WEBVTT - Businessweek Extra - Blackstone’s Steve Schwarzman 0:00:02.520 --> 0:00:06.440 This is Bloomberg Business Week from Bloomberg Radio. I'm Jason 0:00:06.519 --> 0:00:08.959 Kelley and I'm Carol Masser. Welcome to the Bloomberg Business 0:00:09.000 --> 0:00:11.640 Week Extra. It's a weekly podcast bringing you an in 0:00:11.680 --> 0:00:14.240 depth interview with a big name newsmaker. He's one of 0:00:14.280 --> 0:00:16.919 the best known names in investing. He co founded the 0:00:16.920 --> 0:00:21.040 private equity behemoth Blackstone Steve Schwartzman. He writes about the 0:00:21.079 --> 0:00:23.480 founding of the firm and more in his new book, 0:00:23.520 --> 0:00:27.160 it's called What it Takes Lessons in the Pursuit of Excellence. 0:00:27.160 --> 0:00:29.960 We spoke to Steve about his book about the pe world, 0:00:30.000 --> 0:00:33.720 about China growing up in Philadelphia. Here's that conversation. So 0:00:33.760 --> 0:00:37.080 if you think private equity, you definitely think of Steve Schwartzman. 0:00:37.200 --> 0:00:40.080 He co founded the private equity behemoth that is Blackstone 0:00:40.120 --> 0:00:43.040 today with Pete Peterson in the mid nineteen eighties after 0:00:43.040 --> 0:00:46.160 a successful career on Wall Street. He writes about his path, 0:00:46.280 --> 0:00:49.000 or what he calls a collection of inflection points that 0:00:49.120 --> 0:00:51.480 led him to who he is and where he is today. 0:00:51.520 --> 0:00:53.880 It's all in his new book, What It Takes Lessons 0:00:53.880 --> 0:00:56.000 in the Pursuit of Excellence. It's so great to sit 0:00:56.040 --> 0:00:58.440 down with you congratulations on the book. Oh thanks, fun 0:00:58.520 --> 0:01:00.480 to be here. Well, and if you could see us, 0:01:00.480 --> 0:01:03.400 you could see that we both have very well worn 0:01:03.480 --> 0:01:06.840 copies of this. It's really a great read, Steve. Congratulations. 0:01:06.840 --> 0:01:08.600 As Carol said, you know, one of the things that 0:01:08.640 --> 0:01:12.479 really jumps out to me is the stories of Wall Street, 0:01:12.560 --> 0:01:15.000 the stories from your early days sort of getting into 0:01:15.080 --> 0:01:19.840 it d L. J. Lehman of course Blackstone later on. 0:01:20.360 --> 0:01:23.399 How has Wall Street changed over the course of your career, Well, 0:01:23.440 --> 0:01:26.840 wall Streets changed enormously. Uh. When when I got to 0:01:26.920 --> 0:01:31.360 Wall Street, Uh, there there were a very large number 0:01:31.400 --> 0:01:37.440 of firms uh doing different things. When when negotiated commissions 0:01:37.760 --> 0:01:44.040 were implemented in may day, the cost structure of most 0:01:44.080 --> 0:01:47.200 of the firms was very high. And what happened is 0:01:47.240 --> 0:01:50.360 they were no longer competitive when somebody offered to do 0:01:50.480 --> 0:01:54.400 a brokerage trade for fraction uh. And so you had 0:01:54.480 --> 0:02:00.960 this uh consolidation that occurred with firms going out of 0:02:01.000 --> 0:02:05.400 business emerging with other firms. Uh and and ultimately you 0:02:05.520 --> 0:02:10.880 ended up with you know, ten firms down from probably 0:02:11.760 --> 0:02:16.440 in terms of active firms, probably a fifty so so 0:02:16.720 --> 0:02:20.240 so it was it was a dramatic change that that 0:02:20.360 --> 0:02:23.799 happened over a ten to fifteen year period and as 0:02:23.880 --> 0:02:27.160 results of that, everything changed. Is it a better Wall 0:02:27.160 --> 0:02:30.400 Street today? It's a different wall Street. Uh, it's certainly 0:02:30.440 --> 0:02:33.360 a much more efficient wall Street. It's a wall Street 0:02:33.440 --> 0:02:37.960 that can mobilize much more capital. It's a world uh 0:02:38.000 --> 0:02:42.840 that that has printed so much money. Uh, not just 0:02:42.919 --> 0:02:45.960 in the United States, but the deficits that have run 0:02:46.440 --> 0:02:51.440 uh that that it's easy to to aggregate a lot 0:02:51.480 --> 0:02:54.440 of money to do a lot of things. It feels 0:02:54.480 --> 0:02:57.280 like so much of what you've become and what you've 0:02:57.320 --> 0:03:00.800 created really does go back to those early days, first 0:03:00.840 --> 0:03:03.880 at del J briefly and then obviously business school. But 0:03:04.000 --> 0:03:07.360 Lehman Brothers, that's where you were really forged in a 0:03:07.400 --> 0:03:09.880 lot of ways. Talk to us about that time, the 0:03:09.960 --> 0:03:13.880 lessons you took from that experience. Well, Lehman was at 0:03:13.919 --> 0:03:19.240 that point, uh, fascinating place in the in the investment banking, 0:03:19.320 --> 0:03:23.000 but a difficult place. I would say, my my first 0:03:23.880 --> 0:03:26.240 day at work, somebody walked out of the elevator and 0:03:26.320 --> 0:03:29.639 welcomed me and said, you're very lucky to work here, 0:03:30.520 --> 0:03:35.320 because nobody here will ever stab you in the back. Actually, 0:03:35.760 --> 0:03:39.000 they'll just walk right up to you and stab you 0:03:39.080 --> 0:03:44.040 in the front. And I remember going home my wife said, 0:03:44.120 --> 0:03:46.720 how is your first day at work? And I said, 0:03:46.960 --> 0:03:50.480 this is going to be a really interesting experience. Well, 0:03:50.480 --> 0:03:53.120 there's a line in your book that you say, Lehman Um, 0:03:53.400 --> 0:03:55.280 you write how your exit from Lehman had shown you 0:03:55.320 --> 0:03:58.839 Wall Street at its worst, with everyone for themselves. Yeah, 0:03:58.840 --> 0:04:02.960 I was le got into financial trouble and and you know, 0:04:03.640 --> 0:04:05.720 my own view, and everybody at the firm would have 0:04:05.720 --> 0:04:08.440 a different view, is is that the grown ups didn't 0:04:08.440 --> 0:04:11.720 protect the institution. They were too worried that the that 0:04:11.880 --> 0:04:15.440 the CEO who got the firm in trouble would fire 0:04:15.520 --> 0:04:19.000 them if they sort of took him on. And and 0:04:19.520 --> 0:04:23.440 as a result, the firm was sort of frozen and 0:04:23.640 --> 0:04:27.680 we we had marked market uh loss in terms of 0:04:27.680 --> 0:04:31.360 our net worth, and so we were forced to uh 0:04:31.480 --> 0:04:35.320 sell the business because it was discovered that the net 0:04:35.360 --> 0:04:38.800 worth it's sort of gotten close to disappearing than your 0:04:38.880 --> 0:04:42.680 ratings would go and the firm would collapse. So so 0:04:42.960 --> 0:04:45.040 you know, I I looked at that and it's a 0:04:45.120 --> 0:04:48.000 firm that was I guess about a hundred and fifty 0:04:48.080 --> 0:04:51.000 years old something like that, and and say, how how 0:04:51.040 --> 0:04:55.320 can this ever happen, and I never wanted anything like 0:04:55.440 --> 0:04:59.360 that to happen to anybody I was associated with. On 0:04:59.400 --> 0:05:03.799 the other hand, it was fascinating place with fascinating people. Uh. 0:05:04.000 --> 0:05:07.799 It was before I joined, before there were any MBA classes. 0:05:08.160 --> 0:05:11.560 So the people who worked there were like x CIA agents, 0:05:11.600 --> 0:05:15.960 somebody from the entertainment business, you know, somebody from the 0:05:15.960 --> 0:05:21.080 oil patch. Everybody had a lot of different points of view, 0:05:21.720 --> 0:05:23.760 and it was a fascinating place. That's why I went 0:05:23.800 --> 0:05:27.560 to work there. And you forged some incredibly important relationships 0:05:27.560 --> 0:05:30.359 as well, not the least of which maybe among the 0:05:30.400 --> 0:05:33.160 most important, if not the most important, was with Pete Peterson. 0:05:33.320 --> 0:05:36.320 You know, you guys come out of that experience sort 0:05:36.320 --> 0:05:39.200 of scarred in different ways. To do a large extent, 0:05:39.560 --> 0:05:43.039 you start having breakfast every morning trying to figure out 0:05:43.080 --> 0:05:46.880 what's going to happen next. Describe for us, if you will, 0:05:47.480 --> 0:05:50.920 what was at the crux of your relationship with Pete. Well, 0:05:51.160 --> 0:05:53.120 Pete was twenty one years older than me, and he 0:05:53.160 --> 0:05:55.640 was known all over the United States, and I was 0:05:55.720 --> 0:05:58.880 the young guy. Uh. And Pete was a very uh 0:05:59.200 --> 0:06:04.560 structured Suma cum laude type of process thinker, uh, which 0:06:04.680 --> 0:06:08.479 was great. Uh, but I was more of a I 0:06:08.520 --> 0:06:13.960 guess you would call it sort of intuitive type of thinker. 0:06:14.080 --> 0:06:18.200 And and so when we did things together, um, you know, 0:06:18.279 --> 0:06:21.960 he would let me do like all the execution because 0:06:22.640 --> 0:06:25.279 for a while he sort of like try and rehearse 0:06:25.360 --> 0:06:27.159 what we do. And I said, don't worry about it. 0:06:27.440 --> 0:06:29.600 I'll walk in the room. I'll know what. I got this, right, 0:06:29.800 --> 0:06:33.720 I got this. Let's just you know it'll happen. And 0:06:34.600 --> 0:06:37.120 it does. So so you know, we were a very 0:06:37.120 --> 0:06:41.239 good team for a very long time over thirty years. Uh. 0:06:41.279 --> 0:06:46.839 And um, you know, sort of incredibly productive and easy 0:06:46.880 --> 0:06:50.440 to deal with because we each approached the world uh, 0:06:50.480 --> 0:06:53.440 you know, somewhat somewhat differently, except when you guys went 0:06:53.440 --> 0:06:55.240 out on your own and that first time when you 0:06:55.279 --> 0:06:58.040 were looking for some money. You have a great story 0:06:58.240 --> 0:07:01.520 in the book. Uh there's lot of rain involved. And 0:07:01.560 --> 0:07:02.760 you said it. I think at one point like he 0:07:02.920 --> 0:07:04.200 kind of looked at you like, would you get me 0:07:04.200 --> 0:07:08.279 into Well, anybody has ever started anything doesn't have to 0:07:08.279 --> 0:07:11.440 be on Wall Street. Anybody who started anything, including that 0:07:11.640 --> 0:07:15.840 for profits, It doesn't go the way you think. Everybody 0:07:15.840 --> 0:07:18.960 who starts something believes they're going to be very successful 0:07:19.240 --> 0:07:22.920 or they wouldn't start it. And what you find is 0:07:22.960 --> 0:07:27.040 that the world is not always waiting for you. In fact, 0:07:27.720 --> 0:07:31.560 sometimes the world doesn't even respond to you. So when 0:07:31.600 --> 0:07:35.920 we started, we set out about five letters expecting people 0:07:35.960 --> 0:07:37.960 we used to do business with to call us and 0:07:38.360 --> 0:07:41.680 give us an order. And the phone never rang. H 0:07:42.680 --> 0:07:48.560 that's shocking, right, Uh, just normal courtesy. Uh. In the 0:07:48.600 --> 0:07:51.400 incident you're talking about. When we started our private equibusiness, 0:07:51.840 --> 0:07:54.040 you know, I would always call ahead if we were 0:07:54.120 --> 0:07:56.840 lucky enough to even get an appointment, to make sure 0:07:56.840 --> 0:07:59.560 it was all said. I did that we want a 0:07:59.600 --> 0:08:02.160 solicitation at M I T. And we flew up from 0:08:02.200 --> 0:08:05.520 New York, uh, and for three o'clock meeting. We're there 0:08:05.560 --> 0:08:08.120 like a quarter to three, and we knock on the door, 0:08:08.480 --> 0:08:10.800 and you know, I can remember what that door looked like, 0:08:11.280 --> 0:08:14.480 you know, with that sort of uh you know, frosted 0:08:14.560 --> 0:08:17.800 glass so you can't see into it, with printed letters 0:08:17.880 --> 0:08:20.360 on it, and you know, you keep knocking on it. 0:08:20.440 --> 0:08:25.600 Nobody comes and UM, so some janitor came by and 0:08:25.640 --> 0:08:28.000 I said, excuse me, we're having trouble getting in the door. 0:08:28.080 --> 0:08:32.160 He said, well, that shouldn't be a problem, but nobody's there. 0:08:32.840 --> 0:08:35.760 I said, why aren't they there? He said, well, they 0:08:35.880 --> 0:08:39.400 left for the weekend. I said, but but I called them. 0:08:39.440 --> 0:08:42.440 They're expecting us, he said, I don't know. They left 0:08:42.480 --> 0:08:45.400 for the weekend. And so you know, that was like 0:08:45.440 --> 0:08:49.600 a complete like waste of time. But but then what 0:08:49.760 --> 0:08:54.120 happened is, you know, some rainstorms came, and you know, 0:08:54.400 --> 0:09:01.120 we didn't have a car and driver nothing. We didn't 0:09:01.120 --> 0:09:03.520 even have an umbrella. And so you wait, you know, 0:09:03.640 --> 0:09:06.200 like fifteen and twenty minutes for the rain to abate. 0:09:06.280 --> 0:09:09.120 It kept getting worse. So so I just walked out 0:09:09.160 --> 0:09:11.080 into the rain to try and hail a cab. But 0:09:11.640 --> 0:09:15.080 you know, from their administrative building, I was not the 0:09:15.120 --> 0:09:17.839 only person right, and the people who went to m 0:09:17.880 --> 0:09:20.040 I T were more clever than me. They knew how 0:09:20.080 --> 0:09:23.120 many streets up to stand. So I'm like standing in 0:09:23.120 --> 0:09:26.520 the rain, soaking wet, and then I realized I'm gonna 0:09:26.520 --> 0:09:29.920 get nothing. So I said, okay, I'm gonna have to 0:09:30.000 --> 0:09:33.760 bribe somebody who's in a cab to let me in 0:09:33.800 --> 0:09:37.480 a cab, so after they drop them off, then I'll 0:09:37.480 --> 0:09:41.120 be able to go to the airport, taking Pete along 0:09:41.160 --> 0:09:44.680 with me, who's standing under the covered area and not 0:09:44.880 --> 0:09:47.800 wet with steam coming out of here. I'm not not 0:09:47.920 --> 0:09:52.600 complete steam yet, so I so I tried with you know, 0:09:52.640 --> 0:09:55.600 like twenty bucks, and you know I'd be knocking on 0:09:55.760 --> 0:09:58.040 people's windows. You know, they wouldn't turn them down. You know, 0:09:58.040 --> 0:10:01.120 it's just what you would expect. So increased it to 0:10:01.200 --> 0:10:05.240 thirty dollars. But these were six dollars. There's more than 0:10:05.480 --> 0:10:09.959 thirty dollars. And I finally found somebody and they let 0:10:10.040 --> 0:10:13.160 us in, so Pete had to come and join me. 0:10:13.679 --> 0:10:17.280 So the rain was just tellusion. You know, he's walking 0:10:17.320 --> 0:10:19.559 out in a very dignified way, but there's no way 0:10:19.640 --> 0:10:22.480 you can be dignified when you end up being soaking wet, 0:10:22.600 --> 0:10:24.360 and you know, he sort of looked at me and 0:10:25.040 --> 0:10:31.080 give me one of those what did you get me into? 0:10:30.880 --> 0:10:34.880 So obviously things have gone better since then. But I 0:10:34.920 --> 0:10:40.199 do wonder, from from a Wall Street and an investing perspective, 0:10:40.240 --> 0:10:43.080 from the creation of black Stone, if you were to 0:10:43.280 --> 0:10:46.680 pick one sort of catalytic moment, and you talk a 0:10:46.679 --> 0:10:50.120 lot about inflection points, Look, what was the moment with 0:10:50.200 --> 0:10:52.920 black Stone where you thought, okay, we've made it. Was 0:10:52.960 --> 0:10:55.480 it a deal, was it a higher, was it an exit? 0:10:55.520 --> 0:10:58.040 What was it. Well, they're all of those things that 0:10:58.120 --> 0:11:01.920 are keys, as you've identified. There was one moment, uh, 0:11:02.160 --> 0:11:05.200 and we were raising our first buyout fund, and I 0:11:05.320 --> 0:11:08.840 said some modest objective of a billion dollars, which would 0:11:08.840 --> 0:11:11.120 have made us either the second or third biggest fund 0:11:11.120 --> 0:11:13.839 in the world. And neither Pete nor I had ever 0:11:13.880 --> 0:11:18.400 made an investment. So so this is somewhat of an assertion, uh, 0:11:18.760 --> 0:11:23.760 that that that the world wasn't taking up. And we 0:11:23.960 --> 0:11:28.439 we had burned all of our close relationships and we 0:11:28.800 --> 0:11:31.320 had like seventy five million dollars, but it was all 0:11:31.400 --> 0:11:35.320 contingent on getting to five million because nobody wanted to 0:11:35.320 --> 0:11:38.400 be too big and we'd almost run out of everybody 0:11:38.640 --> 0:11:42.040 and uh, and we had a meeting at the Prudential 0:11:42.040 --> 0:11:46.520 Insurance Company in New Jersey, which was a lunch uh 0:11:46.520 --> 0:11:50.880 and uh we weren't close to the prew uh, and 0:11:51.000 --> 0:11:53.200 we came up with a concept because just selling a 0:11:53.200 --> 0:11:56.800 private equity fund wasn't selling, that we put in our 0:11:56.920 --> 0:12:02.480 advisory revenues UH to to create a higher return for 0:12:02.559 --> 0:12:05.600 the investor. And so I was going through this um 0:12:06.200 --> 0:12:10.280 this concept as we were eating lunch at Prudential, which 0:12:10.280 --> 0:12:13.080 I had trouble with anyhow, because the menu didn't make sense. 0:12:13.400 --> 0:12:16.560 I didn't realize that that instead of the price next 0:12:16.559 --> 0:12:20.120 to things, there were calories. I couldn't understand, you know 0:12:20.240 --> 0:12:23.240 why the desserts cost so much. So so I'm sitting 0:12:23.320 --> 0:12:27.160 there and doing my my thing. Uh. In the chief 0:12:27.200 --> 0:12:31.360 financial officers a person named Garnett Keith uh. And he 0:12:31.400 --> 0:12:34.760 was eating a tuna on white bread cut on a 0:12:34.840 --> 0:12:38.440 diagonal uh. And you know, I was watching you meat 0:12:38.800 --> 0:12:42.160 as I was pitching. Uh. And you know, he finished 0:12:42.160 --> 0:12:44.920 the first half of the sandwich, and then he finished 0:12:44.960 --> 0:12:47.000 half of the second part of the sandwich, and he 0:12:47.080 --> 0:12:51.120 looked up and he said, you know, I like this. 0:12:51.920 --> 0:12:57.959 I'll take a hundred million. And at that point, Prudential, 0:12:58.000 --> 0:13:03.280 which is the largest investor in UM in private equity 0:13:03.280 --> 0:13:09.360 in the world, the gold standard. I just couldn't believe 0:13:09.840 --> 0:13:12.800 because that he did that, because if he did it, 0:13:13.280 --> 0:13:16.959 other people would follow and we would be successful. And 0:13:17.320 --> 0:13:20.880 I just kept watching and hope he wouldn't choke on 0:13:20.960 --> 0:13:25.320 the rest of that, because over right, and then we 0:13:25.400 --> 0:13:30.400 get nothing. So so you know, all entrepreneurs have have 0:13:30.440 --> 0:13:34.560 many moments where you go from like a certain failure 0:13:35.280 --> 0:13:38.440 to to hope and and and you know sort of 0:13:38.480 --> 0:13:41.160 success that happened to be one of them. You know, 0:13:41.200 --> 0:13:42.880 it's funny in your book to you, right, you can't 0:13:42.920 --> 0:13:44.280 learn to be a manager, but you can learn to 0:13:44.320 --> 0:13:47.800 be an entrepreneur. You can't. I'm sorry, you can't learn 0:13:47.960 --> 0:13:50.040 You can learn to be you can learn to be 0:13:50.080 --> 0:13:52.440 a manager, but you can't learn to be an entrepreneur 0:13:52.960 --> 0:13:56.800 because being an entrepreneur involves seeing a lot of things 0:13:56.880 --> 0:14:04.480 simultaneously put him together and have the desire and the 0:14:04.480 --> 0:14:09.160 the ability to just say, Okay, this is gonna work. 0:14:09.400 --> 0:14:12.560 I'm just going out there to make it happen. There 0:14:12.760 --> 0:14:17.360 is no fallback, there is no net, you know when 0:14:17.400 --> 0:14:20.320 when you're up on the high wire and you know 0:14:20.360 --> 0:14:24.600 the only reason you do that is that you are sure. Now, 0:14:24.640 --> 0:14:27.680 the fact that nine out of ten new businesses fails 0:14:28.160 --> 0:14:33.640 means that it is a delusional exercise. Right, So so 0:14:33.840 --> 0:14:37.360 to be that delusional and go out when the percentages 0:14:37.360 --> 0:14:40.680 are against you takes a certain kind of person who 0:14:40.680 --> 0:14:44.160 believes that they've figured it out to do it anyway. Well, 0:14:44.360 --> 0:14:47.040 they don't think they're at risk. People who do these 0:14:47.160 --> 0:14:52.360 you know sort of books or whatever or interview entrepreneurs 0:14:52.360 --> 0:14:56.400 and talk about you know, you really like risk. Nobody 0:14:56.520 --> 0:15:01.160 likes risk, nobody tries to fail and and you know, 0:15:01.240 --> 0:15:05.320 so I've always found that whenever I do anything, whether 0:15:05.400 --> 0:15:08.360 it's a new charitable thing or whether it's you know, 0:15:08.680 --> 0:15:12.640 expanding different parts of of the firm, I like to 0:15:12.680 --> 0:15:18.160 be completely convinced that whatever we're doing is going to work. 0:15:18.760 --> 0:15:23.080 And I usually, um can explain to anybody why I 0:15:23.120 --> 0:15:28.200 think what I think, and it's rational. But interestingly, hardly 0:15:28.240 --> 0:15:33.640 anyone ever responds and and competes with us when we start, 0:15:34.600 --> 0:15:38.920 because people are comfortable doing what they do. Uh, So 0:15:39.000 --> 0:15:41.920 you can tell them we're doing something else and they go, 0:15:42.160 --> 0:15:44.840 that's interesting, and then they just go back to what 0:15:44.880 --> 0:15:47.840 they're doing. And it's part of the human condition. The 0:15:47.920 --> 0:15:51.480 same way when you start something and you think it's 0:15:51.480 --> 0:15:53.880 going to be easy because what you're doing is in 0:15:53.960 --> 0:15:59.720 somebody else's best interest, they like basically, no matter what 0:15:59.800 --> 0:16:03.040 they say, they like to continue what they're doing because 0:16:03.080 --> 0:16:05.960 it works at that point in time. So so you 0:16:06.040 --> 0:16:09.000 have to come up with something that's that's really compelling, 0:16:09.680 --> 0:16:15.600 and then after you fail convincing them, you then go 0:16:15.720 --> 0:16:20.000 away for a while and you come back again, and 0:16:20.600 --> 0:16:24.280 if that doesn't work, you go away, you come back again. 0:16:24.760 --> 0:16:28.560 You never give up. And if you're failing everywhere, that 0:16:28.640 --> 0:16:33.480 means you need to fine tune what you're doing so 0:16:33.520 --> 0:16:35.880 you don't just keep doing the exact same thing forever. 0:16:36.800 --> 0:16:42.200 But but the tenacity and the emotional stability you need 0:16:42.240 --> 0:16:46.080 in the fact, in the face of endless rejections is 0:16:46.480 --> 0:16:49.240 really not for everyone. Well, I feel like this leads 0:16:49.280 --> 0:16:50.840 and if if we may just talk a little bit 0:16:50.840 --> 0:16:53.200 about what's been going on in the world at large, 0:16:53.200 --> 0:16:55.600 because I feel like you have such a great vantage 0:16:55.600 --> 0:16:57.560 point in terms of some of the macro issues, and 0:16:57.800 --> 0:17:00.000 I think about US China and what you're just talking 0:17:00.000 --> 0:17:03.760 thing about. I think you have two individuals who completely 0:17:03.760 --> 0:17:06.840 believe that their course is the right one in terms 0:17:06.920 --> 0:17:10.560 of US China trade. Um, you know both of them. 0:17:10.600 --> 0:17:13.080 You've been on behalf of the administration to China. I 0:17:13.119 --> 0:17:16.399 think you said in your books something like eight times 0:17:20.080 --> 0:17:22.800 talk about tenacity. Yeah, yeah, how do you see this 0:17:22.880 --> 0:17:28.720 working out? Well? I think it's it's more interesting than 0:17:28.760 --> 0:17:34.320 two people because China has been the most rapidly growing 0:17:34.720 --> 0:17:38.560 country probably in world history over a forty year period, 0:17:39.280 --> 0:17:43.760 and then they did that with enormous energy central planning 0:17:44.480 --> 0:17:49.080 and also adopting a lot of things that are emerging 0:17:49.119 --> 0:17:54.320 markets countries do, which is hiding behind high terror falls uh. 0:17:54.560 --> 0:17:58.960 Closing its markets and if not closed, not making them 0:17:59.000 --> 0:18:02.480 as accessible is as the as the developed world does. 0:18:03.200 --> 0:18:07.439 Uh and doing different things with intellectual property. And you 0:18:07.440 --> 0:18:12.760 know the US uh in um uh nineteenth century sort 0:18:12.800 --> 0:18:14.879 of did the same thing. We were a poor little 0:18:14.920 --> 0:18:17.679 country UH, and we found a way to use tariffs 0:18:17.760 --> 0:18:22.199 to protect ourselves at a certain point. That creates imbalances 0:18:22.400 --> 0:18:25.880 around the world. So so now that you know, China's 0:18:25.920 --> 0:18:29.480 got three trillion dollars of reserves, uh, it's it's the 0:18:29.520 --> 0:18:33.320 biggest producer and fulfiller of jobs in the world. So 0:18:33.480 --> 0:18:37.159 jobs have moved from the developed world to China. Wealth 0:18:37.240 --> 0:18:44.480 has moved and the global financial crisis basically created problems 0:18:44.960 --> 0:18:47.760 for the developed world. So now we have roughly half 0:18:47.800 --> 0:18:50.840 of the people, for example, in the United States who 0:18:50.920 --> 0:18:56.440 have income and insufficiency. Uh. They're in a bad way. Uh. 0:18:56.520 --> 0:19:01.800 And and that creates populism. And and when domestic candidates 0:19:02.080 --> 0:19:05.600 for being attacked don't result in change for the people 0:19:05.640 --> 0:19:09.120 who are in trouble, they find a foreign devil. Uh. 0:19:09.119 --> 0:19:11.320 And I was pretty sure it was going to be 0:19:11.400 --> 0:19:17.159 China for those reasons so so so in effect, China 0:19:17.240 --> 0:19:24.359 recognizes that that the circumstances of the world have changed. Um. 0:19:24.400 --> 0:19:26.680 But but like all people who have a really good deal, 0:19:27.720 --> 0:19:30.560 why would you change it? And you only change it 0:19:30.720 --> 0:19:34.200 because there's there's pressure and the change ends up being 0:19:34.240 --> 0:19:38.240 in their interest. On the other hand, UM, there are 0:19:38.240 --> 0:19:41.199 people in their country who don't believe that they just 0:19:41.240 --> 0:19:43.639 want things the way they are. Remember, people don't like 0:19:43.760 --> 0:19:47.359 to change. And so here we have the developed world, 0:19:47.480 --> 0:19:50.800 represented by the United States, who wants them to change. 0:19:51.160 --> 0:19:55.920 So so it's a very interesting thing where China knows 0:19:55.960 --> 0:19:58.240 it has to change, the US wants them to change. 0:19:58.240 --> 0:20:02.840 It should be easy, uh, except uh, it's not easy 0:20:02.960 --> 0:20:07.280 because people don't like giving up advantage. Uh. And on 0:20:07.359 --> 0:20:10.520 the u S side, Uh, they would want to accomplish 0:20:10.640 --> 0:20:14.800 this rebalancing as quickly and as thoroughly as they can. 0:20:15.400 --> 0:20:19.159 So so what's what's happening over the last two and 0:20:19.200 --> 0:20:24.119 a half years roughly, is these two giant countries, which 0:20:24.160 --> 0:20:28.600 which together have somewhere between thirty five of the world's economy. 0:20:29.000 --> 0:20:32.200 So this is like the two parents fighting, uh, and 0:20:32.240 --> 0:20:36.320 the children you know, are like hiding uh And they're upset. 0:20:36.440 --> 0:20:39.320 That's the rest of the world. It's just slowing trade. 0:20:39.960 --> 0:20:45.240 But long term potential decoupling of these two giant countries 0:20:46.040 --> 0:20:50.600 actually results in lower growth for everyone, right And how 0:20:50.680 --> 0:20:52.520 much do you worry about that? How much do you 0:20:52.560 --> 0:20:55.560 worry about that decoupling, because that seems to be the 0:20:55.600 --> 0:20:58.320 biggest worry in the world right now, is that mom 0:20:58.320 --> 0:21:02.600 and dad will come together. They're splitting of the world. Right. Well, 0:21:03.600 --> 0:21:08.760 partly that's happening because because there hasn't been the overlap. Uh. 0:21:08.800 --> 0:21:13.840 And and I think that because ultimately, um, you know, 0:21:13.920 --> 0:21:18.240 people are rational on a certain level, that that as 0:21:18.280 --> 0:21:24.440 as these two countries see that that's not working for them, uh, 0:21:24.680 --> 0:21:26.800 that that they'll come to a table, which is what's 0:21:26.840 --> 0:21:30.359 happening now for the I guess the third time. Uh. 0:21:30.400 --> 0:21:34.720 And they're doing it not to just be helpful that 0:21:34.840 --> 0:21:38.359 they're doing it as they as they recognize that the 0:21:38.520 --> 0:21:43.120 short term in in trying to can remain fine with 0:21:43.440 --> 0:21:49.399 policy adjustments, but they're borrowing from their future and long term, 0:21:49.440 --> 0:21:51.840 if you really go off on your own and decouple, 0:21:52.720 --> 0:21:56.280 uh and have a slower growing world, what's the win? 0:21:57.080 --> 0:21:59.679 And that that's not a win, That's what and what 0:21:59.760 --> 0:22:03.200 can you, Steve Schwartzman do to help this along. Well, 0:22:03.840 --> 0:22:05.560 I think there are a lot of people who know 0:22:05.760 --> 0:22:10.320 both countries, and I think it's it's it's important that 0:22:10.320 --> 0:22:15.200 that that people understand where this is ultimately going, which 0:22:15.280 --> 0:22:19.719 is not in their interest, and ultimately I I believe 0:22:19.920 --> 0:22:23.640 that people will act in their self interest and there 0:22:23.680 --> 0:22:27.600 will be an adjustment. No, no one can predict the way. 0:22:28.600 --> 0:22:31.560 Sort of the media wants what's going to happen in October, 0:22:31.720 --> 0:22:33.800 and you know it's sort of in the you know, 0:22:33.960 --> 0:22:37.280 sort of I guess, but it's a who knows, because 0:22:37.320 --> 0:22:41.879 it's really about for the primarily it's about China. They 0:22:41.960 --> 0:22:46.280 have their hardliners, they have their reformers. What do they 0:22:46.320 --> 0:22:48.760 actually want to put on a table? And President she 0:22:48.800 --> 0:22:51.960 has to balance that right now, well, somebody has to 0:22:52.000 --> 0:22:55.879 balance it. And and and in May when the trade 0:22:55.920 --> 0:23:00.359 talks basically were I was gonna say suspended, but at 0:23:00.400 --> 0:23:04.520 that point there were ended. Uh, you know, the balance 0:23:04.600 --> 0:23:08.800 of reform versus you know, sort of the harder line position. 0:23:09.200 --> 0:23:12.800 The harder line people you know, in effect had more influenced. 0:23:12.840 --> 0:23:16.119 Now as it's all becoming more complicated, not just because 0:23:16.119 --> 0:23:19.399 of trade, other decisions that China has made over the 0:23:19.480 --> 0:23:24.440 last two or three years are creating more complexity there. 0:23:24.480 --> 0:23:27.880 You know, they've got other things going on us as well. 0:23:27.880 --> 0:23:31.320 They put pressure on them. Uh. That that that they're 0:23:31.400 --> 0:23:34.520 coming and saying, let's let's see if we can do something, 0:23:35.119 --> 0:23:38.840 uh is sensible. Uh It You can't get caught up 0:23:38.880 --> 0:23:44.080 in two people or any administration, because if we don't 0:23:44.080 --> 0:23:49.160 solve this problem. The attitude of the Democrats towards China 0:23:49.280 --> 0:23:54.720 is is, if not identical uh to to the current administration, 0:23:55.080 --> 0:24:00.480 it's pretty close. So I think China recognizes that, you know, 0:24:00.560 --> 0:24:04.960 this is a structural issue. It's not a one US president. Uh. 0:24:05.560 --> 0:24:10.000 And so getting something to lower the temperature and helping 0:24:10.040 --> 0:24:13.800 growth globally is in everybody's interest. Will you keep going 0:24:13.800 --> 0:24:16.320 back on behalf of the administration? Well, I keep going 0:24:16.359 --> 0:24:19.840 back generally, Jason, because I have a you know, sort 0:24:19.880 --> 0:24:22.919 of an academic program called the Schwortzman scholars which is 0:24:22.960 --> 0:24:25.800 like the roads, and I go for that, and I 0:24:25.840 --> 0:24:30.840 have some business stuff and and you know, the trade stuff, 0:24:31.600 --> 0:24:35.919 you know, sort of continue. So I always have a 0:24:35.920 --> 0:24:39.280 pretty full plate when I when I go to China. 0:24:39.400 --> 0:24:41.320 When your country calls, you say in the book, and 0:24:41.359 --> 0:24:44.960 I was curious what that program, the Shortsman Scholars program. 0:24:45.000 --> 0:24:47.520 By working so much knowing the United States, working so 0:24:47.600 --> 0:24:50.720 much in China, getting to know their society, their culture, 0:24:51.040 --> 0:24:54.119 their leaders, what that has taught you and maybe something 0:24:54.119 --> 0:24:56.640 that I feel, especially as the US China negotiations go on, 0:24:57.040 --> 0:25:00.280 something that maybe people aren't aware of. Well, I think 0:25:01.720 --> 0:25:07.719 I conceptualized this in UH because I could feel, you know, 0:25:07.760 --> 0:25:12.160