A Conversation With David M. Cote

TL;DR

David Cote discusses emerging economies' impact on global business.

Transcript

FOROOHAR: My name is Rana Foroohar. I�m the economics editor at Time Magazine and a global economic analyst for CNN. And I�m very, very pleased today to be here with David Cote, the head of Honeywell, for the Bernard L. Schwartz lecture on business and foreign policy. Many thanks to Bernard L. Schwartz, who is the retired chairman and chief executi... Read More

Key Insights

• David Cote emphasizes the significant shift in global economic power from developed to developing regions, highlighting the increasing importance of China and India in the global economy.
• Cote believes that U.S. businesses and policymakers are not fully aware of the critical trends in emerging markets and need to adapt their strategies to remain competitive.
• He is cautious about investing in countries like Brazil and Russia due to their lack of institutional reform, while he is optimistic about China and India due to their ongoing reforms.
• Cote views China's President Xi Jinping as a genuine reformer committed to anti-corruption and economic reforms, despite facing internal political challenges.
• He acknowledges the challenges China faces in transitioning from a state-controlled economy to a more market-driven one, particularly in financial markets and state-owned enterprises.
• Cote supports the Trans-Pacific Partnership (TPP) and believes that trade agreements are crucial for maintaining U.S. economic influence in the global market.
• He advocates for a U.S. competitiveness agenda, focusing on innovation, education, and infrastructure to ensure long-term economic growth.
• Cote addresses the issue of corporate cash being held overseas due to tax policies and calls for tax reform to encourage repatriation of funds for domestic investment.

Questions & Answers

Q: What is David Cote's view on the shift in global economic power?

David Cote highlights the significant shift in global economic power from developed regions like the U.S. and Europe to developing regions, particularly China and India. He notes that by 2030, developing regions are expected to account for 47% of the global economy. Cote stresses the importance of U.S. businesses and policymakers recognizing and adapting to these trends to remain competitive.

Q: Why is Cote optimistic about China and India?

Cote is optimistic about China and India due to their ongoing institutional reforms. He views China's President Xi Jinping as a committed reformer focused on anti-corruption and economic reforms, despite internal political challenges. In India, he sees Prime Minister Modi's efforts to drive reforms as a positive sign of sustainable growth, which increases his confidence in these markets.

Q: What are Cote's thoughts on the Trans-Pacific Partnership (TPP)?

David Cote supports the Trans-Pacific Partnership (TPP), viewing it as a reasonable trade agreement that is crucial for maintaining U.S. economic influence in the global market. He believes that trade agreements like TPP are essential for the U.S. to remain competitive, especially as developing regions continue to grow in economic significance.

Q: How does Cote suggest the U.S. should address its competitiveness?

Cote advocates for a U.S. competitiveness agenda that includes innovation, education, and infrastructure investment. He emphasizes the need for the U.S. to focus on math and science education to prepare for the technological and economic shifts driven by emerging markets. Additionally, he calls for addressing the national debt and reforming the patent system to support long-term economic growth.

Q: What is Cote's stance on corporate tax reform?

Cote calls for corporate tax reform to address the issue of U.S. companies holding cash overseas due to current tax policies. He suggests a system similar to Germany and France, where a portion of foreign earnings can be repatriated with minimal tax. Cote believes that simplifying the tax code and reducing rates would encourage companies to invest domestically and support economic growth.

Q: How does Cote view China's economic transition?

Cote acknowledges the challenges China faces in transitioning from a state-controlled economy to a more market-driven one. He highlights the need for reforms in financial markets and state-owned enterprises to support sustainable economic growth. Despite these challenges, Cote remains optimistic about China's commitment to reform and its potential to become a leading global economy.

Q: What impact does Cote believe the IT revolution will have on the economy?

Cote compares the IT revolution to the Industrial Revolution, suggesting it will have a similarly transformative impact on the economy. He believes the shift from an industrial to an IT-driven economy will be disruptive, requiring changes in education and workforce development. Cote emphasizes the importance of preparing for this shift to ensure economic competitiveness and growth.

Q: How does Cote address the issue of income inequality and labor share?

Cote acknowledges the challenges posed by income inequality and the declining labor share in the economy. He suggests that the ongoing IT revolution may exacerbate these issues, as technology continues to reshape industries and job markets. Cote emphasizes the need for education reform, particularly in math and science, to equip the workforce with the skills needed for the evolving economy.

Summary & Key Takeaways

• David Cote discusses the shift in global economic power towards developing regions, particularly China and India, and the need for U.S. businesses to adapt to these changes. He emphasizes the importance of institutional reform in emerging markets and highlights the potential for growth in these regions.

• Cote views Chinese President Xi Jinping as a genuine reformer committed to economic reforms and anti-corruption efforts, despite facing internal political challenges. He also discusses the importance of trade agreements like the TPP for maintaining U.S. economic influence in the global market.

• Cote advocates for a U.S. competitiveness agenda that includes innovation, education, and infrastructure investment. He also addresses the issue of corporate cash being held overseas due to tax policies and calls for tax reform to encourage repatriation of funds for domestic investment.