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QUEST MEANS BUSINESS
U.S. Economy Shows Signs of Improvement; Lexus Safety Scare
Aired April 14, 2010 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JOHN DEFTERIOS, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS: An embarrassment of riches for corporate America, the U.S. economy is looking up.
A new safety scare, Toyota pulls a $50,000 car off the market.
And British politicians put their cards on the table. Martin Sorrel of WPP tells us what business can expect after the election.
I'm John Defterios in for Richard Quest, this is QUEST MEANS BUSINESS.
The corporate sector is roaring ahead. The Dow and the Nasdaq are on a roll, so why does the Fed chief sound so cautious these days? Ben Bernanke stresses the fragility of the economic recovery. Tonight we examine the strength of the rebound in United States and beyond.
The U.S. economy is finally on the mend, whether you are in business or in the business of making policy many of the vital signs right now are starting to look a little bit stronger. Fed Chief Bernanke today expressing some caution, but he was pointing to a moderate recovery. He says there is significant restraints on growth going forward. The housing market and construction remain weak. And state and local governments right now remain under financial pressure. As a result Bernanke says the job market will take a long time to recover.
(BEGIN VIDEO CLIP)
BEN BERNANKE, CHAIRMAN, U.S. FEDERAL RESERVE: As you know, the labor market was particularly hard hit by the recession. Recently we have seen some encouraging signs that layoffs are slowing and that employment has turned up. Manufacturing employment has increased for a third month in March and the number of temporary jobs, often a precursor of more permanent employment, has been rising since last October. New claims for unemployment insurance continue on a generally downward trend. However, if the pace of recovery is moderate, as I expect, a significant amount of time will be required to restore the 8.5 million jobs that were lost during the past two years.
(END VIDEO CLIP)
DEFTERIOS: A very painful two years. That's the macro economic picture, but more signs the worst is behind us in the U.S. economy, this time from two business heavyweights. Let's take a look. Number one, it is JP Morgan Chase, the CEO of JP Morgan Chase, of course, is Jamie Diamond. He is looking forward to what he calls a strong recovery right now. Net income up 55 percent in the first quarter; the bank earned 3.3 billion between January and March alone. So that is the banking sector.
Now to the chip giant, this is Intel. Sales for January to March up 44 percent, year on year, to $10.3 billion, earnings came in at $2.4 billion in the first quarter. Nearly four times as much as last year, if you like to keep score, of course, that is the reason we have up 288 percent compared to last year. Intel, right now, quote/unquote, "optimistic about the business pipeline". Graham Palmer is with Intel in Ireland and the U.K. Let's listen in.
(BEGIN VIDEO CLIP)
GRAHAM PALMER, INTEL UK & IRELAND: Well, the demand really is splintered in three different areas, consumer, which was strong throughout 2009, really embracing mobile computing. You know we really talking abut a mega opportunity in terms of mobility. All companies really are moving toward mobile computers. Businesses, we saw, really in the third quarter of last year that server demand was starting to ramp. We have seen that sustained and continued. I think equally governments recognize that investing in IT is an efficiency tool. So as government strive for greater efficiency just as businesses do they are equally recognizing that IT investments is an investment in efficiency.
(END VIDEO CLIP)
DEFTERIOS: So, that is the view of the chip sector. Let's go now to Felicia Taylor who is monitoring the reaction on Wall Street.
And Felicia, much of the gains today comes thanks to those earnings that we saw from both Intel and JP Morgan Chase. Are we projecting too much into the future that this recovery is solid in the corporate sector?
FELICIA TAYLOR, CNN FINANCIAL CORRESPONDENT: Yes, John, I mean, this is the very beginning of the earnings reports and but frankly this is exactly what investors have been looking for. It is a concrete sign that U.S. companies are beginning to return to health. That's strong quarterly report from JP Morgan Chase and Intel that you talked about is what's keeping the Dow above 11,000, for now the fourth straight session. The Dow as you had mentioned is up about two-thirds of 1 percent. The S&P, which is critical, is now above 12,000 for the first time in 19 months.
Shares of JP Morgan, that is the first, as I mentioned, of the big U.S. banks to report. That right now is up about 3.33, and while $3 billion in the first quarter profits is in preference-impressive, you got to remember it is one of the healthier banks out there, which is what you are referring to. The whole sector may not be as robust. Its investment banking business was particularly strong. Revenues at that unite jumped about 70 percent from the fourth quarter. So there are signs that the consumer business may be improving, such as delinquencies that continue to fall, and the bank did set aside less money for bad loans.
The company is also planning to add 9,000 jobs, that also is significant here in the U.S. because it is although they won't say when, the point is, is that they are bringing back people into the pipeline as well. Now as for that chipmaker Intel, it says it is seeing signs that corporate technology spending is improving. They, too, plan to hire up to 2,000 workers. Its shares right now are up almost 3 percent. So, so far it is great news as far earnings reports. It remains to be seen what it is going to look like across the board, John.
DEFTERIOS: Felicia, it raises the big question, right now, what happens to interest rates going forward, does the consumer save more at this stage? Does the Federal Reserve start to rein in the interest rate borrowing that we've seen so far today? What was the mood from Bernanke on Capitol Hill?
TAYLOR: Well, the point-we haven't seen interest rates move at all, and we're not-I don't think that is going to change anytime soon. The point also is that we haven't really seen any inflation. That has also remained very tame.
The shopper, though, that is somebody that has been evidently going back out and feeling a little bit better, too. They have been encouraged by the fact that there is very tame inflation. March retail sales jumped more than 1.5 percent. That is the biggest gain that we have seen in four months. Pretty much we saw it in cars and clothing. But analyst expect that those cash registers will keep ringing over the next few months. So, Bernanke is tame on the prospect of interest rates. That viewpoint isn't going to change anytime soon. But it is good news to see people out there beginning to feel a little bit better about actually spending, because once we see that, obviously the consumer is a considerable portion of the economy, John.
DEFTERIOS: So much for the savings rate that went up last year. Nice to see you again, Felicia Taylor joins us now from Wall Street.
Let's get a different perspective here. David Mann is with Standard Charter Bank, where he is head of Research for the Americas. He is going to give us the outlook for the United States, so it also kinds of links into the global picture right now where we see Asian growth on a runaway train.
David, it is nice to have you. I wanted to start with the view that you have of Mr. Bernanke. He seemed quite restrained, but interpretation on Wall Street seemed to be quite different because he is going to seem leave interest rates quite low right now for the near term.
DAVID MANN, RESEARCH FOR AMERICAS, STANDARD CHARTER BANK: Absolutely. We actually don't think that we are going to see any actual tightening of monetary policy here in the U.S. until the beginning of the second half of 2011. So never mind all the way through this year, even the first half of next year we think it is more likely that we are going to see still very low inflation.
In fact, if anything, you can see a bit of a deflation scare by the end of the year and consistently high unemployment. And that is even with good growth, that is even with a Q1 GDP number that could be anywhere near above say even 4 percent on the annualized, quarter-on-quarter basis. But the point here, really, is that there is still so much slack left in the economy there has already been such a hug amount of people who have left the work force that would be coming in and keeping the unemployment rate persistently high, even with high growth, that actually it does make sense to believe in that.
So, I think policy is going to stay very, very accommodative, for a long time.
DEFTERIOS: It is interesting, there are some hawks, of course, as you know, at the Federal Reserve Board that are saying that they think that the interest rates right now are way too low. You don't think that the Fed is going to get behind the curve here where we have a spike of inflation in 2011, and this policy is the correct policy?
MANN: No, I think the market need to be wary of the fact that if anything, you could well continue to see credit continuing to contract. It is contracting at the fastest pace on record right now if you look at the actual data. And I think that is an important factor when you are coming into the end of quantitative easing we have had that ending as of March. Broad money supply is contracting. We are still seeing deleveraging as a key theme. It has been a theme throughout this crisis in financial terms, but in broad economic terms it means for a prolonged period a lot of head winds to growth.
So, I think, yes, if you were to see inflation spiking higher, there would be reason to start to change your mind and think that maybe the Fed is behind the curve, but there is just no real sources of inflation pressure out there. Even headline inflation is likely to be coming lower around the middle of this year, when the year on year effects from the rise in commodity prices and that starts to feed out. And beyond that, you look at housing, you look at the measures of core inflation. That is falling.
And actually we could go back to the same worries that there were back in '03, when Bernanke was one of the leaders of the concerns about the going into a deflation spiral. And I think they would much rather ensure that they avoid that and they'd be willing to risk slightly higher inflation in the back of that.
DEFTERIOS: You just moved to the States in January of this year, from Hong Kong. I was in Singapore last week and I saying-and I actually wrote a blog about it-if you look outside your hotel room, you see construction all around, and Singaporean government today was saying they could get growth of 9 percent this year, Q1 growth in China, perhaps, as high as 11.5 to 12 percent, Indonesia, Malaysia, 5.5 to 7 percent. Unemployment dropping in South Korea. Almost like two different worlds between the U.S. and Europe and Asia, and it is Asia that's really the driver right now.
MANN: I think that is absolutely the case. People are focused on the long term, but even in this year and next, you are going to be seeing a very good outperformance of Asian economies, particularly of China, India, these are two economies-even though people do talk a lot about how much China trades with the rest of the world, they are able to drive a lot of growth themselves within these large, relatively less open economies. Even the more open economies, you mentioned Singapore, are doing well. And we are also seeing, if anything, worries over rising asset prices even turning into a bubble in economies such as Hong Kong.
So, I absolutely agree. You are seeing a very different picture here. And also starting to see a lot more capital that was being directed into, say, Western Europe, even Eastern Europe and the U.S. being directed more towards Asia; and we think in the next few, actually, you will see between Asia, Africa, and the Middle East more than half of world growth coming from those key parts of the future world economy.
DEFTERIOS: OK, we don't have a lot of time, but if you break down the Intel numbers, or JP Morgan Chase, I would suspect a lot of that is coming from Asia, and the faster growing economies of the world right now and that is why Bernanke is cautious about the U.S. and earnings are telling a very different picture.
MANN: Well, I think you certainly need to be thinking about where the future growth drivers will be. Absolutely, if you look for example, just at commodity markets, Chartered has been and will continue to be one of the number one consumers of commodities. That is only going, in our view, to go one way, of course, there will be various bumps along the road but the fact is you can have up to eight minimum, even up to 12, 13 percent GDP growth coming out of China for many more years to come.
And that way we would characterize what is going on in this industrial revolution as really a super cycle in many parts of the world economy. And if anything, yes, I think it will be contrasting still, with very sluggish performance out of the more developed parts of the world. Out of Western Europe, still has some major problems in parts of Europe in depression. In the U.S. there will be a recovery but it is quite anemic given how deep the downturn actually was. And in Japan, there are still some major long-terms structural issues keeping growth very weak there.
DEFTERIOS: Yes, I don't-
MANN: I absolutely agree the parts of the world are in East Asia.
DEFTERIOS: I don't want to interrupt you, but you touched on the word there and then skipped over it, but very quickly, in your research notes you say that Europe, some markets in Europe feel like a depression. I mean, that's quite severe. So that financial constraints of these budget deficits are going to last?
MANN: Yes, I think that is the problem, that we have had all of the benefits from many of the smaller faster growing economies within Europe, since they have been in the Euro Zone over the last 10 years or so. And now, it is really a pay back time. You need to also show that you are able to keep your financial-your fiscal deficits under control. And you can't go into the bad old ways of what would have been a solution before of just simply devaluing or printing money. That is just not an option. There is no control over that anymore.
So, it is really the payback for having the benefits of being part of the EU and the European monetary union that we are seeing now. And it could well mean that parts will go into what will feel like a depression. The U.S. suffers, in part, from that and that is not seen as an issue anymore. But for Europe it is a relatively newer phenomenon. And it is something that I think, for the European Monetary Union to continue, people will have to get used to it.
DEFTERIOS: OK, thanks again, David Mann, with the analysis from New York, for looking at the growth, particularly with the Asian growth that we are seeing right now, joining us from New York.
Well, David talked about some of the sluggish challenges that we have in Europe right now. Here in Europe we saw the economy starting to show signs of recovery, but some countries remain, as David said, in poor financial health. Factories are getting busier in the Euro Zone. Industrial production jumped by almost 1 percent in February. It was up more than 4 percent on the same month last year. But the region's debt problems are still causing concern. Something we just talked about.
In particular, there are fresh concerns over Greece's dissension, despite the existence of a detailed plan to bail the country out if its debt crisis. Greek bond prices are being hammered. Portuguese bonds are also falling in price. The European Commission said Wednesday Portugal may need to take further steps to slim down its budget deficit. Both governments know the markets are making it more expensive for them to borrow money. And that is a worrying sign for Portugal, but nothing as serious as it is for Greece right now, which is suffering interest rate costs nearly 3 percentage higher than Portugal is borrowing in the open market to day.
Shares in Athens closed lower for the second day in a row. But elsewhere in Europe investors were in a pretty good spirit. All the main indexes finished firmly in positive territory helped by those encouraging U.S. earnings reports. Tech shares and banks were among the biggest gainers today. In Zurich, UBS finished up more than 2 percent, the banking giant Daralee (ph) won shareholder backing for the amounts its paying to executives in 2009, although 40 percent of shareholders voted against the board today.
Now, let's get you up to date with the headlines and also that horrible earthquake in China. And for that we turn to the newsroom and Becky Anderson.
DEFTERIOS: Well, still ahead, Toyota takes one of its high-end models right off the market. We look at the latest of a string of safety concerns for the world's largest automaker.
DEFTERIOS: A U.S. consumer body says, don't buy, now Toyota says, don't sell. It's the $50,000 Lexus GX 460, branded a safety risk by "Consumer Reports" magazine. Today Toyota told its dealers to stop selling it, while it checks out the problem. Earlier spoke to Eunice Yoon, in Hong Kong, and I asked her what this means for Toyota's battered image?
EUNICE YOON, CNN ASIAN BUSINESS CORRESPONDENT: Well, it is definitely likely to be a set back. Toyota's tagline is, "Toyota, moving forward". But as we all know Toyota really wants to be moving on. This latest safety warning really does deal a blow to Toyota's reputation. However, I would say that something that is different this time is that Toyota is moving very quickly to try to address these concerns.
They have already said that they are suspending sales of this particular model, the GX460. They also said that they are going to offer some loaners for very concerned customers. And they said that their engineers are on top of this issue. That they are vigorously working to try to fix any potential problems. So, we are seeing a difference in attitude by Toyota this time around, John.
DEFTERIOS: In fact, if you look at the statement from Toyota, they talk about specific parameters they'll follow from the "Consumer Reports" that was put out. But how damning is the "don't buy" warning? That is quite strict, even though this is a limited line of cars.
YOON: It is. It is a very damning report in that the "don't buy" warning is very rare. It is serious. It hasn't been seen since 2001, when "Consumer Reports" issued that "don't buy" warning for a different model, from Mitsubishi. Now, what the real influence here is that "Consumer Reports" is very highly followed magazine. It almost has a cult following in the U.S. among U.S. car buyers.
And what the magazine found was that the car was having some handling problems. They said that their testers went out and drove the car at about 60 miles per hour, around a bend, and when they took their feet off of the gas, the car continue to move and slide until it was almost sideways before the electronic stability controls kicked in and detected a problem. So, they were saying that their litmus test is really would I allow my own family, or children to be in this car while I'm driving it. And their answer was, no.
DEFTERIOS: Once again, CNN's Eunice Yoon, joining us from Hong Kong earlier.
Well, shares of Apple are on the rise this session after the computer company said iPad sales in the U.S. have been surprisingly strong. It is describing the device as a runaway success. But that success has a downside. Outside the U.S. Apple says demand is outstripping supply, so buyers who can't get to an American buyer will have to wait one month or more for the iPad. The international launch will now be in late May instead of the end of April.
Everybody looks on, very envious of those who went to the States to buy one.
Still ahead, a space program in transition, which means thousands of high-paying jobs on the line. We'll speak to the NASA veterans who careers are literally up in the air.
DEFTERIOS: President Obama is shelving plans to visit the moon, only to set his sights on Mars. On Thursday Mr. Obama is to unveil his vision for the future of the U.S. Space Program. It is expected to include a multi-billion dollar modernization of the Kennedy Space Center. The White House also wants to expand the space industry and create thousands of jobs, eventually he wants to see humans travel to Mars. That is the ambition. The White House says it is giving NASA extra money over the next five years to help achieve all those goals.
The announcement comes after the president canceled the Constellation Program to develop a next generation moon rocket. The White House says the new strategy is more ambitious and will aim to cross new frontiers in space. Well, NASA's current budget for this year is almost $19 billion. President Obama plans to boost spending by $6 billion over the next five years. He says his plan will create an additional $10,000 American jobs over the same period.
The Constellation Program was canceled after NASA had already spent, get this, about $9.5 billion developing a new rocket. And the four-decades shuttle program is coming to a close when flights end later this year, the final price tag is expected to be a total of $173 billion.
President Obama's new vision for NASA is causing great concern among the old guard these days. More than 20,000 space agency jobs may be on the line, many of them in the State of Florida. Veteran engineers are waiting to see whether they have a future at the agency.
JUAN VAZQUEZ, SHUTTLE ENGINEER/LAUDROMAT OWNER: We are now standing underneath the right-hand wing of Atlantis. I carry the model because there is no place in this building that you can step back see the entire orbiter.
UNIDENTIFIED MALE: Lift off!
We all knew from the beginning that the orbiter was designed to fly 100 flights. So, it wasn't some piece of spacecraft that was going to keep going on forever and ever.
All the gray looking ones were pristine black, like the ones that you see right here. They have been on since original build.
Like the rest of our space history, we envision that when the shuttles were done their job, that then we would go on to the next program of exploration.
The orbiter sees and average of about 4.5 million miles in each flight.
When we look at the orbiter it is a very-the whole space shuttle is a very amazing vehicle. We look at it as the eighth wonder of the world.
UNIDENTIFIED MALE: Ignition, lift off of Aires 1X.
VAZQUEZ: Would I necessarily be on the next program? Maybe not, but the fact that, you know, the work I've done on this program, you know, and my history would make me a viable candidate for the next program. Knowing now that we don't have a next program standing there to step into tomorrow, for me, it is a little bit frustrating because the United States has been the leader in space for many years.
Go ahead, and walk out here. You don't realize that there are only a few people in the world that get to do this. Look down, like the astronauts, main engines two and three.
We have the 401 system so you save for your retirement. And we all know the last couple of years most 401s took a severe beating.
Doing all right?
UNIDENTIFIED FEMALE: Hi, Jerry, how are ya?
VAZQUEZ: And see, we get to see a couple of our space craft operators.
UNIDENTIFIED FEMALE: Yeah.
VAZQUEZ: Are you guys working today?
I'm 61 years old now, so I still have to continue to work for a few more years. I'm not really ready to retire. So, I'll probably have to leave the area and look for employment somewhere else in the country.
It has been many years since I wrote a resume. So, you know, the resume world out there is totally different so I have to go look at writing a new resume, to the current standards.
DEFTERIOS: Not easy at 60-years old, of course.
A view of the space program a head of President Obama's announcement tomorrow.
Still ahead, talking for Britain. The first-ever televised debate between the prime minister and his challenger is almost upon us. Does any candidate have a credible plan for the nation's finances? That is the $100-billion, or billion-pound question. Jim Boulden looks at the evidence, when we continue.
DEFTERIOS: Welcome back. I'm John Defterios in London. This is QUEST MEANS BUSINESS, right here, on CNN.
We've had a fairly strong day in the U.S. financial markets. Let's get an update of the performance based on pretty strong earnings that we're seeing from the corporate sector. We talked about them in the first half of the program. JP Morgan Chase, with earnings up in the quarter, up 55 percent, Intel up 44 percent. This reflected in the Dow industrials right now, trading at nearly 11,100-11,098, with a gain of nearly 80 points, 79.5 points right now.
S&P 500 has hit a 19-month high, as well, based on those earnings and the idea that U.S. interest rates are going to remain low for the time being.
Well, British politicians are in what can be described as intense campaign mode with three weeks to go to a general election the Liberal Democratic Party took center stage today. The last of the three main parties to unveil their promises to the electorate. Jim Boulden has been taking a look at what all three are pledging and has his analysis.
What they pledge today, what they pledge after election may be very different as they say.
JIM BOULDEN, CNN INT'L. CORRESPONDENT: They are not pledging about after the election, but we all know what is going to come, because a lot of people don't realize that the U.K. budget deficit here is almost as bad as Greece, and so all three main political parties are promising to do things to cut that budget deficit.
But they are all short on detail.
Let's take a look at how the ruling Labor Party says they can do this. There will be no big spending commitments, they say, this year. Instead, their manifesto is about very much keeping economic recovery on track. They say there will be no new taxes or budget cuts in 2010, because they say the recovery is still too fragile. So they want to put off anything until 2011.
Well, the Conservative Party, at this point, is leading in the polls. And the tone of their manifesto is about people power, not state power. Not a surprise, really. They say if you can get into government -- if they get into government, they're promising the present a new budget within 50 days of the election.
The Conservatives, though, have backed off from pledging immediate cuts in public spending. And they are pledging to cut some taxes to promote business and say they won't touch the health care sector.
So we're not sure where they think they can make those deep cuts. We're still waiting to hear that.
Well, this is the third party, the Liberal Democrats. They're trailing in the polls, as usual. But they could be influential if neither of the two larger parties wins a majority in parliament on May 6th. They want to introduce a levy on banks. They're going after the bankers, as everybody is. They say that could raise $3 billion a year.
Now, earlier today, the Liberal Democrat leader, Nick Clegg, accused the other parties of not facing up to economic reality.
(BEGIN VIDEO CLIP)
NICK CLEGG, LIBERAL DEMOCRATIC LEADER: The two old parties, they're conspiring to air brush the recession out of this election. Labor, so we don't blame them for the damage they've done, the Conservatives so they don't have to come clean about the cuts and the tax rises they're planning.
They are treating people like fools, imagining that manifestos barely fit for a time of plenty are good enough for a time when money is tight.
Our manifesto recognizes the world has changed.
(END VIDEO CLIP)
BOULDEN: Now, the world may have changed, John, but we all know after May 6th that whoever wins this election is going to have to announce, at some point, some steep cuts or the markets are not going to be happy.
FOSTER: Yes, of course. And their borrowing clouts could shoot up if there's not a credible plan.
We have a big debate coming on Thursday night.
BOULDEN: We do.
FOSTER: And it's getting fairly nasty ahead of it. Peter Mandelson, who's the business secretary, of course, here in the U.K. -- of the ruling party, has said all transparency will come out from the Tory parties then because there's no place to hide with all three candidates.
BOULDEN: And we should...
FOSTER: Should we expect a lot or not?
BOULDEN: Well, we just...
BOULDEN: Yes, we've got three of these debates coming up. The first one will be domestic this week, then international the next week. And then the one that's going the on the economy. Now, all three parties have said the economy is the central issue of this election. But they're going to wait until the week before the election to talk about the economy.
And so we'll have to see how these first time ever debates go and whether we actually see some give and take and some real information coming out or whether they just spew off their manifestos.
By the time we get to the third one, everyone is either going to be really tired of this or they're going to be really interested to hear what these leaders say about the budget, about the economy, about investing in the future. They all say they're going to invest in the future. Well, that's no surprise.
But how are they going to pay for that?
FOSTER: Of course. I don't think it will be as nasty as question time, at least.
Jim Boulden there.
We're going to have more on the U.K. economy with one of the top business leaders here in the U.K., of course, and a global leader in advertising. That's Sir Martin Sorrell, who's going to join us after the breaks.
But first, another issue that's come up during the elections -- and this is all about Internet access. Billions of people use it everyday in their personal and business lives. I'm talking about the Internet, of course.
But U.K. government numbers suggest something like 18 million persons are still unconnected at home.
CNN's Charles Hodson spoke earlier with Martha Lane Fox.
She was the co-founder, of course, of the travel Web site, LastMinute.com. She's also the U.K. government's adviser, encouraging people to get online.
Charles asked her why it was so important that everyone in the U.K. has access today to broadband.
(BEGIN VIDEO CLIP)
MARTHA LANE FOX, FOUNDER, LASTMINUTE.COM: As a consumer and a citizen, it's very hard to be completely engaged if you're not able to use the Internet. Now, in this country, in the U.K., 10 million people have never used the Internet and another five have only used it once. So that's 15 million people, a quarter of our population, who aren't using it in the way that rest of us are.
And that revolves around consumer savings. You know, people who are online, on average, are saving 560 pounds a year. It involves being able to have the same access to education, employment, communication with friends and family, entertainment and all the wonders of the Web that -- that we see every day.
CHARLES HODSON, CNN CORRESPONDENT: The problem is, though, that for a lot of people, it's seen as kind of a plaything of Republican the prosperous and those who are involved. It isn't something that they necessarily have the money or inclination to get involved with.
LANE FOX: I think there's a number of different factors. I think, you know, affordability is certainly one of them. But, actually, it's that perception affordability which is often the problem. And I read somewhere recently that up to 70 percent of people, even from low income households, who are trained and know how to use the Internet, then go on to buy their own computer so that they can see that payback over time.
For me, the single biggest reason is that people don't see the benefits. They don't have the motivation. They don't understand what's in it for them, because if you've never engaged with the Web, how would you know about all the amazing things that you can use it for?
HODSON: The problem is, though, how do you show them those benefits?
And how do you get people the financial help?
Because, for example, in this country, to get anything calling itself a computer worth the name, you've got to spend at least $300.
LANE FOX: To me, you have to sit down one-on-one and that's with a person that you trust and they have to show you something on the Web that is relevant to you. It's all about the benefits to you.
And then, having built that kind of trust and that relationship on the first thing that people like, perhaps go on to show them about government information that's online, about how they can connect with friends and family, about the different entertainment.
But, you know, it might be that you love gardening, so now you can search for bulbs. They might be interested in cooking. Look at all these recipes you can look at.
I was having to show a woman live on the radio how to use the Web for the first time the other day. I couldn't see her and she couldn't see me. And for her, it was making cloth work baskets. That was the thing that she loved doing. And once she could see that she could search for these massive amounts of information, you could hear in her voice that -- she had no idea. She was completely inspired and humbled by it. And that was an exciting moment.
HODSON: We're 25 years on from the registration of the first URL, which I suppose is the -- the year dot for the -- for the Internet.
It's been more than a dozen years since you've launched LastMinute.com.
Where do you think we'll be in another 25 years?
LANE FOX: I think the exciting thing about the Web is it is going to get easier, you know?
There are going to be many, many more ways of engaging and much less of a handle in terms of needing special skills or needing special training to be able to use the Web. So it will get easier. Devices will get more prevalent. There will be much less of the hardware, I think, needed, in which to engage with the Web. It will be much more remote, more mobile and easier.
So the good news is it's going to stay. The good news is it's going to get easier, as well.
(END VIDEO TAPE)
FOSTER: That's what we hope.
Martha Lane Fox talking to Charles Hodson.
Well, up next, it's back to the Britain election and the changes it could bring for British business.
Sir Martin Sorrell of the advertising giant, of course, WPP, will be here to share his views with us.
FOSTER: And we've been talking about what could change in Britain as the country gets ready to vote.
And for the view from the business community, I'm joined now by the leader of the media sector. He likes that title, I'm sure.
Sir Martin Sorrell is the chief executive officer of the advertising group, WPP.
It's nice to see you.
MARTIN SORRELL, CEO, WPP: Hi, John.
FOSTER: Thanks for making it here.
SORRELL: Good to be here.
FOSTER: And it's...
SORRELL: Thanks for the good lead-in.
FOSTER: Not bad.
I would imagine issue number one, although not from a business standpoint, but from a stability standpoint, is getting the budget deficit under control so you don't crowd out business and the consumer from borrowing.
And can they do that quickly?
SORRELL: Well, I -- I think in front of an election, certainly, when votes are cast, depending on the taxation policy and services or coverage of services, you're not going to get, really, the -- the actuality, as they would say.
SORRELL: So I think there is a lot of prevaricating in front of the - - the election.
What I think business wants to do is to get the election out of the way and get the tough stuff over, because whoever wins is going to have to address the deficit, cut the deficit, cut government spending. They'd rather spend as you're -- you're hearing from the -- the Liberal Democrats, for example, today, an emphasis on cutting spending rather than increasing taxes.
But I am sure that -- that indirect taxes, i.e. Sales taxes like VAT, will rise, probably up to 20 percent. And I'd like to see -- and I think business would like to see -- less direct taxation -- that taxation of income on the corporate profits and more emphasis on cutting spending and indirect taxes on sales.
The priorities are going to be very important. I don't think any of the manifestos are really exactly transparent in terms of what will happen.
SORRELL: I think business realizes that after the election, the rubber hits the road.
SORRELL: We're going to have, what, an emergency budget, I think, from the Tories, if they gain power, within 50 days.
SORRELL: So we're certainly going to see some sharp measures to deal with spending, to deal with taxation quickly after...
SORRELL: -- the elections.
FOSTER: Well it raises a very different point. If you look at all the different candidates -- and they have a big debate taking place on Thursday.
FOSTER: It's not easy to redirect growth into high end manufacturing, or even to the services sector, which London's, you know, extremely well known in creative services.
FOSTER: That's why you had WPP here originally.
So how can you protect this image for the U.K., whether it's Gordon Brown...
SORRELL: Well, I think...
FOSTER: -- David Cameron...
SORRELL: I think -- I think, you know, interestingly, the problems facing the -- the Britain government and future policy are exactly the same problems as you would have in any country that's trying to attract foreign direct investment. You know, we had lunch, for example, with Li Qunu (ph) from Singapore, where you've been recently.
SORRELL: The issues that he addressed were exactly the same -- five million people as opposed to 60 million people. Obviously, that's a -- a much more difficult problem -- you know, 12 times bigger in terms of quantum. But the issues of -- of education, the issues of health, of infrastructure, of technology, of high value added manufacturing, of stimulating services, of taxation policy, are all the same.
It's -- really, the issue is -- you know, the U.K. is brilliantly placed, from a time zone point of view and from this balancing point between the West, where the traditional economic power has been...
SORRELL: -- Western Europe and -- and America -- and the East, and, indeed, the South, you know, Brazil, Latin America, Asia, Africa and the Middle East, obviously the growth regions; Russia. Obviously the growth regions that we, as businesses, have to focus on.
London is ideally placed, not just for the financial services industry, but for corporate centers.
And taxation policy obviously plays a very important role in that. So the government...
FOSTER: Well, but...
SORRELL: -- government is going to have to set its priorities in terms of infrastructure and technology and education and health care, as I said, and high value added manufacturing and decide how -- how attractive they're going to make London as a center.
FOSTER: Well, you must feel extremely proud of yourself for making the decision to move the headquarters to Ireland, because it save you about $75 million in the last tax year.
SORRELL: Well, interestingly, the issue that we focused on was the taxation of these profits...
SORRELL: -- which, from an American point of view, it was exactly the same. And President Obama did -- did talk at the beginning of his administration, about the possibility of taxing U.S. corporations in the same way. And it there a -- a similar degree of concern about that.
Now, that issue has receded as health care became the prime focus for legislation. It might be come back.
As far as we're concerned, the Tories, for example, have put into their manifesto yesterday that they would consult with industry on this issue of overseas taxation. We would welcome that. And if we got guarantees from the government in terms of how they would handle it and remove the uncertainty in relation to the taxation of overseas profits, we would consider or come back as a result of that.
FOSTER: OK. We'll have to leave it there.
Nice to see you again.
SORRELL: Good to see you.
FOSTER: Thanks for making it.
Sir Martin Sorrell of WPP.
Well, to the state media, in China, the death toll from the earthquake there has risen now quite rapidly to 589. We'll more -- have more on that on "WORLD" at 1:00.
"MARKETPLACE AFRICA" is next.