December 9, 2013
Transcript: 2013 Strategic Foresight Forum - Welcome and Opening Debate - A Race Against Time
President, The Scowcroft Group;
Interim Chairman, Atlantic Council
Vice President and Director, Brent Scowcroft Center
on International Security, Atlantic Council
Mathew J. Burrows, Director, Strategic Foresight Initiative,
Brent Scowcroft Center on International Security, Atlantic Council
Mariana Mazzucato, R.M. Phillips Professor in the Economics of Innovation, University of Sussex; Economics Director, ESRC Centre for Social and Economic Research of Innovation in Genomics
Anne Marie Slaughter,
President and CEO, New America Foundation
Location: Washington, D.C.
Federal News Service
Last year at this conference, we focused on global trends out to 2030 more broadly and it was so popular that it crashed our website and the CIA's. I call that success, but our IT people tell us that that won't happen this year. But our focus is on harnessing disruption, focusing on the disruptive technologies that are coming our way. So this forum is a capstone of the work of the Strategic Foresight Initiative. During the last 12 months, we explored a lot of new technologies and their implications for society, for security.
A couple of examples, in the palm of many of your hands right now tweeting, no doubt, using the hashtag ACDisrupt, is more technology than was available to NASA in 1969 for the launch of Apollo 13. Another statistic that I use regarding data: There's more data produced today every 10 minutes than was produced every two days in 2009, just a few years ago. So there was an explosion of data. How does that data get leveraged for good, in some cases for not so good? We'll talk about all of that.
And clearly technology advances have changed our world and are going to change it a lot more between now and 2030. And our hypothesis today and in the report that was handed out upon your entrance today is the thought that if we can get ahead of the curve, if we can understand how technologies may play out, may manifest and can be leveraged, then we can be better prepared for the future that's coming and in particular for the very significant challenges that are ahead for all of us.
So our goal today is to do just that. Without further ado, I'd like to welcome General Brent Scowcroft on the stage. General Scowcroft serves as the interim chairman of the Atlantic Council, and he began that position after Senator Chuck Hagel started another position, when he was nominated and confirmed as the secretary of defense.
General Scowcroft is a true strategic thinker who has served as national security adviser to both Presidents Gerald Ford and President George H.W. Bush, the only person appointed to that position under two different presidents. He has helped the council for many, many years, and certainly has lent his name to the international security center that I lead.
General, thank you so much for being here. Without further ado, I'd like to welcome you to the stage. (Applause.)
GENERAL BRENT SCOWCROFT: Thank you very much, Barry, for those generous remarks. It's a real pleasure for me to welcome you to this gathering of impressive global thinkers and actors. Thank you for coming and braving the weather.
Our two-day conference, to me, for an old man is kind of scary, but it's harnessing technology to the 21st century and it marks another year in our Strategic Foresight Initiatives program which Barry mentioned.
This year we're focusing on key emerging technologies, energy and other critical natural resources such as food and water, smart cities, 3D printing, biotech, and robotics. These present many opportunities for the U.S. and its partners, but also major risks. We worry we're not prepared for the negative consequences of these technologies, nor are we well positioned as we should be – could be to take the full advantage of the many benefits they conceivably have to offer.
This conference follows one we hosted a year ago on the release of the National Intelligence Council's "Quadrennial Report on Global Trends 2030: Alternative Worlds." At that time, we also issued our "Envisioning 2030: U.S. Strategy for a Post-Western World," in which we provided a set of strategic and policy recommendations that grew out of the NIC's work.
A key message in our strategy paper was that the keystone of national power remains U.S. economic strength and innovation. And for this conference, we're publishing a report entitled "Envisioning 2030: U.S. Strategy for Harnessing the Big Technological Challenges Ahead." It was authored by the Strategic Foresight Initiative team, including Matthew Burrows, Banning Garrett, Robert Manning, and Peter Engelke. It contains both analysis of future technology trends and a strategy for maximizing benefits from these mindboggling scientific and technological advances, while avoiding any unintended and negative consequences. And the report offers policy recommendations. And that's a major challenge.
Technological transformations seldom occur in linear fashion or according to anyone's plan or expectations. Rather, they tend to gestate over time and then occur in qualitative bursts. All the emerging technologies we will discuss today and tomorrow are playing critical and yet disruptive roles. All of them exemplify the erratic patterns of innovation, but they are valuable for confronting many of the world's biggest challenges.
So this is a two-sided challenge. All present opportunities for the United States and its partners and friends in the globalized world, as well as some perils if they are misused or go in the wrong direction.
One issue on which we want to focus particular attention is the continuing stature of the United States and its partners in fostering new and critical technology. The United States currently is a world-class science and technology leader, but the field is increasingly more competitive and congested. The United States and many of its partners risk losing their leadership edge. This comes at a time when innovation is more urgently required than ever before to address the challenges that include managing climate change, natural resource constraints, galloping urbanization, data privacy, health and education, and more generally the unprecedented speed of societal change.
Not only can technology be the source of economic recovery and social rejuvenation, but it can connect what President Obama has referred to as the much needed U.S. nation-building at home with an expansion of U.S. prestige and power overseas.
Technology represents a huge set of opportunities for the United States and its partners. But as I said before, technology is by its nature disruptive. Making sure that the disruption is a net positive is the job of government, corporations, universities, think tanks, NGOs; indeed, all of us here.
We want to think here about how the U.S. and its partners should be using these exciting new technologies to ensure a more prosperous and peaceful world for everyone rather than further chaos.
On behalf of everyone at the Atlantic Council, let me extend a few word of appreciation and thanks. First, many of the speakers and panelists have come great distances in not the best weather in the world to be with us. We in the Atlantic Council very much appreciate your efforts. We would like to thank the supporters who have made this conference possible. That includes our corporate sponsor Chevron and Ambassador Robert Gelbard, whose generosity has been essential in financing this engagement.
We also want to thank the Atlantic Council partners, the governments of Singapore, Sweden, and the United Arab Emirates for supporting much of the work that went into our study of these issues. "Scientific American" has also been an important partner to the center for helping with media and public outreach.
The Atlantic Council Scowcroft Center and, within it, the Strategic Foresight Initiative, has taken on the task of thinking hard about the future and what strategies we need to adopt.
We always welcome all your thoughts and I encourage you to engage with the authors on topics you think important for exploring this future.
Now it's my pleasure to turn over the proceedings to Barry Pavel, vice president, director of the Scowcroft Center on International Security, to introduce the first panel.
Let me thank you once again for coming to this, I hope, exciting event. Thank you. (Applause.)
MR. PAVEL: Well, thank you very much, General Scowcroft. And let's get into this now today. You've heard the purpose of this forum. Welcome to the first panel which we're calling "The Opening Debate: A Race Against Time." Last year, as General Scowcroft said, we've been exploring how technology will change the way society functions, along with many of our partners.
This is part of the Strategic Foresight Initiative sort of broad mission to do three things really broadly. One, take a look at some of the key global trends that are unfolding, not just in technology, but in other areas. Two, try to draw out the implications for today's policymakers, for today's corporate decision-makers of what those longer-range trends might mean. And then, three, working with our partners to try to develop policies and strategies that enable approaches to resolving some of their foremost challenges.
And so our work during the course of this year alone has taken us to esteemed universities like MIT and Stanford, taken us to many of our partner countries – Singapore and Sweden – and to private firms that are the cutting edge of creating the very technologies that we're going to discuss today. I saw 4D printed materials for the first time in my life at the end of October and I'm still scarred by seeing it and trying to understand the implications.
This conference is also a prelude to the work we'll be doing in 2014. So what general Scowcroft asked of you, please give us your thoughts, your insights, where do you think some of the key issues are as we go forward. We're going to continue to press ahead on many of these issues.
So in this panel, we're going to discuss the role of innovation, the role of technology, and how do we shape the positive futures and try to avoid the worst case outcomes. We also want to understand, in that regard, how can the public sector and the private sector much better integrate, work much more closely together. In some cases, some of the public sector institutions in the United States are 60 or 70 years old – the ones that we're discussing. And so how do we enable these institutions on the assumption that they're not going to be reformed structurally? How do we get them to work more closely with each other and in particular with the strong central private sector actors that are really at the heart of trying to solve some of the global challenges that we're facing?
And so first, I'll ask each of our panelists to address the questions that are in the agenda. And I think those are worth just revisiting. First, is technology overrated as a solution to some of the world's most daunting challenges? Second, is the United States losing its leadership edge in technology? Just over the last week or so alone, I've heard different responses to that question in my travels, in the Twitter sphere.
And then, third, what technologies show the most promise? There's a lot of them out there. It's hard to predict how they might come together and play out in different ways, but it would be good to get a sense for which ones do we think are coming in a certain way that we can leverage.
And so after the panelists offer their thoughts on these questions, we'll turn – I'll turn to you for your questions, your comments, your thoughts.
And so let me just briefly introduce our panelists and then we'll hear from them. First, Mariana Mazzucato – and if I'm pronouncing that wrong, please let me know – is an economist and holds the prestigious R.M. Phillips Chair in the Economics of Innovation at the University of Sussex. Her research focuses on the relationship between financial markets, innovation, and economic growth. And she's currently funded by the Institute for New Economic Thinking, the Ford Foundation, and the European Commission.
Anne Marie Slaughter, to my immediate right, is the president and CEO of the New America Foundation and the Bert G. Kerstetter '66 university professor emerita of political and international affairs at Princeton University. From 2009 to 2011, she served as the director of policy planning at the Department of State, where we worked together quite closely on a number of issues. And before that, she was the dean of my alma mater, Princeton University's Woodrow Wilson School. So I'm going to thread very lightly when I ask her questions. (Laughter.)
Third, we have Matt Burrows, who is most well known as the architect for the CIA of their Quadrennial Global Trends Projections, what many say is really the premier projection of global trends that's produced certainly in an official publication. The Atlantic Council was lucky enough to steal Matt from the CIA, which is no mean feat, as Fred Kempe would say, a couple of hours after he retired in September. And so Matt now directs the Strategic Foresight Initiative in the Scowcroft Center here at the Atlantic Council. He also led the research team that has written the report before you on how the U.S. should approach the coming technological revolutions.
And so with that, I would like to hear first from Mariana, your views on these issues.
MARIANA MAZZUCATO: I thought I was second, but I'll adapt. (Laughter.) OK, so I will – we have about seven minutes – five –
MR. PAVEL: Five to seven minutes.
MS. MAZZUCATO: OK. We should have a timer here, otherwise you never know how –
MR. PAVEL: I have one.
MS. MAZZUCATO: OK. So what I wanted to focus on – and I will indirectly answer all three questions, but I kind of want to tell you a story about them, which is what do we actually know about what led to the previous sort of big revolutionary changes in technology and innovation. And it's really interesting, because, you know, everyone's asking this, but actually, you know, providing very different answers. And there was a wonderful special issue in the "Economist," in April of 2012, which asked it very directly. They said what's going to be the next big thing after the Internet? And they called the special issue "The Third Industrial Revolution."
And in thinking about who the actors will be that actually engage with this new big thing, they were very clear on government's role. They said, government, of course, is important, right? I mean, it wasn't written by the sort of extreme right of the tea party. So they said, of course government has a role. They should fund, you know, the basics – education, infrastructure, and research – but they should leave the rest to revolutionaries.
And I think that that way of talking about government's role as sort of just facilitating, just enabling, which of course, they must do, kind of misses a big, big fact about previous technological revolutions from the Internet, nanotech, biotech, which is actually how government, along with the private sector, but actually government often – sometimes alone end up early higher risk on certain phase did the most crazy revolutionary things. OK, so the Internet before the Internet, nanotech before the word even existed.
And I'm an economist and it's very interesting how economists talk about this. At best what government is doing is fixing market failures. So research, basic research, which I'm sure we'll talk a lot about today, the kind – you know – the degree to which it's actually being funded – is seen as a typical market failure. Why? Because it's a public good. It's very hard to appropriate the returns from that, and so there's too little private funding.
So for example, I'm Italian, came to Princeton because my dad does nuclear fusion. There's only really public money going into nuclear fusion that's seen as a typical public good. The problem with that story, which is of course, there's lots of truth in that is what the government did with the Internet, again, with nanotech, and today across the world is doing with the next big thing, which I think is going to be green technology, has been so much more than funding the basic research. It's funded the applied research. It's even funded through the CIA, and not only, through also SBIR, the early stage seed financing that venture capital, for example, has been too risk averse to fund. There's, you know, really interesting data out there, for example, about the Small Business Innovation Research program, which funded – sorry – Compaq and Intel, but the point is that as the economies become increasingly financialized and as VC itself – venture capital – wants their returns in just three years, right, that these kind of public funds have actually increased their role, right, because, you know, innovation takes 15 to 20 years, not three years.
And I just wanted to line up three big implications of that for the kind of questions we're asking today. So what I basically just said is government has been the lead investor, lead risk taker through big, kind of mission-oriented policies, not just fixing little problems here and there. It's not market failures. It's mission-oriented funding from sort of, you know, putting a man on the Moon in the past, to again, the green tech thing in the future.
And the implications are this. One, if it's true that government in the past was a lead risk taker, lead investor, how can we actually encourage public sector institutions, whether we're talking about DARPA, ARPA-E, National Science Foundation, but also less sort of, how do you say, savvy organizations actually welcome failure because that's what you have to do. Most of the stuff actually fails, right? For each Tesla, which, you know, government gave $500 million guaranteed loan and it's very successful, there's plenty of Solyndras, right? So how do you actually enable that risk-taking? But second, how do you actually fund the failures? You can't just say government has to be doing one more. You also have to give it a capacity to fund some of the inevitable losses because innovation is extremely uncertain; 99 percent sort of, you know, failure rates with many R&D projects.
And so thinking about that, we have to perhaps think whether the current system through which government makes money, which is taxes, is enough or is working efficiently enough to actually fund these different pots of money, whether it's the National Science Foundation, which funded Google's algorithm, DARPA, the Internet, the NIH, which spent, just in 2012, $32 billion in one year funding the knowledge base behind pharma and biotech. Where would that money come from? Should we, if we understand government is lead risk-taker and lead investor, allow government to also, for example, retain equity on some of these investments, as for example, was done in Scandinavia? SITRA invested in Nokia, retained equity, and was able to read back something to fund the next round.
Income contingent loans, we do it with students, why not with companies? The IPR, intellectual property rights, should we perhaps retain a golden share? Why not? To fund against the next round.
And lastly, because government has never done this alone, of course it requires the private sector, right, we need a public-private partnership, these ecosystems, the real question to me is not bad, because that's nothing new, the real question is how to build these ecosystems so they're symbiotic and not parasitic. And I think – this is kind of controversial. I really hope we talk about this. That the increasingly financialized real economy, right, it's not just the financial sector, which has had problems also, the real economy is actually putting innovation at risk and is really just fueling inequality.
Many companies in the most innovative sectors – pharmaceuticals, biotech, unfortunately we're now seeing this in clean tech – spend more money on share buybacks than on R&D, OK? I won't name the companies, but I've got all the data if you're interested. Why do they do this? Well, it boosts – it boosts stock prices, stock options, and executive pay. And in this wonderful report that was written that actually talked, you know, directly about inequality – and I personally don't think that this inequality today which we're seeing between the 1 percent and 99 percent is being fueled just by the whole skills gap. It's also being fueled by value extraction, whether it's through share buybacks or through the ability of some actors in this innovation ecosystem to present themselves as the only wealth creators.
Again, lots of these venture capitalists which have been surfing, because lots of them are in California, a massive wave that was created by these public investments don't admit that and through their ability to talk themselves as wealth creators have actually been able to lobby government for all sorts of things which are hurting innovation, including, by the way, capital gains tax, which I think is way too low. Other taxes might be high, but that particular tax is too low.
Anyway, I just think that this whole conversation we're having today really needs to bring together these different areas. Otherwise, we're just going to be asking government to do more and more without putting pressure on the private sector. And that has led to socialization of risk, privatization of rewards.
MR. PAVEL: Thank you very much, Mariana. Why don't we turn to Anne Marie next and then Matt, and then I'll ask each of you a few questions after that?
ANNE MARIE SLAUGHTER: All right. So we're all going to answer your questions but indirectly, which means we – let me – I want to actually shift to sort of more specific technologies which I think will build on that presentation.
New America was founded in 1999 in part to try to write the blueprint from the industrial age to the digital age, seeing the way – the impact that information technology has on everything we do, as you all – everybody holding a phone can see that. But it changes the way we work. It changes the way we live. It changes the way we relate to each other. We're all walking down the street connected to people halfway around the world and tripping over each other because no one sees the people right around them. And those kinds of changes then create massive social, economic and political adjustments.
So that's the backdrop, but what I want to do is talk about my three nightmares and three much rosier scenarios, talking about specific technologies.
So let me start at the individual level. And I think a lot about the future of war. General Scowcroft started us off. And what I look at when I think about the future of war is the miniaturization of drones to the size, say, as one of my scholar friends puts it, a spider in your bathtub. Is that a spider? Which would not be very welcome to me in my bathtub even so, but it would be a lot more welcome than a drone that looks like a spider and can deliver some kind of lethal, either poison or electricity or anything else.
That is not a farfetched vision at all. We can already miniaturize drones in all sorts of ways. And if you just take it one or two steps forward and imagine a warfare that is increasingly individualized, as we can target individuals – if we can target them from the skies, why can't we target them in other ways?
But of course, when I say "we," I'm talking about the United States. Eighty countries already have drone programs. So that's one of my nightmare scenarios. Eighty countries with drones, take that to 140 countries with drones and the miniaturization of drones.
Then let's talk about sort of at the community level and what I look at when I'm feeling particularly dark. And I have a number of technologists upstairs and they feed these fears. But you know, we keep talking about the end of privacy already. I don't think we've seen anything yet. You just have to think about walking around with people who have Google Glass, who are wearing Google Glass all the time and all the places you walk around with people and all the things they can see. And it becomes very uncomfortable very quickly.
But then, imagine, you know, drones with very advanced spying capabilities, and again, miniaturized. My crew's made a drone. Frank Fukuyama wrote about making a drone. But imagine that they can look right through your curtains, right, which is very likely. You're not even safe in your house in the sense of what people will be able to see.
And finally, think about the Internet of things, right, that everything in your house is connected, right? You've read about this. Your alarm clock goes off and it starts the coffee pot. And the refrigerator opens up and the bacon comes out and the stove turns on. I mean, you still need some hands, but very little. But think about all that data that of course will not just be available to you. It will be available to any of your neighbors to begin with or anyone outside.
If you click on, you know, you start up your computer now, you see all your neighbors' internet – wireless services, right? Well, now you will be able to see much, much more than that. So that's my second lovely scenario.
And the third is – and I'm moving from individual to community to world – is looking at a world that looks like the current geographical world, but at the Internet level, so really thinking about the balkanization of the Internet. You know, we are at so early on in the age of the Internet. We're about at Model T at best, right, if you think about how cars have developed. And so the idea that, well, it's all free and, you know, we simply transcend national borders, well, that was also true for radio in its early days, right, and television in its early days. A lot of these technologies started out as something amateurs did and they were free and unfettered, and then they became increasingly regulated.
It is not a joke when Dilma Rousseff says she wants a Brazil-only Internet or when the Germans say we want to make sure that our emails only go through German servers. That's a disaster. It's a disaster for the United States because it's our companies that will be hurt the most. And it isn't just Google and Facebook and Apple. It's companies like GE that store data and sell it, right, who are increasingly dependent on their data business, as well as their other businesses.
So that's the third area where the ability to actually privatize or nationalize parts of the Internet is a – it's a real nightmare and it's not so far in the future unless we act promptly.
All right. Now, that I've gotten you thoroughly depressed, I will turn to three rosier scenarios and end with at least one suggestion about what we need to do to be ready.
So on the positive side, I do see an era of far more self-reliance. Right, we're already much more self-reliant in the sense we carry around encyclopedias with us. And I don't know about you, but there is no dinner at my household that does not end up with googling something or several things. It's done wonders for my marriage, because there were actually factual responses to many of these questions. (Laughter.) But it's also, of course, you know, if you're sitting there talking about Nelson Mandela or Martin Luther King with your children, you can actually click and see a speech – you really are carrying, not just the sum of knowledge, but experience with you.
And if you then add all the sensors – and those are coming already, right, I've already worn a Fitbit that tells me how many steps I take and how I sleep. And there are other ones that can tell me exactly how much REM sleep I have versus shallower sleep. That's Jawbone, I'm not advertising, but there you are. If you then think about how they are going to be able to – we're going to have sensors that are going to be – allow us to take much greater charge of our health, of our physical well-being in all sorts of ways; I see a world in which we actually are much less dependent on various authorities. We still need doctors, but we're not going to need doctors for all the things we need them for now. We still – we'll need mental health experts, but again, less so than we do now – So a world where it – much more self-reliant, both at the individual level and then, let me move to the community level.
Right, so you're already seeing communities that are going off the grid, communities that are figuring out how in fact they can redevelop the kind of local ecosystems we actually moved away from, not 100 percent, because they still need to be connected to the global ecosystem, but much more so.
And the – my technologists, to give you an example, have developed something called Commotion. Commotion is a wireless community mesh communication system. That means, let's say all the think tanks in Washington, were we within 10 blocks of each other, maybe from here to Dupont Circle to 19th, we could take this technology. It's downloadable. It's free. It's open source. We could stick the routers on our rooftops and we would be connected very fast on our phones, on our computers without being connected to the Internet. And it is impervious to government spying.
Now, we've been developed this – we've developed this technology actually for dissidents in Syria and Iran and other places. I now see a very large U.S. market for same. It is free. It is actually off the Internet. So it is impervious to government surveillance. But my point is that communities are going to be able to come together to create those kinds of communication systems, and many already are. They are going to be able to rebuild the kinds of communities we once took for granted that technology's actually taken us away from. And that's going to be in communications, in agriculture, in community health, community response, all sorts of areas that actually have been eroded.
And finally, I want to end with a vision of what technology does for us in terms of power; specifically American power. So I've argued for four years, now five years, that in a networked world, power should be measured as much in terms of connectedness as in terms of the size of your military, the size of your population, your territory, your economy – that in a networked world it's not about who's at the top so much as who's at the center. And we just had a wonderful display of this kind of power in the "Foreign Policy" Global Thinkers issue, the 100 Global Thinkers that just came out this week. And halfway through, there is a map of all communications in terms of how much they reference the United States or Europe or Africa or other continents. And it is absolutely fascinating.
It includes things like all the sports commentaries down here in the lower right in pink and all the celebrity commentary, because these are their own closed communication systems are down on lower – are up on the lower left in yellow. But what you can see, and this is where I'll leave you, you can map soft power. The United States and the amount of communication about the United States and to and from the United States takes up a third to a half of the total map. You can see it. You can actually map soft power – the kind of power that goes through communications about – in terms of products, in terms of reputation, in terms of all the different flows that we know are critical, but have never been able to measure.
So the last thing I will leave you is a way – a different way of thinking about power and mapping it.
Last point. What do we need to be able to do any of this? You need minimum digital literacy. In the academy, I was treated as a technological wizard because I could use Twitter. (Laughter.) That's not true in the engineering school; let me be clear, but among social scientists. But, you know, I was dean of a public policy school. We teach everybody microeconomics and macroeconomics and statistics and politics of public policy and psychology. It is insane that we do not teach them basic coding, right? The idea that we're going to send people into a world in which these technologies are going to determine how much we have, our positive scenarios, our negative scenarios, and we really don't understand the least thing about them, most of us.
Again, maybe this audience isn't – it's Strategic Foresight, so you may be a little more literate. But basic digital literacy has to be built into our educational systems in the same way that basic grammar and basic math are built into those systems. And I'll leave it there.
MR. PAVEL: Thank you very much, Anne Marie. You've given us a lot to think about.
I'm going to turn to Matt Burrows for his views and then we'll mix it up a little.
MATTHEW BURROWS: So I come at this in a slightly different way, but maybe end up exactly where Mariana and Anne Marie are. I start – you know – given I was the author on the "Global Trends," looking at what are the big global challenges that all of us face. And for me, I mean, some of these are – and I'll just give you a list of at least four. First is subject of human development and social development in the world.
I mean, we are at this point where you actually can see a world in which you don't have that much poverty, if any poverty. I mean, that is conceivable and that's really something that nobody – you know, none of our forebears could say. And a lot of this has to deal with the IT technology that we've already seen happen, the stuff that Anne Marie was talking about on really individual empowerment, which is how we labeled it in the work. But this is – you know – it's been a huge – first, something that we didn't anticipate. I can still remember being in Africa on several different visits. The latest one, actually, where you just see this happening and see them become the innovators in technology, the way they use mobile banking, which we don't in this country.
And somebody told me, you know, really this technology allows us to get around inefficient government. And that is, you know, one of the – I'd say the – one of the characteristics and one of the key characteristics of these new technologies is the fact that they do provide this empowerment for individuals.
So – you know – human development is one. The next on my list would be urbanization. I mean, we are at this – again, at point – 50 percent now urbanized on this planet. We'll be up to 60-70. Now, we have a couple of the nightmare scenarios out there. I mean, we can see how this can happen in an awful sort of way and lead to actually much more instability and undo a lot of the progress that we've made. And we also know that if we don't get – remake this infrastructure now, it won't be, you know, 10 or 15 years down the road. They won't have the ability to completely renovate it. It'd be too costly.
So – and this is actually an opportunity for us. We have the – in many cases we have the technology. We talk about it in the work about smart cities. This is something that we actually can put in place. And you know, I guess going back to this first theme on individual empowerment, a lot of the cities are just – are doing that. They're not waiting for national governments particularly to help them on that. And for my money, that's great. And that's what actually we should be applauding. But there are countries and cities and so on which are not necessarily on this path. And that's actually something that, you know, within government we should be thinking about.
The next one is the green economies. And I guess that's where I'm a little worried and that's where in the report we are a little worried. We've had this huge bonanza with shale. And as we state in the report, I mean, we're worried that we're going to get really stalled on that. It's such a great thing. I mean, it lowers our price for natural gas and maybe oil down the road. It means, you know – and we have many more supplies of it. It gives us a competitive advantage in this country. It probably is a thing that other countries are down the road are going to also venture into because they see the economic advantages and benefits.
But as we know, and as we know, too, from the climate change studies that this is actually not good news over the long run. It's good news in the short run to the extent that we can get ourselves out of coal. But if it isn't a bridge to really developing the green economies, then unfortunately this bonanza may actually turn into a disadvantage. And that is something that I worry about. I mean, this is more on the negative side.
The next thing is on the aging. And you could also say this is part of the human development. I mean, we talk about and we talked about in the work, I mean, the fact that the whole world will be not worried about the communicable diseases as much. It's more going to be the chronic diseases in the future. We talk about it in Africa the elimination of things like malaria, in the move – they're already beginning to plan for that, that is going to be much more the chronic diseases, those diseases that we know of.
And we also know that, you know, we have an aging – where we'll have an aging problem. So how to increase the quality of life in those senior years. And we have, I think this is the biggest breakthrough actually that we've seen in the last decade or so, the beginnings of this biotech revolution that we described in the work, huge benefits for this I think all around.
There are some real nightmare scenarios and we talk about those as well. The use that – in this – terrorists and others can put biotech. And it's something that we really have to begin to think about how you make sure that this doesn't happen – that the biotech doesn't fall into the wrong hands because, again, it's something that can undo everything that we have worked for, all the progress that has really been made.
My final comment – and this is where I think it gets back and loops in all of our issues – is really on government. And I think – I'm not so much worried about where the U.S. stands at the moment, but I am worried about really the inability within government – you could say, too, within some of the institutions, some of the financial institutions, how to really think about these gifts that we really have and are getting from technology.
I mean, Anne Marie has a story about the academe, but you could talk actually about government on – in Twitter. I mean, how long did it take the State Department to really authorize senior officials to use Twitter?
MS. SLAUGHTER: Absolutely.
MR. BURROWS: And certainly in the intel world, it's still non-existent. And you know, they hope to keep it that way, but more importantly I don't think we actually factor this into our analysis. This is not – we're not thinking about technologies that much when we're thinking – trying to think about solutions. And equally, we're not thinking about what are some of the negative side effects in order to put in those measures to prevent it from turning negative.
And I – you know – I don't think anybody actually is working on that, either, about how you begin to rethink government organizations, maybe financial institutions in order to actually maximize the benefits from this really wonderful time that we live in.
And with that I'll end it.
MR. PAVEL: Thanks very much, Matt.
Let me ask each of you a very broad question. Then, I'll dig in a little bit, and then I'll turn to the audience, so please start raising your hand if you have a question.
This panel is called "A Race Against Time." And it's really about, you know, trying to solve – use technology to solve some of the greatest challenges before us. But there's also another race going on that each of you kind of touched on, and that is between individual and nation-states or governments. And in some cases, that race is very, very daunting. We saw protests turning a bit violent in Ukraine over the weekend. And we've certainly seen other contests between individuals and states in either oppressive conditions or in more permissive circumstances.
But the question I sort of have more broadly, and you can come at this in different ways, is who's going to win this? I mean, are these technologies going to benefit individuals more, and so the emphasis is on individual empowerment relative to states? Or will states using big data and surveillance and biotech, you know, perhaps biometrics, will states gain the upper hand in particular in societies that are oppressed?
I mean, how do you see this playing out? Will there be clear winners and losers in this regard or will it sort of keep going in an unending cycle?
MS. SLAUGHTER: Since we're all – everybody seems so anxious to dive in – you know, I think – I don't – I think there's always the back and forth. A lot of the scenarios I described – think about the original one with the miniaturization of drones, that creates a greater need for government, right, a much greater need. If government's fundamental function is to protect human beings from each other – and we've never seen a society other – really never a society that there isn't some form of government to do that, even if it's just a council of elders that's the basic social contract. So it seems to me the more complicated the technology gets, yes, it empowers us enormously, but it also empowers us to do terrible things to each other. And we need government to prevent us from doing that, to police us.
What I do think, though, is it allows communities to redefine themselves. In other words, it's easier for smaller communities to provide the kind of protection of their citizens that once they might have needed to be, you know, part of a large – the biggest lord in town, you needed his army to protect you. Now, it's not clear to me that Catalonia or Scotland or any number of communities and much smaller ones can actually be sustainable and survivable on their own.
MR. BURROWS: I mean, I think I'm – you know, share a lot of Anne Marie's feelings. I mean, I go back to the Gutenberg Bible. I mean, I think here is, you know, big technological leap. And you had this, you know, obviously initially it was Protestant dissidents that got a huge boost from it. But you know, the Catholic Church also learned how to use the printing press to publish missionary tracts and use it actually to get a little bit of its own back.
But over time I think you have this trend of really individual empowerment. But I do think it's – here, again, it's – the state has to begin to think about how do you maximize those benefits because the individual empowerment, in the end, for your society is really a good thing. You know, the fact that now with these technologies it's Habious (ph) and others who are actually pushing forward the frontiers, I mean, that is a great thing, and we should be, you know, encouraging, enabling.
But you have to be – from the state perspective, I mean, you've got to now be a lot more conversant with what it's happening in that world and you actually have to be inventive to think about how you actually prevent the worst from happening.
And I do think we are seeing that. I mean, you mentioned a visit we had at MIT, and they are trying to work both with government agencies like the FBI, but also with scientists and others to begin to think about how you put a security strategy in place to prevent the worst coming out of the biotech revolution.
So it is not just the heavy-handed of the government saying, thou shalt not talk to, you know, all these people, or we keep thee, the science, just within, you know, certain labs or within certain licensed universities, but how do you actually figure out who is doing the bad stuff and really isolate that node or whatever or clamp down on them completely.
And it's actually using now, you know, the scientists in place, who are probably better – understand this better than the FBI, who has the potential also. And that's what we really begin – have to begin to think about how do you – you know, these inventive solutions. And I'd say the government isn't quite prepared. I mean, one thing is it's still very hierarchical. It has a hard time doing – you mentioned these public-private partnerships. It's still very hard for governments to do that, particularly I'd say, in the foreign policy establishment.
MR. PAVEL: So let me just push a little bit on this.
MS. MAZZUCATO: Can I answer the question as well?
MR. PAVEL: Oh, I'm sorry. I wasn't sure – I saw you taking notes. I wasn't sure if you were.
MS. MAZZUCATO: No, I mean, see, my whole point in some ways is that the way we even talk about the state versus market, state versus individual is actually based on these myths. I mean, the best book to read on this, by the way – Karl Polanyi wrote this a long time, in "The History of Markets." And they were from the start, from the beginning of capitalism, deeply embedded with the state. The state actually imposed the national market, which is different from the local and international market.
But for sure, with innovation what we see is that the state has played sort of a lead engine role in shale, which you mentioned. The real problem with shale is that because we don't admit the state as an engine, and, at best as just a facilitator, we didn't actually have proper debate about that direction, right, because we do have the debate, if you think about it, with the debt, right. We say our grandchildren are going to have to pay interest, blah, blah, blah. Well, what about grandchildren having to pay, you know, the costs of shale having basically stunted now the investments in renewables, right? Why not have that debate? Why should we have it? Because the actually did shale. It was 100 percent government-funded, right? I talk about this in my book, but also the Breakthrough Institute, I think you guys mentioned that as well.
And so that's what's missing really. And in my institute at the University of Sussex, there's a whole program that's talking about this in terms of directionality. We don't even have the data of why it is – within biotech, within IT, the direction of research is going sort of one way instead of another. And why should we care? Because it's taxpayer funded, OK?
And so this is – I mean, you know, I think we just need to be a bit more granular and less sort of black and white when we talk about sort of the state versus an individual. And, you know, I mean, again, every technology behind the iPhone – every single one of them that makes the iPhone smart and not stupid was government funded.
Now, once we admit that – and I'm just going to assume we all agree with that, sometimes of late – I know, DARPA did nothing for the Internet. I'm sure. OK. We'll debate this I guess because he's shaking his head, but if we admit that, and that's a big if, then we really have to make sure there's really the kind of debate we're having about the debt with the direction of these technologies because they are taxpayer funded.
MR. PAVEL: You raise a – you're leading me to ask you a different question now. So, I mean, one of the key framing questions for this discussion was, is the U.S. losing its edge? I mean, with sequestration, with budget cuts as far as the eye can see, if indeed the U.S. government has been the primary funder, innovator, engine of all of the technological advances that we're enjoying right now, what does the current fiscal climate mean for what's coming, both for the United States, but also, are there other countries that are investing what's needed? And maybe we can engage in some sort of partnership where that's appropriate, where we can work together with advanced countries to make up for what looks like a pretty precipitous drop coming in U.S. funding for future innovations.
I mean, what's your view on that, Mariana?
MS. MAZZUCATO: So Joseph Schumpeter, he's the big thinker, right, about innovation. He's the guy who coined the word creative destruction, right, so – disruption. And what he said was that the banker is the ephor of innovation capitalism because innovation has to be financed, OK? Who's going to fund this stuff?
And this is where the U.S. currently has a big dilemma because, on the one hand, you have – well, so the issue with finance is not any kind of finance. There's plenty of finance out there, right? You know, in the private sector there's something like close to two trillion today in the U.S. – dollars – being hoarded, not being spent. It's there but it's not being spent. And, as we know, the public sector can sort of create money out of thin air so, in theory, it can do it. And it has been doing it worldwide this whole quantitative easing thing, right, that happens.
Now, the problem is that it's not the quantity. It's the quality and also the direction. So quantitative easing, most of it has just ended up in the banks, but also the kind of finance that's out there, private finance, is pretty impatient. What innovation requires is patient, long-term committed finance.
Now, what the U.S. public agencies have supplied in the past, and by that I mean the NIH, DARPA, you know, SBIR, NSS, blah, blah, blah – it's this decentralized sort of network state in the U.S. is now this top down ministry, right, Big Brother. That's basically what created lots of the Silicon Valley stuff.
It's under threat because of the sequestration but also in the – let me say – it's under threat, but also then the private sector it's not playing the role that it did in the past so we don't have the Xerox PARCs. We don't have the Bell Labs today alongside the private sector. And they're basically getting off the hook. So even today, when we're back talking about innovation policy and industrial policy, which is really a blasphemy in most parts of the world, including the U.S. up until recently, the real question is, again, how to build these ecosystems.
And I think that, you know, what's interesting, if you look around the world, like in China, where the China Development Bank alone has provided something like two-thirds of the funding for renewable energy worldwide. The data for this, by the way, is Bloomberg New Energy Finance. They actually calculated all the money coming out of private equity, venture capital, corporate money and the stock market. In one year, in 2012, that came out to 12.5 billion (dollars). Take just the state development banks, right, so the China Development Bank, KFW, European Investment Bank, and BNDS in Brazil, those are the lead development banks, you add their spending on renewable energy, 109 billion (dollars), OK? That's not even counting the DOE and the U.S. which we know spends a lot on renewable energy.
And so this question of what kind of finance around the world, different types – in some countries it is investment banks, statement investment bank; in some countries, it is these public funding agencies, the problem is that in some of the places like the U.S., that were really the lead players in the past, those public funding agencies today are, you know, massively under threat. And the problem is they haven't been recognized for what they've done. Even the whole "Obamacare" thing I found fascinating but no one told Obama what he should have done was to just inform the American people what the U.S. has actually has done with health care.
The U.S. government doesn't just meddle in your health care regulating and thinking about, you know, sort of distributional issues. It created the drugs. Seventy-five percent of new molecular entities with priority rating, which are the revolutionary drugs, have come out of NIH funding. People don't know that. I'm not saying if they knew it, that would have changed everything with Obamacare, but the language that would have been used to debate it coming back to the whole debate question, would have been different, right? The government has been one of, alongside the private sector, the creators, engines. And it no longer will be given the kind of, you know, threats that the public funding bodies are under.
But, for sure, the whole China thing is fascinating because in telecommunications, for example, Huawei, number one in the world, is being accused by the U.S. as being – you know, having gotten too much money, right, so it's anti-competitive because they know how much money they got from the China Development Bank, which is something like 60 billion (dollars). That's a massive loan. And yet, that's the kind of financing you need nowadays to compete on innovation, to be in the leading edge. So on the one hand, you know need that patient, long-term committed finance. Increasingly it's coming from the public sector, as the private sector has been increasingly sort of short-termist, and then it gets accused of anti-competitiveness.
So we really have to rethink competition policy and admit how much money U.S. corporations have actually gotten from the public sector. It hasn't been through an investment bank.
MS. SLAUGHTER: Just two thoughts on that. One, I think when we talk about sequestration, what we should focus on is the impact on military spending, right, because an awful lot of the government investment in basic research was also defense related spending in basic research. So that's one thing just to look at where the cuts fall and where a lot – it was a government-university nexus, and our universities are very nervous that the cuts in basic spending are coming, but the one question is, you know, if a military rivalry with China or others – (audio break) – back up, I think you'll see that spending coming back up. I'm not sure where that's where I would want to invest the most, but it has driven a lot of technology.
But the one place I might take issue is I don't have the same expertise you do to know whether we're investing enough in new technologies, but I'd say for technologies that are new but still developing, we may not have Bell Labs, but, my goodness, we have – you know, every day we have small start-ups that are pushing the envelope, that are gobbled up by bigger corporations. I mean, it's hard for me to imagine that in terms of what you can do with open source technology and with technologies that's small – the private sector is working on, that we're not producing at least the same amount of innovation from our tech industry that we used to be from the telecommunications, maybe not, but –
MS. MAZZUCATO: They surfed. I mean, what would Facebook, Amazon, or Google be within the Internet? So the question is, again, who's going to fund the next Google?
MS. SLAUGHTER: No, no. And I'm agreeing with you there. I'm just looking at the rate of – tremendous rate of innovation that is – once that's up and running, what is coming.
MS. MAZZUCATO: It's not coming from the small companies. So if you look at the – both the patents but also job creation, which is what we care about, next job creation –
MS. SLAUGHTER: No. No. That I agree.
MS. MAZZUCATO: – it's not coming from SMEs. And most of the innovation is also not coming – sorry, SMEs, that's what we use in the U.K., small medium enterprises. Yeah. So there's huge amount of attrition, which is what we want, right? I mean, that's the whole thing, welcome failure. There's going to be a lot of failure.
But what we know is that these high-growth innovative companies, the gazelles – don't ask me why they call them gazelles because they're animals that eat grass and all the sudden run and they're getting eaten by a lion. Anyway. That the ones that we know today, like, again, the Facebooks, the – you know, Googles, the Twitters have either directly benefited from government finance – again, you know, Compaq, Intel, Apple got 500,000 (dollars) from SBIC and SBIIR – and that kind of money is under threat. So it's – it hasn't ever been just the genius garage tinkerer.
You know, this is the problem with Steve Jobs' wonderful biography, which I read page – you know, it's great, but there's not one line in there that admits the kind of public funding behind the iPhone, iPad and all that stuff. So I have two whole chapters in my book just on that, just to set the record straight.
So he's right. You know, be hungry, be foolish, but in Europe, we're going to stay foolish because we don't have – we are hungry and foolish on top of no wave because when Europe looked at Silicon Valley, and said, where are our Googles? Where are the European Googles? They said, oh, we don't have venture capital. So there's all this great venture capital money. And what's venture capital going to do if they have no wave to surf? And that's the big problem. Where's the wave going to come from?
MR. PAVEL: That's a very important point.
Let me return to this question I hinted at before, and then this is the last question and then I'll turn to some questions that have already come up from the audience.
We spent a little bit of time here on values, trans-Atlantic values, and this trend of individual empowerment undergirded by these advancing technologies and the growth of the global middle class seems really significant for some of the issues that we've been discussing.
And, in particular, I want to press you, with all of this new individual empowerment, with individuals everywhere aware of what's going on in other societies, they see other populations getting with dignity and with justice and rule of law, what is the future of sort of autocratic regimes and what's the future of tyranny even?
I mean, do – how will this play out? Will we see more restive populations not just in parts of the Middle East and North Africa, but will this be spreading, because of the trends you've been discussing, to Central Asia, to the Persian Gulf, to China? I mean, where do you see sort of this individual empowerment trend sort of playing out? And, Anne Marie, you talked about a lot of this and so I was curious to your views on that.
MS. SLAUGHTER: So, again, I guess I don't – I see the long-term secular trend is still in the direction of democratization, without any question. I mean, if you really look at it, you know, let's start in 1776 and move forward but even in the last 10 years, 20 years.
So I think over the longer term, the individual empowerment wins out over government power, but with plenty of bumps still left in the road. I would recommend Will Dobson's "The Dictator's Learning Curve," which is a marvelous book about precisely how individual protesters and dissidents learn to use these technologies to get out ahead of government. But, of course, government catches up very quickly, and governments – autocratic governments teach each other how to do this.
But even more importantly, which I think we don't focus on so much, is the selectivity and the nuance of the way a Chinese government or a Russian government or other governments are now practicing censorship or imprisonment, but only of some people, not of everybody, in ways that, A, have demonstration effects, and B, often, for instance, if you look at the Chinese censorship system – you know, there are more Internet users in China than anywhere else in the world, right? And they are very actively talking on the Internet – the Chinese call them the netizens – participating in all sorts of ways. So there's a huge amount that they can do and the things that they can't are much more selective.
So I think there, there's no question that government – that that sort of back and forth of individuals getting out front and governments catching up and surpassing in the short and medium term is still very much alive. Long-term, I just I bet on what I do see as a larger trend in favor of individuals.
MR. BURROWS: I think – you know, I'll just add here that one of the things you have to keep in mind is that with this individual empowerment, for a lot of people, their racial or religious or ethnic identity actually means more to them than the national one.
So one of the things that – you know, when we did the global trends, a lot of our partners overseas worried about really was fragmentation and conflict, and you could see that also in I would say the short to medium term, I mean, is that that had – the empowering effect really had that, you know, I'd say a negative in terms of conflict because that certainly was – you know, certainly, even in the Middle East, you could see that the IT revolution actually did, you know, make those divisions actually much more prominent.
MS. MAZZUCATO: Well, I was just going to say, I don't know if people noticed – of course, they did so I'm just being – how do you say – facetious – there was huge demonstrations in the U.S. and what they were about was the kind of inequality. I mean, since 1980, the share of GDP going to wages has fallen by 10 percentage points. That's massive.
And if you think that's just because of what Boris Johnson said in London, you know, differences in IQ, fine. Then we don't have a problem. If you think it's because of the ability of a small group of actors that have a role, but they're not the only ones who have a role in generating economic growth, to get back if you want to, claw back much more than they're actually putting in in terms of risk-taking – I mean, let's just focus on innovation, but then we do have a problem.
And my argument is that that problem is that value extraction dynamic is hurting innovation, OK, because it's not filling up, you know, for example, the public sector funds that have funded so much of it, but also is fueling inequality. And inequality in the social fabric of society is, as we know, fundamental. But also it's hurting the pool of innovators, right? I mean, who's going to be, you know, the genius? It's going to be from all sorts of class backgrounds. And so if we're hurting, you know, the opportunities to all classes, obviously, that's a problem.
MR. PAVEL: Thanks very much. And now we'll turn to questions from the audience. I do have a first question here from Randy Fort. And if those who ask questions can identify yourselves briefly, and, in particular, make them questions, that would be great.
Q: Thanks, Barry. Randy Fort with Raytheon. Matt, you gave a little bit of an analysis, a diagnosis of the government problems in dealing with this hierarchical and bureaucratic and so forth, and we didn't even touch on government acquisition systems which guarantee that if it takes five years to get a piece of new technology, then you're automatically two and a half generations obsolete before it ever – you know, hits a government hand.
So how should we think about looking forward how the government should be organized, U.S. or otherwise, to take advantage of these technologies, to be able to assimilate them, to be able to acquire them and get them into their hands within a cycle of the technology being still relevant, decision-making that will keep up with Moore's law kinds of changes, decision-making at network speed – that kind of thing? What should the government be looking like going forward?
MR. BURROWS: Well, I think one of the things – and this was – you know, Leon Fuerth has done a lot of work on this, is you place – certainly, this was looking in the foreign policy and some of the domestic policy processes that you place right at the decision-making table a director who has that knowledge and vision – excuse me – about what those various trends are looking at, so you can talk about much more long-term implications of the decisions that you're taking. And I don't think – you know, I'm not sure we're talking here about huge numbers of people. I think you do need a devoted cell within various agencies that are really – their mission really is to look long-term and also laterally across the different realms and have that access at the very top so that, you know, they're not excluded when you have the decision-making.
And then, I think – you know, one of the other things is somehow we also have to get this into other parts of the government. I mean, you know, from a private citizen point of view, Congress is one of those places that doesn't seem to have – now, there are individual congressmen I know who do, but don't have this broader, longer term perspective that includes a lot of the new technologies.
MS. MAZZUCATO: Just one point with that, which I think is really important question, is that whereas with, say, the microchip, lots of the initial dynamic with Moore's law was in fact due to government procurement. There's much less opportunities actually for government procurement – well, it depends actually, but anyway – with the big missions that you were talking about, you know, whether it's the demographic problem, the aging, you know, issue. But even with climate, you know, with renewable energy, there's just less of an obvious link there than there has been in the past with governmental purchasing lots of this equipment. So what are the products, you know, at the end of the – (audio break) – around these new challenges is an issue.
MR. PAVEL: Thanks very much. I think we had another question in the fourth row here.
Q: Thank you very much. Excellent discussion. So one thing that surprised me –
MR. PAVEL: Can you identify yourself?
Q: Yeah. Steve Gale from the U.S. Agency for International Development. So I was a little surprised that no one talked about – maybe it's embedded in empowerment, but the revolutions that are going on in education because it seems to me that fits very nicely into empowerment, and, you know, if you read enough of what's going on, education is being totally revamped. So I'd be curious about your thoughts on that.
MR. PAVEL: Great question.
MS. SLAUGHTER: Yeah. That's exactly right. And, actually, when I was talking about self-reliance and needing doctors less than we used to, although still needing them but needing them in different ways, I would have said very much the same about teachers, probably even professors.
But the – you know, when I look at the way my teenage sons learn, they really do think that they're getting much more from the Khan Academy or from the Internet generally than they are in their classrooms. And they also have the notion that, you know, they can learn as far as they want to go through either publicly available knowledge or paying a fee but it's a much smaller fee.
So I think two things that would change dramatically. One is absolutely people are going to be able to customize educational courses the way you now customize your playlist, right, as opposed to taking a fixed curriculum, although you'll still need certification, and education will become much more lifelong. I mean, the idea that you get your education from 18 to 22 or 18 to 26 is because we assumed you had to move somewhere to do it. So you had to do it before you settled down and had kids and a mortgage, et cetera. But if you can, you know, essentially be somewhere for a certain amount of time and do the rest of it electronically, you can be educated at 50 as easily as 25.
MR. PAVEL: Thanks. We have a question in the back there. And the mic is coming. Yes.
Q: Thank you. Sinan Chi (ph) from Georgetown University. I wonder if any of the panelists can talk a little bit more about the role of technology in national security, especially by the empowerment of intelligence service. It seems to me that technology is not obviously a constructive role in building mutual trust among countries, especially if one side has the power to monitor or intervene in communications abroad.
So my question is: Does the government have a moral responsibility to harness the disruptive use of intelligence technology or is there like a larger question of redefining national security, national interest to justify the current use of this technology? Thank you.
MS. SLAUGHTER (?): Matt, you should start.
MR. BURROWS: Well, you know, as somebody in the intelligence community told me, I mean, this is the golden age of intelligence collection. I mean, there's been, you know, far more collection than anybody assumed possible. And I've, you know, lived through a couple of generations when there was really a feeling that we couldn't collect as much as we could. I mean, the IT revolution in that sense has empowered the state.
My, you know, answer would be that obviously, as we've talked about, I mean, there are those elements, both in our society and others in which – (audio break) – harm. And so the degree to which you use this technology to identify those and be able to prevent, you know, major terrorist or insurgent attacks, I mean, that is I think a good use for the technology.
I think where the problem is I think currently is that the understanding of what capabilities those new technologies have provided the government and also, you know, provided corporations, advertisers, et cetera – that is not well understood. And now, we have the job actually of talking about what should be acceptable use or not. And that does need to be debated and you do need to have a certain level of transparency.
You know, the agencies – of course, we're getting more of this from the Guardian now but the agencies itself have to – and the administration have to begin to talk about what those capabilities are, what is accepted practice, and get that out and debate it. And I think, you know, it's an opportunity actually to – I would see it within government and also within the intelligence community to begin to think about what should be the rules of the – the new rules of the road.
MS. MAZZUCATO: When in Europe, I say, we shouldn't do what the U.S. says it does but what it actually did, you know. And then I give the examples like the iPhone or the Internet touchscreen, you know, GPS, Siri, all funded by government. There was – oh, but you're talking about the military industrial complex, you know. And, you know, that's kind of seen as bad. But, in fact, that ended up, you know, providing a model through which all the other missions were actually, you know, set up.
So NIH, the National Institutes of Health are the second in the U.S. after the Department of Defense in spending, and, you know, the kind of money I talked about before, 32 billion (dollars) a year in biotech and pharma, Department of Energy. So really what the question also is, is how to not – you know, in a – how do you say, how to creatively also think about the big missions also, but not only in terms of security. But what's really interesting is how, you know, the DOE recently was run by a Nobel Prize-winning physicist. And the level of excitement that actually comes into these agencies when they are talked about as missions, security related or not, does actually I think have a direct relationship with the kind of expertise, the kind of dynamism, the kind of welcoming failure, I mean, you know, the kind of stuff that DARPA has done so successfully, which is bring people in through – (inaudible) – top experts, again, Nobel Prize-winning material, is actually something that hasn't happened in Europe, where they haven't had this sort of mission-driven approach.
But I think it's wrong to assume that it's always been through sort of the military industrial complex. That ended up providing a very interesting model which has been extended to health and energy, not just defense.
MS. SLAUGHTER: So we do need a code of conduct. And the first – the first rule has to be – it is what you can collection is not what you should collect. In other words, what you do collect should not be coextensive with your capability, but with a national security justification.
And we're going to have to develop those justifications. And they will be imperfect. Lots of people will cheat, as lots of people always have. But we'll also see a steady stream of disclosures. We've had three years – we've had WikiLeaks and the PRISM, the Snowden disclosures. That will just keep continuing and it will not just continue from the U.S. Every government has to know that there are people in the government that can expose its secrets. So if we develop a code of conduct, it's not just going to be governments accusing governments. There will be regular bouts of, are you complying with these rules? And here's the evidence as to where you are or not.
MR. PAVEL: Yeah. Matt said it's the golden age of collection. It's also the golden age of revelations.
MS. SLAUGHTER: Exactly.
MR. PAVEL: I think. And that's a really important design point. I had a question in the middle, right there. Thank you.
Q: Thank you very much. My name is Tony Velocci. I recently retired as editor-in-chief of Aviation Week and Space Technology magazine. You asked the question, is the U.S. at risk of losing its technological edge – I'm not sure we got much of an answer from the panel members on that point, but your question implies that the rate of innovation nationally is important relative to its rivals globally.
And if that's the case, if the rate of innovation is important, how do we – if the rate is adequate or sufficient in the U.S. for the U.S. to maintain its technological leadership, how do we know whether that rate is adequate or whether we are underinvesting in R&D relative to our rivals? For that matter, how would Europe know whether it's underinvesting or the rate of – or its rate of innovation is adequate?
MR. PAVEL: So, Mariana, I think there's inputs, outputs and outcomes in this area that are important. And, certainly, there's metrics that we discussed in the report on numbers of patents and those kinds of things. But if you could talk to sort of how do you think about this, the dynamics of this question? And, certainly, Anne Marie and Matt, if you have thoughts as well.
MS. MAZZUCATO: Well, I think even in your report you show some of the patent numbers, which are I guess worrying, but the problem is patents are themselves just an input, right, where you actually want these new products. And patents are – I think the real worry with patents – let me just say this because it is a big worry is – what is being patented is increasingly upstream. We're actually patenting the tools for research. So in an era of big data and open data, we're closing down science. That's actually a huge worry for the world, not just the U.S., in terms of the future of innovation.
In terms of the U.S., what I was arguing, perhaps not clearly enough, is that the public sector that has funded so much of it is under threat because of this big sort of debate on the size of government, which shouldn't I think be about the size but the kind of government, the type of funding, what to fund, not so much, you know, some sort of debt ratio, which, as we know from the Reinhart-Rogoff stuff was just bad statistics.
But the private sector, which is incredibly important, right, again, the public-private partnerships, the data that's been coming out – for example, MIT wrote something called PIE, what it's called production from innovative economy, PIE, and they confirmed some work that we've done also at the industry level, because I worked more at sort of specific kind of four-digit SIC codes, is that the R part of R&D – so just forget the D part for now – has been falling pretty badly in some of the most innovation intensive industries, which have become – I'm sorry to put it any other way – just increasingly financialized. And there's metrics for financialization. Again, the share buybacks is just one metric, but there's other ones.
And so the question of how to de-financialize the real economy is very important in the U.S. because it is in fact the economy around the world that's most financialized in industry, OK? There's the problem of finance, but it's also a problem within industry.
And so getting – you know, thinking of ways, for example, to have conditions attached to some of this stuff that we all think is so important, right? I mean, it's not just government funding. It's saying, hey, we will be a player with you if you also sort of step up to the game. And I think the U.K. and the U.S. is where this is the biggest problem.
And so – but, anyway, in terms of the data, so the R&D, it's very hard actually to get good data on that, both because they merged the R and the D, and the real problem is on the R – not just basic, by the way. There's applied research, which is still the R. And that's my whole point before that it's not just about the public good problem, right, I mean, what you need to make a lot of this crazy stuff happen. So the next big thing after the Internet will require lots of basic research, lots of applied research and lots of direct funding to the companies that are crazy enough to be able to, you know, engage with that level of uncertainty.
And what we know from the U.S. in the past, but also places like China, Singapore, Korea, Germany, Denmark, Finland, Brazil today, is that it's actually required government to have a real handle of the whole process, which doesn't mean Big Brother handle, but, again, this network of decentralized agencies. Israel – Israel provides public venture capital money to its most innovative companies, or has. That's where they got the money. So that – you know, the fact that private finance is actually withdrawing from that process is a real problem in the U.S.
MR. PAVEL: Matt?
MR. BURROWS: I guess the way I look on it is that I think it's going to be very hard to measure innovation, particularly innovation that's happening now. But, you know, the best way maybe that we measure innovation is after the fact. And I don't think we want to be sitting here discussing how the U.S. lost its technological edge because it cut, you know, what is really not that big amount of money out of its budget. So I think – you know, the way I would look on this is that this is not a huge amount of money. Why take the risk here?
MS. SLAUGHTER: I'll just say the one thing when I hear you talking about the innovation in Singapore and Korea and Germany and Brazil, I think why should the United States be worried about that? I mean, most of our corporations are completely global at this point. They think of themselves as global corporations.
So I'm not saying there aren't some areas where we should worry, but at least to that extent, we're drawing on the pools of, you know, other governments' investment, and it's still I think in many cases either U.S. corporations or corporations deeply connected to U.S. corporations. It's hard for me to see how you sort of out the national edge in all that.
MS. MAZZUCATO: Oh, yeah. I'm not arguing the national edge. I mean, again, green tech is a global problem, right, I mean, the investment of renewable energy. So it's good that we have a diverse group of countries that are actually operating countercyclically and not procyclically, which is the real problem we have today, right?
MR. PAVEL: Thanks. We have a question in the third row here.
Q: Yeah. I'm Dick Van Atta from the Institute for Defense Analyses, and I've done a lot of work looking at DARPA for DARPA as well as looking at the technology innovation processes. Dual-use commercial technologies, I ran that at the Pentagon for a few years.
But something seems to be missing in the conversation and that's the transformation – we're now talking about globalization, globalization and the implications for making national policies when the problems aren't national anymore.
What's the basis for establishing those kinds of policies – maybe the Atlantic Council is one of the mechanisms for it – but, right now, we have national policies based upon nationally focused goals of jobs, economic growth, et cetera. And economic growth is becoming a huge problem against the basic fundamentals of the dynamics of the economies where the growth is happening in other places.
So I think that something is missing in the discussion. And I see it from DOD. In the DOD, the innovation processes are broken. I'm just saying that. We do not have an ASDRE, an assistant secretary of defense for research and engineering. Zach Lemnios left, and for two years practically now, a year and a half, we haven't had a chief technology officer. We have some fundamental problems, which I think we're glossing over.
I'd just like to put the fact that the nature of the innovation processes are outstripping the U.S. focus on how to do innovation.
MR. PANEL: Panel, any thoughts on that?
MR. BURROWS: You know, I would agree with it. I think – you know, I try to – maybe I didn't do this very well, but talk about the global challenges. And, to my mind, those should be U.S. concerns as well. And the fact that if you want your partners, your friends to be doing well, these are challenges that are facing them, that we have an opportunity actually, and we underline that in the report, you know, just like after the Second World War with the Marshall Fund and so on, here is an opportunity where a lot of these technologies are – were made in the U.S. certainly where, you know, our companies have benefited from them that we can also help others. And through that, also, I would say increase our soft power – what Anne Marie was talking about.
So I think – you know, I think you're entirely right that we're not thinking through all of the opportunities. And a lot of this comes back, as we've said at the very beginning, to really how government is organized. I mean, that's a key part of this problem. It's not – you know, there are lots of very good technologies, lots of very good companies out there, and certainly lots of scientists that we've met who really want to engage and deal with these global challenges.
MS. SLAUGHTER: I'll just say one thing. I can't speak to the government part on it. I take your point, but I think you pointed to something we haven't talked about and it's worth calling out, which is the need for innovation – real, effective innovation in global governance. We do not have the ability to set policy at the level we need to set for global problems. So we're not going to have a global government, but right now, we've neither reformed our global institutions, and, you know, people debate on whether or not they can be reformed, but the networks of various kinds, the more informal approaches don't have any kind of coercive authority. So the question of innovation at that level is enormous and lacking.
MS. MAZZUCATO: Yeah. I agree. And also, I think some – you know, sometimes the elephant in the room is also just how much of government is being outsourced. And the problem with that is that you end up losing lots of the brains. I mean, when we were talking about this before, you mentioned the example of USAID, which I don't know enough about.
But, in the U.K. there was recently a fascinating thing that happened, which is that the government wanted to do its own website, right, actually wanted to compete with Google. They said it's crazy but to get a white paper you have to go to Google instead of some sort of like U.K. website. What did they do? Outsource, you know, outsource the fun stuff. Of course government can't do websites, right? So they outsource it to Serco – that should ring a bell because Obama just hired them to do the Obamacare stuff, which just kills me when I think about it. Serco produced a terrible website, static website, stupid website; charged government 25 million pounds until someone was like, what are we doing?
So they went to the BBC. Why is the BBC important? Because the BBC recently iPlayer, which is the most innovative platform for public broadcasting in-house. They had the geeks, the nerds, the coders in government, public servants, yeah, they said, can't you help us? So they brought in, you know, civil servants into government – sorry, Government Digital Services, which was the group that wanted to do this – produced a website which has now just won the most important design prize in the world. I can't remember what the design prize is, but you can read about it because the papers covered it. And it's costing government 10 times less, OK?
So bringing brains in, getting that dynamism, making it cool to work in government, bringing the coders and geeks, I think is just so important. And the only way you can do that, again, is if you have a mission. It's really hard to do it if you just see yourself as sort of there to de-risk the private sector. What you're doing is you're sharing the risks. You should also share the rewards, but to share the risks you have to know about innovation. You have to have both the scientific, the economics expertise and that's the dilemma that by outsourcing everything, we're actually killing the brain of government and we won't be able to do any of this without a smart government and smart private sector.
Q: (Off mic.)
MS. MAZZUCATO: Sorry?
Q: So you've seen today's – (off mic).
MS. MAZZUCATO: Yeah. Yeah. But that's the result of the kind of debate in this country. I mean, by the way, when I tell Europe to do what America did, I'm not talking about what America is doing now, which is pitiful. It's what America did in the heyday of when it produced Silicon Valley.
MR. PAVEL: I'm going to collect a couple of last questions and then turn to the panelists for final comments. I have the lady over there and the gentleman over there.
Q: Thank you. I'm Elizabeth Lyons from the National Science Foundation on loan to the Department of State. Yeah. And my question touches on a couple of points. You spoke a lot about empowering the individuals and the government. What concerns me is what's in between, particularly our universities.
And I've been working a lot with universities, particularly in the global sphere. And what we find is, at the university level, they often don't really know where their scientists are working around the world. They don't have strategic international plans that include science, and so they don't have the people that Matt says we need that are looking laterally and towards the future. They're struggling with MOOCs and these major trends. And they really haven't figured out what their global added value is for the universities.
So I would ask, what is your thinking on the prospectus for universities from an economic point of view, from a futurist point of view? How is it that we can keep those institutions, which are central, between the individuals and the government vital? We know they're hubs of innovation, and yet they seem to be struggling and not adapting as quickly as we might need. Thank you.
MR. PAVEL: Before you answer, let me pick up the last question from this gentleman over here.
Q: Thank you. Bill Koblezer (ph) also from the State Department. I'd like to get your sense of the implications of the accelerating scientific revolution on developing countries, countries that haven't been talked about today – the Colombias, the Chiles, the South Africa, Indonesia, Vietnam. They're also changing their investments; they're changing their policies because they feel they have to be more innovative, they have to increase their capability in science and technology. This Global Trends 2030, one of the trends they identified with this expanding middle class around the world. That's where there's going to be the biggest markets probably over the next decade, these new emerging countries. So I'd be interested in your views on the implications for this whole set of emerging countries.
MR. PAVEL: Thanks very much. So two questions, the developing countries as well as the universities and how they fit.
MS. MAZZUCATO: So just with the universities, what's fascinating – I'm not sure so clear if it's also happening in the U.S. but I think it is, but for sure in Europe, precisely in order to sort of copy the U.S., you know, they think that somehow universities have to be focusing on all this technologies transfer and actually allow all of this great science, which we have, because by all the indicators it's just as good as the U.S. one, but we're not able to sort of make that turn into products and innovation.
And so the real danger, what's happening now is we're turning these universities – we're commercializing them. Now, what I mean by that is not this whole debate about applied versus basic research, OK? What it is, is it's getting wrong the division of labor. What the U.S. had – OK, I know there's all sorts of problems with it, but there's a very clear division of labor. Top rate research done in universities and early stage technology development in companies, and then there was intermediary institutions, but it wasn't forcing the universities to do the technology development. What we have today in Europe is forcing early stage technology development in universities and it's producing very bad results.
And this is I think the real problem – that by telling the wrong story sort of what happened and how, we're getting the actors wrong and in so doing, really, you know, messing up again the underlying wave. And, you know, this whole issue about commercialization I think is very important because it constantly sort of gets down to that that problem is this Death Valley stage, and, you know, that somehow we just need to, you know, get that middle stage right. In fact, what we're not getting right is all this stuff that comes before it.
So what we have, and I think this is also true in the U.S. now, is we're pushing on a string where this emphasis on technology transfer and commercialization is pushing on the string; we're really underfunding some of the big stuff that universities should be doing, which, in the end, is actually also about education. I mean, I don't know if you – there's a great report about talent, not technology.
MS. SLAUGHTER: So I think about this a lot and, you know, our great universities are unbelievable national assets. And they are getting less funded in basic research. But there's a deeper problem, which is they really are based on a residential model. I mean, universities in other countries are not. You know, in Europe, you basically – the university's there in the city, you still live at home. That's been one of our great, great, great strengths.
But, you know, Princeton can only – you know, it's a wonderful university. We only take 2,000 students, or 6,000 total, but sort of 1,250 a year, in a global market – that's just a pittance and it's very, very expensive to do it that way.
So I think our universities have to navigate, first of all, being hubs in global intellectual academic research networks so that that map that I was imagining about communication, I would want to see a map that has the great universities of the world linked together but also what's your role in a global educational ecosystem.
But the second is every university has to be thinking about, all right, there's my residential model. There's my community/state/national model, what am I doing not only to educate the people in my city, if you're city-based, or in my state, and then there's what is my global model? And so the MOOCs, you know, people say, oh, well, you know, 50,000 people sign up and only 2,000 get a certificate, yeah, but 2,000 is larger than the size of the Princeton freshman class. So it may not be doing much by the standards of, well, you should be educating millions. It's still doing more than anyone before.
But the last thing I'll say is to get to those three models, I don't think tenure is going to survive; I don't think the kind of semester system the way we have it is going to survive; I think, you know, we're going to have to become much, much more flexible, like every other system has been.
And let me just say one word on the development or the intermediate-level countries. You know, there's a huge opportunity for many, there really is, because they are in a position, you know, to go straight to cell towers without – you know, without the landlines and without the – now, that doesn't mean – and this goes back to your point – technology itself is not the answer, right, but the technologies are there if they have an educated people to use them. But if they do, and I think Colombia is an actually very interesting example, or Chile, governments that are investing in technology and education, I think the future is much brighter than it would have been, say, 20 years ago.
MR. PAVEL: Any last words, Matt?
MR. BURROWS: Yeah. I think Bill's point actually in getting us into talking about the developing world is very important. We have a line or two in the report talking about how actually, you know, we're seeing greater productivity gains in some of the developing states than we actually saw in the U.S. in the '90s when we introduced the IT.
So, you know, they have a huge stake, one thing, in a technological revolution. But I think they could be huge beneficiaries. And, for us too, I mean – you know, from a government background, we always worried about, you know, failing states or weak states or so on. The more that, again, these states can get on the technology bandwagon, I think the better actually it is for U.S. interests.
MS. MAZZUCATO: Just on the developing country issue, I don't – (inaudible) – developing countries, so even with BRICs, some of the BRICs, let's say Brazil and China, are actually trying to do innovation and poverty alleviation at the same time. Other ones are not. And I think that's really the future, those that are actually able to think of the two things together, and also the relationships between them.
I mean, again, these state investment banks that I mentioned are funding not just innovation, but the treasury gets the money. There's massive return on equity, 21 percent return on equity of the BNDES state investment bank – the Brazilian one, sorry. And they re-plug that into the economy. And as that happens, people want more. I mean, I don't want to say that the protests are just because good things started to happen, but, you know, you don't protest when things are so terrible that you don't even have the means. Amartya Sen I think is very good on this, on the China versus India problem. And I just think it's wrong to put all the BRICs, for example, together, just because it's massively different in terms of how they think about inequities in their societies.
MR. PAVEL: I agree.
Well, before we thank our panelists, a brief announcement. We'll have a 15-minute coffee break before we return for the global strategists conversation with Fred Kempe, Espen Barth Eide and David Tennenhouse, which I'm really looking forward to. We have 3D printed coffee and sinbio (ph) water out there. (Laughter.) But please join me also in thanking our panelists for an excellent conversation. (Applause.)