[AUTHENTICITY CERTIFIED: Text version below transcribed directly from audio. Q&A edited for continuity.]

Well, thank you, Bowen, for that very kind and generous introduction.

And let me just say at the outset that Texas A&M didn’t play football this way when I was president. In fact, nothing caused me more stress than watching Aggie football. And I would ask my wife, I said, "I’ve been the director of CIA, I’ve done all these things -- How can football cause me more stress than anything I’ve ever done?" And with the knowing look of somebody who’s been married to somebody for more than 40 years, she said, "It’s because you have no control."

Issues being discussed at this conference carry a special personal resonance for me, of course, because I once was counted among your ranks. As you know from experience in university administration, the days and duties of that job are hardly glamorous and often less than intellectually stimulating. They all too frequently consist of things like fundraising, admissions, student parking, dealing with the state legislature, keeping alumni happy, and keeping the faculty happy.

Back at A&M, the faculty -- and I would say, especially the political science and public policy professors -- rarely invited me to speak to their classes. I think the reason was that when given the opportunity I would tell the students that world governance, real world governance and state craft is nothing like what their professors were teaching them. But when it came to dealing with the faculty, I knew from the outset that I could either be nice or be gone -- the fate of several high profile university presidents who failed to learn that lesson. So I decided to be nice. I ended up finding myself first responsible, as Bowen said, for 45,000 to 50,000 young people aged 18 to 25, and then overnight found myself responsible for more than 2 million men and women in uniform, most of them exactly the same age.

With respect to the Aggies who entered military service during my tenure, I never forgot that I was the one who signed their diplomas and handed them to them. And then as the Secretary of Defense, signed their deployment orders to Iraq and Afghanistan, and then too often had to sign the condolence letter to their spouse or their parents. So on this Veteran's Day, a heartfelt thanks to the many schools represented here who have welcomed our veterans home and back to school with so many awesome programs for reintegration in support of them and their families. And thanks to all of you who have served.

When Pete McPherson approached me about speaking at this conference, I was more than happy to accept. [The] cause of public higher education in general, and land-grant universities in particular, [have] been a keen interest that preceded even my tenure at Texas A&M. I come from a family of Kansas State and KU grads. And my wife Becky’s family has a similar relationship with Washington State and the University of Washington which, of course, always made for spirited exchanges on Saturday afternoons and during family reunions, especially during bowl season.

Today I’d like to offer some thoughts about: first, the historic importance of state-funded universities and R&D as a public investment and public good; second, the stiff financial challenges faced by public universities, the most immediate being the possibility of sequestration; third, some recommendations about how public universities can better cope with this challenging fiscal environment; and finally, the role of land-grant universities as representative of U.S. idealism and U.S. leadership around the world.

I’ve always been a straight shooter. But in complete retirement and now with the elections over, I feel especially unleashed today.

As a starting point, I think it is not too great a stretch to assert that the economic preeminence of this country, and I would argue our national security and international influence as well, are due in no small measure to two visionary laws: the 1862 Morrill Act and the -- and the World War II GI Bill. The first manifested a national conviction 150 years ago that our future as a nation required that higher education become easily available and affordable to the average citizen; and that teaching and research, particularly of agriculture and engineering or mechanics, were vital components of our national economic development. And the second, the decision of the nation after World War II that those who had served in uniform should also be able to go to college and for that great generation to become so a second time in launching our post-war peacetime economy.

It is due to these two seminal acts of vision and courage that I believe we have prospered through continued investment in education and research, especially in the fields of science and technology. The standard of living of Americans in the years to come will depend largely on the quality of the jobs Americans will be able to hold. And the quality of those jobs depends largely on the quality and quantity of education they’ll receive.

As New York Times columnist Tom Friedman wrote last week,

My prediction is that the biggest domestic issue in the next four years will be how we respond to changes in technology, globalization and markets that have, in a very short space of time, made the decent-wage[d], middle-skilled job -- the backbone of the middle class -- increasingly obsolete. The only decent-waged jobs will be high-skilled ones. The answer to that challenge --

Friedman went on,

-- will require a new level of political imagination -- a combination [of educational reforms] and [unprecedented] collaboration between business, [schools], universities, and government to change how workers are trained and empowered to keep learning.¹

Symbolized by the Morrill Act and the GI Bill, we Americans agreed as a society a long time ago that educated citizens benefit the whole society; that the economic, political, and social benefit accrues to us all and not just those who receive the education. That was the primary reason for the creation 150 years ago of the land-grant college system under the Morrill Act. It is why early in the 20th century the universal primary and secondary schooling was supported. It is why a system of superior state universities was created and generously supported, and scholarships were given to needy students. It’s why the GI Bill was passed during World War II.

Making a college education widely available to citizens at every socioeconomic level was seen broadly as a worthwhile investment in the social and economic future of our individual states and of the nation as a whole. As Friedman suggests, that investment is as crucial today as ever in our history.

Higher education had and has a vital role in our national security as well. One of the key milestones was the passage of the National Defense Education Act in 1958, the bill that greatly increased the federal government’s role in funding education at every level. What spurred government action was the Soviet’s launching of Sputnik the year before, an event that galvanized the nation to ensure that we would not fall behind in math and science. Educators were often the ones leading the charge. Some called the conflict a "competition in brains." The historian Arthur Schlesinger Jr. said more colorfully that the United States must return "to the acceptance of eggheads and ideas" if it is to meet the Russian challenge.

And indeed the years proved him right. Throughout the Cold War, universities were vital centers of new research often funded by the government and also new ideas and even new fields of study along with basic research in the hard sciences to support our country’s defense and space exploration needs. Federally-funded, low cost loans and fellowships made graduate school broadly available to students like me.

It seems though today those visionary forward-looking statesmen, the politicians who supported higher education as a public good, a necessary public investment, are in our rearview mirror. In recent years we’ve seen a gradual abandonment of the principle that higher education is a public good and correspondingly the emergence of a view that higher education is a private consumer good, a value primarily to the individual who receives it. This trend has manifested itself in dwindling state financial support provided for public higher education. For years, funding for public -- for state universities has been falling, tuition rising, and students are borrowing more than they receive in grants.

According to the Carnegie Foundation, during the 1990s public colleges and universities drew more than half their operating support from taxpayer sources. Today, money from state coffers provides about 30 percent of funding, and the story is much worse in many individual states, including right here [in Colorado]. At some of the nation’s most prominent public universities, such as the University of Virginia and the University of Colorado, state funding contributes less than 10 percent of university operating support. At William & Mary, where I’m proud to serve as chancellor, it’s about 12 or 13 percent.

According to an Illinois State University study, between 2011 and 2012 state aid to universities declined by about eight percent, the largest such decrease in 50 years. The cuts are not a one-time phenomenon. Per student support for public universities has been reduced by more than 20 percent in 17 states and by more than 10 percent in 15. And frankly, I believe that those statistics understate the decline.

We have gone from state-supported to state-assisted, to state-located. And the less financial support the politicians provide, the more control they want. Earlier this year, I was struck by the fact that student loans became an issue in Congress and the presidential campaign. Controversies over whether interest rates should be allowed to rise, and if not, how to pay for the extra cost to the government. I found [it] striking because when I was a college student this matter would have been mostly a non-issue, at least for those of us attending state universities or colleges. Tuition then was either ridiculously low by today’s standards, or in some cases free. My out of state tuition at William & Mary in the fall of 1961 was 361 dollars.

A disturbing aspect of this change is its consequence for low and middle-income students. College has been a traditional path of upward mobility, and this has been particularly true for students who are first in their family to attend college. Consider that until the 1960s, tuition at the University of California system was free for all state residents and fees remained very low for some years afterward.

While programs for the elderly, which now consume more than half of all federal spending, are considered politically untouchable, there is no such resistance for cutting support for higher education. To be blunt, we Americans are mortgaging the future of our country to pay benefits to my generation while sacrificing the engines of economic and social growth for future generations. This is a formula for national decline.

While the funding shortfalls at -- at universities hit economically disadvantaged and middle class students hardest, they also affect the ability of universities to conduct basic research -- a special concern of mine as a former president of a major research university. What is discovered in the lab one day is taught in the classroom during the next and then employed as a tool of economic development, innovation, and in some cases, national defense. And the notion that teaching in universities serves students and research in universities does not and that the two are at cross-purposes instead of fundamentally linked, integrated into one another at the core, betrays on the part of the purveyors of this view a profound misunderstanding of how universities become great and stay great and a profound misunderstanding of the higher education enterprise as a whole.

Now it is widely acknowledged around the world that the U.S. university system, our higher education system, is the finest anywhere. But now some politicians want to screw that up, too. Consider just one year of my tenure as president at A&M. In 2004 A&M received nearly 570 million dollars in research funding -- and 400 dollars million of the grants were new awards. That year our faculty submitted 121 new inventions and established 78 new royalty-bearing licensing agreements and 88 new patents. Every single one of those faculty taught.

Federal funding for research and development overall has long been in decline. Between the 1970s and 1990s, it fell as a percentage of gross domestic product by more than 50 percent in the physical sciences and in engineering. Federal R&D funding increased slightly in recent years, but has resumed its long-term slump just as China and South Korea are increasing their funding 10 percent year over year. In a knowledge economy, American jobs will depend more on scientific research than they did in the 1950s; and yet, we spend much less on research today as the share of GDP.

Fighting against this trend as secretary of defense, I tried to protect and even increase S&T funding including basic research and at DARPA even as the rest of the defense budget began to flatten and decline. All of these challenges facing America’s public universities and especially those with a strong basic research science and technology program will come to a head at the end of this year. Without a new agreement between the Congress and the President, hundreds of billions of dollars of mindless so-called sequestration cuts will take effect. The effect on national defense and military readiness is by now well-known. The leadership of the Pentagon and the aerospace industry have made sure of that.

Less well-known is the impact on important domestic functions of government -- homeland security, air traffic control, federal law enforcement, NASA, the National Institutes of Health, and related to those last two organizations, funding for basic research and development. According to the American Association for the Advancement of Science, under sequestration, federal R&D funding will be reduced by nearly 60 billion dollars over the next five years. Cuts of this magnitude would have significant impacts on the pursuit of science, research, and innovation in this country. And they also come at a time when federal R&D spending has already declined by 10 percent in real dollars since fiscal year 2010.

My expectation -- admittedly more of a hope -- is that now that the elections are behind us, whatever adults remain in the two political parties will make the compromises necessary to put this country’s finances back in order. We will all pay the price for shortchanging education, research, and other investments in the future. It will be felt in the decline of America’s quality of life, standards of living, and global influence. We are squandering 150 years of Morrill Act enlightenment and 70 years of the greatest generation transforming small colleges into great learning and teaching institutions.

So how to alter this increasingly bleak landscape? First and easiest, of course, would be to have elected leaders of -- of the vision of 1862 and 1945.² I wouldn’t bet on that. So what else can we do? Such a challenging environment makes it imperative for public universities to find new ways both to contain costs and expand opportunities to more students; in short, to reform the way you do business. This is a no easy task, I know. Since leaving the Pentagon I’ve reflected on the similarities between the three public institutions I’ve been privileged to lead -- CIA, the Department of Defense, and Texas A&M; all very large, very proud, tradition-bound organizations staffed by career professionals who don’t always welcome change.

We need to think boldly about the delivery and financing of higher education writ large, similar to the robust debate and experimentation taking care in the health care arena. Both fields have seen unsustainable cost increases in recent years without corresponding improvements in outcomes. I fought similar battles as Defense Secretary, especially during my last two years in office when it became clear that our budget trajectory was heading downward and that maintaining military readiness would require the Pentagon to squeeze more out of every taxpayer dollar. At times, the process of finding savings in the bureaucracy felt like going on an Easter egg hunt.

We found that one way to improve efficiency and reduce operating costs was through taking advantage of scale, to enhance our purchasing power. Of course when it comes to scale, you can’t get any bigger than the Defense Department: the world’s largest employer, consumer of energy, and purchaser of many goods and services. But with respect to public education, I suggest that universities in a given state or region consider banding together in procurement of a wide array of services, supplies, and technology, leveraging your economies of scale. Some have already moved in this direction.

Another approach many are taking in -- to cut costs is through automation and the use of online education. But a word of caution: I would only hope we don’t go so overboard in the online world that we lose one of the fundamental benefits of higher education -- live, in-person interaction with faculty and other students. This is especially important in an emailing, texting, tweeting, and Facebooking world where students may forget how to have a real face-to-face conversation or dialogue with people of different backgrounds and views.

So those are just a couple of ideas, but the main point is that we have to be as creative and as innovative in keeping costs down as in every other aspect of higher education. We also have to make higher education even more widely available and improve graduation rates. I applaud APLU’s initiative to increase the number of Americans with some kind of college degree by 60 percent -- to 60 percent by 2025. With respect to graduation rates and the amount of time it now takes to graduate, I never understood why the federal government used a six-year standard for financial aid eligibility.

At A&M I addressed this problem by imposing a flat tuition system. Every fulltime student paid for at -- paid for 15 credit hours. If that student only took 12 hours, they needed to explain to their parents why they were paying for more. But if a student took more than 15 hours, the additional hours were all free. Over a couple of years under this new program, the number of semester credit hours being taken at A&M increased by tens of thousands.

Finally, public universities need to continue to develop innovative partnerships with community colleges, both to improve four-year graduation rates through better preparation, and to cut costs for students. In sum, if public universities and colleges don’t reform themselves to contain costs and improve graduation rates, federal and state governments will step in; and like the dinosaur, government has a heavy foot, a small brain, and no fine motor skills. Believe me, I know.

I’d like to conclude on a more upbeat note with some thoughts about international -- international influence of our higher education and particularly the contribution our universities, and particularly land-grant universities, make in -- in combating global hunger. It’s an area in which Peter McPherson has long experience and in which many public and land-grant universities have an opportunity to make a real difference.

As you know parenthetically that food, health, and other human development issues were professional concerns of mine at CIA beyond the obvious focus of the Soviet Union. Much of the research and analysis was directed at identifying future sources of conflict and instability, with hunger and disease ranked very much near the top. We devoted considerable resources to assessing global food supplies and developing satellite technologies that could measure the production of wheat, rice, soybeans, and other crops around the world.

A&M, like other large land-grants, had a large and active agronomy, animal husbandry, and public health programs. Several world food prize recipients either graduated from A&M or taught there. We are most proud to count as one of our own the late great Nobel Laureate, Norman Borlaug, whose agricultural research saved the lives of a billion people on this planet according to his Nobel Prize citation.

When I joined the Defense Department I needed little convincing that humanitarian and developmental efforts were going to be even more crucial to the outcome of the defining struggles of this century, be they ideological, sectarian, or economic. We know that certain pressures -- population, resource, energy, climate, economic, and environmental -- could combine with rapid cultural, social, and technological change to produce new sources of deprivation, rage, and instability. Indeed, since the beginning of human history, the adequacy of food supply has determined the strength of clans, tribes, and nations.

Unfortunately, in recent decades, U.S. government foreign assistance has all too often ignored the role of science, research, and human capital. I recall that some years ago, A&M joined other universities in a USAID project to help the people of Rwanda develop their coffee crop after the horrific slaughter that took place during the 1990s. A decade later as a result of that university partnership with government, companies like Starbucks were paying top dollar for Rwandan coffee. Over the past decade, faculty members from numerous universities traveled to both Iraq and Afghanistan to help revive agriculture in those traumatized societies.

Until 2000, universities were rarely, if ever, asked, to help with foreign assistance programs. And even then their input was limited to the production of food and not much else. In all, land-grant and public universities are a vastly underused resource for the federal government and NGOs. Today the majority of all foreign assistance is contracted to consulting firms within 50 miles of Washington, D.C. Some do excellent work; others less so. But the result is universities and other sources of expertise are not players in the foreign assistance programs the way for-profit contractors are, especially those with Beltway connections. I tried to get the U.S. Agency for International Development to partner with APLU to take advantage of university experts both in Afghanistan and Iraq, but the federal government wasn’t much interested.

Given how much the USAID has shrunk since the end of the Cold War, universities could be invaluable in providing people who are not only expert in their fields but accustomed to working in developing countries, where living conditions and security are less than ideal. Looking ahead, we know the share of -- of aid provided by traditional sources in western governments will decline, and increasingly the burden and the mission will fall to the non-profit sector -- NGOs, universities and others --working in concert with government to get the best results.

Well, I’ve covered several disparate subjects this afternoon, but I want to do address several challenges that you face. And if at times my usual measured, calm approach sounded somewhat strident, I plead guilty to frustration over politicians of all stripes who seemingly seem -- are incapable of doing the obvious right thing: that our country faces some major obstacles when it comes to getting our economy, public finances, and correspondingly supportive higher education back on track. We also have the means and, in -- in the case of the universities, the brains to do so.

The U.S. has overcome far worse circumstances in the past and when forward progress on -- comes on the challenges we face -- and God knows we've waited long enough for some bipartisan leadership out of Washington -- America’s public and land-grant universities and colleges will have a major role to play as a driver of opportunity and prosperity at home and a vehicle for U.S. influence and idealism abroad.

I want to thank APLU for this opportunity and to thank each of you for your stewardship of these great institutions. Your work everyday is of enormous importance to your community, your state, and our country -- not to mention the world.

Thank you.

Robert Gates: We have some microphones in the aisle and I’ll try to answer your question with my usual ambiguity and circumlocutions -- or does everybody just want to get cocktails?

Question: Mr. Secretary -- this on? [mic check] -- Mr. Secretary let me thank for everyone -- thank you for everyone here for your just outstanding comments and perceptions. What do you -- What do you think about the veteran benefit education programs? It looks like a very large amount of money and some of us worry as to whether or not it’s having the impact that it might. Would you want to comment about that?

Robert Gates: Well, I -- I have to confess that I’m a little conflicted here because as former Secretary of Defense I feel strongly about doing whatever we can for our veterans, given what they’ve been through. When -- When the Webb Bill was first going through the Congress, I was concerned on a couple of counts. One was -- was in fact, where the money was going to come from.

But the second was that -- that it was made available no matter how long your service. And the benefits were so generous, I and the Joint Chiefs of Staff were concerned that we would have a -- a retention problem, that we would have a huge outflow of young men and women who saw this gigantic pot at the end of the rainbow and leave the service when we needed them to stay for a longer period.

And so I tried to -- I tried to get Senator Webb to agree to five years of service as the minimum for eligibility for the program, so we’d get at least two enlistments out of people. They refused to do that. And the only countervailing argument I could make -- and where I did ultimately prevail -- was to at least make that benefit available -- if the service member didn’t want to use it -- to make it available to their spouses and their children.

And I think, Peter, you’d be surprised how many of the veterans, and especially those who are a little older, are actually not using it themselves and are sharing it with their children because it’s even divisible. You can give part of it to one child and part of it to another. So in that respect, I think it’s very constructive and I think that money is being very well-spent. And I think, as I look at the number of veterans’ programs in universities and colleges around the country, I’m heartened, as I said in my remarks, by what’s being done to -- to welcome them back. That said, I -- I do worry that, first of all, some are being taken advantage of particularly in some of the for-profit organizations. I worry that they’re not quite sure what they want to do, but they get this big check if they enlist -- if they...enroll in school.

So I think the key -- they key -- the law is the law. And I think the key, particularly for -- for public higher education, is to make sure that among these programs of support for the veterans are those that are also supportive of them taking a curriculum that will lead to success, and lead to graduation, and to a good job after they graduate. And so not only helping them adjust to college life but doing whatever you all can to guide them in a path that is constructive and is consistent with their skills and their interests -- and that leads to a positive outcome.

Comment:  Hello. I’m Marcy Greenwood. And first of all, I want to thank you, again, for one of the best speeches I think we’ve had here at APLU on the value of public higher education and the impact that it has had on the country and will have in the future. So the one thing that I would like to ask you to do is to give this speech in many places other than to collections of the already persuaded. Because coming from someone with your background and your great understanding of the system,  both the federal government and the university system, it’s going to make a lot more difference than if some of us do it. So thank you for what you’ve done and thank you for inspiring us this evening, and please do make this speech widely known and used around the country.

Question:  Mr. Secretary, you mentioned two of the traditions of the land-grant university, agriculture and mechanic arts. But as you well know, particularly from Texas A&M, military science is a core of who we are as well. And we all have ROTC units at land-grants but not all are prospering as they are at Texas A&M. Have you any advice on how we can continue to build and maintain and energize ROTC units across our system so we can continue to provide balanced leadership to the military, as Lincoln envisioned it should be?

Robert Gates: Well, I think first of all, one of the challenges that all ROTC programs are going to face is that as the military shrinks, the number of slots for new officers will also probably shrink. And so figuring out how to place these young people who want to be commissioned, I think, will be a challenge for both the Defense Department and for universities; and I think it’s going to be important to work together.

One of the things that I think people ought to look at, particularly in terms of cost-sharing and -- and the cost of these programs and sustaining them -- I gave a speech while I was still secretary at Duke about two years ago. And the thing that impressed me at Duke was that there really was a consortium of universities in the research triangle in their ROTC program. It was UNC, NC State, and Duke -- all three. And among the three, they had a lot of synergy and a really big, powerful program.

Similarly, when Yale just reopened to ROTC, they’re actually in a consortium with MIT and several other universities -- not MIT -- Harvard has done that with MIT. But Yale has joined with several other universities in the New Haven and the eastern Connecticut area in terms of offering a common curriculum and blending together. So, where there are some of you who are co-located or close to other universities, and if you’re feeling pressures on these programs, I think talking with your neighbors and seeing where you can share resources and work together would be one way to help contain the costs.

Question:  Mr. Secretary, I too want to thank you for an outstanding speech. My name is Sabine O’Hara and I’m the dean of a newly founded college at the University of the District of Columbia, College of Agriculture, Urban Sustainability & Environmental Science[s]. And I was particularly inspired by your remarks about the public goods character of higher education and reminding us of that public goods character that requires investments, but at the same time reaps great benefits far beyond the individual.  It seems to me that there are lots of other areas, too, where that is the case -- natural resources, environmental resources -- that have a similar function as public goods; and they tend to be similarly neglected. It seems to me that to draw more attention to that conundrum of the public goods, it requires more than research in agriculture, in the sciences, and engineering. It requires research in the social sciences, in culture, in the humanities. I would really appreciate your comments.

Robert Gates: Well, as a history major, I couldn’t agree with you more. I used to tell the students at Texas A&M -- the freshmen -- that we would have a freshman convocation. And I would tell them that when I went to William & Mary I actually started in a pre-med program. And my first semester in my freshman year, I got a D in Calculus. My father called from Kansas and said, "Tell me about the D." And I said, "Dad, the D was a gift." And I’ve commented subsequently, God only knows how many lives have been saved by my becoming director of CIA instead of a doctor. But obviously the humanities are important.

But I would say in terms of this public good argument, this is an argument you all need to make yourselves to your own constituencies. Every one of you has influence in the community in which you’re located, and the state in which you’re located. And frankly, I believe too many people in higher education, if you will, hide your light under a basket. You need to be more open about the contribution you’re making to the community, and not just in the jobs you provide, but in the human capital business which you are producing for the community and for the state.

And so, it’s an argument, frankly, that is more persuasive and has more impact at the local and state level than it does at the national level, because [at] the national level -- it's just too big and it’s too inchoate for somebody to figure out what to do about it. And at the federal level, the dollars are so huge that it then becomes a political argument. Whereas, if you bring it down to the local and state level, they get it -- and especially if you shove it down their throats.