July 24, 2012
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Thank you, Jeff (Rosensweig) Good evening everyone. It's great to be with you. I certainly appreciate the honor of being your first alumni event speaker.
Jeff's Mississippi adventure began with a ride in a very small university airplane that landed at an airport a little smaller than Hartsfield, and not too far from the birthplace of Jeff's hero, Elvis Presley. Jeff got a sample of Mississippi culture and cuisine. He survived... did a great job... and was well received!
That was a time when expectations for the global economy were different. Year-over-year growth was increasing at a healthy clip. America was evolving into a services economy. And the U.S. was clearly the world's consumer. China, in turn, had become the world's factory floor.
How much can happen to expectations in a couple of years? As we now know... quite a lot. Ask the Professional Golf Association Tour minus Tiger Woods.
Many of our assumptions about the global economy model have been shaken. So where do we go from here? That's our topic this evening.
Here's a question for you. As we find ourselves beginning the 2010s, are we emerging from just another recession - we've been through 21 in UPS's 102-year history - or... does this recovery signal something different than others?
With official unemployment numbers lingering above 10 percent... and part-time and temporary work becoming more of a norm among white-collar workers... it feels a lot different to many.
Could we in business be facing some sizeable challenges - yet also be on the brink of some new opportunities?
I want to dig deeper into that by touching on three challenges and opportunities I see ahead.
Then, I'll wind up by discussing a few traits of successful business leaders that I think will make a difference.
If we look back a generation, we'd see four-decades of global trade expansion that's been nothing short of remarkable.
From l969 to 2008, the total volume of world trade had grown by an incredible 58 times - from $277 billion to more than $16 trillion dollars.
Most of that expansion is due to the accelerated trading pace of higher value goods and perishables, for which speed is essential - from food, to consumer goods, life science products, and electronics.
Asia, of course, has played a huge role in that growth story. And UPS has contributed as well. We opened our first Asia office back in l988.
Today, we serve more than 40 Asian countries - through some 270 facilities - with more than 14,000 employees. I was fortunate to be directly involved with a lot of that expansion as President of UPS International from 2003 to 2007.
One of my most vivid memories was a visit to China when I saw dozens of giant cranes pointed skyward and building skyscrapers in Shanghai. Then, just a few minutes later while traveling outside the city, I saw farmers plowing fields with oxen.
What a picture of how far and fast China had evolved into a global economy powerhouse.
Then two years ago, the global financial crisis struck, and shock waves were felt around the planet.
Government stimulus efforts have helped the world get through the downturn and back on its feet.
But now we have to ask, what happens when the stimulus goes away? How does the private sector wean itself from the public subsidies? Will the U.S. resume its consuming pattern?
Many economists believe it can't.
As Harvard's Ken Rogoff put it, "The U.S. consumer has been the engine of world growth for the last quarter century. But that engine has stalled."
At the same time, we know global trade, which declined worldwide by some 10 percent in 2009, is absolutely critical to a sustainable recovery around the planet.
The solution will have to rely on consumers from other parts of the world. They'll have to buy more and save less.
Asia is forecasted to grow at a 3 to 3 and a half percent clip this year, and 6 to 6 and a half percent next year.
China GDP grew at an 8.7 percent clip last year, exceeding all expectations. Such growth has continued to propel millions of Chinese people to middle class standing.
A fundamental challenge for the world economy then is to rebalance world trade. For Asia, growing through export alone may no longer be viable.
Does this present looming disaster or opportunity for the world's factory floor?
China's leaders recognize they must unleash consumer spending to achieve growth that's sustainable.
The good news is encouraging Chinese consumption has become one of the country's top policy agenda priorities.
Yet, there's a ways to go.
The country's consumption-to-GDP ratio is only half that of the U.S. and about two-thirds of Japan and Europe.
The average Chinese family saves 25 percent - a quarter of its discretionary income.
That's about six times the savings rate for U.S. households, and three times the rate for Japan.
Why such a savings culture? A big reason is there's not much of a social safety net if a breadwinner is injured, or loses a job. In addition, goods and services are not always easily accessible.
The research firm, McKinsey, suggests that if China's leaders commit to a more aggressive program of comprehensive reform, they could raise private consumption above 50 percent of GDP by 2025.
Such a program would enrich the global economy by nearly $2 trillion dollars a year in net new consumption.
Now, let's turn to the future from the U.S. and Europe's point of view?
Are any of you bankers?
Raise your hands please.
(No one's going to admit it! Or, there are a few brave souls here!)
Actually, you may not know this, but UPS operates a bank within our Capital Services division. We finance inventories and help our supply chain clients grow in ways they wouldn't otherwise be capable of doing.
So I'm not anti-banking!
Yet, having said that, how can our national economy continue to spend and borrow more than it earns?
How can we run an economy on the back of financial services, especially given the large budget deficits we have?
To me, one of our key challenges to get back to that "can-do" country that innovates its way to growth... that creates jobs by inventing goods and services that are valued... and that can be sold in growing offshore markets.
That brings me to the opportunity side of the equation.
Some people see decline in America's future. I see choices that can lead to opportunity. Those choices are found in these bullets.
They're priorities that are inter-related... inter-dependent...doable... and crucial to our society's success.
I don't work in manufacturing, but at UPS, we see its flow day in and day out. We handle 2 percent of the world's GDP each day.
I believe we have opportunity to create growth and jobs in manufacturing.
Developing clean energy is a prime example. Forecasts predict 10 million new jobs will be created in clean energy over the next five years.
China is moving fast to take advantage. Will we?
A lot of our success in seizing future opportunities will depend on our commitment to research and development. Back in the Sputnik era - when we were racing against the Soviet Union in aerospace development - national research and development made up more than three percent of GDP.
Today, while other industrial nations are increasing R & D - the U.S. investment has declined to two percent. R & D needs to be a greater priority.
Of course, education goes hand in hand with that. We need MBA's. We also need scientists and engineers. Only 4 percent of today's college students choose engineering as a profession.
That's in large part because many of our high schools don't provide an adequate foundation in math and science.
We can't expect to ignite innovation without nurturing innovators. We've also got to open students' minds to learning about cultures and languages at all education levels.
Another thing that's important is open trade. History shows it raises all boats.
But its restriction through protectionist measures inevitably hamstrings growth.
Since the financial crisis, momentum has shifted toward protectionism. Last year, the U.S. imposed 46 protectionist measures and the European Union, 90.
Predictably, China and India retaliated with 51 and 29 anti-trade measures of their own. It all makes products more expensive and stalls global growth.
No one calls it protectionism. Most will refer to trade barriers as fair trade.
Does trade just advantage developed economies? A positive story of progressive logistics and economic development is flying under the radar in the African nation of Uganda - better known for its population of gorillas living in the wild.
A few years ago, it took three or four days for a shipment of goods to clear the Uganda-Kenya border. Today, the border crossing has been reduced to a few hours.
Perhaps it's no coincidence that The Coca Cola Company last month launched an $11.5 million dollar partnership to enable thousands of Uganda's mango and fruit farmers to participate in the company's supply chain for the first time.
Business development always seems to follow improved logistics and frictionless cross-border trade.
That brings me to my last opportunity bullet - export.
Earlier, I said countries can't rely solely on exports. In the U.S.'s case, the situation is reversed. We must do better as an export economy to balance our still heavy flows of imports.
We have great opportunity to do so.
Let's take a closer look.
As a nation, the U.S. ranks last among major manufacturing nations in export intensity. If we just exported at the world average, we would eliminate the trade deficit and create new jobs.
As this graphic from a UPS study of USA small businesses indicates, two-thirds of smaller firms don't engage in cross-border trade.
Yet, as I mentioned earlier, export markets continue to grow in Asia and elsewhere.
By 2013 some 140 million Chinese consumers are forecasted to join middle-class standing. India is a similar story.
By the mid- 2020's, it's expected to have a middle-class population of 400 million.
These and other opportunity markets around the world are rising quickly. They need U.S. quality technologies... medical equipment... consumer products and professional services, many of which are offered by our mid-size and small firms.
These companies can use today's logistics technologies and "feet on the street" resources like the U.S. Commercial Service to compete like Fortune 100 companies.
After all, two-thirds of the world's purchasing power resides outside the U.S. And that two-thirds is now connected to the other third by the Internet.
Export brings me to my second challenge, infrastructure. I'm sure as outstanding MBA students, none of you would be satisfied with these grades.
Yet, this is the report card of American infrastructure according to the American Society of Civil Engineers.
When it comes to public policy and business priorities, infrastructure may be the most under appreciated.
Our ports, airports, rail system, roadways, bridges, and broadband capabilities are absolutely crucial to global competitiveness.
Yet, the U.S. earned a grade of D. Among other findings, the study pointed out...
Our air traffic control system is outdated. We certainly support FAA Reauthorization legislation that was passed in the House.
One-third of our roads are in poor or mediocre condition.
Atlanta ranks as the fourth most congested city in America behind LA, San Francisco and Washington.
And 26 percent of our bridges are structurally deficient. The San Francisco-Oakland Bay Bridge, which carries 280,000 vehicles a day, had to be closed last fall because chunks of concrete were falling off it.
Seaports are not even included in the rankings, but many may be the most in need of attention.
We're investing in U.S. infrastructure at about the same rate as we did in l968, when the economy was one-third smaller.
To bring the nation's transportation and resources networks up to speed, we need a $1.6 trillion dollar investment over five years, according to the American Society of Civil Engineers.
How can an infrastructure in need of attention pose an opportunity in a jobs recession?
In a December speech on jobs and economic growth, President Obama called for a boost in public investment in infrastructure - beyond his earlier stimulus package - to modernize the U.S. transportation and communications networks.
Many economists agree that investing in infrastructure is one of the most effective ways to use government spending to promote economic growth and create sustainable jobs. It brings a high payback.
Moody's Economy.com reports an infrastructure investment of $1 dollar increases GDP by a dollar and fifty-nine cents. Yet, when it comes to revitalizing infrastructure, government engagement alone may not be enough.
As Warren Buffet commented recently, "The $800 billion dollar stimulus bill came with 8,000 earmarks."
Many are pointing to the private sector as the solution. In fact, the President's Economic Recovery Advisory Board has proposed the establishment of a private, National Infrastructure Bank.
Europe has had such a bank - the European Investment Bank - for 50 years.
The proposed U.S. Bank would invest in merit-based projects to regenerate our roads, airports, bridges, rails, smart grid and broadband networks, by generating private capital.
The private bank would fill the gap of what the government may be ill equipped to do alone. No politics. No earmarks. No Bridge to Nowhere!
For those of you financial mavens, what a potential opportunity to make a difference!
My final challenge involves how companies connect to their key publics.
Looking ahead to the 20th century, the Nobel Prize winning economist Milton Friedman once said, the only social responsibility a business has is to enrich its shareholders. Is that good enough in the 21st century?
In a recent Gallup poll asking Americans who they admired, big business received approval from only 20 percent of respondents.
Business tied with Congress. Eighty percent of people in that poll had had lost faith in many big institutions, including business.
But what will happen if business doesn't choose to win back trust? Will companies find themselves being redesigned by society?
How can business win back trust? It involves connecting in ways Milton Friedman didn't envision.
One avenue is through enlightened philanthropy. A fundamental way to connect here is by linking a company's social responsibility investments to its core business.
The benefit is not only monetary, but intellectual capital and relationships as well.
In doing just that, UPS has been able to use its supply chain network and logistics pros on its UPS Logistics Emergency team to support the Red Cross, UNICEF and CARE in providing relief supplies to tens of thousands of victims of the tragic earthquake in Haiti.
Another key area of connection is with society and governments to solve global challenges like climate change. UPS has made a big commitment to reducing its carbon footprint.
Just last week, UPS was cited as the world's only transportation company to be named to the Climate Innovation Index's Top Ten Global Companies.
The Index is compiled by the United Kingdom sustainability research organization - Maplecroft.
Connecting to communities and employee values is also an increasing expectation.
A great example of serving both interests is an IBM program called the IBM Corporate Service Corps. It exposes high performance IBM employees to pro-bono work in developing nations including Africa, Asia and Latin America.
The IBMers perform community-driven projects that vary from helping entrepreneurs and small businesses to introducing information technology to communities left behind by the digital divide.
One way UPS is using its expertise to connect with communities is through its Road Code safe driving program for teenagers.
Working with Boys and Girls Clubs of America, UPS volunteers share the company's industry leading safe driving expertise to prevent teenage deaths.
The program features a high-tech simulator that allows teens to experience real-life driving situations before even getting behind the wheel of a car.
The power of the human spirit to connect takes me to my final slide - because regardless of our challenges - the future always comes down to people who choose to meet those challenges - leaders.
You are those leaders. How will you best succeed? Here are three quick thoughts for your consideration.
Back in the day of structure not so long ago, leadership was all about doing things right.
In the new world of change and complexity, it's all about doing the right things.
You'll have to be flexible and see the big picture. Yet, you'll have to move fast and with certainty.
Technology can be your secret weapon. Of course, it can help you communicate worldwide through new channels.
It can also help businesses of all sizes blend strategy with execution in highly impactful ways. That's why everyone needs some familiarity with its benefits.
Many still think of technology solutions in either/or terms... either cost efficiencies, or customer benefits. Now it's about AND. Lean solutions are often also green and can lead to customer benefits and profitability.
AND is better than OR.
Finally, the best business leaders will care about people and act with integrity. Building trust is essential. If you have to get people to turn on a dime, they'd better trust you.
A Gallup Survey last year of 10,000 workers found that the number one factor that would get them to follow a leader was trust - hands down.
Trust flows from integrity. To quote Warren Buffet again, he said he always looked for three qualities in hiring prospective leaders... integrity, intelligence and energy. He added that if you don't have the first, the other two will kill you.
I wish you all the best in your careers. As Emory MBA graduates you've demonstrated you are among the best and brightest of critical thinkers.
The business world and the world of business need your best efforts to drive a renewal...
Thanks so much for listening.
Now it's time to turn it over to you. What are your thoughts on the global economic outlook?
Do you have any comments or questions on what I've talked about?
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