Newsweek's Daniel Gross: “Local is the new global”

Newsweek editor and columnist Daniel Gross spoke to “Globes” about why we are always sowing the seeds of the next crisis, where it will hit, and where today’s investment opportunities can be found.

Only one year ago newspaper headlines were screaming of the worst economic crisis since 1929. Today it seems that even the headlines that summarized the crisis are in the past. After the crisis, the global arena is reorganizing, and that realignment is the subject of the discussion that will be led by Daniel Gross, economics editor and analyst at “Newsweek” magazine, at the opening plenum of the “Globes” Israel Business Conference.

The “Globes” Israel Business Conference will be held December 13-14 at the David Intercontinental Hotel in Tel Aviv.


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One of the topics at the discussion will be an attempt to define the economic and political situation in the world after the crisis. In an interview with “Globes”, Gross maps out the current situation.

“When the US economy began to worsen in 2008, the concept of “decoupling” came up. People said, ‘Fine, the US economy really is the largest one, but there is still a lot of activity in India and China, and the world does not depend on the US like in the past.’ That was correct for several months, but when Europe entered a recession, and the global economy shrank for the first time since World War II, questions were again raised about the connection to the US economy.

“Today, a year and a half later, we clearly see decoupling. US demand is still weak, and in contrast to the past, the US consumer is not buying everything that is made in China, but the local demand in India and China is driving the economy, and there is recovery around the world.

“In the past, the idea was that it pays to produce where it is cheapest”, he says, “but we learned that there are a lot of trade barriers and energy costs, so that it is does not always make sense to produce in China and export to the US. Sometimes it is more efficient to produce in the country for which the product is intended.”

Has the era of globalization passed?

“In certain senses, globalization has moved into reverse. Immigrants returned home from the US because they did not have work; foreign investments and foreign trade shrank. There are also new trade barriers. For example, the US stimulus plan includes a “Buy American” clause (which gives preference to local producers S.H.V.). I prefer to think that globalization is going in a new direction. Disney, for example, produced American movies and distributed them around the world. Recently it created a movie in Russia, with local actors and animators. ‘Local is the new global.’”

When to worry? When everyone is succeeding

So there is a recovery in the global economy, but what is its form - U, V, or maybe actually a W, which implies a double low before recovery? Gross prefers to use the word LUV, which American kids use instead of the word love in chats and SMS. “In part of the world, and primarily in Europe, the recovery is in the form L that is, they reached bottom and stayed there. In part of the world, the recovery will be fast, after a quick drop, that is, a V. The US, in my opinion, is somewhere between a U and a V,” says Gross.

What are the lessons that we need to learn from the crisis?

“To be counter-cyclical. Too many parts of the system were pro-cyclical. When banks gave out loans, and everyone paid them back, banks got the confidence to give bigger loans, and the risk increased. If before the crisis no bank closed down over a three-year span, it was not a sign that everything was fine, just that a lot of banks would fall when it began. The time to begin worrying is when everyone is succeeding.”

Have these lessons been learned?

I don’t think that we’ve learned.

So we’re sowing today the seeds of the next crisis?

We’re always sowing the seeds of the next crisis, but it is impossible to know what it will be. Just like generals plan for the last war, so too in the economic realm: After the accounting scandals of the 1990s, they legislated Sarbanes-Oxley, but the crisis that came next was not accounting related, but a credit crisis.

And what will the next crisis be like?

“The next crisis is likely to come from the realm of resources. Global warming is liable to cause drying out of certain regions, and flooding of others, and it has potential to impact the economy. The world is connected, so the hit won’t be limited to a specific geographical region, and will affect the rest of the world.”

Even before the next crisis, the previous (or maybe current) crisis is still influencing consumers’ outlooks in the US. “Currently the unemployment rate is high, but I believe we’ll see improvement in this area too, “ says Gross. “I compare the current situation to a trampoline: When you fall from a high point, the bounce back up is faster than when you fall from a lower point. I think we’ll yet be surprised by the strength of the US economy.”

In contrast, stocks have actually shot up in recent months.

“Its true that the market shot up, and reason is that large US firms are not exposed only to the US consumer.”

Has the rally ended?

Gross laughs. “If I was able to know, apparently I wouldn’t be a journalist, and I would be sitting now on my yacht. I think that the rally was stronger and faster than what was expected, and now we’ve entered a “wait and see” phase.”

Where are there good investment opportunities today?

“Productivity is the new growth. That means companies that offer more efficient energy, or have developed tools for business productivity in the software area or in other areas. For example, companies that provide a video conferencing solution.

“The second area can be defined as ‘Washington is the new Wall Street’. Governments are taking a bigger role in the economy, so sectors that are liable to receive government funding, including through the stimulus plan, become interesting. For example, the health, energy efficiency, and telecommunications equipment sectors.”

The best of times and the worst of times in economic journalism

“An atmosphere of survival” is how Dan Gross describes the atmosphere in American media during the crisis. Advertising revenue plummeted, many journalists were laid off, and newspapers closed down. Nonetheless, Gross also sees the good side in the matter, and that is connected mainly to economic journalism.

“I talk with communications students, and tell them that today is the best of times and the worst of times in economic journalism,” says Gross. “From the good side, today there is an amazing story that is going on in the world. There has never been a greater demand and desire by many people to understand the economic sector. Economic news is no longer pushed to the inside pages of the newspaper, but is found on the main headlines. On the other hand, the newspapers are in crisis. We have lost advertisers, it is harder to travel to cover events, and the challenge is great.”

What is the role of economic journalism today?

“It is made up of two things. First, to be critical and skeptical of promises. We were not skeptical enough during the boom times before the crisis, and accepted whatever the “bigshots” told us. The second thing is to emphasize what does work. A year ago, everything written in the press was just failure, failure, failure. But there were also successes, and even if we don’t need to be a supporting chorus, we need to show those as well.”

Published by Globes [online], Israel business news - www.globes-online.com - on December 1, 2009

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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