Michael Milken: A Capitalist's Manifesto, Part II

In part one, Michael Milken pointed out that the productivity of individuals is our single greatest asset. He looked at how changing demographics and political structures, here in the United States and abroad in countries like China and India, will continue to have a profound impact on economic growth. And he showed that investments in healthcare and market-fueled innovation can open doors to prosperity for entire nations. In this second part, Milken, chairman of the Milken Institute, an independent think tank devoted to global economic issues, discusses, in his own words, the power of education, the democratization of capital, and the role of financial innovations.

Return on Education

If you look at studies showing the rates of return for government investments in education, you will find that the highest rate of return comes from early childcare education and the second highest is from elementary school. Government investments in high school have a higher rate of return than college. Investing in elementary school computes to 18 percent over a 40-year period or 1,000 times your money. These are amazing rates of return and, as we know, government investments generally don’t achieve those rates.

Now, look at the private sector, or your own investment in your child’s education. It is estimated that $1 million will be invested in the education of a child born in America in 2007. With 4.6 million people expected to be born this year, we are talking about a $4.6 trillion investment over their lifetimes. Who’s going to pay? The parents, the grandparents, aunts and uncles, the state, local governments, federal governments, employers, and the individuals themselves. Looking at this as an asset, it represents an enormous investment with a very high rate of return.

As most of you know, in the United States particularly, jobs have changed dramatically and today’s labor market is totally different than it was a couple of decades ago. But in 1950, when I was young, most of the jobs were unskilled. You could work for the United Auto Workers, you could work for the United Steelworkers, or you could have many other jobs and achieve a middle-class life without any significant skills. A willingness to work hard was enough.

But that is no longer the case. Today, more than 85 percent of jobs require at least some higher level of skills. This century, in my opinion, will be defined by a worldwide competition for human capital. But when you recognize that two-thirds of the children in Los Angeles cannot read at the basic level—and by basic I mean they can not read simple three- and four-letter phrases: “Where is your mother? Is your Dad at home?”—you can see they are at a huge disadvantage. The result is that of these children, 50 percent will not graduate and probably 60 to 65 percent will never really be educated or prepared for the work force. So we have enormous challenges in our system, and we’re looking for the wake-up call in education.

Global Competition for Leaders

The Biopolis in Singapore, headed by Philip Yeo, is rushing to become the world’s leader in medical research. They’ve also recruited two of the leading scientists in the United States in stem cell research at the National Institute of Health. In fact, many of the leading scientists there are from different countries. And they are not alone. Imperial College, one of the two leading science colleges in the United Kingdom today, has enjoyed great success recruiting foreign students, for example. It has 14 Nobel Prize winners, almost as many as Berkeley. (I went to Berkeley, so there’s some bias here.) In the years from 2000 to 2006, largely because of the immigration difficulties in the United States after 9/11 and the difficulty for foreign students to come into the United States, there’s been an eight-fold increase in students from China going to the United Kingdom. Many of those students would have been here. The future has already been changed. The thousands of young scientists and young scholars who didn’t come to the United States that might have, in the last years—their lives have been changed. Any breakthroughs that they might have achieved or contributed to will happen somewhere else.

There is an example that is relevant to this point. There are two countries, both part of the British Commonwealth and both given their independence, Singapore and Jamaica. Lee Kuan Yew, who was the prime minister of Singapore, actually went and visited Jamaica and looked at Jamaica. They were very similar. They both had per- capita income in 1960 of $1,900. Both focused on tourism and agriculture. They had similar weather. But one managed to grow per-capita income at 12 percent per year for the last 47 years, while the other grew at about 1.5 percent. One chose to build a society based on human capital; and one continued with tourism and agriculture. And there’s almost nothing in common today with Jamaica and Singapore except the weather, because of decisions that were made based on human capital.