Opinion

Chrystia Freeland

Can America summon the will to invest in the future?

Chrystia Freeland
Nov 19, 2010 14:30 UTC

Surf the web or watch TV and you will probably conclude that American politicians and American pundits don’t agree on much at the moment. But that polarized public discourse obscures the equally important fact that Americans are remarkably united when it comes to determining what the big issues facing the country are.

This isn’t a moment when the nation is divided between isolationists, who want to focus on domestic issues, and expansionists, who want to focus on the rest of the world; nor is this an era when the political debate is about whether social policy—those old standbys like abortion, gay rights and family values—or economic concerns—be they poverty reduction or business growth—should be pre-eminent.

Instead, everyone is pretty much agreed on the big challenges facing America: stimulating economic growth, balancing the budget and finding a place for the United States in the world economy. There is even consensus, at the broadest level, on what the country needs to do to achieve all three: save more and spend less; invest more in social and physical infrastructure and less in personal consumption.

Here’s how Nobel-prize winning economist Michael Spence framed the problem—and the basic solution—when I interviewed him at a recent conference. “Let me describe China thirty years ago,” said Spence, who is advising the Chinese government on the twelfth, and latest, five-year plan. “Thirty years ago China had a per capita income of $400, changed direction, and started saving at 35% and investing at 35%. OK? Now when you have a $400 income and you’re saving at 35%, that means you’re consuming 65% of $400. That is a huge commitment to the future as opposed to the present, right? Now you either make the commitment, as the Chinese did and all the other high-growth developing countries, or you don’t.”

That’s a tough message, but it’s not actually a particularly controversial one. The hard part has been finding a consensus on how to pay for that investment in the future.

The fetish of corporate social responsibility

Chrystia Freeland
Nov 17, 2010 22:54 UTC

Back in September Chrystia appeared on a panel for public-interest communications firm Fenton that addressed the state of corporate social responsibility in business today. She elaborated on her August op-ed in the Washington Post that argued that CSR is a “a fetish encouraged by the philanthropies that feed off it and funded by the corporate executives who have found that it serves their bottom line.” Check out the highlights.

You can watch the entire panel here.

Posted by Peter Rudegeair.

What’s good for the world is bad for the U.S. and China

Chrystia Freeland
Nov 12, 2010 15:12 UTC

This fall, much of the United States seemed to have settled on a narrative for the country’s struggle to adapt, after a debilitating financial crisis, to a post-industrial and post-unipolar global economy: China and its undervalued currency are largely to blame.

Proof that this was a nationally compelling storyline came during the acrimonious midterm election campaign. U.S. politics have rarely been more polarized, but complaining about China was something both parties could agree on.

John Boehner, the presumptive new Republican Speaker of the House, attacked the Democrats for “a stimulus that shipped jobs overseas to China instead of creating jobs here at home.” Harry Reid, the Nevada Democrat who hung on to his Senate seat and his job as Majority Leader, accused his Tea Party opponent Sharron Angle of being “a foreign worker’s best friend” for supporting corporate tax breaks that helped businesses outsource jobs to China and India.

Talking QE2 on PBS’ NewsHour

Chrystia Freeland
Nov 10, 2010 17:46 UTC

Chrystia discusses the Fed’s recent decision to launch a new round of quantitative easing on the PBS NewsHour:

You can read the transcript here.

Posted by Peter Rudegeair.

Forget left and right. The real divide is technocrats versus populists.

Chrystia Freeland
Nov 5, 2010 13:50 UTC

A favorite theme of American business and political elites at the moment is that authoritarian regimes—i.e., China—may be better at making hard, long-term economic decisions than are querulous democracies—i.e., the United States. There is plenty of academic research to suggest that, over the long term, this view is wrong. But in the shorter term—this week in fact—America itself offered a case study of this scary theory.

Consider: On Tuesday, Americans swung sharply to the right, giving their Democratic President a shellacking and handing control of the House of Representatives to the Republicans. The country’s most powerful elected Republican, John Boehner, who will be the new speaker, immediately declared it was a vote for “cutting spending” and “smaller, less costly government.” Most analysts, including happy ones on Wall Street, who are often most cheerful when the country’s elected officials are least active, decided it was a vote for gridlock, thanks to the Democrats’ continued control of both the Senate and the White House.

Then, on Wednesday, America’s most powerful unelected Republican, Ben Bernanke, the chairman of the Federal Reserve, swooped in with massive government action, announcing a plan to pump $600 billion dollars into the U.S. economy over the next two years. That is not much smaller than two of the big government interventions that earned the Democrats their shellacking—the $700 billion TARP program (never mind the pesky fact that it was actually a Republican Secretary of the Treasury who invented it) and the $787 billion stimulus.

Don Graham: For-profit school plan hurts poor kids

Chrystia Freeland
Nov 4, 2010 16:21 UTC

Don Graham, Chairman and CEO of the Washington Post Company, visited the Reuters studio this morning to chat with Chrystia about the future of the company’s Kaplan subsidiary as well as its flagship newspaper. In addition to its popular test preparation courses, Kaplan operates 75 colleges and graduate schools, both online and through brick-and-mortar campuses, that serve 112,000 students. Earlier this year the Department of Education lashed out at for-profit colleges like Kaplan for misleading prospective students about tuition costs and salaries after graduation. The Department proposed new regulations on these institutions that would tie federal aid to the number of students who are repaying their loans.

Graham said that while the Department’s efforts to crack down on bad actors are right-minded, the current proposals will end up having an unintentional yet harmful effect on low-income students:

There is a 99% correlation between the number of Pell Grant students—the number of poor students a campus serves—and the repayment rate under the proposed Department rules… The Department has scored a direct hit on schools that serve poor students. They didn’t want to. They didn’t mean to. But that is what they did. And I hope they’ll reconsider that rule and propose something that in fact cracks down on bad actors but does not punish schools that serve poor students.

Why emerging market countries have an edge

Chrystia Freeland
Oct 29, 2010 13:29 UTC

Tony Hsieh and Sanjay Madan wrote the program to create LinkExchange over a weekend. Before the following weekend, they had more than a dozen websites participating in their ad-sharing network. Over the next several weeks they worked frantically on the project. They refined their business in real time, learning—quickly!—from their mistakes. Less than a year later, the Harvard grads were offered $1 million (U.S.) for the company. Less than a year after that, they sold it for $265 million.

That was 1996. Since then, this story of development on the run has become commonplace. Hacker culture is now part of the broader culture: “beta test” is in the dictionary, and we accept innovative, albeit imperfect, beta releases even from multibillion-dollar global behemoths such as Google. We’re prepared to accept flaws because the tech revolution is progressing so quickly that it is usually better to be fast, and possibly wrong, than to try to be perfect and end up being slow. By the time your flawless product is released, it will likely be obsolete.

Technologists aren’t the only people operating in a rapidly changing, uncertain environment. Thanks both to the tech revolution and to globalization, that is true of all of us, including our governments. But, as Nobel-Prize winning economist Michael Spence argued at a private equity conference in Quebec City this week, emerging-market governments seem to be better at dealing with an unpredictable, volatile world than Western ones. They are like Silicon Valley entrepreneurs—willing to act swiftly, even if it means making mistakes. Leaders in the West are more like Detroit, reluctant to make bold moves until it is too late.

Lessons from Beijing

Chrystia Freeland
Oct 27, 2010 14:52 UTC

Following her chat with Glenn Hutchins at the Quebec City Conference about how globalization is changing corporate strategy, Chrystia interviewed NYU Economics Professor A. Michael Spence about how globalization is bringing about structural change in the world’s leading economies.

Spence, a 2001 winner of the Nobel Prize, chairs the Commission on Growth and Development, a multilateral effort to determine the practical conditions developing nations need to implement in order to achieve high growth. Given his expertise in emerging markets, it comes as no surprise that he thinks their future is bright. Spence was impressed with emerging markets’, especially China’s, brisk comeback following the capital flight and collapse in world trade that resulted from the financial crisis, and he thought they would be able to sustain their current growth rates:

American policymakers — and other Nobel Prize winners – are far less impressed with China’s resurgence, which they view as the result of the malevolent Chinese policy of keeping the yuan undervalued. Spence, however, argued that a one-off revaluation of the sort Washington demands will not only be bad for China, since it will destabilize most of the country’s export-oriented businesses. But it would also be bad for the global economy, since China is the engine for growth in large parts of the world. Instead, he said, China should focus on finding a way to make necessary structural changes while sustaining growth:

The world’s new crucible

Chrystia Freeland
Oct 26, 2010 21:13 UTC

The theme of this year’s Quebec City Conference, a gathering of some of the world’s pre-eminent private-equity investors and venture capitalists, is innovation and globalization. Chrystia was in attendance earlier this morning and interviewed one of the event’s keynote speakers: Glenn Hutchins, co-founder of Silver Lake Partners, a $14 billion private-equity firm that focuses on the technology sector.

Hutchins’ remarks focused on the shift of economic power from the U.S. to China. He noted that as long as China grows much faster than the United States, multinational corporations will shift more of their business there. But his other insight was that for the first time businesses are tailoring products to the Chinese consumer rather than just selling the Chinese products developed for American consumers:

It used to be that to be a global company you had to forge your business model in the crucible of competition in North America–potentially Europe, but usually North America–where you define your business model, define your product set, define your customers, and then once you were successful there took it outside the world and essentially sold the same products and services to a strata of groups and people around the world who can consume it.  Today what you’re seeing is companies that are growing up–we talked a little earlier about Huawei being a very good example, but there are many, many others–whose business models are being forged in the crucible of competition in the emerging markets.

The Mumbai consensus

Chrystia Freeland
Oct 22, 2010 14:14 UTC

They call economics the dismal science, but Larry Summers, one of its pre-eminent public practitioners, is anything but dull. That penchant for intellectual controversy means he hasn’t always won popularity contests, but he is unfailingly stimulating, as he proved in a speech in India last week, when he hit on one of the biggest issues in the world economy today, and coined a snappy catch-phrase to describe it: the “Mumbai Consensus”.

The Mumbai Consensus, Summers said, is “people-centric.” He contrasted it both with the Washington Consensus, the U.S.-led, free-markets-and-democracy formula that seemed to have conquered the world after 1989, and with the Beijing Consensus, China’s state capitalist approach that today is winning fans in emerging markets and in some developed ones.

Summers thinks the real model to watch is India’s, the world’s largest democracy. Partly because of its political system, India’s economic rise has been powered as much by the voracity of its domestic consumers as it has by the country’s push into foreign markets. That’s a sharp contrast with China, where the focus has been on working for the rest of the world, while the Chinese people, who are poorer on average than those of Albania or Jamaica, nonetheless save more than half of their GDP.

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