The U.S. commercial nuclear fleet will shrink by one more plant, as Entergy Corp. recently announced its plans to close the Pilgrim Nuclear Power Station in Plymouth, Mass. While some environmental and anti-nuclear activists are no doubt popping corks, it’s bad news from a climate perspective.
And it’s part of a trend. Pilgrim is the fifth nuclear power station slated for shuttering over the past two years. Entergy, which announced it would shut down Vermont Yankee in 2013, cites falling revenues and rising operational costs for its decision to close Pilgrim. What’s happening in energy markets that’s tilting the playing field against nuclear power?
For the last few years, nuclear industry leaders have warned that decreasing electricity demand, low natural gas prices, and price regulation are making it uneconomical to keep small nuclear plants (600 megawatts or less) up and running. Specifically, they complain that regulators don’t allow them to reap the full value of the services nuclear energy brings to consumers — reliability, efficiency and grid stability which permits the smoother integration of renewable energy. That makes it difficult to defray operations and maintenance costs, which have risen because of new regulations imposed by the Nuclear Regulatory Commission after Japan’s Fukushima crisis.
The economic viability of nuclear power plants is also threatened by state energy policies that subsidize renewable energy projects. For example, Entergy cited a Massachusetts proposal that would require utilities to buy hydro-electric power from Canada at above-market prices. The amount of electricity they would be required to buy would amount to about one-third of the state’s electricity demand.
Hillary Clinton’s decision to oppose President Obama’s top trade priority is beyond disappointing. It devalues two of her real assets – foreign policy expertise and political loyalty – while aligning her with the most economically retrograde voices on the “populist” left.
Political reporters naturally played up Clinton’s “break” with Obama, who has just wrapped up the Trans-Pacific Partnership (TPP) after five years of arduous negotiations with 11 other Pacific Rim countries. Her untimely defection to the anti-trade camp will compound the president’s already difficult task of rallying Democratic support in Congress for TPP.
More troubling, though, is Clinton’s break with herself. As Obama’s first Secretary of State, she was a key architect of the administration’s strategy of “rebalancing” America toward the Asia Pacific. Integral to that strategy is TPP, which would create an economic counterweight to China – a vast free trade zone encompassing 40 percent of global GDP that includes advanced economies like Japan and Australia, and emerging markets like Malaysia and Vietnam.
At issue is whether the burgeoning Pacific economy will play by China’s mercantilist rules, or merge into the liberal, rules-based trading system championed by the United States and Europe. The stakes for U.S. workers and companies are enormous. In 2011, Clinton called TPP a model for future trade agreements, and indeed other Asian economies, such as South Korea, Taiwan, the Philippines and Thailand, have expressed interest in joining.
So TPP isn’t just another trade deal; it’s an impressive feat of U.S. economic diplomacy and leadership. Its rejection by Congress would deal a heavy blow to America’s influence in the region.
It would also damage America’s growth prospects. The U.S. economy is stuck in low gear, averaging a paltry two percent growth per year since 2000. Over the last decade, productivity growth also has slowed, which economists say goes a long way toward explaining why wage gains for most U.S. workers have been so meager. Our economy needs a lift – and TPP’s market-opening provisions will stimulate foreign demand for U.S. products.
This policy brief examines the positives and negatives of the patent/IP/ innovation box. This issue is increasingly relevant given the OECD’s recent release of new principles governing the global tax system.
On October 5, the OECD released the final reports of their Base Erosion and Profit Sharing (BEPS) Project. The comprehensive recommendations in the reports are designed to force multinationals to pay more taxes by substantially eliminating many of the tax avoidance strategies they currently use.
However, the BEPS reports do effectively bless one way to reduce taxes—the granting of tax incentives for innovation and R&D-related activities. As one BEPS report says:
“…it is recognized that IP-intensive industries are a key driver of growth and employment and that countries are free to provide tax incentives for re-search and development (R&D) activities, provided that they are granted according to the principle agreed by the [BEPS Report].”
In broad terms, there are two types of innovation-related tax incentives: R&D tax credits, and patent/IP/innovation boxes. The first provides a credit for R&D spending, whether or not it results in a useful product. The second provides for a lower rate on corporate profits that arise from innovation-related investment. In other words, the patent/IP/innovation boxes favor those companies who are successful with their innovation.
The terminology difference between a patent box, an IP box, and an innovation box reflects the breadth of the intangibles covered, ranging from simply patents, to other types of intellectual property such as copyrights, or a broader range of spending related to innovation. The OECD uses the technical term ‘IP regime’ to cover all three.
WASHINGTON— The Progressive Policy Institute issued the following statement in response to Secretary Clinton’s announced opposition to the Trans-Pacific Partnership trade agreement:
“Progressives—and all Americans—seek an economic future with good jobs and more inclusive economic growth. The Trans-Pacific Partnership can help achieve both of these important goals. The TPP would expand U.S. trade to growing Asia-Pacific markets in innovative and important sectors where America is strong, supporting higher-paying jobs. At the same time, the TPP’s groundbreaking provisions on the digital economy and small business trade could boost export opportunities for American entrepreneurs and smaller exporters which, in turn, can help spread gains from trade more broadly throughout the American economy.
“The TPP would also help assure that this growing trade would happen under enforceable, high-standard commitments to protect labor rights, preserve the environment, ensure an open Internet, reduce corruption, and increase transparency. These and other TPP commitments would help level the international playing field for American exporters and their workers, while providing tangible help to workers and people in all TPP countries.
“In light of these and other anticipated benefits from TPP, PPI is disappointed that Secretary Clinton has expressed her opposition to the agreement—and we hope that she’ll reconsider this initial view once the TPP’s full text is released. Like any negotiated agreement, the TPP is certainly far from perfect. But it has significant potential to support smarter and more inclusive growth and to orient U.S. trade towards new markets, new opportunities and a rapidly changing global economy—and to do so in a way that advances key American values. And, as Secretary Clinton well knows, the TPP could also deliver critical geopolitical benefits for the United States and our key allies in the Pacific region.
“Many who routinely oppose new trade agreements—like those who repeatedly vow to “repeal and replace” the Affordable Care Act—are often long on rhetoric and short on practical and achievable solutions. It would be unfortunate for a thoughtful leader like Secretary Clinton to make common cause with reflexive anti-traders—in both parties—whose zero-sum views on the global economy are rooted in the failed policies of the past. We hope, instead, that Secretary Clinton will work to support agreements to expand trade and other policies—including investments in education, training and infrastructure—that will help orient the American economy towards the future and bring trade’s undeniable benefits to more Americans.”
Referencing a recent report by Michael Mandel, The Washington Posts‘ Robert J. Samuelson discusses corporate investment:
Of course, businesses haven’t stopped investing entirely. In 2014, they spent $2.2 trillion on buildings, equipment (computers, machinery, trucks), software and research. For many large firms, the amounts are huge, estimates economist Michael Mandel of the Progressive Policy Institute, a left-leaning think tank. In 2014, AT&T led in business investment in the United States at $21.2 billion, followed by Verizon at $16 billion and Exxon Mobil at $12.4 billion.
Today the European Court of Justice invalidated the “Safe Harbor” agreement that allowed thousands of US companies to transfer personal data from Europe to the US, including personal data of employees at their European subsidiaries. As the WSJ wrote:
In a victory for privacy advocates, the European Court of Justice ruled that national regulators in the EU can override the 15-year-old “Safe Harbor” pact used by about 4,500 companies, including Apple Inc. and Alphabet Inc.’s Google, because it violates the privacy rights of Europeans by exposing them to allegedly indiscriminate surveillance by the U.S. government.
Leaving aside the legalities, this ruling indicates a rising mood of digital protectionism which is likely to hurt Europe far more than the US. Data traffic flows both ways, after all, and efforts to keep personal data inside the EU is likely to end up keeping useful data out as well. The future belongs to those countries who participate fully in the global digital economy.
In public education, the District of Columbia may be the nation’s most interesting laboratory. It is the only city with two public school systems of roughly equal size, each with a different governance model. The results of this competition have profound implications for the future of public education nationwide.
The older of the two, the District of Columbia Public Schools, uses the “unified” governance model that emerged more than a century ago, in which the district operates all but one of its 113 schools and employs all the staff, with central control and most policies applied equally to most schools. Since 2007, when Michelle Rhee became chancellor, the district has gone to extraordinary lengths to wring performance out of its schools, pursuing the most aggressive reforms of any unified urban district in America.
The other system, overseen by the Public Charter School Board, is largely a 21st century creation. Under this governance model, the board does not own or operate schools. Instead, it contracts with 62 independent organizations – all of them nonprofits – to operate 115 schools. It negotiates performance contracts (charters) with operators, lets parents choose their schools, shuts down schools that fail to perform and replicates those that succeed.
Under both models, student performance is improving. Comparisons are tricky, because their demographics are slightly different. Charter students are poorer: 82 percent qualify for a free or reduced price lunch, compared to 75 percent in the public school district. The latter also has more white students: 12 percent compared to charters’ 5 percent. And its schools get $7,000 to $9,000 more per student each year than charters, mostly for buildings and pensions.
On the other hand, all charter families make an active choice of schools, while only about half of District of Columbia Public Schools families do, so some believe charter students are more motivated. Most experts agree that the district has more students “in crisis” – homeless, coming out of jail, former dropouts and so on – because families in crisis don’t usually make the effort to apply for charters. And many charters don’t accept students midway through the school year or “backfill” seats after students leave, while most district schools do. Far more students leave charters for district schools during the school year than the reverse, and sometimes the new entrants set back schools’ test scores, graduation rates and attendance rates.
It is hard to say just how these realities balance out. Fortunately, there is one study that tries to compensate for student demographics (but not for other factors). Stanford University’s Center for Research on Education Outcomes is a respected academic organization that has published extensive studies comparing charter and traditional public school performance on standardized tests. Its methodology compares charter students to demographically similar students in traditional public schools who have had similar test scores in the past.
The center found that between 2007-08 and 2010-11, charter students gained an average of 72 more days of learning per year in reading than traditional school students and 101 days in math – more than half an academic year.
WASHINGTON— Ed Gerwin, Senior Fellow for Trade and Global Opportunity at the Progressive Policy Institute (PPI), today released the following statement in response to Monday’s announcement that top trade officials from the 12 Trans-Pacific Partnership countries have successfully completed their negotiations:
“PPI welcomes Monday’s announcement that the United States and its 11 negotiating partners have successfully concluded negotiations on the Trans Pacific Partnership (TPP) trade agreement.
“If done right, modern trade agreements like TPP have significant potential to increase American exports to key foreign markets; to forge international consensus on high standards for open rulemaking, environmental protection, and labor rights; and to support digital commerce and other tools for broader and more inclusive trade.
“We appreciate the tireless efforts of Ambassador Froman, the Obama Administration’s trade team, and trade supporters in Congress in seeking a TPP agreement that will achieve these and other key priorities for the United States.
“We look forward to reviewing the text of the completed agreement. And we are particularly grateful to Congressional trade leaders—particularly Senator Ron Wyden (D-Ore.), Congressman Ron Kind (D-Wisc.), and other pro-trade Democrats—for writing strong, new rules that will assure an extensive, informed and transparent debate on the detailed provisions of the TPP.”
Multinationals are about to get hit with a big tax penalty for operating in the United States. Is it finally time for corporate tax reform?
On Monday October 5 the OECD will release the “final package of measures for a co-ordinated international approach to reform the international tax system.” These BEPS recommendations (standing for Base Erosion and Profit Shifting) are intended to address “gaps and mismatches in existing rules which allow corporate profits to ‘’disappear’’ or shift to low/no-tax locations, where no real value creation takes place.” In other words, the goal is to make sure that multinationals pay their fair share of taxes globally. This is a laudable objective.
But BEPS also exposes the huge difference between the U.S. corporate tax rate, and that of many of our rivals. According to KPMG, the posted U.S. corporate tax rate, including both federal and state, stands at about 40%. By comparison, the average corporate tax rate in the European Union is about 22%. That includes Ireland (12.5%), United Kingdom (20%) and Germany (roughly 30%). To put this in perspective, a company earning an extra $1 billion in profits in the United States would pay roughly $400 million in corporate taxes, versus only $200 million in taxes if the profits were booked in the United Kingdom. That difference of $200 million could fund thousands of jobs.
Before BEPS, many U.S.-based multinationals were able to legally reduce their U.S. tax bills by shifting income to other countries with lower rates. They used a variety of tax strategies. The result for the companies: Lower effective taxes. The result for the United States: Higher competitiveness, since multinationals could avoid the full brunt of the excessively high U.S. corporate income tax rate. Continue reading “Understanding the Meaning of BEPS for the United States”→
All political parties struggle to reconcile their core convictions with their desire to win elections. But apparently there’s one party so pristinely principled that it despises its own electoral successes.
I refer, of course, to Britain’s Labour Party. In choosing as its new leader Jeremy Corbyn, a long-time fixture of the hard-left fringe, the party has emphatically repudiated the winning ways of “New Labour.”
Corbyn is a throwback to the doctrinaire socialism of the 1970s and 1980s, which became linked in the public mind to crippling strikes by imperious labor unions, economic stagnation, welfare dependence, reflexive anti-Americanism and enthusiasm for “revolutionary” forces around the world. An iconic image of the era: the actress and prominent “Trot” Vanessa Redgrave holding a Kalashnikov aloft while dancing with PLO gunmen.
The party’s thralldom to the “looney left” paved the way for Margaret Thatcher’s ascension and kept Labour out of power for 18 long years. Finally, in the early 90s, a band of young reformers led by Tony Blair and Gordon Brown jettisoned the party’s tired collectivist dogma and launched a drive to modernize the party’s image and governing philosophy. Inspired by Bill Clinton’s success here, they borrowed heavily from his “New Democrat” playbook.
Blair led Labour to a smashing victory in 1997, and went on to win two more elections. He and Brown served as Prime Minister for 13 years — Labour’s longest run in government ever.
While popular with British voters, New Labour’s attempts to define a modern and pragmatic progressivism were anathema to the party’s left. They disdained Blair as a glib and soulless centrist willing to sell out Labour’s socialist ideals for a mess of electoral pottage. That disdain curdled into intense hatred when Blair later supported George W. Bush’s invasion of Iraq.
It’s hard to find common ground between the two parties in Washington these days, but getting America out of this protracted entrepreneurial slump should be an urgent national priority. Here’s one idea that ought to appeal to both sides: Enable the nation’s credit unions to invest more in new and small businesses.
One of the most important measures of U.S. economic dynamism is the rate of new business creation. Unfortunately, the number of start-ups has been declining for three decades. In fact, more businesses are dying than being born.
According to the Kauffman Foundation, new businesses (those less than five years old) are responsible for nearly all net job creation in America. And businesses less than one year old have created an average of 1.5 million jobs per year for the last three decades.
And it’s not just jobs; start-ups also drive innovation. New enterprises “commercialized most of the seminal technologies of the past several centuries, including the car, the airplane, the telegraph, the telephone, the computer and the Internet search engine,” notes Brookings Institution economist Robert Litan.
Back in 2012, the Progressive Policy Institute identified the shortfall in business capital spending— or the “investment drought”, we termed it—as one of the major economic problems facing the U.S. economy. As we wrote then, “su1stainable economic growth, job creation, and rising real wages require domestic business investment.”
Unfortunately, three years later, the United States is still suffering from an investment drought. Capital per worker-hour has fallen since 2010, meaning that the average American worker has less equipment, buildings, and software to use, exactly the opposite of what we would want. More worrisome, this is not simply a short-run trend. In fact, the 10-year growth rate of productive capital is only 2 percent, by far the lowest in the post-war era (Figure 1).
Leading economists are increasingly concerned that the weakness in domestic investment is making it hard for businesses to boost productivity, measured by output per hour. The 10-year growth rate of nonfarm business labor productivity is only 1.3 percent, compared to 3 percent as recently as 2005. In a recent speech, Jason Furman, head of the White House Council of Economic Advisers called the decline in prod2uctivity growth “an investment- driven slowdown.”
A 2015 report by the OECD on productivity addresses the recent productivity slowdown and the question of whether it is temporary or “a sign of more permanent things to come.” They assert the importance of innovation for achieving growth, writing “productivity is expected to be the main driver of economic growth and well-being over the next 50 years, via investment in innovation and knowledge-based capital.”
International engagement is integral to PPI’s mission of policy innovation, going back to the “third way” dialogues we helped to launch back in the 1990s. In addition to multiple visits to Brussels and other European capitals over the past several years, PPI went to Australia last summer to unveil a unique study of the “App Economy” Down Under. Underscoring the value of such global outreach, the host for that July 2014 event, Communications Minister Malcolm Turnbull, just became Australia’s Prime Minister.
Extending our efforts in the Asia-Pacific region, we’ve just returned from a fascinating two-week foray to Japan, Vietnam, and Indonesia. Here’s a brief report on our trip, which centered on two new studies of the App Economy in Southeast Asia, as well as our work to support President Obama’s push for the Trans-Pacific Partnership (TPP).
It began on Sept. 7 (Labor Day) in Tokyo, where PPI’s traveling party was briefed by top officials of Ministry of Economy, Trade, and Industry (METI) on Japan’s priorities for the TPP negotiations, Among other things, we discussed TPP’s importance in supporting increased trade by small and mid-sized U.S. and Japanese firms, and we emphasized TPP’s critical role in promoting the cross border data flows on which the global economy increasingly depends.
At the Ministry of Defense, we received a broad survey of regional security concerns, including China’s “creeping expansion” and island-building activities in the South China Sea. This briefing helped to provide context for Prime Minister Shinzo Abe’s controversial new security proposals, which are intended to allow Japan’s armed forces more latitude in joining mutual defense efforts in the region, including joint exercises with U.S. forces.
Energy also figured prominently in our talks. From directors of the Agency for Natural Resources and Energy and Office for International Nuclear Energy Cooperation, we learned that the post-Fukushima shutdown of nuclear energy has left Japan importing an amazing 96 percent of its energy, leaving it hugely dependent on coal and Middle East oil. Little wonder that Japan is gradually bringing nuclear reactors back on line and trying to tilt its portfolio more toward natural gas and renewable solar and wind power. The United States could support these efforts by a key ally by lifting outdated restrictions on U.S. oil and gas exports.
Other key meetings in Tokyo included a wide-ranging conversation on U.S.-Japan relations and the progress of “Abenomics” with the Japan Institute of International Affairs (JIIA), as well as a roundtable discussion with the American Chamber of Commerce in Japan on the investment climate in Japan, the government’s efforts to stimulate economic growth, and the attempts to stimulate innovation in regenerative medicine.
PPI next traveled to Vietnam, a country in the throes of rapid economic development and modernization. In Ho Chi Minh City, we met with city officials eager to lower legal and regulatory barriers to foreign investors, as well as leaders of the city’s University of Technology and Education, an American-founded college that is trying to meet the economy’s insatiable demand for engineers and technicians.
If Ho Chi Minh City is Vietnam’s business center, Hanoi is the seat of a government firmly controlled by the Communist Party. There, PPI released“Vietnam and the App Economy,“ a report by our chief economic strategist Michael Mandel. Using a methodology Mandel pioneered in measuring the number of U.S. app-related jobs since the introduction of the smartphone in 2007, the study shows that Vietnam ranks surprisingly high in app job growth – first, in fact, in Southeast Asia (including Thailand, Malaysia, Singapore, Indonesia and the Philippines).
The report warns, however, that new regulations under consideration – for example, a rule that would prohibit data from leaving Vietnam – could crimp the development of the country’s nascent digital sector. What’s more, the wisdom of a heavy state role in certain sectors, such as telecom and mobile broadband, was the subject of some very spirited discussions with our hosts.
PPI’s visit and Dr. Mandel’s report were well-received in the Vietnamese media, gaining positive coverage from the Vietnam News Agency, ICT News Vietnam,Vietnam Breaking News, The Voice of Vietnam, andVietnamPlus.
PPI also released a second report, “TPP and the Benefits of Freer Trade for Vietnam: Some Lessons from U.S. Free Trade Agreements,”at an event organized by the American Chamber of Commerce in Hanoi, which included leading Vietnamese economists and economic reformers. Written by Ed Gerwin, who directs PPI’s Trade and Global Opportunity project, the report shows how countries that use high-standard free trade agreements to enhance transparency and the rule of law, adopt higher labor and environmental standards, and make other key reforms often see significant growth in foreign investment, greater innovation, and broader participation in global commerce. Gerwin’s report garnered media coverage in The Hill and theCommunist Party of Vietnam’s Online Newspaper.
Our schedule also included meetings with top-level officials from Vietnam’s Ministries of Foreign Affairs, Information and Communication, and Science and Technology, as well as visits to Saigon Hi-Tech Park, the U.S. Embassy, Viettel Corporation, FPT Software, and Vietnam Silicon Valley.
From Hanoi it was on to our final destination, Indonesia. At a packedpublic forum in Jakarta hosted by Mastel, an association of leading Indonesian and foreign companies, we released another Mandel study, “Indonesia: Road to the App Economy.”That was followed by a roundtable featuring top Indonesian government officials, business leaders and economists. PPI’s core premise – that emerging market economies, such as Indonesia, should not overlook possibilities for growth arising from the intangible, or data-driven economy, as well as traditional, labor-intensive manufacturing – sparked a lively discussion.
The report and Dr. Mandel’s public comments were quoted inCNN Indonesia, Bisnis Indonesia (the leading business print newspaper in the country), Detik.com (the number one online news outlet in Indonesia), andKompas Online(the number one print newspaper by circulation).
The PPI delegation included Will Marshall, Michael Mandel, Lindsay Lewis, Cody Tucker, and Ed Gerwin. We will continue to find ways to engage on policy issues globally, as the new economy being fostered by U.S. innovation needs better international understanding and increased appreciation. We hope you will find the opportunity to join us in the coming year as we push for unique policy solutions at home and abroad.
Every once in a while, personal injury lawyers come up with new ways to sue that can be real head scratchers. Courts usually weed out these theories, but they get through on occasion. This happened last year in Alabama, where the Alabama Supreme Court held that a company can be subject to liability, not for its own products, but for products entirely made and sold by its competitors. This theory for liability has been dubbed “innovator liability” because it is used primarily against companies that invent new products even though the plaintiffs in the cases are alleging that they have been harmed only by similar or “knock-off” products of other companies.
In May, the Alabama Legislature and Governor, in a swift bipartisan manner, overturned their state Supreme Court’s innovator liability ruling. Alabama’s policymakers appreciated that it makes no legal or economic sense for innovators to own the liability for an entire product line. In addition to being legally unprincipled, this liability theory punishes innovation, which could have devastating long-term impacts on consumers and businesses alike. The downsides of such liability are too great.
JAKARTA—The Progressive Policy Institute (PPI) today released a new policy report at a public forum in Jakarta, which measures the growing contribution of digital innovation to the Indonesian economy, compares the environment for investment in Indonesia to other locations in Southeast Asia, and warns of potential policy pitfalls and regulations that might harm future digital growth and economic prosperity in the country.
The report, “Indonesia: Road to the App Economy,” is an effort to measure the thousands of app-related jobs created in Indonesia since the introduction of the smartphone in 2007. Based on a methodology PPI Chief Economic Strategist Dr. Michael Mandel has developed to estimate app job growth in the United States, Great Britain, Australia, and Vietnam, the study is the first to quantify the number of Indonesian jobs directly related to the building, maintenance, support and marketing of applications for smart-devices.
“Up to this point, Indonesia has not been focused on app development. Nevertheless, the country has a rapidly growing number of app developers—these are the people who design and create the apps distributed domestically and internationally,” said Dr. Mandel, author of the report. “Moreover, Indonesian companies that do app development also have to hire sales people, project managers, database programmers, and other types of workers. Finally, each app developer supports a certain number of local jobs.
“In this paper, we estimate that Indonesia has roughly 22,000 App Economy jobs across the entire country. In addition, we show that Indonesia comes in third in our App Economy ranking of major Southeast Asia countries, behind Vietnam and just behind Singapore.
“Why is this important? The implication is that production of mobile apps—both for the domestic and global economies—could become an increasing source of growth in coming years for Indonesia. The Indonesian government is facing an important economic policy decision. Countries are better off nurturing a strong position in mobile app development. The key to growth is to be a creator of mobile apps, not simply a user. That strategy creates a workforce with the right skills and training to prosper in the global economy going forward.”
Indonesia’s growth rate has been slowing in recent years. In the second quarter, GDP grew 4.7% over the same quarter of the previous year, the smallest gain since 2009. Part of that slowdown is due to global economic weakness that has hurt commodity exports. However, that only points out the need to find another, more sustainable engine for growth for the Indonesian economy.
President Joko Widodo, in office since October 2014, seeks to transform Indonesia from an economy that imports manufacturing products such as telecommunications equipment into one that produces them. Indeed, his administration’s emphasis on production has included domestic content rules for smartphones using advanced networks, as a way of allowing Indonesia to participate in the global mobile revolution as producer rather than a consumer.
In this paper we take another perspective on Indonesia’s economy. Rather than focusing on hardware, we examine the potential of the production of mobile applications (“apps”) as a source of growth and jobs for Indonesia. The App Economy, as it is sometimes called, is the whole ecosystem of jobs, companies, and in- come connected with the production and distribution of mobile apps.
Many people mistakenly think of mobile apps as simply games or chat programs or social media. Games and social media are important—but in reality, they are only a small part of the App Economy. Apps are used by major multinationals, banks, media companies, retailers, and governments. As of July 2015, there were 1.6 million apps available for Android, and another 1.5 million available on Apple’s App Store.
App development is one route to economic success for a country such as Indonesia that has a large internal market. Today, many countries try to develop their manufacturing sector as a means to growth, emulating China and Korea. However, such a strategy necessarily requires a large investment in physical capital, not just for the factories but for the transportation infrastructure and power grid as well. Building and improving highways, rail lines, and ports is expensive and time consuming.
By comparison, mobile app development requires far less physical capital, and has the potential for paying off much more quickly. Moreover, going forward, mobile apps could be a major source of value-added and growth. What’s required is a skilled workforce and good telecom connections, both domestically and internationally. But once these are in place, a country such as Indonesia can become part of the global App Economy, creating good jobs and growth at home.
