What the Apple-Samsung Case May Mean for Innovation & Competitiveness

In a case that has garnered much attention by the media, Apple claimed that Samsung had infringed on several patents on the iPhone and iPad.The San Jose jury unanimously agreed with Apple in its verdict. However, a similar case in South Korea found that Samsung infringed only one Apple patent while Apple infringed two Samsung patents.

More important than the $1 billion that Samsung must pay to Apple for its infringements (which is a mere 1.5 percent of Samsung’s annual revenue) is the message Apple conveyed to companies with regard to basic design elements in electronic devices.    The case of Apple versus Samsung is just the first of several claims by Apple of patent infringements by other companies.  Most threatening is the message sent to device makers who use Google’s Android operating system.  Apple has surprisingly chosen not to sue Google likely because it is much easier to make a case for monetary damage against companies like Samsung that sell hardware to consumers versus a company like Google, which doesn’t charge device makers for its software.

The impact this case will have on future competition is yet to be seen, as some lawyers argue that Apple isn’t the only company that can come up with innovative designs-and its court victory could encourage more innovation by competitors.  However, others argue that this verdict could stifle innovation as it may force device makers to slow or abandon product development in fear of breaching Apple’s intellectual property resulting in less smartphones and tablets on the market and higher production costs and prices for consumers.

Samsung stated, “It is unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners or technology that is being improved every day by Samsung and other companies.”

Perhaps this case, which is one of the largest patent damages verdict on record, will encourage others to, “think outside the box” (no pun intended) and develop more unique designs in the future.


Posted by: Elizabeth White

Sources: The NY Times, The Wall Street Journal & CIO Journal

Photo Credit: apple-samsung Courtesy of Flickr user diTii


The Affordable Care Act and the Economy

While our focus here at the PAGE program is on areas such as innovation, education, manufacturing, immigration, and other areas that help America compete in an increasingly globalized economy, health care spending accounts for 18% of this country’s economic output and we would be remiss if we did not briefly examine the Affordable Care Act’s effect on the economy, now that the Supreme Court has ruled on the law and declared that it can be implemented essentially in its entirety.
It terms of the overall economic effect, the ACA will expand coverage to tens of millions of people (the White House estimates 32 million) which will naturally increase demand for health-services and boost health expenditures like hospital visits and medications. This increased spending should fuel growth, at least in the near-term. The legislation is financed partly by additional taxes, especially on higher-earners and their investment income. The tax hit could stifle consumer spending, offsetting the jump in health expenditures. Then again, Americans with higher incomes tend to save more cash, so it’s also reasonable to think taxing them could divert money from savings accounts to spending — boosting the economy. The overall macroeconomic effect will most likely not be discerned as positive, negative or neutral for some time.
Regarding the economic topic of the day, job creation, the effect of the legislation again, is hard to read. As noted above, spending in the health sector is likely to increase if for no other reason than tens of millions more consumers in the market so it is not unreasonable to assume jobs will be created in the health sector. On the other hand, there is much anecdotal evidence (though little empirical, since the Act’s main provisions are not yet in effect) of businesses downsizing or putting off hiring because of the new employer-provided insurance regulations. The incentive and regulation structure for businesses is complex though, with varying rules and subsidies depending on the size and nature of the business so it is hard to forecast how hiring in the private sector at-large will change if at all.
The mostly hotly debated economic factor is how the ACA will affect the deficit. As President Obama reminds anyone who will listen, the Congressional Budget Office scored the legislation as a net deficit reducer (to the tune of $140 billion) over the next ten years although conservatives have quibbled with how the bill was scored. The Court ruled on June 28th that the Federal government cannot force the states to expand Medicaid as the bill had originally intended (specifically, the Federal government could revoke a state’s entire allocation of Medicaid funding if it did not expand Medicaid coverage) so it is possible that conservative governors will not move ahead with expanding Medicaid since they are no longer compelled to. This, no doubt, would be a huge factor in both Federal and state budgets.
Of course, Mitt Romney, Paul Ryan, and the Republicans in Congress have vowed to repeal the Act as soon as they have the chance and should President Obama stay in office, the law will not be fully in effect until 2014 at least. As a result, at this point, the only thing the American people can be sure of is that they and their economy will be affected in some way, simply due to the sweeping nature of the law and the outsized role health spending plays in our economy.
Posted by: Sean Norris

Sources: The New York Times, The Wall Street Journal, The Congressional Budget Office, http://www.healthcare.gov

Photo Credit: Protect the Law courtesy of flickr user Brett Davis

Chinese Investment in Africa and the Woes of Western Aid

Over a year ago, Secretary of State Hillary Clinton issued a severe warning to Africa’s emerging economies, “beware of China’s new colonialism.” Clinton stressed how important it is for Africa’s emerging economies to resist the old colonial practices of foreign investors looking “to come in, take out natural resources, pay off leaders and leave.” She also urged African nations to apply the same investment standards to the Chinese as they would to Americans and Europeans, reminding the people of Sub-Saharan Africa that the Obama Administration is genuinely interested in helping their economies grow and prosper.

However, economist Dambisa Moyo argues that Chinese foreign investment in Sub-Saharan Africa is favorable to the continent and pure in its intentions. She prefaces her argument by pointing out that China has now surpassed the United States as the continent’s single largest trading partner, increasing foreign direct investment to the region from $100 million to $12 billion in eight years. Moyo recognizes how this staggering increase in Chinese foreign investment has made many western powers wary, but refutes the notion that Africans are being exploited by the Chinese with data from 2007 Pew Research Poll which shows that 91% of Kenyans feel that China’s involvement in their economy is beneficial, against just 74% who feel America’s has any influence. She further disputes the claim that China is using its own workforce in Africa by highlighting that the ratio of African to Chinese workers in Zambia is now 13 to 1.  Moyo does however mention that human rights abuses should receive appropriate investigation but that China should not be generalized as hostile with regard to its approach toward Africa.

Moyo concludes her criticism of Secretary Clinton’s assertion by claiming that maybe it’s not such a bad thing that Western aid to the region has decreased, citing that aid has been a primary hindrance of  democracy and has harbored the corruption which has kept the region’s economy stagnant for so long. She suggests that America’s efforts will only prove beneficial once they put the onus of government accountability and responsibility on local governments instead, summarizing that “foreign investment and job creation are the only forces that can reduce poverty and stave off the sort of political upheaval that has swept the Arab world. And China’s rush for resources has…created a large market for African exports-a huge benefit for a continent seeking rapid economic growth.”

Posted By: Jonathan Sherman

Sources: Huffington Post, New York Times

Photo Credit: Dambisa Moyo @ Canada 2020 courtesy of Flickr user Canada.2020

Prospects for a “STEM Teacher Master Corps”

In late July, the Obama administration announced a plan to create a “STEM Teacher Master Corps”, a corps of teachers specializing in science and math fields who would lead community and local efforts to improve STEM education in schools.  The teachers would be chosen by local school officials to “lead professional development [courses], mentorship activities, and  regularly contribute new lesson plans and strategies to transform and improve science and math teaching,” in exchange for a $20,000 per year bonus, according to Robert Rodriguez, a special assistant to President Obama for education.  The program would start with 50 selected teachers and expand to 10,000 in four years.  The program was originally recommended in a 2010 report by the President’s Council of Advisors on Science and Technology.

The White House, along with the administration’s Secretary of Education Arne Duncan, has consistently emphasized the importance of the STEM fields in the overall approach to education in the 21st century.  “If America is going to compete for the jobs and industries of tomorrow, we need to make sure our children are getting the best education possible,” Obama said in a statement. “Teachers matter, and great teachers deserve our support.”  Sec. Duncan pointed out that American students lag behind most other industrialized countries, including China, South Korea, Japan, and  most  of Europe in the STEM fields.

The program is dependent on funding from Congress and comes with a $1 billion price tag, making its prospects questionable at best.  The money is included in Obama’s 2013 budget request being considered by Congress.  Democrats tried to secure funding for a similar program last year, but the proposal did not reach the House or Senate floors.  Both Sec. Duncan and the White House emphasized the bipartisan recognition that progress is needed in STEM for American competitiveness and that local and state support for such a program is essential but they may be overestimating how far that bipartisan consensus will take them.  An aide to Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee, told the Associated Press, the federal government already has more than 80 teacher quality programs and questioned the wisdom of pouring more money into another program that might not add anything new — or effective — to improve education.  Further, the announcement comes on the heels of a House Appropriations sub-committee vote approving a bill that would dismantle three key elements of Obama’s education reform plan: Race To The Top, the School Improvement Grant program, and the Investing In Innovation (i3)  program.

Posted by: Sean Norris

Sources: NBC News, US News and World Report, The Atlantic

Photo Credit:Science Lab” courtesy of flickr user Jose Kevo

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

Live Webcast August 8:The Trans-Pacific Partnership and the Future of International Trade

The Program on America and the Global Economy(PAGE), the Asia Program, the Canada Institute, the Kissinger Institute, the Latin American Program (LAP) and the Mexico Institute with the Support of Wilson Center Senior Scholar William Krist Presents:

 The Trans-Pacific Partnership and the

Future of International Trade

Wednesday, August 8, 2012

2:00 – 5:00 pm

2:00 pm – 2:40 pm KEYNOTE:  Ambassador Demetrios Marantis, Deputy U.S. Trade Representative

2:50 pm – 3:50 pm PANEL 1: New and Future Participants
Canada: Laura Dawson, President of Dawson Strategic and a Former Public Policy Scholar, Woodrow Wilson Center
China: Jeff Schott, Senior Fellow, Peterson Institute for International Economics
Japan: Edward Lincoln, Professor, George Washington University
Mexico: Luz Maria De La Mora Sanchez, Professor of CIDE, former Public Policy Scholar, Woodrow Wilson Center
Moderator: Kent Hughes – Program on America and the Global Economy

4:00 pm – 5:00 pm PANEL 2: Key U.S. Interests
Jim Grueff, Trade Consultant and former trade negotiator for the Foreign Agricultural Service
Linda Menghetti, Vice President, Emergency Committee for American Trade
Celeste Drake, Trade Policy Specialist, AFL-CIO
Stephanie Burgos, Senior Policy Advisor, Oxfam America
Moderator: Kent Hughes – Program on America and the Global Economy

Watch the live webcast here.
Posted by: PAGE Staff

Is College Too Easy?

This blog has focused on the current unemployment and underemployment crisis among recent college graduates and explored several of the proposed explanations for it.  One explanation that many are reluctant to talk about however, is the possibility that students are learning far less in college than they used to.  Evidence has mounted recently that shows that students, across majors and schools, are spending less time studying and are demonstrably learning less.  This mirrors the trend we wrote about previously in the K-12 system.

In 2010, the American Enterprise Institute released a highly-cited paper entitled Leisure College, USA that concluded, among other things that “In 1961, the average full-time student at a four-year college in the United States studied about twenty-four hours per week, while his modern counterpart puts in only fourteen hours per week”  and that the decline cannot be explained by “changes over time in student work status, parental education, major choice, or the type of institution students attended”.  Instead, the overwhelming evidence points to a culture change that has turned the “college campus into a place where academic effort is scarcely detectable and the primary student activities are leisure-based”.  Students rarely have to perform intellectual tasks to receive high grades and spend little time devoted to studies outside the classroom.

But maybe students are studying less because technology makes it more efficient or because they come to higher education better prepared than they used to.  Unlikely, say Richard Arum and Josipa Roksa, authors of Academically Adrift: Limited Learning on College Campuses, published in 2011.  Not only are students studying less, they are evidently learning less.  Arum and Josipa examined survey responses, transcript data, and results from the Collegiate Learning Assessment (a standardized test taken by students in their first semester and at the end of their second year) and concluded that “for a large proportion of students, the gains in critical thinking, complex reasoning, and written communication are either exceedingly small or empirically nonexistent”.  According to their research at least 45 percent of students did not demonstrate any statistically significant improvement in CLA performance during the first two years of college and further study has indicated that 36 percent of students did not show any significant improvement over four years. They state, “While these students may have developed subject-specific skills that were not tested for by the CLA…they are failing to develop the higher-order cognitive skills that it is widely assumed college students should master”.

Arum and Roksa’s conclusions are strengthened by the accounts of many students who report that they spend increasing numbers of hours on nonacademic activities, including working, rather than on studying. They enroll in courses that do not require substantial reading or writing assignments; they interact with their professors outside of classrooms rarely, if ever; and they define and understand their college experiences as being focused more on social than on academic development.

There have been specific accounts as well about, for instance, the relative ease of a major in business, which is the most popular major in the country, or the lack of writing required of students.  The fact is that many students and institutions seem to be operating under the assumption that graduating with a diploma, a credential, is enough to be competitive in a knowledge-based, globally competitive economy.  This may or may not be the case right, but it almost certainly will not be in the medium or long term.  The American higher-education system is still the envy of the world but the gap between the US and other countries is closing in both measures of quantity and quality.  As the gap closes, college graduates will be expected not only to have the credential, but also the knowledge and skills that the credential ostensibly indicates meaning that a serious examination of the culture and methods at American universities would serve everyone well.

Posted by: Sean Norris

Sources: The Chronicle of Higher Education, The New York Times, Inside HigherEd

Photo Credit:Studying on the Heart” courtesy of flickr user Earlham College