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>>male presenter: hello, everyone. and welcometo this google author's talk. and today, we have ann lee, who is a senior fellow at demosand adjunct professor of economics and finance at new york university, a former hedge fundpartner and a frequent commentator at networks like cnbc, fox, and cnn. when she worked in china, she was a formervisiting professor at peking university and an economic advisor to chinese economic officials.and today, she is here to talk about her book, "what the us can learn from china: an open-mindedguide to treating our greatest competitor as our greatest teacher." welcome. [applause]
>>ann lee: i really wanna thank google forhosting me today. it's such an honor. i flew in from new york and it's much warmer here.and thank you all for taking time out of your busy schedule to come hear my talk, especiallyto such a serious topic like this because i know that sex, money, and violence selland this book is missing all three. [laughter] actually, the other day i was thinking tomyself, "if my publisher wanted to sell more books, perhaps he should have put on a differentcover that was more misleading." perhaps something of kim kardashian walking down the weddingisle with yao ming. that might have been a little bit more "nationalinquirer." but anyway, i'll get into the book
now. oftentimes, people do ask me, "why didi write this book?" and it's a particularly interesting question, especially for thosewho know me because i had spent at least a decade on wall street as a bonds trader andcredit derivatives trader. and so, i didn't do much writing then. infact, a friend of mine said to me that i was the only woman he ever met who replied tohis emails in one-word sentences. it was either "yes," "no," or "maybe." so obviously, i wasvery motivated to write an 80-thousand-word manuscript. and the truth of the matter is was i was veryconcerned about the direction that the us was headed. and this concern actually startedas early as 2005, when i was working at a
very large hedge fund. at the time, i wastrading credit derivatives and saw many structured product deals come across my desk. and these products are what most people arenow known to be toxic assets--the ones that caused the 2008 financial crisis. and i hadseen a lot of irregularities in these deals. and what confirmed my suspicions were thati had attended some of these broker/dealer dinners where i overheard some of these investmentbankers actually brag and joke about the fact that they were able to secure billion-dollardeals--secured with nothing but baseball cards. this was deeply concerning to me and i eventried to raise the flag with the sec, suggesting that they investigate this market. but whenit became apparent that nothing was gonna
get done, that was when i decided to leavewall street. i had seen previous bubbles, such as the asian crisis, internet bubble,and i really believed that this was gonna be far worse in that someone had to warn thepublic and alert them of what was happening. i went into academia at that point. and i proceeded to write a paper detailinghow some of this fraud was perpetrated. and i tried to send it to various government officialsand the media. in fact, one of my friends, who had worked at fox business, received acopy. and so, when i got a call from a fox producer, i thought that i was being invitedto talk about my paper. unfortunately, she asked me, "ann, can youplease come on to debate whether paris hilton
is a great american hero because she's a bigconsumer?" unfortunately, i didn't accept that invitation. but that was indicative ofsome of the mentality that was going on leading up to the crisis. and so, when it finally happened, it was neithersurprising nor shocking to me. what really actually surprised me was to the extent wallstreet and government having come together. and so, when president obama had tim geithnerand larry summers, the very people that had wall street in their back pocket, join hiseconomic team, it wasn't obama where i was deriving my hope for most of the nation. interestingly, it was really china. for someof you who may remember, china was a mere
backward agricultural society only 30 yearsago. in fact, they were written off as a lost cause. so, even though china was this greatworld empire for thousands of years, they had fallen to practically a semi-colonialstate 200 years ago, when western nations invaded the nation. and it was very shameful and embarrassingto many chinese at the time, to folks like deng xiaoping and xuan li, who were the communistparty revolutionaries. when they were intellectuals going to paris, they experienced firsthandthe prejudice and the treatment that was very unfriendly from foreigners. and they attributed a lot of this to the factthat they thought it was because china was
such a weak nation. and so, they vowed tomake china strong. and so, this small group of friends turned this kernel of an idea intothis big movement that allowed them to eventually take over the country in just 20 years. unfortunately, when they took over the nation,they did not succeed in making china strong. they, in fact, did the complete opposite.because they were so married to ideology, they had many of the wrong people in place.they obviously had some of the wrong policies in place. and so, this plummeted the nation into a statewhere millions of people died from starvation. in fact, more people died from that than inworld war ii. but fortunately, some of these
folks, such as deng xiaoping, did not giveup the dream of making china strong. they continued and persisted in trying outwhat would work for china. and through trial and error over many different policies, theyfinally came together and found a set of ideas that would help put china back on the righttrack. these set of ideas are basically what i discuss in my book. i wrote this book believing that these ideaswould actually be workable in a democratic capitalist society--modified. but there werecertain elements that are true for all societies. and while i realize that these two countriesare very different, there are also many similarities. and i don't advocate everything china. whati'm talking about are some of the best practices
of china that we can learn from because allnations have their weaknesses and strengths. and if we only dwell on the weaknesses, weare missing an opportunity to learn about what they do right because learning can bea two-way street. they've learned plenty from us. and we canlearn from them. because while the us is a very strong nation, we're still not perfect.we make many mistakes. and so, if we can find a way to set aside our prejudices and thebest from the west and integrate them with the best of the east, perhaps we can advancecivilization and create a better world for all. so, i do cover a lot of ideas in my book andi'm not gonna have enough time to go over
all of them. but i would like to highlightat least a couple major themes that i think are particularly relevant in the presidentialelection year. one of the ideas i discuss is the idea of leadership selection. today,i think the united states is suffering from a crisis of leadership. our politicians are polling at historic lows.poll after poll show that. "60 minutes" recently reported that congress had an approval ratingof nine percent. and movements, such as occupy wall street, have been spreading like wildfire.these are very disturbing trends because as soon as a nation, where the people do notthink their government is legitimate, government could start taking more drastic actions inorder to maintain the status quo and keep
the people in government in power. and we're starting to see signs of this. presidentobama had signed a bill into law on new year's eve so that any american now can be detainedindefinitely by the military without trial, without evidence. and this is actually a seriousincursion into our civil rights. it makes it more important than ever now thatwe get the right leaders in place. and while we've had all sorts attempts at campaign reformas a way to improve the system, 2008 still remains a record year where private moneywent into the election cycle so that today, democracy here is no longer really "one person,one vote," but "one dollar, one vote." so, what can we learn from china in this regard,especially since most people regard the chinese
government as a dictatorship? well, if youask many folks outside of the us, in fact, you'll get a different opinion. some peopleregard china as having the best technocrats in the world. and if you ask many of the chinese citizens,they have very high approval ratings of their government. pew research, out of dc here,has conducted research polls, opinion polls in china for several years now consistentlyshowing that the opinion polls of the government have been hitting over 80 percent. and this approval rating seems to be in sharpcontrast to the protests over land grants in the country. but those protestors tendto be very critical of their local government
officials, not of the people who are runningthe show in china. so, how did they get this level of legitimacy among their people? what can we learn? well, the chinese havea belief that the honor of running a nation should only belong to the people who haveearned the right to do it. this idea of earned authority is very similar to the idea of acorporation where we don't elect a ceo to the top based on some popularity contest.no. the person who gets to run the organizationhas earned the right through an entire career, proving that they have the skills and theknowledge to produce beneficial change. and so, if you want to go work in this chinesecentral government, you first have to take
a competency test by the time you're 35. if you don't pass this test, then you muststay in the private sector. and this is a very difficult test. i personally have notseen it, but it has a pass rating of less than 20 percent. so, right off the bat, theyattract a lot of the brightest minds in china to go work for the government. and by having that cut-off, they restrictthe conflict of interest that can happen between the private and public sector--something thatwe've seen in our own government. now, once you become a government official there, youthen are rotated to different positions in the government for five-year terms.
and you can't serve a position for more thantwo terms. and while you're in this position, you get evaluated 360 degrees ala mckinsey-style.and then if you do well, you get promoted. and if you don't, you get demoted. and yourcompensation reflects that. and they try to do this so that they're aligning the government'sroles with the interests of society this way, so that it is about helping produce productivechange not based on money and compensation alone. so for example, if you're government official,you could be put in a position to be a university president of a major university. then youmust demonstrate during that time how you've improved that institution. perhaps you'veincreased the number of foreign exchange programs
to other universities around the world. maybe the number of graduates from the universitywent up in terms of their ability to get high-paying jobs. so, they get measured on a number offactors. and this happens throughout their entire career. so, by the time they get consideredto be a high-level official for the politburo or the standing committee, they would havealready served decades in their nation in various roles, showing that they have producedproductive change and have benefitted millions of chinese. so, many of these chinese citizens then viewthat these people at the top have a collective wisdom that they know what to do in termsof leading a nation--that they have selected
the best people for the job. now, how canwe take that an incorporate it into the us because i'm obviously not advocating thatsomeone must go through the ranks of government here to become president of the united states? but what i'm saying is there's certain elementsthat make sense. i suggest in my book, why not introduce a competency test for policy-makershere? today, the only are where we provide these tests are to our foreign service, whobecome our ambassadors to other nations. but virtually every other agency doesn't requirethis. and our system today, where the saying "to victor go the spoils" is more true thanever. when president obama or anybody else becomes the head of state, will have the plumbook where they can appoint different high-level
positions throughout government. these tend to go to people who are probablytheir high campaign donors or other people who they owe political favors. and this maynot necessarily be in the public interest. for instance, president bush had appointedmichael brown to be head of fema during hurricane katrina. this guy had no emergency management experiencewhatsoever. and yet, he was charged to run this thing. and we saw the results of whathappened. so, i am not suggesting we replace our systems, but perhaps we improve it. andanother idea is a thought, "well maybe we should restrict the revolving door."
today, it's a well-known business model wheresomeone can go get elected into congress, or work in a regulatory agency, and then leaveand go the private sector, set up a shingle on k street and become a lobbyist and earnmillions of dollars that way. this sort of conflict of interest, again, can be very harmfulto the public interest. another idea i bring up is perhaps we shoulddemand track records of people who want to seek higher office. this could be a greatway to vet who is qualified so that they have to have shown they've led an organizationand have provided beneficial change, that they have shown that they have the moral compassto help society. another major theme i wanna talk about isthe idea of having long-term visions because
today, i really worry that our nation is sufferingfrom a disease that i call "short-termism." we have politicians who can really only thinkin terms of two-year election cycles. we have a lot of corporations who have to meet short-termprofits demanded by wall street. i don't think there are enough people whoare actually taking a step back and asking, "where do we wanna be in 10, 20 years' timeand how are we gonna get there?" so again, i turn to the chinese system and say, "wherecan we learn here?" the chinese have institutionalized something called "the five-year plans" asa way to avoid the temptation to have short-term band-aids. i know a lot of folks have dismissed thisidea because they associate five-year plans
with central planning of top-down and of thedisasters under mao. but what i'm suggesting today is that the way they practice five-yearplans now is very different from what happened then. today, it is more of a goal-setting exercisewhere the government articulates their priorities of where they'd like to see the economy inthe future. and therefore, they set performance targets associated with different areas ofthe economy. for instance, in their latest five-year plan--2011 to 2015--they articulatethat they would like to see a greener economy. so, how are they gonna get there? they putspecific performance targets such as, they wanna reduce carbon emissions by 17 percentper gdp unit by the time they hit 2015. they
want to increase energy efficiency in buildingsby 16 percent per unit of gdp. and the people who are charged with making these changeswill have the autonomy to come up with a variety of solutions that will help them get therethat incorporate the power of the private sector. so, they will use a combination of carrotsand sticks such as tax hikes on high polluting industries, tax incentives for clean tech,and various other investments that will be very inviting for foreign companies in theus, in europe, to come in and work jointly with the chinese in order to come up withthese solutions that will help them meet this target.
now, the closest thing the us has to thiskind of top-down priority setting is the us federal budget. the omb basically preparesthis for the president that should reflect his spending priorities. and basically, theymake the allocations to different agencies. the difference is that there are almost noperformance targets associated with how we allocate our taxpayer money. it is the equivalentof a ceo having a strategic plan where he would hand over money to a department andnot demanding that they produce any results as a result of having received that money. now, if we have this situation, it is no wonderthat our taxpayer money goes into all these agencies and it's like a black hole wherewe don't see any results. after trillions
of dollars of spending, we still have significantunemployment in this country. we are also the largest spender in health care. and yet, we have some of the worst outcomesin health care out of all developed nations. so perhaps, if we borrow this idea of settingperformance targets that the chinese use, it might drive more transparency and moreaccountability in our government to help align what they're doing with the rest of society. i guess i'm running a little low on time,so maybe i'll just wrap up here for now and then open it up to questions. and i understandthere will be book-signing afterwards. so, there's a microphone there, right? are thereany questions?
>>male #1: so i actually don't doubt yourassertion that chinese run by technocrats, at least at the top. i think hu jintao iswidely respected as a very technical person. my question is what's really their motivation?because it appears that in the developed world, as well as in the developing world, most politiciansare motivated by money and power, right? so that's why the corruption in the system.so, what motivates the top leaders in china and why do think there's no corruption thereat the top? >>ann lee: i think that it's a way of weedingand trying to find the more enlightened people to come to government. the corruption thatwe often hear about in china is happening at the local government level where they arerunning the smaller towns and villages, like
a foster city or a redwood city. and these people do not take competency testsand do not get rotated around. these people stay in these towns for 40 years, right? andthat's where all the corruption is, where they have absolute power and there's no wayto kick them out. and that's why the chinese government, right now, is trying to experimentwith this idea of democracy at the local level in order to drive more accountability at thoselevels. i would think that the way they attract andmotivate these people, like i said, is the incentives system. and it probably comes partlycultural. confucianism, which has been part the chinese culture as well as many asiancultures there, value scholarship not because
it's supposed to help make you wealthy. the idea is that education and educating oneselfis for the common good--for the common good of society. if you are more educated and youunderstand the complexities and you understand how to be a good citizen, you make the societybetter. and that is a philosophy that i think manyof these people hold. and so, i actually address culture in another chapter in my book. yes. >>male #2: hi. so, you mentioned earlier aninteresting statistic about the approval rating of--i think it was around 80 percent or so.and my personal experience growing up, i grew up in a very repressive country with a repressiveregime where the approval rating was officially
quoted as exceeding 90 percent and the presidentwas routinely elected with 99 percent of the vote, even though those were basically manufacturednumbers. they were false. so, i probably am more cynicalthan some when it comes to hearing these numbers, but i'm wondering if you can talk a littlebit more about that. eighty percent seems like an astonishingly high approval rating.and if true, it's remarkable and good. but i just wanted to hear your additional thoughtson that. >>ann lee: yes. i would be skeptical, too,if they were coming from chinese polling services. but this is actually coming from an americanpolling service who do similar polls with americans and find that consistently, around20 percent of americans are approving our
government. and so, they publish these results online.and so, because it's coming from an objective source, i'm more inclined to believe thatand that they can't be manufactured that way. >>male #3: so you make the case that the topleadership is more meritocratic because-- >>ann lee: i'm sorry, what? >> male #3: is more meritocratic, meritocraticbecause-- >>ann lee: meritocratic. >> male #3: because-- >>ann lee: the us or the--? i'm sorry. canyou--?
>> male #3: the top. >>ann lee: the top. >> male #3: you make the case that the topleadership in china is more meritocratic because they aren't driven by electoral politics,[inaudible]-ism, and so on. so do you see that people in remote areas of china, if theyhave the merit, like tibet or other regions, can make it to the top leadership of chinain communist party? >>ann lee: so the question is do the otherpeople believe they can make it to the top if they--? >> male #3: yeah. do people believe in--?
>>ann lee: yeah, yeah. and hu jintao and wenxiaobao are exactly two examples. both of them did not come from privilege at all. theydidn't have revolutionary background from their parents or anybody else. they came fromthe poor, rural areas of china. and because they were able to prove themselvesover time, pass the testing, get involved and prove themselves through merit, they gotto the top. and therefore, in some ways it's almost more democratic because it doesn'trely on you being able to be a billionaire to run for office, or that you sell your soulto a corporation. it's about you making it to the top on yourmerits of your own performance. >> male #4: hi. i wonder if you could explainfor me what fuels your optimism for the us.
it seems to me we have one party that is nowgiving us indefinite imprisonment without trial. we have another that's openly discussingthe plausibility of abolishing the department of education. and most interestingly, the public of theus show willingness to vote for these nut jobs. so, in a democratic system where peopleare democratically racing for the bottom, how is it that you're still standing up hereand talking about policy and not simply moving to a more sensible country? >>ann lee: i believe my sense of optimismcomes from the fact that small groups of people can affect powerful change. and that's whyi started out with the story about deng xiaoping
and his other colleagues. and even if we lookat our own history in the united states, we've made tremendous changes and reforms, whichstarted with small numbers of people. and it took a long time. it took many yearsto abolish slavery. it took decades also to give right to vote to women. so, you haveto fight hard for them. and obviously, the folks who benefit from the system today aregoing to fight hard to maintain the status quo. but if more and more people understand andspread the word, like what happened with occupy wall street, i think that it's possible. andso, that is why i remain hopeful. >> male #5: hi. so, if the approval ratingis so high, why is there so much censorship
by the government? they seem to be hidingthings from the general public and then washington. so, if they are very popular, there is noneed to do something like that. so why do you think that's happening? >>ann lee: i know that often comes up. andi would say that the government's reason to me, when i was over there as a professor,was that they were worried not so much their own legitimacy, because they're obviouslyvery popular, but that they worried about people who are trying to be subversive tothe government. and this is probably no different than a fearthat our government has of al qaida trying to subvert and recruit people into that movement.and so, what have we done? we've actually
gone around killing people like osama binladen. so, i think that this perception of a national security threat is something theyview as real, just like we view that putting in x-ray machines at all our airports is areal security threat, even though many people think it doesn't work. so, i think it's easy for us to be judgmentaland critical about what other nations will use in terms of their policies, but if weonly hear one side of the story, it's probably not in our position to be saying they're doingsomething right or wrong. but if, in terms of openness and about this idea of censorship,i would say that yes, it would be nice to see china be more open.
and the direction has actually been more openbecause back 30 years ago under mao, everything was state controlled. there was no privatepress, no information from the outside. and today, it's quite different. if you go tochina, there are tens of thousands of magazines, thousands of newspapers, hundreds of thousandsof books from outside of china that get imported into china so that they can develop a veryrobust discourse and introduce lots of great ideas from the outside. and when i was there in china, i had witnessedon chinese tv very serious debates between officials about different policies. even afriend of mine, he was also at peking university, named michael pettis, he keeps a blog on thewebsite and he used to work at bear stearns
as an investment banker. and he even writes on his blog that the debatesabout the currency and about many other issues are more fierce in china than even here inthe us. so, i think the censorship is probably overstated in terms of what they do censor.and i would say that some of that censorship does happen here as well. >>male #6: so, in the modern era, most officialsin high office in china come from an engineering background, whereas in the us, most of themcome from a law background. how do you think this difference effects the policies of thetwo countries and how can we have more engineers in us politics?
>>ann lee: i'm glad you asked that questionbecause i published an article recently in the american prospect addressing that ideabecause not only do we want to have a more balanced legislature, it's also more immediatein our job situation. today, we have three million jobs that go unfilled in the unitedstates for six months or longer. most of them are in technical fields. andthe hiring managers and the ceos of a lot of these companies basically say they can'tfind the talent to fill them. and when you look at what kind of degrees that collegegraduates are having, in 2010, over 80 thousand of them came from performing arts and lessthan 13 thousand in electrical engineering. and so, we vastly need to rebalance our talentportfolio in this country. and one of the
ideas i suggested was given that student loanscan be so onerous to so many kids, why not provide the incentive of forgiving a studentif they graduate with an engineering degree, or some other technical degree in order toprovide an economic incentive for more students to study this area? that could be one way of addressing it. andyes, the characters of debate and policies do reflect the backgrounds of our leaders.i talk about that in one of my chapters called "special economic zones," because while ourleaders can debate ad nauseum about whether this policy is better than another policy,they do so without a lot of concrete evidence and results.
the chinese however, basically say, "why don'twe just test it out?" they have a very scientific approach to economic policy, so that it'svery similar to a scientist that says, "well, we have this hypothesis. we think it willdo this, but let's test it out." and that's what the chinese do. a lot of the resultsare reported by independent observers. and then they decide whether to rule out a policyat a national level. and so, if we had more of that kind of systematic thinking abouttesting our policies, we might have a completely different economy at this point. >>male #7: so, your idea that we set up objectives,measure whether the objectives are achieved; it's a very alluring idea. i like it, exceptit's got a few major problems. one is you
have to set objectives that are achievable.you have to get consensus for the objectives. and probably the hardest, you have to actuallyhave measures that say, "yes, we achieved them." actually, "it was our policies thatachieved them rather than something that was gonna happen anyway." so, i wonder whetherthe chinese, when they're measuring each other, how accurate they're being. if you take something that was at mao's levelof industrialization, not very much, let in lots of western technology, you're gonna havethis rapid rate of industrialization. we've seen other countries with or without verygood government. so, do they know how much of the improvement came from good governmentversus just letting capitalists do things?
>>ann lee: well obviously, things that happenin an economy are very complex. and even today, many economists get those things wrong, right?there are economic models that miss many variables. i'm not saying that that system is perfector that you can completely tease out whether it's just policies or some other exogenousfactor. but if you look at what happened with china before, they started on these policies,they clearly had plenty of cheap labor that obviously were not productive. and if you think that's the only answer, youcan still look at africa or many other places where they are not growing and being as dynamicas they are. so clearly, there are things they're doing right that are making sensehere. and so, i suggest that if we aren't
sure, then why don't we test it out in differentareas? our 50 states used to be called 50 laboratoriesof democracy. now, why can't we basically turn these 50 states into laboratories ofeconomic opportunity? and there really is no harm in doing it if the federal governmentand the states work closely together to come up with the right design of trying these thingsout because there is no harm in just trying out and trying to find the truth of the matter. so, i hope that--. does that answer your question? >> male #7: i guess what i'm getting at--.i'm not trying to actually disagree with you. i'm just saying that if we wanna do this,it's not trivial. you don't just say, "oh,
let's make objectives. let's go measure them." if you were gonna go try to study china andyou were gonna figure out why are they successful, it may well be--part of it, a large chunkof it--is due to government. but how do you even tease that out? because they have a lotof different policies that you're trying--. they may have various ones that are betterthan us. how do we know which ones those are? if the whole country is industrializing rapidly,we can ascribe to the wrong factors and adopt things that would actually be worse. so, howdo we--? >>ann lee: well, my answer is that it alwaysdoes start with the government because anyone that succeeds is the result of the institutionsand the support network that you find yourself
in. even warren buffet had said publically, therewould be no way he can be warren buffet as a billionaire if he had grown up in india.you are the product of what is around you and the institutions that the government haveset up. all right. well, thank you so much for your time and attention. i really appreciateit.
