WDI Davidson Review Summer 2004

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Davidson Institute Review www.wdi.bus.umich.edu Summer 2004

D A V I D S O NI N S T I T U T E

R E V I E W

Robert E. Kennedy, an expert onbusiness strategy and industrial dy-namics in emerging economies, be-came the third executive director ofthe William Davidson Institute(WDI) on May 1.

Kennedy, who joined the MichiganBusiness School in September as aprofessor of business administrationand as the associate director of WDI,succeeded Jan Svejnar, who returnedto teaching full time.

Kennedy came to the institute fromHarvard Business School, where hewas associate professor of businessadministration. He has worked inmore than a dozen countries as amanagement consultant and venturecapitalist.

Building On A Foundation

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NEW EXECUTIVE DIRECTOR KENNEDY PLANS TOREFOCUS RESEARCH, ADD NEW INITIATIVES AND AUDIENCES

Vol. I, No. 2

For a retrospective on Jan Svejnar’s tenure at WDI, turn to Page 2.

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Jan Svejnar served as executive direc-tor of the Davidson Institute from1996–2004. His experience in institu-tion-building and research, and hiscredibility in international economicand policy circles were invaluable increating a unique international re-search and policy institute.

As executive director, Svejnarfounded a working-paper series thatranks among the most downloadedin the world, created a network of 170research fellows, and obtained fund-ing for the Davidson Data Center andNetwork, the only existing archive ofdata on transition and emerging mar-ket economies.

Svejnar also sponsored multipleseminars on international topics withother units of the university, and or-ganized several research and policyconferences every year, creating a glo-bal reputation for the University ofMichigan while also providing inter-national experiences for its facultyand students through research oppor-tunities and global MBA projects.

During his eight years as executivedirector, Svejnar also extended thepublic policy activities of the institute.Madeleine Albright joined WDI asits first distinguished scholar in 2001,and the institute established a Wash-ington, D.C. office.

Albright visited Ann Arbor regu-larly, hosted policy conferences onCapitol Hill and has helped raise theinstitute’s profile among governmentleaders. Simultaneously, the institutelaunched a policy brief series on top-ics including Iraqi economic recon-struction, WTO negotiations and theexpansion of the European Union.

During Svejnar’s tenure, the instituteexpanded its technical assistance ac-tivities and was awarded funding toestablish American-style businessschools in emerging markets, includ-ing the Czech Republic, Uzbekistanand Ukraine. It reorganized and ex-panded its executive education pro-grams, partnering with local institu-tions to deliver programs in-country,and created a human resource net-work with 20 corporate partners op-erating in emerging market econo-mies.

Robert Dolan, president of the insti-tute and dean of the Michigan Busi-ness School, lauded Svejnar for hisleadership. “Jan came to WDI in 1996and turned it into a first-class re-search institute,” Dolan said. “He cre-ated a solid foundation upon whichto build.”

Svejnar, also the Everett E. Berg Pro-fessor at the Business School and pro-fessor in the Economics department,

was an architect of the CzechRepublic’s economic reforms in theearly 1990s and was a key advisor tothen-President Vaclav Havel.

Before coming to Michigan, he wasDistinguished Service Professor ofEconomics at the University of Pitts-burgh. During that time, he co-founded the CERGE-EI in Prague,a graduate program that trainseconomists from the former Soviet-bloc countries and is the only Ameri-can-style Ph.D. program and re-search center in economics in Centraland Eastern Europe.

He will return to teaching full timeat the Michigan Business School. ■

Jan Svejnar discusses off-shoring at theGlobalization of Service Activities confer-ence in April.

Leaving a LegacySvejnar Brought Research Vision,International Credibility to WDI

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A packed Hale Auditorium

Former U.S. Secretary of State andWDI Distinguished ScholarMadeleine Albright visited Ann Ar-bor for three days in March.

Albright packed a lot of activities intoher short visit, granting interviews tothe Detroit Free Press editorial board,WJR-AM radio and Michigan Tele-vision, and giving two speeches. Shealso participated in a forum on ter-rorism, attended a Michigan BusinessSchool dinner and had a book sign-ing at a Detroit-area bookstore.

On her first day on campus, Albrightspoke to students, faculty and invitedguests about prospects for democracyin the Middle East. Achieving de-mocracy is something she whole-heartedly endorses. But she said twoillusions must be avoided: linking itto terrorism, and to the Israeli-Pales-tinian conflict.

The first illusion, she said, is that “be-cause transformation is billed as the

solution to terrorism, supporting itmakes other counterterrorism effortsless necessary.’’

That is not the case, Albright said.There is some logic to defining ter-rorism in broad terms, however, theArab and Muslim world did not at-tack the U.S. on September 11—Al-Qaeda did. Therefore, the U.S. doesnot have to wait for the Middle Eastto become democratized before de-feating Al-Qaeda, she said.

Albright said the second illusion toavoid when discussing Middle Eastdemocracy is thinking that it is a sub-stitute for leadership in pursuing Is-raeli-Palestinian peace.

“President Bush has argued that theway to make progress in the MiddleEast is to create a model democracyin Iraq,’’ Albright said. “This, he says,will inspire the Palestinians to electnew leaders who will then crack

Albright Talks Terrorism, PeaceDuring March Visit to Ann Arbor

Despite talking about serious issuessuch as terrorism and Middle Eastpeace, Albright injected a little levityinto her speeches.

She delighted the Hale Auditoriumcrowd by saying because this washer fourth visit to Ann Arbor, she wasfeeling more and more like a Midwest-erner. She did, however, still havetrouble being called a “distinguished”scholar. She said during her schooldays, “distinguished” meant “old.”She said she didn’t see any reasonwhy a scholar couldn’t be “frisky” or“buff.”

She also recalled going out on thebook show circuit and being excitedearly on about a large crowd that hadgathered at one event. She was hop-ing the mood would be just right forher talk, but soon realized that theauthor preceding her had penned amanual on potty training.

She said that after listening to theauthor, she concluded that there were“many similarities between managingworld affairs and negotiating with two-year-olds.”

“The major difference being the mag-nitude of the consequences when theinevitable mistakes happen,” Albrightsaid as the audience laughed. ■

continued on page 14

Albright and Michigan Business SchoolDean Robert Dolan share a laugh.

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The William Davidson Institutehosted an off-the-record conferenceon May 3-4 to address the volatileTaiwan Strait situation. This issue isperhaps the most dangerous chal-lenge confronting American policy inEast Asia in the coming four years,conference attendees said.

The conference brought togetherseven participants from China withsix counterparts from the UnitedStates. It was chaired by WDIDistinguished Fellow KennethLieberthal.

As Taiwan has democratized, it hasdeveloped an increasing sense ofseparate identity. The re-election ofChen Shui-bian as president inMarch 2004 on a ticket promising topursue and consolidate Taiwan’s pos-ture “as an independent, sovereigncountry” has increased the danger ofmilitary conflict, Lieberthal said.

China claims Taiwan as an integralpart of its territory and has threatenedto use military means if necessary toprevent Taiwan’s independence. TheU.S. has a longstanding position ofinsisting that any resolution to thecross-Strait issue be accomplishedpeacefully, and Washington hasmade clear it does not want Taiwanto pursue policies that will raisetensions.

But recent developments appear tohave led Chen Shui-bian to the con-clusions that Beijing’s military threatsare hollow and that Washington willsupport Taiwan no matter whatPresident Chen does. Both of theseconclusions are likely ill-founded,Lieberthal said.

This off-the-record conference pro-duced a frank and wide ranging dis-cussion of mutual perceptions, keychallenges, and possible strategies toenhance cross-Strait stability and re-duce the chances of military conflict.The conference did not seek to de-velop a joint statement but ratherproduce advice by each side to bothgovernments.

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WDI, the University of MichiganLaw School’s Center for Interna-tional and Comparative Law, and theJohn M. Olin Center for Law & Eco-nomics hosted a conference in Aprilon how best to promote developmentin an era of globalization.

Discussion at the April 16-18 confer-ence centered on three critical com-ponents of the “Millenium Develop-ment Goals” set out by the UnitedNations to reduce global poverty by2020. Those were:

• For development assistance, whatis the appropriate mix of public in-vestments and what is the best wayto advance them?

• For trade, how can developingcountries gain access to industrialcountry markets? Should poorercountries be given more time tocomply with trade rules, andshould one set of common rulesapply for all countries?

• For institutional reform, shoulddevelopment assistance be used tohelp build effective and corrup-tion-free government?

Keynote speakers were RobertKuttner, co-founder and co-editor ofThe American Prospect, and DanielKaufmann, director for global gov-ernance at the World Bank Institute.

The conference was chaired by out-going WDI Executive Director JanSvejnar, Law School ProfessorReuven Avi-Yonah, and assistantLaw School Professor Michael Barr.

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WDI In Brief

Kenneth Lieberthal

The Chinese participants includedcivilian and military representatives,former government officials andscholars. Five of the six Americanparticipants are former governmentofficials, both civilian and military.

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At the end of May, WDI – along withthe Centre for Economic Policy Re-search (CEPR), the VietnameseAcademy of Social Sciences (VASS),and the United Nations Develop-ment Program (UNDP) – organizedtwo conferences in Hanoi, Vietnam.

The first, the WDI/CEPR AnnualInternational Conference on Transi-tion Economics, ran May 27-29. Itprovided a forum for leading econo-mists and other social scientists work-ing on transition and on broader is-sues of development and institutionalchange to meet, present new research,develop collaborative relationships,and complete ongoing research.

On May 31, the UNDP/WDI/CEPRTransition Economies Policy Confer-ence kicked off.

The main purpose of the policy con-ference was to take stock of and ex-change experiences on some of themost important lessons learned intransition economies over the past 15years, and to discern the most impor-tant policy and institutional implica-tions for countries still in transition.

The conference also compared andcontrasted the differing experiencesof the Commonwealth of Indepen-dent States and Eastern Europe withthose of transition economies in Eastand Southeast Asia.

�In December 2003, WDI Distin-guished Scholar Madeleine Albrightchaired a roundtable discussion onthe United States’ image abroad.

Rajeev Batra, WDI faculty expertand director of the Michigan BusinessSchool’s Yaffe Center for PersuasiveCommunication, and Bruce Stokes,National Journal columnist and PewGlobal Attitudes Project foundingmember, were the featured presenters.

“America’s image overseas facesmany challenges,” Albright said inher opening remarks. “Differences incultures, opposition to Americanpolicies, resentment over its super-power status, frustration over a lackof economic opportunities and basicdemocratic freedoms, and manymore factors, point towards a deepdivide between America and muchof the world.”

Batra said the United States—likemany other countries and institu-tions—faces the difficult challenge ofcommunicating its policies to increas-ingly skeptical—and even hostile—au-diences overseas. He said a June 2003Pew Research Center 20-nation pub-lic opinion survey found extremelyunfavorable attitudes towards theU.S.

�Dan Shine, a newspaper reporter andeditor the past 17 years, joined theWDI staff March 1 as its manager ofexternal communications.

Shine handles media inquiries, con-nects reporters with WDI experts,and promotes the institute’s initiativesto its diverse constituents and mediamembers.

He is a graduate of Michigan StateUniversity and has worked at theDallas Morning News and the DetroitFree Press. ■

Rajeev Batra

The roundtable brought together adiverse group of diplomats, govern-ment officials and academics, includ-ing: Judith Siegel, deputy assistantsecretary, Bureau of InternationalInformation Programs; and IrisBurnett, president, Academy for Ef-fective Public Diplomacy.

Topics discussed included researchon world attitudes toward the U.S.,government efforts at public diplo-macy, challenges the U.S. faces incommunicating its foreign policy,and communicating with skepticalaudiences.

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William Davidson InstituteExecutive EducationRuns General ManagementProgram in Bratislava

WDI’s Executive Education department launched itsflagship 10-day mini-MBA certificate program inBratislava, Slovak Republic this May.

The General Management Program (GMP) attracted29 executives from five countries—Czech and SlovakRepublics, Ukraine, Serbia, and Kazakhstan. Partici-pants included country managers, marketing directors,chief operating officers, finance managers from multi-nationals—such as Oracle, Pfizer, U.S. Steel—and re-gional firms such as SPP, the Slovak national gas com-pany.

The GMP is designed to teach cross-functional man-agement skills in five key management areas: finance,management accounting, marketing, strategy, and lead-ership. The program is taught according to the casestudy method and is designed to be hands-on and in-teractive.

“Participants were really excited by the material,” saidAmy Gillett, director of Executive Education at WDI.

“They were asking lots of questions during the sessionsand talking about ways in which they could apply thematerial to their companies.”

WDI partnered with the Centre for Advanced Studiesof the University of Economics in Bratislava to offerthe GMP. The program was taught in English by pro-fessors from leading institutions including Universityof Michigan Business School, IMD-Lausanne, and Uni-versity of Economics.

The institute has conducted this program successfullyin Zagreb, Croatia since 1998 in partnership with theZagreb School of Economics and Management. WDIhas been offering management training programs inCentral Europe, Asia, and Latin America since itsfounding in 1992.

In 2005, WDI plans to run the GMP in three locations:the Slovak Republic, Croatia, and Greece. To receiveinformation about the 2005 General Management Pro-gram sessions, please email your name and contact in-formation to [email protected]. ■

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Networking with peers from other companies is a key benefit ofthe GMP.

Teamwork is an integral part of the GMP. Here participants workthrough a management accounting case during a break-out session.

Executive Education Update

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The William Davidson Institute,together with the London-basedCenter for Economic Policy Re-search (CEPR), the VietnameseAcademy of Social Sciences (VASS)and the United Nations Develop-ment Program (UNDP) in Viet-nam, organized the annual Inter-national Conference on TransitionEconomics (ICTE) in Hanoi, Viet-nam May 27-31.

The conference, made possiblethrough generous Ford Founda-tion funding, brought togetherleading scholars to discuss issuescentral to transition economics.The academic conference was fol-lowed by a UNDP-organized In-ternational Policy Conference onTransition Economics.

The policy conference featured sev-eral academics who attended theICTE as well as other toppolicy makers and scholars fromCentral and Eastern Europe, Viet-nam and neighboring countries topresent a series of “transition les-sons learned” to an audience ofnearly 300 scholars, policymakersand members of civil society fromvarious transition countries. YegorGaidar, one of the architects ofRussia’s economic reforms, gave a

keynote speech. WDI faculty and re-search fellows giving presentationsincluded Kenneth Leiberthal, AlanDeardorff, David Li, and GerardRoland.

The two-part conference seriesproved beneficial to all participants.Researchers had the opportunity toshare ideas and feedback in a tradi-tional academic format at the ICTE,while the policy conference provideda forum in which the theories andfindings were presented and dis-cussed in an applied format accessibleto a larger general audience.

Vietnamese researchers appreciatedthe access to foreign research mate-rials—the display of conference pa-pers, WDI publications and variousmaterials sent by the journal Econom-ics of Transition were quicklysnatched up before the conferenceeven began.

Both the Vietnamese researchers andpolicymakers remarked on the highquality of papers and presentations.Vietnamese participants shed light onthe “Vietnamese experience” throughseveral excellent conference papers aswell as through informal conversa-tion about Vietnamese culture andpolitics.

Vietnamese economists partici-pated enthusiastically in both con-ferences. Several of the Vietnameseparticipants have already submit-ted papers to the WDI workingpaper series, and it is anticipatedthat several Vietnamese academics,policymakers and non-governmen-tal organizations will contribute tothe WDI policy brief series.

WDI hopes to continue to utilizethis model of combining academicand policy conferences as a vehicleto bring together “thinkers anddoers.” We also hope to build onour relationship with VASS andother non-governmental organiza-tions and foundations active inVietnam.

For a full conference report, list ofparticipants and additional infor-mation, please see http://www.wdi.bus.umich.edu/events/vietnam/vietnam_04.htm.

For more information on this, aswell as other conferences, events orresearch initiatives, please contactKelly Janiga, Manager of ResearchPrograms, at [email protected].■

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Chong-En Bai, Zhigang Tao, David Li, Jiahua Che, Yingyi Quian

Transition ConferencesBring Together Academics,Policymakers, Foundationsand the UN

Research Update

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Since 1992, the William DavidsonInstitute has conducted 480 MBAstudent consulting projects underits Global Projects program. Theprogram has touched more than1,800 students and providedproject-based assistance to about100 international organizations in-cluding multinationals, local firms,nonprofits and non-governmentalorganizations.

One such recent project had a teamof University of Michigan MBAstudents—in conjunction with theDavidson Institute—working withthe Nobel Prize-winning organiza-tion, Landmine Survivors Net-work (LSN). Founded in 1997 byland mine survivors Ken Ruther-ford and Jerry White, LSN hasfought tirelessly to empower indi-viduals, families and communitiesaffected by land mines to recoverfrom trauma, reclaim their lives,and fulfill their rights.

The organization helped lead thecoalition that won the Nobel PeacePrize for bringing the 1997 MineBan Treaty to life.

The Michigan students assisted theorganization with developing a

strategy for the economic integrationof land mine survivors in Vietnam.

In order to identify recommenda-tions for how LSN can achieve thisobjective, the students performedprimary and secondary research, in-terviews, data collection and analysisboth in the U.S. and Vietnam. Inter-views and data collection in Vietnamwere conducted during two weeks inHanoi and Ho Chi Minh City.

During the course of their consult-ing engagement, the team conductedmore than 60 interviews with keyconstituents in the U.S. and Vietnam.Interview subjects included survi-vors, officials from non-governmen-tal organizations, domestic and for-eign investors, business owners andmanagers, philanthropists, and gov-ernment officials.

The team’s recommendations to LSNfocused on providing land mine vic-tims in Vietnam with skills andknowledge that will allow them tocompete in a difficult employmentenvironment.

LSN will assume a leadership roleand coordinate with local organiza-tions to operate vocational training

centers. The organization also willenhance the quality of the voca-tional training currently offered,tailoring its initial program offer-ings to reflect the economic climatein rural, under-developed areas.

In addition to vocational training,the student team identified otherpotential opportunities LSN canconsider as secondary opportunitiesin the longer-term—including en-trepreneurial training, employ-ment programs, providing access toseed money for small business cre-ation, and launching other educa-tional initiatives.

Using the team’s recommendationsas a framework, over time LSNwill refine an economic develop-ment model that it can replicate inother areas within the region as partof the organization’s overall globalexpansion strategy.

For more information on theDavidson Institute’s GlobalProjects initiatives, please contactNancy Weatherford at [email protected]. ■

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Land mine survivor sells books on the street. MBA student team in Vietnam

Global MBA Projects Update

MBA StudentsCraft StrategicPlan To HelpEmploy LandMine Survivors

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WDI has been awarded two con-tracts in the past six months and hasapplied to either lead or participatein several new projects.

In May, the Eurasia Foundationformally approved the WDI pro-posal to carry out “Phase II” of itstwo-part project to build an Ameri-can-style business education pro-gram at the International BusinessSchool “Kelajak Ilmi” (IBS) inTashkent, Uzbekistan.

During Phase II, WDI will re-es-tablish the IBS Advisory Board, fi-nalize a long-term strategic plan,and develop alternative revenuestreams for the school. Dr. NedKalb, a retired Purdue Universityadministrator and agricultural eco-nomics professor, was recentlyhired by WDI to act as the manag-ing director of IBS and theinstitute’s local “chief of party.”Kalb is scheduled to start July 1.

�IBM Consulting announced re-cently that preliminary approvalwas given to a proposal submittedby an IBM-led consortium, includ-ing WDI, to design and implementmacroeconomic developmentprojects throughout the emergingmarkets world for the US Agencyfor International Development(USAID).

The IBM team submitted its finalproposal to USAID in May after a

series of negotiations and hopes tohave a contract in place before the endof the summer. The total value of thecontract is $650 million. Theinstitute’s role in this five-year projectwill be to address tax policy, trade andinvestment policies, as well as moregeneral macroeconomic and gender-related issues.

Key WDI faculty associates includeprofessors Joel Slemrod and JamesHines in the area of taxation, profes-sors Robert Stern and AlanDeardorff in trade, and professorsJan Svejnar and Katherine Terrell inthe area of macroeconomic adjust-ment.

WDI is a member of another IBMConsulting-led consortium to pursueprojects under a recently submittedproposal to manage financial sectorreform and development projects inglobal emerging markets. WDI willbe the key partner in charge of“knowledge management and dis-semination.”

�The institute submitted a proposal inApril to the U.S. Department ofState’s Middle East Partnership Ini-tiative (MEPI) to strengthen skillsamong entrepreneurs and seniormanagers of small and medium-sizedcompanies (SMEs) in Morocco. Thegoal of the project is to promote jobcreation and utilization of the oppor-tunities presented by the recently ne-

gotiated Free Trade Agreementwith the United States.

The $450,000 project will involveshort-term training offered in Mo-rocco through our local partner, AlAkhawan University, and fourconsulting projects in the areas oftourism, handicrafts promotion,and SME development. WDI ex-pects to be notified about fundingfor this contract in late summer.

�USAID via World Learning ac-cepted WDI’s proposal to train 11corporate spokespeople fromMacedonia on “Developing Share-holder Awareness, Protection, andDemocracy.” The program willtake place in July.

The first week of the two-weektraining program will involve class-room instruction, meetings withbusiness journalists and site visitsto Detroit-area companies. The sec-ond week will take place in Wash-ington, D.C. and in New York City,so that participants can visit regu-lators and law firms that specializein this area. That portion of theprogram will be managed byWDI’s partner, GeorgetownUniversity’s Center for InternationalEducation and Development.

�In other news, WDI will hire afull-time director of Technical As-sistance. For more information onthis job posting, go to the “Em-ployment Opportunities” link onour Web site. ■

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Technical Assistance UpdateInstitute Will Train Macedonians;Submits Proposal To Work In Morocco

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The William Davidson Institute,along with the European Union Cen-ter at the University of Michigan,hosted a conference March 24 onCapitol Hill on the effect of the ex-pansion of Europe on both the politi-cal and the economic relationshipbetween the United States and theEuropean Union.

WDI Distinguished Scholar andformer U.S. Secretary of StateMadeleine Albright chaired the con-ference and led off the discussion byarticulating a theme that was re-peated several times during the day—that a strong and united Europe isgood for America, as a strong andunited America has been critical tothe survival of Europe over the pastcentury.

“The EU and the U.S. each have anenormous stake in the economichealth of the other and we also havea mutual stake in security,” she said.“There should be no question that theU.S. and Europe belong on the sameside fighting terror, promoting de-mocracy and securing peace.”

The conference began with threemembers of Congress airing theirviews on current political differencesbetween the U.S. and Europe, andended with senior executives and eco-nomic experts asserting the impor-tance and vitality of the economic tiesbetween the two.

The consensus of most participantswas that both political and economicties could improve despite the fric-tions that naturally arise from in-creased interaction. While somespeakers were concerned by the lackof interest and understanding thatcitizens of both regions manifestedtowards each other, all agreed thatuniversities and institutes could playan important role in educating citi-zens and facilitating interactions be-tween decision-makers on either sideof the Atlantic.

U.S. Sen. Joseph Biden, D-Del., theranking Democrat on the Senate For-eign Relations Committee, began withsome strong statements about what hedescribed as a crisis in transatlanticrelations. He told the European con-tingent that they shouldn’t criticizeU.S. policy on the Iraq War becausethey didn’t offer any real solutions.

EU Enlargement’s Effects OnTransatlantic Relations AreDiscussed at Conference

Daniel Hamilton, executive director of theEuropean Union Center in Washington, D.C.

“The truth of the matter is, therewere really no very constructive al-ternatives offered by Europe for howto proceed relative to a man whetheror not he has weapons of mass de-struction and was in violation of ev-ery UN resolution that he signed,”Biden said. “I met with the heads ofstate of every one of your countriessitting up here. When I asked them,‘What is your idea?’ it was basically,‘Blah blah blah—international coop-eration.’ As they say in the slang ofAmerica, ‘Give me a break.’”

Gunter Burghardt, head of the del-egation of the European Commissionin Washington, D.C. disputed thesomewhat negative view of the cur-rent relationship between the U.S.and Europe reflected in the com-ments of the congressmen.

“Our American speakers havelearned apparently the art of the dis-course while they expect from us tomake the punchy points,” he said.

U.S. Sen. Joseph Biden, D-Del.

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“We have to strive for the middleway.”

He, along with other speakers, pre-dicted that the expansion of Europeprovided the opportunity for im-proved transatlantic relations.

While the first part of the conferencefocused on political relations, the sec-ond half was about the economic

After May 1, Europe will be theworld’s biggest economy, accordingto outgoing WDI Executive Direc-tor Jan Svejnar, and although the newmember countries are small, they aregrowing much more rapidly thanexisting members.

The panelists agreed that EU expan-sion should make Europe a bettertrading partner for the U.S. and abetter place for American companiesto do business. The U.S. and Europeare by far the world’s largest tradingpartners, with high levels of directforeign investment flows.

Thomas Usher, chairman and CEOof U.S. Steel, cautioned, however,that the standardization of economicregulations will be positive only ifmore, rather than fewer, sensibleregulations are adopted. Jeff Fettig,president and COO of WhirlpoolCorp., echoed this point when he ar-gued that the new member states ofCentral Europe should avoid adopt-ing Western European labor stan-dards that would decrease workforceflexibility and thereby make foreigndirect investment in Central Europeless attractive.

Catherine Novelli, assistant U.S.

Aleksander Smolar, president of the StefanBatory Foundation (left) and GunterBurghardt, head of delegation of theEuropean Commission in Washington, D.C.

Catherine Novelli,assistant U.S.Trade Representa-tive for Europe.

Trade Representative for Europe andthe Mediterranean, noted that theEuropean economies have histori-cally had high tariff differentials. Tar-iff decreases to a common Europeanexternal tariff will help U.S. compa-nies compete and should increaseAmerican exports to the accessioncountries.

She asserted the importance of con-tinuing bilateral trade and invest-ment agreements, a policy opposed bysome EU member states. She alsoexpressed her hope that the accessioncountries will represent a pro-marketview in internal EU negotiationsabout economic regulation and tradepolicy, since they would benefit fromthe resulting economic growth.

Both Gary Litman, vice president forCentral Europe and Eurasia, U.S.Chamber of Commerce, and DanielHamilton, director of the Center forTransatlantic Relations at JohnsHopkins University/SAIS, empha-sized the dramatic change in the eco-nomic structure of the world since thecollapse of the Soviet Union, andurged U.S. and European policymakers to emphasize the strong eco-nomic basis of the transatlanticrelationship.

The U.S. is the most profitable mar-ket in the world for European com-panies and vice versa. Globalization,said Hamilton, is primarily a trans-atlantic phenomenon. During theCold War, the U.S./European chal-lenge was to protect vital political re-lationships from small economic dis-putes. Now, as was manifested in thefirst session, the challenge is to pro-tect vital economic relationships frompolitical differences. ■

changes thatwould accom-pany EU expan-sion and the im-pact it wouldhave on EU/U.S. businessand trade.

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The William Davidson Institutebrought U.S. and developing coun-try policy makers, business leadersand labor representatives to CapitolHill to discuss the globalization ofservice activities and off-shoring.Among the questions debated were:

• Is the trend towards globalizationof service activities good or bad forU.S. workers, and the U.S.economy?

• What should U.S. policies be in theface of this trend?

• What is its effect on the develop-ing countries that are attracting IT-related service jobs?

• What should developing countriesdo in the face of protectionist sen-timents in the U.S.?

The April 23 conference clarified ar-eas of agreement and disagreement,as well as questions that remained. Italso served to launch a new researchinitiative on the part of the DavidsonInstitute, which will collect existingresearch and best practices as well asgenerate new research on the global-ization of services. Results will be cir-culated among conference partici-pants and the broader policy andbusiness community to further thedebate on offshoring.

C.K. Prahalad, University of Michi-gan Business School professor, ar-gued that what has been called “off-shoring” is really part of a processof global industrial restructuring,and that rather than trying to pro-tect the status quo countries and

have moved there. The Chinese an-ticipate economic growth from at-tracting an ever-increasing number ofmanufacturing jobs, but China repre-sents a huge market for the U.S. ser-vice sector.

Among those voicing concerns aboutthe off-shoring trend, Ron Blackwell,director of corporate affairs for theAFL-CIO, argued that global labor

Ralph Maly, left, of the CommunicationWorkers of America makes a point during abreak in the conference.

Economists, Business and Labor LeadersDebate Impact of Off-shoring at DC Roundtable

companies should be working to cre-ate the future.

India attracts investment and jobsbecause of low labor costs, its largepool of educated workers, improve-ments in business process and qual-ity, and an improving legal and regu-latory environment. This process ofglobal restructuring, however, doesmore than move jobs to low wagecountries. It also creates huge newmarkets for Western firms, as the glo-bal balance of purchasing powershifts.

Dr. S. Narayan, the then-economicadvisor to the prime minister of In-dia, noted that while the outsourcingof information technology jobs to In-dia has received a lot of attention, theIT sector only accounts for 3.2% ofIndian gross domestic product.

In addition, while 15-20 millionpeople enter the Indian workforceeach year, the entire IT sector em-ploys only 600,000 people. He furtherargued that the off-shoring of sometypes of work has the net effect ofcreating jobs in the U.S.

“The opportunities for United Statescompanies is much greater as a resultof this offshoring,” Narayan said.

Kenneth Lieberthal, Davidson Insti-tute distinguished fellow and mem-ber of President Bill Clinton’s Na-tional Security Council, echoedpoints made by Prahalad andNarayan by arguing that China is aprofit center for U.S. companies—nota source of job loss—despite the largenumber of manufacturing jobs that

New York Times op-ed columnist ThomasFriedman speaks at the Globalization ofService Activities conference.

U.S. Rep. Sander Levin, D-Mich., and DanGriswold of the Cato Institute listen to thediscussion.

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market integration will lead to wageconvergence, and that the U.S. stan-dard of living may fall.

“I want to know how we’re going toestablish mechanisms so that as wedouble the labor force in the worldwe can assure that they’ll have morerising standards of living and contrib-ute to a more balanced internationaleconomy,’’ Blackwell said.

New York Times columnist TomFriedman said that the U.S. was los-ing initiative as leader of the globaleconomy and was being replaced byglobal networks such as Infosys.Friedman said that while U.S. invest-ment in research and development isfalling, “the Democrats are wastingtime debating NAFTA and the Re-publicans are talking about going toMars.” He asserted that the U.S.needs the shock therapy of India tell-ing us, “We’re eating your lunch.”

Shang-Jin Wei of the InternationalMonetary Fund cited statistics show-ing that the U.S. is a net “in-sourcer”of services in dollar terms, and thatemerging markets do more off-shor-ing to developed countries than theother way around.

Jeff Lande, vice president of the In-formation Technology Association ofAmerica, noted that only 2-3 percentof the overall IT industry in the U.S.is outsourced to other countries, andas labor costs in India continue to risethere will be even less incentive tomove jobs abroad.

One who argued against restrictionson outsourcing was Dan Griswold,associate director of the Center for

Trade Policy Studies at the Cato In-stitute. He gave several examples ofthe impact of denying companiesstate contracts when they outsource,which resulted in huge increased tax-payer costs to save just a few U.S. jobs.

“I think this is a costly and inappro-priate move by the government,”Griswold said.

Gene Sperling, national economicadvisor under President Clinton,stated that the U.S. is not seriousenough about adjustment policiesthat would help workers who losejobs due to off-shoring, and that suchpolicies need to be universal andsimple in order to be effective. Tell-ing people who have lost their jobsthat the larger economic outlook isgood is not a viable political option, apoint brought up by CongressmanSander Levin as well.

Robert Kennedy, incoming executivedirector of the Davidson Institute,closed the conference by voicing someof his views on off-shoring whilethanking participants for sharingtheir many divergent viewpoints.

Kennedy argued that the U.S. is bet-ter off as developing countries suchas India and China get richer. He alsoreiterated the point that the off-shor-ing phenomenon is not that large,relative—for example—to the numberof voluntary job changes in the U.S.And globalization in general—andoff-shoring in particular—are phe-nomena that policy makers can’t stopso the best course of action is to lookto the future and create innovativesolutions to new problems as theyarise. ■

Above: Jeff Lande, vice president ofInformation Technology Association ofAmerica, listens to another speaker.

Below: Gene Sperling, senior fellow at theCouncil on Foreign Relations, discusses theoffshoring issue.

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down on violence and make peace onterms Israel can accept.

“I only wish it were that simple.’’

A stable and democratic Iraq wouldbe great, she said, but it alone will notchange the views and attitudes ofArabs and Palestinians on how theyhave been treated over the years orwhat is an acceptable outcome in theMiddle East.

Despite the fact that there is no goodmodel of Arab democracy, many Ar-abs say they want democratic valuessuch as freedom of expression, multi-party systems and equal treatmentunder the law, Albright said.

One troubling hurdle, she said, is thetreatment of women.

Albright said despite the contentionsby Arab men that Islam and the Ko-ran dictate how women are treated,there are no prohibitions to keepwomen from driving, voting, work-ing or running for office.

“I am not among those who believethe West has a right to dictate howwomen in Arab countries aretreated,” she said. “But I believe wehave a responsibility to voice ouropinions until Arab women are em-powered to voice theirs.”

The key to succeeding in establish-ing democracy in the Middle East isgetting across the message that is atthe heart of democracy. That is, thatevery individual counts.

“If this principle does not become theguiding objective of governments

and citizens in the Middle East, de-mocracy will not spread no matterwhat we do,” Albright said. “If itdoes, democracy can not be stoppedno matter what its adversaries mightattempt.”

The next day, more than 400 peoplecrowded into Hale Auditorium tohear Albright talk about whether in-ternational institutions such as theUnited Nations and the World TradeOrganization are showing their age.Those who couldn’t find seats orroom in the aisles filled two overflowrooms and watched the speech ontelevision monitors.

Albright said those institutions stillplay an integral role as arbiter of whatis right and wrong around the globeand should be embraced by theUnited States and other countries. Itis usually a lack of leadership thatnegatively affects these institutionsmore than anything else.

“The result has been a surplus of fin-ger pointing and a deficit in progresstoward goals that should unite mostof the globe,” Albright said.

Albright emphasized that the U.S.should never cede its foreign policyto the UN or allow it to block thecountry’s right to use force legally.But the U.S. should try to improve

relations with the UN for the benefitof the world by displaying good lead-ership.

Albright also said the U.S. shouldtake a leading role in the debate aboutthe costs and benefits of globalization.

She said after she left office, shechaired a study on the question ofglobalization and found that mostpeople around the world like the idea.They like free markets and democ-racy but have problems with the waythe benefits of globalization are dis-tributed. People feel too often thatwith a global economy, the rich getricher and the poor remain poor.

“Our explicit goal should be to en-sure that the benefits of trade, invest-ment and the movement of capital aremore widely shared,” Albright said.

While the U.S. looks to the future,nervous about the specter of domes-tic terror, Albright said joining withinternational institutions is a mustdespite any imperfections. Critics ofthese international institutions askwhy we should worry about theiragendas of global climate change, try-ing war criminals or building peacein Africa because, “after all, we areAmerica,” Albright said.

“My reply is that we should care pre-cisely because we are America,” shesaid. “We have a right to do what isnecessary to defend our citizens, ter-ritory and interests. But we shouldrecognize that our interests are gen-erally well served by a global systemof institutions, treaties and lawsthat—although flawed—provide abroadly accepted standard for sepa-rating right from wrong in world af-fairs.” ■

Albright Visitcontinued from page 3

A happy student with an autographedAlbright book.

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Kennedy received bachelor’s degreesin economics and political sciencefrom Stanford University, a master’sdegree in management science fromthe Massachusetts Institute of Tech-nology, and a master’s degree anddoctorate in business economics fromHarvard University.

“I am honored to be selected to leadWDI in the next phase of its growth,”Kennedy said. “Jan built a strongfoundation within the transition eco-nomics community, where we areclearly one of the leading institu-tions.”

Kennedy said he will build on thisfoundation with three related initia-tives.

Be more proactive aboutaggregating and disseminatingleading-edge intellectual capitalon emerging markets.

“We are in the process of developingsome interesting technology tools thatwill allow active notification whenuser-specified content becomes avail-able, such as papers or conferences ona particular topic, or anything abouta country of interest,” Kennedy said.“We will also add tools to facilitatediscussion of research topics. We be-lieve that these tools will make WDIa more attractive place for research-ers to showcase their work.”

Move to address additionalaudiences.

“WDI is well established in the tran-sition economics community, but less

New Directorcontinued from page 1

so with policy makers, business prac-titioners, business educators, and themedia,” Kennedy said. “We believethere is great opportunity for cross-fertilization among audiences. Forexample, drawing on leading edge re-search to produce policy briefs orteaching materials.”

Kennedy has established a publica-tions and external relations groupand will be establishing a newbusiness “briefs” series to comple-ment the existing policy brief series.The institute also will be launching ateaching materials series, with collabo-ration and discussion areas for educa-tors. And WDI has hired a media rela-tions expert who is working with printand broadcast journalists to create anetwork among the media andinterested academics.

Narrow the range of researchtopics funded directly, butsignificantly increase the fundscommitted to each initiative.

Kennedy said the institute will focuson three to five areas that are impor-tant policy or business issues inemerging markets, are not well un-derstood, and are where WDI re-sources can make a difference.

“The idea is to tackle these topics suchas globalization of service activities,for example, from multiple angles—economic, policy, business, etc.—andproduce insights that inform morethan one audience,” he said.

The institute will continue to providedirect experience in emerging mar-kets through student projects, execu-tive education and technical assis-tance programs for development

agencies such as the World Bank andthe United States Agency for Inter-national Development.

“Helping developing countries enterthe global economy is an importantpart of our mission,” Kennedy said.“These projects provide great oppor-tunities and learning experiences forour students, and we can have a largeimpact by introducing best practicesto local governments, educational in-stitutions and businesses.”

Institute founder William Davidsonsaid: “We all felt that Bob Kennedywould be an excellent fit for the Wil-liam Davidson Institute because ofhis significant experience as a man-agement consultant and venture capi-talist in emerging markets and hisacademic expertise studying corpo-rate strategy and other key issues inthese markets. We believe that hisbackground and skills will help tosharpen and deepen the institute’sexpertise on emerging markets.”

Business School Dean Robert J.Dolan, who also serves as presidentof the institute, said, “Bob’s empha-sis on the practitioner-oriented initia-tives of the institute and makingthem relevant to economists,businesspeople and educators willhelp establish WDI as a gatheringpoint for the study of emerging mar-kets.”

Kennedy said it is an exciting time toassume leadership of the institute.“I look forward to working withmembers of the WDI network to bet-ter understand their research inter-ests and to discuss how we can helpfurther their work,” he said. ■

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Five Questions With…

In April, Dr. S. Narayan, then-economic advisor to theIndian prime minister, visited the Davidson Institute. Hemet with students and spoke at the institute’s wine andcheese reception. He also took part in the April 23 Glo-balization of Service Activities roundtable in Washing-ton, D.C. Soon after he returned to India, the leadershipof the Indian government changed. Voters elected a newgovernment, and a new prime minister—Dr. ManmohanSingh—was appointed. We checked in with Dr. Narayanvia email to see what the changes may mean for him andIndia.

WDI: When you were here, you said that your job wasnon-political. So, are you still employed by the gov-ernment?

N: I have decided to move on. Directions of policieschange with each government and it seemed better

to opt out. It was a decision that I took myself, notat anyone’s bidding.

WDI: How many different prime ministers and govern-ments have you worked for over the years?

N: In my 39 years of government service, I have seenall the prime ministers that India has had from in-dependence. At senior levels, I have worked withprime ministers including Mrs. Indira Gandhi andMr. (Atal Bihari) Vajpeyi.

WDI: What kind of changes, if any, do you see economi-cally with the new prime minister?

N: The new government has announced, along withits allies, a common minimum program. The ma-jor focus appears to be a shift towards programs witha social focus, education, health and towards mod-ernizing agriculture.

WDI: What do you plan to do now?

N: I propose to take a break and then look at optionsoutside government. I like teaching, and academiamay be an option.

WDI: What are the memories of government service thatyou take with you?

N: I go with the satisfaction that the system alwaystreated me well and I had the opportunity to workin some of the most exciting positions in govern-ment. The high point has been the last five yearswhere I have been actively engaged in creating andimplementing policy, and have witnessed economicreforms take off. A lot remains to be done, thougha lot has been achieved. This would be too short acommunication for memories, but the satisfactionof seeing the results of one’s decisions and the ben-efits to the citizens are memories which will alwaysbe there.

Dr. S. Narayan

About the William Davidson Institute

The William Davidson Institute is a non-profit, independent,research and educational institute established at the Universityof Michigan Business School in 1992. A primary objective of theinstitute's educational, research and technical assistanceprograms is to develop the knowledge and insight necessary toimprove the effectiveness of business activity in emergingmarkets. Managers, policy makers, students and faculty benefitfrom the many exchanges that promote a new understanding ofthe issues affecting successful business operations in previ-ously planned and less-developed economies.

The Davidson Institute Review is published by the WilliamDavidson Institute at The University of Michigan BusinessSchool, 724 E. University Ave., Ann Arbor, MI 48109-1234.

Editors: Dan Shine, Nancy Weatherford and Anna Meyendorff,Ph.D. For more information, please contact us at734.763.5020 or visit our website at www.wdi.bus.umich.edu.

Photo credits:Cover: Marcia Ledford.Pages 2, 10-13: Michael Bann.Pages 3 and 14: Steve Kuzma.

WDI Davidson Review Summer 2004

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Transcript of WDI Davidson Review Summer 2004