Brad Smith: Association of Washington Business 2004 Policy Summit

Association of Washington Business 2004 Policy Summit


Strategies for Making America More Competitive



September 22, 2004



Blaine, Washington

PHIL BUSSEY (Vice President, Regional and Public Affairs, Puget Sound Energy): At this time I have the great pleasure of introducing our keynote speaker for the morning, Brad Smith. Brad is Microsoft’s Senior Vice President, General Counsel and Corporate Secretary. He leads the company’s department of Law and Corporate Affairs, which is responsible for all of Microsoft’s legal work, government, industry and community affairs activities. He’s the company’s chief compliance officer. Brad has helped spearhead Microsoft’s global campaigns to bring enforcement actions against those engaged in illegal spamming, virus creation and software counterfeiting.In fact, when we were talking about travel schedules, and after a week here he’ll be heading off to Europe and then Asia to deal with many of those very activities, so we’re thrilled that he could take time out of his schedule to be with us this morning.

And given his global expertise and Microsoft’s major economic impact in our state, we’re delighted that he could join us to share some of his insights for making America more competitive.

Please join me in welcoming Brad Smith. (Applause.)

BRAD SMITH: Thanks, Don.

Well, thank you, Phil, and thanks to all of you for the opportunity to be with you this morning. I actually arrived here late last night. I had flown back to SeaTac after spending the last few days in D.C. and New York, and I was up here about 11:00 wending my way through the last streets in the dark and the rain looking for the signs that would get me to Semiahmoo.There were a couple of moments where I wasn’t sure whether I was going to arrive in time.

It actually in a sense reminded me of the very first time that I arrived at SeaTac, which was about 15 years ago. I was a lawyer working in London, England at the time, and I had flown over because I had my first chance to come to Seattle and meet with a company that I was representing as a client, Microsoft. And I asked the lawyers that I was coming to see at Microsoft how I should best get there from the airport and they said,
“Oh, just go to the taxi stand, get in a taxi; all the taxi drivers in Seattle know where Microsoft is.”

So I followed their advice, I walked through the airport, I got in the taxi and I almost immediately realized that my taxi driver had arrived in the country perhaps on the plane that had landed just before mine.(Laughter.)

So I asked him could we go to Microsoft, and it became clear he didn’t know where it was and I said, well, I know it’s in Redmond, I know that’s to the east, let’s head out, and we soon saw I-90. And I said, ah, I grew up in Wisconsin, I know that I-90 goes east, Redmond is to the east, let’s take I-90. And then after a couple of miles it began to dawn on me that I was going to go a long way before I hit a dead end and maybe that wasn’t such a good idea.

So I asked the taxi driver, do you have a map, if you have a map maybe I can figure out where Microsoft is. Well, sure enough he had a map on the front seat right next to him and he passed it back to me and I took a look at it. And I paused for a couple of seconds and then I leaned forward and said as politely as I could,
“Excuse me, but this map is of Washington, D.C.”
(Laughter.)
“That’s in a different part of the country.”
At least he then understood why no one was asking for a ride to the White House.

But I’m really delighted to have the opportunity to be with you here today. I wanted really to do two things, touch base a little bit on where Microsoft is as a company today and where we’re going and then really focus on the competitiveness of our state and our future opportunities to be more competitive. In a sense this is a great time to reflect a little bit on Microsoft because it was 25 years ago that Bill Gates and Paul Allen moved their fledgling company from New Mexico to Puget Sound, in the process creating the whopping total of 30 new jobs for the Washington State economy. It clearly was a small group of people, but they had a big vision. And they encapsulated that vision in a single slogan that they emboldened on every employee’s orientation. The goal was to put a computer on every desk and in every home.

In a sense, it’s easy to look back and almost take that vision for granted, but, in fact, it was quite radical at the time. In 1977 the CEO of the second-largest computer company in the country said,
“There is absolutely no reason that anyone would ever want to have a computer in their home.”
That company doesn’t exist anymore; that was Digital Equipment in Massachusetts.

Here we are 25 years later and Microsoft has 28,000 employees in Washington State, indeed 28,000 of our 57,000 total employees are in this state and we’ll hire 3,000 new employees in Washington State this year alone.

The company today spends more on research and development than any other company in the world save one, Pfizer, and our campuses in the Redmond area represent the single largest private concentration of research and development work of any company in any industry in any country in the world. (Applause.) Thank you.

And when you think about it, that success is almost entirely based on one thing only, and that’s the ability to attract and retain the best and brightest software developers in the world and to persuade them to work with us here in Washington State.

And we’ve obviously been enormously successful over the years in doing that, and it’s interesting to take a moment to look at our workforce today. Over 80 percent of our 28,000 local employees are Americans, but 20 percent, or over 5,000, of our employees were born in other countries; indeed they were born in more than 100 other countries around the world.

For over a decade, Microsoft has been the single largest importer in the United States of talented engineers and professionals. We have accounted for the largest number of visas under the country’s H1B visa program.

We’ve been successful in creating jobs here because we’ve been able to bring the best and brightest here no matter where they were born and where they live, and we’ve been able to persuade them that Washington State is an attractive place for them and their families.

And indeed, despite the fact that we do business in over 80 countries, last year two-thirds of our worldwide employment growth was here in Washington State. It’s also what makes it possible for Microsoft today to create the economic base that supports another 100,000 jobs in the Washington State economy and contribute roughly half a billion dollars to the local and state tax coffers.

But I think more important than where we are today as a company is where we’re going as a company and as a state. We’re very excited, we’re building this year on revenue growth of 14 percent last year, and although our success is more subject to the vagaries of the information-technology sector and the economy as a whole, I think it’s also fair to say that we are more optimistic than ever about our industry’s and our company’s prospects for the future.

Indeed, it’s no exaggeration to say that software will play a bigger role in the decade ahead in improving people’s lives at home and at work than in any other decade in the industry’s history to date.

While the next decade will almost certainly see strong growth in places like India and China and Europe and elsewhere, and we’ll look forward to participating in those countries’ successes, we absolutely remain committed to one straightforward goal, and that is ensuring that the world’s center for developing the best and most popular software in the world will remain Washington State. (Applause.)

To achieve that goal, we recognize that we need to be more connected with what goes on in Washington than we have ever been before, and in that context I think it’s worth our acknowledging that there have been occasions in the past when we have been less engaged in local business and political activities than we would have liked and, I appreciate, some of you might have liked.

In a sense, Microsoft has had a very unusual history. It was thrust almost immediately from what I would call the startup phase to what the government called the breakup phase, and we were compelled very rapidly to devote enormous time and energy in getting engaged in legal and public activities in a number of states across the country, in Washington, D.C. and in a number of capitals around the world.

There were definitely times when we weren’t in Olympia when we would have liked to have been. There were times when we were spending an awful lot of time in other places instead.

This really hit home for me in January when we were in Brussels. I spent more days in January and February in Brussels than in any other city as we were trying to negotiate with the European Commission, unfortunately, as it turned out, unsuccessfully.

There was one Sunday night when we had a two-hour negotiating meeting at the European Commission, which is a bit unusual in and of itself for a Sunday night, and I and four other lawyers walked back to our Government Affairs office in Brussels and got in the elevator to go back to our office on the fifth floor. And as I’m sure many of you when you’ve traveled to Europe have noticed, European elevators are sometimes pretty small. So we’ve got these five lawyers and all of our papers in this elevator and the elevator went up about three floors and then it suddenly stopped and it fell about a floor and a half, and it was clear that elevator wasn’t going anywhere.

It’s not good to be stuck in an elevator with four lawyers.(Laughter.) It’s not like you have a diverse skill set to call on to get out. (Laughter.) You get lots of opinions about who you can sue, but none of that really helps you solve the problem. (Laughter.)

The good news is one of our lawyers applied brute force to the cause and just forced the door open and we were able to sort of jump down half a floor and get out, but in a sense metaphorically we have spent a lot of time stuck in a lot of elevators in a lot of capitals around the country and around the world.

And for us the good news is that while these issues are not going to end, the longstanding U.S. antitrust lawsuit is almost at the end of its course, and we do feel that we have issues elsewhere in a place where it is easier for us to manage them. And as a result it is possible and we are very committed to being more engaged and more active in supporting and contributing to and helping with all of the work that, as that video showed, so many of you have been doing for so many years. I also hope that our involvement in these other places in the U.S. and around the world will give us some helpful perspective that we can bring to bear.

Our activities around the world and around the country leads us firmly to believe that as we look at the future of Washington State we are a state that needs to be competitive not only with other states in our own country but with many other countries around the world. We’ve seen the successes over the last decade in places like Singapore and Korea and many European countries, but in my own mind there is one place that I’ve seen that stands out as something of a role model and I think even an inspiration for those of us in this room, and that’s the success that we’ve seen in the last decade in Ireland.

To put what Ireland has accomplished in perspective, one needs to have a little bit of context. In 1841 the census in Ireland showed that there were over 8 million people who lived on the island. In 1961, 120 years later, Ireland’s population had fallen to below 3 million. So in other words, at a time when the population of the world grew fourfold, Ireland’s population had shrunk by two-thirds. Literally for over a century Ireland’s greatest and most valuable export was almost certainly its own people, and when Ireland joined the European Community in 1973 it did so with a standard of living that was only half of the EC average.

And yet Ireland ended last year with a per capita GDP that was 125 percent of the EC average. They had finished a decade in which they had reduced unemployment from 21 percent to 3.8 percent and they did this at a time when they attracted over a million of their expatriate citizens to come back and live in and invest in Ireland as well.

As a company, we happened to be one of the earliest, most prominent and most committed investors in Ireland as the place where we would locate much of our European manufacturing, operations and development work. It gave us the firsthand opportunity to participate in that country’s success and to learn from it along the way.

It is not a success story that happened by accident. In the early 1990s, Irish government leaders and business leaders got together and they forged a clear and compelling vision for their country, that they would become a leader, the leader in Europe for an economy based on information technology and computing. And the government and business community in Ireland recognized that the cornerstone of that success would have to be a much better educated workforce and through strong support for education Ireland was able to ensure that by last year 81 percent of its high school students were going on to college level courses, up from 47 percent in the 1970s. Ireland reformed its tax system to not only persuade local businesses to create more jobs in Ireland but to attract foreign businesses to Ireland as well. It is truly an impressive accomplishment that was based on the clear vision and the kinds of decisions that were needed to support it.

I think it’s interesting to some degree to compare Ireland’s successes with our own because we’ve clearly had great successes in our state as well. We’ve had our hiccoughs over the last few years, but the 1990s generated a great deal of success.

Still, I think we need to ask ourselves, where would our state’s economy be today if Bill Boeing and Bill Gates had decided to found their companies in Wichita rather than in Washington? Have we truly benefited from success by design or have we often been the beneficiaries of success by accident? Have our political deliberations been characterized by decisiveness or all too often simply prolonged debate?

We firmly believe that we have an opportunity in Washington State to pursue a vision of economic success that is based on creating a world-leading innovation economy and it reflects the opportunity that our companies today have to pursue advances in technology ranging from computers to communications to medical devices to biotechnology and inventions that none of us have even yet imagined.

And we have a number of strengths on which we can build. We have two of the world’s leading research universities in our state. We have a large number of very successful private companies and indeed much of our success in the 1990s was based on job creation and technology. A majority of the jobs created in the state in that decade were based on technology.

But we also need to be hardheaded and we need to recognize that we do not have a world leading economy in Washington State today. That is because there are simply too many areas where we lag behind both other states in this country and other countries around the world.

And if we are going to realize that vision, we’re going to need to address some important priorities. In many, many respects they are the priorities that the AWB has already been addressing for a number of years.

To us there are probably four areas that I think it’s fair to say stand out. The first is the need to continue to strengthen and streamline decision making in our government. I think that the initiative around Priorities in Government was obviously a key step forward.

But there is more to be done, as the AWB has already noted.There is a need for regulatory reform, there is a need to streamline the rules, to quicken decision making and to bring cost-benefit analysis into the regulatory decisions that our state government makes.

We need to recognize that these are the types of steps that are really the foundation for all of our economic development. And like any foundation, one can accomplish little on top unless this is laid in place. But like any foundation, it is also only the first step and to some degree success will turn on how well we can build upon that foundation.

Second, we need to invest in and improve our state’s infrastructure, in part in areas like energy, certainly in areas like transportation. It’s interesting because you read in the paper these days that people in Puget Sound are actually spending less time on the road than they did a decade ago. Well, if you don’t try to drive as far, it doesn’t take as long to get there, and that in reality is what we’re certainly seeing in the decisions that are made by our employees about where to live and I think for many companies it has an impact on their ability to attract people who have a broad range of neighborhoods in which they can choose to live and have a reasonable commute to work. It has an impact on business and the cost of doing business as well.

We need to improve our transportation infrastructure; certainly we see the need to improve the 520 corridor, which is so important to so many small and large businesses east of Seattle.

Third, we really need to continue to improve our K-12 education system. We have made improvements in recent years but there is a lot more that needs to be done. Today only 68 percent of our students graduate from high school. That puts us 32nd in the country in terms of our ranking as a state.

In some ways, even more disconcerting is the fact that only 32 percent of our 9th graders take college-level courses within four years of that 9th grade point. Think about that for a moment. In Ireland 81 percent of their students are going on to college-level courses within four years; in Washington State the number is only 32 percent. And yet we are as much in competition with the Irelands and Singapores as a state economy as we are with other states in our own country.

And as the Technology Alliance found in a survey and study that it did earlier this year, our students lagged well behind students in other technology-based states in this country in terms of the number and percent that are taking math and science in high school.

Clearly we can do better and we need to do better.

And finally, we at Microsoft are strongly committed to strengthening further our higher education in our state. In fact, higher education I think it’s fair to say is an issue in which we feel particularly passionate, in part because we see the connection between higher education and commercial success in so many other states and countries around the world.

We live in an interesting time and there’s a lot of discussion around the country about issues like outsourcing and offshoring and yet we as a country risk missing one very important trend; even as some manufacturing and other jobs are leaving our country, other research-based jobs are coming to this country from Europe and elsewhere. And the states that are developing real clusters of innovation like North Carolina and Massachusetts and Northern California are benefiting strongly from this trend in terms of the very close connection between their university community and their business community.

Washington State already has very important strengths in this area. The University of Washington attracts over $800 million a year in federal research and Washington State is one of the country’s leaders in agricultural research. And we have a proven track record here as over 100 companies in our state can trace their origins to basic research that was first pursued at the University of Washington.

And indeed this partnership plays an important role even for larger companies today. For example, we at Microsoft benefit from research that we’re pursuing in partnership with the UW in important fields such as next generation computer graphics.

But we also need to set our sights higher. For example, we need to increase the capacity of our public universities so they can educate more of our students. Today, Washington ranks 41st in the country in the per-capita number of students pursuing bachelor’s degrees in public universities, and the state ranks 43rd in the country in the per-capita number of students pursuing graduate and professional degrees at public universities.

The state’s population has grown but the public universities have not grown with it and we all know that private universities in the state are not filling the gap.

I think the lesson is clear: We do need more capacity in our public universities and the budgetary decisions made this year in Olympia, while a step forward, are really only a first step compared to what is needed.

But we also need to focus on quality as well as on quantity. Part of quality is accountability and we’ve seen important steps in that area with both of the major public universities in the last year, good steps that need to continue in the next administration in Olympia and beyond. But we also need to focus on quality in terms of our ability to attract and retain the best researchers and teachers in the country to work at our universities, and we need to focus on quality in terms of our ability to move ideas out of the laboratory in our universities and into the commercial space so that our universities are operating as the full and effective engines of economic growth that they are capable of.

I’d say in conclusion that we at Microsoft have had, and indeed we continue to have, the opportunity to contribute to a company’s growth and success the likes of which really come along only a few times in a generation. Much of Washington has contributed to and shared in the benefits of that success; it has been truly an exciting thing.

But we also have a larger opportunity. I think if one looks at other great economic success stories over the years around the country and around the world, one sees that in some cases the people involved benefited not only in their time and place but they also really worked with their community to create a longer lasting and broader foundation so that the benefits would not only be temporary but would create the cornerstone for the kinds of successful opportunities that could be pursued by their children and grandchildren. In some states people have achieved that and in some they have not.

Today, we in Washington State have the opportunity to build on the business successes of the last couple of decades and really create a world-leading innovation economy. We are not there today. But if our government and business community can come together around that vision and make the key decisions that need to be made, we have the opportunity to turn that vision into a reality.

We’re certainly looking forward to doing our part, in partnership with you and with others to do our best to try.

Thank you very much. (Applause.)

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