Russ: This is The Business Makers show, heard here and online at thebusinessmakers.com. It's guest time on the show once again, and I'm very pleased to be in the company of Marvin Zonis, Professor Emeritus at the Graduate School of Business at the University of Chicago, and also referred to as a global political economist, and a studied expert on the global economy, on digital technology, and on the Middle East. Marvin, welcome to The Business Makers show.

Marvin: Great pleasure to be here, thanks.

Russ: You bet. Well, first, we have many in our audience who are young business women and men who have not participated in a down economy before, but we also have many baby boomers who have gone through tough economic cycles. But the times we live in today don't seem like an ordinary down economy. What's your perspective?

Marvin: When you're going down, they all look bad, that's for sure. Well, what you said is very important. You mentioned the idea of the business cycle, and this is clearly another example of a business cycle. But it is also true that this is the most severe business cycle that any of us have seen since the Great Depression. And I don't think the young listeners are going to appreciate just what that meant. And, for example, we complain about an employment rate of 10%, which is, of course, horribly large and millions of people without work, but that compares with an unemployment rate of more that 25% back in the Great Depression. So yes, this is miserable. It's the worse we've seen since the '30s, but it is familiar in the sense that it is another business cycle.

Russ: Okay. I also think, though, that the aspects of us being under this global economy, which is really cool and can be real exciting at times, that seems to add a dimension of stress to this downturn that's unique as well.

Marvin: It certainly is, and one of the reasons for that is that the dollar has become the global currency in which pretty much all global trade is denominated in. So what that means is, as trade slumps, the demand for dollars fall, our own currency becomes weaker, and so we're enmeshed in the global currency in a way that has never been true before. So on the one hand when the global economy is booming and going up, as it was, let's say from 2002 to 2007 or 2008, then the demand for dollar is huge. The currency is strong. Everybody's feeling great. And the reverse is true, and we're in that reverse right now.

Russ: Okay. Well, I mentioned when I introduced you, many of your areas of specialty, including the global economy, and digital technology, and even the Middle East. My goodness, Marvin, it looks like you were preparing for 2009 when you developed your CV.

Marvin: Well, this was a great combination, and I was very lucky because I was encouraged to make certain decisions when I was younger, which have all paid off in this way. So, for example, in 1963, I went to Iran in order to do my PhD dissertation research for a degree in political science, but decided to go the long way around, so spent three months getting there through Japan, and Cambodia, and Vietnam, and India, and etcetera. And I ended up in India and decided to hitchhike from India to Iran, which I did straight across Pakistan, straight across Afghanistan.

Russ: And what, what year, once again?

Marvin: This is May of 1963. And that's when you can do it, and I hitchhiked straight across Pakistan, right across the Khyber pass, the Northwest Frontier province where all the terrorism is going on, through Afghanistan, and into Iran.

Russ: Were you doing this with associates or friends, or were you-?

Marvin: I was doing it with my wife who was an associate and a friend. And those were times when it was medieval, so if someone came by in a truck, they had to stop and pick you up, and take you home, and feed you, and it was just a marvelous experience.

Russ: What an experience.

Marvin: Yeah.

Russ: So have you stayed connected to that part of the world?

Marvin: I have an, uh, I go back there often. And my first task at the University of Chicago when I joined the faculty was to teach Middle Eastern politics, and I did that for many, many years at the university.

Russ: Okay, so that had nothing to do with the business school at the time.

Marvin: It had nothing to do with the business school at the time, but it was a subject which became increasingly important to business students. And eventually, I was asked to join the faculty.

Russ: Well, I find that very interesting, sort of combining your areas of expertise. At one time, probably, oh 15 or 20 years ago, many of us felt somewhat threatened by China. I mean, the magnitude of the populace, the communist government, and we just really were fearful of them. But today we think differently because we, we feel like we're on the planet with them. We're trading with them. They're commerce partners, because we're capitalist partners. Is it possible that that same transformation could happen with the people of the Middle East?

Marvin: That's such an important observation, such an interesting one. The fact of the matter is that we've been afraid of the Middle East at least since, let's say, 1979, which was the year of the Iranian revolution when the Shah, our guy, was thrown out of Iran. And since then, the Middle East has seemed to us to be increasingly hostile. And of course, when 911 occurred, we decided it was completely hostile to us. Well, I think the good news is that we're being seeing various indicators of the fact that the Middle East is coming back or we're coming back to the Middle East. One example of that being that al-Qaeda has really enjoyed no successes in the Middle East. There is no government has joined the al-Qaeda ranks. There's no government in the Middle East that has turned against the United States in that same way. In addition to that, we see, for example, in the Iranian election, as contested as it may be, the shoots of real democracy in the Middle Eastern country with people protesting an election outcome which appears to have been completely rigged. And so, again, another encouraging sign, the Persian gulf, those Shattums, the United Arab Emirates, and all those, are clearly attempting to join the capitalist world and become more important players in our world, rather than trying to set up their own economy.

Russ: Well, that could be real refreshing if it happened, but it seems to me, just so far fetched right now, because they don't seem to be as interested in things that-the free markets, the capitalistic market of America particularly has produced, whereas the Chinese, did seem that way to me.

Marvin: No, that's absolutely right. The drive for material goods in China was absolutely breathtaking. And Deng Xiaoping, the former leader, remember, stood up once and said, "It's glorious to get rich," and that motivated lots of Chinese young people to start companies, which they've done so brilliantly. And I think that, in many ways, the Chinese are very much like Americans, kind of rambunctious and individualistic, and ready to go on their own. And that is different from the Middle East, where materialism is considered a much less important. The acquisition of objects is considered less important, and people, the, um, Muslim faith is deeply held, and that is an other worldly religion. People are preparing for the afterlife much more than Americans seem to be doing.

Russ: So, do those facts make it seem perhaps much more difficult that they will embrace our form of economy?

Marvin: It does on the one hand, but on the other hand what's so interesting about it is, those are the guys with the oil. And so they're selling this by the tens and tens of billions of dollars, and so they end up with dollars, and they got to do something with the money. And they love what they can do with the money.

Russ: There you go. Well, I'm talking with Marvin Zonis, Professor Emeritus at the Graduate School of Business at the University of Chicago. And we'll be back with more with Marvin after this. You're listening to The Business Makers show, heard and online at thebusinessmakers.com.

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Russ: This is The Business Makers Show, heard here and online at thebusinessmakers.com, and continuing on with Marvin Zonis, Professor Emeritus at the Graduate School of Business at the University of Chicago. Well, as I've already alluded to, Marvin, your areas of specialty are just so diverse and broad. Tell me about your interest in digital technology, which I think has been an area of focus for you for quite some years.

Marvin: It really is true that it has been, and it was another one of those very lucky breaks. Turns out that I had a relationship with the CEO of a large consulting firm which had gone on for several years, and out of the blue one day this guy calls me up and he says, "You know what, Marvin," he said, "I've been getting all my guys telling me all about the Internet, and what our strategy ought to be for the Internet,"-this was in the early 1990's-"what we should be doing, and how we should be dealing with web." And he said, "I don't know what to make of this, because they're all giving me different ideas. You should do a study for us on the Internet. You'd be great." And I said, "Wait a minute. I don't know anything about the Internet." He said, "That's it. Start from scratch," he said. "I don't know anything about it either." This was, remember, back in 1991 or something.

Russ: At the very beginning.

Marvin: And so I said, "Listen, I'll do anything you ask me for, but, you know, I don't know anything." Well, it ended up as a major project in which I hired 50 people, because he wanted to know about the Internet in each of the industrial sectors to which his company offered consulting services. And so he had this massive project in which I made a huge report, which ultimately became the Internet offerings for this company. And since I had gotten so deeply involved, I decided that the fun thing to do would then be to offer a course at the University of Chicago on technology, and business, and digital technology. And so I offered the first course at the business school at Chicago on digital technology and business, and that helped me stay abreast, and I really got involved and got mobilized. So that was the beginning and it's just continued since then.

Russ: I contend often that we still tend to under appreciate the magnitude of the change in the way that we can exchange information, the way that we can work with information, and people just seem to except it and take it for granted nowadays. But, my goodness, it's very easy for me to look back 20 years and think about how different it is.

Marvin: You know, I will never forget how electrified I was the first time someone said to me that there's an entirely new law of ownership coming through digital technology. And I said to this fellow, I said, "What do you mean, a new law?" And he said, "Look, in the world of atoms, if I give you something, you have it and I don't have it. But in the world of bits, if I give you something, you have it and I still have it." And he said, "We're going to create an entirely new structure of ownership." And look what's happened to the record industry, and look what's happening to the book industry, and look what-etcetera. And so, this is a transformative event, which the end of which isn't even close to the way we're organized our society and economy.

Russ: And it seems to have played such a huge, and continues to play such a huge role in the global economy.

Marvin: When the Soviet Union collapsed way back when, I decided that somebody was going to make billions of dollars out of this. This was a really big event. And so I decided, why not me, right?

Russ: Right, exactly.

Marvin: So, well, unfortunately, I never did make billions of dollars, but I did start a company with a former student of mine from the business school who was a Russian immigrant to the United States. And he had been a computer programmer in the Soviet Union. So we started a company, which was a software outsourcing development company. We hired Moscow software engineers and did projects for American companies. Well, it was the typical deal. It was all based on digital technology, because what we did, was we brought some of these Russian guys to the United States. So they would work from 8:00 a.m. in the morning until 5:00 p.m. at night in the United States, ship everything they had worked on to Moscow at 5:00 p.m., which was the beginning of the next day for them. So while we slept, we got a whole other group of guys working on the thing. At the end of their day, they shipped it back. It was our morning. So we got two workdays out of every single workday in our own country, and the clients loved us.

Russ: All right, I'm talking with Marvin Zonis, Professor Emeritus at the Graduate School of Business at the University of Chicago. And we'll be back with more with Marvin after this. You're listening to The Business Makers show, heard here and online at thebusinessmakers.com.

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Russ: This is The BusinessMakers Show heard here and online at thebusinessmakers.com. And continuing on with Marvin Zonis, Global Political Economist. Well Marvin, per your discusion about your business in Russia, I've already compared China to the Middle East, particularly the way that China seemed to gravitate to capitalism and do it so well. To some degree, we see that happening fairly significantly in Russia, but it, it just seems different in Russia.

Marvin: It sure is different, because what we see in Russia is a state which continues to believe in dominating the economy, both in terms of political power, but also in terms of money. And so we have a very unusual system in which there is private ownership, but it's basically distributed among a few people only who are in turn, controlled by the Kremlin. And the danger, I believe, is that Russia will turn into another Saudi Arabia. But that's the basic prediction that I would make, is what's the future of Russia. Answer, Saudi Arabia. That is a country that lives off oil and gas revenues, doesn't have a vital market economy. When oil prices are high, people are feeling good. When they're low, they don't feel good. But the state is all powerful, because it gets the revenues from the oil and uses the revenues to control the population. So I'm very distressed by the course that Russia has taken and don't see it as a vibrant democracy in the future or market economy.

Russ: Wow, that's interesting. Now, I would also say, I think, you've opened the door now when you said a state that dominates the economy. And you are known as a political economist. What is your perspective on what our government is doing nowadays in the private business world, making the investments, or propping up bankrupted companies, and also trying to stimulate the economy in directions that a lot of people think are, are not very stimulating?

Marvin: I'd like to get bailed out by the government too. That's a great idea.

Russ: Exactly. We tried to apply ourselves.

Marvin: What's wrong with us?

Russ: That's right.

Marvin: No, I, I am very worried about it. I have to be serious. This is an issue that you raise which I think is crucial to the long term well-being of our country. And the basic point that I would make is, if you think about what drives an economy, and the answer is there's really only four sectors of an economy that we can understand. One is households and individuals, one is business, one is government, and the other is exports. In other words, get some foreigners to buy our stuff. So, what we've seen is that the household personal consumption level in the United States has risen to about 72% of the entire economy. So 72% of everything in our economy is consumed by you and me, and people like us. Business, and government, and a little bit of exports is the rest. Well, what happened in a recession was that people like you and me decided we couldn't afford to go out and buy those cars on credit and get a new house on a huge mortgage, so we stopped buying. And it's falling from 72% to 71%, 70%, 69%, and the question then becomes what's going to make up the difference?

Marvin: What's going to re-stimulate the economy? Because it's not going to be me buying a new car anytime soon. So the government says, "Well, how about business?" And business is, "Are you kidding? We're not going to invest in new machinery, because no one's buying our stuff." Exports aren't selling, because everybody else is in a recession, so the government says, "We'll have to be the buyer of last resorts." So the government has stepped in. The government is spending all this money to stimulate the economy, and you could say what's happened is we've socialized consumption. Well, it's fine to get over this hump in the road. But the question is, can we get the government out of the economy once the economy picks up again? And if we succeed in doing that, what's going to replace the consumer up at the 72% level? Why do we have to do that? It's because the 72% was only possible with massive debt. Each one of us took out the credit cards, the mortgages, the loans, to buy all this stuff. We're not going to do that again for a long time. We've gotten burned by all that experience, so we're not going back to 72%. Let's say, we're at 68%. What's the 4 percentage point difference going to be made up by? That's our dilemma.

Russ: Well, people talk a lot about hey, when is the economy coming back? And I sort of certainly am in synch with your comment about we were almost living in a artificial economy for quite some time that coming back doesn't necessarily mean that it's not going to come back the way it was, because we're not going to be giving away mortgages anymore and credit cards. Is that correct?

Marvin: It's not coming back the way it was. And I think people need to trend their expectations of the good times and cut back on the champagne and switch to beer again, and things like that, because the boom in the economy is going to take a very long time, because everyone's going to be more cautious.

Russ: Okay, that wraps up the radio broadcast portion of our discussion with Marvins Zonis, professor emeritus at the Graduate School of Business at the University of Chicago. But there is obviously more, so just go to thebusinessmakers.com and go to the guest page with Marvin Zonis and you'll find a WebXtra there, a continuation of our discussion with the global political economist. You've benn listening to The BusinessMakers show, heard here and online at thebusinessmakers.com.