Today in Seattle, Seattle Mayor Ed Murray will announce the Central Puget Sound region is joining a pilot program that will create and implement plans to attract foreign direct investment as part of the Global Cities Initiative, a joint project of the Brookings Institution and JPMorgan Chase.

Mayor Murray will make this announcement at a Global Cities Initiative forum, where Seattle area business and civic leaders will also discuss strengthening the global identity of the Puget Sound region and expanding opportunities in overseas markets. Following the announcement, Mayor Marilyn Strickland of Tacoma and Mayor Ray Stephanson of Everett will make additional remarks about the importance of this new effort.

The Seattle area is joined in the pilot by Columbus, Ohio; Minneapolis-Saint Paul; Portland, Ore.; San Antonio; and San Diego. This group will meet in Seattle today for their first working session, where they will discuss the process for developing their foreign direct investment plans.

Foreign direct investment has long supported regional economies, not only by infusing capital, but also by investing in workers, strengthening global connections and sharing best business practices. The Global Cities Initiative’s foreign direct investment planning process will help metro areas promote their areas’ unique appeal, establish strategic and mutually beneficial relationships and attract this important, underutilized source of investment.

With the help of the Global Cities Initiative, the selected metro areas will strategically pursue foreign direct investment such as new expansions, mergers and acquisitions, and other types of foreign investment. Forthcoming Brookings research will offer metropolitan leaders more detailed data on foreign direct investment’s influence on local economies.

Read the Forum Press Release Here »

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On December 12, 2015, 195 countries adopted the Paris Agreement, the most ambitious climate change pact to date. The document lays out a plan to curb greenhouse gas emissions, among other climate-related initiatives. Participating countries must now find ways to translate those ambitions into policy, and answer important questions about financing, transparency and accountability, national implementation, and accelerated emissions reduction goals, to name but a few. But one issue looms large: coal.

Coal-fired electricity is responsible for producing 40 percent of the world’s power and about 70 percent of its steel. The coal industry employs millions worldwide and provides billions of people with electricity. Analysts estimate that the world has hundreds of years of coal reserves in the ground, at current consumption levels. Its abundance, low price, and global availability make it a difficult fuel source to give up. But despite coal’s advantages, it poses significant environmental and health risks. Ten percent of coal consists of ash, which contains radioactive and toxic elements. It is responsible for over $50 billion in medical costs annually in the European Union alone. The environmental consequences of coal use, such as water contamination and habitat destruction, are common. Burning coal adds millions of tons of dangerous particulates and greenhouse gases, including carbon, to the atmosphere.

States and societies around the world rely on coal, even though many of its dangers have been known for decades. If the Paris Agreement is to succeed, global leaders must address the reasons why many countries—particularly in the developing world—still rely on coal. Better yet, they must find new ways to provide coal-reliant countries with affordable, alternative energy, and invest in new technologies that could help mitigate coal’s negative consequences.

COAL ACROSS THE WORLD

Globally, coal production and consumption has risen almost continuously for more than 200 years. The International Energy Agency has estimated that the world burned approximately 7,876 million tons of coal in 2013, adding over 14.8 gigatons of carbon to the atmosphere. But global coal statistics do not tell us much about markets and trends. In fact, coal usage varies enormously around the world, with some regions transitioning away from the resource as others have increasingly embraced it.

For example, stringent environmental, health, and safety policies in the United States have put increasing pressure on the coal industry. Well-funded environmental groups have succeeded in closing coal-fired power plants, and many states on the country’s west coast and in its northeast have aimed to create a coal-free power grid. Yet market forces have turned out to be the nail in U.S. coal’s coffin. The rise of natural gas in the United States has gave the country’s electricity producers an incentive to shift away from coal. In fact, U.S. coal consumption declined from a billion tons in 2008, to roughly 850 million tons by 2013. This year, analysts suggest that coal will fuel only 32 percent of all U.S. electricity, and natural gas will become the country’s leading electricity source for the first time. As a result of low prices, low returns, and political controversy, investors have shied away from coal, which has caused major coal companies to struggle to stay afloat. Of all announced new electricity generation capacity in the United States, not a single megawatt is coal-fired. Although change is happening, it will likely be decades before coal is no longer an important fuel source in the U.S. economy. Canada’s coal sector faces similar pressures: weak demand from Asia, public opposition to the construction of new export facilities, domestic environmental legislation, and the shale boom have all taken their toll.

In Europe, stringent air quality controls and climate change regulations have cut the use of coal dramatically in Denmark, Sweden, and the United Kingdom. But the EU emissions trading scheme, which relies on carbon offsets and carbon dioxide caps, has proven disappointing. In fact, most European countries still lack an economically competitive and readily available alternative to coal. Plus, the coal industry still has political power in capitals like Berlin and Warsaw, which lowers the European common denominator for energy policy, as well as its policies that fight climate change.

Photo courtesy of REUTERS/James Regan/File Photo. Coal is stockpiled at the Blair Athol mine in the Bowen Basin coalfield near the town of Moranbah, Australia, June 1, 2012.

In Asia, both Japan and South Korea are set to expand their use of coal despite signing the Paris Agreement. After the Fukushima disaster, Japan has implemented ambitious renewables and energy efficiency policies, but those cannot take the place of its nuclear energy production on their own. These countries are entirely import dependent, which makes natural gas prices high. This, in turn, makes natural gas a less likely fuel source as the countries transition to greener electricity. In this context, high-efficiency coal plants appear to be a viable alternative, especially as nuclear power remains highly controversial.

And outside of advanced economies, coal often plays the role it once played in Europe and North America. For over a decade, China was the main engine of global coal consumption, driving booms in coal mining and shipping. China’s domestic coal production skyrocketed, and other countries, such as Australia, experienced coal booms to keep pace with Chinese demand. Although China produced and consumed almost as much coal as the rest of the world combined in 2014, it seems that the country’s consumption has peaked. But China will still rely heavily on coal-fired electricity for decades. The country remains a key player in steel production, and millions of its citizens continue to work in the mining industry, despite recent layoffs.

South Asian countries continue to invest heavily in new coal-fired electricity plants and industrial projects. India may appreciate the risks of climate change, but its chief concern is delivering low-cost power to 350 million of its citizens who lack electricity. Coal is set to play a prominent role in meeting such goals. Countries like Indonesia, Thailand, and Vietnam have followed suit as they search for low-cost electricity to power their countries.

In short, coal remains a big player in the global fuel mix, even as it faces tough challenges from stringent environmental regulations, competition from other fuel sources, and a lack of new investments.

Photo courtesy of REUTERS/Sheng Li/Files. A labourer carries honeycomb briquettes at a coal processing factory in Shenyang, Liaoning province in this December 2, 2009 file photo.

WHITHER COAL?

Different strategies apply in different parts of the world when it comes to eradicating coal, despite the global agreement in Paris. Just as there is not a global energy grid, there is also no single, global transition to lower-carbon energy. Although some countries are transitioning away from coal, others continue to transition toward it.

Second, pragmatism and persistence—rather than ideological purity—remain key values as countries transition towards low-carbon economies. Natural gas provides North America with a backup fuel as it transitions to green energy. Without major bulk terminals on the west coast, western U.S. coal producers will not find new markets for their products overseas. And in Europe, policymakers will have to make good on long-promised and long-delayed changes to energy policy and infrastructure. If Germany and other EU states are to achieve promised clean energy transitions, coal production must be scaled back substantially across the continent. European leaders must also build an “Energy Union” that will accelerate the flow of cross-border electricity, if they are to achieve the Paris Accord’s climate change goals. Europe must also reform its existing carbon pricing mechanisms. And across China, Europe, and North America, workers will have to be re-educated for new job opportunities as the coal market dries up.

But for now, coal still keeps the light on around the world. It powers new, high-tech economies, as well as a huge share of traditional manufacturing. If hundreds of millions of Africans and Asians are to gain access to electricity, new coal-fired power plants will have to come online in the years ahead. As coal continues to play a prominent role in industrial processes like steel and cement making, technological investments are required to limit its consequences.

To tackle these challenges, coal advocates, as well as some climate experts, suggest that more countries must invest in carbon capture and sequestration (CCS) research. But such investments are lagging, and the world would require several dozen CCS projects in order to make the technology commercially viable in the long term.

If the Paris Accord is to succeed, the earth’s atmosphere cannot remain a free dump for billions of tons of pollution every year. In fact, virtually all greenhouse gas emissions must be reduced. Countries can impose taxes, cap-and-trade schemes, and regulation to make this happen. Governments will have to design unique strategies that are custom fit to their countries, and, in some cases, find opportunities with their neighbors as well. For example, some private and public institutions have chosen to stop financing coal-fired projects, and the Obama administration has indicated it will not give out new leases for coal mining on federal land. Others will choose to build more coal-fired plants until the alternatives are cheaper, or until someone pays them not to.

Globally, coal may indeed be at the beginning of the end. But the energy transition is not strictly global. It is also national, regional, and local. Coal remains economically competitive—attractive even—in many parts of the world. Some countries will wage wars on coal, which will be as much economic and financial as they are political. But some countries, like India, will host coal booms regardless of the consequences. After Paris, there is no point in ignoring coal. It will be powering the world—and the world’s debates—for decades to come.

This piece was originally published by Foreign Affairs.

Editor’s Note: Turkey's terrorism troubles are bad and getting worse. At least 41 people died Tuesday when authorities say that ISIS attackers opened fire on crowds at Istanbul's airport and then detonated suicide vests, wreaking havoc. Dan Byman writes that Turkey's ISIS problems are bound up in its Syria policy and that the biggest danger of the attacks is that they push Turkey further toward authoritarianism and away from Europe and the United States. This piece was originally published by Slate.

Turkey’s terrorism troubles are bad and getting worse. At least 41 people died Tuesday in a terrorist attack on Istanbul’s airport. Authorities say that ISIS attackers opened fire on crowds at the airport and then detonated suicide vests, wreaking havoc. For Turks, such an attack is not a surprise: The country has seen as spate of attacks throughout the country in recent years.

ISIS has not formally taken credit for the attack as of Wednesday morning, but it has struck Turkey repeatedly and with growing frequency: ISIS has previously hit Istanbul twice in 2016, including a January suicide bomber attack on Sultanahmet Square that killed 12 in the heart of Turkey’s tourist district. In 2015, Turkey suffered its most deadly terrorist attack ever when more than 100 people were killed after bombs went off near Ankara’s railway station, targeting a rally opposing Turkey’s conflict with its own Kurdish population. In 2013, more than 50 people were killed when car bombs went off in Reyhanli near the Syrian border. Although ISIS is usually blamed for these attacks, Turkey’s Kurds, the Syrian regime, and Syria’s al-Qaida affiliate Jabhat al-Nusra have all been named as suspects. The sheer number of possibilities and the politicized finger-pointing reveals how daunting a challenge Turkey faces on the counterterrorism front.

The government of President Recep Tayyip Erdogan is trying to fight ISIS, but this is only one of its problems and, so far, not its No. 1 priority. Erdogan’s government also seeks to topple the Syrian regime of Bashar al-Assad, and manage its own and the regional Kurdish problem—tough enough tasks without having to also shore up the government’s declining legitimacy.

When the Arab Spring broke out in 2011, Turkey seemed a model for aspiring democracies in the Middle East. Here, after all, was a democratic government that embraced political Islam but did so in a seemingly moderate way, was a member of NATO, a booming economic power, and a force for stability in the region. The Middle East, however, has come to Turkey rather than the other way around. Although Turkey’s economy continues to do well, Turkey has far fewer admirers in the West and is often considered part of the problem, even drawing public criticism from President Obama. For many Turks, the Istanbul attack is part of this changing landscape. Asli Aydintasbas, a Turkish analyst, described a “world turned upside down” to the New York Times: Istanbul “was a happening town, cutting edge in arts and culture. It’s the kind of place that Condé Nast would write about. Now this is a Middle Eastern country where these things happen.”

Turkey’s ISIS problems are bound up in its Syria policy.

Turkey’s ISIS problems are bound up in its Syria policy. Erdogan had cultivated Assad and then was outraged when the Syrian dictator proved to be, well, a dictator. Instead of making reforms to placate protesters, as Erdogan had urged, Assad reached out to Iran and commenced a brutal crackdown that would lead to a civil war in which more than 400,000 Syrians have died so far—most at the hands of the regime, not ISIS. Although the United States prioritizes fighting ISIS, Turkey sees ousting Assad as more important. Ankara has armed and trained opposition fighters and hosted Syrian dissidents. Turkey has backed more radical groups like Ahrar al-Sham, which works with the Islamic State’s affiliate Jabhat al-Nusra.

The country’s policy toward ISIS should be seen in this context: Anyone opposing Assad seemed to be on the right side. Although ISIS relies heavily on foreign volunteers for manpower, Turkey dragged its feet and allowed volunteers to transit Turkey unimpeded so as to make their way to fight Assad. European governments reacted with growing concern and anger, fearing that these volunteers would come back and conduct terrorist attacks on the West. In the last year, Turkey has become far tougher on foreign fighters, but it is difficult to uproot the now-extensive radical infrastructure.

ISIS attacks on Turkey have grown in response to this crackdown. In addition to public attacks, ISIS has shot and beheaded activists linked to “Raqqa Is Being Silently Slaughtered,” a non-government organization providing information and video footage of the brutal life in ISIS-controlled areas.

Such acts and Western pressure have also led to more Turkish military involvement, and this too probably led to an escalation of ISIS attacks. Turkey used tanks and artillery to strike ISIS after the January bombing in Istanbul’s Sultanahmet Square and has shelled ISIS positions in response to ISIS cross-border shelling. Perhaps more importantly, Turkey allows the United States and other coalition countries to base aircraft out of the Incirlik and Diyabakir air bases in southern Turkey for strikes on ISIS.

Making things even more complex, Turkey’s own Kurdish problem put it at odds with Washington in the fight against ISIS. From Ankara’s point of view, there are good Kurds and bad Kurds. The good ones include Iraq’s main Kurdish organizations which have good relations and economic ties with Turkey.

On the other hand, the Erdogan government sees the Kurdish Workers Party (PKK) as an enemy. The group claims to represent the aspiration of Turkey’s own Kurds, which make up perhaps 20 percent of the population, and past regimes had fought civil wars with the group, leading to 40,000 deaths since the conflict began in 1984. In 1999, the PKK’s leader was captured and the conflict declined in ferocity. Peace seemed at hand as negotiations commenced secretly in 2009, and at the end of 2012 Erdogan publicly embraced the talks. The ceasefire broke down in 2015, however, when Turkey bombed the PKK’s bases in Iraq, and Kurdish violence and terrorism in Turkey returned: Many observers believe Erdogan renewed operations because his electoral fortunes were waning and he sought to stir up nationalist sentiment.

With this dynamic in mind, Syria’s small Kurdish group the Democratic Union Party (PYD) has come to play an important role for Turkish policy, ISIS, and Syria. Although the group has historically been minor, its ties to the PKK made Turkey see it as an enemy. This mattered little until central government authority in Syria’s Kurdish areas collapsed. The PYD and other Kurdish groups carved out their own autonomous areas, leading to Turkish fears that the PYD would inspire Turkey’s Kurds to seek independence and would provide the PKK a base for attacks.

Washington took a different view: As U.S. military training programs against ISIS proved ineffective, the PYD also emerged as a valuable military ally, perhaps the most effective foe of ISIS within Syria. Even as the United States works with Syria’s Kurds, Turkey has embargoed Kurdish areas in Syria (at a time when humanitarian conditions are desperate) and even threatened to intervene if the Syrian Kurds expand their territory near the Turkish border too much. And to make this more complex, the PYD itself doesn’t work well with other anti-Assad groups, which oppose Kurdish autonomy and are angered by the PYD’s willingness to ignore Assad, making it difficult to square with broader U.S. goals in Syria.

All this would be easier for Turkey if the Erdogan government had broad support at home and abroad, but it doesn’t. Recent years have seen massive anti-government protests with the Turkish government responding by stepping up repression. Erdogan changed jobs from prime minister to the more ceremonial role of president, but he remains the power behind—or even in front of —the throne. Turkey has used anti-terrorism as an excuse to crack down on legitimate political dissent at home, straining ties with Europe and the United States. The government is increasingly authoritarian, with crackdowns on press freedom being particularly acute. (And whatever you do, don’t compare Erdogan to Gollum.) The good news is that Turkey is trying to break out of its growing isolation; the bad news is that it is doing so by mending fences with another authoritarian strongman, Russian President Vladimir Putin.

[T]he biggest danger of the ISIS attacks is that they push Turkey further toward authoritarianism and away from Europe and the United States.

In addition to the horrific loss of lives, the biggest danger of the ISIS attacks is that they push Turkey further toward authoritarianism and away from Europe and the United States. Dictators throughout the Middle East use legitimate security and terrorism dangers to justify delaying reforms, repressing any form of opposition, and labeling all foes as terrorists. The Turkish model, unfortunately, is a Middle Eastern one now.

A clamor is rising against "short termism"—judging a company by its performance over the past quarter, rather than the past few years. BlackRock CEO Laurence Fink and Delaware Supreme Court Chief Justice Leo Strine, for example, recently joined the Business Roundtable and others in decrying the strong pressures for short-term results exerted by daily stock traders and activist hedge funds. Critics claim that these pressures prevent executives from making long-term investments needed for sustainable corporate growth.

There are pressures on and incentives for corporate leaders to put the short term ahead of the long term, but not necessarily from activist hedge funds or stock trading. And some proposed remedies for short-termism would undermine the economic interests of shareholders.

The current attack on short termism is premised on the sharp increase in the average daily trading volume of stocks over the past few decades. The primary cause has been a relatively small group of day traders, including the notorious high-frequency traders who buy millions of shares and sell them a millisecond later. These traders care not a whit about corporate fundamentals or business plans; they are trying to exploit slight pricing anomalies that arise because of technical differences in securities markets. Thus corporate executives should not be pressured by higher daily trading volumes to avoid good long-term investment spending.

Critics of short-termism are even more alarmed about activist hedge funds that may lobby corporations to pay higher dividends, for example, or sell unprofitable divisions. They claim these funds push for a quick boost in corporate earnings in order to sell their shares for a quick profit.

The data do not support this uniformly negative view. Activist hedge funds display a broad array of strategies and time horizons. On average, they hold a company's stock for one or two years, according to various empirical studies. Yet according to a recent McKinsey study of 400 activist campaigns over the past decade, the median campaign was launched when the company was on the decline and led to higher shareholder returns relative to peers for at least three years.

To win proxy contests, activist hedge funds must persuade other shareholders to support the changes they advocate. The funds usually hold a relatively small percentage of a company's shares; the overwhelming majority are owned by institutional investors such as mutual funds and pension plans.

Activist hedge funds have won roughly half of the proxy contests they've entered, as institutional investors have carefully distinguished among long-term plans depending on a company's specific circumstances. These institutions backed activist campaigns to increase dividends at companies like Apple with huge hoards of cash. But they've also supported multi-year research programs of biotech firms like Amgen that have shown they can deliver.

To thwart the perceived threats of short-termism, critics have proposed measures that would reduce the legal rights and economic interests of all shareholders. Martin Lipton, a prominent opponent of activist hedge funds, has recommended that U.S. corporate law adopt a new norm—that corporate directors be elected to five-year terms, rather than the usual one-year term. Such long tenure, combined with existing anti-takeover defenses, would effectively insulate the leadership of chronically under-performing companies.

There is a better approach: Boards should measure and reward the efforts of corporate executives and portfolio managers by looking at the organization's performance over the past three years. At present, most firms distribute cash bonuses and stock grants on the basis of the prior year's results. This approach does encourage top executives to favor short-term results over long-term growth.

At the same time, the top executives at both public companies and asset managers should be required to retain for three to five years half of the shares they receive through stock grants and options. At present, these people can usually sell all their shares as soon as they vest or the options are exercised. This is an inducement for top executives and managers to push up the company's stock price for a few months so they can sell at a temporary high.

While there are reasonable concerns about corporate short-termism, their remedies should be narrowly tailored. Most of these concerns can be addressed by adopting longer periods for executive compensation. But we should not overreact to day traders or hedge funds by dramatically reducing the legitimate rights and financial interests of all shareholders.

In our latest 21st Century Capitalism initiative paper, "What must corporate directors do? Maximizing shareholder value versus creating value through team production," author Margaret M. Blair explores how the share value maximization norm (or the “short-termism” malady) came to dominate, why it is wrong, and why the “team production” approach provides a better basis for governing corporations over the long term.

Blair reviews the legal and economic theories behind the share-value maximization norm, and then lays out a theory of corporate law building on the economics of team production. Blair demonstrates how the team production theory recognizes that creating wealth for society as a whole requires recognizing the importance of all of the participants in a corporate enterprise, and making sure that all share in the expanding pie so that they continue to collaborate to create wealth.

Arguing that the corporate form itself helps solve the team production problem, Blair details five features which distinguish corporations from other organizational forms:

1. Legal personality
2. Limited liability
3. Transferable shares
4. Management under a Board of Directors
5. Indefinite existence

Blair concludes that these five characteristics are all problematic from a principal-agent point of view where shareholders are principals. However, the team production theory makes sense out of these arrangements. This theory provides a rationale for the role of corporate directors consistent with the role that boards of directors historically understood themselves to play: balancing competing interests so the whole organization stays productive.

Downloads

• Download the paper

Event Information

China’s outbound investment is expected to increase by leaps and bounds in the next decade. Chinese companies are poised to become a major economic force in the global economy. Outbound direct investment by Chinese companies presents unprecedented opportunities for both Chinese companies and their global partners.

The relatively brief history of Chinese companies’ outbound investment indicates, however, that Chinese outbound FDI faces many hurdles both at home and in the destination countries. How can we assess the regulatory, financial, labor, environmental and political risks faced by Chinese multinational companies? What remedies can mitigate such risks for the Chinese firms, for the host countries of Chinese investment and for the Chinese government and people?

The Brookings-Tsinghua Center for Public Policy co-hosted with the 21st Century China Program at UC San Diego, and in collaboration with the Enterprise Research Institute and Tsinghua’s School of Public Policy and Management, a two-day conference at Tsinghua University in Beijing, China, on September 23 and 24, 2013. The conference gathered leading experts, policy makers and corporate leaders to examine the latest research on trends and patterns of Chinese outbound direct investments; the regulatory framework and policy environment in China and destination countries (particularly, but not only in the U.S.); and the implications of Chinese outbound direct investment for China’s economic growth and the global economy. Keynote speakers of each day were Jin Liqun, chairman of China International Capital Corporation, and Gary Locke, U.S. ambassador to China. Mr. Jin suggested that China’s foreign direct investment companies should cooperate with local firms and be willing to talk to the local governments about their problems. Ambassador Locke, on the other hand, introduced the advantages of the U.S. as an investment destination country. He also agreed that investors were supposed to get local help to achieve success.

The audiences included major Chinese companies, service providers in the area of overseas direct investment, policy makers and scholars.

Read more about the speakers and the conference agenda »

Video

• Overview of China's Overseas Investments: Trends, Patterns and Comparison
• Chinese ODI: Motivation and Policy Environment
• Risk Management in Chinese ODI
• China's Outbound Direct Investment - Gary Locke Keynote Address
• Regulatory Environments in Destination Countries (Non-U.S.)
• Regulatory Environments in Destination Countries (Focusing on the U.S.)
• Labor, Environment, and Community Relations in Destination Countries

Transcript

• Keynote speech of U.S. Ambassador to China Gary Locke (.pdf)

Event Materials

• Remarks of Ambassador Locke
• Brian Beglin slides
• Daniel Levine slides
• Jiang Heng slides
• LIU Qian
• Matt Ferchen slides
• Steve Olson slides
• Tang Xiaoyang slides
• Thilo Hanemann slides
• Weiyi Shi slides
• Kang Rongping slides
• Duan Zhirong slides