• Service: Tax
  • Type: Business and industry issue, Video
  • Date: 10/15/2012
  • Length: 7:22 Minutes

The economy in 2020 

Jerry Haar, Associate Dean and Director, Pino Global Entrepreneurship Center, College of Business Administration Florida International University:

My name is Jerry Haar. I’m the Associate Dean in the College of Business Administration at Florida International University. I’m also director of the Pino Global Entrepreneurship Center and a professor of management and international business at FIU.

Can you describe your presentation today?

There are three scenarios that will be discussed. One is the economic malaise in Europe. The second one is China goes wobbly, there are some problems there economically, politically. And finally, the global energy scene as a tinder box. Remember, this scenario building exercise looks at the world in 2020, so anything mentioned should not be misconstrued as happening in real time, even though some of the things we will talk about eight years from now are actually happening in real time.

What is most important from the scenarios?

As with anything in life, anticipation is the best insurance policy, whether it’s individuals, companies, or entire nation states, other organizations, it’s best to plan for the future and to be very careful in planning to have a number of scenarios, a number of contingencies, so not to be caught shorthanded.

Can you provide some more detail about these scenarios?

Well, three would be looking to 2020 where it’s déjà vu all over again. Europe is in an economic malaise, they have yet to resolve the problem of how you have a European Union that has monetary discipline but no fiscal discipline. The Mediterranean countries have wreaked havoc with regard to economic stability in Europe. We’re talking about the usual suspects of Greece, Italy, Spain, and Portugal. Governments are taking certain measures, they’re running enormous levels of debt, but they’re taking this mindless Keynesian approach to think that they can spend themselves out of a recession, almost near depression, and to revive economic growth courtesy of governments. That doesn’t happen. It didn’t even happen that way with regard to depression in the United States from 1929 to around 1934/1935 in the United States. So essentially, you’re seeing huge fiscal deficits pile up, massive stimulus plans, in feeling that they can spend their way out of this arena, and taxing the productive sectors as a way to make up for the shortfall. All that does is it further cripples private enterprise, especially small enterprises, multinationals will leave, large domestic companies will begin to divest to Asian speculators and others that are interested in waiting it out for the long term, so it’s not a very, very happy scene.

Second scenario, we’re looking at China. All good things must come to an end, shall we say. China, even today, keeps the lid on things by divesting more and more power out to the provinces, and by that, these are still members, party bosses in the Communist party, but the central government does not have the power and authority it once did. The only way it can retain that authority is through divestiture to the provinces. In a mild way, we have that in the United States and in Canada, a number of countries around the world with a federalist system of government. China has this powder keg, though, that even with low population growth rates, where there is the population growth, and you’re seeing irrespective of the government’s one child policy, is in the rural areas. You have people in the rural areas who cannot find decent work, they’re flocking to the cities, they do not have the skills, so China must keep its factories going, it must employ people for political and social reasons just to keep the lid on things. Essentially, what’s happening though, however, by 2020, you’re seeing organized labor in China, you’re seeing labor costs going up, China is no longer the cheap area in which to produce, but rather, as we’re seeing even now, companies that were manufacturing in China are now either doing one of two things, they’re moving to more cost effective areas, lower labor costs, Vietnam, Cambodia, Myanmar, which will be democratic and independent by then, I predict, and also, thanks to production technology, these kinds of techniques, a lot of production that has been occurring in China is going to be coming back to Europe and to the United States, especially, thanks to technology, robotics, and the appreciation of the Chinese Yuan.

Third scenario, with regard to energy, a number of factors coming into play here, political as well as economic. Number one is, by 2020, we’re going to find out, thanks to onshore production of oil opening up federal lands in the United States for oil drilling, greater efficiencies in the production of fossil fuel energy, cleaner ways of producing fossil fuel in terms of coal and natural gas, for example, and even petroleum. We’re going to see greater efficiencies throughout the production of fossil fuels, while at the same time, we’re seeing the growth of viability, finally, of alternative energy. We see that today even with regard to certain biofuels, not corn based ethanol - which is a sham, it has never worked, never will - but rather other derivatives, other sources of alternative energy. All these things combined, this confluence will drop the price of oil down tremendously. Good news for consumers, good news for oil dependent companies, like those in transportation, those in manufacturing chemicals, plastics, and tires, very good news for them. Not so good news for those nations that are so heavily dependent on oil, as in the nations of the Middle East and the Gulf States.

What should tax directors be focused on?

Well, I’d say tax directors are going to be focusing on the usual, regardless of any scenario. The treatment and the anticipation, above all, of the treatment of profits and dividends, of certainly valuations, in volatile environments in which confiscatory predilections of certain governments mean, let’s try to get taxes where we can, I think valuations are going to be extremely important. The whole notion of, say, outsourcing, contract manufacturing, looking at these R&D incentives, I think they’re an integral part, will continue to be an integral part, of strategic planning among entire businesses.

Jerry Haar, Associate Dean, International Programs and Director, Pino Global Entrepreneurship Center, College of Business, Florida International University shares his thoughts on what the economy could look like in 2020.


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Iberoamerica Tax Summit 2012

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Videos and articles on views captured at the Iberoamerica Tax Summit 2012.