CEOs Get Warnings About 2012 - WSJ Nov. 18, 2011

Re-Posting this important article from the WSJ. The article addresses these issues: the challenges of doing business in China, World Economy, US Business Taxes, US visa policies, global competition for resources, building exports, and enforcement of intellectual property rights in China and elsewhere.

NOVEMBER 18, 2011

CEOs Get Warnings About 2012 

By JOHN BUSSEY

Just how likely is U.S. business to get whipsawed by troubles in the year ahead?
"If you haven't thrown up yet, you're getting ready to," Erskine Bowles, former co-chair of the national fiscal responsibility commission, told a group of CEOs in Washington this week. Efforts to cut the deficit are falling short, he said. Congress is in seizure. Calamity beckons.

FedEx CEO Fred Smith during a Q&A at the CEO Council. He said operating in China has become much harder. "We've got to spend our money more wisely, just like you guys do," Mr. Bowles said. "We have this treaty with Taiwan that we'll protect Taiwan if they're invaded by the Chinese. There's only one problem with that: We've got to borrow the money from China to do it!"

His shtick brought the house down, but there was no mistaking the nervous edge to the laughter.
The 87 CEOs had gathered this week at a Wall Street Journal conference to get clarity from Washington figures about the year ahead. Here's what they heard: more alarms about the deficit crisis in the U.S., the debt crisis in Europe, and distracting elections or leadership changes in the U.S., Europe and Beijing. The words "instability" and "contagion" came up more than once.

And though there was beneficence from some CEOs toward China, the message for business here, too, wasn't a good one:
"I strongly agree with the sentiment expressed that the Chinese government is going backwards, that they are reverting back to more central control of the economy," Fred Smith, CEO of FedEx, told the group. "It's become more difficult to operate there by a large margin, and I would say almost every one of the U.S. companies that operate in China would agree with what I just said."
In private, they did. The group would hear from senior officials about a range of national issues. But it was China, one of the main themes of the conference, that threaded through the proceedings and appeared top of mind for the CEOs. Indeed, the executives were asked what books they read recently, and the No. 1 pick was Henry Kissinger's "On China."

When they weren't talking China, the chief executives got commiseration from Eric Cantor, R., Va., on taxes. "It has to be tougher and tougher to justify the domicile location of your headquarters given our tax code," he said.

They also groused with officials about immigration and visa policies that prevent talent from getting into the country and discourage tourists from coming to visit.

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"Ridiculous," Klaus Kleinfeld, the CEO of Alcoa said, recounting his own company's experiences. "We're talking about jobs here. We want to create jobs."

And they heard Treasury Secretary Timothy Geithner reassure them, again, that Europe will find its way—sort of. Gail Kelly, the chief executive of Westpac Banking, asked if matters were going from bad to worse in the Eurozone, a belief widely held by the CEOs and the markets.

"It's hurting growth already, it's hurting us already," Mr. Geithner responded. And then he offered a familiar line of late: "This is a problem within their capacity to solve," he said. "They are working through the very tough things they have to do to get there, obviously not fast enough, obviously not enough traction for the confidence of markets yet."


To drill deeper into some of these problems, the CEOs broke into working groups to debate topics such as how to manage the global competition for resources and how to build U.S. exports (the U.S. is near the bottom of the list of all nations when measured by the share of national economic output that exports comprise.)

The Journal will publish a report on the CEOs findings Monday. One early peek:

The group that explored ways to improve U.S.-China relations was decidedly gentle, choosing the carrot, not the stick. Noted the group in its oral report back to the conference: "We have to be patient" with China and appreciate "step by step progress" "because we know our future is together." U.S. business should give China "more face." The CEOs "chose to use words such as win-win." "There wasn't a lot of appetite in our task force for government-to-government saber rattling on things like currency."

Two other working groups, though, recommended measures to increase enforcement of intellectual property rights in China and elsewhere, something that sounded more like a stick. And when the full group voted on action items for business and government across the range of subjects discussed that day, that stick ranked just ahead of the diplomatic carrots. It was a message, during troubling times, from American business to a rising China.

CEOs Get Warnings About 2012