Arms Embargo: No Lift in Sales

No matter what Jacques Chirac and Gerhard Schroder may say, it's clear that European defense contractors plan to follow George Bush's lead and maintain the arms embargo on China. Mike Turner, the CEO of British firm BAE Systems, Europe's largest defense company, said his company "will do nothing that will jeopardize our position with the U. S. They are a very, very important customer." EADS, the Franco-German conglomerate, has made similar statements. Dassault of France, which makes the Rafale fighter jet coveted by Beijing, said "military sales to China are not on the agenda."...

ARMS EMBARGO: NO LIFT IN SALES

No matter what Jacques Chirac and Gerhard Schroder may say, it's clear that European defense contractors plan to follow George Bush's lead and maintain the arms embargo on China. Mike Turner, the CEO of British firm BAE Systems, Europe's largest defense company, said his company "will do nothing that will jeopardize our position with the U. S. They are a very, very important customer." EADS, the Franco-German conglomerate, has made similar statements. Dassault of France, which makes the Rafale fighter jet coveted by Beijing, said "military sales to China are not on the agenda."...

INVENTIONS: A FACTORY OF ONE'S OWN

Neil Gershenfeld has boundary issues. As a teen, he irked his parents by asking to attend the local trade school rather than the mainstream academy for bright kids like himself. "I was good in science, but I also wanted to learn to make stuff," he says. "I didn't understand why those things had to be separate." At Bell Labs, he ran into trouble with the unions when he tried to use machine tools to fabricate vacuum chambers he needed for his research. So it's no wonder that Gershenfeld, who now runs the Center for Bits and Atoms at MIT's Media Lab, is once again trying to bridge the divide between the digital and the physical. As the inventor of the Fab Lab, a $20,000 mini-factory that can fit into a small room, Gershenfeld aims to bring high-tech manufacturing to the masses.A Fab Lab (short for fabrication laboratory) is essentially a collection of high-tech factory parts, including readily available open-source software programs, computers and manufacturing equipment such as laser...

Man of Steel

Lakshmi Mittal was the only steel baron tough--or crazy--enough to turn Kazakhstan's state steelworks into a going operation. When he first visited in 1995, he found a 1960s-style operation run by workers who hadn't been paid in seven months. In winter temperatures that average minus 30 degrees Celsius, there was no heat or hot water. Suppliers were paid by barter. U.S. Steel, acting as a consultant, had tried and failed to turn the plant around. The buyer would have to assume responsibility for housing the 250,000 people of Temirtau, who depended on the works.Mittal saw potential in what looked like a basket case. Sure, rebuilding the town would be expensive--but building a new steel plant would cost more, between $2 billion and $5 billion. And Kazakhs work a lot cheaper than Germans or Americans. What's more, says Mittal, "Kazakhstan was rich in steel's raw materials, like iron ore and coal--you couldn't have had a more ideal location in that respect." He bought the factory for ...

HI! THE NET IS CALLING.

Like the technology he's pushing, Jeffrey Citron, the 34-year-old CEO of Internet phone company Vonage, has a tendency to shake things up. In the 1990s, armed with little more than a high-school diploma, he founded two businesses, including Datek Online Holdings, and helped pioneer the tools for computerized daytrading on Wall Street (and attracted the ire of the Securities and Exchange Commission, which fined him $22.5 million for allegedly misusing the new system). In 2000, he began pouring his own money--$70 million and counting--into Vonage, an upstart telephone company that is now revolutionizing this $1 trillion industry.The idea behind Vonage's technology is breathtakingly simple: on the Internet, voice is just another form of data. So what, then, is the point of dedicated phone networks--or even telephone companies, for that matter? By capitalizing on the Internet, Vonage has been able to undercut phone companies and steal their customers--more than 400,000 Vonage...

SIGNAL LOST

Jeff Pulver used to spend long hours in his basement hunched over his ham radio. The hobby was fun, but geeky. So Pulver did what many other teenagers in 1970s suburban New York did: he bought a Trans Am sports car. Then he figured out a way to use the ham radio equipment to rig up a makeshift car phone. "I thought it would impress girls," he says. It didn't. But the invention may have prepared Pulver for a more significant epiphany, which came to him in 1995.By then Pulver was a computer-systems administrator on Wall Street. He was home sick one day and surfing the Web when he came across a computer program designed to transmit voice over the Internet, offered free by the Israeli firm VocalTec. Pulver downloaded the software and donned his headset. Soon he was speaking with many of his old buddies from his ham-radio days, who had also caught on to voice software. They had even transferred their ham-radio monikers to the Internet. The voice quality was poor and the software...

Wary Of Aid

Nonpartisan aid has a funny way of becoming political. Just ask the hundreds of workers from organizations like Oxfam, CARE and Save the Children who are carrying out tsunami relief work in Indonesia's Aceh province. Last week the Indonesian Army, which controls the war-torn area, recommended that they travel with military escorts anywhere outside the provincial capital of Banda Aceh.Authorities claim that the new rule is meant to protect foreign aid workers, an explanation some accept in light of the chaos. "You've got too many people running around with no knowledge of the local context," says Bud Crandall, CARE's Indonesia country director. "It's like Woodstock, and I don't think the government of Indonesia is going to allow a Woodstock in Aceh." But others say the new rules are less about keeping the peace than about maintaining control of an area that, until Dec. 26, had been almost entirely closed to outsiders.The restrictions certainly owe much to a deep-seated suspicion of...

WHY ALL THE WORRY?

Ascents don't get much steeper than Stan O'Neal's. The grandson of a slave, O'Neal remembers picking cotton in Alabama before earning his M.B.A. and working his way up at General Motors, then Merrill Lynch, where he became CEO in 2002. His cost-cutting made the $50 billion bank one of the leanest in the business (and a potential merger target, say some). He talked with NEWSWEEK's Rana Foroohar. Excerpts:FOROOHAR: How does market uncertainty--over energy prices, inflation, terror--affect your strategy for 2005?O'NEAL: Actually, I think the business environment is a pretty good one. The U.S. economy has sustained growth through the bursting of the bubble, corporate scandals and a very tough political climate. Japan is growing. China obviously has introduced some volatility into certain sectors, but by and large it is a contributor to world growth, and India has been able to sustain a growth rate in excess of population growth for the first time in a long time. The U.K. economy...

END OF THE LINE

Twenty years ago, when British investment banks began selling out in a wave that would transform the City of London from a bastion of "gentlemanly capitalism" to a hub of American-style wheeling and dealing, one firm stood apart. Cazenove, broker to the queen and half of the country's top firms, took a firm stand. "We do not believe it right to sell the good will of the firm to a big brother," said then senior partner John Kemp-Welch. "We do not see Cazenove becoming part of the securities division of some large bank, only to lose our identity a few years hence." Yet earlier this month, this whitest of white-shoe houses finally did sell its good will to a U.S. giant, JPMorgan.Like characters in a Henry James novel, the banks swapped titles for cash. JPMorgan paid Cazenove just 110 million pounds for a half share in the new investment bank, JPMorgan Cazenove. It also invested another $50 million in capital, plus 70 employees, but most of the staff will be from Cazenove, which is...

GAMAL-NOMICS

Even by Middle Eastern standards, Egypt has never been an easy place to do business. Its inwardly focused economy has stagnated for the past seven years. Inflation is rife, tariffs and unemployment are among the highest in the world, and red tape is endless, thanks to a command and control state with 6 million civil servants. But while the statistics couldn't get much worse, hopes for the Egyptian economy are the highest they've been in a decade, thanks to a new generation of reformers led by presidential scion Gamal Mubarak.The son of Hosni Mubarak is the namesake of Gamal Abdel Nasser, the iconic former president who in the 1960s elevated Egypt's place in the Arab world even as he led the economy down the socialist tubes. The younger Mubarak has none of Nasser's deep connection to the common man, and is viewed more as a well-meaning member of the elite than a pivotal leader or real political reformist. What he does have is a highly skilled and unusually cohesive team of economic...

TAKE NO LOAFERS

German CEO's don't dole out threats lightly. Tough labor laws and some of the world's strongest unions have made it too dangerous. But that came to an end last summer, when Siemens AG gave 4,000 workers at two mobile-phone factories an ultimatum--work longer, with no extra pay, or we'll move your jobs to Hungary. The workers gave in, and so began a new era in German labor relations.Already the Siemens negotiation has sparked similar deals at hundreds of major companies, including DaimlerChrysler and, most recently, Volkswagen. Analysts say that Siemens itself is looking at more labor cost-cutting, which could affect an additional 35,000 German workers. A new CEO known for his Anglo-American style, Klaus Kleinfeld will take over the company at the end of January, and he may launch further changes. Siemens, which was on the forefront of German industrialization in the late 19th century, has become a bellwether for the 21st century. "Where Siemens goes, so goes Germany," says Dresdner...

VICTORY OF VOICE

If you own a mobile phone, chances are you're putting money into Arun Sarin's pocket. The CEO of Vodafone runs the world's largest wireless company, with 147 million customers in 26 countries. After his highly publicized U.S. land grab for AT&T Wireless failed in 2003, Sarin has refocused on existing operations, and Vodafone looks set to generate $7 billion in free cash flow by March. But the Silicon Valley veteran has his biggest challenge ahead--rolling out 3G, the long-delayed "third generation" of wireless Internet service. Below, he talks about costs, competitors and convergence with NEWSWEEK's Rana Foroohar.FOROOHAR: What role will the mobile phone play in the age of ubiquitous computing?SARIN: A very large one. Over 1.2 billion people have mobile phones, and only half that number have PCs, and it's only accelerating from here. Reaching 2 billion in a few years and 3 billion in 10 or 15 years is not out of the question. PCs are an important underpinning, but I think when...

ROYALS: QUEEN GOES GREEN

Is the Queen of England going crunchy? On a recent state visit to Germany, she opened a climate-change conference and attended a forum for young people concerned about the environment. Back home, there are reports she's pushed Prime Minister Tony Blair to challenge the U.S. position on global warming. While Prince Charles has long been known for promoting organic farming and sustainable fishing, the queen has kept quiet on the environment. But in the past few years, Buckingham Palace has installed recycling facilities and doubled the number of glazed skylights and energy-saving light bulbs. The royal fleet of Bentleys runs on eco-friendly fuel, and a British renewable-energy firm has pledged $1.6 million to power Windsor Castle with hydroelectricity. Cynics say that this is all just a ploy to modernize the monarchy. Others say the queen is worried about the effects of global warming on her Balmoral and Sandringham estates. Either way, environmental lobbyists say they welcome her...

MAKING LIGHT OF PLASTICS

Sir Richard Friend is a tough man to track down. Phone calls to his two labs at Cambridge University go unanswered, and so do e-mails. In the end, a reporter has to leave a note in his campus pigeonhole. The elusive Friend is the unlikely instigator of what may be a revolution in electronics: plastics. Although most electronic devices make use of silicon chips, Friend sees a future in which mobile phones, TVs, watches, computers and other devices incorporate inexpensive plastic chips.Friend's vision is based on his own discoveries, back in the '80s and '90s, that plastics can be used to make transistors, the basic element of chips, and light-emitting diodes (LEDs), which glow when electricity passes through them. His work has already yielded a new generation of lighter, thinner, brighter, cheaper and more flexible electronic screens for everything from lightweight mobile phones to disposable "talking" electronic greeting cards. Now he's working on devices that might bring us talking...

BUT DOES IT GO?

What do stuffed birds, lanvin gowns, Victorian wombat heads and rare books have in common? They are just a few of the items that Comme des Garcons designer Rei Kawakubo has thrown together in her new London store, the Dover Street Market, a place that redefines the designer emporium. Forget spot lighting, marble floors and snooty sales staff. Kawakubo's shop is more art installation than retail temple. You can buy clothes. But you can also just wander--taking in what is essentially a 1,200-square-meter museum, featuring art and photo exhibitions, rare books, taxidermy and storerooms that resemble shantytown shacks. Kawakubo calls it "beautiful chaos."That's how you would describe a lot of design out there at the moment. Stark, 1990s-style minimalism is firmly over. Single-brand looks are out. And both fashion and interior designers are pushing a new eclectic ethos that mixes colors, periods, materials and moods in ways that were once considered anathema. The pairings range from the...

TALK IS GETTING VERY CHEAP

Pity the poor western telecom. First there was the big Internet bubble. Then the bankruptcies and falling share prices. Now the transcontinental fiber-optic networks that major American carriers spent billions of dollars building in the late 1990s and early part of this century are being snapped up in fire sales by foreigners--and Asians are leading the pack. It's just part of the rise of the Asian telecommunications sector, which is beginning to compete head-on with European and U.S. rivals.Over the past couple of years, some of the biggest buyouts in the industry have been done by Asian firms. In 2003, Singapore's ST Telemedia purchased a majority stake in Global Crossing for a mere $250 million. Earlier this year India's Reliance bought the troubled carrier Flag for $210 million, and a division of the Indian conglomerate the Tata Group is currently bidding for Tyco's network. The buyouts, some of which have been done for a mere 10 cents on the dollar, are only part of the story....

MASTERS OF THE DIGITAL AGE

Lee Jong Jin, 51, is no couch potato. but lounging in his apartment overlooking the mountains of Seoul, the international trader has little reason to leave his sofa. As he watches an interactive game show, he uses the remote to send in answers. In a corner of the 50-inch plasma screen, he can link to his online bank, or control his air conditioner and cooker. Lee is one of thousands of Korean consumers involved in trial runs of Samsung Electronic's so-called Home Network, which allows digital products to talk to each other. If Samsung has its way, millions around the world will be running their homes--from the comfort of their couches--within a few years.Samsung has not been lounging. Over the past decade it has moved from copying rivals like Sony to become the world's most profitable consumer-electronics company. Samsung leads the global market for color TVs, VCRs, liquid-crystal displays and digital memory devices. It's second to Nokia in cell phones, and catching up to Sony in...

ECONOMY: NEW AGE 'GASTARBEITER'

Turkey may be one of the fastest-growing economies in the world. It may have cleaned up its banking system, simplified its tax code and become the darling of emerging-market investors everywhere. Yet for Europeans, the country is still epitomized by its highest-profile export to the EU--the Gastarbeiter.That's German for "guest worker," specifically those who are Turkish. During the 1960s and '70s, in the heyday of Europe's economic boom, these poor, uneducated Anatolian peasants flooded into Germany, France and Austria, sweeping floors, washing dishes in restaurants and clustering in ethnic communities isolated from the social mainstream. The influx peaked decades ago and has since dwindled to a trickle. Yet even today they remain the symbol of Europeans' hesitance to accept Turkey into their Union.This nebulous fear of low-skilled hordes sapping welfare systems and taking work away from locals is deep-seated and, obviously, not confined to Turks. Yet it has a special resonance for...

DIGITAL MASTERS

Lee Jong Jin, 51, is no couch potato. But lounging in his apartment overlooking the mountains of Seoul, the international trader has little reason to leave his sofa. As he watches an interactive game show, he uses the remote to send in answers. In a corner of the 50-inch plasma screen, he can link to his online bank, or control his air conditioner. Lee is one of thousands of Koreans involved in trials of Samsung Electronics' Home Network, which allows digital products to talk to each other. If Samsung has its way, millions around the world will be running their homes--from the comfort of their couch--within a few years.Samsung has not been slacking itself of late. Over the last decade the company has moved beyond copying rivals like Sony to become the most diverse and profitable consumer-electronics company on the planet. Samsung leads the global market for color televisions, VCRs, liquid crystal displays for electronic devices and digital memory devices. It's second to Nokia in...

Eclipse Of The Sun

If alternative-energy companies are so hot, why are their stocks so unpopular? Record-high oil prices make them increasingly competitive. Fear of climate change should brighten their prospects. Yet since 2002 the worldwide stock-market value of companies developing renewable energy--which includes everything from solar to recycling--has fallen from $13 billion to $10.7 billion, while the value of fossil-fuel stocks has surged to highs of more than $1.2 trillion.The reason is uncertainty. Since the Kyoto Protocol on reducing greenhouse-gas emissions is not yet ratified, the results are piecemeal national rules and on-again, off-again support for alternatives. Until it's clear how much green energy individuals and companies have to use, and by when, the renewables market will continue to suffer, says Mark Campanale, a manager at Henderson Global Investors in London.Memories of the bubble don't help. Many of these companies acted like dot-coms, burning through cash without turning a...

A 30,000-FOOT CLUB

Yoga studios in hotels, gyms in airports--what's next for the health-conscious road warrior? In-flight Pilates. Believe it or not, at least two U.S. carriers--JetBlue and Song (the Delta budget spinoff)--have launched exercise programs in the sky. In March JetBlue introduced a Flying Pilates card, featuring moves designed by the hip New York gym Crunch, to be done while seated. The point, says the airline, is "to help make the flight more relaxing." Song goes further, selling $8 fitness packs, including a ball and a resistance band, to go with a 15-minute strength-and-stretch workout developed by N.Y.C. fitness guru David Barton.Song has already sold out its first order of 2,500 fitness packs since they debuted on the New York-to-Florida routes in June. In September they'll be relaunched on all flights. "We know a few minutes of exercise on the airplane isn't going to make you lose 50 pounds," but it can make the flight more comfortable, says Song's VP of marketing, Joanne Smith....

Solar? Eclipsed.

If alternative-energy companies are so hot, why are their stocks so unpopular? Record-high oil prices make wind and solar increasingly competitive. Fear of climate change should brighten prospects for any alternative to fossil fuels, which release the greenhouse gases that cause global warming. Yet over the past two years, the worldwide stock-market value of companies developing renewable energy—which includes everything from wind and solar to recycling—fell from $13 billion to $10.7 billion, while the value of fossil-fuel companies surged to record highs of more than $1.2 trillion.The reason, in a word, is uncertainty. Despite all the clamor about climate change, governments around the world have yet to ratify the Kyoto Protocol on reducing greenhouse-gas emissions. The result is piecemeal national rules and on-again, off-again support for subsidizing alternatives. Until it's clear how much green energy individuals and companies have to use, and by when, the renewables market will...

A HEAVIER BURDEN

You've heard about the jobless recovery--that strange American paradox of payroll declines in a booming economy. Now, it seems, the Yankee virus has spread to Europe, too. Continental economies are beginning to rebound, but unemployment is as high as ever; in places like Germany, the ranks of the jobless are growing, even as the government pushes reform and trade unions make unprecedented compromises to keep jobs at home. Economists are beginning to call the trend by its true name. A recent report by the European bank UBS titled "Jobless Recovery in Germany" warns: "Unemployment appears to be a feature of this recovery that will persist."There is a growing camp of economists who believe today's brutally tough labor market is not a temporary American oddity. Falling wages, reduced benefits and rising job insecurity seem to be increasingly entrenched features of the job scene across most of Western Europe, the United States and other parts of the developed world. The number of...

A NEW ERA FOR 'BIG OIL'

Energy markets have never been more turbulent. Fear of terror, Middle East instability and the fate of the floundering Russian petroleum giant Yukos have driven oil prices to new highs--and stock markets to yearly lows. Investors around the world are beginning to fret about how global warming and carbon caps will affect the long-term future of fossil fuel companies. British Petroleum CEO John Browne, a man known for both his business acumen and his environmentalism, says high prices are here to stay. He spoke recently with NEWSWEEK's Rana Foroohar in London. Excerpts:NEWSWEEK: Oil prices--where will they go from here?BROWNE: Clearly they're going to be higher than $21, the long-run average, or even the $25 average adjusted for inflation. That's lower than in the 1970s and early '80s. But I don't think we'll see a period like we did in the '90s for really quite a long time.Let's talk about demand. You've said that the oil and gas industry needs to invest another $2 trillion by 2015...

EUROPE'S REAL BIG SPENDER

Here's a pop quiz: guess which European government has expanded the public sector at a rate almost unheard of since the 1970s. It has added 50,000 new government jobs, boosted overall public spending by 63 percent and, during just the last four years, increased average pay among civil servants by 20 percent. Needless to say, the tax burden has increased (albeit by stealth), and the country has gone from fiscal surplus to deficit within five years. Statist France? No. Sclerotic Germany? No. The big spenders run a country that was once a model for "Third-Way" reform--Tony Blair's Britain.This old-style Labour buildup in government hasn't set off too many alarm bells yet, in large part because it has coincided with Britain's longest period of economic expansion in at least 200 years. As Blair and his powerful Chancellor Gordon Brown like to remind everyone, Britain was largely unharmed by the recent global recession, as buoyant labor and housing markets encouraged consumers to keep...

FIGHT FOR FATHERS' RIGHTS

A militant new movement is sweeping Britain, generating headlines and sparking protests. In one, a young man dressed as Spider-Man dangled himself from a crane near London Bridge late last year, holding up construction for six days. This July a handful of protesters dressed as vicars, nuns and monks stormed a Sunday service in York Minster. Not even Prime Minister Tony Blair has been able to avoid the onslaught: in mid-May, the P.M. was pelted with purple powder during a speech in the House of Commons. Is this a return of the poll-tax protesters? Rabid animal-rights activists? No--it's the Angry Dads....

TALENT SHOW

Britain has always been a good place for migrants--everyone from Romans to Saxons to South Asian immigrants have set up shop here and thrived. Today, as the threat of terror makes Americans more wary of foreigners, the U.K. is embracing them like never before--especially those with degrees and talent. In a recent corporate survey, the U.K. was the most popular location for expatriate assignments, ahead of the United States, China, Singapore and Germany. "Britain makes it very easy for skilled people to come," says Scott Sullivan, an executive at GMAC Global Relocation Services.Britain benefits from English, the language of global business, as well as the $460 billion in investment that flows between it and the United States. Two years ago the British government also made a conscious decision to entice talented, entrepreneurial types to live in Britain without forcing them to find employment first. Young professionals from places like India and America are now filling jobs in...

QUICK READ

Suspended between empire and nation-state, will the "new China" embrace its imperial past--threatening Taiwan, meddling in the economy and blocking Internet sites? Or will it change as a new generation grows up? Terrill bets on the second scenario. A Harvard researcher and author of several previous books on China, he argues that the regime is attempting the impossible--to "combine a market economy and Communist paternalism"--and will collapse as a result. He predicts that China will become a democratic federation of strong provincial governments with values more in sync with the West, and with Western business. ...

THE FEAR FACTOR

How big is the fear factor? On June 1, the first day of trading after the deadly terrorist shooting spree on oil expats in Khobar, Saudi Arabia, the price of a barrel of oil spiked more than $2 to a record $42, or roughly double the amount that most oil companies consider the natural price in normal market conditions. This capped an 18-month price surge, propelled by what economists say is a witch's brew of abnormalities, from supply disruptions in Iraq and Venezuela to rising demand in China, but one factor seemed to stand out. As oil reached $42, estimates of the oil risk premium--a subjective surcharge that roughly reflects the market's fear of future shocks--reached as high as $12. By this analysis, the fear factor outweighed all others.Three weeks later the price of oil remains well above its long-term trend, closing at about $39 last week, and concern remains high over how long this shock will last. Each $10 rise in the price of oil takes an estimated 0.5 percent off world GDP...

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