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

Womenomics: Unlocking Women’s Not-So-Hidden Economic Potential

In the perpetual quest to improve economic growth and prosperity, leaders often ask questions such as: “How can we attract business to our shores?” “What can we do to raise export levels?” “How can we innovate to compete in the global economy?” While these questions are crucial to economic success, many developing and even some developed nations overlook an abundant and easily accessible driver of economic growth that makes up around half the world’s population: women.

Utilizing women to their full potential can play a crucial role in raising productivity and economic output. According to the World Bank’s 2012 World Development Report, women now represent 40 percent of the global labor force and more than half of the world’s university students. It seems obvious that allocating women’s skills and talents in activities that make the best use of those abilities will result in tangible economic benefits. In 1950, only one-third of American women of working age had a paid job. Yet today, US girls now do better at school than boys, more women are getting university degrees than men are, and females run some of the world’s best companies, such as PepsiCo, Archer Daniels Midland and W.L. Gore. Furthermore, a study by McKinsey found that when women went from holding 37 percent of all US jobs to nearly 48 percent over the past 40 years, the productivity gains associated with this modest increase accounted for approximately one-quarter of our current GDP. Undoubtedly, unlocking the economic potential of women has contributed to the sustained economic growth of the US over the last decades.

However, economies where women are not well integrated in the work force face significant disadvantages. This loss of productivity and economic duress is illustrated in the case of Japan, which has faced persistent economic stagnation. According to Kathy Matsui, chief Japan equity strategist and co-head of Asia Investment Research at Goldman Sachs, “Narrowing the gap between male and female employment rates, through increased participation of women in the labor market, could help Japan’s economy grow.” For example, 70% of Japanese women leave the workforce after their first child, and only 65% of college-educated women are employed. Barriers to higher female employment include insufficient childcare and nursing care support, tax distortions, and inadequate focus of the private and public sectors on diversity. It is no coincidence that Japan’s economy has struggled as women continue to be systemically underused.

Better enabling women to enter the labor force should be a key priority in nations looking to increase economic growth. The Economist reports that the increase in employment of women in developed countries during the past decade has added more to global growth than even the economic emergence of China. Therefore, it would serve countries well to eliminate obstacles that prevent women from entering the workforce and create programs that encourage the participation of women in the economy.

Posted by: Matthew Goldberg

Sources: The Economist, Goldman Sachs, World Bank, McKinsey, AARP International

Photo Credit: Woman working courtesy of flickr user SMU Central University Libraries

World Economic Forum 2013: A Post Crisis Davos

As the global economy begins to show signs of recovery, leading economic thinkers, heads of states, and major CEOs recently met in Davos, Switzerland for the annual World Economic Forum. These VIPs attended numerous events, networked, and traversed a new global economic landscape characterized by renewed optimism. The new disposition was reflected by this year’s theme—“resilient dynamism”—which represents an important shift in the perception of the world economy from something that is weathered to a force that can provide new opportunities.

While the outlook has become more hopeful, it does not mean that we are out of the woods just yet. As Axel A. Weber, Chairman of the Board of Directors of UBS, Switzerland, and a Meeting Co-Chair, declared, “The feeling is that the worst is behind us. But the mood bordered on complacency.” Not everything pointed towards the positive, especially the WEF’s own Global Risks 2013 report which offers a pessimistic outlook, saying the global community’s ability to address significant challenges, such as global warming, were limited by economic issues like “severe income disparity” and “chronic fiscal imbalances.” The report concludes that these systemic problems must be addressed in the near future in order to both sustain global economic growth and to avoid widespread social unrest.

On an interesting side note, the WEF, working with the science magazine Nature, noted several important but relatively remote potential economic threats known collectively as “X Risk Factors.” These include: Runaway Climate Change, Significant Cognitive Enhancement, Rogue Deployment of Geoengineering, Costs of Living Longer, and Discovery of Alien Life. While these issues are currently not as tangible as “concerns such as failed states, extreme weather events, famine, macroeconomic instability or armed conflict,” says the WEF, “they capture broad and vaguely understood issues that could be hatching grounds for potential future risks.” However, it is not unimaginable that we may confront many of these issues in the coming decades, and therefore, it is prudent to prepare for these prospective threats.

Overall, while Davos may often be thought of merely as a gathering of “fat cats in the snow,” it does have real worth both through its influence in setting the economic discourse and its role as a place for global leaders to reflect on global economic challenges.

Posted by: Matthew Goldberg

Sources: WEF, CNN, Business Insider, The Information Daily

Photo Credit: World Economic Forum 2013: Microphones courtesy of flickr user World Economic Forum

U.S. Debt Now Over 100% of GDP – Corporate Leaders Weigh In

With the U.S. government continuing its deficit spending this year, estimated at $1.1 trillion by the Congressional Budget Office, the U.S. debt inches closer to the $16.4 trillion debt ceiling agreed on by Congress in July 2011. According to recent data released by the Treasury Department, the government surprisingly ran a surplus of $75 billion in September. Despite September’s anomaly, the federal debt ceiling is projected to be reached by January 2013.

Last Monday corporate leaders of some of the biggest companies in the U.S., members of a campaign called “Fix the Debt”, urged Congress to come up with plans to alleviate the nation’s growing debt problem. The solution: Increase taxes for the wealthy and cut federal benefit programs such as Medicare and Social Security. The proposed measures go directly against what either party desires. Democrats look to maintain spending on social programs while Republicans want to keep the tax rates for wealthy Americans at current levels.

Austerity seems to be the only way to dig the American economy out of this hole. Robert Greifeld, chief executive of stock exchange operator Nasdaq OMX Group Inc, told a Bloomberg Television roundtable that everyone is going to have to take part in the recovery, noting that, “there has to be shared pain.” Scott Davis, CEO of United Parcel Service Inc., agreed with the sentiment expressed by Mr. Greifeld.

At some point, the growing debt problem facing America has to be dealt with. Historically, the debt as a percentage of GDP rose to an all-time high at the end of World War II when it stood at 126%. After slowly decreasing to a low of 33% in 1981, the debt has been steadily increasing for the last three decades. The consequences of America’s debt problem have repercussions for the entire global economy, slowing down world commerce. At home, racking up more debt puts more pressure on future generations of Americans to solve the problem.

There is a growing concern about the debt among CEOs. Steven Rattner, head of Willett Advisors LLC said that “for the first time, there is tremendous support in the business community even if it isn’t exactly what everyone in the business community would want to see”. With more CEOs emphasizing the need for a solution, the prospects of turning the tide become brighter. How the debt problem will be dealt with remains uncertain – many factors, such as the outcome of the election and the raising of the debt ceiling play a big role. What is certain as of right now is that the US debt problem is bigger than it has been for more than sixty years.

Posted by: Samuel Benka

Sources: The New York Times, The Wall Street Journal, Reuters

Photo Credit:Fix the Debt News Conference Courtesy of Flickr user Talk Radio News Service

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

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

 

US Manufacturing Decline

The month of August showed further signs of a struggling US economy with a decrease in manufacturing.  This was the third month in a row that overall manufacturing in the US has been in decline. A total of 15,000 manufacturing jobs were lost during the month of August with a loss of 8,000 jobs in vehicle parts manufacturing. The US has lost 3.5 million manufacturing jobs since 2002, and as of August, the total number of jobs in manufacturing stands at 11,967,000. With the August jobs report released by the Bureau of Labor Statistics showing an increase of only 96,000 jobs, many questions about the state of the US economy linger on.

The weak performance of the US manufacturing sector mirrors manufacturing developments around the world. With the global economy still in a recession, other countries are experiencing similar economic woes. Chinese manufacturing in the last month was at a nine month low, and its GDP growth of 7.6% in the second quarter of this year compared to a year before was its lowest increase in three years. The Chinese purchasing managers index (PMI), an indicator of financial activity, fell to 49.2, while the American index for August stood at 51.5. A PMI of 50 indicates no change.  The Eurozone showed even greater signs of decline as its composite PMI for all 17 states stood at 46.3 in August.

What does the continual struggle of the US economy tell us about American competitiveness? It is far from clear that it is an indicator of America’s decline relative to other countries. As the numbers above show, the other two major economies in the world, China and the Eurozone, went through similar contractions in the manufacturing sector. What the evidence points to, however, is that we are still in a worldwide economic recession. It should not come as a surprise to anyone that the US economy is still stagnant. With the global economy so integrated, hopes of a stronger US manufacturing sector depends on other countries as well.  With stagnant growth rates affecting a majority of countries in the developed world, these latest numbers on American manufacturing shouldn’t be interpreted as evidence that America is falling behind. The problem with manufacturing jobs will not be alleviated until the global recession comes to an end.  As of right now, there are few signs that an end to the recession is in sight.

Posted by: Samuel Benka

Sources: ReutersThe Wall Street Journal, The Huffington Post

 Photo Credit:  Polar-Polar Tank Trailer ManufacturingCourtesy of Flickr user TruckPR

What Went Wrong with A123?

China’s largest producer of automotive parts is poised to purchase a controlling share of a US company, A123 Systems, which develops and manufactures advanced lithium-ion batteries and battery systems.  China’s Wanxiang Group Corp said on Wednesday they intend to invest up to $450 million in A123 Systems, taking an 80 percent stake in the company.

The purchase is an almost textbook example of the kind of issues America currently faces in an ever more competitive and global economy.  A123 is a startup company that was founded in 2001 based on the research of a duo of scientists at MIT.  The company’s unique nanophosphate technology is built on novel nanoscale materials initially developed at MIT and, according to the company, “enables customers to commercialize innovative products for the transportation, electric grid, commercial and government markets”.  The company has received tens of millions of dollars in grants from Chrysler, General Motors, Ford, GE, and defense contractors to develop lithium-ion batteries using their technology for hybrid cars, commercial trucks and buses, and components to electric grids.  A123 received more than $200 million from venture investors before raising $378 million in a 2009 initial public offering.  The company had also received frequent grants and investments from the Department of Energy and in 2009 was awarded over $200 million as part of the Stimulus Act, specifically under the Electric Drive Battery and Component Manufacturing Initiative.

Apparently all this was not enough to keep the company afloat.  It reported a second-quarter loss this year of $82.9 million, or 56 cents per share, and a 53 percent drop in revenue to $17 million.  Its cash pile was more than halved to $47.7 million at the end of the quarter, down from $113.1 million at the end of the first quarter.  The battery industry as a whole has suffered in the US, with some pointing to too much capacity and not enough demand for hybrid vehicles.  Essentially, A123 and companies like it invested heavily in the ability to churn out their batteries on a large scale, and then found a painful lack of consumers.

A123 Systems is exactly the kind of company Americans hear so much about as the way forward in this global economy.  Researchers at one of the country’s top universities developed cutting edge technology, were able to successfully commercialize it, created manufacturing capacity here in the US, and received both private and government support that is so often considered a necessity for innovative startups.  Energy Secretary Steven Chu said of A123, “It’s a perfect example of what’s possible when the private sector, government, and academia work together”.  And yet, that company is now owned by a private Chinese company.  It remains to be seen what kind of tangible effects this will actually have.  The company will most likely still allow for manufacturing jobs in the US and will still have domestic factories; in fact the bailout from Wanxiang might actually save some American jobs.  Of course, it is unlikely that any future expansion will occur in the US.  More generally speaking, the case of A123 Systems shows that there is no easy fix when it comes to creating high-tech manufacturing in the United States and that further discussion, research, and methods need to be explored if the US hopes to be the home of companies like A123 Systems in the future.

Posted by: Sean Norris

Sources: CNNMoney, Reuters, The New York Times, BusinessWeek, Fortune

Photo Credit: Energy Secretary Steven Chu and Michigan Governor Jennifer Granholm at the grand opening of an A123 Systems plant in Michigan entitled A123 Systems Grand Opening in Livonia courtesy of flickr user graham.davis

The Global Economy’s Missing Piece

With China’s growth stalling and Europe fighting to stay afloat, the world economy is in desperate need of a superhero that will help it stabilize and prosper. In tough times of the past, markets could always rely on the monetary toolbox and the fiscal leadership of United States to prevent global catastrophe. However, in a recent article in Foreign Policy Journal, the German Marshall Fund’s Kati Suominen explains why this time the U.S. will not be there, and what implications that has for future global governance and economics.

Suominen discusses how following World War II, the United States was the global economy’s “quarterback,” leading the offensive with the Bretton Woods summit and the creation of the groups of five, seven and eight who would later establish the World Trade Organization (WTO). During that time, the U.S. dollar became the standard for much of the world’s reserve currency, and the effects of the Federal Reserve Bank’s decisions spanned far beyond Constitution Avenue. She deduces that globalization didn’t just appear out of thin air, but was rather a “U.S.-led order that generated prosperity unimaginable only a few decades ago.” And it was from this “American-led order” that the Asian Tigers boomed and G-5 became the G-20, with “emerging nations such as China and India demanding greater power at the table.”

Suominen notes that while this “U.S.-made” system brought prosperity it also brought more challenges and America saw its credibility around the world chip away facing great fiscal uncertainty and a massive trade deficit. While she does not blame this all on President Obama, she does criticize his administration for deflecting the responsibility of Europe’s debt crisis to Germany and leaving any promise of economic recovery in the BRIC’s hands. From her criticism, she makes four critical recommendations: impose fiscal discipline and promote long-term policy, better integrate the world marketplace with a freer exchange of ideas and resources, equip the IMF with the tools to solve financial risk, and incentivize the international community to enforce many of regulations and protections already in place. Suominen concludes that the “new world order arouse because of American strength, vision and leadership…today, American leadership is again essential.”

Posted By: Jonathan Sherman

Sources: NPR

Photo Credit: G-20 Summit in Pittsburgh courtesy of Flickr user International Monetary Fund

Can a City Sway the Global Economy?

In this age of globalization and faster communication, cities are finding more and more ways to reinvent and renew their image. In Tim Campbell’s recent book Beyond Smart Cities: How Cities Network, Learn, and Innovate he explores the recent vehicle of urban development and integration of “urban communication.” Cities are communicating with one another in increasingly intricate ways, traveling to one another’s locations and learning about one city’s innovative ways of solving the issues others may face. Campbell prefaces his findings by stating that the world has grown to 1,000 cities of between 500,000 and 5,000,000 inhabitants.  In 1995,  less than 700 cities fell within this range.  By 2020, over 1,200 cities are expected to fall within these parameters. Once cities fall within this range, Campbell explain, they begin to have what he describes as enough “sway” to impact major geo-political decisions around the world.

Campbell derives his conclusions from a survey conducted by 43 people in 165 cities that fall within the range of nearly 1000 with a population size between 500,000 and 5,000,000 people that Campbell describes as “knowing the city well, but not enough to speak for it.” In looking at how these people communicate with one another, he found that much of the international communication facilitated between these 43 subjects traveled north to south, and that major regional centers for trade and exchange like Paris and Singapore were where much of the study’s subjects communicated frequently. Examining the communications between cities of between 500,000 and 5,000,000 people, Campbell found over 10,000 exchanges, and found that people from larger cities study the work of smaller cities because they’re easier to understand.

Campbell then separates the cities into two groups which he categorized as “reformers” and “non-reformers,” and labeled cities as “reformers” if they had at least 3-5 major policy shifts in recent years to which he asked what their most pressing concerns were. He found the major concerns of the reformers to be policy-oriented, while he found the major concerns of the non-reformers to be more budget-oriented. He concludes his research and the book that derives from it by looking at number of “city case studies,” to which he codes three types of cities to be either “technical, corporate or ad hoc,” and identifies three varied forms of communication “tissue of remembering, cloud of trust, or a sponsor.”   Those that are “technical” cities bring on smart people to brainstorm and implement new ideas, while those that are corporate cities have a structured way of doing things. Likewise, those that build “clouds of trust” build networks and partnerships that they work with to bring out common reform, while those that are “sponsors,” support business and civic exchanges and facilitate forums that spur ideas for better urban planning. All in all, smart cities base their reforms in social capital and collective learning, facilitating what Campbell explains as Ikujiro Nonaka’s concept of “Ba,” the art of externalizing one’s learning experience to build a network of trust, confidence, cooperation and innovation.

 

Click here to check out Tim’s event at the Wilson Center

 

Posted By: Jonathan Sherman

Sources: Tim Campbell’s Presentation of “Beyond Smart Cities: How Cities Network, Learn and Innovate” at the Woodrow Wilson Center on May 24, 2012

Credit: Photo Courtesy of Beyond Smart Cities Official Website by Tim Campbell and Routledge/Earthscan Publisher