Reinvigorating Trade Negotiations: Optimists in the Midst of Battle

Free trade advocates are known for being optimistic; espousing the removal of trade barriers that are often jealously guarded by domestic constituencies as part of the national interest. The global movement towards free trade as envisioned by the World Trade Organization has always been an uphill battle, but this month it has had its fair share of reasons for hope. Negotiations for trade agreements have been struck between the EU and Japan as well as the EU and the US in the Transatlantic Trade and Investment Partnership TTIP), and Japan announced its bid to join the 11 countries negotiating the Trans-Pacific Partnership (TPP). These will be the most comprehensive trade agreements in history if they are fully realized, and the collective member countries constitute nearly 70% of world GDP. The conclusion of these trade deals, although bilateral, would be a great step forward in defining comprehensive free trade standards for the global market.

The reasoning behind this reinvigoration of free trade deals is expressed clearly in a study commissioned by the German Federal Ministry of Economics and Technology, as explained below:

The transatlantic free trade initiative needs to be considered against the backdrop of (i) eroding competitiveness of industrialized countries relative to emerging nations such as China and India, (ii) the long-lasting standstill in multilateral negotiations at the World Trade Organization (WTO), and (iii) the need for growth-stimulating structural reforms, as vividly highlighted by the current crisis in the EU.

The impetus and goals of these agreements are not only economic in nature, but also geopolitical. The Information Technology and Innovation Foundation (ITIF) describes “a battle being fought now for the soul of the global trading system”, in which these free trade deals can promote high standards for reducing barriers to trade and set the agenda for future multilateral trade talks.

However, as  ITIF notes, there are many obstacles to overcome in this process. Agriculture, automobiles, cultural industries, and textiles are all industries that are historically reluctant to liberalize. Non-tariff barriers such as incompatible regulatory systems are even more problematic, but liberalizing these areas will bring the most benefits. The services market is another complex area, but because 30% of manufacturing costs are business services, there are strong economic incentives to liberalize trade in services. Since a large part of trade volume between these countries is intra-industry and intra-firm trade, companies’ costs for intermediate goods will be substantially reduced. Although most studies focus on the static and immediate gains from these trade deals, the dynamic and ongoing benefits will create positive feedback that renews the economic foundations of industrialized nations.

This is an opportune moment for trade deals, and the window may be closing fast. The political will is currently there to complete these deals, but may not last after the woes of the latest recession have tempered. Europeans and Americans are trying to stimulate their languishing economies, and Japan is pursuing radical new policies to end stagflation. Geopolitical considerations and a renewed emphasis on international competitiveness are the final pieces of the puzzle that make the deals more plausible at this point in time.

There are reasons for optimism in trade policy circles, but the battle is only just beginning.

Posted By: Ben Copper

Sources: IFO Institut, Information Technology and Innovation Foundation, Foreign Affairs

Picture Credit: Cargo Ship Terminal Burchardkai (Hamburg, Germany), courtesy of flickr user      Reinhard_Schuldt

A Health Care Nation

2013 will be the year that America becomes “The Health Care Nation”, according to a recent article in Fortune magazine. Reactions to the new health care law will make health care the center of national attention once again, with the majority of the Patient Protection and Affordable Care Act’s provisions scheduled to take effect on January 1, 2014. The Centers for Medicare and Medicaid Services predict that by 2020: health care spending will have reached 20% of GDP (with 50% of that amount provided by the government), growth in national health care expenditures will outpace GDP growth by 1.1% on average, and Medicaid expenditures will grow 20% in 2014 alone due to increased coverage. Meanwhile, a recent Bank of America poll of leading CFOs reports that 60% cite health care cost as a key economic concern for the nation and 58% cite health care cost as a key economic concern for their company. The only greater concerns are in regard to U.S. government effectiveness and the budget deficit, both of which are strongly affected by health care costs.

Economists disagree over whether or not rising health care costs harm American businesses’ competitiveness in global markets, a crucial question due to the fact that the US spends far more on health care than any other country. The Council on Foreign Relations recently released an “Expert Roundup” on this topic. Robert Graboyes of the National Federation of Independent Business took the position that new health care legislation is hurting American competitiveness because it creates an uncertain financial planning environment and Neeraj Sood of the University of Southern California claimed that “rising healthcare costs have significantly reduced employment and output growth among U.S. businesses”.  Jennifer Baron of Harvard University insists that the indirect costs of poor employee health, such as low productivity, are twice the cost of benefit spending and so the emphasis should be placed on improving wellness rather than controlling spending on insurance plans.

Rapidly rising health care costs have been shown to negatively impact both businesses and workers. It is a common view among economists that increases in health care costs are offset by lower wages in the market-based system of employer-provided health care. A study by the RAND Corporation claims that since wages are generally sticky and do not react quickly to market value changes, rising health care costs can have negative impacts on businesses’ cost competitiveness, employment levels, revenues, and value added. This effect is exacerbated in industries that offer coverage to most of their employees, such as the automobile industry, and have less of an effect on industries that do not, such as retail. To make matters worse, a study by the Institute of Medicine posits that up to 30% of national health care expenditures are wasteful due to excessive cost, unnecessary treatment, and missed prevention opportunities.

Obviously, health care is a rising concern for the U.S. government, American businesses, and individual Americans. The issue will take years if not decades to be corrected, but a sustainable trajectory for health care costs must be found to ensure U.S. economic stability. It will be up to lawmakers to decide whether a focus on costs, value, or employee wellness is most appropriate (or most likely some combination of these factors). No matter what decisions are made, they are sure to affect every American in this “Health Care Nation”.

Posted by: Ben Copper

Sources: Fortune, Bank of America, Center for Medicare and Medicaid Services, Council on Foreign                          Relations, The Economist, RAND Corporation, Health Affair, Institute of Medicine

Photo Credit: Hospital Bed, courtesy of flickr user: APM Alex

Graduation Rates: the Good, the Bad, and the Ugly

One of the main goals President Barack Obama laid out during his first term was to return America to its previously held position as the country with the highest number of college graduates per capita by 2020. This American Graduation Initiative (AGI) requires increasing the percentage of college graduates in the US workforce by 50% by the end of the decade. In order for the AGI to be accomplished, the number of college graduates would have to increase by an annual 16% every year from 2010-2020. However, the problem in reaching this goal may be rooted in low graduation rates, rather than low enrollment numbers.

America2020 is a private sector approach to the same problem, focusing specifically on STEM (Science, Technology, Engineering, and Math) graduates. Their plan is to encourage STEM degree completion by committing industry professionals to volunteer their time mentoring and teaching students in these fields. There will be an estimated 10 million STEM job openings by the year 2020, and OECD data reports that US students tend to have a low interest in science. This approach has already seen significant improvements in graduation rates with the schools involved and those students who have participated in the program are far better prepared for college.  Citizen Schools, one of the major forces behind the America2020 initiative, along with representatives from the White House and several big-name companies recently convened here at the Wilson Center to discuss details of its implementation and how they could be involved.

The American Dream 2.0 is an initiative by the Bill & Melinda Gates Foundation that, “offers a comprehensive framework for how the hundreds of billions invested in the financial aid system can increase college access, affordability, and completion”. According to the Foundation’s findings, 46% of students enrolled in higher education institutions fail to graduate within six years. This rate increases to 63% for African Americans and 57% for Hispanics. In addition, total annual borrowing for college has more than doubled in the past ten years, as tuition rises faster than family income or inflation. These statistics are worrying, because those who borrow money for school but end up dropping-out without earning a degree have higher unemployment rates than those who graduate.

Good news comes from high school completion rates, which reached a record high in 2010 at 78.6%. While this is certainly heartening, fewer than half of those in the class of 2012 were ‘college ready’ as determined by the College Board last fall. In order to meet the challenges of President Obama’s AGI, education policymakers need to focus not only on college enrollment rates, but also on access, affordability, completion rates, and high school rigor. Although in the current fiscal climate, large scale investments in education may be harder and harder to implement, the effects of education investment on the productivity and success of our nation’s young people are immeasurably important.

By: Ben Copper

Sources: Huffington Post, PR Newswire, White House records, EducationSector.org, Citizenschools.org

Photo Credit: flickr user: Smithsonian Institution

US College Degree Attainment Remains Stagnant as Other Countries Pull Ahead

According to a December 2012 report by the Center for Public Education, the percentage of young adults in the US who are  college graduates has not significantly changed from the percentage of college graduates aged 55-64. This contrasts with the great gains that have been made in other parts of the world (such as South Korea, Japan, and most of the EU) where the percentage of college graduates is significantly rising each year. For those aged 25-34, the United States  now ranks 14^th in the world for the percentage of workers with a college degree. While the United States remains 2^nd in the world for 4 year degree attainment, just behind Norway, the main lag is in 2-year degree attainment, where the United States comes in 18^th place.

The report shows that students fare better in college if they are well prepared in high school. This is especially true for low-income and low-performing students. According to the Council on Competitiveness, “simply being an American is not an entitlement to a secure, high-wage job” due to competition from emerging markets.  To win the skills race, workers need to attain a higher level of education, and success starts in K-12 programs.

The recent PAGE publication by education reformer, Paul Vallas: “Making a Success of Every School”, points out that it is not underinvestment that is hurting our public schools (out of OECD countries, the United States spends the 2^nd most on public education), it is “the inability to invest wisely in the systemic reforms that would remove obstacles impeding the modernization of our educational system to meet new realities.”  Some strategies to improve American K-12 education include: providing greater access to educational technology in classrooms, encouraging partnerships between high schools and local vocational or community colleges, and ensuring the financial predictability that is crucial to long-term planning. The US system must evolve to meet the challenges of the 21^st century if its workers are to remain competitive in global markets.

Posted by: Ben Copper

Sources: Center for Public Education, Council on Competitiveness

Photo Credit: Teacher in Classroom courtesy of Flickr user www.audio-luci-store.it

Google’s Worldwide Anti-trust Woes- Coming to an End?

For the past two years the Federal Trade Commission has investigated the possibly anti-competitive actions of mega-company Google. Now, the investigation may be coming to a close as the FTC issued its final ultimatum: Google must produce a detailed proposal listing voluntary concessions the company will make to resolve issues over its search engine practices.

Several competitors, the most infamous of which is Microsoft but also including Yelp and TripAdvisor, have alleged that Google searches prioritize searches not necessarily by relevance but to promote their own products. Furthermore, competitors are concerned over potential copyright infringements of Google’s “snippets” which show with preliminary results. Microsoft has launched the “Scroogled” campaign to educate online users on the anti-trust battle and to ultimately persuade the audience to use Bing’s search engine honesty.

From Google’s point of view, spokeswoman Jill Hazelbaker “the focus of Google is on Google and the positive impact our industry has on society, not competition”. They state that the order of search results is showcasing the best product available, which may put their own products over Bing or other rivals. They also state that regardless of the numberless ranking on the page, every site is equally one click away. Political proponents of Google, including several Democratic Senators have been outspoken on the issues, reminding the FTC that their job is not to protect competition but rather to aid consumers.

As Senator Ron Wyden of Oregon stated, it would be “troubling if the FTC sought to expand the use of its authority to target a company for simply being popular rather than engaging in unfair or deceptive practices that harm consumers.”

A similar anti-trust case is ongoing in Europe, which has offered Google comparable terms to end the need for a law suit. If Google’s proposal does not fit federal and EU expectations, the company could be charged up to 10% of the company’s value, or about $4 billion. Only time will tell the outcome of this case for Google, its competitors, and consumers worldwide.

Posted by: Sophia Higgins

Sources: Reuters, Time Business

Photo credit: Google @ photostream courtesy of Flickr user halilgokdal

Public-Private Partnerships in Space sees the return of the First Commercial Space Cargo Flight

The newest competitive marketplace is out of this world, literally. Space is the newest investment frontier for companies following the retirement of NASA’s spaceshuttle fleet. Space exploration now relies on a private-public partnership between the Space Administration and companies such as California’s Space Exploration Technologies (SpaceX) and Virginia-based Orbital Sciences Corp.

The most recent partnership is the SpaceX Dragon capsule which returned from its “historic mission” to the International Space Station on Sunday October 28^th. Its return is marked as “mission accomplished” for all parties as Dragon successfully became the first commercial cargo flight in space. The capsule, unmanned for the duration of its trip, is also the first robotic spacecraft ever to return cargo to Earth.

Launched on October 7^th by SpaceX in California, the capsule carried 882 pounds of supplies including scientific equipment, crew supplies such as clothes and fresh apples, and hardware to the station. Dragon returned safely with cargo and test samples from the astronauts manning the space station, landing in the ocean off of the Southern California coast. The success of this mission bodes well for the 11 commercial flights scheduled to resupply the station, the next of which departs in January. These flights comprise a $1.6 billion contract between SpaceX and NASA.

The future is full of continued business relations between NASA and American companies. Alongside Space X, Orbital Sciences Corp is under a $1.9 billion contract with NASA to launch 8 rocket and spacecraft missions with the first launching before the new year. Additionally, a current NASA contract to launch manned orbital flights is considering bids from companies Sierra Nevada and Boeing. These partnerships have led to meaningful experimentation and the products of multilateral research reflect “American ingenuity” states SpaceX. Certainly, space exploration has entered a new age and with the success of Dragon, the future appears bright for NASA and their private partners.

Posted by: Sophia Higgins

Sources: SpaceX, Space.com, CNN, Voxxi

Photo Credit: Dragon Splashes Down @ photostream courtesy of Flickr user NASA Goddard Photo and Video

September Reveals First Manufacturing Expansion Since May

In the words of Adam Sarhan, the chief executive of New York’s Sarhan Capital, “We’re not quite at the point where things are good, but this indicates strongly that things are not so bad.”

According to the Institute for Supply Management’s September 2012 Manufacturing Report on Business, the Purchasing Manager’s Index (PMI) is 51.5 percent, a statistic 1.9 percentage points higher than August.  This is welcome news for the U.S. economy which has suffered protracted decline for the past three months in domestic manufacturing.  The Institute’s system is based on a deviation scale beginning at 50 percent, with readings below 50 percent signifying economic contraction and readings above 50 percent signifying expansion. 50 percent itself indicates no change.

This positive news extends into several different subsectors of the national economy, registering improvement measured on ISM’s Employment, Price, and New Orders Indices. Additionally, Bradley J. Holcomb, chief of the ISM Manufacturing Business Survey Committee states that despite three months of contraction, “the past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through September (52.1 percent) corresponds to a 3.2 percent increase in real gross domestic product (GDP). In addition, if the PMI™ for September (51.5 percent) is annualized, it corresponds to a 3 percent increase in real GDP annually.”

Apparently, the previous decline in US manufacturing from May through August, reported by PAGE earlier, has proven to be more volatile a pattern than previously thought. Chairman of the Federal Reserve Ben Bernanke has pointed to a nationally “flagging recovery” as a sign that more action must be taken, such as the third bond-buying program enacted last month. The U.S. dollar and treasuries prices have also experienced recent decline.

Although there are still many related obstacles to overcome, particularly within the weakening international trade and fiscal sector, this ISM report highlights examples of revitalization in the American economy. Looking to the future, the U.S. can hopefully continue a trend upward by strengthening domestic manufacturing and encouraging consumer activity to boost business new orders and production. Perhaps current increases can help to solidify growth and begin a new, positive pattern for American manufacturing.

Posted by: Sophia Higgins

Sources: Institute for Supply Management, Reuters, Financial Post

Photo credit: untitled @ j o s h’s photostream courtesy of Flickr user j o s h

We’re the Biggest, but are we the Best? U.S. Global Competitiveness falls from 5th to 7th place

According to the newly released 2012 Global Competitiveness ranking by the World Economic Forum (WEF) the United States has fallen from 5^th place to 7^th place of 144 economies. This marks the fourth year of decline for the U.S., which last year fell from 4^th to 5^th place. The Geneva-based WEF cites the GDP to debt ratio, concerns over January’s upcoming “fiscal cliff”, institutional mistrust by the business community, and a lack of macroeconomic stability as the major reasons for the decline. Additionally, the nation’s 2011 credit downgrade by Standard & Poor from an AAA to AA+ is seen as a reflection of national struggles with these same issues which have also decreased its global competitiveness.

Jennifer Blanke, Chief Economist of the WEF, sought to explain in more detail this ranking, stating that there is “continuing concern about the macro-economic environment, continuing debt levels – the inability to get the spending under control and really political deadlock about how to even deal with this issue. And, this is leading to concern about political institutions in general.” Despite these causes of decreasing U.S. stature, economists do highlight the high score of the United States in innovation and productivity. According to the report, the United States is still considered a premier model for other world economies in these areas and has the potential to improve in all other sectors.

The WEF’s Global Competitiveness Report has been conducted annually for over 30 years and ranks national economies based on 12 influential pillars. Some of these factors include measuring and comparing infrastructure, innovation, technological readiness, higher education and training, and financial market development. Recently adjusted for social and environmental sustainability, the report created a measurement for the ease of citizens maximizing their potential to contribute to economic prosperity and a measurement for overall institutional efficiency in the management of resources.

Who ranks above and below the United States? Western Europe dominates the top 10: Switzerland, Singapore, and Finland round out the top three ranks, followed by Sweden, the Netherlands, and Germany, respectively. Other rankings of interest are Japan in 10^th, China in 26^th, and the rest of the BRIC emerging economies coming in with Brazil in 53^rd, India in 55^th, and Russia trailing in 66^th place. Greece, weakening still, now ranks at 96^th, and Yemen remains in last place at 144^th.

As the United States remains the world’s largest economy we can hardly count out America as a major economic heavyweight and innovator. Still, the slip is seen by some as a serious concern, especially in tangent with the potential fiscal cliff coming in January. No matter who is elected in November, Washington certainly has economic policy changes to make to regain its stature as a top global competitor in the eyes of the World Economic Forum.

Posted by: Sophia Higgins

Sources: CNBC, World Economic Forum, the Hill, Outlook Series

Photo Source: no name @ Gates Foundation photostream courtesy of Flickr user Gates Foundation

STEM Visa Bill Defeated in Congress but Debate Goes On

One of the most talked about measures to improve the competitiveness of the United States in the area of technology and innovation is the STEM Jobs Bill. On September 20^th, the bill, put forth by Republican Congressman Lamar Smith of Texas, was defeated in the House, failing to receive two thirds of the votes.

The Bill would enable 55,000 students with a doctorate or a master’s degree in one of the STEM subjects to apply for a Green Card upon graduation. If enacted, the STEM Jobs Bill would have discontinued the Diversity Visa Program, or Green Card Lottery, which currently allocates 55,000 Green Cards to people from countries with low levels of immigration to the United States. The Bill was struck down mostly by Democrats unwilling to eliminate the Diversity Visa Program. Two more bills are on the table, one by Democratic Congresswoman Zoe Lofgren of California, the other by Democratic Senator Chuck Schumer of New York. Both of these bills aim to keep the Diversity Visa Program alive while introducing the STEM Visa program simultaneously.

Politicians on both sides, as well as heads of industry all agree that something needs to be done in order to not lose highly educated workers to other countries. Without the ability to stay and work in the United States, these foreign students are forced to leave and end up working for companies overseas. These students are especially important to the future of the US economy because of the low rates of American students who decide to go in to science and engineering, only about 5% of graduates.

Solving the issue of talent leaving the US will be essential in order to ensure America’s continual success in leading the world in technology and innovation in the 21^st century. If Congress can manage to cooperate across the aisle and reach a compromise, the STEM Jobs Bill would supply hi-tech companies with much needed workers and boost the US economy.

Progress is being made, but a lot more has to be done in order for the United States to reverse the current trend of lagging behind other countries in competitiveness. Ultimately, the problem of American students lacking interest in studying science and engineering has to be tackled in order to ensure future prosperity.

Posted by: Samuel Benka

Sources: Forbes, Politico, The Huffington Post

Photo Credit: US Capitol Courtesy of Flickr user katieharbath

Techonomy Conference 2012: Objectives of Technology-Driven Economic Revitalization

On Wednesday, September 12^th business leaders, political figures, and technology experts came together for the annual Techonomy Conference in Detroit. Hosted by the Detroit Economic Club, the conference’s agenda focused on the role of technology as a vital component of achieving social progress and economic growth.  This single day program is especially committed to the issues of “reigniting U.S. competitiveness and economic growth, creating jobs, and revitalizing cities in a technologized age”. Featured speakers included Grady Burnett, the Vice President of Facebook’s Global Market Solutions, James Dougherty, an Adjunct Senior Fellow for Business and Foreign Policy on the Council of Foreign Relations, and Justin Fox, the Editorial Director of the Harvard Business Review. They addressed the crowd on topics ranging from challenges in the era of globalization to the democratization of finance and product development to the future of manufacturing and its impact on employment. Audience members were also greeted by the founder of Techonomy, David Kirkpatrick, and treated to speeches on individual entrepreneurial development and other related topics.

The conference took a local look at Michigan and Detroit’s economic struggles for revitalization and at the challenges faced auto-mobile industry. Described as the Silicon Valley of an “earlier era”, Detroit is said to represent the larger issues facing American cities, including adapting to changes in education, employment, and infrastructure brought on by an increasingly globalized market society. Some have questioned the conference’s location of Detroit due to current economic struggles. Techonomy’s founder sends a different message, citing Detroit’s troubles as emblematic of cities that have missed the opportunities of technology in the past but have the potential to resolve these issues. Even a recently hurting automobile industry, a defining characteristic of Detroit, stands to make substantial gains from strengthening its tech culture of efficiency and educational achievement.

What were the goals and expectations of Techonomy? The event sought to utilize the revitalization of industry through technological advances, entrepreneurship, and innovation as major strategies for economic recovery. A focus on the increasing globalization of business and industry practices seemed also to be an objective of the conference. Intent on keeping America pushing the technological envelope, speakers discussed the future of expanding innovation and inspiring competitive growth. Complementarily, lecturers represented a diverse background of national industry and intellectual leadership, to address the concern of declining US competitiveness in detail and tackle the issue from unique viewpoints.

What can the public expect to come from this meeting of multi-disciplinary minds? Perhaps policy-makers will be influenced by the incredible support from the business community for this technology initiative as a means of creating jobs and stimulating urban development. Another possible outcome is a renewed emphasis on education for current and future generations to establish a more highly-skilled workforce with improved techno-literacy. Finally, perhaps Americans will see more pressure for regulatory reform easing start-up business restrictions. Ultimately, conference publicity should push technology to the forefront of economic recovery initiatives as a tool for improving US competitiveness and improving urgent urban issues to speed along city development.

Forbes highlights examples of innovative entrepreneurs in the Detroit area who exemplify these aims and serve as best-practice models for aspiring start-up companies. With the help of the Techonomy and its conference speakers, the American public may be able to look forward to more success stories like these.

Posted by: Sophia Higgins

Sources: Techonomy, Forbes, CNBC

Photo Credit: 2010_08_05_techonomy_105 @ Techonomy courtesy of Flickr user dserals