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WILLIAM BONVILLIAN:
So just as kind

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of a synopsis of
some ideas that we're

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going to get through, we're
looking at manufacturing, which

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is a way to profit
from innovation,

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as a way to scale innovation.

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And we'll do something of an
historical review here today,

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so we'll look at the last big
competitiveness challenge.

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00:00:41,390 --> 00:00:44,920
The US went through a challenge
from Germany and Japan.

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00:00:44,920 --> 00:00:47,510
We'll take a particular look
at Japan's manufacturing

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innovations in the '70s.

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We'll review a distributed
model of production

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that the US came up with,
in some ways in response.

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We'll look at manufacturing
and innovation

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organizational shifts
within both Korea and Japan,

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00:01:06,230 --> 00:01:08,840
and then talk a bit about how
the nature of the competition

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is changing as well.

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So that's kind of a
backdrop, and then next week

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will be a more pointed focus.

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00:01:17,260 --> 00:01:20,270
So the first piece we'll go
through, and I'll lay it out.

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00:01:20,270 --> 00:01:23,770
And Chris, do you have--

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RASHEED, you've got Hughes.

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RASHEED: Yeah.

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WILLIAM BONVILLIAN: Right, OK.

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So this is Kent Hughes.

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Kent Huges led the joint
economic committee,

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staff director in the Congress.

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00:01:40,550 --> 00:01:42,965
He was a senior official in
the Department of Commerce.

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00:01:42,965 --> 00:01:47,180
And he kind of wrote the
history of the competition

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over production between US
and China, a period of time

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00:01:53,180 --> 00:01:57,960
when he was very deeply
engaged in policy making.

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00:01:57,960 --> 00:02:00,530
So let's get this
backdrop kind of down

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00:02:00,530 --> 00:02:02,000
because I think
it'll help us see

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00:02:02,000 --> 00:02:05,630
a lot about what the US is
going through now in terms

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of manufacturing.

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00:02:07,580 --> 00:02:14,530
So in the 1970s, the
US faced a mess--

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intractable high inflation,
declining productivity growth,

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00:02:20,860 --> 00:02:25,750
therefore a slow growth rate,
rising economic competition,

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rising national anger,
frustration with government.

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Sound familiar?

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And the US model of kind of
pretty unfettered markets

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of limited government
support for industry

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00:02:38,500 --> 00:02:40,690
was a very different
innovation model,

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00:02:40,690 --> 00:02:43,300
innovation system than
what Japan and Germany were

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00:02:43,300 --> 00:02:45,640
pursuing.

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And that in turn led
to the beginnings

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of what could be called the
US National Competitiveness

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Strategy.

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So the essential
elements of that history

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of the initial response to
Japan's development of quality

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manufacturing, which we'll
get into in a minute,

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there were different
responses from each party.

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And these will be
familiar to you as well.

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So each party was organized--

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remember when we discussed
classical economics, right?

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And the key factors
in classical economics

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were capital supply
and labor supply.

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Each of our parties is organized
around one of these, right?

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So the capital supply response
came from the Republican side,

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and Congressman Jack Kemp
of Buffalo and Bill Roth,

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who was chairman of
the Finance Committee

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and the Senate from
Delaware, their argument was,

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let's adjust marginal
tax rates that

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will spur capital
availability and investment.

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And we'll recover.

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The Democrats will
organize around

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their traditional
mantra of labor supply,

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broadly defined, right?

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And they had moved
towards what was then

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known as industrial
policy, still known

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as industrial policy.

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So they were looking to
rescuing failing industries

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and reorganizing
them for turnarounds.

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And at a later time, through
the Young Commission,

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another set of ideas begins to
enter the discussion around,

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quote, sunrise industries.

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The Young Commission tired to
cut between these two party

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perspectives and develop
a different approach.

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So John Young was head
of Hewlett Packard,

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and President Reagan named him
the head of this commission.

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And their focus was on
national competitiveness.

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And they concurred that things
like fiscal and monetary policy

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are important.

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But they were also interested
in what the innovation side

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of the research side could do.

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So it was not simply
a governmental role

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in basic research,
but basic technology.

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And they developed
a model that was

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in this public private
partnership that

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was industry led.

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And the term partnership
nation emerged

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from some of their work.

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So this was, in effect, a
third way out of the box.

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The two parties had their
underlying theories.

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00:05:27,670 --> 00:05:30,610
And Young walks in with a
different kind of approach.

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So he's out of the
Silicon Valley.

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He's used to working with DARPA
and the Defense Department,

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so he's not afraid of government
and its technology support

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rule.

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And this whole effort
was called the New Growth

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Compact, all right?

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00:05:49,930 --> 00:05:54,190
So it was an attempt to
cut between the parties

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and develop a series of
new programmatic elements.

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So some of the things
that eventually emerged--

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not specifically from the
recommendations necessarily,

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00:06:01,540 --> 00:06:03,660
but emerged over time--

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00:06:03,660 --> 00:06:07,600
were created as
cooperative R&D agreements

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00:06:07,600 --> 00:06:12,340
with industry between
governmental laboratories

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and industry.

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So in other words, we've got
these snappy governmental labs.

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Little emerges from them.

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Could we do
cooperative agreements

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to get technologies
out of the labs

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into the hands of industry?

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It's a new tool.

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The Bayh-Dole Act comes out
of the same time period,

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which, prior to the Bayh-Dole
Act, the federal government

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00:06:34,000 --> 00:06:37,330
owned the fruits of
the research that it

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supported at universities.

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Now the federal government
is not a commercial entity,

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so nothing happened to it.

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So it was moved
to shelves, right?

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The IP was not really utilized.

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So Bayh and Dole came up
with the idea of giving

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the universities that had
sponsored the research

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activities-- supported the
research activities with

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federal funds--

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let's give them ownership.

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And they in turn typically
share it with their researchers

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and give them a vested stake
in developing the technologies

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that the research is leading to.

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So this plays a
really critical role

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in starting to put universities
on the playing field

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as innovation actors, right?

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It gives them a stake in the
outcomes of their research.

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The Advanced Technology Program
and the Manufacturing Extension

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Program come out of the Commerce
Department in an attempt

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to introduce both new
technologies and an attempt

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in the MEP program
to bring advances

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Japan had been pushing
on quality production

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into small US manufacturers.

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There were education proposals.

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That attitude was
essentially pro-trade.

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In other words, don't
ignore the world.

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Let's be successful at trade
and be innovative in trade.

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That attitude gets adopted
by the Clinton administration

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and leads to things like
NAFTA and the China WTO.

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So that's kind of what is coming
out of the Young Commission

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in terms of new ideas, but
let's go back to the challenge

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that they were facing.

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What was this?

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What was this new
model around production

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that Japan was launching?

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And I would argue that
was big enough so that it,

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in fact, amounted to a
significant innovation wave.

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And it was the one
wave that the US

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missed in the second
half of the 20th century.

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So Japan hit on innovating
and manufacturing

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as a way towards its
own competitiveness

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as a leading world
economic power.

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And before the 1970s,
the US had come up

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with a way of dealing with
quality in what's called

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a quality price tradeoff.

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So in our mass
production system--

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and the US essentially
came up with most

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of the elements
of mass production

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starting around the 1840s
and moving for 100 years.

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The US had become
a dominant mass

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produ-- we had really invented
mass production at huge scale.

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And we were selling
manufactured goods

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into a continent sized economy.

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Of course, continent sized
economy that existed.

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And part of the
mass production idea

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was never stop the
production line.

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Always keep it moving.

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Always keep producing.

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And how do you
deal with quality?

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Well, you do
statistical analysis

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of the products
you were producing.

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You would decide that some fixed
percentage were not meeting

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those quality standards.

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And so at the end of the
system, after you would produce

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00:10:03,760 --> 00:10:07,120
the goods, you would have an
inspection group throw out

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00:10:07,120 --> 00:10:08,170
whatever it was--

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00:10:08,170 --> 00:10:14,020
1.8%, 2.4%, whatever the
statistical number told you--

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00:10:14,020 --> 00:10:18,220
after the production
system had been developed.

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Quality is really how
good is the product.

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00:10:20,290 --> 00:10:23,580
Quality control is
what's the unit of--

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00:10:23,580 --> 00:10:25,450
are there units
of equal quality,

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00:10:25,450 --> 00:10:28,600
right, across all
that you're producing?

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Japan came up with a
completely different system

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00:10:32,200 --> 00:10:34,930
and a much better system.

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00:10:34,930 --> 00:10:37,770
And it was called
here the Toyota model.

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00:10:37,770 --> 00:10:40,640
But it was based in
Japanese manufacturing.

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So the idea here was build
quality into each product,

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00:10:45,010 --> 00:10:48,400
not at the end of the system,
throw a bunch of stuff away.

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00:10:48,400 --> 00:10:52,450
Ensure that the entire system
is working to ensure quality.

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And anyone, any worker, can
stop the production line

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if they see a quality problem.

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So catch it at the
beginning and build quality

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00:11:01,630 --> 00:11:03,130
into your entire
production process.

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00:11:05,840 --> 00:11:09,040
The idea came actually from an
American named Edward Deming.

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00:11:09,040 --> 00:11:12,770
And he was unable to persuade
US manufacturers to adopt

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00:11:12,770 --> 00:11:13,270
this model.

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00:11:13,270 --> 00:11:16,390
So he takes it to Japan.

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And we sense
Japan's rich culture

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00:11:21,190 --> 00:11:24,010
here around
craftsmanship, right?

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00:11:24,010 --> 00:11:25,910
It fits wonderfully with it.

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00:11:25,910 --> 00:11:29,210
All right, so this is--

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00:11:29,210 --> 00:11:33,860
Japanese samurai culture, of
course, respects the samurai,

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00:11:33,860 --> 00:11:36,890
but accords almost
equivalent respect

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00:11:36,890 --> 00:11:41,900
to the sword maker, right, who
is almost equally as famous.

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00:11:41,900 --> 00:11:47,360
So there's a huge focus on
high quality and craftsmanship

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00:11:47,360 --> 00:11:48,200
in Japanese culture.

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00:11:48,200 --> 00:11:51,740
So what Deming is saying
fits with the kind

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00:11:51,740 --> 00:11:56,930
of culture of Japan.

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00:11:56,930 --> 00:11:59,510
There are other pieces
that Japan comes up with--

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00:11:59,510 --> 00:12:01,940
just in time inventory.

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00:12:01,940 --> 00:12:07,160
In other words, a major
burden that manufacturers face

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00:12:07,160 --> 00:12:10,070
is that they have to store
up a lot of inventory

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00:12:10,070 --> 00:12:13,440
to have enough goods
available for the marketplace.

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00:12:13,440 --> 00:12:16,550
But when you hit an
economic downturn,

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00:12:16,550 --> 00:12:18,860
then you're stuck with
this massive inventory

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00:12:18,860 --> 00:12:20,570
that you can't
get rid of, right?

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00:12:20,570 --> 00:12:23,870
And it becomes a huge cost
burden on your system.

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00:12:23,870 --> 00:12:27,890
Japan's idea was produce for
what the market is actually

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00:12:27,890 --> 00:12:29,230
absorbing--

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00:12:29,230 --> 00:12:33,860
in other words, produce just
in time to get it to market.

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00:12:33,860 --> 00:12:35,600
So that calls for
a whole new level

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00:12:35,600 --> 00:12:39,410
of efficiency and
communications really

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00:12:39,410 --> 00:12:42,555
IT embedded in
earlier kind of ways

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00:12:42,555 --> 00:12:44,180
throughout the whole
production system.

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00:12:46,930 --> 00:12:50,990
And it significantly
reduced the exposure

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of significant manufacturers
to economic downturns.

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00:12:58,670 --> 00:13:08,500
Japan integrated its dealers and
its suppliers into its system.

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00:13:08,500 --> 00:13:10,840
So in the US,
major manufacturers

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00:13:10,840 --> 00:13:13,942
would keep their suppliers at
arm's length and have them bid.

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00:13:13,942 --> 00:13:15,650
And there was no
particular relationship.

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00:13:15,650 --> 00:13:18,273
They were just looking for
the lowest price, right?

246
00:13:18,273 --> 00:13:19,690
Japan, the suppliers
were actually

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00:13:19,690 --> 00:13:21,490
integrated into that system.

248
00:13:21,490 --> 00:13:25,870
And in turn, the dealers who
were just selling these goods

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00:13:25,870 --> 00:13:30,760
were also integrated in, so
that you had much closer touch

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00:13:30,760 --> 00:13:33,130
with what customers
actually needed and wanted,

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00:13:33,130 --> 00:13:36,590
as well as what the
quality of the suppliers,

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00:13:36,590 --> 00:13:39,640
what they were producing,
is going to be.

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00:13:39,640 --> 00:13:42,360
Japan had a culture of
respecting the production

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00:13:42,360 --> 00:13:44,200
moment.

255
00:13:44,200 --> 00:13:46,330
So they would move
their engineers

256
00:13:46,330 --> 00:13:50,980
onto the factory floor as
their first set of assignments.

257
00:13:50,980 --> 00:13:54,250
So if you look at, in contrast,
the US didn't do that.

258
00:13:54,250 --> 00:13:54,750
All right?

259
00:13:54,750 --> 00:13:58,150
So the engineering
profession was

260
00:13:58,150 --> 00:14:00,490
one in the 19th century
US that was trying

261
00:14:00,490 --> 00:14:04,900
to take a hold with those
other established professions--

262
00:14:04,900 --> 00:14:07,540
doctors, lawyers, ministers.

263
00:14:07,540 --> 00:14:10,570
So when you look at these
early photographs of MIT

264
00:14:10,570 --> 00:14:12,225
and you look at
photographs of MIT

265
00:14:12,225 --> 00:14:16,510
labs, those wonderful
photographs of the steam lab,

266
00:14:16,510 --> 00:14:20,356
you can't imagine coal
dust all over the place.

267
00:14:20,356 --> 00:14:21,731
These characters
were all wearing

268
00:14:21,731 --> 00:14:26,212
these starched white shirts
with those fancy weird bow

269
00:14:26,212 --> 00:14:28,420
ties they wore at the end
of the 19th century, right?

270
00:14:28,420 --> 00:14:30,160
They looked so prim and proper.

271
00:14:30,160 --> 00:14:33,090
They're trying to be like
ministers or doctors, right?

272
00:14:33,090 --> 00:14:34,840
They're trying to
elevate their profession

273
00:14:34,840 --> 00:14:39,560
and separate themselves in a
way from the work floor right?

274
00:14:39,560 --> 00:14:43,280
So the engineers want to
be in a glassed up area up

275
00:14:43,280 --> 00:14:45,170
above the factory
floor in the US, right?

276
00:14:45,170 --> 00:14:46,780
They don't want
to be down with--

277
00:14:46,780 --> 00:14:50,170
heaven forbid-- the workforce.

278
00:14:50,170 --> 00:14:52,540
So it's an attempt by
an engineering culture

279
00:14:52,540 --> 00:14:53,780
to establish its identity.

280
00:14:53,780 --> 00:14:55,750
You can understand
why it happened.

281
00:14:55,750 --> 00:14:58,853
But Japan hit on a much
better plot, right?

282
00:14:58,853 --> 00:15:00,520
Integrate the engineers
in the workforce

283
00:15:00,520 --> 00:15:02,020
and make them one, right?

284
00:15:02,020 --> 00:15:03,460
Much better, right?

285
00:15:03,460 --> 00:15:08,800
So we have learned to get
our engineers into the mix

286
00:15:08,800 --> 00:15:10,600
in the manufacturing sector.

287
00:15:10,600 --> 00:15:13,570
Japan came up with this
quality manufacturing model.

288
00:15:13,570 --> 00:15:16,870
Sometimes we call it here
a lean manufacturing.

289
00:15:16,870 --> 00:15:20,230
It led to an effort by
the US to simply copy

290
00:15:20,230 --> 00:15:21,430
what Japan had come up with.

291
00:15:21,430 --> 00:15:24,220
We had to take apart
the Toyota model.

292
00:15:24,220 --> 00:15:27,430
A lot of that work is
being done at MIT, right?

293
00:15:27,430 --> 00:15:30,790
So Dan Rus and
several others at MIT

294
00:15:30,790 --> 00:15:35,617
are writing up the Toyota model.

295
00:15:35,617 --> 00:15:37,450
And explaining it to
the rest of the country

296
00:15:37,450 --> 00:15:39,490
was a really important stage.

297
00:15:39,490 --> 00:15:42,810
Standard industry
approaches like Six Sigma

298
00:15:42,810 --> 00:15:45,700
that came out of
GE have essentially

299
00:15:45,700 --> 00:15:49,030
attempted to incorporate
Japan's quality ideas

300
00:15:49,030 --> 00:15:50,800
and make them pervasive
in US production

301
00:15:50,800 --> 00:15:53,810
for both major
manufacturers, OEM suppliers.

302
00:15:57,936 --> 00:16:01,760
A few other things, there's
something called the product

303
00:16:01,760 --> 00:16:04,340
cycle.

304
00:16:04,340 --> 00:16:07,040
And time is a competitive
factor in this,

305
00:16:07,040 --> 00:16:10,602
so eliminating time
delays and then

306
00:16:10,602 --> 00:16:12,560
something actually the
US really contributed to

307
00:16:12,560 --> 00:16:15,398
was concurrent
engineering design.

308
00:16:15,398 --> 00:16:16,940
So you engineers in
the room I'm sure

309
00:16:16,940 --> 00:16:18,107
know what I'm talking about.

310
00:16:18,107 --> 00:16:26,043
But in other words, if you and
I constituted Chrysler Motors,

311
00:16:26,043 --> 00:16:27,460
the way in which
we would organize

312
00:16:27,460 --> 00:16:29,992
Chrysler Motors in
the old days was

313
00:16:29,992 --> 00:16:31,450
we would have a
bunch of engineers,

314
00:16:31,450 --> 00:16:33,160
and they would do the design.

315
00:16:33,160 --> 00:16:35,110
And then they would
finish the design,

316
00:16:35,110 --> 00:16:38,350
and then they would take it
to the production people.

317
00:16:38,350 --> 00:16:40,140
And the production
people would say, well,

318
00:16:40,140 --> 00:16:42,390
that's all very well and
good, but we can't make that.

319
00:16:42,390 --> 00:16:44,730
So we do it, right?

320
00:16:44,730 --> 00:16:46,020
And then it would be redone.

321
00:16:46,020 --> 00:16:48,240
And then they would take it
to the engineering people

322
00:16:48,240 --> 00:16:52,590
again and then take it
to the marketing people.

323
00:16:52,590 --> 00:16:54,633
And the marketing
people would say, well,

324
00:16:54,633 --> 00:16:56,800
that's all very well and
good, what your engineering

325
00:16:56,800 --> 00:16:59,520
people have done, what your
factory floor people have done,

326
00:16:59,520 --> 00:17:01,320
but we can't sell this thing.

327
00:17:01,320 --> 00:17:03,170
So completely redo it.

328
00:17:03,170 --> 00:17:05,849
In other words, it was a
stage by stage process,

329
00:17:05,849 --> 00:17:08,060
with every stage having a veto.

330
00:17:08,060 --> 00:17:10,319
So the development
process for design

331
00:17:10,319 --> 00:17:14,550
was painful, and lengthy,
and often adversarial.

332
00:17:14,550 --> 00:17:17,520
Concurrent design is to put
all those teams together

333
00:17:17,520 --> 00:17:22,460
at the outset contributing
to the design--

334
00:17:22,460 --> 00:17:26,030
dramatic time savings,
dramatic efficiency savings.

335
00:17:26,030 --> 00:17:27,920
So these are all
kinds of ideas that

336
00:17:27,920 --> 00:17:30,360
came out of this time period.

337
00:17:30,360 --> 00:17:33,680
Another idea that Japan had--

338
00:17:33,680 --> 00:17:36,260
and we weren't
organized this way--

339
00:17:36,260 --> 00:17:43,130
Japan had a whole different
way of approaching what we

340
00:17:43,130 --> 00:17:47,480
could call the labor trade-off.

341
00:17:47,480 --> 00:17:52,900
So Japan had a system of
essentially guaranteed

342
00:17:52,900 --> 00:17:55,420
lifetime employment.

343
00:17:55,420 --> 00:17:56,800
So if you were a
worker in Japan,

344
00:17:56,800 --> 00:18:00,100
you were pretty well
assured in this era.

345
00:18:00,100 --> 00:18:05,260
It's changed a bit now, in
this era of a lifetime job.

346
00:18:05,260 --> 00:18:09,160
And in return for that
assurance of a lifetime job,

347
00:18:09,160 --> 00:18:14,080
management would control the
work rules, or what's actually

348
00:18:14,080 --> 00:18:17,650
happening on the factory floor,
right, now that we processed

349
00:18:17,650 --> 00:18:19,720
where the rule systems is.

350
00:18:19,720 --> 00:18:22,740
That was the trade-off.

351
00:18:22,740 --> 00:18:25,680
The US had a complete
different trade-off.

352
00:18:25,680 --> 00:18:29,850
We treated labor not as a
fixed cost, like Japan did.

353
00:18:29,850 --> 00:18:33,120
We treated it as
a variable cost.

354
00:18:33,120 --> 00:18:38,760
And the trade the unions
insisted on-- this was an era

355
00:18:38,760 --> 00:18:41,700
of pretty heavy unionization
of manufacturing in the US

356
00:18:41,700 --> 00:18:43,500
at the time--

357
00:18:43,500 --> 00:18:47,340
unions weren't
able to affect who

358
00:18:47,340 --> 00:18:50,130
gets hired and fired
in the employment

359
00:18:50,130 --> 00:18:51,390
side of the equation.

360
00:18:51,390 --> 00:18:54,690
But they would control
the workloads, right?

361
00:18:54,690 --> 00:18:57,470
And they designed those to
be as protective as possible

362
00:18:57,470 --> 00:18:59,850
as their workforces, right?

363
00:18:59,850 --> 00:19:02,610
Not necessarily the
most efficient system.

364
00:19:02,610 --> 00:19:07,680
So Japan actually had a
better model here, right?

365
00:19:07,680 --> 00:19:12,280
Now we continue to treat our
workforce as a variable cost,

366
00:19:12,280 --> 00:19:12,780
right?

367
00:19:12,780 --> 00:19:15,630
So whenever there's
an economic downturn,

368
00:19:15,630 --> 00:19:18,670
US companies dump their
workforces as a quick response,

369
00:19:18,670 --> 00:19:19,170
right?

370
00:19:19,170 --> 00:19:21,838
That's fundamental
management theory in the US.

371
00:19:21,838 --> 00:19:23,880
Other countries don't
necessarily do it this way.

372
00:19:23,880 --> 00:19:26,220
Japan has had to get more
flexible in its model

373
00:19:26,220 --> 00:19:30,460
as it's gone to more
global competition.

374
00:19:30,460 --> 00:19:32,810
But it had a completely
different way

375
00:19:32,810 --> 00:19:35,570
of organizing its workforce.

376
00:19:35,570 --> 00:19:38,690
Labor became much more
collaborative, rather than

377
00:19:38,690 --> 00:19:43,970
adversarial, and ready to
leap on new efficiencies

378
00:19:43,970 --> 00:19:46,280
in the production
process, rather than fight

379
00:19:46,280 --> 00:19:49,100
them every inch of the way.

380
00:19:49,100 --> 00:19:51,500
So again, this was a
contributing factor

381
00:19:51,500 --> 00:19:55,940
to the kind of new model
that Japan was creating.

382
00:19:55,940 --> 00:19:59,790
There's another element
here of industrial policy.

383
00:19:59,790 --> 00:20:03,280
So Japan is recovering
from World War II.

384
00:20:03,280 --> 00:20:05,060
It develops an
innovation system that

385
00:20:05,060 --> 00:20:08,670
is very focused on production.

386
00:20:08,670 --> 00:20:10,432
That's what it's got
to stand up against.

387
00:20:10,432 --> 00:20:12,390
And that's where this
quality model comes from,

388
00:20:12,390 --> 00:20:15,210
and these other pieces.

389
00:20:15,210 --> 00:20:19,470
And Japan is very resource poor.

390
00:20:19,470 --> 00:20:22,830
So starting in the
1880s, Japan understood

391
00:20:22,830 --> 00:20:25,440
that it had to have
an export orientation.

392
00:20:25,440 --> 00:20:27,930
It had to export
to live because it

393
00:20:27,930 --> 00:20:31,580
had to get the resources in
order to produce them, right?

394
00:20:31,580 --> 00:20:34,043
And buy those back, so it
needed an export surplus

395
00:20:34,043 --> 00:20:34,960
to be able to do that.

396
00:20:39,290 --> 00:20:41,840
One of its core institutions
was called MITI--

397
00:20:41,840 --> 00:20:46,700
Ministry of International Trade
and Industry-- now called METI.

398
00:20:46,700 --> 00:20:50,410
And the nickname for
this was Japan Inc.

399
00:20:50,410 --> 00:20:55,550
But a very integrated system
of governmental leadership

400
00:20:55,550 --> 00:20:56,960
tied to major industries.

401
00:20:56,960 --> 00:21:00,950
And the major industries
weren't organized

402
00:21:00,950 --> 00:21:02,840
as they were in the US.

403
00:21:02,840 --> 00:21:05,360
We had anti-trust
laws in the US.

404
00:21:05,360 --> 00:21:10,100
We did not really impose
that in the post-war period

405
00:21:10,100 --> 00:21:15,260
and allowed Japan to keep
its, quote, keiretsu system.

406
00:21:15,260 --> 00:21:20,360
So that's a system
of major firms

407
00:21:20,360 --> 00:21:24,470
typically engaged in production
activities, financing,

408
00:21:24,470 --> 00:21:27,350
global trading,
and then networks

409
00:21:27,350 --> 00:21:29,340
of suppliers that
are tied to those.

410
00:21:29,340 --> 00:21:32,810
So these are groups
of related firms

411
00:21:32,810 --> 00:21:35,800
that are all mutually owned and
tied to each other, all right?

412
00:21:35,800 --> 00:21:38,780
They would violate US anti-trust
laws in all likelihood,

413
00:21:38,780 --> 00:21:42,830
but that's the way Japan
organized its core industries.

414
00:21:42,830 --> 00:21:46,370
Now, not all Japanese firms are
part of these keiretsu, right?

415
00:21:46,370 --> 00:21:49,370
So a company like Sony
was actually outside

416
00:21:49,370 --> 00:21:51,200
of this, right?

417
00:21:51,200 --> 00:21:53,210
But most of its
industry was organized

418
00:21:53,210 --> 00:21:54,710
in this very simple kind of way.

419
00:21:54,710 --> 00:21:56,270
And you can see
how their dealings

420
00:21:56,270 --> 00:21:57,860
with a major
governmental entity,

421
00:21:57,860 --> 00:22:03,890
like MITI, could be readily tied
to unify government decision

422
00:22:03,890 --> 00:22:07,680
making and industry
decision making.

423
00:22:07,680 --> 00:22:11,840
So when the US was
competing against Japan

424
00:22:11,840 --> 00:22:16,810
in this quite centralized,
quite efficient model,

425
00:22:16,810 --> 00:22:19,040
US had a lot of trouble coping.

426
00:22:19,040 --> 00:22:22,960
And you've seen them--

427
00:22:22,960 --> 00:22:24,430
when we talked
about Jorgenson, you

428
00:22:24,430 --> 00:22:30,070
saw some of the
productivity and GDP curbs.

429
00:22:30,070 --> 00:22:37,270
So historic US
productivity rate generally

430
00:22:37,270 --> 00:22:41,390
around 2%, and historic US GDP
growth is generally around 3%,

431
00:22:41,390 --> 00:22:44,170
right?

432
00:22:44,170 --> 00:22:49,540
Between '73 and
'91, those plummet,

433
00:22:49,540 --> 00:22:53,260
so we fall to productivity
rates at around 1%

434
00:22:53,260 --> 00:22:55,420
and GDP growth about 2%.

435
00:22:55,420 --> 00:22:58,810
It was a pretty grim time
in the United States.

436
00:22:58,810 --> 00:23:01,780
We were up against a powerful
industrial competitor,

437
00:23:01,780 --> 00:23:06,910
and Japan was able to
take economic sectors

438
00:23:06,910 --> 00:23:08,860
that the US thought
it would always have,

439
00:23:08,860 --> 00:23:11,650
like consumer electronics,
like a large part of the auto

440
00:23:11,650 --> 00:23:12,250
sector.

441
00:23:12,250 --> 00:23:14,050
Because it had a better
innovation model.

442
00:23:19,160 --> 00:23:25,460
So in a very brief
period of time,

443
00:23:25,460 --> 00:23:29,310
that's kind of what
happened in the 70s and 80s.

444
00:23:29,310 --> 00:23:32,270
The US response, as
I suggested earlier,

445
00:23:32,270 --> 00:23:36,590
was that we would attempt
to copy Japan on quality.

446
00:23:36,590 --> 00:23:38,540
And we call it
lean manufacturing,

447
00:23:38,540 --> 00:23:42,740
but we would attempt to
replicate as much as we could

448
00:23:42,740 --> 00:23:45,020
of that Toyota model.

449
00:23:45,020 --> 00:23:50,780
And by and large, our industries
have pretty well done that.

450
00:23:50,780 --> 00:23:56,570
But we also kept a focus on our
very strong innovation system.

451
00:23:56,570 --> 00:24:04,540
So we launched in the 1990s
the IT innovation wave,

452
00:24:04,540 --> 00:24:09,700
which Japan misses, right?

453
00:24:09,700 --> 00:24:13,910
And if you get your economy
to a leadership right

454
00:24:13,910 --> 00:24:16,650
to the edge of the
technological frontier,

455
00:24:16,650 --> 00:24:19,100
and you organize your economy
around leading innovation

456
00:24:19,100 --> 00:24:21,260
ways with Japan and just
organize its economy

457
00:24:21,260 --> 00:24:23,900
around doing, around a
new production system,

458
00:24:23,900 --> 00:24:27,080
and then you miss a wave,
it can be pretty unpleasant,

459
00:24:27,080 --> 00:24:27,630
all right?

460
00:24:27,630 --> 00:24:29,930
So it was unpleasant in the
US when we missed a wave

461
00:24:29,930 --> 00:24:31,550
in the '70s and '80s.

462
00:24:31,550 --> 00:24:33,282
But then things got
tough for Japan.

463
00:24:33,282 --> 00:24:35,240
Now that's not the only
factor that's going on.

464
00:24:35,240 --> 00:24:38,310
There's macroeconomic factors.

465
00:24:38,310 --> 00:24:39,910
There's demographic factors.

466
00:24:39,910 --> 00:24:42,410
There's a series of things that
are occurring simultaneously

467
00:24:42,410 --> 00:24:43,035
in Japan.

468
00:24:43,035 --> 00:24:46,032
But one part of
the story is around

469
00:24:46,032 --> 00:24:47,240
missing this innovation wave.

470
00:24:47,240 --> 00:24:51,400
So that was the kind of response
that the US came up with.

471
00:24:54,100 --> 00:24:57,730
It used its innovation
system to develop effectively

472
00:24:57,730 --> 00:25:00,370
radical innovations
in the IT space

473
00:25:00,370 --> 00:25:02,720
and create whole new industries.

474
00:25:02,720 --> 00:25:05,830
So we pursue radical innovation.

475
00:25:08,620 --> 00:25:10,240
Not consciously--
but in a way, that

476
00:25:10,240 --> 00:25:13,720
was effectively our response.

477
00:25:13,720 --> 00:25:20,900
Why don't we stop there
and go through the sheets

478
00:25:20,900 --> 00:25:22,970
and discussion of Kent Hughes?

479
00:25:25,570 --> 00:25:26,850
RASHEED: Yeah.

480
00:25:26,850 --> 00:25:29,845
So Kent Hughes, I
think he really talks

481
00:25:29,845 --> 00:25:31,470
about sort of this
'80s period in Japan

482
00:25:31,470 --> 00:25:35,070
and then really isolates
the sort of US response.

483
00:25:35,070 --> 00:25:36,690
So how is the US
going to respond

484
00:25:36,690 --> 00:25:41,510
to kind of larger problems
with our manufacturing system

485
00:25:41,510 --> 00:25:43,260
and really competing
on that global scale,

486
00:25:43,260 --> 00:25:46,105
now that Japan has sort of
captured a lot of things going

487
00:25:46,105 --> 00:25:48,480
on with quality manufacturing
and that sort of innovation

488
00:25:48,480 --> 00:25:50,030
wave?

489
00:25:50,030 --> 00:25:52,510
I think one of the
really important things

490
00:25:52,510 --> 00:25:56,270
that he talks about is sort
of this bureaucratic climate.

491
00:25:56,270 --> 00:25:59,390
So there's a lot going
on sort of trading

492
00:25:59,390 --> 00:26:01,640
on the international scale,
but bringing it back home

493
00:26:01,640 --> 00:26:02,930
to the US.

494
00:26:02,930 --> 00:26:05,600
You have to get a lot of
people onboard in order

495
00:26:05,600 --> 00:26:08,870
for you to sort of move
forward in this cohesive way,

496
00:26:08,870 --> 00:26:11,000
unless you're riding
an innovation wave.

497
00:26:11,000 --> 00:26:13,880
And so we're set up in a
radically different way

498
00:26:13,880 --> 00:26:14,910
than Japan.

499
00:26:14,910 --> 00:26:16,880
And we have to kind of
figure out what to do.

500
00:26:16,880 --> 00:26:20,750
And so talking about
Ronald Reagan's response,

501
00:26:20,750 --> 00:26:25,700
I think it was pretty cool and
important that Ronald Reagan

502
00:26:25,700 --> 00:26:30,170
sort of exercises his
discretion with this commission

503
00:26:30,170 --> 00:26:32,890
on industrial competitiveness
with John Young.

504
00:26:32,890 --> 00:26:34,640
So I was just wondering
if any of you guys

505
00:26:34,640 --> 00:26:37,320
had any feelings on sort
of the presidential power

506
00:26:37,320 --> 00:26:40,970
to not only kind of
highlight issues,

507
00:26:40,970 --> 00:26:43,130
but sort of take the
lead and take action,

508
00:26:43,130 --> 00:26:45,041
separate from all the
bureaucratic dealings?

509
00:26:51,595 --> 00:26:53,470
Oh yeah, so Steph, I
saw you raise your hand.

510
00:26:53,470 --> 00:26:56,505
STUDENT 2: Oh, I wanted to
point attention to Matthew.

511
00:26:56,505 --> 00:26:58,630
STUDENT 3: I mean, I thought
when I was reading it,

512
00:26:58,630 --> 00:27:00,766
that he was actually
quite slow to act on it,

513
00:27:00,766 --> 00:27:04,870
and it was really Congress that
kind of pushed the efforts.

514
00:27:04,870 --> 00:27:08,710
And later on, he
decided that this was

515
00:27:08,710 --> 00:27:10,191
something that was important.

516
00:27:13,137 --> 00:27:16,580
Yeah, it seemed more of
like a political at first.

517
00:27:16,580 --> 00:27:22,170
STUDENT 4: Yeah,
or making motions

518
00:27:22,170 --> 00:27:24,960
without actually
making actions, just

519
00:27:24,960 --> 00:27:30,630
to sort of look like Reagan is
taking action on this thing.

520
00:27:30,630 --> 00:27:31,810
And yeah, I agree.

521
00:27:31,810 --> 00:27:34,620
I thought he ended
up dragging his feet,

522
00:27:34,620 --> 00:27:37,500
and other people had to
sort of push for anything

523
00:27:37,500 --> 00:27:40,183
to be enacted with
the Young Commission.

524
00:27:45,740 --> 00:27:48,290
RASHEED: So I think one of
the big pieces in this Young

525
00:27:48,290 --> 00:27:50,930
Commission is how they
decide to choose members.

526
00:27:50,930 --> 00:27:53,690
And they pick kind of large
manufacturers of industry,

527
00:27:53,690 --> 00:27:56,150
and they start with John Young.

528
00:27:56,150 --> 00:27:57,710
But I thought it
was interesting how

529
00:27:57,710 --> 00:28:01,610
he didn't get to sort of hand
pick the members that he'd like

530
00:28:01,610 --> 00:28:04,490
to be on his own commission.

531
00:28:04,490 --> 00:28:06,758
I thought that might be a
little bit short-sighted,

532
00:28:06,758 --> 00:28:09,300
considering he's going to have
to work with all these people.

533
00:28:09,300 --> 00:28:12,950
And it might be a way of
sort of to drag your feet.

534
00:28:12,950 --> 00:28:16,730
But I thought the
sort of what came out

535
00:28:16,730 --> 00:28:19,790
of the commission, which is this
new report, which highlights

536
00:28:19,790 --> 00:28:22,970
a lot of these sort of
transformative things, sort of

537
00:28:22,970 --> 00:28:26,480
would've never happened
if he didn't sort of grab

538
00:28:26,480 --> 00:28:30,520
from all these places in
industry and manufacturers.

539
00:28:30,520 --> 00:28:32,540
But is there any
sort of merit to sort

540
00:28:32,540 --> 00:28:34,852
of bringing these
people in, having

541
00:28:34,852 --> 00:28:37,310
them work on this commission,
and then publish this report?

542
00:28:37,310 --> 00:28:39,150
Even though we don't
sort of act on it,

543
00:28:39,150 --> 00:28:41,960
but you see all of these
things that he highlighted

544
00:28:41,960 --> 00:28:45,320
in sort of New Growth Compact,
maybe 10 years down the line,

545
00:28:45,320 --> 00:28:46,460
might really be important.

546
00:28:46,460 --> 00:28:48,740
And sort of, this
lays the groundwork

547
00:28:48,740 --> 00:28:50,510
for five or 10 years
in the future when

548
00:28:50,510 --> 00:28:52,343
you're ready to sort
of act on these things.

549
00:28:54,265 --> 00:28:56,140
So I guess my goal would
be, is there a merit

550
00:28:56,140 --> 00:29:02,260
to sort of even if it's kind of
haphazard attempt at addressing

551
00:29:02,260 --> 00:29:04,870
the issues, is it a
still important metric,

552
00:29:04,870 --> 00:29:08,443
maybe not now, but five
or 10 years down the line?

553
00:29:08,443 --> 00:29:09,610
STUDENT 4: Yeah, I think so.

554
00:29:09,610 --> 00:29:12,190
And with the Young
Commission, I think

555
00:29:12,190 --> 00:29:17,260
that out of that commission,
Young decided to form--

556
00:29:17,260 --> 00:29:18,150
what's the name?

557
00:29:18,150 --> 00:29:22,120
I'm blanking on it, but
it still exists today.

558
00:29:22,120 --> 00:29:22,840
I looked it up.

559
00:29:22,840 --> 00:29:23,830
WILLIAM BONVILLIAN: The
Council on Competitiveness.

560
00:29:23,830 --> 00:29:25,270
STUDENT 4: Yes, exactly.

561
00:29:25,270 --> 00:29:32,440
So yes, there are lasting
knowledge and wisdom

562
00:29:32,440 --> 00:29:33,910
from a commission like this.

563
00:29:33,910 --> 00:29:36,097
So yeah, definitely,
it's better than nothing.

564
00:29:36,097 --> 00:29:38,180
It's better than sticking
your head in the ground.

565
00:29:38,180 --> 00:29:40,660
I think some of the
stuff they put forward

566
00:29:40,660 --> 00:29:43,965
is definitely extremely useful.

567
00:29:43,965 --> 00:29:45,310
It's there.

568
00:29:45,310 --> 00:29:46,360
It's published.

569
00:29:46,360 --> 00:29:49,092
It's accessible.

570
00:29:49,092 --> 00:29:51,550
STUDENT 5: I think it's one of
those better late than never

571
00:29:51,550 --> 00:29:52,690
things, right?

572
00:29:52,690 --> 00:29:55,128
Because it only seems
to happen that--

573
00:29:55,128 --> 00:29:56,920
I don't know if this
is a trend with the US

574
00:29:56,920 --> 00:29:58,420
or countries in
general, but it only

575
00:29:58,420 --> 00:30:01,510
seems that they put in all this
effort for one specific issue

576
00:30:01,510 --> 00:30:03,010
when something's
going wrong, right?

577
00:30:03,010 --> 00:30:08,150
Why not prevent things from
going wrong in the first place?

578
00:30:08,150 --> 00:30:09,490
And I don't know.

579
00:30:09,490 --> 00:30:15,310
The government seemed to be very
hesitant to change their ways

580
00:30:15,310 --> 00:30:18,130
surrounding their views
on specific policies

581
00:30:18,130 --> 00:30:18,930
around innovation.

582
00:30:18,930 --> 00:30:21,790
So like I said, better
late than never.

583
00:30:21,790 --> 00:30:25,770
But in my opinion, it'd
be better why didn't they

584
00:30:25,770 --> 00:30:29,253
do this decades before?

585
00:30:29,253 --> 00:30:31,420
STUDENT 2: I think the
question I have with relation

586
00:30:31,420 --> 00:30:33,280
to this reading is
that Hughes largely

587
00:30:33,280 --> 00:30:35,660
characterizes domestic
policy making as reactionary.

588
00:30:35,660 --> 00:30:36,910
And I agree.

589
00:30:36,910 --> 00:30:39,970
What hope exists for utilizing,
A, the courts under the living

590
00:30:39,970 --> 00:30:43,180
constitutionalist framework to
really address these questions

591
00:30:43,180 --> 00:30:45,520
and, or meaningfully
integrating the kinds

592
00:30:45,520 --> 00:30:51,100
of knowledge and
consensus that is

593
00:30:51,100 --> 00:30:52,640
created in these commissions.

594
00:30:52,640 --> 00:30:55,330
And I don't know that
there is yet a model

595
00:30:55,330 --> 00:31:00,190
for effective consensus building
outside of these commissions

596
00:31:00,190 --> 00:31:03,820
and translating that
to policy action

597
00:31:03,820 --> 00:31:06,530
with collaboration in
the legislative branch

598
00:31:06,530 --> 00:31:07,695
and the judicial branch.

599
00:31:07,695 --> 00:31:09,820
And that's, I think, where
your point sort of comes

600
00:31:09,820 --> 00:31:13,300
into action, that
there is an opportunity

601
00:31:13,300 --> 00:31:15,970
for proactive
policymaking, but it

602
00:31:15,970 --> 00:31:20,290
has to be integrated
with discussions

603
00:31:20,290 --> 00:31:22,500
around the branches.

604
00:31:22,500 --> 00:31:24,610
It can't just be
isolated in one branch

605
00:31:24,610 --> 00:31:26,350
because then, as
Hughes pointed out,

606
00:31:26,350 --> 00:31:28,620
there's going to be competition
amongst them on what

607
00:31:28,620 --> 00:31:29,662
the right thing is to do.

608
00:31:33,470 --> 00:31:37,090
RASHEED: Yeah, so that brings
maybe my follow-up question.

609
00:31:37,090 --> 00:31:39,480
You might be able
to help us out here.

610
00:31:39,480 --> 00:31:42,660
So I think the
president, in this way,

611
00:31:42,660 --> 00:31:45,250
really was able to just kind
of use his power to set aside

612
00:31:45,250 --> 00:31:47,250
and kind of call for the
study and commission.

613
00:31:47,250 --> 00:31:50,460
Is there a way for
sort of legislators

614
00:31:50,460 --> 00:31:52,100
to kind of do the same thing?

615
00:31:52,100 --> 00:31:56,940
Let's say I'm a
committee on energy.

616
00:31:56,940 --> 00:32:02,530
Can I call for a study or the
committee section of Congress

617
00:32:02,530 --> 00:32:03,780
that deals with manufacturing?

618
00:32:03,780 --> 00:32:06,395
Can they sort of call for
a study in the same way,

619
00:32:06,395 --> 00:32:08,270
and then maybe work with
the executive branch

620
00:32:08,270 --> 00:32:09,478
to kind of do the same thing?

621
00:32:11,880 --> 00:32:15,140
WILLIAM BONVILLIAN: I mean, just
a comment from my background

622
00:32:15,140 --> 00:32:18,990
experience having worked in
the Senate for about 15 years--

623
00:32:18,990 --> 00:32:23,400
yes, the committees
of Congress can

624
00:32:23,400 --> 00:32:27,050
function on an ongoing
basis to try and identify,

625
00:32:27,050 --> 00:32:29,290
Kevin, exactly the
problem you were raising,

626
00:32:29,290 --> 00:32:31,088
which is be a
little foresighted.

627
00:32:31,088 --> 00:32:33,630
Some committees are obviously
much better at this than others

628
00:32:33,630 --> 00:32:34,770
historically.

629
00:32:37,960 --> 00:32:39,620
But there's no guarantees.

630
00:32:39,620 --> 00:32:44,180
And frankly, government
tends to respond to crises.

631
00:32:44,180 --> 00:32:46,630
And if there's
not a crisis, it's

632
00:32:46,630 --> 00:32:48,320
hard to get it
mobilized, organizing,

633
00:32:48,320 --> 00:32:51,100
and moving to be foresighted.

634
00:32:51,100 --> 00:32:53,750
That's not necessarily
all bad, right?

635
00:32:53,750 --> 00:32:57,670
There's advantages
of having limits

636
00:32:57,670 --> 00:33:01,090
on governmental
intervention here.

637
00:33:01,090 --> 00:33:03,800
And if the system is
working fairly well,

638
00:33:03,800 --> 00:33:06,600
you probably don't want
government intervention.

639
00:33:06,600 --> 00:33:09,100
It's only when you hit a
crisis moment that you really

640
00:33:09,100 --> 00:33:11,890
want it to fall into place.

641
00:33:11,890 --> 00:33:14,042
I understand,
though, your points

642
00:33:14,042 --> 00:33:16,000
about wouldn't it be
better if we were watching

643
00:33:16,000 --> 00:33:17,167
all this stuff all the time.

644
00:33:17,167 --> 00:33:18,940
So there is that reality.

645
00:33:18,940 --> 00:33:23,860
You've got to hope that somebody
somewhere in the society

646
00:33:23,860 --> 00:33:25,840
is undertaking that review.

647
00:33:25,840 --> 00:33:28,268
But it's not something
government is terribly good at.

648
00:33:31,550 --> 00:33:34,550
And a typical response to a
crisis in a short term kind

649
00:33:34,550 --> 00:33:35,160
of way.

650
00:33:35,160 --> 00:33:38,150
So we came up with these
various mechanisms,

651
00:33:38,150 --> 00:33:40,780
none could really be called
a competitiveness strategy.

652
00:33:40,780 --> 00:33:43,430
We came up with a
bunch of pieces, right?

653
00:33:43,430 --> 00:33:46,550
One piece that's not
on here was Symantec,

654
00:33:46,550 --> 00:33:52,370
which is an attempt to
deal with Japan's effort

655
00:33:52,370 --> 00:33:55,640
to really capture the
semiconductor sector, which,

656
00:33:55,640 --> 00:33:57,890
again, produced very
high quality production

657
00:33:57,890 --> 00:34:02,250
capabilities and in
semiconductor chips,

658
00:34:02,250 --> 00:34:03,380
particularly DRAMs.

659
00:34:03,380 --> 00:34:07,940
And the US was producing
a lot of chips,

660
00:34:07,940 --> 00:34:10,550
but they were not
as high quality.

661
00:34:10,550 --> 00:34:13,610
And the manufacturing
process was not as efficient

662
00:34:13,610 --> 00:34:15,050
as Japan was.

663
00:34:15,050 --> 00:34:18,130
So Canon and Nikon
were opposed to be

664
00:34:18,130 --> 00:34:21,110
able to capture a very
large part of that sector.

665
00:34:21,110 --> 00:34:23,090
The solution the
US came up with--

666
00:34:23,090 --> 00:34:24,409
and again, this is DoD--

667
00:34:24,409 --> 00:34:26,690
the Department of Defense--

668
00:34:26,690 --> 00:34:29,210
which viewed semiconductors
as a pretty critical

669
00:34:29,210 --> 00:34:31,587
national security technology.

670
00:34:31,587 --> 00:34:33,920
Because it was embedded in
all kinds of critical defense

671
00:34:33,920 --> 00:34:36,100
technologies.

672
00:34:36,100 --> 00:34:40,219
DoD agreed to cost share
with the big industry

673
00:34:40,219 --> 00:34:45,530
organization consisting of both
the semiconductor fabricators,

674
00:34:45,530 --> 00:34:49,730
but also the supplier system,
the equipment and parts

675
00:34:49,730 --> 00:34:51,949
suppliers system for
the semiconductor

676
00:34:51,949 --> 00:34:53,830
in this community.

677
00:34:53,830 --> 00:34:56,350
That community came
together, eventually settled

678
00:34:56,350 --> 00:34:59,230
on a series of steps
to build quality

679
00:34:59,230 --> 00:35:03,870
into the US semiconductor
manufacturing process.

680
00:35:03,870 --> 00:35:09,083
Cost shared with DARPA, and it
really turned around a sector.

681
00:35:09,083 --> 00:35:11,250
Now there are other
developments going on here, too.

682
00:35:11,250 --> 00:35:15,180
The US taking leadership
of integrated circuits

683
00:35:15,180 --> 00:35:18,660
and microprocessors, kind of
the next stage of technology,

684
00:35:18,660 --> 00:35:21,450
so that certainly helped.

685
00:35:21,450 --> 00:35:23,640
But nonetheless, the
effort to drive quality

686
00:35:23,640 --> 00:35:28,830
into semiconductor production
was a very concrete example

687
00:35:28,830 --> 00:35:33,180
of an industry and
governmental collaboration

688
00:35:33,180 --> 00:35:35,310
that actually worked.

689
00:35:35,310 --> 00:35:37,720
So these other pieces here
are a little more hands-off--

690
00:35:37,720 --> 00:35:42,170
CRETA, Bayh-Dole Act, the
Advanced Technology Program,

691
00:35:42,170 --> 00:35:43,170
but not as direct.

692
00:35:43,170 --> 00:35:45,055
Symantec was a
fairly direct effort

693
00:35:45,055 --> 00:35:46,430
in the particular
economic sector

694
00:35:46,430 --> 00:35:50,120
with national security
ramifications to intervene.

695
00:35:50,120 --> 00:35:53,070
So in some ways, that's
the most seminal model that

696
00:35:53,070 --> 00:35:55,020
came out of this time period.

697
00:35:55,020 --> 00:35:58,830
But again, the minute
that the IT revolution

698
00:35:58,830 --> 00:36:03,810
starts to take off at the
beginning of the '90s, then

699
00:36:03,810 --> 00:36:07,350
the US drops its concern
with manufacturing, right?

700
00:36:07,350 --> 00:36:12,600
And we go on to having a great
time for a decade with the IT

701
00:36:12,600 --> 00:36:15,540
revolution, which,
as we discussed,

702
00:36:15,540 --> 00:36:19,698
is a remarkable period of growth
and of economic well-being

703
00:36:19,698 --> 00:36:20,198
in the US.

704
00:36:23,340 --> 00:36:25,310
How about another one, RASHEED?

705
00:36:25,310 --> 00:36:26,190
RASHEED: For Hughes?

706
00:36:26,190 --> 00:36:31,830
Yeah, I think we kind
of center our discussion

707
00:36:31,830 --> 00:36:35,890
a little bit on the US response
to what's going on in Japan.

708
00:36:35,890 --> 00:36:38,460
But I thought it might be
interesting to at least touch

709
00:36:38,460 --> 00:36:42,370
on how the different
paradigms-- and so

710
00:36:42,370 --> 00:36:43,600
the US and Japanese culture.

711
00:36:43,600 --> 00:36:49,358
So in Japan, we've talked about
kind of like these workers

712
00:36:49,358 --> 00:36:50,650
treating labor as a big source.

713
00:36:50,650 --> 00:36:52,950
And so you're sort
of employed for life.

714
00:36:52,950 --> 00:36:54,390
These paradigms
play out in Japan,

715
00:36:54,390 --> 00:36:56,880
and they're just kind of
characteristics of the culture.

716
00:36:56,880 --> 00:37:00,487
But I think looking at
international trade,

717
00:37:00,487 --> 00:37:02,070
is this sort of the
first time that we

718
00:37:02,070 --> 00:37:05,760
had to deal with a
difference in paradigm

719
00:37:05,760 --> 00:37:09,113
affecting international
trade, and basically just

720
00:37:09,113 --> 00:37:10,530
the fundamentals
of the US economy

721
00:37:10,530 --> 00:37:14,592
in a pretty large
and widespread way?

722
00:37:14,592 --> 00:37:16,050
Because I guess,
globalization will

723
00:37:16,050 --> 00:37:18,248
bring new countries
and new actors

724
00:37:18,248 --> 00:37:19,290
acting in different ways.

725
00:37:19,290 --> 00:37:22,950
But there's sort
of no competition

726
00:37:22,950 --> 00:37:26,880
until Japan sort of poses
this entirely different model

727
00:37:26,880 --> 00:37:28,570
for how to do things.

728
00:37:28,570 --> 00:37:33,000
But I'd like to at least touch
on how does kind of setting up

729
00:37:33,000 --> 00:37:35,160
your problem and your
paradigms in this way,

730
00:37:35,160 --> 00:37:39,730
does that provide opportunity
for sort of new innovation

731
00:37:39,730 --> 00:37:46,050
ways, in that if I set up
postwar Japan in a slightly

732
00:37:46,050 --> 00:37:49,260
different way, do I get a
slightly different outcome?

733
00:37:49,260 --> 00:37:50,550
STUDENT 4: I was wondering--

734
00:37:50,550 --> 00:37:52,620
this might help answer that--

735
00:37:52,620 --> 00:37:57,960
does Japan have the equivalent
of the US labor union?

736
00:38:00,190 --> 00:38:01,940
WILLIAM BONVILLIAN:
Yeah, the labor unions

737
00:38:01,940 --> 00:38:04,610
are organized very
differently however--

738
00:38:04,610 --> 00:38:06,740
far less adversarial.

739
00:38:06,740 --> 00:38:09,500
Again, if you have a lifetime
guarantee of work what's

740
00:38:09,500 --> 00:38:11,950
there to fight about, right?

741
00:38:11,950 --> 00:38:14,060
Why do you want to
have fights, right?

742
00:38:14,060 --> 00:38:16,610
Instead, they're much more
collaborative institutions

743
00:38:16,610 --> 00:38:21,170
that tend towards moving
towards great efficiency

744
00:38:21,170 --> 00:38:26,030
to promote their
company's performance.

745
00:38:26,030 --> 00:38:30,665
There's much greater incentive
for collaboration in the system

746
00:38:30,665 --> 00:38:32,450
that they set up.

747
00:38:32,450 --> 00:38:37,400
Now again, some of
that is faded as Japan

748
00:38:37,400 --> 00:38:41,930
has entered a much more
globalized competitive world

749
00:38:41,930 --> 00:38:48,110
of competition than it faced
as its system was emerging.

750
00:38:48,110 --> 00:38:57,860
But the trade-off of getting
cooperation from labor

751
00:38:57,860 --> 00:39:02,100
around work rules in return
for a lifetime employment

752
00:39:02,100 --> 00:39:06,170
has tended to work
well for Japan.

753
00:39:06,170 --> 00:39:08,640
In fact, the US auto
industry was actually

754
00:39:08,640 --> 00:39:17,410
moving in that direction for
a time period before, again,

755
00:39:17,410 --> 00:39:20,320
high competition kind
of caught up with it.

756
00:39:20,320 --> 00:39:23,080
But it's just that labor
trade-off is just a completely

757
00:39:23,080 --> 00:39:24,266
different arrangement.

758
00:39:26,930 --> 00:39:30,870
Look, I don't want to
underestimate these big macro

759
00:39:30,870 --> 00:39:32,670
factors that are
playing here, right?

760
00:39:32,670 --> 00:39:37,340
So at the end of the
World War II era, the US

761
00:39:37,340 --> 00:39:40,245
and the developed world--

762
00:39:43,470 --> 00:39:44,850
non-Communist
world-- essentially

763
00:39:44,850 --> 00:39:51,150
came to a set of arrangements
around free trade concepts,

764
00:39:51,150 --> 00:39:58,610
and open economies, and lowering
tariff and trade barriers

765
00:39:58,610 --> 00:39:59,180
and so forth.

766
00:39:59,180 --> 00:40:03,025
And that was the consensus
system of the time.

767
00:40:05,770 --> 00:40:09,220
When Japan organized its
economy and really began

768
00:40:09,220 --> 00:40:14,330
to move on entry as a
global economic power,

769
00:40:14,330 --> 00:40:16,510
it organized around a
different set of concepts.

770
00:40:16,510 --> 00:40:19,150
It was not organized around
a free trading system.

771
00:40:19,150 --> 00:40:22,210
It was organized around a
pretty mercantilist approach.

772
00:40:22,210 --> 00:40:25,300
Again, as part of
Japan's history,

773
00:40:25,300 --> 00:40:28,240
it has to trade to survive.

774
00:40:28,240 --> 00:40:30,820
It has to export
to survive, right?

775
00:40:30,820 --> 00:40:36,490
So they developed a very
focused export system.

776
00:40:36,490 --> 00:40:42,710
They undervalue their currency
so that their manufacturers

777
00:40:42,710 --> 00:40:45,020
would always have a
price advantage over US

778
00:40:45,020 --> 00:40:46,460
manufacturers, right?

779
00:40:46,460 --> 00:40:49,340
US put up with that
for essentially world

780
00:40:49,340 --> 00:40:52,980
national security kind
of reasons with an ally.

781
00:40:52,980 --> 00:40:55,730
And we assumed we were
kings of manufacturing.

782
00:40:55,730 --> 00:40:59,120
Who could interfere with us?

783
00:40:59,120 --> 00:41:01,610
Japan had a much more
interventionist attitude

784
00:41:01,610 --> 00:41:03,650
by its government into
supporting particular

785
00:41:03,650 --> 00:41:05,780
and assisting particular firms.

786
00:41:05,780 --> 00:41:09,650
That was not like the US system.

787
00:41:09,650 --> 00:41:12,710
It made it very
hard for imports,

788
00:41:12,710 --> 00:41:15,110
particularly of
complex technologies,

789
00:41:15,110 --> 00:41:18,020
to enter the Japanese markets.

790
00:41:18,020 --> 00:41:20,840
So it was playing by a different
set of more mercantilist

791
00:41:20,840 --> 00:41:22,280
kinds of rules.

792
00:41:22,280 --> 00:41:24,620
And frankly, that
model became a model

793
00:41:24,620 --> 00:41:26,130
for other Asian economies.

794
00:41:26,130 --> 00:41:30,800
So that was a model that worked
for Taiwan, and for Korea,

795
00:41:30,800 --> 00:41:32,280
and now China.

796
00:41:32,280 --> 00:41:36,545
And it's not based on that open
trading regime consensus policy

797
00:41:36,545 --> 00:41:39,660
that the US tried to build
at the end of World War II.

798
00:41:39,660 --> 00:41:42,050
So we're up against different
economic models here.

799
00:41:42,050 --> 00:41:45,140
Part of the story is that
the US hasn't really figured

800
00:41:45,140 --> 00:41:46,730
out what the right strategy is.

801
00:41:52,540 --> 00:41:54,920
But RASHEED, I think I
interrupted your ability

802
00:41:54,920 --> 00:41:57,190
to get answers to your
question from the table.

803
00:41:57,190 --> 00:41:59,053
RASHEED: A little bit.

804
00:41:59,053 --> 00:42:00,470
Yeah, so definitely
wanted to talk

805
00:42:00,470 --> 00:42:04,550
about some of these
Japanese paradigms

806
00:42:04,550 --> 00:42:07,580
kind of being a little bit
more pervasive in the way

807
00:42:07,580 --> 00:42:11,630
that they set up,
just like in the way

808
00:42:11,630 --> 00:42:15,620
they set up their whole
economic structure.

809
00:42:15,620 --> 00:42:18,410
And is there an opportunity
for different countries

810
00:42:18,410 --> 00:42:21,060
to sort of adopt different
paradigms in this way?

811
00:42:24,740 --> 00:42:25,740
STUDENT 3: To an extent.

812
00:42:25,740 --> 00:42:28,020
I think it almost goes
back to that discussion

813
00:42:28,020 --> 00:42:31,770
we had about our innovation
systems that makes them

814
00:42:31,770 --> 00:42:32,890
[INAUDIBLE].

815
00:42:32,890 --> 00:42:35,760
And I think while that
paradigm worked well

816
00:42:35,760 --> 00:42:38,500
for Asian countries, I think
there would definitely be still

817
00:42:38,500 --> 00:42:43,150
a lot of resistance in the
US if we tried to set up

818
00:42:43,150 --> 00:42:44,530
an identical paradigm here.

819
00:42:44,530 --> 00:42:47,850
People have these strong
beliefs about free trade

820
00:42:47,850 --> 00:42:49,530
and laissez-faire government.

821
00:42:49,530 --> 00:42:52,200
WILLIAM BONVILLIAN:
Right, although those

822
00:42:52,200 --> 00:42:57,420
are now right at the center of
a major political debate, really

823
00:42:57,420 --> 00:43:00,570
for the first time since--

824
00:43:00,570 --> 00:43:03,510
well, there was a debate over
these issues in the 1970s

825
00:43:03,510 --> 00:43:06,360
and '80s, a big
debate as Japan came

826
00:43:06,360 --> 00:43:10,770
to the forefront in two major
economic sectors in particular.

827
00:43:10,770 --> 00:43:12,600
And we're back to
that debate now.

828
00:43:12,600 --> 00:43:15,430
We're having it right now.

829
00:43:15,430 --> 00:43:18,310
And so all of this is actually
pretty interesting context

830
00:43:18,310 --> 00:43:19,417
to be watching, I think.

831
00:43:23,138 --> 00:43:25,430
We'll have to see what the
new administration proposes,

832
00:43:25,430 --> 00:43:29,480
but they appear to be moving in
much more of a neo mercantilist

833
00:43:29,480 --> 00:43:34,190
kind of direction
than prior regimes.

834
00:43:34,190 --> 00:43:36,925
STUDENT 6: So in order to
figure out whether or not,

835
00:43:36,925 --> 00:43:40,210
not only if other
countries can try

836
00:43:40,210 --> 00:43:42,020
to convert their
economies to this,

837
00:43:42,020 --> 00:43:45,520
but rather, whether they
should, we have to figure out

838
00:43:45,520 --> 00:43:46,990
what was the--

839
00:43:46,990 --> 00:43:54,610
so one of the main blocks
between any economy and Japan's

840
00:43:54,610 --> 00:43:58,360
economy is these kinds of--

841
00:43:58,360 --> 00:44:03,610
what was the term you had for
those things like railroad

842
00:44:03,610 --> 00:44:04,910
monopolies and oil monopolies?

843
00:44:04,910 --> 00:44:05,410
Oh yeah--

844
00:44:05,410 --> 00:44:06,670
STUDENT 3: Business sectors?

845
00:44:06,670 --> 00:44:06,930
STUDENT 6: What?

846
00:44:06,930 --> 00:44:08,097
STUDENT 4: Business sectors?

847
00:44:08,097 --> 00:44:09,960
WILLIAM BONVILLIAN:
Industrial policy.

848
00:44:09,960 --> 00:44:11,620
STUDENT 6: It's the
regulations that keep it from--

849
00:44:11,620 --> 00:44:12,550
STUDENT 5: Antitrust.

850
00:44:12,550 --> 00:44:13,425
STUDENT 6: Thank you.

851
00:44:13,425 --> 00:44:14,930
Sorry.

852
00:44:14,930 --> 00:44:16,180
WILLIAM BONVILLIAN: All right.

853
00:44:16,180 --> 00:44:18,097
STUDENT 6: Yeah, we're
on the same wavelength.

854
00:44:18,097 --> 00:44:20,710
OK, so those antitrust
laws, we have

855
00:44:20,710 --> 00:44:26,890
to figure out what is it
specifically within Japan that

856
00:44:26,890 --> 00:44:28,470
would conflict with those laws.

857
00:44:28,470 --> 00:44:34,120
And well, is it
really the best system

858
00:44:34,120 --> 00:44:36,860
for the individual worker?

859
00:44:36,860 --> 00:44:40,780
So from the impression
that I've gotten,

860
00:44:40,780 --> 00:44:42,820
the government is
so closely linked

861
00:44:42,820 --> 00:44:44,245
with the industrial sector.

862
00:44:47,380 --> 00:44:50,290
I feel like it would be an--

863
00:44:50,290 --> 00:44:54,700
I'm not sure how that
transition could occur.

864
00:44:54,700 --> 00:44:57,970
It's kind of like because they
had come out from World War II,

865
00:44:57,970 --> 00:45:01,100
they had the opportunity to
restructure from the ground up.

866
00:45:01,100 --> 00:45:03,010
So I'm not sure
if you could take

867
00:45:03,010 --> 00:45:06,820
an economy that's already based,
even if it's a better system.

868
00:45:06,820 --> 00:45:09,680
And I'm not sure you
could just revamp it,

869
00:45:09,680 --> 00:45:11,430
at least in any
reasonable amount of time.

870
00:45:14,450 --> 00:45:17,030
STUDENT 7: I do agree with
that in that there's also

871
00:45:17,030 --> 00:45:20,060
historical and cultural
factors to consider, like a lot

872
00:45:20,060 --> 00:45:23,030
about how America views itself
as you're pulling yourself

873
00:45:23,030 --> 00:45:26,930
up by your bootstraps and
competitively getting ahead,

874
00:45:26,930 --> 00:45:30,500
less so than this kind
of more collaborative,

875
00:45:30,500 --> 00:45:36,050
industrial conglomerate that
is making sure everyone's OK.

876
00:45:36,050 --> 00:45:40,340
So I think it could
encounter resistance

877
00:45:40,340 --> 00:45:45,238
in cultures like ours, where
that's not as respected.

878
00:45:45,238 --> 00:45:46,780
STUDENT 8: Yeah, I
think also there's

879
00:45:46,780 --> 00:45:48,370
the issue of scalability.

880
00:45:48,370 --> 00:45:52,690
Because Japan is so much of a
smaller country than the US,

881
00:45:52,690 --> 00:45:54,190
their structure
might not translate

882
00:45:54,190 --> 00:45:56,770
well on a broader scale
to ours, especially

883
00:45:56,770 --> 00:45:58,180
with the cultural difference.

884
00:45:58,180 --> 00:46:01,150
Because I know
educationally, it's

885
00:46:01,150 --> 00:46:02,980
very much pretty structured.

886
00:46:02,980 --> 00:46:06,610
If you do these things and
you go to these schools,

887
00:46:06,610 --> 00:46:09,550
you tend to go
get slotted in, so

888
00:46:09,550 --> 00:46:12,490
to speak, into certain
industries and certain roles.

889
00:46:12,490 --> 00:46:16,660
And that's kind of an
approach that we've

890
00:46:16,660 --> 00:46:20,170
tried to avoid going
towards here in the US.

891
00:46:20,170 --> 00:46:22,900
We kind of promote, oh, you
can go into whatever field

892
00:46:22,900 --> 00:46:23,440
you want.

893
00:46:23,440 --> 00:46:26,890
You don't necessarily have
to go on a certain path.

894
00:46:26,890 --> 00:46:29,680
So I think there's
definitely differences

895
00:46:29,680 --> 00:46:34,690
fundamentally in
ideology that prevents

896
00:46:34,690 --> 00:46:38,523
kind of the same model being
imposed upon both countries.

897
00:46:38,523 --> 00:46:40,690
STUDENT 6: Regarding at
least the scalability thing,

898
00:46:40,690 --> 00:46:42,830
you could possibly counter
that by saying, well,

899
00:46:42,830 --> 00:46:45,200
we have a lot of states.

900
00:46:45,200 --> 00:46:47,620
So you theoretically could
just have a couple of states

901
00:46:47,620 --> 00:46:49,900
just try a similar system.

902
00:46:49,900 --> 00:46:52,120
It'd be easier to
revamp them because it's

903
00:46:52,120 --> 00:46:53,600
a much smaller area.

904
00:46:53,600 --> 00:46:56,020
It's fewer people.

905
00:46:56,020 --> 00:46:59,380
So I mean, of course, there's
still plenty of reasons why you

906
00:46:59,380 --> 00:47:00,970
can't or why you shouldn't.

907
00:47:00,970 --> 00:47:04,120
But it definitely would
make it a lot easier

908
00:47:04,120 --> 00:47:05,950
to do, or at least look at.

909
00:47:05,950 --> 00:47:08,410
STUDENT 5: Yeah, I think
just to add on to that,

910
00:47:08,410 --> 00:47:11,380
I think one of the writers
from the first class

911
00:47:11,380 --> 00:47:12,640
actually has a whole--

912
00:47:12,640 --> 00:47:14,848
he's written a lot about
these sanctuary cities.

913
00:47:14,848 --> 00:47:16,390
I think that's the
wrong term, but he

914
00:47:16,390 --> 00:47:18,390
talks about cities where
they have special rules

915
00:47:18,390 --> 00:47:19,660
for certain industries.

916
00:47:19,660 --> 00:47:21,160
And that's also
especially important

917
00:47:21,160 --> 00:47:23,020
because especially
in the last election,

918
00:47:23,020 --> 00:47:24,812
there's only certain
cities that are really

919
00:47:24,812 --> 00:47:28,819
doing well because of technology
since San Francisco, New York.

920
00:47:28,819 --> 00:47:30,236
I'm probably
forgetting a couple--

921
00:47:30,236 --> 00:47:32,440
a lot.

922
00:47:32,440 --> 00:47:34,870
But what he is really
pushing is like, OK, well,

923
00:47:34,870 --> 00:47:37,100
we're going to get jobs
in this sector in Detroit,

924
00:47:37,100 --> 00:47:39,475
and we're going to get jobs
in this sector in Houston

925
00:47:39,475 --> 00:47:40,902
and bring them back.

926
00:47:40,902 --> 00:47:42,610
And that was kind of
what he was arguing.

927
00:47:45,818 --> 00:47:47,860
WILLIAM BONVILLIAN: So
I'm going to cut this off,

928
00:47:47,860 --> 00:47:50,060
so we can make progress
with some of the readings.

929
00:47:50,060 --> 00:47:51,893
But I think this is a
good background for us

930
00:47:51,893 --> 00:47:53,237
to lead into--

931
00:47:53,237 --> 00:47:55,570
I mean, you all raising these
cultural historical things

932
00:47:55,570 --> 00:47:59,350
would be great background when
we hit our discussion of Korea

933
00:47:59,350 --> 00:48:03,490
and also how Japan had to try
and reorganize its innovation

934
00:48:03,490 --> 00:48:07,360
system as it got to the
frontier in Glen Fong's piece.

935
00:48:07,360 --> 00:48:09,920
So hang on to a
lot of these ideas.

936
00:48:09,920 --> 00:48:13,940
Let me jump to the
next reading here,

937
00:48:13,940 --> 00:48:16,830
which I'm going to go
through just very briefly.

938
00:48:16,830 --> 00:48:18,290
We're now back.

939
00:48:18,290 --> 00:48:20,410
It's post 1990s, right?

940
00:48:20,410 --> 00:48:24,330
We're now back in our time
with that as a backdrop.

941
00:48:24,330 --> 00:48:30,060
I put this reading in here
by Barry Lynn and a book

942
00:48:30,060 --> 00:48:32,100
that he wrote called
End of the Line.

943
00:48:32,100 --> 00:48:36,600
It's not a book that I have
a lot of agreement with,

944
00:48:36,600 --> 00:48:42,540
but there's an interesting
historical perspective here

945
00:48:42,540 --> 00:48:45,392
that I especially want
you to get a handle on,

946
00:48:45,392 --> 00:48:47,100
particularly given
the conversation we've

947
00:48:47,100 --> 00:48:50,040
had about industry and culture.

948
00:48:50,040 --> 00:48:55,110
So Barry Lynn argues
that there's essentially

949
00:48:55,110 --> 00:48:59,968
three periods of
US manufacturing

950
00:48:59,968 --> 00:49:00,760
industrial history.

951
00:49:05,570 --> 00:49:10,570
There is a period between
Alexander Hamilton.

952
00:49:10,570 --> 00:49:15,290
And we call it 1945, the
end of World War II, right?

953
00:49:15,290 --> 00:49:20,120
And I mean, Hamilton is a
absolutely critical figure

954
00:49:20,120 --> 00:49:28,700
in US economic history because
he had a remarkably big picture

955
00:49:28,700 --> 00:49:31,790
of what the US
economy could become,

956
00:49:31,790 --> 00:49:35,322
a bigger picture than
anybody of this time

957
00:49:35,322 --> 00:49:37,680
in the political system.

958
00:49:37,680 --> 00:49:40,980
So and his fundamental
understanding

959
00:49:40,980 --> 00:49:49,330
was that in this era of
a small new power faced

960
00:49:49,330 --> 00:49:54,190
with much larger contending
European nations,

961
00:49:54,190 --> 00:49:58,570
that the only way that the
US keeps its independence

962
00:49:58,570 --> 00:50:01,928
is by building a strong
independent commercial economy,

963
00:50:01,928 --> 00:50:03,680
right?

964
00:50:03,680 --> 00:50:05,590
So Thomas Jefferson
at the same time

965
00:50:05,590 --> 00:50:08,510
is devoted to an
agricultural economy

966
00:50:08,510 --> 00:50:10,440
and a concept of young farmer.

967
00:50:10,440 --> 00:50:13,610
And that's how democracy
is going to take place.

968
00:50:13,610 --> 00:50:15,960
Hamilton is working in a
completely different direction.

969
00:50:15,960 --> 00:50:19,400
Let's stand up a major
national banking system.

970
00:50:19,400 --> 00:50:21,320
Let's stand up a major
commercial economy.

971
00:50:21,320 --> 00:50:27,440
And he himself is strongly
dedicated to early US

972
00:50:27,440 --> 00:50:28,490
manufacturing industry.

973
00:50:28,490 --> 00:50:33,466
So he's investing in an early
manufacturing plant across New

974
00:50:33,466 --> 00:50:36,410
York City and in New Jersey.

975
00:50:36,410 --> 00:50:39,980
So Hamilton's
concept was that we

976
00:50:39,980 --> 00:50:44,780
need to pursue
rational national self

977
00:50:44,780 --> 00:50:46,910
dependence in manufacturing.

978
00:50:46,910 --> 00:50:48,920
And tariffs are
fine because that

979
00:50:48,920 --> 00:50:52,580
will ensure the growth of US
manufacturing and production

980
00:50:52,580 --> 00:50:55,340
capability in the US economy.

981
00:50:55,340 --> 00:50:59,410
And he creates a lot of the
fundamental institutions

982
00:50:59,410 --> 00:51:03,660
that frankly, we still rely
on in maintaining that very

983
00:51:03,660 --> 00:51:06,190
small commercial economy.

984
00:51:06,190 --> 00:51:12,850
Then there is the post-World War
II emergence of the Cold War.

985
00:51:12,850 --> 00:51:17,380
And Lynn argues that
the US government

986
00:51:17,380 --> 00:51:21,820
leaves its Hamiltonian
notions of national self

987
00:51:21,820 --> 00:51:27,850
dependence in manufacturing to
build a larger concept, right?

988
00:51:27,850 --> 00:51:29,860
Confronted with an
international confrontation

989
00:51:29,860 --> 00:51:32,910
with a different
economic system,

990
00:51:32,910 --> 00:51:38,890
the US works towards building
a world economy that integrates

991
00:51:38,890 --> 00:51:41,322
the US, Europe, and
Japan in particular,

992
00:51:41,322 --> 00:51:42,280
and other nations, too.

993
00:51:42,280 --> 00:51:44,670
But those are the
principal ones--

994
00:51:44,670 --> 00:51:48,400
in a system of mutual
dependence, right?

995
00:51:48,400 --> 00:51:53,520
So this is not a self
dependent manufacturing system.

996
00:51:53,520 --> 00:51:55,620
This starts to move
us in the direction

997
00:51:55,620 --> 00:51:59,580
of a multi-continent
production system that's

998
00:51:59,580 --> 00:52:03,160
going to be shared
by the participants.

999
00:52:03,160 --> 00:52:06,180
And then Lynn argues that
the third stage really

1000
00:52:06,180 --> 00:52:15,540
occurs in the 1990s as President
Clinton moves to move China

1001
00:52:15,540 --> 00:52:18,210
into the world economic system.

1002
00:52:18,210 --> 00:52:21,810
And that notion there is a--

1003
00:52:24,440 --> 00:52:27,230
it's a similar notion
to what occurs in Europe

1004
00:52:27,230 --> 00:52:29,000
in the post-war period.

1005
00:52:29,000 --> 00:52:30,680
That if they integrate
their economies

1006
00:52:30,680 --> 00:52:32,180
and they all own
each other, they're

1007
00:52:32,180 --> 00:52:34,260
never going to fight
World War II again.

1008
00:52:34,260 --> 00:52:35,480
All right?

1009
00:52:35,480 --> 00:52:38,630
There's a lot to be said
for that concept, frankly.

1010
00:52:38,630 --> 00:52:44,960
That an economically
interdependent integrated world

1011
00:52:44,960 --> 00:52:48,050
is going to significantly
reduce national security threats

1012
00:52:48,050 --> 00:52:48,710
over time.

1013
00:52:48,710 --> 00:52:51,920
That's essentially,
Barry Lynn argues,

1014
00:52:51,920 --> 00:52:56,220
Clinton's driving
conceptual framework

1015
00:52:56,220 --> 00:52:58,560
that this interdependent
economic system, tied

1016
00:52:58,560 --> 00:53:01,830
by joint manufacturing
and a common set

1017
00:53:01,830 --> 00:53:06,540
of economic organizations,
will enable world peace, right?

1018
00:53:06,540 --> 00:53:08,130
That's the notion.

1019
00:53:08,130 --> 00:53:12,900
So the WTO agreement and
China's entry into the WTO

1020
00:53:12,900 --> 00:53:16,770
is the critical
enabling step here.

1021
00:53:16,770 --> 00:53:21,480
And the west production
system is indeed,

1022
00:53:21,480 --> 00:53:24,930
to a significant extent,
merged into China

1023
00:53:24,930 --> 00:53:29,130
with China's production
output going worldwide.

1024
00:53:29,130 --> 00:53:32,400
Now there's a whole defense set
of perspectives here, right?

1025
00:53:32,400 --> 00:53:36,570
There are integrationists,
which Clinton would be one,

1026
00:53:36,570 --> 00:53:40,900
according to Lynn,
essentially extending

1027
00:53:40,900 --> 00:53:44,070
a Western manufacturing
production system into China,

1028
00:53:44,070 --> 00:53:47,740
will bind China to a
global economic system,

1029
00:53:47,740 --> 00:53:51,645
substantially reducing
national security problems

1030
00:53:51,645 --> 00:53:54,460
in the long term.

1031
00:53:54,460 --> 00:53:57,190
And then there's a
whole different school

1032
00:53:57,190 --> 00:54:00,340
of the list of his profound
differences in these nations

1033
00:54:00,340 --> 00:54:04,150
and their geopolitical
systems, geopolitical goals

1034
00:54:04,150 --> 00:54:06,958
and their political systems
that are going to endure,

1035
00:54:06,958 --> 00:54:08,500
and the only question
is which nation

1036
00:54:08,500 --> 00:54:12,000
gains the advantage from the
economic interdependence.

1037
00:54:12,000 --> 00:54:14,680
But the next thing
that Lynn argues

1038
00:54:14,680 --> 00:54:22,620
is that this
globalism has created

1039
00:54:22,620 --> 00:54:27,290
its own economic
determinism, right?

1040
00:54:27,290 --> 00:54:29,690
That a new global
economic system

1041
00:54:29,690 --> 00:54:32,547
has in fact emerged here that
nobody's really in charge of,

1042
00:54:32,547 --> 00:54:33,470
right?

1043
00:54:33,470 --> 00:54:36,080
That nobody-- no
separate country,

1044
00:54:36,080 --> 00:54:40,800
or even groups of
countries, can manage--

1045
00:54:40,800 --> 00:54:44,720
that it's larger than the
ability of these countries

1046
00:54:44,720 --> 00:54:45,780
to manage.

1047
00:54:45,780 --> 00:54:50,510
So Lynn writes this before
the 2008 financial meltdown,

1048
00:54:50,510 --> 00:54:53,060
which is truly a
world phenomenon,

1049
00:54:53,060 --> 00:54:54,710
driven by failures
in this country,

1050
00:54:54,710 --> 00:54:58,940
but pervasive worldwide.

1051
00:54:58,940 --> 00:55:00,710
And then there is
these frantic moments

1052
00:55:00,710 --> 00:55:02,150
as countries try
to figure out how

1053
00:55:02,150 --> 00:55:06,170
to manage this global
financial crisis

1054
00:55:06,170 --> 00:55:11,390
and realize how lacking in
tools they are to cope with it.

1055
00:55:11,390 --> 00:55:14,390
So kind of a final
point that Lynn makes

1056
00:55:14,390 --> 00:55:17,180
is that we've now
created a system that's

1057
00:55:17,180 --> 00:55:20,240
larger than the countries
themselves, right?

1058
00:55:20,240 --> 00:55:23,570
It's largely, frankly,
deterministic and somewhat

1059
00:55:23,570 --> 00:55:25,310
independent of them.

1060
00:55:25,310 --> 00:55:28,850
And the ability to intervene
becomes much more problematic.

1061
00:55:28,850 --> 00:55:31,640
All right, so I thought it was
just an interesting perspective

1062
00:55:31,640 --> 00:55:34,100
to kind of throw
into the mix here,

1063
00:55:34,100 --> 00:55:37,460
as we begin to think about some
of these historical questions

1064
00:55:37,460 --> 00:55:39,861
and try to think about
the kind of global economy

1065
00:55:39,861 --> 00:55:41,840
that we've made.

1066
00:55:41,840 --> 00:55:43,698
So who's got that one?

1067
00:55:43,698 --> 00:55:44,990
RASHEED: I think it's still me.

1068
00:55:44,990 --> 00:55:45,840
WILLIAM BONVILLIAN: Really?

1069
00:55:45,840 --> 00:55:46,040
RASHEED: Yeah.

1070
00:55:46,040 --> 00:55:46,860
WILLIAM BONVILLIAN:
Thanks, RASHEED.

1071
00:55:46,860 --> 00:55:48,568
RASHEED: Yeah, we can
take it from there.

1072
00:55:48,568 --> 00:55:53,870
So I thought we'd comment on
kind of the interconnectedness

1073
00:55:53,870 --> 00:55:57,590
and globalism might be
very specific to this time.

1074
00:55:57,590 --> 00:56:00,230
I think he wrote about 2000.

1075
00:56:00,230 --> 00:56:03,740
And so he's like probably just
come from the '90s and seeing

1076
00:56:03,740 --> 00:56:09,027
Clinton sort of definitely push
towards laissez-faire business

1077
00:56:09,027 --> 00:56:11,360
practices on the international
scale, which is something

1078
00:56:11,360 --> 00:56:13,610
that, yeah, as Americans
we're pretty used

1079
00:56:13,610 --> 00:56:16,417
to this whole idea
of the government

1080
00:56:16,417 --> 00:56:18,500
is very separate from
business ideals and business

1081
00:56:18,500 --> 00:56:21,380
practices, but
also the promotion

1082
00:56:21,380 --> 00:56:23,510
that now it's not
just the US that

1083
00:56:23,510 --> 00:56:24,780
has to operate in the system.

1084
00:56:24,780 --> 00:56:27,530
But now we have to deal
with other countries that

1085
00:56:27,530 --> 00:56:28,700
promote this.

1086
00:56:28,700 --> 00:56:33,200
And so I thought it was pretty
important that we kind of date

1087
00:56:33,200 --> 00:56:36,980
him in 2000, where
we're kind of riding

1088
00:56:36,980 --> 00:56:39,300
the high of a lot
of these promotion

1089
00:56:39,300 --> 00:56:41,990
of international
interdependence.

1090
00:56:41,990 --> 00:56:47,270
But we do see the trouble,
I guess, definitely in 2008.

1091
00:56:47,270 --> 00:56:50,840
So is there sort of
room for us not only

1092
00:56:50,840 --> 00:56:54,120
as we develop in sort of this
interconnected globalized

1093
00:56:54,120 --> 00:56:54,620
world?

1094
00:56:54,620 --> 00:56:58,010
Is there room for
regulation and sort

1095
00:56:58,010 --> 00:57:00,860
of do intergovernmental
business practices that

1096
00:57:00,860 --> 00:57:04,310
have to be put in place to
sort of keep us in check?

1097
00:57:07,760 --> 00:57:10,070
STUDENT 5: OK, to add
on to that and also add

1098
00:57:10,070 --> 00:57:12,440
a fourth perspective,
so Andy Grove

1099
00:57:12,440 --> 00:57:15,820
was one of the three
founders of Intel.

1100
00:57:15,820 --> 00:57:18,440
And their big focus and
their main working ability

1101
00:57:18,440 --> 00:57:22,610
as a company was manufacturing,
especially very detailed

1102
00:57:22,610 --> 00:57:24,470
complex manufacturing.

1103
00:57:24,470 --> 00:57:27,710
And so he actually
wrote a letter in 2010,

1104
00:57:27,710 --> 00:57:29,280
and then he passed away in 2016.

1105
00:57:29,280 --> 00:57:31,490
But he wrote one about why
we need more manufacturing

1106
00:57:31,490 --> 00:57:36,410
in the US and why it's
dangerous when we don't have it.

1107
00:57:36,410 --> 00:57:39,290
And he goes on to say, Mr.
Grove contrasted the startup

1108
00:57:39,290 --> 00:57:40,910
phase of a business.

1109
00:57:40,910 --> 00:57:43,070
What uses for new
technologies are identified

1110
00:57:43,070 --> 00:57:44,120
with the scale-up phase?

1111
00:57:44,120 --> 00:57:46,790
When technology goes from
prototype to mass production,

1112
00:57:46,790 --> 00:57:47,660
both are important.

1113
00:57:47,660 --> 00:57:50,095
But only scale-up is an
engine for job growth.

1114
00:57:50,095 --> 00:57:51,470
And scale-up in
general no longer

1115
00:57:51,470 --> 00:57:53,120
occurs in the United States.

1116
00:57:53,120 --> 00:57:55,460
Without scaling, he wrote,
we don't just lose jobs.

1117
00:57:55,460 --> 00:57:57,040
We lose our hold
on new technologies

1118
00:57:57,040 --> 00:57:59,690
and ultimately damage
our capacity to innovate.

1119
00:57:59,690 --> 00:58:01,250
He then goes on to
talk a little bit

1120
00:58:01,250 --> 00:58:03,710
about laissez-faire
and open markets.

1121
00:58:03,710 --> 00:58:06,530
But then he argues that
even though laissez-faire

1122
00:58:06,530 --> 00:58:10,940
and those principles are good,
there is room for improvement.

1123
00:58:10,940 --> 00:58:14,930
He talks about job centric
economies and politics,

1124
00:58:14,930 --> 00:58:17,180
where in a job centric
system, job creation would

1125
00:58:17,180 --> 00:58:18,897
be the nation's
number one objective,

1126
00:58:18,897 --> 00:58:21,230
while the government's setting
priorities and arraigning

1127
00:58:21,230 --> 00:58:23,278
the forces necessary
to achieve the goal.

1128
00:58:23,278 --> 00:58:25,820
And within this operating, not
only in their immediate profit

1129
00:58:25,820 --> 00:58:27,778
interest, but also in
the interest of employees

1130
00:58:27,778 --> 00:58:29,360
and employees yet
to be hired, which

1131
00:58:29,360 --> 00:58:31,430
is beneficial to the country.

1132
00:58:31,430 --> 00:58:33,410
He ends with saying
something that we're

1133
00:58:33,410 --> 00:58:38,005
seeing right now, which is
wealth inequality, that if we

1134
00:58:38,005 --> 00:58:40,130
do have a place where we
just pretty much outsource

1135
00:58:40,130 --> 00:58:41,180
everything, we're going
to have a country that

1136
00:58:41,180 --> 00:58:44,150
has very high profitability,
but low prosperity, which

1137
00:58:44,150 --> 00:58:46,692
is what we're seeing right now,
and especially very impactful

1138
00:58:46,692 --> 00:58:47,850
in the last three years.

1139
00:58:47,850 --> 00:58:50,552
Especially since after
2000-- well, in the 2000s,

1140
00:58:50,552 --> 00:58:52,760
everyone started to outsource
all their manufacturing

1141
00:58:52,760 --> 00:58:55,820
because it's cheaper
in China, Asia.

1142
00:58:55,820 --> 00:59:00,340
But that's really hurt jobs
in the US in a statement.

1143
00:59:00,340 --> 00:59:01,090
STUDENT 4: Sorry--

1144
00:59:01,090 --> 00:59:02,140
WILLIAM BONVILLIAN:
Thanks, Martin.

1145
00:59:02,140 --> 00:59:03,223
STUDENT 4: Who wrote that?

1146
00:59:03,223 --> 00:59:04,390
STUDENT 5: Andy Grove.

1147
00:59:04,390 --> 00:59:05,420
So--

1148
00:59:05,420 --> 00:59:07,020
WILLIAM BONVILLIAN: One of
the three founders of Intel.

1149
00:59:07,020 --> 00:59:08,510
STUDENT 5: And he was also
very important because he--

1150
00:59:08,510 --> 00:59:09,190
WILLIAM BONVILLIAN:
Andy Grove also

1151
00:59:09,190 --> 00:59:11,142
has one of my favorite
remarks, which is

1152
00:59:11,142 --> 00:59:13,620
that only the paranoid survive.

1153
00:59:13,620 --> 00:59:14,740
STUDENT 5: Yeah.

1154
00:59:14,740 --> 00:59:16,413
He's written a lot
of great books,

1155
00:59:16,413 --> 00:59:17,830
but the differences
and the reason

1156
00:59:17,830 --> 00:59:19,120
I added him is because
his perspective is more

1157
00:59:19,120 --> 00:59:20,740
of the business
person who's seen kind

1158
00:59:20,740 --> 00:59:23,050
of the impact versus
the three sources

1159
00:59:23,050 --> 00:59:26,000
added were mostly politicians.

1160
00:59:26,000 --> 00:59:28,432
And so I thought that would
be interesting to add.

1161
00:59:28,432 --> 00:59:29,890
WILLIAM BONVILLIAN:
Thanks, Martin.

1162
00:59:29,890 --> 00:59:31,765
And look, a lot of the
issues you just raised

1163
00:59:31,765 --> 00:59:34,975
are going to be prime topics
in next week's class, too.

1164
00:59:34,975 --> 00:59:38,440
So just hang on
to a lot of that.

1165
00:59:38,440 --> 00:59:40,570
We can discuss it here,
too, of course, but--

1166
00:59:40,570 --> 00:59:42,778
STUDENT 2: Would it be
acceptable and, or appropriate

1167
00:59:42,778 --> 00:59:45,670
to do a straw poll of who agreed
overall with Lynn's argument

1168
00:59:45,670 --> 00:59:46,600
versus who didn't?

1169
00:59:46,600 --> 00:59:48,100
WILLIAM BONVILLIAN:
With Barry Lynn?

1170
00:59:48,100 --> 00:59:49,120
STUDENT 2: Yeah.

1171
00:59:49,120 --> 00:59:49,750
WILLIAM BONVILLIAN: Sure.

1172
00:59:49,750 --> 00:59:50,958
STUDENT 2: Can we straw poll?

1173
00:59:50,958 --> 00:59:52,700
Who generally thought
that [INAUDIBLE]??

1174
00:59:52,700 --> 00:59:56,258
WILLIAM BONVILLIAN: Now
which part of his argument?

1175
00:59:56,258 --> 00:59:57,050
STUDENT 2: I mean--

1176
00:59:57,050 --> 00:59:59,830
oh, so I think the
piece I was missing

1177
00:59:59,830 --> 01:00:03,760
in your analysis about
his argument on Clinton

1178
01:00:03,760 --> 01:00:05,740
is that he didn't think
that was a good idea.

1179
01:00:05,740 --> 01:00:08,068
He didn't appreciate
the integrative approach

1180
01:00:08,068 --> 01:00:10,360
because he felt that the
invisible hand that we had all

1181
01:00:10,360 --> 01:00:14,410
presumed to exist that would
effectively regulate the market

1182
01:00:14,410 --> 01:00:17,320
and ensure that everyone
was acting in not only

1183
01:00:17,320 --> 01:00:19,720
their own
self-interest, but also

1184
01:00:19,720 --> 01:00:23,260
in the self-interest of the
system being sustainable

1185
01:00:23,260 --> 01:00:24,258
was dangerous.

1186
01:00:24,258 --> 01:00:26,050
Because it could
collapse, and then it did.

1187
01:00:26,050 --> 01:00:28,180
So overall, I agree
with that component.

1188
01:00:28,180 --> 01:00:30,790
And I guess, that's what I'm
curious about other people's

1189
01:00:30,790 --> 01:00:31,600
perspectives on.

1190
01:00:31,600 --> 01:00:35,730
Do we think that his
conception of how

1191
01:00:35,730 --> 01:00:44,775
laissez-faire is implemented
is generally applicable or not?

1192
01:00:44,775 --> 01:00:46,150
WILLIAM BONVILLIAN:
I mean, look,

1193
01:00:46,150 --> 01:00:49,440
that's a good summary of the
point that Lynn brings us to.

1194
01:00:49,440 --> 01:00:50,911
So thank you for
pushing on that.

1195
01:00:56,570 --> 01:00:58,913
RASHEED: Agree
with some caveats.

1196
01:00:58,913 --> 01:01:00,080
STUDENT 7: Oh, we're voting?

1197
01:01:00,080 --> 01:01:00,425
STUDENT 6: Yeah.

1198
01:01:00,425 --> 01:01:01,600
STUDENT 2: OK,
yeah, let's start.

1199
01:01:01,600 --> 01:01:02,570
STUDENT 5: Let's simplify
the statement, though.

1200
01:01:02,570 --> 01:01:03,190
STUDENT 6: Yeah.

1201
01:01:03,190 --> 01:01:04,670
STUDENT 5: Just keep
it as a true-false.

1202
01:01:04,670 --> 01:01:05,337
STUDENT 6: Yeah.

1203
01:01:05,337 --> 01:01:06,650
Yeah.

1204
01:01:06,650 --> 01:01:09,620
STUDENT 2: Do we think
laissez-faire economies

1205
01:01:09,620 --> 01:01:12,683
are dangerous in the way that
Lynn has articulated them?

1206
01:01:16,390 --> 01:01:16,890
Yes, do we?

1207
01:01:16,890 --> 01:01:18,098
STUDENT 6: Yeah, pretty much.

1208
01:01:18,098 --> 01:01:19,750
STUDENT 2: OK, who does not?

1209
01:01:19,750 --> 01:01:21,090
Who does not?

1210
01:01:21,090 --> 01:01:24,944
Who thinks laissez-faire
is good with caveats?

1211
01:01:24,944 --> 01:01:25,567
OK.

1212
01:01:25,567 --> 01:01:27,650
STUDENT 6: Have you heard
of the Great Depression?

1213
01:01:31,790 --> 01:01:35,880
RASHEED: So I think my
caveats were definitely

1214
01:01:35,880 --> 01:01:40,770
you had this opportunity in
laissez-faire to sort of spread

1215
01:01:40,770 --> 01:01:43,470
this idea of not only
comparative advantage,

1216
01:01:43,470 --> 01:01:47,712
but you also spread, hopefully,
if this works, positively

1217
01:01:47,712 --> 01:01:48,920
sort of like the good things.

1218
01:01:48,920 --> 01:01:53,610
And if you hit maybe
Martin's point on bring in--

1219
01:01:53,610 --> 01:01:56,720
job creation is kind of
one of the central pieces,

1220
01:01:56,720 --> 01:02:00,180
just sort of keeping
the social tide of sort

1221
01:02:00,180 --> 01:02:01,838
of everybody rising.

1222
01:02:01,838 --> 01:02:04,380
I think you get an opportunity
to sort of like spread the job

1223
01:02:04,380 --> 01:02:06,880
creation, sort of spread all
these things with laissez-faire

1224
01:02:06,880 --> 01:02:09,330
and looking, like
Clinton did, towards sort

1225
01:02:09,330 --> 01:02:12,510
of not so much outsourcing,
but sort of like looking bigger

1226
01:02:12,510 --> 01:02:14,930
than just kind of creating
jobs in the United States

1227
01:02:14,930 --> 01:02:16,440
to sort of rise our wealth.

1228
01:02:16,440 --> 01:02:19,227
But if you look at if
you can create jobs now

1229
01:02:19,227 --> 01:02:21,810
all over the globe and integrate
them into this interconnected

1230
01:02:21,810 --> 01:02:25,430
system, you have the opportunity
to sort of rise the tide

1231
01:02:25,430 --> 01:02:28,536
globally in laissez-faire.

1232
01:02:31,320 --> 01:02:35,370
STUDENT 7: I just think the main
point I got from Lynn's reading

1233
01:02:35,370 --> 01:02:40,780
is that systems with single
point failures are dangerous.

1234
01:02:40,780 --> 01:02:43,448
And I feel like that would
be true on any scale.

1235
01:02:43,448 --> 01:02:45,240
He's just talking about
now we're on such a

1236
01:02:45,240 --> 01:02:47,470
bigger scale that it's
going to affect everyone.

1237
01:02:47,470 --> 01:02:51,240
But I think that at
the national scale,

1238
01:02:51,240 --> 01:02:52,530
that would still be dangerous.

1239
01:02:52,530 --> 01:02:55,790
Any system that has single
point failures is a concern.

1240
01:02:55,790 --> 01:02:58,320
But I don't necessarily
agree with the fact

1241
01:02:58,320 --> 01:03:01,660
that he thinks that
can't be corrected,

1242
01:03:01,660 --> 01:03:05,190
while still having a somewhat
laissez-faire system.

1243
01:03:05,190 --> 01:03:07,860
I mean, I do think it would
require some regulations,

1244
01:03:07,860 --> 01:03:11,910
but even if it was just
having a few plants that

1245
01:03:11,910 --> 01:03:14,580
makes semiconductors
outside of Taiwan,

1246
01:03:14,580 --> 01:03:17,520
I feel like that could
be not a huge imposition

1247
01:03:17,520 --> 01:03:22,290
on laissez-faire and reduce this
single point failure problem.

1248
01:03:22,290 --> 01:03:25,470
STUDENT 3: Actually, when I was
reading that, I was thinking,

1249
01:03:25,470 --> 01:03:28,830
would it really be safer then
to have every factory making

1250
01:03:28,830 --> 01:03:31,170
every component of the phone
all in the United States?

1251
01:03:31,170 --> 01:03:32,795
Wouldn't that just
geographically cause

1252
01:03:32,795 --> 01:03:34,838
you to be less diverse?

1253
01:03:34,838 --> 01:03:36,630
STUDENT 9: Yeah, I
think that's interesting

1254
01:03:36,630 --> 01:03:39,300
because he uses
language to make it seem

1255
01:03:39,300 --> 01:03:43,080
like this is what a globally
distributed architecture looks

1256
01:03:43,080 --> 01:03:43,770
like.

1257
01:03:43,770 --> 01:03:44,340
But I agree.

1258
01:03:44,340 --> 01:03:46,757
I think if you have all of
your manufacturing or something

1259
01:03:46,757 --> 01:03:50,940
concentrated in one geographical
area, it's not globalization.

1260
01:03:50,940 --> 01:03:53,338
It's not really a very
complex integrated system.

1261
01:03:53,338 --> 01:03:55,380
It just happens to be far
away from your country.

1262
01:03:55,380 --> 01:03:57,442
That doesn't make it local.

1263
01:03:57,442 --> 01:03:59,400
STUDENT 2: Would we
conceive of Lynn's argument

1264
01:03:59,400 --> 01:04:00,730
as America first then?

1265
01:04:03,152 --> 01:04:05,110
STUDENT 8: Yeah, I've
been thinking about that.

1266
01:04:05,110 --> 01:04:07,590
WILLIAM BONVILLIAN:
Yeah, I mean, Lynn

1267
01:04:07,590 --> 01:04:10,860
is painting a dark side here.

1268
01:04:10,860 --> 01:04:13,980
And he's painting a portrayal
of opening up the system.

1269
01:04:13,980 --> 01:04:19,410
And then the system itself
begins to take control, right?

1270
01:04:19,410 --> 01:04:22,440
This globalized
financial system itself

1271
01:04:22,440 --> 01:04:25,650
begins to take
control and minimize

1272
01:04:25,650 --> 01:04:28,170
the ability of
any of the players

1273
01:04:28,170 --> 01:04:30,210
to impact or affect that.

1274
01:04:30,210 --> 01:04:33,960
So it's a fundamental statement
about the fragility and lack

1275
01:04:33,960 --> 01:04:35,460
of resilience.

1276
01:04:35,460 --> 01:04:43,540
And your single point of failure
point is well taken, Chloe.

1277
01:04:43,540 --> 01:04:46,350
It's a dark picture here,
and what makes it intriguing

1278
01:04:46,350 --> 01:04:49,150
and the only reason why
I still keep it in here

1279
01:04:49,150 --> 01:04:52,930
is that sure enough, that's
exactly what we ended up

1280
01:04:52,930 --> 01:04:54,280
with in 2008.

1281
01:04:54,280 --> 01:04:57,670
And boy, that was
so close to a really

1282
01:04:57,670 --> 01:05:02,020
massive worldwide depression
that it's painful in economy.

1283
01:05:02,020 --> 01:05:05,560
So I put it in as kind of
a useful warning lesson,

1284
01:05:05,560 --> 01:05:08,500
but also a lesson
about how we've

1285
01:05:08,500 --> 01:05:12,100
moved in the international
organization of our economy

1286
01:05:12,100 --> 01:05:15,070
from a nation-centered
to an ally-centered

1287
01:05:15,070 --> 01:05:18,310
to a truly globalized
kind of orientation here.

1288
01:05:18,310 --> 01:05:20,860
And what are the
implications of that?

1289
01:05:20,860 --> 01:05:22,810
We need to keep
thinking about this.

1290
01:05:22,810 --> 01:05:25,300
STUDENT 8: Going
back to that whole--

1291
01:05:25,300 --> 01:05:28,360
the 2008 collapse,
you were saying

1292
01:05:28,360 --> 01:05:32,170
that it's very
difficult to regulate

1293
01:05:32,170 --> 01:05:35,770
some sort of financial system
that reaches across borders.

1294
01:05:35,770 --> 01:05:41,950
But at least with the 2008
crisis, a lot of the collapse

1295
01:05:41,950 --> 01:05:44,080
stemmed directly
from the US, which

1296
01:05:44,080 --> 01:05:48,130
means that at least with
the collapse of that form,

1297
01:05:48,130 --> 01:05:51,550
US regulations clearly would
have helped significantly

1298
01:05:51,550 --> 01:05:54,970
and would have prevented
the crisis altogether.

1299
01:05:54,970 --> 01:05:58,810
So my feeling is at least
if we're going to use that

1300
01:05:58,810 --> 01:06:02,018
as the example,
then it just isn't--

1301
01:06:02,018 --> 01:06:02,560
I don't know.

1302
01:06:02,560 --> 01:06:06,160
I don't know how true it is
then that we can't actually

1303
01:06:06,160 --> 01:06:07,550
regulate this system.

1304
01:06:07,550 --> 01:06:10,000
Because if you have all these
countries that are all--

1305
01:06:10,000 --> 01:06:13,330
ignoring natural disasters,
like what happened in Taiwan,

1306
01:06:13,330 --> 01:06:16,630
if all these separate countries
are regulating their industries

1307
01:06:16,630 --> 01:06:19,930
properly in order to make
sure that no bank is,

1308
01:06:19,930 --> 01:06:23,230
quote unquote, too
big to fail, then

1309
01:06:23,230 --> 01:06:26,710
I don't see how the
system could collapse

1310
01:06:26,710 --> 01:06:29,885
if all the individual components
are doing what they should be.

1311
01:06:29,885 --> 01:06:32,260
WILLIAM BONVILLIAN: So let me
put this in a different way

1312
01:06:32,260 --> 01:06:32,760
here.

1313
01:06:36,400 --> 01:06:38,200
We've been targeting
an innovation wave.

1314
01:06:38,200 --> 01:06:41,230
I think this
significant argument

1315
01:06:41,230 --> 01:06:46,870
that the explosion of
the financial services

1316
01:06:46,870 --> 01:06:53,900
sector, incredibly rapid growth
in financial services sector,

1317
01:06:53,900 --> 01:06:58,170
in the 1990s, in the 2000s,
that's an innovation wave.

1318
01:06:58,170 --> 01:07:00,870
There certainly were
technological innovations

1319
01:07:00,870 --> 01:07:02,250
that were at the heart of this.

1320
01:07:02,250 --> 01:07:05,940
The IT revolution was clearly
a great organizing factor.

1321
01:07:05,940 --> 01:07:09,080
The ability to bring
mathematics to bear,

1322
01:07:09,080 --> 01:07:14,010
to work on a problem of big data
and initial kinds of analytics

1323
01:07:14,010 --> 01:07:16,830
to bring algorithms to
bear on market trading--

1324
01:07:16,830 --> 01:07:20,070
these were all significant
technology advances

1325
01:07:20,070 --> 01:07:27,940
that were enablers of creating
a truly globalized system.

1326
01:07:27,940 --> 01:07:30,220
And we moved at a
relatively short period

1327
01:07:30,220 --> 01:07:35,810
from national systems, financial
services and financial service

1328
01:07:35,810 --> 01:07:38,120
organizations to much
larger global systems.

1329
01:07:38,120 --> 01:07:41,330
So when the US
economy went down,

1330
01:07:41,330 --> 01:07:44,000
it hit the rest of
the world economy.

1331
01:07:44,000 --> 01:07:45,920
US financial system went down.

1332
01:07:45,920 --> 01:07:49,250
It hit the rest of the
world economy in wave

1333
01:07:49,250 --> 01:07:51,380
after wave after wave
and began to jeopardize

1334
01:07:51,380 --> 01:07:54,320
a whole nest of other
financial institutions

1335
01:07:54,320 --> 01:07:57,800
that were caught up in this
very integrated kind of system.

1336
01:07:57,800 --> 01:08:01,640
So that's more of what
I'm driving at, Max.

1337
01:08:01,640 --> 01:08:06,140
And look, as we've discussed
in innovation waves,

1338
01:08:06,140 --> 01:08:08,330
there's always a bubble, right?

1339
01:08:08,330 --> 01:08:10,800
And the problem
with having a bubble

1340
01:08:10,800 --> 01:08:13,250
in your financial
services sector

1341
01:08:13,250 --> 01:08:14,990
is that it brings
down everything.

1342
01:08:14,990 --> 01:08:17,490
It's one thing to have
a bubble with dot coms.

1343
01:08:17,490 --> 01:08:20,300
Yeah, lose the dot
coms, but if you

1344
01:08:20,300 --> 01:08:23,029
lose the world
financial system because

1345
01:08:23,029 --> 01:08:27,290
of the technological bubble,
it's pretty powerful.

1346
01:08:27,290 --> 01:08:29,500
Andrew Lowe is a wonderful
professor of finance

1347
01:08:29,500 --> 01:08:31,670
here at MIT.

1348
01:08:31,670 --> 01:08:33,620
Has a remarkable chart, right?

1349
01:08:33,620 --> 01:08:37,970
The chart is-- it's the
history of the value

1350
01:08:37,970 --> 01:08:43,100
of home prices adjusted for
inflation in the United States.

1351
01:08:43,100 --> 01:08:44,779
And it's a hockey stick.

1352
01:08:44,779 --> 01:08:48,680
OK, so it's inflation adjusted.

1353
01:08:48,680 --> 01:08:50,750
It's flat, and the
numbers start getting put

1354
01:08:50,750 --> 01:08:52,100
together in about the 1880s.

1355
01:08:52,100 --> 01:08:54,800
And should you go on the 1880s,
there's the Great Depression,

1356
01:08:54,800 --> 01:08:55,300
right?

1357
01:08:55,300 --> 01:08:58,000
A couple of recessions,
but it's pretty stable.

1358
01:08:58,000 --> 01:09:01,330
Then about 1990, it
just skyrockets, right?

1359
01:09:01,330 --> 01:09:05,120
It just skyrockets, and you
wonder what were we thinking?

1360
01:09:05,120 --> 01:09:07,520
I mean, this is clearly
going to be a bubble.

1361
01:09:07,520 --> 01:09:10,580
Why was it that the financial
services sector decided

1362
01:09:10,580 --> 01:09:14,450
that the ultimate fundamental
unit of value in the world

1363
01:09:14,450 --> 01:09:16,910
financial order is going to
be the American home mortgage?

1364
01:09:16,910 --> 01:09:18,529
Why did we do this, right?

1365
01:09:18,529 --> 01:09:19,609
What were we thinking?

1366
01:09:19,609 --> 01:09:22,729
But in a way, that's
exactly what we do.

1367
01:09:22,729 --> 01:09:24,560
Now, Andrew goes on
to make an argument.

1368
01:09:24,560 --> 01:09:29,630
We developed all these very
interesting new financial tools

1369
01:09:29,630 --> 01:09:31,340
in the course of
that innovation wave.

1370
01:09:31,340 --> 01:09:33,465
He wouldn't necessarily
call it an innovation wave,

1371
01:09:33,465 --> 01:09:35,359
but I would.

1372
01:09:35,359 --> 01:09:37,970
Let's figure out
if we can settle

1373
01:09:37,970 --> 01:09:42,200
on some better units of
value than the American home

1374
01:09:42,200 --> 01:09:43,350
mortgage, right?

1375
01:09:43,350 --> 01:09:46,310
Is there a way to drive
investment, which we can now

1376
01:09:46,310 --> 01:09:51,319
mobilize on a global scale on
to much better units of value?

1377
01:09:51,319 --> 01:09:54,560
So the project he's been
involved in has been,

1378
01:09:54,560 --> 01:09:57,570
can we drive it on
innovation based research?

1379
01:09:57,570 --> 01:10:02,390
Can we create agglomerations
of, really, major capital?

1380
01:10:02,390 --> 01:10:05,060
Not just $60 billion a
year in a $19 trillion

1381
01:10:05,060 --> 01:10:08,750
economy of venture capital,
but real numbers, right?

1382
01:10:08,750 --> 01:10:12,890
And move those larger numbers
on in the innovation system.

1383
01:10:12,890 --> 01:10:15,530
So he's working on health
research in particular.

1384
01:10:15,530 --> 01:10:17,840
But it's an interesting concept.

1385
01:10:17,840 --> 01:10:20,630
And in a way, it
comes out of trying

1386
01:10:20,630 --> 01:10:22,100
to wrestle with
some of the points

1387
01:10:22,100 --> 01:10:25,400
that Barry Lynn kind of
put on the table here.

1388
01:10:25,400 --> 01:10:27,730
RASHEED, a closing thought?

1389
01:10:27,730 --> 01:10:28,550
RASHEED: Yeah.

1390
01:10:28,550 --> 01:10:33,700
So I think Barry
Lynn probably takes

1391
01:10:33,700 --> 01:10:36,470
maybe a different
position than in the time

1392
01:10:36,470 --> 01:10:38,930
that he was talking
about her, too.

1393
01:10:38,930 --> 01:10:42,350
I think if he had said this
in the room with Bill Clinton,

1394
01:10:42,350 --> 01:10:45,230
he would have had an
interesting discussion.

1395
01:10:45,230 --> 01:10:46,760
But I was actually
just wondering

1396
01:10:46,760 --> 01:10:48,885
if we could talk about
this, like a little bit more

1397
01:10:48,885 --> 01:10:50,360
of the critical reception.

1398
01:10:50,360 --> 01:10:54,640
And [INAUDIBLE] is he the first
guy to say maybe laissez-faire

1399
01:10:54,640 --> 01:10:57,470
wasn't a good idea, guys?

1400
01:10:57,470 --> 01:10:59,750
And then we see the
after effects afterwards.

1401
01:10:59,750 --> 01:11:03,680
But critically, I think reading
this, I was pretty kind of

1402
01:11:03,680 --> 01:11:05,810
taken aback by a lot of
the things he was saying.

1403
01:11:05,810 --> 01:11:09,230
Is this sort of maybe not
politically, but socially

1404
01:11:09,230 --> 01:11:14,190
acceptable thought in
the US in maybe 2005?

1405
01:11:14,190 --> 01:11:16,930
WILLIAM BONVILLIAN: Yeah,
it's a moment of dissidence

1406
01:11:16,930 --> 01:11:19,260
in our reading list, right?

1407
01:11:19,260 --> 01:11:20,630
It's a little contrarian.

1408
01:11:20,630 --> 01:11:24,600
So just like Charles Schulz
was contrary in last week,

1409
01:11:24,600 --> 01:11:27,810
Barry Lynn is
contrary in this week.

1410
01:11:27,810 --> 01:11:29,010
So, good summary.

1411
01:11:29,010 --> 01:11:30,560
Thank you, RASHEED.