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.

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.

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.

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