Archive for December, 2010

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the future of cities…

Thursday 30 December, 2010

I recently attended this day-long event Global Metro Summit: Delivering the Next Economy which was sponsored by the Brookings Institution, London School of Economics & Political Science, Alfred Herrhausen Society/International Forum of Deutsche Bank, & Time magazine.  They’ve made most of the information presented available here program materials so I won’t rehash that info, but here are a few things you won’t find there:

They included a couple of articles from Time magazine which brought out a couple of interesting points to me. City Centered – Intelligent Cities which was authored by Bruce Katz, notes  “Greater Chicago contains 67% of the residents of Illinois and generates 78% of the state’s economic output. But Illinois has pursued transportation and infrastructure policies that divert tax revenue from Chicago to subsidize inefficient investments in the rest of the state.”  He suggests the federal government forgoing/capping mortgage interest deductions & diverting 1/2 to grow exports.  He also recommends investment in world-class infrastructure to connect with global markets:   “Think port infrastructure in global-trade gateways like Los Angeles or freight corridors in and around Chicago.  Finally, let’s challenge every metro area to meet and exceed the national goal of doubling exports…— cities and suburbs need to team up with businesses to devise export initiatives that build on their metro’s distinctive position in the market. We can’t as a nation double exports unless our metros and their businesses (both large and small) do.”

Another Time article highlighted Torino, Italy’s rejuvenationWhat Torino Can Teach Cleveland – Intelligent Cities Keys were expansion into international markets & geographical market diversification, & cited an example of the 2A die casting foundry for which exports account for 85% of its business.

My 1 question coming out of this event is “what is the role of small business in supposed export-led growth in metropolitan areas?” I wholeheartedly endorse that sentiment & would love to contribute to fulfilling it, but I question whether small businesses are prepared & inclined to pursue exports to make this come true.  History would indicate that’s the case, which means a change will need to occur to make that happen.  I would bet this is in response to Obama’s National Export Initiative’s goal of doubling US exports in the next 5 years, but throwing it out there without explaining how seems counterproductive to me.  I contacted Bruce Katz with this question, but haven’t heard back from him.  I took 12 pages of notes, so let me know if you”d like anything else in addition to what’s available here & on the Brookings site.

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near west side intro to exporting

Tuesday 21 December, 2010

The Industrial Council of Nearwest Chicago hosted this Introduction to Exporting Jeff Dzuira, V.P.-International Sales for New Medical Technologies, Inc. kicked off with his presentation Introduction to Exporting 120710R2 In addition to his presentation, here are a few other nuggets.  Pay attention to approvals like those provided by Underwriters Laboratories, although each country can add their own requirements.  Don’t dismiss the power of “Made in the USA.”  Big markets are not necessarily the best 1st markets.  The speed to market varies by product, country, & many other reasons.  Although technologies like Skype are the great equalizers, personal face time is still required & different countries work at different paces.  Always partner with the principal of your partner & require them to create a business plan for your product.

Cindy Biggs of the local Export Assistance Center made this presentation US Commercial Service Intro to Exporting presentation Additionally she reminded us the US is still the world’s largest manufacturer with 286K manufacturers creating $1.6TR worth of goods & manufacturing output has doubled since 1983.  The National Export Initiative encourages companies to focus on the BRIC markets which account for 60% of the market growth in the world.  40% of exports benefit from  free trade agreements.  Less than 2% of US firms export, & 2/3 of those export to only 1 country.

John Nevell of the Small Business Administration offered their part SBA Intro to Exporting presentation & SBA Intro to Exporting trade finance presentation Because only 1 in 100 countries export regularly, that makes it tough for business bankers unfamiliar with these transactions.  Letters of credit are expensive because of the fees involved.  The SBA absorbs the risk of export transactions, ultimately at taxpayer expense by the way.  The SBA will finance 100% @ 2-3 % on revolving lines of credit for 12+ months.

Mike Howard, Director of the Midwest Regional Office of the Export-Import Bank also made a presentation, but their marketing department in Washington, D.C. wanted me to refer people to their website & haven’t put Mike’s presentation up there yet, so here’s what he had to say.  ExImBank’s goal is to take international risk out of the financing equation while recognizing the differences between international risk & under-capitalization.  ExImBank does not take on performance risk.  Although ExImBank is known as “Boeing’s Bank,” they do no military transactions & no transaction is too small for them.  The average transaction is only $30-40K.  Client McDavid, who makes orthotic devices, has 200-300 foreign doctors with #00-$1K letters of credit.  ExImBank doesn’t take on 100% of the risk because they need their clients to have at least a little skin in the game.  Products they work with must be made in the USA & sold to a foreign buyer.  Consult their Country Limitation Schedule so that you don’t chase down bad deals in countries where you won’t be able to get financing.  Being naturally conservative, midwesterners tend to prefer cash-in-advance & letters of credit, but these might not be necessary with ExImBank programs.  Paying .5% for a 60-day account receivable is much less hassle than administering a letter of credit.  ExImBank doesn’t make bad deals good:  they make good deals bankable.

Q&A

  • In seeking export financing , consult your banker 1st, then the SBA, & finally ExImBank.
  • These programs don’t finance marketing, PR, or post-shipment exposure-they simply finance collections.
  • Since these programs protect against many global risks, they are potential alternatives to letters of credit.
  • Because the quality of Dun & Bradstreet reports declines outside of North America, buyers are qualified based on their placement on the country limitation schedule.  For $100K-300K deals, they require a US Dept of Commerce International Company report.  For $300K+ deals, they require seeing the buyers financial reports.
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the problems with cities…

Friday 17 December, 2010

I had lunch over this program The Next Metro Economy: Confronting the Persistent Challenges of Cities,which while depressing, was enlightening, I guess, as well.  Here’s what they lamented:

Michael Pagano, chair, opened by noting that 43.6M people live in poverty, 4.3% of the population.  17M/11% live in the suburbs, 21% are rural.

Gerald Frug posited that there are no real metro areas in the US, other than Portland.  Cities only have the authority granted to them by the states.  We need to map out authority to better address current needs without another centralized government.  States could empower cities to work together, but metros hide differences within metros.  We are now empowering undemocratic authority with public/private partnerships which do not include ordinary people.

Nik Theodore summarized the OECD competitive cities report which provided a guidebook for mayors to identify opportunities & choices to make them more competitive, which assumes Adam Smith’s invisible hand of capitalism (essentially everyone looking out for their own self-interest makes everyone better off), competition, & specialization.  This supposedly leads to rising labor standards too, but also increased worker insecurity.  Another survey quoted contradicted the OECD study.  1/4 were paid less than minimum wage & no overtime pay.  68% of firms had at least 1 pay violation in the last week, resulting in 15% wage theft.  Labor laws are not enforced:  OSHA only visits most businesses on average once every 133 years.

Pauline Lipman elucidated on the effects of education policy on cities.  She questioned the wisdom of using market-based policies that close down bad schools & open charter/magnet schools, which marginalize poverty & create inequitable investment.  Education is an actor in context driving policy.  National policy denies communities accountability for education.  These policies are destructive to low-income communities.  Violence increases with the number of transfer students.  Global mandates dictate high-stakes testing which test narrow measures of knowledge & turn schools into testing centers, which lead to a stratified labor force.  Mayoral control of eduation reflects the urban agenda, but has not served Chicago well, as Chicago public school test scores remain flat.  17% of charter school students have done better, but 37% have done worse.  Community-based organizations need to get involved to provide more teacher support, smaller classes, & curriculum enrichment.  Teachers should be evaluated by multiple assessments, not just test scores.  The problem starts at the top:  the composition of the Chicago public school board of directors is of investment bankers & real estate professionals, while 86% of students are from low-income households.  Communities should be better represented so that it’s realistic to be accountable to them.

Karen Mossberger related the role of technology in cities.  Productivity growth has come from information technologies, so broadband matters.  But in integrating technology into manufacturing, it displaces workers, so does that create equal opportunities? 63% of employed residents use the internet & they command a $118/week wage premium.  The result of this is a greater choice in jobs.  Technology disparities are related to differences in income:  some neighborhoods have less than 10% broadband penetration, which doubles the burden of being poor.  Questions of economic opportunity & home access are questions of human capital.  Cost is a barrier:  internet access in the US is more expensive than in some less-developed countries.

Alan Berube spoke to inequality.  The top 10% of American wage-earners earn 50% of all income;  the top 1% earn 25%.  Inequality is more pronounced in urban areas.  Our bottom 10% are on the same level as those in Uruguay, Argentina, & Ecuador.  Even the US has less social mobility now.  Tim Noah on slate cites 3 factors in rising inequality:

  1. globalization & labor policy
  2. corporate behavior
  3. interplay between education & technology, i.e. computers require more education

Those without college degrees have suffered most.  The new economy must create new demand.  A few changes may make a difference.  More exports should lead to better jobs.  More innovation may lead to more inequality.  We may be too late to capitalize on the low-carbon movement.

Xavier Nogueras complained that Mayor Daley is cutting the budgets/funding of 40-50 chambers of commerce in Chicago, which help small businesses create jobs.  Entrepreneurs haven’t gotten loan modifications & were the 1st hit by the recession.

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Hank Paulson on China & the financial crisis

Thursday 16 December, 2010

The Chicago Council on Global Affairs hosted A CONVERSATION WITH HANK PAULSON ON U.S.-CHINA RELATIONS AND THE GLOBAL ECONOMIC OUTLOOK in a Q&A session with former Chicago Fed Chief Michael Moskow &  with 1100+ of their closest friends.  Here is a summary:

  • Paulson prioritized the US bilateral relationship with China by holding regular formal & informal discussions to develop understanding on both sides.  Accomplishments with China were getting them to change their exchange rate, short-term crisis resolution, & food/product safety improvements.
  • The Chinese need to better develop fundamental structures like a social safety net, social security, etc. & reform their financial markets so that saving outpaces inflation, but that takes time.
  • Chinese leaders are competent, understand the issues, & get things done.  They’ve looked around the world for best practices on privatization & will be less dependent on low-value-added environment in the future.
  • There is truth to the fact that some Chinese decisions are made outside of the marketplace, which creates inefficiencies, but they are on the path of economic reform.  It’s in their best interests to let currencies float.  It becomes more difficult as it becomes more integrated & complex, such as with pace & timing issues.
  • The challenge in China is that the economy is growing so quickly, although they’re very competent, much of the power resides at the local/regional level & there are misunderstandings on both sides.
  • Chinese leaders are limited in what they can do with their administrative policies toward 4 1/2% inflation rate because they don’t have a freely floating exchange rate.  Although they could not have 10 years ago, China propped up the world during the financial crisis.  Not all loans they make are good loans:  there will be bumps in the road.
  • China is an anomaly:  it’s the 2nd largest economy in the world, but ~#100 in GDP/per capita.  Therefore how they manage issues like whether or not to float their exchange rate is important.
  • Paulson is more concerned about the US fiscal situation than how much debt the Chinese & others hold.  They show confidence in the US by holding our debt.  There is still no other better reserve currency.
  • In dealing with the financial crisis, Paulson had limited authority over non-banking financial decisions, (for example to save Lehman Brothers) so there wasn’t much he would have done differently.  They made communications mistakes (for example a 3 page outline for TARP), which looked arrogant.  He intended to save people, not Wall Street.
  • Paulson is pleased with the Obama Commission’s recommendations & gratified at the level of public debate with realistic options.  The issues are broader than entitlements:  we need to reform the tax system, etc.  The longer we wait, the more pain we will have to endure.  We’re selfish:  we want what we can’t pay for.
  • Look @ Europe today if you want to do nothing about the financial crisis.  Although markets will question our debts & deficits, we have a little wiggle room to deal with it now.
  • Of course, our present trends are unsustainable.  We need to reform social security & health care.  Democrats & republicans will have to agree or the markets will force their hands.

open Q&A

  • Paulson believes in a strong $, which is a proxy for the economy & stability.  Every country has issues, but ours are less difficult.  The question is “Can the US political system deal with it?”  He worries about the political polarization &  gerrymandering.  There is no future for ideologues.  Many western democracies face the same challenges.
  • It’s a concern that members of congress still don’t have passports.  They need to listen & learn better.  We can’t be unilateral & arrogantly force our system on others.
  • Financial reform depends on how it’s implemented.  There are no longer any financial institutions that are too big too fail:  they are just too big to liquidate quickly.  Regulatory arbitrage has changed:  the Fed has become a systemic risk regulator.  Regulators will not find all of the problems:  we need market discipline.  Market crises come with rhythmic rapidity:  we need to manage them better.
  • Lehman couldn’t be saved because they couldn’t find the authority to save it.  The Brits couldn’t save BlackRock for the same reason.  The perception was that AIG was an unregulated holding company, but their liquidity problem was solved by a government loan.  Lehman had worse problems, so no one else was interested in them.  There were only 2 potential buyers, & the Bank of America bought Merrill Lynch (which would have been worse had it failed) & Barclays couldn’t get UK regulatory authority.  Making loans in the middle of a bank run won’t work:  investors won’t wait.
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“if it ain’t Dutch, it ain’t much”

Tuesday 14 December, 2010

I attended this talk U.S.-DUTCH RELATIONS: MORE THAN MEETS THE EYE given by Fay Hartog Levin, US Ambassador to Holland, & Renee Jones-Bos, Dutch Ambassador to the US, & organized by the Chicago Council on Foreign Affairs.  Ms. Levin kicked off by noting that the Dutch still have enduring feelings for Americans because of our kindness following World War II.  The Netherlands is actively engaged in preventing future wars through its work in NATO, the EU, etc.  The Dutch fight poverty as the largest donors per capita.  They combat terrorism by sharing data.  They work together with us on alternative energy.  NATO is the most successful alliance ever, but needs to be strengthened & adapted to 21st century security challenges.

Ms. Jones-Bos took over from there by stating geography leads to destiny & gave us a history lesson.  Holland is located on the delta of 3 rivers, which led to a rich history of trading, as indicated now by 60% of their GDP coming from international trade & investment.  The Dutch still hold territories in the Caribbean.  Their economy is the 6th largest in the world & have more bikes than people (17M).  Amsterdam is a top 10 financial center & the Netherlands is the 2nd largest agricultural exporter.   They are the 3rd largest investor in & 7th largest trader with the US.  750 US companies have their headquarters in the Netherlands.  International market forces have led the Dutch maritime industry to convert to cruise ships & dredges, while the textile industry has transitioned to make high-tech sails.  Europe is still 1 of America’s most important partners with $1B crossing the Atlantic in trade every day, but we must enlarge our level playing field to other places.   Focusing on the economy is the most important task right now, & we need to fight protectionism in congress.

Q&A:

  • the Netherlands is 1 of the most multicultural societies because of its historical liberal asylum policies, which they assumed were temporary, but have turned out to be permanent.  1M Muslims from Turkey & Morocco now reside in Holland.  The problem is they don’t speak Dutch, & therefore can’t participate in society like everyone else.  Politicians have been caught up in a populist wave creating stricter immigration policies, job skills training, etc.
  • the recent G20 summit stabilized the downturn in the crisis, so now we are turning our attention back to real issues.  The US & Europe are developing financial standards & staying aligned.  But it’s harder to change mature economies, especially while others are rising.
  • Europe still works closely with the US, but feels a bit like a former girlfriend or spurned lover, losing out to “new girls” around the globe.  It’s difficult for countries with big GDP’s because it’s difficult to achieve fast growth.
  • The Dutch educational system directs students to make choices earlier than Americans, which puts them in less of a hurry because they feel more free & there is less incentive to get out of school.  The US has the most variation, the best & the worst, while the Dutch system is more even.

To explain the title:  when I lived in Germany years ago, the European Cup came to Muenchen (where I lived) & the Dutch played in the final against the Russians.  Wherever we went around the OlympiaStadion that day, all of the Dutch had dreadlocks on their heads & were wearing orange t-shirts which read, “If it ain’t Dutch, it ain’t much!”  There is some truth to that.

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build green @ the Greenbuild conference

Friday 10 December, 2010

I attended the greenbuild international forum @ the Greenbuild International Conference and Expo which made me green with envy of everyone able to build green.  Here’s my distillation of 11 pages of notes:

  • The US ambassador to Finland Bruce Oreck let us know cellphones would have cost $10,000 without the volume of government buying & embassies are going green by landing LEED certifications.
  • Sustainability started in Brazil 6 years ago & energy regulations 3 years ago.  LEED is the strongest tool.  Industry is creating new materials.  They are working on 0-energy buildings.  You can see global architecture in Brazil.  Brazil built a lot in the 1970’s & 1980’s so that much looked like Boston, New York, or Chicago, but things are being built differently now.  They’ve changed the minds of young architects to reduce water & CO2 usage.  Brazil depends on hydropower from the Amazon River, but that’s not sustainable.
  • Each country/climate-environment is different & sustainable architecture is needed for each.  Communications with other architects to share best practices in each is needed.  A LEED version for Latin America may be created.  Developing cities in emerging markets may be great or a monster.  There is no real Latin American architecture because they are all so different.  They respond to emotion, so it is not so intellectual.
  • 40% of the world population live on/near a coast, but human development is threatening those coasts.  There are dire costs of inaction if left untouched.  Some cities only get 40% of the water they request-it’s expected that heat deaths will double by the year 2050.   70% of Manila is at risk.  The exposure risk will triple by 2070.
  • As the population & urbanization increase, resources become depleted.  Less than 1% of the world’s water is available, which will lead to scarcity by 2025.  We need ecological regeneration, carbon management, & water restoration.
  • China hopes that investment in high speed rail will minimize urban sprawl.  Their population explosion has led to different development strategies every few years.  Urbanization has led to fast demolition, & then development.  Sustainability is a hot real estate topic in the government.  They want to reduce energy usage 50% in a year.  The construction is a $6TR market in China & energy consumption is 40% of the total.  Residents are being urged to reduce waste while whole supply chains are being told to go green or be fined.   Skidmore, Owens, & Merrill created a Beijing Central Business District Vision.  It plans for clean air, filtered water, 0 waste, reduced congestion, & an identification with nature.  The plan is to get off of coal in favor of natural gas.  They are setting new standards & principles.
  • India is requiring more & more regulation/policies which are tied to the state of infrastructure & the costs of utilities.  India also has infrastructure & water delivery issues.
  • The world must be engaged globally in negotiations over carbon.
  • Japan offered carrots in carbon trading & made it an energy security issue. Tokyo is making a market in cap & trade, & has Ecotown as an example.
  • The government has legislated an oil free society in Sweden, where they have some of the strictest building codes.  They were #1 in 2008 in terms of climate.  Consumption per square meter was down, but living spaces increased 50%, evidence of the rebound effect.  Malmo’s Ecocity serves as a good example.
  • Lots of the Netherlands is below sea level:  55% of its area, 60% of its population, & 65% of its GDP.  There are 4 threats there:  1.  SLR  2.  rivers rising  3.  precipitation  4.  groundwater issues.  Responses have been to create water barriers/storage facilities, green buildings to soak up rain, upgrade sewers, build superlevees, floating “acquatecture,” & removing some dikes.
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3D chess: China, India, US

Thursday 9 December, 2010

I checked out this event CHINA, INDIA, AND THE UNITED STATES: THREE-DIMENSIONAL CHESS IN THE 21ST CENTURY hosted by the Chicago Council on Global Affairs featuring Robert Kaplan of the Atlantic.  Here’s what he posited:

The Indian & western Pacific oceans are becoming the nexus of the world.  90% of goods travel by sea through them.  Eurasia is a group of interlocking parts:  India & China are investing in Iran for their oil.  But there are risks because predictable monsoons are required for agriculture, but dangerous over the Indonesian straits.  Sailing distances became calculable.  They are constructing a trading network without Americans, where China is the 1st among many equals.  The US Navy has plateaued @ 286 ships, but China will have more submarines in the water than the US will, so the US presence is becoming less dominant.  India & China are separated by the Himilayas & slowing becoming rivals with overlapping spheres of influence.  China is building ports in Pakistan, Burma, & Bangladesh, effectively surrounding India, but naval bases in those places would be too provocative.  Both countries are keen to manage the region.  China gets its energy from the Middle East & wants to build a pipeline that winds north of Pakistan.  India has new reverence for Viceroy Kerzon, who supported the power of shadow zones of influence.  They compete most in Burma, which is a hub of natural resources that China wants to acquire.  Unlike the US which promotes the ideology of democratic capitalism & the former USSR which promoted communism, China expands by promoting no ideology.  As global demand for energy grows by 50%, 1/2 of that will go to China & India.  While European defense budgets decline, those in the Asia/Pacific & Japan rise, & China’s to the point where they have the world’s 2nd largest navy.  Historically Asia fielded unsophisticated land armies focused inward, they are now oriented more outwards.  The military is a product of liberal economics & follows commerce.  There are 4 key areas of contention in central Asia:

  1. Afghanistan, which will build pipelines if stability holds
  2. Sri Lanka, where after we pulled out after their most recent war, China moved in to fill the vacuum
  3. South China Sea, China’s Caribbean, which they seek to control the international waterway, as the US is allying with VietNam
  4. Taiwan, which has 270 flights to China, but is also the target of 1300 short range ballistic missiles, which are peacefully intimidating.  As China moves outwards to dominate island chains, the US will not be able to defend them by 2020.

We are seeing the beginning of a multipolar military world.

Q&A:

  • the US is in a conundrum:  it can no longer be the world’s policeman, but can’t abandon this role either
  • Japan rising is good for the US, stability in Pakistan & Afghanistan is better for China
  • Neither is inherently threatening/there is no competing ideology:  we need to reach out to China & build a web of ties as we lessen dependence on each country
  • bilateral relations are deep & rich:  no 1 will use the term “contain” & reach out to them @ the same time
  • India is democratic & things get done despite government/China is not monolithic, but gets things done, in some ways because of government, so they’re not real rivals yet
  • Obama’s support for adding India to the UN Security Council is a good thing
  • 1 problem is focus on Iraq, Afghanistan, & Pakistaon leaves no focus anywhere else
  • Obama’s special envoys are more effective than the Pentagon & State Dept, which consider these things all the time
  • a formerly pro-Western Thailand is now divided & weaker, which makes it easier for China
  • India is not as dynamic as China, but more stable:  China could have upheavals & will have to move away from a 1 party system
  • we need to hold Pakistan together
  • Russia just opened a pipeline to China, but is afraid & distrustful that they’re outnumbered
  • we must support free trade to extract minerals from Afghanistan
  • China is unresponsive to US Defense/military outreach
  • Iran is containable-we need to be patient & facilitate regime shift
  • unlike Europe, in this area, a multipolar world is more unstable than a unipolar world

Pardon me if this is all over the map, but that’s the speaker & not me, the reporter here.