Ben Casnocha: The Blog

What I Learned at St. Gallen

I've been in Switzerland the past two weeks in part to participate in the 39th St. Gallen Symposium entitled "Revival of Political and Economic Boundaries." The Symposium brings together 200 people under 30 from 50 countries alongside 400 businesspeople from Europe and Asia. I attended last year (my notes) and loved the international diversity of it all -- the opportunity to sit at a dinner table with seven smart people from all seven continents to talk about global issues. I was honored to be invited back this year.

The conference spirit (and the bias of the attendees) was pro-free market, pro-globalization. Even in the face of tremendous stress and market failure, most speakers and participants insisted we musn't undo the interconnected system that has lifted millions out of poverty and generated prosperity around the world.

But even as pronouncements were made to this effect, there was considerable self-doubt. Mark Medish of the Carnegie Endowment made this point explicitly: "This year's conference feels less technical, more fundamental. Less unabashedly optimistic, more concerned and skeptical." He noted that the half-life of conventional wisdom has never been shorter, as we re-visit and challenge many of the most prestigious theories about how the world works: the flat world theory of technology driven globalization, the valuation model for credit default swaps, mark to market accounting, monetary policy based on inflation targeting, the U.S. currency as world reserve currency, the decoupling thesis, and others.

As usual with conferences, I was underwhelmed by the speakers (a topic I will blog about soon) and for me most of the value came from individual chit-chat during the breaks or special sessions. Below are assorted notes.

1. Yes, It's a Mix of Government and Markets. It's pretty shallow to argue that you are neither market fundamentalist nor tax-and-spend socialist but rather a supporter of both, depending. (And offer no further specifics.) Sophisticated businessmen like the CEO of Pricewaterhouse Coopers and the CEO of ABB made this uncontroversial point. They said in essence, We need free and open markets, except when we don't. How bold! The real question is when and where governments ought to regulate markets and how they should do so specifically.

2. Non-Americans More Giddy about Obama than Americans. Every European, Asian, or Latin American I met was positively giddy about Barack Obama. Perhaps their Obama-love is in overdrive because their America-love has been repressed the last eight years. The Americans I met were more neutral and had a wait-and-see approach.

3. The Export Model. Exports are 40% of China's GDP. It will take at least a decade for China to go from an export economy to a consumption economy. Meanwhile it is dependent on American consumption. Yet, finally, Americans are starting to save a bit more, which is slowing China's economy. Until the crisis, people liked to make fun of the American consumer's inability to save and penchant for running up huge credit card debt. But now they discover that American (over?) consumption is key to the whole system working. A dilemma.

4. Pro-Trade, Pro-Globalization. A) When goods don't cross boundaries, tanks will. B) The White House web site does not list trade among the top 24 key issues. C) The millions of people who work for multinational companies ought to be singing the praises of globalization. They're not. That's business's fault. D) There's a split in the Democratic party over the virtues of globalization: Summers vs. Krugman camps.

5. Energy. Obama has said energy is higher priority than health care. Energy security and climate change are interconnected. "We'll see peak oil demand before we see peak oil supply."

6. Assorted Geopolitics Thoughts.

Geopolitics is to climatology as general international relations analysis and news is to meteorology: climatologists think about the long term, meteorologists predict the weather next week. Geopolitics involves thinking deeply about the long-term relationship between geography and politics and power.

* Geopolitics scholars have been predicting China's rise since the 1960s, since they look at stuff like long-term demographic trends and fact that China borders more countries than any other country.

* Historically there's been social unrest in China when economy slows to 6% growth. And the economy has slowed to about 6% growth.

* Axiom of geopolitics: if you have the money, you set the rules. You cannot have a strong foreign policy posture if you don't have a solid economic base / money. This is why India is not very influential: it represents only 2% of the world economy.

* Eastern enlargement of EU cannot be sole European foreign policy. Internal power paradigm doesn't translate into external foreign policy.

* There is "enlargement fatigue" within EU member countries when it comes to expansion east and south. But if Europe does not move into the Balkans, the Balkans will move into Europe. Enlargement helps member countries.

* The next three geo-political giants will be China, Europe, and the U.S.

* China pours money indiscriminately into Africa, regardless of human rights situation or corruption. China is reducing EU and US influence.

* Regime type doesn't usually affect geopolitical status so long as there is internal stability and external relations are okay. This would mean China's non-democratic status is not critical to long-term power prospects.

7. The 'There Are No Hard Choices' Cliche: "We must set aside old ways and develop new ideas.... We must reject false debates... We must be bold and visionary, yet pragmatic." Obama has been the master at uttering vapid catch phrases like this. It seems businesspeople the world over have taken to repeating it themselves.

Particularly impressive people who spoke:

David Smick, author of The World is Curved. He gave a whirlwind tour of the current economic situation. He told us to ignore the optimism, or at least don't buy it yet. The worse may not yet be over.

Misha Glenny, journalist. He gave an engaging presentation about the world of organized crime, and the president of Serbia later acknowledged him as one of the smartest observers on the Balkans.

Parag Khanna, New America Foundation. A tiny bit of arrogance is more than made up by his very strong grasp of international affairs, especially as it relates to the rise of China on the global stage.

Joseph Stanislaw, prominent energy consultant. He made a persuasive case for all things "green" and put substance behind a buzzword.

Is It Worth It To Preserve Dying Languages?

This is an under-explored question.

Preserving near extinct languages has broad support for the main reason that if a language dies, presumably some part of the associated culture dies too.

I don't doubt that some unique culture exists in language, but what, exactly? And is it worth preserving even when considering the costs?

First, there are the opportunity costs of people encouraged or force to learn a language that's just not that practically relevant. For all the time students in Ireland spend studying Gaelic it's time not spent studying English, the language of the world. For all the time people in Mumbai spend having to learn that city's new official language -- Marathi -- it's not not spent studying Hindi or English. In America, the 22 children in on this Wyoming Indian reservation are being taught exclusively in Arapaho so as to preserve the language of their elders. The cultural interests of the adults come at the cost of competitiveness of their children.

Then there are the real costs of preserving a minority language in a society. The EU spends millions translating official documents and sessions all to pay due respect to cultural diversity. Canada spends an astromnomical amount translating everything into French all in the name of preserving Quebec culture.

Bottom Line: I question the assumption that preserving a near-extinct language is worth it. At the least, we need more discussion of what exactly is being saved and weigh those benefits against the costs.

Jon Chait on Naomi Klein

It's always interesting to read a smart person's intelligent yet devastating take-down of an argument, partly because it's so difficult to do. The intellectual scene is littered with personal attacks, sweeping generalizations, or humorless nitpicking that leave even agreeable readers feeling sympathetic for the person on the other end.

If you want an example of a professional, thoughtful, detailed, and nonetheless devastating critique of a thesis, read Jon Chait's review of Naomi Klein's bestselling book The Shock Doctrine in the New Republic. It does what a lengthier book review is supposed to do which is contextualize the book before reviewing it. Read the whole thing. For those who don't know, the Shock Doctrine's thrust is that free marketers hunt for crisis and disaster so that, while chaos reigns, they can impose free market doctrines on an unsuspecting populace.

It used to be the "conversation" about an issue would stop here, or perhaps make its way onto the word count-constrained "Letters to the Editor" pages. In the era of blogs, however, subjects of criticisms can offer their own reply to higher profile critiques. Naomi Klein is no different. Here's her response to Chait. Oh man.

Her response comes off to me as amateurish, partly because, in a usual sign of insecurity, she concedes almost nothing and instead styles herself (and her heroic research assistant) as underdog truth bearers saying the things we don't want to hear but must. Amusingly, despite the fact that one of Chait's complaints is she too quickly treats disparate ideas as a single entity, Klein decides to lump Chait's essay in with another critique that came from Cato and address them together.

She opens her response by insisting that Milton Friedman did, in fact, support the Iraq war, by citing an interview conducted in German by the magazine Focus. Klein translates the German back to English to reach her conclusion about Friedman -- a libertarian who does not support nation building and called the Iraq war an act of aggression. He's also not fluent in German. Klein doesn't find her charge remarkable. Had she a better understanding of the different strands of conservatism and the one to which Friedman belongs, she would know that her claim needs more evidence than a translated sentence which, even then, is rather ambiguous as to what Friedman is trying to say. The incoherence of her summary of conservative think tanks both in the book and her reply proves Chait's point that she does not care to be bothered by nuance (such as libertarianism), preferring instead the simple explanation that the Chicago School (or that lovely evil catch-all "neo-cons") ruins whatever it touches.

She stammers her way forward. Later, in a revealing sentence, she says only one significant error in the book has been discovered relating to Cheney's profit potential in Halliburtun. To me, this is like conceding you misspelled a word and misses the point that it's not only the facts she assembles but the way she assembles them that cause complaint. In one last flourish, she says, "We invite you to explore these documents, send us ones we missed, and come to your own conclusions." Truly, is there a more cliched line among essayists straining to appear dispassionately even-keeled?

My take on Klein is that she is as surprised as anyone at her meteoric rise in influence. Without advance notice she's been thrust into a spotlight that precludes backpedaling, retroactive clarifying, or "grey." It's a shame. As Chait says, there is merit and data to support some of her ideas. Unfortunately, the substance and complexity of these ideas seem to have been lost in the towering figure of the Naomi Klein logo and brand, and her new role as the unwavering flag bearer of the anti-globalization moment.

Memo to Americans: For Many in the World, Identity is Something You Die For

This op/ed in the LA Times a few days ago is an excellent follow-up to my post last week on identity.

Two sentence summation of the op/ed: America loves to talk about its melting pot ideal, but the reality is that in most places identity -- particularly ethnic identity -- is not something whipped out and celebrated on multicultural day at school. It's something to die for. Key excerpts:

As a nation and as individuals, we tend to view the world through the prism of our own experiences. Over the last few weeks, Russians, Georgians, Abkhazians and South Ossetians have reminded us that ethnic nationalism and secessionism are on the rise around the globe. I worry that the American experience leaves the United States and its citizens unprepared to confront it....

And just because one may not want to "believe" in identities -- ethnic groups and ethno-religious groups -- that doesn't mean that they somehow disappear from the world.

We pride ourselves on a successful history of incorporating immigrants and assume that other nations should or can do the same. Sure, we have our militias, white Christian identity movements, campus-based race warriors, ethnic and racial street gangs, but these groups generally exist on the margins and don't play a significant role in national politics in the way that the "Basque question" does in Spain or the Kurdish, Tamil, Igbo, Palestinian, Kosovar or South Ossetian questions do elsewhere.

Our elites are so steeped in the melting-pot idea that they don't even recognize that they see the world through the bias of the majority....Americans who feel they've transcended group membership have a hard time understanding the power of blood, culture and belonging....

For too long, the march of modernity around the globe, and our own sense of great power hubris, led us to believe that the world would only become more like us over time. But the events of the last decade should convince us that this is clearly not the case. If for no other reason than to understand emerging threats, Americans will have to stop pretending that for most people around the globe, identity is something not just to celebrate -- once a year, at a street fair or during fill-in-the-blank history month -- but to die for.

Book Notes: The New Asian Hemisphere

It's the last day of the St. Gallen Symposium, and I'm gathering my bags ready to head back to Zurich. A young, dark skinned woman comes up to me.

"Are you American?" she asks.
"Yes," I reply.
"Then you need to read this book. It's by the dean of my school. We want it in the hands of as many Americans as possible." She thrusts the book in my hands and walks off.

The book was The New Asian Hemisphere: The Irresistible Shift of Global Power to the East by Kishore Mahbubani. I turned the book over and saw effusive blurbs by Larry Summers, Amartya Sen, Jagdish Bhagwati, and Zbigniew Brzezinski. The Summers blurb caught my eye:

They called it the Industrial Revolution because for the first time in all of human history standards of living in a human life span -- changes of perhaps 50%. At current growth rates in Asia standards of living may rise 100 fold, 10,000 percent within a human life span. The rise of Asia and all that follows will be the dominant story in history books written 300 years from now, with the Cold War and rise of Islam as secondary stories. - Larry Summers

That's an interesting thought. I read the book and loved it. Here are my detailed notes.

There are many books on the rise of Asia, on globalization, etc. What makes this book different is its emphasis on how the West fails to understand Eastern perspectives on Western actions and attitudes. An oft-repeated stat in the book is that there are 5.6 billion people not in the West and only 900 million people in the West (broadly defined as US + Europe + a few other places), and that those 5.6 billion have their own view on politics and security and history. This shouldn't be too controversial a claim but Mahbubani nicely illustrates a range of examples that show Western elites hardly acknowledge this possibility. With a shift in economic and political power to the countries housing the 5.6 billion people, it's about time Americans and Europeans start understanding how the East conceives of itself and the world.

I have not seen much written about this book and I suspect this is due to the release of Fareed Zakaria's book which came out at the same time. Zakaria's covers similar ground but is fundamentally from an American perspective, whereas Mahbubani tries hard to contrast the usual American perspective with the point of view of the East.

The Global Tongue of the World: Panglish

I've been in Costa Rica the past two weeks, so language (Spanish and English) is on my mind. Wired has an interesting, short piece on how Chinese is affecting the English spoken around the world. Here's Slate's helpful one paragraph summary:

The "likely consequence" of growing numbers of Chinese learning English without "enough quality spoken practice" means that "more and more spoken English will sound increasingly like Chinese." Already, nonnative speakers far outnumber native speakers, and in the next decade, native speakers will make up only 15 percent of those who use the language. English is "on a path toward a global tongue—what's coming to be known as Panglish." And, "[s]oon, when Americans travel abroad, one of the languages they'll have to learn may be their own."

Can Japan Become More Entrepreneurial?

This seems to be the fundamental question about the future of Japan's competitiveness. Japan, the world's second largest economy, remains the largest exception to the argument that many have made (such as yours truly, in this mini-essay) which is that entrepreneurship is a critical component to a country's economic growth. Japan lacks an entrepreneurial culture; is dominated by big firms; has little tolerance for risk-taking and failure; etc etc. Can it survive this way? Probably not.

The FT today re-surfaces this issue, emphases my own:

The Japanese government has accordingly announced a Y100bn venture fund to invest in fledgling technology businesses. The idea is to encourage more private and institutional investors to pump their money into start-ups too.

However, there are formidable barriers to injecting some of the pep of Silicon Valley into the commercialisation of new technology in Japan. The biggest is that Japan does not have an Anglo Saxon-style enterprise culture. Would-be entrepreneurs have few role models apart from Masayoshi Son, founder of communications group Softbank. Aspiring to become very wealthy is regarded as faintly unJapanese.

Equally, "business failure is seen as shameful in Japan, though that perception is beginning to erode", says Seiichi Yoshikawa of Nippon Keidanren, Japan's powerful business lobby. When new technology ventures fail, it tends to be as units of large corporations, rather than as standalone companies. This cushions the impact. The downside of the system is that it can suppress maverick talent.

At Japan's ministry of economy, trade and industry, Yuji Tokumasu, who works on science and technology policy, is fretting over a parallel problem. According to a chart he brandishes, even as Japan's spending on research and development has soared in the past 20 years, value added in the manufacturing sector has stagnated.

Japan already spends more than 3 per cent of its gross domestic product on R&D - more than any other country. One way of reading the chart is to surmise that diminishing returns have set in, that every extra yen spent on R&D goes to employ less talented researchers, who study less promising approaches to the same problems. Japanese universities' poor record on turning research funding into results published by top scientific journals suggests that government money can be more efficiently spent. It could be that rather than spending too little on R&D, Japan spends too much.

However, Mr Tokumasu and others in the technology establishment take heart from R&D expenditure data. If only Japan could convert all of this spending into scientific breakthroughs, new businesses and saleable products, they argue, it would prove a powerful source of economic growth.

The Forgotten Continent (and My Trip to Costa Rica)

(photo credit of Jaco sunset)

I'm spending three weeks in Costa Rica starting mid-June. My first week will be around Playa Samara (where I'm taking Spanish classes, four hours a day for four days), second week probably around Flamingo, and third week probably around La Fortuna / Arenal volcano. Some of these nights I'm looking to crash with friends of this blog -- if you know anyone there, drop me a line or leave gen'l tips in the comments.

In preparation, I'm reading Michael Reid's terrific (and dense) book The Forgotten Continent: The Battle for Latin America's Soul. Reid has edited The Economist's Americas section for years. Here's the premise of the book:

Latin America has often been condemned to failure. Neither poor enough to evoke Africa’s moral crusade, nor as explosively booming as India and China, it has largely been overlooked by the West. Yet this vast continent, home to half a billion people, the world’s largest reserves of arable land, and 8.5 percent of global oil, is busily transforming its political and economic landscape.

This book argues that rather than failing the test, Latin America’s efforts to build fairer and more prosperous societies make it one of the world’s most vigorous laboratories for capitalist democracy. In many countries—including Brazil, Chile and Mexico—democratic leaders are laying the foundations for faster economic growth and more inclusive politics, as well as tackling deep-rooted problems of poverty, inequality, and social injustice. They face a new challenge from Hugo Chávez’s oil-fuelled populism, and much is at stake. Failure will increase the flow of drugs and illegal immigrants to the United States and Europe, jeopardize stability in a region rich in oil and other strategic commodities, and threaten some of the world's most majestic natural environments.

A full review and notes will be posted later.

St. Gallen Symposium 2008

I spent a splendid five days last week in St. Gallen, Switzerland participating in the 38th St. Gallen Symposium, a conference where 200 students interact with 600 business and political leaders from around the world. This year's theme was "Global Capitalism - Local Values."

Students must write an essay on the theme and the 200 best are invited to attend, all expenses paid. This ensures not only high quality students (majority grad students, some undergrads) but also a stunning level of diversity. This year, there were students from 50 different countries studying business, economics, philosophy, psychology, and more.

The first two days the students spent alone to mingle, chat, and participate in a couple workshops facilitated by UBS and PwC. The second day was set in the alps at Santis mountain. It was wonderful to have a conversation with smart, young people from every point of the globe with catered food and the backdrop of huge Swiss, snowy alps. I came away from these conversations feeling incredibly optimistic about things -- if you ever feel down on the state of the world, go talk to motivated students!

My time in St. Gallen reaffirmed for me my interest in internationalism, travel, business, and people. And youth. It was terrific to spend time with people around my own age (all under 30). For me, there's still no more exciting moment than hearing about someone's culture, or someone's funny travel experience abroad. One night, at a four-course dinner sponsored by a Swiss watch maker, everyone at the seven person table went around and shared tidbits on their country, their thoughts on current affairs, educational system, or funny experiences from third world (or first world) countries. The wine was flowing -- but so was the mutual understanding and cultural exchange. I know what I just said sounds cliche, but as I've said before, to me, all the cliches about travel are true.

Here were some of my key insights / notes from my conversations and the various speakers and sessions:

• Martin Wolf, of the Financial Times, is not only an impressive columnist, but also dynamic and humorous speaker. He was probably the most impressive speaker of the bunch (out of two country presidents and numerous company CEOs). The FT, by the way, was the most cited news source throughout the conference. Some Wolf quotes:
  • "Success breeds excess, and excess breeds panic."
  • "The new financial system was supposed to allocate risk to those best able to take it. Instead, it got allocated to those least able to understand it."
  • "Revolutions tend to eat its children."
  • "For CEOs, we are living in the era of 'mea culpa.'"
  • "Telling yourself, 'This time is different' is hard-wired into the human psyche. During every bubble people tell themselves this."
• Private oil companies produce only 5% of world oil; national oil companies produce the rest.
• Credit Suisse risk management guy: "We have great risk-management models. The problem is when we start believing them. The key is to only do things you understand, and when in doubt, assume you don't understand."
• World is getting more unpredictable. Quick decision making is key. Decide, iterate, decide, iterate.
• Food security is helped by interdependence in global food markets. On rising food prices, we can't ignore basic fact that China and others are increasing demand.
• Al Jazeera anchor: "One day we woke up and, Oh my God!, there's a food crisis. What about the lead up? Why suddenly a food crisis? Is this "crisis" going to just be flavor of the month?" True. Also, how does the media decide which "crisis" to focus on? Malaria continues to kill in record numbers, and yet, when was the last time you heard a story about the malaria "crisis"?
• "Made in X" is no longer an appropriate tag to place on products. Even if something is "Made in China," the distribution, assembly, creativity thought, etc all likely happened in various countries. "Made in the World" is a better label. Globalization is no longer centered around a city.
• The Swiss airlines CEO - Christoph Franz - was super impressive and I was lucky to be able to participate in a long workshop with him and others on the aviation industry. Among other nuggets, he noted that while Southwest Airlines is heralded in the U.S. as the most successful airline, most of their profits are due to a fuel price hedge made seven years ago. They haven't been operationally profitable for years. Swiss airlines, on the other hand, has done quite well, thanks mostly to new ownership under Lufthansa and elimination of non-premium routes (they focus on routes from Zurich that cater to business fliers). Franz also noted the insanity of Chapter 11 bankruptcy in the States -- it allows airlines to float in and out of bankruptcy without facing the hard truths. Unlikely US air travel will improve anytime soon thanks to an aging fleet.

I can safely say that this conference was the most well organized event I've been to. I suppose it helps when you can draft hundreds of students of a university (St. Gallen) to help produce the event and manage logistics. But it's also a testament to the Swiss culture of organization and precision. Needless to say, if you have the opportunity to go to an event put on by the Swiss, go!

I am very grateful to the St. Gallen Symposium for including me in this event.

Why China's Infrastructure Projects Zoom

Paul Goldberger had a piece in a recent New Yorker on why and how airports are so poorly designed from an aesthetic perspective. Near the end he expresses awe at size and pace of construction of China's new airports. I myself remember being stunned by the sheer capacity of China's airports -- dozens of unused gates, built in anticipation of expansion. Goldberger makes this important point when comparing the new Beijing terminal to Heathrow's new BA terminal:

The Beijing terminal cost $3.65 billion to build, which in China bought a structure bigger than all five terminals at Heathrow put together, for less than half the cost of the new Terminal 5. The project was conceived, designed, constructed, and opened in four years, whereas the Heathrow terminal, from conception to completion, took twenty years...These widely divergent timetables are not a matter of Chinese efficiency versus British dallying: the British, like the Americans, pay the price of democracy. The Chinese government does not have to contend with environmentalists, financing problems, or recalcitrant airlines; the public hearings over the Heathrow terminal took the same amount of time as the entire construction of the Beijing one. China simply decrees what it will build, and floods the construction zone with migrant workers whose daily pay probably wouldn’t buy a British construction worker’s lunch.

And that lack of democracy, of course, is what makes China so different from emerging-market rival India. China kicks India's butt from an infrastructure perspective. But perhaps India has the more sustainable political infrastructure in the long term.

Peter Thiel's Optimistic Thought Experiment

Peter Thiel is one of the most successful start-up entrepreneurs in recent time (PayPal), start-up investor (Facebook), and hedge fund manager (Clarium). Needless to say, it's worth following his thinking.

I've now twice-read his 10,000 word essay in the latest Hoover Policy Review entitled The Optimistic Thought Experiment: In the Long Run, There are No Good Bets Against Globalization. I still can't get my head around all his points, including his proposed connection between financial bubbles and the level of globalization. Hopefully you, dear reader, can help me. Until then I thought I'd excerpt some of the more interesting paragraphs that jumped out at me.

He frames his essay thusly:

For macro investors, it would be an abdication not to wrestle with the central question of our age: How should the risk of a comprehensive collapse of the world economic and political system factor into one’s decisions?

From the point of view of an investor, one may define such a “secular apocalypse” as a world where capitalism fails. Therefore, the secular apocalypse would encompass not only catastrophic futures in which humanity completely self-destructs (most likely through a runaway technological disaster), but also include a range of other scenarios in which free markets cease to function, such as a series of wars and crises so disruptive as to drive the developed world towards fascism, anarchy, or both.

Are all past bubbles part of The Great Boom?

It is beyond the scope of this essay either to enumerate all drivers of these trends or to determine whether the pro- or anti-globalization forces will gain the upper hand in the longer term. Still, the following conclusion seems safe: Since we are very far from any stable equilibrium, the future is likely to be much more or much less globalist than the present.

Nevertheless, this Great Boom is also very different from all previous bubbles. This time around, globalization either will succeed and humanity will achieve a degree of freedom and prosperity that can scarcely be imagined, or globalization will fail and capitalism or even humanity itself may come to an end. The real alternative to good globalization is world war. And because of the nature of today’s technology, such a war would be apocalyptic in the twenty-first century. Because there is not much time left, the Great Boom, taken as a whole, either is not a bubble at all, or it is the final and greatest bubble in history.

On technology vs. "technology":

...There also exists a critical distinction between technology and investments called “technology.” To take a particularly easy case from the prior technology bubble, a “technology” company that sells pet food online by purchasing Super Bowl advertisements offline may not be a technology company at all. The solutions to hard engineering problems are not necessarily valuable, but it is unusual for the solutions to easy engineering problems to have much value in the long term.

On the China bubble:

To say the least, there are many eerie parallels between the Chinese stock market of early 2007 and the Nasdaq of early 2000: an abstract story of long-term, exponential growth; rampant speculation; and unprofitable or overvalued companies.

One intermediate possibility is that the China of 2014 will be like the internet of 2007 — much larger, but with winners very different from the ones that investors today expect. The largest New Economy business is Google, a company that scarcely registered in early 2000. Might it also turn out that the greatest Chinese companies of 2014 will be concerns that are private and tightly controlled businesses today, rather than the high-profile and money-losing companies that have been floated by the Chinese state?

By the way, here are some video interviews with Thiel on the BigThink, a wonderful collection of stimulating, brief interviews with smart people.

Countries of the Future - Latin America?

Richard Florida, who I like and respect a great deal, says:

• "The countries of the future: Australia, Canada, Sweden, and of course China and India (at a different level). The USA too, if it can somehow get its act back together. Sure America will never recapture its zenith, but it will remain the place for innovation and entrepreneurship - at least until the effects of the current global talent shift set in. I'd put that at a generation or so.
• At the end of the day, I wouldn't be betting on continents or even countries at all. Not in this spiky world. I'd bet on mega-regions. Europe has some good ones, Asia has a bunch, including some that are growing mighty fast.  North America retains the most.  Unless some sort of major round of institutional changes occur at the global scale, this spikiness will grow a lot worse."

What about Latin America? Recent travels to Ecuador and Mexico have piqued my interest. The growth of Spanish speakers in America and explosion of Latino culture more generally seems to play well for future cross-pollination between U.S. and Latin American economies.

Yet no one ever seems to talk about our neighbors down south. Michael Reid is author of a new book called The Forgotten Continent, and emphasizes Brazil:

If China was becoming the world’s workshop and India its back office, Brazil is its farm — and potentially its center of environmental services.

That quote is via Roger Cohen, who said in a recent column that "Latin America's transformation in recent decades has been underestimated."

How Driver's Ed in China is Telling of Larger Philosophy

Though I think chatter about when China is going to knock off America as the world's superpower is kind of silly -- we're moving toward a multi-polar world and when America recedes, as it undoubtedly will, the power will be spread around -- it's nonetheless interesting to compare how the two countries are trying to compete.

One big thing America does better than China, it seems to me, is celebrate creativity and experimentation in its school system. The Chinese school system --and yes, I will gladly generalize about a billion people! -- seems incredibly focused on churning students through the standardized test system. Chinese students are under enormous pressure to get really, really good at following rules. The American system, while dancing alarmingly closer to this kind of attitude, still in theory promotes creativity. Students are taught it's OK to invent and rebel.

How China teaches driving -- more Chinese people are taking to the roads -- is a good example of this difference in philosophy. Peter Hessler, in the Nov. 26th New Yorker, reports on Driver's Ed China-style. It's not available online but summarized by today's WSJ:

The steps needed to get a license sound rigorous and standardized but emphasize arcane theory over practice. The mandated 58 hours of training involve drilling students to perfect hard tasks such as driving on planks barely wider than the car's wheels. Students have little training on the roads themselves.

Mr. Hessler says the written test's emphasis on bizarre driving conundrums shows China fitting its road rules to its neophyte drivers and traffic, rather than the other way around. The questions in the study book -- which cover topics such as what to do if a car breaks down on a train track -- "didn't teach people how to drive, it taught you how people drove."

Drilling students to perfect hard tasks, arcane theory over practice. Sounds like many classrooms. I think Hessler's line that the system "didn't teach people how to drive, it taught you how people drove" could be changed for the education system: "it didn't teach people how to think for themselves, it taught you how other people have thought."

The point here is the only way America will compete against China's vastly larger numbers is to teach its students how to think creativity and be leaders and rule-creators, not rule-followers. China's going to provide hundreds of thousands of excellent middle managers. The world still needs founders and CEOs.

***
Peter Hessler is as good of a "go-to" person on China as anyone. His book River Town is masterful, and Oracle Bones an impressive follow-up. James Fallows is also an excellent perspective on the country given his many years living in and thinking about Asia.

A Geographically Rooted Childhood

When I meet sons and daughters of diplomats or globetrotting CEOs, they tend to have a complicated answer to the question, "Where ya from?" They're not from any one place, really. First Chicago, then Singapore, then Beijing, then Sydney, now Los Angeles. Wherever their parents' work took them.

I'm an example of the opposite. Same bed, same house, same neighborhood in San Francisco the first 19 years of my life. When someone asks where I'm from, San Francisco is the easy answer. I'm unequivocally rooted from a very specific geography.

Usually, after the "Where ya from?" conversation, both of us envy each other: I envy the son of a diplomat for his travel experience, his worldliness, the comfort he must have in knowing he can be dropped anywhere in the world and make it home. He envies my rootedness, my sense of belonging, my strong sense of identity.

Neither upbringing is objectively better than the other.

But I must say, from my own biased perspective, the college students I've met who had a geographically rooted childhood tend to be more confident and happier, if less interesting. The diplomat's son has an attractive cosmopolitan veneer; but the insecurity which stems from a lack of true "home" somehow also comes through.

Ease of Starting a Business in Latin America

Entrepreneurship is essential for a country's economic success, so studying how easy it is to start and run your own business can be a useful metric for whether a country is headed in the right direction.

In yesterday's WSJ ($), Mary O'Grady points out that the picture in Latin America is grim:

The World Bank's annual "Doing Business" survey, released last week, demonstrates the point. The 2008 survey, which evaluates the regulatory climate for entrepreneurs in 178 countries, finds that Latin America and the Caribbean was the slowest reforming region this year and that it "is falling further behind other regions in the pace" of reform.

In many Latin American countries it can take months to file the paperwork to start a business; hiring and firing employees at will is severely restricted; paying taxes is a nightmare.

As someone with a growing interest in the region, I hope this trend can be reversed. If it's not, a talented young entrepreneur will leave the region and start his/her business elsewhere, a brain drain that most of those economies cannot afford.

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On a somewhat related note, my older brother John just re-located to Quito, Ecuador where he will be teaching English for the next 8 months or so. If you live in Ecuador and want to introduce him to the culture, drop me a note and I'll connect you two. John is a 2006 graduate of Amherst College, athletic stand-out (nominated for California Mr. Basketball in high school), and he worked for a year at Skadden, Arps, the prestigious New York law firm out of their Palo Alto office. I'm excited and proud that he's chosen to embark on what will almost surely be a life changing experience.

In the weeks after Christmas I plan to visit Ecuador and hopefully some neighboring countries like Chile, Peru, and Bolivia. Details will be posted as I know them.