Toward a More Prosperous Future

Montgomery Technology Conference Santa Monica March 7, 2013

Michael Milken
Chairman, The Milken Institute

Towards a More Prosperous Future

Perception vs. Reality
Things That Will Change the World Bioscience: An Economic Stimulus

What is the most valuable real estate in the world?

1. New York 2. Moscow 3. London 4. Dubai 5. Beverly Hills 6. Tokyo

What is the most valuable real estate in the world?

Blockbuster vs. Netflix - 2002

Market Value

40 Netflix = 1 Blockbuster

Blockbuster
$4.5 billion

Netflix
$0.16 billion

Blockbuster vs. Netflix - 2013

Market Value

Netflix
$10 billion

Blockbuster $0
Date: 3/7/13

Advancing Technology
Cost

Speed
Storage Access

Cost of a 1-Minute Phone Call from the U.S. to India

1975 $10 2013 $.01 Telecommunications cost to business approaches zero.

Download speed
Ten years ago, a T1 line could download 1.2 megabits per second.
Today, a 4G device can download 6.4 megabits per second. and much faster speeds are coming soon.
Source: PC World

IBM System 370/168 in 1976

8 megabytes for $8 million

Cost per megabyte: $1 million

Apple iPad Mini

(announced this week!)

64 gigabytes for $529 Cost per megabyte: $0.008

By 2014, there will be more mobile phones 7.3 billion than people on the planet.

Source: Silicon India 2/28/13

Where U.S. Immigrants Were Born 1960

Latin Asia 5% America 9% Other 1%

2011
Other 4% Canada 2%

Canada 10%
Europe 75%

Asia 28% Latin America 53%

Americas Changing Faces

Annual Population Growth Rate (2001-2011)

Asians 3.1%
Source: U.S. Census Bureau

Blacks 1.1%

Hispanics 3.5%

European 0.2%

Californias Changing Faces

Population 2011

Blacks 2.5 million

Source: U.S. Census

Asians 4.7 million

Hispanics 13.7 million

European 15.4 million

Californias Changing Faces

Population Growth (2000 - 2011)

Blacks 2.9%
Source: U.S. Census Bureau

Asians 21.8%

Latinos 23.8%

European (4.0%)

Top Ten Home-Buyer Surnames

California

1990
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Smith Lee Johnson Garcia Brown Williams Miller Wong Martinez Jones

2010
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Nguyen Lee Garcia Chen Lopez Rodriguez Gonzalez Hernandez Martinez Kim

Source: MDA DataQuick, county records / California Association of Realtors

Towards a More Prosperous Future

Perception vs. Reality
Things That Will Change the World Bioscience: An Economic Stimulus

Things That Will Change the World

The Rising Global Middle Class

Percentage of Population in Asias Middle Class

Malaysia China Thailand Indonesia Philippines India
0% 10% 20% 30% 40% 50% 60% 70%
Sources: Euromonitor; World Bank; CLSA Asia-Pacific Markets / 2010

2014 2009

Indias Developing Middle Class

Percent of Total Population by Age
100% 80% 60% 40% 20% 2000
Source: Eurostat (EU27 projections)

5%

14% 31% 46%

Wealthy Middle Class

Aspiring Middle Class Impoverished

2008 2020 2030

Global Middle-Class Consumer Spending

2009
EU 30% Rest of World 26% Other Asia 9% EU 14%

2030
U.S. 7%
Japan 4%

Rest of World 20%

Other Asia 14%

India 2% U.S. 21% Japan 8% China 4%

China 18% India 23%

The Worlds Economic Clout Moves East

Leading Cities Ranked by GDP More than 20 of the worlds Top 50 cities will be located in Asia by 2025, up from 8 in 2007.

More than half of Europes Top 50 cities will drop off the list, as will three in North America. Shanghai and Beijing will outrank Los Angeles and London Mumbai and Doha will surpass Munich and Denver.
Source: McKinsey Global Institute (March 2011)

Things That Will Change the World

Social and Human Capital

P=SFti*(SHCi+SSCi+SRAi)
P Ft HC SC RA = = = = = Prosperity Financial Technology Human Capital Social Capital Real Assets

Examples of Social Capital

Universal suffrage Universal education and health care Police and fire protection Religious freedom Cultural resources Property rights Protection of creditors Financial reporting standards

60% of the nearly 1 million Chinese people with assets over 10 million yuan ($1.6 million) are thinking about emigrating to the U.S. or Europe.

Source: U.S. Department of Homeland Security (WSJ 2/22/12 Plan B for Chinas Wealthy: Moving to the U.S./Europe)

Human capital is the largest asset class.

The 21st century will see a worldwide competition

for human capital.

Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's about the people you have [and] how you're led.
-Steve Jobs

Apple vs. Sony 1997

Market Value
21 Apple = 1 Sony

Sony
$34.3 billion

Apple
$1.65 billion

Apple vs. Sony 2013

Market Value

Apple
$403 billion

27 Sony = 1 Apple

Sony
$15 billion
Date: 3/7/13

Three Ways for a Country to Build Human Capital

Increase education and practical skills Import people with skills Improve health and quality of life so people are more productive

Between 1870 and 1950, Americans added almost one year of education each decade. By 1960, the highest average grade level in the U.S. exceeded every other nation by two years. Since 1960, we have made no progress and several other nations have surpassed us.
Source: Claudia Goldin and Lawrence Katz / The Race between Education and Technology

I believe we can keep the promise of our founding, the idea that if youre willing to work hard you can make it here in America, if youre willing to try. - Reelection Night
Source: New York Times 11/7/12

Skilled and Unskilled Jobs

1950 Today
65%
Skilled
20% Semiskilled

60%
Unskilled

20% Skilled

15%
Unskilled

20% Semiskilled

The Jobs Problem (It Isnt Jobs Its Trained Workers)

Millions

125 100 75 50 25

123,000,000 highskilled jobs will be available in 2020 50,000,000 Americans will qualify for those jobs

Source: Edward Gordon, Winning the Global Talent Showdown

Consumer Spending U.S. Asia

Housing Transportation Food Insurance/pensions Healthcare Entertainment Apparel and services Supplemental Education 33% 18% 13% 11% 6% 5% 4% 2% Food 23% Supplemental Education 15% Housing 10% Clothing 8% Other 8% Transportation 6% Healthcare 5% Communication 5%
Source: U.S. Bureau of Labor Statistics/CLSA

Big gaps in educational attainment are present by age 5. Some children are bathed in an atmosphere that promotes human capital development, and, increasingly, more are not. By 5, it is possible to predict with depressing accuracy, who will complete high school and who wont.
Source: New York Times July 29, 2008

James Heckman

Nobel Prize in Economics

Knowledge Universe
U.S. - Domestic International

Early Childhood Education

Dependent Care Services

Life Long Learning

Things That Will Change the World

Access to Financial Capital

P=SFti*(SHCi+SSCi+SRAi)
P Ft HC SC RA = = = = = Prosperity Financial Technology Human Capital Social Capital Real Assets

Financial Technologies
Collateralized loan obligations

Collateralized bond obligations

Securitized mortgages

Securitized credit cards

Derivatives

America Goes to Work

U.S. and Fortune 500 Employment
200 180 160 140 120 New financial technologies are fully implemented
U.S. = +62 million jobs

100
80 60 Modern capital markets begin 75 80
Fortune 500 = minus 4 million

70

85

90

95

00

Index 1970 = 100

Ted Turner

Craig McCaw

John Malone

Reg Lewis

Bill McGowan

Steve Wynn

Institutional Investor Base for Non-investment Grade Loans

Banks CLOs
Hedge, distressed and high-yield funds Prime rate funds, financial and insurance companies

Sources: S&P LCD / JPMorgan.

Chinese small businesses create jobs; Large enterprises get the bank loans
Large Enterprises
88% 44% 35%

Mid-size enterprises Small Enterprises

17%
Number of Enterprises
Sources: McKinsey

Number Employed

GDP

Bank Loans

Things That Will Change the World

Energy

President Jimmy Carter on the energy crisis and proposed energy legislation
This difficult effort will be the moral equivalent of war -- except that we will be uniting our efforts to build and not destroy.

Defending the Persian Gulf from 1976 to 2012 cost America more than $8 trillion.
Aircraft carriers
War on terrorism

Foreign aid
Intelligence operations

Wars in Iraq/Afghanistan
Maintain troops overseas

Oil price volatility

Homeland security

Source: Stern, R.J., United States cost of military force projection in the Persian Gulf, 1976 2007. Energy Policy (2010), doi:10.1016/j.enpol.2010.01.013

Technology Game Changer

Traditional Drilling
Modern Techniques

Spindletop (Beaumont, TX), 1901 Drilling Depth: 1,139 feet

Marcellus Shale (Pennsylvania), 2012 Drilling Depth: 9,000 feet

Major Shale Basins Around the World

Source: U.S Energy Information Administration.

Technology Game Changer

U.S. now has the largest energy reserves in the world
Total fossil fuel reserves, % of world total
17.016.6

8.3 5.7 5.5 5.4 4.0 3.7 3.2 2.9 2.4 2.4 2.3

1.2 0.9 0.8 0.7 0.7 0.7

Note: Fossil fuels include oil, natural gas and coal. Source: U.S. Congressional Budget Office

FORTUNE explored these energy solutions

Expanded Natural gas

Hydropower

Geothermal

Oil Shale

Biomass and Ethanol

Tidal wave power

 back in 1938

Expanded natural gas

Hydropower

Volcanic (Geothermal)

Oil shale
Source: Fortune Magazine, 1938.

Biomass and Ethanol

Ocean and Tidal power

They even had a natural gas plan in 1938.

Divert compressed natural gas from power plants to vehicles.

Source: Fortune Magazine, 1938.

Things That Will Change the World

Crowdsourcing

Improve Healthcare - Win $3,000,000

Challenge: Develop a breakthrough algorithm that uses patient data to predict and prevent hospitalizations
Winning Solution: Create an algorithm that predicts how many days a patient will spend in a hospital in one year Prizes: One $3 million Grand Prize and six Milestone Prizes totaling $230,000

www.heritagehealthprize.com

Improve Healthcare - Win US$3,000,000

1,385 teams 23,443 entries 1,651 participants from 39 countries U.S. (56%); AUS (7%); Germany (5%) Bulgaria, Brazil, Portugal Poland, Bahrain
www.heritagehealthprize.com

Improve Healthcare - Win US$3,000,000

Only 1:10 teams have a healthcare background Dutch econometrician and a Colorado IT consultant Florida hedge fund trader and an IBM consultant in Australia
www.heritagehealthprize.com

Crisis: Deepwater Horizon Oil Spill

April 20, 2010

Crisis: Deepwater Horizon Oil Spill

Oil flowed unabated 53,000 gallons a day into the Gulf of Mexico for three months

Up to 180,000-square kilometer area

Time needed to cap the well: 5 months Average daily oil collection rate: 2000 barrels per day

$1.4 million prize

The Challenge: create an innovative solution to speed the

pace of cleaning up seawater surface oil resulting from spillage from ocean platforms, tankers, and other sources.

The Winners: Two teams recovered oil at more than 2,500gallons-per-minute with a 70% efficiency rate. The first-place winner recovered oil 3X faster than the industrys best cleanup rate.

Among the Top 10 finalists

5 teams from the U.S.
2 teams from Norway 2 teams from Finland 1 from the Netherlands 7 teams exceeded the previous industry-best recovery rate 7 teams exceeded a 70% efficiency

Team Vor-Tek: A Top 10 Finalist Fred Giovannitti

Towards a More Prosperous Future

Perception vs. Reality
Things That Will Change the World Bioscience: An Economic Stimulus

The Value of Health

Each life is priceless
but in economic terms, over the past two centuries, as much as 50% of all economic

growth can be traced to advances in health.

Worldwide Life Expectancy

Four million years produced an 11-year increase from 20 to 31. 112 years produced a 37year increase.
68
Nations Development Program

31 1900 2012

James Carey: Longevity

Worldwide Life Expectancy

112 years produced a 37year increase.
68

80+

31 1900 2012

In some developed nations, it exceeds 80 ... despite wars and epidemics.

United Nations Developm

Life Expectancy in East Asia

80

75.4

60

46.5
40 1955-1960 2011

Source: : United Nations, Department of Economic and Social Affairs, Population Division (2011). World Population Prospects: The 2010 Revision, CD-ROM Edition

Lifestyle Makes a Difference

70% of health-care spending about $2.5 trillion is spent on lifestyle-related diseases. 30% is spent on hereditary diseases.

U.S. Economy $15.3 trillion

Sources: CIA Handbook / Centers for Medicare and Medicaid Services (2009)

The March - 1998

National Institutes of Health Budget

$US billions
$30 $25 $20 $15 $10 $5
98 99 00 01 02 03 04 05 06 07 08 09 10 11

$200 billion

Source: National Institutes of Health

Outlook for Biomedical Research Spending (2012)

20% China India
Brazil Korea Japan

10%

Germany Australia UK

0%

Singapore
France

-10%
Source: OECD Government Budget Appropriations or Outlays for Research and Development (2012)

US

Canada

An organization dedicated to shortening the time to find cures and better treatments for all life-threatening diseases

In theory, 300 mph

In practice, same speed as 100 years ago.

19th/20th-Century Tracks 19th/20th-Century Thinking

Demonstrate returns on bioscience investment

Honor achievements in scientific research Illustrate the potential for future advances Recommit to funding medical research on a national and international basis

Elizabeth and Ariel Glaser

November 7, 1991

The Berlin Patient

Timothy Brown First person cured of AIDS Recent research reports that bone marrow transplant resulted in a new immune system

Baby Cured of HIV for the First Time

- WSJ 3/4/13

Treated with an aggressive regimen of drugs just after her birth 2 years ago We cant detect virus activity.

Deborah Persaud
Pediatrician/AIDS researcher Johns Hopkins University

We are entering an

Age of Precision Medicine.

Sequencing the Human Genome

2003: 13 years $3 billion
Today: A few hours Approaching $1,000

Pathway to Treatment

The Next Challenge: Alzheimers Disease and diseases related to aging

Create a legacy that relegates cancer and other life-threatening diseases to our childrens history books.

Milken Institute Global Conference 2012

www.milkeninstitute.org

Milken Institute Global Conference 2013

April 28 May 1, 2013

www.milkeninstitute.org

Tony Blair

Bill Gates

Milken Institute Global Conference 2013

Finance Industries Regions Education Philanthropy Health Climate/Energy Government Media

April 28 May 1, 2013

www.milkeninstitute.org

Toward a More Prosperous Future

Montgomery Technology Conference Santa Monica March 7, 2013

Michael Milken
Chairman, The Milken Institute