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December 8, 2006
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NOW Transcript - Show 249
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Transcript - December 8, 2006

BRANCACCIO: Welcome to NOW. Amid the relentless march of globalization, a good business person is typically judged on the amount of money made. But what if the standard were set a little differently? What if the measure of success combined both the creation of capital and the creation of something called social capital that is working to make the world better? We're about to talk with two powerful people who know their way around the corridors of money in California's silicon valley...but who also have a view beyond the bottom line. One is a venture capitalist billionaire who believes oil companies have it wrong. But first, Jonathan Schwartz, CEO of the technology company sun Microsystems. He's 41 years old; you won't miss his pony tail; and he's the boss of a company with 36-thousand employees worldwide. Making money for sun's investors isn't a radical proposition; but trying to do it while addressing the global problems of humanity may be. Well, Jonathan thanks for joining us.

SCHWARTZ: Likewise. Thanks for the opportunity.

BRANCACCIO: So God put Sun Microsystems on this earth to be sure that you give back to your investors a lot more money then they put in. It should be as simple as that right?

SCHWARTZ: And for the most part that's actually true. It's just—the real question is over what period of time. Because certainly there are things you could do, that would instantaneously make you a lot of money. But it might—and a good example would be let's fire everybody in the whole company today. And for—

BRANCACCIO: That would boost your bottom line wouldn't it?

SCHWARTZ: That would boost your bottom line—very quickly. But it would be a —pyrrhic victory because next quarter there would be nobody around to run the business. So we've got to be thinking about not only the—the short-term investor, but also the long term investor, somebody who wants to see that investment grow over a period of time.

BRANCACCIO: But what about Wall Street? What about investors that have this culture of "show me the money" every three months?

SCHWARTZ: There's certainly a tension there. But on the other hand—the good news is there's plenty of businesses that have taken a relatively long-term horizon and have talked about driving access and creating community and driving standards. And I'll give you a—a very basic example of that. Most folks in the world will first experience the internet on their mobile phone.

BRANCACCIO: Not by computer.

SCHWARTZ: Not by a personal computer. Now, in this country, that just makes no sense whatever because we're all—we've all got, you know, a fair amount of money. We can all afford a nice big laptop. And we're gonna go pay our, you know, money to go make that—you know, work in our home environment. Well, as you go around the world, most folks can't afford not—not just the PC but the power for the PC. And so we've been investing in handsets and the idea that you'd use a phone to connect to the internet, you know, for about a decade. And when you pull together a billion people around the world with a mobile phone, all of a sudden the economic opportunities for in—you know, for companies that can monetize that connection are—are—are enormous. But also the infrastructure required in the world's carriers is, you know, is absolutely gargantuan. That's one of our core markets.

BRANCACCIO: But here's a crucial question. Is it just about ultimately—long run—getting more customers? Or is there something else to bringing this kind of technology to poorer places?

SCHWARTZ: I was in Brazil recently. And was meeting with President Lula, and—and the discussion I had with him was around bridging the digital divide in the Amazon—in the Amazon. And bringing—you know—folks in the jungle to the network.

BRANCACCIO: The real Amazon. Not the book seller?

SCHWARTZ: Yes the real Amazon. And—and he said, "So—you know—tell me—I know why I'm interested in bridging the digital divide." And for him it—you know—the more folks you bring online, frankly, the more folks will vote for him. But—"Why is it that you're so interested in bringing—you know—my population online?" Because the—the statistics are that roughly 170 million folks who live in Brazil. Of that—there's probably less then 30 million that actually have internet access—at any reasonable pace. And probably a very small fraction that have high speed or broadband access. And the objective in doing that is that—you know—when you bring those folks online, at some point, they may wanna send an e-mail. They may have the where with all to open a bank account. They may—you know—wanna consume media from a media company. And those are Sun's customers. So that doesn't happen the day you bring them online. That happens over a period of time. But if they don't have the skills, and they don't have the access, then I don't have a shot. I don't have an opportunity.

BRANCACCIO: Would you say the company would even go further? I mean what would that have to do, for instance, with other intractable social problems? Like, you see human rights abuses in places in the world. You see what the Bush administration calls a genocide going on in the Darfur region of the Sudan. Is that your company's business at all?

SCHWARTZ: I think our company's business is—to create the technologies that connect people together. What people elect to do once they're connected is up to them. And at the end of the day the, the more folks who are coming online. The more that people can connect with one another, and communicate with one another. Yes, that is good for our business. But I also think at a very basic level more people communicating, more of the world being exposed to the rest of the world, also has a stabilizing impact on the economy. And in the long run, the more people know about—what's going on in the world, the better they'll be able to shape their businesses, or shape their objectives to go after it.

BRANCACCIO: You can't spend much time on Sun's website or reading its materials without seeing this phrase: "the participant age." What is that?

SCHWARTZ: The participation age to us is just the—the logical progression of the network. If—if—so you'll recall ten years ago everybody was talking about the Information Age. Now the basic concept behind the Information Age is there was a—a grand database in the sky with all the knowledge in the world. And we, as the uninformed edges of the network, would check in with that database and we'd become informed. And that's the whole concept of the Information Age. There's more information in the center than at the edges. Well, if you think about—Hurricane Katrina or the bombing in the London tube or the tsunami, where was the information about that event? And interestingly, in the—in the bombing in the—in the London tube, the media wasn't allowed in. And so it was actually covered by the citizens who were in the tube who had their cell phones out, and the same thing with the tsunami, who were taking videos of the disaster as it was happening. So the Participation Age just says, "Look, it's no longer a—a—a model of the network is no longer sufficient if what it assumes is that the center knows more than the edges." Because at this point, the edges are participating. They are now authoring the content. They are now creating the news. They are now feeding the center. And unless and until we view the world as having fundamentally shifted that way, we're not gonna be able to understand where the challenges for us technically and where the market opportunities for our customers are ultimately gonna reside.

BRANCACCIO: Now that you say it, the Participant Age probably has some implications for our democracy.

SCHWARTZ: Well, yeah, I think there's a very big impact on citizen democracy, just as there's been an impact on citizen journalism. And certainly once you have the tools of technology, you can use them to influence others and create content and communicate with others. And that I think is the—the hallmark in some sense of democracy. You wanna be informed. The more—connected we can be as a global economy, the more likely it is that if you know about a problem in a tsunami-stricken portion of the world, you'll send aid. And if you know about instability in the world, you'll start getting focused on it. What do you do about it? If you know that there's a pandemic, you're gonna be more able to respond to: How do I actually make sure that I can adjust my corporate priorities or adjust, you know, our—our investment priorities to go address that? And I absolutely believe it's a—it's a key to long-term growth. Again, it's not a just because you know tomorrow your business is better the day after. It's definitely a long-term, you know, process.

BRANCACCIO: Well, Jonathan Schwartz, CEO, Sun Microsystems, thank you very much.

SCHWARTZ: It was a pleasure. Thank you.

BRANCACCIO: A CEO, like Jonathan Schwartz, who writes a web log for all to see, is a fairly rare specimen. We put up a handy link to Schwartz's internet musings at pbs-dot-org. Now on to one of the world's most successful venture capitalists, who is also thinking about fixing the state of the world. Vinod Khosla's first venture, a soy milk factory in his native India, didn't do too well. But his track record has been better in California's Silicon Valley starting businesses and taking big risks with money to help new companies. Khosla helped get many tech companies, including internet equipment heavyweight juniper networks off the ground. He's made a bundle over the years, that's bundle with a "b" but is now dedicating much of his time to social and environmental challenges both here and abroad. Last month, voters in California defeated a measure to tax oil extracted from lands in that state and use the money to fund research into alternative energy. Khosla was among those who helped raise 57 million dollars to promote the measure. Opponents, mainly oil companies, spent about 95 million dollars to knock it off—the most ever spent on a ballot initiative campaign in the history of the republic. What lives on is Khosla's radical view that there are alternatives that can replace 100 percent of the gasoline used in America.

KHOSLA: We have a serious energy crisis. We have a serious climate crisis. We have a serious terrorism crisis. All three are related to one issue, oil consumption. And we have to solve that problem. If there's a one in 500 chance your home will burn down, you buy home insurance. Most scientists—say, there's some number between 20 to 80 percent probability our planet's gonna burn up. Why aren't we buying insurance? Why aren't' we solving this energy crisis, this climate crisis, this terrorism crisis? I believe it is one of the most important issues we need to address and address immediately.

BRANCACCIO: There are many approaches to something like that. But yours swirls around ethanol, bio-fuels?

KHOSLA: So, my perspective on this problem is we need to solve it immediately. There is not enough money in government to ever solve a problem of this scale. So, there's only one source that we can get the money to solve this problem from. And that's Wall Street, private investment. It also turns out whenever we have a big problem, if you're an optimist, it's a big opportunity. If you solve a big problem, you get a big opportunity. Ethanol is one of those opportunities to solve the problem of oil. My analysis, done over the last few years, shows that we can replace 100 percent of our gasoline needs on relatively modest amounts of land in this country in a way where the fuel is actually cheaper for consumers.

BRANCACCIO: And we should be clear. You have a financial stake in the success of bio-fuels, right?

KHOSLA: Absolutely, I do. But, because I believe in this trajectory is the reason I've decided to invest in it. No the other way around. I'm not talking about it because I've invested in it. I've invested in it because I believe this trajectory.

BRANCACCIO: And you've even used this statistic. I think it's something like 140 billion gallons of gas are used in the United States each year. We have enough farm land to grow enough, say corn, to make enough ethanol to even put a dent in that kind of consumption?

KHOSLA: Absolutely. My own estimates say that somewhere between 40 to 60 million acres of land is more than sufficient to replace 100 percent of our gasoline needs and supply close to 200 billion gallons of ethanol. It gets better than that. Because today we are using ethanol. But once we are free of the stranglehold of oil—ethanol is just one chemistry. There's other chemistries you can design.

BRANCACCIO: That will run a car?

KHOSLA: That will run in the same car from the same feed stocks. Well, one of those chemistries is butanol. Already technologists and entrepreneurs are working on butanol.

BRANCACCIO: And butanol has a little more energy in it? So, it could be powerful

KHOSLA: Right. And then there's other chemistries. So, all of your—audience should be learning these sciences and saying, "What else can I design?"

BRANCACCIO: They're gonna learn chemistry, Vinod? I don't know.

KHOSLA: Well—well, technologists among them.


KHOSLA: The point is better fuels can be designed, will be designed and are being designed by technologists, scientists and entrepreneurs and brought to market. The point I wanna make is it is not in the interest of the oil companies, which have a monopoly on oil for us to get cheaper fuels. To have alternatives that are not dependent on them. Exxon reported $10 billion in quarterly profit. $10 billion in three months. Do you think they want us to have a cheaper fuel that makes them less money that they don't have control on? That they can't hold us hostage with? Absolutely not. And that's why the misinformation campaigns. Do we have enough land? Absolutely. Do we get less mileage? A little less today, but it doesn't have to be so. We can get the same mileage on ethanol as we get on gasoline. Are we going to trade our food for ethanol? Absolutely not. Are there issues? Sure, there are iss—issues. But, they're all easily solvable. Easily solvable with very modest amounts of investment in capital with right—the right rates of return to produce something that happens to be greener but is also cheaper than gasoline. One of the things I noticed though is if you do a good faith effort to try to understand this issue, you do find some scientists speaking in contradictory ways. I can find a professor at a lab back East, at Cornell who will say that the production of ethanol requires quite a bit more energy to make the stuff and distribute it than comes out. I can also find another professor at the Argon National Lab who says, "no, Professor A's got it all wrong. More energy comes out of the system." If you're trying to do your duty as a good citizen to try to weigh these issues, what—how can we guide them on something as crucial as that?

KHOSLA: Well, these are complex questions. And intricate details go into these calculations. And most of the people have a particular agenda. So, the key question you have to ask is who's opinion do you trust to make moral judgments where do the majority of the people side? And what is their background to be qualified to judge whether they're realistic options or not. First, what you have heard so far is all the PR campaigns of the American Petroleum Institute and their infinite amount of funding.

BRANCACCIO: And you hear stuff like, "not enough farm land." You also hear stuff like, "you know, you put ethanol in a car or truck, its fuel efficiency goes down."

KHOSLA: Would you rather trust the American Petroleum Institute and its PR campaign or the NRDC, an environmental or—organization that says we have enough land?

BRANCACCIO: So, you're bringing your business background to bear on this issue which is—if this is gonna be a real business proposition, these alternative energy sources, you can't promise returns in star date 2163. They have to be, at some point, in a few years otherwise you think they don't go anywhere?

KHOSLA: Absolutely. Again, the scale of this problem is so large that the only place to get money is from Wall Street. And Wall Street only provides money if there's small incremental steps in which they get s—reasonable returns. Today we are starting with corn ethanol. It's a great starting point. But more importantly conditions the market where investors like me say, "Hey, the next stepping stone is a greener ethanol." The step after that is cellulosic (PH) ethanol. The step after cellulosic ethanol is butanol. The step after butanol is x, y, z. That kind of trajectory with stepping stones that have returns for investors in short periods of time, two, three, four, five year cycles not 15 or 50 year cycles is what is absolutely essential.

BRANCACCIO: Well, Vinod, here's what's gonna happen. As soon as alternative fuels start to take off—if it starts to work, the oil producer's cartel OPEC is gonna say, "ooh, a threat. We better cut our prices." And what does it cost, about a dollar to get a gallon of oil outta the ground in Saudi Arabia. They're gonna undercut the alternative fuels and drive it outta business.

KHOSLA: No question. The biggest risk to this alternative scenario is the vast amounts of money the oil companies are making whether it's the national oil—oil companies like Saudi Aramco or the American oil companies like Exxon. If you're making that much money, you have a strong financial interest in knocking this steamroller off its path. I'm very realistic about it. And know, it can happen.

BRANCACCIO: So, you've been in Washington tryin' to make some of this—this case?

KHOSLA: I work with anybody who will make time to listen to the story and make the right policy moves or help make it happen, absolutely. President Bush dramatically changed the picture last year in the State of the Union in January of 2006 by mentioning cellulosic ethanol. It brought it to the forefront of debate in this country. And that's been a very good thing.

BRANCACCIO: But what gives you the optimism from your perspective that policy makers in Washington are really going to embrace this.

KHOSLA: Well, the oil lobby is a significant lobby. But for the first time, it's opposed by a number of lobbies that are equally strong. The oil lobby's countered by the agricultural lobby, the environmental lobby all the people that care about energy security and en—energy independence, the conservatives and the neo-conservatives we have a very strong alignment of forces that makes this new alternative very s—feasible despite the clout of the oil business. And we don't take it lightly. But I think it's a winnable battle.

BRANCACCIO: Well, Vinod Khosla, thank you very much.

KHOSLA: Thank you very much for having me.

BRANCACCIO: Mr. Khosla is also doing some fascinating work in the poorest parts of the world. You can find a web-exclusive video discussion about micro lending next time your on line. Navigate to the now page at PBS-dot-org for that. This is also the time when many public television stations are asking for your support. If you believe there is a place for the strong voices we present on NOW and you value other public television programs like news hour, frontline, and Washington week in review, we hope you'll show it by giving generously to your public television station and that's it for NOW. From Los Angeles, I'm David Brancaccio. We'll see you next week.

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