Michael Milken, Act II
Michael Milken throws a helluva party. His Milken Institute global conference in LA last week attracted such luminaries as Nobel Peace prize winner Muhammad Yunus, human genome sequencer Craig Venter, Gov. Arnold Schwarzenegger and no fewer than four winners of the Nobel prize in economics. Business guys Eric Schmidt, Sam Zell, Eli Broad, Steve Wynn and T. Boone Pickens all spoke, as did tennis great Andre Agassi, music legend Quincy Jones and comedian, writer and actor John Cleese. There was no way to see and hear it all, but here are some things that struck me as interesting…
On the U.S. economy: The four Nobel laureates in economics—A. Michael Spence, Myron Scholes, Gary Becker and Edmund “Ned” Phelps—more or less agreed that the economy, while slumping, is not nearly as bad as it might be, given the credit crunch, the massive losses on Wall Street and the ongoing housing slump. They vigorously disagreed with the bleak outlook voiced recently by Joseph Stiglitz, another Nobel laureate, who said this is going to be one of the worst economic downturns since the Great Depression.
“The American economy is performing remarkably well in light of the financial turmoil,” said Spence. The Great Depression “was a horrible episode,” Becker said. “We’re nowhere near that.” The unemployment rate is currently 5.1% and unlikely to top out any higher than 9%–compared with 25% levels during the 1930s. But housing prices are going to fall further, according to Spence, because homeowners who are waiting for prices to rise before selling “are going to lose their optimism after a while and throw in the towel.” That with further depress home values.
The most serious consequence of the current slump may turn out to be the reputational damage done to big business and the financial markets. Top execs of the big Wall Street firms continue to enjoy fat paydays, despite their reckless behavior and the resulting damage to the economy. Said Phelps: “Our friends in the financial sector have given capitalism a black eye.”
On the power of innovation: Yunus, Venter and Schmidt shared a panel, moderated by Milken, about the power of ideas and creativity to change the world. Venter talked about the genome, and about his current efforts to develop a synthetic biofuel to replace gasoline. “If we can’t do something about the environment,” he said, somewhat facetiously, “there’s no point in trying to cure cancer. We have to come up with new sources of food, fuel and water to sustain human existence.” For hist part, Schmidt talked about how Google is “chaotic by design” as it seeks to use the power of information to attach big problems in such fields as health care and energy. But it was Yunus who stole the show.
His brainchild—microcredit–has taken Bangladesh-based Grameen Bank to a scale where it has 7.5 million borrowers, about $1 billion a year in loans with an average loan of about $150 and, still, no lawyers or contracts with borrowers. Grameen America recently began operations in Queens, N.Y. Dozens of other microfinance institutions have followed his path.
Instead of worrying about whether “people are credit-worthy,” Yunus told the group, we should ask whether banks and other credit institutions are “people-worthy.” He talked about how Grameen recently began making loans to beggars, giving them about $10 or $12 each so they could but and then sell candy, snacks or small toys as they go from house to house. About 11,000 of them have been turned from beggars into door-to-door salesmen, and another 90,000 or so “are in the process of closing down their begging division,” he said.
“It will take them a bit of time,” he joked. “After all, begging was their core business.”
On strategies to fight global poverty: Michael Spence, the Nobel laureate, began with an encouraging data point: Thirteen countries since World War II have managed to achieve sustained high growth—defined as 7% annual GDP growth over a period of 25 years. The result is that today nearly 4 billion people live above the poverty level; the number was closer to 1 billion in 1980. Success stories unfolded in countries that took advantage of “inbound knowledge transfer” (meaning they learned from the developed world) and capitalized on global demand. China’s the classic example of a country that adopted western manufacturing techniques and then became the world’s most productive factory nation.
But many other poor countries are moving in the wrong direction. Richardo Hausmann, an international development expert at the Kennedy School at Harvard, noted that all of the world’s 24 rich industrial countries had their peak per capita income since 2000; they are, despite fits and starts, growing their economies. But only 58% of the 112 developing countries have had their peak per capita income in the 21st century. Others peaked in the 1960s, 1970s or early 1980s, often because they relied on an export product that fell out of favor. “Most growth collapses coincide with export collapses,” he said. Countries need to aim for more “sophisticated” export packages to insure against commodity price fluctuations.
Maria Eitel, who runs Nike’s Foundation, said the company, with help from Spence, thought through its role in fighting global poverty and decided to focus on adolescent girls. More education for girls means later marriage, fewer children, lower rates of HIV, more income that is returned to families than when men work. According to Nike, women do 66% of the work in the world, produce 50% of the food but earn 5% of the income and own just 1% of the property.
On green business: Thanks to my friend Betsy Zeidman, who works at Milken, I moderated a panel called “Green is Green” with Rand Waddoups of Wal-Mart, Eli Halliwell of Jurlique, Dave Haft of Frito Lay, Deborah LaFranchi of investment fund Strategic Development Solutions and Kevin Wall, the founder and CEO of Live Earth. Waddoups is yet another impressive Wal-Martian, obviously excited about the company’s far-reaching efforts while acknowledging (as Lee Scott has) that WMT is far from a green company and has a long, long way to go to reach its goals of generating no waste and powering itself with 100% renewable energy. Haft talked about Frito-Lay’s “net zero” plant in Arizona, which aims to get nearly all of its electricity from renewable sources. (That will enable the company to claim that its Sun Chips are made with solar power.) He also disclosed that Frito-Lay plans to dig into its supply chain to see whether its suppliers can be persuaded to grow, say, potatoes in ways that are less harmful to the environment. Since 1999, Frito-Lay companywide has reduced its water use by 38 percent, natural gas by 27 percent and electricity by 21 percent, cutting $55 million a year in utility costs, according to this report in The New York Times. To be sure, this is eco-efficiency (and not true sustainability) but it is a step in the right direction.