Free cspan radio apps. A conversation with Donald Trumps former National Security adviser hr mcmaster and bridgewater ceo David Mccormick, talked about the us economy and National Security hosted by the hoover institute. Welcome to the inaugural episode of statecraft innovation and leadership and we are fortunate to have with us David Mccormick, ceo of Bridgewater Associates responsible for overseeing strategy, governance and operation. David joined bridgewater in 2009, previously served as president and coceo of the forthcoming ceo this year, before joining bridgewater david with u. S. Treasury undersecretary for International Affairs in the george w. Bush administration during the Global Financial crisis and prior to that served a senior post on the National Security council and the department of commerce. From 19992005, david was the Technology Entrepreneur serving as ceo and president of publicly traded software companies, free markets inc. And prior to that was a consultant at mckinsey and can become a graduate of the United States military a company at west point and phd from Woodrow Wilson school of International Affairs at princeton university. He is an army officer and veteran, soldier, statesman, and scholar. He is the offer of the recent paper. And statecraft, with james cunningham. It is an important idea. And, and the associated, and you have a unique combination of vantage points over the past decades. And, the ceo of bridgewater. What motivated you to write this paper, to renew and sustain economic power now. It is honor to be here at hoover and it has been something im thinking about for some years. It came out of my time in the government, the National Security team, different roles in the white house and the treasury and so forth. Over time as i reflected on the changes in the world and the design of our government, questioning with the United States is set up for success, and the number of trends questioning whether america had a strategy for maintaining its Economic Life which is tied to its National Security strategy which says that you wrote that it is National Security. Those trends and technology that winner take all technology offered Huge National advantage, and National Security benefits. The economic interdependences of the global economy, we see that with the interdependence and supply chain. The ubiquity and challenges corrected by cyberspace we see, some most of what was on their mind was the rise of china which is a significant force in the world. As i started to reflect on that, it became clear to me, china in particular, a strategy for primacy and leadership in the world and integration of National Security, it would not feel like the United States did. What the policy agenda should be and how the government might be organized to be more effective. In this competition, real emphasis on supporting that model and advancing their interests. What i liked about your paper is what youve done is try to preserve competitive advantages. And the vulnerabilities and weaknesses the Chinese Communist party is exploiting. These summarize how to build and apply economic power as a key element of Foreign Policy and strategy, part of these three pillars that are very useful, we want to ensure we remain competitive as you put it. And with economic circumstances. There are at various times many have predicted the decline. When i think about the question of National Power there are many dimensions which i dont touch on, military power, the power of our ideals but i did focus of paper i did with my colleagues on the intersection of Economic Security and National Security emanating from my own experience and there are three pillars that were most important, the notion of innovation policy, emerging technologies are creating unique winner take all advantages, 5g is a good example of that. The implication of it being the infrastructure platform for a National Security perspective but thats not the only area. Quantum science, ai, a number of technologies which are crucial to economic might, but give enormous National Security and military advantage. The notion of dual use technologies is no longer a relevant way to think about it. Developing innovation policies that ensure the United States have appropriate funding and support technology in these areas, that raises lots of questions, was an important part of the strategy. The second part of the strategy closely integrated with the first is the notion of economic statecraft, in particular the idea of bringing together various aspects of our economic policies that touch on National Security, invest in policy, export control policy, the policies that affect how we invest in and give access to a Core Technology need to be closely integrated and thought about. There is new legislation being implemented but by and large those policies are much outdated and they need a more holistic view in terms of how we view those policies engaging with the rest of the world. The third part is the notion of key allies in innovation policy, how we think about investment policy and export control. This is a game where we are not going to be successful if we isolate ourselves it is highly dependent on trusted alliances, they will be concentric circles where the closest allies have unbelievably tight sharing and on the other end we have significant trading relations around the world that including china. The idea is not to stop being a free Market Driven country but more nuanced how we think about National Security and economic might. This isnt just a government problem. It is a government and private sector problem. We have to Work Together on this. We are here, hoover is here you are here virtually right now in the heart of innovation in Silicon Valley and a program here at hoover called tech track dialogue, we have formed a venue for industry to come together with top government officials, the department of defense, it has been eyeopening for both sides. On this innovation pillars the innovation model has changed over the last couple decades. Can you comment on why it is important for the private sector to be as involved as government in innovating in these technologies . They apply to their military civilian Fusion Program and made in china 2025 program. How do we Work Together better across the public and private sector to compete more effectively . One of the great historical and presentday advantages of the United States is the enormous dynamism of Capital Markets and our companies and tech leaders so the enormous innovation coming out of there is at the core of americas competitiveness. The most important thing in many ways is to get out of the way and let those companies do the things they do and the American People in us economy is the beneficiary of that. The private sector is at the core of innovation more broadly. What the government can do in that case is make sure ultimately there is no overregulation that stand in the way of that innovation, support immigration of highly skilled individuals with the appropriate caveats around protecting them on the National Security side which we can talk about if you like but those immigrants, skilled immigrants have been a great source of dynamism for the tech sector and that is one of the areas the tech sector is most in need of Government Support. The thing i am talking about which is uncharacteristically and something i wrestled with as i thought about the world as it is, not as i wish it would be. This new generation of technologies have some disproportionate advantage to the winners at the National Level, not just the corporate level but the National Level and we see that playing out in real time with china in particular, our current model, we need to not take away from current models of innovation but to add to it in the following way. Im advocating a much more significant increase in federal r d funding, if you look at the Tech Leadership around the country they would advocate the same thing. In relative terms our investment on the National Level, it has declined by half over the last 50 years. Theres an opportunity to bring that level of investment back. The second thing i am arguing for is to have Government Support and Government Investment in critical technologies, particularly helping Companies Reach scale, they are of such strategic value, a set of principles can be applied that ensure government capital in a way that can bring Real National advantage. These are typically sectors where there are heavy capital subsidies, sectors which give enormous strategic advantage, ai as an example and where the benefits of winning or having leadership are of such strategic significance that we said we cant ignore the competitive landscape. The final point on this am a to do that well, you have to be principles and careful but this area opens up all the risk of politicization and bad Capital Allocation and corruption. To carefully manage, and it has to introduce freemarket principles and there are ways to do that where the private and Public Sector partner in ways that ease the flow of capital into these areas but also have privatesector dynamics. A good example of that is a fund for Artificial Intelligence where the government takes first loss and has limited castes upside. It makes that investment more attractive, attracting private capital. There is a world on the current course, current trajectory that we have done what weve done for the past 10 years, there is so much more we should have done to ensure that we are competitive in this new world. My colleagues wont let me allow you to get off easily on this particular topic. Where do you draw the line and what safeguards you put in place to make sure we dont create incentives that lead to waste of investments or any efficiency and so forth. Hoover is where Milton Friedman for many years hung his hat, very testing was Nobel Laureate and quotation that when talking about this, the concerns it might raise about the prison industrial policy, what is mccormick proposing here . Thanks. Thats a question that is both appropriate and what that ive wrestled with an adult think i have all the answers, just to start with. If i go back to 20072008 timeframe, and i think about my experience in a negotiating through the Strategic Dialogue with the chinese but this is a point of making far beyond the chinese. And i thought about our freemarket agenda, open markets agenda, are policies and even our innovation policies. And a look at the world as it is evolved in the last decade plus, whats true is were in a whole new environment and whole new world. And i think having the wisdom to test ideological thresholds is necessary to be able to be effective and compete in this new world. So i would almost turn the question around a little bit and say theres a world where Technology Leadership is giving outsized National Power and advantage. On the current course its indisputable that Technology Leadership is likely to emerge in many of these key technologies already has in china but also in other places. How do we confront that National Challenge in terms of preserving and building on our own Economic Vitality without sacrificing or undermining their principles that have made our economy so successful . Thats what i come into this debate, recognizing that the risk of government overreach is significant, the risk of misallocation of capital is significant. The only way i can think about doing that is through some sort of principlebased approach and thinking that would help guide a number of key decisionmakers to make quality decisions. I experienced that to a large degree in the cfius process, thus that is a cfius process is perfect and doesnt all sorts of significant issues but that is a process that brings the government together to review investment policies, all the risk of corruption and misallocation and politicization and so forth. And for the most part that process works with a lot of integrity. This process would have a lot more at stake and have a lot more risk but there are examples where the government has been very effective at partnering with key partners that it made huge strategic advantage. Let me just point to two, along a a significant relationship with the government Silicon Valley as you know, and the commitment from the government has allowed him to prosper. The second is spacex or longterm incentives and longterm support has allowed a real breakthrough in commercial space travel which will be of great advantage to the United States. So i think your economist friends at hoover has every right to press, to be concerned, to be skeptical at a think that skepticism will hopefully lead to good thoughtful debate. But my character that would be like to imagine the alternative, which is current course and a think thats an unacceptable set of possible outcomes. Thats how im wrestling with this. Theres a lot of continuity to it that you want to propose. Think back to some of the darker projects, arpanet, the components of the iphone that they were spun into the civilian economy. Whats. Whats interesting is your saint innovation model now, these technologies are developed in large measure in the private sector and they already have military and National Security implications not to mention the implications for who is going to be at the proponent position composition proponent future data economy and so forth. You sold me on it and i think the key is as you mentioned the safeguards that are put in place. Theres an element of conventional wisdom these days i hear all the time, americas going it alone, we are not working with allies. We do have some vitriolic exchanges at higher level of government at times with allies but below that i seen a lot of cooperation, especially in the area chinese economic aggression, and now especially i think with the way china has handled the covid19 crisis, the wolf warrior Information Warfare operations against free and open societies and effort to create survival relationships through these debt traps theyre there. I sense an opportunity now. What would you recommend that we do in this area with your proposal in terms of fostering International Cooperation and working together with allies, partners likeminded countries . I agree with you that theres all sorts of collaboration and cooperation thats operating at Different Levels of the government on a wide range of topics. I guess the first point i would make is while i think the recommendations that i am making certainly are apropos and appropriate in light of some of the issues with china but it dont think this is solely a response to china. By that i mean the recommendations i am making are the necessary thing to maintain leadership privacy in a rapidly changing world. I would want to make that point. Im trying to cast and that does much more terms that we should operate. Those alliances have existed in the way you said that they havent existed both within the context of the u. S. Government and through our allies in a coherent integrated way. That brings together all the aspects of our economic statecraft, the export control regime, investment regime, the cybersecurity initiative, the innovation policies, the r d. All of these are separate stovepipes within the u. S. Government with wellmeaning people that are working their agenda, working their brief, sometimes to collaboration. My first point is we dont face off to the world in an integrated way and we dont operate within her own policy regime and own policy process in an integrated way. Thats one point. You know this is what from the recent expense in government. We have varying degrees of confidence and security within our alliance, among our allies. Theres a subset of our allies that were so closely collaborating with the most Sensitive Technology projects or joint r d could easily be undertaken with and if we proactively did so. Thats happening in some cases but not in in a broad expanse n integrated way. As i said earlier, im a very much favor of an integrated and global economies that is trading relationships around the world. I would do think the way to think about this is concentric circles. In terms of the kind of economic collaboration and the kinds of joint activity that you do with each concentric circle, the five eyes is a perfect sample will be a highly sensitive intelligence sharing a look and imagine you anything with those key partners in the area of technology. The same would be true with the japanese in many ways. Theres lots of room i think to be more antiquated, or coherent, more expansive and more ambitious in terms of how we face off to the work of what the gin is that follows. I really enthusiastic about that part of the paper. I think there submits opportunity and to pick up on a point of your point on doing things in a coherent and integrated way. Rather than incoherent fragmented way which we often see across the government. We tend to do things with a great deal of enthusiasm but not much finesse sometimes. Another Milton Friedman quotation come he said only government can take perfectly good paper, perfectly good, coverage of perfectly good inc. And make the combination worthless. So how do you take the proposal in your paper and get to implementation . How do you get it done . What your ideas about how your proposals could be insulated effectively . I dont mean to suggest what about to say is easy, because theres probably the whole basement of the omb can be filled with studies to reform the government that have fallen by the wayside and fallen prey to bureaucratic interests and ultimately are in the dustbin of history. This is a hard problem and one thats requiring i think some of the fundamental rethinking. By and large problem is theres no single place where this intersection of National Security and economic might exist. In fact, the people that are in each of these areas are by and large trained to think somewhat merely within their area. I do want to overstate this because theyre some collaboration but i was on the National Security council and all the National Economic council. You may give each other highfive in the hallway but oftentimes those issues were treated separately. Think about darpa or the office of science and Technology Policy for the technology and innovation agenda thats taking place in various parts of the intelligence world. Those are all for the most part separate and not integrated. The question is, is there a st of organizational change that could bring that agenda to the forefront would have authority, budget authority, but have Decisionmaking Authority, would be represented at the appropriate level of government and make fundamental change happen . My proposals are range of possibilities. Three or four designs i may have. I think the are less important that the potential principles that would have to be achieved. We had precedence of this in the past. Some with success and some not with success. Goldwaternichols is a good example of a different problem but where a fundamental restructuring to do joint planning and so forth and you are probably better judge that i come had much more positive effects than downsides. Something of that significance will be required, budget authority, Decisionmaking Authority and integration. You can do that for the National Security council, do it through new agency. You could separate the different aspects of economic statecraft innovation policy, give them different sources of responsibility as long as they were somewhat integrated. But dramatic change has to happen. The second thing i would say is that the cast of characters were sitting in these rooms needs to change somewhat. How many meetings did you sit through, h. R. , thinking about in the nsc we had a number of people talking about technologies and implications who really didnt have that much depth of understanding of the technology . Thats my experience is that these issues now are evolving, and these emerging technologies, the repetitive of change records whole new set of people and it were part of to break the model. You cant come up through the Civil Service or 20 20 years oe military for 20 years. You have to have a new set of experiences and rep to break people in laterally. Where to create a different incentive structure to get the right kind of people at the table. Thats also no small thing but thats whats going to be required to compete in this new era. That was one of the big findings, the tech track. With to make it easier for people to serve the government. Your career is i think the model of that, the army and the private sector and then treasury and National Security council and now at bridgewater on the way. People who have that broad range of perspectives on this problem and knowhow, to use your words, know how to integrate those efforts in a coherent way i think is just immensely important. Were going to need confidence to do it. We have to compete and competition cars confidence. In the paper you talk about where were falling behind, specific sector, specific areas and just my guess about what we can do right now to foster for International Cooperation in these areas which is have not been competitive because weve been absent from the arena. Can you for our viewers just summarize some of the specific initiatives so they know hey, this isnt just a philosophical paper. There are some concrete recommendations that we can implement immediately. Thanks. Theres a lot we can do in the near term with our international partners. The five eyes partners which you know we have great confidence in from security perspective, our great partners and we could work with them on everything from a multinational r d base on some of these key issues to multinational venture funds, which with some experience with. We could create a 5g alliance which has been discussed and is really a critical part of having a counterbalance to huawei. We could Work Together on good tech standards, regulatory bodies and good tech standards throughout the world including europe in terms of our tech innovation. Theres lots we can do to start with, and as you know good partnerships breed further areas of cooperation, and its a real challenge that we dont have those kinds of partnerships because when we operate independently in these areas the efficacy of export controls, investment controls or innovation is much less. Right. And when we dont Work Together the Chinese Communist party, divide and conquer and hit us against each other. For sure. In this tech track dialogue we came up with range of recommendations on how to integrate private sector and Public Sector efforts more effectively, can you give us any more specific recommendations on how to do that or you might be able to advance here from hoover as well . The most important thing to guide those Reform Efforts is a set of principles. Critical to those principles are that we are integrating Market Forces as much as humanly possible into the economic decisionmaking particularly around innovation. Because those market principles will ensure the display and guard against some of the things we are most fearful of. Equally important to that is getting those private sector players come those experienced players at the table in a way that our post process can be informed either latest development in the tech industry, and ultimately i think we need to have a personnel process that flexes enough to love those people to serve for a couple of years in government and they go back to industry and allow the brightest minds to have a chance to both serve their country and also do so anyway that they dont have to give up on some of their great successes in the private sector. Other countries have done better than that then we have. We had some models from something as simple as the white house fellowship which is a people younger but that just people a real experience. When you define flexible ways to draw people in the workforce and similarly when you define flexible to get people from the Civil Service, military, whatever it is in todays Industry PrivateSector Opportunities where they can rotate through as part of their career path. Those exist in isolation. Those exist in smallscale. Its going to require real term in terms of the commitment to that kind of thinking and the sides of investment to make that a reality. You got me thinking of engineers in particular. The government in many ways ought to figure out how to bring in some of the brightest and challenge him give them a challenge to work on. Couldnt agree more. All of us are concerned about our country today. We are in the midst of the covid19 crisis, Economic Impact of covid19. Theres the murder of george floyd and the divisions that has exposed in our society, in many ways americans seem to be moving apart from each other. What ideas do you have just any area of leadership . What leadership is required, maybe bring us together and to make a stronger on the back end of these crises . Its something i think were all wrestling with. I took a walk with my daughter yesterday and we were talking like you wouldve imagined the world we changed so much in three months . But in any way some of the underlying things missing take a response to george floyd is a something that happened in the last three months. Its been the company of a number of frustrations come in the many years and many decades that preceded it. When you hear commentators and people talking about when i things going to get back to normal . When is the economy going to return to normal . I wont spend much time on it but just as i think what were suffering to is different from 2008 where we are undergoing a significant income shock, really something unprecedented in our lifetimes, and ultimately the government has responded in ina very aggressive and expansive way but despite that and in part because of it its going to be a prolonged journey out of this. We are going to be suffering through some of the implications of covid well into next year, potentially for many years to, the implications of our ious grown significantly. Theres some very fundamental changes in our economy thats happening. The wrong frame of reference would be to say how do we get back to normal . First i dont think the return general will be the same normal. I think weve learned a lot. About working from home. I think this is accelerated Technology Adoption and so i know ill be uncovered and a suspect in Many Companies because of the dynamism of the u. S. Economy, businesses will change a lot. The world we knew three months ago isnt coming back. Its going to change 15 , 20 , whatever. Beyond that i dont think we should want it to come back to normal. Theres two things to highlight there. One is the fact coming out of 2008 we did a series of policy responses that were the right decision at the time but one of the implications of that was its been the best ten years in history, the last 100 years of the rise in the prices of all assets. If you have assets coming out of 20082009 you are much better off than those who did have assets. So the in, both the wealth gap thats grown dramatically and it sort of reinforced some of the fundamental misgivings and conflict in our society. We saw that will be for covid. And so ensuring that we create an opportunity environment where there really is equal opportunity and that different parts of our society have the opportunity to grow and be successful is critical. We are facing for the first time in modern history where most families feel like their children are less likely to be as welltodo and well off as they were. Thats a national problem. People may have different ideas on how to solve that problem. I have my set of ideas. I think it would be in line of many of the people here at hoover whatever the answers are we have to address that problem. Its pulling at the fabric of the country. The second problem is one weve been talking about. I think we been for too long not thinking strategically about our economic might at the intersection of it with National Security, which is the impetus for the paper. If you have any question of that, look at the speeches, look at the plan can look at the 2025 plant of the chinese. The chinese have a plan. Have a plan for global primacy. If you ask yourself what is our plan, i think our plan is in a very coherent well visualized plan. Thats the second gap. It will be very tempting to focus our investment and our policies on getting back to normal. My argument is that normal had a lot of problems, and im hoping as we come out of this that we will pick up those underlying problems to our success. This is a big focus for hoover. Now we have the right people do. Would love to work with you and anybody who is watching on these so we can emerge from these crises, stronger than ever. And yet i want to tell you one story about David Mccormick for the viewers here. I was a captain and iraq, even an Impossible Mission that involve really understand how the Iraqi Government formulated and executed its budget, something that will come and nation not wellsuited for cavalry officer or historian. I picked up the phone and i called a guy named David Mccormick, under secretary of treasury and i said hey, this is colonel mcmaster. We had not met before. And i need some help. Instead of getting a bureaucratic and he said wow, it sounds like you do need help. He sent me the former treasury attache editing to help me. That doesnt happen very often incumbent and it just reveals the kind of person you are, dave, and her character and you are in it to serve and do your best. I think its a time for all americans to do the same. Do whatever you can for those around you and to come back together as a country and overcome these challenges. Dave, what a pleasure to be with you and talk about this important paper, and the way you frame the challenge of not only bring the challenge but has come up with i think some really concrete recommendations that will our nation compete more effectively and secure the future of peace and prosperity for future generations. Thanks. Thanks for being with us here at hoover. H. R. , thanks for having me. Colonel mcmaster had a reputation that are pursued the folk also its really been honored to be a friend and work with you over the years, so thank you for having me. I really appreciate it. Thanks, dave. Take care and best to you into all our viewers. Coming up Health Officials testify about efforts to repurpose therapeutic drugs to treat covid19 patients. This house sites based and Technology Subcommittee gets underway at 1 30 p. M. Eastern by here on cspan2