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    Wheres Sputnik?Summoning the Will to Create the NextAmerican Century

    By Michael Milken

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    tk

    Reprinted rom

    The Milken Institute Review

    Second Quarter 2011

    Volume 13, Number 2

    2011 The Milken Institute

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    1Second Quarter 2011

    By Michael Milken

    Wheres

    Sputnik?ot long ater the terrorist attacks o Sep-

    tember 11, 2001, a new book described

    how the United States had suered a great

    shock. No event since Pearl Harbor set

    o such repercussions in public lie. There

    was a sudden crisis o condence that

    created a perception o American weak-

    ness. Many people were scared hal to

    death and had panic reactions.

    N

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    2 The Milken Institute Review

    M M is the chairman of the Milkennstitute. This article is adapted from his forthcoming book.

    The event that provoked that response was

    not 9/11. It was the 1957 launch o Sputnik

    the worlds rst articial satellite by the So-viet Union.

    Beore Sputnik, ew doubted Americas

    global leadership. Our actories were hum-

    ming; the military was powerul; and our

    technology, consumer goods and standard o

    living were the envy o every other nation.

    Americans had already won 64 Nobel Prizes

    ar more than any other country. With less

    than 6 percent o the worlds population, the

    United States produced 36 percent o global

    economic output, up rom less than 2 percent

    early in the 19th century. We had more tele-phones, television sets, cars, bathtubs and re-

    rigerators than any place on Earth. Students

    focked to Americas great universities. As a

    net exporter, we sent three dollars o goods

    abroad or every two we imported. The U.S.

    dollar was so strong that it bought 360 Japa-

    nese yen and more than our German marks.

    Not since ancient Rome had any one nation

    dominated so many aspects o lie on the

    planet.All that changed on the morning o Friday,

    October 4, 1957. From 560 miles above Earth,

    Sputniks constant beeping told the world the

    Soviets had beaten America into space.

    The scary thing about Sputnik wasnt the

    184-pound aluminum sphere that did little

    more than beep at us. The real threat was the

    Soviet R-7 intercontinental missile that

    blasted it up there only two months ater the

    rst successul test ring. Within days o

    Sputnik, Soviet leader Nikita Khrushchevboasted that his nation would begin turning

    out nuclear-tipped missiles like sausages.

    The United States suddenly realized that our

    most-powerul enemy now had the capacity

    to hurl lethal weapons across the oceans.

    That was our wake-up call. And wake up

    we did so much so that Moscows moment

    o apparent triumph turned out to be the be-

    ginning o the end or the Soviet Communist

    system. As President Kennedy amously de-

    clared in his 1961 inauguration speech, We

    shall pay any price, bear any burden, meet anyhardship ... to assure the survival and the suc-

    cess o liberty.

    Faced with dierent global challenges

    today, are we prepared to pay any price and

    bear any burden? Recent history doesnt

    provide much encouragement. In 2005, a dis-

    tinguished committee o leaders rom indus-

    try, government and higher education pro-

    duced a disturbing report, Rising Above the

    Gathering Storm, that spelled out ways to re-store Americas competitiveness. Revisiting

    their report in 2010, the committee con-

    cluded that the outlook or America to com-

    pete or quality jobs has urther deteriorated

    over the past ve years. The gathering storm

    increasingly appears to be a Category 5.

    Despite that depressing conclusion, I be-

    lieve the American Century does not have

    to end. We can extend it long into the uture

    i the public and private sectors, and all o us

    Faced with different global challenges today, are weprepared to pay any price and bear any burden?

    Recent history doesnt provide much encouragement.

    w h r p u k ?

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    3Second Quarter 2011

    as individuals, assume greater responsibility

    or our common destiny by summoning the

    will to ace hard acts and make dicult

    choices and by electing leaders who will dothe same.

    Six areas in particular provide opportuni-

    ties or positive change: energy, housing, en-

    titlements, education, health and immigra-

    tion (the last o which I preer to call investing

    in America). These are not new issues pan-

    elists at my early investor conerences and

    later at Milken Institute Global Conerences

    have debated them since the mid-1970s. Nor

    do they represent insurmountable challenges

    in many cases, theres enough liquidity in

    private savings to develop solutions without

    more taxes and government spending. But

    they will require hard choices that demand

    stronger leadership and greater candor than

    weve seen rom both parties in Washington

    and the statehouses. Our leaders have begun

    to realize that we cant have it all; now they

    must better allocate the resources we haveavailable.

    So what do we have? Plenty. The worlds

    largest economy; a solid rule o law under a

    written constitution that has prevailed longer

    than any on Earth; established property

    rights; reedom o speech, press and religion;

    the most productive workers; ree markets;

    unrivalled technology; medical centers that

    attract patients rom around the world; the

    best institutions o higher education; themost innovative culture; and a richly diverse

    population. No wonder people everywhere

    want to come to America. We just need to de-

    ploy these assets more eectively.

    Over the years, Ive addressed the issues o

    Americas strengths and challenges beore au-

    diences in more than 35 countries. A central

    theme o these presentations is the impor-

    tance o human capital. It doesnt matter

    whether the challenge is market volatility, cli-

    mate change, chronic disease or educational

    standards. In each case, the solution is the

    same: unleash the energies o entrepreneurial

    people and they will change the world.What we ace today is not a space race but

    a race toward what can be a new American

    Century. That race should begin by taking

    much more seriously the six issues below,

    which are ar more consequential than a So-

    viet satellite fying overhead. Were not get-

    ting anywhere near adequate returns on our

    investments in these areas. And worse, were

    complacent about it.

    Previous generations stepped up to the

    challenges o their day. The problems aced by

    the Americans who brought us out o the

    Great Depression and led us through World

    War II to prosperity and peace were daunting.

    But our leaders never hesitated to ask or sac-

    rice and Americans responded, pulling to-

    gether or the common good. More than hal

    a century later, the world still needs a strong

    America. Even i were no longer the sun thecenter, the gravitational pull o humanitys

    solar system, we can be Jupiter, its largest

    planet.

    China, Singapore and other command

    economies are directing increasing resources

    to human-capital development. We have the

    capacity to match them. But do we have the

    will? Where is the shock to our system that

    will light our re? Where is the Sputnik or

    our new century? The answer lies in our re-sponse to the six challenges.

    energy

    Do Americans realize what were reallypaying

    or gas at the pump? The true cost is a lot

    more than a ew dollars a gallon. Its actually

    well above $10 a gallon. That includes the ex-

    pense o keeping aircrat carriers in the Per-

    sian Gul and deense o sea lanes, pipelines,

    storage depots and ports, which represent

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    4 The Milken Institute Review

    hidden components o ederal taxes and bor-

    rowing. Theres also the cost o mitigating en-

    vironmental damage plus the burden ohomeland security related to protection rom

    energy-state terrorism. And none o this in-

    cludes the tragic cost o American lives lost

    protecting our energy interests overseas. Wed

    all be more ocused on these costs i a $200

    charge or lling up the gas tank were shown

    on the pump.

    Breaking ree o dependence on oreign

    energy, and the expense o securing it, has

    long produced stirring rhetoric, but ew eec-

    tive policies. The chart on page 5 shows per-

    centages o oil the U.S. sourced rom overseas

    on the precise days that each o our past eight

    presidents made a major public pledge to seek

    energy independence. These were impressive

    declarations. For example, on July 15, 1979,

    President Jimmy Carter sternly told the Amer-

    ican people, Beginning this moment, this

    nation will never use more oreign oil thanwe did in 1977 never!

    Will we ever do what we say about energy?

    I so, we must address several tough issues:

    Uncertainty faced by investors and produc-

    ers because of price volatility. The price o oil

    was about $15 a barrel in 1977. It rose to $40

    over the next several years, giving oil and gas

    companies an incentive to spend heavily on

    domestic exploration. I nanced some o

    those companies and recall how optimisticthey were about energys uture. But then the

    price o oil sank to $10, devastating real estate

    and nancial institutions in oil-producing

    states and creating turmoil in markets world-

    wide. By 1999, the price hovered around $17.

    It rose to a peak above $147 in 2008; and

    again, within months, it dropped to less than

    $34 beore shooting back up to $100. Who

    can invest successully while riding a roller

    coaster o price volatility like that? Not major

    petroleum companies. Not would-be inves-

    tors in unproven alternative-energy ventures.

    Theyd ask reasonably so why should we put

    capital at risk when it costs Saudi Arabia onlya ew dollars to lit a barrel o crude rom the

    ground?

    The rise in atmospheric greenhouse gases.

    These gases have increased about 50 percent

    since the Carter administration. Because the

    U.S. produces roughly a quarter o the worlds

    greenhouse-gas emissions gasoline is respon-

    sible or more than hal o that we should

    take the lead.

    oss of energy technology leadership.

    China, Japan and South Korea have all passed

    the U.S. in producing clean-energy technolo-

    gies. Most important, their public investment

    will attract private investment, generating

    trillions o dollars o economic activity over

    the next decade. Unless we move ast, well

    become customers o their innovations, not

    suppliers and exporters o our own.

    The potential for political instability in oil-exporting nations. A signicant amount o

    energy comes rom countries with volatile re-

    gimes like Libya, Venezuela, Nigeria, Iran and

    Iraq. Since these countries supply oil to the

    world market, the mere threat that their ex-

    ports might be disrupted adds to global price

    uncertainty; and, when the local oreign econ-

    omy is too small to absorb and recycle oil rev-

    enues eectively, the money oten goes to un-

    productive uses, including corruption andsupport o terrorism.

    These are dicult problems whose solu-

    tions will take many years to implement. But

    markets are based on projections o the u-

    ture. So i the United States were to announce

    that its actually going to do somethingto solve

    the energy problem, it would change expecta-

    tions and the impact on global markets

    would be immediate and dramatic.

    The Milken Institutes Center or a Sustain-

    w h r p u k ?

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    5Second Quarter 2011

    mattwood

    able Energy Future recommends several spe-

    cic actions:

    1. Upgrade the energy infrastructure. Too

    much energy is lost between production andconsumption. Smart grids that reduce

    power losses in long-distance electricity trans-

    mission are technologically easible and could

    save as much as $1.8 trillion a year through

    greater eciency and reliability by the year

    2020. Although these grids are expensive and

    ace local resistance, a nation that built cross-

    country railroad and highway systems should

    be able to do the same or electricity.

    2. Scale up research and development of al-

    ternatives. The advantages and disadvantages

    o solar, nuclear, wind, hydro, geothermal and

    biouels alternatives have been debated end-

    lessly. No alternative is perect, but by moving

    orward on all o them, we can incrementally

    displace and eventually eliminate most o

    the high-carbon coal that supplies the major-

    ity o nontransportation energy. The good

    news is that the lions share o the work thephysics and the chemistry is done. Now we

    need big-scale commercialization.

    3. onvert eet vehicles to natural gas. In

    January 2011, the Abu Dhabi government an-

    nounced it will convert thousands o govern-

    ment vehicles and taxis to natural gas, citing

    lower pollution and a 50 percent uel-cost

    saving. This decision will add to the 12 mil-

    lion natural-gas vehicles already in use

    around the world. Guess how many o those12 million are in the U.S. which has the

    sixth-largest reserves in the world and is the

    largest producer o natural gas? One hundred

    and thirty thousand. Thats a mere 1.1 per-

    cent o the worlds feet. Why wait? Natural

    gas is abundant and cheap, is cleaner than

    gasoline and diesel, and can be burned in to-

    days internal combustion engines with only

    minor modications. As an interim measure

    until other cleaner alternatives become com-

    petitive, we can switch our feet o large trucks

    to natural gas. At the 2010 Milken Institute

    Global Conerence, T. Boone Pickens, who

    joined Ted Turner and me on an energy panel,

    asserted that this would reduce oil imports

    by 2.5 million barrels a day and cut our de-

    pendence on Middle East oil by hal in only

    seven years. Thats just with big trucks. Other

    feets buses, taxis, express delivery vehicles,

    and municipal and utility vehicles couldalso switch.

    4. Promote conservation. I we really got se-

    rious about encouraging American amilies

    and businesses to be ecient with energy, it

    would have a major impact. We could save

    $1.2 trillion through 2020 just with improve-

    ments like sealing leaky buildings and re-

    placing inecient household appliances, ac-

    cording to a 2009 McKinsey report. That

    would cut our nontransportation energy use

    ourc: U.S. Dept. o Energy

    nixon 36.1%

    Ford 37.1%

    carter 40.5%Reagan 43.6%G.h

    .W.

    Bush 47.2%clinton 49.8%G.W.Bush 65.5%Obama 66.2%

    Oil frOm

    fOreign

    SOurceS

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    hOme SizeS: u.S. s. aSia

    6 The Milken Institute Review

    mattwood

    by 23 percent more than the total energy

    consumption o Canada and cut greenhouse

    gases by 1.1 billion tons a year.

    5. mplement market-based nancing solu-

    tions. During the 1970s and 1980s, I saw rst-

    hand how expanding access to capital or

    growing, innovative companies could acceler-

    ate technology development and drive downcosts. So I rmly believe that nancing is a

    key issue or energy independence. For exam-

    ple, according to a Milken Institute report,

    widespread clean-coal development could

    cost up to $1 trillion. But with standardized

    nancial instruments to attract private capi-

    tal, and long-term orward markets to im-

    prove production planning, costs could be re-

    duced. Investors will respond to rational

    regulation, reasonable incentives and policiesthat dont change with every election.

    6. Minimize volatility to encourage invest-

    ment. Those who remember how investors in

    alternative energy sources suered ater oil

    prices ell in the 1980s understand how exceed-

    ingly dicult it is or other uels to compete

    with oil. The memory o $10-a-barrel oil casts a

    pall over all orms o alternative-energy invest-

    ment. We should consider establishing a foor

    under the price o oil perhaps in the range o

    $40-50 a barrel that would encourage tech-

    nology innovation aimed at less-expensive en-

    ergy sources. I oils price ell below that foor, a

    temporary ee would kick in to maintain the

    minimum price. The revenue would support

    urther research into alternatives.

    7. Use consistent regulatory and scal policy.

    Hundreds o regulators oversee the nationalgrid, making it hard to conduct energy busi-

    ness across state lines. The same holds true or

    gasoline dierent states allow dierent or-

    mulations, which is hard on producers and

    distributors. And taxes and subsidies on bio-

    uels like ethanol are conusing and contra-

    dictory. The government, at various levels,

    taxes these uels when theyre sold to consum-

    ers as gasoline substitutes but at the same

    time subsidizes their production. A modica-tion in tax policy that does away with such

    conficts would help development o alterna-

    tive uels.

    These initiatives would greatly reduce in-

    vestment risk. Regrettably, with development

    timescales that can stretch into decades, its

    hard to get the attention o politicians stand-

    ing or re-election. Yet as citizens and voters,

    we can demand that our representatives get

    priorities straight. We need an even-handed

    SQuare feeT

    ourc: CLSA Asia-Pacifc Markets, Mr & Mrs Asia

    U.S.

    Singapore

    China

    India

    S. Korea

    Japan

    Hong Kong

    0 500 1,000 1,500 2,000 2,500

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    7Second Quarter 2011

    bern

    ardhoffman/gettyimages

    energy policy that makes the market more

    competitive and protects the environment.

    housing

    I grew up in a 1,300-square-oot house with

    my brother, my sister and our parents. It never

    occurred to the ve o us that our Caliornia

    house was too small. It seemed just right to

    me. Few o the neighbors in our middle-class

    neighborhood talked about moving to bigger

    houses. But in recent decades, many Ameri-

    cans have elt compelled to move up. Thechange was driven by perverse incentives

    built into our housing, mortgage and tax sys-

    tems that have created minimal social good

    and great nancial harm. Theyve resulted in

    a gross misallocation o resources toward

    larger houses, more-powerul cars and longer

    commutes at the expense o higher social

    priorities, most notably, investment in educa-

    tion and medical research.

    The combination o incentives to buy a

    house on credit created the illusion that it

    was a smart nancial move. But or many, theAmerican Dream o home ownership turned

    into a nightmare. Many actors pushed Amer-

    icans to take on too much mortgage debt, in-

    cluding low down payments, tax preerences,

    extended payback terms, a lack o prepay-

    ment penalties, nonrecourse terms that shield

    non-housing assets, government guarantees

    and the myth that housing prices always rise.

    In eect, the government had turned middle-

    class homeowners into reckless speculators.A range o players share part o the blame

    or the collapse o the mortgage and credit

    markets in recent years. Regulators ailed to

    set adequate standards or borrower qualica-

    tion. Mortgage brokers, knowing they could

    quickly sell the mortgages they originated,

    pushed loans they knew might not be repaid.

    Non-resident speculators hoping to fip

    houses to other buyers drove up prices, help-

    ing create an asset bubble. Rating agencies

    Levittown,NJ,1950s(stockphoto)

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    8 The Milken Institute Review

    mattwood

    were unable or unwilling to use the correct

    analytical tools in assessing the quality o se-

    curities backed by mortgage loans. And insti-

    tutional buyers ailed to perorm adequate

    due diligence on the mortgage-backed securi-

    ties they purchased.

    But the biggest actor in creating the hous-

    ing crisis, which became a global nancial cri-sis, was the structure o government-guaran-

    teed mortgage loans, which simply were never

    worth what people assumed they were worth.

    In most cases, because o a lack o call protec-

    tion and high transaction costs, these loans

    were worth less than their nominal price on

    the very day the government bought or guar-

    anteed them. For these and other reasons, the

    investment quality o real-estate loans has

    continually been exaggerated.

    In the end, lenders aced a heads-you-win,

    tails-I-lose situation. I property prices rose,

    the borrower kept the gain; i prices ell, the

    borrower could walk away, leaving the lender

    with a long-term depreciating asset. I interest

    rates rose, the value o the loan declined; and

    i interest rates ell, the borrower could prepay.

    Residential mortgages not only lack the callprotection o most bonds and other debt in-

    struments backed by business assets, but also

    lack the liquidity o securities. Thus, an inves-

    tor can sell 1,000 shares o IBM stock worth

    about $165,000 as this is written in less than

    a second with a transaction cost under $10;

    but a $165,000 house in oreclosure takes

    months to sell with x-up costs, commissions

    and legal ees that can exceed $20,000.

    Ever since the stock market crash o 1929,

    annual change in hOme priceS Over 120 yearS

    ourc: Robert Shiller; Milken Institute

    WWI WWIIGreat

    Depression70sBoom

    80sBoom

    LatestBoom

    30%

    25

    20

    15

    10

    5

    0

    -5

    -10

    -15

    -20

    1890 1900 10 40 503020 60 70 80 90 2000 Q32010

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    securities regulators have understood (at least

    in theory) the need to raise margin require-

    ments or stock purchases when excessive

    speculation drives up prices too quickly. Themargin on a housing purchase is the buyers

    down payment. Decades ago, it was rare or a

    buyer to secure a mortgage loan with less

    than 20 percent down. But average down pay-

    ments ell in recent years, in some cases

    reaching zero with government blessing.

    Looking back, its now obvious that when

    housing prices were rapidly doubling or even

    tripling in some markets, regulators should

    have raised the margin requirements by re-

    quiring larger down payments.

    Why is this obvious? Because over long

    periods o time, housing prices have not

    moved much in real terms. Calculations by

    the Milken Institute based on data rom Yale

    economist Robert Shiller show that over the

    past 120 years, U.S. housing prices actually

    ell in more years (63) than they rose (57). Re-

    search by proessors Carmen Reinhart andKenneth Rogo indicates that infation-

    adjusted average American housing prices

    rose a total o only 27 percent in 106 years be-

    ginning in 1890. But starting in 1996, spurred

    on by government policies, the cumulative

    real price increase was about 92 percent in

    just 10 years. On any reasonable historical

    basis, that was unsustainable.

    Americas real-estate market is unique. No-

    where else are nonrecourse, no-prepayment-penalty loans guaranteed by the government

    and made available at better terms than are

    available to established companies. To borrow

    or 30 years, a triple-A-rated company would

    usually have to accept an interest rate thats

    higher than the home-mortgage rate. And it

    would oten be required to put up the entire

    collateral o the company to guarantee the

    debt with ull aith and credit plus provide

    call protection. Consider how many more jobs

    small businesses could create i they enjoyed

    the same terms we give residential real estate.

    In many U.S. states, i a mortgage bor-

    rower stops paying on the loan, the lendersonly recourse is to pursue an expensive and

    time-consuming oreclosure on the mort-

    gaged property. The borrowers other assets

    and income cant be used to satisy the debt.

    So i the borrower walks away rom the con-

    tractual obligation, the lender is stuck. Even

    in states where lenders can go ater nonresi-

    dential assets, they rarely do because the costs

    are so high.

    The public and its policy leaders need a

    better understanding o how markets work i

    were to stop making the same mistakes.

    Thats part o the motivation or the estab-

    lishment o the Milken Institute Center or

    Financial Markets Understanding. This newcenter, based in Washington, seeks to con-

    ront the ways in which markets are oten

    misperceived by participants, regulators and

    academics. For example, most people thought

    that generous housing incentives would pro-

    duce more homeownership, which would be

    good or the country. Instead, we ended up

    with excessive consumer debt, irresponsible

    lending, mortgage deaults, unemployment

    and declining neighborhoods.

    United states asia

    Housing 33% Food 23%

    Transportation 18 Supplementaleducation 15

    Food 13 Housing 10

    Insurance/pensions 11 Clothing 8

    Healthcare 6 Other 8

    Entertainment 5 Transportation 6

    Apparelandservices 4 Healthcare 5

    Supplementaleducation 2 Communication 5

    cOnSumer Spendi ng

    % Of hOuSehOld budgeT

    ourc: U.S. Bureau o Labor Statistics; CLSA Asia-Pacifc markets, Mr & Mrs Asia

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    10 The Milken Institute Review

    For middle-class Americans who stood at

    an economic precipice a ew years ago, the

    message was clear: your priorities should be abig house and big car. And as a result, hal o

    the typical American amilys disposable in-

    come went to housing and transportation.

    That impairs our national competitiveness

    because were allocating limited means to

    nonproductive ends. Middle-class Asians typ-

    ically spend only 16 percent on housing and

    transportation combined. They spend almost

    as much 15 percent privately tutoring

    their children, oten a single child. In eect,

    these Asians regard education as a consumer

    product while most o their American coun-

    terparts view it as a government product.I we think we can compete globally by

    spending hal our disposable income on

    horsepower and square ootage, were at best

    nave. And the tragedy is that our children

    and their children will pay the price.

    entitlements

    Its time or our leaders to admit that expecta-

    tions or Social Security, Medicare and public

    pensions are no longer realistic.This isnt a partisan issue. Its math. The

    problem is rooted in (a) unrealistic assump-

    tions about rates o return on assets, (b) all-

    ing ratios o current workers to retirees, (c)

    workers who pay in to the system or too ew

    years, and (d) pensioners who live longer than

    the original system planners assumed.

    The story is probably apocryphal, but

    when Albert Einstein was once asked to name

    the most powerul orce in the universe, the

    great physicist reportedly answered, Com-

    pound interest! That insight has eluded the

    administrators o pension unds on which

    millions o Americans are relying. These undsoten assume long-term rates o return o as

    much as 8 percent per year, compounded. Yet

    anyone who has purchased an annuity re-

    cently knows the market is assuming a return

    closer to 4 percent. That dierence, when com-

    pounded over a typical working lie, is likely

    to leave a pension und about 75 percent short

    o its assumed value. For example, $1 billion

    growing at 8 percent compounded will be

    worth $16 billion in 36 years; at 4 percent, it

    will grow to only $4 billion.

    The good news is that were living longer.

    Americans born in 2010 have lie expectan-cies o 76 years or men and 81 or women.

    Those spans are about three decades longer

    than they were or Americans born in 1900.

    In terms o vigor, todays 80-year-old Ameri-

    can man is similar to a 60-year-old as recently

    as 1975. A 60-year-old woman is equivalent to

    a 40-year-old in 1960. No wonder that around

    the globe, or the rst time in human history,

    people age 65 and over are about to outnum-

    ber children under ve.Now the bad news. Although we live much

    longer, were retiring earlier. So the number o

    older people entitled to government-unded

    pensions and health services is growing rap-

    idly while the number o tax-paying younger

    workers is shrinking.

    Something must be done, and it will take

    political courage. Consider the piling-on o

    critics last year when a decit-reduction com-

    mission made some very straightorward

    We have to stop thinking of the aging populationas a burden and look at it as a resource.

    w h r p u k ?

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    cou

    rtesyofthesocialsecurityadministration

    and reasonable recommendations. They were

    treated as social radicals when actually they

    were too timid, especially about taking more

    than hal a century to implement a small ex-tension o the retirement age. It would be

    more eective to adjust it every ew years to

    85 percent o current average lie expectancy.

    When Social Security was introduced in

    1935, lie expectancy was 61.7 years. Back

    then, it made sense or people to start collect-

    ing pension checks as early as age 62. Ater all,

    they werent expected to live long. A system

    designed or a labor orce that worked 45

    years and lived or only a couple o years ater

    retirement cannot pay out to workers or 25

    years when they paid into the system only 30

    years.

    What can be done? On paper, the answer is

    simple. But its tougher in the real world. Can

    any candidate be elected to public oce by

    attempting to tackle this issue? Democrats

    dont want to cut benets. Republicans dont

    want to raise taxes. These entrenched posi-tions are endangering our economy and soci-

    ety. Do we, the people, have the will to vote

    or candidates who acknowledge that unreal-

    istic promises are being made?

    One way to maintain economic growth in

    the ace o demographic acts is to rethink

    current approaches to work and retirement,

    pension and health care policies, and govern-

    ment budget discipline. We need ideas, big

    and small.We have to stop thinking o the aging pop-

    ulation as a burden and look at it as a re-

    source. We need incentives such as bonuses

    or people who work past age 70, reduction o

    employer Social Security taxes or employees

    over retirement age, more fexible work

    schedules, telecommuting options and late-

    career sabbaticals or education and training.

    Governments with national health pro-

    grams must start curbing growth in medical

    spending now, not later. At the same time, pri-

    vate citizens need to get comortable with the

    idea that living longer comes hand-in-glove

    with prudent money management, like saving

    more rom their paychecks and paying more

    o their medical and long-term-care costs.Finally, in most discussions about the

    shortall in unding entitlements, disturb-

    ingly little talk has been about the real key

    restoring economic growth. In country ater

    country, the trend has been clear: The bigger

    the bite the government takes out o the

    economy, the slower the average growth rate.

    In countries like Greece, people came to be-

    lieve that they could were entitledto retire

    in their 50s. Weve seen what happened in

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    12 The Milken Institute Review

    Greece and other countries where entitle-

    ments were too expensive to aord but also

    so big and entrenched that reorm seemedpolitically impossible. With a relatively young

    population, the United States has an oppor-

    tunity to x its entitlements dilemma beore

    it reaches an economic tipping point. But

    wed better act soon.

    education

    Once upon a time, U.S. college graduates near

    the top o their classes routinely entered the

    teaching proession. In act, 90 percent o new

    American teachers in the early to mid-20th

    century came rom the upper third o their

    classes. Today, its just 23 percent. Meanwhile,

    virtually 100 percent o teachers in Singapore,

    South Korea and Finland come rom the top

    third o their graduating classes.

    In 1960, America was an education power-

    house. Each decade rom 1880 to 1960, on av-

    erage we added one year o school to our chil-drens learning. By the time I was in elementary

    school, we led most o the world by at least

    two years o ormal schooling. But since then,

    weve stalled while other nations have moved

    ahead and in some cases surpassed us. In act,

    U.S. high school graduation rates have actu-

    ally declined since 1960. Its not that were not

    spending enough money the U.S. spends ar

    more on education than other countries. The

    problem is that were getting ar too small areturn on our investment.

    How do American students stack up to in-

    ternational competition? Not well. The United

    States ranks 29th just behind Latvia among

    nations on Programme or International Stu-

    dent Assessment (PISA) tests. PISA is a widely

    recognized standard assessment o peror-

    mance by 15-year-old high-school students

    in science, reading and math.

    The PISA tests benchmark educational

    quality by ranking the ability o students to

    perorm complex mathematical tasks on a

    scale o one to six. Recent top perormers

    were China, Korea, Japan and Belgium, withabout one in ten students reaching level six.

    More than a quarter o U.S. students couldnt

    even go beyond level one.

    The results o PISA tests released in late

    2010 caught much o the worlds educators by

    surprise when they placed China at the top in

    every category. Indeed, Chinese students

    scored a perect 600 in math. (Singapore, 562;

    Germany, 513; United States 487.) In read-

    ing, China scored 556; in science, 575. (The

    U.S. came in 17th in reading and 23rd in

    science.) Critics say these Chinese students

    were hand-picked and that the U.S. popula-

    tion includes disadvantaged minorities and

    unskilled immigrants. That may be true, but

    it still looks like were being out-educated.

    China and India, along with a host o other

    nations that have been doing it or a while

    now, are placing education at the top o thenational agendas.

    Meanwhile, in a United Nations study, the

    United States ranked 49th among nations in

    adult literacy. According to the U.S. Depart-

    ment o Education, 20 percent o American

    workers read at no better than a th-grade

    level, which or employment purposes makes

    them unctionally illiterate. Practically the

    only category American kids rank No. 1 is in

    thinkingtheyre No. 1. Apparently were topswhen it comes to student sel-esteem. These

    U.S. students are like the British athlete Mi-

    chael Edwards, Eddie to his riends, who set

    his sights on competing as a ski jumper in the

    1988 Calgary Olympics. All he had to do was

    beat other applicants from England. That

    wasnt hard in a country with no tradition o

    ski jumping and minimal interest in the event,

    and he made it to the Olympics, calling him-

    sel Eddie the Eagle. How good was Eddie?

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    The laws o physics suggest that i you strap a

    180-pound mannequin to a pair o skis and

    slide it down the ramp, it will fy about 230

    eet. Eddies best jump was 253 eet. No otherjumpers did worse than 360 eet.

    The International Olympic Committee

    wasnt amused and created the Eddie-the-

    Eagle rule, requiring qualiers to nish in

    the top hal o an internationalcompetition

    or among the top-50 competitors worldwide.

    In other words, being the best at home didnt

    count you had to show you could meet

    global competition. Unortunately, we look at

    Americas educational system the way Britons

    saw Michael Edwards the best within na-

    tional borders. But American students no

    longer compete just within U.S. borders when

    they join the workorce.

    Its unair to Americas children not to pro-

    vide them with an understanding o world

    standards in education. Many U.S. students

    who would score below the 50th percentile on

    international tests are being placed in gitedprograms because they beat their local peers.

    These kids dont realize theyre like Eddie the

    Eagle.

    Ironically, we do the opposite with our

    teachers. We pay truly gited educators the

    same salaries as their less-competent col-

    leagues. Instead o rewarding teachers or re-

    sults, we base their pay on how long theyve

    held a position and the number o graduate

    courses theyve passed. By paying new teach-ers low wages, but promising relatively high

    retirement income and lietime benets, we

    discourage the high achievers who know they

    can earn more in other proessions and are

    condent they can manage their own retire-

    ment planning. This skews the utility curve so

    that many promising teachers leave the pro-

    ession within ve years o starting their ca-

    reers, while those who score lower on peda-

    gogy exams hang on. Weve set up a system

    where teachers are shielded rom global com-

    petition, but the students they teach will be

    ully exposed to that competition.

    Our short-sighted compensation policieshavent changed much in hal a century. What

    havechanged are the skills required to live a

    middle-class lie in America. Following World

    War II, three o every ve jobs were un-

    skilled, according to the governments classi-

    cation. But in postwar America, an unskilled

    workers wages were sucient to support a

    amily, buy a house in the suburbs and drive

    a decent car. Today, almost seven in ten jobs

    require a specic skill. And our schools are in-

    creasingly ailing to produce the workorce

    employers need. Were limping by with reme-

    dial courses, vocational programs and on-the-

    job training.

    Its not as i America hasnt known this

    was happening. Starting with the 1947 Tru-

    man Report, a long line o studies analyzed

    American education. Every new White House

    resident claims to be the education Presidentand appoints a blue-ribbon commission. One

    o the most infuential was the National

    Commission on Excellence in Education,

    which produced the 1983 report, A Nation at

    Risk. It decried the rising tide o mediocrity

    that was eroding the nations educational

    oundation. Among its 38 specic recom-

    mendations was a plea or teacher salaries

    that are proessionally competitive, market-

    sensitive, and perormance-based. It alsogave this warning: I an unriendly oreign

    power had attempted to impose on America

    the mediocre educational perormance that

    exists today, we might have viewed it as an

    act o war.

    In 1982, the Milken Family Foundation

    began to study which actors had the greatest

    impact on student achievement. We ound

    that teacher quality is ar and away the most

    important school-related actor. In response,

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    14 The Milken Institute Review

    mattwood

    we launched an educator awards program to

    seek out, recognize and reward exceptional

    teachers. Weve recognized more than 2,500o these outstanding educators across Amer-

    ica. Each has received a $25,000 award and an

    opportunity to participate in annual proes-

    sional development orums.

    Over the past 30 years, Ive visited schools

    in dozens o countries and always been im-

    pressed by the dierence a single great teacher

    can make. Even in the most economically de-

    pressed areas o Americas central cities and

    rural areas, inspiring teachers do excite the

    desire to learn a desire that produces dra-

    matic changes in student perormance. Ive

    seen this repeatedly in public elementary

    schools where Ive helped teach classes using

    the techniques o Mikes Math Club, a Milken

    Family Foundation program that gets kids ex-

    cited about arithmetic and algebra by turning

    math problems into games.

    Although the cultures are dierent, qualityteachers have the same impact in places like

    China, South Korea and India. Im an investor

    in a company that operates thousands o

    early childhood education centers. Some o

    these centers operate as Pats Schoolhouse in

    Singapore, where the students easily become

    bilingual by age six. Each classroom has one

    English-speaking teacher and one Mandarin

    speaker. It shouldnt be a surprise that thesekids do well.

    Singapore wasnt always so advanced. In

    the early 1960s, it was much like another or-

    mer British colony Jamaica. These two sub-

    tropical islands were virtually identical with

    the same size populations and gross domestic

    product o about $2,200 per capita in todays

    dollars. But Singapore had Lee Kuan Yew,

    who had recently become its rst prime min-

    ister and who led his nation with a keen ocus

    on human-capital development, particularly

    through education. Meanwhile, Jamaica con-

    tinued to base its economy on low-skills in-

    dustries like agriculture, mining and tourism.

    Today, Singapore is an economic power-

    house a ully industrialized country and a

    global leader in computers and electronics,

    investing its substantial surplus wealth

    throughout the world. Its people enjoy high-quality schools, health care and public ser-

    vices. And GDP per capita exceeds $40,000.

    Jamaica? It still has an underdeveloped econ-

    omy with a GDP o about $4,800 per person.

    The lesson is clear: Nations that increase

    dO human capiTal STraTegieS wOrk?

    (per capiTa gdp in currenT u.S. dOllarS)

    jamaica SingapOre

    1960 $2,213 $2,229

    2010 $4,825 $40,336

    w h r p u k ?

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    the overall level o education in their popula-

    tions are most likely to prosper.

    healthO all the great achievements o our civiliza-

    tion, perhaps the greatest has been the dou-

    bling o human lie spans during the 20th

    century. We did it by curing and preventing

    age-old diseases. Lost amid the debates about

    the 2010 health care bill was the act that pre-

    venting and curing diseases are at least as im-

    portant as xing a fawed system o insurance

    payments and coverage. In act, the term

    health care has multiple components, in-

    cluding medical insurance, treatment proto-

    cols, prevention and laboratory research

    aimed at cures. My mantra or decades has

    been, Not just care cures. It recognizes

    that the best way to reduce health care costs is

    to reduce or eliminate the burden o illness at

    all stages o lie.

    One way to do that is to attract the best

    and brightest students to careers in medicalresearch. When we established what is now

    the Prostate Cancer Foundation two decades

    ago, we made recruitment o outstanding tal-

    ent one o the highest priorities. And to retain

    that talent, we removed as many bureaucratic

    barriers to research as possible while unding

    deserving work without delay. Today, death

    rates rom prostate cancer are less than hal o

    what was once predicted.

    But researchers alone cant reduce the costo disease when 70 percent o health care

    spending is related to liestyle. More o our

    citizens must take personal responsibilityor

    their health and get over the idea that its

    someone elses job. While genes cause or con-

    tribute to some disease, our excess weight, to-

    bacco use and poor exercise habits are ar

    more damaging. Ater millions o years o

    evolution, the body shape o Americans

    changed dramatically in just the past two de-

    cades. In 1991, only our U.S. states reported

    obesity rates exceeding 15 percent. Today, in

    49 states Colorado excepted obesity rates

    exceed 20 percent. Nationally, two o veAmericans are obese, compared to two o 28

    French citizens and ewer than two o 100

    Japanese. This is a national emergency.

    Even as we address the obesity epidemic,

    we would be wise to increase resources de-

    voted to medical research. We can accelerate

    cures i we eliminate these barriers:

    Unnecessarily complex and inefcient pro-

    cesses. Researchers, clinicians and patients

    are constantly lling out paper orms. Grant

    applicants submit hundreds o pages o docu-

    mentation to the U.S. National Institutes o

    Health (NIH). And what patient hasnt been

    handed a clipboard to ll in the same medical

    history given to another doctor a ew days

    earlier? Only our in ten U.S. doctors use elec-

    tronic records. We need to accelerate eorts

    rom the ederal government and rom insur-

    ance companies or practicing physicians togo ully electronic. That will save lives.

    Bureaucracy. The NIH is a unique resource

    that has helped drive many o the great medi-

    cal achievements o the past hal century. But

    with 27 distinct institutes and centers operat-

    ing in parallel, eective and ecient collabora-

    tion across disciplines is not easy. Establishing

    a ramework that allows or greater collabora-

    tion and seamless coordination will pave the

    way or a more outcomes-oriented and ac-countable NIH. And creating a new entity

    the proposed National Center on Advancing

    Translational Sciences ocused on accelerating

    therapeutic development is an important

    rst step. This center would improve the abil-

    ity o each institute to translate its vast scien-

    tic knowledge into better diagnoses, treat-

    ments and prevention.

    Too much safe research. I regulatory and

    unding structures could evolve at the same

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    16 The Milken Institute Review

    pace as science, cures would come aster. Un-

    ortunately, we have a system that creates in-

    centives or low-risk research aimed at smallimprovements, not breakthroughs. Rather

    than cooperate on big problems, scientists

    too oten dwell on individual projects whose

    success can be predicted even i they dont

    lead to useul therapies. There is insucient

    ederal unding o new high-risk research.

    Underuse of technology and lack of stan-

    dardized information. In 1995, I delivered a

    speech at the National Cancer Summit in

    Washington and outlined a 10-point plan o

    attack on cancer. One recommendation was

    to create a world library o organic chemicals

    and test every known chemical compound

    against every known cell line or specic dis-

    eases. Since 1995, the cost o crunching data

    has plummeted. The issue now isnt cost; its

    coordination. The NIH has taken some wel-

    come steps in this area. But diseases dont

    limit themselves to national borders and nei-ther should we limit ourselves in coordinat-

    ing global responses.

    Today, you can withdraw cash rom an

    ATM anywhere in the world and your bank

    records the transaction instantaneously. Yet

    medical researchers at institutions around the

    world have trouble exchanging inormation

    about something as basic as your blood pres-

    sure. I banks in 200 countries each with its

    own nancial regulatory structure canagree on a common communications proto-

    col, surely laboratories can do it.

    xcessive privacy/security concerns. The

    public is rightly concerned about invasions o

    privacy and compromises o sensitive medi-

    cal inormation. But the same technology

    that makes data vulnerable can also make it

    secure. Congress should amend the Health In-

    surance Portability and Accountability Act o

    1996 (HIPAA) to allow patients more control

    over how accessible they want to make their

    own data. Im happy to make my medical re-

    cords public, and Im sure millions o others

    would volunteer to do so. That could savetime in the search or cures.

    ow participation in clinical trials. Clinical

    trials drive nearly all medical progress, yet

    only one o ten patients asked to participate

    in clinical trials agrees, and many others arent

    even asked. As a result, less than 5 percent o

    patients with serious diseases are enrolled in

    a trial. One way to correct this is to build pa-

    tients condence that a trial is the norm, not

    a desperation measure, and that doctors con-

    ducting trials are acting in good aith with pa-

    tients interests in mind.

    Failure to take reasonable risks. Every drug

    has risks. Even aspirin can kill people suscep-

    tible to gastric bleeding. But the pendulum

    sometimes swings so ar toward caution that

    it inhibits progress on potentially lie-saving

    therapies. The key is to understand the level

    o risk and convey it to patients, design trialscareully, review them objectively, get in-

    ormed consent and charge ahead. As in any

    battle, limited casualties that save millions o

    lives are regrettable but must be expected.

    Poor incentives for careers in science and

    medicine. Ever since Sputnik, politicians, edi-

    torial writers and blue-ribbon commissions

    have declared that America will lose its com-

    petitive edge i we dont train more scientists.

    Meanwhile, our society creates disincentivesor students considering careers in science

    and medicine, including antiscience crusades

    based on religious or ideological views; ero-

    sion o the doctor-patient relationship; the

    cost o malpractice insurance; insucient

    unding o the NIH and National Science

    Foundation; and the low status o postdoc-

    toral ellows who are expected to work very

    long hours or years without retirement ben-

    ets. Unless we pay lie-saving proessionals

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    mattwood

    what theyre worth, more o them will either

    change careers or take their work to places

    like Singapore that put out the welcome mat

    or promising researchers.Failure to integrate technology. Cures dont

    always come rom biology or chemistry. MRIs,

    CAT and PET scans, electron microscopes, ul-

    trasound, DNA microarrays, genome sequenc-

    ers and other medical tools were developed by

    physicists, engineers, mathematicians and

    computer scientists. Yet no U.S. ederal agency

    works to integrate inormation technology

    with biotechnology. Meanwhile, were teach-

    ing yesterdays biology with inadequate ocus

    on computation and systems biology. Medical-

    school deans have told me that their students

    should be taking more engineering classes.

    Students need signicant computational skills

    to pursue the interdependent disciplines o

    advanced cell physiology, neurobiology, genet-

    ics, genomics and molecular biology.

    ack of political will. In 1961, there were

    ew coordinated movements to send astro-nauts to the moon, but President Kennedy

    challenged the nation to think big, and in lit-

    tle more than eight years, we accomplished

    that impossible goal.

    We need similar bold leadership to ocusthe public on the benets o medical break-

    throughs which are immense. The National

    Cancer Institute (NCI) estimates that reduc-

    ing the cancer death rate by 20 percent would

    add $20 trillion to the U.S. economy. Thats

    more than the national debt. This isnt a new

    insight more than a decade ago, economists

    Kevin Murphy and Robert Topel at the Uni-

    versity o Chicago reported that even a 1 per-

    cent reduction o cancer deaths would be

    worth at least $500 billion. Yet the NCI bud-

    get is only $5 billion a year. Does anyone

    doubt that a doubling o that budget to $10

    billion would reduce deaths by more than 1

    percent? I thats the case, shouldnt we invest

    an additional $5 billion a year or several

    years to reap a benet o more than $500

    billion?

    The argument in avor o research invest-ment becomes stronger i we compare it to

    majOr Spending

    iniTiaTiveS in The u.S.

    ourc: Center or Responsive Politics

    NationalHeartInstituteBudget$3.0B

    NationalCancerInstituteBudget $4.9B

    2008U.S.PoliticalCampaigns$5.3B

    Consumerspendingonpotatochips $5.3B

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    18 The Milken Institute Review

    other expenditures. National political cam-

    paigns in 2008 cost $5.3 billion. Interestingly,

    Americans also spend $5.3 billion a year onpotato chips. Potato chips! Nearly double the

    ederal budget or heart-disease research.

    More than the National Cancer Institute

    budget.

    Finally, we must give the Food and Drug

    Administration adequate resources. An esti-

    mated 25 percent o the U.S. economy is a-

    ected by FDA oversight. And Congress keeps

    expanding the agencys responsibilities. With-

    out a larger budget, the FDA wont be able to

    keep up with the pace o innovation in such

    areas as medical device development and re-

    generative medicine. That will urther slow

    the movement o eective drugs and devices

    rom laboratory bench to patient bedside.

    There are many other barriers to medical

    progress, including nonstandard licensing,

    insucient medical-outcomes data, obstacles

    to creating useul biobanks, immigration re-strictions, institutional-review-board bottle-

    necks and inadequate disease models. We

    need to address all o these and that wont be

    easy. But the greatest long-term stimulus we

    can provide our economy will come rom

    better prevention and rom medical science.

    So lets set our priorities. For example, or just

    hal the cost o an aircrat carrier, we can

    double scientic investigations into heart dis-

    ease. Improved public health translates di-rectly into greater national productivity,

    which underpins all economic growth.

    immigration

    The power o immigration to invigorate soci-

    ety is so undamentally American that we

    sometimes orget how much it enriches us.

    Given the current uproar over undocumented

    workers, its time we remind ourselves that by

    welcoming talented legal immigrants, were

    really investing in America. Like other orms

    o capital, talent goes where its wanted and

    stays where its well-treated. And to Americas

    great economic and social benet, our nationhas welcomed and rewarded the best and the

    brightest people on the planet to become part

    o our constantly evolving culture.

    The ace o science and engineering inno-

    vation in our nations epicenter o technology

    entrepreneurship, Silicon Valley, is increas-

    ingly Indian and Chinese the vast majority

    o whom are now American, or want to be.

    In 2000, 53 percent o the Valleys science and

    engineering workorce was oreign-born.

    From 1995 to 2005, Indians were the key

    ounders o 15.5 percent o all Silicon Valley

    startups, and immigrants rom China and

    Taiwan were key ounders in 12.8 percent.

    In that same time period, 52 percent o Sili-

    con Valley tech companies were ounded by

    immigrants.

    Startups are responsible or most net new

    jobs in the U.S., and immigrants are almost30 percent more likely than nonimmigrants

    to start a business. About one in our U.S. en-

    gineering and technology companies have at

    least one immigrant ounder companies

    that have generated hundreds o thousands o

    jobs.

    Obviously, high-skill immigration has

    been great or America, and people around

    the world still want to come here. But uture

    generations o entrepreneurs are leaving theU.S. We need a comprehensive, innovative

    immigration policy that ocuses on Americas

    need or talent to compete globally without

    being paralyzed by security and other con-

    cerns. Heres how I would address what is es-

    sentially the rst reverse brain drain in our

    history:

    ccommodate skilled noncitizen workers

    and their families currently living legally in the

    U.S. These employees contribute dispropor-

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    tionately by ling more than a quarter o our

    global patents. Most want to stay but cant, ei-

    ther because theyre scientists and engineers

    orced to wait 12 or more years or a greencard, or international students who cant get

    H-1B visas (which allow U.S. employers to

    temporarily employ oreign workers in spe-

    cialty occupations). Theyre leaving because

    we oer ewer than 10,000 visas per year per

    country. With more than 350,000 Indians and

    250,000 Chinese stranded in immigration

    limbo while opportunities grow back home,

    talent that wants to remain in America is

    being lured elsewhere. We need to match

    other nations pro-science policies. We also

    need to remove limits and restrictions on cur-

    rent visa holders so U.S. companies can once

    again shop the world or top talent. The ben-

    ets o liting these restrictions go beyond the

    obvious. A recent study demonstrates that

    H-1B visa holders not only earn a large num-

    ber o patents themselves, but also add sub-

    stantially to U.S. innovation and cause in-creases in patent activity by existing U.S.

    citizens. When H-1B visa numbers go down,

    so do patent applications, and when visa

    numbers go up, so do new patents.

    Retain the students we train. We still edu-

    cate a air share o the worlds top students.

    But when these high perormers graduate,

    they cant plan their uture in the U.S. be-

    cause o visa uncertainties. One-third o all

    doctoral students here are oreign, up romone-tenth 30 years ago and 84 percent are

    studying engineering and the sciences. As

    soon as they earn advanced degrees in our

    top universities, we escort them to the border

    and say, Goodbye. They go overseas to be-

    come our biggest competition. Why not auto-

    matic, permanent residence or oreign grad-

    uates rom accredited STEM (science,

    technology, engineering and mathematics)

    masters and PhD programs? We should also

    oer a clearer path to citizenship. I encour-

    aged to stay, theyll pay Social Security and

    Medicare taxes or decades. Their savings

    and immigrants save at a high rate willstrengthen our nancial institutions. Many

    will become entrepreneurs who create good

    jobs in ast-growing elds. Their children, as

    is typical in immigrant amilies, will tend to

    be the most motivated students in our schools.

    nduce entrepreneurs to invest in the mer-

    ican dream. Currently, 10,000 EB-5 U.S. visas

    the immigrant investor visa are available

    or oreigners who invest between $500,000

    and $1 million in creating a new enterprise

    that produces at least ten ull-time jobs. The

    program isnt working well. Unlike many

    other countries, we continue to tax the or-

    eign income o noncitizen residents. To sup-

    port this program, we should eliminate their

    oshore tax until they become citizens, ad-

    vertise benets o the program widely, sim-

    pliy the application process and oer citizen-

    ship in less time.Its time to level the playing eld with

    other countries by matching the incentives

    they provide to high achievers rom around

    the world. Canada, the United Kingdom and

    Australia encourage immigrant investors. Sin-

    gapore entices leading researchers and tech-

    nologists to its $2 billion Biopolis biomedical

    center. As I wrote in an op-ed article last year,

    The real immigration issue is not only hud-

    dled masses yearning to be ree its smartentrepreneurs and scientists who can change

    the world. Any nation that ails to welcome

    them will all behind.

    * * *

    These are six o the most important chal-

    lenges America aces. In many ways, they sug-

    gest that were moving in the wrong direction.

    It will take extraordinarily strong leadership

    to change that direction. Leadership rom

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    20 The Milken Institute Review

    Washington, yes, but also leadership at the

    community level, in corporations, in volun-

    teer organizations, in our schools and athome. It must become a widespread social

    movement.

    Despite everything Ive cited, I remain op-

    timistic about the uture because we Ameri-

    cans have a tradition o rising to a challenge.

    Whenever problems seemed insurmountable,

    bold individuals stepped orward and led us

    to the right solutions. In the 18th century, we

    ought or and won our independence. Later,

    when the Civil War tore the country apart, we

    bound up our wounds and created a stronger

    nation. And when the Soviet Union launched

    Sputnik, we responded by putting astronauts

    on the moon in little more than a decade.

    Today, we have to stop tinkering at the

    margins o big problems and start attacking

    their cores with conviction. In politics, it

    means transcending excessive negativism and

    partisan one-upmanship or the sake o thebroader social good. In education, it means

    putting the classroom teacher at the center o

    the process and expecting greater proes-

    sional accountability. In business, it means

    unshackling small and medium-size enter-

    prises so they grow and create jobs. In medi-

    cal research, it means allocating more re-

    sources to young investigators most likely to

    develop scientic breakthroughs. It means

    living within our household, state and na-tional budgets, and welcoming the best and

    brightest rom the rest o the world.

    Theres no time to waste in shoring up the

    institutions that develop human capital. I we

    summon the political will, we can leave the

    worlds children a lasting legacy o a clean en-

    vironment, stable democracy, robust health

    and universal access to knowledge.

    We know how to do this weve done it

    beore. Lets do it again. Now. m

    notes

    Page 1:

    No event since Pearl Harbor set o such repercus-sions rom Paul Dickson, Sputnik: The Shock of

    the Century, Walker and Company, New York, 2001.Page 2:

    Rising Above the Gathering Storm, National Academyo Sciences, 2005 (Revised 2010).

    Page 5:

    through greater eiciency and reliability by 2020.Electricity Sector Framework for the Future, ElectricPower Research Institute, 2009.

    Page 6:

    according to a Milken Institute report. EnergysNext Generation, 2009 Milken Institute ResearchReport, available at www.milkeninstitute.org.

    Page 7:

    home ownership turned into a nightmare. SeeThe Rise and Fall of the U.S. Mortgage and CreditMarkets, a 2009 Milken Institute report, availableat www.milkeninstitute.org.

    Page 9:

    Research by proessors Carmen Reinhart andKenneth Rogo Carmen Reinhart and KennethRogo, This Time Is Different: Eight Centuries ofFinancial Folly, Princeton University Press, 2009,citing Robert Shiller, Irrational Exuberance, 2nd ed.,Princeton University Press, 2005.

    Page 10:

    A 60-year-old woman is equivalent to a 40-year-oldin 1960. Robert N. Butler, M.D., President & CEO,

    Alliance or Health and the Future, InternationalLongevity Center; panelist, Longevity, BiologicalAge and an Aging Population, 2006 Milken InstituteGlobal Conerence, Los Angeles.

    Page 12:

    added one year o schooling to our childrenslearning. Claudia Golden and Lawrence F. Katz,The Race Between Education and Technology,Harvard University Press, 2008.

    Page 15:

    reduce or eliminate the burden o illness at allstages o lie. See Health Reform: The Role of MedicalResearch and Prevention, a 2010 Milken Institutepublication, at www.milkeninstitute.org.

    Page 18:

    immigrants rom China and Taiwan were keyounders in 12.8 percent. AnnaLee Saxenian, TheNew Argonauts: Regional Advantage in a GlobalEconomy, Harvard University Press, 2006.

    Page 19:

    A recent study demonstrates that H-1B visa hold-ers How Much Does Immigration Boost Innovation?Jennier Hunt, McGill University; MarjolaineGauthier-Loiselle, Princeton University, 2009.

    As I wrote in an op-ed article last year Toward aNew American Century, Michael Milken, The WallStreet Journal, October 7, 2010, available at www

    .mikemilken.com.

    w h r p u k ?

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    tk

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