What Does the WTO do?

The World Trade Organization (WTO) is the only international body dealing with the rules of trade between nations.  At the core of the WTO are agreements, negotiated and signed by most of the world's trading nations.  These documents provide legal ground rules for international commerce.  Their goal is to help the producers of goods and services, exporters, and importers conduct business in the global marketplace.

The WTO supplanted the General Agreement on Tariffs and Trade (GATT) in early 1995.  The WTO has three main purposes:

Medical Tourism: The Christmas Gift for Global Healthcare

Co-written with James G. Dale

Consumers and providers of medical services in the United States search for opportunities to cut costs. Increasingly, it is possible to find lower-priced care alternatives abroad.

Culture Dimensions

Cultural awareness is key in any international business activity.  Cultural divides should be accounted for in marketing, negotiations, product design, and other important decisions.  One must analytically consider the best way to promote a product given the target audience.

It is argued that differences among cultures can be explained according to four dimensions of culture:

The End of Corruption?

I just attended a breakfast meeting with U.S. Secretary of Commerce Gary Locke and Angel Gurria, Secretary General of the Organization for Economic Co-operation and Development. The meeting was sponsored by Transparency International and focused on the need to continue reducing global corruption.

Several thoughts stand out:

Some Video Comments on the New Global Realities

Here is a video in which I comment on the effects of the recession on global business and decision making.

Marketing Management Column #2 - Part 2

A continuation of my second column in Marketing Management. 
Read it after the jump.

Marketing Management #2 - Part 1

The first part of my second column in Marketing Management. 
Read it after the jump.

Small Businesses Still Important

This is a preview of my new book, Global Business: Positioning Ventures Ahead to appear with Taylor and Francis in June of 2010. I will be posting little snippets from the book every once in a while. I encourage you to read, comment, share, and your thoughts to the comment section. And look for the book in June.
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The Commerce Department’s Exporter Data Base reveals that companies with fewer than 500 workers accounted for 97 percent of all U.S. exporters.

Zeit für Führungsstärke

Der zum Präsidenten Barack Obama wird Schrittmacher sein nicht nur für die USA, sondern auch für Menschen in der ganzen Welt.

Change Agents

A person or institution who facilitates a change in a firm or in a host country is a change agent.  Products or brands can act as change agents, able to alter held values or behavioral patterns that eventually result in the blurring of cultural distinctions.

In China and Hong Kong, for instance, McDonald's has altered some age-old eating habits and preferences, especially among the younger generation.  While there are many concessions to local cuisine, the most popular menu items are burgers and fries.  The fast-food chain has disciplined its Chinese customers to an entirely new dining routine - as in the United States, they wait in an orderly line, serve and seat themselves, and even clear away their trays afterward.

Adaptation is Key

This is a preview of my new book, Global Business: Positioning Ventures Ahead to appear with Taylor and Francis in June of 2010. I will be posting little snippets from the book every once in a while. I encourage you to read, comment, share, and your thoughts to the comment section. And look for the book in June.
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Firms expanding into additional global markets must tackle distribution systems, pricing, and address a wide range of ethical issues such as legal systems related to monitoring pollution, maintaining safe work environment, copying of technology or trademarks, and coping with demands for bribes.As the 2008 attacks in Mumbai show, terrorism continues to pose a risk. 

Pirates: Not Just in the Carribean

Lately, there have been threats to international business emanating from ungoverned spaces. For example, government snipers had to intervene to rescue the captain of a high jacked U.S. cargo vessel.

Marketing Management Column #1 Part 2

A continuation of my first column in Marketing Management.
Today’s column presents research on the dimensions which will shape the future of Global Marketing.
Read it after the jump.

NUR SO ZUM NACHDENKEN

Michael R.Czinkota und Thomas A. Czinkota

Die Schulferien sind zu Ende gegangen - der Urlaub vorbei. Wir haben viel Zeit mit unseren Kindern im Alter von 6, 7, und 10 Jahren beim Spielen, Denken und Diskutieren verbracht. Einige Fragen und Gedanken sind bis zum Schluss ungelöst im Raum stehen geblieben:

Sind Kinder überlastet? Unsere großen technischen und sozialen Errungenschaften ermöglichen es uns inzwischen, die Früchte unserer Arbeit auch zu genießen. Heutzutage ist es nicht mehr notwenig allein zur Sicherung der Existenz zu lernen, sondern wir können uns aussuchen was wir lernen wollen. Wir können unter anderem wählen zwischen Geschichte, Kunst, Musik und Poesie. 

U.S. Leadership Is Essential

This is a preview of my new book, Global Business: Positioning Ventures Ahead to appear with Taylor and Francis in June of 2010. I will be posting little snippets from the book every once in a while. I encourage you to read, comment, share, and your thoughts to the comment section. And look for the book in June.
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As we write this, governments worldwide are working to counteract the 2009 economic crisis by developing stimulus plans. The efforts of any one nation will have an impact globally because national economies are intertwined, but economic activity is highly concentrated among a few players – the U.S., European Union, Japan, China and Canada – who account for more than 75 percent of the world’s economy. That clout makes it critical for U.S. companies to become more involved in international marketing, whether it is export-import trade, licensing, joint ventures, wholly-owned subsidiaries, turnkey operations, or management contracts.

Please Comment:  Do you think the protectionist measures that are being enacted as a part of the stimulus plans will help or hurt domestic economic recovery?  What is the best way for governments to react to the recession?  Do you think that a global outlook is key to recovery?

KOMMENTARE AUF DEUTSCH / COMMENTS IN GERMAN

Für unsere deutschen Freunde und Kollegen bieten wir gelegentlich Kommentare auf Deutsch und/oder über Deutschland an.

For our German friends and colleagues I will occasionally offer comments in German or about Germany.

International Trade in Elephants

This is a preview of my new book, Global Business: Positioning Ventures Ahead to appear with Taylor and Francis in June of 2010. I will be posting little snippets from the book every once in a while. I encourage you to read, comment, share, and your thoughts to the comment section. And look for the book in June.
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Most people, on seeing this headline will immediately think of ivory and the trade in elephant tusks. Today, governments around the world subscribe to restrictive measures in ivory trade,  in order to protect elephants from poachers.

Here, however, we want to show that that elephants in their entirety have been an important part of international trade for millennia. In many international conflicts in ancient times, elephants were the “tanks” of the battle. Even disciplined Roman legionnaires took to flight when confronted with the giants pachyderms from Africa. For hundreds of years, Roman mothers threatened their children that “Hannibal ante portas esse” meaning that Roman archenemy Hannibal (from the key trading opposition city of Carthage) was in front of the doors of Rome. He and his tanks had devastated multiple legions during the second Punic War (218 – 201 BC)  and might have taken Rome itself, had he not been ordered back home by the leaders of Carthage.

Even earlier, the Egyptians were very active in international trade. A key priority in their trade was to acquire elephants from Ethiopia, which they transported using specially constructed boats, called elefantegos, and then used to attack the Greek empire in Persia.  

Millennia later, large discussions are ongoing, trying to assess whether nations with advanced military technology should be selling weapons systems to the world.  We all know, how such sales can dramatically affect not only the trade and capital accounts of nations, but also their politics and the freedom of their citizens.

Sources: William J. Bernstein, A Splendid Exchange: How Trade Shaped the World, Grove Press, New York, 2008; Titus Livius (Livy) , The History of Rome, Indianapolis, Hackett Publishing ,2006; J.B. Bury, S.A. Cook and F.E. Adcock, The Cambridge Ancient History, 7,1, Cambridge University Press, 2003 

Marketing Management Column #1 - Part 1

The first of my columns in Marketing Management. 
Read it after the jump.

Dropping the Slide Rule

Written in conjunction with Thomas Czinkota, my brother

We just concluded the fall school vacation. Between us brothers, we have three children, 6, 7, 10 with whom we spent the week in conversation , playing and thinking. Here are some of the issues which we addressed but are not sure that we solved:

Are children overworked ? Over time growing societal surpluses have made it possible to enjoy the fruits of our labors. We no longer learn only because we have to, but because we want to and can focus on learning about history, enjoyment, art, music and beautification and poetry.

Even though the need for learning has changed,  the process and conditions of learning have not been altered to provide for a more relaxed childhood. Kids are increasingly overscheduled little beasts of burden with more work of greater complexity carried in ever expanding rollaway knapsacks. The available knowledge has increased very much. Yet, our children keep on learning the way their parents did. Are we perhaps maintaining an outdated approach, applying it to vastly increased quantities of content with a greatly diminished half life ? Could it be that all we are doing is cramming our children’s brains with more useless stuff?

We exert pressure on our children so that they learn. Just as high pressure can transform coal into diamonds, perhaps our children grow more talented. We  punish them for not doing sufficient  work. Boredom is no excuse. Of course, shouldn’t we ask why the same child is not getting bored by TV shows, discussions with friends, or the combing of  dolls.

In a pharmacological  society, many kids are provided prescription pills to cure what once was seen as typical child behavior. We have even seen children who have their own personal assistant charged with keeping them focused.

But there are also procedural learning questions:  

Why do children still memorize? Memorization had its origins when there was no print, no dictionaries, and therefore no ‘institutional ‘ retention. Priests and monks had to memorize in order to pass on society’s knowledge – they were the living word.

Today, we have Google, we have Bing, we have Wikipedia; all systems which remember things for us. Of course, it is said that by subscribing to Wikipedia we are buying into the hidden agenda of secretive editors. Well, why not ? For centuries we’ve bought into the hidden agendas of the secretive editors of the Oxford Dictionary. Even the monks and scribes who laboriously produced manuscripts, added or eliminated details. So the flexibility and adjustment of materials has a long tradition.  

How much knowledge does a child realistically need? Will (or should) the acquired knowledge, ever be useful for anything? Does it make sense to dispense knowledge in  a shotgun approach (we give you everything and hope some of it helps) ? How about a just-in-time approach where you download information and instructions just when you need them?  

There is always a great reluctance to move away from existing patterns. There used to be a firm conviction that only the slide rule would maintain the algebraic memories of children.  Well, it’s been more than 40 years that Texas Instruments has come out with the cheap plastic calculators which even did square roots – are we all so much dumber now?

When Biro the Hungarian, invented the ballpoint pen, its use was prohibited in schools. The end of Western civilization as we knew it was predicted if we would cease to lower steel feathers into ink. So where are we today?

How about the perennial efforts to write cursive in beautiful fashion? What’s that really worth? Isn’t everyone writing with their keyboards – able to select any writing style ranging from Times New Roman to Britannic Bold or Verdana. As to spelling and grammar, the computer can fix most egregious problems – minor ones tend not infringe to on communication and understanding.  

The increase in kitchen equipment has not really resulted in more free time for spouses working in the kitchen. Is all that learning technology also not going to help free up our children from their time of work ? If not, should we still add new materials of new relevance?

Who is in charge of reducing learning materials? We always add but rarely delete. We visited Jena, in formerly East Germany, where wonderful things are done with glass. Alas, all the lens grinding skills accumulated over the centuries,  are now done by computers, which do things more quickly, more precisely, and above all, more cheaply. Knowledge lost or made obsolete?

After our vacation together, we ask ourselves whether it isn’t much more important to spend time with our children to play more, listen to and perform more music, exercise in more sports, engage in more theatre productions? We need to explain to them the things they need to know – for example about morals, values, a sense of excitement and pleasure; about the facts of life, that prices are typically not the result of costs but of demand and supply; about  friendship, the enjoyment and benefits of new people networks; about the  juxtaposition of consumption versus savings. With such knowledge our children might not be able to avoid a global trade and financial crisis, but at least they will understand it and react to it.

MTV's Cross Cultural Reach

During the crisis in Afghanistan, teenagers in 375 million households from Boston to Berlin to Bombay tuned in to hear U.S. Secretary of State Colin Powell field questions on military maneuvers.  For young people all over the world, MTV is not just the first stop for music, but for breaking news and views that shape their interpretation of cultural events.  MTV has vast global reach on par with brands like Coke and Levi's.  Though admired for it's vast influence, it draws the ire of some who accuse the teen-savvy network of cultural imperialism, trampling over regional values and preferences as its airwaves rock the world.

MTV, meanwhile, sidesteps such criticism and downplays its role as a conduit to export American culture.  While it's 64 channels world-wide feed teens' hunger for American music, they play local stuff too.  In fact the network insists on 70 percent home-grown content.  That means local veejays in Bombay belt out Bollywood soundtracks.  In Shanghai, MTV plays Chinese opera arias.  Looking outward, MTV scours the world for emerging local bands and exposes them to international audiences.

MTV is not alone in its discovery that global markets want more than homogeneous, plain vanilla content.  Instead, it's shows that are in tune with regional cultures that really sell.  Everyone from CNN to Disney is "de-Amercanizing" their global channels.  In addition, international programming is making its way onto the U.S. airwaves.  Globalization is growing.

GM Needs A Global Strategy to Survive

The U.S. government now owns 60 percent of General Motors. Some say that the company really belongs to the taxpayers ― but just have them try to sell some of ``their'' GM shares ― they'll quickly see how limited their ownership rights are. U.S. officials now have a new mandate that is familiar to business executives: meet increased sales goals in an ever-expanding sales territory. If GM is to succeed, global sales and operations, not just American, must be a priority.

In an industry that is among the most competitive in the world, GM's future will inevitably be linked to global markets and how well it does as an Asian car company.

Of course, this is not lost on GM. Indeed, at the same time as the firm filed for Chapter 11 protection, CEO Fritz Henderson said that ``China remains a key part of our business. Our ventures in China are a critical part of the new GM ― unequivocally. Our business in China continues to grow at a very fast, even torrid pace and remains a critical part of GM going forward.''

As GM pares down its presence in Europe with the sales of Opel and Saab, the company has expansive ambitions in Asia.

China is GM's largest growth market. The firm has more than 20,000 employees, enjoys booming sales and occupies the leading position among global automakers with market share of about 12 percent in the region. The China Daily reported that GM plans to open a new factory and double sales in China over the next five years.

Another significant Asian market for the new GM will be South Korea, where it is the majority owner of GM Daewoo Auto & Technology, Korea's third largest automaker. Elsewhere in Asia, auto markets have been more depressed by the economic crisis, yet GM has plans for growth throughout the region with emphasis on Thailand and India. In India, look for GM to engage Tata's Nano in competition with its own version of a mini car. India should be a hot market as the country continues its strong economic growth. With 95 percent of the world's customers living outside the United States, GM must look overseas for long-term expansion.

The growing needs of Asian markets will require adjustments in production capacity and product. Consistent with the product cycle theory, over time, established products are produced in new locations with more local advantages.

Asian production sites with lower cost structures and locally based R&D are essential for the new GM to fulfill its mission. To succeed in its post-bankruptcy life, GM will need to rationalize its global production platform to maximize economies of scale and eliminate waste.

While GM will need to temper its ambitions to avoid mistakes of the past, it must compete globally or be marginalized as a niche competitor. However, global efficiency becomes particularly sensitive if GM uses overseas production facilities to import cars to the United States

Indeed, the U.S. administration's rescue plan for GM is contingent upon producing more cars in the United States, even as it closes factories and eliminates jobs at home. Yet, inefficient production is one of the principal reasons for GM's Chapter 11 filing and should not be championed under the guise of protecting American jobs.

Utah Gov. Jon M. Huntsman, the designated U.S. ambassador to China, has his work cut out. He will be confronted with competitive realism while supporting American idealism. But he's the right man for a tough job.

The Obama administration may not intend to be an active manager of the new GM but its policies on trade, foreign investment and taxation will shape the company's future. Government policies must allow and even encourage GM to be competitive not just at home, but also abroad. Don't expect administration officials to go on commission, but, whether they like it or not, they have a new obligation to help GM increase sales. Asia is the smart place to look.

Culture Clue #3

To the Japanese there is almost no distinction between the business day and business night.  They consider it part of both their personal and professional lives to spend virtually every evening with business associates.  "You get through to a man's soul at night," is a popular saying among Japanese businesspeople.

Lenders Target Women in Developing World

The women of the developing world are gaining a measure of economic autonomy as perceptions of their role in emerging economies change.  Recently, international organizations and banks have moved to increase funding to women-led small businesses and farming projects.  The motivation has less to do with sexual politics than the economic reality that women do much of the work in the developing world.  A World Bank study found that women head half the households in sub-Saharan Africa, while women in the villages of Cameroon work twice as many hours per week than men.  Their earnings are more likely than men's to be used for the health and education of the next generation.  Women are also more likely to repay loans and are less prone to waste development money.

In the developing world's the vast "informal sector," many so-called microenterprises, ranging from street vendors to one-person apparel makers are run by women.  The relatively new industry of microlending is thriving.  Microlenders in the developing world encourage poor women to cross-guarantee each others' loans, with the resulting peer pressure keeping default rates to a minimum.  Marriages between international groups and grassroots groups help get the money in the hands of women. 

Sources: "Africa's Women Go to Work," The Economist, January 13, 2001, pp.43-44; Tim Carrington, "Gender Economics: In Developing World, International Lenders Are Targeting Women," The Wall Street Journal, June 22, 1994, A1

EU Needs To Allow Worker Relocation

In light of high unemployment rates, many politicians in Europe continue to fear that workers from low-income nations within the expanded European Union could come to steal the few menial jobs now still held precariously by locals. Immigrants may take advantage of generous health care, unemployment or welfare systems. And they’ll never go home once they discover the burial benefits.

Europe is different from the United States, but some post World War II U.S. experience can offer insights: Year after year, U.S. movers to a different state almost reach 3 percent of the population. That is the equivalent of the entire U.S. population transiting to a new home state in little more than one generation. 

All this mobility has maintained a sense of adventure in America. It has retained a spirit of flexibility and exploration. If there are no new jobs in Illinois but lots of new opportunities in Arizona, then that’s where people go. There has been the creation of entirely new regional industry and service clusters, the absorption of many immigrants into the economy and relatively low long term unemployment. There remains strong local pride of place yet there is little xenophobic fear from out of state migrants. 

What does all this mean for the new Europe? Even large increases in mobility would only represent a small population flow (which is now less than one half of one percent). Europe needs new approaches and perspectives. People deserve to explore new options. New moves may well become an action signal for the European economy and way of thinking. This is a key opportunity to enrich the quality of life of regions and individuals. Opening up to others should bring the reward of growing flexibility, better understanding, and rising tolerance levels. Mobility has brought the power of improvisation and adjustment to the United States. Today’s world needs a Europe of courage, innovation and a willingness to take risks, with citizens that want all members to be part of rather than apart from them.

Culture Clue #2

No other Eastern European country is as protocol-conscious as Russia.  Russian officials expect to do business with only the highest ranking executives.  That's why Western firms are best advised to send their top managers to ensure a favorable first impression.

It's Noble to Get a Nobel

U.S. President Obama will receive the Nobel Prize for Peace. Excellent! It is so nice to again receive happy telephone calls from abroad. The Prize is seemly to the person but also to the country and demonstrates a renewed popularity. Liking the U.S. is cool again, particularly in Norway, the country from where the Peace Prize is awarded.

Just like receiving an honorary degree is not necessarily indicative of a good thesis, rather it is reflective of the desire to establish closer, mutual ties. The Prize indicates how much the world is in need of hope and succor during times of uncertainty, frustration and economic hardship.

Typically, winners receive their Nobel prizes long after they have made their key contribution. Their best days often are behind them, and the Prize provides the warm afterglow of reminiscences. Things are quite different for President Obama. He is in a position where his best days may yet come. On receipt of the Prize, he does not have to inform his audience about what else he wishes he had done. Rather, he can address and change issues, policies, and outcomes. In his acceptance speech he can highlight his agenda for the future, and thus share the inspiration.

The prize offers additional gravitas to the future actions of President Obama. It also shows that there is a global focus on the United States and its leadership. Just imagine, if there is a cabinet meeting with secretary Cheu, and a visit by former Vice President Gore, there will be three Nobelists in the White House – what an awesome firepower!

Of course there are some who will claim that this honor has come too early. They will raise the question of what the President should do next. They wonder which mountains are left to climb. To them I say, that there have been several instances of individuals receiving more than one Nobel Prize.

The realistic next goal for President Obama is the Nobel Prize in Economics. Opportunities for distinction abound. Here are some areas for which President Obama could become prize worthy: for work in coping with deficits and restoring a acceptable global balance in trade and investment; for showing how to deal with large increases of spending while keeping inflation low; for implementing policies which nurture and encourage specific industries while not distorting the economy; for managing the steady depreciation of a currency while maintaining the domestic standard of living; for reducing large and continuous trade deficits through the systematic development of an export oriented economy; for convincing other nations to increase their domestic consumption, particularly through the acquisition of foreign products.

The challenges and the opportunities for key new contributions are many. Right now, the world has made a forward payment with great hope and enthusiasm. Perception can become reality, when enough people believe in it. The mantle of global leadership has been re-affirmed for both the United States and President Obama. There has been a payoff from a new willingness on part of the United States to learn and to listen to voices from around the world in order to integrate global perspectives into its thinking.

But, in spite of the enthusiasm, the world needs to understand that the U.S. leader is no longer able to bear policy gifts. U.S. leadership will exact a price. Supporters, friends and allies will need to make economic, sovereignty, and political sacrifices which not only reaffirm but also directly support such leadership. So it is time for countries to start to consider what policy concessions will be necessary to develop a new framework for U.S. leadership and then to offer the investments necessary to sustain mutual progress.

In sum, the Nobel Prize has given new impetus to the President and the country. Just like in the side mirror of a car, perhaps new directions are really closer than they appear. That makes it even more important for the President to be equitable and respectful of all players when raising new expectations. Right now, the Prize certainly represents a good start – let’s make this a successful event.

Cultural Context Orientation - Part 1

Culture is extremely important to take into account when conducting business internationally.  Culture is defined as "an integrated system of learned behavioral patterns that are characteristic of the members of any given society.  Culture is inherently conservative, resisting change and fostering continuity.  The process of aculturation - adjusting and adapting to a specific culture other than one's own - is one of the keys to success in international business operations.

One of the distinguishing characteristics of culture is context orientation.  In high context cultures, the context of a communication is at least as important as what is actually being said.  In low context cultures, most information is contained explicitly in the words.  Unless one is aware of the difference, actions could easily be misunderstood.

For example, consider the exchange of business cards.  In China or Japan, high context cultures, the card is presented carefully with both hands.  Foreigners are expected to study the card when it is handed to them and place it on the table before them.  The behavior of an American executive who proffers a travel-worn card or, worse still, makes notes on the card he or she is given, is considered offensive, even insulting.

The following graph ranks major cultures according to their contextual orientation:

 

Culture Clue #1

Choose gifts with care.  While liquor makes a suitable gift in Japan, it is banned in Saudi Arabia.  Fine compasses - the direction for prayer - are welcome.  Avoid leather objects or snake images in India, and gifts that come in sets of four or nine in Japan.  The mainland Chinese don't like to receive anything that comes from Taiwan.

Academic Freedom

Academic freedom is close to the hearts of many. Being able to teach what "needs" to be taught, to speak out and to pursue thoughts to wherever they may lead are some of the most crucial components of academia. In light of this accepted axiom it is surprising to learn about opposition to the free exercise of higher education around the world.

Many countries are held back by vigorous resistance from their own universities. In their Statement on Behalf of Higher Education Institutions Worldwide, university associations from around the world proclaim fundamental disagreement with international competition: "Trade frameworks are not designed to deal with the academic, research, or broader social and cultural purposes of higher education." 

There are several reasons why universities don't want open markets for themselves. 

First is the reluctance to accept a role in an existing global framework. Administrators and professors around the world have consistently assured me that university issues are so special, specific and unique that the application of industry approaches to them would be heresy. As the editor of an important business journal put it, "Reviewers generally reject the notion that higher education is a 'service.' " 

Second is an overwhelming unwillingness by universities in most nations to consider the benefits of an entrepreneurial system. Rewards for university management come for the ability to manage coalitions and increase subsidies, rather than the capacity to raise funds or be market responsive. There are very few rewards for academic process innovation. 

Third is an ingrained opposition to competition and market forces. Little confidence exists in the power of the market to assure quality. To the world, the evidence is quite clear that central planning has not worked. Yet for ideological and historical reasons, many universities around the globe remain the last vestiges of central planning. 

Past centuries have seen few shifts in university structures and processes. There still is the classroom with the cathedra from which the professor expounds great thoughts and the seats from which students claim to listen. There still are the volumes to read, the papers to write and the ritualized exams to take. Mostly, one professor still offers only one field at one university, and most students still receive their knowledge in one-course increments which, as if by magic, last exactly one semester, and obtain their degrees from only one location.

All this in an era characterized by technology-driven knowledge generation and information dissemination, global reach, cross fertilization of fields, substantial productivity enhancements and Six Sigma quality-control levels. It might appear as if higher education has not innovated at the same pace as other industries. 

Universities need more funding, more competition and more insights from around the globe. Student mobility around the world needs to be reinvigorated. Professors and researchers should move about more. Program content should be internationalized with increasing ease through distance learning and online education. Universities should be able to open up branches abroad or join forces with foreign entities. Competition for resources and students between the best institutions with a minimum of governmental inhibitions must let ventures succeed or fail. Global market forces will lead to rapid improvements and growth in education. Education should be the next large expenditure category for all the TARP funds.

The G20 Supremacy: Fact or Wishful Thinking?

The G20 meeting in Pittsburgh has ended with a grandiose self promotion of the event and its future relevance. The participants declared the meeting from now on to be the world’s principal economic gathering. But designation alone is not enough. The real question is how the impact of the meeting will change.

Time was, that the host of an international summit could use the meeting to not only discuss pertinent issues but also initiate policy action. Such potential was also there for the Pittsburgh meeting. For example, as President Obama raised a global trade vision for economic recovery, job creation, and environmental sustainability, he could have demonstrated a commitment to these principles through the announcement of promising policies.

Yet, the Obama Administration’s decision to invoke safeguards and impose tariffs on Chinese tire imports dealt a major blow to such a vision. Many U.S. trading partners were hoping that ‘Buy America’ provisions of the economic stimulus legislation and the U.S. failure to live up to its NAFTA obligations on Mexican trucking were products of an increasingly trade-phobic Congress. Widespread expectations that the Administration could keep legislators on a leash, were far from met. The recent decision against tire imports from China was President Obama’s own, driven by union pressure. It reveals more precisely and loudly than any trade policy speech ever could, the details of the direction of U.S. policy.

It says that the U.S. now views the rules-based global trading system, which successive U.S. Administrations—both Republican and Democrat—placed at the center of U.S. global economic policy, as outdated and expendable. This takes place despite of the fact that rules are in large measure responsible for the post war global economic success.

It says that the U.S. has now created a subclass of economic interests. Manufacturers of auto parts, exporters of poultry, producers of aircraft are now at constant risk of international retribution. For example, in retaliation of the tire decision the Chinese are now threatening not to buy U.S. goods which are in demand and competitive. Motivated workers in successful industries now have their legitimate interests subrogated to the trade agenda of the major U.S. unions.

It says that the U.S. had its fingers crossed when signing on to the anti-protectionist pledge, and raises real doubts about future adherence.

It says that the “Yes we can” Administration has lost confidence in the American model of competitiveness.

China is absolutely right to choose this ground to challenge the U.S. on protectionism. While trade lawyers can argue the letter of the WTO commitment—it is absolutely clear that the spirit of the Safeguards Agreement has been violated in this case.

Unquestionably, there are numerous issues on which the U.S. can challenge China’s approach to trade—including subsidies, exchange rate issues, disregard for intellectual property rights and denial of equal treatment. But a safeguard action addresses none of these. It doesn’t identify any fault with the Chinese—only with the ability of U.S. workers to compete. When faced with competition from Chinese tire producers, the U.S. could not point to dumping or government supports, so the Administration went to the “no we can’t” option.

Larry Summers has said that the long term formula for U.S. economic recovery will be to become an export oriented economy. To do that, U.S. products will have to compete aggressively and successfully with other countries for world markets. Trading partners will also need to be convinced to open up their markets to international products.

There will have to be a reversal of the deepening slide into protectionism heralded by the tire decision. America needs to participate in a trade agenda that gets the world working again. Only then will the next G 20 meetings be relevant and of impact.

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The New Pinball Economy

President Obama is setting a new pace for the United States and for people around the world. It is crucial to reconcile the apparent conflict between the responsible economic behavior of citizens and the responsible leadership of the economy.

The message of `save more', for example, was always helpful for economic stability. Yet, for the sake of economic growth, the necessarily complementary message of `spend less' was unacceptable in the past. With new excitement about social obligation, now may be the right time to offer and implement opportunities for sacrifice.

There is need for a national agreement that excessive expenditure, wars, and high commodity prices must result in dialing back expectations, expenditures, and excess. Active consumer expenditures will be important to keep the economy going.

The steep decline in vehicle sales demonstrates the disadvantages of too much consumer caution. One needs to prevent individuals and society from becoming cheap. Greater selectivity based on quality should be a key focus of enlightened self-interest.

There seems to be less reliance on market forces. But if one does not use market signals, there needs to be the development of secondary indicators. New non-market criteria encourage the productivity of think tanks, government offices and universities. At the same time, they are likely to lead to an increase in policy errors, performance uncertainty and outcome disputes.

Less faith in free markets affects currency values and exchange rates. Governments will tend to intervene more quickly and perhaps more severely to reach desired currency values. Such extraterritorial application of policy goals will be a new drawback for international trading partners.

Politics do not afford business the same high priority as in the recent past. A reduced linkage between policy and trade will provide allies with less preferential treatment and less market access.

Domestic changes affect international perspectives. Traditional core dimensions of American capitalism, such as risk, competition, profit and property are shifting. For example, the risk/reward relationship is likely to become less central to decision-making.

A reduction in incentives for competition may lead to more harmony, but perhaps also reduce the speed of innovation. More creative thinking about property rights will affect the development of medications, but may also precipitate the global migration of pharmaceutical firms.

A useful analogy may be provided by the traditional pinball machine: Several people can play, and when a player achieves a high score in competition, the machine issues an extra ball ― which allows the winner to further extend his lead.

Now consider what would happen if in a new approach the player who falls behind, receives the extra ball in order to catch up with the leader. Such a shift would not necessarily be uninteresting, but would produce very different rules of the game.

Then there is the key issue of paying for all the desired changes. Past decades of government policy have focused on reducing inflation. The new focus on employment generation will require a neglect of inflation concerns in favor of stimulative expenditures.

Over time, the budget implications of such a shift will require a substantial increase in public income. Doing so will be difficult, given the key commitments already made in the area of tax policy, but will happen nonetheless. Such measures are likely to affect the value of the U.S. brand, leading to more reticence of foreign direct investment.

There are also new expectations for higher standards of virtue, vision and veracity by individuals, corporations and government in order to restore faith and confidence. Yet, both domestically and internationally such values cannot be created overnight, but rather require gradual shifts in perspectives and cultures and global collaboration.

Regardless of the desire for quick action, an era of globalization demands the harmonization of approaches in order to eliminate the jockeying for local advantage.

The American name carries weight in the world. Global leadership has too often been sidetracked by narrow concerns. Inner strength, skills, and morality are essential for long-term leadership for the common good. May the years to come provide us all with social progress and reward.

Only the Long Term Matters

Worldwide commentary would make it appear as if the United States has become a global economic burden. Dire predictions of sharply reduced military strength and shrinking political influence abound. Alas, these commentators are sadly mistaken.

All too often, forecasters are looking only at the short term. Their long term usually means next week. Yet, the world turns much slower than the typical media blurb makes us believe.

Leading powers always suffer from voices of discontent – but other than key players in the past, the U.S. encouragement of free speech leads to global discussion rather than to underground communication. Think of how the U.S. was attacked globally in word and action in 1917, in 1942, and many times since then.

Over the past 60 years, the U.S. has consistently been the key contributor to the world economic growth and welfare. In the 1940’s, its leadership created the World Bank, the International Monetary Fund and the General Agreement on Tariffs and Trade – now the World Trade Organization. These three pillars reduce global poverty, support financial flows and set fair rules for all participants in international trade. In the 1970’s, U.S. courage and conviction led the move from gold related fixed exchange rates to floating ones. This shift allowed money supply to grow and gave rise to world economic abundance.

The country's willingness to be the largest marketplace to the world has provided opportunities for innovation, growth, profit, and enjoyment to many. And all this has been achieved within a system which provides for political adjustments and transitions without unchecked power, bloody battles or economic destruction.

The U.S. remains the land of opportunity where one can realize dreams under open skies. It continues to be a key destination for immigrants, because they know that vision is admired, that effort is rewarded, and that achievement is supported.

These are the factors which set the U.S. apart from other nations, and affect the investment behavior of the world. But after years of predicting economic decline, some forecasters have even breathed a sigh of relief that their dismal future has finally been sighted.

There is no reason to lose heart due to temporary setbacks. The United States continues to present new and special opportunities to the world. It offers the security and safety that have, sadly, been unattainable for most people on earth. It presents a vision, flexibility and capability to adjust to new conditions which are the envy around the globe. Let us use a long term perspective to appreciate past effects and future prospects. Global investors are not foolish when they show their reluctance to turn away from the dollar. What determines the value of money in the long term is the trust, promise and the future that a nation offers to those holding its currency. To the forecasters full of dismay I suggest: Don’t write the US off too soon – remember the Roman Empire lasted more than 500 years – the Ottoman Empire almost 600. Yes, it’s sometimes lonesome at the top!

Too Soon to Let Computers Replace University Libraries

There is a growing trend in modern times to shift from ink and paper to digital publishing and research. It is good to see new technology. But what are the repercussions of this shift? I am thinking about this from various perspectives: Teacher, researcher, author and reader.

When I became a doctoral student, my department chairman sent me a list of 45 books for the summer before by studies commenced.  Today, whenever I assign two chapters of a book to my students for our next meeting, I get requests for clarification. I know that I am becoming outdated in my reading demands.

We use books to learn what others before us have thought -- which forms the basis for our research. But do we really need books for that? Computers are quite well equipped to help manipulate, search, collate, extract, compare -- something that only vandals can do with books. Yet, is our understanding weaker because of changes in the process?

Sources and citations used to be a scholar's stock in trade, but just like the grinding skills of lens crafters, these talents are not much sought after anymore today -- machines are so much better at it. By going to Google Scholar one can find citations typically in 0.4 second or less. My students barely cite "hard" copies of journals anymore; their reference sections come from the Web.

Yet, Web research places an awesome responsibility on scholars and their search engines. How do we avoid the thinking that if something does not show up on a computer search it simply does not exist? How do we steer clear of consigning writings into oblivion just because they are either less recent or not in English, or not cited often enough?

Will such practices permanently affect our capacity to innovate and to spread new thought or will we create a reader's "Mayan" syndrome where later generations will wonder why we abandoned existing knowledge?

As a writer of books, their removal from libraries saddens me. But textbooks can cost more than $100 today, a price at which publishers are telling me that they barely can survive. By contrast, a CD with dynamite programs that allow interactivity offer wonderful colors and online work, weighs very little, and costs only a fraction of a book. Yet payments for software and online activities are not as well worked out as they are for books; illegal downloads are rampant.

Many CDs are actual adaptations of existing books. We have publishers unwilling to invest, authors who may know their content but are not computer experts and a market where compensation is uncertain. These factors raise questions about who will make the effort to write the new texts, who will review them for quality and who will publish them?

Finally, some thoughts from a reader's perspective. To me, books feel good. Reading aloud with my daughter and turning a page is special. Seeing a book again after many years is like running into an old friend -- it brings back memories, and helps me make a connection between temporal distances. When visiting someone I always like to glance at the books. A look at their "holdings" gives me a good sense of what we share, what we can talk about and what direction any future relationship would take.

So here we are. Time marches on relentlessly and perhaps this is the dawn of a new era. Johannes Gensfleisch Gutenberg and his invention of the printing press have had a good run. Yet, I think books will be with us for a while yet. The person you see at the beach reading in the breeze and not worrying about moisture or grains of sand may well be me. Feel free to set up your computer!

International Trade is Crucial to Revival of Global Economy

President Obama concentrates on his economic stimulus plan. Nations around the world attempt to stabilize their economies as well. Typically, each nation’s emphasis rests with domestic issues. Though politically understandable (GM is more important to us than Toyota), a successful plan must reflect the powerful influence of international trade on the national economy. In the U.S., for example, trade related activities comprise more than 25 percent of its economic activities – which is more than the housing and banking sectors combined. Trade also accounted for the entire U.S. economic growth in the past year. Trade issues definitely qualify for the major leagues, but seem to be neglected so far. 

The world depends on continuity in trade. The global economic outlook, competition and consumer choice are shaped by trade flows and currency values. Competitive devaluations, for example, provide unfair advantages to exporters. For us, the promotion of U.S. exports must have a central place in the economic recovery package. 

The national debate about economic recovery includes many lessons from the Great Depression. The clearest of these is to avoid the beggar thy neighbor policies and the protectionism of the Smoot Hawley tariffs that turned a market crash in the U.S. into a global Great Depression. 

Global leaders give lip service to this conventional wisdom but there is a gap between communiqué language and on-the-ground practices. Indonesia and Russia have already begun to raise their protection of domestic industries – to the detriment of global trade. The Doha Round of international trade negotiations continues to be stalled – even though eight years of negotiations have placed great benefits within reach. 

The U.S. experiences some difficulties in its global position, but around the world there is hope, expectation and willingness for a re-emergence of US leadership. There is growing concern among U.S. trading partners that the new leadership in the Congress and in the White House might introduce a new era of U.S. protectionism. Global markets are parsing any announcement for signs of what the Obama Administration will mean for them.

The world economies are intertwined. Any stimulus measure of one nation is likely to rapidly affect others, and trigger responses. Economic activity is highly concentrated among a few players. The United States, European Union, Japan, China and Canada account for more than 75 percent of the world’s economy. A good domestic stimulus should not become an international distortion. Subsidies paid to farmers in one country, for example, can affect dairy related industries around the world. Once introduced, protectionism can quickly become contagious and be emulated around the world. 

The economic recovery plan is both an opportunity to send a signal to markets about what they can expect in terms of U.S. trade, and a chance to reassert U.S. leadership on a global stage. Discussions of U.S. economic improvements must include a focus on global recovery. Countries must be able and willing to buy each other’s goods – in an increasing quantity – if economies are to blossom. 

Here are some recommendations :

• Countries need to make unambiguous, consistent and clear statements that industry bailout packages will not include protectionist measures. In the U.S., the newly appointed performance czar should assess economic stimulus measures by the U.S. and its trading partners for any inappropriate subsidies of exports or discrimination against imports.
• We need a renewed commitment to the World Trade Organization and its stalled Doha Round of trade negotiations. Rules need to be consistent and strong. The key players in world trade need to re-energize the negotiations by making major commitments and taking “early harvest” of potential agreements on a plurilateral basis. One first step could be the elimination of tariffs on environmental goods and services.
• The U.S. must lead its economic partners on the basis of trust and fair play – applied to trade and investment rules as well as to currency values. We’re in this together. Many policy objectives – be they health care, education, retirement – require a sound economy which depends on global collaboration on trade.

Trade success can provide the momentum which keeps the U.S. economy from stalling out before the rest of the stimulus can kick in. Trade issues must move up to the front burner.

The First Post

This is the first post in my blog which I hope will become a forum for my viewpoints, thoughts, comments, and a place for discussion. Please subscribe and comment.

Thanks.