Blog

The Progressive Fix

Don’t Ban Zero-Rating in India

Zero-rating – a practice where mobile operators provide select Internet content for free – is coming under heavy fire in India. Indeed the Indian government is likely to ban the practice as early as next month. But given that zero-rating could enable tremendous social and economic opportunity to developing countries like India, banning it now would be a mistake.

Widespread media attention has put India’s approach to Internet regulation and “net neutrality” into the global spotlight. It started with a report issued last month from their telecommunications regulator (TRAI) asking for public comments on how to regulate “over-the-top” content offering from mobile providers. A large public outpouring of information (and misinformation) ensued, leading one Indian Member of Parliament to write, “TRAI cannot control the internet by charging separately for services that are created by the very people who believe in the idea of free access to information and knowledge.”

Already several companies providing content through zero-rating programs have backed out over the backlash, lest they be charged with enabling Internet discrimination. Adding more fuel to the fire, this week a group of Indian tech entrepreneurs sent a letter to India’s Prime Minister arguing that zero-rating could stunt economic growth as Internet start-ups are unable to compete with free content. “These practices, if allowed, will exclude promising startups from the Internet and end our dream of seeing them flourish,” they said.

It’s unlikely, however, that zero rating will crush anyone’s dreams. In fact, as we’ve recently argued in our paper “Zero-Rating: Kick-Starting Internet Ecosystems in Developing Countries,” zero-rating could be a powerful vehicle for economic growth and prosperity in countries like India, where large segments of the population aren’t online.

In the developing world, zero-rating has the potential to jumpstart local Internet ecosystems. Consumers that have previously used up their monthly data allotments on sites like Google, Twitter, and Facebook could now use them instead to surf local content. Moreover, people who are currently not connected to the Internet may have a stronger incentive to sign up for a monthly data plan, seeing a higher value in accessing the Internet. The larger customer base for local content would then provide a greater incentive for tech entrepreneurs to invest in turning their ideas into the latest online site or service. As more local content becomes available, a resulting boost in local demand will follow in a virtuous economic feedback loop.

Consider, for example, a local business collecting agricultural prices across a poor country that would like to post them online. Such data could be extremely valuable for the country’s farmers, who stand to benefit greatly from access to better information. Yet if there are too few farmers or other consumers of this data online, no one has an incentive to collect the data and create an online platform. Yet if offerings such as zero-rating encouraged more farmers to get connected, this business could get off the ground – and more could follow – enabling locally-driven economic growth.

Although many zero-rating programs are relatively new, early results are promising. Countries across the globe, from the Philippines to Egypt, and in sub-Saharan Africa, have seen large increases in connectivity alongside zero-rating offerings. And perhaps most importantly, there is no evidence that zero-rating has caused any economic damage in underserved areas with low connectivity.

India’s politicians and regulators would be well-served to see zero-rating as an opportunity to increase local business potential, not as a threat to it. Local businesses could even use Twitter, Google, and Facebook to advertise their services, as part of the local Internet ecosystem.

Our report instead proposes guiding principles for zero-rating. For example, such offerings should be non-exclusive, to guard against anti-competitive behavior across mobile operators, and zero-rating programs should be regularly evaluated. These principles would promote transparency and accountability, and most importantly, increase public trust.

Of course, zero-rating is not a silver bullet for dispelling inequality or eradicating poverty. But it is an important part of a pro-growth strategy that will boost local economies. It could make the difference between a would-be Internet entrepreneur creating new apps for local services and data or going to another country with higher connectivity.

That’s why banning zero-rating in India now would be a mistake. The best path forward for India’s Internet economy is to promote policies that enable its citizens and businesses to fully participate in the data-driven economy. That means keeping every pathway to future global growth, opportunity, and prosperity open, including zero-rating.


PPI Returns from 2015 Digital Trade Mission to Europe

Dear Friend,

We’re just back from Europe, where last week PPI led a bipartisan delegation of Congressional staff on a four-day swing through three capitals: London, Brussels and Berlin. Our goal was twofold: 1) to learn more about the European Union’s ambitious plan to create a “digital single market” and, 2) to press PPI’s case for moving digital trade from the periphery to the center of the transatlantic agenda.

Why is this so important? Consider these facts:

  • The free movement of data raises the productivity of businesses and reduces trade costs, creating jobs and growth on both sides of the Atlantic.
  • US/EU cross-border data flows are by far the highest in the world, 50 percent more than between the United States and Asia.
  • America runs a large trade surplus in services, of which 61 percent are delivered digitally.
  • The Internet is becoming a powerful export platform for small enterprises, connecting them to global customers at low cost.

As PPI has documented in a series of groundbreaking reports, digital innovation and commerce are increasingly driving economic investment and growth in America and Europe. We believe the transatlantic partners share a common interest in ensuring that digital trade enjoys the same legal protections as trade in physical goods and services. Instead of joining forces to extend free trade principles to digital commerce, however, Europe and America are embroiled in a raft of disputes that threaten to erect barriers to cross-border data flows.   

Such disputes, for example, involve calls for data localization, for national or European clouds, for taxing data flows and for imposing stringent privacy or data protection rules on businesses. Right now, the European Court of Justice is considering a challenge to the “safe harbor” rules that have allowed US tech companies to operate in Europe. In addition, new tensions have arisen around issues of copyright protection, “platform competition,” tax avoidance and many core provisions of the proposed Transatlantic Trade and Investment Partnership (T-TIP).

As you probably know, PPI has long been a catalyst for transatlantic dialogue, going back to the Clinton-Blair “Third Way” conversations we helped to launch in the 1990s. Over the last four years, our work in Europe  has focused on reviving transatlantic economic cooperation, with a particular emphasis on the rise of data-driven innovation and growth. At a time when authoritarian countries seek to limit the free flow of information, we think it’s crucial that the Western democracies work together to prevent the balkanization of the Internet and defend free digital trade.

That’s why we organized this second “Digital Trade Study Group”—a bipartisan group of 12 senior House and Senate staffers, whose bosses have oversight of issues related to trade, digital commerce, copyright, intellectual property, privacy, cyber security, and communications and technology. (We took the first such group to Europe in April 2014). Last week’s trip featured a productive round of high-level talks with prominent political, business, policy and media leaders.

Here are the highlights: 

  • In London, our traveling party met with Daniel Korski, Special Advisor to Prime Minister David Cameron, and Guy Levin, formerly special advisor to Chancellor of the Exchequer George Osborne, to discuss UK technology policy. As Michael Mandel, PPI’s chief economic strategist, has documented, London has emerged as one of the world’s premier centers for tech entrepreneurship.
  • Vanessa Houlder, who covers economics for the Financial Times, briefed our group on the Cameron government’s controversial new “diverted profits tax.” Aimed ostensibly at discouraging tax avoidance, it slaps a 25 percent tax on the local profits of U.S. and other foreign companies operating in the UK, and has been dubbed the “Google tax” by detractors. 
  • Also in London, PPI released a new policy brief by MandelTaxing Intangibles: The Law of Unintended Consequences. It notes that digitized information differs from physical goods and services in that it can be duplicated at negligible cost and used by different consumers at once. As such, Mandel argues, it makes little sense to tax this intangible knowledge as one would a car or the provision of a unique service. In fact, new proposals for taxing intangibles will undermine global growth and thus be self-defeating, the report argues.
  • In Brussels, two officials of the European Commission’s DG Connect unit, Eric Peters, Deputy Head of the Single Market Unit and Tamas Kenessey, Legal Officer, briefed the group. The Digital Single Market, they stressed, is the EU’s top priority. It would enable tech companies that start in one of the Union’s 28 countries to grow to continental scale, and speed the onset of what we call the “Internet of Things.”
  • Over dinner, the Digital Trade Study Group heard from Ken Propp, Legal Counsel with the US Mission to the EU, and Paul Hofheinz, President of the Lisbon Council, PPI’s think tank partner in Brussels. The discussion centered on the headwinds T-TIP has encountered and political differences within the EU on digital policy.
  • Then it was on to Berlin, for lunch with two leading Green Party officials, Konstantin von Notz, a Member of the German Bundestag, and Dieter Janacek, the party’s spokesman on economic issues. The Greens are strong backers of Europe’s Data Protection Regulation, which our speakers noted reflects Germany’s unhappy experience with secret police agencies of the past. Joining us for dinner was Torsten Riecke, an international correspondent for Handelsblatt, who gave our group an insider’s perspective of German domestic politics, as well as its increasingly central role in European politics. The next morning, we drilled deeper into German concerns about data protection and privacy with Marcus Loning of the Stiftung Neue Verantwortung and former Free Democratic Party Member of the German Bundestag.
  • Our group received an insightful briefing on Industrie 4.0—Germany’s equivalent of the “Internet of Things.” As explained by Boris Petschulat, Deputy Director General at the German Federal Ministry for Economic Affairs & Energy, Industrie 4.0 seeks to digitize production without disrupting its finely honed industrial export machine. 
  • We paid a visit to the Federal Association of German Newspaper and Magazine Publishers, which has been battling tech companies, especially Google, over copyrightand content issues. A lively debate ensued with Managing Director Christoph Fiedler and Christoph Keese, Vice President of the Axel Springer publishing empire. For more on this important subject, check out another just-released policy brief by Mandel, Copyright in the Digital Age: Key Economic Issues.
  • Thomas Jarzombek, a member of the German Bundestag, who sits on the committee responsible for the digital agenda, elaborated on the German government’s efforts to build a digital infrastructure and nurture a more entrepreneurial, start-up culture.
  • We finished our mission at the US Embassy in Berlin, where Ambassador John Emerson, a longtime PPI friend, offered a wide-ranging and insightful perspective on US-German relations.

PPI’s Digital Trade Study Group excursions to Europe serve two important purposes. First, they enable key Congressional staff from both parties to get a better understanding of European views on innovation policy, T-TIP, digital trade, privacy, copyright and other interests of mutual concern and transmit that knowledge to Members of Congress.  Second, they underscore to our European friends the importance Congress attaches to transatlantic commerce in general and to data trade specifically.

This year’s mission advanced both of these goals. And it added important new dimensions to the extensive network of European political leaders, industry professionals, and policy analysts that PPI has built over the years. As always, I welcome any feedback you may have. 

Sincerely,

Will Marshall
PPI President


Jobs and Millennials: How are They Faring?

Economists everywhere are scrambling to determine how today’s weak jobs report impacts the strong recovery story of 3.2 million jobs created over the last year. But when it comes to millennials in the labor force, the monthly numbers are only a small part of the story. That’s why I’ve done some number crunching to see what’s really going on with my generation.

My research highlights two factors that are holding millennials back: too many are not completing college, and too many that do have skills that are not well-matched to labor market demands.

When it comes to young workers, aged 25-34, the gap in labor force participation for those with and without a degree is now roughly 10 percentage points – and the gap is widening.* The chart below illustrates this stark reality – having a college degree could make the difference in whether or not millennials find a job.

LaborForceMillennials

However, my research also shows that in today’s labor market, having a college degree may not be enough. That’s because, in addition to completing college, the economic prospects of millennials depends on having high-wage skills employers demand.

Since the recovery began in 2009, college graduates’ outcomes have diverged. Some have seen great success in the economic recovery, while others have floundered at the expense of their less educated peers. I call this phenomenon the “Great Squeeze,” and I have previously written on it here. That real average annual earnings for young college graduates fell by 12 percent over the last decade reinforces this divergence between workforce success and underemployment.

CollGoneWrong

It turns out that what you study matters, as not all graduates are struggling. Graduates in high-skill, high-demand fields such as computers and mathematical occupations, for example, are doing just fine. The most recent Conference Board data shows the ratio of unemployed workers to advertised jobs for computer and mathematical occupations is just 0.17.

The skills mismatch helps in part to explain why too many college graduates find themselves underemployed well after graduation. Our higher education system has not adjusted to the changing shape of the labor market, one where job creation is focused at the high and low end of the skills spectrum.

That’s why it is not obvious that while some postsecondary credential is necessary, a college degree for everyone is the right fix. Instead, these charts suggest we need to look outside status quo higher education, to encourage more pathways into the workforce that provide young people with the skills employers demand.

*Note: Few in the aged 25-34 cohort are enrolled in school, and both men and women with a high school diploma or some college, no degree had significantly lower labor force participation rates than college graduates.


Rotherham: No Congressional District Left Behind

In an op-ed today for U.S. News & World Report, Andrew Rotherham, cofounder and partner at Bellwether Education Partners, intriguingly argues that the best school reform idea is to fix the gerrymandering of legislative districts:

One of the interesting things about my job is that wealthy people ask me for ideas about how best to use their resources to improve America’s schools. There are plenty of important issues demanding attention: overhauling the sorry state of teacher preparation and teacher policy (I wrote an entire guidebook about that), giving low-income Americans more educational choice and improving educational finance are three obvious ones. But, to the consternation of colleagues in the education world, I don’t first suggest those or other specific education issues. Instead, I urge donors to support efforts to reform congressional redistricting. We won’t be able to genuinely improve our schools (or address a host of other issues) until we create legislative districts based on geography rather than gerrymandering.

Read the op-ed in its entirety at U.S. News & World Report. 


Weinstein: March Madness at Time Magazine

Time Magazine (courtesy of the New America Foundation) recently re-published a new way to rank NCAA tournament winners according to their graduation success rates. According to the Time bracket, some pretty prestigious academic universities fair pretty poorly. Harvard, Georgetown, Texas, Wisconsin, and UCLA all lose in the first round followed by Virginia in round two. Among the top ten institutions on the list, seven had graduation rates for their basketball teams of 100 percent. In each of these cases, the rates for the basketball teams were higher than for the male population as a whole. In addition, the University of Kentucky’s (UK) Men’s Basketball team finished 20th on the list, with a team graduation rate of 89 percent compared to an overall male student graduation rate of 55 percent. That might be odd to some basketball aficionados given the large number of “one and done” players at UK (players who go professional after one year of college ball).

So what explains the discrepancy? Is UK really graduating 89 percent of its players? Is the Time Magazine bracket accurate? The answer for both is no.

It is important to understand that Time are not actually using graduate rates (how many entering students get their degrees) with regards to college basketball players. Rather, they have chosen to utilize the NCAA’s questionable bogus Academic Progress Rate (APR), which does not count many “one and done” players who leave to go onto the pros (NBA or elsewhere)

How does APR work? The system awards one point for each scholarship athlete in good academic standing and one for each one who either stays in school or graduates. So if a team has 10 scholarship players, and one drops out and is not on track to graduate, but all the others keep their grades up and either stay in school or graduate, then the team would earn a very good APR score (18 out of 20 points).

Now, it might seem that with all the early departures, Kentucky’s APR would take a big hit. However, if a scholarship athlete in good academic standing leaves to pursue a professional career, there is an adjustment to the APR so that there is no penalty.

So schools like Kentucky, which in reality graduate very few basketball players, get ranked high on Time’s list, while schools that actually graduate most of its players like the University of Virginia, University of Wisconsin, and Georgetown University look poor in comparison (disclosure, I graduated from Georgetown University in 1985).

Second, the comparison of APR and graduation rates for the male student populations at large is not “apples to apples” because APR does not include all dropouts but a graduation rate does. This makes the bracket pretty worthless in terms of usefulness.

Finally, there is the question of whether or not the APR data provided is even accurate. As recent scandals have underscored (see Syracuse University and the University of North Carolina), some institutions may be using a number of tactics (in violation of NCAA rules) to help student-athletes stay in good academic standing.

Maybe Time and New America should leave the prognosticating to the professional bracketologists.

Paul Weinstein Jr. is a Senior Fellow at PPI and directs the Graduate Program in Public Management at Johns Hopkins University.


Oregon Grapples with Broadband Regulation

The FCC’s “Open Internet” order was just released today. Plenty of people are hashing it over, including PPI (see statement here).

However, what’s less appreciated is how the FCC’s action puts the spotlight squarely on states and municipalities. No longer constrained by federal “light-touch” policies, state and local politicians and regulators must decide: Will they act in a way to encourage private investment in broadband networks? Or, instead, will they choose to discourage private investment in their region by regulating broadband prices and excessively taxing broadband providers?

Here’s the simple fact: States and municipalities that choose to place excess regulations and taxes on broadband providers will find themselves losing out on private investment in new networks, with negative long-term economic consequences.

One state struggling with this decision is Oregon. The Oregon situation is both complicated and illuminating, because it brings together so many different strands. Oregon currently has a set of rules for property tax called “central assessment.” As applied in Oregon, these rules mean that broadband providers such as Comcast pay property taxes based not just on the value of their facilities in Oregon, but on a tax base including intellectual property and other intangibles worldwide. This rule had the effect of driving up Comcast’s tax payments in Oregon by a factor of six, according to the company. The state legislature is considering a bill that allows the central assessment rule to be partly but not fully rolled back, leaving providers such as Comcast still exposed to substantially higher taxes.

The same high-tax rule would also apply to Google, if and when the company follows through on potential plans to build a gigabit fiber network in Portland, Oregon. The bill does offer potential relief for Google and other potential builders of gigabit broadband networks, with a tough caveat: They would have to meet certain build-out, price and performance characteristics in order to qualify for deeper tax reductions. In particular, the provider would have to

 …. offer communication services at or above a speed of 1 gigabit per second symmetrical service and at a price to customers that does not exceed 150 percent of the United States average price for the same speed of symmetrical service. The Public Utility Commission shall determine the maximum price of service and may update the standards for speed, type and price of service as the commission considers appropriate. The commission shall recertify each qualified project under this subparagraph every five years

In effect, the bill gives the PUC a mandate to set rates for gigabit networks–a return to the old-style top-down utility regulation that once helped throttle innovation. Rate regulation would make it much more difficult for providers to put together packages that would work for consumers and support investment. What’s more, because the regulators can change the price and speed standard at will, companies who build gigabit networks and qualify under this clause have no assurance that their tax bill won’t suddenly skyrocket, even if they have met their original promise. Indeed, regulators will be under political pressure to raise speed standards and lower maximum prices.

Now, the partial tax rollback, combined with the conditional tax reduction for gigabit providers, is better than the original tax rules. But if Oregon state legislators really want to attract private broadband investment and spur innovation and growth, they shouldn’t boost taxes on broadband providers and encourage regulators to micromanage prices and services. After the FCC’s open internet decision, that’s a lesson that all states and municipalities are going to have to learn.

 


House New Democrat Coalition Unveils Pro-growth Policy Agenda

Today, the House New Democrat Coalition unveiled a comprehensive, pro-growth policy agenda. 

After suffering enormous losses in the last two midterm elections, Democrats need a new strategy for recapturing Congress.  Such a strategy should aim at winning back competitive districts, largely in suburban America, and it would target moderate voters, without whom the party cannot build electoral majorities.

The New Democrat Coalition’s prosperity agenda is an important step toward crafting a winning strategy. It presents a new policy blueprint for pragmatic Democrats, who want to break the political stalemate in Washington and get things done. Most important, it outlines a progressive, pro-growth alternative to a polarizing populism that can only narrow the party’s appeal.

This agenda aims squarely at lifting and expanding the middle class. It puts growth before redistribution, and builds on America’s strengths in rapid innovation and entrepreneurship. It seeks to expand vital investments in infrastructure and a skilled workforce, but it also recognizes that tax reform and regulatory improvement are also key catalysts of growth.  And, crucially, the NDC recognizes that the right way to restore public confidence in government is not simply to enlarge it, but to reform and modernize it.

With this document, the NDC is assuming a position of intellectual and political leadership in the party.  It’s important that its voice be heard, because its members know how to compete and win in precisely the kind of competitive districts Democrats need to retake.