has kept the essential spirit of america, and my mind alive. thank you. [applause]. >> i commute every week. i've done that for over 30 years from illinois back to washington. so there's time there. and i've really found a book to be a great way to pass that time. catch up on the magazines, clippingsing and so forth and then get into a book. and if i really get into it, you know, stick with it until the end. i'm not into kindle, you know? tried it, it just wasn't my style. i like the tangible feel of that paper book. and i also find if i'm carrying the darn thing around in my briefcase, i'm going to finish it. so i kind of stick with it and read it. it's also a great way if you're sitting next to a passenger that you don't want to talk to, and that does happen to politicians, you know?

the head of the nra from colorado, thank you, i've got a book i've got to read. at least you have a legitimate, kindly way to say, don't bother me. >> you can watch this and other programs online at booktv.org. [inaudible conversations] >> good afternoon, ladies and gentlemen, my name is heidi young, and i'm the director of corporate partnerships here at world affairs. it is my pleasure to welcome you all here today. this program is part of the global business forum which is an initiative of world affairs

that focuses on topics at the nexus of commerce, technology, policy and society. we will be exploring topics along the lines of financial inclusion, future of medicine and the future of transportation in the fall, so i hope you will join us more those program -- for those programs as well. today to learn more about the global business forum, please see us at worldaffairs.org. we're pleased to have with us rana foroohar, author of the new book, "makers and takers: the rise of finance and the fall of american business." a bit of housekeeping first before we get started. please take a few minutes or a moment to silence your cell phones and other noise-making devices. towards the end of the program, the last 10-15 minutes of the program, we will be inviting audience members to ask questions. you can do this in two ways. there are blue question cards on your table.

please feel free to write your question on those cards, and we'll be -- world affairs staff will be collecting them throughout the program. and as an alternative or in addition to, we will have this, we have the standing mic right in front of me, and so you are invite to ask your questions live at the mic. and we ask that you, to make your way to the mic, please walk around the back of the room given the camera setup that we have. we are recording for radio, for our future broadcast at world affairs on kqed which airs on monday nights at 8 p.m. c-span is also recording this program, and we'll be video recording for posting on our web site, worldaffairs.org. it's my great pleasure to introduce tim o'reilly, our moderator this afternoon, a partner of the early stage venture firm o'reilly alpha tech ventures. he's also on the boards of maker

media which was spun out from o'reilly media in 2012, code for america, peer j. tim has a history of convening conversations that reshape the technology industry. if you've heard the term open source software or web 2.0 or the maker movement or government as a platform or next economy, he's had a hand in framing each of these big ideas. his next economy summit which will be held here in san francisco on october 10th and 13 19th covered -- 11th, covers many of the same themes we'll be discussing this afternoon. please join me in welcoming tim o'reilly who will introduce our speaker. [applause] >> good afternoon. thanks for joining us. i'm delighted to see you all here. and it's now my pleasure to introduce today's guest. as heidi mentioned, rana's an assistant managing editor at

time and is also cnn's global economic analyst. before joining time and cnn, she spent 13 years at "newsweek" as a foreign correspondent covering europe and the middle east. you can see her full bio in today's program flier. but she's also the author of this remarkable new book called "makers and takers." i got a galley of this book, and i immediately contacted the publicist and said send me a box full of these things, because i want to spread them around to other people. i proceeded to pass it along to many of the leading lights of silicon valley. it's a really, really important book. and the subtitle, i think, really says a lot, "the rise of finance and the decline of american business." it's very provocative but something that i think all of us need to be thinking about. anyway, thank you for joining us, ra, this a. rana. >> i just want to say thanks to

tim, thanks to world affairs. being on the stage is quite an honor. >> well, i like to say my reputation exceeds me. [laughter] so, rana, i had a line of questioning prepared, but brexit has really kind of -- which is very rell haven't to this discussion -- relevant to this discussion -- has come to the forefront of the news. brexit, donald trump, how are these things related to the rise of finance and the decline of business and, effect live -- effectively, the decline of the middle class? >> yeah. well, i think in some ways both the leave vote and donald trump's popularity are protest votes. it's not so much that the leave contingency in the u.k., in my opinion, has the answers for how to deal with some of the economic challenges that are facing advanced economy like the u.k., like the u.s., many industrial countries in europe as well, but they are

representing an anti-establishment movement in some ways. and one of the things i cover in my book is how the development of financial capitalism in our cup over 40 -- in our country over 40 years has been in some ways a closed conversation. there's been rules that have been crafted, you know, by both parties, republicans and democrats, that have worked for some people, and i would argue a smaller and smaller group of people, but not for creating a kind of inclusive, sustainable economic growth and capitalism across the board. and to me, that's what brexit is all about. i'm actually personally very sad about brexit. i was a foreign correspondent in europe for a number of years. both my kids were born there. you know, i covered the beginning of the euro, and it was such an optimistic time. there was a feeling of coming together in economic unity, but there was always this sort of political hole at the center of europe.

europeans decided to not do the political integration that i think was necessary to to make the e.u. sustainable and then when bad times came and you have the slow growth economy, i think that that tide pulls out, and you sort of get this feeling of people hunkering down and wanting to be a little bit more tribal. and i think that's what you're seeing there, and i think that's what you're'ing here in some -- you're seeing here in some cases. >> let's unpack this a little bit for people who haven't read your book. so let's talk a little bit about your fundamental notion about how financialization has changed the the shape of business. and, actually, let's start where you start your book. it opens with a fairly blistering indictment of apple under tim cook. >> yep. >> and, you know, because we think of apple as this great, innovative company, to have them play a starring role in a book about what's gone wrong -- [laughter]

is, perhaps, you know -- >> a little edgy? >> a little edgy. >> right. >> maybe talk a little bit, what's your beef there? [laughter] >> funny, my editor said that too. you sure you want to start with america's most-loved company? [laughter] i'm like, yeah, you know, why not? the reason i actually started with apple, i'd actually done a profile for time a few years ago on carl icahn, the big corporate raider/activist investor. that's a rebranding which i get into a little bit in the book as well, and he was, until quite recently, holding a fair bit of apple stock. and he was tweeting every few weeks telling tim cook, telling the the board of apple to do more share buybacks which many of you probably know when companies do share buybacks, it artificially decreasing -- decreases the number of shares on the market, but it doesn't actually change anything in the underlying corporate story. and it's interesting because not

just apple, but many american companies historically tend to do share buybacks at the very top of the market. so when a stock has risen, when growth has happened and the company is at a turning point and they don't really have anything else in terms of their growth story to share to the public or to wall street, share buybacks are good to get a little more stock price hit. the problem was apple was issuing debt to do these share buybacks, and that in itself is a little bit ironic. because you look at apple, one of the richest if not the richest companies in the world right now. they've got about $200 billion worth of cash sitting in bank accounts, many of them overseas in tax havens because they don't want to bring back the money to the u.s. and pay the higher-than-average u.s. corporate tax rate on it. we could go off on a tangent about whether that's really fair given that so much of what makes the iphone smart was actually

adopted by the federal government, but i'll leave that for another question or another panel. but it was a deep irony to me that here's this company that doesn't need any capital and yet is more involved in the capital markets than ever before. so over the last few years, apple has made promises to give back to investors in the form of share buyback and dividends am as much as it has sitting in bank accounts abroad. and that's because it can do these very low interest bond offerings, it's very happy right now to do that in the u.s. well, why is it is so cheap? because we had a financial crisis in 2008, and because we had no real fiscal policy, and politicians were gridlocked and unable to come up with a real way to bolster the main street economy, the fed, the central bank, parachuted in, dumped a lot of money in the economy, kept rates very low, so corporations are can take on a lot of debt.

you've got the richest company in the world holding more debt than ever before, paying out the wealthiest 10% of the pop laughs which owns -- population which owns about 80% of the stock rather than investing, as i think steve jobs might have done, in the big r&d investment, in the blue sky invention that's really going to change the economy. and that, to me, is a good place to start exploring this trend of financialization. >> well, there's another aspect of that which is, of course, you know, the apple devices are made in low wage countries as opposed to being made here with the argument that you have to do that in order to, you know, be competitive. and yet here's apple, you know, most profitable company in the world saying, well, if we, you know, don't lose low wage employers, if we actually did this in america, you know, we wouldn't be competitive.

you know, you're starting to dissect the scene of a problem here which is that corporate profit is made sacrosanct above all else. >> yes. >> and that goes back to something law professor lynn stout has called the shareholder value myth. you know, if you scratch, you know, any business person, they'll basically repeat this idea that boards have a fiduciary duty to enrich their shareholders. turns out there's very little legal support for that, and boards and company officials have wide discretion to pursue social goals and to do to other things, you know, long-term strategy, and yet this doesn't happen. and really that's a lot of what you talk about in your book. why. can you kind of tell us why is it that people have kind of bought into this? >> so lynn stout is amazing. she's a professor at cornell, and she actually did a big interview for the book and had

some great stuff to say about this. chapter three and four actually look at this issue, and this myth of shareholder value was part and parcel of what's called the chicago school of economic thinking. it was sort of a markets know best, just focus on the share price and everything else will sort of follow, social good will follow from that kind of thinking. i'm generalizing a little bit, but that's basically where corporate america was over the last 40 years. and, you know, it's not like there was one change point. we've had a number of decades of small legislative, legal, regulatory changes that have created a system of incentives which now pushes any public corporation in these very, i think, short-term directions towards outsourcing, towards job displacement, towards financial engineering rather than the real kind. and, you know, one of the reasons i wanted to write this

book is i've been a business and economic journalist for 24 years now, and i would meet these really smart ceos and many times really good people, you know? they were doing philanthropy, and they were involved in their communities and, you know, i recognized them to be good people, but they'd be making these terrible short-term business decisions that were basically all about maximizing share price and, you know, often times were devaluing everything else. they were devaluing their own workers, were not necessarily making decisions that were right for their customer base even and so were eroding the long-term potential market share of the company. and it was all down to shareholder value. and then i also had the perspective of having lived and worked a abroad and seen some of the molds in europe -- models in europe. i knew this was not the only way to do things. until quite recently, i mean, this is a very nascent conversation still, people just thought this is how capitalism works. shareholder capitalism, that's what you do. but it's not what they do in germany, for example.

there's a model of stakeholder capitalism that's much more based around local ecosystems in which workers have a seat at the table, civic society and government officials have a seat at the table. there's a shared conversation which, as i explain in my book, can really actually help corporations. one of the examples i get into is after the financial crisis the u.s. manufacturing sector laid off a huge number of workers immediately. and germans did this a little differently. a lot of the german manufacturing companies near substitute guard had a different model. they put workers on furloughs, used the extra time to do retraining, upgrading of factories, basically pushing forward their own processes and upgrading them when there wasn't a lot of work to be had so that by the time the global economy started to recover in 2010 and china was coming back, the germans were ready to go. they were all up and running,

and they grabbed a lot of market share from american companies who had taken this much more short term, we're just going to cut our capital costs, martial our capital at the expense of all else, and that turned out to be a bad decision in the long run. >> so let's bring this back around to brexit because, of course, part of what the brits were saying -- thiess the 50% of the -- at least the 50% of the brits or 50 president of those who voted, keep that in mind that we don't have enough people voting on these important issues -- [laughter] >> gotcha, yeah. >> but of this large poll effectively, 50%, slight majority said we want out from under this european model because we actually don't, you know, believe that the benefits of that model have been sufficient. and there's a couple of things there. one is the role of government perhaps overregulating.

but there's also a real distrust of globalization. >> yeah. >> globalization is another piece of this story. and i'm really always of two minds about globalization because there is this very powerful narrative about companies using the cheapest labor they can find anywhere, and if they can't find cheap labor, their going to out-- they're going to outsource to machines x. effectively, people are a cost to be disposed of whenever possible. and that's clearly driving this populism. and yet there's another side of globalism which i see pointedly in our world many data, if you've ever seen the wonderful series of visualizationses out of oxford -- visualizations, you know, basically changes in world health and world poverty over time. globalization clearly has brought up large segments of the world. and at the same time, it has actually depressed, you know, the incomes of many former

people in middle incomes. and so it looks like we have a zero sum game, you know? some people are getting worse so that others can get better. and yet, and yet i think the story is more complex than that. and what you've brought to it with this notion of, well, how much is going to corporate profits versus how much is going to workers is another piece of that narrative. >> yeah. >> and how do we tell the story correctly so that we make the right economic prescriptions for our society? >> so it's such a great question, and it's such a a complicated topic. the thing that comes to mind is i had a conversation once with howard schultz who is one of the interestingly founder-leaders, it tends to be founders, i think, that think more about or perhaps have more leeway to pursue goals beyond just share price. but we had a conversation about this very topic, and he kind of summed it in an interesting and pithy way. he said, look, we're becoming a

nation of latte makers and latte buyers, and i have to make sure there's more latte buyers because otherwise the math starts to not work. you know? and what he's saying is that in a economy like ours which is similar to most advanced economies where consumer spending makes up 70% of what happens, when people haven't gotten a raise in real terms since the early 1990s and many working people -- aka, the trump voters, you know, particularly laid-off white men in the rust belt haven't gotten a real raisins the '70s -- you've got a problem not just economically, but prettily as we're seeing now. -- politically. as we're seeing now. how to get the wage share up, because you see if you divide the economic pie up into the prick sector, the corporate sector and labor, labor keeps shrinking, the corporate sector

keeps getting bigger and bigger because of globalization. >> not just because of globalization, because of choices -- >> true. >> which is partly profit maximization. >> that's true. and -- that's right. i'm glad that you rephrased that for me. global aition's one of the things that enables capital to flow where it's, where it wants to which tends to be where it's cheapest. you're talking about yourself outsourcing to low-wage countries. we're at a tipping point for a variety of reasons. for starters, china is starting to have their own problems with jobs leaving their country. a lot of factory jobs are going to lower wage asian countries. there's a sort of whole reevaluation of supply chains going on that i think will bring all this into question. but to me, it's what policies are going to increase the wage share in a way that's sustainable and also support local ecosystems. i think that's where the action is. >> yeah. i think this image of latte buyers and latte makers is

fairly central, you know, to the short-term thinking. you know, effectively when you take money and it goes to carl icahn, it comes out of the real economy. >> right. >> my friend nicking -- nick hanna, one of the early investors in amazon, you know, i'm a rich guy, but i'm really clear that only customers create jobs. [laughter] if we don't pay people enough, they can't be our customers, and we're all going to suffer. i can only sleep in one bed, i can only use one pillow. >> yeah. >> i can take a certain number of vacations, more than an ordinary person, but i can't take a million times as many as an ordinary person. so there's this circular economy which is sort of part of the self-interests -- part of what you're really putting your finger on is we've written the rules. and i love, by the way, a book i highly recommend for everyone is

"rewriting the rules." joe stiglitz. he's really put his finger on the notion that our city is not like the law of -- our economy is not like the law of gravity. there are economic laws, perhaps, but there's an awful lot of it that is tilted by rules that we've written for the economy. and those rules currently favor certain kinds of financial interests over, for example, labor. you know, the tax, the enough structure for corporate ceos. so maybe could you talk a little bit about, you know, the trade-offs that we make when we sort of reward financialization over productive investment, when we reward financialization over, you know, hiring people who can also be customers. these are some of the kinds of trade-offs you talk about in your book. >> yeah, for sure. so stiglitz's book is amazing, and this plan that he's developed which was supported by

the roosevelt institute is a bug part of the sort of backbone of my book. i get into some of the suggestions and the pivot points he talks about. one of the things that strikes me, and i have a whole chapter on this, is the way in which our tax code incentivizes behaviors that are not necessarily growing the main street economy. so, for example, tax code subsidizes debt in many ways, in ways that are not necessarily productive at both the consumer level and at the corporate level. so one example that i think most of us are familiar with is the mortgage interest tax deduction which i'm a huge beneficiary of. i live in a townhouse in brooklyn and, you know, get to write a lot of that off my taxes. but what's interesting is when you look at who's benefiting, it's largely the middle and the upper classes from the vast bulk of the mortgage interest tax deduction. and it also has the other perverse effect because i can tell you housing prices would

not be what they were if people weren't able to write off all that debt on their taxes. so that has the effect of making it harder for younger people to get into the housing market, for example, which is still where the majority of americans keep their wealth. same a true at the corporate level. much, much easier to write off debt from your taxes than it is to say do something productive with your capital and 9/11 be -- and then be rewarded or incentivized for that investment. a so that's one example. i could go on, if you like. >> yeah. it does bring up the whole question of, you know, who are the members of the financial class. certainly, you know, historically, you know, the argument has been, well, this is, you know, the pensions of teachers and, you know, firefighters and, you know, you looked at that. but the pressures that come that lead to the short-term thinking are not actually driven necessarily by those people. you talk a little bit about jack

bogel and what's happened with vanguard index funds, and they don't have the same pressure that a managed fund has to outperform the market. >> right. >> because they say, no, we are the market. and so if you are, you know, an active, you know, fund, you're subject to the same kind of pressures of carl icahn where you're trying to actually maximize your short-term profit this quarter so that you'll get more investors, etc., etc. so the mutual fund industry actually fighting in some ways with the exception of the index funds, really fighting against the interests of its small shareholders -- >> yes. >> and to not to mention also charging extensive fees -- >> right. >> talk about jack a little bit. >> so jack is awesome. he's the founder of vanguard, and he was one of my primary sources on the book. as tim and i were talking about earlier, one of the things that was fascinating to me was when i was doing interviews for this

book, many of the bankers and the financiers that spoke to me were interested and agreed with the thesis in the book tended to be older, in their 70s or even 80s, and they had seen the way the industry had changed. so they had seen a time when financiers were stewards of people's money, you know? and banks were basically, you know, and asset managers took people's money, banks took it, held it in the form of deposits and then lent it out to business. that's kind of what adam smith imagined that capitalism should do. i'm going to go astray and hen come back to asset managers. the killer stat in my book, by way, i think is based on some deep academic research. but over the last 40 years, that model has entirely changed. only 15% of the money being held in u.s. institutions now goes to business investment. so the rest of it is existing in this closed loop of trading, of bidding up of existing assets, all of which creates the kind of bubbles that we've seen pop over

the last decade and makes it difficult to have a sustainable non-volatile economy. so let me come back to jack bogel. so he started vanguard funds and, you know, like anybody in the asset management industry, saw quickly hardly any actively-managed funds ever outperform the market. it's just, you know, once in a blue moon does it happen. and yet because most of us are in 401(k)s, companies that we work for, asset management, by the way, is the fastest growing part of the financial industry. so we spend a lot of time in this country talking about too big to fail banks, but the action actually is in asset management. that's where a lot of financial business is going. it's where the largest pool of money is. so bogel, who's a big believer in, you know, you put your money in an index fund and forget about it until you're 65 or 70

or whenever you need it, started crunching numbers and found that for the average person who is, has their retirement egg in an actively-managed set of funds, pays those higher-than-average fees and then deals with the lower-than-average returns, that will eat up between 30-60% of your nest egg over your lifetime. so it is really a scandal, i think. and it's something that policymakers are starting to talk about. we're starting to see push, as here in california, for state-run plans where folks that don't have access to investment vehicles can be put into no-load index funds and so on and so forth. there's also an argument to be made that, you know, social security should be strengthened. it's working. the private retirement system via actively-managed funds is not working so well for most people. and i'll just make one more statement which is that what's interesting is as so many aspects, as with so many aspects

of the rise of finance, it's as though the head of the snake is beginning to eat the tail. asset managers themselves and pension fund managers are starting to become panicked because they know we're entering a period of lower-than-average returns. in my mind, that's because we've had a very financialized kind of growth, a faux growth over the last 40 years as opposed to real growth. and so returns are going to be lower than were expected and were promised to many retirees. retirees were made promises of 8% returns, they're going to be lucky to get 4, and there's going to be political backlash against all that. >> yeah, you know, it's very interesting because there was a real opportunity with low rates. i still remember hearing a larry summers rant when he was -- [laughter] >> which one? >> saying if there was ever a time to invest in public infrastructure, you know, this was right after 2008, he says we have all these people out of work. you know, we have zero interest rates, effectively, why would

you not do all this work now? and instead, we took those low interest rates and used them simply to reinflate the bubble of the trading economy which, as you point out, has supplanted real investment. you know, the original role of the financial sector was to support the real economy. >> yep. >> and instead it's become this bubble economy where, basically, there's a giant casino where there's more money to be made simply, you know, betting or taking a, skimming the spread -- >> yes. >> -- in, you know, in the financial markets rather than reinvesting in a real business. >> yeah, for sure. >> so what do we do about this? what are some of the concrete recommendations -- [laughter] that you would make? >> bleak enough for you yet? we're going to move into the solutions portion now. well, so i have a solutions chapter in my book, but there's a broad array of conversations going on. you're leading some of them.

i would start, and i do start in my book, with i think that we need to -- the first thing we need to do is to change the narrative. there is the still a narrative in east coast policy making circles, in washington, in the treasury department, is certainly on wall street that the financial markets are the center of everything, that they really are the most important aspect of the economy, and it's the sort of got a that save the banks -- gotta save the banks to save the real economy sort of argument. well, i would flip it and say the financial markets, financial services -- and i stress the word "services" -- are meant to serve other industries. and one of the things i do in my book is to try and lay out all the tension points that exist now between finance and real businesses because what's happened is that not only has the financial sector changed its business model in such a way that it's no longer supporting actual industry, in many cases it's competing with industry.

so if i can speak for just a moment, one of the chapters in my book, i believe it's chapter six, is on commodities prices and how volatile they've become because banks have gotten into the business of owning actual physical commodities. so, for example, that used to be illegal for goldman sachs to own half of the world's aluminum as they recent hi did. you guys might have read the wonderful front page new york times story from about three years ago. goldman had cornered the world's aluminum market, and there are rules out will to prevent people from hoarding materials that, you know, we need for basic businesses to create products and machines. in the case of wheat or rice or grain, to actually feed ourselves. you have to move those products in and out of warehouses every so often, and that's supposed to help us get around hoarding. well, goldman was putting it on a forklift and moving it from one side of the room to the

other. so they were getting around the rules that way. it drove up the price of aluminum wildly which hurts coke, coors, anybody who has to make aluminum cans. it also means you were paying more for your six-pack and your drinks. that's a fairly mild example. i had a conversation with a woman who used to run the world food program, and she used to go around to places like davos where the big wigs hang out and talk about stuff. and she had a little red cup that she would take with her, and that cup held a day's worth of grain that would be delivered via the world food program to hungry children. and she would stand in front of people, and she would say -- this was right around 2009, 2010 when commodities prices had spiked -- and she would say this is how much grain i can give each child around the world every day, and then she would

pour out half of it. that's how much i can give now because the cost has gone up so much, and it's gone up because traders which now represent 30% of the commodities markets are driving those food prices up. so that's a very visceral example of how you have a financial system that isn't just -- it's not just not lending, it's actively not supporting and degrading real business and society. and so we've got to change those things. >> yeah. so that's really are, i think, that story is in a nutshell, we have a financial market that in many ways has become hostile to the real economy and that we need to reverse that. and i think it starts, i think you outline it certainly requires perhaps some new financial regulation, but it also starts with sort of a change in some of the incentives for corporate executives. it requires changes in the tax code. are we going to get there?

>> i think we're starting to get there. i'll continue with this commodities example because it's an interesting one. that's real low-hanging fruit. the fed actually has the ability to change the rules that would allow banks to do those kinds of activities. they could simply say, you know what? goldman sachs, you have no reason to be in the aluminum market. forget it. you just can't own aluminum anymore. and they haven't done that. well, why haven't they done that? i think under janet yellen you might start to see the fed become a little bit more active in its regulatory oversight role of banks. and it doesn't mean coming up with complicated new rules, it just means in some cases looking at all the activities the financial institutions are doing and saying, objection, that has social value a ya -- okay, that has social value, that doesn't. and i think the tax code is low fruit as well. it's politically contentious because there's so much lobbying

from different special interest groups and that gets to the idea of money politics which is behind so much of this. one of the reasons that i wrote this book -- and this is the author's note that i put in the very front of the book -- is i was just stunned post-2008 by how much power financial industry and how much money they were throwing at slicing up all the new rules, the dodd-frank rules that were supposed to kind of re-regulate the system. and it was so perverse because not only dud it make it difficult to -- did it make it difficult to implement some of the good rules, but it created a lot of complexity that made the regulation itself start to be onerous and something that neither side of the political aisle was happy about. so i had a conversation, by was -- in 2013 i was sitting in an off-the-record conversation with a former obamaed administration official that had been very involved in the bailouts. and we were having this conversation over money and washington and the lobbying power of the big banks, and i said do you think this has made

it difficult to get dodd-frank to work properly? is it going to help? >> he said, oh, yeah, we got done what we needed to get done. and i said i just did a column looking at public records that showed 93% of all the meetings were done with the largest banks themselves, so how can you say it's unbiased? and he looked at me with real confusion and said, well, who else should we have been talking to? [laughter] and i just thought, oh, my god. >> wow. >> this was the other thing, a few non-financial beat reporters in the room which was telling because the media's been part of this. one of the reasons story didn't get reported well is that financial appropriators have to go -- reporters have to go back to this well again and again and again. if they piss somebody off, they may not get their story the next day. so it's all this very vicious cycle. >> yeah. so, obviously, we're in a different political environment

today. do you think that, first of all, you know, bernie, elizabeth warren and then on the other side donald trump here in this country. speaking with varying degrees of insight and intelligence. [laughter] >> that that's charitable. [laughter] >> yeah. but do you think this actually, you know, you say, well -- and then on the european side, you know, brexit actually came out in the opposite way that the elites expected. >> yeah. >> does this change policy? does it make people more receptive, or do they just say, ah, we dodged a bullet, you knowsome. >> yeah. well, it's really interesting. i moon, the reaction -- i mean, the reaction just over the the last three days in england where you see even some of the people like boris johnson, for example, in -- you know, a conservative in the u.k. who was very pro-leave, suddenly sort of being like, whoa, okay.

maybe this isn't such a good idea, stepping back, thinking a little bit about what this would mean economically. i think it's very possible that you might have a cooling-out period, a new election, and if there were then a clear, clear mandate, a democratic mandate a pro-e.u. leader and a pro-e.u. government came in, you might have another vote that could go the oh way, and i think -- the other way, and i think that could be politically acceptable. >> right. the question that i'm trying to get to though is, you know, brexit was a very crude tool -- >> yeah. >> -- to get across the message that, you know, for a class of people saying the economy may be working for you guys and it may be working for big companies, but it's not working for ordinary people. >> yeah. >> and, you know, the appeal of bernie most certainly has been

around that issue and, you know, trump with a lot of other things mixed in. >> yeah. >> has also, you know, played on that message. and, you know, we have -- seems to me that we have one path where we feed that in all the worst ways which, you know, we have been seeing, and there's another path in which, you know, policymakers say, oh, actually, you know, there really starting to be a real problem here that's being highlighted. >> yeah. >> we're going to -- we have to start thinking about how we're going to deal with it. >> yeah. >> do you see any signs of that, or is it just like, well, we've got to contain this and get things back where they were, and it'll all be okay. >> i feel like i'm starting to see nascent signs. i was very worried early on in the campaign about how hillary clinton seemed to be saying we just need to get back to the '90s, i'm going to put bill in charge, everything's going to be

fine. that, to me -- [laughter] right. that, to me, was the kind of attitude that canning sometimes provoke anger -- that can sometimes provoke anger in the part of the population that have suffered from globalization and financialization. and then you began to get a population that feels not understood, not listened to, ignored. in recent weeks i think it's been interesting, her last couple of economic speeches she did not say the '90s were great, she did not say i'm going to put bill in charge. she did start to actually break with even some of the obama policies which i think is not a bad thing for her to do, because i think she needs to -- if she wants to have a chance as an establishment politician and we know how establishment politicians everywhere are under a lot of pressure and that there's a trust gap -- i think she needs to really stake out a clear message and say, as you just did, globalization has increased prosperity at a global level, it has increased in many ways at a martial level, but

there have been winners and losers in this process, and we need to make sure we retrain and compensate and come up with ways to take care of the people who have not fared as well in this process. i think getting elizabeth warren onboard too is an interesting thing to do. you need people to be able to speak clearly and authentically to those that have felt hurt by this process. so i think those are a couple of nays sent, potentially positive signs. >> yeah. how about europe? any movement there? >> well, europe is going to depend on whether the continent takes -- how the continent takes this message. to me, so i covered europe for ten years. this idea that you could have a currency union without a real political union, i think, was always fragile because it works if good times, but the minute there's a downturn and countries need to be able to devalue or need to be able to have different fiscal and currency policies to be competitive in their own ways, the whole thing

starts to fall apart, and that's exactly what you've seen in the last few years with the european debt crisis. the germans have done great because they're sort of like the china of europe. they prosper at the expense of other nations, and then eventually as the peripheral nations become weaker and weaker and can't buy their stuff, they also start to have a problem with their economy. so i think, ultimately, europe will need to have a true fiscal political union, a kind of a united states of europe really to make it viable and to make the debt crisis go away. how many countries will want to be in that then becomes the question. >> yeah. >> because i think you can make the argument that the european projecting -- project became too ambitious in terms of the number of countries that were brought and in and just the huge cultural ditches. even just getting the germans and friend onboard -- french onboard was no easy task. >> so let me turn a little bit towards technology and its role in all of this. >> yeah.

>> obviously, this is something i focus on this, it's the focus of my next economy summit that i'm working on. there's a lot of concern that technology is going to take over where financialization left off, you know, and that silicon valley is going to be the next wall street, effectively, where, you know, the target of populist hatred, we've already seen it, the blowback against, you know, companies that really think of themselves as, wow, we're the good guys. [laughter] we're really trying to do good in the world and yet you look at, you know, the attacks about gentrification in san francisco real estate prices and then even things, you know, like the risk of, for example, the latest being self-driving cars. ..

you had this great demo like a couple years ago we delivered flu shots. once you've self-driving cars, what will those cars be delivering? they could deliver all kinds of new services. deliver better service to more people because that seems to me to be the heart of the challenge we face, this real economy challenge to talk about the real economy versus the financial economy. in the real economy when we put people out of work with machines, the industrial revolution we save we took them

off the farm. we created this enormous new consumer goods market that didn't exist. people used to own one or two suits of clothes and now at least in the developed world many, many. becomes a fashion and create an economy built on top of industrial economy. we also did things that were impossible. you spoke to those people in industrial revolution and said we are going to use the machines in dig a tunnel over to france, they would have been just oh, my gosh. what are the things we should be working on as a society? if we were to invest in a real economy, any prognostications about what we should be investing in? >> this is such a rich topic of what you know much more than i do but i will make a few comments. definitely until pretty recently i had been very worried as all of that was in silicon valley which is going to pick right up from wall street.

because in part the biggest firms, apple, google, are not able to act in some ways like banks. in addition to just barbecued sums of money they also and read corporate bonds. they have so much cash on the balance sheet that is not being invested that they can go by a 50% of whatever new corporate bond offering is happening. so there is literally financialization of goering amongst some of the top firms. we know also that if you look at market share, this generation of tech firms creates fewer jobs competitively to market share than even the older generation, microsoft, ibm and serve much do they like gm, ge, so that is that downward trend. but i become really interested, i read this book by a british author called post-capitalism and it was a bit about financialization but it also had a relatively optimistic the

about the possibility of digital technology to empower labor in the almost post-marxist away by making it possible for labor to have some the benefits of capital. you and i talked about this recently. i just did a piece on platform cooperatives that are springing up. cooperatives have been big as a business model in the agriculture sector for some time. it's when groups of farmers come together like ocean spray, is actually, it's not a typical company. it's a cooperative, a collective of 750 farmers who simply have kind of a company that lays on top of their organization that manufacturers and brands and sells the product. they are able to get a much greater wealth share than they would have working on their own and they're able to charge about $45 a bushel for the cranberries versus the going price of 50 because of those economies to

steal. back to work i think in many ways into digital economy. you all received many cities in austin and described disgruntled over drivers going out of strength or own platform. i think this idea of going back to labor share, helping, technology helping of hard labor in way labor can take more of a chunk of wealth could be quite profound. we have to get the rules right. we need things like portable benefits. we need the government to create a framework that will make this happen in a way that is doable. >> we are running to the point of time where we would like to questions from the audience. we have been collecting questions on cards, but we also have opened up for the microphones. lease, if you come to the microphone, go around to the back. that would be -- >> love your tie.

>> i also want to get to the cards. why don't you start a? >> my name is peter. i've been interested in the subject. my question is about values and media coverage priority. time did this come in an election, would like to see time to a similar article bishop focus on the congress. the reason why this both defense department bills in the house and the senate have passed resolutions to set up a commission. auspices of the defense department. the senate is through public commission to look at national service. the house armed service committee passed the resolution to include women in the registration process but the chair been removed that from the bill and the senate overwhelmingly passed a tendency. now in july 2 of the joint committee to decide how they're going to resolve those. i think time should help them resolve those issues. >> could you point to the

camera, and issue, this camera back there as well, it's a cover issued by national service. >> from 2007. we have copies of the commission online for your. >> great. thank you so much i love that cover. my old boss was there begun national service and he works in government now. you mentioned briefly about coverage priorities. we are actually trying to go forward to do national agenda type coverage issues. my book was actually excerpted in a piece questioning the future of capitalism and we're trying to put together a series of the cover stories that look at the agenda at the next president and the next government should take on. we are on that and i thank you for the suggestion. >> i will attest to the fact there's a lot of work going on in first think tanks and so on as well. people working this guy was part of a commission on the future of

economy. reproducible called america's moment. a lot of work going on in the aspen institute and the roosevelt institute, new america. it's clear to every part of the discussion but specifically to point about national service, i think it's a really good question. i had a somewhat different perspective on that yesterday. i spoke with a man who is a former financial trader actually but is also clearly ask military. he was talking about the competitive spirit among financial traders which is sort of a way i had not thought about it. he said this is like the big leagues board. every day you go to work and/or someone else that there is trying to take all your money. and the kind of people who are very, very competitive. i have this flash can look at this guy, you are clearly ask military. any connection? he said yes.

anthony benna path of the class of activities that we don't really have a channel four in our society. you think about the competitiveness of sports, the competitiveness of mini games, the competitiveness of business. i said i wonder actually if there's a connection, for example, in israel where compulsory military service and there's a very entrepreneurial culture where they found a way to take young people, take that energy and then marry it with discipline so that then again, there could be some real benefits doing a national service program that was universal and maybe even compulsory. you are shaking your head. you don't like to compulsory. >> no, but it's interesting, i take your point. i get into this in the book.

the brain drain to wall street because that's what the competition has been has been really profound. i had a friend who was a french mathematician who i thought about going into industry to develop green engines and end up doing kind of 12 dimensional algorithmic models for high-frequency trading house. somehow if we could follow this talent and is striving to more productive areas. >> i can also give you a counter story of a friend who was wall street -- who left that job to take a job, and energy startup. this is a company that was started by my fellow was later was acquired by google. they do high altitude wind energy. is recently wanted to do it, he said the math is harder. so there is this -- >> our math is harder. >> i do think, for example, there's a big driver in silicon valley. people want a good do things that are hard.

when i think about the next economy and the kind of leadership that's missing from our political discourse, it should be a lot more about things that are hard and necessary. we have inspirational moments. we see retired business leaders like bill gates saying we will go tackle malaria. that's hard. you know? over elon musk say we will go to mars. we were totally rethink transportation. that's one of the really ip things that silicon valley is some of the big think. we need more big think across the board i think of how do we take all of this reservoir of talent? had result thinking people as a cost and start thinking of them as an asset that we can deploy to do something useful that needs doing that must be done.

back to me is a big part of this. so we stop putting so much money into the casino and start taking it back towards productive investment. because it's going to require productive excitement, productive investments that excite people. when they were think we're going to put a canal through the business of animal, that was like a huge investment businesslike hard, day, going to make the world richard. i do think that a big part of what we needed, that vision of how most we could spend that money besides just playing in the financial services casino. >> i did, i will say one thing, i'll just say quickly i did an interview with the head of aetna and get a statement, he was saying business schools, he can't find we needs from business schools because it

always teach leaders to marshal the capital and ignore human, but that's the cost rather than as a. he thinks it needs be shifted over into the asset part of the ledger and that you spend more on that and it is an asset that growth. i think a lot of business leaders feel that way. >> i have two more questions before we get to you. once is to what extent has a stared and supply-side theory contribute to brexit post recession stagnation? so austerity. key point. the second which is also about brexit on its is millennials were not supported in general of brexit. so how do you see millennials shaping the future of the eu? i will extend that out for the two just this whole question of shaping the future comic. >> quickly on a stared at the i think was mistake. we can all see that now. widely agreed to be a mistake. the european crisis was a debt crisis and people needed to get,

countries need to get their balance sheets in order but austerity in a recession, that's keynesian economics 101. you don't do that. the problem was, i was in germany during the debt crisis so i was reading the papers and during that debate. there is a strong sense in germany which is determined to have to get on board with that disgusting this program, otherwise the what they're going to happen. there was a strong feeling in germany that he had the way, that they've done the hard lifting, they got th the balance sheets in order and why shouldn't everybody else do the same? italy and greece should get their act together and be more german. the problem is everybody can't be chairman because then there's no one to buy stuff, you know? that honestly it's almost a moral issue amongst germans. to be fair it's interesting because it dovetails with us i guess takeover versus shareholder capitalism. they do have some amazing corporations that are just models of how you want to run a corporation. the problem is if it ain't macro

level? never -- not everybody can be exported. this goes back to think that the real political integration 12 wealth transfer the same way we do, the same way california sports mississippi sometimes in order to resolve the debt crisis. insurance millennials, that is the big question. i just don't have the uk can stay for ever out of europe when the entire young population sees its future within europe. one of the issues that will be interesting, in spain, greece, italy year double-digit youth unemployment. you've got a group of very angry disenfranchised young people. that's a tinderbox and i don't know how that's going to play out. >> the one question i have is when the self-interest takeover and companies start realizing they have to invest in the local economies, as opposed to just optimizing for one thing?

so over to you. >> in my name is austin, i'm an internet world affairs and study economics so this is been really inspiring talk for me. especially which is said about shaping the future come and how much we need to change it for a variety of reasons but i'm interested in if i middle economics and i think that could possibly be the big hard thing in the future. my question was more about do you think it's possible to restructure our economy in such a way to handle a lot of the problems you've been talking about with labor force and basically any quality as well as handle some of the environmental challenges? >> i did something that comes to mind is platform cooperatives that would link up to smart energy grids. you could sort of come on sure there must be people in california already doing this done not aware of, but you could imagine everybody paying into an energy grid and then having sharing of resources, that being

run by cooperative companies where labor was owned a larger chunk of the firm. i think there's tremendous possibility. a green moonshot program is the fastest way to deal with any number of things, climate change, job creation. joe stiglitz a commitment a lot about this as have many others. one the issues, it has big global effort but china is increasing on board with this. there is late recognize environmental degradation is probably the biggest medium to long-term economic that they have so i'm optimistic about the possibility of collaboration with china on that. >> i had that same thought. maybe i changed the rest of us from the wtf economy. because we are going to do with it at some point and it will actually soak up a lot of capitalism. >> exactly. >> thank you.

it looks like we have someone else coming up. >> my apologies for not having a colorful guy. -- tie. given to brexit was a crude instrument to put a point across, isn't donald trump symbol of a crude, way of getting our point across and how can we avoid that? >> oh, boy. yes, in a word, yes. you know, i think, i think that donald trump, to a lesser extent bernie sanders, just exemplify this frustration with political elite. unfortunately, in the case of trump, i would just say, some of looks at economic are good i will see anything in his economic plans that would address into the problems we've

just been talking about. in fact, it is kind of trickle-down on steroids really. it's about tax cuts, no spending cuts, sort of a dash or two of populism around cutting loopholes for hedge funders to sort of please his voter base your but there's nothing that addresses these challenges. hillary as this sounds a candidate, i'm hoping will continue to put forward as she did a couple weeks ago intersect economic speech a vision that really connects some of these gods, talks about the labor share, talks about the importance of stakeholder versus shareholder capitalism. she made an announcement i believe today, i haven't looked closely at it, about making college debt-free for onto plan was, people who can go and create business. that's another interesting we're connecting the dots between education, the cost of education and entrepreneurial and economy.

hoping for more that so people can get excited about a future agenda. >> i think there's an interesting part of this entrepreneurial narrative, which is so dominated by silicon valley and big scalable companies. when, in fact, what we really need more of our small businesses that are part of a community and the people want to own for a long time. because there is a financialization narrative in silicon valley as well, where the objective is really to exit which turns into a financial play as opposed to the great companies that, of course, be become operating companies that continue to deliver value and service in the real economy. but a huge amount of enthusiasm in silicon valley is again, it's another flavor of the financialization game. >> i totally agree. >> do we have another questioner? then we will have to wrap up. >> you brought up the issue of money that's overseas with all these corporations and read

about all the proposals. do you have a recommendation about how it should be handled by the united states? >> a lot of people are calling for kind of a one time exemption to bring back some cash. we actually tried that in 2004 2004-2005. cash get you back but the majority did not go into capital investment. it when you can share buybacks. i've talked to tax experts is a it would be very but hard to craft rules for an exemption where you could track, yes, this is being put into retraining workers or this is being put into new r&d spending. it's very difficult and cumbersome to do that or i o hra and for a somewhat lower corporate tax rate but all the polls close, make it more competitive internationally, shut down the loopholes, shut down the perverse incentives for debt. but it don't want an extension to bring back overseas cash is a good idea. >> could you just spell out what's not competitive about our current tax code?

>> it's about a 35% rate right now which is far higher than the oecd average. the problem is there's so many loopholes and it's so huge and complex that the majority of s&p companies pay about 20%. the army, particularly in technology and financial services which a basic ip driven businesses, and you can relocate ip were ever that pay 12, 13% tax rate. it's not as if anybody is paying the 35%, but i think a much healthier way to deal with this would not create jobs for tons of tax or to jump in the loopholes of the with the rate, close the loopholes and get everyone thing what is a fair and globally appropriate standard for a rich country. >> i think that's a really good point. so there was a lot of discussion about tax avoidance has played well, for example, in the greek economy. it is one of those factors that

we kind of look the other way and don't address. i think your absolute right that a more for tax policy is also perceived as fair will have a big influence on all of these issues. we are just about wrapped up, is that correct? yes. okay, thank you very, very much, rana. i hope it would else enjoyed this as much as i have. [applause] [inaudible conversations] >> here's a look at the fina