Saturday, September 24, 2005

Keeping up appearances.

Manners maketh the man - Finishing schools

470 words
24 September 2005
The Economist
ECN
376
English
(c) The Economist Newspaper Limited, London 2005. All rights reserved

Good manners come back into fashion

The new interest in etiquette crosses gender boundaries

ACCORDING to Simone de Beauvoir, a woman is not born, but made. For many well-off British girls, a big part of this manufacturing process used to take place at finishing school, with classes in such womanly essentials as deportment, etiquette and flower-arranging.

It is still possible to gain a Diploma in Finishing in Switzerland, where Surval Mont-Fleuri and the Institut Villa Pierrefeu offer a residential course “suitable to the professional aspirations of a modern young lady”. But British finishing schools have closed or turned into business and secretarial colleges.

It seems, however, that mothers still want their daughters to stand up straight and make polite conversation. So Diana Mather and Penny Edge, specialists in corporate recruitment and training, have created The Finishing Academy, offering short courses teaching women and girls to “make the most of themselves”. The talk is about winning business contracts, not husbands, and the cookery is tailored to university life, not gala dinners.

Alongside etiquette and deportment, the courses impart a smattering of self-esteem (public speaking, how to network) and common sense (first-aid, healthy eating), with one-hour sessions on chess, interior design and massage thrown in. The truly vital topics—walking with a book on your head and getting out of a car with your knees together—are covered too. (In case you're wondering, swing your legs out with your knees together, put both feet flat on the ground and push up from the seat.)

Etiquette is even making it onto prime-time TV. “Ladette to Lady”, which aired this summer, showed ten belching, hard-drinking, swearing young women learning to mind their language, walk in heels and host dinner-parties.

And the new interest in etiquette isn't just for women. Some years ago, Sean Davoren, head butler at The Lanesborough, a London hotel, was called on to help to pacify an obnoxious child. He explained the basics of behaving nicely in public, the child was enthralled, the parents told their friends and he found himself holding etiquette classes for children once a month. Demand, even at £45 ($80) a head for two hours, was so high that the waiting list reached 12 months. This year he took a break from teaching to write “Manners from Heaven”, a children's book on etiquette.

Ms Mather and Ms Edge are now planning courses for men. The core subjects of standing, walking and eating are the same as for women, but the add-ons are a little different: map-reading, car-maintenance, fishing, golf, clay pigeon shooting and how to sew on a button. Getting out of a car with your knees together is still for the ladies only, though.

Why America and not Europe is the world's piggy bank.

The hare and the tortoise

2,146 words
24 September 2005
The Economist
SUN
English
(c) The Economist Newspaper Limited, London 2005. All rights reserved

The hare and the tortoise

Why have the world's savings gone to America rather than to Europe?

THIS survey has argued that the supply of global saving—relative to desired investment—has grown in recent years, thanks largely to shifts in Asia and in emerging economies. These shifts may help to explain why global interest rates have been low. But they do not explain the geography of current-account deficits. Why has most of this capital been absorbed by America and, to a lesser extent, other Anglo-Saxon economies such as Britain, rather than continental Europe? After all, the euro area's economy is four-fifths the size of America's; its capital markets are liquid; its currency is stable; and its legal protections are as strong as those anywhere in the world.

Yet far from absorbing the rest of the world's capital, the euro area in 2004 ran a small saving surplus ($36 billion) of its own. Whereas America's foreign borrowing has accelerated, especially since 2001, the euro area has remained a lender. Though interest rates are low in both regions, the effect seems to have been very different. Is this evidence of Europe's sclerosis and America's dynamism, or of Europe's prudence and America's profligacy?

One answer is that European aggregates mask big differences between countries. For example, in Spain the economy has been humming and the current-account deficit has soared. Italy has been mired in recession, but thanks to its ageing population its household saving rate has plummeted and its current account is in deficit. At the other extreme, Germany has become a large exporter of savings.

More broadly, though, Europe's thriftiness, relative to America's, results from a mixture of demographics, structural rigidities, policymakers who don't much believe in Keynes and financial systems that are less consumption-friendly.

Twenty years ago, saving patterns in America and Europe were not all that different. In the mid-1980s, American households saved, on a net basis, around 9% of their disposable income. The British figure was 7%, the Spanish 8%, the French 9% and the German 12%. Despite big statistical problems in comparing household saving rates, the ranking is probably about right.

In the 1980s and 1990s, household saving rates fell both in Anglo-Saxon economies and (to a lesser extent) in many continental European ones. Germany saw only a small decline; Italy, with its burgeoning number of pensioners, the largest. But the drop in household saving in America was far bigger than in most of Europe, for two reasons: bigger capital gains and more financial innovation.

Thanks to the long bull market in stocks, particularly after the productivity boom of the mid-1990s, Americans felt richer. A study by Annamaria Lusardi, Jonathan Skinner and Steven Venti of Dartmouth College found that capital gains explain most of the total decline in America's personal saving since the late 1980s. Thanks to a more sophisticated financial system than, say, Germany's bank-dominated arrangements, Americans could also borrow money more easily. Financial innovation has made a huge difference to Americans' access to credit in the past 20 years. Today there are over 1.3 billion credit cards in America, or more than 11 per household.

But whereas household saving rates in the two regions diverged, government saving kept overall national saving rates closer than they would otherwise have been, at least during much of the 1990s. Public finances improved on both sides of the Atlantic, but by more in America. As a result, in 2000, America's overall national saving rate, at 18% of GDP, was not far below the European average of 21% of GDP.

Since 2000, however, the gap has grown much larger. After the stockmarket bubble burst, corporate investment fell on both sides of the Atlantic. That sent Europe's big economies into a trough from which they have not really emerged, whereas in America growth was underpinned by more government and household spending. America's drop in household saving has accelerated, whereas European households, on average, have become slightly thriftier.

Americans now save less than 1% of their disposable income, compared with a euro-area average of 10%. America's budget moved sharply into deficit, whereas Europe's public finances have seen less change. As a result, America's national saving rate is now below 14% of GDP, compared with over 20% for the euro zone.

Old Europe's troubles

One important reason is demographics. “Old Europe” may not like the label, but in the demographic sense it is accurate. Europeans have fewer children than Americans and they allow much less immigration, so European societies are ageing much faster. Relative to America, this reduces Europe's allure as an investment destination and increases its citizens' desire to save.

An analysis in 2000 by PricewaterhouseCoopers, an accounting firm, suggests that demographic changes alone will push up continental Europe's private-sector saving rates by 2-3% of GDP between 1995 and 2015. There is some evidence that the impact of demographics on saving has accelerated recently.

But demography is not quite destiny. Economic reforms could do a lot to make “old Europe” a more attractive place for investment, offsetting the effect of ageing societies. With an average unemployment rate of 9%, the euro area has plenty of spare workers.

Europe has, in fact, made significant progress on economic reform in recent years. Germany's labour market has become more flexible and the country's social benefits have been trimmed. France's pension system has been overhauled. The trouble is that the reforms will take time to translate into economic growth. In the meantime they are making things worse. People save more because they are worried about the future. In Germany, in particular, there is evidence that the uncertainty created by economic reform has boosted the household saving rate. The more people save, the less they spend. The lack of consumer demand, in turn, reduces the incentive for firms to invest.

Yet continental Europe, by and large, has provided far less macroeconomic stimulus than America. Although the euro area's overall budget position went from a surplus of 0.1% of GDP in 2000 to a deficit of 2.7% of GDP in 2004, almost all of this deterioration was due to economic weakness rather than deliberate loosening of the fiscal reins. Allowing for the automatic deterioration in the budget that comes from a slowing economy, the euro area saw no change in its fiscal stance at all, compared with a structural loosening worth 5.5% of GDP in America and 4.5% of GDP in Britain.

So why did Europe hold back? Respect for rules is one reason. The Stability and Growth Pact, which in theory limits the size of euro members' deficits to 3% of GDP, has been severely weakened, but it still restricts the euro-zone governments' room to run big deficits. More important, European policymakers tend to regard fiscal expansions as reckless and ineffective.

That is partly because their long-term fiscal outlook is so dire. Thanks to their generous social safety nets and rapidly ageing populations, Europe's governments face a bigger debt problem than America's, and because their tax rates are already high, this will be trickier to resolve. Italy is in the worst shape: its government already owes the equivalent of 120% of GDP. France's debt ratio is 73%, Germany's 70%. According to projections by the European Commission, by 2030 Germany's debt will more than double, to 157% of GDP, thanks to demographics alone.

In America, in contrast, the underlying fiscal position—prior to the recent loosening— was much more favourable. In 2000, the bean-counters in Congress were predicting budget surpluses as far as the eye could see. America, in other words, had much more room to be Keynesian.

Some European economists claim that fiscal policy is ineffective on their home ground. They argue that European households are more “Ricardian” than Americans, tending to make up for bigger government deficits by saving more themselves. In a study of saving patterns in the 1990s, the OECD concluded that fiscal shifts had a greater effect on private saving in Europe than in America. When budget deficits fell, as they did in the late 1990s, so, too, did private saving, although not at the same rate. Thus, Europeans argue, even if they had taken the Anglo-Saxon route, they might not have got much out of it.

Money isn't everything

If the reluctance to use fiscal stimulus is understandable, the effect of monetary policy is more puzzling. Initially, the European Central Bank (ECB) cut short-term interest rates more slowly and reluctantly than did the Federal Reserve. Now, thanks both to the ECB's rate cuts and the global surfeit of saving, European interest rates are at record lows. Yet the effect on spending has been much less dramatic in Europe than in America, and seems to have been getting weaker. Calculations by economists at HSBC, for instance, show that the stimulus to output from a 1% cut in short- and long-term interest rates rates has been falling steadily (see chart 13).

European monetary union is one reason. The single currency has had the effect of translating the same low nominal rates into different real, ie, inflation-adjusted, interest rates in different countries. Where inflation is lower than average, as in Germany, real interest rates are higher and monetary conditions therefore tighter.

A more important reason for the relative ineffectiveness of monetary policy in Europe compared with America has to do with the interaction of interest rates, house prices and consumption. In America, lower interest rates fuelled a house-price boom. Flexible mortgages allowed consumers to tap some of their housing wealth. Rising house prices boosted consumption more than higher share prices did in the 1990s, partly because far more people own houses than shares, partly because Americans regarded house-price gains as more permanent than similar gains in share prices.

Germany is at the other extreme. Lower interest rates failed to translate into higher house prices, and even if they had done so, the effect would have been much smaller because far fewer people own their own homes, and restrictive mortgage contracts make it much harder for consumers to refinance their loans at a lower rate.

The rest of the euro area lies in-between. Spain, for instance, looks similar to America. House prices have soared, consumption has boomed and the country is running a large current-account deficit. France has seen house price appreciation, but less of that has been translated into consumption, and the current-account deficit is smaller than Spain's.

In sum, continental Europe had weaker policy levers with which to respond to a drop in investment demand, and it used those levers more reluctantly. As a result, it has been caught in a low-growth, high-saving equilibrium, at least compared with America. An optimist might argue that the euro area has avoided the excesses of America's profligacy while gradually hammering away at its own structural rigidities. If that is correct, today's stagnation should eventually give way to faster growth—and a smaller saving surplus.

There is some evidence to support this view, particularly in Germany. Although that country's economy is still looking weak, with output flat in the second quarter, there have recently been signs that it could be poised for an upturn. After several years of cost-cutting and financial restructuring, German firms have become leaner and more profitable. Unemployment has been falling slightly, although from a high level, and indicators of business optimism have been rising. If Germany were to turn, the whole region would start to look much more cheerful.

But the failure of the German election on September 18th to produce a clear-cut result has dampened any optimism about that country. A government without a strong popular mandate will find it much more difficult to continue with those much-needed economic reforms. So the more pessimistic, and probably realistic, view is that Europe is doubly vulnerable. Germany is still addicted to foreign demand. Some countries, such as Spain, have become reliant on rises in house prices. Italy remains stagnant. And the lack of growth in Europe is taking an increasing political toll.

Within recent months, the French and Dutch voted “no” on the European constitution, plunging the European Union into a bout of self-doubt. Italy's prime minister, Silvio Berlusconi, has called the euro “a disaster”, and several of his cabinet members have suggested that Italy should leave. None of this inspires confidence that continental Europe will do much to rebalance the world economy in the near future, or that countries with surplus saving will rush to invest their money in euros.

One might have seen it coming...or not.

China drives commodities boom...and the fortunes of the corresponding value chain.

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The good times roll for China's log importers as the economy surges: Deforestation controls by the Beijing authorities and unprecedented demand from builders and furniture exporters bring boom in timber imports, reports Richard McGregor.

By RICHARD MCGREGOR
817 words
21 September 2005
Financial Times
Asia Ed1
Page 3
English
(c) 2005 The Financial Times Limited. All rights reserved

When Sun Laijun set up a log-importing company in a smallish Chinese town bordering Russia in 1998, it was about as well-timed as staking out a large tract of land just before a gold rush.

First, after massive floods that year blamed on deforestation, China sharply restricted logging at home. Then the domestic economy took off, sending Chinese buyers of wood scouring the globe for new supplies, much of which they found in the Russian far-east.

Since then, Mr Sun's business has grown at the same blistering pace as the cross-border trade in lumber between China and Russia, increasing sixfold in as many years.

"My trading volume is now the number one in the province," says Mr Sun in his office overlooking his yard in Suifenhe, hub of the cross-border timber trade.

But the good times and high profits that merchants like Mr Sun have enjoyed may be coming to an end, as the timber business gets squeezed by the same nasty pincer movement afflicting a host of industries in China.

Red-hot Chinese demand is tightening supplies and forcing global prices of wood higher, while cut-throat competition in an overcrowded industry at home means producers have no power to pass their higher costs on.

Matthew Brady, a Beijing-based industry consultant, said a big hardwood floor maker in Dongguan, the manufacturing heart of southern China, had told him his business could only fulfil two-thirds of its orders because it could not get enough wood.

"The industry cannot get enough raw materials, and the raw materials they are getting are costing a lot more," Mr Brady said.

In the brief time since the logging restrictions were imposed in 1998, China has gone from seventh largest importer of forest products to second, behind the US.

The largest growth has been from Russia, whose log exports to China rose almost 80 per cent each year between 1997 and 2003, according to Forest Trends, which tracks the industry.

The next largest suppliers are, in order, Malaysia, New Zealand, Papua New Guinea and Gabon.

Chinese demand has been driven by the construction industry as well as furniture exporters whose sales overseas grew 40 per cent a year between 2000 and 2004, mainly to the US.

But even in the midst of this astounding boom, the competition and the pricing pressure are such that Mr Sun, of the Suifenhe Shanglian Group, says he is struggling to maintain his margins.

"The Russians know our market very well now, maybe because they have too many Chinese working for them," he says.

China is also starting to feel pressure from environmentalists, who say Beijing's 1998 decision to largely seal off its own native forests has simply resulted in huge illegal logging elsewhere.

"China's growing demand has boosted the illegal log trade across the world," said Shi Kunshan, a researcher with Chinese Academy of Forestry.

"In the past, we imported any logs with no regard to where they came from and whether they were legal or not. Now, because of mounting international pressure, we need to exert stricter controls."

Mr Brady, however, says that while this is the optimum policy, China does not yet have a tracking system in place for log imports to enforce restrictions. "They just take whatever is brought in from overseas," he said.

Mr Sun, the importer, dismisses out of hand any concerns about sustainable supplies, saying the last time he flew over Russia, he saw nothing but native forests stretching out below him.

He recently secured his own concessions in Russia and is establishing a timber processing plant nearby. No environmentalist, Mr Sun is scathing about the logging restrictions in China and the Forestry Ministry's role in the industry. "They used to log trees. Now they just plant trees," he says sardonically. "They should be called the bureau of tree-planting."

In the short-term, industry analysts say China will struggle to maintain the double-digit growth rates of recent years because of the supply and pricing pressures.

But if its economy continues to grow, demand will soar along with it, especially from the local construction industry.

Partially as a result of lobbying by exporters such as Canada, China is changing its building code to allow more wood to be used for frames in housing construction, in place of steel.

Even without huge margins, Mr Sun plans to maintain and even increase his output, to keep his market share, and will keep his processing plants operating seven days a week, on two and sometimes three shifts.

"We are a private company," he says. "We don't have Sundays."

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Chinese firms build stakes in Australian mines.

Metal firms go to source to secure future raw material supplies
602 words
23 September 2005
Lloyd's List
4
English
(c) 2005 Informa UK Ltd

Chinese metals companies such as Beijing Shougang Co are in talks to spend as much as A$10bn (US$8bn) on Australian mines to secure supplies of raw materials to feed China’s surging demand, Bloomberg reports .

The planned acquisitions could increase total Chinese investment in Australian projects sixfold in three to five years, said Henry Wang, senior investment commissioner for Greater China at government agency Invest Australia.

Commodity prices have risen to all-time highs because global mining companies such as BHP Billiton cannot keep up with China’s demand for materials to feed mills, building sites and car plants. As competition for minerals increases steelmakers and traders including Beijing Shougang and Sinosteel are going to the source to ensure they have enough iron ore and coal.

Overseas investment is “necessary and natural for Chinese producers because the country is short of natural resources”, said Lin Hai, who helps to manage the equivalent of $1.8bn for Guotai Asset Management Co, including shares in Baoshan Iron & Steel. “With these investments they can lower costs and take pre-emptive rights on the raw materials.”

Half of the proposed Chinese investments are in iron ore, 30% in coal and the rest in natural gas and other metals, said Mr Wang.

Australia, the world’s biggest coal and iron ore supplier, garnered A$1.6bn of investment from China by the end of last year.

Beijing Shougang, the publicly traded unit of China’s fourth biggest steelmaker, will pay A$120m for a 50% stake in Mt Gibson Iron’s A$722m ore project in Western Australia, subject to a feasibility study, said Mt Gibson finance director Alan Rule.

“We definitely need to invest in overseas iron ore projects so we can secure a steady raw material supply for our plants,” said Liu Anshan, a spokeswoman at Shougang’s mining resources unit.

In 2001, Baosteel invested $30m in the Eastern Ranges iron ore mine in Western Australia, partnering Rio Tinto.

China wants to “control the supply chain”, said Mr Wang at a conference organised by Metal Events of London last week. There was “an urgency for them to get into long-term contracts or be involved in directly investing”.

Australian exports of minerals and energy rose to a record A$67.4bn in the year ended June 30, boosting the local dollar by 9% in a year. Commodities account for 60% of export earnings.

Chinese companies are competing for Australia’s resources with rivals such as Posco of South Korea, Nippon Steel of Japan and Mitsubishi, which already own stakes in Australian mines.

Indian companies are also hunting for assets. Coal India, which produces 87% of the nation’s supply, is looking for stakes in Australian mines and plans this year to meet officials from Queensland state.

Chinese companies are in talks to participate in all eight new iron ore projects being developed in Western Australia, Mr Wang said. Fortescue Metals Group said this month it had held talks with investors, including steel trader Sinosteel, which in June signed a joint development with Perth company MidWest Corp.

“Of the total iron ore that China imports, China has some kind of involvement in the supplier in 25% of them,” Mr Wang said. “Chinese industry wants to increase that to 50%.”

Iron ore contract prices charged by BHP Billiton, Rio Tinto and Cia Vale do Rio Doce, which account for more than three-quarters of global ore trade, have surged 71.5% since April 1.

Where will gaming lead?

Recreation as revolution?

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Computer gaming is so powerful a tool we could use it to meet our emotional needs and even spread democracy, Edward Castronova tells John Sutherland

Monday September 19, 2005

Guardian

John Sutherland: How did an economist turn into the Columbus of what you call "the synthetic world"?

Edward Castronova: My career was screwed. I decided to write a paper on the economy of a video game I was immersed in. I'd played these games most of my life.

JS: Give me the names of some of these games.

EC: EverQuest. That's the game that I started playing in. World of Warcraft is a very, very popular game. Right now in Asia, Lineage has millions of subscribers.

JS: How big, population-wise, is your synthetic world?

EC: The particular games that I study are played by 10 million to 20 million people, being conservative.

JS: These are what you call MMORPGs - massively multiplayer online role-playing games?

EC: Yes. And "massive" is the right word. The growth rate is astounding.

JS: You really think video games are a "world"? Aren't they more of an escape from the world - the opium of the new digito-drugged masses?

EC: You really can't call them an escape when they share so many features with the "real world". People have jobs in there, for God's sake. They try to keep up with the Joneses. There's conspicuous consumption, there's inequality, there's risk and danger.

JS: You talk of people being immersed in worlds rather than playing games. Why?

EC: With these synthetic worlds it's not clear what aspect of them is a game. There's plenty going on in there which isn't that at all. It's just people living, talking, interacting. There's no competition; it's never really "over".

JS: But why does that matter on a wider scale?

EC: My professional interest is in what we can learn from this synthetic world. We've never had the opportunity to experiment ambitiously on a social level. We've never had the opportunity to say, "I'm Karl Marx and I have this idea called communism. Wouldn't it be neat if I could set up five societies that have exactly the same population, exactly the same natural resources and at year zero and try it out?"

JS: We could field test communism without killing 60 million people.

EC: Exactly. We could do communism, we could do fascism, we could do America. You can experiment with any number of social designs. This is one of the futures I see for synthetic worlds in the university. I think in 15 years' time when someone in social science writes a PhD thesis, they'll be required to put their ideas to the test this way. Business schools are already moving in that direction. There are tremendous business applications. Universities should get very involved.

JS: You're American. To what extent does the synthetic world, like the Moon, have a Stars and Stripes stuck on it?

EC: Not at all. It's an Asian-led phenomenon. You'd have to look at the Koreans as the imperialists here.

JS: Could this revive "Yellow Peril" fears?

EC: I don't see any such peril from our perspective. But China sees peril from South Korea. The Chinese government has recently declared that player-v-player games involving combat are banned for minors. The Chinese are very nervous of Korean MMORPGs. They see a risk of ideological subversion.

JS: Are these games doing to closed societies what the Voice of America did to the Soviet Union in the cold war?

EC: Much, much more intensely. Right. I think the smart thing for the US state department to do today is build a game about Islam but make it a democracy. And set it up so that every 16-year-old from Morocco to Pakistan can go into that world when they get a computer. Not say anything overt about democracy but have them play - have them vote, for example.

JS: Has any politician taken an intelligent interest in video games?

EC: Not that I know of. Right now the typical political view is that video games are played by pimply faced 16-year-olds in their mothers' basements before they step outside and start machine-gunning their school. Like the T-shirt slogan says: "Guns don't kill people, kids who play video games kill people."

JS: How old is the average gamer?

EC: The average age is 30. For the most part it's a lower-middle-class phenomenon. If you're too poor you can't afford the online access. And these games require absolute top end. But people who are very successful in the real world don't have the leisure. You need a mix of a lot of time, fairly advanced literacy, enough money to get the equipment and then you have to be, sort of, not very invested in the real world. It's pathetic in a way. So I think the typical player might be, for example, a parts manager at an office-supply store.

JS: What is the next step forward?

EC: Where the advances are going to be made now is in "emotive AI". The real world is a sort of wasteland of shattered relationships, right? I'm a teacher of college students. I know what I'm talking about. Even now they have this very simple artificial intelligence in games that seems to engage people. You have mentors, patients, colleagues, friends. As the characters in video games get richer and deeper and the animation becomes more expressive, the experience will become much more compelling.

JS: What do you foresee in 10 years' time? Is it going to plateau out, or keep going nova?

EC: There will be a plateau. People do have to have children. But the really open question is how much human time we will spend in cyberspace, using our surrogate characters, living through synthetic bodies. But soon people won't notice the difference. Real and synthetic worlds will blur. I'm talking to you by phone but, psychologically, I'm just talking to you. I don't focus on the technological interface. We'll just move in and out of bodies and worlds without noticing. It'll fade seamlessly into daily life. And there will be some very good things. The economy pulls people apart and makes them live separate lives, as units. Gaming brings them together in a pseudo physical environment.

JS: A better world?

EC: Yes. A lot of human inequality comes from physical inequality. In the synthetic world, we can shape the body however we want - cyber slimming, cyber nip and tuck, for ever young. People who can't make it in the real world can have a wonderful social life in the synthetic world. That's good.

· Synthetic Worlds, by Edward Castronova, will be published by University of Chicago Press in November

Is shyness a strategy?

Out of the limelight, out of harm's way.

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Secrets of the Shy

Why so bashful? Science finds something complex -- and cunning--behind the curtain

Jeffrey Kluger

1,699 words
4 April 2005
Time
U.S. Edition

It's hard to get much lower-tech than the laboratory of psychologist Sam Putnam at Bowdoin College in Brunswick, Maine. The equipment here is strictly five-and-dime--soap bubbles, Halloween masks, noisemakers--but the work Putnam is doing is something else entirely. On any given day, the lab bustles with toddlers who come to play with his toys and be observed while they do so. Some of the children rush at the bubbles, delight at the noise toys, squeal with pleasure when a staff member dons a mask. Others stand back, content to observe. Others cry.

Those differences are precisely what Putnam is looking for. What he's studying during his unlikely playdates is that elusive temperamental divide between those of us who thrill to the new and those of us who prefer what we know--those who seek out the unfamiliar and those who retreat into the cozy and safe. It's in that divide, many scientists believe, that the mysteries of shyness may lie.

Few things say "forget I'm here" quite so eloquently as the pose of the shy--the averted gaze, the hunched shoulders, the body pivoted away from the crowd. Shyness is a state that can be painful to watch, worse to experience and, in survival terms at least, awfully hard to explain. In a species as hungry for social interaction as ours, a trait that causes some individuals to shrink from the group ought to have been snuffed out pretty early on. Yet shyness is commonplace. "I think of shyness as one end of the normal range of human temperament," says professor of pediatrics William Gardner of Ohio State University.

But normal for the scientist feels decidedly less so for the painfully shy struggling merely to get by, and that's got a lot of researchers looking into the phenomenon. What determines who's going to be shy and who's not? What can be done to treat the problem? Just as important, is it a problem at all? Are there canny advantages to being socially averse that the extroverts among us never see? With the help of behavioral studies, brain scans and even genetic tests, researchers are at last answering some of those questions, coming to understand what a complex, and in some ways favorable, state shyness can be.

For all the things shyness is, there are a number of things it's not. For one, it's not simple introversion. If you stay home on a Friday night just because you prefer a good book to a loud party, you're not necessarily shy--not unless the prospect of the party makes you so anxious that what you're really doing is avoiding it. "Shyness is a greater than normal tension or uncertainty when we're with strangers," says psychologist Jerome Kagan of Harvard University. "Shy people are more likely to be introverts, but introverts are not all shy."

Still, even by that definition, there are plenty of shy people to go around. More than 30% of us may qualify as shy, says Kagan, a remarkably high number for a condition many folks don't even admit to. There are a lot of reasons we may be so keyed up. One of them, new research suggests, is that we may simply be confused.

In a study published early this year, Dr. Marco Battaglia of San Raffaele University in Milan, Italy, recruited 49 third- and fourth- grade children and administered questionnaires to rank them along a commonly accepted shyness scale. He showed each child a series of pictures of faces exhibiting joy, anger or no emotion at all and asked them to identify the expressions. The children who scored high on the shyness meter, it turned out, had a consistently hard time deciphering the neutral and the angry faces.

What's more, when he recorded brain activity using electroencephalograms, Battaglia found that those with higher scores for shyness had lower levels of activity in the cortex, where sophisticated thought takes place. That suggested higher levels of activity in the more primitive amygdala, where anxiety and alarm are sounded. Shy children, Battaglia concluded, may simply be less adept at reading the facial flickers other kids use as social cues. Unable to rely on those helpful signals, they tend to go on high alert, feeling anxious about any face they can't decipher. "The capacity to interpret faces is one of the most important prerequisites for balanced relationships," Battaglia says.

In a similar photo study at Stanford University, psychologist John Gabrieli went further, showing adult subjects not just pictures of faces but also photos of inherently disturbing scenes such as automobile accidents. The shy subjects, he found, handled the car wrecks the same way as the rest of the folks in the group; the difference, once again, lay in how they responded to the faces. "It's not that they were more fearful in general," says Gabrieli.

Faces aren't the only things working against the shy; their genes may be too. As part of Battaglia's study, he collected saliva samples from his 49 subjects and analyzed their DNA, looking for something that might further explain his results. The shy children, he found, had one or two shorter copies of a gene that codes for the flow of the brain chemical serotonin, a neurotransmitter that plays a role in anxiety, depression and other mood states. Battaglia's lab is not the only one to have linked this gene to shyness, and while nobody pretends it's the entire answer, most researchers believe it at least plays a role. "People who carry the short variant of the gene are, in general, a little more shy and reactive to stress," says psychiatrist Michael Meaney of McGill University in Montreal, who just completed a two-year study of timidity and stress.

What determines if someone born with a genetic inclination toward shyness turns out to be that way? Environment, for starters. More than 20 years ago, Kagan conducted a study of 2-year-old children to measure their levels of inhibition--a tendency to retreat that often appears in children who later become indisputably shy. In collaboration with psychiatrist Dr. Carl Schwartz of Harvard Medical School, he then followed up on the children in their teens and again when they became young adults. Of the subjects who started off with shy tendencies, a full two-thirds stayed that way, but the rest overcame their inhibitions. "Parenting, environment and social opportunity--all of those had enormous impacts," says Schwartz. Notes Kagan: "If you're born [shy], it may be hard for you to become a Bill Clinton, but you can move toward the middle."

If that's so, should parents of shy children nudge them to be less withdrawn? Some studies suggest that there are real, even lifesaving reasons to try. Bowdoin's Putnam has found that the children in his soap-bubble studies who resist novel situations tend to internalize feelings, which suggests that they are more prone to develop depression and anxiety later in life. Shy children are also at greater risk for developing full-blown social phobia, a serious disorder that afflicted half of Schwartz and Kagan's shy subjects. In addition, a 2003 study of HIV-positive men at UCLA showed that patients who scored high on a social-inhibition and irritability scale may have a worse overall prognosis than their easier-going peers, with a viral load fully eight times as high. While it's not easy to generalize those findings to the HIV-negative population, the study does suggest that shyness may take a toll on the immune system.

For children and adults who feel constrained by their shyness, there are many ways to break free. Parents, first, must respond to their kids' timid behavior with empathy, taking care not to equate being anxious with being bad, says Dr. Regina Pally of UCLA. "They should send soothing signals that say, 'This is hard. I'm going to help you deal with it. You're not being a baby.'" For shy adults, cognitive talk therapy can place anxieties in perspective, lowering the stakes of social situations and reducing the fears associated with them. Behavioral therapy is a good treatment for social phobia, taking the charge out of uncomfortable situations by exposing patients to them gradually.

It would be a mistake, however, to think that therapy can eradicate all shyness--and it would be a bigger mistake even to try. Shy children may have a smaller circle of friends than more outgoing kids, but studies show they tend to do better in school and are significantly less inclined to get caught up in violence, crime or gangs. "Shyness has a risk factor," says professor of social work J. David Hawkins of the University of Washington in Seattle, who, since 1985, has been conducting a long-term study of 808 children from high-crime neighborhoods of Seattle. "But it has a protective quality too."

If lives lived exuberantly can yield grand things, lives lived more quietly may produce something even finer. As Battaglia puts it: "Shyness is simply a human difference, a variation that can be a form of richness." Scientists studying shyness never tire of pointing out that Abraham Lincoln, Mohandas Gandhi and Nelson Mandela were unusually reserved people and may have achieved far less if they'd been otherwise. "There's no question in my mind that T.S. Eliot would have qualified as one of the [shy] kids in our study," says Kagan. "Yet he also won a Nobel Prize."

Reported by Sandra Marquez/ Los Angeles, Mimi Murphy/ Rome, Sora Song/ New York and Cindy Waxer/ Toronto

What passes for journalism these days.

Both the subject of the article...and the article itself.

Reporting has been abandoned in favor of voyeurism.

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Print Media's Hot New Star: Celebrity Mags; Glossies Like Us Weekly Gaining Circulation

Ariana Eunjung Cha
Washington Post Staff Writer
1,563 words
23 September 2005
The Washington Post
FINAL
D01
English
Copyright 2005, The Washington Post Co. All Rights Reserved

It was 10 minutes past 5 p.m. on Monday and everyone agreed it had been a slow news day. No nannies or strippers alleging affairs with married movie stars. No sightings of celebrity cat fights. No wardrobe malfunctions.

The editors were just about to close the upcoming issue of Us Weekly when Peter Grossman, the magazine's liaison to the paparazzi, raced in.

He was excitedly waving a printout of an image that had been snapped just minutes earlier. It had been taken from the back and at a weird angle -- but the subject was unmistakable.

It was Brad Pitt. And he was carrying Angelina Jolie's adopted Ethiopian daughter, Zahara, who was sporting a pink knit cap, and holding hands with her adopted Cambodian son, Maddox, who was in camouflage. A baby bottle was tucked into Pitt's back jeans pocket.

"Oh!" said Janice Min, 36, the magazine's editor in chief, mobilizing her staff. "Get it, get it!"

The latest angle in the movie-star love triangle of Jolie, Pitt and Pitt's not-yet-ex-wife, Jennifer Aniston, qualified as a major event in celebrity journalism, a type of news once relegated to cheap tabloids but now reshaping the media industry. Over the past year, Us Weekly and its competitors have soared in popularity even as the circulations of newspapers, business weeklies and practically every other print publication have been falling.

In the first half of this year, the total circulation of Wenner Media LLC's Us Weekly rose nearly 24 percent, to 1.67 million. Competitors Bauer Publishing USA's In Touch and American Media Inc.'s Star also enjoyed spectacular circulation gains. Time Inc.'s People, widely considered to be America's most profitable magazine, posted a modest increase, to 3.8 million.

The September cover of Conde Nast Publications Inc.'s Vanity Fair, featuring an exclusive interview with a tearful Aniston, was its highest selling issue ever.

With Americans confronting grim news every day about war and natural disasters, "celebrities have become a sort of national distraction," Min said. "They are hired entertainers," she added, and the public demands to be entertained almost constantly.

At the same time, there has been a growing backlash against the tactics some celebrity news organizations use to gather information on stars. The Los Angeles County district attorney has launched an investigation into whether aggressive paparazzi are purposely creating confrontations to get more interesting photos.

The outcry from Hollywood has increased in recent months after a photographer was accused of hitting Lindsay Lohan's car as he was trying to get her picture and when Scarlett Johansson said part of the cause of an accident she got into in the Disneyland parking lot was her effort to duck photographers chasing her.

Like other glossies about celebrities, Us Weekly fills the bulk of its pages with photos. Each week it reviews more than 50,000 submitted by photo agencies and freelancers and narrows them down to a couple of hundred to publish.

Executive Editor Michael Steele said the magazine holds to traditional journalistic standards: It does not pay for information and it does not dig through people's trash. You will not find stories about alien abductions and allegations of botched plastic surgery.

If the magazine gets things wrong -- like the mistaken report that Pitt joined Jolie in adopting a boy from Africa when it was really only Jolie on the adoption papers for a girl -- it corrects them. When Us Weekly is scooped, it credits its competitor.

"We want to be the paper of record when it comes to celebrity news," Steele said.

The magazine says that it purchases only photos that were taken legally and professionally and that staffers check the story behind each shot. It typically pays anywhere from a few hundred dollars for a snapshot of celebrities at a party to six figures for an exclusive set like the ones of Jolie and Pitt playing with the children on the beach in Kenya that ran in the May 9 issue. Recently, the magazine declined to run photos of Brooke Shields at a bakery shop with her daughter after learning that the photographer had been overly aggressive and made other children in the store cry. The editors say they regularly turn away photos that appear to be manipulated by computer.

Us Weekly considers its core reader to be the "cool girl" -- as Min put it, the one who "has the right outfits first and had all the information first." The magazine is aiming for someone who is 31, well-educated, and makes $85,000 or more a year.

Min, a petite, 5-foot-2 fashionista with endless energy, personifies the "cool girl." Educated at Columbia University with a history concentration, she held her first job as a reporter at a Gannett Co. suburban paper, then rose through the ranks of People before being tapped as magazine legend Bonnie Fuller's deputy at Us Weekly. When Fuller left for Star in 2003, Min was promoted to top editor.

Min is one of the highest-paid magazine editors, with a reported salary of $1.2 million a year, and has filled 90 staff positions at the publication with editors from "serious" titles such as Newsweek, New York Magazine and Harper's Magazine.

Her goal is to break news.

Coverage of the MTV Video Music Awards last month was run like a military operation. Eight reporters went to Miami, and they were scheduled to work in shifts to provide 24-hour coverage from Thursday to Monday of the preparations, the show, the pre-parties, after-parties and ad-hoc parties.

Each reporter was given a Sony Treo "smart phone" to coordinate with the others. In all, they exchanged more than 1,000 messages that weekend, ranging from "This party is so lame" to 3,000-word files describing the gowns, the flowers, the rumors.

News director Lara Cohen, who led the team on the ground, said her instructions to reporters were simple: Get as many details as possible. If Mischa Barton picks up an hors d'oeuvre of shrimp on toast, did she eat the shrimp and toast or just the shrimp?

"We strive for pinpoint accuracy," said Cohen, a veteran of defunct media magazine Brill's Content and a former stringer for In Style.

While the weekend event produced fabulous pictures, sadly there were only a few tidbits of news: Nicky Hilton (you know, Paris's sister) trading in her dark locks to go blond. Orlando Bloom (who is supposedly dating Kate Bosworth) hot and heavy with Kirsten Dunst. And Jessica Simpson sporting a scandalous version of a French maid's outfit -- torn out in the back.

The awards show was one of two major topics for the issue for the week of Friday, Sept. 1, through Thursday, Sept. 7 -- along with this year's fashion "winners" (Simpson, Nicole Richie, Oprah Winfrey) and "sinners" (Mary-Kate Olsen).

In addition, writer Mara Reinstein was preparing an article quoting witnesses who saw Aniston and Vince Vaughn making out at the House of Blues in Chicago, and Joey Bartolomeo had a piece reporting that Jolie recently attended a benefit for Haiti in the Hamptons and that Pitt was going to rent a house in the Hamptons.

The photos of Pitt and the children, however, threatened to throw the plans awry.

Around 7:15 p.m., Grossman, 30, a music education graduate student turned photo editor, came in bringing more shots -- including one that showed Pitt's and Zahara's faces, but extremely blurred. The room of editors erupted into a rapid-fire free-for-all.

"It's a setup!"

"Who cares?"

"He's really buff."

"But he seems to have a careless hold on said baby."

"Cute! Cute!"

For a few hopeful seconds the editors wondered whether it was possible to turn the photo into the cover shot, but they concluded with great disappointment that the resolution was too poor. They tested out a cover with Aniston and Vince but concluded there had been too much "white noise" about their relationship already and that a fashion cover -- with some reference to the whole Pitt-Aniston-Jolie -- was still the way to go.

Plus, Us Weekly had already put the evolving story on its cover many times that year. Aniston had been the lead photo 13 times, Jolie twice. (The formula seems to have worked, though, because the top-selling issue was "Jen's Revenge" and the second-best-selling issue was "Angelina & The Kids Move in With Brad.")

Officially, Us Weekly has no editorial position on the Pitt-Aniston-Jolie affair, but any staffer will tell you it is difficult to stay neutral.

When Leslie Bruce, a 23-year-old who recently got her graduate degree in journalism from the University of Illinois, saw the picture of Pitt and the children, she shook her head disapprovingly.

"He's parading this -- wait until his divorce is final," she said. "He's still technically married."

Grossman begged to differ. "No matter what anyone says about how sick they are of the story, you see this and it's like, 'Ah!' " he said. "You can't not like this guy."

What will really hurt the New Orleans recovery.

Ripple effect will be significant.

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Storm Past . . . Storm Path; New Orleans Could Lose Up to a Fourth Of Famed Restaurants

Amy Joyce
Washington Post Staff Writer
957 words
22 September 2005
The Washington Post
FINAL
D01
English
Copyright 2005, The Washington Post Co. All Rights Reserved

With most of the French Quarter still shuttered and another hurricane churning across the Gulf of Mexico, a scattered handful of business owners were struggling to reopen this week.

"I've got to make a living," said Vaughn L. Morenti, owner of Bourbon Street Party Balcony & Facility, which rents spaces for Mardi Gras and other events, and a souvenir shop that sells Mardi Gras beads, masks and T-shirts. The souvenir shop's cash register and a generator had been carried off by looters, and the interior was dark and stifling, but Morenti said there was no chance he would leave his business again.

Around him, the landscape was unpromising. In a city that a week ago sounded as if its business core would be up and running in no time, only a few doors were opening. And some businesses may never return. Jim Funk, the chief executive of the Louisiana Restaurant Association, said he expects a quarter of the area's 3,400 restaurants are closed for good because of a lack of enough insurance coverage, added to what looks like months of little to no business.

Many Bourbon Street restaurants remain closed -- with none of the telltale signs of reopening, such as trucks parked in front bearing industrial strength carpet dryers.

Julio Menjivar was dragging cases of 7-Up and Coca-Cola into Utopia, a bar on Bourbon Street, on Tuesday, preparing for a smattering of customers. When he came to check on the bar Sunday, people stopped by to ask if he was open, so he pulled out some beers and let them stay. By Tuesday night his electricity was back, and he was fully opened. "Everyone has Dominos pizza, and it turned into a beer and pizza party," he said.

"A lot of people are just looking at things now and may not know for sure what they're going to do," Funk said. "We're only three and a half weeks past the storm, and communication is still a challenge in this area. E-mails are sporadic. Insurance adjustors are backed up." And water is still not potable. The association is working with the Department of Health to come up with creative but safe ways for restaurants to reopen. On the possible list are bottled water, water shipped in, and plastic plates and utensils. "Can you imagine that at Commander's Palace?" Funk asked with a wry laugh.

Compeat Restaurant Accounting Systems, a company that provides accounting software to restaurants, was based in Metairie, La., until the Sunday before the storm. Harry Barkerding, who founded the company in 2000, said he made a contingency plan after Hurricane Ivan to leave. Now he has moved to Texas. "It is unlikely I will move my business back to the city," said the lifelong New Orleans resident. I have a young, growing business, and it's one that is portable. From an emotional standpoint, that's a whole other matter."

Barkerding said Dave and Buster's, a major client of his in Dallas, agreed to house the company temporarily if another hurricane hit. When the storm approached, Barkerding got his plan rolling. He and his 13 employees were on the road Sunday and plugged in to servers at Dave and Buster's in Dallas by 11 a.m. Monday, as the storm raged in Louisiana. He did payroll on Tuesday, as he normally would, and sent out monthly billing to clients on Wednesday. He plans to relocate permanently in Austin.

"This was seemingly the best choice with the cards in front of me," he said, choking up as he spoke. "I'm a lifelong resident who's seen lots and lots of hurricanes come and go. But I'm at a point where I have a growing business and employees who rely on me. If we were forced to stay in New Orleans and be down for the many weeks, I'd be out of business."

One of his clients, the historical restaurant Antoine's, is not so portable. Located on Louis Street since 1840, the 1,300-seat restaurant that claims to be the originator of oysters Rockefeller is trying to make its comeback.

Michael J. Guste, general manager, was at the restaurant Tuesday, as Dryout, a company that provides huge fans to remove moisture, was at work -- for $10,000 a day, according to Guste. The restaurant, founded in 1840, has been in his family for five generations. "And it will be here for a sixth and seventh," he said.

He had set up on the sidewalk this week with his cousin, Rick Blunt, who helps him run the business, and Finis Shelnutt, a real estate broker in the area, cooking red beans and rice for anyone in the city.

Tuesday night, they scored fresh chicken and made a pot of jambalaya for about 100 passers-by, mostly military, journalists, and a few French Quarter holdouts. They pulled out white tablecloths and a few tables to seat anyone who wanted to stop. Flashlights worked as ambiance, and Shelnutt later found a generator to hook up to portable lights and a fan.

Guste said he has been in touch with his Chicago-based meat supplier, which said it is ready to cut and ship meat for Antoine's. His dishwasher supplier gave him chemicals for clean up. He hopes to have a small rollout in two weeks.

And as for Hurricane Rita? Guste said the restaurant will secure the roof of the four-story building and hope for the best. "That's not going to stop us."

Imagined prestige extends to the pits.

For those who want posh pits, $30 deodorant is nothing to sniff at.

Tanika White
The Baltimore Sun
694 words
21 September 2005
The Seattle Times
Fourth
F5
English
© 2005 Seattle Times.

In this luxury era, consumers will put TVs in cars, carry Louis Vuitton diaper bags and shell out $200 for a pair of jeans -- anything that identifies them as a shot-caller or overall VIP.

It's gotten so that we don't even blink when we hear what someone was willing to pay for the latest, must-have item.

But luxury has now made its way to the most unlikely of places. Your armpits.

High-end beauty and fragrance brands have recently begun launching luxury deodorants. For anywhere from $12 to $30, these deodorants for men and women sell the consumer on the idea that you may be miserable and sweaty but at least your underarms will not stink in style.

Dolce & Gabbana sells a deodorant stick at Nordstrom for $18. Acqua di Parma is marketing a spray for $27. Cartier's got a $25 bottle. Darphin, a French beauty company, offers a deodorant that "relaxes and soothes" your armpits for $30.

Now, I'm all for luxury. I've got some Seven jeans and a couple Louis Vuitton bags myself. But $30 for a stick of deodorant? Has the whole world gone mad?

Apparently not. It seems that the luxury-mongers have done their jobs convincing us that more is more. Some of my friends actually said they might fork over dinner-and-drinks money to keep pit odor at bay.

"With the right kind of marketing, I'd fall for it," says one friend whose idea of luxury is bubble bath from National Wholesale Liquidators. "What kind? The kind of marketing that makes you think it's OK to pay $4 for a cup of hot chocolate at Starbucks. Who wants to be smelly?"

It was just a matter of time before luxury brands tackled uncharted territory such as your underarms, says Janet Wagner, associate chairman of marketing at the University of Maryland's Smith School of Business. Especially as of late, consumers, like me, have shown that they really respond to "Hedonic brands" -- designer or status brands that indulge the buyer, bring pleasure and announce a particular lifestyle. In fact, shoppers respond to status brands to the tune of millions of dollars a year. So why not see if society's newfound pampering jones extends even to one's underarms?

Really, it's just smart business.

"Although a deodorant is basically something that we buy in private," Wagner says. "It's a necessity in this culture. Buying a bottle of Arrid doesn't really bring you any pleasure."

But buying a 3-ounce bottle of Acqua di Parma eau de toilette for about $120 might. And if you like the light, flowery designer fragrance on your neck and wrists, you might also like it to come wafting out from your arms.

Most of the experts I spoke to say that designer deodorant, with its fancy packaging, will look good in your medicine cabinet, or make you feel more sophisticated. But it won't really fight your B.O. any better than basic brands.

"It's not so much that you're getting twice the sweat-fighting power," says Kristin Perrotta, beauty director at Allure magazine. "The one thing I consistently hear from women who use these is that they're using them as a fragrance. It's not so much that they're trying to impress anybody, because at the end of the day, who really cares what you're sticking under your armpits?"

More people should care, said John Gallo, director of product education for Anthony Logistics for Men, which sells a $12 bottle of deodorant at stores such as Nordstrom and Barneys. He said the ingredients in many upscale deodorants outshine those found in cheaper brands.

Anthony Logistics' deodorant, for example, contains no alcohol or aluminum. Its citrus scent comes from all natural oils and fruit extracts, such as basil oil, bay leaf, lemon peel, roses, oranges and grapefruit. (Not "powder fresh," or "shower scent," like my own Lady Mitchum brand).

"These are class products," Gallo said.

There will always be a market for imagined prestige.

China's rising middle classes to outstrip Japan on spending LUXURY GOODS.

By CHRISTOPHER BROWN-HUMES
742 words
21 September 2005
Financial Times
London Ed1
Page 42
English
(c) 2005 The Financial Times Limited. All rights reserved

For years, the biggest driver of growth in the luxury goods sector has been the buying habits of the Japanese. But they are now facing competition for that special edition Prada handbag or Manolo Blahnik shoes.

Over the next decade the Chinese are set to become the world's keenest buyers of western watches, bags, scarves and trinkets. Four years ago, the Chinese accounted for just 2 per cent of the revenues of the world's luxury goods companies. But such is the size of the country's population and the disposable income of its emerging middle class that the Chinese are expected in about 10 years to overtake the Japanese to become the world's biggest spenders on luxury goods.

"Chinese customers are increasingly driving sector growth and are set to be the heavyweights of luxury goods buying in years to come," says Merrill Lynch.

Goldman Sachs expects the Chinese share of global luxury goods sales to rise from 13 per cent this year to 19 per cent in 2008, 23 per cent in 2010 and 29 per cent in 2015. By contrast, the share of Japanese, who account for an estimated 40 per cent of luxury goods sales, will fall below 29 per cent by 2015.

Jacques-Franck Dossin, Goldman's European luxury goods analyst, expects the Chinese phenomenon to accelerate luxury goods sales growth to 7-8 per cent a year, instead of 5-6 per cent a year.

No wonder luxury goods companies are opening more and more outlets in China. Cartier, the first luxury brand to open up shop in the People's Republic in 1990, has three Chinese boutiques and 172 authorised distributors.

Mr Dossin sees several similarities between the Chinese and Japanese when it comes to luxury goods. One is the view that brands and what you wear help define who you are. This is important in societies where social life tends to take place in restaurants and bars, rather than at home. Another is that both groups shop much more when they travel than at home.

China has recently eased restrictions on its citizens travelling abroad - they can now travel as individuals and not in groups - and they are allowed to take more foreign currency with them. Next year, there are likely to be more Chinese visitors to Paris than Japanese for the first time.

Fans of luxury goods stocks say China is not the only reason to be positive on the sector. Not only is a wealthy middle class emerging in other Asian countries, such as India, but demand for luxury goods is increasing from oil-rich middle eastern countries and Russia.

Another attraction is the barriers to entry, as that is what gives the sector its pricing power. "The luxury goods industry is increasingly controlled by a small number of main players, who have the advantage of being able to set the prices at which their goods are sold, thus protecting their profitability," says Giles Worthington, manager of the M&G Pan European fund.

But luxury goods makers face a number of challenges. One would be any setback, such as a recession, that slows up the emergence of the wealthy Chinese middle class. Another would be any slide in international travel caused by terrorism, bird flu or some other disaster. A third challenge is counterfeiting. "Counterfeiting remains one of the major threats to the industry, especially as the vast majority of faked products are made in China," says Merrill Lynch.

Despite such threats, Merrill favours two luxury goods groups - LVMH and Richemont - partly because of the strength of their activities in China. It estimates that the former derives 9 per cent of group sales from China and the latter 15 per cent. It also likes Swatch, which generates 18 per cent of its sales there. But, for the moment, it is neutral on the Swiss group on valuation grounds.

Valuation is an issue for the sector as whole. Like the goods they sell, luxury goods companies are expensive. The sector has risen 18.4 per cent since its April 28 low, and it trades on a high price/earnings multiple of about 25 times. That may appear steep, but would you expect the companies behind brands such as Louis Vuitton, Christian Dior, Cartier and Montblanc to trade in the bargain basement?

All industries suffer from memories of recent failures.

How much is by choice, and how much is out of one's control?

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Hard lessons mean that heavy bingeing is unlikely - US OVERVIEW: Parallels with previous points in the industry's history are inevitable, says Dan Roberts. But executives have learnt the hard way.

By DAN ROBERTS
697 words
21 September 2005
Financial Times
Surveys CHE1
Page 3
English
(c) 2005 The Financial Times Limited. All rights reserved

The headquarters of Dow Chemical does not look much like a home for recovering alcoholics. Its rural campus outside Midland, Michigan, is more likely to be frequented by turkeys and deer that roam wild than any wandering inebriates - especially now that a new perimeter fence is going up as part of security.

But drunkenness is the metaphor chosen by Andrew Liveris, Dow's Australian-born chief executive, to describe an unpleasant period in the industry's past which most of its participants hope to forget.

Conditions were not dissimilar to today's. Healthy economic growth, driven by Asia and the US, brought high prices and strong demand to a global chemical industry desperately looking to show sustainable returns to investors. Only this was during the last economic upswing of the late 1990s when optimism and high profits encouraged unsustainable investment in new capacity.

Dow - the largest US chemical producer and global number two - joined most of its peers by investing heavily in new cracker facilities, but demand slipped behind supply and prices suffered a painful correction.

Mr Liveris is among many who believe that the generation of managers scarred by this particularly tough contraction after 2001 are unlikely to repeat their mistakes. This time around there has been little new capacity planned by US, European or Japanese chemical groups. Growth expected to come from elsewhere in Asia will be slower off the mark because operators there lack the experience in building new plants.

"I think there will be less bingeing this time simply because there are fewer alcoholics than before," he says.

Dow is also increasingly optimistic about another problem that has dogged the US chemical industry for several years: high natural gas prices.

In contrast to the European industry, many US crackers rely on natural gas-based feedstocks rather than oil because historically it was North America's cheapest and most abundant energy source. But the so-called dash for gas by power station operators in the late 1990s has reversed this feature of the market, and soaring natural gas prices have increasingly made US chemical plants uncompetitive by world standards.

Dow has been at the forefront of a trend among global chemical producers to invest instead in the Middle East, where proximity to cheap energy sources provides a natural competitive advantage.

But heavy lobbying by the American Chemistry Council and other pressure groups in Washington does seem to have brought some longer term relief to the US industry in the shape of the recently passed Energy Bill.

It allows for greater use of existing offshore oil and gas platforms in the US. Republican politicians are increasingly confident they will also be able to open up new gas fields for exploration and development. This is particularly so given the impact of the energy supply shock following Hurricane Katrina. It is thought this will help overcome some of the remaining environmental obstacles to offshore drilling.

"I think it is unlikely that we will regain our position as a major exporter in the US, but I am confident that energy prices here will return to a more neutral position in the medium term," says Mr Liveris.

Whether energy prices become more favourable soon, the industry has arguably earned the right to greater optimism because of its success in passing on costs to its customers.

DuPont, the number two US producer, announced the latest prices earlier this month as the spike in energy costs following Katrina prompted it to raise prices on 35,000 products, including chemicals, seeds and specialty plastics.

Robert Shrouds, DuPont's corporate economist, also predicted prices for crude oil, natural gas and refined petroleum were likely to remain close to record highs in the foreseeable future.

But so long as the growing cost of energy does not trigger a wider economic slowdown, the newfound investment discipline among major chemical producers suggests supply will remain tight enough for them to pass on their rising costs to customers.

Awaiting trickle down of features.

Armoured car market is $1 billion business

750 words
22 September 2005
New Zealand Herald
English
(c) 2005 The New Zealand Herald

SUVs adapted to withstand fact that most attacks on vehicles involve explosive devices rather than bullets.

Armoured cars are now considered almost essential for all high-profile figures in dangerous parts of the world.

But US President George W Bush's vehicle is thought to be the most advanced ever.

The exact security measures built into his Cadillac de Ville are a secret. But it is almost certain to have:

12cm-thick armour, on and under the car and able to withstand rocket- propelled grenades

Extra wide wheels rims and tyres that function even if punctured

Air-tight seals to withstand chemical and biological attacks

Night-vision capability, should lights fail

A fuel tank designed to resist explosions

6cm-thick laminated glass windows

One of the first armoured cars for a political leader is understood to have been a limousine built for US President Harry S. Truman in 1949.

Today, the technology has greatly moved on and it has been shown to save lives.

In 1998, Georgian President Eduard Shevardnadze's motorcade was ambushed by men using light arms, machine guns and rocket- propelled grenades.

Three people were killed but thanks to the armour in his limousine, Shevardnadze escaped unharmed.

Six years earlier, Italy's top anti- Mafia judge Giovanni Falcone died when a bomb exploded under his car.

The attack prompted armoured car specialists to improve protection on the underside of cars.

In one 1998 incident, an armoured Canadian vehicle detonated a buried anti-tank mine.

Such was the force of the blast that the vehicle was thrown into the air and crashed down on its roof.

The occupants suffered minor injuries but the vehicle's cabin was intact.

The mine left a crater two metres wide.

Now American specialist Armor Holdings has launched the IE-defence system, the world's first sports utility vehicle equipped to withstand explosive attacks.

It says commercially available SUVs and other passenger vehicles adapted to protect passengers account for nearly $1 billion of the global vehicle armouring market.

Armor says its intensified explosive defence system protects against an initial explosive attack and a subsequent attack by assault rifle with armour-piercing bullets.

It says 75 per cent of attacks on vehicles involve explosive devices rather than bullets, so the system has been tested to withstand high- energy fragments up to 20mm, typically the largest fragment from a roadside bomb.

The company fitted its ``shell within a shell'' armour to the latest Range Rover and then brought an explosive firestorm down upon it.

In the end, the Range Rover was able to be driven away. Arnmor Holdings upgrades the chassis and suspension to carry the extra weight and re-builds the brakes with technology borrowed from Formula One.

Other security features on the Range Rover include digital cameras in the front and rear to help the driver monitor suspicious vehicles and traffic, and help him steer out of trouble if the windscreen is obscured by cracks after bullets strike, or the backseat passenger has drawn the curtain.

Vehicles such as the presidential Cadillac use an infra-red camera to scan the road.

The heat signature of all objects ahead is converted into a view of the road which is projected onto the inside of the windscreen.

This technology can provide clearer images of people or objects than headlights, even in the dead of night.

Since the armoured shell is only effective while you are inside, an intercom system allows the passengers to speak to people outside without unwinding the windows.

A bomb detector can sense the magnetic field variation caused by some kinds of device, though the floor is specially reinforced against this threat. An oxygen bottle in the trunk can keep the passengers breathing for 20 minutes in the event of a gas attack.

There is also back-up battery to keep the electrics and air conditioner going.

Re-enforced bumpers allow the chauffeur to ram other cars off the road to enable a swift getaway.

The Michelin run-flat tyres enables the vehicle to drive for up to 100km at 80-100km/h even when the tyres have being shredded.

Hoses and sprinklers fitted around the car extinguish fires while a self-sealing fuel tank prevents petrol leaks.

If escaping from the mobile fortress becomes necessary, a thin strip of plastic explosive blows an escape hatch through the rear windscreen in the same way a jet fighter's canopy shatters before the pilot ejects.

Plasticity is the key.

Are we getting smarter or dumber?

By Stefanie Olsen

"Too much information" may be the catchphrase of the Internet age.

That's why generations reared on Net technology may need to one day rely on the brain calisthenics being developed and tested by Mike Merzenich, a neuroscientist, software entrepreneur and self-described "applied philosopher."

Merzenich, who has a doctorate in neuroscience from Johns Hopkins, runs a think tank of scientists developing programs to keep your brain in shape. Why not? He's already developed software to help children with dyslexia and other disorders learn how to read, as founding CEO of Scientific Learning. And in the late 1980s, he was on a team that invented the cochlear implant.

Smarten up

As co-founder and lead scientist of San Francisco-based Posit Science--his latest venture--Merzenich oversaw testing programs centered on research he's done for three decades on brain plasticity. A field of neuroscience, brain plasticity deals with the ability of gray matter to adapt and change physically and functionally throughout life. Without invasive surgery or pharmaceuticals, Posit Science is testing programs on the elderly to engage brain plasticity and promote cognitive fitness.

CNET News.com spoke with Merzenich about how technology is affecting human intelligence.

CNET: Has intelligence changed at all in the era of the Internet?

Merzenich: Over the past 20 years or so, beginning before the Internet really took hold, the standard measure of "intelligence" (cognitive ability) has risen significantly (well more than 10 points). No one really knows what to pin this on, but it is a well-documented fact.

CNET: Are we getting smarter--or more lazily reliant on computers, and therefore, dumber?

Merzenich: Our brains are different from those of all humans before us. Our brain is modified on a substantial scale, physically and functionally, each time we learn a new skill or develop a new ability. Massive changes are associated with our modern cultural specializations.

The Internet is one of a series of aids developed over the last millennium or so that has increased the operational capacities of the average world citizen.

The Internet is just one of those things that contemporary humans can spend millions of "practice" events at, that the average human a thousand years ago had absolutely no exposure to. Our brains are massively remodeled by this exposure--but so, too, by reading, by television, by video games, by modern electronics, by contemporary music, by contemporary "tools," etc.

When humans first evolved from the chimp line, they were (of course) only slightly more advanced than their relatives. It took them 10,000 to 20,000 years to develop the first useful language; about 40,000 years to figure out how to make a sharp knife; maybe 55,000 years or so to develop a method of writing; another several thousand years before they figured out how to make something sensible and portable to write on; another couple of thousand years to invent punctuation; another thousand years or so to figure out how to make more than one copy of a book; another 200 years before the general populace was taught to read, and then in only some places in the world; another couple of hundred years before the invention of the radio, television, the movies; and so on.

In each stage of cultural development (and hundreds of separate lines of development could be tracked like this), the average human had to learn complex new skills and abilities that all involve massive brain change. Our brains are vastly different, in fine detail, from the brains of our ancestors.

We have this wonderful ability to specialize--so powerful that each one of us can actually learn an incredibly elaborate set of ancestrally developed skills and abilities in our lifetimes, in a sense generating a recreation of this history of cultural evolution via brain plasticity, in a highly abstracted form, in every one of us.

With the Internet and contemporary technology evolving at a lightning pace over the past 40 years, the demands of uploading from our cultural history are incredible, and we're seeing more and more people falling off the boat.

CNET: Does this mean that our "intelligence" is greater?

Merzenich: The answer to that depends in part on your definition of "intelligence." In classical studies, it was argued that each one of us has a core ability that is not influenced by our education or culture. This may or may not be true, and it may or may not be the case that it is changing as our cultural resources expand (now almost exponentially).

What is getting better, undeniably, is the amount of information, and our access to information, that can contribute to a reasoned decision by our brains.

CNET: Is the fact that we do not have to remember, but rather have the world's information at our fingertips, a liability to our intelligence?

Merzenich: Intelligence arises from three basic assets. First, we have a genetic endowment that enables and limits our cognition.

Second, we learn a wide variety of basic skills and abilities that solidify, elaborate and crucially support our cognitive abilities, and that can impact the efficiency (accuracy, at speed) of our cognitive operations.

Third, we each load our brains with hundreds of thousands of words and little episodes that we associate with one another in millions or tens of millions of ways.

Developing the skills and abilities that crucially support our refined cognitive abilities, and filling our brain dictionaries and constructing this myriad of probabilistic associations in (various) categories, are products of massive brain change. We are greatly facilitated in increasing this stored repertoire and in being guided in constructing our associative references by books, the media and in a particularly powerful and efficient way, by the Internet.

You cannot make associations about things that you have not recorded. In this respect, the Internet is one of a series of aids developed over the last millennium or so that has increased the operational capacities of the average world citizen.

In my use of the Internet or any other reference source, I do not turn my brain off. I'm gathering information and associating it in my very own computer, right along with my desktop computer and the Internet. If anything, these aids are helping my brain gather more information to get more answers right, and to see more possible associations than would otherwise be the case.

CNET: Will we be smarter with computers that can do abstract thinking for us? Or will that exacerbate a potential problem?

Merzenich: This is a difficult question to answer because it is difficult to see just how this will evolve. Personally, I see this triumph of technology, if it occurs on a broad scale, as a rather astounding defeat of its inventors, don't you? I suppose our abstract thinking abilities will be substantially superseded by machines.

One can imagine a future when the machine is consistently relied on for the answer, and in which, outside of setting up the question, the human is relatively redundant in this process. Of course, one can also imagine quite a few other scenarios.

In general, the brain needs to learn, to reason, to act. Without it, it deteriorates. I assume that we brain scientists understand this with increasing clarity, and whatever else the information explosion contributes to humankind, we'll understand, with increasing clarity, what the average individual has to do to maintain lifelong "brain fitness."

CNET: How does your research on brain plasticity affect intelligence?

Merzenich: One can measure intelligence before and after intensive training in a variety of different forms (e.g., with the tools that we've developed for school-age children and mature adults in their language, reading and cognitive abilities) and record very significant advances in those measures. We have been training 70- to 90-plus-year-olds to be more accurate aural-language receivers and language users. After 40 hours or so of training, the average trainee's cognitive abilities are rejuvenated by about 10 years, i.e., their performance on a cognitive assessment battery is like those of an average person who is 10 years younger.

Many individuals improve by 20 or 30 or more years in ability. Similar before-vs.-after effects have been recorded using basic cognitive measures in kids.

CNET: Is our brain still evolving, and can we do anything proactively to stay smart?

Merzenich: Culture is evolving, and that means that the challenges faced by brains are continuously changing and elaborating. Our brains are different. Different doesn't always mean "better." Different can be "worse."

Sure, we can and must do things to stay proactively "smart." We must exercise our brains as the learning machines that they are, and we must do this continuously through life. We must work hard to maintain our skills and abilities as accurate receivers and users of information from aural language, vision, body senses, movement control, etc.

With the help of many world neuroscientists, Posit Science is working as hard as possible to develop and apply brain fitness tools that can provide this crucial exercise. Brain fitness will be an important part of every future, well-organized life.

More on what now matters.

Technology can do one of two things: enable us to focus on what really counts, or drive us to the point of distraction. Our systems of education had better be geared towards priming our population for the former.

Rote memorization always did manage to teach one thing: discipline.

---

From ape to 'Homo digitas'?

By Stefanie Olsen

Jonathan Zittrain has seen a new species emerging in recent years. He calls it "Homo digitas."

"The vision (is) of someone glued to a chair, focused on a screen, interacting as an object, a person whose main identification is as a digital creature, who doesn't know what to do without a signal," said Zittrain, co-founder of the Berkman Center for Internet and Society at Harvard Law School.

But for all the knowledge available on the Internet, it's not so clear that the modern, computer-using Homo digitas is any more intelligent than the good, old-fashioned Homo sapien.

Still, there are tantalizing signs of what could be. Communities of software developers, connected through the Internet, for example, have managed to create in a matter of months and at little cost what used to take big companies years and billions of dollars to develop. That collective intelligence of open-source projects shows how the world could get a lot smarter, thanks to the Net.

"Collectively and collaboratively, this is the most promising potential for really developing our collective ability to learn and think," said Doug Engelbart, a pioneer of personal-computing technology in the 1960s who conceived of the computer mouse.

But it's not so easy to say how or whether individuals are getting any smarter. Truth is, getting along in this world as a Homo digitas isn't easy. People must cultivate the ability to navigate dynamic, virtual environments for information, then be able to evaluate and analyze that information critically. On the Internet, it isn't always easy ferreting out fantasy from reality and truth from fabrication.

Just 10 years ago, if you wanted specific information you'd go to the library to check out a book. The fact that the book was in the library's collection meant that someone had vetted the work for credibility or value to society. The Web, on the other hand, holds few rules of selectivity or standards. Anyone can publish books, blogs, zines, videos or podcasts.

"The skill is moving around in a knowledge repository to...find out and learn things," Engelbart said. "It's one thing to ask a search engine a question. But it's another thing to go through and evaluate things that are relevant and tie them together."

Being able to organize all that data is also an important survival skill. No self-respecting Net denizen can get along without knowing all the advanced settings on at least three major search engines. And the ability to categorize e-mails in nifty folders while simultaneously tracking the windows of several instant-messaging sessions on the fly is pretty helpful too.

Shopping for ideas or products on the Net means people must process, compare and analyze much more information. Buying a pair of shoes off-line, a consumer might visit one or two stores. Online, people have the ability to compare product attributes in large numbers. The resulting glut of information puts a higher demand on them to put the information in their working memory--and process it, psychologists say.

Children must also become more skeptical judges of information, and in a sense, they must grow out of the sandbox more quickly. Years ago, kids were expected to tune into an authoritative voice in the classroom or elsewhere and paraphrase it to get an "A." Now children must apply critical thinking skills to sort through the vast amounts of junk on the Web.

"There is a shift that happens: If you start to lose attachment to facts in your head, if you always have to reach outside, then putting ideas together in novel ways will become impossible," said Brewster Kahle, executive director of the Internet Archive, a nonprofit organization that is keeping a record of the changes of the Net. "And that's the essence of thinking. We have to train and expect critical thinking--not just Web surfing."

Lost in a world of GPS

As a result, what kids do all day in school--indeed, how adults educate themselves, as well--may have to change. Until it does, many believe it'll be a long time before society becomes more intelligent as a result of the Net.

"Educating our kids and having them learn to educate themselves is completely changing, and I don't think we're ready for that in our schools," Zittrain said.

That's not to say people aren't getting a little smarter. A New Zealand researcher named Jim Flynn discovered in the 1980s that the average IQ test scores were ticking up by three points--a full standard deviation--every decade since the beginning of the 1900s. It's known as the Flynn Effect.

People are advancing in the ability to process information or problems, but they're not improving in verbal or critical thinking skills, according to several professors tracking intelligence. No one knows exactly why the average mean is trending up, but researchers suspect any number of things, including nutrition, experience with test-taking, and cultural attitudes.

On an individual level, however, it's much easier for people reliant on their computers to feel dumber when they're not online. Without a Google window open for quick answers, someone might be stumped in conversation, and that phenomenon may rise with the invention of IP-connected gadgetry like human-computer interactive eyeglasses.

Someone with a Global Positioning System in their car, for example, could rely on its directions to get to a friend's house repeatedly, without ever having to develop a theory for how to get there. Without it, he or she might be lost.

"Some people think (intelligence is) a single thing and it's the same forever and ever. And of course, it's not. Intelligence changes with time and place," said Robert Sternberg, dean of arts and sciences at Tufts University and a professor of psychology.

The good news is that the increasing popularity of blogs and wikis shows people are talking, arguing and forcing one another to think.

"People are not just idly sitting in front of the TV screen, but through some of these new technologies, (they) are asking questions of the world at large, and having the world respond and change because of the question," Zittrain said.

In fact, until computers can think for us, or thread ideas together, we will still need to rely on our own brains to do the work. The Internet may be vast, but it can't do the critical thinking for us.

"The Internet is information-rich, but it is flat," said John Davidson, a partner at venture capital firm Mohr Davidow who has specialized in investments in artificial intelligence. "The notion of technology taking over the world is false. It may be frustrating when the power goes out, but there are not going to be smart computers taking it over; it might (be) dumb computers. The ubiquity of stupid computers might be more dangerous.

Jeff Hawkins, the co-founder of Palm Computing, is working on that problem. He has started a new company called Numenta, in Menlo Park, Calif., in an effort to build intelligent machines that can replicate the brain's neocortex, the source of human intelligence.

In his book, "On Intelligence," Hawkins presents a theory of the brain that argues that intelligence is measured by the ability to make predictions by seeing patterns in the world. He's attempting to make computers intelligent by teaching them to find and use patterns in specific trades. For example, by programming a computer to "think" by watching patterns of visual images on a security monitor, a company might save on paying several night watchmen.

What if the power goes off?

"A real inflection point that's going to happen in the next three or four years will be when humans aren't the only ones exhibiting intelligence," Hawkins said.

Still, neuroscientists believe that humans are already smarter today because of technology and that as our culture evolves, our brains will continuously change and evolve. Mike Merzenich, a neuroscientist and co-founder of San Francisco-based Posit Science, a company that develops programs for brain fitness, has studied what's known as brain plasticity, the brain's ability to adapt and change physically and functionally throughout life.

"Our brains are different from those of all humans before us. Our brain is modified on a substantial scale...each time we learn a new skill or develop a new ability," Merzenich wrote in an e-mail interview. Still, technologists must be careful about developing computers that outstrip our own ability to think abstractly, thereby making people redundant.

But what happens if the power goes off?

E.M. Forster's "The Machine Stops," published in 1909, is about a society that's heavily dependent on a machine, which among other things, cleans house and provides the food. One day, the machine stops, and the society must reconstruct itself by relying on only a few people who remember what to do.

"The moment it gets switched off is echoed (in today's society) when the lights go down and we don't know how to fix the car or light the fire," Zittrain said.

Of course, the same could be said if phone lines go down, or the electricity goes out. The real danger is not being cut off from the Internet; it's that some people never get to use it and are at risk of falling perilously behind those who take Net access for granted.

"With the Internet and contemporary technology evolving at lightning pace over the past 40 years," Posit Science's Merzenich said, "the demands of uploading from our cultural history are incredible, and we're seeing more and more people falling off the boat."

Is memory becoming irrelevant?

The next advance will be the ability to glean connections between evolving domains of knowledge and assess the quality of new knowledge without necessarily having to retain significant elements of prior related knowledge in one's memory proper. Once we can accomplish those feats, then we can further strip down that which we need to carry on-board. At that point, trivia will finally befit its name.

---

September 19, 2005

Intelligence in the Internet age
Stefanie Olsen, Staff Writer, CNET News.com

It's a question older than the Parthenon: Do innovations and new technologies make us more intelligent?

A few thousand years ago, a Greek philosopher, as he snacked on dates on a bench in downtown Athens, may have wondered if the written language folks were starting to use was allowing them to avoid thinking for themselves.

Today, terabytes of easily accessed data, always-on Internet connectivity, and lightning-fast search engines are profoundly changing the way people gather information. But the age-old question remains: Is technology making us smarter? Or are we lazily reliant on computers, and, well, dumber than we used to be?

"Our environment, because of technology, is changing, and therefore the abilities we need in order to navigate these highly information-laden environments and succeed are changing," said Susana Urbina, a professor of psychology at the University of North Florida who has studied the roots of intelligence.

If there is a good answer to the question, it probably starts with a contradiction: What makes us intelligent--the ability to reason and learn--is staying the same and will never fundamentally change because of technology. On the other hand, technology, from pocket calculators to the Internet, is radically changing the notion of the intelligence necessary to function in the modern world.

Take Diego Valderrama, an economist with the Federal Reserve Bank in San Francisco. If he were an economist 40 years ago, he may have used a paper, pencil and slide rule to figure out and chart by hand how the local economy might change with a 1 percent boost in taxes. But because he's a thoroughly modern guy, he uses knowledge of the C++ programming language to create mathematical algorithms to compute answers and produce elaborate projections on the impact of macroeconomic changes to work forces or consumer consumption.

Does that mean he's not as bright as an economist from the 1950s? Is he smarter? The answer is probably "no" on both counts. He traded one skill for another. Computer skills make him far more efficient and allow him to present more accurate--more intelligent--information. And without them, he'd have a tough time doing his job. But drop him into the Federal Reserve 40 years ago, and a lack of skill with the slide rule could put an equal crimp on his career.

Intelligence, as it impacts the economist Valderrama, is our capacity to adapt and thrive in our own environment. In a Darwinian sense, it's as true now as it was millions of years ago, when man's aptitude for hearing the way branches broke or smelling a spore affected his power to avoid predators, eat and survive.

But what makes someone smart can vary in different cultures and situations. A successful Wall Street banker who has dropped into the Australian Outback likely couldn't pull off a great Crocodile Dundee impression. A mathematical genius like Isaac Newton could be--in fact, he was--socially inept and a borderline hermit. A master painter? Probably not so good at balancing a checkbook.

What's undeniable is the Internet's democratization of information. It's providing instant access to information and, in a sense, improving the practical application of intelligence for everyone.

Nearly a century ago, Henry Ford didn't have the Internet, but he did have a bunch of smart guys. The auto industry pioneer, as a parlor trick, liked to claim he could answer any question in 30 minutes. In fact, he had organized a research staff he could call at any time to get him the answer.

Today, you don't have to be an auto baron to feign that kind of knowledge. You just have to be able to type G-O-O-G-L-E. People can in a matter of minutes find sources of information like court documents, scientific papers or corporate securities filings.

"The notion that the world's knowledge is literally at your fingertips is very compelling and is very beguiling," said Vint Cerf, who co-created the underlying architecture of the Internet and who is widely considered one of its "fathers." What's exciting "is the Internet's ability to absorb such a large amount of information and for it to be accessible to other people, even if they don't know it exists or don't know who you are."

Indeed, Doug Engelbart, one of the pioneers of personal computing technology in the 1960s, envisioned in the early '60s that the PC would augment human intelligence. He believes that society's ability to gain insight from information has evolved with the help of computers.

"The key thing about all the world's big problems is that they have to be dealt with collectively," Engelbart said. "If we don't get collectively smarter, we're doomed."

The virtual memory

According to at least one definition, intelligence is the "ability to reason, plan, solve problems, think abstractly, comprehend ideas and language, and learn." Yet intelligence is not just about book learning or test scores; it also reflects a deeper understanding of the world. On average, people with high IQs are thought to live longer, earn more money, process information faster and have larger working memories.

Yet could all this information provided by the Internet and gadgets dampen our motivation to remember anything?

Working with the Treo handheld computing device he helped create, Jeff Hawkins can easily recount exactly what he did three years ago on Sept. 8, factor 9,982 and Pi, or describe a weather system over the Pacific Ocean. But without his "smart" phone, he can't recall his daughter's telephone number offhand.

It's a familiar circumstance for people living in the hyper-connected Internet age, when it has become easier to program a cell phone or computer--instead of your brain--to recall facts or other essential information. In some sense, our digital devices do the thinking for us now, helping us with everything from calendar scheduling and local directions to in-depth research and "Jeopardy"-like trivia.

"It's true we don't remember anything anymore, but we don't need to," said Hawkins, the co-founder of Palm Computing and author of a book called "On Intelligence."

"We might one day sit around and reminisce about having to remember phone numbers, but it's not a bad thing. It frees us up to think about other things. The brain has a limited capacity, if you give it high-level tools, it will work on high-level problems," he said.

Only 600 years ago, people relied on memory as a primary means of communication and tradition. Before the printed word, memory was essential to lawyers, doctors, priests and poets, and those with particular talents for memory were revered. Seneca, a famous teacher of rhetoric around A.D. 37, was said to be able to repeat long passages of speeches he had heard years before. "Memory," said Greek playwright Aeschylus, "is the mother of all wisdom."

People feared the invention of the printing press because it would cause people to rely on books for their memory. Today, memory is more irrelevant than ever, argue some academics.

"What's important is your ability to use what you know well. There are people who are walking encyclopedias, but they make a mess of their lives. Getting a 100 percent on a written driving test doesn't mean you can drive," said Robert Sternberg, dean of Arts and Sciences at Tufts University and a professor of psychology.