Good morning. My colleague Norman Pearlstine, vice chairman of Time Inc., attended this weekend’s annual “Singapore Summit,” where globalization is still in fashion, and filed the following report:
Despite the rising backlash among voters and, by extension, politicians in the U.S. and Europe, the globalization conference circuit continues to thrive, attracting big names from business, government and some of the world’s most prestigious think-tanks. The “Singapore Summit, Connecting Asia and the World,” that drew the likes of JP Morgan Chase’s Jamie Dimon, Siemens CEO Joe Kaeser, Hitachi Executive Chairman Hiroaki Nakanishi, private equity’s David Bonderman (TPG) and Leon Black (Apollo), and Michael Milken.
They and hundreds of other attendees from Europe, the U.S. and Asia were quick to recognize the severity and importance of populist attacks on globalization — be it from the Brexit vote in the United Kingdom or the anti-trade rhetoric coming from Donald Trump and Hillary Clinton as they both try to curry favor with U.S. voters between now and November’s election. A panel of political analysts including Democrat Jim Messina, Republican Matt Rhodes, and the U.K.’s Lord Peter Mandelson all stressed the need for global elites to listen to angry, nationalist voters and to be sensitive to their concerns.
Speakers and attendees acknowledged that blue-collar jobs in the U.S. and Europe had been lost to low-cost Asian producers. But they insisted — and a great deal of data supports their view — that, on balance, the world has benefited from huge increases in international trade over the past few decades. There was also general agreement that automation and other technological advances were much more responsible for job losses than were bad trade deals.
Economists and representatives from emerging Asian markets also warned that the U.S. may be the big loser should it fail to ratify the Trans-Pacific Partnership (TPP) trade agreement. They note that over the next few years, many Asian economies are likely to grow at twice growth rates for the rest of the world. As these economies grow, they are shifting rapidly from an emphasis on low-cost exports to increased domestic consumer spending, creating big opportunities for U.S. manufacturers and service providers. A Boston Consulting Group study distributed at the Summit says, “Asia has more than 100 million upper- middle class households, contributing to consumption of more than $3 trillion” a year. “Their tastes are global,” and they are willing to pay for premium quality goods, according to the report.
Some smart U.S. marketers and manufacturers are increasing their focus on these growth opportunities. To cite one example, Procter & Gamble, long an important player on the global scene, recently moved its President for Global Skin & Personal Care, R. Alexandra Keith, from its Cincinnati headquarters to Singapore, joining Magesvaran Suranan, P&G’s President for Asia Pacific Selling & Market Operations, and putting her closer to Asia’s emerging markets.
• New York Goes Back to Work on Edge
The weekend terrorism scare in New York continued late Sunday as police found a bag with five suspicious devices—apparently pipe bombs–in the Elizabeth train station on New Jersey Transit’s Northeast Corridor rail line. Officials carried out a controlled explosion on one of the devices. There has been no confirmation of any connection to the two other ‘pressure-cooker’ bombs planted in Manhattan on Saturday. So far, police have questioned numerous people in connection with the bombing that injured some 29 people in Chelsea, but have charged no-one.
• Would You Like a Retroactive Tax Bill With That?
McDonald’s could be the next U.S. company to be hit with a big tax bill by the EU, according to the Financial Times. The paper claimed that the fast-food giant, whose tax arrangements with Luxembourg are under investigation by the EU Commission, paid an average tax rate of 1.49% on the $1.8 billion in profit earned by a Luxembourg-based holding company since it reorganized its EU operations in 2009. As such it may be liable for up to $500 million in tax to the Grand Duchy. Luxembourg’s standard corporate income tax rate is 29.2%, but it has signed hundreds of rulings with multinationals allowing them to pay far less. The ruling at the heart of the probe allowed McDonald’s an exemption from tax in the EU without the company having to prove that it had paid tax in the U.S.
FT, metered access
• GM Strike Looms
General Motors is facing a strike at two plants in Canada that could badly disrupt supplies of engines to its factories in the U.S.. Canadian autoworkers’ union Unifor said that there had been little progress ahead of a Monday dealing in securing a promise from GM to build new vehicle models at its plant in Oshawa, Ontario, ahead of a union-set deadline of midnight tonight. GM is on the verge of shutting one of two assembly lines at its Oshawa plant, with a view to moving production of several vehicles by 2017. The dispute is emblematic of problems across the Canadian auto assembly industry, which has been losing jobs to both the U.S. and Mexico in recent years.
• Lyft President Predicts End of Car Ownership By 2025
Lyft co-founder and president John Zimmer predicted that private car ownership would “all but end” in major U.S. cities by 2025, as consumers migrate to ride-sharing services like those provided by his company. In a blog post, Zimmer said that the cost of owning a car—around $9,000 a year–will start to outweigh the benefit of freedom and the symbolic status that ownership has traditionally conferred, adding that the swelling ranks of millennials are less likely to see the car as an expression of their identity—not least because the human will be removed from the driving process. Zimmer said he expected human drivers to make way for self-driving vehicles at Lyft within the same nine-year timeframe.
Around the Water Cooler
• Chinese Financial Stress Warning
The Bank for International Settlements warned that China could face a financial crisis within three years, as credit continues to outstrip potential GDP growth by a wide margin. The ratio of debt to GDP has more than doubled since the start of 2008 and stood at 255% by the end of the first quarter. No other country has seen a credit expansion of those dimensions and escaped a financial crisis. The BIS said that the gap between the actual debt/GDP ratio and its long-term trend had hit 30.1%: it views a level of 10% as worrying. China arguably has more than enough official reserves to cover the needs of any recapitalization, but whether it has the political will and capacity to carry out a thorough reckoning after years of capital misallocations is still a major unknown. The IMF had estimated in June that some $1.3 trillion in credit was outstanding to companies without enough cash flow to service it.
• Microsoft to Close Skype Office in London, Cut 400 Jobs
Sic transit gloria interneti. Microsoft is to cut 400 jobs at Skype and close the chat service’s office in London as it rationalizes under pressure from all the rival messaging and chat apps that its success spawned. According to the Financial Times, the Seattle-based giant “made the decision to unify some engineering positions, potentially putting at risk a number of globally focused Skype and Yammer roles.” Skype was one of the few U.K. tech startups to gain worldwide recognition. Even though the move is more a function of Seattle wanting closer control of the operation, the closure of Skype’s home office, five years after Microsoft bought it for $8.5 billion, comes at an awkward moment for a country desperate to prove that it can cut it in tech in a post-Brexit world.
FT, metered access
• The Koch Brothers Will Be Your Cleaners
Koch Industries is taking a swing at Procter & Gamble and Reckitt Benckiser with a venture into the household cleaning business, according to The Wall Street Journal. The WSJ said the move is part of an initiative to get the disparate companies in the Koch conglomerate to work better together. Its new carpet cleaner, to be sold under the Stainmaster brand, is the result of cooperation between Invista (the owner of Stainmaster) and Georgia-Pacific, which is better known for its paper tissue products. A national launch is due later this month. The WSJ said the Kochs are also looking at new offerings in the lawn-and-garden sector and in apparel, in what it styled as a systematic shake-up of businesses where dominant interests have eased up on innovation.
WSJ, subscription required
• A Tale of Two Elections
Russia’s parliamentary elections resulted in the Kremlin-backed United Russia party restoring its two-thirds majority in the Duma. Voter turnout was the lowest in the 17 years since Vladimir Putin first took power, dipping to 30% or below in some districts of Moscow and St. Petersburg, reflecting the urban middle class’s withdrawal from politics after protests at vote-rigging in 2011 were crushed. By contrast, voter turnout in regional elections in Berlin rose 15 points to 67%, galvanized by the surge in popularity for the right-wing Alternative für Deutschland party. Although AfD took votes from all across the spectrum, it will be kept out of power by a three-party leftist coalition of Social Democrats, reformed Communists and Greens. The AfD is now represented in 10 of 16 local legislatures, seemingly well entrenched in German politics with only a year until federal elections.