Institute Chairman Michael Milken on Building Meaningful Lives

Conference Context & Theme

• The Global Conference theme for 2017 is "Building Meaningful Lives," marking the first address by the speaker since 2000.
• The Milken Institute has evolved from a focus on job and capital formation to eight global centers, adding a 12th track dedicated to this new theme.
• The Institute's mission remains to increase global prosperity by advancing collaboration, widening access to capital, creating jobs, and improving health.

Historical Context & Economic Philosophy

• The speaker compares the U.S. response to the 1957 Sputnik launch (formation of DARPA, NASA, and the National Defense Education Act) to current needs for technological and economic renewal.
• A core economic formula posits that prosperity is a function of access to financial technology acting as a multiplier for human capital, social capital, and real assets.
• Non-investment grade and smaller companies created net 58 million jobs in the U.S. private sector during the last third of the 20th century, compared to a net loss of 4 million by large companies.
• Access to capital, rather than race, class, or religion, is identified as the critical determinant of the American Dream and economic mobility.

Global Economic Trends & Challenges

• U.S. median income has not increased for 17 years when adjusted for inflation, leaving half the population excluded from economic growth.
• 30% of the U.S. population has a net worth under $10,000, and 50% of households cannot cover a $400 emergency expense without borrowing or selling assets.
• There is a high correlation between U.S. states with low median incomes and those that voted for the President versus Hillary Clinton in recent elections.
• Russia's economy is comparable to the size of the U.S. states of Maryland and New Jersey combined, illustrating the disparity between geographic size and economic power.
• Low rates of return on global capital (e.g., 3% vs. 5% vs. 7%) create a differential of nearly $80 trillion on a $20 trillion asset base, threatening the solvency of pension funds and endowments.

Private Equity & Capital Markets

• Private equity firms now control more companies in the U.S. than are listed on public exchanges, with eight of the nation's largest employers after Walmart being private equity-backed firms.
• The "Private Equity Revolution" has aligned management and ownership utility curves, reducing the gap between leaders and owners that existed in the late 1960s.
• The Milken Institute's Global Capital Markets Group emphasizes the responsibility of institutional investors (sovereign wealth funds, insurance companies) to meet return assumptions to avoid economic disruption.

Investment Case Studies: Contrarian Perspectives

• Despite negative 2016 GDP growth, war, and sanctions, Russia's stock market and ruble rallied significantly, driven by natural resources and commodity stabilization.
• Brazil's stock market and currency performed strongly despite a recession, impeachment, and corruption scandals, underpinned by natural resources, agricultural potential, and emerging tech sectors.
• The speaker advocates for analyzing fundamentals (natural resources, human capital) over news headlines when evaluating emerging markets, noting a delegation from Latin America (Chile, Argentina, Brazil, Colombia, Mexico) attended the conference.

Healthcare & Medical Breakthroughs

• Childhood leukemia survival rates have improved from 5% to nearly 100%, leading to a visible end to cancer as a cause of death according to Dr. Francis Collins.
• Immunology advancements, supported by the Melanoma Research Alliance and Dr. Jim Allison, have resulted in 11 new FDA drug approvals since 2010.
• HIV transmission rates from mother to child in sub-Saharan Africa have dropped from 95% to 2% over the last decade, aided by aggressive support from the U.S. government (e.g., PEPFAR).
• Sub-Saharan Africa's population is projected to increase by 1-2 billion people by the end of the century, potentially surpassing Asia as the continent with the largest population.

Education & Entrepreneurship Initiatives

• The Institute launched a program to train 1,000 financial experts from Africa and South Asia to deploy capital to entrepreneurs and create jobs.
• A pilot class of 1,000 scholars, aged 30+, completed a program in Washington D.C. with George Washington University to work within their countries' financial systems.
• The speaker notes that the primary challenge for Africa is not capital scarcity but the need to develop entrepreneurs, citing the "pay now or pay later" lesson from Pakistan.

Public Health & Social Challenges

• Obesity rates in the U.S. have risen to over 20% in every state, with costs for seven chronic diseases totaling $1.4 trillion annually due to medical costs, absenteeism, and presenteeism.
• Depression is cited as the number one side effect of obesity in the U.S.
• Mexico implemented an anti-obesity policy including taxes on sugary drinks and a "10 squats for free subway" initiative at 21 metro stations.
• The speaker highlights the failure to prioritize secular education, science, and math in Pakistan despite the country's population explosion from 30 million to a projected 220 million.
• The U.S. housing market previously suffered from over-investment and high-risk lending (97% loans), causing a shift in utility curves where housing/transportation costs consumed over 50% of middle-class expenditures, crowding out education investment.

Technology & The Future of Assets

• The value of assets has shifted from raw materials (60% of automobile costs in the early 20th century) to intellectual property and microchips (2% of microchip costs).
• The speaker identifies "dot com" as the most valuable real estate, noting Blockbuster's failure to adapt while Netflix capitalized on digital infrastructure.
• Of the 11 most valuable companies globally, only three (JPMorgan, J&J, Exxon) represent traditional industries; the rest are technology-driven.
• Apple is now valued at more than 100% more than Exxon, compared to a time when Exxon was worth 67 times Apple.
• New financial technologies (crowdsourcing, mobile banking, AI, big data, FinTech) are required to reach hundreds of millions of people and scale job creation.

Societal Well-being & Meaning

• The Surgeon General identifies isolation as the major disease in America, surpassing cancer and heart disease.
• One in six working-age blue-collar men in the U.S. has dropped out of the workforce; over half are on prescription painkillers, with two-thirds on opioids.
• Video games and avatars provide a form of "self-actualization" (Maslow's hierarchy) that allows users to overcome challenges and build self-worth when unavailable in real life.
• World Bank President Jim Kim stated that financial ignorance in development work was "sinful," emphasizing that creative finance is necessary to lift billions out of poverty.

Forward-Looking Statements

• The speaker projects that today is the best day for over 50% of the world's population and tomorrow will be even better for the same proportion.
• The goal for the Milken Institute is to empower 90% of the world's population to feel today was the best day of their lives.
• The speaker expresses optimism that future generations will view cancer as a historical disease found only in history books.
• The concluding panel features astronauts and space entrepreneurs to discuss missions to the solar system, echoing the Apollo era challenge of accepting difficulty to win.