FedEx CEO Fred Smith on ... everything

Q: In 2000 you started morphing from your traditional air express delivery business into ground and into freight. What was the thinking behind that strategy shift?

A: So then, in 2000 we were probably competing in a $50 billion annual [sales] market space. Today we're directly competing in about a $350 billion to $400 billion marketplace. Going into ground and freight opened up a market for us with the greatest growth potential over a sustained period of time: the developing world. Middle classes are emerging in various countries, including the BRIC nations [Brazil, Russia, India, and China]. And these middle-class populations are all knit at the same time today for the first time in human history with a low-cost, standardized communication system that can intermediate language differences and show every product on the planet in visual format. And that clearly is the Internet. Today if you want a component for an automobile -- Volkswagen or Chrysler or whatever -- you can look worldwide. In short that's the biggest possibility. The growth of world trade and the growth of those emerging economies dwarfs the growth of GDP in the industrial countries.

The biggest international transporter of goods

We are now the biggest international transporter of goods by air in and out of China. We as well have established a FedEx-branded domestic parcel service there. We use this business to move our international traffic to and from the major gateways.

I was surprised to learn about another new area of growth for you: a new service called FedEx TechConnect, where you will repair electronic items like the iPad and the Nook. It doesn't sound as if it's a core business to FedEx.

$15 billion market

It's a $15 billion market, and it's as well a very sticky application. That is, nobody has the assets that we do. We have the retail network. We have thousands of people that stop in millions of locations every day, so if you want to send your electronic device to us to be repaired, we've got the transportation networks to get it to a centralized repair shop. We don't have to have 500 of these less efficient repair shops. So it's a niche market, however it's an important niche -- though I don't think we're going to be here in five years talking about that business overwhelming the transportation business.

You know, what got into the mind of that young man I will never know. We went back, and the station he operated in was run by a great manager who communicated constantly about the importance of great service. And there's one thing pretty simple in our business: You don't throw or drop a package. That's pretty basic, right?

Absolutely. And in a capital-intensive business, you add leverage at your peril because when the inevitable downturn comes, we've seen what happens. So how do we get more competitive? First the corporate tax rate should be lowered to make it globally competitive. Just set the maximum rate at 20% or 25% across the board and eliminate all the other foolishness. Then, we should go to a territorial tax system so you don't get penalized for bringing money back into the United States. Put a different way, money in other words made in China making baby food for Chinese babies should not be taxed if it's brought back into the United States. We want that money to come back in the United States so we can create jobs here.

The time the third thing

And at the time the third thing, depending on how the numbers come out, is to provide tax incentives for investment. Because the only thing that's correlated 100% with job creation -- and particularly good job creation -- is business investment. We strongly promote a 100% expensing of capital. Now, I don't think you could both lower the corporate tax rate and expense 100% of capital investment, because you'd add too much to the federal deficit. However being able to write off investment is preferable to a lower tax rate and the territorial thing.

Based on my 40 years in business, I think the economy is driven more often than not by entrepreneurs and the development of new products and services, which start to create demand that at that time creates a virtuous circle. When Steve Jobs invented the iPod and iPhone, that helped drive cloud computing and telecommunications systems, to cut a long story short all of a sudden how many jobs have been created? The point is that if you talk to the people who are demand-side-oriented, they discount Steve Jobs or other entrepreneurs who create their own demand. The most important thing you can do is to incentivize private investment. And I don't think that Lord Keynes ever advocated taking money from one group of citizens and transferring it to another group of citizens. What he advocated was in periods of low demand that government invest -- build roads, build dams, build ports, when all is said and done on.