Wednesday, November 30, 2016

black boots


kai ryssdal: if you don't knowwho eric schmidt is, you're in the wrong room. this morning as i startedthinking about how to begin this, i of course wentto google, and i googled economic recovery. and i got 47, 500,000 answersin 48/100 of a second. and i said, well, that's aninteresting little statistic, but i'm going to have the manhimself here later on, so why don't i just ask him?

and i think that'swhat i'll do. in all seriousness, eric schmidtis the leader of arguably one of the mostpowerful and well-known companies on the planet. we all use his productsevery single day, multiple times a day. and as such, i think he'sprobably got something of a unique perspective on thiseconomy, how to steer a company through it, how to steerpolicy in that economy.

and that's what we'regoing to talk about. we'll go a little bit, eric andi, and then we are going to open it up for questions. a little bit of housekeeping,there are two microphones in the aisles. we're going to alternateback and forth. we need to be out of here, i'mtold, by 2:15, so we're going to keep it on time. so line yourselves up when weget there and we'll just go

back and forth. sound like a plan? obviously a lot to talk about ina short period of time, but i want to sort of lay a littlebit of a groundwork here and get a sense of where you werementally back in september, when ben bernanke and henrypaulson, the chairmen of the federal reserve, when upto capitol hill and said, this is it. we're done.

we need $700 billion dollars. ready, go. eric schmidt: well,i was scared. let me start by sayingcongratulations to walter and to david and the teams that haveput this amazing ideas festival together. it's really one of the greatevents in america, and i think you all should be proud to bepart of it [unintelligible]. [applause]

eric schmidt: in september,the worst day was the wednesday when the money marketfunds broke the buck, if you remember that day. and that night, tuesday nightovernight, the financial clearing system of the countryalmost failed. and the federal reserve had togo in and hand money to the clearinghouses to essentiallymake sure that the money, the dollar, if you will, that wasclearing overnight was cleared properly the next day.

and i said to myself,how did we get ourselves into this situation? and i still don't know theanswer to that question. kai ryssdal: assuming, though,that google keeps its cash in very safe banks-- eric schmidt: in fact, what wedid is we took it out of the banks, and we put it intosovereign denominated currencies, because we figuredthat the countries would not go bankrupt.

kai ryssdal: this country'scurrency too, yes? just checking. eric schmidt: we dida basket, yes. kai ryssdal: assumingall that's true-- eric schmidt: it is. trust me, it's true. i'm a ceo, i can't lie. it's like a real problem. kai ryssdal: it's my job.

i have to ask those questions. how are you feeling, then,about where we are in terms of fixing it? eric schmidt: well, again, withthe caveat that i don't understand how the learned andsmart people who were running all this could have gotten usinto the situation in the first place, with thatas a caveat, right? and i think we should have adiscussion as to how that happened and not just so muchfrom a regulatory perspective,

but what was the failure ininformation that got us to the point where we were in a reallygood bubble and having a good time and the currencyalmost failed. that's a serious error. it's not a small error. with that as a caveat, we'reroughly on schedule. if you look at the sequence ofevents, that once the crisis occurred everyone realizedthat asset values were too high.

you had first a real estatecrisis, and then you had a credit and finance bubble. the credit and finance bubblewas largely because of unregulated credit instrumentswhich were shut down. with the bankruptcy of lehman,everything sort of collapsed. and then we had october,november, december, where everyone's all panicked. the fed comes in with trillionsof dollars in guarantees.

people forget that there wereabout $2.5 trillion of additional guarantees of bondsand bond debts, most of which will not need to be deliveredon, by the way. the total indebtedness that wasguaranteed by the western world and the united stateswas on the order of $8 trillion to $9 trillion,if you add it all up. these are enormousamounts of money. remember, the us gdpis $14 trillion. so we created all of that.

then we had the stimuluspackage, which was designed as a short term, which i wasstrongly in favor of. and then you have the time thatit takes for the system to work, and we're inthat period now. market low, roughly,in the spring. business cycle low,roughly now. jobless high, roughlyearly 2010. we're on schedule. how do i know this?

because the people who got usinto this have told us that. [laughter] eric schmidt: what'sa better answer? what's a better-- sorry. if you look at the history, oneof the things to learn, as we manage young people, is toexplain to them that things have occurred inhistory before. and young people don't oftenknow that, or ignore it,

because they didn't takethose classes. and in our case, we're in aclassic deep recession, and recessions recover. and i've just outlaid theexact math around a traditional deep recession. kai ryssdal: but hold on asecond, because if you take all of the smarts of google'scomputers and pile it into one-- eric schmidt: we were notpart of that september--

kai ryssdal: no, you'renot, but let's take-- eric schmidt: we were not-- in fact, had we been doing it,we might have actually been measuring where allthe money was. kai ryssdal: you guys, as asymbol of all the world's knowledge, which are out thereto collate and make useful, if you take that and you combineit with these really smart people and rising asset values,how did so many smart people running the companiesand the economy do so many

stupid things? eric schmidt: well, partlybecause everybody, it was in their self-interestto believe it. people have studiedbubbles for years. remember, high tech, we alreadyhad our own bubble. you had a bigger bubble. we've already-- kai ryssdal: been there,done that? eric schmidt: we've been throughone bubble, which was

2000, the y2k phenomenon. and we had a great time. next time i'm going tosell at the peak. i mean, i'm just waiting forthe next one of these market-induced bubbles. i could have made a lotof money at the time. it's much better to sell atthe high in these bubbles. trust me. kai ryssdal: thereis, though--

yes, we should sellat the high. eric schmidt: thisis about ideas. there's an idea for you. sell at the top. kai ryssdal: so let's haveanother idea about how we can get ourselves outof this mess. do we just sit here and waitfor it to happen, or can companies and the economydo something smart? eric schmidt: in the firstplace, let's go back to what's

really going to happen. i think the us will recoverfirst. the european economy is slower to recover. the conventional wisdom issix months off-cycle. that's about right. the interesting insight aboutthe europeans is that their central bank, which is calledthe european central bank, has one mission, which isfighting inflation. and ours has two missions,fighting inflation and

promoting growth. and there's a technical namefor this among all the economists. but what's interesting about theeuropean central bank is that they have been givingenormously friendly loans to all of these countries to helpout, which looks awfully stimulative. so the european central bank,will within the charter that it has, is doing somethingsimilar to

what the us is doing. and i think europe willrecover as well. and they're not going to give uptheir vacations or anything like that in the meantime. kai ryssdal: heaven forbid. eric schmidt: so the fact of thematter is i think that's going to happen. in china, you had thestimulus package. and in china they had aninfrastructure stimulus

package, not unlikewhat we did. the difference is theyjust did it. they didn't debate it, somebenefits to a command and control economy or whateveryou want to call china. and it looks like the thirdworld, and in particular the smaller countries, are veryseverely hurt by what happened, because they were inan asset bubble in terms of minerals and so forth. and they also have hugetrade imbalances.

so we're going to go back to astructure where, if you will, the strongest, china, to somedegree india, the united states, and europe, will leadus through this over the next few years. kai ryssdal: why? why is the united states goingto get out first and not china drag us along? eric schmidt: well, i personallythink it has to do with our university systems.ultimately, the reason these

things occur in americahas a lot to do with the culture of america. and americans are optimists. americans believein innovation. 90%, 95% of the top universitiesin the world are in the united states. many people have tried toreplicate these systems. they're very hardto replicate. if you look at venture capital,which i've obviously

benefited from, the financialstructure combined with new young people trying to createnew jobs is phenomenal. we have the fastest growth cyclein terms of new jobs. a typical example is there's aclaim that 15% percent of the jobs every year eliminated andanother 15% percent of course are created. and that's no solace to you ifyou are working in an area where the only kinds of jobs,typical example being the traditional american automobileindustry, those are

the only kinds. the other ones aren'tbeing created. but if you look at the economyas an aggregate, there are other jobs being created. they're just not in your town. and that's difficult, but that'sultimately the genius of the american system. kai ryssdal: can you innovateyour way out of a recession, though?

google is a company that's madeits name with innovation. you give your engineerstime off to innovate, or on company time. eric schmidt: well, it turnsout recessions end on their own, and politicians love totake credit for the recovery. but one of the simplest rules isthe business cycle has not been eliminated, and there isevidence that the business cycle is going to get worse. and the reason it's going toget worse is things have

gotten more interlinked. so we're going to go uptogether more and down together faster. and by the way, in informationmarkets, the cycles are shorter. it's up, down, up, down, up,down, because there's more information. now it may be possible todampen some of these by conversations and regulations.

my favorite examplehere is iceland. and iceland, which has 300,000people and a lot of fish, at the height of the bubble, 3/4 ofits stock market value were the three banks that failed. kai ryssdal: bigger thanthe whole economy. eric schmidt: and they're notknown as a banking center. and of course what was happeningwas they were arbitraging their currencyagainst the euro. they were essentially lendingin one currency and taking

money in another. and there was clearlya regulatory failure at some point. i don't fully understand it. but at what point-- why didn'tsomebody raise their hand and say, by the way, it's an errorto have 3/4 of your entire market tied up in thesebanks, given that that's not your economy. and so, to me, what i hope willhappen as a result of

this terrible thing-- i'm not trying to minimize it,because a lot of people have been hurt by what i consider tobe the errors of the global elite, and hurt very severely. what i hope is people will say,hey, that doesn't make sense anymore. my house went up 20% ayear for 10 years. by the way, that'sa sell signal. it doesn't make any sense.

the math doesn't work. kai ryssdal: well, what kindsof companies then? wait a minute, let me back upand pick up on a thread you keep mentioning, regulatoryoversight. are you confident that thepresident's regulatory reform plan, that he announced a coupleof weeks ago, is going to go far enough, is going tocurb some of these excesses? eric schmidt: i don'tthink anybody knows. the regulations arelong and deep, and

there's a lot of anger. and one of the things to know,and our politicians will, at least privately, explain to you,they are inundated by the anger of the average americanat what they perceive as the bailout of the financial elite,the business elite, people like myself and so on. and that anger is palpable. so they're going to regulate. they're going toget regulated.

and you do not want the government to own your company. you could see this with generalmotors and so forth. the automobile industry globallyis largely now owned, large chunks of it areowned by governments. that's true in europe as wellas in the united states. that's always been true tosome degree in china. and so in many cases they'reultimately going to turn out to be jobs programs. thisis sort of a horrendous

structural issue that we face,because, frankly, the demand for cars is not as high as ourability to build them. kai ryssdal: with the banksgetting better, though, some showing profits, some sort ofbottoming signal out there, whether we're bumping alongthe muddy bottom or-- eric schmidt: those bankingprofits, guess where that money came from? kai ryssdal: yes. raise your hands.

there you go. how do you feel about thisproposition, that maybe what we've done in not steppingmore quickly into the regulatory realm iswasted a crisis. let the banks fester for awhile, given the money, and now they're goingto be through to the business as usual. eric schmidt: my personal viewwould have been to not allow the write-offs that occurredin the banks.

it was explained to me that theproblem with that is that the banks are actually adifferent kind of animal than other businesses. if you look at aig, for example,and again, how quickly we forget. remember it was $20 billion,then it was $40 billion, then it was $65 billion, then it was$85 billion, then it was $185 billion. these are large amountsof money.

how do you lose thatamount of money? if i lost that kind of money,i'd lose my job. i don't have that kind of moneyin my company to lose. kai ryssdal: which is sayingsomething, actually. eric schmidt: thank you. how do you make thatkind of mistake? and so my argument was that youshould allow all of these structures to fail, because thecollective memory, that is the structure, all those losseswill still be around to

remind them not to makethose mistakes again. the problem with that isit's not in fact-- i was just wrong. it's not how banks reallywork, because they lend against an asset base. and if you can't fix the assetbase, which is indeed what the fed in my view correctlydid, you don't get credit going again. and if you don't have credit,you don't have your economy,

because we americanslove credit. kai ryssdal: if it's not goingto be the banks that lead us out of the recovery, i meanthey're stabilizing, but they're not going tolead the way-- eric schmidt: it's theconsumers in america. it's always the consumers. kai ryssdal: my question,though, is what kind of company is going to do it. it won't be the financials.

it's not going to be manufacturing, look at detroit. what kind of company is goingto help us get going? eric schmidt: well, obviouslymy own bias would be to do whatever we can to get the nextgeneration of very smart companies in everyfield going. in the stimulus package therewas a lot of work done to make sure that there's a lotof money to create a green tech sector.

and many of us, the peoplehere in the room who are pioneers in this area, believethat the secret to american manufacturing success is theirability to take the knowledge that comes out of[unintelligible] so quickly and turn those into very highlyprofitable businesses, and move very quickly, theclassic example being the michigan-area manufacturingplant that can be converted to build automobile batteriesfor electric cars. there are example afterexample after example.

and i believe that. the reality is that the problemis so significant that you need to do more than that. you need to look at all thebarriers to business. so for example, people who arearguing against free trade, don't realize how many americanbusinesses are global in nature, and arguing againstfree trade hurts american businesses, thatkind of thing. kai ryssdal: let me askyou specifically

about google, then. i mean, you guysare everywhere. i think it is in your phrase-- eric schmidt: thatis our goal. kai ryssdal: that's right. and you're meeting it. it is, as you called it, theeconomics of ubiquity. how does that help this countryget going again? eric schmidt: well, we believethat information is power.

and because you wereasking about the financial things, i wonder-- i learned a little while agothat the right way to run human systems is transparency,and that almost all of the sort of structural mistakes thatwe're seeing have been caused by information hidingor by poorly integrated systems. and it's true at everylevel of politics and government and howsystems work. so from our perspective, moreinformation is power and that

the internet is this enormouslypowerful platform for very, very rapidinformation flow. you see this in the politicaldynamic, what's going on in iran, and that story is repeatedover and over again. we all understand thatintuitively. it's also true in business. it means that businessescan be more efficient. it means that startups canbe formed more quickly. one way to say it is that thebarrier to entry for a new

company has never been as low,because of the ability to get mass distribution, quick accessto new information, get your perfect out, get itdistributed and so forth. kai ryssdal: exceptfor the fact that nobody can get credit. nobody is hiring. eric schmidt: well, in fact,people are beginning to hire in certain sectors, startingwith the ones that are benefiting from thestimulus package.

so there's some of that. and as long as you have areasonable credit rating, the banks will hire you. the issue with credit in thelast six months is there were an awful lot of non-standardcredit. so think about all thesedevelopers that were busy building these hugeluxury resorts. they didn't use traditionalcredit mechanisms. they used complex credit equity swaps andother kinds of things that

i didn't fully understandthat essentially have all gone away. and their problem is theycan't refinance. one of the issues, by the way,is that there's a significant crisis in commercial creditcoming, because all those buildings were refinanced atvery high debt ratios. and those things roll over,because they don't work like mortgages like we havein our homes. and when they roll over, theywon't be able to refinance.

kai ryssdal: what about thething you were talking about a moment ago, the consumers? there are consumercredit problems coming and there's still-- i'd be curious to getyour take on this-- a trepidation on the part of theconsumer who still fears for his job. eric schmidt: in fact, in marchwe had net savings in this country.

it was historic. we should have had a party. and so what's interesting is,of course, we'll quickly go back to net credit, becausethat's how our economic structure is. kai ryssdal: but do you believe consumers are ready to-- eric schmidt: i do. kai ryssdal: really?

kai ryssdal: even in the faceof rising unemployment? eric schmidt: because what willhappen is, as we bottom through the recession-- we're in the bottomingprocess now. one of the signs of recoveryfrom recessions is that inventories get worked off. there's new demandsfor product. a typical example is cars. they did an analysis of thenumber of cars that you sell

per year, and the numberof cars that get older. and there's an unmet need fornew cars, because people have not been able to get thefinancing and so forth for new cars. well, as financing gets better,as consumer confidence grows, people willbuy those cars. and that's obviously good. kai ryssdal: start gettingyour questions ready. go ahead and line up atthose microphones.

we'll open it up herein just a second. what kinds of conversations,shall we say, have you had with members of theadministration about getting the government back outof the marketplace? eric schmidt: the answer thatthey give is that we're in and we'll get out. kai ryssdal: oh. eric schmidt: and when ilook at the criticism-- and i think it's known i wasa strong supporter of the

president and his program-- the one really legitimate, inmy view, criticism from the other side was that once thisspending and once these tentacles get in from thegovernment into the private sector, and in particular thespecial interests that depend on the temporary spending, itbecomes permanent spending. i think that's a very legitimatecriticism. and the administration has saidthat they're going to answer that question by verystrong steps in favor of

transparency. they're going to show wherethe money went, what it went for. they're using the web in cleverways, and they're good at this stuff. so i think that as citizens weshould hold them to that commitment. and we should see after thestimulus bill, more than $800 billion, let's make sure thatthat part ends and we get back

to our normal business, becausethat's ultimately the secret of america. kai ryssdal: do you thinkthey've met commitment to transparency yet or do theystill have a ways to go? eric schmidt: they have donetheir initial filings. kai ryssdal: so kind of? eric schmidt: well, no, but-- they're on schedule, but it'sa two year program. so so far they've doneit, but again you can

imagine they say it. they meant it. they did it the firsttime, and then they forget about it later. and that would not be ok. so we need to hold themaccountable for the commitments that they make aspart of taking our money, if you will, and make sure thatthey really follow through, using the tools that areavailable on the internet.

and what's great about it isthat, although most of us don't have time to study thesethings in detail, for every program in the government ifyou basically publish what they're up to, there are groupsthat will monitor. they will keep them honest.they will check their commitments and what they say. that's one of the great thingsabout governance in the internet age. kai ryssdal: again, microphonesright there for

those of you whohave questions. there was a panel here thismorning in this room, maria bartiromo, and douglasholtz-eakin from the mccain campaign, and austan goolsbeefrom the white house, and david wessel from thewall street journal. and one of the big themes intheir discussion was business investment. in an economy where consumersare afraid, how do you convince businesses that theyhave to step up and take a

leadership role? eric schmidt: well, businessesare run, american businesses are run pretty rationally. they look at demand andthey make their investments based on that. and the fact of the matteris most companies have-- many companies have actuallyfairly strong cash positions. kai ryssdal: most,in fact, right? i mean even today, most.

eric schmidt: surprisinglyso, and some of that is regulatory in nature. some of it is the way ouraccounting system works. but the fact of thematter is-- again, this is unsung. we always focus on thebusinesses that are credit-sensitive. many businesses, google beingone, have lots and lots of cash, many of the high techbusinesses and so forth so

we're waiting, if you will, forconfidence to come back, for the markets to come back. and we know that they will. kai ryssdal: you'rewaiting for us. we're waiting for you. eric schmidt: but that's whythese things take two years, rather than one week. that's why there isa business cycle. and the funny thing is i cantell you that we're in a

business cycle, and you'll say,no, we're not, because it's like all a disaster. but in fact, a month from now,things will be better. if you look at unemployment,for example, in the most recent report the loss of unemployment has gotten better. kai ryssdal: the rate at whichthe economy is losing jobs. eric schmidt: again, thesigns are there. kai ryssdal: yes, sir?

audience: hi. brian lehrer from wnycradio in new york. eric, i use google all day,every day, like a lot of people in this room, but isthere ever a point at which google becomes so big that it'skind of scary and needs to be regulated asa public utility? we kind of reached that withmicrosoft in the '90s, some of the same discussion. when you're aggregating all thecontents of books, when

google news is the place thatpeople go for news content, instead of the sites, new yorktimes and everything else that you're aggregating and you knowsome traditional media are upset with you for that,seriously, literally, is there a point where you need to beregulated as a public utility? and if you can, please addressthe news content question in particular. eric schmidt: you'llbe surprised that my answer is no.

and i would offer as a scenario,would you prefer to have the government runninginnovative companies, or would you rather have the privatesector running it? and there are models, and thereare countries, where, in fact, the government doestry to do that. and i think the americanmodel works better. audience: but eric, if i couldjump in, i would expect a more sophisticated answer from you,because as we saw with the banks, it's not a question ofsoviet-style communism or free

market capitalism. the banks needed smartregulation that they didn't have, as i think youwere just saying. is it possible that information is in the same boat? eric schmidt: well, again,my answer would be no. and perhaps i should expandon my answer. google plays an importantrole in information. and the reason you're askingthat question is because

information is importantto all of us. we run google based on a set ofvalues and principles, and we work very, very hardto make sure people know what they are. so for example, for you as anend user, if you become dissatisfied with google, we'llmake it easy for you to switch to a competitoror another choice. in fact, we have a group whichis called the data liberation front, which works forus, that actually--

sorry-- which basically works very hardto make sure that there are no ways in whichwe trap data. so there's a long listof things like that. and companies are defined bythe values that they were founded with and that theyoperate with today. and so if you're concerned aboutthe need for regulation of google's role, part of myanswer would be that the company is, independent of myleadership and the founders'

leadership and so forth,the company is formed in a certain way. a thing that you should beworried about is it that a combination of special interestplus unintended regulation could in fact preventthe kind of consumer benefits that we pushso very hard to do. and part of the other pushbacki would offer is that the things that we do areavailable to others. there's nothing particularlysecret, in the sense that

we've just invented stuff, butwe haven't largely prevented people from doingtheir own thing. it's pretty easy for peopleto try other things. i'd like to see some other folkstrying to lay out an agenda for innovation. with respect to the newsquestion, which i think is what you're reallytalking about, there's a couple of comments. the internet arrived, and asit arrives, it displaces

industries in reallyprofound ways. and it's not necessarilythe players' fault. it's really about how consumersbehave. in the case of news content, news readers,that is the customer, if you will, are busy readingnews online. and we have not yet figuredout the perfect ad model for that. but one of the things that ishappening is it's affecting, for example, the newspapereconomics, along with the loss

of classifieds, cost ofprint, et cetera. i don't know how to solve thegeneric newspaper problems. and we talked a lot about thisto them, because it's a shared interest. it's, from myperspective, a huge tragedy that we would lose investigativereporting in our country, which has driven somuch of what we really know and really driven transparencyin lots of fundamental ways, both in the us and globally. we're working on a whole bunchof products in that area, to

try to do it. there is a tension here, becausethe newspapers give us access to their content, andthen they complain that we don't pay them out of ourother businesses. when we tried that, there's notenough revenue that we can yet get from their content, andso we would essentially be subsidizing them. that's roughly the answer. kai ryssdal: this company's mostfamous value is don't be

evil, right? it became iconic when youguys went public. does don't be evil alsomean always be good? eric schmidt: i didn't majorin that philosophical question, so that's a reallyhard question. a simpler answer mightbe that don't be evil is a way of operating. unfortunately, if there werebook that said what's evil and what's not evil, then wecould just consult it.

what don't be evil says is whenyou face a question, ask the question. and it's almost like a ripcordwithin the company. and when i first ran thecompany, i thought, this is crap, right? this is young peoplehaving a good time. so i'm sitting in the room andwe're having a conversation about a particular ad product. and one of the engineers,whose name is ron, says,

that's evil. and it was like a bomb goingoff in the room, and i felt like hiding under the chair,because all of a sudden the whole conversation stopped. and there was this lengthyconversation as to whether the decision was based onour principles. and the principles of google arebasically about end users. so to answer the earlierfellow's question even more deeply, we try to makeour decisions

based on end user benefit. many industries, whether welike it or not, are not as organized around enduser benefit. they're often organized aroundthe supplier benefit or the shareholder benefit. we try to focus on end users. kai ryssdal: one more spin offof brian's question and then we'll get to this side ofthe room, i promise. a lot of your answer sounded alittle bit like what you said

in the beginning. how do we know that theeconomy's getting better? because the people who gotus here told us so. it was a little bitof, trust us. eric schmidt: well, what'syour alternative? don't trust us? kai ryssdal: not buy yourstock, i guess. i don't know. eric schmidt: but thegood news is--

kai ryssdal: i can't not useyour products, right? eric schmidt: sure you can. we have competitors. kai ryssdal: yes, but come on. i mean, i'm on reader. i'm on mail. i'm on this. i'm on docs. eric schmidt: i'm glad to haveyou, but every one of those

has an able competitor. they really do. kai ryssdal: yes, ma'am. audience: thank you. shelly porges fromwashington, dc. google has obviouslydone phenomenal-- has promoted the democratizationof information in a great way, and has, infact, promoted the development of a lot of innovation in smallbusinesses, or large

businesses, for that matter. what role can you play goingforward to help us get out of this, or do you envisionyourself playing an active role other than what younormally do as part of your day-to-day business,number one? eric schmidt: democratizationof the society or-- audience: no, democratizationof the information. i'm sorry. information distribution andaccess to information.

and then, related to that, thequestion before came up, where is the turnaround goingto come from? and one thing that has seemedto be not commented much, other than the broad topicof innovation, is small businesses. small businesses created halfa million more jobs in the last recession than they didin this recession, yet you hear all the talk going around,the stimulus package, big companies, big sectors,that sort of thing.

so how do you see google playinga role in all that. eric schmidt: for the secondpart, it's pretty easy. the internet is such a greatfriend of small businesses that much of our partnerships,much of our advertising revenue, is driven by smallbusinesses, because of our self-service advertising. and furthermore, our auction inour business is designed to not favor the big guys, whichis of constant annoyance to the big guys.

and the little people nevercomplain about this, because they know that in traditionalaccounting structures, they're the ones that are disfavored. so we think we make a goodstep forward on that. so with respect todemocratization of information, it first getsback to whether the information is publiclyavailable. and one of the things thatwe've learned is that governments are not asinterested in transparency as

you might think. if you're a governmentbureaucracy, if you're a government bureaucrat,then google shows up. and we're sort of a pain in theass, is a way to describe it, because all that canhappen is you can get embarrassed by access toall this information. it's oversight, andmany organizations don't really have that. so we've argued, for example,that all of the hearings that

happen in the government, in theus and elsewhere, should be webcast raw. and it's easy to do. it's inexpensive. many companies can do it. and that way, you couldliterally see what all the public meetings are doing, andnot have to attend them. audience: so like govtubeinstead of youtube. eric schmidt: yes.

so there's lots ofthings like that. and the technology is veryinexpensive to do this. it's not a big thing. and i think it would helpa lot with oversight. kai ryssdal: yes, over there. audience: eric, sam perryfrom menlo park. eric, you've shared with us inthe past-- one of the other previous panels in this tentthis morning was on energy policy in the future.

and you've been very open insharing what google has been doing the last couple ofyears in that area. to segue off of the lastquestion, what can google do and is it doing to help smallbusinesses, but also individuals-- i know some of the individualstuff is coming to the front now-- to conserve energy,that aspect of the next part of the agenda.

eric schmidt: so you'd have tobe living in a cave to not understand how serious theclimate change threat is at this point. and the people who spend theirtime saying it's not true must not notice the change inseasons, the fact that it gets warmer earlier, the increasedvariability of weather, the loss of biodiversity, the many,many things that are going on that everyone sees. so we're in a situation, as weknow, where climate change is,

with the possible exceptionof a true nuclear war, the greatest threat affectingmankind and our children and grandchildren and so forth. so from our perspective, ourcontribution is, first and foremost, to work on ourown use of energy. so we have the most efficientdata centers and so forth. we use a lot of power. but we've also decided to putour money where our mouth is and begin to invest inthe supply chain.

so we put together a seriesof-- we studied this for a while, and the most promisingthings are, for example, with wind technology, the solarthermal, solar photovoltaic, enhanced geothermal, thosesorts of things. we've been putting money intothose investments to try to build the demand structure,because we have good cash and we're obviously a good customerof this, and we know we're going to need it. we also authored a plan calledthe google energy 2030 plan,

and the thing that was botheringus was, why doesn't somebody just add all the moneyup and figure out how much it's going to costto fix this problem. this is a classic big scalesystems engineering problem. and we were shocked to discoverthat we made a trillion dollarsby doing this. and you sit there and you go,this guy must be mad. well, we work at google. it's sort of a crazy place.

but it turns out that if yousave the capital to build the excess plants, if you save allof the downstream expenses for these enormous capital expenses,and instead you take the equivalent amount of moneyand put it into renewable over, in our case, a22 year period, you actually make money. another example is that if youmove to higher efficiency cars through hybrids and betterefficiencies, better car designs, and get to the 50,60, 70 mile per hour car,

which is clearly technologicallyfeasible, you save so much money in terms ofliterally the gas prices, which drives everybody crazy,that you really can make a dent in this. so i would offer inthe climate change area a note of optimism. i don't know whether thecopenhagen protocols and that are going to be successful ornot, but i do know that in our own country we can, asindividual actors, take the

necessary steps to, by the way,do the most boring thing first, which is to insulateyour house and insulate your building. at google, we were having ameeting and i said, well, ok, how much is it going to cost? and he said, oh, a millionand a half. that's a lot of money. i thought, ok, what'sthe payback? and they said, oh,it's 18 months.

and i said, it's an 18 monthpayback for a million and a half, and you haven'talready done it? and he said, no oneasked us to do it. do it. all you have to do is do it. it's so obvious. kai ryssdal: do you ever getsick and tired of the, what can google do about thehigh cost of milk or health care or--

i mean, with this ubiquitycomes a certain responsibility, no? eric schmidt: in the audience wehave an author of a book on that subject. kai ryssdal: standing rightthere, in fact. eric schmidt: i guess we'llget to jeff shortly. if google is a metaphor forthinking differently about problems, then i'mhappy to be it. and it clearly helps us froma branding perspective.

there are limits to whatgoogle can do. we are a relatively simplecompany, built around information and serversand the web. many of the problems that peopletalk about are much more complicated. so as i've looked, for example,at the health care bill and so forth, thecomplexity of that system is well beyond what any companyor any architecture could really attack, i think,right now.

kai ryssdal: do you thinkconsumers really buy the fact that you guys are asimple company? eric schmidt: compared to theother companies, believe it or not, google's prettystraightforward. daniel casse. the first questioner asked youa question about microsoft. i wanted to follow up on that,since microsoft was the company that everyone used totalk about in technology, before you came along.

in five years, what businessdo you think microsoft will be in? what business would youadvise them to be in? and in what ways are you goingto compete with them? eric schmidt: sure. these are extraordinarilydangerous questions. we have trouble predicting thenext 12 months at google. you're asking me a fiveyear question in a different company?

kai ryssdal: butyou're google. eric schmidt: you setme up for this one. kai ryssdal: not a plant. eric schmidt: microsoft's corebusiness comes from two products, windows and office. they have very, veryhigh market share. they were found to be a monopolyin one of them. they are clearly a monopolyin the other. they're under variouslegal restraints by

virtue of that behavior. so the first and most obviousanswer is that they're going to continue focusingon those things. the issue that microsoft andmany other companies are facing is that there'sa shift to different architectural model. and sorry to be so technicalhere from a minute, but it's called cloud computing. and basically, it means thatthe network is now reliable

enough that you keep allyour information there. and the idea is that you pickup any kind of computing device and the information isthere, even if somebody just hands you a device. you just say who you areand off it goes. and this is a very, very bigdeal in the computer industry. and it's one which companieslike microsoft need to figure out a way to makethat transition. google is organized aroundmaking what's called cloud

computing a core part ofthe next generation of architecture. kai ryssdal: yes, sir. audience: thanks. my name is randall kempner. i run something called the aspennetwork of development entrepreneurs. it's a group that promotesentrepreneurship as a means to promote sustainable

development in emerging markets. so with that background, myquestion to you is how do you, or how does google, viewinformation technology as a weapon, as a mechanism tosupport sustainable development? and in particular, is googledoing anything to make sure that it's not doing evil inemerging markets like africa and latin america? eric schmidt: weare doing some.

and i would argue we arenot doing enough. africa is a very good example,because this is a continent of people largely trapped withoutvery much information. a curious statistic is that theinternet connections to africa cost more than they doin the united states, even though the country is infinitelypoorer, which has to do with a regulatory failure,a governance failure, and so forth and so on. so we've been working very, veryhard to build what are

called proxy caches, that youcan put in the countries, accelerate the local access. we're also doing things-- mostpeople who are in very, very poor situations have mobilephones, which is a great accomplishment. the rough number is somewherebetween three and three and a half billion mobile phonesin use today. by the time, maybe 10 yearsfrom now, it looks like 5 billion to 5 1/2 billion peoplewill have either a

mobile phone or access to one. and they can use those to dothings like sms texting, where they can get a lotof information. so with respect to sustainabledevelopment, there's this conflict between rapid evolutionof the economics and the sustainable development. we can help market it. my fear is that most of thesecountries, the fundamental problem is a corruption problem,that the industrial

structure and economic andpolitical structure are not mature enough that when you makethe investment that it goes to the right placeand achieves the right regulatory outcome. kai ryssdal: jeff. audience: i'm jeff jarvis. i wrote a book called whatwould google do? and i won't ask you. since doing that, a notionclarified in my mind that i

wanted to try out on you, isthat what we're going through right now is much more thana recession or a financial crisis, that it is a fundamentalrestructuring of the economy and society, goingpast the industrial age of mass production, distribution,marketing media, into something based on knowledge andabundance and the things that i did write thatyou're about. and when we see what's happeningto automotive, and banking, and newspapers andother parts of media, soon

probably advertising, bigswathes of retail, real estate, we're seeing a huge andfundamental restructuring that i don't think is going togo back, and that a lot of new companies, one hopes like yours,are going to start creating new versionsof these industries. am i going too far? eric schmidt: i think so. of course, you're good at it,because your book was about taking some ideas and reallytalking about them in a global

context, and very successful,i might add. i think the evidence right nowis that while i'd like what you said to be true, it'snot today yet true. i'd like us to make it true. and the reason is that almostall of the money, and almost all the people, and almost allof the capital is not going to where you described it. it's going into traditionalbusinesses and traditional industrial and serviceoperations.

i think one of the ideasaround the aspen ideas festival is to talk about newideas, like the one you proposed, is how could youaccelerate that transition. what happens is that you get ayoung entrepreneur in the kind of industries that are difficultto transform, and when you talk to them, they'vehit so many regulatory barriers, so many barriers toentry, so many other ways, that we need to find waysto make it easier. so as a young engineer, i wasvery interested in trying to

make the internet moresuccessful, and i ran into the regulatory structureof the telcos. so, for example, there wassomething called a t1 line, and what happened is everyonefigured out how to build a business beneath the regulatorypricing for a 1.5 megabit t1 line. so an artifact of regulationwas that a whole business was created. had the regulation not beenthere, we would have been five

years farther along. and i think if you look at everyone of these businesses, you'll discover that theincumbents, typically large companies working withregulators, have ended up making a cozy structurefor themselves. and when the truly discontinuousidea comes along, it's not in anyone'sinterest to take it on. and that's why the marketpressure is so fundamental. so getting back to our earlierconversation about the

government and its role,governments are not particularly good at dealingwith change. one executive told me that hightech works three times faster than traditional businessand government works three times slower thantraditional business. so that may be anextreme case. we designed our government notto change very quickly, and yet we are asking forvery rapid change. it has to occur fromthe private sector.

it has to occur from enlightenedleadership. and it has to occur in areaswhere money is being made. audience: so could google onlybe google because you were doing something new? eric schmidt: i would argue thatgoogle is as successful as it is primarily because ofthe openness of the internet, that had you had brilliantfounders such as larry and sergey in a difficult, regulatedindustry, the progress would havebeen much slower.

and people always give us somuch credit, but let's give credit to the people who foresawthe internet, opened it up, designed it in a waythat it did not have significant choke points, madeit be possible for random people, including 24 year oldsin a dorm to enter and create something new. that's a story of innovationthat's very, very precious. and we need to make sure thatwe preserve it for the next competitor, by theway, of google.

kai ryssdal: let mejust zero in for a second on that question. do you not then believe thatthis economy has been, through the past two years and thechanges we've seen, fundamentally reset, that we'rejust going to proceed from here apace? eric schmidt: well, i wouldlike it to be true. my question to you iswhere is the data? when i look at most of where themoney went in the economy,

when i look at all the politicsand all the bills and so forth-- and i've supportedmuch of this-- most of it's going to the incumbents. now, with a counterexample thatthere's now-- we doubled our national science foundationfunding from $3 billion to $6 billion, whichis a drop in the bucket. there's more money forappropriate medical research and those kinds of things, butfundamentally, if you look at it mathematically, the majorityof the power and

control is still not aroundreal innovation. and that needs to change. kai ryssdal: is googlestill a new company? well, hopefully. you guys have been aroundforever, it seems. right? our collective experience is,oh, yes, it's google. eric schmidt: well one of thethings to say about brands is that brands can be createdvery quickly. had anyone heard about twittertwo years ago?

and yet twitter is aphenomenally successful company and brand. who here knew about facebookthree or four years ago? phenomenally successful. so one of the things that's neatabout being in our world is that new companies and newbrands can come along. in google's case, we believethe way we run the company, which is rather unusual,keeps it sort of young. in particular, our engineers areencouraged to spend 20% of

their time working on whateverthey want to work on. and before you get too excited,these are engineers, so they don't move toofar from a field. but virtually everything we'vedone that has been creative has really, reallycome from that. and top down, centralizedcontrol from people like me is not going to drivethe creativity. i've read about google's, say,tracking epidemics by using search information.

and i'm wondering how else youplan on using the search information in the future. and if it will be regulated, ifyou think you'll be able to keep control of that kindof information. eric schmidt: a verygood question. so everybody knows we puttogether a flu trends program and we used anonymized data. that is, we took the searches,but we took away the information about the person.

and we discovered that becausewhen you get a symptom like a disease, the first thing youdo is you type the symptom into google, we could see monthsbefore the official reporting agencies could seethe emergence of a new horrific disease. and the estimates are thatthis will save tens of thousands of lives. that's a huge, huge thingfrom our perspective. we're very excited toparticipate in that.

we don't take that too far. and the reason is that thereis a very fine line between anonymizing information to makepeople healthier and then the sort of spookiness andprivacy issues that we're so concerned about. in the european commission,there are a series of laws, called the european data privacyinitiative, which regulate this to aboutan 18 month period. and so it looks like historicallogs, literally the

things that you've done fiveyears ago, will be deleted both by policy andalso by law. there's a very legitimatetension between the state interests in, for example,police action, and then your interest in privacy. and each country sorts thatout differently, and we're subject to all of those laws. my own guess is that we'll endup with about an 18 month period for search logs and we'llbe very careful about

using much of that beyondthings like flu trends. kai ryssdal: again though,it comes down to trust us with this data. eric schmidt: well, in thiscase, it's also trust the government. and depending on your point ofview of the patriot act, that's a good or a bad thing. so again, this tension-- we made a decision that we don'tknow how to make the

decision about that trade-off,that the political process, that the governments thatdebate this fundamental tension between civil liberty,state interests, safety, and so forth, is not one that weshould have an opinion about. and that was a difficulttransaction, but how could we decide whether it's 18 monthsor 12 months and so forth? kai ryssdal: just a coupleof more, i think. yes, over there. audience: yes.

hi. david [? kunin ?] from new york. can you elaborate-- it's a follow up to jeff'squestion about the old economy, new economy debate. can you expand on the-- so many of what you've donehas been so successful but froogle was a project thatreally wasn't that successful

and has to do-- eric schmidt: why do youhave to remind me? audience: well, can youelaborate a little bit on your view of what didn't happenthere, in terms of being able to use the power of informationon the internet to find low pricing, and to beable, in this economy, where you've got so many stores andtraditional retailers shutting down, what it is about-- so many of the models and somuch of this conversation has

been about advertising modelsor monetization using information, whereas retailabout pricing and the ability to really move the economyinto more of a different distribution model, can youtalk a little bit about pricing and distribution? kai ryssdal: remind us whatfroogle was, and then explain why it didn't work. eric schmidt: so frooglewas our first attempt at product search.

and it didn't work becauseit just didn't work. and we celebrate our failuresinside the company, because we want people to take risks. so we replaced froogle by whatis now google product search, which has been doingpretty well. and froogle was a destinationsite. it had the wronguser interface. it didn't have all theright products. it did not have enoughinventory, that kind of thing,

a long list of thingsthat we did wrong. so one way of stating yourquestion a little differently is to say, how will the commerceworld change now? i think that's roughlywhat you're asking. audience: yes, instead ofadvertising models, commerce. and you have product searchand so forth, and we're exploring that now. let me give you an exampleof a product that we've just released.

it's a product for your mobilephone, and you take a picture with your mobile phone of a upcbar code, and it tells you whether the productis cheaper online. ok, well you can imagine who'sin favor of this product. you can also imagine who'sopposed to this product. but that's an example. and one of the discussions foryou all to think about is what are things that are neat thatwe could do with the collective intelligenceof what people do.

people are smart. and within reason and respectingtheir privacy, could we in fact get betterbargains, better delivery, those sorts of things. and that's just anexample of it. we have, again, googleproduct search, which is doing very well. we have more and more peopleusing product purchasing. you can imagine things likesubscription businesses and so

forth eventually. if you look at the success ofamazon, amazon, i think, proves that this modelworks well. audience: but are you surprisedat how fast or how slow things are moving online,in terms of the growth of online commerce? eric schmidt: i'm prettyhappy with it. i think that most people nowknow that when you buy things for christmas, by far the bestway to do it is to do it

online and then just shipit to the person. and there was a point at whiche-commerce became reliable enough that you wouldn'tbe embarrassed at the christmas party. and so i think e-commerce is notonly here to stay, but now people are arguing over the taxexemption that it has for sales tax and thosesorts of things. so you know that you've arrivedwhen that's happening. kai ryssdal: how hard are youguys working at getting away

from ad revenue as-- eric schmidt: by the way,we love ad revenue. kai ryssdal: absolutely. eric schmidt: we love it. do you know what percentageof our revenue it is? kai ryssdal: over 90%. eric schmidt: 97%. or is it 98%. we love ad revenue.

kai ryssdal: doesn't that numberscare you, though? eric schmidt: no. the serious answer is weare diversified across advertising. we would like, our board memberscall it more legs of the stool, please. and we have a pretty successfulbusiness in the enterprise, which we think isgoing to be pretty exciting. and we've got a number of othersort of subscription,

non-advertising businessesunderway. this one is probably a softball,so it's more of an invitation for your perspectiveon i think what is a reasonably hot topic, andparticularly in your industry. so, talk about immigrationpolicy, outsourcing of jobs, h-1bs, the balance of humancapital trade, how many people are we sending overseas anddoing the same thing yet at the same time trying to shutdown the reciprocal. i'd just be curious aboutyour thoughts.

eric schmidt: again, i don'tknow if this is a softball, but it's like, ok, let'sgo through this. audience: i think i knowwhich direction you want on this one. eric schmidt: let's take thesmartest people the world. let's bring them tothe united states. let's educate them and give themthe top universities, and then let's kick themout of the country. now that makes a lot of sense.

furthermore, they can go tothe other country, create using all of our americanideas, take all of our intellectual property, andcreate businesses to compete with the american firmsand pay taxes to those governments. how am i doing so far? audience: it's a very big swing,so it suggests that-- eric schmidt: do i haveyour vote yet? audience: yes, exactly.

eric schmidt: i've been tryingto figure out what is the intellectual basis foropposing my argument? and there must be-- audience: well, you're engagedwith the administration. you are ubiquitous. so what is-- eric schmidt: i've giventhis speech. i've just been blunterthan i just was. and it seems to me that thereis an intellectually correct

view, which is that everyone isexactly the same and that there's no difference inintelligence or ability between every human being. and if you believe that, thenyou don't live in the same educational system that i do. i just don't understand. we have this amazing, amazingasset in america. the smartest people in theworld want to come to the united states, and thenwe kick them out.

kai ryssdal: do you get anytraction with this discussion in washington? eric schmidt: i justget louder. kai ryssdal: so how doyou really feel? howard, i think this is thelast one right over here. audience: ok. you haven't talked at allabout cyberterrorism, or cybercrime, or just manipulationof data, which is untraceable, and what dangerswe really have as consumers.

kai ryssdal: and it's worthpointing out that people were talking about you as the firstchief technology officer of the united states. eric schmidt: right. better to work for aprivate company. kai ryssdal: you keepsaying that. eric schmidt: we likeprivate companies. innovation is where it occurs. the internet is full--

it's shocking, butthere is actually criminals on the internet. and when i used to talk aboutthis 10 years ago, people would say, oh, howdo you know that? i said, because there are humanbeings on the internet, and not everyone is perfect. and so the internet has had justgeneration and generation of the kinds of attacks thatyou're talking about. a typical example is peoplewill find 5,000

computers that are idle. they'll exploit some bug,often in one of our competitors' products. and they will exploit thatbug, and they will do a systematic attack on a website,called a distributed denial of service attack. and the significant players thatare in the industry are all well insulated for that. so we face this all thetime at google.

so the kind of attacks that youworry about are the ones that are not like that. so you could imagine astate-sponsored attack where they used, for example, the nameservers to spoof you and say this isn't google, this issomebody else, which would require sort of an incorrectbehavior by a government. and we worry about that. we worry about the financialsystem, and in particular the money transfer systems, and thechecks and balances for

moving money around. and that's been a problem. i'm not as worried overall,because the problems that we face, we face not just fromcyberterrorism, if you will, from states and horrific peoplelike terrorists, we face them from 16 yearold idiots as well. and so we're sortof used to it. so i'm not as worriedabout it as others. i think we should-- it's a priceof being interconnected

that you're also interconnectedwith the people who are going to donasty things. and we need to make sure thatour systems are designed to prevent it. the internet grew out of thisnotion of communal sharing, and all of us who've been partof it have had a rude awakening when we discoveredthat the internet could be misused. and again, i think we'veaddressed it, largely.

kai ryssdal: and with that, ithink we are done for the day. eric schmidt: well, thankyou very much. kai ryssdal: thankyou for your--

ankle boots


janet napolitano: dr. ericschmidt, chairman of the board and ceo of google. since coming to google, erichas focused on building the infrastructure necessaryto maintain google's rapid growth. previously, eric served as thechairman and ceo of novell, marking a 20-year record ofachievement as an internet strategist, entrepreneur, anddeveloper of new and great technologies.

dr. schmidt? eric schmidt: thank youvery much, governor. i completely agree with whatrandall had to say. and i'd like you all to think ofinformation technology in a very different way. i'd like you think of it as away that people can actually change their viewsof government. we're now at the point wherethe quality and the way in which your informationtechnology services work for

your citizens will fundamentallyaffect how they view not only your leadership,but government as a whole. because unlike many otherpeople in our government worldwide, the buck stopswith you guys. you actually run these places,and you have tremendous services that you offer. it's also clear that broadband,as randall said, is about to cross atipping point. we're at 50, 60% percentoverall penetration.

at&t and other companies areleading this way, and they're doing a great job. as it crosses the 2/3 point ofactual usage in american homes, it will become the firstplace that people go that the businesseswill be built on. and i want you to think internetfirst, not second or third or fourth, because that'sultimately how you'll transform your fundamentalmission, which is serving your citizens, and reallychange the world.

what's nice about this thinkinternet first message is that the united states is the leaderin the internet, so you have all of the positivebenefits of both the investment that you make in yourstates, the creativity in your universities, representedhere as part of our leadership task force, and the great storythat is the american dream and entrepreneurship. now, most people, when theythink about the internet, think about, as an example,youtube and candidates.

and you all havelooked at this. and indeed, there is a bigdebate on monday, and then a subsequent one in september inflorida for the two major parties, involving youtube. what people do not appreciateis how fundamentally the internet is changing the normalcourse of business. i've give you the numbers. the internet, by far the fastestgrowing piece of media technology ever, three yearsto get to 50 million users.

it took 37 years to do thesame thing with radio and television. there are more than 1.3 billionusers worldwide. we're adding a couple hundredmillion a year now-- and most of those, of course,outside the united states. the mobile phone growth-- when i travel-- and randall and i do this[unintelligible] -- what sound do i hear?

i hear the sound of mobilephones ringing. it drives me crazy sometimes. i guess it always--he loves it. it's the perfect outcome,ring, ring, ring, ring. and it is of even greater impactto have american-led technology changing the world. and the numbers arefascinating. more than 2.5 billion phones,again, growing at on the order of 400 or 500 million a year.

this is all being driven bysomething called moore's law, which you've heard about before,roughly doubling the density of chips every18 months. there's another law calledkryder's law, which says that storage power is increasingby a factor of 1,000 every 10 years. so you say, oh, no big deal. this has some pretty interestingimplications. in the year 2019, you'll be ableto have in your iphone,

or equivalent, 85years of video. so when you're born, we canhand you this thing, and you'll never be able to watchall the video on your device until you're dead. the rate at which thisconsolidation of data storage and computing power ischanging our world is breathtaking. now, my observation is thatpeople everywhere pretty much want the same things.

they want good family,good health. they want safety, security,happiness, prosperity. and they have a lot to say. and they are going to say it inthis new medium, whether we like it or not. the statistics are phenomenal. there are more than 70 millionblogs that exists today, about 120,000 blogs being createdworldwide each day. so no one is readingthem, except for

their author, i guess. 76% of us internet users overthe age of 15 initiated a video stream monthly. 75% of the users 18 to 25are reading or writing user-generated content,as it is called. and few of them are passiveparticipants. and last night, in our ann arboroffice, where we have a nice big operation, i asked asurvey, how many of you have a home phone?-- which is a verystrange question to ask.

and that was clearlythe wrong question. so i said, how many of youdon't have a home phone? 90% of the people raised theirhands and said that their only phone is their mobile device. it gives you a senseof how rapid this change really is occurring. when you think about search,which is the business that google is in, it really fulfillsthe human need for information.

and of course, this is growingvery, very dramatically. and the billions of pages thatwe index and the many hundreds of millions of users that weservice have to deal with this all the time. our next product is reallyabout personalization. here we are in michigan. you do a search for wolverine. now, are you talking abouta sports team, or are you talking about a particularmarsupial?

we need to know a little bitabout you in order to do that. and we now have algorithms andtechniques where we can more or less figure out whetheryou're a sports fan or whether you're really very interestedin science. and if you're both,maybe we'll be a little bit confused. we're trying to close thegap between what i want and what i typed. and to me, google is reallybuilt around aha moments.

for me, the aha moment was i'vealways wanted to climb mount everest, which, if youlook at me, is clearly not going to happen. so i took google earth, and istarted at the bottom, and i climbed right up to the top inthe safety of my office. and i had a great view. you can't do that without thesekinds of technology. here's another example. all of us give a lotof speeches.

and i was told that the problemis speeches is that the microphone rubsagainst your-- [scratching sound] eric schmidt: everybodyknows this, right? so how do you solvethis problem? you tape it to your skin. how do you do that? you get double-sided tapethat's made for wicks. now, where am i goingto buy this?

how would you find outwhere to buy it? well, it turns out you canuse a search engine. and you'll find there, in fact,a whole industry of people who make thissort of thing. i never knew i neededthis product. and now, i have to have it. what's interesting about allof these aha moments-- and google is really builtaround aha moments-- is that they really do createtrust. and then, trust between

ourselves, company, the enduser, and their searches and information becomes paramount. and this is another issue thatyou all are going to face. how do people trustthe internet? in our case, we've changedour privacy policies. we don't keep logs more than 18months, the cookies that we put in place-- which are a technical term-- expire in two years, andother things like that.

but the important pointis it will face this, is everyone's online. what is the privacy? what is the trust factor? do they believe you? is it really true? if we look at information andmass innovation, it's having a lot of other interestingimpacts. the fellow who runs venezueladid not like a particular

television station,so he banned them. so now, they're rebroadcastingon youtube. very interesting. please don't tell him. i don't want him toshut down youtube. this process makes governingboth harder and more, i think, exciting. it's harder because you have,to some degree, less control over the voices.

on the other hand, you have theability to listen to them. and you can imagine that, notonly can google, for example, track all the things thatpoliticians say-- do we agree, disagree?-- but we can also give youinformation as to what people are thinking, more quickly. and then, you can decide whatyour view is and how you should react to it. this phenomena of jumping tothings is really occurring

very, very quickly. it may very well be that thenext watson and crick-- co-inventors or discoverersof dna-- might meet online insteadof a university. and we want them to be in usuniversities, talking to each other over this broadbandnetwork that randall and others are trying to build. so what should you all do? encourage the expansionof broadband.

we are 100% in agreementwith this. it is the basis of so muchof the future of america. the only analogy-- and it seems obvious-- is here we are in abeautiful part of relatively rural michigan. how do you get here? by a highway. what do you do whenyou're here?

you get on your broadbandnetwork, and you have access to the whole world. the interstate highway systemis the 1950s analogy. this is ours. by making information available,you can finally cross this issue of theopacity, or lack of capability, of governments. we have a project generallyknown as sitemaps. we have projects with statesthat we've done this, for

example, already-- arizona, california, michigan,utah, virginia. the states already hadinformation that was on their websites that none of the searchengines could get to. literally, almost all access togovernment services seems to be starting through thesearch engines, and they can't find your service. working together, a similarexample, arizona-- took, you'll be pleased to know,the governor 46 staff

hours to make all this work,available not just to google, but to the other searchengines, as well. and boom-- millions ofpeople in your state have access to this. let's do this together. it's easy to do. i believe when we talkabout education-- and this group has worked oneducation for a very long time-- we all understand howfundamental this issue of job

training and education andhigher learning is. i believe that this nextgeneration of children process information differentlythan we do. it is the generation gap ofwhich we are the elders and they are the juniors. that you face, we face, theissue of transforming the classroom from a classroomto an internet classroom. and i don't mean getting ridof teachers and so forth. they're crucial to makingthis happen.

when i was a young persongrowing up in virginia-- my home and a great state-- one of the things inseventh grade-- governor-- is that i had to memorize the50 counties in virginia. and i'd managed to do itcorrectly, by the way. and of course, i don't rememberthem anymore. why was that memorization soimportant, if i can carry a device that has that piece ofinformation and everything

else in the world withme at all times. what i really needed to do wasto learn how to search, understand, manipulate, andresearch, learn how to think about the state that i love andthe state of which i was a member, and all thethings going on. it's a fundamentally differentway of teaching. and we're not teachingthat way now. and the tools and the techniquesare now available and ubiquitous.

with energy needs, all of us-- craig and intel, and many othercompanies-- are working to deal with climateand climate issues. with innovation, we're allbuilding innovation models. google is particularlyinnovative because of a model called 70/20/10, where 70% ofour investments are in core things, 20% in adjacent,and 10% in others. i would challenge you asgovernors, how much of your budget is spent on trueinnovation that's not

described to you or regulatedto you, or lobbied to you by the many people who wanta piece of your budgets and your attention? how much of it is true discoverythat's going on in your states? reserve 5% or 10%, and theleverage is enormous. this is a remarkable time tobe here, to be part of the united states, theentrepreneurial system that's represented by randall myself'sview of the world.

school children in rural townsvery much have the same access to the students ofoxford, harvard, cambridge, what have you. it's very different fromwhat it used to be. we are very much at thebeginning of a real revolution in education, informationaccess, and governing, and in serving the citizens ofthe united states. so with that, thankyou very much. janet napolitano: well, thankyou very much, randall, eric,

for your remarks and yourcomments to us on the role of innovation as you see it. let me open up the table toquestions or comments from any of the governors who are here,on this or any of the other innovation topics. phil? you've got to press onit and keep it down. [inaudible] phil bredesen: you haveto hold it down.

all right, i'll hold it down. this is probably for mr.stephenson more. you talked as one of the legsof those [inaudible] free flow of capital. and of course, we had in ourlegislature this year, along with many other states,initiatives generated from you to open it up. it did not succeedin tennessee-- i think, as a sidebar, morebecause so many lobbyists were

making so much money out of itthan it did out of the basic approach of it. but the question i have is,there are real issues surrounding the free flow ofcapital and communications, and the absence of regulation. the phone industry that youdescribed grew in a highly regulated environment. the cable tv industry startedand grew in a highly regulated environment.

the internet may have exploded,but that would have been vastly slower without thehuge infrastructure of copper and fiber and so on that weredeveloped that way. what do you feel the role of astate is in terms of trying to ensure equality of access? mobile phones arevery important. there's huge pieces of tennesseewhere i can't get a mobile phone signal, wherepeople who live in those communities can't get it.

what is our role in makingthat happen? randall stephenson: i think,inherently, the role-- and many may not like this-- ismore and more to stay out of the way. the more truly competitive thesemarkets become, i think the less government interventionis required. there was a day-- eric schmidt: --side theunited states directly subsidized broadband deployment

literally with money. and they have a nationalbroadband policy. it's heavily subsidized. and it is, in fact,accelerating their economic growth. so in the american system,where such subsidies are probably not the right politicaloutcome, i can report to you that thefinancials of broadband are so positive that thetelecommunications companies

and the cable companies, and soforth, are in fact seeing economic returnsfrom broadband. the problem is that there arestill regulations in their way, as randall said. if i were a governor and i heardthis message, what i would do is have a broadbandtask force for my state. and i would sit down and iwould say, tell me the 10 things-- and i wouldn'task the industry. i'd ask my staff and thevarious end users--

what are the things that arepreventing us from getting what we want? and i'd go to the industry andsay, what are your problems? and i'd try to figure outa way to bridge them. there are many cases wherelocal, relatively antiquated laws are preventing widespreadadoption of something which is economically positive. the spread of broadband is sodirectly related to the creation of jobs in ruralareas, the use of the

internet, advertisingbusinesses, the business we're in, electronic commerce,and so forth, that it's fundamental. i was in rural nevada. and i happened to be driven bythe mayor of this small town. and he was explaining to me thathis basic problem was he could not get thetelecommunications company to put a fiber optic cable to histown because he wanted to create an outsourcing center.

we want all the mayors tothink about where is the fiber, and do they haveenough of it. and that will then putpressure on their own regulatory bodies to work withthe local guys to get this stuff built. janet napolitano: good. governor sebelius? kathleen sebelius: eric, sinceyou're here to give us a new way to look at a lot of theinitiatives moving forward,

i'm struck by the fact thatthe numbers that you gave, which i think all of us knowintuitively about phones-- who has a landline phone, whonow is just using a cell phone-- we can translateinto our own kids. but it has an interestingapplication when you go to polling. eric schmidt: states havemany overlapping lists of their citizens. they have polling data, driver'slicense data, other

kind of regulatory data. and there are tremendousinefficiencies in how those services are delivered becausethey don't have a way of seeing one person as the same. and there are some reasons thatthat structure exists, including concernover privacy. so to the degree that we canaddress privacy and misuse of driver's license data and soforth, it would be very good if states had a better modelof who their citizens were,

and they knew roughly wherethey were, or they had an ability to reach themin an emergency. i'm struck by, as an example,you find out that in your state, there's a mortgagecrisis. and your citizens-- a good percentage ofyour citizens-- are going to default. so you as a good legislatorfigure out a way to give them some credits.

how do you reach them? how do you reach them today? the television they don'twatch as much anymore? you can't call them at home. the canvassers are offdoing something else. you have to find a newway to reach them. and an obvious way would be tohave more use of the web, more use of electronic mail, andget them to choose to communicate with you on theirown terms. people are now

choosing to communicatedirectly. the polling question is muchharder because people are harder to find, if you will. and i think what we'll seein polling is many more estimates, which is notnecessarily good, but probably the best that we can do. janet napolitano: very good. governor sanford,let me just-- governor sanford, then we'llhave governor corzine,

governor douglas, governorbaldacci, and governor pawlenty. and then, we'll have to cutoff the questions-- eric schmidt: --taken strongpositions that more choices are good, whether it's vouchersor charters schools, or so forth. my personal view is that almostanything that we try will give us some experience ofdifferent models, and that we should encouragethat experiment.

one thing i will also tell youis that we now have the ability to measure outcomes. so rather than arguing aboutwhat could happen in these infinite strategy meetings thateverybody seems to have in this subject, why don't yousimply try five different initiatives and see what works, and measure the outcomes. and we'll accept anypositive outcome. janet napolitano: randall?

randall stephenson: verysimplistically, i don't care what endeavour it is, ingovernment, in business, or anything else, competitionis good. it's just inherently part ofa free market society. i just think more competitionis good in every endeavor. and so i would always encouragecompetition. janet napolitano: governorcorzine. jon corzine: thank you. let me first just make anobservation to randall that

this isn't just the spread ofbroadband and implementation of those programs, which we'vedone in new jersey. it isn't just an issueof rural consumers. there are the difficulties ofbringing this into urban areas and actually and may evenbe bigger hurdles associated with it. i wonder if you wouldcomment on that. and then, eric, it's very hardto argue with the evolution of how we disseminate informationand how we communicate.

but the oversight, some mightsay the regulation, of how the internet works is somethingthat's increasingly a concern to our citizenry, particularlyfrom predators who use what is obviously a great leveragedevice in a way that becomes harmful to society. and i wonder if you want tospeak to what you think the role of government is or isn'tin that world as we see this inevitable evolutionand strengthen the technology system.

randall stephenson: in terms ofurban areas and broadband coverage in urban areas, i can'tspeak to new jersey. we don't have thatin our footprint. but as a rule in our 22 states,the urban areas are very, very well covered. i would tell you we have donemore to make it available to urban areas in termsof pricing. we have a $10 broadband productavailable for anybody that wants broadband.

the dilemma we have onpenetrating urban areas that we're working-- and we're working thisvery aggressively-- is the cost of a computer. in urban areas, the density ofcomputers in the homes is not that great. so what can you doto improve that? we're working with intel on adevice that is not a full pc, but it's a device that canaccess and then utilize

internet, and hookto broadband. can you get $100or $200 device? we could subsidize that andtruly begin to penetrate urban areas with broadband access. but i think that is the longpole in the tent, if you will. can we get the computing devicein the house, that cost, down? janet napolitano: eric? eric schmidt: on the wirelessaspect for cities, one of the

good news about cities isthat they're dense. and so wireless broadbandsolutions, including some that are free or very, very low cost,are in developments. i think we have some hopethat technology can really help there. with respect to the oversightand regulation of the internet, one of the great sortof sadnesses of my career is to discover that there areevil people on the internet. those of us who were part of theinternet 20 years ago, we

didn't think therewould be any evil people on the internet. and now, we find themleft and right. and they spend an awful lotof time sending us really terrible emails inthe form of spam. there's a series of thingsthat society has to do. the first is to talk aboutit so that people are aware of it. schools need to spend a fairamount of time educating

children about it because nomatter what we do, on the margin, there willbe a new attack. and they'll find a 13-year-oldboy or girl and potentially put them at risk. and that's a trulyterrible thing. from a government perspective,the interesting thing is that virtually all of the things thatwe're upset about on the internet are, in fact, illegalin the states in which they are performed.

so it does not appear as thoughthere's a need for some a whole new national set of lawsin this area, but rather the development of the toolsand the techniques of law enforcement to discover,track, and so forth. and there, companies like googlecan actually help in the sense that we do have apretty good idea of what people are doing. and under the appropriatelegal systems, that information can be used to help,essentially, apprehend

the bad people. there are issues whenyou cross borders. so for example, you'll havesomebody who's doing something inappropriate, where theus law does not reach. and there are probably issuesaround trade agreements to make sure that we can have quickresponse for sorts of things, as well. janet napolitano: yeah, and iwould also add to that, i think the early childhoodcommittee meeting this week is

going to be talking about onlinepredators as one of their topics, so obviously,an issue of great concern to all of us. governor douglas. jim douglas: thank you. earlier this year, i signed intolaw a bill to create a telecommunications authority toboth get out of the way in terms of expediting permitting,and, as governor rendell suggested, make surethat we deploy infrastructure

in rural, remote parts of thestate that may not be economically feasible forthe telecom providers. but one discussion point thathas come up is, what is the future of infrastructure when,in this era, we have a phone becoming a computer becominga television, providing different types oftelecommunications services? are the federal grants we'regetting to deploy fiber optic cable really forward looking, orare they a generation that perhaps will pass?

we've got a satellite companyoffering to do a pilot program in a rural part of our state. what's the future ofinfrastructure for telecom? janet napolitano: inten words or less. eric schmidt: let me-- a quick summary is that fiberoptic bandwidth has almost no limit of the amount of bits thatyou can put in it with the appropriate upgradesof the ends. so you should be proudest ofall that fiber that you're

busy laying because that fiberwill last for 25, 50 years. and people will be doing amazingthings with that fiber in our lifetimes. randall stephenson: morefiber is a good thing. i don't care where you areor when you're doing it. more fiber is good. janet napolitano: so it'sa pro fiber diet for telecommunicationsis where we are. all right.

governor baldacci. john baldacci: and firstly, iwant to thank you, janet, for your leadership and the issuesthat are being discussed. i find them very interesting[unintelligible]. i would like to ask randall aquestion when he talked about the needs in rural america. governor douglas and governorlynch and myself in maine are coordinating, in the rural partof northern new england, an it cluster to [inaudible]

industry support, to give us acurriculum, to give us some of their recipes and needs fortheir work force, so that we can transition our peoplefrom the old economy to the new economy. and the challenges is to findthose companies that are willing to partner. and there's new studies comingout showing that it's probably better, more productive, moreretention, instead of outsourcing to india, it isto do it in rural america.

and we offer the opportunity inrural northern new england to be able to come out withthese sorts of things because we've changed our educationalsystem from two years of math and science to four years ofmath and science and have eliminated tracking, so thateverybody's thinking about higher education. but industry partnering, ithink, is a huge help to me and to our region. and i would just put thatat your doorstep.

and you're representingindustry today. so i'd appreciate any commentsyou have on that. and i think governor douglasasked the question i asked. at what point is it going tobe either the television or the telephone, or which one isit going to be that's going to end up being the onethat everything ends up coming through? because it just seems like itjust completely evolves and changes, so much sothat it's amazing.

so eric, if you could everlook down that road and just tell us. because it used to be everybodywas in their own compartments. and they had their ownresponsibilities. now, it seems like the wholething is merged. and they're all competing witheach other, which is great. but at what point [inaudible]? randall, and then eric.

randall stephenson: in termsof the partnering, i accept you laying that atour doorstep. i think it's importantfor industry and government to partner. in fact, a few leaders in ourarea where we do business prevalently, we are partneringwith in this regard, especially as it relates tobringing some of these jobs back from india, specifically,and trying to get the skill sets up to make sure that wehave a workforce that can

accommodate the volumesthat we're going to be bringing back. in terms of which device isgoing to win, there are three screens that matterin my world-- this wireless screen, thepc, and the television. all three are going to berelevant for a long time. i think the companies that canmake those kind of work together, and seamlessly,i think will stand a big advantage.

but i'll let mr. internetrespond to that, as well. eric schmidt: thank you. most people assume that allthe devices that you carry will end up as one. and unfortunately, i think theinverse is probably true. you'll probably unfortunatelyhave more devices. you'll have, what we say, ipaddresses even in your shoe because there'll be somethingthat's useful in your shoe that the internet will need toknow about, like how far you

are or where you are. i carry my old phone,my iphone, my blackberry, and my camera. and now, i have a zipdrive that doesn't fit any of the four. thank you very much. this is not convergence. the trick, as randall pointedout, is that all of these devices, along with theseamazing televisions that are

being built, and amazing new pcscreens, will have access to the same information. so you'll be able to use yourphone or your handheld device, or whatever other device youuse, to access the same then, when you go toyour office, you'll be able to see it. and when you go home, you'llbe able to see it. and then, you can workall the time. janet napolitano: oh, boy.

thank you. and governor pawlenty. tim pawlenty: thisis for eric. we talked about the it, or iguess, the internet classroom. we have, of course, thisgeneration behind us, absorbing informationfundamentally differently and transmitting it fundamentallydifferently than even my generation. and so our children-- my14-year-old, my 11-year-old--

they instant message,text message, myspace, youtube, email. it is completely different. and yet, we are in classrooms,even though we have smart boards and internet classroomopportunities, where we primarily still have peoplestanding up with erasers in front of white boards andlecturing, and boring children, particularly atthe high school level. and we are still usingstandardized textbooks, which

are a one-size-fits-all, kindof assembly line approach. beyond white boards, beyondsome internet classroom opportunities or online learningopportunities, what is the future of the internetclassroom in a way that might allow us to leverage technology,better customize learning opportunities acrossan array of needs and abilities and speeds? what do you see for the futurein that, and what policy suggestions wouldyou have for us?

eric schmidt: a coupleof observations. the teachers of america areamong the most isolated working professionals that wehave. they have relatively few opportunities to spend time withtheir peers, to learn how to be better teachers,and so forth. with the internet-- and thenational governors association has been part of it-- there arenow groups that are trying to standardize not just thetextbooks, but also the teaching tools, the teachingmethodologies, and in fact,

producing videos of the greatteachers to augment that. so that's observationnumber one. the internet, which is nowpresent in pretty much every classroom in one form oranother, we finally now have a way of getting intothat classroom. the second observation is thatthe modality, the way in which people are teaching, has tobecome more interactive. fundamentally, in thisnew world, it's an interactive world.

it's a personal world. and that means two things. it means the teachers actuallyhave to have a conversation. the students have to interactwith the media. and there needs to be a test.and the test needs to be based on the outcome, not the timespent in the classroom. and a simple change, a simplelegislative change, that would allow some flexibility and someexperiments with that and then, test the outcomes, wouldprobably begin to show the way

in each and every one of thestates represented here about how citizens really can takeadvantage of this [inaudible]. what is interesting to me is, ioriginally thought that this information was not availableon the internet. there are tremendous amountsof teaching resources available on the internet, andthey're not being used to teach our students. with that, thankyou very much. thank you, randall.

thank you, eric, very much.