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Stability in Europe’s eastern neighborhood, already precarious, is being further strained. The political prospects of several countries, including Ukraine, Georgia, Turkey and Russia, remain unclear. The region is grappling with the fallout of the economic crisis, and Russia and Turkey, in particular, are threatened by the turmoil in the Arab world.

On April 13, the Center on the United States and Europe at Brookings (CUSE) hosted former European Union High Representative for Common Foreign and Security Policy Javier Solana for a discussion on how the European Union (EU) and NATO should engage with Europe’s strategic partners in the East and Southeast. As a former secretary general of NATO and secretary-general of the Council of the European Union, Solana offered insight into the prospects for future EU and NATO enlargement, the potential impact of the eurozone crisis on the region and how Europeans should attempt to cooperate with their neighbors in tackling global challenges.

Brookings President Strobe Talbott provided introductory remarks and moderated the discussion.

Video

• Syria, Russia and Iran
• Global Governance Can Work
• Turkey and Cyprus

Audio

• Europe's Eastern Frontiers: A Conversation with Javier Solana

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20120413_eastern_europe

       

Editor's Note, Oct. 12, 2011: Congress has passed a trio of trade agreements negotiated during the George W. Bush administration and recently submitted by President Obama. The authors of this policy brief say the pacts with South Korea, Colombia and Panama will boost U.S. exports significantly, especially in the key automotive, agricultural and commercial services sectors.

Policy Brief #183

A trio of trade agreements now pending before Congress would benefit the United States both economically and strategically. Carefully developed accords with South Korea, Colombia and Panama will boost U.S. exports significantly, especially in the key automotive, agricultural and commercial services sectors.

Among the other benefits are:

• increased U.S. competitiveness
• enhancement of U.S. diplomatic and economic postures in East Asia and Latin America
• new investment opportunities
• better enforcement of labor regulation and
• improved transparency in these trading partners’ regulatory systems.

The pacts are known as Free Trade Agreements, or FTAs. The Korean agreement (KORUS) was negotiated in 2006-2007 and revised in 2010. The Colombian agreement (COL-US, sometimes known as COL-US FTA) was signed in 2006. The agreement with Panama (PFTA, sometimes known as the Panama Trade Promotion Agreement) was signed in 2007. All have the support of the Obama administration.

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	The three FTAs will substantially reduce these trading partners’ tariffs on U.S. goods, opening large markets for U.S. commerce and professional services. In combination, they will increase the size of the U.S. economy by about $15 billion. Furthermore, they will help reverse a slide in U.S. market influence in two important and increasingly affluent regions of the globe. Approval of all three agreements is in the national interest. To move forward, both Congress and the administration should take these appropriate steps: Congress should approve the trade agreements with Korea (KORUS), Colombia (COL-US) and Panama (PFTA) without additional delays.   To maximize the trade and investment benefits of KORUS, the administration should actively engage in the KORUS working groups, such as the Professional Services Working Group.   Similarly, the U.S. Trade Representative should participate in the Joint Committee’s scheduled annual meetings, in order to maintain a highlevel focus on U.S.-Korea trade, drive further trade liberalization and enable the committee to serve as a forum for broader discussions on trade in East Asia.   The Colombia-U.S. Joint Committee should include representatives of Colombia’s Trade and Labor Ministers with their US counterparts. The presence of the Labor minister should facilitate progress under the FTA through strengthened labor standards and timely implementation of all elements of the agreed-upon action plan. This Committee and specialized working groups could increase the pace of bilateral interaction and help officials identify important areas for discussion, negotiation and agreement.   Panama has ratified the Tax Information and Exchange Agreement which entered into force on April 2011. Panama and the US should strengthen bilateral communication so that collaboration in the battle against money laundering is pushed even further with greater cooperation.

Economic Effects of the Korea Agreement

The economic benefits to the United States from KORUS are especially significant, as the agreement will provide preferential market access to the world’s 11th largest—and a fast-growing—economy. In 2010, U.S.-Korea trade was worth $88 billion, comprising U.S. exports of $39 billion and imports of $49 billion, making Korea the United States’ seventh largest trading partner. According to the independent, quasi-judicial U.S. International Trade Commission (ITC), exports resulting from KORUS will increase the U.S. gross domestic product (GDP) by up to $12 billion. This constitutes a remarkable gain in both real and percentage terms.

To the United States, KORUS offers diverse economic advantages. Most strikingly, KORUS will open Korea’s service market to U.S. exports, allowing the United States to exploit its competitive advantages in financial services, education and information and communications technologies. The agreement also will lead to increased imports from Korea, which in turn will help the United States achieve greater economic specialization. The likely effects of more specialization—and of increased Korean investment in the United States—include greater U.S. efficiency, productivity, economic growth and job growth. Meanwhile, U.S. investors will gain new opportunities in the increasingly active Asia-Pacific region.

Lately, passage of KORUS has assumed enhanced importance with the impasse in the World Trade Organization’s Doha Round. No longer can the United States reasonably anticipate that Doha will lead to improved access to the Korean market. Moreover, an FTA between Korea and the European Union (EU) that took effect July 1st confers preferential access to European exporters, undermining the competitiveness of U.S. businesses in Korea. Even before the European FTA, the United States had been losing valuable ground in Korea. Between 2000 and 2010, the United States fell from first to third in the ranking of Korea’s trading partners (reversing positions with China), as U.S. products declined from 18 to only 9 percent of Korean imports. Failure to approve the agreement can be expected to lead to a further decline. These moves will strongly assist U.S. producers of electronic equipment, metals, agricultural products, autos and other consumer goods. For example, agricultural exports are expected to rise $1.8 billion per year.

On the services front, KORUS will increase U.S. businesses’ access to Korea’s $560 billion services market. Financial services providers, the insurance industry and transportation firms stand to benefit substantially. KORUS usefully builds on the link between investment and services by improving the ability of U.S. law firms to establish offices in Korea. In addition, the agreement establishes a Professional Services Working Group that will address the interests of U.S. providers of legal, accounting and engineering services, provided that U.S. representatives engage actively in the group. KORUS also requires that regulations affecting services be developed transparently and that the business community be informed of their development and have an opportunity to provide comments, which the Korean government must answer.

On the investment front, KORUS affords a chance to strengthen a bilateral investment relationship that probably is underdeveloped. In 2009, the U.S. foreign direct investment flow to Korea was $3.4 billion, while there was a net outflow of Korean foreign direct investment to the United States of $255 million. KORUS supports market access for U.S. investors with investment protection provisions, strong intellectual property protection, dispute settlement provisions, a requirement for transparently developed and implemented investment regulations and a similar requirement for open, fair and impartial judicial proceedings. All this should markedly improve the Korean investment climate for U.S. business. It will strengthen the rule of law, reducing uncertainty and the risk of investing in Korea.

On the governance side, KORUS establishes various committees to monitor implementation of the agreement. The most significant of these is the Joint Committee that is to meet annually at the level of the U.S. Trade Representative and Korea’s Trade Minister to discuss not only implementation but also ways to expand trade further. KORUS establishes committees to oversee the goods and financial services commitments, among others, and working groups that will seek to increase cooperation between U.S. and Korean agencies responsible for regulating the automotive sector and professional services. These committees and working groups, enriched through regular interaction between U.S. and Korean trade officials, should increase levels of trust and understanding of each county’s regulatory systems and help officials identify opportunities to deepen the bilateral economic relationship.

Strategic Effects of the Korea Agreement

Congressional passage of KORUS will send an important signal to all countries in the Asia-Pacific region that the United States intends to remain economically engaged with them, rather than retreat behind a wall of trade barriers, and is prepared to lead development of the rules and norms governing trade and investment in the region. KORUS will provide an important economic complement to the strong, historically rooted U.S. military alliance with Korea. It also will signal a renewed commitment by the United States in shaping Asia’s economic architecture.

The last decade has seen declining U.S. economic significance in Asia. Just as the United States has slipped from first to third in its ranking as a trading partner of Korea, similar drops are occurring with respect to Japan, Indonesia, Malaysia and other Asia-Pacific economic powers. In all of Northeast and Southeast Asia, the United States has only one FTA in effect, an accord with the Republic of Singapore. Passage of KORUS now would be particularly timely, both as a sign of U.S. engagement with Asia and as a mechanism for ensuring robust growth in U.S.-Asia trade and investment.

To illustrate how KORUS might affect U.S. interests throughout the region, consider regulatory transparency. The KORUS transparency requirements could serve as a model for how countries can set and implement standards. They might for example, influence the unfolding Trans-Pacific Partnership negotiations, talks that could set the stage for a broader Asia-Pacific FTA. U.S. producers, investors and providers of commercial and professional services could only benefit from a regional trend toward greater transparency and the lifting of barriers that would ensue. Other KORUS provisions favorable to the United States could function as similar benchmarks in the development of U.S. relations with Asia-Pacific nations and organizations.

Effects of the Colombia Agreement

COL-US will also strengthen relations with a key regional ally and open a foreign market to a variety of U.S. products. Bilateral trade between Colombia and the United States was worth almost $28 billion in 2010. COL-US is expected to expand U.S. GDP by approximately $2.5 billion, which includes an increase in U.S. exports of $1.1 billion and an increase of imports from Colombia of $487 million.

COL-US offers four major advantages:

• It redresses the current imbalance in tariffs. Ninety percent of goods from Colombia now enter the United States duty-free (under the Andean Trade Promotion and Drug Eradication Act). COL-US will eliminate 77 percent of Colombia’s tariffs immediately and the remainder over the following 10 years.
   
• It guarantees a more stable legal framework for doing business in Colombia. This should lead to bilateral investment growth, trade stimulation and job creation.
   
• It supports U.S. goals of helping Colombia reduce cocaine production by creating alternative economic opportunities for farmers.
   
• It addresses the loss of U.S. competitiveness in Colombia, in the wake of Colombian FTAs with Canada and the EU as well as Latin American sub-regional FTAs.

With respect to trade in goods, U.S. chemical, rubber and plastics producers will be key beneficiaries of COL-US, with an expected annual increase in exports in this combined sector of 23 percent, to $1.9 billion, relative to a 2007 baseline according to the ITC. The motor vehicles and parts sector is expected to see an increase of more than 40 percent. In the agriculture sector, rice exports are expected to increase from a 2007 baseline of $2 million to approximately $14 million (the corresponding increases would be 20 percent for cereal grains and 11 percent for wheat).

These and other gains will result from the gradual elimination of tariffs and from provisions that reduce non-tariff barriers as well. Among the latter, the most important changes would be increased transparency and efficiency in Colombia’s customs procedures and the removal of some sanitary and phytosanitary (or plant quarantine) restrictions. With respect to trade in services, Colombia has agreed to a number of so-called "WTO-plus" commitments that will expand U.S. firms’ access to Colombia’s $166 billion services market. For instance, the current requirement that U.S. firms hire Colombian nationals will be eliminated, and many restrictions on the financial sector will be removed.

On the investment front, the potential advantages to the United States also are substantial. In 2009, the U.S. flow of foreign direct investment into Colombia was $1.2 billion, which amounted to 32 percent of that nation’s total inflows. COL-US improves the investment climate in Colombia by providing investor protections, access to international arbitration and improved transparency in the country’s legislative and regulatory processes. These provisions will reduce investment risk and uncertainty.

COL-US presents significant improvements in the transparency of Colombia’s rule-making process, including opportunities for interested parties to have their views heard. COL-US also requires that Colombia’s judicial system conform with the rule of law for enforcing bilateral commitments, such as those relating to the protection of intellectual property. In addition to access to international arbitration for investors, COL-US includes dispute settlement mechanisms that the two governments can invoke to enforce each other’s commitments. Taken as a whole, these provisions offer an important benchmark for further developments in Colombia’s business environment. The transparency requirement alone could reduce corruption dramatically.

Labor rights have been a stumbling block to congressional approval of COL-US. The labor chapter of the agreement guarantees the enforcement of existing labor regulations, the protection of core internationally recognized labor rights, and clear access to labor tribunals or courts. In addition, in April 2011, Colombia agreed to an Action Plan strengthening labor rights and the protection of those who defend them. In the few months the plan has been in effect, Colombia has made important progress in implementation. It has reestablished a separate and fully equipped Labor Ministry to help protect labor rights and monitor employer-worker relations. It has enacted legislation authorizing criminal prosecutions of employers who undermine the right to organize or bargain collectively. It has partly eliminated a protection program backlog, involving risk assessments. And, it has hired more labor inspectors and judicial police investigators.

Besides economic benefits, COL-US offers sizable strategic benefits. It would fortify relations with an important ally in the region by renewing the commitment to the joint struggle against cocaine production and trade. Under the agreement, small and medium-sized enterprises in labor-intensive Colombian industries like textiles and apparel would gain permanent access to the U.S. consumer market. With considerable investments, Colombia would be able to compete with East Asia for these higher quality jobs, swaying people away from black markets and other illicit activities.

While Congress deliberates, the clock is ticking. Colombia is also looking at other countries as potential trade and investment partners in order to build its still underdeveloped infrastructure and reduce unemployment. Complementing its FTAs with Canada, the EU, and several countries in the region, Colombia has initiated formal trade negotiations with South Korea and Turkey and is moving toward negotiations with Japan. A perhaps more telling development is China’s interest in building an inter-oceanic railroad in Colombia as an alternative to the Panama Canal: on July 11th President Juan Manuel Santos signed a bilateral investment treaty with China (and the UK) and is expected to meet Chinese President Hu Jintao in the fall.

Effects of the Panama Agreement

Although Panama’s economy is far smaller than Korea’s or even Colombia’s, the PFTA will deliver important economic and strategic benefits to the United States. Considerable gains will take place in U.S. agriculture and auto manufacturing. Moreover, the PFTA will strengthen the U.S. presence in the region, allowing for the stronger promotion of democratic institutions and market-based economies.

U.S. merchandise exports to Panama topped $2.2 billion in 2009. The PFTA’s elimination of tariffs and reduction in non-tariff barriers will cause this figure to grow. For example, rice exports are expected to increase by 145 percent, pork exports by 96 percent and beef exports by 74 percent, according to the ITC. Exports of vehicles are expected to increase by 43 percent. The PFTA also guarantees access to Panama’s $21 billion services market for U.S. firms offering portfolio management, insurance, telecommunications, computer, distribution, express delivery, energy, environmental, legal and other professional services.

Panama’s trade-to-GDP ratio in 2009 was 1.39, highlighting the preponderance of trade in Panama’s economy and the international orientation of many of its sectors. Following passage of the PFTA, Panama will eliminate more than 87 percent of tariffs on U.S. exports immediately. The remaining tariffs will be removed within 10 years for U.S. manufactured goods and 15 years for agricultural and animal products.

PFTA protections to investors—similar to protections accorded under KORUS and COL-US—are especially valuable, as Panama receives substantial investments associated with sectors that will benefit from both from the expansion of the canal and from other infrastructure projects. A fair legal framework, investor protections and a dispute settlement mechanism, all features of the PFTA, are almost certain to increase U.S. investments in Panama. Panama’s Legislature also recently approved a Tax Information Exchange Agreement with the United States and amended current laws to foster tax transparency and strengthen intellectual property rights. These are crucial steps in preventing the use of Panamanian jurisdiction as a haven for money laundering activities.

Panamanian laws and regulations prohibiting strikes or collective bargaining were a concern that initially delayed implementation of the PFTA. But, these laws have been changed, with the exception of a requirement that 40 workers (not the recommended 20) are needed to form a union; the 40-worker requirement has been kept partly because labor groups in Panama support it. The PFTA’s labor chapter protects the rights and principles outlined in the International Labor Organization’s 1998 Declaration on Fundamental Principles and Rights at Work.

Besides offering economic advantages to the United States, the PFTA is a strategic agreement. Strengthening economic links with Panama should bolster the U.S. capacity to address cocaine trafficking in the region, in light of Panama’s location as Colombia’s gateway to North America. The importance of the canal, now undergoing an expansion that will double its shipping capacity, further underscores the U.S. need to strengthen bilateral relations with Panama.

The time to act is now. Like Colombia, Panama has been negotiating with economic powerhouses other than the United States. It recently signed a trade agreement with Canada and an Association Agreement with the EU. Delaying passage of the PFTA would generate a loss of market share for a variety of sectors of the U.S. economy.

Conclusion

All three FTAs encourage trade by removing tariff and non-tariff barriers. All the agreements provide access to large services markets, foster transparency and offer significant strategic advantages to the United States. Congress should approve each of them now.

The authors would like to thank Juan Pablo Candela for his assistance with this project.

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Ghana attained middle-income status after rebasing its National Accounts, pushing per capita gross domestic product (GDP) of the country above $1,000 in 2007. After recovering from economic recession in 1984 on account of the Bretton Woods sponsored economic reform introduced at that time, Ghana’s growth has been remarkably strong, with its lowest economic growth of 3.3 percent recorded in 1994. The country’s growth rate reached its peak of 15 percent in 2011 on the back of the commencement of commercial production of oil, making it one of the fastest growing economies globally during that year. This has translated into increased per capita income, which reached a high of about $1,900 in 2013.

The concern, however, has been the ability of the country to sustain this growth momentum given the level and quality of education and skills, and, more importantly, the failure of this strong growth performance to be translated into the creation of productive and decent jobs, improved incomes and livelihoods. The structure of the economy remains highly informal, with a shift in the country’s national output composition from agriculture to low-value service activities in the informal sector. The commencement of commercial production of oil raised the share of the industrial sector in national output. However, the continuous decline in manufacturing value added undermines Ghana’s economic transformation effort to promote high and secure incomes and improve the livelihoods of the people.

Structural change towards higher value added sectors, and upgrading of technologies in existing sectors, is expected to allow for better conditions of work, better jobs, and higher wages. But the low level and quality of human resources not only diverts the economy from its structural transformation path of development but also makes it difficult for the benefits of growth to be spread through the creation of gainful and productive employment. Thus, productive structural economic transformation hinges on the level and quality of education and labor skills. A highly skilled, innovative and knowledgeable workforce constitutes a key ingredient in the process of structural economic transformation, and as productive sectors apply more complex production technologies and research and development activities increase the demand for education and skills. However, the observed weak human capital base does not provide a strong foundation for structural economic transformation of Ghana.

Ghana’s employment growth lags behind economic growth, with an estimated employment elasticity of output of 0.47, suggesting that every 1 percent of annual economic growth yields 0.47 percent growth of total employment.

There is also widespread concern about the quality of the country’s growth in terms of employment and inequality, as well as general improvement in the livelihood of the people (see Alagidede et al. 2013; Aryeetey et al. 2014; Baah-Boateng 2013). A key indicator for measuring the extent to which macroeconomic growth results in gains in the welfare of the citizenry is the quality of jobs that the economy generates. Ghana’s employment growth lags behind economic growth, with an estimated employment elasticity of output of 0.47 (see Baah-Boateng 2013), suggesting that every 1 percent of annual economic growth yields 0.47 percent growth of total employment. Besides the slow rate of job creation is the dominance of vulnerable employment and the working poverty rate in the labor market. In 2010, 7 out of 10 jobs were estimated to be vulnerable while only 1 out of 5 jobs could be considered as productive jobs that meet the standard of decent work (Baah-Boateng and Ewusi 2013). Workers in vulnerable employment tend to lack formal work arrangements as well as elements associated with decent employment such as adequate social security and recourse to effective social dialogue mechanisms (Sparreboom and Baah-Boateng 2011). The working poverty rate remains a challenge with one out of every five persons employed belonging to poor households.

The article seeks to provide an analytical assessment of Ghana’s economic growth as one of Africa’s growth giants over a period of more than two decades and the implication for labour market and livelihood outcomes. Growth of labor productivity at the national and sectoral level is examined, as well as the sectoral contribution to aggregate productivity growth. The article also analyses the effect of growth on employment and the employment-poverty linkage in terms of elasticity within the growth-employment-poverty nexus in Ghana. It also delves into a discussion of the constraints on growth and productive employment from both demand and supply perspectives, and identifies skills gaps and the opportunities offered in the country, which has experienced strong growth performance. The article has five sections, with an overview of Ghana’s economic growth performance in Section 2, after this introductory section. This is followed by an overview of the developments in the labor market, specifically in the area of employment, unemployment, poverty, and inequality in Ghana in Section 3. The growth-employment-poverty linkage analysis is carried out in Section 4 followed by a discussion of constraints to growth and employment generation in Section 5. Section 6 provides a summary and conclusion, with some policy suggestions for the future.

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Over the past two decades, Ghana’s economy experienced an average annual growth rate of 5.8 percent, and became a low-middle income country in 2007. Though Ghana’s average annual employment growth between 1993 and 2013 has been higher than sub-Saharan Africa’s—3.7 percent versus 3.0 percent—its overall employment growth has not kept up with its economic growth. Notably, Ghana’s impressive economic growth has largely stemmed from crude oil exports, mining, and financial intermediation—all sectors and subsectors in which labor absorption is low. Given these trends, Ghana’s ability to transform its growth gains into better livelihoods for its citizens is being challenged.

In their paper, Understanding Ghana’s growth success story and job creation challenges, Ernest Aryeetey and William Baah-Boateng examine the sustainability of the high growth Ghana has experienced over the last two decades and advise Ghanaian policymakers to rethink their growth strategy.

For a more in-depth look at these and related topics, such as labor productivity, you can read the full paper here.

Ghana’s labor trends

Like in many other sub-Saharan African countries, the agriculture sector is the largest employer in Ghana, though its employment share is decreasing from 61.1 percent in 1984 to 44.7 percent in 2013. In addition, while industry’s employment share has slightly grown from 13.7 percent to 14.6 percent over the same period (and the manufacturing subsector has decreased from 10.9 percent to 9.1 percent), services has grown from 25 percent to 40.9 percent—leading to what the authors refer as a “missing middle.”

As noted above, the authors emphasize that the sectors that have been driving Ghana’s growth are not labor-intensive, namely mining, oil extraction, and finance. While labor has been moving from agriculture to services, the authors note that the trend “may not reflect a structural and productive transformation,” largely because the jobs created in the services sector are mostly informal and have low productivity. Indeed, services sector maintained the lowest annual average growth of labor productivity between 1992 and 2013. As part of these shifts, informal employment—which represented 88 percent of Ghanaian employment in 2013—grew by 3.7 percent on average while formal employment grew by only 2.6 percent during this period.

Unemployment in Ghana remains low, at 5.2 percent, though has experienced significant swings from 2.8 percent in 1984 to 10.4 percent in 2000 to 3.1 percent in 2006. The authors note, though, that these numbers might be deceptive due to the high numbers of informal, vulnerable, and “discouraged workers” (those who are jobless and available for work but fail to make the effort to seek work for various reasons) in Ghana. In fact, they state that, in 2006, after accounting for discouraged workers the unemployment rate more than doubled from 3.1 percent to 6.5 percent.

Vulnerable employment and the working poor

Despite Ghana’s relatively low unemployment rate, many laborers still live in poverty: According to the authors, 22 percent of working people are poor. Many others work in “vulnerable employment”—which the authors define as “a measure of people employed under relatively precarious circumstances indicated by their status in employment. It consists of own account and contributing family work that are less likely to have formal work arrangements, access to benefit or social protection programs, and are more ‘at risk’ to economic cycles (ILO 2009).” This definition is opposed to “productive employment,” or “paid employment and self-employed with employees.” Vulnerable workers are usually found in the informal sector and tend to have lower earnings—a situation exacerbating the ever-widening earnings gap and growing income inequality.

According to the authors, working poverty is closely linked with vulnerable employment, for which seven of 10 jobs in Ghana qualify (Table 1).  Some policies, which could combat working poverty, have been somewhat ineffective in reducing poverty: For example, Ghana has been consistent in raising its minimum wage, keeping it largely above the rate of inflation, but this policy tends to only affect those in the formal sector, leaving out workers in the informal sector. This trend has also increased Ghana’s inequality: The Gini coefficient increased from 35.4 percent in 1987/88 to 42.3 percent in 2013.

Table 1: Quantity and quality of employment (percent of employed)

Economic sector	1984	1992	1999	2000	2006	2010	2013
Employment-to-population (ratio, SSA)	—	64.3	64.1	64.1	64.9	65.2	65.5
Employment-to-population (ratio, Ghana)	80.2	72.9	73.9	66.9	67.7	67.4	75.4
Economic sector
Agriculture	61.1	62.2	55.0	53.1	54.9	41.6	44.7
Industry	13.7	10.0	14.0	15.5	14.2	15.4	14.6
Manufacturing (part of industry)	10.9	8.2	11.7	10.7	11.4	10.7	9.1
Service	25.2	27.8	31.0	31.5	30.9	43.0	40.9
Institutional sector
Public	10.2	8.4	6.2	7.2	5.7	6.4	5.9
Private	6.0	6.1	7.5	8.9	7.0	7.4	6.1
Informal	83.8	85.5	86.1	83.9	87.3	86.2	88.0
Type of employment
Paid employees	16.2	16.8	13.8	16.0	17.5	18.2	22.5
Self-employment	69.6	81.3	68.7	73.4	59.5	60.8	52.6
Contributing family worker	12.5	1.9	17.2	6.8	20.4	11.6	22.3
Other	1.7	—	0.3	3.8	2.6	9.4	2.6
Quality of employment
Gainful/productive employment*	20.9	—	—	21.2	22.0	23.1	28.7
Vulnerable employment**	77.4	82.5	80.8	74.9	75.4	67.5	68.7
Working poverty	—	48.7	35.4	—	25.6	—	22.3

Notes: * Gainful/productive employment comprises paid employment and self-employed with employees.

** Vulnerable employment comprises own account and contribution family work.

Source: Computed from Ghana Living Standards Survey (GLSS) 3, 4, 5, and 6; Population Census 1984, 2000, and 2010.

Overall, though, Ghana has made great strides. Vulnerable employment has been declining, and productive employment has risen, gains the author attributes to the drop in working poverty—down from 48.7 percent in 1992 to 22.3 percent two decades later (Table 1). However, they also hint that these improvements could have been even larger had job growth been concentrated in paid employment and self-employed with employees.

The skills gap

In their paper, the authors posit that job creation has occurred in less productive sectors due to a lack of skills and education in the workforce—and skill-intensive jobs/vacancies are instead getting filled by foreign laborers. While the proportion of the labor force with no formal education has significantly fallen from 44.1 percent in 1992 to 25.6 percent in 2013, post-primary education rates have barely risen—from 5.7 percent to 12.1 percent during that same period for secondary, vocational, and technical education. Tertiary is even less—from 2 percent to 5.4 percent. Ghanaian universities have not been training engineers, scientists, and technical workers that could increase the productivity and grow the industrial sector. A shortage of technical and vocational skills also limits this sector. Thus, the authors note, employers are forced to look outside of the country to find the workers with the skills required to do the job. The authors emphasize:

[P]roductive structural economic transformation hinges on the level and quality of education and labour skills. A highly skilled, innovative, and knowledgeable workforce constitutes a key ingredient in the process of structural economic transformation, and as productive sectors apply more complex production technologies and research and development activities increase the demand for education and skills. However, the observed weak human capital base does not provide a strong foundation for structural economic transformation of Ghana.

At the same time, the more educated in Ghana also tend to be more likely to be unemployed due to limited job creation for them in the formal sector. In 2013, the unemployment rates for those with secondary education and above (including tertiary) was over 6 percent. The unemployment rate for those with basic education or less was under 3.3 percent. The authors suggest that this trend is due to the fact that those with less education are more likely to take an informal job, while more educated laborers struggle to find jobs in the small formal sector.

Recommendations

Though Ghana has outperformed many of its sub-Saharan neighbors in terms of job creation and growth, its challenges with declining manufacturing, high informal employment, and low education attainment endanger its momentum. To tackle these obstacles, the authors recommend:

1. Adjust the priorities of the growth strategy to promote manufacturing, and reconsider the goal of economic growth for growth’s sake by acknowledging that sustainable growth must be coupled with generation of productive and high-earning jobs for all.
2. Create a manufacturing and business-friendly environment by addressing the country’s high interest rates, high taxes, and chronic energy problems, among others.
3. Enact policies to enhance the high-productivity, high-labor-absorbing agricultural sector, such as improving agricultural extension, develop irrigation plans, among others.
4. Develop policies to increase the number of secondary school graduates as well as students studying science, technology, engineering, and math.

For further discussion and recommendations, read the full paper here.

Note: The African Lions project is a collaboration among United Nations University-World Institute for Development Economics Research (UNU-WIDER), the University of Cape Town’s Development Policy Research Unit (DPRU), and the Brookings Africa Growth Initiative, that provides an analytical basis for policy recommendations and value-added guidance to domestic policymakers in the fast-growing economies of Africa, as well as for the broader global community interested in the development of the region. The six papers, covering Mozambique, Kenya, Ghana, South Africa, Ethiopia, and Nigeria, explore the key constraints facing African economies as they attempt to maintain a long-run economic growth and development trajectory.

      

       

The European Union’s international partners often accuse it of not speaking with a single voice on key global issues. Yet, there are instances when Europe does display a coherent approach to policy-making in international affairs. In this paper for the Center on the United States and Europe, Matteo Garavoglia argues that EU Election Observation Missions (EU EOMs) are a worthy example of such occurrences.

Unlike in most other foreign policy domains, EU supranational institutions, rather than national capitals, lead EOMs' policymaking. More specifically, the European External Action Service’s Democracy and Electoral Observation Division, the European Commission’s Foreign Policy Instrument, and the European Parliament’s Directorate for Democracy Support are the key actors behind this policy area.

Writing for Brookings’s U.S.-Europe Analysis Series, Matteo Garavoglia investigates why European supranational actors are at the core of EOMs policymaking. Having done so, he analyzes the role that national governments and non-institutional agents play in conceptualizing and operationalizing EOMs. Finally, he explores ways in which Europe’s international partners could build bridges with Brussels in this policy area.

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• EU election observation policy: A supranationalist transatlantic bridge?

       

       

       

       

       

       

The leaked information in the Panama Papers from the law firm Mossack Fonseca has captured the headlines for weeks and will continue to do so as further names are exposed. The scandal has placed Panama in the limelight and provided an unprecedented glimpse into the world of hidden money and tax avoidance. To understand its broader context, it is vital that we distinguish between legal corruption, like that exposed by the Panama Papers, and illegal corruption, like that exposed by the Unaoil scandal. Governments must seize the moment to take decisive action against both.  

The U.S., the U.K., and a range of other countries will announce commitments to combat corruption at the Anti-Corruption Summit on May 12, championed by Prime Minister David Cameron as a game-changing event. The question is whether these commitments will deliver concrete actions that target the most costly kinds of corruption that flourish globally today.  

Unfortunately, the world often engages in “summitry” filled with communiques, calls for coordination and exchanging information, or creating another toothless generic initiative, which offer media and photo opportunities that fulfill particular political objectives for some leaders. Let us see if it’s different this time.

Beyond Panama

Mossack Fonseca, and its home country Panama, are just a couple nodes in the vast and complex set of “enablers” of corruption and tax evasion around the world.     

For those seeking secret shelters and corporate shells, the mighty U.S. (which unsurprisingly doesn’t feature much in the Panama Papers) is one of the world’s most appealing destinations: Setting up a shell corporation in Delaware, for instance, requires less background information than obtaining a driver’s license. As seen in the chart below, this opacity, coupled with the size of the U.S. as a haven, means that it has been ranked the third most secretive jurisdiction among close to 100 assessed by the Financial Secrecy Index. Panama is 13th.

Figure 1: Financial Secrecy Index 2015 (Select jurisdictions, from the Tax Justice Network)

Source: The Tax Justice Network’s Financial Secrecy Index http://www.financialsecrecyindex.com/introduction/fsi-2015-results

This graph depicts the top 40 worst performing jurisdictions as well as four select better performing jurisdictions (right of dashed line). The Index combines a qualitative secrecy score based on 15 indicators and a quantitative measure of a jurisdiction's share in global financial services exports. 

And the U.K. is an important enabler of corruption: It has stood by as its offshore jurisdictions and protectorates operate as safe havens for illicit wealth, which the Panama Papers make clear. The British Virgin Islands, for example, were the favored location for thousands of shell companies set up by Mossack Fonseca.  

Beyond tax shelters 

The Panama Papers speak only indirectly to core aspects of today’s global corruption challenge, which are neither about Panama nor taxes. We ought to view the resulting scandals in a broader light, and recognize the immense, complex webs of corruption that increasingly link economic and political elites around the globe.

Grand corruption

The most powerful figures who engage in high-level or “grand” corruption are hardly running scared following the Panama leak. These figures include kleptocrat leaders as well as oligarchs who wield enormous influence on government affairs. Often, these players interact and collude, forming high-powered public-private networks that make the traditional notion of corruption as an illegal transaction between two parties look like child’s play.

Corruption in these elite networks far transcends the unethical behavior of the typical tax avoider, as it involves the abuse of power to accumulate power and assets, often via the direct plunder of public resources, asset stripping, or large-scale bribery. The multi-billion-dollar scandal embroiling the Brazilian oil giant Petrobras illustrates the complexity of colluding networks, and how grand such corruption can inflict political and economic damage of historical proportions on a country. 

The oil sector provides many more illustrations of grand corruption. Few company officials may have been more relieved by the Panama Papers leak than those at Unaoil, whose own scandal had just erupted. Unaoil is an “enabler” company incorporated in Monaco that bribed and influenced government officials in various countries on behalf of multinational companies vying for lucrative procurement contracts. While overshadowed by the Panama leaks, the Unaoil case is at least as emblematic of the challenges in tackling global corruption. For instance, it shows the deeply ingrained practice of Iraqi government officials seeking bribes for the award of contracts and the willingness of companies to provide them.

Corrupt elites, including those embroiled in the Unaoil scandal, often use structures like shell corporations and tax havens (along with real estate and other investments) to hide their ill-gotten funds. However, even if the Panama Papers leak prompts more scrutiny on illicit financial flows and the reform of these opaque financial structures, grand corruption will continue in many locations.  It is noteworthy that the political fallout has been concentrated in relatively well-governed countries that do have accountability and anti-corruption systems in place, as illustrated by the resignations of the prime minister of Iceland, the industry minister of Spain, and the head of Chile’s Transparency International chapter. 

In sharp contrast, President Vladimir Putin brushed off the leaked Russian information as a Western anti-Putin conspiracy; in China, discussion and dissemination were muffled by media censorship; and, in Azerbaijan, exposure of details on President Aliyev’s family mining interests will hardly dent his hold on power. While reforms leading from the Panama leaks will hopefully deter tax dodgers and unethical corporations and individuals from hiding dirty assets, powerful corrupt leaders will continue to enjoy impunity.

Legal corruption and state capture   

The Panama Papers shed a sliver of light on the type of corruption that is perhaps most damaging and difficult to tackle: legal corruption and state capture. Around the world, powerful economic and political elites unduly influence laws and policies, shaping the rules of the game for their own benefit, or what has been called the “privatization of public policy and lawmaking.” This generates huge rents for the elite, increases their power, and exacerbates a country’s political and economic inequality.

Resource-rich countries provide many illustrations. In Angola, the Democratic Republic of Congo, Nigeria, and Venezuela, for example, political elites have used state-owned resource companies to serve patronage agendas, often—though not exclusively—through legal means.

In many industrialized countries, an example of state capture is the tax system itself. It is in the interest of elites to safeguard a worldwide network of secret offshore companies and tax havens as places to hide wealth—whether acquired legitimately or illicitly. The evidence on tax avoidance from the U.S. is telling: According to Zucman, since the 1950s the effective rate of corporate tax has decreased from 45 to 15 percent, whereas the nominal rate has only decreased from 50 to 35 percent. And U.S. companies make full use of foreign tax havens: According to a new Oxfam report, the top 50 American multinationals reported in 2008 that 43 percent of their foreign earnings came from five tax havens, accounting for only 4 percent of the companies’ foreign workforces. Further, Bourguignon reports that federal tax rates on the richest Americans fell by 15 percent between 1970 and 2004.

Risks of legal corruption in the U.S. run high because private money can so easily sway public affairs. Following the 2010 Citizen United ruling by the Supreme Court, private funds from deep pockets increasingly dominate the conduct of electoral campaigns. The avenues for private money to influence public officials may widen further, if forms of bribery traditionally considered illegal become legalized. A forthcoming Supreme Court decision could make it legal for public officials to receive gifts and other benefits from private individuals (potentially overturning the corruption conviction of a former Virginia governor for doing exactly that).  

What should be done?     

Upfront, there are no easy solutions, especially because powerful decision-makers benefit from this status quo. But there is the opportunity, and public pressure, to reform.  As mentioned, the cause of tackling corruption often attracts token gestures, and David Cameron’s announcement of a new global anti-corruption agency could be at high risk of falling into this category. Rather, countries like the U.S. and U.K. must take firm action to reform their own practices, and push for the same from their partners such as the U.K. crown dependencies and overseas territories, the European Union and G20 members, and the recipients of overseas aid.

First, take legal corruption and state capture seriously. 

Transparency can be one game changer, especially if it addresses the channels of influence through which policy becomes “privatized.” Disclosures of campaign finance contributions, conflicts of interests, assets held by (and tax returns filed by) politicians and public officials, and parliamentary deliberations and votes can all discourage abuse and reveal hidden networks at play. Encouragingly, the Organisation for Economic Co-operation and Development (OECD) recently issued their first salvo, the report “Financing Democracy,” focusing on a few selected case studies, and as a next step it should be empowered to develop standards and carry out assessments on political finance for all OECD countries.

Transparency will only help if citizens can actively scrutinize and engage with their governments. Civic space is under attack in many jurisdictions, with activists and journalists facing intimidation, prosecution, or worse. Securing rights of expression and assembly should be the business of any international actor concerned with anti-corruption or economic governance. For instance, when considering funding requests from governments with weak records on protecting civil society—like Angola and Azerbaijan—the World Bank and International Monetary Fund as well as donors like the U.S. should prioritize civic accountability as well as broader transparency reforms.

Furthermore, grand corruption will not decline without more effective prosecutions and other sanctions that target bribe-takers, as well as the facilitators and middlemen of corruption, be they lawyers, accountants, or fixers like Unaoil. Of course, law enforcement authorities should also remain vigilant against bribe-paying companies; and governments—including OECD members implementing to varying degrees the OECD foreign bribery convention—would do well to emulate the active enforcement of the U.S. Foreign Corrupt Practices Act (FCPA) in this regard. But bribe-takers and facilitators have not faced sufficient scrutiny and sanction.

Second, get rid of shadowy corners.

Lessons yielded by recent events from the 2008 financial crisis to the Panama Papers suggest that major global players should not allow large corners of the global economy to escape scrutiny. The U.S. and the U.K. (with its offshores), should heed the calls for dismantling secrecy and tax havens. Seeds of effort, such as the U.S. government’s decision to require banks to know the identities of the individuals behind shell companies, are now coming to light, but broader efforts, including legislation, will also be required.  

Beneficial ownership transparency should become standard operating procedure, with governments following the example of the U.K., the Netherlands, and others in setting up public registries, and joining the movement toward a global registry. In the case of resource-rich countries, establishing sector-specific registries may be the right place to start. This practice is now mandated by the Extractive Industries Transparency Initiative.

Within the extractive sector, home country governments should subject commodity traders to payment disclosure requirements when doing business with governments and state-owned companies. Governments of countries like Switzerland, the U.K., and Singapore that are home to corporate actors shoulder significant responsibility, especially in the current era of low commodity prices, when traders are entering into profitable new deals with cash-strapped resource-producing countries. Shining light in dark corners like these will render them less susceptible to abuse.

Third, prioritize transparency and scrutiny when public resources are allocated.

Whenever a government allocates resources for exploitation, it ought to do so in a fully transparent fashion. The Open Contracting Partnership has made great strides in defining a gold standard for such reporting, including guidance on issues such as open data, corporate identifiers, and beneficial ownership reporting.

Natural Resource Governance Institute research on oil and mining sector corruption shows that multiple types of high-value allocations require scrutiny and contract disclosure. These include the allocation of exploration and production licenses, but also on export, import, or transport rights, which have been associated with corruption in countries such as Indonesia, the Republic of Congo, and Ukraine. And most of the oil sector cases prosecuted under the U.S. FCPA have arisen around the award of service contracts, a segment of the oil industry where the Unaoil and Petrobras scandals also took place. Transparency should be the default setting for any transactions that allocate public resources. Further scrutiny is also needed on the abuse of (mis-)managed exchange rate regimes that generates rents for the few and creates major economic distortions, such as currently in Nigeria, Venezuela, and Egypt.

Concrete impact will also require a major attack on impunity since transparency and freedom of expression are necessary, but insufficient. And governments including those of the U.S. and the U.K. should adopt reforms to address legal corruption and various forms of opacity—whether addressing the capture by money in politics or the “dark corners” among oil traders headquartered in Geneva and London. 

An ambitious commitment to tackling corruption and impunity is not only needed now, but demanded by societies, as events in Brazil and elsewhere show. This is a potentially “game-changing” global moment to make real progress.  

This piece is also available in Spanish and French. 

       

La fuite des informations du cabinet juridique Mossack Fonseca dans l’affaire des « Panama Papers » a fait et fera la une des journaux pendant des semaines à fur et à mesure de la révélation de nouveaux noms des personnes impliquées. Le scandale a placé le Panama sur le devant de la scène et a donné un aperçu inédit du monde de l’argent caché et de l’évasion fiscale. Afin de mieux saisir le contexte général, il est important de faire la distinction entre la corruption légale, révélée par l’affaire des « Panama Papers » et la corruption illégale, exposée par le scandale Unaoil. Le moment est venu pour les gouvernements de prendre des mesures radicales contre l’une et l’autre.  

Les États-Unis, le Royaume-Uni et plusieurs autres pays annonceront leurs engagements pour lutter contre la corruption lors du sommet anticorruption le 12 mai, dont le Premier ministre David Cameron affirme qu’il changera la donne. La question est de savoir si ces engagements se traduiront par des mesures concrètes à l’égard des types de corruption les plus coûteux qui, aujourd’hui, se prolifèrent à l’échelle mondiale.  

Malheureusement, le monde s’engage souvent dans des  sommets, riches en communiqués, en appels à la coordination et à l’échange d’informations. Parfois, ces sommets mettent en place une initiative inefficace supplémentaire : donnant l’opportunité de créer et promouvoir des articles et photos qui servent les objectifs politiques précis de certains leaders politiques. Voyons si ce sommet sera diffèrent.

Au-delà du Panama

Le cabinet juridique Mossack Fonseca et son pays respectif, le Panama, ne sont que deux éléments dans le vaste et complexe ensemble de « facilitateurs » de la corruption et de l’évasion fiscale à l’échelle mondiale.     

Pour ceux qui sont à la recherche de refuges discrets et de sociétés-écrans, la puissante nation des États-Unis (qui sans surprise n’apparaît pas beaucoup dans les Panama Papers) est une des destinations les plus attrayantes du monde : par example, dans l’état du Delaware la loi requiert  moins de documents pour établir une société-écran que pour obtenir un permis de conduire. Comme on le voit dans l’illustration ci-dessous, c’est cette opacité, conjuguée à la taille du refuge qu’offrent les États-Unis, qui met le pays à la troisième place des juridictions les plus secrètes parmi une centaine évaluée par l’indice d’opacité financière (FSI). Le Panama est à la treizième place.

Illustration 1 : Indice d’opacité financière 2015 (Juridictions sélectionnées, d’après le réseau pour la justice fiscale)

Source : Indice d’opacité financière du Réseau pour la justice fiscalehttp://www.financialsecrecyindex.com/introduction/fsi-2015-results

Ce graphique présente les 40 juridictions les moins performantes ainsi que quatre juridictions choisies pour leurs meilleurs résultats (à droite des pointillés). L’indice présente un score de secret qualitatif basé sur une quinzaine d’indicateurs et une mesure quantitative de l’importance d’une juridiction dans les exportations de services financiers à l’échelle mondiale. 

Le Royaume-Uni est un important facilitateur de corruption : il n’a engagé aucune action contre ses juridictions et protectorats d’outre-mer qui servent de refuge aux richesses illicites, comme le démontrent clairement les  « Panama Papers ». Les Iles Vierges britanniques, par exemple, est le lieu préféré  de milliers de sociétés-écrans établies par Mossack Fonseca.  

Au-delà des refuges fiscaux 

L’affaire des « Panama Papers » ne concerne qu’indirectement les aspects essentiels de la question de la corruption mondiale, qui ne sont liés ni au Panama ni à la fiscalité. Nous devons envisager les scandales suscités sous un angle plus large et reconnaître les immenses et complexes réseaux de la corruption, qui lient de plus en plus les élites économiques et politiques mondiales.

La grande corruption

Les puissants individus qui s’engage dans la corruption à haut niveau, c’est-à-dire la corruption à large échelle ne sont pas inquiétés par l’affaire des « Panama Papers ». On trouve parmi ces individus des dirigeants kleptocrates ainsi que des oligarques qui exercent une influence majeure sur les affaires gouvernementales. Souvent, ces acteurs interagissent et s’associent, en formant des réseaux public-privé très puissants qui font passer pour un jeu d’enfant la définition traditionnelle de la corruption comme étant une transaction illégale entre deux parties.

Dans ces réseaux élitistes, la corruption excède largement le comportement immoral du fraudeur type, puisqu’elle utilise l’abus de pouvoir pour accumuler biens et pouvoir, souvent par le pillage direct des ressources publiques, la confiscation d’actifs ou la corruption à grande échelle. Le scandale à plusieurs milliards de dollars qui touche le géant pétrolier Petrobas au Brésil illustre la complexité de ces réseaux d’entente, et les moyens avec lesquels, la corruption à large échelle  peut provoquer des dégâts politiques et économiques d’ampleur historique dans un pays. 

Le secteur pétrolier offre de nombreux example de corruption à large échelle. Les dirigeants de la société Unaoil, dont un scandale similaire a récemment fait surface,  ont sans doute été soulagés par l’affaire des « Panama Papers » Unaoil est une société monégasque  « facilitatrice » de droit qui a versé des pots-de-vin et influencé des responsables gouvernementaux dans différents pays pour le compte de compagnies multinationales se disputant de juteux contrats d’approvisionnement. Bien qu’éclipsé par l’affaire du Panama, le cas d’Unaoil est aussi emblématique les enjeux inhérents à la lutte contre la corruption mondiale. Il illustre par exemple la pratique fortement enracinée des responsables gouvernementaux irakiens qui demandent des dessous de table en échange de l’attribution de contrats, ainsi que l’empressement des entreprises à verser ces pot-de-vin.

Les élites corrompues, notamment celles qui sont impliquées dans le scandale Unaoil, utilisent souvent des structures telles que les sociétés-écrans et les paradis fiscaux (et les investissements immobiliers ou autres) pour dissimuler leur biens mal-acquis. Toutefois, si l’affaire des Panama Papers incite à plus de vigilance sur les flux financiers illicites et engendre la réforme de ces structures financières opaques, la corruption à large échelle se poursuivra dans nombreux endroits.  Il est à noter que les retombées politiques se sont concentrées dans des pays relativement bien gouvernés, qui ont instauré des systèmes anticorruptions et de responsabilisation, comme en témoignent les démissions du Premier ministre islandais, du ministre de l’industrie espagnol et du dirigeant de la section chilienne de Transparency International. 

En revanche, le président Vladimir Poutine a balayé d’un revers de la main les fuites d’information sur la Russie, les considérant comme une conspiration occidentale contre sa personne. En Chine, le débat et la diffusion de ces informations ont été étouffés par la censure des médias ; en Azerbaïdjan, la révélation des détails concernant les intérêts miniers de la famille du président Aliyev ne menace guère sa mainmise sur le pouvoir. Il est à espérer que les réformes découlant de l’affaire du Panama dissuaderont les fraudeurs ainsi que les entreprises et les particuliers aux pratiques immorales de dissimuler leur argent bien mal acquis. Toutefois, les dirigeants corrompus continueront à bénéficier de l’impunité.

Corruption légale et captation de l’État   

Les Panama Papers ont mis en lumière le type de corruption qui est sans doute le plus dévastateur et le plus dure à contrecarrer : la corruption légale et la captation de l’État.  Partout dans le monde, de puissantes élites économiques et commerciales influencent indûment les lois et les politiques, en redessinant les règles du jeu pour leur propre bénéfice, un phénomène aussi connu sous le nom de « privatisation de la politique publique et des lois ». Une pratique qui génère des revenus exorbitants pour les élites, renforce leur pouvoir et exacerbe les disparités politiques et économiques d’un pays.

Les pays riches en ressources naturelles fournissent de nombreux exemples. En Angola, en République démocratique du Congo, au Nigéria et au Venezuela, par exemple, les élites politiques ont utilisé des sociétés publiques exploitant les ressources naturelles pour servir leur népotisme, souvent - mais pas uniquement - par des moyens légaux.

Dans beaucoup de pays industrialisés, le système fiscal est en lui-même un exemple de captation de l’État. Il est dans l’intérêt des élites de conserver un réseau mondial de sociétés offshore et de paradis fiscaux secrets pour pouvoir dissimuler leur patrimoine - qu’il ait été acquis légitimement ou non. Les preuves d’évasion fiscale aux États-Unis sont révélatrices : selon Zucman, depuis les années 1950, le taux réel de l’impôt sur les sociétés a été réduit de 45 à 15 pour cent, alors que le taux nominal est seulement passé de 50 à 35 pour cent. Et les sociétés américaines font un usage optimal des paradis fiscaux à l’étranger : d’après un nouveau rapport d’Oxfam, les 50 plus grandes multinationales américaines ont rapporté en 2008 que 43 pour cent de leurs revenus réalisés à l’étranger provenaient de cinq paradis fiscaux, représentant seulement 4 pour cent des effectifs étrangers de ces sociétés. En outre, Bourguignon rappelle que les taux d’imposition fédéraux des Américains les plus riches ont diminué de 15 pour cent entre 1970 et 2004.

Le risque de corruption légale aux États-Unis est important, l’argent privé pouvant très facilement influencer les affaires publiques. Suite à l’arrêt Citizen United rendu par la Cour suprême en 2010 [qui permet la participation financière des entreprises aux campagnes politiques], les fonds privés issus de poches bien garnies dirigent de plus en plus les campagnes électorales. Les moyens par lesquels l’argent privé influence les représentants publics pourraient encore se multiplier, si les formes de corruption traditionnellement considérées comme illégales devenaient légales. Selon une décision en instance de la Cour Suprême, il pourrait désormais être légal pour les responsables publics d’accepter les dons en nature des particuliers (ce qui pourrait annuler la condamnation d’un ancien gouverneur de l’État de Virginie accusé précisément de ce délit).  

Quelles mesures prendre ?     

En Bref, Il n’y a pas de solutions simple  et directe, d’autant plus que les décideurs tirent profit de ce statu quo.  Mais l’opportunité de réforme et la pression publique sont actuellement présentes. Comme nous l’avons évoqué, la question de la lutte contre la corruption entraîne souvent des mesures symboliques et l’annonce par David Cameron d’une nouvelle agence mondiale anticorruption pourrait très bien tomber dans cette catégorie. Les pays comme les États-Unis et le Royaume-Uni devraient plutôt prendre des mesures concrètes pour réformer leurs propres pratiques et pousser leurs partenaires à faire de même, qu’il s’agisse des dépendances de la Couronne et des territoires britanniques d’outre-mer, de l’Union européenne et des membres du G20 ou des bénéficiaires d’une aide internationale.

Premièrement, il faudrait prendre la corruption légale et la captation de l’État au sérieux 

La transparence peut changer les règles du jeu, particulièrement si elle s’attaque aux réseaux d’influence par lesquels la politique se « privatise ». La divulgation des contributions financières aux campagnes électorales, des conflits d’intérêts, des avoirs détenus par les hommes politiques et les responsables publics (et de leurs avis d’impôts), des délibérations et votes parlementaires sont autant de moyens d’éviter les abus et de révéler les réseaux cachés qui sont à l’œuvre. La publication récente de la première salve de l’Organisation de Coopération et de Développement Economiques (OCDE) est encourageante : son rapport « Le financement de la démocratie », s’attache à quelques études de cas. La suite logique serait d’habiliter l’organisation à développer des normes et mener des évaluations sur le financement politique de tous les pays de l’OCDE.

La transparence ne sera utile que si les citoyens peuvent mener un examen attentif de leurs gouvernements et dialoguer avec eux.  L’espace civique est en danger dans de nombreuses juridictions où les activistes et les journalistes sont la cible d’intimidations, de poursuites, voire pire. Garantir la liberté d’expression et de réunion devrait être l’affaire de tout acteur international concerné par la lutte contre la corruption ou la gouvernance économique. Par exemple, lors de l’examen des demandes de financement de gouvernements ayant un piètre bilan en matière de protection de la société civile - comme c’est le cas de l’Angola et de l’Azerbaïdjan - la Banque Mondiale et le Fonds Monétaire International, ainsi que les donateurs comme les États-Unis, devraient privilégier la responsabilisation citoyenne et des réformes de transparence plus ambitieuses.

En outre, la corruption à large échelle ne s’évincera pas en l’absence de poursuites ou d’autres sanctions efficaces contre ceux qui se laissent corrompre ou contre les facilitateurs et les intermédiaires de la corruption qu’ils soient avocats, comptables ou entremetteurs comme Unaoil. Bien sûr, les autorités chargées d’appliquer la loi doivent aussi rester vigilantes vis-à-vis des sociétés qui versent les pots-de-vin et à cet égard, les gouvernements - notamment les membres de l’OCDE instaurant, à des degrés divers, la Convention de l’OCDE sur la lutte contre la corruption - feraient bien d’imiter la mise en œuvre effective de la loi américaine sur la corruption dans les transactions à l’étranger (FCPA). Mais les individus corrompus et les facilitateurs n’ont pas été suffisamment surveillés et sanctionnés.

Deuxièmement, il faudrait se débarrasser des zones d’ombre.

Les leçons tirées des événements récents, de la crise financière de 2008 à l’affaire des Panama Papers, indiquent que les principaux acteurs internationaux ne devraient pas permettre que de vastes fractions de l’économie mondiale échappent à un examen attentif. Les États-Unis et le Royaume-Uni (et ses territoires d’outre-mer) devraient répondre aux appels à mettre fin à l’opacité et aux paradis fiscaux.  Quelques premières tentatives  émergent, telle que la décision du gouvernement américain demandant aux banques de révéler l’identité des individus se cachant derrière les sociétés-écrans. Des mesures plus ambitieuses seront toutefois nécessaires, ceci comprend des dispositions législatives.  

La transparence sur la propriété réelle doit devenir une procédure opérationnelle standard, avec des États qui suivent l’exemple du Royaume-Uni, des Pays-Bas et d’autres pays qui ont établi des registres publics et soutiennent le projet d’un registre mondial. Quant aux pays riches en ressources naturelles, un bon point de départ serait d’établir des registres spécifiques au secteur. Cette pratique est maintenant imposée par l’Initiative pour la Transparence dans les Industries Extractives.

Au sein du secteur extractif, les gouvernements des pays d’accueil devraient soumettre les négociants de matières premières à des exigences de divulgation des paiements lorsqu’ils font affaire avec les gouvernements et les entreprises publiques. Les gouvernements de pays comme la Suisse, le Royaume-Uni et Singapour, qui abritent des acteurs du monde de l’entreprise, ont une lourde responsabilité, particulièrement dans le contexte actuel de faible prix des matières premières, où les négociants concluent de nouveaux contrats profitables avec des pays producteurs de ressources à court d’argent. Eclaircir telles zones d’ombre les rendra moins vulnérables aux abus.

Troisièmement, il faudrait donner la priorité à la transparence et au contrôle lors de l’allocation de ressources publiques.

Lorsqu’un gouvernement attribue des ressources pour l’exploitation, il doit le faire de façon tout à fait transparente. L’initiative Open Contracting Partnership a fait de grandes avancées dans la définition d’une norme de référence pour de telles informations, notamment en matière d’orientation sur les questions de l’ouverture des données, des identificateurs des sociétés et de la propriété réelle.

Les recherches sur la corruption dans les secteurs pétrolier et minier menées par le Natural Resource Governance Institute montrent que de multiples allocations à forte valeur nécessitent un examen attentif et une divulgation du contrat. Elles comprennent l’attribution des permis d’exploration et de production, mais aussi des droits d’exportation, d’importation ou de transport, qui ont été associés à la corruption dans des pays comme l’Indonésie, la République du Congo et l’Ukraine. La plupart des affaires liées au secteur pétrolier et portées devant les tribunaux dans le cadre de la FPCA aux États-Unis ont surgi à l’occasion de l’attribution de marchés de service, un segment de l’industrie pétrolière qui concernait également les scandales Unaoil et Petrobras. La transparence devrait être le « paramètre par défaut » de toute transaction allouant des ressources publiques. Il est nécessaire d’exercer un contrôle supplémentaire des régimes de taux de change mis en œuvre et abusifs, qui génèrent des revenus pour quelques-uns et engendrent des disparités économiques majeures, comme c’est le cas actuellement au Nigeria, au Venezuela et en Égypte.

Pour espérer un impact réel, il faudra aussi s’attaquer frontalement au principe d’impunité, puisque la transparence et la liberté d’expression sont certes nécessaires, mais insuffisantes.  Et les Etats, y compris les États-Unis et le Royaume-Uni, devront adopter des réformes pour lutter contre la corruption légale et l’opacité sous toutes ses formes, que ce soit en s’attaquant à la mainmise de l’argent en politique ou aux « zones d’ombre » entourant les négociants pétroliers installés à Genève et Londres. 

Un engagement ambitieux à lutter contre la corruption et l’impunité n’est pas seulement une nécessité actuelle, mais aussi une revendication de nos sociétés, comme l’ont montré les événements au Brésil et ailleurs. Ce pourrait être le moment décisif de faire de réelles avancées à l’échelle mondiale.  

This piece is also available in English and Spanish. 

       

In the marijuana reform conversation, one of the grandest boogeymen is “Big Marijuana.” Reform advocates, opponents of marijuana legalization, patients, consumers, media, and many others worry openly that the marijuana industry will consolidate into a corporate beast and a bad market actor reminiscent of Big Tobacco companies.

In a paper released earlier this month entitled, “Worry about bad marijuana—not Big Marijuana,” Jonathan Rauch and I engage the likelihood and risks of the emergence of such a corporate entity. Although the paper makes several points, we begin with a discussion of exactly what “Big Marijuana” means. What we find is that the concept is tossed around so frequently, assigned to so many different types of market actors, that it has ultimately lost meaning.

Often, the term is used to describe any large corporate entity or consolidation effort within the marijuana industry. In reality, standard corporate consolidation or the existence of large companies in an industry are basic aspects in capitalism. What’s more there are huge differences between marijuana industry actors today and Big Tobacco companies of the middle of the 20^th century—in terms of size, scope, and market power to name a few. It should be expected that an industry that is young, fractured, and rapidly maturing will endure periods of consolidation and in the process, large and successful corporate entities will emerge. One should not assume, however, that such behaviors are sinister, suspect, or intent on engaging in immoral or illegal activities.

Nor should one assume that only large corporate entities can engage in bad behaviors. They surely can, but other market actors may as well. The policy conversation around marijuana industry structure often holds Big Marijuana up as the actor who will bring problems for enforcement, diversion, sale to minors, sale to problem users, etc. The reality is that a marijuana entity of any size can behave in many of those behaviors. The problem with an unending focus on industry structure or corporate size is that policymakers and regulators can give a pass to smaller actors who may engage in the types of behaviors people inside and outside of industry seek to avoid—those same types of behaviors we saw from the tobacco industry.

We argue there is a more sensible, safer step forward that begins with a simple premise. There are certain outcomes that the marijuana industry must avoid, and policy and regulation should preferably ban, but at least disincentivize those outcomes. We mention a few in the paper: antisocial marketing (marketing to children or problem users), regulatory capture, outcomes that hurt medical marijuana patients, and increasing barriers to entry and corporate crowd out—but others like diversion, illegal sales, and more must (and do) concern policy makers. In some cases, certain behaviors are more likely to come from larger corporate entities, but many behaviors can happen, independent of firm size.

There are a variety of ways to avoid some of these outcomes beyond a focus on firm size and corporate consolidation. Some of those options are highlighted by the RAND Corporation’s Drug Policy Research Center. In “Options and Issues Regarding Marijuana Legalization,” the authors argue a shift away from the corporate model—either through the use of non-profit entities or government operation of whole portions of the market (supply, retail, or both) can have real benefit. These approaches can allow regulators greater control over negative market actions and induce incentives focused on public health and good governance, rather than profit maximization. Those arguments are quite convincing, but as states continue to construct medical and recreational marijuana programs using the corporate model, it is important to consider policy approaches within that existing framework.

Thus, we recommend that regulators and policy makers not primarily focus on firm size, corporate consolidation, or the corporatization of the marijuana industry. Instead, they should work to avoid specific outcomes they see as unwanted or bad and pass laws, promulgate regulations, conduct information and education campaigns, and take whatever actions are necessary to stop them in their tracks. At the end of the day, one thing is clear: no one wants “Bad Marijuana” regardless of whether it comes from Big, Small, or Otherwise-Sized Marijuana.

Click through to read the full report, “Worry about bad marijuana—not Big Marijuana.”

Click through to watch the public event and paper release “Big Marijuana: How corporations and lobbies will shape the legalization landscape.”

       

Capitalism has provided unprecedented wealth and prosperity around the world, but a growing community is raising concerns about whether the promise of the capitalist system to achieve a more shared and durable prosperity can be achieved without systemic changes in the way for-profit corporations are governed and managed. The change in public opinion has become evident among workers, consumers, and investors, as well as through new policies enacted by elected officials of both parties: more than ever before, the public supports businesses that demonstrate positive social change and sustainable development. These new attitudes have begun to take root in corporations themselves, with a growing community of investors, business leaders, and entrepreneurs expressing a fiduciary duty to create value not only for shareholders but for society. However, businesses and investors seeking to harness these opportunities face significant institutional and normative barriers to achieving their goals.

In a new paper, the co-founders of non-profit B Lab, Andrew Kassoy, Bart Houlahan, and Jay Coen Gilbert, write about this overarching culture shift, the importance of and impediments to effective impact governance and impact management to make this shift meaningful and lasting, and how a rapidly growing community of responsible businesses has overcome these barriers, is maximizing its social impact, and is creating pathways for others to follow. The impact and growth of the B Corp movement will be maximized not only through increased adoption by business leaders, but also through the unique roles played by research institutions, the media, policy-makers, investors, and the general public. With enough support, this movement may soon transform shareholder capitalism into stakeholder capitalism, in which businesses can more easily live up to their potential to create a more shared and durable prosperity for all. 

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This paper is published as part of the Center for Effective Public Management’s Initiative on 21st Century Capitalism. It is one of more than a dozen papers written by academics and practitioners about the changing role of the corporation and the importance of improving corporate governance. The authors of this paper are the co-founders of B Lab, a nonprofit organization that oversees the certification of B Corporations, and a major subject of this paper. The perspectives put forth in this paper are solely those of the authors, based on their professional expertise in this area.

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Introduction

Many American workers do not have access to employer-sponsored payroll deduction plans for retirement saving. Groups with low rates of access include younger workers, members of minority groups, and those with low-to-moderate incomes. 1 Small business employees are especially at risk. Only about 14 percent of businesses with 100 or fewer employees offer their employees a retirement plan, leaving between 51 and 71 percent of the roughly 42 million people who work for a small business without access to an employer-administered plan (Government Accountability Office 2013).

Lack of access makes it difficult to build retirement wealth. A study by the Employee Benefit Research Institute (2014) shows that 62 percent of employees with access to an employer-sponsored plan held more than $25,000 in saving balances and 22 percent had $100,000 or more. In contrast, among those without access to a plan, 94 percent held less than $25,000 and only three percent hold $100,000 or more. Although workers without an employer-based plan can contribute to Individual Retirement Accounts (IRAs), very few do.2 But employees at all income levels tend to participate at high rates in plans that are structured to provide guidance about the decisions they should make (Wu and Rutledge 2014).

With these considerations in mind, many experts and policy makers have advocated for increased retirement plan coverage. While a national approach would be desirable, there has been little legislative progress to date. States, however, are acting. Three states have already created state-sponsored retirement saving plans for small business employees, and 25 are in some stage of considering such a move (Pension Rights Center 2015). John and Koenig (2014) estimate that 55 million U.S. wage and salary workers between the ages of 18 and 64 lack the ability to save for retirement through an employer-sponsored payroll deduction plan. Among such workers with wages between $30,000 and $50,000 only about one out of 20 contributes regularly to an IRA (Employee Benefit Research Institute 2006).

This paper highlights a variety of issues that policymakers will need to address in creating and implementing an effective state-sponsored retirement saving plan. Section II discusses policy design choices. Section III discusses management issues faced by states administering such a plan, employers and employees. Section IV is a short conclusion.

Note: this paper was presented at a October 7, 2015 Brookings Institution event focused on state retirement policies.

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Many American workers do not have access to employer-sponsored payroll deduction plans for retirement saving. Groups with low rates of access include younger workers, members of minority groups, and those with low-to-moderate incomes. Small business employees are especially at risk. Only about 14 percent of businesses with 100 or fewer employees offer their employees a retirement plan, leaving between 51 and 71 percent of the roughly 42 million people who work for a small business without access to an employer-administered plan (Government Accountability Office 2013).

Lack of access makes it difficult to build retirement wealth. A study by the Employee Benefit Research Institute (2014) shows that 62 percent of employees with access to an employer-sponsored plan held more than $25,000 in saving balances and 22 percent had $100,000 or more. In contrast, among those without access to a plan, 94 percent held less than $25,000 and only 3 percent hold $100,000 or more. Although workers without an employer-based plan can contribute to Individual Retirement Accounts (IRAs), very few do. But employees at all income levels tend to participate at high rates in plans that are structured to provide guidance about the decisions they should make (Wu and Rutledge 2014).

With these considerations in mind, many experts and policy makers have advocated for increased retirement plan coverage. While a national approach would be desirable, there has been little legislative progress to date. States, however, are acting. Three states have already created state-sponsored retirement saving plans for small business employees, and 25 are in some stage of considering such a move (Pension Rights Center 2015).

This policy brief, based on John and Gale (2015), highlights a variety of issues that policymakers will need to address in creating and implementing an effective state-sponsored retirement saving plan.

Download "Policy Design and Management Issues for State Retirement Saving Plans" »

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Event Information

Northeast Asia has seen significant leadership changes in recent months, with the election of Park Geun-hye as president of South Korea, Xi Jinping as leader of China’s ruling Communist Party, and Shinzo Abe as prime minister of Japan. As leaders of world-leading economies, these key players will no doubt bring about dynamic change in the region’s politics and economy, while balancing relations with the United States and its own newly re-elected president.

On November 28, 2012, the Center for Northeast Asian Studies (CNAPS) at Brookings, the Japan Center for Economic Research, and Nikkei held a one-day conference on “Managing Transitions in Northeast Asia, the Global Economy, and Japan-U.S. Relations.” Three panels, featuring Brookings scholars as well leading experts from across Asia, provided their views on issues of profound importance to the Northeast Asian region including leadership transitions, global economy and trade, global governance, and U.S.-Japan relations in the 21st Century.

Audio

• Part 1: Managing Transitions in Northeast Asia, the Global Economy, and Japan-U.S. Relations
• Part 2: Managing Transitions in Northeast Asia, the Global Economy, and Japan-U.S. Relations

       

ABSTRACT

This study analyzes the willingness to pay for health insurance and hence the potential market for new low-cost health insurance product in Namibia, using the double bounded contingent valuation (DBCV) method. The findings suggest that 87 percent of the uninsured respondents are willing to join the proposed health insurance scheme and on average are willing to insure 3.2 individuals (around 90 percent of the average family size). On average respondents are willing to pay NAD 48 per capita per month and respondents in the poorest income quintile are willing to pay up to 11.4 percent of their income. This implies that private voluntary health insurance schemes, in addition to the potential for protecting the poor against the negative financial shock of illness, may be able to serve as a reliable income flow for health care providers in this setting.

Read the full paper on ScienceDirect »

      

       

       

       

       

       

       

The fiscal budget has become a casualty of political polarization and even functions that had enjoyed bipartisan support, like research and development (R&D), are becoming divisive issues on Capitol Hill. As a result, federal R&D is likely to grow pegged to inflation or worse, decline.

With the size of the pie fixed or shrinking, requests for R&D funding increases will trigger an inter-agency zero-sum game that will play out as pointless comparisons of agencies’ merit, or worse, as a contest to attract the favor of Congress or the White House. This insidious politics will be made even more so by the growing tendency of equating public accountability with the measurement of performance. Political polarization, tight budgets, and pressure for quantifiable results threaten to undermine the sustainability of public R&D. The situation begs the question: What can federal agencies do to deal with the changing politics of federal R&D?

In a new paper, Walter D. Valdivia and Benjamin Y. Clark apply punctuated equilibrium theory to examine the last four decades of federal R&D, both at the aggregate and the agency level. Valdivia and Clark observe a general upward trend driven by gradual increases. In turn, budget leaps or punctuations are few and far in between and do no appear to have lasting effects. As the politics of R&D are stirred up, federal departments and agencies are sure to find that proposing punctuations is becoming more costly and risky. Consequently, agencies will be well advised in securing stable growth in their R&D budgets in the long run rather than pushing for short term budget leaps.

While appropriations history would suggest the stability of R&D spending resulted from the character of the budget politics, in the future, stability will need the stewardship of R&D champions who work to institutionalize gradualism, this time, in spite of the politics.

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At the previous Summit of the Americas in Cartagena, Colombia in April 2012, President Barack Obama was badly roughed up by his Latin American counterparts (and embarrassed by his Secret Service for entertaining sex workers). Happily, the president and his entourage did much better at last week’s Summit in Panama, but the United States still has a way to go before the Summits once again become the productive vehicle for U.S. foreign policy that they once were, at their founding in Miami in 1994.

In Cartagena, leader after leader criticized the United States for allegedly heavy-handed counter-narcotics policies; oppressive treatment of immigrants; a weak response to crime and poverty in Central America; and monetary policies that supposedly harmed their economies. Most pointedly, speakers denounced the decades-old economic sanctions against Cuba. But given the upcoming Congressional elections, Obama and his Secretary of State Hillary Clinton did not want to do anything to endanger their Democratic Party’s chances. Obama was reduced to affirming, uncharacteristically, “I am here to listen, but our policies will not change.”

Once the November 2012 mid-term elections were over, policies did, in fact, change as the United States took a more relaxed approach to counternarcotics; the administration announced immigration policy reforms, including negotiating agreements with Central American nations to reduce the outflow of children and promote economic growth and jobs at home; and Vice President Joseph Biden met repeatedly with Central American leaders, and offered $1 billion in economic and security assistance.

In Cartagena, the Latin Americans threatened to boycott the Panama Summit if Cuba was not invited. But last December 17, President Obama and Cuban President Raúl Castro announced their agreement to negotiate the normalization of diplomatic relations, and in one blow, the United States transformed a thorn in relations with Latin America into a triumph of inter-American diplomacy that significantly enhanced U.S. prestige in the region.

So in Panama, most of the Latin American and Caribbean leaders, rather than berate the U.S. president, praised him for his courage and generally treated him with courtesy and respect. The three leaders of Central America’s Northern Tier (Guatemala, Honduras, and El Salvador—whose president is a former guerrilla commander) were effusive in their praise. The president of Brazil, Dilma Rousseff, who in Cartagena had sharply criticized U.S. monetary policies and had cancelled a visit to the White House to protest NSA spying, was pleased to announce that her visit had been rescheduled for this June. 

Obama’s own performance was more spirited than it had been in Cartagena. In response to a harsh polemic by Ecuadorean President Rafael Correa, Obama shot back: “The U.S. may be a handy excuse for diverting attention from domestic political problems, but it won’t solve those problems.” After listening politely through Raúl Castro’s extended remarks—during which Castro praised him as a man of honesty and authenticity—Obama departed to avoid having to sit through the predictable harangues of Argentine President Cristina Kirchner and Bolivian leader Evo Morales. Few could blame him.

At the parallel CEO Summit of business executives, Obama delivered thoughtful responses to questions posed by several entrepreneurs including Facebook founder Mark Zuckerberg, distinguishing himself from the facile rhetorical answers of the other presidents on the panel. At a Civil Society Forum where delegates affiliated with Cuban government organizations engaged in disruptive tactics, Obama lectured firmly on the virtues of civility and tolerance. Together with two other presidents (Tabaré Vasquez of Uruguay and Guillermo Solis of Costa Rica), Obama met privately with a dozen leaders of nongovernmental organizations, took notes, and incorporated at least one of their suggestions into his later public remarks.

But Obama’s Panama experience was marred by an inexplicable misstep by his White House aides a month earlier—the very public sanctioning of seven Venezuelan officials for alleged human rights violation and corruption, and the declaration that Venezuela was a “threat to U.S. national security.” To Latin American ears, that language recalled Cold War-era justifications for CIA plots and military coups. The State Department claims it warned the White House against Latin American blowback, but perhaps not forcefully enough. Once Latin American anger become apparent, the White House tried to walk the “national security” language back, saying it was just a formality required by U.S. legislation, but the damage was done. Speaker after speaker condemned the “unilateral sanctions” and called for their repeal.

The ill-timed sanctions announcement provided Venezuelan President Nicolás Maduro and his populist allies with a ready stick to beat the United States. For whileObama’s diplomacy had managed to peel off most of the Central Americans and win over or at least diminish the antagonism of other leaders, it had not found a way to tranquilize the rejectionist states (Ecuador, Bolivia, Nicaragua, Argentina) tied to Venezuela in an “anti-imperialist” alliance. Although a relatively small minority, these spoilers seriously disrupt plenary meetings with long and vituperative monologues, and small minorities of “veto” players can block the signing of otherwise consensus documents such that in Panama, as in Cartagena, no consensus declaration was issued; rather the host leader signed brief “mandates for action” that lacked full legitimacy.

The problem of the rejectionist minority will be partially alleviated when Kirchner is shortly replaced, likely by a more moderate government in Argentina, and political turnover will eventually come in Venezuela, but the hemisphere needs new rules that protect majority rights to get things done. Some simple procedural innovations, such as a more forceful chair, or even the simple system of red-yellow-green lights that alert speakers to their time limits, would help.

Notwithstanding the misstep on Venezuela sanctions and the disruptive tactics of the rejectionist minority, the overall mood in Panama was upbeat, even celebratory. Leaders made reference to the xenophobic violence and religious intolerance plaguing other continents, and remarked with some pride that, in comparison, Latin America was a zone of peace that was also making progress, however inadequate, on human rights, poverty alleviation, and clean energy. With some procedural fixes, favorable political winds, and continued progress on concrete issues of mutual interest, inter-American relations could well continue their upward trajectory.

Read more about the Summit with Richard Feinberg's post on Cuba's multi-level strategy at the Seventh Summit of the Americas.

      

Editors' Note: Brookings Nonresident Senior Fellow Richard Feinberg reports from Havana on President Obama's historic visit to the island. 

Havana is abuzz at the sheer weight of the president of the United States arriving in Cuba. In the hours before President Obama’s arrival, astonished Cubans told tales of planeloads of black limousines and massive Suburbans, of heavily armed security personnel, of sunglass-sporting secret service officers arriving at the airport and making their way through the city.

Cubans have anticipated the arrival of the Obama family with considerable joyfulness, but the festive mood is colored by a certain reticence, a deep-seated fear of, once again, being overwhelmed by the Colossus from the North. 

The government has bargained hard with Obama’s advance team to hem him in, to limit his direct contact with the Cuban people. There will be no large outdoor speech—rather on Tuesday morning Obama will address a hand-picked audience in the newly renovated Grand Theatre with its limited seating capacity—although the Cuban government agreed to live television coverage. The U.S. president will also meet with local entrepreneurs, but in a constricted venue, and ditto for his meeting with independent civil society and political dissidents.

On Tuesday afternoon the president will be the guest of honor at an exhibition game between the visiting Tampa Bay Rays (their chance selection was by lottery) and the Cuban national team. The White House has hinted that he will throw out the first ball, but this could not be confirmed. On a prior occasion, Jimmy Carter did indeed throw out the first ball, but that was during a visit long after his presidency.

Putting the lanky, athletic Obama on the mound would run a certain risk for the Cubans. Suppose the excited crowd begins to cheer, “Obama, Obama…” Even more dangerous, imagine if the exuberant Cubans follow with, “USA, USA, USA…”

Back home, critics of the Obama administration say he’s made too many concessions to the Cuban government without reciprocity. Cuba is no closer to a liberal democracy, they argue, than it was on December 17, 2014, when Barack Obama and Raúl Castro announced their decision to normalize diplomatic relations. But these skeptics miss this vital point: By befriending the president of the United States, the president of Cuba and first secretary of the Cuban Communist Party (PCC) has exploded his regime’s long-standing national security paradigm organized around the imminent danger posed by a hostile empire. The rationale for the state-of-siege mentality, the explanation for the poor economic performance, no longer resonates. The ruling political bureau of the PCC stands exposed before the Cuban people.

Hence, the government is working hard to persuade the people that it has not forsaken its nationalist credentials: the PCC’s daily newspaper, Gramna, ran a fierce editorial warning for Obama not to try to step on their little island, not to intervene in its internal affairs; rather, he must arrive as a classic Greek suitor bearing gifts. But no Trojan horses, the Cubans are too wary to be fooled so easily.

Venezuelan President Nicolás Maduro, passing through Havana this week, pointedly remarked: “The hearts of the Cuban and Venezuelan people are warm and true. Not like others who come with smiles but hide a clenched fist.”

In truth, most Cubans very much want the trip to succeed. They want more tourists, more remittances from Cuban-Americans living in Florida and New Jersey. They would welcome more trade, more access to famous U.S. consumer brands. Many would even welcome U.S. investment—with the promise of good jobs and better wages. All would love to be able to travel freely between their island and the outside world, especially to the nearby United States. In short, they yearn for normality.

And savvy Cubans sense the link between the more relaxed diplomatic atmosphere and the gradual opening of political space so evident on the island. While not yet living in a fully open society, Cubans are now more willing to express their views openly, to foreigners and among themselves. Some are even forming proto-civil society groupings, to advance gender equality, environmental stewardship, religious freedom, and human rights.

Bathing in these new liberties, Cubans worry that something, anything, could go wrong during the visit. In such a highly scrutinized setting, one misstep, one awkward phrase, one misinterpretation of Cuban history, would give ammunition to hardliners to set the clock back and to restore the old national security paradigm.

Raúl Castro has pinned his own legacy too closely to the young U.S. president to allow any stumbles during this historic visit, to stand idly by while the visit was twisted by his internal opponents. And Raúl and his confidants retain control over the mass media in Cuba, and the PCC will loyally pass along the party line, as set by the political bureau and echoed all along the chain of command, down to the district and village level.

So the visit will be declared a success. Most likely, it will truly be a marvelous moment, because Obama is just the right person to stretch out the U.S. hand to the long-aggrieved Cuban people. The very traits for which Obama is so often criticized at home will serve him well in Cuba: his humility, his respectfulness, his sense of irony—these are just what Cubans have been harking for from the United States for so many decades.

The Cubans will also love Michelle Obama and the two teenage Obama daughters, especially if Sasha and Malia are freed to wander forth and meet their contemporaries at one of Havana’s clubs where young people gather—the Cuban media and public will bask in the respect being paid to Cuban music and dance, to “Cubanismo.”

Obama and Castro share some goals, and conflict on others. Both wish for a peaceful transition to a more prosperous Cuba, more open to the world and to global commerce. But they differ on the endgame: Obama would like to see a more liberal, pluralistic polity, while Castro presumably wants to see his Communist Party retain its grip on power. But that chess match will be waged later, by their successors. 

For Barack Obama and Raúl Castro, today their interests are convergent. Hence, we can predict that, most likely, the visit will be a great success, a historic legacy for which both statesmen will be justly proud.

       

Editors' Note: Brookings Nonresident Senior Fellow Richard Feinberg reports from Havana on President Obama's historic visit to the island.

Walking the streets of Havana during Obama’s two full-day visit here, the face of every Cuban I spoke with lit up brightly upon the mere mention of Obama’s name. “Brilliant,” “well-spoken,” “well-prepared,” “humanitarian,” “a true friend of Cuba,” were common refrains.

These Cubans did not need to add that their own aging, distant leaders compare unfavorably to the elegant, accessible Obama. And the U.S. president’s mixed ethnicity is a powerful visual that does not need to be verbally underscored to a multi-racial Cuban population. But this skeptical question remained: “Would the visit make a lasting difference?” Would the government of Cuba permit some of the changes that Obama was so forcefully advocating?

In his joint press conference with President Raúl Castro, and in his speech in a concert hall that was televised live to an intensely interested Cuban public, Obama spoke with remarkable directness about human rights and democratic freedoms, sparking more than one overhead conversation among Cubans about their own lack thereof.

With eloquent dexterity, Obama delivered his subversive message carefully wrapped in assurances about his respect for Cuba’s national sovereignty. “Cubans will make their own destiny,” he reassured a proudly nationalist audience.

“The President of the world”—as average Cubans are wont to refer to the U.S. president—emphasized that just as the United States no longer perceives Cuba as a threat, neither should Cuba fear the United States. Offering an outstretched hand, Obama sought to deprive the Cuban authorities of the external threat that they have used so effectively to justify their authoritarian rule and to excuse their poor economic performance.

On Cuban state television, commentators were clearly thrown on the defensive, seeking to return the conversation to the remaining economic sanctions—“the blockade”—to the U.S. occupation of the Guantanamo Naval Base and to past U.S. aggressions. Their national security paradigm requires such an external imminent danger.

Obama sought to strengthen the favorable trends on the island, by meeting with independent civil society leaders and young private entrepreneurs. One owner of an event planning business confided to me, “I cried during our meeting with Obama—and I rarely cry—because here was the leader of the most powerful nation on earth meeting with us, and listening to us with sophisticated understanding, when our own leaders never ever do.”

Obama assured the Cubans he would continue to ask Congress to lift the remaining economic sanctions—but he added that the Cuban government could help. It could allow U.S. firms to trade with the Cuban private sector and cooperatives, and now with some state-owned enterprises “if such exchanges would benefit the Cuban people.” So far, the government has permitted very few such transactions—ironically, an auto-embargo. And the Cuban government could engage the United States in an effective human rights dialogue and prioritize settlement of outstanding claims.

Certainly, the administration needs Cuba’s help in broadening constituencies in the United States for its policy of positive engagement with Cuba. Some U.S. firms—Verizon; AT&T; AirBnB; now Starwood Hotels and Resorts; shortly, various U.S. commercial airlines and ferry services—are signing deals. And the surge of U.S. travelers visiting the island typically return home as advocates for deepening normalization. Obama’s entourage included nearly 40 members of the Congress, the largest of his presidency, he said.

But Obama still does not have the votes to lift the embargo. He told the Cubans he has “aggressively” used executive authority to carve out exceptions to the embargo, such that the list of things he can do administratively is growing shorter. In effect, he tossed the ball into the Cuban government’s court. Only if Cuba opens to U.S. commerce, only if it shows a disposition to improve its human rights practices, might the U.S. Congress be moved to fully normalize economic relations.

If Cubans were so impressed by Obama, why do I only reward him a triple? Fundamentally, because his White House staff failed to secure a schedule that would have exposed him more directly to the welcoming Cuban people. There were rumors he was to throw out the first pitch at an exhibition game between the Tampa Bay Rays and the Cuban national team (won 4-1 by the U.S. squad), but that opportunity was denied. Nor was he permitted to make his main speech before an outdoor Cuban public. As he walked around Havana’s colonial center, the authorities allowed only small crowds. Michelle and accompanying daughters, Malia and Sasha—potentially powerful symbols in a family-oriented country—kept subdued schedules. Overall, the Cubans managed to hem Obama in, and to hand-select most of the audiences from among their loyal followers, audiences that were predictably polite but restrained. Fortunately, the meeting with opposition activists went forward as planned.

Further, while Obama’s remarks were well received, his texts were not as well woven together by coherent narratives as they might have been. And many Cubans would have liked to hear more about specific measures to build a more prosperous economy.

When asked whether Castro and Obama had “chemistry” by a reporter, a senior Cuban diplomat preferred to refer to “mutual respect.” But the two leaders did seem to develop a real rapport. During the baseball game, they spent a full hour sitting next to each other, seemingly in relaxed conversation. And during a brief question-and-answer period at the end of their joint press conference, when a U.S. reporter peppered Castro with hostile questions, Obama jumped in to fill time while Castro—not at all accustomed to press conferences—struggled to compose his response.

Cubans will long remember this visit by the sort of charismatic leader that they once had, in a youthful Fidel Castro, and that they would long to find once again. In the meantime, the Obama administration will do what it can to reintroduce Cuba to U.S. goods and services, U.S. citizen-diplomats, musical concerts, sports stars—Shaquille O’Neal, among others—and other cultural, educational, and scientific exchanges. And it will also spread ideas, about how to improve the sluggish Cuban economy and gradually integrate it into global commerce, and in the longer run, to help give average Cubans a greater voice in determining their own national destiny.