DARTMOUTH BUSINESS JOURNAL

June 1, 2009 | Spring Issue

MAIN FEATURE:
The Life of a Consultant
AN INTERVIEW WITH JIM BRENNAN ’96, PARTNER
AT McKINSEY & COMPANY

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DARTMOUTH BUSINESS JOURNAL June 1, 2009

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

Structured Finance Nicolas Santoni

An 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 Arya

Should a CEO invest precious cash in productivity increases in this economic climate?

The Girl Effect Anoosha Reddy

Investing in the education of girls in developing nations will lead to stability at both the
microeconomic and macroeconomic levels.

Development Aid Roberto Marawanga

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

The Zimbabwean Dollar: Dying to Live? Kedar Mulpuri

As hyperinflation plagues the Zimbabwean economy, the nation must turn to production.

TGV Trains: The Pride of France SangHee Chung

France'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 Kellenberger

Oil 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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DARTMOUTH BUSINESS JOURNAL June 1, 2009
Jim Brennan,
Life of a
Consultant
Interview 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
3
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 Do you think that put you at a
most important to your success?
I actually think the most important skill is economics or went to business
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 excel before I started working. I never
in a one-on-one way. The other skills are used it before that. But it really wasn’t a
probably logical thinking and clear
communication.
How did you acquire those skills? able to punch numbers all the time.
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.
disadvantage compared to
students who focused on
school instead of law school?
Not really. Obviously I had to figure out
disadvantage. But I do think that’s worth
noting. The other skills I mentioned are
much more important that just being
That’s my perspective.
Would you say that networking
with other Dartmouth graduates
has helped you?
DARTMOUTH BUSINESS JOURNAL June 1, 2009 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
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.
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.

Finance: Unfortunately, as the credit agencies

One of the
Underlying
Instruments behind
the Economic
Meltdown
By 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 mortgages, due to their high demand and profits. It is a pity though, that history
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 incentivizing relatively risk-averse
such a product caused so much damage
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 based on more realistic
securities to BBB and an actual recession
and drastic drop in home prices would
markets that actually take into
consideration systemic risk and are
make even the most senior tranche of backed by assets that are actually
almost all these securities junk. This is uncorrelated could spring up in the
especially true, since the mortgages future and dominate once again the
backing up most of these securities had a markets as structured finance did in
high percentage of being subprime. 2006. But, at the same time, after this
Thus, as subprime delinquencies rose disaster it might take some time before
while home prices dropped, these investors start once again to demand
securities labeled as almost default-free these products. In the long run, however,
started defaulting in masses. financial innovation should not only
create products with higher short-term
In pursuit of the easy profits created
profit margins, but that should also
through securitization of subprime
reduce real risk and improve long-term
underwriting fees, most investment banks
only verifies the first goal of financial
and mortgage-related financial
innovation.
companies almost brought the collapse of
the financial industry. Meanwhile, the
credit agencies should feel humiliated for
investors, such as pension funds, into

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DARTMOUTH BUSINESS JOURNAL June 1, 2009
Setting Business
Strategy During
Economic Crisis
By 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
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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,
DARTMOUTH BUSINESS JOURNALJune 1, 2009
The Girl Effect
By Anoosha Reddy
“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).
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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
DARTMOUTH BUSINESS JOURNAL June 1, 2009
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
7
“Educating
women creates
economic
stability at both
the
microeconomic
level and the
macroeconomic
level.”
spending which will then further twins and Beatrice’s family used the milk
stimulate the economy. With regard to from weaning the goat twins to feed their
poorer nations, education and malnourished children and sold the
development are self-reinforcing. If more surplus—the profits from the milk
women are educated, the country will eventually accumulated and Beatrice’s
prosper, allowing for increased education, family could finally afford to provide her
which will further bolster the economy. with an education. Beatrice did so well in
It’s a win-win situation. Returns to school that she eventually received
education for women are significantly multiple scholarships to attend a prep
higher than they are for men. Investing in school in Massachusetts and went on to
educating girls is a surefire way to ensureattend Connecticut College.
economic growth for any nation.
World-famous Economist Jeffrey Sachs,
The “Girl Effect” is very much real in inspired by Beatrice’s story, came up with
today’s world. In his article “The what he jokingly refers to as the “Beatrice
Luckiest Girl”, New York Times writer Theorem” of development economics,
Nicholas Kristof shows the girl effect in which says that small inputs can lead to
action. The girl that we are asked to large outcomes (Kristof 2008). Imagine if
“imagine” is given a name and identity— the other hundreds of millions of girls in
that girl is Beatrice Biira, a young woman the developing world were given the same
who just graduated last year with a opportunity as Beatrice. The future of
bachelor’s degree from Connecticut humanity would be altered. If a girl
College. Beatrice was born in western succeeds, everyone around her will reap
Uganda to a family who could not afford the benefits of her success. Societies will
to put her in school. She was on her way boom and the world will change for the
to becoming another statistic, just better. Sometimes, the answers to the
another girl amidst the masses of African world’s biggest problems can be found in
girls destined to a life of domestic the smallest of solutions. The answer to a
drudgery. Through Heifer International, better tomorrow lies in Beatrice and her
a non-profit aid group, a group of female counterparts around the world.
students in Connecticut donated money The answer is the Girl Effect.
to get a goat for Beatrice. The goat had
 Development Aid
DARTMOUTH BUSINESS JOURNAL June 1, 2009

By Roberto Marawanga “The economic recession will

Make no mistake; most international development literature therefore lead to undermined
has made clear that developmental aid is rather ineffective. growth and decreased aid for the
There are many obstacles to development that can render
massive amounts of monetary aid ineffectual. International
world's poor.”
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

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DARTMOUTH BUSINESS JOURNAL June 1, 2009 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
9
economy of developing nations, because that could lead to steady economic
they are more dependent on world growth. That with the coupling of access
markets. So in this time of global to credit...
recession, a movement away from
supporting these kinds of businesses that An effective insurance model, but one
are particularly sensitive to world markets that would be hard to institute, would be
would not hurt. an insurance net that protected the
world's poor. Now, this kind of safety
A simple way to insure the world's would be impractical for the governments
poorest from the problems that arise as a of developing regions to implement
result of economic turmoil is to make because it would not be cost effective for
sure the programs implemented by the these generally inefficient governments to
international development community set up such a system. It would have to be
provide as many different protections of implemented by the NGOs operating in
the poor as possible. In 2005, an the developing countries. Micro-
estimated one in six people raised insurance, that could protect the poor
themselves above the $2-a-day poverty from economic shocks, environmental
line, yet due to this economic crisis an shocks etc. would be a feasible way to
estimated 65 million people will fall provide a safety net (and Roland
below that $2-a-day poverty line this year Bénabou 2006). The model would be a
alone (Economist 2009). Thus, it is slight variation from the micro-credit
imperative that developmental programs programs that have already been
provide their beneficiaries with as many implemented in developing regions all
safeguards as possible. For example, the over the world (Dercon 2003). On micro-
NGO KickStart that sells micro- insurance, Professor Freidberg states
irrigation technologies, such as pumps, to “think micro-insurance is something that
poor farmers to increase their crop yield would be...I mean insurance in general,
offers a one-year replacement guarantee be useful, regardless of the state of the
for their product (KickStart 2009). They global economy, because micro-insurance
also test every single one of their for small farmers for example. For a lot of
products before they sell them to the risk- small farmers the more perennial
averse farmers. If a product the farmers concern is the weather. And that’s
buy fails them, then that could be the something that they need insurance for.”
difference between life and death. So it is It is easy to think that a fall in
imperative that the international international development aid will have
development communities try to shield cataclysmic effects on the third-world
the poor from shocks like the economic poor, yet in reality the truth is that the
meltdown we are seeing today or more global poor have a history of survival.
direct shocks like those disasters due to They are people avoiding destitution, and
weather. the creation of the informal economy is a
testament to the sophisticated ways in
In developing countries there are also which they have managed to survive.
informal risk-sharing networks, through Professor Freidberg expresses this notion
one’s family or tribe that protect people by saying that, “F, people [in third world
from crises. It would help to formalize countries] have been coping with crisis
these institutions and ideally create a kind for years.” So we should not fall prey to
of collective insurance system for poor the dire predictions of extreme poverty in
communities so they could shield the third-world due to this economic
themselves from times when, the world crisis, because there always has been
economy is bad or when there is drought extreme poverty in these nations and the
(Dercon 2003). poor have always found ways of
surviving. Instead of post-crises measures,
Another way the international the international development
development community can protect the community should focus on protecting
poor is by teaching and encouraging the poor from crises in the future.
saving techniques amongst them. If the Working to teach savings techniques,
poorest people have savings, they will be offering micro-insurance, and putting in
able to survive even in times of crisis. place safeguards for development
They will have insurance to continue programs will all help the bottom billion
their lives and invest in low risk activities immensely during times of crisis.
DARTMOUTH BUSINESS JOURNAL June 1, 2009
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
10
agricultural productivity and the ZWD. 2004, the rate of inflation was 624%
In order to compensate the lack of food (Crisis Times). In a desperate attempt to
production and revenues, the fix the currency value, the Zimbabwean
Zimbabwean government continued to government revalued the currency from
print money (Greenspan 2007, 339). 1000 ZWDs to 1 ZWD. This was highly
unsuccessful in stopping the monstrous
According to Former Zimbabwean inflation, however, as the ZWD
Foreign Affairs Minister Jafari Banda, continued in the established pattern of
estranged from the Zimbabwean hyperinflation, reaching 1,730% in 2006.
government after a failed assassination Dr. Gideon Gono, the governor of the
attempt on Mugabe, “What Reserve Bank of Zimbabwe, announced
happened in Zimbabwe is the currency had to be printed in order
that production stopped. to buy foreign currency to pay overdue
An endless cycle of payments to the International Monetary
corruption brought a cease Fund (Seria and Mutizwa 2007). In
in production. We were not addition, currency had to be printed to
producing anything. The account for the rise in salaries for civil
corruption led to a servants, including soldiers and
disruption in the industrial policemen (Chikwanda 2008).
and agricultural
infrastructure, which are The Zimbabwean government could
the backbone of the barely print enough currency to match
economic sector. We the hyperinflation, so it requested citizens
weren't producing, we to add 0 digits at the end of existing
weren't mining, no industry, currencies’ value. On the day of
no commerce, no farming.” introduction of the 100 billion dollar bill
(~1 USD) in July 2008, the amount was
With these land reforms able to purchase a measly three eggs at
continuing well into the 21st the average local market (BBC News
century, the country 2008). In its latest figure, Zimbabwe had
experienced spiraling reached inflation rates of almost 516
hyperinflationary rates. By quintillion percent with a monthly rate of
DARTMOUTH BUSINESS JOURNAL June 1, 2009 79.6 billion percent or a daily rate of currency that has low inflation and high Professor Feyrer also notes, “If
98% (Berger 2008). The greatest cause of international credibility. The US actually Zimbabwe intends to reintroduce a
this new surge in hyperinflation is the benefits because there is seigniorage on domestic currency the only way to regain
ongoing cholera outbreak that decimated the dollars being used in Zimbabwe. the public trust is to credibly promise to
the country starting August 2008, This amount to a very small amount make the new currency stable. One way
resulting in even greater food shortages since the Zimbabwe economy is so small to do this is to peg the currency to a
(Shaw 2008). This correlated to a relative the US economy.” stable currency or have a currency board
doubling of prices almost every 24.7 where there is 1:1 backing of the new
hours, akin to the hyperinflation of post About the effect of dollarization on the currency with the dollar or other stable
Second World War Hungary (Hanke economies of countries involved, Banda currency. Pegs can be broken, however,
2009). The ZWD reached such inflated had to say, “It leads to distortions because and it may take time to regain the trust of
rates that 100 trillion dollar bills the price of commodities is regulated by the public.”
eventually came into production in supply and demand, which varies from
January 2009 (BBC News 2009). These country to country. The effect is perhaps About the dynamics of the economy,
bills themselves could hardly purchase negligible depending on the size of the Banda had to say, “Zimbabwe needs to
any goods in the market. ‘parasite’ economy and commerce. The restart production. Get the industries
intent behind dollarization is to generate running and farm the lands you seized.
By this point, Zimbabwean traders foreign currency in order to participate in All will be futile unless there is a
completely abandoned the ZWD, foreign trade. But if it is the ZAR, the use conducive political atmosphere in order
adopting the more stable US dollar or of it Zimbabwe would greatly negate its to encourage foreign investors to invest
South African rand (ZAR) instead. The strength and stability. In comparison, the and operate businesses that would restart
Zimbabwean government legalized the Zimbabwe Reserve Bank at peak would commerce, industry, and farming.”
use of these new bills in February 2009, hold 5 million USD to support the entire
while it tried to revalue the currency economy whereas 5 million USD isn’t The currency issue brings up many
(BBC News 2009). The government was even operational for a Bank of America important consequences for the future of
able to bring the value of its currency to branch. Zimbabwe. Now that Zimbabweans
more manageable face value, reducing removed the ZWD from use in their daily
the once $1,000,000,000,000 bill to $1 in For a while, Mugabe and his Zimbabwe lives, how will it affect the stability of the
February 2009 (Reuters 2009). The new African Nation Union – Patriotic Front Zimbabwean economy? How will
currency was almost completely (ZANU-PF) denied their policies as the international trade operate under this
irrelevant as most of the citizens in major cause of Zimbabwean new system of dollarization? With the
Zimbabwe refused to use it. The hyperinflation, blaming international new combined party coalition ruling, will
government officially ceased production sanctions by the US, EU and Australia Zimbabwe be able to surmount the
of the ZWD in April 2009 and does not on politicians and businessmen loyal to overwhelming economic pressures? Will
plan on reintroducing it again until 2010 the Zimbabwean government (Ababa the ZWD ever gain the trust of the
(Seria 2009). 2009). However, with opposition running people and come back into popular use?
high, Mugabe’s administration While economists are still gathering data
According to Economics Professor James apologized numerous times and on these economic implications, we can
Feyrer at Dartmouth College, “My attempted to fix the crisis. Mugabe all hope that in the meantime Zimbabwe
understanding is that the dollar (and eventually succumbed to popular will be able to forge a new future.
other "hard" currencies like the Euro) demands for him to share power with
were acting as defacto currencies long opposition party leader Morgan
before they finally abandoned the Tsvangirai of the Movement for
Zimbabwean dollar. If you were Democratic Change – Tsvangirai (MDC-
exporting to Zimbabwe you had no T) party. Tsvangirai was officially sworn
interest in taking the Zimbabwean dollar in as Prime Minister on February 11,
as payment. The dollarization formalizes 2009 (GlobalPost 2009).
this and should increase the volume of
trade. For Zimbabwe they get to use a

11
DARTMOUTH BUSINESS JOURNAL June 1st, 2009
TGV Trains: The Pride of France
By SangHee Chung
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.
12
“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
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-
DARTMOUTH BUSINESS JOURNAL June 1, 2009
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
13
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)
DARTMOUTH BUSINESS JOURNAL June 1, 2009
Drop in Oil Exploration a Dangerous Path to
Pursue?
By David Kellenberger
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
14
“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.”
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
DARTMOUTH BUSINESS JOURNAL June 1, 2009 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 same models in turn would fuel problems in the future industry.
Turbulent Environment: Evidence from the Oil Majors, touches upon For example, the high levels of petroleum production pushed
on how major oil corporations strategize in the market place. oil prices down to the $10-$20 level, a level that had not been
He notes that for the major oil corporations (Exxon Mobil, seen since the 1973 oil shock. This price drop sent profits
Chevron, Shell, etc.), “…the planning systems of the 1970s and plummeting across the board. The popular response to this
1980s were highly formalized” (Grant). However, “By dilemma was to develop much shorter-term strategies so they
1996-1997, planning systems were far more informal: there was would not be left vulnerable to these nearer term price swings
less emphasis on like the one in the 1990s. However, while these strategies help
written shelter the corporations from short- term losses, they do this by
documentation, lowering long term investment. Lowering long term investment
strategic plans in exploration as well as reinvestment in current fields will lead
were to an even worse situation when oil prices correct with the
shorter” (Grant). global economic recovery. Forecasts on future supply are
Ever since the oil already harsh enough, and the added impact of fewer new
industry slump of findings and less expenditures on new equipment will only
the early 1990s increase the pain.
due to very high
levels of supply, While oil corporations’ responses to short term conditions with
they have followed long-term courses of action protects them from overproduction
shorter strategic plans and a loss of profit, it lowers future oil supply. This is inherent
(Grant). Thus to how these companies operate. The solution to this problem
they reduce would seem to be increased investment in clean alternative
investment, as oil energy research and also in untapped, non-traditional sources
demand in the near of energy, such as the Canadian Tar Sands. This investment in
future is not predicted to rise. future energy supplies will offset the decreased investment by
integrated and independent oil corporations. It will also aid in
Even though the longer term, formalized models earlier used the process of finding a clean alternative to crude oil, and in
by oil corporations led to high production in the 1990s, these longer run reduce our carbon emissions.

15
 Current Officers Contributors Content Editors
President: Rubin Srimal Business: Bryon Alston
Treasurer: Tony Deng Kunal Arya Ryan McClafferty
Secretary: Alexander Villar Mike Katz Sisi Yao
Head of Business Section: Kunal Arya Dave Kellenberger Mike Novosel
Kihyun Kim
Head of International Section: Giulia Siccardo Nathaniel Kanefield
Ray Leoni
Head of Investment Section: Kareem Halim Irfan Mulic
Head of Interviews: Tony Deng Youngsoo Park
Head Content Editor: Bryon Alston Blair Randall
Layout Editors: Anoosha Reddy & Ellena Kim Rubin Srimal
Website Development: Jack Liu Alexander Villar

International:
Giulia Siccardo
SangHee Chung
Michael C. Joseph
Alex Lucey
Roberto Marwanga
Kedar Mulpuri
Anoosha Reddy
Long Sha
John Spradling
Valentin Yanev

Investments:
Kareem Halim
John W. Spradling
Nicolas Santoni
Works
William Cited
Mergner
David Rogg

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