Hello everyone, good afternoon. My name is Eugene Seadas, I'm the dean of the Lam Family College of Business. Thank you for being here. I wanted to take a minute to do some housekeeping. First, I want to thank my colleagues Larry, Janet Remolona, Paul Ganting, and Jeff O'Toole for helping us put this event together. And we have some special guests, Mary and Gazal, both from our college's advisory council. Jeff Jain, VP of development, is here, and many of my faculty colleagues are here as well. So thank you all for being here. The two quick housekeeping notes are, you know, we have a TikTok competition going on. We've got seven entries with 22,000 views already. Come on, show us your talents, you know, and December 5th is the deadline. Thank you for that. So now on a more, for the topic of the day, we are here, we're thankful to Chris Larsen and Lenny Mendonca for joining us in this fireside chat. And the topic is public policy and corporate strategy in the age of artificial intelligence and a changing world. Chris Larsen is an alum of SF State. He is the founder of E-Loan and Ripple, and he is our benefactor. The reason we have a lot of things for you through the initiatives, Bloomberg Terminals and others, is because of his generosity. The Lam Family College is named after his father-in-law. So thank you, Chris. Thank you. So Chris is a role model for you because what it shows is that anything is possible once you walk through these halls, okay? And we have Lenny Mendonca who's our guest today. Lenny is also a quasi-Gator, his daughter Ali went to school here. So, yes. So Lenny did his undergraduate degree at Harvard University and his MBA from Stanford University. He's a senior partner emeritus at McKinsey where he has been an advisor to many CEOs. He was on the board of McKinsey as well. He also served as chief economic advisor to Governor Gavin Newsom and was the chair of the California High-Speed Rail Authority. He sits on a lot of different boards, including at very many universities, including UC Merced, and he was vice chair at Stanford GSB as well. So in Lenny, we have somebody who's very well-versed in the business world and with public policy. So we look forward to a very fascinating conversation. And at the end, there'll be time for questions, and also when you exit, there'll also be lunch for you after this event is over. Thank you very much.
Thank you, Eugene. I really appreciate it. And thanks everybody for being here today. And most importantly, thank you, Lenny, for being with us. And thanks for being a proud parent of a Gator. We appreciate that. So I think the topic here was a lot about AI and how that's going to impact society and business. But your background is incredible, so I think there's a lot of areas we can talk about. And what I thought we'd do maybe first is, you know, you were really heading up economic development with the governor, traveling all around the state of California. So we'd love to talk about that first. Now I know you've been part of this initiative really to rise up all of the regions of California, that you can't really have a cohesive state unless we all prosper together. And that included some of the poorest areas of the state, which by the way is where you're from. You're from Turlock, California. I think that's the poorest region in the state. So I'd just really be curious, you know, what can you tell us about that goal, and especially coming from a particularly poor area, and how you see that?
Sure, happy to. And thank you all for taking a little bit of your time on a beautiful day to sit in a closed classroom with us for a little bit of time. And also, I really want to thank you, Chris, for all that you do for the university and for the city and for our country. You are a role model of the kind of leadership that I think everyone should aspire to do. So thank you for all of what you do and for your ongoing support. It's really, really appreciated. Thank you. So I had worked with the governor since he was mayor, actually, when he was in the Board of Supervisors. And I, among other things, wrote his economic development plan when he was lieutenant governor. And so one of the things that we talked a lot about was California, even though it's the fifth largest economy, is made up of a number of very different regions with completely different economies. So where we're sitting right now, if it were an independent state, would be the richest state in the country. Where I grew up, 100 miles away in Turlock in the Central Valley, would be the poorest state in the country. And they're only 100 miles apart, not quite, but almost commuting distance. And how can that be? And what do we do about it? And so when I agreed to join him, one of the things that we said as a priority was to really think about regional economic development differently. So together with Kate Gordon, who was the head of the Office of Planning and Research, now the CEO of California Forward, we started something called Regions Rise Together, which was a listening tour to what now are the 13 defined regions across the state, to listen to them, not tell. It was literally a listening tour to understand what were they concerned about, and if they had the opportunity, what would they do to promote their economy. And so that eventually became something now that's called California Jobs First. It's about region-led, from the bottom, prioritization of things that create high-quality jobs that are improving the economic mobility of the citizens in the region, and done in a way that embeds sustainability and understanding of climate from the beginning. And so there was a large amount of money, several hundred million dollars, set aside in the beginning of that. So the first round of planning grants have gone out. The governor was in Fresno last two weeks ago and Bakersfield last week talking about what their plans were. And it's really interesting and very different. In Turlock, Stanislaus County, northern part of San Joaquin Valley, where there's a great CSU there as well, Stanislaus State, a lot of what they're interested in is moving beyond agriculture into a different kind of economy, particularly one that has regeneration as part of its outlook. So as an example, and you'll appreciate this, there's an enormous amount of agricultural waste from almond hulls and walnut hulls to grapevines that get torn out of trees. What do you do with that? Well, historically, it was you burn them. That's not a great idea. There's a lot of opportunity for thinking about how that can create energy, how it can do other things. And so that's a part of what they're doing.
Well, I'm glad you brought that up. Maybe we can go down that rabbit hole a little bit. So I spent most of my time on climate change, and about four years ago, we decided, through philanthropy, we invested about 35 million into a new technology which basically would turn solid municipal waste or agricultural waste, almond waste, into green hydrogen. And we're super excited about it. This is going to be great. Four years into it, nothing's built. The company that was behind it, this last week, is in the process of declaring bankruptcy. And you know what we learned from that is just so frustrating to try to build in California. If we had built it in Arkansas, it'd have been done three and a half years ago, or in Nevada. And I kind of wonder, this is what some people say, that California is ungovernable. And I'd love to ask you, is it because we have these different economies? Like from a climate person, high gas prices sound like a really good thing, like encourage you to buy EVs. But isn't it one of the reasons why the Central Valley, you had a lot of people voting for Trump on this because of that? That's right, to their bottom line. So I wonder if you could speak to that. And throwing one more thing in the mix on climate, sorry to go on here, but you know, sometimes California we brag about how we're great on climate, yet Texas now has two and a half times more solar than California. Yeah, really frustrating. So I wonder, first on the green hydrogen, this is the challenge of being an entrepreneur versus trying to scale things. You know, you're right, it's a great opportunity, and California has too many barriers in enabling those things to scale. And so part of what the effort is to figure out collectively what are those priority opportunities that come from not top-down but from the regions up, about what are industries and sectors that they think have economic opportunity. How does a state invest in them and collectively get things out of the way to help them scale? It's not there yet, but that shouldn't happen in that way. There is, if you look at the scale of waste, and we haven't talked yet about all of the waste coming from forests that need to be removed, it should be in California. It's not a great idea to have that stuff transported someplace else. It should just be produced there, create jobs there, and produce new kinds of energy or other materials, building products, other things. And so that's part of what this is intended to do, with surface less things, get them out of the way. California is big and complicated. That creates challenges, it also creates scale. There's no one else that could have, Tesla would not have been successful if it hadn't started in California. Right. Wouldn't have been successful because we had a regulatory environment that encouraged and subsidized electric vehicles. We had an infrastructure investment behind that. We had a scale of the economy and actually had several billion dollars of direct subsidies to Elon to help make that company successful. But he's very grateful about that every day, every day, especially now. And you know, at the same time, in my office, I had more calls from his companies than almost any other company complaining about something. And both of those things can be true. You can be supportive and scale and have opportunity, and there can also be things that get in the way. So we finally went to visit the plant and said, okay, I'm tired of you just saying California's making it too hard to do business. Let's talk specifically about what the issue is. And the issue, it turns out, was a building permit in the county that they needed to be able to expand their operations. I'm like, well, if you'd have told me that, I might have been able to do something about that, as opposed to generalized senses of it. It's not very helpful. So that's what you're trying to do, is get to the specifics that can enable.
Do you think that is just sort of bureaucracy that people don't realize it's in the way, or is this actually a nasty political fight that we haven't had yet? No, I don't think there are some things that are political fights that are not going to change. So California is not going to back off on its climate objectives. They're not going to back off on a view that we're going to have labor standards that are high. We're not going to back off on general environmental requirements. But what we can do is make that not be at the sake of speed or the sake of opportunity. So if you are a carbon-intensive, low-margin, high-labor-input company, California may not be the best place for you to grow. But if you are not those, we ought to be accelerating and investing in those. So it's one of the reasons that California has been so successful, is investing in entrepreneurs who are creating new things that are often, not always, but often much more higher value-added per employee and lower energy intensity, lower carbon, and create new opportunities. And then scale.
Should we be okay then with an Elon starting here but then going to Texas to scale? And he's not the only one, right? There's a lot of carbon dioxide removal companies doing the same thing. Start here in the Bay Area, they move to Louisiana where they can scale, you know, at big cost or low cost. So it depends what part of the production system we're talking about. If you had to ask me what would I rather have, I'd rather have the early stage, and California succeeds and excels at that and continues. Including the bulk of venture capital invested in AI is within a baseball throw's distance from here for a reason. Yeah. And it's going to save our budget, right? Well, Nvidia's capital gains. No, exactly. Nvidia now has a market cap larger than the entire German stock market, which is just astounding. So yes, I want that early stage. I also want some of the scaling opportunities, and that includes particularly things that are consistent with those objectives I said. If it's something, there's a reason why the battery operations for Tesla are in Nevada. It's not just because of California's regulations, it's because it's closer to where the minerals are. And so, and there's a surplus of low-cost labor that's right there. So those things are, that's the way the economy should work. It's also close to Burning Man, so important too. But okay, well maybe we can switch gears a little bit. Because I know what you're working on here is fundamentally about income equality, right? And kind of ending some of the inequities that we have. But a lot of people are kind of pointing to the fundamental education system as really the root of the problem. We talked earlier about this article that just came out, David Brooks wrote, it's called 'How the Ivy League Broke America.' Now one thing I've learned is when you're at SF State, always a good idea to throw shade on the Ivy League. So, but the points that he's making is that our meritocracy is not working, and that we have a system of education that overrates intelligence, and that success in school is not the same as success in life, and that basically the game is rigged towards the wealthy and has created a caste system in America. And that's provoked an intense political backlash and probably damaged the psyche of a lot of the American elites as well, right? So I think some of the ideas he threw out there are, you know, value non-cognitive traits like curiosity, drive, social intelligence, agility. One of you can comment about that, and you know, where did we go wrong there, and what do we have to tear it all apart now and start over?
So I love David Brooks. We've served on a board together. He's a friend. I love his writing. He's a great writer in addition to being very provocative. The article in the online version has 'Why the Ivy League Broke America,' which goes to tell you what kind of reader they're trying to attract and the lens they're putting on it. So the broad-based statements about lack of economic mobility in the United States is because of an economic caste system driven by the Ivies and a few other institutions, including two of my alma maters, is way overstated. It actually turns out that higher education, particularly institutions like San Francisco State, are the most important driver of economic mobility in the United States. The return to families who send their students to cost-effective universities, graduate, do not take out undue debt, and get jobs is extraordinarily high. And what happens is there's way too much attention, it's particularly true on the elite media like The Atlantic, I'm a subscriber and love it, but all their journalists went to Yale and Harvard, and that's what they think university is. UC Berkeley has more first-generation students than the entire Ivy League. So we have this focus on a small number of institutions and say that's higher ed. That's not higher ed. It's always been elitist in different ways. It only recently in the history of things has become more open, but it's still an elite institution. And I don't mean elite in terms of, oh, everyone should aspire to, I mean in terms of what they do. So the real focus on higher education ought to be on broad-access public institutions. If you take a look, and forget U.S. News and World Report's ranking of universities because they are driven by scarcity and cost, not value. If you look at the return to students and their families, Washington Monthly does a great review of these every year. Of the top 10 institutions in the country, eight of those were California State Universities, including San Francisco State. It's because of what I just said. It costs less, people graduate, they get jobs, they don't take out undue debt, and it works. Just like you, I spent $100 a semester when I was here. So guys, got to bring that back. Okay. So anyway, I think there's things that he says about overemphasis in some venues on traditional definitions of IQ, other things like that, and not talking about other elements of leadership and grit and determination and skill. I 100% agree with that. But I wouldn't take it as a critique of higher education more broadly.
That's really interesting. There's some notion also that we need sort of more apprenticeships, right? And I think that's tying into another crisis that seems to be emerging and played out in this election too, the crisis with young men. That you have now a 20% spread between college attendance between men and women, and that number is going south really fast. It might be 70/30 here before too long, and the graduation rates are even more different, right? What do you make of that? I mean, that feels like a crisis, right?
Well, first, I'd start with as a celebration of the inherent quality of women. So that's just a statement of the quality of inputs that women are graduating, going to college and graduating more, getting better jobs because they're more capable. That was a joke. I'm serious. Okay. It is partly a statement of, because I had a follow-up question going down that, it is partly a statement of this country's ability to create opportunities for a large portion of the population, which is not always true everywhere else in the world. So that is good. The negative part about it is, and our institutions generally are not very good about giving credit for what you know versus credit for how much you sit in a classroom. And the movement towards more competency-based education, the movement towards more ability to integrate learning on the job with learning in your classroom is a really good idea. You know, there are, and I think in the, not to get too far down this line now, but in a world in which work and jobs are going to change much more rapidly than in the past, the idea that you did all your learning in your 20s and you earned for the rest of your life and never had to learn again is just not the way the world's going to work. And so an iteration of work, learn, work, learn continuously through your life is more the way I think the world's going to be. And that's not the way most of our institutions are set up or designed today. And so that's part of what's got to change. So that's learning how to learn first and foremost.
But is it also then chopping up degrees into what, three-month increments? Three months, go work, back three months?
It could be. I think it's more flexibility in that that works for what you're trying to do. So the, I sit on the board of Western Governors University, which is the largest university in the country, has 180,000 students, and largest producer of teachers and nurses in the country. They do this in a way that you have to complete your degree, but they give you credit for what you know based on what you demonstrate. They also bought, or merged with, Craft, an apprenticeship institution, particularly good at K-12 teachers, that gives people opportunities to get academic credit for work experience. And to, depending on what you're looking to do, that may mean three months, or it may mean you take a year, you take three years, you take four years. And then, you know, Singapore has lifelong learning credits that you can take later in your life to go back to school. It's like, you know, student loans, except it's a credit that you can use anytime in your life. I think that's a very good idea.
That's a very customized kind of education, probably helped by AI too, then, right? Yeah, absolutely. Maybe switching gears a little bit. So we talk about philanthropy. You're on the board of the largest donor-advised fund, that's Fidelity Charitable Trust. You're actually the chair. I wonder if you can talk about what you've learned there. What would you say about Americans being generous? What do we do? We have to do much more of that?
So I have been proud to serve on that board. It's not only the largest donor-advised fund platform in the country, it's the largest granter of philanthropy in the country. We don't make the decisions, the donors make the decisions. And what they have done is helped make philanthropy easy, cheaper, and more impactful. And that's the mission. And so the easy and cheap part is, I literally did all of my Giving Tuesday donations on my iPhone through Fidelity Charitable, and it gives me an annual accounting, and it's really easy. But in addition, I want to help people ensure that they're giving as high-impact as possible. And there's a lot more work to be done there. So ensuring that there's better understanding of what are the needs, what are the outcomes that those are being delivered, how do you know that. There's a lot of great institutions that people just don't know about. How do you create more visibility around those, I think is an important opportunity. And then last thing, Americans are charitable. Part of that is the tax code in the United States is different than some other places. But in the last economic cycle, where two years ago we had bad market outcomes across the board, as you know, charitable giving went up, not down. What happens is people understand the needs and they give through that cycle. And now, you're like this year where all the markets are up, contributions into donor-advised funds will be up dramatically, and grants will be up. But what we're really looking at is how do you get more granting for impact.
That is a criticism of DAFs, right? The donor-advised funds, right? That money goes in, you get a tax deduction, but it's slow to go out. Should we be changing the rules there to force more of it out?
The reality is that the average distribution from national donor-advised funds is four or five times what a foundation is. So 20 to 25% a year goes out. So if what you want to do is say you have to act like a foundation, that's going to become a floor, not a ceiling. Okay. So I mean a ceiling, not a floor. What you want to do is encourage people to give, and you want to encourage them to give when they can and get it out as fast as possible. And that's what the institutions are designed to do.
Has it taken crypto in that fund? Yes. Okay. Very good. Yes. And the largest donations of crypto ever. Good, good, glad to hear that. Well, let's talk about, not all, okay, they have to be liquid. Very good. Let's talk about your board service record, right? I mean, it's been prolific, right? How many boards have you been on?
I've lost count, but probably 15 to 20.
That's incredible. I mean, that's a lot of hard work. I wonder if maybe you could talk about what that's meant to you. Should other people be doing more of that and serving? And how do they get started doing that?
So I'm a big fan of board service. I think they play a really important role in governance, nonprofit and for-profit companies, public and private. Well-governed companies perform better. Well-governed nonprofits deliver better impact. That's not just fiduciary side, it's all of the things that go with helping executives be good at what they do and hold them accountable for it. And so, you know, I got involved on boards early in my career, all nonprofit, because when you're at McKinsey you can't serve on for-profit boards. And I learned a lot in that. It's where I met Mary Huss at the Bay Area Council. And it's an opportunity to contribute back and learn how to think in an integrated way at the most senior levels, and how to know the difference between what a board member does and what an executive team does. I mean, one of the reasons why I like being a board member is you don't have executive responsibility. I don't have to meet the payroll every month. My job is to help ensure that the institution's succeeding and for the long term. And so I think it's really valuable. I think it's great to do as you have more experience in your career. I also, when I was advising executives who are on their path to being a very senior executive or CEO, I encouraged and helped many of them get on another board. It makes you a better CEO if you sat in a board seat because you know what they're looking at as an executive, and you just have a different setting where you are operating in a different way and understanding what the role of a chief executive is.
And how much time do you allocate for each board seat? What's a fair number to really?
It really varies. I'm mostly doing nonprofit boards. They usually meet three or four times a year in person, plus committee meetings. It's all great until there's either a financial challenge or a CEO vacancy. And I probably served on the search committee for eight CEOs. That's a big-time commitment. And it's probably the most important thing that boards do, and you have to do it right. And when that happens, I clear my calendar and it's like, we're going to do interviews and we're going to get the best person possible. Short of that, most boards are designed to be something that you can do with, you know, 10 days a year, right?
Let's switch to your experience as a small business owner, and then we're going to get to some AI stuff, I promise. So you are both a small business owner, you have been for 25 years, really cool company. But you've also been, you know, with the largest consulting firm in the world, working with the biggest companies in the world. What is it that big businesses need to know about small businesses in America?
So I was at McKinsey for 30 years. I retired 10 years ago, but 15 years into that time, halfway through, I started Half Moon Bay Brewing Company, which is now coming up on our 25th anniversary. I was a better advisor to larger companies having been a small business owner. Understanding what it's like to work with frontline employees, what it's like to deal with government at the basic level, like permits, having to understand about how you interact with the community. And to me, it really reinforced the value of being a responsible citizen as a business person in a way that you appreciate at the senior level of big companies, but you really appreciate when you're a small business owner. We are among the top five taxpayers, employers, charitable contributors on the coast. And as a result, you have a responsibility of being a responsible member of the coast. And so you see that in a very important way. So I think, in addition, every big business relies on small business either as a customer or a supplier. And so understanding how you work in that ecosystem and not being a big bully is important too.
That's great. Okay, why don't we switch then to AI. We'll start with public policy, since you've been kind of so embedded with the State of California, and there's been a lot going on in California on this, obviously on all sides. But what role do you think our government, state government, national government, needs to play in addressing potential bias and inequality in the way AI is going to be rolled out? Because that's going to happen, right?
So let me start with some first principles about how I think about AI. It is a broad, general-purpose technology that's going to be transformative to the country and the world in ways that have not had many precedents in terms of its breadth and reach. Therefore, it's really important to do it right. That doesn't mean the answer is we need to regulate it and narrowly confine it so it can only operate in a way that is precisely defined in advance. That's not the way technology happens. And I also believe that it is so fast-moving and so complicated to really understand the details of that, waiting for Washington to do it and figure it out is likely to cause more harm than good. So that's partly why you'll see some regulation comes from the state of California, because we're a big country, we have better technological understanding, most of the early-stage companies are here, they have very active presence in Sacramento, so it's not going to be done to them, done with them. So I think you will continue to see some legislation and executive action that's related. I think the president's executive order on AI was a very thoughtful one, and it wasn't heavy-handed. It had a lot of input from experts in a way that both created some guardrails and expectations, but also encouraged the government to use AI. Let me ask you a question. How many of you in this room use ChatGPT or some other AI tools as part of your work or school? Okay. So, and those that don't have your hands, you will next year. So this is part of what's going on, as you know, it's ubiquitous already. And so I am not one of those believers that says either Hollywood, who likes to write about Terminator, or Scarlett Johansson's voice being stolen, or journalists who are writing about it because they think their jobs are going to be threatened, are the best indicator of what's actually going on. So my general view is government needs to have a role as guardrails, but it's as important as the government needs to learn and try some of these things in sandboxes that are protected, so that they're not farther and farther behind where the leading edge is, including all of our next generation of leaders.
And the good news is those Biden rules are going to continue on, no problem, right? Yeah, no, no one's going to get in the way of that.
Well, I actually think that most of the things they said, if not all of them, are not things that the Trump administration's going to have concerns with, because they're just basic, they're not regulations, they're principles, and they're not laws. And Elon actually was a supporter of kind of slowing things down. Yes. There actually was a bill that the governor just vetoed on AI, was Scott Wiener's bill. He's, I think, one of the most thoughtful political leaders in the country. Fierce resistance from Big Tech, lots of pressure. Was that political that it was vetoed, or was it a flawed bill? Flawed. So I'm speaking on my own behalf because I wasn't in administration when this was going on, I left four years ago, three years ago. I don't think it was political. I think the governor has to balance a whole set of things. And he has a rich and deep understanding from personal experience as well as ongoing network with the value of technology. And he also cares about all the things that Scott, who is a very thoughtful guy as well, wanted to have happen. And so it's, you know, back and forth of what happens between the legislature and the governor. It's also true that there are a lot of legislators, particularly Democratic legislators, which is a supermajority in the state, are happy to say some things, this is not Scott, I'm not talking about Scott, he was thoughtful about this, but others who would say, I'm all for regulation and doing this, doing this, knowing that the governor is going to veto it. And so it gives you a lot more latitude to be saying things than what you really want. But it also goes to the complexity of doing this right. You want to make sure that it is creating guardrails so that you don't have the downsides, but encouraging innovation. We want this to continue to be the home of innovation, and particularly application of this technology in a broad array of sectors. And so you got to get that right. And I thought that bill was, I was not surprised it got vetoed. Well, not surprised it got passed in the legislature.
Let's switch to privacy and AI. So obviously every AI model wants to suck up every piece of data it can get its hands on, not just online data, but I mean it could be just the signal from your cell phone, it could be public cameras, I mean everything, right? So how do you address that? How do we maintain some semblance of privacy? We've lost a lot already with this world we're going into.
Yeah. So first of all, if you think it's bad here, see what it's like in China, right? So that's the nightmare. You do have to have guardrails around what is personal and private information, as well as if it's information that is protected within a corporate environment, don't make it all available to someone else to use. And if it's not for fair use, compensate for it. So one of the things that's a real question, and there were bills in the legislature this past term around AI's usage, not just AI but broader tech usage of information from publishers that they then sold advertising off and never compensated the publishers. So it's not a narrow privacy thing, but it's an intellectual property rights thing that still have to be worked out in this world. I do think this, by the way, is a different question when you're talking about some of the most interesting application opportunities for AI. The broad-based models that the early winners are using are sucking up tons of information, using tons of energy, by the way, to produce general-purpose technology. A lot of the most interesting things are going to be specific to institutions, to sectors, or to functions. So as an example, I am really excited about the possibility of AI in human learning, and that is particularly an interesting opportunity for higher education. If more and more of your interaction is a combination of someone's telling you something but you're operating on a computer and doing things, it's completely possible to not just have high-stakes end-of-course exams, but have the formative learning along the way that AI can help enable, that to help you be a better writer, a better learner, and let teachers do what they want to do as opposed to grading papers and trying to give feedback that never happens. So I'm intrigued by that. But to have that work, that's got to be institution or education-specific learning. And that is interesting to me.
So our College of Education needs to be taking notes on this, right? This is like really important, right? Because that's fundamentally changed the way things work. If you haven't played around with Khan Academy, you should play around with it. It, in addition to having the ability to be a personalized tutor that otherwise would have had to been extremely expensive, it also gets a whole set of learning that if you view that as how do I enable a teacher to do a better job at what they do, it's really, really interesting. Because people don't learn the same way, they don't learn at the same pace. And it also, you know, this is not turned on in the application but it's there, it can also be early indications of challenges that people are having, including mental health challenges. You can, by the way, someone interacts with their work, have some early indicators, are there stressors or things that we should intervene on? And that'd be very, very helpful if done properly. It's not helpful if that information's sold to somebody to go sell something else to you. But as a private matter, to say we're going to have early warnings and help people who are having challenges. Most people drop out of school not because of academics, they drop out because of life. To the extent we can help people with life in addition to their academics, all the better. And I do want to come back to the mental health question in a moment. Really quickly though, what do you think of Marc Andreessen's AI manifesto? Have you read that?
No, I haven't read the detail.
Okay, oh, we're not going to get into that then. Okay. Tip for everybody watching though, unless you live in a snow cave in Montana, don't use the word manifesto. Always a good tip. All right, why don't we switch to corporate strategy in AI. So what industries do you think are going to be changed the most? You talked about education, but what else do you see out there that's, you know, from your McKinsey background?
Sure. So as I said in the beginning, I think it is a broad application technology. It's like saying how's the internet going to affect businesses. So it will affect every business. It's actually going to affect functions more than businesses, and it's going to impact everybody's job. So I don't think of AI as being one that's going to destroy this industry. It's not like, you know, Facebook and Google changed the advertising industry because of their technology that just decimated a large portion of print media. It's not the same thing. It's going to affect 25% of everybody's job, which is good news and bad news. The good news is it's not going to wipe out large swathes of jobs or sectors. What it is going to do is require that everybody understands it, learns it, and gets better at what they do as a result of it. So I think what's more likely to happen is functions within jobs are going to change. You're already seeing some of it. So we may not see as much need for court stenographers, or paralegals, or entry-level data analysts, or first-draft graphic designers, or people who do the first cut of an advertising pitch, because that can be generated much more efficiently and effectively that way. But that means that if you're a lawyer, you can do high-value-added work, not just be doing paralegal research on what other cases have happened.
And I agree with you. I don't think it's wiping out jobs. I think we've seen technology in the past where you thought that was going to happen and actually jobs are booming, right? So good news for everybody here, I think.
I think 100%. Furthermore, we don't like to think about this, but we actually are in a demographic moment in this country and in the world where, especially with advances in medicine that will partly be AI-enabled, we're going to have people living longer. We're going to need more productivity so that people can have more output with fewer workers. And so we need it. And done properly, it really will enable people to do what they really like to do. How many teachers do you know that actually love writing exams, grading them, reading 100 papers and trying to give feedback to people? They don't do it because it's not as much fun as actually interacting with students and enabling them to learn and be better.
I have this argument with my journalist friends. I also own a newspaper, which is a crappy business, by the way, Half Moon Bay. I own it as a public service, not as an investment. But all my journalist friends, I tell them, if you're not using AI and ChatGPT before you sit down and write something, you're crazy. The hardest thing to do is sit at a blank screen and write something. And you really don't actually like doing all that background research and seeing everything else that's written on it. It'll take you 15 seconds to ask ChatGPT that question and give you a thousand words. Do that before you sit down and start writing something, and don't be afraid of it. They're not doing primary research, they're not interviewing people, they're not creating broad-based trends and insights out of it. Use it. Do you think that AI, you look at it like a tool, or are we going to have relationships with AIs? And should we have relationships with them, or is that going to create other mental health problems?
So I think it's not going to substitute for human interaction. It can complement it in a way that's really valuable. So I don't want to go all the way down the mental health pain just yet, but customer service interactions, which are partly human and partly automated, can be much better with AI. I don't know about you, but I don't like actually having to press 37 buttons when I want to talk to somebody, and I have to go through all those, or I have to prove who I am every time when I'm on the phone. There is completely knowable technology today to be able, when I call, they know who I am, my voice is recognized, they know my patterns, and they can get right to the question. So that's AI helping enabling a human, it's not replacing it.
Yeah, makes sense. Maybe just some quick comments on AI, its impact on things like international relations. There's a lot of people trying to use AI for climate change, and I'm skeptical on that, but what are your thoughts on things like that?
So I am sensitive to, but not as worried about, the impact of AI on U.S. military and international concerns. We have the largest budget by far, and if we're going to have a place where there's going to be money spent to figure out what it means, it's going to be there. It doesn't mean they don't need to be paying attention to it, and they are. I do think it's going to have an issue as it relates to supply chains, movements of activity that will have international implications. I do think it can be utilized in some areas in climate change. So as a very simple example, when I was in the governor's office just five years ago, we had a budget request to, or potential budget request, to put monitors in fire-sensitive forests. They were $50,000 a monitor because they had everything in the monitor. Now that's basically, you can put a cell phone any place, anywhere, get better data connected to the internet, and have early warning systems, which is part of why forest fires haven't been as destructive. So that's a good application of early sensing on things.
That's great. Okay, maybe we can switch gears there. Why don't we talk about mental health? Sure. Because I thought you did something very heroic. This was right after COVID, and you were working, I think, with the governor's office, and you actually announced publicly that you were having a mental health crisis and you needed help. And the way you described it was, this should be no different than a broken arm, right? It's just another organ, our brains. But there is a stigma there, and I think you were trying to relate that there shouldn't be a stigma there. And now I think, what is it, one in three Americans really have mental health issues, which is staggering. I wonder if you can comment on that experience, what you've learned, and why do we have such a high rate now? What's changed?
Sure. So on my personal circumstance, I didn't come out in the beginning and say this is what happened to me. I had had gradually deteriorating concerns and issues with anxiety and depression. And what happened was my family and friends intervened and said, you're either going to voluntarily admit yourself or we're going to involuntarily admit you to the hospital. And they did that. And so I told the governor and chief of staff, they sent out a note on Friday that said I had resigned to spend more time with my family. And I didn't tell anybody at the time because I wasn't in any position to be able to explain what was going on. After treatment, which I got completely healthy again, I decided to write something at the encouragement of my daughters and my wife to say what had happened. And I've written several hundred opinion pieces in my life, that piece got more response than anything else I've ever written by an order of magnitude. And it shocked me, honestly, because to me it was mostly two simple practical things. Personal catharsis, so that I could write what actually happened. And secondly, I didn't want to have to tell that same story 500 times. So someone, I just say, read this, there's what happened. Then the reaction was, what you said, it's like really courageous, etc. I'm like, it's not courageous. I broke my leg on a bike accident, for six months I walked around with a cast. Anybody who saw me said, what happened to your leg? Well, you're going to tell them I broke it on a bike. Six months after you have a mental health challenge, people can't see it. And so people end up hiding it and not talking about it. And so to me, the most important thing that I wanted to do was help start a broader destigmatization of the issue. When one in three people, which I think is probably an understatement in today's world, particularly post-COVID, have challenges with mental health, that means everyone is. You are, someone in your family, a very close friend is. And we should acknowledge it, talk about it, and address it, get help, make sure we have the medical system capacity to deal with it. So that's what happened to me.
And so I do want to ask a specific question about psychedelics, because there's a lot of new research, which we're backing, saying that psychedelics might be a medicine that allows your brain to be rewired and different than...
SSRIs, which is a big industry. Any thoughts on that? I know psychs were very big at McKinsey.
Right. So the short version of it is I think mental health is too much of a black box puzzle today and we do need more research in what works. If you've had any mental health challenges, most of the drug is kind of trial and error, which is not actually the most helpful way to figure out how to help you. And to the extent there are things that work and work for individual circumstances, I'm all for that. And so I think we need a lot more experimentation. One of the things that happens after I wrote that article, I think everyone who was thinking about doing a mental health startup called me and said, 'Do you want to invest in my mental health startup?' Half of those were psychedelic related and I said, 'I don't know anything about this and I'm not going to do it.' Not because I don't think it's valuable, I don't have any basis to have an opinion. So I ended up doing more on the trying to help solve the shortage of therapists end of the challenge, but I think it's an important potential intervention that could help.
Well, the shortage of therapists is a huge problem because actually even psychedelics really aren't all that helpful unless you have a therapist with you. They should really go hand in hand. But what do we do about that?
So the first thing we don't do is say you have a therapist because someone is available to see you in six weeks. That's not helpful. You know, if you broke your leg, you don't say, 'Well, someone can get you under surgery in six weeks.' That's just not helpful. And so we need... it's a capacity problem. And it's also a capacity problem of trying to have early and lower cost interventions so that you can get people before they proceed to much more severe. So among other things, there are ways to just like every other intervention that creates more lower cost involvement with people earlier, potentially remotely, can help with that problem. We need a lot more people going into the field. We need to have mental health parity in actuality as opposed to in theory in health plans. We need to actually ensure that there are follow-up and care coordination to make sure that it's not just an isolated incident that is not then treated. The thing I'm most interested in is trying to increase the supply particularly of lower cost earlier intervention. So as an example, there are many parts of the country where there's no one close to where you are and if you have a particular set of challenges you probably want to talk to someone who knows something about that. It doesn't matter whether they're physically proximate. In fact, in some cases you may not want to talk to somebody who's physically proximate. So creating a virtual system that enables people to very quickly get response is part of the answer. And then there's things like one of the nonprofits that I just donated to this week was the Crisis Text Line. So trying to have other methods when people are real severe get immediate help on those types of responses as they're needed.
And you think AI has a role there too? That you almost create an artificial therapist or is that just pushing it too far?
I don't think it's going to substitute for quality diagnosis and communication. It can help enable and create early warning systems. So a lot of treatment protocols have journaling requirements or other ways to understand what's going on in your life. If there's a way to do that that's less burden on the subject and is more automated, I think that's valuable. I think it's also possible that you can do assessments like we're talking about earlier on the... if you know someone's having an issue early even if they have not chosen to reveal it and you have a thoughtful and helpful question or intervention, I think that could be helpful too. Early warning system.
Yeah. Eugene, how are we doing on time by the way?
Doing good. 10 minutes.
Okay great. Why don't we go to a different area, kind of again related to inequality, kind of institutional fairness. So the New York Times recently had an article was about the University of Michigan which I guess has one of the largest DEI programs in the country where they spent like $250 million, 250 staff members working on it. But New York Times is very critical because they're saying all that money spent, all that staff and the end result was effectively, for example, no change in the percentage of black students and more students feeling less included. And of course now this has been fodder for the political season we just went through and it benefited the other side. So what went wrong there and what do we have to do on that front? Because it seems like the objective is right, something went off on the tactics.
So, say from the beginning, I don't know anything about what happened at University of Michigan so it'd be malpractice for me to comment on the specifics. But I think a couple of things. The underlying aspiration that our higher education institutions are open, accessible, and people can be successful in that institution and graduate in a reasonable time frame is absolutely fundamental and particularly more important to students from historically disadvantaged backgrounds, first generation, others who don't have that full support system historically around them. And so that as an aspiration needs to be there and should be there and there's a lot of work to be done because we're not really as good at it as we need to be. But I will ask you, if you went to the institutions that David Brooks was criticizing and asked them how much of the president of the university's evaluation is based on student outcomes, particularly student outcomes from disadvantaged institutions, I'll bet they will tell you almost zero. I don't know University of Michigan, but I bet that president spends a lot more time with donors to the football program than they do trying to understand the economic success and cost for students. If you want outcomes, you should measure those outcomes and evaluate and pay people on those outcomes. Much of our... and this is not true for San Francisco State, it's generally not true for most of our public institutions except for some of the big SEC football powerhouses, but they are not as focused on student outcomes as they need to be. And if you are serious about it, then let's pay attention to it and let's not do hand waving about DEI. Let's actually ensure that we're measuring things and seeing how it's working and if it's not working, do something about it.
Well, where does this backlash lead now? Because I think was it Walmart just announced they're scaling back and McKinsey obviously is probably consulting on many of these issues. So where do you go from here from a corporate point?
You know, these things go in waves. And so I think we're overinflating political activity with underlying needs and progress. And so what, as I said, what you really need to do is let's be clear on what we're talking about and ensure we're delivering against those objectives. And by the way, and I was one of the champions of this when I was at McKinsey as well, a lot of these things are actually really sensible and easy to explain business imperatives. It's like, would you like to have a successful workforce? Would you like to be someone who is representative to the customers that you're trying to serve? Those things require you to think about not having a workforce that's unrelated to that and ensuring that you're investing in things that have better worker outcomes, more retention, better advancement. All those things are good ideas and when you parse them and get down to the level of detail, you can make a difference on them.
