As Private Banking Booms, ‘Relationship Manager’ Is Glamour Job

When Simon Ng, a Singaporean army officer, set his sights on the glamorous world of private banking last year, he didn’t know much about stocks and bonds. “I thought a bond is something they tie you up with,” he recalls.

Then he turned down an army promotion and forked over S$48,000, or roughly $31,000, in savings to enroll in a wealth-management program. These days, he is interning at a major private bank’s Singapore branch and expects to land a private-banking job by summer. “This industry is booming here,” says the 31-year-old Mr. Ng. “It is the right place to be.”

Such career changes are by no means rare in this island-state, which, with an estimated $250 billion in private-banking assets under management, aims to rival Switzerland as a global private-banking hub. As private banks operating in Singapore report assets increasing at rates of 15% to 30% annually, they can’t get enough warm bodies to cater to Asia’s multiplying class of super-rich.

“It has become very difficult to find good people,” says Rolf Gerber, Singapore chief executive of Liechtenstein’s LGT Bank.

Clients of private banks like LGT typically have at least $1 million in financial assets. Unlike retail banks, private banks offer personalized advice from a dedicated manager whose duties extend beyond merely taking care of money and can involve socializing with customers aboard yachts, in sophisticated restaurants and on golf courses. Some bankers say salaries in Singapore for some of these relationship managers, as they are known, recently surpassed pay levels in Switzerland.

A recent survey by Calamander Group, an advisory and investment firm, estimates there are roughly 2,000 trained relationship managers based in Singapore — with an immediate market demand for 2,500, a number expected to rise to 5,000 to 6,000 in five years. The other Asian private-banking hub, Hong Kong, also has a shortage.

“Everyone is interested in coming here to establish an operation, everyone tries very hard to hire — and if the demand is larger than supply, there is a bottleneck,” says Didier von Daeniken, head of private banking for Southeast Asia and Australasia at Credit Suisse Group who is based in Singapore.

The rush to find new recruits is sparking concern about a possible deterioration of service. “When you have to hire that many people,” a large number will be “unprepared, inexperienced and unqualified,” says Leslie Menkes, head of Morgan Stanley’s private-banking business in Singapore.

The boom has made poaching staff common. At Credit Suisse, Alex Widmer, formerly head of private banking and head of Asia Pacific, jumped ship in 2005 to join rival Julius Baer, where he now heads private banking; he subsequently hired away a number of senior Credit Suisse bankers.

In February 2006, Joachim H. Straehle, the Singapore-based head of international private banking at Credit Suisse, quit to become chief executive of smaller Swiss rival Bank Sarasin & Co. Ltd.; he in turn lured Fidelis Goetz, Credit Suisse Group’s head of private banking for North Asia, to Sarasin in September. Credit Suisse is hiring Marcel Kreis from rival UBS; he takes over as head of private banking in the Asian-Pacific region this month.

“It’s a very competitive market,” says Pierre Baer, chief executive for Singapore and Southeast Asia at SG Private Banking, a unit of Societe Generale SA and a former head of Southeast Asia private banking at Credit Suisse.

Singaporean authorities are urging banks to focus on training.

“It is vital that we build a strong pipeline of fresh blood and increase the inflow of new but competent people into the industry,” said Ong Chong Tee, deputy managing director of the Singapore Monetary Authority, in a speech last year.

Bankers and the Singaporean government have joined forces to train prospective recruits.

The recently created Singapore Wealth Management Institute, where Mr. Ng is completing his master’s degree, and separate programs run by Credit Suisse and UBS have converted scores of women and men from the most unlikely professions — curtain salesmen, pianists and sewage engineers — into private bankers.

At the Wealth Management Institute, which runs two-month courses in addition to the year-long master’s program, experienced professionals teach aspiring private bankers about financial markets, estate planning — and basic etiquette.

Lessons include how to choose correct attire (such as telling women not to wear golden shoes) and tips on the correct use of forks and knives, says Annie Wee, the institute’s chief executive and herself a former private banker with Credit Agricole Indosuez.

Other lessons impart the region’s cultural taboos, including, Ms. Wee says: don’t ever touch the head of a Thai, don’t wear black to a Chinese wedding, and eat before going to an Indian party so your hungry stomach doesn’t gurgle while waiting for a late meal.

Graduates of the master’s program, bankers say, can expect starting salaries of about S$70,000 to S$90,000; after three to five years’ practice, they can earn several times that amount as full-fledged relationship managers.

Last year, when UBS advertised its own private-banking course in Asian newspapers, about 3,000 applicants responded, competing for 33 spots.

One of the candidates was Pang Siu Yuin, a professional pianist and former senior manager of the Singapore Symphony Orchestra who now works at UBS’s Hong Kong branch.

Ms. Pang says her unusual artistic background makes her stand out and helps in interactions with wealthy clients.

“When they ask me what I did before UBS, they expect me to say it was bank XYZ,” she says.

UBS, which employs 1,000 people in its Singapore private-banking division alone, says it is enrolling 60 students this year.

Increasing the number of recruits is necessary because Asian clients can be different from typical private-bank customers in Europe.

“Most of our clients are entrepreneurs who have made the money themselves, and they are much more proactive” in managing their assets, says Mr. Baer of SG Private Banking. “In Europe, it’s much more inherited, and people tend to leave it to the banker.”

The result is that a relationship manager in Asia handles about 30 clients, compared with as many as 300 per banker at some institutions in Europe, according to an Asia-based private banker.

“The clients here are all over you every day,” says Roman Scott, managing director in Singapore at Calamander Group. “Here you have to work for your money. In Switzerland, you won’t see private bankers on their phones with clients at midnight.”

Yaroslav Trofimov in Singapore and Edward Taylor in Frankfurt. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. C.1

Entrepreneurial Culture

The nations of Continental Western Europe, in the reforms they make to try to raise their economic performance, may prove to be a testing ground for the view that culture matters for a society’s economic results.

As is increasingly admitted, the economic performance in nearly every Continental country is generally poor compared to the U.S. and a few other countries that share the U.S.’s characteristics. Productivity in the Continental Big Three — Germany, France and Italy — stopped gaining ground on the U.S. in the early 1990s, then lost ground as a result of recent slowdowns and the U.S. speed-up. Unemployment rates are generally far higher than those in the U.S., U.K., Canada and Ireland. And labor force participation rates have been lower for decades. Relatedly, the employee engagement and job satisfaction reported in surveys are mostly lower, too.

It is reasonable to infer that the economic systems on the Continent are not well structured for high performance. In my view, the Continental economies began to be underperformers in the interwar period, and have remained so — with corrective steps here and further missteps there — from the postwar decades onward. There was no sense of a structural deficiency during the “glorious years” from the mid- ’50s through the ’70s when the low-hanging fruit of unexploited technologies overseas and Europeans’ drive to regain the wealth they had lost in the war powered rapid growth and high employment. Today, there is the sense that a problem exists.

What could be the origins of such underperformance? It may be that the relatively poor job satisfaction and employee engagement on the Continent are a proximate cause — though not the underlying cause — of the poorer participation and unemployment rates. And high unemployment could lead to a mismatch of worker to job, causing job dissatisfaction and employee disengagement. The task is to find the underlying cause, or causes, of the entire syndrome of poorer employment, productivity, employee engagement and job satisfaction.

Many economists attribute the Continent’s higher unemployment and lower participation, if not also its lower productivity, to the Continent’s social model — in particular, the plethora of social insurance entitlements and the taxes to pay for them. The standard argument is fallacious, though. The consequent reduction of after-tax wage rates is unlikely to be an enduring disincentive to work, for reduced earnings will bring reduced saving; and once private wealth has fallen to its former ratio to after-tax wages, people will be as motivated to work as before.

An indictment of entitlements has to focus on the huge “social wealth” that the welfare state creates at the stroke of the pen. Yet statistical tests of the effects of welfare spending on employment yield erratic results. In any case, it is hard to see that scaling down entitlements would be transformative for economic performance. (Indeed, some economists see increased wealth, social plus private, as raising the population’s willingness to weather market shocks and helping entrepreneurs to finance innovation. I am skeptical.)

In my thesis, the Continental economies’ root problem is a dearth of economic dynamism — loosely, the rate of commercially successful innovation. A country’s dynamism, being slow to change, is not measured by the growth rate over any short- or medium-length span. The level of dynamism is a matter of how fertile the country is in coming up with innovative ideas having prospects of profitability, how adept it is at identifying and nourishing the ideas with the best prospects, and how prepared it is in evaluating and trying out the new products and methods that are launched onto the market.

There is evidence of such a dearth. Germany, Italy and France appear to possess less dynamism than do the U.S. and the others. Far fewer firms break into the top ranks in the former, and fewer employees are reported to have jobs with extensive freedom in decision-making — which is essential at companies engaged in novel, and thus creative, activity.

Further, I argue that the cause of that dearth of dynamism lies in the sort of “economic model” found in most, if not all, of the Continental countries. A country’s economic model determines its economic dynamism. The dynamism that the economic model possesses is in turn a crucial determinant of the country’s economic performance: Where there is more entrepreneurial activity — and thus more innovation, as well as all the financial and managerial activity it leads to — there are more jobs to fill, and those added jobs are relatively engaging and fulfilling. Participation rises accordingly and productivity climbs to a higher path. Thus I see the sort of economic model operating in the Continental countries to be a major cause — perhaps the largest cause — of their lackluster performance characteristics.

There are two dimensions to a country’s economic model. One part consists of its economic institutions. These institutions on the Continent do not look to be good for dynamism. They typically exhibit a Balkanized/segmented financial sector favoring insiders, myriad impediments and penalties placed before outsider entrepreneurs, a consumer sector not venturesome about new products or short of the needed education, union voting (not just advice) in management decisions, and state interventionism. Some studies of mine on what attributes determine which of the advanced economies are the least vibrant — or the least responsive to the stimulus of a technological revolution — pointed to the strength in the less vibrant economies of inhibiting institutions such as employment protection legislation and red tape, and to the weakness of enabling institutions, such as a well-functioning stock market and ample liberal-arts education.

The other part of the economic model consists of various elements of the country’s economic culture. Some cultural attributes in a country may have direct effects on performance — on top of their indirect effects through the institutions they foster. Values and attitudes are analogous to institutions — some impede, others enable. They are as much a part of the “economy,” and possibly as important for how well it functions, as the institutions are. Clearly, any study of the sources of poor performance on the Continent that omits that part of the system can yield results only of unknown reliability.

Of course, people may at bottom all want the same things. Yet not all people may have the instinct to demand and seek the things that best serve their ultimate goals. There is evidence from University of Michigan “values surveys” that working-age people in the Continent’s Big Three differ somewhat from those in the U.S. and the other comparator countries in the number of them expressing various “values” in the workplace.

The values that might impact dynamism are of special interest here. Relatively few in the Big Three report that they want jobs offering opportunities for achievement (42% in France and 54% in Italy, versus an average of 73% in Canada and the U.S.); chances for initiative in the job (38% in France and 47% in Italy, as against an average of 53% in Canada and the U.S.), and even interesting work (59% in France and Italy, versus an average of 71.5% in Canada and the U.K). Relatively few are keen on taking responsibility, or freedom (57% in Germany and 58% in France as against 61% in the U.S. and 65% in Canada), and relatively few are happy about taking orders (Italy 1.03, of a possible 3.0, and Germany 1.13, as against 1.34 in Canada and 1.47 in the U.S.).

Perhaps many would be willing to take it for granted that the spirit of stimulation, problem-solving, mastery and discovery has impacts on a country’s dynamism and thus on its economic performance. In countries where that spirit is weak, an entrepreneurial type contemplating a start-up might be scared off by the prospect of having employees with little zest for any of those experiences. And there might be few entrepreneurial types to begin with. As luck would have it, a study of 18 advanced countries I conducted last summer found that inter-country differences in each of the performance indicators are significantly explained by the intercountry differences in the above cultural values. (Nearly all those values have significant influence on most of the indicators.)

The weakness of these values on the Continent is not the only impediment to a revival of dynamism there. There is the solidarist aim of protecting the “social partners” — communities and regions, business owners, organized labor and the professions — from disruptive market forces. There is also the consensualist aim of blocking business initiatives that lack the consent of the “stakeholders” — those, such as employees, customers and rival companies, thought to have a stake besides the owners. There is an intellectual current elevating community and society over individual engagement and personal growth, which springs from antimaterialist and egalitarian strains in Western culture. There is also the “scientism” that holds that state-directed research is the key to higher productivity. Equally, there is the tradition of hierarchical organization in Continental countries. Lastly, there a strain of anti- commercialism. “A German would rather say he had inherited his fortune than say he made it himself,” the economist Hans-Werner Sinn once remarked to me.

In my earlier work, I had organized my thinking around some intellectual currents — solidarism, consensualism, anti-commercialism and conformism — that emerged as a reaction on the Continent to the Enlightenment and to capitalism in the 19th century. It would be understandable if such a climate had a dispiriting effect on potential entrepreneurs. But to be candid, I had not imagined that Continental Man might be less entrepreneurial. It did not occur to me that he had less need for mental challenge, problem-solving, initiative and responsibility.

It may be that the Continentals finding, over the 19th and early 20th century, that there was little opportunity or reward to exercise freedom and responsibility, learned not to care much about those values. Similarly, it may be that Americans, having assimilated large doses of freedom and initiative for generations, take those things for granted. That appears to be what Tocqueville thought: “The greater involvement of Americans in governing themselves, their relatively broad education and their wider equality of opportunity all encourage the emergence of the ‘man of action’ with the ’skill’ to ‘grasp the chance of the moment.’”

The most basic point to carry away is that the empirical results related here lend support to the Enlightenment theme that a nation’s culture ultimately makes a difference for the nation’s economic performance in all its aspects — productivity, prosperity and personal growth.

It was a mistake of the Continental Europeans to think that they expressed the right values — right for them. These values led them to evolve economic models bringing in train a level of economic performance with which most working-age people are now discontented. Perhaps the way out — to go from unsatisfactory performance to high performance — will require not only reform of institutions but also a cultural shift that returns Europe to the philosophical roots that put it on the map to begin with.

—

Mr. Phelps, a professor at Columbia University, is the 2006 Nobel Laureate in economics.
Edmund S. Phelps. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. A.15

Alternative Approaches: Governments struggle to find policies that will spur renewable-energy industries — withouhttp://ifinish.wordpress.com/wp-admin/post-new.php?posted=114t coddling them

SINCE THE OIL shocks of the 1970s, governments around the world have paid plenty of lip service to renewable energies such as wind and solar power. But only a few governments have been able to engineer policies that have begun to bring alternative energies into wider use.

Renewable fuels provided 18% of the world’s total electricity supply in 2004, according to figures from the International Energy Agency, a Paris-based intergovernmental organization. Almost all of that, though, came from hydropower, a source with limited growth potential because of geographic constraints. The use of wind and solar power is growing, but they still generated only 1% of global electricity production in 2004, the latest year for which figures are available.

In Asia, the U.S. and Europe, governments have spent billions on research and development of renewable energies over the years, but finding effective policies to encourage their use has proved just as challenging as developing new technologies. Most governments have tried approaches like tax credits, subsidies and mandated targets for renewable-energy production. Although approaches differ, the overarching goal is the same: to spur companies to build large-scale renewable-energy plants, such as wind farms or solar installations, so that the costs of clean power come down enough to compete with fossil fuels like oil and coal.

A debate still rages over what kind of government intervention and level of subsidy is appropriate. “Regulators have to try to strike a delicate balance,” says Todd Allmendinger of Emerging Energy Research, a research and consulting firm with offices in Cambridge, Mass., and Barcelona, Spain. “They have to provide enough incentive for renewables to grow, but not so much that they coddle the industry and prevent it from becoming more efficient.”

Countries in Europe that have led in renewable adoption, including Denmark, Germany and Spain, have pursued unabashedly interventionist programs that require utility companies to buy electricity generated by clean energies at a premium price set by the government. This policy, known as “feed-in tariffs,” pushes the extra cost onto consumers in the form of higher energy prices.

In contrast, about two dozen U.S. states, Japan and the United Kingdom have preferred a more market-oriented approach, based on tax credits and “renewable portfolio standards,” or RPS. Under this approach, the government sets a target for the percentage of electricity that must come from renewable energy and lets utility companies decide how to meet it. Sometimes financial penalties are imposed if utilities don’t meet the targets. In the U.K., utilities that fall short of the targets can fulfill their obligations by buying certificates representing the amount of power they failed to produce from renewable sources. Those funds are then redistributed to companies that met the targets.

One notable success with the more interventionist approach has been Denmark. Fifteen years ago the country mounted a push to expand the use of renewable fuels, which accounted for 25% of its electricity generation in 2004, up from 3% in 1992. It’s a considerable achievement for a country with no hydropower, the cheapest and most common way of making clean electricity.

“Denmark has what is probably the most ambitious support scheme for renewable-energy technologies ever seen,” says Jonathan Coony, who wrote a report on Denmark’s energy policies for the International Energy Agency and now works at the World Bank.

The Danes established a feed-in tariff that set an above-market rate for electricity made from wind and solar power and from biofuels like wood and straw. The system spurred a wave of investment, mainly in wind, because it gave companies the certainty to proceed with massive investments and construction.

The Danish government also established capital grants for companies that built wind turbines, kicking in 15% to 30% of project costs, and spent aggressively on research in wind power. And it required utilities to build plants that burn wood pellets and straw to generate electricity, with some of those plants also providing heat for nearby homes and offices.

All this has come at a cost: Consumers and businesses in Denmark pay a “public service obligation” or tax on every kilowatt-hour of electricity. According to an analysis by the IEA, the surcharge adds about 3% to the electricity bills of every household and 9% to the cost for businesses. However, higher electricity costs often are more politically palatable in Europe than in the U.S. “People don’t really notice the costs of feed-in tariffs in Europe because the cost of electricity [already] is so high,” says Robert Dixon, head of the energy-technology policy division of the IEA.

In 1999, the Danish government worried that its subsidies for renewable energies were too generous, says Steffen Nielsen, an energy- supply expert at the Danish Energy Authority. If the government set the price too high for electricity from renewable sources, the producers would have little incentive to refine or improve their technologies to be more cost-effective. “If you had a wind turbine in a good location, you were probably getting overcompensated,” says Mr. Nielsen.

A decision was made to shift from a fixed feed-in tariff to a formula in which renewable-energy producers would be paid a certain percentage above the market rate, a change that effectively scaled back support. “The policies have become more market-oriented over time,” says Mr. Nielsen.

Japan has found some success with a slightly different mix of policies: It spent heavily on research and development in solar panels and gave grants and subsidies to promote their installation. As a result, Japan has the second-largest installed capacity of solar panels in the world, after Germany, which supports solar energy with feed-in tariffs for producers and with subsidies for the installation of panels. Also, in 2002, Japan passed a law that requires 1.35% of the electricity that utilities supply to the nation’s grid to be generated from renewable sources; those that don’t comply can buy credits from utilities that are meeting the targets.

In the U.S., the federal government instituted feed-in tariffs for wind, solar and other renewable-energy sources after the oil shocks of the 1970s. But implementation was left to the states, which in many cases wrote rules that severely watered down the effect of the federal legislation. Since 1992, federal support for renewable energy has come mostly from the production tax credit, which provides a tax benefit to companies for every kilowatt-hour of electricity a renewable-energy plant produces in its first 10 years of operation.

The policy has led to construction of numerous wind farms. But it has a major weakness: The tax credits periodically expire if not reauthorized, an element of unpredictability that hurts investment. Congress has let the credit expire several times since 1999, and each time construction of wind turbines has dropped as a result. In 2004, for instance, newly installed wind-power capacity in the U.S. dropped to 389 megawatts, from 1,687 MW in 2003, according to the American Wind Power Association. It then bounced back up to 2,431 MW in 2005. “It’s simple: no [production tax credit], no wind,” says Mr. Allmendinger of Emerging Energy Research.

At the state level in the U.S., renewable portfolio standards — targets for the percentage of electricity that must come from renewable energies — are the favored way to spur investment in renewables. “The states have really been the crucible for experimentation” with policies to encourage renewable energy in the U.S., says the IEA’s Mr. Dixon.

Texas triggered a burst of investment in wind power with a law passed in 1999 that requires a certain percentage of the electricity sold by utilities in the state to be generated from renewable sources. Those that don’t hit the target face financial penalties. But one downside of the Texas experience is that companies have invested almost exclusively in wind power because it’s the cheapest alternative — stunting the development of other promising energy sources, like solar power.

As governments continue to experiment with policy alternatives, the key is that whatever policies they employ must be predictable and reliable — not subject to constant buffeting by political winds — says Brandon Owens, associate director of global power for Cambridge Energy Research Associates, a research and consulting firm based in Cambridge, Mass.

“That’s the only way to provide market participants with the certainty required to take financial risks,” says Mr. Owens. “Investors need to be confident the rug isn’t going to get pulled out from under them in the future.”

Leila Abboud. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. R.13

Texas’ New Tea: Houston is determined not to be left behind in the race to a new-energy future

HOUSTON — As investment in alternative energy surges, scientists and entrepreneurs throughout the U.S. are trying to brew up remedies for the world’s so-called petroleum addiction.

While it’s too soon to say which of these efforts will thrive and which will wither, energy-industry veterans are increasingly confident they know where at least some of tomorrow’s leaders in alternative energy will be: Houston, the home of big oil.

In California, Gov. Arnold Schwarzenegger is pushing ahead with efforts to keep his state among the leaders in the development of green energy. The Midwest continues to explore new ways to exploit its competitive edge in ethanol. And Northeastern universities are pumping big money into energy research. But while Houston’s economy still sits on a foundation of conventional petroleum, alternative energy is suddenly on the rise here, too.

Major oil companies have stationed key alternative-energy divisions here, newer ventures in wind energy and biofuels are emerging, and Texas universities are pushing hard to develop carbon-free energy.

Houston’s emergence as an alternative-energy center is partly an outgrowth of the city’s role as home to major players in the conventional-energy industry. “There’s always been this sort of joke within biofuels, that when these technologies become real, the traditional oil companies will snap them up,” says Nathanael Greene, a senior policy analyst with the Natural Resources Defense Council, a New York nonprofit environmental advocacy group.

As alternative energy moves “from the margins into the mainstream,” the big, established energy companies will make more of a commitment to the market, and Houston “is going to play a role just because of its importance in the oil industry,” Mr. Greene says.

But Houston also is playing host to newcomers in the energy business, thanks in part to a welcoming regulatory environment and efforts by the state government to encourage the production of alternative energies.

One advantage Houston offers alternative-energy companies is that the approval process for new facilities is far less onerous in Texas than in many other states.

“Texas creates a very positive environment to work in,” says Jeff Trucksess, executive vice president of Green Earth Fuels LLC, a biodiesel company started a year ago that is based in Houston and is building a production facility along the Houston Ship Channel. “There are strict rules on what you have to do, but it’s a very efficient process.” The company’s Houston site won permits last year and is expected to begin producing biodiesel in July.

“In Texas, things happen — stuff gets built,” says Michael Skelly, chief development officer for Houston-based Horizon Wind Energy, which will produce power from seven wind farms in six states, including Texas, by the end of this year.

In addition to seven-year-old Horizon, which is a unit of Goldman Sachs Group Inc., emerging players in wind power in Houston include subsidiaries of Babcock & Brown Ltd., BP PLC and Royal Dutch Shell PLC, and law firms like Baker Botts LLP.

“This was the natural place for this business,” says Robert Lukefahr, president of BP Alternative Energy North America Inc., who emphasizes the city’s wealth of knowledge of the energy business. “These are folks that know how to bend metal and put it in the ground and do it safely,” he says.

The wind-energy business boomed in Texas after the 1999 passage of a state law that requires a certain amount of the electricity sold by utilities in the state to be generated from renewable sources.

More recently, the state has again taken the initiative by easing the construction of transmission lines for wind farms, a crucial step if entrepreneurs are to continue to build turbines in the windiest corners of the state. Mr. Skelly enthuses about the new rules, which have set Horizon and other wind companies on a land grab to claim the best spots for turbines.

Houston also is emerging as a home for both start-ups and established energy companies entering the biodiesel business. These producers like the city in part because of its access to the huge Texas consumer market and its location at the center of a nationwide fuel-distribution network, with extensive storage facilities, pipelines and rail and water connections. “Economically, it’s always been our opinion that if you’re in the heart of the distribution center . . . that’s a great place to be,” says Mr. Trucksess of Green Earth Fuels.

One unresolved issue with biodiesel is whether the fuel raises emissions of smog-causing nitrogen oxide, which is tightly regulated in Houston and other Texas cities. The state has granted the biodiesel industry until Dec. 31 to show proof the fuel meets Texas standards. The rules may require an additive to the fuel, but Mr. Trucksess doesn’t expect the issue to impede the marketing of biodiesel in Houston or elsewhere in Texas.

The city also offers easy access to people experienced in every aspect of the energy business. For instance, Green Earth’s plants initially will produce fuel mostly from soybean oils, but as different feedstocks come into use the company expects to tap into Houston’s expertise in commodity trading, Mr. Trucksess says.

“It’s already in the DNA of Houston to be energy-oriented,” says Rick Zalesky Jr., a vice president of biofuels and hydrogen at Chevron Technology Ventures, a Houston-based unit of Chevron Corp. Chevron is conducting biodiesel research at a couple of laboratories in Houston that have been used for decades in the conventional energy business. And it is a partner in Galveston Bay Biodiesel LP, a start-up that is building a facility in nearby Galveston, Texas.

Houston also is home to research on hydrogen, nanotechnology and other areas that could have a dramatic impact on the energy picture in the years ahead. Research on alternative fuels is being done not only by big energy companies like BP, Shell, Chevron and General Electric Co., but also by nonprofit institutions like the Houston Advanced Research Center and Rice University, which has convened a number of recent conferences on alternative energy.

One of the most potentially far-reaching research ventures at Rice involves work at the Carbon Nanotechnology Laboratory, the site where the late Richard Smalley, a late Nobel-laureate professor, oversaw landmark research on microscopic materials called carbon nanotubes.

Researchers are working on steps to align millions of nanotubes into carbon fibers. The hope is that one day, the fibers can be used in power transmission instead of aluminum, which has high resistance and wastes vast amounts of power.

This vision is still years away, Rice researchers say. But the university has garnered some $5 million in federal research funds for the project from a variety of sources, including the Pentagon and the National Aeronautics and Space Administration, says James Tour, the lab’s director.

—

Mr. Biers is the Houston bureau chief for Dow Jones Newswires. He can be reached at john.biers@dowjones.com.

John M. Biers. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. R.10

Politics & Economics: Mexico’s Case Study; Seeing China as an Opportunity, Not a Rival

Beijing — ABOUT 100 business students gathered last autumn at Beijing’s Tsinghua University for a question-and-answer session with U.S. Treasury Secretary Henry Paulson.

The Chinese students lobbed questions about Mr. Paulson’s career at Goldman Sachs and his new job as treasury secretary, until Eduardo Nieto Del Rio raised his hand.

“How will countries like Mexico, who are still emerging markets, compete with this monster that is China?” he asked.

The treasury secretary was taken aback, the Mexican business student recalls: “He said, ‘Are you Mexican? What are you doing here?’” Then, he offered advice that Mr. Nieto Del Rio had already figured out: See China’s growth as an opportunity.

After years of blaming China for luring away foreign investment and low-end manufacturing jobs, the Mexican government and entrepreneurs like Mr. Nieto Del Rio have begun looking for ways to do business with their rival and seeking out markets that China doesn’t dominate. It is a lesson other economies overshadowed by China are also learning.

“Our economy is totally indexed to the U.S. economy, and I think we have to diversify,” says the 29-year-old business student. “We have to pay attention to China, India, Japan and Korea. We have to start thinking bigger.”

Mexico has viewed China as an economic rival for more than 10 years, more so after losing significant market share to China in electronics manufacturing in the late 1990s. China surpassed Mexico as the second leading exporter to the U.S. in 2003, behind Canada. Shortly thereafter, Mexico’s attitude started to change.

In 2005, the two sides began trade-development talks and, with their government’s urging, Mexican companies started trying to reposition themselves.

“China is an important market today, and tomorrow will be a more- important market for exporters all over the world. Mexico has to start developing that presence” there, says Roberto Zapata, director general of Multilateral and Regional Trade Negotiations in Mexico.

While Mexico remains competitive in textile manufacturing, the government is encouraging investment in products of higher value, as other competitors such as Japan have done.

“We have come to the conclusion that we cannot compete with China in labor costs,” Mr. Zapata says. “The lesson, I believe, is very clear — to move to the upper end of the value chain.”

Luis de la Calle, who was Mexico’s negotiator for China’s World Trade Organization bid, says Mexican companies are beginning to feel more confident they can compete with China, invest successfully there and even attract Chinese investment.

At the lead are companies like tortilla-maker Gruma S.A.B. de C.V., which opened a $20 million tortilla plant in Shanghai in September to better sell to Asian markets. Auto-parts producer Nemak — a subsidiary of Mexican concern ALFA S.A.B. de C.V. — said it would build a plant in China but scrapped those plans and took a shortcut, announcing in November it would acquire a company that owned a parts- production facility there.

“The Chinese market has the greatest potential for growth, given its current underdevelopment and the possibility to manufacture cars for the export market, particularly with Asia,” says Enrique Flores, an ALFA spokesman. The company already has a contract with GM Shanghai to produce engine heads for cars sold in the Chinese market.

Mexico’s market share of exports to the U.S. as of last October was 10.7%, up from 9.3% in 1996. China’s grew to 15.2% last October from 6.5% in 1996.

“Learning about China and how the Chinese operate is very important to Mexican firms,” says Mr. de la Calle, the WTO-bid negotiator, who runs a consulting firm in Mexico that opened a Shanghai office in 2005. “If you acquire those skills, you become valuable when you come back to Mexico, and even if you stay in China.”

Mexicans aren’t the only ones looking to latch on to China’s emergence as a global economic power. China hosted more than 141,000 foreign students in 2005, up 21% from 2004, according to government figures. Most foreign students come from nearby countries such as South Korea and Japan.

The number of M.B.A. programs in China has risen at a faster pace in recent years, with nearly 100 programs registered last year. Tsinghua’s program, now in its 10th year, has begun an annual overseas recruiting tour for its International M.B.A. program, which is run with the Massachusetts Institute of Technology’s Sloan School of Management. The international program received more than 200 applications from non-Chinese students and enrolled 39 — a 30% increase in foreign-student enrollment in the past year.

Mr. Nieto Del Rio is the program’s first Mexican student. After seeing the extent of China’s development on a trip there for a tuna- canning company, he decided to quit his job and enroll.

Loretta Chao. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. A.8

Nicotine Fix: Behind Antismoking Policy, Influence of Drug Industry;

Michael Fiore is in charge of revising federal guidelines on how to get smokers to quit. He also runs an academic research center funded in part by drug companies that make quit-smoking aids, and he personally has received tens of thousands of dollars in speaking and consulting fees from those companies.

Conflict of interest? No, says Dr. Fiore, who has consistently declared that doctors ought to use stop-smoking medicine. He says his opinion — reflected in current federal guidelines — is based on scientific evidence from hundreds of studies.

Now debate is growing about that evidence, and about who should be entrusted to interpret it. Some public-health officials say industry- funded doctors are ignoring other studies that suggest cold turkey is just as effective or even superior to nicotine patches and other pharmaceuticals over the long run, not to mention cheaper.

At stake is one of the most important issues in the nation’s public- health policy. Cigarettes kill an estimated 440,000 Americans a year. Helping America’s 45 million smokers kick the addiction could save untold numbers of people.

The Public Health Service, part of the Department of Health and Human Services, issued guidelines in 2000 calling for smokers to use nicotine patches, gums and other pharmaceutical aids to quit, with a few exceptions such as pregnant women. Dr. Fiore, a University of Wisconsin professor of medicine, headed the 18-member panel that created those guidelines. He and at least eight others on it had ties to the makers of stop-smoking products.

Those opposed to urging medication on most quitters note that cold turkey is the method used by the vast majority of former smokers. They fear the federal government’s campaign could discourage potential quitters who don’t want to spend money on quitting aids or don’t like the idea of treating their nicotine addiction with more nicotine.

“To imply that medications are the only way is inappropriate,” says Lois Biener, a senior research fellow at the University of Massachusetts at Boston who has surveyed former smokers in her state. “Most people don’t want them. Most of the people who do quit successfully do so without them.”

The panel is now working on a revision of the guidelines, scheduled for completion early next year. Dr. Fiore, an internist, is again chairman. He says this time only seven of 26 members have industry ties. Karen Migdail, a spokeswoman for the revision effort, says it involves so many voices that “it’s hard for one perspective to have an influence on the process.” She says Dr. Fiore is “one of the leading experts” in smoking cessation and well-suited to the job.

Dr. Fiore says his panel will give a fair hearing to all points of view on smoking cessation. He says the process is sufficiently collaborative to prevent bias, his or anyone else’s, from creeping into the final product. He notes that many of the studies questioning the effectiveness of stop-smoking medication arose after the publication of the 2000 guidelines. The panel will scrutinize them closely before reaching any conclusions, he says.

David Blumenthal, director of the Institute for Health Policy at Massachusetts General Hospital, questions the government’s choice of Dr. Fiore. “The chairman of the committee should be unquestionably impartial,” says Dr. Blumenthal, who has published extensively on conflicts of interest.

Pharmaceutical companies make several products to help smokers quit. Some give a nicotine fix without a cigarette, such as GlaxoSmithKline PLC’s Nicorette gum and nicotine-laced Commit lozenges. Nicotine, the addictive agent in cigarettes, is considered benign relative to the carcinogens in cigarettes. Bupropion, an antidepressant, and Pfizer Inc.’s Chantix — both pills available only by prescription — aim to reduce cravings without using nicotine.

Many clinical trials have randomly assigned smokers to take one of these products or a placebo. Such randomized trials are considered the gold standard in many medical fields, and they have consistently shown that nicotine-replacement therapy or other medicine confers a benefit.

But these trials have limitations. They tend to compare quitters who wanted medication and got it with those who wanted medication and didn’t get it — which is a different group from quitters ready to try going cold turkey. Also, clinical trials tend to attract highly motivated quitters who may not represent the population as a whole. Even the placebo group in these trials often boasts double the success rate of the population of quitters generally.

Studies of quitters outside clinical trials have shown no consistent advantage for medicine over cold turkey, the pharmaceutical industry’s primary competitor. An unpublished National Cancer Institute survey of 8,200 people who tried quitting found that at three months, users of the nicotine patch and users of bupropion remained abstinent at higher rates than did users of no medication. But at nine months, the no- medication group held an advantage over every category of stop-smoking medicine. The study was presented at a world tobacco conference last summer.

Similar so-called population studies — which review results of people who already quit or tried to, rather than prospectively randomizing subjects into groups — have also suggested that cold- turkey quitting can compete with medication in real-world situations. These studies, in California, Massachusetts and Australia, have their own limitations. One is that they depend on people to remember what they did rather than monitoring them in a controlled experiment.

Kenneth Strahs, GlaxoSmithKline’s vice president of smoking-control research and development, notes that his company’s products won approval from regulators at the Food and Drug Administration who demand randomized clinical trials. “The FDA does not conclude either safety or efficacy based on retrospective population studies,” says Dr. Strahs. Smoking-control products account for a small fraction of the company’s revenue.

The researcher who raised the first serious questions about nicotine-replacement therapy says it may fall into a rarely discussed gap between efficacy in clinical trials and effectiveness in the real world. Greater use of medication is not “associated with any increase in successful quitting in the population,” says John Pierce, a University of California, San Diego, professor of medicine who was lead author of a 2002 Journal of the American Medical Association article finding no superior benefit from over-the-counter nicotine substitutes in California.

“If we’re going to be intellectually honest, we have to be willing to examine the issue of whether current users [of medication] are obtaining long-term rates of abstinence that are higher than anyone else,” says Kenneth Warner, a tobacco researcher and dean of the University of Michigan School of Public Health. “That’s going to be very hard for people to do in the smoking-cessation community,” because belief in the value of medication runs so deep, he adds.

All sides in the debate agree that intervention by doctors and other health-care providers to confront smokers can be effective in encouraging quitting. Dr. Fiore says the primary goal of the guidelines is to spur such intervention, and he says they have been successful in sharply raising the proportion of doctors who discuss smoking with their patients. Also undisputed is that behavioral support, whether from professional therapists or quit-line counselors, can be valuable.

As the federal government weighs the data in making new recommendations, many of its advisers are receiving money from companies with a stake in the outcome. Dr. Fiore holds a chair at Wisconsin that is funded by GlaxoSmithKline. He directs a tobacco research center that received nearly $1 million in funding from makers of quit-smoking medicine in 2004 and $400,000 in 2005. Between 1999 and 2004, Dr. Fiore personally pocketed $10,000 to $40,000 a year from the quitting-aid industry for honorariums and consulting work. He says he stopped such work in 2005.

In the U.S. government’s 2005 civil case against the tobacco industry, it chose Dr. Fiore as an expert witness. He was asked to estimate the damages owed to federal taxpayers as a result of smoking and to devise a plan for spending those damages. Dr. Fiore came up with an estimate of $130 billion, and a plan to spend about $5.2 billion a year of that mostly on counseling and medication — a measure that could have doubled the size of the stop-smoking medicine market. (Later, the government reduced its request for damages to $10 billion.)

The American Cancer Society has allowed its logo to be placed on stop-smoking products in exchange for money. A Cancer Society spokesman defends that decision, crediting the pharmaceutical industry for bringing invaluable marketing muscle to the society’s Great American Smokeout every November.

Those who advocate medication sometimes fail to disclose that they have financial ties to companies. In an article on Voice of America’s Web site last year, Jack Henningfield, identified only as a smoking- cessation expert, urged smokers to “go to the consumer-friendly Web site that I like, which is www.quit.com.”

Dr. Henningfield is a principal of Pinney Associates, a consulting firm whose largest client is GlaxoSmithKline, operator of the quit.com site. Other articles citing Dr. Henningfield’s views on smoking have identified him as a professor at Johns Hopkins School of Medicine without mentioning the GlaxoSmithKline connection. Dr. Henningfield, who holds a doctorate in psychology, is an adjunct professor at Johns Hopkins. He says only 10% of his income comes from Hopkins.

Dr. Henningfield says he always tells journalists about his financial ties to industry. But in an interview with The Wall Street Journal last summer, Dr. Henningfield promoted the use of stop-smoking medicine without volunteering any information about those ties. He says he thought GlaxoSmithKline’s public-relations firm had already provided the information.

In an least two medical-journal articles that Dr. Fiore wrote or co- wrote promoting the use of stop-smoking medicine, no mention was made of his financial ties to the makers of those treatments. Dr. Fiore says the editors of those journals may have ignored his disclosure or he may have failed to provide it. If the latter, “I am sorry about that,” he says, adding that those are two of more than 150 medical- journal articles he has published.

Dr. Fiore and other members of the Society for Research on Nicotine and Tobacco refuse to accept any funds from the tobacco industry, even unrestricted research grants. Smoking-control activists say there’s a big difference between tobacco companies, which they say engaged in scientific deceit for a half-century, and drug makers that are trying to help smokers quit. Reflecting the view of many in the antitobacco camp, Harry Lando, a University of Minnesota nicotine researcher, says, “I view the pharmaceutical industry as our ally.”

After the federal panel with industry-funded scientists came out with its guidelines in 2000, a campaign against cold turkey took root. The Web site of the highest-ranking physician in America — the surgeon general — calls it a “myth” that cold turkey is the best way to quit. In November 2006, during the week of the Great American Smokeout, doctors around the country participated in a campaign called, “Don’t Go Cold Turkey.” The creator of the campaign was GlaxoSmithKline.

The how-to-quit Web site of the federal Centers for Disease Control and Prevention rejected a request from John Polito, an ex-smoker in Mount Pleasant, S.C., to include a link to his Web site, WhyQuit.com, which advocates cold-turkey quitting. In a 2002 letter explaining the rejection, the agency told Mr. Polito that drug therapy has been shown to double quit rates.

In an interview, CDC epidemiologist Corinne Husten says the real reason for the rejection is that the CDC doesn’t recommend private Web sites. However, the CDC site long included a link to GlaxoSmithKline’s quit.com site. Asked about that, Dr. Husten says, “Some things have gotten on the [CDC] Web site that shouldn’t be there.” (After the interview, the CDC removed the quit.com link.)

Pressure may be growing for doctors to follow the federal guidelines. An article in the December issue of the journal Tobacco Control argued that failure to follow the guidelines could be deemed medical malpractice.

Some health officials don’t go along with the federal government’s tilt against cold turkey. The state of California’s help-line for smokers presents cold turkey as an equally viable option to medication. “The effectiveness of pharmaceutical aids has been proven short-term; long-term, it’s still in debate,” says Hao Tang, a research scientist with the state department of health services. California has succeeded in reducing its smoking rate to 14%, six percentage points below the national average.

After three decades of smoking, Linda Holstein quit nearly three years ago using a nicotine patch as well as nicotine gum, which on occasion she still pops into her mouth. Elated at being free from cigarettes, Ms. Holstein, a Minneapolis attorney, says, “The gum helped very much.”

Others say ingesting medicinal nicotine prolonged withdrawal, leading them ultimately back to cigarettes. During the 20 years that Tanya Blakey, a Georgia teacher, smoked two packs a day, she tried to quit countless times using nicotine-replacement therapy. “Every time I stopped using the NRT, I was smoking again within two or three days,” says Ms. Blakey. This week she is celebrating two years without a cigarette, this time having used no medication.

Kevin Helliker. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 8, 2007. pg. A.1

NEW RULES FOR DO-GOOD FUNDS

Portfolios that seek to combine moral values with stock values are getting a makeover.

People who invest in socially responsible mutual funds have been paying for their principles. Such funds tend to avoid energy and mining companies–and those have been two of the market’s hottest sectors in recent years. The average socially responsible fund has lagged the broad market for the past three years, returning 8.5% from 2004 through the end of 2006, vs. 10.4% for the S&P 500, according to Morningstar. But there’s change afoot in the world of socially responsible investing (SRI), aimed both at boosting performance and at developing more sophisticated rules for screening stocks. The result should be more choices for socially conscious investors and, with luck, better returns too.

The modern SRI fund has been around since the Vietnam war era. In 1971 two Methodist ministers founded the Pax World fund. Their goal was to avoid companies that made products they deemed socially harmful or objectionable in some way–they would not own tobacco, alcohol, gambling, or military stocks. Ever since, SRI funds have tended to focus more on what companies were doing wrong than what they might be doing right. The limitations of that simplistic approach were highlighted in 2005 when Pax, which manages nearly $2.5 billion, had to drop Starbucks from its portfolio after the company licensed its name to a Jim Beam coffee liqueur.

Joe Keefe, Pax’s CEO, readily concedes that the company’s investment guidelines were due for an overhaul. Last fall Pax shareholders voted to drop the rigid prohibitions on gambling and alcohol stocks and to add a new emphasis on corporate governance, product integrity, climate change, and human rights.

Keefe says Pax will take a closer look at who sits on the board of a company (How many women and minorities?) and whether the company issues sustainability reports or has a comprehensive code of ethics. “There’s a lot of evidence that companies that do these things well carry less risk,” he says. “We’ve seen what happens to companies that don’t.” The firm’s largest fund is Pax World Balanced (PAXWX), with $2.2 billion in assets. The fund is up 9.5% over the past three years.

Pax isn’t the only SRI fund updating its criteria. Barbara Krumsiek, CEO of Calvert, which manages $13 billion, says the company is considering whether to invest in nuclear power companies, since that technology could be a way of slowing global warming. Calvert funds, too, have had trouble keeping pace with the S&P index the past four years, but the Calvert Large Cap Growth fund (CLGAX), run by John Montgomery, who founded Bridgeway Capital Management, is still worth a look for its consistent quality. The fund’s average annual return has been close to 12% since its inception in 1994

One of the best-known SRI funds has undergone a different kind of change. When Domini Social Equity (DSEFX) was launched in 1991, it was an index fund, tracking the Domini 400 Social index created by Amy Domini in 1990 In the late ’90s the fund thrived, thanks to its large holdings of tech stocks. But returns have lagged since 2003, and in November the fund, which has $1.2 billion in assets, switched to active management, asking venerable investment firm Wellington Management of Boston to handle the stock picking. The fund’s expense ratio, however, has risen from 0.95% to 1.15%, and it’s a little too early to say whether that extra cost will be worth it.

Domini is also going global. In December it launched two new international options: PacAsia Social Equity (DPAFX) and EuroPacific Social Equity (DUPPX). They will also be run by Wellington, which is off to a strong start already with Domini’s one-year-old European Society Equity (DEUFX), which had a 32.5% return last year, vs. 23.8% for the MSCI Europe index.

For investors who want to focus on the environment, at least six new green funds opened last year, including Guinness Atkinson Alternative Energy (GAAEX). And 2005 saw the debut of the first-ever SRI exchange-traded funds aimed at socially responsible investors (exchange-traded funds, or ETFs, are low-cost portfolios that trade like stocks): the Power-Shares’ WilderHill Clean Energy Portfolio (PBW), up 10.5% since inception, and Barclays iShares KLD Select Social Index (KLD), which has climbed 19.5% since its launch.

JIA LYNN YANG. Fortune. New York: Feb 5, 2007.Vol.155, Iss. 2;  pg. 109

Global Banks Continue Their Push Into Vietnam

ONG KONG — For banks expanding in Asia, Vietnam could be the new China.Since the beginning of the year, three banks have announced investments in Vietnamese lenders. In the latest deal, announced yesterday, Deutsche Bank AG, of Germany, agreed to buy as much as 20% of Hanoi Building Commercial Joint Stock Bank for an undisclosed sum. Britain’s HSBC Holdings PLC and Singapore’s Union Overseas Bank Ltd. have also announced investments.

Vietnam is all the rage in Asian finance circles, from private- equity shops to investment bankers. It gained entry to the World Trade Organization last month. The country’s annual economic growth of about 8% is second in Asia only to China’s. Vietnam offers banks a high savings rate and, according to a report by UBS AG, a population of about 85 million, about half of which is younger than 25 years old.

“You’re looking at one of the fastest-growing economies in Asia,” says Alistair Scarff, a regional banking analyst at Merrill Lynch & Co. “You’re looking at a younger population. You’re looking at an underpenetrated banking sector in a market that has the potential to be quite large. All the ingredients of what attracts bank investors are all lined up.”

As part of Vietnam’s entry into the WTO, the government agreed to loosen restrictions on foreign banks. Foreign ownership of local banks is capped at 30%, and no single foreign entity can hold more than 10%. Bankers and analysts widely expect that cap to be raised to 20% soon.

Two years ago, global banks were marching into China as the country’s domestic lenders sought foreign expertise and capital ahead of the opening of the banking sector to foreign rivals last December. Global giants like Bank of America Corp. and Royal Bank of Scotland Group PLC paid billions of dollars for small stakes in the country’s biggest lenders. Those investments have turned into hefty gains.

In Vietnam, the sums are much smaller. Last week, HSBC said it agreed to pay $71.5 million to increase its stake in Vietnam Technological & Commercial Joint-Stock Bank, or Techcombank, to 20% from 10% as soon as regulations allow. That is more than four times what it paid for its original 10% stake in December 2005, but a fraction of the $1.75 billion the British bank paid for its 19.99% stake in Bank of Communications Ltd., of China. Singapore’s UOB paid $30 million for 10% of Vietnam’s Southern Commercial Joint Stock Bank and will pay $29 million for the next 10% when the ceiling rises.

Deutsche Bank, in its own deal, is looking to establish partnerships with Habubank, as the lender is known, in credit cards, wealth management and the development and distribution of investment products. The German bank will also provide assistance in risk and treasury management.

It will become the Vietnamese lender’s single largest shareholder and will have representation on the board, according to Deutsche Bank.

Habubank has 21 branches across the country and $750 million in assets. It is Vietnam’s sixth-largest partly private commercial joint- stock bank by assets.

“Deutsche Bank believes in the growth potential of Vietnam,” says Rainer Neske, the bank’s head of private and business clients.

Merrill’s Mr. Scarff cautions that the optimistic view should be tempered by the significant overhauls still needed in Vietnam, such as strengthening banks’ asset quality and improving disclosure and corporate governance. The government is attempting to address these issues by bolstering banking supervision and revising the capital structure of the country’s biggest banks. It is preparing some of the biggest banks for public stock offerings that may happen as early as this year.

“We believe it makes sense to have a twofold strategy,” says HSBC Vietnam Chief Executive Alain Cany.

He says the bank plans to build its own high-end business there, while at the same time tapping the consumer and retail markets through its stake in Techcombank. “That’s very similar to our model in China.”

Mr. Cany says he expects to expand HSBC’s branch network to 15 to 20 branches in the next three to five years, from two now, while helping Techcombank double or triple its network of 90 branches over the same period.

Kate Linebaugh. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 2, 2007. pg. C.3

A World Dancing To Energy’s Tune

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Energy-security worries have long headlined policy confabs, political promises and investor worries. But this week — even beyond dialogues at the White House and Davos — happens to be a good time to watch some of the subject’s geopolitical algorithms at work.

For instance, Chinese President Hu Jintao is a man whose government doesn’t often feel the need to justify its actions. But there officials were yesterday, defending Beijing’s economic ties to Sudan ahead of an African trip by Mr. Hu that includes a stop in Khartoum, as the Financial Times reports. Mr. Hu’s visit comes at time when China has broken with the U.S. and Europe over attempts to make Sudan let U.N. troops help quell the violence in Darfur. But Foreign Ministry official Zhai Jun made clear his government sees nothing shameful when it comes to Sudan. “With Sudan we have co-operation in many aspects, including military cooperation. In this, we have nothing to hide,” he said.

China, whose petroleum thirst played a big role in the rising price of crude over the past four years, gets almost a third its oil imports from Africa, as well as other raw materials. (The latest attack on a Nigerian oil facility — today in Bayelsa state — didn’t target Shell, but rather employees of the Chinese National Petroleum Company.) And it doesn’t seem coincidental that Beijing has made serious efforts to court the continent. More-vocal criticism about such ties from the U.S. may be muted by Washington’s reliance on the likes of Saudi Arabia.

Across the Indian Ocean, energy was playing a role in relations between Russia and India. Vladimir Putin, in New Delhi on a two-day trade visit, today signed a memorandum with Indian counterpart Manmohan Singh that would see Russia build four new nuclear reactors for India, whose economic growth is beginning to rival China’s in its need for fuel. The deal comes at a time when India is about to gain access to U.S. nuclear technology, and when the U.S is also trying to sell more military hardware to India, historically an important client for Soviet and then Russian arms sales. But President Putin’s trip also included a new agreement on Russian aircraft engines and another on joint development of a military transport plane, the Associated Press reports. And India’s incentive to make deals with Moscow is increased by its desire for access to Russia’s oil reserves, as the New York Times points out. Also on Mr. Putin’s agenda is a proposed joint venture for oil exploration in Siberia, the Times adds.

India may now be a major power in its own right, but it’s also just one country among many in Western, Southern and Central Asia where Russia is playing or trying to play a dominant economic and political role tied to its muscle in energy markets. (Iran is part of the same petro-political equation.) And if this is just the latest chapter in Russian regional aspirations that hail back to the Great Game, it also comes at a time when energy is again a big source of global anxiety. “The quest for energy security, in short, is a global scramble of power, money and ideas,” The Wall Street Journal says, adding: “the worry is that the geopolitical and economic equilibrium that long enabled the oil industry to smoothly supply customers is a thing of the past.” The Journal predicts events this year — the rise or decline of turmoil in exporting nations and whether large consumers like the U.S. and China can curb their consumption — will test that view.

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Cheney Slams Senate Opposition on Iraq

A day after President Bush asked Congress to back his decision to send 21,500 more U.S. troops to Iraq, the Senate Foreign Relations Committee voted 12-9 for a nonbinding resolution that criticizes the new plan and declares: “It is not in the national interest of the United States to deepen its military involvement in Iraq.” More than three-and-a-half years after the U.S.-led invasion, the vote moves the Senate closer to what would be its first official repudiation of Mr. Bush’s leadership of the war, as the Los Angeles Times puts it. Only one Republican, Chuck Hagel, joined the panel’s Democrats to pass the measure. But, as The Wall Street Journal notes, the vote gives Chairman Joseph Biden “a solid foothold from which to begin talks with Republicans who share his concern about sending more U.S. troops to try to quell sectarian violence in Baghdad.” These include Sen. John Warner, ranking Republican on the Armed Services Committee, who introduced an alternative resolution that also challenged the president’s new plan.

The senate resolutions were denounced yesterday by Vice President Cheney, who complained that administration critics and the media “are so eager to write off this effort or declare it a failure” that they’re undermining the war effort, as the Washington Post reports. Congressional opposition “won’t stop us” from deploying more troops, Mr. Cheney said, adding that it will only “validate the terrorists’ strategy.” The notion that Iraq has become a “terrible situation” is just wrong, Mr. Cheney argued, declaring that in fact the administration had achieved “enormous successes” there.

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Also of Note . . .

Washington Post: After the bloodiest year in Afghanistan since the U.S. invasion, the Bush administration is preparing a series of new military, economic and political initiatives aimed partly at preempting an expected offensive this spring by Taliban insurgents, according to senior U.S. officials.

Financial Times: The U.S. government put more pressure on Europe this week to extend financial sanctions to punish Iran for refusing to halt uranium enrichment, but the U.S. is meeting European resistance. The effort comes amid indications that U.S.-only financial sanctions are having a bigger economic impact than expected.

New York Times: As many as four big states — California, Florida, Illinois and New Jersey — are likely to move up their 2008 presidential primaries to early February, further upending an already unsettled nominating process and forcing candidates of both parties to rethink their campaign strategies, party officials said. The changes, which seem all but certain to be enacted by state legislatures, would appear to benefit well-financed and already familiar candidates.

Variety: The blooming presidential campaigns of Democratic Sens. Hillary Clinton and Barack Obama have set fund-raising swings through Los Angeles, as they tap entertainment industry donors for campaign money. The DreamWorks trio of Steven Spielberg, Jeffrey Katzenberg and David Geffen are holding a $2,300-per-person event for Mr. Obama, while industry mogul Haim Saban plans to host an event for Ms. Clinton.

Boston Globe: An emotional Sen. John F. Kerry today said in an unusual speech on the Senate floor that he will not run in the 2008 presidential race and vowed to use his Senate perch to hasten an end to the war in Iraq.

Dow Jones Newswires: China’s economy expanded faster than forecast in the fourth quarter, bringing full-year growth to 10.7%, its fastest pace since 1995, the government said today. Consumer inflation in China came in at a 2.8% annual pace.

Wall Street Journal: The not-for-profit American Stock Exchange has hired Morgan Stanley to advise it on plans to become a for-profit company in preparation for a potential stock offering or merger with another exchange.

San Jose Mercury News: EBay reported a 24% year-to-year increase in fourth-quarter earnings that exceeded analysts’ expectations, with good performances for the company’s three main business units: marketplaces, PayPal and Skype.

Detroit News: The United Auto Workers is upset over the possibility that Ford Motor may pay bonuses to some managers and top executives, and the issue is threatening to delay progress on competitive operating agreements at some Ford factories, according to sources familiar with the situation.

Women’s Wear Daily: Looking to grow beyond its core customer, Wal- Mart appointed chief marketing officer John Fleming to the new post of chief merchandising officer, making him responsible for almost everything the $210 billion U.S. division sells under a new structure that puts all apparel, home, entertainment and grocery products under his supervision.

BBC: Senior international officials are gathering in Paris for a major donors’ conference to help rebuild Lebanon, with the U.S. and France already pledging $1.4 billion in aid and loans. Lebanon hopes to raise up to $9 billion to help it recover from last summer’s conflict with Israel and a massive public debt.

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Quote of the Day

“A lot of these earnings are because these companies are able to buy a lot of goods cheaply abroad. . . . If the dollar starts falling, this thing could really blow up,” billionaire financier Carl Icahn tells Bloomberg, in arguing that U.S. stocks and corporate earnings are vulnerable to a continued decline of the dollar.

Joseph Schuman. Wall Street Journal. (Eastern edition). New York, N.Y.: Jan 26, 2007. pg

A Brand-New Approach

Close your eyes and imagine Uganda. What comes to mind? Images of Idi Amin and his genocidal murders? Or more recent scenes of “nightcommuting” children swarming rural towns at dusk to avoid impressment into the Lord’s Resistance Army? That is not the picture of Uganda that has greeted viewers of CNN International during the past year. Instead, the channel has aired a steady stream of commercials featuring lush jungle foliage, silver-backed gorillas in the mist, and rugged river gorges-all meant to convey the message that Uganda is, as its new advertising slogan states, “gifted by nature.”

Uganda’s marketing blitz, concocted by the giant publicrelations firm Hill & Knowlton at a cost of nearly $650,000 and promoted through a $1 million ad buy on CNN, is simply the latest example of what has come to be known as “nation branding”using modern marketing techniques to reshape public opinion of a country. Other countries launching controversial brandburnishing efforts in the past year include Nigeria (billing itself as the “Heart of Africa”) and Israel, which, after three years of research and focus groups, started a new marketing push that makes no mention of the conflict with Palestinians, or even religion (“Israel starts with I” is one of the oh-sosnappy slogans).

The brand management of nations, regions, and cities has become such a hot topic that there is even a quarterly British journal devoted to the practice: Place Branding, now in its second year of publication. Last April’s issue tackles such topics as whether Africa could use branding to improve its image, the use of food to help brand places, and an exploration of whether England needs to develop a brand distinct from Britain. Most of the articles feature turgid academic language-replete with buzzwords such as “correspondence analysis” and “tertiary communication”-and are illustrated with nearly incomprehensible flowcharts and diagrams describing “brand personality dimensions” and “image communication.” Clearly aware that the concept of nation branding is often met with a hefty (and well-deserved) dose of skepticism, Place Branding often comes off sounding a little defensive. Several issues have carried at least one article defending the concept, such as an article in the November 2005 issue titled, “Geo-branding, are we talking nonsense?” (Answer: Of course not.) And an editorial in the January 2006 issue that asked the hot-button question, “Is place branding a capitalist tool?” (Answer: Yes, but in a good way.)

Place Branding’s founding editor is Simon Anholt, a British marketing guru and longtime image consultant to governments (he is sometimes wrongly credited with inventing the “Cool Britannia” slogan that his country used to great effect in the late 1990s, though he did work on the campaign). As Anholt defines it, nation branding involves a combination of the promotion of tourism, investment, and trade, plus public and cultural diplomacy. Countries that want to succeed in this era of globalization, according to Anholt, must have a coordinated “brand strategy” in all of these areas.

Which states have the best brands, and which are most in need of help from the likes of Anholt? Place Branding, along with Seattlebased research firm GMI, has helpfully developed the Anholt Nation Brands Index to tell you. The index uses a public-opinion survey to judge a selection of countries on the basis of six criteria-Anholt’s trademark “Nation Brand Hexagon”tourism, exports, governance, investment and immigration, culture and heritage, and people. The latest results, which can be found online at www.nationsbrandindex.com, rank the United Kingdom as the world’s top brand, with Turkey in last place of the 35 countries evaluated. The United States ranks 10th.

It would be easy to dismiss Anholt as a huckster, cloaking an old idea in marketing jargon in order to wring hefty consulting fees out of governments desperate to drum up foreign investment. After all, countries have always tried to market themselves as destinations for business and travelers. They have always tried to promote their products abroad. And they have always tried to shape public perceptions of their foreign policies through propaganda. They just never had hexagons or “brand personalities” to help them do it. Moreover, the image of a country, linked as it may be to stereotypes, often has concrete roots in history. It cannot be as easily manipulated as the public’s perception of a laundry detergent or cereal.

But to Anholt’s credit, he is acutely aware that “rebranding” a country is a difficult business. He is especially disdainful of marketing campaigns that attempt to slap a new slogan on a country that remains fundamentally unchanged. “A lot of very poor countries-Uganda and Nigeria, for instance-are spending millions on TV campaigns. I would be astounded if that made any difference to people’s views of the country at all,” he says. “In fact, I suspect it will make it worse because people know how much advertising costs. It will simply reinforce the idea that these places are corrupt because they are spending so much on what amounts to propaganda while their people are starving.”

The more one talks to Anholt and reads his essays, the more one realizes that his vision of branding isn’t really about marketing at all. It’s about reforming “the product,” i.e., the actual country. That means changing policy. For instance, he cites the “rebranding” of South Africa as an example. “The rebranding miracle was a political miracle. It was the end of apartheid,” he says. “Marketing may have helped communicate that internally to people, but it didn’t create the miracle.” Anholt is aware that the real workreforming legal systems, building new roads, or reducing povertycan take decades.

The problem is, when you start defining branding as policy innovation, what a marketing consultant says about it becomes less and less important. And much of the policy advice in Place Branding is so facile as to be useless. Anholt’s answer to Israel’s negative image? End the conflict with the Palestinians. His idea for improving perceptions of the United States? Ask permission before invading a country. Here he is in the April issue, writing about the need for countries to create new things to boost their brand:

* Old boring things are very boring.

* New boring things are fairly boring.

* Old interesting things are fairly interesting.

* New interesting things are very interesting.

Can you imagine paying for that sort of advice? Unfortunately, too many countries today are wasting precious revenue doing just that.

[Sidebar]

Pitch perfect: Countries are increasingly using modern marketing tools to boost their images abroad.

[Author Affiliation]

Jeremy Kahn, former managing editor at The New Republic and a former writer at Fortune magazine, is a freelance journalist based in Washington, D.C.

Jeremy Kahn. Foreign Policy. Washington: Nov/Dec 2006., Iss. 157;  pg. 90, 2 pgs