Craig Barrett Speach

EMPIRE ENTERTAINMENT
CRAIG BARRETT'S SPEECH FROM THE EXECUTIVE COUNCIL OF NEW YORK TEN AWARDS
GOTHAM HALL 10/2/03
PRODUCER: NOT IDENTIFIED

GOTHAM HALL 10/2/03

(APPLAUSE)
CRAIG BARRETT:

Well, good evening ladies and gentlemen. It's really a pleasure to be here, and I want to compliment the Executive Council of New York, and Microsoft and all the other sponsors for this-- awards ceremony for innovation. I can't think of a more appropriate thing for anyone in the United States to do.

You know, coming here from-- my home-- at least three days a week in Silicon Valley, where the only growth industry in gubernatorial candidates (LAUGHTER) it's really a pleasure to see a state which can organize itself to celebrate innovation, which is perhaps one of the most critical things facing the U.S. economy going forward. And what I wanted to do tonight-- as-- setting the stage before the award winners make their appearances is basically just talk about the importance of innovation in the United States. And really, why it is extremely critical to our future. And I thought I might do that by kind of doing a fast-forward through the last 20 years or so of international competition that the U.S. has had-- on the international scale. And what we have done to try to combat that, and how we have maintained in the high-tech arena, of which I'm most familiar, a very competitive posture.

If you really look-- say back about 20 years ago to the early 1980, it was a very critical period in high-techs time, because it was-- strong competitive threat from Japan. And if you went back to that time frame, and looked at most of the learned academicians around the U.S., those folks from Harvard Business School, who have the ability to forecast just about anything, they basically said manufacturing in the United States is dead. Japan knows how to do it. Japan will do the manufacturing for the world. There's no sense even trying. Run and hide and see what other thing you can do to get out of the manufacturing industry.

And that was a threat from Japan, a country about half the size of the United States, a country with about the same standard of living of the United States, same wage rates. And I think the United States responded relatively well to that threat. The semiconductor industry, which was under attack at that time is still centered-- the majority of it is here in the United States. Computer industry, which was under threat at that time, is still centered here in the United States, both from a hardware and a software standpoint. High tech leadership, I think, around the world is still centered here in the United States.

So, we-- we were able to beat back that threat, just because the United States is a very flexible-- social and economic structure. It-- can-- rapidly move resources, rapidly move capital from areas of low return to areas of high return. It can rapidly restructure the corporate environment to be competitive.

And we did a great job, I think, competing with the Japanese at that time. Ostensibly, the competition at that time was for jobs. It was for architectural leadership. I think it was-- perhaps not noticed that-- neither country really won the manufacturing jobs war. (SIREN) The jobs went to places like Taiwan. The jobs went to places like Mexico. Lower-- lower cost manufacturing sites.

And when you went into the 1990's, in fact, architectural leadership still stayed in the United States, but manufacturing as a proportion of the U.S. workforce had declined significantly. It didn't decline in Japan, because Japan made it an attempt to hold on to that from a protectionist standpoint. And in fact, in the early 1990's, perhaps partly because of this, entered into a decade of stagnation, if you will, or deflation, when in fact their workforce was no longer competitive, their wage rates we're competitive, and their products weren't competitive to give their companies a decent return on investment.

If you fast-forward from that interesting time, when the U.S. was under challenge to today, I-- I think you see a very, very different period that's facing us. And it's a period why innovation-- the awards we're having tonight, are so important. In-- in looking for a-- an idea, or a theme to express what's different or what we should be worried about today, I-- I have to-- recognize I'm here in New York, and I have to then return to the-- the most famous philosopher from New York, Yogi Berra (LAUGHTER) who said, quote, "The future ain't what it used to be."

And Yogi was absolutely correct. The future ain't what it used to be. It used to be competition with Japan, and maybe competition with Germany. Countries of-- smaller population than the U.S., roughly equivalent wage rates. The future is far from that. And if you look at wasn't happened in the last few years, there are some pretty dramatic events that have occurred.

We've had a few countries enter the world's economic structure who were not there before. Countries like Russia and the other four Soviet Union countries. Countries like China. Countries like India. Those three countries that I've mentioned, have a combined population of two and a half billion people. If you want to get an idea of what two and a half billion people can do to the world's economic infrastructure, and those countries have relatively rich educational heritages-- China graduates about four times the number of engineers the United States, India graduates way more IT professionals than the United States. Russia has a strong educational heritage, and there's an immense number of Ph.D.s in the sciences and engineering in Russia.

If you want an idea of what two and a half billion people can do, you can look around the world and see what countries like Taiwan and South Korea have accomplished in the last decade or so. Taiwan now produces about half, or over half, of all the computer components that are consumed around the world today. They've had a major, major impact on the high tech industry. They have a population less than 25 million people. Less than one percent of that two and a half billion.

South Korea has a population less than 50 million people. South Korea has had immense impact in the electronics and consumer electronics field. So, I'd look at this challenge that we're facing today as a country and I-- I look at these billions of people who have entered the workforce. And these billions of people not only have rich educational backgrounds, and-- by the way, you can discount 90 percent of them as uneducated farmers. That still leaves 250 million, which is larger than the entire U.S. workforce. They have a rich educational heritage, and they work for about 20 percent of what we work for.

So, the challenge today is exactly as Yogi Berra stated. The future ain't what it used to be. And then, you ask yourself, well, okay, what can we do to compete now? We're able to compete with Japan, even up, get our manufacturing, ship and order, maintain architectural leadership, maintain the-- position as the preeminent economic project in the world. What do we do now when these two and a half billion people want to come and take every job that we have in the United States and move it into their national sovereignty?

Well, I think there are three thing-- or four things the U.S. can do. One is clearly innovation. The sort of thing we're honoring tonight. And innovation comes from the government and industry setting an environment to make innovation possibility. And what I'd like to do is just briefly list these four things, and then kind of give you a report card on where they are, and suggest that you perhaps think about this, and write your Congressman, or your Governor, or your President. Your choice.

One is clearly education. The national standard of living in any country is directly proportional to the average education level of the citizens of that country. The U.S. has the best university system in the world, and the best post-graduate system in the world, and it has one of the worst K-12 education systems in the world.

And if I conclude that the average standard of living in the United States will be related to the average education level in the United States, and because a whole lot of people in the United States don't go to college, then I have to worry about the K-12 education system, which-- does not compare well to any of its international counterparts, we have a major job in fact in upgrading the K-12 education system to be competitive going forward.

The second is the area that the federal government can do an immense amount of good in. And that is in fact the federal government is the source for research and development dollars. Basic research and development dollars in every area of industry in the United States. Whether it's the medical sciences, the physical sciences, you pick it.

And basic research and development does two things, really. It creates ideas, which can be turned into products, into services, into companies, into industries. Companies such as Intel, was really founded on basic research done in universities. Many other companies have the same heritage. So, R&D dollars from the federal government are extremely important.

So, I sit back and I look at what the federal government is doing in the way of subsidizing research or providing research funds, or subsidizing industries of the future. And I immediately pick out the three industries which-- the United States from a policy standpoint makes its major effort today. Agriculture, steel, and soft lumber. Clearly, industries of the 21st century. (LAUGHTER) Something like $40 billion spent on agriculture subsidies. And you know all know the story on steel tariffs. You know the story on tariffs on Canadian lumber coming into the country.

And I have to ask myself why does the United States subsidize three industries of the 19th century and no industries of the 21st century? (APPLAUSE) I haven't figured out the answer yet. But it is clearly-- if we have to argue like heck to get another hundred or 200, or $300 million into the National Science Foundation to support science research in our major universities while we spend $40 billion in agricultural subsidies, something is wrong. (APPLAUSE)

Third area that the government can do something about is infrastructure. And infrastructure comes in a variety of formats. Obviously, educational infrastructure is one. But there's physical infrastructure as well. And physical infrastructure is such things as broadband infrastructure happened to be an interesting topic at our table tonight. But when the U.S. ranks near the bottom of the top ten of companies with broadband infrastructure in the world, seriously-- trailing countries like Korea and others, you have to wonder what's going on.

That infrastructure-- that capability of small and medium sized business, big business, and individuals, to be as productive as they can is incredibly important. This is not an issue just obviously for the government, it's an issue for any company. If you expect your employees to compete with people who command a salary of only 20 percent of your U.S. employees, then they better be roughly five times as productive to meet the cost of capital or cost of-- invested capital that you're putting in them.

Then, in fact, you have to provide them the infrastructure to be more productive than anywhere else in the world. So, that's partially a federal issue, that's partially an individual company issue. But infrastructure is something terribly important. So, you have education, you have R&D, which is really the seed core of new ideas, new products, new companies, and infrastructure to help make it all happen.

The fourth and last thing the federal government, or any government can do, is do no harm. (LAUGHTER) Probably some of you can think of instances where government policies do harm. If you can't, go to California and listen to the debate. (LAUGHTER) Let me give you one exactly. Stock options. Stock options have been a primary entrepreneurial driving force for the creation of businesses, the creation of wealth in the United States, a vehicle to transfer success of a company to the employees who create that success. A vehicle by which both the shareholder and the employee benefit.

At the same time that FASB (PH) in the United States, and the SEC are promoting the effective elimination of broad based stock option programs, one of the things that has helped make the United States the most competitive country in the world in the high tech arena, the same time, we're legislating those broad based stock option plans out of existence, I happen to pick up the tenth five year plan of the People's Republic of China. How many of you have read that? (LAUGHTER)

If you go to the IT section, by golly, it says right there, personnel policies and how to compete with the West. How to attract the smartest individuals, how to re-- keep them committed to the company, and how to let them in on the success of the company. Give them stock options. I'm trying to figure out how the communists in China have decided this is a good idea when we've decided it's a bad idea. (APPLAUSE)

We still have a chance to fight this one in the House and in the Senate. There are bills in both which will slow FASB and the SEC down, and I hope you will join me in supporting those Congressmen and Senators who are brave enough to get in the way of that machine.

I-- I've painted a-- a threat to us in these areas, a competitive threat. And I think there is a real threat. I am still-- confident and comfortable that the United States can respond to that threat. Nothing happens rapidly in this area of economic instances. There-- there are signposts of what will happen if you don't respond to this threat. And those signposts show a relatively slow decay of economic-- capability of economic strength. All you have to do is look at a bit of Western Europe.

If you look in France and Germany, those are two countries which have put-- social programs and protectionism ahead of international competitiveness. They both suffer from dou-- double-digit unemployment. They both suffer from staggering economies. They both though, are still relatively robust economies. They are not decaying rapidly, but relatively slowly.

My concern is in the United States that we need to respond more rapidly than those countries. We can see where their policies are leading, and if we are to follow their policies, we can be assured of-- going down the same path. So, I would suggest we look in their directions for what not to do. Equivalently, coming from a company which is centered in Silicon Valley, I would also point to California as a locale of what not to do in terms of a negative business environment.

In fact, I have to tell you in all truthfulness, it was beyond my wildest imagination that I would ever consider New York to be a more vibrant economic infrastructure in the United States (APPLAUSE) than California. But all of this leads back us-- back to the reason you're here tonight, and that is to honor innovation. Innovation is what is at the foundation of the U.S. economy. Just to give you a simple example of-- my company, and what innovation means to us, if you look at our revenue in January of any year, and then look at the revenue in December of that year, about 90 percent of December revenue comes from products which were not there in January.

That sort of innovation which is a total turnover of our revenue every year is indicative of what innovation means to us. You miss a cycle of innovation, your revenue disappears. And that's what the people you're honoring tonight are all about. It's creating that innovation. It's taking that research and development, those ideas, exciting employees, bringing something to the marketplace that the consumer wants. That's what makes the United States economy great. That's what we need more of, and that's why we're honoring these people tonight.

And I want to encourage us all to work with the government, local government, state government, national government, to make sure that those foundation principles, those four key things, education, research and development, infrastructure, and get out of the way of good ideas, persist in the United States. That's what we need.

Let me conclude with-- with a quote that I think is a little bit different than Yogi Berra's quote, but perhaps pertinent for tonight as well. Bob Noise (PH), who passed away in 1990-- Bill was one of the founders of Intel, and before Intel, also founded Fairchild Semiconductor Company, and is also the co-inventor of the integrated circuit, is famous within Intel for one of his quotes. And it's basically this: don't be encumbered by history. Go off and do something wonderful.

That's exactly what your award winners have done tonight. They haven't been encumbered by the past, but they've been creative, they've been dedicated, and they've gone off and done something wonderful. And I think it's appropriate that you're all here tonight to reward them for that. Thank you. (APPLAUSE)

Wow. That was great. Let's hear it for Craig Barrett, of Intel Corporation.