<html><body>American Enterprise Institute October 23, 2006 [Edited transcript from audio tapes] <TABLE cellSpacing=1 cellPadding=1 width="100%" border=0> <TBODY> <TR> <TD> <DIV class=BodyText>Noon  </DIV></TD> <TD> <DIV class=BodyText>Registration and Lunch</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>12:30 p.m. </DIV></TD> <TD> <DIV class=BodyText>Presentation: </DIV></TD> <TD> <DIV class=BodyText>Carl Schramm, Kauffman Foundation </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Discussant: </DIV></TD> <TD> <DIV class=BodyText>Kevin A. Hassett, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Moderator: </DIV></TD> <TD> <DIV class=BodyText>Henry Olsen, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD></TD></TR> <TR> <TD> <DIV class=BodyText>2:00</DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText>Adjournment</DIV></DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>  </DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText> </DIV></DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR></TBODY></TABLE>   Proceedings:   Henry Olsen [moderator]: We are going to start our program now. I am Henry Olsen, Vice President Director of the National Research Initiative at the American Enterprise Institute. I would like to thank you all for coming out on such a beautiful day to engage in some intellectual dialogue and discussion with Carl Schramm, our featured speaker today. Economic growth, the notion that people acting in societies can increase their production of goods and services at a regular steady clip, is commonplace today, but it has not always been that way. Ancient and medieval societies were places where such growth has occurred were slow and nearly imperceptible. Accordingly, their thinkers focused on questions of distributive justice, creating schools of morality and thought that influence ourselves and our societies even today. People roughly agree that growth started to take off and become noticeable in the Renaissance and Reformation Europe, and that it really took off after the Industrial Age. But what started this growth, and what fuels it today? On that point, there is less agreement. Some focus on the role of incentives, others on the role of government, still others on the role of education or certain types of industries being developed in certain places. But today s speaker, Carl Schramm offers a different, more nuanced view. For Carl, the essence of economic growth is ultimately spiritual. It rests on man s unique ability to dream, to tinker, to invent. It rests man s ability to create something from nothing a device, a business, a production method, a new way to communicate, anything that adds value to people and society at large. And that person simply wills it into being by their own ability and their own vision. Not everyone has these talents, although Carl believes that everyone can have them. In the fashion of talented thinkers and marketers everywhere, Carl has given this being a name, the entrepreneur. His book, The Entrepreneurial Imperative, celebrates this person and argues that the cultivation of their habits and talents is essential to the future of America and to the world. Carl and his book shows that entrepreneurship is natural to Americans, that we have historically exhibited the inventiveness and risk-taking that are the entrepreneur s defining traits. He further demonstrates that these talents can be nurtured by wise policies, social and public, and as such can be magnified at home and spread abroad. No field is immune to the entrepreneurial spirit, and all fields government; businesses, large and small; and the universities - can be transformed for the better by encouraging entrepreneurs in their habits. Carl comes to these ideas from a long and active life at the intersection of business and ideas. Carl is currently the President and Chief Executive Officer of the Ewing Marion Kauffman Foundation, America s largest foundation dedicated to entrepreneurial success. Trained as an economist and a lawyer, Mr. Schramm began his career on the faculty of Johns Hopkins University where he founded the Johns Hopkins Center for Healthcare Finance and Management, the first such research center in the nation. He went on to head the Health Insurance Association of America, and later became executive vice-president of Fortis, now Assurant, and president of its health insurance operations. He has co-founded companies in the healthcare, finance, and information technology arenas, and is currently the Batten Fellow at the University of Virginia s Darden School of Business, a member of the Council of Foreign Relations, and the 2005 recipient of the University of Rochester s George Eastman Medal. In 2006, he was elected a fellow of the Royal Society of Arts, and his work has appeared in Foreign Affairs, The Wall Street Journal, and the New England Journal of Medicine. He will be joined as a discussant today by Kevin Hassett, director of Economic Policy, and a resident scholar here at AEI. Kevin is also a weekly columnist for Bloomberg.com. Before joining AEI, he was a senior economist at the Board of Governors of the Federal Reserve System, and an associate professor at the Graduate School of Business at Columbia University. He has also served as a policy consultant to the U.S. Department of the Treasury during the former Bush and Clinton administrations. Mr. Hassett is a member of the Joint Committee on Taxation s Blue Ribbon Dynamic Scoring Advisory Panel, and its Estimating Review Panel. We had hoped to have Steve Moore from The Wall Street Journal present as well, but he found himself unable to make it today. So we will be treated to longer discussions from Carl about his book, and from Kevin, and that will give us more time to engage in dialogue amongst ourselves in the Q & A. So please join me in giving our warm welcome to Carl Schramm.   Carl Schramm: Thank you all. Thank you, Henry. I had no idea I was writing a spiritual book. I think most people who set out to do a book like mine actually treat this as a journey of discovery, and what I was trying to do was solve a problem. The problem, or puzzle, or mystery was simply that it struck me that there is a lot going on underneath our economy that escapes explicit dialogue, hence, policy is probably malformed because people do not see reality as it is. The clues to this are that if we look at, perhaps, three things we cannot solve these with prevailing economic theory, and Washington does not talk about these things, and whether we like it or not, Washington essentially guides the economy. Now the three things - and I could go through 30 things, but let us just take three that are not solved easily by current economic thought. The first is the extraordinary velocity in job changing. Job tenure, when I left college, was hugely different. When I left college, the BLS told me that I would have four jobs between the ages of 22 and 65. Now, next year, God willing, my son will graduate from college up the river here at Georgetown, and the BLS tells him that before he is 30 he will have four jobs. This is an extraordinary, astounding change in our perception about how we work and where we work. By the way, in those first four jobs, there is an almost 20 percent chance that he will work for himself as an entrepreneur in a business he starts, and there is almost a 20 percent chance that in one of those jobs, he will be working with somebody he knows who started a business, and that business will be less than five years old. The second force that is not spoken to in prevailing economic policy is the fact that well over 60, actually almost 70 percent, of all new jobs created in the United States are in firms that are less than five years old. Our prevailing views and much of our policy operates as if - and we do not, thank goodness, have an industrial policy like France or Germany or where the EU is heading. But, implicitly, we have a sense of how important our huge industries are. This is where all the chatter goes. An indication of this is that The Wall Street Journal has one reporter attached to small business. We do not pay attention to it, we do not think it particularly relevant. I think the third thing is I can make a powerful case: In our last five recessions, it was entrepreneurs who pulled us out of it. It was the creation of new firms that created new jobs in turn, and we have watched this in the last recessions where job- starts have gone up as total unemployment has gone down. I think if you think about this, and this actually may lead to what Henry described as spiritual, I do not think necessarily it is that but I think it is a huge cultural force that is different. Just two observations about our culture: Once upon a time, when I was kid I had aunts and uncles who said, When you get out of college you go get a good job with the state. The overhang of what happened in the Depression was very, very much alive in 1970. I do not think any of us would probably say that to our kids anymore, you know, A good job for you is in the federal government. Now, maybe I am wrong because I am in Washington, and it is a different story; people here may see federal employment differently than, I think, most people do. When I was coming out of high school and college, the dialogue never involved an iconic entrepreneur. We all knew who Thomas Edison was, we all knew who Henry Ford was, but there was no contemporary vision. Nobody said, You ought to think like so and so. You ought to be like so and so. Which you, of course, all are hesitant in having any words so well-wired into our society. You do not have to say to your teenagers, You ought to think about being Steve Jobs or Bill Gates or& These people are so iconic. I have a 16-year old who could tell us, book chapter and verse, about the transaction last week about You Tube, how long they were at it, where they went to school, why they dropped it, what the exchange was, what the stock arrangements were. At 16 she is conversant with these things. Now, it is instructive to know - now I am moving to the thesis here - that if we were to pick up the literature of economics in 1970, really right to 1980, we would read John Kenneth Galbraith, the prevailing Apostle of Keynes, and we would find him saying explicitly in The New Industrial State, a title of a book that says everything about what I am trying to wrestle with here, that the age of the entrepreneur is over; all technological innovation will be produced in big companies, in the laboratories like Bell Labs and IBM, at the Watson Center. This is where innovation in America s economy will take place. Similarly, we will find Peter Drucker writing that entrepreneurs are no longer relevant to the force of the American economy. They write this, by the way, even as we have a nascent Microsoft underway. This now poses the question about what it is that is different and not seen? I would argue very simply that the prevalent model that people carry in their heads, and has been terribly disturbed, is a view which, by the way, prevails in Washington because it is a convenience about establishing Washington as the center of economic policy, that we essentially had held a view that the economy - this is Keynes and this Galbraith - is best ordered and operates best to produce that which in the post-War era we need, namely, predictability and stability of our economy. This was achieved by establishing the triumvirate of big business, big labour, and big government. The book argues that the period of stagflation in the early 80s disturbed that profoundly, and that a series of very happy accidents that chapter is called Our Lazarus Moment - produced a completely different ordering of the economy, such that one of the actors has fallen out altogether. You know the statistics on the importance, or at least the membership in major unions has fallen since 1980 to half of its number, and the construction of union membership has radically changed in the sense that the largest group now are public employees. Unions are much less important, and that corner of the triangle, if you will, has really become not irrelevant but certainly less important in dictating policy. In its place we have actually seen an economy move forward that you might think about it as based now in four different institutions, if you will. Entrepreneurs are really now appreciated as a separate driving force in the economy, which they just were not in 1980. We see in fact a wonderful struggle on our largest companies as they try to, in fact, imbue themselves with entrepreneurial operations. We see this struggle is very apparent at IBM; it is certainly apparent at GE, this struggle about how we make ourselves more entrepreneurial. Of course, the answer is that increasingly they are buying small start-up firms and they are becoming the small start-up firms that they buy. This is certainly the case in the pharma industry; it is the case in much of our manufacturing, and it is the case of all of our high-tech and software businesses. The government, I would argue, has assumed quite a different role. The government has been really instrumental in making this come forward, principally through its expenditures in basic research. We have the internet, which is a fundamental force for entrepreneurship in terms of how it empowers the individuals with information which has become virtually cheap, if not free. It takes cultural information about exactly what I spoke about a minute ago - the details of You Tube are available to tens of millions of teenagers, and all the rest of us as well. Those are really the outcomes of government s wisdom of spending in DARPA and in other ways. We now see, of course, in the executive department that set-aside for entrepreneurial businesses that will start to bring new ideas into the economy, and into the executive departments to make the government itself become more entrepreneurial. Now, this is very interesting because we never heard a President, we never heard an Executive, we certainly do not hear the Congress talking about reforming government to be more entrepreneurial. But I use this as evidence of sort of a - I hesitate to say spiritual force. I think it is a vast important cultural force that is pushing even the government in this direction. The last of the four players in the new economy are universities, which, through their research and innovations in technology and the creation of human capital in the United States, have spurred the growth and the emergence of all this. Now I could stop here and talk about all these wonderful accidents that made this happen, and this would really be disturbing to lots of the Washington illuminati, if you will, because it is a story about unintended consequences, how we change the Risa, how we passed Baydol [phonetic], how we abrogated Bretton Woods, how we did a number of things, all unconnected and without any central planning at all. You know, the economics profession and a lot of politicians, at the very moment this was happening, wanted us to adopt central planning a la Japan. But to the point - the book then ends with talking in a critical way about our new institutions in the sense of what we do to engender a great deal more individual activity. As Henry said, while I do not believe that everybody is not born to be an entrepreneur, people who, in fact, start on this road can be hugely affected in terms of the success and growth rates, and their ability to create jobs for others with proper mentoring and the availability of the right information at the right time. We have not seen anything like this. If you think about economic literature, we do not think about just-in-time knowledge; we think a great economy, send people away into a monastery called a university and they come out and they are ready to be creative. That model just does not work.  Which takes me to second point: If we talk a little bit about the creation of individual entrepreneurs I am actually a little tough on universities. Just as we need universities to in fact power-up their output, they actually are becoming the iconic bureaucratic place that begins to abhor change. We were just chatting, myself and another participant here, about a fellow I met last week who basically said he did not finish at Princeton; he basically said the university drove him out. He wanted to start a business, he had started a business, they said, That is a no-no. You have to leave. America s history, from Jobs to Gates to whole tens of thousands of kids, our story is, basically, universities are inimical to this type of culture among their undergraduates. In a much more formalistic way they have become very strict about how you get technology and intellectual property out of these universities. I am working on an article in which I will talk about over half of industrial research in Unites States, which, in 1990, was under contract in American university research laboratories is now being outsourced to foreign university research laboratories. This is the greatest consequence in terms of the university as an agent for entrepreneurial change in the United States. Lastly, and I have already commented on, I think, a very good positive change that is going on in major firms. They have got religion, if you will, about how to move themselves forward in a - think it is very good news. I did a paper on this at the American Economic Association back in January. If we look at bureaucracy, a bureaucracy in the government is steady as a if you take the denominator, the number of people in the economy, if you take our Fortune 500 firms, bureaucracy is really washing away. Productivity gains that we see all the time are the formal way we measure the productivity of a firm divided by the number of people who work there. Bureaucracy is just washing out. They are becoming much flatter. The restructuring in the 1980s that scared them right to death  to the point where they changed themselves, an opportunity that awaits universities if they grab it. Otherwise, they will find themselves irrelevant, but not particularly threatened because of their endowments, and such like. The firms really changed rather radically; that is very good news. And, by the way, if we look at productivity or bureaucracy in universities, it is an extraordinary explosion of overhead; growth of noninstructional staff since 1990 is fivefold, so the bureaucrats are in high tide in universities. Why this really counts is we are watching universities seize intellectual property, hold it, trying to maximize returns on it. And the net of this is it is very difficult for universities to in fact spawn the businesses and contribute that which we have all invested in them to the growth of the economy. So in a nutshell that is what the book is about. I write it in my voice as President of the Kauffman Foundation. One last word on the Kauffman Foundation because it is unique American institution; if you think about great foundations they are all with retrospective lenses on all the creatures of entrepreneurs. Now, because we had Heidi Terbell speak with us about the terrible character of John D. Rockefeller and subsequent funders and founders, we do not see these people as the entrepreneurs that we can imagine and know that they were, historically and factually in retrospect.  Ewing Kauffman in 1993 is the first founder of a major foundation who, upon introspection, says, You know, I was a poor farm boy from Missouri. I die a billionaire. What happened? There are two forces. One is, he says to us and our trustees, I had a very good education, particularly math and science. I did not go to college. We are talking about elementary and high school. And that made me ready to actually operate in the market, in this market. The second feature was it was very congenial to people like me and entrepreneurs. So in 1993 we find a founder like all the other philanthropists who was an entrepreneur actually explicitly declare this is his identity, and his patrimony should be used to advance and make this path ready and smoother for subsequent generations of Americans. In that regard we do stand to something of a unique force in philanthropy, and because of that we gather to ourselves, both our staff at the foundation which is led in this area by Bob Litan; many of you who know him. A number of extraordinary people - Ben Widulski is with us. More importantly, our leverages with other economists: Kauffman has now emerged as the single largest funding source for private economic research in the nation, an achievement I am very pleased about because we, in fact, have had an influence on this particular branch of intellectual thought, making it much more open and considering the force of entrepreneurship going forward, and the implications for policy, I think, in the long, long term will be altogether salubrious for the economy. Henry, thanks for having me.   Henry Olsen [moderator]: Thank you, Carl. Now we will hear from Kevin.   Kevin A. Hassett: Thanks, Carl, and thanks, Henry. I think this book is really a singular accomplishment, and it is a very important read for people who are interested in public policy. It is also, I think, something of a shot across the bow for the Washington policy community because Carl ably documents what is right about our economy, but, then, talks about the threats to our economy, and, I think, portrays Washington, and that is more of a threat than anything else. I think that Washington is more of a threat is clear in the book because it has not really come to grips with the correct view of the world that you need to have in order to pursue policies that foster the kind of growth that we sort of happened into in recent years. Entrepreneurship is a tricky concept and is often really tautological in the public discourse. So someone will say, Well, we owe our economic success to our entrepreneurs, and then you ask him, Well, what is an entrepreneur? They will say, Oh, it is a successful businessman, and that is not helpful. But what is helpful is the kind of thoughtful portrayal of how it all works which is in this book. I have page proofs - do not know if you have the book with you, if it is the right page number. But on page twenty-one, Carl draws a little rectangle that describes the entrepreneurial ecosystem, and I think that the rectangle is a very useful device for thinking about both how it works and what we can do to make it work better. In this rectangle there are four sub-rectangles. The first in the upper-left hand corner Carl calls them start-ups, and start-ups are the little guys who start a business& and gals. To the right of that - there are arrows all over the place in this rectangle and I will not try to characterize them verbally, but to the right of that is a rectangle called established large-scale firms. Below the established large-scale firms is a box labelled government, and to the left of them is a box labelled universities. It is the interplay between all of these sources that the successful interplay that has characterized the American economic success grew out of this near catastrophe of the 70s. I think that the rectangle is a useful device also for discussing Carl s book because I think what he does very well is document everything that is going on in two of the rectangles pretty much to my satisfaction. I was left without - not beyond my satisfaction I could say as well, which is an accomplishment, but it is a short book. So I was able to do that in just the right number of pages. I think that within the rectangle called established large-scale firms Carl makes a really important point, and the point is that large-scale firms, and later on in the book - I think there are only two or three charts in the book, but later on he has a chart where he shows the sort of life cycle of the firm, and it sort of goes up and up and up and up, and then it just starts going down. And Carl talks about why that is and why it is that these big firms become bureaucratic and unable to innovate. He makes the point, I think, between the lines that the fact that we all agree that that is what firms look like in the U.S. should be viewed as an opportunity because we have had the economic success that we have had despite the fact that a potential important source of innovation and growth, a successful research at big large-scale firms, has more or less been nonexistent, or few-and-far-between are the firms that keep innovating after they become large and have all that cash. And so within the book, I think one of the best parts is an actual description, if you yourself are a large-scale firm, of what you can do so that, maybe, it would be better, maybe entrepreneurship that your firm could improve. And I am hopeful that people who run large companies get the book and think about it because I think that it could be that if we look back at this book in the number of years, that one of the things that we list as its big accomplishment is the fact that it started to spread, really, the good ideas from the few places that do it right, like GE to other firms. I think that the other place where the rectangle is fleshed out extremely ably and usefully, if you want to think about this question, is the university box. I know that has been an area that the Kauffman folks have been very active in. If you think about it, the universities present two problems, or potential problems. One is that they have students. People ask What is a think-tank? and I will say, Well, it is a university without pesky students hanging around. Well, universities, they have this hindrance to activity known as students, and so we have to educate them somehow. And I think probably everyone in this room has been to a university or a college, or will, and I bet you that none of us, nobody in the room would raise their hand - we could test it, and say, Yes, I learned what I need to know to run a business when I was in school. Did anyone think they did? Yes, nobody does. In fact, I could even just take a step back from that. Forget about the universities. Is there anyone here who thinks they actually know what it takes to run a business? There is one person back there, probably, yes, Mr. Iacocca back there, right. But, yes, that is the point that, again, Carl makes extremely carefully and lucidly in the book, and it is a challenge. I think it is a challenge to policy-makers here in the U.S. that we are not at all thinking as a country about what it is that makes us great and how we can educate people to do that even better the next time. It seems like we leave entrepreneurship or knowing how to do it to informal mentoring relationships, as Carl suggests, that may or may not match the talent. So it could be that we have lots of really able entrepreneurs who just never meet someone who explains to them how they could do it, in fact. I could actually have a test for this project, by the way, which is if anyone could ever get me to be an entrepreneur then they would have a system that would work for anybody, and so they should try. So we have students, and I think that there are some wonderful examples discussed in the book of things that universities are trying to do to make it so that they do start to give students more of the knowledge that they need to go out there and start a business. I think that business schools do not fare well in this book and I think that is appropriate, at least for my own experience as a professor at one Ivy League business school. It seems that business schools are what economists call a Spencing operation after Michael Spence who argued that education is really just about signalling whether you are talented or not, but not really about learning anything useful. And so if you have a hard-to- get-into school, then what the school does is it sorts the really able students from the not-able students at the admission, and then documents who actually is trustworthy enough and drug-free enough to make it through four years but, other than that, they do not necessarily serve much of a function other than signalling. I think that the Spence argument is really quite relevant, sadly, for business schools. Again, there is some discussion, which I am sure you can elaborate on in the question-and-answer period if it comes up, of what some schools are doing to try to fix that. I think, ideally, in my mind I left that section of the book with a view that for the student part of the problem, that there are some places that are moving in the right direction but nobody is really moving in the best direction, which is that I think that you should almost have a school where the grade just depends on how much money you make. I guess maybe that is what that Trump TV show is all about. But, really, just give people a crash course in a semester on how to start a business, and then let them spend three semesters trying to make money, and then they graduate cum laude or not, depending on whether they do. I guess the problem with that approach might be that the ones who do not make money would not necessarily be employable, so maybe that is why they do not do it because we identify the failures too accurately. It is better to keep the demand for slots to the schools high. So I think that we have had a condemnation of universities in that regard.  I think, also, that universities are potentially a big road block to us as we go forward because, and Carl talks about this too, that they are trying to claim their property rights, to the intellectual property that is generated at the university. And I think that - and there are some places that are doing that in an okay way as successful in other places where it seems like they are not, but one of the things I was convinced by, and I was so convinced that I forget the exact name of the legislation. I just forgot to write it down, but there was this Act that you write about that had - Dole and somebody - that basically addressed when there is some finding from government-funded research that the government was not going to try to have an equity stake in, and the business that came from the finding. And that was a pretty important turning point, potentially, in the ability of new knowledge to diffuse out into the business sector without complication. Well, it seems like universities might be, at this moment, aggressively pursuing the reversal of that policy, where the university - and it gets the intellectual property or the equity in the new business that comes from it, and that tax on the new business could be a very significant hindrance to the formation of new businesses and economic growth. I think, again, that in the discussion in the book, there are some places that, maybe, they are doing it better than others. But this problem, this challenge, this policy challenge, was really unappreciated, the gravity of it, at least by me until I read the book. And so if I had to think about what is the second biggest thing that might come from this book five years from now when we look back at it, I would say, Well, it could be that the book finally got Washington to thinking about policy towards entrepreneurs. And one of the things that it did is it made Washington pay attention to the enormous damage to the economy that was getting to be set in motion by universities, acquisitive universities, and maybe Washington could do something to put a stop to that before it gets out of hand, or maybe universities could recognize that they can maximize their profits by putting as low a tax, or relatively low tax, on the IP that some of them have. So those are the strengths. I think that the weaknesses of the book - you know, it is my duty as a discussant to go into these - are just the other rectangles, and I think that the description of them or what is going on in there. And I think that the failure there or the lack of full success there comes about from two different reasons. I think in the corner about start-ups, there is not really a lot said in the end about why it is that somebody does it and somebody does not, or why is it that start-ups happen, where does it come from? There is a literature on that which I will talk about in a second that I think is pretty interesting, and I think that in the second edition of the bestseller, when you add new material, then some of the stuff that I am talking about now maybe could make it in. The government section, also, I think, could have been a little more fleshed-out, and I am going to talk about a few things, examples, that I have of areas of government policy that I think have a big impact on entrepreneurship but were not discussed much in the book. On start-ups, I think for me the best way to think about the problem is that in classical economics all the way through until the 1920s, the model that economists had of the economy was that it was a set of finite goods that was fully understood and known, and the problem with the economist was to sort of figure out how to make the most out of what you got. In this world, you could say we had apples and we had oranges and we had lemons and so on, but that is all we had. We had to make optimal production relationships between inputs and outputs and so on, but if we got economic growth it is because last year we had fifty apples come out of the economy, and this year we have fifty-five. It was really in the 1920s that that view of the economy was first challenged in a seminal dissertation at the University of Iowa, of all places, by a fellow who ended up being a University of Chicago professor, Jimmy Savage. And in Savage s view, he actually viewed the problem of understanding or describing a successful economy as being a problem of understanding the difference between a world where you have a finite set of things and a world where this set of things is changing. And an entrepreneur, Savage argued, and Schumpeter was in this area, too, and is discussed in the book, but Savage argues that an entrepreneur is somebody who goes out to the frontier of what we know and then discovers new things, and so the model of economy could be that if you are a geographic region then you have these people at the edges who go out where there might be wild animals who eat them. After beating the bushes they come back with the new fruit and the economy s growth, and the growth and our prosperity over time emerges if we have lots of people who are will to go out and face the wild animals and come with new fruits. I think that idea of start-ups as being people who go out into the things that we do not know, the areas we do not know, and come back with new things; there is some of it in the book. It is particularly evident in the description of how start-ups and established large-scale firms interact with one another. But I think that it could go a little bit further, it could go a little bit further. But I am left, nonetheless, after I look at what Carl says about start-ups, with a picture in my mind of how it works, of how our economy works, that this is as follows: that we have these people who are out there at the sort of Savage boundaries, Jimmie Savage boundaries, looking for new things and they are all over the place. If you think of a sector, if you are an economist, an SIC code, you know a place where there is stuff that happens - Is it drugs, is it computers? - If you think of that thing, then there is somebody there who is trying to be an entrepreneur, and there are lots of little guys and gals making things happen, or not. And then above them, often in the same SIC code, the same industry, there are established large-scale firms doing what was really cool five years ago and then doing it over and over again and making large-scale profits from it. And the way our economy works now is that a sign of an area where we should be hopeful about the future is really that it should have both, and both should be thriving. And so if you look at an industry and you see big large-scale successful firms and, underneath them, lots of start-ups, then that is going to be an area where you can feel comfortable that good things are going to happen, because the start-ups are going to innovate like crazy, and some of them might turn into Googles and Microsofts. But even the ones that do not will be acquired by the large-scale firms above them who have expertise in that industry and know how to take new ideas and really turn them into big money quickly. And those big firms in part serve as kind of the leveragers for the cool ideas. If you want to spot an industry where entrepreneurship, maybe, is threatened in the future, then you will go and you will see that there are large-scale firms, but there are not many little guys underneath them innovating anymore. I think that idea is present in the book. I think that that idea is really, really important for Washington policy because I think that if you want to have a sort of a canary-in-the-coalmine view of where policy is messing up, then it might be to see, well, are there places where we have only got the big firms and the little guys are not there anymore? And there are such places; one that comes to mind is medical devices, where there used to be gazillions of start-ups but now it is not happening so much anymore. I think product liability problems and so on might be a big explanation for that, but I think that looking through those is a good idea, going forward to make our understanding of where policy can do better, stronger. On the government side, speaking of policy, I think that there are some things that have not been mentioned, or mentioned only in passing, that are really important and need to be in the book or in the debate. The first is actually a conference that we had here at AEI on Friday, but I think it was close to the public as our Friday forums usually are. It is a place where scholars present their own work to the AEI family, and sometimes outsiders come but we do not broadcast these widely because a lot of times it is for internal discussion. One of our newer scholars and economists, Aparna Mathur, presented some new research that she has been doing that I thought was really quite striking in making the case that one of the main reasons why the U.S. is such a great place for entrepreneurship and why we have got all these pockets where there is this healthy civilization of entrepreneurs generating new ideas in business growth rapidly, one of the reasons why we have that is that the U.S. pretty much uniquely in the world, is willing to accept failure. So some places in the world, if you start a business and then it fails then you have lost honour and you should just kill yourself. Other places in the world, if you start a business and it fails then the debts from that pretty much are going to chase you for the rest of your life. In Germany, you start to fail business then the creditors can track you down and you cannot escape them for thirty years. But here in the U.S. we have a system where you can start a business, you can wall that business more or less off from the rest of your life, and you can give it a go, and if it does not work then you declare bankruptcy; it is your option to do it, not the government s. It is not a poor house, the government does not throw you in the poor house. You decide you want to go in the poor house, and you start over. And Aparna mentioned in her talk that Henry Ford started two automobile companies before he got the one that worked. I did not know that. And so what Aparna did is she went beyond the observation to empirical evidence that looked at the variation in bankruptcy laws across states and entrepreneurship to see if businesses tended to flourish and to grow or new business formation was higher in the places that had relatively generous bankruptcy rules, and she found a pretty big significant effect. And the reason I mentioned that is that it sort of shows, first, that entrepreneurship is kind of a different weird thing, where something that you would not even think of, like a bankruptcy law, can be really, really important; but, second, and this is one of the main themes of the book, since we have not really thought through entrepreneurship as much as we should have, you can really mess things up potentially because there is stuff going on that you do not understand. And so in this case, there have been a number of high-profile bankruptcy cases. For example, O.J. Simpson moving to Florida because there you can have as much money as you want in your residence and they cannot get it through bankruptcy, to protect himself from his liabilities from that lawsuit that he lost. So he has, I do not know, some $10 million home and no assets that the people he owes money to can gain access to. And also there is credit card fraud that we all know about, and these things have led to a kind of sweeping change in bankruptcy laws that have made it harder on the deadbeats, but also harder on entrepreneurs because entrepreneurs are the ones who really care about those bankruptcy laws. I do not remember seeing, during the debate about bankruptcy reform, ample discussion of the importance of failure in explaining the growth of America, because you can escape the penalty of failure. I did, however, see lots and lots of discussion of the deadbeats that we did not want to allow to do the nasty things. And I think that is a sign of the kind of thing that we can do incorrectly in policy and an important one, and one that could have been mentioned more on the book. I think that another area where policy really falls short, and I have been talking about this on and off in Washington circles, at least until people shove me aside and say, Get away, because this is really boring. It is that we have terrible tax rules that do not at all understand that the way our economy works is the way that Carl describes, that we have these little guppies that get eaten up by the sharks when they have really good ideas, and that we have the large healthy firms and the small entrepreneurials, the small firms underneath them and the large firms go around and get some of their growth from finding the coolest ideas and leveraging them quickly. And so we make it really, really hard for a firm to succeed in that space, tax-wise. So to put it more clearly, if we wanted our tax rules to work, to take advantage of the fact, or to make it easier for this ecosystem, this entrepreneurial ecosystem to exist, then we would want to not have a big tax penalty if a big firm bought a little firm with a good idea. Right? You would want them to be able to do that. We think that is a sign that things are really working, if the big firms are buying little firms with good ideas. But, in fact, we do have enormous tax penalties for that process, and, in fact, there is an area of the Tax Code that basically goes like this: it says that if Carl starts a company, well, actually we have to reverse this example because we want the little poor guy and then the big rich guy. So Kevin starts a company. Kevin starts a company and he has got a good idea but he spends lots of money developing that idea until other people are convinced that it is a good idea too. And then Carl notices that Kevin has got a good idea, and so he buys Kevin s company.  When that happens, at the moment when he buys me, all of these expenditures that I made on developing the product more or less get wiped away for tax purposes. You cannot deduct them from future profits. They are limited by a special provision in the Code. This law was put in during the safe-harbour releasing scandals of the early 80s to prevent tax compliance problems, but they make it, again, so that the innovative sector, the place where there are little guys who are coming up with new things is probably the highest taxed area in the economy. This is most evident and most striking in the biotech sector because in the biotech sector, the way it works is you have this new experiment, and then you show it works, and then you do a phase-one study, and then it works, and then you do a phase two study and it works, or not. But if you keep having success then you keep doing things that cost a lot more. By the time you get to the final phase then in order to get FDA approval for your drug, you basically have to build the factory; you have to build the plant and then make the stuff that you test in the plant that is going to make it for people, which is a big, big expenditure, right? Well, if you are a little biotech company and you are going through that process, then how do you do it? Well, what you do is you issue equity at each step. By the time you get to phase three you need a lot of money and you probably issue equity two or three times in the midst of doing that trial. Well, the way they write the acquisition rules in the Tax Code, when you issue equity to finance the research, it gets scored as an ownership change in many, many cases. And so what that means is that the little biotech company that finally takes the drug to market, if they are not acquired by somebody else, they are not allowed to deduct any of the expenses for research or for building the factory when they calculate their taxes. I mean, they get some but they are often limited, and there is then actually a kind of explosion of tax planning to try to get around this, but it has not been fully successful. And it is really not successful if a big company buys a little company. One effect that this has is that it makes it so that the big companies want to get the little company research inside them as soon as possible in the process, like on preclinical. Once you start doing those expenditures, if the firm does not have profits, they can deduct them against immediately. If they are carrying them forward, then the only way to get them is to have them inside a big healthy firm. And so the acquisition tax [indiscernible] another area, the sign& You do not really understand that we have this ecosystem that we are trying to protect and we have to do something about it. The final - and I wish there was more of that in the book. The final area that I would like to have seen in the book is more discussion of trade and IP protection because this is another pet peeve of mine and we have become more and more an innovative economy, an entrepreneurial economy where our growth comes from the new things out of the Savage frontier. But as we have done that and as our economy has changed, Washington has stayed the same. We live in Washington where textile officials from textile lobbying organizations serve on the special committee inside the Treasury and set U.S. trade policy for textiles, but nobody really cares about the fact that on government computers in China they have pirated Windows. Trade officials that I know and talked to tell me that they will go to a company that pirates the intellectual property from the U.S. and say, Hey, you really need to stop doing that, and they will say, Well, fine we will do that but you have to let us ship textiles into your country without all those protections. And then, of course, talks break down. And so we have morphed into this place, this very uncomfortable place where Washington has not kept up with the economy. Moreover, it is making it worse because we are doing really stupid protectionist things on steel and textiles and elsewhere that do not allow us to have any leverage when the stuff that really matters, the stuff that has true economic value, intellectual property, gets stolen by people in foreign countries.  And so that for me is a real problem, and perhaps one of the most urgent, because as we move into this world where entrepreneurship is flourishing and new ideas are happening all the time, then we have to recognize that we are also in this world where people can steal that thing without it being an act of war. So if our economy was all Shuberts and things, and then the Brazilians rolled in and took all our Shuberts, then there will probably be a war over that if they took them. Well, maybe not the Shuberts. But if they take all of our music and software, or a bunch of it, and use it for their selves without permission, then it is not an act of war. Moreover, we have no negotiation leverage because we are doing things just as bad, protecting industries that were new ideas a hundred years ago. And that for me is another government thing that I wish was in the book. But on the whole, I think that you would have to concede that the book does a great job of showing us what we need to be talking about and giving us the framework to do so. And for that accomplishment, I think Carl is to be applauded. Thank you. Henry Olsen [moderator]: Before we start Q&A, Carl, anything you would like to say in response or in comment on Kevin s discussion? Carl Schramm: I would be very brief. I hated tax in law schools so that is why it is not in there, but everything you said is right, okay. Second thing is when you write a book, you then have to write the book that comes behind the book, and I think the most important book that comes behind this really goes to large business, and Kevin sort of nailed this. If you look at the four different quadrants, if you will, one way to look at it is the level at which language is truer to reality. Now, when you go to government, because of politics nobody talks directly about anything. When you move to universities, everything has to be shadowy talk. There is, in the words of Michael Novak, Communism is dead but anti-capitalism is very much alive in universities. So to talk about this, I think this partly is the backlash to business schools. They wall themselves off from the cultural forces, and as a result they become totally servants of large companies. You have hit the nail on the head in the sense that people who start businesses who have a university degree do not come out of MBA programs. It is the worst place on earth to get ready for a business. Contrary-wise, people who start businesses come out of engineering schools by the truckload, completely different culture. But the point is it is the delta between what reality is and how reality gets spoken of, and in business it is odd that we have these sort of ways of talking that are hard to disturb. A lot of it is because the MBA culture in larger businesses still brings with it the notion that it must be a predictable discourse. We are talking to our investors about predictability, and if there is one thing that characterizes the new economy, it is very messy, and it is very difficult. The challenge ahead is basically to come to business and talk in ways about personal creativity, structural change, cultural change in a business that lets the business essentially become freer. That is very difficult because it actually goes to the whole question of how we conceive a business strategy in a messy economy where the people who articulate this, including investors, and I think one of the great new icebergs that will drop off the shelf shortly is we are going to have a thorough-going discussion about the enormous change in the capital market and what is to come. The notion that you have to aggregate capital in places like GE which are fundamentally based on a view that when you go to GE you get a diversified portfolio, in a world of information that is free for investors you do not need General Electric to protect you from risk. You can adjudge the risk yourself. So, in a sense, all questions of how we accumulate capital in what I would argue is a capital-glutted world where human capital is the issue - it is not financial capital - is the next chapter in this development. So I think Kevin s thoughts, particularly about the liabilities or the shortfalls of the book, are 100 percent correct, and if he could find fault again, it goes back to my law professor. Blame it on him, my tax law professor, right? Henry Olsen [moderator]: Kevin, anything? Kevin A. Hassett: No.  Question and Answer Session   Henry Olsen [moderator]: Well, I would like to have one question before we throw the door open, and that is we are talking about the interplay between policy in one hand, and spirit or innate human ability or cultures on the other to foster the entrepreneur. There is one specific policy that you label out as being pernicious in your book, and that is Sarbanes-Oxley.  I was wondering if you could talk very briefly about your thoughts as to why that, in particular, raised your ire to the point of identifying it at length.   Carl Schramm: I think there is the daily flailing of Sarbanes-Oxley in the paper, and my only twist on the normal assault on Sarbanes-Oxley - and it is interesting in big business, when this issue comes up I am always astounded how many chief executives say, On balance, I think Sarbanes-Oxley has been a good thing. Well, that is okay. You went public in 1947, okay. It is a fine thing for you, and to the extent it keeps others away from getting capital, perhaps it is good thing. But we owe it to our investors to be more honest. Well, they were all honest in the first place. They get into the self-indictments that make no sense if you listen to it carefully. I think in many regards, like all authors, I am trying to probe the sort of unconscious part of economics and business, and, my gosh, there is resistance, always. We want to go down the pathways that are established and comfortable and other people talk that language. The best example is when I was writing a piece about 15 months ago. I was at King s College at Cambridge talking about this, and we had a little conference. Gordon Brown is very keen on this solution so I get to talk a lot in England with policy-makers. Well, this particular event was in a conference room at King s College, and I was just wailing the you-know-what out of King s, and there were twenty people in the room, and I sort of perceived ten of them begin to squirm. I began to look very carefully, and over the screen that was up to show a few of my slides, I could actually see a face that looked very familiar, that had a little moustache here and that is about where it stopped. As I looked off to the right there were in fact three smaller oil portraits of his eminence John Maynard Keynes. But the fact that we were at King s College, there was sort of a sense of tradition that made them loyal to a vision that was, you know, toast. Well, the same holds if we go to ITT or Lucent or move from company to company to company. It is interesting that the pathway that is established - and I really do something about this but will do a great deal more in the next book - about strategy is so limited. We think about in an entrepreneurial economy, strategy is a discrete event that is shared only by the elite who are counselled by firms that are all chock-full of MBAs. And they come back and tell everybody else in the 150,000-person corporation what the future is, and that is just on a model that works in a messy economy where innovation has to be a daily practice because the economy is moving so fast, you cannot keep up. I recite here again, and I could have at the very beginning to set the stage. You know, who can explain the fact that only twenty-five percent of the Fortune 500 or 100, when the count in 1980, and compared today, only twenty-five percent exist? And one reason is the culture of entrepreneurship does not permit these companies to move fast enough and a declaration by Sarbanes-Oxley where in that Act is a concrete example of government doing what government always does. There is a static problem, we will create a static solution, and it is a dynamic world in which they operate. This is one of the fundamental, most difficult problems we have. To be just a touch humorous, my vision of Washington, someday we are going to have about where the Carpenter s Building is, at the foot of the Senate side, a monument. And we are going to have Hawley-Smoot and Sarbanes-Oxley and HIPAA just to remind people as they drive to work how badly they can screw up the economy. I can dream, can t I?   Henry Olson [moderator]: With that, I would like to turn up the questions. Please wait for the microphone to come and mention your name and affiliation when you are asking the question. Let s start here. Bryan O Keefe [audience member]: I am Bryan O Keefe with the Center for College Affordability and Productivity. I agree with many of your criticisms of the university. This is kind of a two-part question. The first, as far as entrepreneurs going to college, given the current state of the university, do you really see that there is a real reason for an eighteen or nineteen year-old kid who might have a bright idea for a business plan, everything, is there a real reason for him to go to a traditional four-year-college or go get an MBA? The second part of that is that if the MBA programs are so lousy for entrepreneurs, do you see, maybe, on the for-profit sector an alternative model for the future, that, you know, maybe a for-profit company could provide maybe a nine-month program, or something like Kevin said, where they try to maybe do something different? Do you see any sort of future education models that might be able to appeal to entrepreneurs more?   Carl Schramm: Well, I talk in passing a little bit about the emergence of Phoenix. When I talk to CEOs in universities, if you will forgive the transport of that word, Phoenix is dusted aside, brushed aside as if it is a total irrelevance. Well, Phoenix makes well over a billion dollars top line of tuition revenue. There is nothing like that in the for-profit or public universities. It should not be dusted aside, and I think we are watching increasingly people reform their vision of how you do specific education. As to the first issue, should an entrepreneur go to college? The problem is that entrepreneurship is very lumpy. We know very, very little about it. In the book I pointed out that, yes, there are kids who create businesses at fourteen, but there are also people who have worked at the social security administration for forty years, and then they start a business. Now that person is risk-averse by declaration by anybody s analysis for a long, long period in their life, and then he becomes a risk taker. We do not begin to understand - and it is very lumpy - there is no particular point where you say, Well you just - like mathematics. If you imagine your business started and finished, conceiving of it by the time you are twenty-one or it will not happen, and it is just plain-out not true. We also know that it appears as if starting a business is the best predictor of starting another business and starting another business. As Kevin points out, the story about Henry Ford points to what may be a truism, and that is, you do not really have a great business until you have had some not-so-great businesses, or failed businesses. So it is hard to say Do not go to college. I think many regard the right answer is it would be great if, when you went college, there was an environment that appreciated that this could be happening now. It is likely to happen over time that half of all kids at college right now will start a business before they are 65. And the colleges actually ought to say, This is likely to happen to you. It is likely to happen to you and to the extent when we get you ready to conceive of yourself as a parent, as a citizen, as a married person, it is just as likely the probability is, at that level - you will all be citizens obviously. So it is sort of in a sense a cultural morph that ought to be happening on campus and is not. To some extent the book might operate and the series of books that others will write behind this, they begin to legitimatize a career in a start-up business, which, in many universities - and we know because we fund a lot of these universities - is just not acceptable. There are times when we have given grants to universities and after the money is in the bank, three, four or six months, guess what? A fight breaks out in the faculty senate wanting to know how it is the university s president could compromise their deep commitment to liberal arts education by taking a grant from this foundation that says undergraduates ought to know about entrepreneurship. Now that is not a cultural predicate that suggests these universities are much good for getting kids ready for what their inevitable lives will be. The good news, of course, is to some extent it is immaterial because labour economists have known this forever. Kids at 16, 17, 18, and 20 have an intuition about where their life is taking them, and they go to the Internet and they are filling themselves with lots of information, and their history professor may wail against entrepreneurs in America, and they are sitting back saying, You know, this person is dead wrong, okay? I am way up to speed and I know what I am going to do and Johnny Rockefeller is my role model.   Henry Olson [moderator]: Yes, ma am. Anne Neal [audience member]: Anne Neal, American Council of Trustees Alumni, I want to follow up on your bifurcation of liberal arts education and education for entrepreneurship. I am wondering if you would address the issue that not only is higher-education failing to prepare students for entrepreneurship, but, in fact, it is also not giving them a very solid liberal arts education. In the old days, we used to depend upon higher-education to provide exposure to general areas of knowledge - economics, history, literature. Nowadays when you go to college, you basically come away with whatever you happen to paste together on your own, so that you have no real educational framework. And I am wondering, given the fact that we have this immense velocity of job turnover, that actually reinforcing and strengthening liberal arts education in addition to entrepreneurship might not be a joint solution?   Carl Schramm: In the book, once you get through saying that the MBA training is not the touchstone that it ought to be, the question arises: What would you do? And some place in the book, it might be - I have a couple of interludes of letters, and I have a letter in there to kids, and I think that is where I basically say if you would study one thing that gets you ready for the future, it is become a history major if you do not know what else to do. And the reason I came to that view is I have been impressed in my business career at the number of CEOs that I have encountered over the years who are impressive intellectuals. When you pushed them, the common denominator with these people is they all read history. They read all kinds of history, and I have a hunch that that is essentially preparing them to look at complex paradigms, to move into the unknowns, to adjudge risks. And they find it, I suspect, the most rewarding intellectual framework in which to make massive corporate decisions. I have talked to many, many of them about it. Think about that and then think about picking up almost any business book. They are like formula novels, seven steps, ten secrets, thirty-seven people I have known. These are formalistic and as Kevin knows the astounding part of this - I do not know if it is tragedy or comedy - that these are written by business professors who see an anti-intellectual group by the way, if there was ever a crowd of them, who are not trying to puzzle through, and one of the things I say about the MBA training in gross that is difficult is, it is never set in any macroeconomic context. So we get kids ready to go off to McKenzie or other consulting firms without a macroeconomic context. The context that they essentially muddle together on their own is the old economy, the new industrial state. And as Kevin knows, if we look at the faculties in all of our great business schools, there are precious few people there who actually ever made their living, honest to God, as an entrepreneur. They may be very entrepreneurial and think so with their consulting firm but they never had their families next can of beans on the line. It is a completely different thing to start a business when you are a tenured professor of business.   Bob Samuels [audience member]: Bob Samuels of Newsweek. Do you want to talk a little bit about the relationship between taxes and entrepreneurship, whether or not - I mean, it seems if the Democrats were to come to power, top tax rates might be raised. I am sure that there will be loud complaints that this would stifle entrepreneurship initiative. On the other hand, we had higher tax rates in the late 1990s. We seemed to have a strong entrepreneurship; some would say we had too much of it.   Carl Schramm: Bob, I am not really much of a tax expert, and I go back to my last answer on that topic. I got out with a B in that course and avoided going to class altogether. There are people - like Kevin is a better person to answer that in terms of the implications of tax rates on entrepreneurship. I do think taxes are part of this whole m�lange of external institutional forces that do reach to the question of bankruptcy, that do go to the question of the dampening effects of Sarbanes-Oxley in terms of where do I get capital. The implications of taxes in terms of the carry-forward in venture capital firms is now absolutely clear in the sense that it forces more and more of these firms, I think, to, in fact, seek a strategic partner as opposed to going to an IPO. So the implications are a deep fabric, but I can see it very faintly from my perspective. Kevin?   Kevin Hassett: We can communicate more on this later. I do not want to give you the whole lit dump, but there are studies that show, for example, that the estate tax has a pretty big effect on entrepreneurship. If you rain money down on kids, then they tend to start businesses, not all of them, but a lot of them. And a huge chunk of the business sector originated in individual tax returns, so to the extent that you have a much higher rate there than you would expect to see. And evidence suggests that you would see a negative effect of higher taxes, I think the thing is that when your rate is going from 39.6 to 35 for something - that is not a humongous swing in the tax rate. So if the marginal rate were seventy percent or something then the estimated effects would suggest that you would really notice it because that is a big enough change in the marginal rate to really halt a business formation. But the kind of changes that they are talking probably might at the margin, all else equal, raise or lower the number of new firms by three or four percent, something like that. And, of course, all things are not always equal from year to year so it could easily be missed if there is another dot-com boom, or something.   Carl Schramm: But there is a piece of evidence, however, that says this question in a sense is almost immaterial, and that is I have observed lots of other people who start businesses become passionate; they cannot do anything but start that business. Once I have had an insight about how to do this better, faster, cheaper, there is nothing going to make me stay for the junior year at Princeton. I am leaving because I have got to. I do not even think about how risky this is, how poor I am going to be, I just have to do this. The first business I started was in fact my own passion. I had figured out how to do something so much better. Nobody else had even figured out it was a problem. By the way, that is one of my definitions of an entrepreneur. Entrepreneurs teach us about needs we do not even know we have. And when somebody cracks a whole new approach, they got to do it. I am sure that is the case of these kids at YouTube. They figured out how to combine the technology with what they thought was a need, i.e., undergraduates or high school kids with time on their hands who want to watch other peoples lives on the Internet with their creepy films, bang. It was a need we did not know we needed. And sometimes when I talk about this book, I hold it up and say, Guess what? When I started to do this book, YouTube had not been conceived and the week it appears on shelves, October the 10th, is the week that YouTube has been absorbed by Google. Bang. And I am sure those kids who started out did not say, Hey, let us get really filthy rich. Now what do we do? I am sure that the narrative went quite the opposite way: We could do this. What do you think about that? Da da da da da. Hey, you know what? We might get really filthy rich. But they would have done it, anyway.   Henry Olsen: Yes, sir. Jeff Reed [audience member]: Hi! I am Jeff Reed, formerly with the university, but now about to join a start-up company. But I have a question&   Carl Schramm: This is progress.   Jeff Reed [audience member]: So I would like to hear you talk about the Kauffman Campus Initiative, which is one of your biggest efforts, I would say. Is this an effort that you and the foundation are trying to do to change universities, which is kind of the way it seems? And it seems like a good opportunity. And the second question, a little bit unrelated, is the effect of immigration on America s entrepreneurial society. Some have argued that the fact that we bring the best and brightest and perhaps most entrepreneurial immigrants from around the world historically to this country is another, in fact, very important reason why America is entrepreneurial. Do you see that as a big part of it and is that changing with current lockdowns on immigration?   Carl Schramm: Yes. I will go backward. I am very keen on immigration. In fact, I have argued elsewhere in other writings that actually one solution is when a kid gets a PhD, you give him the PhD and their citizenship papers the same day. That would be a great step forward, it seems to me, and maybe a Master s degree, provided it is not in business. As to the Kauffman Campuses, we did not start out to make a major change. It turns out like unintended consequences even for foundations that think that they know what the consequences are happen and good ones at this, a happy accident. Kauffman Campuses is our largest single project, and before we are done we will have probably brought something on the order of $400 million to campuses through the leverage we have put in place, maybe $500 with about $65 million of spending from the Kauffman Foundation. We make campuses compete, and the premise was that if business schools were not generating entrepreneurs, but the 500 fastest growing businesses, the Inc. 500, the vast majority, almost all of them are headed by college graduates, where do these people come from? So we did a lot of analysis. Overwhelmingly, it is engineering schools. Actually, people with an MD beat people with an MBA as business starters, to Kevin s point about technology instrumentation. So, initially, I thought, well, we begin to move all of our money from business schools to engineering schools. We had funded 150 business schools and to our credit, the reason that there are courses at all on entrepreneurship began because around 1995 we began to induce business schools, 152 of them, to at least do a course on entrepreneurship. So we thought we would go to engineering schools and then a great idea said people who are in the nursing school, the music school, the design school, they all have become entrepreneurs. So we induced some presidents to talk about a cross-campus initiative where everyone would be exposed to this, and that in a nutshell is what the Kauffman Campus Program is, and we have some just fantastic campuses to point to - Washington University, The University of Rochester. If you go to Wash U and call Mark Wrighton, the president, he will tell you book, chapter and verse about how his university is becoming a cross-campus home to all my students thinking about entrepreneurial careers. And in December, we are going to make eight more grants and this time we are doing it to several state systems. Like, I cannot say it because they are competing, but a couple of these competitors will be state systems, so I suspect by the end of December we can probably point to something on the order of maybe thirty-five to forty campuses that will be pursuing these cross-campus entrepreneurialship exposures, new course work, fantastic new courses. In the last year, we have seen eighty-five new courses on our campuses grow up - history of entrepreneurship, entrepreneurship in design. The University of Rochester has put a huge investment both in their Eastman School and in their School of Nursing around entrepreneurship, so that is what that program is in a nutshell. And I am keen about it but I love all of my children equally. All of our programs, we have some wonderful programs, transformative programs, that is one of them. It is a great program.   Henry Olsen [moderator]: We have got about five minutes left, so I am going to try for two or three very short questions. Yes, this gentleman here. Greg Schuckman [audience member]: It is risky because I am from a university. I am Greg Schuckman from the University of Central Florida, and my question to you is about the technology incubators. The Kauffman Foundation has been fairly instrumental in establishing the incubators and trying to take the research that we have been developing in the universities and commercializing it, and a lot of those, as you have said, have come out of the engineering schools and elsewhere. So I was wondering if you can talk - and I asked Chairman Manzullo about this, actually, a couple of weeks ago at the Gathering Storm symposium we had the academies, and in terms of where the funding comes from for these technology incubators. He said that this was a shortcoming of the SBA and did not really have a good answer for what to do with those, even though the jobs that come out of them usually pay two to three times what the average wage is and effect the economy like it does in Orlando.   Carl Schramm: Well, that is a complex question. We are not so worried about the university incubators. I am actually somewhat skeptical that universities know how to incubate businesses. We are much more concerned about the barrier of getting the intellectual property out into the hands of entrepreneurs, so our vision of incubation has let us open the pipe and get old ideas that are sitting in file cabinets out into the hands of big companies and individual entrepreneurs. I think in a sense this is how universities can actually spur economic development. I think there is plenty of evidence to suggest that formalized incubators& Back to Bob s question, that was part of the bloom that came off the extraordinary dot-com cycle in the late 1990s. Most of those incubators, many of them were private are basically out of business. It does not look like there is an absolute necessary yield on putting a lot of people together and somehow dividing fixed cost among a lot of start-up businesses, which is what the concept is. To the extent a lot of universities are betting on that horse, I think a lot of times they would be better taking that money and building a stronger liberal arts curriculum and inducing kids to take it. Their kids would be better equipped to be entrepreneurs at the back end of this.   Henry Olsen: Last question. The gentleman here. Robert Hershey [audience member]: I am Bob Hershey. I am a consulting engineer. How has your program worked out with the engineering schools?   Carl Schramm: Well, as I said, we did not move it from business schools to engineering schools. We were on our way to doing that when we said some place from that side of campus to this side of campus is the whole campus. But that is not to say we do not have a very heavy appreciation of the importance of engineering. We have a national curriculum committee in place right now to figure out what it is you really teach, and that is I think eight people, four of whom are deans of engineering schools. So that may be an indicator of our biases. We have one dean of arts and sciences on that panel and I think we have one dean of a business school on that panel. So I think we have two arts and sciences people.    </body></html>