Ep: 5 Reviving the American Dream

Eric Schmidt
September 22, 2020
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September 22, 2020

Ep: 5 Reviving the American Dream

In episode 5, we're talking with J.D. Vance; investor, commentator and author of the bestselling memoir, Hillbilly Elegy about the future of the American dream and how we can reimagine innovation and inclusion in the economy.

"I think there are two really important things that the country needs right now. I think it needs capital investment outside of the big economic hubs, but I also think it needs capital investment in sectors where those hubs are real specialists and real innovators and leaders." - J.D. Vance

Episode Transcript

J.D. Vance (00:00):

I think there are two really important things that the country needs right now. I think it needs capital investment outside of the big economic hubs, but I also think it needs capital investment in sectors where those hubs are real specialists and real innovators and leaders.

Eric Schmidt (00:23):

The coronavirus pandemic is a global tragedy. But it's also an opportunity to rethink the world, to make it better faster for more people than ever before. I'm Eric Schmidt, former CEO of Google and now co-founder of Schmidt Futures. And this is Reimagine, a podcast where trailblazing leaders imagine how we can build back better.

Eric Schmidt (00:59):

The American dream has been in decline for many years now. This has eroded trust in our nation's institutions. At its root, the American dream was the notion that any single individual could become president, could become wealthy, could become super successful. And yet in the last couple of decades, under Democratic and Republican administrations, mobility has dropped. For many, many reasons, prices of housing had gotten out of control. The ability for families to move, to get promoted, all the things that were cherished in the 50s and 60s, are much harder now.

Eric Schmidt (01:33):

Our guest today is J.D. Vance. He's an investor, commentator and author of the bestselling memoir, Hillbilly Elegy. J.D. has a vision for a more inclusive economy. And he's a supporter of Rise of the Rest, a venture capital fund that invests in entrepreneurs outside of the traditional spots of New York, Boston, and Silicon Valley. Today, we're talking with J.D. about the future of the American dream and how we can reimagine innovation and inclusion in the economy.

J.D. Vance (02:00):

Thanks, Eric. Thanks for having me.

Eric Schmidt (02:01):

Let's start with a movie question. Some of the greatest movies of our lifetime, A Beautiful Mind, Cinderella Man, Apollo 13, all have one thing in common, which is Ron Howard as a director. And he has a new project now based on your book. What can you tell us about this?

J.D. Vance (02:17):

Well, very exciting to have Ron leading the project. And when I first started having conversations with movie producers, I sort of decided that I didn't actually want to make a movie out of the book. Felt like it had gotten sufficient attention. And once you give something to a movie producer, it's really not your project anymore, it's theirs. But I realized talking with Ron that he had just a very similar way of thinking about the book, about some of its core messages and also just about the importance of telling stories that don't often get told. And so I sort of took the call because it was Ron Howard. And I thought I'd say thanks, but no thanks. And by the end of the conversation, I really wanted to make a movie with him.

Eric Schmidt (03:04):

With that team at Imagine, I don't think you can do any better. What's interesting about your book was it was the first book that I read that really laid out the hopelessness in small towns. The hardship we're seeing in rural America and the economic shutdown creates a depression-like environment. Unemployment skyrockets and wages drop. A record number of people are relying on food banks and we're seeing overdoses and violence in various forms. We need to provide them help. J.D., how do you assess the situation? What do you think needs to happen to help rural America out?

J.D. Vance (03:40):

Well, I think first we have to get out of the crisis itself. I mean, part of what's driving the economic devastation is of course I think some public policy, but I think the primary thing that's driving it is just that people are too afraid to go out. And so even in my hometown or in some of the smaller towns where I have friends or family, people may not be as worried about COVID as they are in big cities where there are higher case counts, but they're worried enough to change their lives in the little ways that make it really hard to have a viable commercial and retail economy. So I think the first thing we have to do is get the crisis behind us, some combination of better treatment for the disease. Hopefully a vaccine will come online in the next few months. That's sort of step one.

J.D. Vance (04:33):

I think step two is just to recognize that when we're designing policy interventions, the needs of rural and small town America are just much different than they are in big city America. So in urban America, you talk about issues of school form, but you're talking about school reform in the backdrop of a neighborhood or set of neighborhoods that are sufficiently dense, that if you open a new charter school or you make some reforms to the local public school, there are enough kids around to benefit from that. Whereas in certain places of the country, you have a single school supporting kids for a 10, 15, 20, 30 mile radius. You can't really do as much educational innovation in that place as you can in an urban area.

J.D. Vance (05:20):

And so I tend to think that what these places need most of all is some real longterm investment and some return of longterm industry. That's obviously a very tough question. You can't obviously bring back every job that was lost over the past 20 or 30 years. In some cases you may not want to, but I do think that for rural and small town America to have any hope, we have to really reinvest in the types of jobs and the types of industries that can support these local economies. And you're probably not going to save every single small town in the country. I don't think that's possible. But I do think that unless you have some local industrial base, it's going to be very hard to bring back or to even sort of stem the tide of that bleeding in a lot of these places.

Eric Schmidt (06:12):

Well, an optimist would say that with technologies like Zoom and the digitization of our daily lives, people can work remotely. And that notion of the nation, country, company, city state that prevails for corporations anyway, can really be a very different one. As a pessimist would say that it's still easier to recruit those people in the big cities and that the quality of the workforce in the rural area is much harder to deal with. So you have committed your career after the book to first Rise the Rest, and now your own firm. How will the money get there? How will these companies get started? Are there in fact budding entrepreneurs in all of these little towns that just need access to capital? What's the truth of the dispersion of talent in these areas?

J.D. Vance (07:06):

Well, I think you have to draw a distinction on the dispersion of talent and the access to capital issues both, between what I would call mid-tier, medium-sized cities like Cincinnati, like Columbus, like Lexington, Kentucky, Nashville, Tennessee, and the truly rural parts of the country. And the reason that distinction is important is because I think that there is a critical mass of high quality entrepreneurial talent in a lot of these sort of medium-sized cities. Cincinnati doesn't even have 300,000 people in it, but there are enough good business here, there's enough of an economy here to support, not just the 300,000 residents of Cincinnati, but really a multimillion person Metro area that, like I said, depends on the city of Cincinnati.

J.D. Vance (07:51):

And I tend to think that if you think about sort of very bipolar approach where all of the economic growth is going to, say, New York, San Francisco, Seattle, LA, Chicago, the Washington area, and the other end of the spectrum, where you're trying to save and preserve every single small town or rural area. What's a little bit more sustainable of a model is something in the middle where you have a fair amount of investment in these regional economic hubs. And so if Cincinnati is doing well, then it can support a lot of economic activity that is happening in rural and small towns, but isn't necessarily focused on those rural and small towns.

J.D. Vance (08:36):

And we have a company that we've invested in. It's an agriculture technology company. They're doing extremely well. They are going to support, probably in the next three months, 400 jobs. And hopefully a year from now, they'll be sort of supporting around 1,000 jobs. That company is employing a mix of high and mid-skill people. There's sort of the classic, upper educated, skilled professionals, the CFOs, the finance folks, the marketing folks. But they're also supporting a lot of folks at a high wage, certainly above the median wage, who did not go to college.

J.D. Vance (09:19):

I tend to think that if my first point is you have to rebuild some of these regional economic centers, not again, necessarily every small town, but places, the 200,000, 300,000 person cities that form the core of a much broader metro area, if you can rebuild those geographies, but also rebuild them with the types of companies that depend not just on the very well educated, but also need to employ people who are a little bit up and down the skill spectrum, or at least up and down the educational ladder, that can provide enough regional economic boost to give most people a solid economic future.

J.D. Vance (10:01):

And I think that that's one thing that we often miss in the conversation about economic development. It's not just the geography of it, but it's the type of economic development. If you're building the types of companies that rely on and need people from across the skill spectrum, that's obviously a little bit more sustainable than just investing in the type of company you might see in Silicon Valley but that happens to have decided to put their headquarters in Columbus, Ohio, or Minneapolis, Minnesota.

Eric Schmidt (10:32):

Rural areas have been the slowest to recover. And when you travel around the country, the rural areas seem unchanged from 50 years ago. The COVID economy is going to bring severe financial suffering to the rural poor. For example, in Mississippi, labor participation is only 53%. Massive food lines, millions of Americans who are on verge of going hungry, and it's going to get worse before it gets better. To me, you need to develop businesses that can bring in a diversity of talent and a variety of skill sets. Remember, the companies are not monolithic. It's not just one type of person. And because everyone is local, there's a lift to every surrounding community. Everyone wins. Surely if those teams were innovating in new businesses in chemistry and biology and manufacturing and distribution and all the things that people need in their lives and services and call centers and everything else, surely that that can provide enormous economic growth driven from these regional hubs.

Eric Schmidt (11:30):

It's interesting that in my philanthropy that we started a while ago, we've created something called the Alliance for the American Dream. And we're working with a set of universities, including Ohio State. And the basic idea is to try to work with universities that are regional in nature to try to create some startups. And one they're working on right now is a company which is trying very hard to figure out a way to clean up very old records for people who have aging criminal records, they've been good for a long time, to try to get that stain off their records so that they can get proper employment. What I thought was interesting about the innovations in Ohio was that they were the kind of ideas that you could pull off because people knew each other. They worked hard, there was a community value, it was sort of relatively easy to get done. And that's probably a strength in the regional hubs that you were talking about.

J.D. Vance (12:19):

Yeah, I think that's exactly right. And there's another strength that a lot of these geographies have, which is the local research university. In Indianapolis, you have a lot of folks coming from Purdue University from IU and Columbus obviously and you have Ohio State. As much as I hate to admit it in Ann Arbor and Detroit, you have the University of Michigan, which is a high quality university. And I hate to admit it because I'm an Ohio State Buckeye, and we have a rivalry with those guys up to the north. But the thing that I try to encourage entrepreneurs who are thinking about starting companies in these geographies to do is to coast on what their local geography is already good at. In the research university context, as you probably know, Eric, one of the best performing, if not the single best performing early stage asset of the last 20 or so years has been in the biopharmaceutical space because people are living longer. They want to live higher quality, healthier lives.

J.D. Vance (13:21):

And so there's a real appetite out there for new biopharmaceutical assets. And a lot of the most exciting assets come out of places like OSU or Purdue or the University of Minnesota. And so I think that there's a lot of opportunity to coast off of the materials and biologics innovation that's happening in these geographies to build companies in those spaces as well.

J.D. Vance (13:42):

Columbus, you may know this, but Columbus has built a pretty interesting biologics and gene therapy hub by working with Ohio State University, the local city government and Nationwide Children's Hospital, which is a real leader in the gene therapy space. And I tend to think of those types of strategies where you're building off of local institutional knowledge and success makes a lot more sense than just trying to rebrand and replicate what worked in Silicon Valley, which will work for some people. But I think we need more economic innovation than just in software and IT, and these geographies very often, that's not what they're strongest in any way.

Eric Schmidt (14:20):

You talk a lot about in the book about your own experience, as a personal narrative about what it's like to grow up in Ohio and Kentucky and so forth and so on, and the impact that it had on you. How did you escape that? Was it the Marines?

J.D. Vance (14:35):

Well, I think it was really a combination of factors. And you're certainly right that my hometown is this place, that in the 60s and 70s, I think a lot of folks saw it as this land of opportunity where a lot of the high school graduates went on to do great things. The town seemed economically prosperous. And then by the time I grew up there in the 80s and 90s, there was just a lot less going on. Most of the industrial jobs have disappeared.

J.D. Vance (14:59):

And I think one thing I did benefit from was obviously the love and support of my grandparents. I'm a really strong believer that if you want to have a successful life, if you want a kid to overcome the proverbial odds, then you need at least one person that kid's life who's just a real advocate. And despite a lot of problems and issues with addiction and other things that were going on in my family, my grandparents were always just incredibly stable. They were incredibly supportive. And though they were non traditional in a lot of ways, I don't think that they would necessarily meet anybody's stereotype of the perfect parent parental figure, they were ultimately disciplined and strict and encouraging in just the way that I needed.

J.D. Vance (15:38):

And certainly joining the Marine Corps was a hugely powerful part of me having much of a chance. I like to say that there was this sense of learned helplessness that I developed, this idea that just no matter what happened, no matter how hard I tried, no matter what I did, that I would never amount to anything because there were just so few opportunities around. You sort of internalize that sense of hopelessness. But in the Marine Corps, I learned what I call this intentional willfulness where you start to develop this idea that if you put your mind to something, you really can accomplish, and that's I think just an ethos in the Marine Corps that they want everybody to develop these skills of bearing, of self-confidence, of self-determination. That was obviously a really critical part.

J.D. Vance (16:26):

But I like to tell people that I look back on my life, there are all these variables that really had to fall in place. If you think about my life when I was a sophomore in high school. I was getting Fs in English and Math courses. I was close to dropping out and just not doing very well. And then of course, I've done some stuff since then. I think the trajectory really just depends on all of these incredibly complex, psychological and social variables. I think if you take out my grandparents, if you take out the Marine Corps, if you take out my sister, if you take out a really good high school math teacher that I had my junior and senior year, I think any one of these variables makes my life pretty precarious.

J.D. Vance (17:06):

And one way I think about the American dream these days is it's not that no kids from tough backgrounds from some of these left behind towns are able to make it out. It's just that they're in such a precarious environment. And so one way to think about rebuilding the American dream is to put as many positive variables in those kids' lives as possible so that you have more kids who get that lucky break instead of get that bad break.

Eric Schmidt (17:32):

One of the things that we miss as part of the media, part of the discussions that we're all in, is that so many people are suffering for reasons that we do control, that they don't have enough to eat, or they don't have an opportunity and all the signs are negative. In all of our studies we know that there are plenty of people who are living hand to foot, that they literally are worried about risk aversion in the week. All of a sudden they're terrified that they're going to lose everything. And so they become afraid. They become demotivated. Now it's interesting that you've just created recently at the beginning of the pandemic, in fact, your own venture firm, tell us where you are. I'm reminded of economic history that the best time to create something is when everything is really a mess.

J.D. Vance (18:19):

Yeah. We certainly are mindful of the fact that maybe the best year to have a venture capital fund in the past 15 years was 2009. So certainly we're hopeful that our own fund will be successful. Though of course, we're mindful of the fact that the world is just not in great shape right now. And so our goal is certainly to be part of the solution as the economy hopefully starts to come back online, to invest in companies that just won't create jobs, but will also really advance the technological progress that I think is necessary for real economic growth and broadly based prosperity.

J.D. Vance (18:57):

But the fundamental thesis of the fund is sort of related to what we talked about just a few minutes ago, which is I think there are two really important things that the country needs right now. I think it needs capital investment outside of the big economic hubs. But I also think it needs capital investment in sectors where those hubs are real specialists and real innovators and leaders. And so we sort of think of ourselves, not just as investing outside of the traditional tech hubs, but also in investing in sectors that a lot of venture capitalists think are places or sectors to be avoided. We tend to go to those places and lean in where there's an idea that doesn't look like a traditional enterprise software company, but we think has the potential to be, like I said, a real big job creator and a real big market leader.

Eric Schmidt (19:50):

One of the ways to make money in venture capital is to make a bet that nobody else sees. And the fact of the matter is that investing in venture capital has been largely focused on the coast. What I like about what you're doing is you're making a structural bet. You're saying that the millions of people who are graduating from elite universities in the top places in the middle part of the country are just as good as the ones on the coast. It makes sense to me that they should produce some real serious winners across the board. I'm convinced that you're going to find these opportunities. I'm also convinced that you're going to find them in midsized cities and regional hubs. It's interesting for me to watch what you're doing, it would appear that you might feel like swimming upstream because politicians are fighting you step by step. And you've been very clear that you believe the partisan divide is hurting us, which I agree with. J.D., what do you think is behind this friction and what do rural communities stand to lose if we don't make a change of some kind?

J.D. Vance (20:47):

Well, it's a very tough question and a very tough issue. I think that, one, obviously we have very strong political disagreements in part because we have very big challenges. And when people aren't sure how to solve them, then they can become a little rancorous and a little aggressive. And that's the political environment that we found ourselves in. I think unfortunately, what COVID has revealed is that I think our economy is much weaker than we maybe would have hoped that it was. I think we've realized that when a pandemic comes, there are a lot of industries, whether it's the corner store in a lot of our cities or a lot of our small towns or the big travel and leisure based industries like airlines, hotels, and cruise lines and so forth. But even things like the technology sector, all of them have been affected by the pandemic. And I think it's just given everybody a sense of precariousness. And in the face of that precariousness, I think people get a lot more emotional, a lot more aggressive.

J.D. Vance (21:56):

And unfortunately, the political rancor that we saw four years ago, eight years ago, 12 years ago, I think it's only gotten worse in the face of the pandemic. I won't pretend to know how to solve the political problem. I tend to think that the political rancor is a symptom of the fact of that our society really is in trouble and the American dream really is in crisis. And I think if you had more people who look to the future and saw a place of optimism and hope, that that would also get reflected in our politics. And until you solve that problem, I think unfortunately, our political discourse is going to be pretty broken as much as it pains me to say that.

Eric Schmidt (22:31):

It's clear to me that the pandemic is essentially driving the things that were broken even more apart in our society, that whatever friction and inequality or disagreement there was, the pandemic makes it worse. So we have a collective trust problem in America. For whatever reason, people don't trust our government. Maybe they've never trusted it, but they certainly don't trust it now. So when the government makes a reasonable request like wear a mask, there's a presumption that that's some huge attack on people's freedoms. When in fact it's the best way to save the lives of your friends and your parents and your grandparents. It's a communications problem, but it's also a deeper trust problem. We have to be honest with ourselves that our society has this tribalism in it, and that we enjoy the tribalism. We enjoy the fight, but that people have died because we let it get too far. We let it go beyond sport, into bloodbath. And it's important that we understand that the most important thing for our society is to save the lives of our fellow citizens.

Eric Schmidt (23:28):

You would think that a threat to the American dream would result in a stronger and united response. One of the aspects that's been hardest for me, and you've talked about this publicly, is the lack of collective effort to reduce the infection rate. Whether it's staying indoors or wearing a mask, every single infection has a potential exponential impact on every one of us, as well as obviously the person who got sick. Why do you think we've seen this kind of reaction or inaction from so many people?

J.D. Vance (23:56):

I think it just speaks to sort of the broader institutional brokenness in our society. I think you may remember, Eric, in early March, I remember being sort of criticized about this on social media. I said something to the effect of, "Look, we're not 100% certain that they work. But it's probably a pretty good idea to wear masks because even if they may not prevent infection from you, they probably reduce the amount of aerosolized transmission that you're projecting on to everybody else."

J.D. Vance (24:26):

And part of the pushback at the time was, "Look, our existing authority say masks don't work and so we shouldn't wear masks. And anybody who says that they do is sort of engaged in junk science." And I think it's unfortunately what that period illustrates is that in the face of scientific uncertainty, in that case, do masks work or don't they, it's always useful for our public authorities and everybody in our society to take a posture of humility to say, "You know what? We don't really know, but we might as well wear them," because now that the public health consensus is a little bit more on the side of, "Yes, we should be wearing masks," there are a lot of people who don't trust the authorities and consequently they're pushing back against this broad guidance.

J.D. Vance (25:10):

And I tend to think that the decline of institutional trust, it is a real problem, but it comes from, I think, a more broken place in our society where we just don't have leaders that are expressing humility in the face of uncertainty. And consequently they tax their authority and their trust. And then when they need to coast and use that trust, they don't have it anymore. To your point I've certainly pushed back against the idea that the pandemic isn't real, that it's comparable to seasonal flu in terms of its mortality rates. I think the evidence is just, it's much more severe. Infection fatality rates on the order of 0.4% to 0.9%. That's pretty substantial, but I don't mean to be a pessimist here, but I just am.

J.D. Vance (26:08):

It worries me a lot that in the face of a pandemic, instead of uniting, we're actually just bickering and arguing with each other. I think, to reiterate the earlier point, I think it suggests a deeper institutional brokenness in our society and I'm not quite sure how to solve it. I think that unless you solve some of these deeper problems, it may just be the case that we're not a society that can deal with a pandemic as successfully as we might've 30, 40, 50 years ago.

Eric Schmidt (26:36):

J.D., I think your final message about humility is probably the most important of all. We don't know what to do. So let's be a bit more humble about our assertions and try to work more closely together. You're really trying to make America a better place and I admire that. Thank you so much.

J.D. Vance (26:52):

Thanks, Eric. Bye.

Eric Schmidt (26:57):

So where are we now? Even before the pandemic hit, the American dream was in a state of decline, and now the impact of the coronavirus could set rural America back decades, which will affect all of us. Change begins when we can double down on trust and humility. We don't have to choose between health and the economy. We truly can come out of the pandemic stronger than before and create a better economic infrastructure if we emphasize a few key changes.

Eric Schmidt (27:26):

The philanthropy I work with, Schmidt Futures, is working really hard to build alliances of entrepreneurs, to help fund families in need to help with more data. You've got to focus on workers and families now. We put together a fund with the Ford Foundation to try to fund policy groups to advocate for continued government response and get people the funding that they need, figuring out a way to get financing mechanisms for those who do not have access to traditional financial services. There are people who literally can't get money out of a bank. They have no credit, and they're in real distress right now.

Eric Schmidt (28:00):

We're working hard on data, an initiative to help students and job seekers make better career decisions in a changing economy through data-driven information, and especially to help low income, lower skilled, and underemployed and unemployed Americans access better jobs and education opportunities.

Eric Schmidt (28:17):

I think it's time for us to reimagine the American dream and put our money, and certainly my money, after it. We put together something called the Alliance of the American Dream with the idea that you'd build a network of communities essentially anchored by a public research university to provide opportunities around entrepreneurship and funding and so forth. Many of the ideas that have come out are really, really interesting. All of these are part of a solution that we all have to participate in. These initiatives are part of a broader solution and an attitude. And the attitude that I think we should all have is that Americans in the middle part of the country, in the rural parts of our country, have enormous untapped potential. J.D. is interesting because he's one of the first entrepreneurs to really identify and put his own money behind that cause. I know he'll be successful.

Speaker 3 (29:08):

We're putting a call out to the world's students about how to reimagine our post-pandemic world. We call it the Reimagine Challenge 2020. As many as 20 of you who submit winning ideas will be eligible to receive up to $25,000 each in scholarship funding plus $25,000 for your school. We're seeking your ideas on one of two powerful ways to make our world better. You can find all of the information about judging and how to submit at Reimaginepod.com.

Eric Schmidt (29:40):

Next week, we're to the clouds to reimagine the future of aviation with former Airbus CEO, Tom Enders, and the pilot who pulled off the miracle on the Hudson, Captain Sully Sullenberger.

Sully Sullenberger (29:52):

Like every crisis, this crisis demands effective leadership and it demands effective, not only national, but international leadership. And that's one of the great failures of the response so far is that it's been left up to others other than the national leadership for the most part, state and local officials to individual people to fill that void, that vacuum of leadership. And of course it's cost us.