BBR Partners 2010 Client Symposium

Excerpts of Keynote Address – David Gergen

I have been involved with 10 presidential elections: first, in the trenches working with
Kennedy, and more recently, kibitzing from the sidelines in TV studios, but 10 elections
does rather date you. It does make you sense your age. I've therefore become more and
more sympathetic with an old fellow who was walking through the woods one day and
heard a sound. He couldn't see anything, but then he heard it again and looked down, and
there was a frog by the side of the path. The frog looked up at him and said, “If you kiss
me, I will turn into a beautiful princess.” He reached down, scooped up the frog, and put
it in his pocket: no kiss. The frog was really surprised, crawled up his jacket, and said,
“Didn't you hear me? I said, if you kiss me, I will turn into a beautiful princess.” “Yeah, I
heard you all right, but at my age, I'd rather have a talking frog.”

I've reached that stage in politics, the talking frog stage. I've been around this a long time.
I've watched people rise and I've watched people fall, but I must tell you that, as a general
proposition, I don't think I can remember a time when America faced more difficult
problems and seemed to be less equipped, less capable of meeting those problems head
on. People are asking if capitalism is working, and I think that's a very appropriate
question, especially after the roller coaster we've been on recently.

There are many of us who increasingly feel that our political system is broken, that our
political system is not responding very well to the issues at hand, the large issues of our
time. I am among those who believe that things over the next couple of years are likely to
go very well. The larger issue is where we are going to be as a country over the next two
or three decades. As citizens and as leaders of this country, we all have to be concerned
about what kind of nation we're ultimately going to turn over to our children and
grandchildren. I don't think we know the answer to that question yet. We need to ask
ourselves: is democracy working? Is it working for America?

I have a colleague and friend at Harvard named Niall Ferguson, a world class historian.
He teaches the entry level course for freshman and sophomores entitled “The Rise of the
West.” It is a fairly standard history course that has been around for a long time. I'm sure
it goes back to Charlemagne and traces the rise of Europe and of North America. We had
dinner the other night and got into a conversation with a few others about what he might
call that course if he were teaching it 30 years from now. Would he still call it “The Rise
of the West?” Might he instead call it, to borrow from Fareed Zakaria, a good Yale
graduate, “The Rise of the Rest?”

That may very well be an appropriate name because in 30 years, I think that, whatever
happens in the next year or two, China will be at the table of power, as will India and
Japan. That's going to happen whether we like it or not. I hope that we welcome it and
that we try to work peacefully through that transition because when a nation like China is
rising, there is often a temptation for other nations to get into disputes. That is what we've
seen in the past. It may well be called “The Rise of the Rest,” but there was still a third
possibility that Niall Ferguson raised, and that was that the course in 30 years might well
be called, “The Rise and Fall of the West.” That, it seems to me, is the most pertinent

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 BBR Partners 2010 Client Symposium
Excerpts of Keynote Address – David Gergen

issue before us as a people, not as investors. After all, given the way the world works
now, one can make money in a lot of different ways. It doesn't have to be here in the
United States.

We are at what Andy Grove, co-founder of Intel, called his memoir: A Strategic
Inflection Point. For corporations, one can have a terrifically successful business plan that
will work very well over a period of time, but the surrounding environment can change
significantly. If one stays with that business plan, the company will go down. But if one
changes the business plan and is smart about it, there is a chance to go up. That's why it is
an inflection point. Andy is very worried about the future of the United States. He is
retired now from Intel; he teaches at Stanford and has a small graduate seminar. He has
been doing a lot of work on the question of American decline and how real that threat is.
He has argued to me that unless we change our ways, if we just stick with business as
usual, especially in our politics, that by the time our grandchildren reach their peak
earning years, the average standard of living in this country is going to be down in real
terms by 25%%. That is a significant drop, and it could put the cohesion of the country to
great tests. We already have enough of that, but if we go into a situation where there are
deeper cuts in income, and presumably it will be fairly hard to get good jobs, those
tensions will grow enormously.

Can we deal with these issues in the public sector in our politics, where we have
traditionally believed - as I grew up believing - that the major issues of our time need to
be resolved in a political arena? Conventionally, this was the appropriate place where we
would sort out issues, struggle about our priorities, make public commitments to certain
kinds of solutions, and determine whether we would move forward or backward. That is
the world most of us grew up experiencing. I am a product of the 1960s in part, and I can
say that the Civil Rights laws of 1964 and 1965, as controversial as they were to many in
the South - my native part of the country - nonetheless changed dramatically how we
dealt with race in this country, and they were great steps forward. There has been a lot of
legislation that, over time, have been great steps forward. I've always believed that our
politics are where we sort out these kinds of things and make serious decisions and
commitments.

I have been working in the political arena, off and on, for almost 40 years. I must say, I
don't think I can remember a time when I've been less encouraged, or more discouraged,
about the prospects of our political system facing up to and dealing with problems. There
is a distinction to be made: I think we can be very good at dealing with emergencies. If
there is a great national emergency, we rally, come together and do pretty well in
responding. Go back to Pearl Harbor in World War II and how we rallied and contributed
to the arsenal of democracy. Even in modern times, if you look at 9/11, immediately and
the months thereafter, this was a very united country. We put our shoulders together. We
responded effectively in Afghanistan. We did a lot of other things in those early months
that showed we had resolve and we were not simply going to limp back into a defensive
crouch.

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 BBR Partners 2010 Client Symposium
Excerpts of Keynote Address – David Gergen

Similarly so when we got hit with this recession. When Barack Obama was first elected,
Tim Geithner, Larry Summers and his other economic advisers told him during the
transition that there was a one in three chance that we were going to have another Great
Depression. I think that our political leaders, in two administrations, deserve more credit
than they've gotten for preventing that from happening, and I think that includes George
W. Bush and Hank Paulson. I think it includes Tim Geithner, Larry Summers and Barack
Obama, and of course Ben Bernanke. Whatever you want to say about Ben Bernanke
heading into the great recession, he has certainly handled it brilliantly since, and he
demonstrates how important it is to understand history. He was a scholar of the Great
Depression and the economics used in that period, and it made a difference.

So, in those two incidences, I think there is pretty clear evidence that we respond well to
a crisisWhere we have much more trouble is responding to chronic issues. I was in the
White House in the early 1970s when OPEC got its act together, rose up and tried to
strangle us economically, and we had long gas lines. I was working for President Nixon
then, and I wrote for him and then President Ford several of those early speeches
declaring that America would become energy independent. That was our rallying battle
cry. Those were darn effective speeches and at the time we were about 30%% dependent
on foreign oil. Now we are about 60 % dependent.

I was in the White House in the early 1980s when President Reagan received a report
from a National Commission on the state of kindergarten through12th grade public
schools in the country. It was an alarming report, saying our schools were in serious
decline, that there was a rising tide of mediocrity that was sweeping across American
public education, and if a foreign country did to us what we were doing to ourselves in
our schools, we would declare war on them. President Reagan got this report, got very
charged up, and went around the country for the next few months trying to rally people to
reform education. Several governors got into the act; Bill Clinton became a significant
reform governor in Arkansas, as well as Dick Riley in South Carolina and Tommy
Thompson in Wisconsin. There were a number of people on both sides of the aisle who
became significant reformers.

Here we are, 27 years later, and the schools are modestly better by the overall averages.
The scores are up modestly, but our competitors are up a lot in that same time frame, and
if you look at the dropout rates from public schools, they are higher today than they were
then. A third of our kids don't finish, concentrated especially in urban areas. Fifty % of
the dropouts are occurring in 15 % of the schools, and those kids are simply not prepared.
One-third of students don't finish high school. One-third do finish, but are not prepared
for college; they're not prepared for 21st century jobs. In California in the 1980s, 17 % of
its state budget was spent on education, and three % was spent on prisons. Today, 11 %
of the budget in California is spent on education, and 12 % is spent on prisons. That is not
the sign of a nation that has responded well to its problems of education.

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 BBR Partners 2010 Client Symposium
Excerpts of Keynote Address – David Gergen

Also consider the baby boomer population. We have known that, one decade into this
century, there were going to be a lot of people retiring, and it was going to cost us a lot of
money, so we needed to reform Social Security. I worked for one president after another
who talked about reforming that and Medicare. Reagan actually did something about
Social Security with Alan Greenspan, who headed up the commission, but it was a short-
term fix. We hadn't addressed the underlying problem, and here we are now with baby
boomers starting to retire. We haven't yet fixed the problem, and we let a golden moment
slip past us when we had budget surpluses after Bill Clinton left office. Those surpluses
could have been used to reform both programs. Instead, we wasted the surpluses; we
went to war in Iraq. We got into prescription drugs. We did all of these other things
without paying for it. The surpluses are now gone, and it will be much tougher now to
reform these programs. Pete Peterson and David Walker have been trying to sound the
alarm about the deficits, but these are all very deep-seeded problems that we've had a
hard time dealing with in the past.

Arthur Okun, an economist at Brookings, argued some years ago, “America is terrific in
responding when we have a wolf at the door. We're just not very good when we have
termites in the basement.” I think that is the sense that most of us have, that the
foundations are weakening, and we've allowed them to weaken far more than we should.

I think many of us felt that the paralysis and the partisanship in Washington might
magically disappear with the election of Barack Obama. There was this quality about
Obama that was inspiring, a warmth, a sense of community, and a positive feeling about
where the country was heading that I had not seen in a long time. When he was
campaigning, he made it very clear that he intended to have an activist government and
intended to step in. He said he would not only rescue the economy through government
action, but that he intended to use government as a primary weapon for solving the
healthcare problem, for dealing with energy and climate change, and for reforming the
public schools. As he campaigned around the country, he did very well. When the votes
were counted, he had 53 % of the national vote. That may not sound like a lot, but when
comparing historically, that was the highest %age of any democrat running for the
presidency since Lyndon Johnson won by a landslide in 1964, and he had swollen
Democratic majorities in both the House and Senate.

At the time it seemed reasonable for Obama to interpret that as a clear message to go out
and bring these kinds of changes, and he has set out doing this. He was able to pass the
healthcare bill, which was a major accomplishment by historic standards. Six other
presidents have tried and failed. I was there when Nixon tried and failed. I was there
when the Clintons tried and failed. He accomplished universal coverage, which was a
major step forward. However, it's obvious that we're now seeing a gigantic backlash in
the country after Americans began to see how much it was actually going to cost. With
all of the trillions upon trillions of dollars that were sloshing through Congress, this is the
most expensive Congress in history by some measure.

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 BBR Partners 2010 Client Symposium
Excerpts of Keynote Address – David Gergen

By my latest count, and this is a rough count, in two years this Congress will have
approved at least $9 trillion of additional expenditures. That is a lot of money to be spent,
and it's far more government than people expected. It is far more than they wanted, and
frankly it's more than we're willing to pay for. It has now given rise to a conservative
movement that seemed to be down on its back after two devastating defeats. The national
public debt, as a percentage of the GDP, is rising dangerously and rapidly. I do think that
there is some reason to be concerned when looking at the numbers. I believe both in free
trade and in government supporting those who get hurt by free trade. I think we need to
be in a global economy, which means low barriers on trade. “Free markets and free
people” is a good slogan and approach to life, but there are going to be people hurt in that
situation. There are going to be industries that suffer, and the government should give
some protection to individuals in those industries.

I believe in the government stepping in and regulating or refereeing to a reasonable

degree, but our current government has gone beyond even where I had anticipated we
would be and beyond what I think we can truly do as a people. We are trying to do too
much with too few resources, and we will pay a price for this. We have reached a divisive
point. It will be a much more divided government, and I think in the next two years, the
President will try to get some modest things done on the domestic front, but likely a fair
amount of his time is going to be spent on foreign policy. That's where he will continue
to have clout. It won't matter so much what the makeup of the House or Senate will be, as
he is Commander in Chief of the most powerful nation on earth.

That is what presidents often do. They spend the first two years domestically-focused,
lose seats in the midterm elections, and then spend the next two years working more on
foreign policy. If they are able to win re-election, they get a new lift and go back to their
domestic agenda for a couple more years. I think the big changes are going to now slow
down, but how do we solve these underlying problems in the meantime?

I am someone who has spent most of his adult life trying to help get problems solved
through the public side and who deeply believes in the American presidency. I think the
presidency is an extraordinarily important office, the most important office in the world,
and it's extremely important to be effective, but I have gradually and reluctantly reached
the conclusion that we can no longer afford to be reliant upon our political leader to solve
these problems. We need to keep working at it, and the day is going to come when our
politics will get healthier. I hope by the time our kids reach this stage, a lot of this
partisan poison is going to pass from the system and will make it a healthier system, but
in the meantime, we need to be trying to solve these problems without waiting on the
politicians.

Reform needs to happen in the private and civic sectors, without making that reform
dependent upon Washington. I have seen some encouraging developments outside of the
government, which the government helps to subsidize, but there is action and intellectual
effort being made specifically on energy in the private sector that is encouraging. I

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 BBR Partners 2010 Client Symposium
Excerpts of Keynote Address – David Gergen

believe there are breakthroughs on the horizon that will get us to a cleaner future where
we will be less reliant on Middle East oil. I had a chance to get to know a woman named
Susan Hockfield, a professor at Yale. She was made head of the graduate school, dean of
the graduate studies, then provost, and she has gone on to MIT, where now 20 % of their
faculty is working on energy. When there is that kind of focus on energy, new pathways
and new possibilities begin to develop, and MIT has been able to increase the number of
companies that are coming out of that University. There are several possible
breakthroughs occurring there.

The same is happening in the private sector with several new technologies. Dan Yergin
runs the largest energy conference in the country in Houston each year. I attended this
year with about 3,000 people. There was a lot of excitement there about the strides being
made in natural gas. Natural gas is a cleaner fuel than coal or oil, and we have a
reasonably good supply of it. New technologies have been developed as a result of
investments from private companies, as well as government research, making natural gas
more accessible. This wasn't possible a few years ago, but these technological
breakthroughs now mean that there is an abundance of natural gas, and it could be the
bridge to renewable energy.

Another great example of the private sector making progress in energy is Bill Gates. He
now is throwing himself into the development of clean nuclear power because he believes
we are on the verge of technologies that reburn the waste from nuclear power plants,
which has always been a critical problem, and produce more power. This could, in fact,
produce an endless cycle of clean power. The government should indeed be involved, but
we do not need to wait for a resolution in Washington for progress to occur.

Education, additionally, is an area where the private sector is making tremendous strides
toward changes. So many of us have been frustrated by our public schools for so long,
and we have tried several top-down solutions. We have made modest progress, but the
dropout rate continues to increase. The real progress and promise for education reform is
coming from the grassroots, from our kids. The younger generation, those born between
1980 and 2000, is called the Millenials. Most universities around the country today are
filled with Millenials. They are one of the best generations we've ever had. They are very
idealistic and care about social change. They don't particularly want to work for the
government, but want to do this as social entrepreneurs in the non-profit sector.

The epitome of this attitude is one of my heroes in life, Wendy Kopp. During her time at
Princeton, she wrote an essay calling for an organization called Teach for America. When
she couldn't find a job after graduating in 1989, she raised money and started this
organization herself. Teach for America asks college graduates to spend two years
teaching in the toughest urban schools in the country on a volunteer basis, getting paid
entry-level wages. There is very little monetary incentive to participate, as those who
complete the program receive only a $4,500 scholarship fund at the end. However, Teach
for America received 47,000 applications to fill 4,000 new spots for TFA core members

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 BBR Partners 2010 Client Symposium
Excerpts of Keynote Address – David Gergen

this coming September. Out of Harvard’s current graduating class, 18 % applied for
Teach for America, and of the African American students in the senior class, 40 %
applied.

Students want to go back into their neighborhoods and improve their communities. They
don't want to walk away from it, they want to change it. Some may believe that these
young people only want to work for TFA their first two years, punch their ticket, then go
to business school and move to Wall Street. Not true. 60 % of the TFA alumni stay
involved in public education reform. A large portion of them are now running for public
office, running for school boards, staying on to teach in public schools, or even starting
charter schools. The Kipp School, the best charter school program in the country, was
started by Teach For America alums. They are changing the way this nation is thinking
about and handling students and the entire school system.

In Washington, D.C., a city with one of the toughest school systems, a woman named
Michelle Rhee is trying to create change. She is getting a lot of resistance, but she just
signed the best contract of any major superintendent with any major public school union
in the country. It is a very progressive contract based on teacher performance instead of
straight tenure, where one would be protected the rest of his or her life. I could go
through story after story about that.

There is another group similar to the Millennial generation and has a comparable sense of
promise about them. Young veterans are coming back from Iraq and Afghanistan, after
having put their lives on the line, and are very committed to social change. I am
privileged to teach a number of these veterans. When the earthquake hit in Haiti, I had
four veterans who immediately took the next plane to work in a hospital down there.

Fortune Magazine just ran a cover five or six weeks ago about the new faces and rising
stars of corporate America; they focused on six veterans. The young woman they put on
the cover happened to be a former student of mine and my teaching assistant. She was in
Iraq, just came back, and went to finish school at Harvard Business School. She is now
working for Indra Nooyi at PepsiCo in their leadership program and is totally dedicated
to social change. I find an awful lot of promise in this younger generation.

Even as our political system is paralyzed, it may be possible to find other answers and
workarounds, to think positively about what we can still do for this country and not
become cynical or pessimistic. If politics are not fixing all of our problems, we can fix
the rest.