Category Archives: Economy

Mission to Planet DC

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Planet DC

National Zoo Sign

Washington: A National Zoo?

There is something other-worldly about Washington. Power, wealth, poverty, urgency and complacency are in the air. It is disorienting, amazing, distressing. I got a chance to experience this world up close in July thanks to a month-long mission to Planet DC.

Although I travel there often, this was my first extended visit to the city in a couple of decades: a chance to settle in, observe and swim in the sea of local life. It left me in a funk that has continued after my return to Paris. I am still trying to process all that I saw and experienced.

My mission

During July, I had the opportunity to pursue my economic research agenda in Washington, DC, operating as a visiting scholar based at a Federal government agency. I was struck by the dedication and competence of my colleagues there as they pursued their duties.

They believe in their mission and are seeking to improve policies and government operations. In the same spirit, they generously took time to provide me with constructive input and suggestions for advancing my policy research.

Time and again their positive energy amazed me. Theirs is not always an easy lot. Federal employees encounter many daily challenges including consequences of budget cuts, periodically hostile press and politicians, arbitrarily compromised objectives, and stakeholder conflicts, among others issues.

My agenda involved a series of interviews with experts (government, private sector and academic), collection of data, and research to track down various reference materials. I had the opportunity to travel far and wide across the city and to meet folks from various walks of life. To say the least, the city exhibits quite some cultural and economic diversity.

Quest for excellence

As a young Peace Corps volunteer in Burkina Faso (West Africa) broiling under the intense mid-day sun of the hot season, I discovered the joys of pulling up a chair in a shady spot outside of our mud hut and reading. Not much else was going to happen until things cooled off. It was during such a season back in 1983 that I found the time to read Robert Pirsig’s Zen and the Art of Motorcycle Maintenance. I had never read anything like it. The book describes a motorcycle trip across the United States and an inquiry about values. A central theme for me concerned the importance of the quest for excellence, a message that has stuck with me since.

As the political capital of the largest national economy in the world, Washington is certainly in the position to cultivate excellence. There are some impressive manifestations of this. To cite a couple of examples from my recent mission:

  • Library of Congress – During the course of my research I had the opportunity to visit the Library of Congress, which is certainly a fine historical example. The Thomas Jefferson Building (1897) is a world-class architectural gem. I witnessed people from around the world gawking at the grandeur of reading room. Moreover, the collection itself is also extremely impressive. I took advantage of this to track down references that I’d been unable to obtain in Europe.
  • US Botanic Garden – A more recent example of such excellence is the renovation of the US Botanic Garden, which included establishment of the adjacent national garden. The US Botanic Garden, originally established in 1820, is just up Independence Avenue from the Capital Building and Library of Congress. The renovation of the greenhouse, a Bartholdi fountain (Bartholdi also sculpted the Statue of Liberty), and gardens greatly moved me. Completed in the past decade, this effort resulted in a facility that provides for education, art, entertainment and, in my view, spiritual renewal. It is a place of beauty and yet somehow the renewal was accomplished in a time of tight budgets and partisan in-fighting.

Of course there are many, many more examples across the city. Such examples demonstrate that there can be a positive role for government in contributing to our advancement directly or in partnership with the private sector and non-governmental organisations.

But, on the other hand…

Despite encounters with excellence as I wandered through the world of Washington, there were nonetheless some concerns nagging at me everywhere in the background. These concerns started with the impression that part of the infrastructure is in poor condition. They grew as various contacts and news items pointed to social challenges, civil rights issues, undue impediments to legitimate businesses, environmental degradation and other pressing issues. Some are local, while others are a reflection of national malaise. Although Washington came through the Great Recession with less damage than some other parts of the US, it is not fully insulated and the challenges are visible.

Storm Clouds over the Old Executive Office Building

Storm Clouds over the Old Executive Office Building

My concerns deepened after an admonition from my host to be careful during my commutes into town. He had been stabbed in a mugging a while ago and held up at gunpoint another time. As an economist I am concerned with such problems and their many social and economic roots, but I am not used to facing them as a personal threat on a daily basis.

Then, there was the metro. I recalled the system with an initial sense of pride, thinking back to my days in DC during the 1980s. Nowadays, however, it is only just getting a much needed makeover after years of relative neglect. In July, during a brutal 10 day heat spell, I discovered that the system operators were no longer maintaining the air conditioning on the cars where it had broken down. Commuters were faced with the choice of running from car to car in search of A/C or potentially having to tough it out in a crowded, non-air conditioned carriage.

Next came political issues. A few weeks after my arrival, Bill Moyer’s had an interesting show on Washington, DC, based on a very troubling interview with Mark Leibovich. Leibovich recently authored “This Town“, a book about the workings of the place. He highlights the problem of the rotating door in DC between policy making and lobbying, political fund-raising and interest peddling. He highlights what is essentially a disconnect between the objectives of many of the powers-that-be and the national interest. The insiders with ties to either of the main political parties have access to potentially large incomes if they work on behalf of various vested interest groups. Thus, there are disincentives to tackle issues head-on. Unfortunately, in the interview Leibovich does not offer much in the way of solutions.

Partly as a consequence of the insiders game, progress to obvious problems comes slowly. Outside of the political realm, I have the impression that many average folks are hunkered down living busy lives and, in many cases, dealing with some financial stress. Several news items came up during my stay that underscored the problem. One item showed labor income declining as a share of national output while inequality increased:   see this article from the Federal Reserve Bank in Cleveland. After progressing somewhat in the 1990s, median household has been falling significantly. Another item came from a study by the Economic Policy Institute, showing US workers putting in more hours in a effort to maintain incomes. Then, more recently, Robert Putnam presented an op ed on Crumbling American Dreams using his home town as an illustration.

There were other national news items that added to the gloom:

  • US Health – Recently, a spreadsheet from the Organsation for Economic Co-operation and Development (OECD) caught my eye: OECD Health Data. New data on health developments in 34 wealthy countries of the world were just released. The United States was at the top of the list for healthcare expenditure, spending some 17.7% of GDP in 2011 (GDP is an indicator of our economic output). This was nearly twice the health expenditure in OECD countries on average: 9.3% of GDP. Moreover, US healthcare expenditure is far ahead of the other countries: second place goes to Netherlands, but even they spent just 11.9% of GDP.
    What do we get for our large expenditure? In 2011, American women on average at birth have a life expectancy of 81.1 years, whereas in the average OECD country, women can expect 82.8 years. For American men, the figure was 76.3 years, whereas the average OECD country offered its men the prospect of a life expectancy of 77.3 years. In Netherlands, women and men at least have something to show for their above-average health expenditure. That is, they have above-average life expectancy: 83.1 years for women and 79.4 for men. In the US, we are paying nearly twice as much as the OECD average and our lives on average are shorter by a year or more.
  • Climate change – Then, there were several items on climate change developments. One that really came as a wake up call was authored by James Hansen et al (2013) on Climate Sensitivity, Sea Level and CO2. The authors provide compelling evidence that the damage from the C02 already pumped into the atmosphere is not yet fully manifest due to lagging responses from some natural systems, and that if we continue we can expect significant impacts in terms of sea level rise and disequilibrium in key natural systems. According to these authors, if we persist in use of all available fossil fuels, we can expect this: “Burning all fossil fuels, we conclude, would make much of the planet uninhabitable by humans, thus calling into question strategies that emphasize adaptation to climate change.”
  • Voting Rights – There were other news items from several states on voter disenfranchisement in the aftermath of the Supreme Court’s invalidation of a key portion of the Voting Rights Act. Taking North Carolina as an example, the Huffington Post reported on proposed changes that eliminated college students’ ability to use their state-issued student IDs for voting purposes, reduced early voting by a week, eliminated same-day registration, ended pre-registration for 16- and 17-year-olds and a student civics program, killed an annual state-sponsored voter registration drive and lessened the amount of public reporting required for so-called dark money groups, also known as 501(c)(4)s.
  • Impediments to business – It is not all a bed of roses for business either. There are bureaucratic and regulatory barriers and other challenges related to government dysfunction. One example can be found in the World Bank’s Doing Business Indicators.  The “paying tax” indicator shows that the administrative burdens in the United States are far in excess of other leading countries (and, it is not just the tax rates, but also the hours it takes to comply administratively with the requirements). According to this tax burden indicator, the United States ranks 69th among the world economies, just below Madagascar and just ahead of Mongolia. Hardly a leadership position!

These matters are serious and getting clear information about each issue is not always easy. One cannot rely on the evening news for balanced reporting and it takes a bit of digging to identify a reliable source of factual information. Still, the cumulative effect of this news flow is daunting. I can certainly appreciate the urge to keep one’s head down and to press on with more immediate daily challenges. Unfortunately, a failure to respond to some of these issues will entail heavier costs if one waits to address them later.

Next steps?

This is not to say that I am pessimistic. I was encouraged to find people inside and outside of government working to assess problems empirically and seeking a factual basis for discussing policy options and responses. In addition, there is an emerging debate in the United States that recognises the limits of empirical assessment and the need to have an open debate about the subjective aspects of some policy questions such as dealing with inequality. For example, see this paper on income inequality by G. Mankiw, a former Bush administration official. I don’t agree with all of his suppositions or conclusions, but it is a useful starting point recognising the role of preferences. It has unleashed a helpful debate.

I think we also need to be open to consideration of the role of government as part of the solution. This was underscored to me upon my return to France. I spent my Saturday here running errands on foot, using public transportation and walking to shops past some wonderful public spaces: a forest park, a new fountain, newly repaved roads, and a public-private redevelopment zone downtown. France has many economic problems of its own. For example, the state is large and weighs heavily on entrepreneurship. But, the French example does underscore the benefits of having some public investment in areas where there is a need for a coherent system-wide plan or where there is a market failure. We should not rule this out now in the United States. There are positive examples in the US as well: for example, the initial development steps for the Internet. Government has contributed on occasion to attainment of excellence!

Reviewing the list of issues discussed above, I certainly seems that there is need for action. In the United States, we need to break out of our complacency. We need to challenge the system to do better and to be more responsive to unmet needs. We should not accept business as usual in “This Town”. And, once we have decided that there is a role for government in provision of a given service, then we should insist on government’s quest for excellence in the matter. Why should we the citizens and taxpayers accept anything less?

 

 

RIP: Albert Hirschman Exits

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Exit, Voice and Loyalty

Some 20 years ago I was working with a Russian colleague to assess labor market developments in Russian enterprises during the economic transition. As these firms struggled in the face of a transition to a market economy, I was struggling to get a handle on the behavior of their management, workers and consumers. Then, my co-author pointed me to Exit, Voice and Loyalty, a little book by the economist Albert Hirschman.

Published back in 1970, Hirschman’s book offered a succinct and nuanced view of human interaction in economics and politics. Economics, in particular, had tended to oversimplify decision-making, emphasizing the role of price in driving choices of consumers, managers, suppliers and others. The decision to buy or sell was mainly seen as being driven by price. But, Hirschman took note of other factors that may on occasion cause some stickiness in the way the market functions.

Consumers, for example, may demonstrate loyalty in the face of declining quality in a product and, instead of switching, may agitate for management to fix the problems. Workers in a failing firm may speak up for reforms instead of simply quitting. Members of political parties may lobby for change within, rather than changing their allegiance to a rival party. On the other hand, in other cases, these folks might simply break the existing relationship and move on. Using engaging illustrations and clear explanations, Hirschman noted conditions that may shape the paths that such decision-making might take.

Hirschman’s optimism and clear writing style made Exit, Voice and Loyalty a pleasure to read. Discovering the analytical framework laid out in the book was a real eye-opener for me. It helped me to tackle the confusing situation in the Russian enterprises that we were studying. Here is one illustration: Back in the mid-1990s, why would so many Russian workers stay on with their employers, despite being unpaid for months? Answer: They still reaped some social and economic benefits from their affiliation, like housing or healthcare. Outside of the firms, conditions could be even worse for these individuals.

Hirschman’s analytical framework also had many other applications for me. Suddenly, I found a new means to assess, for example, my own difficult employment situation at the time or to ponder the political developments in my country. From time to time I still make reference to this book, which is now more than 40 years old.

Thus, it was with some sorrow that I learned last December that Albert Hirschman had passed away. Aged 97, he had lived a long and fruitful life. Hirschman made other contributions to economics, in particular with respect to challenges of economic development in Latin America. But, it was only upon reading his obituary that I learned of his other impressive  accomplishments.

And here is the amazing part

According to the New York Times obit, Albert Hirschman was born in Berlin in 1915 and by the 1930s had advanced in his study of economics. However, he also made time to join in the Spanish civil war on the side of the anti-fascists. He later joined the French Army to resist the Nazis. After France fell, he worked as part of a team helping people escape via routes over the Pyrenees. He then made his way to the United States and joined the Office of Strategic Services to assist the US army in North Africa and Italy, as well as to serve during an early war crimes trial. And that was all before he moved to Bogota, Colombia, as an economic adviser for a few years and then launched a 30 year academic career at Yale, Colombia and Harvard.

Wow! A full life indeed! Thank you, Albert Hirschman. May you rest in peace.

US Exports and Jobs

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How many workers does it take to produce each USD 1 billion of exports?

Here is a positive story concerning US exports and jobs: a new report from the US Dept of Commerce shows exports expanding while also having a positive relationship to certain labour market indicators. (The assessment uses an employment requirements analysis to document the labor intensity of US exports.)

According to the report, US manufacturing has steadily become more productive with respect to exports. Producing US 1 billion in merchandise exports now requires far fewer workers than in 1993:

1993: 14050 workers per USD 1 billion exports
2010: 6115 workers per USD 1 billion exports

This rising productivity contributes toward making US manufacturing more competitive internationally. Thus, it is perhaps not surprising that US exports of goods are rising. And, they are doing so at such a pace that they are supporting an expanding number of jobs. Export-supported employment has varied quite a bit from year to year, but from endpoint to endpoint of the Department of Commerce study some 500,000 jobs were added:

1993: 6.1 million export supported jobs
2010: 6.6 million export supported jobs

Agricultural employment is also benefitting from exports. More and more jobs in the sector are supported by exports. In 2010, some 23.3% of jobs in agriculture were linked to exports. In 1993 it was just 15.3%. The service sector is also showing increased reliance on exports.

While export-supported employment levels have fluctuated, the indicators for export growth and labor productivity improvement are exhibiting clear, positive long-term trends. This is good news for the US economy.

All-in-all, the Commerce report provides a useful contribution to shedding some light on these US export and labour market developments. For an encore, it would be great to have a corresponding report on imports. (It is interesting to note that rising US imports of key inputs are contributing to part of the manufacturing productivity gains discussed above.)

What are the implications?

The US economy is demonstrating a growing integration with the rest of the world. More of our output is going to foreign markets. The country continues to make products sought by customers around the world. We still have our trade mojo.

But, this does not mean we can take it for granted. More investment is needed in education and skills, infrastructure, better regulation, and other factors to promote a dynamic, innovative and competitive economy. The global economy is more open and competitive than ever and presents challenges as well as opportunities. Past success is no guarantee of future performance.

~~~~~~~~~~~~~~~~~~~

Rasmussen, Chris, and Martin Johnson (2012), Jobs Supported by Exports, 1993-2011, Office of Competition and Economic Analysis, US Department of Commerce, October
Link to the paper

CFR blog post on it

French capitalism is not dead!

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French capitalism

Despite the kerfuffle over the new French government’s proposal to increase the top personal income tax rate to 75% and to nearly double the tax on dividends and other “unearned” income to 60%, France’s hard pressed capitalists persist. French capitalism is not dead!

France is home to many global brands from Michelin to Moet et Chandon, from L’Oreal to Total, among others. France’s multinational firms contribute substantially to the French economy, while operating in a tough regulatory and social environment. They succeed where many other firms in France fail. For example, unlike some neighboring countries like Germany, France has relatively few medium-sized firms.

Small investors in France

French Stock Exchange, Paris

Palais de Brongniart – French Stock Exchange, Paris
(Photo credit: ©ErickN, Shutterstock)

Similarly, France is home to a sizable number of individual investors. Something like 15% of the French population owns stock (compared to about 21% in the US). During the 1990s, there was an uptick in individual ownership of stocks associated with a series of privatizations of state holdings of firms like EADS (parent of Airbus) and Gas de France. Some shares were offered to residents of France at advantageous prices and some shares were reserved for employees of the enterprises. But, many other folks acquire shares via their employers, directly on the markets, or via investment clubs.

Actionaria

The large number of individuals holding stock was evident last weekend at the annual stock exchange exposition for small investors (Actionaria). This is a kind of trade show for companies listed on the French stock exchange to meet with shareholders, potential shareholders, journalists, job seekers and others. All sorts of people are there, from young job candidates, to seniors with retirement accounts, executives, small-investor club members and alternative lifestyle folks. But, the average age tends toward those with some grey hair. I guess I’m one of them. Most folks (including me) have just a modest amount of stock.

It is a festive atmosphere as folks wander about from booth to booth, talking with representatives from the various firms, gathering information, watching various demonstrations and video clips, collecting swag, and looking at sample products.This year, in view of the proposed tax reforms in France, there was also an atmosphere of solidarity.

I had an invitation from Michelin (as a shareholder) and a check list of other CAC 40 firms (French stock market index of the largest firms) that I wanted to contact: Vinci about construction markets, L’ Oreal about cosmetics, Societe Generale about banking, Air LIquide about industrial gases, GDF Suez about natural gas and Total about oil exploration. In speaking with various company representatives, one interesting common denominator was their enthusiasm about growth prospects elsewhere (not so much in France). Several enthused about the potential of emerging markets in Brazil, China, India, and South Africa, among other places. Some emphasized exciting technologies such as hydrogen powered cars, enhanced solar energy, on-line financial services or electric bicycles.

An interesting contrast with the US comes in the reporting requirements under the French regulatory regime. Shareholders generally have less say in the businesses and receive less detailed information than their US counterparts. They get the headline figures, but far less in terms of specifics. In some way this frees management to focus on long-term results (as evidenced by the evolution of the share price), but there are tradeoffs in terms of accountability and responsiveness to owners. Another contrast is in the social dimension of the enterprises. In France, there is much more discussion of the charitable and social works undertaken by the firms. And, there is much more personal outreach to shareholders via events, including out in the various regions of France.

Michelin shareholder meeting

My initial motivation in going was to attend a Michelin shareholder meeting. I’ve never been to such a meeting and was curious. Perhaps 500 investors turned up. The chief financial officer gave a rundown of the latest performance data and a senior executive handling innovation spoke about product development, but the star of the session was Jean-Dominique Senard, the president. He came across at first as a bit unassuming and affable, responding to wide-ranging questions and comments, which were non-technical and generally positive. But, he is clearly a master of his business and relations with the outside world. The President is clearly focused on the longer term and the positioning of the firm some 5 years out, rather than on quarter to quarter results. These are good things for long-term investors to see and hear.

The mood of the Michelin session was helped by the fact that the stock has beat the market average during the period since the global financial crisis. Michelin has also worked to improve its generally weak margins through innovation in tire structure (optimizing various parameters such as noise, energy efficiency, wet traction and dry traction among many others), increased focus on high-margin specialty products (like giant tires for mining vehicles), and investing in a big way in dynamic markets such as Brazil, China, India and the US.

There are also some interesting side projects such as a collapsible electric bike.  A few decades ago, much of Michelin’s rubber production was nationalized during the revolutions in South East Asia, so the company buys most of its rubber on international markets (it still produces some natural rubber on plantations in Brazil). In light of this, there is emphasis on development of synthetic rubber as an alternative (already something like a quarter of a tire’s composition is synthetic rubber, while old-fashioned rubber accounts for some 40%). One very cool innovation is the development of a wheel with all of the suspension, gearing and steering integrated inside. This saves on space in the car’s frame and can improve the overall efficiency.

The biggest reaction of shareholders at the Michelin meeting came when some in the audience asked what could be done about tax policies in France. The announced policies are perceived as penalizing investors and enterprises, despite some announced initiatives to improve competitiveness. The company officials sought to be somewhat diplomatic, but did note that the business environment had become more challenging. They noted that the government had indicated that it was concerned about competitiveness and sought to reduce labor and other costs, but this was far from yielding concrete results so far. There was a big round of applause to the expressions of concern.

Here’s to excellence!

I was grateful for the invitation to participate in the Actionaria exposition. It offered a unique window into an aspect of French life that one does not encounter in day-to-day life. I felt very welcome. It is great to see world-class businesses, to learn of innovation, and to hear of strategic orientations for French business. France is capable of business excellence and it is the interest of consumers and investors world-wide for this to continue!

Low-Cost Stimulus: Regulation and the US economy

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Regulation and the US economy

As the US economy slowly recovers from the Great Recession while fiscal challenges still loom, one missing element in the discussion seems to be the potential to liberate economic potential via further regulatory reform. Regulatory reform is not a silver bullet solution, but it can deliver economy-wide medium to long-term benefits via improved performance of American business and government, all at a relatively low up-front cost.

US competitiveness

While the United States remains a dynamic and powerful economy, continued regulatory shortcomings in some areas are nonetheless contributing to a slow erosion of competitiveness. This is evident in several international indicators. For example:

  • The Fraser Institute compiles the annual Economic Freedom of the World index for 144 countries. The EFW index “measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property.” According to the Fraser Institute, the US rank has declined from 3rd place during the 1980s and 1990s to 19th in 2010.
  • The World Bank maintains the Ease of Doing Business index focused more specifically on regulations as they affect business. In 2013, the index employed 11 sets of objective indicators and covered 185 economies. The United States has maintained a 4th place ranking by performing fairly well in most of the indicator sets, while many other countries were inconsistent (e.g., in some cases performing highly in some categories, but poorly in others). Nonetheless, when one looks into the underlying indicators there are some areas where US performance falls well below the top 10. For example, with respect to the challenges faced by a medium-sized business located in New York City, the indicators of regulatory burdens place the US at 22nd in terms of trading across borders, 25th in terms of registering property, and 69th in terms of paying taxes. The particularly low score with respect to paying taxes is associated with both administrative burdens and financial costs. With a ranking of 69th in this category, the United States places just below Madagascar (68) and just ahead of Mongolia (70).
  • The World Economic Forum maintains a Global Competitiveness Index, which is a structured inquiry that takes into account executive opinion of key dimensions of economic competitiveness in 144 economies around the world. The United States has slipped from 1st place in 2006-07 to 7th place in 2012-13 (though subsequently climbing up a few places). Business executives listed inefficient government bureaucracy, tax rates and tax regulation as the top three problems in this context.

International institutions are not only monitoring progress on regulatory issues. Quite a few concrete initiatives are underway to improve regulatory frameworks around the world. For example, the OECD conducts an active program to promote regulatory reform using approaches such as country reviews and development of tools for improving regulation (e.g., a regulatory impact assessment tool). Since 1999, OECD has completed 31 country reviews — including one for the United States in 1999 — to “assess how countries manage the design, adoption and implementation of regulations.”

What to do?

Appropriate regulation is an essential part of a modern economy. The regulatory framework provides rules of the game for business, non-profits, government and other economic institutions. When the rules are properly specified, they provide clear objectives for economic actors without unduly constraining freedom. And, businesses and others should be free to innovate and find efficient ways to attain the regulatory objectives (e.g. reduction of pollution, improvement of safety, facilitation of trade, among others). In striving for these objectives, care should be taken to avoid unnecessarily burdening economic actors, as that would risk gumming up the functioning of the economy.

The United States has succeeded in previous regulatory reform initiatives. For example, one of the significant economic achievements of the Clinton-Gore administration was a streamlining of government regulation. A consensus approach was employed in identifying areas where action would be helpful. According to the Clinton Presidential Center, during the Clinton-Gore tenure some 16,000 pages of regulation were eliminated and 31,000 pages of regulation were redrafted in plain English. Some 640,000 pages of internal government agency rules were cut. In addition, government performance was reviewed and actions were taken to reduce the size of the bureaucracy while improving the operational performance of government agencies. Through such actions, the initiative known as Reinventing Government realized savings of some USD 136 billion during the years from 1993 to 2000. But the benefits extended beyond walls of government, because these actions also liberated businesses to improve their performance and the performance of the economy more broadly.

The OECD’s Review of Regulatory Reform in the United States (1999) was positive in its assessment of this period, while noting areas for improvement with respect to social issues and bureaucratic functioning. As stated in the blurb for the report:

“The United States has been a world leader in regulatory reform for a quarter century. Contrary to popular belief, the United States is not less regulated than other countries, but differently regulated due to the pro-competition policy stance of federal regulatory regimes, and the openness and contestability of regulatory processes. Far-reaching economic deregulation combined with efforts to improve the quality of social regulation have supported the construction of one of the most innovative, flexible and open economies in the OECD, while maintaining health, safety and environmental standards at relatively high levels. However, significant regulatory problems still exist. Improving the performance and cost-effectiveness of expensive social regulations and government formalities is a key challenge for regulatory quality. In a word, the challenge of regulatory reform in the United States is not how much regulation, but how good.”

Regulation remains on the political agenda in the US. Some action is underway, led by the Executive Branch. In May of 2012, the White House announced a series of measures intended to “save nearly $6 billion in the next five years by eliminating outdated requirements and unjustified costs. To ensure that the federal government continues this important work, the President also signed a new Executive Order today, making it a continuing obligation of our government to scrutinize rules on the books to see if they really make sense.”

But, as the international indicators demonstrate, more needs to be done. Some aspects, such as reform of tax regulation, will require co-operation of the Legislative Branch, including a degree of bipartisanship and frank consultation with a broad range of stakeholders. And, this is not to say that regulatory reform is a silver bullet solution. Many aspects of competitiveness are beyond easy reach of regulation or deregulation (e.g., quality of education). In addition, mistakes can be made in deregulation (e.g., some of the blame for the US financial crisis in 2008 may be due to failures of deregulation or failures to properly implement regulations that were on the books). Nonetheless, regulatory reform remains an underexploited policy lever, one that should be pursued because it is clearly in the national interest.

 

Neither here nor there…

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Expatriate life in France

On 5 October 1992, I started my career at OECD in Paris. While the experience since then has been rich and interesting, occasionally wonderful, I can’t say that it has been easy. Somehow I managed to make it this far and, with mixed feelings, celebrated my 20th anniversary last Friday with a few colleagues at Le Mozart (Le Mozart being the pub of choice these days for OECD economists). After all these years in France, I am still not certain where we will settle. Long discussions with spouse, family and friends have proven inconclusive. Where will we find the optimal setting for the next phase of life: here? there? or perhaps neither here nor there?

Living internationally has brought rewarding experiences and personal growth, albeit accompanied by the stresses and strains of cross-cultural life, as well as various challenges at work and in daily life. It makes me want to celebrate “Life’s Rich Pageant“, in the words of Inspector Clouseau; that is, I would like to have access to the best bits of both my home and adopted cultures simultaneously, though without falling into the fountain as Clouseau did.

France has welcomed my family and the quality of life here has been quite high for us. Our kids got a solid education here in the public schools. I love our house and the forests surrounding our little town. The countryside is gorgeous and the food is wonderful. The list of pros — and, admittedly, a few cons — goes on and on. Judging by several best-sellers, such as Peter Mayle’s “A Year In Province”, recounting my personal experience in this regard could easily fill a book.

What to do for an encore?

Once a person has lived for a prolonged period in another culture, one’s horizons shift a bit. There is a good chance that whatever one does for an encore (stay or return home or move on to somewhere else), something will be missing from the next phase of life. And, during a prolonged absence from one’s native land, it too will have changed. A bit like the situation of Dorothy in the Wizard of Oz, pondering her return to Kansas: can one really go home again or will home now be a different place? Kids growing up in such multicultural  situations are sometimes called “third culture kids”, because they have hybrid roots in two or more countries. Their cultural perspectives extend beyond a traditional base. Together with other expatriate kids they share a culture that is neither wholly from here or there, but has elements from various international sources.

In truth, my reflections on expatriate life leave me a bit conflicted. Surely, if we return to the US, there will be things that we will miss from France. (Where to find a proper stinky cheese?) And, if we stay, some things will be things missing here. (Where to find a proper bagel?) Therein lies the rub. For me, the experience of living internationally has been a positive one on balance, but it is not without trade-offs. I am not alone in this sentiment. I’ve had the conversation many times as I meet folks around the world who are living internationally. This is a real hazard of expatriate life: having one foot here and one foot there, or perhaps both feet on shifting lands.

Ethiopian epilogue?

This week I found myself careening down the Dulles airport access road in a mini-van taxi driven by an Ethiopian immigrant. We were discussing what it was like to live outside of our homelands. With my bags sliding off the seat and jacket long since slipped onto the floor, he turned and said “I love this country. Here, in the US I am free to say what I want.” Among a long list of other injustices in Ethiopia, he was explaining to me the plight of journalists reporting there: two Swedish journalists wrongly incarcerated in Ethiopia were recently released, but a number of Ethiopian reporters are still being held. (The media rights group Reporters without Borders discusses the situation on their website.)

But as he spoke of his homeland, he grew a little wistful. He went on to tell me how Ethiopian expatriates often buy property back home, seeking to maintain ties. With a sense of longing, he explained that he is hoping the situation will permit him to visit next Spring. Though committed to his life in the US and grateful for the welcome he has had, he seemed to me a bit unsettled. He proudly told me that his son, having mastered English and Amharic (the main language of Ethiopia), is now learning Spanish. It seemed to me like the family might be caught between homes, and not quite at home, neither here nor there…

Toto, I have a feeling we’re not in Kansas any more

Such stories are certainly not rare in the mobile, modern world. During the 1990s, I co-authored a study of the US labor market for the OECD. One factoid that struck me as remarkable: 25% of the US population moved more than 25 miles from home every 10 years. That pace has decreased somewhat with the housing finance crisis, but certainly many people are not where they used to be and some are cut off from their roots.  Dislocation is a common phenomenon in a globalized world with constant adjustment pressures and far-flung economic opportunities. And, this comes on top of more traditional drivers of dislocation such as strife.

Thank goodness that distance is now less of a definitive impediment to maintaining relationships. Back when I lived in Burkina Faso, a move away from home meant being cut off from real-time communications. Now thanks to services such as Skype, Microsoft Messenger or Apple Face Time staying in touch is less of a challenge. Still, it is not the same as being there.

For me, the question of what to do when I grow up and where to do it remains unresolved. A bit like Kurt Vonnegut’s Billy Pilgrim in Slaughterhouse Five, my geographic center has come unstuck in the space-time continuum. It is anchored by relationships that span vast distances, contexts and years, but it is no longer fixed to a specific place. But, maybe that is the point?  Perhaps the relationships are what matter most.

Impressions and photos from a visit to Korea

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Impressions and photos from a visit to Korea

Rounding out my recent series of blog posts, I would like to offer a few further impressions and photos from a visit to Korea (Republic of Korea). During our trip, we toured the periphery of the country and then spent a couple of days in the center (Andong) and a few days in Seoul, as well as taking a tour to the border with North Korea (i.e., the demilitarized zone, DMZ). Based on these travels, I can recommend the Haerang Rail Cruise and Rak Ko Jae traditional B&B stays to anyone seeking an authentic experience in Korea.

We have a few connections to Korea through my work (Korea joined the OECD in 1996), my wife’s family (who lived in Korea for several years), and via friends. This gave us some insights and notions as to what to expect, as well as some contacts. Still, Korea is developing and changing rapidly, so much of what we encountered was new to us and there is — in any event — a tremendous amount for a traveler to explore and discover.

We found the country to be very accessible. Some Koreans have had experience in the United States via their education or work and many others have studied some English. Many signs and menus are in English as well. So, we were able to get by with English and a Korean phrase book. Nonetheless, outside of Seoul, we found it very helpful to have a guide.

Initial impressions

The dynamism of Korea is impressive. Economic growth is modernizing many aspects of life. Construction seems to be booming. Cultural sites and traditions are being renewed. Innovation is valued and is being pushed forward on many fronts ranging from smartphones to K-pop music. Most people we encountered radiated optimism and a healthy confidence, as well as good humor. Other countries in the region have taken note. For example, Korean soap operas and music are popular across Asia and beyond (e.g., this wild K-Pop music video by Psy has had more than 255 millions hits). All of this seems to me in striking contrast with the gloom that in recent years sometimes seems to hang in the air in Western Europe or the United States.

There remain some significant challenges for Korea. Most notably, the terrible situation in North Korea is a clear concern. In addition to the strain on the South from provocations and threats by the North, many people we spoke with were clearly pained by the fate of folks in the North and the separation that has unnaturally split the Korean people.

There are also some economic challenges in the South. For example, productivity growth in agriculture and the retail sector greatly lags that of the industrial sector. Another example is duality in the labor market, whereby workers for large industrial firms benefit from stable and relatively well compensated employment while workers in smaller establishments may face much tougher conditions of employment. However, these are challenges that arise partly because much of the rest of the economy is surging forward.

Our visit to Korea left us with a very positive impression. From the beautiful landscapes, and warm welcomes, to traditional arts, good food and interesting cultural experiences, we found ourselves being pulled in and wanting to see and do more. A main conclusion from our trip is that we need a lot more time in Korea!

Photos

Linked below is a gallery with a sampler of landscapes, cultural sites and food, as well as some glimpses of the economic progress.

(Use the arrows to scroll up or down, click on the photos to see a full edition)

[flagallery gid=15 name=Gallery]

Ideas and the value of international organisations

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Periodic reflection on positive things in life can change one’s attitude for the better and create a more open attitude to new opportunities. I use such reflections to develop my List of Positive Things, which I keep on my iPod and update a few times a week during my commute to work. I sometimes scroll through the list and come away feeling renewed. For example, I’ll do this after a bad day at the office or when looking for ideas for new projects. Among the multitude of topics, the value of international organisations is one that comes up repeatedly.

The value of international organisations: a few entries from my list of positive things

This list is not comprehensive, but rather focuses on the topic of international organisations and ideas. It reflects observations arising from the course of my work at an international organisation (20+ years).

  • International organisations have helped to develop innovation as a field of study in its own right. This provides a powerful, cross-cutting perspective on the economy that can deliver policy insights that otherwise may be missed. The Innovation Strategy initiative of the Organisation for Economic Co-operation and Development (OECD) is an example of this type of work.
  • International organisations have supported a vast, on-going wave of research on a range of topics. Analysts will sometimes develop research that is remarkable for its novelty or depth. This can lead to concrete ideas for ways to improve economic performance.  Many papers resulting from this work have been posted on the Social Science Research Network. (I’m grateful to this network for making available and distributing a broad range of papers. Browsing the abstracts, I can follow developments in my field. Some of the material is relevant to my current research and some inspires new research directions.)
  • International dialogue at OECD and other international organisations can lead to creativity and diffusion of ideas. In some cases, this can promote understanding where there was a risk of conflict. Some dialogue happens via the day-to-day operations inside these organisations. Some of it takes place at international conferences and workshops, where various stakeholders come together. 
  • Staff at international organisations, particularly analytical staff, often demonstrate a high level of professional competence. I am continually impressed by the intelligence, dedication and energy that many of my colleagues bring to their work. This is often accompanied by a strong desire to promote development and make the world a better place. There are certainly occasional problems associated with ambition, turf, bureaucratic intrigues and politics (both within the organisations and among their member countries). But, on balance, the staff calibre is high.  
  • Improving government policy: International comparisons and peer review can be powerful catalysts to stimulate positive changes in government. The process of sharing and learning among experts is often catalysed by new insights from staff papers from international organisations. It is great to see this process in operation!

 Bottom line: International organisations can be powerful sources of new ideas for government, private sector, academia and non-governmental organisations. While there is certainly room for improvement in their operations (e.g., via better management practices and evaluation), the contributions of these organisations to making the world a better place should not be underestimated.

 

 

 

Urban Bike Commuters Unite! Velib, Paris

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Whenever I’ve lived in an urban area, I’ve always been a dedicated user of public transportation. In Paris, I’ve continued this practice on a near daily basis in my commute to work and sometimes on my days off, too. The dense network of trains, metro and buses  has a great structure that generally helps to get you where you need to go in an efficient manner. The metro and buses (traffic permitting) offer a decent standard of service. The suburban trains, however, can be vulnerable to strikes, weather outages and other disruptions. As I live just outside of town (7 miles from the Eiffel tower), I depend on suburban trains (RER C) and this can lead to some frustration.

And then a few years ago, Paris launched a system of rental bikes called Velib. Velib has proven to be a great idea! The urban bike system was developed by a private firm (JC Decaux) on space made available by the city. In exchange for developing and operating the system, JC Decaux gets public advertising space around town. The system now has more than 20000 bikes and 1400 stations around Paris. The city of Paris has developed some 400 KM of bikeways (nearly 250 miles ), which helps riders to avoid motor vehicle traffic on many routes. For 30 euros (the equivalent of about 40 dollars) per year, a rider can get a pass with unlimited free rides of up to 1/2 hour at a time. A rider pays a small surcharge for going a bit over time (1 euro for the first 1/2 hour of overtime).

The result is a system that operates with private sector efficiency, at minimal public sector expense, yet with public policy objectives in mind (easing movement of people, promoting  health benefits, reducing pollution and congestion, etc). While I still need to take a train into town, the system enabled me to cut 20 minutes off of my commute (each way, each day) and avoid an often frustrating connection in town on the suburban train. In a recent month, I got more than 8 hours of additional exercise thanks to Velib (the system keeps track for you). And, somebody else is responsible for the maintenance and security of the bikes I use. No longer do I have to worry about bike theft or fixing flats. (You do need to keep in mind safety and remember to wear a helmet and some reflective material.) Now, instead of being underground, I am actually in touch with the city. I see more of the world around me and I arrive at the office feeling invigorated.

Here is a short overview that presents Velib (updated in Dec 2017). The Velib system does face some challenges. In a city with hills, it is difficult to keep the distribution of bikes aligned (people prefer to ride one way, down hill). The most difficult to reach stations provide credits to those who pedal up to them and JC Decaux does some bike redistribution during the day, but it is not enough. There is also a problem with vandalism (high youth unemployment, for example, can lead to bored and frustrated kids). And, there is a lack of parking slots at many of the most used stations. This can leave a rider wandering from station to station looking for a parking place to return the bike (or, conversely, lacking any available bikes at rush hour).

Here, I have some important advice for fellow Velib users and a plea for solidarity: If you face a lack of parking at a station, go to the automated kiosk and flash your badge and then follow the instructions to validate. The system will grant you 15 minutes of credit to give you a chance to get to the next available station. A map will indicate these on the kiosk screen. This is good for you personally. But, also, if enough of us frustrated riders continue demanding this credit, which costs the system operators, then maybe they will build additional parking places. For too long I wasn’t aware of this and continued to pedal at my own expense in such situations!

If you live in the Paris area and haven’t yet discovered the system, I’d encourage you to give Velib a try. If you live in another city without such a system, why not press your public officials to consider one. Meanwhile, here’s wishing you “happy trails”!

Update, 2 August: For perspectives on biking in London, check out this blog posting from the Economist’s Blighty Blog, “Safer than you think”.

International Trade and Jobs – A Good Partnership

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Economists generally agree that free trade is a good thing for the economy. It provides producers with access to global markets (and therefore potential to become more efficient by specialising and seeking economies of scale in their operations). It provide consumers with greater choice, including access to new types of products and new varieties of existing product types. It increases competition, which spurs innovation and productivity increases and limits growth in prices. In addition, market openness can provide access to world-class imported inputs, which in turn can improve the economic performance — including export performance — of domestic industries.

But, trade has taken a few hits in recent years, as it is sometimes viewed mainly as a source of economic disruption. Spurred by trade, economies adjust and that may mean that some folks in import-competing sectors may face economic hardship as a result. At the same time, such adjustment can be a good thing, promoting a better deployment and use of resources (hence rising productivity, which helps enable wages to rise). Here, there is a role for government to ensure the right conditions exist for business and workers to capitalise on the new economic opportunities arising from trade. In other words, for market openness to deliver the expected benefits, complementary policies are required.

For workers, this means government has a role in providing a social safety net to ensure that those facing adjustment can get the assistance they may require to find a new job, get training they may need to adapt, and get income during the adjustment period. For business, this means government policies to promote infrastructure development, keep the overall economic framework sound (e.g., avoiding undue inflation), limit red tape, and maintain sensible regulation, as well as provide a supply of labour with appropriate skills. And, to tie it all together, there is a need for clear rules of the game and standards for business and labour, as well as channels for frank and open discussion and social dialogue.

This is not just abstract theory. A new and substantial round of work by the OECD and other international organisations has looked at how some of these processes operate in the real world. The findings document the benefits of market openness and the importance of the complementary policies. Above all, experience demonstrates that protectionism is not the answer to the challenges of free trade. The economy as a whole is made much better off through a strategy to promote free trade while addressing the challenges that such a policy will entail.

You can find out more via the OECD website:

1) Trade, Growth and Jobs (in a nutshell, 4 pages)

2) Policy Priorities for International Trade and Jobs (the full story, 450 pages)