Nouriel Roubini is the co-founder and chairman of Roubini Global Economics, an independent, global macroeconomic and market strategy research firm, has extensive policy experience as well as broad academic credentials. He is a professor of economics at New York University's Stern School of Business. Roubini.com, has been named one of the best economics web resources by BusinessWeek,Forbes, The Wall Street Journal and The Economist.
Following is a conversation he had recently with Richard Torrenzano:
Richard Torrenzano: Does being named one of the 100 Top Global Thinkers by Foreign Policy magazine put added pressure on you to consistently provide accurate, "prophetic" analyses?
Nouriel Roubini: My role is not one of a traditional forecaster, as I see myself as someone who can thoughtfully analyze the global economy and markets and make assessments about the direction of the global economy over the medium to long term. I'm not in the business of day to day forecasting. I enjoy what I do. Therefore, I feel comfortable with having had many honors and discussing the big policy issues of the time.
RT: You were dubbed "Dr. Doom," when you predicted the housing bubble and the recession. When you made that prediction, did you think it would create such uproar?
NR: No. At that time I was starting to analyze the global economy. I talked about emerging markets, the financial crisis in the U.S. I made mention of many vulnerable policies, macro-financial and otherwise. Therefore, I was not fully aware of the consequences of making that particular call. In this line of business you're as good as your last prediction. It's not just me. I have a team of almost 100 people working with me all over the world. We analyze what's going on in the global economy, financial markets and link it to our assessment of geo-political risk as well. This is teamwork and something we do all the time.
RT: In a Financial Times article you wrote, "The U.S. economy is a fiscal train wreck waiting to happen that risks ushering in period of minimal growth, high unemployment and deflationary pressure." To jump start the current economic recovery, if you were to advise the President, what would you say?
NR: There are many things we need to do. On one side we need fiscal discipline over time because these budget deficits are unsustainable.
Paradoxically, in the short term the economic recovery is weak and anemic we need to shorten stimulus somehow to spread the need for a shortened stimulus within the purpose of consolidation. If you can commit to that fiscal consolidation over the medium term, then if you need to borrow stimulus in the short term, no one's going to punish you. Second, I would say that the conditions of the labor markets are still very weak with the unemployment rate almost close to 9%. Anything we can do to jump start hiring by firms is going to be useful.
RT: In a recent interview with CNBC-TV you said, "It's pretty clear the housing market has already double dipped." How can the housing market recover? What needs to be accomplished there before we see a full recovery in that marketplace in the U.S.?
NR: The biggest and most critical thing in the housing market is that there are still millions of households who cannot pay their mortgages. The more homes that go into foreclosure the more the supply, the more prices go down, and the more people are in negative equity. There will be more people walking away from their homes and losing them. One way to deal with the housing problem is to reduce the face value of the mortgages as a way of maintaining people in their homes. Of course, that would imply losses for the banks who made the loans and for the investor who bought the debt. The alternative will be one of further defaults in the millions of foreclosures and ongoing housing and real estate recession.
RT: If we look to another part of the world, particularly China, India and Brazil, you predicted they will collectively grow at 6% this year. That is more than triple the 21/2 plus % for developing economies. What are the emerging economies doing that the U.S. can learn from?
NR: First of all their potential growth is much higher than advanced economies because they're starting with a lower level of per capita income so traditionally emerging markets grow faster. However, I think these emerging markets learn from their own crises as well as crises in Asia and Latin America by fixing their financial system, cleaning up their banks and better supervision and regulations of the financial system.
RT: Let's stay with China and India for a second. In a recent Bloomberg interview you stated India's economy may expand more than China's in the next decade. Why are you so bullish on India versus China?
NR: For a number of reasons. First, while I did say India may grow faster than China, but that's conditional on accelerating a wide range of structural reforms India has to do. The one important difference between China and India is the Chinese model has been one of exponential growth and industrialization, where consumption is only one third of demand. In India domestic consumption is about two thirds of demand.
China depends very much on the U.S. being able and willing to be the consumer of personal assets or expending more of its income running ever larger surplus deficits so that China could be the producer of first and last resort surplus options.
Now this model of growth of China is broken. Because of the excess debt of the U.S. we need to spend less, consume less, import less to deleverage. China depends on the growth of the U.S. and exports. While in India you have more domestic demand that is dynamic and growing very fast. Over the next decade actually the big challenge that China is going to face is to switch demand from export towards domestic consumption.
RT: In terms of economic crisis you wrote, "Traders and bankers must be compensated in a way that aligns their interests with those of shareholders." How would you accomplish that?
NR: I think about the system where your bonus is not given to you right away, but it's accrued to you. Then two or three years down the line we'll see whether under this adjustment basis whether the investments you made were profitable, in which case you get your bonus. If you don't because you took much risk, then your bonus doesn't come.
RT: Talk to me a little bit about the American economy and how you see things unfolding over next two to five years.
NR: I see them unfolding potentially in the right direction; if, and that is a big if, we follow the right policies. If we don't have the right policies, they could actually be worse.
The ideal scenario is one in which we deal with our fiscal problems; we deal with cleaning up the financial system. We invest in our people, education and skills. We invest in the infrastructure. We become more productive; we become more efficient. We become more competitive. The dollar probably has to weaken.
With historic economic growth after we have cleaned up our balance sheet in the private and public sector, there are a lot of opportunities: entrepreneurship, private development, venture capital and start-ups. The leadership in the U.S. has many factors that can lead to robust economic growth potentially in a few years. Also our political system is blocked – the gridlock in Congress. There is division and lack of bi-partisanship which may lead to another outcome, where we don't have the right policies where we may have a decade of mediocre economic growth.
RT: If we were to do the right policies, do you think we're going to revert back at least economically to where we were? Or do you think the new level of the economy with a higher level of unemployment, people saving more, people not spending as much where we're going to be for the next two to five years?
NR: For the next two to five years probably economic growth is going to remain anemic because we did all this balance sheet repair; spend less, consume less in the private and public sector to save more and to reduce our debt ratio. Without the balance sheet repair, then the basis for strong economic growth down the line is there. But I'll say that, yes, we're in the new normal which at best is going to be for economic recovery.
Whenever you have a crisis driven by finance, too much debt and leverage, the recovery tends to be for a number of years relatively below trend, subpar, anemic because you have this painful process of a balance sheet repair and leveraging. Probably, that's unavoidable, but it puts the basis for a strong and resilient recovery further down the line if the right policies are implemented.
Alan Guarino leads the Global Financial Technology and Electronic Trading Practice at Korn/Ferry International. He graduated from the US Military Academy at West Point and has an MBA in Management. He is the author of, "Smart is Not enough!" (Wiley 2007). The book challenges conventional wisdom on what it takes to be an outstanding executive.
Following is a conversation he had recently with Richard Torrenzano:
Question: With the myriad of leadership theories out there, which is most relevant today?
AG: Transformational Leadership (TL) is the best theory for today’s environment. TL focuses on appealing to the heart of the employee to inspire achievement. This approach pulls out what I call the employee’s discretionary energy - the energy employees possess in excess of the minimum needed to keep their jobs. When employees are effectively led, they give all they have, not just what is needed to stay employed.
RT: Leaders: born or made?
AG: Leaders are made from the stuff they were born with. Most people can be effective leaders but few can be exceptional. Like any other talent, those born with leadership potential must learn to use it effectively; so in this way leaders are “made” from the sum of their experience and, hopefully, good training.
RT: What is the most important trait a leader must possess to achieve long-term success and why?
AG: Integrity. Dishonesty is eventually exposed! Dishonest people also lack strength of character and no one can lead without strength of character. Employees and boards of directors all need to be able to trust the organization’s leadership. When people learn that a leader is not direct, honest and forthcoming, all is lost and people begin to hold back, develop cliques, and form dysfunctional alliances designed to create security.
RT: In your public appearances you’ve asserted CEOs need to behave in an unimpeachable manner. Isn’t that holding them to a higher standard than society in general?
AG: The question is whether boards should tolerate bad CEO behavior if a company’s financial performance is strong. But it eventually leads to a death spiral – the numbers won’t hold up and by the time the numbers turn to show the businesses' faults, it’s too late.
Bad CEO behavior creates a dysfunctional environment that leads to employee defections, a lack of pride in the organization, and a general breakdown of leadership. When these things happen, the numbers quickly tank. Great CEOs are people of character and any deviation results in eventual decline of the organization. Look at the public examples of what happens when leaders behave badly – Nixon, Spitzer, etc.
RT: It seems the U.S. military is far ahead of corporate America when it comes to cutting-edge leadership development? Why is that?
AG: The U.S. military, the individual services and their educational institutions, such as the United States Military Academy were remade from the crisis of Vietnam when the military lost its sense of integrity and needed to re-think its leadership model.
From this the all-volunteer military, specifically the Army, was born.
Volunteers need to be led in ways that will inspire them to continue in the military as a career. They also require more autonomy and more opportunities to grow than do enlistees who were forced into service. As such, the Army built a significant honor/integrity education program and delivered it across the force with a leadership model oriented on individual decision making and getting authority and decision making to the lowest levels of the organization. They called this “power down.” What’s amazing is that this was happening in the mid-1970s and 1980s when corporate America was still fairly bloated with the “organization man” and extremely hierarchical.
Volunteer soldiers don’t just follow orders – if you are to lead them toward a career of military service, they need to be inspired.
RT: Which are the toughest organizations to lead?
AG: Peer organizations are toughest to lead. If you can get your peers to follow you, you are gifted. This applies to volunteer organizations as well - charity boards, industry groups and the like. In business, professional services businesses are the toughest – leading consultants is often referred to as cat herding. It takes a special leader to muster these individual thinkers to a common pursuit.
RT: What are the critical skills needed for 21st century business leaders?
AG: Innovation and creativity --- with the ability to execute plans are the key skills needed in 21st century leaders. Western businesses only advantage will be invention – labor, manufacturing and infrastructure is less expensive in the East. So, Western businesses need to be the great innovator to remain leaders.
RT: Can large company CEOs learn from entrepreneurial leaders?
AG: Yes. They can learn how to build cultures of action, invention, pride, and customer focus. Smaller companies get people to work harder and for less money than they would accept in a larger company. Why? Because the employee feels another form of currency – I call this Triple E-P, employees feel: Engaged, Empowered, Excited, and Proud.
RT: You’ve run start-up businesses, commanded a company as an Army Captain and currently chair the board of a not-for-profit here in New York. Please comment on the leadership experience you have most enjoyed and their differences?
AG: Leading a company in the U.S. Army is like no other leadership experience in the world. Neither Jack Welch, nor the founders of Google could possibly experience the thrill of that leadership role. As a military officer you are building a team of people willing to put their lives at risk for the benefit of others! They must follow you from a technical, tactical, strategic, personal, and faithful/loyal perspective in order to be successful – that is total leadership and is unequaled in the business and not-for-profit world.
RT: How can you tell if someone is truly a successful leader? Does charisma play any role in leadership?
AG: Charisma is a raw material that has a role in success, but becomes empty if other abilities are absent. A successful leader is measured by the results he/she gets from others and from the following of loyal employees they gather over their years of leadership. Every other measure is fleeting - numbers, market leadership, products invented etc. Leaders bond with and build people. The people who respect and learn from them are the measure of the leader.
Frank Zarb served as "Energy Czar" during President Ford's administration, holding dual appointments in the Energy Resources Council and the Federal Energy Administration. He later became chairman and CEO of the National Association of Securities Dealers (NASD) and head of the NASD's stock exchange, the NASDAQ Stock Market. Currently he is a Managing Director of Hellman & Friedman.
Following is a conversation he had recently with Richard Torrenzano:
Richard Torrenzano: What's been right, what's been wrong with U.S. energy policy over the last 10 to 20 years?
Frank Zarb: There has not been an energy policy in the U.S. in over two decades. That’s the biggest public policy failure in our lifetime, because the public sector refuses to face up to the needs of U.S. energy.
While I can't tell you anything good about U.S. energy policy, I can tell you some good things about the marketplace that has raised prices, increased production, and encouraged alternative energy sources, but not nearly fast enough. So despite the lack of a government policy, the marketplace has done okay.
RT: Is there excessive profiting in the energy business?
FZ: Talk of excess profits during peak periods for the most part is driven by politics, not by economic analysis. It's been cyclical, with pricing of crude oil, particularly. That drives the rest of the energy sector and for the most part that pricing is in the hands of non-U.S. producers and the world economy. I think there has been a reasonable job done of taking the high-end profits and putting them back into new capital. That's exactly what you want.
RT: What percentage today of our oil comes from North America and what percentage comes from overseas?
FZ: 40% - 60%. Sixty percent from non-North American sources.
RT: Is the U.S. vulnerable to an oil embargo or disruption?
FZ: We are very vulnerable. Just consider -- we now import nine million barrels a day, half of it from unfriendly parts of the world. Think about some kind of military action in the Straits of Hormuz that would reduce the amount of oil available to this country by one and a half to two million barrels a day. That in itself could produce enough economic disruption, particularly on the East and West Coasts to substantially hurt global economic peace.
RT: What kind of reserves exist today that could be put into the hands of people and business? How long would those reserves really last?
FZ: Strategic reserves probably have 90 days worth of production. We started that in 1975 when I was in government to ensure our military had access to fuel in the event of a disruption in Middle Eastern oil flow. Keep in mind, however, that oil has to be piped to a refinery, refined and piped to where it's needed, and it's only a small backstop; an important one, but small.
RT: What are the objectives of a good U.S. energy policy?
FZ: Several. In the short term you have the energy security question. You have to have a plan that will reduce oil imported from unfriendly parts of the world as soon as you can. That should be articulated in barrels per day. If we import nine million barrels per day now, a reasonable objective would be to import only six million barrels per day in ten years.
RT: Ten years is a long time away.
FZ: It's a long time away, but it's energy. You have to think in terms of 10 or 20 years, because in 20 years you have to be moving toward alternative forms of energy. Non-oil and natural gas based energy will be taking on a substantially higher burden of our energy needs. On the other hand, for tomorrow and the next several years, the only organization ensuring energy security is our military. Like it or not, that's what it is.
RT: What are those competing factors to energy policy? How do you view them?
FZ: Competing factors have been there all along. The consumer wants cheap energy and a lot of it. The producer wants to get paid and wants the ability to produce where he can produce. The environmentalist wants to preserve the environment. The politician wants to tell the voter that they can have cheap energy and not destroy the environment in any way, shape, or form. Then you've got the extreme producer who wants to dig holes wherever they want. It's a mess of individual interests without leadership.
RT: Do you think any President or administration can provide that leadership?
FZ: I think the right President, with the right mix in Congress, could. When I was in government as the Energy Czar, we were completing the first embargo and then Congress lost interest in doing anything. I went to see my oversight chairman, Senator Henry (Scoop) Jackson. I said to him, “Senator, what do we have to do to get Congress moving again?” and he said, “Do you know how to make another embargo?” His point was, without a real crisis, the body politic will not get things done.
RT: How long would it take to implement a sound strategic policy?
FZ: Twenty years, if we started right now. It would be over several administrations. The current administration is talking about going forward with some nuclear power and building one or two nuclear plants. But if you're going to do that, you've got to approach nuclear power on a much broader base than this administration, although I applaud what it has done.
RT: Some of the risks are obvious, but what are the long-term risks of not having a workable energy policy?
FZ: The short and long term risks are substantial harm to our economy, affecting the ability to grow and increase productivity. Energy is economic blood. If energy isn't available at a reasonable economic cost, then you can't grow an economy.
RT: What role do you really think all these new clean energy technologies can play in taking us off our oil reliance? Obviously, there are a lot of technologies in many different areas. What seem to be the most important areas to you?
FZ: The electric current today consumed in the United States is something like 3.7 trillion kilowatt hours. Solar energy is probably 23 percent of that. Wind power is probably 8 percent of that. We have a long way to go before these other technologies take over. The electric car is a great step forward, but it reduces an insignificant portion of the gasoline usage. It's going to take 20 to 30 years for that evolution to take.
RT: They could make some real dents, I would think, over the next five to seven years in solar energy and wind power, no?
FZ: It depends on how big a dent you're talking about. If you're talking about going from 1 percent to 3 percent; sure, but not much more than that. First of all, the economics doesn't usually work. The economics of solar and wind, which are terrific, are currently heavily subsidized.
RT: Is that because the technology is not really advanced enough?
FZ: Not as advanced as it can be. When you compete with high-priced oil, it gets a real boost. When it competes with low-priced oil and gas, it struggles.
RT: How safe do you think nuclear power is today versus how plants were built 20 or 30 years ago?
FZ: A lot safer. The French have done it right for years. A very high proportion, if not 100%, of their electricity comes from nuclear power plants. The federal oversight has gotten extremely good in that sector. It's always a concern, but I think it is well under control. Keep in mind that people complain about nuclear waste, but the military probably produces more nuclear waste than all the utilities put together.
RT: How many more nuclear plants in the United States do we need and how long does it take a plant to come online once the shovel is in the ground?
FZ: Under current conditions, it's an eight to ten year project, including getting the shovel in the ground and fielding your first lawsuit. It's still a very messy procedure.
RT: What kind of issues or surprises do you think the U.S. energy industry is going to face in the next five years?
FZ: You will again have a spike in prices or several spikes in prices. They'll come about by any number of things. It could be a terror attack on some oil fields somewhere in the world. I worry a lot about disruption in the U.S. oil flow, particularly from the Middle East, which if you're a terrorist; you've got to be thinking about how you get that done.
On the upside, you'll see some interesting breakthroughs in the advancing technology, such as nuclear, solar, and wind power.
Sal Sodano, former chairman and chief executive officer of the American Stock Exchange (Amex) and vice chairman of the National Association of Securities Dealers (NASD), possesses a deep interest and appreciation of business education. He served as Dean of Hofstra University's School of Business from 2006-2010. He remains active at the university as the Senior Executive Advisor to the President and the Arthur Sorin Distinguished Teaching Fellow in Business.
Following is a conversation he had recently with Richard Torrenzano:
Richard Torrenzano: Why the renewed focus today on business education?
Sal Sodano: Simple: What may have been okay a few years ago obviously is not okay today. There needs to be a new mindset as to how we look at challenges, how we lead in today's environment, and quite frankly, how we come up with new ideas to become successful in today's environment.
With the change in the environment and all the failures, certainly in the financial services industry, we have to reexamine what potential leaders and managers need, in terms of tools to be able to lead in today's economic environment.
RT: Do businesses and business schools need to communicate better?
SS: For a business school to really be successful they have to balance traditional academics with business practitioners. Many business schools do not openly embrace practitioners in the classroom as teachers. There has to be a better balance between academia and practice. Schools ought to employ the executive-in-residence concept, using someone who is viewed as successful in what they do in business. Have someone spend a semester, even a year or two in the school, working with the faculty to give them a better understanding of what is happening currently in the business world, and more importantly, get them in the classroom. Let the students have access to real decision-makers and achievers.
RT: What important skills do today's MBAs need to learn?
SS: Clearly all the traditional blocking and tackling skills, such as finance, accounting and marketing will never go away. Those are the basic building blocks of how business works. The soft skills, the skills that will help someone climb the ladder and become more successful, the ability to communicate effectively, be a team player, and motivate people, those need to be emphasized.
There are very few schools right now that focus on the soft skills as part of the curriculum. We're just now focusing on a formal approach to bringing these soft skills into the curriculum, so that when someone has completed their graduate program it's not just a technical program. Then they will have a complete portfolio of skills.
Our Management Department and I try to get students to understand there's a big difference between teaching management and teaching leadership. You can manage and not be a good leader. You can lead and not be the best manager. They're not the same thing. The goal is to blend those two concepts into one person. An outstanding leader is someone who can motivate, take charge, someone people want to follow and hopefully manages well.
RT: Let's talk about the Zarb School of Business at Hofstra. What did you do there that was new and innovative? How is that helping an MBA student get a job and be better positioned for that job?
SS: We anticipate what direction and curve business is taking to provide programs for students so they're ready to take advantage of those opportunities.
For example, we have new programs such as an MBA in Sports and Entertainment Management. There aren't many of those around. We think there will be some opportunities in those fields coming up, so we have put programs in place within the past few years.
A perfect example of trying to anticipate and be ahead of the curve is a program that's gaining traction at the university now. We have a Master of Science in Quantitative Finance. It sounds pretty fancy. It focuses on quantitative methods, math and statistical analysis in the understanding of finance. Now what does that mean?
It means students who complete this program will be very qualified to do what's required not only in a Wall Street type job, but in government regulatory agencies, risk management industries, compliance officers, as well as a trader dealing with whatever security or commodity you're interested in.
RT: You have a trading floor at Hofstra?
SS: We have the largest, most sophisticated, Bloomberg-based trading floor of any college campus anywhere in the world.
We have 35 trading posts, access to the latest information in all the markets like equities, fixed income, commodities, and money markets. We have mock trading systems built into our trading room with professional money managers and traders from Wall Street who work with our faculty and students, perform trading contests and mock trade programs right in the business school.
When our students compete in open outcry and electronic trading they regularly rank as the top 10 students in the country. The reason is the competency of our faculty, as well as the success of our alumni in the Wall Street world and their ability to be on the campus trading floor with our students. This is world class, so you put that all together and it's a tough combination to beat.
RT: Executives complain about MBA's graduating business school as weak writers. Do you agree with that and are you doing anything to address this issue?
SS: I absolutely agree with that and I think it has to do with two main factors. Today's generation is very different, in terms of communications style, than current business leaders. We would write memos to communicate with one another. We would be in front of each other with eye-to-eye, communications, but students today live in a world of the iPhones and tablets, and texting.
The language is different and the words are different. The ability of students to be at ease with someone face-to-face is markedly less because they just don't do it. Leaders today are concerned that the new graduates are not as comfortable and capable in all aspects of communication; primarily because young kids text.
On top of that, the outstanding graduate education that's in this country has given rise to a huge influx of students from other countries enrolling in U.S. graduate programs. That, in and of itself, gives rise to cultural differences. Their command of the English language may not be as strong. All these can cause significant challenges for students entering today's job market and their employers.
RT: How much demand do you see for MBA law degrees?
SS: Not as much as you would think. You would think that everyone, including attorneys, would want to have the best skill set to make them the most valuable to their firms. You want to round out your legal education with a business education. There is a program that does exist currently, but we have only seen modest growth in that area.
RT: There have always been MBAs in the entrepreneurial world. With the lack of demand for jobs in the corporate arena, as well as the problematic job market, is there more interest in entrepreneurship?
SS: That is an absolute and very positive trend we are seeing right now. The Entrepreneurship Program at Hofstra continues to grow. It's actually the fastest growing program in our business school. More and more students are interested in working for themselves, starting their own business, being a sole proprietor.
As a matter of fact, in a class I taught I asked students that question and to my amazement more than one-third of them told me they were going to work in their family businesses or start their own.
That is vastly different from when I graduated in the late 70s. You almost automatically assumed everyone who graduated was going to Wall Street or a company like IBM. It's a very different mindset today. Young students see a lack of loyalty in employers, and in many instances, the harshness of economic realities where you can just be cut without reason or loyalty. Many people are not happy with that, or quite frankly; do not want to be involved in that type of environment.
RT: As you look out over the next three to five or seven years at the better business schools in this country, what are the surprises you're going to see?
SS: You're probably going to see a change in mindset from purely professional training.
You'll see more integration of pure, analytical thinking skills, almost the type of skills you would develop in a liberal arts school by taking general type courses that develop your curiosity and your general analytic ability. Without a doubt, there needs to be a lot more work done on the interpersonal skills, communication and team work.