(photo credit of Jaco sunset)

I’m spending three weeks in Costa Rica starting mid-June. My first week will be around Playa Samara (where I’m taking Spanish classes, four hours a day for four days), second week probably around Flamingo, and third week probably around La Fortuna / Arenal volcano. Some of these nights I’m looking to crash with friends of this blog — if you know anyone there, drop me a line or leave gen’l tips in the comments.

In preparation, I’m reading Michael Reid’s terrific (and dense) book The Forgotten Continent: The Battle for Latin America’s Soul. Reid has edited The Economist‘s Americas section for years. Here’s the premise of the book:

Latin America has often been condemned to failure. Neither poor enough to evoke Africa’s moral crusade, nor as explosively booming as India and China, it has largely been overlooked by the West. Yet this vast continent, home to half a billion people, the world’s largest reserves of arable land, and 8.5 percent of global oil, is busily transforming its political and economic landscape.

This book argues that rather than failing the test, Latin America’s efforts to build fairer and more prosperous societies make it one of the world’s most vigorous laboratories for capitalist democracy. In many countries—including Brazil, Chile and Mexico—democratic leaders are laying the foundations for faster economic growth and more inclusive politics, as well as tackling deep-rooted problems of poverty, inequality, and social injustice. They face a new challenge from Hugo Chávez’s oil-fuelled populism, and much is at stake. Failure will increase the flow of drugs and illegal immigrants to the United States and Europe, jeopardize stability in a region rich in oil and other strategic commodities, and threaten some of the world’s most majestic natural environments.

A full review and notes will be posted later.

I spent a splendid five days last week in St. Gallen, Switzerland participating in the 38th St. Gallen Symposium, a conference where 200 students interact with 600 business and political leaders from around the world. This year’s theme was "Global Capitalism – Local Values."

Students must write an essay on the theme and the 200 best are invited to attend, all expenses paid. This ensures not only high quality students (majority grad students, some undergrads) but also a stunning level of diversity. This year, there were students from 50 different countries studying business, economics, philosophy, psychology, and more.

The first two days the students spent alone to mingle, chat, and participate in a couple workshops facilitated by UBS and PwC. The second day was set in the alps at Santis mountain. It was wonderful to have a conversation with smart, young people from every point of the globe with catered food and the backdrop of huge Swiss, snowy alps. I came away from these conversations feeling incredibly optimistic about things — if you ever feel down on the state of the world, go talk to motivated students!

My time in St. Gallen reaffirmed for me my interest in internationalism, travel, business, and people. And youth. It was terrific to spend time with people around my own age (all under 30). For me, there’s still no more exciting moment than hearing about someone’s culture, or someone’s funny travel experience abroad. One night, at a four-course dinner sponsored by a Swiss watch maker, everyone at the seven person table went around and shared tidbits on their country, their thoughts on current affairs, educational system, or funny experiences from third world (or first world) countries. The wine was flowing — but so was the mutual understanding and cultural exchange. I know what I just said sounds cliche, but as I’ve said before, to me, all the cliches about travel are true.

Here were some of my key insights / notes from my conversations and the various speakers and sessions:

• Martin Wolf, of the Financial Times, is not only an impressive columnist, but also dynamic and humorous speaker. He was probably the most impressive speaker of the bunch (out of two country presidents and numerous company CEOs). The FT, by the way, was the most cited news source throughout the conference. Some Wolf quotes:
  • "Success breeds excess, and excess breeds panic."
  • "The new financial system was supposed to allocate risk to those best able to take it. Instead, it got allocated to those least able to understand it."
  • "Revolutions tend to eat its children."
  • "For CEOs, we are living in the era of ‘mea culpa.’"
  • "Telling yourself, ‘This time is different’ is hard-wired into the human psyche. During every bubble people tell themselves this."
• Private oil companies produce only 5% of world oil; national oil companies produce the rest.
• Credit Suisse risk management guy: "We have great risk-management models. The problem is when we start believing them. The key is to only do things you understand, and when in doubt, assume you don’t understand."
• World is getting more unpredictable. Quick decision making is key. Decide, iterate, decide, iterate.
• Food security is helped by interdependence in global food markets. On rising food prices, we can’t ignore basic fact that China and others are increasing demand.
• Al Jazeera anchor: "One day we woke up and, Oh my God!, there’s a food crisis. What about the lead up? Why suddenly a food crisis? Is this "crisis" going to just be flavor of the month?" True. Also, how does the media decide which "crisis" to focus on? Malaria continues to kill in record numbers, and yet, when was the last time you heard a story about the malaria "crisis"?
• "Made in X" is no longer an appropriate tag to place on products. Even if something is "Made in China," the distribution, assembly, creativity thought, etc all likely happened in various countries. "Made in the World" is a better label. Globalization is no longer centered around a city.
• The Swiss airlines CEO – Christoph Franz – was super impressive and I was lucky to be able to participate in a long workshop with him and others on the aviation industry. Among other nuggets, he noted that while Southwest Airlines is heralded in the U.S. as the most successful airline, most of their profits are due to a fuel price hedge made seven years ago. They haven’t been operationally profitable for years. Swiss airlines, on the other hand, has done quite well, thanks mostly to new ownership under Lufthansa and elimination of non-premium routes (they focus on routes from Zurich that cater to business fliers). Franz also noted the insanity of Chapter 11 bankruptcy in the States — it allows airlines to float in and out of bankruptcy without facing the hard truths. Unlikely US air travel will improve anytime soon thanks to an aging fleet.

I can safely say that this conference was the most well organized event I’ve been to. I suppose it helps when you can draft hundreds of students of a university (St. Gallen) to help produce the event and manage logistics. But it’s also a testament to the Swiss culture of organization and precision. Needless to say, if you have the opportunity to go to an event put on by the Swiss, go!

I am very grateful to the St. Gallen Symposium for including me in this event.

Paul Goldberger had a piece in a recent New Yorker on why and how airports are so poorly designed from an aesthetic perspective. Near the end he expresses awe at size and pace of construction of China’s new airports. I myself remember being stunned by the sheer capacity of China’s airports — dozens of unused gates, built in anticipation of expansion. Goldberger makes this important point when comparing the new Beijing terminal to Heathrow’s new BA terminal:

The Beijing terminal cost $3.65 billion to build, which in China bought a structure bigger than all five terminals at Heathrow put together, for less than half the cost of the new Terminal 5. The project was conceived, designed, constructed, and opened in four years, whereas the Heathrow terminal, from conception to completion, took twenty years…These widely divergent timetables are not a matter of Chinese efficiency versus British dallying: the British, like the Americans, pay the price of democracy. The Chinese government does not have to contend with environmentalists, financing problems, or recalcitrant airlines; the public hearings over the Heathrow terminal took the same amount of time as the entire construction of the Beijing one. China simply decrees what it will build, and floods the construction zone with migrant workers whose daily pay probably wouldn’t buy a British construction worker’s lunch.

And that lack of democracy, of course, is what makes China so different from emerging-market rival India. China kicks India’s butt from an infrastructure perspective. But perhaps India has the more sustainable political infrastructure in the long term.

Peter Thiel is one of the most successful start-up entrepreneurs in recent time (PayPal), start-up investor (Facebook), and hedge fund manager (Clarium). Needless to say, it’s worth following his thinking.

I’ve now twice-read his 10,000 word essay in the latest Hoover Policy Review entitled The Optimistic Thought Experiment: In the Long Run, There are No Good Bets Against Globalization. I still can’t get my head around all his points, including his proposed connection between financial bubbles and the level of globalization. Hopefully you, dear reader, can help me. Until then I thought I’d excerpt some of the more interesting paragraphs that jumped out at me.

He frames his essay thusly:

For macro investors, it would be an abdication not to wrestle with the central question of our age: How should the risk of a comprehensive collapse of the world economic and political system factor into one’s decisions?

From the point of view of an investor, one may define such a “secular apocalypse” as a world where capitalism fails. Therefore, the secular apocalypse would encompass not only catastrophic futures in which humanity completely self-destructs (most likely through a runaway technological disaster), but also include a range of other scenarios in which free markets cease to function, such as a series of wars and crises so disruptive as to drive the developed world towards fascism, anarchy, or both.

Are all past bubbles part of The Great Boom?

It is beyond the scope of this essay either to enumerate all drivers of these trends or to determine whether the pro- or anti-globalization forces will gain the upper hand in the longer term. Still, the following conclusion seems safe: Since we are very far from any stable equilibrium, the future is likely to be much more or much less globalist than the present.

Nevertheless, this Great Boom is also very different from all previous bubbles. This time around, globalization either will succeed and humanity will achieve a degree of freedom and prosperity that can scarcely be imagined, or globalization will fail and capitalism or even humanity itself may come to an end. The real alternative to good globalization is world war. And because of the nature of today’s technology, such a war would be apocalyptic in the twenty-first century. Because there is not much time left, the Great Boom, taken as a whole, either is not a bubble at all, or it is the final and greatest bubble in history.

On technology vs. “technology”:

…There also exists a critical distinction between technology and investments called “technology.” To take a particularly easy case from the prior technology bubble, a “technology” company that sells pet food online by purchasing Super Bowl advertisements offline may not be a technology company at all. The solutions to hard engineering problems are not necessarily valuable, but it is unusual for the solutions to easy engineering problems to have much value in the long term.

On the China bubble:

To say the least, there are many eerie parallels between the Chinese stock market of early 2007 and the Nasdaq of early 2000: an abstract story of long-term, exponential growth; rampant speculation; and unprofitable or overvalued companies.

One intermediate possibility is that the China of 2014 will be like the internet of 2007 — much larger, but with winners very different from the ones that investors today expect. The largest New Economy business is Google, a company that scarcely registered in early 2000. Might it also turn out that the greatest Chinese companies of 2014 will be concerns that are private and tightly controlled businesses today, rather than the high-profile and money-losing companies that have been floated by the Chinese state?

By the way, here are some video interviews with Thiel on the BigThink, a wonderful collection of stimulating, brief interviews with smart people.

Richard Florida, who I like and respect a great deal, says:

• "The countries of the future: Australia, Canada, Sweden, and of course China and India (at a different level). The USA too, if it can somehow get its act back together. Sure America will never recapture its zenith, but it will remain the place for innovation and entrepreneurship – at least until the effects of the current global talent shift set in. I’d put that at a generation or so.
• At the end of the day, I wouldn’t be betting on continents or even countries at all. Not in this spiky world. I’d bet on mega-regions. Europe has some good ones, Asia has a bunch, including some that are growing mighty fast.  North America retains the most.  Unless some sort of major round of institutional changes occur at the global scale, this spikiness will grow a lot worse."

What about Latin America? Recent travels to Ecuador and Mexico have piqued my interest. The growth of Spanish speakers in America and explosion of Latino culture more generally seems to play well for future cross-pollination between U.S. and Latin American economies.

Yet no one ever seems to talk about our neighbors down south. Michael Reid is author of a new book called The Forgotten Continent, and emphasizes Brazil:

If China was becoming the world’s workshop and India its back office, Brazil is its farm — and potentially its center of environmental services.

That quote is via Roger Cohen, who said in a recent column that "Latin America’s transformation in recent decades has been underestimated."