Volunteer, civil society and governmental delegates from 22 nations gathered in Johannesburg this month for the Southern Africa Conference on Volunteer Action for Development. The conference was co-convened by United Nations Volunteers (UNV) and Volunteer and Service Enquiry Southern Africa (VOSESA), in observance of the 10th anniversary of the United Nations International Year of Volunteers (IYV).

Naheed Haque, deputy executive coordinator for United Nations Volunteers, gave tribute to the late Nobel Laureate Wangari Mathai and her Greenbelt tree planting campaign as the “quintessential volunteer movement.” Haque called for a “new development paradigm that puts voluntarism at the center of community-centered sustainable development.” In this paradigm, human happiness and service to others would be key considerations, in addition to economic indicators and development outcomes including health and climate change.  

The international gathering developed strategies to advance three key priorities for the 15 nations in the Southern Africa Development Community (SADC): combating HIV/ AIDS; engaging the social and economic participation of youth; and promoting regional integration and peace. Research data prepared by Civicus provided information on the rise of voluntary service in Africa, as conferees assessed strategies to advance “five pillars” of effective volunteerism: engaging youth, community involvement, international volunteers, corporate leadership and higher education in service.

VOSESA executive director, Helene Perold, noted that despite centuries of migration across the region, the vision for contemporary regional cooperation between southern African countries has largely been in the minds of heads of states with “little currency at the grassroots level.” Furthermore, it has been driven by the imperative of economic integration with a specific focus on trade. Slow progress has now produced critiques within the region that the strategy for integrating southern African countries cannot succeed on the basis of economic cooperation alone. Perold indicated that collective efforts by a wide range of civic, academic, and governmental actors at the Johannesburg conference could inject the importance of social participation within and between countries as a critical component in fostering regional integration and achieving development outcomes. 

This premise of voluntary action’s unique contribution to regional integration was underscored by Emiliana Tembo, director of Gender and Social Affairs for the Common Market of Eastern and Southern Africa (COMESA). Along with measures promoting free movement of labor and capital to step up trade investment, Tembo stressed the importance of “our interconnectedness as people,” citing Bishop Desmond Tutu’s maxim toward the virtues of “Ubuntu – a person who is open and available to others.”

The 19 nation COMESA block is advancing an African free-trade zone movement from the Cape of South Africa, to Cairo Egypt. The “tripartite” regional groupings of SADC, COMESA and the East Africa Community are at the forefront of this pan-African movement expanding trade and development.

Preliminary research shared at the conference by VOSESA researcher Jacob Mwathi Mati noted the effects of cross border youth volunteer exchange programs in southern and eastern Africa. The research indicates positive outcomes including knowledge, learning and “friendship across borders,” engendered by youth exchange service programs in South Africa, Mozambique, Tanzania and Kenya that were sponsored Canada World Youth and South Africa Trust.   

On the final day of the Johannesburg conference, South Africa service initiatives were assessed in field visits by conferees including loveLife, South Africa’s largest HIV prevention campaign. loveLife utilizes youth volunteer service corps reaching up to 500,000 at risk youths in monthly leadership and peer education programs. “Youth service in South Africa is a channel for the energy of youth, (building) social capital and enabling public innovation,” Programme Director Scott Burnett stated. “Over the years our (service) participants have used their small stipends to climb the social ladder through education and micro-enterprise development.”

Nelly Corbel, senior program coordinator of the John D. Gerhart Center for Philanthropy and Civic Engagement at the American University in Cairo, noted that the Egyptian Arab Spring was “the only movement that cleaned-up after the revolution." On February 11^th, the day after the resignation of former Egyptian President Hosni Mubarak, thousands of Egyptian activists  removed debris from Tahrir Square and engaged in a host of other volunteer clean-up and painting projects. In Corbel's words: “Our entire country is like a big flag now,” from the massive display of national voluntarism in clean-up projects, emblematic of the proliferation of youth social innovation aimed at rebuilding a viable civil society.

At the concluding call-to-action session, Johannesburg conferees unanimously adopted a resolution, which was nominated by participating youth leaders from southern Africa states. The declaration, “Creating an Enabling Environment for Volunteer Action in the Region” notes that “volunteering is universal, inclusive and embraces free will, solidarity, dignity and trust… [creating] a powerful basis for unity, common humanity, peace and development.”  The resolution, contains a number of action-oriented recommendations advancing voluntarism as a “powerful means for transformational change and societal development.” Policy recommendations will be advanced by South African nations and other stakeholders at the forthcoming Rio + 20 deliberations and at a special session of the United Nations General Assembly on December 5, the 10^th anniversary of the International Year of the Volunteer.

       

       

       

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Having emerged from the largest municipal bankruptcy in American history, Detroit is now on surer financial footing and experiencing an economic resurgence. Due much in part to an unprecedented collaboration among philanthropy, business, and government, Detroit is benefiting from private and public sector investments downtown and across its neighborhoods. Today, there are revived neighborhoods, new businesses, a downtown innovation district, the M-1 RAIL transit corridor, and a spirit of creativity and entrepreneurialism.

On Tuesday, April 26, the Metropolitan Policy Program at the Brookings Institution hosted an event about Detroit’s rebound. Brookings Vice President of Metropolitan Policy Amy Liu opened the program and introduced Kresge Foundation President Rip Rapson, who presented findings from The Detroit Reinvestment Index, forthcoming research on what national business leaders think about the city. Rapson then moderated a panel of experts who discussed accomplishments to date and the work yet to come in furthering Detroit’s revitalization.

Join the conversation on Twitter at #DetroitResurgence

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Amy Liu opens the program

Rip Rapson gives remarks

Sandy Baruah, President and Chief Executive Officer, Detroit Regional Chamber; Stephen Henderson, Editorial Page Editor, The Detroit Free Press; Quintin E. Primo III, Co-Founder, Chairman and Chief Executive Officer, Capri Investment Group, LLC ; Jennifer Vey, Fellow & Co-Director, Robert and Anne Bass Initiative on Innovation and Placemaking, The Brookings Institution

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• Welcome and Presentation
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• How philanthropy, business, and government sparked Detroit’s resurgence

      

       

Gasoline purchases are an essential part of the American way of life. There were about 250 million motor vehicles in the United States in 2008 – just under a vehicle per person. Americans drive an average of more than 11,000 miles per year and gasoline purchases are an essential part of most households’ budgets. Between 1995 and 2003, gasoline prices in the U.S. averaged about $1.49 a gallon, with average prices rising above $2.00 in 2004. By the summer of 2008, gasoline prices had reached a national average of $4.11 per gallon. At that time, Americans earning less than $15,000 a year were spending as much as 15 percent of their household income on gasoline – double the proportion from seven years earlier. In addition, unpredictable fuel costs make planning monthly household expenditures difficult, which can be detrimental to individual welfare and even to the overall economy.

Gasoline prices fell in the aftermath of the 2009 economic crisis. Prior and during the financial crisis, rising gasoline prices were seen as a symptom of an uncertain economic situation, as well as evidence of the questionable sustainability of our future oil supply. Gasoline prices abated along with the decrease of economic activity that accompanied the onset of the recession, reaching their minimum in late December 2008. A few months later, as the economy entered a gradual recovery phase, gasoline prices also trended upward. In contrast to the previous period of great uncertainty about future oil supplies, however, these price trends were considered more positively as signs of the U.S. economic recovery.

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Editor's Note: At a Zócalo Public Square* event, several experts were asked to weigh in on the following question: How should we most effectively measure happiness? Here is Carol Graham's response-

We must make it a measure that’s meaningful to the average person

Happiness is increasingly in the media. Yet it is an age-old topic of inquiry for psychologists, philosophers, and even the early economists (before the science got dismal). The pursuit of happiness is even written into the Declaration of Independence (and into the title of my latest Brookings book, I might add). Public discussions of happiness rarely define the concept. Yet an increasing number of economists and psychologists are involved in a new science of measuring well-being, a concept that includes happiness but extends well beyond it.

Those of us involved focus on two distinct dimensions: hedonic well-being, a daily experience component; and evaluative well-being, the way in which people think about their lives as a whole, including purpose or meaning. Jeremy Bentham focused on the former and proposed increasing the happiness and contentment of the greatest number of individuals possible in a society as the goal of public policy. Aristotle, meanwhile, thought of happiness as eudemonia, a concept that combined two Greek words: “eu” meaning abundance and “daimon” meaning the power controlling an individual’s destiny. Using distinct questions and methods, we are able to measure both. We can look within and across societies and see how people experience their daily lives and how that varies across activities such as commuting time, work, and leisure time on the one hand, and how they feel about their lives as a whole—including their opportunities and past experiences, on the other. Happiness crosses both dimensions of well-being. If you ask people how happy they felt yesterday, you are capturing their feelings during yesterday’s experiences. If you ask them how happy they are with their lives in general, they are more likely to think of their lives as a whole.

The metrics give us a tool for measuring and evaluating the importance of many non-income components of people’s lives to their overall welfare. The findings are intuitive. Income matters to well-being, and not having enough income is bad for both dimensions. But income matters more to evaluative well-being, as it gives people more ability to choose how to live their lives. More income cannot make them experience each point in the day better. Other things, such as good health and relationships, matter as much if not more to well-being than income. The approach provides useful complements to the income-based metrics that are already in our statistics and in the GDP. Other countries, such as Britain, have already begun to include well-being metrics in their national statistics. There is even a nascent discussion of doing so here.

Perhaps what is most promising about well-being metrics is that they seem to be more compelling for the average man (or woman) on the street than are complex income measures, and they often tell different stories. There are, for example, endless messages about the importance of exercising for health, the drawbacks of smoking, and the expenses related to long commutes. Yet it is likely that they are most often heard by people who already exercise, don’t smoke, and bicycle to work. And exercise does not really enter into the GNP, while cigarette purchases and the gasoline and other expenses related to commuting enter in positively. If you told people that exercising made them happier and that smoking and commuting time made them unhappy (and yes, these are real findings from nationwide surveys), then perhaps they might listen?

Read other responses to this question at zocalopublicsquare.org »

*Zócalo Public Square is a not-for-profit daily ideas exchange that blends digital humanities journalism and live events. 

      

"Happiness." "Contentment." "Subjective well-being." Can we measure how happy people are and if so, what can we do with this information? In this podcast, Carol Graham, the Leo Pasvolsky Senior Fellow and author of The Pursuit of Happiness: An Economy of Well-Being, explains how happiness/well-being research works and why it matters for public policy in the U.S. and globally.

In the podcast, Graham explains two dimensions of understanding well-being, the "Benthamite/hedonic" and the "Aristotelian/eudemonic." She explained them in this earlier publication:

Those of us involved focus on two distinct dimensions: hedonic well-being, a daily experience component; and evaluative well-being, the way in which people think about their lives as a whole, including purpose or meaning. Jeremy Bentham focused on the former and proposed increasing the happiness and contentment of the greatest number of individuals possible in a society as the goal of public policy. Aristotle, meanwhile, thought of happiness as eudemonia, a concept that combined two Greek words: "eu" meaning abundance and "daimon" meaning the power controlling an individual’s destiny.

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Show notes:

• "Why Aging and Working Makes us Happy in 4 Charts," Carol Graham
• Happiness Around the World, Carol Graham
• "The Decade of Public Protest and Frustration with Lack of Social Mobility," Carol Graham
• "Evidence for a midlife crisis in great apes consistent with the U-shape in human well-being," Andrew Oswald and others
• "You Can’t Be Happier than Your Wife: Happiness Gaps and Divorce," Cahit Guven and others
• Aristotle's definition of happiness
• The life of philosopher Jeremy Bentham
• Gallup World Poll

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The Happiness and Age Curve, World, 2012

See more charts like this in Carol Graham's newest post on the relationship among work, age and happiness.

       

In "Why Aging and Working Makes us Happy in 4 Charts," Carol Graham describes a research paper in which she and co-author Milena Nikolova examine determinants of subjective well-being beyond traditional income measures. One of these is the relationship between age and happiness, a chart of which resembles, remarkably, a smile.

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As Graham notes:

There is a U-shaped curve, with the low point in happiness being at roughly age 40 around the world, with some modest differences across countries. It seems that our veneration of (or for some of us, nostalgia, for) youth as the happiest times of our lives is overblown, the middle age years are, well, as expected, and then things get better as we age, as long as we are reasonably healthy (age-adjusted) and in a stable partnership.

The new post has three additional charts that showcase other ways to think about factors of happiness.

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Graham, the author of The Pursuit of Happiness: An Economy of Well-Being, appeared in a new Brookings Cafeteria Podcast.

       

Editor’s Note: Admission rates this year are at an all-time low, while anxiety about the college admission process remains high. Carol Graham and Michael O’Hanlon write that an Ivy League degree does not necessarily determine happiness or success.

This year's college admission process in the United States was by most measures tougher than ever. Only about 5 percent of applicants were accepted at Stanford and many admission rates at other schools were comparably daunting. Meanwhile, our nation's teenagers are exposed to a background of noise about America's supposed economic decline, which would seem only to increase the pressure to get a head start on that declining pool of available high-paying and highly satisfying careers. In the Washington, D.C. area, this sense of malaise was compounded this year by a spate of suicides at a prestigious local high school, with the common thread reportedly being a sense of anxiety about the future among the teenagers.

Of course, some of this story is timeless, and reflects the inevitable challenges of growing up in a competitive society. But much of it is over-hyped or simply wrong. We need to help our college-bound teenagers maintain a sense of perspective and calm as they face what is among life's most exciting but also most stressful periods. As two proud Princeton grads, we recognize the value of a high-quality education and the social and professional networks that come with an Ivy League degree. But we also know from intuition and experience that a similar kind of experience is achievable in many, many other places in our country, fielding as it does the best ecosystem of higher education institutions in the history of the planet. And increasingly, there is a strong body of research to back this claim up.

Higher Education Is Important

First, though, it is worth noting one incontrovertible fact: higher education is important. Sure, there can be exceptions, and some people may not have the opportunity at a given point in life to pursue either a two-year or four-year college degree or graduate education. But it is a reality in America's modern economy, due to trends with globalization and automation. Those with college degrees continue to do better than previous generations in this country; those without have seen their incomes stagnate or even decline on average for a generation now, as our colleague Belle Sawhill has shown. Another Brookings colleague, Richard Reeves, cites evidence that college graduates have higher marriage rates, higher wages, better health, greater job security, more interesting work and greater personal autonomy.

However, where you go to college matters less than if you go, by any number of measures. This is not to say it is unimportant. But whether you are interested in happiness while in college, satisfaction later in life or even raw monetary income, the correlation between gaining a Harvard degree and achieving nirvana is less than many 18-year-olds may be led to believe.

Begin with the question of happiness--a new and scientifically measurable arena of social science. It turns out you can learn a lot about how happy people are by asking them, and then applying common-sense statistical methods to a pool of data. For one of us, this has been the focus of research for over a decade. While money matters to happiness, after a certain point more money does not increase many dimensions of well-being (such as how people experience their daily lives), and in general, it is less important than good health or fulfillment at the workplace, on the home-front and in the community. Happier people, meanwhile, tend to care less about income but are more likely to value learning and creativity. And they are also likely to have more positive outlooks about their own futures, outlooks which in turn lead to better labor market and health outcomes on average.

An Atmosphere For Success

Yale or Amherst graduates are no more likely to find happiness than those who attended less prestigious schools. A new Gallup poll, inspired largely by Purdue president Mitch Daniels, finds that the most important enduring effects of the college experience on human happiness relate to personal bonds with professors and a sense of ongoing intellectual curiosity, not to GPA or GRE scores.

America can provide this kind of stimulation and this kind of experience at thousands of its institutions of higher learning. To be sure, elite universities, with their higher percentage of dedicated and outstanding students, create an atmosphere that can be more motivating. Yet it can also be much more stressful. Students at somewhat less notable institutions may need a bit more self-motivation to excel in certain cases, but they may also find professors who are every bit as committed to their education as any Ivy Leaguer and perhaps more available on average.

It is true that networks of fellow alums from the nation's great universities are often hugely helpful to one's career prospects. But a surprising number of institutions in our country have such networks of committed graduates, professors and other patrons. And while Harvard grads may be a dime a dozen in a place like D.C., those hailing from somewhat less known or prestigious places arguably watch out for each other even more, compensating to a large extent for their smaller numbers.

Even on the narrower subject of financial success, the issue is not cut and dried. Sure, the big and prestigious universities tend to be richer, and their graduates on average make more money. But much of that is because the more motivated and gifted students tend to choose the elite schools in the first place, driving up the average regardless of the quality of education. For the 18-year-old who was just turned down by his or her top couple of college choices and having to settle for a "safety" school, it is not clear that this turn of fate really matters for long-term financial prospects. Assuming comparable degrees of drive and motivation, students appear to do just as well elsewhere. In 2004, Mathematica economist Stacy Dale compared students who willfully went to less prestigious schools with their cohorts at the most prestigious universities and showed little discernible income differential.

America is blessed by a wonderful new generation of young people; as parents of five of them, we see this every day. Maybe those of us who have been through some of life's ups and downs need to work harder to help them take down the collective stress level a notch or two. No graduating child should be unhappy because they are going to their second or third choice of college next fall. With the right attitude and encouragement, they will likely do well—and be happy—wherever they go.

       

Editors’ Note: In Southeast Asia, democratization went hand in hand with Islamization, writes Shadi Hamid. So where many assume that democracy can’t exist with Islamism, it is more likely the opposite. The Aspen Institute originally published this post.

In both theory and practice, Islam has proven to be resistant to secularization, even (or particularly) in countries like Turkey and Tunisia where attempts to privatize Islam have been most vigorous. If Islam is exceptional in its relationship to politics — as I argue it is in my new book Islamic Exceptionalism — then what exactly does that mean in practice?

As Western small-l or “classical” liberals, we don’t have to like or approve of Islam’s prominent place in politics, but we do have to accept life as it is actually lived and religion as it is actually practiced in the Middle East and beyond. What form, though, should that “acceptance” take?

If Islam is exceptional in its relationship to politics ... then what exactly does that mean in practice?

First, where the two are in tension, it means prioritizing democracy over liberalism. In other words, there’s no real way to force people to be liberal or secular if that’s not who they are or what they want to be. To do so would suggest a patronizing and paternalistic approach to the Middle East — one that President Barack Obama and other senior U.S. officials, and not just those on the right, have repeatedly expressed. If our own liberalism as Americans is context-bound (we grew up in a liberal democratic society), then of course Egyptians, Jordanians or Pakistanis will similarly be products of their own contexts.

One should be suspicious of “models” of any kind, since models, such as Turkey’s, tend to disappoint. That said, there are good examples outside of the Middle East that deserve a closer look. Indonesia and to a lesser extent Malaysia are often held up as models of democracy, pluralism, and tolerance. Yet, perhaps paradoxically, these two countries feature significantly more shariah ordinances than, say, Egypt, Tunisia or Morocco.

In one article, the Indonesia scholar Robin Bush documents some of the shariah by-laws implemented in the country’s more conservative regions. They include requiring civil servants and students to wear “Muslim clothing,” requiring women to wear the headscarf to receive local government services, and requiring demonstrations of Quranic reading ability to be admitted to university or to receive a marriage license. But there’s a catch. According to a study by the Jakarta-based Wahid Institute, most of these regulations have come from officials of ostensibly secular parties like Golkar. How is this possible? The implementation of shariah is part of a mainstream discourse that cuts across ideological and party lines. That suggests that Islamism is not necessarily about Islamists but is about a broader population that is open to Islam playing a central role in law and governance.

Islamists need secularists and secularists need Islamists. But in Indonesia and Malaysia, there was a stronger “middle.”

In sum, it wasn’t that religion was less of a “problem” in Indonesia and Malaysia; it’s that the solutions were more readily available. Islam might have still been exceptional, but the political system was more interested in accommodating this reality than in suppressing it. There wasn’t an entrenched secular elite in the same way there was in many Arab countries. Meanwhile, Islamist parties were not as strong, so polarization wasn’t as deep and destabilizing. Islamism wasn’t the province of one party, but of most. In a sense, Islamists need secularists and secularists need Islamists. But in Indonesia and Malaysia, there was a stronger “middle,” and that middle had settled around a relatively uncontroversial conservative consensus.

In Southeast Asia, then, democratization went hand in hand with Islamization. To put it more simply, where many assume that democracy can’t exist with Islamism, it is more likely the opposite. What distinguishes Indonesia and Malaysia, as well as their electorates, isn’t some readiness to embrace the gradual privatization of religion. The difference is that their brand of Islamic politics garners much less attention in the West, in part because they aren’t seen as strategically vital and, perhaps more importantly, because the passage of Islamic legislation is simply less controversial domestically. There has been a coming to terms with Islam’s role in public life, where in much of the Middle East, there hasn’t — at least not yet.

       

In the past decade, a remarkable shift has occurred in the development landscape. Specifically, acknowledgment of the central role of the private sector in contributing to, even driving, economic growth and global development has grown rapidly. The data on financial flows are dramatic, indicating reversal of the relative roles of official development assistance and private financial flows. This shift is also reflected in the way development is framed and discussed, never more starkly than in the Addis Abba Action Agenda and the new set of Sustainable Development Goals (SDGs). The Millennium Development Goals (MDGs), which the SDGs follow, focused on official development assistance. In contrast, while the new set of global goals does not ignore the role of official development assistance, they reorient attention to the role of the business sector (and mobilizing host country resources).

The U.S. Agency for International Development (USAID) has been in the vanguard of donors in recognizing the important role of the private sector to development, most notably via the agency’s launch in 2001 of a program targeted on public-private partnerships (PPPs) and the estimated 1,600 USAID PPPs initiated since then. This paper provides a quantitative and qualitative presentation of USAID’s public-private partnerships and business sector participation in those PPPs. The analysis offered here is based on USAID’s PPP data set covering 2001-2014 and interviews with executives of 17 U.S. corporations that have engaged in PPPs with USAID.

The genesis of this paper is the considerable discussion by USAID and the international development community about USAID’s PPPs, but the dearth of information on what these partnerships entail. USAID’s 2014 release (updated in 2015) of a data set describing nearly 1,500 USAID PPPs since 2001 offers an opportunity to analyze the nature of those PPPs.

On a conceptual level, public-private partnerships are a win-win, even a win-win-win, as they often involve three types of organizations: a public agency, a for-profit business, and a nonprofit entity. PPPs use public resources to leverage private resources and expertise to advance a public purpose. In turn, non-public sectors—both businesses and nongovernmental organizations (NGOs)—use their funds and expertise to leverage government resources, clout, and experience to advance their own objectives, consistent with a PPP’s overall public purpose. The data from the USAID data set confirm this conceptual mutual reinforcement of public and private goals.

The goal is to utilize USAID’s recently released data set to draw conclusions on the nature of PPPs, the level of business sector engagement, and, utilizing interviews, to describe corporate perspectives on partnership with USAID.

The arguments regarding “why” PPPs are an important instrument of development are well established. This paper presents data on the “what”: what kinds of PPPs have been implemented and in what countries, sectors, and income contexts. There are other research and publications on the “how” of partnership construction and implementation. What remains missing are hard data and analysis, beyond the anecdotal, as to whether PPPs make a difference—in short, is the trouble of forming these sometimes complex alliances worth the impact that results from them?

The goal of this paper is not to provide commentary on impact since those data are not currently available on a broad scale. Similarly, this paper does not recommend replicable models or case studies (which can be found elsewhere), though these are important and can help new entrants to join and grow the field. Rather, the goal is to utilize USAID’s recently released data set to draw conclusions on the nature of PPPs, the level of business sector engagement, and, utilizing interviews, to describe corporate perspectives on partnership with USAID.

The decision to target this research on business sector partners’ engagement in PPPs—rather than on the civil society, foundation, or public partners—is based on several factors. First, USAID’s references to its PPPs tend to focus on the business sector partners, sometimes to the exclusion of other types of partners; we want to understand the role of the partners that USAID identifies as so important to PPP composition. Second, in recent years much has been written and discussed about corporate shared value, and we want to assess the extent to which shared value plays a role in USAID’s PPPs in practice.

The paper is divided into five sections. Section I is a consolidation of the principal data and findings of the research. Section II provides an in-depth “data picture” of USAID PPPs drawn from quantitative analysis of the USAID PPP data set and is primarily descriptive of PPPs to date. Section III moves beyond description and provides analysis of PPPs and business sector alignment. It contains the results of coding certain relevant fields in the data set to mine for information on the presence of business partners, commercial interests (i.e., shared value), and business sector partner expertise in PPPs. Section IV summarizes findings from a series of interviews of corporate executives on partnering with USAID. Section V presents recommendations for USAID’s partnership-making.

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Almost two years ago, I alerted readers to a contest, sponsored by the Bill and Melinda Gates Foundation through the Global Development Network, to develop new ideas to improve the impact of development cooperation. The Next Horizons Essay contest 2014 received 1,470 submissions from 142 countries, from which 13 winners were selected.

Four of the winners took part in a roundtable at the Brookings Institution yesterday. Here’s a quick synopsis of the main takeaways.

There is a lot of experimentation happening in the delivery of aid, and most aid agencies are thinking hard about how to position themselves to contribute more to the sustainable development goals. In part, this is because these agencies are mission-driven to improve impact. The current system of aid replenishments of multilateral institutions forces them to compete with each other by persuading donors that they are best deserving of the scarce aid budgets being allocated. Even bilateral aid agencies find themselves under budgetary stress, asked to justify the impact of their lending compared to a counterfactual of channeling the money through a multilateral agency or of contributing to an appeal from the United Nations for humanitarian assistance or climate financing.

Stephen Mwangi Macharia talked about using development assistance to promote social impact investing. He noted the problems of sustainability, dependence, and ownership that can arise in traditional aid relationships and argued that social entrepreneurs can avoid such pitfalls. The question then becomes how donors can best help build the market infrastructure to support such efforts. Stephen’s idea: develop a social impact network initiative to build entrepreneurs’ capacity to develop “bankable” projects and to have a database to help match entrepreneurs and funders. 

There is certainly a lot of interest in social impact investing. According to the Global Impact Investing Network, around $60 billion are already under management (although mostly in developed countries) and the market is growing rapidly. Some questioned the role of aid donors however, noting that they could reduce incentives for others (universities, non-profits, etc.) who charge a fee for business development, awareness raising, and other market services. Others questioned the risk tolerance of donors for impact investing and a culture in many countries where business is viewed suspiciously when it tries to intentionally generate positive social and environmental impacts. As an aside, Judith Rodin, president of the Rockefeller Foundation, has noted that the development of impact investing was one of the accomplishments that she was most proud of.

Ray Kennedy suggested that vertical funds, because of better governance and a sharper focus, should be a preferred channel for development assistance. Interestingly, his argument was not based on advocacy for a particular sector, but on the improved adaptability of these institutions. His evidence provided several examples of how vertical funds changed in response to changing global conditions, and, he argued, such change is a highly desirable virtue in our rapidly changing times.

Of course, the recommendation to favor vertical funds did not go unchallenged. There was a lively discussion about the comparative advantage of different institutions and the dangers of mission creep by more effective institutions into space left open by less effective institutions. Yet, most agreed that new platforms were being fluidly created to solve new problems, and that a “mixed coalition,” to borrow a phrase from one of the participants, was part of the preferred solution.

Yuen Yuen Ang took on the problem of local ownership directly. It is easy to talk about local ownership, she said, but few agencies do anything about it in their actual operations. Instead, they promote best practice ideas, some of which may fail even the basic test of “do no harm.” Basing her arguments on the complexity of how organizations change, she advocates specific internal reforms: diversify staff experiences and backgrounds beyond economics and finance; carve out time for staff to pursue “non-standard” approaches; and build a bank of examples about “best-fit” approaches that have been shown to work in weak institutional settings.

A lively discussion followed on best-fit versus best-practice approaches and, indeed, on whether there is a trade-off between the two or whether the issue is how to balance both at the same time. There was agreement that best-practice applies to some issues, especially where global standards have developed (debt management or anti-money laundering, perhaps). Best-fit is more useful when judgement and a deep understanding of local conditions are required. Some questioned the role of external donor agencies in such contexts, however.

Dan Honig argued for greater autonomy of field-based staff. Based on an extensive and unique data set, he was able to test the impact of the degree of autonomy on project success. The econometrics show significant impact of autonomy on certain activities and in certain situations. When the context is fluid and unpredictable, as in fragile states for example, or when judgement is required, as in institutional development, then autonomy can help. But when desired outcomes are easily measurable, such as school or road construction, then autonomy makes little difference.

During the discussion, there was agreement that too much of a focus on metrics could be distortionary and, in fluid situations, could be damaging. The theme of donor risk aversion came up again, but this time coupled with the idea that metrics, however false and misleading they might be, provide comfort and cover for bureaucrats. A sympathetic hearing was given to former United States Agency for International Development Administrator Andrew Natsios’ concept of “obsessive measurement disorder.” But, participants also warned of the need to show that the costs of autonomy, in the form of larger field presence and a limited ability to scale up, outweighed the benefits.

It was refreshing to see new evidence and multidisciplinary approaches being brought to bear on development effectiveness. The four themes highlighted in these essays—making markets work for the poor, improving agency governance, local ownership and contextualization, and decentralization and autonomy—resonated with those participants who are, or had been, active in aid agencies. I thank the Global Development Network and the Bill and Melinda Gates Foundation for this initiative, as well as to the winning scholars for injecting new ideas into the discourse.

       

China has provided foreign assistance since the 1950s, and is now the largest developing country to provide aid outside of the Development Assistance Committee (DAC), a forum of the world’s major donor countries under the Organization for Economic Cooperation and Development (OECD). Like its foreign policy more broadly, Chinese foreign assistance has adhered to the “Five Principles of Peaceful Coexistence” and emphasized the virtue of national self-reliance. At the same time, it has served a strategic purpose alongside other foreign policy priorities.

A slow start but a steady increase

Compared to top DAC donor countries, the scale of China’s foreign assistance is still relatively small. According to some estimates and OECD International Development Statistics, China’s gross foreign aid in 2001 was extremely limited, amounting to only about 1.8 percent of the total contribution by DAC donors. However, since launching its “Go Global” strategy in 2005, China has deepened its financial engagement with the world, and its foreign aid totals have grown at an average rate of 21.8 percent annually. In 2013, China contributed about 3.9 percent to total global development assistance, which is 6.6 percent of the total contribution by DAC countries and over 26 percent of total U.S. foreign aid. 

Millions of USD (Current)

Gross foreign aid provided by China versus major DAC donors

And the lion’s share goes to: Africa

Africa is one of China’s most emphasized areas of strategic engagement. Particularly since the establishment of the Forum on China-Africa Cooperation (FOCAC) in 2000, the relationship between China and Africa has gotten closer and closer. In 2009, African countries received 47 percent of China’s total foreign assistance. Between 2000 and 2012, China funded 1,666 official assistance projects in 51 African countries (the four countries that don’t have diplomatic relations with China—Gambia, Swaziland, Burkina Faso, and São Tomé and Príncipe—were left out), which accounted for 69 percent of all Chinese public and private projects. Among the 1,666 official projects, 1,110 qualified as Official Development Assistance (ODA)—defined by the OECD as flows of concessional, official financing administered to promote the economic development and welfare of developing countries. The remaining 556 projects could be categorized, also according to the OECD, as Other Official Flow (OOF)—transactions by the state sector that are not “development-motivated” or concessional (such as export credits, official sector equity and portfolio investment, and debt reorganization). (Note: in terms of dollar amounts, not included in the statistics here, most Chinese lending to Africa and other parts of the developing world is not concessional and is therefore not foreign aid.)

Zeroing in on infrastructure

About 61 percent of Chinese concessional loans to Africa are used for infrastructure construction, and 16 percent are for industrial development. The three areas that receive the largest allocations of Chinese concessional loans are transport and storage; energy generation and supply; and industry, mining, and construction. A small portion of the remaining allocations go to health, general budget support, and education. 

Some have interpreted these trends to mean that China is making an effort to export domestic excess capacity in manufacturing and infrastructure, especially considering the uncertainties of China’s economic transition. But the motivations are broader than that. China’s “Africa Policy”—issued in December 2015, in Johannesburg—clearly expresses the Chinese government’s belief that infrastructure construction is a crucial channel for African development. This notion could be connected to the domestic Chinese experience of having benefited from the technological diffusion of foreign aid and foreign direct investment in the construction sector. Moreover, in practice, China’s more than 20 years of experience in implementing international contract projects, as well as advanced engineering technologies and relatively low labor costs, have proved to be a comparative advantage in Chinese foreign assistance. In addition, by prioritizing the principles of non-interference and mutual benefit, China is more comfortable providing infrastructure packages (e.g., turn-key projects) than many other countries. 

Doing assistance better

Legitimate concerns have been raised about China’s tendency to facilitate authoritarianism and corruption, as well that its assistance does not always trickle down to the poor. As such, the state-to-state Chinese approach to providing assistance should be reformed. Globalization scholar Faranak Miraftab indicates that on-the-ground partnerships between communities and the private sector—mediated by the public sector—could achieve synergies to overcome certain shortcomings, creating a win-win situation. With deeper involvement by domestic assistance providers, Chinese foreign assistance could touch more people’s lives by tackling both the short- and long-term needs of the most under-resourced parts of civil society. Domestic assistance providers should exploring public-private partnerships, which among other benefits could yield increased foreign assistance services. By focusing on its comparative advantage in contributing to infrastructure projects that benefit the general public while also facilitating participation from civil society, Chinese foreign assistance could bring more concrete benefits to more individuals. 

China has already begun tackling these and other weaknesses. Although infrastructure and industry still account for the largest share of total official projects in Africa, China has intentionally strengthened its official development finance efforts in areas related to civil society. Projects have surged in the areas of social infrastructure and services, developmental food aid and food security, support to non-governmental organizations, and women in development, to name a few. Moreover, following President Xi Jinping’s promise at the United Nations summit in September 2015, an initial $2 billion has been committed as a down payment toward the China South-South Cooperation and Assistance Fund. The funding is primarily designed to improve the livelihoods of residents of recipient countries and diversify domestic aid providers (e.g., NGOs) qualified to participate or initiate assistance projects in the least-developed countries. 

In order to achieve positive results, it is critical for the Chinese government to carry out detailed management initiatives to engage civil society: for example, establishing a complete system for information reporting and disclosure (actions have already been taken in several ministries and bureaus), publishing guidelines for the private sector to develop assistance services overseas, and improving coordination and accountability among ministries and within the Ministry of Commerce. Although challenges still remain, Chinese foreign assistance is moving in a positive direction without abandoning its defining characteristics. 

       

Chattanooga a few years ago faced what many smaller cities are struggling with today—a sudden decline after years of prosperity in the "old" economy. This case study offers a roadmap for these cities by chronicling Chattanooga's demise and rebirth.

Chattanooga is located in the southern end of the Tennessee Valley where the Tennessee River cuts through the Smoky Mountains and the Cumberland Plateau. The city’s location, particularly its proximity to the Tennessee River, has been one of its greatest assets. Today, several major interstates (I-24, I-59, and I-75) run through Chattanooga, making it a hub of transportation business. The city borders North Georgia and is less than an hour away from both Alabama and North Carolina. Atlanta, Nashville, and Birmingham are all within two hours travel time by car.

Chattanooga is Tennessee’s fourth largest city, with a population in 2000 of 155,554, and it covers an area of 143.2 square miles. Among the 200 most populous cities in the United States, Chattanooga—with 1,086.5 persons per square mile—ranks 190th in population density.2 It is the most populous of 10 municipalities in Hamilton County, which has a population of 307,896, covers an area of 575.7 square miles, and has a population density of 534.8 persons per square mile.

With its extensive railroads and river access, Chattanooga was at one time the “Dynamo of Dixie”—a bustling, midsized, industrial city in the heart of the South. By 1940, Chattanooga’s population was centered around a vibrant downtown and it was one of the largest cities in the United States. Just 50 years later, however, it was in deep decline. Manufacturing jobs continued to leave. The city’s white population had fled to the suburbs and downtown was a place to be avoided, rather than the economic center of the region. The city lost almost 10 percent of its population during the 1960s, and another 10 percent between 1980 and 1990. It would have lost more residents had it not been for annexation of outlying suburban areas.

The tide began to turn in the 1990s, with strategic investments by developing public-private partnerships—dubbed the “Chattanooga way.” These investments spurred a dramatic turnaround. The city’s population has since stabilized and begun to grow, downtown has been transformed, and it is once again poised to prosper in the new economy as it had in the old.

This report describes how Chattanooga has turned its economy around. It begins with a summary of how the city grew and developed during its first 150 years before describing the factors driving its decline. The report concludes by examining the partnerships and planning that helped spur Chattanooga’s current revitalization and providing valuable lessons to other older industrial cities trying to ignite their own economic recovery. 

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Editor’s Note: The following chapter is part of the report, "After the Drug Wars," published in February 2016 by the London School of Economics and Political Science's Expert Group on the Economics of Drug Policy.

Even as the administration of Mexico’s President Enrique Peña Nieto has scored important reform successes in the economic sphere, its security and law enforcement policy toward organized crime remains incomplete and ill-defined. Despite the early commitments of his administration to focus on reducing drug violence, combating corruption, and redesigning counternarcotics policies, little significant progress has been achieved. Major human rights violations related to the drug violence, whether perpetrated by organized crime groups or military and police forces, persist – such as at Iguala, Guerrero, where 43 students were abducted by a cabal of local government officials, police forces and organized crime groups. This has also been seen in Tatlaya and Tanhuato, Michoacán, where military forces have likely been engaged in extrajudicial killings of tens of people. Meanwhile, although drug violence has abated in the north of the country, such as in Ciudad Juárez, Monterrey and Tijuana, government policies have played only a minor role. Much of the violence reduction is the result of the vulnerable and unsatisfactory narcopeace – the victory of the Sinaloa or Gulf Cartels. 

The July 2015 spectacular escape of the leader of the Sinaloa Cartel and the world’s most notorious drug trafficker – Joaquín Guzmán Loera, known as El Chapo – from a Mexican high-security prison was a massive embarrassment for the Peña Nieto government. Yet it serves as another reminder of the deep structural deficiencies of Mexico’s law enforcement and rule-of law system which persists more than a decade after Mexico declared its war on the drug cartels.

The Peña Nieto administration often pointed to the February 2014 capture of El Chapo as the symbol of its effectiveness in fighting drug cartels and violent criminal groups in Mexico. The Peña Nieto administration’s highlighting of Chapo’s capture was both ironic and revealing: ironic, because the new government came into office criticizing the anti-crime policy of the previous administration of Felipe Calderón of killing or capturing top capos to decapitate their cartels; and revealing, because despite the limitations and outright counterproductive effects of this high-value-targeting policy and despite promises of a very different strategy, the Peña Nieto administration fell back into relying on the pre-existing approach. In fact, such high-value-targeting has been at the core of Pena Nieto’s anti-crime policy. Moreover, Chapo’s escape from Mexico’s most secure prison through a sophisticated tunnel (a method he had also pioneered for smuggling drugs and previously used for escapes) showed the laxity and perhaps complicity at the prison, and again spotlighted the continuing inadequate state of Mexico’s corrections system.

Read the full chapter here.

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• Cuidado: The inescapable necessity of better law enforcement in Mexico

       

Editors’ Note: Since President François Hollande’s 2012 election, France has launched an Asia-wide initiative in an attempt to halt declining trade figures and improve its overall leverage with the region, write Philippe Le Corre and Michael O’Hanlon. This piece originally appeared on The National Interest.

On April 26, France’s defense shipbuilding company DCNS secured a victory in winning, against Japan and Germany, a long-awaited $40 billion Australian submarine deal. It may not come as a surprise to anyone who has been following France’s growing interest in the Asia-Pacific for the past five years. Since President François Hollande’s 2012 election, the country has launched an Asia-wide initiative in an attempt to halt declining trade figures and improve its overall leverage with the region.

Visiting New Caledonia last weekend, Prime Minister Manuel Valls immediately decided on the spot to fly to Australia to celebrate the submarine news. Having been at odds in the 1990s over France’s decision to test its nuclear weapon capacities on an isolated Pacific island, Paris and Canberra have begun a close partnership over the last decade, culminating in the decision by Australia’s Prime Minister Malcolm Turnbull, in power since September 2015.

Unlike its Japanese competitor Mitsubishi Heavy Industries (MHI), DCNS promised to build the submarine main parts on Australian soil, creating 2,900 jobs in the Adelaide area. The French also secured support from U.S. defense contractors Lockheed Martin and Raytheon, one of which will eventually build the twelve shortfin Barracuda submarines’ combat systems. Meanwhile, this unexpected victory, in light of the close strategic relationship between Australia and Japan, has shed light on France’s sustained ambitions in the Asia-Pacific region. Thanks to its overseas territories of New Caledonia, Wallis and Futuna, French Polynesia and Clipperton Island, France has the world’s second-largest maritime domain. It is also part of QUAD, the Quadrilateral Defence Coordination Group that also includes the United States, Australia and New Zealand, and which coordinates security efforts in the Pacific, particularly in the maritime domain, by supporting island states to robustly and sustainably manage their natural resources, including fisheries.

France is also attempting to correct an excessive focus on China by developing new ties with India, Japan, South Korea and Southeast Asian countries, which have all received a number of French ministerial visits. France’s overseas territories also include a presence in the southern part of the Indian Ocean, with the islands of Mayotte, Réunion and the Scattered Islands, and French Southern and Antarctic Territories, as well as the northwest region of the Indian Ocean through its permanent military presence in the United Arab Emirates and Djibouti. Altogether these presences encompass one million French citizens. This sets France apart from its fellow EU member states regarding defense and security in the Asia-Pacific, particularly as France is a top supplier of military equipment to several Asian countries including Singapore, Malaysia, India and Australia. Between 2008 and 2012, Asian nations accounted for 28 percent of French defense equipment sales, versus 12 percent during 1998–2002. (More broadly, 70 percent of European containerized merchandise trade transits through the Indian Ocean.)

Despite its unique position, France is also supportive of a joint European Union policy toward the region, especially when it comes to developments in the South China Sea. Last March, with support from Paris, Berlin, London and other members, Federica Mogherini, the EU’s High representative for Foreign Affairs and Security Policy, issued a statement criticizing China’s actions:

“The EU is committed to maintaining a legal order for the seas and oceans based upon the principles of international law, as reflected notably in the United Nations Convention on the Law of the Sea (UNCLOS). This includes the maintenance of maritime safety, security, and cooperation, freedom of navigation and overflight. While not taking a position on claims to land territory and maritime space in the South China Sea, the EU urges all claimants to resolve disputes through peaceful means, to clarify the basis of their claims, and to pursue them in accordance with international law including UNCLOS and its arbitration procedures.”

This does not mean that France is neglecting its “global partnership” with China. In 2014, the two countries celebrated fifty years of diplomatic relations; both governments conduct annual bilateral dialogues on international and security issues. But as a key EU state, a permanent member of the UN Security Council and a significant contributor to the Asia-Pacific’s security, France has launched a multidimensional Asia policy.

All of this should be seen as welcome news by Washington. While there would have been advantages to any of the three worthy bids, a greater French role in the Asia-Pacific should be beneficial. At this crucial historical moment in China's rise and the region's broader blossoming, the United States needs a strong and engaged European partnership to encourage Beijing in the right direction and push back together when that does not occur. Acting in concert with some of the world's other major democracies can add further legitimacy to America's actions to uphold the international order in the Asia-Pacific. To be sure, Japan, South Korea and Australia are key U.S. partners here and will remain so. But each also has its own limitations (and in Japan's case, a great deal of historical baggage in dealing with China).

European states are already heavily involved in economic interactions with China. The submarine decision will help ensure a broader European role that includes a hard-headed perspective on security trends as well.

       

       

       

Yesterday the U.S. Economic Development Administration announced the winners of its i6 Green Challenge grant, awarding $12 million to six regions to accelerate clean technology commercialization.  

Of particular note is an energy efficiency gambit being developed in the Puget Sound region.

In that case, a portion of the $1.3 million of federal support that will now flow to Washington’s state’s Clean Energy Partnership will be dedicated towards the building out of BETI, the Building Efficiency Testing and Integration (BETI) Center and Demonstration Network. BETI is of more than passing interest to us because the testing net work was developed by a steering committee of industry experts and community stakeholders as part of the region’s metropolitan business planning effort, spearheaded by the Puget Sound Regional Council in conjunction with the Brookings Institution Metropolitan Policy Program.  

BETI will be a physical living laboratory space for innovators in the energy efficiency field to test their products, designs, and services prior to launching them into the marketplace. When built out, the concept will be an example of a U.S. metropolitan region examining its economic position, assessing needs and gaps, and moving assertively to challenge governments, philanthropists, and private sector to invest in potentially game-changing interventions.    

In that sense, with the prospect of a state match and copious follow-on private investment down the road, the i6 Green win demonstrates the potential power of bottom-up intentional economic development strategies.

      

With the economy still reeling from the effects of the recession, metropolitan areas have become increasingly willing to explore new approaches to economic development. Moving away from traditional one-size-fits-all approaches that emphasized Starbucks, stadium-building, and stealing businesses, metro leaders are instead crafting metropolitan business plans that grow jobs from within, building on their distinct market advantages.

By partnering with private industry, nonprofit intermediaries, universities, civic leaders, research institutions, and other interested parties, regional public sector leaders are working to strengthen their economies by focusing on those industries with the greatest potential for future growth.

For some regions, these efforts have involved helping existing firms make the transition to emerging industries. Northeast Ohio’s long struggle with post-deindustrialization was made worse by the Great Recession and the collapse of the auto sector and the foreclosure crisis.

In response, regional leaders came together to launch PRISM, the Partnership for Regional Innovation Services to Manufacturers initiative. The goal of PRISM is to help small and medium-sized manufacturers in old commodities industries, like steel and automotive, reinvent their products and business models to take advantage of growth opportunities in emerging markets like bio-science, health care and clean energy.

Led by the Manufacturing Advocacy and Growth Network (MAGNET), a regional intermediary organization, PRISM brings together higher education institutions, regional economic development organizations, and Ohio’s Edison Technology Centers to provide market research and business consulting services, increase firms’ access to capital and talent, and foster stronger relationships within growing industry clusters. [Full disclosure: The Brookings-Rockefeller Project on State and Metropolitan Innovation provided initial advisory support to PRISM.]

“Through PRISM, we hope to demonstrate that a growing manufacturing sector is not only possible, but desirable for the region,” says MAGNET president and CEO Daniel Berry. “Reclaiming the legacy of manufacturing innovation in Northeast Ohio will enable the region’s companies to create more well-paying jobs.”

In other parts of the country, partnerships are linking up existing industry strengths to create new growth opportunities. To ensure the Seattle region continues to be a global hub of innovation, public and private sector leaders have formed the Building Energy-Efficiency Testing and Integration (BETI) Center and Demonstration Network to develop new products, services and technologies around energy efficiency for customers around the world. BETI capitalizes and integrates this region’s distinct, competitive advantages – unparalleled software and information technology, strong sustainability ethos, an emerging building energy efficiency sector, and strong post-secondary institutions and talent that can support future demand. This is not a cookie cutter idea but one that can best work with the market formula found in the Puget Sound region.

With financial support from a federal i6 Green Challenge grant and a state match, BETI will help local businesses commercialize innovations in building energy-efficient technologies, platforms, and materials by providing product validation and integration services. In addition, BETI will foster greater collaboration among industry stakeholders, including businesses, entrepreneurs, trade associations, local and state government agencies, state universities, research networks, venture capitalists, and regional utilities.  

Both Northeast Ohio and the Puget Sound region arrived at these collaborative partnerships during the course of their efforts to develop metropolitan business plans. Like private sector business plans, these regional economic development plans are rooted in market dynamics and competitive assets. The metropolitan business planning process offers a framework for regional business, civic, and government leaders to assess their metro’s distinctive market position, identify pragmatic economic development strategies that capitalize on regional assets and set forth detailed implementation-ready plans for economic growth. Once established, these metropolitan business plans will act as roadmaps for metro economies as they drive the nation toward greater prosperity, increased job creation, and a leading position in the next economy.

      

       

China has provided foreign assistance since the 1950s, and is now the largest developing country to provide aid outside of the Development Assistance Committee (DAC), a forum of the world’s major donor countries under the Organization for Economic Cooperation and Development (OECD). Like its foreign policy more broadly, Chinese foreign assistance has adhered to the “Five Principles of Peaceful Coexistence” and emphasized the virtue of national self-reliance. At the same time, it has served a strategic purpose alongside other foreign policy priorities.

A slow start but a steady increase

Compared to top DAC donor countries, the scale of China’s foreign assistance is still relatively small. According to some estimates and OECD International Development Statistics, China’s gross foreign aid in 2001 was extremely limited, amounting to only about 1.8 percent of the total contribution by DAC donors. However, since launching its “Go Global” strategy in 2005, China has deepened its financial engagement with the world, and its foreign aid totals have grown at an average rate of 21.8 percent annually. In 2013, China contributed about 3.9 percent to total global development assistance, which is 6.6 percent of the total contribution by DAC countries and over 26 percent of total U.S. foreign aid. 

Millions of USD (Current)

Gross foreign aid provided by China versus major DAC donors

And the lion’s share goes to: Africa

Africa is one of China’s most emphasized areas of strategic engagement. Particularly since the establishment of the Forum on China-Africa Cooperation (FOCAC) in 2000, the relationship between China and Africa has gotten closer and closer. In 2009, African countries received 47 percent of China’s total foreign assistance. Between 2000 and 2012, China funded 1,666 official assistance projects in 51 African countries (the four countries that don’t have diplomatic relations with China—Gambia, Swaziland, Burkina Faso, and São Tomé and Príncipe—were left out), which accounted for 69 percent of all Chinese public and private projects. Among the 1,666 official projects, 1,110 qualified as Official Development Assistance (ODA)—defined by the OECD as flows of concessional, official financing administered to promote the economic development and welfare of developing countries. The remaining 556 projects could be categorized, also according to the OECD, as Other Official Flow (OOF)—transactions by the state sector that are not “development-motivated” or concessional (such as export credits, official sector equity and portfolio investment, and debt reorganization). (Note: in terms of dollar amounts, not included in the statistics here, most Chinese lending to Africa and other parts of the developing world is not concessional and is therefore not foreign aid.)

Zeroing in on infrastructure

About 61 percent of Chinese concessional loans to Africa are used for infrastructure construction, and 16 percent are for industrial development. The three areas that receive the largest allocations of Chinese concessional loans are transport and storage; energy generation and supply; and industry, mining, and construction. A small portion of the remaining allocations go to health, general budget support, and education. 

Some have interpreted these trends to mean that China is making an effort to export domestic excess capacity in manufacturing and infrastructure, especially considering the uncertainties of China’s economic transition. But the motivations are broader than that. China’s “Africa Policy”—issued in December 2015, in Johannesburg—clearly expresses the Chinese government’s belief that infrastructure construction is a crucial channel for African development. This notion could be connected to the domestic Chinese experience of having benefited from the technological diffusion of foreign aid and foreign direct investment in the construction sector. Moreover, in practice, China’s more than 20 years of experience in implementing international contract projects, as well as advanced engineering technologies and relatively low labor costs, have proved to be a comparative advantage in Chinese foreign assistance. In addition, by prioritizing the principles of non-interference and mutual benefit, China is more comfortable providing infrastructure packages (e.g., turn-key projects) than many other countries. 

Doing assistance better

Legitimate concerns have been raised about China’s tendency to facilitate authoritarianism and corruption, as well that its assistance does not always trickle down to the poor. As such, the state-to-state Chinese approach to providing assistance should be reformed. Globalization scholar Faranak Miraftab indicates that on-the-ground partnerships between communities and the private sector—mediated by the public sector—could achieve synergies to overcome certain shortcomings, creating a win-win situation. With deeper involvement by domestic assistance providers, Chinese foreign assistance could touch more people’s lives by tackling both the short- and long-term needs of the most under-resourced parts of civil society. Domestic assistance providers should exploring public-private partnerships, which among other benefits could yield increased foreign assistance services. By focusing on its comparative advantage in contributing to infrastructure projects that benefit the general public while also facilitating participation from civil society, Chinese foreign assistance could bring more concrete benefits to more individuals. 

China has already begun tackling these and other weaknesses. Although infrastructure and industry still account for the largest share of total official projects in Africa, China has intentionally strengthened its official development finance efforts in areas related to civil society. Projects have surged in the areas of social infrastructure and services, developmental food aid and food security, support to non-governmental organizations, and women in development, to name a few. Moreover, following President Xi Jinping’s promise at the United Nations summit in September 2015, an initial $2 billion has been committed as a down payment toward the China South-South Cooperation and Assistance Fund. The funding is primarily designed to improve the livelihoods of residents of recipient countries and diversify domestic aid providers (e.g., NGOs) qualified to participate or initiate assistance projects in the least-developed countries. 

In order to achieve positive results, it is critical for the Chinese government to carry out detailed management initiatives to engage civil society: for example, establishing a complete system for information reporting and disclosure (actions have already been taken in several ministries and bureaus), publishing guidelines for the private sector to develop assistance services overseas, and improving coordination and accountability among ministries and within the Ministry of Commerce. Although challenges still remain, Chinese foreign assistance is moving in a positive direction without abandoning its defining characteristics. 

       

About 12,000 troops will parade through Tiananmen Square in Beijing tomorrow to celebrate the 70th anniversary of Japan’s surrender to the allies in World War II. China’s leadership is ostensibly using the anniversary as an opportunity, to use the Chinese phrasing, to celebrate “victory in the World Anti-fascist War and the Chinese people’s War of Resistance against Japanese Aggression.”

But really, the purpose is to display its modernized weaponry ahead of several key international visits by President Xi Jinping. For Western leaders, the parade has proven a diplomatic nightmare: The Chinese have pressured them to attend, but they realize that the event is aimed at celebrating the country’s new international assertiveness (and perhaps to sideline a rather bloody summer on the Chinese stock markets). 

Students pose with Chinese national flags and red stars in preparation for the parade on August 31, 2015. Photo credit: Reuters/China Daily.

It’s the present, stupid

Sixty-six years after the end of the war, the world has been learning how to deal with a new China—now a powerful country with a strong economy and an increasingly well-equipped military. China’s defense budget has seen a double-digit increase for the past 25 years, and the country now has J-15 fighter jets, Z-19 attack helicopters, and a truck-mounted version of the DF-41 intercontinental missile. There is little doubt the parade will be impressive both in precision and display. 

In spite of how the Chinese leadership spins it, the parade is not just about history—it’s also about the present and the future. China is using it as a moment to show off its strengths and assert a stronger role in the Asia-Pacific region (as tensions in the South China Sea remain high), if not the world.

The red carpet

One interesting sight will be the VIP box: Which heads of state will actually attend? Confirmed leaders include Russian President Vladimir Putin (who himself hosted Xi Jinping last May for a huge victory parade in Moscow); South African President Jacob Zuma; Venezuelan President Nicolas Maduro; Sudanese President Omar Hassan al-Bashir (who has an international arrest warrant against him); and—somewhat unexpectedly considering World War II sensitivities in the region—South Korean President Park Geun-hye. Park will attend ceremonies, but not the parade. North Korean leader Kim Jong Un will not be present, nor will Japanese Prime Minister Shinzo Abe. 

Fellow leading industrial nations countries don’t want to put Japan in a bind, but no one is willing to offend China. Hence, state leaders have responded to the standing Chinese invitation with an array of contortions. In the end, no Western leader will attend: President Barack Obama—who will be hosting Xi Jinping in the United States in a few weeks—will be represented by U.S. Ambassador to China Max Baucus. Unlike for the launch of the Asian Infrastructure Investment Bank (AIIB) earlier this year, Washington didn’t pressure other Western leaders to avoid Beijing. This wasn’t necessary, as those governments all had their own reasons for staying away. Even the German president—a largely ceremonial figure—has declined. So has his French counterpart François Hollande, who will travel to China in October to discuss climate issues; French Foreign Minister Laurent Fabius will attend instead. Italy will also be represented by its foreign minister. As for the United Kingdom, Prime Minister David Cameron chose to wait for the Chinese state visit to London in October to meet Xi in person. Britain is represented by a former Conservative cabinet minister, Kenneth Clarke. Even more surprising is the list of retired statesmen: former German Chancellor Gerhard Schroeder, who is known to have engaged with Russia’s Putin after leaving office in 2005, will be in there, like his friend and former U.K. counterpart Tony Blair. 

Aircraft perform during a rehearsal on August 23, 2015 for the September 3 military parade in Beijing. Photo credit: Reuters.

Enough troubles

The U.S.-China relationship is already complicated enough and needs no further upsets. While China flexes its muscles with a parade, America is in the middle of a presidential campaign during which candidates—such as Republican Wisconsin Governor Scott Walker, who recently called on President Obama to cancel Xi's visit—are openly criticizing China. For his part, Donald Trump claimed that “China would be in trouble” should he become president, adding: “The poor Chinese.” Although these kinds of comments cannot be taken too seriously, they will require even more diplomatic skills on the part of the current administration, and its successor, to fully restore fully the U.S.-China dialogue.

In these circumstances, it is no surprise that Washington has shown little interest in attending the Beijing events. Nor does the Obama administration want to be part of a demonstration of assertiveness weeks before a state visit to Washington by President Xi. History tells us that U.S.-China relations are going to get even more interesting than a parade.

       

       

       

There has been no shortage of news about South Africa’s recent economic and political turmoil—from its plummeting currency and slowing economy, to President Zuma’s cabinet shake-up, to weeks-long student protests over rising tuition fees in October.

Understanding what is driving political volatility requires understanding the central economic challenge facing South Africa’s major metropolitan regions: insufficient labor market opportunities for young people.

A recent Brookings report found that the unemployment rate among youth (ages 15 to 34) in Gauteng, the home province of the Johannesburg region, was nearly 40 percent, exceeding the 37 percent national rate. Young people continue to flock to Johannesburg, and the broader Gauteng City-Region that surrounds it, in search of economic opportunity. But the city-region has only created jobs at a 1.3 percent annual clip since 2000, far lower than peer regions like Shenzhen (8.2 percent), Istanbul (2.8 percent), and Santiago (2.4 percent), limiting its ability to absorb young workers. At the same time, the skills demands of the labor market have shifted as the region’s economy has transitioned from mining to more advanced services, creating a mismatch between what education and training systems are providing and what the labor market demands. This employment crisis matters for both economic competitiveness (output per worker growth, a rough measure of productivity, has stagnated since 2010) and economic justice (the unemployment rate for black South Africans is four times the rate for whites).

At a recent Global Cities Initiative event in Johannesburg local private, public, and civic leaders discussed both the immense scale of the youth unemployment challenge and an ambitious proposed solution: the youth skills empowerment initiative “Vulindlel’ eJozi” (a Zulu phrase meaning “open the way in Johannesburg”) created by the city of Johannesburg in partnership with the Harambee Youth Employment Accelerator. Of the approximately 1.6 million Johannesburg residents aged 19-34, just under half are not engaged in employment, education, or training. Vulindlel’ eJozi’s seeks to “reach 200,000 of these young people to meaningfully include and engage them in our economy over the next year.”

Vulindlel’ eJozi stands out for at least two reasons. Most glaringly is its sheer scale. Through its work with Harambee and other initiatives, the city of Johannesburg provided over 45,000 opportunities for youth to move towards employment during the first quarter of 2015. Second, the partnership leverages the resources and competencies of the private and civic sectors. Harambee has successfully trained and placed 20,000 youth in sustained formal employment with over 200 employers and ambitiously wants to engage 500,000 South African youth in their training programs. Constant employer feedback on what skills are demanded is one of the accelerator’s hallmarks, helping Harambee achieve higher trainee retention rates than industry averages.  

Youth unemployment, of course, is not a problem unique to South Africa. Recent Brookings research found that labor force participation, employment, and median earnings among American teens and young adults all declined between 2000 and 2014. How effectively the city of Johannesburg can build the institutional architecture to engage with private and NGO actors on a youth employment initiative at this scale will ultimately determine its success. These lessons could serve other cities well as they seek to deliver economic opportunity to their young people.

      

This year shone a bleak light on the deep racial divides of the U.S. The flash-points of Ferguson, Baltimore and Chicago gave new impetus to movements to reform the criminal justice system and policing. But behind the headlines, the evidence for wide, stubborn race gaps on economic and social indicators is perhaps more troubling still. 

Especially for black Americans, race gaps in family formation, employment, household income, wealth, educational quality, and neighborhood segregation have shown little­—if any—sign of improvement in recent years. The very first Social Mobility Memos was about the barriers to black upward mobility, and in recent months, we have been focusing increasingly on issues of race, place, and opportunity, and here, to close 2015, we recap 15 of our pieces on the subject, including pieces from our colleague Jonathan Rothwell on college, drugs and neighborhoods, and the first Brookings piece from our new nonresident scholar, William Julius Wilson. 

Our hope is that 2016 will see a much greater focus on race and opportunity in America. 

1. Five Bleak Facts on Black Opportunity, Richard V. Reeves and Edward Rodrigue

What would Martin Luther King Jr. think of America in 2015 if he’d lived to see his eighty-sixth birthday? No doubt, he’d be pleased by the legal and political advances of black Americans, crowned by the election and re-election of President Obama.

2. Four charts that show the opportunity gap isn’t going away, Richard V. Reeves

Child poverty rates are coming down slowly, according to figures from the Pew Research Center, except among one racial group: African Americans. This is the latest reminder that the economic gap between black and white Americans is not closing over time. Indeed, on some dimensions, it is widening.

3. Obama’s Post-Presidency? Tackling the Social Mobility Challenge for Black Men, Richard V. Reeves

President Obama’s initiative to boost opportunities for young black men—My Brother’s Keeper—looks to be a post-presidential plan, as much as presidential one. Valerie Jarrett, his closest aide, said that it was a vocation the president and first lady Michelle Obama will undertake “for the rest of their lives…That’s a moral, social responsibility that they feel will transcend the time that he’s president.”

4. School readiness gaps are improving, except for black kids, Richard V. Reeves

Between 1998 and 2010, inequality in school readiness—in terms of math, reading, and behavior—declined quite significantly, according to Reardon and Portilla’s analysis of ECLS data, being presented today at the Association for Public Policy Analysis and Management Annual Conference. This positive trend can be seen for gaps in both income and race (or at least, for Hispanic-white differences).

5. Rich Neighborhood, Poor Neighborhood: How Segregation Threatens Social Mobility, Patrick Sharkey

Racial segregation in American cities has declined slowly, but steadily over the past four decades. This is good news. Over the same timeframe, however, the level of economic segregation has been rising. Compared to 1970, the rich are now much more likely to live in different communities than the poor.

6. Segregation and concentrated poverty in the nation’s capital, Stuart M. Butler and Jonathan Grabinsky

The social mobility gap between black and white Americans has barely narrowed in the last decades, and sharp differences in access to opportunity persist. This racial opportunity gap can, in part, be traced back to the neighborhoods where whites and blacks grow up: research from urban sociologists like Patrick Sharkey and Robert Sampson shows the damaging effects racial segregation and concentrated neighborhood poverty can have on children’s life chances. Washington, D.C. is a case in point.

7. The other side of Black Lives Matter, William Julius Wilson

Several decades ago I spoke with a grieving mother living in one of the poorest inner-city neighborhoods on Chicago’s South Side. A stray bullet from a gang fight had killed her son, who was not a gang member. She lamented that his death was not reported in any of the Chicago newspapers or in the Chicago electronic media.

8. Guns and race: The different worlds of black and white Americans, Richard V. Reeves and Sarah Holmes

“The nation’s consciousness has been raised by the repeated acts of police brutality against blacks. But the problem of public space violence—seen in the extraordinary distress, trauma and pain many poor inner-city families experience following the killing of a family member or close relative—also deserves our special attention.”

9. Measuring the Racial Opportunity Gap, Richard V. Reeves and Quentin Karpilow

The U.S. is sharply divided by race, not least in terms of the opportunities for children—a point that a new report from the Annie E. Casey Foundation vividly shows. At every life stage, there are gaps between kids of different colors.

10. How the War on Drugs Damages Black Social Mobility, Jonathan Rothwell

The social mobility of black Americans has suffered collateral damage from the “War on Drugs.” Being convicted of a crime has devastating effects on the employment prospects and incomes of ex-felons and their children, as my Brookings colleagues and other scholars have found. These findings are often used to motivate efforts to reduce criminal behavior. They should also motivate changes in our criminal justice system, which unfairly punishes black Americans—often for victimless crimes that whites are at least as likely to commit.

11. Black Students at Top Colleges: Exceptions, Not the Rule, Jonathan Rothwell

A generation has been lost in the journey towards race equality in terms of income. The income gap between blacks and whites has been stuck since 1980. Why? Dozens of factors count, of course, but one in particular is worth further exploration: the underrepresentation of black students in elite colleges. As I noted in a previous blog, this could help to explain why blacks earn less than whites, even in the same occupation and with the same level of education.

12. The stubborn race and class gaps in college quality, Jonathan Rothwell

Increasing the number of low-income adults going to—and through—college is an important step towards greater social mobility and reduced income inequality. College is also an important tool for tackling race gaps. But the challenge is not just about quantity: college quality counts for a good deal, too.

13. Single black female BA seeks educated husband: Race, assortative mating and inequality, Edward Rodrigue and Richard V. Reeves

There is a growing trend in the United States towards assortative mating—a clunky phrase that refers to people’s tendency to choose spouses with similar educational attainment. Rising numbers of college-educated women play a key role in this change. It is much easier for college graduates to find and marry each other when there are more equal numbers of each gender within an educational bracket.

14. Sociology’s revenge: Moving to Opportunity (MTO) revisited, Jonathan Rothwell

Neighborhoods remain the crucible of social life, even in the internet age. Children do not stream lectures—they go to school. They play together in parks and homes, not over Skype. Crime and fear of crime are experienced locally, as is the police response to it.

15. Space, place, race: Six policies to improve social mobility, Richard V. Reeves and Allegra Pocinki

Place matters: that’s the main message of Professor Raj Chetty’s latest research. This supports the findings of a rich body of evidence from social scientists, but Chetty is able to use a large dataset to provide an even stronger empirical foundation. Specifically, he finds that children who move from one place to another have very different outcomes, depending on whether they move to a low-opportunity city or a high-opportunity one.

      

Everyone is struggling to understand why so many whites—including many who are not suffering economically—are rallying to the angry words and fearful music of Donald Trump's presidential campaign. Meanwhile, blacks and other minorities are sticking with the status-quo incrementalism of Hillary Clinton. It's an odd juxtaposition, but there's an explanation, one with far-reaching ramifications. A wide and growing optimism gap has opened between poor and middle-class whites and their counterparts of other races—and the former are the congenital pessimists.

My research finds deep divisions in our country—not just in terms of income and opportunity, but in terms of hopes and dreams. The highest costs of being poor in the U.S. are not in the form of material goods or basic services, as in developing countries, but in the form of unhappiness, stress, and lack of hope. What is most surprising, though, is that the most desperate groups are not minorities who have traditionally been discriminated against, but poor and near-poor whites. And of all racial groups in poverty, blacks are the most optimistic about their futures.

Based on a question in a Gallup survey asking respondents where they expected their life satisfaction to be in five years (on a 0-10 point scale), I find that among the poor, the group that scores the highest is poor blacks. The least optimistic group by far is poor whites. The average score of poor blacks is large enough to eliminate the difference in optimism about the future between being poor and being middle class (e.g. removing the large negative effect of poverty), and they are almost three times more likely to be higher up on the optimism scale than are poor whites. Poor Hispanics are also more optimistic than poor whites, but the gaps between their scores are not as large as those between blacks and whites.

In terms of stress—a marker of ill-being—there are, again, large differences across races. Poor whites are the most stressed group and are 17.8 percent more likely to experience stress in the previous day than middle-class whites. In contrast, middle-class blacks are 49 percent less likely to experience stress than middle-class whites, and poor blacks are 52 percent less likely to experience stress than poor whites (e.g. their odds of experiencing stress are roughly half those of poor whites.

Why does this matter? Individuals with high levels of well-being have better outcomes; they believe in their futures and invest in them. In contrast, those without hope for their futures typically do not make such investments. Remarkably, the poor in the U.S. (on average) are less likely to believe that hard work will get them ahead than are the poor in Latin America. Their lack of hope is even evident in the words they use, as David Leonhardt (2015) found in a Google search. The words of the wealthy—such as iPads, foam rollers, and exotic travel destinations—reflect knowledge acquisition and health-conscious behaviors; those of the poor -- such as guns, video games, diabetes, and fad diets—reflect desperation, short-term outlooks, and patched-together solutions.

What explains optimism among poor blacks compared to their white counterparts? Some scholars, such as Jeremy Jackson at the University of Michigan, highlight high levels of resilience and a strong sense of community among blacks, something which our data also suggests. There also may be an Obama effect, given the historical marker made by the election of the first African-American president, and support for President Obama remained steady among blacks over the course of his tenure.

And despite visible manifestations of black frustration, as in Baltimore and Ferguson, Mo., and continued gaps in wage, mobility, and education outcomes, there has been black progress. As Eduardo Porter of the New York Times wrote in 2015, at the same time that the gaps in achievement and proficiency have widened across income groups, they have narrowed between blacks (and Hispanics) and whites: The proficiency gap between the poor and the rich is nearly twice as large as that between black and white children. The overall black-white wage gap has also narrowed (black males earned 69 percent of the median wage for white males in 1970 and 75 percent by 2013 [CPS, 2014]).The gap in life expectancy between blacks and whites has also narrowed to its lowest point in history—3.4 years , at 75.6 years for blacks and 79 years for whites.

Poor and high school-educated whites have fallen in status, at least in relative terms. Andrew Cherlin (2016) finds that poor and middle-class blacks are more likely to compare themselves to parents who were worse off than they are, while most blue-collar whites are insecure and facing much more competition for jobs than their parents did. And the markers of their desperation are increasingly evident. Take the increase in mortality rates related to opioid addiction, suicide and other preventable causes among uneducated whites—but not blacks and Hispanics—which was first highlighted in a 2015 study by Anne Case and Angus Deaton, and has since been reported by others, including Joel Achenbach, Dan Keating, and colleagues (2016) in the Washington Post.

Another part of this story is the increasing distance between the lives of those at the top and bottom of the income distribution. Fear of falling behind is even starker if “success” is increasingly out of reach. Sergio Pinto and I (2016), for example, find that poor respondents who live in more unequal cities and suburbs report more stress and worry than those in more equal ones (based on Gallup data). And both poor and rich respondents who live in more unequal areas are less likely to report having family and friends they can rely on in times of need.

The American Dream of prosperity, equal opportunity, and stable democracy is being challenged by increasing income inequality, the hollowing out of the middle class, decreasing wages and increased insecurity for low-skilled workers, and rising mortality rates. We were, until recently, caught by surprise by the depth and breadth of the problem. If it does nothing else positive for our country, the widespread alarm caused by Donald Trump’s political rise and his promises to build walls, ban trade, and create further divisions within our society has woken us up.

The depth and scope of this problem requires difficult political fixes, such as long-term investments in public health and education. It requires developing new forms of social assistance—and language—which encourage hope rather than stigmatize poor recipients—something that Latin Americans have done successfully in recent years. It also requires reducing the distance between the lives of the rich and the poor, so that attaining success—and living the American Dream—is not something that seems forever out of reach for the poor. Finally, tracking well-being as a complement to GDP, as many countries are already doing, would provide an important gauge of the happiness and health of our society in the future—and prevent us from being as surprised by such trends as we were this time.

Carol Graham is the Leo Pasvolsky senior fellow at the Brookings Institution and author of “Happiness for All? Unequal Lives and Hopes in the Land of the Dream” (Princeton University Press, forthcoming).

       

       

       

Policy Brief #172

Why Institutions Matter

When experts and pundits are asked what the president and Congress should do to promote economic growth, they typically respond with a list of policies, often mixed with stylistic and political suggestions. Few focus on institutional change, which is too easy to conflate with yawn-inducing “governmental reorganization.”

This neglect of institutions is always a mistake, never more than in times of crisis. Throughout American history, profound challenges have summoned bursts of institutional creativity, with enduring effects. The dangerous inadequacies of the Articles of Confederation set the stage for a new Constitution. The Civil War resulted in three amendments that resolved—at least in principle—our founding ambivalence between the people and the states as the source of national authority, between the states and the nation as the locus of citizenship, and between slavery and the equality the Declaration of Independence had proclaimed and promised. Similarly, the Federal Reserve Board, Bretton Woods international economic system, Department of Defense, National Security Council, CIA, Congressional Budget Office and Department of Homeland Security all arose through changes occasioned by great challenges to the nation.

Today’s economic crisis is reflected in three distinct but linked deficits—the fiscal deficit, the savings deficit and the investment deficit. Meeting these challenges and laying the foundation for sustained economic growth will require institutional as well as policy changes. 

	RECOMMENDATIONS
	Today’s economic crisis is characterized by three distinct but linked deficits—the fiscal deficit, the savings deficit and the investment deficit. Meeting these challenges and laying the foundation for sustained economic growth will require institutional as well as policy changes. The following institution-based recommendations would help the nation meet the current economic crisis and could help prevent future crises of similar destructiveness. To promote fiscal sustainability, change longterm budget procedures and create empowered commissions—answerable to Congress but largely insulated from day-to-day politics. To boost savings, consider new mandatory individual retirement accounts as a supplement to Social Security. To improve public investment, create a National Infrastructure Bank with public seed capital—this entity would mobilize private investment and force proposed projects to pass rigorous cost-benefit analysis as well as a market test. Today’s polarized political system is an obstacle to reform in every area, including the economy. A multi-year collaboration between Brookings and the Hoover Institution produced a series of suggestions. At least two of those suggestions are worth adopting: Alter redistricting authority, so state legislatures can no longer practice gerrymandering. Experiment, in a few willing states, with compulsory voting—to move politicians away from the red-meat politics of appealing only to their bases, which now dominate elections, and toward a more moderate and consensual politics.

Institutional reform

Promoting fiscal sustainability

Setting the federal budget on a sustainable course is an enormous challenge. If we do nothing, we will add an average of nearly $1 trillion to the national debt every year between now and 2020, raising the debt/ GDP ratio to a level not seen since the early 1950s and sending the annual cost of servicing the debt sky-high. Restoring pay-as-you-go budgeting and putting some teeth in it are a start, but not nearly enough. We need radical changes in rules and procedures.

One option, recently proposed by a bipartisan group that includes three former directors of the Congressional Budget Office, would change the giant entitlement programs: Social Security, Medicare and Medicaid. The new rules would require a review every five years to determine whether projected revenues and outlays are in balance. If not, Congress would be required to restore balance through dedicated revenue increases, benefits cuts or a combination. After a financial crisis in the early 1990s, Sweden introduced a variant of this plan, which has worked reasonably well.A number of Brookings scholars—including Henry Aaron, Gary Burtless, William Gale, Alice Rivlin and Isabel Sawhill—have suggested a Value Added Tax (VAT) as part of a program of fiscal and tax reform. Burtless offers an intriguing proposal that would link a VAT to health care finance. Revenue from the VAT would be dedicated to—and would cover—the federal share of health care programs. If the federal cost rises faster than proceeds from the VAT, Congress would have to either raise the VAT rate or cut back programs to fit the flow of funds. The system would become much more transparent and accountable: because the VAT rate would appear on every purchase, citizens could see for themselves the cost of federal support for health care, and they could tell their representatives what balance they prefer between increased rates and reduced health care funding.

Another option draws on the experience of the Base Realignment and Closure Commission, which enables the military to surmount NIMBY politics and shut down unneeded bases. The basic idea is straightforward: once the independent commission settles on a list of proposed closures, Congress has the option of voting it up or down without amendment. A similar idea undergirds the president’s “fast-track” authority to negotiate proposed trade treaties, which Congress can reject but cannot modify.

Suitably adapted, this concept could help break longstanding fiscal logjams. Here is one way it might work. Independent commissions with members from both political parties could submit proposals in designated areas of fiscal policy. To increase bipartisan appeal, each proposal would require a super-majority of the commission. In the House and Senate, both the majority and the minority would have the opportunity to offer only a single amendment. This strategy of “empowered commissions” changes the incentive structure in Congress, reducing negative logrolling to undermine the prospects of proposals that would otherwise gain majority support.

Empowered commissions represent a broader strategy—using institutional design to insulate certain activities from regular and direct political pressure. For example, the Constitution mandates that federal judges, once confirmed, hold office during “good behavior” and receive salaries that Congress may not reduce during their term of service. (By contrast, many states subject judges to regular election and possible recall.) In another striking example, members of the Board of Governors of the Federal Reserve Board are appointed to 14-year non-renewable terms, limiting the ability of the executive branch to change its membership rapidly and removing governors’ incentives to trim their policy sails in hopes of reappointment. Additionally, action by neither the president nor any other entity in the executive branch is required to implement the Fed’s decisions, and Fed chairmen have been known to take steps that vex the Oval Office.

This strategy is controversial. Officials with populist leanings often argue that fundamental decisions affecting the economy should be made through transparent democratic processes. The counterargument: experience dating back to the founding of the republic suggests that when interest rates and the money supply are set at the whim of transient majorities, economic growth and stability are at risk.

Boosting savings

An adequate supply of capital is a precondition of long-term economic growth, and household saving is an important source of capital. During the 1960s, U.S. households saved 12 percent of their income; as recently as the 1980s, that figure stood at 8 percent. By 2005–2006, the savings rate dipped into negative territory, and today it stands at a meager 3 percent. In recent years, funds from abroad—principally Asia— filled the capital gap. But evidence is accumulating that foreign governments have reached the limit of their appetite (or tolerance) for U.S. debt. To avert a capital shortage and soaring interest rates, which would choke off growth, we must boost private savings as we reduce public deficits.

For a long time, tax incentives for saving have been the tool of choice. But as evidence mounts that these incentives are less effective than hoped, policy experts are turning to alternatives. One rests on a key finding of behavioral economics: default settings have a large impact on individual conduct and collective outcomes. If you require people to opt in to enter a program, such as 401(k) retirement plans, even a modest inconvenience will deter many of them from participating. But if you reverse the procedure— automatically enrolling them unless they affirmatively opt out—you can boost participation.

To achieve an adequate rate of private saving, we may need to go even further. One option is a mandatory retirement savings program to supplement Social Security. Workers would be required to set aside a fixed percentage of earnings and invest them in generic funds—equities, public debt, private debt, real estate, commodities and cash. For those who fail to designate a percentage allocation for each fund, a default program would take effect. (Participants always would have the option of regaining control.) As workers near retirement age, their holdings would be automatically rebalanced in a more conservative direction. One version of this proposal calls for “progressive matching,” in which low-earning individuals receive a subsidy equal to half their payroll contributions; those making more would get a smaller match along a sliding scale, and those at the top would receive no match at all.

This strategy requires careful institutional and programmatic design. To ensure maximum benefits to wage earners, the private sector would be allowed to offer only funds with very low costs and fees. To ensure that the program actually boosts net savings, individuals would be prohibited from withdrawing funds from their accounts prior to retirement; except in emergencies, they would not be allowed to borrow against their accounts; and they would be prohibited from using them as collateral. And a clear line would be drawn to prevent government interference in the private sector: while government-administered automatic default investments would be permitted, government officials could not direct the flow of capital to specific firms.

Improving public investment

The investment deficit has a public face as well. Since the early 19th century, government has financed and helped build major infrastructure projects—roads, bridges, ports and canals, among others, have spurred economic growth and opened new domestic and international markets. Recently, however, public infrastructure investment has fallen well short of national needs, and often has been poorly targeted. Americans travelling and working abroad are noticing that U.S. infrastructure is falling behind not only advanced countries’ but rapidly developing countries’ as well. A study by Emilia Istrate and Robert Puentes of Brookings’s Metropolitan Policy Program, presented in a December 2009 report entitled “Investing for Success,” documents three key shortcomings of federal infrastructure investment: it lacks long-term planning, fails to provide adequately for maintenance costs, and suffers from a flawed project selection process as benefits are not weighed rigorously against costs.

Istrate and Puentes explore several strategies for correcting these deficiencies. One of the most promising is a National Infrastructure Bank (NIB), to require benefit-cost analyses of proposed projects, break down financial barriers between related types of investment (facilitating inter-modal transportation, for example), and improve coordination across jurisdictional lines. The NIB could be funded through a modest initial infusion of federal capital designed to attract private capital. Projects receiving loans from the NIB would have to provide for depreciation and document the sources of funds to repay the face amount of each loan, plus interest. In short, the NIB would be more than a conduit for the flow of federal funds; it would function as a real bank, imposing market discipline on projects and making infrastructure investments attractive to private capital, partly by providing flexible subordinated debt.

Istrate and Puentes identify diverse problems that designers of an NIB would confront. Insulating the selection process from political interference would pose serious difficulties, as would providing federal seed capital without increasing the federal deficit and debt. Requiring the repayment of loans could skew project awards away from projects that cannot easily charge user fees—wastewater and environmental infrastructure projects, for example. Despite these challenges, a properly designed bank could increase the quantity of infrastructure investment while improving its effectiveness, reducing bottlenecks and promoting economic efficiency. The potential benefits for long-term growth would be considerable.

Creating the Political Conditions for Reform

The rise of political polarization in recent decades has made effective action much more difficult for the U.S. government. Polarization has impeded efforts to enact even the progrowth reforms sketched in this paper. A multiyear collaboration between the Brookings and Hoover Institutions—resulting in a two-volume report, Red and Blue Nation?, with Volume One published in 2006 and Volume Two in 2008— has mapped the scope of the phenomenon. This effort has shown that, while political elites are more sharply divided than citizens in general, citizens are more likely now to place themselves at the ends of the ideological spectrum than they were as recently as the 1980s. With a smaller political center to work with, even leaders committed to bipartisan compromise have been stymied. The fate of President Bush’s 2005 Social Security proposal illustrates the difficulty of addressing tough issues in these circumstances.

It might seem that the only cure for polarization is a shift of public sentiment back toward moderation. The Brookings-Hoover project found, however, that changes in institutional design could reduce polarization and might, over time, lower the partisan temperature. Here are two ideas, culled from a much longer list.

Congressional redistricting

While population flows account for much of the growth in safe seats dominated by strong partisans, recent studies indicate that gerrymanders account for 10 to 36 percent of the reduction in competitive congressional districts since 1982. This is not a trivial effect.

Few Western democracies draw up their parliamentary districts in so patently politicized a fashion as do U.S. state legislatures. Parliamentary electoral commissions, operating independently and charged with making reasonably objective determinations, are the preferred model abroad.

Given the Supreme Court’s reluctance to enter the thicket of redistricting controversies, any changes will be up to state governments. In recent years, voter initiatives and referenda in four states—Washington, Idaho, Alaska and Arizona—have established nonpartisan or bipartisan redistricting commissions. These commissions struggle with a complicated riddle: how to enhance competitiveness while respecting other parameters, such as geographic compactness, jurisdictional boundaries, and the desire to consolidate “communities of interest.” Iowa’s approach, where a nonpartisan legislative staff has the last word, is often cited as a model but may be hard to export to states with more demographic diversity and complex political cultures. Arizona has managed to fashion some workable, empirically based standards that are yielding more heterogeneous districts and more competitive elections.

Incentives to participate

Another depolarizing reform would promote the participation of less ideologically committed voters in the electoral process. Some observers do not view the asymmetric power of passionate partisans in U.S. elections as a cause for concern: Why shouldn’t political decisions be made by the citizens who care most about them? Aren’t those who care also better informed? And isn’t their intensive involvement an indication that the outcome of the election affects their interests more than it affects the interests of the non-voters? While this argument has surface plausibility, it is not compelling. Although passionate partisanship infuses the system with energy, it erects road-blocks to problem-solving. Many committed partisans prefer gridlock to compromise, and gridlock is no formula for effective governance.

To broaden the political participation of less partisan citizens, who tend to be more weakly connected to the political system, several major democracies have made voting mandatory. Australia, for one, has compulsory voting; it sets small fines for non-voting that escalate for recidivism, with remarkable results. The turnout rate in Australia tops 95 percent, and citizens regard voting as a civic obligation. Near-universal voting raises the possibility that a bulge of casual voters, with little understanding of the issues and candidates, can muddy the waters by voting on non-substantive criteria, such as the order in which candidates’ names appear on the ballot. The inevitable presence of some such “donkey voters,” as they are called in Australia, does not appear to have badly marred the democratic process in that country.

Indeed, the civic benefits of higher turnouts appear to outweigh the “donkey” effect. Candidates for the Australian Parliament have gained an added incentive to appeal broadly beyond their partisan bases. One wonders whether members of Congress here in the United States, if subjected to wider suffrage, might also spend less time transfixed by symbolic issues that are primarily objects of partisan fascination, and more time coming to terms with the nation’s larger needs. At least campaigns continually tossing red meat to the party faithful might become a little less pervasive.

The United States is not Australia, of course. Although both are federal systems, the U.S. Constitution confers on state governments much more extensive control over voting procedures. While it might not be flatly unconstitutional to mandate voting nationwide, it would surely chafe with American custom and provoke opposition in many states. Federalism American-style also has some unique advantages, including its tradition of using states as “laboratories of democracy” that test reform proposals before they are elevated to consideration at the national level. If a few states experiment with compulsory voting and demonstrate its democracy- enriching potential, they might, in this way, smooth the path to national consideration.  

Conclusion

In challenging times, political leaders undertake institutional reform, not because they want to, but because they must. Our own era—a period of profound economic crisis—is no exception. Even in circumstances of deep political polarization, both political parties have accepted the need to restructure our system of financial regulation.

As well, recognition is growing that we face three key challenges—a fiscal deficit, a savings deficit and an investment deficit—that have eluded control by existing institutions and, unless checked, will impede long-term economic growth. The question is whether we will be able to adopt the needed changes in an atmosphere of reflection and deliberation, or whether we will delay until a worse crisis compels us to act.

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Policy Brief #175

As the nation strives to recover from the “Great Recession,” job creation remains one of the biggest challenges to renewed prosperity. Small businesses have been among the most powerful generators of new jobs historically, suggesting the value of a stronger focus on supporting small businesses—especially high-growth firms—and encouraging entrepreneurship. Choosing the right policies will require public and private decision-makers to establish clear goals, such as increasing employment, raising the overall return on investment, and generating innovations with broader benefits for society. Good mechanisms will also be needed for gauging their progress and ultimate success. This brief examines policy recommendations to strengthen the small business sector and provide a platform for effective programs. These recommendations draw heavily from ideas discussed at a conference held at the Brookings Institution with academic experts, successful private-sector entrepreneurs, and government policymakers, including leaders from the Small Business Administration. The gathering was intended to spur the development of creative solutions in the private and public sectors to foster lasting economic growth.

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	What incentives and assistance could be made available to “gazelles” and to small business more generally? What policies are likely to work most effectively? In the near term, government policies aimed at bolstering the recovery and further strengthening the financial system will help small businesses that have been hard hit by the economic downturn. Spurred by the interchange of ideas at a Brookings forum on small businesses, we have identified the following more targeted ideas for fostering the health and growth of small businesses (and, in many cases, larger businesses) over the longer run: Improve access to public and private capital. Reexamine corporate tax policy with an eye toward whether provisions of our tax code are discouraging small business development. Promote education to help businesses struggling with shortages of workers with particular skills, and promote research to spur innovation. Rethink immigration policy, as current policy may be contributing to shortages of key workers and deterring entrepreneurs who wish to start promising businesses in our country. Explore ways to foster “innovation-friendly” environments, such as regional cluster initiatives. Strengthen government counseling programs.

The term “small business” applies to many different types of firms. To begin, the small business community encompasses an enormous range of “Main Street” stores and services we use every day, such as restaurants, dry cleaners, card shops and lawn care providers. When such a business fails, it is often replaced by a similar firm. The small business community also includes somewhat bigger firms—in industries such as manufacturing, consulting, advertising and auto sales—that may have more staying power than Main Street businesses, but still tend to stay relatively small, with under 250 employees. While these two kinds of small businesses contribute relatively little to overall employment growth, they are a steady source of mainstream employment. If economic conditions do not support the formation of new businesses to replace the ones that fail, there would be a significant net destruction of jobs and harm to local communities.

Yet another type of small business has an explicit ambition for rapid growth. These high-growth companies are sometimes known as “gazelles.” According to the Small Business Administration, small businesses account for two-thirds of new jobs, and the gazelles account for much of this job creation. The most striking examples—such as Google and eBay—have tended to be in high-tech industries and were gazelles for a significant time before they graduated to be very large businesses. However, gazelles exist in all industry types and in all regions of the country, and the large majority are not grazing in the nation’s technology-dominated Silicon Valleys. According to one expert, the three largest industry categories for high-growth companies are restaurant chains, administrative services and health care companies. One non-high-tech example is Potbelly Sandwiches, a restaurant chain that began in Chicago. Another is the San Francisco-based Gymboree Corporation, a provider of child development programs and children’s clothing.

 

Fostering the Development of High-Growth Companies

High-growth small businesses represent only about 5 percent of total startups, making it important to determine how to spot and foster them. A key common characteristic is that growth is critically dependent on the entrepreneurs who start these companies; they are people on a mission, charismatic leaders who can inspire creativity and commitment from their staffs.

The age of these firms is highly correlated with when their growth is highest. Generally, the most dramatic growth occurs after at least four years of existence—and coincidentally lasts about four years—before it slows again to a more typical pace for small businesses. Of course, some firms such as Google defy this pattern and continue to experience high growth for many years.

Although dynamic small businesses can be found nearly everywhere and in many industries, some regions spawn more of them than others. These regions may have especially supportive features, such as a critical mass of potential workers with relevant skills, a social climate and network that encourage idea generation, locally available venture capital, or some combination of these factors.

Unfortunately, attempts to anticipate which companies or even industries are likely to produce gazelles are prone to error. Thus, excessive emphasis on national industrial policies that favor specific industries are likely misplaced. Without knowing how to target assistance precisely, broad strategies, such as assistance with funding, knowledge, contacts and other essential resources, may be the best approach to fostering high-growth businesses. Such support has the added value of also aiding Main Street businesses.

Many of the most promising policies focus on removing obstacles that hinder entrepreneurs with solid business plans from launching and expanding their businesses.

Funding

As a result of the burst of the dot.com bubble in early 2000 and the recent financial crisis, small businesses have found the availability of venture capital funds drastically diminished. The crisis has also made it more difficult to obtain funding from banks and other conventional means. These trends particularly affect the “missing middle” of small businesses—roughly, those with between 10 and 100 employees.

The venture capital market. Historically, venture capital has financed only a relatively small portion of small businesses, but those financed have tended to be the ones with the greatest growth potential. In recent years, firms that eventually grew to where they could issue initial public stock offerings generally relied more heavily on venture capital financing than the average small business.

The dollar value of venture capital deals funded today is only about one-fifth the size it reached at its peak. While the peak amount may have been too large, today’s value is probably too small. With their capital heavily invested in a small range of industries and locales, it seems likely that venture capital firms have missed a high proportion of potential investment opportunities. Further, “once burned, twice shy” funders have increasingly focused on larger, later-stage ventures. Consequently, mezzanine financing, which new companies need to survive and thrive in the critical early stages, is scarce.

The funding problems partly stem from venture capital firms today having less money to invest. Some investors who formerly contributed to such firms have become more risk-averse, and worse performance figures have discouraged new investors. Lack of venture capital affects some industries more than others, and even some green energy companies—viewed by some as one of the nation’s more promising industry sectors—have moved to China, where financial support is more readily available.

Bank lending. In contrast to large businesses, which can turn to capital markets for funding, many small businesses are dependent on banks for financing. Although the worst of the 2008–09 credit crunch is behind us, many small businesses still find it difficult to obtain bank loans. Community banks, a key source of small business financing, have been hard hit by losses in commercial real estate, which have limited their lending capacity. Further, many small business owners who historically would have used real estate assets as collateral for expansion loans can no longer do so because of declines in real estate prices. In addition, small businesses that have, in the past, used credit cards to purchase equipment and supplies have been hindered by reductions in credit limits.

Overall economic conditions

The high degree of uncertainty currently surrounding the economic and financing climate may have prompted many entrepreneurs and would-be entrepreneurs to hold off on growth plans. Despite their reputation as high-flying risk-takers, good entrepreneurs take only calculated risks, where the benefits outweigh the dangers. Uncertainties about the future trajectory of the economy merely increase risk without raising potential rewards.

Government policies

Government policies affect the climate for small businesses in many ways. For example, small businesses face substantial hurdles when entering the complicated world of federal grants and contracts. At the state level, severe budget shortfalls mean that even well-designed initiatives to boost small businesses may founder.

The Small Business Administration (SBA) assists the full continuum of small businesses through a variety of means. These include: an $80 billion loan guarantee portfolio; specialized counseling and training centers; specialized business development programs targeting the socially and economically disadvantaged; oversight to ensure that at least 23 percent of federal government contracts go to small businesses (with certain preferences for minority and women-owned businesses); and the Small Business Innovation Research and Small Business Investment Companies programs.

The Obama administration is attempting to broaden support for small businesses by bringing the SBA into multi-agency initiatives that tackle common problems. For example, the Departments of Energy, Commerce, Housing and Urban Development, Education, and Labor, along with the National Science Foundation and the SBA, are supporting a five-year, nearly $130 million Energy Regional Innovation Cluster.

Strength of “social capital”

Through the 1990s, the United States was a worldwide leader in fostering innovation and entrepreneurship and reaped the reward of employment growth. Current international comparisons suggest that we are now closer to tenth place among some 70 nations in our ability to support innovation. Much of what has kept our nation from remaining in the top spot appears to relate to insufficient cultural support for entrepreneurship.

Strong social networks in specific geographic regions appear to substantially bolster the growth of innovative businesses. These networks are built around entrepreneurial dealmakers who serve as the nodes of the network, forming connections among researchers, entrepreneurs and investors. Unfortunately, many regions and industries lack strong networks.

Access to decision-making information. Entrepreneurs need an array of information and advice about how to tackle the problems that arise at different stages in business development. The SBA reports that companies that have taken advantage of their long-term counseling programs, for example, have higher growth than companies that have not.

Opportunity for all. Social networks are self-selecting, and some people have to work extra hard to gain entry to a region’s network of entrepreneurs. While various organizations exist to help women and people of color access entrepreneurial skills and information, these efforts may not suffice. Under-representation of any group presumably would filter out a number of potential high-growth companies.

Workforce issues

A long-time strength of the American workforce, worker mobility has declined. This trend has been attributed in part to an aging population and in part to the current difficulty people have in selling their homes. Businesses report difficulty finding employees with the right training, especially at the technician level, where straightforward vocational training could help.

Global competition

Increasing global competition for good projects, entrepreneurs and capital is a positive trend from an international perspective, but runs counter to the national goal of promoting rapid growth in U.S. industry and employment. Today, many entrepreneurs can choose among starting a business here, in their home country, or even in a third, more hospitable nation. At the same time, current U.S. immigration policy hinders entrepreneurs from coming here to launch their companies. A recent report from The Brookings- Duke Immigration Policy Roundtable concluded that “educated workers with the knowledge and skills to innovate are critical” to the United States and recommended increasing the annual number of skilled visas.

 

Policy Goals for Small Business

Measuring Results

More work is needed to identify key policy goals and priorities related to small business success. Critically, what would constitute “improvement” in public policy regarding small business employment, and how would we measure it? Clearly, increasing the total number of jobs created each year (by both small and large businesses, net of job destruction) would be a positive outcome, all else being equal. Another potential goal would be improving the “quality” of the jobs created, as measured by average compensation or by job creation in new industries or geographic areas where unemployment is high. Creating “good jobs” that bring generous compensation would seem to be always desirable, but this outcome could conflict with other social goals, for example, if the jobs created required skills out of the reach of groups that are traditionally difficult to employ.

Slowing job destruction could be as important as increasing the creation of new jobs, but discouraging layoffs without increasing performance would do more harm than good. The trick is to raise the quality of marginal firms so that their improved performance allows them to retain employees they would otherwise have to let go.

A final key factor in setting policy goals that would support small businesses is measuring the cost to taxpayers of the initiatives that flow from the goals. This includes the subsidy cost contained in the federal budget, as well as costs and tradeoffs in society at large.

Changing Key Policies

Small businesses face both short-run and long-run challenges. With regard to the former, many small businesses have been hard hit by the recession and appear to be lagging behind larger businesses in their recovery. The cyclical struggles of this sector in part reflect the dependence of many small firms on the still-strained banking system for their financing; they also reflect the high toll that our extremely soft labor markets have taken on demand for Main Street goods and services. Thus, government policies aimed at broadly bolstering the recovery and further strengthening the financial system will yield important benefits to small businesses.

The government, in conjunction with the private sector, can also take steps that will foster an economic environment that is supportive of entrepreneurship and economic growth over the long run. Specific policy steps that might help small businesses (and, in many cases, large businesses) include:

Improve access to public and private capital. Implementing serious financial reform will reduce the likelihood that we will see a repeat of the recent credit cycle that has been so problematic for the small business sector. When credit market disruptions do occur, policymakers should be attentive to whether temporary expansions of the SBA loan guarantee program are needed to sustain lending to creditworthy borrowers. The SBA should also consider expanding the points of access to its loan programs through an expansion of its lending partners. Finally, the SBA (or a similar entity) might encourage venture capital funds to broaden their investments beyond familiar areas by systematically bringing these investors together with entrepreneurs from neglected geographic regions and business sectors.

Reexamine corporate tax policy. More thinking is needed about whether provisions in our tax code discourage small business development in a way that is harmful to the broader economy and that places the United States at a relative disadvantage internationally. For example, Congress might consider whether it would be beneficial, on net, to lower employment taxes as a way of spurring hiring at businesses with high-growth potential. In addition, some analysts believe there would be gains from increasing tax credits for research and development and further lowering taxes on capital equipment. A design priority in all cases should be simplicity, as complicated rules can limit take-up among smaller firms that do not have extensive accounting or legal expertise.

Promote education and research. Entrepreneurs report difficulty in finding workers with the skills they need for manufacturing, technology and other jobs that do not require four-year college degrees. Access to such educational opportunities, including tailored vocational training, should be affordable and ubiquitous.

At the university level, improvements are needed in the way academic research is brought to the commercial market. Continued public and private support for basic research might be wise, particularly if we are in a trough between waves of innovation, as some analysts believe. The large investments by the National Science Foundation, National Institutes of Health, Defense Advanced Research Projects Agency, and other ambitious public and private programs laid the groundwork for many of the high-growth businesses of today. It may be worth exploring whether support for research in “softer” areas than the sciences might do an equal or better job of inspiring innovations.

Rethink immigration policy. A reconsideration of limits on H1-B visas might help entrepreneurs struggling with shortages of workers with particular skills. In addition, current immigration policy discourages immigrants who want to establish entrepreneurial businesses in America. Any efforts to expand immigration are frequently perceived as “taking jobs away from Americans,” but studies have shown that new businesses create jobs for Americans.

Explore ways to foster “innovation-friendly” environments. Some regions of the United States clearly do a better job of encouraging innovation. Silicon Valley is the classic example, but there may be as many as 40 such clusters scattered around the country. While clusters often arise organically, typically near major universities, some states have made an explicit commitment to innovation and entrepreneurship. Examples include the Massachusetts Technology Collaborative and California’s Biological Technologies Initiative, involving community colleges statewide. Federal, state and local policymakers should keep a keen eye on ways of adapting best practices from these initiatives as information becomes available about which elements are most effective.

Strengthen government counseling programs. The SBA might do more to expand and tailor its already successful growth counseling programs to better meet the needs of both Main Street and potential high-growth businesses, as well as firms at different developmental stages. Any effort to expand small businesses’ opportunities for federal grants and contracts should be accompanied by significant streamlining of the application process.

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Food safety is not a problem unique to China, though it is certainly one of the country’s most pressing and persistent challenges. On April 28, 2016, the John L. Thornton China Center hosted a public event to discuss food safety in China and what new regulations might mean for consumers and businesses.

Revised food safety law a step in the right direction

China’s revised Food Safety Law, enacted in October 2015, is intended to strengthen the regulation of food companies in China and enhance oversight along the supply chain. The law imposes tougher consequences on violators of food safety regulations. The revised Food Safety Law is a step in the right direction, but improving food safety will require more than just new regulations. Greater inter-agency coordination is needed among the various government entities with regulatory responsibility for food safety, including the China Food and Drug Administration, the Ministry of Agriculture, the National Health and Planning Commission, and the General Administration of Quality Supervision, Inspection and Quarantine.

China has done relatively better in enforcing food safety and quality standards for its food exports than it has for its domestic food market. A disparity between export quality and what is found in local markets is not uncommon in developing countries. But after several large-scale food safety incidents, domestic Chinese consumers are now paying close attention to the quality of their food and are no longer willing to accept such a disparity. Setting and enforcing higher food safety standards domestically is important for maintaining public health and for increasing consumer confidence. The latter will take time but is an indispensable component of the consumption-driven economy that China seeks.

Industry consolidation needed

One of the biggest obstacles facing Chinese food safety regulators is a still-fragmented domestic food industry with many small players. The increase in regulatory requirements and inspections mandated by the new law will raise the costs of doing business and likely lead to industry consolidation, which would help make the domestic Chinese food industry more manageable from a regulatory perspective. Emerging trends that see consumers buying food products from small and perhaps unverified retailers online actually make the jobs of regulators more difficult. This is because products are harder to trace—and, if there is a problem, to recall—when transactions occur through nontraditional retail channels. Traceability is critical to ensuring food safety because it allows problematic food items to be identified. The responsible firm can then correct the situation and each actor in the supply chain can be held accountable.

The Chinese government is already supporting initiatives that aggregate production units at the farm level. These farmer production bases enable farmers to coordinate food production and marketing to larger retailers. Participating farms have been provided with safe pesticides and guidelines on pesticide application; they are also able to sell to large retailers directly. These direct farmer-retailer relationships allow for greater traceability and facilitate the spot-checking that is necessary for verification. This model holds promise for improving food safety, especially as it pertains to pesticide application, but it will need to be scaled up to have a meaningful impact on China’s domestic food market.

What can China learn from other countries?

Since China is not alone in facing food safety challenges, it can learn lessons from the experiences of other countries. According to Vivian Hoffmann of the International Food Policy Research Institute, “there are many ways in which the public sector can harness the capacity and energy of the private sector to make food safety regulation more efficient.” For instance, China could consider greater co-regulation, which is a strategy that involves the private sector in regulation. Allowing firms to give input when regulators are setting standards can help prevent situations where unattainable standards are either crippling for companies or just ignored altogether. Hoffman is clear to note that allowing firms to give input does not mean compromising on consumer safety. Rather, it would create a more transparent process that would allow companies time to work up to higher standards if necessary. Private companies could be involved in testing their own products, but verification testing would still be needed.

Open communication with consumers is also important. The risk-based approach to food safety, which is the international norm and which China has also adopted, entails a particular challenge: Sometimes what consumers think is the most dangerous aspect of the food supply is different from scientists’ perceptions and knowledge of risk. For example, scientists may focus on biological contaminants while consumers worry about pesticides and additives. The concerns of consumers should be taken into account when setting priorities, but experts also need to explain why their concerns may be different. Communication and transparency are essential for bridging this disconnect. Chenglin Liu of St. Mary’s School of Law similarly stresses transparency as a key ingredient in improving China’s food safety situation. Broader capacity building efforts—as it relates to rule of law, an independent judiciary, and independent journalism—will help improve the enforcement of regulations.

The country’s revised Food Safety Law is a step in the right direction, but it is not enough to resolve China’s food safety woes. Regulatory enforcement remains a challenge. Fortunately, it is by no means an insurmountable one. Vigilant consumers will continue to demand higher-quality and more-traceable food products, a trend that puts increasing pressure on regulators to enforce high standards and that also presents great opportunities for proactive businesses.

       

       

       

Editors’ Note: According to a new Pew poll, half of Israeli Jews have come to seek not only a Jewish majority but even Jewish exclusivity in Israel. That doesn’t bode well for Arab-Jewish coexistence in Israel, writes Shibley Telhami—even aside from what happens in the West Bank and Gaza. This post originally appeared on the Monkey Cage blog.

When U.S. leaders and commentators warn that the absence of a two-state solution to the Israeli-Palestinian conflict will make it impossible for Israel to be both a Jewish and democratic state, they generally mean that a Jewish democracy requires a Jewish majority; if Israel encompasses the West Bank and Gaza, Arabs will become a majority. What they may not have realized is that, in the meantime, half of Israeli Jews have come to seek not only a Jewish majority but even Jewish exclusivity.

That is one of the most troubling findings of a new Pew poll in Israel. And it doesn’t bode well for Arab-Jewish coexistence in Israel—even aside from what happens in the West Bank and Gaza.

This major study was conducted from October 14, 2014, to May 21, 2015, among 5,601 Israeli adults ages 18 and older. (Disclosure: I served as an adviser to the project). It found that 48 percent of all Israeli Jews agree with the statement “Arabs should be expelled or transferred from Israel,” while 46 percent disagreed. Even more troubling, the majority of every non-secular Jewish group, including 71 percent of Datim (modern orthodox Jews) agreed with the statement.

While age is not much of a factor when it comes to attitudes toward expelling Arabs from Israel, younger Israelis are slightly more likely to agree with the statement that Arabs should be expelled than older Israelis.

These attitudes are anchored in a broader view of identity and of the nature of the Israeli state. Overall, only about a third of Israeli Jews say their Israeli identity takes precedence over their Jewish identity, with the overwhelming majority of every group, except for secular Jews, saying their Jewishness comes first.

This view has consequences for citizen rights. Not surprisingly, the overwhelming majority of all Jewish Israelis (98 percent) feel that Jews around the world have a birthright to make aliya (immigration to Israel with automatic Israeli citizenship). But what is striking is that 79 percent of all Jews, including 69 percent of Hilonim (secular Jews) say that Jews deserve “preferential treatment” in Israel—so much for the notion of democracy with full equal rights for all citizens.

These attitudes spell trouble for Arab citizens of Israel who constitute 20 percent of Israel’s citizens. It’s true that attitudes are dynamic; they are partly a function of Jewish-Arab relations within Israel itself, but also outside, especially within the broader Palestinian-Israeli conflict. Like their Jewish counterparts, Arab citizens of Israel (mostly Muslim, but also including Christians and Druze), identify themselves with their ethnicity (Palestinian or Arab) or religion above their Israeli citizenship. And these ethnic/religious identities intensify when conflict between Israel and the Palestinians in the West Bank and Gaza intensifies. There is no way to fully divorce the broader Palestinian-Israeli conflict from Arab-Jewish relations within Israel.

In recent years, this latter linkage has become central for two reasons: loss of hope for a two-state solution, and the rise of social media that has displayed extremist attitudes that used to be limited to private space. In the era of Facebook and Twitter, Arab and Jewish citizens post attitudes that deeply offend the other: An Arab expresses joy at the death of Israeli soldiers killed by Palestinians, while a Jew posts a sign reading “death to Arabs.” Hardly the stuff of co-existence. Leave it to opportunist politicians, extremists and incitement to do the rest.

But there is also an American responsibility—not so much with regard to failure of diplomatic efforts, but with the very positing of the nature of the conflict itself, and the nature of the state of Israel. As President Obama considers steps he could undertake on the Israeli-Palestinian conflict before leaving office, he may contemplate addressing what has become a distorting and detrimental discourse that serves to give a pass to non-democratic attitudes, and diversion of attention from core problems.

First, there is something wrong with positing the possibility of Arabs as constituting a demographic problem for Israel. It legitimizes the privileging of Jewishness over democracy. It also distorts the reason why Israel is obligated to end occupation of the West Bank and Gaza; it has nothing to do with the character of Israel as such, but with international law and United Nations resolutions.

Second, while states can define themselves as they wish (and are accepted by the international community accordingly), the American embrace of the “Jewishness” of Israel, cannot be decoupled from the Palestinian-Israeli context, or from the overarching American demand that all states must be for all their citizens equally.

In part, this is based on the notion that the UN General Assembly (Resolution 181) recommended in 1947 dividing mandatory Palestine into an “Arab” and a “Jewish” State. In part, it’s based on the notion that the Palestinian-Israeli conflict is a political conflict that can be resolved through two states, one manifesting the self-determination of Jews as a people, and one manifesting the right of self-determination of Palestinians as a people. The two were bound together. An embrace of a Jewish state that excludes a Palestinian state defeats the principle.

If two states become impossible, America chooses democracy over Jewishness. In fact, this has been consistently reflected in American public attitudes across the political spectrum, most recently in this November 2015poll; in the absence of a two-state solution, 72 percent of Americans would want a democratic Israel, even if it meant that Israel ceases to be a Jewish state with a Jewish majority.

More centrally, even with two states—one manifesting Jewish self determination and one Palestinian self-determination—an overarching, principled American position takes precedence: If Israel is a state of the Jewish people, it must also be above all a state of all its citizens equally; (and if Palestine is to be a state of the Palestinian people, it must also be a state of all its citizens equally). This democratic principle, highlighted front and center in a reformulated American position, can help avoid legitimizing undemocratic attitudes in the name of Jewish identity.

      

Many proposals to accelerate and improve medical product innovation and regulation focus on reforming the product development and regulatory review processes that occur before drugs and devices get to market. While important, such proposals alone do not fully recognize the broader opportunities that exist to learn more about the safety and effectiveness of drugs and devices after approval. As drugs and devices begin to be used in larger and more diverse populations and in more personalized clinical combinations, evidence from real-world use during routine patient care is increasingly important for accelerating innovation and improving regulation.

First, further evidence development from medical product use in large populations can allow providers to better target and treat individuals, precisely matching the right drug or device to the right patients. As genomic sequencing and other diagnostic technologies continue to improve, postmarket evidence development is critical to assessing the full range of genomic subtypes, comorbidities, patient characteristics and preferences, and other factors that may significantly affect the safety and effectiveness of drugs and devices. This information is often not available or population sizes are inadequate to characterize such subgroup differences in premarket randomized controlled trials.

Second, improved processes for generating postmarket data on medical products are necessary for fully realizing the intended effect of premarket reforms that expedite regulatory approval. The absence of a reliable postmarket system to follow up on potential safety or effectiveness issues means that potential signals or concerns must instead be addressed through additional premarket studies or through one-off postmarket evaluations that are more costly, slower, and likely to be less definitive than would be possible through a better-established infrastructure. As a result, the absence of better systems for generating postmarket evidence creates a barrier to more extensive use of premarket reforms to promote innovation.

These issues can be addressed through initiatives that combine targeted premarket reforms with postmarket steps to enhance innovation and improve evidence on safety and effectiveness throughout the life cycle of a drug or device. The ability to routinely capture clinically relevant electronic health data within our health care ecosystem is improving, increasingly allowing electronic health records, payer claims data, patient-reported data, and other relevant data to be leveraged for further research and innovation in care. Recent legislative proposals released by the House of Representatives’ 21st Century Cures effort acknowledge and seek to build on this progress in order to improve medical product research, development, and use. The initial Cures discussion draft included provisions for better, more systematic reporting of and access to clinical trials data; for increased access to Medicare claims data for research; and for FDA to promulgate guidance on the sources, analysis, and potential use of so-called Real World Evidence. These are potentially useful proposals that could contribute valuable data and methods to advancing the development of better treatments.

What remains a gap in the Cures proposals, however, is a more systematic approach to improving the availability of postmarket evidence. Such a systematic approach is possible now. Biomedical researchers and health care plans and providers are doing more to collect and analyze clinical and outcomes data. Multiple independent efforts – including the U.S. Food and Drug Administration’s Sentinel Initiative for active postmarket drug safety surveillance, the Patient-Centered Outcomes Research Institute’s PCORnet for clinical effectiveness studies, the Medical Device Epidemiology Network (MDEpiNet) for developing better methods and medical device registries for medical device surveillance and a number of dedicated, product-specific outcomes registries – have demonstrated the potential for large-scale, systematic postmarket data collection. Building on these efforts could provide unprecedented evidence on how medical products perform in the real-world and on the course of underlying diseases that they are designed to treat, while still protecting patient privacy and confidentiality.

These and other postmarket data systems now hold the potential to contribute to public-private collaboration for improved population-based evidence on medical products on a wider scale. Action in the Cures initiative to unlock this potential will enable the legislation to achieve its intended effect of promoting quicker, more efficient development of effective, personalized treatments and cures.

What follows is a set of both short- and long-term proposals that would bolster the current systems for postmarket evidence development, create new mechanisms for generating postmarket data, and enable individual initiatives on evidence development to work together as part of a broad push toward a truly learning health care system.

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Despite the undeniable benefits of education to society, the educational needs, particularly in the world’s poorest countries, remain strikingly great. There are more than 67 million children not enrolled in primary school around the world, millions of children who are enrolled in school but not really learning, and too few young people are advancing to secondary school (van der Gaag and Adams 2010). Consider, for instance, the number of children unable to read a single word of connected text at the end of grade two: more than 90 percent in Mali, more than 50 percent in Uganda, and nearly 33 percent in Honduras (USAID n.d.).

With more young people of age 12 to 24 years today than ever before who are passing through the global education system and looking for opportunities for economic and civic participation, the education community is at a crossroads. Of the 1.5 billion young people in this age group, 1.3 billion live in developing countries (World Bank 2007). The global community set the goal of achieving universal primary education by 2015 and has failed to mobilize the resources necessary, as UNESCO estimates that $16.2 billion in external resources will be need to reach this goal.

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Results from this report were presented at an April 6 Center on Universal Education event at the Brookings Institution.

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Interpreting employment stats among young people can be tricky. No one expects employment rates among teens or people in their early 20s to reach those of prime-age workers. These are prime years for what economists call “investing in human capital,” an activity most people would describe as “going to school.”

Education requirements for good jobs are getting higher, so finishing high school and earning a post-secondary credential like two or four-year college degrees, apprenticeships, or certifications are top priorities. But early work experiences can allow young people to learn new skills, gain experience, and expand networks. Evidence suggests that it can improve employment prospects down the line. And the earlier that people are exposed to the workplace, the earlier they learn such skills as teamwork, communication, and dependability—skills that employers say are in short supply. 

The employment rate for teens fell from 43 percent in 2000 to 26 percent in 2014, and for young adults aged 20 to 24, it fell from 70 to 62 percent. These are big drops. In a new analysis, I take a deeper look at employment trends among young people. When employment rates are broken out by age and race/ethnicity, you see the same downward pattern, but also substantial variation among whites, blacks, Latinos, and Asians.

Do these declines spell trouble? The answer is, it depends:  on how young people spend their time, what resources and support are available to them, and how the person making the judgement values academics and enrichment relative to employment.

Some argue that workplace experience provides key developmental opportunities that benefit all young people. Robert Halpern, for example, wryly notes that high school students are isolated from the adult world “at just the moment when [they] need to begin learning about participating in it.” 

Others say that employment matters more for some young people than others. For example, disadvantaged youth—those not on track to earn a post-secondary credential and without strong family or community  networks to help them find jobs—can particularly benefit from formal programs that connect them to the labor market. As Jeylan Mortimer concluded about “low academic promise” high school students (those with poor grades and low educational goals): “[H]aving a positive work experience can help to turn you around.  For those who have a lot of disadvantages, any positive experience is likely to have a greater impact than on people with a lot of advantages already.” Research on Career Academies, high schools that combine academics with career development, support this view. Career Academy students, disproportionately low-income, black, and Latino, posted significant earnings gains eight years after graduation, and young male graduates also had higher rates of marriage and custodial parenthood.

And some would say that it’s appropriate to prioritize education over employment, especially for teens, who are typically not responsible for supporting themselves and their families.

So what do the data tell us? Voluntarily dropping out of the labor force to concentrate on academics as a young person can pay off when people enter their prime working years, generally considered to be 25 to 54. Though education and work are not necessarily incompatible, employment rates are generally lower among students than among those not enrolled in school. Among teens and young adults, Asians have the lowest employment rates, but they also have the highest school enrollment rates. 92 percent of Asian 16- to 19-year-olds and 63 percent of Asian 20- to 24-year-olds are in school, compared to 80 percent and 38 percent among all races. It follows, then, that Asians have high levels of educational attainment. In fact, 50 percent of 23- to 24-year-old Asians have a Bachelor’s degree, double the average rate. Given the strong correlation between education and employment, it is not a coincidence that prime-age Asians have high employment rates and low unemployment rates. Their low employment rates as young people do not, on the whole, seem to lead to problems as adults. (Of course, this is not to downplay the diversity of the Asian population and to suggest that all Asians are doing well economically.)

On the other hand, blacks have the second lowest employment rates as teens and young adults, and the lowest rate as prime age workers. They also have the highest unemployment rates, showing an active desire to work. Among black teens in 2014, the unemployment rate was 38 percent, compared to 23 percent overall, and it was 22 percent among black young adults, compared to 13 percent overall. The trend continues into prime working years: blacks have an unemployment rate of 11.4 percent, nearly double the overall rate of 6.2 percent.  The low employment rate among young black people is not driven by school enrollment. Latinos have similar (below-average) enrollment levels but higher employment rates, and whites have much higher employment rates but only slightly higher enrollment levels. The weaker employment outcomes of blacks at all ages is probably related to multiple factors: relatively low levels of educational attainment, discrimination, and the neighborhood effects of living in concentrated poverty.

Blacks and Latinos are disproportionately represented among so-called “disconnected youth,” young people aged 16 to 24 who are neither working nor in school. 17 percent of black young adults aged 20 to 24 are disconnected, as are 13 percent of Latinos, 7 percent of whites, and 4 percent of Asians. Half of disconnected young adults have a high school credential and another 20 percent have taken some college courses, suggesting that getting these young people on a better path involves not only reducing the high school dropout rate, but also strengthening the transition from high school to post-secondary education and the labor market. 

In short, employment rates among young people tell different stories that often track by race and ethnicity. Some voluntarily withdraw from the labor market to focus on academics and extra-curricular activities, others would really like a job but can’t find one, and some—the most disadvantaged—are alienated from both school and the labor market.