The United States of Sanctions
The Use and Abuse of Economic Coercion
Ruth Porat has taken an unusual path to the tech world. Before becoming the chief financial officer at Google in May 2015 (and then at Alphabet, Google’s new parent company, a few months later), she held the same post at Morgan Stanley, where among other roles she worked closely with the U.S. government to sort out the troubles at the insurance corporation AIG and the mortgage-financing agencies Fannie Mae and Freddie Mac during the 2008 financial crisis. On the shortlist to become deputy treasury secretary in 2013 (before she withdrew her name), Porat, who Politico once referred to as “the most powerful woman on Wall Street,” is now one of the most powerful women in Silicon Valley as well. Some six months into the new job, she met with Foreign Affairs’ managing editor, Jonathan Tepperman, in New York to discuss her move and the global economy.
Tell me about the transition from a Wall Street bank to the quintessential Silicon Valley tech firm. Conventional wisdom holds that banks are stodgier than companies like Google. Is that true, and what lessons can Wall Street learn from Silicon Valley?
The transition was easier than I would have expected. I stayed at Morgan Stanley for 27 years because it was fun. I kept learning. And during the 1990s, when I ran tech banking, I was working with great Internet companies right in that explosive period. So there were a lot of similarities.
It’s been invigorating being back on the West Coast, being at Alphabet, because there is so much innovation. And the big challenge is, how do you think about resource allocation and priorities when you have so many great options? But wearing jeans instead of suits and popping into driverless cars has also been a lot of fun.
But is there anything particular to the Google approach that the larger business community, whether it’s banking or bricks and mortar, could profit from?
A key framework that we talk about quite a bit, and that Larry [Page, Google’s co-founder and now Alphabet’s CEO] articulated many years ago, is what he calls “the 70-20-10 framework.” Seventy percent of our resources should be focused on our core business, 20 percent on adjacent emerging areas, and 10 percent should be moon shots. But as he also very quickly says, even when you articulate that kind of strategy, it’s still hard to get people to push out to the 20 and harder to get them to go out to the 10. But if you don’t do it, somebody else will.
Another thing he said years ago is that incrementalism in technology leads to irrelevance; what you need is revolutionary change. I think that view is true across all businesses. It’s easier to be in your comfort zone; it’s easier to do modest extensions. But you need to really force yourself.
And have you created an institutional structure for disruption within Google? Because this is something that big institutions struggle with all the time: people become set in their ways, become leery of contradicting the boss, and all that stifles innovation.
That’s a great way to frame why we made the move from Google to Alphabet. Structurally, we wanted to give ourselves the room to not only have that 70-20-10 be our mantra within Google—and it unequivocally is: within Google we’re pushing the envelope in a lot of areas, things like virtual reality, machine learning, the next billion users. But beyond that, we wanted the room to think about the 20s and the 10s in new areas, like life sciences or driverless cars. Structurally, this gives us the ability to focus on the various “other bet” entities, to be a catalyst and a magnet for great entrepreneurs, in a way that may have been more difficult under one umbrella.
One other great contrast between Silicon Valley and Wall Street is that the public tends to see tech firms as being beneficial to society, as creating things of use, whereas it tends to see Wall Street as being parasitic. Do you think that’s fair?
For many decades, the financial services industry wasn’t viewed that way. Then, after the financial crisis, banks were ranked only above Congress in public opinion surveys. There was clearly a lot of suffering. We needed to have a learning moment, where we stepped back and looked at the fundamental flaws that enabled the industry to go down a path that resulted in the crisis.
There were many elements to it: regulation, strategy, implementation. One thing that frustrated me when I was in the industry was that we did embrace regulatory change early, but not everyone did. And there was a lot of resistance, and that delay was destructive. And we’re still slowly coming out of it.
As of today, at least in the United States, there’s been a fundamental change in banks. There’s more capital, more liquidity, and the nature of activity has changed. [But] it will take some time to get to a position where people are more focused on how do you finance growth at the individual level, at the company level? Pendulums swing. I think we’re still in that slow swing, and I think the resistance to an appropriate response is one reason.
If, on the other hand, you think about the mission that we and many others in the tech world have, it’s really about making the user experience better every day. In their earliest days, Larry and Sergey [Brin, co-founder of Google] had something famously called “the toothbrush test.” They wanted us to focus on improving things that billions of people use at least twice a day to make their lives better. And that’s a lot of what we do. There is a difference. We’re delighting the user, and we’re seeing tremendous growth in the overall enterprise.
I’ll answer a slightly different way. I’m often asked, what’s been my biggest surprise since coming to Google, now Alphabet? And my answer is how early stage Google actually is. Given the scale of the organization today, that’s a pretty odd thing to say. But we’re riding some really important secular changes. Mobile is still in its infancy. As I said, one of our big strategies is getting the next billion users online. Look at YouTube and the importance of the shift in advertising going online. Virtual reality is in its early days; machine learning is in its early days. Look what we’re doing with the cloud and enterprise.
So what’s exciting for me is that we’re riding incredible tail winds. Of course you’d rather have a better macro backdrop, but it’s substantially less relevant. Many of the things we’re doing, in particular in the other bets, provide long-term growth opportunities, and the macro ups and downs are therefore much less relevant.
But isn’t the core of your revenue model still based on advertising? And is that not sensitive to a secular slowdown?
Advertising is. However, the reason I’m still defining it as a tail wind is that more and more advertisers are finding that you can target and measure more accurately by advertising online rather than offline. The migration to online advertising is still very much in its infancy.
One of the main reasons growth is thought to be slowing is that productivity is declining. Do tech firms like yours have the potential to help developed countries out of the productivity trap they seem to be in?
Research suggests that for every tech job created in a metro area, five additional jobs are also created. And when you look at how productive one can be in the workplace, the leverage you get from the tools we have operating in the cloud is pretty extraordinary.
You spoke about the multiplier effect, but a lot of people worry that technology, especially automation, is playing a negative role by reducing employment opportunities and causing wages to flatline.
It is easier to visualize the jobs that will be eliminated than it is to envision the new industries that will come out of innovation. But when, for example, you look at the medical field, new technologies created a whole new set of analytical roles that needed to be filled. In banking, the advent of ATMs created a new set of jobs in the financial services area.
What I’m concerned about is that at a macro level, it’s easy to say there’s a multiplier effect. But you have to make sure that the quality of work actually does go up at the individual level. Whether it’s at the company level or at a macro level, change is inevitable. It will happen. The question is, what do we do with the individuals who are caught in the middle? How do we offer job training so that they embrace it and end up also winning?
Another big input into productivity is new bodies: you need people entering the labor stream with the right skills. How worried are you about the growing antipathy toward immigration not just in the United States but throughout the developed world?
I am worried on two levels. It’s not just inconsistent with our values as a country—I wasn’t born here; my family came here [from the United Kingdom] because it was a land of opportunity—but it’s also economically unwise. Sixty percent of the top 25 tech companies were founded by first- or second-generation Americans. If you look at the Fortune 500, the figure is 40 percent. Immigration has been a catalyst for innovation in this country for as long as one can recall. So I think it is extremely shortsighted.
How can firms like yours help people who may not be lucky, gifted, or educated enough to really engage in the knowledge economy?
Start with the mission of Google from its earliest days: to organize the world’s information, make it as useful and applicable as possible. We give access to information in a really powerful way.
Or look at what we’re doing in schools. Our Chromebooks are highly affordable and easy to set up, so they provide teachers with a powerful tool. We then layer on things like what we’re doing in virtual reality, for example. We have something called Cardboard, which lets you slide your phone into a very inexpensive, little cardboard packaging and create a virtual reality tool. Through Google.org, we’re doing a lot on computer science training for kids, for women, for underrepresented groups generally.
Describe the analogous efforts you’re making internationally to bring more people into the digital flow.
We started something called Google for Entrepreneurs to help entrepreneurs in home markets understand how they can take ideas from inception to launch. We’re trying to leverage all that we’ve learned by serving as advisers, helpers, catalysts—however you want to define it.
The types of products we’re designing also differ in different markets. The emerging markets don’t have the bandwidth we do here, so we created what we call Android One, which is a slimmed-down version of the mobile operating system that’s affordable and works in a slower-bandwidth environment.
When you look around the globe today, do you see any bright spots?
Many. I think the most challenging aspect of my role has been resource prioritization, given how many exciting opportunities there are. On a product level, I haven’t even commented on what we’re doing in life sciences, for example. There our approach is to go from what we call “reactive medical care” to proactive care: to have continuous diagnostics leveraging off of the data-computing capacity that we have within Alphabet. So there are areas like that where we’re transforming industries.
Another example is driverless cars and what that means for reimagining what cities can be.
On a geographic level, I think the opportunity to help and work with so many emerging markets where people are still coming online is pretty extraordinary. And it’s not just about the devices. For example, we’re looking at ways to provide connectivity to parts of the world where it’s hard to implement the methods we have historically used in the developed world.
A recent analysis of the tech industry looked at the 15 biggest firms in the year 2000 and found that they’ve since lost about 60 percent of their value. Meanwhile, the fourth, fifth, and sixth most valuable firms today are Alibaba, Tencent, and Baidu: all Chinese. Do you think the erosion of U.S. dominance in high tech is a bad thing or a good thing?
I think the pace of innovation globally is extraordinary and is a positive thing. We’re very respectful of the fact that innovation is occurring around the globe. We’re a global company, and we want to be a part of it. It’s an extraordinarily competitive market, and it puts pressure on us every day.
But the bigger part of your question is, how do I think about the future? And I think it really goes back to Larry’s mantra: incrementalism leads to irrelevance, in particular in technology. You need to focus on revolutionary change. If you don’t force yourself to do that, it’s too easy to fall into what look like lower-risk opportunities. They may be lower risk near term, but I think they’re much higher risk in the long run.
When is Google going to go back into China?
Well, we still are in China. We work with a lot of companies looking to access global markets, and China is obviously a key market. And the Android ecosystem is alive and well there.
Whenever a high-level government finance post comes open these days, your name seems to get bandied about. If you were Fed chair or treasury secretary, what would you do differently from the current officeholders?
I’ve learned that it’s never wise to second-guess what people are doing. And I’ve been head down at Google, now Alphabet, for the last six months.
But there are a couple of areas that I was intensely focused on when I was spending time in Washington. And if the question is, is there opportunity to do more? I would say there are two important issues that really go to resource optimization.
One that I care immensely about is our federal student loan program. And the reason I focused on it is that in many ways it is very similar to housing policy, and I spent a lot of time working with Treasury Secretary Hank Paulson on Fannie Mae and Freddie Mac during the financial crisis.
Home lending, like student lending, was a well-intentioned social program that by its design and execution not only hurt those it was intended to help but has left taxpayers with the bill. We now have $1.3 trillion in student loans outstanding, and many of these kids aren’t actually getting a relevant education. Sixty-eight percent of the kids who go to a for-profit school don’t graduate, so they’re left with a loan but no degree. I view that as a prime example of a misalignment of resources. We can shrink the origination volume by focusing more on job training and deploy it the right way.
Another area where I spent a lot of time in my prior life was infrastructure investing. There’s a lot of private-sector money on the sidelines that’s looking for long-term investments in a low-yield environment. We clearly have some infrastructure challenges, whether it’s roads, bridges, ports, airports, whatever. And the financing environment seems close to historic lows. That creates an opportunity to bring the public and private sectors together to solve some of our infrastructure needs and to create jobs as well.
Those might be smart public policies, but given the political climate in the United States right now, they’re unlikely to happen. Do you worry that Washington is broken? And is there a risk that if this problem continues, the tech world will simply start working around government?
The level of polarization in this country is obviously at historic highs, and that’s dysfunctional, and we need our leaders to lead.
It is productive to try to solve problems however one can. If that means doing things through technology and not relying on policy, and that’s additive, that’s a good place to be. But having spent a lot of time in Washington, I would say that there are a lot of talented people there who care immensely.
As the father of a nine-month-old boy, I’m curious about your argument that parents shouldn’t think about achieving a work-life balance and that we should think about integration instead. What does that mean?
I think work-life balance is a trap, because I don’t think you can ever be balanced. If you struggle to keep things perfectly aligned, you’ll always feel like you’re failing somewhere, and that’s not a healthy way to go through life.
What I encourage people to do instead is think about a mix. Think of your life like a kaleidoscope. If you had even amounts of yellow and blue, it’s pretty boring. What’s important and what makes life really rich and exciting is to have lots of different shapes and colors that change over time.
So sometimes I will be all in work, and other times I will be all in family. And then there will be the mix in between, and it changes throughout life. And if you don’t give yourself permission to have it changing constantly, I think you’ll find that you can’t ever make it work.
I think my kids are proud of what I’m doing at work. When they’re growing up, and you’re trying to juggle everything to get it to work, you’ll find that they understand it. And you’ve got years to go until you have to worry about it.
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