Financier Milken touts diversification, education

Gary Thompson

Monday, Nov. 8, 1999 | 11:54 a.m.

Diversification of its industrial base and increased investment in education are keys to a prosperous future for Nevada, financier Michael Milken said.

Milken, the former Wall Street financial wizard credited with funding the explosive growth of the Las Vegas resort industry in the 1980s, also said global society faces three revolutionary developments in the coming century.

Increased access to capital, health care and knowledge -- aided by technology and the Internet -- will lead to a more democratic society, Milken told 1,100 members of the Nevada Development Association at its annual luncheon Friday.

In a speech on the "Promise of the 21st Century," Milken described the catalysts hastening the changes facing society.

The one he called "democratization of capital" began in the mid-1970s, when control of the flow of money shifted away from private institutions and toward public markets.

This enabled thousands of small and medium-sized companies that traditionally hadn't been able to borrow money to finance growth to eschew banks and other private lenders and access the public debt markets.

The result has been a dramatic increase in the value of technology-oriented companies, while those spending large amounts on raw materials to produce finished products -- the auto, energy and steel industries, for example -- have seen little or no real growth in the worth of their core businesses.

In fact, Milken noted, the top 10 technology and pharmaceutical companies of today have twice the market capitalization as the entire U.S. stock market did just 15 years ago. And the emergence of new companies has generated 53 million new jobs in America, while Fortune 500 companies have sustained a net loss of 3 million jobs since then, he said.

Milken played a key role in that capital revolution. The British financial weekly The Economist said his financial innovations fueled "much of America's rampant economic growth by enabling companies with bright ideas to get the money they need to develop them."

The second big change will be in the growing realization of the worth of "human capital," an asset long undervalued by all but one industry, he said.

The sports business is the only one that truly understands -- and capitalizes on -- the value of its employees, he said. Milken cited the explosive growth in ticket sales and prices of two NBA franchises, the Boston Celtics and Chicago Bulls, after those teams drafted Larry Bird and Michael Jordon.

The "human capital" issue will first manifest itself as companies begin to understand the import of investing in medical research, which will greatly increase the $40 trillion of financial assets in the United States today, he said.

Milken said University of Chicago economists have calculated that the economic value of eliminating the country's 560,000 deaths from cancer would add $46.5 trillion to those assets, while eliminating heart disease would boost them another $48.4 trillion.

Increased access to and lessening control over the flow of information will mandate more investment in education that will enable consumers to understand the changing world, he said.

"The strength of a country is a function of its educational system," Milken said. "It's critical to put the right people in the right roles with the right knowledge."

Education is a never-ending challenge, he noted, adding that the country needs "millions of new teachers and a way to attract them to the profession."

"The skills you learn in school will be useful for shorter and shorter periods of time" due to advances in technology, he said.

Nevada should capitalize on that need by attracting high-tech companies to the state, Milken suggested. "To not have technology centers here such as those in Silicon Valley will impact the growth of Nevada," he said.

To emphasize the need for investment in education, Milken noted that, in real terms, the earnings power of American's high school graduates has declined 20 percent since 1974.

Increased overall wealth tied to the rise in the stock market "has masked the fact that the average wage for 70 percent of all Americans is declining," he said. "What happens when the stock market stops going up?"