The Coming Global Triumph of Communications and the Threat to American Standards of Living   VON.x Conference and Expo- In...
 
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 <ul><ul><li>Largest exporter of apparel </li></ul></ul><ul><ul><li>In 2006 China will man...
China the technology innovator Source:  Morgan Stanley Research <ul><ul><li>Mobile Internet (China Mobile, Tom Online,  Su...
China the information society Source:  CNNIC; World Bank; Morgan Stanley Research <ul><ul><li>No. 1 in mobile users </li><...
China the consumer market Source:  CNNIC; Morgan Stanley Research <ul><ul><li>Internet users </li></ul></ul><ul><ul><li>Br...
But China doesn’t compete with USA and Chinese don’t directly compete with Americans <ul><ul><li>Firms compete against fir...
<ul><ul><li>Will obtain economies of scale in China </li></ul></ul><ul><ul><li>Compete vigorously in Chinese growth market...
Advantages for Chinese firms <ul><li>High skills </li></ul><ul><li>Low wages </li></ul><ul><li>Favorable currency for expo...
Advantages for American firms <ul><ul><li>Easy access to rich American consumers </li></ul></ul><ul><ul><li>Easy access to...
Disadvantages for American firms <ul><ul><li>High labor costs (especially benefits) </li></ul></ul><ul><ul><li>High energy...
If firms don’t invest in America, they may invest in job creation in other countries Source:  New York Times “ In the Unit...
<ul><ul><li>For 50 years, Americans have made 20% of the world’s goods </li></ul></ul><ul><ul><li>While numbering only 5% ...
As a result, as the world economy grew <ul><ul><li>Americans created and captured more wealth </li></ul></ul><ul><ul><li>E...
China United States 1990 international dollars Source: Maddison (2001) American per capita GDP has soared for nearly 200 y...
Qianlong Emperor, 1793 &quot;We have never valued ingenious articles, nor do we have the slightest need of your country's ...
There are three keys to success <ul><li>Invest more behind the 5% </li></ul><ul><li>Win in foreign markets to increase the...
Americans should want <ul><li>Investment in firms creating new markets (Google) </li></ul><ul><li>Investment in firms ente...
<ul><li>Open markets, new markets, new technology </li></ul><ul><li>Antitrust, finance, research,  and development </li></...
Source:  U.S. Census Bureau Employment size Employment Employer firms covered in Statistics of U.S. Business 2,500 employe...
The big winners have to come from creative destruction . . . <ul><ul><li>Invested capital has to be replaced rapidly </li>...
Source:  Peter Drucker “ Innovation in Schumpeter’s famous phrase is also  ‘creative destruction’ .  It makes obsolete yes...
A big American advantage <ul><li>Of 6 million firms, 10% die and 10% are born every year </li></ul>
In the 90s, births > deaths by 1-2% . . .
. . . and not surprisingly <ul><li>Before the Golden 90s and the Distraught 00s, </li></ul><ul><li>the death rate exceeded...
The hotbed of firm creation has  been the Internet markets . . . which show: <ul><ul><li>An open architecture of law </li>...
A Different way <ul><li>Encourage high risk, high reward (make the equity premium the byword of policy) </li></ul><ul><li>...
Not just firms but individuals have to be more entrepreneurial <ul><ul><li>About 40% of American households do not have en...
Source: The New York Times Goal:  achieve the employer-to-employer mobility rates and income levels of Silicon Valley: bot...
The American Dream <ul><li>Democracy and entrepreneurship </li></ul><ul><li>Individual freedom and collective progress </l...
<ul><li>China’s growth suggests that the whole world can live the American Dream </li></ul>
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Hundt Reed

  1. 1. 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
  2. 3. U.S. HOUSEHOLD WEALTH DECLINES $ Billions Source: Financial Times.com, March 6, 2007 3Q 07 57,718 4Q 07 -1% 58,251 57,718
  3. 4. China – The world’s manufacturer <ul><ul><li>Largest exporter of apparel </li></ul></ul><ul><ul><li>In 2006 China will manufacture 400 million mobile handsets (more than 60% increase from 2005) </li></ul></ul><ul><ul><li>China is the Number 1 producer of pork </li></ul></ul><ul><ul><li>Global center of consumer electronics and telecom equipment </li></ul></ul><ul><ul><li>China is producing three times as much as it did 10 years ago; losing manufac-turing jobs as it increases manufacturing productivity </li></ul></ul>
  4. 5. China the technology innovator Source: Morgan Stanley Research <ul><ul><li>Mobile Internet (China Mobile, Tom Online, Super Girl) </li></ul></ul><ul><ul><li>Online gaming (Netease) </li></ul></ul><ul><ul><li>Comprehensive messaging (Tencent) </li></ul></ul><ul><ul><li>Clicks plus bricks (Ctrip) </li></ul></ul><ul><ul><li>Bridging old media and new media (Hunan Satellite TV) </li></ul></ul><ul><ul><li>3G (TD-SCDMA) (Datang, ZTE, TD Tech, Putian) </li></ul></ul><ul><ul><li>IPTV (UTStarcom, ZTE) </li></ul></ul><ul><ul><li>PC monitor manufacturing (TPV) </li></ul></ul>
  5. 6. China the information society Source: CNNIC; World Bank; Morgan Stanley Research <ul><ul><li>No. 1 in mobile users </li></ul></ul><ul><ul><li>No. 1 in Internet users under the age of 30 (70% of Chinese Internet users under the age of 30) </li></ul></ul><ul><ul><li>Urban areas have 5x more Internet users than rural areas </li></ul></ul><ul><ul><li>60% of them are the only children of family </li></ul></ul><ul><ul><li>30% of Chinese Internet users have college degrees </li></ul></ul>
  6. 7. China the consumer market Source: CNNIC; Morgan Stanley Research <ul><ul><li>Internet users </li></ul></ul><ul><ul><li>Broadband users </li></ul></ul><ul><ul><li>Mobile users </li></ul></ul><ul><ul><li>Mobile services </li></ul></ul><ul><ul><li>Online gaming </li></ul></ul><ul><ul><li>Online brand advertising </li></ul></ul>111m 64.3 m 393 m $963 m $570 m $281 m Size 18 50 17 24 46 28 Annual growth Percent
  7. 8. But China doesn’t compete with USA and Chinese don’t directly compete with Americans <ul><ul><li>Firms compete against firms </li></ul></ul><ul><ul><li>Firm success determines employee success </li></ul></ul><ul><ul><li>Investors can invest in winning firms </li></ul></ul><ul><ul><li>Employees can work only in firms that hire in their country </li></ul></ul><ul><ul><li>Americans will earn more only if their employers pay them more And only winning firms pay more </li></ul></ul>
  8. 9. <ul><ul><li>Will obtain economies of scale in China </li></ul></ul><ul><ul><li>Compete vigorously in Chinese growth markets to become strong </li></ul></ul><ul><ul><li>And challenge American firms for global leadership </li></ul></ul><ul><ul><li>China is more important as a source of firm rivalry than worker competition </li></ul></ul>Chinese firms . . .
  9. 10. Advantages for Chinese firms <ul><li>High skills </li></ul><ul><li>Low wages </li></ul><ul><li>Favorable currency for export </li></ul><ul><li>Access to savings </li></ul><ul><li>Huge foreign investment </li></ul><ul><li>Vigorous local competition </li></ul><ul><li>Ineffective regulation </li></ul><ul><li>Few barriers to starting firms </li></ul><ul><li>Wide open markets </li></ul><ul><li>No litigation </li></ul><ul><li>Little taxation </li></ul><ul><li>Culture of entrepreneurship </li></ul>
  10. 11. Advantages for American firms <ul><ul><li>Easy access to rich American consumers </li></ul></ul><ul><ul><li>Easy access to cheap capital </li></ul></ul><ul><ul><li>Reliable infrastructure </li></ul></ul><ul><ul><li>Reliable rule of law </li></ul></ul><ul><ul><li>Most productive employees in world (most capital employee) </li></ul></ul><ul><ul><li>Most entrepreneurial culture in world, other than China </li></ul></ul>
  11. 12. Disadvantages for American firms <ul><ul><li>High labor costs (especially benefits) </li></ul></ul><ul><ul><li>High energy costs </li></ul></ul><ul><ul><li>Mature domestic market (tired marketers?) </li></ul></ul><ul><ul><li>Vs fast growing foreign markets </li></ul></ul><ul><ul><li>Increasing barriers to entry in existing markets </li></ul></ul><ul><ul><li>Need to be overseas to compete there </li></ul></ul><ul><li>Result: American firms seek growth overseas </li></ul>
  12. 13. 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
  13. 14. <ul><ul><li>For 50 years, Americans have made 20% of the world’s goods </li></ul></ul><ul><ul><li>While numbering only 5% of the world’s workforce </li></ul></ul>
  14. 15. As a result, as the world economy grew <ul><ul><li>Americans created and captured more wealth </li></ul></ul><ul><ul><li>Employees make more money only if their firms win in domestic and global competition </li></ul></ul><ul><ul><li>You can’t earn a rising income at a falling firm </li></ul></ul>
  15. 16. China United States 1990 international dollars Source: Maddison (2001) American per capita GDP has soared for nearly 200 years
  16. 17. Qianlong Emperor, 1793 &quot;We have never valued ingenious articles, nor do we have the slightest need of your country's manufactures.&quot;
  17. 18. There are three keys to success <ul><li>Invest more behind the 5% </li></ul><ul><li>Win in foreign markets to increase the 20% </li></ul><ul><li>Create new markets at home and abroad to increase the 20% </li></ul>
  18. 19. Americans should want <ul><li>Investment in firms creating new markets (Google) </li></ul><ul><li>Investment in firms entering old markets (SpectrumCo) </li></ul><ul><li>Investment by existing firms fending off rivals (Telcos in fiber) </li></ul><ul><li>Winning American firms attacking foreign markets </li></ul><ul><li>These are the ways money produces high wage jobs for Americans </li></ul>
  19. 20. <ul><li>Open markets, new markets, new technology </li></ul><ul><li>Antitrust, finance, research, and development </li></ul><ul><li>A new economic strategy for the nation: don’t pick winning firms, do open new markets </li></ul><ul><li>Hope for big winners in new markets and old markets </li></ul>The right response to China is more firm creation in America: here’s how
  20. 21. 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
  21. 22. The big winners have to come from creative destruction . . . <ul><ul><li>Invested capital has to be replaced rapidly </li></ul></ul><ul><ul><li>New investments must be made in old and new markets </li></ul></ul><ul><ul><li>Incumbents have to fall to rivals </li></ul></ul><ul><ul><li>New firms have to win big </li></ul></ul><ul><ul><li>Only to face new rivals themselves </li></ul></ul><ul><ul><li>All markets have to be easy to enter and hard to hold forever </li></ul></ul>
  22. 23. Source: Peter Drucker “ Innovation in Schumpeter’s famous phrase is also ‘creative destruction’ . It makes obsolete yesterday’s capital equipment and capital investment.”
  23. 24. A big American advantage <ul><li>Of 6 million firms, 10% die and 10% are born every year </li></ul>
  24. 25. In the 90s, births > deaths by 1-2% . . .
  25. 26. . . . and not surprisingly <ul><li>Before the Golden 90s and the Distraught 00s, </li></ul><ul><li>the death rate exceeded the birth rate </li></ul>
  26. 27. The hotbed of firm creation has been the Internet markets . . . which show: <ul><ul><li>An open architecture of law </li></ul></ul><ul><ul><li>An open technology of networking </li></ul></ul><ul><ul><li>Entrepreneurial leaders from outside the system </li></ul></ul>
  27. 28. A Different way <ul><li>Encourage high risk, high reward (make the equity premium the byword of policy) </li></ul><ul><li>Redistribute opportunity not wealth </li></ul><ul><li>Open markets to rivals but don’t pick winners </li></ul><ul><li>Make competition hard and investment easy </li></ul><ul><li>Focus on Micro as well as Macro </li></ul><ul><li>Respond to China at home more than in Beijing </li></ul><ul><li>The best defense is a good offense </li></ul>
  28. 29. Not just firms but individuals have to be more entrepreneurial <ul><ul><li>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 </li></ul></ul><ul><ul><li>Half of Californians cannot afford post high school education </li></ul></ul><ul><ul><li>For half the nation, risks outweigh rewards </li></ul></ul>
  29. 30. 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
  30. 31. The American Dream <ul><li>Democracy and entrepreneurship </li></ul><ul><li>Individual freedom and collective progress </li></ul>
  31. 32. <ul><li>China’s growth suggests that the whole world can live the American Dream </li></ul>

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