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Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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February 6, 2009 3:00 PM

Ballmer tells congressional Dems how Gates worried about making payroll in the early days; gives view of economy, "culture of spending"; calls stimulus package "vital"

Posted by Benjamin J. Romano

Microsoft CEO Steve Ballmer gave his take on the economy during the U.S. House of Representatives Democratic Caucus Retreat in Williamsburg, Va., today. He also shared this anecdote about Microsoft's early days and Bill Gates worries about being able to make the payroll.

When Ballmer first started at Microsoft, he lived with Gates because "we didn't have the budget to put people up in hotels," according to a transcript of the speech posted on Microsoft's "On The Issues" blog. (I've condensed a great deal of the speech, which I found particularly relevant and interesting, in this post.)

"And every time I sat down, in every corner, nook and cranny of couches, tables, I'd find these little yellow pieces of paper with Bill's writing that had a bunch of people's names and companies' names and numbers," Ballmer said.

He was trying to figure out the pattern of the yellow notes and finally asked Gates.

"He says, 'Steve, I'm really always worried about whether we're going to have enough cash to pay people. So, every night I write down everybody who works for us and how much we pay them, and every contract we have and how much it's worth. I've got to count the pennies tightly and that's why you're here now,' " Ballmer said.

"In this economic climate, whether you're talking about businesses or consumers, everybody I think is having the little yellow sheets of paper out, and counting pennies pretty tightly," he said, two weeks after Microsoft announced its first companywide layoff.

Ballmer went on to explain his view that the eeconomic growth of the past quarter century was driven by "innovation, globalization, and debt, increasing debt."

Recently, however, "[i]nstead of innovation and productivity driving growth, it's really been unsustainable levels, particularly of private debt, that have been a key driver of economic growth," Ballmer said.

"The hard truth is this, in my opinion: The private sector of our economy has borrowed too much money, businesses and consumers alike, fueled by the a lot of different things, some notion that housing prices would go up forever, that you could borrow money cheaply.


"... The bubble has burst. We can no longer rely on consumption by refinancing our homes or inexpensive money to fuel economic growth, and that's certainly had a huge impact."

Ballmer reiterated how this affects Microsoft's primary business of operating system software for PCs.

PCs "are discretionary in most home budgets, the second, the third PC. Consumer electronics has that characteristic. Fifty percent of capital spending in this country is on information technology. Less capital, less spend on information technology. No sector will be immune," Ballmer said. "There's a natural tendency to want to blame somebody for the economic crisis. In reality, I think you have to say we've all contributed to a culture of spending and private debt."

Microsoft has studied the situation, Ballmer continued.

"We believe this is a once-in-a-lifetime economic event, but it's not unique frankly in U.S. history. The current situation looks a lot like several -- not one but several previous cycles of long-term private sector debt," he said. "In 1929, for example, just before the stock market crash, the private debt-to-GDP ratio was 160 percent. Last year, private sector debt as a percentage of the GDP: 300 percent; far more leverage."

There were "similar style resets in the economy" in 1837 and 1873, he said, adding later, "if you stop and think about it, 1837, '73, '29, 2008, it's almost exactly a whole lifetime between each of the major economic difficulties that we face."

To get back on track, Ballmer said, three things have to happen:

  • "Private debt as a percentage of GDP has to be reduced."
  • "[C]onfidence must be restored. The stimulus package, in my opinion, is vital."
  • "America really has to return to growth that's built on innovation and productivity, rather than leverage and private debt."

Ballmer said RCA is an example of a company that weathered the Great Depression in the right way (despite the company's collapse later in life).

"[W]hile it cut costs certainly to survive the Depression, it never retreated from its commitment to core research and development. And as a result, after the Depression had ended, it really led and the U.S. led TV technology developments for the next 25 years," he said.

It's clearly a model he intends to follow with Microsoft. "[D]espite the tough economy -- I might even say because of the tough economy -- our company will continue to invest more than US$9 billion a year in R&D, because we think it's that R&D spending that will cause us to remain strong," Ballmer said.

Ballmer urged the congressmen to "invest in human capital, in the citizens of our country," citing math and science education in particular.

"[I]nnovation will depend on people who are actually technologically sophisticated, have strong critical thinking skills, have expertise in math and science and engineering. This is true not only for people who live in places like Seattle and work at places like Microsoft, but live in places like Detroit, where I grew up, and work for companies like Ford Motor Company, where my father worked when I was a child," Ballmer said.

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