Category: Uncategorized

Wingnut Watch: End-of-the-Year Standoff

Posted on by The Progressive Policy Institute

The end of the calendar year always means an assortment of “temporary” policies are approaching expiration, including some (e.g., upward revision of reimbursement rates for Medicare providers, and a “patch” to avoid imposition of the Alternative Minimum Tax on new classes of taxpayers) that happen every year. And then there are other expiring provisions central to the Obama administration’s efforts to deal with the recession, most notably unemployment benefits for the long-term unemployed, and last year’s major “stimulus” measure, a temporary Social Security payroll tax cut.

With the collapse of the deficit reduction supercommittee and an uncertain future ahead for the “automatic sequestrations” of spending that are supposed to subsequently occur, leaders in both parties are especially sensitive at the moment about taking steps on either the spending or revenue side of the budget ledger that add to deficits. But some of the “fixes” mentioned above are political musts, while others are highly popular or scratch particular ideological itches. It will be interesting to see whether conservative activists wind up taking a hard line against deficit increasing measures, and indeed, against any cooperation with Democrats so long as their own demands for “entitlement reform” and high-end tax cuts are ignored.

The payroll tax cut is an especially difficult subject for conservatives. While it will be easy for them to reject Senate Democratic proposals to pay for an extension of the cut with a surtax on millionaires, it is certainly possible, as Senate Republican leader Mitch McConnell has acknowledged, to “pay for” this tax cut with spending cuts, perhaps even some that Democrats would consider supporting.

Some conservatives, however, view any deal with Democrats on this and any other fiscal issues as a deal with the devil. One of McConnell’s deputies, Sen. John Kyl, has argued that the payroll tax cut hasn’t boosted the economy (i.e., it is not targeted to “job creators,” the wealthy) and should be subordinated to tax cut ideas that supposedly do. In an argument that is getting echoed across Wingnut World, RedState regular Daniel Horowitz suggests that GOPers make any payroll tax cut extension conditional on a major restructuring of Social Security, which of course ain’t happening.

Since virtually all the end-of-year measures under discussion will boost the budget deficit, and there are limited noncontroversial “offsets” available (mainly “distribution” of new savings attributed to the drawdown of troops in Iraq and Afghanistan), the key question will be which ones conservatives choose to pick a fight over and which ones slide quietly past the furor on unrecorded voice votes and last-minute agreements. If congressional Republicans seem to be acting in too accommodating a manner, it would not be surprising to see GOP presidential candidates using them as foils for their own claims to the “true conservative” vote as the January 3 Iowa caucuses grow ever nearer.

For the umpteenth consecutive week, the presidential contest remained full of surprises and volatility. Herman Cain’s campaign, already losing steam after his poor handling of both sexual harassment/assault allegations and the most recent debates, took perhaps a terminal blow from a new, credible-sounding allegation (made, interestingly enough, via a local Fox station in Atlanta, not some precinct of the “liberal media”) of a long-term adulterous affair. While Cain is again denying he did anything wrong, conservatives are not rushing to his defense this time, and the general feeling is that his campaign is done.

If Cain actually withdraws, it has long been assumed he would endorse Mitt Romney. But as a new analysis by Public Policy Polling showed, Cain’s supporters are very, very likely to move virtually en masse to Newt Gingrich, whose star continued to rise last week. His big news was an endorsement by the New Hampshire (formerly Manchester) Union-Leader, that sturdy right-wing warhorse of GOP politics. This step immediately makes Gingrich the most formidable rival to Mitt Romney in the Granite State: the Union-Leader does not simply endorse and ignore candidates; it can now be expected to undertake a virtually-daily bombardment of front-page editorials defending its candidate and treating his intraparty opponents (particularly Romney) as godless liberal RINOs.

But the impact of the endorsement goes far beyond New Hampshire, given the Union-Leader’s reputation for the most abrasive sort of wingnuttery. It materially helps him solidify his reputation for conservative ideological regularity, which is about to be brought into serious question by all the other campaigns, which are doubtless sorting through their bulging oppo research files on the talkative former Speaker, trying to decide which lines of attack are most lethal.

So far the he’s-not-a-true-conservative attack on Gingrich has been largely limited to his new, dangerous positioning on immigration, unveiled in a recent debate. Gingrich has been quick to stress that his proposal for a “path to legalization” for some undocumented workers does not involve citizenship, and denies its beneficiaries any government benefits whatsoever. But Iowa’s highly influential nativist champion Steve King has already branded Newt’s plan with the scarlet A-word of “amnesty,” and Michele Bachmann is trying to draw a new line in the sand suggesting that true conservatives favor deportation of every single “illegal.”

At this point, the presidential contest appears to be something of a race between Gingrich and his past words and deeds. There is a small window between now and the period immediately before and after Christmas (when something of a truce is imposed) when his opponents can try to bury him as a flip-flopper, an inveterate bipartisan, and a guy whose personal life (not just his marriages and divorces, but his finances) has been less than godly. If they don’t get their act together to do so, he’s looking very strong in Iowa, and even if he loses to Romney in New Hampshire, Gingrich is currently sporting large polling leads in South Carolina and Florida. Particularly for those candidates (Perry, Bachmann, Santorum; Ron Paul is in something of a class by himself) still hoping to seize the mantle of the true-conservative-challenger-to-Romney after Iowa, it’s getting close to desperation time.

Photo credit: FNS/cc

Innovation by Acquisition: New Dynamics of High-tech Competition

Posted on by The Progressive Policy Institute

Right now policymakers are grappling with the implications of slow economic growth in the United States and the rest of the industrialized world. One response is austerity—cutting back on spending, accepting reduced living standards, and slowly digging out from the mess.

A better option, though, is innovation, which accelerates growth, creates new jobs, and makes U.S. products and services more competitive world-wide.  Innovation has the potential for raising incomes, an especially important task given that real median household incomes have fallen more than 10 percent since the beginning of the recession.

While innovation can come from any industry, the technology sector is particularly important, as it has been the main source of growth and innovation in the economy for the past 35 years.  The locus of innovation started with the personal computer in the late 1970s and 1980s; shifted to software and the internet in the 1990s; and now has moved to mobile, search, and more broadly communications, where U.S. companies are world leaders. Today’s technological advances have facilitated the emergence of innovation “ecosystems,” or platforms on which many different companies can build products or provide services.

The growth of tech companies stems from a combination of organic growth and business acquisitions, driven by the rapidity of innovation. It’s a virtuous circle, where successful technology companies pay large sums for small startups, which in turn induces the formation of more startups. For that reason, technology acquisitions need not diminish competitiveness, even as they accelerate innovation and job growth.  Indeed, as we will see later in this paper, periods of high levels of acquisition have also been periods of rapid job growth.

One question is whether there is anything that government policy can do to encourage technology innovation in the short run.  The answer is probably not—while the government does have plenty of long-term levers, such as spending on basic research and investment in science and engineering education, there are few ways to speed up innovation over the next year.  On the other hand, government policy is actually quite capable of discouraging innovation in the short-run, through outdated regulation and restrictive antitrust policy that does not take the importance and uniqueness of the technology sector into consideration.

Antitrust policy, as applied to the technology sector in its current form, can impede the virtuous circle of nurturing innovation through startups and acquisitions. By slowing down or blocking acquisitions, antitrust policy can limit the exit routes for startups, potentially reducing their value and making it less attractive for investors to put their money into the next round of innovative new companies.

This paper will explore the role of technology acquisitions in encouraging innovation, facilitating economic growth, stimulating jobs, and enhancing our quality of life. First, this paper examines past trends in technology acquisitions, establishing that waves of industry acquisitions have been an integral part of the rapid innovation in tech since the 1980s.  We focus in particular on the post-2005 acquisitions by major tech firms.

Second, we examine the question of whether technology acquisitions facilitate innovation, and in particular high-impact innovations. In fact, the benefits to the rest of the economy are connected to the speed at which potential innovations are moved to market and scaled up. This is because the value created from rapid technological innovation is distributed across all users of the new technology.

Further, this paper will show that periods with high levels of acquisitions generally also tend to be periods of rapid employment growth. This is not meant to be an assertion of causality, but to rather argue that tech acquisitions are part of the same innovative process as employment growth.

To summarize: (1) when done correctly, acquisitions in the technology sector can and have encouraged innovation by bringing new products to market faster and more effectively; and (2) acquisitions and innovation in the technology sector are positively associated with economic growth and job creation. What’s more, mainstream economic theory associates sustainable economic growth in the long-term with constant innovation and technological progress. Looking at technology acquisitions from this perspective provides a different framework from which to assess the potential implications of excessive antitrust regulations, and current antitrust policy.

Antitrust and the Technology Sector

Posted on by The Progressive Policy Institute

Can government policy encourage technology innovation in the short run? Probably not—while the government does have plenty of long-term levers, such as spending on basic research and investment in science and engineering education, there are few ways to speed up innovation over the next year.

Rather, government policy is actually quite capable of discouraging innovation in the short-run, through outdated regulation and restrictive antitrust policy that does not take the importance and uniqueness of the technology sector into consideration.

While innovation can come from any industry, the technology sector is particularly important, as it has been the main source of growth and innovation in the economy for the past 35 years. Technological advances over the last decade have facilitated the emergence of innovation “ecosystems,” or platforms on which many different companies can build products or provide services, in which mergers and acquisitions have played a large part.  Moreover, a unique feature of the technology sector is that the constant innovation companies need to stay profitable creates new markets and keeps competition active.

However, antitrust policy its current form does not recognize these characteristics. Instead, current application of antitrust regulations can impede the virtuous circle of nurturing innovation through startups and acquisitions. By slowing down or blocking acquisitions, antitrust policy can limit the exit routes for startups, potentially reducing their value and making it less attractive for investors to put their money into the next round of innovative new companies. In this regard antitrust policy has the potential to slow the speed of technological innovation, even though the benefits to the rest of the economy are connected to the speed at which new innovations are moved to market and scaled up.

In Innovation by Acquisition: New Dynamics of High-tech Competition, we explore the role of technology acquisitions in encouraging innovation, facilitating economic growth, and stimulating jobs. Specifically, we examine the question of whether technology acquisitions facilitate innovation, and in particular high-impact innovations. We argue that, when done correctly, acquisitions in the technology sector can and have encouraged innovation by bringing new products to market faster and more effectively.

What’s more, we find that acquisitions and innovation in the technology sector are positively associated with economic growth and job creation, an important consideration as we struggle to devise new, cost-effective ways to stimulate the economy and create jobs.

Looking at technology acquisitions from this perspective provides a different framework from which to assess the potential implications of excessive antitrust regulations, and current antitrust policy.

Scale and Innovation in Today’s Economy

Posted on by The Progressive Policy Institute

Conventional wisdom these days says that small is better when it comes to innovation and putting new ideas into practice. Large enterprises are typically thought of as hidebound defenders of the status quo, dominating by market power and brute force rather than technological and innovative prowess.

Yet reality is far more complicated than this simple small versus big distinction. As we all know many common-sense beliefs turn out to be only partly true, or not to be true at all.

In this policy memo we will reconsider the link between scale (size) and innovation. After 20 years where startups have rightly dominated the innovation headlines, we will show that the pendulum may be swinging back. As a result, there are reasons to believe that scale may be a plus for innovation in today’s economy, not a minus. We will then relate scale to government policy, U.S. competitiveness and prosperity.

In this policy memo we will reconsider the link between scale (size) and innovation. After 20 years where startups have rightly dominated the innovation headlines, we will show that the pendulum may be swinging back. As a result, there are reasons to believe that scale may be a plus for innovation in today’s economy, not a minus. We will then relate scale to government policy, U.S. competitiveness and prosperity.

The now-heretical idea that scale is an advantage for innovation actually dates back more than 60 years. Back then, Harvard economist Joseph Schumpeter, the inventor of the term ‘creative destruction’, suggested that large-scale firms were “the most powerful engine of progress.” Following after his work, economists developed what came to be known as the “Schumpeterian Hypothesis.” The first part of the Schumpeterian Hypothesis was the argument that bigger firms have more of an incentive to spend on innovation than a smaller one. For example, if we compare a company that manufactures 50 million t-shirts a year versus one that manufactures 10,000 t-shirts a year, the larger company is much more like to spend the big bucks needed to develop and test a new process for dyeing the t-shirts.

The second part of the Schumpeterian Hypothesis is the observation that companies with more market power might also be more willing to invest in innovation. The argument is that if a firm in an ultra-competitive market innovates, the new product or service is quickly copied by rivals, so that the gains from innovations are quickly competed away. Conversely, a firm with market power has the ability to hold onto some of its gains from innovation, so it may pay to invest in product or other improvements.

Together, these two conjectures are among the most controversial and most widely studied of economic theories. Economists and business experts have generated a long series of theoretical papers, econometric analyses, case studies, and anecdotal reports, examining the impact of scale on innovation.

After all this research, we can summarize the economic evidence for and against the Schumpeterian hypothesis in two words: It depends. Part of the problem is that innovation influences scale, as well as vice versa. A successful and innovative small or medium-size company will often grow to be a successful and innovative large company, which perhaps dominates its market because of its very success.

At the same time, the link between scale and innovation, positive or negative, depends on the economic environment. In this policy memo, we will suggest that the current U.S. economy is dealing with a particular set of conditions that will make scale a positive influence on innovation. First, economic and job growth today are increasingly driven by large-scale innovation ecosystems, such as the ones surrounding the iPhone, Android, and the introduction of 4G mobile networks. These ecosystems require management by a core company or companies with the resources and scale to provide leadership and technological direction. This task typically cannot be handled by a small company or startup.

Second, globalization puts more of a premium on size than ever before. A company that looks large in the context of the domestic economy may be relatively small in the context of the global economy. In order to capture the fruits of innovation, U.S. companies have to have the resources to stand against foreign competition, much of which may be state supported.

Finally, the U.S. faces a set of enormous challenges in reforming large-scale integrated systems such as health, energy, and education. Conventional venture-backed startups don’t have the resources to tackle these mammoth problems. Only large firms have the staying power and the scale to potentially implement systemic innovations in these industries.

We finish this policy brief with some observations about scale, innovation, and government policy. In particular, we raise questions about whether an aggressive policy of filing antitrust actions against America’s key technological leaders is really the optimal course for improving U.S. competitiveness, raising living standards, and boosting job growth in the U.S.

Read the entire memo.

Additional Content

Posted on by The Progressive Policy Institute

Another post is added to the “PPI in the News” category for the sake of illustrating the theme’s ability to manipulate dynamic content. In this case, the dynamic content is the number of posts associated with a particular category.

This post has a featured image but does not contain the same image embedded in the post, for the sake of demonstrating the differences between posts with embedded images and those without.

New Site Launch

Posted on by The Progressive Policy Institute

This is the launch of the new site. There is a picture of President Barack Obama speaking at a conference honoring various members of the United States Army. The picture is only here to illustrate the theme’s capabilities surrounding a post’s featured image. This post has the photo set as the featured image but also is contained within the post.

It’s not necessary to embed the image within the post. The featured image will still display next to the post when the post is listed on a page, either for a category listing, tag, or archive.

501 Shareholders: Redefining Public Companies to Help Emerging Firms

Posted on by The Progressive Policy Institute

In 2004, Google made headlines by “going public,” raising $1.7 billion in what was then the biggest initial stock offering since the heady days of the tech boom. Next spring, Facebook is expected to make its debut with a $10 billion initial public offering (“IPO”)—one of the largest ever.

Dreams of a splashy IPO may spur many entrepreneurs, but in reality, fewer and fewer companies are going public. While the stock exchange has long been the fastest and easiest way for companies to finance their growth, reaching the public market is getting tougher for emerging companies.

Thanks to a combination of legislative, regulatory, and technological changes, going public is more expensive, more burdensome, and less appealing than in the past—especially for younger, smaller, and less sexy companies that aren’t expected to become Google-sized blockbusters. One recent study puts the average cost of going public at $2.5 million, plus ongoing annual costs of $1.5 million a year to keep up with paperwork and regulatory requirements.

The result has been a drought in IPOs and a crisis in access to capital for young companies seeking to grow. From 1991 to 2000, the U.S. stock markets saw an average of 530 IPOs every year.Since then, the average annual number of newly-minted public companies has plummeted to about one-fourth that number.In 2009, just 61 companies went public.Moreover, the number of public companies listed on U.S. stock exchanges shrank from 8,000 in 1995 to 5,000 in 2010.

But at the same time that going public has become tougher for younger companies, outdated rules are forcing some firms to either go public prematurely—or else radically curtail their growth to stay private. The problem is an outdated cap on the number of shareholders that a company can have before it’s essentially required to go public. The so-called “500 shareholder rule”—first promulgated in 1964 to define the “public” companies in need of regulatory oversight—now poses a significant hurdle to growth for many companies. These firms may not be ready or don’t want to go public but have few other options for raising capital because they can’t expand their investor pool. Thus, some companies nearing the 500-shareholder threshold may face an unpalatable choice: either bear the financial and regulatory costs of going public or forego opportunities for growth.

By raising the shareholder threshold to 1,000 or 2,000, as policymakers such as Sens. Tom Carper and Pat Toomey and Rep. David Schweikert have proposed, younger companies will have more room to grow, invest and create jobs, as well as more flexibility before making the plunge into going public. Coupled with other efforts to fix the broken IPO market, an amendment to this rule could give younger and smaller companies a much-needed boost toward growth.

Amending this rule would also be an important step in modernizing and reorienting the nation’s overall regulatory scheme toward promoting innovation—an effort that is crucial to America’s future economic renewal.

Read the entire brief.

Will Marshall Offers 2011 Top Policy Innovation in Politico’s Arena

Posted on by The Progressive Policy Institute

PoliticoPPI President Will Marshall offers his thoughts on the most important policy innovation in 2011 to Politico’s Arena:

“Michael Mandel, PPI’s chief economic strategist, has proposed a creative fix: a Regulatory Improvement Commission (RIC) modeled on the BRAC Commissions for evaluating military base closures. The RIC will take a principled approach to evaluating and pruning existing regulations, gather input from all stakeholders (not just business or just agencies) and do so in a manner that ensures we protect public health, safety and the environment.”

Read the full post here.

Scale and Innovation in Today’s Economy

Posted on by The Progressive Policy Institute

Conventional wisdom these days says that small is better when it comes to innovation and putting new ideas into practice. Large enterprises are typically thought of as hidebound defenders of the status quo, dominating by market power and brute force rather than technological and innovative prowess.

Yet reality is far more complicated than this simple small versus big distinction. As we all know many common-sense beliefs turn out to be only partly true, or not to be true at all.

In this policy memo we will reconsider the link between scale (size) and innovation. After 20 years where startups have rightly dominated the innovation headlines, we will show that the pendulum may be swinging back. As a result, there are reasons to believe that scale may be a plus for innovation in today’s economy, not a minus. We will then relate scale to government policy, U.S. competitiveness and prosperity.

In this policy memo we will reconsider the link between scale (size) and innovation. After 20 years where startups have rightly dominated the innovation headlines, we will show that the pendulum may be swinging back. As a result, there are reasons to believe that scale may be a plus for innovation in today’s economy, not a minus. We will then relate scale to government policy, U.S. competitiveness and prosperity.

The now-heretical idea that scale is an advantage for innovation actually dates back more than 60 years. Back then, Harvard economist Joseph Schumpeter, the inventor of the term ‘creative destruction’, suggested that large-scale firms were “the most powerful engine of progress.” Following after his work, economists developed what came to be known as the “Schumpeterian Hypothesis.” The first part of the Schumpeterian Hypothesis was the argument that bigger firms have more of an incentive to spend on innovation than a smaller one. For example, if we compare a company that manufactures 50 million t-shirts a year versus one that manufactures 10,000 t-shirts a year, the larger company is much more like to spend the big bucks needed to develop and test a new process for dyeing the t-shirts.

The second part of the Schumpeterian Hypothesis is the observation that companies with more market power might also be more willing to invest in innovation. The argument is that if a firm in an ultra-competitive market innovates, the new product or service is quickly copied by rivals, so that the gains from innovations are quickly competed away. Conversely, a firm with market power has the ability to hold onto some of its gains from innovation, so it may pay to invest in product or other improvements.

Together, these two conjectures are among the most controversial and most widely studied of economic theories. Economists and business experts have generated a long series of theoretical papers, econometric analyses, case studies, and anecdotal reports, examining the impact of scale on innovation.

After all this research, we can summarize the economic evidence for and against the Schumpeterian hypothesis in two words: It depends. Part of the problem is that innovation influences scale, as well as vice versa. A successful and innovative small or medium-size company will often grow to be a successful and innovative large company, which perhaps dominates its market because of its very success.

At the same time, the link between scale and innovation, positive or negative, depends on the economic environment. In this policy memo, we will suggest that the current U.S. economy is dealing with a particular set of conditions that will make scale a positive influence on innovation. First, economic and job growth today are increasingly driven by large-scale innovation ecosystems, such as the ones surrounding the iPhone, Android, and the introduction of 4G mobile networks. These ecosystems require management by a core company or companies with the resources and scale to provide leadership and technological direction. This task typically cannot be handled by a small company or startup.

Second, globalization puts more of a premium on size than ever before. A company that looks large in the context of the domestic economy may be relatively small in the context of the global economy. In order to capture the fruits of innovation, U.S. companies have to have the resources to stand against foreign competition, much of which may be state supported.

Finally, the U.S. faces a set of enormous challenges in reforming large-scale integrated systems such as health, energy, and education. Conventional venture-backed startups don’t have the resources to tackle these mammoth problems. Only large firms have the staying power and the scale to potentially implement systemic innovations in these industries.

We finish this policy brief with some observations about scale, innovation, and government policy. In particular, we raise questions about whether an aggressive policy of filing antitrust actions against America’s key technological leaders is really the optimal course for improving U.S. competitiveness, raising living standards, and boosting job growth in the U.S.

Read the entire memo.

Antitrust and the Technology Sector

Posted on by The Progressive Policy Institute

Can government policy encourage technology innovation in the short run? Probably not—while the government does have plenty of long-term levers, such as spending on basic research and investment in science and engineering education, there are few ways to speed up innovation over the next year.

Rather, government policy is actually quite capable of discouraging innovation in the short-run, through outdated regulation and restrictive antitrust policy that does not take the importance and uniqueness of the technology sector into consideration.

While innovation can come from any industry, the technology sector is particularly important, as it has been the main source of growth and innovation in the economy for the past 35 years. Technological advances over the last decade have facilitated the emergence of innovation “ecosystems,” or platforms on which many different companies can build products or provide services, in which mergers and acquisitions have played a large part.  Moreover, a unique feature of the technology sector is that the constant innovation companies need to stay profitable creates new markets and keeps competition active.

However, antitrust policy its current form does not recognize these characteristics. Instead, current application of antitrust regulations can impede the virtuous circle of nurturing innovation through startups and acquisitions. By slowing down or blocking acquisitions, antitrust policy can limit the exit routes for startups, potentially reducing their value and making it less attractive for investors to put their money into the next round of innovative new companies. In this regard antitrust policy has the potential to slow the speed of technological innovation, even though the benefits to the rest of the economy are connected to the speed at which new innovations are moved to market and scaled up.

In Innovation by Acquisition: New Dynamics of High-tech Competition, we explore the role of technology acquisitions in encouraging innovation, facilitating economic growth, and stimulating jobs. Specifically, we examine the question of whether technology acquisitions facilitate innovation, and in particular high-impact innovations. We argue that, when done correctly, acquisitions in the technology sector can and have encouraged innovation by bringing new products to market faster and more effectively.

What’s more, we find that acquisitions and innovation in the technology sector are positively associated with economic growth and job creation, an important consideration as we struggle to devise new, cost-effective ways to stimulate the economy and create jobs.

Looking at technology acquisitions from this perspective provides a different framework from which to assess the potential implications of excessive antitrust regulations, and current antitrust policy.

Read the entire memo.

Innovation by Acquisition: New Dynamics of High-tech Competition

Posted on by The Progressive Policy Institute

Right now policymakers are grappling with the implications of slow economic growth in the United States and the rest of the industrialized world. One response is austerity—cutting back on spending, accepting reduced living standards, and slowly digging out from the mess.

A better option, though, is innovation, which accelerates growth, creates new jobs, and makes U.S. products and services more competitive world-wide. Innovation has the potential for raising incomes, an especially important task given that real median household incomes have fallen more than 10 percent since the beginning of the recession.

While innovation can come from any industry, the technology sector is particularly important, as it has been the main source of growth and innovation in the economy for the past 35 years. The locus of innovation started with the personal computer in the late 1970s and 1980s; shifted to software and the internet in the 1990s; and now has moved to mobile, search, and more broadly communications, where U.S. companies are world leaders. Today’s technological advances have facilitated the emergence of innovation “ecosystems,” or platforms on which many different companies can build products or provide services.

The growth of tech companies stems from a combination of organic growth and business acquisitions, driven by the rapidity of innovation. It’s a virtuous circle, where successful technology companies pay large sums for small startups, which in turn induces the formation of more startups. For that reason, technology acquisitions need not diminish competitiveness, even as they accelerate innovation and job growth. Indeed, as we will see later in this paper, periods of high levels of acquisition have also been periods of rapid job growth.
Continue reading “Innovation by Acquisition: New Dynamics of High-tech Competition” →

Wingnut Watch: End-of-the-Year Standoff

Posted on by The Progressive Policy Institute

Senator KylThe end of the calendar year always means an assortment of “temporary” policies are approaching expiration, including some (e.g., upward revision of reimbursement rates for Medicare providers, and a “patch” to avoid imposition of the Alternative Minimum Tax on new classes of taxpayers) that happen every year. And then there are other expiring provisions central to the Obama administration’s efforts to deal with the recession, most notably unemployment benefits for the long-term unemployed, and last year’s major “stimulus” measure, a temporary Social Security payroll tax cut.

With the collapse of the deficit reduction supercommittee and an uncertain future ahead for the “automatic sequestrations” of spending that are supposed to subsequently occur, leaders in both parties are especially sensitive at the moment about taking steps on either the spending or revenue side of the budget ledger that add to deficits. But some of the “fixes” mentioned above are political musts, while others are highly popular or scratch particular ideological itches. It will be interesting to see whether conservative activists wind up taking a hard line against deficit increasing measures, and indeed, against any cooperation with Democrats so long as their own demands for “entitlement reform” and high-end tax cuts are ignored.

The payroll tax cut is an especially difficult subject for conservatives. While it will be easy for them to reject Senate Democratic proposals to pay for an extension of the cut with a surtax on millionaires, it is certainly possible, as Senate Republican leader Mitch McConnell has acknowledged, to “pay for” this tax cut with spending cuts, perhaps even some that Democrats would consider supporting.

Some conservatives, however, view any deal with Democrats on this and any other fiscal issues as a deal with the devil. One of McConnell’s deputies, Sen. John Kyl, has argued that the payroll tax cut hasn’t boosted the economy (i.e., it is not targeted to “job creators,” the wealthy) and should be subordinated to tax cut ideas that supposedly do. In an argument that is getting echoed across Wingnut World, RedState regular Daniel Horowitz suggests that GOPers make any payroll tax cut extension conditional on a major restructuring of Social Security, which of course ain’t happening.

Since virtually all the end-of-year measures under discussion will boost the budget deficit, and there are limited noncontroversial “offsets” available (mainly “distribution” of new savings attributed to the drawdown of troops in Iraq and Afghanistan), the key question will be which ones conservatives choose to pick a fight over and which ones slide quietly past the furor on unrecorded voice votes and last-minute agreements. If congressional Republicans seem to be acting in too accommodating a manner, it would not be surprising to see GOP presidential candidates using them as foils for their own claims to the “true conservative” vote as the January 3 Iowa caucuses grow ever nearer.

For the umpteenth consecutive week, the presidential contest remained full of surprises and volatility. Herman Cain’s campaign, already losing steam after his poor handling of both sexual harassment/assault allegations and the most recent debates, took perhaps a terminal blow from a new, credible-sounding allegation (made, interestingly enough, via a local Fox station in Atlanta, not some precinct of the “liberal media”) of a long-term adulterous affair. While Cain is again denying he did anything wrong, conservatives are not rushing to his defense this time, and the general feeling is that his campaign is done.

If Cain actually withdraws, it has long been assumed he would endorse Mitt Romney. But as a new analysis by Public Policy Polling showed, Cain’s supporters are very, very likely to move virtually en masse to Newt Gingrich, whose star continued to rise last week. His big news was an endorsement by the New Hampshire (formerly Manchester) Union-Leader, that sturdy right-wing warhorse of GOP politics. This step immediately makes Gingrich the most formidable rival to Mitt Romney in the Granite State: the Union-Leader does not simply endorse and ignore candidates; it can now be expected to undertake a virtually-daily bombardment of front-page editorials defending its candidate and treating his intraparty opponents (particularly Romney) as godless liberal RINOs.

But the impact of the endorsement goes far beyond New Hampshire, given the Union-Leader’s reputation for the most abrasive sort of wingnuttery. It materially helps him solidify his reputation for conservative ideological regularity, which is about to be brought into serious question by all the other campaigns, which are doubtless sorting through their bulging oppo research files on the talkative former Speaker, trying to decide which lines of attack are most lethal.

So far the he’s-not-a-true-conservative attack on Gingrich has been largely limited to his new, dangerous positioning on immigration, unveiled in a recent debate. Gingrich has been quick to stress that his proposal for a “path to legalization” for some undocumented workers does not involve citizenship, and denies its beneficiaries any government benefits whatsoever. But Iowa’s highly influential nativist champion Steve King has already branded Newt’s plan with the scarlet A-word of “amnesty,” and Michele Bachmann is trying to draw a new line in the sand suggesting that true conservatives favor deportation of every single “illegal.”

At this point, the presidential contest appears to be something of a race between Gingrich and his past words and deeds. There is a small window between now and the period immediately before and after Christmas (when something of a truce is imposed) when his opponents can try to bury him as a flip-flopper, an inveterate bipartisan, and a guy whose personal life (not just his marriages and divorces, but his finances) has been less than godly. If they don’t get their act together to do so, he’s looking very strong in Iowa, and even if he loses to Romney in New Hampshire, Gingrich is currently sporting large polling leads in South Carolina and Florida. Particularly for those candidates (Perry, Bachmann, Santorum; Ron Paul is in something of a class by himself) still hoping to seize the mantle of the true-conservative-challenger-to-Romney after Iowa, it’s getting close to desperation time.

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Regulators: Listen to Workers

Posted on by The Progressive Policy Institute

CWA

AT&T is a big company, which perhaps explains why federal regulators are ganging up to block its proposed merger with T-Mobile. Big must be bad, right?

That’s certainly the view of consumer advocacy groups, which routinely oppose business mergers as threats to competition. They seem to have the ear of the Federal Communications Commission, which announced last week that it would join the Justice Department in opposing the deal, citing concerns about job losses and higher consumer prices.

But there’s another important group of stakeholders that regulators should be listening to: AT&T’s workers. They are urging the government to take a broader view of the merger’s potential impact on U.S. investment and competitiveness.

At a time of shrinking private sector union membership, it’s worth noting that the company’s 42,000 wireless workers are represented by the Communications Workers of America (CWA). The union issued a <a href="mailto:https://files.cwa-union.org/tmobile/20111107_ATTTmo_Real_Story.pdf">report this month</a> strongly supporting the company’s acquisition of T-Mobile as a spur to innovation and a job-creator.

Such arguments merit attention, if only because it’s not often that you find a successful U.S. company in synch with its unionized workforce. Beyond that, however, there are compelling economic reasons for regulators to start looking at proposed mergers through the eyes of America’s producers, not just its consumers.

President Obama, fresh from a tour of the Asia-Pacific, articulated them in a recent radio address. “Over the last decade, we became a country that relied too much on what we bought and consumed,” he said. “We racked up a lot of debt, but we didn’t create many jobs at all.” Reviving U.S. competitiveness, he said, will require Americans to focus more on building things than buying them. Obama also called for “restoring America’s manufacturing might, which is what helped us build the largest middle-class in history.”

Opponents say CWA backs the merger because it has its eyes on T-Mobile’s workers, who aren’t organized. But the union’s analysis of the $39 billion deal emphasizes AT&amp;T’s plans to boost capital investment in the wireless broadband sector. It cites think tank estimates that such investment could produce up to 96,000 new jobs, not including another 5,000 jobs the company promises to bring back to the United States from overseas.

AT&amp;T has said it will merge its networks with those of T-Mobile, and invest an additional $8 billion to expand its 4G LTE wireless broadband infrastructure. It also has pledged to retain T-Mobile’s non-managerial workers. The CWA report asserts that, absent the merger, T-Mobile is headed toward extinction. Having been cut loose by its parent company, Deutsch Telecom, it lacks the capital to acquire spectrum and build its own 4G network.

Opponents of the merger—including AT&amp;T’s competitors as well as consumer groups—say the merger would give the telecom giant too much market power and lead to higher prices. Regulators ought to carefully weigh such claims. But as a forthcoming PPI report argues, mergers and acquisitions among dynamic, high-tech companies often have the effect of spurring more innovation. In the fiercely competitive telecommunications sector, prices for wireless services—voice, text, and data—have been trending downward, even as quality of these services has improved dramatically.

Even so, low consumer prices aren’t the only public interest at stake here. More important is expanding investment—in technological innovation, a highly skilled workforce and world-class infrastructure. This is the only way to make U.S. companies and workers more competitive in global markets that does not entail lowering our standard of living.

As the Progressive Policy Institute has <a href="mailto:https://www.progressivepolicy.org/telecom-investments-the-link-to-u-s-jobs-and-wages">documented here</a>, the telecom sector is leading a dynamic wave of innovation in mobile telephony and broadband that is creating good jobs in the United States. That’s no mean achievement at a time when unemployment is stuck at 9 percent—and about twice that if you take into account people who have given up looking for jobs.

While other corporations chase cheap labor by moving production offshore, we have dubbed communications companies like AT&amp;T, Verizon and Comcast “Investment Heroes” because they are making huge bets on the American economy. Surely that’s something government regulators ought to factor into their decisions.

Our country needs a new model for economic growth that emphasizes production over consumption, saving over borrowing, and exports over imports. Such a shift is essential not only to rebuild the great American job machine, but also to rebalance a global economy that has become overly dependent on U.S. consumers.

It’s time once again for America to be a global center for production—and we need federal regulators to get with the program too.

Photo credit: <strong id="yui_3_4_0_3_1322506314096_1108"><a href="https://www.flickr.com/photos/katgloor/">Kat Gloor</a></strong>

MEMO TO PRESIDENT OBAMA: How to Win On Foreign Policy in 2012

Posted on by The Progressive Policy Institute

You killed Bin Laden and other al Qaeda leaders, helped oust Mohamar Qaddafi, have ended the Iraq war, and protected the country from a massive domestic attack. Voters have noticed: a November Gallup poll has your general foreign policy approval rating up five percent over disapproval, an astounding 63 percent support you on terrorism, and the numbers are good on handling Iraq and even Afghanistan.

More importantly, if you sell your foreign policy achievements in the right way, it will paint you as a strong leader. That’s critical: Americans want their president to project an image of strength, and you’re hurting there right now. Between May (when Usama Bin Laden was killed) and August, the percentage of Americans who viewed you as a strong leader slipped from 55 to 44 percent. Here’s the kicker: If you’re seen as a credible, effective Commander-in-Chief, voters are more likely to believe that your leadership can pull them out of the economic slump.

I realize that you’re not the type of guy who wants to pound the podium and out-flex your opponent. That’s okay. However, you still have to keep in mind that foreign policy is an emotional issue for voters, and that you have to connect with their gut subconscious before you can lead them elsewhere. Below, I offer four ways you can use foreign policy to increase your leadership credentials in 2012.

1. Explain your vision and your values. Having a good track record isn’t worth a damn if you don’t connect with voters. They’ve got to feel you on these issues. Even assuming the GOP nominee is the shape-shifting Mitt Romney, he’ll sell a consistent, militaristic vision of American exceptionalism that might resonate with America’s gut.

Don’t cede that ground, just tell your own version. You might not make a major foreign policy campaign address, but your stump speech absolutely must include your vision of America’s leading place in the world in the 21st century. It doesn’t have to be “rah-rah”. It does have to be convey some emotion using two frames: “strong and smart.”

Explain that you know that the threats facing America have changed since the end of the Cold War, and we must rise to meet the challenge. That requires strong American leadership, complemented by strong alliances and backed the world’s strongest military.

But it also requires a laser-focus on the long term: American strength in the 21st century means being smart, too. Safety at home is enhanced by spreading American values abroad, and that requires more robust diplomacy to expand economic and political opportunity for all. That’s a great way to connect on the economy, too: Economic strength is what drives American power, and that means we need to out-innovate, out-produce, and out-think our challenges.

2. Tell a us a story (often). Specifically, tell us the story of how you decided to send SEAL Team Six to kill Bin Laden. Voters remember stories, not policies. So give them the best you got, because it will reinforce your image as a substantive Commander-in-Chief. You could recount the version you gave CBS’ 60 Minutes in May. It doesn’t have to be overly dramatic: just calmly recount the facts and remember that details are good. The story sells itself, and shows America that you made a bold, gutsy, strong decision. Most importantly, the country, not your administration, was successful.

3. Use military veterans as surrogates: Your campaign should have the most robust veterans surrogate network in the history of American politics. In an age when Congressional approval languishes in the single digits (and yours are in the 40s), guess who the public believes? The military. A September 2011 poll reinforces a standing trend: 92 percent of Americans are confident in the military and hence, its veterans.

Remember the Swiftboat Veterans who sunk John Kerry’s campaign? They tipped the balance because they were credible messengers. This year, you’ve got to get out ahead of the game. A few days ago, I received a campaign-sponsored email from Rob Diamond, who runs “Veterans and Military Families for Obama” (full disclosure: Rob is a friend). You need to give him every resource he asks for because he needs to pack cable news, campaign rallies, and small-town newspapers in military-heavy swing-states like Virginia, North Carolina, Ohio, and Colorado with veterans supporting you as the Commander-in-Chief they were proud to serve.

4. Attack Republicans as reckless. You have to make the public’s decision on national security a binary choice. If you’re to be a strong leader and a tough, competent Commander-in-Chief, you need to define (presumptively) Mitt Romney is reckless and out-of-touch. A poll from back in 2008 found this to be an effective attack against Republicans on foreign policy, and I sense that it would continue to work in 2012.

Why? Well, Romney’s rhetoric isn’t that different from George W. Bush’s. In an October speech at the Citadel, Romney promised to reverse proposed defense cuts, resurrect the neocon missile-defense shield, and build six more navy ships per year, even though America’s wars are coming to a close and the country faces a massive debt issue. Does that sound smart, efficient and strong in the 21st century, or does it echo the reckless George Bush, a playground bully who fights but doesn’t think and remains stuck in the Cold War?

Mr. President, it’s going to be a tough election. But used correctly, you can turn a solid record on matters of foreign policy and national security into a real asset this year, and just maybe tip the balance in a few key states. And how’s this for a bonus? The GOP isn’t expecting that you’d dare try.

If you’ve read this far, you might follow me on Twitter @JimArkedis

Photo credit here.

Wingnut Watch: Supercommittee Failure and the Gingrich Surge

Posted on by The Progressive Policy Institute

The official failure of the congressional “supercommittee” came and went without much hand-wringing in Wingnut World; indeed, the prevailing sentiment was quiet satisfaction that Republicans had not “caved” by accepting tax increases as part of any deficit reduction package. It was all a reminder that most conservative activists are not, as advertised, obsessed with reducing deficits or debts, but only with deficits and debts as a lever to obtain a vast reduction in the size and scope of the federal government, and the elimination of progressive taxation. For the most part, the very same people wearing tricorner hats and wailing about the terrible burden we are placing on our grandchildren were just a few years ago agreeing with Dick Cheney’s casual assertion that deficits did not actually matter at all.

It is interesting that throughout the Kabuki Theater of the supercommittee’s “negotiations,” the GOP’s congressional leadership came to largely accept the Tea Party fundamental rejection of any compromise between the two parties’ very different concepts of the deficit problem. From the get-go, Democrats were offering both non-defense-discretionary and entitlement cuts in exchange for restoring tax rates for the very wealthy to levels a bit closer to (though still lower than) their historic position. The maximum Republican offer was to engage in some small-change loophole closing accompanied by an actual lowering of the top rates in incomes, plus extension of the Bush tax cuts to infinity. Conservatives are perfectly happy to let an on-paper “sequestration” of spending take place, with the expectation that a Republican victory in 2012 will put them in a position to brush aside the defense cuts so authorized and then go after their federal spending targets with a real vengeance.

The GOP presidential candidates have offered two opportunities during the last week for wingnuts of a particular flavor to assess their views and character. The much-awaited Thanksgiving Family Forum in Des Moines was perhaps the first candidate forum of the cycle in which no one even pretended to set aside cultural issues in favor of an obsessive focus on the economy or the federal budget. The format, involving not a debate but a serial interrogation of candidates by focus group master Frank Luntz, was explicitly aimed at getting to each contender’s “worldview,” the classic Christian Right buzzword for one’s willingness to subordinate any and all secular considerations and choose positions on the issues of the day via a conservative-literalist interpretation of the Bible (i.e., one in which phantom references to abortion are somehow found everywhere, and Jesus’ many injunctions to social activism are treated as demands for private charity rather than redistributive efforts by government).

According to The Iowa Republican’s Craig Robinson in his assessment of the event, Rick Santorum, Michele Bachmann and Rick Perry were the only candidates who succeeded in articulating a “biblical worldview” under Luntz’s questioning. Newt Gingrich got secular media attention for his Archie Bunkerish “take a bath and get a job” shot at the dirty hippies of OWS, but inside the megachurch where the event was held, the star was probably Santorum, whose slim presidential hopes strictly depend on Iowa social conservatives adopting him as their candidate much as they united around Mike Huckabee in 2008.

It is interesting that immediately after the event, Rick Perry joined Santorum and Bachmann as the only candidates willing to sign the radical “marriage vow” pledge document released back in July by the FAMiLY Leader organization, the primary sponsor of the Thanksgiving Family Forum. This makes him eligible for an endorsement by FL and its would-be kingmaking founder, Bob Vander Plaats. It appears a battle has been going on for some time in Iowa’s influential social conservative circles between those wanting to get behind a “true believer” like Santorum or Bachmann and those preferring to give a crucial boost to acceptable if less fervent candidates like Perry or Gingrich. The outcome of this internal debate, which was apparently discussed in a private “summit” meeting on Monday, will play a very important role in shaping the endgame of the Iowa caucus contest—as will the decision by Mitt Romney as to whether or not he will fully commit to an Iowa campaign (he is opening a shiny new HQ in Des Moines, which some observers are interpreting as an “all-in” gesture).

Without question, it became abundantly clear during the last week that the “Gingrich surge” in the nomination contest is real, or at least as real as earlier booms for Bachmann, Perry and Cain. The last five big national polls of Republicans (PPP, Fox, USAToday/Gallup, Quinnipiac and CNN) have all showed Gingrich in the lead. The big question is whether and when his rivals choose to unleash a massive attack on the former Speaker based on their bulging oppo research files featuring whole decades of flip-flops, gaffes, failures and personal “issues.”

Interestingly, though, Gingrich may have already opened the door to suspicious wingnut scrutiny without any overt encouragement from his rivals. During the last week’s second major multi-candidate event, the CNN/AEI/Heritage “national security” debate last night, Gingrich may have ignored the lessons of the Perry campaign by risking his own moment of heresy on the hot-button issue of immigration, calling for a Selective Service model whereby some undocumented workers with exemplary records could obtain legal permanent status if not citizenship. He was immediately rapped by Romney and Bachmann for supporting “amnesty.” We’ll soon see if Newt’s long identification with the conservative movement and his more recent savagery towards “secular socialists” will give him protection from such attacks, or if his signature vice of hubris is once again about to smite him now that he’s finally become a viable candidate for president.

Will Marshall On Supercommittee Stalemate in Politico

Posted on by The Progressive Policy Institute

The supercommittee has turned into a superdud. Chalk up another victory for the political thought police, who work hard to prevent our elected leaders from deviating from the party line, exercising independent judgment or risking their political careers for anything as trivial as the national interest.

On the right, twirling figurative billy clubs, stand “no-tax” enforcers like Grover Norquist, Dick Armey and Stephen Moore. Their job is to ensure that any Republican intrepid enough to admit it will take substantial tax revenue to solve the nation’s debt crisis will be branded a traitor — and face a well-financed primary challenger.

Read the full story here.