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Fareed Zakaria GPS

Interview with Walter Isaacson; Interview With James Dyson; Interview With Economist Michael Spence

Aired November 27, 2011 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FAREED ZAKARIA, HOST: This is GPS, THE GLOBAL PUBLIC SQUARE. Welcome to all our viewers in the United States and around the world. I'm Fareed Zakaria.

We have a wonderful show for you today. First up, if you think you've heard all there is to hear about Apple founder Steve Jobs, think again. I talked to Steve Jobs' biographer, Walter Isaacson, about the world that created Jobs - California, the 1960s, the Defense Department. A fascinating conversation about a man and his times.

Then, why in the world is there a big, new chill in relations between Russia and the U.S.? It's all about one man. I'll explain.

Next up, where does innovation come from? We'll ask the man who totally reinvented a household appliance you use every week, or at least you should.

Then a look at jobs, inequality, and the economy with the Nobel Prize-winning economist Michael Spence.

Finally, think you can solve the euro crisis? We'll tell you how you can try.

But first, here's my take. This is Thanksgiving week in America, and it's a time we're meant to be thankful. Except no one is feeling particularly grateful because we are in a deep funk.

The United States seems to have stopped working. Discussion of dysfunction and decline now dominate the national conversation. So, I thought I would try to bring a note of optimism to the Thanksgiving table.

Every time I turn on the TV, I hear some politician talk about how Europe's woes should be a warning, and that we're next. This is a fundamental mistake. The United States is not Greece.

Countries like Greece, and even Italy, have a deep economic problem. They don't produce enough goods and services that the world wants at attractive prices. It is a basic competitiveness problem.

Greece also has a long history of borrowing too much and being unable to pay its debts. Over the past 179 years, it has been in default about 50 percent of the time. Its debts are huge and could not be paid under any plausible scenario. And, crucially, because it is part of the Eurozone, Greece does not have control over its currency, which means it cannot make its goods cheaper on world markets. Italy, which is in much better fundamental shape than Greece, would actually face no short-term crisis if it had simply kept its currency, the lira. It could devalue the lira and make itself more competitive overnight.

The U.S., by contrast, has control over its currency, which is the reserve currency of the world. OK, but what about Japan? Isn't America looking a lot like Japan with its lost decade - actually, two decades now, almost?

At a recent debate, Larry Summers intelligently pointed out that Japan's collapse in the 1990s was vastly greater than America's. Housing prices there dropped not by a third but by 75 percent. The stock market fell about the same. The Dow Jones would have to hit 2,600 to be at the equivalent level as Japan's stock market went to. And the GDP output gap, the loss of economic growth, was not five or six percent as it is in America, but almost 50 percent.

Japan has a complex economy with many sclerotic elements, and, perhaps crucially, a demographic decline that it cannot solve unless it takes on immigrants, which it does not want to do. The United States, by contrast, remains one of the world's most competitive economies. It is home to the leading companies in the most advanced industries, houses the largest capital markets, and continues to spawn new companies and, indeed, whole new industries.

It exports everything from aircraft to entertainment to health care products around the world. Its demographics are strikingly healthy. It will be the only rich country in the world to increase its population over the next 30 years, which means more young workers, producers, entrepreneurs, and taxpayers.

America's problems are not economic or demographic or technological. They are political. Simple policy measures could change our fate. If we built out and repaired our infrastructure, kept monetary policy pro-growth, reformed our tax code to encourage business investment, we would have strong economic growth, a manageable deficit, and a bright future.

So, be thankful, Americans, that we live in a great country, and then call your congressman to tell him to stop stalling and start actually doing something.

Let's get started.

(BEGIN VIDEOTAPE)

ZAKARIA: Walter, thanks for joining me.

WALTER ISAACSON, AUTHOR, "STEVE JOBS": Good to be with you, Fareed.

ZAKARIA: Let's first talk about the - the America that produces Steve Jobs. What I was struck by was you were describing a - a California at a time when it was incredibly rich, prosperous, and also full of ferment.

I - I looked this up, 1972, the year he graduates from high school, California's public schools are considered the best in the country. This is the - the golden land. Did - did it feel like that when you were researching the book, that this was, you know, kind of the - the future?

ISAACSON: Absolutely, and Steve Jobs felt this. He kept telling me over and over again that California in the early '70s, the Bay Area in particular, you had two great cultures erupting, one of which is sort of the counterculture, the free speech movement, the hippie culture, the Grateful Dead and Janis Joplin, all the music - that sort of explosion of rebellious art.

And then, secondly, you had the electronics, technology, geeky culture that had come out of the defense industries, but was ending propelled by the invention of the microchip and transistor - you know, the transistors to the microchip. And he was at the confluence of both those.

He said it was so great to be one of those people who loved the music passionately, tracking down Bob Dylan and, you know, following the Grateful Dead. But also - and, you know, dropping acid, he said that was very important as well, but also being one of the electronics kids and being able to do that merger of the counterculture and its rebellious spirit, merging that with the geeky technology culture.

That's what Silicon Valley was all about, and that's what Steve Jobs was all about, and he loved to tell that tale.

ZAKARIA: And you mentioned in the book, in passing, that all this was in an interesting way a byproduct. The - the geeky part of it, the technology, was a byproduct of the Defense Department, because Lockheed and all these big defense engineers have been - have been migrating to California to do Air Force contracts, to do things like that.

ISAACSON: Right, and Edwin Land even told him, you know, they dropped the film, you know, from the U-2 spy planes and brought them to the - you know, Silicon Valley to the Grumman and other plants there. And so people were learning spectography, they were learning, you know, spy satellites, but they were also learning, you know, how to make use of the microchip.

And it was - every person - Steve grew up, his father was just a repo man at a finance company, repossessing cars from people who hadn't paid back their loans. But everybody on the block was working for Hewlett-Packard or Northrop Grumman or one of the engineering companies, and they would show Steve things like carbon microphones and amplifiers and do the Heathkit radio sets with him. And so, he said it was just great to be able to grow up in that environment.

ZAKARIA: What did he say about his high school? Because you point out that he lobbied his parents to go to this better high school, and the high school was obviously good enough that it trained him and Steve Wozniak - ISAACSON: Wozniak. Yes.

ZAKARIA: -- both in technology. You talked about the technology teacher they had, but also give them a grounding in liberal arts, because certainly Jobs never went to college and still clearly was a learned guy about all this stuff.

ISAACSON: Yes. It's such a shame, when you look at some of our school systems now and the cutbacks that are happening, to realize what a great education a Wozniak or a Jobs could get, you know, from working class families.

Steve was very willful, and he loved his grade school. But then he gets into middle school, and, hey, you know, we all remember middle school is not always the best of times, and he hates his middle school. And he insists that his parents, who, as I say, you know, a car mechanic, basically, move to a better school district.

They moved to Cupertino so they can be in that school district. And that cost them a lot of money, but they realized that, you know, they had this boy who they had adopted who was totally special, totally smart, and they'd do anything to try to help him.

He gets in to Homestead High School. He's a couple of years behind Wozniak, but they both have taken Mr. McCollum's electronics class.

There were two classroom shops - he walked me by the school and pointed it out. There was the auto mechanic shop, but then there was a new thing that had come along, which was the electronics class, and that was replacing auto mechanics as being sort of the trade school part of the school.

ZAKARIA: But he - his experience of high school was happy?

ISAACSON: It was happy. He was a bit of a rebel, a bit of a misfit, as he said on his whole life. I think he would have been that way in any school. But he found people, including Wozniak, who had graduated a couple of years earlier but was still sort of emotionally a high school kid, so they hung out together. He found his people to hang out with.

ZAKARIA: And, you know, then he still goes and he starts this company, first works for Atari, he starts his company. Do - do you think there's something that you learned about what it means to be an entrepreneur? Because you also wrote a biography of Ben Franklin, and Franklin was also, in a sense, a - a kind of great entrepreneur.

ISAACSON: Absolutely. I mean, Franklin is a 17-year-old dropout, runaway, creates a printing shop, and Steve Jobs is sort of a college dropout or whatever. He wants to start the 21st century of a - of a printing shop. You know, he want to start a company that makes computers.

Wozniak is at the other extreme. He's the best engineer you can imagine. As Steve Jobs says, you know, he's 50 times better than any other engineer. He can hold meetings in his head.

But when he creates something, including the Blue Box, which is the first thing they created which ripped off the phone company for long distance, you know, Woz wants to give it out to all their friends and Steve says, no, no, no. I can make a really cool case for it. We can package it and we can sell it for $66 apiece or whatever and make some money.

That's the pattern. Steve Jobs is the entrepreneur. He knows how to make insanely, you know, great products, well packaged, and sell them. And Woz is just this engineer who writes wonderful, you know, code and circuit boards.

ZAKARIA: What's interesting about that is - and I remember this in the Franklin book, as well - the innovation - we think of innovation as entirely a scientific idea, you know? But the innovation is often a kind of business innovation.

ISAACSON: Yes.

ZAKARIA: I remember reading about - we did a show on innovation, and it turned out the Singer sewing machine, the Singer innovation was the installment plan, and selling to women.

ISAACSON: Really?

ZAKARIA: It was not - it was not the better machine. And it seems like all of Jobs' innovations are like that. They marry some technological advance, but really with understanding what the customer wants.

ISAACSON: Well, he marries technology and great design, and the beauty of it, and that emotional content. I mean, when you look at the iPod, it's just emotional. You say, I - you know, I want it, and you open the box, and it's cradled there.

He even took a patent on the box design that he and others did because there's an emotional marketing to it, and then you have the silhouette ads. He's a great marketer.

What Steve Jobs is able to do is pull together the emotions of everything - the emotions of a great interface, a great design, great technology, the great marketing, great advertising, great packaging. And that, you know, that was - I mean, you make a good point. What is an entrepreneur? Well, it's not necessarily the guy who writes the code, it's the guy who says, I know how to make people emotionally connect with this.

ZAKARIA: When we come back, we will talk to Walter Isaacson about more about Steve Jobs, what kind of a businessman was he, whether there are business lessons to be learned from Steve Jobs. Stay with us.

(END VIDEOTAPE)

(COMMERCIAL BREAK) (BEGIN VIDEOTAPE)

ZAKARIA: And we are back with Walter Isaacson, for those five people who have not seen him on television or looked at the book, the author of "Steve Jobs."

Business, this is probably one of the most successful CEOs of all time, right?

ISAACSON: Yes.

ZAKARIA: Yet he - he violates all the rules. I mean, this is a guy who doesn't believe in committee meetings, doesn't believe in market research, doesn't believe in being nice to people. You know, he yells, he screams, he overrules people, he says I couldn't care less what the market research shows me.

ISAACSON: Yes.

ZAKARIA: Is - is it just that he's - he's Steve Jobs, or is there a lesson there?

ISAACSON: Well, there's a lesson of really having a passion for perfection and knowing what you want to do. And, you know, he said if we - at the very first retreat that they take when they're doing the original Macintosh, somebody says, well, we should do some market research. He says, how do people know what they want until we've shown them? You know, and he quoted Henry Ford, saying, if I'd done market research, people would tell me what they wanted was a faster horse.

So he does - he really believes in his own gut, and his emotional connection, that he can have, knowing what will really make people feel it's insanely great. Secondly, he doesn't have sort of committees and all this structure. He had - runs a very tightly centralized thing.

What people have to know, how to react to him. He's very rough on people at times, but the people who learned to deal with it become passionately wedded to him, loyal to him, stay with him. And they're inspired by him partly because he prevents what he calls - when I asked him about it - the "bozo explosion." He said if you're sort of (INAUDIBLE) in velvet glove, the way you and I might be as a leader, you end up indulging people who will be players. And if you really want a team of all A players, you have to be tough about it.

And brutally honest. He said brutal honesty is the price of admission to the room. I can tell people they're full of it, but they can tell me I'm full of it. And, if you look at the results, even in his first time at Apple where he finally gets kicked out, his Macintosh team adores him. I mean, the people right around him love him. And then, in Apple, the second time around, the most loyal team of A players in any company in America.

So, he may have bitten their heads off a few times, but they stick with him because they know it's all for a particular passion and cause.

ZAKARIA: You've met a lot of CEOs in your - your life.

ISAACSON: Yes.

ZAKARIA: How - how much - how different is he? How much of an outlier is he?

ISAACSON: Yes. Well, he's a bit of an outlier. I mean, he is not somebody perfecting the traditional management skills. And even though, you know, you mentioned it can be read as a business book, I didn't write this as a business book. It's a biography. It happens to be about Steve Jobs and who he was.

So, if people say, well, this lesson, you know, in business is you should bite people's heads off if they're B players, I go, no, no. I actually am not an expert in how to run a business. I worked at this network, and showed maybe I wasn't an expert at how to run a business. But I'm just telling you the story of a guy who was enormously successful.

So this is one way to look at a life where somebody wedded a passion for artistry with technology and built the most valuable company on Earth.

ZAKARIA: There's an incredible sense of the sheer force of his will. You have this - this story, which I didn't realize. So when he comes back to Apple and he's flirting with being the CEO and he then finally decides he's going to be the CEO, within a week or two or a few months, he tells the entire board they have to resign if he's going to do it.

ISAACSON: Yes.

ZAKARIA: Now, I just was thinking to myself, I mean, to - to use a technical term, who has the chutzpah to do that? Like you've just barely entered the door -

ISAACSON: Right.

ZAKARIA: -- and you say, look, the only way I can make this work, to the people who hired you, is if you all resign.

ISAACSON: One of Steve's traits was he did not love authority. I mean, he was always a rebel, a misfit, and the board is trying to exercise authority saying, well, no. You actually can't reprice stock options, or you can't hire this, or you can't cut these lines, and he's like, no. Either you want me to do this, but I'm not somebody who's going to easily be chained in by authority.

ZAKARIA: You mention in the book that 1955, Steve Jobs and Bill Gates are born the same year, built two great technology companies, couldn't be two different people.

ISAACSON: Yes, they're very different. But, you know, people say, well, do they have a rivalry? Yes. Do they like each other? Yes. Were they friends? Yes, off and on.

It was that very complex relationship that you've seen in government, you've seen in industry, especially in technology, of people who are both friends and rivals and, you know, it's very, very tricky.

At the very beginning, in the 1970s, they are like this. It's like a binary star system where the gravitational pull of the other is doing the orbit of the other, because they're both working on this great software for the Macintosh. I mean, most of what Microsoft did in the '70s was write software for Apple computers and then the Macintosh -

ZAKARIA: And I forgot how junior a partner Microsoft was.

ISAACSON: Yes.

ZAKARIA: Apple - Apple's revenues, you point out, in 1982 were over $1 billion, and Microsoft's were $30-odd million.

ISAACSON: Right, right, right. Microsoft was the small player and tiny at that time. But that's also why it becomes a complex relationship because there are many, many cycles, and Bill Gates and Microsoft end up taking the graphical user interface that Steve had perfected, after seeing it at Xerox, you know, perfected it for the Macintosh, and then create Windows. And Steve feels they've copied me. In fact, Steve feels even stronger than that. You know, they've ripped me off, and - and he's furious.

Plus, the deep philosophical difference between Bill Gates and Steve Jobs is Steve has this temperament of an artist. He wants end- to-end control. He wants to control the hardware, the software, the device, everything so that you have a seamless, beautiful, integrated user experience.

Bill Gates feels we should have more consumer choice. We'll create Windows, but we'll license it to HP and Dell and Compaq and IBM and all sorts of computer makers -

ZAKARIA: And it's a businessman's -

(CROSSTALK)

ISAACSON: It's a businessman's idea (ph) -

ZAKARIA: Because there's more - there's more volume that way.

ISAACSON: And it works. By the end, Microsoft has more than 90 percent of the market share. People think its model has worked better. Then cycles turn. This is why it's a complex relationship.

In the end, one of the scenes I love is because he really likes - I mean, Bill Gates likes him, he likes Bill Gates. There's sort of a bond that comes from being a competitor. So Bill Gates visits him a few months, ago when Steve is sick, on medical leave, and they spend, you know, three, four hours just reminiscing about being the old men of the computer industry.

And they're both sort of nice to each other at the end. Bill says, you know, your model worked, the integrated model. I never thought it could work. Steve says your model worked, as well.

But, in the end, then Steve says to me, yes, but he didn't make great products, and Bill says, it could only have been Steve who could have integrated it. The model doesn't make a lot of sense. And you just see that both respect and weariness and understanding and affection, but also rivalry, they had with each other.

ZAKARIA: There's an MIT professor, Vaclav Smil, who wrote - and I think it was in a blog or maybe an article, he - he noticed you compared him to Edison and Ford, and he says - essentially he says, enough already. Steve Jobs is not Thomas Edison.

Let me remind you what Thomas Edison did. He invented the light bulb. He goes through the series of back-breaking inventions that - that -

(CROSSTALK)

ISAACSON: Well, let's - I mean, a couple of things. Edison also wasn't a saint. So, you know, let's not canonize Edison. And certainly, when Steve died, everybody's asking me, is he Leonardo? Is he Michelangelo? I say, well, you know, it's better probably to look at people who married technology with great art and design and innovation and created good products and transformed industries.

You know, Edison transforms the music industry with the phonograph. I would suggest iTunes and the iPod have transformed the music industry fundamentally in the same way the phonograph does. You know, the iPad has transformed publishing. The iPhone has totally transformed what our digital devices are. He's transformed the notion that a computer should be friendly and in your home. The home computer revolution is more dependent on the Mac than anything else.

So, you know, it will be interesting for business professors to probably do case studies, compare the two, and maybe find out Edison is - you know, wins the contest. But it's an interesting intellectual contest to have.

ZAKARIA: Walter Isaacson, thank you.

ISAACSON: Fareed, good to see you.

ZAKARIA: And we will be back.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

ZAKARIA: Now, for our "What in the World?" segment, something in the papers the other day struck me as odd. Russia has placed a number of U.S. officials on a blacklist. They are banned from traveling to Russia because of what the Kremlin is calling humanitarian crimes. What's going on? Isn't the Cold War over?

Well, it turns out that this is a tit for tat reaction to a similar blacklist issued by Washington this year. So, why are we blacklisting the Russians?

To explain, let me tell you or remind you of a tragic tale. The protagonist is not alive anymore, but his story highlights the amazing impact one person can have on international politics of the highest level.

On the 16th of November, 2009, a Russian lawyer died in a Moscow detention center. His name was Sergei Magnitsky. Magnitsky's death fueled outrage on the streets of Moscow. His only crime was to uncover the largest tax fraud in Russian history, $230 million in rebates falsely claimed by corrupt government officials who in effect stole the money from the Russian state.

The price Magnitsky paid for exposing this fraud was to be kept in a dungeon for months. Despite intense pressure, he refused to withdraw his testimony. He was denied clean water or medical care for his ailments. Within less than a year, he died.

Sergei Magnitsky could have remained a statistic, one of the 4,000 who die in Russia's often brutal prisons every year. Instead, his story has become the basis for the so-called Magnitsky List, Washington's list of Russian officials who were involved in the tax fraud and in Magnitsky's detention. Thanks to lobbying by Magnitsky's supporters in the West, the European parliament, Canada, and the Netherlands are all also considering their own visa bans for a list of 60 Russians.

U.S. action over the Magnitsky case has exposed a raw nerve among Moscow's elite. You can see it in the Kremlin's response. It retaliated by blacklisting U.S. officials, but it also indicated it was targeting Americans involved in the prosecution of two Russian criminals, the arms dealer Viktor Bout and a convicted cocaine smuggler. So Moscow is comparing the prosecution of notorious arms and drug smugglers with the prosecution and murder of an honest lawyer, in a case that even President Medvedev had said required investigation.

The underlying issue here is that for all the glitter of having been named a BRIC, one of the hot emerging markets, Russia remains a country where corruption is rampant. It ranks 154th in the world on transparency international's index and powerful officials can commit crimes with impunity. In fact, the most disturbing aspect of the Magnitsky's case is that it appears that the entire Russian state is in some sense involved in corruption and crime.

For real change to take place in Russia, it has to come from within. And that doesn't seem like any time soon. The current regime seems to have a firm lock on power. But there are some signs of restlessness.

Last week, Prime Minister Vladimir Putin was booed by a crowd at a martial arts fight in Moscow. Take a look. This was on live national television. According to some reports, it was later edited down by state media to show only cheers from the crowd. But the unedited video continues to circulate on YouTube. Mr. Putin probably doesn't need to worry about winning back the post of president next year, but that victory might not be seen as wholly legitimate if this discontent grows.

Kremlin Russia, an anonymous joke Twitter feed said it best, "The crowd at a no rules fighting match booed the champion of no rules elections."

And we'll be right back.

(BEGIN VIDEO CLIP)

JAMES DYSON, INVENTOR: The starting point if you like is a sort of passionate anger about something that doesn't work very well.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Time for a check of today's top stories.

Pakistan is calling a NATO attack that killed 24 Pakistani soldiers totally unacceptable. NATO's Secretary General says the deaths were tragic and unintended. The NATO attack which wounded 13 others in a region bordering Afghanistan occurred yesterday.

Nineteen of 22 Arab League countries have voted to impose economic sanctions on Syria for its deadly crackdown on protesters. Syrian Government TV says sanctions will be unprecedented and contradict the rules of economic and trade cooperation among Arab countries.

Iran's Parliament has voted to reduce its diplomatic ties with Britain and expelled Britain's ambassador. The move is in response to Britain's decision to cut financial relations with Iran because of concerns over the country's nuclear program.

Three American students who were detained in Egypt are back home in the United States. Derrik Sweeney, Gregory Porter, and Luke Gates were arrested last week after being accused of throwing Molotov cocktails during recent clashes in Egypt. The three men were released from custody Friday.

And those are your top stories. Now back to FAREED ZAKARIA GPS.

(BEGIN VIDEOTAPE)

ZAKARIA: Look around your home. There are many products in it that haven't changed in decades, if not hundreds of years. The incandescent light bulb in your lamp, pretty much the same as the one Thomas Edison invented. The clock on the wall, well the first American patent for one was in 1797. Not much has changed there. But my next guest, James Dyson, is known for his bold reinventions in the home. He forever changed the way we think of vacuum cleaners, fans, heaters, and he intends to alter our vision of much more both within the home and without.

Thanks for joining me.

JAMES DYSON: It's a pleasure.

ZAKARIA: So when one thinks of creative engineers, innovators, you assume they're going to make really cool products like computers and laptops. What made you think of a vacuum cleaner?

DYSON: Well, I'm rather attracted to rather prosaic things like vacuum cleaners and hand dryers. Where people haven't apparently made them with a great love for what they're doing.

I mean if you look at, well, as you say computers, but things like wind surfers and surf boards, and bicycles, you can see that the people who make them are passionate about the product they're making. But I didn't get that feeling about vacuum cleaners and hand dryers and fans.

So I wanted to apply new technology to these products that we use every day to improve their performance and to improve our, you know, enjoyment of them. So really to apply technology to make them better.

ZAKARIA: So when you are thinking about this, are you thinking about it from the point of view of design or from the point of view of functionality, of engineering, that there's some kind of engineering problem that you're trying to solve? I mean, look, I'm trying to understand how innovation and manufacturing takes place really.

DYSON: Yes. Well, I mean, it's quite an interesting starting point. I mean, you just decide there's something awful about that product. It doesn't work well. The hand dryers don't dry your hands. Vacuum cleaners have bags which clog and so you lose suction.

So the starting point if you like is a sort of passionate anger about something that doesn't work very well. And then you go looking for a technology or you start developing a technology that would solve that problem, that performance and function problem. And sometimes it can take five years, sometimes it takes three years, sometimes it takes 12 years.

ZAKARIA: Do you think most engineers are creative and passionate the way you are? Because the reason I ask is because people think of engineering as sort of a good profession, but slightly boring profession. You're making it sound very exciting.

DYSON: It is exciting. I mean, I've been practicing for the last 44 years, and it's the most exciting thing you can do. And the funny thing is that your entire day is full of failure. Almost everything you do fails. So to do my vacuum cleaner, I build 5,127 prototypes. That means I had 5,126 failures. But those - as I went through those failures, I made discoveries. So almost every day we make very interesting discoveries that no one else has made before. It's groundbreaking stuff. It's like being an explorer. It's fascinating.

ZAKARIA: The British government has tapped you to in effect revive British manufacturing among other people. But we have in the United States the same problem - you know, western countries in general have it. Fewer trained engineers, the ones we have tend to be immigrants or foreigners. What's the - what's the reason for this, and how do you fix it?

DYSON: The reason is I think that culturally once we've become wealthy, we turn our backs on the thing that made us wealthy and that created all the jobs, namely, manufacturing goods that the world wants to buy or that the country wants to buy.

It's as though we drift over to the arts and forget the sciences. That we want to do terrible things rather than things you do to get your hands dirty like making things, manufacturing things. Which is a great pity because both our countries have been - became great on our inventions, on our technology, and on our ability to manufacture things that everybody wants.

Now what can we do about it? I think there are two things or three things that we can do. The first is to get things right in schools. Now, we don't teach children in schools to be creative. We don't teach them to experiment. We want them to fill in the right answer, tick the right answer in the box. So that's just teaching them by ropes and you get marks for the most number of correct answers in the box.

What we should be doing is giving children a problem and asking them to solve it and come up with solutions and make mistakes, make experiments and make mistakes. And I think we should give children the greatest number of marks that people who make the greatest number of mistakes because they're going to learn from it.

The same thing I do is - we absolutely need to give scholarships to people to go university for engineering because we're turning out far too fewer engineering graduates and science graduates in our universities, and in both our countries the future explosion in jobs will be in the technology sector, in the engineering sector. But we're not producing enough. We've heavily under producing.

ZAKARIA: Do you think that the things you're describing, particularly the - the educational reform, is this all in the realm of the possible in the United States and Britain, or are you railing against a system that's so large it's not likely to change?

DYSON: No, I think - I think it can change, and I think it will learn to change. I did a report for David Cameron just before he was elected to form the conservative policy on innovation, and it included exactly these measures.

And the next thing we got to do is to make sure that we get this broader-based education, an education where people learn design and technology as part of the standard curriculum.

We're just starting it in Chicago, my foundation is working with 30 schools in Chicago, an after lesson classes, doing design and technology. And I went to one of these and saw what the children were doing and they are amazingly inventive. They have no fear. And they know exactly what they want to do. They're very - very sure about it.

But the sad thing is they seem to lose that fear of being creative and get taught that the only way to get to university is to put the right answer in the right box.

ZAKARIA: James Dyson, pleasure to have you on.

DYSON: Thank you very much.

ZAKARIA: And we will be back.

(END VIDEOTAPE)

(BEGIN VIDEO CLIP)

MICHAEL SPENCE, PROFESSOR, NYU'S STERN SCHOOL OF BUSINESS: You know, if we really wanted to overcome this one fast, then what would happen is a political leader would go and say this isn't a war, but it's that kind of challenge.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: Occupy Wall Street has brought inequality in America once again to the fore. But what is the larger picture of inequality? Why is it happening? What is its effect on national economies?

For that and for much more, my next guest, Michael Spence. Spence is a Nobel Laureate in Economics and a professor at NYU's Stern School of Business. He's also the author of a new book, "The Next Convergence."

Welcome.

MICHAEL SPENCE, ECONOMIST: Thank you, Fareed. It's fun to be here.

ZAKARIA: So one of the things that - that you did in this book was research on this issue of the divide between, you know, among Americans and in the advanced world. How would you put it very simply? Why are we seeing this widening inequality?

SPENCE: Hundreds of millions of people in the developing world have entered the global labor force which is in an - an increasingly a great global economy. And the affect they have has been principally on our lower to middle income and education spectrum. Whether or not the jobs actually moved, I think the effect on the pricing is pretty clear.

ZAKARIA: So they put pressure on the wages of average Americans because they do the same stuff for a third to price or tenth to price (ph).

SPENCE: Yes.

ZAKARIA: One of the things you do in this book, as you point out, correct me, but it's over - but almost the last decade or decade and a half, the only jobs we've created or the vast majority of jobs we've created have been government workers and in health care.

SPENCE: That's right, correct. That's 40 percent of the 27 million jobs we created since 1990 appear to be in those two sectors. And you add in construction, retail and hotel, foods, and restaurants, which are labor-intensive industries, sure that's sure up to over 60 percent, maybe 70 percent of the total.

ZAKARIA: And that tells you that this economy for the last 20 - 25 years has had trouble creating the kind of job that creates the American dream, the classic job that has rising wages and benefit and value added and has wages that are kind of the global envy of the world?

SPENCE: That's right. And for that group of people, you know, the - I mean, people describe it in different ways but they're not off base, which is it's our - it's the American middle class basically.

ZAKARIA: And what do we do? How do you - how do you fix this problem?

SPENCE: You'd start where everybody starts. And this may not be the whole solution but it would sure be nice if we got on it. You'd do tax reform. You'd fix the infrastructure problem, which you've written about, and you're absolutely right.

ZAKARIA: Education, tax reform, infrastructure.

SPENCE: Skills gap, so that maybe you put that under education. But there would be a portfolio of activity, probably a sensible energy policy.

And then I think the other piece is you would sit down with the business community, particularly the ones that functions globally and say, look, you know, we've got a problem. We've got to generate some of our employment on this side.

And there's probably a partnership between the private sector helping us understand where we're close to being competitive, where we could actually capture some - some jobs and some value-added, help us understand where they are, and help us understand what the - what the public sector investment, commitment, reform, whatever it is that's required to get us there.

ZAKARIA: What about the cyclical crisis? I mean, the sense that we are still in a situation where growth in America is very weak. Job growth is very, very weak. Is there something we can do in the short term?

SPENCE: Well, I mean, yes. In - and I think the first order of business given our fiscal situation is to - is to have a genuine discussion with lots of different points of view about how fast you bring down the deficits. And the constraints on that would be fast enough to stabilize the fiscal situation on the five- to seven-year time horizon, but not so fast as to kick the legs out from underneath the economy.

And - and probably against that standard, we've been too focused on deficit reduction and not quite enough on getting that time path right. And --

ZAKARIA: Recognizing that it's a medium term issue, not a -

SPENCE: A medium term issue -

ZAKARIA: -- not a short-term issue.

SPENCE: It seems to me it's hard to make the case that it's - that it's urgent, unlike the European case.

The other thing I think, you know, we ought to do and - I don't know if this will ever happen, but right now, we're sort of hanging on to our living standards having had a huge shock. And to the extent we're doing that, the people who are paying most of the cost are the unemployed, the underemployed, and people who have given up and that just doesn't seem to be right.

ZAKARIA: So you would say extend unemployment benefits -

SPENCE: Absolutely, yes. Keeping an eye on whether you're really creating a disincentive or not or whether you're just trying to help people that are bearing most of the burden.

You know, I'm sure you've heard this, but, you know, the Great Depression and its aftermath came to an end in World War II. And two things happened at that point. One, there was a huge fiscal stimulus because we couldn't finance a war effort, you know, on current income. And then we've got rid of it over time after.

And the second one was we went to people and said, you know what, it's a war. And we're going to have to invest a huge amount of our resources in this, and you're - your consumption levels are going to have to go down because we can't keep them up and make this big investment. We just don't have the resources.

And because it was a war, people said, OK. And so we created this sort of powerful engine that not only took us through the war, but it took us into the post-war period in pretty high gear. You know, with technology and, you know, manufacturing capabilities and so on.

You know, if we really wanted to overcome this one fast, then - then what would happen is a political leader would, you know, go on and say, this isn't a war, but it's that kind of challenge. ZAKARIA: Create war bonds for the 21st Century.

SPENCE: Basically. You know, recovery war bonds. I mean, that's pretty unrealistic. But that - on the economic side -

ZAKARIA: Theoretically that would be -

SPENCE: That would really put a jet engine behind this thing, increasingly over time.

ZAKARIA: Michael Spence, pleasure to have you on.

SPENCE: Thank you. It's fun to be with you.

ZAKARIA: And we will be back.

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ZAKARIA: Every year at the APEC or Asia Pacific Economic Corporation Summit, world leaders have posed for a class photo in the traditional garb of the host country.

But this year in Hawaii, President Obama broke with the tradition and convinced leaders to wear dark suits. Then a few days later, we saw Obama and other leaders wearing these colorful Japanese outfits, which brings me to the question of the week from the "GPS Challenge."

What summit was it at which world leaders posed in Japanese garb this year? Was it, A) the SAARC or Southeastern Association for Regional Corporation; or the EAS, the East Asia Summit; or the ARMS, the Asian Regional Multilateral Summit?

Stay tuned and we'll tell you the correct answer. Make sure you go to CNN.com/GPS for 10 more questions. While you're there, check out our website, the "Global Public Square." You'll find smart interviews and takes by some of our favorite experts. And you can follow us on Twitter and Facebook.

My "Book of the Week" is "The Price of Civilization" by frequent "GPS" guest Jeffrey Sachs. Sachs, an economist of Columbia University, spends much of his time advising emerging nations around the world as to how to solve their economic troubles.

Here he directs his advice at the United States, his homeland. He puts forth his ideas about what ails us and his prescriptions for how we can recover. Even if you don't agree with it, you will find it very thought-provoking.

Now for "The Last Look." Looking at how Europe's leaders are failing to fix their debt crisis, you might be thinking, hey, even I can do a better job. Well, there's a game to put that to the test. It's on the website of the European Central Bank. In Economia, the monetary policy game, you are at the controls of the European Central Bank. At each step, you have to decide whether to raise the key interest rate, lower it, or keep it where it is. The aim is to keep inflation at two percent or slightly lower. You have a team of advisers and all kinds of data to help you along.

Even with all that, it's not so easy. You, too, could end up bankrupting Europe. Don't take my word for it, try it for yourself. There's a link on our website.

The correct answer to our "GPS Challenge" question was, B, the East Asia Summit. World leaders dressed up in colorful Japanese garb in Indonesia. In case you're confused why President Obama was there, this was the first year the U.S. and Russia were invited.

Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "RELIABLE SOURCES."