>> rose: welcome to our program. tonight, blitz on global health and america's competitive position in a new world order. >> a lot of global health works by triple down. you invent stuff for the rich world, over the time the costs, the understanding of what to do to get better and better and then sometimes as late as 20, 30 years later it's available to developing worlds. well, even that, which isn't perfectly just, but even that mechanism is off the table if the disease doesn't exist in the rich world. like in the case of aids where it's the... the prevalence is low enough that the rich will kind of afford to put everybody on drug treatment but the world as a whole because of the poor countries can't... won't have enough money to put everybody on drugs and so unfortunately, that means that the sense of urgency,

the willingness to cut through regulatory things and move past, isn't very strong because the rich world feels okay about that disease whereas really it's still a crisis. it means a lot more urgency. >> rose: bill gates for the hour. next. to have more exposure to the arts. or maybe you want to help when the unexpected happens. whatever you want to do, members project from american express can help you take the first step. vote, volunteer, or donate for the causes you believe in at membersproject.com. take charge of making a difference.

captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: bill gates is here. he's co-chair of the bill and melinda gates foundation. since stepping down as chairman of microsoft in 2008, he has devoted himself full time to philanthropy with an endowment of $34 billion, the gates foundation is the largest philanthropic organization in history. it funds efforts in global health, agricultural development and public education. bill gates announced a new round of funding in the fight to eradicate polio. despite great strides in vaccination over the past 50 years, polio persists in a handful of countries. in addition to giving almost $2 billion towards polio eradication over the past decade gates has also secured the cooperation of several global

leaders and governments. last week he announced new partnerships with the united kingdom and the crown prince of abu dhabi. welcome. >> thank you. >> rose: so tell me first, why do you write this letter each year? >> the idea came from warren buffett who writes his annual letter about the business and shares for somebody who hasn't been involved how he would summarize what's gone on. what went well, what didn't go well. and so i do that for the foundation and i sort of think of warren as the target reader. somebody who cares a lot but wouldn't have been there to see which grants had problems and wants to understand my thinking about how we're choosing different things, see that change over time, hear me admit what course corrections have turned out to be necessary and if you like... well, in his case we're worthy of the... >> rose: the stewards of his money. >> yeah, what he's trusted us

with. >> rose: why polio eradication? >> well, the foundation does work on lots of health issues. one that's our top priority, though, is polio. because we have a sense now if we stay the course, raise the resources to drop the number of cases to zero, to eradicate the disease and if we don't intense tie, if we don't really execute well in these next several years it will spread back. people won't want to spend money on it. having a hundred thousand or more cases of kids dying or being paralyzed. >> rose: and you eradicate polio now >> the polio fight started with the invention by jonas salk of this polio shot. that was the first polio vaccine. and then sabin came along with the drops. so those are our too two tools, the vaccines. >> rose: same tools that were used to eradicate... >> we've slightly tuned them but

that's it. so what you want to do, we've primarily used the drops because those are easier, you don't need a needle or anything. you've got to get all the kids at least three times to take those drops and then they'll be protected not only for themselves but they won't be transmitting the disease to other kids. so you just have to get over 90% of the kids to have all those drops. >> rose: and eradication means what? >> it means zero, none, gone. and that's only happened with one human disease which is smallpox all the way back in 1979 they certified that a disease that had killed over two million a year was now completely gone and so the benefit of that over the years has been an unbelievable... >> rose: smallpox is more difficult than polio? >> in some case it ease easier. in that case you only had to have one prick to be protected and we need to get you the drops three or more times.

and you knew who had smallpox. you could take somebody who was ill it will it are, hand them a card and say "find somebody with a rash that looks like this, i'll pay you $5" and then you've got all these people running around trying to bring you people. and so it was easier to find and easier to prevent. now, that was the 1970s. now we have all sorts of ways of looking at the d.n.a. of the virus and communicating and doing maps and cell phones so we have some advantages as well. >> rose: you say there are three reasons to do this. number one is that you'll save the lives of kids. secondly it sends a message to the world of global health that you can eradicate things. and third it saves money in terms of future treatment. those are the reasons we ought to do this now. >> exactly. >> rose: and when you look at this and polio there are some criticisms. you are well aware that they kind of responded today to your announcement basically saying

why is bill gates focusing on polio? there are other places he could use that money. >> well, there are lots of helpings that we've put a lot of money into. this is the most important because... it's within our grasp and so meeting with the president of pakistan a week ago to say okay, focus on your effort, going to rotary get togethers and thanking them for their deep involvement in this thing. sitting down with the scientists to make sure in the post-eradication period we have an exact plan of how we monitor and keep the costs low and make sure there are no reversions. that's the kinds of things i think can put this thing over the edge. >> rose: but putting it over the edge for you sends a signal as much as it's about human beings and human lives-- which is the most important thing-- but it also sends a signal it seems that makes a difference that global health presents opportunities to eradicate

disease. >> well, to improve the lives of children and the way we... if you improve health you do three things for children. you save the lives, and that's big. the second is there's lots of the kids who survive who are damaged, their brain never develops and so in african countries you have half the kids never get to an i.q. level over 80 because various things, particularly these infection, diseases that blocked their development and finally the one that's the most amazing is you improve how parents choose to have less kids. so instead of better help growing the population it's actually the only thing we've ever come up with that actually shrinks population growth. and then that's the only way you get your hands around all the big issues. can you educate them all? can you provide them all jobs? and are there some... are there too many to ever have stability? many of these african countries

are going to more than double their population unless we get on top of these health situations and they won't be able to grow enough food, they won't be able to do any of the things that count. so from a human and environmental perspective, this is the most leverage thing there is. now, polio would energize that. it would show we can get something dean. it's worth it just by itself. i mean, tens of billions of dollars but this is one that... >> rose: and you make the point about a small percentage of the amount of money we spend on dog food every year. >> absolutely. it eastinny. this campaign costs about a billion a year and there's about 700 million of the money for the next two years that hasn't been committed yet. >> rose: so for the next two years you need $700 million in order to have a billion dollar which is can eradicate polio? >> right. >> rose: $100 million? that's all you need? >> that's all i need. well, now, that's already... the only reason we don't need $2 billion is because i have the

foundation, u.k., abu dhabi, the current donors have committed the $1.3 billion. so the $700 million is the part that's still to be found. >> rose: rotary's given a lot of the past... >> rotary's been unbelievable. more than a billion. and their involvement goes beyond just the money. their volunteer activity, their political voice, their energy, they got involved in 1985, the world health organization took this on as an eradication in 1988 and then by about 2002 cases had really plunged it's getting it out of these last four countries. it turned out to be harder than some expects. >> rose: one is afghanistan? >> pakistan. india and nigeria. and last year the cases went down substantially everywhere except in pakistan. >> rose: and why was that? >> well, pakistan may not have been counting the cases well in the past so sometimes when you

see these increases it's actually better surveillance to find the cases. they had a flood. they have conflict areas. now, eradication has been done in sudan, somalia, angola, all sorts of tough places but pakistan was not that focused and now just a week ago announced a new national emergency plan and i met with many groups from pakistan to see if they're intent on this i was kind of hoping, in fact, that pakistan would just get done while i was taking trips to nigeria which was viewed as the toughest of all the poor countries. the north of nigeria really...? f somebody was pessimistic they would point to that. >> rose: and in fact you went to nigeria and had to make the case yourself because there was some even religious aversion to vaccines. >> yeah. in 2003 it was actually a politician under the guise of making religious statements who spread bad rumors about the

polio vaccine. that it sister liesed women, that was plot and for a while vaccination rates went way down. now they went... got all their supply from indonesia, muslim countries, they had muslim scientists look at it and so slowly but surely the reputation of the vaccine came back but, yes, this is good for kids so i went with a couple of the religious leaders, the emir of kano and they would give their children drops and show they're committed and they've been a huge help now in making sure the government is doing its job and getting the word out. so nigeria has turned around. over an 80% case reduction in 2010. >> rose: let me shift to malaria. have you changed your opinion as to the possibility of a near-term eradication of malaria? >> well, the malaria case it's not near term. >> rose: wasn't it ten years for a while?

>> no, no, that... the world did... actually, the year i was born, 1955, the first world health assembly resolution about eradication was to eradicate malaria. and that was when d.d.t. still worked and everybody... and that's partly why people were reluctant to take on smallpox, surprised when it worked because malaria made them look bad. it didn't succeed. with malaria now, you'd have to-- which i'm optimistic about, you'd have to think more in terms of 15, 20 years time frame. we need a few more tools. so unlike polio, which is an active eradication campaign, and there's one other disease, for guinea worm, that's now just... so there's two active eradication campaigns machlt lair ya is one that i hope with tools in the next five years and the right kind of modeling and evidence we can get people on board to start an eradication campaign because i think it can be done but we're not actively

we don't this clear commitment like we do with polio. >> rose: why not? >> you have to have the right tools. eradicate ago disease is hard. >> rose: okay, but don't you... why don't you try to find the tools is the question. >> we are spending hundreds of millions a year on the tools. the tools include a vaccine which we have one that's in a late stage trial now. we've got some results next year and some the year after that. you have to have a really cheap diagnostic so you can figure out who's carrying the parasite and treat them so they're not a source of the parasite. each of those things is very good progress on. so i don't want to overload people with my optimism, but once we get polio done then i think we can sit down and really see that we have the tools to take on both reducing disease burden for a lot of cases and take on one or two of t eradications. but until you get polio done,

you're not going to get people engaged in that. you've got to get polio done first. >> rose: the learning experience for you running... with melinda and you together running the foundation and when she was doing more when you were running microsoft has been juan what, in terms of the balance between research, finding new tools, and the immediate effort to save lives on the ground. >> rose: well, we love both of those things and they're very complementary. melinda was just in kenya seeing a new vaccine, a nupl congress kiss vaccine finally get rolled out and all the refrigeration and planning in order to do that. that's one that should have been... >> rose: pneumococcus is pneumonia? >> exactly. so kids they get a respiratory disease, pneumonia. and this prevents that from happening. and we've certainly realized that delivery is harder than we expected and we have a lot of money in delivery, educating

mothers about best practices and we're trying to learn about that. now, in the delivery piece, rich governments, do forgovernments, are also giving a lot as well. so although we're involved, we're not more than, say, 20% of most of those efforts. back on the discovery side, because it's about interviewing scientists and having setbacks, most governments are pretty reluctant to get into that early stage r&d thing. the u.s. is one of the few that does put some money, meaning amount of money, into the research. so compared to others we have the worst research side but for ourselves we're pretty balanced between how much we spend on the science side and how much... >> rose: but there s there a formula for that? >> not really. you have to look at each disease. and so if i knew... if i thought we had scientists who could cure aids then, boy, i'd put a lot of money on that because that would really change things.

unfortunately, what we have is life long treatment which involves everyday taking the drugs, making sure that doctors are helping out with that. >> rose: rotavirus. >> rotavirus vaccine is being used by all rich kids in the world and some middle-income kids. and very few of the poorest. now, i set a goal of getting it to half of the poorest within five years about a year ago and so i'm going to have to really get going on that. certainly we have a lot of internal foundation meetings where we looked at that and say "okay, which countries are going to come on?" part of that's fund-raising, too because we can fund about a quarter of that, this global alliance for vaccines needs other donors to come in. now that's looking good. some of the donors have seen the effectiveness. we'll get that one on track and meet the goal there but we're off to a bit of a slow start. >> rose: what have you come to understand about vaccines and

the future of the eradication of lots of disease? >> well, first is that it's very typical that vaccines get used in the rich world. it takes about 5 years until they get to the poorest kids and cutting through that has been harder than i expected. on this pneumococcus vaccine for pneumonia, we're about about a three-year time delta. so that's better than normal but not as good as we'd like to see. we know we have to invent some vaccines, unfortunately, because malaria is only in poor countries. it's not... there's not going to be a lot of money to do it so... >> rose: interesting phenomenon. if there's not a lot of disease in the rich countries there's not a lot of motivation to give the money to eradicate. >> exactly. a lot of global health works by trickle down. where you invent stuff for the rich world. you understand the costs of what to do better and better and then

sometimes as late as 20, 30 years later it's available to the developing world. even which-- which isn't perfectly just-- is off the table if the disease doesn't exist in the rich world. like in the case of aids where it's... the prevalence is low enough that the rich world can afford to put everybody on drug treatment but the world as a whole because of the poor countries can't. it won't have enough money to put everybody on drugs. that means that a sense of urgency, the willingness to cut through regulatory things and move past isn't very strong because the rich world feels okay about that disease whereas really it's still a crisis. it means a lot more urgency. >> rose: speak to me a little bit about vaccines as a tool of what you have learned about vaccines and why it is a primary focus of the foundation. >> in health if you take the first percent of spending, say,

on vaccines or taking care of mothers and babies, let's say 2% of what we spend on health, over half of what the health system does for us-- saving lives, avoiding sickness-- comes from that very small part. so as you spend more and more, you get less and less benefit. in fact, the u.s. is out on a very flat part of that curve. well, that's good news. that means for a poor country you have to make sure 2% is spent. if it was linear, that every dollar you spent on health had sort of the same benefit then it would be very, very tough. but this part we can do for everyone. it's so magical it's easy to forget. you just take it for granted. even sometimes an anti-vaccine crowd will come up and say maybe this, maybe that. >> rose: meaning there may be some... >> a long time ago there was a claim that a vaccine was... had something to do with autism.

>> rose: right. >> very recently the british medical journal showed that the doctor who wrote that article had a financial connection to the lawyers involved and that he had faked that data. it had been disproven for a long time but actually seen why it wasn't just bad luck... >> rose: so this seal ther is's no relationship between the vaccine and... >> it should. but there's also skepticism out there. and it's not just in the united states. but we have to constantly be very careful about the safety of these things and make sure the word gets out about that. and make sure that we keep the investment going because it's the only way for many of these things to have... >> rose: it's a way to build for the future. >> yes. >> rose: are you happy with the process of certifying vaccines? >> no. it's very long and complicated. when you have a disease that's not in the rich countries, the poor countries don't trust

themselves to approve things. so they wait... and the rich country says "but why are we doing this?" well, we don't have the disease so they're kind of hyperconservative. well, then once they approve it, then the poor country has to say well, can we afford it? do we have the disease here? so anyway you end up with a lot of steps and it's a bit frustrating but that's what we have to engage in. we have to drop people in to do better at that. the delay on rotavirus getting rolled out is, you know, an education of me about, wow, there's a lot of steps here. >> rose: could you do anything to expedite the process? should you be lobbying the government to change the process at f.d.a., that kind of thing? >> well, there's some discussion about that. could you have a community trial where at an earlier stage where it's been proven to be safe but you don't know how effective it is you can actually get out into the real world settings and try

it out. so this community trial approach is something that a number of people have under discussion and to get... if we get out of it we'll try to take that to f.d.a. and maybe even talk with a poorer country, or a country that's got big disease burden about how they would collaborate on that. so some ingenuity is required because i understand why f.d.a. is conservative. >> rose: they do not want to make a mistake. >> right. and they don't have a burden of the disease. they made special case approaches. they move quickly on aids drugs when there was no treatment for aids in this country. and that was a crisis and it actually is to their credit how they moved things forward. now for some of these other things, the count these have the crisis aren't as sophisticated. so we need to combine the expertise and i'll see if i can help facilitate that.

>> rose: speaking of h.i.v., where do we stand on that? >> you basically have two fronts in that battle. one is you got all the people that are already infected and as their immune system gets weaker you want to keep them alive so you have to put them on drugs. and there the united states-- primarily but other countries as well-- have gotten five million people on drugs, saved their lives, allowed them to be productive, be parents. amazing things. the president's emergency plan for aids relief and the global fund which does a great job actually one of the best at catching to make sure the money is being spent properly. >> rose: what's it called? >> global fund. and that's... many countries give to that but the u.s. even on that one is the biggest individual piece. that's going well. but there won't be enough money to treat everybody and so we have to stop people getting infected and that's where... on

prevent that's the other front. we have new tools but they're not being widely used. male circumcision, a gel for the woman and a pill that you take. all of those have some possibility but this is one of those things where how many steps does it take before you've designed something so the people at risk are getting the benefit and if we're clever in two or three years those will be broadly available. if we're not it could be a decade or more. 123450u7 and how many people die from h.i.v./aids every year. >> we're down to about 2.1 million dying every year. so we're down about 20% from the peak. >> rose: and what's the regional distribution? >> africa is over three quarters of the people who die are african, even within africa it's

pretty vocal on eight countries in the south. >> rose: this is a question. is your focus on the things that you have focused on, malaria, polio, is part of this because of the death of children? does that have some deeper impact on you and melinda as you travel around the world and it heightens your own internal sense of you are general any >> absolutely. when you think of a mother having a child die, in the united states that's so tragic and fortunately so rare. and to see that money wasn't being put into these the diseases that were very widespread it blows the mind. we got into kind of a funny way where we were very involved in reproductive health. letting mothers have access to tools of contraception, nothing to do with abortion, just a choice of educated adults and we

saw that as having this great effect that when people had a choice to have a smaller family size if that's what they wanted it would make everything easier. only when we learned about health having this effect of reducing family size we thought oh, wow, we can get involved in this so we don't have to feel conflicted that... is it bad to have more healthy children? >> rose: and if parents think their children will survive they won't have so many? >> that's what it turns out. i had to be told that three or four times. and the implication and that's when we said, okay, we can get involved in vaccines and we met these various scientists who spent their life working on these things and we were able to get them some resources. and so it's amazing. the first reason was the population issue. the second reason was the sadness about those deaths. the third reason is just really becoming clear.

it's that even the kids who survive are so damaged by these diseases that they can never be educated to their potential. and so i have an annual chart done by a grad student at the university of mexico where he shows that the higher your infectious disease burden, the lower your average i.q. and it's very dramatic. the majority of the kids with an i.q. of less than 80. and i've always known there was some connection there but to see it now in these numbers, so the kids who survive are really hurt by this. so when you do vaccines it's all three of those things are what you get at the benefit. so we're really... we've doubled down on that. that's... that and some help in their first 28 days. that's the most of

i don't know when... exactly will that catch on i feel very good that the work that we're helping will make a huge contribution to identifying what it is that great teachers do and helping all the teachers who

want to improve move up and be dramatically better. >> and the teachers are the key? >> well, helping the keachers do their job very well, that is the key. if you could magically transform the home environment, if you have a vaccine that could make parentss read books to their kids, you really... that would also be cat lick it. but given that we have the teachers, the magic thing that might not cost much is to create a personnel system that takes advantage of their desire to be great and helps show them how to do that and uses some incentives as part of that system. >> rose: what system works beyond the public school system? i mean, when you look at charter schools, all these academies around, where there are lotteries, people so anxious to

get their kids into school, showing you the commitment of parents what works and what do those schools teach us and what are the results? >> well, the top charter schools which are growing, thank goodness, they still only educate the really good ones a few percent of the people in the country. but in a few places like houston new orleans, washington, d.c., they're growing and they'll be over 20% in all three of those in a few years. they are able to draw the kids in. and it's because where they hired the teachers, the way they train those teachers, they also use the longer school day. >> rose: right. >> they understand about the culture of learning and getting the kids to commit to that. they don't have many kids leave. so these are... these are not exam-qualified people. these are in the inner city, the toughest kids and they get over 90% of their kids to go to four-year colleges. so there is something truly

magic there that we'd like that capture. >> rose: okay. why can't we do that and put hit in the public school system? >> well, long school days is very tough because you're either adding money or you're finding some other cost that you're going to eliminate or asking people to work for less. so that one is controversial. the personnel system, if you got into the system and said, okay, i'm going to be paid based on seniority and you're moving up in your senior years and doing well you think "oh, now they're changing the rules on me. now they're going to make it whether i'm a good teacher or not." and you can argue if all you're using is test scores, which is better than nothing, you can argue that's not a perfect system so you need more things before people... more elements in that review so it's clear to a teacher how they improve and that it's a really fair system. >> rose: is it fair, teachers would ask, to judge me on the

graduation of my kids? on the test scores of the kids? is that a fair judgment of teaching? >> well, versus judging you on nothing. >> rose: okay. >> but you have to decide. i would rather judge them on multiple factors, which that would be one... >> rose: and the other factors sfwhoub >> well, we're taking videos. we're putting a panoramic camera in the classroom that shows the teacher and the kids and then we let third parties look and say, okay, are the kids staying interested? and what's really stunning is, you know, you see these great teachers, amazing results,, and they see them with kids who have low background, who have high background and they don't achieve them by teaching to test. they get those kids interested, enthused. the difference when you watch, that teacher has so much awareness of when the kids start to get bored and how he has to draw them in and how he has to use a simpler example. he's really doing... she is doing something very realtime as

opposed to the teachers who aren't that good. they're going to do... they're going to say the same things, go through the same things almost independent of whether they can see the kids at all. so that interactive element is so strong in these great teachers and people can learn to do that better. so video is one, test scores is one, actually students commenting on certain attributes of your teaching works quite well. peer evaluation works quite well we need to blend these together so people have a sense that okay one of the measures isn't that strong for me, i have this whole set of things. >> the consensus... conventional wisdom on the part of those many who want to reform education, the problem is the teachers union. do you accept that? >> well, that's partly unfair. it's not as though we have this magic personnel system just sitting there proven ready to go low overhead just perfect and

everyone in the teachers' union is saying absolutely not. the a.f.t. is participating in learning about better systems. and they're showing open mindedness that the tenure rules wouldn't protect somebody who wasn't improving in the right way. now, when push comes to shove, the power of the stood us the quo is very, very strong. so will people will willing to make a change away from what's been a system where you just... if you teach ten years you make more money. you teach 15 years you make more money. >> rose: the power of status quo and the power of self-interest. >> we don't have many things in society where you go up and you ask somebody to mow your lawn and when it comes time to pay them you say "how long have you been mowing lawns? oh, i'd like to pay you double because you've been mowing lawns a long time." it's usually based on whether they do a good job mowing the lawn. so education is such a big a

critical part of our economy, to not have it subject to constant learning... you know, baseball players are better than they were 30 years ago. are teachers better? some are around some aren't. >> rose: when you look at america's commitment in terms of dollars to public education and commitment of dollars to health care, where do you think we stand relative to the rest of the world? >> well, we spend 17.8% of our g.d.p. on health care. >> rose: right. >> and the next highest is at 12%. you have some, like britain, who are down at 9%. and that is just mind blowing. it's mind blowing. it means that's 5% of the economy. that means one out of 20 people in the entire economy are the net inefficiency of our health care system. and our outcomes are not better than the people spending that less money. and the intentive system exists

to have all sorts of ways of spending money on 70-year-olds and 80-year-olds. you know, spend a hundred thousand on this, spend a half million dollars on this. and every time one of those things is invented you're take regular sources away from the young and saying we have no... anything you can invent we have no metric that would hold us bad because maybe it's a good thing. so innovation is inventing ways of taking resources away from the young. whether that's education or anything else. so it's a system that is quite different than what we've seen in other countries. >> rose: and what do you think there of health care legislation that was passed by the democratic congress in the last congress? >> that legislation didn't really get at the missed incentives that exist in our system. there's no one can say to you okay, we're at 17.%, they're at 12%, this bill closed some portion of that gap. yes, it has another commission to look at costs but they've

done those before. so this is a very important problem. we see it most acutely at the state level because they have to at least pretend to balance their budgets. the federal level it shows up as a deficit in a bad trend. at the state level those t two biggest things are medicate and education so the trend will be for education to get less and less because it's just innovation that says you can spend more on health. >> rose: do you think we'll see an american state that will have to declare bankruptcy in that's tricky. from a pure accounting point of view the answer would have to be yes. if you take what greece's fiscal problem is and you take illinois and new jersey it's very similar. it's hard to see how even with the power of taxation that you can work your way out of that because you get very high levels of taxation that then cause

people to go to other states. and we see that. illinois did raise their income tax to try but it doesn't bridge the gap. it's a step towards closing the gap. but it's quite a dire situation. and the way they look at pensions, the way they look at early retirement and health care costs it doesn't really honestly show how bad the trends are to these state balance sheets. >> rose: do you think there's a political will in the country to do something about the deficit? even after the deficit commission reported at least in terms of corps chairs simpson and bowles, they couldn't get 17 votes >> well, it's worse than that!

i love the fact you could go on line, i think that was "new york times" site, and you could check which things you agreed with and if you skip some of their aideas and agree with some do you get close to a balanced budget. the very first item was cutting foreign aid in half and almost everything... but that one i agreed with. >> rose: most of the recommendations they said in terms of trying to deal with the deficit and long-term deficit you were in favor of? >> absolutely. you have to cut spending. you have to reduce tax expenditure. now we're up to $1.5 trillion per year. i i wish i was innupl rat. these numbers are truly upsetting! most people, $1.5 trillion, okay. they don't start sweating but, whoa! and the idea that. >> rose: $1.5 trillion... go ahid. >> that's our deficit. the u.s. government, how much they take in versus how much... but that's the deficit for next year >> for a year! one fiscal year. >> that's the projected deficit

for 2011. >> right. so that accumulates and the interest gets very very large. and the idea that you have have a discussion about so-called non-defense discretionary spending which is about 15% and be tough about that that doesn't address the issue. so when are we going to get a discussion other than simpson-bowles which the week after they blew the doors wide open on no tax increases and pending things. when are we going to... >> because it's the tax cuts that took place... >> extended. >> rose: you were not in favor of extending them because we need the revenue? >> well, i'm not some expert on when is the economy ready for which change and all that. but every rational solution involves more taxation and spending cuts. each side, you say you get $750

billion per year and you get $750. >> rose: and that's our compromise. >> that's mind blowing! mind blowing! >> rose: but on the other hand of the ledger as you well know are the things that you care about. the president says in order to create growth and reduce the level of unemployment over the next five years or six years or ten years we have to makes an investment in things you care about. education, research, the environment. where are we on this choice between dealing with the deficit right now and investing in the things that bill gates things are essential to make this competitive? >> it's going to be challenging. if you take k-12 education i gave a speech to the chief education officers and talked about they might have to take that seniority and master's degree money which is not correlated with teaching excellence and assign some of it to the incentive systems for excellence. the best case for k-12 is to be

pretty flat and some states like california actually and new york or illinois going down. so it's a very tough problem. i don't want us to cut educational spending. one of the biggest gaps between 2006 or 2008 discretionary and 2010 is telegrams. so states have been raising tuition and things. part of the reason the community college system hasn't totally fallen apart is because the federal level is spending a lot of money on pell grant. i think that's very good. but that's one of these things that there will be this argument about if you want to get discretionary spending back down. on energy, the president seemed to say that he'd go after certain tax breaks for the oil industry in order to find i think $3 or $4 billion for the energy r&d he believes in. i think that's probably a good thing. but if you have a new idea for

how the government should spend money, these are not... this is not an easy time. >> rose: and they're hard choices. >> very, very. we have gotten used to a very high level of spending and the history... you know, even reagan didn't shrink the government... newt gingrich didn't shrink the government. now we're forced to make harder choices than ever and yet the dialogue about it so far is not too instructive. >> rose: and if you want america in the president's words to be more competitive in the smarter sense of the word, not because we need to withstand some challenge from somebody else, just to be more competitive in terms of the challenge of a new world how do we do that? >> people should look at simpson bowles or come up with their own ideas. it was a very serious piece of work. the only thing missing from it was that it wasn't focused enough on the health care issues. so it had across-the-board thing there is. you actually need in terms of

the health care cost explosion we need to look at that in a different way. we need better ideas to make the incentive for the inventors to come up with things. >> rose: are you saying we need to make a serious look again at the health care legislation we have and not only change it at the edges but change it fundamentally? >> we need to look at why we spend as much. ignore health care legislation. we need to look at why we have such huge cost, which is a fee for service type of approach. >> rose: but i thought that was changed. >> no. no. that bill is about access. yes, it has a commission that says when things get really tough, you know, then we'll really be tough and cut costs but it doesn't say how. and until politicians are willing to say there are things that go too far, how many teachers are you willing to fire in order to have 78-year-olds have a procedure which will be invented five years from now

that adds four months to their life? that sounds terrible but infinitely choosing those things will shift you away from education for the young and towardsen finite invention of such procedures. >> rose: in terms of technology, a place that you came... has been very good to you, when you look at us and what technology has given to this country in terms of the economic success and in terms of a whole range of issues, are we going to lose that momentum? >> we'd have to keep making a lot of mistakes for several decades before we'd lose that edge. it's great that other countries are becoming more innovateed. when my child gets sick i won't look at the pill and say "my gosh, it's made in china." if they've invented something that can save my child's life i'll say hallelujah, it's a better world. >> rose: this is not a zero-sum

game. >> absolutely. the u.s. lead is very strong. our universities, our funding of basic research, it's pretty amazing. the i.t. sector, the biotech sector, very strong. we're so used to those models that even when the energy sector we're having to share leadership people are like, oh, no, we're not the only ones out there. and when the u.s. market is not the biggest most demanding which, in the case of power, china is because they have to add so much power, you need to have good relationships in order to be able to sell into the high volume market. so the u.s. has a lot of great things working in its favor. smart people still want to come to this country. do we make it as easy for them as we ought to? i don't think so. >> rose: the immigration question. >> right. and, you know, the president mentioned that but it's been tough. >> rose: i don't understand why he can't deal with that. i don't know why to make that

case is is so easy, so patriotic so nationalistic, i don't understand why 11 years... ten years after 9/11 we can't make that case. do you? >> well, not really but the whole immigration question if you could just separate out and say, hey, people are highly talented and will be employed here as some way above average salary that that's good for the country. people aren't that willing to partition that piece off from the very complex issue of what about the people who are already here? what about the fact that the borders are porous and how do you feel it's the federal and state role. >> rose: why aren't they willing to peel it off? they are two different kinds of issues. >> well, i understand that the part you would peel off a little bit better and think maybe they should. >> rose: doesn't microsoft have research centers outside... close by but in vancouver and places like that?

so? make sure they attract people that they otherwise would not be able to attract? >> microsoft does a disproportionate amount of its research here in the united states and that's because there are great people graduating from those universities. there are many who are foreign cities who go to those universities that aren't allowed to stay in the country and there we have a... we try to get them here but sometime it's easier to have them be in canada. so it's a dilemma. >> rose: when the president makes the hallmark of his state of the union address we have to make... we have to be more competitive and we have to make more investments you say i'm right on with that speech and that focus. and if we do that in 25 years what will be the relationship, say, between the united states and china. >> well, in 25 years that's

about the time where their per capita g.d.p. is not great enough but their economy as a whole will have four times as many people. >> rose: well, per capita now is $3,000. >> $40,000 versus $4,000 p.t.t. so they will have grown a lot. they will buy a lot of american goods. the acid test... >> rose: and that's where it becomes really good for us. they will have grown a lot and their capacity to import and our capacity to export will change the dynamic of both cheese? >> over time these things quill lib ree@just fine. they have goods, we'll have goods and that will work out. if you're used to our dominance and that's what you're trying to preserve that's a tough mind-set because, in fact, we'll erode our excellence if that's if you get that protectionist type mentality. it actually hurts us and them if

we get into that and that will be a tricky issue the politicians on both sides have a real responsibility to avoid that. >> rose: part of your message coming out today with respect to the foundation is your strong argument that you hope the united states will not reduce its aid budget. now, there's a different kind of aid, too, which is the kind of aid we've been giving to, say, egypt. we've been giving the largest amount of aid second only to israel. >> rose: how did that work? >> rose: (laughs) >> the aid that i know is the aid where the people who get it benefit immensely. and long-term stability is greatly enhanced. that's the kind of aid where the farmers grow more food so food prices don't spike for any of us. you're more healthy so the population growth is such that you don't have immense shortages

of jobs and other things. that's the kind of aid that actually is not... it's not often talked about but that's what i want to see us keep doing whether it's aids marx lair ya vaccines or the polio campaign where the u.s. has been the biggest supporter. we were the biggest supporter of smallpox, we should feel great about that and like wise polio. >> rose: but you're worried in the political environment that changed because of the midterm election that may not be true for the future because the emphasis is not on spending it's on cutting spending. >> yeah, when you're cutting as much as they're talking about cutting, the $120 million for the polio thing is a rounding error. you might inadvertently cut it or include it because it's in these big things. so it's going to be a very intense period to say, hey,

there's some things in here that really are quite special and don't group them in with some broad amorphous view. if you asked the american public do you support spending on polio eradication, you get a strong yes. when you ask them about aid, they're not so enthused but, of course, they think the aid is much bigger than it is. >> rose: and they think it's money that gets thrown away. >> right because in the past, in the cold war, a lot of money was spent to buy friendship and, you know, did we... when we gave money to mobutu say "are you spending it well?" >> rose: or are you putting in the a swiss bank account. >> yes. even in the case of egypt did we say well, is their system really good? is it operating to provide actual jobs to those people or is it rather creating some sense of hey, i don't have a job, how should i feel about my regime? how should i feel about the bankroller of my regime?

>> rose: finally, when you look at this third report that you have written, what's the proudest achievement and what's been the biggest disappointment. >> well, i think the lives saved with vaccines would be at the top of the list. meeting with these scientists who have been empowered to do their work can be a close second on that. a lot of that is still in the pipeline. >> rose: the fact that you made grants to people to come up with ideas that we can support. >> right. so i think we will have a malaria vaccine but it's not there yet. the biggest disappointment is that i was naive about how slow, how complex these things are. certainly we spent a lot-money that didn't work out but i feel okay about that. we kind of had an awareness of it. but if you want to make big changes wow. the number of pieces that have to line up is pretty big and now

we're going to try to do it where there's a bit of a head wind whether there's education or some other things, government spending from the rich countries-- particularly the u.s.-- may be making it a bit tougher. now, it doesn't discourage me. i'm thrilled about the work, but that's a bit scary. that education budgets would be cut and at that time are you asking people do two hard things-- deal with a budget cut and reform the personnel system? i think it's easier to ask people to do one thing at a time and i wish it was just, okay, let's reform the personnel system including some additional use of technology. >> rose: thank you for coming. it was great to see you.