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The Big Lesson of 2002, Take Two

"What We Learned in 2002" (Editorials, Dec. 30/Jan. 6) was interesting philosophy, but it missed the point of 2002. Yes, the scandals have been the big news item, but they are not the essence of the year. What happened in 2002 was a shift of industrial capital investment from North America to Asia, while American consumer demand was buoyed by low interest rates, tax-rebate liquidity, and soft prices. An economic policy based on stimulating consumer demand may do more for the manufacturing economies of Asia than for domestic capital-goods providers.

An economic policy, to be effective, should analyze the law of comparative advantage and focus investment policy accordingly. We have become neither risk-averse nor overly cautious. What could be higher-risk than a faraway country whose language, politics, and society we neither understand nor fully trust? Rather, as in the past, we will invest for the greatest return, and that is no longer in the domestic market.

Capital is looking for greater returns in rapidly growing markets in places far from home. This is not caution; it is judgment. Neither tax cuts nor lower interest rates will create demand where there is no opportunity for return. The big lesson of 2002 is not corporate governance; it is the shift in economic roles in the global economy.

Ralph C. Deger

Menomonee Falls, Wis. As a professor of entrepreneurship, I applaud Susan Scherreik's refreshingly pragmatic "How efficient is that company?" ("The fine print," BusinessWeek Investor, Dec. 23). Using her "days" approach rather than ratios for managing cash enables the entrepreneur--and everyone else in the company--to consider the cash-flow implications of the decisions they make, whether they're in marketing, operations, or financing. A "days" analysis of the balance sheet should be on every entrepreneur's to-do list at the end of each and every month.

John Mullins

London Business School

London We prefer to receive letters via e-mail, without attachments. Writers should disclose any connection or relationship with the subject of their comments. All letters must include an address and daytime and evening phone numbers. We reserve the right to edit letters for clarity and space and to use them in all electronic and print editions.


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