Monday, January 24, 2011


Nipping at their heels

Firms from the developing world are rapidly catching up with their old-world competitors

IT IS remarkable how soon the idea that firms from emerging economies pose a serious threat to multinationals from the rich world has become old hat. “The novelty has become the norm,” concludes the latest annual report on these “new challengers” by the Boston Consulting Group (BCG). But familiarity does not make that threat any less real.

Five years ago, when BCG first reported on the rising stars of the developing world, the rich world was still reeling from the shock of the purchase of IBM’s personal-computing business by Lenovo, a Chinese company. That this acquisition proved something of a dud may comfort those in the old guard who suspect that the ambitions of these newcomers to enter the global stage exceed their ability to perform. Yet it has not diminished those ambitions. After a brief fall following the financial crisis of 2008, the number and size of cross-border acquisitions by the challengers rebounded strongly in 2010. In the past decade 60% of the foreign purchases by these developing-country multinationals have been of companies in the rich world; in the past two years the proportion was 70%.

In part, this may reflect the fact that the emerging economies recovered more quickly after the financial crisis, allowing their corporate champions to return more quickly to the acquisition trail. BCG has analysed 100 leading firms from emerging economies. The BRICs dominate: BCG looks at 13 companies from Brazil, six from Russia, 20 from India (six of which are part of the Tata empire) and 33 from China, with the rest spread widely. The list includes the world’s largest baker (Grupo Bimbo of Mexico), meat producer (JBS of Brazil) and aluminium manufacturer (United Company RUSAL of Russia), as well as the second- and fifth-biggest telecoms-equipment firms (Huawei Technologies and ZTE, both from China).

These 100 companies are looking lively. In the past decade they have seen their revenues grow by 18% a year on average, three times faster than non-financial firms in the S&P 500. And they have managed to expand fast without sacrificing profit margins, which at 18% were six percentage points higher than those of their (non-financial) peers in the S&P 500.

BCG argues that this is because they have managed to resolve three trade-offs that are usually associated with corporate growth: of volume against margin; rapid expansion against low leverage (debt); and growth against dividends. On average the challengers have increased their sales three times faster than their established global peers since 2005. Yet they have also reduced their debt-to-equity ratio by three percentage points and achieved a higher ratio of dividends to share price in every year but one. This is despite two significant exceptions: in pharmaceuticals, where the challengers have tended to make low-margin generic drugs; and in consumer goods, where they have focused on low-cost products, leaving the higher-margin niches to established global brands.

All this is impressive, but it seems implausible that these trade-offs have been “resolved”. More likely, they have been temporarily suspended during a period of unusually rapid growth. Indeed, having sprinted to catch up, the challengers may be about to discover that the real race has only just begun.

BCG identifies five trends that will determine how the tiger cubs fare against the old tortoises in the next few years. While China continues to spend heavily on infrastructure, its low-cost construction and heavy-equipment companies will surely prosper. They are not only building roads and bridges in China; one firm has won a contract to build a casino in America and more will doubtless follow. Likewise, with demand for scarce resources soaring, the miners and other commodity-based firms that have grown huge during the past few years—including several from Russia—may soon be positively elephantine.

The other three trends ought to worry the challengers a little. So far, a handful of emerging-market firms have defied the conventional wisdom that conglomerates are inherently inefficient. But will they continue to do so? As more and more of a conglomerate’s activities take place far from head office, inefficiencies will surely creep in. Still, old multinationals such as America’s GE insist that new technology and management techniques allow them to run sprawling operations efficiently. The challengers can surely use the same tools.

Tigers struggle to build brands

Building global consumer brands may prove tricky. So far, the tiger cubs have had more luck acquiring established brands (just as Lenovo bought IBM’s PCs, Grupo Bimbo bought Sara Lee’s North American bakery business) than persuading rich-country consumers to fill their baskets with the local favourites of Chinese or Egyptian shoppers. Whether such acquisitions make sense depends on the price.

Perhaps the most interesting trend is the challengers’ growing reliance on partnerships. More and more, they are hooking up not with established multinationals but with other emerging-market firms, to share knowledge, penetrate new markets and spread the risk of especially hair-curling investments. And when the challengers do join forces with well-known multinationals, they increasingly do so from a position of strength.

Yet for all that, many established multinationals believe they can hold their own. Several are learning from the emerging-market challengers how to be innovative and frugal at the same time. They may not be hiring at home, but many are expanding rapidly in the developing world. For instance, according to the Times of India, IBM is now the country’s second-largest private-sector employer. So don’t write off the old guard yet

Regulation and the Obama administration

Regulation and the Obama administration

Red tape rising

The regulatory state is expanding sharply. But Barack Obama hints that there may be moderation ahead

EVER since his thumping in the mid-term elections, Barack Obama has been busily mending relations with business folk. He has extended existing tax cuts, introduced new ones, completed a free-trade deal and appointed a banker as chief of staff. Now he is attending to their biggest grievance: that he has enmeshed them in stifling new rules, from health care and finance to oil-drilling and greenhouse gases.

Unlike many charges lobbed at Mr Obama, this one is well grounded. In his first two years in office the federal government issued 132 “economically significant” rules, according to Susan Dudley of George Washington University. (“Economically significant” means that either the rule’s costs, or its benefits, exceed $100m a year.) That is about 40% more than the annual rate under both George Bush junior and Bill Clinton. Many rules associated with the newly passed health-care and financial-reform laws are still to come.

Existing rules are also being enforced more keenly. The workplace-safety regulator slapped employers with 167% more violations in Mr Obama’s first year than in Mr Bush’s last, according to OMB Watch, a liberal watchdog. The Food and Drug Administration (FDA) has stepped up scrutiny of drugs that have already been approved for sale. Last year it barred the use of Avastin for breast cancer, not because it was unsafe but because its benefits seemed too uncertain. The regulatory workforce has grown 16% in Mr Obama’s first two years in office, to 276,429, while private employment has fallen (see chart 1).

Has this extra regulation made the economy worse off? Not necessarily. The White House Office of Information and Regulatory Affairs (OIRA), which vets most new federal rules, reckons that although Mr Obama’s regulations cost more than his predecessors’, they also bring greater benefits (see chart 2): fewer lives lost from inhaling mercury, being hit by lorries, or eating contaminated food. “I take any costs seriously, but they may be worth incurring if, in return, we get much higher benefits,” says Cass Sunstein, who heads OIRA and, like Mr Obama, taught law at the University of Chicago.

Even business concedes that some new rules were long overdue. A law passed last December gives the FDA sweeping new authority to order food recalls, track the supply chain for fresh food and order companies to submit food-safety plans, while authorising some 1,000 new staff to carry out its orders. Despite its intrusiveness, food manufacturers backed the law in the hope that it would restore public trust in the food system, which had been shaken by fatal outbreaks of E. coli and salmonella.

Nonetheless, Mr Obama now seems more sympathetic to business complaints about regulatory overkill. On January 18th he signed an executive order laying out his philosophy of regulation. It reiterates guidelines first issued by Mr Clinton and adhered to by Mr Bush: rules should be subject to cost-benefit analyses, imposed in the least costly way and leave companies free to work out how to comply. Mr Obama also went further, ordering all regulatory agencies to put in place within 120 days a system for reviewing old rules to see if they can be amended or repealed, and to ease the burden of regulation on small businesses.

Yet the order also expands the scope of regulation by telling agencies that they may consider “values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts”. That is an important consideration for rules such as better access to toilets for the disabled. The risk is that such criteria could be used to justify rules that cost the earth. Banning limits on health insurance, for example, as the health-care law does, may reduce the anxiety of people who might otherwise lose coverage, but whether that is worth the increase in premiums is impossible to say.

A similar attitude underlies both the thicket of homeland-security rules that has sprung up since the terrorist attacks of September 2001, and financial reforms since the banking crisis. These are justified largely by arguing that another terrorist attack or financial crisis would be unimaginably damaging. But since the probability of either event seems unknowable, so are the benefits that might accrue from the laws. Vikram Pandit, the chief of Citigroup, has likened the new Basel capital rules to maintaining a standing army large enough to fight the second world war.

Also unquantifiable is the innovation that may be deterred by regulation. Michael Mandel, a scholar at the Progressive Policy Institute, a think-tank, says some of Mr Obama’s rules, though well intentioned, interfere with the most dynamic parts of the economy. Rules meant to deter the abuse of student aid by for-profit colleges could stunt the growth of college courses taught over the internet; tighter conditions on drug approvals, prompted by much-publicised scandals, raise the cost of drug research, especially for small companies; and “net neutrality” rules could expose internet-access providers to stifling litigation.

Mr Obama’s regulatory surge would be less damaging if it had not followed one by Mr Bush, Mr Mandel says. Because of fears about national security, telecoms and internet companies came under pressure to accommodate federal eavesdroppers. The Sarbanes-Oxley accounting law has made it more expensive for start-up companies to list their stock publicly.

Perhaps Mr Obama’s new edict will hack away some of the regulatory undergrowth that has flourished over the decades. But business could be waiting a while for results. In December the Environmental Protection Agency took saccharine, an artificial sweetener, off its list of hazardous materials—more than a decade after scientists had concluded it was not carcinogenic after all. Mr Sunstein vows: “It isn’t going to take ten years to get rid of rules that deserve to be got rid of.”

Medvedev delays Davos trip over 'barbaric' Domodedovo tragedy

Moscow on high alert after Domodedovo airport terror

First witness video moments after Moscow Domodedovo airport bombing

Moscow airport blast kills 29

Moscow airport blast kills 29

An explosion ripped through the international arrivals hall at Moscow's busiest airport on Monday, killing at least 31 people and wounding about 130, officials said. The Russian president called it a terror attack.

MOSCOW - An explosion at an unsecured section of Domodedovo Airport, on the southeast outskirts of Moscow, killed 29 people in a waiting area for arriving passengers Monday afternoon, in what appears to be a terrorist attack.

At least 50 people were hospitalized, authorities said, and 35 were listed in critical condition.

Officials have called a "high terror alert" at Moscow's two other major airports and the metro system, where two suicide bombers killed 40 people in March. There is heightened security throughout the city.

Interfax reported that police are seeking three men in connection with the bombing but did not provide details. The Associated Press reported that a suicide bomber was responsible.

The blast detonated in a hall where arriving international passengers emerge from customs. Large crowds had gathered to await passengers as they departed the baggage area, police sources told the Interfax news agency. As at most airports, the area is outside the secure zone.

"Therefore, the bomb did not fly to Moscow by plane, it was brought in to the airport from outside," Interfax quoted the sources.

The explosion occurred at 4:37 p.m. local time, according to the Russian Air Transport Agency. Planes from Dusseldorf, Germany, and Odessa, Ukraine, had landed in the previous half-hour. Just before the blast, a plane from London had arrived.

An amateur video shot shortly after the blast showed bodies strewn about a smoke-filled hall. The lights were on, but workers with flashlights made their way through the smoke, amid luggage and several luggage carts.

Yelena Bakhtina, who works in a cafe at the other end of the hall, said on Russian television that she was about 100 yards from where the explosion took place when there was a sudden loud boom. She said the whole building shook, raining plaster down around her.

Sergei Lavochkin told Russian television's Channel One that he was at the airport waiting for a friend who was flying in from Cuba. "I was not that close to the place of the explosion, but I heard a strong noise and people's cries," he said, adding, "I saw people running away in panic. ... I saw two men sitting on the bench, their heads bleeding, and I saw men being carried on the luggage trolleys to the ambulances."

Another witness, Alexei Nefedov, told Russian television: "I saw a lot of smoke, a lot of police and a lot of firemen." He said passengers still in the customs area, which is behind a solid wall, were unhurt and continued to collect their luggage as it came off the carousels. As they began to emerge into the aftermath of the explosion, he said, they found a scene of destruction and death.

Russian President Dmitry Medvedev postponed his trip to the Davos World Economic Forum in Switzerland, where he had been scheduled to arrive Tuesday. He appeared on Russian television in the late afternoon and expressed his condolences to the relatives of those killed, promising a full investigation of the bombing.


Bit by Bit, a Mexican Police Force Is Eradicated

Bit by Bit, a Mexican Police Force Is Eradicated

GUADALUPE DISTRITO BRAVOS, Mexico — Her uncle, the mayor who gave her the job nobody else wanted, warned her to keep a low profile, to not make too much of being the last remaining police officer in a town where the rest of the force had quit or been killed.
Jesus Alcazar/Agence France-Presse — Getty Images

Érika Gándara, police chief of Guadalupe Distrito Bravos, Mexico, disappeared in December.

Adriana Zehbrauskas for The New York Times

A wave of terror has turned Guadalupe Distrito Bravos, near Texas, into a frightened outpost of the drug war. Nearly half of its 9,000 residents have fled.

But in pictures for local newspapers, Érika Gándara, 28, seemed to relish the role, posing with a semiautomatic rifle and talking openly about the importance of her new job.

“I am the only police in this town, the authority,” she told reporters.

Then, two days before Christmas, a group of armed men took her from her home, residents say, and she has not been seen since.

It was an ominous punctuation mark on the wave of terror that has turned this cotton farming town near Texas into a frightened outpost of the drug war. Nearly half of its 9,000 residents have fled, local officials say, leaving block after block of scorched homes and businesses and, now, not one regular police officer.

Far from big, infamous cities like Ciudad Juárez, one of the most violent places in the Americas, the war with organized crime can batter small towns just as hard, if with less notice.

The cotton towns south of Juárez sit in territory disputed by at least two major drug trafficking groups, according to government and private security reports, leading to deadly power struggles. But the lack of adequately trained police officers, a longstanding crisis that the government has sought to address with little resolution, allows criminal groups to have their way.

“Small cities and towns are really highly impacted,” said Daniel M. Sabet, a visiting professor at Georgetown University who studies policing in Mexico. “They offer strongholds organized crime can hold and control.”

Some towns consider themselves so vulnerable that they have gone out of their way not to antagonize criminals. Believing that those involved in organized crime would be less inclined to harm women — and because fewer men are willing to take the job — local officials have appointed a handful of women in the past year to senior police ranks in small cities and towns here in Chihuahua, the country’s most violent state.

After a spate of violence in a neighboring town, Praxédis Guerrero, local officials selected a 20-year-old college student in November as police chief to run the force of nine women and two men, hoping that criminal networks would see her as less threatening.

Marisol Valles, the young police chief, has made it clear that she leaves major crimes to state and federal authorities to investigate. Really, she said, she just reviews civil infractions issued by other officers and rarely leaves the office. “I am more like an administrator,” said Ms. Valles, who does not carry a gun or wear a uniform.

But the criminals have not discriminated. Hermila García, the woman appointed police chief of Meoqui, a small city in central Chihuahua, was killed on Nov. 30 after only a month in the job.

Guadalupe tried to put a nonthreatening face on law enforcement by appointing Ms. Gándara chief in October. But it appears that she tried — or at least talked about — taking the job more seriously, to the regret of her uncle, Mayor Tomás Archuleta. He had good reason to counsel a low profile: He took office after his predecessor was killed last summer, part of a wave of assassinations of local officials across Mexico.

“I told Érika, ‘Be careful,’ to not make waves,” Mr. Archuleta said, openly frustrated by the picture of her with the rifle. Like Ms. Valles, her role is more to issue citations, leaving serious crimes to state and federal authorities.

Guadalupe has plenty of them to investigate. There are as many abandoned homes and businesses — several of them gutted — as occupied ones. One recent morning, four homes smoldered from an attack and two people had been shot dead with high-powered weapons, the bullets leaving several gaping holes in cinder-block walls.

Few people here leave their homes after 5 p.m., and see soldiers and police officers only briefly after a major crime or when they are guarding the monthly delivery of government pension checks for retirees.

“We lock ourselves in most of the time,” said Eduardo Contreras, 26, as he watched residents douse and pick through the embers of their smoldering homes.

In a voice choked with tears, María Torres, 70, who grew up here, said, “This is so sad what has happened here,” as she carried a sign for a church service.

Mr. Archuleta, the mayor, said the town mainly gets its protection from soldiers based at a recreation center in Praxédis Guerrero. Maybe, Mr. Archuleta suggested, not having local police officers is better. He said local residents had told him that common crimes like burglary had dropped out of fear of drawing the attention of a military patrol.

“There aren’t any” minor crimes, he said, his voice dropping to a near whisper.

But townspeople disputed that, complaining that the soldiers or state and federal police officers were rarely seen except after major violence had occurred.

“There is no police, no fire department, no social services, nothing here,” said the middle-aged matriarch from one burned-out home, declining to give her name for fear of reprisals. “People get away with everything here. Nothing gets investigated, not even murders.”

Not long afterward, a four-truck caravan of federal police officers arrived from another town, hopping down from their vehicles, taking notes and asking her and other family members for a word. The family refused even to open the gate for the police, apparently out of fear of being seen talking to them, and the officers moved on. The officers appeared to be taking stock, driving from crime scene to crime scene and taking notes, but not mounting a forensic investigation.

At the site of the double murder in the morning, one officer dabbed at a pool of blood and body fluid on the driveway with a stick; another picked up a piece of flesh and playfully tossed it at a companion.

Ms. Gándara may not have investigated much deeper. Local police officers in small towns usually play a mostly preventive role, refereeing minor disputes, handling the town drunk and quieting rowdy teenagers, city managers said. Many are not armed.

Mr. Archuleta would say little else about his niece, Ms. Gándara, citing an investigation by the state prosecutor’s office, which would not comment on a motive. But he noted that he had turned to her when nobody else would take the job. She had experience as a security guard and appeared not to be involved in any criminal activity, he said.

“Who knows what people do in their private lives,” he said, “but I did not think she was involved in anything.”

China Grooming Deft Politician as Next Leader

China Grooming Deft Politician as Next Leader

BEIJING — President Hu Jintao of China returned home this weekend after a trip intended to repair relations with the United States. But the next time the White House marches out the honor guard and polishes the crystal for a Chinese leader, it is unlikely to be for Mr. Hu.
Andy Wong/Associated Press

As President Hu Jintao looked on, Xi Jinping addressed the National People’s Congress in 2008.

Following a secretive succession plan sketched out years ago, Mr. Hu has already begun preparing for his departure from power, passing the baton to his presumed successor, a former provincial leader named Xi Jinping, now China’s vice president. While Mr. Xi is expected to formally take the reins next year in China, the world’s second-largest economy and fastest-modernizing military power, he remains a cipher to most people, even in China.

But an extended look at Mr. Xi’s past, taken from wide-ranging interviews and official Chinese publications, shows that his rise has been built on a combination of political acumen, family connections and ideological dexterity. Like the country he will run, he has nimbly maintained the primacy of the Communist Party, while making economic growth the party’s main business.

There is little in his record to suggest that he intends to steer China in a sharply different direction. But some political observers also say that he may have broader support within the party than Mr. Hu, which could give him more leeway to experiment with new ideas. At the same time, there is uncertainty about how he may wield authority in a system where power has grown increasingly diffuse. Mr. Xi also has deeper military ties than his two predecessors, Mr. Hu and Jiang Zemin, had when they took the helm.

For much of his career, Mr. Xi, 57, presided over booming areas on the east coast that have been at the forefront of China’s experimentation with market authoritarianism, which has included attracting foreign investment, putting party cells in private companies and expanding government support for model entrepreneurs. This has given Mr. Xi the kind of political and economic experience that Mr. Hu lacked when he ascended to the top leadership position.

He is less of a dour mandarin than Mr. Hu is. The tall, stocky Mr. Xi is a so-called princeling — a descendant of a member of the revolutionary party elite — and his second marriage is to a celebrity folk singer and army major general, Peng Liyuan.

Unlike the robotic Mr. Hu, Mr. Xi has dropped memorable barbs against the West into a couple of recent speeches: he once warned critics of China’s rise to “stop pointing fingers at us.” But he has enrolled his daughter in Harvard, under a pseudonym.

The Climb Up the Ladder

Mr. Xi (his full name is pronounced Shee Jin-ping) climbed the ladder by building support among top party officials, particularly those in Mr. Jiang’s clique, all while cultivating an image of humility and self-reliance despite his prominent family ties, say officials and other party members who have known him.

His subtle and pragmatic style was seen in the way he handled a landmark power project teetering on the edge of failure in 2002, when he was governor of Fujian, a coastal province. The American company Bechtel and other foreign investors had poured in nearly $700 million. But the investors became mired in a dispute with planning officials.

After ducking foreign executives’ repeated requests for a meeting, Mr. Xi agreed to chat one night in the governor’s compound with an American business consultant on the project whose father had befriended Mr. Xi’s father in the 1940s.

Mr. Xi explained that he could not interfere in a dispute involving other powerful officials. But he showed that he knew the project intimately and supported it, promising to meet the investors “after the two sides have reached an agreement.” That spurred a compromise that allowed the power plant to begin operating.

“I thought, ‘This person is a brilliant politician,’ ” said the consultant, Sidney Rittenberg Jr.

Mr. Xi’s political skills paid their greatest dividend last October, when he was appointed vice chairman of the Central Military Commission, a move that means he will almost certainly succeed Mr. Hu as party secretary in late 2012 and as president in 2013. Mr. Hu, the commission’s chairman, could retain his military post for another few years.

Over the years, Mr. Xi built his appeal on “the way he carried himself in political affairs,” said Zhang Xiaojin, a political scientist at Tsinghua University.

“On economic reforms and development, he proved rather effective,” Mr. Zhang said. “On political reforms, he didn’t take any risks that would catch flak.”

Mr. Xi also emerged as a convenient accommodation to two competing wings of the party: those loyal to Mr. Hu and those allied with Mr. Jiang, who in China’s collective leadership had an important role in naming Mr. Hu’s successor.

Mr. Xi’s elite lineage and career along the prosperous coast have aligned him more closely with Mr. Jiang. But like Mr. Hu, Mr. Xi also spent formative years in the provincial hinterlands. Mr. Hu was once close to Mr. Xi’s father, a top Communist leader during the Chinese civil war.

The father, Xi Zhongxun, was one of the more liberal party leaders and was purged several times under Mao. He was a mastermind in the early 1980s of China’s first special economic zone in Shenzhen. Behind closed party doors, he supported the liberal-leaning leader Hu Yaobang, who was dismissed in 1987, and condemned the military crackdown on the Tiananmen Square protesters in 1989.

Court Says Rahm Emanuel Not Eligible to Run for Mayor

Court Says Rahm Emanuel Not Eligible to Run for Mayor

CHICAGO — An Illinois appeals court panel has ruled that Rahm Emanuel, the former White House chief of staff, does not qualify to run for mayor of Chicago in next month’s election.

The ruling, which was announced on Monday, comes as a significant and unexpected setback for Mr. Emanuel, who has been a front-runner both in polls and in fundraising in the race to replace Richard M. Daley, the city’s longest serving mayor, who will retire this spring.

The question of Mr. Emanuel’s residency — and whether he had lived in Chicago long enough to appear on the city’s ballot — had been a matter of debate since Mr. Emanuel departed the White House last fall to run for mayor.

Mr. Emanuel contended that he had always maintained a home in Chicago, the city where he was born, and that his time at the White House was a matter of national service. But Mr. Emanuel’s opponents said that Mr. Emanuel did not meet the state’s residency requirements to run for a mayoralty, one of which is to have lived in the city for a year before the day of the election. His return to Chicago in the fall, they argued, was too late to qualify for a Feb. 22 ballot.

The Chicago Board of Elections concurred with Mr. Emanuel, as had a Cook County trial judge. But a three-judge panel of the Illinois Appellate Court ruled against him, 2 to 1. With time running short and ballot arrangements already being finalized, the issues seemed certain to go to the state Supreme Court.

Deadly Blast at Moscow’s Main Airport Seen as Terror Attack

Deadly Blast at Moscow’s Main Airport Seen as Terror Attack

MOSCOW — A bomber strode into the arrivals hall at Moscow’s busiest airport on Monday afternoon and set off an enormous explosion, eyewitnesses and Russian officials said, leaving bodies strewn in a smoke-filled terminal while bystanders scrambled to get the wounded out on baggage carts.
Andrey Smirnov/Agence France-Presse — Getty Images

An image taken from the Russian TV channel NTV showed paramedics carrying a person injured by the blast at Moscow’s Domodedovo airport.

Andrey Smirnov/Agence France-Presse — Getty Images

An image taken from the Russian TV channel NTV showed a riot police van at Moscow’s Domodedovo airport.

Russian authorities said at least 31 people were killed and 150 injured in the attack. The Russian president, Dmitri A. Medvedev, said in televised remarks that the blast was an act of terrorism and ordered police to track down the perpetrators.

Vladimir Markin, a spokesman for Russia’s Investigative Committee, said the attack was probably carried out by a male suicide bomber, and that authorities are attempting to identify him.

In the moments after the blast, the smoke was so thick that it was difficult to count the dead, eyewitnesses said. Arriving passengers stepped into the hall to the sight of blood on the floor and bodies being loaded onto stretchers. Ambulances sped away crowded with three or four patients apiece, bleeding heavily from shrapnel wounds to their arms and legs.

The blast hit Domodedovo Airport, a facility that is a showcase for modern Russia, just as Mr. Medvedev prepared to woo foreign investors at the World Economic Forum in Davos, Switzerland. It is bound to further shake a country already on edge after a nationalist demonstration turned violent in mid-December, inflaming relations between ethnic Russians and migrants from the north Caucasus, a predominately Muslim region on Russia’s southern border.

Though there was no indication Monday evening of who was behind the blast, Moscow’s recurrent terror attacks have nearly always been traced to militants in the North Caucasus. The most recent came in March, when two women from Dagestan strapped on explosive belts and detonated themselves on the city’s subway, killing more than 40 people.

Doku Umarov, a rebel leader, took responsibility for that attack, posting a video in which he warned Russians that “the war will come to your streets, and you will feel it in your own lives and on your own skin.” Such attacks have typically strengthened the influence of Russian security forces and Prime Minister Vladimir V. Putin by firmly establishing security as the country’s top priority.

Mr. Putin appeared on television on Monday night, ordering the health minister to provide aid to all the bombing victims, visiting clinics one by one, if necessary, he said.

The bomber apparently entered the international arrivals terminal from outside, an eyewitness said, advancing to the blue tape where taxi drivers and relatives wait to greet arriving passengers and setting off the explosion at 4:32 p.m. local time. The area is open to the general public, said Yelena Galanova, an airport spokesman, according to the Interfax news service.

Artyom Zhilinkov, who was in that crowd, said he was standing about 10 yards in front of a short, dark-complexioned man with a suitcase — the bomber, he believes. They were awaiting flights from Italy, Tajikistan and Germany. Mr. Zhilinkov, a taxi driver, spoke to reporters several hours after the blast, wearing a track suit dotted with blood and small ragged holes.

“How did I manage to save myself? I don’t know,” he said. “The people behind me on my left and right were blown apart. Maybe because of that.”

Yuri, an eyewitness, told Russia’s state-run First Channel TV that the shock wave was strong enough to throw him to the floor and blow his hat away. After that the hall filled with thick smoke and part of the ceiling collapsed, said Aleksei Sviridonov, who works at an auto rental booth. He said most of the victims were waiting to greet passengers.

“They pushed them away on baggage carts,” Mr. Sviridonov said. “They were wheeling them out on whatever they could find.”

Many of the victims suffered terrible wounds to their faces, limbs and bodies, witnesses said.

“One person came out and fell,” Olga Yaholnikova told RenTV television. “And there was a man with half of his body torn away.”

Investigators were working on Monday evening to determine the power and type of explosive used in the attack. Nikolai Sintsov, a spokesman for the National Anti-Terrorist Committee, said there are shrapnel holes in the arrival hall, but no shrapnel has yet been retrieved.

In televised remarks, Mr. Medvedev said that although Russia has imposed waves of new security procedures in the wake of terror attacks, they are not always implemented. He ordered police to boost security at all airports and on public transportation.

The airport, southeast of the capital, is Russia’s largest airline hub, with more than 20 million passengers passing through last year. Domodedovo was the site of a previous terror attack in August of 2004, when two Chechen suicide bombers boarded separate planes there, killing themselves and 88 others in midair. The attack exposed holes in security, since the two bombers, both women, had been detained shortly before boarding, but were released by a police supervisor. The authorities have since worked to tighten security there.

The airport remained open on Monday evening, and passengers continued to flow through the hall where the bomb had exploded. Gerald Zapf, who landed shortly after the blast, said his airplane circled the airport several times before landing, and passengers were forced to wait on board for some time before they were allowed to disembark.

When they finally made it into the airport, he said, he saw nothing of the carnage that had taken place, because it was hidden by large sheets of blue plastic.

The Science of Libertarian Morality

The Science of Libertarian Morality

A social psychology study explores the formation of the libertarian personality.

Libertarians are often cast as amoral calculating rationalists with an unseemly hedonistic bent. Now new social science research upends that caricature. Libertarians are quite moral, the researchers argue—just not in the same way that conservatives and liberals are.

The University of Virginia social psychologist Jonathan Haidt has done a lot of work in the past probing the different moral attitudes of American liberals and conservatives. With time he realized that a significant proportion of Americans did not fit the simplistic left/right ideological dichotomy that dominates our social discourse. Instead of ignoring the outliers, Haidt and his colleagues chose to dig deeper.

The result: a fascinating new study, “Understanding Libertarian Morality: The Psychological Roots of an Individualist Ideology,” that is currently under review at the Journal of Personality and Social Psychology. In probing libertarians’ moral thinking, Haidt and his colleagues—Ravi Iyer and Jesse Graham at the University of Southern California and Spassena Koleva and Peter Ditto at the University of California at Irvine—used the “largest dataset of psychological measures ever compiled on libertarians”: surveys of more than 10,000 self-identified libertarians gathered online at the website

In his earlier work, Haidt surveyed the attitudes of conservatives and liberals using what he calls the Moral Foundations Questionnaire, which measures how much a person relies on each of five different moral foundations: harm/care, fairness/reciprocity, ingroup/loyalty, authority/respect, and purity/sanctity. Typically, conservatives scored lower than liberals on the harm and fairness scales—that is, they gave those issues less weight when making moral judgments—and scored much higher on ingroup, authority, and purity.

In the new study, Haidt and his colleagues note that libertarians score low on all five of these moral dimensions. “Libertarians share with liberals a distaste for the morality of Ingroup, Authority, and Purity characteristic of social conservatives, particularly those on the religious right,” Haidt et al. write. Libertarians scored slightly below conservatives on harm and slightly above on fairness. These results suggest that libertarians are “likely to be less responsive than liberals to moral appeals from groups who claim to be victimized, oppressed, or treated unfairly.”

Another survey, the Schwartz Value Scale, measures the degree to which participants regard 10 values as guiding principles for their lives. Libertarians put higher value on hedonism, self-direction, and stimulation than either liberals or conservatives, and they put less value than either on benevolence, conformity, security, and tradition. Like liberals, libertarians put less value on power, but like conservatives they have less esteem for universalism. Taking these results into account, Haidt concludes that “libertarians appear to live in a world where traditional moral concerns (e.g., respect for authority, personal sanctity) are not assigned much importance.”

Haidt and his colleagues eventually recognized that their Moral Foundations Questionnaire was blinkered by liberal academic bias, failing to include a sixth moral foundation, liberty. They developed a liberty scale to probe this moral dimension. Unsurprisingly, the researchers found that libertarians dramatically outscored liberals and conservatives when it came to putting a high value on both economic and lifestyle liberty. Haidt and his colleagues conclude, “Libertarians may fear that the moral concerns typically endorsed by liberals or conservatives are claims that can be used to trample upon individual rights—libertarians’ sacred value.”

Next the researchers wondered, “Might libertarians generally be dispositionally more rational and less emotional?” On the standard inventory of personality, libertarians scored lower than conservatives and liberals on agreeableness, conscientiousness, and extraversion. Low scores on agreeableness indicate a lack of compassion and a proud, competitive, and skeptical nature. Like conservatives, libertarians are not generally neurotic, tending to be emotionally hardy. And like liberals, libertarians scored high on openness to new experiences, indicating that they have broad interests.

Libertarians scored lower than both liberals and (especially) conservatives on sensitivity to disgust. The authors suggest this tendency “could help explain why they disagree with conservatives on so many social issues, particularly those related to sexuality. Libertarians may not experience the flash of revulsion that drives moral condemnation in many cases of victimless offenses.”

Some of the more intriguing results involve the empathizer/systemizer scale. Empathizers identify with another person’s emotions, whereas systemizers are driven to understand the underlying rules that govern behavior in nature and society. Libertarians, unlike both liberals and conservatives, scored very high on systemizing. The authors note, “We might say that liberals have the most ‘feminine’ cognitive style, and libertarians the most ‘masculine.’ ”

The researchers also found that libertarians tend to be less flummoxed by various moral dilemmas, such as the famous “trolley problem.” In the trolley problem, five workmen will be killed by a runaway trolley unless you move a track switch which will divert the train but kill one workman—or, in another version, push a fat man off a bridge stopping the trolley. Typically, most people will choose to move the switch, but refuse to push the fat man. Why the difference? The utilitarian moral calculus is the same—save five by killing one. According to the researchers, libertarians are more likely to resolve moral dilemmas by applying this utilitarian calculus.

Taking various measures into account, the researchers report that libertarians “score high on individualism, low on collectivism, and low on all other traits that involved bonding with, loving, or feeling a sense of common identity with others.” Haidt and his fellow researchers suggest that people who are dispositionally low on disgust sensitivity and high on openness to experience will be drawn to classically liberal philosophers who argue for the superordinate value of individual liberty. But also being highly individualistic and low on empathy, they feel little attraction to modern liberals’ emphasis on altruism and coercive social welfare policies. Haidt and his colleagues then speculate that an intellectual feedback loop develops in which such people will find more and more of the libertarian narrative agreeable and begin identifying themselves as libertarian. From Haidt’s social intuitionist perspective, “this process is no different from the psychological comfort that liberals attain in moralizing their empathic responses or that social conservatives attain in moralizing their connection to their groups.”

I find Haidt’s account of the birth of libertarian morality fairly convincing. But as a social psychologist, Haidt fails to discuss what is probably the most important and intriguing fact about libertarian morality: It changed history by enabling at least a portion of humanity to escape our natural state of abject poverty. Libertarian morality, by rising above and rejecting primitive moralities embodied in the universalist collectivism of left-liberals and the tribalist collectivism of conservatives, made the rule of law, freedom of speech, religious tolerance, and modern prosperity possible. Liberals and conservatives may love people more than do libertarians, but love of liberty is what leads to true moral and economic progress.

Ronald Bailey is reason's science correspondent.

Jeb Bush on Disrupting the Education Monopoly

Joel Klein on School Choice

Gun Control Wouldn't Have Stopped Loughner

Gun Control Wouldn't Have Stopped Loughner

And Loughner shouldn't start a new push for gun control


A very public shooting spree, with victims including a congresswoman, a judge, and a little girl, committed by a known lunatic, using equipment that had previously been banned: Jared Loughner’s crime seems an unparalleled opportunity for gun control advocates to gin up support for new legislation to restrict the weapons legally available to Americans and to restrict which Americans have access to those weapons.

Loughner reportedly used a Glock 19 pistol with 33-round magazines. Rep. Carolyn McCarthy (D-N.Y.) therefore wants to restore a provision of the Clinton-era “assault weapon” ban that prohibited the manufacture or importation of magazines that hold more than 10 rounds. McCarthy’s proposal would toughen the expired law’s requirements by prohibiting the sale or transfer of ownership of existing high-capacity magazines as well. Sen. Frank Lautenberg (D-N.J.) intends to sponsor similar legislation in the Senate.

Meanwhile, Rep. Peter King (R-N.Y.) has called for a ban on possessing weapons within 1,000 feet of a member of Congress and certain other high government officials. Taking another tack entirely, a bipartisan pair of congressmen, Jason Chaffetz (R-Utah) and Heath Shuler (D-N.C.) vow to start packing heat themselves, and Louie Gohmert (R-Texas) wants to allow congresspeople to carry weapons in D.C., something normal citizens still can't do.

King didn’t explain how such a rule would be enforced, given that politicians have an annoying habit of moving from place to place—though such a law could provide a presumptive excuse to search everyone getting near a politician in public. The primary result of King's law would be to make meet-the-public events of the sort where Rep. Giffords was wounded legally untenable. (In a cliche that bears repeating: Someone preparing to shoot others has already demonstrated their willingness to break the law.)

Meanwhile, Mayors Against Illegal Guns, representing over 600 city leaders, wants to toughen background check requirements and increase communication between different federal, state, and local databases—something they have little power to do on their own.

Americans’ attitudes toward gun laws have shifted since the mid-’90s, when Congress passed the now-expired “assault weapon” ban and the Brady Act. Brady instituted federal background checks for every potential gun buyer. The goal was to insure would-be buyers were disqualified from gun ownership for such things as a criminal record, being an illegal alien, having been dishonorably discharged from the military, or having been adjudicated mentally ill.

At the start of the 1990s, according to Gallup polls, 78 percent of Americans wanted stricter gun control. By 2009 that number had fallen to a historical low of 44 percent. As Americans’ attitudes have shifted, even Democrats have mostly avoided trying to expand gun control at the national level. (Some Democratic pols blame the Clinton-era gun control programs for Gore’s defeat in key southern states in 2000.) Despite the McCarthy and King bills, no one thinks Loughner’s crimes are going to change that stance. And they shouldn’t.

There is no consistent association between gun crimes and easy access to guns or the right to carry. Crimes such as Loughner’s are so bizarre and rare that there is no sense in trying to craft laws aimed at preventing them. Despite constantly expanding gun ownership—the number of new firearms entering American possession averages around 4 million a year—and expanded rights to legally carry weapons, the last two decades have seen a 41 percent decline in violent crime rates. Since the 2004 expiration of the "assault weapon" ban, murder rates are down 15 percent. Many pundits have tried to explain Loughner’s crimes by citing Arizona’s “loose” gun laws, including the lack of permit requirement for concealed or open carry. It's true that Loughner exercised his right to carry without a permit, but he would doubtless have carried the gun even if he was violating the law doing so.

Daniel Vice of the Brady Center to Prevent Gun Violence made his case plainly: “Our gun laws are so weak that someone who couldn’t get into the military, who was kicked out of school, and who used drugs walked into a gun store and was able to immediately buy a semiautomatic weapon.” But why shouldn’t someone not allowed in the military, kicked out of school, and known to use drugs—characteristics shared by millions of Americans—be able to own and use tools of self-defense and sport if he has not been adjudicated as dangerous?

Such a person should be able to own a weapon for all the same reasons anyone might want to own any tool, especially one connected to the vital human imperative of self-defense. Snide declarations that large-capacity magazines are good for nothing but killing innocent people ignore the fact that they are almost never used for that purpose and that law enforcement agencies regularly use them for self-defense.

A CBS poll two weeks after the massacre found that 51 percent of Americans still think gun laws should either stay the same or be loosened. That was down from 58 percent in March 2009 but still above 2002 levels, when 56 percent of respondents in another CBS poll supported tighter gun control.

Americans understand that even strange people should be able to own weapons, and not just for deer hunting. The very rare crimes of very unusual Americans should not dictate how everyone's right to self-defense is managed, and even in the wake of tragedy that is fortunately unlikely to change

Senior Editor Brian Doherty ( is the author of Gun Control on Trial (Cato).

A Beating in Pittsburgh

A Beating in Pittsburgh

A year after three cops beat an unarmed music student, they are still getting paid to do nothing.


A year ago this month, Jordan Miles, an 18-year-old music student at Pittsburgh's Creative and Performing Arts High School, was walking to his grandmother's home in the city's Homewood neighborhood when three undercover police officers in an unmarked white car decided he looked "suspicious." Officers Richard Ewing, Michael Saldutte, and David Sisak, all white, would later say in police reports that Miles, who is black, seemed to be "sneaking around" and had a bulky object protruding from his coat that appeared to be a gun. It turned out to be a bottle of Mountain Dew—which, curiously, was never taken into evidence.

Upon seeing the men heading toward him, Miles quite understandably ran. But after a few steps, he slipped and fell. The police officers say they identified themselves upon exiting their car. Miles says they said only, "Where's the money? Where's the gun? Where's the drugs?"—questions that could signal a robbery. Even if the three men had identified themselves as police officers, it isn't hard to see why Miles would run. Three white men jumped from an unmarked car and began running toward him. At night. Given what happened to Miles next, he would have been justified in fleeing even if he had known the three men were cops.

The three officers severely beat the unarmed viola player, who is five feet, five inches tall and weighs 150 pounds. They hit him with multiple punches to the face and a knee to the head. They also tore off a large clump of his hair. The end result was the picture you see here.

Once he was out of the hospital, Miles, an honors student with no prior criminal record, was arrested and charged with loitering, aggravated assault, and resisting arrest. The police claimed that earlier in the evening they had spoken with Monica Wooding, who lives in the neighborhood, and were responding to her complaint that Miles was loitering on her property without her permission. But Wooding later testified that she made no such complaint. In fact, she testified that she has known Miles, a friend of her son, for years.

Citing Wooding's testimony and the possibility of false statements in the police reports, Pennsylvania District Court Judge Oscar Petite Jr. dismissed the charges against Miles last March. Miles has since filed a federal civil rights lawsuit against Ewing, Saldutte, Sisak, and the city of Pittsburgh. The three officers were initially taken off undercover duties, then suspended with pay pending an investigation. The city halted its investigation when the FBI announced it would also look into the case (although the city was not required to do so). The federal investigation is still open, but it does not seem to be making much progress. Last August, federal investigators reportedly told Miles' family that charges against the officers were unlikely, because it was their word against a teenager's. In theory, the investigation could drag on for five years, after which the statute of limitations for federal civil rights charges would bar prosecution.

Under its charter, Pittsburgh's Citizen Police Review Board is not allowed to look into the incident until all criminal investigations are completed. So while it took just a few hours to falsely charge Jordan Miles with assaulting three police officers, more than a year later federal and local officials still can't decide whether the officers who beat him should be charged, removed from the force, or, as the local police union recommends, praised for their heroism. Two of the three officers who beat Miles, Saldutte and Sisak, are accused of using excessive force in other civil rights lawsuits and complaints to the review board. One lawsuit says Saldutte beat a suspect so severely that he fractured his eye socket, dislodging his eyeball.

Meanwhile, the Pittsburgh City Paper reports, the three officers are not only collecting their salaries while on suspension but are also getting the overtime pay they likely would have received had they remained on duty, thanks to a generous contract the police union negotiated with the city. As of the end of 2010, according to the paper, the city had paid the officers a total of $233,882 for 11 months of not working.

This month it all got even stranger. The week of the anniversary of Miles' beating and arrest, someone put out a hoax press release under fake letterhead from the city's Fraternal Order of Police (FOP). The release said the union had changed its mind and was now calling for prosecution of Ewing, Saldutte, and Sisek. The local press quickly determined that the statement was fake, and the FOP was not amused. "This is just totally outrageous that this occurred," President Dan O'Hara told the Pittsburgh Tribune-Review. "If we catch anyone with regard to this, it's going to be multiple felonies, and that will set the example in the future."

Felonies? The press release was not an attempt to make money off the organization's name, so it wasn't fraud. It was either a poorly executed satire or a clumsy attempt to protest the FOP's support of Ewing, Saldutte, and Sisek. Either way, it is speech that would almost certainly be protected by the First Amendment.

But sure enough, last week Pittsburgh police raided the offices of Dreaming Ant, a local DVD rental store, and seized computer equipment allegedly connected to the fake press release. A detective told the City Paper that the author could be charged with trademark counterfeiting and identity theft. The business announced on its website that it is temporarily closed.

That's some swift action. If the Pittsburgh police department was as aggressive in disciplining its own officers as it is in determining who made fun of the local police union, maybe it wouldn't still be dealing with the fallout from the actions of three cops who beat a kid over a bottle of Mountain Dew. As for Miles, he is attending Penn State, where he is studying crime scene investigation. He wants to become a cop.

Slow-Growth U.S. Now Ripe for Consumption Tax

Slow-Growth U.S. Now Ripe for Consumption Tax: Kevin Hassett


Kevin Hassett

The prospect of meaningful tax reform has become the hot topic in the hearing rooms and, just as important, the back rooms of Washington.

House Ways and Means Committee Chairman David Camp, Republican of Michigan, devoted his first hearing to the topic, and President Barack Obama’s team is talking up the subject in private and in public.

“We’re examining whether we can find the political support for a comprehensive tax reform,” U.S. Treasury Secretary Timothy Geithner said on Jan. 12. Two days later, he met with financial officers from major companies, including Microsoft and Cisco Systems, to discuss the corporate tax rate.

The last overhaul of the tax code was in 1986, when President Ronald Reagan and congressional Democrats including Representative Dan Rostenkowski and Senator Bill Bradley crafted legislation that should be in the Tax Policy Hall of Fame, if there was one. In pairing lower marginal rates with an assault on exemptions and other loopholes, the Tax Reform Act of 1986 proved the benefit of broadening the tax base.

Now it’s time to take that one step further.

In 1651, the English philosopher Thomas Hobbes became the patron saint of tax geeks when he called for government to switch to a consumption tax -- one based on the money people spend, not what they earn. Such a tax, he argued in his book, “Leviathan,” was morally preferable:

“For what reason is there that he which laboureth much and, sparing the fruits of his labour, consumeth little should be more charged than he that living idly, getteth little and spendeth all he gets; seeing the one hath no more protection from the Commonwealth than the other?”

Passing Favors

Like Hobbes, those who today decry the irrationality of the tax code and advocate fundamental reform are ignored by elected officials. Rather than a simple-to-understand code, politicians prefer the current mess, a tangle of exceptions that makes it easy to pass out favors without being noticed.

Just figuring out what you owe is so complicated that few Americans dare do their own taxes. Talk about busywork: In her annual report, the Internal Revenue Service’s national taxpayer advocate, Nina Olson, estimated that American taxpayers and their hired preparers spend 6.1 billion hours annually complying with the law. That’s equivalent to the hours of 3 million full- time workers.

What might we accomplish by dedicating the work of these hypothetical 3 million people to something more productive?

Big Idea

Persistently slow growth has become the kind of problem that calls out for a big idea, one that can produce steady improvement, not just a short-term jolt. Moving toward a consumption tax would encourage investment in capital, potentially increasing future growth.

Lawrence Summers, writing in 1981 -- more than 25 years before he would serve as Obama’s chief economic adviser -- estimated that “a complete shift to consumption taxation might raise steady-state output by as much as 18 percent.”

Harvard University economist Dale Jorgenson, in a 2003 article, said a U.S. move to a true consumption tax is unlikely because it “would shift the burden of taxation from the rich to the poor.”

Instead, he proposed redrawing the existing income-based system so that that earned income is taxed at 10 percent, investment income is taxed at 30 percent, and every dollar of a business’s income generates a credit against its taxes. Jorgenson estimated that such a system would produce gains “equivalent to 19 cents for every dollar of U.S. national wealth.”

Boosting Output

For a book on fundamental tax reform that I edited in 2005 with Alan Auerbach of the University of California-Berkeley, we looked at literature on different models and concluded that switching to an ideal system might eventually increase economic output by 5 to 10 percent.

Our glaring need for economic growth is why, after so many years of talk, there seems to be a growing consensus behind real improvement to our tax code.

The groundwork for this consensus was established by President Obama’s National Commission on Fiscal Responsibility and Reform, which recommended reducing individual tax rates to three tiers of 8 percent, 14 percent and 23 percent, and reducing corporate taxation to a single rate between 23 percent and 29 percent, down from today’s top rate of 35 percent.

Political realities also argue for progress. House Republicans need to give their animated base a win, of course, and Obama needs a big reform as he approaches his 2012 reelection bid.

It’s been 360 years since Hobbes first called for the elimination of income taxation and wholesale adoption of a consumption tax. Its time may finally have come.

Obama to Stress U.S. Economy, Job Creation, Deficit Reduction

Obama to Stress U.S. Economy, Job Creation, Deficit Reduction in Speech

President Barack Obama

U.S. President Barack Obama. Photographer: Joshua Roberts/Bloomberg

President Barack Obama said tomorrow’s State of the Union address will focus on cutting the deficit, reducing unemployment and ensuring the U.S. can compete with economic rivals.

In a video to supporters that previews the nationally televised Jan. 25 speech, Obama said the economy is growing, corporate profits are rising and more than 1 million jobs have been created in the past year.

Obama said he will be pivoting from responding to the financial crisis that occupied much of the first two years of his presidency to meeting longer-range economic challenges.

“My principal focus, my number one focus, is going be making sure that we are competitive, that we are growing, and we are creating jobs not just now but well into the future,” Obama said in the video, released over the weekend. “I’m focused on making sure the economy is working for everybody, for the entire American family.”

The need to make the U.S. more competitive with emerging economies such as China and India has been part of the president’s focus since his trip to Asia last November.

Sputnik Moment

During a Dec. 6 speech in Winston-Salem, North Carolina, Obama said the nation faces a “Sputnik moment” -- a reference to the Soviet Union’s launch of the first satellite in 1957, ahead of the U.S.

Obama hosted a state visit last week from Chinese President Hu Jintao, the leader of a nation viewed as both an economic rival and a promising export market. Obama also named General Electric Co. Chief Executive Officer Jeffrey Immelt to head a group of outside advisers called the President’s Council on Jobs and Competitiveness.

With more than half of GE’s revenue coming from outside the U.S., Obama said Immelt “understands what it takes for America to compete in the global economy.”

In the video, Obama said that to maintain a competitive edge, the U.S. must stay the most “dynamic economy in the world” and make sure that future generations can “compete with workers anywhere in the world.”

“Now to do that, we’re going to have to out-innovate, we’re going to have to out-build, we’re going to have to out- compete, we’re going to have to out-educate other countries,” Obama said. “That’s our challenge.”

“The president obviously got the message from the November election,” said Senate Republican leader Mitch McConnell said on the “Fox News Sunday” program. “He’s stopped bashing business and has started celebrating business. It’s about time.”

Political Division

Despite the longest stretch of unemployment rates above 9 percent since monthly records began in 1948, American businesses and investors have prospered since Obama took office. The Standard & Poor’s 500 Index has risen more than 50 percent since his inauguration, and U.S. corporate profits reached a record in the third quarter of 2010.

With Republicans newly in control of the House of Representatives, the Democratic president urged both parties to find common ground on economic and security issues “even as we’re having some very vigorous debates.”

“He’s got a real chance to lead here,” House Majority Leader Eric Cantor said on NBC’s “Meet the Press” program. “The question is, did he listen and has he learned from the last election,” the Virginia Republican said.

McConnell, a Kentucky Republican, said on Fox that while his party will look at any proposed increases in education, research and infrastructure, “I don’t think anything ought to be off limits in the effort to reduce spending.”

“Anytime they want to spend, they call it ‘investment,’” McConnell said. “You will hear the president talk about investing a lot.”

Lower Corporate Taxes

Obama may support lowering the U.S. corporate-tax rate and should advance trade deals with Colombia, Panama and South Korea, McConnell said.

“To the extent he actually wants to do some of these things, our answer is going to be yes,” McConnell said.

One of the Obama administration’s biggest challenges is reducing the more than $1.2 trillion U.S. budget deficit. Obama didn’t indicate how he would address the recommendations from his bipartisan deficit commission, including a proposal to cut Social Security benefits.

“We’re also going to have to deal with our deficits and our debt in a responsible way,” Obama said. “And we’ve got to reform government so that it’s leaner and smarter for the 21st century.”


Democratic Senator Richard Durbin said on Fox today, “We can’t be so laser-focused on the deficit that we ignore the obvious, that we are still in a recession.”

Obama’s job-approval ratings have been climbing since the November election in which the Republicans took control of the U.S. House and reduced the Democratic majority in the Senate.

In a Wall Street Journal/NBC News poll conducted Jan. 13- 17, after Obama spoke at a memorial service in Tucson, Arizona, urging a more civil political discourse, his job approval reached 53 percent. Among independents, positive views of his performance surpassed negative views for the first time since August 2009.

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