What Is the Chinese Dream?

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What Is the Chinese Dream? -- Part II 

Helen H. WangContributor

Helen Wang is a consultant, and the author of The Chinese Dream: The Rise of the World's Largest Middle Class and What It Means to You. Originally from China, Wang has lived in the U. S. for over twenty years. After finishing her masters degree at Stanford University, she joined a think tank in California, where she consulted for Fortune 500 companies including Apple Computer, Oracle, and Bank of America. Wang then became an entrepreneur in Silicon Valley Internet start-ups. In 2004, she returned to Stanford University as a Reuters Fellow, developing technology solutions for under-served communities. A sought-after speaker, Wang currently divides her time between consulting for companies doing business in China and helping non-profit organizations make a difference.

The author is a Forbes contributor. The opinions expressed are those of the writer.

A few months back, I wrote an article “What Is the Chinese Dream” here. In that article, I recounted an incident in which someone asked me: “tell me in one sentence or two, what is the Chinese dream?” I stuttered, and then said, “This is a simple question, but there are no simple answers.”

Since then, I have been thinking about this question, “what is the Chinese Dream?” I feel a little foolish that, having written a book titled The Chinese Dream, I still cannot articulate what the Chinese dream is.

When I speak to an American audience, I often say “the Chinese Dream is like the American Dream” (and this has even offended some of my Chinese compatriots). Yes, the Chinese middle class wants what Americans have – owning a big house, driving a luxurious car, and living a comfortable life.

But many would argue with me that that is not the essence of the American Dream.

Wikipedia defines the American Dream as “a national ethos of the United States in which freedom includes a promise of the possibility of prosperity and success.” American historian James Truslow Adam coined the term “the American Dream” as “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

My version of the American Dream, which I hope many would agree with, is:  regardless of one’s background, with determination and hard work, one can achieve whatever one aspires to in life.

In order for such a dream to thrive, it needs a system that encourages entrepreneurship, creativity, and diversity. That system must also guarantee equal opportunities, freedom, and rule of law.



During my trip to China in June, I asked Chinese audiences what they thought the Chinese dream was. No one, not a single person, could answer the question. To put it bluntly, China doesn’t have the Chinese dream. Or, there is no “Chinese Dream” that defines China the same way that the American Dream defines America.

This is a serious problem for China. It is like a person without soul, a computer without an operating system, and a ship without a navigator.

In Beijing, a young woman challenged me: “Why do we need a dream?” she asked. True. The Chinese are pragmatic people. Good health, good fortune, and good family are all they need – fair enough.

In writing my book The Chinese Dream, I spoke to over one hundred people in China. They are from all walks of life – entrepreneurs, office workers, rural migrants, and so on.  About half of them said they didn’t have dreams, didn’t bother to dream, or there was no use to dream because dreams and reality are too far apart.

Without dreams, one will lose the source of inspiration and imagination. It is dreams that drive upward mobility, that allow us to see beyond our limitations and achieve what seems impossible.

When I left China 20 years ago, there was no Chinese dream. I had to leave my country and come to America in order to pursue my dreams of a better future. Today, many young people in China can start businesses and they have a lot more opportunities. But many of them still want to come to America. There is still no Chinese dream.

Recently, more and more Chinese middle class families have emigrated to the United States. They saved up enough cash, sent their children to American universities, and bought properties in the States and settled down here.

One might ask “why?” Today, China seems to have all the opportunities while the United States seems to have all the troubles. Yet, the promise of the American Dream is still attracting people from around the world.

What is the Chinese Dream? This question is not only important to China, but also to the rest of the world. Today, China is the second largest economy in the world, a major economic power. What does China stand for, what will China become? People around the world are watching and speculating.

I believe part of the reason that people in the West fear China is that they are not certain whether China will be a benign power or an evil power because they don’t know what the Chinese Dream is.

The United States as a superpower has done many wrong things and bad things in the world. But people around the world in general know what the U. S. stands for. Some people may disagree or resent U.S. foreign policies, but few people see the U. S. as an evil power.

It is time for China to define a new dream. The real Chinese dream has to come from the Chinese people – something that reflects the fundamental values of who they are and what they represent.  It will probably require some deep soul searching of an entire generation or even several generations of the Chinese people to identify the true Chinese dream.

Now my book The Chinese Dream is being published in China. It is my hope that it will not only serve as a bridge between China and the West, but also start an important conversation about the Chinese Dream.
What do you think? Please add your version of the Chinese Dream in the comments area.

 What Is the Chinese Dream? -- Part I

In an event in Silicon Valley, someone asked me: “In one sentence or two, would you tell me what is the Chinese dream?” (as he learned I wrote a book called The Chinese Dream).

A simple question, but no simple answers.

When I left China 20 years ago, there was no Chinese dream. I had to leave my country and come to America to pursue my dream of a better future. But today, many young people in China can start their own business and have a lot more opportunities. Even many of my American friends are going to China because of the tremendous opportunities presented there.

As a Chinese magazine editor told me bluntly, “The Chinese Dream is a copy of the American Dream.”

Many middle class Chinese are influenced by the American way of life. They are bombarded by many material temptations and proliferating choices. TV commercials, the Internet, and Hollywood movies give them a rosy picture of the American middle class.

One Chinese blog described it this way: “American middle class people live in a villa with a two-car garage in the suburbs. In front of the house, there is a green lawn. They have 2-3 children, and a dog. The husband goes out to work, and the wife stays at home taking care of the children. On weekends, they drive their SUVs to the countryside for barbecues and camping.”

That is the picture in most Chinese people’s minds of “the American Dream”— owning a big house, driving a nice car, and having a comfortable life. The Chinese middle class wants it all.

In my book The Chinese Dream, I discuss a wide variety of topics related to a rising Chinese middle class and explore the implications in economics, the environment, culture, and politics. For people who do not have time to read the book, here is a peek:

 he Chinese Dream is organized in two parts. Part One, “The Making of the Middle Class,” reviews the dramatic changes over the past fifteen years in China that gave birth to the new breed of Chinese middle class that is still emerging.
 
The Introduction, A Five-Thousand-Year Dream, provides an overview of the Chinese middle class and presents the main theme of the book—that the rise of a large Chinese middle class will be a complementary and balancing force in the global community and benefit the world as a whole.

Chapter 1, A Peculiar Private Sector, explores a topic that mystifies many people in the West: how capitalism and communism, two mutually exclusive systems, can exist side by side in China. Through profiles of a state-created bourgeoisie and a communist entrepreneur who wears Playboy shoes and invests in the capitalist stock market, among others, I show how China’s not-so-private sector operates. In reflecting on this complexity of Chinese society, I discuss the differences between Eastern and Western ways of thinking and how they, although seemingly contradictory, can be complementary to each other.

Chapter 2, Collective Identity Crises, looks at the impact of globalization on the urban Chinese middle class, known as “white collars.” Among them are a recruiter who gave up her dream to be a reporter, a gay son of former Red Guards, a blogger who drinks Starbucks coffee and studies American business icons, young entrepreneurs who are becoming increasingly westernized, consuming as fast as the money pours in, and many more. Their stories are a microcosm of modern China, full of the contrast of past and present, the conflict of old and new, and collision of East and West.

Another major factor in the growth of the Chinese middle class is the country’s unprecedented urbanization. Chapter 3, The Greatest Migration, features rural migrants who pulled themselves up out of poverty, examines the reasons for this great migration, and discusses potential obstacles—such as China’s rigid household registration and educational systems—to the Chinese middle class’s ability to move up. In this chapter, I also debunk the myth of China’s manufacturing power and challenge people in the West to see beyond our own immediate interests and view China as an opportunity, rather than a threat.

Part Two, “Complexities and Challenges,” discusses the impact of the Chinese middle class on Chinese society, the United States and the rest of the world, how it will change the dynamics of the planet we live in, and why it can lead to a safer and stronger world.

Chapter 4, An New Economic Engine, explores the economic implications of a large Chinese middle class, both for China and for the world. A burgeoning middle class, calculated to reach 600 to 800 million within the next fifteen years, is jumping aboard the consumerism train and riding it for all it’s worth—a reality that may provide the answer to America’s economic woes. The chapter presents ways Western companies can capitalize on China’s enormous consumer market, and argues that the Chinese middle class will be an alternative growth engine for the global economy. As counterpoint to this argument, I deconstruct the myth of China as a superpower.

Although a large Chinese middle class offers significant benefits for the world economy, it will also pose serious challenges to the environment and global warming. Chapter 5, Environmental Megachallenge, showcases China‘s widespread pollution and looks at both the challenges and opportunities presented by this environmental crisis—problems that the U. S. can help solve. The chapter discusses both the bottom-up environmental movement in the West and the top-down governmental approach in China and presents a case for mutual learning and collaboration.
 
Twenty plus years after Tiananmen Square, will a growing Chinese middle class push for more democracy? In Chapter 6, Democracy or Not Democracy, That Is the Question, I review China’s troubled history of democratic pursuit and interview a former Tiananmen Square demonstrator, an editor for one of China’s outspoken magazines, and other intellectuals and entrepreneurs. The chapter discusses the relationship between the Chinese middle class and the government, and explores the possibility of a democratic China.

China is leapfrogging into the information age. Chapter 7 , Looking at the World Upside Down, tells the story of a Chinese Internet entrepreneur who started an e-commerce company that defeated eBay in China. This chapter documents why some companies fail while others thrive in the Chinese market, and illustrates important lessons that multinationals cannot afford to ignore when seeking to do business in China.

China is experiencing a surge in religious beliefs as the country continues to undergo rapid and profound changes. Chapter 8, Unquenchable Search for Meaning, recounts stories of people’s search for spirituality and their desire to find meaning in life: a jewelry store saleswoman wavering over believing in God, a public relations manager shopping from religion to religion, an entrepreneur who converted to Christianity but is still in doubt, and others. The chapter delves into the government’s attitude towards religion and the middle class’s quest for balance between material and spiritual enrichment.

The book’s Conclusion, From the Chinese Dream to One World One Dream, asserts that middle class Chinese and Westerners are connected by a common set of core values and share many of the same aspirations and dreams. By accepting our interdependence and seeking to learn from each other, we will all benefit. The Chinese middle class is an emerging global force that can serve as a catalyst for a more balanced world for all.

Interspersed throughout are my personal stories and life-changing experiences—my childhood in China, my arrival in the United States, and my visits back to China over the years.

If you have a better definition of the Chinese Dream, please let me know.
(Helen Wang is the author of The Chinese Dream: The Rise of the World’s Largest Middle Class and What It Means to You. Available on Amazon and http://TheChineseDreamBook.com)

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British Massacre - Batang Kali Victims win UK court scrutiny

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Kin of Batang Kali massacre victims win UK court scrutiny  

  

KUALA LUMPUR: Family members of 24 unarmed Malaysian ethnic Chinese workers, allegedly shot dead by British troops in a massacre more than six decades ago, won a significant court battle in Britain that will give hope that the incident will be formally investigated, their lawyers said Thursday.

The British High court ruled on Aug 31 in favour of the family members for a review of a decision by the British government to refuse to investigate the massacre, in which the unarmed rubber plantation workers in Batang Kali, a remote town in Selangor state, were killed after being accused as terrorists trying to escape during the Malayan Emergency.



The court granted the judicial review as it deemed the case "raises arguable issues of importance", reported China's news agency Xinhua.

The lawyers said a full hearing would begin in early 2012.

"After decades of seeking redress for the Batang Kali massacre victims, we can now, finally, see the light of justice at the end of the tunnel," said lawyer Quek Ngee Meng, representing a victim's family.

"We do not expect the British government to reverse its stance, but it should immediately and unconditionally release all documents relating to the massacre and the aborted attempt to investigate in the past so the court that hears this case, and the public, have a complete picture," he told reporters at a press conference attended by six surviving kin of the victims, lawmakers and dozens of activists and representatives of ethnic Chinese groups. - Bernama

Malaysian Batang Kali massacre kin wins UK court scrutiny

KUALA LUMPUR, September 8 (Xinhua) -- Family members of the 24 unarmed Malaysian ethnic Chinese workers allegedly shot dead by the British troops in a massacre more than six decades ago won a significant court battle in britain that would give hope the massacre would be formally investigated, their lawyers said on Thursday.

The British High court ruled on August 31 in favour of the family members for a review to a decision by the British government refusing to investigate the massacre, where the  unarmed rubber plantation workers in Batang Kali, a remote town in Malaysia's Selangor state were killed after being accused as terrorists trying to escape during the Malayan Emergency.

The court granted the judicial review as it deemed the case " raises arguable issues of importance." The lawyers said a full hearing would begin in Spring 2012.

It will examine whether the British Secretaries of State for Defense and the Foreign and Commonwealth Office (Secretaries of State) acted lawfully when they refused to hold a public inquiry into both the killings and their coverup, and to make any form of reparation to the victims' families.



"After decades of seeking redress for the Batang Kali massacre 's victims we can now, finally, see the light of justice at the end of the tunnel," lawyer representing the victim's family, Quek Ngee Meng said.

"We do not expect the British government to reverse its stance, but it should immediately and unconditionally release all documents relating to the massacre and the aborted attempt to investigate in the past so the court that hears this case, and the public, have a complete picture," he told reporters at a press conference attended by six surviving kin of the victims, lawmakers and dozens of activists and representatives of ethnic Chinese groups.

The 24 ethnic Chinese were shot dead by the British Scots Guards in 1948, when the then-Malaya was under British colonial rule.

They were accused of being sympathizers of the communists and said to be trying to escape during the Malayan Emergency -- a guerilla war fought between the Commonwealth armed forces and the Malayan communist group.

The victims' lawyers said the British government refused to correct the records even as evidence suggested all 24 victims were innocent.

After numerous appeals to both the British and the Malaysian governments for a probe into the massacre were turned down, citing lack of evidence, family members of the victims took the case to the British court.

"For the first time after six decades, I feel a sense of closure," said Loh Ah Choy, whose uncle was killed before his eyes when he was nine.

"He was my only uncle and he deserves justice," the 70-year-old told Xinhua.

Relatives of Batang Kali massacre victims nearer to seeking justice

By MARTIN CARVALHO mart3@thestar.com.my

KUALA LUMPUR: After almost 18 years of tough challenges and extreme obstacles, relatives of the Batang Kali massacre are finally making headway in seeking justice over the killing of 24 villagers by British soldiers in 1948.

MCA Public Complaints Bureau chairman Datuk Michael Chong said the United Kingdom Legal Service Commission had granted the families financial aid to pursue their case. An appeal for aid was rejected in November.

“I am very happy. We nearly gave up as cold water was poured on us several times over the years,” he told The Star here yesterday.

“Finally, families of the victims are able to see some light to help them seek justice.”

Chong, who played a crucial role in initiating the call for a judicial review in 1993 over the Malayan Emergency massacre, said the aid came as great relief to the families.

The four claimants, Wooi Kum Thai, Loh Ah Choi, Lim Kok and Chong Hyok Keyu, faced RM480,000 in legal fees (not including RM525,000 in future cost) when their request for legal aid was turned down.

However, the commission’s Special Cost Control Review Panel allowed their appeal on April 15 and with this, the four can proceed with their case at the British courts.

Action Committee Condemning the Batang Kali Massacre coordinator Quek Ngee Meng said the panel granted the appeal as it was of the view that the claimants had a 50% to 60% chance of succeeding in their case, which is of wider public significance.

“They can now, with more certainty, resort to legal avenues to the fullest so that the truth behind the massacre can be uncovered and that the historical wrong corrected,” Quek said in a press statement issued here.

On Dec 12, 1948, in a military operation against the communist insurgents, a group of British soldiers allegedly shot dead the 24 villagers in a rubber estate near Batang Kali before setting their village on fire.

In March last year, families of the victims and several non-governmental organisations formed the action committee.

The committee submitted a petition to the British High Commission calling for an official apology, compensation for the victims’ families, and financial contribution towards the educational and cultural development of the Ulu Yam community.

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British Massacre - Batang Kali Survivors and kin seek inquiry and damages  

Will There Be Any Jobs in the Future At All?

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Alex Knapp, Contributor

“You could not step twice into the same river; for other waters are ever flowing on to you.” – Heraclitus

Douglas Rushkoff has an interesting piece at CNN.com asking whether the economy of the future will be set up in such a way that jobs as we know it make any sense at all.


The question we have to begin to ask ourselves is not how do we employ all the people who are rendered obsolete by technology, but how can we organize a society around something other than employment? Might the spirit of enterprise we currently associate with “career” be shifted to something entirely more collaborative, purposeful, and even meaningful?

Instead, we are attempting to use the logic of a scarce marketplace to negotiate things that are actually in abundance.

In considering what an economy has to look like, Rushkoff tries to imagine past capitalism and communism into a different way of looking at economics going forward – which sort of ends up looking like the economy of the United Federation of Planets, where everyone’s basic needs are provided for but you have to do creative work to obtain status and other things you might want.



Ultimately, I’m not convinced that Rushkoff’s solution works – it suffers a little too much from what I think of as “information class myopia”, in which writers about technology, who spend most of their days involved with gadgets and electronic media while creating intellectual property for a living confuse their own experiences with universal ones. These pieces rear their heads every now and again when people ask questions like, “Why do we need a post office? I always text!” while proclaiming ubiquitous, frequently used technologies like the phone and email dead simply because they don’t use them that often as texting, Twitter, etc. Rushkoff doesn’t usually suffer from this syndrome, but I think his concept in this column does.



That said, I think Douglas Rushkoff is a pretty brilliant guy, and while I may not agree with where he’s going in this column, I do think he’s absolutely right to think about the future of our economic systems. I think he’s absolutely right to point out that now might be a good time to completely reconsider what we value in terms of work, employment, and career, and that we need to figure out what the technological and social changes of the past few decades mean for those concepts.

It’s important to remember that the economic systems that we live with today won’t last forever. As technology changes and innovation continues, so too will the very nature of what the economy is will evolve. Paradigm shifts like the rise of the corporation in the late Middle Ages, paper money, free labor and central banking, among many others, all came about as a response to particular political, social and technological pressures, needs, and problems. And as times change and different technologies and social needs come to the fore, economic institutions and rules will change accordingly – sometimes quickly, sometimes slowly. Sometimes at the behest of government and sometimes whether government likes it or not.

It’s not far-fetched to imagine that the nature of employment and entrepreneurship may well be very different a century from now than it is today. Indeed, they may not even be recognizable a century from now. That’s because economic institutions and ideas aren’t natural laws – they’re practical tools that are always evolving.

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Yahoo fires chief executive Carol Bartz

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Yahoo CEO Carol Bartz has told staff in an email she was fired over the phone by the chairman of the board

Dominic Rushe in New York  

Carol Bartz has been fired as CEO of Yahoo. Photograph: HO/AFP/Getty Images

Carol Bartz, Yahoo's chief executive, was fired late on Tuesday ending a rocky tenure in which she tried and failed to revitalise the online giant.

In a statement the company announced Bartz had been "removed" from her post and would be replaced by chief financial officer Timothy Morse "effective immediately" on an interim basis as the firm began the search for a new, permanent CEO.

In an e-mail sent to employees from her iPad and titled "Goodbye," Bartz wrote: "I am very sad to tell you that I've just been fired over the phone by Yahoo's chairman of the board." She wrote, "It has been my pleasure to work with all of you and I wish you only the best going forward."

The combative chief executive had been under pressure to turnaround Yahoo from the day she was appointed. Yahoo remains one of the biggest destinations on the internet but has lost gound with advertisers and audience to Google, Facebook and services like Twitter.



According to research firm eMarketer Facebook is set to overtake Yahoo this year to collect the biggest slice of online display advertising dollars in the US.

Bartz joined Yahoo in January 2009, replacing co-founder Jerry Yang who had returned to the helm of the company in an ill-fated bid to turn its fortunes around. When Bartz joined the firm its shares were trading for around $12. After news of her departure broke, the shares jumped more than 6% in after-hours trade to $13.72, from a close of $12.91 on the Nasdaq. In January 2000, near the end of the dot-com bubble, Yahoo's shares traded at more than $125 a piece.

Bartz had also fallen out of favour with Wall Street investors, unhappy with her turnaround strategy and her handling of the firm's strained relatonship with China's Alibaba Group, in which it holds a 40% stake.

In June Yahoo chairman Roy Bostock gave his public support to Bartz at the company's annual general meeting. "This board is very supportive of Carol and this management team," Bostock said in his opening remarks. "We are confident that Yahoo is headed in the right direction."

Bartz, had previously been chairman of software firm Autodesk. She arrived with a reputation as a tough talker and reinforced it early in her tenure by telling Michael Arrington, founder of the influential Techcrunch website to "f*** off" during a staged interview at an industry event.

Her management style came under fire after the company's apparent mishandling of its relationship with Alibaba. In May when it was revealed that Alibaba had handed Alipay - one of Alibaba's crown jewels - to a company controlled by Alibaba founder Jack Ma, apparently without Yahoo's knowledge. Alibaba said Yahoo was fully aware of the transaction and the two sides openly bickered about the deal.

Yahoo is conducting a strategic review of the company's options, including possible divestment of its Asian holdings. It cautioned that no decisions had yet been made.

Bostock said: "On behalf of the entire Board, I want to thank Carol for her service to Yahoo! during a critical time of transition in the Company's history, and against a very challenging macro-economic backdrop. I would also like to express the Board's appreciation to Tim and thank him for accepting this important role. We have great confidence in his abilities and in those of the other executives who have been named to the Executive Leadership Council."

The company also said its directors named five other senior Yahoo executives to an executive leadership council that is intended to help Morse, a former chief financial officer at Altera, a semiconductor makers, and at General Electric Plastics, manage the company.

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Yahoo boss Carol Bartz is fired by US internet company

Carol Bartz was brought on board to change the fortunes of the search and internet company

 

Yahoo's chief executive Carol Bartz has been fired by the internet company after two-and-a-half years in the top job. 

The company said in a statement that Ms Bartz was removed by the board of directors, effective immediately.

Tim Morse, Yahoo's chief financial officer, will take over from Ms Bartz.

Yahoo has been struggling to increase its market share as it faces increased competition from rivals such as Google and Facebook.

Yahoo shares jumped more than 6% in after-hours trading after news of the firing broke, indicating they would trade higher when Wall Street opens for business on Wednesday. Yahoo's stock price was up at $13.72, an increase of 81 cents.

Mr Morse will serve as interim chief executive and the board of directors will look for a new CEO, the company said.

No turnaround

Ms Bartz was hired to run Yahoo in early 2009, taking over from co-founder Jerry Yang.

She made significant changes to the management team and cut jobs to save on costs. She also shifted the focus of the traditionally search-oriented firm towards more personalized content.

Continue reading the main story

“Start Quote

I am very sad to tell you that I've just been fired over the phone by Yahoo's chairman of the board”

Carol Bartz Former CEO, Yahoo

 

However, Larry Magid, a technology analyst at C-net, said the company has not seen enough of a turn-around under Ms Bartz's leadership.

"She hasn't done anything to change the company's fortunes, and they are still anxious to find a leader who can move them up," he said.

Critics also claim that Yahoo has failed to make significant strides in two of the most lucrative segments of the market; search and social networking.

"Facebook is way ahead, and now even Google is way ahead of Yahoo in social networking," C-net's Mr Magid added.

"In terms of the potential for long-term revenue it's just not there. They've got some great sites, great information resources, news, stocks, sports, but that's not what bringing in the money."

Phone firing

The news first broke on the Wall Street Journal's All Things D website, which quoted an email from Ms Bartz to Yahoo staff. The email has since been reported by other news agencies including Bloomberg and Reuters.

"I am very sad to tell you that I've just been fired over the phone by Yahoo's chairman of the board," Ms Bartz said in the email to staff.

"It has been my pleasure to work with all of you and I wish you only the best going forward."

As news of the sacking spread across the internet, Yahoo released its own press statement in which it confirmed it was undergoing a "leadership reorganisation" and that Ms Bartz would be leaving the company.

Roy Bostock, chairman of Yahoo's board, said in the statement: "On behalf of the entire board, I want to thank Carol for her service to Yahoo during a critical time of transition in the company's history, and against a very challenging macro-economic backdrop."

He added that he saw "enormous growth opportunities" for the firm.

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Europe puts its head in sand over growth crisis

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LONDON | Mon Sep 5, 2011 By Alan Wheatley, Global Economics Correspondent

(Reuters) - Japanization is shorthand for slouching toward that country's noxious mix of low growth and high debt. Euro zone governments will find it tough to keep the ugly new word out of their lexicon.

Concern is mounting over a deterioration in Europe's long-term growth prospects that, unaddressed, will make it even harder to tackle the banking and debt problems underlying the current life-or-death struggle over the euro.

The financial crisis that has been rocking the global economy since 2008 has permanently reduced trend growth across the industrial world. The Organization for Economic Cooperation and Development in Paris reckons the potential output of its 34 member countries has dropped by about 2.5 percent.

"A lot of countries are going to take a permanent hit to their trend rate of growth. This is not an ordinary recession and so we're not going to see countries bouncing back to pre-crisis rates of growth," said Philip Whyte, a senior research fellow at the Center for European Reform, a London think-tank.

As firms have gone bust, capacity has been lost for good. With demand subdued, profitable companies are not replacing old plants.

And as high unemployment persists, skills atrophy. This weakens productivity and shuts people out of the job market for longer and longer periods -- a danger stressed by Federal Reserve Chairman Ben Bernanke at the U.S. central bank's Jackson Hole symposium last month.

Apart from sapping animal spirits and forcing governments to raise taxes or cut spending, diminished growth closes off one route for lowering the high sovereign debt to gross domestic product ratios that have locked Greece, Ireland and Portugal out of the bond markets and are unnerving investors in Italian and Spanish debt.

Against this background, and with the scope for fiscal and monetary stimulus all but exhausted, politicians might be expected to grasp the nettle and push through reforms to improve the supply side of the economy -- policies such as making it easier to hire and fire, promoting greater competition and investing more in training.

Far from it. Pier Carlo Padoan, the OECD's chief economist, says he is less optimistic about the prospects for deep-seated change than he was at the start of the year.



"I see that measures are being announced. I would like to see them being implemented," Padoan said.

With policy ammunition running desperately short, he said it was time for governments to overcome their squeamishness about confronting vested interests opposed to change. "This is a luxury that many countries cannot afford any more. The situation does not allow it."

SOUTHERN DISCOMFORT

The vicious circle of rising debt and falling growth is made worse by the fact that those countries drowning in debt on the periphery of the euro zone are also the ones that have dragged their feet on freeing up their product and labor markets or modernizing their education systems.

"They're going through some truly horrible times. I'm very worried about the whole southern European fringe, not just on an 18-month to 2-year view but looking out a decade or longer," said Whyte with the Center for European Reform.

Germany, by contrast, derided a decade ago as the sick man of Europe, is being held up as a model, at least when it comes to jobs.

"The remarkable resilience of the German labor market in the last few years, where wage moderation and flexible time accounting shielded the economy from excessive job destruction, illustrates admirably the promise of well-structured reforms," Jean-Claude Trichet, president of the European Central Bank, said approvingly in Jackson Hole.

How much are countries missing out by not pressing the reform button?

Padoan says Europe's trend growth has fallen in recent years to an average of just 1.5 percent a year, but he says some members of the 17-nation euro zone could almost double that rate with a supply-side jolt.
Italy needs to liberalize its service sector, open up professions to new entrants and improve energy efficiency, Padoan said. Greece needs to do all that and overhaul its labor market and competition policy at the same time.

POOR ADVERT FOR FREE MARKETS

Germany, too, could grow faster still if it liberalized services, which would trigger increased investment.

These policy prescriptions are well worn. Leaders of the European Union enshrined them and a host of other reform goals in the 2000 Lisbon Agenda, which they promptly ignored. The pledges have since been repackaged as the Europe 2020 Strategy, but Whyte says the havoc wrought by the near-collapse of the international financial system will make politicians more wary than ever of the social disruption that reforms entail.

"The Great Financial Crisis hasn't been a great advert for free-market capitalism," said Whyte. His research outfit publishes a booklet this week exploring how Europe could take off by embracing innovation. But in this area, too, Whyte fears the political climate means policy is likely to be increasingly hijacked by incumbent firms hostile to competition from start-ups.

Europe is not doomed to go down Japan's path of economic stagnation. Its potential growth rate is low but stronger than Japan's -- estimated by the Bank of Japan at just 0.5 percent a year because of a fast-shrinking working-age population.

But the specter of a renewed recession is a reminder for governments that, even if they can spirit away the euro zone's currency and debt woes, they have still to find the elixir for growth.

"I'm not saying politicians will implement reform, but they should," Padoan said. "Some politicians resist reform because they are captive to interest groups. Well, the price for those governments in terms of sustainable growth will be very high."

(Reporting by Alan Wheatley; Editing by Ruth Pitchford)
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