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Hundt Reed

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    Hundt Reed Hundt Reed Presentation Transcript

    • The Coming Global Triumph of Communications and the Threat to American Standards of Living VON.x Conference and Expo- Industry Perspective Panel March 18- 2008 Reed Hundt
    •  
    • U.S. HOUSEHOLD WEALTH DECLINES $ Billions Source: Financial Times.com, March 6, 2007 3Q 07 57,718 4Q 07 -1% 58,251 57,718
    • China – The world’s manufacturer
        • Largest exporter of apparel
        • In 2006 China will manufacture 400 million mobile handsets (more than 60% increase from 2005)
        • China is the Number 1 producer of pork
        • Global center of consumer electronics and telecom equipment
        • China is producing three times as much as it did 10 years ago; losing manufac-turing jobs as it increases manufacturing productivity
    • China the technology innovator Source: Morgan Stanley Research
        • Mobile Internet (China Mobile, Tom Online, Super Girl)
        • Online gaming (Netease)
        • Comprehensive messaging (Tencent)
        • Clicks plus bricks (Ctrip)
        • Bridging old media and new media (Hunan Satellite TV)
        • 3G (TD-SCDMA) (Datang, ZTE, TD Tech, Putian)
        • IPTV (UTStarcom, ZTE)
        • PC monitor manufacturing (TPV)
    • China the information society Source: CNNIC; World Bank; Morgan Stanley Research
        • No. 1 in mobile users
        • No. 1 in Internet users under the age of 30 (70% of Chinese Internet users under the age of 30)
        • Urban areas have 5x more Internet users than rural areas
        • 60% of them are the only children of family
        • 30% of Chinese Internet users have college degrees
    • China the consumer market Source: CNNIC; Morgan Stanley Research
        • Internet users
        • Broadband users
        • Mobile users
        • Mobile services
        • Online gaming
        • Online brand advertising
      111m 64.3 m 393 m $963 m $570 m $281 m Size 18 50 17 24 46 28 Annual growth Percent
    • But China doesn’t compete with USA and Chinese don’t directly compete with Americans
        • Firms compete against firms
        • Firm success determines employee success
        • Investors can invest in winning firms
        • Employees can work only in firms that hire in their country
        • Americans will earn more only if their employers pay them more And only winning firms pay more
        • Will obtain economies of scale in China
        • Compete vigorously in Chinese growth markets to become strong
        • And challenge American firms for global leadership
        • China is more important as a source of firm rivalry than worker competition
      Chinese firms . . .
    • Advantages for Chinese firms
      • High skills
      • Low wages
      • Favorable currency for export
      • Access to savings
      • Huge foreign investment
      • Vigorous local competition
      • Ineffective regulation
      • Few barriers to starting firms
      • Wide open markets
      • No litigation
      • Little taxation
      • Culture of entrepreneurship
    • Advantages for American firms
        • Easy access to rich American consumers
        • Easy access to cheap capital
        • Reliable infrastructure
        • Reliable rule of law
        • Most productive employees in world (most capital employee)
        • Most entrepreneurial culture in world, other than China
    • Disadvantages for American firms
        • High labor costs (especially benefits)
        • High energy costs
        • Mature domestic market (tired marketers?)
        • Vs fast growing foreign markets
        • Increasing barriers to entry in existing markets
        • Need to be overseas to compete there
      • Result: American firms seek growth overseas
    • If firms don’t invest in America, they may invest in job creation in other countries Source: New York Times “ In the United States, nonresidential fixed investment as a percentage of GDP fell to 11.56% in 2005 from 12.55% in 2000” 27 Text Text Text
        • For 50 years, Americans have made 20% of the world’s goods
        • While numbering only 5% of the world’s workforce
    • As a result, as the world economy grew
        • Americans created and captured more wealth
        • Employees make more money only if their firms win in domestic and global competition
        • You can’t earn a rising income at a falling firm
    • China United States 1990 international dollars Source: Maddison (2001) American per capita GDP has soared for nearly 200 years
    • Qianlong Emperor, 1793 "We have never valued ingenious articles, nor do we have the slightest need of your country's manufactures."
    • There are three keys to success
      • Invest more behind the 5%
      • Win in foreign markets to increase the 20%
      • Create new markets at home and abroad to increase the 20%
    • Americans should want
      • Investment in firms creating new markets (Google)
      • Investment in firms entering old markets (SpectrumCo)
      • Investment by existing firms fending off rivals (Telcos in fiber)
      • Winning American firms attacking foreign markets
      • These are the ways money produces high wage jobs for Americans
      • Open markets, new markets, new technology
      • Antitrust, finance, research, and development
      • A new economic strategy for the nation: don’t pick winning firms, do open new markets
      • Hope for big winners in new markets and old markets
      The right response to China is more firm creation in America: here’s how
    • Source: U.S. Census Bureau Employment size Employment Employer firms covered in Statistics of U.S. Business 2,500 employees or more Firms 5,657,774 3,634 115,061,184 43,877,243 Employers (firms with payroll) – 5,541,918
    • The big winners have to come from creative destruction . . .
        • Invested capital has to be replaced rapidly
        • New investments must be made in old and new markets
        • Incumbents have to fall to rivals
        • New firms have to win big
        • Only to face new rivals themselves
        • All markets have to be easy to enter and hard to hold forever
    • Source: Peter Drucker “ Innovation in Schumpeter’s famous phrase is also ‘creative destruction’ . It makes obsolete yesterday’s capital equipment and capital investment.”
    • A big American advantage
      • Of 6 million firms, 10% die and 10% are born every year
    • In the 90s, births > deaths by 1-2% . . .
    • . . . and not surprisingly
      • Before the Golden 90s and the Distraught 00s,
      • the death rate exceeded the birth rate
    • The hotbed of firm creation has been the Internet markets . . . which show:
        • An open architecture of law
        • An open technology of networking
        • Entrepreneurial leaders from outside the system
    • A Different way
      • Encourage high risk, high reward (make the equity premium the byword of policy)
      • Redistribute opportunity not wealth
      • Open markets to rivals but don’t pick winners
      • Make competition hard and investment easy
      • Focus on Micro as well as Macro
      • Respond to China at home more than in Beijing
      • The best defense is a good offense
    • Not just firms but individuals have to be more entrepreneurial
        • About 40% of American households do not have enough savings to survive at the poverty level for more than 3 months if they lose their work
        • Half of Californians cannot afford post high school education
        • For half the nation, risks outweigh rewards
    • Source: The New York Times Goal: achieve the employer-to-employer mobility rates and income levels of Silicon Valley: both about 40% higher than the U.S. average
    • The American Dream
      • Democracy and entrepreneurship
      • Individual freedom and collective progress
      • China’s growth suggests that the whole world can live the American Dream