it’s so good it’s so good to be here and I’m glad the music is gone I had a wonderful experience flying one of the regional airlines and India they had music on when everybody was loading which I’m used to that they didn’t turn it off where we’re flying so I had a few words with the stewardess and that worked for about 15 minutes and I decided you know I could get myself in some real trouble if I start acting like an American in an airplane about 40,000 feet above India at this putting the Bose headset to turn them up a little and hope my hearing doesn’t go but news nack in an airplane was fascinating we’re gonna have a conversation there’s a lot going on in this world that is stunning and my job in the short time that we have is to give you a sense of why I’m dressed at least partially in black Tezz stuff is happening oh this is getting way too loud who’s controlling this if I can hear myself I’m worried okay stuff is happening that is really important and what I want you to be free to do is if I say something if you see something in the slides you said what the heck is that raise your hand yell scream do whatever you want to do and let’s have a conversation because it’s not about me being the font of all knowledge it’s about us having a conversation about something that is significant and important we’ll see if I can with the clicker I killed everything with this one it’s wonderful let’s try this again this is for wonderful picture of Hurricane Katrina a category 5 hurricane and as I was thinking about our talk today I realized I needed to adjust my caption for this line we are in the eye of a hurricane it is a chic a strategic inflection point hurricane but it’s a category 7 hurricane if you know anything about hurricanes which means you’re from Houston ok category 5 is the highest number right and I can’t give a category flat it’s there’s no more Galveston alright and they got hit by a floor and there’s not much of goes in left category 7 is it completely restructures everything and from a business standpoint from a political standpoint from an economic standpoint my friends we’re in the category 7 hurricane and the good news is we are right now in the eye it’s kind of like that thing on top of you if you know anything about eye is what you know is it seems calm it seems quiet it seems like nothing is going on and if you look to the right or the left all hell is breaking out and eventually all hell is gonna come sit on top of your head so it’s not a time to put your deck chairs out put on your suntan lotion and say let’s kick back and have a long neck it’s time to say what am I going to do because this eye is going to pass over and when it passes it’s going to hit and it’s gonna hit hard and the eye is china and india which are two little countries that represent 40% of the world’s population now for those of you are not familiar with the term SI p strategic inflection point guy named Andy Grove came up with it he probably didn’t come up with it if he popularized that about mid 1990s talking about his wonderful laid-back kumbaya fuzzy company called Intel the title of his book about Intel was only the paranoid survive anybody here work for Intel nobody’s willing to admit that I have students who work for Intel alums who work for in town they say there’s a paranoid company to this day in spite of the fact in the late nineties that they one company controlled 70% of all the return on investment of the entire global semiconductor industry they’re paranoid they’re convinced if you’re not tougher than anybody else they’re gonna disappear and so it’s a teaching inflection point that Andy talked about is a time when all the rules simply don’t work anymore everything that you took for granted doesn’t make sense and competitors that you’re never worried about our kickin your you-know-what and things that you did that used to work aren’t working it’s like coming home to your spouse finding out that they are not who you thought they were they’re of the opposite sex and they are leaving you now I can see in some cases that would be really a good thing yeah that’s fine dear goodbye you know there’s no there’s something wrong with you but for some of us that would be a real shock that’s what strategic inflection point is everything has changed new things are happening and you don’t have a clue about what to do and your job is to figure out what the heck is going on

and how do I just I gave a speech couple years ago and this is a nice week in Michigan on shore of Lake Michigan a little small town I’m still really interesting a column at the beginning it said most Americans didn’t learn much history in school and they’d forgotten what they learned so I’m going to spend a few seconds talking about history because it to understand how significant this si P is as category seven hurricane is you need to have a sense of history and the world war two about eight the robbed where you going I mean I just got started Adams yeah right okay the bathroom I understand it’s fine okay he’s not even a student you can’t get away with that and eighty million people between eighty two hundred million people died that’s a lot of people what’s significant is the overage or ‘ti of the people who died during World War two were civilians on our side to get a sense of how significant that is if you were to put it in 2010 terms we’re talking about a death toll close to 300 million people 300 million people in 2010 terms every single factory of every single major competitor to the United States have been destroyed either by themselves or by us so there’s a short period of time when we were the only game in town and we started to believe that because we were the only game in town that’s because we were inherently better than anybody else but you guys are McCombs grads and so you understand what happened you destroy the infrastructure of your component your your competitors what happens when they rebuild they have new infrastructure than you okay and because they had the crap kicked out of them and a whole bunch of people died they’re not here there’s a hunger that exists and so eventually we ran into a world where we had more competition second thing is and if you’ve taken any of my courses and some of you have and some of you actually came up to me and apologized for not taking my courses and I try to tell you it’s alright it’s too late there’s laughs there’s life after doggett you’re gonna be fine the most dangerous word in any language is the word assume or assumption because if you do work overseas and I’ve traveled to 43 countries worked in 28 countries you quickly realize that there’s so many different ways to do the same darn thing you have so many different assumption sets and I’ve learned that in the past nine years because I married a wonderful woman McCombs grad who’s from China born and raised and educated in China and more than once when we’re on the verge of having a conversation I have to ask myself is this an issue where we are getting ready to disagree on something of substance are we literally looking at the same thing and seeing something fundamentally different which by the way even if you’re married to somebody from your same background it’s a really good way to slow things down before they escalate and there been a number of situations where I realized that the way she looks at the world it’s so fundamentally different than the way I look at the world that we can look at the same darn thing and see red and green and both believed were right now my previous wife who’s American we had the same problem but she had no excuse one of the assumptions we made at the end of World War 2 and until quite frankly the mid nineties was that there are things called third world countries lesser developed countries they were poor they were backward they were corrupt they were run by idiots and they never ever would be anything other than all of the above and that last thing we’d have to worry about was competing with them on the basis of innovation just wasn’t gonna happen that was our assumption in fact we think of Kyoto the great greenhouse gas agreement it wrote into the agreement that there are handful of countries which were developed developing countries that simply could not be required to live up to the same standards of the developed world because that would dam them forever the poverty little country is called China and India and Mexico and Nigeria and Indonesia and Brazil always to be poor and that’s the that’s the late step late – second thing that was going on was a little thing called the Cold War which now seems almost hard to remember but for those of us who are older and my hair is finely grained where those of us remember there was a time when we were worried about Reds under the bed where once a week we had our practice in elementary school or middle school get into the table there’s

a fault there was no airway drill the Soviets are getting ready to nuke us if you get under this table you will survive now the logic of this never made sense to me but you know I have enough trouble with my teachers so I got under the table anyway but there was a time when the number one thing you would buy was not a Blake house it was a fallout shelter that was a big business fortunately it’s not a big business anymore and so there’s something called the Cold War and we told the world that the commies were wrong and we were right our value system our way of life was better and for decades we did whatever we needed to do to let people know that our way of life was better and guess what they hurt us not because of what the politicians were saying but because of what Hollywood and CNN we’re doing CNN celebrated his 25th headline news anniversary a couple years ago and again we take for granted the way the old word used to be the old world of rushing home for the 5 or 6 o’clock p.m. news because if you didn’t see it you wouldn’t know what it happened in the world and then CNN Headline News came out and said me and get home whenever you want to in 30 minutes we’ll tell you what you need to know from our point of view of course well that was revolutionary here it was even more revolutionary overseas because at the same time CNN was coming out you started to have satellite communications and rogue satellite dish starts showing up in country of the country the u.s Information Agency had always in the front of its buildings CNN so that people from country X Y & Z could see CNN and people were studying the see a world that was different they’d been told in the communist world in the socialist world that America was a trash pit that there were race rides every day and that everybody was living under trees or under bridges and they saw that was not the case and whether you like Desperate Housewives or not most people didn’t care about the storyline what they cared about was the places people were living and they compare that to where they were living they said these people may have no morals but their houses are really cool that was our message to people and it was harder and harder and harder for the folks on the other side to perpetuate their lie that their way of life made more sense because it didn’t you looked at the images you looked at where you were and you said this sucks and then what happened suddenly the Soviet Union ceased to exist the Cold War ended and I to this day think it is really amazing irony that Mikhail Gorbachev decided to end the existence of the Soviet Union on Christmas Day a state that said there is no God other than the Khan his party but as we all remember our mothers if they cared about us warned us be careful what you wish for as you might get it or you might marry it you know be careful what you wish for I got a couple laughs okay I have a really bad joke but I can’t tell you it’s a bad joke if you want to talk to me at the end of this I’ll tell you what the bad guys it’s amazing David maybe if I get excited I’ll tell you at the end be careful what you wish for because we told people our way of life was better we proved that our way of life was better and whether or not there are people in this country who think our way of life makes sense the rest of the world said this is pretty cool and now they decided they wanted it so what does that mean it means a strange thing happened really 2001 it’s a wonderful year if you got out early like Mark Cuban whether you loved mark or think he is the most ridiculous person on the planet he figured out the market was giving away the turn and he got out at the top how many of you got out at the top of 2001 I remember always happened I was in Tokyo teaching during the summer and I said that looks like we’re having another minor correction I’ll ride this sucker out and it kept correcting its way all the way down I kept riding all the way down eventually I said you know this is painful what’s even more painful is taking this paper loss and turning the to real loss I’m still waiting for this paper loss ensue to turn into something else but kuben got out right in the middle of this Rob welcome back right what did they say about you right in the middle of this goldman sachs comes out and says oh by the way guys your portfolio’s are going into the tank and we want to tell you that there are four countries that are going to determine the future of the 21st century Brazil Russia India and China and people said you know if you weren’t goldman sachs we’d say yeah good grief this is crazy stuff and for those of you who are

educated in texas public schools the four countries i talked about are in green I kid you not I teach in all of our programs I was in I had a student in our Executive MBA program and I asked him to pick out any one of them and told me tell me which one he was picking out the green ones he couldn’t do it I kid you not his nickname immediately was mr geography and he learned a lot of things and one of the things he learned was the name and location of every country in the map because at least once every year every week I’d say well how about this country and he finally got he’s he’s a really nice guy just was geographically challenged a little small one and the bottom is Brazil okay this is for those of you you’re not willing to admit you have no idea the one that looks like it’s pretty big that like this that’s India I just I was there this time last week it’s kind of amazing country it’s one-third the size of the United States with four times as many people one-third the size with four times as many people it starts to give you a sense of density and that the easiest way to get a sense of what that means I don’t think I have a pointer on this is between India and China China is that thing over on the right there’s a little country called Bangladesh Bangladesh is slightly smaller than Iowa and it has a hundred and fifty six million people Iowa has three million people Bangladesh has 156 million people has at the population United States in a country that’s slightly smaller in Iowa and half of it floods every year well different world then we have China which is the same size United States is four and a half times as many people and Russia that’s almost twice the size the United States with a population that’s declining as I speak because they are just drinking themselves to death literally the mean the the age for Russian men now is 52 expected life span for Russian ministers because of vodka most demographers think that Russia is going to lose a third of its population because the people just can drink themselves to death and these were the four countries that goldmans that are gonna do it and what makes it significant is look at these Thanks this is for these four countries first one is Brazil sixty four hundred percent inflation 160 100 percent inflation I had some students here in Brazil during that time and I asked them what was it like to be in Brazil when you had 60 100 percent inflation this is real simple it was a cash society we think about trying to go to a bank to get a mortgage in an environment where you have 60 and 100 percent inflation I will give you a loan for seven thousand percent interest for the first year it’s an AR M it’s gonna reset in six months you couldn’t get mortgages everything was in cash and they said it was literally so crazy that if you walked into a Walmart or a Kmart or Sears ya bought what you could at the front of the store because if you didn’t by the time you went to the back of the store and came back the prices had changed while you were in the store 60 1/2 percent inflation so we don’t want to think about what Zimbabwe is dealing with there’s a billion percent inflation whatever it is so that’s the first candidate from Goldman second candidate was Russia which Soviet Union disappeared they tried to go from communism to capitalism overnight had a bunch of crooks that stole as much as they could and then he had another bunch of kooks there were former KGB officers that stole back from them so you had a kleptocracy called russia and then the third country was India India was two weeks away from bankruptcy in 1991 and Argos of nineteen one two weeks away from bankruptcy a guy named Mahmoud Singh came in and he said I’ll be finance minister under one condition you allow me to rip up this British socialist approach to the economy so we can move towards a more market-based economy he’s now the Prime Minister of India and turned the country around and the final country is of course China now we all think we know about the Cultural Revolution but if you’re not Chinese you have no I the Cultural Revolution was ten years of absolute out of control anarchy the Coache revolution the first few months so that every person in this room if you’d been Chinese and China would have been an enemy of the state because you were educated every college was shut down every school was shut down every library shut down anything that represented the cultural heritage of China had become one of the four old was an enemy and the place went berserk for a decade at the end of the ‘coach Revolution China’s economy was has so been so battered it had half the GDP per capita of India half so these are the four candidates they’re gonna shake our world first thing is that what Goldman was looking at was the rule of large numbers and if you look at this it’s from the CIA World Factbook which is a great resource the countries with the first letter in red by the way or the for BRICS it’s big countries and India

and China have 40% of the world’s population two countries remember our assumption was these two countries would be poor forever 40% of the world’s population before forever and the conversation if you look at this list what strikes you immediately is that with the possible exception of Russia which claims it’s a European country over the Europe Europeans don’t claim it there no European countries on this list know and the assumptions that we made about who was going to be numero uno ignored population it also ignored statistics so if you look at this we see 42 percent of the world’s population are in these countries 22 percent of the world’s land mass are in these four countries but most importantly if we look at the bottom almost a quarter of all GDP economic activity in the world is in these four countries now you might ask what’s the difference between purchasing power parity and regular inflation or regular exchange rates and the drill simple it’s a hell of a lot cheaper to live in Austin than to live in San Francisco purchasing power parity is how much does it cost in a local currency to buy things that are produced locally and Austin is cheaper than San Francisco and San Francisco is cheaper than Shanghai but most people don’t live in Shanghai which is why purchasing power parity means the Chinese economy is much more vibrant than most people realize in fact this is what Goldman predicted and this the data that the CIA confirms that these countries these four countries which are basket cases now are outperforming the United States by one point nine trillion dollars and the gap is getting larger when I first did this slide the number was four hundred and forty billion dollars two years ago now it’s one point nine trillion dollars and the gap is getting larger but more importantly according to our CIA not Doggett’s dia but this Central Intelligence Agency if you go to the World Factbook the second largest economy in the world using PPP which they think is the most relevant way to compare economies is China today and the fourth largest economy in the world is India today today now why is that important these are growth rates if you look at these growth rates with the exception of Russia drinking a lot of vodka is not good for your economy comrade if you look at China and India those their economies are on steroids right in the middle of what the worst economic downturn that we have ever seen since of the Great Depression and so we have an economy in China that’s about half of our GDP you have India neck-and-neck with Japan having passed significantly Germany the largest economy in Western Europe and you have Brazil now in the top ten and Mexico even with all of its problems being a major economy larger than Spain larger than South Korea Mexico when the government of Mexico wins the war with the druggies which either is when California legalizes everything which they’re trying to do right now or you know the military solves the problem the Mexican economy is going to zoom again the Mexico will be a top 10 or higher country now why is this significant here’s the thing that you need to appreciate goldman sachs has said very simply that if China continues to grow at 5% a year by about 2035 it’ll be the largest economy in the world now it’s gem said I take students to China I’ll be taking our evening MBAs to China at the end of April I’ve been doing this with our students since 2003 we go to the US Embassy we talk to the foreign commercial service first secretary and I always ask the same question the Chinese government is predicting growth somewhere between 9 to 10 percent a year for the next two decades do you believe that number and since 2003 the conversation has always been the same we don’t believe that number my next question is you have eyes and ears in the US government what are you telling Washington and they’ve said since 2003 we believe that the Chinese economy can grow by 7% a year for the next two decades now if you’re a banker you know the rule of 72 you know 7% a year for the 20 years is forex an economy that is four times larger than it is today we are starting to get our arms around China being a major player try to get your head around the Chinese economy being four times larger than it is today because that’s what our embassy in

Beijing says is highly likely and if Goldman is right by 2050 the Chinese economy will be 9 times larger I don’t by the way China’s not alone the Indian economy well let’s go back and ask the simple question before we get there so there are two ways to look at it you can say that sucks remember the good assumptions these are gonna be poor Chinese running around in Hatun in rice fields and at 9 X I mean even if Goldman is off by 50% at 4 X that’s massive well I’m an entrepreneur I’m a capitalist and I believe in this country and I think this is the greatest opportunity we could possibly have ever seen because we have this explosion of a whole new market for the first time and I have some numbers I’m gonna share with you in a few minutes that give you an idea of how massive of an opportunity this is I’ll tell you a little secret if I can see it everybody else could see it and so it’s real simple this is like the good old days back when they discovered gold in California if you I’m from California unfortunately but I’m front I’m from California and here’s the history and 1845 the total population of San Francisco was 750 people the year after they discovered gold it was 7500 people and they kept going north so we’re at a time strategic inflection point category 7 hurricane either hurricane where all hell’s getting ready to break out in terms of opportunities for entrepreneurs opportunity for companies that are serious about making money but it’s not going to be something that we can just do this because we want to do it it’s gonna be a fight but to fight I think we can win India also is growing Goldman says that by 2020 they’re gonna be neck and neck with the United States for the second largest economy in the world we will be number two and they will be right breathing up or you know what and what makes it interesting your little clicker is that Goldman is predicting that the Indian economy will be 12 times larger than it is today 12x that’s a big number again they can be off by 50% 6 cents 6x with 1.4 billion people is still a large number what are the opportunities it’s real simple so let’s talk about that we have never in the history of this planet seen a decade where 750 million people became members of the middle class for the first time never it is happening right now in fact the numbers are moving as I’m talking in China alone the number of people in the middle classes over 100 million right now and Goldman is predicting it’s going to be 750 million for the four countries well here’s the deal Mackenzie says for China alone the number of people in the middle class by 2020 will be 700 million people China alone we’re talking from rural blue-collar peasant to middle-class for the first time in the history of their family DNA in the next decade now if you can’t figure out how to make money with seven hundred million seven hundred fifty million new members of the middle class in ten years let us know and we will take your degree back as we’ve never seen that opportunity before I mean think about what happened an after world war two my got the crap kicked out of them a little country 125 million people ended up becoming a massive market kicking the butt out of you-know-who Japan’s a compared to these two economies I remember I was in San Francisco when Nixon started going to China and opening up relationship sign and there’s a little little editorial in the San Francisco Examiner Chronicle and asked a very simple question what the world look like this is in 1972 or 73 74 what would the world look like if China the People’s Republic of China ever becomes half as a fish in this Taiwan maybe I said yeah be smoking a lot of good stuff when that happens well that world is coming and it’s going to happen in our lifetime and coming back from India I had a great time in India and if you go to India you’ll understand we’re getting ready to say yeah I love it and hate it at the same time you cannot be neutral when you’re in India there’s some things that just blow your way the quality of their best people their businesspeople is Dionne amazing you just sit there and all you want to cry they’re so impressive

and the quality of the infrastructure makes you want to shoot somebody okay depending on where you are it’s just an amazing fascinating place but it’s on fire if you go to China you see it’s on fire and the difference between India and China is a very simple difference it’s a difference between Baylor and UT India people constantly say it’s a lot better than it used to be and China people say there’s only one standard that we are marking to market are we better than the US Japan or Germany it’s better than it used to be are we better than the best what happens when you say being better than the best is the only standard you’re going to judge yourself fine you become a UT if you judge yourself by being better than you used to be become a bailiff now Baylor is a good place it’s a good school have good students but their football team loses well guess what we’re in a big battle and it’s not about football it’s about the quality of life this country is gonna have our citizens are gonna have we’re gonna have we’re going on our businesses are gonna be competitive and we’re not competing with Baylor and I’ll tell you one thing India’s changing we’re starting to understand there we got a chance to see some of the best companies in India indigo Airlines Mahindra and Mahindra you know Infosys and they mark the market against the best in the world and they’re starting to have a big impact on the economy so you’re gonna have two little countries with 40% of the world’s population a fifth the world’s land mass saying we’re coming after you the only question is what are we gonna do now there are some people who said what we’re gonna do is say it’s unamerican they can’t do that that is wrong and we’re gonna put up some walls well I have a data point which is not on the slide because I promised I wouldn’t put on the slide but it’s a data point from one of our alums who used to work at one of the largest companies on this planet I will not mention any names you can probably figure out what the company was and he said his intelligence people when he was working at this company showed him evidence that Chinese and Indian companies have contracts that will give them control of half of world’s natural resources by 2012 and for those you that are mathematically challenged that’s in two years half the world’s natural resources control my contract that sounds really dramatic sounds unbelievable until you spell Africa and South America if you go to Africa you’ll see there are more Indians and Chinese than anybody else and you see the same thing in South America my wife and I were in Brazil in Argentina a couple of Christmases ago and it’s amazing how many small restaurants and grocery stores we found in Buenos Aires and the Rio and some of the outlying cities they’re run by Chinese we didn’t see very many run by Americans we saw a lot run by Chinese it’s a big thing that’s happening we’ll talk about a little bit more oh by the way to last a little bullet point what’s the last time anybody has seen three and a quarter billion new members in the middle class now if it wasn’t for the fact that came from Goldman you’d probably get end up saying this guy’s crazy we’re leaving but Goldman says it and I say it so one of us it has to be right let’s keep going remember when the g7 used to be the big dawgs the largest counties in the world and 2006 they were by the end of 2007 China alone had more cash in the bank than the entire g7 and it gets more interesting depending on who you talk to the number for the Olympics was 40 to 65 billion dollars that’s the official number if you look at ancillary expenditures by people in the private sector the real number is a quarter of a trillion dollars two hundred fifty billion dollars and CBO’s people said why would that make sense and the answer is very simple there’s a branding exercise my wife and I happen to be in Beijing the day Beijing got the award of the Olympics and it was a fascinating experience because I saw country transform overnight we talked to over friends before the announcement was made we said what do you think and they all to a person said we won’t get it because they don’t like Chinese people we should have gotten it before they don’t understand CNM in square and we won’t get it this time those bastards and you know the city was kind of depressed and then we were at one of her friends recording studios and they said Beijing and everybody was yelling and screaming I said stop open the doors open the windows cuz we’re downtown Beijing and for two minutes the entire city a city of 18 million people was deadly silent and to this day I’m convinced what was going on was people were saying they said Beijing no they didn’t it should be they couldn’t say Beijing it said Beijing two minutes late everybody said they said it let’s do it and the place erupted and we did what you do in Beijing when something big

happened you go to tournaments where we were one of the first 500 thousand people to go there and we learned something about China which is very interesting you know they want the Olympics you have a half million people in chairman square another two million people trying to get into the square which of course they were not allowed to be and so the leaders of the government came and so I immediately thought a Bill Clinton Billy do if he had a half million people to talk to and we just want something big he started talking they came out they looked they said nothing and they waved and they went to the end of the Forbidden City and they waved they went to the other side they waved when they left I said this is very interesting but as I talk to people in the next seven years before the Olympics occurred they said our goal is very simple we know every person outside of China has a vision of what China is like and we’re gonna blow their minds and if you watch the Olympics you said oh my this is not what I expected but here’s what’s important and this is an important thing for you to understand there were three audiences for the Beijing Olympics and of course we as Americans believed we were the number one audience know the first audience was the Chinese people themselves the statement was be proud of who we are and where we have come and I must tell you my wife and I were in Beijing for the Olympics and all over the city all over the country people were just I mean they were electric they were so proud that’s the first audience the second audience was us in the West the US Western Europe we’re here we’re not going anywhere but the third audience was an audience most of us never thought about it was the so called third world and the message to the third world was you remember where we were in 1976 half the GDP per capita of India we are here and we are a third option screw the European screw the Americans you want to do business you can do business with us and we’re flying back eyes we’re sitting next to a doctor from Jamaica and she couldn’t stop talking we’re a couple of 20 minutes about how amazing it was that this third-world country should have been a basket case could have done what they had done that was the message and for a quarter of a trillion dollars they felt that was a good investment which kind of is interesting because after that last numbers I’ve been able to access after spending 65 billion on the Olympics officially a quarter of a billion trillion unofficially and now a two point four trillion dollars in cash today China what does that number look like if Goldman is right if our Embassy is right and in 20 years their economy is four times larger than it is today the one thing that’s absolutely clear is that it is time for us to stop playing games we got to be very serious about the fact that a new A&M as a merge from the Miss except they’re four and a half times larger than a.m. and they’re bright so that’s really scary and if any of you or am undergrad you came the business school because you came but you saw the light that’s fine you know what I’m talking about it’s a great place if you don’t want to be distracted College Station so here’s the second thing that happens and you know I get way tired and I hear people saying you know these damn companies are taking jobs from America and they’re going overseas and you know that’s an American yeah we’re supposedly capitalist we believe in the free market and what is capitalism free market said you go with a damn market is well look at these numbers I’ve got seven hundred fifty six million people using cell phones in China today that’s a big number the population is almost 1.4 billion people that’s barely above half of the people in Finland the penetration rates 112 percent I know some of us have more than one cell phone so it’s a huge number and to give you a sense of how significant it is when you throw Chum India in it this is the number I got when I was in India a week ago in January every day of the month six hundred and twelve thousand people signed up for cell phone service for the first time every day every day you take India and China you’re looking at a million plus people signing up for cell phone service every day of every week of every month of the year and oh by the way you have about 1.1 billion Indians and Chinese who still don’t have cell phones and so if you’re in the cell phone business where do you have to be you have to be where the action is and anybody that says that’s unamerican or on european as an idiot they don’t

understand what’s going on you cannot survive in this industry if you’re not there if you’re in a PC business where do you have to be you’ve probably heard that Applied Materials some New York Times that headline article Applied Materials the chief technology officer has moved to Beijing and they’re building I have some slides on their building their largest rnd plants in in China it’s because they’re an American they don’t like Texas no it’s because they’re practicing what we told the world was superior that capitalism and free markets and compete in the basis of where the markets were was better than centralized to control the economy that’s what we preached and a lot of people are now saying and it’s not what you’re practicing anymore let’s see under george w started nationalizing the banks the financial sector and these republican and then you got the democrats and they got even more crazy so yep preach free-market and you practice socialist well we believe free market works so that’s what’s happening and these numbers are significant and this last one is true at Motorola’s headquarters in Beijing they said because of the dominance of China in the cellphone industry we make all of our ads with Chinese firms in Beijing and then outsource them to American firms for localization there’s no other market in the world where you’re looking at a million people a day signing up for the first time yeah we’ll keep you awake I just mentioned that here’s a picture of what they’re doing is Xian Xian is typically known for the Terracotta Warriors it’s also the headquarters of the Chinese space industry Chinese have a very simple goal they announced it back in the late 1990s they’re going to put a man up in the space by the turn of the century which they did they’re gonna put a man in orbit in the first decade which they did they’re gonna put a man on the moon in the next decade we’ll see this decade but here’s what’s really interesting they said you know you Americans you know you put a man on the moon you went there a few times you said I’ve been there done that we’re not going back they have an ounce now once they can get a man on the moon and bring him back safely their next goal is to put a colony on the moon because the People’s Liberation Army says their goal is military technological parity with the United States by 2025 now my friends in the Army say it’s not possible when I tell them that what happens if they have a colony on the moon that they can supply they said possible because what do we know if you can put stuff up on the moon and supply colony you can also bring little things they go boom at night you can take them in a little go go-cart go heart taking around to the backside of the moon launch them the big bungee cords so the first time they show up its hello we’re getting ready to radiate Washington DC our Star Wars system is based on a very simple assumption that when Rockets take off from the earth there is a plume the satellites see the plume and then acceptors go so the two requirements they have to be Rockets well if you’re in the backside of the moon literally you’re gonna launch something into space with a bungee cord and as far as satellites the Chinese demonstrated three years ago that they can knock out satellites we said that’s not fair and they said next okay so there’s a war going on and right now with this war going on these guys are dead serious about putting a collie on the moon being able to supply the moon because of all the financial challenges we have in this country you’ve announced that we’re gonna cut and ask this program and we’re not going to moon to the moon anytime soon that’s really bright bipartisan stupidity we’re in a race with countries that have bought into our way of life bought into our value system and they’re playing by a rule book at a time when we’re tearing our rulebook up it’s the most amazing thing I’ve ever seen showed you the picture most of the graduate students in China are chasing this area of course China will leave everything and the person who said that is that young lady working for Applied Materials sounds like wild horns right we’re gonna own the Aggies oh you sucks and Baylor why would you go right and now we have a country of 1.3 billion people that’s half the size of our economy that’s growing a hell of a lot faster than we are that has people who think like us because we sold the world that our way of doing business made a lot of sense we should be proud of our self don’t you get off our butts and run fast now this is give you an idea of how significant it is I do a lot of work in

energy I have a lot of clients in the electric utility space and one of the things I’ve been looking at is clean coal there’s a big debate Morison to see it as to where that clean coals my oxymoron and China they have decided they’re going to own the clean coal world and there’s a company an American company is gonna be paying the Chinese a hundred million dollars to import Chinese technology to the United States in clean coal and have Chinese workers come over to the United States and train our people on how to use Chinese technology right what does that world look like if China is 2 3 4 X larger than it is today and the answer is it’s a greatest opportunity that we as business people have ever seen but we have to work hard to take advantage of it because it’s going to happen where we like it or not and the put in perspective let’s run the numbers it’s from the TIC report from the US Treasury and may of 2008 China lent us 500 billion dollars I have trillion dollars is now up to almost 900 billion dollars but if you add Taiwan and Hong Kong which are basically captive it’s about one almost 1.2 trillion dollars in cash to finance all the wonderful things that we’re doing here and so the previous slides that who’s your daddy what do you know about a banker who’s financing you to the tune of 1.2 trillion dollars who does not believe in too big to fail what type of power do they have any well think about it the numbers are pretty significant we increased our borrowing from China by almost 100 percent in a year and a half and that’s using data from January I don’t have data from our charity what happens to the Chinese decide you know we’re getting tired of you guys being arrogant to us acting like we’re your stepchild we saw evidence of that remember the Hummer deal here’s a country a two point four trillion dollars in cash and the company I was gonna buy Hummer could not get government approval from China for a hundred million dollars in cash and the reason they couldn’t get it is because we announced a six point six billion dollar arms trade deal with Taiwan we embraced the Dalai Lama and we said that they needed to do better job about human rights and they said fine you can say what you want to UAW twenty thousand jobs gone next the fact if you read the post today the news today another company cherry which is Chinese automobile manufacturers in Sweden right now getting ready to finalize the deal to buy Volvo from Ford for cash somebody’s there and thereby let me get two point four trillion dollars in cash buying is one thing you can do if you look at some of their acquisitions the strategic aspect of their acquisitions become obvious this is what we teach you here at McCombs don’t just spend money that’s because you have it it spend money that’s gonna make a difference and they’re doing it and so it’s a success for our way of life its success for what we believe in its success for our approach to the world we just have to start believing it in practicing ourselves because other people are doing this is from McKinsey Global Institute and it shows you the challenge we have now this is total debt public and private who’s the third world country now and this is from last year or another way of looking at it red is advanced countries blue is developing countries who is managing their conic lii more prudently advanced US are developing them the implications are significant especially given the growth rates so this is what make this is what Goldman predicted for 2050 and what we know for sure is that the numbers are wrong like making projections these are estimates but most economists I’ve talked to have said I don’t agree with the numbers I do agree with the rank ordering and the rank ordering is significant it’s suggesting that China’s economy is twice the size of ours that we literally are neck-and-neck with India and look at Brazil look at Mexico and look at Europe these numbers can be off the numbers are off but if anybody had said in 1990 that this was something that was credible they would have been

confined and sent to a psychiatric hospital this is Goldman and McKenzie and Doggett and one of us is right okay this is an SI P we have never seen it is a category 7 hurricane we’re in the middle of an eye because of what’s going on in the world’s economy no actually it’s not going on in China India because they’re kind of either growing what’s going on for most of the world and when we emerge from this if we haven’t taken this seriously it’s going to be an exciting time so let’s look at how significantly this is a great quote about how far we’ve fallen all over the developing world developing world the Chinese are cutting deals four years ago I was alerted to this when the three-star general lectured Congress they said Congress you got to understand all these rules you have about military assistance to developing countries there’s a new player in town that’s called the People’s Liberation Army your rules are this if you want more weapons we’ll provide weapons with soft lows if you want your people to be trained we’ll send them to West Point or Annapolis or the Air Force Academy or if they’re non cons through the College of Americas and we’ll teach them to be better soldiers and more discipline but you have to respect human right you can’t use the weapons on your citizens you have to do this you have to be that you can’t sign the International Criminal Court treaty you can’t do any of this stuff and he said four years ago there are 18 countries 18 countries that we had exclusive relationship with which halves which size and they now have exclusive relationship with the People’s Liberation Army and five of those countries are in this hemisphere one of them is obvious Cuba another one is Venezuela no one is Nicaragua another one of them is Bolivia and the rest are in Africa the Chinese deals very simple you need weapons we have weapons you need money we’ll only money you need training we’ll send you to our academies but we need our natural resources well how about human rights what we need are natural resources well how about the International what we need are natural resources what we need is a simple deal you have what you we need we have what you need can we do business and country after country is saying I think that’s a better deal now here’s what makes it different is this quote the old model the American European model was we take natural resources we give them money and their leaders steal the money and everybody’s happy the Chinese model is we give them money and we also build up their economy because their goal is is to turn these countries these developing countries and to new markets they figured out something that Dell learned a long time ago at some point you can’t continue to grow if you have to sell computers only to people in the US the West can only buy so many of their exports but if four-fifths of the world is not the West you invest in that 4/5 then guess what you can continue to grow things and so they’re making investments to turn developing countries into markets for their products we aren’t there which is why we’re having this conversation the opportunities for us are phenomenal if we just realize what’s going on right now this is not a photoshopped book this book just came out and if this book had come out even five years ago people would say why would anybody publish anything like this and now it’s being looked at as well maybe it’s a little over the top but it hopefully gives you that si P feeling you getting that si P feeling like everything you thought made sense is not making sense anymore this is crazy stuff when when not if when China rules the world our goal is very simple Chinese people are gonna do everything they can to be as successful as possible like the Aggies they try to win football games but you got a simple job we’ve got to beat them at it the one thing we can’t expect is for them not to try as hard as they possibly can the Aggies can beat us every single day if the Sooners can beat us every single day they’re gonna do it end of conversation and we have to understand that’s the way it is in business there are a lot of people in this country you don’t think that’s the way it should be then people don’t have a right to do that how we doing on time Jim go one minute I got one minute 70 slides so we can do guess I’m gonna go fast this is something that we’ve seen before this is Japan Japan took off for most of us we didn’t realize what was going on for another what 10 years is when China took off for most of us we didn’t figure it was going on into today and guess what my friends India is on steroids right now and by the time I’d show you charge with Brazil and Indonesia effect a new one I was in India I learned a new when it’s Vista Vietnam Indonesia Turkey

and South Africa just a brick CIA a couple more slides and we’ll stop what do you think this is you’ve seen this in your little hand what do you think this is looks like California right nice little intimate dining room with glass tables and chairs this is a Beijing People’s Republic of China there’s on the front page of The Wall Street Journal two years ago these are ads billboards for new developments in China on the road from the airport to the Capitol and the reason is on the front page of Wall Street Journal is the Communist Party said you know we like the fact that you can do this and people can afford this but we think it’s just saying the wrong statement that that’s the first thing people see when they get out of the airport you got two weeks to take these billboards down if you don’t take them down two weeks we’ll take it down for you in Georgia you can continue to sell these things but just don’t flaunt okay People’s Republic it’s a picture I took in Shanghai Pudong when this area was created the Chinese government said this is going to become the new economic capital the world is gonna supplant Wall Street and the City of London and everybody thought it was crazy I took this in 2008 the next picture and I’m glad Jim gave me an extra minute you got to see this picture to understand what you were dealing with and how si PS it is 1990-1999 this was done in nine years and that’s happening all over China this was done in nine years nine years you getting that s might be feeling now this is real serious stuff we won the Cold War we convince people that are our way of doing things made a lot of sense and people bought into it and now we have a new set of competitors who are dead serious about playing by our rules right when we are questioning whether or not the free market and capitalism makes sense give you another example of it when have you ever seen a sign like this not the Chinese part but the English part in a public square in the United States this is in Shenzhen right across them shank of Hong Kong time this money efficiency is life ever see that in a public square a cou with Suomi D Utley right well here’s Shenzhen 1979 a little sleepy fishing village 30,000 people best known for a place to smuggle people into Hong Kong and things out of Hong Kong don’t show up peeing went down there he said he looked at Hong Kong he said we need to have a communist version of Hong Kong now this little sleepy fishing but sleepy fishing village sucks at 79 that’s what Jen Jen looks like today if you’ve begun the Sims then you know it is growing it’s a linear city it just keeps growing somewhere between 8 to 9 million people this is happening all over the country my friends all over the country it’s not just Jen Jen it is not just Beijing it is not just Shanghai it is everywhere and so what does this mean I’m gonna stop I got other slides you have this slide book I’m gonna stop what does this mean it’s real simple it means for the first time in our history as humans we’re gonna look at the emergence of 7 to 800 million new members of the middle class in the next 10 to 12 years Walmart said they’ll have more stores in China by 2025 minute half in the United States IKEA has more stores in China and they have an any other place in the world it’s not just China it’s India also if we can’t figure out as Americans as Texans as Macomb i’ts a way to take advantage of this we should be ashamed never before in the history of this planet have we so many people become a middle-class for the first time and never again are we gonna see so many people becoming middle-class for the first time this is the rule of small to large numbers and so as frightening as this may be the some of you because a lot of you look like you want to throw up it’s frightening as this may be to some of you this is the greatest possible time to be alive and to be a businessperson I’m dead you have time for questions we have time for two questions they’d better be good ones – yes sir do you think the governments will play protectionist games and prevent American companies from being successful in the region there will be a little of that but there’s a lot of quid pro quo going on you probably are familiar the CLO deal CLO is a austin-based company I

think it’s in the in their notes have a slide they just kind of deal in October of last year to build a 1.5 billion dollar wind farm in West Texas with Chinese technology Chinese money and Chinese workers and the big debate has been wearing that they get any stimulus money and the Chinese have said well you know stimulus money as money you borrowed from us so we should be able to get a little of it and there is my and you know Congress response is you know banker doesn’t get to tell you what to do with the money you borrow the money then you use it and what the Chinese are threatening to do is to build a plant to build every build all the turbines in the United States we know how that movie ends the Japanese have done it and we know what happened the GM so now there’s they need us we need them it’s mutually assured cooperation but their economy is growing a lot faster than us and they are playing tough so we got to play tough back and it can’t just be diplomacy if you have to be tough businesspeople ok last question bring a question somebody has a great question here I can’t believe there’s not snow they can hammer pressure the Macomb site yes sir great his question is India is growing at a much rapid more rapid rate they have a very young population there have no one child policy and if so at some point in the near future India will have more people than China if you actually call India the real India because India is named after the Indus River which is in Pakistan right now if you had Pakistan and Bangladesh to India’s already larger than China the challenge India has is real simple the unintended consequence of the one-child policy in China was that and instead of the good old days where you had Rob and you had me and you had you know Sarah and a couple other kid and if one of us turns out to be a screw-up we got three other kids you know we have one it’s him and he represents two family DNA’s so the chances of him being a screw-up is zero and so education literacy with from 15% in China in 1950 to 91% and the impact on productivity is significant and the investment in public education was massive in part because the population was flatlined the problem in India is that only 46 percent of Indian females are literate with the deafness and literacy being they can read and write their name let me take real literacy it’s about 30% so that 70% of the kids were being born or being born with at least a mother who is not functionally illiterate now there is no question having been the India I can tell there’s no question about the capacity and capability of the people but the issue in my Indian friends will degree the issue is whether or not the government is willing to have real high quality education for all Indians if they do it’s going to be an asset that’s going to be significant if they don’t it’s going to be a real drag on them because we have more more kids becoming voters who don’t have a good education not literate and don’t have jobs and they’re gonna vote for whom the idiots that they’re voting for right now so that’s the challenge with India but I am convinced that India will solve that problem that at some point India will say if the Chinese can educate everybody dammit we can do it also and when they do that then you’re gonna have India and China that’s 40 the world population kickin serious that’s like 5 a.m. and 10 Oh you’s against one of us which means that we have to shoot okay thank you very much appreciate your time