neil ferguson, kishor and wada. also, how in the world did one of the world's greatest sellers in the global bazaar lose its mojo? i'll explain. first, here's my take. president obama spoke forcefully in his state of the union about the importance of reviving manufacturing in america. if you talk with economists, they'll tell you it's a very complex problem involving tacks, trade, regulatory policy, exchange rates, educational skills. it is all those things, but when you move from high level policy to specific cases, you will often find within element that is rarely talked about. a government's role in boosting its domestic manufacturers. in a front page story last week, the "new york times" detailed how apple's iphone ended up being made outside america. "the times" wrote about the apple executives who visited a factory in china to see if it could cut the glass precisely for the phone's touchdown screen. when the apple team got there, the factory owners were already constructing a new wing. this is in case you give us the contract, the manager explained. how could they afford such an extrav gantt gesture? it turns out, "the times" noted that they received subsidy from the chinese government. that one incident is part of a pattern. in 2009, for example, bridgelux, a light emitting chip manufacturer in the united states was searching for a new factory site. the company considered the cost of building in the u.s. and elsewhere. the government of singapore offered to pay half the set-up cost of the plant. why can't we do that here in the u.s.? the ceo bill watkins asked. andrew, the ceo of dow chemical, has been arguing for a national policy aimed at reviving manufacturing. in his book "make it in america" he argues that not only would a manufacturing policy produce good long-term jobs, it would upgrade the jobs skills that are crucial to keeping innovation alive. innovation doesn't just happen in laboratories by researchers, he told me. it hams on the factory floor. the process of making stuff helps you experiment and produce new products. if everything is made in china, people there will gain the skills, knowledge, and experience to inovate, and we will be left behind. companies can't compete with countries, he said. take solar energy, an industry largely invented in america in which the manufacturing has largely moved to china thanks to massive state subsidies. or consider wind turbines. china's biggest windmill makers have received more than $15.5 billion in credits from state-owned banks. as a result, despite many concerns about quality, they won their first major foreign orders in the past year. over time they will gain experience, improve quality, and further reduce costs. industry after industry, the same pattern emerges. i'm deeply skeptical of government industrial policy. government doesn't know how to pick winners and losers. it makes mistakes. the process gets politicized. yet, when i look around the world, particularly in asia, i see governments playing a crucial role. they do make mistakes. they seem to view it like venture capitalists. their role is to seed many companies, only a few will succeed. once successful, the government helps these companies to compete against big american and western multi-nationals. there used to be a joke among marksist economist who's would say of a deviation from pure communist economics, it might work in practice, comrade, but it doesn't work in theory. that's what industrial policy looks like these days. the theory doesn't make much sense, but it's hard to argue with the results. for more on this, you can read my column in this week's "time magazine." let's get started. zirchgs it's a great pleasure to have timothy geithner, the treasury of the secretary. >> nice to be here, fareed. >> let me start with an easy question. what is the united states economy going to grow at this year? >> there are no oracles in economics, and it's still a pretty uncertain world, but i think that conventional view of the u.s. now is that we're growing between 2% and 3%. i think that's a realistic outcome as long as we see more improvement in europe and as long as we don't see a lot of risk come from iran on the oil front. >> that scenario of 2% to 3% growth seems a little different from what ben bernanke thinks growth is going to look like. have you read the statement the fed put out, and it was a very bearish statement. to be willing to almost guarantee that rates will be kept where they are until the end of 2014 suggests they don't see any growth of any robust growth for a long time. are they wrong at the fed? >> i'm not a forecaster, so my view is not worth much, but if you look at the -- both the fed's forecast and the consensus of private forecasters in the business community among economists, people are pretty close clustered in that area, but it's still very dependent on how the world unfolds. again, i think it's worth recognizing that, you know, we still face tremendous challenges as a country. we're still repairing the damage caused by devastating financial crisis. that still has huge lasting impacts on the basic fortunes of most americans. unemployment is still very high. housing is still very, very weak. construction is very weak. people still have too much debt. they're bringing that down, and that's still going to take a while to repair. >> you know, there is a very well established narrative now among the business community in the united states that there would be much morrow bust recovery. the u.s. economy would be growing much more vigorously if there were greater certainty and businesses could invest and the reason they are not is a kind of tsunami of regulations, uncertainty about tax policy, uncertainty about the deficit, but perhaps above all, the sense that the economy is being thrown this huge new wave of regulations in health care and finance and energy and that that is what is keeping the economy back. >> i don't think there's much basis for that view, although it is true that we are putting in place very tougher reforms in the financial sector. we're trying to improve how the u.s. health care system works, and we're trying to change how americans use energy, and those are necessary, desirable, very important long-term reforms for the united states, but i think if you look at the evidence we have about how the economy is doing and how the business community is doing in particular, the reality is not justifying that sense. so just look at the things you can use to measure -- basic health, business health. you know, profitability across the american economy is very, very high. profits are higher than the pre-crisis peak. if you look at investment as a measure of confidence, private investment and equipment of software is up more than 30% since the trough in the first half of 2009. exports are up 22%. there's broad-based strength in ener energy. i was at a plant in north carolina this week, which is building staem and gas turbines and generators, and for exports. they're doing that because they see in the basic fundamentals the proximity of the united states even with all our challenges pretty compelling, competitive vantage relative to where else they produce. if you look at the basic health of the american business sector, it's much stronger than i think anybody would have thought at the peak of our crisis. sgrool while business profitability is up, productivity is up, unemployment still remains a huge challenge. many businesses have become more prukive because they've taken costs out of the system. they've managed very efficiently. the biggest determiner of how fast we grow now is going to depend on the two fundamental factors. one is what happens in the world. meaning in europe and in the gulf, and because of oil. congress decides they want to legislation things good for growth in the short-term, so we think the right economic agenda for the country is for us to legislate a set of investment incentives, investments in things that matter for long-term growth, rebuilding america's infrastructure, more education, more spending on innovation, basic science and research, better skills for americans tied to long-term fiscal reforms that restore sustainability, and if we were able to legislate progress in those things in the short-term, that would make a big difference for confidence. it would make a difference for the rate of growth of the american economy in the short run. but to be realistic, it's going to take a long time still for us to fully repair the damage particularly unemployment that came as a cause of the crisis, but the private sector has created 3.2 million jobs since job growth resumed. that's pretty strong job growth compared to the last two recoveries, and it's pretty strong given the after shocks of the crisis. we all want it to be stronger, though. >> most people who look at the american tax code, which is with regulations and rules, 10,000 pages, one of the most complicated in the world, believe that the key to reforming the tax code is broaden the base, eliminate deductions and loopholes, lower rates. isn't the president's proposal in the state of the union taking us in exactly the opposite direction? >> not at all. the president's proposals, which are phobinged on a set of investment favorable reforms in the corporate tax system, manufacturing and investment, and on a modest but necessary increasing the effect of tax rate paid by the richest americans, those two things are only going to come. i think realistically in the context of broad reform. what we're trying to do is lay the foundation for tax reform so that we can produce a more simple system, lower rates, more simple, less distortions. >> not why just propose tax reform? >> because i think you have to start with principles for a pram work, and what we're trying to do is be specific on what should dominate the debate. i wish it were different for us, but the basic feud fiscal realities of the united states now and we have to recognize we have to govern within those limits, means that when we do tax reform, we're going to have to be helping contribute to deficit reduction. we don't have the ability of offering the american people or the american business people community a net tax cut. that is beyond the capacity of anybody realistic about our constraints, but, again, just to put in perspective, our fiscal problems are daunting for us in the long run. they are much more manageable problems than faced by almost any major economy around the world, and it's important not to lose sight of the fact that given the high level of unemployment, given the very bad outcomes for median income in the united states over the last 30 years, 20 years, ten years, given the -- just appallingly high rates of poverty in the united states, given the competitive challenges we face, that's going to require pretty significant investments in infrastructure and education innovation, you have to take a much broader approach, and we're not going to solve our problems in the country by thinking their centrally about how we restore fiscal sustainability. that's part of it. it's not the dominant challenge we face as a country. >> we will be right back from davos with the secretary of treasury of the united states timothy geithner. >> you made news a couple of days ago when you made clear that you were not going to serve in the second term of the obama administration. is that his choice or yours? cut. cut! 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[ male announcer ] one pill a day. 24 hours. zero heartburn. >> we are back here in davos, switzerland, home of the world economic forum. more of my exclusive interview with timothy geithner, the secretary of the treasury. >> when you look at your -- mr. seasoning, you look at the growth projection that is are coming out, and they are lower than what was projected, when means that the deficits are larger, which means that the debt to gdp is larger. the debt to gdp is larger in almost every case, not because the debt has gone up, but because the gdp has gone down. not that -- the denominate over has shrunk. does that suggest that austerity is not a path to growth? >> i think the debate about austerity and stimulus is mostly divorced from a much more practical reality. the prop ownents of stimulus i think today now probably exaggerated its power and its reach now it is true, however, though for parts of europe for a long period of time there's going to be no alternative to very substantial adjustment in budget deficits in the size that the government has made. there's no alternative to that. for those reasons, though, they need support and financing and they need to be complemented by reform that is are also helpful for growth and competitiveness over time. if there's not a stronger commitment of financial resources standing behind the european endeavor and without that those reforms will never work, and you're right, countries will face the work that every disappointment and growth will be met with an aughts airport that will feed deet cline xshgs that's a cycle you have to rest if you saw financial crisis. snoo when you were in china, did you talk about u.s. china trade in a way that you think you will see results because the president in his state of the union was pretty tough on china. do you think there was a path here, a construct i path forward? >> well, you'll have to see. we measure people by their actions. you know, china does present a unique and formidable challenge to the global trading system because the structure of its economy even though it has more of a marked economy is more overwhelm leg dominated by the state, by state enterprises and china systematically subsidyizes, the price of land, and its kept its exchaunk rate below fundamentals for some time, although it's appreciating gradually. what that means is china, even though in many ways it's starting to have a world class manufacturing sector is supporting that ambition with the set of policies that are very damaging to not just the commercial and economic interests of its trading partners, but to the political support around the world for sustaining a more open trading system, and they are moving on some fronts. we just like to do more. we'll have to see. >> i think -- i do think china believes that it's in its interest to try and make this broader system work. of course, it depends a lot on its access to our market and other markets around the world, and we hope that provides enough incentive for them to make more progress in these reforms. >> let me ask you a final question. you were surprised that you made news a couple of days ago when you made clear that you were not going to serve in the second term of the obama administration. that his choice or yours? [ laughter ] >> that's an excellent way to pose that question. you know, generally anybody who takes these jobs is at the pleasure of the president, and at a time when we face so much challenge, so much pressure, if the president asks you to do these things, have you to do them. when he asks me to stay and i thought it was the right time to leave, i agreed i would say stai. i agreed i would stay through the balance of his term, and he accepted that aspiration of mine. that's where it's going to come out, i think. >> what are you going to do next? >> it feels like a long way away. again, we're in europe. i know the -- we are living with terribly challenging and hugely consequential economic policy choices. we have a lot of unfinished business even on the financial reform side, and a lot of foundation laying for better policy outcomes on the things that are good for growth investment and not just for the long-term fiscal -- we have a long year of hard work, and i know it's a political moment in the united states, and people are skeptical about whether we can do anything, but our judgment is that we still have a chance in some of these areas to make some progress, and i'm going to focus on that as long as i can. >> tim geithner, pleasure to have you. >> myself to see you, fareed. thank you all. >> we will be right back with a story you won't want to miss. why one of the world's greatest exporters is now buying more goods than it's selling. a fascinating reversal of fortunes in asia. 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[ major nutrition ] ensure. nutrition in charge! wherever you are in the world, you have probably used or coveted some japanese product. a honda four-wheeler, toyota prius, a panasonic tv, a nikon camera. from the 1950s japan's exports have flooded the world and fueled the american-led home making that country -- one of the world's great export engines has run out of gas. what in the world is going on? in simple terms that, means japan imported more than it exported last year. now, this is not that unusual for some rich countries. the u.s. has had a trade deficit since 1975 and, yet, we've grown. but the u.s. economy is not built on exports. japan's economic rise on the other hand has been almost entirely powered by exports. so what has changed in japan? the japanese government would like to blame one-off events. last year's earthquake and tsunami crippled factories and shut down nuclear energy reactors. the off shoot of that was decreased economic output. plus, they needed import expensive oil from the middle east. natural disasters have only highlighted and accelerated existing trends in japan. a decline in competitiveness and an aging work force. china and other ease asian country with make cheaper products and in greater quantities. add to that a rising yen, and japan's exporters have been at a disadvantage globally. it doesn't make sense to manufacture in japan. add to this japan's demographics. between 1990 and 2007 japan's working population dropped from 86 million to 83 million. at the same time americans between the ages of 15 and 64 rose from 160 million to 200 million. in a global marketplace this