Universe expands Galaxies form

Toward a New American Century
University of California, Santa Barbara
March 6, 2011
13.7 billion years
of history …
Michael Milken
Chairman, The Milken Institute
… in 2 minutes
Bang!
g
Universe expands
p
Galaxies form
1
Planets
Earth
Single-cell
g
life
DNA evolves
Multi-cellular life
Land-based plants
p
2
Dinosaurs
Mammals
Humanoids
Fire domesticated
Abstract thought
g
Language
g g
3
Weapons
p
Homo sapiens
p
Tool creation
Art
Agriculture
g
Cities
4
Moses
Writing
g
Moses
Christ
Moses
Christ
Confucius
Moses
Christ
Confucius
Mohammed
Moses
Christ
Confucius
Mohammed
Buddha
5
Abacus
Philosophy
p y
Athenian democracyy
Magna
g Carta
Printing
g
Luther
6
Copernican
revolution
Age of
Enlightenment
“I think, therefore,
I am.”
am ”
The Rule of Law
First calculating
machine
Newton’s 3 laws
7
Multiplying
computer
“We hold
these truths …”
Mission
Santa Barbara
Automated
production
Steam engine
g
Telegraph
g p
8
Photography
g p y
Darwin
Telephone
p
Light
g bulb
Stock ticker
Adding
g machine
9
Electron discovered
Radio waves
Sound recording
g
Freud
Airplane
p
e=mc2
10
Santa Barbara
earthquake
Quantum
mechanics
Television
Electron microscope
p
Penicillin
Radio telescope
p
11
Electronic computer
p
Stored programs
p g
UCSB established
Atomic bomb
ENIAC
Transistor
12
DNA deciphered
p
Copying
py g machine
Polio vaccine
Sputnik
p
Laser
The Pill
13
Civil rights
g
Industrial robots
Lori Milken attends
UCSB
Moon landing
g
Earth Dayy
Neural networks
14
Moore’s law
Pocket calculator
Bar codes
Genetic engineering
g
g
Microprocessor
p
Heart transplants
p
15
Personal computer
p
Fiber optics
p
Compact
p
disks
MRIs
Cell phones
p
Email
16
www
UCSB Arts & Lectures
March 6
6, 2011
Life expectancy
doubles in
100 years
Toward a New American Century
• Perception vs. Reality
• Democratization of Capital
• Building Human Capital
• Toward a New American Century
“For America to bounce back
from the blow, it has to
overcome wounded national
pride. In Washington, there
there’s
s
more concern than the city has
known since Pearl Harbor …
“People are scared and many
have panic reactions. They are
searching for someone or
something to blame. There is
a sudden crisis of confidence,
forcing the United States to
change its priorities.”
17
The Financial Crisis
“Real estate prices
collapsed, credit
dried up,
up house
building stopped ...
in 1792.”
What is the most valuable real estate
in the world?
1.
New York City
2.
Moscow
3.
London
4.
Dubai
5.
Beverly Hills
6.
Tokyo
• The stock market dropped 50 percent.
• Banks curtailed lending.
• Commentators predicted widespread
industrial bankruptcies.
bankruptcies
• Unemployment rose quickly.
• Interest rates were volatile.
…in 1974.
What is the most valuable real estate
in the world?
18
Cost of a 1-Minute Phone Call from the
U.S. to India
1975
$10
Blockbuster vs. Netflix - 2002
Market Value
40 Netflix = 1 Blockbuster
2011
$0.01
Blockbuster vs. Netflix - 2011
Market Value
$11.2 billion
$4.5 billion
$
Netflix
Telecommunications cost to business
approaches zero.
Netflix
Blockbuster
$0.16 billion
The World’s Top 10 Economies
Today
431 Blockbusters = 1 Netflix
Blockbuster
$26 million
Source: WSJ.com – 2-25-11
U.S. (23.6%)
China (8.7%)
Japan (8.6%)
Germany (5
(5.2%)
2%)
France (4.4%)
U.K. (3.6%)
Italy (3.4%)
Brazil (3.1%)
Canada (2.6%)
Russia (2.4%)
(Percent of World GDP)
2050
China (18.5%)
U.S. (16.5%)
India (12.0%)
Brazil (4
(4.8%)
8%)
Indonesia (3.5%)
Japan (3.1%)
Mexico (3.0%)
Russia (2.7%)
U.K. (2.3%)
Germany (2.3%)
1820
China (28.7%)
India (16.0%)
France (5.4%)
England (5
(5.2%)
2%)
Prussia (4.9%)
Japan (3.1%)
Austria (1.9%)
Spain (1.9%)
U.S. (1.8%)
Russia (1.7%)
Sources: World Bank/Angus Maddison, “The World Economy: Historical Statistics” (OECD)/
PricewaterhouseCoopers/Milken Institute/Goldman Sachs (9/09)
Toward a New American Century
• Perception vs. Reality
• Democratization of Capital
• Building Human Capital
• Toward a New American Century
19
Los Angeles Under Siege
Berkeley
1964
America Goes to Work
U.S. and Fortune 500 Employment
P=ΣFti*(ΣHCi+ΣSCi+ΣRAi)
200
160
P
Ft
HC
SC
RA
=
=
=
=
=
Prosperity
Financial Technology
Human Capital
Social Capital
Real Assets
U.S. = +62 million jobs
New financial
technologies are
fully implemented
180
140
120
100
Modern capital
markets begin Fortune 500 = minus 4 million
80
60
70
75
80
85
90
95
00
Index 1970 = 100
•
•
•
•
•
•
•
•
The American Dream
Pioneers
Building
Rebuilding
A Changing Society
Interdependence
Partners
Community
A long way from
a Brooklyn
childhood …
20
Craig McCaw
MCI
“Our biggest obstacle was not
the opposition of the
government or the monopoly
g
p y
position of AT&T. It was the
availability of capital. Those
days are over now.”
Bill McGowan, 1986
Ted Turner
Craig and Ambassador Susan McCaw
and family
Courageous
Winner
1977 America’s Cup
Ted Turner
• Nuclear Proliferation
• Global Climate Change
• Population Pressures
• Other Environmental Issues
21
First Economist to Win the Nobel Peace Prize
Muhammad Yunus
TLC Beatrice
Reg Lewis
In 1974, began providing access to capital
for working women in Bangladesh through micro loans.
Won Nobel Peace Prize in 2006.
Toward a New American Century
• Perception vs. Reality
2010 U.S. Household Balance Sheet
$69 Trillion Total
Loans
1%
Shares and
Securities
33%
• Democratization of Capital
• Building Human Capital
• Toward a New American Century
Deposits and
Currency
9%
Other tangible
7%
Insurance
Reserve Funds
20%
Other Financial
Assets
3%
Real Estate
27%
Source: Federal Reserve Flow of Funds, Q3 2010
Human capital
is the largest asset class.
Gary Becker
1992 Nobel Prize in Economics
(at the Milken Institute Global Conference)
22
Q3 2010 Human Capital in the U.S.
$295 Trillion Total
U.S. Financial
Assets
24%
The 21st Century will see
a worldwide competition
for human capital.
Human and Social
Capital
76%
Source: Derived from Kevin Murphy and Federal Reserve, Flow of Funds Q3, 2010
One Person Can Make a Difference
One Person Can Make a Difference
A Tale of Two Teams
A Tale of Two Teams
World Series Appearances
1914-1919
Hitting
49 home runs
.309
309 average
Pitching
0
87 wins
2.16 ERA
WS ERA 0.87
3
One Person Can Make a Difference
One Person Can Make a Difference
A Tale of Two Teams
A Tale of Two Teams
World Series Appearances
1920 - 1934
7
0
23
One Person Can Make a Difference
.
Attendance
1,200,000
800,000
400,000
Yankees
. .
.
1915
1916
.
1917
.
.
.
1918
.
Red Sox
1919
“Innovation has nothing to
do with how many R&D
dollars you have. When
Apple came up with the
Mac, IBM was spending at
least 100 times more on
R&D. It's about the people
you have [and] how you're
led.”
-Steve Jobs
1920
Apple vs. Sony 1997
Apple vs. Sony 2011
Market Value
Market Value
Sony
21 Apple = 1 Sony
$34 3 billi
$34.3
billion
8 Sony = 1 Apple
Apple
$321 billion
Sony
Apple
$37 billion
$1.65 billion
Date: February 24, 2011
UCSB Champions
Per Capita GDP
Singapore
1960
2010
$2,229
,
$40,336
$2,213
$4,825
Jamaica
Barry Zito
Brian Shaw
Jason Lezak
2002 Cy Young Award
2010 World Series
3-Time NBA Champion
7-Time Olympic
Medalist
Lakers Assistant Coach
Source: IFS, WEO;IMF; in 2008 USD
24
Addressing the Issues
(Non-Profit Organizations)
Milken Family Foundation (1982)
• Education reform/teacher recognition/medical research
More than 2,500 educators
nationwide
The Milken Institute (1991)
• Economics/public-policy research and conferences
Prostate Cancer Foundation (1993)
• World’s leading philanthropic source of support for research
FasterCures (2003)
• Removing barriers to progress on all life-threatening diseases
Melanoma Research Alliance (2007)
• Advancing research on the most-deadly skin cancer
Funded more than 50 Young Investigators.
• Multiple
M lti l career paths
th
• Ongoing applied professional growth
• Instructionally focused accountability
• Performance-based compensation
•
•
•
•
273 Scholars since program began in 1989
79 born outside the United States
34 countries
i off origin
i i
197 Scholars have one or more parents
born outside the U.S.
• 94 colleges attended
• 52 are married
• 41 children of Milken Scholars
• Improve the lives and economic conditions of
diverse populations in the U.S. and around
th world.
the
ld
• Help business and public policy leaders identify
and implement innovative ideas for creating
broad-based prosperity.
25
May 1-4
Los Angeles
•
•
•
•
•
•
•
•
Finance
Philanthropy
Education
Health
Climate/Energy
Government
Regions
Industries
Toward a New American Century
• Perception vs. Reality
• Democratization of Capital
• Building Human Capital
• Toward a New American Century
www.milkeninstitute.org
“Ask not what your
country can do for
you, but what you can
do for y
your country.”
y
Toward a New American Century
• Energy
• Housing
• Entitlements
• Education
John F. Kennedy
1961 Inaugural
• Immigration
• Health / Medical Research
Price Volatility Increases
Alternative-Fuel Investment Risk
2000 $/barrel
2000 $/gallon
90
3.0
Retail Gas
70
2.5
50
2.0
30
1.5
Crude Oil
10
1.0
1975
1980
1985
1990
1995
2000
2005
Source: Richard Newell, Resources for the Future
26
What we pay vs. the true cost
President Jimmy Carter on the energy crisis
and proposed energy legislation
“This difficult effort will be
the ‘moral equivalent of war’
-- except that we will be
uniting our efforts to build
and not destroy.”
Nixon
Percentage
of Oil from
Foreign
F
ig
Sources
36.1%
Ford
Carter
Reagan
g
Bush
37.1%
- Center for Global Capital Markets
- California Center
40.5%
- Israel Center
43.6%
- Center for Financial Innovations
47.2%
Clinton
- Center for Regional Economics
49.8%
Bush
- Center for Health Economics
65.5%
Obama
66.2%
7 Solutions
• Upgrade the energy infrastructure.
• Scale up research and development of alternatives.
• Convert fleet vehicles to natural gas.
• Promote conservation.
• Implement market-based solutions.
• Support prices to encourage investment.
• Use consistent regulatory and fiscal policy.
Milken Institute, Santa Monica
- Center for a Sustainable Energy Future
- FasterCures
Toward a New American Century
• Energy
• Housing
• Entitlements
• Education
• Immigration
• Health / Medical Research
27
Fallacy:
“Any loan to real estate is a good loan … ”
Home prices don’t go up forever
Change in home prices in 100-plus years
30%
WWI
Great
Depression
The image cannot
be display ed. Your
computer may not
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memory to open
the image, or the
image may hav e
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Restart y our
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still appears, y ou
may hav e to delete
the image and
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again.
20%
The image cannot be display ed. Your
computer may not hav e enough memory to
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appears, y ou may hav e to delete the image
and then insert it again.
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cannot be
display ed. Your
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memory to open
the image, or the
image may hav e
been corrupted.
Restart y our
computer, and
then open the
file again. If the
red x still
appears, y ou
may hav e to
delete the image
and then insert it
again.
WWII
70’s
80’s
Boom Boom
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cannot be
display ed.
Your
computer
may not hav e
enough
memory to
open the
image, or the
image may
hav e been
corrupted.
Restart y our
computer,
and then
open the file
again. If the
red x still
appears, y ou
may hav e to
delete the
image and
then insert it
again.
Latest
Boom
The image cannot be
display ed. Your computer
may not hav e enough
memory to open the
image, or the image may
hav e been corrupted.
Restart y our computer,
and then open the file
again. If the red x still
appears, y ou may hav e to
delete the image and
then insert it again.
The image cannot be
display ed. Your
computer may not
hav e enough memory
to open the image, or
the image may hav e
been corrupted.
Restart y our
computer, and then
open the file again. If
the red x still appears,
y ou may hav e to
delete the image and
then insert it again.
10%
0%
-10%
-20%
1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Sources: Robert Shiller, Milken Institute.
When Lenders Make Non-Recourse Loans
Heads they lose -- Tails they lose
Average Size of American Houses
square feet
• If prices rise, the borrower keeps
the gain
2,500
• If prices fall, the borrower can
walk, sticking the lender with
a long-term depreciating asset
2,000
2 000
• If interest rates rise, the value of
the loan depreciates as the “real” average life of the asset is
extended
1,500
1,000
• If interest rates fall, the borrower prepays
2,469
2,135
1970
1980
1990
2000
2006
2009
Source: National Association of Home Builders / U.S. Census Bureau
Consumer Spending
U.S.
Housing
Transportation
Food
Insurance/pensions
Healthcare
Entertainment
Apparel and services
Cash contributions
Education
Personal care products
Toward a New American Century
Asia
32.7%
18.0%
12.8%
11.2%
5.7%
5.1%
4.1%
3.6%
2.0%
1.2%
Food
Education
Housing
Clothing
Other
Transportation
Healthcare
Communication
23%
15%
10%
8%
8%
6%
5%
5%
• Energy
• Housing
• Entitlements
• Education
• Immigration
• Health / Medical Research
Source: U.S. Bureau of Labor Statistics/CLSA
28
When Social Security was introduced in
1935, the average life span in the U.S. was
61.7 years.
In 2009, life expectancy in the U.S.
reached 78.1 years.
Sources:
National Center for Health Statistics, National Vital Statistics Reports, vol. 54, no. 19, June 28, 2006.
U.S. Census Bureau, International Database.
Longer Life Expectancy; Longer Retirements
France
95
85
Life Expectancy
at age 65
28.6
26.2
75
65
14.4
22.0
18.3
• Energy
32.9
• Housing
• Entitlements
30.8
26.5
• Education
• Immigration
Retirement Age
55
1970
1980
1990
2000
Toward a New American Century
Women
Men
2010
2020
2030
2040
2050
• Health / Medical Research
Source: OECD Ageing and Employment Policies, France 2005
Between 1870 and 1950, Americans added
almost one year of education each decade.
By 1960, the highest average grade level in
the U.S. exceeded every other nation by two
years.
Since 1960, we have made no progress and
several other nations have surpassed us.
“If an unfriendly foreign
power had attempted to
impose on America the
mediocre educational
f
that
th t exists
i t
performance
today, we might have
viewed it as an act of
war.”
- 1983
29
The Jobs Problem
(It Isn’t Jobs – It’s Trained Workers)
How 15-Year-Olds Score in School
Science
•
•
•
•
•
•
•
•
•
•
•
Hong Kong
Canada
Japan
Estonia
South Korea
United Kingdom
Germany
OECD average
Poland
United States
Russian Federation
Math
542
534
531
531
522
515
513
500
498
489
479
•
•
•
•
•
•
•
•
•
•
•
Hong Kong
South Korea
Canada
Japan
Estonia
Germany
OECD average
Poland
United Kingdom
Russian Federation
United States
547
547
527
523
515
504
498
495
495
476
474
Source: OECD Programme for International Student Assessment 2006
Millions
125
100
75
50
25
123,000,000
high-skilled U.S.
jobs will be
available in 2020
50,000,000
Americans will qualify
for those jobs
Source: Edward Gordon, “Winning the Global Talent Showdown”
Five times more people
India…
are learning English in
• Extracurricular activities
consisted of academic
coaching in 95% of the
households
households.
China than there are
l in
i E
England.”
l d”
people
- HSBC Bank
South Korea
• 43% of parents want their
children to get a Master’s
degree; 29% want them to
get a PhD.
Knowledge Universe
Early Childhood Education
• Spend more on education
(22%) than housing (13%)
• 70% of Korean p
parents
expect their children to
work overseas, of which
more than half expect
their children to work in
the US.
30
Knowledge Universe
Primary and Secondary Education
We must not be afraid of
competition.
We must be ready to
compete.
Eddie “The Eagle” Edwards
Eddie “The Eagle” Edwards
• 1988 Calgary Olympics
• 1988 Calgary Olympics
• Britain’s first (and last!) ski
jumper
• Britain’s first (and last!) ski
jumper
• Last place finish with a jump
of 253 feet
• Last place finish with a jump
of 253 feet
Matti Nykanen of Finland wins the gold
with a jump of 412 feet.
Toward a New American Century
• Energy
• Housing
• Entitlements
• Education
• Immigration
Eddie “The Eagle” Rule:
Olympic qualifiers must compete in international events and place
in the Top 30 percent or Top 50 competitors.
Highly skilled, entrepreneurial
and educated immigrants are
cruciall to the
h United
d States’’
prosperity.
• Health / Medical Research
31
Doctorates Awarded in the U.S.
“When you graduate from a leading
• 1/3 of all doctoral students in the U.S.
are foreign born, up from one in ten 30
years ago.
ago
university with an advanced degree in the
sciences or engineering, we then make you
go home. We should be stapling a green
card to your diploma.”
• 84% of their doctorates are in
engineering and the sciences.
- John Doerr
Venture Capitalist
Sources: National Science Foundation/Div of Science Resource Statistics
Building Human Capital at UCSB
Toward a New American Century
• Energy
• Housing
• Entitlements
Finn E. Kydland
Norway
Henry T. Yang
China
Nobel Prize
Economics
2004
Chancellor
Shirley Geok-lin Lim Herbert Kroemer
Malaysia
Germany
Author, Poet
Nobel Prize
Physics
2000
• Education
Walter Kohn
Austria
• Immigration
Nobel Prize
Chemistry
1998
Some Great Achievements in History
• Health / Medical Research
Worldwide Life Expectancy Growth
• Invention of the wheel
+18
• Development of agriculture
+5
5
• The printing press
• Copernican revolution
• Industrial and technology revolutions
• Extension of life expectancy
+18
+36
26
Years
1820
31
Years
1900
67
Years
49
Years
1950
2010
Source: United Nations Development Program
32
Company Value Comparison
Half of all economic growth in the
last two centuries can be traced
to medical research advances.
Est. P/E Ratio
Average: Consumer
20.8
(P&G, Estée Lauder, Coca Cola, Pepsi, Kraft)
Average: Pharma
12.8
(Pfizer, J&J, Roche, Norvartis, Merck, GSK, SanofiAventis, Medtronic
Abbott Labs, AstraZeneca, Teva, Amgen, BMS and Eli Lilly, UnitedHealth)
Source: Bloomberg 3/4/2011
Top Causes of Death
1907
1.
2.
3.
4.
5.
Pneumonia/flu
Tuberculosis
Heart disease
Diarrhea
Stroke
2010
1.
2.
3.
4.
5.
Heart disease
Cancer
Stroke
Respiratory disease
Accidents
Since 1900, childhood death rates from pneumonia
and influenza have fallen 93 percent.
Three Solutions
to Healthcare Challenges
• Prevention
• Cost reduction
• Research leading to cures
Source: AARP Bulletin / June 2007
Lifestyle Makes a Difference
70% of health-care spending –
about $2.5 trillion – is spent on
lifestyle-related diseases.
30% is spent on
hereditary diseases.
diseases
U.S. Economy
$14.14 trillion
Sources: CIA Handbook / Centers for Medicare and Medicaid Services (2009)
33
Obesity Prevalence Among U.S. Adults
Obesity Prevalence Among U.S. Adults
1991
2009
> 15%
< 15%
25-30%
> 30%
Sources: Trust for America's Health and the Robert Wood Johnson Foundation
Only in America
Only in America
Quiz:
Obesity Rates: U.S. vs. World
Nearly 40% of Americans are considered “obese.” What
percentage of Japanese citizens are obese?
a.
b.
c.
d.
e.
1.8%
5.2%
13.6%
20.0%
38.9%
U.S.
2002MEN
2005WOMEN
36.5%
Mexico
24.0%
U.K.
21.6%
24.2%
24 2%
20.9%
20.4%
Germany
France
China
Japan
41.8%
34.3%
7.8%
6.6%
1.6%
1.9%
1.8%
1.5%
Source: World Health Organization / Estimated obesity rates for people aged 15 years and older / 2005
34
Japan’s Effort to Reduce Obesity
• Goal: Reduce overweight population by 10
percent over four years; 25 percent over
seven years
The Supersize Investment
For only 67 cents you can step up
to a larger order of French fries
and a 32-ounce soda …
• Strategy: Measure the waistlines of every
person between the ages of 40 and 74;
provide dietary guidance as needed.
• Noncompliance: Impose financial penalties
on companies and local governments that
fail to meet specific targets.
Source: New York Times / 6-13-08
Source: Journal of the American College of Nutrition
The Supersize Investment
A Negative Return
For only 67 cents you can step up
to a larger order of French fries
and a 32-ounce soda …
There is a
Yet, every time you supersize, it costs
you $8 in extra lifetime spending on
food, gas and medical care to sustain a
heavier body.
“staggering
cost for failing
to contain the
containable.”
Source: Journal of the American College of Nutrition
Economic Value of Eliminating Deaths
Chronic Disease Study
Failure to address chronic diseases
adequately costs the
U.S. economy more than
$1 trillion annually.
Heart Disease
Cancer
$60.5T
$58.1T
Stroke $9.5T
AIDS $9.3T
U.S. Balance Sheet 2009
$67T
Source: Estimates base on 1999 studies by Kevin Murphy and Robert Topel/University of Chicago
35
Major Spending Initiatives in the U.S.
National Heart Institute budget
$3.0B
National Cancer Institute budget
$4.9B
2008 U.S. political campaigns
$5.3B
Consumer spending on potato chips
$5.3B
An organization dedicated to shortening
the time to find cures and better
treatments for all life-threatening diseases
Source: Center for Responsive Politics
Medical Philanthropy
U.S. Health Research Expenditures (2008)
7%
Other Federal Funds
3%
Foundations
and private
funds
22%
NIH
21%
Biotech
29%
Pharmaceuticals
7%
Medical devices
industry
“Never doubt that a small
group of thoughtful,
committed citizens can
change the world:
indeed, it’s the only thing
that does.”
-Margaret Mead
3%
State/local funds
Sources: FasterCures / 2008 Investment in U.S. Health Research (Research America)
Create a legacy that relegates cancer
and other life-threatening diseases to our
children’s history books.
Toward a New American Century
University of California, Santa Barbara
March 6, 2011
Michael Milken
Chairman, The Milken Institute
36