Global Strategies

Carly Fiorina: "Fear and the momentum of the status quo"

I’m clearly in this blog and in my educational proposals trying to change the educational system in Oregon. I’m making little progress. I’m just one small voice. In this 2007 youtube, Carly Fiorina suggests why: I’m encountering fear and the momentum of the status quo.

China's rise: "the end of 500 years of western ascendancy" ?

Harvard history professor Niall Ferguson wonders whether “we are living through the end of 500 years of western ascendancy” (here):

By the end of the decade the western world could only look admiringly at the speed with which the Chinese government had responded to the breathtaking collapse in exports caused by the US credit crunch, a collapse which might have been expected to devastate Asia.

While the developed world teetered on the verge of a second Great Depression, China suffered little more than a minor growth slow-down, thanks to a highly effective government stimulus programme and massive credit expansion.

It would of course be ingenuous to assume that the next decade will not bring problems for China, too. Running a society of 1.3bn people with the kind of authoritarian planned capitalism hitherto associated with the city-state Singapore (population 4.5m) is fraught with difficulties. But the fact remains that Asia’s latest and biggest industrial revolution scarcely paused to draw breath during the 2007-09 financial crisis.

And what a revolution! Compare a tenfold growth of gross domestic product in the space of 26 years with a fourfold increase in the space of 70. The former has been China’s achievement between 1978 and 2004; the latter was Britain’s between 1830 and 1900. Or consider the fact that US GDP was more than eight times that of China’s at the beginning of this decade. Now it is barely four times larger – and if the projections from Jim O’Neill, Goldman Sachs’ chief economist, prove to be correct, China will overtake America as soon as 2027: in less than two decades.

China Opens World's Fastest Train

China is getting far ahead of the US, and, of course, Oregon, in the development of high speed trains. Of course, they do have the population density to make it work. And, although they import some of the technology, it shows that they are moving ahead.

Oregon needs to become more global and more connected to what’s happening in Asia. Too much change is happening there to ignore. More Mandarin programs and sending students to study abroad would help. Oregon's educational leaders are not preparing today's student to compete in the global economy.

 From the article “China Unveils ‘World Fastest Train Link’” (here):

China on Saturday unveiled what it billed as the fastest rail link in the world -- a train connecting the modern cities of Guangzhou and Wuhan at an average speed of 350 kilometres (217 miles) an hour.

The super-high-speed train reduces the 1,069 kilometre journey to a three hour ride and cuts the previous journey time by more than seven and a half hours, the official Xinhua news agency said.

 Work on the project began in 2005 as part of plans to expand a high-speed network aimed at eventually linking Guangzhou, a business hub in southern China near Hong Kong, with the capital Beijing, Xinhua added.

"The train can go 394.2 kilometres per hour, it's the fastest train in operation in the world," Zhang Shuguang, head of the transport bureau at the railways ministry, told Xinhua.

Test runs for the service began earlier in December and the link officially went into service when the first scheduled train left the eastern metropolis of Wuhan on Saturday.

By comparison, the average for high-speed trains in Japan was 243 kilometres per hour while in France it was 277 kilometres per hour, said Xu Fangliang, general engineer in charge of designing the link, according to Xinhua.

Beijing has an ambitious rail development programme aimed at increasing the national network from the current 86,000 kilometres to 120,000 kilometres, making it the most extensive rail system outside the United States….

…. In September, officials said they planned to build 42 high-speed lines by 2012 in a massive system overhaul as part of efforts to spur economic growth amid the global downturn.

 

Emerging Market Growth and Diversifying Oregon's Educational Investments

Global emerging markets are growing rapidly. Oregon’s current public educational system, both K-12 and higher ed, do little to prepare Oregon’s next generations to create products for or to sell products in these emerging markets. Very few students learn the languages and cultures of these markets. No high school students, and only a few university students, study abroad at public expense. Oregon continues to educate its students as if only the US market mattered and as if the whole world would speak English if we needed to do business with them. Both assumptions are false.

Oregon needs to pursue these markets aggressively and relentlessly. It’s where global growth is taking  place. Oregon needs to diversify its educational investments. Oregon needs to put more public money into foreign language programs and sending students to study abroad.

Heather Timmons reports in her NY Times article “Emerging Markets Soar Past Their Doubters” (here):

This was a lost decade for the American stock market. But for much of developing world, it was the Roaring ’00s — a period of soaring markets and breakneck investment that left even some bulls wondering if the good times can last.

 While the broad American market lost about a fifth of its value in the last 10 years, emerging markets like Brazil, Russia, China and India powered ahead with gains in the double or even triple digits.

The numbers are staggering. On Ukraine’s PFTS Stock Exchange — a Wild East of investing that did not even exist until 1997 — shares soared more than 1,350 percent over the last decade. In Peru, stocks jumped more than 660 percent. Here in India, the Sensex index leaped more than 240 percent.

To believers, those heady gains underscore profound shifts taking place in the global economy, where investment dollars, euros and yen whiz across borders and time zones with the stroke of a computer key. As many Americans wait for an economic recovery, money is pouring into the fast-growing economies of Asia and Latin America, as well as into oil-rich Russia and the former Soviet bloc.

“What we’re living through now is something of epic proportions,” said Allan Conway, the head of emerging markets equities at Schroders, the big money management company in London. He likened the economic rise of nations like Brazil, Russia, India and China — the so-called BRIC countries — to that of postwar Japan….

….. Emerging markets are eclipsing their developed peers in other ways as well. Imports to the BRIC nations are likely to surpass imports to the United States for the first time ever in 2009, according to Morgan Stanley.

For the moment, the developing world is the engine of global growth. Emerging markets accounted for virtually all of the year’s growth in global output, because developed economies shrank or were flat. Even if developed countries recover completely in 2010, emerging economies will account for 70 to 75 percent of the growth in global output “for the foreseeable future,” said Mr. Conway of Schroders.

Developing nations are also assuming a bigger role in the world economy. Morgan Stanley predicts that developing countries, including those in the Middle East, will account for 36 percent of total global gross domestic product in 2010, up from 21 percent in 1999.

Gas @ $16: "Our food world will condense."

This is my sixth installment post of excerpts from “$20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better” (here) by Christopher Steiner. These quotes are from his “Chapter $16: The Food Web Deconstructed.”  As for the business and social dynamics described in this installment, I think the food production chain will probably survive the increase in gas costs. I’ll still get my out-of-season blueberries from Chile and Oregon will still ship lots of grains and other agricultural products to Asia. The cost of gas will get to $16 per gallon and beyond, but more efficient gas engines and new forms of transportation will develop. Buying local foods will increase for reasons other than the increased costs of crops from afar. I’d put the chance of the following scenario as described in Chapter $16 at 10%, could happen but not likely:

Rising gasoline prices will be the incorrigible gorilla that trashes our complex weave of food producers, shippers, and wholesalers, ultimately changing the equation for good at $16 per gallon. Ferrying Central California’s bounty to New York will be economically unsavory. The year-round growing seasons of places like California, as Fuller says, gives them large advantages in maintaining hegemony of our produce supply. But the world’s ebbing oil supply will force the price of transportation from these places to far-off coasts past a tipping point. When gas reaches $16, packing a piece of produce from California to the Midwest will cost $1 a pound or more.

“Will we get to a point when human labor becomes cheaper than gasoline-powered machinery for some tasks?” Fuller asks. “I think that’s possible.” Couple that with the transportation costs at $16 gas brings us, and there won’t be many Spaniards grinding up South American lemons for a post-siesta refreshment or an evening aperitif. They’ll grind Spanish lemons. And fish won’t likely be crossing Asia twice on their way from North Sea waters to Norwegian restaurants. Our food world will condense.

“What I think will happen is this.” Fuller says. “Cities like Chicago will be ringed by a series of farms that go from ten acres to a hundred acres, maybe even five hundred acres. Not nearly as big as the biggest farms today, but big enough to take advantage of scaling their costs,” he explains. “Each one of these farms will specialize in something. One might be tomatoes, one might be peppers, I’m sure several of them would grow all sorts of greens.”

The farms’ field would fill the landscape wherever the urban clutter of people and homes stopped. They would displace fields of corn, soy, and wheat close to cities, relegating those crops, for which freshness isn’t paramount, to places where barge and train transportation can be fully leveraged. So Atlanta would get itss tomatoes, itss cucumbers, its carrots, and its greens from farms all within a hundred miles. The economies of avoiding transport from Mexico, the West Coast, or even locales farther away will usher in an era of freshness and proximity for American produce consumers. It will be yet another chapter in this strange sage of mass-scale economics and globalization that has pushed our food farther and farther away from us, only to reverse field at the point of exploding energy prices and $16 gasoline.

Thinking long term of China as a customer

Oregon’s economic development plans at state, regional, and city levels all focus on strengthening business activities that we already do well and have a comparative advantage. These are our competitive “clusters.” That’s OK, but it is not enough. I think Oregon, looking at longer term economic growth, needs to look for markets which are forecast to grow the most, whether geographic, products or services, to consider customer needs in those markets, and to find a competitive way to meet some of those needs.

Amazon’s Jeff Bezos suggests this second approach in a recent interview. When he speaks of “companies,” I think we can also usefully think of states, regions or cities pursuing economic growth strategies. Bezos says (here):

 There are two ways that companies can extend what they're doing. One is they can take an inventory of their skills and competencies, and then they can say, "OK, with this set of skills and competencies, what else can we do?" And that's a very useful technique that all companies should use. But there's a second method, which takes a longer-term orientation. It is to say, rather than ask what are we good at and what else can we do with that skill, you ask, who are our customers? What do they need? And then you say we're going to give that to them regardless of whether we currently have the skills to do so, and we will learn those skills no matter how long it takes. Kindle is a great example of that. It's been on the market for two years, but we worked on it for three years in earnest before that. We talked about it for a year before that. We had to go hire people to build a hardware-­engineering team to build the device. We had to acquire new skills. There's a tendency, I think, for executives to think that the right course of action is to stick to the knitting—stick with what you're good at. That may be a generally good rule, but the problem is the world changes out from under you if you're not constantly adding to your skill set.

One consistent argument on this blog is that we should look to China, and other emerging markets, as our customers (that’s where global economic growth is), and that learning Mandarin (and other foreign languages) and sending our students to study in China (and other emerging market countries) is a necessary first step in getting to know them and their needs as potential customers. It’s a variation on Bezos’ second, long term method.

Higher gas prices increases purchase of fuel efficient cars

I’m an advocate of a revenue neutral gas tax as a means of using the market to transition to more fuel efficient, lower carbon modes of transportation. So it nice to see the expected dynamic documented: as the price of gas goes up, consumers buy more fuel efficient cars and less fuel inefficient cars. From the National Bureau of Economic Research working paper “Pain at the Pump: The Differential Effect of Gasoline Prices on New and Used Automobile Markets” by Meghan R. Busse, Christopher R. Knittel, and Florian Zettelmeyer (here):

The dramatic increase in gasoline prices from close to $1 in 1999 to $4 at their peak in 2008 made it much more expensive for consumers to operate an automobile. In this  paper we investigate whether consumers have adjusted to gasoline price changes by altering what automobiles they purchase and what prices they pay. We investigate these effects in both new and used car markets. We find that a $1 increase in gasoline price changes the market shares of the most and least fuel-efficient quartiles of new cars by +20% and -24%, respectively. In contrast, the same gasoline price increase changes the market shares of the most and least fuel-efficient quartiles of used cars by only +3% and -7%, respectively. We find that changes in gasoline prices also change the relative prices of cars in the most fuel-efficient quartile and cars in the least fuel-efficient quartile: for new cars the relative price increase for fuel-efficient cars is $363 for a $1 increase in gas prices; for used cars it is $2839. Hence the adjustment of equilibrium market shares and prices in response to changes in usage cost varies dramatically between new and used markets. In the new car market, the adjustment is primarily in market shares, while in the used car market, the adjustment is primarily in prices. We argue that the difference in how gasoline costs affect new and used automobile markets can be explained by differences in the supply characteristics of new and used cars.

Beating out Boston as Li Ning’s design center: closer to China

The Chinese shoemaker Li Ning is going to open a small store in Portland soon. From the Oregonian article “Chinese shoe maker slips into Portland’s creative pool” by the Associated Press (here):

A fast-growing Chinese athletic shoe and clothing maker will open its first U.S. store in Nike's backyard Jan. 4.

Beijing-based Li Ning Co.'s products are available at more than 6,000 outlets in China, but its subsidiary Li Ning Sports USA hasn't tried to sell shoes to Americans.

That will change when the modest-sized showroom opens at Li Ning's two-year-old design center in Portland's Pearl District.

"This is really a testing ground for us to expose the brand," said Jay Li, the company's chief representative for U.S. operations. "There's a lot of interest among American consumers about what's the brand about, why are we here."

According to the article:

Li said the company chose Portland for its U.S. design center over Boston, the other American city with significant shoe-design talent, partly because Portland's location and time zone allows for quicker travel and easier communications with Beijing.

Not mentioned in the Associated Press’ article is the earlier news that Portland’s Ziba Design is working with Li Ning to redesign all their stores. See my September, 2009, post here.

 

 

How to cultivate the "ability to invent and embrace new protocols"

Two NY Times op-eds, one right above the other, give a clue to what missing from American education. The first, David Brooks’ “The Protocol Society” in part says (here):

The success of an economy depends on its ability to invent and embrace new protocols. Kling and Schulz use North’s phrase “adaptive efficiency,” but they are really talking about how quickly a society can be infected by new ideas.

I agree. So I worry that Oregon is slow to embrace more Mandarin programs and the Go Global High School Study Abroad Program. I worry further when I read articles like the second NY Times op-ed: “High School’s Last Test by J.B. Schramm and E. Kinney Zalesne which says (here):

But the real revolution, tucked away in the Race to the Top guidelines released by the Department of Education last month, is that high school has a new mission. No longer is it enough just to graduate students, or even prepare them for college. Schools must now show how they increase both college enrollment and the number of students who complete at least a year of college. In other words, high schools must now focus on grade 13.

To be sure, this shift is long overdue. It has been a generation since a high school diploma was a ticket to success. Today, the difference in earning power between a high school graduate and someone who’s finished eighth grade has shrunk to nil. And students themselves know, better even than their parents or teachers, according to a recent poll conducted by Deloitte, that the main mission of high school is preparation for college.

To those who believe in the current organization and curriculum of high schools and colleges, this may make sense. But to me this is nonsense. K-12 and higher ed in Oregon, and probably nationally, are ignoring the need to strengthen foreign language studies and to send many, many more students to study abroad. I don’t sense that Oregon has an educational culture that values innovation, and, as a result, I don’t see Oregon’s educational system, kindergarten through graduate school, as maximizing the production of news ideas and invention for use by society at large.

As David Brooks puts it:

A protocol economy tends toward inequality because some societies and subcultures have norms, attitudes and customs that increase the velocity of new recipes while other subcultures retard it.

How would you rate Oregon’s educational culture in “its ability to invent and embrace new protocols?” Just how should Oregon cultivate the “ability to invent and embrace new protocols?”

2010-11 high school year in Turkey for $6,805.

Give your child, or grandchild (or more students in Oregon as a strategic economic development priority), the opportunity to learn the Turkish language and to get to know the Turkish culture and economic market. Turkey is a strategically important country and economic market. So important that national security analyst Tom Barnett has suggested that Turkey replace Russia in thinking about the top emerging markets (See his post “Give me a ‘T’ (forget the ‘R’”). Turkey has the world’s 17^th largest economy (see wiki here)

ASSE (American Scandinavian Student Exchange, here) offers a high school year study abroad in Turkey for $6,805. Program fee includes international transportation, room & board, tuition, comprehensive health, accidental death and travel insurance, host family recruitment and screening, non-English speaking country language training and orientation. Program fee does not include in US air travel, passport and visa fees, school uniforms (if required), educational/recreational overnight field trips, school lunch money (if necessary), and pocket money.

Host families do not receive fees or reimbursements for expenses. They will provide meals and lodging; all they ask in return is that the students participate as a responsible member of the family, assuming her/his fair share of chores around the house and sharing in family activities.

ASSE maintains 38 offices in 31 countries and accommodates more than 30,000 high school age students and host families annually in its programs in the participating countries.

The $6,805 fee is for an early application by January 15, 2010.

The 2009 Oregon legislature did not pass the Go Global High School Study Abroad Program so students and families must fund study abroad on their own. ASSE does provide some scholarships.

Oregon’s State School Fund pays local school districts on average about $6,100 per student per year. Local school districts all collect and spend additional federal, local and grant funds. The average total expenditure per student per year in Oregon is about $10,000. The Go Global High School Study Abroad Program would have permitted local school districts to use their funds to pay for high school student to study abroad. They could pay all or part of the fees.