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THE ATLANTIC COUNCIL OF THE UNITED STATES
BLACK SEA ENERGY & ECONOMIC FORUM 2010
SESSION V: INNOVATION POLICY AND GROWTH IN EURASIA
WELCOME AND MODERATOR:
ERIC D.K. MELBY,
FOUNDING MEMBER,
THE SCOWCROFT GROUP
PANELISTS:
ANDREW PROZES,
CEO,
LEXIS NEXIS
PAUL TWOMEY,
FORMER PRESIDENT,
ICANN
FRIDAY, OCTOBER 1, 2010
Transcript by
Federal News Service
Washington, D.C.
ERIC D.K. MELBY: (In progress) – what we hope will be the fruits of the energy trade staying here and not all ending up in Monaco or Swiss banks and things like that. And looking at what could be done, what lessons are there from other sectors elsewhere in the world that could be brought into the non-energy sector here, we have really two of the greatest, well-known experts on our panel here.
My wife, who runs information services at the IMF in Washington – she told me, I would pay to go hear these two people speaking. So we have Paul Twomey, who now runs the Argo Pacific, but for the last 10 years, was running the Internet Corporation for Assigned Names and Numbers, and probably played a big role in the fact that we all now can work around the clock and be reached no matter where we are.
And also, Andrew Prozes, the CEO of LexisNexis, which – an information service that most people rely on constantly for most of the things they do. So I think I’m going to just start off by asking a couple questions of both of you and then we’ll have a general discussion. And basically what I want to ask is, from your experience – and ask each of you to answer it – from your experience in building up businesses, what do you think is most useful in fostering entrepreneurship in countries?
And you know, what can governments do to assist? What can governments do to keep out of the way to prevent entrepreneurial – or constrain entrepreneurship? And also, what could the private sector do, and particularly taking your experiences from other parts of the world, looking into Eurasia? Paul, I want to start with you.
PAUL TWOMEY: Well, I think – just truth in advertising: I’ve been very involved with innovation policy some time back in the OECD, and also in Australia, so I’m spectacularly poorly informed about Eurasia and feel like I’m always a fraud – but one of the things that I’ve taken away from a lot of policy work in innovation policy is that the simple things matter most.
And it’s often the things that governments don’t talk about that matter most. They are having a system in which to operate, in that it has some consistency about that system. And I was a bit taken aback by one of the speakers from Georgia yesterday talking about liberty, about the way in which he was defining it, in terms of the ability of people to make their own decisions about how they can actually most maximize what they want to achieve.
That, I think, is an incredibly important thing in the business environment if you’re going to drive innovation, both for the workers – the people who want to create things – the owners. The concept they’ve got of being able to do – that this is an environment where I can actually expand and do that, that I’m not constrained by some cultural or traditional perspectives of what is my role, I think, is an incredibly important thing.
The second set of things, I think, are about what’s within the system, if you like to put it that way, and what’s consistent within the system. The issue is not what’s in the system this year or next year; it’s what’s in the system for the next 20 years because most innovation takes an incredibly long time. Innovation at the company level takes an incredibly long time.
Innovation at the, sort of, technology level takes even longer. And so it’s consistency of that system. So property rights are very important – both intellectual property rights, but simply the ability to grow the value of my business so I can sell my business to somebody else. The issues of education, of skills – what skills do I have, what educational skills do I have – I think they’re very important.
What access do I have to R&D, and what’s the R&D system that I have access to? And to what degree is the R&D system both promoted within the country, but also, importantly, the linkages between industry and businesses and others? But I’d probably finish with one point that I think is often forgotten. The sort of innovation that governments want – the sort of innovation we talk about in economic terms, I think, has two aspects to it.
One is simply business innovation, which grows efficiency across the economy. And that comes from competition. And it comes from a view about innovation that is broad-based; it’s not technologically based. There’s a tendency, in some parts of the world, to say, we’re going to do the following five industries or the following five sectors, while I think, actually, broad-based views about business innovation, process innovation, innovation between government and business is incredibly important.
And the second one, at the company level, is most people don’t know how to invent. So if you’re shifting away from process innovation and toward, actually, this other stuff governments talk about – who invented the Internet, who invented this, who invented that – the process of inventing is actually not something most people understand or know.
And helping people to figure out how to actually cast the right question that you’re trying to solve the problem for is more important than having the technical knowledge of how to do it. So a number of times I have seen really great invention, really great innovation that did not come from the – (inaudible) – at all, but it comes from the metalworkers, the metal-turners, the people who are doing practical things, who are constantly asking, what’s the problem I’m trying to solve in this building?
You know, there’s a building there. There’s an issue I need to solve. How do I solve that problem? They can do much more invention than people sitting in a lab sometimes. So there’s a lot of stuff, I think, that can be done – I suspect it’s probably applicable in this region – there’s a lot of stuff you can do for innovation that’s not about building huge R&D facilities and lots of investment into scientists, per se. It’s a lot about business processes and government-support processes.
MR. MELBY: Andrew?
ANDREW PROZES: Well, I think the question that you raised is the question that virtually every country in the world wrestles with. And I grew up in Canada and I’m a Canadian citizen. I’m also a citizen of Estonia. I’m also an American citizen, by the way. But both Canada and Estonia, if you go and talk to their government officials and ministers and so on, they all ask the same fundamental question: How can we be innovative and how can we be a player in today’s technology world?
And that’s why I asked the question about how Turkey was going to move up the value chain because it really is central, I think, to the discussion that we’re having here. So I mean, I would – in terms of the requisites that are necessary for Canada or Estonia or any country, for that matter, to become more innovative and to economically grow in today’s world and to move up the value chain – not to say that oil doesn’t help and natural resources don’t help, and Canada certainly has lots of those – but I think there’s three buckets.
One is the right environment, secondly is having educated people and thirdly is having money. And it seems to me that you could probably put all the requisites for an innovative and good-growing country – the requisites go into those three buckets. In terms of the right environment, you want the rule of law. There’s all sorts of rule-of-law indices in the world. You can go around and see where Turkey fits in the rule-of-law index.
You need a stable political environment. You need understandable regulatory systems. You need to have IP protection – intellectual property protection – in order to have innovation. And you need to have appropriate R&D encouragement and credits and all those kinds of things. So I would put all those into the first bucket, which is having the right environment.
In terms of the right people, I think we all would agree that you need to have a good educational system that produces scientific, engineering, mathematical, computer-science people to drive innovation. And as far as money is concerned, that’s a topic that can consume many, many days, but in essence, it’s having supportive credit markets and supportive capital markets, both at the private level as well as at the public level.
MR. MELBY: I want to actually open it up, since we’re a small group here, and Ian, since you’ve worked in this region, probably – certainly know the region better than us here on the panel – what, from your experience, has encouraged innovation here or, in particular, is holding it back?
Q: Well, I think, thinking about the things I’ve seen in that field, the legacy endowment of qualified technical people has really been the engine for innovation. In the former Soviet space, you had a very good secondary education system in technical fields, and this has made possible a lot of new kinds of, particularly, software programming – well, a lot relative to what existed before, when Soviet Union computers were very difficult for anybody to get their hands on.
But once that was all available, the intellectual capacity to exploit that new form of communication and technological innovation was spread pretty widely, and in each of the countries you have a little community of programmers. The Internet, obviously, has been a huge tool for overcoming barriers and distance between these little communities. And if there’s something that keeps innovators – here, I’m speaking about mostly technology. It’s interesting; the industrial innovations in a place like Russia have always come from the people who work on the shop floor, as a rule.
And even in the Soviet system, people were rewarded for coming up with new ideas. And there was a way of incentivizing people to think differently about their job, should they be so motivated. So you do see some of that, and a lot of the Russian innovations in some of the fields, like oil field services, have been recognized internationally and taken up.
But in the larger picture, I think there’s been a problem in that some of the governments, recognizing the need for diversification of their, basically, resource-based economies, have been trying to drive the innovation process from the top down. And even in the case of Russia at the moment, there’s even – it’s almost a political ideology to encourage entrepreneurial, but at the same time, state-financed innovations.
And this, I think, is not going to lead to much actual additional value added in those economies because it’s too much a top-down process. The guys working and developing new products, technologies don’t have the confidence that they’ll be able to exploit them, either because of the poor way that intellectual property rights are protected or the poor way that property rights in general are protected.
And that, I think, is the single biggest obstacle in the former Soviet space. Now, Turkey I’m not particularly informed about – how innovation policy works in this country. But I would say there are always little shoots of growth in these innovative fields in all countries. I’m always surprised, going to a place like Georgia.
Georgia has this collection of things that I didn’t even really understand, since I was not very good in high school biology, but phages. It’s a kind of – I don’t know what it is, exactly – virus. But they’re useful in the process of devising new crops and hybrid varieties of a number of plants. And this collection of these things was used to improve the agricultural productivity of the former Soviet Union.
And they’re finding that these phages can be extremely useful, have many biomedical applications that people are just starting to exploit. In Russia, there’s a similar collection of hybrid species of all important agricultural commodities. And in the future, I think this is going to be very important, this sort of biodiversity collection that they have out there. And the Timur Yazov (ph) Academy, now the Vavilov Academy, will be really useful in developing new kinds of crops for agribusiness.
So there’s always little, interesting points of light in the innovation picture, but because of the way that the state kind of sees itself as the driver of the process, instead of the provider of the proper framework and then, you know, standing back and letting it happen because, you know, in the end, it’s about entrepreneurship. It’s a slow process.
MR. TWOMEY: I mean, it strikes me that governments face this whole discussion, and you get – in countries where they’ve just got an emerging industrial base or an emerging R&D base, countries with, I think, five issues, really.
One is this issue of infant industry issues. I think probably across, at least, the little I have seen in the former Soviet Union, coming out of that school base, is that they do – they’ve got a very strong school base. But there are a couple of things that sort of begin to fall out, and so I’m thinking about industry. So we have to protect our infant industry as it gets strong.
Now, it’s not economically invalid. The United States did it throughout the 19th century. Many countries have done this “protection of infant industry” issue – keep it away from competition. The key question is, when do you transition to competition? Because competition policy is the most important driver of innovation.
And many people – particularly where, essentially, you’ve got oligopolistic economies – the pressures on policymakers from the oligopolists is that competition is going to open it up to the nasty externals. They’re going to rape and pillage us. It’s really that I want to keep the rent. There’s often a corruption element in it, but put that to one side.
But they get caught up on price. Price is only a secondary economic impact of competition policy. The most important impact of competition policies is product innovation. And so trying to get people to understand, if they want to have – you’ll get the same officials get up and say, I want to have innovation, but now, here’s all these reasons why we’ve got to protect our infant industry or why we’ve got to protect, basically, our oligopoly.
They need to think through, when do you make the transition? My own country screwed it up for 20 years. We should have had massive competition in the ’60s. We didn’t do it until the ’80s. And my own country hasn’t had a recession for 19 years, partly because of the policies put in the ’80s and partly because of the Chinese. (Laughter.) But the really interesting issue is how long that takes. But it’s about, when do you make that transition from infant industry to competition? But then, how do you ensure that the competition argument is about innovation, not about price?
The other one I think is, also, is about access to administration. And it’s not just, sort of, Internet – people love the Internet and we get caught up with the whole, you know, are they being filtered and all that sort of stuff. The most important one is public data being available for free and easily accessible.
Many of the OECD countries went through a crisis, in the ’90s and in the noughties, of being told, you should charge to make your statistics bureau some sort of profit center, or cost-recovery center. So they charged for information. It’s nuts, economically stupid. They make almost next to nothing, while the small companies and the small players who actually get most value out of the access to that public data, as well as policymakers, get deterred.
So allowing information flows is another incredibly important part of opening up information – not just Internet-type stuff, but what are you collecting in the country about data that can be shared much more? You know, I think those – there’s a bunch of – the challenge with all the policy areas is to understand there are countervailing pressures. And helping to split them out a little bit, I think, is useful.
MR. PROZES: I guess in terms of providing some counterpoint, I understand the point you’re making about top down – you can’t – a lot of companies say, okay, we are going to promote innovation. And so you give out the innovation awards and you have banners all over the company and so forth. And that, typically, does not drive innovation in, I think, you know, a much broader and better way, if that’s the point you’re making.
But I think there is a counterpoint, and that is that countries can do and need to do a lot of things to encourage innovation. So I had, last night, one of our people in this vast database that your wife accesses look at statistics that compare Russia, compare the Black Sea countries, on a number of fronts, to Japan and the United States and Germany, and so forth.
So if you look at – there is actually something called the political strength index, which is produced by, I think, either the IMF or one of those organizations, OECD. There’s a regulatory-quality index; there’s an IP protection index; there’s an education expense as a percentage of gross national product, and so forth. And I think those issues are driven by the government, and the government needs to promote those, including the rule of law, which of course, is best and most likely determined and driven by the government.
And you’re not – you wouldn’t be surprised that on those indices – that, for example, on political strength, Russia is something like minus one (-1), whereas Germany, Japan, the United States and the United Kingdom are plus two (+2), and virtually on every index where government can play a key role in encouraging the promotion of that particular index in that country, you wouldn’t be surprised to hear that Russia is quite low and the countries that you would expect to be very high are high.
And by the way, Turkey, Ukraine, Romania, Georgia, Bulgaria, Greece – all the countries we’re talking about who are on this index are also relatively low on those particular scores. And those scores can be and need to be encouraged and determined by the government as a whole. I’m not any more for the government than anybody else is, but I think there are certain things that governments can and need to do in order to promote the innovation and promote growth.
Q: Certainly, I mean, there’s been a decline in the educational system in Russia since the Soviet Union collapsed. And that’s repeated everywhere in this space. And I think that Bulgaria, Romania – the countries that are already acceded to the EU – they’re going to have an advantage because the EU has a common, sort of, set of standards that they can shoot for and be helped to achieve by the community, to raise that level.
Whereas Russia, which is not linked in, is going to find that more difficult. And you know, the weakness of the state on this dimension in Russia – because Russia endeavors to be an extremely strong state – but the weakness there is going to be something that has to be overcome in order for innovation to really take off, I think. It will always be a little –
MR. PROZES: So we’re in agreement. (Chuckles.)
MR. TWOMEY: One of the things that Andy took up is capital. And again, I think, if a relatively small- or medium-sized country is thinking about the whole issue of capital for R&D, I think there’s essentially a two-part issue here. Most innovation takes place in existing companies.
So one of the things one tends to get from the media, and certainly in the United States, is that innovation all comes from the garage shed somewhere in Silicon Valley. That’s all very important, but actually it’s not true. The vast amount of innovation in the United States, and almost any economy, comes from existing companies.
And the incentive of how do you mobilize capital returns inside those companies is quite important to promote innovation. So there’s quite a lot of work that’s very easily accessed about the role of R&D taxation treatments, R&D grants, what have you. Taxation treatment, I think, is pretty important for established companies.
But incentivizing existing established companies, and very importantly, incentivizing particular business units or particular people inside companies to do certain things – one has been export assistance and the other one has been R&D grants. They tend to be a fairly common, but I think quite a useful set of tools to think about in terms of, how do you generate an incentive inside an existing company to help a business unit maybe go to the board and make a case for doing something more innovative?
The other side, which is, how do you build the capital markets for the venture capital/private equity – that is, honestly – it’s very important for countries to do. It is one of those systems that takes 20 years, at least, to build and has, probably at the heart of its most difficult issue, is density, I think. Those markets work best as a village. They’re not efficient markets.
The venture capital/private equity/angel markets that are so talked about in North America, in North America are not easy. Everybody else in the world thinks it’s easy in America. They’re not easy in America. But they are all products of a village. They’re either all in Boston or they’re all in New York or they’re all in Virginia and Maryland, or they’re all – they’re not across the country.
Now, that does have some advantages for parts – if that’s part of the policy for innovation in this part of the world. Again, because I’m completely ignorant, let’s say Turkey – let’s say Bulgaria; let’s say Romania, which it is part of its program. Allocating the funds is not the hard part, per se. It’s putting in place the 20-year program of how to develop the school and the village and the groupings that’s going to give you the return.
So again, the policy work here is not that hard, in the sense that lots of people have done it and lots of countries have explored it. You know, a day of searching through Google and you get most of the policy answer. It’s the commitment to a 20-year program to how to put that in place that’s the challenge, I think.
Q: And then the returns for that don’t come until after those 20 years, that base is established.
MR. MELBY: Is there anyone in the room who wants to join the conversation or ask a question? Laura?
Q: I’ll just add to what Paul said about clustering around universities and the university research park or the university research villages, where the physical collocation of incubator businesses research is something that I think one can do when one’s planning infrastructure and planning community design, urban design – the live/work, older/younger, student/business population and creative classes. I think it’s not solely the engineers that stimulate innovation.
MR. TWOMEY: Yeah, I’ve established two of those, and we established them thinking they were going to be great innovation – (inaudible, audio interference). For the first 10 years, they’re a real estate play.
Q: Well, the park.
MR. TWOMEY: But it’s really key. I mean, I’ve been – you said government and I was in a government. And we said, let’s create one of these things. It’s really important. And then we kind of realized, for the first 10 years what makes the thing happen is, how do you run the real estate and make money out of the real estate? Once that actually works, then the innovation aspects actually fell out of it. But if the real estate part of it didn’t work, the thing closed very quickly.
Q: But at universities, as far as, I mean, a cluster like a Johns Hopkins or surrounding MIT or surrounding Stanford University –
MR. TWOMEY: But I’ll put to you – the universities all run as real estate plays first, as property returns.
MR. MELBY: Brent?
Q: Well, I know nothing about this from any perspective, but it just seems to me that one of the new elements in innovation that changes this generation from earlier generations is what you two are expert in, and that’s information technology. And the spread of information technology – it stimulates everybody because they see what’s going on in the world.
And so to me, it’s not surprising that Russia is down on the index because information technology, for many of the governments of the region – they’re highly suspicious of it because they can’t control it. And they fear this explosion of intellectual vibrancy. How do you deal with that?
How do you convince governments that they need to let go and encourage this in their own interest? Because I think if you look at the index, the extent to which the various governments try to control the information that their citizens get is likely to be very correlated on the index there.
MR. TWOMEY: My experience is that governments are completely inconsistent. They’ve got a whole series of policies and things they want that are completely mutually incompatible. And the trick is to tell a story that attends to one part of what they want. And then the consequence is to actually address the other.
So if you want to, let’s take the Russian situation. They clearly want to renovate their whole airline industry, their whole aircraft-manufacturing industry. If you want to do that and here’s all the steps you need to take, blah, blah, blah, blah, blah, well, the consequence is, you’re going to have access to information, access to people and do these sort of things.
By the way, Laura, I completely agree with what you say about the importance of moving things around universities. And a lot of the countries will say, I want to do more around my university structure for economic benefit. And so I have found you’ve just got to counter the argument. Their fear, normally, is political. I don’t know your experience. I mean, my experience is that their fear is normally political. So you’ve just got to do what Zhu Rongji did 30 years ago in China: You’ve got to cast the thing in economic terms.
MR. PROZES: I guess what I would say is, as opposed to talking, or asking the information technology people how you get government and people and countries comfortable with adopting new technology and so forth – it’s really a political question. And it’s getting the government and the politicians to get comfortable and to allow this to occur.
I doubt very much you’re going to see any great increasing adoption in Russia simply because of the nature of the people, the mindset of the people, which, then, is reflected in the leaders in the Russian government. And you know more about that than, certainly, we do. In the various statistics that were given here, one is information technology infrastructure, infrastructure quality, Internet adoption and so forth, and not to anybody’s surprise, you’re going to find Russia way down, as well, by the way, as the Black Sea countries.
So how do you change that, is your question. And it really starts with enlightened government, enlightened politicians. And quite frankly, I have not spent a lot of time in Turkey, but now, having listened to all of the ministers who have a very common theme and a very common message, which is all about adoption of new technology and moving the population from what it’s been doing to – up the value chain, as they say.
So you need, I think, that kind of mindset in government in order for these indices to start to improve. If I can kind of switch a little bit here to Laura’s point, and just to kind of emphasize this point to the people here, one of the great successes in technology adoption around the world is called the BlackBerry.
And the BlackBerry is owned by a company called RIM. And RIM is from the university that I went to, the University of Waterloo – which, by the way, Microsoft hires more people from the university I went to in Canada, the University of Waterloo, than any other university in the world. And I think it’s because Canadians are cheap and they work hard. (Laughter.) And they usually don’t eat a lot – (laughter) – but I obviously do.
And RIM is one of the great success stories, and it really is because the University of Waterloo produced an enormous number of computer scientists and there was the creation of a research park around the university. And that’s produced a whole variety of innovation in Canada, much more so than – and I’m not saying that there wasn’t some government engineering in the whole thing because there was.
But nevertheless, it really came from creating an environment, which then allowed for the innovation to grow and to bud. And I have to say that what happened around the University of Waterloo with RIM and, by the way, a whole variety of other companies, as well, is really quite a testimonial to what can be done.
MR. TWOMEY: I wonder if I could respond back to what Brent was saying. One of my experiences in developing world telephones, Internet, all that stuff, has been – it’s very hard, I think, for people in the West, and particularly in North America, to get their head around – is the role in which in the state played, first of all in the capital accumulation.
So in many parts of the world – again, my own country, it was true for a long period – the only institution that really could raise capital, large amounts of capital, was the state. And you end up with the state’s ability to raise the capital. And the state’s often the source of intellectual capability. You know, the experts get accredited by the state. This is a big issue in Africa.
One of the consequences over time in the telecom space was that the TELCO, which was a state entity, and the ministry became almost an interchangeable. And the jobs were between the two. And you’ve still got that issue around this part of the world. And as you begin to – although there is growing innovation, certainly, in mobile telephony – when you get into landline telephony, the linkage with the incumbent still remains very strong with the ministry.
Now, what is fascinating about their ministries is to what degree they feel they have influence into software. So I found myself involved in a five-year dialogue in New Delhi between part of the ministry, which still approved the purchase of equipment for switches for TELCO, which was the reason why their TELCO industry was terrible, and a growing software base that was putting its own infrastructure in place because it was doing outsourcing for Silicon Valley.
And what gradually took place over time was, the bureaucratic, political strength of one countered the other, and more importantly, the political strength of Chennai, and Kerala and Tamil Nadu, et cetera, increased in terms of, vis-à-vis what essentially was an – (inaudible) – base. So you actually end up with a sort of, actually, here, a political counter to the two.
I think I see exactly the same thing in any of the former Soviet republics that I’ve ever been in. With most of the Russian Federation, I’ve seen exactly the same phenomenon, where you’ve got a gradual process of parts of the policy formation shifting towards more software and then the other lots who are really more back in the traditional telecoms and often with a link back into the ITU.
One of the things that I think the West doesn’t do a particularly good job of, frankly, is a nuanced engagement in that process. There tends to be a – for the sort of vision that we have, whatever the definition of “we” is, there is an ally in every country in the world for this sort of Internet, network, IT openness – the sort of issues you’re raising. You’ll find there are allies in nearly every one of these ministries around the world, often because they’re engineers who can’t help themselves.
But the nuanced way in which you assist one group to gradually outpace the other – that’s not done particularly well, I don’t think. And I think in the former Soviet Union, for the reason you’re saying, the mathematician base – the obvious software base, and we know that from the hacking community – all of that could really have quite a counterbalance to the command-and-control telecoms environment that tends to drive a lot of the lack of innovation, if you like, in the coms arena, at least.
MR. MELBY: I think Paul made an interesting comment earlier that all public information should be free. And maybe not all governments agree with that because they’re trying to make some money, but I think the big issue is, a lot of governments don’t agree what “public” is. And they will define public in very different ways, depending on the country – and the more authoritarian the government, the more restrictive the definition of public.
MR. TWOMEY: Ask Rio Tinto about what’s public information in China. (Laughter.)
MR. MELBY: Exactly, exactly. The Chinese being a good example of that, not only on that, but on information on SARS, when it first came out – they tried to keep that quiet. And how do you get governments to really expand their view of what is public information?
Q: In their own interest.
MR. MELBY: In their own interest, exactly.
Q: Hi. I just want to make an observation. I think one of the reasons that innovation is so difficult, especially as you go, sort of, east in Eurasia, is that the elites get so much benefit and so much wealth from the status quo. And innovation threatens that. And that’s sort of my question, is about corruption and competition.
When you operate in that kind of an environment, where corruption is so prevalent, how do you, as a Western company, compete with somebody like Chinese, who have different standards about, sort of, dealing with corruption? What is our advantage – our competitive advantage – in that part of the world?
MR. PROZES: I guess one of my reactions, which is not an answer to the question that you’re raising – because I’m not sure there is an answer to the question that you’re raising, but at any rate, I’ll do my best – but threatening the status quo is just as difficult in the environment that Paul is describing. I mean, in Canada, we had a huge Bell Canada. We had – I mean, we had regulatory agencies running virtually every aspect of the economy. And so innovation threatened those people even though they weren’t part of an authoritative system.
It threatened them in an open economy, in a democracy, just as much as you would find the telephone company in Russia being threatened, as well. But in answer to your question, we operate around the world. Reed Elsevier is a – it’s a $10 billion information company and we operate in every single country around the world.
I don’t think there’s a country in the world where we don’t operate because the information we provide is scientific, technical, et cetera, et cetera, et cetera – legal, obviously. And I have to say that we, for a whole bunch of reasons, not the least of them being the foreign corruption practices act and so forth, we just never run into – not to say that our people, perhaps, don’t – but we are extremely strict.
And I think that there’s no question that there is corruption, but I think that the best we, as multinational corporations, can do is to set a practice, set a standard, which we adhere to and make sure that we adhere to. And I think that over time, that is the best that we can do, and also encourage governments, by the way, to put into place the right kind of – we are not in Russia.
We provide information to Russians and we charge them and they pay us in American dollars and so forth, but we have tried on quite a few occasions to go into Russia and to buy companies, and so forth. And I can recall having one lunch with the largest legal information provider in Russia.
And I said, so how many courts are there? There’s 8,000 courts. And I said, well, how do you get the public information about the cases and, you know, the cases that are decided by these courts? Because the fundamental underpinning of what we provide to lawyers is, here’s the way this case was decided.
And in the United States and virtually all countries in the world, you get this information as a matter of course, for free, which is the way that it should be. And this individual in this company – a large company, had three or four or 5,000 employees – he said, well, it’s very simple. He says, we just pay off the – (chuckles) – the clerks in the court system. And at that point in time, you know, the whole conversation came to a halt because there’s no way we’re going to get into a situation where we’re going to pay off people in the court systems. So yeah, and we’re not in Russia.
And I met with the minister – it’s sometimes difficult in Russia to figure out who is the minister of justice and who isn’t, but this woman who claimed to be the minister of justice and who had a very big office and who talked about having dinner with Putin the night before and that kind of thing, so I explained this to her.
And I said, we’re not going to come in here – even though you want LexisNexis to come into the country – we’re not going to come in here because of what we see here. I don’t think it phased her one bit, but nevertheless, as a multinational company, I think all we can do is to have certain standards, stick to them, make sure that we allow our position and our attitude to be properly and fully communicated.
Q: I have a question: To what degree does having an important military industry matter? You were talking about the Internet; it started as a defense research project. Does that – is that a way – does that create that cluster of innovation?
MR. TWOMEY: There’s a causation-and-correlation problem here. The correlation is yes. I’m not certain if it’s necessarily a forward-projecting causation. If you look at where there are now some main areas of software and Internet-type expertise around the world, you’ll see there has been a fairly close linkage, either with rocket programs in the United States or with avionics. So Bangalore, for instance, is the heart of the avionics support for the Indian Air Force. That’s one of the reasons why Bangalore is a big area for software.
And so you can build off that expertise. It’s not surprising, in most countries, up to a certain degree of sophistication, that the most advanced sort of work being done is around the military. It’s no longer the case in the United States and it’s no longer the case in many parts of the world, especially since they’ve gone, you know, off-the-shelf-type approach. That their most advanced technology is being done for the military is no longer true.
But still you would say, in many countries – I mean, I would probably say it was likely – I don’t know whether it’s still likely, but it was certainly likely 10 years ago in the former Soviet Union that, probably, the people who were most technically advanced were involved in the military-industrial complex. So yes, you can leverage off them and have a policy quite specifically to do that.
Again, you come back to this issue of clusters. Most innovation comes not in one sector; most innovation comes from interaction of people who are across multiple sectors, including business skills, most importantly. And the impression that I get from talking to the Russians that I know is that, that’s the problem that they’re having – how do they get cross-disciplinary interaction?
And how do they get cross-disciplinary interaction which includes financial and business? That’s the sort of – that mix – I don’t know, you’ve got to think about it, but that mix is typical. Can I just make a point about this issue about the elites basically milking oligopolies, which I think is absolutely right?
The issue – I know this is a thing – it’s a big issue for policy – I think the European Union does it probably better than most other parts – is an engagement which is constantly trying to challenge, you’re making money now, but you’re not going to make money in the future. That’s the difficulty of that process, is that, actually, you wither on the vine.
And how do you counter the wither-on-the-vine problem by saying, you know, it’s fine for you people to make – you know, I understand why you’re making money, but some people – you’ve got to incentivize some other people to say, we’re going to have to drive innovation if we’re going to keep making money here. You know, the KGB ended up being the force in the Soviet Union for saying this doesn’t work anymore because we’re running out of cash, right? And so there’s people who’ve got voices that need to be worked on, I think, often, in those spaces.
MR. MELBY: Are there any other questions? Please, could you identify yourself, too?
Q: Yeah, my name is Patrick Slowinski. I’m at the U.S. Embassy in Ashgabat in Turkmenistan. And I think that’s the extreme, probably, area in some respects. But one thing that I believe Laura mentioned was about universities, and actually, the president, a couple months ago – Berdimuhamedow – did agree to let the academy of sciences take the lead on any kind of Internet innovation and took it from the ministry of communications, which we see as a really big step, actually, forward.
So I mean, that is a bright spot for us. What’s going to come of that will, you know, be decided. But the idea that the president does view this as an academic opportunity from the beginning – he seems to find some safety in the fact that it’s the academy of the sciences that’s exploring this. And they’re allowed to talk to companies, with permission.
But they are getting scientists from the United States, from Europe, from other countries to come into Turkmenistan and work with the academy of sciences. So I think that’s a trend of going through universities that, that’s something where the embassy is really working on with them. And I think it’s a very important, positive step to bring to this group.
MR. TWOMEY: One of the things in China that’s made the Chinese Internet more open and diverse than the popular view of it is, is that the Chinese Academy of Sciences has been heavily involved in it from the very beginning. (Inaudible) – and whatever are actually past the academy of sciences. And they actually play bureaucratic games with the ministries – quite powerful bureaucrats in the ministries.
MR. MELBY: I have a question: In Turkmenistan, what’s, kind of, Internet penetration there? Are there Internet cafes? Can people easily get on the Internet?
Q: You know, they have a company called Altyn Asyr, which means “the Golden Age,” and that’s their state telecommunications company. They do have 3G. I actually own that for my house. I don’t live on the embassy compound. And there’s just a lot of sites that are blocked.
However, I can get access to my e-mail. I can video Skype. I can do minimal searches on Google. And that’s a big step forward – a huge step, not a baby step. And that is for a reasonable price, I think for a reasonable amount of usage. Maybe six hours or more a day will cost an average Turkmen maybe $40 a month. And that’s pretty good, you know? That’s a step forward.
So the president has promised that Internet is going to be available to everyone. Of course, it’s dial-up, which nobody can really use because you get on and you sit there and look at the screen. You can’t access anything. People that have more money actually can afford this new service. The Russians are heavily involved in Turkmenistan with MTS, but they can’t get in to set up their own system. They have to tag onto the existing Turkmentel system, which isn’t much faster. But they are trying to get their own contract to provide their own services that they provide in Moscow, which would be a huge game-changer for Turkmenistan, to actually have quick information. It would be huge.
MR. TWOMEY: One of the areas we haven’t talked about, in terms of innovation for this part of the world, which I think can be very important, is just agriculture. And come back to your – I can think of a couple of countries, of examples where the people who eventually overcame the industrial elites controlling policy was a scientifically informed farm base who basically said, enough’s enough, you know. We’re competitive; you people aren’t.
But I mean, one of the biggest areas of just being able to feed people is going to be a huge issue. And I often find that agriculture is apolitical. That’s just something to say. But it’s less political than Internet stuff, right? And innovation around agriculture and catch-up on agriculture and productivity around agriculture, I think, is something we don’t talk enough about when we talk about innovation policy.
Q: That’s something. We see that in Ukraine. There’s now a fairly flourishing, private-sector system of farms – guys who went out and collected a bunch of contiguous land plots and are growing crops for the global market. Sometimes all you need to do is build an elevator and you have an enormous increase in profitability because you’re selling when other people are not.
And storage and logistics around these things – the efficiency improvements in Ukraine are going to be dramatic over the course of the next five, 10 years because of this. And the government, to its credit, has not hindered that. (Chuckles.)
MR. PROZES: I mean, sometimes we forget that the United States is – we think of technology, we think of media, we think of entertainment and so forth – but the United States is unquestionably the most advanced farming capability in the world. I mean, its productivity is enormous, compared to places like China. And so innovation is just not – it’s an excellent point – innovation is just not telecommunications and computers, and so on; it’s a whole variety of different aspects of life.
MR. MELBY: I think we have time for, probably, one more question if there is another question out there. If not – oh, you have one.
Q: I just want to comment, though, at least in the case of Turkmenistan, that without the access to information, which has been – that I think that’s the first place to start. The fact that people could search databases and look at agricultural articles on their own would be tremendous. They just don’t have any access at all.
MR. PROZES: Well, just give LexisNexis a call. (Laughter.) We’ll be happy to help.
MR. MELBY: LexisNexis or your foundation.
Q: Yeah, you said you were in almost every country. I don’t know about Turkmenistan. (Laughter.)
MR. PROZES: I’ll bet you any money that we have customers in Turkmenistan.
Q: Well, I would like to follow up with you offline on that because I think it would be another success story to talk about.
MR. MELBY: Well, I want to thank all of you for coming. I particularly want to thank Paul and Andy for a terrific discussion here. And now, I’m being asked to urge all of you to put aside your entrepreneurial and individualistic tendencies – (laughter) – and, like sheep, go down to the ballroom because you can stop and get coffee on the way, but you should not loiter so that we can get back on schedule. Thank you very much. Thanks, both of you. (Applause.)
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