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The Trump administration fails on China - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

4 hours 5 min ago

Candidate Donald Trump in 2016 accused China of economic rape. President Trump this year said trade wars are easy to win. Both claims are partly true. China has seriously harmed the American economy. And, while we haven’t actually had a trade war with China, they may be about to win anyway. Easily.

US President Donald Trump and China’s President Xi Jinping arrive at a state dinner at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Thomas Peter

President Trump on Tuesday denied lifting a ban on sales to Chinese telecom firm ZTE for breaking US law. But he then talked about a punishment that lifts the sales ban. On Monday, the administration suspended Section 301 sanctions aimed at China for its coercion with respect to intellectual property (IP). There is nothing China can credibly promise to make these two US steps worthwhile.

That’s not an exaggeration. Last August, the president (correctly) started the Section 301 investigation, because the PRC coerces American firms to transfer technology and trade secrets plus steals them outright. In March, the administration found retaliation was necessary. Now every action promised two months ago is “on hold.”

The 301 report shows China is therefore likely to keep coercing and stealing American IP, risking more of the tens of millions of American jobs that rely on IP. President Trump used to be (correctly) outraged at American jobs lost to predatory Chinese behavior. This month he has been concerned about “too many jobs in China lost.” (May 13 at 8:01am)

The PRC’s theft of technology also harms US national security, as noted in December in the administration’s National Security Strategy. Both candidate and President Trump (correctly) used to say an American response to these security and economic threats is years overdue. Yet we just halted it before it began. Can Beijing make IP promises worth the president abandoning his position?

No. China has pledged to respect IP for more than 20 years, and has continued to steal, coerce, and copy. President Trump has fallen for a fake deal the way Presidents Clinton, Bush, and Obama did. He’s been no tougher or smarter on China than they were.

If anything, he may be weaker. The evidence is the ZTE case. It was only one month ago that the Department of Commerce found ZTE had followed breaking US sanctions against Iran and North Korea with lying about it. It (correctly) ordered American companies to stop doing business with ZTE. President Trump has indicated he will reverse that.

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The business ban knocked ZTE out. The deal is to let American companies sell to ZTE while fining them, again, and forcing a change in management. This is nonsense. The Chinese government will pay ZTE’s fine, again, and its Communist Party-appointed managers will be replaced by other Communist Party-appointed managers.

President Obama was weak on China, but he never set aside law cited by his own administration as President Trump is about to. Again, this is his own position being surrendered — the president ended the Iran deal and is re-imposing sanctions, except when Xi Jinping asks.

China has no credibility on IP. Are they giving us anything? Yes. President Trump has repeatedly said that American farmers will sell much more. US agriculture exports to the PRC were about $20 billion last year. It’s probably impossible but let’s say they double in a year.

Aircraft exports to China last year were over $13 billion. Doubling that in a year is also probably impossible, but say it happens. American oil and gas exports to the PRC are already set to nearly double this year. Say they triple instead, to $13 billion. Beijing just pledged to cut auto tariffs to 15 percent. This will certainly not double US auto exports but throw that in anyway, an additional $10 billion.

This very optimistic count adds up to over $50 billion. These exports will not increase $50 billion in 2019 but, even if they did, this is still a terrible deal. Proof: the administration itself puts the low end of annual losses to Chinese IP practices at $225 billion. Rescuing ZTE may eventually cost more than that, with a no-rule-of-law country like China getting the green light to break American law. Plus undermining new Iran sanctions.

The problems in the US-China relationship barely change even if US exports rise $50 billion for a couple years. They don’t change at all if China promises, yet again, to respect our laws. Nothing realistic is worth what President Trump is giving away.

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Trump’s DPRK dilemma - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 05/22/2018 - 20:28

The president’s instincts have served him well on North Korea policy, and they seem to be serving him well again as he has called for a delay in the planned June summit with Kim Jong-Un in Singapore.

President Trump’s instincts were right when he began a “maximum pressure” campaign — the likes of which had never been tried before. He was correct to up the military pressure on North Korea, including the strong comments and tweets for which he was much criticized. These comments scared Kim to the negotiating table and got Kim’s patron, the CCP Chairman Xi Jinping, to agree to and actually abide by some international sanctions.

North Korean leader Kim Jong-Un meets with US Secretary of State Mike Pompeo in this May 9, 2018 photo released by North Korea’s Korean Central News Agency (KCNA) in Pyongyang May 10, 2018. KCNA / via REUTERS

And, given Moon Jae-in’s indication that he would seek a second “sunshine policy” with Kim regardless of the US-Japan position, Trump was probably right to offer to test Kim during a one-on-one summit.

But now Trump faces a dilemma. Again, he is correct in his assessment that Xi is back to helping Kim and that Xi likely told the North Korean dictator that he would back his negotiating position, which enabled Kim’s latest recalcitrance. By all indications, Kim’s stance is a reversion to North Korea’s regular form: that it deserves recognition as a nuclear weapons state, that it should be treated as such, and that Washington and Pyongyang should begin a long process of mutual arms reduction. This may seem odd to observers of US-North Korean relations since the United States pulled its tactical nuclear weapons off the peninsula nearly two decades ago.

But what Kim means by the “denuclearization of the peninsula” is that the United States should stop providing nuclear guarantees to South Korea. Look for him to demand “mutual concessions” including inspections of the US arsenal.

But the dilemma is this: the very fear that Trump instilled in Beijing and Pyongyang that brought Kim to the negotiating table and Xi to somewhat comply with the sanctions regime has been reduced thanks to the requirements of the summit’s preparation. Once there is a hint of talks, there is a great deal of maximum pressure on the United States to relieve maximum pressure on North Korea.

The United States has already reportedly lessened its military presence in the latest round of exercises with South Korea. And there are reports that the North Koreans already have more hard US currency that they are using in Beijing. This means that some entities in Beijing are hiring North Koreans again, thus likely breaking sanctions.

The only way to succeed in pressuring Kim to give up his nukes and Xi to abide by the sanctions he signed on to is to credibly threaten the use of force on the peninsula. But that is practically impossible during preparations for a summit.

So, in the last week, Kim began to show his cards through a predictable outburst in which he poured cold water over the idea of complete, verifiable, and irreversible denuclearization (CVID) — the only outcome the United States should accept after so many years of accepting less.

North Korean leader Kim Jong-Un meets with China’s President Xi Jinping, in Dalian, China in this undated photo released on May 9, 2018 by North Korea’s Korean Central News Agency (KCNA). KCNA/via REUTERS

Now we come to the crux of the problem. Getting Kim to accept CVID would necessitate a radical strategic change in the direction of his country. It would be akin to Anwar Sadat’s decision to align with the West or Deng Xiaoping’s decision to repudiate much of Mao’s legacy.

Kim would have to decide to throw out years of ideology and policy that forced his own people to suffer for the “great cause” of defeating the American imperialists and their lackeys in the South Korea.

He would also have to take the risk of engaging in “reform and opening.” He would have to trust that he could survive such a change, unlike, for example, Gorbachev. Xi himself has rolled back much of Deng’s reforms, fearing too much Western “spiritual pollution.”

While Kim has somewhat lessened the hostile rhetoric toward South Korea and the US, there is almost no indication that he has made any of these big decisions.

What would he tell his people, many of whom are in gulags or starving outside of gulags — that his father and grandfather were wrong? It is likely that Kim is more afraid of engaging in these sorts of adjustments internally than he is of the US right now. The only way to change that calculation is for Kim to see that the end is near, unless he prepares for a radical strategic change of direction.

So where do we go from here? President Trump has the option of saying, based on Kim’s latest rhetorical shenanigans and the absence of information, that Kim isn’t ready for any serious change and that we can try to talk again in a few months — after more economic and military pain is inflicted on Kim and Xi.

If the president does so, he should be ready to announce a few more moves to further the maximum pressure campaign against the DPRK and the CCP. One option would be a very large SDI (Strategic Defense Initiative)-like joint-development project with Prime Minister Shinzo Abe on missile defense and boost phase intercept capabilities — the ability to shoot down missiles at their “boost phase” (when they are at their warmest in their ascent and easier to track) through space, unmanned aerial vehicles, and other sensors and shooters. This would get the attention of both Beijing and Pyongyang.

And formal inquiries should be made of the major Chinese banks, such as Industrial and Commercial Bank of China, concerning any financing of North Korean projects (or outright money laundering). An inquiry would put Chinese banks on notice and serve as an implied threat to a highly leveraged Chinese financial system that the CCP relies on heavily.

Trump has already shown that he is interested in diplomacy. If he does walk away, he can always come back later when Kim is even weaker and Xi sees a tighter alliance forming around him.

Learn more:

The remarkable laundering of Muqtada al-Sadr, the Iraqi Donald Trump - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 05/22/2018 - 20:22

Both the Bill Clinton and George W. Bush administrations had spent tens of millions of dollars engaging and helping organize various Iraqi opposition groups together and in parts. There were big conferences in London and the Salahuddin Governorate, and countless meetings across Europe, in Turkey, and in the United States. Contrary to the popular narrative in Washington, Iraqis saw many of the oppositionists as legitimate: Kurds formed the Kurdistan Democratic Party in 1946, and Shi’ites formed the original Islamic Dawa Party just over a decade later. The Patriotic Union of Kurdistan dates to 1975, and the Islamic Supreme Council of Iraq to 1982.

None of these were artificial creations of outside powers (the Iraqi Turkmen Front, which has never garnered serious support despite Ankara’s entreaties, is the exception to prove the rule). For all the talk about exiles lacking legitimacy, successive polls after Iraq’s liberation affirmed the legitimacy of those movements that had flourished in exile. Those political trends that the Americans, Iranians, Turks, and Arabs identified before the war were the ones that repeatedly came out on top.

The exception, of course, was Muqtada al-Sadr, the youngest son of Grand Ayatollah Muhammad Muhammad Sadiq al-Sadr, whom Iraqi dictator Saddam Hussein had murdered alongside two of Muqtada’s elder and more talented brothers in 1999. Within the Sadr family and among the broader Najaf religious community, Muqtada never had a good reputation. Where his father, father-in-law, and sons excelled in scholarship, Muqtada faltered. Where others in his family saw nuance, Muqtada failed to grasp it. Whereas his relatives cared about their reputation for intellect and wisdom, Muqtada was more interested in wealth and material goods.

Muqtada al-Sadr erupted into the headlines when, the day after Baghdad fell to U.S.-led forces, a mob of Sadr supporters set upon Majid al-Khoei, the son of one of Grand Ayatollah Abolqassem Khoei, one of Islam’s most prominent scholars, and stabbed him to death in Najaf at the Shrine of Imam Ali, one of Shiism’s most revered sites. The murder shocked Iraqis, it shocked the West, and it shocked Muslims more broadly.

Officials from the religious establishment pieced together the details of Khoei’s murder and determined Muqtada al-Sadr’s supporters to be complicit in the assassination. According to Nimrod Raphaeli, an Arabic translator and analyst who has seen the findings, the Shiite religious establishment delivered their report to U.S. forces, but the U.S. military declined to take action. Not only did U.S. indecision hemorrhage goodwill among the Shiite establishment, but Sadr’s sense of impunity and his populism soon catapulted him into a formidable adversary. Indeed, Sadr was the archetypal ‘internal’ Iraqi politician: mercurial, conspiratorial, and ignorant of the outside world.

Subsequent years did not mature Sadr. He formed the Jaysh al-Mahdi, Mahdi Army, which spoke about defending Iraqi sovereignty but more often acted as enforcers for Muqtada’s business interests. Indeed, on July 26, 2003, religious authorities in Najaf issued a circular condemning the Jaysh al-Mahdi:

This army is composed of suspicious elements, [including] individuals from the extinct regime and its security officers and members of the [Baath] party who have wrapped their heads with white and black rags to mislead people into believing that they are men of religion when in truth they are only devils… We do not need your army, which you have slanderously and falsely called the Mahdi army … The Imam (al-Mahdi) is in no need of any army made up of thieves, robbers, and perverts under the leadership of a one-eyed charlatan.

And, for all his talk about defending Iraq, Sadr made no fuss about accepting Iranian largesse or following its orders. That he was not the most disciplined student, however, frustrated Iranian authorities. Often, they would recall him for months, isolating him in compounds where he would while away the days playing video games, garnering the nickname “the Atari Imam.”

So how did Sadr transform from pathetic criminal to potential kingmaker? Iraqis explain it in two ways: First, he had millions of poor, often uneducated supporters fiercely loyal to him, either due to his family name or because tying themselves to Sadr guaranteed them patronage. In the horse-trading that marks Iraqi politics, Sadrists sought out the service ministries, which amplified rewards to his followers. But while Sadr had followers, he had little philosophy beyond an ever-shifting array of populist pronouncements (think an Iraqi Donald Trump). In recent years, however, he tapped into a powerful anti-corruption sentiment in Iraqi society, channeling the cynicism Iraqis had for their own establishment politicos into support for his own movement.

But, while Sadr’s list won the plurality in this month’s elections, he did not gain more votes than he had in previous years. What seems to have pushed him over the edge was a mistake by the same religious establishment in Najaf he once sought to undercut. Grand Ayatollah Ali al-Sistani’s office initially told Iraqis they could vote, but did not need to exercise that right if they chose not to do so. Iraqis believe that the ayatollahs in Najaf feared being blamed for the failures of politicians after having urged their followers to vote, only to have been disappointed in the tenure of those elected. Many supporters of Prime Minister Haider al-Abadi, former Prime Minister Nouri al-Maliki, and other establishment leaders simply abstained, despite a last-minute election day effort by those in Najaf to reverse course and encourage voting.

The other crucial step in Sadr’s new image was his 2017 visit to Saudi Arabia. Saudi Crown Prince Muhammad bin Salman’s embrace of Sadr seemed to close a page on Iraqi sectarianism and Saudi rejectionism of the new Shiite-led order in Iraq. Behind the scenes, the genesis of the visit was longer in coming and involved much backchannel support from U.S. officials. The logic was simple: Sadr was for rent. If the Iranians could rent him to use against Americans, then perhaps the Saudis could rent him to use against the Iranians.

Alas, this is where Washington’s anti-Iranian sentiment risks doing more harm than good. It certainly is a worthwhile goal to counter Iranian expansionism, but the enemy of one’s enemy is not necessarily a friend. Nor should the Trump administration or its Iraq team confuse rented alliances with loyalty. For the United States or others to place hopes in Sadr as an “Arab marja’” and cornerstone in a new anti-Iranian order is to ignore the possibility that Tehran could outbid Riyadh in the future and use Sadr against his current paymasters.

It may be tempting for Iraqis and others worried about Iranian intentions and other Shiite militias to use Sadr. But once a murderer, always a murderer, and once the standard-bearer of corruption, always the standard-bearer for criminality. Forgiveness is a virtue, but forgetfulness is naive. No one in Baghdad, Najaf, or Washington should accept the sincerity of Sadr’s transformation.

Furor over Trump’s ‘animals’ remark misses the point - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 05/22/2018 - 19:19

One of the oddities of our political moment is how frequently we are asked to tease out the layers of meaning of remarks by President Donald Trump as though he had chosen them with the care of a good poet. The latest controversy — although by the time this appears it may have been overtaken by another one — concerns the president’s comment, “These aren’t people. They’re animals.”

The New York Times and USA Today were among the media outlets that suggested that Trump had referred to illegal immigrants as a class. His defenders, who on this occasion include some people who are not knee-jerk supporters of his, say it’s important to look at the context. A sheriff had been complaining to Trump about the difficulty of deporting members of MS-13, the criminal gang, before he made the remark. So, Trump’s defenders say, he meant to describe MS-13 members, not illegal immigrants, as animals. As the controversy continued, Trump himself said that’s what he meant.

President Donald Trump looks at a photographer after a meeting with South Korea’s President Moon Jae-In at the White House in Washington, May 22, 2018. Reuters

Media outlets that presented Trump’s remark without mentioning the MS-13 lead-in did their audience, and Trump, a disservice. They could have provided more useful context by noting that the sheriff was specifically referring to members of the gang who were not charged or convicted of serious crimes.

The MS-13 explanation led to a secondary complaint: Some of Trump’s critics insisted that it was wrong to refer even to vicious criminals as though they were not human beings. That criticism seems off base.

The critics are right that even the worst of us have a certain dignity that attaches to our common humanity — a dignity that no act, however vile, can forfeit. That’s why we can hold people morally accountable for their freely chosen wrongful acts, as we could not if gang members committing rapes and murders were the equivalent of tigers feasting on a gazelle.

Some of us would go so far as to say that human beings, even mass murderers, remain children of God. But it is also true that people can act bestially, and can be faulted for it. Often when people call other people animals, that’s what they mean. They don’t mean that you would be justified in taking them to a slaughterhouse and then eating their flesh. (Labeling people vermin or insects, on the other hand, has historically tended to mean that they should be killed en masse.)

Condemning violent criminals for acting like animals is certainly defensible. But all this context requires a context of its own, which is Trump’s general approach to immigration and crime. He frequently links the two. His administration regularly sends out alerts about crimes committed by illegal immigrants, and it created a government agency designed to publicize those crimes.

In December, Trump said:

The Democrats are really looking at something that is very dangerous for our country. . . . They want to have illegal immigrants pouring into our country, bringing with them crime, tremendous amounts of crime. We don’t want to have that. We want to have a great, beautiful crime-free country.

Whether illegal immigration increases violent crime rates at all is not clear from the data, and several studies say otherwise. But we know enough to reject Trump’s portrait of a tide of such crime. We went through decades of illegal immigration that coincided with a falling crime rate. We also know that Trump’s policies have moved away from a focus on crime. Criminals are a smaller percentage of immigration arrestees under Trump than they were under President Obama.

Trump blurs the lines between criminal and non-criminal illegal immigrants in a way that is demagogic and designed to increase hostility. That’s part of what has been wrong with his immigration platform from the very beginning, and it’s more troubling than his use of the word “animal.”

Lebanon and Iraq: After the elections - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 05/22/2018 - 19:05

Madam Chairman, Mr. Deutch, Members of the Committee, thank you for asking me join you here today.

A few months ago, I wrote an oped in the Wall Street Journal asking whether the United States  intended to lose Iraq as we have lost Lebanon. The question feels all the more apropos today, in the wake of troubling elections in both those countries. And let’s skip to the punch line: In both cases, the United States has, or once had a chance to challenge Iran at relatively low cost. But as we have already in Lebanon, and Iraq too, I fear, we will miss that chance because we are focused elsewhere, myopic about our potential influence, too willing to lie to ourselves about the status quo, and apparently indifferent to the march of the Islamic Republic of Iran across the greater Middle East.

Beginning with Lebanon, the results of recent elections are as depressing as they were predictable. Prime Minister Saad Hariri’s party and allies lost 15 seats, a rout rooted in both Lebanon’s own dysfunction, Hariri’s lackluster performance and the bizarre interlude during which he was kidnapped to Saudi Arabia. The winners were two: one a protest vote for the Lebanese Forces (not to be confused with the Lebanese Armed Forces), which picked up seven seats, and the other Hezbollah, with its own party and allies picking up 14 seats.

This is the same Hezbollah that has amassed an arsenal that would be the envy of many countries. Israel estimates Hezbollah has more than 150,000 rockets in the south of Lebanon, built up in violation of UNSC Resolution 1701. Worse still, I understand that Hezbollah is changing its arms transfer modus operandi. Because it recognizes the difficulty of physical weapons transfers to its allies, it is transferring know-how – rocket and missile building, guidance systems and the like. If Hezbollah, or the Houthis, or Hamas, or any of Iran’s many other proxies have the know-how to build more and more advanced weaponry, and the operational latitude to do so – as they do on Lebanese soil right now – what does the future hold?

Read the full testimony here.


Effective Tax Rates on Business Investment Under the Tax Cuts and Jobs Act - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 05/22/2018 - 18:58


An important objective of Public Law 115-97, commonly called the Tax Cuts and Jobs Act, was a reduction in the tax burden on investment. We compute marginal effective tax rates under 2017 law and under the Tax Cuts and Jobs Act and find significantly lower marginal effective tax rates under the new law. In addition, the Tax Cuts and Jobs Act narrows disparities in the tax treatment of investment across asset types, organizational form, and type of financing. Finally, we find that the act sharply reduced effective average tax rates as well as marginal effective tax rates.

Effective Tax Rates on Business Investment Under the Tax Cuts and Jobs Act

Iraq’s election: What does it mean for the Iraqi people? | In 60 Seconds - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 05/22/2018 - 18:04

Despite winning a narrow plurality, Muqtada al-Sadr will have limited ability to form a governing coalition. AEI’s Ken Pollack looks ahead to what could be next for governance in Iraq.

Related reading:

The Femsplainers Podcast: Ep. 3: Sex, lies & presidents - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 05/22/2018 - 17:12

You won’t believe how similar the Clinton/Trump sex scandals are — and the women who enable them. Recorded before a live audience at the AEI/Ricochet Podcast Summit, Danielle and Christine talk with columnist Mona Charen, author of the forthcoming book “Sex Matters.”

The Femsplainers Podcast

Of teacher strikes, Inigo Montoya, and claims of ‘justice’ - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 05/22/2018 - 12:00

In response to my various scribblings on the teacher strikes, as you might imagine, I’ve received lots of feedback. While there are a range of opinions, one common view holds that my cold-blooded musings on things like staffing levels, pensions, and health-care costs miss the larger moral point. As one writer put it, “This isn’t about any of those things, this is about justice.” Indeed, I’ve noticed that “justice” has become rather a motif in this correspondence.

This reflects an intriguing notion of “justice.” Indeed, I can’t help but picture Inigo Montoya wearily remarking: “You keep using that word. I do not think it means what you think it means.”  Now, let’s be clear. As I’ve written time and again, I think teachers in places like West Virginia, Oklahoma, and Arizona have a point. I think average teacher pay should be higher, that pay for terrific teachers should be much higher, and that the states in question should be spending more on their schools. So, I’m supportive of the central claim that these teachers deserve a substantial boost in pay.

Mandy Patinkin portrays Inigo Montoya in the classic film, The Princess Bride

That said, I’m puzzled by claims that calls for raises and related demands advance the cause of “justice.” Rather, I see them as a matter of sensible, self-interested public policy. Indeed, I’m not sure what “justice” calls for in these disputes. Does “justice” require that teachers make $52,000 a year? $56,500? $66,000? $96,000? (And should a state’s cost of living factor into that determination?) Does “justice” dictate an alteration in the state’s capital gains tax and added staff for state agencies, per Oklahoma’s teachers? Does it demand rejecting plans to shift future teachers to a hybrid retirement plan, per Kentucky’s? To say such things is to do fundamental violence to any serious notion of “justice.”

But that’s because I don’t think the teachers in question really intend to talk about “justice.” What they really mean, I suspect, is that they’d like to see states spend more and adopt preferred policies. So, when they speak of “justice,” what they’re actually trying to do is to lend their demands a compelling moral claim. And, while I get that, I think it highlights an unfortunate pathology in the public square today. Moral claims are, by their very nature, dismissive of competing claims or complexity.

Moreover, the funny thing about moral claims is how they proliferate in response to one another. There are plenty of taxpayers, for instance, who see themselves as having a “just” moral claim to the money they have earned. They see taxation beyond the most incontrovertibly essential as an “unjust” expansion of government. And there are state and local employees other than teachers—such as police, firefighters, road maintenance workers, sanitation employees, librarians, and bridge inspectors—who see themselves as providing critical public functions. If they see their funding being cut in order to boost K-12 spending, they, too, can regard their compensation as a matter of “justice”—and start shutting down fire departments, libraries, and bridges until they decide “justice” has been done.

Indeed, when everyone starts hitching their competing agendas to the siren call of “justice,” public decisions morph into a carnival of clashing absolutes. This makes it harder to find common ground, because that requires compromising on principle rather than on preferences. It fuels polarization and mutual contempt, as we gnash our teeth at those who don’t comprehend our sense of what is “just.” Oddly enough, it can hurt the cause by creating bitter stand-offs where sensible compromise is otherwise wholly within reach.

What makes things so peculiar in this instance is that teachers have a compelling kitchen-table claim: They’d like to be better-paid. And they have a strong, appealing case. It’s easy to argue that teachers are underpaid and also that students and communities are better off when teacher pay is high enough to attract and retain talented professionals. This is why teachers have garnered so much support from parents, taxpayers, and policymakers. Why some think that isn’t enough—and seemingly yearn to transform this winning case into a divisive crusade—offers a revealing window into our times.

This post originally appeared on Rick Hess Straight Up.

Republicans, Democrats disagree about the point of higher education - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 05/22/2018 - 11:30

The think tank New America has a new report out on Americans’ perceptions of higher education. Researchers Ernest Ezeugo, Rachel Fishman, and Sophie Nguyen conducted a survey of American adults in partnership with polling firm Ipsos that solicited respondents’ views on the value and purpose of college. The report broke down survey results by political party, providing some fascinating insights at a time of high political polarization.

On many issues, Republicans and Democrats are in agreement. But on at least one point—how and why higher education should be funded—a big gulf exists between the two parties.

The New America survey asked respondents to choose which of two alternative views more closely aligned with their own. Most Democrats (76%) indicated that “the government should fund higher education because it is good for society,” while a slight majority of Republicans (52%) said that “students should fund their own education because it is a personal benefit.”

Source: New America, “Varying Degrees 2018.”

The disparity in opinions between the two parties reveals a fundamental disagreement about the point of higher education. Democrats seem to believe that more people going to college generates large benefits even for those who don’t enroll. These social benefits dwarf individual students’ returns. Therefore, the government should step in to make sure there’s sufficient investment in higher education—perhaps even bearing the full cost.

Republicans, by contrast, seem to believe that most of the benefit of college is private, reflected in the earnings premium graduates enjoy over their less-educated peers. Graduates who owe their high earnings to education should shoulder the cost. After all, why should taxpayers who don’t have college degrees pay to support the high wages of people who do?

Interestingly, people with and without college degrees barely differed on this question. Among both college graduates and people with a high school degree or less, roughly six in ten respondents viewed higher education as a social good to be funded by taxpayers. (Roughly three in ten respondents in both groups took the opposite view.) Other demographic breakdowns such as race and income produced just moderate divides on the issue. Nothing predicts your views on the point of higher education quite as well as your political party.

Both Democrats and Republicans can claim research on their side; separate economic studies have found that higher education creates both social benefits and individual returns. Of course, there are arguments against both positions as well. More higher education may create negative externalities such as degree inflation that cancel out the social benefits. In addition, high private returns to college may not be sustainable over the long term; increases in the supply of college graduates may eventually push down their wages.

The wording of New America’s survey question nudged respondents to pick a side, but it’s likely that many respondents of both parties believe that higher education generates both social and individual returns. In that case, the appropriate funding structure would require students to pay tuition, but defray it with partial government subsidies. That happens to be exactly the system we have now.

Four ways the US can leapfrog the EU on online privacy - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 05/22/2018 - 10:00

For years Europe has fallen behind in the digital economy. It continues to watch the US, and increasingly China, capture the world market for internet innovation and revenue. So rather than compete on making better internet products and services, the EU competes on regulatory standards. While the EU claims that its General Data Protection Regulation (GDPR) — which is set to go into effect this week — regulates data processing for “mankind,” its motives are geopolitical, not humanitarian. The EU made a similar gambit for world dominance in mobile standards by forcing the adoption of 3G/GSM, hoping to trounce the CDMA platform that American operators had invested in. For a time, the strategy gave the European mobile industry (including its six phone manufacturers) a leg up, but the US — rather than following the Europeans — jumped ahead to 4G and became the world leader in mobile.


Now the US considers whether it will copy the Europeans or leapfrog to a new and better privacy standard. This is a golden opportunity not to copy the GDPR but instead to learn from its mistakes and ultimately make a policy that puts the US in the lead. Here are four key lessons for policymakers.

1) Inform rules with scientific evidence

In promulgating its laundry list of GDPR provisions, the EU preferred to appease special interests rather than incorporate the knowledge of its scientific institutes that conduct research and development on privacy enhancing technologies such as its cybersecurity agency, which provided an evidence-based recipe for trust in an online environment. Instead, the GDPR invented 35 new bureaucratic obligations for member states and 45 regulations on businesses, none of which were tested. Moreover, the EU never tested the 17 new government-given rights to determine their priority and value among citizens. For example, EU policymakers consider data portability to be a necessity for creating innovation and competition, but a survey of European college students shows they have little interest in this capability and disproportionately favor “the right to be forgotten.” Notably, EU governments, some of the largest holders of data, are not subject to the rules. US policymakers should not gloss over this vital step to review the academic literature.

2) Promote innovation

The GDPR pays lip service to encryption and data minimization but largely ignores the rich field of research in privacy enhancing technologies such as privacy butlers, access control, authentication, intrusion detection/prevention, antivirus, firewalls, systems security, communication anonymizers, limited disclosure technologies, consent management, virtual identities, anonymizing credentials, data access management, and cybersecurity defense and deterrence. As the groundbreaking book “Privacy on the Ground” documents, regulation can deter valuable innovation in privacy-by-design technologies because enterprises are required to prioritize regulatory compliance over developing better systems. Importantly the draft online privacy bill from Sens. Klobuchar (D-MN) and Kennedy (R-LA) includes a safe harbor for innovation in such technologies, protecting inventors from being punished for experimentation. Grants, competitions, and prizes for innovation could also be explored.

3) Ensure common federal standards for the online ecosystem

If the jumble of state-level online privacy legislation succeed, the US will look like the fragmented EU does today with its 62 conflicting individual privacy and data protection authorities and mandates. The GDPR is, in part, an attempt to bring order to this chaos with a common privacy standard and the requirement that each privacy authority act as “one-stop-shop” for the entire EU. But despite the GDPR’s ambition, European regulators report that they’re not ready to implement the GDPR and that there is no funding for their training. At best, about half of liable companies are in compliance, and upgrade costs could top at least $1 million for medium and large enterprises.

The US has been fortunate that at least until a 2015 effort to undermine the Federal Trade Commission’s authority, there has been a single federal regulator and standard for online privacy and strong preemption to keep states from making contradictory rules. The framers of the US Constitution understood the purpose of federalism both as a means of economic efficiency and enforcement of equal rights. Importantly, this turns out to be the prudent, low-cost regulatory solution that avoids the regulatory arbitrage which states enable to favor different actors in the ecosystem.

4) Empower consumers, not litigants

The GDPR institutionalizes the class action lawsuit business model, similar to how patent trolls abuse the intellectual property rights regime. Privacy activists incorporated in non-profit organizations are empowered to sue companies and collect fines on behalf of their constituents. End users have rights to “effective judicial remedies” and to “material and non-material compensation,” which can be collected by non-profit litigants. This represents an important new revenue generation opportunity and one that Max Schrems, the activist who sued Facebook, expects to tap with more suits against Facebook, Google, and Apple. His group None of Your Business raised €300,000 via Kickstarter and includes GDPR framers Jan Phillipe Albrecht and Paul Nemitz on its board. The GDPR has zero discussion of user education, as more intelligent consumers would have less need of heavy-handed government supervision.

A better use of resources for non-profit organizations would be to educate end users. While companies should make their privacy policies more user-friendly with videos, dramatizations, and plain language explanations, users themselves should take advantage of privacy training to learn how to be more responsible. Not only can these four safeguards ensure that the US leapfrogs the EU in making evidence-based policy, they promote innovation and empower users, the very hallmarks of American internet prowess.

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The UN Human Rights Council makes a fool of itself again - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 05/21/2018 - 18:02

Leave it to the United Nations Human Rights Council: It never misses an opportunity to subvert human rights and, by doing so, it encourages terrorism and sullies the broader U.N. brand.

For decades, now, U.N. Watch has chronicled its descent into the absurd, and its fixation with Israel-bashing regardless of the circumstances. Consider Jordanian Prince Zeid Ra’ad al-Hussein, the U.N. Human Rights commissioner. He saw no irony in a special session to condemn Israel followed by a call for inquiry. So what Prince Zeid apparently believes is verdict first, investigation second?

Zeid and the many authoritarian governments on the U.N. Human Rights Council may want to score a propaganda point, but the real tragedy is that Zeid’s actions are an assault on humanitarian law. The issue isn’t Palestinian justice, but rather Palestinian politics. Remember, the situation in Gaza may be bad—the result of more than a decade of Hamas governance and the U.N.’s willingness to acquiesce and subsidize it—but the humanitarian situation does not approach the tragedy faced by many others in the world. And if the situation was truly occupation, then the same type of protest would be occurring in the West Bank where many Palestinians actually live under occupation (Israel having left Gaza 13 years ago). Rather, the reason for the violence in Gaza is Palestinian politics, and the desire of Hamas to make a play for leadership ahead of ailing Palestinian chairman Mahmoud Abbas’ death.

Whether Israel shot those rushing its border and seeking to breach the border fence is beyond dispute. But, frankly, Israeli forces had every right to do so. Contrary to the condemnation and useful idiocy of human rights groups, the Hamas protesters were not nonviolent. They used civilians as human shields and burned tires in order to restrict visibility and provide cover for tunneling and placement of explosives. And Hamas itself announced that 50 of those killed were its members, a group sworn to the genocidal destruction of the Jewish state. Under such circumstances, it appears Israel showed far greater restraint than any member state on the Human Rights Council would under similar circumstances.

Prince Zeid, call your office and ask about the up to 25,000 Palestinians the Jordanian government killed during Black September.

The problem is this: By condemning Israel for defending itself, the U.N. is giving a free pass to the actions of Hamas that run in contravention of the rules of war. Hamas, without a doubt, hid behind civilians and had its operatives dress in civilian clothes. Take, for example, the now-famous example of a Hamas activist on crutches who ditches them to run away when the Israelis push back on his actions. Or the case of a Hamas activist who used his cover as journalist to gather intelligence and even run drone operations. Here, the Washington Post’s useful idiocy rather than outrage at Hamas disguising operatives as journalists should have been the real scandal.

Simply put, human rights law seldom applies to terrorists for a very good reason: To blur the distinction between combatant and noncombatant is to undermine humanitarian law. The 1907 Hague regulations which formed the legal bases of the 1949 Geneva Conventions incorporated a four-part test to determine eligibility under international humanitarian rule. To be afforded the rights of legal combatants, the Hague regulations required irregulars to “be commanded by a person responsible for his subordinates; to have a fixed distinctive emblem recognizable at a distance; to carry arms openly; and to conduct their operations in accordance with the laws and customs of war.”

In this, Hamas failed each test. Therefore, humanitarian law does not apply. To find otherwise perversely incentivizes terrorists — not only in the Gaza Strip, but everywhere else to eschew the rules of war. Suddenly, Prince Zeid’s actions have a very real cost, almost on par with his predecessor Mary Robinson’s April 2002 legitimization of suicide bombing against civilian targets as a legitimate form of human rights discourse.

By all means, investigate Israel. But, make no mistake: the cravenness of Zeid and the politicization of groups seeking to use the U.N.’s human rights infrastructure to wage lawfare against Israel are doing more to undercut human rights than they might imagine.

Then again, given how many on the Human Rights Council hail from authoritarian states, that may be the idea.

Related reading:

New AEI Report: Defense Budget Peaks in 2019, Underfunds the National Defense Strategy - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 05/21/2018 - 17:59

As the National Defense Authorization Act (NDAA) is being discussed this week in the House and Senate, AEI Resident Fellow Mackenzie Eaglen — a defense expert who has worked at the Pentagon, in the Office of the Secretary of Defense, and for the Joint Staff, for the House of Representatives, and the Senate — releases a report in which she analyzes the President’s defense budget request. In the report, Eaglen explains how the budget falls short of expectations, that the proposed spending level will still be insufficient to rebuild America’s armed forces despite President Trump’s call for an increase in US defense spending to repair the military and address immediate problems.

Among Eaglen’s key points:

  •  The President’s latest budget request heavily favors future research and development for next-generation weapons systems at the expense of spending money on existing programs to replace and repair aging equipment.

  • While the prospect of advanced technology down the line seems promising, Eaglen notes that this approach takes the current international security climate for granted, betting too heavily on existing weapons systems to effectively deter competitors. Furthermore, the fact that short-term procurement has been traded off for long-term capability means that “competitors will realize that the Americans are weak today but will be strong tomorrow—and it is better to act now than later.”

  • Focusing on what the military can do in the long-term, at the expense of expanding the force in the near-to-medium future, puts the department at risk of having its budget plans undercut by impending fiscal demands. These could come from both the pre-existing need to replace obsolete platforms by the mid 2020’s, as well as from elsewhere in the federal budget.

  • Considering that the US military was too small to sufficiently implement President Obama’s more limited National Security Strategy, the force as it currently stands (even with the increased budget), certainly won’t be capable of accomplishing President Trump’s even loftier goals presented in his own National Defense Strategy.

The full report can be accessed here.

To arrange an interview with AEI scholar Mackenzie Eaglen, please contact AEI Media Services at mediaservices@aei.org or 202.862.5829.

The Rohingya crisis could undo Trump’s ‘friends-only’ foreign aid policy - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 05/21/2018 - 17:49

While visiting Bangladesh last week, US Agency for International Development (USAID) Administrator Mark Green announced $44 million in additional humanitarian funding for Rohingya refugees in Bangladesh and others affected by conflict in Burma.

Rohingya refugees cross the Naf River with an improvised raft to reach to Bangladesh in Teknaf, Bangladesh, November 12, 2017. Picture taken November 12, 2017. REUTERS/Mohammad Ponir Hossain

This additional aid — bringing total US assistance to $300 million — is welcome and desperately needed. But additional aid to Bangladesh undermines what has emerged as a key principle of Trump’s foreign policy — tying foreign aid to UN voting patterns. The Rohingya refugee crisis demonstrates why a strict adherence to favoring political support over need could end up exacerbating regional security and humanitarian crises by limiting states’ capacity to effectively respond.

Ambassador Nikki Haley has made a splash at the UN recently, repeatedly making the case for the Trump administration’s “America First” approach to foreign policy by making foreign aid conditional on UN voting patterns. While this “friends-only” policy is nothing new, its implementation is fraught with challenges. And adhering to it runs into a cold, hard reality in the case of Bangladesh.

Bangladesh’s unique situation

Bangladesh has half the population of the United States crammed into an area roughly the size of Iowa. It is notoriously disaster-prone and vulnerable to climate change. Facing significant refugee inflows from what the UN has dubbed a “textbook example of ethnic cleansing,” Bangladesh lacks both the capacity and the legal regime to effectively deal with the influx of 700,000 Rohingya from Burma on its own.

But Bangladesh has voted with the United States at the UN a mere 12% of the time since 2001, which should theoretically make it a target for Trump’s aid cuts. The country’s Prime Minister, Sheikh Hasina, called for Muslims worldwide to unite against the administration’s decision to move the US Embassy to Jerusalem. Indeed, the administration proposed slashing foreign assistance to Bangladesh last year, including a proposed cut of $33 million for its health sector.

Figure: US Foreign Aid to Bangladesh and UN Voting Alignment, 2001–2015

Despite recent economic growth, like most refugee host countries, Bangladesh is still among the world’s 50 poorest countries. While Bangladesh’s initial relief efforts have been admirable, the situation on the ground is not sustainable. And with monsoon season at hand, flooding and disease outbreaks are imminent.

Security considerations

As if natural disasters weren’t enough, Bangladesh also struggles with Islamic extremism and international terrorism, and the Rohingya crisis may be exacerbating the situation. As Sadanand Dhume has pointed out, the Rohingya’s plight has become a rallying cry for terror groups like Al Qaeda. Just last December, a Bangladeshi national attempted to bomb the New York City subway after reportedly traveling to a Rohingya refugee camp. The Bangladeshi government has also expressed concern about Rohingyas’ vulnerability to recruitment into extremist organizations. An effective response to the Rohingya crisis isn’t just a humanitarian priority — it’s also a security one.

But focusing solely on the Rohingya may also lead to increased violence within Bangladesh if locals perceive that their needs are being ignored in favor of outsiders. This is why continued development assistance to Bangladesh, particularly for refugee host communities, is essential. The United States can play a key role in stabilizing Bangladesh and building its capacity to deal effectively with its internal threats. Ultimately, this means rethinking a “friends-only” aid policy.

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Confusion reigns as Iraqis form new government, and the US isn’t helping - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 05/21/2018 - 15:48

Iraqis went to the polls on May 12, and the results are now in. The Bayan Center’s Sajad Jiyad, one of the most important Twitter accounts to follow for lucid Iraq analysis, has the breakdown and analysis. In short, it’s a free for all. And that’s good: How many Arab countries have repeatedly now had democratic and peaceful transfers of power? And in how many countries do those ousted compete to return to power through the ballot box rather than force of arms?

As for the results: No party came near a majority, but Iraqi firebrand cleric Muqtada al-Sadr’s list came out on top, and incumbent Haider al-Abadi and former Prime Minister Nouri al-Maliki were disappointed in their results. Some of those who did not make the cut complained of cheating or voting machine irregularities, and cheating certainly marred voting in Iraqi Kurdistan, where the Barzani and Talabani families refuse to relax their death grip on power or the region’s treasury, democratic will be damned. But the reason why Sadr did proportionately well relative to other power blocks is that Grand Ayatollah Ali al-Sistani, tired of corruption among the political class, told people that voting was their right to engage in or ignore, just as Iraqis have free will to drink or choose not to drink a glass of water placed in front of them. Many Abadi and Maliki supporters stayed home, but Sadr’s base remained energized.

Now comes the jockeying to form a coalition. Sadr may have won the majority, but can the established political class form a coalition to keep him out? Or will Abadi’s rivals, loath to see him have another term, work with Sadr to deny it? Can Maliki be kingmaker? Will the Kurds seek the presidency, or the speakership of parliament, which actually is a more powerful position? Are there any compromise candidates? (Here, keep an eye on Ali Dawai Lazem, a Sadrist who, as governor of Maysan, distinguished himself for effectiveness, honesty, and results).

Against the backdrop of the political maneuvering, however, are questions about Washington and Tehran. Whether Iraqis, Iranians, and Americans like it or not, traditionally both Tehran and Washington have an unofficial veto over the premiership in Baghdad. That makes sense: Whoever is Iraq’s prime minister has to work with both Iran and the United States. There is no time more crucial than now to negotiate and, if necessary, wield that veto.

It’s unrealistic to deny that Iran will have some influence in Iraq. Iraqis live in a difficult neighborhood. They share a more than 900-mile border. And, like it or not, Iranian authorities have been willing to exert force to ensure their redlines are respected. While commentators in the West often characterize the Popular Mobilization Units (Hashd al-Shaabi) as Iranian-controlled Shi’ite militias, the reality is that they are not uniformly Shi’ite and perhaps 70 percent are under the command or control of the Iraqi government. True, that means 30 percent are not, and that’s a huge problem, one not solved by walking away from Iraq and handing the country to Iranian influence on a silver platter. Already, Qassem Soleimani, who as commander of the Quds Force also acts as Iran’s de facto foreign minister on the most important files for the Iranian leadership, has been in Najaf and Baghdad to push Iraqi politicians to a coalition outcome favorable to Tehran.

But what about the United States?

Iraq traditionally maintains its independence of action by using the U.S. presence and interest to counter Iranian demands (this is why Barack Obama’s 2011 withdrawal was so counterproductive). Brett McGurk, Special Presidential Envoy for the Global Coalition to Counter ISIL, and an experienced diplomat with almost 15 years on the Iraq account, is in Iraq doing, without moral equivalence, much the same diplomatic jockeying as Soleimani. Whether he is doing so effectively, however, is an open question here in Baghdad.

Firstly, Iraqis from across the political, sectarian, and ethnic spectrum question whether McGurk’s advocacy so far for Abadi is actually backfiring against the prime minister. Make no mistake, Abadi is the right choice in many ways: He is a technocrat, capable, a coalition-builder, and has a mind toward economic development and a more stable future. The bigger question surrounding McGurk’s actions in Baghdad is who, if anybody, McGurk represents. This is not McGurk’s fault. Previously, Obama made clear that McGurk spoke on his behalf, and that he had the support of Secretary of State John Kerry. Now, however, it’s not clear if McGurk has the support of President Trump and Secretary of State Mike Pompeo. Iraqis are avid consumers of American political gossip, and they are aware of debates about scrapping McGurk’s position. This lack of clarity about what confidence Trump and Pompeo have in McGurk undercuts McGurk’s ability to be effective.

Again, don’t blame McGurk. Rather, it behooves Trump or Pompeo at this crucial time to stand up and either say, “Mr. McGurk is our man and he carries the word of the White House” or, conversely, to appoint someone who does. Regardless, the current confusion undercuts Washington’s ability to influence at a crucial time.

The enemy of an enemy: Will the Kurds benefit from shifting American alliances? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 05/21/2018 - 15:39

In the post-World War II period, US policy towards the Kurds has been shaped by external factors rather than Kurdish arguments for their own autonomy or independence. While shifting strategic relations in the region present some new opportunities for the Kurds and while the precedents of federalism will be hard to reverse, the new reality in the Middle East will likely not translate into an official American embrace of Kurdish nationalism any time soon.

On 25 September 2017, the Kurdistan Regional Government (KRG) in Iraq sponsored a referendum asking those living in areas under its control whether they desired independence. While voter turnout varied across the region, the KRG reported that 92 percent of those who had voted endorsed independence. The aftermath of the referendum was disastrous for the KRG. Iraqi forces moved northward into territories disputed with the KRG, seizing among other areas, the lucrative Kirkuk oil fields. While U.S. officials had repeatedly warned the KRG not to proceed with the referendum, Kurds reacted furiously as the U.S. government essentially sided with Baghdad. “We have to revise our relationship with those who are responsible for this,” former KRG President Masoud Barzani declared, blaming the United States for giving Baghdad a green light for its post-referendum operation against the KRG. Frustration at lack of American support was a sentiment shared by many Kurds.

Neither Kurds in Iraq nor their co-ethnicists in Turkey, Syria, and Iran, however, should be surprised at the lack of the U.S. government support for Kurdish nationalism. In the case of Iraqi Kurdistan, in the days and weeks prior to the referendum, a number of U.S. officials opposed any Kurdish move towards separation from Iraq.

More broadly, United States foreign policy has historically been conservative. Successive administrations, regardless of political party, have prioritized stability and security in international affairs. American policymakers are traditionally loath to support secessionist movements, no matter how just their cause may be, nor pursue any policy which changes borders of existing countries.

To read the full article, visit the Europa Ethnica website.

What is blockchain? | Define - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 05/21/2018 - 15:11

This first in a series video offers AEI readers with an accurate definition of what blockchain technology is and how it can be utilized in every day life. AEI Visiting Scholar Mark Jamison offers a brief example of what blockchain is and how it is used today.

Walmart makes a great envoy for free enterprise in India - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 05/21/2018 - 11:00

Is Walmart Inc.’s $16 billion acquisition of loss-making Indian e-commerce company Flipkart Group a smart decision? For many investors and analysts this is the big question arising from last week’s announcement of the deal, the largest acquisition to date for both the retailer and India, and the most expensive purchase anywhere of an e-commerce firm. Walmart shares fell 3% on the day of the announcement.

Customers shop at a Walmart India’s Best Price Modern Wholesale store in Jammu May 8, 2018. REUTERS/Mukesh Gupta – RC16B6DC1810

In my most recent Wall Street Journal column (read it here), I argue that it’s too early to say if Walmart’s acquisition of Flipkart is a commercially sound decision. But if Walmart succeeds it will not only help the firm’s bottom-line but also serve a larger purpose: exposing 1.3 billion Indians to a powerful case for capitalism.

Activists on the Indian left, as well as nativist ideologues associated with the ruling Bharatiya Janata Party, often share the Western liberal caricature of Walmart as a soulless giant flattening everything in its path in pursuit of the last dirty dollar. In reality, a company built on such old-fashioned values as thrift and value for money makes a fine envoy for the free-enterprise system. You can reach many more Indians with a reasonably priced shirt or a sturdy pair of shoes than with a lecture on Adam Smith.

What makes Walmart special in an Indian context? After all, scores of international companies already operate successfully in Asia’s third largest economy. For many Indians, it’s perfectly commonplace to drive a Ford, use a shampoo made by Unilever, shop on Amazon, and watch a favorite show on Netflix.

Nor are domestic firms laggards. Reliance is driving a smartphone revolution with its Jio service. In many consumer goods categories — everything from toothpaste to instant noodles — the yoga guru Baba Ramdev’s Patanjali, with its promise of back-to-the-past goodness, has emerged as a market leader.

Without taking away anything from these firms, Walmart could still play an outsize role in making the case for capitalism to ordinary Indians. For starters, the company’s sheer size (nearly $500 billion in worldwide sales) gives it a heft that most others lack.

Walmart’s famed logistics and supply chain skills give it an ability to boost efficiency across the Indian economy, and plug Indian producers into the global market. This could be especially beneficial to farmers. “Walmart knows how to make things happen,” says my AEI colleague Derek Scissors. “They can figure out how to get produce in good shape from Uttar Pradesh to New Mexico.”

Most of all, however, it’s the company’s relentless striving for “everyday low prices” that make it a great envoy for capitalism in a price sensitive market like India. The people who benefit the most from this cost-conscious ethic are the people who shop at Walmart. If Walmart can stretch the ordinary Indian’s rupee — as it has historically stretched the ordinary American’s dollar — with quality products at cut rate prices, it can make the case for capitalism in India more powerfully than most.

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Can government-funded fiber networks close digital divides? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 05/21/2018 - 10:00

A political policy shibboleth frequently trundled out to accompany proposals for government-funded infrastructures is that government-funded fiber networks will close digital divides between population groups: rich and poor, rural and urban, advantaged and disadvantaged ethnic groups, and many others.

Workers install cables for the Australian National Broadband Network (NBN) at an apartment block in Sydney, Australia, via REUTERS.

When it comes to broadband networks, this is certainly the case when the government funding addresses “missing markets for investment” — areas where the simple economic reason that high costs or low willingness to pay means that a private investor will be unable to recover a fair return on the substantial capital sums involved. The counterfactual of no government funding is no network. To the extent that social benefits (e.g., network effects from higher participant numbers and access to important applications supporting health and education outcomes unable to be accessed any other way) accrue from those areas having access, a case for subsidy exists on both economic and equity grounds. Research by scholars such as the University of Alaska’s professor Heather Hudson illustrates how government funding has been essential in addressing economic, ethnic, social, and technological divides in areas where private financing has failed to materialize.

Government preemption

But what about the case where governments — national, state, or municipal — preempt the private sector by financing nationwide, statewide, or citywide fiber networks?

The nationwide networks emerging from Australia’s National Broadband Network (NBN) and New Zealand’s Ultra-Fast Broadband (UFB) policies have been trumpeted as much for their inclusive consequences as for their purported economic advantages. To be sure, in the short term, these projects can be prioritized so that the areas served first are those “cherry-picked” for their ability to address perceived historic disadvantages. This certainly has political advantages when seeking a popular mandate for controversial and costly projects. (Australia’s NBN was in its initial form the biggest infrastructure project ever attempted in Australia.)

It is likely no accident, therefore, that the pilot project for the NBN was undertaken in rural Tasmania, Australia’s poorest state, or that the first fully completed UFB partnership was in Northland, an area characterized by significant and long-standing economic disadvantage, strongly correlated with a higher-than-national proportion of the indigenous Maori population. Furthermore, the UFB rollout even in other urban areas was planned so that economically disadvantaged areas containing (predominantly government-owned) schools, hospitals, and health centers were first to receive the government-funded networks, with the more affluent suburbs in major cities Auckland and Wellington coming at the back of the queue in the first funding tranche. (The second tranche focuses on extending the network into increasingly rural regions on the geographic margins of the original network footprint.)

Bringing data to the debate

A recent report by Motu Economic and Public Policy Research, seeking to address whether the rollout of the UFB has indeed reduced digital divides makes interesting reading. The report is independent and not government-commissioned research. It uses sophisticated web scraping to collect demographic, economic, topographic, and technology data at low levels of geographic disaggregation (meshblocks — small geographic areas with an average of 100 residents), which are then analyzed using methodologically appropriate statistical models. The authors further note that they are addressing access to (availability of) the technology — not the use of it as would be reflected in purchase decisions.

The report’s third finding addresses the depriviaton digital divide. The authors find that “more deprived areas tend to have better access to current or planned future access to fibre as of October 2017. This result holds countrywide, where a standard deviation increase in deprivation is associated with an 8 percentage point increase in the probability of current or future fibre . . . . Thus the rollout has decreased rather than exacerbated the prior digital divide by area deprivation.” This finding is likely to be taken by advocates of government-funded networks as a sign of the success of such projects and in particular of their rollout plans prioritizing access first for economically deprived areas.

But the authors note that “the positive association disappears when controlling for population density, suggesting that the digital divide has decreased because internet access comes first to denser areas, and denser areas tend to be more deprived.” To the extent that the report finds that Maori are less likely than other New Zealanders to benefit from the fiber rollout, this too is likely to be a function of population density, as the main urban areas with high population densities have a lower-than-average proportion of Maori residents.

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Insights into the rural-urban divide are also highly nuanced in regard to economic deprivation. Unsurprisingly, access to fiber decreases as population density decreases. However, deprivation is least in the rural areas where there are no plans for government-funded fiber. It is highest in minor urban and rural centers — which are the focus of the second tranche of UFB funding. This leads the authors to conclude that “any socioeconomic divide in access will soon be eliminated.”

Factual and counterfactual

The study could be interpreted as providing compelling evidence that the government-funded project appears to be closing the socioeconomic access divide. But what is the counterfactual?

If government funding simply brings forward the time at which fiber is deployed, then a privately funded deployment would likely also have delivered the same long-term outcome, as it too would follow the same pattern of deploying into increasingly less densely populated areas. Indeed, the authors find no substantial differences when adding in access to privately funded cable, VDSL, and mobile networks.

For sure, in the short run, the government-funded network has delivered some different transitional distributional effects, as private developers would likely have to deploy first in the more-lucrative, high-income, densely populated urban areas rather than the low-income ones the UFB prioritizes. But it is unlikely that the long-term effects would differ significantly.

First, understand your divide

Rather, what the study has highlighted is that digital divides are not simple and that it is not helpful to promulgate or claim success for policies based on simple descriptive statistics. Interactions among population density, economic deprivation, and residential choice lead to complex outcomes. And it is not clear that government investment policies are any more likely to lead to different long-term outcomes than private ones, if both follow the economics of network deployment from more-densely to less-densely populated areas.

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