Newt Gingrich:
Reflections of a Private Citizen

January 18, 2000

Transcript prepared from a tape recording

4:45 p.m.	Registration
5:00	Introduction:	Christopher DeMuth, AEI
	Speaker:	Newt Gingrich, AEI
6:15	Reception

Proceedings:

MR. GINGRICH: It’s almost worth giving a speech like this just to have your boss say those nice things about you, which we hope were tape recorded.

I am delighted to be here and I’m very honored that the American Enterprise Institute has given me a place to meet with a variety of scholars, to think about ideas and to try to examine where we are and where we’re going.

It seems to me, when I stepped down a year ago, that we’d had five very aggressive years, one year of leading in the minority and then four years as Speaker, but that the 1998 election results, while they were a victory in the sense that we stayed in the majority--and I would point out that it is the first time we have won three consecutive majorities since the 1920s--that it was an inadequate victory because we should have gained seats. We clearly expected to gain seats and, frankly, as the head coach, I felt that I had not led in the right ways during 1998.

I found myself exhausted. I thought we were overly focused on the minutiae of Washington and in retrospect, I think my biggest single conclusion about the ’98 campaign is that we had failed to develop a second wave of ideas, whether it would have been a second contract, which might have been the right way to do it, or however we would have done it. But that we had the ideas, but we couldn’t find the energy and the drive in late ’97 and early ’98 to draw together all the members and get them committed both in the House and Senate to that kind of campaign.

So, I stepped down. I decided to study, to learn and to think. I’ve been a student a t Georgia Tech, which has been a great place, the Georgia Institute of Technology, a part-time student at the Center for Disease Control. I have been an occasional visiting fellow out at the Hoover Institution at Stanford, and I have had as my primary residence for trying to learn and think here at the American Enterprise Institute, which has just been a marvelous place and Chris DeMuth is a great leader who has, I think, a real belief that, if you assemble an interesting group of people and you get them to work together and talk together that good things happen. I think that is a marvelous way to approach things.

Here at AEI, I have largely been focused on health and health care and [unintelligible] here is my research director. Together, I think we have started down a road which, over the next few months, will lead to several speeches on rethinking the core fabric of health. I’ll come back to that.

Really what AEI gave me was the legitimacy and [unintelligible] and courage, thinking across the board, would health and health care have been my primary focus. I really believe the big changes come by looking at the total level of change in the society.

Out of the work and reflection of the last year, I want to focus on some observations both about what we accomplished and about where we go. Let me just say, first of all, looking back at the five years from 1994 through 1998, I am very, very proud of the achievements we have. The fact is, the Contract With America worked at a variety of levels. It worked both as politics and as public policy.

I was very struck--if you read the articles about people not participating, the 1994 campaign led to the largest one party increase in an off year in American history. Nine million more people voted Republican. Nobody has called me who is doing all these studies about why people don’t vote, even though we were arguably the most successful recruiters of voters in an off year in American history.

I would argue that there’s a very simple explanation. People vote very intensely in one of two circumstances. They vote if there’s a large enough crisis--a big war, a depression--or they vote if there are a set of issues which are compelling in their personal lives. I believe O’Neill almost got it right when he said "All politics is local." Actually all politics is personal.

If you think a campaign is about something which will change your life, you have a vested reason to vote.

The Contract was designed on the premise that it had to be positive. If you will remember, our most expensive ad was in "TV Guide." It was totally positive. It was two full pages. It didn’t have any pictures, and it didn’t mention Bill Clinton or the Democrats. It said, if you elect us, this is our contract. In relatively small print it said, here are the ten things we will do. They were big things.

It also had to be something we believed in, because we were recruiting 435 candidates for the House, and they had to be able to go on television in October, and they had to be able to say with sincerity, "Yes, if you hire me, this is what I’ll do."

It then became a management document. One of the things that made the first part of my job as Speaker doable was, I could turn over to the leadership and say, here’s the first 93 days and I think you can look at some of the results.

It’s very interesting, by the way. If you look at the first two years of Clinton and the Democrats--I’ll just give you a couple of examples of how big the change was. The number of people on welfare when Clinton took office was about 4,900,000. The number of people on welfare when we took office as a majority in the House was 4,900,000. The number of people on welfare, the current estimate, is around 2,600,000.

So, welfare reform, something which Ronald Reagan launched in 1970, when he went to the National Governors’ Association, proposed welfare reform and was voted down, by the way, 49 to 1. For people to say, well, you shouldn’t be for things that are impractical or things that are long term. It took 26 years to finally win the argument in this city. We passed it three times. It was vetoed twice. The third time, the "New York Times" poll reported, the country favored welfare reform by 92 percent, including 88 percent of the people on welfare. So, Reagan had won his argument over a generation of debate.

Today, we all know that, in fact, it worked. You won’t hear this in the Gore/Bradley debates, but it’s clearly true. The people, the 2,300,000 people who are not now on welfare are not on welfare because they’re either in school or they’re working and, in fact, their lives are better because they’re now moving up the ladder of opportunity.

I’ll give you a second example of the difference.

When the election was held in 1992, the Dow-Jones was at 3500. After two years of President Clinton and a Democrat Congress, the Dow was at 3800 when we were sworn in. The Dow is now above 11,000. Now, I would suggest that Alan Greenspan was Chairman of the Fed for that whole time and that Alan Greenspan, a Democrat Congress, a Democrat president in fact had very limited options for a very practical reason.

We were really committed to balancing the budget. We really meant it. The fact is that the appropriations domestically were cut by $52 billion. The fact is that we restrained the growth of government. In fact, there’s a recent report that said that some time during 2000 the Federal Government as a share of the total economy may drop to the lowest number since Lyndon Johnson began the great society, as a percentage of total GNP. It doesn’t mean the government is small. It’s a huge GNP.

When you’re looking out, as I was when I was sworn in as Speaker, at trillions of dollars in additional debt over a ten-year period, and you’re going to get a Congressional Budget Office report in about a week, which is going to talk about trillions of dollars of surplus, including a great deal of surplus even if you don’t count social security money, a standard, by the way, which was not applied from 1966 until we were a majority. The fact is, that’s a very different future.

For those of you who are into big numbers, the swing from a ten-year projection when I was sworn in to the project we will get at the end of this month is over $6 trillion. Now, by any standard, that’s big, and it was not an accident, despite all of the effort of some people to suggest this would all have happened anyway.

Let me also point out to you that happened--and John Kasich deserves a lot of the credit because, as budget chairman he was desperately committed to getting to a balanced budget.

I note that they just had twins, and he and Karen can feel proud that those are twins who are going to be a lot indebted, with a lot lower taxes and a lot lower interest rates than they would have had.

In addition, we balanced the budget while having the first tax cut in 17 years, including a cut in capital gains, a cut in the death tax, a $500 per child tax credit, and educational tax credits, and we proved that you could get to a balanced budget with low taxation. But let me carry you a step further.

The success that Alan Greenspan and the Fed had in meeting the challenge of Thailand, Russia, Indonesia, Korea, and Brazil would not have been possible in the fiscal policies of 1993 and ’94. If we were still running $200 billion as far as you could see, the Fed wouldn’t have had the ability to lower interest rates in the middle of a growing economy, and you would have had interest rates and a lot less flexibility in the world market.

Finally, we slowed down the growth of bureaucracy. We reformed the Internal Revenue system, and we strengthened military and intelligence spending for the first time since 1983. All of those were powerful, and I’m very proud of all of them. I think they do prove that political activism can work and that being involved to try to change things can have an impact.

Let me talk now about the future and the three large themes I want to emphasize for the rest of this speech.

The first is that we’re in an age of transition, and the transition will be very large and fairly long. This is frankly not what I would have said a year ago. I’m a big believer in Alvin Toffler and the theory of the third wave of change. I’ve argued for years, we are entering an information age.

My conclusion, after looking at all the startups around the country and reading a lot of books on technology and talking to a lot of experts, is we are nowhere near the information age. We are at the beginning of an age of transition, which will lead us to an information age. Part of the reason I think this is helping is, a lot of people have been thinking, "Boy, if I can learn the next three things, then we will get to stability."

I don’t think so. I think you have at least a quarter century of instability and the analogy I would draw is, from the invention of the internal combustion engine around 1881, to the development of hand-crafted cars in the 1890s--there were about 400 auto companies in Michigan alone by 1900--to the rise of the mass assembled car under Henry Ford, to the development of the interstate highway program, the rise of the local gas station, there is a long transition from what could be possible to what became normal.

Similarly with the Wright brothers: the concept of the airplane flight in 1903, the army looks at the airplane in 1908, you get some travel with commercial passengers in the ‘20s and ‘30s. But the real age of mass aviation doesn’t happen until the 1960s.

I think, similarly, we can all talk about the information age. I am for getting to it, but I think we will be a lot more realistic and we will focus our energy different if we recognize that we’ve entered an age of transition and that age is going to take a lot of change.

The second point, which I want to spend a good bit of time on, is that the rules of the age of transition are almost the opposite of the rules of Washington. I happened to be making a lot of speeches over the last year, and I spent a lot of my time traveling around the country.

I was in 23 states. I was back home, in Atlanta. I was out on the west coast, and it was interesting because I would have almost this process of schizophrenia, where you’d go out there and people would talk about one set of ideas. Then you would come back here and they’d talk about a different set of ideas. Then you’d go back out there and they’d be back talking about that other set.

After a while, I began to realize. These are two different worlds. I’m going to talk about that some. It is really important for Washington to understand the two sets of rules are different and it is very likely that the Washington rules are the ones which are gradually going to be replaced. That is, in the long struggle between Washington political power and the rest of the nation, the rest of the nation is probably going to win this.

The third point I’d make is that the American people will pay more and more attention to the positive world of change and less and less attention to the bickering of traditional politics focused on obsolete issues. I think that explains why you have a "USA Today" poll that says 81 percent of the country has not read an article about the presidential and rather, 81 percent hasn’t thought about it in the last 24 hours and 89 percent haven’t even read an article about it and 74 percent don’t have a candidate.

The reason is, compared to whatever it is they are doing that is practical in their lives, they think they have a long year to solve that. The fact that it mesmerizes this city is of almost no importance to the average American. I think that’s a very important thing maybe particularly for Washingtonians to understand. I’m not asking anybody in Washington to change their behavior, but just to be able to put it in a context that may be different than we expect.

Now, I think the concept of an age of transition is very, very important and the two analogies I want to leave you with are these.

I got into this in part by reading a fascinating book called the Victorian Internet, which is a study of the telegraph and makes the argument that the real breakthrough in communication is the telegraph because, prior to the telegraph, it took about ten weeks to send a message from London to Bombay and back. After the telegraph, it took about four minutes. That is the real break point in which you begin to get instantaneous, non-geographic communication.

As I read the study--and I happened to be in parallel reading a study of the telephone. As many of you may know, there used to be, for example, multiple telephone systems. So, you could be on one and your neighbor could be on another, and you couldn’t talk to each other.

When you go through ages of transition, there are lots of things that happen that later on seem impossible, but they are the way people make these transitions.

These are the two analogies that I came up with, as I would talk with groups around the country who were very busy inventing this new world and I would try to explain Washington.

The first one is, imagine that, in 1860, we were building a transcontinental railroad and we were building a transcontinental telegraph. But we were also subsidizing the stagecoach and the Pony Express. Imagine that, in 1860, the forces that propped up the stagecoach and the Pony Express were powerful enough in Washington that they said, we don’t care if the railroad the telegraph get done. We think you should keep the stagecoach and the Pony Express because they are really vital and they actually had enough clout to do it.

So, you ended up with two languages. When you got up in the morning, you could send a telegram from Washington to San Francisco on private business and it was instantaneous. But if it was government business, you had to write a letter, put it in a pouch and it would be carried by a stagecoach until it got far enough west and then it would be picked up by the Pony Express.

So, when you went in to see your favorite politician or your favorite government bureaucrat and you said, "Gee, I would like to do x," they would say, "Well, that’s going to take five weeks." You’d go, "No, no. I mean, in my private life, I just did it instantly." "Yes, but that doesn’t count."

[Laughter]

MR. GINGRICH: I’m going to give you some examples in a minute, but that literally is what politics in America is like today. People live a private life, in which from their ATM card, to their cell phone, to their e-mail, to a variety of other things, they are living in a different world. And then they enter the world of politics where they are told, well, those things don’t count.

I will show you some very specific examples.

The second example I want to give you is, imagine this. It is 1900, one hundred years ago. We are having a transportation conference in Washington, but the people who are in charge of the agenda have decided the key to the future of American transportation is a better horse shoe. They have sent applications. Anybody who wants to can come to Washington and speak on improving transportation as long as their topic is aluminum horse shoes, iron horse shoes, bronze horse shoes.

Henry Ford has written in a note saying, I’m working on this thing in my garage, but they say, no, that’s not a horse shoe. The Wright brothers have said, we just finished a wind tunnel out back and we have this great new idea we hope to try out in a couple of years. No, that’s not a horse shoe.

Now, over the following ten years, you know because you’re looking backwards, it is self-evident that the mass-produced automobile and the airplane will do more to change our thinking about transportation than the Washington conference on horse shoes. Now, that may sound fanciful, but I don’t think it is.

I think almost all the debate we have in this city is in frameworks and structures which are passionately important to the people who understand them and make less and less sense to everybody who is out there and inventing the information age version of a horse shoe--of an automobile or an airplane.

I find almost every audience I talk to outside this city gets it instantly. It reflects what they are experiencing in their own life as they read the business page or the sports page or the entertainment page, all of which are interesting, and then they skip the political pages because they’re no longer of substance. They’re not talking about a world that makes sense to them.

Let me give you a couple of examples. How many of you have used an ATM card? Raise your hands. I want to look around the room. Almost all of you.

Have any of you ever gotten impatient waiting for it to process your account number? A couple of hands started to go up. I want you to think about this for a second and you can see where I’m going here.

You now live in a world where, if it is an ATM card, you’re in a strange city. You’re putting a piece of plastic into a machine. You’re punching in a code. It’s going to give you cash, right? It’s not like this is a small thing. You’re going to get 300 bucks or 200 bucks or whatever you can afford that day, whatever the machine’s limit is. You’re going, this is taking 20 seconds. What kind of a machine is this?

[Laughter]

MR. GINGRICH: I made a speech to an insurance association. I said to them and I walked them through this. I got them right to this point and I said, "Does this suggest why 123 days to pay an insurance bill is not going to last?" This is one of my most important core insights of the last year: The e-customer is the e-patient and will be the e-voter. The problem is, nobody in politics can explain how the three fit.

For example, there are 98,000 inadvertent deaths a year in the medical system, as people are killed by the medical system, 98,000. This is a significant number. Now, think about the attention we pay to one airplane wreck. We know, as a reasonable generalization from the National Institute of Medicine, that about 98,000 people a year are killed by the medical system, by accident. This is not gross malpractice. This is normal behavior.

We also know that two-thirds of those are because they get prescriptions that are inappropriate. Why? Because there is, A, no automatic computer check of the prescription. There is, B, no personal medical record that is computerized. You bring those two together, you eliminate about 65,000 deaths a year. This would not be a complicated issue anywhere but Washington.

Now, people say, "Well, you can’t have a personal medical record because of security." Well, how many people just raised their hand and trust the Internet enough that you send your bank security code across a machine to get cash? Almost every American will be doing this within three or four more years. Only the poorest Americans will not have used an ATM card. We have vivid proof that we can create security, including for personal medical records.

How many people think doctors, if they were required to, could learn to actually input the prescription in a computer so you wouldn’t have to learn their writing? The president would establish a commission to look at how you can get good penmanship.

[Laughter]

MR. GINGRICH: You think I’m exaggerating? Isn’t that the essence of their reaction? How do we get doctors to have good penman--this is nuts. I mean, only a city that is willfully avoiding the 21st century could suggest that, that’s a rational answer. Since most prescriptions are for commonly applied things, you could actually have little symbols. The doctor could touch the page. Then the doctor could read what he had just ordered or she had just ordered. Then the computer could check against your record to see whether or not it would kill you. Then we could avoid your dying.

[Laughter]

MR. GINGRICH: This is not a small thing, but it is totally outside the capacity of this city today to talk about that. So, we talk about a patients’ bill of rights, which has nothing to do with whether or not you will be sued while you’re waiting for your lawyer to sue your HMO. Now, that’s the scale of the gap.

Let me give you a second example.

How many of you have ordered an e-ticket? You walk up, right? You go to an airport. You walk up. You show them your picture. They give you a ticket. It’s worth real money. You get on airplane. There’s actually a seat available most of the time. The plane normally leaves within a relatively close time unless there’s a thunderstorm or the system crashes. If you’re in Atlanta, you sit for two days, but we love having you there.

[Laughter]

MR. GINGRICH: Now, I’ll give you a second good example. It’s going to happen.

Your going to be able to schedule your appointment at the doctor’s office. You’re available next week. You need to go see the doctor. Why is it you show up and maybe wait four hours? It is an obsolete model. Why is it if the doctor says, I’ll see you at three and they don’t see you by four, you don’t get paid? They’re wasting your time.

I’m not picking on doctors. I’m trying to give you a totally different model.

The same thing with a senior IRS agent. The whole process of interacting with large systems, we know is going to move in a direction very different from where it has been. There requires very big changes and I’m going to get to those in just a minute.

I want to also point out to you that we--how many of you have cell phones? Just raise your hand. Over half of you.

One of the interesting challenges we are going to face is, because we don’t have a national system for cell phones, the Europeans are now beginning to pull away from us. This is something most Americans aren’t aware of yet, because they don’t use European cell phones. The European cell phone will be a dramatically more versatile system in three years than the American cell phone.

It is something we ought to be looking at, because it is a legitimate function, I think, of the government to try to figure out what is it about our current regulatory system, which is allowing us to--crippling us from being effective.

Just one more thing about the scale of change.

Somebody at Georgia Tech, the head of their microelectronics department, said to me, "The first computer built with transistors--I am going to give you four numbers that are really worth thinking about. The first computer built with transistors was in 1955. It’s called TRADEC [ph]. It had 800 transistors." Most of you--well, let me just ask you.

How many of you have a Pentium II chip in your PC? Raise your hand if you know. Half the room has a Pentium II chip. That’s seven and a half million transistors.

At Georgia Tech, they believe some time this year they will build an experimental chip with a billion transistors. They believe within 15 years, we will have a chip that has a trillion transistors.

Now, I’m a historian and not a scientist or an engineer. The truth is, I don’t know what those numbers mean, but it strikes me that, as a historian, they are big.

[Laughter]

MR. GINGRICH: It’s a very important concept. It’s a good thing for politicians to think about. There are events that are big and not big. If you go from 800 to a billion, that’s big. It has tremendous underlying implications for virtually everything we do.

In fact, I would suggest that there are four things happen in parallel, computational power, which is what I just described. The band width, that is, how much can you get across, for example, to your telephone and in a lot of ways, it will teach the computer to do tricks. So, you’re going to have a lot bigger band width than people expect a lot faster. You will be able to buy devices that are going to carry a lot more data than people expect.

The third is, the biological revolution, which I believe is bigger than the computer revolution in the impact it will have on us in the next 20 years as we really unlock the genetic code.

The fourth is the rise of nanotechnology. This is systems the size of a molecule. By the way, at least, according to Chuck Vest [ph], the head of MIT, there is a very grave danger the Europeans are going to be ahead of us in introducing nanotechnology which, again, we ought to be legitimately looking at as a society, because when you start developing very tiny things, you can [unintelligible] makes any sense of it.

Nanotechnology is so small, you will be able to drop, for example, things in your own body that will clean out your arteries and you won’t notice it and they won’t notice you. It is a totally different way of thinking, and it’s magic--magic in the sense that none of us understand it, except it works.

Those four multiplied against each other--faster, bigger computers, more band width, so people can talk with each other faster and more material, the biological revolution, which will change our understanding of being human and of disease and health and the nanotechnology revolution, giving us better systems that are smaller--those four are going to lead to an extraordinary change.

What I want to now talk about, which are the rules of change, come from five places. The first is Peter Drucker’s The Effective Executive, which I think remains the most powerful single book on how to be effective at getting human beings to do things.

The second is Annalee Saxenian’s Regional Advantage. This is a study she did of Boston and Silicon Valley. I think it’s a very helpful book for getting a sense of the difference in the rules that work in the information age.

Kevin Kelly’s New Rules for the New Economy, Kelly is the Editor of Wired magazine. In this very short book, New Rules for the New Economy, I think he makes a tremendous case for the difference between an Internet-based system and a traditional industrial system.

Tom Siebel’s Cyber Rules, Siebold is the most successful producer of customer-oriented software, and Cyber Rules gives you a very powerful sense of what you’re going to be capable of doing when you’re in a world where--as many of you know, for example, with Amazon.com, you can get on and they know who you are. They know what books you like. When you get on the site, they promptly are telling you the new books that came out in the genre you like. That is the tip of an iceberg of individualization that is coming.

Finally, James Womack, a book on lean thinking, which I really think is--and David Jones who wrote it, Womack and Jones. Lean Thinking is the next stage after Edward Demming’s Development of Quality. What happened was, Womack and Jones went back and studied Toyota and developed a core model of how do you get things done effectively.

I suggest to you, if you take either Demming’s original works--and Demming didn’t write very well, although he was a brilliant, brilliant teacher--or you take what Womack and Jones have written and you go look at any U. S. Government institution. It makes you simply want to cry, because the difference between the effectiveness we should have and the effectiveness we’re getting is literally orders of magnitude, that is, hundreds to thousands of change, not just one or two or three.

Now, in that context, let me suggest some basic rules that I think are real, that I have observed over the last year and you can compare them to what you have seen here in Washington. Before I do, let me just give you one example of how big the gap is.

We have now created in Washington a set of extraordinarily destructive rules for appointing people to the Executive Branch. One of the things all of the candidates for president ought to agree on collectively is to set up a commission right now, to issue a report by December, to get the Congress as its first act next year to make sense out of how we appoint people to the Executive Branch. It now takes longer to get through the process of being appointed to an assistant secretary’s job than it takes to set up a company which will have a market cap in excess of $100 million.

So, your government is--this is a very serious problem. You talk to anybody in the Clinton administration and they will tell you. You go out now and say to somebody who is really competent, "Why don’t you come to Washington and work for the Federal Government?" Their first reaction is, "Have you lost your mind?"

The level of disclosure, the level of investigation, the level of having to sell their stock, the level of not being able to do any business, the level of having to sit around and wait for a year and a half for it to get processed--and this is a real crisis in terms of our capacity as a country to staff the government.

The second example. Go find out what the 25 best paid software writers in America make and then look at the top salary in the Federal Government. You want the National Security Agency to be competent ten years from now? Do you want NASA to be competent ten years from now? There is no possibility that the current structure of Civil Service employment will survive, none. That’s how big the difference is.

It is not like it is a marginal change. It is, here is the new world and here is a world that is not going to get it there. It is not going to make it. Our government will decay in its capacity to deliver goods and services the longer we stick to models that are so inflexible that they can’t possibly work.

Here are just some general observations about the rules of the age of transition.

First, new ideas can come from anywhere. You watch venture capitalists. They don’t say to you I only hire people from Stanford or I only hire people from MIT. They say to you, anybody who has an idea can walk through my door and if I think they make sense, I don’t care what their diplomas are or not. I don’t care where they come from. I’m focused on the idea, very different from the traditional models.

As a result, the people who are good at this have a very wide vision. They are much more interested in looking across many, many stove pipes and picking the winners than they are at driving down into a very narrow specialty.

They also shift resources to reinforce success. They have a level of agility at moving resources which is antithetical to what we think of as bureaucratic behavior.

They also favor success, but they accept intelligent failure, a very important distinction. If you’ve failed in a rational way, that’s a badge of honor, because you had the guts to try. If you go to Buck’s Diner out in the valley, you will see lots of people there who may have failed three times, but they ultimately succeeded. You see nobody who says, "Gee, don’t invest in that person because they had a bankruptcy" or "Don’t invest in that person because they had a dumb idea." They at least had an idea.

It’s very different than a risk of risk model.

There is a commitment, I think, in the age of transition, to dreaming big but starting small. Very few people actually start big. They grow to it pretty rapidly, but they have to start small. But there are very few people who start small and stay small, a distinction a friend of mine once made between a baby business and a small business. Microsoft was once a baby business. It was never a small business, very big difference in the two styles.

There is also a commitment to partnering your way to success. Again, partnering requires sharing. You share the risk; you share the profit. Very different, much more trusting, much more accepting, much more open, people tell each other lots of things you don’t expect and [unintelligible] book is particularly powerful on drawing the distinction between the northeastern model and the Silicon Valley model.

There is a tendency in this new system to think long term, but act immediately. It’s interesting, by the way, if you go back ten years and people tell you about the tyranny of quarterly report.

None of the Internet companies survive the quarterly report test. I mean, there is no rational explanation. I think a large part of this is a bubble in the classic sense. That is, the stocks that are doing well because people say they are doing well so they are doing well, as opposed to a rational investment. But a number of these stocks in the long run will, in fact, succeed, and almost none of them in the short run fit any of the traditional tests that everybody would have said was necessary ten years ago.

For all the startups, quarterly reports are virtually irrelevant, something nobody has really thought through and talked about yet, but it changes the psychology of America if you are a entrepreneurial startup as compared to one of the Fortune 500, almost all of whom still run according to the tyranny of what’s going to happen on their quarterly report.

Two schizophrenically different worlds, living side by side in the same stock market, and the ones who don’t meet the quarterly report test currently have the higher market cap. It is just a very interesting phenomenon worth people thinking about.

There is also a tendency in this world to launch and learn, which is a Siebold phrase, but it’s really a good phrase. It says, don’t go out and study sailing and then think through the boat and then build a boat and do it in a sequential way. He said, launch a little boat and learn while you’re paddling around and then build a bigger boat. It is a very, very different model than the one you have in the City of Washington.

There is a focus on cooperation within a competitive world. These people all want to win. They are all competing with each other, but there is a remarkable level of cooperation. It is very different than the kind of conflict and destructiveness and confrontation which, again, are the heart of this city. It is a very different model and one that I think is worth looking at a great deal.

There is a focus on projects rather than process. A project is a definable, delegatable achievement, and people are very good in this emerging world at saying, "Let’s go get x done. Do you want to join me? We will get x done. We will put y amount of money up. We will go do it; we’ll take five months. We’ll see what happens." This is very different than the traditional model of process, which bureaucrats love, which is, "Well, we’ve been working at this and we’re going to keep working at this and something good will happen eventually. At least, we are sincere."

This is a focus that says, are you going to get to A or not. If you get to A, you get more money. If you don’t get to A, go rethink it and start something else. It is a very focused willingness to take risk in an orderly way.

I would argue also that there is a very strong tendency in this emerging age of transition to think about value to the customer as the first question. What is your value proposition? Why is it somebody is going to be better off, if you do what you’re doing? How are they going to be better off, and what are you doing to improve it faster than your competitor?

Again, imagine a customer-focused federal government, as opposed to a process-focused federal government.

Now, all of these new principles, combined with the Reagan tax cuts, the cultural entrepreneurship, and the most open society in the world, I think are, in fact, creating a new world. We have a much more entrepreneurial society than we had 20 years ago. We have a much more technologically-oriented society 20 years ago.

I don’t think this eliminates economics in the broad sense. I think Adam Smith is essentially still right, and the core principles of economics are still right, and, in the end, you probably have to make a profit in order to justify the value of your company. I do think this emerging new world requires us to invent new tools for economics.

Remember, the gross national product is a tool. It was an invention of the 1920s. It did not exist--it’s not something Adam Smith would have every described.

I think the rise of a world market requires a number of things. Let me suggest to you on the economic front what I think they are focused on.

First of all, this is becoming a world system. So, when you see GDP, by definition, it is a subset of something bigger. It is very important to think constantly in terms of the emerging world system.

There is both instantaneous capital flow. That is, if a country does something really dumb, money starts to leave in seconds and it leaves very rapidly. Similarly, there is a growing requirement for transparency, in a sense. People won’t invest if they can’t figure out what the rules are.

I once asked somebody why they weren’t buying product or a particular company in Russia which had dropped in price by 80 percent. They said 20 percent of something you don’t own is still too much.

[Laughter]

MR. GINGRICH: They said, until the Russians get transparent rules and real private property and a structure, that means that the money is really there, why would you put money in, even if the politicians urge you to? It was a very interesting example of the emerging world in which you have to have relative transparency and a relative rule of law to get the capital to flow.

But it’s not just a worldwide flow of capital. There is a worldwide talent flow. The number of people, for example, from India who are first rate software designers in America and who, by the way, also now are working with first rate software designers in India. The fact is, talent is everywhere and anybody who thinks you can run and hide from it completely misunderstands the nature of the emerging age of transition.

In addition, there is a worldwide flow of knowledge, starting with the Internet. So, even if you didn’t have talent flowing--and a lot of countries have much more restrictive rules than we do on allowing people to migrate. I think we are made much wealthier by the immigration we do have. But countries are still going to have ideas flowing in and out, because it’s almost impossible to stop.

Just two comments about where we are in terms of the stock market.

Nobody has yet measured the scale of middle class savings, but they are vastly bigger than ever in human history. They are in a relatively democratized process in terms of securities markets. So, more people are able to put more money into securities around the world than ever in history. I think that’s part of the way you get different multiples now, because the money has to go somewhere.

In addition, we have now had two generations of accumulating wealth without a major war. In terms of the long term history of the human race, there is a general pattern of getting richer as long as you avoid wars. You look at the scale of wealth increase in America. It is stunning. I’m not talking about Bill Gates. I’m talking about almost every level of acquisition of goods and services in a way that, in 1930, would have seemed literally impossible.

Now, I will say, one thing that should worry all of us about the world economy and that is relative to the size of the capital flows, both the International Monetary Fund and the Federal Reserve and other national banks are getting much smaller. The safety devices that we invented after the Great Depression are all being obsolesced by success. I think that it is very unlikely that you’re going to get through more than one more wave of real problems on a world basis without something unraveling simply because the size of the resources available are not adequate.

I think this is something people need to be thinking about. A lot of the last 50 years, we had a variety of safety nets that worked. I think you’re going to see more and more opportunities for people to be really dumb on a very large scale beyond any existing safety net,and human history is such that you can relatively expect that to then lead to people being dumb.

I mean, people do tend to seek opportunities to create both big highs and big lows.

Now, here at AEI, Jim Glassman and Kevin Hassett wrote about Dow 36,000. I’m not sure if that number is right or wrong. What I am pretty certain of is that the long term increase in wealth is real and that does have an impact.

Let me just suggest to you that, as you go through these rules, they come back to Washington in some pretty decisive ways. I’ll talk about health and health care.

The biological revolution is going to make it possible for us to be dramatically healthier if we design a system that encourages people to be healthy. That would mean encouraging people to know about your genetic code, rather than be frightened of it. It would mean encouraging people to know if you have a disability or you have some kind of chronic illness, rather than being in ignorance. It would mean a medical system that focused on wellness and good health and preventive health before it focused on acute disease treatment.

These are not small changes. These are very large changes and you will find, if you go out and talk to five out of seven doctors, they will think that system is not possible or desirable or workable or what they were trained for or what they get paid for.

So, if you want to talk about a real change in a patient’s bill of rights, it would start, I think, by saying every patient ought to own their own tax dedu ction. They should be responsible for their own health. They should be in a system which starts with preventive health and wellness. We should be encouraging the invention of drugs--and this is a very big change.

What if we learned that if you take Drug X, you will never get breast cancer? But you don’t have breast cancer, so you don’t have a disease threshold to have the insurance company pay you to take it until you get sick enough to take it.

Now, the currently model basically says, "federal government." We don’t really do a very good job of teaching you not to have diabetes cripple you, but if you need kidney dialysis because you didn’t take care of yourself, we will pay for it forever. It is exactly a backwards model. Yet, it is very hard in this city to get people to take seriously overhauling the system.

We know that you need an agile health system. Well, everybody complains about the Internal Revenue Service regulations. The Health Care Financing Administration, which runs Medicare, has more pages than the IRS. I’ll give you a simple definitional statement.

There are 133,000 pages of rules at HCFA, which means, by definition, that no one has any idea what the rules are. Then we have our annual report on waste, fraud, and abuse, which leads to another 3,000 pages of rules.

We know, if you look at the new age I’m describing, that is exactly wrong. We know that you should be redesigning the system. By the way, the Federal Employees Health Insurance Plan is 150 pages of rules and that offers all the federal employees a wide range of insurance.

Now, there is a hint there about how deep the fundamental reform of the system has to be.

Let me also suggest to you that Social Security as a group model of retirement was a powerful model in 1935. The 1935 social security system has basically helped an awful lot of people live a lot better. But a politician who showed up tomorrow morning and said "I have a 1935 car for you" would probably not do very well running at the polls.

The fact is, we now have a computer technology Franklin Delano Roosevelt didn’t have. We can allow each person to invest their own FICA tax. You can have a mandatory savings account. You can have three to ten times the level of retirement you will get out of the current system. The actuaries at social security who are among the conservative in America have already said, if you allowed that to happen, you permanently save the system with no tax increase and no benefit cut.

We call it Social Security Plus. We actually have a webpage, Social Security.com, that talks about that. But notice how different that model is. It is a model that suggests that you individually should be allowed to invest your money; that as a society, we want to make sure you have retirement money, but within a broad range--and again, you can obviously limit it to a wide range of investments as opposed to going out and wild-catting and losing it.

The historical record for over a hundred years, including the Great Depression, is that you will always do better if you are allowed to invest it yourself, rather than have the government keep it. Yet, it is very hard to get that issue to the level--that is, by the way, an issue that I think would increase turnout because it affects the personal income and personal life of every American adult. I think if anybody had the nerve to make that a central theme, you would be startled at how passionate the debate would be by this fall.

I will make just one last example, and then I want to take questions.

I have argued in a series of op-ed pieces that we really need--and in a series of articles that we really need to double our scientific research and development budget. I have argued that this is a legitimate function of the Federal Government, going back certainly to Jefferson and that the precise spirit of the Lewis and Clark expedition, a government-paid expedition to learn about the future is inherent at the National Science Foundation, at NASA, at NIH, at the Energy Department labs.

I just want to suggest to you, as I have been privileged to serve

[End side 1, tape 1 and begin side 2.]

MR. GINGRICH: [In progress] --and trying to talk about American survival in a very different world than the Soviet Union and the cold war.

We make an assumption that everything we are currently doing will continue. Now, I think that is a very dangerous assumption. All the people in Silicon Valley who believe that they invented a great economic future tend to forget that the first computer was built under government contract. The first chip assembly was built under government contract. The Internet was developed by the Department of Defense, precisely in order to have a multifaceted system of communication that would survive a nuclear attack.

Talk about the biotechnology revolution. Without NIH, it would not be occurring for another 70 years.

Yet, we are today, I believe, closer to obsolescence, that is, closer to having other countries surpass us, than we have been at any point since 1945, partly because we are not investing enough, partly because as we have changed the rules on Wall Street, it is less useful for corporations to invest. So, corporations don’t make the basic investment they did for 35 years. It is not economically rational; partially because the exploding scale of knowledge on the Internet, means that other countries can acquire your knowledge faster and cheaper than ever before in human history and partially because knowledge is more at the base of the system than it ever has been.

I think there is a very real danger that, if two key things don’t happen, if we do not have a profound increase in research and development and a very significant overhaul in how we disseminate it, because as much as I admire our government labs and as much as I admire the National Science Foundation and the National Institutes of Health, the truth is, every citizen ought to be able to get access to that information in real-time, on the Internet.

We are in a very cumbersome, very slow, scientific journal model of peer review, which makes no more sense than other things I have described. It is a holdover from a different era and it needs to be profoundly rethought so that you can have access to the newest information much, much faster than it is currently made available.

Second, we absolutely have to rethink how we do learning in America. I start with science and math. It should worry every one of us. If you look at the graduate schools in science and math, the number one thing you will learn is, they are not products of American schools. The graduate students are, to a remarkable degree, people who got their education somewhere else.

If you go out and ask the average eighth grader are you prepared for a world in which you might have to know something about science and math, it is startling how few of them will know it. We had the report A Nation at Risk in 1983. We have had some marginal improvements.

I want to suggest to you that, if you think about the rules I was describing earlier, they are, in fact, significantly different than simply modernizing the bureaucracy of education we inherited from the industrial age. I’ll just give you this quick set.

First, I very much applaud what Ted Forstmann and John Walton and others have done in setting up opportunities for people to apply for scholarships. I would say that one of the really underreported facts in America is, the number of parents who are poor, who showed up and said, I will pay money for my child to be allowed to have a scholarship. If you look at some of the inner cities, New York, Los Angeles, Chicago, Philadelphia, Washington, it is--and Washington, I think, it was every fifth parent showed up asking for a scholarship.

Now, at a pure customer focus level, there is a hint here for all the politicians in America. The parents get it. Their child is having their future crippled by inadequate education and promising change in ten years ain’t good enough if they are going to lose their child this year.

I don’t think just offering choice is enough. I think there are a couple of other things. Just think about what you’re seeing in the rest of the information age as we go through this transition.

First of all, learning ought to be 24-7. Many of you who are familiar with "Computer World" now know, 24-7 is a big thing. It means, for example, your ATM card works 24 hours a day, seven days a week. Why isn’t learning 24-7? Why is learning still basically on an agricultural era annual schedule, an industrial era sitting at a table looking forward at the foreman for 50 minutes between nine and three? It makes no sense.

Why is it primarily in the room? The whole talk about taking the computer into the classroom is exactly backwards. You want to take learning into the computer. I was laughed at in 1995 when I testified at the Ways and Means Committee and I will repeat what I said then. Every young child in America at about three years of age ought to get a computer at home. It is cheaper than remedial reading and it is doable.

Web TV alone would allow you to give every child a computer in this country for virtually nothing compared to what you’re going to spend on the kids who drop out or the kids who need remedial education. But it’s a different model. It means the teacher is not in control. It means the bureaucracy is not in control. It means Carnegie Units, an invention of the industrial era, no longer work. It means your average daily attendance is not the way you keep score.

It is a totally different structure. It should be learner-driven.

I was with my niece, Emily, last night, who is programming her own computer. She is also taking a course in junior high. The course in junior high is about three years behind what she is doing. But she says it makes it easier to get good grades without thinking.

[Laughter]

MR. GINGRICH: The fact is, you have lots and lots of bright kids in this country who could learn an amazing amount if there was a system out there that encouraged them to learn as opposed to encourage them to sit.

You also, I think, have to recognize--and this is in a speech comprised of a number of fairly controversial things, this may be the most controversial.

We have to reintegrate adolescence into real life. I bought my sister a book called A Tribe Apart, which is a study, I think, in Reston, Virginia. It is a study of kids who are teenagers and the fact that they literally don’t relate to adults. They live in a world where they are a tribe apart.

Benjamin Franklin at 13 left Boston and went to Philadelphia and went to work as an adult. He was a young adult, but he was an adult. He did a real job in a real way. All over this country, there are young adults who are out starting businesses.

There was a group of kids who were hired in--I think it was in New Jersey at a high school. They were hired to replace the people who had done the computer repair and they now run a business, which they established with, I think, a market cap of $3 million. They are only tenth graders and they have a hope for a better future.

Now, I just want to make this observation. We look at murders. We look at horrible behavior. We look at the break down of teenage life. I just want to suggest to you. Having people between 12 and 18 live their life in suspended disbelief while being led by their peers is an irrational strategy no healthy society can afford.

I once had Jane Goodall come by to see me when I was Speaker. She was talking about adolescent, male chimpanzees, who she said are universally selfish. She said the entire chimpanzee family gangs up on them for about three years. At the end of the three years, they have learned that, while they would like to be selfish, it’s just really expensive. It’s not a behavior worth carrying on into being an adult.

It is really important, because an adult male chimpanzee who is selfish is really dangerous. She was semi-kidding, but she said, "If they would call me, I could actually tell them a lot about socializing teenagers."

My point--and I got in a lot of trouble for talking about orphanages. I notice there is now a book out that says Orphanages Revisited. Suddenly it turns out it is okay to talk about the idea that--what I would now would call them, if I had to do it over again--is prep schools for the poor. You know, we have lots of people who run for president who went off to prep schools and they lived in places where they were taken care of.

Teenagers living with a lot of other people may be better sometimes than having a parent who beats you to death or having somebody who lives with your parent who beats you to death. Well, I want to say something that is similarly probably going to cause trouble, but I think five years from now, a lot more people would agree with it.

Energetic, healthy young people need to bond with adults. They need to have apprenticeships. They need to do things that are real and in a commercial society, where umpires are paid more than any teacher--now forget baseball players. I’m not an idealist. The umpires are paid more. To suggest we are going to bond them to reality without having a commercial relationship is silly. It won’t happen.

If young people were allowed to really dream and really work and really learn and really behave in an adult environment as young adults, I think you would find that, rapidly, adolescence disappeared as a nice, interesting, nineteenth century invention, and the young adults, which humans have had now for thousands of years, could rapidly learn to be mature adults and you would have a much healthier society, with much less worry about what happens in high schools. They would be operating in a very different kind of environment.

I don’t think short of that level of change, you’re going to get any kind of real change in the current system, where the combination of MTV and 15 year olds following 15 year olds guarantees you don’t have a great deal of wisdom built in.

I have given you a sweeping overview. Let me just close by saying, I believe that this is a remarkable country; that what we are in the process of inventing is an information age will literally allow us to empower virtually every citizen with a better life, with greater prosperity, with greater freedom and, if we act wisely, with greater safety.

I think we really are at the beginning of an era which could lead to an extraordinary explosion of opportunities and the fascinating thing to me is, that is much more obvious once you leave Washington. It is almost invisible when you listen to what passes for a political debate in this particular national capital.

[End of presentation.]