Fortune Favors the Bold

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Fortune Favors the Bold

• Lester Thurow
• MIT

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Global Trends

• - A general increase in the development of
  technology The Third Industrial Revolution
• - Low cost country (LCC) manufacturing - seeking
  the lowest costs area to manufacture / assemble
  products (Globalization)
• - Overall decline in personal savings rates
• - Increase in output per hour worked
  (productivity)
• - Capitalistic Inequality - Widening of the
  economic status gap

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Global trends

• - Life expectancy in developing world has gone up
  rapidly and is not far behind that of developed
  countries.
• - IMF has historically been successful at
  restoring financial stability, but poor at
  restoring domestic prosperity
• - IMF predictions are always too optimistic
  regarding how much IMF austerity policies will
  cut local growth rates

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Global Trends

• - Wage inequality expanding within various social
  groups (Men/Women)
• - Increase demand for higher skilled jobs as we
  transition into a knowledge based economy
• - shift from manufacturing focus to a services
  focus
• - Increase in protectionist political policies
  regarding Agriculture
• - Increase in third world economic crisis
  (Southeast Asia, Argentina)

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US Economic Trends

• Increase in general household debt
• Decline in the savings rate of the average
  American Household (from 9 in 1992 to
• 2 in 2001)
• Overall decline in the number of jobs available
  due to increases in productivity
• Decline in the value of the US Dollar
• Increase in Federal Spending to support a
  vigorous continued economic recovery
• America has had an increasing trend of importing
  its oil consumed.

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US Economic Trends

• Inflation rates in the US (less healthcare) are
  approximately 0.3
• Inflation rates are masked by the declining costs
  of electronics
• Deregulation, privatization, increased
  competition, global supply chains have all been
  suppressing inflation
• Over 25yrs, real wages have fallen in the US at
  about 1 per year for the bottom 60 of US Male
  workforce.

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US Economic Trends

• Increase in persistently large trade deficits
• 2006 second highest on record
• Since 1965, imports plus exports have gone up
  from 5 to 30 of Americas GDP.
• America imports 60 of its oil, representing 10
  of its overall imports
• Per capita GDP in US grew at 2.1 annually in
  last decade

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US Economic Trends

• The rest of the world has come to rely on US
  Trade Deficit and the inward capital flows from
  it to sustain growth and development
• Almost 50 of US imports come from offshore
  production facilities of US companies
• Mfg. goods account for 80 of all trade

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Social Trends

• social welfare benefits instead of payroll
  (corporate tax)
• Increase in Export of US entertainment (games,
  movies, music, TV programming)
• A new, global culture is being formed in parallel
  with the new global economy
• Increase in global communications (television,
  internet)
• Foreign born (non-US) nationals playing a larger
  role in global business

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Legal regulatory

• Americans demand for oil is becoming more and
  more inelastic
• Property rights lie at the heart of todays
  knowledge based economy
• In most developed countries, government spending
  on RD is falling as a fraction of total RD
  spending
• Private companies are being looked to provide
  innovation
• In the US, patent applications have doubled in a
  decade

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Regulatory

• Demand for intl patents at the WTO was up 25
  from 1999 to 2001
• Half a million movies a day are being downloaded
  from the internet
• Since WWII, Pharmaceuticals has been the most
  profitable industry in America

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Regulatory

• Of the top 100 drugs, 53 are set to come off
  patent protection in 2005
• Budgets for RD for replacements drugs of those
  coming off patent has skyrocketed to find
  placements
• In developed countries, per capita income is
  rising at 2 per year
• Increase in kidnappings and robberies
  (corruption) impacting second and third world
  countries ability to sustain economic development
  

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Cultural trends

• Sales of music CDs down 10 in 2001 and 13 in
  2002
• CD burner ownership up from 14 to 40 in two
  years, blank discs now outsell music discs.

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2. Predictions

• Continuous fiscal scandals as a healthy way of
  capitalism to purge itself
• Continued pressure on output to keep up
  productivity growth to show positive growth
• Lower wages in Japan to counter act the
  deflationary pressure
• European Stability Pact will require taxes to be
  raised, or spending to be cut, to wipe out
  deficits by 2005
• A shift from higher cost countries to lower cost
  countries until there is an equalization in skill
  sets, and thus prices factor price equalization
  a good gage for globalization

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Predictions

• Overall shift to capitalization, globalization
  and the 3rd industrial revolution creating a
  feeling of economic insecurity.
• European firms, such as BMW, cutting costs
  dramatically by moving manufacturing to the US
• Upscale firms (Bloomingdales) and downscale
  firms (Wal-Mart) boom due to the inequalities
  that exist in society

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Predictions

• Since the globalization model is based on US
  economical model, the rest of the world resents
  the US for not having to change, whereas they
  will have to
• The world should expect more financial and
  economic crisises as the Global Economic
  Structure continues to develop/morph
• Foreign Exchange crisises should be expected
• Allowing Asian currencies to float would devalue
  the dollar

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Predictions

• US Current Account deficit is expected to rise
  from its current 4.5 of GDP level to 7 or 8
  (levels historically that have gotten countries
  in danger)
• Competitive advantages in the future will come
  from IP, not price, location, ECT.
• 30 of the worlds 40 million cases of AIDS are in
  Africathat numbers is expected to double in the
  next five years
• AIDS in Africa will have a tremendous economical
  effect on development in that continent.

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Predictions

• - Drug companies could be blown away due to
  demand to provide life saving drugs AFFORDABLY to
  AIDS patients and others having life threatening
  needs
• - Revenues will plunge when the drug companies
  lose the patent protections
• - Innovative drug companies will cut back on
  investment in new drugs
• - Private companies will not invest in new
  vaccines for preventing disease if there is no
  money in it for them

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Predictions

• Chinese banking system could implode due to the
  bad loans its extending to defunct state owned
  businesses.
• Outsourcing will continue to drive costs down
• CD sales will reach 0 by 2011

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3. Scenarios

• Government bailouts in Japan, similar to Savings
  and Loan crisis (Japan Resolution and Collection
  Corp. vs. US Resolution Trust)
• The Japanese system will have to be rebuilt to
  deal with Capitalistic recessions and meltdowns
• The Global economy would be better off if Japan
  and Europe took a lead role instead of a follower
  mentality in the global economy

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Scenarios

• Overall shift to a knowledge based economy
  skills becoming more important and raw materials
  becoming less important
• Globalization augments the effects of shifting
  to capitalism and shifting to a knowledge based
  economy
• Response to rising income inequalities and
  economic insecurity lead to larger Govt programs
  to reduce market inequalities and uncertainties.
• If the dollar was to plunge, OPEC would have a
  huge incentive to shift pricing for oil from
  dollars to other currencies Should this occur,
  Oil prices for US imports would increase
  substantially

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Scenarios

• Globalization has ended forcing the standard of
  living down in the US and SIGNIFICANTLY down in
  second and third world countries as borders are
  shut
• Oil cut off would mean shift to electric rail and
  bus
• to produce the electricity required, coal or
  nuclear would be need to be expanded.

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Scenarios

• A big global disaster where the value of the
  dollar plummets
• The gradual erosion of intellectual property
  rights, the economy would sink into stagflation
  as no one wants to invest in technology
• A crashing dollar would have the potential to
  eliminate nearly 9 million US jobs, but would
  further impact those countries that export to the
  US at a level of 20-25 million jobs.

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Scenarios

• There will come a point where the US will not be
  allowed to run a trade deficit
• whether it is hard or soft landing will dictate
  whether or not well see enormous repercussions
  or not.
• Should we have a hard landing from a dollar
  crash, suddenly loss of international demand (US
  imports) would send the world into a recession.
• Should a hard landing occur, US would require a
  1/3 increase in output of MFG goods to recover.
  This would require large expansion in capacity
  that does not exist is US today

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Scenarios

• It would take substantial time to rebuild the
  skills and competencies to meet this demand for
  manufactured goods.
• To correct the current US trade deficit with
  slower growth (Soft landing)
• US would have a huge recession. Rebalancing trade
  would require a more than a 20 drop in US GDP.
• If everyone gets cheap drugs they want, the
  current system of paying for the development of
  new drugs collapses

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Scenarios

• If human population were to grow at 4 per year
  in the US, the US per capita GDP would have to
  fall.
• With higher population growth rates, it is harder
  to raise the per capita GDP and standards of
  living.
• The first world opens up its agricultural markets
  to third world countries to assist in alleviating
  poverty
• Agriculture is the one industry where
  globalization is in retreat
• World Bank established as a global department of
  education

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Scenarios

• Export led growth strategies in developing
  countries force them to become efficient
• Massive investment in third world infrastructure
  would pull the economy forward
• Rise in spending on adult education during a
  recessionary period. Perfect time to retrain
  workforce
• Countercyclical revenues sharing programs to
  stimulate growth
• Eliminate the US Trade Deficit
• Fee schedule for using patents worldwide
  starting at zero for poor countries
• Rich countries buy the patents for life saving
  drugs and let the citizens use them

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4. Opportunity Recognition

• Chief Knowledge Officer Traditionally the CFO
  got the 2 position by creating real
• financial competitive advantage for the company
• today the CKO will do the same, but with
  knowledge. CKO tracks technology / trends. CKO
  defines patent strategies.
• Ensures Technology is moving around the company
  and gaps are being filled where needed.
• Ensuring the business is agile and able to adapt
  to changing markets.
• Point out realities as products move through
  their technical and economical life cycles.

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Opportunities

• A national CKO Taking CKO to a national,
  economic, political level.
• US Department of Knowledge responsible for
  creating new knowledge and figuring out how
  America can organize itself better to succeed in
  knowledge based economy.
• The third industrial revolution requires
  societies willing to play god - The Bold!
• 4G communications networks

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Opportunities

• To produce the electricity required to support in
  country development, coal or nuclear would need
  to be expanded should globalization shut off
  external oil supply
• Infrastructure required to support hydrogen
  economy
• Increase in overall patent litigation, as
  knowledge becomes more of a differentiator
  amongst competitors.
• New business model required for new music
  industry