Summary:Michael Milken engaged a group of Nobel Laureates - the second of the conference - in a wide ranging discussion that touched on issues ranging from the government's proper role in medical research and the future of the European Union to the real motivation behind many mergers and acquisitions.
Using the example of the public-private construction of the Erie Canal in the 1830s that transformed New York City into America's largest port, Milken suggested that government should have a role in other important efforts, such as finding cancer cures. "Are we missing out on current public-private partnerships?" he questioned.
While curing cancer could save the country more than $46 trillion, the American government has thus far funded just $40 billion in research in the past 60 years, he said. Such a high potential return justifies additional funding, he suggested. But Douglass C. North noted that spending more money would not necessarily guarantee finding cures.
"There's enormous uncertainty about the outcome (of research)," he said. And Myron Scholes questioned whether government would be the best candidate for such an undertaking. He raised the possibility of leaving the effort to private foundations that might manage the campaign more efficiently.
"Maybe it's best to allow them to do it," he said.
Turning to Europe, Reinhard Selten said pulling several countries together would prove to be an extremely beneficial undertaking. Rather than adding a cumbersome layer of government, the creation of the European Union would prove to be liberating for the countries involved, he suggested.
"Europe is moving in the right direction," he said. "It is not creating a centralist state or federation." Instead, he characterized it as more of a contractual agreement that would liberate interaction between the participating nations. The experiment would prove so successful, he predicted, that several new members, such as Hungary, Croatia and the Baltic States would join in coming years.
Jumping from the future of the Europe to the future of the insurance industry, Milken noted many major insurance firms have seen their values slide sharply.
"What are the implications? What is the market telling us," Milken questioned. The answer, according to Scholes, is that "they have too much capital," he said. "The market is telling them they should repurchase shares or become private companies."
John Nash noted that the stock decline might simply be reflecting an increasingly competitive landscape, fueled in part by the Internet. He noted the proliferation of insurance companies urging customers to log on to get the best quote. "A level of competition has come in that wasn't there before."
On another corporate issue, Selten questioned the true motivation behind many corporate acquisitions. Rather than being a sophisticated quest for greater shareholder value, they may merely be an attempt by management to avoid being on the wrong end of the next merger, he argued.
"They want to be a big fish so that they are not eaten by bigger fish," he said. "Most mergers and takeovers are not profitable."
Scholes rejected that suggestion, arguing that that evidence did, in fact, show that most transactions are in the best interests of shareholders.
While the group was willing to accept good-natured barbs about the value of economists, Nash suggested that Western economists have something to be proud of as he looked back at the past century. In their role as advisors, economists counseled for market-based economies, in opposition to the Soviet Union's Communism. "As advisors, maybe (economists) are responsible for the fall of Russian Communism," Nash said.
