As anyone who has lived in a foreign country and tried to learn the local language knows, there is a time when you start to think you’re really getting it, when suddenly you realize that what you’ve really just figured out is when to nod at the right times.  This same feeling of being ‘lost in translation’ also applies to everyday business people trying to navigate the increasingly complex G-world.

In a nutshell, the G-20 is made up 19[i] of the world’s largest developed and developing economies and the European Union.  Since its inception in 1999 it has evolved from a talk shop of economic and financial policy wonks to a crisis response team to shepherds of a ‘fragile and uneven’ recovery to its current state – policy chaperons aimed at preventing the next financial and economic crisis.

When central bankers, finance ministers and economists meet this year under France’s stewardship, they will be trying to agree on:  “reform of the international financial system”[ii]–a so-called new “Bretton Woods”[iii]; how to address “global imbalances”[iv]; implementation of “Basel III”[v]; and how to tackle “volatility in the commodities markets”[vi].  (See the notes below if you want a short description of each of these issues.)  Setting aside the banking and financial sectors which are directly impacted by new regulations, when you run all this through a ‘G-20 business translator’ you get two main themes which impact business:  trade and access to / cost of capital.

Trade: The crux of the trade issue is that many advanced economies are relying heavily on export led growth to fuel their recoveries and create jobs.  To do this they need a competitive, (i.e., weak) currency.  So, when they finish their canapés in France, they discuss how to keep countries with free floating currencies from engaging in competitive devaluations (read currency war) and how to get those without flexible exchange rates (China) to loosen the reins and allow their currencies to appreciate.  The foreign exchange rate debate is central to tackling “global imbalances” and how this plays out could significantly impact a company’s ability to increase exports, pay for imports, and compete with China which many perceive as having an unfair edge with its undervalued currency.

A second piece to the trade puzzle is the possibility of increasing protectionism, especially in the high-growth emerging markets. In order to curb the vast sums of cash flowing into their markets, countries such as Brazil, China, Taiwan and South Korea have imposed various measures including restrictions on stock market investments by foreigners, tax hikes on foreign investors and other forms of capital controls on short-term investments.  Brazil’s new government, which took office on January 1, 2011, is one to watch closely.  Brazilian President Dilma Rousseff has indicated that due to the increasing strength of the real (Brazil’s currency) the country may instigate trade measures to protect domestic manufacturers from cheaper imports.  Despite the heat, other rapidly developing countries such as India and Turkey have chosen not to erect barriers.

Access to / Cost of Capital: In 2010, the G-20 agreed on new banking and financial sector regulations.  The center piece of the new regulations aims to put in place new bank capital and liquidity rules beginning in 2013.  The combined effects of requiring more capital, the increased cost of capital, and the need for banks to invest in new systems and processes to meet the increasing governance and disclosure requirements will mean higher costs to banks and financial institutions across the board.  And it’s a good bet that these added costs will be passed on to business customers.  In addition, new requirements on term funding could lead to banks and corporates both competing for a limited pool of increasingly expensive short and long-term loans.

Perhaps it goes without saying that the extent to which leaders and policy makers in G-20 governments are able to address the flaws in the global economy which led to the crisis, and do so in a balanced and coordinated way, will promote overall economic and business growth.  In the opposite extreme, if global growth rebounds on a fast track for emerging economies at the expense of developed economies, greater rifts may emerge poisoning business climates and amplifying uncertainty.  With this in mind, keeping an eye on G-world developments and periodically running their proposals through a ‘G-20 business translator’ will help you navigate the global economy and chart a course for growth.

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^[i] Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi, Arabia, South Africa, Republic of Korea, Turkey, UK, USA.

[ii] Reform of the international financial system is the primary overarching policy priority for the French presidency of the G-20.  Under this banner, G-20 countries will consider methods to develop a new system which is more responsive to the globalized nature of the world economy which include tackling global current account imbalances; the U.S. dollar’s pre-eminence as the global reserve currency, and methods to curb volatile capital flows.

[iii] The Bretton Woods agreement was adopted in 1944 and was the first system of rules, institutions (i.e., IMF, World Bank and IBRD), and procedures to regulate the international monetary system.  Calls for a new Bretton Woods refer to an all-encompassing reform of the international financial system.

[iv] The G-20 are trying to create a mechanism to assess and reduce persistent global economic imbalances between export-rich and debt-laden consumer countries.  On February 19, 2011, ministers agreed on a set of guidelines to identify when developments in some countries could create problems for everyone else.

[v] Due to the loss in confidence in banks’ capital standards during the crisis, the Basel Committee on Banking Supervision proposed some major revisions and additions to the existing Basel 2 capital requirements regime.  These proposals, collectively called Basel 3, are designed to improve banks’ ability to absorb shocks arising from financial stress.  They were endorsed at the G-20 leaders’ summit in November 2010.  This year they will try to agree on extra measures such as more capital and tougher supervision for big, systemically important (too big to fail) banks.

[vi] Due to rising fuel and food prices in many countries, leaders are calling for tougher regulation of derivatives and physical commodities markets to mitigate price volatility.  There is little agreement on how to proceed on this one with Brazil and other commodity exporters opposing price controls.

Media headlines on the UN’s climate change discussions (formally known as the UN Framework Convention on Climate Change or UNFCCC) look about the same as they did this time last year: “Climate Talks Unravelling as China and US Clash”; “World Climate Talks Going Backwards, EU says”; “Climate Talks Stumble”.   Is anyone surprised?  Did anyone really think that the developed countries would have figured out where they are going to get US$ 100 billion a year to fight climate change and that developing countries would have solidified new measurable targets all the while grappling with restarting economic growth?

Despite the lack of progress in this forum; many countries, most notably China, are forging ahead with alternative energy technologies.  China is already one of the world’s leaders in wind power and solar energy, and has paved the way for a big expansion of nuclear power.  Beijing has already been successfully courting Kazakhstan in order to diversify its oil and gas supplies and as the two countries get closer, it’s likely that Kazakhstan will feature prominently in China’s nuclear energy expansion plans.  (Kazakhstan possesses 19% of the world’s reserves of uranium-with an estimated 444,000 tons of recoverable uranium deposits, second only to that of Australia.)

Further, China has built one of the biggest solar and wind power industries in the world.  By 2008, China was the world’s second largest wind market by newly installed capacity and the fourth largest in overall installed capacity.  It became the world’s largest PV manufacturer in 2008, with 95% of its production for the export market. 

The apparent sea change in Chinese policy and attitude may be the result of stark warnings Chinese leaders have been given by their own scientists about the possible impact of global warming on the country’s economy.  However, like the development of strong national oil and gas companies, there is also an element of industrial policy guiding China’s new direction.

In addition, in 2009, for the first time in China’s history, more than half (51.8%), of China’s oil needs came from foreign sources.  Passing the 50% threshold has reinvigorated the energy security debate and reinforced the alternative energy push.    

As part of their recovery plans, both the U.S. and Europe made grand announcements of financial support for new environmentally friendly technologies.  However, Europe’s stimulus spending on green technology is dwarfed by China’s investment.  The percentage of EU spending going to green measures is less than 10% while at the same time China is projected to spend 34% of stimulus money on green technologies.  The total earmarked for green investment and R&D from both the EU and Member States together is between €86 – €90 billion which is comparable to what the U.S. is planning to spend – about US$ 80 billion.

While negotiators travel between Copenhagen, Bonn, Beijing and Cancun in hopes of pasting together some sort of climate deal they can brand a last minute “success”, Andrea Spring, Staff Member, U.S. House of Representatives notes that “China is moving so rapidly on wind power that the U.S. is being outstripped…China and India will own green technology.”

“Patents provide the fuel of interest to the fire of genius.”  Abraham Lincoln.  The “fire of genius” does not underscore the importance of having an exceedingly high IQ score; but instead the importance of creativity, innovation, and ingenuity.  Creativity is the production of something original and useful while innovation is the link between R&D and the actual exploitation of results.  In these concepts Americans have cause for concern.  Why?

A 2010 Boston Consulting Group Innovation Survey found that while innovation overall was again a top priority for many companies; it also indicated some troubling trends.  Less than half the survey respondents believe that U.S. companies will remain the most innovative over the next five years.  While the rest of the world is prioritizing innovation, American businesses are de-emphasizing it. 

• 92% of Chinese firms say innovation is a top priority, up from 70% in 2008.
• 79% of Indian firms say innovation is a top priority, up from 73% in 2008.
• 76% of French and British firms say innovation is a top priority, up from 63% in 2008.
• 61% of U.S. firms say innovation is a top priority, down from 63% in 2008.

At the same time, a downward trend in America’s creativity has been identified.  Kyung Hee Kim at the College of William and Mary has discovered that American creativity scores are falling.  Kim found that creativity scores had been steadily rising until 1990, but since then, they have consistently moved downward.  While American schools are preoccupied with standardized curriculum and nationalized testing, other countries are moving away from this method and making nurturing creativity a national priority.

Lincoln also emphasized another important piece of the ingenuity puzzle – patents – more broadly encompassed today as intellectual property rights.   Intellectual property is essentially comprised of ‘creations of the human mind’.   For a business, IP is a core asset of the company; its ‘intellectual assets’.  In the post industrial age, these ‘creations’ or ‘ideas’ are the new commodity that advanced and advancing economies can supply to the world.

These ideas, whether developed in a garage in Seattle, an R&D lab in Denmark, or by a designer in Shanghai must be protected in order for them to have the incentive and opportunity to create wealth, generate jobs and bring solutions to an ever-more-demanding society.  The fact is-good ideas can be expensive to create.  IPRs give creators economic rights in their creations while at the same time forming a mechanism which allows everyone else to access the creations.  However, in today’s ‘something for nothing’ culture, protecting novel ideas, creations and solutions through IPRs is also under attack.

If the necessity for ingenuity is not in question – why are American companies and citizens trending in the opposite direction?  Are companies so preoccupied with current economic uncertainty; with new taxes; with new financial, health care and environmental regulations; that they are not prioritizing the need for creative breakthrough solutions?  Are school systems so starved for funding that achieving high standardized test scores via repetitious academic drills outweighs the importance of teaching children how to think creatively and solve problems?  Will intellectual property protections continue to erode to the point where creators no longer have the moral or economic rights to their creations?

The warning signs are clear and the trends are increasingly obvious.  The term ‘wake- up call’ is passé.  Has America’s creativity button been set to snooze?

As the United States and Europe dwell on the future of BP, possible new requirements for accident contingency funds, restrictions on deep-water drilling, and increased industry fees and regulations; China’s influence on world energy markets and the geopolitics of energy security continues to expand.  On July 20th, the International Energy Agency announced that in 2009, China passed the United States to become the world’s largest energy user.   In addition, in 2009, for the first time in China’s history, more than half (51.8%), of China’s oil needs came from foreign sources.

Passing the 50% threshold has re-invigorated the energy security debate both within China and among other major global energy market players.  The lengths China is willing to go to ensure its energy security is a large part of the debate .  Take Saudi Arabia, Angola, Iran, and Sudan; for the U.S. and Europe, these countries represent complicated foreign and military policy debates.  For China, these countries represent its top oil suppliers.

Moreover, with their substantial government financial resources, China’s national oil companies (NOCs) have been aggressive in entering foreign markets.  In particular, Chinese NOCs are willing to go into places that the international oil companies have avoided for political reasons or where they were not willing to pay excessive amounts for exploitation rights.  This is particularly true in Iran, Sudan, Myanmar (Burma) and Venezuela.  From the point of view of many of these countries, Chinese investment offers an additional advantage– it comes with no annoying “Western” political conditions.

Likewise, with the global economic crisis leaving Europe and the U.S. financially struggling, China has found itself with increased opportunities to expand, particularly into Central Asia, where it has been able to replace Western capital.  For example, in November 2009, China’s largest oil and gas provider, jointly with Kazakhstan’s oil and gas firm, bought MangistauMunaiGas, a big oil producer in Kazakhstan. In exchange, China loaned the country US$10 billion.

It comes as no surprise that China is playing a more influential and assertive role in Kazakhstan.  Development of its major oil fields could make Kazakhstan the world’s 5th largest oil producer within the next decade.  Kazakhstan also stands to benefit:  Kazakhstan’s expansion of export routes to China is helping reduce its dependency on Russia and should enable the country to increase its leverage in price negotiations.  Increasing leverage on Russia is not necessarily a bad thing for Europe which, generally speaking, views its energy security as a need to decrease reliance on oil and gas, diversify supply routes (particularly vis-a-vis Russia), and expand the use of renewable energy sources.  However, Europe’s plans to diversify supply routes do not include building pipelines from Kazakhstan eastward. 

China’s anti-crisis policies (while focused mostly on supporting domestic demand), had positive effects on Kazakhstan’s economic recovery.  In late 2008, Kazakhstan’s foreign direct investment tap began flowing again with about 31% of total funds pouring into the extraction sector and almost all was Chinese in origin. By the end of 2008, 60% of the total crude oil output was controlled by companies with a strong Chinese presence.

China’s attention to large potential energy suppliers such as Kazakhstan and even negligible energy suppliers such as Myanmar is also due to Chinese policy makers unease with relying so heavily on vulnerable Persian Gulf energy sources.  For the Chinese, Gulf oil shipments use sea lanes susceptible to interception as well as terrorism, military conflicts, and other sources of instability in the Middle East that could abruptly disrupt Gulf energy exports. 

Transatlantic energy companies are still the major players in both the upstream and downstream sectors.  However, with rising costs, declining old resources in the North Sea, and new deepwater developments, their global competitiveness could well be compromised in an environment where the downside of trying new technologies, exploring in deep waters, and taking risks outweighs the potential benefits. 

The allegations that BP lobbied the Scottish and UK governments to release the Lockerbie terrorist in exchange for deep drilling rights off the coast of Libya certainly does not bode well for an industry trying to dig itself out of a major PR hole.  (Libya has the largest oil reserves in Africa and currently sends most of it to Italy, Germany and France.)  But it’s important to consider this:  the question is not whether there would be deep water exploration off the coast of Libya, but who is going to do it.  Would the Chinese oil companies have the same reservations?  There is no such thing as a level playing field in the energy game.

On June 1^st, UN climate change negotiators will sit down in Bonn, Germany for the first official round of UNFCCC negotiations.  The players have held several meetings leading up to the official negotiations – and commentators, NGOs and industry groups have all been watching the choreographed dance between the EU and the United States, particularly to see what new dance moves the Obama Administration might show.  Despite a few rough areas, so far, the European and American negotiators are dancing nicely together in hopes of reaching an agreement by December in Copenhagen.

Perhaps the real question is – will the Chinese trip up the dancers by insisting on changes in intellectual property protections for new green technologies – and do the European and American negotiators want a deal so badly that they might trade off IP in order to get China to sign on to verifiable numerical targets?  Up to now, western negotiators have called it a mere ploy by the Chinese – but Chinese and Indian demands on IP have made it into the official draft negotiating text.  For example, the draft text states that “Specific measures {shall}{should}be established to remove barriers to development and transfer of technologies from developed to developing country Parties arising from the intellectual property rights(IPR) protection, including: (a)  Compulsory licensing for specific patented technologies.”  In laymen’s terms – some countries in the developing world, led by China and India, want free access to patented – or future patented – technologies developed by European and American companies.

Both European and American politicians have talked extensively about the importance of green technology and so-called ‘green collar’ jobs as key drivers of economic growth, noting that the current economic recession is a particular opportunity for these industries.  For example, U.S. President Obama has proposed investing $15 billion in green technologies to create up to 5 million green-collar jobs.  The American Solar Energy Society predicts that by 2030, industries with green-collar jobs could provide up to 40 million American jobs and generate up to $4.53 trillion in annual revenue.  EU Commissioner Verheugen has emphasized repeatedly that discovering new technologies to fight climate change is Europe’s competitive advantage and British Prime Minister Gordon Brown has similarly called for an international “Green New Deal”.

Renewable energy and other companies engaged in climate mitigation want to have China and other countries utilize their technologies – but on fair terms.  The catch is, European and American companies cannot take the risks to invest in new research and development if they can’t be assured that their new discoveries will be protected.  And if this scenario plays out at the UNFCCC negotiations, who is going to hire all those green collar employees and generate all that annual income that governments can then turn into tax revenue?

It may be a negotiating ploy – but it is one that needs to be taken seriously now.  Industry is aware of the challenge.  On May 20^th in Washington, DC, a new coalition was launched called the Innovation, Development and Employment Alliance (IDEA). The coalition will work with policy makers and international stakeholders to safeguard intellectual property rights that encourage research and development investments, create jobs, spur economic growth, and will (hopefully) lead to technological solutions for reducing greenhouse gas emissions.  While IDEA is not just about green technologies (the focus is on all research-intensive sectors), the immediate concern is what negotiators will decide on in order to secure a deal in time for a signing ceremony in Copenhagen this December.

As negotiations at the UN Framework Climate Change Conference (UNFCCC) draw to a close in Poznan, Poland and EU leaders kick off meetings in Brussels, all eyes and podcast feeds are assessing what, if any, progress can be made towards a new climate deal.  Let’s face it, what were already difficult negotiations have become even more painful due to the worsening global economic conditions.  So far the news isn’t heartening.  But does this mean that the green tech revolution has come to a halt?  No.   

Why?  Because technology innovation marches on.  Companies in Europe, the United States and in the fast developing countries of China and India are pouring Euros, Dollars, Renminbi, and Rupees into discovering the next greatest climate saving breakthrough.  EU Commissioner for Industry Günter Verheugen has said on a number of occasions that the EU must maintain and enhance its competitive advantage in climate change technologies.  U.S. President-elect Obama has proposed investing $15 billion a year in green technologies.  And the Americans and Europeans are not alone.  In August 2008, Ernst & Young’s renewable energy country attractiveness indices moved China into the top 5 most attractive countries for investment in renewable energy.  In fact, firms in China, India and Brazil are among the world’s largest producers of environmental goods for solar, wind and biomass power production.  For example, China’s Suntech and India’s Tata BP Solar are top global suppliers of photovoltaic (PV) cells.    

Investment in eco-innovation could be a win-win-win scenario: a win for economic growth, a win for high-quality jobs, and a win for the environment.  Just this week European Trade Union leader, John Monks, said it is time to pour money into green jobs calling on the EU to invest in green industries and jobs.  An article published by the American Solar Energy Society predicts, in an admittedly aggressive scenario, that by 2030, industries with green-collar jobs could provide up to 40 million American jobs and generate up to US$4.53 trillion in annual revenue. 

But I emphasize the word could because threats to innovation in environmental technologies exist.  One of the biggest threats is the notion that incentives in the form of intellectual property rights somehow hinder innovation and limit transfer of technologies to the developing world.  In fact the opposite is true.  Weakening existing IP protections would eliminate incentives for future research and create uncertainty for the many businesses in developed and developing countries alike that have already invested hundreds of billions of dollars in climate saving technologies and production.  An effective and viable climate change treaty starts with negotiators enshrining clean energy technology and strong intellectual property rights as part of the solution, rather than a problem or a bargaining chip.  The key to any international agreement on climate change is that it must include global participation and strong intellectual property rights to spur the use of clean energy technologies worldwide. 

Eco innovation, green tech, green collar jobs — no matter what you call it, incentives to keep the drive alive are key to meeting climate goals. 

Housing slump, financial crisis, economic recession, business confidence falling….there is no shortage of headlines telling us that, to put it politely, we are facing deteriorating economic circumstances.  The impact will likely be felt from the corporate boardroom to developing world aid programs and everything in between.   If companies cut back R&D spending and if resources for the developing world are constrained…..will we also face an ‘intellectual slump’?  What will be the impact on innovation in climate saving technologies and new drugs for both the developed and developing world?  Calling fellow bloggers: is there a solution for avoiding an intellectual slump?

The EU is famous for launching new, and usually well-funded, projects aimed at making Europe the most ‘competitive economy in world by 2010’ – more commonly known as the “Lisbon Strategy 2000” or the “Re-launched Lisbon Strategy 2005”.  On September 15, another piece of this jigsaw puzzle was officially launched – the new European Institute for Technology (EIT).  The EU is financially backing the new EIT to the tune of € 300 million – and I hope these are tax euros well spent.

The EIT’s goal is to bring universities into public-private R&D partnerships called “Knowledge and Innovation Communities” or KICs to create new commercial opportunities.  Commission President Barroso himself admits that the EU needs to catch up to the US noting that there is an 85% gap between the US and Europe in business funded R&D.  To me, the real question is: why is there still an 85% gap?  Let’s face it, business invests in R&D where it can be rewarded for its investment.  That means creating the kind of business environment that stimulates ideas for inventors, business opportunities for entrepreneurs, and financial reward for investors – even the risky kind like venture capitalists.  An important part of that business environment is protecting the intellectual property that is generated by the investment in R&D.  That may seem obvious to some, but there is a lot of talk in some quarters that IP should not be protected and that it, in fact, hinders innovation. 

A quick look at some U.S. numbers makes it difficult to overstate the value of IP to the U.S. economy. American intellectual property currently accounts for some one-third of the market value of all U.S. stock – $5 trillion-$5.5 trillion. That total is equivalent to 42% of America’s GDP and greater than the GDP of any other economy in the world.  IP-intensive industries including pharmaceuticals, chemicals, and information technology recently accounted for 17.3% of all U.S. economic activity.  As information and specialized knowledge become more important to both the European and American economies, IP will take on an even greater role.

I applaud the new EIT but, as the British like to say, “mind the gap”.

Knowledge economy…knowledge worker…knowledge creation…knowledge society….Are these mere buzz words or do they represent a changing society?  This was the topic of a gathering of European researchers and academics in Munich this week to discuss a European strategy for handling ‘knowledge’ in an knowledge-based economy.  While a theoretical or philosophical discussion of ‘knowledge’ is interesting – we must talk in practicalities – how can knowledge bolster economic growth and jobs?  Likewise, what does it mean for the intellectual property system – particularly patents?  Patents are in fact central for a knowledge – based economy.  They provide the means to trade knowledge and for companies to create intellectual assets.  The challenge in managing a post-industrial, knowledge-based economy is that more knowledge creates more uncertainty.  In other words, the more we know-the more we know we don’t know…so questions prevail.  Is knowledge tradable?  If so, are there ethical implications of trading knowledge?  And what, in fact, is a ‘knowledge society’? 

As the first decade of the 21st century draws to a close, it is increasingly evident that innovative solutions to the challenges facing the global economy and society are needed in order to propel growth in today’s knowledge-based economies.  This was underscored on Monday when French Prime Minister François Fillon called his economic ministers back from their summer holiday for an emergency session to work out a meaningful way for France and the rest of Europe to co-ordinate its response to the eurozone’s growing economic malaise.  Fillon said there was no need for a new domestic plan to re-launch France’s stuttering economy. He said investing more public money would “solve no purpose” – the only answer was to continue with structural reform. 

Women are, and will become, an even greater force in the economy as societies, companies and national governments focus on ways to increase women’s engagement in science and technology, knowledge creation, knowledge transfer and the digital future.  A 2007 study by McKinsey and Company entitled “Women Matter” highlighted an important fact:  Europe can expect a shortfall of 24 million people in the active workforce by 2040.  But, if there is a greater effort to bring more women into the workforce, the shortfall could be only 3 million.  

While there is much talk about promoting innovation and supporting innovators and entrepreneurs; there is an undercurrent of debate ranging from scrapping the current system for protecting creations of the mind; i.e., the intellectual property rights system, to keeping the status quo, warts and all.  How can influential networks such as the Paris-based “Women’s Forum for the Economy and Society” or the London-based “Global Women Inventor and Innovators Network” promote entrepreneurs, innovators and knowledge workers while at the same time respond to growing societal demands? 

Not only do we need policies which support economic growth but policies that support the growth of ideas and creativity, areas where many women excel.  The Women’s Forum for the Economy and Society, which brings together leading women (and men) in business, government and academia, could be an ideal stage for an honest exchange of ideas, testing some new ones, and where solutions to promoting and protecting innovation and creations of the mind are genuinely valued.    Too often these questions are discussed in limited forums where honest debate is not encouraged and positions are reflected in a pre-scripted set of talking points. Perhaps French Finance minister Christine Lagarde and the other EU finance ministers will discuss not only structural reforms at their next meeting on September 12-13 in Nice, but meaningful ways to ensure Europe’s competitiveness well into the 21^st century……