The a16z Show - a16z Podcast: Trade, Commerce, Manufacturing, Immigration, & Cuba -- with Penny Pritzker

Episode Date: May 27, 2016

"We really want Apple here... Would you please call Tim Cook?" That's just one of the things Penny Pritzker, the 38th Secretary of Commerce has heard as she and the U.S. Department of Commerce engage in "commercial diplomacy" around the world. Their job is to help overcome trade barriers, represent the interests of entrepreneurs and drive administrative policy change as it relates to technology, and be on the frontline of helping small and medium-sized businesses in markets all around the world -- from Indonesia to Europe to Cuba. So what else have they found about how other countries perceive U.S. tech companies? Especially as they wrangle with issues such as immigration (and not just for high-education visas); E.U. Safe Harbor (which is more difficult for smaller companies) and its update, the transatlantic Privacy Shield agreement; and finally, the TPP or Trans-Pacific Partnership multinational trade agreement (for which some have expressed intellectual property concerns)? And then... since the previous policy of isolation didn't work, how is the U.S. government's policy of engagement with Cuba working out so far? Priztker shares perspectives on all this and more in this episode -- including views on focusing on advanced manufacturing; gathering data from weather sensors and census surveys; and counting the gig economy in GDP -- with a16z's head of policy and regulatory affairs, Ted Ullyot. The conversation took place at Andreessen Horowitz' inaugural Silicon Valley comes to Washington, D.C. tech and policy event in April 2016. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi, everyone. Welcome to the A6 and Z podcast. I'm Sonal. And today's conversation features U.S. Secretary of Commerce, Penny Pritzker, in conversation with A16 and Z's Ted Oliott, who heads up our Policy and Policy Group. The conversation took place recently in Washington, D.C. as part of our inaugural event bringing together Silicon Valley and D.C. Technology and policymakers to talk all things, tech and more. Join me and welcoming into the stage, Secretary Penny Pritzker. Thank you. Great to have you here. Happy to be here. Thanks for having me. Thank you. Do you mind, by the way, if I call you Penny? No, I wish you would. You know, I'm a formal guy, so I would have said Madam Secretary through the whole interview, which would have gotten tedious, I think, for most people here. Right.

Doesn't feel appropriate for the venue, does it? A Silicon Valley thing that feels a little formal. Right. Plus, I think it sounds like the title of a TV show or something like. Yeah, exactly. So Secretary Pritzker needs little introduction to this crowd, either those of you from Silicon Valley or those of you from Washington. in D.C., she is, of course, an accomplished triathlete. This is a very, you know, fascinating,

great piece of her bio thing. She actually has completed a full Ironman triathlon, and that was actually before Ironman was cool. She was what a terrible entrepreneur was. I didn't think, oh, man, this is a big brand. I had to look at investing in that, right, instead. And the other stupid thing I think about that race was there were no clothes back then. I mean, in other words, I remember you had to have your bike shorts made and stuff for women. And I was like, hey, wait a second. Now there's Nike. There's going.

There's all these. It really shows what a terrible entrepreneur I was. You spent money rather than investing it and writing it up. Yeah. Dumb. Yeah. And the secretary still competes. This is remarkable, I think, in triathlons to this day with your schedule.

Yeah. Anyway, I thought that was a shorter ones, much shorter. Yeah. Better than I can do. More to the point for today, though. Secretary Pritzker is the 38th Secretary of Commerce. She's headed up the Department of Commerce since 2013, so coming up on three years now.

It's going to be three years. Traditionally, the Secretary of Commerce is viewed as the voice of U.S. business within the President's Cabinet. And Secretary Pritzker has seized upon that role. She's focused on providing American businesses and entrepreneurs the tools they need to grow and hire. A little more about Secretary Pritzker's background because I think it is very relevant.

She's not a lawyer or policymaker who came, and she's actually a business leader and entrepreneur herself. She previously founded and ran five businesses in the real estate, hospitality, senior living, and financial services industries. Also relevant for today, she brings to bear deep roots in Silicon Valley. So there's a lot of perspective you bring, a lot of familiarity with the Valley. Having been an entrepreneur, I think of myself as an entrepreneur and a business person, even though I'm in the government right now. You know, it's really clear that innovation, entrepreneurship, small businesses are critical to our economic growth, to job creation, to the leadership of America. And, you know, fully a third of our growth is dependent upon what you guys do, which is build businesses. And entrepreneurs also solve problems.

And so what's our job to support that? I've seen you frequently describe the Department of Commerce as America's Innovation Agency. And you said the department works each and every day to set the conditions for American innovation to thrive. I think a lot of people looking at government agencies would think the opposite. They'd say the government is at best neutral on this and if not hindering innovation rather than helping it thrive. How do you think about that? What do you mean when you say America's innovation agency and how do you go about doing that at commerce? There's a number of things that we do.

First of all, we try to be the policy voice at the table. on behalf of entrepreneurs in the administration, build a bridge with the business community, and you guys are the business community. I know you use the word entrepreneurs, but you're the business community, and then be that voice as policies being made. So trying to represent your interests in that room is one job.

The second is be your advocates around the world. So there's a lot of challenges that you face as you take your goods and services around the world. We try to be your advocate, your partner, have people around the world who can help. with that. We also try and mentor innovators. And then we have the global entrepreneurship summit. It's just extraordinary what's going on in places like Ghana and Kenya and throughout Asia. It's really cool. But they don't have the support structure that all of you had that got you

your businesses to where they're at. And so that's part of what the president's view is that we need to support entrepreneurship around the world. It's a way to combat unemployment and some of the bad things that are happening. The other thing we do is we support advanced manufacturing. So we lead the national network of manufacturing innovation, which are the advanced manufacturing institutes that are being created in the United States. The U.S. federal government puts up, let's call it $70 million to create an institute on 3D printing or composite materials or advanced manufacturing. The latest one is smart fabrics. And that's massive. at least one to one, and in most instances, multiples to one by the private sector,

local government, universities, the supply chain, and the community colleges. So the goal is to bring the workforce development along at the same time, which is another way that we support innovation is workforce training. But in these advanced manufacturing institutes, the idea is how do you take a technology from lab to market in the next five to seven years? We've got to stay ahead of the game, given how competitive the world is. And so those are some of the ways that we support innovation. We obviously play a big role in the digital economy and data as well.

So it's helping out entrepreneurs both here getting started and developing technologies, but also serving as an ambassador for them overseas. You know, another thing I'll talk about is just immigration policy. Obviously something really, I know many of you, as you, as you, growing your businesses are concerned about because fully north of 50% of the people that we're training in this country in STEM fields are immigrants, right? They're here. They're students. And right now, we ask most of those people to go home, which is crazy. We need that talent here in the United States. And DHS is doing two things. The Department of Homeland Security,

and forgive me, this is a bad habit I've gotten into since I've come to Washington. It's acronym city. But the Department of Homeland Security developed a website for immigrant entrepreneurs how to navigate the system to get a visa. And then they're also going to announce a proposal shortly for immigrant entrepreneurs and startups, how to actually come and stay permanently in the United States. So we're really focused on trying to address that even though, frankly, we need comprehensive immigration reform in this country in order to address the challenges that we face in this area, not just H-1B visas and L-1 visas and EB-5 visas, but also, you know, to address the 11 million undocumented folks living in our country.

I think that's certainly the predominant view in Silicon Valley. It seems to be the logjam now where, you know, Republicans are for H-1B and not for comprehensive Democrats the opposite. And so there's that log-jam now. But to get, you know, in Washington, something I've learned, everything's about compromise and building coalitions to support things. You need to bring the Dems and the Republicans together, which means you've got to deal with comprehensive reform

and the high-value visas, you know, high-talent visas. And so that's why comprehensive makes sense because it'll build the kind of political coalition necessary to get this done. Do you see any prospect of that on the horizon or is it? Well, we have to get past the rhetoric of this election and depends on whose president and depends on, but right now it's silly, the policy that we have.

It's not addressing the moral obligation that we have to the people living in our communities, and it's not addressing the high, the demands we have for folks that we're training in the STEM fields. So we're kind of losing on both fronts. It's hugely beneficial if we were to do comprehensive immigration reform. It's worth about $1.4 trillion to our economy, so I can make it. make the economic argument too. That's my job. I'm Secretary of Commerce. But, you know, we're a country of immigrants. And this is natural for us. Frankly, it's part of our growth. And one of the reasons we've stayed economically healthy over, you know, centuries. Yeah. And there's been some

bipartisan support for that, at least in the not too distant past. Many of the points you're making now, I remember George W. Bush making back in 2005, just about the need for comprehensive. And didn't get through that. And it seems to be stalled now. In talking about the your support for innovators and for innovation. You mentioned your outreach around the world. I'd be curious to get your perspective on when you do that. How are American tech companies viewed in your travels? Positively, negatively mixed?

What have you found? You know, when I go around the world, leaders want American companies, and they want American technology. And I'll put aside what's going on in Europe right now for a minute and say that they want what we have, which is this kind of vibrant, innovative culture. And I say, well, the first thing you have to do is it has to be okay to fail. You've got to make it easy to start a company, easy to close a company. It's got to be easy to declare bankruptcy.

It's got to be culturally acceptable to try something and fail and that be ostracized within your community. That's before you even get to. You need different levels of venture capital. and you need a whole capital system that supports the startup of businesses and the failure of businesses. And what's interesting is, and I'll give you an example, so we call it commercial diplomacy, where we talk with governments and say, okay, you want innovation, but your policies are inconsistent with what you want. And let's talk about why.

And I have found, and we as an administration have found, by going with business leaders and saying this directly to government leaders. So, for example, at the ASEAN Leaders Summit that President Obama hosted, we brought Satya Nadella, and we brought the CEO, Ginny Remedy, and Chuck Robbins from Cisco, and to talk with the leaders of the ASEAN countries

about their policies and how data localization or other challenges are inconsistent with their desire to have the kind of technical. technological, innovative, entrepreneurial countries that they aspire to be. And it's funny, it requires that. It requires not just me as a government representative, but requires folks like yourself coming with us to explain.

So why it doesn't work. So for example, when I was first in this job, I'm in Indonesia and a minister, comes to me and says, we really want Apple here in Indonesia. And would you please call Tim Cook, we'd like Apple? I said, you know, look, I'm happy to call Tim Cook, but you are putting in place policies that are requiring data localization. You know, Apple is in the cloud business. That's completely inconsistent with, you know, and I'm sure they'd like to access your

market and everything, but your policies are inconsistent. It's like the light bulb doesn't go off until you sit down and actually talk about the practical aspects of policy. And so that's been a big part of what we've been doing. It's why it's really important. What you said about meeting with the foreign leaders resonates, even with us at the recent Hordes, we'll bring in lawmakers, policymakers as they're visiting California and bring them into our building. We'll have discussions with them. And when it is foreign leaders, that is frequently the ask.

It's what are the preconditions that we need to create in, name your country, to create the Silicon Valley in France or in Germany or in Indonesia or in Australia? And government officials from a European country, which I will not mention, came in. I think it was about four days after the ECJ had blown up the safe harbor. And so that was my response as well. I said, we can talk about ready access to venture capital funds. But at minimum, you've got to create a rule of law and a legal framework that allows certainty, predictability.

And when you rip safe harbor away, that runs contrary to that. So we've had that same experience. I would ask, though, about safe harbor and privacy shield. Where are we? And one of the biggest questions we got around that time, these are small companies. You know, the big companies can figure out how to handle the safe harbor invalidation. But the small companies are saying, what in the world do we do? We've got data.

We've got employee data that's over there. We've got user data that's kind of from Europe help us. And you were one of the leaders in getting Privacy Shield done. Can you talk about Privacy Shield and so on? Sure. So you make all the good arguments and exactly the arguments that I've made with the EC, the European Commission. And the good news is the leadership in the European Commission gets it, right?

They understand that we do $280 billion. of digital commerce annually right now, and it's only growing. And they also understand that there's 4,000 businesses roughly across the Atlantic that benefit from having, you know, in essence, a safe harbor for how do you, how do you put, send data back and forth across the Atlantic where privacy is protected when the privacy regime in Europe is structured differently than it is here in the United States. So the whole idea is how do you do it in a way? We had a system that was set up probably 15 years ago. You know, 15 years ago, we didn't even have an iPhone. So it needed an update. It didn't need a total destruction, total destruction,

but it needed an update. The privacy shield is, as we call the new structure. I think it satisfies the the court case. It will allow data back and forth. It has the unanimous approval of the European Commission. We now need to get state approval, and that effort is going on right now in Europe. And the challenge, and this is what I've said to my counterparts in Europe and to the leaders of the data protection agencies in each of the states, technology is evolving. We've built in now to the privacy shield, the ability to step back each year and look and see, do we need to tweak things so that we can make sure that an individual's privacy is protected. This summer, we're hoping that the states will vote, and then it will be in effect. That's where we're

at. I noticed that last week, the, was it the Article 29 working group? Yeah, which are the data protection agencies of the member states. So they voiced, what was it, strong objections to it or strong reservations, something, something strong. And is that just, is that part of the process? Part of the process, they don't have a vote, but they have a say, right? And so our teams have been analyzing their suggestions. And we're open to, you know, we're open to if there's process changes. What we don't want to do, and neither does the European Commission, is open the document back up and say, let's renegotiate. Because we have an annual process of review where we can say, okay, we need to tweak this or tweak this, that.

But the posture that we're both taking and working on with the states is that, look, we have to get out of the starting blocks. Let's not let Perfect be the enemy of good. You want protection. And that's your job. I get your role. And we've created lots of ways for citizens to have redress. And we've created lots of mechanisms. Let's start and see how it works.

Because the other thing to keep in mind, and this is unbelievable, there have only been four. cases. Four cases. So let's, before we decide there's going to be thousands and thousands of people are unhappy, let's start and see how it works. My personal commitment is we're all in to try and get this thing done this summer. Appreciate it and are hopeful because it's just a critical piece of allowing these companies to function. Staying on the international front, you recently took a pretty entering trip to an entering place. Talk about Cuba. So Cuba really extraordinary. It's 11, it's an island, 11 million plus people living 90 miles off of Florida. And the truth is when you say you don't have relations with a country, it means you don't know a lot about them. And over the last year plus,

it has been extraordinary for our governments to get to know each other. And what's even more extraordinary is our people's getting to know each other. The Department of Commerce have had the honor of playing a really important role in helping the president effectuate his policy. And the president's attitude has been very simple. Isolation didn't work. Let's try engagement, right? So we, the Department of Treasury really has done regulatory changes that allow goods and services to be paid for, both directions. And we're, The Department of Commerce plays the role of changing regulations that allow the sale of goods and services to happen, the precise products. We are limited by the embargo, and so there's only so much that can go on.

However, now we have direct mail. Now you can make a direct phone call. Now you can take a direct flight. Now you can go visit. You can self-certify. And we can now sell telecommunications equipment, which means there isn't, the internet backbone yet there yet, but it's coming. And that would be a critical piece to the engagement and changing standards of living.

The other thing to remember is they import a lot of food, and only one third of Cuban land, arable land is now in farm production. So they have enormous potential for their own people. The visit was amazing on a couple of levels. First of all, to see the fruits of our labor. and the Cuban people lined the streets. They were excited by the presence of the U.S. president. So that was really very gratifying.

The other thing that was most amazing was there was a press conference. And it was the very first time President Castro has taken questions from the Western press. And so for the Cuban people to see that and to have that occur, you don't appreciate that because for us, the press is ubiquitous, but there it was really extraordinary. Any hard questions to him?

Were there? Oh, yeah. It was very symbolic, but substantive also. So it was really important. And the third benefit to think about is our whole relationship with Latin America has changed for the better because of recognizing Cuba. There's, you know, knock-on effects in terms of creating an environment where you can do more business throughout the Western Hemisphere. You talked about the infrastructure piece and telecommunications equipment, but is there a plan to push for Internet freedom, for Internet access there, to use over time commerce, others to push for that? Well, you have to remember Cuba is a sovereign nation.

I think that the fact that they've embraced this relationship and they've embraced the kind of travel and engagement and telecommunications will evolve in a direction that will lead to greater engagement for the Cuban people. Another issue ripped from the headlines, TPP, near and dear to your heart, you're clearly both the administration, but also commerce in particular, strong advocates of TPP. I noticed that EFF has objected to some of the copyright provisions, but that's a detail in this important detail, but a detail there. Can you talk about prospects with the TPP as you see him?

You know this, but I'm going to emphasize the strength of a country is often judged by the strength of its economy. 95% of customers are outside the United States, 80% of purchasing powers outside the United States. Asia Pacific region is the fastest growing middle class in the world. Over the next 15 years, you're going to see it go from about 500 million to 570 million middle class to somewhere between 2.5 and 3.5 billion. I've seen numbers in that range in 15 years. So that's a market you cannot afford not to have access to. Our companies cannot afford not to have access to. And the problem is with the rhetoric and the political campaigns and all this,

it's really up to all of us to take action now. And I think that you have to recognize that, you know, there have been 100 free trade agreements in the Asia Pacific, none of which are the benefit of us. And our competition has access. lower tariffs, and TPP contains, you know, labor standards and environmental standards that all of you would support. You know, there's in any deal, you can always find something you don't like, right? You guys have all negotiated deals. To make a deal, you have to compromise. There's some compromises here.

I'm not suggesting it's perfect for everybody. But this deal, we cannot afford to let it pass. It's good for your businesses. It's good for the people, the workers in America. We have 11.5 million people whose jobs depend on selling goods outside the United States. And the business community has to be heard now. And your employees need to understand the importance to the growth of your businesses, access to those markets. When you talk, it's interesting to me to hear that, that your perspective is American business has not been engaged enough on this and not been loud enough. Is that a critique of American business generally? They've just been hiding in the tall grass, as they say, or is it directed specifically at the tech sector in Silicon Valley that

you think should speak up more? Is it everybody? I love all my children equally. And so I'm going to chastise all my children equally. It's everybody. I think all of us need, if we think this is important, we have to stand up and say so now and we have to be heard because the window will close and I don't know when it opens again. Okay. Question now on your management style and what you encountered coming from the private sector to Washington. And as I mentioned at the outset, you're an entrepreneur. You've built successful businesses, run businesses, gone through all the trials and tribulations of that, had to bootstrap things as an entrepreneur.

And then you come into a huge agency, Department of Commerce. In coming into such a big organization, did you, I'm sure you brought plenty from your background, but what any particular business strategies or business lessons that you learned that you had learned as an entrepreneur that you brought to bear on your style? the Commerce Department? My approach has been to think about this the same way you think about your business. First of all, who are our stakeholders? Our number one stakeholders of the business community. That's tech, that's data, that's manufacturing, that's, you know, ag, that's everything. That's energy, you name it. Fisheries. Fisheries, definitely a big part of our stakeholders. Then we came together

and we took the senior leadership and we put together a strategic plan. We said we're going to focus on trade and investment. We're going to focus, and investment meaning foreign direct investment in the United States, trade meaning exports, innovation. We're going to focus on advanced manufacturing, workforce development, because I heard every leader of every company that I met with

said, I need a workforce that can do the jobs I've got. And then the digital economy. That's been a big priority of yours. Huge priority of ours. But that you brought specifically. Yes, Alan Davidson runs that effort for us. He runs our digital economy leadership team, and we're institutionalizing that so that we can be your voice, so that we can effectively, you know who to talk to.

We have a policy agenda about our policy agenda is an open and free internet. The second is the issues around trust, privacy, security, encryption, data, you know, the safe harbor, et cetera, the digital single market in Europe. All of those are policy issues around trust. Trust. Third is access. How do we make sure that there's, you know, high-speed internet availability ubiquitous in the United States? We've laid about 130,000 miles of high-speed broadband during the Obama administration. And then how do we engage with the newest technologies? So whether it's autonomous vehicles or the Internet of Things or any of the different fintech, you know, engaging with and what are the impediments to, making progress. Data is another area that has been a huge priority of ours. We produce 20 to 40 terabytes of data a day. How do we make that available? How is that? How can you use that information? How can it be used to better inform decisions? What kind of data is that? So we produce weather data, which we're only making about 10% of our weather data available

right now, and that's powering things like the weather channel and other things. We're the sensors and the algorithms, et cetera, and the satellites, as I like to say, and the buoys that are behind all of that. We're also census data, and it's not just the decennial census. We are the survey organization for the federal government. And then we have all the economic data. In fact, one of the challenges we have right now, and I'm fighting to get access to this information, is we don't have really, we're not counting, I don't think, in GDP, the gig economy. as fulsomely as it ought to be accounted in our GDP. And one of the things I was talking about is getting access to different information,

which we don't have access to, that could help us. So we can account for that. So we're full of information, patent and trademark information, that could help in our age of big data is valuable and should be made more useful. Are you seeking out Silicon Valley entrepreneurs, engineers, others to come join commerce? Absolutely. We have something called the Commerce Data Service,

which is data technicians, data analysts. We've got about, I think, 20 or 30, that are helping us. We have more projects than we can do. Helping us with, for example, making our data more available. It's not just creating APIs. It's actual projects that create information

that can be used. We have Presidential Innovation Fellows. so you could leave your business for a year and come and work on a set of projects in the government and make a huge difference. I think we need more of that, that sort of temporary, it may be permanent, but at least temporary hiatus where you go and work and government contribute your skills there and then go back. You know, we've now got, I think, throughout the federal government, about 500 of such folks who are here as term employees to help us with different types of digital and data projects.

throughout the federal government, but we need more. And frankly, the more that there's engagement between you all and our government and our government and both Silicon Valley and our innovation economy, I think the more likely it is that we get laws and regulations right and that there's a real dialogue about it. I want to say one thing about ways that we at the department can help you as you're innovating around and want to take your projects and products and services around the world is we have an initiative started by Mike Masserman who I think is here. He's now at Lyft called Startup Global. So we work with companies to be born global. We have our foreign

commercial service officers in 75 or 80 countries around the world. Their job is to help you navigate in those countries. We have our new program called our digital attaches, which are in six markets. It's a pilot in the ASEAN countries, India, China, Japan, Brazil, and the EU. And these are folks whose job it is is to help you address digital issues in those countries, overcome trade barriers, drive policy change as it relates to technology, and be on the front line of helping small and medium-sized businesses in those markets. So, you know, we're a service organization.

You're our customer. Please call on us. We appreciate that. We appreciate your work, Secretary Pritzker, on being America's Innovation Agency. Thanks so much for joining us and for spending time with all of us here in the room today. Thanks for including me.