Transcript of Panel Discussion, Microsoft Research Tech Fair 2005

Participants:

• Phillip Bond, Under Secretary for Technology, U.S. Department of Commerce
• David Dreier, U.S. Representative (R-California)
• Bill Gates, Chairman and Chief Software Architect, Microsoft Corporation
• Patrick J. Leahy, U.S. Senator (D-Vermont)
• Rick Rashid, Senior Vice President, Microsoft Research, Microsoft Corporation
• Shirley Tilghman, President, Princeton University

Moderator: James Fallows, National Correspondent, The Atlantic Monthly

James Madison Building, Library of Congress, Washington, D.C.

April 27, 2005


JAMES FALLOWS: Good morning, everyone. My name is James Fallows, from the Atlantic Monthly magazine. On behalf of the Library of Congress, and its 13th director, Dr. James Billington, I'd like to welcome you all here for what I think should be a fascinating next hour of discussion.

The topic for today is the state of innovation and innovativeness in the American economy at this moment. The educational roots of our innovative future. Our technological impact on the way American life is going to develop. And we could not have a better panel with which to discuss this over the next hour.

We have [inaudible], we have policymakers from the legislative and executive branches, and we have two representatives of one of the leading technology companies ever. The plan for this morning is to have roughly 40 minutes of panel discussion among these six panelists, where I ask them questions and they'll discuss with each other. And about 20 or 25 minutes into this, you will find, underneath your chairs -- in fact, you'd find them, even now, if you looked -- you'd find index cards and pencils. We're going to have a question period for the last 20 minutes, or so, under the rules of the National Press Club, and other bodies, where -- write up your questions. They'll be collected in about 30 minutes, and then, I will go through them and ask questions to our panelists.

When this all is over, when we break about an hour from now, you all are welcome to go to the ground floor of this building, where there is a technology display, where many of the projects that you probably won't discuss right here, that have been produced by Microsoft, are -- will be available from the research labs for you to see.

So, that is our plan, and thank you for joining in. Let me mention, just briefly, the panelists we have. If I gave all of them their due, our hour would be up, so I'll just say a word or two about them, briefly.

Starting at the far end, we have Rick Rashid, who is now the senior -- the correct title changes in impressive ways. Now the senior vice president for Microsoft Research. He's been with the company for 14 years. Formerly, was the director of Microsoft Research, and before that, a professor at Carnegie-Mellon University. A member of the National Academy of Engineering. During my six-month tenure as a member of a product development team at Microsoft, I often went to -- to Rick for advice, so I'm glad to see him here.

Next to him is Congressman David Dreier from California, who's been representing an inland Southern California district, including Claremont, since 1980. As the chairman of the powerful House Rules Committee -- and the word powerful always is attached to House Rules Committee, just as forward-looking is always attached to Congressman Dreier. He's been a reliable voice and a far-sighted voice for technology policy for his many years in Congress.

Next to him is President Shirley Tilghman of Princeton University, who became the 19th president of Princeton in May of 2001. Before that, she had a very distinguished career as a genetic scientist. She was one of the founding members of the National Advisory Council of the Human Genome Project Initiative at the National Institutes of Health, and has won many, many scientific awards.

Next to President Tilghman is William H. (Bill) Gates, who -- of whom, I will say simply, he is the chairman and chief software architect of the Microsoft Corporation. A co-founder of that corporation. I think all the rest about him you know.

Next to him is Senator Patrick Leahy of Vermont, who came to the U.S. Senate in 1974. He is now in his sixth term in the U.S. Senate. He was -- I hasten to point out, he was 34 when he arrived.

(Laughter.)

Senator Leahy's website points out that Senator Leahy is the -- was the second senator to post his own personal Web page. I gather there is sort of a turf war underway, here, because the first one was the senator from a neighboring state, an even more senior senator, Senator Kennedy. But there is the catch that his was based at MIT for awhile. So, in fact, Senator Leahy may be the first one to have an authorized site.

And finally, immediately to my left, we have Phillip Bond, who's the under secretary of Commerce, who's been the principal advisor to the Commerce secretary on science and technology policy. And before that, has been on the staffs of -- was the chief of staff for Congresswoman Jennifer Dunn from Washington State, and was an assistant to Dick Cheney in his time as secretary of defense. So, that is our line-up.

And the themes we would like to try to explore are ones that members of this panel, in their different capacities, have addressed over their years of public service. Essentially, how the United States can retain the advantages it has long had, in scientific advancement, scientific research, and the application of that research, to public life, and public benefits.

I'd like to start by asking Bill Gates about a question he's discussed and addressed in many speeches over the last year or two. Essentially, a state of the union report about the state of innovativeness. You've talked about the American pipeline, that produces scientific and technical talent, and why we should be concerned about the state of that pipeline. Please tell us more on this point.

BILL GATES: Well, I think the first thing to say is that the opportunities for innovation are stronger today than ever before. In other words, in the area of information technology, or in biology, WE are taking these scientific advances and re-defining the energy economy, how we do transportation. The value creation will come from scientific innovation.

For Microsoft, that's meant increasing our R&D budget, constantly being able to get great people. For the United States, it's meant leadership in areas like software, and -- and biotechnology. And so, if we look backwards, I think we see a fantastic achievement. If we look forwards, I think we see good opportunity. But I -- I'd also say there's a lot of things that are a bit scary.

People like Tom Friedman, in his latest book, "The World Is Flat," talk about how the opportunity to do this innovation is not just in a small number of rich countries, now. It's India, it's China, it's a large part of the world. And so, it's a more competitive environment. Now, that should also be good, because we can sell these products more broadly. But then, if we look at the educational investments, and the focus taking place in those countries, compared to the United States, our lead position, where we develop the best people in this country, and many of the best people from other countries come here -- that's certainly eroding.

And the interest in the science has gone down quite a bit. Some of the research funding, in terms of how it's focused, and -- and in some cases, even going down, there's a big problem there. So, I'd say we're -- we're quite concerned that the U.S. will lose its relative position, here, in something that's very critical to the economy. To allowing this to be a country where, you know, our wealth is 'way ahead of that of other countries. For Microsoft, it means we're having a tougher time hiring, and as we look at the -- the future, that's just going to get tougher. The jobs are there, they're high-paying jobs, but we're just not seeing the pipeline what it needs to be.

JAMES FALLOWS: And just to follow up on one point. You were saying you're having a tougher time hiring. It's because you can't find the people you want anyplace, or in the United States, or -- or what?

BILL GATES: Well, I'd say in the United States. And, you know, although our hiring -- we do, by far, most of our R&D here in the United States. Probably 85 percent. We have a center in India, a center in China. Those have gone very well, and they're really giving us an exposure to the quality of the students, most of whom, historically, would have come to the United States, but more are either not coming at all, or coming here, and then -- then going back. For us, it means, we're going to the top universities, even though we -- we do very well out of the pools over there, there just aren't as many graduates with a computer science background. And so, we have those open positions, and it creates a dilemma for us, in terms of how we get -- get our work done.

JAMES FALLOWS: Let me ask now, if I could. President Tilghman, you heard Bill Gates refer to the top universities, and the supply problems he's having of students coming from those universities. And you run one of them. Tell us what you think is creating this falloff in interest in scientific careers among Americans in general, and women and minorities in particular?

SHIRLEY TILGHMAN: Right. I think there's a deep paradox in American society. And that paradox is that the United States has the finest higher education system in the world. I think that's indisputable, and I think anyone around the world would say that.

We have a really failing K-12 education system, and those two are just simply incompatible with the long-term goals that Mr. Gates just outlines for us, which is to inspire, instill enthusiasm among young children, ultimately teenagers, who can then flow into our universities, which I believe are really fully prepared, and continue to do a stellar job of training scientists and engineers.

But too often, by the time they get to us, they are math-phobic, they're science-phobic, despite the fact that I'm fully convinced many of them have the talents to become great scientists. And the consequence of this is we have been increasingly dependent upon attracting students from outside the United States to American universities, where they come, and they excel. They do extraordinarily well.

In the past, as -- as Bill said, many of them would stay. But increasingly, they are going home, A., because there are better opportunities at home, and B., they're not coming in the same kind of numbers that they were five years ago, largely because of the consequences of 9/11, and the -- and the visa difficulties that have been incurred. So, I share his concern, that I think our universities are there, and fully prepared to educate many more scientists and engineers, but I worry about where those science and engineers are going to come from.

JAMES FALLOWS: And to be clear, you're saying that the supply problem is both from home-grown talent and international talent because it's harder for -- to get here.

SHIRLEY TILGHMAN: There was a 25-percent decline in graduate applications to the United States last year, and this year, there's an additional five percent decline. This is very dramatic.

JAMES FALLOWS: We have a number of policymakers here. I'm going to turn to you for their view on this, too. Let me start with -- with Mr. Bond. I was talking last night with somebody from the very early baby-boom generation, who was saying that he wasn't all that interested in math, but because of the post-Sputnik programs, he was pushed into this math talent -- you know, track of the -- of the 1960s and 1970s.In the past, in American history, we've responded to problems like this with government-led efforts to direct talent in certain directions. Why is this not happening now?

PHILLIP BOND: Well, I think you'll find, on close scrutiny, that the market is both global and quite elastic. 1995-2000, computer science and engineering new entrants for undergrad degrees, up 130 percent. Since 2000, down -- let me get my notes, here -- down 39 percent. I think that's in large part because of a lot of news post- -[inaudible]. And news about the globalization of labor markets.

The study that President Tilghman just referred to, on graduate students -- five-percent decline after 25 percent the year before -- I think in -- a couple of years ago, I think it definitely, probably, reflected somewhat the visa application issues, which have received the highest possible attention in the administration.

However, that last year, five-percent decline actually showed an increase of students from the Middle East, which would seem to be counter-intuitive, with it being a visa issue. I think it shows that India, China and others are getting competitive. The United States has this in common with Microsoft. When you're number one, everybody's gunning for you. And we have been the innovation headquarters of the world. People have mimicked that, foreign ministers of science and technology ask me, what can we do to be more like America? One thing they've latched onto is our higher education system, and they are trying to mimic it.

JAMES FALLOWS: And to be clear, here, has there been anything like a Sputnik-type program, that's even been discussed inside the administration?

PHILLIP BOND: Well, sure, there's the math and science funding that -- that the president has upped in his budget proposals. There are other ideas floating around on Capitol Hill. For instance, on the House side, I know that Congressman Wolf, along with Sherry Boehlert and Vern Ehlers, have introduced a bill to take care of the interest on your college loans for math and science. So, there -- I think there's been increased attention there. There have been programs at NSF and elsewhere. And then, there is the president's challenge, also related to space, to try to -- to lift up an inspiring goal for the country.

JAMES FALLOWS: Let me ask Senator Leahy, now. You have long been, you know, one of the eminent authorities in all of -- of, you know, public life, on the intersection between legal issues and technical issues, and have a great standing in both realms. Would you talk to us about this visa point, which comes up again, and again, and again, in talking with both technology companies, and the higher education, as a real, sort of, bottleneck on what the U.S. can do?

PATRICK LEAHY: Sometimes, you hear two things, which I don't think are really the -- the major aspect of it. One is that why should we give visas, we should provide jobs here at home. As Bill and President Tilghman have said, you've got to do a lot better job on our educational system at home, if you're going to supply those jobs. The other is, there is a post-9/11 effort to cut down visas. I think that's a bad mistake. I think we should have been increasing them. And so, like during the Cold War, we don't want to bring people here from the Soviet Union or China because there may be some spies among them. I'm sure there probably were, but it was all the more time to bring them here, and have them exposed to the U.S. and to democracy and all. And at the same time, sending our people abroad. I don't think that we're investing enough in R&D. We -- while it's a lot of money, it's still less than 1 percent of the gross domestic product.

China does about 13-and-a-half. Microsoft does about $7 billion, I think, a year, or something like that. And a lot of that goes into our -- into our schools, into our universities. These are all inter-related. You've got to provide, as -- as Bill Gates has said, a better ability to teach our children as young -- as young people.

And we should be opening our borders more, not closing them more. It does not improve the security of the United States, by thinking we can become Fortress America, and not interacting with the rest of the world.

JAMES FALLOWS: And on this point, is there any dissent on the panel on that point, that the -- the policy is too restrictive now, and needs to be re-opened?

DAVID DREIER: Well, let me -- let me just say, Jim, that I think it's -- it's very important for us to focus on this K-12 education at home, and it's important for us to realize that -- and I don't want to look at the world through rose-colored glasses, but the fact is, rather than seeing this whole notion of our being in competition with the Indians and the Chinese, I think we need to realize how beneficial this can be for us.

Bill has just talked about the fact that he has operations in both India and in China. I was just to the Smart Village in Cairo, Egypt, which you opened a few weeks ago. And so, it's very apparent to me, that we are seeing this dramatic explosion of moves into countries trying to develop as their comparative advantage, the technology sector. So, H-1-B visas are the big issue. And that's -- that's -- that's the challenge that we have faced, is to make sure that people who are going to be in this country to focus on their area of expertise, can do that. And I think that we need to make sure that we have that available.

But, at the same time, you know, those resources are designed to focus on education here in the United States, so that we don't have this reliance on H-1-B visas. But I do think that we still ought to focus on border security. And I agree with Pat, that, you know, we -- we -- you know, this Fortress America notion is a bad one, but we can't be so naive as to believe that there is not a very serious border-security problem with which we have to contend. And I would argue that we can deal with that, in many ways, with technological advances.

And so it would seem to me that the tech sector of the economy could play a big role in doing that. And I also think, Jim, that we need to ask ourselves why it is that so many of these people, who are educated at Princeton, and at other great institutions in this country -- why it is that they leave. Why it is that they leave? And I think that -- that that's why it behooves us to spend time looking at our policies that create a disincentive for people to remain working right here.

JAMES FALLOWS: To wind up this initial round, I wanted to ask Rick Rashid a question which is directly related to what you've heard in the last few. Your job, now, involves seeing universities around the world -- in China, in India -- and comparing them to ones in the United States. Would you talk about both what you've seen in the visa type-policy -- you were telling me a story about that recently. Somebody trying to get to a meeting in Microsoft.

And also, the larger issue of how you think our university establishment, in the long run, is holding up against those in other parts of the world?

RICK RASHID: Well, I mean, I agree very much with the comment that we have the absolute best, you know, higher educational system in the world. And -- but it's also very evident, as you go, you know, visiting universities in Europe, visiting universities in Asia, that those parts of the world are very focused on improving their educational systems, and are putting large amounts of money, both into their university systems, and into their science and -- and research funding.

You know, Europe, with the framework programs that they have in place, have really tried to establish the whole technology sector as an area that they really want to be able to innovate in. That they believe they need to be able to compete with the United States and with China and with other parts of the world by innovating in those high-IQ, high-technology areas, whether it's in computer science, or engineering, or bio, or chemical, and so forth.

So there's a lot of emphasis going on within other parts of the world, that they're really trying to take advantage of what they see, to some extent, as an opportunity, as their economies improve, as their opportunities improve, as they perceive that the United States is turning people away at the borders, that they're doing a lot to go out and recruit.

For example, some of the European universities have been very focused on recruiting from India. And they see that there's an opportunity for them to take advantage of the flow of high-IQ people that may have traditionally come into the United States.

So, there are a number of things like that -- that are going on out there. And again, the rest of the world's improving. We need to keep improving what we do. We need to keep bringing more IQ through our educational system through immigration, into the country, and keeping it here, to be able to engender higher rates of innovation.

JAMES FALLOWS: And will you tell them about the person who tried to come to a meeting that you were holding?

RICK RASHID: Oh, this is from a couple of years ago. We actually had one of our researchers that's in Beijing actually couldn't get to one of our meetings, because she couldn't get a visa. And we were trying to -- and this is just for a meeting. We were trying to figure out exactly why, and the best explanation we were given at the time was that she'd just gotten married. And we were trying to decide well, OK, exactly how that fit in. We didn't quite -- we didn't quite get it.

(Laughter.)

But I think it's -- I don't particularly fault the -- the Immigration Service, in the sense that I think they're trying to do their job as best that they're able to, given the task that they're provided. But, we need to make sure that we're doing the right thing to encourage high-IQ people to come into the United States, to be able to go to our universities, to stay here, to create business and -- and to innovate.

JAMES FALLOWS: Let me ask a question now to Bill Gates again. You've written a couple of books that have been utopian or visionary. "The Road Ahead," "Business at the Speed of Thought." And I mean utopian in a good sense. I'd like you to go against your nature for a minute and think dystopian thoughts, of what would be the consequences 10 or 15 years from now for the U.S. if the problems we're all discussing here are not addressed.

Realistically, what will that world be like?

BILL GATES: Well, there's no doubt that the United States' relative position, even if we do all the right things, will decline, and as was said, that's not necessarily such a bad thing, the fact that the world is getting richer and the people who have been quite a bit behind are catching up faster than we're leading from the top. That's OK.

The problem that the U.S. has is this decline in interest in the sciences, and all the things that are happening around the funding, particularly funding for the really risky, long-term activities. It means that our relative portion will shrink dramatically more than it should. And it's very dangerous, because you get this reaction, you can get this cycle that, "OK, the world is very competitive, let's cut back on trade; the world is very scary, let's cut back on visas."

And the whole idea of the H1B visa thing is, don't let too many smart people come into the country. The thing, you know, basically doesn't make sense. And you can't imagine how tough it is to plan as a company where we say, "OK, well, let's have this engineering group and staff it." Well, the visas run out. There's this thing that, you know, the fiscal year starts, you get a few, and then you go through these periods, nobody can come in.
And so we'll have Canadians sitting on the border waiting, you know, until some bureaucratic thing happens that a few more get opened up. And so that's just, you know, ruining ourselves in this global competition.

You know, China now is graduating four times as many engineers as the United States is, and that ratio has just shifted and shifted and shifted. And absolutely, per engineer, ours are still better. You know, if you listed the best 10 universities in the world, somewhere between eight and 10 of them would be from the United States.

Then again, if you looked at the rate of improvement of Beijing, Shingwa, Indian Institute of Technology, you'd also be very impressed that they had moved from really just educating people to now starting to play in the research area, starting to make contributions there. So we've got to maintain our relative position. That's the only reason why salaries can be so much higher in the United States than they are elsewhere.

JAMES FALLOWS: And following this up, Microsoft would still be fine. You'd just do more of your work someplace else. Is that right?

BILL GATES: Well, we're we're very tied to the United States in that our core product groups, Windows and Office, you just, you can't move those, even if we contemplated it. There's just too much going on, too much experience.

We have some peripheral things that we do in these other areas. It's actually easiest to distribute the far-out research, because those tend to be small groups. And so when we went to Beijing, it was actually our research group more than development that we put there.

Our development is going to stay in the United States, so whether it's bringing in people from around the world or getting them from here, we will depend on how this is done, and that's partly why we have such close partnerships with the universities, partly why we're even trying to engage in the K-through-12 issue.

I think you'd get a unanimous agreement here that that the interest level and the capabilities coming out of K-through-12, you know, might even make it to the top of the list. Even above the research funding problems that are real, the visa problems that are real, this pipeline problem is the most damning, I'd say.

DAVID DREIER: Bill, does a large part of your presence in the United States have to do with market, too? I mean, does that play a role at all in this decision? I'm kind of curious about that.
And one of the reasons I ask that is that, as you look at China and India and see the technological advances and the economic growth that they're enjoying, I'm wondering if, as those markets grow, if that could potentially create a greater incentive for Microsoft to not maintain the kind of presence it has in the United States?

BILL GATES: Well, we've always we've gone from getting in our early years, we got about 50 percent of our sales from the United States, and now that's down some from that as we've gone grown more outside the United States.
The United States is the most demanding market, and it is the biggest single market, and it's the market where the respect for intellectual property is the strongest.

DAVID DREIER: Right.

BILL GATES: And so there's a lot of reasons you want to be here on the cutting edge. People often talk about the few counter-examples. Mobile phones, there are things that are happening outside the United States. But most everything else, cutting edge, you see it, you see it developing here first.

Yes, we'll be somewhat more balanced in terms of, as our product markets are outside the United States, our R&D will be somewhat more balanced, but we'll still be very heavily U.S.-centric.
I mean, we that's, you know, how we do our projects. It's how we do our work. And so that's why there is this national dependency.

JAMES FALLOWS: I'm going to encourage you to write out your questions. They're going to be collected in just a minute.

And I have a question both for Under Secretary Bond and for Senator Leahy. In the public policy issues we've been discussing here, visas are important, but relatively easy to solve, compared to research funding in a time of huge budget deficits, and actually doing something about K-12 education, which has been talked about for 50 years or 200 years or whatever.

(Laughter.)

JAMES FALLOWS: So what are the prospects for really improving either of those situations more research funding in tight budgets, and actually changing K-12 education?

PHILLIP BOND: Well, let me address the R&D thing first, because I think there is a little bit of a misperception. If you compare percentage of GDP spending on R&D in the U.S. versus the height of the Cold War and Sputnik, you'll see a downward slope.

But if you look at the last five years, you'll see an upward slope. Basic research funding is up 26 percent in the first term of the Bush administration, 6 percent a year, twice the rate of GDP growth; NSF, up 40 percent, or NIH 40 percent, NSF up 30 percent; overall R&D up 45 percent.

JAMES FALLOWS: The 26 percent figure includes exactly what? Is that Defense Department also?

PHILLIP BOND: Well, that's real, long-term, risky, basic research, 6 percent a year, not growing as fast as overall

JAMES FALLOWS: We have a follow-up query. Yes, President Tilghman?

SHIRLEY TILGHMAN: Let me just give you ask you about one thing, then, about the Department of Defense in particular.
The way the Department of Defense has always invested in sort of fundamental risk-taking, high-impact research is through DARPA, and I notice that the President's budget has a 20 percent cut in DARPA for the '06 fiscal year.
How do you reconcile that with major continued investments in research?

JAMES FALLOWS: DARPA has fundamental info-tech.

SHIRLEY TILGHMAN: It's fundamental.

PHILLIP BOND: We are in tough budgetary times, as was mentioned, making some tough choices. Some of that goes to application versus development. DARPA covers both.

SHIRLEY TILGHMAN: Yeah.

PHILLIP BOND: But the facts are really stunningly clear, that for the first term of this particular administration, R&D funding overall is up dramatically, basic research funding is up, as well, not as rapid as overall, which includes some of the developmental work.

PATRICK LEAHY: Of course, some of that funding is things like the Star Wars and missile shield, which is well, I won't you know, I

PHILLIP BOND: Set it aside.

PATRICK LEAHY: I've always worried more about somebody in a pickup truck with a bomb driving down the street in a country that will send this missile against us with a return address on it, knowing that they're going to be obliterated afterwards.
But the we are not spending enough in real research, and I don't think you know, if we can find money for Iraq, we can find money for all these other things, we ought to be able to find money for or money to do away with the totally do away with the estate tax, which I'm glad your father opposes

(Laughter.)

PATRICK LEAHY: But, you know, if we I don't mean to get political on this, but we have to set priorities.
The fact is, research changes changes so much every year. They can spend $7 billion over at Microsoft, we could be spending certainly many multiples of that here in the United States.
It is basic research that gets us to where we have to be, but then we also have to figure out a way to share a lot of this with other parts of the world.

When you have diseases, for example, that could wipe out almost immediately whole villages just simply because they breathe the air, it is actually in our interest, aside from all our humanitarian responsibility, it's in our interest from a security point of view to be sharing the ability to do that, to stop AIDS, to stop childhood diseases throughout the world, and then to find a way, through whether it's an expansion of simple things as cell phones in parts of Africa and Asia and so on, or South America, to bring what we've done to other parts of the world, that enhances our security. From a dollar and cents basis, it's ultimately going to enhance our abilities for export markets.

JAMES FALLOWS: Congressman Dreier, can anything actually be done on these fronts?

DAVID DREIER: Yes. And I have an opening here. One of my favorite Bill Gates stories.
I don't know if you remember, Bill, a few years ago, when you were talking to a few of us and you said, "Well, if you can get a $50 million appropriation to deal with the AIDS in Africa problem, I'll provide $500 million." And to me it was just an incredible indication of how we need to make sure that we do work together on this issue.

Now, Pat has just mentioned the issue of R&D funding, which is very important. Secretary Bond has just correctly pointed to the fact that we have seen increases in those areas.
Seems to me that we need to focus now internally on a lot of our policies that create a disincentive for that kind of research and development to be done here.

For example, on the 31st of this coming December, we will see an expiration of the research and development tax credit, and making sure that we make that permanent can again provide an incentive for us to see greater research and development.

Now, Microsoft has made a decision to go towards expensing of stock options, but I'm concerned that mandatory expensing of stock options again creates a disincentive for the kind of innovation and creativity which is so desperately needed.

So there are government policies that are not necessarily not necessarily funding oriented, and I'm supportive of these funding measures, but I mean, as you said, Pat, I mean, the difference between Iraq and R&D funding, the fact is, I happen to believe passionately that what we've done in Iraq is playing a big role in the R&D area.

I mentioned the fact that Bill was in Cairo, Egypt at the new smart village that is being opened up there. We're seeing in Egypt and the defense minister said this to me just a few weeks ago that by virtue of what we did in Iraq, they're moving towards multi-candidate elections in Egypt.

And so I don't want to get off-track here, but what I'm saying is that we are seeing tremendous benefits and we should focus on our own policies here over and above the funding issue.

PATRICK LEAHY: And I'm not suggesting it is an either/or, and I don't want to leave that suggestion, but I'm going to say if we can set that as a priority, this has to be a priority, too, because ultimately, it effects

DAVID DREIER: Sure.

PATRICK LEAHY: ultimately, it effects our security as much, whether one is for or against the Iraq war, it's going to affect our security

DAVID DREIER: Absolutely.

PATRICK LEAHY: just as much.

And it's a whether it's in medicine, it's in pure science, I mean, there seems to be this reluctance sometimes among members of Congress in both parties to put money into pure science. I think it tends to pay off, and it's oftentimes things that even a company like Microsoft cannot do. Now, we have to also do it in such a way that then it's been shared well, that it improves us, as Princeton and others, to have the ability to get some of those grants.

But then we have a responsibility as parents, as members of local school boards, as citizens of our states or districts, to keep the pressure on to improve our schools.

DAVID DREIER: You know, you've mentioned Sputnik, and I will tell you that NASA does seem to, in many ways, capture the imagination.
I represent the Jet Propulsion Laboratory just outside of Pasadena locking you out of Flint Ridge, I've got to say that because those people get upset if I refer to it as Pasadena

(Laughter.)

JAMES FALLOWS: I know the area.

DAVID DREIER: but near Redmond is where you were from, Jim.

JAMES FALLOWS: Exactly.

DAVID DREIER: But the fact is, the Mars Rover program and I regularly see young people going into the Jet Propulsion Laboratory has really captured the imagination of so many young people, and it is our hope, as we encourage this, that we'll be able to see the kind of opportunity and the desire for that opportunity that both President Tilghman and Bill have talked about.

JAMES FALLOWS: Who will give me a sort of one-sentence answer to can any yes, one sentence?

PHILLIP BOND: I'll give you a summary. I think the organizing principle that everybody here would agree to is that we have to aspire to be innovation headquarters for the world. That doesn't mean every innovation job. That means the headquarters, attracting the best and the brightest, having a competitive policy arena that makes the Microsofts of today and tomorrow want this to be their home, that if we take that, that guides us on all kinds of policies from visas to R&D funding and so forth, to be the innovation headquarters for the world.

SHIRLEY TILGHMAN: Can I just add one addendum that I think hasn't come out, but I think it's terribly important, is we have to invest for the short term, but we also have to invest for the long term.

You know, if I think about one of the most critical scientific issues for the next 50 years, it's going to be energy. You know, how are we going to replace fossil fuels?

Well, the answer of investing there is going to be a long-term investment, so we have to make sure that our perspective is long enough and our vision is bold enough. Otherwise, we're going to be doing short-term things and then we're going to fall off a cliff.

PHILLIP BOND: And I'll spare you the speech on the hydrogen fuel initiative.

(Laughter.)

PATRICK LEAHY: I agree that we should be the, you know, the innovation center. Both for our humanitarian responsibilities and security responsibilities, we have got to do a better job of using some of that, what we've innovated, to make lives better around the rest of the world. We're blessed with the greatest resources in this country. I think that gives us a moral reason to help.
But then, from purely pragmatic security, if you improve people's lives, they're less apt to be revolutionaries.

JAMES FALLOWS: This is actually a fascinating sort of window into the American mind here. There are dozens of questions here that are fascinating. I hope we'll have Xeroxes of or Xerox copies of all of them -- to give you to take back the memory about ways to address innovation.

There are a couple questions from news media representatives that I want to that I think I should ask Mr. Gates about current news, and so I'll ask you this, which is, you're quoted as saying that you may reevaluate Microsoft's position to support Washington State's legislation banning discrimination against gays.
What is Microsoft's actual stand now, and how it was affected by the Reverend Hutcherson?

BILL GATES: Well, I've commented extensively on this. We before the legislative session in our state, we picked some bills the company was involved in. We didn't pick a discrimination-related bill, and now that the legislature is out of session, the you know, there's always this question for corporations, which social policy issues the company itself takes a stand on, this one in particular that Steve and I personally Steve Ballmer, the CEO, and I personally did take a stand on, but for that particular bill, the company was neutral.

As that kind of issue comes up again, we're going to have a process where we go through, you know, get the input. You know, this one was of deep interest to our employees, and so we'll have an even stronger process next time to look at what our position should be.

JAMES FALLOWS: I hope you all will indulge me in asking also a question to Mr. Gates on a different topic, and 95 percent of the questions are on a different topic.

(Laughter.)

JAMES FALLOWS: This is phrased, one person phrases it, "If you were absolute king for a day, what exactly would you have the U.S. government spend more or less on?"

Another related question is, Newt Gingrich says triple the budget for NSF. Would you do that? Intel Chief Craig Barrett has suggested removing subsidies for 19th century industries like agriculture.

All these are having you imagine the utopian vision of yourself as king for a day, controlling the budget. What would you do?

BILL GATES: Well

(Laughter.)

BILL GATES: I'd probably get myself on trouble on this one.
There are some things.

You know, take the energy issue. There are some long-term R&D things, you know, having to do with can you get a form of nuclear that would get around the problems? Can you get, you know, oil shale and use biological methods to get the energy out of that?
You know, there's actually a lot of energy if we have those new techniques. Things like ethanol would actually cost you more energy than you'd get out of them, so you might not want to spend too much of your money on that, you know, that kind of approach.

You know, I'd certainly get rid of the H1B visa caps.

(Laughter.)

That would be one of the easiest decisions, because it doesn't get into the tough tradeoffs that you always have there.

Education would be probably the toughest thing, because there the federal government has a role, but it's not the leading role. The leading role is state-by-state. And, you know, I had a chance to speak at an educational conference just a few months ago about how tough the position is for the high schools, how the requirements have been reduced, how, really the way that the incentive for good labor practices just haven't been as strong as they need to be there. That's a very tough issue.

I'd probably go for more R&D spending, because it's the area that I come from, and I've seen in the 1980s, our country thought, boy, we are in deep trouble. We looked at Japan and their industrial model, which was much more monolithic Midi was making decisions about how to fund AI and things like that whereas we had this very sort of "fund the university" model, where they were pursuing these different approaches. One of those systems won out. It was the United States.
And the strength we had in the '90s in the Internet and biology came from that approach.
That approach is, it's a great approach. We don't have to really change it. We don't have to build something new there.
In K-through-12, we are going to have to go back and do some things a bit that are a bit dramatic.

JAMES FALLOWS: There's a question now for Shirley Tilghman, actually two questions.
One in your role as noted biological scientist, one in your role as a female scientist.
The question, the first question is, doesn't the U.S. over-invest in health and bio-research and under-invest in physics and engineering?
Second, how really can we get more women and minorities into advanced math and science?

SHIRLEY TILGHMAN: So the first question is easy. We don't over-invest in health.

(Laughter.)

SHIRLEY TILGHMAN: But we do very dramatically under-invest in the physical sciences, and that really does have to change. Certainly. I think everybody must have been inspired by the news in the last couple of days of the impact of Herceptin as a new cancer therapy for breast cancer, and the fact that it has reduced by half the recurrence of breast cancer in women who were the target population for that drug.
You know, how can one say that that was the result of an over-investment in health sciences?

With respect to the question of how are we going to get more women into science and engineering, I think there's been an enormous amount that we can do. And a lot of universities now are really committed to doing this, thanks, I believe, to Chuck Vest, the former president of MIT, who I think in a very courageous way, brought to the fore the fact that universities have in many respects been paying no attention to this question.
That's no longer true. Most major research universities are now working very hard to encourage more women to go into science and engineering, and if you need a good reason why we should do it, it comes back to the manpower issue, or the womenpower issue.

JAMES FALLOWS: The frontline issue, we call it, although that has its complications, too, but --

SHIRLEY TILGHMAN: And that is, if we are essentially ignoring half of the population as a potential pool from which to draw scientists and engineers, it's just -- do the math. We will have a less gifted, a less distinguished scientific enterprise. So --

PHILLIP BOND: And I believe the data shows -- correct me if I'm wrong -- that that falloff really occurs in the middle-school years. So it's very early that we need to -- with girls, anyway -- begin to see that problem.

SHIRLEY TILGHMAN: That's a very important part that, you know, I have to confess that I think you see a drop-off at universities, I think you see a drop-off after graduate school.
There's literally no period in the entire career path where work does not need to be done.

DAVID DREIER: If I could just second, Jim.

JAMES FALLOWS: Yeah.

DAVID DREIER: What about this notion that some of us have talked about in years past, and that is, if we do have people who want to focus on these science issues from other countries, from Asia primarily, who get educated in the United States, is it conceivable that we could actually staple a visa to their diploma, creating some sort of incentive for them to be here?

And I should add that I think that I can help King Bill Gates, one of his dreams come true. I think that we can increase the cap on H-1-B visas as long as there is a demand for those H-1-B visas, which is -- and I know that there's been an ongoing debate as to exactly -- as we've seen the economy start to grow, exactly what the level that is necessary.

BILL GATES: Yeah, but it's strange in a way that -- if the demand is there, when why have the regulation at all? I mean, it's almost a question of --

SHIRLEY TILGHMAN: Right.

DAVID DREIER: Right.

BILL GATES: -- you know, centrally controlled economy versus --

DAVID DREIER: And that's a goal that we all share. Obviously, the diminution of borders -- and any kind of constraint is something that we have as a goal -- is just how do we get there? And, clearly, increasing that cap level is obviously something that we'll use in the goal of getting exactly where I think we want to be on this.

PHILLIP BOND: It's a good point, though, because the politics of that are real. The unemployment rate for U.S. engineers is above the national average for most of the last four years.
I think the reason you can't find enough is you want the newest -- not the newly-minted, but the cutting-edge capabilities and knowledge, and somebody who got their degree 25 years ago may not be just what you're looking for in the marketplace. So we have some --

BILL GATES: No, I think that there must be some categorization problems, because anybody who's got good computer-science training, they are not out there unemployed, you know.
It's just a question -- somebody's created some big bucket, and I have to see input into that bucket.

We are -- at every level we're hiring tech-=support people; hard to hire. Most people with a college degree can qualify for those jobs. We're just not seeing an available labor pool.

DAVID DREIER: Under the H-1-B structure, obviously you're required to pursue an American employee first before --

BILL GATES: Absolutely, absolutely. You know, there's no cost savings in bringing a foreigner over. It's a lot more expensive in terms of recruiting costs out and the expenses for doing that, and they increased the fee. That was fine. They put in a $500 fee and tried to make the thing work that much better. They curbed some of the abuses. It's just the idea of the numeric cap.

DAVID DREIER: The focus on education. Those resources are to focus on education so that we don't have a reliance on H-1-B's.

BILL GATES: Yeah, I think the long run, the U.S., if we're going to maintain our position, will always have a reliance on being able to let smart people come to the country. You know, there was no time in our history where that wasn't key --

SHIRLEY TILGHMAN: Right.

BILL GATES: -- to our success. So the theory behind H-1-B is, you know, too many smart people are coming. That's really questionable.

(Laughter.)

JAMES FALLOWS: This is a related question for Rick Rashid. In your role as hiring smart people from all around the world, there are quite a number of questions that are similar in vein to this.
As an undergraduate computer science student at a leading university, I encountered a common perception that there was a shrinking pool of good jobs for qualified programmers, and the good ones would be outsourced sooner or later. Why should I continue my studies in this vein?

A related card says, what can we do to encourage more creation of genius in our schools?

RICK RASHID: Well, I think -- I mean, Bill's already addressed the question of if you look just to Microsoft -- and I know a number of our peer companies are in the same situation -- we can't -- we're hiring as many people from college campuses as we can right now, and we're not limited by the stocks we have available. We're limited by our ability to find the good people.

So I think -- I have a son who's getting his computer science degree next year, and I've told him, "Boy, you're in good shape, OK? Because you've got a good job future ahead of you."
And that's what I would say to any undergraduate that is looking to get into these fields. I mean, there's -- the opportunity to really change the world for the better, you know, has never been greater than it is right now, and that's something that is really open to these kids as they try to get their degrees and get out there and get good jobs.

So the jobs are there. They need to get the education to be able to take them, but they're absolutely there.

In terms of being able to encourage genius, you know, there are lots of things that people have done individually in schools to improve the performance of individual students, to improve the performance of groups of students.
As a rule of thumb, almost every time someone has absolutely paid a lot of attention to the students, they've had success. You know, I think what we need to do is make sure that the students are really getting the attention that they need in order to be successful.

PHILLIP BOND: I just wanted to add one thought there, too. We have not done a good enough job of applying advanced IT, in particular, to the learning experience so that we might draw out the genius of a particular learning style or whatever.

We did a thing a couple of years ago, Commerce with Education, on what education could look like in the year 2020. Bill Gates was one of those who contributed an essay to it.

But really focus on that, if we really bring that technology so that the full potential or genius of the student can be drawn out, that could be a comparative advantage for us here in the U.S.

PATRICK LEAHY: And when they do that, when they do that -- and coming from a rural state, I have to say I've written in distance learning bills, as you know, and prime bills and so on, is to get the assignment to the rural areas, and that requires a certain amount of infrastructure -- get high speed, get broadband.

But I think you're going to find a lot of these geniuses and these scientists who can come from these rural areas if they're given the ability to have the teachers. It may mean distance learning centers, they may -- and being able to have a half-a-dozen schools that hire the one good scientist, but have the interactive strength.

I mean, the technology is there. It requires the infrastructure investment. For when you get a third of the nation in rural America, where a lot of our geniuses historically have come from, or a lot of our innovators have come from, that's a place that we have to make sure we do not forget.

JAMES FALLOWS: Yes?

SHIRLEY TILGHMAN: I'll point out one thing. There is -- I think there are two things that have contributed to the extraordinary record of this country in innovation.

One of them is that we invest. The second, though, is that we give young people independence really early. There is nothing more powerful to a young person than bringing them into a research lab, giving them the resources that they need, and say go for it.

And there are very few education systems in the world that do
it the way we do it. And that is probably the single most powerful thing you can do to bring out the creativity and the genius that you want is, take a young person and challenge them in a research setting.

RICK RASHID: And we've had -- actually, I'll just mention that we have had the in past programs that even reach down to the high schools that do that.

I mean, back when I was a high school student back in the -- well, I shouldn't say it -- a long time ago, there was an NSF summer science program which was specifically designed to bring promising high school students into university research labs over a summer.
It was a great program, and a remarkable number of my peers were in that program. So it was, I think, a very successful program for its time.

SHIRLEY TILGHMAN: Right.

PHILLIP BOND: I just wanted to mention one thing that I think dovetails with that nicely, which is you can track an explosion in this country after the passage of bi-dual legislation, to get those creative young people there, and then give a path out for the intellectual property that the universities have taken such great advantage of.

I had a scientist from -- and I won't say which country -- told me, we can turn money -- meaning government finance -- into knowledge. We just don't know how to turn knowledge back into money.

BILL GATES: The bi-dual framework has been spectacularly successful, and it's fairly rare that people look back on something, but that at the time wasn't easy to do, that's really a big deal.

SHIRLEY TILGHMAN: Big deal.

JAMES FALLOWS: So this is a segue -- and we're just about out of time here -- there are a large number of questions on intellectual property in its broadest sense, about file-sharing cases, about patent law, software patents, India, China.
I'd like to encourage a very brief colloquy between Mr. Gates and Senator Leahy, first, Bill Gates saying what the problem is as you see it at the moment, intellectual property law, and Senator Leahy saying whether anything can or cannot be done about that.

(Laughter.)

PATRICK LEAHY: We do this privately sometimes.

BILL GATES: Well, the U.S. patent system is fantastic, but, you know, there are ways that it could be tuned up. And so there's, I think, a very good dialogue taking place right now about what kind of -- what form -- what kind of tune-ups could be done there.

But, overall, you know, we wish the world as a whole had the equivalent of the U.S. patent system, and it's only by taking some of the things that it's criticized for and seeing whether there's legitimate improvement that we'll be able to export this.
And that helps companies. It helps you get return on your R&D in all those different countries.

Copyright isn't very controversial. What is controversial is how you separate out legitimate use of the Internet to send information around from stealing music today and increasingly stealing videos, and it's very difficult to see what the technology is being used for.

And so many things are mixed use, so that it's not illegal to have great peer-sharing file systems, and it's very tough when legislators turn to us and say, well, isn't there a technology that can do that -- distinguish that? Because there's an important principle about protecting software authors, music authors, to get their due. And yet there is no technological answer by itself that really does that separation.

So it's a dilemma for everyone, exactly how to draw that line and make that work.

PATRICK LEAHY: One, I agree with that. Warren Hatch and I started a series of hearings yesterday, one in how the patent office handles this enormous increase of materials coming in with -- it's probably 100 patents a day going through. It's just -- it's mind-boggling, and they're going to bring in outside expertise somehow to handle it. Because what's happening in some areas, you're having people sort of file patents almost like a landmine field, hoping that they'll block some major company in the center, and they can use that to make money off it.

The file-sharing intellectual property, I worry very, very much about this. And two thoughts: one, those who create the music, books, or software, how to be able to get the money for what they created. They charge too much, and somebody else is going to sell something better, but the idea that they compete because of their product, and not because it's stolen and easily duplicated in a digital era.

In trying to stop the illegal sharing, it is very, very difficult because most of the ways you look at doing it, you're also going to stifle innovation.

If you try to pass a law today that puts a lock on the door, it's going to stifle -- I mean, who can tell them? And Bill Gates can't tell us where the Internet and the ability to send material around is going to be in five or six or seven or eight years.
I know you project and you look for that, but none of us can, and what's going to be the thing that's going to appeal to people. So it is extraordinarily difficult.

I think that there should be very strong laws and enforcement against those who steal, because it still comes down to, if you create the book, if you create the movie, you create the music, you create the software, then it should be up to you to sell it the best way you can. If people want to buy it, that's your problem. But they shouldn't be able to steal it. That's everybody's --

DAVID DREIER: Just one quick point, and that is we do have in place a mechanism that is geared towards focusing on this. And I will tell you -- Phil is here representing the administration, but I'm very sympathetic with the fact that this administration has had in its pursuit of trade agreements intellectual property as its number one priority. We're right now beginning debate on the Central American Free Trade Agreement. I think it's a very important agreement which we need to pass because it sends a very big signal on the whole issue of multilateral agreements.
It is these trade agreements which will most effectively put us in the position to deal with IP problems.

PATRICK LEAHY: David, once some of these countries agree on these things -- like China, for example --

DAVID DREIER: We have to have enforcement, you're absolutely right.

PATRICK LEAHY: -- we have to enforce it.

DAVID DREIER: Absolutely.

PATRICK LEAHY: I've seen a lot of agreements from China, I see a lot of -- and now I'll just pick a number -- I see other countries --

DAVID DREIER: Right.

PATRICK LEAHY: -- they are no more enforced --

DAVID DREIER: Enforcement is key, but putting
it --

PATRICK LEAHY: And even some of the people stealing, doing the -- are in the government. They're in the military, they're in the government, and they've got --

BILL GATES: But having the agreements -- we are much better off with China in WTO, believe me, you know. They are -- at least the dialogue is there that lets this take place.
And DRCAFTA is an important milestone in terms of the momentum here. You know, getting the new WTO round will be even more important, but DRCAFTA's going to help us get there.

PHILLIP BOND: It's an appropriate government role for us, which the PTO does, to offer training in those countries to help them understand --

PATRICK LEAHY: I agree.

JAMES FALLOWS: We're on the House side of the Capitol this morning. House rules apply. Our time is expired. Thank you all for excellent questions. Thanks to the Library of Congress, and please join me in thanking our excellent panelists.

(Applause.)