 Hi, I'm Rachel White, Senior Vice President of the New America Foundation and Director of New America Live. And it's a pleasure to welcome you all here today. And we're delighted to have the McKinsey Global Institute here with us for their public release of global flows in a digital age, how trade, finance, people and data connect in the world economy. It's the subject of the report is at the heart of all of the work that we do at New America. And so it seems really fitting to launch the report here. It cuts across both our international and our domestic work. So I think you'll enjoy it. We have a terrific program for you today and an all-star cast of speakers, really as stunning as anything I've seen excluding our big conference last week, which was also terrific. We have with some repeats. So we have Eric Spiegel, CEO of Siemens, Fred Hochberg, the chairman and president of the Export-Import Bank, Muhammad El-Aryan, who just stepped down from the helm of PIMCO, and our board chair and the chairman of Google, Eric Schmidt, speaking early in the program. Following that, we have Matthew Slaughter, Donna Harris, New America alum, Karen Cornblew, and Brad Jensen, and some really outstanding emcees, Peter Coy from Bloomberg Business Week and Michael Mandel, formerly of Business Week and now at PPI. So I think you're in for a very interesting couple of hours. A couple of housekeeping notes. This is all on the record. So keep that in mind. Also live streaming. I think we're obligated to tell you that. Tweet early and tweet often. The way that ideas propel out into the universe is through social media. We rely on it heavily here at New America, both to advance our own ideas and to advance the ideas of our partners. The hashtag for this event is hashtag global flows. Also for those of you in the webcast, the best way for you to get your questions into this room is to tweet them at us at that hashtag. So please do that as well. So far as questions go, we're going to take questions at the very end. And in a moment or two or ten, someone nice is going to walk around the audience and hand you note cards, write your question on those note cards, and they'll come around and collect them throughout the conference, throughout the event, and we'll assemble them. And Peter and Michael will take questions at the end. So now without further ado, I want to introduce our friends from McKinsey, James Manika and Susan Lund, who will present the report and some interesting data and we'll go from there. So thank you all very much. And be sure also to pick up a copy of the report which is out by the coffee and the pastries. Thank you for that introduction, Rachel. And good morning and thank you all for coming. Let's go back in history for a moment. In 1492 Christopher Columbus set sail from Spain for the India that he thought he was going to go to in search of gold, silk, and spices. Or as we would say in McKinsey's speak, he set out to take advantage of a lucrative emerging market trading opportunity. At the time, Spain's leaders sought a competitive edge over their counterparts in other European countries and Columbus was their answer. Today countries are still doing much the same thing. It is still common for all leaders to try and find trade arrangements that position their countries for success. But what is most notable when we look back to Columbus is just how much and what has changed since that time and since those models that I just described. But before we get into what's changed, just a word about what hasn't changed. If we'll go back even before Columbus, the same kinds of things for a very long time throughout human history have been flowing around the world. Goods, services, ideas, people, and information. That part of it hasn't changed. But what has changed are the size, the patterns, the economic implications for countries, for companies, and individuals when these things flow around. And the change has been going on for a very, very long time, but the last 30 years in particular have seen some of the most dramatic changes on these flows. And these are changes that are set to be even bigger over the next 30 years. And that's why we're having these conversations. The changes that we're going to describe, if you want to reduce them to something specific, they're mostly driven by two fundamental things. The first of those is just the rising prosperity in many more places around the world. We have many more billions of consumers and nations and countries and individuals who can now spend and consume products, goods, and services. That's the first thing. The second thing that's changed is the information revolution. Digital technologies and information technologies have done in impacting every sector, every activity, all of these flows that we're talking about. And also in particular, when you think about their particular properties, that has had a profound impact on what we're going to talk about today. So we actually think that decision makers need a new way to approach this new global paradigm, and in particular, especially at the wake of the crippling global recession that threw our economic system into crisis and increased anxiety about the very notion of globalization. We think that with all this change and concern, it is more important than ever to understand exactly how these flows of goods, services, products, money, and information affect not just individuals, but also companies and nations alike. This is one of the reasons why we set out to do this work about a year ago that we're going to talk about today. What perhaps is ambitious about our work was the fact that while a lot of these issues, whether it's goods, services, have been examined as individual flows, very little have been done to think about all of them together and how they affect each other and the implications for economic growth and prosperity. And also to look at this question of how the patterns of these flows had changed over time. This was perhaps an ambitious task to take on, but the fact that we wanted to take a look at all of these things. So we actually got a lot of big minds to help us think this through. Some of them are actually in this room. People like Matt Slaughter, Michael Spence, Laura Tyson, Karen Combler, Brad Jensen, and others. So we had a lot of help. We also had some friends who actually helped us get some data that's otherwise difficult to get, because one of the things that's interesting is that while some of this data is captured in typical trade statistics, not all of it is, particularly when you start to think about the flow of information, data, and so forth. So we also had a lot of help. So we're here today to talk about the report that we entitled Global Flows in a Digital Age, How Trade, Finance, People, Data Connect the World Economy. But if I was to boil it down to a simple bottom line, I think what you should take away from this is that whether you're an individual, a company, or a country, choosing where and how you participate in these global flows can be the difference between economic growth and prosperity, and quite frankly, falling behind. That's why we need to have this conversation. What Susan and I are going to do is give some highlights from this report, and we're going to focus on four key findings, but at the end of this we'll come back with some observations for the U.S. specifically. The first thing to note is that what we're calling global flows are all growing and becoming increasingly knowledge-intensive. What do we mean by that? As you said, global flows for a long time connected the global economy. These are the four plus one flows that we looked at, the flow of goods, the flow of services, financial flows, the flow of money. The flow of people, and then there's a proxy for ideas and information, et cetera, data and communications. We're looking at this in terms of cross-border flows. The boundaries, things flowing between countries. As you can see, they've all pretty much grown above GDP, and I think that's actually quite important. Clearly, the flow of goods is the most significant one of these, and it's been growing at essentially 11 percent, followed by the flow of services, which has been growing also quite significantly, and also the financial flows, which actually exploded for a period and we'll come back to that and have fallen back a little bit, and then the flow of people. What's interesting about this, there are two things to note about this. First the small number on the page and the big number on the page. The small number on the page is the flow of people, which is basically 2 percent in terms of growth. Basically people haven't moved that much, as much as we perhaps might want to think about, particularly in this town. Basically 2.7 percent of the global population basically have been moving. That's actually relatively small number. The big number on the page is the data and information flows, which have essentially exploded, and this is just looking just at the last 10 years alone. These are cross-border flows of data and information. Those are the big numbers and the small numbers. What you'll also see is that goods flows, as I said, dominate. They're basically four times the size of any of the other flows, and that's particularly notable, particularly when you take into account that if you look at the share of global GDP, services now make up two-thirds of global GDP, and yet when it comes to flows, it's the flow of goods that essentially dominate. This is trying to take a little bit of a longitudinal view. As you can see, the flows here in total have grown to now date their account for about $2.26 trillion in terms of the value of flows. As you can see, financial flows peaked, which is the light blue line there, peaked around 2007 and have come down a little bit, but essentially the whole trend here has been to actually grow. From what they were in 1990, roughly $5 trillion to now $26 trillion. If you project forward a bit, which is what we tried to do over on the right, we took several scenarios. The first scenario assumes this all slows down. We all kind of fall back and retreat a little bit into our national economies. It slows down. The other extreme is that, no, we continue with the momentum case, which is what we have. But you'll notice about that, even in the slow down scenario, they will essentially double in the next decade. And then in the momentum case, they'll triple. So this is going to continue to happen in our minds for quite some time. And it's actually an important thing that we start to grapple and understand how these flows are going to evolve over time. The other striking thing about this is just the dominance of knowledge-intensive flows. As we looked across these five flows that we talked about, flow of goods, products, services, money, and people and information, and we looked at the knowledge components of that. So for example, if you think about the flow of goods, we looked at the inputs into that. Inputs include the kind of the R&D intensity, the labor intensity, the capital intensity. So we took out the knowledge-intensive portion of that. You can do the same thing for the services for the flow of money. What you notice is that the knowledge-intensive components now make up roughly half the value of the flows that we measured. And what's also quite noteworthy about that is that they now trump the labor-intensive flows and the capital-intensive flows, and even the resource-intensive flows. And that's actually quite a significant thing to take note of, especially when we all talk about cheap labor and so forth, you suddenly realize that the knowledge-intensive flows actually dominate. What's also interesting about that is that if you look at the rate at which they're growing, the knowledge-intensive flows are actually growing faster than all the other intensities, faster than the labor-intensive flows, faster than the capital-intensive flows, faster than the resource-intensive flows. And that's also quite significant. When you look at the map of those knowledge-intensive flows, an interesting picture emerges. First, the obvious point, advanced economies dominate. Second, the surprising point, China is actually number two. So this is actually quite important, and by the way, the way to read this picture is the area of the slide represents the value and the size and scale of the knowledge-intensive flow. This is actually quite important, and at least it's understandable from the point of view of advanced economies because in many ways, the combination of the skills, the investments, the intellectual property and so forth have been very strong historically, at least in the advanced economies. But you're starting to see, certainly in the cases of countries like China, that picture is beginning to change. And so this is actually quite important as we think about how this plays out over time, how we think about competitiveness, how we think about value add, and how we think about what's going to create enormous value and prosperity for nations and economies. Let me shift over and ask my colleague Susan to pick up some of the other key points. Thank you, James, and thanks everyone for attending today. So James gave a great overview of just the global scale of flows and how they have grown and continued to grow. Now let's look a little bit more in detail at who's participating and what the web of flows globally looks like. One of the big changes that we've seen in the world is just the rising prosperity in many more countries around the world. And what that means is that more countries are participating, not only as points of production in global flows, but also as consumers, as innovators, as global talent. This chart on the left shows you what the flow of goods between different regions of the world look like in 1980. And what you see is that already in 1980, after several decades in the post-war period and the Industrial Revolution, the rise of multinational corporations, there was relatively strong flow of goods between regions. But yet when you look, 30 years later, at 2011, over on the right-hand side, you see two things. One is that each of the lines between regions has gotten bigger. That means that the flows are larger. And you see many more lines. So suddenly emerging economies in different regions of Middle East, Latin America, Africa, other Asian countries start to participate. We map this for each of the flows. And you see the same basic pattern across the flows. The evolution of cross-border data flows measured in this slide by internet traffic is even more dramatic. This is just showing the change between 2008 and 2013, five years ago and today. Five years ago, cross-border bandwidth was mainly between the US and Western Europe. We also had some connections to North Asia, China, et cetera. And today, you see that it's simply exploded. Now when we project that going forward, you can see that by a conservative projection by 2025, half of all internet flows will involve crossing national borders. Today, it's less than 20%. So this is connecting the world in new and different ways. The role that emerging economies are playing and driving this change can't be understated. This chart shows you that for each of the flows, the emerging market share of the global flow has grown. So overall, emerging economies represent about 39% of GDP. So in goods flows, which includes goods and commodities, they're already basically at their weight. They contribute to global flows 39% the same as their GDP weight. All the other flows they're behind, although they're catching up. So financial flows, they've seen huge strides. And we know this as we look at foreign investment in emerging markets, cross-border lending. We see in services, they're further behind. And in data and communications, they're really far behind. Although they account for 80% of the world's population, 40% of GDP, they're only 24% of cross-border data flows. So that's actually a cautionary note. We talk about the digital divide, but it wasn't until I saw a chart like this that it really came home for me what this means. It means that emerging economies are missing out on some of the fastest-growing, most important flows going forward. And that if they don't build out the infrastructure and internet connectivity, they risk being left further and further behind. Overall, in knowledge-intensive flows, emerging economies do surprisingly well. They are not just low-cost producers anymore. And I think the chart on China was quite striking. The degree to which China has already made the shift from a low labor cost, low wage, low value manufacturing production, into much higher value goods. Trade between emerging economies is also taking off. For a long time, global flows really meant mainly flows between the US, Europe, and Japan, the advanced economies. And then sometimes, bilaterally, between the US and an emerging economy. But one of the things that's happening is that countries of all sizes and shapes are becoming connected. So you can see that trade between emerging markets, or so-called South-South trade, grew from just 6% of global trade in 1990 to 24% in 2012. And that's exploding, growing much faster than the others. So this is no longer just a rich economy game. When we think about the impact of digital technologies on flows, we're finding that they enable other types of flows, flows of goods and services, finance, and even people. But we find that they're also enabling different types of actors, and ever smaller companies, individuals, and entrepreneurs to start to participate in this web of global connections. So we've tried to measure what is the digital component of different flows. And this is very imprecise. And it's where James was saying, we rely on data from different vendors and providers. We're going well below the national trade statistics. But to give you just a glimpse of the rapid growth of digital flows, consider, for instance, e-commerce. Just cross-border e-commerce. People buying things over the internet. It's gone from just 3% of total trade flows to over 12% in the last eight years. Think about international call volumes. Platforms like Skype, using digital technologies, now account for 39% of total cross-border call volume, up from virtually nothing eight years ago. No services trade has always been more digital. The rise of off-shoring and back office services and call centers in the late 1990s and early 2000s were enabled by the internet, and effectively our digital flows. But even those, the digitally enabled component of service flows has grown. And it's now nearly 2 thirds. So service trade is less about people getting on planes and moving to provide a service, as it is about transacting over the internet. In the report, we look at three different ways that digital technologies are enabling and accelerating flows. The first is simply through the creation of digital goods. So this means think about books or movies. Instead of putting physical goods on ships and transporting them around, they're now sent digitally across the internet. Now that's costless, nearly costless. It's instantaneous, and it means that it can spread much more rapidly. The second way that digital technologies are transforming flows is through a term we've called digital wrappers. It means that using digital technologies, you can enhance the value and enable flows that wouldn't exist otherwise. So radio frequency tags and sensors on goods in shipment is a good example. It means that today you can ship more valuable things because you can track them. And it's also greatly improved the productivity and efficiency of logistics. So it reduces goods lost and damaged in transit. And it's enabled the creation of very long complex global supply chains. Think about the Apple iPod that has more than 450 parts coming from dozens of countries. It would be virtually impossible to have that type of global supply chain and bring all the parts together when they're needed, where they're needed, at the place they're needed without digital technologies. And then finally, and maybe most importantly, digital online platforms that enable two parties to connect are driving global flows. And this is both in trade of goods for eBay or Alibaba. It's through labor platforms like ODesk and Elance allow companies to hire a worker to do work anywhere in the world remotely and then send the product digitally. It's infecting finance. We've got Kickstarter and other online platforms that allow small companies or entrepreneurs to raise funding from investors around the world. And so through digital platforms, suddenly you don't have to be a large multinational corporation to participate in flows. You can be a small company or even an individual. This chart is a good example of the power of these online platforms. It shows eBay commercial sellers and how nearly 100 percent in emerging markets of eBay commercial sellers sell to customers in other countries. So they're getting around some of the infrastructure logistical barriers in their countries to sell not just to customers in one other country, but on average 18 other countries. And that's compared to traditional small firms of which fewer than a quarter typically export. So online technologies are enabling this explosion of flows. Now finally, why does all this matter? Why do we even care? We spent a lot of time in this research doing an econometric analysis to say, do global flows contribute to growth of all five which ones contribute? And we ran lots of different specifications. And the overwhelming answer is yes. They contribute to faster GDP growth. So we estimate that globally flows contribute between 15 to 25 percent of global GDP growth today. That's a staggering number and we find that all five flows matter. More interestingly, we looked at a concept called centrality from network theory and it shows that countries that have more connections or are more central in the global network of flows benefit for any given level of flows up to 40 percent more than a country that's less connected. Now that's important for two reasons. One is it means that both inflows matter as well as outflows. To us that makes intuitive sense because embedded in flows are ideas, new technologies, knowledge, competition. And so being open to a larger variety of source of flows as well as selling to them enables and furthers knowledge development. And it also means that if you're a country you don't want to rely on just one trade partner. You want to become part of this web of flows. This isn't a game of just exports. You want to be globally connected rather than thinking just about trade balances and surpluses and deficits. To see how countries individually are participating in flows we developed a new index and we're calling it the McKinsey Global Institute Connectedness Index. We ranked countries on their participation on inflows and outflows of all five types of flows. Good service, finance, people and data. We weighted them equally without judgment. And with this we also accounted for country size. Now that's actually a very important point because if you don't account for country size you see that very small economies have very large flows relative to their GDP because they don't trade. They trade most of what they have. They don't produce a lot locally. Whereas an economy like the US is very large and diversified trade flows are much lower. But when you adjust for country size what you see is the advanced economies top the list. Germany's number one. I think this report will get very good reception in Germany. The US comes in at number three doing quite well. And this chart shows you just a sample. We've ranked 131 countries. But I'd point out a couple interesting things. One is emerging markets overall despite their gains are much lower and less connected globally. So they're missing out on a potential GDP growth driver. However some of them have made very large gains. So for instance India has risen 16 places in this scale since 1995. Morocco has risen 26 places. So there are individual countries that have made very significant gains. The second interesting thing I would point out is I think that this is a nice illustration of why you need to look more broadly at flows. Some of the countries I would have guessed to be much more connected South Korea and Japan and even China. If you focus on just manufacturing exports I thought they were gonna be at the top of the list. In fact their numbers 20, 21 and 25 on our index. Because when you look across they're much more close in terms of people flows and immigration and much less cross-border data flows. And so this broader connection gives you a different I think perspective on how countries are connected or not connected to the global economy. There are some interesting tidbits I think I've gone through some of them. So in the interest of time this chart finally just ranks the countries by region and it really illustrates this point that although emerging markets are participating more on average all the emerging market regions fall far behind the developed world. Africa and the Middle East at the very lowest but even Latin America, Southeast Asia very surprisingly low. So there is an imperative for countries in those regions to really focus on this and think about how they can benefit from flows. So James will wrap up with some quick thoughts on what it means for the U.S. So at least a few observations for the U.S. specifically and I'll include even some that are not on here. So clearly the U.S. is highly connected which is a good thing. It's in the top, I'll give this really number two because number two or not ranking is Hong Kong. You could debate whether that's a country or not or a separate point. So the U.S. is very well connected and it also it's interesting where it actually leads. It leads in terms of people flows and it's also basically in the top 10 for most of the flows. As a friend Brad would tell you, there's more upside opportunity even in service flows that we fully captured today. I'm sure we'll hear about that. The second thing that's also interesting is even as the rest of the world is in positions other countries have shifted and moved in China and India and so forth. U.S. is actually largely maintained its position which is quite remarkable and very impressive. One thing that Susan perhaps didn't elaborate on as much and we can talk more about this. You may have noticed in the ranking that we had was this idea of flow intensity which is really a certain measure of how much value are there in the flows relative to the size of your GDP. The U.S. is relatively low. That's for both good reasons but there's also some upside opportunity. The good reason is because, well having a flow intense of 35% means that there's a fairly large domestic and robust diversified economy. That's a good thing. But also having it that low means that we're also not fully tapping the potential upside opportunities in addition to that to more globally engaged. It is globally engaged in the way that for example countries like Germany are more globally engaged. Globally more diversified in the footprint of those connections. Those are all upside opportunities. The other point also to note about that is Susan pointed this notion of network centrality. It's actually quite striking that for the U.S., the U.S.'s flows are dominated by NAFTA. Actually they're very NAFTA dominant. Whereas if you took NAFTA out, the rank of the U.S. would have dropped quite significantly. So again we see that as an upside opportunity especially at a time when the growth in the global economy is mostly coming from places that are outside NAFTA especially. So that's again an opportunity to think about how can the U.S. more fully tap those growth opportunities. The other thing that's also perhaps worrying is that while the U.S. has the leading position in terms of people flows, that's actually has been slipping. Particularly in particular groups that really matter. Whether you think about students, you think about skilled workers, you think about business travelers and tourists. Those are particular group and types of flows that matter particularly at a time when we're having a debate about immigration. The other thing I'll also point out is that it's a good thing I think for the U.S. that knowledge intensive flows continue to dominate. That's a good thing because that plays to the historic strengths of a country like the United States. But at the same time, that comes with a caution warning. When we think about how much we're not investing in skills and education and training and so forth, you wonder can we maintain that? Especially when we've got other countries like China and others trying to get really good on those dimensions. So they look at educational test scores. So while the history has been great and the U.S. shows up well on the knowledge intensive flows, you have to wonder about what we're gonna need to do to sustain that going forward, especially if those are gonna continue to dominate. So with that, I will stop. And thank you for your attention. What we're gonna transition to now is I'm gonna introduce our next speaker. And it gives me great pleasure to introduce Fred Hochberg. Chairman Hochberg is the, he's the chairman and president of the important export bank of the United States, Exim Bank. And is one of the highest ranking business leaders in the Obama administration. Exim Bank, as many of you know, is the official export-created agency of the United States. Its mission is to assist in financing the export of U.S. goods and services to international markets. One of the things that, that may be a small point to note about today, in fact, is that, actually, it's yesterday was the fifth anniversary of Chairman Hochberg swearing in, actually. So that's a good point to note. And this also makes him the longest serving chairman of the bank since Harold Linder, was appointed by JFK in 1961. And he served seven years. So maybe Fred, there's more, a few more years ahead for you there to break that. What's also notable about Fred is what we would think of as a triathlete. What we mean by that is somebody who's at least been incredibly effective in multiple arenas. He's been the CEO of a corporation. He's been an academic dean. And he's also been an important public servant serving the country. So it gives me great pleasure to introduce Fred and have him make some remarks. Yeah, just. Great. You know, and I listened towards the end about flows. One of the things that made me realize and it's somewhat contrary to what we're talking about, but if you think about the entire world, the U.S. is probably the most self-reliant country on the face of the earth. If all flows stopped, if all trade stopped, we would actually oddly have the least impact of any economy in the entire world. So that probably explains the low intensity. We have somewhat of a less need. But before I start, I want to give you an assignment. I see a lot of pads and paper out. So I'd like you to do two things. I'd like you to draw a dollar sign. I'd like you to draw a dollar sign. You know, the old fashioned kind with two bars and then an S going through it, okay? Because I know there are a lot of pads and paper out there. So a lot of people just see a dollar sign and I actually did a little research and I was trying to think where did the dollar sign come from? So this is a really smart room, so I'm not gonna ask if anybody knows where it is because I'm afraid too many people might know where the, who knows where the dollar sign comes from? All right, just, let's keep it, just before, or you'll correct me if you've got a better theory. So the dollar sign comes from when, in about the 15th century, when the theory was the world was flat, they were theoretically two pillars on the Strait of Gibraltar. It was one on the Spanish side and one on the Moroccan side and it said on there, neck plus ultra, nothing further beyond. I eat a worn sail whose don't go out there, you will fall off the face of the earth. So when Columbus and others sailed to America and discovered there was something else out there, although he was looking for India, but he did, when he got to America, King Charles in Spain actually changed the sign and then it said from then on plus ultra, further beyond. So, and that was the inspiration for our dollar sign and it frankly relates to exactly what we heard here today because this is about looking further beyond not just being nothing further beyond. And I think about when Columbus did set sail, as far as I'm concerned, that was Europe's first trade mission. I think, I look at it as a trade mission from at least where I sit. And I think that what this is about today and what I think we've been trying to do at XM is to think about how do we remove trade barriers? How do we remove those barriers? How do we create more flows, more trade and as a result more jobs and more economic activity? As James was kind enough to say, actually I was sworn in five years ago yesterday. I did not know that my, I have a seven, I've got at least another, at least another two years to break the record. But I also think about what changed in our economy since then. I was nominated, I'm looking at Don Gibson who was in the White House and it was one of the people behind the scenes moving the boxes around. But I got tapped in early January. I got a phone call and I was sworn in in May, May 21st and in those five months we lost three million jobs. Three million jobs we lost in five months. A year later the president actually announced the National Export Initiative at the XM conference and we have now enjoyed and I use the word enjoyed 50 straight months of job growth. That's a remarkable change from three million jobs being lost in five months alone. And last month we had 288,000 jobs which is also we've had now three months in the 200 plus range. Secretary Pritzker recently announced the NEI Next. 2.0 would be a little too 20th century so it's now called NEI Next. And partly to make sure that we as Americans do look beyond our borders, do look further beyond, do look at those flows and do think about how we can actually create more jobs and more economic activity through exports. Now we often think of the 1950s as a great heyday in the American economy and in the 1950s only 4% of our economy, only 4% of GDP was exports. So we're now at more than, we're not nearly what we need to be but we're more than triple that level. We are right down, I looked recently where we stand, we're kind of right, our peer group is Haiti in terms of the amount of exports to GDP just to give us a sense of where we can go. And as we talked a little bit about Germany, Germany is in the, depending on how you count in the 50, 52% range. Now granted, some of the trade, Germany to Italy is more than Pennsylvania to Ohio but it's, so there's some comparability but it's in a much higher level and places like China are about 36% so we're at much higher levels. So clearly competition, connectedness are interrelated. It's what we are very focused on at the Exxon Bank. We actually do a report to Congress. I'm a little graphic envy when I see this so we're up in ours but I have to say we've got ways to go to get to the McKinsey level. We're gonna issue this report at the end of June, we issue it every year, it'll be on competitiveness. And we look at competitiveness vis-a-vis other export credit agencies. How are we supporting US industries as they export compared to our competition? And this report's been going on for about 40 years. It used to be purely a G7 report and then over time it has expanded beyond that. So there are four things that, and in reading this report and reflecting on our competitiveness report I'm giving you a little bit of a sneak preview of a couple of things that we've seen have changed and changed particularly dramatically over the five years but even particularly in the last year. One is just the entire change of the banking landscape as a result of the financial crisis. Two, as a result of the global financing of trade has also changed dramatically. The role of the internet which Susan talked about and something that concerns me and Tom in the front row has certainly written a lot. Just there's a rise of nationalistic trends that are going the opposite way and are in some way fighting some of those changes. So let me talk a little bit about the first one which is changing in banks. Today, unlike five years ago, to get a loan from a bank for five or 10 or 12 or 14 or 18 years, depending on the kind of project is well not impossible. Banks do not no longer in the business of making those kind of loans. They'll lend three years, five years, very rarely can you get a longer term loan. And that has had a dramatic impact on infrastructure. It's had a dramatic impact on trade flows as a result of that. Now part of that obviously is a result of Basel III. The imposition of Basel III and the change in sort of bank reserves are a result of the financial crisis to make the world a more secure, make banking more secure. But there are other consequences to that. And I think some of the regulars I've talked about may trim global growth by not there. I don't know how they actually made this analysis but maybe a half a point, but it clearly is some change because the banks reluctance to lend or banks needing far more reserves to make the loans that they were making. So one of the things that we have seen as a dramatic change in the last five years, first one we actually did was in 2009, is the use of capital markets for trade flows. In the last five years, about one third of our long-term aircraft transactions, which are a major part of what we do at the bank, we're done through capital markets. First one was actually Emirates. And this is where instead of guaranteeing a bank that makes a loan for a foreign buyer to purchase goods, we float a bond that essentially we guarantee to make those capital flows. So that's one of the changes we saw. I'm getting the five-minute hook so I'm gonna move quickly. Two, OECD. The OECD established after World War II on a number of areas in terms of the environment, trade, economic development. About 10 years ago, the OECD regulations or framework for export finance covered about two thirds. Today it's down to a third. Only one third is covered by the OECD, which used to be something we relied on so that goods and products sell on their own and don't rely on government subsidies and so forth. So that is a giant change. China is a major factor in that, but China is not alone. There's a lot of other loans, what we call untied loans where Japan will make a loan to a project, not in exchange for any goods or services, but simply to further the national interest. So that is a major change we're seeing. Picking up on Susan's comment on the internet and actually just the other day we were talking about doing some more work with eBay, so I felt like we were particularly timely. This has been a particular boon for small businesses able to make trade connections through the internet has been a major factor. One of the terms that we see in this report is micro multinationals, which I think is a great term, and applies to 90% of the businesses we work with at XM are small businesses and small businesses defined by the SBA and they are very much relying on the internet to make those global flows and global connections. And I think that the fact that we're gonna see a lot more of that crossing borders as Susan talked about. One of the concerns here, frankly, is with the change of the Commerce Department, and I think we may see more nationalistic policies that may provide some balkanization of the internet, which could be an impediment that we're gonna have to figure out how we get over that. And the last piece relates that is actually nationalistic policies. And I think that this goes against the commercial trends. I mean, the business community clearly embraces global trade at a far more rapid rate than frequently the governmental systems, political systems are doing so. And we're seeing, I haven't seen the trade barriers, but we certainly see in Brazil large import substitution rules to make sure, even though they're a full employment economy, to keep exports out. I'll give you one example. If we wanna sell a ship for the oil services industry, they have to manufacture two in order to be permitted to buy one foreign ship. I know we're here in McKinsey, I know McKinsey have to balance your workflow, making sure that Brazilians in the office doing the work and not just Americans. So I think that that is, I mean, India, as we know, we just had election, great fear about multi-brand retailing. So there's a number of these sort of non-trade barriers, whether they're local content, whether it's keeping out multi-brand retailing, that are really some of the concerns we have. And I think it's one of the reasons why TTIP and TPP are important as moving forward in those areas. I probably down to two minutes now, one minute? Two minutes, I guessed it right, okay. So this is a concern. We're gonna have, there's gonna be a very robust conversation here, so I don't wanna jump the gun on that. I would say that these concerns about global trades, frankly, include our own country. We at XSIM are in an unusual debate already on our reauthorization. Our charter expires in September. We have been rechartered or reauthorized 16 times since 1945, generally four or five years under President Reagan, six years. We now, we're just finishing, we were reauthorized two years ago in about a week and we're up again. This is something, so we have to, we're quite concerned that if we're gonna engage with the outside world, if we're gonna engage in terms of exports, and one thing about, I see in our work on exports, it's not, we'll focus on the jobs that create United States. We create so many jobs overseas. We build power plants, we build finance airlines. We're creating tens of thousands of jobs. I will just close with, I'm going to Brazil and I was there, we finance helicopters to Brazil. Those helicopters create a lot of jobs in Pennsylvania and in Connecticut at Sikorsky, but they also created 1,000 permanent jobs in Brazil from this helicopter company that we do business with. So we're creating a lot of jobs there. So with that, I'm going to abruptly end because I see there's now a sign that says stop. And I'm good at following orders. So I wanna thank James, who's most importantly thank you for doing this great work. This is very helpful to us. And thank you for giving us a chance to also share some perspectives on it in terms of what we see from a global companion point of view. So thank you and looking forward to the rest of the conversation. Hi, I'm Peter Coy, the economic senator of Bloomberg Business Week. Very happy to be here. This is a great, not only a great report, but a great set of panelists. So I'd like to bring them forward now. Please come up, you know who you are. Eric Schmidt, who just took my seat. Now you have to come up here. Eric Schmidt, executive chairman of Google. Muhammad L. Ariane, who is the chief economic advisor to Allianz, former head of PIMCO, and not head of PIMCO, but former CEO. And also the chairman of the President of Obama's Council for Global Development. And we have Eric Spiegel. Eric, here you are. Who is the president and CEO of Siemens USA. So really just a great, great set of people. And we only have until like 1130. So we're gonna, this is gonna be diamond-like in its perfection and spareness. Well, which means I kind of try to give tight answers on these questions because we wanna leave time for, should I be sitting down here without that to be better? All right. Kind of like the podium, but. Okay, we're gonna jump right in. And I just wanna ask everybody, I'll start out with one question for everybody and then I have specific questions for each of the three panelists. And then we have a couple of people we're gonna call in from the audience and then we're gonna ask questions from your cards. So if you have questions now, hand them off to the people who are circulating. They'll bring them up to me. I'll shuffle them and randomly ask from the questions that they need. Right, so great. One thing that strikes me about this excellent report is that I ask, what does this mean for globalization? We talk about globalization as incorporating all five of these flows, right? So is globalization kind of inexorably rising or is it more like kind of a sine curve or a cosine curve? You get different answers depending on which flow you look at, right? So the financial flow is down considerably since 2007. The people flow is about flat, trading goods and services up slightly. The one that dominates if you equally waited these five would be the data flow, which is way, way up. So data, is data, is it appropriate to equally wait? Should you underweight data? Is data merely an enabler or is it something good in and of itself that should lead you to think, yes, we are onward and upward in globalization? So I'm gonna take it from this end and work down this way. Any thoughts about looking at this report? Let's stick as close as possible to what McKinsey's talking about here and then bring your own knowledge to it. Is globalization advancing and retreating here? Well, globalization is the sort of key story for the last 20 to 30 years, right? It's responsible for almost everything we've seen around us, and we can talk about that at a lot of length. I think people tend to know that. And when I read this report, I thought it's just continuing and we shouldn't be surprised. It's not gonna be stoppable. We're all in one world. We're all the same and all that kind of stuff. And information is incredibly powerful. So it's hard to measure this, but think about the impact on science with the globalization that has occurred. Discoveries are now essentially at the nanosecond level. That's, collaborations are global. People are working regardless of time zone, nationality, race, creed, what have you, right? To make the world a better place, to invent new medicines and so forth and so on. We tend to think of ourselves as global citizens as well as country citizens because of that. The information that's represented here, which of course is the fastest growing part of it, reflects the investment that was made again over a number of decades in fiber optic cables underneath the ocean. So what is the underlying story here? On a whole bunch of banks, you can speak to this, lent a whole bunch of money to put fiber optics underneath the ocean with infinite bandwidth. That's gonna continue. So I agree totally with Eric. I would say it's continuing and evolving. So continuing in its most basic function, which is to enable people to do more things differently. And first let me thank James and Susan because there's nothing better than a very detailed data report to enable people to do more. Oh, data in Washington? I know to understand this. So if you look at the five elements, goods, services, people, finance, and now data and communication, each of these have enabled people, more people to participate in productive activities and to do it better by collaborating better. So that underlying theme of globalization is continuing, but it's also evolving some elements overshot. So finance overshot, right? There's no doubt if you look at the chart that James and Susan showed, that it overshot in 2007 and now it's coming back to a more normal part. Others are still developing. So with that comes, I think the challenge to everybody is to understand that the benefits are changing and the mindsets required to exploit these benefits has to evolve, but also that the risks are changing. So globalization, totally agree with Eric continues. It evolves, it's a good thing, but it also poses a number of new challenges that really good data work allows us to understand better. Yeah, I think we're gonna see just a spurt in globalization. I think we're gonna see tremendous economic growth, we're gonna see growth pick up over the next few years. For a number of reasons, we're mostly in goods and services and data. Yes, there's finance and people involved, but we really think of goods and services. If I take a look over the last decade for Siemens, we're in about 190 countries. The increase in both the export and import of goods from the largest countries, the dozen or so largest countries has gone up dramatically for Siemens. With the advent of more global supply chains, we're seeing a lot more things moving back and forth. If you think of the data side of it, almost everything we make now has software associated with it, software embedded and sensors embedded. So we're now in the business of basically tracking and collecting information on everything that moves around the world from anywhere within Siemens. That is allowing us to optimize supply chains much more radically. We're now getting to the point as well where machines are talking to machines and that's gonna increase rapidly. So that you're gonna see that as we think about optimizing a plant for a customer, we're now using things like Google Maps to help automate and not only the operation of a major facility, but automate the whole supply chain with it. And we can now connect our supply chain, our supply chain can talk to the plants as things become automated. So we're seeing data spread very, very rapidly. And I think we said today earlier in the meeting, that's very difficult to track. When we send data back and forth between locations around the world, hard to see where that is, but it's creating huge economic growth. So I think a lot of this growth opportunity is actually not being captured today the way we think about traditional GDP. So we see just an unleashing as we think about what software can do and what we can do with data and what that's gonna mean for the movement of goods and services we see just tremendous implications. I'm gonna ask each of you a specific question. And the first one is for Eric and it's what's in the news now or one of the issues that the ghouls in the news for is the European Court of Justice decision on the right to be forgotten. And this strikes me as a step back from globalization, the sense that now each country is gonna be able to have its own standard for what information must be, cannot be linked to. How do you see this decision playing into the issues we're discussing today? In general, we support sort of the hard to describe it. The concept of when a company makes a commitment to somebody the company needs to be held to that with respect to data and so forth. And the ECJ decision is really about what's on the web in general, sort of a separate issue. The real issue that I think all of the internet companies are facing is that there's a rising tide of data protectionism and that does in fact affect the issues in the book. And it may have been triggered by the NSA disclosures, it may have been triggered by other more parochial issues but we're seeing a rise of laws which are attempting to force businesses to keep their information within the country as opposed to under the country's laws if you see the distinction. And so for example, there is a safe harbor between the EU and the US so you can run businesses between the two. If you start forcing the servers in the country it affects the internet structure, it affects the economics of these businesses, it makes them operate suboptimally, it favors local rather than global businesses and so forth. Why would consumers care about that? Well, if you like things to be fast, free and fun, you might actually prefer them to have a smaller number of engineers in a larger platform scale. There are costs to suboptimality and globalization. One of sort of the key ideas here is it's all one world, we all benefit from these global platforms. Yeah. Mohamed, we can talk about a lot of different things but since you're the finance guy here on the panel strikes me that you're the natural one to ask. We talked about this a little earlier. Is it a good or a bad thing that financial flows have fallen since their peak in 2007? So why have they fallen? First, there's been a cyclical element. Think of money as meeting your transaction demand. If you want to do things, you use money, whether it's national money or international money. And we've gone through a great recession. We've gone through a debt crisis. So there's been a cyclical decline for financial flows. That is unfortunate because it has been associated with loss of jobs and et cetera. And it is coming back. But then there's also a secular decline that's not going to come back. And that is that the view of international money has changed. Certainly regulators now take very seriously Mervyn King's statement about global banks. He said they are global in life and national in death. When something bad happens, right? And therefore, if you look at places like Switzerland, there's been an attempt to bring down finance to a level more consistent with the underlying economy. The second element that has occurred is that banks, in particular, have to manage their balance sheets now much more carefully. So they think twice about crossword commitments, especially when there's a higher capital requirement on that. And the third element is that shareholders have wanted to do the risk banks. I don't think that changes anytime soon. And in a way, that actually increases the safety part of the global economy. So I'm not sure you want to change that too quickly. And then there's the most fundamental change of all is that we as a society fell in love with the wrong paradigm. That's simple. We fell in love with a paradigm where leverage and debt creation and credit entitlement, buy homes that you can't afford because they're all going to go up. We fell in love with a paradigm where credit was not an enabler of other things, but credit was a standalone. And in fact, I always joke that you can go back. And in about 2005, people stopped referring to finance as the financial service industry, which means you serve somebody else and call it just finance. And we raised finance as if it was the next stage of capitalism, agriculture, industry, manufacturing services. And if you're really lucky, you get to financial services. And that was the wrong paradigm. And it took a major crisis, 2008, to reset that paradigm. And I think that's a good thing, because finance can only serve the border economy. It cannot be a standalone. Eric, I want to ask two questions, but one for the audience, which I think is really good. I'm going to mix in with some audience questions. We talked earlier about the challenge. You talked about machines talking to machines. What's happening to people in all this? The ordinary workers, for example, in Germany, in the US, and other countries where you operate, how are they being affected by all this? Well, I think there's a huge change. I mean, I think all of this movement of data and the automating of manufacturing is very disruptive. It's being very disruptive in the short term and in the long term. If you think about, for years, we've been talking in the US about the offshoring of manufacturing to places in Asia, for example, or China. But if you take a look at China, China's lost 20 million manufacturing jobs over the last decade or so. The US over the last two or three decades has lost a similar kind of a number. So really, it's not about us losing jobs to China. It's about us losing jobs to automation and to robots. And so as we push further into this world of machines talking to machine and more access to data and better automation, you're going to see that being more disruptive. Which I think we're starting to see it already with what people call the skills gap. And if we don't do something about it, you're going to see that increase dramatically. Essentially, if you take a look at a company like Siemens, there are no jobs in Siemens for people with just high school diplomas. And if you take a look at most of the long term unemployed out there who don't have the basic math and computer skills and things, there are no jobs in these kind of manufacturing positions. So if you take a look at what manufacturing was even 10 or 15 years ago, there are very few jobs in the future that these people are going to be qualified for. So we have to get on this issue quickly. It's an issue in Europe. It's an issue in the US. It's an issue around the world, even an issue in China. The automation and where automation is taking us is going after basically these low level, root-nized jobs. And not just in manufacturing. I think you're going to see it in areas like education, health care, and other areas as well. And already in accounting we've seen it, I think the number of people preparing tax returns has declined dramatically, for example, in the US. But I think on the manufacturing side, the skills levels have gone up quite a bit. If you take a look at one of these modern manufacturing plants today, everything is run by a computer, or a laser, or a robot. And the skills required to work on the production line. There are no more, quote unquote, blue collar jobs. These production jobs, people are walking around in short sleeve shirts with iPads in their hands. I mean, it's a very different work environment. We're having trouble here in this country in the US convincing young people that these are great jobs and these can be a great career. What we've tried to bring back from Germany is to start to bring back the apprentice model. In Germany at any one time, we have about 10,000 apprentices. We have a two track system. I'm not sure the exact system that works in Germany will work here in the US. But we've got it going in a couple places and it's working pretty well so far. But the idea is you go to school part time, you work part time, you get paid while you go through it. You get a degree in two or three years, you get a two year degree, you get a skill, a certificate from whatever state you're in on that skill. You're guaranteed a job if you pass through that. You're paid so you have no debt. Relative to the average four year graduate from a liberal arts school, for example, which is making less than $40,000 a year and has about an average of $30,000 in debt. We're hiring people out of these apprentice programs into our plants starting at $55,000. And that's only the floor of your career. If you take a look at a lot of Germans, they go on much further than that. So I think we really gotta start thinking about that model or other models like it and where they're gonna go. I see yesterday that the Senate and the House are putting forward a bill, a bipartisan bicameral bill that's gonna restructure the Workforce Investment Act, eliminating some programs and pushing forward with more work-based programs. And I think we need to really start thinking about that as a country. Right, so I had another question but I think I'm gonna hold it and come back to you because I wanna start engaging the audience. There's a couple of people I wanna call on specifically and then we'll go to the cards, the multi-colored fluorescent cards. So first one, Aaron Brickman from the Department of Commerce understand that you had something you wanted to either say or ask, so is Aaron here? You don't have a question, make something up. Ask them their favorite color. Okay, look, why don't we move on because the other person that I wanted to call on is Tom Friedman, New York Times columnist. Tom, you have something to say? Yeah, they're coming with it. So thanks, it's very interesting. It's a wonderful report and but I have to write a column. And so I've been sitting here thinking, writing a column as we were talking this morning and I decided my column will be what will the next American election 2016 really be about? And I think it'd be a very healthy election if it's about Thomas Piketty versus James Manneke, okay? Two views of the world. And the Piketty view is, as we all know, is that R is greater than G, that the rate of return on capital is greater than the rate of growth for now and forever always was, always will be unless we have another World War II or World War I. And basically the job of government is to make rich people poor. The Manneke view of the world is that actually the most important thing going on is that the world has gone from connected to hyper connected, from interconnected to interdependent. That's what this flows report is all about. And the job of government is to enable more citizens to align themselves with these flows at every level because that will provide a rate of growth both in the developed and developing world that we can't even begin to predict. And I fear the next election may end up being about Benghazi again, in which case we are totally screwed, okay? But I would love your reaction to this. Is it possible that we might actually have an election about what the world is about and two views of government. One is that to make rich people poor and the other is to make poor people richer. Yeah, maybe I can start. So there's a methodological problem with the Piketty analysis, which is that if you exclude the last 100 years of real estate appreciation, the curves actually look the same. In fact, the underlying argument that Piketty made a year ago is fundamentally not correct. I'll let the economists in the room debate whether that's an appropriate ad or delete. I don't think you'll mention that in your column, but in fact, the whole argument may be false. So if you go back and I think what you said about Siemens was so perfectly well said that if you look at the problem that political leaders have, they have three parallel problems to deal with. Globalization, demographics, and automation. Globalization is well represented in this report and globalization can be understood as I can't raise my prices because of China. Demographics is that we're keeping people older. We need a larger productivity from a smaller number of young people to pay for older people. That creates all the debt in the Western societies and automation is the robot took my job. So no political leader in any country I've met with has been able to coherently answer all three of those as a policy issue. They can get two right, they can't get them all three and that's why we're having trouble in this debate. And I think what you talked about is a very good first step. What Muhammad talked about is a very good additional step in regulation and so forth. The core problem is how are you going to get people and economies productive so that they create jobs? So the joblessness that all these countries are now generating is pernicious. Now you have right in this report the answer to the question. Which is the management and harnessing of information that is global in nature. And the human systems that we all run, participate in and favor and voted favor of and against are not preparing people to take advantage of those. We're not training entrepreneurs. The people that we're educating are not analytical enough. We're not letting enough immigrants into our country because immigrants are a higher likelihood to create countries. We're not connected enough, right? Especially in areas where there's disadvantages. So the poor are not as connected as the rich and on and on. There's a long list. So it's very, very clear to me and I suspect we would all agree that if you analyze this report for a while and then your question you conclude you've got to fix education. Your proposal is a very, very good one. There are others, right? And that's a form of education. Let's get people trained in a way that's consistent with their future job perspective and by the way without debt, right? And the problem is you're not gonna stop demographics because we're not gonna get rid of old people. We like them. You're not gonna get rid of globalization. People have tried. It doesn't work. Tariffs don't work. And you're not gonna get rid of automation because there's good business innovation reasons to automate the knowledge economy. So another way to say this is I'm sorry guys but the knowledge economy has arrived, right? You already gave the manufacturing statistics for China. Just arrived in China too. Sorry to go on. I think it leads to this point. But it seems to me that underlying all of this is we actually need a new social contract. That the social contract that was the combination of the New Deal and the Great Society which was built for the first machine age simply is no longer applicable. But even the term social in the contract I think is gonna become problematic because so much more is gonna be on the individual and the social contract will be so much more about what government enables you to do on your own not just what government does for you. The information, one of the things that's bizarre about the information economy is that all the tools necessary to fix whatever problem you have are in fact online, right? Education is free, right? There's enormous, enormous resources. So it's more of a sociological thing. It's more of a cultural thing. Are you bringing up your children to be curious? Do people expect things? Do they ask questions? Do they take leadership on terms of mastering their own futures? All of those are things to be debated. But I would put to you that the political leadership has not answered the core question in a coherent way. And that is where we are. And let me add to that. I mean the Tom Friedman of Brazil would be asking the same question right now in Brazil with the elections coming up. The Tom Friedman of Europe will be asking the same question in Europe. The Tom Friedman of India would have asked that question a month ago and would have gotten a very strong answer. And it's all about not just reviving growth but putting in place durable growth models that produce not only numbers but changes what people feel on the ground. So that is what the question should be, right? If you put it in Piketty's terms, so remember what he said R minus G, the return on assets exceeds the return on growth and therefore inequality keeps on going up until some exogenous shock happens or until the rich decide it's in their interest to do things differently. Here comes a report that argues both sides of this. The G is very instinctive to us. The G is simply that by enabling more talent to engage, you will get higher growth. By connecting people better, you get higher productivity. And you heard Eric give you very specific examples of that. It's like I said earlier, the electricity grid that by connecting you can actually do a lot more with less and achieve more. So the G part is very, very instinctive. The R part is more complicated because if it's global inequality, this reduces global inequality. And the numbers you saw clearly. But think of what Eric said about the person whose high school degree, et cetera who's having a problem in their fifties in my age, having a problem keeping up, right? Their jobs are going away. So at a national level, you're gonna have a tendency to work great inequality. So the question should be not to, is the trade off between R minus G? But if we can raise both together, how do we manage that process? That's what the question should be. But I wanna ask Eric a different question which is from the audience. I think it's a good one. How do you account for the risks of being a very much global company like Siemens? As the Russia example shows, it also bears great risks. Well, well you can, one answer to that is you can hedge your risk a little bit. I mean, we're in 190 countries. We've been in a lot of these countries for over 100 years. We've been in Russia for 150 years. We've been in the US for about 140 years. The US is obviously a bigger market for us, but Russia is one of the bricks, so to speak, and it's been a high growth market. We're very active there. But there are risks. We used to be a big player in Iran. We're no longer a big player in Iran, obviously because of the sanctions. I don't know where the thing in Russia will go. I hope they can come up with, somewhere to de-escalate this thing because I think we gotta get on with, how do we get everyone working together and how do we continue the globalization effort? But we're gonna manage it. We like to stay out of the politics. We like to stay engaged in engaging not so much the politicians, but engaging other companies. And we think that this engagement is a good way to get off of the political issues and get more focused on the economic growth issues. So I think hopefully this doesn't become a stumbling block, but we're very bullish that something's gonna be worked out. This is a question for anyone who wants to grab it. Again, kind of newsy. The report says that Thailand is one of the most connected countries. Yet last week, Thailand had a coup. In addition, reeling against globalization has become a pastime of ambitious politicians. Are the suggestions in this report politically feasible? Signed Justin Lynch. Thank you Justin, wherever you are. Any reaction to that? Thai coup, et cetera? So I was in Thailand just a little while ago and it struck me as sort of caught in this tumultuous question over political power, right? With a sister in charge and very, very complicated politics. The underlying Thai business has done well. Thailand has been a very strong exporter of trade within Southeast Asia. That's the largest car manufacturer in that part of the world and has a good approach to the internet. So I think that the fact that you have the internet and the fact that you have good manufacturing does not produce a political economy that's stable. You have to have something else. It's complicated there because of issues over the revered king and his aging and so forth. Every place is different. Here's one, since we had Fred Hochberg speaking earlier. How is it possible to win political support for renewing Exxon Bank or lowering trade barriers when there are nationalistic isolationist trends in the U.S. and around the world? I can tell this is a Washington audience because it keeps going back to politics which is a good thing, right? Muhammad. But that's an important issue because if you look at what's been happening over the last five years since the global financial crisis in the Great Recession, we've only had really one policymaker engaged full-time and that's the Fed. And the reason why the Fed has been engaged full-time is because it enjoys a certain amount of political autonomy. Other agencies have to go through Congress and once you have to go through Congress, you have to deal with the polarization that we have on Capitol Hill. So whether it's the Exxon Reauthorization, whether it's any attempt to have a jobs bill, whether it's the fact that we went five years without a budget, think about that. We went five years without a new budget being approved, right? This is the reality and it's pro-cyclical in the sense that you get a shock and growth suffers. That's the time when you need the political system to come together but it's also the hardest time for the political system to come together because there's a lot of blame to be shared, right? So I think XM is just an illustration of something much broader that's occurring and that's why if somehow one can get the high growth in place, we'll find that it solves a lot of other challenges that we also face. Well, growth solves all problems, right? I should just add that without an XM bank, the US becomes a lot less attractive for companies looking to locate, for example, manufacturing here for export. And if I take a look at our US business 15 years ago, we exported almost nothing from the US. Today we export about $6 billion here. We had very few manufacturing plants, we have over 100 today. A lot of that is because we see the US more and more as a low-cost manufacturing country and we see the ability not only to serve one of the largest markets in the world but to export from this market. And with that XM bank, the US becomes less competitive relative to a lot of other countries in terms of being able to build manufacturing and export. We're almost out of time. On a scale of 10, where 10 is ultra-optimistic and zero is you want to jump off a bridge, how optimistic are each of you guys about where we're headed with the stuff that's in this McKinsey report? Well, I'm extremely optimistic because I think people eventually overcome their governments and I don't mean in civil war. There's just so much individual empowerment now that didn't exist before and governments are struggling with the fact that their citizens actually watch what they do, judge them and at least criticize them if they don't have the ability to throw them out of office. So in the last decade, the biggest shift has been the empowerment to individuals who can monitor, track, have opinions and so forth and not all individuals are sane and not all individuals are right. But on mass, I think if you take sort of my view that the mass of people are altruistic, try to do the right thing, try to make the world a better place, we should be very optimistic. An interconnected world, as James and Sue described, is a safer world, right? I think that we all see that, right? Your answer with specter Russia, classic example. The more interconnected we are, the healthier, the happier, the fewer wars, the better prosperity, the better education and on and on and on. I agree with Eric, I mean I will put it, I don't, you didn't give a number, right? There's always seven, it's a prime. I was gonna give it an eight, yes? It's not a prime. I thought you were gonna give it Google. Go ahead, mom, I interrupted you. Well I was gonna say I'm very optimistic and just quickly, on the one hand it was great to see the US rank third, on the other hand I maybe wish it would have been ranked a little lower and one of the reasons is if you take a look at those various flows, you know, I think it's a great message to people in this town and politicians around the world and also corporation city, what is it, up to 40% faster growth if you're more connected and if we take a look at the US right now, we're debating things like trade agreements with Asia and with Europe, we're debating immigration reform, we're debating these data privacy issues and other things and this data is basically showing the more connected, the more open, the more growth you're gonna see. We've seen the same thing when you open up electric grids, people that are connected to electric grids grow much faster, when you take a look at rail and transportation networks, when you open them up and connect two cities, they grow twice as fast as cities aren't connected. This connectivity, I think that to me is the big message out of this, which is let's get more connected, let's drive that and I think around the world, get more of these countries that are developing, connected and it's gonna drive tremendous economic growth so I'm very bullish. This is really about the compounding power of networks and networks and power laws really do dominate in these global markets and 100 years ago people were having debates about the railways, electrification and so forth and in crude forms they saw the same benefit. We are the beneficiaries of that work including your company's way back when. Let's celebrate that and 100 years from now we want people to say back, these guys understood the power of information, getting everybody connected and it got the world to be in a place where we could really grow for the next 100 years. Great, that's a nice note to end on so thank you very much to all three of the panels. Great session. Next panel up here please. I may have been, I use my chair. I'm not gonna ask any of your questions. I refuse to, I just like so put, you know, three 20th century index card. Okay we'd like to start the next panel please. Can everybody sit down? I make a mistake at the point. Okay, let's clear the room or at least sit down. Not clear the room, just get out of the way. This is the policy panel. You may have mistaken the previous one for a policy panel but this one is officially the policy panel and we are going to, we are going to sort of move forward as fast as we can here. Let me briefly introduce the panelists. I'm Mike Mandel, the chief economic strategist of the Progressive Policy Institute. Starting from your left is Donna Harris of 1776. Karen Cornblew who's executive vice president at Nielson and who was also named a digital policy pioneer by PPI earlier this year. It was a great event actually because it sort of went back and retraced a lot of the policy decisions that led to the internet as it is now. Brad Jensen, economist from Georgetown who's the absolute expert on service trade and Matt Slaughter of the Tuck School of Dartmouth, former CEA member and all around good guy. I'm gonna sort of just say a couple of remarks here. First, in my view, this is a breakthrough report and what I mean by a breakthrough report is that you have never seen before all of the flows in the same place including data. You have never seen before all of the economies of the world connected by goods and services and finance and data. This is the way a couple of years from now that all economic modeling will be done, right? So this is a genuine, and I do not use this term lightly. This is a genuine breakthrough. And why is this a genuine breakthrough? It actually changes the way we do policy. It changes the language of policy. So let me just give a couple of examples here. One is that we're used to thinking about trade in terms of exports and imports. This report changes the language of policy to connectedness. It changes the goals of policy. It changes the way we talk about it. Second is that by presenting data on the same pages as goods and services and finance, it makes the obvious point that people do not recognize which is that data flows are as important as goods and services. This changes policy as well. Now I'm just gonna give a two second plug here. PPI this morning just released the report estimating the number of big data jobs in the U.S. at about 500,000. These are real jobs. This is data creating jobs. And then finally, what this report does is it changes by talking about flows. We're talking about the size of the contribution to growth and the disruption of existing patterns. So what this panel is about today, it's about the role of policy in encouraging flows. And also the role of policy in shaping the responses to flows. And I'm just gonna start with a question for all of you and feel free to answer this any way that you want. We've got government policy at this point. You've got a variety of instruments. Do you think that we should change our policy to explicitly encouraging global flows? And how would we do that? Wanna start with you, Matt? Sure, great question. I think we should. We meaning kind of the world, but if we take the U.S. where we are, I think we should. And I think one of the things that I'm struck by with the message of the port of the gains of these global connectivity, I like that you see it now, is Washington D.C. for better forces not moving policy in a direction to facilitate these flows. So it's not on immigration reform, not on corporate tax reform, not on TTIP and TPP. There's efforts being made, but the actual policy changes aren't happening. And I think the biggest reason for that is that earlier panel did a lovely job of speaking to it, is I think the anxiety of what I'll call the 50-year-old male in Ohio, who's the median worker that has a high school degree, but not as post-high school accreditation of any kind, who reads this report, what does he think of it? And what's he gonna tell the Congressman? Brad? So I will echo what Matt said. I think that we're not moving fast enough. I think there are a number of specific opportunities to push the U.S. to become more integrated in the global economy. I focus on the service sector. I think that there is enormous opportunity for the U.S. for faster growth, for better jobs, through more trade and services. I think the U.S. has comparative advantage in these activities. We underperform, not because we're not competitive, but because there are policy impediments in the big natural markets for us to sell our service goods. I think the Trans-Pacific Partnership is an opportunity to increase export of services. I think the Trans-Atlantic Trade and Investment Partnership, the TTIP, is another opportunity. I think the Trade and International Services Agreement is another opportunity. All three of these are specific opportunities. They're being negotiated now, yet without trade promotion authority, I think the negotiations will be stillborn. So there is a big opportunity for growth, but we need political will to push this through. Yeah, I guess I'd say we need more than political will. I think that the U.S. has to understand that economic growth is possible. I think the Piketty book has this kind of fatalism and pessimism about it. He says that global growth will be one to one and a half percent long run and there's nothing economic policy can do about it. And there are just too many U.S. economists who agree with that and many policy makers who really don't think about technology, don't think about innovation, don't think about how policy can affect the real economy. And so you naturally turn, maybe not as extremely as Piketty does, to just doing things at the margins, just doing redistribution. And so the U.S. has to decide this is important, this is important to the U.S. and that we have to lead. I was ambassador to the OECD and I became more convinced than ever of the important role the U.S. plays. Often we have to play it behind the scenes, but we have a bigger stake in the world economy and others aren't gonna do it if we don't. So things like the Balkanization of the Internet, we've taken a leading role in that, we have to continue to take a role in that. And that doesn't mean that individual countries can't have cultural differences with regard to privacy, but as these OECD principles that the U.S. put forward and negotiated said, they can't stand in the way of a free flow of information. You can find things like the USEU Safe Harbor. We just worked behind the scenes with Brazil and Brazil went from putting forward in their anger over the NSA a requirement for data localization to a really good piece of law that says, as long as you respect Brazilian law with regard to Brazilian citizens' data, you can transmit data and that means that whether you're a bank or a hotel or whatever, you can provide services to Brazilians. But it takes that kind of leadership and then I thought Tom Friedman's question before was so great about the Social Contract and I actually used to be at New America and that was what we were working on is how do you go from an industrial era social contract with those big buildings on the mall that say all of your social benefits go through your employer who you're gonna work for for 40 years and it's gonna be one person in the family working and one person at home and you're gonna get your healthcare through your employer and you're gonna get your pension through your employer and your wife's gonna be at home taking care of the kids and now it's a completely different model. You're working temp jobs, two or three jobs, you're in and out of the workplace. You need to have individual social insurance that flows to people and we can talk about what that means but certainly it means healthcare, pension, we have to think about childcare as part of social insurance and other countries do and of course we have to think about things like higher education and apprenticeships throughout the life of the worker. So I agree with my panelists although I'm a little concerned about looking at all of this through an industrial era lens versus an internet age lens. So if we think about Kauffman has done tremendous amount of studies on the correlation between entrepreneurship and net new job growth, the fact that young high growth, less than five year old companies actually generate the majority of the job growth in our country the last 30 years and if you extrapolate that to what's going on globally irrespective of policy, this revolution is happening. So the question becomes what are we going to do to fully participate in that and how do we completely rethink the lens that we're using? We think about the internet of things and the fact that everything that we do all the devices that we have are car how we engage in every industry is about to be dramatically disrupted. So looking at it through a lens of goods will be transported from country A to country B might not actually be the right lens because you can 3D print in any market you don't need to ship product anymore. All right so the lens that startups around the world are looking at is I don't really care how the world works today I'm going to employ all of the technologies cloud, social, mobile, internet of things smart devices, connectivity and really radically rethink the fundamentals of every industry including supply chain flow of goods and services whether people actually have to move or not and we're still looking at policy through the lens that is catching up to the industrial era We're still looking at through the lens of national policy as opposed to connected policy National policy but also still through the lens of an industrial era Why don't we just keep going on that tacked a little bit about if we were to sort of look at policy in a I don't want to use the word post industrial an internet of things way of looking at it because I mean the way that I think about the internet of things is that so far the internet has affected the 20% of industries that are primarily digital the internet of things transforms the other 80% of the economy so we're talking about a change that is bigger than we've had up to now now one of the interesting things about this framework is this framework in this report can handle that shift because if you're rather than shipping goods you're shipping plans to another country you're instead of shipping goods it shows up on the data so we can sort of see that Would you feel comfortable going into a policymaker at this point and saying you know we really need to be more interconnected this is the way to go and I just sort of say this as somebody who's spent a lot of time with policymakers both in the US and Europe and if I say this to policymakers in Europe who are of course thinking about data protection they look at me like I'm crazy so we'll start with we have people here who have been policy makers or given advice to policy makers go ahead I'll start so I grew up in Detroit and had you told the automotive manufacturers that the base of the automotive industry would not be in downtown Detroit 30 years ago they would have looked at you like you had foreheads I think that is the conversation at hand here and I do think the word post-industrial is the right word What could you have told them then that would have changed their mind because a lot of what we're dealing with right now in Washington and other parts of the country and in Europe and Brussels and Berlin we're dealing with policy makers who know on one level that this is right but they don't want to grapple with it what could you have told the people in Detroit that would have gotten them to do something different you're not sure Yeah, no, I think it's a great question I think Eric's comment earlier was exactly right that it isn't about the technology it isn't about the tools it isn't about the capability it's about people it's a cultural issue and that is hyper local it's personal, it's individual what does this mean to me what does that impact me in terms of my life, my family the things that are important to me as an individual and as policy makers they struggle with that because they're at the intersection of that that's their constituent base they're hearing from people they're very personal I lost my job I'm concerned about the economy but that is what we're grappling with and the challenge policy makers have is this is going to happen so any sort of pushback on that you're just head in the sand avoiding the conversation we're going to have to have some tough talk we're going to go down so I also grew up in the Detroit area yeah so and I guess in very simple terms so I have not said this to policy makers but I think that this is something that should be said to policy makers I think there's this mantra of exports are good and the flip side of that that's never said is that imports are bad and I think what and this is Washington and I'm now more accustomed to talking to policy makers I think the message should be exports are good imports are good and that's what should have been said to Detroit is what we need is we need an interconnected world we need to have easy access to all the inputs the best inputs the cheapest inputs that we could find for any activity for any good for any service for any data easy in easy out so that we can do the things we do best and then it's a matter of empowering the individual to become the best they can be and participate in that global supply chain if you will the imports make better companies okay I've done work I'm guilty of promoting this mantra of export yes you are yes I am yes you are stand up and sort of they're bigger they're stronger they're faster they pay higher wages I was there at the inception of that and I'm guilty of that let me tell you importers have all the same desirable characteristics it's the people who are not connected that are it's the people that are not connected that are in trouble okay so imports are good and I think that that that is a simple message that even congressman I actually want to I actually want to I actually want to sit away before we go and I actually want to sit up highlight that because imports are good exports are good data flowing out is good data flowing in is good you know is really shift the terms of the policy conversation in washington in a way that makes policy more consistent because right now there's an enormous amount of inconsistency in policy that makes life very difficult you want to say something Matt short so to the people from Detroit think of Detroit thirty years ago and I think that the way you try to get them to understand where we are today would have required two things one is to that to be geeky finance but lower your discount rate I think there's so much of our policy conversations in business leadership conversations often are on next electoral cycle next quarterly earnings and I think the forces of this report such a terrific job pulling together these are deep low-frequency forces that are building in the world that barring something dramatic which is never going back and they're going to keep evolving that the gains those create are massive and that's all that's all very exciting and powering on this are versus g conversation we had earlier so that's the first thing you would have to tell my thing I grew up in minnetonka minnesota so a little bit of a different place but that the imports with the imports were there right talk of trucks were made and invented there but those those have been produced in the United States for a long time but I remember as a boy growing up there was Cargill this very global fluid commodities firm privately traded probably held that does amazing things around the world in in agribusiness and then there was a lot of innovation so rollerblades were invented there because the university miss on a hockey team train in the off-season is really true you're making this up now it's all true okay so I believe everything that Matt tells me so the second thing is that you need to tell the leaders is to imagine new stories because I think that the framing of the policy conversations I've lived this and still do a bit here is is on that you know industrial or even agricultural so think of the conversation we're having the United States today about the disruptions that we're talking about in that that fifty old worker in Ohio or in Detroit the policy conversations right now it's unemployment insurance extension and it's minimal wage increase and as just as those things might be they're just wholly inadequate to address the complexity of the connectivity we're talking about so a lot of our social safety net policies in the United States were created literally generations ago when the global economy was just a story that has just gone long ago so we've got to tell new stories about what it means to create a social safety net so that the accelerate growth and get struggling people richer it's a story that leads to policies that are fundamentally different from what we're talking about now I just want to point out that one of the virtues of this report will help us create new stories with new language very important I'm sorry go ahead I was just going to say one of the things that we can do as we think about policy is look at other countries for best practices so often the U.S. looks inward and we just get into these internecine battles and I think one of the things this report tells us is you know the world is moving fast and so we should look around and get best practices we're not used to doing that you know at the OECD that's one of the things they do is they collect these this data about who's doing what and best practices so the PISA study is very well known in part because of Tom Freeman that ranks countries by what they're doing in terms of education we have a lot to learn in terms of creating a knowledge intensive workforce and there are really specific examples of Finland and Korea and what they're doing to do that we can learn from that but also if you look at you know Israel has this incubator system where they encourage in their versions of Detroit incubators and they'll cover the risk but you get the upside so Nielsen was actually the first multinational to go in and seven new companies have been created in the big data space you know we're now looking and talking to folks in New York about creating you know can we create a similar kind of incubator here infrastructure you look at Korea which sees the benefits of you know trading and being in the middle of flows they've invested in broadband in a serious serious way so I think what part of what we need to do in the U.S. maybe to get these stories is look outside and get these best practices and then just steal them like crazy I'm going to open up to the audience in just one second when you said low discount rates what that made me think about was in New York where Mayor Bloomberg put in the plan to sort of put the new university Cornell on the on the island and that's something that that's going to take ten fifteen years a long time certainly beyond the the lifespan of any normal politician and that was something that sort of really served to focus attention on New York even sort of because it convinced people that if you move to New York you will eventually be able to get the talent okay questions from the audience no note cards no anything we're just going to use the normal hands here okay sir what what what what knows in McKinsey's done fantastic work on on the cities and urbanization in the six hundred cities and all that James wants to talk so go ahead yeah I think that anchoring this whole discussion to cities as engines of growth innovation etc might be in that cities trade with cities and the flows go amongst these might be additional point stand up and some people can see here one of the things we didn't get a chance to talk about one of the things we didn't get a chance to talk about there's so much in this report was the question of operating some of technical terms the unit of analysis when you when we say that the flows have become more dispersed and there's more notes for participation if you take the net the notion of network and network kind of centrality you find nodes at different levels countries which we're talking about a lot cities which is an important point so we actually found that for example there are some cities that are more connected than others and if I take the example that Eric Spiegel gave about we know that historically at least when cities get connected by rail and road those that are connected tend to grow faster we found this in this report in spades so I think as you think about the connectivity that we're talking about we're talking about both nations we're talking about cities we're talking about regions we're talking about companies we're talking about individuals so all of these things are a play one last note then I'll stop the other the other thing that we noticed in the in the research was that if you look back historically I take the notion of cities since you brought it up often the same cities where the hubs for everything so you know we're talking about flows of products goods services money ideas people where if you looked you know three hundred years ago that would be in London would have been you know the the the the same nodes were the same whereas in this world there's much more variety there are nodes for data there are nodes for goods there are nodes for finance the nodes for people flows they're not necessarily the same so there's a broadening of the nodal structure here of cities and regions as well does anybody want to add anything to this? so I think urbanization is an important trend and the McKinsey numbers are just for China alone or breathtaking and to me I just see opportunity if you're going to build ten New York cities in the next ten years you need an army of architects engineers project managers logistics supports insurers financiers all the kinds of tradable business services where the U.S. has compared advantage you know we need access to those markets to sell our stuff and it's not just trade barriers but also government procurement policies those are other things that we need policy we need national policy actors to open those markets another question from the audience I'm going to pull somebody back there that's going down to follow up on the city questions Dr. Sam Hancock of Emerald Planet, Emerald Planet TV and the interviews that we've been doing is that keep talking about fifty four percent of the world's population now lives in urban areas by twenty fifty it'll be almost eighty percent Brazil is already today at eighty seven percent united states is already at eighty percent so what kinds of best practices and this kind of follows up in your comment about all these different in essence trades or skill sets that we need what best practices are you seeing in your research where we need to be advancing this but also to let the policy makers know we're already here the future is here now we're not here we don't have to wait another thirty years to get there and thank you very much for what you're doing any thoughts here i'll just add one thing which is which is that you have the examples of new york and san francisco in london that have in fact been growing through the whole downturn and all of these have had governments that have been supportive of interconnectedness supportive of technology supportive of growth in a way that most other places are not and so there is a sense in which even though you don't actually need super strong policy tools if you're writing the way of connectedness you just need not to stand in the way more than anything else i'm gonna take actually no more questions here you go each of you get one minute to finish up at this point i'll start actually wanted to dovetail off of that i think it's a really important point that really the point of connectedness is more hyper-local than at a national level if you think about what goes on within a metropolitan area i'll look at the lens of the up-and-coming companies, the high-tech growing companies that are potentially the job creators if you look at the development of ecosystems around the world and where hubs of really dense start-up activity is happening it is in the metropolitan areas and what's happened is a complete country agnostic approach you've got Berlin and DC and San Francisco and Sao Paulo and Tel Aviv and Moscow connecting helping each other's companies sharing resources sharing capital to the degree that the start-ups themselves really are not necessarily affiliating with a nationality they're seeing themselves as transcending that national affiliation and in essence becoming dual citizens or even multi-citizens right so i'll give you a great example we traveled the world since last October looking for the most promising companies that are really tackling things like education and health and transportation and energy we had over five thousand applications of individuals from a far away as Cape Town and Tel Aviv and here locally in Washington DC time and time and time again we saw companies like a company i met when i was in Sao Paulo called Solar Brush really cool company they're using drone technology to clean and service solar panels and they are the founders from Berlin he's actually building his company in Chile testing it in Venezuela won the Sao Paulo competition came to DC last week in hopes that he could build connections in the united states in the Middle East because that's where his markets are and oh by the way his development and collaborative teams are spread all over the globe that that is truly where things are going terrific point yeah i guess i would just say i really want the U.S. to adopt this the urgency that i see in this report to both safeguard the whole system and prevent it from being vulcanized or that kind of data protectionism that Eric Schmidt talked about but also to organize ourselves around being productive participants in it all and i'll just take it it's not really fair but there was a recent White House report on big data and it was concerned with privacy and that's really important where it came out with on privacy was fine okay those are my disclaimers but then what what i found so unsettling is somebody who cares about growth and competitiveness and and jobs was that the big data report said big data is good for this reason this reason this reason and the entire rest of the report was about mitigating the downsides and i think you know what we're all talking about now and and i think this is only the beginning i mean i think mckinsey could have underestimated this because we haven't seen the industrial internet the internet of things and this we're at the this would be like having this kind of conversation at the beginning of the industrial age you know before it had spread throughout uh... industry we're guessing right now but you know the U.S. does not have to be a winner in this even though we helped launch it and i really hope that we we figure out how how our people can be winners although you know as you're saying a lot of people can be winners who don't be the only one so i'm done as point i i think that's right that there is a lot that happens at the firm to firm level and that's where a lot of the action is but i don't think we can lose site of the fact that we still need national governments to create the open environment uh... there are big impediments in lots of countries in our own as well to the free flow of goods services people and data and it's at the national level where this needs to or the multilateral level where this needs to be hammered out to echo karen you know we need to get on with it we we have a very important role to play and we need to play it uh... so i'm a data geek and it was terrific to work with mckinsey on this report if i come back to my the metaphor of stories a lot of us know the winnie the pooh stories right so i'm a tigger by disposition in this report is very for the world is very tiggerish which is awesome because when it connects with a deep we economists don't know a lot but the thing we know what drives most economic growth around the world historically is is knowledge and ideas what would come is called total factor productivity growth and the message of the connectivity on michael's nice word is for the ability of that knowledge to to to flow around the world has is going up dramatically by the hour per at dawn school example a lot of citizens at the national or policymaking happens a lot of citizens these days we know from public opinion surveys they feel a lot more like piglet these days they're anxious people sitting on the kitchen tables in the u.s a lot of other countries it's just not quite working and they're looking for somebody to explain them how to work better a lot of americans and other people are very inherently optimistic the policy trick though again is going to be people got to start talking about different things because of its i'm i support raising the minimum wage but that is so inadequate of a story to get the piglets to not turn to yours and to be more like mark like tigger so the business is really extremely optimistic which is tremendous i think the policy leaders somewhere are going to have to kind of step up and make this be a tigger story for the people in detroit and the people in minnetaka and the people in those types of communities well thank you this has been terrific let's give a hand for our panelists thank you very much everyone