CLT.biz Insights 16.10.08
Featured In This Issue
U.S. Strength Amidst Current Global Crises
Our Geopolitical Future Relative to the Global Hotspots
There a very few speakers who can provide a comprehensive overview of what is happening in the world at any given time. George Friedman of Geopolitical Futures, an expert on explaining and predicting the future of international affairs, is one of them. In his remarks at The Chicago Council on Global Affairs, he looked at several of the growing global crises. His presentation helps to provide some insight into the collective global experiences and how we are affected by them.
At the very beginning of his discussion, he rejects the opinion that “free trade is a necessary boon” and the “best economies are exporting economies.” He then provides his outlook from Europe, to the Baltics, to the Middle East, Russia, China and North and South America. He presents his case in six arenas: The Global Export Crisis, The Refugee Crisis, The European Crisis, The German Export Crisis, The China Crisis, and The Russian Crisis.
He examines the extent of U.S. exporting and, contrary to the currently abounding rhetoric about America’s decreasing power/influence in global affairs and deleterious engagement in foreign trade, he highlights how the relatively diminutive engagement of the U.S. in foreign trade actually immunizes it from the current fundamental systemic world crises and will allow it to pursue its “imperial” power as the most stable world economy. Good news! The world is rotating…there is a fundamental destabilization of the Eurasian hemisphere while ours remains relatively immune. The full transcript of his remarks are included below.
UPDATE: George Friedman spoke to the World Affairs Council of Charlotte in 2015. He has been invited back for 2017.
George Friedman is founder and chairman of Geopolitical Futures, focused on explaining and predicting the future of international affairs for the public. Previously, he founded geopolitical intelligence firm Stratfor (Strategic Forecasting). Friedman is a regular contributor to discussions on international intelligence issues for major news and radio networks including CNN, Fox News, and NPR. He is the author of numerous books on warfare and intelligence, including The Next Decade; The Next 100 Years; America’s Secret War; and The Intelligence Edge.
The following is a transcript of George Friedman’s remarks at The Chicago Council on Global Affairs concerning Global Crises:
The Global Crises
The European crisis has intensified, and has been joined by a series of crises across the Eurasian land mass. When I say Eurasia, I mean Europe and Asia, from the Atlantic to the Pacific, from the Arctic Ocean to the Indian Ocean. It’s noteworthy that every significant part of that land mass, with the exception of India, is in fundamental systemic crisis. We have not seen a model like this really since World War II. This does not mean that I’m saying that we’re going to have a war, or anything else. I’m simply saying that the pattern is ominous.
It is not yet deep—in the sense of intractable—but it is broad. We need to understand why it’s that way, because the world has now taken an interesting shape. Eurasia—in chaos, or close to it, in Europe, in Russia, in China, in Central Asia, in the Middle East certainly. While north America, and the western hemisphere in general, is stable. Relatively stable, not perfectly stable. The great contrast that is developing in the world is the massive distinction between the two hemispheres, in the way, including Latin America, is behaving, and the massive distinction that particularly exists, between North America—NAFTA—and the various trade zones and alliance blocks in the eastern hemisphere.
This is a pattern that will not emerge and then go away in three years. It is a fundamental shift, and an understandable and predictable one I’ll try to make, that really ushers in a new phase of human history. In my book I published back in 2009, The Next Hundred Years, I spoke about the movement of history from Europe to North America. That North America was becoming the center of gravity of the international system, the stable pivot. This is part of that process, and as such, is extremely important.
When we look at this crisis, we need to understand the engines. Many of the engines are simply local. I’ll go through them later, but the EU is poorly founded, the Russians are vulnerable to the price of oil, the Chinese are going through a cyclical downturn as Japan did before it, and the Middle East is the Middle East. Each of them have reasons.
There is an underlying reason that this is intensifying, which I call the crisis of the exporters. For over a century, it has been assumed that free trade is a necessary boon and efficient exporters are in some way economically, and perhaps even morally superior, to poor exporters. What has happened, really since 2008, is a reversal in which heavy exporters have found themselves extremely vulnerable to shifts in the market, while those who are inefficient exporters are relatively immune.
Since NAFTA is a fairly inward-facing institution, it has an immunity which the outward facing entities, like the EU or China, don’t have.
The problem came about in 2008, with a massive downturn economically in the United States and Europe. For the United States it was a relatively temporary affair. For Europe it became a systemic crisis. The crisis’ prior problem was that Europe was China’s largest customer. Not Wal Mart, although close, it was Europe. China was at a particular delicate moment historically when this struck. It had dedicated itself to full employment. It maintained full employment by promiscuously lending money, so the companies wouldn’t go out of business. This lead to inflation, until goods manufactured in Mexico were cheaper than the goods manufactured in China. This was the beginning of this moment.
Its exports situation was already under deep pressure. When the appetite of the Europeans and the Americans for Chinese good contracted, what was a serious problem became a destabilizing problem. The Chinese economy depended on exports for cash flow to pay debts in a debt-based economy. People borrowed money not with equity, and don’t have to pay it back. Deeper than that, with that destabilization that was happening, you found a fundamental political one, that I’ll talk about.
One of the more interesting things is that the China myth, what I call the China bubble, really began exploding in 2010, 2011. But the lag between the time the global markets understood that this was the new normal of China—that China was not going back to that unique 20-30 years of extraordinary growth—when that was understood, everything would change.
I remember that Business Week, in 1993 published an issue on the Japanese economic miracle. 1993. Which is to say, not just the media, but the markets, and I don’t understand this, but I want to understand it someday, continue to believe, against all evidence, that China would maintain its consumption of raw materials, in spite of the downturn of exports.
There was a belief, when you questioned people, that this was a passing phase, and that China would return to what it was—an inability to understand this was not a passing phase, it was a secular shift in the way China worked.
A year ago it became obvious that this was not a passing phase. A number of statistics were published by the Chinese. On one occasion it was actually true. It emerged that they were in serious trouble. Suddenly the global commodity markets, all of them, absorbed the fact that China was not going to be pulling the engine, was not going to be pulling the train, and prices fell down. This had a staggering effect on, for example, Russia.
Russia, for various reasons I’ll talk about, is heavily dependent on energy exports to maintain its political system. Its entire domestic budget is built on oil prices. When oil prices fell down, they were smashed. We just published yesterday, a study on Saudi Arabia, and the decision to sell part of Aramco, to give the sense of how badly this smashed the Saudi economy. But it was not just them, it was also Australia and all of those that were heavy exporters. You had, in the past, mineral exports under pressure, but the industrial goods in good shape. Industrial good in good shape, mineral prices rising with them. You’ve never had a situation, that I recall, in which both mineral prices and industrial prices are under pressure, especially in exporting countries.
You have mineral exporters getting hammered, industrial exporters getting hammered. Everybody who exports is getting hammered. When we look around the world, and we see the export levels, we see that Russia exports 30 percent of its GDP, mostly in energy, China about 22 percent, Germany 46 percent, and that remains a story, and the United States 13 percent, of which 40 percent go to Mexico and Canada. Now we see the basic divergence. The United States is, relative to GDP, an inefficient exporter, and therefore, not subject to the appetites of its customers. Those who are heavy exporters are subject to those appetites.
You must always understand that when you are selling something, you have to have customers. If your customers can’t buy, and you’ve built your economy on the assumption of rising consumption, you’ll stagger. If you’ve built your economy around the idea that it will constantly sell minerals to exporting industrial countries, and they don’t have customers, it all cascades backwards. Let’s now take it each individually, and not look at this broader picture of destabilization, but let’s take a look at each country, at each region that’s in trouble.
The European Crisis
The fundamental problem of Europe is an attempt to take a country like Greece, and a country like Germany, and give them the same currency. Moreover, to leave in the hands of each individual country fiscal policy, while a central bank controls monetary policy, so there’s no coherence between the two, and have one country so overwhelmingly powerful—Germany—that it has the ability to set the regulations in Brussels, and the behavior of the European Central Bank, not because it’s a conspiracy, because if you don’t support the German economy, then it all comes tumbling down. You don’t have Europe. There’s no such thing, except as a geopolitical geographical expression.
The unemployment rate south of the Alps is over 20 percent, somewhere 25 percent. That is the same rate of unemployment the United States had during the great depression. The unemployment rate in Germany is four and a half percent. The harmonization of these economies is not possible. Therefore, on virtually every other issue, they are unable to act.
One of the funniest things I saw was, a decision on the part of the EU. I can’t figure out which commission, because there are so many. They would send help to the Greeks, to patrol their shores to keep people out—in June. Think on this. This is a paralysis. This is a paralysis built in by the system.
Bear in mind two things. There is a major crisis coming in the Italian banks, it’s actually here. Italian banks—and you have to desegregate region and everything like that—have non-performing rates of seventeen to 18 percent. I believe it is higher. You do not have 20 percent unemployment without a consumer debt crisis. This can’t be. The Europeans have not had a consumer debt crisis, which means they’re rolling over the debts in various ways so that they don’t have to register it. How can you possibly have that sort of unemployment without massive mortgage defaults?
Behind all this is the great bubble, Germany. Germany exports 47 percent of its GDP. I’m not good at arithmetic, so give me 50 percent, which means that every time it loses five percent in exports, it loses two and a half in GDP. Now losing two and a half of your GDP matters, but if you lose 15 percent of your exports, you’ve lost seven and a half percent. The point I’m making is Germany is on the edge of the volcano. It is a massive exporting power that has built its economy on the assumption of expanding demand for its goods, basically in the European free trade zone, and that can’t happen now. Its entire structure is based on that because domestic consumption can only be raised so much, when you have that much out there.
Other countries in this position, South Korea for example. Only Germany is the fourth largest economy in the world. So the size of the imbalance, relative to the global system, is massive. In a world, in which you have an exporters’ crisis, and one of the greatest exporters in the world, Germany, with a larger dependence on exports than China or any other country that you might name—the global exporter if you will, from a percentage point of view—has not yet had a decline, a significant decline of exports. When the absolute numbers of significant decline don’t fall, you have Japan in 1989. The margins have to be falling. They have to be, in some cases, negative. There’s only so long that Deutsche Bank can keep underwriting this, and it’s pretty much, I suspect, out of time.
In the meantime, what you have rising in Europe is the right. By the right, I do not mean brown shirts, but nationalists, people who are saying, “This doesn’t work,” while the Financial Times swears its working, because the northern European banks are in good shape. If you read the Financial Times, you read the voice of the European elite. The European elite still believes they’re having a banking crisis, rather than a systemic social failure, and that that systemic social failure is going to result in massive changes in regimes, and in the way regimes change. The tension that we see now between France and Germany is with a proEuropean government, which will not stay in power unless it does this. A Cameron is forced, if he’s going to stay in power, to call a referendum.
Even the moderate regimes that you see, have to tack away from the European Union. I don’t believe the European Union will fail. I believe somewhere, in some building, the League of Nations still has an office somewhere in Geneva. European institutions don’t fail, they just become gentile in their poverty. You already see precisely how Europe will fail. People will simply ignore what it says.
There is no immigration crisis. Europe is five hundred million people. We’re talking about one million, I can’t do the arithmetic, but it’s less than one percent. There is no reason the Europeans can’t handle it; they just can’t decide on what to do. What this distinction has done has paralyzed the European institutional systems. It has also lead to recriminations between government. Everybody knows that this whole thing is Hungary’s fault. Blame it on Hungarians this week. This is a crisis of such fundamental proportions at the heart of the world, Europe.
The Russian Crisis
The Russian crisis is much simpler. Putin was unable to transform the wealth of a hundred-dollar barrel of oil into a viable economy. He wasn’t able to because the forces that bought him the power, the FSB and the oligarchs, had to be satisfied in various ways. That money had to be diverted to support enterprises that—Rosneft for example—that had to be maintained. He never had the room to maneuver to divert that money to build something more substantial.
It now faces a catastrophic situation where the expectation of the Russians was $70 a barrel of oil at the bottom, and I don’t know what it closed at today, but it’s below that. The Russian federation works with money being transferred to the central government, the central government distributing it to the Oblast, the various regions. If the central government doesn’t have the money to distribute to the Oblast, well there’s no terror going on that’s frightening a governor to obey, he’ll go his own way.
In Europe, fragmentation consists of nobody paying attention. In Russia, fragmentation consists of nobody receiving benefits from the central government, and therefore pursuing their own interests in whatever direction it goes.
The China Crisis
In China, what we have seen is a cyclical crisis. You cannot sustain that level of growth permanently. No matter what Goldman Sachs said, it can’t beat the United States. You cannot start where they are, and in a sprint over 40-50 years, surpass a century-deep government. What you do is what Japan did. You reach a point where you cannot sustain it, and you reach a new normal. You’ve had a new normal in Japan. People talk about the lost generation. This was not lost from the Japanese point of view. They maintained full employment. They were feeding their people. There was not unrest. Only American investors felt it was lost. There were no opportunities. The Japanese apologize, but they hadn’t built their economy for Westerners to profit, but they were stable.
China cannot reach a new normal, because in China, by Chinese statistics, six hundred million Chinese, have incomes below $2 dollars a day, household incomes. Four hundred and forty million Chinese, have incomes of $2-$4 a day. China is an extraordinarily poor country, a fact you can miss if you fly into Pudong and have one of those dinners where you mortgage your house, and go to your hotel. If you go to China, rather than this American extension into China, Shanghai, you discover a country of enormous poverty.
This is where Mao Zedong took the long march. The long march when he went to Yanan and raised an army, and came back after two decades and shut down the country to create equality. This is where this holiday, people who have gone to Shanghai, or Guangdong, with dreams, went home, never to come back, let go from their jobs.
The issue here is not what is the Chinese stock market doing. It is an irrelevancy really to the entire thing. It is, what are these people going to do with shattered lives, in a country that has a tradition of Maoism, which is why you see Xi, desperately trying to expropriate that tradition of Maoism. He wants to own it, and then hone it in two ways. First, he is the heir. Second, he will strike at any organization that threatens him.
China has become a dictatorship, because the alternative in China is regional fragmentation. The real issue here is whether China returns to a form of Maoism, or whether it goes back behind Maoism to Regionalism. The Regionalism will be the Chinese communist party fragmenting.
Why? Because if you are in Shanghai, and you are making a great deal of money from your relationship to Apple, you have a greater interest in that relationship, than you have to Beijing’s latest demand for the transfer of money. Or, you’re so afraid of Beijing, that you’ll transfer the money. This is the great, not very sophisticated, but very great question of China.
Will the party committee in the coastal regions be more afraid of the secret police, or less afraid of secret police and more desirous for their relationship with the West? This, by the way, up until 1947, was the nature of China. These are the two Chinas. The China of Mao, and the China of Chiang Kai-shek and Sun Yat-sen. It is not self-evident that it won’t be one of these choices, but it is the least likely that it will return to the way it was for the past generation. There is no path back to that right now.
This is why Xi is conducting intense purges. He has discovered, to his shock, that there is corruption going on in China. That’s not the point. What he is doing is eliminating opponents, fragmenting elites that could rise up against him, and generally creating a sense of insecurity within the Chinese communist party, so that any fragmentation of the party won’t happen.
He is also, of course, playing a game in south China sea. That’s not a trivial game, but it’s not a serious one, however, it is designed to do exactly what the Russians did in Syria. Aside from whatever strategic benefits they had, Putin has 80 percent popularity. That’s no kidding. In the same way that George W. Bush was enormously popular in the first six months after 9/11, nations rally, and the Chinese nation will rally to a confrontation. Not two years’ worth, six months’ worth. What everybody is doing on that continent, that massive two continents, is playing with fire to maintain political stability.
The Middle East Crisis
In the Middle East, you have had the collapse of the states that Europe invented. Syria was an invention, Lebanon was an invention, Jordan was an invention, Israel was an invention, Iraq was an invention. They all had origins of sorts, but many of them—particularly Syria and Iraq—no longer exist. They don’t exist because at a certain point the United States decided it was not going to take responsibility, as the British might have, for the future of the region.
Not necessarily a stupid decision, but one with consequences. The consequence was, that the most natural force in the region, Islam, the most embittered force in the region, Islam, began to form new entities. This will sort itself out, as Lebanon did, because Lebanon is the example.
In 1970s, Lebanon fragmented, the national government collapsed, and Lebanon consisted of various fragments fighting each other. You now have the Lebanese model transferred to Syria and Iraq, and now the Saudis are desperately worried, because they themselves are a faction—the House of Saud—that came to power under British mentorship, if you will.
They look at the price of oil. They look at the stability of the royal family that expects to be paid. Of those not within the tribe, who also expect to be paid. They took to their crisis, and their frightened. Now you have flowing out of that, the Arabian Peninsula, itself on the cusp, to the point where the great triumph of the Saudis was the nationalization of Aramco. The crown prince raises the question; we might sell five percent. This is the equivalent of selling rugs out of your house to pay the rent, and it strikes at the heart of legitimacy of Saudi nationalism such as this.
We also see these crises merging. The European, Middle Eastern crisis on multiple levels, immigrants, terrorism, French/British fighters deploying to the region, nothing intense yet, but merging. The Russian-European relationship is merging, not just over the question of Ukraine, but certainly over the question of Ukraine, because that’s vital. The Russian-Middle East relationship is merging with the Russians intervening.
In the middle of this, note, one nation that intersects everything—intersects the European crisis, intersects the Russian crisis, intersects the Middle Eastern crisis—Turkey. Desperately trying not to get in, having no way to stay out. You will watch Turkey. One of the things I predicted in that book I had mentioned, was the rise of Turkey, not because there is a vast conspiracy, but because everything is going to fall apart around it.
The Europeans are now going to the Turks trying to make a deal on refugees. The Russians are shooting at them, and visa versa. The Americans are demanding that the Turks do something about Syria. Turkey.
But that is not the most important thing. The most important fact of the world is the United States exports 13 of its GDP, and effectively really about seven percent of its GDP outside. That makes the United States, who has always been criticized as being non-competitive, in an enormously comfortable position. It is also the United States that is withdrawing from this region, is not involved in Europe, is not involved in the Middle East the way it’s supposed to be, is playing Kabuki game with the Chinese. The Russians are a more interesting question of how we will play them. The United States now has the option of elective affinities.
It does not have to marry. It does not have to engage. It may withhold. This is not, incidentally, isolationism. It’s called prudence. This changes the American position in the world dramatically.
We all believe, because we’re Americans, that times have never been as terrible as this. This is a religious faith. There’s problems. But the relative position of the United States, compared to all other great powers, is incomparable. What has happened since 2008 was, that a stupid American idea, subprime loans, was bought by even stupider people in Europe. I always say that the guy who bought it is dumber than the guy who sold it. And that has pyramided. But if it wasn’t that, it would be some other thing. The entire eastern hemisphere, each of these countries was standing on a volcano. Whatever was going to set off the volcano, they were all going to fry.
The last time I saw a pattern like this was World War II. It was the last time that all of Eurasia was somehow involved in a destabilization. It is very difficult to imagine this turning into a war. For one thing, none of these countries have the energy for a war. By energy, I mean the sheer moral power to do it. You cannot ignore the fact that whatever subjectively I might think, the pattern is enormously ominous.
The most ominous part of this, and I’ll stop there, is this fact. I think the Russians are going to be very aggressive. I think the Russian Federation will go the way of the Soviet Union, for the same reasons: high defense costs, low energy prices. That took down the Soviet Union. That will, I think, take down Russia. When the Soviet Union collapsed, all nuclear weapons under American tutelage was transferred to the Soviet Union, so the Kazakhstan wouldn’t have a nuclear capability, which we all think is a good idea.
If the Russian Federation collapses, what happens to those nuclear weapons? The frightening thing about Russia is that it is a nuclear power, and if it fragments, something has to be done about it. There really isn’t anything that can be done. What do you do? That’s one fear.
The other thing to look at is the entire center. I haven’t talked about central Asia, but give me that. The center of the Eurasian land mass is being hollowed out. We see one country already emerging—Turkey. The real power, that has always been the dominant power in east Asia, Japan, is now beginning to sense itself. Poland, in most dealing with the Russians, or anyone else, is far more influential than Germany, who is paralyzed by fear of what happens to exports.
So, we are in a position where the world is rotating. The world always rotates. Everybody thinks that it will go back to the way it was; it never does. Those who understand that will fret more than others.
We are now at a turning point. Where the last time I came here and spoke to you about the inherent weakness of Europe, I now have to go to a broader picture: a fundamental destabilization of the hemisphere, while the other hemisphere—ours—remains oddly, but explicably immune. This becomes the real issue.
We are now the imperial power, if you will, in the sense of being the most stable, powerful country in the world. How do we handle this? What is there to be done? The answer is, I don’t know, but I will ask.
[Question and answer period follows.]
About Geopolitical Futures
Geopolitical Futures is a publication dedicated to predicting the future course of the international system. In doing so, Geopolitical Futures challenges two assumptions. First, that political leaders decide what they will do and individual actions can’t be predicted. Second, that there is no methodology for predicting non-quantitative events.
The fact is that political leaders’ decisions are not individual decisions made independent of external factors or domestic circumstances. Leaders come to conclusions based on the various pressures that are placed on them by the international system, as well as by internal political considerations. Having been shaped by their struggle to attain power, they follow a rational course of action when in power and, therefore, their decisions are predictable.
The second assumption, that non-quantitative forecasting is impossible, is untrue. Human beings make successful decisions daily based on non-quantitative models. The models are informal. Geopolitical Futures uses a formal methodology known as “Geopolitics,” along with other methods, to model how the international system is working and will evolve over time.
Collaboration is the New Competition
The Global South Metro Exchange held its first event in Greenville in July, branded “Collaboration is the New Competition,” sponsored by JPMorgan Chase, with support from the Brookings Institution. Multi-regional business leaders coalesced to focus on global competitiveness and to find synergies and opportunities for collaboration between Upstate South Carolina, Charleston, Atlanta and Charlotte, as a means of improving the global competitiveness of our collective region.
“The roads that connect Atlanta, Charlotte, the Upstate and Charleston—Interstates 85 and 26—are a physical manifestation of the many points of affinity between our markets, and the Global South Metro Exchange program aims to explore additional opportunities among transportation and logistics, trade and exports, middle market opportunities, workforce challenges, technology and innovation to ensure we’re working together to align the Southeast as an economic powerhouse where collaboration is the new competition,’” touted John Lummus, president and CEO of the Upstate SC Alliance and primary organizer of the event.
Together, business leaders and organization representatives from Upstate SC Alliance, the Charleston Regional Development Alliance, the Metro Atlanta Chamber and the Charlotte Regional Collaborative for a Global Economy examined their assets and explored their synergies for working together to boost the already booming growth of this southeastern U.S. region.
The event’s theme, “Collaboration is the New Competition,” is a driver to build relationships, explore best practices, and forge connections that support economic development activities across state lines. Discussion topics included globalization, transportation, free trade agreements, workforce challenges and opportunities, the Post-Panamax Ripple Effect, open technology and aligning export support with industry needs.
The keynote speaker, Marek Gootman, a fellow and director of strategic partnerships and global engagements at the Brookings Institution Metropolitan Policy Program, examined the opportunities for the Southeast region to look inside its borders to see if the competitiveness of the region as a whole exceeds the competitiveness of the individual states, cities and localities.
According to Gootman, within the larger Southeast region are a multitude of unique assets and networks including, but not limited to large businesses, small and medium businesses, chambers of commerce, economic development agencies, schools and colleges, an expanding workforce as well as the infrastructure. Numerous other areas within the United States are already focused on their collective opportunities.
These regions seek identities that include:
- Leadership with a World View
- Legacy of Global Orientation
- Specializations with a Global Reach
- Adaptability to Global Dynamics
- Culture of Knowledge and Innovation
- Opportunity and Appeal to the World
- International Connectivity
- Investment for Strategic Priorities
- Government as a Global Enabler
- Compelling Global Identity
Gootman asked, “Could the major metropolitan areas of the Southeastern U.S. leverage complementary economic assets, industry clusters and global identity to better compete and attract commercial attention internationally?” He encouraged developing a list of Global Trade Assets, Global Innovation Assets, Global Talent Assets and Global Infrastructure Assets.
Gootman examined the Southeast region itself, noted the proximity and connectivity of Atlanta, Greenville, Charlotte and Charleston, and suggested that the assets offer substantial new avenues for growth. Topics addressed included comprehensive regional/state economic strategies, exports and foreign investment, infrastructure, innovation, workforce, finance, and governance.
At the Brookings Institute, Gootman focuses on bridging think tank perspective with real world action to increase the vitality of cities and metropolitan areas. His activities involve policy development, demonstration projects, peer learning networks, and external relations. He engages public and private partners in more than 30 metro areas and 20 states, as well as national interests, to advance adoption of the program’s ideas. He also leads the Global Cities Initiative, a five-year, $15 million project to help U.S. and international metro areas strengthen their global economic connections and competitiveness.
“The Charlotte Regional Collaborative for a Global Economy is delighted to participate in the Global South Metro Exchange,” commented Michael Almond, Executive Director. “Our collaborative is a consortium of the 15 community colleges serving more than 3.5 million people in 29 counties in North and South Carolina. We are ‘community colleges providing leadership for global commerce’ in the greater Charlotte region, an integrated and interdependent region that is the economic heartbeat of the Carolinas.
“We are committed to regionalism as the driving force behind economic growth and development. We firmly believe that by working together collectively as a team, we can together accomplish more for the benefit of all of us than any one of us acting alone. And we are proud to support the contribution that the Global South Metro Exchange will make towards sustaining and enhancing our global competitiveness now and in the future.”
“The Metro Atlanta Chamber believes that competitiveness is not solely the prerogative of one metro area,” remarked Jorge Fernandez, Vice President of Global Commerce of the Metro Atlanta Chamber, “but instead is something that is enhanced by a regional approach. The metro Atlanta region can present a stronger global position when we leverage the assets and connectivity of our surrounding regional metros. As such, we are delighted to be a part of the Global South Metro Exchange.”
“The Charleston Regional Development Alliance and World Trade Center Charleston proudly represent the Charleston metro region in supporting the Global South Metro Exchange,” added David Ginn, President. “In the global marketplace, there are clear benefits for metropolitan areas with similar assets, goals, and economic drivers working together as super-regions to collaborate on shared opportunities and challenges. The Charleston metro’s economy ranks among the Top 20 in the nation for advanced industries and Top 10 for FDI. We look forward to building relationships with other top southeastern metros to ensure this strong economic progress continues for years to come.”
CLT Airport Strategic Plan Moves Forward
MXD First Draft Study Coming Out This Month
Charlotte City Council approved a $900,000 expenditure of airport funds for a consultant study as Charlotte Douglas International Airport creates a new master plan to guide future development on the land surrounding the airport.
The purpose of the study is to maximize the opportunity surrounding the fifth busiest airport in the U.S. with a major intermodal center and Charlotte’s unique location midway along the East Coast between New York and Miami. Charlotte is served by two Class I railroads with access to four major ports within four hours and a network of highways. The purpose of this study is to lay out options for growth and development on the 25-mile radius around the airport.
MXD Development, out of British Columbia, will be looking at comparable airports around the world to determine the highest and best use opportunities for Charlotte. MXD has conducted similar studies for Denver, Memphis and San Francisco, as well as international airports in Canada, China, Australia and Russia. They will be considering projects including residential, commercial, industrial, logistics, warehousing, hotels and restaurants.
The effort is being led by the airport’s development director, Stuart Hair. Aviation Director Brent Cagle says, “This project is the refreshing of a 15-year-old development plan,” adding that most of the efforts in that plan are now completed. The airport is reaching out to a broad list of stakeholders and economic developers as well as the surrounding community for input and recommendations.
MXD is about at the midpoint of their study. Preliminary findings have been captured and a first draft of the report is due by the end of August. Completion of the study is expected by the end of 2016.
The River District, a mixed use project being proposed for development by Lincoln Harris and Crescent Communities just off West Boulevard west of I-485, is scheduled for a hearing before the zoning board on August 22, 2016, with final determination expected early this fall.
Obama and Clinton in Charlotte
Targeting North Carolina as a Key State
It was a remarkable day July 5, 2016, when I attended the political rally that had an admittance line over six blocks long. Both President Obama and Hillary Clinton traveled to campaign in Charlotte. They attended a Democratic rally of over 3,000 faithful at the Charlotte Convention Center and then made a quick stop at the Midwood Smokehouse in Plaza Midwood for barbecue and brisket along with the fixins to take home. This was the first campaign trip for President Obama with former Secretary of State Clinton since she clinched the Democratic nomination.
This Charlotte event was planned so that this joint appearance would become the first public event to follow the morning media conference called by FBI Director James Comey to report on the FBI investigation of the Clinton emails. His account included a summary of the emails that had been collected along with the numbers of classified email chains that were not marked appropriately.
Comey went on to say that the Secretary and her staff were extremely careless and that they had mishandled classified documents. Nevertheless, he stated that it was FBI judgment that no reasonable prosecutor would bring such a case with the evidence and research they had gathered. He said the FBI felt that “no charges are appropriate in this case.”
So, why were Obama and Clinton in Charlotte? First, this event was meant to provide some public relations cover to offset the FBI report. Secondarily, but perhaps more important in the long run, they were here because North Carolina has been a swing state in recent years.
In 2008, the state went for Barack Obama to become President; and in 2012, the majority of N.C. voters went for Mitt Romney. Having held his second nominating convention in Charlotte in 2012, President Obama would like to boost Hillary Clinton’s chances of winning North Carolina in this election. While President Obama is at the end of his second term, he would like to see his legacy carried forward by Hillary Clinton to top off his accomplishments.
The third reason for this trip was clearly to capture video of the two campaigning side-by-side for future political ads to be run across the country to increase turnout for Democrats.
Hillary Clinton spoke first and talked about her admiration for President Obama as a colleague in the U.S. Senate, as a competitor for the Democratic nomination in 2008, as a debater in the midst of that race, as a team member in President Obama’s cabinet as Secretary of State, and finally as a friend. She remarked how impressed she was with his performance through some very tough times. With the presidential seal on the rostrum in front of her, she committed to carry on and to go forward from his leadership to the country.
Then, she turned to podium over to President Obama. The president addressed a litany of issues from economic policy and job creation, deficit reduction and budget management, foreign relations and America’s stature in the world, health care reform, climate change and reform, and also energy production.
As I was looking on, it was clear that each issue that he addressed could be a clip in a political spot in support of Hillary Clinton. I am confident that we will see campaign commercials that will exhibit one or more of his comments. It was important for the campaign to capture these comments before the Philadelphia convention, so that the commercials can be prepared for the three months preceding the election.
The mechanics of this event were very well managed. You could see that the advance team had everything set up to make the most of this opportunity. Held on the lower level of the Charlotte Convention Center, it accommodated three to four thousand people. The speaker’s platform was situated in the middle of a 360-degree setup so that the President and Clinton would be surrounded by fans from all angles.
The signs, flags and slogans were appropriately placed so that the cameras could not help but capture both the speakers and the American flag with the brand new slogan “Stronger Together,” maximizing the impact of the audience and the layout of the set.
It was standing room only. the crowd was hyped by music and drums and speeches from Roy Cooper, Democrat for Governor, and Deborah Ross, Democrat for U.S. Senate, and others. While the room was cool before the speeches started, it soon warmed up. Before the end, I saw several people helped or carried out from heat exhaustion. It was jam-packed to make it a rousing rally.
With North Carolina in play for both Republicans and Democrats, we can expect more visits from both of the candidates.
Photo taken by Jim Froneberger.
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Trump Heeds Advice from Former Nucor Exec
GOP Economic Strategy Takes Shape
Did you notice? On June 28, Donald Trump took a serious step forward by turning his comments to the economy and jobs by way of criticizing our free trade agreements. On Monday, August 8, Trump addressed the Detroit Economic Club and presented an updated economic recovery message that adopted the budget and tax proposals from the GOP majority in the House of Representatives.
Trump has obviously been taking instruction from his “advisers.” One important adviser on his economic team is Dan DiMicco, former head of Nucor Steel and now chairman emeritus, from right here in Charlotte. Dan has been outspoken with his disdain China’s “dumping” of steel into the U.S. He has also spoken against the North American Free Trade Agreement (NAFTA). Both items were elements of Trump’s speech yesterday.
Even though Hillary Clinton has also articulated these concerns, it was more dramatic to hear Trump combine three sentences on economic trade that strike an important cord in economic policy.
It is important to remember that every trade agreement has winners and losers. Trump’s promise to renegotiate agreements must be measured by whose interests he intends to protect and push forward and whose interests get left behind.
Now we will need to watch and see whose interests he and Hillary choose to represent in their policies going forward. We have more to learn. This is why our democracy has worked so well. It is not just the votes that count. It is the campaigns and what candidates learn going through the process and their education.
Is Your Business Franchisable?
An Alternative Method for Business Enterprise Growth
When business owners contemplate expansion and growth of their business enterprise and brand, they must first make a fundamental decision on strategy and method of expansion. Should they expand on their own, utilizing their own time, capital and other resources on a location-by-location basis, or should they leverage the efforts of others who are willing to invest their own time, effort and assets to grow the business brand?
Successful businesses typically have a solid and growing market share as well as strong profitability and brand recognition in their core geographic markets. If an owner can sufficiently capture and efficiently package the business model and underlying business formulas into a franchise model, then franchising might be the best path for expansion.
Franchising allows a business owner to expand into new geographic markets by allowing others to use an owner’s established systems and branding to duplicate the systems and expand the brand into other markets. Setting up a franchise system provides for growth by utilizing capital provided by others to acquire capital assets, operating assets, as well as funding opening and other operational costs for additional storefronts under the business brand. A franchise arrangement also reduces certain risks and liabilities for the owner-turned-franchisor such as those related to loans, leases, employees and vendors, as those become franchisee responsibilities.
Once a business owner has developed a franchise model, finding the right people to sign up as franchisees is the next step. Those are people who are interested in an opportunity to own a business and be their own boss but do not necessarily have the abilities or resources to build a new business completely from scratch and, therefore, wish to join in on a successful and proven business model.
Franchising incentivizes franchisees to become invested in the success of their franchised business because they pay both an up-front initial franchise fee and ongoing royalty fees to the franchisor, and in many cases, invest a significant part of their net worth into the new business. Many owners who turn to franchising find talented individuals who are very committed to making sure their franchise is a success. However, business owners looking into franchising should keep in mind that the success of one or even several pre-franchising owner-operated storefronts is not a sure prediction of success of additional storefronts in a franchise model.
Franchising is not the best solution for every owner considering expansion. An owner relinquishes some control when bringing in others to open and run a business unit as a franchise. While a franchisor retains certain powers over franchisees in the wider scope the operation of the business unit, such as through the implementation of system-wide standards applicable to all franchisees, a franchisor is not permitted to exercise too much control over a franchisee, and certainly not over day-to-day operations of the franchisee’s business.
Business owners must also consider the costs to set up the franchise system and access to capital to cover such costs. While franchising can be a lower-cost means of expansion in the long run after the franchise system is set up, the conversion to a franchise model requires an initial investment by the owner. The owner will need to develop legal documents, such as a federally mandated Franchise Disclosure Document, and a franchise agreement form, as well as other legal and business documents and procedures such as operations manuals, marketing and advertising programs, and training programs prior to offering a franchise business opportunity to prospective franchisees.
Some states impose additional legal requirements and documentation on franchisors before the franchisor can solicit prospect franchisees in that particular state. Also, one of the cornerstones of a franchise system, its intellectual property, must be sufficiently protected, which includes federal registration of the owner’s trademarks.
Business owners need to carefully analyze the underlying reasons for their own business success. In most cases, it is due to both the owner’s day-to-day efforts as well as the model and processes built and implemented in the business. If however, the owner is indispensable to the business, this over-reliance on the owner will be a challenge for moving forward in a franchise system.
The business model must be capable of being a blueprint for replication by others in a franchise system by being sufficiently detailed to provide the roadmap to potential success. A common misconception among owners contemplating expansion via franchising is that they can simply take the current written materials describing and demonstrating their current business model, make a few tweaks, and those revised materials are then ready to be disseminated into a franchise system environment.
Even more common is the miscalculation of how much time and effort is needed by the owner to get what is not currently on paper, i.e. the essential operational or managerial processes that only exist in the business owner’s head, into print format so that others can implement that part of the business model. The successful business owner-to-franchisor conversions are those which can bridge the gap between the pre-franchise written and non-written business model materials in existence, and the written materials needed for a franchise system.
A properly structured franchise system gives business owners an alternative method for business enterprise growth. Converting to a franchise system takes some time, effort and financial resources, but once the franchise system is properly set up, a business owner can focus on finding the right people to utilize their own resources and assets to expand the reach of the owner’s brand into new markets.
Content contributed by Shumaker, Loop & Kendrick, LLP, a full service law firm founded in 1925 with more than 240 attorneys practicing in Charlotte, North Carolina; Columbus, Ohio; Sarasota, Florida; Tampa, Florida; and Toledo, Ohio. Content written by Jack Santaniello, Partner, whose principal areas of practice include corporate, transactional, mergers and acquisitions and franchise and distribution law. For more information, contact him at 704-945-2141 or email@example.com or visit www.slk-law.com.