A New Global Perspective - Milken Institute · Milken Institute Summit - London October 10, 2012...
Transcript of A New Global Perspective - Milken Institute · Milken Institute Summit - London October 10, 2012...
Milken Institute Summit - London
October 10, 2012
Michael Milken Chairman, The Milken Institute
A New Global Perspective
1. Pessimism vs. Optimism
2. The Rise of the Global Middle Class
3. Ideas That are Changing the World
4. The Promise of Bioscience
5. Growth: The Key to Prosperity
A New Global Perspective
“This ‘telephone’ has too many
shortcomings to be seriously
considered as a means of
communication. The device is
inherently of no value to us.”
Western Union internal memo, 1876
The Telephone - 1876
“Everything that can be invented
has been invented.”
Charles H. Duell Commission of U.S. Office of Patents
On Everything New - 1899
“There is no reason anyone would
want a computer in their home.”
Ken Olson, CEO Digital Equipment Corporation
1977
The Computer - 1977
• “The battle to feed all of humanity is over. In the 1970s
and 1980s hundreds of millions of people will starve to
death.”
• “The oceans will die by 1979.”
• “U.S. life expectancy will drop to 42 years by 1980.”
• England will not exist in the year 2000.
(Books and speeches, 1968-70.)
Predictions of eminent
biologist Paul Ehrlich
“Research studies now project
that one in five—listen to me,
hard to believe—one in five
heterosexuals could be dead
from AIDS at the end of the
next three years. That’s by
1990. One in five.”
- Oprah Winfrey
1987
Dow Jones Industrial Average
Jan.
1973
Dec.
1974
1067
570
“I’ll never buy another stock!”
Dow Jones Industrial Average
Jan.
1973
Dec.
1974
Sept.
1976
1067
570
1025
Dow Industrials: 1973-77 and 2008-12
September 24, 2012
5000
7000
9000
11000
13000
500
600
700
800
900
1000
578 on Dec. 6, 19746,547 on March 9, 2009
DJIA, 1973-1977 DJIA, 2008-present
• Europe’s economies in crisis
• Iran is building a nuclear weapon
• Arab Spring turning into anarchy
• Israel will start a war
• Oil prices will skyrocket
• The U.S. faces a fiscal cliff
• China’s economy is slowing down
Roubini’s Litany of Doom
• Up 108% since 2009 bottom
• Up 13.7% year to date
Dow Jones Industrial Average
• Unrealistic assumptions about rates of return on
assets.
• Falling ratios of current workers to retirees.
• Workers who pay in to the system for too few years.
• Pensioners who live longer than the original system
planners assumed.
Entitlements – The Math Doesn’t Add Up
Pensions for Greece’s Most Dangerous Jobs
• High-risk workers are eligible for early retirement:
• Full government pension benefits
• Age 50 for women, 55 for men
• Who qualifies?
• 580 job categories
• 700,000 workers (14% of workforce)
Source: NY Times, 3/11/10.
High-Risk Occupations in Greece
Coal Mining Bomb Disposal
Source: NY Times, 3/11/10.
High-Risk Occupations in Greece
Source: NY Times, 3/11/10.
Radio Hosts?
(“Bacteria on microphones”)
Hairdressers?
(“Exposure to hair dyes”)
Good News on Poverty
“We are in the midst of the fastest period of
poverty reduction the world has ever seen.”
“Millions of Chinese have been lifted out of
poverty thanks to trade.”
“Just since 2000, we have halved the
proportion of people suffering from hunger.”
Laurence Chandy and Geoffrey Gertz
Brookings Institution
“Never before this generation has
the average person been able to
have someone else prepare his
meals.” Matt Ridley The Rational Optimist
How Prosperous We’ve Become
1750 BC Sesame-oil lamp 50 hours work
1800 Tallow candle 6 hours
1880 Kerosene lamp 15 minutes
1950 Filament light bulb 8 seconds
2011 Compact fluorescent bulb ½ second
Another Definition of Prosperity Amount of Work Required to “Earn” an Hour of Reading Light
Source: Matt Ridley, The Rational Optimist
Down on the Farm
Source: McGraw Hill advertisement
1. Pessimism vs. Optimism
2. The Rise of the Global Middle Class
3. Ideas That are Changing the World
4. The Promise of Bioscience
5. Growth: The Key to Prosperity
A New Global Perspective
Financial
Resources
Human
Resources Natural
Resource
s
P = Prosperity
Ft = Financial Technology
HC = Human Capital
SC = Social Capital
RA = Real Assets
P=SFti*(SHCi+SSCi+SRAi)
Human capital is the
largest asset class.
Highly skilled, entrepreneurial
and educated immigrants are
crucial to any nation’s
prosperity.
Market Capitalization: 1950
Europe
26%
Japan
9%
U.S.
59%
Other
6%
US + Japan = 68%
Europe
17%
U.S.
29%
Japan
40%
Other
14%
US + Japan = 69%
Market Capitalization: 1988
Europe
23%
Japan
7%
U.S.
34%
Other
36% US + Japan = 41%
Market Capitalization: 2012
Source: Bloomberg, 10/4/2012.
Between 1870 and 1950, Americans added
almost one year of education each decade.
By 1960, the highest average grade level in
the U.S. exceeded every other nation by
two years.
Since 1960, we have made no progress and
several other nations have surpassed us.
Source: Claudia Goldin and Lawrence Katz / The Race between Education and Technology
Source: Edward Gordon, “Winning the Global Talent Showdown”
The Jobs Problem
(It Isn’t Jobs – It’s Trained Workers)
125
100
75
50
25
Millions
123,000,000 high-skilled jobs will
be available
in 2020
50,000,000 Americans will qualify
for those jobs
Housing 33%
Transportation 18%
Food 13%
Insurance/pensions 11%
Healthcare 6%
Entertainment 5%
Apparel and services 4%
Supplemental Education 2%
Consumer Spending
Source: U.S. Bureau of Labor Statistics/CLSA
U.S. Asia Food 23%
Supplemental Education 15%
Housing 10%
Clothing 8%
Other 8%
Transportation 6%
Healthcare 5%
Communication 5%
By 2025, more Chinese will
speak English than the citizens
of all English-speaking nations
… combined.
Percentage of Population in Asia’s Middle Class
Sources: Euromonitor; World Bank; CLSA Asia-Pacific Markets / 2010
India
Philippines
Indonesia
Thailand
Malaysia 2014 2009
China
70% 60% 50% 40% 10% 0% 30% 20%
Source: Eurostat (EU27 projections)
India’s Developing Middle Class Percent of Total Population by Age
100%
60%
20%
2000
40%
80%
2008 2020 2030
Wealthy
Middle Class
Aspiring Middle
Class
Impoverished
5%
31%
46%
14%
Foreign-born Founders of California
Engineering and Technology Companies
Sources: Institute of International Education, Kauffman Foundation.
India
26%
Taiwan
17%
Other
44%
China
13%
60% of the nearly 1 million Chinese
people with assets over 10 million
yuan ($1.6 million) are thinking about
emigrating to the U.S. or Europe.
Source: U.S. Department of Homeland Security (WSJ 2/22/12 “Plan B for China’s Wealthy: Moving to the U.S./Europe)
U.S.-based Companies Expand in Asia & Pacific
The World’s Economic Clout Moves East Leading Cities Ranked by GDP
• More than 20 of the world’s Top 50 cities will be
located in Asia by 2025, up from 8 in 2007.
• More than half of Europe’s Top 50 cities will drop off
the list, as will three in North America.
• Shanghai and Beijing will outrank Los Angeles and
London … Mumbai and Doha will surpass Munich and
Denver.
Source: McKinsey Global Institute (March 2011)
Global Middle-Class Consumer Spending
Source: Morgan Stanley, OECD.
EU30%
U.S.21%
Japan8%
China4%
India2%
Other Asia9%
Rest of the world
26%
2009
EU14%
U.S.7%
Japan4%
China18%
India23%
Other Asia14%
Rest of the world
20%
2030
1. Pessimism vs. Optimism
2. The Rise of the Global Middle Class
3. Ideas That are Changing the World
4. The Promise of Bioscience
5. Growth: The Key to Prosperity
A New Global Perspective
The Three Stages of New Ideas
1. It can’t be done.
2. It probably can be done, but it’s
not worth doing.
3. I knew it was a good idea all along!
Arthur C. Clarke
Cost of Raw Materials & Energy
1920’s Automobile
60% <2%
Today’s Microchip
Crowdsourcing
1,385 teams
1,651 participants from 39 countries
23,443 entries
56% from U.S.
Improve Healthcare - Win US$3,000,000
www.heritagehealthprize.com
Team able to build the best
‘environmental detectors’
able to detect any of the
top 100 pathogens.
Bioterrorism Detection X PRIZE $10M
Crisis: Deepwater Horizon Oil Spill April 20, 2010
Crisis: Deepwater Horizon Oil Spill
• Oil flowed unabated – 53,000 gallons a day –
into the Gulf of Mexico for three months
• Up to 180,000-square kilometer area
• Time needed to cap the well: 5 months
• Average daily oil collection rate: 2000 barrels
per day
Fred Giovannitti …
• Las Vegas tattoo artist
• Oil-spill expert
Financial Technology
Source: Nobel Laureate Myron Scholes
Six Functions of a Financial System • Transacting and enhancing trade
(domestic and international)
• Financing large scale projects (teams and capital)
• Transfer of resources (savings, retirement, health care)
• Risk sharing and risk reduction (reserves, diversification, insurance)
• Pricing and valuation signals (market price signals and liquidity provision)
• Reduction of market frictions and deadweight costs (hidden information)
Financial Technologies
• Collateralized loan obligations
• Collateralized bond obligations
• Securitized mortgages
• Securitized credit cards
• Derivatives
“There can be no
liberty unless there is
economic liberty.”
Margaret Thatcher
Sources: S&P LCD, JPMorgan (4/12/2010).
Institutional Investor Base for
Non-investment Grade Loans
20%
40%
60%
80%
100%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Banks CLOs Hedge, distressed and
high-yield funds
Prime rate funds, financial
and insurance companies
European credit is a bank market Bonds and loans as a share of total corp. debt
Sources: ECB
“The most important financial
innovation that I have seen the past 20
years is the automatic teller machine…I
wish someone would give me one shred of
neutral evidence that financial
innovation leads to economic growth.
One shred of evidence.”
Paul Volcker Former Chairman, Federal Reserve
59
Source: Edward Altman – 2012 Q1.
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
1971 1976 1981 1986 1991 1996 2001 2006 2011
Historical Growth of U.S. High-Yield Market $US trillions
America Goes to Work U.S. and Fortune 500 Employment
00 95 90 85 80 75 70
200
180
160
140
120
100
80
60
U.S. = +62 million jobs
Fortune 500 = minus 4 million
New financial
technologies are
fully implemented
Index 1970 = 100
Modern capital
markets begin
62
SO2 Market Benefits
US Clean Air Act 1990
Acid Rain Program annual benefits (2010): $122B
Costs (2010): $3B
This is a 40-to-1 benefit/cost ratio
Rep
rod
uctio
n o
r qu
ota
tion
of th
is m
ate
rial is
exp
ressly
forb
idd
en
with
ou
t
the
co
nse
nt o
f the
Au
tho
r. 20
12
En
viro
nm
en
tal F
ina
ncia
l Pro
du
cts
LL
C
63
SO2 Reductions Annual Mean Ambient SO2 Concentration
1989 - 1991 2004 - 2006
Energy
Traditional Drilling
Spindletop (Beaumont, TX), 1901
Drilling Depth: 1,139 feet
Modern Techniques
Marcellus Shale (Pennsylvania), 2012
Drilling Depth: 9,000 feet
Technology Game Changer
Source: U.S Energy Information Administration.
Major Shale Basins Around the World
Defending the Persian Gulf from 1976
to 2007 cost America $7.3 trillion.
Source: Stern, R.J., United States cost of military force projection in the Persian Gulf, 1976–2007. Energy Policy (2010), doi:10.1016/j.enpol.2010.01.013
• Aircraft carriers
• War on terrorism
• Wars in Iraq/Afghanistan
• Maintain troops overseas
• Foreign aid
• Intelligence operations
• Oil price volatility
• Homeland security
Expanded Natural gas Hydropower Geothermal
Biomass and Ethanol Tidal wave power Oil Shale
Technology is not the problem.
FORTUNE explored these energy solutions …
Expanded natural gas Hydropower Volcanic (Geothermal)
Biomass and Ethanol Ocean and Tidal power
Source: Fortune Magazine, 1938.
Oil shale
… back in 1938.
1. Pessimism vs. Optimism
2. The Rise of the Global Middle Class
3. Ideas That are Changing the World
4. The Promise of Bioscience
5. Growth: The Key to Prosperity
A New Global Perspective
Each life is priceless…
but in economic terms, over the past two
centuries, as much as 50% of all economic
growth can be traced to advances in health.
The Value of Health
1820 1900 1950 2010
26
Years
31
Years
49
Years
67
Years
Source: United Nations Development Program
+5
+18
+18 +36
Worldwide Life Expectancy Growth
Top Causes of Death
Source: U.S. Centers of Disease Control
1. Pneumonia/flu
2. Tuberculosis
3. Heart disease
4. Diarrhea
5. Stroke
1. Heart disease
2. Cancer
3. Stroke
4. Respiratory disease
5. Accidents
1900 2010
In 1960, life expectancy in East Asia
was 39 years.
By 1990, it had increased to 67 years.
Today, it exceeds 70.
Source: World Bank and John Lechleiter, CEO, Eli Lilly & Co., quoted in The Wall Street Journal, Nov. 19, 2011
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$100M
$10M
$1M
$100K
$10K
$1,000
Source: National Institutes of
Health
Beijing Genomics Institute
Outlook for Biomedical Research Spending
(2012) 20%
10%
0%
-10%
China India
Brazil Korea Japan
Germany
Australia UK
France
US Canada
Source: OECD – Government Budget Appropriations or Outlays for Research and Development (2012)
Singapore
Source: OECD (2004-2009); Measured
and self-reported
International Obesity Rates Percent of Adult Population
30%
20%
10%
U.S.
U.K.
Spain Germany
Poland France Italy Norwa
y
Japan S.
Korea India
China
Failure to address chronic diseases
adequately costs the
U.S. economy more than
$1 trillion annually.
Chronic Disease Study
MRIs: A Bigger Picture
Maximum patient weight:
• 1997: 300 pounds
• 2002: 440 pounds
• 2011: 660 pounds
Celebration of Science - 2012
DNA Pioneer James Watson
AIDS pioneering researcher Tony Fauci and
Earvin “Magic” Johnson
U.S. Energy Sec’y Steven Chu
National Science Foundation
Director Subra Suresh
Elias Zerhouni, President,
Global R&D, Sanofi
Objectives:
• Demonstrate returns on
bioscience investment
• Honor achievements in
scientific research
• Illustrate the potential for
future advances
• Recommit to funding medical
research on a national and
international basis
An organization dedicated to shortening
the time to find cures and better
treatments for all life-threatening diseases
• Michael J. Fox Foundation for Parkinson's Research
• MPD Foundation
• Multiple Myeloma Research Foundation
• Muscular Dystrophy Assoc.
• Myelin Repair Foundation
• Nathaniel Adamczyk Foundation
• New York Stem Cell Foundation
• The Nicholas Conor Institute
• One Mind for Research
• OneWorld Health
• Pancreatic Cancer Action Network
• Parent Project Muscular Dystrophy
• Parkinson's Action Network
• Progeria Research Foundation
• Prostate Cancer Foundation
• Rett Syndrome Research Trust
• Susan G. Komen for the Cure
• TGen
• Tuberous Sclerosis Alliance
• VascularCures
TRAIN
• Accelerate Brain Cancer Cure
• Accelerated Cure Project for Multiple Sclerosis
• Addario Lung Cancer Medical Institute
• Adenoid Cystic Carcinoma Research Foundation
• Alliance for Aging Research
• Alpha-1 Foundation
• ALS Therapy Development Institute
• Alzheimer’s Association
• Alzheimer’s Drug Discovery Foundation
• Autism Speaks
• Ben & Catherine Ivy Foundation
• Bonnie J. Addario Lung Cancer Foundation
• Cancer Research Institute
• Charley’s Fund
• CHDI Management
• Children's Tumor Foundation
• Chordoma Foundation
• Citizens United for Research in Epilepsy
• Cure Alzheimer's Fund
• CureDuchenne
• Cystic Fibrosis Foundation
• Damon Runyon Cancer Research Foundation
• Dr. Susan Love Research Foundation
• The Epilepsy Therapy Development Project
• FastForward, LLC (National MS Society)
• Focused Ultrasound Surgery Foundation
• Foundation Fighting Blindness
• Hide and Seek Foundation
• Hydrocephalus Association
• Institute for OneWorld Health
• International AIDS Vaccine Initiative
• International Mental Health Research Org.
• Jain Foundation
• Juvenile Diabetes Research Foundation
• Leukemia & Lymphoma Society
• Life Raft Group
• Lymphoma Research Foundation
• Melanoma Research Alliance
Pathway to Treatment
1. Pessimism vs. Optimism
2. The Rise of the Global Middle Class
3. Ideas That are Changing the World
4. The Promise of Bioscience
5. Growth: The Key to Prosperity
A New Global Perspective
What is the most
powerful force the
world has ever
produced?
(x-h2) + (y-k2)
-b b2-4ac
x-x1
y = cekt
y-y1
c2 = a2 + b2
m =
e = mc2
1.
2.
3.
4.
5.
6.
7.
8.
P = SFti*(SHCi+SSCi+SRAi)
c = 2r
2a
m =
r =
Einstein answered with which of these formulas?
#4 – “Compound interest.”
y=Cekt
A=Pert
a = Future Value
P = Original Principal
r = Rate
t = Time
$25,000-a-year @ 0%
$6,642-a-year @ 6%
$1,304-a-year @ 12%
(or a one-time investment of $10,747)
Rate of Return Concerns
How to Save $1-Million in 40 Years
Question:
When Elvis Presley died in 1977, how many
people listed their occupation as “Elvis
Impersonator”?
1. 100 - 200
2. 300 - 400
3. 500-600
4. 1,000 – 2,000
5. More than 5,000
#1 – 174 impersonators in 1977.
More than 84,000 today.
By 2050 – one of every 3 people on earth?
1996 Olympics
• 1 gold medal
• 15 medals
• Rank: #20
Great Britain’s Olympic Performance
In 1997, National Lottery
funding in the U.K. was
directed into elite-athlete
training for the first time.
In 2000, the British team
won 11 gold medals. Gold Medal:
Matthew Pinsent
Steve Redgrave Rowing: Men’s Coxless
Pair
1996 Olympics
• 1 gold medal
• 15 medals
• Rank: #20
Great Britain’s Olympic Performance
Gold Medal:
Matthew Pinsent
Steve Redgrave Rowing: Men’s Coxless
Pair
2012 Olympics
• 29 gold
medals
• 65 total gold
medals
• Rank: #3
Great Britain’s Olympic Performance
Women’s Team Pursuit Mo Farrah
5,000/10,000 meters Jessica Ennis
Heptathlon
Equestrian Team Greg Rutherford - Long Jump Women’s Pairs Rowing
“In every Olympic sport there is all
that matters in life. Humans
stretched to the limit of their
abilities, inspired by what they can
achieve, driven by their talent to
work harder than they can believe
possible, living for the moment but
making an indelible mark upon
history.”
- Sebastian Coe Chairman, 2012 London Organising Committee
2x 1500-meter Olympic Champion
1984
2012
Milken Institute Summit - London
October 10, 2012
Michael Milken Chairman, The Milken Institute
A New Global Perspective