Brewing in Japan: Interview with Bryan Baird of Baird Beer

Earlier this month during a trip to Japan, I traveled to the coastal city of Numazu to visit Baird Brewing Company, one of the country's most innovative new craft breweries. When I arrived, I had the fortune to meet Bryan and Sayuri Baird, who founded the brewery in 2000. Bryan answered some questions about brewing in Japan:

After graduating from Johns Hopkins SAIS, what inspired you to get into the brewing business and why Japan?

I attended SAIS in the Japan Studies program and enrolled with the full intent of returning to Japan in some professional capacity upon graduation. My first job was with the Tokyo office of the American Electronics Association. Craft beer, or ji-biiru as it was called, was receiving great attention in Japan at the time because it was a brand new thing—small-scale brewing was made possible with deregulation that happened during the Hosokawa government in which minimum production requirements necessary for a brewing license were lowered dramatically from 2000 kl per year to 60 kl. I didn't love working as a sarariman (salary man); I always had been a passionate beer drinker; and I respected Japanese society for the reverence it paid to craftsmanship. Therefore, I felt that craft beer was an industry that suited both me and Japan.

Why did you choose to locate your brewery in the city of Numazu?

After attending brewing school in California, my first industry job with a brewing equipment company brought me to Numazu. Our ultimate dream, of course, was to launch our own craft brewing company. For a variety of reasons, we judged Numazu to be a very good place to inaugurate a craft beer business. We thus stayed and here we still are today.

How did your initial brewing learning process take place?

The first thing I did, and the smartest, was to immediately enroll in brewing school. I attended the American Brewers Guild's 3-month intensive brewing science and engineering program, which also combined with a practical apprenticeship. My apprenticeship was done at the Redhook Brewery in Seattle. I thus had very good initial training. Being a good brewer, though, is very much dependent on the interplay of theoretical knowledge and practical experience. To gain more practical experience I cobbled together a tiny brewing system out of re-welded used kegs, set it up on our veranda and began brewing pilot batch after pilot batch. This was the actual system with which we launched our original brewery-pub. It was so tiny (30-liter batches) that I had to brew with great frequency and this helped me to accrue invaluable experience in a very short time.

Who were your inspirations?

My greatest business inspiration is Warren Buffet. The principles and values he espouses I embrace wholeheartedly.

Which breweries do you admire most?

Fritz Maytag of Anchor Brewing in San Francisco (although he just recently sold the business) and Ken Grossman of Sierre Nevada Brewing in Chico, California are probably my two biggest industry heroes. Some of my favorite breweries now include Russian River, Firestone Walker, and Victory. Piece Brewery and Pizzeria in Chicago and the Pelican Pub & Brewery in Oregon are two outstanding brewery-pubs.

What is your beer's concept?

With each and every Baird Beer we seek to craft a full-flavored beer of character. We define character simply: Character is the interplay of balance and complexity. Industrial beer tends to be well balanced (i.e. it can be drunk in quantity without inducing palate fatigue) but fully lacking in complexity (i.e. the flavor is one-dimensional and you pretty much know everything about the beer upon the first sip). Poorly made craft beer tends to be complex but it lacks balance. Great craft beer possesses both. For us, the key to achieving this character is minimal processing. Therefore, we begin by selecting ingredients that are minimally processed (e.g. traditional floor-malted barley, whole flower hops, fresh whole fruit, etc.). Then, we strive to brew with these ingredients in as simple and unprocessed a way as possible (e.g. we do not filter Baird Beer and we secondarily ferment and naturally carbonate it in the package from which it will be dispensed—much like Champagne).

How is the beer Japanese?

We enjoy lovely soft water in Numazu that really contributes a round and balanced house character to our beers. In the Japanese esthetic, harmonious balance is greatly prized. I think Baird Beer is a liquid embodiment of that Japanese esthetic value.

What were some of the initial challenges you overcame as a microbrewer in Japan?

Japanese ji-biiru (craft beer) boomed out of the gate in 1994 but was already turning into a bust by the time we were getting into it around 1997. There was, and still is, simply too much bad craft beer in Japan and not enough really good stuff. Thus, we had to overcome the largely negative image that the industry garnered for itself in its initial years. The other major challenge was simply that we were brewing a kind of beer that had never really existed in Japan before and people really didn't know what to make of it and us. The key to growing sales in a nascent market like craft beer in Japan is, in addition to great product, constant consumer education. The more that consumers understand about beer and about how and why we approach it the way we do, the more open they are to the experience. This sort of education, though, takes time and requires persistence.

Is it easier for a foreigner to introduce a revolutionary product like microbrewery beer to Japan?

That's a good question. My answer is yes, so long as it is the right foreigner. By "right" I mean someone who comprehensively understands Japan, who can deal with Japanese people with cultural, social and lingustic understanding, and who genuinely likes and respects Japan. This is the type of foreigner that places like Johns Hopkins SAIS help to nurture. When you are this type of foreigner you get to participate in Japanese society on a deep and meaningful level but without having to face the same sort and degree of social and cultural constrictions that the Japanese themselves must often deal with. This kind of social liberation can be turned into a very valuable business asset.

How did your business start to take off?

The initial turning point for our business happened 2–3 years into it when we realized there was a definite market for what we were brewing, only it wasn't in Numazu but rather in Tokyo. This led us to purchase larger brewing equipment and begin bottling and kegging our beer for distribution in the Tokyo market. The more we sold in Tokyo, the more frequently Tokyo beer enthusiasts would make the pilgrimage to our pub in Numazu. This eventually led us to open pubs in Tokyo itself. By doing well in Tokyo and selling throughout Japan, the local market then began to wake up. Finally, ten years into it, we seem to have gained real traction and achieved that magical sort of critical mass. Our three gold medals in the 2010 World Beer Cup certainly didn't hurt things either.

What is the current state of the Japanese big beer and microbrewery market?

The big industrial brewers in Japan are in for some dark years, I am afraid. The simple fact is the overall Japan beer market is shrinking. This is because the population is both aging and not growing. As one gets older, one drinks less. I would not want to be an industrial brewer in Japan. As for craft beer in Japan, there are still way too many sub-par players. These poor performers need to be weeded out and this is happening gradually.

What do you see for the future of beer in Japan?

For good Japan craft brewers, as well as importers of excellent world craft beers, I believe the future is bright. People seem to be wanting more quality if not more quantity, and there seems to be at least a partial movement away from purely mass-produced and mass-marketed goods to premium niche goods crafted by shokunin (artisans). Currently in Japan, craft beer does not account for even 1 percent of the overall beer market. U.S. craft beer, on the other hand, accounts for more than 4 percent of the U.S. market by volume and more than 7 percent by dollar. I can see Japan craft beer achieving similar numbers in the Japan beer market within the next 10–20 years.

What advice do you have for aspiring entrepreneurs in Japan?

My advice is quite simple: Possess abundant reserves of passion, persistence, perseverance, integrity, and guts. Also, possessing sufficient "Japan skill" is critical to succeeding in business in Japan. Frankly, these Japan skills take longer and are harder to acquire than most industry-specific skills. Most foreign business people who do not do well here fail because of insufficiency on the Japan skill front.

Is Japan Giving Up?

Reposted from Huffington Post:

Just as the success of Toyota Motor was a symbol of Japan's confidence on the world stage in the 1980s, the automobile company's recent troubles are symptomatic of a nation withdrawing from the world, as I noted this week in a Newsweek article. Avoidance was the Japanese public's initial reaction to Toyota's recent acceleration problems, which resulted in 34 deaths and nearly 10 million recalled cars worldwide. The reaction is typical of a modern Japanese culture wrought with victimization and self-doubt over questions of national identity.

In all likelihood Toyota's slump in sales will recover and the whole episode will fade in the public's memory, blending with many other product recalls in recent history. "Management will correct the problem. Toyota Motors sales will bounce back; most consumers will soon forget this latest news cycle and remember why they bought the Camry, the Corolla, and the Prius," said Paul Scalise of Temple University in Japan. But Toyota's problems are an essential part of understanding Japan's zeitgeist today. The car company's troubles have compounded Japan's already sour mood. Interviews I have conducted in Japan over the past several years increasingly cause me to wonder: Is Japan giving up?

Toyota not only had a special place in Japan in terms of the country's identity of quality craftsmanship, it will have a short-term impact on Japan's reputation and economic reverberations in its manufacturing sector. Even more, the company's problems partly originated from characteristics that are seen as uniquely Japanese. Culture can change, but the story has further damaged Japan's spirit, which is vulnerable from decades of economic doldrums and China's rise.

Some of the blame for Toyota's woes has been placed on the Japanese value of consensus-building, face-saving, and keeping outliers to a minimum. "The nail that sticks out, gets hammered down," it is often said in Japan. The public relations response was also plagued by Japanese cultural characteristics, such as open communication hampered by formality and a general avoidance of conflict. Toyota's problems may have simply come from the company's over-expansion, increasingly global operations, and cost-cutting, but the cultural explanations are felt in the Japanese discourse. "Japanese companies are generally reluctant to speak in public, both on positive as well as negative issues. This imposes a real cost on their ability to interact with foreign investors, businesses and customers," noted Keith Rabin, an Asia-focused business consultant, echoing a sentiment that appeared in recent Japanese newspaper editorials.

All of this comes against a depressed national mood of in Japan as China is expected to overtake Japan as the world's number two economy this year--a symbolic phenomenon with primarily psychological consequences. At New York University, a Japanese student approached me a few weeks ago after a class I teach to tell me the critical lesson on Japan the other students should remember: "Japan must give up and admit that it is number two in East Asia." What is the origin of this defeatism?

Patrick Cronin, of the Center for a New American Security, recently published an article in Foreign Policy, identifying a link between Toyota's troubles and Japan's global profile. He also sees Toyota's problems serving as a symbol for Japan's malaise. "Toyota's debacle comes at exactly the wrong time for Japan. For the past 20 years, Japan has been in decline: declining population, receding competitiveness, slipping power in Asia. Social strain abounds. Throughout this period, Toyota was seemingly the exception, steadily growing, finally overtaking GM to hold the chalice of number one," Cronin told me. "It was a symbol of the one thing Japan did the best: make things. Now, the dream lies shattered."

"Unless Toyota can repair the damage, however, the Japanese people are left looking at the future through a glass darkly," Cronin continued. "What the Toyota crisis demonstrates is a tight connection between economics and security, and that both are in turn sensitive to the national psyche. If the Japanese continue to doubt their technological prowess in the face of a rising China, especially given Japan's demographic disadvantages, how will they ponder their future geostrategic role and circumstances in the Asia-Pacific region? Soft power loss equals a loss of hard power, and Japan's influence vis-a-vis rising China has been devalued by this blight to a sterling reputation."

A morbid manifestation of this darkness is in the country's suicide rate. It has topped 30,000 per year for 12 years; this means about 100 people per day or one person every 15 minutes will kill him or herself in Japan. Despite government efforts to stop suicide, by funding hotlines for example, the rate has recently increased and is expected to rise. The rate is double that of the United States and second only to Russia among the rich G8. On the other side of the equation, the country's birthrate is the lowest in the world and significantly below replacement, owing partly to a disinterest in sexual intercourse as well as gender inequality. A study conducted by Japan's Family Planning Association found that one-third of couples surveyed have effectively "given up on sex" due to fatigue or boredom with the act, and researchers were surprised that the trend is actually expected to get worse. A 2006 study by the University of Chicago found that Japanese report the lowest sexual satisfaction among the 29 nations polled. According to an Asia-Pacific Sexual Health and Overall Wellness survey last year, Japan ranked lowest in satisfaction of the 13 Asian countries surveyed.

As a consequence of low birth and migration rates, the country's population is predicted to fall from 127 million to 95 million by 2050, creating unparalleled demographic pressures. At 229 percent, Japan's debt-to-GDP ratio is the highest in the developed world as is its level of public debt. It is unclear how Japan, given its poor fiscal health and expected worsening debt burden, is going to provide for a rapidly aging population and a growing proportion of poor.

The country's apathetic attitude is epitomized by a new generation of arasa and arafo (those in their 30s and 40s) and sugomori (nesting) people who prefer to stay at home, seek bargains online, and soshoku-kei danshi (grass eating-men) who avoid going out, taking risks, or trying to find a career for themselves. Even Japan's Olympic hope Miki Ando played it safe and downgraded her triple-triple jump combination in the figure skating competition in Vancouver. More dramatic is the presence of the hikikomori or shut-ins who have given up on social life and number about 3.6 million, according to the Minister of Internal Affairs and Communications Kazuhiro Haraguchi, citing a Japanese nonprofit. This figure is far larger than the previous estimate of 1 million by renowned Japanese psychologist Tamaki Saito. In Shutting out the Sun, author Michael Zielenziger points to hikikomori as well as high rates of suicide, low marriage and birth rates, and low levels of sexual relations among adults to argue that Japanese who have begun to think outside the rigid conformity of Japanese society have made a rational choice to stay home and avoid social life.

While many fund managers are pessimistic about the Japanese economy for the long-term, some are bullish on certain Japanese equities, calling them undervalued. Paradoxically, the companies that are forecast to do well have given up on the Japanese domestic market and have expanded abroad. Successful Japanese companies will either target foreign markets in the United States, China, and Europe or will act as a "gateway" to business in a booming Asia.

A promising strategy for Japan as a whole would be to act as a bridge between the West and East, but that assumes Japan's political relations with the West are harmonious. Unfortunately, the ruling Democratic Party of Japan has decided to complicate its relationship with the United States by reexamining the location of a military base in Okinawa. Meanwhile relations with Australia have moved into rocky waters over Japan's whale hunting; over which Australia has threatened to take Japan to the International Court of Justice.

It would be absurd to give up on a country purely on the basis of its national mood. In fact, Japanese manufacturing output has risen, GDP is picking up, exports have grown their fastest in 30 years, and the trends I have described will all be familiar to any Japan watcher. Moreover, Toyota's sales surged 48 percent last month in Japan. But I have never seen the mood bleaker. Let's hope that this new low provides a rock bottom from which Japanese optimism can rebound.

Photo by Gustty.

Creating Real Value - Capitalism Quo Vadis?

I just got the transcript back from my talk in Brussels on Nov. 14 last year. It was at the European Parliament and the theme was "Being Bold - A Key to Sustainable Success?" as part of the International Business & Leadership Symposium, sponsored by the International Association for Human Values.

Here is my speech:

Thank you very much for having me here. It’s a delight to be here.

Who knows what the origin of the current financial crisis is? Raise your hand - zero.

Does anybody have a policy recommendation for the current crisis? Okay, zero.

I’m going to do a brief tour of the horizon. I apologize for my slightly American-oriented talk today. The crisis is believed to have originated in the United States, so I think it’s a bit appropriate.

So on the plane ride over here, I gathered a whole bunch of analyses of the current crisis, let me just give you a sort of tour of the horizon; from the least good to better. I’ll start with the publishing millionaire Steve Forbes. He believes that the main problem was bad monetary policy. The loose dollar, the dollar fluctuated too much and dropped in price, weakened, and he advises that America tie the dollar to the gold standard and lower taxes. He even proposes a flat tax. I even see that the value of this analysis, although I don’t agree with much of what he is saying, is that there is a need to lower taxes and create stability in order to drive incentives to do the right thing. Now, I don’t agree with his policy prescription, but I understand his goal.

Second guy, Martin Wolfe, it’s a bunch of white guys, sorry, but then again it’s an American perspective. Martin Wolfe, I think is a British economist, he’s a Financial Times columnist. He says the opposite of Steve Forbes. He says we need to grow the American deficit world-wide, we should also raise taxes, including a value added tax and tax energy consumption. And he says, we should demand fiscal stimuli from countries with trade surpluses while we keep trade open. Trade open is good but I don’t know how we demand fiscal stimuli from them. We’ll see how it works?

Next guy, Tom Friedman, columnist for the New York Times, has been going around talking about what he calls the need for a ‘green’ bubble. He subscribes to the idea that bubbles are inevitable and we might as well get some use out of it. Previous bubbles have included the railroad bubble in the United States, and then the IT bubble out of which both the United States enjoyed productivity gains. Generally speaking the current bubble resulted in a bunch of empty houses that we can’t really produce much out of. Related to that is former Vice-President Al Gore’s idea of looking at the crisis as three inter-related crises: energy, climate and finance. And that as far as technology and long term investment, and I’ll talk about long term investment later, you necessarily solve all the crises at once, i.e. if you have long term investment in energy infrastructure, you can solve the energy crisis, as well as the climate crisis.

Related to that and going a step further and looking at the causes of the crisis, Cass Sunstein, who is a major figure in the Obama administration and influential at Chicago and other universities, describes the current crises as what he calls a mixture of what he calls “bounded rationality,” which means you act rational but you don’t know what the environment is, so that limits the amount of rationality you can exhibit. And number two, “temptation or fragility of the human condition,” that if you are tempted to just take a little bit more, you will probably do it. So he suggests the need for more transparency in that to take these complex systems, not necessarily destroy them, but make them more easily understood.

That was just one stack I had and I hope that gives you a fairly ambivalent tour of the horizon. Now let me take it into the ethics part. Rather than going in to a policy prescription on how to save capitalism, as Steve Forbes tried to do in the cover article of Forbes magazine, let me give you some ethical principles that we might draw from, in order to reach a negotiated policy approach.

Okay, at the Carnegie Council for Ethics and International Affairs , a ninety-five year-old institution in New York City, we’ve started to espouse a set of three principles that we believe are helpful in the creation of policy formation and agreement. The three are: fairness; rights and responsibilities; and pluralism. And I’ll go quickly through them.

Fairness is basically a way out of prisoner’s dilemma. If you and your negotiating party both believe that you’re operating on the principle of fairness, then burdens and benefits can be shared equally. There’s a game called the ultimate game, it’s a little elaborate, I’m not going to go into it right now, but basically it’s an experiment with different people who have different control over the outcome, and people generally will prefer a fair outcome over one that benefits that benefits them unfairly or disproportionately.

Second, rights, you know God has been invoked here quite a bit and spirituality, and I’m okay with that, but I think that a lot of people, including the Dalai Lama, whose written this fabulous book, “Ethics for the New Millennium,” says something that we agree with at the Carnegie Council, which is that religion tends to make people angry, so we like to talk about ethics as a stand-in, or a practical way of going about it. And some people say that we are born with rights from God – that’s fine, but I think that rights are also a practical matter: if we didn’t have rights, we would need to invent them. Several atrocities in mankind’s history show that we need to have a concept of human rights, and with them goes the responsibility to protect other people’s rights, you can’t just have rights for yourself.

Third, pluralism. Pluralism is a way to get around monism and relativism. It’s in-between, and I like to call it a sort of golden mean – right in the middle. Monism is to say, “my way or the highway.” Relativism is to say that anything goes. We like to say that pluralism is a better way to address problems. It’s bringing everyone to the table, it’s creating a more sustainable and a better-informed solution.

I am going to propose something a little bit playful. I wrote an article about a year ago, an attempt to promote a new idea of fair trade. There was this idea in America, very popular among the Democrat congress members of creating a fair trade policy, rather than just a free trade policy.

Okay, what does that mean? It could be protectionism in disguise – how do we get from an unfair policy, one that cuts off the chance of poorer countries of tapping into the benefits of the trade system. How do we do that? Well, I suggested that trade might not be completely free, nor completely regulated. Again, something in the middle, a golden mean.

So, I talked about three freedoms that we might think about truncating or limiting or sacrificing: the freedom to trade with anybody; the freedom to trade anything; and the freedom to trade with impunity. This was something I put together for a trade policy paper, but I think it’s actually quite relevant for the financial crisis. The freedom to trade with anybody: if you’re selling something to somebody who doesn’t know what’s contained in this box, it’s a package that is opaque, it’s not a very good business deal. If you’re selling things that are shoddy or mysterious, that’s also not good business, and you should be responsible for your actions that result from the trade that you make. There is a great deal of business literature I can go into later on which suggests that if you’re benefiting from the externalities of your business relationships, then you do in fact have a duty to ameliorate them.

Now, I was going to go into a few concrete ways of how to make this practical. This came about a few weeks ago, Prof. John Ruggie of Harvard University, who is the United Nations representative for Human Rights. He came to our institute recently to explain his new mandate. His colleagues at the United Nations have been so happy with his work, which is essentially a survey of companies, that they have extended his mandate for another three years.

After he gave his impeccable, magnificent talk, on business and human rights and the challenges, I asked him: “Professor Ruggie, I am going to be talking about the future of human rights and capitalism in Brussels next week, can you tell me what I should say?” And he said, Okay, ethical capitalism, that sounds interesting, "well sure." He said that you can’t force people to be ethical on their own, rather you have to embed incentives in the system to encourage people to be ethical. And I would add to that that you have to create a system of incentives that are based themselves on ethics, and that’s the challenge. You know, I was watching TV the other day, a news report on these hedge funds, and the bosses saying, “Hey, you know, we didn’t break the law.” So, you have to give them the opportunity to do good.

So, I will just briefly go over some incentives: having prices reflect their true value; re-examining fiduciary duty – I know some of you might be a little skeptical about this. I have a forthcoming manuscript for a book, it’s called, “Sustainable investing: the art of long-term performance.” And the chapter I have here is Stephen Viederman's chapter on fiduciary duty, and one of the things he says is that we should take a look at the original words that we used to describe fiduciary duty. Number one was profit, and the other one was prudence, and both of them imply more long-term thinking. Profit was more for the welfare of people, rather than simply benefiting, and prudence was simply long-term strategic thinking. So his argument is that it is a return to basic principles.

Another one that hasn’t been talked too much about here, but I was going to mention it briefly, and that is a very hot topic in New York City, is Web 2.0, and it’s ability to supercharge corporate social responsibility. It’s an accelerator and a facilitator of what Bill Drayton, the found of Ashoka tells me he calls “the awareness tipping point,” where enough people are aware of what’s going on, they are aware of their connection, their interconnectivity with people, that they are going to create a new movement.

Web 2.0, which is social networking, social interactivity on the internet, is facilitating this awareness. I will just draw your attention to this article which is very popular, in the New York Times, about Google using its data from its search engines to track flu. Well, this reminded me of some of President-Elect Obama’s ideas, how he can connect with his massive database of emails. Beyond the “Walmart sucks!” type of websites, beyond that to a more positive engagement, politicians are thinking about this, to what was the result of a long-term workshop

I was engaged in with SAP, which is essentially how do corporations like technology companies help to build trust, which is again one of the main themes of this conference, between civil society, companies, consumers, investors, and with the understanding that has been mentioned earlier that all these identities are fluid and overlapping, they are not discrete. Finally, there is another theory about the way that emerging value is measured in this new economy – a more globalized, connected economy.

I have tried to coin a term I call the “empathy economy,” to describe a theory that processes are now global. That business processes, human resources, skills, knowledge, data are all part of ubiquitous computing, and it has driven down the price of data and knowledge, and driven up the value of empathy, design, innovation and ethics, broadly speaking. One study I saw on the impact of intangibles on valuation and brand, and I’ll conclude with this, was a survey of how intangibles affect brand, and therefore valuation. Number one was ethical leadership. The next two were social and environmental stewardship.

Thank you for having me speak today.

Bud Gets in Bed with InBev

$52 billion bottles of beer on the wall...

Anheuser-Busch, the American brewer of Budweiser ("the American lager") has agreed to be bought by Belgium-based brewer InBev for $52 billion, creating the largest beer company in the world. The deal has faced some backlash already in the United States. But I can think of a few bright spots:

One is that some argue that AB, as a family business, may be able to perform better as part of a larger corporation in today's globalized economy.

Second, InBev is famous for cost-cutting. One area that InBev may cut is AB's famous (infamous) marketing budget. AB has been a ruthless competitor in the domestic market and its marketing budget is just one illustration of that approach. Many microbreweries complain that they simply cannot compete with this marketing muscle. Might a cut marketing budget make it fairer for smaller start ups?

Third, a lot of the beer business is about distribution. Bud will benefit from InBev's distribution channels in Europe, Russia, China, and Brazil.

Fourth, isn't there some justice to this story... an American company takes a Czech name (Budweiser), and now it returns to Europe?

Fifth, unlike trade competition, foreign direct investment tends to be wholly beneficial for the recipient community. FDI usually means a potentially struggling company can benefit from capital and economies of scale--usually meaning more jobs for the domestic communities. In this case, the company's U.S. headquarters will stay in St. Louis. But the city may see some job losses from cost cutting programs:

"St. Louis will see some job losses," said Ilhan Geckil, senior economist in the Chicago office of Anderson Economic Group.

"Not brewing, blue-collar jobs. The taste of Budweiser is really important. No breweries will be closed."

Carlos Brito, CEO of InBev and now of Anheuser-Busch InBev, promised as much in a conference call with reporters Monday.

But he did say that A-B's cost-cutting plan, dubbed "Blue Ocean," which encourages early retirement among 13,000 employees among other efforts to reduce expenses, would still be executed.

Photo by Chris J.

Bloomberg for Governor (of Globalization)

What does the resignation of Elliot Spitzer as governor of New York have to do with globalization?

Well, potentially a lot.

If you live outside of New York, you may not have thought much about the rumors surrounding Mayor Michael Bloomberg's now ruled out run for the White House. Conventional wisdom held that Bloomberg fancied his chances as an independent candidate in a three-way race against Rudy Giuliani and Hillary Clinton, but wouldn't entertain a run against either John McCain or Barack Obama. Almost immediately, his decision not to run gave way to a new set of rumors. Namely, that billionaire Mayor Mike, the Democrat-turned-Republican-turned-Independent, has set his sights on Albany instead.

A just released Quinnipiac University poll found that fully three-quarters of city residents want him to run for governor in 2010. Although the survey was conducted prior to the Spitzer revelations, someone created a Bloomberg for Governor page on Facebook one hour after the story broke on Monday.

So what does this all add up to?

David Paterson, the current Lieutenant Governor who is slated to become Governor March 17, will serve out the remainder of Spitzer's elected term. This will likely impact Bloomberg's 2010 decision calculus. As divisive a figure as Spitzer was, Paterson is said to be a great guy with many friends on both sides of the aisle in Albany. Bloomberg may not deem a run against Paterson as appealing as one against the snarling sheriff of Wall Street.

Which brings me to the globalization element. Bloomberg is a businessman. As Mayor, he has long had an eye trained on the emerging challengers to New York as the world's undisputed financial capital. These include London, Hong Kong, Singapore, Dubai and even Chicago.

How David Paterson will approach the issue of New York's status as a leading financial center is unkown. But he has extremely close ties with organized labor through his father, Basil Paterson, a former New York Secretary of State who is now a lawyer for many of the state's most powerful unions. Will this impact Governor Paterson's policy tilt on the globalization issues that are of concern to New York's financial community? Maybe. Would a Governor Bloomberg be more likely to support New York's continued prominence as a world financial center? Probably.

But as we saw this week, anything can happen.

Olympic sponsors concerned about image problem

The Wall Street Journal reports today that Hollywood director Steven Spielberg's decision yesterday to resign as an adivser the 2008 Olympics in Beijing could signal a turning point in the effort to shame China for its ongoing relationship with the governement of Sudan. Growing numbers of athletes and entertainers are joining human rights activists in pressuring advertisers to justify their association with the controversial games.

For corporate sponsors, the stakes are high. The opening ceremonies are expected to be the first television sporting event watched live around the world by more than one billion people. In some cases, sponsors have shelled out more than $80 million for the rights to associate themselves with the Beijing Games. And as the first Olympics in China, the event is being used by multinational brands as an opportunity to build credibility with a booming consumer market that is playing an increasingly important role in their global sales.

June Teufel Dreyer, a China specialist at the University of Miami told Evan Osnos of the Chicago Tribune that advertisers "want to get their logos in front of the spectators [and] they will say that the Olympics are about sport, not politics." Dreyer added that she didn't expect any widescale pullout of advertising dollars from the events big corporate sponsors such as McDonalds and Coca-Cola.

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photo by nimboo (CC)

There may be blood

For best performance in the face of a total disaster, the nominees are…

The twin faces of America’s global economic power stared into the abyss Tuesday morning. Profound fears about the possibility of a U.S. recession dovetailed with unfolding internal crises in the American financial and entertainment sectors, casting doubt on the status of each as dominant global industry players.

In Los Angeles, concern over the ongoing Writers Guild of America (WGA) strike overshadowed the normally festive Oscar nomination ceremony. The potential cancellation of the Academy Awards broadcast in February has cast a pall over the American film business since the WGA went on strike November 5. For industry insiders, one nightmare has already come to pass. Earlier this month, the Golden Globes awards ceremony was reduced to a press conference when actors and actresses refused to cross the WGA picket line.

"I could never cross a picket line. I think there's a lot of people who feel that way," Tony Gilroy told the Associated Press. Gilroy was nominated for Best Director for his work on the film Michael Clayton, starring George Clooney.

The Oscars are often the second-most-watched television program of the year following the Super Bowl. The film industry sees these broadcasts as more than an opportunity to promote individual films – they are commercials for the Hollywood brand name. According to the Motion Picture Association of America, worldwide box office receipts reached $25.82 billion in 2006, an all-time high. The big film studios see the loss of the awards season showcases as damaging to more than just the short-term bottom line.

Potential competitors could conceivably take advantage of this moment of weakness in Hollywood. In 2006, India's film industry had gross revenues topping $2 billion worldwide. But not everyone is convinced that the time is right for Bollywood to make a power move.

“There is a reason that Hollywood movies travel so well all around the world,” Dan Petrie, Jr., one time president of the WGA told me last week. “The best people – the writers, the directors, the actors – come to Hollywood to work. Any labor dislocation would have to go on so long that international talent would decide to stay at home.”

And how long would that be? The last writer’s strike, in 1988, lasted 5 months, costing the industry $500 million in lost revenue. But in Hollywood, hope springs eternal as nowhere else. News that talks between the WGA and the Alliance of Motion Picture and Television Producers would resume on Tuesday cheered Academy president Sid Ganis. “[The February 24th Academy Awards show] will be a night to remember!” he pronounced.

Meanwhile, three thousand miles away, the other pillar of U.S. soft power was threatening to come unmoored. Wall Street market traders, fed watchers and financial professionals watched from the sidelines Monday as news of massive stock market sell-offs in international markets trickled in. Triggered by a 5.6 percent plunge of the Tokyo Stock Exchange, the threat of global economic recession moved quickly westward across the globe. Equity valuations fell like dominoes in Hong Kong, Seoul, Mumbai, Frankfurt, Paris and London. U.S. markets, closed for the Martin Luther King, Jr. holiday, were temporarily spared.

The worldwide market tumble grew out of concerns that the ongoing housing downturn and credit crunch could lead to recession in the U.S.. Overnight, central bankers and Ministers of Finance around the world struggled to enact emergency policy measures. In an early morning statement designed to cushion the impact on U.S. markets, the Federal Reserve announced it would slash interest rates by 75 basis points to 3.50 percent. This was the largest single rate cut in the U.S. since 1982.

The Federal Open Market Committee, the Fed’s monetary policy brain trust, released a statement explaining the historic move: “The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.” Like Sid Ganis, Treasury Secretary Henry Paulson put on a brave face during a morning press conference. “This [rate cut] shows the world that our central bank is nimble and able to move quickly to respond to market conditions. That should be a confidence builder,” he said.

But reactions to the rate cut were mixed. The Dow Jones Industrial Average fell 400 points after the opening bell. London’s FTSE 100 eked out a positive performance while Asian markets trended downward for the second straight day. The VIX, the Chicago Board Options Exchange Volatility index, often referred to as the “fear index,” rose to its highest level since 2002.

“The Fed has been lagging the curve in cutting rates up until now. This borders on panic,” David Jones, President and CEO of DMJ Advisors told Bloomberg Radio.

And whether in Hollywood or on Wall Street, panic is not a word that markets like to hear. Indeed, there has been considerable recent speculation – some would call it panic – that the world center of global finance could be shifting away from New York. For twenty years, London has been prepping for a return to international glory as the world’s money capital. Hedge funds and financial services firms have clustered in its city center. The London Stock Exchange has benefited from companies seeking to avoid onerous U.S. regulatory statutes, such as the Sarbanes-Oxley legislation, when listing their initial public offerings. The British capital also derives an advantage from its relative proximity to the emerging markets of Asia and Russia.

"New York is in danger of becoming a secondary city instead of the world capital it deserves to remain," said Dan Doctoroff, New York Mayor Michael Bloomberg’s Deputy for Economic Development, in 2007.

Recent news does not bode well for the continued global dominance of the U.S. film and financial industries. The risks to both are mounting by the day. If the Fed hopes its interest rate cut will stave off more than a damaging short-term recession, it would be well advised to keep its word by continuing to “act in a timely manner as needed to address those risks.” Otherwise, in New York and Los Angeles, there will be blood.

cc photo by jasonepink

Network as Catalyst for Democracy

The Council of Europe Committee on Higher Education and Research and the International Consortium for Higher Education, Civic Responsibility and Democracy held a two-day "Symposium on Universities, Democratic Culture, and Human Rights" last week at the University of Pennsylvania. The group comprised university presidents, deans, department heads, professors, and civil society leaders.

I was the final speaker on a panel with David Maurrasse, Timothy Stanton, Josef Huber, and Radu Damian on creating a global network as a catalyst for democracy.

In response to what is seen as a "crisis in confidence" and an increased emphasis on the rhetoric rather than the practice of democracy, these higher education leaders met in Strasbourg last year. They adopted on June 23, 2006 a declaration titled, "The Responsibility of Higher Education for a Democratic Culture, Citizenship, Human Rights and Sustainability," which supports the principles in higher education of:

Democratic and accountable structures, processes, and practice;

Active democratic citizenship;

Human rights, mutual respect, and social justice;

Environmental and societal sustainability; and

Dialogue and the peaceful resolution of conflicts.

The declaration was also a call for action in local, national, and global communities to put these principles into practice.

My suggestion was that information technology can help democratic practice and leaders in higher education have a responsibility to use this tool. Given the theme of responsibility and scholarship at this symposium and the recent International Studies Association conference in Chicago, I detect a concern among academics about their duty to society--their duty to question policymakers.

A global online network can help deepen democratic practice. In my view, an effective network has global reach or potential and can therefore affect change when called upon. The advantage of a single hub is that the knowledge and networks that it aggregates can more easily find their way on a syllabus or policy paper.

The Internet is a democratic tool because there is little cost of using it and it doesn't discriminate according to language, class, culture, etc. Like good democratic citizenship, it is up to the individual to learn how to use the Internet. While the Internet is a communications or knowledge management technology, democracy can be seen as a governing technology.

Themes on networking civil society I can offer from my experience with Policy Innovations over the past year:

1. Multi-stakeholder approach - build your community and expand by finding overlapping communities;

2. It is a messy process - Some people will participate in networks, some people won't. But human networks are chaotic--as are neurological networks. Nevertheless the weight of successful networks creates a gravity that draws people in.

3. Try to share your knowledge and value with others and look for a place for every stakeholder. Often the people who come to you undergo a self-selecting process.

4. Treat every relationship ethically and with respect. This may need no explanation, but connecting networks requires that relationships are handled with respect.

5. Maintain your guiding ethos, but be prepared to expand, change, and reinvent your methods and delivery systems. The Internet and world are constantly changing; be prepared to rethink copyright and intellectual property.

Finally, the offline meeting and a shared ethos are crucial for online networking success.

Expect More Transparency in China

Expect more transparency when it comes to China's government budget and military affairs. Wang Jisi of Peking University spoke to the National Committee on U.S.-China Relations last night at a Jones Day office in NYC. Stephen Orlins moderated. Wang Jisi argued that while China's main security concern remains Taiwan, it understands the role of transparency in strengthening East Asian peace. But this transparency "takes time," so the United States "should be patient," he said.

Why are Chinese military budgets skyrocketing? Military equipment is poor; military salaries are inadequate; and "the Taiwan issue" persists. Moreover, China's economy is growing at nine percent per year, and its military budget therefore cannot be compared to that of, say, Mongolia or Myanmar, Wang Jisi said. But he said we should expect more transparency both within China and with China's relations to the world.

The issue of transparency in China came up last week in Chicago at the ISA, too, and was the central theme of a 2005 article I wrote in the Asia Times Online with Larry Wortzel. We argued:

"Nations that believe in the principles of open, accountable and transparent government should encourage China to move toward a civil society. Such a change would respond to the values and principles these nations live by, and would also reduce apprehension that there are secret threats behind China's policies."

Last week at ISA, a panel of Chinese scholars argued that China sees military value in "concealment." I could feel Sun Tzu's spirit in the room (read Sun Tzu's passages on concealment here). I asked the panel, "Which is more credible? A military that can be observed or a military that cannot be observed, especially when it comes to nuclear strategy?" The scholars answered that in fact China wants "translucence"---it can be seen but only through shadows and mist.

Mearsheimer, the Lion King, and Responsible Scholarship

On Thursday, I attended a fascinating morning panel at the ISA convention on responsible scholarship. Iver Neumann, of Oslo University, took the audience through a sweeping history of literature—from King Lear, to The Prince, to the Lion King—identifying the reoccurring roles of the Advisor and the Critic. While the Advisor is measured, loved by the court, and concerned with form, the Critic takes the long view and is true to himself.

The Critic is characterized in philosophy as fearless, speaking truth to power even when risk is involved, Neumann said. While the Advisor's responsibility to the public is thin and general, the Critic is held morally and directly responsible for his views. A professor that writes a criticism of the government is more responsible than one who simply writes a report. Neumann concluded that the ethos of the Advisor should therefore be, "Unto thyself be true."

Henry Nau of George Washington University criticized the premise that scholars speak truth to power because that premise presumes that scholarship is neutral and socially unconstrained. Rather, he argued, the relationship between scholarship and policymaking is complementary. Hans Morgenthau said scholars seek truth and policymakers power. But Morgenthau also criticized universities as servants to power—simply service stations that fill the tanks of policymakers with legitimacy.

Truth is evolutionary, Nau argued. Scholarship contributes to this evolution, but there is no such thing as socially-unconstrained truth. Nau asserted that partisanship can actually help policymakers by limiting the number of policy options.

Nau said the recent proliferation of think tanks therefore serves the needs of conservative policymakers, who find less use in traditional universities and established think tanks from the 1920s and 1930s, such as Brookings, NBER, and the Carnegie Endowment.

John Mearsheimer, University of Chicago, capped the panel by reminding the audience that scholars have a responsibility to society—a responsibility to be actively engaged in the policy debate. How are we given the privilege of getting paid well to read the New York Times as part of our job description, he asked. We have a responsibility to the society around us, he answered. In a democracy, it is important to have many power bases and experts—the more the better. These experts should challenge prevailing wisdom and challenge powerful institutions (namely the White House). In this way, scholars create a marketplace of ideas. If that marketplace flourishes, chances are better that foolish ideas are knocked down.

Mearsheimer described the Vietnam War as a "cockamamy, stupid idea," drawing an analogy to the Iraq War. He lamented that the United States didn't have a fair-minded debate before going into Iraq.

Tenure is critical for the role of scholars, Mearsheimer said. "Tenure makes us untouchable and special." He said the only reason he was able to write with Stephen Walt an article about the Israeli lobby in Washington was that he and Walt had tenure and were therefore protected. "The debate inside the beltway is so sterile because it is too risky to challenge convention," he said.

Mearsheimer echoed the importance of the Critic's role. "Scholars have well-honed analytical skills, and it is good to have smart critics going after the government. You want critics. I am not saying we speak truth to power. I am saying we need smart people who challenge conventions," he said. He said he was suspicious of government service because "If you want to be National Security Advisor, you curb your tongue, and I don't want you to curb your tongue."

Mearsheimer ended by identifying four recent trends in scholarship: First, the professionalization of the academy has led people to be more concerned with building their CVs than seeking truth. Second, there has been an increase of human capital in Washington, DC, and many of these smart people would rather do the advising than listen to people at universities. Third, the disappearance of the true American left wing had created an intellectual vacuum.

Fourth, Mearsheimer said, younger scholars are more worried about their jobs than scholarship. "Young people today kiss up to their seniors. They don't challenge conventional wisdom." The system was set up to protect scholars, but they are not taking advantage of it. "That's sad. We would be better off if scholars were more engaged in the policy debate," he concluded.

ISA Annual Convention Panel on Japan

I just got back from the International Studies Association 48th Annual Convention in Chicago, where I delivered my paper on US-Japan comprehensive economic partnership agreements, which I coauthored with Sherman Katz. On the panel: Japanese Vice Admiral Makoto Yamazaki (Ret.), Major General Takahiro Ninomiya (Ret.), Masahiro Sakamoto of the Japan Forum for Strategic Studies, and Christopher Griffin of AEI.

I argued that the US-Japan defense of human rights through the management of East Asian economic activity could be a counterpart to the military alliance. The co-panelists all made the case that Japan must revise Article 9 of its Constitution in order to catch up with Japanese domestic politics and Asia's security environment.