SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR:

As 2001 gets underway, it looks like the world economy is strong. But what's the outlook? Will American businesses continue to benefit from advances in technology? What happens after China becomes an official member of the World Trade Organization? And what major discoveries will come out of the laboratories of biotech researchers? We'll look at these important global issues in this special program.

ANNOUNCER: This is a special edition of Nightly Business Report: "The World In 2001-- An Economic View," featuring Susie Gharib, and produced in association with The Economist Magazine.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Merry Christmas everyone, and welcome to this special edition of Nightly Business Report. Year 2001 is just days away; and all around the globe, investors and business leaders are wondering about the outlook for the world economy in the new year. The prospects depend on many factors -- including the performance of the U.S. economy. It's been the "engine" of the world economy. As this report from The Economist Magazine of London explains, "The big question is whether the high-tech boom that's powered our economic expansion can continue?"

OLENKA FRENKIEL, COMMENTATOR, THE ECONOMIST: The American economy is booming. Productivity growth has doubled in the last five years. But will the rest of the world benefit? Are we all set to be richer in the future? America's growth is largely due to innovation and investment in information technology. So could this revolution transform the global economy?

CLIVE CROOK, DEPUTY EDITOR, THE ECONOMIST: A lot of people think that productivity in the U.S. has gone up on a long-term, sustainable basis because of the introduction of computer technology and the spread of the Internet. The American economy is growing very rapidly in a sort of 4%, 5% range. That, I think, is most unlikely to last. A figure of around 3% or maybe even 3½% a year will be a plausible growth rate to expect for America going forward.

FRENKIEL: At whatever pace, growth seems set to continue. But for how long is IT likely to be the driving force?

PROFESSOR ROBERT J GORDON, NORTHWESTERN UNIVERSITY: In the last five years, we've gone from zero usage of the Internet to maybe 60% of American houses using it. That means we are past the point of most rapid adaptation of the Internet: the purchase of not just the computers at home but all those phone lines and servers and routers is going to start dying down.

PAUL SAFFO, DIRECTOR, INSTITUTE FOR THE FUTURE: There are a lot of folks who say that we've seen the benefits of the information revolution in the economy, but they're wrong. Revolutions beget revolutions. The Internet is a local phenomena in a larger revolution. And there's lots more waiting in the wings. We're in for a good five to ten years of economic surprises from information technology.

FRENKIEL: America leads the world both in the manufacture of and investment in such technology. Can the rest of the world ever hope to catch up?

GORDON: Can we export this miracle to the rest of the world? Well, we already have. And look at Ireland, which has the fastest growth of any of the relatively rich countries. And much of that is on the back of investment by American firms: Microsoft and Dell. Much of the world, starting with Southern Europe -- and certainly in Africa and much of Latin America-- is hardly touched by the Internet at all. And yet, in Asia that's where many of these computer components are coming from and where much of the technological revolution has occurred.

FRENKIEL: Both the industrialized and developing nations stand to benefit from this revolution. But what must they do to experience the kind of expansion that's taken place in America?

CROOK: Well, if the rest of the world is going to match America's achievement on productivity, two areas seem crucial. One is education and the other is flexibility in the way labour gets allocated in the economy. Education, I suppose, is an obvious thing because the IT revolution is a knowledge revolution.

GORDON: We have much of the world's population that has never seen a computer, and may never in their lifetimes see a computer, to many parts of Scandinavia and the US, where every child in every school has his own or her own computer.

SAFFO: This revolution we're in the middle of is largely a developed world phenomenon. And there are a lot of people who do not have any part to play in it, any role to play. And there are a lot of people who are very angry about what's going on. They feel they've lost control. It takes the form of anti-globalisation demonstrations. It takes the form of fundamentalist growth in a developing world. This is a very fragile environment.

FRENKIEL: The IT revolution can't cure everything. Countries crippled by wars, natural disasters and bad government are unlikely to benefit. On the other hand, many more fortunate nations are showing signs of recovery. They could benefit from IT even more than the Americans because they've got further to grow.

CROOK: I'd say that The Economist is cautiously optimistic about the prospects for the American economy and maybe even a bit more than cautiously optimistic about the prospects for the rest of the world.

FRENKIEL: Information technology and telecommunications are likely to benefit many economies. The countries may have to change some traditions in order to reap the full benefits.

SAFFO: This next decade is really a decade of transition between old economy and new economy. Now, it's not that the old economy goes away; it's just that the new economy is still getting established. That's what the battle of the next decade is over: `Does the new economy keep growing as quickly as it did? Or do we end up having some sort of revenge of the industrialists where the old economy has the last word?' I think it's going to be very choppy waters for the next ten years.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: One major economic development that is expected to occur in 2001 is China's entry into the World Trade Organization. As this report from The Economist shows, that's expected to speed up economic reforms already under way in China.

ROBIN LUSTIG, COMMENTATOR, THE ECONOMIST: A new workday begins at Beijing's iron and steelworks. It was once part of the Maoist vision of worker bliss: not just a place of work, but a worker's life. He or she would labour for the Communist cause in return for what's known as an `iron ricebowl' ? free housing, child and healthcare, and a pension for life. But today, China is casting aside those very workers the Communist revolution claimed to protect. Economic reform will accelerate with China's prospective entry into the World Trade Organisation, or WTO.

JAMES MILES, INSTITUTE OF STRATEGIC STUDIES: This will impose not only enormous social stresses within China but political ones too. Ideological debates, I'm sure, will open up the forces of extreme conservatism of the old-style Maoists. Their voices are not heard so much in China now, but they are there. They do criticise the reformist leadership, and I think we'll hear more and more of these kind of voices.

LUSTIG: China's accession to the WTO will be its biggest step towards the merging of its economic system with that of the capitalist West since Communist rule began more than half a century ago. Communist dogma now takes a back seat to China's ambition to become a great economic power in the 21st century. Its reformist leaders see WTO membership as an important step onto the global stage and realize the benefits of foreign investment.

YONGHAO PU, ECONOMIC ANALYST: So they bring the competition, but they also bring the New sort of fresh technology into China. All these things were bringing a good Xiangist to China.

LUSTIG: The rest of the world sees the market potential of China's 1.3 billion population. But it comes at a cost. On the streets of Shen Yang the Shargang gather to watch street opera. They're the workers who are officially still employed by a State-owned factory ? but no longer paid: it's effectively bankrupt. They line the streets, advertising their skills in the hope of finding work to make ends meet. After more than ten years' working for the same factory, Mr. Ren was laid off without a pension. His only income now is what he sells at this illegal market in Beijing.

MR. REN [TRANSLATION]: I've a very heavy burden now. I've an eighty-year-old mother, and a little child. I'm a middle-aged man, and I have to take care of both of them!

LUSTIG: Across China a substantial number of State-owned enterprises, or SOE's, are in dire financial straits. SOE's account for some 80% of the country's bank loans. A huge share of these loans, as much as 25% of GDP, will never be paid back. Foreign competition after WTO makes reform all the more urgent. It'll also mean millions more out of work.

DOMINIC ZIEGLER, CHINA CORRESPONDENT, THE ECONOMIST: It's absolutely essential that the government finds the means to build a safety net to catch these victims, a net that holds them until they find new employment from the new jobs that one hopes the private sector is going to create in great numbers over the coming years.

LUSTIG: While some sectors, like the textile industry, will gain from WTO, the hardest hit will be agriculture. Farmers with small plots of land have no hope of competing in world markets. Many have already abandoned their land to head to the cities in search of a better life.

DOMINIC ZIEGLER: In China under Chairman Mao there was a form of apartheid. People from the countryside were kept out of the cities. Now, of course, the barriers have broken down. But still, they're second-class citizens. They can't have schooling for their children. If they fall ill they don't get medical treatment. They're not guaranteed housing.

LUSTIG: Han Dongfang was imprisoned for championing workers' rights during the Tianenmen Square protests of 1989. Now an exile in Hong Kong, he listens to the daily grievances of workers and unemployed ? a powderkeg, he says, waiting to explode.

HAN DONGFANG, LABOUR ACTIVIST: Now, I don't think the machineguns and tanks will work again. So in that time if bad things happen we will be in big, big trouble.

MILES: When Chinese really feel that their interests are threatened and they see symbols of Western consumerism filling their streets, then there is a risk that we will begin to see the first, more significant, backlash against Western businesses.

LUSTIG: Ironically, economic reform means reform of the socialist system itself. Market forces will overtake Mao philosophy. And a nation of capitalists will be run by a tiny band of communists.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: So, what is the outlook for the world economy in 2001? Joining me here at the United Nations are three special guests: Robert Hormats, Vice Chairman of Goldman Sachs International; Nicholas Bratt, Director of Global Portfolio Management, Scudder Kemper Investments; and Margaret Doyle, Finance Correspondent with The Economist. Welcome everyone, and thank you for joining us. And considering that we are here at the United Nations, I think it's safe to say that one of the biggest concerns facing the 189 member countries is the U.S. economy, and what is going to happen to it in the year 2001. Bob, what's your forecast?

ROBERT HORMATS, VICE CHAIRMAN, GOLDMAN SACHS INTERNATIONAL: Well, the U.S. could grow at 2, 2 1/2 percent, and I think that's a reasonable scenario; but there are a number of risks. One is that the American consumer that's been spending a lot because the stock market's been so high, and that's really boosted spending in this country. The consumer could retreat in light of a weakened stock market. There's also risk that the Fed won't lower rates quickly enough, or substantially enough, to stop the deterioration. Or we can have an oil crisis, which could disrupt the whole growth scenario very quickly.

GHARIB: Nick, you manage $150 billion. What economic scenario are you banking on?

NICHOLAS BRATT, DIRECTOR OF GLOBAL PORTFOLIO MANAGEMENT, SCUDDER KEMPER INVESTMENTS: I would agree with Bob's general numbers for the economy. But we're worried by a number of factors: One is the level of private debt in the economy, and the other one is the potential weakness for the U.S. dollar.

GHARIB: Now Margaret, you've just flown in from London. Tell us what is the perspective from outside the United States?

MARGARET DOYLE, FINANCE CORRESPONDENT, THE ECONOMIST: The perspective from outside is a lot more bearish and has been for a lot longer than it has been here. And in particular, outside we are all certain that the dollar is going to weaken substantially, particularly against the euro.

GHARIB: Given this scenario, all of you seem to be agreeing. What would be the impact on the rest of the world if the Federal Reserve isn't responsive, if the American consumer loses confidence?

HORMATS: It'd be very bad for the rest of the world because Asia, which is just beginning to dig itself out of the crisis of '97-'98 is depending heavily on exports, particularly to the U.S.. If the exports to the U.S. deteriorate, you could have a big problem. Same with Latin America, which depends very heavily on the American market. It's particularly bad for emerging markets.

BRATT: It would also be a problem in Europe. We're beginning to see growth in Europe. Slow. And if we get a harder landing here, it'll have a negative effect in Europe. And it'll also stall the first signs of recovery we're beginning to see in Japan.

DOYLE: It is true that I think that when America sneezes, the rest of the world catches a cold. But I would be a bit more optimistic about Europe. I think that we have seen a lot of restructuring in Europe, and it's only just beginning. In particular, there's a lot of pension reform. Germany and Italy these countries are all waking up to the fact that they need individuals to invest for their retirement.

GHARIB: Nick, the whole world is watching to see how the U.S. stock market will be doing in 2001. What can we expect?

BRATT: I think the U.S. stock market is going to be challenged by two countervailing forces. On the one hand, we should see lower interest rates, which will be beneficial. But on the other hand, if we have a weaker economy, it's going to threaten corporate earnings. And so the market is going to flip-flop between those two forces. There'll be individual sectors that'll do quite well, but in broad terms, I think it will be somewhat directionless.

GHARIB: Now Margaret, The Economist has been very bearish on the market. I guess you will agree with Nick. Where do you see the opportunities.

DOYLE: Well again, I think that Europe is gonna be where the opportunities are. We will continue to see substantial restructuring, particularly in Germany because there's---

GHARIB: So, those stock markets will do well.

DOYLE: Those stock markets will do better than the U.S.. I think we're still going to see a lot of peop-- a lot markets being nervous if the U.S. is coming done. But relative to the U.S., they're gonna do better, not just because of all of that restructuring in the pension reform, but also because the euro will strengthen against the dollar.

HORMATS: And I think that's right. That's a very important point. Europe has been doing restructuring. We're gonna see the results of it soon. They've been cutting taxes, pensions have been improving -- a whole range of benefits -- and the euro has been way undervalued and should pick up, which should help a lot of investors, particularly investors coming from the United States into Europe.

GHARIB: Well, that'll be great; but what does it mean for the U.S. dollar then?

HORMATS: It probably will mean a weakening U.S. dollar vis-à-vis the euro. The U.S. dollar has been relatively strong. If the U.S. economy weakens, and if Europe has some good investment opportunities, Europeans will keep more of their money at home; and perhaps, some money will move from the U.S. to Europe -- pushing the dollar down and then the euro up.

GHARIB: Well, then Nick, given that scenario, where is Scudder Kemper investing dollars? I mean which countries offer the most opportunities in their stock markets, and which stocks?

BRATT: We invest all over the world for our clients; and so, to answer your questions, I'm going to have to rattle off a whole bunch of places. I think that in Europe what one should be looking at though are individual stocks rather than the overall markets cause there are going to be winners and losers--

GHARIB: Like what?

BRATT: In terms of which stocks in Europe. Vodaphone is excellent. It's performed badly this year, but from the long-term point of view, it looks very attractive. Seimens, a big German company, which is fundamentally restructuring. Another example would be Hoechst in Germany. Change is taking place. And I would add one extra point, which is the tax changes that we've seen in Germany are dramatic. Almost overnight, Germany will become one of the lowest taxed countries in Europe -- not quite as lowly taxed as Ireland, but a huge change. And that's very, very important for corporate profits.

GHARIB: Let's talk a little bit about China. When China becomes a member of the World Trade Organization, how is that going to play out in your view?

HORMATS: I think it'll play out very positively over the long run. In the short run, there are a lot of major adjustments. Chinese companies will be subject to more foreign competition in autos, the agricultural sector, more foreign competition in the financial services sector. There's a lot of adjustment that will have to take place. It could lead to a lot of unemployment, which could be socially destabilizing. But if they do it, if they do it in a relatively orderly way, the economy will grow more rapidly. They'll be more efficient, and they'll be a very strong investment environment.

DOYLE: I think that Bob is right. I think that there's a high risk of a lot of short-term instability. Unemployment in China is hidden, but it's probably running around ten percent. The state-owned enterprises, you know, supposedly, half of them are going to be making profits. That's not the case. So, long-term good, but short-term instability.

BRATT: The impact will be dramatic though cause, I think, it's important to note that China is growing somewhere between 7 and 8 percent in real terms -- one of the fastest rates of growth anywhere in the world. So huge amounts of wealth are being created. And in this new environment, there're gonna be winners and losers; and our challenge is obviously going to be to identify the winners.

GHARIB: Obviously. Let's talk a little about oil, which impacts everybody around the globe. Will it be a major factor, again, in 2001?

HORMATS: I think it will be a very risky proposition in 2001. If we can get through the year without some disruption in oil supplies. Oil markets are tight. The Middle-East is a potential area for great instability. There could be terrorism. There could be countries like Iraq using oil as a political weapon. Or if there is a wider war, a lot of other countries in the region could withhold oil supplies for political reasons to put pressure on the west, to put pressure on Israel. It's a risk. It's hard to evaluate--

GHARIB: So, where does the price of oil go in 2001?

DOYLE: Well, I think there're two countervailing forces. First of all, there are all those political risks. And also, the fact that a lot of oil companies, which were hurt by the low oil price, have stopped investing. So, that's gonna put a cap on supply. On the other hand, if we do see an American slow-down that'll tend to push the price of oil downwards. So, we're gonna have a sort of seesaw effect between the two.

BRATT: I would add that barring unforeseen political disturbances, that the oil price is actually more likely to weaken in the course of next year; and we might see the oil price somewhere between $24 and $25.

GHARIB: Let's talk a little bit about trade. It was a high-profile issue in the Clinton administration. Do the three of you see this as a important issue in the Bush presidency?

HORMATS: I think it's very important because Bush has committed himself. He's a free trader. He's been governor of Texas. He wants to expand trade in the hemisphere and negotiate a free trade area of the Americas. That'll be a top priority. Whether he's willing to do the same globally remains to be seen.

GHARIB: Margaret, what is the view from Europe about President Bush, not just about trade, but overall?

DOYLE: I think there's a certain amount of concern about his so-called lack of gravitas, about the fact that he appears to have gotten where he is largely because of who his father is. On the other hand, people in Europe were concerned about President Reagan; and he surrounded himself with some very good advisors. And I think a lot of us feel, well if Bush, the new President surrounds himself also by good advisors, that we should see a safe ship of state for America over the next four years.

GHARIB: Let's just.. to wrap up here. I'd like to ask the three of you what you see as the wild card in 2001? Nick, start us off.

BRATT: Well, one potential wild card would be a sudden unexpected collapse in North Korea and a forced reunification much sooner than anybody expected.

GHARIB: Margaret?

DOYLE: I'd be worried about China, and the effects of its initial entry into the World Trade Organization. That could lead to a lot of social unrest and perhaps an upsurge in nationalism.

GHARIB: Bob, you get the last word.

HORMATS: I'm worried about the political risk of a wider war in the Middle-East or some disruption in oil supplies, which could throw all these positive scenarios off kilter very quickly.

GHARIB: So, it's still a major risk?

HORMATS: Yes.

GHARIB: Thank you very much for joining us in this panel: Nicholas Bratt from Skudder Kemper; Margaret Doyle from The Economist; and Robert Hormats of Goldman Sachs.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: One area that will probably transform the global economy in the coming years is biotechnology. And according to this report from The Economist, the next wave of discoveries might come from the study of another building-block of life.

OLENKA FRENKIEL, COMMENTATOR, THE ECONOMIST: The year 2000 will be remembered as the year of the genome. Hailed by presidents and prime ministers, 2001 may be the year attention shifts to the next great puzzle of life: proteionics. It's the study of proteins, the molecules out of which all living organisms are built.

TOM STANDAGE, SCIENCE CORRESPONDENT, THE ECONOMIST: We are all walking, talking bags of proteins. And when you take a drug or take a pill, it messes with the protein. It will interact with the protein in question in some way, and that will be how the drug causes its effect. So proteins are sort of the missing link between genes and useful drugs.

FRENKIEL: Genes determine proteins. So having now sequenced the human genome, scientists are looking still more intently at human proteins.

TIM HUBBARD, SANGER CENTRE, CAMBRIDGE: A cell is an integrated system which involves a large number of proteins working together. The hope is that when you know the complete set you can start working out the right place to put a drug so it has the maximum effect on the disease with the minimum side effects.

FRENKIEL: Proteins in the body and proteins in viruses, bacteria and other organisms that cause disease are the targets and action sites for most drugs. There are tens of thousands of proteins in the human body. They're all made up of what are called `amino acids', linked together in a chain. When the protein forms, this chain folds itself into a complex three-dimensional shape. The shape of the protein determines how it behaves and what drugs can interact with it. So the key to the proteionics puzzle is to understand the rules by which the protein folds.

TIM HUBBARD: The protein-folding problem is that you have this chain of amino acids. If you take that chain, put it in a solution, it folds up into the correct three-dimensional structure. So all the information necessary for protein-folding is contained in that sequence. This means we should be able to look at that sequence on a computer and predict the three-dimensional structure.

FRENKIEL: Once we understand the process that determines the shape of all proteins, then we can design the drugs that lock onto them and so open the way to a new generation of wonder cures.

TOM STANDAGE: The problem at the moment is that all attempts have failed and no one knows why. There are two possibilities. One is that the mathematics that are used are wrong and that our modelling of the physical processes, the forces going on, is simply too crude. The other potential reason is that the computers simply aren't fast enough.

FRENKIEL: One approach is to build super-computers with the number-crunching capacity to simulate the complexity of the folding process. IBM are building a huge computer specifically for this. Dubbed `Blue Gene', its complex design will make it 150 times faster than the fastest super-computer today.

TOM STANDAGE: Blue Gene is an attempt to answer that question by saying: `Well, here's a really fast computer. Can it do it?' And if it can't do it, then that would suggest that maybe we should go back and look at the maths again.

FRENKIEL: The race to crack the human genome code has captured the world's imagination. In 2001 the race is on to understand the shape of proteins. But it might be today's children, rather than adults, who'll be around to see the benefits.