Tag Archives: China

What to Expect in 2013 (and Beyond)–An Optimistic View

Posted on by Jack Rivkin
3

This year in early January I posted “What to Expect in 2012 (and Beyond).”  Some of what I expected last year has rolled over into 2013. With more than a month to go before we step into 2013 it is a little risky to make predictions, particularly when much of what is predicted depends on the resolution (or not) of the fiscal cliff. I believe we will reach a resolution and actually take some steps toward overall fiscal reform. That may be the biggest and most important expectation which sets the course for much of what else could occur. Hopefully, op-ed pieces like Steve Rattner’s in the 11/25 Sunday NYTimes will become part of the dialogue in Washington. Keep in mind that the expectations below follow the Byron Wien approach, i.e., my view is a greater than 50% chance of these expectations coming to pass while the conventional wisdom is less than that. Let’s plunge in.

  1. With the resolution of the fiscal cliff and some steps toward overall fiscal reform, big corporations and small businesses step up their plans for 2013 and beyond, affecting hiring and capital spending.  The rest of the US economy joins the housing recovery, producing growth in the US exceeding 3.5% for the year with at least one quarter printing over 4% in spite of the trade deficit expanding.
  2. The US experiences double digit growth in capital spending as delayed plans are finally implemented with resolution of the fiscal cliff.
  3. Unemployment works its way lower by a percentage point. Unfortunately, the number of jobs unfilled increases substantially as the mismatch between skills and needs comes into stark relief.
  4. The new leadership in China, while taking a conservative social stance, takes additional steps to insure a decent recovery in economic growth. The strength of the US economy aids China’s recovery.
  5. While the noise about Greece grows and is joined by more concerns about Spain, Italy and France, Europe continues to muddle through with interesting support from the Middle East and some support from China.
  6. As Moore’s Law marches on, Samsung and others introduce advances in tablets and communications devices which puts pressure on Apple that reflects itself in relative stock performance. Apple does an interesting pivot which changes the landscape for even more robust consumer devices.
  7. The Argentine situation is not contained and has an impact on politics, growth rates and inflation for its neighbors, requiring more attention to South America from the US than we have been willing to give thus far.
  8. As we enter the year end 2013, because of the surprising global growth, there are some unsettling signs of inflation. QE is reduced and expectations for a rise in rates increase.
  9. The US stock market has a good rise in the first half of 2013, but inflation concerns and a possible Fed reaction push markets down in the latter part of the year reversing  some but not all of the earlier gains. Analysts find themselves chasing earnings for much of the year.

The next few expectations are holdovers, with some modifications, from 2012. They may not all come to pass in 2013. None of them were complete in 2012.  But as we move further into the decade, in my view, they will likely happen, and will have an impact on how our future unfolds.

  1. Contrary to a normally quiet year during a transition of leadership, to some extent in reaction to some elements of an “Asian Spring” in the region, China takes several steps in response to a more activist populace upset with corruption, the environment, and some areas of economic stress. Externally, this includes significant acquisitions in other countries as well as the opening of manufacturing and service facilities where there is a receptive government. At home, R&D is accelerated, particularly in alternative energy, space and IT processing. Subsidies for hydrocarbons are reduced and an explicit carbon tax is put in place.
  2. As the US economy grows, corporations find qualified hires difficult to come by.  Enlightened corporations become educational institutions to provide skills and basic knowledge to a work force that has been idle and undereducated by the public systems. Corporations become much more vocal about creating paths to bring illegal immigrants into the US system, expanding visa programs and finding other mechanisms to add talented labor to the domestic pool. The tide shifts significantly on immigration issues. The skill match is aggravated by decisions on the part of some US corporations to bring business operations back into the States. Labor costs are rising elsewhere and the elements of control, rule of law, productivity, available feedstock and relative safety lead to better economics for manufacturing and service locally.
  3. Aside from the continuing concerns about Europe and the ripple effect of the Argentine situation on South America, India becomes a focal point. With the economy not growing adequately to provide jobs, upward mobility and political stability, the leadership looks for diversions and points to its neighbors, China and Pakistan as problems. There are internal confrontations as well. While there is limited impact on the global economy, the uncertainty affects foreign investment and India’s outsourcing businesses.

On balance, this is a set of optimistic expectations with some trouble spots, as always, diverting our attention. I am optimistic about what can happen, certainly within the US, as long as the crazies in Washington get a bit rational. If not, I will need to spell out a whole new set of expectations. It will be an interesting year.

What to Expect in 2013 (and Beyond)–An Optimistic View

Posted on by Jack Rivkin
Reply

Last year in early January I posted “What to Expect in 2012 (and Beyond).”  Some of what I expected last year has rolled over into 2013. With more than a month to go before we step into 2013 it is a little risky to make predictions, particularly when much of what is predicted depends on the resolution (or not) of the fiscal cliff. I believe we will reach a resolution and actually take some steps toward overall fiscal reform. That may be the biggest and most important expectation which sets the course for much of what else could occur. Hopefully, op-ed pieces like Steve Rattner’s in the 11/25 Sunday NYTimes will become part of the dialogue in Washington. Keep in mind that the expectations below follow the Byron Wien approach, i.e., my view is a greater than 50% chance of these expectations coming to pass while the conventional wisdom is less than that. Let’s plunge in.

  1. With the resolution of the fiscal cliff and some steps toward overall fiscal reform, big corporations and small businesses step up their plans for 2013 and beyond, affecting hiring and capital spending.  The rest of the US economy joins the housing recovery, producing growth in the US exceeding 3.5% for the year with at least one quarter printing over 4% in spite of the trade deficit expanding.
  2. The US experiences double digit growth in capital spending as delayed plans are finally implemented with resolution of the fiscal cliff.
  3. Unemployment works its way lower by a percentage point. Unfortunately, the number of jobs unfilled increases substantially as the mismatch between skills and needs comes into stark relief.
  4. The new leadership in China, while taking a conservative social stance, takes additional steps to insure a decent recovery in economic growth. The strength of the US economy aids China’s recovery.
  5. While the noise about Greece grows and is joined by more concerns about Spain, Italy and France, Europe continues to muddle through with interesting support from the Middle East and some support from China.
  6. As Moore’s Law marches on, Samsung and others introduce advances in tablets and communications devices which puts pressure on Apple that reflects itself in relative stock performance. Apple does an interesting pivot which changes the landscape for even more robust consumer devices.
  7. The Argentine situation is not contained and has an impact on politics, growth rates and inflation for its neighbors, requiring more attention to South America from the US than we have been willing to give thus far.
  8. As we enter the year end 2013, because of the surprising global growth, there are some unsettling signs of inflation. QE is reduced and expectations for a rise in rates increase.
  9. The US stock market has a good rise in the first half of 2013, but inflation concerns and a possible Fed reaction push markets down in the latter part of the year reversing  some but not all of the earlier gains. Analysts find themselves chasing earnings for much of the year.

The next few expectations are holdovers, with some modifications, from 2012. They may not all come to pass in 2013. None of them were complete in 2012.  But as we move further into the decade, in my view, they will likely happen, and will have an impact on how our future unfolds.

  1. Contrary to a normally quiet year during a transition of leadership, to some extent in reaction to some elements of an “Asian Spring” in the region, China takes several steps in response to a more activist populace upset with corruption, the environment, and some areas of economic stress. Externally, this includes significant acquisitions in other countries as well as the opening of manufacturing and service facilities where there is a receptive government. At home, R&D is accelerated, particularly in alternative energy, space and IT processing. Subsidies for hydrocarbons are reduced and an explicit carbon tax is put in place.
  2. As the US economy grows, corporations find qualified hires difficult to come by.  Enlightened corporations become educational institutions to provide skills and basic knowledge to a work force that has been idle and undereducated by the public systems. Corporations become much more vocal about creating paths to bring illegal immigrants into the US system, expanding visa programs and finding other mechanisms to add talented labor to the domestic pool. The tide shifts significantly on immigration issues. The skill match is aggravated by decisions on the part of some US corporations to bring business operations back into the States. Labor costs are rising elsewhere and the elements of control, rule of law, productivity, available feedstock and relative safety lead to better economics for manufacturing and service locally.
  3. Aside from the continuing concerns about Europe and the ripple effect of the Argentine situation on South America, India becomes a focal point. With the economy not growing adequately to provide jobs, upward mobility and political stability, the leadership looks for diversions and points to its neighbors, China and Pakistan as problems. There are internal confrontations as well. While there is limited impact on the global economy, the uncertainty affects foreign investment and India’s outsourcing businesses.

On balance, this is a set of optimistic expectations with some trouble spots, as always, diverting our attention. I am optimistic about what can happen, certainly within the US, as long as the crazies in Washington get a bit rational. If not, I will need to spell out a whole new set of expectations. It will be an interesting year.

What Could Happen in 2012 (and Beyond)

Posted on by Jack Rivkin
Reply

Byron Wien, the Election, the Economy, Immigration, China, India, South America, Education–surprises!

Byron Wien does the most thorough job of putting together thoughtful, provocative and useful ideas on possible surprises for each year. I have been fortunate enough to know Byron and to participate in the Third Thursday group on which he draws, in part, to test both conventional wisdom and real surprises. I could not attend the December lunch this year as I was in India. Below is the email I sent Byron in late November. I will use that as the start of my thoughts on surprising things that could happen in 2012 and will then toss out a few additional ideas. Here we go:

“Byron, Am heading to India on Friday. Sorry I will miss your pre-surprise lunch. Am attaching copies of the text and slides I will be using in India. I don’t think they say anything you don’t know, but you might find something in there…My big surprise is that Joe Biden will not be the VP candidate in the coming election. Second surprise would be that the US does better than expected in 2012 given the debacle in Europe. Neither China nor India do as well as currently expected and China steps up to do something in Europe–maybe buy a Greek Island? They need Europe. Brazil starts to look a bit like Argentina–I think they are way understating their inflation rate. Capital flows our way and the RU dips into the 7′s before the election. If so, Obama wins in a walk. The really big surprise would be Huntsman as the Republican candidate–or maybe Obama’s VP candidate? What a ticket that would make. Jack”

The idea of surprises is to get people thinking away from trendlines. I use Byron’s definition, which is a personal belief that there is greater than a 50% chance of something happening where conventional wisdom is less than that. Let’s continue:

1) It is hard to see us getting through the year without an energy crisis of some type where demand significantly exceeds supply and oil prices spike once again. This could stem from trouble in the Middle East, Africa or Asia. It could be brought about by some covert action by the US that has been in the works for some time and comes to fruition within the next 10 months. There are too many possibilities for this not to have greater than a 50% chance of occurring within this calendar year. The combination of a hydrocarbon energy crisis combined with a major climate disaster somewhere in the world will lead to policy actions on the part of the US to accelerate both natural gas development and alternative energy development as well.  Energy efficiency finally begins having its day. Talk of a carbon tax grows particularly as other countries implement implicit and explicit carbon pricing.

2) Contrary to a normally quiet year during a transition of leadership, to some extent forced by an “Asian Spring” throughout the region, China takes several bold steps in response to a more activist populace upset with corruption, the environment, and some areas of economic stress, combined with a desire by Hu and Wen to put more of their stamp on the future.  This includes major acquisitions in the developed countries as well as the opening of manufacturing and service facilities. At home, R&D is accelerated particularly in alternative energy, space and IT processing. Subsidies for hydrocarbons are reduced or eliminated and an explicit carbon tax is put in place. Following Australia’s lead and China’s moves, several Asian countries put in place mechanisms to reduce their use of conventional hydrocarbons for energy–although everyone finds that they have 200 million year-old hydrocarbons in shale formations and begins using the immature  production technologies developed in the US, creating even more environmental disasters.

3) As the US economy grows, corporations find qualified hires difficult to come by. Enlightened corporations, led by GE,  become educational institutions to provide skills and basic knowledge to a work force that has been idle and undereducated by the public systems which were supposed to do the job. Corporations become much more vocal about bringing illegal immigrants into the US system, expanding visa programs and finding other mechanisms to add talented labor to the pool domestically. It becomes clear that a controlled amnesty program for current illegals in the US will add significantly to GDP and to government revenues. The tide begins to shift on immigration issues.

4) The US labor situation is aggravated in the short term by decisions on the part of several US corporations to bring manufacturing operations back into the States.  Labor costs are rising elsewhere and the elements of control, rule of law, productivity and relative safety lead to better economics manufacturing locally. Caterpillar’s actions with its Canadian operations start the ball rolling. As stated above, US corporations take on a significant role in training and general education to meet their labor needs.

5) In spite of the demand for its natural resources, South America finds itself in much more turmoil politically and economically than one might expect. Natural disasters from climate change and it’s young mountain ranges compound economic issues from changes in export markets and a continuing misallocation of financial resources. Led, once again, by problems in Argentina, some degree of turmoil ripples north through the continent into Central America and requires more of the attention of the US than we have been willing to give thus far. Immigration to the US, both legal and illegal, accelerates as the US economy picks up steam.

6) India becomes a focal point. With an economy not growing adequately to provide jobs, upward mobility and political stability, India looks for diversions. Troops move north to “prepare” for confrontation with China, and west to confront Pakistan. Some elements internally are confronted as well. While the numbers show growth, the quality is somewhat problematic. Energy shortages push India toward even more aggressive alternative energy policies.

These aren’t all of the surprises we will find in 2012. I must say I continue to be optimistic about the US in spite of the crazies in Washington and the anger, bigotry and fear manifesting itself during the Republican primary battles. All of those who were planning on moving out of the country if Obama was re-elected–the ABO crowd– or any of the Republican choices–the ABAR crowd, might want to reconsider.

Neuberger Berman’s Rivkin Discusses India Investments (Audio)

Posted on by Jack Rivkin
Reply

Jack Rivkin, director of the Neuberger Berman Mutual Funds, discusses investment and growth in technology in India. Rivkin talks to Bloomberg’s Kathleen Hays on “The Hays Advantage” on Bloomberg Radio.

Download the podcast

A Brief Look at the World—China, the US, Europe and the Lake Forest Investment Society

Posted on by Jack Rivkin
2

I am heading out to Chicago for one of the triannual meetings of the Lake Forest Investment Society.  We have been meeting three times a year (yes, triannual can mean three times a year) for many years to talk about the economy and the markets, including providing some specific stocks for a “portfolio.” The best performing security for the period between meetings gets its touter a free lunch. The portfolio, an unaudited, equally weighted hodge-podge of names is actually up  427% vs. the S&P at 130% over the 16 years this group has been meeting.  The Society originated as a group of ex-Mitchell Hutchins employees and some of their favorite clients who wanted an excuse to share some provocative ideas on stocks, the economy, the world and life, eat high cholesterol meals, and maybe play a little golf. Some of the members and their origins have changed over the years, but the dialogue continues. The following are some thoughts I expect to share at the meeting:

China’s Role

This global deficit crisis won’t really be resolved until China enters the picture. China needs an export market to provide sufficient jobs while it tries to move to a consumer economy. It cannot find itself with a slow-growth economy if it wants to avoid political disruption, particularly at a time of leadership change. The developed world, both the US and Europe, needs to be showing some growth in order to be consumers of Chinese goods. With new leadership coming in 2012 there is an opportunity for China to provide some form of quantitative easing through the purchase of longer-dated securities or other mechanisms.  This could be combined with the purchase of real assets and intellectual property as well in both the US and Europe. Until we see some movement by China, the developed world markets will face continued uncertainty, as the resources available to resolve the European crises, specifically, are just not adequate. However, I doubt China will move until both Europe and the US take stronger steps on their own to develop long-term deficit solutions and near-term stimuli.

The US’s Role

Contrary to what has been a continual reduction in GDP forecasts and increasing odds of a double dip by the pundits, I think the US could show decent growth in the second half of this year—not enough to create a lot of jobs, but decent. This does assume that the Super Committee or some variation thereof comes out with a long-term deficit reduction program combined with some near-term stimulus, and Congress actually supports this effort. I think the odds are greater than 60% that they will. This doesn’t necessarily provide a boost for the second half of the year, but it clears the air for next year and eliminates some elements of uncertainty in the minds of business and investors. My guess is we could have one more horrendous scare, probably coming out of Europe, before the world comes to its senses and responds to what could be a real crisis otherwise. What needs to happen long term is a whole ‘nother post, but one could read Friedman’ and Mandelbaum’s new book, “That Used to be Us,” to get a sense of some of what has to happen.

Europe

What a mess. It does not appear that the mechanisms exist to deal with the Greek deficits without putting the European banking system and maybe some other financial entities at grave capital risk. Whatever does come out of Europe as a solution—and I think it will take the Chinese to at least have the appearance of a solution—growth will be slow, as the European banks will not be in a position to lend for some time.  This is an opportunity for the Chinese probably to the detriment of the US, if they choose to pursue it.  China bashing in the US will likely drive China closer to Europe. China can also be more specific in its actions by dealing with individual countries and companies as opposed to the Union.

Other Topics

In spite of what most of the Republican primary candidates say—Jon Huntsman excluded–climate change is happening. We have no coherent policies in place and what was previously there is slowly being dismantled in Congress and by the Administration. Fiscally, we don’t seem to believe we have the resources to tackle this issue now, in spite of the long-term job creation possibilities.  And, the fascination with “fracking” and what that could do for energy independence is in the forefront with massive resources from the energy industry devoted to selling the story. In the meantime the failure of an over-funded science project, Solyndra, has raised issues about government involvement in clean tech.  These are their own topics, which I will deal with separately in other posts. In the meantime, back to the LFIS meeting, I will have a hard time coming up with a good stock idea. My personal portfolio is in cash and private illiquid companies. My compatriots will have some very interesting ideas, particularly at this moment in the market. I am not so sure the public market is as cheap as many opportunities in the private market today, particularly away from some of the frenzy around social media and other Internet related companies. Maybe one more crack in the public markets will get it there if it is combined with some stimulus in response.  In the meantime, real private companies are having a hard time finding funds from the traditional venture capital sources. We appear to be going back to the original sources of capital for venture companies, rich families either in the form of family offices or direct.  They can name their prices.  We are back to the old maxim that one makes the most money on a good price going in vs. the price going out.

Risk and Opportunity

Posted on by Jack Rivkin
2

Mother Nature, the Economy, Intellectual Property & Innovation, Strategic Risk and Private Equity 

The first quarter of 2011 was rather tumultuous to say the least, and we are entering the second quarter with very little of that turbulence fully calmed and the human toll and uncertainty continuing to rise. This has heightened concerns about specific Risks and, more generally, the global economy…  Continue reading the text version →

Or fast forward to the Q&A session in the video below.

Management Trends in the 21st Century–Climate Change and Innovation play their part

Posted on by Jack Rivkin
6

I recently posted a comment on the Harvard Business School Working Knowledge website where a discussion is developing on the Most Significant Ideas in Management for the 21st Century. Below are five ideas I posted, all of which relate to management trends vs. societal trends. Of course, societal trends are almost always incorporated in forward thinking management views:

1)    Global Businesses, regardless of where they are headquartered, will be run by non-Western citizens.

2)    In the early part of the century there will be a significant age shift to a younger senior management structure effectively skipping a generation.

3)    With the accumulation and availability of investment capital outside the Western World, entrepreneurship will truly become global.

4)    A recognition of the growing real financial liability a corporation faces from not incorporating environmental sustainability and other societal issues into its decision-making will lead to widespread adoption of CSR. We already are seeing a valuation differential in the marketplace between CSR adopters and their counterparts.

5)    As the developing world begins creating its own patentable Intellectual Property, the fight over IP will become global and intense and, to some extent, may offset expanding universal access to information. The creation of IP may assert itself as a higher objective for management even though the shortened life of a new idea decreases its present value.

By the way, this is an interesting forum and I would urge others to contribute to it, http://hbswk.hbs.edu/item/6639.html?wknews=02222011 .

The last two bullet points above clearly relate to what I think will be a management requirement—incorporating the impact of Climate Change on conducting business as the century progresses.  There is an implicit growing business liability related to lack of incorporation of likely legal and administrative response to emissions of various types as well as an impact on various factors of production. Some of that liability is already showing up, and in other instances, e.g.,  super fund sites, acid rain, there is some element of retroactivity that can be applied. It is not an easy present value calculation to determine if and when a corporation takes action, but it is not clear that many corporations are even making the calculation. Intellectual Property is a part of this calculation. Of course, here, it is not just related to innovations around Climate Change, but all innovations. I wrote,  in an earlier post, about steps China is taking to enhance its ability to create and protect Intellectual Property. Maybe coincidentally–or maybe not–the US is now making significantly more noise about increasing its spending on R&D and patent services in the face of significant pressure to cut federal spending. If the differential that the market place is willing to pay for reduction in liabilities through CSR investment and for ownership of Intellectual Property becomes more apparent, the pressure to lay out clearer guidelines in response to Climate Change and to improve our patent services should come from the corporate world with the government following. That is the way it should be. I hope it won’t be too late.

NextWealth–Distributed Incubation and a new outsourcing model with profound implications

Posted on by Jack Rivkin
3

On a recent trip to Bangalore to visit with Duron Energy, an Idealab company, I was fortunate enough to meet with Dr. Sridhar Mitta, the original Chief Technology Officer of Wipro, one of its earliest employees, and, as President of Wipro Global R&D, the key missionary of outsourced product development. He is the Founder and Managing Director of NextWealth, www.nextwealth.in.  After receiving his M. Tech. from IIT he went on to get a second Masters and his Doctorate at Oklahoma State University. (He did say it was nice to meet another “Okie.”) He returned to India and spent several years in the public sector before joining Wipro in its startup days. He retired in 2001 and subsequently has been involved in a number of technology companies. His career truly traces the development of the IT industry in India. But his primary focus now is NextWealth, which may represent another step along the IT path in India and possibly elsewhere.

NextWealth is a for-profit social enterprise that is taking advantage of a significant cost arbitrage between urban and rural India, but also, profoundly, makes use of and reinforces certain cultural and social aspects of the Indian society.

In addition to the famous network of IIT schools in most of the major urban locales, India has located many very good technical schools in rural areas in an effort to increase the number of college educated members of the workforce.  Many of these campuses have quite complete infrastructures including, importantly, sufficient primary and back-up power. The schools provide a college education to students in rural India who would not be able to move to urban areas because of the costs and the prospect of separation from their families at a young age. This particularly applies to the young women from the rural areas. The problem is that once they receive their degrees, the job opportunities are most likely elsewhere, not in the local community.  In India, culturally, family takes precedence, but the economic realities brought about by the demand for technically trained individuals in the large engineering complexes in the cities require difficult decisions for these graduates. NextWealth finds an entrepreneur or entrepreneurs either living in the rural areas, or more often working in urban areas, who would prefer to be nearer to home and family. NextWealth provides the start-up funds and other support to create a business that can scale locally. Dr. Mitta pointed out that in many ways it is a distributed Idealab concept. While Idealab incubates the companies at its facility on West Union in Pasadena and then moves them out, typically to a nearby location (Duron is an exception!), NextWealth starts the incubation where it knows the workforce will exist to sustain and grow the company. The willingness and ability of the US college-graduate workforce to locate almost anywhere allows for the Idealab model. NextWealth is to some extent capitalizing on the current state of the Indian infrastructure, but more so, the cultural phenomenon of the importance of geography and family.

The NextWealth model, itself, has some profound implications. We have all seen the articles and dissertations on the urbanization of populations globally. The pundits are predicting that, ultimately, 90% of the population will end up living in cities. It is hard to imagine what life will be like if that occurs. In many societies as the migration takes place the disruption to the concept of family is significant and is being resisted. That is certainly the case in India and is happening in China as well. Dr. Mitta is pragmatically taking advantage of the ties to family and geography in India. But in so doing, he is creating an alternative model to this inexorable march toward the mega-cities. In addition, Dr. Mitta told me that NextWealth’s companies are primarily employing educated women, where the pull from family is the strongest and the prospect of moving away to a single life in the city is remote. NextWealth is bringing many more women into the workforce in roles that provide higher incomes than they historically were able to receive and where they are actually making use of their education. The incomes are lower than they might earn if they moved to the city, but the cost of living is more than proportionately lower, while the quality of life and family interaction is higher. The empowerment of these women feeds on itself in the local area providing a model for other younger women to pursue an education without the prospect of it disrupting the pull of place and parents.

For this to work does require Tom Friedman’s Flat World. It requires global connectivity as well as the local infrastructure resulting from the creation of these rural educational facilities. It relates primarily to service businesses as opposed to manufacturing. It also requires acceptance by the customer that a reliable network and an educated workforce does exist in rural India.  Dr. Mitta says the selling process to the customer reminds him of the early days of Wipro, when the first response to the idea of outsourcing to India was “Where’s India? And how can they possibly speak and read English?”  He says the questions today are “Where’s Karnataka? And how can they possibly have that skill set?” Sounds like we still have a bit of work to do in the US educational system on Geography and Global History in addition to Math and Science.

This model won’t apply everywhere, but with some tinkering it might even work in the developed world. Dr. Mitta is exploring that possibility, starting with regional educational institutions in the US. One of the Indian businesses that has been funded is providing math tutoring for K-12 students in the US, www.tutorvista.com . Yes, that’s right. Educated individuals sitting in the town of Mallasamudram, in the state of Tamil Nadu, India, are helping US students improve their math skills. Dr. Mitta thinks there is an economic model that doesn’t require outsourcing the service all the way to India. He may be right, but in the meantime, the model is changing lives and bringing more of the world’s population into the global economy.

I must admit that this post has very little to do with Climate Change, and probably belongs in a blog with a different URL. I guess the closest I could come is that the purpose of my trip to Bangalore was to visit Duron, www.duronenergy.com , which is providing solar home lighting to rural India. The original point of contact with Dr. Mitta was his interest in learning more about the company. When one has the opportunity to meet such a unique individual doing some unique and possibly profound work, sharing the story may stimulate others to think outside the box and come up with unique ideas of their own, whether it relates to climate change or other big issues confronting us over this century.

One Million Electric Vehicles by 2015? Well, It’s a Start.

Posted on by Jack Rivkin
3

In the State of the Union address President Obama announced a goal of 1 million electric vehicles on the road in the United States by 2015.  Part of that plan involves continuation of some existing incentives such as the $7500 credit on a purchase, but some new incentives and actions as well—incentives to communities for vehicle fleet conversions, HOV access and other steps. In addition the GSA will purchase 40,000 alternative fueled and fuel-efficient vehicles as replacements for aging vehicles in its fleets. 1 million sounds like a nice number, and we have to start somewhere, but let’s hope the number is significantly larger.

There are over 240 million vehicles on the road in the US now, and a replacement of 5-7% of those vehicles a year. Those vehicles average about 20+ miles per gallon.  Replacing 0.4% of the fleet with vehicles averaging, let’s say, 100 miles per gallon equivalent, under the most optimistic assumptions reduces our oil-equivalent consumption by about 12 million barrels a year and CO2 consumption by about 4 million tons.  Unfortunately, we import 9 million barrels of oil a day.  However, it’s a start! It also has the effect of stimulating activity in electric vehicles and associated and competitive technologies.  Importantly, it will stimulate activity on increased fuel efficiency of all types.  In my view, this is where we need to focus—set very aggressive targets on average fuel efficiency for each manufacturer selling in the US with a goal to getting the whole fleet—all 240 million vehicles–up to 60 miles per gallon or better in 25 years. That does start making a big dent in CO2 emissions and our dependence on foreign oil. I have written about this in earlier posts, (see TRADE DEFICITS, ENERGY INDEPENDENCE AND, OH YES, CO2 EMISSIONS—November, 2009).  In other words, provide incentives for fuel efficiency in general.  With electric having the potential for the highest efficiency, the credits and other specific incentives there will drive the rest of the industry, but lets get more explicit on very aggressive fuel efficiency targets.  The competitive juices and the resulting innovation will get us there.  President Obama talked about out-competing and out-innovating the rest of the world. That has to start with competition and innovation at home.  More to come.

 

China and the Economy, China and Innovation, China and Climate Change

Posted on by Jack Rivkin
1

The extra emphasis on China in the media culminates this week with the US visit by President Hu Jintao. Much has been written about the visit and much posturing has taken place to set a “proper” tone. It’s hard not to comment on some of what has been said before hitting on the important topics of Innovation and Climate Change.

Economy. Let’s start with the currency. I don’t quite get all the noise about China needing to increase the value of the Yuan relative to the dollar. Secretary Geithner says it will help them control their inflation and will be “fairer,” whatever that means. The prices of Chinese goods are already going up which is a result of wages rising and productivity, particularly in low value goods, not offsetting labor costs. A rise in the value of the Yuan would increase prices more and would also increase the buying power of the poorer segments of the Chinese population while doing just the opposite for that segment in the developed world.  It would have the effect of creating jobs outside of China—not in the US, but in Mexico, Vietnam and other countries that will have a labor cost advantage relative to China. The rate of inflation would likely fall in China, but, of course, it would rise in the developed world. The short-term effect on the relative trade balance would be negative for the US, as it would take time for US corporations to shift purchasing to other countries. Plus, commodity prices, particularly oil, would likely rise in dollar terms, increasing our trade deficit in energy. Anyone who really expects that such an action would create jobs or a significant enough cost advantage to stimulate US exports or US buying of US goods vs. creating exports for other low cost countries isn’t looking at what China exports and imports vs. what the US makes. Odds are the media and our wonderful congress will spend more time on the currency issues than anything else. I think President Hu is here to go shopping. By that I mean putting China in a position to buy US assets that will be of value to its growth plans, primarily access to technologies that can allow it to meet its objectives of being a leader in innovation over the next several decades. The tradeoff will likely be further access to Chinese companies and markets by the US.  I reach this conclusion from a thorough read of China’s Patent Policy put forth this past fall.

Innovation. China’s National Patent Development Strategy (2011-2020) is a scary read. China sets very high targets for patent filings over the next 5 years, dwarfing filings by the US and Japan (which already exceeds the US in patents in force). It establishes a budget for Patent services that could reach US$16 Billion annually at current exchange rates. It proposes to have ten model cities focused on utilizing the patent system and the incentives to create a vigorous intellectual property market. It will seek to acquire intellectual property from others. A couple of direct quotes from the Strategy are worth noting: “A large number of core patents will be acquired in some key fields of emerging industries and some key technological fields in traditional industries. …Encourage enterprises to acquire patent rights through innovation on the basis of digesting and absorbing imported patented technology. …Support and foster exports of patented technologies and increase the proportion of exported patent-intensive commodities and strengthen guidance on patent policies for enterprises in the process of overseas mergers and acquisitions.”  Implied in the budgets for patent services is a vigorous enforcement of patent rights. Once China has intellectual property rights (IPR) to defend, it will likely be one of the more aggressive enforcers of those rights. The number of patents in force today with their origin in the US and Japan are each almost 20 times those of China. When those numbers get closer to parity it may very well be the US that finds itself on the defensive for not respecting IPR.  This was last the case in the early days of the Industrial Revolution when the US was the upstart and more intellectual property resided in Europe, primarily the UK.

Climate Change.  China’s plans for Patent Development raise significant issues about where intellectual capital will ultimately reside. When it comes to capitalizing on two significant areas of expected (or should we say required) technological innovation and value over the next decades, China is explicit as to their importance:  “…Balance the relationship between the patent policies and some major public policies such as public health and climate change.” (My emphasis)  Others can hold forth on the health front. In the patent document and others, China continues to highlight Climate Change as a focus of its policies and its technological efforts. It is clear that China sees the requirement to respond to this threat as political as well as societal. We will ultimately be a buyer of what China and others produce unless we also look at what policies we can put in place to be competitive.  At the moment we have the intellectual leadership existing in a variety of our institutions. Shame on us if we let that leadership slip away.