Bill Gates on Fareed Zakaria - Innovation

ZAKARIA: Bill Gates, thank you for joining me. 

BILL GATES, CHAIRMAN, MICROSOFT: It's great to be here.

ZAKARIA: Let's talk about innovation. There are many areas where it seems as though the U.S. advantage in innovation historically is slipping. Do you worry about that? 

GATES: Well, it's a great thing if the whole world gets more involved in innovation. Our portion of the world's innovation is going to go down. Now, we should minimize that, but that's partly because the rest of the world wasn't that engaged in innovation. You know, China didn't have many research universities. Now they are trying to enter into that. 

IIT in India was more about training good engineers and less about doing research. Now they're trying to change that. It's an amazing, fantastic thing. My foundation looks around the world for vaccines and we love the fact that now it's not just Europe and the U.S., it's also India and China. Some of the lower cost approaches are being pioneered there. So the world should want innovation to be more equally balanced. Most people don't get up and think what share does my country have of something.

ZAKARIA: But when you look forward, this is -- we're going into a world where the cheap commodity labor is going to be done by very low wage countries, India, China and many others, Vietnam, Bangladesh, so the only path for the American economy, I imagine you would agree, is a value-added path that involves knowledge and innovation and expertise, making complicated stuff, engaging in knowledge creation and knowledge application. So in that context, you know, if our lead in innovation becomes smaller and smaller, isn't it a problem for the American economy?

GATES: Well, let's say overnight everybody in the world was equally rich as the U.S. so everybody was like the U.S. and we'd be 5 percent of the world's population, we'd be 5 percent of the world's innovation, 5 percent of its energy use, 5 percent of its food use. 

The total amount of innovation in the world would be dramatically higher, so we'd get Parkinson's drugs, cancer drugs, new technologies faster. Now it turns out the world doesn't have enough resources in terms of energy and materials and things like that, so we've got to be a lot more efficient before we can have that world. But it's not -- the game is not a relative game because it's not a zero sum game. When somebody invents a new drug in China, it is not bad for the United States. The fact that the Japanese showed us how to make high- quality cars when it took us awhile to learn that, that was a wonderful thing for everybody. And so you want more people participating. It does change the political balance, but that's going to be decades, decades from now. 

You know, the Chinese economy doesn't match ours in per capita even if they keep up their amazing streak until close to 2050. So we have many decades to get used to the fact that our relative position is not going to be as unique in some things and yet the world will be richer. It is an amazing system and people are copying the good parts of it. But they won't get there overnight. 

Great cars, great medicines, those are essentially global problems and we are getting more smart people around the world engaged in those problems and so we are going to have to shift our framework a little bit and not encourage our politicians to engage in games of saying, OK, China now is sort of the bugaboo. China and the U.S. need each other very badly. Yes, we should argue about some things, but it's not an us versus them, it's an us and them type scenario.

ZAKARIA: Let's talk about energy and climate change. If you listen to some of the advocates of kind of alternate energy for the United States, you would think that there are all these technologies out there and if not for the stupid political process in Washington we would have the kind of alternate energy powering the entire American economy.

Yet when you look at wind, when you look at solar, they are very small, intermittent because they can't be used continually. So while it's a good idea of course to fund innovation, what are we going to do for the next 20 or 30 years when there does not seem to be an alternate energy future that can be easily deployed for the American economy?

GATES: We need to see some huge breakthroughs. You're absolutely right that there is nothing that can be scaled out today that's even close to the economics, reliability of those systems that we have. So why innovate if the policy isn't going to be there where the country says that's OK. 

Well, once you get rid of nuclear and clean coal, then you're totally talking about intermittent sources that are quite expensive today. Wind is the only one that's even close, even that has to be subsidized and that's only when it's at a fairly modest level, so we need a lot of breakthroughs. That's why the research part is key. 

ZAKARIA: So you're really looking for miracles. 

GATES: Absolutely. But miracles, remember, the lifestyle we have today is based on miracles. You know, you go back 150 years, you didn't have electricity's and cars and ships and global shipping and steel making and aluminum making. The technology richness that we benefited from, that innovation the last 150 years really is quite incredible. Now, the energy economy takes time to change. So if you invent for 10 years and pilot for 10 years, then in terms of broad deployment your best case is 2030, and that assumes that all these policy issues and cost issues and transmission issues get solved. The U.S. is lucky if it turns out that it's wind or solar, best we have that within our country. 

Many countries, take Germany, they would have to depend on foreign countries for all their energy supply. So they are very tough questions that have to be answered. I'm backing companies in a number of these areas. I'm backing a nuclear design that's somewhat different and might substantially improve the economics. But they're all risky things. The world does need one or a few of them to pan out in a mind-blowing way.

ZAKARIA: You've heard the lists of solar companies and wind companies and people point out that there are very few American companies on those lists. Do you worry that we're losing out in the race for the kind of alternate energy revolution? 

GATES: No, there's a lot of great American companies involved in these things, whether it's solar thermal, solar PV. Wind is one where a lot of the manufacturing has moved outside the United States. There's still some, GE, in the United States. 

ZAKARIA: There's one. 

GATES: But, you know, you're going to compete in all these different things. Because in the information technology business and the biotech business we were so strong and our universities were part of that, our risk-taking was part of that. When you name the leading companies, you have to go pretty far down the list and you'd get Microsoft, Google, Apple and a whole bunch. Eventually you'd get to SAP, which is a fine company. Then you'd go a long ways before you'd get to the next non-U.S. company in the IT space. 

Likewise in the drug space, even the so-called foreign firms do a lot of their R&D here. So you'd expect us to be pretty strong in these energy things. It could be that you're going to invent ideas here and that the permitting to build something is going to be available elsewhere. So hybrid things like that aren't necessarily bad. We shouldn't be purely nationalistic about this thing. 

But a lot of the value added should be here or else you have to say, geez, what are we doing wrong? We're not funding energy R&D at nearly the level we should. It's actually down, way down from its peak about 30 years ago. It's about a quarter of what it was at its peak. And no doubt as we put in some carbon revenue, the first thing, the first 10 billion per year of that should go to substantial increase, and that would be about four times as much, to taking the current three or four billion and adding that on top of it so that we could get a decent level of R&D so both from the U.S. point of view and from a global point of view these next 10 years will be a time of big breakthroughs.

ZAKARIA: And we will be back with Bill Gates in a moment. (BEGIN VIDEO CLIP)

GATES: To see things that are still headwinds and if those puncture the mood, you could actually stop the recovery.



ZAKARIA: We are back with Bill Gates. The last time we talked, American economy, the global economy seemed like it was in pretty bad shape, and you were not as -- you were not optimistic in the short term that things would recover fast. Have you been surprised at how quickly the American economy in particular turned around?

GATES: No, I think the American economy has a lot of dynamism and an ability to reallocate resources. And I still think there's some fragility. But in the last four months, there are good signs, even sectors that are weaker had started to come back. But you see in Europe and you see in our state budgets that still don't really account for all their liabilities, you see things that are still headwinds and if those puncture the mood, you could actually stop the recovery. 

ZAKARIA: You know, I have to ask you just because we haven't talked for over a year, the big thing that's happened in the United States is the health care reform. What did you think of the bill? 

GATES: Well, the health care bill is an effort to increase coverage, and it will do that. But people sure spent a lot of time on health care without getting at the other big issue, which is the health care cost inflation going way ahead of the growth of the economy. 

And that's a terrible thing, whether it's the health costs that hit the government budgets or that hit the private sector, it's making the U.S. less and less competitive. So there's a huge thing in health care that -- some painful things, some big things need to be done and I'm worried now that everybody is kind of tired of the topic. Some people declared victory, some people are sore, it's a very complex area. I worry that we're going to just let medical cost inflation continue ahead and that will create huge, huge problems. 

ZAKARIA: But you don't buy the argument that many people made, and we've heard it just recently from Tim Geithner, that within the health care bill there are all kinds of cost containment measures and, you know, we're going to see how they work and then ramp them up. You don't see the beginnings of this bending of the cost curve?

GATES: No, absolutely not. Congress said they were going to cut reimbursement rates. That was not realistic. But in health, the idea of saying what shouldn't we spend on is very tough politically. And I didn't see anything in that debate about, oh, if you're going to cut back, that's a death penalty. I didn't see anything in there that showed a willingness to get at the core of the issue. If every insurance plan has to stay the way it is, if you always get to choose your doctor, if nothing can be done about end of life trade-offs there, you're not going to change this cost increase. But the thing that really makes it look bleak fiscally is that this medical inflation -- that we have not changed it. And no, the stuff in the bill I don't think is up to that task at all.

ZAKARIA: And the only thing that would really change it, isn't it fair to say, is -- you can call them what you will, but some kind of panels that look at procedures and say these ones will not be paid for by the insurance. 

GATES: That's right. If somebody is 83-years-old and wants a knee replacement, that would have to be paid for privately. Or if the effect of proton therapy is very modest in terms of the extra months you get to live, that would have to be paid for privately. Those are tough decisions. 

European countries have done better at making those decisions. They have avoided the huge number of specialists that our system has that creates difficulties. Right now, it's as rewarding for a company to invent a chemotherapy drug that costs $200,000 a year and only gains months of life for the people involved. That is as profitable as something that keeps people healthy. And so we have to reorder the priorities of the innovation system to get it working on our behalf, and that's the only way I see us making a change. 

ZAKARIA: But this is a pretty dire situation then, because health care costs are by far the biggest driver of the federal budget. They are going to produce, as you say, a kind of essentially unsustainable fiscal condition. 

GATES: Yeah, democracies, and particularly the U.S. democracy, has dealt with tough problems in the past. And how acute does it have to become, how do you take the complexities of it, particularly where you have many groups that love the current way the money is spent, how do you get that out in front of people when it's a very emotionally charged subject?

And if you layer on that that the number of centrist politicians or technocratic politicians really take the time to learn an issue in depth, we have less of those today than in the past, you can get worried about this one. But this is going to rise to the top of the list of important issues. And in the past everything that's risen like that, the country has come up with a way of dealing with it.

ZAKARIA: Let's talk about another aspect of American innovation that you've talked a lot about and your foundation does a lot of work, education in America. Do you think that we are finally turning the corner on education policy? Over 25 years of intense scrutiny of education policy, massive new funding, the system has not improved at all.

GATES: Whenever you get discouraged, you can go and visit an Aspire or Yes, or Kit or Green Dot school, there's many of these that are replicating and adding new schools. They're achieving the miracle. They're taking the kids from the toughest environments and getting over 95 percent of them to go to a four-year college. So when you see that working at the same cost as being spent on the dropout factory across the street, then you go, OK, there's a lot of pieces that have to come together here. But it is within reach. And if you had one wish for the country, I think there's no doubt you'd use it on this improvement in the education system.

ZAKARIA: But make that wish specific. If you had one wish, if you had a magic wand and you could change something, what would you change in current education policy? 

GATES: I would change the system that helps teachers get better, how they're evaluated, how they're given a chance to improve, how they can see different metrics, how they can go online and see the very best teachers in the world. 

I think that's at the center of this thing. We can add a lot of charter schools and get them up to -- there are only about 4 percent today and the really good charter schools are closer to 1 percent of the system capacity. So we can increase that. 

But unless those best practices find their way into the mainstream of the public schools, which means that people in the unions feeling good about these things, seeing that they actually work, then it's hard to see that we'll achieve the goals. So you've got to get a new approach, including the learning. 

The best teachers are incredibly good. In a public school system, there are people who are absolutely fantastic. And they haven't even been identified and even given verbal praise for the miracles they achieve. Now we want to say, OK, what is it you're doing. Why is it on any measure, class engagement, class test scores, class attendance, why are you doing so much better than all the other practitioners who are being paid the same as you are?

ZAKARIA: Bill Gates, a pleasure. 

GATES: Thank you. 

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