Milken Lunch Panel, Global Overview: Creating Prosperity and Stability Amid Ever-Accelerating Change

Global Overview: Creating Prosperity and Stability Amid Ever-Accelerating Change

Speakers (see photo below):

Sharon Allen, Chairman, U.S. Board of Directors, Deloitte

Gary Becker, Nobel Laureate, Economic Sciences, 1992; Professor, Economics and Sociology, University of Chicago;

FasterCures Board Member

Thomas Hughes, Global Head Asset Management; Member of Group Executive Committee, Deutsche Bank

Moderator: Paul Gigot, Editorial Page Editor, The Wall Street Journal

Jami Miscik, Deputy Director for Intelligence, Central Intelligence Agency

Rupert Murdoch, Chairman and CEO, News Corporation; Chairman and CEO, Fox Entertainment Group

milken lunch panel group shot


More absolute wealth was created in the world in 2003 than in any other year in history. There is renewed optimism

about the economy. Yet, despite this increasing prosperity, forceful changes in the global economy and shifting world

events – from China’s growing emergence as a world economic power to the global battle for manufacturing, IT and

service jobs – also make this a time of great uncertainty. Add to this mix the numerous international security

concerns, an aging workforce in the developed world, a U.S. presidential election year, and new discoveries that

promise to revolutionize health care, and you have major challenges facing business and policy leaders around the

world. These changes – both beneficial and disruptive – affect us all. How should we deal with them? What do businesses

need to do to compete?




Moderator: For the first time we have synchronized global expansion. Japan is finally emerging, India is going. The

global growth movement, and even Europe, shows some signs of getting up off the mat.

milken lunch panel dt and garyGary Becker (on right): I think the optimism is real. At the

conference last year I was optimistic. The reason I was optimistic then and continue to be optimistic, is that the US

went through a series of shocks: 9/11, dotcom, accounting scandals, yet US productivity continued to do really well.

Productivity continued to grow through the *short* recession.

Productivity”there is no better measure to how an economy is doing.

China has begun to pick up. Japan has finally managed to look more as if it has potential to grow. I anticipate that

Japan in the near future will do quite well.

India started reforms in 1991 and demonstrated that any country can have growth with reasonable economic policies.

The growth rate has been 6% a year since the 80s. Reinforced by China and Japan.

What are the risks? First of all, terrorism. Oil prices have reached 40 a barrel. That surprises me. The US economy

and world economy have absorbed the prices nicely. Through the adjustment in the economies we are not as dependent on


Terrorist attacks from Saudi Arabia could spike oil up to 70 to 80 a barrel.

I am unhappy that the administration has raised the deficit when they should have cut it. Debt to GDP is 65-75% in

the US which is not high in terms of the world.

I’m optimistic about the world economy.

I’m not optimistic about Europe. I think Europe has real problems, particularly Germany and France.

Sharon Allen from Deloitte (on left in picture above with Gary): China’s middle market is emerging, which is

creating a real opportunity for our clients. Now thanks to the WTA deregulation is creating some opportunity.

She went on to talk about the closing of state owned entities being a huge opportunity. She said they are not wary

of the risks. Historically transparency has not existed, particularly in rural areas. People health risks, AIDS, and

reemergence of SARS. She went on to say that the opportunity was too great to not start now.

[ Blogger’s Note: The slides below was referred to a number of times.]

milken lunch top 10 leading economies in 2050

milken lunch world population shares

Thomas Hughes (position three): At a minimum last year people felt concern, and at the other end a feeling of dread

with the markets. Fund flows 95-95% equities, the rest cash and fixed income. People and companies have, in a short

period of time, forgotten asset allocation.

From a short term the economies are turning around, that will continue for a time. China is on the verge of

being an overheating economy.

US Bonds returning around 3%, equities will be performing better”9% in the US, 11% in Europe.

Oil wells that were not economic at a certain dollar amount are now economic, so supply will increase.

Long term structural factors that are driving us. The secular bull-market.. from the 80s and 90s, we will not see

that in the future. Asset returns are going to be much less for the next 10-20 years.

Equity returns 7-8% globally for the next 20 years, bonds 4-5% .

Risks for investors? Geopolitical risk”include terrorism. We saw this in Spain. There was a dramatic stop in

investment activity after the attacks.

I’m less concerned about oil prices”but it is a concern.

milken cia jamiJami Miscik (right): Well, I’m from the CIA

and we’re here to help (big laugh.) The goal remains the same for terrorists. They can attack the economy in two ways,

direct attack, and the secondary effect of any terror attack

The Al Queda today is not the same org.

In some ways it is weaker, we have killed and captured many of their senior leaders. At the same time they are more

dangerous, so they are more difficult to track. They are relaying on couriers now. It is more difficult to penetrate

the network.

It is causing others to be inspired by Al Queda.

If you look at NY almost all of the jobs lost in 9/11 have been gained back in terms of numbers.

[ Blogger notes: She went on to talk about other disasters (anthrax, snipers, hurricanes) and how the local

economies always come back. Tourism is the one of the industries that doesn’t rebound.

She went on to talk about the two major global powers with more then a billion each, China and India. How they will

work together and their education systems will all have major impacts on how our global economy shapes up.

She went on to mention that China used 40% of the world’s cement last year. Steel and other commodities were

similar. As China begins to exert its power others will look to the US to see what our reaction is. Japan and Korea in

particular. ]

Despite our technological innovations, the biggest threats we face are diseases. More then 1/3rd of the world

population is infected with tuberculosis. As that affects entire countries and continents that will have a major


Rupert Murdoch (position six): with so many unknowns out there in the world we should be pretty humble in our

predictions, but not so with our hopes. I find myself looking at the world and being extremely optimistic, certainly in

the long term”maybe in the medium and long terms.

However, there are dangers in the short term. If you take a historical perspective change is happening much


The worries that I see, that we don’t know”the danger of Chinese continuity. We see all kinds of wonderful

expansion, but tt is still a centrally planned economy, and historically centrally planned economies become


Saudi Arabia is the swing. If there is a revolution there it would happen overnight. Oil 80-90 dollars. It wouldn’t

just affect us, it would put China and Japan into a terrible state.

This tremendous explosion of efficiency in this country. This is the country to invest in. There is still huge

growth here. Sure we have problems. We have to do a lot about our public education. We can be hopeful there, but

disappointed it is not going faster.

The increase in commodity prices, if it inflates, is no reason to increase interest rates. The thing we have to

watch for is inflation in employment costs. We have achieved globalization of labor. Something like 24 million new jobs

have to be created in China each year. Enormous problems. All potentially hard working factory workers that will affect

the price of labor throughout the industrial world.

Other countries that do not embrace globalization with the same enthusiasm, such as Europe, you can’t see much


Imaging where we will be in five years if we grow at 5% a year and Europe grows 1% year. They (Europe) have no

political leadership with the will to change.

You have this awful French bureaucracy which is deterring business in Europe and over-regulating everybody.

When you think of Europe as a whole it is a great block of advanced democracies, and it is just tragic that they are

being screwed up in the way they are.

Moderator: Is there anyone here who is more optimistic about our friends the French?

Gary: No. There may be some of us who are less pessimistic then others (motions to Rupert.) It’s Germany, France and

Italy”they are the three weak countries. The problems I find in these nations is that for most of the people, the

workers, most of the families, there is really not a lot of pain in these countries. Yes, there is high


Most families are doing extremely well”they are still very rich. So, if you measure it relatively, they are not

doing well. But, if you measure if the typical French or Italian family has a high lifestyle they do. Most people don’t

want to vote for changes that makes their situation more difficult. They are doing very well, they haven’t had a lot of

pain. It is like Japan in the 90s.

The pressures to make these changes are not very strong. What we’ve seen is a decade of half hearted efforts at


Moderator: There is a political acceptance of decline. (some giggles)

Gary: Comfortable decline (more giggles.)

Rupert: The Muslim populations and France and Germany are much bigger then they are here. They have done a very poor

job in assimilating them. They have major centers of trouble that are boiling over. Paris is surrounded by thousands of

blocks of apartments filled with immigrants that are totally lawless. They are in more danger of terrorist attacks then

we are here today.

Moderator: How long after Madrid did it take for the economy in Spain to come back? Have we adjusted to that


Thomas: From an investors point of view it is clear that we went through a time where the risk premium was too high.

Terrorism risk is priced at a three year low.

Jami: When 9/11 happened, it was for the rest of world, a US event. They didn’t own it, we owned it. Madrid bombings

changed the European approach to this. They recognize this as a problem for their own societies.

Most of the people involved in a recent fertilizer bomb case in the UK lived in lower to middle class neighborhoods

in UK.

[ Bloggers Notes: The panel talked about how the US economy was so diverse and robust that it was hard for a

terrorist to disrupt it to the point at which it wouldn’t quickly rebound. Other countries that were dependent on a

smaller number of industries would not fare as well in a terrorist attack (think Spain and tourism, think Saudi Arabia

and oil.)

Immigration was brought up as one of the biggest problems. Student applications from abroad to the United States are

down significantly because it is so difficult to get a Visa”not because the universities are failing in


Gary Becker discussed how the US, in its desire to not look like it is singling out particular groups, is tightening

the screws on all immigration. ]

Rupert: I’m worried that we’re letting ourselves be talked into a dependency culture here that is as bad as

Europe. We don’t want to become another European welfare state, and we’re on the way.

[ Bloggers Note: Rupert has clearly had it with Europe and sees China as better market. ]

Gary: The great rhetoric given to outsourcing. There is no question that it is inevitable and beneficial to the US

economy. Outsourcing is a continuation in the movement toward free trade”global trade. We are beneficiaries of it.

Obviously there are people who get hurt by it”it is not uniform. Gary went on to discuss how much better it is

that we trade with India rather than send the aid. He went on to say we should be celebrating that countries like China

and India are taking part in the global economy.

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