As the chairman, president and CEO of The McGraw-Hill Companies, Harold McGraw III oversees a $6 billion publishing-to-financial-services conglomerate. Leading the largest-ever CEO delegation to have travelled with the US President in the country’s history, he has his job cut out: to sell the “win-win” in the emerging Indo-US business relationship. He spoke to Hindustan Times on a wide range of issues. Excerpts:
Is free trade a fair weather friend of America?
It better not be. A fair bit of communication, dialogue and education needs to go on. If you have gone somewhat protectionist for whatever reason, there’s got to be a sort of loss factor. This kind of sinks in into the average man and woman that protectionism is good and globalisation is bad. The last two years from an economy’s standpoint has been pretty bad. We have seen a fair bit of protectionism, not just with the US, but in a lot of countries.
When did the job loss issue get politicised?
We can’t find the right medicine. So there is a natural tendency of protectionism. Here you had President talking not about legislation; he was about growth, jobs, trade and commerce. He was doing something that I had not seen him do. He was selling. Yesterday, he was Salesman-in-Chief. Whether you are a governor, a president, a CEO, that’s what you gotta be doing. You gotta convince the population that you are on the right path. And you gotta sell it. My hope is that we have turned the page. That’s why the President’s visit at this point is at a really, really good time.
Is capitalism giving way to a new form of socialism in US?
America never turned its back on capitalism. It never will. It is the horse that got you to be the power you are. From my standpoint, the problem is trying to understand the problem, the magnitude of the problem and what the appropriate fix to that problem is. There was a lot of angst and uncertainty --- there still is. We will probably grow at 2.7% this year and 2.5% next year. You will have to grow at least 3.5% to start to bring the unemployment rate down. I think the President has come to the conclusion that if the developed countries are growing at low rates, which are the ones that are growing faster? He is looking at India, Brazil and China. The natural relationship is going to be the Indian one. There are shared values, shared beliefs. It is not a parent-child kind of a relationship. If you are going to grow at 8-10%, how can I be part of it and can help you at the same time? He is trying to get business to get that message across.
Is capitalism giving way to a new form of socialism in US?
America never turned its back on capitalism. It never will. It is the horse that got you to be the power you are. From my standpoint, the problem is trying to understand the problem, the magnitude of the problem and what the appropriate fix to that problem is. There was a lot of angst and uncertainty --- there still is. We will probably grow at 2.7% this year and 2.5% next year. You will have to grow at least 3.5% to start to bring the unemployment rate down. I think the President has come to the conclusion that if the developed countries are growing at low rates, which are the ones that are growing faster? He is looking at India, Brazil and China. The natural relationship is going to be the Indian one. There are shared values, shared beliefs. It is not a parent-child kind of a relationship. If you are going to grow at 8-10%, how can I be part of it and can help you at the same time? He is trying to get business to get that message across.
The problem is that the US is not as competitive as it once used to be. Post-crisis, is there a resurgence in that area?
Yes. You can see it in so many different ways. Business leaders have not lost their confidence. They have not lost their edge. I think you have just seen a pull back. Now corporations are really redoubling their efforts.
The second of quarter of 2009 saw some demand pull back. There still is some fear of a double-dip (recession), but the probability is not very high. Corporations are sitting on tonnes of money. Their free cash flow is very high,
they have very little debt on their balance sheets, they have got the wherewithal. People are now getting right to the point — innovate and go global. Don’t try and do 15 things, do four.
The President is here because he need to be here. He kept talking about a dynamic two-way growth. That’s kind of win-win relationship that we are going to see. That’s the direction.
One arm of the credit crisis was rating agencies like yours (he heads Standard and Poor’s). When problems hit the ceiling, you said, ratings are merely an editorial opinion, which we believe is simply shirking responsibility.
I’m sorry you feel that way. But it was hard. We are a very proud people. We are also extremely competent at what we do. As professionals if something goes wrong, it hurts. A lot of people don’t know what a credit rating agency is.
There is absolutely nothing wrong with the bonds or the methodology.
The problem we got caught was in the residential mortgage backed market. We know today that the housing recession started in fourth quarter of 2005 and in some cases it still exists. We budgeted for a 15% fall in property prices because that was the worst decline in the past 30 years. But the market crashed by 40% on average.