CEN: Leverage US resources to tap into China's business opportunities
世界经济的瓶颈和企业家的职责 - 褚浩全(Ted Chu) 博士在密西根大学的主题讲演
Ted Chu 褚浩全
It is such a pleasure for me to meet outstanding present and future entrepreneurs today in such a well-organized competitive event.
I would like to talk about three things: free lunch, bottlenecks, and risk premium.
This is about what entrepreneurs can do, where they can provide value, and how they should be treated, from an economic and social perspective.
What an entrepreneur can do is to provide free lunch to the society. (show a free lunch picture)
What is free lunch? Free lunch is what you can shake out of keyboard.
More seriously, I remember some years ago I had an interesting debate with my former colleagues at GM on what an economist should believe in. One colleague who has a Ph.D. in economics argued that the most fundamental principle of economics is “there is no free lunch”, since economics is a study of trade-offs, of finding the optimal tradeoffs between competing interests.
Indeed the phase “free lunch” originated in American saloons at the end of the 19th century, where you were offered a free lunch if you brought at least one drink. The value of the lunch was higher than the drink, so the free lunch was very popular, but the lunch was high in salt, and many ended up buying many drinks. So there is always a catch somewhere.
However, in economics there is also a concept of creative destruction. This is a relatively new concept, but the reality of playing non-zero sum games is not. In biology, it is well known that a net gain can be had through cooperation, or symbiosis. The little bird enjoys a free lunch, while croc gets a free dental cleaning. (Show picture) We all know the importance of drinking milk and vitamin D to provide the body with sufficient calcium. But in early life calcium was a killer. It was amazing how biochemical innovation turned something lethal to essential for life. (source: http://www.authorstream.com/Presentation/g.lakshmisha-218587-seminar-iari-ca-signalling-sseemmiinnaarr-education-ppt-powerpoint/)
On a global basis, economic growth and higher standards of living is all about making the economic pie or “cake” larger, about trying to have the cake and eat it, too. Entrepreneurs make it happen by adopting and spreading innovations like biological evolution.
This is not easy. It requires radical thinking. As Henry Ford once remarked, when you asked people how to travel faster at the turn of 20th century, the answer is not faster horses. But it has happened before, (chart) and the purpose of this event is to promote further creative destruction.
Right now we don’t have enough entrepreneurs to provide enough free lunch for the global economy.
As you know there are many problems in the global economy right now. In many countries, we have too much debt. Unwilling to spend and invest. So insufficient demand is the theme – the popular argument is that if everybody wants to save, who will borrow and spend it? And if every country wants to export out of trouble, which country is going to import and consume?
I fully recognize these problems, but I would like to point out that the prevailing pessimism is rooted not in too much debt, but in the desperation that we cannot grow out of it.
Global economic growth faces two major bottlenecks. One is shortage of cheap natural resources. The other is shortage of human creativity. These are not political problems. These are areas where entrepreneurs like you can come in to make the greatest contribution and receive the greatest reward.
The natural resource bottleneck is related to the rise of big emerging markets like China and India. Emerging markets are growing at more than 6%, three times faster than the mature markets. At their stage of development, they need more energy, food, and commodities than service-oriented mature markets. (Chart here)
Take food for example. The prices of food have been rising much faster than average consumer prices. (Chart). And this is not just China and India. I was shocked when I return home this summer that one dollar can only buy 4 pieces of sweet corn, one of my favorite foods, instead of 8 a few years ago.
We need another Green Revolution to substantially boost food production, given limited land and water supply. We need to significantly boost energy and commodity supply and boost utilization efficiency. Without that, emerging markets cannot grow strongly without running into inflation problems.
Let me give you an example of how we can turn a crisis into a profit opportunity. There are two crisis. In the U.S., the escaped Asian carp is threatening sport fishing and $8bn ecosystem of the Great Lakes. In China, food safety and pollution have become one of the top concerns. Before joining ADIA, I was trying to raise fund for a movie called Blue Fish – a group of students at UoM started a business selling it in China. Through genetic engineering, they created a blue carp to signal to Chinese consumers that they are from America’s clean waters. They made it infertile to prevent copy cats. They opened Blue Fish restaurants and sponsor recipe contest. Later, Premium Purple Fish overtook that famous pink fish, salmon, to become the global fish of choice.
The second growth bottleneck is less obvious but just as important. The labor market cannot meet the demand of modern economy. The unemployment problem in this country is mostly a problem of the less educated (chart). Youth unemployment is nearly 20%, but one of my friends’ son graduated with a mechanical engineering degree this summer and instantly got 4 job offers. Overall US wages have been flat, but Google has to raise wages 10% of already expensive manpower.
Part of the reason is cyclical – the collapse of the housing market. But I believe most is structural – labor productivity for work that does not require a lot of education and skills have grown much faster. For examples, the manufacturing and retail sector. And the supply of high-skilled workers have not grown. (chart)
As an entrepreneur, there are many ways to solve this bottleneck and profit from it. How do you take advantage of relative abundance of less-educated and skilled workers? How do you boost productivity of high-end labor force? And most importantly, are there better ways to develop human talent?
Without a better balanced labor structure, the global economy is limited by the available human creativity. That’s one reason we mourn the loss of Steve Jobs since we don’t have enough people like him. As long as we stay at hunter-gatherer stage in terms of growing human capital, a very sad fact, we may continue to suffer from rising income inequality and rising social tensions.
This gets to the last point I would like to make.
Sometimes I hear people talk about their children being smart and talented enough to go into business but choose instead to work in the non-profit area or focus on charity work. The implicit message is clear: while business people earn more money, their work is less meaningful for the society.
I have a different view. By creating free lunch for the society and solve global growth bottlenecks, a profit-driven entrepreneur can make as much contribution to the society as any other lines of work. For example, technology and globalization have created winners and losers. Helping the losers is both a policy issue and an opportunity for entrepreneurs, since losers are unused and cheap.
As long as your wealth is not a result of rent-seeking behavior, you should feel very comfortable to enjoy the rewards. I strongly believe an entrepreneur’s high material rewards are justified, based on the concept of risk premium. A risk premium is the reward for taking risks.
We should recognize the importance of non-profit and charity work. But their end-result is pretty certain. If you manage to deliver 100 free meals to the homeless, you are sure 100 people will not go hungry tonight. Whereas if you start a new business, regardless of how confident you are about its future, historical statistics will tell you the cold fact: more than half of new businesses fail within four years. So to drive economic growth, a society should reward risk takers richly to encourage more risk taking.
Again, I want to congratulate the winners of today’s competition and give my best wishes to all for your future success.
Here is my final message: Stay motivated, be happy, and make a difference.
Please see attached ppt for more information.
