In recent years there has been an embarrassment of riches in innovations targeted at solving the problems of the poor: from bottom-of-the-pyramid ventures to impact investing and shared value, not to mention the myriad mobile phone applications promising a host of "inclusive" services, from branchless banking and money transfers to public health and education. How effective are these? Are they all buzz and no bang? We decided to find out in our recent conference on "Extreme Inclusion" at Tufts Fletcher School's Institute for Business in the Global Context. I learned a lot from the range of provocative perspectives over the course of two days: a debate over whether formal or informal systems are most effective for financial inclusion solutions; local entrepreneurs pitching poverty solutions startups; the legendary Rev. James Lawson, (the principal strategist for the American Civil Rights Movement and Martin Luther King's comrade-in-putting-aside-arms) inspiring us with his strategies for racial inclusion and planning the lunch counter sit-ins in Nashville, TN in 1960; roundtables on everything from folk banking to rapid prototyping. It was a lot of work to put the conference together and bring many different constituencies from around the world to share ideas.
But now it appears that we should not have bothered: like the Javan rhino and the Hawksbill turtle, it seems that poor people are an endangered species. The Economistmagazine recently ran a major story celebrating a march "towards the end of poverty." Consider some of the facts that are, indeed, grounds for celebration: relative to the original Millennium Development Goals, the goal of reducing poverty by half was accomplished five years early; more than a billion have been lifted out of poverty in the past twenty years; by 2030, the total number of poor people will be down to 200 million, with virtually none in China.
I am in India right now and the big news -- and a raging politically charged controversy -- here is that the proportion of the poor in this famously impoverished nation has dropped to a stunningly low 21.9 percent. When measured in 2004-05, this figure was at 37.2 percent, suggesting a rather steep decline. This is according to the highly respected National Sample Survey report.
How can something so dramatic happen in this short a time, especially during a period in which so many in the U.S. feel they are slipping down the income ladder from the ranks of the middle class? The Economist has attributed the lion's share of the poverty elimination worldwide to the unprecedented pace of economic growth in the developing world and a dash of social equity thrown in. As the article suggests:
Had I known that poverty was rapidly becoming a thing of the past, I would have suggested to my colleagues, Kim Wilson and Nick Sullivan, senior fellows at our Center who co-organized our Extreme Inclusion conference that we cancel the event and focus on other pressing problems, especially ones that are on the rise. Who wants to have a conference on a problem that has already been solved?
For those who were anxious over the voraciousness of the modern Chinese economy -- the country’s breakneck development since the 1980s, its mounting influence over global trade, its expanding ownership of other nations’ debt -- China's current slowdown may seem welcome, in a perverse way. For years, the largely unstated admonition has been: Seriously, China, slow down.
Yet the reality is that a major Chinese economic slowdown could spark a crisis of monumental proportions, damaging every economy in the world, and the Chinese government has yet to show how it will prevent that from happening. After overseeing what may well have been the fastest growing economy in human history, China is trying to come to terms with how to manage its inevitable slip -- to minimize the damage while putting in place structural reforms involving improvements in tax and exchange rates and minimizing cozy government relationships with companies to enable long-term recovery and sustainability….
…Analysts forecast that a Chinese hard landing would lead to a 30 percent to 40 percent drop in base metals prices and a 30 percent fall in Brent crude oil prices. As prices fall below the cost of production, they should recover over the subsequent 6 to 12 months, but the pace of the recovery would be uncertain. Societe Generale's global head of commodities research Michael Haigh believes gold could initially bounce on a Chinese hard landing, but because Chinese savers are big buyers of gold, the impact could be short lived and the volatility of gold could increase. While lower prices could hurt commodity-producing countries, it could benefit importers -- countries such as the Philippines, the Czech Republic, India and Turkey.
“As China’s demand for commodities such as aluminum, coal and oil, come down, it starts to cause a downward pressure on commodity prices,” said Bhaskar Chakravorti, dean of international business and finance at Tufts University's Fletcher School. “It’s going to benefit countries that are importers of commodities, and to a large extent, have been paying the higher cost of commodities.”
The Federal Reserve did well to supply liquidity after Lehman Brothers failed in September 2008 and the world was plunged into financial crisis. But since then the Fed's monetary policy has been increasingly hazardous and bank supervision by the Fed and other regulators dangerously ineffectual.
Monetary policy might focus on the manageable task of keeping expectations of inflation on an even keel—an idea of Mr. Phelps's in 1967 that was long influential. That would leave businesses and other players to determine the pace of recovery from a recession or of pullback from a boom.
Nevertheless, in late 2008 the Fed began its policy of "quantitative easing"—repeated purchases of billions in Treasury debt—aimed at speeding recovery. "QE2" followed in late 2010 and "QE3" in autumn 2012. Fed Chairman Ben Bernanke said in November 2010 that this unprecedented program of sustained monetary easing would lead to "higher stock prices" that "will boost consumer wealth and help increase confidence, which can also spur spending."
At the end of 2012, Apple announced that it would start producing a few existing lines of Macs in the United States, which would bring some jobs back home. In parallel, Jeffrey Immelt, the CEO of GE, declared outsourcing “outdated as a business model.” And the title of a recent Boston Consulting Group report, “Made in America, Again,” which examined “economic trends that point to a U.S. manufacturing renaissance,” seemed to sum it up.
So is this the end of globalization? No. In fact, the U.S. economy was never truly globalized in the first place. That was always a myth -- one spawned by the very real facts of information traveling at the speed of light, business executives traveling at the speed of a Boeing 747, and fast food flying out of McDonald’s outlets in 122 countries.
Globalization has two parts. One involves relocation of manufacturing or IT services to lower-cost countries. The United States feels this kind of globalization viscerally. It leads to lost jobs, decayed industrial towns, and news reports of factory disasters in unregulated countries in which costs are low. The other part involves the extent to which national companies ply their wares abroad. On this second front of globalization, American industry barely ever made a start. According to the IMF World Economic Outlook, the top twenty fastest-growing economies are all outside the Western hemisphere -- exactly the places the United States has not tapped. Therein lies the real opportunity.
In 2010, emerging markets represented 36 percent of global GDP, the majority of global oil and steel consumption, 46 percent of world retail sales, 52 percent of all motor vehicle purchases, and 82 percent of mobile phone subscriptions. According to the IMF, the emerging markets’ share of GDP will rise to 55 percent by 2018. The U.S. National Intelligence Council singled out the growth of a global middle class from these markets as a “tectonic shift,” valued at a $30 trillion market opportunity by McKinsey.
Yet according to a 2011 HSBC study, U.S. companies derived as little as seven percent of their overall revenues from emerging markets. These low figures are despite huge outliers such as Yum! Brands (which has two restaurants per million people in the top 10 emerging markets and made 42 percent of its profits in 2012 from China alone) and Coca-Cola (25 percent of sales in emerging markets). Overall, U.S. consumer staples companies, a category that includes such stalwarts as Kraft Foods, Hershey, and Proctor & Gamble, derive under five percent of their sales from emerging markets. According to McKinsey, the average across the 100 largest developed-world companies was 17 percent. In other words, U.S. industry lags in both absolute potential and in comparison to its peers.
There are several broad reasons for the sluggishness. Some are intrinsic to emerging markets; others are unique to the United States.
Emerging markets present five hurdles to any outside player. First, reliable infrastructure, supply chains, and distribution networks, which are essential for doing business, tend to be lacking there. Recent disasters in Bangladeshi garment factories, the scandal over antibiotic-laden chicken supplies in China, and the fragmented retail systems in India and across Africa all illustrate this challenge. Second, emerging markets’ paucity of institutionalized lenders and the absence of fair lending practices squelch entrepreneurship and potential customers. Third, there is no reliable pipeline of talent at various levels -- from employee to managerial. That has to do both with brain drains and with the uneven quality of educational institutions in emerging markets. Fourth, an emerging “market” is typically a collective of distinct sub-markets: think São Paulo state in Brazil, which has a GDP larger than that of Argentina, or Shanghai’s urban cluster, which has a GDP equivalent to that of Switzerland. The variety makes a typical single-country management approach nearly impossible. Finally, poor governance, lax enforcement of contracts and property rights, and pervasive corruption are deterrent. On the World Bank’s Ease of Doing Business index, for example, the BRICs are ranked 130, 112, 132, and 91, respectively, out of a total of 185 countries.
Read the full Foreign Affairs article
July 11, 2013
How Share-Price Fixation Killed Enron: Op-Ed by Prof. Lawrence Weiss
In December, 2001, just prior to filing for bankruptcy, Enron Corporation had approximately $2 billion in cash and no debt coming due. Despite its infamous financial chicanery, it still appeared to be a viable, profitable firm. So why did Enron go bankrupt? Was it because of the fraud, or was there another reason?
At the annual conference of the Association of Certified Fraud Examiners late last month, former Enron Chief Financial Officer Andrew Fastow, who served six years in prison for his part in Enron's deceptions, offered an explanation. In a keynote speech, he said Enron went bankrupt because of" decisions" made in October 2001. He didn't say which decisions. But after hearing Fastow speak twice to my Financial Statement Accounting class and reviewing independent evidence, I think I have good idea. It appears that Enron's final fatal mistake was to try to support its stock price instead of living up to key contractual obligations required to maintain its credit rating.
Enron owned the largest natural gas pipeline system in the U.S., was the largest trader of natural gas and electricity, owned the largest wind power company, and owned a large electric utility in the Northwest. These divisions all generated consistent earnings and cash flows. Enron also owned two "prospective" businesses: Enron Broadband (the first company to offer live video streaming and one that was establishing the largest "cloud storage" system at the time) and Energy Services (providing services to help other companies make their facilities more energy efficient) that weren't producing earnings but weren't a significant drain on the company in late 2001 and, at least with hindsight, represented significant opportunities. The company also had three divisions — Water, International, and Merchant Investment — that were saddled with underperforming and over-valued assets.
What caused Enron to go bankrupt?
What caused Enron's bankruptcy was, quite simply, the loss of its investment-grade credit rating. Without investment-grade status, counter-parties in its trading business (its largest and most profitable segment) either refused to trade with Enron or demanded collateral (which Enron could not post). The loss of the investment-grade designation also accelerated other debt maturities.
So, what caused Enron to lose its investment grade rating? Were the problems at International, Water, and Merchant Investment too big to overcome? No. Were the rating agencies aware of Enron's oft-maligned financing structures? Yes. Did the rating agencies understand that the acceleration of debt maturities brought on by a downgrade could cause a bankruptcy? Yes.
Enron was rated BBB+ (or the equivalent) by all three rating agencies, which typically include all off balance sheet debt when determining a rating. Enron had created multiple non-consolidated Special Purpose Entities (SPEs) that were levered 97/3, meaning $97 of debt to each $3 of equity. Enron's court-appointed bankruptcy examiner estimated the SPEs comprised $14 billion of off-balance sheet debt. Adding the SPEs to Enron's balance sheet would cause Enron to lose its investment-grade rating.
Enron's solution was to alter the nature of its SPEs. A typical SPE requires a company to make cash payments to the SPE if its assets fall in value. Enron created Contingent Equity Vehicles (CEVs) wherein Enron pledged to issue new equity, rather than cash, in the event of asset impairment. By way of illustration: including the CEVs on the balance sheet adds $14 billion to assets and $14 billion to liabilities. In the worst-case scenario of a 100% impairment of the CEVs' assets, Enron's assets and equity (retained earnings) would then fall by $14 billion. However, Enron then could essentially convert the $14 billion CEV debt into equity by issuing new shares. The net result is a drop in assets and debt (equity falls with the decline in assets but goes back up with the issue of new equity) to Enron's exact balance sheet position without the CEVs. This is why the rating agencies could exclude the SPE debt.
The key feature of these CEVs is that they required Enron to issue the new equity, and they required the lenders and other counterparties to accept new equity in lieu of cash. Firms are often unable to issue new equity at just the moment they need it most, but here Enron could. In essence, these financing structures were a "fail safe" designed to ensure that Enron's balance sheet remained investment grade.
Read the full Harvard Business Review op-ed
July 7, 2013
CEME Senior Fellow Patrick Schena on China's New Sovereign Fund Chief
China’s New Sovereign Fund Chief Under Pressure to Boost Returns
Ding Xuedong takes over as head of China's wealth fund facing three challenges: boosting returns, finding new capital and dealing with rivalry from the manager of the nation’s foreign-exchange reserves.
His appointment, announced July 5, ends months of speculation over who would take charge at China Investment Corp. after Lou Jiwei was named Finance Minister in new Premier Li Keqiang's government in March. Ding, 53, a former deputy finance minister, will move from the State Council where he was a deputy secretary-general.
Ding’s need to improve the fund’s returns takes on added urgency as the U.S. Federal Reserve prepares to slow record monetary stimulus, raising prospects for higher interest rates. He will also face increasing scrutiny over his performance as the State Administration of Foreign Exchange diversifies its portfolio into higher-yielding assets from its traditional focus on safer U.S. Treasuries.
“All in all, it won’t be an easy job for Ding Xuedong and that’s the reason why it took some time to find a replacement” for Lou, said Victoria Barbary, director at the London-based Institutional Investor’s Sovereign Wealth Center. “CIC is now almost fully invested and it’s not sure that they are going to get any more funds. SAFE is becoming more aggressive in its investments. It’s becoming more and more of a competitor to CIC and for that reason they won’t want CIC to get more funds.”
Ding will become the $482 billion sovereign wealth fund’s second chairman since it was founded in 2007 to earn better returns on the country’s foreign-exchange reserves. The holdings, which stood at $1.53 trillion at the end of that year, have since surged to $3.44 trillion.
...The two Chinese government asset managers “share a healthy rivalry,” Patrick Schena, co-head of the Sovereign Wealth Fund Initiative at Tufts University in Medford, Massachusetts, said in an e-mail. “Perhaps a more important question is: if/how this rivalry may affect investment decision-making at CIC in the future.”
Read the full Bloomberg article
July 3, 2013
CEME Senior Fellow Patrick Schena on Temasek Assets in Singapore
Temasek Assets Probably Reached Record on Stocks: Southeast Asia
Temasek Holdings Pte (TMSK)’s assets probably jumped to a record as Singapore’s state-owned investment company benefited from a rebound in global stocks.
The company, which will release its annual review tomorrow, may have increased the value of its holdings by at least 8.6 percent to S$215 billion ($170 billion) in the year to March 31, according to CIMB Research Pte, Tufts University and Institutional Investor’s Sovereign Wealth Center. Nine out of Temasek’s 10 biggest holdings gained during the 12 months, according to data compiled by Bloomberg.
A recovery in stocks around the world may have helped lift the value of Temasek’s holdings, of which more than 70 percent were in publicly traded assets as of March 2012. The MSCI World Index (MXWO) gained 9.3 percent in the year to March 31, while Singapore’s Straits Times Index (FSSTI), where Temasek is the biggest shareholder in about a third of its 30 members, increased 9.9 percent during the period….
…“Unlike the past year, they probably have beaten their hurdle rate of 8 percent and the global equity markets have helped them in that,” said Patrick Schena, a senior fellow who researches state investment firms at the [Fletcher School at] Tufts University’s Sovereign Wealth Fund Initiative.
Read the full Bloomberg article
July 2, 2013
Business Consulting in an International Context: Tatiana Popa (MIB 10) and Pfizer
Tatiana Popa (F10) wanted to go to business school, but she thought the curriculum at a traditional MBA program would be too narrow.
As the Moldova native researched different options, she was struck by the way the Master of International Business degree at The Fletcher School combines business and international affairs. She knew about Fletcher’s strong reputation and was excited about what was, at the time, a brand-new program. So she enrolled.
Fletcher gave Popa exactly what she hoped for: an understanding of how business operates in an international context.
Since just after graduation, Popa has been working as a business strategy consultant for the pharmaceutical company Pfizer in Dubai in the United Arab Emirates. Because her team works with 66 countries in the Middle East and Africa, the knowledge she gained at Fletcher has been invaluable.
“My job is very much at the intersection of business and international affairs,” says Popa. “Pfizer is a large multinational firm. I work in emerging markets, and I have to look holistically at business and government.”
One of Popa’s recent projects required her to work with government officials in a middle-income African country, asking them to permit the sale of a vaccine Pfizer had developed. To be successful, she needed to convince them that the vaccine would benefit their citizens. Nobody else on her team possessed enough knowledge of Africa to be able to navigate this complex situation.
But thanks in large part to her experience at Fletcher, Popa knew that an understanding of this nation’s per capita income, its level of health and the policies of its neighboring countries would help her as she sought approval for the vaccine.
“At Fletcher, you learn a lot about many countries, so I was asked to take this project in my own hands and develop a business case,” she says. “My Fletcher education and my experience gave me an edge.”
(Reprinted from Fletcher News)
June 29, 2013
Dean Bhaskar Chakravorti on Immigration Reform
What a Reformed Immigrant from Afar Teaches Us About the Urgency of Immigration Reform Here at Home
Click here to read an original op-ed from the TED speaker who inspired this post and watch the TEDTalk below.
As I write this, our leaders in the Senate have completed their debate over landmark immigration reform and by the time you read this they will have voted in favor of its passage. This is unprecedented in recent times because, a) little that is "landmark" gets a green light on Capitol Hill these days; and b) we have support on reform from both sides of a deep political divide. While we wait as the Senate passes the baton to the House, I would encourage our leaders to take some inspiration from Hyeonseo Lee's riveting narrative of one immigrant's journey. Granted, her delivery is deadpan and moving from being indoctrinated in the north to fluency in English and worldly freedoms in the south of the Korean peninsula may all seem a bit too "foreign" for our legislators. But Ms. Lee speaks the universal truths of the immigrant experience: a dream, of place not one's own; a journey, quite distinct from travel of any other kind; and what, V.S. Naipaul has so eloquently described as the "enigma of arrival." Her story is simultaneously, harrowing and inspiring; every immigrant can find a tiny piece of their life in it.
Regardless of whether one comes by rickety boat, swims the Rio Grande or flies in on Lufthansa (as my wife and I did), the immigrant's narrative is a powerful one. There is a standard cliché that has been put into service by the Left to justify reform: we are a country of immigrants. I disagree. We are a country that is an accumulation of the results of immigration, but the majority of us have experiences and concerns that are fundamentally American. We perennially fall into the trap of becoming overly concerned about what is going on in the U.S. and despite the status of being the sole world super-power and with our global ambassador, McDonald's, operating in 122 countries, we, on average, care too little about the rest of the world. The ongoing presence of the recent immigrant in our midst is a reminder to not forget that if we go a few generations back most of us came from somewhere else. And that "somewhere else" is a part of the world that we as Americans should care about -- for political, business, security and sociological reasons. We need a jolt, a reminder, of what it means to be an immigrant.
Read the full Huffington Post blog post here
June 26, 2013
Dean Bhaskar Chakravorti on OECD Global Forum on Responsible Business Conduct
Getting Rid of “Responsible” from “Responsible Business Conduct”
Today’s OECD Global Forum on Responsible Business Conduct comes not a minute too soon, with far too many recent examples of irresponsible – and, in many cases, criminal conduct – in international business. There is reason to worry that such problems will worsen as the center of gravity of the world’s economic activity moves towards the developing nations, since the necessary institutions and the context within which global business operates have not had the time to catch up with the rapid market changes. For this reason, business must take on a disproportionate share of responsibility to compensate for the missing institutions.
Of course, simply putting people together in a room will not resolve all issues. But we can make a start. I am particularly excited about the fact that I have the privilege of moderating a discussion with leaders representing multiple stakeholder groups during the opening plenary. We can help establish a tone for the Forum.
One of the themes I would like to explore is how to make the “responsible” adjective in the term “responsible business conduct” redundant. Responsibility is a rather loaded term. It suggests that decision-makers in the business world want to conduct themselves in one way, while responsible business conduct would require something quite different.
You cannot scold, regulate, punish and nag your way to responsible conduct. It has to become part and parcel of regular business practices. This means that everything that comes under the label of “responsibility” is compatible with the natural incentive systems that drive managerial conduct. I see four developments that might offer clues on how to make responsible conduct compatible with managerial incentives.
Read the full OECD Insights post
June 21, 2013
Dean Bhaskar Chakravorti on the upcoming OECD Global Forum on Responsible Business Conduct
Rana Plaza, Foxconn, Deepwater Horizon: Let No Serious Global Supply Chain Disaster Go to Waste
The Financial Times ran a June 20, 2013 editorial about the potential abuses of the compensation process associated with the $8 billion set aside by BP to fund the victims of the Deepwater Horizon rig disaster. The FT urges, "Gulf settlement should be fair, not an exercise in extortion." Methinks that, the FT doth protest too much. While the distortions of the US tort system are far from ideal, there are worse problems to be had when dealing with the consequences of corporate supply chains going rogue. Moreover, with companies chasing low cost locations, willing governments eager to welcome foreign investments and potential for untapped natural resources, the global supply chains are growing in the developing world; these are also the regions least equipped to deal with the associated challenges. While the developing economies have grown quickly, the institutions (such as rule of law, labor, environmental, workplace, health and safety, human rights standards, anti-corruption measures, etc.) have not kept pace.
It is hard not to remember the rising daily death count from Rana Plaza, the Bangladesh garment factory building, that collapsed on April 24 and led to the loss of over a 1,100 lives. Prior to that, were the stories of Foxconn and its insanity-inducing working conditions producing -- what Steve Jobs loved to call the "insanely great" -- products from Apple. Will there be a honeypot anywhere close to the $8 billion set aside for Deepwater Horizon to compensate the destitute and exploited workers from these other supply chains? More broadly, will there be any real and enforceable action on systematically preventing irresponsible behaviors and outright abuses from happening?
It is worthwhile asking, who is ultimately responsible for implementing responsible business conduct and making the commitments real: business, government, multi-lateral bodies, consumers, watchdog and advocacy groups, or all of us? It is easy enough to point the finger at Gap, Walmart, BP or Apple or their suppliers or government officials in distant lands eager for foreign investment, while we enjoy fast fashion, cheap oil or the newest iPhone. The fingers point towards all of us. And this is at the heart of the dilemma. Because of the systemic nature of the problem, it is easy to always consider it to be someone else's responsibility. Of course, the more engaged among us are outraged when we read the news stories or the outraged editorials; but, on the whole, no stakeholder really has the incentive to expend the effort and the costs to unilaterally take responsibility for sustaining responsible conduct.
That said, there is, indeed, a lot of decision-making leverage if we can get the marquee large companies and governments and several influential international agencies to come together and make some commitments that are binding because they have made commitments to each other in a highly visible, public forum. This is why I am particularly excited about the opportunity to dig into several of these issues at the OECD's first Global Forum on Responsible Business Conduct to be held in Paris on June 26-27. I will be chairing a plenary discussion that aspires to set a tone for the conference. We will collectively have the chance to engage with leaders from government, industry and international multilateral agencies, such as the UN and the International Trade Union Confederation, and help advance the global dialogue on the topic. More importantly, I am hopeful that we not only advance the dialogue, but given the platform of the OECD and the seniority of decision-makers present, we might be able to accelerate the move towards practicality and action.
Read the full blog post in the Huffington Post
June 19, 2013
Dean Bhaskar Chakravorti on China's Successful Purchases of U.S. Companies
Why China is Buying Up the US
In the 1980s, a string of purchases of iconic U.S. assets by the Japanese – from Rockefeller Center to the Pebble Beach golf course – stirred up national anxiety about losing our status as world leader, and at least a little xenophobia.
A recession killed off the trend. But a similar wave is now under way.
This one has Chinese buyers aggressively picking off U.S. icons – most recently, the Sunday ham, pork sausages and many of our beloved movie theaters. Chinese direct investment in U.S. companies – as opposed to debt or stock purchases – shot up 42.5% in 2012, to $6.7 billion, according to Rhodium Group, a New York-based research firm. It’s on track to jump again this year, with $2.2 billion worth of deals announced in the first quarter and an additional $10 billion in the pipeline, Rhodium says….
…The biggest ever Chinese purchase of a U.S. company was announced May 29 when Shuanghui International said it plans to buy hog producer Smithfield Foods (SFD) for $4.72 billion. The deal makes sense on many levels, but it may bring risks for U.S. consumers.
First, the benefits. Pork is a mainstay in the Chinese diet. With a growing middle class able to afford more meat, China is going to need a lot more pork, says Bhaskar Chakravorti, [senior] associate dean of international business and finance at the Fletcher School of Law and Diplomacy at Tufts University. Plus, the Chinese buyer gets access to trade secrets on the best way to raise pigs, including inside research on pig genetics.
Read the full MSN Money article
June 14, 2013
Dean Bhaskar Chakravorti Comments on Japan's Aging Population, Scarce Labor Force
Japan Wants to Monitor the Elderly with Robots, which Says a Lot about What's Wrong with Abenomics
Months before the concept of Abenomics even existed, Masaaki Shirakawa, the former Bank of Japan governor, made an unusual argument for why it won’t work.
“In aging economies…[because] the scarce labor force imposes a natural constraint on labor supply, the marginal product of capital declines accordingly,” Shirakawa said in a speech. ”As a result, macroeconomic growth would be impeded (pdf, p.8).”
And now in plain English: Japan’s aging caused its deflationary spiral. If Shirakawa is right, Abenomics is doomed….
…Normally, high-skilled foreign workers are particularly helpful in boosting economic growth. And that’s exactly the kind of immigrant Japan has been targeting. Reforms introduced last year have opened up the system to high-skilled immigrants in academic research, business management and technical work. The country is also recruiting foreign students, most of them from China.
However, at the moment Japan already has a glut of high-skilled workers. “Over time some of the higher order jobs will [need to be filled by] skilled immigrants,” says Bhaskar Chakravorti, executive director for the Institute for Business in the Global Context at Tufts University. ”Certainly, initially you want the low wage jobs because those are the low hanging fruit,” Chakravorti tells Quartz. “To a large extent they’ve automated at lot of their higher end industries so it would be helpful to bring in people at the lower end, to take on service sector jobs.”
Read the full Quartz article
June 13, 2013
Extreme Inclusion Keynote Speaker Reverend James Lawson on Demanding Inclusion
Dismantle the Present Thrones
For marginalized groups, achieving inclusion – be it political, economic or social – is no easy task; just ask Reverend James Lawson. A leading activist in the American civil rights movement and a longtime advocate of nonviolent resistance, he has been working for decades to break down barriers and create equality, often in highly dangerous conditions. Even after years of struggle, Lawson said, there is still more work to be done.
Lawson addressed The Fletcher School community on May 2 as the keynote speaker for the School’s annual Fletcher Inclusion Forum. Titled “Extreme Inclusion: Development, Dignity, and Financial Services,” this year’s event brought together over 250 scholars, practitioners, investors and students for two days of discussion on how financial services can help eradicate poverty and promote wellbeing across economies. The conference was hosted by Fletcher’s Institute for Business in the Global Context in partnership with MasterCard Worldwide and the Bill & Melinda Gates Foundation.
A disciple of Martin Luther King, Jr., Lawson was a leading organizer in the U.S. South throughout the 1950s and 60s and played an instrumental role in planning the Nashville lunch counter sit-ins, one of the most important nonviolent demonstrations of the era. He also worked on the famous 1963 March on Washington and other campaigns in Birmingham and Little Rock.
Lawson drew on his deep experience in non-violent strategy and advocacy for political and economic inclusion to address how society can create conditions for other kinds of inclusion, such as class and international economic equality. A key part of that process? A willingness to upend the status quo.
Dismantling the present thrones is a critical pathway to creating radical and extreme inclusion of all people in this country as well as in other countries,” he said.
Read the full Fletcher Features piece
June 13, 2013
Dean Chakravorti Comments on Obama Budget Proposal
Research and development — along with science, tech, engineering and math (STEM) education — would get a funding boost if the Obama administration's $3.77 trillion federal budget for 2014 is approved.
The proposed budget for the fiscal year starting Oct. 1, which has a long way to go before congressional approval, has a special emphasis on science and tech R&D and on STEM education, according to administration officials. And some in the tech industry agree.
Tufts University academic Bhaskar Chakravorti acknowledges the budget's funding increases for science and tech, but he's still critical.
"Numerically, it's a step in the right direction," said Chakravorti, senior associate dean of International Business and Finance at The Fletcher School of Law and Diplomacy.
But numbers can be misleading, Chakravorti says.
"On paper, it seems like we are allocating more money to science and tech research," Chakravorti said. "In reality, we are going to be flat" when the budget is all said and done.
Some federal agencies might get some benefit, and others will stay at the same level or see funding decrease, he says.
"It's not going to add to our competitiveness," Chakravorti said. "It is not going to help us because it is incremental and far too cautious."
Read the full Investor's Business Daily article
June 12, 2013
Is Social Risk a Lurking Danger in Canada?: MIB Alumnus Fabian Olarte
Canada has long been considered one of the safest and most secure mining jurisdictions in the world. Known for its political stability, limited social unrest and security problems, the perception of the country and its mining industry has traditionally been a positive one. However, could recent trends in social risk threaten the Canadian mining industry’s reputation of stability?
Currently Canada is the world’s top potash producer and boasts large reserves of base and precious metals. However, over the last 10 years, as the Canadian economy and its currency have strengthened and the demand for its natural resources has grown, so have the social risks that come with it. For the first time since 2006-07 the Fraser Institute’s Annual Survey of Mining Companies does not have a Canadian territory or province as its number one ranked global mining investment jurisdiction. One of the reasons cited by the Institute for fall in the rankings was the debate around natural resource management. So, what exactly has changed?
June 10, 2013
Dean Chakravorti shares an excerpt from the "Africa's Turn?" conference report
Are African Lions One-Trick Ponies?
The price of oil rose from $20 a barrel in 1999 to $145 in 2008. Africa, which has plenty of the black gold, saw its economy grow by leaps and bounds during the same period. Six of the ten fastest growing countries in the world between 2000 and 2010 were African. The fastest of them all was oil and diamond rich Angola. So a reasonable question to ask would be how much of this growth is a result of a cyclical rise in global demand for primary commodities. Is talk of this being 'Africa's turn' a red herring?
McKinsey Global Institute estimates that natural resources accounted for only 24 percent of Africa's GDP growth between 2000 and 2008. Countries with significant resource exports did not grow faster than countries without. Perhaps the most persuasive statistic that indicates a secular change in Africa's fortunes is its growth in labor productivity. After declining by 0.5 and 0.2 percentage points in the 1980s and 1990s respectively, the continent's labor productivity grew by 2.7% between 2000 and 2008.
I recently had the pleasure of getting insights into the issues from some of the most thoughtful people in this field. In the words of Kwesi Botchwey, Ghana's former Minister of Finance and keynote speaker for our Africa's Turn? conference at The Fletcher School, "this time there really is reason to believe that Africa's time has come." Joseph Kitamirike, CEO of the Ugandan Securities Exchange, who also spoke at the conference listed three important drivers of this phenomenon -- the winding down of most armed conflicts in the region, democratic elections becoming the norm rather than the exception, and finally, macroeconomic stability that has created the foundation for microeconomic growth. Mr. Kitamirike made the astute observation that the Arab Spring ought to more accurately be called an African Spring as the countries in which democracy has been successfully established are all African nations. This, he opined, is a reflection of a continent-wide social transformation that has accompanied rising economic expectations.
Read the full excerpt in the Huffington Post
Read the full conference report
June 6, 2013
The Biggest Losers in India's Economic Slowdown: Op-Ed by MIB Alumnus Shailesh Chitnis
The reaction to news that India’s economy grew at its slowest rate in over a decade was predictable. There was frustration over squandered potential, pleas for a rate cut, unshaken optimism and even an opportunity to indulge in clever wordplay. Yet as everyone from economists to businessmen had their say, the demographic affected most by this slowdown was silent – India’s poor.
One of the big successes of India’s economic growth has been its positive impact on poverty reduction. The percentage of the country’s population living below the poverty line declined from 37.2 percent in 2005 to 29.8 percent in 2010 (the last year when exact numbers were available). That translates to 52 million Indians who have been lifted above the poverty line. Encouraging as those gains are, the country still counts over 320 million poor among its citizens.
Higher economic growth has also correlated with a larger rate of poverty reduction. Between 2005 and 2010, the country’s GDP grew at an average of 8.5 percent and the poverty rate (the proportion of the population below the poverty line) registered an average annual decline of 1.48 percent. In the preceding decade, when GDP growth averaged 6.5 percent, the poverty rate declined at 0.74 percent annually.
If these seem like really small percentages to quibble over, consider this: over the next seven years, India has the opportunity to lift anywhere from 66 million to 160 million people out of poverty (see chart). The difference between the two numbers is that the first assumes a 1 percent annual decline in the poverty rate, while the second assumes a 2 percent decline.
Read the full op-ed in Reuters
June 5, 2013
Dean Chakravorti discusses the meeting between Presidents Obama and Xi
The Obama and Xi Meeting: Time for Some California Dreamin'
For the first time in their roles as leaders of the largest and second largest economies in the world, Presidents Obama and Xi will meet on June 7-8 in California. The meeting agenda for the two most powerful men on earth is already looking rather nightmarish for their handlers as it may involve a raft of rather difficult conversations.
For starters, there has been an unprecedented string of damning reports suggestive of a cyber Cold War underway between China and the U.S. First, the computer security firm, Mandiant, documented widespread incidents of Chinese hackers infiltrating the computer systems of American corporations, such as Coca Cola and EMC -- even those of the New York Times. More recently, the Pentagon released a report that the Chinese government had directed cyber-hacking to infiltrate U.S. diplomatic, economic and defense industry networks last year. And now, a recent IP Commission Report on intellectual property theft co-chaired by Former Ambassador to China Jon Huntsman finds that China is responsible for up to 80 percent of U.S. intellectual property theft, amounting to about $300 billion in lost exports -- equivalent to all of America's trade balance with Asia.
All of this comes atop of multiple geopolitical tensions with the two countries at opposite ends: President Obama's "Asia pivot" as a direct challenge to China's growing influence in the region; the nuclear stalemate with China and the U.S. allied with opposing sides in the Korean peninsula; and China's territorial incursions against American allies, including Japan, the Philippines and India.
Read the full Huffington Post blog post
June 3, 2013
Dean Chakravorti Comments on South Korea's Services Sector
Why is South Korea Bellyaching About the Yen when it's Running a $6 Billion Trade Surplus?
As a competitor to Japan in high-tech exports, Korea has worried for a while that Japan’s aggressive yen-weakening would undercut it. In Markit Economics’ manufacturing survey, the purchasing managers’ index (PMI), published today, Korean exporters said “the weakness of the yen was improving the competitiveness of Japanese rival manufacturers” (pdf). And over the weekend, Hyun Oh-seok, South Korea’s finance minister and deputy prime minister, railed against Abenomics to the Financial Times (paywall). “We need some kind of co-ordinated efforts to prevent these kinds of unintended side-effects from [Japan’s new] monetary policy,” Hyun said…
But the weaker yen also made raw materials cheaper than they’ve been since July 2005. And that enabled Korean companies to slash their prices as well, said Markit. Plus, export orders still grew, though the rate of growth slowed in May.
And then there’s May trade data: the trade surplus surged to $6.03 billion in May. That’s the biggest gap between exports and imports since October 2010, and up from $2.45 billion in April. Exports to the US surged 21.6% on the same months in 2012, while exports to China, its biggest trading partner, were up 16.6%...
For one thing, Korea’s reliance on exports is coming at the expense of its service sector, as Bhaskar Chakravorti, executive director for the Institute for Business in the Global Context at [The Fletcher School at] Tufts University, explains.
Read the full Quartz article
May 30, 2013
A Tufts Financial Network Speaker Series Event
"The Imagination Crisis: Are the Days of Revolutionary Innovations Over?"
|From left: Bhaskar Chakravorti, Lynda Applegate, Navjot Singh and Steven Koltai. (Matthew Modoono for Tufts University)
A palpable curiosity could be felt at the Ritz-Carlton on the evening of April 25th, as the extended Tufts network congregated for an installment of the Tufts Financial Network’s ongoing lecture series. The topic was innovation and its prospects, an issue of both profound and far-reaching consequences for both the world as a whole, and the professional and personal interests of the students and alumni in attendance. At hand for conversation was Navjot Singh, Senior Partner, McKinsey & Company and Head of McKinsey Boston, Lynda Applegate, Sarofim-Rock Professor of Business Administration and Head of the Entrepreneurial Management Unit at Harvard Business School, and Steven Koltai, Managing Director and Founder, Koltai & Company, Serial Entrepreneur and Former Senior Advisor to Secretary of State Hillary Clinton for the U.S. State Department's Global Entrepreneurship Program. Moderating the forum was the Senior Associate Dean of International Business and Finance and Executive Director of the Institute for Business in the Global Context, Dean Bhaskar Chakravorti.
As seats were taken, the discussion of this topic began in an innocuous manner, as Dean Chakravorti raised the light-hearted but poignant cover of The Economist that touched on the issue. The image of the toilet, in all its useful glory, served as a constant rubric for innovation throughout the talk. Each participant brought a markedly different viewpoint to the discussion. While there was agreement that innovation is a cumulative process, opinions on its current status, and the most important factors to ameliorate the factors influencing the process, were debated extensively.
Read the complete event summary
View the full video of the event
May 15, 2013
E-Commerce in India at Turning Point, says MIB alumnus Shailesh Chitnis
A ripple of mergers and closures among India’s e-commerce websites that began last year is threatening to become a wave, as these companies find it harder to get fresh funding.
A slew of recent deals demonstrate this trend.
Last month, baby product-seller Babyoye.com reportedly merged with Bangalore-based Hoopos.com, which also sells baby products.
In early March Urbantouch.com, an online fashion retailer for men, was shuttered less than a year after it was acquired by clothes retailer FashionandYou.com.
Later that month, Buytheprice.com, a site connecting buyers and sellers, was bought by Tradus.com, another site offering a similar service.
In February, fashion retailer Zovi.com bought local rival Inkfruit.com.
Most e-commerce sites don’t share financial information publicly because they are not listed, but venture capital investors in such firms privately admit that many of these sites won’t break even anytime soon.
These investors are now actively pushing for mergers in India’s crowded online marketplace in the hope of saving on operating costs, thereby turning a profit faster.
But this is far from the scenario that investors and entrepreneurs had envisioned from India’s e-commerce industry.
Read part 1 of the Wall Street Journal article
Read part 2
May 6, 2013
Dean Chakravorti on the Real Crisis of the Korean Peninsula
We Have Lost Sight of the Real Ticking Bomb on the Korean Peninsula
Thanks to the antics of Kim Jong-un, the Korean peninsula is hot yet again. North Korea's nuclear technology is closer to being able to strike the U.S. according to a new Pentagon report submitted to Congress last week. I do think we should take this threat seriously; however, as officials from the U.S., South Korea, China, among others, scramble to defuse the most immediate crisis, we are at risk of losing sight of the deeper, longer-term danger to the region. The crisis that has receded to the background is an economic one -- and we should not ignore it.
Now we all know that South Korea has been quite the rock star of emerging markets. It is one of the rare examples of countries that emerged from war, poverty and the inevitable "middle-income trap." It multiplied its GDP three-fold in just 20 years. It was the first nation that went from being an OECD aid recipient to joining the OECD donor committee. Today, Korean brands lead not only in "hidden" products such as LCD technology and memory chips, they are also integral to the global cultural zeitgeist: smartly designed Samsung smartphones give Apple a run for its money and K-pop star, PSY, is the monster hit of YouTube.
But, South Korea's charmed decades may end soon. It is possible that its future may resemble that of its neighbor, Japan, and its "lost decades." This, to my mind, is the real crisis on the peninsula. The current escalation of tensions with North Korea masks the real crisis and even contributes to deepening it. Most importantly, it takes leadership attention and focus off of the real crisis.
Like Japan, South Korea has a population that is aging rapidly. South Korean women had fertility rates of 1.21 between 2005 and 2010, one of the lowest in the world. An aging society has proven to be among Japan's most profound challenges; for South Korea the aging challenge promises to be even more acute.
Read the full Huffington Post blog post
May 3, 2013
Can U.S. Companies 'Get' Africa, Asks Dean Bhaskar Chakravorti
Editor’s note: Bhaskar Chakravorti is Senior Associate Dean of International Business and Finance and founding executive director of the Institute for Business in the Global Context at The Fletcher School at Tufts University, host of the 2012 international “Africa’s Turn?” conference. The views expressed are his own.
The countries we most obsess about from the emerging world – the so-called BRICS – met recently in Africa. Many see this as more evidence of an international scramble for the world’s greatest growth opportunity. But here in the United States, you would hardly know it. Instead, when the continent does come up in conversation, it is often in the context of “help,” conflict, misused development aid and woeful political leadership.
But we are at a turning point. The old story of Africa as the final frontier is being replaced by a new narrative: one of economic growth and opportunity. Business, policy and civil society leaders who spoke at our “Africa’s Turn?” conference last October expressed enthusiasm and cautious optimism for its future.
The U.S. perspective of needing to “help” Africa may start to look very dated as the continent experiences self-propelled growth and development led by a growing urban consumer class, enabling technologies such as wireless communications, and an emerging entrepreneurial sector.
The Nigerian finance minister, Ngozi Okonjo-Iweala, offers a simple piece of advice: to help Africa, do business there. It is time to take such advice to heart.
The U.S. business community ought to have a strong interest in doubling down on Africa. American businesses urgently need growth and a critical route to this is to penetrate the world’s fastest-growing markets. As it is, the U.S. is severely under-represented in such markets. According to a 2010 study by HSBC, only seven percent of the revenues of U.S. multinationals were generated in emerging markets. Africa’s contributions to this figure are significantly lower, even while it has been declared to be the world’s fastest-growing continent.
Measured in terms of trade, less than three percent of U.S. global trade volume is with Africa, and the trends have been downward since a peak in 2008. As a point of reference, consider that China-Africa trade was $127 billion last year, while U.S.-Africa trade was only $94 billion.
But we shouldn’t assume that it will be easy for U.S. firms to close the deal in Africa. One of the problems for American businesses leaders is that because of the absence of past relationships they have relatively little understanding of the markets, the consumers and the broader context of Africa. Many would be surprised to know that there are so many distinct markets and peoples across this vast continent. The generic business perspective of Africa is based on experience in a few “front door” countries, such as South Africa, Nigeria and to a lesser extent Kenya and Ghana.
Read the full CNN Global Public Square piece
April 24, 2013
Bhaskar Chakravorti on South Korea's Growing Demographic Challenge
An Elderly Crisis and a Youth Crisis: South Korea's Got It All
With around a quarter of its population older than 60, Japan has rightly earned its rep for having the worst demographic crises in the world. But just to its north, there’s one that threatens to be just as nasty. Or even nastier—in fact, by 2045, the average age of the South Korean population will be 50, the highest in the world…
…This forms what Bhaskar Chakravorti, executive director for the Institute for Business in the Global Context at The Fletcher School, Tufts University, says is South Korea’s “deepest” structural economic problem. ”Pretty soon this population is going to be unproductive and 10-15% of its GDP will go toward supporting this population, according to some estimates,” Chakravorti tells Quartz…
…One of the big reasons for Korea’s paradoxical labor market lies in its reliance on chaebol, big conglomerates like Samsung and Hyundai. They’ve been the engines of Korea’s manufacturing-led economic boom of the last few decades. Koreans spend some 70% of household spending on private education in order to earn their children a spot in one of the top universities—pretty much the only ticket in town to landing a chaebol job. But as the 30 biggest chaebol provide only 6% of Korea’s jobs, that single-minded focus is, for many, self-defeating. “You have roughly 300,000 college grads out of Korea competing for 18,000 jobs,” Chakravorti tells Quartz. “We’re looking at a society that has become obsessed with a handful of institutions that everyone wants to go to.”
Read the full Quartz piece
April 9, 2013
Tomorrow's City-Living Ideas from Today's Slums: Op-Ed by Gaurav Tiwari (F12) & Dean Chakravorti
There is more sex in the city; the majority of the world’s seven billion people are now urban-dwellers. Last year the China Association of Mayors announced that China has reached that milestone itself, and other fast-growing parts of the world are urbanizing feverishly as well. India will add almost another 500 million to its cities by 2050. Nigeria, whose urban population grew by only 65 million between 1970 and 2010, is expected to add 200 million between 2010 and 2050. Many parts of Latin America are majority-urban already. About 85% of Brazil is in cities.
Where are all these people going to live and what will be the quality of their lives? And where should planners turn for ideas and innovations in the new urban living? Should they take a tour of Antilla, the 27-story Mumbai home of billionaire Mukesh Ambani and his wife, Nita, featured recently in Vanity Fair? Or should they drive a few miles down the road toward the Mumbai airport and check out Annawadi, the subject of Pulitzer Prize-winning writer Katherine Boo’s new book about life in the most wretched of slums?
We think Annawadi may be a better bet. The best innovations are responses to the most severe unmet needs. In Annawadi—or, for that matter, in Kibera in Nairobi or Zabaleen in Cairo or Heliopolis in Sao Paulo—there is no shortage of unmet needs. And there is no shortage of people with such needs, since there are almost a billion slum dwellers around the world, expected to grow to 2 billion by 2030. Slums offer an informal global network of living laboratories. Each offers a staggering variety of local solutions to universal urban problems that are rapidly catching up with all of us.
Read the full BOSTON+acumen Op-Ed
April 9, 2013
How Does Fletcher's MIB Program Differ from Those in B-Schools?
B-Schools Chart Emerging Markets Course
Last week, a group of 71 second year MBA students from London Business School (LBS) were in Mumbai on a week long trip, soaking in the business culture of the financial capital, meeting CEOs like Raymond Bickson (The Indian Hotels Company) and SanjeevLamba (Reliance Entertainment) and immersing themselves in conversation with the likes of RakeyshOmprakashMehra and FarhanAkhtar to get a grasp on emerging business trends in Bollywood.
The visit was part of a new curriculum introduced by LBS - global business experience (GBE) - which offers an opportunity for second year MBA students to choose from five locations around the world to gain learning experience. LBS is not the only business school emphasizing on a global business experience for students, with a specific focus on emerging markets. Last August, nearly 300 students from Chicago Booth went on 25 trips around the globe, led by 100 second year trip leaders. The school's first ever emerging markets summit will be held in April this year, wherein students involved in the emerging markets group along with those in groups covering Latin America, South Asia, Africa, Asia-Pacific and other regions, would come together. ...
... Most business schools are striving towards a single objective: to take students out of their comfort zone and put them in a position where they have to act and make decisions, rather than discussing the theory as they do in the case method. "Business is conducted in a global arena and leaders are expected to have a global perspective. In order to be effective, our students have to be as comfortable in Mumbai as they are in Mexico or Manhattan," said Brian C Kenny, chief marketing & communications officer, HBS.
This change has a direct correlation with the way businesses are chasing growth and profitability beyond national borders. All businesses, whether American, European or Asian, are trying to close the gap in globally adept talent.
However, at the Fletcher School, global experience doesn't just mean being able to market a detergent in a foreign country or figuring out how to adapt the car you manufacture to road conditions in poorer countries. "It can mean something as humdrum as: Do you have the ability to cross a cultural chasm and extend your hand in friendship to a business colleague or partner? You should be able to say to your foreign partner/colleague that, 'Not only have I taken the time to write the 40-point PowerPoint deck, but I've also learned how to have a conversation with you over dinner about a sport that you guys probably are deeply interested in and I cannot understand. And I can talk about the sport in the language that you would use'," said Bhaskar Chakravorti, senior associate dean, international business & finance, The Fletcher School, Tufts University. That explains why LBS wants its students to become conversant in at least two languages.
Read the full Times of India piece
March 25, 2013
Leadership Changes Afoot at CIC
Patrick J. Schena
As we write this, the executive leadership of the China Investment Corporation is in flux. Its inaugural Chairman, Lou Jiwei, has just stepped away from the CIC to lead the Ministry of Finance, and despite several reports placing Guo Shuqing, head of the China Securities Regulatory Commission and former Chairman of China Construction Bank, in the Chairmanship of the CIC, he was recently appointed to be Deputy Party Secretary of Shandong Province. Although several other individuals with executive experience in international finance and banking have been mentioned for the position, including Li Jiange, Chairman of China International Capital Corp, and Jiang Jianqing, Chairman of ICBC, to date, no appointment has been made. While it is not really our intent here to try to forecast Chinese leadership appointments, given that a new Chairman may be appointed imminently, we do aim to suggest a view on some challenges the new Chairman is likely to face and the qualifications we believe will be required to navigate them successfully.
Read the full piece
 The authors are respectively Adjunct Assistant Professor and Associate Professor at the Fletcher School, Tufts University. Both are Associates in Research at the Fairbank Center for Chinese Studies, Harvard University. Patrick Schena is also Co-Head of Fletcher’s Sovereign Wealth Fund Initiative
 See “Chief Regulator Guo Shuqing Tipped as Shandong Governor”, South China Morning Post, 13 Mar 2013 accessed http://www.scmp.com/news/china/article/1189477/chief-securities-regulator-guo-shuqing-tipped-shandong-governor. This appointment is somewhat curious considering Guo’s expertise, although there are precedents – Dai Xianglong, a former governor of the People's Bank of China went on to become mayor of Tianjin – and Guo's own experience includes a stint as vice governor of Guizhou Province. Not directly germane to the remainder of this note, however, it is perhaps best the subject of a separate missive.
March 20, 2013
What's the big deal About Cyprus? Q&A with Professor Michael Klein
Cyprus vetoed the controversial bailout offered by the eurozone's finance ministers on Tuesday. Why were the terms of the bailout controversial? What does it mean for the rest of the eurozone?
GlobalPost talked to Michael W. Klein, the William L. Clayton Professor of International Economic Affairs at Tufts University's Fletcher School.
Why did the Cyprus bailout package cause such uproar?
With insured deposits, there is a guarantee that there will be no confiscation of depositors’ money. Even just the fear of a bank run can lead to a bank run. In the 1930s, none of the deposits were guaranteed by the government and that led to bank runs, which in turn deepened the Great Depression. Government guarantees on insured deposits took away most of those fears.
[The Cyprus bailout] is a little bit of crossing the Rubicon to start charging depositors a tax on what they perceived to be insured deposits.
The real concern is not so much what’s going on in Cyprus, but if this becomes a method by which bailouts are funded. Then, there is concern that this could lead to bank runs all over Europe, as other countries’ banks are imperiled.
If the same kind of thing happens there, it could be really problematic.
What are the potential risks of a bailout that includes taxes on depositors’ accounts? Is it a bad precedent to set?
I think it is a bad precedent. It doesn’t distinguish between bad banks and good banks. And it means that deposit insurance might not mean what they say it means.
The bank run is an infrastructure thing because then banks start to shut down and it starves the economy of credit. Historically, we've seen that in situations where banks fail, the depressions that ensued were deeper, more severe and more protracted than recessions that arose for other reasons.
Read the full GlobalPost piece
March 19, 2013
Microsavings Gaining Momentum, but Challenges Remain: Professor Kim Wilson
The global financial crisis has turned us into a world of savers — including the poorest people on the planet.
Elsa Ligua is one of them. As a food stall vendor in the Philippines, paying for her four children to go to college once seemed unimaginable. But Ligua scrapes together 50 cents every day to give to a savings collector who visits her home. The money is deposited in a bank account that pays interest and is insulated from the daily demands of life below the international poverty line. She hopes to have $200 squirreled away by this summer — enough to pay at least some tuition. …
… Microsavings programs include informal savings circles in Africa and mobile-phone deposits in India. The field has attracted $500 million in grants from The Bill and Melinda Gates Foundation. Many institutions that were making microloans are now adding microsavings to their offerings; some have stopped lending money.
Still, the sector is just a sliver of the size of microcredit (a.k.a. microlending). Growth will hinge on making the case for companies to invest in a business model with uncertain returns and high costs. It will need technological advances that allow financial institutions and their customers to access and move money quickly. And it will require building the trust of the poor, penny by penny.
“I think everybody thought this stuff is just gonna take off like wildfire,” said Kim Wilson, who lectures on microfinance at the Fletcher School at Tufts University. “It’s slow. It requires a lot of investment in time.”
Read the full Washington Post report
March 14, 2013
American Companies Underrepresented in Emerging Markets: Dean Chakravorti
There's a misconception that US multi-nationals are taking over the world. In fact, American companies are underrepresented in emerging markets compared to Europe.
Watch the HuffPost Live Q&A
March 11, 2013
Long-term Effects of the Sequester Worrying: Dean Bhaskar Chakravorti
The Sequester's Hidden Risks for the U.S. Economy
It didn’t take long for sequestration to bite. Lines more than doubled at some of the nation’s largest airports on the first weekend after the across-the-board spending cuts took effect on March 1; and importers of tomatoes, peppers, and eggplants braced for long lines at border crossings as the Department of Homeland Security reduced overtime to save money.
The impact is almost certain to grow after agencies begin to furlough workers, which requires a one-month notice. If there are further delays at border crossings, at terminals for air passengers, and at food plants that don’t have enough inspectors, the ripple effects could reduce economic growth and hurt jobs and profits more than has been generally estimated. That’s a possibility that seems to have been ignored on Wall Street, where the Dow Jones industrial average surpassed its 2007 record on March 5. …
… Markets and many economists have taken sequestration in stride so far, with some dismissing the Obama administration’s warnings of trouble as scare tactics. Bhaskar Chakravorti, an economist at Tufts University’s Fletcher School, says he’s more worried about the long-term damage to U.S. competitiveness from cuts in education and scientific research than he is about short-term blockages.
Read the full Bloomberg Businessweek piece
March 7, 2013
Sovereign Wealth Fund Initiative Research Highlights Role of Islamic Finance
Making an Impact may be new good
If the pure pursuit of greed is no longer good in the post-crisis world, what defines the new “good”?
That’s when you start to consider “Impact Investing”, a type of investment that pursues measurable social and environmental impacts alongside a financial return. According to a report prepared for the Rockefeller Foundation, approximately 2,200 impact investments worth $4.4 billion were made in 2011.
But those who may be ideally placed to pursue Impact Investing are still largely absent from the exercise — sovereign wealth funds from the Persian Gulf, according to a recent paper published by academics at the Fletcher School at Tufts University.
Authors Asim Ali and Shatha Al-Aswad at the Sovereign Wealth Fund Initiative at the Fletcher School at Tufts University argue that Persian Gulf states can deploy their SWFs in impact investing, via Islamic finance, to help develop their economies.
Islamic finance, with its focus on moral and social objectives, and specifically Sovereign Wealth Funds, as long-term investors, are ideally positioned to pursue impact investing… to foster social impact and economic development in the broader economy.
At a time when there has been much questioning of the values underpinning the conventional financial system, Islamic finance presents an alternative to traditional finance by offering both financial return, as well as a theoretical foundation for ethical investing, which, we argue, extends logically to investments that directly impact social and economic development.
Governments’ role is key in promoting impact investing, the Rockefeller report says.
Governments can encourage impact investing through appropriate investment rules, targeted co-investment, taxation, subsidies and procurement, as well as corporate legislation and capacity development that enable the efforts of investors, intermediaries and enterprises in this space.
Read the full Reuters piece
March 6, 2013
IBGC Speaker and CEME Senior Fellow Paul Schulte (F88) on the Key to Weathering It All
Turbulent Times? Political Instability? The One Key to Weathering It All: Financial Liquidity.
It’s no great secret that with turbulent financial markets comes political instability. Just look at the number of Western governments that collapsed or changed control within a year of the 2008 financial crisis. So how do you ensure stability in uncertain times?
Paul Schulte, MALD ’88, may have the answer:
“Financial liquidity – that’s the key,” Schulte told student and faculty earlier this month in a presentation hosted by The Fletcher School’s Institute for Business in the Global Context. The 1997 East Asian economic crisis? Liquidity crunch. The Soviet collapse? It may very well have been brought about by a massive credit crunch in 1987.
“Liquidity offers ‘elbow room’ for political mistakes. Without credit, your country’s politics are going to be toxic and unstable,” Schulte said.
Years of experience consulting companies, advising governments and weathering turbulent times has given Schulte valuable insight into how the still-unfinished Great Recession might continue to play out.
Read the full Fletcher Features piece
March 6, 2013
Dean Chakravorti Tackles Myths Associated with US Global Power Market
"The Big Mac Mirage": America is actually terrible at globalization
Coke is so prevalent around the world that non-profits look to its supply chain for help on distributing aid. McDonalds, in 122 different countries, is so widespread that there’s a foreign relations theory that no two countries hosting the burger franchise will go to war, although the strong version of that theory is well dead. And Wal-Mart is the world’s third largest global employer, after the American and Chinese militaries, respectively.
The US must be great at globalization, right?
Unfortunately, no, according to Bhaskar Chakravorti, the director of Tufts’ University’s Institute for Business in the Global Context. He says all these examples represent “the myth of American global market power”—they are outliers that disguise the real failing of American multinationals to succeed around the world, and especially in fast-growing emerging markets. Despite what you might hear, he says “we are extremely under globalized.” Here’s an excerpt from a forthcoming paper he’s written with fellow economist Gita Rao (emphasis mine):
In 2010, emerging markets represented 36% of global GDP; these markets already account for the majority of the world’s oil and steel consumption, 46% of world retail sales, 52% of all purchases of motor vehicles and 82% of mobile phone subscriptions. With two-thirds of global growth coming from these markets, in a decade they will account for the majority of the world’s economic value. Yet U.S. companies derived less than 10% of their overall revenues from emerging markets: about as little as 7%, according to HSBC estimates for 2010. The 100 largest companies from the developed world overall made 17% of their revenues from emerging markets, according to a McKinsey report; in other words, the U.S. lags not only emerging market firms in capturing share in emerging markets, but it lags the developed world overall. By considering the difference between the “absolute potential” represented by the 36% number or, to take a much more conservative benchmark, the global peer average of 17% and the U.S. share of 7%, we derive two measures of the gap – and the degree to which U.S. industry has not participated in global growth.
Read the full Quartz piece
March 5, 2013
Op-Ed by CEME Senior Fellow Paul Schulte (F88) on Currency Wars
Are the Currency Wars Starting? They already happened – and the Fed won.
Many years ago when the Fed’s quantitative easing (QE) began, Fed Chairman Bernanke gave a health warning. He said that countries which are linked to the dollar during QE could avoid being run over by the oncoming tsunami of liquidity by doing three things: 1) let the currency appreciate; 2) run budget surpluses and 3) raise interest rates. What happened instead is that many emerging market countries which already had healthy banking systems and were not caught in the Western Web of potential debt deflation actually did the opposite. They fought currency appreciation and caused a buildup of liquidity. Countries like China, India and Brazil are all running fiscal deficits. And these three countries all lowered interest rates. Many other emerging markets did the same. In this way, they have all lost the currency war already and we are now starting to see the destructive influences of this war – inflation.
Read the full Op-Ed
March 1, 2013
Time to Call a Truce in the Currency Wars: Op-Ed by Professor Michael Klein
Yes, the yen has weakened and the pound has gotten pounded, but worries about an all-out currency war may be overblown. There's a perception that some countries' economies are being harmed by currency movements that have been undertaken to gain an unfair advantage.
That may be a bit misguided.
In the United States, the threat of a fiscal contraction due to sequestration has prompted the Federal Reserve to take actions that could weaken the dollar.
Signals suggest that the new head of the central bank in Japan will pursue a more expansionary policy in an effort to stimulate that country's long-moribund economy.
These actions are taken for purely domestic reasons, but they could have consequences for currencies.
In anticipation of frictions that could arise, there was an agreement by the G-20 nations at the recent Moscow summit to refrain from so-called competitive devaluations.
Read the full CNN Money piece
February 28, 2013
Dean Chakravorti on the Lessons About Leadership from the Oscars
I don't know about you, but I get my biggest and most concentrated dose of leadership lessons from going to the movies. And this year's movie crop has been nothing short of a bonanza. Oscar gave the nod to so many models of heroic leadership to pick from and adapt for our own use: the iconic American president with the upright gait and unforgettable face reproduced on monuments, mountains and currencies; the shadowy operative who favors anonymity and weaves a fabric of followers stretching from Langley, VA, through Hollywood, CA to Teheran, Iran, and returns to obscurity once the job is done; the boy on a boat with a single follower that can do little else but eat him. They all led. They engineered their followership to pull off seemingly impossible tasks. One led from the front, united a divided nation, fought a bloody war and was not averse to being just a little less upright to work with many stakeholders to get historic legislation passed. Another was an innovative entrepreneur, and harnessed resources that he brought together through intransigence, persistence and creativity. The third, literally, had a tiger by the tail; here was a lesson in leadership in extreme crisis with an extremely hostile constituency.
February 28, 2013
Prof. Aker and Prof. Wilson Examine Mobile Money's Impact on Savings
Mobile money can boost financial inclusion, savings – Research
A new research funded by the SWIFT Institute has revealed that mobile money can help to promote financial inclusion and boost savings rates amongst remote communities.
The research, carried out by US-based Tufts University in rural communities in northern Ghana with little access to financial services, demonstrated that take-up of mobile money can be easily promoted and that use of mobile money services can help to encourage a savings culture.
A month into the research project, 10% of participants had used the service solely for money transfer; two and half months later, usage increased to 26% of households, with 86% of users receiving money transfers and 70% of users saving on their mobile phone.
In a release SWIFT, the financial messaging provider for more than 10,000 financial institutions and corporations in 212 countries and territories, said the results could provide a possible model for policy makers around the world to extend the reach of financial services.
“If mobile money services can help to improve financial inclusion in this way, they could offer a crucial mechanism through which to address a stubborn problem that continues to hinder economic development,” the statement said. ...
...Jenny Aker, Assistant Professor of Economics, the Fletcher School, Tufts University, said: “Whilst these early findings are limited, the research suggests that simple interventions to alleviate the barriers to mobile money adoption can help to encourage its use for receiving remittances and as a saving mechanism. If further research supports these conclusions, mobile money could be an important mechanism for promoting financial inclusion.”
Read the full Ghana Business News piece
February 28, 2013
Britain Quitting the EU Would be a Mistake: Professor Laurent Jacque
Brexit: If Britain Quits The EU, What Then?
Britain has never been too keen on getting closely involved with Europe. When Germany, France, Italy and the Benelux countries established the European Coal and Steel Community in the 1950s, the start of what became the European Union, the British turned down the offer. ...
... If Britain decides to leave, it could grab a few benefits quickly. The nation would save about £8 billion ($13 billion) a year in net budget contributions to the EU, as well as roughly £30 billion a year in EU-related red tape costs.
The British Chambers of Commerce said in its latest Burdens Barometer report available that almost a third of the country's regulatory burden came from European Union directives in 2010.
The study suggests that the cumulative costs (1998 - 2010) to UK businesses from EU-origin regulations implemented since 1998 is £60.8 billion, which accounted for 69 percent of the total net cost of dealing and complying with new laws and regulations during the 12-year period.
“Leaving the EU would be a mistake; it would hurt the UK,” warned Laurent Jacque, a professor of international finance and banking at Tufts University’s Fletcher School. A British exit would dent trade with a market that accounts for half of Britain’s exports.
While there is active debate about whether the net impact of EU membership is positive or negative, any of the benefits the UK might gain from leaving (less regulation, more competition, no contributions to the EU budget) would not start to accrue until it had actually left, which even if it happens, is still many years away.
Perhaps the main immediate economic consequence of that stance is that uncertainty around Britain’s membership could persist for nearly five years. That could potentially hinder investment into the UK if access to the European single market and the UK’s contribution to shaping the EU are seen as important attributes. It seems unlikely that there will be any extra investment flowing into the UK on prospects it may leave the EU, given that the situation is so uncertain.
Read the full International Business Times piece
February 28, 2013
Time for Serious Bank Restructuring: Professor Amar Bhide
Too-Big-to-Fail Rules Hurting Too-Small-to-Compete Banks
Regulators want safety. Investors (JPM) want profits. Employees want bonuses.
Stuck in the middle are management teams at the world’s biggest banks, struggling to assure taxpayers, shareholders and traders that their pleas are being heard, Bloomberg Markets will report in its April issue.
In response to regulators, banks have reduced (BAC) their dependence on borrowed money. To answer investors, they’re cutting costs and exiting businesses that don’t deliver a big enough return on equity. Employees who haven’t lost jobs or fled to hedge funds are getting more of their pay in stock awards that are tied up for as long as five years.
The stakes are high. How executives finesse the competing forces will not only separate winners from losers; it will also determine the safety of the largest financial firms, those deemed too big to fail because their collapse would wreak so much damage that governments would be impelled to rescue them. …
… The industry’s legal bills have ballooned as practices such as shoddy foreclosures, interest-rate manipulation and money laundering came to light. Even CEOs such as JPMorgan Chase & Co.’s Jamie Dimon, whose New York-based bank reported a third consecutive year of record profit (JPM), have had trouble managing their sprawling organizations. Dimon has said he was unaware of complicated trading risks that led to more than $6.2 billion of losses last year.
“Who can tell what JPMorgan’s investment office is doing until after it’s blown up? Not even Jamie Dimon, so what chance does a supervisor have?” says Amar Bhide, a professor of international business at Tufts University’s Fletcher School of Law and Diplomacy in Medford, Massachusetts. “So for that reason, one needs serious restructuring of banks.”
Read the full Bloomberg Businessweek piece
February 25, 2013
The Global Economy in 2025: Op-Ed by Dean Bhaskar Chakravorti
"Tomorrow and Tomorrow and Tomorrow: The Global Economy's Path to 2025"
Editor's note: "Tomorrow and tomorrow and tomorrow" is a three-part series on the future of the global economy in 2025. Read part 2: Competitive edge will sustain US economic advantage in 2025; Read part 3: Resource limits and slow-moving institutions may hamper economic growth
Happy 2013. We are now officially a dozen years into the century. This is as good a time as any to imagine what the next dozen years leading up to the 2025 milestone might have in store.
The reason is simple – if you cannot imagine the future, you will never play a part in shaping it. What is worse, the future that you have been blind to can blindside you. We all know how 2012 played out; this may not help us in 2025. As Macbeth, who helped with the title for this article, also reminds us that “all our yesterdays have lighted fools the way to dusty death.”
Unfortunately, our collective track record for imagination has not been stellar. We have a tendency to get excited about the news that spikes in the near-term and that colors our view of the longer term ahead.
To get a sense of just how bad this cognitive dissonance can be, imagine you were back at the dawn of the century in January 2000, perhaps celebrating the non-event of the past year: the Y2K bug that fizzled. This was already a harbinger of more misconceptions about the most significant developments of a dozen years to come.
Read the full GlobalPost piece
Read part 2
Read part 3
February 11, 2013
America's Future Depends on Global Innovation Capability: Dean Chakravorti
Solving Apple's Innovation Problem
On the face of it Apple has one innovation problem that it needs to overcome – find a new category-busting product like the iPhone. Not so easy, of course. But the intervention of hedge fund manager David Einhorn, mad at the company’s inability to leverage value from its $137 billion cash pile, tells us that its innovation problems are significantly bigger.
It needs to re-instantiate the idea that it could be worth a $1 trillion.
Instead Apple is a company whose current, core customer-centric mission has acted like a dehydrator in the company’s idea closet. Its insistence on a very narrow definition of what it does has made it impotent to use that money. It’s creativity is all but dried up. …
… We face two simultaneous problems in the global economy. The first is the accumulation of capital for non-productive uses – Bain reports that by 2020 the total of financial assets in the world will be $900 trillion, $300 trillion more than today, and its effect is constantly to threaten a surge in non-financial asset prices such as commodities. Apple is a symptom of that problem hoarding cash it is too scared or unimaginative to spend.
The second is the growth of a global middle class that will be extremely resource hungry and that is causing enormous structural problems – or opportunities – because of the pace of development. These are Apple’s future customers.
I got talking recently about this, and the role of the USA, to Bhaskar Chakravorti, senior associate dean of International Business & Finance at The Fletcher School at Tufts University. Bhaskar also runs the Institute for Business in the Global Context.
“America’s future actually depends on a global system capability in innovation,” says Bhaskar, “that is deep, long-term investment in solving problems on a systemic basis.”
There’s some sense in applying this obligation also to corporations. As Bhaskar points out 40% of global GDP comes from emerging markets, yet only 10% of US GDP comes from these areas. America is letting opportunity slip by.
Read the full Forbes piece
February 6, 2013
The Global Farmland Rush: Op-Ed by Michael Kugelman (F05)
Over the last decade, as populations have grown, capital has flowed across borders and crop yields have leveled off, food-importing nations and private investors have been securing land abroad to use for agriculture. Poor governments have embraced these deals, but their people are in danger of losing their patrimony, not to mention their sources of food.
According to Oxfam, land equivalent to eight times the size of Britain was sold or leased worldwide in the last 10 years. In northern Mozambique, a Brazilian-Japanese venture plans to farm more than 54,000 square miles — an area comparable to Pennsylvania and New Jersey combined — for food exports. In 2009, a Libyan firm leased 386 square miles of land from Mali without consulting local communities that had long used it. In the Philippines, the government is so enthusiastic to promote agribusiness that it lets foreigners register partnerships with local investors as domestic corporations.
The commoditization of global agriculture has aggravated the destabilizing effects of these large-scale land grabs. Investors typically promise to create local jobs and say that better farming technologies will produce higher crop yields and improve food security.
However, few of these benefits materialize. For example, as The Economist reported, a Swiss company promised local farmers 2,000 new jobs when it acquired a 50-year lease to grow biofuel crops on 154 square miles in Makeni, Sierra Leone; in the first three years, it produced only 50.
Read the full Op-Ed in The New York Times
January 22, 2013
Six Questions to 2025: Op-Ed by Dean Bhaskar Chakravorti
Tomorrow Is Now: Six Questions About the Road to 2025
Imagine you are back at the dawn of the century in January 2000, perhaps celebrating the non-event of the past year: the Y2K bug that fizzled.
Now consider some of the real game-changers from 1999: the first human chromosome successfully sequenced; a mobile device called the BlackBerry arriving on the scene; the dorm room innovation of the year, Napster, forever changing the music business.
Today, in the warm glow of hindsight, we have a very different view of how any of those events changed our world. Back in January 2000, the words "Al Qaeda," "iPhone," "Barack Obama," "Wikipedia," "Arab Spring," or "Twitter" would have drawn blank stares. All our tomorrows do, indeed, have a way of taking us by surprise. And as for the yesterdays? As Macbeth discovered, they have a nasty habit of having "lighted fools the way to dusty death."
Now we've crossed into 2013. That means we are now officially a dozen years into the century and it has proven to be a tumultuous period from the very first year on. As we head toward the global crossroads of 2025, it's time to imagine some scenarios for the next 12 years. The reasoning is simple -- if leaders do not have the courage to imagine the future, they won't play a part in shaping it. But if the future is so elusive, where do we start?
Read the full piece in the Huffington Post
January 14, 2013
Op-Ed: CEME Senior Fellow Paul Schulte (F88) on US Property Recovery
US Property recovery is key to global stability -- the FED and BIS are arranging this!
The US housing market is the most important marginal asset class globally. In the past 12 weeks, two important developments have occurred which have increased the value and the funding viability of the housing market. In another example of how policy is driving asset prices, the Federal Reserve and the Bank of International Settlements (BIS) have moved the goal posts and have given equity investors (yet again) a ‘get out of jail free’ card. These moves are very important and will have positive benefits for asset prices. This rally is NOT about avoiding the fiscal cliff. It is about policies implemented by regulators to maintain the recovery in US housing prices. They may just pull it off.
Read the full article
January 14, 2013
What is the True Cost of Cash? Dean Bhaskar Chakravorti Weighs In
Innovation Hub 1/12/13: The Future of Cash
Bhaskar Chakravorti: senior associate dean at the Tufts Fletcher School
David Wolman: author of The End of Money
James Lyne: director of technology strategy at Sophos
How much money do you have in your wallet right now? For more and more of us, the answer is none.
Cash, as it turns out, has some downsides: it can be easily counterfeited, often carries germs, and even transports traces of cocaine. Plus, there are a lot of purchases you simply can’t make with cash today, from downloading a song to buying a plane ticket — and the transition from paper dollars to plastic and apps isn’t likely to subside.
Tune in to the conversation on Innovation Hub
December 28, 2012
Op-Ed: CEME Senior Fellow Paul Schulte (F88) on Corruption in the Emerging World
Brazil shows great improvement, catapults over India and Russia, in corruption battle
The Corruption Perception Index (CPI) is a global monitor of corruption in more than 200 countries. It monitors the progress of countries in eradicating corruption, is widely followed and is compiled by Transparency International. A full accounting of this process is available onwww.transparency.org/cpi2012/results. The list highlights the cleanest 15 countries in the world as Scandinavia, Australasia, Singapore, Hong Kong, Switzerland, Chile and Canada. The list then highlights the most corrupt countries in the world as Somalia, North Korea, Afghanistan and Myanmar. The bottom line is that countries which are successful at eradicating corruption tend to get very wealthy while those that dilly dally on the corruption issue tend to stay poor. The eradication of corruption takes time – many generations. Older democracies have had much time to clean up messy corruption, while many new democracies are emerging from egregious colonial legacies such as slavery and backward legal systems which hobble progress.
December 21, 2012
Dean Chakravorti Weighs in on the 'Doing Business In Africa' Campaign
Many African countries complained during the recent U.S. Presidential election that President Obama had not paid enough attention to the continent. Among the gripes was that the United States focused too much on charitable efforts when Africa desires and demands investment and business opportunities. Other countries have taken early note of Africa´s up-and-coming economic status and have invested heavily in various African nations. China, Brazil and Japan have a growing presence in Africa, a presence that only appears to be getting bigger and bigger. Now the continent is craving a larger presence from America.
Obama seems to have heard the call. Now the Administration has announced the Doing Business in Africa campaign, "The campaign is to help American businesses identify opportunities for United States commercial and trade relationships in Africa. …
… Bhaskar Chakravorti, senior associate dean of International Business and Finance at the Fletcher School, Tufts University agrees, but adds the campaign is a long time coming. “Less than 3% of U.S. global trade volume is with Africa. So any initiative is welcome. The trade with Africa had peaked in 2008 and since then the Obama administration has not done much by way of a systematic outreach towards Africa until June. In June, they announced a new "strategy" towards Sub-Saharan Africa; the newly launched "Doing Business in Africa" program is a follow-up to that strategy,” explains Chakravorti. “The program will essentially help identify trade and commercial opportunities in Africa and facilitate trade promotion and financing through OPIC, the Ex-Im Bank and USTA. Much of the financing will focus on the clean energy sector. This is all a good start – but I would say that it is too little and a bit late.”
Read the full piece in The Network Journal
December 13, 2012
IBGC Speaker Series hosts Susan Avarde, Citi's Head of Global Branding
Looking Back to Brand Forward: Citi's "200 Years" Campaign
What do the Panama Canal, the first transatlantic cable, and the Marshall Plan have in common? They were all financed in part by Citi, the global financial company that is celebrating its 200th anniversary this year. A legacy of support for these and other historic innovations inspired the company’s latest worldwide branding campaign, explained Susan Avarde, Citi Head of Global Branding, during a visit to The Fletcher School in late November.
Building a strong brand, Avarde said, is difficult in a “transparent world with multiple audiences,” in which consumers “may already carry in their minds a sense of who you are and what you stand for.” To succeed in the marketplace, she said, brands must be new and true, i.e. offer a new interpretation of who you are but remain authentic to your purpose.
Avarde joined Citibank in 1998 and currently oversees the company’s global brand strategy and implementation. An industry veteran, she has created award-winning campaigns for a range of clients including Vogue, BP, Air France, and AT&T. Her talk, titled “Why Brand Matters: The New and the True,” was hosted by the Institute for Business in the Global Context (IBGC). Avarde’s presentation covered current trends in international branding as well as Citi’s efforts to refine its brand over the past decade.
Read the full article in Fletcher Features
December 13, 2012
CEME Senior Fellow Paul Schulte (F88) responds to Foreign Affairs Article "How the BRICS are Crumbling"
The November/December 2012 edition of Foreign Affairs Magazine had an article called “How the BRICS Are Crumbling”. The tone of the article – by a fund manager from Morgan Stanley – seems off the mark. The BRICS are slowing because they are trying to SLOW DOWN credit growth due to their dollar link. They are trying to slow down credit growth while the West desperately uses zero interest rates to SPEED UP credit growth. So, the West and the BRICs are operating at cross purposes. The BRICs countries have dollar-linked currencies, so when interest rates are zero in the West and high in BRICs countries, they will be bombarded with capital seeking a higher return. This causes the currency to appreciate, jeopardizing growth. Or the BRICs countries must intervene domestically to force banks to slow down credit as these banks are filled with cash. Either way, they are encountering forces which cause the currency to rise and credit growth to accelerate. This is a classic cocktail for a real estate bubble and accelerating inflation. Brazil and China are experiencing the same phenomenon now. Both are essentially trying to slow down their respective economies, although China has been more successful.
December 7, 2012
"How to Think Globally": Q&A with Dean Bhaskar Chakravorti
CEOs are naturally students of the big picture. Bhaskar Chakravorti, senior associate dean at the Fletcher School at Tufts University and executive director of Tufts's Institute for Business in the Global Context, wants them to think even bigger. As more businesses become global in scope, leaders must become experts in geopolitics as well as economics and must be conversant in topics as diverse as the domestic agendas of foreign markets and the ways those countries use natural resources and resolve regional disputes. Chakravorti spoke to Inc. about the imperative to follow world events. --as told to Leigh Buchanan
In what sense is the worldview of U.S. business leaders too narrow?
Business leaders traditionally focus on market forces, such as customers, competitors, and suppliers. But potential crises--and potential opportunities--often can be found when imbalances or gaps occur in nonmarket forces. By that I mean the forces that surround the market. So business leaders also should pay attention to developments in countries' political, legal, and regulatory systems. Also to things that might affect those countries' business ecosystems, by which I mean supply chains, basic infrastructure, their capital markets, their natural resources, and the productivity and quality of their human capital.
Read the full Inc. Q&A
December 5, 2012
Is it Africa's Turn? Experts Analyze the Prospects for Investment, Development
Will the continent, long synonymous with hunger, disease, war and corruption, now find its economic and political footing and ways to resolve so many of its problems?
That was the question posed by panelists and participants in a two-day conference held on October 25 and 26 at The Fletcher School of Law and Diplomacy at Tufts University. Organized by Fletcher’s Institute for Business in the Global Context (IBGC), the conference, titled “Africa's Turn? The Promise and Reality of the Global Economy's ‘Final Frontier,’” featured discussions and presentations from business leaders, development experts, entrepreneurs and government representatives who are helping to shape business and investment, policy, development and international relations in Africa.
In the last decade alone, Africa has seen remarkable growth and reform across many parts, according to Mimi Alemayehou (F98), executive vice president of the U.S. Overseas Private Investment Corporation, who moderated the panel discussion “Private Sector as a Catalyst for Development.” The panel included bureau administrators, CEOs, private sector officials and representatives from the World Bank.
Seven of the 10 fastest growing economies in the world are currently in Africa, Alemayehou said. What’s going on now is the realization that it won’t be just private companies alone, or just multinational lending giants, or just government development agencies that will fuel this quickening change.
Read the full article in Fletcher Features
November 29, 2012
IBGC 'Africa's Turn?' Conference at Fletcher Featured in GlobalPost
| Kelvin Ma/Tufts University
China vs. US: Who’s better for Africa?
Not long ago, officials and entrepreneurs from Africa seeking access to large quantities of foreign capital had little choice other than to deal with Western financiers.
That’s no longer the case — especially now that China is the world’s second biggest economy.
Beijing, for example, recently pledged to invest $20 billion in Africa’s infrastructure and agriculture over the next three years.
That’s creating some unease among economists and politicians who believe the investments may be more about securing rights to infrastructure and resources than building Africa’s industrial capacity.
Hillary Clinton referenced such doubts in a 2011 visit to Zambia when she told Africans to be wary of the potential for “new colonialism” in the recent slew of foreign investments.
“We saw that during colonial times it is easy to come in, take out natural resources, pay off leaders and leave," she said, adding that “I would argue that there are more lessons to learn from the US and from democracies,” than China on investment matters.
Chinese officials have been quick to refute such claims, citing a list of Chinese-funded agricultural development centers, schools, hospitals, and factories that have brought jobs and education to Africans.
Still, a long history of resource exploitation, when corrupt leaders take lucrative offers from big companies that rarely benefit ordinary Africans, is fresh in their minds.
“If you want to negotiate land investment, at the very least you can set guidelines for [the investor’s] conduct. The first instinct of a foreign investor is to help itself,” said Kingsley Moghalu, deputy governor of the Central Bank of Nigeria, during a conference at the Tufts Fletcher School of Law and Diplomacy last month. “You must construct a win-win deal by saying ‘half of what you produce must be sold here’ or ‘half of what you produce must be processed here.’”
Whether or not China’s recent investments are truly helping Africa, many Africans see China as a critical benefactor whose positive influence is quickly eclipsing America’s.
A 2007 Pew Poll found that Africans in most nations tend to overwhelmingly view China as a more helpful foreign investor than the United States. About 86 percent of people polled in Senegal held a positive of view of China’s economic influence, compared to 56 percent who favored America’s role.
Different investment practices, in addition to the considerable disparities between their levels of financial commitment, play a huge role in determining Africans views.
“The Chinese don’t express their values as part of the business transaction. As far as I’ve seen, Africans love that. Americans come in with a bag of money and a bag of attitudes about governance, human rights and any number of things. This hardly helps with their reception,” said Michael Fairbanks, a philanthropist and advisor to Rwandan President Paul Kagame on private sector development, who also attended the Tufts conference.
The growth of Chinese interest in Africa has also given leaders in the region a choice they didn’t have before, when American and other Western investors were the dominant players.
“African leaders like China — not out of a cultural affinity, but because they provide a choice that gives them leverage with the West, which drives the West crazy,” added Fairbanks.
Some experts agree that, if well managed, this leverage could help African leaders steer their countries towards economic autonomy and prosperity by making sure foreign investments do more than ferry African resources and profits overseas.
But while optimists see Africa’s growing middle class and consumer market as proof of its growing economic potential, others say it is no replacement for a strong production capacity, making Africa’s status as a major economic player a long way off.
Read the full GlobalPost piece
November 28, 2012
What We Get Wrong About China: Op-Ed by Dean Chakravorti
Editor’s note: Bhaskar Chakravorti is senior associate dean of International Business and Finance and founding executive director of the Institute for Business in the Global Context at The Fletcher School at Tufts University.The views expressed are the author's own.
We now know who will be leading the two most important nations for the global economy – for the next four years in the United States’ case, and for a decade in China’s. By the time President Obama is ready to leave office, China will have passed the U.S. in GDP terms, at least according to a report by the OECD. But with GDP no longer Chinese leaders’ top concern, the country has its sights set on catching up with the U.S. in another area – innovation.
On a recent to visit to speak at the World Economic Forum's Summer Davos in Tianjin, I was struck by the sense of urgency among Chinese leaders to close the gap when it comes to innovation. It was clear to me that it is time for the U.S. to pay close attention, because urgency in China is generally followed by execution.
Read the full op-ed in CNN Global Public Square
November 26, 2012
Rethinking Dollars and Cents: Dean Chakravorti on the Cost of Cash
How much money do you have in your wallet right now? For more and more of us, the answer is none.
As people around the world turn to electronic forms of payment, Kara Miller looks at the future of cash on Boston Public Radio.
Cash, as it turns out, has some downsides: it can be easily counterfeited, often carries germs, and even transports traces of cocaine. And then there may be the biggest question of all: Does cash cost you money? Are the funds that we use to print up bills and mint coins excessive? And are we entering a new era of currency?
- Bhaskar Chakravorti: senior associate dean at the Tufts Fletcher School, which conducted a Cost of Cash study
- David Wolman: author of The End of Money
- James Lyne: director of technology strategy at Sophos
Tune in to the conversation on Boston Public Radio
November 19, 2012
Dean Chakravorti on Fletcher's MALD/MBA Program with Partner Institutions
Breaking down the boundaries of business and law
This month, 22 of Austria’s high-flying judges and public prosecutors temporarily put aside their caps and gowns and went back to [B-school] to uncover the best way to fight white-collar crime....
...The alliances between different institutions, which have been common practice in business education for decades, are now increasingly common between business schools and law schools, says Bhaskar Chakravorti, senior associate dean for international business and finance at the Fletcher School of Law and Diplomacy at Tufts University close to Boston.
“No single professional school feels it has the breadth, the depth and the range of disciplines as well as the range of geographies,” he says. The move towards international relationships and the potential rebalancing of economic power between countries in the northern and southern hemispheres needs to be addressed, he says. “It’s about the challenges of dealing with different societies, with domestic and international legal systems.”
The Fletcher school already teaches its flagship masters in law and diplomacy as a joint MALD/MBA programme with four business schools: Ceibs in China, HEC Paris in France, IE in Spain and Dartmouth College’s Tuck School of Business in the US. He refers to students on these programmes as “360-degree people."
Read the full report in The Financial Times (subscription required)
November 19, 2012
Developing "Contextual Intelligence" Through Executive Education at Fletcher
Business schools have long offered executive education programs for corporations. Along with a welcome stream of revenue, these courses have also brought a sense of real-world dynamism to campuses, as they encourage working professionals to re-enter the classroom.
In the last decade, graduate schools in other arenas — like international relations, public affairs, law and even journalism — have also begun developing executive education courses, particularly in niche areas that are not covered by traditional business schools.
The London School of Economics and Political Science; the Graduate Institute, Geneva; the Kennedy School of Government at Harvard; the Fletcher School at Tufts University; and the Lee Kwan Yew School of Public Policy at the National University of Singapore all have courses for working professionals and managers. …
…Bhaskar Chakravorti, senior associate dean at the Fletcher School, said that its executive classes were interdisciplinary.
“Here at the Institute for Business in the Global Context at Fletcher, we are creating cross-linkages between business and the broader contextual factors that affect business and vice versa,” he said, adding that subjects could include “geography, history, cross-border issues, security questions, diplomacy and cultural issues.”
Read the full International Herald Tribune piece
November 16, 2012
We're Reaching the Limits of Many Non-renewable Factors: Professor Chakravorti
While the global economy remains in a deep funk, Dr. Bhaskar Chakravorti says the world is going through one of the largest periods of economic growth in history. He credits that to India and China each doubling their gross domestic products in the past 15 years, something that took the United Kingdom 150 years to do after the industrial revolution.
But that growth comes at a price, Chakravorti told the more than 50 students, professors and business people in a 90-minute lecture sponsored by Kennesaw State University’s India China America Institute on Thursday.
“We are reaching the limits of many non-renewable factors,” said Chakravorti, who heads the International Business Center at the Fletcher School at Tufts University near Boston. “Whether its natural resources, minerals, land, water — we’re running short of water, particularly India and China. And certainly clean air, and there doesn’t seem to be any way out of where we are. So what is happening is a lot of problems is being shifted away from the corporate centers of the community to the bottom of the pyramid.”
Read the full piece in The Marietta Daily Journal
November 9, 2012
Report by Gaurav Tiwari, F'12, Provided to Students Debating the Importance of Property Rights for Economic Growth at Inaugural George W. Bush Institute Economic Debate Weekend
International Property Rights Index
Over the last twelve months, the world has seen the most dramatic turn of events in the political, economic and social life of the common man in the Middle East. It is a story of enterprise – one that is lost in regulatory red-tapism and overshadowed by government control and corruption. One can trace the beginning of such events to December 17, 2010, when Mohamed Bouazizi, a street vendor in Tunisia, immolated himself. Bouazizi’s attempted suicide (he later died in early 2011) is indicative of the repression that millions of entrepreneurs face in shadow economies across the world. Largely illegal, the shadow economy operates outside the purview of the legal system. Corruption and lack of property rights make it harder for entrepreneurs like Bouazizi to move into the formalized economic framework. To that end, recent events reflect the rebirth of Hernando de Soto’s pioneering work and original ideas that stress the need for legal empowerment of the poor to achieve economic success.
Read the full report on the Gateway House website (published by Americans for Tax Reform Foundation/Property Rights Alliance)
Do B-Schools Need a Physical Presence in Washington? Prof. Bhaskar Chakravorti Weighs In
As many leading US business schools look to engage more actively with public policy issues, how important is it for them to have a physical presence in Washington?
For John Mayo, executive director of the Georgetown Center for Business and Public Policy, there is no doubt. “Physical proximity to policy makers, as we have, is essential for a successful continuity of dialogue,” he says. …
…This conclusion is not, however, held unanimously. Bhaskar Chakravorti, executive director of the Institute for Business in the Global Context at Tufts University’s Fletcher School of Law and Diplomacy, says that a Boston location has inhibited the influence of neither the Fletcher school nor its Harvard neighbour. “Since its establishment, the Fletcher School has had an enormous amount of influence within the corridors of power.”
Read the full Financial Times piece (subscription required)
B-Schools Need Greater Interdisciplinary Engagement: Professor Bhaskar Chakravorti
Schools Widen Their Political Horizons
Looking east from the tower of Healy Hall, the hilltop landmark of Georgetown University, the white dome of the US Capitol building dominates the Washington landscape. Now the home of federal legislature is attracting attention from a different quarter.
Leading US business schools are recognising how the financial crisis has prompted government to play a more active role in the economy and in response are re-evaluating their approach to public policy and its impact upon business. ...
…The reason for this is that business schools are not equipped to engage successfully with matters beyond their field, says Bhaskar Chakravorti, executive director of the Institute for Business in the Global Context at Tufts University’s Fletcher School of Law and Diplomacy. “Business schools have very little intellectual foundation to tackle questions of political context,” he says.
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November 1, 2012
'QE3 only works as a prelude to structural change': CEME's Arthur Sculley
The U.S. government must structurally rework its domestic market as the Fed’s third round of quantitative easing (QE3) was a necessary and successful, but only stop-gap, measure to stimulate the economy, according to Arthur Sculley, a senior fellow at the Center for Emerging Market Enterprises at the Fletcher School. The institute, which is affiliated with Tufts University, was established in 2007 as the first professional graduate school of international relations in the U.S.
“[Such measures] ease the pain, but they don’t solve the problem,” Sculley said in a recent interview with the Korea JoongAng Daily. “They’re necessary, but by far the more important issue is structural change, which has been needed in the U.S., and in Europe in particular.”
Sculley was visiting the Korean campus of the State University of New York in Songdo, Incheon, to give a lecture.
Read the full interview in JoongAng Daily
November 1, 2012
Dean Bhaskar Chakravorti on How U.S. Can Lead Business Innovation
How the U.S. Can Lead Business Innovation
As the election winds to a close it feels like there aren't many areas of agreement between Pres. Obama and Gov. Romney, between their respective Democratic and Republican parties.
But we've found one: both want to see innovation and the growth of new businesses.
Today we get behind the platitudes to ask — no matter who wins on Tuesday — how do you foster innovation? How do you ensure the U.S. is a rising power at the forefront of cutting edge technology, not lagging behind?
- Rosabeth Moss Kantor, professor at Harvard Business School, and author of Supercorp: How Vanguard Companies Create Innovation, Profits, Growth and Social Good.
- Bhaskar Chakravorti, Senior Associate Dean, Tufts Fletcher School.
Listen to the full WGBH discussion
October 26, 2012
Dean Bhaskar Chakravorti Dispels Some Myths on China and Innovation
On a recent to visit to China to speak at the World Economic Forum's Summer Davos in Tianjin, I was struck by a palpable sense of urgency. Catching up with US GDP was no longer the only burning issue; China, it was said, needs to close the gap with the US on innovation. I agree, but some myths about innovation in China need to be dispelled. I have heard five mentioned most frequently.
1. There is no innovation, only piracy and imitation.
2. The Chinese approach to innovation is too top-down and State-led, and real innovation only comes from the bottom-up from entrepreneurs.
3. Protection of intellectual property rights is weak, discouraging innovation.
4. China's Asian education model emphasizes rote learning, with a narrow emphasis on science, technology, engineering and mathematics; innovation can only flourish in environments that encourage exploration, critical thinking and a broad education in the liberal arts tradition.
5. In a globalized economy, sustaining innovation requires investments in international markets; China's brand and soft power abroad is weak and dated.
Each of these beliefs, mostly held by China skeptics, is a statement about China's innovative spirit compared with that of the US, the world's benchmark. Of course, the reality is more nuanced.
Read the full China Daily op-ed
October 25, 2012
Crowded Spaces Do Create Entrepreneurs, says Dean Chakravorti
Born on the Lower East Side
Oh, to live in a teeming tenement!
That’s not a sentiment you hear a lot these days. In fact, it’s doubtful that the great wave of Jews immigrating to New York at the turn of the last century would have uttered it, either. But to the tenements they came, and New York has never been the same. This may be why the city’s current mayor, Michael Bloomberg, wants developers to do it again: Teem away!
In June he announced a contest to plan a building crammed with 80 apartments of 275 to 300 square feet each. Thirty-three developers submitted plans by the deadline in late September and the winning concept will be built in the Kips Bay neighborhood on Manhattan’s East Side. …
… If [the Lower East Side] was both outrageously crowded and, ultimately, outrageously successful as an incubator for great artistic, social and entrepreneurial success, could that mean that extreme cramming actually makes people more productive? If so, wouldn’t that mean slums are great for cities?
It would. And in a way, said Bhaskar Chakravorti, who teaches international business and finance at The Fletcher School at Tufts University, they are. Chakravorti’s specialty is innovation in an international context, and as such he studies slums.
He’s not a romantic about them. He’s an economist; he sees slums burgeoning as people from the countryside flock to the mega-cities of the world. But he sees a big difference between the slums filled with striving newcomers and the older slums, where poverty seems entrenched and intractable. “When we think of a poor neighborhood in L.A. or Chicago, we tend to think of them as inherently decrepit and no signs of hope,” Chakravorti said. But that’s not true of slums that simply provide cheap, convenient housing for the folks flooding in.
Read the full Forward report
October 24, 2012
Are State-backed Business Partners Better? Dean Chakravorti Weighs in
This week, the board of BP agreed to sell its stake in TNK-BP in favour of an alliance with the state-backed Rosneft. When working in uncertain emerging markets, such as Russia, is it better to be partners with the private sector or the state?
The academic: Bhaskar Chakravorti
First, ask four questions: is the state dominant in the economy? Is the industry mainly reliant on natural resources and scale (rather than on a detailed understanding of market needs or on adaptability)? Are capital markets and essential related factors (such as infrastructure, regulation, licence regimes) unreliable? Can you unlock value by bringing efficiencies to inefficient-but-protected industries?
Read the full Financial Times piece
Find here the transcript of a conversation that Prof. Chakravorti had with Dean Peter Uvin on what development organizations can learn from private corporations.
October 11, 2012
Expect Modest Progress from IMF, World Bank Meetings: Dean Bhaskar Chakravorti
Global Financial Leaders Ponder Jobs, Growth and Politics
The International Monetary Fund is warning that global economic growth is slowing at the same time the World Bank says hundreds of millions of new jobs are needed around the world. Top financial and political leaders are gathering in Tokyo to discuss these and other major economic issues.
Many Europeans have been angered by government efforts to slash pensions and salaries, while raising taxes in an effort to balance battered budgets.
Public anger is one of many things limiting what leaders can do to solve economic problems in Europe and elsewhere.
As leaders head for the International Monetary Fund and World Bank meetings, many economists say Europe’s problems are the biggest threat to the global economy. …
… Tufts University [The Fletcher School] Professor Bhaskar Chakravorti expects only modest progress from the IMF and World Bank gatherings in Tokyo. He spoke on Skype.
"I think it moves the ball along a few tiny inches [centimeters] on a field that is probably several miles [kilometers] long," said Chakravorti.
At a time when the globe faces slowing growth, debt problems in Europe, political stalemates in the United States, and other problems, modest progress may be the best that can be achieved.
Read the full Voice of America report
September 26, 2012
Dean Stephen Bosworth on the Repercussions of China-Japan Tensions
Global Business Fears 'Economic Dislocation' if China-Japan Rift Deepens
Global business leaders are voicing increasing concern over heightened political tensions between China and Japan, sparked by a maritime dispute in the East China Sea. They fear an escalation may have a spill-over effect on their regional operations and damage trade ties between the world's second and third-largest economies.
"Everyone is taking their cue from last year's earthquake and tsunami in Japan...no one expected what the damage would be," said Stephen Bosworth, dean of The Fletcher School of Law and Diplomacy at Tufts University, and former U.S. Ambassador to South Korea between 1997 and 2001. "All these things have consequences. This is probably the most tightly integrated region in the world in terms of trade and investment."
Read the full CNBC piece or view the CNBC clip