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Summit engages business leaders, scholars and policymakers

SIEPR Director Mark Duggan talks to Alphabet CFO Ruth Porat about the strengths of Silicon Valley and lessons learned from Wall Street.

Photo credit: Steve Castillo

The 2017 SIEPR Economic Summit drew an engaging mix of insights from experts in academia, industry and policy, taking participants on a daylong ride from the dark days of Wall Street and the Golden Age of Hollywood to the uncertain future of the world’s geopolitical shifts.

The annual event, in its 14th year, featured panel discussions and two keynotes — one from former National Security Advisor Stephen Hadley and another from former Treasury Secretary Lawrence Summers.

Highlights from the March 10 panels and keynotes — and opportunities to watch recordings of each session — are below. A full playlist of all the recordings is also on our YouTube channel.

Additional sessions were held on financial regulation, tax reform and infrastructure.

More information about the panelists and featured speakers can be found on the Summit agenda.

From Wall Street to Silicon Valley: A conversation with Ruth Porat

Google is in its 20s. While its youthful exuberance — as reflected in the company’s “moonshot” divisions or Area 120 incubator projects — hasn’t waned, its massive growth during the past two decades means there’s more work cut out for the giant of Silicon Valley than ever before.

“Market cap, revenues or the number of employees is not necessarily a metric of maturity. It’s what questions or problems we’re trying to solve,” said Ruth Porat, chief financial officer of Alphabet Inc., Google’s parent company.

Google, for instance, is only scratching the surface of enterprise businesses; driverless cars are still at an open stage; and there’s still the challenge of providing universally accessible information, she said. Google is also always looking to take its products to the next level — whether by enhancing viewing recommendations for YouTube users or improving voice-based search.

Porat joined Alphabet in 2015 and led Google’s restructuring after serving nearly 20 years at Morgan Stanley, including five as its CFO and 10 as its global lead of various banking and investment divisions. 

Porat, the vice chair of Stanford’s Board of Trustees and a Stanford alumna, opened the Summit with a conversation with Mark Duggan, the Trione Director of SIEPR. Given her former front-row seat on Wall Street, Duggan asked Porat to recall the 2008 financial crisis and defining moments leading to the stock market crash that came with it.

“It was an absolutely terrifying time. We were all acutely aware we were on the brink of something that was so destructive,” she said.

Yet, “we never could see it coming with the speed of the unraveling,” she continued. “Literally, we could feel the … markets choking.”

What lessons were learned?

Know your source of vulnerability, she said. Build systems, controls and risk metrics for differentiated strategies well ahead of time. Have the will and means. Provide leadership. And most importantly, set a culture.

“No rules and regulations can govern behavior the way culture can,” Porat said.

And, she noted, the lessons are as relevant for Wall Street as it is in the tech universe.

The financial sector could learn a thing from Googlers, too, she added, referring to how transparency is practiced at the Silicon Valley–based firm during weekly all-staff meetings. Ideas and products are discussed, and employees can question Google co-founders Larry Page and Sergey Brin, who always show up.

“It’s one of the most powerful tools” at Google, she said.

She said that stands in contrast to the financial world, where “there were areas within banks that knew there were risk positions we were taking on that were crazy, but there was no voice. Things got trapped.”

View the video for more of Porat’s perspectives, and to see how she responded to audience questions about controversial changes brewing under the new Trump administration.

Asia’s economic and policy outlook

The next engine of global economic growth will come from the developing world — not developed countries — and emerging markets in Asia hold lots of potential, panelists said during the second session of the Summit.

Countries, such as Bangladesh or Pakistan, each have their natural trends of growth. The challenge is finding ways to help the emerging economies continue to grow.

“We can create a lot more demand, which the developing economy has been looking for, for a long time,” said Jin-Yong Cai, a partner at TPG Capital and former CEO of International Finance Corporation.

Helen Qiao moderates a panel on Asia's economic and policy outlook with Jin-Yong Cai, center, and Shang-Jin Wei.

Photo credit: Steve Castillo

Cai’s fellow panelist was Shang-Jin Wei, the N.T. Wang Professor of Chinese Business and Economy at Columbia Business School. Helen Qiao, the chief economist for Greater China at Bank of America Merrill Lynch who holds a PhD from Stanford, moderated the discussion.

In the meantime, China’s explosive pace of growth over the past 20 years cannot be repeated, Cai said.

“China’s economic growth will be able to continue. It doesn’t have to be at 10 percent, but it could be 6, 7 percent that can go on for a long, long time because there’s such room for efficiency gains,” he said.

The issue for the Asian superpower will be execution, Cai said, as the bureaucracy attempts to scale back its heavy-handed approach and reallocate resources.

“Going forward, if the market forces are not coming in to play a much more decisive role, we are going to have a real problem,” he said.

Wei also pointed to the role of innovation as a growth engine.

“Most innovation comes from private sector first, but most of the innovation subsidies go to state-owned firms,” he said.

“If the government can do less and create a more even playing field, it will accelerate productivity,” Wei said.

To maintain its strength, China will also need to develop its financial services sector.

“Our bankers are not trained; all they can do is check boxes,” Cai said. 

“When it comes to China, it’s very large in size, but in terms of capability, it’s still a teenager.”

Watch the full session for more on the panelists’ views on trade, regulation and other geopolitical issues.

National security in a changing world

For the first time, an insurgency has captured the White House. That’s the political snapshot taken by Stephen Hadley, former National Security Adviser to President George W. Bush.

President Trump tapped into a group of people who felt betrayed by globalization, thought their economic futures were dim, and felt the political system was not listening to them and benefited only the elites, Hadley said in delivering the luncheon keynote at the Summit

“Trump was the vehicle, or the instrument of the people who wanted to bring their discontent to the fore,” Hadley said.

In a sense, presidential hopeful Bernie Sanders and Trump were basically two sides of the same coin, he said.

“There’s a real uncertainty about America’s leadership," former National Security Advisor Stephen Hadley tells Summit participants during his keynote.

Photo credit: Steve Castillo

The Trump administration’s transition will take longer and be bumpier than usual, but “at the end of the day, events will shape policy,” Hadley said.

It’s not a pretty situation. Hadley, a principal at RiceHadleyGates LLC, cited “chaos, a lot of economic melees and global dysfunction,” in which the global order is breaking down with the rise in terrorism and resurgence of power from Russia and China.

Previous administrations had a more expansionist, long-term view. Trump, on the other hand, has a more short-term, narrow view of American interests, including taking on “an almost zero-sum approach to trade.” 

“There’s a real uncertainty about America’s leadership,” Hadley said, “whether we will continue to do what we did for the past seven years, which is to try and maintain an international world order.”

America needs to restore the sources of its strength, Hadley said. It will need to produce inclusive economic growth, break the political gridlock, and start solving its social problems.

And history shows that our nation should not sit on the sidelines, he said. It should prepare its military and alliances to lead a revised international world order.

Katherine Casey, associate professor of political economy and a SIEPR faculty fellow, moderated the address and steered Hadley to other hot-button issues facing the administration: Russia’s involvement with the U.S. election and Trump’s alienation of the National Security Agency.

“The Russians shouldn’t have done what they did in the election, but what are we going to do to make sure it doesn’t happen again?” Hadley said.

And by speaking out against Trump — both before and after the election — members of the intelligence community broke with a tradition of staying apolitical.

“We have so politicized the process,” Hadley said, “I just hope we can come back to a more traditional position where those professional services are staying out of politics.” 

View the video for the full keynote, and watch as audience members, including former Secretary of State George Shultz questioned what happens now that the U.S. is “screwing up” our North American trading partner, and Stanford President Emeritus Gerhard Casper advocated for the need to address “our rotten primary system.” 

“We need to find a way to fix that,” Hadley agreed. “This polarization in our politics makes our political system dysfunctional.” 

The on-demand economy

Burgeoning peer-to-peer companies like Uber or Airbnb have received plenty of public attention in recent years, but in the big picture, the so-called on-demand economy constitutes only a small portion of the labor force.

“But it is an important dynamic because it is growing so rapidly,” said Diana Farrell, president and CEO of JPMorgan Chase Institute.

Farrell was joined by Betsy Masiello, director of the Public Policy and Economics team at Uber, during the Summit’s fourth session that dug into the economic sector that is rattling labor industries. Jon Levin, a SIEPR senior fellow who is also the Philip H. Knight Professor and Dean of the Stanford Graduate School of Business, moderated.

All the talk about how these online platforms — where buyers and sellers or service workers and customers communicate directly with each other — are revolutionizing the nature of work is tempered by industry data. In addition to Uber and Airbnb, other gig-based businesses like Instacart or TaskRabbit comprised a total of 42 online platforms in 2016.

Gig-based businesses take center stage in a conversation between Uber's Betsy Masiello, right, and Diana Farrell, CEO of the JPMorgan Chase Institute. Stanford's Jon Levin moderated.

Photo credit: Steve Castillo

The growth rate of participation in the online platform economy has slowed since a peak in 2014, Farrell said, falling from the 400 percent range to about a 200 percent year-over-year growth rate today.

Cumulatively over the past three years, an estimated 4 percent of American adults earned income at one point through these online platforms. 

“That’s 10 million Americans who are participating, but that’s certainly not the future of work,” Farrell said.

Engagement is often sporadic; turnover is high; and for the majority of on-demand labor participants, the work serves as supplemental income, she explained.

“Most of the growth relies on new participants,” she said. “It’s not deepening.”

These labor opportunities fulfill a need in the market, but leaves open the question of worker benefits and other protections, such as insurance coverage, Farrell said.

From Uber’s point of view, the ride-hailing service facilitates a flexible avenue for income, Masiello said.

In places like Paris, Mexico, or Egypt, she said, 40 to 50 percent of its drivers were unemployed before.

The company has its core principles of consumer protection and safety but is also focusing on making improvements for drivers, Masiello said. Examples include finding ways to mitigate the cost of gas or maintaining their vehicles.

Levin noted how studies have found discriminatory behavior against users of Uber or Airbnb. He asked if such companies bear responsibility for that.

Masiello said a ban on discrimination is in the Uber worker contract. “But there is no easy answer here,” she said.

These online platform business models are evolving in creative and innovative ways, Farrell said, and the challenge will be to figure out what policy changes are needed to create an infrastructure that will make it work for everyone over a sustainable period of time.

“For now, let’s celebrate the innovations and recognize the need to be informed as we take this into the policy environment,” she said.

View the video for the full discussion on the current and future challenges of the on-demand economy.

The ever-changing business of entertainment

The movie industry has heard the story over and over again: It’s dying.

First, radio was going to crush it. Then it was TV, followed by video games and computers, then TiVo.

But the film industry survived, and as panelists for the Summit’s fifth session highlighted, global sales are growing. 

Today, “we do feel we are in a strong position in the movie industry, but never before have we had so many disruptors get in our way,” said Jeff Small, president and co-CEO of Amblin Partners, formerly named DreamWorks Studios.

Amblin Partners' Jeff Small, left, discusses the state of Hollywood with Brooks Barnes from The New York Times.

Photo credit: Steve Castillo

Netflix, Amazon, YouTube and Facebook are just a sampling of what movies are competing with nowadays. Notwithstanding the cost of going to the movies, it’s also hard to beat the comfort of watching movies at home.

But theaters are making efforts to sweeten the attraction for moviegoers, by adding luxury seating or better food and beverage options, said Small, a Stanford graduate.

Panelist Brooks Barnes, a reporter for The New York Times who has covered the media and entertainment industry for the past 15 years, said studios are also trying a lot harder to improve quality.

Three years ago, Barnes recalled, critics were harsh generally on every summer release. Now, blockbuster movies — whether it’s a Disney film, horror or superhero flick, are able to get positive reviews.

Meanwhile, digital piracy remains a powerful villain. And potential customers are left in the dark about when and which method they’ll be able to catch a movie after it leaves theaters. 

Hollywood studios do an “atrocious job” of communicating that, Barnes said — and Small concurred. But due to lucrative partnerships with exhibitors and distributors, studios are reluctant to make drastic changes to their movie-release time frames, Small explained.

“No one wants to be the first one to say, ‘You’re going to be the first one to be in movie theaters and in homes on the same day,’” Barnes said.

“But at some point over time,” Small said, “with piracy, we are going to have to keep evolving so we don’t crash and burn.”

Domestic box-office sales have been relatively flat and hit about $11.4 billion last year. The industry’s global growth trajectory – projected to climb from $27 billion in 2016 to $30 billion in 2017 — stems mainly from Asia. 

For more of an inside look at the movie industry on your very own screen, watch the full session.

Lawrence Summers: Rage against the elites

Lawrence Summers has never shied away from controversy — and his pointed message to the academics, policymakers and business leaders attending the Summit’s final session immediately grabbed the room’s attention.

“The very elitism of this group,” the former Treasury Secretary said in his opening remarks, “makes it, I think, an appropriate one for what I want to discuss tonight.”

His message: Many American workers have suffered because of technology’s advances and globalization. And there are clear reasons why they disdain Congress, banks, the media and nearly every major institution aside from the military. 

The United States, he pointed out, each year spends on distressed communities at home only a fifth the amount of money it does on foreign aid. Trade deals fixate more on protecting companies’ intellectual property rights than jobs or the environment. On reducing the federal debt, policymakers talk about finding the courage to cut Social Security benefits — which, Summers pointed out, are capped at $35,000 a year per American.

Lawrence Summers closed the 2017 Summit with remarks about "responsible nationalism."

Photo credit: Steve Castillo

And that’s left many voters very angry, he said.

“It shouldn’t be inexplicable that there is rage and anger against elites,” said Summers, who served in the Clinton administration and is now President Emeritus of Harvard and a distinguished visiting scholar at SIEPR.

The core problem, he continued, is not gridlock in Washington, but the widespread perception that “those involved in leadership do not respect them and do not continue to feel a strong connection for them.”

Exhibit A, he said, is Trump’s November victory.

But while trade deals, support for businesses, and diversity in higher education are all worthy goals, he said there isn’t yet a “viable political formula” for achieving those policies in ways that make economic sense without alienating huge swaths of the American electorate.

What is needed is a nationalism in the United States that is both “responsive” and economically “responsible,” he said.

He suggested three guiding principles. First, the United States should negotiate “international cooperative projects” that prioritize a range of interests. For example, he said, broker agreements to cut down on overseas tax shelters for American businesses. Second, the same commitment to getting broad buy-in should apply to national policies. On that score, he praised the recent proposal for a carbon tax to be rebated in equal amounts to every American. Third, he urged a return to national policies that are universal in nature, and don’t just target specific groups.

“It has tended to be the case over time that programs for poor people are poor programs,” said Summers. The more successful programs, like public education and Medicare, “have had as their virtue, universalism.”

John Shoven, a SIEPR senior fellow and the institute’s former director, moderated the talk. In response to a Shoven question, Summers put most of the blame for the struggles of American workers on technology’s shoulders. When asked about the startling stock market rally since Trump’s election, Summers recalled that the stock market had an even stronger rally in the three months after Herbert Hoover was elected, a year before the market crash that started the Depression. 

“The observation,” said Summers, “should be cautionary for anyone who thinks that we can assume all will be well.”

Watch Summer’s full keynote, including his thoughts on a current policy proposal that could conceivably trigger a Boeing-Walmart merger, and his penchant for bluntness.