Technology Day 2003 - "Fast Times at MIT: What's New, What's Next - Now What?” Pt.2

[MUSIC PLAYING]

LASH: I don't know about you, but after the dessert tray, I find myself on a kind of a sugar, chocolate, caffeine high which will probably make you rowdy and unmanageable. But that's the speaker's problem, not my problem. Good afternoon, and welcome back.

I'm Jim Lash, and I'm the President of your Alumni Association for a little bit longer. We have an interesting program this afternoon, and I thank you, this morning, for your help in keeping us on schedule. It worked out really well, and I hope you enjoyed your lunch. And as I say, I certainly enjoyed the caffeine and chocolate after the lunch, so I'm ready to go.

Our first speaker this afternoon is Richard Locke. He received his MIT degree in '89. He is the Alvin Siteman Professor of Entrepreneurship and Political Science. He teaches in comparative political economy, entrepreneurship, and international management in both MIT's Sloan School of Management and the MIT Department of Political Science.

His research focuses on economic adjustment and development, comparative labor relations, and political economy, all areas in which I have an interest because I find myself dealing with people who are being economically adjusted all the time. And so, without further ado, Dr. Locke.

[APPLAUSE]

LOCKE: Thanks for that. Thanks.

Well, thank you very much, and it's a great pleasure to be here with you this afternoon. Today, what I'm going to do is speak with you about some of my ongoing work on globalization and the future of corporate citizenship, sometimes referred to as corporate social responsibility.

And this work-- which, there's a tiny case that's being distributed or was distributed earlier-- is part of a larger research project on globalization, development, and standards and the interaction among those three phenomena. And this is a project that is housed in the Sloan School, but which embraces faculty from all parts of the Institute.

And the essential questions of this project are, how should global corporations behave in what we, today, call the new international world order? What constitutes good corporate citizenship when stakeholders are diverse and dispersed across the globe and where no clear or consensual rules or standards exist? These are the questions motivating and underlying my research and will also be the focus of this afternoon's presentation.

These questions are key, not just for large multinational corporations, but for all companies in today's global world. The basic role of the corporation in today's society is, once again, the source of major debate and controversy. As a result of the recent wave of scandals related to corporate governance, or the lack thereof, accounting, insider trading, corporations are now seen as among the least trustworthy and credible institutions in our society. Poll after poll shows that.

At the same time, the ongoing controversy over globalization and its unequal distributive impact on different groups and societies has fueled debates about the future and proper role of the corporation in today's global world. Recent changes in the patterns of trade, the internationalization of finance, the development of global supply chains have radically redefined the possibilities for most companies.

However, studies show that the benefits of this process of globalization, what we've come to know as globalization, have been very uneven. Whereas, some societies and some groups within different societies have benefited from this increased economic integration, other societies or other groups within particular societies have suffered.

And this uneven distribution of the benefits of globalization has fueled what we now know as the anti globalization movement, which-- last week's paper was filled with articles about that-- which I would say this anti globalization movement along with the recent corporate scandals have called into question some of our basic assumptions and views of the role and the responsibility of corporation in today's world, and this is going to be the focus of my presentation this afternoon.

What I'd like to do is divide my presentation into three parts. First, what I'd like to do is first sort of just basically review some of the basic debates over what should be the proper role of the corporation in today's society. And this review is going to be-- because it's going to be very synthetic and stylistic-- it's going to necessarily be simplistic. But I just want to lay it out there because I think it will give us a good idea of the range of views that are out there today about the role of the corporation in society-- what it is, what it should be, et cetera.

Then what I want to do is I want to discuss the case of Nike Corporation which, in many ways, is the poster child of both the benefits of globalization and what is seen as some of the perils related to globalization. And I want to talk a little bit about this company, what it's done, how it's benefited from globalization, how it's also actually incurred the wrath of all sorts of groups in society because of some of its practices, and what we can learn from this single case study.

And finally, what I'd like to do is ponder some of the more generalizable lessons that this particular case study may have for all corporations as they seek to basically figure out what is or what should be their role in today's society.

So let me begin by first just sort of quickly reviewing some of the alternative models of corporate citizenship. Now, the issue of corporate citizenship or the role of the corporation in society is not a new one. It's something that has been debated for centuries. And this debate goes through different cycles of intensity, depending upon current events and the wave of scandals.

I mean, you know, you see a big peak of interest in this during the Industrial Revolution around issues of sort of product quality and labor standards. One sees again a big peak of interest in the 1970s when there was a lot of scandals related to defense contracting and corruption. And once again, we see, yet again, a big peak of interest in this issue as a result of the two phenomena that I mentioned a minute ago.

But not withstanding this longstanding and recurrent debate, there exists no clear-cut agreed upon definition of corporate citizenship. And in this slide, what I try to boil down, as I said, in highly stylized and hence simplistic terms, are four alternative models that are quite popular in the literature, in the debates about corporate citizenship. And the four models are what I call the minimalist, the philanthropic, the encompassing, and the social activist models, and these four models differ along two dimensions.

One dimension is basically, who basically are the supposed beneficiaries of corporate action? Are they shareholders or they a broader societal constellation of people, often referred to as stakeholders?

And the second dimension is, what's the motivation behind corporate behavior, especially in the area of social responsibility? Is the motivation instrumental in that one is doing things because it benefits the company in and of itself? Or is the motivation for these kinds of behaviors perhaps more moral or ethical, and that's what's really driving things?

And so if we look at the four models that are out there-- the minimalist, philanthropic, encompassing, and social activist models-- let me just sort of go through them and show you how they differ in terms of these two different dimensions.

The minimalist one is sort of the classic view which is basically, the role of the corporation is to increase shareholder wealth. And that that's why we invest our money in these corporations and that's what management, who is managing these corporations, should basically do. And that any-- and that by doing that, by increasing the wealth of the corporation, by enhancing shareholder wealth, that the corporation is in fact playing a socially responsible role. Because if all corporations are growing according to these principles, then you would expect there to be more job creation, more wealth creation, et cetera.

In fact, this view holds that any efforts by managers who aren't especially skilled in socially responsible activities, any efforts of them to try to basically alter from this path, to diverge from this path, and not focus primarily on shareholder wealth will either lead to inefficiencies-- because they'll be distracted and they won't be paying attention to the bottom line-- and they'll be-- because they're not experts in this field, they may engage in a series of activities that won't actually produce the benefits that they hold. The classic proponent of this view is Milton Friedman.

The second view, the philanthropic view, is sort of an extension of this view. It basically argues that the corporation, the primary role the corporation, is to enhance shareholder wealth. However, if an individual manager or even a corporation may, for moral or ethical reasons, want to do some sort of charity work, some other socially responsible work, they can do it as long as it doesn't interfere with the primary goal of the corporation.

Anyone's free to do what they want to do as long as they're focusing on the bottom line. If they want to do extra things, that's fine, but then just say that you're doing it for philanthropic reasons, not because you see it as central to the mission or the responsibility of the corporation.

Now, a very different view is the third model, what I hear it referred to as the encompassing model. Here, the view is that the responsibility of the corporation is not solely to one group, shareholders, but actually it's to a broader group of actors, what we often refer to as stakeholders. These stakeholders can be employees. They can be customers. They can be suppliers. They can be the local community in which the corporation is embedded.

And the argument there is that by paying attention to the interests of this broader community, the corporation is actually benefiting in the long run. Because if it's making its employees happy, if it's making sure that its customers and suppliers are happy, if it's making sure that the local community in which it's embedded is also doing well, then it's basically providing for the long-term health and benefits of the corporation.

And so this third view, the encompassing view, still says that corporations should pay attention to a broader community, but it should do though do so because it's in the interests of the corporation to do so. It's still very much an instrumental motivation, and not like the other one for philanthropic or ethical, moral reasons.

And the final view, what we call the social activist view, is basically the most encompassing of all the views, and that is an argument which is that because corporations are wealthy and powerful, organizations in today's society, they have a responsibility to other interests in society. They should use their power, they should use their resources to basically try to intervene and correct for a variety of social ills. They should do it not because it's in their own self-interest, either short-term or long-term; they should do it because it's their moral responsibility to do so.

So these are four very highly stylized models out there on what the corporation should do, how we should understand it, et cetera. Now, of course, there are many other more subtle views, but what I wanted to do is I wanted just to present these four views because I wanted you to see the incredible diversity, the incredible array of opinions out there on what the corporation should be doing in today's society.

And I think it's interesting. It's that notwithstanding that there are hundreds of articles written on this topic every year-- there are tons of conferences and prizes, et cetera, that are being offered every year on corporate citizenship, corporate and social responsibility, et cetera-- there exists no clear and agreed upon definition of what that is or should be. I think that that's the first point that I want to make. But when you boil down these four different views and the many other kind of more subtle variants of these four views, what we see is that they basically differ along three dimensions.

The first one is the role of management. Should management basically be focused on trying to enhance shareholder wealth? Or should management's role be focused on something greater, whether it's shareholder-- whether it's stakeholder benefits or even more social roles?

The second difference in the dimensions are the relationship to profits. Should companies be driven basically by the bottom line or should they consider other maybe less quantifiable kinds of goals? And how do we try to sort of quantify these other goals if they're going to pursue them? That's a big debate.

And the third dimension of difference that exists across these different models are, what is the sort of responsibility of the corporation? How do we basically put boundaries over it? Are corporations, are companies basically responsible to shareholders or are they also responsible to the variety of groups that we call stakeholders? And in a global world, how do we put boundaries around the realm of responsibility when the stakeholders are dispersed all over the world and have very, very different interests?

So these debates about the role of the corporation, about corporate citizenship, already hot when discussing domestic companies, are especially heated when we move to the more complicated world of globalization. This is a world where companies, as I said, are operating across borders, where you have very different laws, very different rules and regulations, very different standards or a lack thereof. And as a result, companies don't have clear benchmarks which they can use, against which they can try to measure their own behavior.

So what constitutes good corporate citizenship in such a world is a very complicated question, and it's one that I believe is going to very much define management in the next several years. I think to illustrate the complications related to this issue, let me now turn to the case of Nike. Now, and there's more details and I'm just going to summarize the case, but there are many more details in the case that's been distributed.

Now Nike Corporation, as I said earlier, is in many ways the poster child for these issues. This is a company that, on the one hand, is a perfect example of all the benefits that globalization has to offer. This is a company that was a startup in 1964. It was the result of basically two partners putting together $500 to start this partnership, and today it is the world's leading athletic footwear company.

And the reason that it grew so fast and was able to take, basically surpass, all the other leading companies was because its business model very much relied on the possibilities available due to globalization. The basic business model of Nike 40 years ago, and that still reigns today, is to concentrate design, marketing, and sales all at home in its headquarters in Beaverton, Oregon and to outsource all manufacturing to low-cost producers in developing countries.

As a result, the company, which began outsourcing in Japan in the 1960s, has since then gone to Korea and Taiwan, to China, Vietnam, Indonesia, and a variety of countries always searching for low-cost producers to manufacture its goods. Today, the company's products are manufactured in more than 700 factories which employ over 500,000 workers in 51 countries. Nike doesn't own any of these factories.

Nike only employs directly 22,000 employees, most of them here in the United States or reporting to the United States but are doing monitoring work elsewhere. The vast majority of those other 480,000 employees are basically contract workers employed by their subcontractors.

The results of this business model, as this slide shows, have been fantastic for the company. This is a company that was really a nothing in the 1960s and was able to basically take on, at that point, the leaders, Adidas, Reebok, New Balance, et cetera, and surpass them and to grow at an incredible rate, as this slide shows.

But the advantages of this business model, of this reliance on low-cost manufacturing and developing countries, has also had its costs. Over the course of the 1990s, Nike came under a series of attacks because a whole series of scandals were reported in a variety of different media that were taking place in its contract workers.

These scandals basically ranged from things like exploitative wages that, as the case talks about, that there were all sorts of reports that employees in factories making Nike products were being paid below the legal minimum wage of that country, which itself was less and can sustain an individual, let alone a family. Other news media reported cases of child labor, where there was this famous picture on the cover of Life magazine where you showed a child sewing a Nike soccer ball in Pakistan. And still other media reported poisonous working conditions in Nike contracting factories, where basically there were certain kinds of chemicals being used in the adhesives to make the athletic footwear that were leading to all sorts of respiratory and other kinds of problems.

As a result of these media reports, all sorts of things started happening to the company. Boycotts were organized against Nike products. Niketowns, which are their retail shops, were picketed by groups. Nike, a company that has invested millions of dollars in advertising in basically developing and in promoting its brand, saw its image shattered in numerous negative media reports about the conditions and practices of its contracting shops.

What I did in that case with the help of some students is we did something called the LexisNexis search, which basically, what you do, is you just put a search into the leading media and say, Nike with other kinds of things-- Nike, child labor; Nike, poor working conditions; Nike, exploitation. And one can see from this chart the explosion of number of articles that reported negatively on Nike's business practices.

So here is this company that, on the one hand, benefited tremendously from the opportunities globalization promoted. Globalization allows companies to make just about anything, anywhere. And Nike was able to basically keep the high-cost, more value-added activities at home and outsource the manufacturing parts abroad so that it could basically fuel the savings that it gained from producing in low-cost areas into its marketing and design, and that's why this company grew.

On the other hand, because it was relying on contract operations in these developing countries, many of which had very different kinds of laws or rules or standards-- and many didn't have any of the above-- that it was able to basically get itself in the kind of trouble that it found itself in. It exposed itself to these kinds of negative imaging.

Now, Nike has responded in recent years, basically from the late 1990s. And you can see after the peak of 1997, 1998, the company has responded in extremely interesting ways. It developed a very interesting code of conduct, which it basically insisted that all companies that were working with it had to respect basic working conditions, wages, work hours, et cetera. It started to basically increase its monitoring of the suppliers. So one thing was for these suppliers to say, Okay, we'll sign the agreement, and say, we observe the code of conduct. The other one is to make sure that they were doing it, and so Nike basically increased its own staff and sent hundreds of its staff to go and inspect these different factories, making sure that its code of conduct was being respected.

It also worked with independent companies, whether they be accounting companies or even non-profit organizations, even these Non-Governmental Organizations, to work with it, to basically enhance its inspections and monitoring and to try to improve conditions. And as you can see, that as a result of those changes, the reports of Nike's negative practices has decreased significantly.

So what's the significance of this case? One single case. Now, I can tell you many, many others. In this larger research, we have others, but I think that there are several key lessons that stand out from what I see as the peril as well as the promise of globalization and the illustration of Nike.

First of all, I think the number one lesson is that Nike is in no way unique. This is an extremely common problem for all companies operating across borders. And, these days, many companies large and small are, in fact, operating across borders. When you operate across borders and you have different pieces of your company operating in different parts of the world, each with very different kinds of rules, regulations, laws, and standards, you open yourself up to this kind of challenge, just like Nike did. You benefit from it, but you also open yourselves up to the risk of it. So the first thing is just recognizing this is one of the major challenges that all corporations are facing.

The second lesson that I think is key and builds on the first one is that there is no clear consensus of what Nike should have done or what it should do today. That basically, if Nike raises minimum wages and working conditions and controls work hours for all the employees working for its subcontractors, that may be something that might make consumer groups in advanced industrial nations-- the consumer groups, consumers buying these products-- happy, but it does not make some of the actors on the other side of the globe very happy.

What's very interesting is that Brazil, a country that was run by a Social Democrat Fernando "Kiki" Cardoso until last year and now is run by the PT, the Workers Party, actually is taking issue with Nike. Because it said, you raised the minimum working age from basically 12 to 14 for garments and from 14 to 16 for shoes of employees who can work in the contracting, but my legal minimum wage was 12. So who are you, as a company, to dictate what I, as a country, say is allowable for people in within my borders? And also, if you take jobs away from these kids, what else are they going to do? The other opportunities that they may face are much worse than working in these factories.

And so there's a real dilemma going on. There's a real struggle on what should be the proper standards and who should set them. Should they be company-specific? Should they be the domain of national states? Or should they be international standards and norms, something promoted by the UN or the International Labor Organization that everyone signs on to? There's a big debate over that.

And the third lesson that I see from the Nike case is a lesson in learning. I think that when you go back-- and I've done a lot of interviewing at Nike. I've been there many, many times. I've visited their contracting shops in China and in Indonesia and in Brazil. And what I saw was, really, that this was not such a clear-cut static model, that Nike can-- if we go back to the original models, that Nike can easily be fit into one of those boxes, one of those quadrants as opposed to the others.

But what we see is that Nike may have started out in the minimalist quadrant, that it basically saw its mission as enhancing shareholder wealth and it was doing a very good job at fulfilling that mission. And yet with time and under a tremendous amount of pressure by Non-Governmental Organizations, by consumer groups, et cetera, it shifted its understanding of its role of a corporation, of its definition of corporate citizenship, to a more encompassing one.

It decided to embrace the issue of standards and better working conditions, et cetera, not because it saw this as a moral or ethical reason, but because it saw in the long-term interests of the corporation to do so. If it's going to invest in that brand, it better protect the brand. And to protect the brand, it has to make sure that there aren't going to be these negative press or pickets outside its stores.

So this learning model is a very interesting thing that we observe not just in Nike, but in many of the other companies that we've been studying in this project. And what's interesting is that this learning is sometimes induced as a result of consumer pressure, but other times it's a product of government policy. And sometimes, it's actually the product of a particular CEO who has a particular vision or moral commitment to what he or she sees the corporation should do and imposes those kinds of standards on the rest of the corporation.

So what I see is the third lesson isn't just that there's learning going on, but there are different trajectories, different pathways, towards this ultimate goal of corporate citizenship. And while there may not be any agreed upon consensus or clear definition of what it means to be a corporate citizen in today's global world, I can assure you that this issue is not one that's going to go away. This issue is going to be one of the defining issues for management in the future years.

Thank you very much for your attention.

[APPLAUSE]

LASH: All right. We'll take some questions. Maybe we can start here on this side.

AUDIENCE: Just a couple of questions with regard [INAUDIBLE]. Is there any telling what percentage the changes that Nike made in its supplier relations caused, the percentage growth in the cost of shoes? Not the cost to the consumer, but the cost to Nike? And did any of its competitors attempt to take advantage of that by basically purchasing the same service at lower cost?

LOCKE: Great. Okay, great. That's actually something that we're trying to do. That's a great question, and the issue really underlines one of the big dilemmas that a company faces, that if an individual company chooses to embrace a certain kind of definition of corporate citizenship, it basically exposes itself to other companies taking advantage of it. So if Nike decides to basically raise minimum wages, and Reebok and New Balance, et cetera doesn't, won't that basically hurt its bottom line?

So in many ways, one of the big issues is how do you basically promote a collective action, a collective solution on this problem, and not a company-by-company one? All right, so the data is inconclusive. Because if you noticed in the growth-- let me see if I can get it back out here-- on the after, the peak of the market in 1998, you see a decline of sales.

So 1998 are two things-- two things are happening. On the one hand, Nike is basically embracing standards.

LASH: He wants his slide now.

LOCKE: And so you could say that maybe the decline is a result of its loss of competitiveness. Another thing that's happening, though, is that you have the Asia crisis, basically, in the same years. And so everyone actually is declining in those same years.

So as of now, there is no conclusive data that show that Nike, as a result of embracing these standards, has lost market share to other branded athletic footwear companies. Nike still basically is the market leader.

But that Nike's concerned about this is something that I know because they're working with us at MIT to basically try to bring together all the leading athletic footwear companies of the world together with the international organizations and the Non-Governmental Organizations to see, can we help them figure out what should be the industry standard that they all embrace. Because, in, fact this is a collective problem that only collective action can respond to. So excellent question.

LASH: In the back?

LOCKE: I think it's on, now. No?

AUDIENCE: Never mind. Well, this is just a-- the tip of the iceberg which is the exit of the manufacturing sector to the rest of the world. But we have a more important problem to consider, and that is the exit of the rest of our producing sectors to worry about, the exit of the research and development, the exit, even, of our service sector.

For example, in the Information Technology area, we've seen the exit of jobs to US citizens to H-1B type people in massive numbers. We see, now, the offshoring of Information Technology work in increasing numbers. We see the offshoring of the Information Technology work, of telemarketing operations. So do you have any comments on where this will end? And where will the jobs be for knowledge workers in the United States?

And just recently, I've learned of the fact that the Indian people are getting together to sue the WTO to enforce World Trade Organization regulations that will make it necessary that every organization, every country in the world, lower their barriers to visas so that any worker in the world can work anywhere they want to. So the entire workforce of the world will be available to manufacturers anywhere in the world.

LASH: All right. Let's see if we can get a comment on that.

LOCKE: Great. That's a great concern, which is, the era of globalization, one of the big concerns is that it will lead to a hollowing out of jobs and even other things in the advanced industrial nations. There is a research project here at MIT that tries to examine exactly that, you know, what's happening with the reorganization and relocation of industries and research and development and other things in the advanced industrial nations.

And why is it that when you look around the world, there are very, very different patterns of how much is being outsourced and how much isn't? And I think there's two responses. One is that we have to make our reality sticky in the sense that you want to basically make sure that the different pieces of the economy are very much embedded in this local area like they are around the Cambridge Boston area or the Silicon Valley area or in Austin, Texas.

And studies that try to examine, why are these areas more sticky than others, is because they seem to have three things. One, human capital, more sort of higher degree per capita. Two, they have technology, more patents per capita. And three, that there is an environment that is basically conducive to the kinds of creativity, exchange of information, networking that seems to be so important to the new economy. And so if that's true, then what we have to do is make sure that we're pushing these three things so that we can make those parts of our economy as sticky as possible.

But the second response is that-- I'm not so sure it's a secular trend. One of the things that's so interesting about athletic footwear, which you would think, you know, shoes-- you know, the lowest technology thing, that perhaps you could imagine. But actually, what companies like Nike are beginning to do again-- with, for example, some students that we at the Sloan School have put them in touch with through the Leaders for Manufacturing program-- is to think about how they might be able to do sort of quick-response making of shoes.

So you go into a store. You have them measure. And then, you know, by the end of the day, your shoe is being made. Well, if that's happening, that means that a lot of those jobs have to come back or at least pieces of the jobs have to come back domestically because it has to be close to the consumer and close to the technology.

So I don't see this as a story where we already know the ending. I think this is a story that's very much unfolding, and how it unfolds will depend on both policy as well as the strategy of institutions like MIT.

LASH: Great. In that section, back there?

AUDIENCE: Excuse me, I'm sorry.

AUDIENCE: Do the groups that protest corporate behavior tend to single out the market share leader, or do they shed their damage on all the members of the field?

LOCKE: No. They play the media game as well as anyone, or even better than anyone does. They basically figured out, Nike is the market leader. We will go after Nike. And what was interesting to me is when I was doing the interviews for this work of these groups, and I said, well, look Nike is now doing all these other things. You know, why aren't you going after other people?

They said, look, we are going to ride on-- you know, they invested so much on their marketing. Everyone knows Nike. We are going to basically hook our fortunes to theirs. Some of these Non-Governmental Organizations have a agenda of their own. And I think that, sometimes, those-- you know, when we read these things, we think, oh, there must be-- they're concerned for the consumers or the workers in the developing world. It's a very heterogeneous group. And companies are very, very wary of them because they're extremely media savvy.

There are other producers. The real culprit-- someone else said the tip of the iceberg-- the real culprits are companies that we don't even know who are doing these things. And that's, but I think that if we can basically get the ones that we do onboard, then my hope is that we can have, then, a trickle-down effect for the others.

LASH: Somebody over on the far side.

AUDIENCE: Yeah. In the age of globalization, there is the possibility or maybe likelihood of a rush to the basement in the sense that third world countries will compete with each other in terms of lowering wages and reducing constraints on working conditions. So first, do you see this happening? And second, if it is happening to a significant extent, what can be done about it?

LOCKE: Excellent question. The project that I said that this is a piece of, which is this larger project on globalization, economic development of standards, is exactly trying-- interested in trying to distinguish the quote, unquote, "race to the bottom" strategy from a more virtuous strategy of upgrading of local economies and uplifting of local workforces.

The empirical evidence is that both are existing, that what one sees are cases where the interaction between foreign multinationals, or their contractors, and developing countries has lead to exploitation of workers, exploitation of the local environment, only locating in certain places as long as you have low working conditions and very little regulation. And as soon as those conditions change, going to the next place that has even cheaper wages and even less regulation, we see a lot of that.

But we also see many cases, which because they don't attract our attention in the press, we don't know of. But there are many cases where the interaction between foreign multinationals and developing countries has led to the upgrading of the local economy and the upskilling of the local workforce and the protection or if not enhancement of standards.

And so what we're trying-- and you see them across sectors, by the way. You see them in things like software and electronics as well as things as basic as export agriculture. And so what we're trying to do in this research project at MIT is study both of these cases in a very controlled way to try to understand not, is globalization necessarily good or bad-- because I think that's just the wrong question. But under what conditions will globalization give us that virtuous outcome of everyone benefiting as opposed to the other one? And if we can identify those conditions, then we can try to promote them.

LASH: One more, here. Ha, this isn't fair.

LOCKE: Yeah, this isn't fair.

LASH: This is a ringer. This is another faculty member.

[LAUGHTER]

LOCKE: And one I know, very well.

LASH: No, I'm kidding. You can.

AUDIENCE: What should be the role of the private sector in institution building in Iraq?

[LAUGHTER]

LASH: We have maybe 30, 45 seconds. Go for it.

LOCKE: That's right.

[LAUGHTER]

For those of you who don't know, this is Ken Morse, who is the head of the Entrepreneurship Center and also an MIT alum. And it would be very-- it's very typical of Ken to ask such a question at this moment.

I believe that in Iraq, as in everywhere else, the public and the private sector should take the lead. I believe-- when it comes to economic rebuilding-- and that in case after case that I've studied or that my colleagues have studied on where do you actually promote sustainable economic development. And from that economic development you can also have spillover effects in terms of increased public participation, better citizenship rights, et cetera, it always starts with private sector initiative-- often collectives of private sector, not like one individual firm, but they come together, they work together.

And where the public sector comes in is it reinforces this kind of productive virtuous collaboration among the private sector. It doesn't try to supplant it. It strengthens it so that each can do its own job-- the private sector pushing for the economic development and the private and the public sector basically ensuring that the rules of the game, the basic frameworks, are in place so that everyone can benefit not just from economic growth, but from citizenship rights.

LASH: Great. Well, thank you very much.

LOCKE: Thank you.

[APPLAUSE]

LASH: It was terrific. Thank you.

LOCKE: Thank you.

LASH: Just so you know that we're in the game in Iraq, I was watching Sunday morning television, a few weeks ago, and there was Wolfowitz explaining how we were going to fix things in Iraq. And he said we were going to send Tim Carney in and he was going to take care of it. Tim Carney is a class of '66 cohort of yours. So as I understand it, Tim is now on the ground worrying about the Minister of Industry and Trade in Iraq.

Our next speaker is Dr. Edwin Thomas, who is going to talk to us today about taking nanotechnology from the laboratory to the soldier. I guess that's the other side of the Iraq experience. Dr. Thomas is currently the Director of the MIT Institute for Soldier Nanotechnologies, a new $50 million center to enhance soldier survivability and protection by developing nanoscience and nanoengineering concepts. Doctor Thomas.

[APPLAUSE]

CREW: Okay, there you go, again.

THOMAS: Good afternoon. This is going to be interesting, I think. This group, I was thinking about who's sitting out here and the age of the various alums, and there'll be maybe some quiz questions, so pay attention.

I have a heck of a job to try to tell you about this new center in a half an hour. And besides the new center, I thought I'd throw a few remarks in on, what's nanotechnology and what's that got to do with the soldier? So the first thing, we'll fly up to 50,000 feet and take a kind of a view of the ISN. And I have to get down to the stuff that I love the best, the engineering and the science. And so we'll do two examples, one on ballistic protection and one on injury intervention.

So this turns out to be Sergeant First Class Haddad who is stationed out at Natick, the Soldier Systems Center out there, 17 miles west of MIT. And he's garbed up there with today's stuff.

When this Institute got started, there was a request, a broad agency announcement that the government put out in August of 2001. And a bunch of universities went to some briefings and thought about whether or not they might want to put together a bid to try to get this $50 million center. 50 million bucks is enough to get MIT's attention.

September 11th came along, and a bunch of us on campus that were starting to kick around the idea of responding to this started kicking a lot harder. And it ended up that we went out and got some industrial partners and 35 faculty from nine departments, and a miracle occurred. The administration came up with 30,000 square feet of space.

And the job is to help this guy. He's got a heck of a lot of equipment on, but it doesn't really do the job. It helps, but it doesn't do enough.

So we have a mission, nanotechnology for the soldier. And of course, MIT is very good at basic research. This has an applied bent to it. There's a customer, the US soldier. And we need partners to be able to impact that soldier. It's not just about publications and journals, although we'll certainly do that.

And it's not just about patents, but it's the licensing of the patents. It's the industrial pulling of the technology or let's say that the concept, the proof of concept, out of the lab and into their facilities to make stuff to give the soldier.

And it's interesting, we're classified as a University-Affiliated Research Center, a UARC, U-A-R-C, the first of which was in 1943. And they used acoustics and they were working on torpedo problems. That UARC is still in existence, some 60 years later. So hopefully, this is not a five-year project.

In fact, I think if it is a five-year project, I'm going to be in deep trouble because MIT is putting a lot of funds and resources into this, and it's very important. And we won't fail. We'll be around for a lot more than five years.

Last January, January 2002, two Januaries ago, we had a site visit. Actually, the military-- the Army wanted the proposal due January 3rd. So all through the fall, we worked on it, and it was due January 3rd. And about January 15th, they called up and said, we're going to have a site visit and it's going to be on the 30th of January.

And I said, well, I mean I need to get a hold of some faculty and some key industrial players. What days, you know, what other alternative dates are there? They said, 8 o'clock, January 30th.

[LAUGHTER]

So we managed to get Chuck there. He said some wonderful things. That's a quote from his speech at that. We had representatives from industry there. We had three partners, and they all spoke. They all brought some show and tell. They had helped us write the proposal. They were integrated in.

Many of the other universities that competed for this went out and got 50, 60 companies to write a letter that said, dear whoever, Army Research Office, we would be happy to work with University x on project y should they get the Institute for Soldier Nanotechnology.

We didn't do that. We talked to a bunch of companies and down-selected three. I have to be careful about companies because one of our companies is Partners HealthCare, consisting of Brigham and Women's and Mass General Hospital. So hardly industry, but nevertheless, as you'll see, pretty relevant.

The other two companies are a small MIT spin off from 1920 called Raytheon and DuPont. DuPont got its start in 1803. That's 200 years ago. They were asked by Thomas Jefferson to make black powder for the US government. So they started working for the US government 200 years ago, and they're still doing it.

Okay, so it turns out that nanotech-- of course, everybody's doing nanotech and it's great stuff-- but this is kind of an interesting part of nanotech because there's a customer. There's a focused need to help the dismounted infantry soldier, so this guy not in a helicopter, not in a tank, not in an aircraft carrier, the guy on the ground.

And I think one of the things that MIT does well is to respond to national need. So radar in World War II, inertial guidance in the Cold War, and maybe, now, nanotechnology for the soldier.

So 38 faculty from nine different departments, the School of Science, the School of Engineering, 75 graduate students, 25 postdocs. We've organized into seven teams under three thrust areas. We have researchers from the Army and from industry. That was required, that you have a dedicated research facility and, in that facility, industry must put PhD scientists. Or otherwise, they're not a partner. The true partner is there in people. And the Army has lots of research scientists and they're in that facility as well.

And we're over at Tech Square, 500 Tech Square. And we have three founding partners, Raytheon, DuPont and the two hospitals.

So we get a team, sort of a three-legged stool-- MIT, the Army, and industry-- and the job is to see if we can help that soldier. The Army's along to make sure we're on target and we're doing relevant stuff. Industry's around to help us, especially in the transitioning to actual products.

So what do we need to give this soldier? We call it key soldier capabilities.

Make everything lightweight. One of the metaphors that I've learned about the soldier is that the Army has sort of treated the soldier as a Christmas tree.

[LAUGHTER]

Somebody comes up with a cool new thing, and they say, here, carry this. Somebody else comes up with another cool thing, and says, you know, here, have this.

Oh, by the way, it has its own special batteries that you have to buy from us and no other battery will fit. One of the things we learned is that a platoon has 25 different kinds of batteries. That's not exactly systems integration, is it? Okay, make it light.

Protect from blast and bullets. And protect-- increasingly, now, we're worried about chemical and biological threats. Detect them and protect, do both.

And do things multifunctional. You'll see the push towards miniaturization. Put more and more of these capabilities into single things, integrate. Don't do the Christmas tree thing. Don't hand him yet another heavy thing with its own battery. That's not a solution. Don't go there.

And here's where the hospitals start coming in. How about knowing where this guy is, and knowing his physiological condition all the time? And if something happens, how about being able to do things autonomously, remotely? Hospitals are very interested in that. And not only for soldiers, but for us, right? Civilians.

And maybe, be more than you can be. Lift more. Use what we'll call exomuscle.

So we're organized into seven teams. The first team is on ballistic protection, energy absorption. Second team's the exomuscle, the mechanically active things. Sensors for chem, bio, and not only sensing it, but neutralizing those threats. A big thing on medical devices with our hospital partners.