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DARTMOUTH BUSINESS JOURNALJune 1, 2009 | Spring Issue

The Life of a ConsultantAN INTERVIEW WITH JIM BRENNAN ’96, PARTNER AT McKINSEY & COMPANY

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Table of ContentsJim Brennan, Life of a Consultant Jack Liu, Kunal Arya, Giulia SiccardoAn Interview with Jim Brennan, a ’96 Graduate of Dartmouth College and a partner at McKinsey & Company.

Structured Finance Nicolas SantoniAn exploration of credit rating in the context of CDO's and other related securities, and how they will impact the creation of new investment vehicles in the future.

Setting Business Strategy During Economic Crisis Kunal AryaShould a CEO invest precious cash in productivity increases in this economic climate?

The Girl Effect Anoosha ReddyInvesting in the education of girls in developing nations will lead to stability at both the microeconomic and macroeconomic levels.

Development Aid Roberto MarawangaDevelopment Aid will work to lower poverty rates by creating the vital incentive to invest in growing economies.

The Zimbabwean Dollar: Dying to Live? Kedar MulpuriAs hyperinflation plagues the Zimbabwean economy, the nation must turn to production.

TGV Trains: The Pride of France SangHee ChungFrance's high-speed train is the pride of the nation; it's success depends on a unique business model.

Drop in Oil Exploration a Dangerous Path to Pursue? David KellenbergerOil Shale and Tar Sand in the US and Canada are the oil reservoirs of the future, but only if the price gets high enough.

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Jim Brennan,Life of a ConsultantInterview by Jack Liu, Kunal Arya, and Giulia Siccardo

The two career paths you almost always hear about at Dartmouth are investment banking and consulting. Yet, few realize the diversity of specialties within those two huge fields. In particular, consulting spans a broad range of industries and topics. To get a more detailed perspective on this field, we contacted Jim Brennan ‘96, a partner at McKinsey & Company. We found out immediately that a consultant, especially a partner, has very little unscheduled time. Nevertheless, we managed to steal a half hour of Jim’s time as he was getting ready for a dinner.

On a day to day basis, what type of consulting do you do for McKinsey?

I’m a partner at Mckinsey & Company. I spend most of my time working on strategy and go-to market issues with consumer package goods and retail companies.

What do you mean by go-to market issues?

By go-to market, I mean I work with the way that companies bring goods to the market and customers through retail.

Are there any projects you are currently working on or recently finished you can tell us about?

I can’t give client names for confidentiality reasons, but typically I work with large manufacturers of food, personal care products, snacks, or candy. An example project that I would work on would be working with a multinational food and personal care company to help them develop a turnaround strategy for one of their products that has been losing market share. So we come up with ways to reposition their product and come up with a gross strategy so that it can grow

and deliver more income back to the company.

Are most of the projects that you work with turnaround projects? How about startups?

It’s not just turnaround. We also work with brands that are doing well and continue to do well. Most of the work I do though is for pretty big and established manufacturers and not startup companies.

When you are doing these types of projects, what type of skills are the most important to your success?

I actually think the most important skill is the ability to work well with people and build relationships with them. That could be with the client or within McKinsey itself. I have to be able to work with them in a one-on-one way. The other skills are probably logical thinking and clear communication.

How did you acquire those skills? Dartmouth? Law school?

I think it is sort of mixed. At Dartmouth, it was relating with people and interacting with them. In law school, it was a lot of logical thinking and

presenting things in a clear and compelling way.

So those skills are what McKinsey’s looking for in employees?

McKinsey’s definitely looking for those skills. They make up a big part of what we do.

Are there any additional things you would advise Dartmouth students who are looking at consulting?

No, I don’t think so. I think those skills are the biggest aspects.

Can you tell us about your time at Dartmouth? What did you study here?

At Dartmouth, I studied government. It was what I was interested in. I never took a math or business course at college or law school. So it’s kind of interesting from the perspective of what you decide study and what you end up doing. I mean they ended up being pretty different. I spent most of my time, as most people do at Dartmouth, hanging out with my friends and going to parties. From the activity front, I was probably most involved with the Rockefeller Center. I spent a lot of time there helping the administration of the center and also working with some of the political candidates that went on campus.

Do you think that put you at a disadvantage compared to students who focused on economics or went to business school instead of law school?

Not really. Obviously I had to figure out excel before I started working. I never used it before that. But it really wasn’t a disadvantage. But I do think that’s worth noting. The other skills I mentioned are much more important that just being able to punch numbers all the time. That’s my perspective.

Would you say that networking with other Dartmouth graduates has helped you?

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Not directly. I didn’t work with people that went to Dartmouth. I do certainly continue to have friends from Dartmouth that I spend a lot of time with. I am actually married to a ’96 as well, so I’d say there is a good amount of Dartmouth discussion that goes on at home.

After Dartmouth when you decided to go to law school, were you thinking about practicing law?

I just went to law school because I thought it was interesting, which it was. But once I got there, I decided I didn’t want to practice law. Most of the big law firms I looked at weren’t doing things I thought were very interesting.

What led you to consulting?

I thought it had a good mix of having clients and personal interactions. It seemed a much more interesting context for work.

Structured Finance:One of the Underlying Instruments behind the Economic MeltdownBy Nicolas Santoni

The tremendous growth of structured finance products during the real estate bubble that ended in 2007 could be primarily attributed to the seemingly endless advantages that it presented to both its underwriters in fees and to its investors in higher yields for AAA securities. However, the typical structured finance product, the collateralized debt obligation (CDO), cost the financial industry not only hundreds of billions of dollars in write-downs, but it also destroyed the reputation of investment banks and rating agencies while effectively bringing down Lehman Brothers and Bear Stearns. Therefore, investors and outsiders alike wander how such a product caused so much damage

in 2008 and yet had been advertised as a AAA security less than a year before.

The problem lies in the details of these seemingly safe products. CDO’s are securities backed by pools of loans, bonds, or mortgages and are often referred to as a tranche, with each tranche having a different maturity or risk associated with it. The different mortgages located in this pool were supposedly uncorrelated, meaning that there is a low likelihood that they will all default. This allowed the underwriters of these securities to create senior, mezzanine, and junior tranches that were supposedly very different. Senior securities with a .1% chance of default could be attributed a AAA rating, while junior tranches with a 10% of default were given a below investment grade score. The differences between these two securities are that the junior tranche is the first one to suffer if a mortgage from the pool defaults and that due to the lack of correlation, it would be very hard for several of the mortgages to default and make the senior tranche vulnerable.

Unfortunately, as the credit agencies labeled thousands of securities with the top score, the models that provided this score failed to consider what would happen in the case of national economic distress. For example, a drop of 2% in home prices would reduce many AAA securities to BBB and an actual recession and drastic drop in home prices would make even the most senior tranche of almost all these securities junk. This is especially true, since the mortgages backing up most of these securities had a high percentage of being subprime. Thus, as subprime delinquencies rose while home prices dropped, these securities labeled as almost default-free started defaulting in masses.

In pursuit of the easy profits created through securitization of subprime mortgages, due to their high demand and underwriting fees, most investment banks and mortgage-related financial companies almost brought the collapse of the financial industry. Meanwhile, the credit agencies should feel humiliated for incentivizing relatively risk-averse investors, such as pension funds, into

investing in these securities due to their score without fully revealing the naiveté and optimism of their models. Finally, the investors themselves should feel guilty, since they aggressively bought relatively new and complex securities without clearly understanding them.

However, structured finance should not be completely cast-off in the future because of the drastic mistakes overly greedy individuals and corporations took. Now that both the sell-side and the buy-side of the market finally understand the underlying characteristics of these securities (after hundreds of billions of dollars in losses and the almost collapse of the market), we might see the emergence of new and better products.

Securities based on more realistic markets that actually take into consideration systemic risk and are backed by assets that are actually uncorrelated could spring up in the future and dominate once again the markets as structured finance did in 2006. But, at the same time, after this disaster it might take some time before investors start once again to demand these products. In the long run, however, financial innovation should not only create products with higher short-term profit margins, but that should also reduce real risk and improve long-term profits. It is a pity though, that history only verifies the first goal of financial innovation.

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Setting Business Strategy During Economic CrisisBy Kunal Arya

The current recession and the financial crisis underlying it have caused severe problems for heavily leveraged financial situations and automobile manufacturers with substantial pension obligations. Many of these companies have accepted government loans simply to stay liquid. However, the economic recession also has had an effect on companies with healthy finances. These organizations face demand attrition, a tough credit market, and a generally risk averse climate. However, anyone with cash to spare currently has a wealth of opportunities around them. For example, financially troubled competitors can be acquired at a steep discount, as there are no investment banks with deep pockets to outbid, and the government has relaxed its enforcement of antitrust legislation in the face of economic collapse. Investments in marketing, human capital, and R&D are cheaper than ever (Dobbs and Koller 2009). In other words, a market downturn is the perfect time to create long term value for a fairly stable company. However, there are risks inherent in such a strategy. Moving too quickly, before the economy hits bottom, could lead a relatively healthy company to exhaust the cash cushion it will need if the downturn ends up being longer than expected. Currently, these risks have deterred companies with the ability and opportunity to begin a string of acquisitions or to commit to innovation in an emerging field from doing so. They have instead chosen to wait out the recession, confidant that they will emerge in a better position than their competitors and that they can then engage in these same activities with reduced risk of illiquidity.

There are several factors that could slow recovery from this economic crisis. The

first is the expected increase in domestic savings as consumers who had leveraged their lives – taking on debt and decreasing their savings rate, reverse that trend. Research from the McKinsey Global Institute shows that the “economic impact of further US consumer deleveraging will depend on income growth” (Atkins and Lund 2009). Without income growth, every increase in savings will be a direct cut to consumption, with it; consumers can reduce their debt burden without major cuts in spending. The ultimate key to rising out of this recession is productivity growth, which is closely linked to the aforementioned income growth. The lowest-hanging fruit lies in industries like health care and government, which, unlike manufacturing and retailing, have not yet undergone productivity revolutions. In other words, how bad this recession will be depends on the ability of industries to innovate and push for productivity improvement, breakthroughs and R&D and other such projects. If no companies are willing to engage in these endeavors due to the risk of spending down the cash they need to weather the downturn, then it will be much more severe than expected even by today’s pessimistic forecasts.

Along with consumer deleveraging, there is the trend of corporate deleveraging. Obviously, the economy that emerges from this recession will be one with significantly less leverage in the system. This arrangement will reward companies that can innovate improvements in productivity, and break into new markets rather than companies that are financially creative and require large amounts of leverage to make a reasonable return (Davis 2009). This means that anybody who invests in increasing their productivity (either by growing through acquisitions and creating synergies or focusing on innovation in new sectors) will come out in a stronger competitive position. Since the

price of these investments is currently low, executives should be seriously considering beginning to take advantages of the opportunities that abound around them.

McKinsey’s recent models predict that “even scenarios assuming conservative levels of market performance (as indicated by the experience of past recessions) suggest that many industries may be reaching the point when acting sooner would be as appropriate as—if not better than—acting later. Managers who wait may be failing to maximize the creation of value” (Dobbs and Koller 2009). Of course, such a course of action should not be pursued recklessly; managers in every industry must take the time and resources to analyze the state of their business, their prospects for the future, and the health of their company before they make their decision. But the current aversion to any and all risk is a function of the times, and may not be justified for many companies,

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“Imagine a girl living in poverty. Let’s put her in a school uniform and see her get a loan to buy a cow and use the profits from the milk to help her family. Pretty soon, her cow becomes a herd and she becomes the business owner who brings clean water to the village, which makes the men respect her good sense and invite her to the village council where she convinces everyone that all girls are valuable. Soon, more girls have a chance and the village is thriving. Food. Peace. Lower HIV. Healthier Babies. Education. Commerce. Sanitation. Stability. Which means the economy of the entire country improves and the whole world is better off. This is called the girl effect. Multiply that by 600 million girls in the developing world, and you’ve just changed the course of history.” In recent months, this message has been rapidly circulating around the web via a short two-minute video designed by the Nike and NoVo Foundations. The concept is simple but the ramifications of the “girl effect” are far-reaching and monumental. Invest in the potential of half the human race, and societies will be permanently altered. Empowering women and giving them a chance to engage in society socially, economically and politically will make the world a better place in which to live.

The second of the eight United Nations Millennium Development Goals is to “ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling” (The United Nations 2008).

Member nations of the UN have recognized the importance of education and the impact that an educated populace can have on a country’s economic and political growth. A lack of education could lead to a vicious cycle of poverty and lifelong destitution.

However, the year is now 2009, and there are still 104 million children between the ages of six and eleven who are not in school. Forty percent of these out-of school children live in sub-Saharan Africa, and 35% live in South Asia (UNESCO 2003). The UN places a special emphasis on educating women as demonstrated by their third goal, which aims to eliminate gender inequality and empower women. The situation is dire: 60 million of those 104 million children not in school are girls (Herz and Sperling 2004). In a 2004 Report on the State of the World’s Children, UNICEF “…identified 25 countries where ‘girl’s education’ will be treated as a case for urgent—even emergency—action. Of the 25 countries chosen, ten have more than 1 million girls out of school” (Herz and Sperling 2004). Young women are simply not receiving the education that they need and deserve.

Educating women creates economic stability at both the microeconomic level and the macroeconomic level. It has been proven that “an additional year of primary school boosts girl’s eventual wages by 10-20% and an extra year of secondary

The Girl EffectBy Anoosha Reddy

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school by 15-25%” (Patrinos and Psacharopoulos 2002). This is significant not only in and of itself but rather because of what most females choose to do with these higher wages: “When women and girls earn income, they reinvest 90% of it into their families, as compared to only 30-40% for a man” (Borges 13). This implies that a household with a working woman will probably benefit more than one with a working male (holding all other factors equal). Studies demonstrate that increases in female income improve child survival rates 20 times more than do increases in male income. Similarly, children’s weight-height measures improve eight times more (Stanford University). If a woman is able to support and help her family, her sense of empowerment will continue to grow.

According to the World Bank, female education promotes per capita income growth. “Increasing the share of women with secondary education by 10% boosts annual per capita income growth by 3% on average” (Herz and Sperling 2004). If women are more educated, they can enter the workforce and contribute to the nation’s economic growth. Increased income will also lead to an increase in

spending which will then further stimulate the economy. With regard to poorer nations, education and development are self-reinforcing. If more women are educated, the country will prosper, allowing for increased education, which will further bolster the economy. It’s a win-win situation. Returns to education for women are significantly higher than they are for men. Investing in educating girls is a surefire way to ensure economic growth for any nation.

The “Girl Effect” is very much real in today’s world. In his article “The Luckiest Girl”, New York Times writer Nicholas Kristof shows the girl effect in action. The girl that we are asked to “imagine” is given a name and identity—that girl is Beatrice Biira, a young woman who just graduated last year with a bachelor’s degree from Connecticut College. Beatrice was born in western Uganda to a family who could not afford to put her in school. She was on her way to becoming another statistic, just another girl amidst the masses of African girls destined to a life of domestic drudgery. Through Heifer International, a non-profit aid group, a group of students in Connecticut donated money to get a goat for Beatrice. The goat had

twins and Beatrice’s family used the milk from weaning the goat twins to feed their malnourished children and sold the surplus—the profits from the milk eventually accumulated and Beatrice’s family could finally afford to provide her with an education. Beatrice did so well in school that she eventually received multiple scholarships to attend a prep school in Massachusetts and went on to attend Connecticut College. World-famous Economist Jeffrey Sachs, inspired by Beatrice’s story, came up with what he jokingly refers to as the “Beatrice Theorem” of development economics, which says that small inputs can lead to large outcomes (Kristof 2008). Imagine if the other hundreds of millions of girls in the developing world were given the same opportunity as Beatrice. The future of humanity would be altered. If a girl succeeds, everyone around her will reap the benefits of her success. Societies will boom and the world will change for the better. Sometimes, the answers to the world’s biggest problems can be found in the smallest of solutions. The answer to a better tomorrow lies in Beatrice and her female counterparts around the world. The answer is the Girl Effect.

“Educating women creates economic stability at both the microeconomic level and the macroeconomic level.”

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Make no mistake; most international development literature has made clear that developmental aid is rather ineffective. There are many obstacles to development that can render massive amounts of monetary aid ineffectual. International aid faces problems with governments that are not fully committed to development goals, infrastructural problems that prevent money from reaching the people who need it most, and even issues when it comes to determining the best way to combat poverty (2002). However, it has been shown that appropriately allocated developmental aid can be successful in bettering the lives of the bottom billion. For example, within the healthcare sector, aid has helped to increase life expectancy in developing countries over the last four decades by 20 years (Goldin et al. 1). In addition, over the past 30 years we have seen a 50% reduction in illiteracy rates and an increase in quality education due in part to aid. Furthermore, we have seen a decrease in the number of people living on less than a dollar a day (Godlin et al, 2). Lastly, a study showed that per capita economic growth was higher in countries that received more aid than in the countries that received less aid (Easterly 2003 24). This growth provided an incentive for more investment into these developing nations and lowered poverty rates as a result.

Therefore, international aid plays a role in the improvement of quality of life in many regions all over the world. Collectively, “the West,” has spent around $2.3 trillion dollars on developmental aid in the last five decades (Easterly 2006 4) The United States government alone spends around $22 billion dollars on foreign aid where about $10 billion dollars more are contributed by private citizens. However, as donor countries face economic turmoil in the global recession, there will be a drop in aid because they will not be able to afford to give away the same percentage of their GDP that they did in more prosperous times. It is speculated that official aid to developing countries might fall by around $20 billion dollars this year due to the economic meltdown. Perhaps more importantly commodity prices will fall during this economic recession, and countries that depend on exporting will be hurt.

Suzanne Freidberg, Assistant Professor of Geography at Dartmouth College, notes that historically, economic recessions have negatively affected developing exporting countries, citing the bankruptcy of Upper Volta (now Burkina Faso) during the Great Depression. The economic recession will therefore lead to undermined growth and decreased aid for the world's poor. Yet Freidberg warns not to take a simplistic view of this crises by reminding us, “...falling commodity prices can be bad for countries that are dependent on exporting... cotton or copper or whatever, but the extent of the price of the goods they need falls as well, like [fuel]. That may balance it out.” She goes on to warn us about an over exaggeration of the affects of this economic crisis on the third-world poor, because “many

members of that bottom billion have never really benefitted from the aid in the first place.” So if the international development community wants to really help the third-world poor, they must provide safety nets to protect the poor in developing nations during times of crisis, economic or otherwise, because they are the ones most hurt.

Since 1949, the United States has devoted itself to, in Truman's words, “aid the efforts of economically underdeveloped areas to develop their resources and improve their living conditions” (Pronk et al., 2004). The International Monetary Fund was founded upon these words, to be an institution that helped countries grow economically and reduce poverty around the world (IMF 2009). The IMF provides loans to countries on conditional terms, so that the countries can grow economically under global guidance. The World Bank also provides loans, credit and grants for developing countries to grow (World Bank 2009). In the past however, their system of aid and loans have hurt the developing world as much if not more than they have helped it. Professor Freidberg notes that during the “economic recession of the 1980's... the difficulties were compounded by

Development AidBy Roberto Marawanga “The economic recession will

therefore lead to undermined growth and decreased aid for the world's poor.”

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the structural adjustment policies that were imposed by the World Bank and IMF.” And in the wake of this economic crisis, both NGOs are working to speed the recovery, but their post-crisis actions cannot necessarily save the world's poor from being unduly hurt by the global recession. Furthermore, considering the relatively slow recovery process of developing countries from economic shocks, post-recession measures will do little for the world's poor, whereas protection against economic crises would go a lot further in helping (Dercon 2003). The world's poor need insurance against these global crises that start in the developed world and trickle down.

Due to the economic crisis, world trade is expected to drop by more than 13%, which has detrimental affects to the developing world (Carstens 2009). That fact coupled with the decreased levels of aid will exponentially affect the poorest countries due to magnification. The global recession has hurt NGOs like World Neighbors, a 60-year old international developmental organization that helps around 500,000 people a year. The organization's budget has dropped from $10 million, ten months ago, to $6 million today (2009). This is a substantial loss in aid available to give for development and will result in many programs for the world's poor being undermined and scaled back. “If international aid does fall dramatically, then certainly people who are dependent on certain kinds of programs will be hurt by it.” says Professor Freidberg.

The question of how we can protect the world's poorest people from feeling the magnified effects of this time of economic hardship and falling international aid is one that has many answers. One answer is for the international development community to shift into promoting lower risk activities that will make it harder for the developing area to be adversely affected by the economic recession (Derocon 2003). However, a shift into low risk activities also leads to lower returns on investment. This is a problem, because the rapid economic growth we all would like to see in the developing world cannot come from low-risk activities. According to Professor Freidberg, economic recessions heavily affect the formal

economy of developing nations, because they are more dependent on world markets. So in this time of global recession, a movement away from supporting these kinds of businesses that are particularly sensitive to world markets would not hurt.

A simple way to insure the world's poorest from the problems that arise as a result of economic turmoil is to make sure the programs implemented by the international development community provide as many different protections of the poor as possible. In 2005, an estimated one in six people raised themselves above the $2-a-day poverty line, yet due to this economic crisis an estimated 65 million people will fall below that $2-a-day poverty line this year alone (Economist 2009). Thus, it is imperative that developmental programs provide their beneficiaries with as many safeguards as possible. For example, the NGO KickStart that sells micro-irrigation technologies, such as pumps, to poor farmers to increase their crop yield offers a one-year replacement guarantee for their product (KickStart 2009). They also test every single one of their products before they sell them to the risk-averse farmers. If a product the farmers buy fails them, then that could be the difference between life and death. So it is imperative that the international development communities try to shield the poor from shocks like the economic meltdown we are seeing today or more direct shocks like those disasters due to weather.

In developing countries there are also informal risk-sharing networks, through one’s family or tribe that protect people from crises. It would help to formalize these institutions and ideally create a kind of collective insurance system for poor communities so they could shield themselves from times when, the world economy is bad or when there is drought (Dercon 2003). Another way the international development community can protect the poor is by teaching and encouraging saving techniques amongst them. If the poorest people have savings, they will be able to survive even in times of crisis. They will have insurance to continue their lives and invest in low risk activities

that could lead to steady economic growth. That with the coupling of access to credit...

An effective insurance model, but one that would be hard to institute, would be an insurance net that protected the world's poor. Now, this kind of safety would be impractical for the governments of developing regions to implement because it would not be cost effective for these generally inefficient governments to set up such a system. It would have to be implemented by the NGOs operating in the developing countries. Micro-insurance, that could protect the poor from economic shocks, environmental shocks etc. would be a feasible way to provide a safety net (and Roland Bénabou 2006). The model would be a slight variation from the micro-credit programs that have already been implemented in developing regions all over the world (Dercon 2003). On micro-insurance, Professor Freidberg states “think micro-insurance is something that would be...I mean insurance in general, be useful, regardless of the state of the global economy, because micro-insurance for small farmers for example. For a lot of small farmers the more perennial concern is the weather. And that’s something that they need insurance for.”It is easy to think that a fall in international development aid will have cataclysmic effects on the third-world poor, yet in reality the truth is that the global poor have a history of survival. They are people avoiding destitution, and the creation of the informal economy is a testament to the sophisticated ways in which they have managed to survive. Professor Freidberg expresses this notion by saying that, “F, people [in third world countries] have been coping with crisis for years.” So we should not fall prey to the dire predictions of extreme poverty in the third-world due to this economic crisis, because there always has been extreme poverty in these nations and the poor have always found ways of surviving. Instead of post-crises measures, the international development community should focus on protecting the poor from crises in the future. Working to teach savings techniques, offering micro-insurance, and putting in place safeguards for development programs will all help the bottom billion immensely during times of crisis.

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The Zimbabwean Dollar: Dying to Live?By Kedar Mulpuri

Since the dawn of the 21st century, the hyperinflationary measures of the

Zimbabwean dollar (ZWD) have plagued the economics progress of the nation.

When Rhodesia gained sovereignty from Britain on April 18, 1980, the former colony became known as Zimbabwe and

proceeded to replace the Rhodesian dollar with the ZWD (Central Intelligence Agency n.d.). At its peak,

the ZWD was once worth 1.59 United States dollars (USD) but experienced sharp declines after land reforms in the

early 1990s contributed to the currency’s hyperinflation, causing it to become extremely devalued (Rukuni 2001). These land reforms that arose under President

Robert Mugabe’s policies caused inexperienced black farmers to gain land from more experienced white farmers,

resulting in plunging of Zimbabwean

agricultural productivity and the ZWD. In order to compensate the lack of food production and revenues, the Zimbabwean government continued to

print money (Greenspan 2007, 339).

According to Former Zimbabwean

Foreign Affairs Minister Jafari Banda, estranged from the Zimbabwean government after a failed assassination

attempt on Mugabe, “What happened in Zimbabwe is that production stopped. An endless cycle of

corruption brought a cease in production. We were not producing anything. The

corruption led to a disruption in the industrial and agricultural

infrastructure, which are the backbone of the economic sector. We weren't producing, we

weren't mining, no industry, no commerce, no farming.”

With these land reforms continuing well into the 21st century, the country

experienced spiraling hyperinflationary rates. By

2004, the rate of inflation was 624% (Crisis Times). In a desperate attempt to fix the currency value, the Zimbabwean government revalued the currency from

1000 ZWDs to 1 ZWD. This was highly unsuccessful in stopping the monstrous inflation, however, as the ZWD

continued in the established pattern of hyperinflation, reaching 1,730% in 2006. Dr. Gideon Gono, the governor of the

Reserve Bank of Zimbabwe, announced the currency had to be printed in order to buy foreign currency to pay overdue payments to the International Monetary

Fund (Seria and Mutizwa 2007). In addition, currency had to be printed to account for the rise in salaries for civil

servants, including soldiers and policemen (Chikwanda 2008).

The Zimbabwean government could barely print enough currency to match the hyperinflation, so it requested citizens to add 0 digits at the end of existing

currencies’ value. On the day of introduction of the 100 billion dollar bill (~1 USD) in July 2008, the amount was

able to purchase a measly three eggs at the average local market (BBC News 2008). In its latest figure, Zimbabwe had

reached inflation rates of almost 516 quintillion percent with a monthly rate of

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79.6 billion percent or a daily rate of 98% (Berger 2008). The greatest cause of this new surge in hyperinflation is the ongoing cholera outbreak that decimated

the country starting August 2008, resulting in even greater food shortages (Shaw 2008). This correlated to a

doubling of prices almost every 24.7 hours, akin to the hyperinflation of post Second World War Hungary (Hanke

2009). The ZWD reached such inflated rates that 100 trillion dollar bills eventually came into production in January 2009 (BBC News 2009). These

bills themselves could hardly purchase any goods in the market.

By this point, Zimbabwean traders completely abandoned the ZWD, adopting the more stable US dollar or

South African rand (ZAR) instead. The Zimbabwean government legalized the use of these new bills in February 2009, while it tried to revalue the currency

(BBC News 2009). The government was able to bring the value of its currency to more manageable face value, reducing

the once $1,000,000,000,000 bill to $1 in February 2009 (Reuters 2009). The new currency was almost completely

irrelevant as most of the citizens in Zimbabwe refused to use it. The government officially ceased production of the ZWD in April 2009 and does not

plan on reintroducing it again until 2010 (Seria 2009).

According to Economics Professor James Feyrer at Dartmouth College, “My understanding is that the dollar (and

other "hard" currencies like the Euro) were acting as defacto currencies long before they finally abandoned the Zimbabwean dollar. If you were

exporting to Zimbabwe you had no interest in taking the Zimbabwean dollar as payment. The dollarization formalizes

this and should increase the volume of trade. For Zimbabwe they get to use a

currency that has low inflation and high international credibility. The US actually benefits because there is seigniorage on the dollars being used in Zimbabwe.

This amount to a very small amount since the Zimbabwe economy is so small relative the US economy.”

About the effect of dollarization on the economies of countries involved, Banda

had to say, “It leads to distortions because the price of commodities is regulated by supply and demand, which varies from country to country. The effect is perhaps

negligible depending on the size of the ‘parasite’ economy and commerce. The intent behind dollarization is to generate

foreign currency in order to participate in foreign trade. But if it is the ZAR, the use of it Zimbabwe would greatly negate its

strength and stability. In comparison, the Zimbabwe Reserve Bank at peak would hold 5 million USD to support the entire economy whereas 5 million USD isn’t

even operational for a Bank of America branch.

For a while, Mugabe and his Zimbabwe African Nation Union – Patriotic Front (ZANU-PF) denied their policies as the

major cause of Zimbabwean hyperinflation, blaming international sanctions by the US, EU and Australia on politicians and businessmen loyal to

the Zimbabwean government (Ababa 2009). However, with opposition running high, Mugabe’s administration

apologized numerous times and attempted to fix the crisis. Mugabe eventually succumbed to popular

demands for him to share power with opposition party leader Morgan Tsvangirai of the Movement for Democratic Change – Tsvangirai (MDC-

T) party. Tsvangirai was officially sworn in as Prime Minister on February 11, 2009 (GlobalPost 2009).

Professor Feyrer also notes, “If Zimbabwe intends to reintroduce a domestic currency the only way to regain the public trust is to credibly promise to

make the new currency stable. One way to do this is to peg the currency to a stable currency or have a currency board

where there is 1:1 backing of the new currency with the dollar or other stable currency. Pegs can be broken, however,

and it may take time to regain the trust of the public.”

About the dynamics of the economy,

Banda had to say, “Zimbabwe needs to restart production. Get the industries running and farm the lands you seized.

All will be futile unless there is a conducive political atmosphere in order to encourage foreign investors to invest

and operate businesses that would restart commerce, industry, and farming.”

The currency issue brings up many

important consequences for the future of Zimbabwe. Now that Zimbabweans removed the ZWD from use in their daily

lives, how will it affect the stability of the Zimbabwean economy? How will international trade operate under this

new system of dollarization? With the new combined party coalition ruling, will Zimbabwe be able to surmount the overwhelming economic pressures? Will

the ZWD ever gain the trust of the people and come back into popular use? While economists are still gathering data

on these economic implications, we can all hope that in the meantime Zimbabwe will be able to forge a new future.

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The French pride themselves on many things – as much as they relish in fine wine and culture, they carry enormous pride over their transportation systems. The TGV (Train à Grande Vitesse) is a high-speed rail service connecting over 200 cities in France and several neighboring countries. With the world record for the fastest train and with tickets starting from 17 Euros (under $23), the TGV is an attractive alternative to airline travel. Their website impressively utilizes an eco-comparer, which allows passengers to compare ticket prices and carbon dioxide emissions of trains and low-cost airlines.

According to Dartmouth College French professor Brigitte Mosenthal, “There is no question about the success of the TGV. It’s a technological success and a commercial one.” Although there are many competitors in France’s transportation industry, the TGV stands out because of its dynamic marketing and constant stream of new ideas that attempts to appeal to a wider variety of consumer groups. In addition, the TGV is expanding its boundaries – in 2007, a new line was added in eastern France, connecting over 20 cities and 37 million more people. The line is not only a success for TGV, but for the cities’ inhabitants as well by changing how (and where) business is conducted.

Guillaume Pepy, chairman of SNCF, the French National Railway, hopes to establish TGV as a household brand for the middle class. In an interview with The Spectator, he states, “It’s a customer good. Think of it: [Dannon], Pepsi, Nike, TGV… Students might buy a DVD, download more music or buy a ticket for the train. I want to see TGV tickets in bubble packs in supermarkets, so people can buy themselves little treats.” (Collins 3) After Mr. Pepy took charge in 1997, the high-speed railway began to see profits, due to its management and marketing. It uses a low-cost airline-pricing model, in which prices rise closer to the date of departure. In 2008, ridership within France reached 98 million, a 9.1 percent increase from 2007 and occupancy was over 80 percent.

Constant innovations since its conception have also made the TGV a fierce competitor among high-

“There is no question about the success of the TGV. It’s a technological success and a commercial one.”

Brigitte Mosenthal, Dartmouth College French Professor

TGV Trains: The Pride of FranceBy SangHee Chung

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speed railway services. The first double-decker train was built in 1995 and is still in production. The trains carry 50 percent more passengers, allowing TGV to achieve economies of scale. Less than three years ago, SNCF launched iDTGV, which offers passengers several options between iDzen, a more relaxing atmosphere which offers sleeping kits, and iDzap, which provides a barista, books and Portable PlayStations (PSPs) for hire. The iDNiGHT concept, which targets travelers aged from 18 to 30, has a bar coach with DJ entertainment and a separate lounge space for card games and DVD rentals. According to Mosenthal, “[The TGV] has been amazingly aggressive with their advertisements, and it’s worked. The train has been used by every branch of the population, yet there is a certain prestige. Politicians use them all the time – they’re even willing to be interviewed on the train.”

In 2007, TGV launched the LGV Est européenne, connecting Paris and major eastern cities in France, including Strasbourg, Nancy, and Metz. The addition has significantly cut travel time – a car ride to Nancy, for instance, which would take four hours from Paris, is now only 90 minutes away. An accessible train line essential brings the capital closer to the city’s inhabitants, and Mosenthal describes this as the “decentralization of business,” where establishing business in cities such as Nancy

actually becomes a feasible idea. According to Mosenthal, “one can have a great quality of life but can still compete with larger companies.”

Nancy, in fact, prides itself on the investment opportunities it has to offer. With over 10,000 m2 of immediately available office space, it has become one of the largest markets for office space. According to Nancy’s Development and Urban Planning Agency, Nancy has over 1,800 new businesses created every year and over 24 million consumers within a 200-mile radius. The addition of the train line also makes connections to London and Brussels possible.

The LGV Est européenne is still currently under construction and plans to connect several cities in Germany and Switzerland (for a total of over 300 km of tracks planned) and it is unlikely that projects would stop there. Although the United States has yet to create a major high-speed train service across the country, there may still be hope in the coming years. As President Obama stated, “What we need, then, is a smart transportation system equal to the needs of the 21st century, a system that reduces travel times and increases mobility, a system that reduces congestion and boosts productivity, a system that reduces destructive emissions and creates jobs.” (Knowlton 16)

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On February 16, 2009 Christophe de Margerie, the Chief Executive of Total, a French oil corporation, said that, “National oil companies, which control the vast majority of the world's oil, and independent producers, which play a key role in

finding new sources, were substantially limited in their ability to fund investments in the current [financial] environment” (Hoyos). What de Margerie is speaking of is the

fact that a current lack of oil demand has brought about decreased investment in exploration. At the moment, the price of oil is hovering around $50 a barrel, one-third of its

contemporary peak price (Energy Prices). While prices around $50 a barrel are advantageous for economic recovery, this glut of supply effectively reduces the amount of exploration done by independent producers and integrated oil corporations.

Marcel Coutu, President and CEO of Canadian Oil Sands Trust, the largest single shareholder in the Canadian tar sands

Syncrude project, “…[anticipates] natural production declines due to lower industry reinvestment in producing fields and production cuts by OPEC nations” (Harrison). It is this “lower

Drop in Oil Exploration a Dangerous Path to Pursue?By David Kellenberger

“Lowering long term investment in exploration as well as reinvestment in current fields will lead to an even worse situation when oil prices correct with the global economic recovery.”

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industry reinvestment” that will lead to problems in the coming years (Harrison). Western oil reserves and production will

once again become strapped upon economic recovery, and the last thing that we need to

see is less investment in producing fields.

If almost all longer-term future projections predict decreasing oil supply and rising demand from developing countries like

India and China, then why is investment being reduced? One would think that investment in

exploration and reinvestment in currently active fields would be increasing. However, this is not

the case. Robert M. Grant, in

his book, Strategic Planning in a Turbulent Environment: Evidence from the Oil Majors, touches upon

on how major oil corporations strategize in the market place. He notes that for the major oil corporations (Exxon Mobil, Chevron, Shell, etc.), “…the planning systems of the 1970s and

1980s were highly formalized” (Grant). However, “By 1996-1997, planning systems were far more informal: there was less emphasis on

written documentation, strategic plans were

shorter” (Grant). Ever since the oil industry slump of

the early 1990s due to very high levels of supply,

they have followed shorter strategic plans (Grant). Thus they reduce

investment, as oil demand in the near future is not predicted to rise.

Even though the longer term, formalized models earlier used by oil corporations led to high production in the 1990s, these

same models in turn would fuel problems in the future industry. For example, the high levels of petroleum production pushed oil prices down to the $10-$20 level, a level that had not been seen since the 1973 oil shock. This price drop sent profits

plummeting across the board. The popular response to this dilemma was to develop much shorter-term strategies so they would not be left vulnerable to these nearer term price swings

like the one in the 1990s. However, while these strategies help shelter the corporations from short- term losses, they do this by lowering long term investment. Lowering long term investment

in exploration as well as reinvestment in current fields will lead to an even worse situation when oil prices correct with the global economic recovery. Forecasts on future supply are already harsh enough, and the added impact of fewer new

findings and less expenditures on new equipment will only increase the pain.

While oil corporations’ responses to short term conditions with long-term courses of action protects them from overproduction and a loss of profit, it lowers future oil supply. This is inherent

to how these companies operate. The solution to this problem would seem to be increased investment in clean alternative energy research and also in untapped, non-traditional sources of energy, such as the Canadian Tar Sands. This investment in

future energy supplies will offset the decreased investment by integrated and independent oil corporations. It will also aid in the process of finding a clean alternative to crude oil, and in

longer run reduce our carbon emissions.

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Works Cited

Current Officers Contributors Content Editors

President: Rubin SrimalTreasurer: Tony Deng

Secretary: Alexander VillarHead of Business Section: Kunal Arya

Head of International Section: Giulia SiccardoHead of Investment Section: Kareem Halim

Head of Interviews: Tony DengHead Content Editor: Bryon Alston

Layout Editors: Anoosha Reddy & Ellena KimWebsite Development: Jack Liu

Business:Kunal AryaMike Katz

Dave KellenbergerKihyun KimRay LeoniIrfan Mulic

Youngsoo ParkBlair RandallRubin Srimal

Alexander Villar

International:Giulia SiccardoSangHee Chung

Michael C. JosephAlex Lucey

Roberto MarwangaKedar Mulpuri

Anoosha ReddyLong Sha

John SpradlingValentin Yanev

Investments:Kareem Halim

John W. SpradlingNicolas Santoni

William MergnerDavid Rogg

Bryon AlstonRyan McClafferty

Sisi YaoMike Novosel

Nathaniel Kanefield

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Structured FinanceCoval, Joshua, Jakub Jurek, and Erik Stafford. “The Economics of Structured Finance.”Unpublished essay, 2008. Harvard Business School, Boston.

The Girl EffectBorges, Phil. 2007. Women Empowered: Inspiring Change in the Emerging World. New York: Universe.Herz, Barbara, Gene B. Sperling, and Council on Foreign Relations. 2004. What Works in Girls' Education: Evidence and Policies from the Developing World.Kristof, Nicholas D. 3 July 2008. The Luckiest Girl. New York Times. 3 July 2008. http://www.nytimes.com/2008/07/03/opinion/03kristof.html?ex=1372737600&en =17eefa72e2388b12&ei=5124&partner=permalink&exprod=permalink>.Patrinos, Harry Anthony and George Psacharopoulos. 2002. Returns to Investment in Education: A Further Update. Policy Research Working Paper Series 2881, The World Bank.Stanford University. Economic Barriers to Education in Kenya. http://www.stanford.edu/group/womenscourage/GirlsEducation/kersten_economic_barriers.html. The United Nations. The Millennium Development Goals Report. http://www.un.org/millenniumgoals/pdf/The%20Millennium%20Development%20Goals%20Report%202008.pdf (accessed April 17, 2009). UNESCO. 2003. Education for All Global Monitoring Report 2003/4.http://portal.unesco.org/education/en/ev.php-URL_ID=23023&URL_DO=DO_TOPIC&URL_SECTION=201.html.

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The Zimbabwean Dollar: Dying to Live?Ababa, Addis. "Mugabe: Western Sanctions to Blame for Zim Crisis." Mail & Guardian, February 3, 2009.BBC News. "Zimbabwe Abandons Its Currency." BBC News, January 29, 2009.BBC News. "Zimbabwe Introduces Z$100bn Note." BBC News, July 19, 2008.BBC News. "Zimbabwe Rolls Out Z$100tr Note." BBC News, January 16, 2009.Berger, Sebastien. "Zimbabwe hyperinflation 'will set world record within six weeks." Telegraph, November 13, 2008.

Central Intelligence Agency. "The World Factbook - Zimbabwe." https://www.cia.gov/library/publications/the-world-factbook/geos/zi.html (accessed May 17, 2009).Chikwanda, Kuda. "Zimbabwe: Inflation Shocker - 1 700 000 Percent." Zimbabwe Independent, May 26, 2008.Crisis Times. "Hyperinflation - Effects and How to Survive It." Crisis Times. http://crisistimes.com/hyperinflation.htm (accessed May 17, 2009).GlobalPost. "Tsvangirai sworn in as Zimbabwe's new prime minister." GlobalPost, February 11, 2009.Greenspan, Alan. The Age of Turbulence: Adventures in a New World. New York: Penguin Press, 2007. Hanke, Steve H. "R.I.P. Zimbabwe Dollar." Cato Institute, February 9, 2009.Reuters. "Zimbabwe revalues currency again." Reuters, February 2, 2009.Rukuni, Charles. "Zimbabwe: Hell for Locals, Paradise for Those With Forex." The Insider (Harare), July 31, 2001.Seria, Nasreen. "Zimbabwean Dollar Won’t Be Reintroduced for a Year." Bloomberg, April 20, 2009. Seria, Nasreen and Godfrey Mutizwa. "Zimbabwe Devalues Currency by 98% to Boost Exports." Bloomberg, April 26, 2007.Shaw, Angus. "Zimbabwe calls for help as cholera overwhelms doctors." The Independent, December 4, 2008.

TGVCollins, Neil. “French trains: faster, cheaper, greener, sexier.” The Spectator. 7 April 2007: 28-29.Faithfull, Marl. “Rapid trains of thought.” Business Travel World. May 2007: 18-19.Knowlton, Brian. “Obama Seeks High-Speed Rail System Across U.S.” The New York Times. 17 April 2009: 16.Promoting business and economic development in Greater Nancy. 2009. Urban Community of Greater Nancy. 30 April 2009 < http://www.eco-grandnancy.com/anglais/index.php4>.“SNCF Eco-Comparer.” SNCF.18 May 2009. 30 April 2009 < http://www.sncf.com/en_EN/html/page/CH0006-Ecomobility/BR0530-SNCF-Eco-comparer.html>“TGV Train” RailEurope. 2009. 22 April 2009 < http://www.raileurope.com/train-faq/european-trains/tgv/index.html>Wells, Paul. “Now Even the French Go Faster Than Us.” Maclean’s. 7 Sept. 2007: 12.

Drop in Oil Exploration a Dangerous Path Hoyos, Carola. "Total says oil output is near its peak." Financial Times (2009): 22. Grant, Robert M.. Strategic Planning in a Turbulent Environment: Evidence from the Oil Majors . Strategic Management Journal. 24, John Wiley & Sons, 2003. "Energy Prices." Bloomberg. 2009. <http://www.bloomberg.com/markets/commodities/energyprices.html> (accessed May 5, 2009).Harrison, Lynda. "Canadian Oil Sands' Profit Takes Deep Dive." The Daily Oil Bulletin. Nickle’s Energy Group. May 1, 2009. (accessed May 5, 2009).

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