Some quick thoughts on Indian Prime Minister Narendra Modi's trip to China thus far, following the release of the Joint Statement, and Modi’s remarks at the Great Hall of the People, at Tsinghua University, and at a bilateral forum of state and provincial leaders:  

1. Candid Modi. In his statement to the media, Modi noted that the bilateral discussions had been “candid, constructive and friendly.” He was definitely more candid in his remarks about Indian concerns than is normal for Indian leaders during China-India summits. While senior Indian policymakers often downplay the bilateral differences during visits (incoming and outgoing) and focus more on cooperative elements, in two speeches and in the joint statement released, Modi mentioned them repeatedly. He talked about the relationship being “complex,” as well as about issues that “trouble smooth development of our relations” and held back the relationship. He urged China to think strategically (and long-term) and “reconsider its approach” on various issues. First and foremost: its approach toward the border, but also visas and trans-border rivers, as well as the region (read China’s relations with Pakistan among others). China’s approach on economic questions was also put on the table, with Modi stating that, in the long-term, the partnership was not sustainable if Indian industry didn’t get better access to the Chinese market. The joint statement acknowledged that the level of the trade imbalance (in China’s favor) was not sustainable either. Modi also made clear that India wants China’s support for a greater role in international institutions. He specifically highlighted that China’s support for a permanent seat for India at the U.N. Security Council (UNSC) and Indian membership of export control regimes would be helpful to the relationship (interestingly, he explained India’s desire for UNSC permanent membership as stemming from the same logic as the establishment of the Asian Infrastructure Investment Bank—part of Asia “seeking a bigger voice in global affairs.” In the joint statement, however, China continued just to recognize India’s aspirations for a greater UNSC role. It did though include mention of India’s Nuclear Suppliers Group aspiration.

There was also an overall message from Modi that these issues couldn't be set aside and that progress was necessary: “…if we have to realise the extraordinary potential of our partnership, we must also address the issues that lead to hesitation and doubts, even distrust, in our relationship.”

2. The Border. Modi put the border at the top of the list of such issues, stating “we must try to settle the boundary question quickly.” Seeming to add a parameter to any potential solution, he stated that the two countries should settle this question “in a manner that transforms our relationship and [will] not cause new disruptions.” In the meantime, he noted that the mechanisms managing the border were working fine, but asserted that it was important to clarify the Line of Actual Control since otherwise there was a persisting “shadow of uncertainty.” He noted that he’d proposed a resumption of “the process of clarifying it.” The joint statement stated a desire for enhanced exchanges between the militaries to better communication on the border and an exploration of whether/how to increase trade at the border.

As is wont for Indian leaders in China, Modi didn’t explicitly assert India’s claim to the state of Arunachal Pradesh, but for those of us who read between the lines, he mentioned the number of states India had, referring to “30 pillars comprising the Central Government and all our States”—those 29 states include Arunachal Pradesh.

3. Economics. Modi’s day in Shanghai on May 16 will feature the economic relationship more. He did note the “high level of ambition” the two sides had for the relationship and his hope to see increased Chinese investment in infrastructure and manufacturing in India. China and India agreed that bilateral trade was “skewed” and likely unsustainable if that didn’t change.

At his speech at Tsinghua he linked both Mumbai’s rise to trade with China and the evolution of silk tanchoi sarees to skills learnt by Indians from Chinese weavers—thus both pointing out that the trade relationship is an interrupted one and (to his domestic critics) that India stands to gain from this engagement.

4. Building Trust & (People-to-People) Ties. There was a major emphasis in Modi’s remarks on building trust, and improving communication and connectivity, with a special emphasis on enhancing people-to-people ties. On the latter, he stated frankly, “Indians and Chinese don't know each other well, much less understand each other.” Various polls and surveys also show that, what they do know, they often don’t like.

This lack of trust, knowledge, and even interest could limit policymakers’ options (including in settling the border question) down the line. Thus, Modi asserted that China and India “must build more bridges of familiarity and comfort between our people.” To increase travel to India (and bring in tourism revenue), he announced that India’s e-visa facility will be made available to Chinese nationals. The two countries also agreed to establish consulates in Chennai and Chengdu. For greater learning about each other, there were decisions to set up an annual bilateral Think Tank Forum, to institutionalize the High-Level Medium Forum, and establish a Centre for Gandhian and Indian Studies at Fudan University.

Modi also noted that, at the end of the day, improving opportunities for interaction wasn’t sufficient. China would also have to do its bit to shape perceptions of itself in India—since even “small steps can have a deep impact on how our people see each other.”

There was also an emphasis on moving beyond Delhi, including through the establishment of the State and Provincial Leaders' Forum, with a desire to increase and facilitate engagement at the state and city levels.

On the central level, there were decisions announced to enhance or institutionalize engagement at the leaders level, as well as between the foreign policy and planning bureaucracies, as well as the defense establishments. Modi also especially highlighted “Our decision to enhance strategic communication and coordination on our region…”

5. Regional and Global Issues. While there was mention of continuing cooperation towards the Asian Infrastructure Investment Bank, if Beijing was looking for an endorsement of its One Belt, One Road initiatives, it wasn’t forthcoming. Modi noted that both China and India were “trying to strengthen regional connectivity and seeking ‘to connect a fragmented Asia.’” But he distinguished between two types of projects: “There are projects we will pursue individually. There are few such as the Bangladesh-China-India-Myanmar Corridor that we are doing jointly.”

There was special mention of shared interests in West Asia and Afghanistan, as well as counterterrorism and climate change—the latter even got a separate joint statement. The main joint statement had an interesting reference to the two countries broadening cooperation in the South Asian Association for Regional Cooperation—China is not a member, but many believe that it would like to be (India’s traditionally been hesitant for China to go beyond its observer role).

Modi also highlighted a “resurgent Asia” that offers “great promise, but also many uncertainties” and “an unpredictable and complex environment of shifting equations.”

Modi acknowledged China and India’s “shared neighbourhood,” where they were both increasing engagement. He also seemed to admit that this could cause concern and thus “deeper strategic communication to build mutual trust and confidence” was essential. Perhaps pointing to China’s relations with Pakistan and others in India’s neighborhood, Modi stressed, “We must ensure that our relationships with other countries do not become a source of concern for each other.” However, this also acknowledged Chinese anxieties about India’s evolving relationships.

For those in China concerned about India’s relations with the United States and if it was designed to contain China, Modi had a message: “If the last century was the age of alliances, this is an era of inter-dependence. So, talks of alliances against one another have no foundation. In any case, we are both ancient civilizations, large and independent nations. Neither of us can be contained or become part of anyone's plans.”

6. The Image of a Confident India. Modi’s remarks seemed intended to exude confidence about India and its role in the world. He stated that in an age of many transformations, “the most significant change of this era is the re-emergence of China and India.” Laying out why India, in his perspective, is the next big thing, he seemed to suggest that it was in China’s interest to get on board the India train. He noted the political mandate he had, the steps his government had taken, and that “no other economy in the world offers such opportunities for the future as India's.” The Indian prime minister asserted, “We are at a moment when we have the opportunity to make our choices.” He seemed to want to make clear that enhancing engagement with India would be the right one for China.

Bonus Takeaways

Winner: Social media—it's been ubiquitous, from Modi joining China's Weibo to the Modi selfie with Chinese Premier Li Keqiang to the continuation of the Modi-looking-at-things meme.

Loser: Panchsheel. It'd been a bit odd that India had continued to choose to mention Panchsheel and the Five Principles of Peaceful Coexistence—principles that are remembered by many in India as being honored by China in the breach than in the observance in the late 1950s and early 1960s. There was even a shout-out to it in the Modi-Xi joint statement in September 2014. But it's missing in action in the 2015 joint statement and seems to have been replaced by this:

The leaders agreed that the process of the two countries pursuing their respective national developmental goals and security interests must unfold in a mutually supportive manner with both sides showing mutual respect and sensitivity to each other’s concerns, interests and aspirations. This constructive model of relationship between the two largest developing countries, the biggest emerging economies and two major poles in the global architecture provides a new basis for pursuing state-to-state relations to strengthen the international system.

       

       

Scholars from the Brookings Institution and the American Enterprise Institute are collaborating to promote transparency in redistricting. In January 2010, an advisory board of experts and representatives of good government groups was convened in order to articulate principles for transparent redistricting and to identify barriers to the public and communities who wish to create redistricting plans. This document summarizes the principles for transparency in redistricting that were identified during that meeting.

Benefits of a Transparent, Participative Redistricting Process

The drawing of electoral districts is among the most easily manipulated and least transparent systems in democratic governance. All too often, redistricting authorities maintain their monopoly by imposing high barriers to transparency and public participation. Increasing transparency and public participation can be a powerful counterbalance by providing the public with information similar to that which is typically only available to official decision makers, which can lead to different outcomes and better representation.

Increasing transparency can empower the public to shape the representation for their communities, promote public commentary and discussion about redistricting, inform legislators and redistricting authorities which district configurations their constituents and the public support, and educate the public about the electoral process.  

Fostering public participation can enable the public to identify their neighborhoods and communities, promote the creation of alternative maps, and facilitate an exploration of a wide range of representational possibilities. The existence of publicly-drawn maps can provide a measuring stick against which an official plan can be compared, and promote the creation of a “market” for plans that support political fairness and community representational goals.

Transparency Principles

All redistricting plans should include sufficient information so the public can verify, reproduce, and evaluate a plan. Transparency thus requires that:

• Redistricting plans must be available in non-proprietary formats.
• Redistricting plans must be available in a format allowing them to be easily read and analyzed with commonly-used geographic information software.
• The criteria used as a basis for creating plans and individual districts must be clearly documented.

Creating and evaluating redistricting plans and community boundaries requires access to demographic, geographic, community, and electoral data. Transparency thus requires that:

• All data necessary to create legal redistricting plans and define community boundaries must be publicly available, under a license allowing reuse of these data for non-commercial purposes.
• All data must be accompanied by clear documentation stating the original source, the chain of ownership (provenance), and all modifications made to it.

Software systems used to generate or analyze redistricting plans can be complex, impossible to reproduce, or impossible to correctly understand without documentation. Transparency thus requires that:

• Software used to automatically create or improve redistricting plans must be either open-source or provide documentation sufficient for the public to replicate the results using independent software.
• Software used to generate reports that analyze redistricting plans must be accompanied by documentation of data, methods, and procedures sufficient for the reports to be verified by the public.

Services offered to the public to create or evaluate redistricting plans and community boundaries are often opaque and subject to misinterpretation unless adequately documented. Transparency thus requires that:

• Software necessary to replicate the creation or analysis of redistricting plans and community boundaries produced by the service must be publicly available.
• The service must provide the public with the ability to make available all published redistricting plans and community boundaries in non-proprietary formats that are easily read and analyzed with commonly-used geographic information software.
• Services must provide documentation of any organizations providing significant contributions to their operation.

Promoting Public Participation

New technologies provide opportunities to broaden public participation in the redistricting process. These technologies should aim to realize the potential benefits described and be consistent with the articulated transparency principles.

Redistricting is a legally and technically complex process. District creation and analysis software can encourage broad participation by: being widely accessible and easy to use; providing mapping and evaluating tools that help the public to create legal redistricting plans, as well as maps identifying local communities; be accompanied by training materials to assist the public to successfully create and evaluate legal redistricting plans and define community boundaries; have publication capabilities that allow the public to examine maps in situations where there is no access to the software; and promoting social networking and allow the public to compare, exchange and comment on both official and community-produced maps.

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Official Endorsement from Organizations – Americans for Redistricting Reform, Brennan Center for Justice at New York University, Campaign Legal Center, Center for Governmental Studies, Center for Voting and Democracy, Common Cause, Demos, and the League of Women Voters of the United States.

Attending board members – Nancy Bekavac, Director, Scientists and Engineers for America; Derek Cressman, Western Regional Director of State Operations, Common Cause; Anthony Fairfax, President, Census Channel; Representative Mike Fortner (R), Illinois General Assembly; Karin Mac Donald, Director, Statewide Database, Berkeley Law, University of California, Berkeley; Leah Rush, Executive Director, Midwest Democracy Network; Mary Wilson, President, League of Women Voters.

Editors – Micah Altman, Harvard University and the Brookings Institution; Thomas E. Mann, Brookings Institution; Michael P. McDonald, George Mason University and the Brookings Institution; Norman J. Ornstein, American Enterprise Institute.

This project is funded by a grant from the Sloan Foundation to the Brookings Institution and the American Enterprise Institute.

      

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The drawing of legislative district boundaries is among the most self-interested and least transparent systems in American democratic governance. All too often, formal redistricting authorities maintain their control by imposing high barriers to transparency and to public participation in the process. Reform advocates believe that opening that process to the public could lead to different outcomes and better representation.

On January 20, Brookings hosted a briefing to review how redistricting in the 50 states will unfold in the months ahead and present a number of state-based initiatives designed to increase transparency and public participation in redistricting. Brookings Nonresident Senior Fellows Micah Altman and Michael McDonald unveiled open source mapping software which enables users to create and submit their own plans, based on current census and historical election data, to redistricting authorities and to disseminate them widely. Such alternative public maps could offer viable input to the formal redistricting process.

After each presentation, participants took audience questions.

Learn more about Michael McDonald's Public Mapping Project »

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• Injecting Transparency into Redistricting
• GOP Could Re-Draw 145 Districts
• Towards a New Political Culture
• Coalitions Pushing for Greater Transparency
• The Public Mapping Project

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• Toward Public Participation in Redistricting
• Toward Public Participation in Redistricting
• Toward Public Participation in Redistricting

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• Download Micah Altman's and Michael McDonald's Presentation (.pdf)
• Download Tim Storey's Presentation (.pdf)
• Download Clare Dyer's Presentation (.pdf)
• Download the Redistricting Authority in the States Factsheet (.pdf)
• Download Micah Altman's and Michael McDonald's Report (.pdf)
• Download the District Builder Summary (.pdf)

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Inequality remained a prominent theme in public debate during 2015, likely helped by the unexpected rise and resilience of democratic socialist Bernie Sanders' run for the Democratic presidential nomination. Although the labor market continued its slow recovery, wage growth remained fairly weak—especially for middle and low earners. The upper middle class continues to pull away from the middle, not least in terms of income and wealth.

But it has also become much clearer that inequality is a geographical issue, as much as a social and economic one. Whether the focus is on the more immediate matter of income inequality or the slower-burning issue of intergenerational mobility, there is huge variation between different places in the United States.

Not all cities are created equal…

National income trends are important, of course. But they can often disguise deep differences by place. The income required to be ‘rich,’ at least by comparison to those around you, varies significantly between different cities, for example. A household income of $100,000 puts you on almost on the top rung (around the 95^th percentile) of the income ladder in Detroit. But to reach the same heights in San Jose, California, you’d need an income three times as great, according to calculations by my colleague Alan Berube.

There are also very large differences in the extent of income inequality in different metropolitan areas. Using the inequality measure used in another recent paper by Berube, the ratio between incomes at the 20^th percentile and the 95^th percentile, shows that while some cities have large gaps between rich and poor, others look almost Scandinavian in their egalitarian distributions. Here are the 20/95 ratios for the three most equal and unequal cities in the U.S.:

Intergenerational mobility varies—a lot—by place

In a groundbreaking research paper in 2014, Raj Chetty and his team at the Equality of Opportunity Project at Harvard showed that rates of intergenerational income mobility also vary considerably between different cities. It was always a stretch to compare the U.S. to Denmark on this front, given the colossal differences between the countries. But such comparisons became virtually unconscionable once the variations within the U.S. become apparent.

This year, Chetty and his co-author Nathaniel Hendren went a step further and a big step closer to showing a causal impact of place on the prospects for children raised in different locations. Again relying on large administrative datasets, the two scholars were able to show the variation in earnings for the folk hailing from, say, Baltimore versus Baton Rouge.

Professor Chetty presented his new research at a Brookings event in June (which you can view here), just weeks after the eruption of protest and violence in Baltimore following the death of Freddie Gray. One striking finding was that the worst place in America to grow up, in terms of subsequent earnings, is Baltimore City. Critically, Chetty’s research design allows him to show that these differences do not reflect the characteristics of the people of Baltimore; but the characteristics of Baltimore itself. This downward effect on earnings is particularly bad for boys, as we highlighted in an earlier blog:

In related work, Chetty and his colleagues also show that children who move to a better place see an improvement in their own earnings—and that the younger they are when they move, the bigger the impact. The children of families who move as a result of the U.S. Department of Housing and Urban Development’s Moving to Opportunity program showed sizable improvements in their own outcomes, as Jonathan Rothwell highlighted in his blog, 'Sociology’s revenge: Moving to Opportunity (MTO) revisited.'

Race, place and opportunity

One of the findings from Chetty’s earlier work is that race, place, and opportunity intersect in important ways. Cities with more segregation, and those with larger black populations, tend to show weaker upward mobility patterns. In order to understand the obstacles to upward mobility, policymakers have to adopt both a place-conscious (Margery Turner) and a race-conscious perspective. This policy was the subject of another Brookings event in November, with contributions from the Deputy Prime Minister of Singapore, the Governor of Delaware, and the Mayor of Newton, Mass. (The event can still be viewed here; for my highlights see this piece.) Being poor and black is generally not the same as being poor and white. Being poor in Cleveland is not the same as being poor in Charlotte.

On equal opportunity: think local, act local

Many states and cities are upping their game on issues of equality and opportunity, for both bad and good reasons. The bad reason is the relative inertia of the federal government. The good reason is a growing recognition that many of the levers for improving opportunity lie in the hands of institutions and agents at the state and metro level. Colorado has adopted a life-cycle opportunity framework and is pioneering efforts to integrate health and social policy. Charlotte has a high-profile taskforce (which I advise) on improving opportunity. Cincinnati has pledged to lift 10,000 children out of poverty within five years. Louisville is leading a push on school desegregation. Kalamazoo is adding greater student supports to its existing promise of free college. Baltimore’s program to reduce infant mortality has shown remarkable success. Durham, N.C. has rolled out a universal home visiting program.

Many of these efforts are building on the emerging ideas around 'collective impact,' harnessing local resources of many kinds around a clearly-articulated, shared goal. Given the scholarship showing just how much particular places influences individual and broader outcomes, this is likely to be where much of the most important policy development will take place in coming years. In terms of equality—and especially equality of opportunity—we need to think local, and act local, too.

       

       

       

       

       

       

The most noticeable trend under the leadership of Xi Jinping since the 2012 National Congress of the Chinese Communist Party (CCP) has been the continuing consolidation of power. In particular, the military has been a key forum in which Xi has strengthened both his personal power and his new administration’s authority. Xi has adopted several approaches and political tactics to achieve this, including purging the two highest-ranking generals under the previous administration for corruption and other charges; arresting 52 senior military officers on various charges of wrongdoing; reshuffling generals between regions, departments, and services; attempting to systematically reform the PLA’s structure and operations; and, last but not least, rapidly promoting “young guards” (少壮派) in the Chinese military.

These bold moves will have profound implications—not only for Xi’s political standing in the lead-up to the next leadership turnover in 2017, but also for the development of civilian-military relations in the country and for the trajectory of China’s military modernization. The third installment in this series focuses on personnel changes that have occurred during the early phase of military reform.

Who are the rising stars in the PLA following the recent reorganization and reshuffling? What are the distinguishing characteristics of the “young guards”? What are possible explanations for and implications of some of the highest-level personnel changes, such as the retirement of the heavyweight military figure General Liu Yuan and the marginalization of Xi’s confidant General Cai Yingting? How does Xi successfully perform the delicate balancing act in personnel appointments by aggressively promoting his own long-time protégés and new loyalists while avoiding making too many enemies?

This is part three of a series that will appear in the upcoming issue of the China Leadership Monitor. Download the article in full below. The first paper in the series can be found here: Promoting "young guards": The recent high turnover in the PLA leadership (Part 1: Purges and reshuffles), and the second paper here: Promoting “young guards”: The recent high turnover in the PLA leadership (Part II: Expansion and escalation).

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• Promoting "Young Guards": The Recent High Turnover in the PLA Leadership (Part III: Personal and Political)

       

       

       

We will likely look back on 2015 as a consequential year in China’s evolving global strategy. The September crash of the stock market in Shanghai marks the first contemporary occasion when China’s internal difficulties have had global consequences. In November, China will take over the leadership of the G-20 and have an opportunity to put its stamp on the evolving tools of global governance. And on September 28, President Xi Jinping will address the world during the 70th anniversary of the only global body in which China already has full powers—the United Nations.

A rising power, cut from different cloth

But with greater consequence comes greater responsibility. President Xi’s job at the U.N. in 2015 will be harder than in recent years. For the past several years the international community has been transfixed by the narrative of the rising powers, and of American, or at least Western, decline. Now, America’s economic recovery, its energy revolution, its leadership on Ebola, and its re-engagement around the Islamic State (or ISIS)—however partial—has gutted the “American decline” narrative. 

And Xi’s putative allies in the forging of a post-American order—Russia, Brazil, and India—won’t be nearly the help to China they have often been presumed to be. President Vladimir Putin will speak against the backdrop of Russia’s aggressive strategy in Ukraine and now Syria; Brazil’s President Dilma Roussef against the backdrop of a deep recession and a huge corruption scandal; and while President Narendra Modi is still riding relatively high internationally, he’s hardly riding in a pro-China direction. 

China is more consequential than any of these other three, of course. But it faces its own challenge to its narrative as it doubles down on its assertive posture in the South China Sea and as its handling of the stock market collapse shows serious cracks in the narrative of the “Beijing model.” As Chinese growth has slowed, especially in the manufacturing sector, so has its consumption of global commodities—and the knock-on effect has been slower growth in dozens of developing countries that had ridden China’s boom. China isn’t quite the alternative “pole” to the West it has been hyped to be. 

Still, China is now clearly the number two economy in the world; the number two defense spender; the dominant force in politics and economic integration in East Asia; and an increasingly important voice on global issues. So hype and narrative aside, the world will be listening closely to what President Xi has to say at the U.N.—as they will when he takes the reigns of the G-20. 

In what direction is Chinese leadership heading?

At a 700-person-strong gala dinner in Seattle on Tuesday, President Xi rehearsed the arguments. China is committed to a peaceful rise. China has learned the lesson of the Second World War, and recognizes that military hegemony is not an option. China is committed to the multilateral order, and the U.N. Charter. He even teased the international relations scholarly community: “There is no Thucydides trap,” he said, referring to the idea that the growth of Chinese power will cause fear in the United States and lead to war. He stressed his theme about forging a “new kind of great power relations” that eschewed military competition for more creative approaches to cooperation on win/win issues. 

All these would be welcome messages at the U.N., and if he means it, they are profoundly important messages. But if Xi wants these messages to be believed, if he wants to gain credibility at the global level, he’s going to have to do more than just talk a good game. 

First, China is going to have to start acknowledging that leadership is less about abusing the privileges of power and more about absorbing costs. The world may be hungry for leadership, but it’s not hungry for leadership of the abusive kind. It’s hungry for actors capable and willing to set a direction and bear the lion’s share of the costs of action—because that’s the only thing that’s ever overcome the collective action challenges that otherwise bedevil cooperation at the international level. 

China is going to have to start acknowledging that leadership is less about abusing the privileges of power and more about absorbing costs.

Second, he has to put his strategy where his principles are. He could start with the U.N. Charter. It’s an essential document of the international order, but only if the great powers abide by its essential principles (not by every detail.) The most essential of these are the prohibition against the acquisition of territory by force and the assertion of non-interference in sovereign affairs (except with the backing of the Security Council). The United States has violated these principles, notably in Iraq—its violation was of a temporary nature, of course, but had huge consequences. Russia has violated these principles—its violation in Crimea is modest in scale but notionally permanent and a fundamental violation of the foundational principles of the U.N.

China’s actions in the South China Sea have been more subtle than these, but no less invidious or injurious to the notion of a stable international order. If China wants others to believe that it still intends for its rise to be peaceful, it needs urgently to shift strategy in the South China Sea—and it would be in a strong position, then, to call on the other great powers to recommit themselves to the principle of the non-use of force and respect for sovereignty. 

[Xi] has to put his strategy where his principles are. He could start with the U.N. Charter.

I’m reasonably optimistic about the first idea. China was among the most neuralgic of countries when it came to the global response to SARS a decade ago; it’s learned its lesson and was far more forward leaning on Ebola. It chipped in, albeit not to scale, on the eurocrisis. It’s made financial contributions to the counter-ISIS campaign. And it’s made commitments that, if kept, will make a vital difference on the climate. These efforts represent a serious start, and if President Xi expands China’s role in this kind of leadership it could position him well on global issues—especially during his G-20 presidency. 

I’m not so optimistic about the second. China shows every sign of being locked in an assertive-tilting-to-aggressive strategy in the South China Sea, consequences be damned. And with Russia also seemingly locked into a “wrong-foot the West” strategy, the United States and its allies will increasingly be pulled into an escalatory response—creating exactly the kind of Thucydidean trap President Xi ostensibly wants to avoid. (The United States bears responsibility here too, and it can also take steps to lower tensions in Asia.) 

The problem is, the further out we go along the pathway of security tensions in Asia, the more we undermine the prospects for win-win cooperation on global challenges like terrorism and climate. For now, these twin strands of strategy are in roughly equal balance—both rivalry and restraint are leitmotifs of Xi’s worldview, and of America’s. But 2015 is going to be an important testing time for the viability of this dual-strand approach. If Xi wants to start tilting the balance to win/win approaches, his speech at the U.N. is a good place to start. But even that would only be a beginning.

       

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In an era of fluid geopolitics and geoeconomics, challenges to the global order abound: from ever-changing terrorism, to massive refugee flows, a stubbornly sluggish world economy, and the specter of global pandemics. Against this backdrop, the question of whether leader summitry—either the G-7 or G-20 incarnations—can supply needed international governance is all the more relevant. This question is particularly significant for East Asia this year as Japan and China, two economic giants that are sometimes perceived as political rivals, respectively host the G-7 and G-20 summits. 

On April 18, the Center for East Asia Policy Studies and the Project on International Order and Strategy co-hosted a discussion on the continued relevancy and efficacy of the leader summit framework, Japan’s and China’s priorities as summit hosts, and whether these East Asian neighbors will hold parallel but completely separate summits or utilize these summits as an opportunity to cooperate on issues of mutual, and global, interest.

Join the conversation on Twitter using #G7G20Asia

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• Japan’s G-7 and China’s G-20 chairmanships: Bridges or stovepipes in leader summitry?

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INTRODUCTION

U.S. public diplomacy with Cuba — or the United States engaging with Cuban public opinion — is an intriguing subject. The principal reason for this is because it has never been tried. There was no attempt before the 1959 Revolution because the United States had no need to convince the Cuban government and people of why the United States mattered to them. In almost every aspect of life it was impossible to conceive of Cuba without the United States. Fidel Castro’s Revolution changed that. And since the Revolution, the Castro regime has carefully molded the United States as the arch enemy of the Cuban people. Successive U.S. administrations have made little effort to banish that impression while U.S. public diplomacy has been largely aimed at the Cuban-American exile community.

The public diplomacy challenge for the United States with Cuba is exciting but also formidable. The Cuban Government has had many years experience of controlling access to information and shackling freedom of expression. The public diplomacy messages that the United States will send will be distorted and blocked. Nevertheless there are growing signs that Cubans on the island are accessing new technologies so information does get through, particularly to residents of the major cities. Expansion of people-to-people exchanges and a lifting of the travel ban on ordinary Americans would greatly assist any public diplomacy campaign. But public diplomacy can start without this and the Cuban government’s capacity to block messages is no argument for not transmitting them.

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In advance of President Obama’s trip to East Africa on July 23, the Africa Growth Initiative has prepared short travel companions on the economic environments in both Ethiopia and Kenya. The president’s visit to Kenya, one of the larger economies on the continent and a major driver of growth in the East Africa region, underlies the United States’ commitment to trade and investment on the continent. Below are key facts on Kenya’s economy to consider as President Obama travels to the region. Facts on Ethiopia can be found here.

Kenya enjoys middle-income status. Earlier this month the World Bank confirmed Kenya’s lower-middle-income country status according to their latest estimates of the gross national income per capita. This followed from the statistical reassessment of GDP figures that increased the size of its economy by 25 percent  ($53.3 billion up from $42.6 billion) last September, making it the continent’s ninth-biggest economy, accounting for over 2 percent of the continent’s GDP.

Kenya has undertaken initiatives to attract private sector investment. According to the late Brookings Senior Fellow Mwangi Kimenyi, the nation’s strong private sector evolved under relatively market-friendly policies for most of the post-independence era. Foreign direct investment is further expected to take the lead in growth acceleration, especially in the extractive sector if the newly discovered oil deposits are found to be commercially viable. Large-scale infrastructure projects, such as the Mombasa-Kigali standard-gauge railway and the Lamu Port and Southern Sudan and Ethiopia Transport (LAPSSET) corridor, also incentivize private sector engagement. Kenya has been among the top recipients of external financing for infrastructure investment during 2009-2012, primarily led by Private Participation in Infrastructure (PPI) Financing.

Kenya was the first African country to build geothermal energy sources. Geothermal energy provides 51 percent of Kenya’s energy, allowing electricity bills to decrease by 30 percent since 2014 (World Bank).

Kenya acts as a hub for regional integration and the East African Community (EAC). Among the six Country Policy and Institutional Assessment (CPIA) indicators of the African Development Bank, infrastructure and regional integration registered the score of 4.6 in Kenya, the second best in Africa. As a regional export and financial hub, Kenya plays a leading role in the EAC and regional integration. Two Kenyan cities, Nairobi and Mombasa, are the biggest city and port (respectively) between Cairo and Johannesburg, making Kenya the commercial and transportation hub of East Africa.

Kenya has experienced service-led growth over the last decade. Kenya’s market-based economy enjoys some of the strongest service-sector industries, including the financial and the information and communication technology sectors, which play key roles in economic transformation and job creation in Kenya. Besides, travel and tourism made up 12.1 percent of Kenya’s GDP in 2013, and the nation is frequently cited as one of the best tourist destinations in Africa.

More than two-thirds of the adult population engages in mobile commerce, making Kenya the world leader in mobile payments. At 86 percent mobile payments penetration among Kenyan households, M-Pesa is redefining the way Kenyans perform transactions and has also facilitated financial inclusion by promoting savings and financial transactions among the unbanked.

Nearly one out of every two women in Kenya is a member of a women’s saving group, which are voluntary groups formed to  help women overcome barriers to financial participation. Called chamas, these groups allow women to mobilize savings and collectively invest to improve their livelihoods by contributing a certain amount of money to a pooled fund.

Kenya has a thriving manufacturing sector. Kenya is slowly diversifying exports away from agricultural commodities and increasing value-added processing. In 2014, roughly 70 percent of Kenya’s exports to the U.S. were textile- and garment-based, in which the African Growth and Opportunity Act (AGOA) has played a key role. The recent extension of AGOA for another decade opens up further opportunities for growth and revival of the textile and apparel industry in Kenya.

Kenya’s well-diversified economy and sound economic reform program are important steps in its quest to reach emerging market status. However, the following key challenges could undermine economic development:

Youth in Kenya are experiencing much higher unemployment rates than the rest of the Kenyan population. Though Kenya boasts of its young, educated and English-speaking human resource pool (especially in the urban areas), it continues to struggle with high unemployment rate among young people, which is estimated to be double the national level of unemployment of 12.7.

Spatially unbalanced growth in the Kenyan economy continues to be evident. Kenya has made substantial progress towards achieving towards achieving the targets associated with the Millennium Development Goals, including child mortality and near universal primary school enrolment. However, it still has a long way to reach the set targets: Over 40 percent of its 44 million population continues to be extremely poor living on less than $1.25 a day, with women being particularly at risk.

Implementation challenges of fiscal decentralization remain. Under the new constitution, county governments are entitled to not less than 15 percent of the total national revenue collected by the Kenyan central government. This fiscal devolution can bolster social cohesion, by increasing accountability in the management of public resources, and improving the quality of services delivery. However, it is crucial that this devolution is implemented successfully with equitable access to resources to all parts of the country. AGI’s Kenya Devolution and Revenue Sharing Calculator serves as a web interactive allowing users to explore and adjust the government of Kenya’s allocation formula for revenue distribution to county governance structures.

Kenya’s infrastructure remains insufficiently developed in spite of the fact that over the last five years, nearly 27 percent of the national budget has been allocated to transport, energy, water and sanitation, and environment-related infrastructure. Kenya was a pioneer in the use of infrastructure bonds in Africa, with its first issuance in 2009 of a 12-year bond which raised $ 232.6 million but further substantial investment in infrastructure is critical to achieving  Kenya Vision 2030 to become a globally competitive country.

      

       

       

       

Introduction

Guaranteeing the right to vote and to participate in public and political affairs for all citizens is an important responsibility. Given the precarious position that IDPs can find themselves in and considering the extent to which they may need to rely on national authorities for assistance, IDPs have a legitimate and a heightened interest in influencing the decisions that affect their lives by participating in elections.   

Internally displaced persons often exist on the margins of society and are subject to a number of vulnerabilities because of their displacement. For instance, IDPs face an immediate need for protection and assistance in finding adequate shelter, food, and health care. Over time, they can suffer discrimination in accessing public services and finding employment on account of being an IDP from another region or town. IDPs also face an especially high risk of losing ownership of their housing, property, and land, something which can lead to loss of livelihoods and economic security as well as physical security. Women and children, who often make up the majority of IDP populations, face an acute risk of sexual exploitation and abuse.  

In addition to influencing public policy, elections can also be about reconciliation and addressing divisions and inequities that exist within society. For these reasons and others, IDPs should be afforded an opportunity to fully participate in elections as voters and as candidates.   

As noted in a press release of the Representative of the Secretary General of the United Nations on the Human Rights of Internally Displaced Persons following an official mission to Georgia in December 2005, 

“[IDP] participation in public life, including elections, needs promotion and support. Supporting internally displaced persons in their pursuit of a normal life does not exclude, but actually reinforces, the option of eventual return. … Well integrated people are more likely to be productive and contribute to society, which in turn gives them the strength to return once the time is right."[1]

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[1] United Nations Press Release - U.N. Expert Voices Concern for Internally Displaced Persons in Georgia, 27 December 2005, available at http://www.brookings.edu/projects/idp/RSG-Press-Releases/20051227_georgiapr.aspx.

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I write this as I learn of the beating death of an Azerbaijani journalist Rasim Aliyev. His “crime” was to post a Facebook item about football. What follows seems insignificant compared to his murder.

Two articles have appeared in prominent Western outlets in the past month addressing developments in the South Caucasus and the need for adjustments in U.S. (and Western) policy toward the region. The first was an excellent, in-depth Brookings report titled "Retracing the Caucasian Circle—Considerations and Constraints for U.S., EU, and Turkish Engagement in the South Caucasus"; the second was a shorter essay that Bill Courtney, Denis Corboy, and I penned for Newsweek on the need to reboot policy toward Armenia, Azerbaijan, and Georgia. Both reflected the difficulty of writing about the “South Caucasus” as if the three countries had common interests and objectives. Increasingly these interests and objectives are diverging, except for a growing unhappiness with the United States and the West for not paying attention to—or doing enough to support—the region. In the case of Azerbaijan, the frustration stems from U.S. leaders paying too much attention to the appalling human rights situation in the country.

What’s making the Azerbaijanis so upset with the West?

The authors of the Brookings report point to elite cynicism over Western disinterest and policy failures in the region as sources of Azerbaijani leaders’ unhappiness. This, in their view, is causing Armenia, Georgia, and Azerbaijan—for different reasons and in different ways—to tack toward Russia.

We have a different take in our Newsweek piece. We argue that the unhappiness results from governing elites recognizing that U.S. and Western policy regarding human rights, democracy building, corruption, and conflict resolution (especially the Nagorno-Karabakh conflict) threaten regime stability. Therefore, the tacking toward Russia is a conscious choice to avoid pressure and the transparency that closer association with the United States and Europe would involve.

The new orientation of these countries requires serious adjustment in Western policies. There are four new drivers prompting change (beyond the role of Russia): the regional consequences of the Iran nuclear agreement; the growing economic crisis, which is affecting the South Caucasian states in different ways; the threat of renewed military conflict between Armenia and Azerbaijan; and the internal security implications of suppression of human rights. While each country responds to these drivers in different ways, they are the source of a new dynamic in the South Caucasus that requires a fresh Western policy approach.

Three wild cards will shape these drivers and the Western approach to them: First, how hard will Russian President Vladimir Putin push his objective of rolling back the degree of Western influence achieved since the fall of the Soviet Union? Second, how well will Iran play the nuclear agreement card, especially regarding its reentry into global energy markets? Third, how distracting will Turkey’s military response to the Islamic State and the Kurdistan Workers’ Party (PKK) be for Turkey’s interests in the South Caucasus and its objective of becoming a regional energy hub?

The shortcomings of soft regionalism

What is to be done? Faced with such a challenging situation, the default policy response is to provide more assistance (economic and military), dispatch senior officials from Western capitals to visit the region, and indulge (rather than criticize) democracy and human rights abuses, all in the name of developing a strategic partnership. In other words: Show more love.

That business-as-usual approach is inappropriate for these challenging times. In the case of Azerbaijan, it is an inappropriate response to the continued violations by the Baku regime of basic human rights and freedom of expression.

The Brookings paper suggests a multilateral approach (involving the United States, EU, and Turkey) based on soft regionalism. I do not believe that soft regionalism will work. The best we can hope for is parallel bilateral engagement on the basis of common interests (e.g. conflict prevention) and shared values (e.g. democratic evolution, observance of human rights). We need to treat the energy issue in the region as a commercial rather than geopolitical one. Changes in the global energy market have undermined the geopolitical significance of Caspian energy resources compared to two decades ago. With low energy prices likely the norm for the near future, energy no longer plays a strategic role for the region. Among other weaknesses, the soft regionalism prescription implies coordinated interests with Turkey—this will be difficult absent an opening in Turkish-Armenian relations.

Who needs who more?

The burden of choice in this relationship with the West must shift from the outside parties to the South Caucasian states themselves. The outsiders should stop talking about “strategic” partnerships, trans-Caspian pipelines and Silk Roads because this perpetuates a “you-need-us-more-than-we-need-you” starting point. Rather, the time has come for Armenia, Azerbaijan, and Georgia to decide on their own where their interests coincide with those of the West. That’s where we and they can begin to develop meaningful relationships, rather than trying to invent a veneer to cover differences—as in the case of Azerbaijan’s record on human rights.

Another recent article in Newsweek, by Theodore Gerber and Jane Zavisca, raised questions about promoting democracy and human rights where populations and elites are skeptical of U.S. motivations in promoting these issues. Fairly, the article questions the effectiveness of the traditional instruments of promoting opposition political parties and local NGOs as a way of winning “hearts and minds” in the former Soviet Union. Unfortunately, these traditional instruments tend to emphasize the attractiveness of the “American way of life” through student and scientific exchanges. This offers a variant on the soft regionalism theme advanced in the Brookings paper. Both require a receptivity to change that both elites and populations increasingly find threatening. Developing a values-based relationship is difficult when values diverge.

To the extent our interests do not coincide, then the Western policy focus must be transactional and rest exclusively on conflict prevention and/or amelioration. It also should not shy away from pressing all three South Caucasian states on their obligations to observe international standards regarding human rights, democracy, and freedom of expression.

       

Inequality remained a prominent theme in public debate during 2015, likely helped by the unexpected rise and resilience of democratic socialist Bernie Sanders' run for the Democratic presidential nomination. Although the labor market continued its slow recovery, wage growth remained fairly weak—especially for middle and low earners. The upper middle class continues to pull away from the middle, not least in terms of income and wealth.

But it has also become much clearer that inequality is a geographical issue, as much as a social and economic one. Whether the focus is on the more immediate matter of income inequality or the slower-burning issue of intergenerational mobility, there is huge variation between different places in the United States.

Not all cities are created equal…

National income trends are important, of course. But they can often disguise deep differences by place. The income required to be ‘rich,’ at least by comparison to those around you, varies significantly between different cities, for example. A household income of $100,000 puts you on almost on the top rung (around the 95^th percentile) of the income ladder in Detroit. But to reach the same heights in San Jose, California, you’d need an income three times as great, according to calculations by my colleague Alan Berube.

There are also very large differences in the extent of income inequality in different metropolitan areas. Using the inequality measure used in another recent paper by Berube, the ratio between incomes at the 20^th percentile and the 95^th percentile, shows that while some cities have large gaps between rich and poor, others look almost Scandinavian in their egalitarian distributions. Here are the 20/95 ratios for the three most equal and unequal cities in the U.S.:

Intergenerational mobility varies—a lot—by place

In a groundbreaking research paper in 2014, Raj Chetty and his team at the Equality of Opportunity Project at Harvard showed that rates of intergenerational income mobility also vary considerably between different cities. It was always a stretch to compare the U.S. to Denmark on this front, given the colossal differences between the countries. But such comparisons became virtually unconscionable once the variations within the U.S. become apparent.

This year, Chetty and his co-author Nathaniel Hendren went a step further and a big step closer to showing a causal impact of place on the prospects for children raised in different locations. Again relying on large administrative datasets, the two scholars were able to show the variation in earnings for the folk hailing from, say, Baltimore versus Baton Rouge.

Professor Chetty presented his new research at a Brookings event in June (which you can view here), just weeks after the eruption of protest and violence in Baltimore following the death of Freddie Gray. One striking finding was that the worst place in America to grow up, in terms of subsequent earnings, is Baltimore City. Critically, Chetty’s research design allows him to show that these differences do not reflect the characteristics of the people of Baltimore; but the characteristics of Baltimore itself. This downward effect on earnings is particularly bad for boys, as we highlighted in an earlier blog:

In related work, Chetty and his colleagues also show that children who move to a better place see an improvement in their own earnings—and that the younger they are when they move, the bigger the impact. The children of families who move as a result of the U.S. Department of Housing and Urban Development’s Moving to Opportunity program showed sizable improvements in their own outcomes, as Jonathan Rothwell highlighted in his blog, 'Sociology’s revenge: Moving to Opportunity (MTO) revisited.'

Race, place and opportunity

One of the findings from Chetty’s earlier work is that race, place, and opportunity intersect in important ways. Cities with more segregation, and those with larger black populations, tend to show weaker upward mobility patterns. In order to understand the obstacles to upward mobility, policymakers have to adopt both a place-conscious (Margery Turner) and a race-conscious perspective. This policy was the subject of another Brookings event in November, with contributions from the Deputy Prime Minister of Singapore, the Governor of Delaware, and the Mayor of Newton, Mass. (The event can still be viewed here; for my highlights see this piece.) Being poor and black is generally not the same as being poor and white. Being poor in Cleveland is not the same as being poor in Charlotte.

On equal opportunity: think local, act local

Many states and cities are upping their game on issues of equality and opportunity, for both bad and good reasons. The bad reason is the relative inertia of the federal government. The good reason is a growing recognition that many of the levers for improving opportunity lie in the hands of institutions and agents at the state and metro level. Colorado has adopted a life-cycle opportunity framework and is pioneering efforts to integrate health and social policy. Charlotte has a high-profile taskforce (which I advise) on improving opportunity. Cincinnati has pledged to lift 10,000 children out of poverty within five years. Louisville is leading a push on school desegregation. Kalamazoo is adding greater student supports to its existing promise of free college. Baltimore’s program to reduce infant mortality has shown remarkable success. Durham, N.C. has rolled out a universal home visiting program.

Many of these efforts are building on the emerging ideas around 'collective impact,' harnessing local resources of many kinds around a clearly-articulated, shared goal. Given the scholarship showing just how much particular places influences individual and broader outcomes, this is likely to be where much of the most important policy development will take place in coming years. In terms of equality—and especially equality of opportunity—we need to think local, and act local, too.

      

       

       

In new Urban-Brookings Tax Policy Center analysis of Earned Income Tax Credit (EITC) take-up at the county level, Benjamin Harris, a fellow in Economic Studies, and Research Assistant Lucie Parker use zip-code level data on taxes and demographics to take a "fresh look" at the EITC. "Since its creation in 1975," they write, "the Earned Income Tax Credit has played a major role in the U.S. safety net." Earlier this year, Harris presented EITC take-up using IRS data from 2007. Compare that to the new list of ten counties with the highest share of EITC recipients below:

Rank	County	EITC Share (pct)
10	Sharkey Co., MS	50.5
9	Quitman Co., MS	50.7
8	Coahoma Co., MS	51.6
7	Starr Co., TX	52.1
6	Claiborne Co., MS	52.7
5	Humphreys Co., MS	53.0
4	Buffalo Co., SD	54.1
3	Shannon Co., SD	54.5
2	Holmes Co., MS	55.5
1	Tunica Co., MS	56.1

"The regional variation EITC claiming is stark," Harris and Parker conclude. "The counties with the highest share of taxpayers claiming the EITC are overwhelming located in the Southeast. ... [O]ver half the taxpayers in a large share of counties in Alabama, Georgia, and Mississippi claim the EITC. With few exceptions, almost all counties with high EITC claiming are located in the South. Relative to the South, the Northeast and the Midwest have much lower claiming rates. Moreover, average EITC benefit closely follows the pattern for share of taxpayers taking up the credit: in counties where more taxpayers claim the credit, the credit is larger on the whole."

Visit this U.S. map interactive to get county level data on share of taxpayers claiming EITC as well as average EITC amount, in dollars, per county.

      

April 15 is tax day, but not many Americans will be lining up at the post office or logging onto TurboTax as midnight approaches. Taxpayers who receive refunds often file well ahead of the April 15 deadline. And according to new research, many of those refund dollars are already spent or spoken for.

Early filing is particularly common among taxpayers who claim the Earned Income Tax Credit (EITC), which supplements earnings for low-income workers and their families. EITC recipients often receive substantial refunds, especially in relation to their income. According to new data available through our EITC Interactive, nationwide 26.8 million taxpayers benefited from the EITC for the 2013 tax year, and they claimed a total of $64.7 billion from the credit. Combined with other credits and over-withholding these families received, the average refund for EITC filers topped $4,100 that year. As the accompanying map shows, that amount approached $4,500 or more in many southern states.

I thought of those large refunds while reading a fascinating new book by sociologist Kathryn Edin and her colleagues, titled, It’s Not Like I’m Poor: How Working Families Make Ends Meet in a Post-Welfare World. The book provides insights from in-depth interviews with 115 families with children in the Boston area who claimed the EITC. It examines their household budgets and how the families view and use the credit. The authors find that these families rely greatly on their tax refunds to close the gap between the wages they earn and the daily costs of living in an expensive region like Greater Boston. For some, a large tax refund also enabled them to purchase something normally confined to middle-class families, such as a special birthday present for a child or dinner out at a restaurant.

One of the authors’ central findings, however, was that EITC recipients bear a considerable amount of debt—95 percent of the families studied had debt of some kind. The most common (66%) was credit card debt, with the typical family owing nearly $2,000. Considerable shares of families also had utility, car, or student loan debt.

Their indebtedness was not surprising given that wages covered on average only about two-thirds of monthly expenditures. The authors classified one-quarter of families’ refund spending as dedicated to debt/bills, but other ways families  spend the money—such as repairing a car or paying ahead on bills—point to the lack of financial cushion EITC recipients endure throughout the year.

For the families Edin and colleagues studied, the average tax refund represented a staggering three months of earnings. Despite that, the authors report that many families expressed that they preferred the "windfall" versus receipt of payments over several months, partly because the lump sum held out the prospect of helping them save. But one has to wonder if the EITC, now routinely referred to as the nation's most effective anti-poverty policy, best supports families' financial security in this form, as its recipients fall further behind each month.

We should experiment with new ways of delivering EITC recipients' tax refunds that preserve some of its windfall aspect while also periodically delivering portions of the credit throughout the year. A small periodic payment pilot is underway in Chicago, and early findings suggest that advance payments of taxpayers' anticipated EITC helped them meet basic needs, pay off debt, and reduce financial stress relative to similar families not receiving such payments. It’s time to try making the EITC more than an annual boom in a bust-filled financial cycle for low-income families. 

       

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.

	RECOMMENDATIONS
	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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Antibacterial drug resistance is a global public health threat poised to worsen due to the combination of the inappropriate use of existing drugs and a marked decline in innovative antibacterial drug development. In order to tackle this problem, stakeholders must consider comprehensive strategies that address both drug development and stewardship.

On February 7, the Engelberg Center for Health Care Reform convened an expert workshop, “Modernizing Antibacterial Drug Development and Promoting Stewardship” to explore a two-pronged approach to combating antibacterial drug resistance that includes: 1) the development of pathogen-focused antibacterial drugs that target the most serious public health threats; and 2) stewardship efforts for all antibacterial products in order to preserve their utility. Participating stakeholders included experts from the drug development and health care industries, the clinical community, government, and academia. These stakeholders shared their insights on potential frameworks and evidentiary considerations for pathogen-focused drug development, and efforts underway to promote the appropriate use of commonly used antibacterial drugs in the ambulatory care setting.

Event Materials

• Antibiotic Development Slides
• 07 antibacterial expert workshop discussion guide
• 07 antibacterial expert workshop public agenda
• 07 antibacterial expert workshop meeting summary

       

Antimicrobial resistance is one of the most significant threats to public health globally. It will worsen in the coming decades without concerted efforts to spur the development of new antibiotics, while ensuring the appropriate use of existing antibiotics. Antimicrobial therapy is essential for treating and preventing bacterial infections, some of which can be life-threatening and acquired as a result of
critical medical interventions, including surgery, chemotherapy and dialysis. However, the international rise in antimicrobial resistance has weakened our antibiotic armamentarium and multi-resistant bacteria now cause over 150,000 deaths annually in hospitals around the world (WHO, 2013). Unfortunately, the evolution of drug-resistant pathogens is unavoidable due to random genetic changes in the pathogens that can render antibiotics ineffective. While antibiotic therapy can succeed in killing susceptible pathogens, it also inadvertently selects for organisms that are resistant. Because each exposure to antibiotics contributes to this process, efforts to restrict antibiotic usage only slow the development of resistance. Ultimately, innovative antimicrobial drugs with diverse mechanisms of action will be needed to treat emerging resistant pathogens.

Combating resistance

Inappropriate use of antibiotics contributes significantly to the acceleration of resistance. Needlessly exposing patients to antibiotics (for example, for viral or mild infections likely to resolve on their own), the use of overly broad-spectrum antibiotics and suboptimal doses of appropriate therapy hasten the evolution of resistant pathogens. While affordable, rapid and accurate point-of-care diagnostics are essential for determining appropriate therapy for many bacterial diseases, routine clinical use will be limited if the tests are too expensive or not accessible during routine clinical encounters. In the absence of a clear diagnostic result, many health care providers prescribe empiric broadspectrum therapy without knowing exactly what they are treating. Although inappropriate use is widespread in many parts of the world, where antibiotics are available without a prescription or oversight by a health care provider or stewardship team, overuse abounds even where antibiotic prescribing is more tightly regulated.

Studies conducted in the USA indicate that around 258 million courses of antibiotics are dispensed annually for outpatient use (Hicks, 2013) and up to 75 per cent of ambulatory antibiotic prescriptions are for the treatment of common respiratory infections, which may or may not be bacterial in origin (McCaig,1995). Recent evidence suggests that over half of these prescriptions are not medically indicated. For example, 60 per cent of US adults with a sore throat receive an antibiotic prescription after visiting a primary care practice or emergency department, despite the fact that only ten per cent require treatment with antibiotics. This is particularly troubling given the availability of rapid tests that can detect Group A Streptococcus, the bacteria responsible for the ten per cent of cases that require antibiotic treatment.

The overuse of antibiotics has been driven largely by their low cost and clinical effectiveness, which has led many patients to view them as cure-alls with few risks. This perception is reinforced by the fact that antibiotics are curative in nature and used for short durations. However, the clinical effectiveness of these drugs decreases over time, as resistance naturally increases, and this process is accelerated with inappropriate use. Moreover, there are numerous consequences associated with the use of antibiotics, including over 140,000 emergency department visits yearly in the USA for adverse incidents (mostly allergic reactions; CDC, 2013a). In addition, antibiotics can eliminate protective bacteria in the gut,
leaving patients vulnerable to infection with Clostridium difficile, which causes diarrhoeal illness that results in 14,000 deaths every year in the USA (CDC, 2013b). It is estimated that antimicrobial resistance costs the US health care system over US$20 billion annually in excess care and an additional $35 billion in lost productivity (Roberts et al., 2009).

The inappropriate use of antimicrobial drugs is particularly concerning because highly resistant pathogens can easily cross national borders and rapidly spread around the globe. In recent years, strains of highly drug-resistant tuberculosis, carbapenem-resistant Enterobacteriaceae and other resistant pathogens have spread outside their countries of origin within several years of their detection. Because resistant bacteria are unlikely to stay isolated, stewardship efforts must be improved globally and international attention is needed to improve surveillance of emerging pathogens and resistance patterns.

A major challenge for clinicians and regulators will be to find stewardship interventions that can be scaled-up and involve multiple stakeholders, including providers, drug manufacturers, health care purchasers (insurers), governments and patients themselves. Such interventions should include practical and costeffective educational programmes targeted towards providers and patients that shift expectations for antibiotic prescriptions to a mutual understanding of the benefits and risks of these drugs.

Educational programmes alone, however, will not be sufficient to lower prescribing rates to recommended levels. Pushing down the inappropriate use of antibiotics also warrants stronger mechanisms that leverage the critical relationships between the stakeholders. For example, health care purchasers can play an important role by using financial disincentives to align prescribing habits with clinical guidelines that are developed by infectious disease specialists in the private and public sectors. This type of approach has the potential to be effective because it includes multiple stakeholders that share responsibility for the appropriate use of antibiotics and, ultimately, patient care.

Key obstacles to antibiotic development

The continual natural selection for resistant pathogens despite efforts to limit antibiotic use underscores the need for new antibiotics with novel mechanisms of action. To date, antimicrobial drug innovation and development have not kept pace with resistance. The number of approved new molecular entities (NME) to treat systemic infections has been steadily declining for decades (see Figure 1). Some infections are not susceptible to any antibiotic and in some cases the only effective drugs may cause serious side effects, or be contra-indicated due to a patient’s allergies or comorbidities (e.g. renal failure). There is significant unmet medical need for therapies that treat serious and life-threatening bacterial diseases caused by resistant pathogens, as well as some less serious infections where there are few treatment alternatives available (e.g. gonorrhoea).

Antibiotic development for these areas of unmet medical need has been sidelined by a number of scientific, regulatory and economic obstacles. While the costs and complexity of any clinical trial necessary for approval by drug regulators can be substantial, in part due to the large study samples needed to demonstrate safety and efficacy, the infectious disease space faces a number of unique clinical challenges. Patients with serious drug-resistant infections may be in need of urgent antibiotic therapy, which can preclude efficient consent and timely trial enrolment procedures; prior therapy can also confound treatment effects if the patient is later enrolled in a trial for an experimental drug. In addition, many patients with these pathogens are likely to have a history of longterm exposure to the health care setting and may have significant comorbidities that render them less likely to meet inclusion criteria for clinical trials.

Emerging infections for which there are few or no treatment options also tend to be relatively rare. This makes it difficult to conduct adequate and well-controlled trials, which typically enrol large numbers of patients. However, clinical drug development can take many years and waiting until such infections are more common is not feasible. Another issue is that it may also not be possible to conclusively identify the pathogen and its susceptibility at the point of enrolment due to the lack of rapid diagnostic technologies. Ultimately, uncertainty about the aetiology of an infection may necessitate trials with larger numbers of patients in order to achieve sufficient statistical power, further compounding the challenge of enrolling seriously ill infectious disease patients in the first place.

The need to conduct large trials involving acutely ill patients that are difficult to identify can make antibiotic development prohibitively expensive for drug developers, especially given that antibiotics are relatively inexpensive and offer limited opportunities to generate returns. Unlike treatments for chronic diseases, antibiotic therapy tends to last no longer than a few weeks, and these drugs lose efficacy over time as resistance develops, leading to diminishing returns. The decline in antimicrobial drug innovation is largely due to these economic obstacles, which have led developers to seek more durable and profitable markets (e.g. cancer or chronic disease) in recent decades. There are only a handful of companies currently in the market and the development pipeline is very thin. Changes to research infrastructure, drug reimbursement and regulation are all potentially needed to revitalise antibiotic innovation.

Opportunities to streamline innovative antibiotic development

In the USA, several proposals have been made to expedite the development and regulatory review of antibiotics while ensuring that safety and efficacy requirements are met. In 2012, the US President’s Council of Advisors on Science and Technology recommended that the US Food and Drug Administration (FDA) create a ‘special medical use’ (SMU) designation for the review of drugs for subpopulations of patients with unmet medical need. Drug sponsors would be required to demonstrate that clinical trials in a larger patient population would need much more time to complete or not be feasible. A drug approved under the SMU designation could be studied in subgroups of patients that are critically ill, as opposed to the broader population, under the condition that the drug’s indication would be limited to the narrow study population. The SMU designation was discussed at an expert workshop convened by the Brookings Institution in August 2013. Many participants at the meeting agreed that there is a pressing need to develop novel antibiotics and that such a limited-use pathway could support the appropriate use of newly approved drugs.

The Infectious Diseases Society of America developed a related drug development pathway called the Limited Population Antibacterial Drug (LPAD) approval mechanism. The LPAD approach calls for smaller, faster and less costly clinical trials to study antibiotics that treat resistant bacteria that cause serious infections. Both the SMU and LPAD approaches would allow drug developers to demonstrate product safety and efficacy in smaller patient subpopulations and provide regulatory clarity about acceptable benefit–risk profiles for antibiotics that treat serious bacterial diseases. The US House of Representatives is currently considering a bill¹ that incorporates these concepts.

A recent proposal from the drug manufacturer industry for streamlined antibiotic development is to establish a tiered regulatory framework to assess narrow-spectrum antibiotics (e.g. active versus a specific bacterial genus and species or a group of related bacteria) that target resistant pathogens that pose the greatest threat to public health (Rex, 2013: pp. 269–275). This is termed a ‘pathogen-focused’ approach because the level of clinical evidence required for approval would be correlated with the threat level and feasibility of studying a specific pathogen or group of pathogens. The pathogen-focused approach was also highlighted at a recent workshop at the Brookings Institution (Brookings Institution, 2014). Some experts felt that the approach is promising but emphasised that each pathogen and experimental drug is unique and that it could be challenging to place them in a particular tier of a regulatory framework. Given that pathogen-focused drugs would likely be marketed internationally, it will be important for drug sponsors to have regular interactions and multiple levels of discussion with regulators to find areas of agreement that would facilitate the approval of these drugs.

Antibiotics with very narrow indications could potentially support stewardship as well by limiting use to the most seriously ill patients. Safe use of these drugs would likely depend on diagnostics, significant provider education, labelling about the benefits and risks of the product, and the scope of clinical evidence behind its approval. Because these antibiotics would be used in a very limited manner, changes would potentially need to be made to how they are priced and reimbursed to ensure that companies are still able to generate returns on their investment. That said, a more focused drug development programme with regulatory clarity could greatly increase their odds of success and, combined with appropriate pricing and safe use provisions, could succeed in incentivising antimicrobial drug development for emerging infections.

Endnote
1 H.R. 3742 – Antibiotic Development to Advance Patient Treatment (ADAPT) Act of 2013.

References
Barnett, M. L. and Linder, J. A., 2014. ‘Antibiotic prescribing to adults with sore throat in the United States, 1997–2010’. JAMA Internal Medicine, 174(1), pp. 138–140.

Brookings Institution, 2013. Special Medical Use: Limited Use for Drugs Developed in an Expedited Manner to Meet an UnmetMedical Need. Brookings Institution. Available at: www.brookings.edu/events/2013/08/01-special-medical-use

Brookings Institution, 2014. Modernizing Antibacterial Drug Development and Promoting Stewardship. Available at: www.brookings.edu/events/2014/02/07-modernizing-antibacterialdrug-development [Accessed 11 March 2014].

CDC, 2013a. Antibiotic resistance threats in the United States,2013 [PDF] CDC. Available at: www.cdc.gov/drugresistance/threatreport-2013/pdf/ar-threats-2013-508.pdf#page=25 [Accessed 16 January 2014].

CDC, 2013b. Clostridium difficile. Antibiotic resistance threats in the United States, 2013 [PDF] CDC. Available at: www.cdc.gov/drugresistance/threat-report-2013/pdf/ar-threats-2013-508.pdf#page=50 [Accessed 16 January 2014].

Hicks, L. A. et al., 2013. ‘US Outpatient Antibiotic Prescribing, 2010’. New England Journal of Medicine, 368(15), pp. 1461–1463.
Infectious Disease Society of America, 2012.

Limited Population Antibacterial Drug (LPAD) Approval Mechanism. Available at: www.idsociety.org/uploadedFiles/IDSA/News_and_Publications/IDSA_News_Releases/2012/LPAD%20one%20pager.pdf [Accessed 5 March 2014].

Infectious Disease Society of America, 2012. Limited Population Antibacterial Drug (LPAD) Approval Mechanism [PDF] Infectious
Disease Society of America. Available at: www.idsociety.org/uploadedFiles/IDSA/News_and_Publications/IDSA_News_Releases/2012/LPAD%20one%20pager.pdf  [Accessed 18 January 2013].

Kumarasamy, K. K., Toleman, M. A., Walsh, T. R. et al.,2010. ‘Emergence of a new antibiotic resistance mechanism in India,
Pakistan, and the UK: A molecular, biological, and epidemiological study’. Lancet Infectious Diseases, 10(9), pp. 597–602.

McCaig, L. F. and Hughes, J. M., 1995. ‘Trends in antimicrobial drug prescribing among office-based physicians in the United
States’. Journal of the American Medical Association, 273(3), pp. 214–219.

President’s Council of Advisors on Science and Technology, 2012. Report to the President on Propelling Innovation in Drug
Discovery, Development and Evaluation. Available at:www.whitehouse.gov/sites/default/files/microsites/ostp/pcast-fdafinal.pdf    [Accessed 5 March 2014].

Rex, J. H. et al., 2013. ‘A comprehensive regulatory framework to address the unmet need for new antibacterial treatments’. Lancet Infectious Diseases, 13(3), pp. 269–275.

Roberts, R. R., Hota, B., Ahmad, I. et al., 2009. ‘Hospital and societal costs of antimicrobial – Resistant infections in a Chicago
teaching hospital: Implications for antibiotic stewardship’. Clinical Infectious Diseases, 49(8), pp. 1175–1184.

WHO (World Health Organization), 2010. Fact Sheet: Rational Use of Medicines [webpage] WHO. Available at:
www.who.int/mediacentre/factsheets/fs338/en [Accessed 28 February 2014].

WHO (World Health Organization), 2013. Antimicrobial Drug Resistance [PDF] WHO. Available at: http://apps.who.int/gb/ebwha/pdf_files/EB134/B134_37-en.pdf [Accessed 6 March 2014].

WHO (World Health Organization), 2013. Notified MDR-TB cases (number per 100,000 population), 2005–12. WHO. Available at:
https://extranet.who.int/sree/Reports?op=vs&path=/WHO_HQ_Reports/G2/PROD/EXT/MDRTB_Indicators_map [Accessed 28 February 2014].

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Antibacterial drugs are a critical component of the nation’s public health armamentarium, and have saved millions of lives by preventing and treating a range of bacterial infections. However, antibacterial drug development has been hampered by challenges unique to the antibacterial drug market, which have stifled innovation and left patients and providers with fewer options to treat increasingly resistant infections. One consequence of the dwindling antibacterial drug pipeline has been a reduction in effective oral antibacterial drug treatment options, which are particularly important in the ambulatory and transitional care contexts. Recent proposals to re-invigorate the antibacterial pipeline are geared towards serious infections treated in the inpatient setting, which may lead to a greater focus on intravenous therapies. However, addressing both current and future needs in the infectious diseases space will require a balanced mix of both oral and parenteral antibacterial drugs.

In cooperation with the U.S. Food and Drug Administration (FDA), the Engelberg Center for Health Care Reform at Brookings held an expert workshop on November 20, 2014, to identify the most promising strategies to support oral antibacterial drug development. Participating stakeholders included experts from the drug development and health care industries, the clinical community, government, and academia. These stakeholders shared their insights on potential regulatory, scientific, and economic strategies to reinvigorate the oral antibacterial drug pipeline. 

Event Materials

• Reinvigorating the Oral Antibacterial Drug Development Pipeline Agenda
• Reinvigorating the Oral Antibacterial Drug Development Pipeline Discussion Guide
• Biographies 20141118
• Reinvigorating the Oral Antibacterial Drug Development Pipeline Slide Deck

       

We are kicking off the new Millions Learning video series with a spotlight on Teach For All, one of the 14 case studies examined in the Millions Learning report. Teach For All is an international network of local, independent partner country organizations dedicated to improving educational opportunities for children and youth around the globe. From China to Bulgaria to Peru to Ghana, each partner organization recruits and trains recent top-performing graduates and professionals to teach in their country’s underserved communities for two years, with the ultimate goal of developing a cadre of education leaders, both inside and outside of the classroom.

In this video, Wendy Kopp, CEO and co-founder of Teach For All, discusses Teach For All’s unique approach to building a pipeline of future “learning leaders and champions” and the role that a supportive policy environment plays in enabling this process. Kopp then explains how Teach For All grew from the original Teach For America and Teach First in the United Kingdom to an international network of 40 partner countries, sharing her own lessons learned along the way.

To learn more about Millions Learning, please visit our interactive report, Millions Learning: Scaling up quality education in developing countries, and/or visit our webpage.

Video

• Getting millions to learn: Interview with Wendy Kopp of Teach For All

       

       

       

Indian and Israeli relations are getting even friendlier: Indian Foreign Minister Sushma Swaraj visited Israel in January, and the trip is widely thought to precede higher level visits, including by Prime Minister Narendra Modi (he’d be the first Indian head of government to visit Israel). Israeli President Reuven Rivlin and Prime Minister Benjamin Netanyahu have both also indicated that they plan to travel to India “soon.”

The foreign minister’s visit was part of the ongoing Indian effort not just to broaden and deepen India’s relationship with Israel, but also to make it more public. But the trip—not just to Israel, but to what the Indian government now routinely calls the state of Palestine—also highlighted the Modi government’s attempt to de-hyphenate India’s relations with the Israelis and Palestinians. 

What is the state of India’s relationship with Israel, the Modi government’s approach toward it, and this de-hyphenated approach? 

A blossoming friendship

Since India normalized relations with Israel in 1992, the partnership has developed steadily. The countries have a close defense, homeland security, and intelligence relationship—one that the two governments do not talk much about publicly. Shared concerns about terrorism have proven to be a key driver; so have commercial interests (including Israel’s quest for additional markets and India’s desire to diversify its defense suppliers, get access to better technology, and co-develop and co-produce equipment). India has become Israeli defense companies’ largest customer. Israel, in turn, has shot up on India’s list of suppliers. 

In the early 1990s, Israel—like the United States—did not really figure on India’s list of defense suppliers. However, between 2005 and 2014, it accounted for 7 percent (in dollar terms) of military equipment deliveries—the third highest after Russia and the United States. As Indian President Pranab Mukherjee recently noted, Israel has crucially come through for India at times “when India needed them the most” (i.e. during crises or when other sources have not been available, for example, due to sanctions). The president referred to the assistance given during the Kargil crisis in 1999 in particular, but there has also been less publicly-acknowledged help in the past, including during India’s 1965 and 1971 wars with Pakistan. 

Beyond the defense and security relationship, cooperation in the agricultural sector—water management, research and development, sharing of best practices—might have the most on-the-ground impact, including in terms of building constituencies for Israel at the state level in India. Israeli ambassadors have indeed been nurturing this constituency and reaching out to the chief ministers of Indian states for a number of years. (Incidentally, India, for its part, has felt that the closer relationship with Israel has created a constituency for it in the United States.)

Economic ties have also grown: The two countries are negotiating a free trade agreement, and have been trying to encourage greater investments from the other. The success of Indian and Israeli information technology companies has particularly led to interest in collaboration in that sector. 

The governments have also been trying to increase people-to-people interaction through educational exchanges and tourism, with some success. Israeli tourism officials have highlighted the 13 percent increase in arrivals from India over the last year. And tourist arrivals to India from Israel have doubled over the last 15 years, including thousands of Israelis visiting after their compulsory military service. 

Let’s go public

The India-Israel relationship has developed under Indian governments of different stripes. It was normalized by a Congress party-led government and progressed considerably during the United Progressive Alliance coalition government led by the party between 2004 and 2014. However, while some ministers and senior military officials exchanged visits during that decade, there were not that many high-visibility visits—especially from India to Israel, with the foreign minister only visiting once. A planned 2006 trip by then Defense Minister Mukherjee was reportedly cancelled because of Israeli military operations in Gaza and then the Lebanon war. The last Israeli prime minister to visit India was Ariel Sharon in 2003, and no defense minister had ever visited despite those ties. 

The Israeli ambassador has talked about the relationship being “held under the carpet.” More bluntly, in private, Israeli officials and commentators have said that India has treated Israel like a “mistress”—happy to engage intimately in private, but hesitant to acknowledge the relationship in public. The explanations for this have ranged from Indian domestic political sensitivities to its relations with the Arab countries.

[I]n private, Israeli officials and commentators have said that India has treated Israel like a “mistress”—happy to engage intimately in private, but hesitant to acknowledge the relationship in public.

When the Bharatiya Janata Party (BJP)-led government took office in May 2014 with Modi at its helm, there was a belief that the partnership with Israel would be a priority and more visible. Relations under the BJP-led coalition government between 1998 and 2004 had been more conspicuous. When in opposition, BJP leaders had visited Israel, and also been supportive of that country in election manifestos and speeches. 

As chief minister of the state of Gujarat, Modi himself had expressed admiration for Israel’s achievements, including “how it has overcome various adversities to make the desert bloom.” Traveling there in 2006 with the central agricultural minister, he also helped facilitate trips for politicians, business leaders, and farmers from his state to Israel. His government welcomed Israeli investment and technological assistance in the agricultural, dairy, and irrigation sectors. And, at a time when Modi was not welcome in many Western capitals, Israelis reciprocated: Businesses and government engaged with him, with Israeli ambassadors and consul generals from Mumbai meeting with him long before European and American officials did so. Thus, Modi’s elevation to prime minister was welcomed in Israel, as was the appointment as foreign minister of Swaraj, a former head of the India-Israel Parliamentary Friendship Group.

However, the Modi government’s response to the Gaza crisis in summer 2014 left many perplexed and some of its supporters disappointed. The Indian government initially sought to avoid a debate on the crisis in the Indian parliament, on the grounds that it did not want “discourteous references” to a friend (Israel). After opposition complaints, there was a debate but the government nixed a resolution. In its official statements, the Modi government consistently expressed concern about the violence in general—and, in particular, both the loss of civilian life in Gaza and the provocations against Israel—and called for both sides to exercise restraint and deescalate. Yet, it then voted in support of the U.N. Human Rights Council (UNHRC) resolution that condemned Israel, a move that left observers—including many in the BJP base—wondering why the government didn’t instead abstain. 

Since then, however, the Modi government has moved toward the expected approach. The first sign of this was Modi’s decision to meet with Netanyahu on the sidelines of the opening of the U.N. General Assembly in 2014—despite reported hesitation on the part of some in the foreign ministry. Since then, there have been a number of high-level visits and interactions (and Twitter exchanges), including a few “firsts.” This past October, Pranab Mukherjee, for example, became the first Indian president to travel to Israel, where he declared the state of the relationship to be “excellent.” 

The Israeli ambassador to India has observed the “high visibility” the relationship now enjoys. Also noticed more widely was India abstaining in a July 2015 UNHRC vote on a report criticizing Israeli actions in the 2014 Gaza crisis. Indian diplomats explained the vote as due to the mention of the International Criminal Court (ICC) in the resolution, but observers pointed out that India has voted for other resolutions mentioning the ICC. Israeli commentators saw the abstention as “quite dramatic;” the Israeli ambassador expressed gratitude. Palestinian officials, on the other hand, expressed “shock” and criticized the vote as a “departure.” 

In the defense space, cooperation is only growing: The Indian government moved forward on (delayed) deals to purchase Spike anti-tank missiles and Barak missiles for its navy; it recently tested the jointly-developed Barak 8 missile system, along with Israel Aerospace Industries; and an Indian private sector company has reportedly formed a joint venture with an Israeli company to produce small arms. Cooperation is also continuing in the agricultural sector, with 30 centers of excellence either established or planned across 10 Indian states. More broadly, the two governments are seeking to facilitate greater economic ties, as well as science and technology collaboration. 

There have been questions about why Modi hasn’t visited Israel yet, despite the more visible bonhomie. But, in many ways, it made sense to have the Indian president take the first leadership-level visit during this government. Mukherjee’s position as head of state, as well as the fact that he was a life-long Congress party member and minister, helped convey to both Indian and Israeli audiences that this is not a one-party approach. This point was reinforced by the accompanying delegation of MPs representing different political parties and parts of the country. For similar reasons, it would not be surprising if there was a Rivlin visit to India before a Netanyahu one. 

De-hyphenation? 

The deepening—and more open—relationship with Israel, however, hasn’t been accompanied by a U-turn on the Indian government’s policy toward Palestine. What the Modi government seems to be doing is trying to de-hyphenate its ties with Israel and Palestine. Previous governments have also tried to keep the relationships on parallel tracks—but the current one has sought to make both relationships more direct and visible, less linked to the other, while also making it clear that neither will enjoy a veto on India’s relations with the other. 

The deepening—and more open—relationship with Israel, however, hasn’t been accompanied by a U-turn on the Indian government’s policy toward Palestine.

The Modi government doesn’t demure from referring to the “state of Palestine” rather than “the Palestinian Authority.” It held the first-ever Foreign Office consultations with the Palestinians last spring, and the Indian foreign ministry made it a point to release separate press releases for the president’s and the foreign minister’s trips to Israel and Palestine. The Indian president became the first foreign head of state to stay overnight in Ramallah. Modi met with Mahmoud Abbas, whom the Indian government refers to as the “president of the state of Palestine, on the sidelines of both the U.N. General Assembly meeting in New York and the climate change summit in Paris in 2015. The Indian foreign minister met with Abbas in 2014 in New York, and again in Ramallah on her visit. During their trips, both she and the Indian president also went to the mausoleum of Yasser Arafat (who the BJP in the past called “the illustrious leader of the Palestinian people”).

The government has reiterated India’s traditional position on a two-state solution, indicating its belief in an independent Palestinian state with East Jerusalem as its capital. It voted in favor of the resolution on raising the Palestinian flag at the United Nations, and has continued to sign on to BRICS declarations “oppos[ing] the continuous Israeli settlement activities in the Occupied Territories.” In Ramallah, Sushma Swaraj emphasized that India’s support for Palestinians remained “undiluted.” 

The continuity on this front is not just driven by historic and domestic political factors, but also by India’s broader balancing act in the region. Even as India’s relations with Israel have deepened, it has maintained—and even enhanced—its relations with Iran and the Gulf Cooperation Council (GCC) countries. Modi has welcomed the emir of Qatar, visited the UAE, and met with Iran’s Hassan Rouhani. The first-ever Arab-India Cooperation Forum ministerial meeting also took place in January. It would not be surprising if the Indian prime minister visited Saudi Arabia this year or there were high-level visits exchanged between Delhi and Tehran. The government has emphasized its “strategic intent and commitment to simultaneously enhance relations with the Arab world as well as Israel, without allowing it to become a zero sum game.” And, overall, the Israelis, Palestinians, and GCC countries have not pushed for Delhi to make a choice. 

The de-hyphenated approach, in turn, potentially gives Indian policymakers more space to take India’s relationship with Israel further. But, as was evident during the Indian president’s visit to the region, it hasn’t been problem-free and it has not been feasible to keep the two relationships entirely insulated. An upsurge in violence reportedly caused Israel to nix a proposal for Mukherjee to visit the Al-Aqsa mosque in Jerusalem. There was also some heartburn about the Israeli delay in clearing 30 Indians' computers destined for an India-Palestine Centre for Excellence in Information and Communication Technology at Al-Quds University in Ramallah, as well as its refusal to allow communications equipment to be transferred. In the Israeli press, there was criticism of the president’s lack of mention of Palestinian violence. The Indian president and the foreign ministry also found themselves having to explain the president’s remark in Israel that “religion cannot be the basis of a state.”

There have been other differences between India and Israel as well, notably on Iran (something officials have tended not to discuss publicly). There might be other difficulties in the future, stemming, for example, from: negative public and media reaction in India if there’s another Israel-Palestine crisis; the stalled free trade agreement negotiations; potential Israeli defense sales to China; renewed questions about defense acquisitions from Israel; or the behavior of Israeli tourists in India. But the relationship is likely to continue to move forward, and increase in visibility, including with visits by Rivlin, Netanyahu, and Modi—potentially before the 25th anniversary of the two countries establishing full diplomatic relations on January 29, 2017.

      

For the last several years, the US government has been negotiating a free-trade agreement known as the Trans-Pacific Partnership (TPP) with 11 other countries across the Asia-Pacific and Latin American regions, which could have major impact on the pharmaceutical market.  When finalized it will be the largest free-trade agreement in history, impacting up to one-third of world trade and roughly 40 percent of the global gross domestic product. The deal has attracted a fair share of criticism from a wide range of groups, including concerns over proposed regulations for biologic drugs in participating countries. Specifically, critics are concerned about the length of data exclusivity granted to the companies that hold the patents on these drugs. Below is a primer on biologics and how they are being addressed in the TPP.

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What are biologics and biosimilars?

Biologic drugs include any therapy derived from a biological source; a group which includes vaccines, anti-toxins, proteins, and monoclonal antibodies. Because they are typically much larger and more structurally complex than traditional ‘small-molecule’ drugs, they are also more difficult—and much more costly—to develop and manufacture. Biologics are also among the most expensive drugs on the market, costing an average of 22 times more than nonbiologic drugs. Avastin, a cancer drug, can cost more than $50,000 a year, while the rheumatoid arthritis drug Remicade can cost up to $2,500 per injection.

Given these high costs, there is substantial interest in encouraging the development of biosimilars, a term used to describe follow-on versions of an original biologic. Estimates of the potential cost savings vary substantially, but some have predicted that competition from biosimilars could reduce US spending on biologics by $44 to $66 billion over the next ten years.  In the European Union, biosimilars have been on the market since 2006, and a 2013 analysis found that, for the 14 biosimilars on the market, the average price discount was about 25 percent. By 2020, the overall cost savings are projected to total $16-$43 billion.

After the Affordable Care Act (ACA) was passed in 2010, the US Food and Drug Administration (FDA) developed an accelerated approval pathway for biosimilars, modeled after the pathway used for the approval of small-molecule generics. In order to meet the criteria for biosimilarity, the drug must share the same mechanism of action for the approved condition of use, and there must be no clinically significant differences between the two drugs in terms of purity, safety, or potency. FDA recently approved its first biosimilar, Zarxio, which is a copy of the oncology drug Neupogen.

What issues are being raised over data exclusivity in the US?

Under current FDA regulations, biologic drugs are granted 12 years of data exclusivity following approval. During this period of exclusivity, the FDA may not approve a biosimilar application that relies on the data submitted as part of the original biologic application. This form of temporary monopoly is distinct from patent protection, which is granted well before approval and is not related to clinical data.  Data exclusivity does not prevent another company from generating the data independently, but drug companies are unlikely to go to the considerable (and costly) effort of replicating a full course of clinical trials for a drug that is already on the market. (Though biosimilars may need to undergo some additional clinical testing under current FDA regulations, the amount of data required to support approval would certainly be less than what is required for an original biologic approval.)

The 12-year exclusivity period for biologics was established in the ACA following intense debate, and has continued to attract criticism. (By contrast, the period of data exclusivity is just five years for small-molecule drugs.) Supporters argue that given the greater cost and difficulty of bringing a biologic to market a longer period of exclusivity is necessary to incentivize innovation. Others argue that the resulting restrictions on competition keep drug prices unnecessarily high, inevitably putting a strain on the health system and keeping potentially life-saving drugs out of reach for many patients.

How would the TPP affect data exclusivity?

For the 11 countries besides the U.S. that are involved in the TPP, current data exclusivity protections range from zero (Brunei) to eight years (Japan). Under the Obama Administration’s current proposal, participating countries would increase those periods to match the US standard of 12 years. Curiously, this proposal directly contradicts the administration’s ongoing domestic efforts to lower the period of data exclusivity. Since the ACA passed, the Obama administration has repeatedly proposed reducing it to seven, arguing that this would save Medicare $4.4 billion over the next decade. Some have noted that, once the 12-year period is enshrined in the TPP, it will become significantly more difficult to change it through the US legislative process. Furthermore, imposing US standards on the 11 member countries would inevitably restrict competition at the global level, and many patient advocacy and international humanitarian organizations have argued that doing so would undermine the efforts of US global health initiatives like the Vaccine Alliance and the Global Fund to Fight AIDS, Tuberculosis and Malaria, which rely on price competition to manage program costs.

It is unclear whether the US will be successful in its efforts. There have been reports that the issue of data exclusivity has become a significant point of contention, and the US delegation may seek to compromise on its demands. It may, for example, negotiate exceptions for the poorer countries involved in the negotiation, as the Washington Post notes. However, the details of the negotiations are largely confidential, which makes it challenging to assess the possibilities, their relative advantages, or how the US Trade Representative (which is leading the US negotiations) is balancing the need to ensure adequate incentives for innovation with the need to control drug costs and facilitate patient access to potentially life-saving therapies.

Editor's note: Elizabeth Richardson, a research associate in the Center for Health Policy, contributed to the research and writing of this post. 

       

       

The Federal Reserve last week released transcripts of Federal Open Market Committee (FOMC) meetings that took place in 2008 amidst a worsening global financial crisis. Sarah Binder describes what was found amongst the transcripts. Alongside financial and economic crises facing the Fed that year, the Fed faced a crisis as a political institution.  

       

Editor's Note: In this blog, Vera Songwe introduces the African Leadership Transitions Tracker, a new interactive that aims to start a broader conversation about leadership transitions and what they mean for the region and beyond.

On March 28, Nigerians voters will go to the polls to participate in their nation’s fifth election since the military handed over power to civilians in 1999. As Africa’s largest economy and an important oil exporter, this election comes at an important time for Nigeria and for the continent as a whole.

Events around this election have generated significant debate around electoral and voting processes on the continent such as the importance of a constitution, the cost, the frequency and level of contestability, and the power of incumbency in African elections. However, amid this dialogue, much less consideration has been devoted to where this election stands within the continuum of leader transitions Nigeria has experienced since it first gained independence in 1960. Nigerians have, in fact, gone through 18 leadership transitions in the last 55 years, including the untimely death of former President Umaru Masu Yar’Adua in May 2010, the multiparty elections that brought President Olusegun Obasanjo to power in 1999, and the first presidential elections that brought President Shegu Shagari to power in 1979. Nigeria’s high rate of leadership changeover should not, however, be considered illustrative of Africa’s overall story. On the contrary, a high level of diversity exists among countries in the region on this measure, with countries like Angola having had only one leadership transition since it achieved its independence in 1975, and Benin, on the other hand, undergoing an election, coup, or other type of leadership transition nearly every two years in the country’s 55-year post-independence history. However, overall in Africa today there are more peaceful and competitive leadership transitions than there have been over the last six decades. This contestability process is gaining ground across the continent, and while coups d’etat appear to be fading revolutions are gaining ground where competition has not taken hold.

The recent passing of Singapore’s 30 year-long leader Lee Kwan Yew credited with having taken Singapore from a third world country to a fully developed country in less than a generation, has brought the question of leadership and leadership transitions back to the fore. A 2010 report by Michael Spence’s Growth Commission heralds Lee Kuan Yew as the hero of Singapore’s growth story. The African Leadership Transition Tracker hopes to launch a dialogue on what the frequency, nature, and scope of leadership transitions mean for African countries’ growth, stability, and development trajectory overall. Moreover, how have transition trends in the region changed from the time of the African founding fathers and the tumultuous years of the 1960s to the present day?

As an initial step towards thinking this question through, Brookings’s African Growth Initiative is today launching the African Leadership Transitions Tracker as a resource both to inform readers about African political history and a tool to initiate analysis on what leadership changeover might mean (or not mean) for development. The Transitions Tracker specifically records all changes that have occurred at the head-of-state level in every African country between the end of the colonial period and the present day. We are hoping that recording this information and presenting it visually (and as a downloadable data set) will help start a broader conversation and support additional work on these issues. Brookings will update this data on a regular basis, and we welcome your feedback as we further refine this interactive. Moreover, the information we present today is by no means the full story—key variables are needed to complement this study, including, for example, the various political party affiliations of leaders within a country or cross tabulations with resources that seek to measure the level of citizen participation and engagement in these transitions. However, as further analysis takes place, we are hoping that the African Leadership Transitions Tracker will enrich dialogue about developments occurring in the region and place current news on elections or other types of changeover events within the broader context of the continent’s leadership story overall.  Over the next few months, we will be running a series of articles based on this data.  

Special thanks to Ehui Adovor, graduate student at George Washington University and the many AGI research assistants, analysts, and program staff that have supported this project, including Jessica Pugliese, Brandon Routman, Christina Golubski, Andrew Westbury, and Amy Copley.

      

Editor’s Note: The Center for Technology Innovation released the 2015 Financial and Digital Inclusion Project (FDIP) Report on August 26^th. TechTank has previously covered the FDIP launch event and outlined the report’s overall findings. Over the next two months, TechTank will take a closer look at the report’s findings by country and by region, beginning with today’s post on India. 

With about 21 percent of the world’s entire unbanked adult population residing in India as of 2014, the country has tremendous opportunities for growth in terms of advancing access to and use of formal financial services.

In the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, we detail the progress achieved and possibilities remaining for India’s financial services ecosystem as it moves from a heavy reliance on cash to an array of traditional and digital financial services offered by diverse financial providers.

As noted in the 2015 FDIP Report, government-led initiatives to promote financial inclusion have advanced access to financial services in India. Ownership of formal financial institution and mobile money accounts among adults in India increased about 18 percentage points between 2011 and 2014. Recent regulatory changes and public and private sector initiatives are expected to further promote use of these services.

In this post, we unpack the four components of the 2015 FDIP Scorecard — country commitment, mobile capacity, regulatory environment, and adoption of traditional and digital financial services — to highlight India’s achievements and possible next steps toward greater financial inclusion.

Country commitment: An unprecedented year with no sign of slowing

India’s national-level commitment to promoting financial inclusion earned it a “country commitment” score of 100 percent. A historic government initiative helped India garner a top score: In August 2014, Prime Minister Narendra Modi launched the “Pradhan Mantri Jan-Dhan Yojana,” the Prime Minister’s People’s Wealth Scheme (PMJDY). This effort — arguably the largest financial inclusion initiative in the world — “envisages universal access to banking facilities with at least one basic banking account for every household, financial literacy, access to credit, insurance and pension facility,” in addition to providing beneficiaries with an RuPay debit card.

As part of this effort, the program aimed to provide 75 million unbanked adults in India with accounts by late January 2015. As of September 2015, about 180 million accounts had been opened; about 44 percent of these accounts did not carry a balance, down from about 76 percent in September 2014.

The PMJDY initiative is a component of the JAM Trinity, or “Jan-Dhan, Aadhaar and Mobile.” Under this approach, government transfers (also known as Direct Benefit Transfers, or DBT) will be channeled through bank accounts provided under Jan-Dhan, Aadhaar identification numbers or biometric IDs, and mobile phone numbers.

The Pratyaksh Hanstantrit Labh (PaHaL) program is a major DBT initiative in which subsidies for liquefied petroleum gas can be linked to an Aadhaar number that is connected to a bank account or the consumer’s bank details. As of July 2015, about $2 billion had been channeled to beneficiaries in 130 million households across the country.

Mobile capacity: Ample opportunity for digital services, but limited awareness and use

India received 16^th place (out of the 21 countries considered) in the 2015 FDIP Report and Scorecard’s mobile capacity ranking. India’s mobile money landscape features an extensive array of services, and the licensing of new payments banks (discussed below) may drive the entry of new players and products that can improve low levels of awareness and adoption of digital financial services.

An InterMedia survey conducted from September to December 2014 found that while 86 percent of adults owned or could borrow a mobile phone, only about 13 percent of adults were aware of mobile money. Awareness of mobile money is increasing — the 13 percent figure is double that of the first wave of the survey, which concluded in January 2014 — but uptake remains low. The Global Financial Inclusion (Global Findex) database found only 2 percent of adults in India had a mobile money account in 2014.

Implementing interoperability across mobile money offerings, increasing 3G network coverage by population, and enhancing unique mobile subscribership could boost India’s mobile capacity score in future editions of the FDIP report.

Regulatory environment: Opening up the playing field to non-bank entities

India tied for 7^th place on the regulatory environment component of the 2015 Scorecard. The country’s recent shift to a more open financial landscape contributed to its strong score, although more time is needed to see how recent regulations will be operationalized.

India has traditionally maintained tight restrictions with respect to which entities are involved in financial service provision. Non-banks could manage an agent network on behalf of a bank as business correspondents or issue “semi-closed” wallets that did not permit customers to withdraw funds without transferring them to a full-service bank account. These restrictions likely contributed to the country’s slow and limited adoption of mobile money services.

However, 2014 brought significant changes to India’s regulatory landscape. The Reserve Bank of India’s November 2014 Payments Banks guidelines were heralded as a major step forward for increasing diversity in the financial services ecosystem. These guidelines marked a significant shift from India’s “bank-led” approach by providing opportunities for non-banks such as mobile network operators to leverage their distribution expertise to advance financial access and use among underserved groups.

While these institutions cannot offer credit, they can distribute credit on behalf of a financial services provider. They may also distribute insurance and pension products, in addition to offering interest-bearing deposit accounts.

We noted in the 2015 FDIP Report that timely approval of license applications for prospective payments banks, particularly mobile network operators, would be a valuable next step for India’s financial inclusion path. In August 2015, the Reserve Bank of India approved 11 applicants, including five mobile network operators, to launch payments banks within the next 18 months. As noted in Quartz India, the “underlying objective is to use these new banks to push for greater financial inclusion.” India has also made strides in terms of establishing proportionate “know-your-customer” requirements for financial entities, including payments banks.

While India has made significant progress in terms of promoting a more enabling regulatory environment, room for improvement remains. For example, concerns have been raised regarding the low commission rate for banks distributing DBT, with many experts noting that a higher commission would enhance the ability of these banks to operate sustainably.

Adoption: Access is improving, but promoting use is key

India ranked 9^th for the adoption component of the 2015 Scorecard. Recent studies have demonstrated that adoption of formal financial services among traditionally underserved groups is improving. For example, InterMedia surveys conducted in October 2013 to January 2014 and September to December 2014 found that the most significant increase in bank account ownership was among women, particularly women living below the poverty line. Still, further work is needed to close the gender gap in account ownership.

As noted above, adoption of digital financial services such as mobile money is minimal compared with traditional bank accounts (0.3 percent compared with 55 percent, according to the September to December 2014 InterMedia survey); nonetheless, we believe that the introduction of payments banks, combined with government efforts to digitize transfers, will facilitate greater adoption of digital financial services.

While PMJDY has successfully promoted ownership of bank accounts, incentivizing use of these services is critical for achieving true financial inclusion. Dormancy rates in India are high — about 43 percent of accounts had not been deposited into or withdrawn from in the previous 12 months, according to the 2014 Global Findex.

More time may be needed for individuals to understand how their new accounts function and, equally importantly, how their new accounts are relevant to their daily lives. A February 2015 survey designed by India’s Ministry of Finance, MicroSave, and the Bill & Melinda Gates Foundation found about 86 percent of PMJDY account holders reported the account was their first bank account. While this survey is not nationally representative, it provides some context as to why efforts to promote trust in and understanding of these new accounts will be key to the success of the program.

An opportunity for promoting adoption of digital financial services was highlighted during the public launch of the 2015 Report and Scorecard: As of June 2015, it was estimated that fewer than 6 percent of merchants in India accepted digital payments. The U.S. government is partnering with the government of India to promote the shift to digitizing transactions, including at merchants.

The next annual FDIP Report will examine the outcomes of such initiatives as we assess India’s progress toward greater financial inclusion. Suggestions and other comments regarding the FDIP Report and Scorecard are welcomed at FDIPComments@brookings.edu.

       

Editor’s Note: This post is part of a series on the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, which were launched at a Brookings public event, “Measuring Progress on Financial and Digital Inclusion,” on August 26^th. Previous posts have highlighted five key findings from the 2015 FDIP Report, explored groundbreaking financial inclusion developments in India, and examined the financial inclusion landscape among FDIP countries in Southeast Asia, Central Asia, and the Middle East.

Today’s post highlights the 2015 Scorecard findings for five of FDIP’s nine African countries: Rwanda, Uganda, Tanzania, Zambia, and Malawi. To learn more about the remaining FDIP African countries, read Amy Copley and Amadou Sy’s recent post on Brookings’s “Africa in Focus” blog.

Rwanda: Significant financial inclusion progress over time, but room for expansion remains

• While Rwanda and Uganda were among the bottom four FDIP countries in terms of GDP in current US dollars as of 2013, both countries tied for 4th place on the overall FDIP scorecard, buoyed by their national commitment to and progress toward financial inclusion. For example, Rwanda has a comprehensive action plan for financial inclusion featured in the country’s Financial Sector Development Program (now in its second phase) and, as noted in the 2014 Maya Declaration, set up a working group to monitor the implementation of the program. As part of its commitment to promoting financial inclusion, Rwanda set a numeric target to increase access to formal financial services from 21 percent of the country’s adult population (as benchmarked in the 2008 FinScope survey) to 80 percent by 2017; it has since increased its goal to 90 percent by 2020. The National Bank of Rwanda serves as the country’s Maya Declaration signatory.
• On the mobile side, Rwanda received a higher score than Uganda for the percentage of unique mobile subscribers, achieving a score of “2” (out of 3 possible points), rather than Uganda’s “1.” Rwanda also scored higher than Uganda in terms of 3G mobile network coverage by population, receiving a “3” rather than Uganda’s “2.” Both countries received the highest scores possible for the mobile money deployment and offerings indicators in the scorecard (e.g., existence of bill payment and international remittance options through mobile money). Rwanda was one of the first countries in Africa to support mobile money cross-border remittances, enabling Tigo subscribers to transfer funds to counterparts in Tanzania.
• Rwanda performed strongly on the regulatory environment dimension of the 2015 FDIP Scorecard, ranking third. A 2012 International Finance Corporation (IFC) Mobile Money Scoping report praised Rwanda for its “highly proactive government” that instituted a comprehensive framework for e-payments, driven by its aim to facilitate a cashless financial ecosystem by 2017. Rwanda’s regulatory environment facilitates both mobile operator-led mobile money services and bank-led mobile banking models. As noted in the 2015 FDIP Report, a national ID is widely available, and specific provisions catering for tiered KYC requirements are underway as part of the draft e-payments legislation for non-bank entities.
• On the adoption front, Uganda received higher scores than Rwanda, ranking 6th in contrast to Rwanda (10th). Among the FDIP countries, Rwanda tied for the highest score in terms of the savings at a formal financial institution but did not receive top scores for any of the other 14 adoption indicators. The relatively low levels of formal financial services adoption should not discount the progress that has been made — as of 2014, the World Bank’s Global Financial Inclusion (Global Findex) database found that takeup of formal accounts had increased to about 42 percent of adults  — but in an absolute sense, Rwanda still has room for growth.
• With respect to further opportunities for improvement, the Economist Intelligence Unit (EIU)’s “Global Microscope 2014: The enabling environment for financial inclusion” report noted that some existing consumer protection issues in Rwanda are expected to be addressed in part by a financial consumer protection law expected to be fully implemented by 2016. Advancing platform interoperability could further incentivize adoption of digital financial services: According to the National Bank of Rwanda, interoperability across mobile money transfer services is in process, but not yet complete.

Uganda:Fairly robust mobile money adoption, but improvements regarding consumer protection and usage are key

• As noted above, Uganda tied with Rwanda for 4th place overall on the 2015 FDIP scorecard. A 2014 financial inclusion report by the Bank of Uganda (Uganda’s Maya Declaration signatory) noted on page iv that in 2011, the Bank of Uganda “adopted a new strategy for financial inclusion based on four pillars: financial literacy, financial consumer protection, financial innovations, and financial services data and measurement.” Like Rwanda, FinScope surveys have been carried out fairly regularly in Uganda, most recently in 2013. These financial services surveys help to identify areas of strength and room for improvement in terms of access to and usage of formal financial services among different demographics.
• On the mobile side, Uganda’s mobile capacity — specifically, its percentage of unique mobile subscribers and 3G mobile network coverage by population — could be improved. Regarding the latter indicator, Uganda’s score was among the bottom five FDIP countries (along with Tanzania, Malawi, and Zambia, also featured in this post). Still, Uganda’s mobile money adoption rates are quite robust: Uganda received a score of “2” for all mobile money account-related indicators under the adoption dimension, with the exception of the percentage of adults who pay bills regularly through a mobile phone, which achieved the top score of “3.”
• On the regulatory side, mobile money guidelines were developed in 2013 to provide some clarity to the industry. However, since these guidelines are not binding in the way that more formal regulations are, developing formal regulations could help ensure greater customer protection and clarity within the market. Uganda does not have a payments law to enable the Bank of Uganda to issues licenses to electronic money institutions, and only banks and other institutions regulated under the Financial Institutions Act can provide retail payment services. As noted in the 2015 FDIP Report, amendments to the Financial Institutions Act and the Micro-Finance and Deposit-Taking Institutions Act, along with new draft agency banking guidelines, are underway to facilitate agent banking.
• In terms of availability and adoption of financial services, a Helix Institute report published in 2014 noted that the products and services offered by agents in Uganda were somewhat limited. Expanding the services offered — such as credit, savings, and insurance — could provide individuals with more opportunities to increase their wealth. These services must be offered with careful regard to consumer protection. Uganda achieved 6th place on the adoption dimension of the scorecard, boosted by its above-average takeup of mobile money compared to other FDIP countries.
• In terms of next steps, moving away from a reliance on basic deposit and withdrawals conducted “over-the-counter” to encourage a greater diversity of offerings and services could strengthen the utility of mobile money for customers. However, providers will also have to build trust in digital financial services, particularly in light of ongoing issues with service down-time and recent fraud scandals such as the recent case against several former employees of MTN charged with defrauding the compnay of over $3 million.

Tanzania: Significant strides in regulatory environment and mobile money adoption, with further growth likely to follow

• Tanzania ranked 12th overall on the FDIP scorecard. As noted in the 2015 Report, Tanzania has demonstrated strong leadership in terms of its national-level commitment to promoting financial inclusion, which has contributed to its enabling regulatory environment for digital financial services. For example, Tanzania launched a National Financial Inclusion Framework in 2013, which contains a quantified target of 50 percent financial inclusion by 2016. These factors will likely drive greater financial inclusion in the future by facilitating the development and adoption of innovative, appropriate, and accessible products for previously underserved communities. However, quantitative data available as of 2015 regarding Tanzania’s overall mobile capacity and adoption of formal financial services indicate that room for growth remains.
• In terms of mobile capacity, Tanzania’s mobile money providers have been noted for offering an array of innovative products, including mobile operator Tigo’s interest-bearing mobile money service. Tanzania’s recent (and quite rare) implementation of interoperable mobile money platforms was also highlighted in the 2015 Report and Scorecard. However, as measured by 2015 GSMA Intelligence data, Tanzania’s score for the percentage of 3G network coverage by population was among the lowest of the FDIP countries, and its rate of unique subscribership was below the FDIP average.
• Tanzania’s regulatory environment has been lauded for enabling a diverse array of entities to offer competitive formal financial services. As noted in the 2015 FDIP Report, the Bank of Tanzania Act was amended in 2006 to permit non-bank entities to offer payment services, and the 2007 Electronic Payment Schemes Guidelines were used to enable mobile network operators to offer payment services. In 2013, agent banking guidelines were issued, and in March 2015, the National Payment Systems Act was passed by Tanzania’s parliament. These various regulations have provided the space and clarity for a variety of providers to enter the digital financial services market.
• On the adoption front, Tanzania has undoubtedly made great strides in terms of advancing mobile money adoption, even outnumbering the total number of mobile money transactions made in Kenya (according to figures noted by the Consultative Group to Assist the Poor in March 2015). However, in terms of the percentage of adults with a mobile money account, there was a difference of over 25 percentage points between Kenya and Tanzania as of 2014, according to the 2014 Global Findex.
  Out of 3 possible points achievable per indicator on the adoption dimension, Tanzania received 2 points for the adoption of mobile money accounts among adults, rural individuals, women, and adults making utility bill payments. However, Tanzania received a score of “1” for the other 11 adoption indicators. As a point of reference, Kenya received a full 3 points for each of the mobile account-related indicators on the adoption dimension, and it tied or exceeded Tanzania’s scores for the other adoption indicators.
• Moving forward, we fully anticipate that Tanzania’s increasingly competitive and robust mobile money environment, combined with strong coordination and financial inclusion leadership among the public and private sectors, will drive greater adoption of formal financial services.

Zambia: Commitment to increasing equity in access to financial services, but usage of available services is limited

• Zambia was ranked 14th overall on the 2015 FDIP Scorecard. As with three of the other countries featured in this post — Rwanda, Tanzania, and Uganda — Zambia achieved a score of 100 percent for country commitment. The Bank of Zambia serves at the country’s Maya Declaration signatory and houses the secretariat for Zambia’s Financial Sector Development Plan. As one of the Bank of Zambia’s Maya Declaration commitments, the country set a goal of ensuring access to financial services for at least half of its adult population by the end of 2016. As of 2014, the “gender gap” in terms of account ownership between men and women was about 5 percentage points in Zambia, according to the Global Findex, making Zambia among the five FDIP countries with the smallest disparity in terms of access to finance by gender. Still, account ownership among women was only about 33 percent in 2014; Zambia’s first lady, Esther Lungu, has emphasized the importance of promoting financial inclusion among women.
• In terms of mobile capacity, Zambia received a score of “2” for both the percentage of unique mobile subscribers and percentage of 3G mobile network coverage by population, as measured by the 2015 GSMA Intelligence database. Zambia received top scores for the other mobile capacity indicators, which focused on the number of mobile money deployments and the type of offerings. However, while about 62 percent of adults owned a mobile phone in Zambia as of 2014, according to a 2014 country brief, only about 5 percent of adults used their mobile phone to pay bills or send or receive money — about 11 percentage points below the average for countries in Sub-Saharan Africa.
• Regarding the country’s regulatory environment, Zambia finalized a draft framework on branchless banking in 2013 and has adopted a tiered approach to KYC requirements for e-money wallets. As noted in the 2015 FDIP Report, draft e-money directives are also undergoing review and are expected to include provisions regarding interoperability. Zambia began working toward a new financial inclusion strategy in advance of expiration of the Financial Sector Development Plan in June 2015, which may inform the direction of future regulatory initiatives.
• Challenges to the formal financial services sector in Zambia include high interest rates, fees, and other costs associated with banking. Further, a 2011 report noted that low literacy rates and high poverty levels have posed challenges to takeup of formal financial services. Efforts to expand access to financial services beyond brick-and-mortar banks have been quite successful, as demonstrated by the greater density (in terms of points of service) of mobile money agents than traditional banks in Zambia as of 2013. As of 2014, mobile money agents accounted for about 45 percent of all financial access points in the country.
• In the near future, Zambia is expected to finalize and issue draft e-money directives and approve draft branchless banking regulations. Increasing usage of more extensive financial services could help individuals reap the full benefits of mobile money — as noted in the FinScope 2015 findings, mobile money customers primarily use the service to send and receive money, purchase airtime, or pay bills.

Malawi: Limited infrastructure constrains adoption, but forthcoming regulations may enhance digital financial ecosystem

• Malawi ranked 19th overall on the 2015 FDIP Scorecard. Among the 21 FDIP countries, Malawi has the lowest GDP in current US dollars, according to the 2013 World Development Indicators database. Despite economic and infrastructural barriers, Malawi has engaged in a variety of efforts to promote digital financial services such as mobile money, including through its participation in the Alliance for Financial Inclusion and the creation of its Mobile Money Coordination Group.
• Regarding the mobile capacity dimension of the 2015 Scorecard, Malawi received the highest number of possible points for its deployment offerings. However, Malawi had the second-lowest rate of unique mobile subscribership among the 21 FDIP countries and the lowest score for the extent of 3G mobile network coverage by population, as measured by data provided in the 2015 GSMA Intelligence database. Expanding mobile networks and facilitating mobile subscribership could boost Malawi’s mobile money environment by increasing access to and incentivizing use of mobile services.
• In terms of Malawi’s regulatory environment, the 2011 Mobile Payment System Guidelines were developed to permit mobile network operators to provide mobile money services. Interoperability has been identified as an objective in these Mobile Guidelines, and the recently launched National Switch may facilitate interoperability. Draft e-money regulations developed by the Reserve Bank of Malawi (the country’s Maya Declaration signatory) are expected to be officially recognized by the Ministry of Finance in 2015; these regulations are anticipated to replace the Mobile Guidelines. As noted in the 2015 FDIP Report, a Payment Systems Bill was finalized in February 2015 and expected to be enacted in December 2015. This bill is expected to help provide greater clarity regarding oversight arrangements for payment services.
• Malawi received a score of “1” for each of the adoption indicators, which placed it among the three lowest-scoring countries for the adoption dimension of the 2015 Scorecard. Financial infrastructure in Malawi is very limited, which constrains adoption of formal financial services. For example, the 2014 International Monetary Fund Financial Access Survey found that there were only about 3 commercial bank branches per 1,000 km2 and per 100,000 adults in Malawi.
• Moving forward, the new regulations described above may even the playing field between banks and non-banks, both in terms of e-money and agent banking, and will permit tiered KYC for e-money service providers. Increasing competition among providers could enhance the diversity of available financial services offerings, which may in turn drive adoption.

       

Editor’s Note: This post is part of a series on the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, which were launched at a Brookings public event in August. Previous posts have highlighted five key findings from the 2015 FDIP Report, explored financial inclusion developments in India, and examined the rankings for selected FDIP countries in Southeast and Central Asia, the Middle East, and Africa.

The 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard were launched in August of this year and generally reflect data current through May 2015. Since the end of the data collection period for the report, countries have continued to push forward to greater financial inclusion, and international organizations have continued to assert the importance of financial inclusion as a mechanism for promoting individual well-being and macroeconomic development. Financial inclusion is a key component of the United Nations’ Sustainable Development Goals, signaling international commitment to advancing access to and use of quality financial products among the underserved.

We discussed one recent groundbreaking financial inclusion development in a previous post. To learn more about the approval of payments banks in India, read “Inclusion in India: Unpacking the 2015 FDIP Report and Scorecard.”

Below are four other key developments among our 21-country sample since the end of the data collection period for the 2015 FDIP Report and Scorecard. The list is in no way intended to be exhaustive, but rather to provide a snapshot illustrating how rapidly the financial inclusion landscape is evolving globally.   

1) The Philippines launched a national financial inclusion strategy.

In July 2015, the Philippines launched a national financial inclusion strategy (NFIS) and committed to drafting an Action Plan on Financial Inclusion. The Philippines’ NFIS identifies four areas central to promoting financial inclusion: “policy and regulation, financial education and consumer protection, advocacy programs, and data and measurement.”

 As discussed in the 2015 FDIP Report, national financial inclusion strategies often serve as a platform for identifying key priorities, clarifying the roles of key stakeholders, and setting measurable targets. These strategies can foster accountability and incentivize implementation of stated initiatives. While correlation does not necessarily equal causation, it is nonetheless interesting to note that, according to the World Bank, “[o]n average, there is a 10% increase in the percentage of adults with an account at a formal financial institution for countries  that launched an NFIS after 2007, whereas the increase is only 5% for those countries that have not launched an NFIS.”

2) Peru adopted a national financial inclusion strategy.

With support from the World Bank, Peru’s Multisectoral Financial Inclusion Commission established an NFIS that was adopted in July 2015 through a Supreme Decree issued by President Ollanta Humala Tasso. The strategy contains a goal to increase financial inclusion to 50 percent of adults by 2018. This is quite an ambitious target: As of 2014, the World Bank Global Financial Inclusion (Global Findex) database found that only 29 percent of adults in Peru had an account with a formal financial services provider. The NFIS also commits the country to facilitating access to a transaction account among at least 75 percent of adults by 2021.

Peru’s NFIS emphasizes the promotion of electronic payment systems, including electronic money, as well as improvements pertaining to consumer protection and education. Advancing access to both digital and traditional financial services should boost Peru’s adoption levels over time. As noted in the 2015 FDIP Report, while Peru’s national-level commitment to financial inclusion and regulatory environment for financial services are strong, adoption levels remain low (Peru ranked 15^th on the adoption dimension of the 2015 Scorecard, the lowest ranking among the Latin American countries in our sample).

3) Colombia updated its quantifiable targets and released a financial inclusion survey.

The 2015 Maya Declaration Progress Report, published in late August 2015, highlights a number of quantifiable financial inclusion targets set by the Ministerio de Hacienda y Crédito Público de Colombia (Colombia’s primary Maya Declaration signatory) relating to the percentage of adults with financial products and savings accounts. For example, the target for the percentage of adults with a financial product is now 76 percent by 2016, up from a target of 73.7 percent by 2015. The goal for the percentage of adults with an active savings account in 2016 is now 56.6 percent, up from a target of 54.2 percent by 2015. To learn more about concrete financial inclusion targets among other FDIP countries, read the 2015 Maya Declaration Progress Report.

In July, Banca de las Oportunidades, a key financial inclusion stakeholder in Colombia, presented the results of the country’s first demand-side survey specifically related to financial inclusion. As noted by the Economist Intelligence Unit, previous national-level surveys conducted by entities such as the Superintendencia Financiera and Asobancaria have identified supply- and demand-side indicators pertaining to various financial services. As discussed in the 2015 FDIP Report, national-level surveys that focus on access to and usage of financial services can help identify areas of greatest need and enable countries to better leverage their resources to promote adoption of quality financial services among marginalized populations.

4) Nigeria’s “super agent” network enables greater access to digital financial services.

In September 2015, telecommunications company Globacom launched a “super agent” network, Glo Xchange, which can access the mobile money services of any partner mobile money operator. The network has been launched in partnership with four banks. Globacom was given approval in 2014 to develop this network; since then, the company has been recruiting and training its agents. About 1,000 agents will initially be part of this system, with a goal to recruit 10,000 agents by September 2016. Expanding access points to financial services by building agent networks is hoped to boost adoption of digital financial services.

Despite having multiple mobile money operators (19 as of October 2015, according to the GSMA’s Mobile Money Deployment Tracker), Nigeria’s mobile money adoption levels have not reached the degree of success of some other countries in Africa: The Global Findex noted that less than 3 percent of adults in Nigeria had mobile money accounts in 2014, compared with over 30 percent in Tanzania and about 60 percent in Kenya. Nigeria’s primarily bank-led approach to financial services, which excludes mobile network operators from being licensed as mobile money operators, is one factor that may have constrained adoption of mobile money services to date. You can read more about Nigeria’s regulatory environment and financial services landscape in the 2015 FDIP Report.

We welcome your feedback regarding recent financial inclusion developments. Please send any links, questions, or comments to FDIPComments@brookings.edu.