Chrystia Freeland

During the depths of the financial crisis, Alcoa announced that it would lay off 13% of its global workforce, or about 13,500 people. Since then, they have built up their presence in China and Russia, finalized a new mine in Brazil, and started construction of the world’s largest aluminum facilities in Saudi Arabia. Alcoa’s rate of job creation in its home country of the United States, however, has been rather tepid in comparison.

Alcoa CEO Klaus Kleinfeld acknowledged that prospects for his business today were better abroad than they were at home, but he did note that in the past year Alcoa hired 1,500 people in the U.S. in the automotive and aerospace industries and so long as the United States retained its sense of entrepreneurship, creativity and excellence in higher education, jobs will come.

Dominic Barton was similarly sober about the current state of the U.S. labor market, saying that it’s currently undergoing an acute phase of creative destruction. However, he urged the audience to focus on long-term job growth, citing the example of Samsung in the wake of Korea’s financial crisis in 1997:

Samsung.  In 1997 there was massive layoffs that were going on. So if you looked at them with the lens of what happened in that crisis, yep, they laid off a lot of people. The number of jobs they’ve created since because of the investments that they’ve made is many, many multiples of what they’ve lost. But they’re different people. I think that what we need is this. There is restructuring, and there always will be restructuring. We can never get away from that.  But what’s — what are the conditions that are in place in the country to enable jobs to be created? And that’s something where I think business can help play a role. Not to subsidize jobs when they shouldn’t exist, but to help create the conditions to do it.

Towards the end of the Newsmaker, Chrystia steered the conversation to the relationship between the business community and the Obama administration. Klaus Kleinfeld observed that after a period of remarkable coordination during the financial crisis, government policy since then become less responsive to current developments and that the “societal dialogue” has become more “stratified.” Dominic Barton agreed and offered his own solution to this problem:  stripping elected officials of some authority over issues of economic competitiveness and handing it to technocrats who will be able to administer policy over a time-frame longer than the next election. Countries like Malaysia and South Korea have lessons to teach the United States in terms of of streamlined policy-making, Barton said:

Posted by Peter Rudegeair.

It was striking to hear how encouraged both Klaus Kleinfeld and Dominic Barton sounded when Chrystia asked them about the effects of the recent turmoil in the Middle East on the business environment there. Barton believed the regime changes in Tunisia and Egypt were “the dawn of a new good thing that’s occurring” and noted that it is likely that new capital will come into these countries as a new leadership emerges. Kleinfeld, whose company is in the process of building the world’s largest integrated aluminum system in Saudi Arabia, said that Alcoa is still very comfortable in the region and that the only surprises with their Saudi partners have been positive surprises. For Kleinfeld, the most assured way to bring about stability in a region plagued by unrest is to have businesses come in and create jobs:

If there’s one thing that the Middle East needs particularly for the young — as well as well-educated people — it’s jobs. And it does it in a region which typically has not had much of an economic growth around Ras Azzour. So that’s all very, very good. And not just for us as a company but also for the region. And it’s gonna have a stabilizing as well as a kind of uplifting, positive element

Like Saudi Arabia, China has a large population that accepts a level of repression so long as the leadership can deliver economic growth. Barton, a China expert who headed McKinsey’s Asia operations before ascending to the consultancy’s top spot, said that he did not think that dissent in China would spillover and create a Middle-East-style uprising because the Chinese Communist Party has been able to stay on top of job growth. He had an interesting anecdote about McKinsey’s study on the effectiveness of China’s stimulus plan that illustrated the leadership’s obsession with maintaining growth:

During the financial crisis, there was a stimulation program that was being put in place. And we’d been asked, almost ordered to do work to figure out what sort of discount should you put on TVs in tier three cities? It was a very focused question. And the reason was they were trying to create consumer demand in a very sophisticated manner. Do you sort of drop the price by 25 percent or do you have people buy it and they get a 25 percent rebate from the mayor? That was literally the thing.

And as we were talking about this I was amazed at how sort of precise it was. I said, you know, we gotta make sure that the impact is there and how we do — sort of doing the McKinsey thing, we wanna make sure this happens. And this guy said to me, “I think we have a different definition of impact than you.” And I said, “What’s that?” And he says, “If this doesn’t work, we’re gonna have probably 12 million people that won’t have jobs. And you should know that all of the revolutions in our 5,000 year history have occurred in the countryside.”

And so there is a revolution — it — so he was just trying to explain to me we understand how important this is, you idiot, basically.

Posted by Peter Rudegeair.

At this morning’s Newsmaker “Thriving in the New Global Economy,” Alcoa CEO Klaus Kleinfeld and McKinsey Global Managing Director Dominic Barton told Chrystia their outlook for the world economy. From his perch atop one of the world’s leading aluminum producers, Kleinfeld was “really positive” about global growth prospects. Coming off a strong year in which aluminum demand rose 13 percent, the Alcoa chief forecast that aluminum demand will grow at a slightly slower rate of 12 percent this year thanks to China’s efforts to slow down its economy:

While also bullish on global growth, Barton noted that there was a sense of fragility in the world economy that concerned him. Specifically, the McKinsey head was worried about the government’s response to looming inflation, which he predicted would rise to the range of 6 to 7 percent. Mounting government debts and the rising cost of capital, which Barton believes will be “up fairly significantly” as savings rates in the emerging markets decline, will exacerbate the inflation problem:

“We’re in a slack period if you just look at what the cost of money is. It’s an incredibly unique period. I think that’s going to go away, and that’s going to make it challenging.”

Posted by Peter Rudegeair.