The emerging world economy has been a hot topic for years and one that hasn't gone unnoticed by ad agencies and holding companies, which have been aggressively investing in places like China and Brazil.
But Fareed Zakaria, editor at large at Time, painted a pessimistic picture of America's own future in an address to executives at today's American Association of Advertising Agencies' Transformation Conference in Austin, Texas. He said the country is at a severe competitive disadvantage going forward in the globalization 2.0 world as companies in emerging markets develop and market their own brands, the U.S. faces a talent crisis and the government continues to finance spending with huge amounts of debt.
"The U.S. globalized the world; it just forgot to globalize itself," he said.
In an interview with Ad Age after his speech, he talked about Madison Avenue's role in the solution, whether American companies should be more patriotic and where we need to invest in our work force.
Ad Age: When you look at restoring the American dream, is Madison Avenue part of the solution or part of the problem?
Mr. Zakaria: It's very much part of the solution. One of the great strengths of the U.S. is the appeal of its brands and the idea of America. What I'm trying to do is get us to fix the underlying substance of what's going wrong. But the power of the idea of America and power of American brands remains strong. My fear is we're turning into a supernova. If you remember from astrophysics, a supernova is a phenomenon where the light is seen brightly around the universe but at the core the star has imploded and there's nothing left. My concern is not that America has lost its brand appeal, it's that its substantive strength is failing.
Ad Age:For the past century, the world craved iconic American brands from Coca-Cola to Levi Strauss to Ford. Even today, Apple iPods say "Designed by Apple in California" -- but made in China. Going forward, how does this globalization affect the appeal of American brands to global consumers?
Mr. Zakaria: I think [they will retain their appeal] but only if American brands can do what Apple does, which is remain highly innovative and promise the future to consumers. We need to promise something beyond what they can get from a local brand. And it's not just about the technology, and that's why Madison Avenue is crucial. What Apple's great at is understanding consumer behavior, from ease of use of the product to the ease of connecting into iTunes -- it's about the whole consumer experience, which is part sociology and part technology and also the marketing of that understanding. As long as you can be at the cutting edge and provide people with a sense this is going to be faster, better, more interesting than what they can get at home, "Made in America" will be strong. But it's important to point out it's not like South Korea or the Chinese are sitting back and not trying to play the same game. You see it in the incredible innovative power of Sony. And there will be other companies like Sony and they'll come out of Singapore and China.
Ad Age:What's better for the American economy: For a consumer to buy a Ford Fusion made in Mexico, or a Hyundai Sonata made in Alabama?
Mr. Zakaria: What's best for the American worker without any question is to buy the Hyundai Sonata made in America. Ideally you want both -- great global companies that have the ability to play in the global arena but you need a strong work force that uses talent efficiently. If I were forced to choose what's better for the American economy, I'd say the Hyundai. At end of day we can't exist as an island of innovation in a sea of unemployed and untrained workers.
Ad Age: You talk about the importance of a talented, educated work force. What kinds of business and talent does our business economy need to nurture?
Mr. Zakaria: We've got to get back into the science and technology game. ... We've seen a serious decline in the technology skills of the American worker and if we don't ramp that back up the Silicon Valley companies will find they can't make their product here. Germany has been good at this, it has a highly trained work force. We want the American work force to have high wages and in Germany they're able to do this because they're hyper-productive and they produce high-value products that command high prices. Look at the BMW, it's a product that's highly engineered, over-engineered, with sophisticated design, and they charge a premium for that. Today, Germany has lowest unemployment rate it's had in 30 years.
Ad Age: What's better for the American economy: For a Fortune 500 CEO to focus on whatever domestic/global strategies maximize sales and profits, or to show a little favoritism to the home team by expanding operations here even if work could be done more cheaply outside the U.S.?
Mr. Zakaria: I would hope that American companies have a sense of citizenship and know that they cannot exist as American companies if our economy and and workers are being impoverished. We don't want charity, that doesn't work in the long run. But I hope they really spend a lot of time and energy and resources in truing the American worker.
We need a real American program of retraining that is on scale of G.I. Bill, where industry and universities and the federal government all work together to upgrade the skills of the American workers to make them more competitive and justify the high wages. In that, American companies can and should play an important role. We're not asking them to do something that's not looking after shareholders. But remember, America remains the single largest consumer market, and to be able to source the products here has its advantages: You're closer to consumer, you've got reduced transportation costs. Those are lots of powerful business reasons, rather than the very narrow bean-counting one of I can make this cheaper in China or Mexico. One would hope companies can make some cheap commoditized stuff in lower markets but make higher value stuff over here. At the end of the day, the rise of other countries is good for the U.S., too, because it means more consumers for our products, more investors and a world economy that's growing. Think about that. If China or India had collapsed, it would be much harder for us to recover because nobody would be buying anything.
Ad Age: Americans' personal saving rate has rebounded over the past few years, a sign that consumers are trying to stash away more cash. That would seem to hurt consumer spending, economic growth and employment in the short term, but is this revived savings discipline good news for the longer term?
Mr. Zakaria: We need to get to an economy of more balance. Consumption as a share of GDP was said to be under 65% percent until the mid 80s. It went to 71% in 2001. That's an expansion of five or six percentage points when it comes to consumption as share of GDP. And it wasn't due to a rise of income but an expansion of credit. People took on more debt. That's not sustainable. And if we can start moving back -- and it's happening very slowly -- it doesn't hurt the economy and it will put the economy on a sounder long term plan. We don't want a situation where the only way the American economy can boom is because Americans are buying flat-screen TVs and houses they can't afford.
Ad Age: What do you anticipate will be the effect of rising gas prices? Any shift in spending or behavior?
Mr. Zakaria: Historically it's taken more than temporary price rises. Consumers understand this is spike, not a hike. A gas tax would be the only thing that would permanently change consumer behavior and it's a tragedy that in the U.S. we can't agree on moderate gas tax … You ask about consumer spending changes and I don't think this spike will do it. Consumers will be cautious but that has more to do with climbing out from this mountain of debt. And credit isn't as readily available as it used to be. The biggest mistake we could make is urging the relaxation of credit. Americans are highly leveraged and the recovery will go slower because of it. But an extension of credit is unsustainable. I think you'll see moderate positive development of the U.S. economy.
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Contributing: Brad Johnson
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