial sector."
Asymmetry plagues the market, added Pierre Jacquet of Agence Francaise de Developpement, noting that the economies of much of developing nations are informal. "How do we engage the informal sector into these formal activities?" he asked, especially when many entrepreneurs don't know how to put together a business plan, which alone makes it difficult for institutions to assess their credit risk.
From the perspective of the lenders, this introduces the paradox of access to finance, he said. "We have liquid financial markets, but there is no access for SMEs to that market."
This prompted John Wasielewski, a nine-year veteran of USAID, to quip that "none of us are taking enough risk when were making loans to the developing world. We need private banks in the room!"
Indeed, when it came to discussion about funding SMEs, the panelists agreed that most of the problems are on the supply side. Pressing this point further, Matt Gamser of the International Finance Corporation noted that "there are two different situations and two different problems." Problem No. 2 has to do with the capacity of the financial institutions. "The vast majority of these (SMEs) can take capital and use it productively," he said. "The bankers are the ones who don't get it. They don't know how to look at them (i.e., evaluate the risk-return profile of the SMEs)."
Problem No. 1, Gamser said, is that there are small firms that could grow rapidly, but they need more than what a banker is able to do. Also, these firms are small and dispersed. He maintained that "we can't find the financial institutions to support these businesses and help them move forward. We have a lot more to learn."
Krishnan Sharma of the U.N.'s Department of Economic and Social Affairs discussed the correlation between the movement of people and capital. As for innovative mechanisms for financing SMEs, he highlighted the idea of focusing on linkages of interest, for example, linkages between larger companies and SMEs. A large firm could help its domestic suppliers upgrade their skills and products. Other linkages of interest include tapping the network power of diasporas, which bring both financial and non-financial benefits. The power of diasporas has increased as a result of globalization, and remittances have been an important source of capital to the developing world. The non-financial contributions can be just as important — skills and knowledge transfer. "We're looking at underlying conditions that have allowed diasporas to succeed where others have failed," said Sharma, "home- and host-country conditions, the nature of the diaspora and their linkages." Although linkages are important, he added, linkage policies must be done in conjunction with other policies to improve funding to SMEs.
Finally, Sucharita Mukherjee of the IFMR Trust Guarantee Company described the situation in India. "What we have in India is a story of massive growth that hasn't touched rural India at all," she said. "There are two parallel economies operating. When we became independent in 1947, the idea was to focus on subsistence. What we are trying to do now is bring investment in rural areas and bring supply chain linkages."
Using an example from Andhra Pradesh, she described a dairy micro-loan program supporting women. After two to three lending cycles, people stopped taking loans. Why? The limit to growth was the inability to access larger markets, a lack of linkage to a larger market.
With time running low, moderator Glenn Yago of the Milken Institute turned to the audience for questions. Most focused on how private-sector investors can engage banks and other large funders on funding developing world SMEs. From the panel, the response came that venture capital firms need to ask their investors what kinds of returns they can tolerate and what kinds of returns they need. It is crucial to find people who are willing to invest not simply for returns, but for social returns.
Principal, Advisory Services, International Finance Corporation
President, Institute for SME Finance
Executive Director and Chief Economist, Agence Francaise de Developpement
Economic Affairs Advisor, Department of Economic and Social Affairs, United Nations
Executive Vice President, Overseas Private Investment Corporation
Director, Office of Development Credit, U.S. Agency for International Development
Tue 4/2912:15 pm - 2:00 pm
Lunch Panel: A Discussion With Nobel Laureates in Economics
Overwhelmingly, the group believed that while the United States has a smaller numerical impact on the world's economy than in the past, interdependence has actually grown. "In the high-growth, developing countries, growth is export-led," observed Spence, "so they are not going to decouple at all."
Becker took this idea a step further and broke decoupling down into two parts: the effect of the United States on the rest of the world and the rest of the world's effect on the United States. He also believes that we are all still very much linked.
The panel was asked to react to a recent quote by fellow Nobel laureate Joseph Stiglitz: "This (current recession) is going to be one of the worst economic downturns since the Great Depression." To a one, the panelists disagreed, citing unemployment figures that are much lower than anything experienced during the Great Depression. "This barely qualifies as an official Bureau of Economic Research recession," said Phelps.
Scholes was a bit more cautious. "We will continue the feel the effects of this downturn on the housing market. It's going to take some time before this comes to an end," he predicted. "Housing prices might have to fall as much as 40 percent down from the peak to clear the markets."
Milken then introduced the concept of "If you knew the future, you'd be wrong," citing how countries with some of the greatest strife and turmoil in recent years have also given investors the greatest returns. In thinking about how that idea might come into play in the United States, especially as it relates to the current turmoil in our financial and housing markets, the panelists had mixed reactions.
"We have a very flexible economy," said Becker. "I think it will be hard to be pessimistic about our ability to absorb this shock."
Phelps's response focused on the issues in the domestic banking system: "I think the financial engineering methodology lulled the banking system into practices that were not suitable to the times that we live in," he said. "[There was] a tendency to read more into numbers than should have been and too many moral hazards [were] not recognized or guarded against in the financial sector."
In looking at the reasons behind the high prices of commodities, the panel focused on simple supply and demand. "[Past runs on commodities] were demand driven — as are the current pressures on oil and gas," remarked Becker. "But with food products, the issues are with supply."
The panel agreed that food prices have increased in part because farmers are growing corn for bio-fuel use, which has led to a chain reaction of supply issues with other products. But over time, through increased supply, productivity, and urbanization, food prices should come down. "Technology will help, but so will urbanization. The more people that move to the city, the more farm land can be consolidated and productivity can be improved," commented Spence.
Becker argued the reverse: "High food prices will slow down urbanization and increase pressure to raise productivity."
Since developing nations are placing a high priority on education, Milken asked the panel if we are on the verge of fundamental change in human capital. While they all agreed that many major developing and developed economies have placed a greater emphasis on education, none of the panelists believed that the United States is falling behind.
Becker asserted that the emphasis on education is now driven by the fact that the income disparity is growing between the educated and uneducated all over the world. Those comments were buttressed by Scholes, who also added that immigration is holding the United States back more than its education system: "Our immigration policy is just nonsense in terms of allowing us to be innovative and productive in the world."
On the question of infrastructure and its relationship to economic and societal development, all of the Nobel laureates agreed that a well-developed infrastructure is of utmost importance. They also agreed that public-private partnerships are the preferable approach, especially in developing nations where, in many cases, government funds are already stretched thin.
Finally, Milken asked each panelist what he thought the two top priorities should be for the incoming U.S. president. The responses were all over the map, ranging from reducing the deficit and regaining leadership in the world economy (Spence) to reforming health care and immigration policy (Becker) to shoring up foreign policy and improving education (Scholes).
But Phelps presented a list that seemed to echo some of the larger themes discussed throughout the session: "The next president needs to start thinking about the problem of inclusion in the American economy [by more citizens] and also about how to protect this country's economic dynamism — and that starts with fixing the financial sector."
Nobel Laureate, 2006; McVickar Professor of Political Economy and Director of the Center on Capitalism and Society, Columbia University
Tue 4/292:15 pm - 3:30 pm
Financial Convergence: The Changing Investment World
Moderator Martin Guyot of Stark Investments started off the session by referring to the "new norm," and questioning whether recent market volatility has presented the opportunity to buy the debt of good companies and restructure it using tools and techniques that promote sustainability. He further noted that non-traditional private equity was being encouraged in the market.
"Some risks you take unfortunately bite you," cautioned Leon Black of Apollo Advisors, who spoke about how investment corporations have to manage changing trends and find the right pool of people with the insight to select investments at the right moment, recognizing and grabbing opportunities as they are presented. To capitalize during the credit crunch, Apollo has been buying bank debt and looking for opportunities with distressed firms ("good companies with bad balance sheets").
Raising the issue of credit and raising capital in the current environment, Todd Boehly of Guggenheim Partners spoke about stress-based funds and how current liquidity demands are hindering the profits and management of finance. He described the strategies Guggenheim has adopted to navigate the recent turbulence, touching on the firm's focus on energy (specifically oil and gas), regular hedging, refinancing and structured finance.
Claude Lamoureux drew on his years of experience at the Ontario Teachers' Pension Plan to observe that pension plans have not taken a serious hit from the recent financial crisis, since they are largely geared for the long haul. He noted that portfolio managers with pension funds must make asset-allocation decisions based on current liabilities and the decreasing probability of future contributions. "Asset allocation is much more driven by that rather than the efficient frontier that consultants try to sell you," he said. Lamoureaux also observed that after a freewheeling period of loose credit, some normalcy is returning. "Now there is more sanity in the system."
Jonathan Steinberg of WisdomTree Investments discussed the critical role of commodities for today's investors. He also noted the explosive growth in ETFs, including new innovations like inverse ETFs and actively managed ETFs.
The last few quarters have been a tough battle, according to John Stevens of General Motors Asset Management, but one that could be won with a diversified portfolio and adequate risk management. He noted that hedge funds that are well-structured and well-managed have been delivering promising returns. Even though hedge funds have been increasingly getting into the private-equity business, Stevens does not believe this is a trend that will stick.
The panel discussed the scope of the recent financial crisis, but noted that volatility does not have be a disadvantage for investors who are prepared. Careful asset management and and hedging can manage volatility. Managers have to deliver their side-pocket investments at this time to make up for the losses or deliver better returns. Buying credit is a new and profitable strategy that was noted by all the panelists. "In this market, effort, energy and capital are the drivers of stability, sustainability and profits," concluded John Stevens.
Former President and CEO, Ontario Teachers' Pension Plan
CEO, WisdomTree Investments Inc.
Managing Director, Absolute Return Strategies, General Motors Asset Management
Tue 4/292:15 pm - 3:30 pm
Global Risk: What's Keeping the Experts Up at Night?
The security and economics of energy best exemplified the tangled nature of global risks. The energy system forms the backbone of our economy, and according to Spencer Abraham of the Abraham Group, there is no future besides high prices resulting from "virtually infinite increases in demand" from developing countries. Even high-but-stable energy prices can have notable effects on our economy, but such prices also exacerbate the risk of volatility from supply disruptions of both economic and terrorist origin. Not only are most oil reserves concentrated in unstable regions (with 61 percent in the Middle East), "there is no question that al Qaeda gets the value of oil targets" and "long term, this poses a very serious threat to our national security," commented Frances Townsend, former assistant to the president for homeland security and counterterrorism.
Even without the threat of terrorists, the generally tight nature of the oil supply means that now individual countries have much more power to influence global markets: "Any single major producer has the power to do what it took the entire OPEC cartel to do years ago," said Abraham. Panelists were all concerned with the influence of Russia on natural gas markets, with its potential interest in forming an OPEC-like organization for natural gas.
Russia was a recurring area of concern for the panelists, who noted its significant fossil resources, its weapons left over from the Cold War and a foreign policy not always aligned with that of the United States. More concretely there are even some threats related to bioweapons that cause concern for Reynolds Salerno of Sandia National Laboratories. We "continue to be denied access to the military bioresearch sites" that we know exist, suggesting that Russia may be carrying on a bioweapons program.
Whether or not Russian bioweapons pose a problem worthy of considering on their own, there is no doubt that the two-sided coin of biotechnology research and biological warfare presents a thorny problem worldwide. Salerno was confident that the United States has secure research labs, but that the "dual-use" nature of biological research means confidently distinguishing between biotech for good and biotech for bad is quite difficult. Furthermore, even without engineering of biological weapons, the threat of a pandemic looms large in his mind: "We don't know very much about infectious disease, and I think we know considerably less than experts say we do."
George Hoguet of State Street Global Advisors pointed out the need for governments to convey information from large-scale events in a disciplined manner so as not to induce further chaos that would ripple though financial markets. Hoguet also had more general concerns about markets around the world, pointing out that the IMF estimates there is a 20 percent chance of global recession in 2009 — not high, but definitely not low enough to be ignored. The role of China cannot be ignored either, and the global economy is now heavily influenced by its exchange rate. As Hoguet mentioned, it is unreasonable to think that China won't at some point experience a recession in the coming years.
Fortunately, for the first time in several years of "Global Risk" panels moderated by Kurtzman, the session ended on a positive note. Abraham and Townsend confirmed that an attack on nuclear material in our power supply system is not something to be worried about. And Hoguet reminded the audience, "don't underestimate the United States as an attractive place to invest."
Chairman and CEO, The Abraham Group LLC; Former U.S. Secretary of Energy
Managing Director, Senior Portfolio Manager and Global Investment Strategist, State Street Global Advisors
Manager, International Biological Threat Reduction, Sandia National Laboratories
Former Assistant to the President for Homeland Security and Counterterrorism
Tue 4/292:15 pm - 3:30 pm
Lowering Barriers to Investing in China's Small Businesses
Additionally, Lavelle described the changing nature of the Chinese economy and the transformation from "catch-up" development to the growth of highly innovative, R&D-intensive firms producing high-quality products and services that will be sold all over the world. What can we expect from China? "Don't be surprised when firms headquartered in China look to expand their operations globally, including making acquisition of U.S. firms and firms in other highly developed markets."
Panelist Charles Liu of Hao Capital discussed his experience doing business deals in China since 1975. First he noted that China's growth is phenomenal, but he warned Western investors that "you have to realize this is the first generation of entrepreneurs in China." Chinese businessmen and -women who grew small businesses into larger, more successful firms leveraged their personal, family and political capital to do so. Because of these ties and the dependence upon social capital, "if you try to buy out a firm like this, you may not be able to replicate the business success that the entrepreneur created."
Another challenge for Westerners interested in investing in, growing and scaling small Chinese enterprises is overcoming the social trust hurdle, said Liu. "It is very difficult for Chinese businesses to accept guidance or support from foreign investors," and in general, local venture capitalists do better in growing the Chinese SMEs.
In response to a question about the difficulty of contract enforcement, panelist Gary Locke of Davis Wright Tremaine LLP and a former governor of Washington State, said that that Western investors should be aware that Chinese corporate accounting practices are not necessarily aligned with international standards. Moreover, court systems are developing, but they're not yet mature — and in many instances are still corruptible. Additionally, the "last thing that Chinese leaders want is disruption of the people's "inner peace" — any kind of social disruption is bad. Therefore, Chinese leaders will avoid making policy changes that are likely to cause severe economic disruption leading to significant job loss, violence or protests.
According to David Tang of the Federal Reserve Bank of San Francisco and Kirkpatrick & Lockhart Preston Gates Ellis LLP, dispute resolution in China is to be avoided at all costs by Western investors, in particular because the government ownership of firms creates perverse incentives for party leaders.
Liu's multilevel friendships with the firms he partners with and invests with reduce his risk and uncertainty. Because firm governance is not particularly transparent and does not rely on the rule of law, investors must rely on social mechanisms to attain information parity about what is happening within the organization. This is the advantage of having a local partner.
Each panelist was asked how to advise Westerners interested in investing in Chinese SMEs. Lavelle said investors must do local due diligence, while Liu added that decision-makers must understand the whole investment picture from a strategic perspective. "Ditto, ditto," said Locke, "and I'd add that you have to be patient. Things are constantly changing in China." From Tang came this advice: "Adjust your timeframe for dealing with officials, business leaders, lenders and other market intermediaries."
Managing Director and Group Head of Industrial and Environmental Technologies, Houlihan Lokey
Partner and Co-Chair of China Practice, Davis Wright Tremaine LLP; Former Governor of Washington State
Tue 4/292:15 pm - 3:30 pm
The Future of Health Care: What Kind of Reform Makes Sense?
Jennie Chin Hansen of AARP described the organization's current "We failed" campaign, which demands a focus on health and economic security while promoting a wide range of partnerships across political parties and multiple organizations. As Jonathan White of Pfizer observed, "The current situation is unsustainable. It is about time to prove the value of products in the real world and better understand how drugs fit into the patient's lifestyle."
Peter Orszag of the Congressional Budget Office made a clear statement: "Health care is not the problem of future generations." It is a current problem that affects all of us today. In his opinion, there is a fundamental misunderstanding of what we all really get from Medicare.
An overview of the cost of health care across the United States was presented, outlining wide disparities between states. The fact that we do very little to understand what actually works in medical care is alarming, especially when costs keep skyrocketing without improving the system. The notion of "more care" equating to "better care" must change. John Lumpkin of the Robert Wood Johnson Foundation emphasized the importance of public reporting and the need to build infrastructure to support improvements in quality service. According to Lumpkin, "if you don't do quality work — you simply don't stay in business."
Orszag suggested that the current financial incentives system hinders innovative physicians. He also urged medical professionals to accept econometric statistical methods to learn which interventions are most effective. Chin Hansen pointed out that inefficiency and administrative burdens are disheartening to professionals who care about treating individuals. Lumpkin brought up the vast body of information that is available for providers and asked how to make sense of it all; he suggested that the flow of information must be improved and better decision-making tools must be designed for health-care professionals. Applying sophisticated IT tools can help to improve efficiency. White suggested that health data is already being shared by consumers, but in his opinion, IT by itself will not be enough. It is only one part of the solution.
Uninsured people have a reduced quality of life and die earlier. Under our current system of "doing nothing" about this population, uninsured patients still impact the bills of the insured. Lumpkin stressed that "doing nothing" can't continue. He announced that health-care reform is on the agenda of his bipartisan policy center, which hopes to prepare a draft proposal by 2009, with all participating parties figuring out what compromises they can live with. The outlook of "winners and losers" is not applicable anymore; everyone will need to make some concessions in order to improve the situation.
The panel concluded by agreeing that the role of patients is evolving. Chin Hansen supported the empowerment of patients, enabling individuals to make better decisions about their own treatment. White suggested learning what other countries are doing and learning from past mistakes. Orszag emphasized the urgency of realizing how much we really pay for health care and demanding more transparency. "We are running out of alternatives," stated Lumpkin, issuing a strong call to action. He urged business leaders and policy-makers to "strike while the iron is hot."
Tue 4/292:15 pm - 3:30 pm
Innovator: Across the Universe With Physicist Lisa Randall
The session began by addressing the great progress scientists have made over the past century turning cosmology into a real science. "We have completely revised our knowledge of the properties of the universe," explained Randall. Much work remains, however. For example, she said, very little is still understood about the early stages of the Big Bang — before cosmic inflation, that initial expansion of cosmic matter — although much is understood about the later stages of the Bang.
Most discussion, however, was generated regarding String theory, a subject of theoretical physics that describes mathematically how "fundamental ingredients are oscillating, vibrating strings." According to Randall, String theory is the leading candidate for reconciling the theoretical problems and gaps found between theories and to explain such observations as why gravity is so weak, relative to the other major forces. String theory unifies the quantum medium and general relative gravity. Randall hasn't studied the theory directly but noted that it "has given rise to things that have helped us understand more."
Furthermore, the study of particle physics, which addresses the most basic structure of matter, continued to look at electrons and neutrons, and to pose the question: Are these the most fundamental particles? This topic led to what Randall described as the "key question regarding the hierarchy problem," which includes such questions as: Why are theories inconsistent? Why is gravity weak compared to other elemental forces?
To address these questions, Randall looks to energy scale for masses with the goal to understand weak masses. "The explanation of scale is likely to yield deep insights into underlying theory," she said, and we are "looking for consistency in a predictable fashion."
Additionally, Randall spoke of the use of high-energy colliders to understand underlying particle theory. More specifically, she discussed the "most interesting accelerator in Europe." Located in Geneva and operated by CERN (the European Organization for Nuclear Research), the Large Hadron Collider (LHC) is a particle accelerator that lies in a tunnel under France and Switzerland that measures 27 kilometers. At a cost of $18 billion and billed as the "the biggest experiment in modern time," researchers hope to confirm certain physics predictions and edge science one step closer in the search for a Grand Unified Theory for physics.
Lastly, Randall discussed the idea of "why we live in 3-D." She spoke to how we can test for extra dimensions via "brane-world," which posits that the visible universe is a membrane — thus, the term "brane-world" — within a larger universe called the "bulk" and possessing up to five dimensions (including time), more than are included in the General Theory of Relativity. "With branes," she said, "we've found new way to hide dimensions, and found that infinite dimensions possible, and a new way to explain weakness of gravity."
Tue 4/292:15 pm - 3:30 pm
Harnessing Growth to Break Poverty's Grip on the Developing World
Panelist Ricardo Hausmann of Harvard's Kennedy School of Government opened his presentation with a startling fact: 58 percent of developing nations surveyed experienced a peak in per capita income before the year 2000. A humorous and effective use of monkeys and trees aided Hausmann as he explained why so many nations are worse off now than they were 30 years ago. With trees representing products and monkeys serving as proxy for firms, he illustrated that the trees of industrialized nations are bunched closely together, making it easier for the monkeys to move from tree to tree. In the weakest of economies, the isolation of trees makes the movement of monkeys much more difficult. Using his research to illustrate that "it matters what you make," Hausmann explained the positive correlation between the increasing sophistication of the export package and the increasing speed of future growth.
Maria Eitel of the Nike Foundation turned the attention from the trees to programmatic investment in adolescent girls as one of the most effective ways to fight poverty. As the Nike Corporation has played a pivotal role in the growth of the manufacturing sector in several developing nations, the Nike Foundation has recently turned its efforts to reinvesting in the communities in which it operates. A decision to focus on well-being of adolescent girls stemmed from the economic rationale that this population segment provides the "most inclusive, long-term, high-return investment in fighting poverty," creating a wide ripple effect.
Myron Scholes of Platinum Grove Asset Management, also a Nobel laureate, returned the conversation to growth at the national level with a presentation that focused on the other side of investment and growth: risk management. The ability to plan for the absorption of risk and "understanding susceptibility to shocks" are critical components to successful economic development. Explaining that "correct capital structure for financing is crucial" and capital allocation is "one of the most important decisions you can make," Scholes stated that many developing nations are not and cannot be diversified. Closing his presentation was an explanation of the three tools of successful risk mitigation: diversification, reserves and insurance. Although these strategies are expensive and present opportunity costs of their own, he maintained that they are essential, because "when shocks occur, decision time stops." In order for an economy to survive, there has to be a ready path for reinvestment and redirection of activities to occur.
President, Nike Foundation; Vice President, Nike Inc.
Professor of the Practice of Economic Development and Director of the Center for International Development, Kennedy School of Government, Harvard University
Tue 4/292:15 pm - 3:30 pm
Institutional Investor Activism
Christopher Ailman of the California State Teachers' Retirement System (CalSTRS) started off by emphasizing that his singular focus was on getting returns: "Other, ancillary things are just ancillary." Ailman recalled Milton Friedman's famous words — the business of business is business, and anything else is a violation of fiduciary standards. Boards should act in the sole benefit of plan participants. As public pension plan trustees come from diverse organizations, when they enter the boardroom, they need to leave their other hats off. Ailman did acknowledge that his organization just adopted, after a long internal debate, an environmental-social-geographic (ESG) policy. He stressed that they are viewing most screens as tools for either reducing risk or increasing value. Moreover, he referred to research indicating that alpha can be generated via ESG investing, and seemed to lament that Wall Street, in the grip of short-termism, was showing little concern for ESG. He noted that Europe was more sensitive in these matters, and argued that ESG is an approach to evaluating the management of a company.
Regarding the effectiveness of screens, Ailman commented that no screen will catch fraud: "If you can't get inside the boardroom, you cannot understand what's going on." In terms of executive pay, he argued that boards typically bow to compensation consultants or fear confronting the CEO. He recounted a brief story on how CalSTRS, as a large shareholder, intervened in the issue of executive pay at Morgan Stanley and ensured at least better disclosure of pay arrangements when the firm was in CEO transition. Ailman emphasized that CalSTRS challenges not the level of compensation but the alignment of pay with shareholder interests.
James Katzman of Goldman Sachs concentrated on shareholders. He elaborated on the different time horizons of different investors and the implications this creates for asset managers. He noted that it might be hard to balance sometimes competing interests of short-term and long-term shareholders. In reaction to some of the comments from other panelists, Katzman remarked: "It's a little shortsighted to say that Wall Street is ignoring these things." He added that sometimes research can find that higher returns might be associated with social or environmental screens, but this does not necessarily mean causation — it might be just simple correlation. Katzman also noted that it's not yet clear what metrics should be used in assessing activist investing. In the realm of corporate governance, he emphasized that the real question is how to get corporate performance targets to happen. He mentioned that, for instance, he was not aware of any research concluding that a dual CEO-chairman role is worse for shareholders.
Robin Wiessmann, Pennsylvania's state treasurer, seemed to hold a position similar to Ailman with more sympathy toward ESG principles and Wall Street. She did note that one should never be expected to give up yield for other considerations, but announced that Pennsylvania has adopted investment principles that deliberately embrace non-financial criteria: "You need to recognize what's wrong with a business you′re investing in." She acknowledged that the nature of fiduciary responsibility on the part of plan managers assumes different statutory definitions depending on the state. In her current state, the definition includes the "prudent person standard." But she also recognized that one cannot legislate every detail and things need to be principles-based. As for the stance of markets on ESG investing, she expressed confidence that Wall Street would sort things out.
In terms of the practicalities of ESG-conscious investing, Wiessmann noted the emergence of a cottage industry taking care of the screening business for institutional investors. This is bound to happen as public pension plans typically don't have the resources to screen in house. She argued that the concepts of transparency and governance, perhaps better packaged together as "accountability," make a big difference, and lauded Sarbanes-Oxley for driving that process. However, she also said that a lot of investors felt cheated by what happened in markets recently.
Coming from the non-profit world with no shareholders hungry for high financial return, Christa Velasquez of the Annie E. Casey Foundation presented the most positive view of socially or environmentally conscious investing. Her foundation, which by law and regulation is not prohibited from ESG investing, has set aside $100 million for such purposes. She noted that the mission of the portfolio is the key, in line with Casey's being a mission-driven organization. Velasquez lamented that less than 0.1% of foundations report making socially responsible investments. She also drew attention to possible lack of patience on the part of donors regarding investment returns. For instance, some donors might express dissatisfaction with short-term results of a foundation-financed project to enhance job creation.
An intriguing comment/question from the audience was well positioned for concluding the session. The participant, who happened to be the chairman of a state's pension plan, brought to the panel's attention a CalPERS study finding that divesting South African investments for ESG concerns had cost the organization in the order of billion dollars. He went on to argue that divesting from Petrochina helps people in Sudan but not the beneficiaries of the pension plan. Ailman's response was brief yet to the point: "Divestment is just a sell decision; it does not change anything in the company."
Managing Director and Head of Mergers and Acquisitions for the West Region, Goldman, Sachs & Co.
Director of Social Investments, Annie E. Casey Foundation
Treasurer, State of Pennsylvania
Tue 4/292:15 pm - 3:30 pm
Moving From Me to We: The New Competitive Edge
Although traditional strategies have focused on a "me, my, and I" approach, this session highlighted a "we" approach that has emerged as the foundation for creating significant, sustainable change in the United States and abroad. Moderator Jerry Wind of the University of Pennsylvania suggested that "a 'we' perspective is a must today because of changes in globalization, technology and movement toward empowered consumers. This causes companies to change traditional approaches and go from 'me' to 'we.'"
This is especially challenging for the business community, which is typically more competitive than collaborative, he said, but that environment often produces limited financial gain and a certain level of stagnation. There is widespread agreement, supported by research, that the current business model must be transformed if we are to make any global advances. Although there are many ways to achieve this, the panelists agreed that these changes should be generated both within and outside of these organizations.
Yossi Vardi of International Technologies Ventures noted that an efficient way in which large organizations have changed the traditional business model has been to create an environment of "bottom-up innovation." This has been accomplished by empowering passionate employees to "run free and develop tools to help customers, employees and the organization." Best Buy and Proctor & Gamble were cited as perfect examples of such a movement. Two Best Buy employees created a web site that provided a medium for all employees to communicate with each other, which subsequently generated new ideas for improving customer relations and the company as a whole. Dwayne Spradlin of InnoCentive Inc. mentioned that Proctor & Gamble's CEO stated that "within five years, 30 percent of the company's innovation would come from a source outside of their organization." Dwayne believes that companies should encourage open innovation, which involves "inviting the outside world into the process and creating opportunities to empower younger business people."
Lex Fenwick of Bloomberg LP said he believes it is important to create a community around something (i.e., geography, a subject etc.) and to help that community with whatever it is trying to do. By capitalizing on the power of "we," financial gain will be generated for all businesses involved. More specifically, "if you want to build a community around an issue or problem, others will join for fear of being left out," he said.
An audience member mentioned that collaborating with other businesses may result in an organization losing its brand. Wind countered that "the brand is not under your control. It's how it's perceived by the customer." As such, Barry Libert of Mzinga Inc. suggested that a business should allow the collaborative "we" community to build the brand. In essence, "the brand belongs to the network using the brand." He stated that "American Idol" only does 10 shows a year but needs the brand to be carried all year round. Once they let the community build and use the brand, another hit show, "So You Think You Can Dance?" developed.
In spite of some issues and barriers, the panelists and audience members alike agreed that the "we" brain is better than the "me" brain. "We" must not be restricted to the organization but must involve the larger space. This will involve examining global innovations, recruiting people smarter than you and being willing to share the benefits so that it's a win-win for everyone. For in the end, said Wind, "the summation of brains is bigger than the value of each brain."
Yoram (Jerry) Wind
Lauder Professor, The Wharton School, University of Pennsylvania; Founding Editor, Wharton School Publishing
Tue 4/292:15 pm - 3:30 pm
Eliminating Malaria: A Workshop
It is a death measured in millimeters. One million people die each year of a disease that can be prevented with gossamer-thin bed nets treated with insecticide that can protect two people's lives for just $10. A mere $2 supplies lifesaving medication to a child, and 20 cents can buy preventative treatment for a pregnant woman.
This was the central "malaria challenge" discussed during the session led by five luminaries in the field and others who participated in the roundtable discussion.
The experts in the room agreed on one central premise: While the strides in malaria prevention had been great, thanks to life-saving organizations like Malaria No More and the Access Project in Rwanda, the disparity in the distribution of resources was wide, partly due to the potential for "sharp elbows" and "tunnel vision" between aid groups when facing health and economic challenges omnipresent in Africa. The question is: how do we fix this divisive problem?
In describing the crux of the issue, Sir Richard Feachem, a professor at the University of California, San Francisco and Berkeley campuses, pinpointed three fundamental gaps preventing the eradication of this deadly disease in the Third World: funding, management and scalability of aid distribution.
In particular, the theme of management — and finding the right talent to manage — resurrected itself many times throughout the hour. While Feachum applauded the presence of M.D.s in Sub-Saharan countries, for example, he lamented the lack of financially and operationally capable M.B.A.s to ensure that important programs are well constructed, accurately forecast and appropriately funded, and that supplies are adequately delivered.
Taking it a step further, Karibushi of the Access Fund Rwanda called for local economic renewal, encouraging the manufacture of nets domestically to help improve Africa's economic position. Today, 93 cents on the dollar go to purchasing aid materials from the United States. Redirecting lobbying efforts in the United States could help shift the way aid is provided, with African companies, such as AtoZ Textiles, potentially switching from clothing to mosquito nets manufacture.
Still, the group was hopeful, citing awareness programs that were making a difference, such as the popular "American Idol" campaign, "Idol Gives Back," that this year raised $250 million to fight malaria. And corporations like DHL and Accenture have found ways to get involved that may be more indirectly related to their core competency. Other organizations are finding ways to piggyback malaria prevention on top of a measles initiative, giving away free bed nets during measles immunization. With smart management and a steady flow of resources, collaboration is critical in bringing an end to a disease that kills 3,000 children a day.
Sir Richard Feachem
Professor of Global Health, University of California, San Francisco; Professor of Global Health, University of California, Berkeley
Executive Director, Malaria No More Policy Center
Tue 4/292:15 pm - 3:30 pm
The Increasing Impact of Online Teaching in Primary and Secondary Schools
Online teaching in American schools has reached only 50 percent saturation, according to Pamela Hoppe Ice, Director of Online Learning for the Colorado Department of Education. Of 50 states, only 26 have established virtual learning programs to date. Resistance from traditional educators and teachers′ unions, coupled with the constraints of legislation and limited resources, have slowed the progress of e-learning programs in the United States. While the vast majority of K-12 teachers embrace e-learning as a supplemental resource, national acceptance of comprehensive virtual school programs is still a goal, though a short-range goal.
The movement to develop online learning programs has been largely guided by entrepreneurial visionaries like Ronald Packard and Susan Patrick, panelists who discussed the role of online teaching from distinct perspectives. Packard, the founder of K12 Inc, offered a coolly analytical perspective on the entrepreneurial opportunities of delivering educational options where there previously were none. Since 40 percent of U.S. high schools don't offer advanced-placement courses — mainly because they can't hire the qualified teachers — virtual learning is a brilliant solution for meeting the needs of these underserved "best and brightest," he said.
At the other end of the learning spectrum are students with special needs and those requiring special accommodations. They are also well served by the virtual learning model, which allows them to take their time learning without the penalty of holding others back, and their learning outcomes and test results also rise. And there is a growing market for "credit recovery" courses to fulfill graduation requirements.
Patrick, of the North American Council for Online Learning, said she often finds less obstruction and quicker acceptance for virtual learning in the Middle East and Asia than in the United States, where in Wisconsin, for example, teachers sued to limit virtual learning.
Students aren′t the only winners with online learning, said Packard. With a teacher attrition rate of 30 percent within the first three years — attributable in part to the limits of the profession and lack of flexibility — Packard's company has found that online learning appeals to some of the top teachers who otherwise would leave the profession.
Each panelist recounted stories of the hurdles he or she has encountered the e-learning businesses and building awareness of virtual learning in school districts across the country.
There are three dimensions involved in online teaching. First, content must be developed aligned with state standards, which can be a costly investment for companies like Packard's K12 Inc. But the beauty of such specifically designed curriculum is the ability to adjust curriculums based on test results data.
Second, teaching skills are different and require specific training to deliver effective didactic experiences online. The upside of this is that data shows language arts scores in the top 2 percent and math scores in the top 30 percent in Pennsylvania and Colorado.
Third, the online model allows more flexibility for the individual student, which has clear benefits. Steve Brown of KC Distance Learning Inc. stressed that the greatest evidence for results in online teaching is found in test scores for K-3 students, a critical window in childhood education.
The data show that online learning is often more effective than traditional classroom learning and provides a major paradigm shift for the often static fields of primary and secondary education. Opposition to virtual learning, the panelists agreed, is just more confirmation of the success of a technology that holds great promise for the future of education.
Tue 4/292:15 pm - 3:00 pm
Book Signing: Dalia Mogahed
Who Speaks for Islam?: What a Billion Muslims Really Think
Book Signing: Jared Cohen
Children of Jihad: A Young American's Travels Among the Youth of the Middle East
Book Signing: Reza Aslan
No god but God: The Origins, Evolution and Future of Islam
Tue 4/292:15 pm - 3:30 pm
Giving It Away Takes Creative Effort: Philanthropy Tales From Those Who Know
She described the foundation's earliest definitive goals, which are still being followed by the foundation today: The foundation has historically worked to uncover underlying social problems by cooperating with other agencies and foundations familiar with specific issues. If no such foundation exited, said Bartley, then a new one would be created. The family also believed that the business approach should be used in the philanthropy world.
Moderator Timothy Lappen of Jeffer, Mangels, Butler & Marmaro added that the foundation has been extremely generous in its local and global initiatives. For example, John D. Rockefeller Jr. and the charitable foundation spent millions for rebuilding the decaying Versailles and Trianon palaces after World War I.
J.B. Pritzker of The Pritzker Group also noted that philanthropic values played a role in his family tradition. He was just 10 when he realized the extent of the family′s endeavors, after seeing the family name "engraved in a Chicago hospital stone" (the University of Chicago renamed its medical school in 1968 to the Pritzker School of Medicine in recognition of the family′s support). His parents taught him that "philanthropy is about your time because time is the most valuable thing you have."
Lappen also discussed the changing nature of the philanthropic activities. "Once, philanthropy seemed to be people writing checks," he said. "Yet with the development of venture philanthropy, it's becoming more like a business with venture that has to be carefully planned." Pritzker acknowledged that sometimes philanthropic venture investments fail and added that his greatest pleasure comes from "building something from nothing." He cited the foundation's work building the new Illinois Holocaust Museum and Education Center as such a venture.
Pritzker's family has had intergenerational changes in the distribution of holdings and he explained that the division of family holdings has "led to a lot more giving and involvement of family members." The organization has three kinds of charitable donations: discretionary giving; institutional giving to organizations with whom the family has a personal attachment and directed giving.
The panelists agreed that "philanthropy and political activism often go hand-in-hand, but that the former "has ultimately got to be led by government effort." Bartley commented that with a staff knowledgeable about challenges in the market, the foundation can actually change public opinion and help develop legislation.
Bartley and Pritzker agreed that decisions to invest in some programs are influenced by the family's personal attachments so that there is "a wide range of interests in the philanthropy's portfolio, yet it is carried out in a unique way." These established philanthropies are challenged by the long-term consequences of their work. Bartley disputed the suggestion that donations should always align with current issues and social problems, and that endowments should be spent over shorter periods. Pritzker noted that while endowments can stipulate the nature of a foundation's work, there is "a limit to how far you can reach beyond the grave."
Tue 4/293:45 pm - 5:00 pm
State of the State of Wall Street: Creating Opportunity Out of Chaos
But it isn't all bad news: Innovation often emerges from market turbulence. This panel featured speakers from the leading edge of the finance industry, who shared their viewpoints on how such large losses blindsided Wall Street and how to convert chaos into investment opportunity and competitive advantage.
Moderator Paul Calello of Credit Suisse opened the session by noting that uncertainty in the market has affected everyone in the financial services industry. "Hardly a week goes by that you don't read of more staggering losses by the universal banks," he observed. "But in these markets, the brightest of the bright have found new opportunities."
He threw the discussion to Kenneth Griffin of Citadel Investment Group, asking whether the financial community should have been able to foresee the current turbulence. "It's very obvious that a number of firms were not dotting the i's and crossing the t's when it comes to risk management," Griffin replied. "We have had a very mild economic downturn in this country but near-catastrophic losses within a number of our largest banks and investment banks. Could we have foreseen? Not necessarily. Should we have been better prepared? Absolutely."
Kenneth Moelis of Moelis & Company recalled that for much of his career, personal relationships were key. "I do think that what Wall Street forgot in a very deep sense is that behind a lot of these transactions were people. There were relationships, and there were decisions made around furthering a relationship, depending on people to do the right thing. I think when you look back at a lot of the mistakes here, you see the reliance on piles of paper and statistical arbitrages in the market that ultimately didn't pan out . . . In the old world of these investment banks, the life cycle of a relationship was years, decades, lifetimes. And we're on one-year bonus cycles now."
Calello turned to Charles Ward of Lazard for his views on new financial regulation that might be crafted to deal with the aftermath. "I do think you're going to see changes in the regulatory regime," he predicted. "When something like this happens, the American people are not going to stand still for business as usual. I think it's up to the investment community to be actively involved in trying to shape the regulation to be sensible, but it's going to change . . . it's going to be a political fact of life and we'd better get used to it."
Addressing "the elephant in the room" fell to Peter Weinberg of Perella Weinberg Partners. "Regulation will evolve . . . but the financial markets need to figure out a way to keep the fluidity of capital around the world very liquid. We desperately need sovereign capital to come in to bolster the financial system. We cannot tolerate the protectionist kind of instincts that are, in my view, wrong."
Charles Ward agreed that sovereign wealth funds have been instrumental, but he did not feel they will be the answer moving forward. "They have a part to play, but it's largely been played. From here on, the capital's basically going to have to come from the market. We need to see attractive prices to tempt the market. It's going to come from private equity. It's going to come from a lot of sources that are going to be looking for very good bargains — and I suspect that they'll get them."
Bennett Goodman of GSO Capital Partners agreed that "the banks were very fortunate they had access to these sovereign wealth funds who were willing to write big checks in a very quick period of time. But I think these investors are upset that they're out of the money on a lot of these investments."
Looking ahead to the next year, Goodman predicted, "I think other private equity firms are going to go public. I think other hedge funds will go public. It might take another 12 months before we see that happen. But there are a lot of advantages for firms that are able to access permanent capital. There's a lot to be said for having the currency to grow a firm and retain talent."
"The asset management businesses have really been the shining star of the last 12 months," observed Griffin. "They've been rock-solid. Investors are going to be very attracted to that quality looking forward." One of the factors underlying that quality, Griffin insisted, is a fundamentally new approach. "A handful of firms are truly interested in being partners, and they know how to leverage partnerships wisely and create a lot of value for everyone at the table."
Bigger isn't always better, Moelis agreed. "Go back 10 years, and you had real investment banks out there. But everybody followed into a financial conglomerate model, and I think you're seeing the outcome. The result is, the larger the institution, the worse the disaster on the balance sheet. There is no place for a conglomerate in a world of expertise. I'm sure Tiffany's runs a great business and Wal-Mart runs a great business, but they probably shouldn't merge."
When asked about international prospects for M&A deals, Ward noted the huge contrast between the prevailing mood on Wall Street and the outlook around the world. Even though volume will be down, he predicted more M&A activity by U.S. corporations now that prices are reasonable, including restructuring deals in financial services.
Griffin felt it was important to understand the root of the current crisis in order to move forward. "With little exception, our largest banks and investment banks — they blew it. We've lost a substantial amount of respect because of our failure to engage in basic risk management." Why did the system break down? "Walk across any of the trading floors. They're full of 29-year-old kids. The capital markets of America are controlled by a bunch of right-out-of-business school young guys who really haven't seen very much. They don't understand what tough times can look like."
That inexperience was a toxic cocktail when combined with the tremendous pressure to accumulate assets during the recent global run-up, according to Griffin, leading to uncontrolled growth. "You had institutions under leadership that only understood a small part of the business, financial conglomerates that really only have true capability in one or two fields, yet deploying tens of billions in esoteric products that the people at the top truly did not understand. It was a recipe for disaster, and we had a disaster. I think what we'll see over the next two to four years are the large universal and investment banks rethinking their business models."
When will we start to see a recovery? Weinberg predicted that we're in for a few sucker rallies in the equity markets, but he envisioned the crisis working itself out toward the end of the year. According to Moelis, "I don't think we'll have a deep Main Street recession. But it'll be years before Wall Street puts on the party hats and starts dancing again."
Ward also saw a mild recession looming. "But on Wall Street, it's going to go on for a while. In the meantime, there's going to be a lot of opportunity for firms and investors to make money in this environment. It sounds like doom and gloom, but a lot of people will find a way to make money."
Tue 4/293:45 pm - 5:00 pm
A Conversation With T. Boone Pickens
Initially, the conversation revolved around the price of oil. At last year's Milken Conference, when Sullivan interviewed Pickens for the first time, oil was $67 a barrel. The price has almost doubled in the past year and there is no upper bound. In blunt figures, Pickens explained the price surge and provided some staggering statistics.
The United States represents 5 percent of the world's population but consumes 25 percent of the world's energy. And 77 percent of the oil Americans consume is imported, at a cost of $600 billion per year.
There is a fixed supply of oil in the world, set at approximately 85 million barrels per day. (The supply is set because OPEC is currently producing at maximum capacity.) In April 2007, supply and demand were in equilibrium at 85 million barrels per day. But demand has increased and today rests at approximately 87 million barrels per day. This 2 million-barrel difference was enough to send prices soaring.
Pickens was full of humor, though his tone became sharp when the conversation turned to America's dependence on foreign oil. He divided the oil-producing nations into three categories: Canada is a friend to the United States, Mexico and Kuwait are neutral and the rest are "not our friends." Thus, in Pickens's words, "we are paying for a war against ourselves."
Pickens repeatedly urged the audience to hold the next president's feet to the fire for our energy dependence, and he encouraged investment in alternative energy sources. He believes that our domestic supplies of coal and natural gas will pave the way towards energy independence. Pickens himself has invested in solar power projects and has completely financed construction of the biggest wind farm in the world, located in Texas. (On another interesting note, he also mentioned that he has been purchasing groundwater.)
Nuclear power is another source we cannot afford to ignore, according to Pickens. France, he said, relies on nuclear to meet more than 80 percent of its energy needs. "Can you believe the French beat us?" he asked. Even ethanol, though not practical as a stand-alone alternative, should be explored. "It's an ugly baby, but it's ours."
Sullivan's banter with Pickens kept the mood upbeat. But there was no mistaking Pickens's worry. "We are in a bad spot when we have $600 billion going to the enemy," he declared. Even Sullivan didn't have a witty retort for that.
Tue 4/293:45 pm - 5:00 pm
Green Is Green: Remaking Business in the Age of Sustainability
Moderator Marc Gunther of Fortune asked the panelists just how sustainable the U.S. economy is. None of them rated it very highly, but they were more optimistic when prompted about the potential for progress. As David Haft of Frito-Lay put it, the current macroeconomic forces in our country will bring about change. With diesel costing $5 a gallon, businesses will have to adapt or fail. Regardless of how it comes about, the end result will still be a more sustainable economy. Large firms have a lot to lose if they do not adapt, and numerous smaller firms are poised to seize the opportunity to benefit from those who fail.
Haft commented that Frito-Lay wants to be recognized as a leader in sustainable business practices. The company set very specific and demanding goals in 2000: reduce water use by 50 percent; reduce natural gas use by 30 percent; and reduce electrical use by 25 percent. Not only have they almost exceeded these goals, but now they intend to get all 35 plants of their U.S. plants off the grid by using net-zero technologies. A net-zero plant would be completely self-contained by recycling water, collecting solar energy and using waste to create bio-mass energy. All of these goals are based on production efficiency, but as Gunther noted, "Polar bears don't care about efficiency. They care about reductions in absolute levels."
Eli Halliwell of Jurlique expanded on this point, noting that his firm produces beauty products designed to incorporate "low-tech" sustainability. He has tapped into the idea that "healthy is beautiful." Halliwell uses natural products as a strategy to compete with other major firms in his industry, in what he calls a war of "bio versus chemo." The essentially unregulated beauty product industry relies on chemicals, but Halliwell points out that many of these chemicals are harmful.
Deborah La Franchi of Strategic Development Solutions invests in green development, using a screen she calls the "triple bottom line." An investment must produce financial returns, have a positive social impact and be environmentally sustainable. Contrary to conventional wisdom, there are plenty of opportunities to simultaneously accomplish all three things. She talked about how green buildings are not only less wasteful but actually cheaper to operate than traditional structures. When Gunther asked if the market was willing to pay more up front for green buildings, she responded by saying that they often cost the same or less than other developments. The notion that green structures cost more to build was based on early attempts to adopt new technology, when developers were using unfamiliar materials and practices. Now that builders have learned how to do it, there are no higher costs associated with green buildings.
Rand Waddoups of Wal-Mart acknowledged frankly that Wal-Mart is far from being a sustainable firm, but he expressed excitement about the opportunities for improvement. For example, he shared that Wal-Mart had changed its line item for waste management from a cost into a credit in less than two years simply by recycling. Wal-Mart now produces its own plastic goods, like clothes hangars, by recycling plastic that it used to have to pay to dispose of. In another example, Wal-Mart now shreds its used tires and sells them as mulch — at a profit. Disposing of the tires had previously generated a waste-management cost to the firm. Now customers pay to buy Wal-Mart's trash when they see the "green" labels. There is also a perception of quality attached to green products, he noted, and many consumers are willing to pay more for them. Wal-Mart is attempting to make environmentalism more accessible to its customers, in what Waddoups characterized as the "democratization of sustainability."
Kevin Wall of Live Earth was inspired by Al Gore's An Inconvenient Truth to pull out all the stops to raise awareness of climate change. Last summer his organization brought together 150 musicians on every continent for 24 solid hours of edutainment, meant to evangelize environmentalism. Sixty short educational films and celebrity public service announcements incorporated into the event. Wall noted that several environmental organizations associated with the event criticized its large carbon footprint, but he responded by saying that right now we need to promote awareness and create a rallying cry for change. Wall underwrote Live Earth himself, based on his experience working with Bono for Live AID in 1985. He is currently planning Live Earth Campus for fall 2008.
Vice President, Operations Sustainability and Productivity, Frito-Lay North America
President and CEO, Jurlique
Deborah La Franchi
President and CEO, Strategic Development Solutions
Senior Sustainability Director, Wal-Mart Stores Inc.
Founder and CEO, Live Earth
Tue 4/293:45 pm - 5:00 pm
NAFTA Under Assault: Reassessing Its Impact
Luis de la Calle
Managing Director and Founding Partner, De la Calle, Madrazo, Mancera, S.C.
Reginald Jones Senior Fellow, Peterson Institute for International Economics
Thomas McLarty III
President, McLarty Associates; Former White House Chief of Staff
Tue 4/293:45 pm - 5:00 pm
Paying the Piper: How Can Music Keep Its Revenues and Its Customers?
"Nobody has a clue right now," said Quincy Jones, the legendary musician, producer and composer known for identifying hit artists ahead of the curve. "The volume of sales we had in the past will never come back. The genie is never going back in the bottle."
Justin Goldberg of Indie911 acknowledged that few firms are earning substantial revenues from online music sales yet but maintained that, with the exception of the recording segment, other areas of the music business — including tours and publishing — are doing quite well. There is also more use of music in film and television productions, he said. As for the recording side of the business, Goldberg added, "This industry was once driven by larger-than-life entrepreneurial personalities and format updates, but now things are more in the consumers' hands."
Andrew Lack of Sony BMG Music Entertainment agreed that now is a great time to be artist or a fan of music. It's easier than ever both to get more music and distribute one's music. He cited two new landmark agreements involving major record labels and Nokia and MySpace. "These two agreements and their associated business models show that we may be turning things around," he said. "The power of working with the largest social network and one of the largest mobile handset makers is undeniable."
Jones added that working in new technologies and getting "hooked into Silicon Valley" are key to success.
Established artists are already taking advantage of digital technologies. For example, Madonna signed a $120-million "360 degree" contract with concert promoter Live Nation, and Prince, Nine Inch Nails and Coldplay have experimented with digital album releases. "There are many schemes available to established stars now," remarked Lack. "But it has always been the role of the record label to find new talent, and that continues today." And as the field of players in that role becomes more crowded — with social networks and services like Goldberg′s Indie911 helping fans find new music — the labels have had to diversify their activities.
All three men noted one new "activity" in particular — the popular television show "American Idol," which has been a boon to the music industry, spinning out a variety of new stars.
In wrapping up the session and getting at the heart of the matter, moderator and radio host Larry Carroll asked the panelists if all of the "pipers of the music industry are ever going to get paid." That is, can this industry make money in the long term? And in the most telling response of the panel, almost in unison, all three shrugged their shoulders.
Tue 4/293:45 pm - 5:00 pm
Financing Medical Innovation
Tue 4/293:45 pm - 5:00 pm
What's the Rate of Return on Your Philanthropy?
The session was opened by moderator Marcia Stepanek of Contribute magazine. She stated that goal of the panel was to discuss how private philanthropy demonstrates its impact in innovative ways, given the current "crisis of confidence" among donors. "The average donor is having a serious problem trusting organizations," she said.
Perla Ni of GreatNonprofits channeled her frustration of the post-Katrina charity fiascos into a new web site. "It's so important to measure the impact of nonprofits today," Perla said. "How can we create a way in which capital flows to the highest-performing organizations that are delivering the best services?" The web site features user reviews from those who have worked with nonprofit organizations, thereby providing a reputation management tool. The reviews capture organizational performance in meaningful ways that traditional financial indicators don't reflect. They are also a low-cost solution to program evaluation for small organizations that can't use traditional research methods to demonstrate their impacts due to cost and ethical reasons.
Greg Simon of FasterCures, described his organization's philanthropic advisory service (PAS). The group focuses on innovation, high risks, high returns and fast change. Using 20 measures of performance, the PAS creates an information marketplace for charities and aims to stimulate philanthropy by allowing people to be efficient in how they give away money.
Tracey Pettengill Turner of MicroPlace leads a web-based microfinance enterprise whose goal is to break the cycle of poverty in developing countries by allowing individuals to loan small amounts of money, which can make a big difference. "There's a solution to global poverty that's actually sustainable," she said. "There's no end to the cycle of enabling people to break out of poverty with this approach."
Joe Cerrell of the Bill & Melinda Gates Foundation provided the perspective from a large foundation. "We start with the fundamental belief that all lives have values," he said. "Our measurement is, are you saving lives?" This is an exciting time for philanthropy, he said, and many breakthroughs are near realization. New tools are needed, as well as better access to available solutions, and the private sector should be part of the solution.
Panelists discussed the appropriate use of measures to evaluate nonprofit impacts, with most agreeing that the current, financially oriented indicators are inadequate. "We're much more interested in how (nonprofits) are changing the world than how they're changing their bank accounts," Simon said. The burden of measurement on small organizations must be considered, however.
In addition to specific measures, the system in which information about nonprofit activity is tracked and reported is problematic. Greater transparency is needed in order to sustain the current rate of philanthropy, and the way in which that information is delivered must also be effective — the right information, in the right way. The innovative tools that are available now "empower us to channel our dollars in a way that is more informed than before," said Pettengill Turner.
Panelists also noted that the lack of information on failures — which provide valuable lessons — is another part of the problem. "As philanthropists, we need to encourage our nonprofits and foundations to be much more open about sharing their failures," said Ni. Additionally, donors are not always sufficiently credited for their successes. The panelists discussed challenges of working with international governments, as well as their own indicators of success.
The discussion concluded with panelists commenting on their visions for the future. Cerrell stated that this is a "golden age" for giving, with a perfect storm of resources, a robust pipeline for innovation and rising political commitment. Ni encouraged the use of social networking and personal recommendations to boost the reputation of worthy nonprofits. "It's a great time to be a donor," she concluded.
Tue 4/293:45 pm - 5:00 pm
A New Era for Investing in Africa
Blen Mekuria of Blenum Global Ventures cited the rise of Africa as a hotspot for foreign direct investment. She referred to China and India's increasingly important role in phasing out Africa's dependence on the West, along with high returns in the service sector as a result of a rising middle class. "Africa is the best source of aid to Africa," said Mekuria, referring to the high remittance rate to Africa from Africans living abroad. She also noted the intellectual capital being brought back to Africa by Africans who complete higher degrees of education in the United States and then return home.
Jonathan Stichbury of AIG Investments, Nairobi, cited some of the common perceptions of Africa: war, famine, disease, high HIV/AIDS prevalence and a low GDP. While acknowledging the seriousness of these problems, he contrasted that with other lesser-known realities of Africa, including the rise of democratically elected leaders; great strides made in AIDS reduction in Kenya, Uganda and Zambia; African growth exceeding the global average; an increase in liquidity; and fifteen functioning stock markets. "Africa is not without its challenges, but it is coming at a very low base," said Stichbury, highlighting the opportunities for investors. "Don't be distracted by the noise. There are a lot of good things going on."
"Today, Africa has clear frontier status," said Thomas Gibian of Emerging Capital Partners. Africa, which was once seen as exotic and forbidden, now presents a great opportunity for investors. "Africa has seen the demise of socialism. The Cold War is over. Capitalism and market-driven economies have won by a landslide." He added that there is a rising desire for foreign direct investment and an increase in the private sector. He cited the need for greater transparency in African countries and pointed to private-sector investment as a potential catalyst for better governance, decreased corruption and better political processes.
That view was disputed by economist George Ayittey of American University: "Those changes are baby steps." He affirmed that foreign investors are welcome in Nigeria, for example, but asked, "If Nigerians aren't investing in Nigeria, why should foreigners?" He said that most of the remittances are going to consumption and that every educated person who wants to make money goes to the government. "The informal and rural sector is neglected by the elite, which is why Africa can't feed itself." Ayittey discussed the importance of empowering farmers by finding markets for them. "It's like taking Africa back one village at a time."
Sivendran Vettivetpillai of Aureos Advisers said that as a fund manager, Africa is the strongest foothold for his business. He has seen an increase of inflow back into Africa and positive changes in infrastructure. He recommended growing small and medium-sized enterprises quickly in order to turn the greatest profit.
When asked about the drivers for growth, Mekuria noted that "the key is improved access to credit." She noted that Chinese companies undercut local companies for contracting bids, but in doing so they increase competition and quality while driving down prices. Gibian agreed, saying that Chinese investment is good for growing markets in Africa because "no market functions without participants." Ayittey disagreed, citing the lack of incentives for African political leaders to practice good governance when Chinese investments are not tied to reforms, as are IMF and World Bank investments.
Mekuria ended the discussion by saying, "The informal sector is vibrant, entrepreneurial and wants to work. A little help and a little credit will get them moving."
Distinguished Economist in Residence, American University; President, Free Africa Foundation
CEO, Emerging Capital Partners
President and CEO, Blenum Global Ventures Inc.
Managing Director, Sub-Saharan African Equities and Fixed Income, AIG Investments, Nairobi; CEO, AIG Global Investment Company (East Africa) Ltd.
CEO, Aureos Advisers Ltd.
Tue 4/293:45 pm - 5:00 pm
Tue 4/293:45 pm - 5:00 pm
Indiana Jones Meets Wall Street: Valuing the Past To Save Antiquity for the Future
The problem, he stated, is that there are few incentives to halt the trade, and even fewer resources allocated to law enforcement for antiquities recovery. Given such hurdles, the panelists looked at ways in which the private sector can work with governments, museums and private collectors to help reduce looting, monitor antiquities provenance, facilitate recovery methods, and promote and expand archaeological discovery at the same time.
Partnerships have become one of the strongest assets in halting illegal trade, said antiquities curator Karol Wright of the J. Paul Getty Museum. Collaborative partnerships had allowed her museum to utilize its greatest assets: conservation and exhibition. While maintaining that the Getty tries not to compete with other institutions having similar goals, she said, "We can offer funding, expertise and knowledge about a country's cultural heritage. And in return we can deliver antiquities for display." Change in the protection of antiquities, she said, ideally will be effected at in source countries, with local curators having a larger voice in the oversight of collections and acquisitions.
Jerry Podany, who works in the Getty's antiquities conservation department, maintained that museum acquisition policies must change to move away from ownership and toward closer collaboration. Ironically enough, Podany said, "Partnerships will make illegal trade a thing of the past."
As the discussion shifted to security measures, Yago opened the floor to Matthew Bogdanos, a Marine colonel and assistant D.A. in New York who has worked to recover thousands of treasures that have disappeared from Iraq since the war began. Bogdanos alleged that the illicit antiquities trade funds Iraqi insurgents, as well as Hezbollah militias. "Smugglers don't care what's in the box," he said of cross-border shipments. "Drugs, weapons and antiquities all travel together." In Afghanistan, the mix is often drugs and artifacts, he said, while smuggled shipments from Iraq comprise weapons and artifacts. Countries need to understand the intricacy of the trade, he said, "Yet as these antiquities travel through many destinations, it is increasingly more difficult to intercept the illegal trade." He urged governments to exert more pressure to stop the smuggling right at the source.
Most illegal antiquities pass through just four cities — Geneva, Beirut, Dubai and Amman — on their way to four major destinations: New York, London, Paris and Tokyo. That much is certain, said Bogdanos. The problem is funding for security and law enforcement. For example, "Interpol only has funding for two people (for all antiquities law enforcement) in the world." Such allocation is backward, suggested Bogdanos, adding that it seems to escape some governments that if they want to be able to exhibit their antiquities, they have to keep them within their borders.
In response to the poor site security and resources for law enforcement, Bogdanos offered several recommendations. First, countries should seize the opportunity of tragedy — museum looting or the theft of a masterwork — to leverage public awareness. And the mainstream press should beat the drum with stories that resonate in the public domain. His goal, he said, is to use public awareness to reverse the general complacency about buying and selling antiquities in back rooms.
Larry Coben, an archaeologist at the University of Pennsylvania, agreed that "our global heritage is disappearing at a rapid rate, and we will have nothing left if we don′t address this problem." Coben advocated "rethinking the paradigm of site preservation" and putting a greater focus on site preservation and conservation. "Most people don′t think of site preservation," he said. "They work through a site and then leave it. But not just the object is at risk, the site is, as well."
Governments must look at archaeological excavation and site recovery in the same way they look at businesses, and recognize the economic value in their cultural heritage. And they must convey that value to those who live closest to the sites. He offered the example of an excavation he worked on in Incallajta, Bolivia. When he arrived at the site, herds grazed there, and the land was used as a soccer field. He invested just $50, built a wooden gate across the narrow road and printed tickets, one price for Bolivians, another for foreign tourists. Proceeds went to the village, and while the total profit wasn't large, he said, within a month or so, no more grazing took place and the soccer field disappeared. The local residents saw the financial value derived from the site.
Ran Boytner of the University of California, Los Angeles, suggested that people look at the dichotomy of production and consumption. Producers, he said, include archaeologists, departments of antiquities who restore artifacts, dealers and indigenous people. Consumers include museums, collectors and tourists. To help countries of origin, he recommended that countries lease objects or special collections that could generate income for their antiquities departments. He also called for closing the tax loophole that allows for write-offs of antiquities and archaeological donations to museums. This would provide a disincentive for collectors who, under current tax laws, may receive financial gain from the donation of illegally purchased artifacts. In addition, he called for an end to museum purchases, urging instead the practice of loans from source countries. The revenues from loan programs would fund enforcement, monitoring and storage costs.
Concluding the session, Hakan Tekin of the Consulate General of Turkey in Los Angeles, discussed his country's measures to secure and establish proper trade in antiquities. Tekin pointed to Turkey's rich cultural heritage and its sophisticated site security system. Turkey′s main mission is the restitution of illegally transported antiquities, he said, noting that the country does not currently endorse long-term lending programs. "We don′t see antiquities as typical merchandise," he said, the apt summation of the panel's focus.
Director of International Research, Cotsen Institute of Archaeology, University of California, Los Angeles
Founder, Chairman and CEO, Tremisis Energy; Archaeologist, University of Pennsylvania
Head of the Department of Antiquities Conservation, J. Paul Getty Museum
Curator of Antiquities, J. Paul Getty Museum
Deputy Expert, Directorate General of Cultural Assets and Museums, Ministry of Culture and Tourism, Turkey
Tue 4/293:45 pm - 5:00 pm
Social Networking for Companies: A Hands-On Guide
"Businesses often confuse the means with the end," said Libert, noting that a loyal customer base has historically been the means to the end of selling products. Now, however, products are a means to establishing communities, which may consist of customers, employees or clients.
A common business misconception about social networking is that communities are only built online, but Libert explained that "community is not about technology — it's about social interaction." Companies should determine which medium is most appropriate for their target constituents. Relatively older employees, for example, may feel more comfortable with communities that revolve around face-to-face interaction. In designing their communities, companies should consider that people may have trouble transitioning from one medium of communication to another.
Communities in businesses cannot survive if they're not marketed, supported and moderated. After creating a forum for customers to make suggestions online, Starbucks assigned 48 employees to moderate the discussion board. While each company needs to determine its own level of regulation, companies should strive to create an environment that fosters candid feedback and suggestions. Every company has passionate customers, and companies can benefit by allowing their voices to be heard. Companies then need to act on customer feedback to maintain the credibility of the community.
Proctor & Gamble, InnoCentive and American Express are real-world examples of effectively implemented communities. P&G set a goal to have 50 percent of its new products originating from outside of the company by 2010. By 2006, 42 percent of P&G's new products originated externally. As a result of community input, about 80 percent of P&G's new products are successful, compared to an industry average of 30 percent.
InnoCentive has created a community of 140,000 "solvers," or technical experts, who try to solve problems commissioned by companies throughout the world. This community allows some of the largest companies in the world to tap into an extensive network of expertise to solve problems quickly. One company had been unsuccessful at removing solidified oil from the ocean floor until tapping into the InnoCentive network.
Lastly, American Express created the framework for its customers to suggest charitable causes that the company should support. More than 100,000 customers participated in The Members Project, and the winning idea resulted in a $2 million donation to a UNICEF program promoting clean drinking water for children. Each of these companies has found ways to create communities tailored to its individual needs.
Libert offered five steps for business leaders to start building communities in their organizations: (1) Identify a process that is not using social networking; (2) find a group of activists who care; (3) provide the right technology to house the community; (4) accept the wisdom of the community participants; and (5) measure your results and the results of the community.
In closing, he said, "I'm going to beg you to go home and be a community activist in your business."
Tue 4/295:15 pm - 6:15 pm
Business Innovations That Are Changing the World
Milken began by introducing Venter, one of the leading scientists of his generation, with a video chronicling his race to decode the human genome. In 2007, Venter published and placed online the most complete genome ever sequenced: 6 billion bit of his own DNA. And just weeks ago, his institute created the first synthesized bacterial genome, the first step toward creating artificial organisms.
Milken asked Venter to review a list of humanity's top ten problems for the next 50 years. "Environmental issues will determine the long-term future of humanity — possibly the survival of our species," he said. "We have to come up with new sources of food, fuel and water to sustain human existence. As we've gone from 6.5 to 9 billion people, the CO2 situation has become dire."
Having discovered a host of new species and genes through DNA sampling on ocean voyages, Venter is convinced he can use synthetic biology to come up with alternatives to oil and coal. "We now have 20 million genes in our database. They are the design components of the future, the tools in our toolset. They will help us find new ways to fix CO2 ... The whole economy will change based on getting off of oil and coal."
Milken asked Venter how to accelerate new cancer treatments and energy breakthroughs. "A lot of science in this country is done is very parochial fashion. It's dependent on government funding — and the government seldom takes risks," Venter explained. "The government is way behind in the energy crisis. It's one of our biggest national security issues, but the funding is a fraction of what goes to simpler fields. The exciting developments are all being driven by venture capitalists now."
Venter noted that it currently costs about $1.5 million to decode a complete human genome today, and the price is coming down. But to achieve real medical breakthroughs, we need much more data. "To scale this, we need at least 10,000 genomes to answer fundamental questions of nature vs. nurture and solve disease," he said. "We need large data sets."
As Milken introduced Yunus, he noted that BusinessWeek called him "one of the greatest entrepreneurs of all time." Yunus, who conceived the notion of microcredit for the poor, started with a $27 loan from his own pocket. He now heads Grameen Bank, which operates in tens of thousands of villages across Bangladesh and in countries around the world.
When asked for the solution to eliminating poverty, Yunus replied, "First we have to believe that it is possible. Experience shows how easily people move out of poverty given the slightest opportunity."
"It is amazing how financial institutions reject such as large number of human beings on this planet, saying they are not creditworthy," he said. "Instead of banking institutions telling people they're not creditworthy, the people should tell the banks whether they are people-worthy."
Yunus recounted how Grameen began giving tiny loans to poor people without demanding collateral or involving lawyers, enabling them to create income-generating activities. "The basic principle of banking is the more you have, the more you can get. We reversed it. The less you have, the higher priority you get." He noted that Grameen has even extended small loans to 100,000 beggars. "Within four years, 11,000 of them have stopped begging completely. They've become successful door-to-door salespersons. The remaining 90,000 ... I would say, they are part-time beggars, in the process of closing down their begging division."
"The entrepreneurial ability in human beings is amazing," he said, noting that Grameen's default rate is below 1 percent. "The poor are like bonsai trees, planted in small confining pots. There's nothing wrong with their seed, but society never allowed them the space to grow tall." He noted that most of the poor in Bangladesh are illiterate, but 100 percent of the children of Grameen families are in school — a trend with the potential to transform Bangladesh in the long term.
Yunus sees information technology offering a host of possibilities to the developing world, from cell phone service in rural villages to solar energy systems that can bring light and entertainment to places that have never had electricity.
Milken noted that the field of finance felt a surge of pride when Yunus won the Nobel Prize for peace rather than economics. "Poverty is a threat to peace, a breeding ground for violence and disorder, which come from a sense of injustice," Yunus explained.
"Capitalism is a wonderful idea and it works so well, but it's not complete. Human beings are multi-dimensional, and the business world cannot capture it. People felt they had to go outside the business world to be charitable or philanthropic. I said no — we can accommodate it in the business world. We can create social businesses to address problems like clean drinking water and health care."
Yunus described an example of this concept: a venture Grameen established with Danone to produce cheap yogurt fortified with micronutrients to reverse malnutrition in the poor children of Bangladesh. Milken summed up the sentiment of many in the room: "You're a living example that doing good is good business."
Milken then turned to introduce Eric Schmidt, the CEO of Google, noting that in a very short period of time, Google has transformed the way we live, work and interact. He asked Schmidt to describe how he manages a freewheeling company full of minds that think outside the box.
"The company is chaotic by design," Schmidt acknowledged. "Innovation occurs randomly. The important thing is to recognize brilliance when you see it and nurture it to be successful."
"We believe in the power of information and we use it ourselves all the time. We believe in the creativity of small teams. Teams are constantly, constantly coming up with new ideas. We have a set of values, starting 'don't be evil.' That provokes the conversation about where to take new technology. We debate and debate: Is this a good idea? Will people like it?"
Schmidt noted that the rate of change brought about by the Internet is accelerating, not decelerating. "I don't think we really understand the compounding that we're going to see. Ultimately it will be possible to use computers to help us get to real understanding."
He pointed to new opportunities for harnessing computing power to achieve goals such as Venter's project to analyze millions of genomes. Schmidt envisions personalized health records that can be controlled by individuals and carried from provider to provider—and that soon individuals will be able to compare their own genome against others to predict the likelihood of disease.
Schmidt did have a caution for the new information age, however. "We've created devices that are so addictive, we have no time for contemplation — the kind of deep thinking that comes from reading books."
Echoing the hopes of Yunus, Schmidt agreed that the implications of bringing information technology to the developing world are enormous. "The other billion people who have never had access to information will now become part of our world. They'll be able to participate. They'll be able to take advantage of the things that we all saw as we were growing up. And that's a great calling ... The intrinsic creativity of people worldwide when expressed is something we've never seen."
Tue 4/295:15 pm - 6:00 pm
Book Signing: Col. Matthew Bogdanos
Thieves of Baghdad: One Marine's Passion for Ancient Civilizations and the Journey to Recover the World's Greatest Stolen Treasures
Tue 4/296:15 pm - 7:15 pm
Reception for Speakers and Sponsors
Sponsored by Credit Agricole Group
Tue 4/296:15 pm - 7:15 pm
By invitation only
Tue 4/296:15 pm - 7:15 pm
Milken Institute Young Leaders Circle
By invitation only
Tue 4/296:15 pm - 7:15 pm
Tue 4/297:15 pm - 9:30 pm
Dinner Panel: Decision '08: What Awaits the Next President?
With the video segment complete, two veteran actors joined Luntz onstage: Richard Schiff, a star of theater, film and the television series "The West Wing"; and John Cleese, best known for his Monty Python and film roles, and the BBC megahit comedy "Fawlty Towers." With Luntz lobbing questions, the two men discussed a number of issues, ranging from politics and celebrity endorsements to British/U.S. rivalries. As for the U.S. presidential race and the ongoing feud between Clinton and Obama. "It's the best reality show on television," Schiff quipped.
Cleese noted that "America is always talking about being the greatest democracy in the world, but you'′re not very good at it." For example, he said, U.S. political advertising doesn't strive to inform potential voters, but to pull at our heartstrings. How was it possible, he wondered, that Barack Obama, whose name only a handful of people could ID a year ago, has become the front-runner without a single discussion of his record or accomplishments? What do we really know about him ... and afer all is said and done, is his record that important, or is it his "vision thing"? As for the Obama's rival, said Cleese, "Hillary Clinton is like the aunt that no one can stand. Now Obama, he′s like your older brother. You want to go fishing and hang out with him. And John McCain is the amiable old grandpa."
Luntz asked both actors how their television characters would vote, and Schiff, who portrays an idealistic White House aide, said his character would choose Obama. The crotchety hotelier Basel of "Fawlty Towers" would vote for McCain, said Cleese, probably just because he′s a war hero.
The post-dinner discussion featured CNN political analyst Bill Schneider acting as moderator for a lively discussion, punctuated with frequent laughter, between William Bennett, the former secretary of education, and Jerry Brown, California's attorney general. Both men are involved in education, with Bennett writing books for children and Brown having founded two schools in California: the Oakland School for the Arts and the Oakland Military Institute. Both men expressed their frustration with the state of contemporary education and addressed the pressing need for reform. Schneider began by asking what the next president needs to stay focused on. "He or she needs to find out what this country is missing, then sell it to the people," he said. In every election, the candidate who wins has found the right audience and the right issue, whether it is national security, health care, education or the economy. Schneider said the next president will be the person who "will know himself and know the times."
Looking at this year's candidates, Brown stated that Obama has the aura of "a virtue and a blessing about him," and that the election is his to lose. Clinton, he said, can win only through a failed Obama campaign. The prolonged democratic race will hurt the party in the long run, he predicted, as the candidates begin to run out of things to stay and trip up over their words.
Bennett agreed, reiterating that it is imperative for a candidate to know the times. More than that, he said, is the ultimate trust the people must have in their candidate. And beyond trust is the overall "likeability" factor. Alluding to the 2005 presidential campain, he said, "People understood (John) Kerry, but no one liked him." On the other hand, they looked at George W. Bush and saw him as a "regular guy," and they trusted him more. Neither man would bite when Schneider pressed them to predict a winner in the fall election.
Tue 4/299:30 pm - 10:30 pm
Wednesday, April 30, 2008
Wed 4/306:30 am - 4:00 pm
Wed 4/306:30 am - 7:45 am
By invitation only
Wed 4/306:30 am - 9:00 am
Wed 4/306:30 am - 7:45 am
By invitation only
Wed 4/306:30 am - 7:45 am
Opportunities and Global Expansion of the Canadian Energy Industry
The general consensus was that these industry leaders would prefer for national and regional policy differences to figure very little into their business practices, though some acknowledged that differences in policy can have important effects on Canadian energy prospects, especially within North America. Bruce Aitken of Methanex Corp explained one way in which his company attempts to transcend borders. "We never talk about 'exports' in our business," he said. "We think about a global supply chain."
The reality, as pointed out by Michael Horgan of Environment Canada, is that there are important differences in policy between the United States and Canada, and also within Canada itself. Most notably, Canada is a signatory to Kyoto while the United States is not, so Canada has begun taking steps to limit its carbon emissions, imposing costs on its producers, while there is no comparable framework in the United States.
Thomas d'Aquino of the Canadian Council of Chief Executives put things more starkly, referring to the situation across and within North American nations: "Today what we have is a patchwork quilt," a situation that he called anathema to business. Leaders of the North American countries recognize the problematic nature of this situation, and the issues of borders, regulatory cooperation and energy and environment were the major themes of the recent meeting of the North American Competiveness Council, of which d'Aquino is a member.
Alisdair McLean of Plasco Energy Group did note that national level energy and climate policy is somewhat less relevant for his company's particular business of clean waste-to-energy, though Plasco's innovative process does face important hurdles in receiving appropriate classification at local levels, often getting lumped into outdated and dirtier classifications such as incineration. As he put it, "No one disputes the environmental benefits of what we're doing, but they're trying to find the right page in the rulebook to allow us to proceed." His business is particularly aggressive in attempting to make its success independent of larger policies, following a "win first in California" strategy, under the belief that success in California's stringently regulated market will mean they can succeed in most other places. Indeed, Plasco's business model can only be improved by a price on carbon dioxide, since their technology actually is a net reducer of GHG emissions.
The importance of cooperating to develop and deploy new technology was another theme the panelists generally agreed upon. Noting that Canada's prime minister has referred to the nation as an "energy superpower," d'Aquino also pointed out that much of these energy sources are very carbon intensive, and thus technology like carbon capture and storage will be very important in a climate-constrained world. But such technology will not only be beneficial to Canadian industry — it will also benefit the United States and the entire world by allowing rapidly developing countries such as China the opportunity to utilize their vast fossil resources (which they would likely do anyway) while minimizing their contribution to global climate change.
Tying together climate and energy issues and emphasizing their interdependence, Aitken offered some good advice for policy-makers to take home: "I don't think countries can develop climate policies without having energy policies."
Wed 4/306:30 am - 7:45 am
Innovations in Development Finance
By invitation only
Wed 4/308:00 am - 9:15 am
Global Markets: Where Are the Opportunities?
For the next hour and a half, Todd Boehly of Guggenheim Partners, Kirk Hartman of Wells Capital Management, Pascal Poupelle of Calyon and Komal Sri-Kumar of TCW Group debated questions such as these, agreeing that the worst is indeed over but predicting that we could very well be headed for a recession as the slowdown in the U.S. economy affects the rest of the world and the credit crunch plays out.
Boehly, who invests in credit and fixed income, stated his belief that the technicals have cleared and the Fed's efforts to infuse capital into the market are paying off. "Credit," he said, "is about avoiding losses."
The bottom is near, agreed Sri-Komar. He described three signals that will indicate a turnaround is coming, predicting: 1) the ten-year Treasury hitting 4 percent; 2) credit spreads will narrow, easing tension so banks will start to lend to each other; and 3) better management of the dollar. However, Poupelle warned that it is difficult to call a bottom, especially with the banking industry still in turmoil.
On the impact of the U.S. slowdown on the rest of the world, Boehly pointed out the inefficiencies in European markets, where the bid-ask spreads are extremely wide. Sri-Kumar added China and India to the list of nations feeling the ripple effects and experiencing a significant cutback in growth. Hartman indicated that we should be prepared for lower returns, around 10 percent, in a deleveraging environment. Citing Japan as an example, he pointed out that there are still opportunities in small-cap companies.
When asked to comment on the consequences of a tight credit market, Boehly admitted that there is sluggish investment activity due to the slowdown in financing. Poupelle stressed the importance of disclosure. He admired the actions of UBS, which was one of the first banks to admit to shareholders and the public that there was a "lack of reaction to a changing market" at the firm, triggering excesses.
Changing the course of the discussion, Bartiromo asked the group if there was a bubble in commodity prices. Hartman acknowledged sharply rising demand from developing economies such as China and India, but he nevertheless anticipates a price drop. On oil prices, Hartman expects volatility to continue, commenting from a social standpoint how politics and protectionism — viewing energy as security, fear of sovereign wealth funds — have hurt the economy as a whole. Bartiromo agreed: "No one is talking about war in Dubai," she said. "They are talking about economic expansion." Boehly contended that as oil prices rise and reserves shrink, more companies will find it cheaper to do M&A deals than to find new reserves. Sri-Kumar recommended increasing exposure to energy commodities and staying away from risky assets such as real estate.
Turning the conversation to favorable sectors in the current financial environment, Boehly said he preferred bank debt, where he expects returns in the mid-teens with modest risk; he also sees opportunities in education, health care and consumer staples. Health care and information technology were Sri-Kumar's picks, given his expectation that the trend will shift from commodities to knowledge firms. Poupelle believes that the financial sector is best to invest between now and end of the year. Hartman's pick was also education, with the panelists agreeing that the best thing the United States can offer is education, especially as other countries are inviting Americans in to understand how to think about the world from our perspective.
The session wrapped up with some real-world investment advice. Hartman warned the audience to stay away from long-term bonds. Sri-Kumar did not favor emerging markets for the next several months, as he views commodities and energy to be overvalued and predicts that interest rates will rise again in early 2009. But perhaps the key piece of wisdom came from Boehly: "There are none so blind as those who will not see. There are lessons from the past."
Wed 4/308:00 am - 9:15 am
The Importance of Teaching History in Our Schools: Developing a More Informed Citizenry
Senior Vice President, Milken Educator Awards, Milken Family Foundation; Senior Advisor, Team HOPE
Wed 4/308:00 am - 9:15 am
Catastrophe Bonds: Using the Capital Markets to Create Risk Protection
Moderator Glenn Yago of the Milken Institute invited the panel to demystify the structure and workings of catastrophe bonds. Beat Holliger of Munich American Capital Markets explained that the basic catastrophe bond structure is borrowed from the asset-based securities world. Risk is packaged into securities that are sold to investors at the beginning of the risk period, which effectively forms a kind of collateralized protection. Before rating agencies will rate the securities, the risk involved must be modeled by a third party, and Holliger mentioned some names active in the risk-modeling business. Depending on the structure of the particular bond, trigger for payment can be proof of loss or only the event. Availability of funds can also vary from immediate to a few years down the road.
Dan Ozizmir of Swiss Re Financial Products gave further details on the structure, such as setting up a special-purpose vehicle such as GlobeCat Ltd., whose notes are sold to investors. He also elaborated on the role charities can play in risk diversification. While charities can keep a pool of funds available to be spent in case of a catastrophe, they can alternatively provide much smaller funds to finance interest payments on catastrophe bonds — in a spirit similar to paying premiums to cover potential losses.
José Siberón of Merrill Lynch noted that many different types of risks are being securitized, including mortality, longevity (pensions), morbidity, automobile, hurricane, earthquake, flood, fire and terrorism. He drew attention to the fact that market capitalizations of insurance and reinsurance companies are small compared with the amount of risk underwritten, which implies that risks must be diversified by securitization. Siberón added that some man-made risks are very hard to model, such as that of terrorism, which renders securitization more difficult. Derivative instruments linked to insurance-linked securities are yet absent in the markets, and if available, would entice additional investors to participate in secondary markets in catastrophe bonds.
John Brynjolfsson of PIMCO noted that there basically are two ways of managing risk for insurers: re-insurance or diversification. In turn, diversification can be done on a geographic basis or by integrating insurance with the capital market in the form of securitization. Geography is an important factor: California and the Gulf make up 50 percent of insured risk in the world. While the total size of capital markets globally is $100 trillion, the insurance-linked part is accounts for only $4 trillion, including all securities issued by insurance and reinsurance entities. Brynjolfsson remarked that insurance risk is a useful element for the asset manager at the other end of the table since it helps diversify portfolio risk. "Financial crises do not create earthquakes." According to PIMCO research, natural catastrophes have no statistically significant effect on financial markets, either. In fact, since destroyed tangible assets must usually be replaced, catastrophes eventually contribute to GDP growth.
Another discussion topic motivated by Yago focused on key issues in catastrophe-insurance and catastrophe-bond markets. Jeffrey Cooper of Allstate drew attention to the high concentration of risk and losses in limited geographic areas. The western and central United States contains earthquake epicenters. Hurricanes concentrate in Gulf and Atlantic states. Making things worse, people migrate to high-risk areas: Florida's population grew by 75 percent from 1980 to 2003, for instance. Cooper also noted relatively high concentration in the insurance industry, especially in homeowners insurance, where the leading company controls 22 percent of the market and the top five companies combined have 49 percent market share. In re-insurance, the usual route of risk diversification, $150 billion contract limits have already been purchased, and that market is also concentrated. This long chain of concentrations obviously implies tremendous demand and opportunities for catastrophe bonds.
Ozizmir provided some figures casting useful light on the extent of risk securitization. Throughout the last decade, such securitizations totaled $47 billion, with $15.4 billion of the risk currently outstanding. Hedge funds dedicated to insurance-linked securities comprise the key client group with 44 percent share of outstanding bonds. Core money managers account for the second-largest tranche at 22 percent, followed by multi-strategy hedge funds at 14 percent.
After displaying a sobering chart on global warming, Brynjolfsson remarked: "We are not concerned about the routine hurricane; we're concerned about a one-in-a-hundred-years hurricane." Demand for catastrophe bonds is driven by such events. Sometimes hurricanes hit areas with uninsured properties such as large swaths of Latin America. While such events do not necessarily create distress for insurers, they certainly are humanitarian disasters.
Moderator Yago concluded the discussion by naming some of the ways the catastrophe bonds market can further develop and help the insurance industry diversify its risks. These included legitimizing catastrophe bonds as an asset class, increasing the liquidity and transparency in the secondary market, securing more participation from rating agencies, standardizing transactions and establishing shelf programs.
Managing Director and Portfolio Manager, PIMCO
Assistant Vice President, Protection Finance, Allstate Insurance Company
Managing Director, Munich American Capital Markets
Managing Director and Head of Insurance-Linked Capital Markets and Environmental and Commodity Management, Swiss Re Financial Products
Director, Merrill Lynch & Co.
Wed 4/308:00 am - 9:15 am
You Can Take It With You: Are Mobile Devices Replacing the PC?
The panel consisted of five gentlemen, each with a specific (and often adamant) view as to the superiority of certain products and approaches for taking the world mobile.
Rama Shukla of Intel helped to frame the discussion, referring to it as an "old debate" ("are we trying to shrink the PC into a phone or make the phone grow up into a PC?"). Most on the panel thought the mobile phone is growing up. Mike Yuen of Qualcomm pointed out that "the cell phone is the most ubiquitous electronic device in the world." Doug Britt of Helio added that when it came to entering the digital information age, "the starting point in Asia and Africa was the mobile device, not the PC."
Mark Collins of AT&T Mobility spoke of the "limitless" possibilities for handheld devices and said we are at the dawn of a new industry. However, Collins admitted "there are certain things you can't do on a device the size of a business card because of the size of human hands, battery life and screen size." But perhaps Americans are a little spoiled. David Steinberg of CAIVIS Acquisitions Corp. pointed out that "in America we grew with 15 inch monitors . . . in Asia, they didn't." While the handheld mobile device is a supplement to the personal computer for most Americans, the handheld is the primary device for many Asians. Because of this, the two markets are developing quite differently.
"Ubiquity" was the word of the day. Several panelists spoke of traveling to Asia and seeing people operate not just one but sometimes two or three mobile devices at the same time. Britt shared his personal experience of buying a $2 slushie from a vendor in Korea who was watching TV on one mobile phone and texting on another. Still, Shukla maintained that if given the option, a taxi driver in Asia would still prefer to pull over and use an Internet café, if one were available. But the rest of the panel disagreed — not surprising on a panel full of spirited debate.
Vice President, Content and Messaging, Helio
Vice President, Consumer Data, AT&T Mobility
Vice President, Mobility Group and Director of Platform Program Office, Intel Corporation
Founder and CEO, CAIVIS Acquisition Corp.
Senior Director, Gaming, Qualcomm
Wed 4/309:25 am - 10:40 am
Can the U.S. Dollar Recover? Does It Matter?
Davidson asked each panelist for an opinion about the sources of current dollar weakness against major currencies such as the euro, yen and British sterling. Nordvig-Rasmussen highlighted the fast pace of dollar depreciation in recent months, attributing the rapid decline to dramatic easing by the Fed while the European Central Bank and Bank of Japan held rates constant.
Bluford Putnam of EQA Partners agreed that interest rates were key in the recent dollar decline. He noted that central banks have to choose between managing inflation, managing the currency and protecting the banking system, and that the Fed has been focused — rightly — on banks at the expense of the currency. Barry Eichengreen of the University of California, Berkeley, was more concise and attributed the recent decline simply to recession and the credit crisis.
Conversation turned to expectations for the dollar and the importance of incorporating capital flows into those forecasts. Putnam argued initially that capital flows were important considerations, but only in so much as they are indicators of underlying fundamentals. Specifically, he said, flows occur because of "large relative differences in growth rates or large relative differences in interest rates," and that he preferred to drill down to look at those metrics rather than assess the flows themselves.
Nordvig-Rasmussen noted that foreign purchases of U.S. bonds had dropped during the past 12 months and, and attributed recent dollar weakness to this trend. Putnam, however, pointed out that this outflow was offset in part by sovereign wealth fund purchases of U.S. bank equity. He argued that the dollar depreciation would have been "catastrophic" if the falling demand for bonds had been its only driver. He then reiterated his belief that capital flows are difficult to use as a forecasting tool because of the challenge of measuring the entire picture of movements.
The final topic covered was the accumulation of foreign exchange reserves by foreign central banks. Panelists were asked whether they anticipated institutions like the Bank of China slowing their purchases of U.S. government bonds and what consequence these changes might have for dollar strength.
Reserve accumulation is not necessarily a "zero-sum game," as has been the case in recent years, said Eichengreen. Historically, the number of currencies used for official reserve accumulation was equal to the number of liquid financial centers. As other countries join the United States in offering liquid high-quality debt securities, central banks may allocate some of their holdings to these new issuers, but this does not mean the dollar will cease to be an important currency.
Putnam referred again to the challenges central banks face in executing their policy mission. He noted that China has the option of continuing to buy dollars or allowing its currency to appreciate rapidly. Given the stage of China′s economic development, he maintained that political considerations will prevent China from meaningfully slowing its purchase of U.S. bonds in the next decade. Instead, protecting the currency, and therefore its growing export-driven industries, will be the Bank of China's main priority.
Keeping with this topic, moderator Davidson asked whether the Plaza Accord, whereby Japan allowed its currency to appreciate against the dollar, was a meaningful precedent for the current situation characterized by the U.S. current account deficit, and specifically its trade deficit with China. Most panelists agreed that the political alignment of interests that supported the Plaza Accords does not exist now, and that the Chinese would be unwilling to risk the recessionary consequences experienced by the Chinese in decade following Plaza.
Professor of Economics, University of Southern California
George C. Pardee and Helen N. Pardee Professor of Economics and Political Science, University of California, Berkeley
Senior Global Markets Economist and Co-Head of Currency Research and Strategy, Goldman, Sachs & Co.
President and Director of Research, EQA Partners LP
Wed 4/309:25 am - 10:40 am
The Global Competition for Commodities
Wed 4/309:25 am - 10:40 am
Brazil: Latin America's New Economic Powerhouse
Luiz Henrique da Silveira, the governor of the State of Santa Catarina, began with a brief talk that heralded Brazil's successes of recent years, including its political reforms, higher quality of life, abundant natural resources and high human capital. "Brazil today is one of the most attractive countries for tourism and business," said the governor. Speaking specifically of Santa Catarina, he said that economic growth rates are higher than the national average, 50 ports are currently under construction, and the state open to new partnerships. "You are welcome in Santa Catarina," he told the audience. "I repeat, you are welcome."
Ana Vigon of AIG Capital Partners in São Paulo reiterated Brazil's positive attributes, citing controlled inflation, sustained external debt and higher consumption as a consequence of those political reforms and better management. There is a booming middle class, she said, as well as increased credit consumption and low unemployment. Sustainable growth is a result of not only commodities but also from domestic consumption, she said.
Vinicius Lummertz da Silva, the secretary of foreign affairs of Santa Catarina, said that as a consolidated democracy with a multiparty system, Brazil is situated for sustained growth. Brazil is much richer that China and India, he asserted, and has a growing internal market. He added that although government expenditures are high, at 30 percent, this spending has helped stabilize the economy and move people into the market.
"I am an unabashed supporter of Brazil," said Arthur Byrnes, of Deltec Asset Management. "But they have been lucky." Offshore oil discoveries, hydroelectric capabilities and vast resources have been economic drivers. Da Silva agreed, adding that that Brazil continues to be politically stabile, compared to some of its neighbors, and citing its lack of racial, religious and urban tensions.
When asked about the risks of investing in Brazil, Byrnes said politics do remain a concern for him. "The country's institutions aren't strong enough yet to stand a bad president," he said. Also mentioned were high taxes, corruption, poor infrastructure and red tape. Vigon cited the large number of ministries, higher government spending and the recent increase to 70,000 public servants.
"I think people start to differentiate countries now," she added, noting that the Brazil has not suffered from the negative perceptions associated with its neighbors. Despite this, she said, it is still a challenge to persuade American investors to enter Brazilian markets. "We have to explain how things are different in Brazil," she said. Da Silva added, "We can't expect (Venezuelan President Hugo)Chavez to exist in Brazil. The preconditions for someone like Chavez were gone a long time ago."
Byrnes also cautioned that contract laws are weak, but improving. "Brazilians are good at getting things done," he explained. "The free market has overhauled some of the old practices in a good way." He stressed the importance of investing in the middle class, and Vigon added that many opportunities exist in education because the president is supporting postgraduate education and people are looking to invest in that sector. She also added that the best-performing stocks last year were banking stocks.
"Brazil has the second-largest development bank in the world," said da Silva. "If we improve the regulatory system and bring in private equity, I think we are going to have large and sustainable growth."
Wed 4/309:25 am - 10:40 am
Investing in the Future: Accelerating the Clean-Tech Revolution
The broad definition of clean technology refers to a vast set of technologies in the sectors of bio-fuels, renewable energy, energy storage, and water and air quality. Daniel Weiss of the Angeleno Group suggested that "the numbers say it all," with $200-$300 million invested in clean energy seven or eight years ago vs. $3 billion dollars invested in 2007.
This growing sector is of special interest to policy makers, investors and companies -— but could the hot pursuit of solutions lead to a bubble? Margot Wirth of CalSTRS observed that we may be seeing a bubble on a sub-sector level, especially with ethanol. Jonathan Bloch of GKM Ventures argued that the clean tech sector is moving in the right direction but cautioned that peaks and valleys are still to come.
How is the current credit crunch affecting the clean-tech sector? Joanne Yoo of NY State Common Retirement Fund stated that no sector is completely immune from the crisis, and that this could affect important issues of exit opportunities. But she also noted the opportunity to recruit high-profile executives in such times. Wirth agreed with Yoo, but felt that this sector is less affected by the current crisis than most. Frances Arnold of Cal Tech observed that she sees enough capital available to start with, but she questioned who will take the risk and invest in taking things to a truly large scale when the time comes.
The panelists turned their attention to the role of major players such as GE and Honeywell, which are strategically investing in clean technologies. Weiss believes the decision is made on a case-by-case basis. "Strategic partners are looking for value," he said; if there are profitable opportunities, they will consider investing. It is critical for the clean-tech sector to have large, established corporations willing to commit capital. Bloch added that collaborating with the major players and understanding how the market operates is vital to ensure successful exits in the future. Yoo warned that strategic partners sometimes don't share their entire plan, and "strategic priorities sometimes turn out to be strategic public relations."
The involvement of strategic partners is related to the fact the sector requires massive capital investment to achieve large-scale implementation. Bloch offered a point of comparison: software companies need $40 to $50 million these days in order to sustain their future and become profitable, while clean-tech companies need $75 to $100 million just for proof of concept. He added that only solid returns will generate interest with investors. Yoo agreed, emphasizing that "this is not a social exercise" and these firms are subject to the same investment criteria as any other sector.
The panelists predicted that we will see strong growth not only in alternative energy but also in water, green materials, agriculture, health care, remediation, solid waste, carbon sequestration, transmission and distribution infrastructure, batteries, lighting, bio-fuels and other alternative liquid fuels. Public policy can help foster opportunities. For example, the spread of renewable portfolios at the state level is a powerful tool.
Another key factor will be the future price of carbon. According to Yoo, making carbon a financial issue is critical when looking from cost perspective. It is currently not incorporated into baseline calculations and will not be among the considered factors until legislation is in place, according to Weiss. Companies cannot count on profits from carbon reduction at this point.
The panel agreed that the clean-tech sector must be global in nature, especially when competing against more traditional investments. The track record of a management team, the regulatory environment, the path to commercialization and scalability are all important issue to combine with proven technology.
In conclusion, the panelists were asked for their personal outlooks on the near-term future of clean tech. Bloch emphasized his belief that all of the components for long-term success are at hand; he hopes to see growth without the sector becoming overheated. But speaking for everyone, Yoo expressed her hopes that we will see science move from the lab to the market quickly to serve our future needs.
Dick and Barbara Dickinson Professor of Chemical Engineering and Biochemistry, California Institute of Technology
Senior Managing Director and Managing Partner, GKM Newport; Managing Partner, GKM Ventures
Co-Founder and Managing Partner, Angeleno Group
Portfolio Manager, Alternative Investment Program, California State Teachers' Retirement System (CalSTRS)
Senior Investment Officer, NY State Common Retirement Fund
Wed 4/309:25 am - 10:40 am
The Coming Entitlement Crunch
Robert Litan of the Ewing Marion Kauffman Foundation warned that much of the public is not even aware of the entitlement crunch problem. It′s a political hot potato, which explains why both parties are silent on the issue. "Democrats don't want to talk about it because they don't want to concede that there will have to be cuts in their favorite programs and that they'll have to raise taxes," he explained, adding that Washington knows the Medicare trust fund is going to run out of money. Litan predicted a crisis in Washington and urged for entrepreneurs to look for market solutions. With two-thirds of expected cost increases driven by inflation, and health-care costs rising 4 percent faster than the Consumer Price Index, why aren't there the equivalents of big-box retailers or airlines in the health-cares sector?
The reason? Insurance. As long as people are paying the low co-pays or deductibles, there is no incentive to cut costs, he said. The solution may be a progressive deductible. Incentives matter, said Litan, and there won′t be entrepreneurial responses if there are no incentives. Harness the power of the free market, he urged.
Peter Orszag of the Congressional Budget Office discussed how the American political system doesn′t deal well with creeping long-term problems. He offered four possible options: One is to "beat the drum louder." Second would be to change the political system. Third, try to create a false sense of crisis with social security reform. And, finally, try to approach the problem in different ways that are salient today. "Since the bulk of our problem is health care, let's try to grab that," he said. He also noted that the growing gap in life expectancy between higher-income, better-educated people and those of lower income. When looking at the problem as a whole, means and averages are fine for study, but it's important, he said, to look deeper within those statistics. Essentially, Orszag concluded, there are only two solutions: more revenues or fewer benefits. It should also be easier to help people lead healthier lives — little things like moving fruit displays to the front of the cafeteria line. "There needs to be more psychology in public policy," he said.
One-third of the American population is currently in retirement and enjoying the productivity of the rest, said Sylvester Schieber of the Social Security Advisory Board. The problem today is to ensure that the entitlement programs won't disappear for the younger generations who are contributing and paying for the benefits — a "grossly unfair" situation, he added.
Eugene Steuerle of the Urban Institute compared the current entitlement problem and the tax reform of the 1980s. Tax reform occurred was because there was a "vacuum" of need and major efforts coming in to fill that vacuum, he said, adding that "each incoming president gets one big package he wants," and with the right president, this could happen. Overall, the panel agreed that there will be continued debate as to what health care will look like in the future, but that some means exist now to help constrain the costs.
Wed 4/309:25 am - 10:40 am
Opportunities Across Asset Classes in Emerging Domestic Markets
"We're investing in places, people and things that no one else is," said Tyson Pratcher of New York State Office of the Comptroller. "We think that we're getting access to a great talent pool in terms of where the nation will be in the future."
Building on this point, Luther Ragin of The F.B. Heron Foundation said that although there are challenges, the field has grown tremendously compared with five years ago. "We've established a track record of success," he said, "and there's now greater awareness on the part of institutions and foundations about the ability to get great returns and do social good."
Although the investors and funders seek a double bottom line (both social and economic return), they all agreed that their strategic objectives are to deliver market-rate returns. A variety of asset classes can be used, including public equities, fixed income, real estate, private equity and cash. The panelists are involved in a variety of double bottom line activities.
The Bay Area Equity Fund is a $75 million fund started five years ago. "We focus on emerging growth companies in or near low-income neighborhoods, to create jobs and engage in the public sphere," said Nancy Pfund of DBL Investors LLC. "We're currently invested in 18 companies, and we′ve created 1,300 jobs, 700 of which are for entry-level, low-income people. In terms of performance, we're in the top quartile of funds in our 2004 class."
Phoenix Realty Group is a real estate concern investing in mostly residential and some commercial projects. Managing director Jay Stark explained that its projects include transit-oriented developments and brownfield conversions geared toward moderate-income and entry-level home buyers.
David Sand, who operates the Community Investment Fund founded in.1998), said it uses fixed-income assets to make market-rate returns in specific geographic areas of interest to the investor, such as located in their home state, region, city or community.
The Heron Foundation diversifies asset classes under management in order to achieve market-rate returns, said Ragin. With $300 million in assets, his foundation has outperformed most of the U.S. foundations that would consider this way of investing too risky.
Pratcher′s New York Common Fund, with $160 billion in assets, diversifies both who makes investment decisions and where investments are made in order to achieve better alignment with the beneficiaries and targets of such investments (e.g., more inclusive of women and immigrants).
Pfund and Ragin both described returns in the 12 percent to 30 percent. Other panelists declined to state their returns but indicated they and their investors are happy with the results in the face of challenging market conditions.
Turning to those challenges, Pfund noted that "there's a silver lining to the crisis some benefits to small companies in this environment." She cited Solar City, a community-oriented and innovative solar installation firm that has done $29 million in sales. To overcome upfront capital costs, which are the largest barrier to residential social installation, Solar City worked with Morgan Stanley to develop a new financial instrument to help buyers.
Stark discussed Puerta Del Sol, a $6 million transit-oriented brownfield conversion development done in partnership with a community-based affordable housing group. This best-selling community had financial returns that were off the charts, he said. His firm has also partnered with a church to build an apartment building in Harlem. The church occupies the first five floors of the building, and residences are built on top.
"That sounds too good to be true," said moderator Betsy Zeidman of the Milken Institute. "Why isn't more of this going on?"
"It's hard," replied Stark. "It takes elbow grease. On the real estate side, you have to go through many regulations. In low- and moderate-income neighborhoods, projects take longer, and the externalities are different from doing traditional greenfield development."
"It takes work, but it's very satisfying" says Pfund. "Private equity investors need a nontraditional lens to see opportunities. The connections that must be developed take place not at the national or state level, but at the city, community and mayor's office level. This is not the domain where traditional venture capitalists have connections."
"We've all agreed that there is a tremendous opportunity here," cautioned Ragin, "but investors need to look closely at not just the financial returns, but the social returns. What is being offered and delivered? While projects sound good at the outset, they can have some misleading vocabulary and marketing along with them. Due diligence applies not just to the financial side, but to the social equity side as well."
Managing Partner, DBL Investors LLC
Assistant Comptroller, New York State Office of the Comptroller
Luther Ragin Jr.
Vice President, Investments, The F.B. Heron Foundation
President and Chief Investment Officer, Access Capital Strategies LLC
Managing Director, Phoenix Realty Group LLC
Wed 4/309:25 am - 10:40 am
Building Global Internet Brands
Building a truly global brand requires that companies adapt promotional activities to local needs. When Monster.com tried importing a U.S.-generated commercial to Europe, said founder Jeffrey Taylor, the company met with limited success but learned to solicit input from local employees and create advertising content for individual countries. "A big part of the process of global branding is not to have the hubris to say we know everything about building the brand around the world," he added, noting that it is also important for a company to defend its Internet brand by securing international domain names that are related to the brand.
Panelists debated whether branded or generic domain names are most valuable to building an Internet brand. Mike Zapolin of Music.com, who also moderated the panel, explained that generic brands, such as music.com, beer.com and music.com, are valuable because the domain names bring credibility and legitimacy to consumers. Andrew Miller of Internet Real Estate Group elaborated on the evolution of the creditcards.com brand: His company purchased the domain name for less than $100,000 and eventually sold the brand for several million dollars after partnering with credit-card providers to allow visitors to apply for credit cards on the site. The buying party further developed the site′s capabilities and brand, eventually selling the site for more than $100 million. The brand was successful because of the credibility inherent to its name. Taylor said he favors the use of unique or branded domain names, such as monster.com, eons.com and kayak.com, rather than generic domain names. "The brand is incredibly important," he said. "I'm a huge believer in branded domain names."
It is essential for Internet companies to have a sustainable, underlying business model and not simply focus on brand proliferation. Robert Diener of Hotels.com said, "You need to build a solid business" and focus on creating a strong foundation to maximize the value of an Internet brand. Hotels.com started as Hotel Reservations Network in 1991 and created a sustainable business as a booking agent before purchasing the hotels.com domain name and launching the brand in 2002. The company took a low-cost approach to promoting the hotels.com brand by producing its first series of commercials internally. The campaign resulted in an increase in brand awareness by more than 80 percent within nine months.
Viral marketing has an increasingly important role in building Internet brands. Steve Mitgang of Veoh Networks has grown veoh.com to attract more 18- to 24-year-old users than Facebook.com, largely through word-of-mouth advertising from users. Veoh.com is a viral, socially built brand, he said, and companies must become comfortable with viral content as user-generated content and word-of-mouth advertising become more common among Internet users. Mitgang now faces the challenge of finding ways to monetize the traffic the site receives from international visitors.
Zapolin thinks that the current environment for Internet branding is exciting. In 2007, he said, only 7 percent of advertising was spent online, while 21 percent of all media was consumed online. There will be great opportunities with Internet branding as the portion of advertising spent online converges with online media consumption.
Wed 4/309:25 am - 10:40 am
The Changing Rules of PR and Corporate Influence in the Digital Age
David Meerman Scott, a viral marketing strategist, moderated this eclectic panel, which featured one of the most interesting and rowdy debates of the conference. The experts panel sometimes clashed as they analyzed where public relations is headed in the next 5 to 10 years, and how the Internet will continue to change the way information is filtered, presented and translated into a format that can move an audience of consumers.
It's a whole new ballgame these days, according to Steven Rubenstein of Rubenstein Communications. "Everything is instant. Everyone wants to cut through all the noise and all the extra info that bombards them each day. The media needs to be able to tell an engaging story and have great content. Stories tend to travel and bubble up," he advised. "Our business is 'nichier' and we need to know it better than those bloggers do, or they'll eat us up."
Calacanis arrived late, and burst into the room full of opinions. "Listen, I'm the one keeping it real," he insisted. "Journalists' relationships with public relations firms are unnecessary and way overpriced." This elicited a surprised reaction from the audience. "I'm saying what needs to be said," he continued. "It's about time we go direct. Who would you rather speak with, the president of a company or his/her PR person? It's not rocket science. And most CEOs want to talk to customers directly as well, not hear information filtered from an overpaid third party who acts like the most important person in the room."
He continued by pointing to Steve Jobs as an example. "He says, 'Look guys, this is my (stuff). This is what it does. What do you think? Like it?'" In this way, he is able to communicate directly with customers on a personal level, and make the necessary changes to improve his product or keep it the same. As a result of this direct communication, Apple is one of the most successful companies on earth.
Hope Boonshaft of Hill & Knowlton injected that honesty is always the best policy. "Tell the truth and get the message across with grace and dignity — in the best way possible," she stated. "All you can do is your best. Sometimes a mess does occur, but we can only do our best to mop it up and move on."
A video clip from YouTube about viral marketing was shown as an example of a new and creative way to market a product. "YouTube is fantastic!" exclaimed Boonshaft. "Look how it helped tell the story and get a message out."
Calacanis insisted that "company heads need to go to parties and do the meet and greet. They need to meet people directly, without any glorified assistants called public relations." But Rubenstein raised an excellent point: "What about when a crisis occurs, what then?" Calcanis conceded that public relations may be helpful in sticky situations.
The panel discussed the need for CEOs to learn to blog, use new social networking tools and learn how to facilitate public conversations. CEOs should be in the trenches, not hiding behind their desks. "You've got to get in the game!" Boonshaft urged.
Scott concluded the session by asking the panelists: "If you were sitting with the 'Governator' and he asked you for the most important keys to blogging, what would you tell him?" The answers included creating an organic dialogue, honesty, creating a platform for information exchange, transparency, respect ... and a little bit of pizzazz.
Wed 4/309:25 am - 10:15 am
Wed 4/3010:50 am - 12:05 pm
Financial Innovations: Complexity Isn't Innovation, Leverage Isn't Credit
"The root causes of this crisis are only peripherally related to innovation," maintained Lewis Ranieri of Hyperion Private Equity Funds, "and it is financial innovation that will help us get out of it."
Michael Milken introduced the topic of financial literacy and how it relates to our current financial crisis. He felt that the main issue has been the incorrect evaluation of risk and company valuations. Regarding the subprime mortgage crisis, he commented: "The money was lost the day the loan was made." Milken emphasized throughout the panel that the ultimate goal of financial innovation is to provide tools to address health care and social issues, and ultimately to relieve worldwide poverty.
Andrew Rosenfield of Guggenheim Partners asked the panel to address the current financial crisis and their relative outlook. While Ranieri was optimistic about the use of financial innovation to find our way forward, Scholes disagreed, expressing his concern that Federal Reserve measures are insufficient. He mentioned that the current financial turmoil can be mostly attributed to a combination of the de-leveraging of financial instruments and the credit crisis. He added that a change in the perception of risk in real estate investments is needed. "The public and the financial community will need to accept the move to a new state where housing prices will not always necessarily go up."
Milken followed with five key points on the current state of financial innovation and the economy:
1. Homeowners are ultimately concerned with their monthly mortgage payments more than their home's overall price. Therefore low interest rates will help the housing market.
2. Adjustments in the markets have already been made. To create protection against a crisis, American consumers have to become more liquid, not less.
3. The current depreciation of certain asset classes implies that financial institution have chance to buy assets at favorable prices.
4. There is excess liquidity in the world, especially in Asia.
5. The world is NOT leveraged, and history does not correlate rating and default very well, so it is expected more money will be lost on AAA securities.
Scholes insisted that "[there is] not a lot of liquidity because people are not selling their houses," and "institutions will not take much risk until they understand more about it." Milken added that in our current financial system, "70 to 80 percent of bank loans are not owned by the banks themselves." Ranieri reiterated that financial derivatives are a good thing because they allow risk to be spread around the world. However, they were abused in the current housing crisis. Consumers similarly got carried away: "We turned the house into an ATM."
Sandor of the Chicago Climate Exchange praised financial innovation, adding that "There are 1.3 billion people in China that want to imitate the financial systems in the United States."
Despite the current crisis, the panelists unanimously supported financial innovation as the key to global growth. Milken emphasized that we need to understand complex financial innovations and use them properly, as they will be the best tool for lifting populations out of poverty in the developing world.
Prime Originator and Founder, Hyperion Private Equity Funds; Chairman, CEO and President, Ranieri & Co. Inc.
Wed 4/3010:50 am - 12:05 pm
Asia Rising: The World's Most Dynamic Economy Comes of Age
Wed 4/3010:50 am - 12:05 pm
A Brave New World: How Capital-Market Innovations Will Change the Face of Corporate Restructuring
Wed 4/3010:50 am - 12:05 pm
BRIC Real Estate: Investment Opportunities and Challenges
Linda Assante of Oak Hill Investment Management kicked off the panel by reminding the audience that although the Russian population is shrinking, China, India and Brazil will combine to add 360 million people to the global population within the next ten years. This statistic, combined with significant economic growth, will drive sustainable large-scale demand for all types of real estate in the BRIC markets.
At a macro level, Michael Golubic of the Townsend Group stated that the exploding demand for commercial and residential space has created an urgent, opportunistic investment atmosphere and returns between 20 and 30 percent. Golubic also mentioned that, in general, real estate makes a good inflation hedge due to the ability to pass on price increases through increased rents or CPI-adjusting contracts. However, Peter Madden of APG Investments US reminded the audience that the real estate boom has led to a significant shortage of human capital in all markets, and that no investor should move forward without qualified local personnel on the front lines.
As the discussion moved to India, Katherine Farley of Tishman Speyer and Rajesh Agarwal of AIG Investments described the factors currently attracting investment capital. Due to the fact that the Indian market only opened up to foreign direct investment in 2004, there are currently more hotel rooms in Orlando than there are on the entire Indian subcontinent. Similarly, India has only 1 square foot of retail real estate per capita, as compared to 20 square feet per capita in the United States. India is currently about 4 million housing units short, and demographic trends are exacerbating the problem, with a young population and increasing numbers of women choosing to live alone rather than with their parents. The government is trying to encourage development with tax incentives, but with India on track to have 70 cities of more than 1 million people each by 2020, the bureaucracy may not be moving fast enough.
India is not without its challenges. Many investors have been frustrated by the desperate lack of infrastructure; the slow, wasteful bureaucracy; the minimal access to local financing; and the recent poor performance of the Indian stock market.
The population growth issues in China are very similar to India, but the key difference is the role of government. Farley stated that if an investor's goals align with the goals of the Chinese government, things can happen very quickly. She argued that her firm looks for investments with strong fundamentals that have the potential for a "pop" from market developments such as high-speed rail and "green" incentives. Farley also stated that although China is full of flashy office buildings, once you peel back the exterior and look inside, many of them don't have the internal office layout to fit the needs of multinationals looking for true class-A commercial space.
Many investors are scared off by the fact that the Chinese government owns all the land in China, only providing 50-year commercial leases and 70-year residential leases to developers. Farley acknowledged this risk, but emphasized that working with the U.S. government can actually be more risky due to the higher potential for litigation.
As the conversation moved on to the Brazilian market, João Teixeira of GoldenTree InSite Partners provided some excellent insight into the root causes behind Brazil's real estate boom. The Brazilian government provided additional mortgage protection to the banking industry several years ago. Since 2005, mortgage interest rates have dropped from 14 to 10 percent, loan durations have grown from 15 years to 30 years, and loan volume has grown from $3 billion to more than $15 billion. This has increased the market for a $150,000 condo from 2.5 million potential buyers to 5.5 million potential buyers just based on affordability metrics. These banking changes, combined with more than 8 billion gallons of oil reserves found off the coast of Rio, controlled inflation for the last 15 years. An 18 million-unit housing shortage makes Brazil one of the hottest real estate markets in the world.
The challenge for this kind of market is rapid price appreciation for investors who aren't in the market yet. Urban property values are skyrocketing, cap rates have dropped from 13 to 9 percent, and the lack of consistent institutional control outside of the major urban centers all combine to increase risk.
Although all the panelists acknowledged the incredible potential of the Russian market, many of them were still in the "wait and see" mode when it came to capital allocation. Michael Golubic's clients had enjoyed some success partnering with the World Bank, but outside of international institutions, working with the oligarchy could produce results, but also plenty of negative media attention. The combination of language barriers, lack of transparency, corruption and a general lack of faith that investors would be able to get their money out of Russia has kept a lot of international capital on the sidelines.
When asked about what countries might appear on the global real estate radar screen next, Turkey and Vietnam topped the list, followed closely by Mexico, Colombia and Argentina.
As the conversation wrapped up, the panelists all emphasized the importance of having a qualified local team on the ground prior to investing and general optimism about the future of the BRIC markets.
Managing Director, AIG Global Real Estate; Head of Global Real Estate Division, India, AIG Investments
Senior Managing Director, Emerging Markets and Global Corporate Marketing, Tishman Speyer
Consultant, The Townsend Group
Executive Director and Co-Head of North American Real Estate Investments, APG Investments US Inc.
Managing Director, GoldenTree InSite Partners LP
Wed 4/3010:50 am - 12:05 pm
ROI for Early Childhood Education
Teresa Rasco of Stanford University's WorkLife Office explained that child care is important when Stanford is trying to recruit highly sought-after faculty, especially for tenure-track positions. The cost of living near the university is extremely high, she said, and child care has often become the deciding factor for faculty applicants. This sentiment was echoed by Lynn Franzoi of Fox Entertainment Group. She noted that the company′s onsite child-care center has been a great benefit for Fox employees — but a costly one for the company. The center has a small child-to-teacher ratio, and the teachers, 50 percent of whom are continuing their education, are paid on the higher end of the pay scale. As such, the center has been running a huge deficit, which she estimated was close to $1 million. Many would balk at this figure, but as Art Rolnick of the Federal Reserve Bank of Minneapolis noted, there are very few areas where an investment would yield a higher rate of return.
Rolnick discussed a research study that showed how focusing high-quality resources on at-risk children yields a rate of return of 16 percent. When compared to the control group, the exposed children were more likely to stay in school, the crime rate dropped 50 percent, and students performed better overall in school. Consequently, early childhood education must be viewed as an investment with far reaching, multidimensional benefits.
Jane Swift, the former governor of Massachusetts, spoke about the barriers of taking this concept to scale. First, she said, there is conflict between what parents realistically need and what experts view as high-quality early childhood education. This is especially evident in low-income families. Next, policy makers have to address the tension between allocating funds in a tight budget climate and knowing that allocated funds are well spent. Finally, she said, was the difficulty of replicating the quality of such programs at scale. As such, private funding is an important source of initial funding for these programs.
The Minnesota Early Learning Foundation, or MELF, is an example of using private funds to finance early childhood educational initiatives, said Rolnick. MELF reached out to numerous CEOs and raised approximately $30 million in private funds to target 1,200 poor families and provide them with early childhood programs. In an attempt to bridge the gap between parents and "experts," parents will be empowered to bring about change in their families and in their communities. Prenatal nurses will become mentors to families, and there will be scholarships for 3- to 4-year-olds, which are estimated to have an annual cost of $13, 000. Of note, MELF anticipates evaluating this program within two to three years. Rolnick urged the audience to raise tough questions when told that there is no money in the budget for such programs. Although he acknowledged that competition is stiff for scarce resources, public-private partnerships can provide an opportunity to move beyond this.
Recent statistics show that 93 percent of employees say worksite child care is an important factor when considering a job change, and businesses report an estimated $3 billion loss as a result of child-care issues. As such, investing in early childhood education is imperative for creating and maintaining a quality work force. For those who believe that we cannot afford to invest in our children, this session suggested that we cannot afford not to.
Senior Vice President, Benefits, Fox Entertainment Group
WorkLife Office, Stanford University
Senior Vice President and Director of Research, Federal Reserve Bank of Minneapolis; Associate Economist, Federal Open Market Committee
Principal, WNP Consulting LLC; Former Governor of Massachusetts
Wed 4/3010:50 am - 12:05 pm
Personal Technology: Digital Innovation
How has the distribution of digital content changed in the 21st century? As moderator Michael Stroud of iHolywood Forum explained, digital content has enabled huge numbers of people to participate in Internet communities, and to use the web for entrepreneurial innovation. He noted that Moore's Law — developed by Intel co-founder Gordon Moore in 1965 to show that computer integrated circuit capacity doubles about every two years — can serve as a sign of the times for Internet growth as well. With that growth in capacity has come a surge in television, movie and music content available to the public. The panel agreed that the future is bright for digital innovation.
As the Internet is bombarded with the more sites like YouTube and Itunes, we can expect to see a changing trend that includes the seamless exchange between the cell phone and Internet, and "open networking," in which the restrictions on equipment types and modes of communications, content and platforms do not exist. This openness will facilitate the oneness between the device and medium, said Stroud, adding that we already have massive networks to handle this phenomenon. "Distribution of content will be frictionless and not bounded by any platform in the future," he predicted.
As more companies like his emerge, said Eric Feng of Hulu.com, "we are going to see the bridge between TV and the Internet." Hulu.com allows viewers to watch television clips and episodes for free online. Having content that is available on demand and flexible will make the distribution pipeline "low friction," he said. The upcoming battle will be to ensure that quantity doesn't supplant quality.
The biggest issue for content distribution will be to ensure it remains free, the panelists said, noting that newspapers and the music industry are facing financial trouble ahead unless their content is either offered free online or with reduced entry points, such as that offered by the iTunes music downloads library, where songs cos just 99 cents. They also warned that it will be a challenge to monetize any content unless it is of high quality.
In a world of techie teenagers who embrace Facebook and MySpace, we see both the changing mindset and the change in content that is posted readily available. Younger Internet users aren't bothered by the lack of privacy, said Andres Jordan ot Deutsche Telecom/Tmobile. "We are trading privacy for accountability," he added, "and we need balance." As times change, attitudes about online privacy will change, and its importance will change accordingly, he suggested.
The vision in 10 years for content distribution is going to be dramatically different, the panelists said, predicting that content will become free, and that convenient and social environments will dominate. The Internet will become a platform of common interests and shared hobbies, becoming the lifeline for content generation.
Senior Vice President of Audience and Chief Technical Officer, Hulu LLC
Vice President, Digital Media Technology Strategy, Sony Corporation of America
Vice President, Innovation, T-Systems (Deutsche Telekom North America)
Senior Fellow, Corporate Technology Group and Director, Manufacturing Strategic Support, Intel Corp.
Wed 4/3010:50 am - 12:05 pm
Containing Climate Change: Beyond Kyoto
Robert Hahn of the American Enterprise Institute led the pack in grounding the discussion in politics. Recalling an anecdote from working on the Clean Energy Act decades ago, he noted that while he and other analysts were sweating the details of the program design, a senator told them, "Listen, you guys, don't worry about it. Whatever you send up is going to be dead on arrival," presumably being entirely marked up with political compromises. The lesson being that as we discuss proper policy responses to the climate problem, politics "is something we′re going to need to factor into the equation, as well."
This idea can frame many of the other issues discussed. On the issue of auctioning permits for a cap-and-trade system, Joseph Aldy of Resources for the Future pointed out that clearly the theoretically optimal thing to do is auction off all permits and use those funds to reduce taxes in other areas, thus doubly stimulating innovation toward low-carbon technologies. Of course, "how you cut up the pie is critically important," he added. Hahn again emphasized the distinction: "Don't assume this money is going to be spent the way economists want it to be spent."
When the discussion came to the issue of whether cap-and-trade systems should have safety valves or other mechanisms to prevent the price of credits reaching too high a value, Steve Kline of PG&E expressed similar concerns about prescribing a fixed safety valve policy, noting that "we have a fundamental concern about well-intentioned systems that sometimes go haywire."
The panelists also touched on international issues, with Nathaniel Keohane of the Environmental Defense Fund providing a nice segue linking the intra-national equity issues between U.S. states to national equity issues in climate policy. Specifically, a climate policy must address how to treat states or countries that have already taken many steps to reduce their emissions. States like California already have very energy-lean economies, while Japan is in a similar position at an international level. Should states in this position be forced to achieve further reductions, in effect discounting what some would argue has been climate leadership? What is the proper baseline against which they should be measured?
Whatever the answer, these equity concerns may be overshadowed by the issue of who will bear the burden of impacts and adaptation to climate change. As Aldy discussed, developing countries lack the capacity to adapt, and more of their economies are exposed to climate change impacts. On the other hand, Keohane emphasized that when it comes to the large rapidly industrializing economies like China and India, we will need them to take action to mitigate, rather than just adapt, but "we're gonna have to show we're serious first."
Fellow, Resources for the Future; Co-Director, Harvard Project on International Climate Agreements; Co-Director, International Energy Workshop
Resident Scholar and Executive Director of the Center for Regulatory and Market Studies, American Enterprise Institute
Director of Economic Policy and Analysis, Environmental Defense Fund
Vice President, Corporate Environmental and Federal Affairs, PG&E Corporation
Wed 4/3010:50 am - 12:05 pm
A Conversation With Lynda Resnick: How to Make Your Company Stand for Something
Resnick knows the power of a good story, and she opened with her most recent chapter, the launch of a new book titled Rubies in the Orchard: Finding the Hidden Gems in Your Business. The book recounts how Resnick and her family company, Roll International, turned a small inherited field of fruit trees into a company that now farms 14 million pomegranate trees and is the largest cultivator of tree crops in the United States. Creating a market for the juice of a fruit that only 4 percent of the U.S. market had heard about in 2002 is pretty remarkable, but it's not the only marketing triumph in Resnick's repertoire. After turning Teleflora into the leading international floral company, the Resnicks acquired Fiji Water in 2004, and transformed it into a premium brand.
Resnick stated that her husband Stewart handles the financial aspects of the family business and their dynamic complementary partnership is the common thread running through their many successful ventures. Stewart knew the economics supported farming pomegranates over pistachios on land planted with both types of trees. Lynda researched the legendary health benefits of the pomegranate, verified the real health benefits provided by their antioxidants and then launched the brand POM Wonderful. Because of the value of the brand she created, she actually launched a whole new industry for foods with high antioxidant properties.
Resnick discussed her framework for marketing success: value, a unique selling proposition and transparency. "Value means nurturing and cultivating the value in your brand," she stated. "With POM Wonderful juice, we don't dilute value. We enhance it." She cited the history, the exotic nature of the product and its taste as potential values that could have identified POM, but she chose instead to focus squarely on its health benefits as a distinct value.
She pointed to the unique selling proposition of Fiji Water, which is artesian water, filtered for 200 years through volcanic rock before coming up through a deep bore hole straight into the bottling process. Resnick recalled how many people originally doubted the water really came from Fiji; her response was to put the story on every bottle and actively market the water's origins.
The issue of transparency is a business reality that no company can ignore. "They say honesty is the best policy, but I want to tell you that it's not. It's the only policy," Resnick insisted. "The Internet is infinite, and one of the most important realities in business today is that the Internet is almost making the world a small town. In a small town everyone knows who is honest and who's a crook. In the 21st century, brands need values as well as value."
In a final Q&A session with the audience and Graham, Resnick shared some of her other strategies, including reaching early adopters, following Internet postings 24/7 to see what's being said about her brands, keeping all of her company services in house to control quality, building third-party endorsements through relationships with the press and trusting her gut instincts. The challenge of making brands become part of the fabric of America continues to excite and fascinate this contemporary marketing legend.
Wed 4/3010:50 am - 11:35 am
Book Signing: Frank Luntz
Words That Work: It's Not What You Say, It's What People Hear
Wed 4/3012:15 pm - 2:00 pm
Lunch Panel: A Discussion With Gov. Arnold Schwarzenegger
When asked whether a committee similar to the United Kingdom's newly created Infrastructure Planning Committee can be instituted in California, Schwarzenegger replied that it would be very difficult to accomplish because of bureaucratic and ideological obstacles that exist in California and throughout the United States. For instance, legislators in Sacramento would fight against it, believing that it would harm unions. Schwarzenegger wants to take the legislators to British Columbia, where such an entity has been successfully established.
The governor also spoke about his partnership with Gov. Ed Rendell of Pennsylvania, a Democrat, and Mayor Michael Bloomberg of New York City, an Independent.
Recalling recent catastrophes in the United States that have resulted from a lack of maintenance, Schwarzenegger warned that there may be future tragedies unless something is done to improve our country's infrastructure. Milken then discussed America's lack of investment in infrastructure as compared to other countries, especially emerging nations like China. When asked whether California can lead other states on this issue, the governor replied that the state has had a great deal of influence nationally and even internationally, and it can wield influence in the area of infrastructure as well.
Schwarzenegger stressed the importance of speaking to the public in terms that they will understand when encouraging them to vote on propositions. For instance, instead of using the term "infrastructure," politicians should talk about roads, traffic, and the benefits of their improvement on people's day-to-day lives. Concepts like "public-private partnerships" should be explained in comprehensible ways as well.
Milken brought up the speed of building, which is slower in California than in other countries. For instance, it took 15 years to construct the Getty Center in Los Angeles. When asked if it would be possible to reduce the time it takes to build in California, Schwarzenegger replied that because of over-regulation, we have become less competitive in this respect. He recommended streamlining regulations, while reiterating that he favors the use of bonds for financing rather than raising taxes. The governor also called for Republicans and Democrats to work together toward the goal of enhancing business growth, which is hampered by an aging and insufficient infrastructure. He believes that building infrastructure will directly improve the economy.
The governor is also an advocate of environmentally friendly technologies, such as solar and geothermal energy. He believes they are a natural fit in California, mentioning that The Wall Street Journal called green, clean technology "the new Gold Rush in California" When considering nuclear plants, he said that we must ask whether they are financially sound investments, and whether renewable energy may be the better way to go. He reiterated his commitment to expanding the role of green energy and eliminating coal plants. "Technology will save us all," Schwarzenegger said. While touting the potential of the electric car, he also expressed worry about Detroit falling behind in the automotive industry. And he praised all three presidential candidates as being "good on the environment," while he personally endorses John McCain.
Milken mentioned the fact that much of the American public — and even many in Congress — do not own passports and do not travel abroad. Schwarzenegger talked about the importance of global travel. "The world is my classroom," he said. Seeing high-speed trains in France traveling at 350 km/hour or a new airport erected in Shanghai in record time motivates the governor when he returns to California. "We can copy," he said, because there is so much innovation going on the world that California should learn from and replicate. He encouraged legislators in Sacramento to travel globally as well.
In terms of higher education in California, Schwarzenegger stated that we should "change the visa system to keep international students here, especially in the high-tech and biotech industries." Likewise, he emphasized that the U.S. immigration system must be reformed once and for all, so that necessary work force can enter this country legally and formally.
Wed 4/302:10 pm - 3:25 pm
The Business of Sports
Recession became a key topic for the panelists, who agreed that sports teams suffer when consumers spend money elsewhere. The business of sports is based substantially on advertising, and Timothy Leiweke of AEG added that when consumers stop spending, retailers cut their sports advertising. Sumner Redstone of Viacom Inc, argued that "the best will survive because those companies are good at what they do." When he owned the New York Knicks, the team succeeded, he said. When he sold it, "they tanked."
Even in times of recession, said Casey Wasserman of the Wasserman Media Group, sports rights will continue to grow because new channels are developed faster than for any other media types. Grey commented on a recent statistic from Disney Inc.: 50 percent of its market capitalization is represented by ESPN. Redstone agreed, adding that "at CBS, sports are very important — they make the money."
Ed Goren of Fox Sports responded that all his company's contracts with sports entities generate profit, regardless of the deal size, although the Super Bowl is the single most profitable event in any day for Fox, earning the company over $600 million in one day. In fact, said Wasserman, nine of the top 10 most watched shows of all-time, have been Super Bowl games. "That," he added, "is the power of sports!"
The sporting industry in the United States constitutes a $51 billion market, growing at a rate of 37.6 percent a year. With Los Angeles offering a substantial market base, Grey asked the panelists if they thought there would be an NFL team in L.A. by 2015. "It would take two to three years to design a stadium, one to two years to sift through politics, two years to build the stadium, and that's not even talking about the team," said Leiweke. "I don't see how it could happen."
Globalization has been a growing phenomenon in sports, and Grey wondered what sport is best positioned to go overseas. Wasserman said he believes the NBA has the lowest barriers of entry and the biggest stars in the world, concluding, "The NBA can transport globally better and more efficiently than any other sport." Leiweke agreed but argued that sports facilities around the world are the biggest hindrance to the NBA spreading globally. "Once new facilities come online and the infrastructure needed to succeed is developed," he said, "this will enable the league to be global." Goren countered that baseball is the best positioned as a global sport. For example, when Japan won the World Baseball Classic, that victory empowered other countries to believe they could compete as well. "It created opportunity for expansion as a global sport," he said. Even so, Wasserman pointed out that soccer is currently the most global sport by far, and he doesn't see that changing any time soon. A testament to Major League Soccer′s success is its ability to build the "right" infrastructure in other countries.
Transitioning from soccer to "branding" and athletes, Grey stated that the top three sports brands are the New York Yankees, Real Madrid and Tiger Woods. "Tiger has an enormous impact in the business of golf," said Redstone, and the panelists agreed they didn't foresee another powerful athlete in our lifetime.
The most controversial topic of the session was mixed martial arts, which has been called a brutal sport and for which no standardized fight rules exist. All panelists recognized the sport's growth but said it directly conflicts with social responsibility. For that reason, said Goren, Fox didn't offer the sport. Redstone agreed, saying, "There is a difference between the bottom line and social responsibility. I don't believe MMA is socially responsible, but it′s good for the bottom line. Still, I don't like it."
As for gambling, Wasserman said there is a taboo in the United States that restricts gambling as a growth sport. He recommended we define what gambling is specifically because fantasy sports, such as March Madness brackets, are drawing a fine line. Leiweke warned that there must be some separation between those who own and gamble, but he predicted there will be a team in Las Vegas soon.
Finally, Grey asked how sports companies could capitalize on digital content. Digital sports media constitute their own $3 billion industry already. Fox rents its product to Internet media to protect the content rights, said Goren, but many entities give up these rights and it hurts business. Redstone acknowledged that the Internet "is still a small pot of business." However, "as we move ahead, it will be the growth business." As an illustration of how times have changed, Leiweke said, "ESPN was a secondary consideration when Disney initially bought its parent company."
Wed 4/302:10 pm - 3:25 pm
Lessons from California: Clean Tech and Energy Innovation
Both governors began the session by describing California's unique position in the country, and in the world, as a leader on climate change and environmental policy. Attorney General Brown cited California's history of entrepreneurialism and activism as key assets to facilitate progress in green technology, noting that 60 percent of green-tech venture capital goes to businesses in the state.
Davis agreed that California has a "record of innovation and conservation unmatched around the world." He added that California had also adopted a more realistic approach to power pricing, which has been important supporting commercially viable endeavors in this space. McFadden echoed this point by noting that the state has a decoupled system, under which megawatts get more expensive for customers as they increase consumption. Under systems in many other states, additional units of power are actually cheaper — a pricing structure that provides no incentives for efficiency. Policies like decoupling, she said, have helped California's aggregate energy use remain flat while its economy has grown, indicating increasing energy efficiency.
Crane shifted the discussion to the broader goals of climate change. Noting that California is responsible for 1 percent of global greenhouse gas emissions, he said that "we have to change the nature of the fuels we burn." He added that California's sheer size puts it in a unique position to influence the composition of energy produced in the country. He said that our "most powerful weapon is our demand. If [power companies] are going to be in business, [they] have to sell to California," and the state's environmental standards can therefore influence how power is produced.
Panelists, however, were realistic about the political challenges involved in taking action on climate change. Davis stated simply that implementing AB-32, a recent California climate change law, now would increase prices for energy consumers. Along those lines, McFadden added that while many customers want to take action on climate change, she estimates that at most 5 percent of PG&E customers would actually be willing to pay for an energy plan that complies with AB-32. Implementing this legislation would therefore require "a leap of faith," according to Davis.
Brown was blunt as he described a variety of procedural measures taken by legislators at the state level, as well as local governments, that might stall implementation of AB-32, which is set for 2012. "The rubber hits the road in 2012," he said. "And I want to be as far away from it as I can be." He went on to assert that the lack of discipline on the part of consumers, which led to the current mortgage-related credit crisis, might also limit American willingness to make real progress on climate change. This attitude poses a real challenge for politicians, who, as Davis mentioned, don't win by telling their voters that their standard of living will decline.
The panel wrapped up with each panelist highlighting the importance of California's research infrastructure. The research universities inside and outside of the UC system and the national laboratories in the state are a "real competitive advantage" and all agreed that keeping them funded should be a top priority for the state government.
Wed 4/302:10 pm - 3:25 pm
Building a Global Power: The Rise of India
Moderator Jonathan Sloane of CLSA Ltd. led a passionate discussion with leaders in telecommunications, microfinance, education and infrastructure financing, all committed to investment in India. Vikas Kapoor of iQor Inc., a pioneer in the development of call centers and account services, has been witness to the evolution of India's growth. Skilled, cheap labor serving industries with little competition is no longer an investor's reality. Increasing costs of labor and supplies, coupled with the expansion of competition in neighboring economies, have increased the price if doing business in India.
As investors deal with the rising costs, India is dealing with the increasing disparity in urban and rural economies. A large part of rural India has not been part of the growth expansion, stated Sucharita Mukherjee of IFMR Trust Guarantee Company. A leader in the microfinance industry, Mukherjee attributes a majority of lending program attrition to the dearth of supply chain linkages in much of rural India. "A lot of rural investment is lacking the infrastructure to succeed," and without financial services dedicated to increasing local capacity, the concentration of wealth within relatively few traders will be unavoidable.
All of the panelists were in agreement that investment in infrastructure is critical to the maintenance of economic expansion. Infrastructure is the "need of the hour," said Arvind Rajpal of Morgan Stanley. Only with investment in roads, rail, ports, education and hospitals will India achieve the First World infrastructure that it needs to compete. Thirty percent of the food produced in India rots before it reaches the consumer, said Rajpal, and he believes it will take a nurturing government, patient capital, and a deep and liquid bond market to achieve the necessary infrastructure expansion.
Investment in human capital is another essential component to India's continued success. "The Indian growth story is not sustainable without a change in the education system," said Shantanu Prakash of Educomp Solutions Ltd. More than 100 million Indian children are not enrolled in school, and the 3 percent of GDP invested in education pales in comparison to that spent by neighboring nations.
A parallel issue to the absence of physical infrastructure is administrative infrastructure, said Kapoor. Sloane pointed out that anyone who has conducted business in India is familiar with the concentration of power and wealth there. The panel was in agreement that — as in most democratic societies — partisan politics are a threat to growth and development. Pointing out that the most rapid economic growth has occurred in sectors with little government interference, Prakash discussed the importance of knowing how to manage and manipulate processes.
Although the challenges being faced by one of the world′s emerging economies may be readily apparent, it is easy to forget that 15 years ago India was essentially bankrupt. All of these changes will take some time, and Kapoor urged everyone to "keep it in perspective."
Wed 4/302:10 pm - 3:25 pm
In a Slowdown, Opportunity Knocks for Smaller Businesses
An economic downturn does not need to be disastrous for small or medium-sized firms. Moderator Rafael Pastor of Vistage International set the tone by sharing some statistics collected by his firm about CEO attitudes regarding the economy. Among CEOs from small and medium-sized firms, confidence is at its lowest point in five years, he said, and the level of investments has been declining along with this confidence.
However, these very same CEOs also report that they expect their own firms to do as well as, or better, than they have been, in spite of the overall strength of the economy. Furthermore, many are not planning to downsize or curtail any aspect of their businesses. Recessions come and go, he said, and capital expenditures can be turned on or off like faucets.
All the panelists expressed the need to look at overseas markets during a downturn in the domestic market. Erik Zuziak of JZMK Partners shared how his architecture firm has expanded overseas. The first key was using the Internet. His firm decided to put its entire portfolio onto the web site rather than teasing potential clients with glimpses of their work for fear that intellectual property might be stolen. The subject of protecting intellectual property was addressed by all panelists. James McGregor of JL McGregor & Company has lived in China for 20 years and said that having your intellectual property stolen was a forgone conclusion in China; the best defense was constant innovation. Keep making more new stuff faster than it can be pirated. Verne Harnish of Gazelles, Inc. works with India and he said that he chose India rather than China specifically because it has better intellectual property protections.
Having a strong web presence involves more than just a web site; it′s about "controlling the ink" in your market. Harnish advocated creating blogs and wikis to promote your firm. The panel also talked about search engine optimization. Zuziak and McGregor talked about good old frequent-flyer miles, extolling the virtues of face-to-face contact with clients. Zuziak also shared how the success of his firm′s first overseas project led to subsequent opportunities; success begets success. The bottom line? Overseas markets are a lifeline to smaller firms during a recession. Harnish also advised writing a book about your field to get your name out there: "it doesn′t even have to be a good book," he said. Getting and advertising third-party validation is also important for foreign clients; post awards and reviews online.
Ted Virtue, the CEO of middle-market private equity firm, said that there was no shortage of capital available for small to mid-sized companies, even during the recession. His firm specializes in revitalizing "orphaned" brands that have been under-managed by larger firms. He discussed the importance of strong branding and said that reinvigorating these underperforming brands was a way to make significant money. On the downside, he acknowledged that financial markets were much scarier today than during earlier slowdowns. However, many of the foreign markets to which U.S. firms have been expanding are no longer considered to be "emerging." He said that one benefit was that these foreign markets were now fully emerged and robust.
Many large firms can afford to fail at first when trying to move into foreign markets, said McGregor. However, smaller firms do not have the capital to absorb these costly mistakes. Smaller firms are often more adaptable than the larger ones, though. He cited the example of eBay′s utter and complete failure to enter China.
Harnish and Zuziak also discussed the importance of outsourcing for smaller firms. Zuziak outsources as much as he possibly can, especially when he can get local firms to handle work for his foreign projects. He also said that he now goes out of his way to hire new employees who can wear more than one hat. For example, he can't afford someone who is either a salesman or a designer. He needs someone who can do both. Harnish talked several times about his "wicked smart" assistant in India. He sends an e-mail to his assistant at 10:00 p.m., before going to bed, outlining a series of tasks. When he wakes up, all of the completed analyses and products are waiting in his inbox.
Still, firms should not turn their backs on local clients, the panelists agreed. When the recession ends, they need to be in position to jump back into the local market. That means maintaining current relationships and positioning their firms as experts within their various fields. However, Harnish was moving his entire family to India for nine months to let his children have the experience of living there. "The future is not here (in America)," he said. "It's over there. We need to get out of Dodge." McGregor and Virtue were less enthusiastic about giving up on the United States because they expect its economy to recover. However, all of the panelists maintained that going international had enriched both their lives and their businesses.
Wed 4/302:10 pm - 3:25 pm
Israel at 60: A Work in Progress
Appearing in a recorded video announcement, Shimon Peres, the president of Israel, marked the occasion but reinforced Yago's sentiments, stating that the country has "the right to be proud but no reason to be satisfied." The president said that even though Israel has suffered through seven wars and two intifadas since its establishment, it never gave up "its democratic system, its desire for peace and its attempt to be a better society." Peres also spoke about the incomplete peace process that stands in the way of the country's full development and declared that "as we made peace with Jordan and Egypt, we will also make peace with the Palestinians." The country should be guided by a long-term vision rather than by immediate daily problems.
Yago said that the establishment of Israel symbolizes "the ability to transcend and transform history." Israel knit together a diverse social fabric to become a united entity; today it leads innovation in technology, health and medicine.
Stanley Gold of Shamrock Holdings spoke about the incredible diversity of Israeli society, which he called "a pluralistic denomination." He stated that the future of the country should include a paradigm shift in the country's ownership of intellectual property: "Israel has to own and operate its businesses worldwide." While native populations would run the operations in foreign countries, Israelis should not sell its intellectual property to international corporations. Furthermore, the economy should de-emphasize its European and American mentality and engage with the Asian, Eastern European and Latin American markets. Gold reviewed several examples of Israeli success stories in the developing markets of Latin America and Vietnam and proclaimed that Israel would find new allies through this economic expansion.
Booky Oren of the Arison Water Initiative also supported the call to advance the Israeli economy by cultivating companies to become worldwide leaders. In the water industry, the country has the top technologies in irrigation, desalination, water reuse and water management. Yet, as some of these processes are sold to the multinationals, Israel's leadership in the water industry is challenged. New-tech academic water institutes, technological water and clean-tech incubators, dedicated investment initiatives and committed clean-tech VC funds are solutions that can reinforce the high-tech industries. Oren noted that a large proportion of energy resources are used in the water industry, so great progress on global warming could be achieved through advancements in the water technology. He also proposed using water as a tool for building peace. Since many of today's conflicts involve the scarcity of water resources, Oren said, "it would be great if we can use water and make Israel a superpower in the water industry to bring about peace."
Another leading economic force in Israel is energy innovation. President Peres noted that the country should work to end its dependence on oil. The tremendous repercussions of global warming and the concentration of oil production in undemocratic countries make the invention of oil-free products and technologies ever more vital. Shai Agassi of Project Better Place explained that a program that will lead to the elimination of oil use in a single country could later be duplicated elsewhere, transforming international oil addiction to a dependence on goods "that we can democratically produce."
Agassi's company works to produces zero-emission electric vehicles and is collaborating with the Israeli government to catalyze a mass deployment of environmentally friendly cars. In order to scale back oil use, the government has offered a 60 percent tax reduction on the purchase of zero-emission cars. Agassi noted that the price of the car and maintaining its battery are cheaper than the price of a conventional vehicle.
"Israel is a miracle in any way you look at it," said Shlomo Ben-Haim of Impulse Dynamics, who discussed the state of the nation's life sciences industry. He stressed that Israel produces the greatest number of patents per capita, and that it is remarkable for a country that has existed for only 60 years to make such contributions to global health care. Israel is a hub for research and development, said Ben-Haim.
Most of Ben-Haim's own ventures have been developed in Israel and later sold to multinationals. While Israel has an impressive record of innovation in health care, most firms "are not skilled enough to own and expand the businesses abroad." Global collaborations will help the Israeli companies expand and improve their ability to commercialize discoveries; as there are 2 billion people around the world with no medical care, there are great social and financial opportunities in creating businesses in the developing world. Ben-Haim talked about his latest idea of developing medical kiosks in villages around India, an idea that has been warmly embraced by local officials.
Yossi Vardi of International Technologies Ventures remarked that Israel is an attractive destination for research and development centers for large IT companies such as Microsoft and Kodak. He noted that the Israeli entrepreneurial spirit mentioned by Ben-Haim also extends to the IT industry, where there are hundreds of bright minds establishing start-ups. In recent years he has been involved in 65 different investments — some less successful than others. But what brings him to Israeli high-tech is the "excitement of the younger people. The culture is amazing; the ideas are endless." But Vardi asserted that even though IT ventures are thriving, only a small population enjoys the revenues and lucrative salaries. Israel's challenge, he stated, will be to integrate the underprivileged into the process of economic development.
Wed 4/302:10 pm - 3:25 pm
Stimulating Sales: Retailers Adapt to a Changing Economy
Wed 4/303:35 pm - 4:50 pm
Media and Entertainment: Consequences of the Digital Revolution
Throughout the session, the panelists returned to the question of "What does a 21st-century company look like?" Terry Semel (of Windsor Media, formerly of Yahoo!) noted a historical pattern in which past media corporations dominated older technologies but did not own newer innovations (such as radio stations not owning television), opening the door for a changing of the guard. Peter Chernin of News Corporation added, "We are in the business of trying to create content," noting that companies are adjusting to the new patterns and transformation of consumer consumption. Mark Thompson of the BBC agreed, saying that it's wrong to look at digital as simply a new way to distribute old technology. In the end, innovations in distribution will happen, thanks to these new companies with differing business models.
The next item on the agenda was a shift towards the benefits of the digital revolution and how it will change the way people interact. The focus was on connectivity. Robert Kotick of Activision spoke about the way that video-game consoles are moving towards connecting TV to the Internet in ways that haven't been accomplished before. Adding on to the idea of connectivity, each of the panelists noted the importance of mobile phones. Although there are 1 billion television viewers and 1 billion users on the Internet, there are 2 billion cell phone users around the world.
A question arose about the lifespan of theaters. Thompson noted that movie theaters are universal, that digital film and the movie theater experience can and will co-exist. Other questions brought up included the role of U.S. broadband and its slow connection speed in relation to the rest of the world. For now, even though the industry is moving towards downloadable content such as movies and video games, the lack of infrastructure to support such measures is hindering its adoption.
The panel ended its discussion with advertising advice and lessons for company business models. Kotick brought up his company's wildly successful game Guitar Hero, which includes untold hours of untapped advertising potential. Semel built on this with the concept of opening up platforms, creating Web sites that allow people to access their personal information that is currently housing on a multitude of sites. The panel concluded by addressing piracy; other media sectors are hoping to avoid the struggles of the music industry by adapting to change instead of fighting against it.
Wed 4/303:35 pm - 4:50 pm
The Race to the Finish: Next Gen Biofuels
The audience was treated to a quick overview of biofuels by one of the eminent scholars in biofuel technology, Frances Arnold of the California Institute of Technology. Employing a renewable resource (such as biomass, natural oil, sugar/starch, algae or waste) as a base, many different types of fuels can be produced, ethanol among them.
Hunt Ramsbottom of Rentech Inc. said that his firm is involved in the development of crude oil alternatives as substitutes for diesel and jet fuel. Through a process of converting waste, biomass, pet coke and coal, Rentech is working with the airline industry and the military. The price of fuel needs to flat-line in order for airlines to remain in operation, he explained. "If the price of crude continues to increase, our airlines are in serious jeopardy."
The limited use of biomass input in the Rentech production process is an example of the competing objectives within the biofuel industry, noted Arnold. Different concerns for energy security and ecological stability drive competing innovations within the private sector. He believes that we need to invest in technology that "resolves the bridges," meaning a technology that addresses both concerns. Ramsbottom agreed but added that "if we truly want to replace crude, we need everything that everyone is working on."
The yield of fuel from biomass is key, explained Arnold. The private sector is driving the innovations that will sustain our global economy, and maximum yield is essential for profit maximization.
Jim McDermott of US Renewable Energy said his company is making use of the 350 million tons of waste that the United States produces every year. "We are the Saudi Arabia of waste," he added, and using a product that others will pay you to take away provides a negative cost incentive that is very appealing to industry leaders. "Waste must be converted," he stressed. "We're running out of room."
Turning the discussion back to the technology commercially available today, moderator Nathalie Hoffman of California Renewable Energies questioned the panelists about the relative merits of corn and sugar cane ethanol production. McDermott stated the fundamental difference in business models: The short shelf life of sugar cane has profound implications in the production and distribution process. Without the ability to store the product, as can be done with corn, the farmers and the mill producers agree to output and costs before the crop is harvested, essentially creating a floating market that is much less susceptible to monopolistic behavior.
Whether it comes from corn or sugar cane, all of the panelists agreed that ethanol has its limitations and the low energy density and corrosive properties of the fuel make it less than desirable. Entrepreneurs are working to find better cost-effective and logistically feasible alternative fuel sources. Whether it derives from waste, algae, grains or something yet to be discovered, the race is on.