The future in review

Mark Anderson, founder and publisher of the Strategic News Service (SNS), opened his Future In Review (FIRe)  conference Monday night in San Diego with a comparison to D3, a concurrent Wall Street Journal-sponsored conference featuring Steve Jobs, also happening near San Diego. FIRe has an incredible line up of presenters, and I will be blogging from the event this week.  In comparing his conference to D3 Anderson quipped, "We say what they are going to say before they say what they are going to say....we have no on-message chats from aging headliners."

Anderson categorized the known world as a complicated place, which he said makes "predicting things and judging outcomes more difficult." Nonetheless, he judged that Japan is stuck in quagmire at same time it is launching great export companies like Toyota. Russia is going to be a great market for technology even with President Putin's move to centralize power. The European Union stability pact is dead and buried, Anderson said. France is developing broadband quickly and could get ahead of the U.S. quickly, and China and India are on tough roads to success.

Anderson is not a friend of the current administration's economic policy: "The global economic stability is threatened by the current economic team....aided and abetted by the fellow running the Fed [Greenspan]."  His remark was supported to some degree by Robert Hormats (see below), vice chairman, Goldman Sachs (International) and managing director, Goldman, Sachs & Co. Nonetheless, Anderson is optimistic about technology. "There are more opportunities for companies to be created...more science being done in important areas, at the next step where computing merges with biology," Anderson said. "This is a moment in history when [computing and biology] are becoming equally complex and sharing a language with each other, with the potential for new inventions and cures."

Hormats followed Anderson's opening remarks with an explication of imbalances that affect the global economy and concern about America's ability to innovate compared to other countries. "Other than terrorism, the single most serious thread to the stability and growth of the American economy is the largely dysfunctional education," Hormats said. If the children of America aren't trained properly, they will become embittered, xenophobic and increasingly protectionist, and see science and technology as an enemy and globalization as a threat. He echoes what high-tech executives like Bill Gates and Intel Chairman Craig Barrett have been saying about the lack of funding and focus on science and engineering in schools and the shrinking pool of skilled workers. "The strength of America is in being more innovation than others," Hormats added. "We have to rise to the competition. If we don't, we will suffer serious problems over longer run." Restrictions on foreign workers coming to the U.S. is also slowing down innovation and growth here, and helping to fuel mini Silicon Valleys and Washington Beltways outside the U.S. He cited the progress by Koreans in stem cell research as an example of where the U.S. is not reacting in a competitive way, calling the administration's policy "Neanderthal."   

"We should be saying what can we be doing to be more effective at home," Hormats said. He called the GI Bill, which provides education for soldiers, as the most important legislation in last 60 years because "it helped build the the strongest economy in world." It's up to the private sector, not the government, to deal with the current education problems.

Other imbalances he cited were the budget deficit, the low U.S. savings rate compared to Asian countries (China savings rate is 45 percent of GDP, and the U.S. is 1 percent of GDP) and the constrained energy situation. Regarding the budget deficit, Hormats offered the common wisdom that the government isn't doing what's necessary to pay for the war in Iraq. Taxes have been cut over the last four years, helping out wealthy Americans, and Congress has gone on a spending spree with lots of pork barrel for non-essential programs.

The budget deficit is being financed in part by foreign investment. Hormats said that $850 billion on a gross basis (mostly from Asia) of foreign investment went into buying U.S. bonds and other securities. Currently, 43 percent of all treasury bonds are owned by foreigners, investing conservatively and avoiding local banking systems and investing in their own countries.  He said China is contemplating policy revision on its exchange rate, but won't do anything to compromise foreign investment and job creation in the country, which he said has 200 million floating workers. 

Hormats expects the Federal Reserve to increase interest rates two or three more times to shrink consumption and make room to export more goods.  He also expressed concern that American households with home equity loans and adjustable mortgages, combined with low savings rates, could suffer as interest rates go up and home values sag, causing a more dramatic slowing of growth in the U.S., especially with higher healthcare, education and energy costs.   

The energy situation is not so much about shortages as tight capacity and that companies producing oil are subject to political disruption, as in Iraq and Venezuela. "We are seeing some but not much conservation as a result of higher prices, but it's a very slow process and vulnerable to disruptions for some time to come," Hormats said.   

In concluding, Hormats said that as a nation we have to determine our real priorities and not try to do everything at once. He encouraged a more responsible debate on fiscal policy, raising the savings rate and investing in education.