12 May 2010

Summit Delegate Larry Summers Discusses Entrepreneurship

CO.NX webcast transcript, April 27

During A New Beginning: The Presidential Summit on Entrepreneurship, held April 26–27 in Washington, CO.NX provided live streaming of remarks made April 27 by summit delegate and former U.S. Treasury Secretary Lawrence H. Summers.

Following is the transcript:

U.S. DEPARTMENT OF STATE
Bureau of International Information Programs
CO.NX Caption Transcript

“Larry Summers at A New Beginning: the Presidential Summit on Entrepreneurship”

Guest:            Larry Summers
Date:              April 27, 2010
Time:              9:30 a.m. EDT (13:30 GMT)

E Summit Moderator: It’s my great pleasure to introduce Larry Summers, who is going to be a household name. He was the president of Harvard before that, and also the secretary of the UDS, the president of the Treasuries and the chief economist of the World Bank before that. He’s also in the National Academy of Sciences and the first social scientist to receive the science foundation award. We are extremely honored to have him here, and we’re very lucky. Let me introduce Larry Summers.

Larry Summers: Thank you very much for that introduction. It’s interesting to tell that story to different countries and to see where they laugh and where they don’t; it tells you something about the culture of entrepreneurship, our topic today. What I thought I would do for just a few minutes is put all of this in a broader economic perspective by asking what in our time is going to be historically memorable three centuries from now. Perhaps the top story will be the end of the Cold War. But if you think about major conflicts between pairs of countries that took place 300 years ago, they are a little hazy in our memory. Perhaps the large story will be the relationship between the West, broadly defined, and the Islamic world and how that story plays out, and that’s certainly an issue of profound importance, but I would suggest that the greatest likelihood is the rise of emerging markets in Asia and beyond at unprecedented rates.

Larry Summers: They had changed very little. And our optimistic view, they had risen 75 percent. Over that 2300–2200 year period. If you look at the industrial revolution, the reason they called it the industrial revolution was that for the first time in human history, living standards rose at a rate where they were noticeably different at the end of a human life span than they had been at the beginning. Growth of one to one and a half percent a year. If you look at the most rapid period of growth in U.S. economic history, per capita income and living standards rose two, two and a half percent, and a rate by which they rose five times within a single human life span. If we look at what is happening today in large parts of the world, we’re seeing growth at 7, 8, 9, 10 percent a year. Where they raise not by a factor of one, two or five, but a factor of a hundred over a single human life span. Not in a single corner of Europe, but in a region where the largest share of the world’s population lives, and we’re seeing it in a world that is vastly more interconnected and able to feel its effects than the world that experienced the rise of the United States or experienced the industrial revolution. It will, over time … reshape almost everything from the way in which people work to the nature of the art they regard as beautiful to the level of prosperity that they enjoy to the security fears that they choose to worry about.

It’s going to be the historical story of our time. But I would suggest to you that it is a story that will be written in no small part by entrepreneurs because while economic history changes, while events change, if there is a constant in economic history, it may be the power of markets, and the power of entrepreneurs within them. It’s not confined to technologies, it’s new goods, new markets of production. New markets, new sources of supplies for raw materials and new ways of organization. As Stanford’s Paul Romer, a leader of economic growth, said, this is perhaps the single most important thing to understand of economic growth over the long run.

Economic growth springs from better recipes, not just from more cooking. The static strategies of accumulation, whether pursued by Russia in the ’40s and ’50s, or whether pursued by Japan in 1980, worked for a time, but eventually ran out of gas. But the path, the purpose and continuing change is the path of better recipes, the path of innovation, and the path of the breakthroughs, organizational, intellectual or technological, that can transform societies. The work of entrepreneurs. In 19th century, the technologies that reverberate across the U.S. economy include the transcontinental railroad and the telephone. And in the 20th century, the jet plane, and everything associated with the computer and information technology, all of that was driven by entrepreneurs. Indeed, a culture of economic entrepreneurship has been central to the economic success of the United States. We are perhaps the only place in the world where you can raise your first hundred million dollars before you buy your first suit if you have a sufficiently good idea.

So, too, entrepreneurship will play an important role in the renaissance of China, India and the rest of the developing world. What transforms villages is whether they have an entrepreneur or whether they don’t. In the wake of such creative efforts, entrepreneurs create jobs and stir economic activity. I would suggest that entrepreneurship drives economic growth in three critical ways. First, it fosters competition in a world economy whose shape is rapidly changing. It used to be that country’s success could be judged by the size of the skyscrapers and steel plants, and yet at the turn of the 21st century, Microsoft had a greater capitalization and greater market value than the entire American steel, auto and aerospace sector combined. That was before people had ever heard of a startup company called Google. And we think of Wal-Mart, it’s an enormous retailer, but compare that with eBay and his marketplace of 85 million active buyers and sellers. The economist whose name -- whose name is practically synonymous with the creative destruction of innovation, observed there is no such thing as dynamic equilibrium. Competition breeds competition, and entrepreneurship breeds more entrepreneurship, and change can come quickly.

In understanding why the business landscape is profoundly different than it once was, consider this: in 1960 it took 20 years for a third of the Fortune 500 companies to turn over. Today it takes just four. It takes just four years for similar turnover. Entrepreneurship facilitates the incorporation of the new technology that is fueling economic growth. I was reminded many years ago now, in the mid-1990s, when as deputy treasury secretary I visited Côte d’Ivoire, and journeyed several hours away from the capital to a small town in Côte d’Ivoire where I had the privilege to turn on a water valve in a U.S. project that would provide for clean water for that village. The village was across a small lagoon and eight or 10 of us were on a boat that a few people were paddling to get across that lagoon. We had gotten there and done our thing and we were on the way back. As we were on that boat somebody stuck a cell phone in my face and said Secretary Rubin needs to talk to you. All I could think about was how different that was than any world that I live in. Here we were three hours away from the capital city of a desperately poor country in or near a village that was getting clean water for a first time, and I was able to be talking to Washington with a perfect connection, and nobody was thinking very much of it. That was about information technology.

As you suspect, that was about the private sector, and yes, that was entrepreneurship. 4.6 billion people today have access to mobile phones. Nearly two-thirds of the people on the planet. To take just one example, in 1995, Vietnam had one phone for every hundred people. Today it has 33, and two-thirds of them were mobile phones. It’s estimated that a 10 percent increase in wireless penetration in emerging economies can result in a half-percent increase in the GDP. These examples are pervasive. You will hear them throughout your conference, and I am not going to try to describe them in detail. But if you ask what will make a difference over the long run, it is disruptive technology of the kind that entrepreneurship brings.

A final thought: Entrepreneurship provides opportunities and it supports freedom. If you look at some of the greatest entrepreneurs in our country, people like Bill Gates and Steve Jobs, they dropped out of college.

One study -- but the opportunity to break out, to break the mold has changed their lives, and it has changed the lives of others. Bernard Shaw once observed the reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore, Shaw concludes, all progress depends on the unreasonable man. And so it is with entrepreneurs. Social scientists have debated for two centuries, and no doubt will debate for several more, the complex interrelationships between free markets and free societies. How to resolve those issues here today, but I would suggest to you this: free societies are the best breeding grounds for entrepreneurs.

An important test of the freedom in a society is whether it enables Shaw’s unreasonable man to try to change the world. Are its consumers open to using new products in new ways? Is its financial system willing to take a chance on someone with a compelling vision but a short track record? Do its institutions enable people to be their future, to bet their future on a dream? If we in the United States have been successful over the last century, our ability to do these things relatively well is no small part of the reason. And if it is true that free societies create entrepreneurs, it is also true that a strong entrepreneurial class makes a society freer. They provide choices for consumers. They provide options for those seeking jobs. They provide perspectives in the public sphere that cannot come from the public sector. They provide for independence from large hierarchal organizations. For competition they provide a check to power of large businesses and large governments that would otherwise be unchecked.

President Obama observed last night that throughout history, the market has been the most powerful force the world has ever known for creating opportunity and lifting people out of poverty. When history is written 300 years from now, the story of our times is likely to be one of unprecedented economic transformation, but it will be a story whose running theme of what entrepreneurs do, is what many of you live, and what we all know very well. Thank you very much. [Applause]

E Summit Moderator: Let’s take a short break, and then we’ll switch to a separate room based on which one you’d like to attend. The room to promote entrepreneurship will be in here and the amphitheater where we were yesterday afternoon.