MIc'd Up | Part 1: A Conversation with John Chambers and Ken Griffin

Welcome to Mic'd Up with John Chambers and Ken Griffin in conversation with Jillian Tett.

Well, good morning, everybody, and welcome to a session entitled "Mic'd Up: A Conversation with John Chambers and Ken Griffin." Well, you have to sit there and try and imagine that I am actually Charlie Rose because we're going to try and have a relaxed, Charlie Rose-style conversation about what these two veritable luminaries of the business world make of where we are today and what are the key priorities facing the country. I was in here earlier listening to Secretary Chao talking about the infrastructure plans that the new president has—or not-so-new president has—and some of the key priorities. And we've had a series of people from the Trump administration talking about the priorities and plans this morning.

But I'd like to start off by asking you two—and frankly, you need almost no introduction, but just in case anyone has not been reading the business news or the Financial Times for the last few years—on my left, your right, of course, is Ken Griffin, CEO and founder of Citadel. On my right is John Chambers, who, of course, is executive chairman of Cisco. But I'd like to perhaps start by asking you, Ken, how do you assess what the government has done so far, the first 100 days? Are you feeling optimistic about the direction of where the country is going?

So if we look at a checklist of accomplishments, it's still pretty thin. But having said that, there is a tone from the top that it is a new day in America, and it's a new day on a couple of important fronts. The first is the efforts to roll back regulation. And this is something that the president literally can do from the tone from above, which is to tell the regulatory authorities, "Stop trying to, through regulation and enforcement, expand the scope of the reach of the U.S. government." And I'll tell you what, a friend of mine who's a partner at Goldman Sachs said, on the day of the election, the next day it was like a morgue. Everyone was despondent and depressed, and how could Hillary have lost?

And Friday, it was a party because people realized that the weight of regulation that had been placed on financial services was lifting. And this isn't just about financial services; it's the energy space, it's transportation, it's every part of our economy has been buried in regulation for eight years, and that is changing. That's a really positive dynamic in America. Now, what we hope for is the rest of the Trump agenda to come to pass, which is a fight for fair trade, not just free trade. We need our trading partners around the world to give us equal access to their markets and the opportunities in their economies that we extend to most of the world. We need tax reform. U.S. corporates do pay a tax rate that's not competitive with the rest of the world, that curtails investment in America.

It forces American companies into the hands of foreign shareholders. We need to change this in time. And we need to deal with healthcare reform. Obamacare changed who pays what, but hasn't changed how much we pay for healthcare. And as a percent of GDP, as that number's reaching 20%, we're reaching an era where healthcare costs are becoming simply too burdensome on our society, and we need to change that cost trajectory. So there's some really good news. The regulatory weight's been lifted, and there's a lot of things that we hope for to happen. It's 100 days. It's not much time. We've got another four years almost left in the administration. I really wish them success with the rest of their agenda.

And just before I ask John, you have spent much of your career making very canny, clever decisions, financial bets, or investments. Would you bet on tax reform and healthcare reform being passed by the end of this year?

I'm glad you asked Ken that first.

Hey, it's coming.

I thought Ken's answer was brilliant.

And what I'm doing is buying Ken time to think. John is a great partner. Cisco's been a great partner for a long time. John just epitomizes a great partner. Healthcare reform, I believe the Republican Freedom Caucus is going to come to terms with the Republican majority to pass some reform in the near future. They've made their statement. They will get some changes in the bill that Congressman Ryan's put forth because I think people realize the cost of not hitting that target is so high. So I do think we're going to see healthcare start to move forward in the weeks ahead. Tax is going to happen, but we don't have a plan yet. I give the president actually great credit for, people go, 'He put out a page.'

It's not a tax plan. I said, 'Well, actually, no, it is a tax plan.' And more importantly, it outlines the dialogue or contours of a debate. And between the president's position and Paul Ryan's position, I think we're going to end up with a reasonable set of tax ideas and concepts that we'll cast into law and pass sometime later in 2017.

Right. Well, I'm sure a lot of people in the room very much hope that you are right. John, how optimistic are you feeling after the first 100 days?

Well, I think it's an important point that all of us in this audience want to take away. My own view is that if people focus too short-term, they get themselves into trouble. And so I think it's way too early to judge how good an administration is doing or not on that cycle. Whenever I got my competitors thinking on this quarter, it was, you know, they were in trouble already. Never to dodge a question, however, I think we are tackling some of the toughest issues that we need to as a country. I think the total corporate tax reform, which is holding back America, has been strangling us. Finally, a territorial system at reduced rates and repatriation, which was doing nobody any good overseas.

I was at the McCain Institute a little bit over a week ago, and for anybody that had any doubt about the quality of our security and intelligence groups, you walk out of there just feeling so good. I mean, H.R. McMaster, he is one of the most brilliant leaders I've ever seen. We talked to the head of NATO, head of the Pacific Fleet, the admiral. It was just a very good feeling. And for the first time, we don't realize what we've done to this country. We are not growing jobs quick enough as a country. We have let small businesses get so overburdened with regulation, with inhibitors to growth, making it difficult to do business by city, by state, and by country. And our ability to perhaps change this paradigm is pretty dramatic.

It's important to realize, however, that some of our peers are breaking away at a faster pace, and there is no entitlement. So how we do this over the next, not 100 days, but over the next three to five years will determine whether America leads in a digital revolution like we did in the Internet revolution in the past. I'm optimistic. If I were betting on one country, I'd probably bet on America. If I were betting on two, I'd probably bet on India. Because if you watch what Modi's doing, he's got his act together across everything Ken and I just talked about.

Okay, well, we've only got 30 minutes, so we're not going to talk too much about India.

Okay.

But, although it's obviously very important—how about France? I can talk about France. But you obviously weren't in the session earlier with Secretary Chao because you were in your own panel. Yes. But I was very struck in that, because obviously infrastructure is one of the hot, hot topics that many people in the room are focusing on. It tends to be couched very much in terms of bridges and airports and 'let's fix LaGuardia' and things like that, with a bit of, you know, reference to broadband chucked in at the end. Is that enough, or do you think they've got the wrong priorities with infrastructure spending? Should we be talking about digital technologies first?

Yes, I think if you really look at what's in front of us, all of us understand the importance of infrastructure, redoing our roads, the highways, the airports, and our harbors, but we also talk about broadband. Remember, this is a topic that goes back a decade and a half or two decades ago. It's about getting affordable broadband to every American at a very low price point. And as you do this, and we aren't talking about India, but I will talk about what they're doing brilliantly, is you understand your whole country's drive can come off of a digital agenda. They've got to generate 1.2 million jobs a month. 1.2 million new jobs a month.

In India.

In India. They were looking at how they transformed their whole country with a digital agenda. They look at a startup engine, which the U.S. should be leading in, and actually we're slowing dramatically. You look at only 90 companies going public on the NASDAQ last year, maybe 125 at best case this year. We normally run 200 to 250. To generate 25 million jobs, we need to run 300 to 500. What they're doing is combining these all in an architecture. And so very often I think it's important to say America should lead here. I think we will over time. But I think there are a lot of others that we can learn from in terms of the direction.

What I'm really saying is we can learn from each country. India used to be a slow follower and the last place you'd go for innovation. There is no entitlement. And I was teasing you about France. Guess what the startup nation in Europe is? It's France. It's important that we move now to free up the hurdles of what's caused this country not to grow at the rate we can. We should be growing at 4% GDP. We should be able to generate 25 to 30 million jobs. I'm optimistic that we will. But it takes a total plan and it takes a new administration time to learn in terms of what's possible. So I think the stock market said it pretty well, and Ken, you're a believer in this, and the stock market is optimistic with a little bit of caution.

The stock market's optimistic.

The stock market's very optimistic. Very optimistic. Potentially too optimistic.

Perhaps. I mean, one of the challenges that we do face is we're now a solid, you know, arguably five to seven years into the recovery, and no matter how much the president tries, we can't suspend the law of the business cycle. And when that next recession comes, is that in 12 months, 18 months, or 24 months? No one knows, but it's going to come. I think what's been frustrating about this recovery is it hasn't been as strong as it needed to be to raise real standards of living. I agree. We don't actually have 25 million people more put to work. Unemployment's already in the low fours. But what's been frustrating about this recovery is we haven't created enough high-paying jobs in our country.

And in terms of the priorities for the infrastructure bill, I mean, do you think they are the right ones? I mean, do you think we should be talking more about digital technologies?

So here's where I think John and me may just disagree a bit. Terrific, we can have a debate. The private sector in the United States has been incredibly good at delivering, delivering the new era of digital technologies to American businesses and consumers. Are we the best in the world? We're right there towards the top. Now, there's no doubt we need to push this into every segment of our society. The haves and have-nots of a digital divide is actually a very, very big problem. If you grow up in the inner city of Chicago and do not have access to Google as a young boy or girl, that puts you at a real disadvantage to everybody else for whom search is a ubiquitous technology and know-how. I mean, watch a four-year-old with an iPad.

It's kind of terrifying. They know how to use it better than you often do. And if you don't have that toolkit as a young child, how far does that put you behind the rest of society 15 years forward? So on the infrastructure side, I think there's huge variances by state. Illinois—it's almost hard to drive a car around parts of Chicago. The roads are so bad today. It is borderline third-world country. It is a disgrace. It's simply wrong. And we need to address our roads, our ports, our airports, our electrical grid. We take for granted the stability of power in the United States, but we need to re-architect our electrical grid for greater stability and a lower cost of production of power. And then the infrastructure that's most dearly needed is the infrastructure that's going to educate our youth.

And it's not that we aren't spending what we should be spending on a per capita basis; it's that we're not getting the output from that expenditure. Because if we're going to have a society that prospers 20 years forward, we're laying the foundation for that today in our K-12 programs, which just aren't strong enough.

I would take it even a step beyond that, if I may. I think you capture people at a very young age. I teased about my granddaughter using an iPhone at two years of age—broke her mother's security code, used the technology to go wherever she wanted. I said, 'Early admission to Stanford,' and my son said, 'No, every two-year-old can do it.' But the problem is we take that creativity that our young people have and we don't develop it. You need to think about capturing the imagination, especially the diversity of our country and the gender base at 10 to 14 years of age, where you make technology cool with action figures and what's possible. You teach young people about entrepreneurship so they learn how to do teamwork early, so that they look at business as an attractive facet for them.

And if you watch what is occurring, countries that are reading that right are going to grow their income, the average median income, at a much faster pace on it. So Ken and I are not as far apart as you might think. I just think there are parallel paths that need to be done together. We have to transform the education system. It is broken. I've talked to the top universities in our country. We really are not preparing our grads for where the jobs of business are at the pace we need it. And the pace of change is three to five times faster than the internet era. Walking away with the right feeling? Yeah, I do. The internet era of the '90s: 22 million jobs, 24% increase in real per capita income, increased the ability to grow the GDP by 34%.

And again, I'm teasing purely because, realize that a country like France or India are changing the goals. Modi is going to grow his economy at 7% to 10% a year. He's going to double the per capita income every, conservatively, 10 years—probably seven years. A whole different approach. France became the startup country in Europe. So, it's an urgency of speed of change with a plan, not silos, and I'm optimistic that the administration will get that right.

So when you hear the call about bringing jobs back to America, how does that affect a company like Cisco? Because presumably you have large operations outside America as well.

Everywhere in the world. We've tried and we've done a pretty good job of keeping about 50% of our workforce inside America. We have 65 million overseas trapped, which should have been brought to America five and seven years ago so that we can grow in this country, et cetera, on it. But I think it goes back to the big companies of the world, keeping jobs here is important, but the real job engine of this country in the future will be all small to medium business getting bigger. And I'm cautiously optimistic big companies might add to that, but the average big company won't last more than 16 years. 40% of the Fortune 500 will probably be gone in 10 years. The transition you saw from Amazon Walmart, which took 21 years for Amazon to pass Walmart, the transition you saw literally in terms of what occurred with Tesla passing GM and market cap took 14 years, with Uber, a different business model, surpassing literally Tesla's value in seven years.

You know what that means. The next generation is going to surpass the incumbent in three and a half years. We have to design for that speed. It's something we should not have a fear of as a country, but we've got to think how you do education, how you make it easy to do business in this country as a small business. It is unbelievably hard, and I do think the administration's headed the right way on the regulations.

Right. I'd like to ask you about financial regulation in a minute, but before I do, can you get all the skills you need inside America?

What's interesting is you spoke about the number of jobs that Cisco has in the U.S. versus the rest of the world. And of our roughly 20 offices, just over half are outside the United States.

So about the same.

But what has made Citadel, and I'm sure it's true for Cisco, so successful is the number of really brilliant people that we have brought into the U.S. from abroad. A number of the most senior partners at Citadel, literally in the top five list, were not born in America, but they came to America as their home. They came here for their education, they put down roots here, and this became where they had their family and their careers. And they're incredibly driven and capable individuals. You spoke about Tesla. Elon Musk is from South Africa.

So are you worried about the increasing hardening of the language against non-Americans?

I'm terrified because our entire country is built...

Our entire country is built on the work ethic and ambition of immigrants.

Including the Brits. But if you use the number that parallels it, 40% of the Fortune 500 was founded by an immigrant or an immigrant's children. And if you watch why we are taking people with master's and advanced doctorate degrees and instead of stapling a green card to their diploma, we send them back home, this is insanity. I was in Washington last week, talked to the House leadership, both Republicans and Democrats, the Senate leadership, Republicans and Democrats, and the White House. This is something there's actually a consensus on, is we ought to find a way, especially for high-end immigration, to be able to make it happen. But where you're leading us, these can't be done in silos.

We've got to say the U.S. has the capability to be the innovation nation of the world. We've got to pull our country together toward those common goals and say, 'How do we do it at a much faster pace?' You've got to do education at the same time you do small business, at the same time you do major taxation changes, et cetera, and create this as the best place for immigrants to come because they're going to found a large part of our companies and generate jobs in America.

But, Ken, do you think business has spoken loudly enough to the President about the need to not take a hard line on immigration? Because in private, I hear numerous CEOs saying exactly what you're saying. This is madness to be essentially scaring off bright immigrants. And yet, the question in my mind is, in between all the applause for tax cuts, deregulation, is business willing to stand up and actually say, 'No, we need immigrants'?

So I think it's important, remember, this is a White House that has brought the business community into their four walls to listen. And one of the first meetings that Trump did was with the leaders of the technology space, who are by and large all diehard Democrats. But, 'Let's get together and let's talk about what we need to do to make sure that the tech space in America thrives.' And there is no doubt in that room he would hear the same commentary. There is no doubt everybody who runs a technology-led organization in the United States appreciates just how important both the skills that we have amongst our American population is, but of equal importance, the skills amongst the foreign populations are to the success of these businesses.

So I think he's got this message loud and clear.

You know what's interesting, Julian, one of the original topics was artificial intelligence and machine learning for this group. You are going to see as this new digital wave comes at us, probably at least a third of what everyone in this room does will be replaced by this type of technology. And it's so important to really train us to where we add more value as we move up the food chain. It becomes even more important because of the job displacement that could occur at the lower-income level—people making less than $20 an hour—might be even more dramatic. So, this is why retraining our workforce, thinking about how do we get a new generation of job creation going on, and tying all these various silos together toward an outcome.

And if you look at that machine learning know-how, Carnegie Mellon in the United States is clearly a leader. And we were talking about where to recruit this know-how. And I regret, I do not remember the name of the university in Chile. But Chile is actually a hotspot for machine learning know-how. And so we'll make sure we think about bringing that talent in from Chile to broaden our capabilities. This is what makes American companies great is their willingness to go around the world to source talent.

But one of the things, Ken, tell me if I may, that I think we have to address. This can't be a phenomena where you've only got four or five hot centers of innovation. and in East Coast and West Coast. It has to go across every country, every state. And I think if we do this with a program to say how we become the startup nation again, which we are no longer. We have more companies going out of business than we have new startups occurring. But it has the chance to go across in terms of new enterprises created every state. So a program to say, how do we do this on a scale? That was the one thing I found in Washington last week, that almost every single Democrat in the House and Senate, every single Republican in the House and Senate in the White House says, this is something we could come together on.

Let's become the start-up nation again and make it really inclusive, not just of all income levels, but inclusive of every geography, and then work backwards. What has to occur to make that happen? I'm a believer you write the press release before you make your first move on the chess game. I personally don't deviate from that.

You wouldn't tweet first?

I would probably say, 'Here's the press release.' Yes, I actually would. I'm pretty audacious in my predictions, including what Modi was going to do in India and that France would become a start-up nation.

Right. Financial deregulation. We heard from Secretary Mnuchin this morning suggesting that financial deregulation would come after tax reform, which may suggest it'll be quite a while. But what is a top priority for you in terms of financial deregulation?

Well, there's my fantasies and there's reality. So let's talk about reality for a few minutes. My fantasy is we'd actually break up the big banks. That would infuse more competition in our financial services landscape. And it's almost forgotten in our rhetoric of American business, what drives innovation and what drives creativity is competition. And any time a market becomes overly concentrated, you reduce the incentives for innovation and creativity that are driven by the need to win, stay in business. So first of all, big picture, I wish we would end too-big-to-fail within our banking system, but we're not. So let's talk about what we should do. We should reduce the amount of burdensome regulation on our large banks that has been created over the course of the last eight years.

One thing to keep in mind, though, is in contrast to Europe, 80% of all money borrowed by American companies is coming from our capital markets. In Europe it's the reverse, 80% of all the money in the European corporate system is coming from their banking system. We've done a great job, and really Michael Milken is one of the pioneers that made this happen, we've done a great job of democratizing how companies raise money. And in America we do it from our capital markets and it allows us to have a much smaller banking system. And I'm personally in favor of that smaller banking system and richer capital markets. It allows for a lower cost of capital and it takes the taxpayer out of the equation.

Anything that we can do to reduce the needless amount of compliance effort at the large banks is a win for American consumers. Whatever we can do to encourage new banks to be formed is a win for consumers. What we can do to create incentives for private equity firms to enter banking would be a win for consumers. Banking is one of the only industries where you cannot own, for all intents and purposes, more than 10% of a bank. And in a sense, you see what we get out of this. We have great innovation in our tech space and a lack of innovation in our financial services space. Who's missing? The venture capitalists. We have great increases in productivity in our consumer product companies, in our industrial companies.

Who's missing? The private equity firms. Banking is shielded from good governance by the Fed. Banking is shielded from innovation by the Fed. We need to get private equity and venture capital into our banking system so that we can really unleash innovation that will drive prosperity for consumers.

Right. Well, we're almost out of time, but I just want to quickly ask you before we close, when you look at this whole wave of deregulation, tax reforms, infrastructure, financial sector reforms, and try and put yourself on this platform in a year's time, what worries you most about the next year? What concerns you? What keeps you awake at night?

What if we slide back into a recession?

Because if we slide—and of course GDP is already slowing down, GDP growth, yes.

So Q1, there are issues with, I don't want to use the seasonal word, it's the most overused word by economists these days, but we've had several successive weak Q1s, followed by strong Q2s, Q3s. And there is a seasonal adjustment and it may be that we just don't have that right. Because this has been persisting for a couple of years. But the amount of both fiscal and monetary stimulus around the world employed post the financial crisis of '08 has reached almost a level of reckless irresponsibility, which means that we have far fewer tools available to us to address the next economic downturn.

So recession. John, you've got one minute left.

Mine's gone to the reverse. I think we have all the opportunities in front of us if we move on a united front in terms of how you can make this economy really great again, how you can grow at 4% GDP, how you can get the average mean household income growing at 10 to 25% over the next decade. My worry is that given the challenges in front of us, we will fall back into moving too slow, kicking the can down the track in terms of opportunities. Instead of being bold, write the press release what this looks like four years out, eight years out, and then move as one nation where we can on key opportunities. Ken's absolutely right. A recession in the middle of this before you get that going could be a real challenge for us, but I think it becomes all the more important that we say, 'What do we need to do to make this outcome happen?'

I'm optimistic we will.

The kick-the-can issues are real issues. They are, big time. I mean, Europe has lived that rhetoric for eight years running.

Yep, Europe takes kicking the can to an art form.

To an art form. And if we look at the rhetoric between the EU and England right now...

I think it's still called the United Kingdom, but yes. Just about.

It is insane. The last thing we need is a pan-European trade war on the back of England trying to unwind the United Kingdom, unwind its relationship with the EU.

I could not agree more.

Last thought: there is no entitlement. We should win, but let's not leave it to chance.

Right. Well, I'm told I have to wrap now. Hard to summarize; I'll simply say we started by noting that the stock market is very optimistic. I think you two are cautiously optimistic, but there's still a very long to-do list, and there is a lot of potential challenges ahead. So thank you both very much indeed, and now I'm handing over to the second half.

Thank you.