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DealBook Column: Prophesies Made in Davos Don’t Always Come True

January 21, 2013 by Leave a Comment

You’re going to be hearing a lot of predictions over the next several days. Be leery.

Some of the world’s biggest names in business and politics are descending on the snowy enclave that is Davos, Switzerland, for the annual meeting of the World Economic Forum, which begins Tuesday evening. They are there to talk big ideas — and perhaps more important, to rub elbows and do business over Champagne and cheese fondue. (Yes, I’ll be there, too.)

Invariably, there will be panel discussions filled with provocative prognostications about the state of the economy, politics, technology and an assortment of other issues. But if you’re looking to the Alps for the wisdom of crowds, the wisdom of this crowd of the global elite may not be the most accurate.

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The predictions that have emanated from Davos always have a ring of plausibility to them, in part because of the credibility of the speakers. But all too often they fall short.

Here is just one example: Bill Gates, the co-founder of Microsoft and global philanthropist, has made the pilgrimage to the Alps for more than a decade and made a series of somewhat famous — or infamous — predictions.

When asked about Google back in 2003, he didn’t have an upbeat outlook on the company’s future nor its founders.

“These Google guys, they want to be billionaires and rock stars and go to conferences and all that,” Mr. Gates said. “Let us see if they still want to run the business in two to three years.” (Larry Page, a co-founder, is the chief executive.)

And the next year, Mr. Gates followed up that prediction with this marvel of what the future would look like: “Two years from now, spam will be resolved.” (If only.)

Broader predictions about the economy have been even more miss than hit. In 2011, ahead of what turned into a full-blown economic crisis in Europe that threatened the existence of the euro, Christine Lagarde, the French minister of finance at the time, declared: “I think the euro zone has turned the corner. Let’s not short Europe and let’s not short the euro zone.” (If you had bet against the euro zone then, you would have made a small fortune.)

And it is not just recent predictions that have been, for lack of a less polite word, off. Abby Joseph Cohen, the longtime Goldman Sachs market analyst, announced in Davos in 2000, at the height of the technology bubble, that she expected a big year for stocks, with the Standard Poor’s 500-stock index gaining 10 percent. Of course, the S. P. 500 did nearly the opposite, falling 9.1 percent that year, followed by two more years of declines that totaled a 34 percent drop. (In fairness, Ms. Cohen revised her prognosis several months after her trip to Davos and told her clients to sell stocks.)

How’s this for an anti-prescient panel? In 2001, the World Economic Forum put together a panel on “the shape of the 21st century corporation.” Among the headliners were Ken Lay, the chief executive of Enron; Carleton S. Fiorina, the chief executive of Hewlett-Packard; and David H. Komansky, the chief executive of Merrill Lynch. (We know how their tenures turned out.)

In 2006, about a year and half before the credit crisis was upon us, Martin Halusa, the chief executive of Apax Partners, declared that he expected to see a private equity fund of $100 billion within a decade.

News flash: private equity funds have become smaller, not bigger. He has three years to see his prediction come true, so stay tuned.

And then there was Davos 2008, about eight months before Lehman Brothers collapsed and the global economy spiraled downward. What did C. Fred Bergsten, senior fellow and director emeritus of the Peter G. Peterson Institute for International Economics in Washington, have to say about the state of the economy? “It is inconceivable — repeat, inconceivable — to get a world recession.” (A year later, he defended his words, saying, “through the first three quarters of last year, my prediction was correct.”)

That’s not to say every prediction said in Davos is wrong. Nouriel Roubini, known as Dr. Doom, announced in Davos in 2007, “The risk of some crisis happening is rising.” And while he turned out to be right, he was roundly criticized for being too pessimistic by Michael Lewis, who wrote a critical piece about doom and gloom of some academics. His piece was titled, “Davos Is for Wimps, Ninnies, Pointless Skeptics.”

Did Mr. Roubini really know the full extent of the crisis brewing? Of course not. But directionally, he was correct.

Having said that, he was back playing Dr. Doom last year in Davos and predicted that Greece would default within a year and that Portugal was next. George Soros, the billionaire investor, was also sounding the same alarm about Greece’s eventual default. “The odds are in that direction,” Mr. Soros said. (That hasn’t come true — at least not yet.)

That same year, Mario Draghi, the president of the European Central Bank, had it right: “We know for sure that we have avoided a major, major credit crunch, a major funding crisis.” (Of course, he could help control the outcome.)

What about the wisdom of the collective crowd, not just the individual predictions? If you’re looking for the mood of the corner office — even if it is a fleeting mood — the annual meeting of the World Economic Forum is actually a pretty good litmus test.

PricewaterhouseCoopers does a survey of many of the participants that it reveals on the first night of the conference. While the results would not have helped investors in 2008 (the group was still quite bullish), listening to the results in 2009, 2010 and even 2011, the view was generally on target.

But, of course, it is the individual predictions that receive the most attention. I remember paying particular attention to this one: In 2008, the futurists and technology forecasters Peter Schwartz, a co-founder of the Global Business Network, and Paul Saffo of Stanford University declared that they expected the publication of newspapers to end by 2014. Luckily, the prediction track record in Davos isn’t great.

Article source: http://dealbook.nytimes.com/2013/01/21/prophesies-made-in-davos-dont-always-come-true/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: ,

Common Sense: How Steve Jobs Infused Passion Into a Commodity

October 7, 2011 by Leave a Comment

About this time I had lunch with Bill Gates, who dismissed PCs as nothing but components held together by plastic and screws manufactured on low-cost assembly lines, a commodity business with narrow profit margins. The future belonged to software and semiconductor makers like Microsoft and Intel, where the real innovation was going on.

This made sense to me, and as the years unfolded, Mr. Gates seemed prescient. The PC makers were mostly reduced to commodity producers; I.B.M. sold off the ThinkPad, Hewlett-Packard bought Compaq and may now abandon the business; Gateway was sold off and the brand has all but vanished. Apple nearly went under. But today, the exception is so glaring as to have stood Mr. Gates’s prediction on its head: Apple’s operating profit margins have grown (to over 33 percent), and Apple’s market capitalization of $347.3 billion this week is bigger than that of Microsoft and Intel combined.

Of all Steve Jobs’s accomplishments, this, to me, remains both the simplest and the most astonishing. How did he take a commodity — to borrow from the novelist Tom Wolfe, the “veal gray” plastic boxes that once weighed so heavily on both our desks and spirits — and turn it into one of the most iconic and desirable objects on the planet?

“Steve Jobs and Apple never — ever — wanted to be a low-margin commodity producer,” Donald Norman, a former vice president for advanced technology at Apple and author of “Living With Complexity,” told me this week. “Even the Apple II had some charm to it. It was the first personal computer that had professional industrial designers. Before that they were designed strictly by engineers, and they were ugly. Steve was always, if not an artist, then someone who was charmed by style. He had this dream of something beautiful. If it was going to cost more, it didn’t matter. This was in his genes.”

Paola Antonelli, senior curator of architecture and design at the Museum of Modern Art in New York, recalled buying a 1990 Macintosh Classic and taking it back to Italy. “When I got home, I took it out of that brown, padded carrying case with the rainbow-colored Apple logo on it and put it on my desk in Milan. It was like a little pug dog looking at me. It wasn’t just something I worked with; it kept me company. It had such personality and such life.”

My own conversion came much later. When I came across the MacBook Air, I thought it the single most elegant technology product I’d ever encountered, and not just because it looked good. Its light weight and paper-thin design made it easy to carry while offering all the functions and keyboard of a full-size PC. Even the packaging was so beautiful that I couldn’t bring myself to discard it. Now I refer to it as my third arm and can’t imagine life without it.

Mr. Jobs “had an exceptional eye for design, and not just an eye, but an intelligence for design,” Ms. Antonelli said. “We don’t talk just about the looks, but how objects communicate: The specific shape, how it feels in the hand, under the fingers, how you read it in the eye and the mind. This is what Steve cared passionately about.”

MoMA has 25 Apple products in its permanent design collection. And like many great artists, Mr. Jobs’s near-dictatorial control of Apple made possible the pursuit of perfection. “If you’re a visionary, and a dictator, you can take risks and be consistent,” Ms. Antonelli said. “NeXT was a risk and a beautiful failure. It brought him back to Apple. The dynamics of Apple and Steve’s personality and the course of history made for this perfect alignment of the stars.”

Also like many artists (Frank Lloyd Wright comes to mind), Mr. Jobs was legendarily difficult at times. “He has always been focused, driven, demanding and, as a result, very difficult and abrasive,” Mr. Norman said. “This abrasiveness in the early days was too extreme and was destructive of the company. John Scully had to fire him. When Steve came back, he had matured. He still had a demanding vision of perfection, but he brought focus. He was slightly less abrasive. He was brilliant at understanding what a product should be and he was a dictator.”

Article source: http://feeds.nytimes.com/click.phdo?i=3b8aea033bf02425dbf65b91abd61201

Filed Under: Business News Tagged With: , ,

Economix: Can We Afford the Military Budget?

June 14, 2011 by Leave a Comment

Today's Economist

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

Defense Secretary Robert M. Gates gave a speech in Brussels on Friday in which he berated our allies in the North Atlantic Treaty Organization for not carrying their weight in terms of providing resources for the common defense. “For all but a handful of allies, defense budgets — in absolute terms, as a share of economic output — have been chronically starved for adequate funding for a long time, with the shortfalls compounding on themselves each year,” Mr. Gates said.

An examination of the latest NATO data shows that in 2010, the United States spent 5.4 percent of its gross domestic product on its military — twice as much as spent by Britain and three to four times as much as most of our NATO allies, as shown in the following table.

North Atlantic Treaty Organization

A crucial reason for this gap is that the United States spends almost as much today as it did during the Cold War. Every other NATO country spends substantially less.

Secretary Gates also made another point about military spending by our allies: they spend much more on personnel and less on equipment than the United States. “The result is that investment accounts for future modernization and other capabilities not directly related to Afghanistan are being squeezed out — as we are seeing today over Libya,” he cautioned.

According to NATO, the United States spends 46.7 percent of its military budget on personnel. All but five other NATO countries spend more — often considerably more. The average for all NATO countries other than the United States is 56.7 percent of their military budgets spent on personnel, with a number of countries spending two-thirds to three-quarters.

Consequently, there is little money left over for equipment. The United States spends 24.2 percent of its military budget on equipment and only five NATO countries spend more. The average for all NATO countries other than the United States is 16.7 percent of military spending going to equipment, with a number of countries spending less than 10 percent.

But what about our adversaries? Don’t we need to maintain a high level of military spending to counter the capabilities of countries like Russia and China?

For those data, we need to look to a different source. According to the latest yearbook from the Stockholm International Peace Research Institute, the standard nonclassified source, Russia spent 4.3 percent of its G.D.P. on military outlays in 2009, down from 15.8 percent in 1988; China spent just 2.2 percent of its G.D.P. on the military budget, about the same as it has been since 1989.

Stockholm International Peace Research Institute

The institute notes that the United States accounted for virtually all of the increase in world military spending in 2010.

And because the United States has the world’s largest economy, its share of world military spending is outsized, accounting for 43 percent of all the military spending on Earth — six times as much as China, which has the world’s second largest military budget and accounts for 7.3 percent of world military spending. Russia accounts for just 3.6 percent.

With polls showing declining support for the war in Afghanistan and increasing talk in Congress, even among Republicans, about cutting the military budget, it appears certain that the Defense Department is going to be downsized and our foreign military commitments scaled back in coming years.

This is going to require serious rethinking of what we perceive to be our strategic threats and whether the United States can continue to afford to be the world’s peacekeeper.

Article source: http://feeds.nytimes.com/click.phdo?i=38aee3b84c3cc29692bde598bec57fca

Filed Under: Economy News Tagged With: , ,

Audit of Pentagon Spending Finds $70 Billion in Waste

March 30, 2011 by Leave a Comment

The Government Accountability Office, a Congressional watchdog, said the biggest program, the F-35 Joint Strike Fighter, accounted for $28 billion of that increase. Other systems also had significant cost overruns, the agency said, adding that the increases could force the Pentagon to cut the number of ships and planes it buys.

The auditors said many of the problems occurred because the Pentagon began building the systems before the designs were fully tested.

The findings were significant because Congress and the Obama administration have promised to change many of the practices that have long allowed weapons costs to spiral out of control.

President Obama signed a law in 2009 to improve contracting. The accountability office said that Pentagon officials had done a better job in starting new programs. But the agency also found that most of the new programs were not “fully adhering” to the best procedures, leaving them “at a higher risk for cost growth and schedule delays.”

Pentagon officials questioned some of the calculations. But Nancy L. Spruill, a Pentagon acquisition official, added in a letter to the auditors that the military was determined to “address cost growth where it is real and unacceptable.”

The defense secretary, Robert M. Gates, has acknowledged that the Pentagon lacked discipline as its budget more than doubled after the 9/11 terrorist attacks. But with military budgets tightening, Mr. Gates has canceled several expensive systems and sought simpler alternatives.

All told, the accountability office said, the projected cost of the Pentagon’s largest programs has risen by $135 billion, or 9 percent, to $1.68 trillion since 2008.

It estimated that about $65 billion of that increase resulted from decisions to buy more of some systems, like mine-resistant vehicles and Navy destroyers, than had been planned.

But it said the other $70 billion of increases appeared “to be indicative of production problems and inefficiencies or flawed initial cost estimates.”

The auditors also found that a significant part of the total cost increase for nearly 100 programs came from just a few of the largest and oldest ones.

The F-35, which is supposed to become the main fighter for the Air Force, the Navy and the Marines, had by far the worst problems. The Pentagon has revamped the program, led by Lockheed Martin, twice over the last year. It has budgeted an additional $6 billion for development, as well as the projected $28 billion increase in production costs, for a program that is expected to cost well over $300 billion.

The report indicated that the Pentagon also had to spend $9 billion more on research and development to fix problems with satellites and other systems that had already entered production.

The auditors said the biggest problems occurred when the Pentagon changed the capabilities it sought or started production before critical technologies were ready.

Article source: http://www.nytimes.com/2011/03/30/business/30military.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,