The Risk of a New Economic Non-Order

LONDON – Next month, when finance ministers and central bank governors from more than 180 countries gather in Washington, DC, for the annual meetings of the International Monetary Fund and the World Bank, they will confront a global economic order under increasing strain. Having failed to deliver the inclusive economic prosperity of which it is capable, that order is subject to growing doubts – and mounting challenges. Barring a course correction, the risks that today’s order will yield to a world economic non-order will only intensify.

The current international economic order, spearheaded by the United States and its allies in the wake of World War II, is underpinned by multilateral institutions, including the IMF and the World Bank. These institutions were designed to crystallize member countries’ obligations, and they embodied a set of best economic-policy practices that evolved into what became known as the “Washington Consensus.”

That consensus was rooted in an economic paradigm that aimed to promote win-win interactions among countries, emphasizing trade liberalization, relatively unrestricted cross-border capital flows, free-market pricing, and domestic deregulation. All of this stood in stark contrast to what developed behind the Iron Curtain and in China over the first half of the postwar period.

For several decades, the Western-led international order functioned well, helping to deliver prosperity and relative financial stability. Then it was shaken by a series of financial shocks that culminated in the 2008 global financial crisis, which triggered cascading economic failures that pushed the world to the edge of a devastating multi-year depression. It was the most severe economic breakdown since the Great Depression of the 1930s.

But the crisis did not appear out of nowhere to challenge a healthy economic order. On the contrary, the evolution of the global order had long been outpaced by structural economic changes on the ground, with multilateral governance institutions taking too long to recognize fully the significance of financial-sector developments and their impact on the real economy, or to make adequate room for emerging economies.

For example, governance structures, including voting power, correspond better to the economic realities of yesterday than to those of today and tomorrow. And nationality, rather than merit, still is the dominant guide for the appointment of these institutions’ leaders, with top positions still reserved for European and US citizens.

The destabilizing consequences of this obstinate failure to reform sufficiently multilateral governance have been compounded by China’s own struggle to reconcile its domestic priorities with its global economic responsibilities as the world’s second-largest economy. Several other countries, particularly among the advanced economies, have also failed to transform their domestic policies to account for changes to economic relationships resulting from globalization, liberalization, and deregulation.

As a result of all of this, the balance of winners and losers has become increasingly extreme and more difficult to manage, not just economically, but also politically and socially. With too many people feeling marginalized, forgotten, and dispossessed – and angry at the leaders and institutions that have allowed this to happen – domestic policy pressure has intensified, causing countries to turn inward.

This tendency is reflected in recent challenges to several features of the economic order, such as the North American Free-Trade Agreement, as well as America’s withdrawal from the Trans-Pacific Partnership and the United Kingdom’s renunciation of European Union membership. All are casting a shadow on the future of the global economic system.

America’s inward turn, already underway for several years, has been particularly consequential, because it leaves the world order without a main conductor. With no other country or group of countries anywhere close to being in a position to carry the baton, the emergence of what the political scientist Ian Bremmer has called a “G-Zero era” becomes a lot more probable.

China is responding to the global system’s weakening core by accelerating its efforts to build small networks, including around the traditional Western-dominated power structures. This has included the establishment of the Asian Infrastructure Investment Bank, the proliferation of bilateral payments agreements, and the pursuit of the “Belt and Road Initiative” to build infrastructure linking China with western Asia, Europe, and Africa.

These dynamics are stoking trade tensions and raising the risk of economic fragmentation. If this trend continues, the global economic and financial configuration will become increasingly unstable, amplifying geopolitical and security threats at a time when better cross-border coordination is vital to address threats from non-state actors and disruptive regimes, such as North Korea. Over time, the risks associated with this shift toward a global economic non-order could have severe adverse effects on geopolitics and national security.

None of this is new. Yet, year after year, top government officials at the IMF/World Bank annual meetings fail to address it. This year is likely to be no different. Instead of discussing concrete steps to slow and reverse the march toward a global economic non-order, officials will probably welcome the cyclical uptick in global growth and urge member countries to do more to remove structural impediments to faster, more durable, and more inclusive growth.

While understandable, that isn’t good enough. The upcoming meetings offer a critical opportunity to start a serious discussion of how to arrest the lose-lose dynamics that have been gaining traction in the global economy. The longer it takes for the seeds of reform to be sown, the less likely they will be to take root – and the higher the probability that a lose-lose world economic non-order will emerge.

Mohamed A. El-Erian, Chief Economic Adviser at Allianz, was Chairman of US President Barack Obama’s Global Development Council and is the author of The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.

By Mohamed A. El-Erian

How Much Sex Makes Us Happy?

LONDON – “Sex is like money,” John Updike wrote, “only too much is enough.” As it turns out, that is not strictly true, at least not in the context of monogamous relationships. So how much sex is enough? In 2015, a group of University of Toronto-based psychologists set out to find out.

In their study, “Sexual Frequency Predicts Greater Well-Being, But More is Not Always Better,” Amy Muise, Ulrich Schimmack, and Emily Impett revealed that there is, in fact, a precise rate of sex that, for the average couple, optimally benefits the partners’ wellbeing: once per week.

The study found that the difference in wellbeing for people in relationships who engage in sex once per week, compared with those who have sex less than once per month, was greater than the difference in wellbeing for those earning $75,000 versus those making $25,000. In other words, having sex four times as much boosted participants’ moods as much as an additional $50,000 per year would do.

But, just as having sex too infrequently can leave couples less happy, having sex too frequently can end up being more stressful than pleasurable, particularly if busy couples feel under pressure to do so. Yet such pressure – stemming, at least partly, from social expectations and comparisons – is very real.

The University of Colorado sociologist Tim Wadsworth, in his 2014 study, “Sex and the Pursuit of Happiness: How Other People’s Sex Lives are Related to our Sense of Well-Being,” repeats Updike’s assertion that sex is like money. But, in Wadsworth’s argument, what they have in common is that they both derive value from comparison.

As Wadsworth points out, past research has shown that it is not absolute income levels that determine happiness, but rather income levels relative to those around you – the colleagues, neighbors, former classmates, and others who form your reference group. That is why a rising income does not necessarily bring a corresponding increase in happiness: it is crucial that the incomes of one’s reference group aren’t also rising.

Similarly, Wadsworth’s survey found that respondents who believe that they have more sex than their reference group are happier, while those who believe that their cohorts are having more sex than them are less content. Wadsworth therefore concludes that happiness is positively correlated with one’s own sexual frequency, but negatively correlated with the sexual frequency of others.

But, beyond a certain point – roughly once per week, apparently – the benefits that a couple derives from sex wane. This suggests that there is more to the relationship between sex and happiness than keeping up with the Joneses. And, in fact, by putting pressure on couples to have sex as often as possible, the sense of competition may be doing more harm than good.

A recent study – “More Than Just Sex: Affection Mediates the Association Between Sexual Activity and Well-Being” – offers a novel theory regarding the link between sex and happiness. Its authors – Anik Debrot, Nathalie Meuwly, Amy Muise, Emily Impett, and Dominik Schoebi – contend that the true power of sex in a relationship lies in the capacity of sex to foster a stronger connection between partners through shared affection, not just shared pleasure.

The authors even suggest that sex and affection could compensate for each other in supporting wellbeing, with increased affection counterbalancing reductions in sexual activity during some life phases, such as just after childbirth – a period sometimes associated with higher risk for infidelity in male partners. The idea is that more alternative expressions of affection may help to sustain wellbeing, thereby decreasing the temptation to stray (though, because men generally report higher sexual desire, they may rely more on sex as a way of experiencing affection than the average woman does).

It seems that psychology may rebut Updike’s dictum that only too much sex is enough. In fact, while regular sex is vital to promote intimacy and foster happiness through shared affection, more is not always better. So sex may be like money, but only in that too little is bad.

Raj Persaud, the author of Simply Irresistible: The Psychology of Seduction, is a consultant psychiatrist in Harley Street, London. Adrian Furnham is Professor of Psychology at University College London and the author, with Viren Swami, of The Psychology of Physical Attraction.

By Raj Persaud and Adrian Furnham

Counting What Counts in Development

NEW YORK – To most people, “development” is best measured by the quantity of change – like gains in average income, life expectancy, or years spent in school. The Human Development Index (HDI), a composite measure of national progress that my office at the United Nations Development Programme oversees, combines all three statistics to rank countries relative to one another.

What many do not realize, however, is that such metrics, while useful, do not tell the entire story of development. In fact, to understand how developed a country is, we must also grasp how people’s lives are affected by progress. And to understand that, we must consider the quality of the change that is being reported.

When statisticians compare countries, they require commensurate data. To compare school attendance, for example, researchers would count the number of registered students in each country, relative to all school-age children (although even this can be a challenge in many developing countries, where record keeping is not always standardized).

But to gauge the relative quality of a country’s education system, researchers would want to determine whether students are actually learning. For those numbers, statisticians would need to test students across a range of subjects, a project that is far more ambitious than simply taking attendance.

Statisticians have always recognized that comparing quantities is far easier than comparing quality. But, because existing measures are all we have, the weaknesses are often overlooked when ranking relative gains or making policies, even though “progress” according to a given indicator is not necessarily genuine. If the world is ever to reach parity in development, we must change how we gauge and catalogue the quality of policy initiatives.

Consider the statistics measured by the HDI – life expectancy, education, and per capita income. Life expectancy statistics suggest that the world is getting healthier, and data show that people are living longer than ever before; since 1990, average life expectancy has increased by around six years. But the increase in quality of life has not been as dramatic. Those extra years are often accompanied by illness and disability – such as dementia, which the World Health Organization now estimates affects 47.5 million people worldwide.

While life expectancy can be calculated based on birth and death records, indices that measure quality of life, like the WHO’s disability-adjusted life year estimates, require considerable amounts of information on a wide range of illnesses and disabilities in every country. And, unfortunately, the difficulty of gathering such data means that many life-quality datasets are incomplete or infrequently compiled.

It’s a similarly mixed picture for education. The world is no doubt making progress in extending access to schools, with more children are enrolled and attending than ever before. But how do we measure the gaps in educational quality? Some 250 million children worldwide do not learn basic skills, even though half of them have spent at least four years in school. It will come as no surprise that in most countries, schools in wealthier neighborhoods typically have better facilities, more qualified teachers, and smaller class sizes. Addressing inequality requires measuring educational outcomes, rather than school enrollment rates.

The OECD’s Program for International Student Assessment (PISA), which relies on tests not directly linked to curricula, is one approach to making cross-country comparisons. The results for 2015 paint a much richer picture of educational performance across participating countries, while highlighting stark disparities. For example, PISA found that “socio-economically disadvantaged students across OECD countries are almost three times more likely than advantaged students not to attain the baseline level of proficiency in science.”

Data on employment – critical for policymakers, as they prepare for the future – tell a similar story. The 2015 Human Development Report recognized that as the world moves toward a knowledge economy, low-skill or marginal workers are at greater risk of losing their jobs, and opportunities for exploitation of informal or unpaid workers increase.

To put this in perspective, consider employment projections for the European Union, which foresee the addition of 16 million new jobs between 2010 and 2020. But over the same period, the number of jobs available for people with the least formal education is anticipated to decline, by around 12 million.

“Not everything that can be counted counts. Not everything that counts can be counted,” the sociologist William Bruce Cameron wrote in 1963. His dictum remains true today, though when it comes to measuring human development, I would suggest a slight revision: “Not everything that is counted counts for everything.”

Equitable human development requires that policymakers pay more attention to the quality of outcomes, rather than focusing primarily on quantitative measures of change. Only when we know how people are being affected by development can we design policies that bring about the most valuable improvements in their lives. “The intention to live as long as possible isn’t one of the mind’s best intentions,” the author Deepak Chopra once observed, “because quantity isn’t the same as quality.”

Selim Jahan is Director of the Human Development Report Office and lead author of the Human Development Report.

By Selim Jahan

A Global Education Ecosystem

NEW YORK – This month, heads of state and senior officials from all 193 United Nations member states are gathering in New York City to try to make progress on some of the world’s thorniest development challenges – including ensuring quality education for all. Progress on this front is not just a moral imperative; it is also vital to put countries on the path toward sustainable development. But success will not be easy. It will require significant new investments in local leadership – an element of international development work that has rarely gotten the attention it deserves.

“Leadership,” in this case, doesn’t necessarily mean an individual positioned at the top of a government or business hierarchy. Rather, it is defined by actions aimed at improving a community’s wellbeing, and it can come from anyone. We have seen firsthand how the presence of a diverse set of engaged leaders at all levels – educators, parents, students, policymakers, advocates, and others – can make or break efforts by a community or country to maximize opportunities to improve its education system.

The good news is that educators and education advocates worldwide now seem to be recognizing the value of informed local leadership. The International Commission on Financing Global Education Opportunity recently called for greater investment in a “global ecosystem for education” that would help to cultivate more of such leadership. The rest of the international community should heed that call.

A global education ecosystem would comprise new partnerships among bilateral and multilateral donors, the philanthropic community, and global nonprofit organizations. This dynamic network would work with local actors to support leadership development and innovation, while creating efficient new channels for those leaders to share knowledge, experiences, and solutions across communities and countries.

As it stands, this type of education ecosystem doesn’t exist. Instead, almost all of the $17 billion of foreign aid channeled toward education each year goes directly to local governments or local operators. Regional or global organizations that could help develop a global learning infrastructure, support leadership development among local stakeholders, and help create effective channels for knowledge and best-practice transfer among communities, receive no meaningful investment.

That amounts to a wasted opportunity, because the promise of such ecosystems to accelerate overall progress has been proven in other areas – in particular, the public-health sector. Over the last 35 years, driven partly by the global AIDS epidemic, the number of international partnerships and nongovernmental organizations working to promote public health more than quadrupled, to over 200.

Today, the global public-health landscape is populated by numerous NGOs and civil-society organizations, which, along with many public-private partnerships, the UN system, and other intergovernmental organizations, comprise a dynamic network that facilitates progress. This mature, if imperfect, ecosystem has almost certainly helped to improve and even save the lives of millions of people around the world.

One organization that is helping to support the public-health ecosystem’s continued development is Results for Development, which leads the Joint Learning Network for Universal Health Coverage. By establishing and deepening connections that enable practitioners and policymakers from countries around the world to share their experiences and expertise with their counterparts elsewhere, the Joint Learning Network is helping to ensure that we make progress toward improved health-care coverage worldwide faster than would otherwise be the case.

This is precisely the kind of approach that is needed to advance the international community’s goal of ensuring quality education for all. Given remarkable similarities in the causes of the inequities and challenges affecting education across communities and countries, knowledge-sharing among local leaders – not to mention effective capacity-building – promises to be as effective as it has been in the health sector. We simply need a global education ecosystem to support such efforts – and we need it as quickly as possible.

This month’s UN General Assembly meetings present an important opportunity to kick-start this endeavor. If we increase current multilateral investment in regional and global nonprofit education actors by even a small amount, the world could begin to develop a shared ecosystem to foster local innovation, learning, leadership development, and capacity building. And we would significantly increase our odds of achieving the progress on education – and our collective welfare – that all of us seek.

Wendy Kopp is the CEO and co-founder of Teach For All. Dzingai Mutumbuka is former Minister of Education for Zimbabwe and Chair of the Association for Education Development in Africa.

By Wendy Kopp and Dzingai Mutumbuka

The Economic View from the Alps

LONDON – I recently took a trip to Switzerland – a remarkable country that I have been fortunate to visit many times over the past 40 years. In addition to having a good time, I found a Swiss perspective useful to reflect on the state of the world and its economic vitality.

Aside from its wealth – or perhaps because of it – Switzerland has always struck me as a happy country. While spending some time in Zurich in 1994, I first experienced the joy of swimming in the city’s river and lake. And nowadays, it is common to see people doing this in many other urban areas, including Basel, where contented souls enjoy the mighty Rhine.

I recently overheard two Swiss speakers teasing each other about whether the swimming is better in Zurich, Basel, or the capital, Bern, with its fast-flowing white waters. Where else in the developed world can one enjoy such accessible pleasures? I used to find it amusing that so many Germans regard Switzerland as their ideal country; as I have grown older, I have come to understand what they mean.

Another reason to admire Switzerland is its astonishing railway system, which crisscrosses every nook and cranny of the country. On this occasion, we traveled by train to the Bernese Highlands (Berner Oberland), just as I had done nearly 40 years ago. As we made our precisely timed connections with ease, I wondered why so many other Western governments have deemed the public sector to be incapable of running an efficient railway system. The Swiss system is a testament to how public expenditures and administration can benefit all of a country’s citizens.

As someone who was deeply involved in the British government’s “northern powerhouse” project, I take the Swiss example to heart. It further bolsters my belief that the United Kingdom should make state-of-the-art railways a priority, especially in the north, to connect Manchester, Leeds, Liverpool, Sheffield, Newcastle, and their surrounding areas.

Of course, in other ways, Swiss and British economic experience is nothing alike. In recent years, the Swiss franc has appreciated significantly against almost every other currency. For Britons, there are better ways to pass the time than to calculate the pittance that a pound now buys in Switzerland, and I was not surprised to see so few others on my trip.

I did, however, see plenty of visitors from Asian countries at some of the Alps’ most beautiful sites. This reminded me of my very first trip to Switzerland, as a student traveling on an Interrail card, when I saw Japanese tourists lined up to board the mountain train at Kleine Scheidegg. They were making the exciting climb up to the Jungfrau and the highest mountain station in Europe, and I seem to remember that they had their own carriage, perhaps to aid with translation.

Back then, Japan was supposedly about to overtake the United States to become the world’s largest economy. But within a decade, its asset-price bubble had burst, and its economy had essentially flat-lined in nominal terms. These days, it is China that will supposedly overtake the US; and, as it happens, that same Kleine Scheidegg station platform now has a carriage reserved for Chinese tourists.

And yet there are still plenty of Japanese tourists in Switzerland, too; and in Grindelwald, one of the Bernese Highlands’s many picturesque villages, there is even a Japanese-language information center. This reveals a less-appreciated side of the Japanese economic story. Adjusting for Japan’s declining workforce shows that in terms of per capita GDP, Japan has actually performed just as well as many other advanced economies in recent years.

Moreover, recent data indicate that Japan may be embarking on a strong, domestically driven economic expansion. In the second quarter of this year, its growth rate was among the best in the G7. Given these trends, I suspect that Switzerland will continue to host plenty of Japanese tourists in the coming years.

And if China, with its population of 1.4 billion people, maintains its economic trajectory of the last 20 years, the Swiss will probably have to build a new, much larger station at Kleine Scheidegg. Of course, China could also fall short of its aspirations, as its persistently bearish skeptics have predicted. But while in Switzerland, I couldn’t help but think that the constant talk of China exaggerating its official economic data has become a farce. To appreciate China’s rise, one need only look at all the Chinese tourists in the Bernese Highlands and many other places.

To be sure, the Chinese economic miracle will end at some point. But that time has not yet come. On the contrary, my trip provided ample anecdotal evidence in support of the data showing a strong global recovery in 2017. That recovery is real, and it will most likely continue to broaden and include more countries – at least for now.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK Treasury Minister, is Honorary Professor of Economics at Manchester University and former Chairman of the British government’s Review on Antimicrobial Resistance.

By Jim O’Neill

Winning the War on Child Sexual Abuse

NEW DELHI – With every new crisis that the world faces, humanity’s differences appear increasingly intractable. Religion, ethnicity, history, politics, and economics have all become tools to denigrate and demean. People seem to be drifting apart, and no country is immune from divisive discourse.

But there is one fundamental issue where contrasts dissolve into consensus: the desire to keep children safe. Protecting the physical, emotional, and psychological wellbeing of children is a universal instinct that no faith, dogma, or ideology can defeat. And yet, despite this shared instinct, children everywhere continue to be preyed upon. Too often, societies ignore child sexual abuse, owing to family pride or fear of stigma. The world can stay silent no longer.

The numbers are truly alarming. According to a 2016 World Health Organization report, one of every four adults was sexually abused as a child. A 2007 Indian government study found that 53% of children in India faced some form of sexual abuse growing up. And human trafficking, especially trafficking of children, is a booming business, with annual average profits totaling $150 billion. In other words, child sexual abuse is a moral epidemic afflicting the entire world –one that we can defeat only when we openly declare against it.

Young victims and their families should not have to live in silence while predators roam fearless and free. That is why, in December 2016, I joined a diverse group of Nobel laureates and global leaders to launch the “100 Million for 100 Million” campaign. One of the campaign’s objectives is to persuade, provoke, and inspire 100 million young people around the world to raise their voices against violence inflicted on children. The response so far has been overwhelming; tens of thousands have taken the pledge to defend the defenseless.

But I believe we must do even more to awaken the world’s slumbering consciousness on this evil. So on September 11, I will embark on a bharat yatra (political pilgrimage), traveling across India to declare war on sexual abuse and exploitation of children everywhere. Together with dedicated campaigners and child-rights advocates, I will travel from Kanyakumari, on India’s southern tip, to India’s capital, Delhi. More than ten million people are expected to join me physically and virtually on a march that will traverse 11,000 kilometers (6,835 miles), touching all corners of India in a bid to raise global awareness.

Cynics might say that marches cannot change engrained social taboos. I disagree. I have seen first-hand how change is possible when ordinary people speak out.

In 1998, I accompanied a group of young people from around the world to the headquarters of the International Labor Organization (ILO) in Geneva. One by one, these brave children told the assembled leaders of their chained lives as forced laborers. They demanded the freedom to chase their own dreams. And they called for an international law against child labor. It was the culmination of the Global March Against Child Labor, and more than 15 million people had joined us by marching some 80,000 kilometers through 103 countries.

The result of these combined efforts was dramatic and pathbreaking. Within a year, the ILO passed Convention 182, which banned the worst forms of child labor. Today, 181 countries have ratified the convention and passed domestic laws that ban the practice. Back in 1998, when we launched the global march – amid similar cynicism and apathy – roughly 250 million children were being forced to work in horrific conditions. Though much remains to be done, that number has since dropped by about a third, and I am confident we can reach zero within a generation.

We have also had success marching for civil liberties in India. In 2001, our shiksha yatra (march for education) called on government officials to make access to school a fundamental right for all children. Today, that right is enshrined in the Indian Constitution, and primary school enrollment is almost universal.

The world needs a similar effort against child sexual abuse and trafficking. As many as two million children are victims of trafficking every year, with many sold into the sex trade. Young refugees are especially at risk. In 2016, a record number of people – more than 65 million – were forced from their homes by civil war and other unrest. When children are displaced, they become highly vulnerable to trafficking and sexual abuse, underscoring the need to act decisively.

When we begin marching this month, we will do so as non-violent soldiers in a global war. Our goal is to give voice to ordinary victims who have been silenced by fear and social pressure. We aim to tug at the conscience of people everywhere, to provoke others into action.

Mahatma Gandhi galvanized millions of oppressed people through his marches. So did Martin Luther King Jr. Let us be inspired by them, and wage a humanitarian war against child sexual abuse. India is ready to march again on a journey of hope and audacity. We invite the world to join us.

Kailash Satyarthi, a Nobel Peace Prize laureate, is Honorary President of the Global March Against Child Labour and the founder of Bachpan Bachao Andolan (Save Childhood Movement).

How Trump Could Rebuild America

BERKELEY – In the United States today, with partisan polarization at record levels, there is still at least one policy goal on which there is broad consensus, not only among Republicans and Democrats, but also among business and labor leaders, states and cities, and ordinary citizens: infrastructure.

The US has been short-changing infrastructure for years. Historically, federal, state, and local governments have together invested about 2.5% of GDP in non-defense infrastructure assets. But, over the last 35 years, federal investment as a share of GDP has dropped by more than half.

For a long time, state and local governments were able to cover the shortfall, increasing their contribution to three quarters of total spending. But when the Great Recession hit, states and cities were forced to slash their budgets. As a result, in the second quarter of this year, total public expenditure on infrastructure fell to an estimated 1.4% of GDP, the lowest share on record.

This is all the more worrying, given the already-poor state of US infrastructure, which earned a grade of D+ from the American Society of Civil Engineers in its 2017 quadrennial report. Almost 20% of US highways are in disrepair. The costs and consequences of deferred maintenance are apparent everywhere, and almost every city and state has its horror stories: dysfunctional subways in New York City, lead-contaminated drinking water in Flint, Michigan, the near-collapse of a major dam in Oroville, California.

The report estimates that restoring US infrastructure to “a state of good repair” would cost $4.6 trillion between 2016 and 2025. That is $2.1 trillion more than has been committed so far. Developing new funding sources for infrastructure investment is therefore critical.

An innovative strategy under discussion in Washington, DC, is linked to corporate-tax reform – a priority for President Donald Trump and congressional Republicans. Under the current tax system, US multinationals can defer tax payments on their foreign earnings until the earnings are repatriated. With foreign earnings growing and foreign corporate-tax rates falling, deferral has become increasingly attractive. As a result, US companies are holding an estimated $2.6 trillion in foreign earnings abroad, rather than repatriating it and paying taxes that could be used to finance, say, domestic infrastructure investment.

Since 2013, the US Congress has floated several reform proposals to increase revenues collected on the stock of foreign earnings. Two recent bipartisan bills – which seem to have the support of Speaker of the House Paul Ryan, among others – link such reforms directly to federal infrastructure funding.

But Trump seems eager for state and local governments, which are in the strongest position to assess the needs of their communities, to shoulder much of the burden. Federal funding, he has signaled, would be limited to “high priority,” “transformative” national projects and used as leverage to encourage public-private partnerships (PPPs).

Private investors have long been eager to invest in public infrastructure – such as transportation or energy – in exchange for a share of those projects’ future revenues. Of course, private investors are generally not interested in projects that don’t generate revenue – such as, say, school libraries, urban “greenways,” or low-income housing – despite the importance of those projects for the economy and society.

In some areas, however, PPPs can offer substantial value. Though private finance may be more expensive than tax-advantaged public finance, over a project’s entire life, a PPP can benefit its government partner in numerous ways: through innovation; reduced design, construction, and lifetime maintenance costs; and risk mitigation.

To date, PPPs have played only a minor role in infrastructure development in the US. Trump seems convinced that the problem is a lack of available private capital, and thus has proposed a tax plan that includes generous credits to encourage private investment in infrastructure.

That is the wrong approach. What is really limiting private infrastructure investment is, to some extent, public opposition to the private ownership of public assets and, mainly, impediments to matching private capital with infrastructure opportunities. While 37 states have some form of enabling legislation and regulatory framework for infrastructure PPPs, there are wide disparities among states. Moreover, many states and localities lack the capacity to evaluate the costs and benefits of PPPs – a problem that President Barack Obama proposed solving with a new federal PPP knowledge center.

Ultimately, restoring America’s failing infrastructure will require what we call “progressive federalism”: harnessing the strengths of each level of government and working with the private sector to address pressing social and economic challenges.

The federal government must promote national-level goals; impose tough criteria for project selection and rigorous performance metrics in construction and maintenance; and push state and local governments to eliminate bureaucratic red tape and costly internecine squabbles. From a financial perspective, it should provide adequate funding for projects of national and regional significance, and use its financial leverage to overcome obstacles and enforce best practices.

State governors and city mayors, for their part, must take the lead in setting state and local priorities, with each deciding whether to opt into national projects. And private investors can provide risk capital, innovation, and management expertise, both as contractors on publicly funded projects and as partners in revenue-generating projects.

To support such a process, we urge Congress to establish a “Commission on Twenty-First-Century Infrastructure,” co-chaired by teams from the National Governors Association (perhaps led by Republican Governor John Kasich of Ohio) and the Conference of Mayors (perhaps led by Democratic Mayor Eric Garcetti of Los Angeles). The Commission should include business leaders and cabinet-level representatives of the Trump administration, like Secretary of Transportation Elaine Chao and National Economic Council Director Gary Cohn.

At a time when Americans seem to agree on little else, almost everyone agrees that it is time to rebuild the country’s infrastructure. The task now is to turn consensus into action.

Laura Tyson, a former chair of the US President’s Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley, and a senior adviser at the Rock Creek Group. Lenny Mendonca, Senior Fellow at the Presidio Institute, is a former director of McKinsey & Company.

By Laura Tyson and Lenny Mendonca

Central Bankers’ Shifting Goalposts

BRUSSELS – The theme of this year’s meeting of the world’s central bankers in Jackson Hole, Wyoming, had little to do with monetary policy. “Fostering a Dynamic Global Economy” is, of course, an important topic. But it is telling that the European Central Bank chose, for its own annual gathering, a similar “non-monetary” topic (“Investment and Growth in Advanced Countries”).

There is nothing wrong with central bankers considering challenges in areas like growth, trade, and investment. But central banks were made independent precisely because it was understood that they would be held accountable for achieving their own objective of maintaining price stability, regardless of the economy’s underlying growth rate. So why is it that central bankers would rather look at external issues than focus on their own area of responsibility?

The answer, it seems, is that they cannot quite explain their current approach.

Conditions today are very favorable for monetary policymaking, particularly for the ECB – as a brief look at history makes clear. Since the creation of the Economic and Monetary Union (EMU) in January 1999, the ECB has been solely responsible for determining the EMU’s monetary policy. (Although national currencies remained in circulation until 2002, exchange rates were “irrevocably” fixed from 1999.)

The ECB’s job was hard from the beginning. After all, when the euro was born, global financial markets were in turmoil, owing to the Asian crisis of 1997 and the Russian default of 1998. The VIX index, which measures stock-market volatility, had hit 44% in August 1998, and during the euro’s first few years, it hovered around 25-30%, compared to around 12% today. While unemployment in the eurozone was declining, the rate was close to 10%, and it remained higher than today’s level, 9.3%, for all of 1999.

From a monetary-policy perspective, there was also a need to cope with the deflationary legacy of financial crisis. Indeed, when the eurozone was established, prices were increasing by less than 2%, and headline inflation was stuck at around 1%. Those two key indicators of monetary policy are at almost exactly the same levels today, but financial markets are significantly more settled now than they were then.

In 1999, despite slightly below-target inflation, high unemployment, and financial-market volatility, the ECB Governing Council did not even consider zero or negative interest rates, much less unconventional policy measures. Instead, its first action, in 1999, was to fix the main policy rate at 2%.

Over the course of that year, the ECB did cut the benchmark rate by 50 basis points, to the then-unprecedented level of 1.5%. But it did so just to give the economy a chance to recover. After a few months, it reversed course, putting the year-end policy rate back at 2%. Over the next year, the rate was raised to 3.75%, even though inflation had not accelerated by more than a few dozen basis points.

Today, the ECB is facing a much more comfortable situation. While inflation is undershooting the 2% target by a similar amount, the labor market appears to be in much better shape.

But is it? It is widely assumed that a deep recession induces many of the unemployed to leave the labor market, because looking for a job seems useless. If many such discouraged workers have left the labor market, a recovery of the unemployment rate to pre-recession levels can be misleading. That is why the unemployment rate needs to be considered in conjunction with the labor-force participation rate.

By that measure, the eurozone is actually doing much better today than in 1999. With the labor-force participation rate five percentage points higher that it was back then, it seems clear that fewer workers have been discouraged from job-seeking today than at the start of the EMU, and thus that there is less underused potential in the economy.

Against this background, it is difficult to explain why the ECB continues to insist that unconventional monetary-policy measures – such as negative rates and continued bond purchases – are needed. The long-term inflation outlook might be somewhat more uncertain today. But can a few dozen basis points in (poorly measured) long-term inflation expectations justify the need for massive quantitative easing and a policy rate 250 points lower than it was at a time of weaker market fundamentals?

This incongruity is not limited to Europe. In the United States, too, one finds a similar combination of inflation and unemployment today and two decades ago. In 1999, a core inflation rate of around 2%, combined with unemployment below 5%, justified a federal funds rate of 5% (and a “normal” balance sheet). Today, the Federal Reserve has kept its benchmark rate below 1.5% – 350 basis points lower than in 1999 – and has postponed any reduction in its bloated balance sheet.

In Japan, inflation is now higher than it was in the wake of the Asian financial crisis; unemployment is at its lowest level in 50 years; and the labor-force participation rate continues to reach record highs. Yet Japan, like the US and Europe, continues to display a quixotic tendency to tilt at deflation windmills, with rock-bottom interest rates and purchases of massive amounts of government debt.

Central bankers surely wish for a dynamic global economy. But that is not something they can influence much. Rather than discussing unrelated issues, they should be focused on explaining why their goalposts have shifted so much – and whether it is time to start moving them back. Daniel Gros is Director of the Center for European Policy Studies.

By Daniel Gros

China’s Shift to City-Led Growth

SHANGHAI – China has achieved some four decades of rapid economic growth. But one powerful source of growth has yet to be fully tapped: urbanization. Now, the potential of megacities as an engine of dynamism and increased prosperity is finally getting the high-level attention it deserves.

Over the last decade, China has been working to shift from a manufacturing-led growth model fueled by low-cost labor to an innovation-led, higher-value-added model underpinned by strong productivity gains. Urbanization will be critical to facilitate this shift, not least by enabling economies of scale.

Currently, though China is the world’s most populous country and its second-largest economy, only half the population lives in urbanized areas, and less than 10% reside permanently in megacities. And the country’s urbanization rate remains well below the global average.

Growth in China’s megacities – metropolitan areas with a population exceeding ten million – has long been heavily constrained by rigid state administrative divisions and planning agencies. Indeed, in pursuing rapid industrialization, megacities have often been less successful than smaller cities – which have largely evaded such constraints – in accumulating productive capital, attracting foreign direct investment (FDI), and demonstrating entrepreneurial spirit.

In the 1990s, the small city of Kunshan became China’s leading center for manufacturing electronic products. By integrating themselves into global supply chains, small cities in Guangdong province – including Dongguan, Huizhou, Shunde, and Zhongshan – have played a critical role in establishing China as the “Factory of the World.”

But while the success of smaller cities is to be celebrated, it is China’s megacities where the greatest potential to fuel future progress in productivity – and thus GDP growth – is to be found. So far, China has just four “first-tier” cities (with populations exceeding 20 million): Beijing, Shanghai, Guangzhou, and Shenzhen.

Given the size of China’s population and economy, that is not a lot. And, in fact, there is no reason to believe that these megacities have reached their capacity, in terms of population or contribution to economic growth. Moreover, China has many dynamic second-tier cities – such as Chengdu, Tianjin, Hangzhou, Wuhan, and Suzhou – that are capable of reaching first-tier status, if given the chance.

In order to maximize the potential of China’s cities, the government will need to be much more adaptive and flexible, especially regarding its notoriously strict control of urban land-development ratios. In particular, China must abandon its land-quota system, which not only limits the amount of land cities can develop for future productivity growth, but also allocates a disproportionate share of land to factories. Otherwise, urbanization will continue pushing up already-high housing costs, but not efficiently enough to power sustained growth and development.

The good news is that local governments are already working with the central government to alleviate or even eliminate existing administrative constraints. In China, cities’ administratively defined boundaries include both urban and rural jurisdictions, with the latter – called the “county” – engaged mainly in agriculture. For example, about half of Shanghai’s administrative jurisdiction of 6,340 square kilometers (2,448 square miles) is rural.

Local governments are now introducing so-called county-district conversions, in order to expand urban districts into rural jurisdictions. Such efforts, which the central government broadly supports, will enable more housing construction and industrial and commercial expansion.

Another strategy for advancing China’s transition toward a city-led growth model is to expand the role played by urban clusters that leverage the strength of first-tier cities to boost growth in less-developed areas. From an economic standpoint, the Yangtze and Pearl River Deltas – which encompass megacities like Guangzhou, Shanghai, and Shenzhen – are undoubtedly the most important such urban agglomerations, set to generate the higher future productivity gains from economies of scale and complementarity.

Here, too, China’s leadership has already caught on. This past March, Chinese Premier Li Keqiang announced a plan for the development of a city cluster in the Guangdong-Hong Kong-Macau Greater Bay Area, which covers nine cities, including Guangzhou and Shenzhen, as well as the special administration regions of Hong Kong and Macau.

From 2010 to 2016, the annual GDP of the Greater Bay Area soared from CN¥5.42 trillion ($82 billion) to CN¥9.35 trillion ($1.42 trillion), making it the world’s third-largest urban economy, after Tokyo and New York. Yet the population of the Guangdong-Hong Kong-Macau Greater Bay Area is growing fast, and its GDP per capita is less than half that of Tokyo, suggesting that its potential is nowhere near depleted.

Moreover, China’s leaders seem to be eyeing a second greater bay area, centered on Hangzhou Bay, which, because it overlaps with the Yangtze River Delta, could go a long way toward integrating that already-prosperous region. Such a cluster could cover the coastal megacity of Shanghai, as well as about ten more important cities across the Zhejiang and Jiangsu provinces. It would include world-class ports, such as the Port of Ningbo-Zhoushan (the world’s busiest in terms of cargo tonnage). And it would cover two of China’s 11 existing free-trade zones. The result would be a bay area on the scale of San Francisco and Tokyo.

The pace of China’s economic growth over the last four decades has been unprecedented. But China has yet to complete its rise to rich-country status. As it upgrades its economy to become more knowledge-based and technology-driven, it is again leveraging its strengths. There is no better example of this than the ongoing effort to tap the potential of megacities. Zhang Jun is Professor of Economics and Director of the China Center for Economic Studies at Fudan University.

By Zhang Jun

This Thing Called the American Dream

NEW YORK – In 1968, gonzo journalist Hunter S. Thompson mused about “this Death of the American Dream thing.” But what was this thing called the American Dream? What made it uniquely American?

For some, the Dream was Americans’ belief that their economy was a cornucopia of goods sure to bring a standard of living unimaginable in other economies: the dream of unrivaled plenty and comfort. But, while America had a superior wage level in the 1700s, Britain nearly closed the wage gap with America by the 1880s, and Germany came almost as close by 1913. Germany and France caught up with America by the 1970s.

For some economists, the Dream was the hope of an improving standard of living: the dream of progress. The economist Raj Chetty has been gauging the improvement people have made over what their parents had. He found that in 1940, nearly all young Americans – 90% of them, to be precise – had a household income higher than their parents had when they were young. That high percentage largely reflects America’s rapid productivity growth, which boosted wage rates. Yet from 1890 to 1940, rapid productivity growth was normal in Britain, Germany, and France as well – as it was in the “30 Glorious Years” from 1945 to 1975. So if the Dream was progress, Europeans could have dreamed of progress, too.

For many others, the Dream referred to the hope of America’s deprived – stirred by Eleanor Roosevelt, Martin Luther King, Jr., John Rawls, and Richard Rorty – that their country would somehow end the injustice of pay so low that it isolates them from the life of the country: the dream of inclusion. Yet such a dream could not be unique to the poor and marginalized in America. Certainly Arabs and Roma in Europe have dreamed of being integrated into society.

For other scholars, such as Richard Reeves and Isabel Sawhill, the American Dream is about mobility more generally. It is a hope held by Americans, in the working and middle classes as well as the working poor, of being lifted to a higher rung on the socioeconomic ladder, not a rise of the ladder itself: the dream of a higher income or social station relative to the average. In fact, from the mid-nineteenth century well into the twentieth, structural shifts wrought by technological change and demographics in America’s market economy lifted many partici-pants – while dropping others. Yet it is doubtful that this “musical chairs” was unique to Americans. From 1880 well into the 1920s, Germans and French saw their economies trans-formed by globalization; Britons had that experience even earlier.

What made the American Dream distinctive was neither the hope of winning the lottery nor of being buoyed by national market forces or public policy. It was the hope of achieving things, with all that that entails: drawing on one’s personal knowledge, trusting one’s intui-tion, venturing into the unknown. It reflected the deep need of these Americans to have the experience of succeeding at something: a craftsman’s gratification at seeing his mastery result in better work, or a merchant’s satisfaction at seeing “his ship come in.” It was success that mattered, not relative success (would anyone want to be the sole achiever?). And the process may have mattered more than the success.

There is abundant evidence of this goal, as Americans worked it into their books and plays. Mark Twain, though a dark writer, appreciated the quest for success of his young subjects. At the end of his 1885 classic, The Adventures of Huckleberry Finn, Finn aims to “light out for the Territory ahead of the rest...” Hollywood writers found other words for it. In the film Lit-tle Caesar (1931) Rico says, “Money’s okay, but it ain’t everything. Be somebody….Have your own way or nothing.” In A Star is Born (1937), the aspiring singer Esther Blodgett ex-claims that “I’m going out and have a real life! I’m gonna be somebody!” And in On the Wa-terfront (1954), Terry Malloy laments to his brother Charley “I coulda had class. I coulda been a contender. I coulda been somebody...”

Of course, dreaming of success could not have been widespread – a national phenomenon – had working Americans not had an economy that gave participants the freedom to be enter-prising: to try new ways and conceive new things. And dreams of success could not have be-come as widespread as they did had Americans not perceived that they could succeed regard-less of their national origin and their social status.

Observing that enterprise, exploration, and creation could be engaging, even engrossing, and deeply gratifying, Americans came to view working in businesses, from rural areas to cities, as a path to the Good Life. And that life’s rewards were not just money. To suppose that money was their focus – even in their dreams – is to miss what was distinctive in American life.

From the early nineteenth century to the middle of the twentieth, Americans were proving the wisdom of philosophers from Montaigne and Voltaire to Hegel and –a hit in America – Nie-tzsche: that the good life is about acting on the world and making “your garden grow,” not padding your bank account. Edmund S. Phelps, the 2006 Nobel laureate in economics, is Director of the Center on Capitalism and Society at Columbia University and author of Mass Flourishing.

By Edmund S. Phelps

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