Transcriber: Lucy Khayut Reviewer: David DeRuwe
In about six minutes, I'm going to share an idea
that should dramatically shift the way you think about the world
and the reasons we have to change it.
But before we get there,
we're going to talk a little bit about watermelon.
And specifically about two brothers
who, frankly, were not the sharpest tools in the shed,
but even these guys could recognize an opportunity.
And one year there was a great crop of watermelon,
and they decided they were going to make a little bit of money.
So they went out and bought a load of melons for one dollar each,
put them into their pick-up truck,
and drove them a few counties over to the state fair,
where they sold them for one dollar each.
They did this the first day.
Then they went back and did it the second day.
They bought a load of melons for a dollar each,
put them in the truck,
went over to the fair and sold them for a dollar each.
And finally, by the third day,
even these guys were starting to recognize
that this just wasn't working out the way they'd anticipated.
(Laughter)
One of them turned to the other, and said,
"You know, I don't know what it is, but we're just not getting ahead."
And his brother thought for a long time.
Finally, he turned to him and said,
"You know, I've got it. We are going to need a bigger truck."
(Laughter)
I share this story
because, too often when we go out to change the world,
what we go looking for is a bigger truck,
when what we actually need is a better business model.
And that's what I'd like to talk with you about today.
A few years ago,
I was serving as a speechwriter for Hillary Clinton.
And one day she came to me, and she said,
"Tomicah, we've got some big challenges on this planet.
We are living in a world that is incredibly, incredibly complex,
and as a result, we spend a lot of time struggling and wrestling with complexity.
And it's also incredibly fragile.
And what we're seeing
is that the more complex it becomes, the more fragile it becomes,
and we need more people to help us manage those dynamics."
And at the State Department, we had a lot of practice
working with other governments to address this challenge.
But frankly, we had a lot less practice working with those outside of government:
leaders in civil society, social entrepreneurs,
humanitarian organizations
and others that were trying to take on these challenges every day.
Now by this point, I'd written about 200 speeches with Secretary Clinton,
and I hadn't slept in about two years.
So I thought this was, actually, a very intriguing set of questions.
She said, "Let's do the following: You set up a team on my staff,
and we're going to have you find the best ideas from around the world
for strengthening civil society, social entrepreneurs, new democracies.
And you're going to bring together the technology, the talent, the resources
and the partners we need to make those good ideas come to life."
I thought for about four seconds
and then I thought, "Yeah, that is really a great suggestion."
I was very enthusiastic about that.
And so we went to work and immediately began
trying to assist partners in countries all around the world
who were dealing with incredibly complicated challenges.
We visited nations where civil society organizations
were providing 75% of all healthcare that individuals consumed.
We saw that, in many cases,
armies of citizens were being mobilized
to address challenges of corruption, good governance and accountability,
in order to build a better relationship between citizens and the state.
We saw incredible work to address conflict
before it devolved into crises, in many different countries,
and incredible activities to address the challenges
of sustainability and opportunity
that are going to shape a huge component
of what our world looks like in the future.
This was, in many respects, the most important work in the world.
These individuals and organizations
were addressing the challenges that are at the very heart
of creating a world that is worth living in for all of us.
And yet we also recognized very quickly that they faced a huge challenge.
The most important work in the world
turned out to be incredibly under-resourced,
and in far too many cases,
individuals that were doing incredible things
and delivering extraordinary value for society
didn't have the resources they needed to carry out those activities effectively.
This, frankly, became even more depressing when we looked at it in the context
of what we, as the US government, were going to be able to provide.
Because we recognized,
looking back at the last 20 years of our funding in this area,
it's barely budged,
and it wasn't likely to increase dramatically any time soon.
Frankly, we needed some new solutions.
And one day I was giving a speech about this challenge
when, afterwards, somebody grabbed me as I was coming off the stage,
and he said, "I need to talk to you."
And I didn't know then, but I later found out
that he's a leading thinker in the finance community,
and he ran a firm that advised many of the world's largest asset holders:
pension funds, endowments and sovereign wealth funds.
Collectively, these groups had about 25 trillion dollars under management.
For those of you keeping track, that's substantially larger
than the gross domestic product of the United States.
And he said, "I figured something out that I know is very important,
but I'm not quite sure what to do with it, and I'm hoping you can help."
And we started looking at the firms that he advised,
and recognized that they had a couple of things in common.
The first was that they all were very, very long-term asset holders;
they had perspective that stretched out decades into the future.
And they needed to think about what the world was going to look like,
a long time from right now.
And the second thing they had in common is they were totally diversified.
They were in every region; they were in every sector.
And as a consequence of this,
when the world did well, they did really well,
and they made money.
And when the world did badly, they had a big problem on their hands.
They were, essentially, too big to hide from market volatility,
and this put them in a very unusual perspective.
We, because we were nerdishly inclined, started to put some numbers to this.
And what we found was pretty astounding.
There are about 60 seconds of math involved here.
If you stay with me I promise I will not use math again
for the rest of my talk.
If these big asset holders at a pension fund
invested a dollar at a steady rate of 8% over 50 years
and at the end of that period, they were going to get $46 back,
which was a great return.
But if they invested that same dollar
at an average rate of 8% with a 20% standard deviation,
which is what we would expect in real life.
Then, instead of getting $46 back at the end of that time period,
they're only going to get $18 back.
And the difference is due to the fact that compounded growth,
what Einstein called the eighth wonder of the world,
accrues far more rapidly in an environment where you've got stable returns,
than in an environment
in which the markets are dropping down and then, eventually, popping back up.
And needless causes of volatility in the world
were costing these big asset holders billions and billions
and billions of dollars every year.
We recognized that if we could support the individuals
who are working to manage the complexity and fragility
that was at the heart of so many of those volatility events,
we could, eventually, reduce the volatility
and in doing so, dramatically increase their returns.
And this was a big deal for a lot of reasons,
and we found we didn't have to dig very far
to find incredibly compelling examples of how this could work in practice.
If you think about some of the conflicts
that we're witnessing in the world right now,
you may say, "It doesn't affect me.
I'm isolated from that. I live in the United States."
But the reality is that even the disputes taking place thousands of miles away
turn out to have a really profound impact on a lot of our companies.
The war in Ukraine, for example,
has led to huge losses for the American poultry industry,
as a result of Russian sanctions
that were imposed after the outbreak of that crisis.
We've seen other examples around infectious diseases.
You'll recall that in the aftermath of the Ebola outbreak,
one of the first financial casualties
was the stock prices of airlines around the world that plummeted
when no one was sure whether people would be willing to continue their travel.
We've seen incidents of political instability
and the breakdown of relationships between citizens and governments
destroy supply chains and disrupt markets.
And, we've also witnessed how corruption,
based on recent data,
is costing all of us about a trillion dollars a year.
In the last two years alone,
big companies in the United States have paid over 2 billion dollars in fines
because they were caught engaging in corrupt behavior.
So we've seen very immediate and very direct consequences
as a result from the failure to invest in this activity,
the most important work in the world.
But we've also seen, frankly, a much more sobering story
when you go out even further into history.
If you look at the experience of the 20th century,
we, as Americans, over the long run,
think that our investments are always going to increase in value
because that's how things have more or less worked in our country.
But in an interconnected world, we need to be pretty cautious.
If you look back at the experience in places
like China and Russia and Germany over the last 100 years,
there were cases in which the value of assets
in those countries fell effectively to zero.
And in every instance, it was preceded
by a collapse of individuals doing the work of civil society,
individuals doing the most important work in the world.
And for those of us who care about the future of an independent world,
that needs to make us think, and we should be very wary about that,
what that entails.
Frankly, it's not just that we've seen the costs of getting this wrong,
we've also seen the benefits of getting it right.
South Korea after the Korean War -
the institutions, the infrastructure and the architecture
of that country had completely collapsed.
They were in an incredibly desperate state.
Over the next three decades,
the United States invested about 30 billion dollars
in rebuilding every aspect of that nation.
Today South Korea has a trillion-dollar GDP,
and the financial markets in that country are worth almost as much.
We, in the United States,
now export 40 billion dollars of goods each year to that market.
If you invested in South Korea at the end of the Korean War,
you have done spectacularly well.
And there's no reason why we can't replicate that story
in country after country around the world.
We've also seen this phenomenon play out in other contexts.
And I'll share a quick story from Colorado where I grew up.
It used to be that if you wanted to get from the low ground to the high ground,
that meant hiring a mule train
and embarking on a journey that was incredibly dangerous,
incredibly difficult and would take you days and days and days.
Eventually, somebody was smart enough to figure out
that we could change the landscape.
With strategic investments, we could make a different path.
We didn't have to accept the road as we found it,
and in doing so, we could take a journey that had been incredibly arduous,
and reduce it in time and difficulty
to something that you could complete before breakfast.
We've seen the private sector make tremendous progress in this area,
and frankly, when it comes to manufacturing widgets,
it's never been easier to gain access to capital around the world.
When it comes to manufacturing change, it's still very tough,
and that's a problem we're recognizing we can finally solve.
We can do that
because it's not only good karma, but it's good business.
So a few months ago, I left the State Department
and went to work in an organization called "New America,"
which is chaired by Eric Schmidt, the head of Google,
and dedicated to finding big disruptive ideas
that can make our world better.
And we started working with an extraordinary coalition
that includes everyone
from the White House and the World Bank to Bono and the One campaign
to many of the country's largest financial institutions.
And we're uniting all of those actors around a very simple commitment
that we called "The Progress Pledge."
It has three pieces.
The first, the big asset holders should put 1% of their holdings
into social impact investments, the work of civil society and development.
Second, that they should focus those investments in countries
that agree to basic standards of governance and human rights
to create incentives for countries to do the right thing.
And finally, that we should all push for reforms
that will incentivize investments in this area.
Right now, for most asset holders,
it doesn't make any difference whether they are investing in a pool hall
or trying to bring clean energy to West Africa.
The returns and the structures are exactly the same.
We need to make this easier
if we want resources to flow to these areas.
If we do that, we are going to have an incredible opportunity.
And we are working with a world-class assortment of partners, right now,
to build out the analytics, the advocacy efforts
and the financial tools needed to make this work successful.
And we're also cooperating with partners in Silicon Valley
to ensure that investments that are made through this mechanism are transparent,
and that there's accountability.
In a few days I'll be sitting down
with the Secretary General of the United Nations
and the president of the World Bank
at the World Bank's spring meetings
to make this case to many of the biggest companies in the world.
And over the next year, we'll be holding a series of international conferences
that are designed to build out the architecture around this initiative.
Finally, next year we'll come together at a place called Bretton Woods,
where leaders met 70 years ago to address the biggest challenges and imbalances
that were then afflicting the world's economy.
And we're going to have a conversation that we're calling Bretton Woods II.
This time, instead of turning to a bunch of representatives from government,
mostly old men, who applied liberally with bourbon and tobacco,
we're going to be bringing together
leaders in civil society and the private sector
to help address the challenges that we are facing in the world today.
And our goal is to mobilize 250 billion dollars
from the world's largest asset holders
to address the critical challenges of civil societies,
support development and impact investments
that have the potential to make the world not just more bountiful
and a more pleasant place for all us to live in,
but also to make these guys a whole lot of money.
This is the right thing to do, but it's also the smart thing to do.
And the fact that we can justify this on the financial merits
has the potential to create a new business model
for the way that these large asset holders operate.
Years ago, when I used to go to classes a few blocks away,
I attended lectures with a guy named Robert Shiller,
long before he had his Nobel Prize.
And Robert Shiller had said something pretty important,
which is that, ultimately, finance is a technology for managing risk,
and, of course, he's absolutely right about that,
but with a little creativity,
we can also transform it into a technology for reducing risk
and a technology for creating the world
in which all of us will have a much brighter future.
This is an effort that's going to involve
some of the largest institutions on the planet,
but it also needs to involve all of you.
If this is going to be effective, it needs to be a movement,
and not something that's only discussed
in the halls of Washington or Geneva or New York.
Ultimately, we need citizens who attend universities
to lobby their endowments to diversify using these principles.
And if you're planning on retiring someday,
make sure that the people who are investing your money
know that you care about creating an environment
in which your assets are going to thrive and prosper.
I want to conclude where I began, with our discussion of the watermelon.
This is a moment in which the world doesn't just need a bigger truck,
we need a better business model.
And I firmly believe that by pursuing the work of Bretton Woods II
and the Progress Pledge,
we're not only going to advance an agenda,
we're going to be purchasing stock in the future of humankind.
And that's one investment opportunity that none of us can afford to pass up.
Thank you.
(Applause)