STAR: Hi, I'm Steve Star
of the Sloan School.
Welcome to our first Senior
Executive Program Symposium
on Management in the Year 2000.
This year as the faculty tried
to plan an appropriate end
for the MIT Senior
Executive's Program,
it occurred to us that with
the average age of the seniors
being about 45, the
end of the century
really wasn't so far ahead.
In fact, the year 2000,
just 13 years from now,
would probably represent
the point in time
where the students
in this program
are, in fact, at the very
height of their careers.
After a tough, long, hard,
intense nine-week program,
it seemed fitting, therefore, to
kind of think toward the future
and ask not so much
where we've been
or where we are, but, in
fact, what is the world going
to look like in the year 2000
and what will be required
of managers in that period.
Now, obviously this
is a very large task.
And it's something
we're planning
to spend several
days on following
a relatively straightforward
model of thinking
about the future.
Essentially, if we think
about time running this way,
and we say that right now
we're here at the origin,
somewhere out here
there is an environment.
And it's in that
environment that our people,
as their careers
progress, will, in fact,
have to be effective managers.
The basic notion
underlying our symposium
is that we need to
start by defining what
that environment
looks like and then
to ask ourselves, what is
it that as managers we're
going to need to do
to make our firms
and ourselves successful
in that environment?
This morning, as our
symposium starts,
our focus is really on the
definition of that environment.
We are exceedingly
fortunate to have
with us two exceptionally
distinguished scholars,
Carl Sagan from
Cornell University,
one of the world's most
well-known and authoritative
scientists, and Lester
Thurow, who's recently
become dean of the Sloan School,
who's one of the world's most
esteemed economists.
Basically what
Carl and Lester are
going to do this morning is
talk about science, technology,
and economics in the
year 2000 in order
to give us a basis
for us then to use,
working in small groups, in
defining the managerial tasks
during that period.
It gives me great pleasure
to introduce to you now
our first speaker for this
morning, Lester Thurow,
the new dean of
the Sloan School.
As you all know, Lester is one
of the world's most renowned
economists, perhaps best known
for his work on The Zero-sum
Society and The Zero-sum
Solution, both of which
argue very, very
cogently how difficult it
is to make decisions, whether
societal or managerial,
under the constraints which
we as managers all face.
Lester, what do you
think the world's going
to be like in the year 2000?
THUROW: What I want to
make an argument today is
if you think of
this diagram, you've
got to start before
his axis there.
In order to
understand the future,
you've got to understand
where we've come from.
Because I think
where we've come from
has a big impact on
where we're going.
What I'm basically
going to argue today
is that if you look
at the world economy,
it's essentially come
to the end of the road.
The world's economy
as we know it
can't evolve any farther
than it has evolved down
the road it's now on.
And in some sense, we
have to build a new road
to wherever we're going.
And so once again, if I
was using his diagrams,
I would have two possible
places we could go.
And the places we go will
depend on what we do.
It isn't simply a
matter of prediction.
But to make that argument,
let me start back in the past.
And I basically want
to start in 1944.
Because in 1944, we
had Bretton Woods.
And between 1949 and 1953,
when we did the GATT,
was the period of
time when we built
all of the institutions that
now dominate the world economy.
And we set the world economy
up as it now exists back
in that period of time.
And if you look at
that period of time,
it's very interesting
as to how and what
we thought about designing
the world economy.
There was a tremendous
argument at Bretton Woods.
One side of the argument
argued that the United States
and the Allies in World War II
should do the standard thing
after World War II,
the standard thing that
has been done at the
end of every war in all
of human history.
And that is you try
to permanently destroy
the economies of
your adversaries.
That's why Rome sewed the
field of Carthage with salt.
And there was a proposal
at Bretton Woods
to permanently de-industrialize
Germany and Japan.
And actually, in Germany for
six months we carried out that.
Proposal we literally
and physically put
machine tools on flat cars and
pulled them out of Germany.
Most of the equipment
went to the Soviet Union.
But the British,
for example, were
offered the plans and plants
of the Volkswagen corporation.
They turned it down because
they said it was junk.
But they could have
had a Volkswagen
if they had wanted it.
We never did it in Japan
because before we actually
literally won the
war with Japan,
people had a change of heart
as to what the strategy should
be at the end of World War II.
And the strategy is
what I'm going to call
the naive American strategy.
Naive American strategy said
if you make countries rich,
they will be democratic.
And if you hook their richness
on the American market--
they have to be rich by
dealing with Americanss--
then they will have
to be American allies.
And that's where the
Marshall Plan came from.
And that's where
foreign aid came from.
If you think about foreign
aid, it was very strange.
You have to remember
before World War II,
the concept of foreign
aid never existed
because the purpose
of colonies was
to make the home country rich.
There's a big argument as to
whether the British got rich
because of their colonies.
But the British thought
they were getting
rich because of their colonies.
You take gold out of the
gold mines of Latin America.
You take raw materials
out of your colonies.
And there was no concept
prior to World War II
that it was in
your self-interest
to make these underdeveloped
countries rich.
They were supposed to
feed the home country--
France, Britain, whomever.
And so foreign aid was a
brand new thing in 1947
just like the Marshall
Plan was a brand new thing.
Now the interesting thing is
we offered the Marshall Plan
to Marshal Stalin.
He turned it down
probably because he
was the only person the world
who thought it might work.
But his argument was,
we're going to build
a socialist world economy.
You're going to build a
capitalist world economy.
And we're going to crush the
capitalist world economy.
And, of course, one of
the interesting things
about Gorbachev is he
has officially given up
on that Stalin strategy.
And the Russians
are now applying
to join all of these
institutions like the IMF,
the World Bank, the
GATT-- all these things
they could have
joined back in 1947
and refused to join because they
had this strategy of building
a socialist world economy.
Now the interesting thing
about that naive strategy
is if you look at
the results, it
was the greatest success
story in human history.
And it grossly exceeded
the expectations
of even its most avid proponent.
Between 1945 and
1980, the world GNP
grows faster than it ever
has in human history,
probably by a factor of three.
And with the exception of
African countries south
of the Sahara, every
single country in the world
is noticeably wealthier on
a per capita basis in 1980
than it was in 1945.
I spent a year working as
a development economist
in Pakistan in 1972.
If you had told me in 1972
that in 1986 India, China,
Bangladesh, Pakistan,
they were all
going to feed themselves and
not need to import food--
they hadn't done
that in 1,000 years--
I would have looked at you as
if you were absolutely mad.
But, of course, it happened.
And so if you think
of that strategy
we put in place
between 1944 and 1953,
it was a tremendous
success story.
But then if you start to
look at things in the 1970s,
you see something
that's very interesting.
In the 1970s, the rate of
growth was just half that
of the 1960s.
We go from a 6+% world rate of
growth down to a 3+% world rate
of growth.
At that time, people
said, well, it's
the energy shocks
and the inflation,
and governments having to
fight inflation by slowing down
their economies.
When the inflation goes away
and when the oil shocks go away,
the world economy
will speed back up
to those growth
rates of the 1960s.
Well, in the first half of the
1980s, the oil shocks go away.
In the first half of the
1980s, the inflation goes away.
And the growth rate in the
first half of the 1980s
is just half that of the 1970s.
Instead of speeding
up, the world
slows down by a factor
of two once again.
And then in January 1986, for
at least one shipload of oil,
the price of oil goes all
the way down to $8.50.
And the world's financial
headlines all say, great news
for the industrial world.
Economic growth is
going to speed up.
But in the two years that are
in the bag of the second half
of the 1980s, the growth
rate is just half that
of the first half of the 1980s.
And so what we have done
is gone from a world that
was growing at 6% in the
1960s to a world that's
growing substantially
less than 1%
in the second half of the 1980s.
And if you look
around the world,
you start to see a
whole set of problems.
And everybody identifies
these problems
as having different causes.
I want to argue
it's the same cause.
Let me give you some
of the problems.
After this tremendous success
story in the third world,
from 1980 to now, the per
capita income in the third world
has fallen 15%.
So instead of having
good growth rates
in places like Latin
America, South Asia,
we're now getting declining per
capita GNPs in those countries.
If you went to
Europe in 1970, you
would have seen a 1%
unemployment rate.
And if you went back to
Europe every December
for 17 years since then, at
the end of every single year,
with no exceptions, you
would have found a higher
unemployment rate at
the end of the year
than at the beginning
of the year.
And that's going to be true in
December 1987 versus December
1986.
And we've now got Europe
with official unemployment
rates of 13% to 14%.
But if you include in the
disguised unemployment
people on medical disability
who shouldn't be there,
the Europeans probably
have something closer
to 20% unemployment.
And if you look in
the United States,
and you look at the category
which the Department of Labor
used to call production
workers and they now
call non-supervisory
workers, which is about 2/3
of the American
workforce, and you
look at their real
wage in 1970, and then
you looked again at their
real hourly wage rate in 1986,
you would have found that there
are real wage rate in '86 is
7% below where it was in 1970.
The United States has never
had, in all of American history,
a 16-year period of time
when real wage rates don't
grow for 2/3 of the population.
Now family incomes
are up because wives
are going to work.
But hourly incomes are down
for a very large fraction
of the American population.
And basically if you
take any industry
you can think of in the world--
semiconductor chips, copper,
steel, farm products,
you name it--
ask how much of that commodity
could the world produce
if the capacity
that already exists
was simply working at
capacity, the answer
is we can produce from 50%
to 100% more of everything
that the world has or wants.
Now that is a sign
of something that
has gone fundamentally wrong.
And on top of that,
we have put a problem
which I'm going to call
the economic black hole
in the world economy.
If you remember
your astrophysics,
a black hole has
two characteristics.
And I'm on narrow ice here.
I realize that.
SAGAN: You're doing fine so far.
THUROW: The first characteristic
is the farther you get into it,
the harder it is
to get out of it.
And eventually not even
light can get out of it.
And that's why
it's a black hole.
Second characteristic
is the physics
inside the black hole
is very different
than outside the
black hole simply
because of the intense
pressures of gravity.
Well, the black hole
in the world economy
is the trade
deficits or surpluses
because they are mirror
images of each other.
If the United States doesn't
have $160 billion trade
deficit, Japan can't have a
$100 billion trade surplus
and Germany can't have a
$65 million trade surplus.
Eliminating one is
eliminating the other.
So you can look
at it either way.
Now those trade
deficits or surpluses
are basically like a
black hole because they're
very rapidly sucking the
world into this situation.
From the point of view
of the rest of the world,
the rest of the world has
got a standard of living
which is now dependent on having
an export surplus to the United
States.
$160 billion worth
of goods requires
$4 million full-time full-year
manufacturing workers
at American levels
of productivity.
So if the rest of the
world has a trade surplus
with the United States
of $160 billion dollars,
since they don't have
productivity on average which
is as high as the American
economy, that means somewhere
in the rest of the
world there are
more than 4 million
full-time workers
who wouldn't have jobs
if the rest of the world
couldn't have a trade surplus
with the United States.
Let me give you
two quick company
illustrations of the problem.
Take Volvo and Saab.
They sell more than half
their cars in America.
Where could they sell those
cars if they couldn't sell them
in America?
The answer is it's
so many cars, they
couldn't sell them anywhere.
And if the American market was
cut off for Volvo and Saab,
they would have to
shrink by more than 50%.
The most dramatic example
is Japanese video recorders.
Last year, the Japanese made
38 million video recorders.
You know how many they bought?
6 million.
You know how many
America bought?
22 million.
Where could the Japanese sell
22 million video recorders year
after year if you couldn't
sell them in the United States?
Answer's nowhere.
And the Japanese video
recorder industry
would have to shrink by 2/3 with
lots of people being laid off.
But we're equally hooked.
We're hooked on the trade
deficit in the foreign loans.
In 1986, one out of every
$4 borrowed in America
was a foreign dollar.
If the foreigners
hadn't let us money,
one out of every four cars
could not have been financed.
One out of every four houses
could not have been financed.
One-fourth of the
federal deficit
could not have been financed.
One out of every
four credit cards
would have to have
been repossessed.
$160 billion dollars is
4% of the American GNP.
It essentially means that
you and I who are Americans
last year got a 4% addition
to our standard of living
we didn't have to pay for.
We borrowed the money.
In addition to that,
we were allowed
to violate what I call the first
commandment of a Swiss banker--
never lend money to anybody
who has to borrow money
to pay interest.
We were borrowing money to
pay interest, about another 1%
of the GNP.
And when the
lending stops, we'll
have to give that percent of
the GNP to the rest of the world
to pay our interest bill.
And there is something which
is probably now not just
a technical economics
term to you,
and so you will recognize it
when it hits the newspapers.
It's called an adverse
shift in the terms of trade.
If you balance your balance
of payments with the falling
value of the dollar, every
time you sell something,
you get less.
And every time you buy
something, you pay more.
And therefore, in
order to improve
your balance of
payments by 4%, you
need a much bigger
swing in volumes.
And in fact, in order to improve
our balance of payments by 4%,
the United States will have to
give up about 8% of its goods.
And so the United States, if
the foreign lending stopped,
would face an 8% or 9% reduction
in its standard of living.
Now that's not the
Great Depression,
where our standard of
living went down 28%.
On the other hand,
it's not a recession.
Because in our biggest
recession since World War II,
our standard of living
has only gone down 2%.
Now what that tremendous
imbalance in the world trade
has done, it's terribly
important in thinking
about these things
for an economist
to make a very clear
distinction between what we know
and what we don't know.
See, in this area, there
are two things we don't know
and one thing we do-- I
mean, two things we do know
and one thing we don't know.
First thing we
know is no country
can run a trade
deficit forever, which
means no country can run
a trade surplus forever.
You can't run a
trade deficit forever
because you have to
borrow the money.
And you have to pay compound
interest on the indebtedness.
And no human being has ever
whipped compound interest.
At some point, the amount
of money you have to borrow
is bigger than the rest of the
world's ability or willingness
to lend.
And the minute
the lending stops,
the dollar falls to the level
that produces a trade surplus
so that we can
pay this interest,
however low that
would happen to be.
Second thing-- and this is where
the physics of the black hole
comes in-- is if you
are a debtor nation--
and the United States
is now the largest--
you have to have a trade
surplus in the long run
because that's the only
way you can earn the money
to pay the interest to
your foreign bankers.
On the other hand, if
you're the creditor nation--
and Japan is now
the largest-- you
have to have a trade deficit
because the only way they
can earn the money
to pay your bankers
is if they have a trade surplus
and give the money back to you.
So today, we have
a trade deficit.
Japan has a trade surplus.
Tomorrow it's going to
be exactly the opposite.
We're going to have
a big trade surplus.
They're going to have
a big trade deficit.
Now what don't we know?
Those two things
are not predictions.
They're just statements
of economic arithmetic.
They're absolutely true.
The only uncertainty is when.
And that is something
economists can't tell you.
Because, see, here
again, I'm going
to use a physical analogy.
Economics is like geology.
See, geologists can
explain earthquakes.
It has to do with
plate tectonics.
But they can't tell
you where, when,
and how big-- all the
interesting questions.
Economics can tell
a fundamental story,
but we can't tell you
when, where, and how big,
and the speed of
adjustment, which
are precisely the things
you would like to know.
And one of the marks of wisdom
that you should take away
from this is anytime your
company economist tries
to tell you when, where, and
how big, as opposed to what
are the fundamental forces, you
ought to be a little skeptical.
Now the question then I want
to ask you, or pose for you,
why is this happening?
Why do we get these
tremendous problems
that sit around the world, a
world that's kind of slowly
sunk into stagnation, these
tremendously volatile markets,
disequilibriums in
trade, and all that?
My argument to you is it happens
not because the world has
failed, but precisely because
the world has succeeded.
That strategy back
in 1944, remember,
was a strategy of making
the rest of the world rich.
And it worked.
We now got lots
of the world that
has a per capita GNP
approximately equal to that
of the United States.
And everybody has a per
capita GNP much higher
than they did back in 1945.
But the institutions in 1945
were built on some assumptions
about the world which
are no longer true
because the strategy
was a success.
One assumption was
the United States
is economically
very large compared
to the rest of the world.
1945, we were 45%
of the world GNP.
As late as 1960, we were
50% of the world GNP.
Today, we're 23%.
There are things that
United States could
do, because it was
so big relative
to the rest of the
world, that it can't
do any longer
because it's now much
smaller relative to the
rest the world-- not
because we've done bad
things, but precisely
because we've done good things.
The economy that was built back
there assumed capital controls.
It assumed money would not
flow between countries.
We didn't allow money to
flow between countries
until the late 1960s.
And nobody envisioned
the world capital
market that we now have.
For example, the
world capital market
has made Alan
Greenspan's job obsolete.
He thinks he's important.
The world thinks he's important.
But he's not.
Because his job is to control
the American money supply.
But there ain't any the
American money supply.
There's a world money supply.
You and I can buy a house
in Boston in German marks.
We can do a deal in the
Bahamas without ever
being there, either one of us.
We can borrow euro
dollars, euro yen,
euro marks that
have nothing to do
with any central
bank in the world.
We have a world money supply
which the world collectively
can control, but no country
can control its money supply.
The United States
when it was powerful
could do things that
it can no longer do.
For example, when
the common market
was set up in the mid-1950s,
all of the evidence
showed the United
States would be a loser.
Our exports would go down
when the common market
was established.
Despite that fact-- and it
was true-- we were the biggest
advocates of the common
market because we said,
we're willing to take the
economic losses to make Europe
into a political union.
When Spain joins the common
market 30 years later,
we demand a billion dollars
worth of reparations
on the ground it's going
to hurt our exports.
And we demand that they pay us
that billion dollars that we're
going to be hurt because
Spain joins the common market.
And it's just an illustration
of the tremendous change that's
occurred in the
world economy because
of those kind of things.
And nobody in 1945 conceived of
the modern telecommunication,
computer, multinational
company technology
where you can put and manage
a plant in Seoul, Korea
just as easy as you
can put and manage
a plant on the other side
of metropolitan Boston.
That was a world that
just wasn't conceived
of back at that period of time.
Multinational companies
weren't conceived of back
in that period of time.
And what it means
is that basically I
would argue to you that
the world is so different
that the institutions that
work very well for 30, 40 years
have quit working because
one of those institutions
was the fact that you could,
in fact, manage your economies.
But what we've done is
create a world economy
where nobody can
manage their economy.
Let me give you a
quick illustration.
The French, which is the
fourth-largest economy
in the Western world,
discovered in 1982,
when they tried to do precisely
what Kennedy and Johnson had
done in the 1960s and what
Ronald Reagan was successfully
doing in the United
States-- i.e.
Stimulating their economy
with lower interest
rates, lower taxes, more
government spending-- it
wouldn't work.
It worked in the sense
that the Frenchmen
went out and bought things.
French spending,
after the Socialists
came in and put their
policies into effect,
actually went up
5% or 6% a year.
But 80% of it went into imports.
And so it wasn't helping
the French economy stimulate
production and employment.
It was helping the
Italians a little bit,
the Germans a little bit,
the Spanish a little bit,
the British a little bit.
But it wasn't
helping the French.
And if the French can't
stimulate their economy,
certainly nobody smaller.
Because what happened in
France is you try and stimulate
your economy.
You have a balance
of payments crisis.
Your currency falls.
This was a period of
the second oil shock,
and so inflation goes up because
the price of imports goes up.
And within a year, the French
are back to austerity, i.e.
Deflating their economy.
But if France is forced
to retreat to austerity,
then everybody
smaller than France
is forced to retreat
to austerity.
And so if you today look at a
country like Ireland or Spain,
both of which have
20% unemployments,
they're putting in
deflation-- deliberately
putting in deflationary
policies which will
make their unemployment higher.
And of course, if
that happens in most
of the countries of the
world, the world economy
sags into stagnation.
Now I would argue to
you that what the United
States successfully
did in 1983 and '84
is the last gasp of steam in
the old economy's boilers.
Because what we
did in '83 and '84
was what Kennedy and Johnson
had done back in '63,
'64, and '65-- cut taxes,
raise government spending,
print money like crazy,
and lower interest rates.
And it worked.
American economy grew almost
10% in '83 and 7% in '84.
And we pulled the whole world
economy out of a recession.
The OECD will tell
you that almost 100%
of the growth in Europe
and Japan in '83 in '84
could be traced to exports
to the American market.
And so we were once again
the giant economic locomotive
providing the market
to lift everybody out
of the '81 and '82 recession.
But we could do it for one last
time for one simple reason.
In 1982, we started off as the
world's largest creditor nation
with $152 billion worth of
international assets that
could be sold, which
meant an enormous amount
of unused borrowing capacity.
Today, we have an
international debt
of something on the order
of $400 billion to $425
billion dollars.
So in a relatively
short period of time,
we've gone from plus
152 to minus 425.
And what it meant was we could
provide a consumption market
for the rest of the
world for one last time.
But suppose we had
a recession today.
Could the United
States do it again?
Would anybody lend us
another $500 billion
so that we could put another
$500 billion worth of demand
into the world economy?
And if they would lend it
to us, should we borrow it?
Because in that sense, we
really are mortgaging our future
because at some
point in the future,
we'll have to lower
our standard of living,
generate those trade
surpluses, and pay interest
to the rest of the world.
But what we've then
got is a world economy
that doesn't work.
Because if we were to
fall into a recession now,
there would be no mechanism
for getting out of it.
None whatsoever.
Now so what I want
to argue to you
is that we've essentially
come to the end of the road.
And it's like shifting
from horse and buggies
to automobiles--
a new technology.
And I really do
think, in many ways,
it is a new technology with
this telecommunication, computer
revolution, and multinational
companies and all
these new institutions.
But when you shift from horse
and buggies to automobiles,
you need new roads, new
driving regulations.
And where the world
is now is we need
to build a new world economy,
which would hopefully work
as well as the
old world economy,
just like we did
between '44 and '53.
But this time, it's much harder.
And what it means
is that the United
States has got a
very schizophrenic
foreign economic and military
policies because we've never
sat down and systematically
said to ourselves,
the world is going
to be different.
And rather than just
kind of letting it
all peter out into
stagnation, even though we're
going to be a loser,
in a political sense
it pays to have
those conferences
and rebuild the world economy.
And, of course, you can't
do it without the United
States for two reasons.
One, we're still twice as big as
anybody else in absolute terms.
And secondly, the second
and third economies
are Germany and Japan.
And because of the
history of World War II,
they can't lead on this issue.
And by the time you get down
to the fourth biggest economy,
you're down to France.
And it just isn't
possible for an economy
that small to kind
of really play
a leadership role in kind of
rebuilding the world economy.
Now there are two places
I mentioned we can go.
See, my argument is we're
at the end of the line.
I suppose we could
simply sit there
at the end of the line
with the train stalled.
I don't think we'll do that.
That isn't human nature.
If the system doesn't
work, we have the tendency
to break it up and
build something new,
even if the something
new is worse.
Now there are basically
two things we could do.
Let me first give you what
I will call the economist
solution.
And this is the solution that
has very wide economic support
in the economic community
all around the world.
It's something that has no
political support whatsoever.
The argument is that Germany,
Japan, and the United States
should get together and play
the role the United States used
to play by itself.
Because the three of them
together are about 50%
of the world GNP.
They're just about
what the United States
used to be in the 1960s when the
world economy worked very well.
And so these three
people should basically
coordinate their economic
policies, three countries.
And the economists even know
what they all should do.
What the United States
is supposed to do
is very rapidly cure its
federal budget deficit, either
by raising taxes or
cutting spending.
The rest the world doesn't care.
Reduce $200 billion worth
of demand for foreign funds.
With the United
States government
out of the world
capital markets,
real interest rates
could come down.
And with real interest
rates much lower,
the world economy
would grow faster.
With the world economy
growing faster,
the United States
could export more
and cure its balance
of payments problem,
as opposed to the
rest of the world
having to export less and
creating an unemployment
problem.
And the argument is if the
United States would rapidly
balance its federal budget, that
would make them grow faster,
us grow faster, and make
the world a better place.
But there's a downside to that.
If the United States
simply raised taxes
by $190 billion dollars, that's
taking $190 billion dollars
spending out of the
world economy, which
is 5 million jobs.
3 million of them would
be in the United States.
2 million would be abroad.
And that's a
worldwide recession.
So if you want the United States
to have the fiscal policies
which balances its budgets,
somebody in the world
has got to add $190
billion worth of demand
at the time the United
States is subtracting
$190 billion dollars
worth of demand.
And the argument is that's the
role for Germany and Japan.
And in the German case,
people go to Germany.
I've been in these groups along
with a lot of other people.
And people say,
well, look, Germany
has got a 9% unemployment
rate and rising, a $65 billion
trade surplus, a rate
of inflation of -2%,
and two out of the
last three quarters
the growth rate
has been negative.
If there is ever a country
in all of human history
that should stimulate its
economy and grow faster,
it is Germany.
And without Germany growing
faster, the rest of Europe
can't for any prolonged
period of time.
And Germany in Europe
is a little bit
like Godot in the play
Waiting for Godot,
if you remember that play.
Everybody sits around in Europe
having very nasty conversations
about Godot.
When is he going to show
up and start growing?
And what I mind remind
my European friends,
if you remember the
play Waiting for Godot,
at the end of the play,
Godot has never showed up.
The Germans may never do it.
And then we go to Japan.
And we say, well,
the Japanese had
a brilliant economic
strategy after World War II.
But it's come to
the end of the line
because it's been successful.
From being a very small
country economically,
they're now the second largest
industrial power in the world.
And they run a trade surplus
in manufactured products
with every country in the
world with no exceptions.
The problem is not
that Japan doesn't
buy from the United States.
The problem is Japan
doesn't buy from anybody.
And the world can't work with
the second largest economy
in the world running $100
billion trade surplus.
That's just taking
too much demand
out of the rest of the world.
And that helps
Japan a little bit,
but it produces stagnation
everywhere else in the world
because everybody
else in the world
has to absorb these trade
surpluses coming out of Japan.
Now Japan can't simply
stimulate the way
the Germans can because they've
structured an economy that's
essentially built against
imports and an economy which is
built against domestic demand.
And so economists both
inside and outside of Japan
say what the Japanese
need to do is
restructure so that
they can become
a domestically-led economy.
There've been two white
papers in Japan that
agree on what they ought to do.
They've got to build a lot
of infrastructure like roads
because no sense
buying a car unless you
got a road to drive it on.
Japanese have very
low car consumption
for their income level
simply because they have
a very poor road structure.
And then you've really got to do
something on the housing front.
Because first of
all, it's absolutely
crazy for a country with a
per capita income of $17,000
to have less space
per person than Korea
with a per capita
income of $3,000.
And Japan is not
a crowded country.
There are fewer people
per square kilometer
in Japan than there
are in the Netherlands.
And the Netherlands
has nice housing.
There's no excuse in
the world as to why
Japan can't reorganize
itself to build housing.
And if you had more
space, then you
could buy some
consumer durables.
They don't sell very many
grand pianos in Japan.
They build them, but
they don't sell them--
not because nobody
plays a piano,
but nobody's got a place
to put a grand piano.
The problem with the
economists' strategy, of course,
is very simple.
It would require Japan, the
United States, and Germany
all to give up some national
economic sovereignty
and admit publicly
that they don't
control their own economies.
And when each one
of the three is
asked to do what I
just said, they all
become Russians and
remember the word "nyet."
Americans don't
want to raise taxes.
Germans don't want to stimulate.
And Japanese don't
want to restructure.
And the last three or
four economic summits
have been incredible
failures economically.
Nothing has been done.
They even now spend
most of their time
talking about
terrorism or democracy
or something other
than economics
because you can agree you
don't like terrorists.
You can't agree on what you're
going to do economically
because it would force you to
confront this fact that you
don't run independent
economies anymore.
Now that's no big deal if
you live in the Netherlands
because the Netherlands
has known for a long time
that what goes on in Germany is
more important than what goes
on in the Dutch government.
It's no big problem if you
live in Canada because they've
known for a long time
that it's more import what
goes on in the United States
than what goes on in Ottawa.
But for these three countries,
who are used to being able to,
in some sense, manage
their own national economy
and pay very little attention
to the rest of the world,
and certainly not adjust
their policies based
on what somebody else in
the rest the world wants,
it would be a real
change in attitude
and in political policy making
to make that shift where you
really had to coordinate with
the Germans and Japanese as
opposed to talk about wouldn't
it be nice if we coordinated
with the Germans and Japanese.
And so we sit on the economists'
solutions at the moment,
not doing very much about it.
We have lots of
conferences about it.
And at the end, they always
pledge great cooperation.
And then if you watch him
for the next six months,
they never do it.
The option, the
second place to go
if you don't go to the
economists' solution,
is to for every-- and
that's where we're
going at the moment--
everybody retreat
back to national economies.
Where instead of
having something
you might call free
trade, you have something
you call managed trade.
And you can see that in
every country in the world.
If you look at the
United States in 1980,
20% of the products coming
into the United States
were subject to some
kind of restriction,
formal or informal.
Today, about 35% of the products
coming into the United States
are subject to some
kind of restriction,
formal and informal.
And same thing is true
in the rest of world
with almost no exception.
We all look at the other
guy and say protectionist.
But the fact of the matter
is we're all becoming
more protectionist over time.
The interesting thing
you have to think about
is if we all retreat back to--
the idea of retreating back
to national economies where you
control foreign trade is then
you can run your own economy.
You can stimulate French demand
just by government fiat--
keep out the imports,
force the Frenchman to buy
French products, and
push French production up
and push French unemployment
down, employment up.
Now one of the
questions you have
to ask yourself about
that, essentially,
second-best strategy,
with modern technology,
telecommunications,
computers, et cetera,
how possible is it to
retreat back to the 1960s?
See, the 1960s had
capital controls.
And if you go back to
national economies,
you once again got to
control capital flows.
With modern technology,
that's certainly harder
than it used to be--
maybe not impossible,
but it's certainly harder
than it used to be.
But I think it's reasonably
clear we're not just going
to sit at the end of the line.
We're going to go one
of those two directions.
And the two directions
we go obviously
depends on how we choose.
Do we essentially take the
line of least resistance,
just let the events unfold,
which means we go back
to national economies?
Now that has some
tremendous implications
politically because
it probably means
we will bust up our military
and economic alliances.
But see, it also--
the common market
has got a tremendous problem
because the common market
is not a common market.
Countries of the common
market won't live up
to the Treaty of Rome.
Treaty of Rome
says they're going
to run common monetary policies
and common fiscal policies.
They've always been
unwilling to do that.
And the common market is
full of these under-the-table
restrictions like when Spain
joined the common market, they
had to agree that forever,
for four months a year,
they would not sell
strawberries in northern Europe.
I mean, the restrictions
are down at that level
because somewhere
in northern Europe,
somebody was growing
strawberries under glass
and didn't want to compete
with the Spanish growing
strawberries under sunshine.
And it's not at all obvious
that the common market is going
to become a common market.
It's much more likely
that it will split up
to once again be
independent countries.
I spent two days last week with
the prime minister of Ireland
in Ireland.
What would you do if you were
the prime minister of Ireland?
Just sit there and take
a 22% unemployment rate,
and then a 24% and then a 26%?
At some point, you either as
the prime minister of Ireland
or as the Irish people
say this don't work.
What we're going to do when we
get out may not work either,
but we know this isn't
working, so try something new.
Don't just stand there.
Do something stupid.
See, I think that's
human nature.
And so we're in that box.
And I don't know.
If you think about
economic predictions,
I don't know which
way we're going to go.
But I think that's the thing
you have to think about in terms
of running corporations.
Because what you should
do as a corporation will
be very different depending on
which one of those two routes
we take.
OK.
STAR: Thank you, Les.
If I could immediately
reflect what
I've already learned
this morning,
let me revise my diagram.
And it seems to me
that rather than sort
of saying, hey, there's
some future out there,
I think what we're really saying
is that there's at least two,
and probably a cluster.
And that in planning a
corporation, to some degree,
we've got to determine how
can we affect the future.
But we've also got what kind
of optimal strategies and plans
would make most sense
given either of those two
alternatives or
possibly some others.
I first about Carl Sagan
back in the mid-1960s
when my wife Brenda,
who's actually
in the back of the room, brought
home a book called Intelligent
Life in the Universe.
As far as I know, Carl,
this is your first book.
It's a book coauthored with a
Russian scientist, whose name I
will not even
attempt to pronounce.
But what to me was
significant about this book,
it was certainly dealing
with this question,
is there life elsewhere
in the universe?
But the real question that it
asked, and it so fascinated me
at the time, was not so much
is there life out there,
but how would we know?
And for somebody
like myself, who
did not have a background
in the scientific method
and scientific inquiry, kind of
puzzling through that dilemma
with Carol, which is what
this book really let me do,
caused me again to kind
of approach the world
in a fundamentally
different kind of way
in terms of thinking about
a whole bunch of things.
So for me, it's
very, very exciting
to have Carl with us
today to help us kind
puzzle out this whole
question of where
the world seems to be going.
Carl?
SAGAN: Thank you.
I will be talking
not so much about
whether there is
intelligent life elsewhere,
but whether there is
intelligent life here.
I want to talk mainly
about the development
of science and technology
and its consequences.
I will make some
economic statements,
which, if I'm
extremely lucky, will
be as competent as Lester's
astrophysical statements.
We are a tool-using species.
It's our only hedge
against disaster.
Our ancestors, when they
came down from the trees
10 million years ago
or something like that,
were not faster than
the competition,
not stronger than
the competition,
not better camouflaged,
not better diggers
or swimmers or
flyers or runners.
All we had going for
us was being smarter,
having hands with which
we could build things.
And that was and has been
the secret of our success.
We were technological
from the beginning.
So 2 million years
ago, our ancestors
had a vast stone
and wood technology.
We knew how to chip
and flake and carve.
And that's how we
managed to make a living.
And a very good living it was.
That hunter-gatherer way of life
spread to all six continents,
existed for a million years.
And the bulk of the evidence
is that most of those economies
had surpluses.
And that the amount
of time that people
work in hunter-gatherer
societies, even
the paltry remnants
that are around today,
is less than the
fraction of time
that people work in modern
industrial economies.
So immediately there
is a real question
about how much progress has been
made in the last million years.
The technology has
been monotonically
developing, always for
short-term advantage.
It's extremely rare that a
technological development
is forsworn because
100 years from now
we can see that there will
be some serious negative
consequences even though
10 years from now we
can see that there will be
some significant advantage.
We never think on
those time scales.
100 years from
now, we'll be dead.
Someone else's watch.
Let them look out for that.
Well, this passion for the
short term over the long term,
coupled with extraordinary
technological prowess,
has, I maintain,
produced an extremely
dangerous and
critical circumstance
at the present time.
The technology now permits us
to affect the entire planet.
And so apart from the evident
economic interdependence
of the planet which
Lester so brilliantly
discussed just a
moment ago, there
is an enormous technological
interdependence.
And I'd like to
give a few examples.
The innocent act of burning
fossil fuels-- coal, peat,
wood, natural gas, petroleum
products-- has consequences.
It seems the most natural
thing in the world.
The global economy is geared
mainly on the fossil fuels.
But every time you
burn a lump of coal,
let's say, you combine
the carbon in it
with the oxygen in the air.
That's where the
energy comes from.
And you produce
carbon dioxide, CO2.
Now let's just spend a
moment on carbon dioxide.
The air in this room as
0.03% carbon dioxide in it.
It's a minor constituent.
It's odorless.
It's colorless.
It's not poisonous.
And it's transparent.
Here we are seeing each other.
It must be transparent.
It's transparent
in the visible part
of the spectrum, the
ordinary kind of light
that our eyes are sensitive to.
But in the infrared
part of the spectrum,
the light beyond the red,
it is not fully transparent.
And at a wavelength of
15 microns, it's opaque.
If our eyes were
good at 15 microns,
we could not see
our finger in front
of our face, which is why our
eyes are not good at 15 microns
because that would
be perfectly useless.
Now what determines the
temperature of the Earth?
Visible light
comes from the sun,
hits the surface of the Earth.
Some of it's reflected
back to space.
The rest of it is
absorbed by the ground.
That goes into
heating the Earth.
And what we have is a
kind of equilibrium.
The Earth radiates to
space just the same amount
as what it absorbs from space.
And that equilibrium determines
the temperature of the Earth.
But that is only
part of the story.
The other part has to
do with the greenhouse
effect, so-called because
of a imagined analogy
to a florist's greenhouse.
But the basic idea is that
transparent atmosphere
lets the sunlight in.
But when the surface
tries to radiate away
into space in the
infrared, that radiation
is impeded by the
partially opaque atmosphere
in the infrared.
Carbon dioxide is
one of the causes.
Water vapor is another.
Ozone chlorofluorocarbons,
there's
a number of molecules
that are greenhouse gases
and hold the heat in.
Now the lifetime of
carbon dioxide molecules
in the atmosphere is measured
in thousands of years.
So every carbon dioxide molecule
we put in the atmosphere
will stay there for
the foreseeable future
and increases the
greenhouse effect,
and therefore increases
the temperature
of the Earth globally,
the worldwide temperature.
The curve of carbon dioxide
is a function of time.
It is a kind of increasing
sawtooth like that.
The up-down is a seasonal cycle
of vegetation on the planet.
And the amount of carbon dioxide
is monotonically increasing
and has been doing
that for many decades,
in fact, possibly since the
beginning of the Industrial
Revolution.
It is now entirely clear that
the Earth's temperature is
increasing as well, globally.
At estimated rates of
industrial and domestic use
of fossil fuels, you can
make some predictions.
And there's, of course,
some uncertainty,
but a typical prediction
is that at the projected
rates of fossil fuel use by the
middle to late 21st century,
that is roughly a
century from now,
the global temperature
will have increased
sufficiently to make massive
climatic change on the planet.
A typical prognostication is
the conversion of the Ukraine
and the American
Midwest into something
little different
from scrub deserts.
That will have significant
economic consequences,
but on a time scale that
nobody worries about
because it's not our watch.
It's our children
and grandchildren.
Let them worry about it.
Suppose that we were
smart and started
limiting the use
of fossil fuels,
made massive investments
in alternative energy
sources, solar power, and
ultimately fusion power,
thermal-nuclear reactions,
what would the consequences be?
Well, suppose the United
States and the Soviet
Union in 30 years-- not
out of the question--
had economically
viable fusion reactors
and replaced they're
entire fossil fuel
economies despite enormous
resistance from fossil fuel
corporations?
And will then
everything be fine?
Everything would not be fine.
The third largest coal producer
on the planet is China.
China is in the throes of
massive industrialization.
Can we imagine the United States
and the Soviet Union going
to China and saying,
look, we know
we made some mistakes
in our industrialisation
using fossil fuels.
But please learn
from our mistake.
Don't you use coal as well.
Otherwise, our farmers in
the Ukraine and the Midwest
are going to be in trouble.
What's in it for China?
I think the United States
and the Soviet Union
would have to provide
the alternative power
technology at a rate which was
competitive with Chinese use
of coal, which will be very
cheap, in order to make much
of a dent in Chinese thinking.
Possibly China will be
much more altruistic
and planet-oriented than the
United States and the Soviet
Union.
But I wonder if we
can bet on that.
Well, this is a kind of a
prototype of a generic set
of problems that worldwide
technology now brings before
us, a set of problems which
involve unanticipated negative
consequences of apparently
benign technology,
consequences very severe,
consequences that are global
in nature and therefore that
cannot be solved even by one
or two of the most
powerful industrial nations
by themselves.
It requires the entire
industrial world to deal with.
Any definition of national
security, it seems to me,
has to involve the
well-being of the citizens'
economic well-being, a positive
sense of the future based not
on pap but on real expectations,
education especially in science
and technology.
The scientific illiteracy
of Americans, in general,
is scandalous.
Every day, there are significant
decisions made in Washington
involving science and technology
which have very long outreach
into the future.
And 435 members
of Congress, there
are perhaps two who
in any sense have
a scientific or
technological background.
The office of the
president's science advisor
has been downgraded
in recent years.
The president's scientific
advisory committee was
cancelled in the Nixon
administration because it gave
advice that was
politically undesired.
The laws of physics did
not correspond adequately
enough to the ideological
wishes of the leadership.
And no subsequent
president thought
it advisable to resuscitate
the president's science
advisory committee.
For a nation which is in
many significant respects
dependent on science
and technology,
to arrange things
that nobody knows
anything about science and
technology is clearly suicidal.
And some of the problems that
I've been mentioning before
are connected to this.
How was it we didn't foresee
the consequences of many
of these technologies?
It's because there's a very
small science and technology
base in the United States.
There's a small science and
technology base in the Soviet
Union as well, but
they're doing a lot more
in scientific and technological
education than we are.
How much science and technology
do you see, for example,
in the mass media?
Every newspaper in America
has a daily astrology column.
How many have even a
weekly science column?
Why is this?
How much science do
you see on television?
When somebody wins
the Nobel Prize,
do you ever get a
coherent explanation
of what he won it for?
What was this discovery
that was important enough
to win a Nobel Price?
Well, the basic
sense in television
is that the American people
are too stupid to understand.
And that it takes concentration.
And therefore in the quest for
a small differential advantage
in the competition between
the networks, that it will
be a means of losing
ratings to spend time
explaining what
science is about.
Short-term advantage for the
network, long-term disaster
for the country.
Well, I have just one
concluding remark.
And that is the I know
I've been slightly
negative in this presentation.
There is not the slightest doubt
that science and technology,
but in particular the
scientific way of thinking,
can be used in a
very significant way
to turn around many
of these problems
and to work for
human betterment.
But it requires a
break with the idea
that everything we've
done in the past is OK
and any criticism of
it is impermissible.
That so many
people, for example,
of both political
parties, and, in fact,
the United States
and the Soviet Union,
have invested their
entire careers
on the advisability of
the nuclear arms race.
That that already means that
there is a vast vested interest
in turning things around.
And this is true in many of
the other technological areas
that I mentioned.
In order to justify a
lifetime of somnambulance
on the critical
issues, people are
reluctant to even have those
critical issues addressed.
So what I think is most urgently
needed in all aspects of life
in the United States
and the Soviet Union
and elsewhere is a
comprehensive bologna detection
kit in which the average
citizen can treat
with appropriate skepticism
remarks made by high government
officials and those justifying
the continuance of the way
we've always done things,
whatever those things are.
I think widespread
critical thinking
is an essential
precondition for the higher
standards of leadership
that we desperately need
and for the higher standards
of education and awareness
of the problems we
face, which I think
is required of every citizen.
Thank you.
STAR: Thank you very
much, Les and Carl.
[APPLAUSE]
Reflection on what we
heard, it did seem to me
that there were a
couple things that we
might want to just kind
of get on board as sort
of an organizing concept.
Now it seems to me
that on the one hand,
we're talking about
short-term versus
long-term kind of phenomena.
It seems to me that on
the other hand-- OK,
I'm going to hold
this microphone.
On the other hand, we're
talking about national
versus global kind of
organization and management.
And obviously, this
is continuous space,
but if, for the
sake of discussion,
we were to put it
in sort of a matrix,
it seems to me that what
both of our speakers
have been saying is what
we've been doing to much too
great of degree is operating
in a short-term time frame
and from a fairly narrow
national perspective.
I've never been able to
draw in three dimensions,
though we do have people on
the Sloan faculty who can.
But if I could draw
in three dimensions,
the third dimension I
would put on the matrix
would be a dimension having to
do with stupid versus smart.
And if you kind of view
that one going out,
it seems to me that our
speakers are suggesting
that we're sort of on the stupid
end of that continuum as well.
It seems to me that
a clear implication
of what we were hearing this
morning, in both the economics
realm and in the science
and technology realm,
is that we damn well
better move that way.
Or looking at it
differently, adding
the stupidity-intelligence
dimension,
we really need to
move out this way.
We got to move from
narrowly, national,
short-term and stupid, to
global, long-term, and smart.
And one of the things that
we talk a lot about here
at the Sloan School, of
course, is probabilities.
And I suppose one
of things we're
going to want to do before
this exercise is over
is a science and
probabilities to that.
And if we go back to this
original kind of concept
of essentially that we're here
and the issue is where we're
going, I suppose that now having
heard Carl as well as Lester,
I'll add a third possible
environment, which wouldn't
even be there, I suppose.
It would be down here,
off the graph completely.
All right.
It's on that pleasant
note that I now
suggest that we kind of
engage in some discourse.
I would like very much by noon
to have Humpty Dumpty put back
together again, or at least
have some sort of a plan
to get Humpty Dumpty
back together again.
So let me simply ask,
are there any themes
that we've seen this
morning that anybody would
like to pick up at this point?
AUDIENCE: Both Lester
and Carl, in my view,
basically argue, as Steve
already pointed out,
much the same thing.
However, particularly
Carl pointed out,
you seem to be both arguing
for a transcendence in, if you
will, evolutionary and
biological perspective
in the way that we
act and interact,
the need for global cooperation,
long-term planning, et cetera.
In other words, Lester's
technological optimism
has been our historical role.
Further, you both argue, from
what we have just recently
learned is something we
call the rational actor
model, in that it's a very
logical, sequential kind
of thinking, however ignores
all the other decision-making
models that you both are
talking around and about,
the bureaucratic and political.
On top of this, we've recently
returned from Washington
wherein the leadership of one
of two most powerful governments
on Earth freely admit
that nothing happens down
there without a major crisis.
How can you rationalize
all of these?
Because there seems
to be an implicit need
for multiple
decision-making processes
which are [INAUDIBLE]
to one another,
if you will, and don't
seem to be occurring, even
with a pending crisis.
SAGAN: There's no question
that that is the problem, what
you just talked about.
To devote enormous fiscal, or
even intellectual resources,
in the government to an
alleged crisis that hasn't yet
broken when there
are other crises that
are breaking every day is
considered bad politics.
And the idea that a significant
fraction of the resources
have to be devoted to long-term
problems, awkward problems,
problems which fight the
ideological biases in which
every country is, that's a
lot tougher to get going.
I tried to discuss
at the end of my talk
what is needed to do this.
And part of what is needed is
much greater public skepticism
about what governments
claim they're doing.
I'd like just to mention as a
kind of a stark perspective,
you talked about a kind
of evolutionary inertia.
And there may well
be some of that.
But remember, we're a
problem-solving species.
That technology that's
the secret of our success
is all from thinking things out.
We have had some spectacular
changes in our world view
when there were--
human species, I
mean-- when there were enormous
vested interests against it.
And let me just
mention two examples.
Divine right of kings.
Now there was a time when
that was the worldwide norm,
that very steeply graded social
hierarchies were designed
by God for the human species.
And at the top of
each local hierarchy
was a king or emperor.
Think of the powerful
vested interests
in maintaining that
kind of system.
Kings and emperors certainly
had a vested interest in it.
They ran the agencies
of national propaganda.
They ran the agencies
of national coercion.
But we don't have divine
right of kings today
with one or two exceptions
anywhere on the planet.
I don't think Queen
Elizabeth II is
an advocate of divine
right of kings or queens.
We managed-- a
course, at some cost--
but we did manage
to turn that around.
Second example, consider
chattel slavery.
There was a time when it
was considered perfectly
fitting and proper that some
people should own other people.
You have famous
philosophers like Aristotle
who were widely admired talking
about how some people are
naturally slaves, deserve to be
slaves owned by other people.
And other people are
naturally masters.
Look how little
power the slaves had.
Look how much power
the slaveholders had.
And yet, all over
the world, there
isn't any more chattel slavery
with some local and minor
exceptions.
So we were able to make
very major changes.
I maintain that the
vested interest in slavery
by slave owners and in divine
right of kings by kings
is much larger than
the vested interest,
say, in the nuclear
arms race by generals
who had children
and grandchildren,
or the vested interest
in national sovereignty
to the exclusion of economic
well-being by national leaders.
I think you can
look at our history
and recognize that we have
made stirring profound changes,
not just in matters
secular, but matters
secular that were thought
to be divinely ordained.
THUROW: You know, you
always learn things
from interesting places.
About half a dozen
years ago, I had
a son who got fascinated by
the kind of human details
of the Roman Empire-- not
by the great emperors,
but how you build the roads,
what the cities look like,
those kind of things.
And he was at the age where
fathers read stories at night.
And I remember reading
an elaborate story
about building the Appian Way.
And, of course, the Romans
didn't believe in God
in the Medieval
Christian sense, but they
believed in the
Roman Empire, which
was going to last forever.
And so the Appian Way, which
still exists today as a road,
they first dug a trench which
was literally 20 feet deep.
Then in that trench, they
put four or five feet
of crushed gravel at the bottom,
so it would have good drainage.
And then they put
blocks of granite
what were 10-foot squares.
And if you think
about what technology
they had in those days to
drop 10-foot blocks of granite
into this hole.
And then you overlaid
it with paving stones
that were two feet thick.
And ask yourself when is a road
like that going to wear out?
The answer is they're still
driving on it in Rome today.
But they weren't doing
it because somebody
2,000 years ago said, hey, I got
to build a road for the Romans
in 1987.
They were building
it because they
didn't have this-- they had
a very different conception
about how long things
were going to last.
And I think maybe, in some
sense, we know-- in that sense,
we know too much history.
Because we believe, partly
because of the Industrial
Revolution, everything
is going to change so
radically that anything we
do today is waste tomorrow.
It won't be used.
It will be obsolete.
And so no modern road is
built to the specifications
of the Appian Way.
Modern asphalt roads,
if nobody drove on them,
would disappear within 15
years because the bacteria
eat them, eat up the asphalt.
SAGAN: This is
self-confirming prophecy.
THUROW: What's that?
SAGAN: The idea
that we shouldn't
build for the distant
future because things
will decay before then.
If that's your view,
then, of course,
things will decay before then.
But can I just say, you
don't have to build for God.
You just have to build
for your children
and your grandchildren.
THUROW: But it's harder to
build for your children.
You don't like them as
well as you like God.
AUDIENCE: I'd like to
come back to your options
for the near future [INAUDIBLE]
was your first option, that
need for the cooperation of the
United States, Germany, Japan,
or others.
And one of the major topics
we are talking in Japan now
is restructuring.
This is a sample of
the books in Japanese.
But this says restructuring,
as you can see in English here.
This is a major topic.
And without doubt,
our government
is going ahead for
this direction.
And one of the
problems we are facing
is a cultural changing involving
with this restructuring.
Our culture, ethics,
originally saving is a virtue.
Spending is a vice.
And so import is
[INAUDIBLE] luxury.
So spending on a
luxury item is a vice.
So we have to restructure
our culture totally.
That is no problem.
Our next generation,
they are spending money.
And everything they wear is
import from top to bottom.
So no problem.
That can be achieved
in next generation.
But we cannot wait until
the next generation.
We have to do something
in my generation.
That's what I feel.
And the reason for
what we are doing
is moving our production
site to offshore and recently
more to the United States.
We used to move more
to Asia and Europe
before now recently
moving more to the United
States, both assembly
and components plants.
And I'm wondering, in addition
to that restructuring,
does it help your
economy, or United States'
economy, for long term,
is it good or bad?
And how does it
effect if we move
our production site, both
assembly and components,
to worldwide?
How does it [INAUDIBLE]
to the United
States and worldwide economy?
THUROW: If you think about
what you were talking
about vis-a-vis Japan,
the real question here
is which way do you
think we're going to go?
If we take the route towards
a general global economy,
then very quickly every
country will be in some sense
a transnational country,
a transnational company
where you'll be doing
various things abroad.
And certainly one of the
things you would expect
is if Japanese are
good at making cars,
and currency values
change, then we
don't quit buying
Japanese cars, but we
do start buying Japanese cars
made in America as opposed
to Japanese cars made in Japan.
And that helps solve out
these trading problems.
But, see, I think that
the thing to remember
is we're all history.
And we're all good
at certain things
and bad at certain things.
For example, Japan is super
when it comes to exporting.
Japan, so far, has
proved to be lousy
when it comes to managing
offshore production facilities.
It's just a very
different-- see,
Americans are
lousy at exporting,
but American companies sell
25% of the cars in Europe.
They sell a substantial
fraction of the cars in Japan.
But they do it by
foreign ownership
as opposed to exporting
from one country to another.
And [INAUDIBLE] Securities,
for example, in New York City
has had tremendous
problems mixing
Japanese and American workers.
Because the systems
are so different,
it's very hard to do it.
And so if you
think about how you
have to change your
corporate culture,
I think it depends
a lot on-- if we're
going to go back to kind of
more nationalistic economies,
then you can think of let's run
a Japanese corporation the way
we've always run a
Japanese corporation.
We have to change some
things at the margin,
but we don't have to
change the central culture.
If you think we're going to this
global economy, then in some
sense the whole concept
of a Japanese corporation
kind of disappears.
It's not that you have to
become an American corporation,
but we invent something
which is different,
where I, an American
employee, might
have a chance of getting
to the top of what used
to be a Japanese corporation.
You, a Japanese,
might have a chance
of getting to the top of
something that used to be
called an American corporation.
Now I think these kind of
historical cultural blinders
are very strong.
I was in Japan in July and asked
to meet with the MITI group
at the Ministry of
International Trade and Industry
for a couple of days about
their various problems.
And, of course, one of
the problems is housing.
And I made this
comment about you've
got fewer people per square
kilometer than the Netherlands.
But they said, but we've
got all these mountains.
We don't really have as
many square kilometers
as it looks like if you
just look at it on a map.
And, of course, that
led to a discussion
about something that's always
fascinated me in Japan.
Nobody ever builds a
city on a mountainside.
And if you go to
Italy, every city
is built on a mountainside.
And so I started
asking these people
at MITI, why don't
you ever build
houses on these hillsides?
And they said, well,
they would occasionally
slip down the hill.
And, of course,
that's true in Italy.
Occasionally, a village
does come down a hillside.
But most of the time, a village
doesn't come down the hillside.
AUDIENCE: What skills
developed to emphasize
in terms of our undeveloped
as we go on to the year 2000
in any of the
scenarios [INAUDIBLE]?
SAGAN: I would say
extreme skepticism
about ideologically-based
pronouncements on either side.
A kind of thinking which I
think is best encapsulated
in the scientific method.
Arguments from authority
have no weight whatever.
Experimental
investigation is desired.
Vigorous debate is encouraged.
The recognition that people
from a variety of backgrounds
and countries have important
contributions to the problem.
And the general increase
in the sense of globalism,
the awareness that we are
all in the same boat together
and we have to solve
our problems jointly.
A great many of our problems
have to do with a residuum
back from days of jingoistic
nationalism, which
is not only counterproductive,
but extremely dangerous today.
There's a kind of reworking of
things in the human heart that
is essential.
And I agree with what
Lester said before
about technological fixes.
Many of these problems are not
fundamentally technological.
They're fundamentally
political or psychological or
psychopathological, and have to
be addressed on those grounds.
AUDIENCE: One of the ways
that people restructure
their thinking is through
having role models,
people to identify with.
And I'm dying to ask you
both whether you see any role
models among the politicians and
leaders of the country today,
since we're about
to face an election.
STAR: But putting
this into context,
it seems to me what
we're fundamentally
grappling with here is the
question-- it seems to me we've
laid out a precondition
that says, essentially
that the world, or at least the
other world broadly construed,
really needs to go through
some pretty fundamental changes
over the next decade or two.
In the absence of that, the
long-term consequences--
I think what we're hearing--
from both the economic
and the science
technology perspectives
are very, very serious.
It seems to me this
discussion of politics,
of governments, of
stakeholders, of the media,
of public opinion--
it seems to me
this is all very highly germane
because what we're really
talking about is the impediments
to the kind of change
that's required.
Now Carl earlier cited
both the diminishment
of the divine right
of royalty and the end
of chattel slavery
as fundamental shifts
within memory that
have taken place.
Both of those, yes, I believe,
however, were-- at least
the conditions for them included
significant economic change
and at least a certain
amount of military conflict.
The question, I suppose,
we really have to raise,
and I guess this is a
suitable point to ask,
is, given these impediments,
it's relatively-- certainly not
easy, but we can sit
here in the here and now,
and we can say this is
why things go wrong,
and this is why things go wrong.
Yet we claim to be, if not
optimistic, not a pessimist.
And so, I guess,
the real question
is, how do we expect to
get over these things?
Presumably we're not critiquing
democratic processes when
we talk about public opinion.
We are not advocating warfare.
How are we going to do it?
THUROW: But see, I
think it's exactly
the same problem inside a firm.
You don't elect a leader of
a firm by democracy, exactly.
But you do, in fact,
select leaders of firms.
And the question is, does
this selection process
turn up the right things?
And see, I am always amazed
how the similarity-- let
me make a similarity between
the Soviet Union and General
Motors.
I would argue they have
exactly the same problem.
The problem in the
Soviet is very simple.
In some sense, the economy has
worked very well over 70 years.
They've gone from
being an underdeveloped
country to a superpower.
The GNP is growing just about
as fast as the United States.
They're not sinking relative
to the United States.
Why, then, does Gorbachev want
to turn the world upside down
and to have a change
in the structure?
And who's the opposition
to changing the structure?
Well, Gorbachev's reading
is the world has changed.
And they won't succeed in
the future doing exactly
what they've done in the past.
And they've got to change
the institutional structure
to do that.
And my reading of the
Russian mind when I was there
is they don't worry about the
United States being wealthy.
Americans were born wealthy.
And in some sense, don't
worry about the Germans
being wealthy.
The Germans have always been
wealthier than the Russians.
What they can't
explain to themselves
is Korea and
countries like Korea
because they have always
looked down on these people
as being backward,
poor, et cetera.
And now it's to
the point where it
looks like the Koreans will pass
them, and countries like that.
They're having to do
some very fundamental
internal examination.
Maybe our system
doesn't work as well
as we think our system does.
And If you look
at General Motors,
they lost no money in the 1930s,
never lost money in the Great
Depression.
In the 1960s, s when
companies like Volkswagen
were taking 10% of the
American car market,
they took almost none
away from General Motors.
In the 1970s when the Japanese
were taking 20% of the car
market, they took the 10%
European share and 10%
away from American companies,
but almost none of it
was from General Motors.
And General Motors had
50 years of success.
And then you come to a time when
the world changes in the 1980s,
and it don't look so successful.
And then the question
is, how do you change?
Now the opposition in the
Soviet Union is very clear.
My most interesting
experience in the Soviet Union
was a failure because I've been
there are a number of times.
And when I got there,
they said, would you
like to see some
of our factories?
And I said, well, no.
You've shown me a lot
of obsolete consumer
good factories over the years.
And if you want to show me
another lousy television
factory, I don't
really want to go.
I was a little politer
than that, but not much.
And so they finally said I
was being hosted by Yakovlev,
who was the Secretary
of the Central
Committee of the
Communist Party who
used to head the Institute
for World Economics.
And so they finally said, and
this an instance of glasnost,
they said, we're
going to send you
to the leading machine tool
manufacturer in the Soviet
Union.
This is a plant
where no Westerner
has been in it since 1945.
And presumably they
make military equipment
among other things if it's
the best in the Soviet Union.
So a fellow who was
the deputy director
of the Institute for
the Study of the USA--
which would be like being an
assistant secretary of state
in the United States-- he and
I get on a train in Moscow
to go to Leningrad
where this plant is.
We get to the plant gate,
and the manager of the plant
looks at me.
And he doesn't say this, but
you can see what he's thinking.
There is no way I'm going let
this bastard in this plant.
He might have permission
from Gorbachev,
but I don't know who's
going to be running
this society a year from now.
And I don't want to be accused
of letting a spy in this plant.
And I ain't going to do it.
So today is not convenient.
Tomorrow, I've got
to check with Moscow.
And he knows he can out-wait me.
Four days later, the two of
us are still cooling our heels
in Leningrad, and we
never do get in that plant
because Gorbachev has got
this tremendous resistance
from the level of plant
managers for good reasons.
They're the winners.
They may even believe
that the new ball
game will be more productive
than the old ball game.
But why would you want to
play a new ball game if you're
winning the old ball game?
And see, the same thing
is true in General Motors.
People there tell me that the
real resistant to changing
the way they're doing things is
at the level of plant managers.
They're having
tremendous problems,
I'm told, out at the NUMMI plant
in California where they're
trying to rotate General Motors
managers through that facility
supposedly learning
Toyota techniques
because General Motors
managers at the plant level
exist to give orders.
They're not into
participatory management.
That's never been the
General Motors style.
And you might even have
picked human beings that
are more into the
order-giving view
of the world than the
participatory view
of the world.
And how do you change them?
And see, I would argue to
you that General Motors
has almost exactly the
same problem Gorbachev has.
The hardest time
to change is when
you have 70 years of success.
And then you got
to tell the people
in the bowels of
the organization,
it don't work anymore and you've
got to do something different.
And the plant
managers in Russia--
and I would suspect the plant
manager at General Motors--
have exactly the same answer.
Get the bureaucrats
out of Moscow.
Get the bureaucrats out of
headquarters in Detroit.
And we'll make the
damn thing work.
We'll make it work in the
EVA strategy-- we try harder.
If we gave 1,000
orders last year,
we'll give you 1,500
orders this year.
And we'll simply try
harder doing the old ways.
And I think that's an
institutional problem that
exists at all levels.
And it's a problem
that's most acute when
you've been successful.
And, of course,
the United States
has been very successful.
And that's one of
the reasons why
we find it very hard to change.
The thing that made it easy
to change in Germany and Japan
after World War II
is they had just
been spectacularly unsuccessful.
If they had won World War II,
they would not have changed.
STAR: Carl?
SAGAN: I'd like to have time
for some more questions.
STAR: Sam?
AUDIENCE: I'd like to raise
a question about automation,
which, in a way, is related
to what you just said.
There is increasing automation
in manufacturing industry,
certainly in the United States
and other developed countries.
Automation leads to loss of
jobs, fewer jobs than before.
The argument has been made
that these people move
into the services industry.
Now my question is, is
the service industry
capable of absorbing all
these people as well as people
who would otherwise have
gone into manufacturing
industry in the future who
are now no longer going
to be going into the
manufacturing industry
because the absorptive capacity
of manufacturing industry
is doing down?
If the answer is no, if the
service industry cannot absorb
all of these people, what
is going to happen to them
in the future, in the year 2000?
See also, if the
answer is no, how
are we going to be distributing
wealth in the future?
And how is this going to impact
on the self-image, self-worth
of these people who are
going around without jobs?
THUROW: I don't think it's
an employment problem.
The question is, do we organize
ourselves in such a way
that we do, in fact,
employ our workforce
and we train them to
the right level in terms
of education and training?
See the problem
Carl was mentioning
about the American
school system is
we're turning out
25% at the bottom.
Where if you look at what--
it isn't that you couldn't
employ them in the year 2020.
It's that they will be
unemployable in the year 2020
because they won't have
the capacity to absorb what
you have to absorb to do that.
And so I don't think
it's an employment
problem in that kind of
square peg, round hole sense.
It really is a social
organization problem.
STAR: OK, well, we're
running out of time.
In fact, we've run out of time.
At lunch, what we're
going to do is really try
to deal with the question, what
are the implications of this
for senior management?
And I would suggest that in
a general way at our lunch,
we really pick up that
question from two dimensions.
One, it seems to me that
the phrase "senior managers"
implies leaders.
And there's no reason
why we necessarily
have to assume that
future scenarios are
totally out of our
control or that we
can't have impact on them.
I think if we're really serious
about being senior and really
serious about being
leaders, there
has to be the question raised,
what can we and, perhaps more
importantly, what can our
firms or our organizations
under our leadership do to exert
leverage that, in fact, can
impact where the world is going?
I think that's an important
realm for us to consider.
The second important realm it
seems to me for us to consider
is how much change do we
really expect between now
and the end of the century?
As I was getting
ready for today,
I kind of thought back to 1974--
not that you should necessarily
extrapolate to the
future based on just
what's happened in
the last 13 years--
but do we expect more or less?
Why do we expect more or less?
Do we expect it to
go in this direction?
Or this direction?
Or this direction?
Or some direction
that's not on the board?
And the broadest sense
is, what kind of choices
does that really provide
for senior managers
and for organizations?
What kind of contingency
planning at, at least,
the roughest level are we to
do given the clear uncertainty
as to where the world is going?
Now we've started a
process this morning,
a process that is
going to really take us
in one way or another
through the rest of the week.
And if it's at all
successful, we'll
take everybody in
this room at least
through the end of the century.
And so, I thank both of
our distinguished guests
for bringing so much stimuli to
this morning as we get started.
Thank you, guys.
[APPLAUSE]
