Trade

Former President Bill Clinton has always had an impressive ability to explain complicated issues in a way that leaves his audience thinking, “duh, of course”--even if they’d never quite had the same thought before. I came away with that feeling again from the keynote speech he delivered at the annual conference of the U.S. Export-Import Bank. The reason for the speech was to encourage Congress to reauthorize the bank--which is critical for funding U.S. exports to developing countries of big ticket items like airplanes, locomotives, satellites, and power plants. If Congress does not act by May 31, and it has failed to do so already once, the bank will be prevented from offering any new financing. Other countries are already lining up to lure the business away from the United States. Allowing Ex-Im Bank’s funding authority to lapse would be another in a growing list of self-inflicted economic wounds. But the real brilliance of the speech was his simple analysis of the relationship between globalization and growing income inequality in the United States. Citing the seminal CFR working paper by my Renewing America colleague Michael Spence, he noted that there has been essentially no job growth over the past two decades in the tradable sectors of the economy, like manufacturing and business services. The job growth has all taken place in non-tradable sectors like health care and government. And while productivity growth has accelerated in the tradable sectors, it has been largely stagnant in the non-tradable sectors. What does that mean for American workers? “Americans who work in the tradable sectors of the economy are likely not only to get jobs with higher starting pay, but pay that increases with the growth of the companies," Clinton explained. "People who work in the non-tradable sectors are much more likely to get jobs not only with lower starting pay, but without pay raises that keep up with inflation and economic growth.” The consequences can be seen in Roland Stephen's superb analysis of North Carolina and its efforts to respond after import competition decimated once successful manufacturing industries. The trend of the past two decades--with fewer people working in the higher-wage, high-growth sectors of the economy, and more working in the lower-wage, low productivity sectors -- is not a recipe for economic success. The stakes are even higher, Clinton argued. If the United States continues to create jobs only in low productivity, non-tradable sectors, the economic foundations of its leadership will erode. “If America once again wants to lead the world towards shared prosperity, we have to be able to change the internal dynamics of growth in this country,” he said. “And one key component of that must be to increase employment in the tradable sectors, which means increased exports.” “In more common language that would be appreciated in my home state of Arkansas," he continued, "If you’ve got 4 percent of the world’s people and you want 20 percent of the world’s income, you’ve got to sell something to somebody else.” The speech captured how important trade has become both to America’s standard of living and to its status in the world. Since the end of recession, exports have accounted for fully half of U.S. economic growth. The strong performance has some analysts, including Tyler Cowen of George Mason Univerity and Hal Sirkin of the Boston Consulting Group, predicting a manufacturing revival in the United States. Clinton has long been out front on these issues. He was critical in leading the Democratic Party to support the North American Free Trade Agreement, and he largely did it without sugar-coating what was at stake. As he wrote in his 1996 book Between Hope and History: “Open markets mean products come into America that are made by people who work for wages Americans can’t live on. This can cost some American workers their jobs and keep others from getting a raise.” But he believed, and all the evidence shows he was right, that globalization was inevitable, and that Americans would have to find a way to compete successfully in this new world. That remains the challenge today. More than ever before, success in trade is critical to raising living standards for Americans. As he has done so often before, Clinton makes that seem self-evident.  

Republican leaders in the House plan to attach provisions to yet another extension of the highway bill to pressure the Obama administration on the proposed Keystone pipeline (TheHill). The TransCanada project would bring oil from Alberta’s tar sands to U.S. refineries. With elections looming in November, Congress is expected to pass a tenth temporary extension to the federal transportation funding bill before funds end at the end of June rather than pass a longer term measure. Scott Thomasson, the president of NewBuild Strategies and an expert on infrastructure funding, recently authored Encouraging U.S. Infrastructure Investment, a Policy Innovation Memo released by the CFR’s Renewing America initiative. Thomasson proposes new initiatives aimed at breaking through the legislative gridlock. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Debt and Deficits How to “Work Around” the Buffett Rule Bloomberg reports that tax planners will have many tools to avoid the proposed “Buffett Rule” including tax-free municipal bonds, timing asset sales, charitable contributions, and non-taxable transactions. A partner at a major New York accounting firm said: “Largely, the Buffett rule is going to be manageable. That is, with tax planning, people will be able to avoid it.” This week, the Obama administration has campaigned for its proposal to set a minimum tax rate for millionaires (TheHill)—through television appearances by the president, and a revamped website. As the United States continues to run budgets with high deficits, politicians debate different plans to reduce government costs and to raise revenue. This CFR Backgrounder by Jonathan Masters outlines the competing policy paths on federal fiscal reform, and the global consequences for failing to bring down U.S. debt. Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. International Trade and Investment Protecting Intellectual Property in China At a Beijing roundtable with business and government attendees, American and Chinese officials praised progress on protecting intellectual property (WSJ). Experts indicate that China has given increasing attention to IP enforcement, but much work remains. Gary Locke, the U.S. ambassador to China, said: “China's IP system still makes it difficult for both foreign and Chinese companies to compete on a level playing field." While many U.S. firms praise increased Chinese enforcement, other firms—such as Apple—are being brought to court for infringement. The U.S. Commerce Department yesterday released a detailed study finding that IP-intensive industries contribute $5 trillion and 40 million jobs to the U.S. economy. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Education and Human Capital Education Grabs Voter Attention Across the United States, voters are paying greater attention to education, an issue which may prove pivotal in several November elections (Education Week). Earlier this month, the College Board released a survey of voters in swing states; 67 percent deemed education “extremely important” for White House and congressional elections. Governors are also facing increased scrutiny from voters, particularly as federal policy moves toward greater state autonomy, and competitive federal grants. The new report of the CFR Independent Task Force on U.S. Education Reform and National Security highlights the importance of the Common Core State Standards and asserts that fixing the nation’s underperforming K-12 schools is critical to economic competitiveness and national security. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Innovation Changing Climate for Alternative Energy BrightSolar Energy decided to cancel its planned initial public offering amid a weakening solar market (NYT). The firm’s prospects dimmed as solar power demand has fallen with declining government subsidies in the United States and Europe, and record low U.S. natural gas prices. The Obama administration had touted the job creation potential of solar energy and other cleantech, but Reuters reports that “green jobs” are slow to grow. Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

The rising rate of college attendance is often touted as a great success story, but the 40 percent college dropout rate may support the argument that college is not for everyone (BusinessWeek). The author argues that the average value of a college education is misleading because of the considerable variation in opportunities available to graduates from different majors and schools. He suggests that high school graduates in the 2nd and 3rd quartiles consider a two-year program, and then perhaps transfer to a four-year school. Many students who fail to graduate from college have been poorly prepared by their K-12 educational experience. The new report of the CFR Independent Task Force on U.S. Education Reform and National Security highlights the importance of the Common Core State Standards and asserts that fixing the nation’s underperforming K-12 schools is critical to economic competitiveness and national security. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Innovation U.S.-China Tech Incubator Launches InnoSpring, the first U.S.-China tech incubator (TechCrunch) launched with a seed fund backed by major U.S. and Chinese venture capital investors. InnoSpring’s goal is to support startups in both nations with hopes of spreading their business into the other. New startups can receive funding, access to investors, mentoring, office space, and advice on legal, financial and accounting matters. InnoSpring will also provide support for firms that have grown beyond the seed stage. Justice Department Sues Apple over E-book Pricing The Justice Department sued Apple and two publishers for alleged e-book price-fixing efforts (TheHill). As reported last month in the Renewing America Morning Brief, the Justice Department believes the agency agreements Apple entered into with publishers—in which Apple received a percentage of e-book sales at prices set by publishers—were designed to drive e-book prices higher than Amazon’s $9.99 standard price. Three publishers avoided litigation by agreeing to the department’s demands. Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. Corporate Regulation and Taxation Attack Systemic Risk with Diversity? A recent post on VoxEU.org argues the lack of diversity among financial intuitions creates systemic risk that the Basel III capital requirements will not address. The authors discuss how converging risk management and investment strategies lead to systemic risk because the assets and liabilities of financial firms become highly correlated. The authors propose changing capital requirements: first measure the correlation between firms’ performances and the broader financial sector, and then either redefine risk weights to take into account correlations or assign a capital surcharge to highly correlated firms. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Infrastructure Unconventional Energy Shifts Plans The New York Times discusses how rising oil and gas production from domestic, unconventional sources is changing the energy market in the United States. While oil’s status as a globally traded commodity prevented rising domestic production from driving down prices at the pump, rising shale gas production and a mild winter drove natural gas prices to a ten year low (WSJ). Analysts say falling natural gas prices will shift the electricity mix towards natural gas. Meanwhile, new investments into coal plants are ending, and wind, solar, and nuclear plant projects are becoming less economical. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

Proposals to increase U.S. exports usually focus on manufacturing and ignore the U.S. competitive advantage in high-skilled services (NYT). While the WTO and other international trade agreements have reduced barriers and tariffs for goods, services are still in need of trade liberalization. The United States is by far the world’s largest services exporter, but reducing barriers in tradable services could double that total and add more than $800 billion in annual exports and three million new jobs. The CFR Independent Task Force on U.S. Trade and Investment Policy recommended that the Obama administration and Congress focus on expanding U.S. services exports as part of a broader strategy that brings to more Americans the benefits of global engagement Role of Ex-Im Bank in a Global Economy The Harvard Business Review argues that the debate about reauthorizing the U.S. Export-Import Bank (Ex-Im) is often framed as a debate about the size and role of government and not Ex-Im’s role in growing exports. Lindsey Graham, the Republican senator from South Carolina, noted the importance of Ex-Im Bank in creating a more level global playing field when he said: “I wish we didn't need an Ex-Im Bank. But other countries have far more aggressive financing regimes in place. The United States cannot and should not unilaterally disarm." The Ex-Im Bank will hold its annual conference in Washington April 12-13, with former President Bill Clinton delivering the keynote speech. CFR’s Ted Alden discusses the issues facing lawmakers as they consider Ex-Im reauthorization, including the increasingly aggressive actions of developing countries to finance their exports and Ex-Im’s efforts to match them. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Education and Human Capital Should College be Free? Michael Hiltzik of the Los Angeles Times argues that the University of California system should resume providing a free college education to Californians. It’s a striking proposal at a time when most state universities are raising tuition rates to compensate for dwindling government support. He argues that the $3 billion annual cost of eliminating tuition would be a better and more cost-effective long term investment in the Californian economy than other proposals, such as the $11 billion cost of eliminating the state capital gains tax. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Innovation Measuring Startup Ecosystems Techcrunch delves into a data-driven comparative analysis of the world’s leading startup hubs, Silicon Valley, New York City, and London. Last year, the Startup Genome project started collecting data from thousands of startups to quantify the ecosystems that support them. Among the insights: Silicon Valley startups create more jobs than firms in New York City (11 percent more) and London (38 percent more), subscriptions are the most popular revenue stream in all cities, and Silicon Valley firms raise two to three times more funding in the first three development stages. Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. Debt and Deficits Tax Expenditures approach $1.3 trillion The Tax Policy Center discusses the recently released Treasury estimates of the cost of tax expenditures—deductions that reduce individual and corporate taxes. Programs such as the mortgage tax deduction, child credit, and the deductibility of employer-provided health insurance are expected to cost the federal government almost $1.3 trillion in 2012, and $1.8 trillion in 2017. As the United States continues to run high budget deficits, politicians debate different plans to reduce government costs and to raise revenue. This CFR Backgrounder by Jonathan Masters outlines the competing policy paths on federal fiscal reform and the global consequences for failing to bring down U.S. debt. Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

Thomson Reuters and the National Venture Capital Association announced that first quarter venture capital fundraising fell by 35 percent in 2012. This decline may mark the end of a rebound that appeared to begin in 2011; while the $18.8 billion raised in all of 2011 was still below 2008’s $25.3 billion, it was a sharp increase from 2010’s $13.8 billion. This news contrasts with improved exit opportunities; the 2012 initial public offering (IPO) market was the strongest for a first quarter since 2007. Facebook Snaps Up Instagram Facebook will acquire Instagram for $1 billion (Reuters). Instagram is only two years old with roughly a dozen employees and last year was valued at only $20 million, but its torrid growth attracted Facebook and social media rivals Twitter and Google. In a break with past behavior, Instagram will maintain a separate product rather than integrating within Facebook, following Google’s approach to YouTube (FT). Reuters’ Robert Cyran expresses concern that by acquiring this successful start-up rather than developing its own innovation, Facebook is relying on its large checkbook rather than engineering prowess to repel threats. Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. Education and Human Capital Demand for Skilled-Worker Visas Rises First week applications for H-1B visas doubled (WSJ) in 2012, potentially signaling an improving economy. The 25,600 petitions received since April 2 are for jobs starting October 1 or later. The H1-B program has a quota of 65,000 visas, with an additional 20,000 allotted to foreign national with advanced degrees. Applications are still slower than before the recession; in 2007 and 2008, the quota was reached in a few days. This CFR Backgrounder provides an overview of the immigration policies proposed by President Obama and his potential Republican competitors. CFR’s 2009 Independent Task Force on U.S. Immigration Policy, chaired by Jeb Bush and Thomas F. McLarty III, recommends policies with three goals: reform of legal immigration to improve efficiency and U.S. competitiveness; effective enforcement of immigration laws; and a fair, humane, and orderly way to deal with migrants illegally living in the United States. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. International Trade and Investment Why the Dollar Era Continues In the Harvard Business Review, Justin Fox discusses the persistence of the U.S. dollar as the world’s reserve currency. A country whose currency acts as the global reserve needs to maintain a current accounts deficit to enable the currency to circulate abroad, but the result is global trade imbalances that reduce confidence. The U.S. dollar had been declining in international currency markets since 2002, but the financial crisis and lack of a credible replacement reinforced its role, at least temporarily. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Corporate Regulation and Taxation New Rules for Mortgage Servicers Richard Cordray, the director of the Consumer Financial Protection Bureau (CFPB) is expected to announce new rules for mortgage servicers (WashPost). The rules proposed by the CFPB include warning borrowers before any interest rate adjustments, a limit of thirty days to investigate errors, and new options for delinquent borrowers to avoid foreclosure. Several of the eight proposals were required by the Dodd-Frank Act. After a review period, an official notice of the proposed rules will be released in the summer. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

The Wall Street Journal reports that large firms are more profitable and efficient than before the recession, but most of their new jobs and profits are overseas. The analysis of the financial reports of most firms in the S&P 500 found that the largest public companies have grown more efficient and profitable since 2007: average revenue per employee rose from $378,000 to $420,000. While capital spending and overseas hiring has grown, domestic hiring has not as U.S. firms continue to grow international operations in pursuit of higher sales, lower costs and lower tax burdens. The statutory U.S. corporate tax rate is now the highest in the world at 35 percent, but is only levied on overseas profits when they are repatriated. U.S. policymakers continue to debate proposals to reform the corporate tax code. This CFR Backgrounder by Jonathan Masters details the debate and some proposals for U.S. Corporate Tax Reform. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Infrastructure Debate over Privatizing Highways In an opinion piece on Politico, Rick Geddes—a Cornell associate professor and visiting scholar at the American Enterprise Institute—argues against restricting states from leasing transportation infrastructure. The Senate’s version of the highway bill contains an amendment by Sen. Jeff Bingaman (D-NM) which removes privatized highways from consideration when allocating federal highway funding. Bingaman’s amendment garnered strong support among truckers and motorists through groups such as the American Trucking Associations and AAA, which argue that highway privatization leads to higher toll rates (Bloomberg). Chicago Aldermen Propose Changes to Infrastructure Trust In an opinion piece in the Chicago Tribune, two of the Windy City’s aldermen state their general support of Mayor Rahm Emmanuel’s proposed Chicago Infrastructure Trust, which seeks to attract private investment for infrastructure projects. However, the aldermen also suggest significant modifications to the trust that would increase the city council’s control and require investors to comply with disclosure requirements for vendors doing business with Chicago. The Infrastructure Trust, and Chicago’s broad $7 billion infrastructure plan were the focus of this blog’s inaugural Policy Initiative Spotlight. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Debt and Deficits Almost Everyone Pays Taxes The Hamilton Project, an economic policy initiative at the Brookings Institution, analyzed the claim that many Americans do not pay taxes. While only 54 percent of U.S. households paid federal income taxes in 2011, after accounting for all federal, state and local taxes, nearly everyone pays taxes. Even for federal taxes alone, the vast majority of Americans pay; the analysis found that of those aged 25 to 60—the core of the workforce—more than 80 percent pay either payroll or income taxes, and usually both. As the United States continues to run budgets with high deficits, politicians debate different plans to reduce government costs and to raise revenue. This CFR Backgrounder by Jonathan Masters outlines the competing policy paths on federal fiscal reform, and the global consequences for failing to bring down U.S. debt. Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. Education and Human Capital Job Training Funds Falling The New York Times reports that federal spending has fallen for job training and search services in inflation adjusted terms since 2006. Boosts to training programs under 2009’s stimulus act have expired. While extending unemployment benefits has attracted substantial political debate, funding for training has not Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

The Department of Energy (DoE) announced that it will begin to approve new loan guarantees for renewable energy (TheHill). The DoE issued almost $16 billion in loan guarantees until the 2009 stimulus program expired at the end of last September. Projects that were still in the application process will be considered for the new loan guarantees. DoE support will come with heightened scrutiny. The Wall Street Journal reports that the well-publicized failure of Solyndra led the DoE to tighten the review process; start-ups are reevaluating their financing as fund disbursements stall. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Education and Human Capital Alabama Mulls Revisions to Immigration Law Alabama lawmakers have introduced a bill to revise the anti-illegal-immigration law (WSJ) that has been in effect since September. The bill modifies some provisions and also makes modifications in response to recent court rulings. The economic effects of the original law are emerging but are still unclear. The Montgomery Advertiser recently reported that tens of thousands of Alabama firms have missed the deadline to sign up for the federal E-Verify system, which enables employers to verify the immigration status of employees. This CFR Backgrounder provides an overview of the immigration policies proposed by President Obama and his potential Republican competitors. CFR’s 2009 Independent Task Force on U.S. Immigration Policy, chaired by Jeb Bush and Thomas F. McLarty III, recommends policies with three goals: reform of legal immigration to improve efficiency and U.S. competitiveness; effective enforcement of immigration laws; and a fair, humane, and orderly way to deal with migrants illegally living in the United States. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. International Trade and Investment International Shippers Dock in U.S. for Bankruptcy U.S. bankruptcy law is attracting filings from foreign-based shipping companies (Reuters). In the United States, Chapter 11 protection gives management the opportunity to avoid liquidation, re-negotiate with creditors, restructure distressed businesses and continue operations. Shippers with relatively minor financial and operational connections to the United States are stretching the traditional purview of U.S. bankruptcy law, but recent court rulings have kept these cases within the U.S. legal system. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

Today, President Obama is expected to sign the JOBS Act (CSPAN).  The bipartisan measure is intended to ease financing for growing startups by reducing regulatory and disclosure requirements.  Two senior fellows at the Brookings Institution agree with lawmakers that the JOBS Act will increase job growth, but Groupon’s recent revision of financial results (WSJ) and subsequent stock price plunge is a reminder of the risks of reducing financial disclosure.  While the Financial Times argues it is difficult to predict effects of the JOBS Act, the New York Times discusses potential conflicts-of-interest for investment banks. Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. Debt and Deficits Rising State-Local Government Revenues Slow Layoffs Declining tax receipts during the recession forced state and local governments to lay off workers, but Bloomberg reports that rebounding revenue is stabilizing public payrolls and even allowing some municipalities to begin rehiring.  While many governments still face budget challenges, arresting the overall decline in state and local public employment will aid economic recovery, especially with looming federal budget cuts. As the United States continues to run budgets with high deficits, politicians debate different plans to reduce government costs and to raise revenue. This CFR Backgrounder by Jonathan Masters outlines the competing policy paths on federal fiscal reform, and the global consequences for failing to bring down U.S. debt. Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. Education and Human Capital Assessment Consortium Connects to Colleges The twenty-four member states of the Partnership for Assessment of Readiness for College and Careers (PARCC) voted unanimously to give higher education leaders a voice on student assessments (EducationWeek).  PARCC is one of two multi-state consortia developing assessments for the Common Core State Standards under a Race to the Top grant.  By bringing higher education leaders into the process, PARCC hopes to develop measures of K-12 student achievement that colleges will use to assess pupils’ readiness for college classes. The new report of the CFR Independent Task Force on U.S. Education Reform and National Security highlights the importance of the Common Core State Standards and asserts that fixing the nation’s underperforming K-12 schools is critical to economic competitiveness and national security. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. International Trade and Investment Mexico Eager to Join TPP Talks Reuters reports that Mexican President Felipe Calderon reiterated his nations desire to join the Trans-Pacific Partnership (TPP) trade talks.  The TPP was originally a proposed free trade agreement between just Brunei, Chile, New Zealand and Singapore, but the negotiating group has grown to nine nations—including the United States, Australia and Vietnam—with Mexico, Canada and Japan each trying to secure a spot.  By pursuing TPP, experts say the United States can regain the initiative in trade liberalization, while regional, multilateral FTAs may divert attention from the global WTO process. This CFR Independent Task Force report encourages the Obama administration and Congress to adopt a "pro-America" trade policy that brings to more Americans the benefits of global engagement International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Corporate Regulation and Taxation Financial Regulators Look beyond Banks The Financial Stability Oversight Council (FSOC) unanimously approved a new classification rule to deem some nonbank financial firms as “systemically important.” Under powers granted by the Dodd-Frank Act (NYT), the FSOC will target firms for greater oversight that hold more than $50 billion in assets and meet any of the thresholds in areas such as debt, leverage or derivatives.  While large institutions such as Berkshire Hathaway, GE Capital and KKR brace themselves for greater oversight, some critics argue that too many players in the “shadow banking” system will avoid regulation. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

The Seattle-Tacoma International Airport and Alaskan Airlines will begin testing satellite-based air traffic control systems (NYT). Moving from radar to GPS systems will safely reduce the distance required between flying aircraft. Airport capacities can grow without constructing new runways because takeoffs and landings can occur more frequently. Passengers should experience fewer delays and shorter, more direct approaches to airports with smoother descents. This technology is part of the FAA’s broader NextGen plan to upgrade the nation’s air traffic control system by 2025 that may cost up to $45 billion. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Corporate Regulation and Taxation Better Financial Disclosure Increases Valuations The Harvard Business Review argues that increased disclosure generally increases valuations. To spur the growth of start-ups, Congress recently passed the JOBS Act which would eliminate many costly Sarbanes-Oxley (Sarbox) disclosure requirements for new public companies with less than $1 billion in revenue. The information content of audit opinions and financial statements grew after Sarbox; with fewer unknowns, investors can make more accurate valuations, improving market efficiency and IPO pricing. Sarbox also improved internal governance by disciplining poorly run firms. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Education and Human Capital Students Should Read More Non-fiction While reading fiction is important, success in college and career often depends upon the ability to understand and analyze non-fiction sources. Even in schools with high literacy rates, many students have a marked preference for novels and literature and are assigned little reading from informational texts. Education Week discusses the challenges educators will face in getting students to read 70 percent non-fiction, the goal set by the Common Core State. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

California leaders unveiled a revised plan for the high speed train to link San Francisco and Los Angeles (WSJ), with service to begin in 2028. The new plan trims projected costs down $30 billion to $68.4 billion. Re-routing the high speed rail line to take advantage of existing tracks in urban areas reduces costs. Support for the project has dwindled as costs have risen. In 2008, 53 percent of voters approved a bond issue to help fund the project—then projected to cost $45 billion—but today only 43 percent are in favor. Lawmakers continue to debate the costs and benefits of investment in the U.S. rail network, with high speed rail a key issue. This CFR Backgrounder summarizes the historical development of freight and passenger rail as well as policy concerns and options facing lawmakers. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Education and Human Capital Keeping Top Foreign Minds The Harvard Business Review advocates three steps for easing U.S. immigration policy to keep foreign talent. U.S. universities attract some of the world’s brightest minds in science, technology, engineering and mathematics (STEM). While many of these foreign STEM graduates want to live and work in the United States, current immigration policy often forces them to leave, and ultimately to contribute their talents to the growth of other economies. Is There Truly a Crisis in Education? The American Journalism Review argues that media coverage unfairly shapes the perception that American K-12 schools are failing. The author cites a 2011 Gallup survey in which 37 percent of parents gave their children’s school an “A”—the highest percentage since the survey began in 1984—yet only 1 percent gave the nation’s schools an “A.” Without direct experience, parents relied upon news coverage to judge national education performance. While the author discusses rising average scores in U.S. schools, he does not delve into disparities in the quality of education. The new report of the CFR Independent Task Force on U.S. Education Reform and National Security asserts that fixing the nation’s underperforming K-12 public schools is critical for strengthening the country’s security and increasing its economic competitiveness. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

The charter of the U.S. Export-Import Bank (“Ex-Im”) set to expire on May 31. Congress is considering renewing the charter, but debate remains over the renewal period and Ex-Im’s loan limit. Fred Hochberg, Ex-Im’s chairman, discussed the need for a multi-year Ex-Im renewal with The Hill: “If we only have a one-year that signals to exporters that we’re an off again and on again enterprise. That has long-term impact. We’re the backstop to a fragile banking system. We’re taking the backstop and making that more fragile as well.” He summed up Ex-Im’s benefits to U.S. competitiveness by saying, “It sustains and creates jobs and does it at no cost to the taxpayer. Pays for itself and makes a profit.” CFR’s Ted Alden discusses the issues facing lawmakers as they consider Ex-Im reauthorization, including the increasingly aggressive actions of developing countries to finance their exports and Ex-Im’s efforts to match them. Building Ethical Supply Chains The Economist describes how global businesses such as Nike are building ethical supply chains.  Governments often fail to protect workers. NGOs spotlight poor working conditions, but usually global firms must drive change. While audits and compliance programs can identify trouble spots, firms must form collaborative relationships with suppliers, and help build their capabilities.  Lean, just-in-time production and last minute design changes force suppliers to ramp production up and down quickly. Many rely upon excessive overtime to handle this volatility. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Infrastructure Should States Privatize Infrastructure? The Washington Post discusses the benefits and risks of privatizing infrastructure.  States can either lease existing infrastructure to private firms—collecting a lifetime’s worth of tolls in one lump sum—or use private companies to build new infrastructure.  While the prior approach is more common in the United States, the latter is attracting new attention, and is relatively common in other developed nations such as Australia, France and Spain.  Studies have shown that private-led construction projects are completed quicker and cheaper than projects overseen by the government, but states need to appropriately structure complex, multi-decade financial agreements. Renewing America recently launched “Policy Initiative Spotlight,” a new feature that identifies and discusses important policy innovations that could help rebuild U.S. economic strength.  The first policy highlighted was Chicago’s $7 billion infrastructure plan, which includes an investment trust designed to funnel private money towards public infrastructure. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Education and Human Capital Autism Continues to Rise The Centers for Disease Control and Prevention estimates that one out of every eighty-eight American children has an autism spectrum disorder (ASD).  ASDs are becoming more common (EducationWeek); the prevalence of ASD doubled from 2002 to 2008.  While the cause of the rapid rise in ASD diagnoses is still unclear, it is clear that K-12 schools will need to increase investment in special education to help the greater number of children exhibiting signs of ASD. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Innovation How Tech Markets Evolve Technology markets evolve along a curve with four phases, argues TechCrunch. The first phase is the “Hype Cycle,” which causes markets to rise and peak at the perceived market opportunity. Then in phase two, “Facing Reality,” the market declines. From this trough, the technology will then either fail to grow or it will begin the “Liftoff” phase, ultimately growing to its real market opportunity. Understanding this dynamic will help investors target funding to promising, but undervalued markets. Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. Steven J. Markovich holds an MBA from the University of Chicago's Booth School of Business.

With the end of the March deadline looming, Congress passed the ninth extension to the current highway funding bill (NYT). The bill extends construction funding and the federal gas tax until the end of June but does nothing to resolve the conflict between House and Senate versions of a new transportation infrastructure bill to replace one that expired in September of 2009. The Senate recently passed a two-year, $109 billion version, while the House has yet to vote on its five-year, $260 billion proposal. Debates rage on a host of issues such as overall costs, funding for public transit, and new oil drilling on public lands. NRC Expected to Approve New Reactor Construction The Nuclear Regulatory Commission (NRC) is expected to approve the construction of two new nuclear reactors today (BusinessWeek). This expansion project for the Summer Nuclear Station in South Carolina—and a similar one approved earlier this year for the Vogtle plant in Georgia—are the first nuclear construction projects to receive NRC approval since the 1970s. Both employ Westinghouse’s AP1000, the first Generation III+ reactor design approved by the NRC. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. International Trade and Investment Foxconn Pledges Reform After a broad inspection by the Fair Labor Association found widespread violations of Chinese laws and industry norms, Foxconn, a major supplier to Apple Inc. (NYT), has vowed reforms. Over the past few months, independent investigations and labor rights organizations have highlighted harsh working conditions at Foxconn. Apple has been especially criticized for failing to oversee Foxconn’s labor practices, though the Chinese manufacturing giant supplies most major technology firms. Foxconn is China’s largest private employer, with over 1.2 million employees, and its reforms may spark broader changes to Chinese labor conditions. Proposed Policies Threaten Foreign Investment in India Some $700 million of foreign investment left the Indian stock market over the past few days in reaction to controversial tax proposals (WSJ). To combat a budget deficit of nearly 6 percent of GDP, the proposed national budget allows retroactive taxation back to 1962 on mergers and acquisitions (M&A) activity by foreigners, nearly doubles taxes on the oil production of a UK firm, and requires firms to prove they have not structured deals to avoid taxes. These measures, as well as recent criminal proceedings against Google and Facebook executives for content posted by Indian users, and stalled reforms on regulations and tariffs, have challenged foreigners interested in investing in India. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Education and Human Capital Report Identifies Five Long-Term Employment Trends The consulting firm McKinsey & Company released a report describing five long-term employment trends in advanced economies. The authors argue that current problems in the labor markets of developed countries cannot be fixed with the same policy tools that worked in the past. Trends challenging national leaders include how new technology changes the nature of work, growing income disparity and shifts in what skills are needed, where workers are needed, and who is part of the labor pool. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

The Environmental Protection Agency (EPA) proposed limits for carbon dioxide emissions of new power plants (NYT). The rules will require future power plants to restrict emissions to less than 1,000 pounds of carbon dioxide per megawatt hour.  The proposal would effectively eliminate coal as a potential fuel for new power plants, as today no carbon capture and sequestration technology is currently available to economically fulfill the new EPA requirements. Coal currently supplies less than 40 percent of U.S. electricity but has been in steady decline; new natural gas power plant construction was spurred by improved combined-cycle combustion technology and natural gas prices falling to ten-year lows. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Debt and Deficits Federal Spending 30 Percent Larger than Reported Proposals to reform federal income taxes often stress the importance of cutting tax deductions and loopholes to fund a reduction in rates.  Deductions—such as the home mortgage interest deduction and renewable energy credit—effectively act as subsidies, but their incorporation into the tax code masks their ultimate cost.  A recent report from the Urban Institute and Brookings Intuition analyzed the extent of these deductions and found that true federal spending is approximately 30 percent higher than reported in the budget. As the United States continues to run budgets with high deficits, politicians debate different plans to reduce government costs and to raise revenue. This CFR Backgrounder outlines the competing policy paths on federal fiscal reform and the global consequences for failing to bring down U.S. debt. Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. Education and Human Capital Parents Trump Schools on Exam Scores A study of Danish teenagers over the past decade indicated parents have five times more influence than schools over students’ exam scores (The Telegraph).  Results indicated that parents were responsible for half of test performance variation; schools explained only 10 percent and the pupils themselves were responsible for the remaining 40 percent. Separately, a recent study by the UK education department found a correlation between students' exam scores and the amount of time they commit to homework; effects were greatest for students who did two to three hours of homework nightly (The Guardian). The new report of the CFR Independent Task Force on U.S. Education Reform and National Security asserts that fixing the nation’s underperforming K-12 public schools is critical for strengthening the country’s security and increasing its economic competitiveness. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Innovation Perspective from Secondary Markets Barry Silbert, the founder and CEO of SecondMarket, discussed the important components of a robust secondary market (Techcrunch).  Secondary markets are important to start-ups because they increase liquidity; employees, ex-employees, and other investors can buy and sell shares of a firm before an initial public offering  (IPO).  March was a difficult month for secondary markets.  The SEC began to crack down on unfair practices (Reuters), and Facebook—which makes up almost a quarter of all secondary market trading volume—will exit secondary markets on Friday (FT).  Facebook is planning an IPO in May. When to Consider Innovation Acquisition As mergers and acquisitions (M&A) activity shows signs of rebound after a first quarter slump (Reuters), the Harvard Business Review describes five important questions corporate chieftains should ask themselves before pursuing an acquisition based on innovation.  Firms should be wary of damaging an innovative culture, chasing financial numbers, and confusing buying yesterday’s innovations with buying the potential to create tomorrow’s innovation.  Firms need to ensure they are not sinking large funds into acquisitions that would be better spent developing their own capabilities. Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

In an op-ed in Politico, Jeff Zients, acting director of the Office of Management and Budget, and John Engler, former republican governor of Michigan, argue for increasing presidential power to reorganize the federal government. Until the 1980s, presidents could submit reorganization plans to Congress for an up-or-down vote. Restoring this authority to presidents, they claim, would enable quick congressional approval to consolidate duplicative programs. Reducing overlap would shrink government costs and could accelerate economic growth by reducing the time and effort it takes for individuals and firms to comply with regulations. In January, the Obama administration announced a proposal to consolidate the efforts of six trade and commerce agencies.  This piece by CFR's Jonathan Masters discusses this opportunity, differing proposals, and the debate among policy experts. Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. Corporate Regulation and Taxation How Some Multinationals Avoid Taxation Justin Fox describes how large multinationals can use extensive foreign operations and differing tax treatments to avoid paying almost any taxes (HBR). Firms with extensive overseas operations and a high reliance on intellectual property—such as Google, Apple, Pfizer, and GE—can locate subsidiary operations to create complex corporate structures and internal licensing agreements. These structures can shift profits between locations to take advantage of tax treaties and loopholes to shield profits from all governments, in effect creating stateless income. CFR’s Ted Alden discusses the need to reform corporate taxation to keep the United States competitive. In addition to lowering statutory rates closer to levels of the other countries in the Organization for Economic Cooperation and Development (OECD), the United States should move to a territorial tax system—as most of the world has already done—to remove the disincentive to repatriate profits. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Infrastructure Virginia to Sell Highway Naming Rights For years, corporations have purchased stadium naming rights; Virginia will begin selling highway naming rights (BBC). This novel approach to infrastructure funding is expected to raise $109 million, roughly 3 percent of the state’s total highway budget. A firm that puts its brand onto a highway can stand out to customers flooded by advertising but risks being associated with the congestion and delays of a bad morning commute. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Innovation Mobile Data Competitors Emerge Echoing how Skype and other Voice over IP (VOIP) providers drove down voice rates, new companies are emerging to offer consumers a cheaper alternative for mobile data (Bloomberg). New start-ups are leveraging WiFi hotspots and Clearwire’s 4G network to deliver novel consumer offerings and to compete with AT&T and Verizon Wireless. Falling data rates—new entrants to the Canadian market undercut prices by 83 percent—would allow new data-hungry mobile applications and web services to thrive. Outgoing FBI Cybersecurity Chief Sounds Alarm In a recent interview, Shawn Henry, the FBI’s top cyber cop, warned of widespread U.S. internet security failure (WSJ).  Many attacks come from overseas, particularly from China. Valuable innovations are targets; hackers recently stole over $1 billion worth of R&D in a single attack. Not only are firms vulnerable, but detecting a security breach is difficult. One cybersecurity firm reported that 94 percent of U.S. victims of Chinese attacks first learned of security breaches from outsiders, and on average it took 416 days to detect a breach. Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

A friend of mine, who has held senior positions in the Congress and the Commerce Department, used to warn against attributing any Machiavellian logic to U.S. government actions. Most decisions, he rightly points out, are the product of large bureaucracies that operate more or less on auto-pilot. So I offer the following scenario with some trepidation, in an effort to explain the surprising Commerce decision last week to levy very small  tariffs on imports of Chinese solar panels. First, some background. Last year a group representing seven U.S. solar cell manufacturers brought a complaint to the Commerce Department seeking tariffs on Chinese imports, charging that Chinese companies were receiving unfair government support and/or selling below cost in the U.S. to gain market share. Chinese makers of photovoltaic (PV) modules, which are the dominant solar technology, now control nearly half of a fast-growing global market, while the U.S. share has fallen from more than 40 percent in the mid-1990s to just 7 percent. The case was led by SolarWorld, a German company that manufactures globally and has recently ramped up production in Oregon, helped by state business and energy tax credits. There is plenty of evidence that China’s dominance is in part due to government subsidies which have led to a glut in supply, most of which is exported. A recent study from the National Renewable Energy Laboratory suggests that, given shipping costs, Chinese PV module makers would not be competitive in the U.S. market without subsidies. So it was more than slightly perplexing to see the Commerce Department’s preliminary decision last week in the subsidy portion of the case, which imposed duties ranging from just 2.9 to 4.7 percent. Share prices for the leading Chinese solar companies shot up as soon as the decision was announced because the market had expected much higher penalties, at least in double digits. What gives? There could indeed be reasons internal to the black art of calculating unfair trade subsidies, and the decisions are supposed to be made based on evidence and expert calculations, not political pressures. Scott Lincicome, a trade attorney with White & Case, told Reuters that the high volume of Chinese solar panel exports and the generally low interest rates worldwide may have diluted the effects of any Chinese government subsidies. Other alleged subsidies--such as land and energy costs and government support for R & D--remain under investigation by the Commerce Department, so the duties could well be higher when the final determination is announced in June. There is also a separate but related anti-dumping investigation that could also result in steeper tariffs when the preliminary determination is announced in May. This is all quite plausible. But here’s another explanation. The Obama administration has absolutely no desire to impose punitive duties that would actually impede the sale of Chinese solar modules. The power generated by new solar installations in the United States last year was twice the level added in 2010, largely due to falling panel prices, as well as U.S. government production subsidies and consumer tax breaks that have made solar more competitive with conventional sources. Expanding the use of renewable energy is among the administration’s highest priorities. Indeed, when the duties were announced last week by the Commerce Department, President Obama was touring a Nevada solar facility that is the largest PV plant in the United States. Slapping hefty tariffs on Chinese PV imports would undermine that policy. At the same time, however, the Obama administration does not want to see the few remaining U.S.-based panel  makers driven out of business by cheap imports, and key administration allies like Senator Ron Wyden (D-OR) and House Ways and Means Committee ranking member Sander Levin (D-MI) have been pressing for aid to the industry. What to do? Well, on February 29, the board of the U.S. Export-Import Bank, the U.S. government’s export credit finance agency, approved an $81 million loan guarantee to SolarWorld, which means that most of the production from the company’s Oregon facility will be exported to Canada. The bank did not put out a press release, and it generated no media coverage, though the decision was public. Indeed Fred Hochberg, the Obama-appointed president of the bank, tweeted to his followers (of which I am one) that the board had “Approved $81 m to export @SolarWorldUSA solar panels to Canada; transaction supports 1500 jobs in Hillsboro, Oregon.” The bank says the financing will allow for a long 18-year repayment term for exports to the Stardale Solar PV Project in southwest Ontario, which is providing energy to the Ontario Power Authority. The project is owned by Innergex Renewable Energy of Quebec, and the loan will be made by the Bank of Tokyo-Mitsubishi. The Ex-Im loan guarantee is hardly unusual. Indeed it fits within the bank’s mandate to support environmentally beneficial projects, and SolarWorld and other U.S. companies such as FirstSolar have also received generous support from the bank in the recent past. But the February loan guarantee has the added benefit of largely taking care of SolarWorld’s near-term  competitive problems. SolarWorld can export panels to Canada, and the low duties imposed by Commerce mean that the flow of cheap Chinese solar panels for installation in the United States will be largely unimpeded. It is, as governments love to say, a “win-win." Coincidence? Maybe, but a rather happy one for the Obama administration.