Starting a new business is hard. Scaling it up to a significant size is harder. Europeans have long fretted about their lack of ‘unicorns’— privately held startups with a valuation of more than $1 billion. More generally, there is a sense that European startups either fail to grow or are bought out by larger companies before they go public or create a significant number of new jobs.
A January 2019 analysis by CB Insights showed only 33 European unicorn companies, compared to 83 in China and 150 in the United States. For example, SoundCloud, an online audio platform, was founded in 2007 in Stockholm and later moved to Berlin. By 2016, it was valued around $700 million, and at one point sought a $1 billion valuation to be sold. However, by 2017, the company was on the verge of bankruptcy, abruptly fired 40 percent of its staff, and closed two offices. By August 2017, the company was valued at just $150 million. Or consider restaurant delivery firm Take Eat Easy, founded in Brussels in 2012. After a year, the company expanded to Paris and raised two rounds of venture capital funding in 2015. Take Eat Easy scaled from 10 to 160 employees and from 2 to 20 cities. But in 2016 Take Eat Easy shut down, citing revenue not yet covering fixed costs and an inability to raise a third round of funding.
Even in the relatively successful United States, it seems that new companies are scaling up less frequently than they used to. The Progressive Policy Institute analyzed Census Bureau data on business dynamics over time, focusing on “young” businesses—aged 6-10 years after being founded. We found that in 2014, 0.05% of young businesses were major employers, defined as having 1,000 or more workers. That’s half the 1994 rate when 0.1% of young businesses were major employers.
Washington has long been a leader in both innovation and health care. Telehealth, which lays at the intersection of the two, is an innovative, cost-effective way to deliver health care to underserved populations. Seeing the value of telehealth, Washington State requires health insurance companies, Medicaid managed care plans, and health plans offered to Washington State employees to reimburse health care providers who provide health care services via telehealth technology.
The rules apply to both real-time transmitted appointments and to “store-and-forward” services which involve information, including images, data and labs, reviewed at a later time – though reimbursement for those services must be explicitly outlined in provider agreements. Telehealth shows particular promise at reducing the costs and hassle associated with renewing contact lens prescriptions.
Despite the low unemployment rate, productivity growth is still stuck in slow gear. Non-farm business output per hour increased by 1.3 percent from the third quarter of 2017 to the third quarter of 2018 – well below the post- war average of 2.2 percent.1 Other countries around the world are also grappling with this slowdown in productivity growth.2 Productivity growth is the primary factor in boosting wages and living standards.
The continued lack of productivity growth arises from several causes. One important issue is a growth shortfall in the amount of capital relative to the amount of labor, where capital represents investment in equipment, structures, software, and other intellectual property.
The Bureau of Labor Statistics (BLS) calculates a measure it calls “capital intensity,” which measures the services produced by capital assets relative to the number of labor hours worked in the non-farm business sector. As shown in Figure 1, capital intensity has grown much more slowly over the past 10 years than in previous 10-year periods.
There has been much debate over the reasons for this shortfall. Some have suggested that corporate managers and stock market investors have become myopic and too focused on short-run returns. Others blame excessive regulation.
But, no matter the reason for the investment shortfall, we think it’s important to identify those companies that are bucking the trend. Starting with our 2012 “Investment Heroes” report, and continuing through this report, we have focused on identifying those companies making the largest capital investments in the United States. By expanding the capital stock, these companies are helping boost productivity and wages, and creating new jobs.
The Progressive Policy Institute’s (PPI) Investment Heroes report provides an exclusive estimate of domestic capital spending for major U.S. companies. Currently, accounting rules do not require companies to report their U.S. capital spending separately. To fill this gap in the data, we created a methodology using publicly-available financial statements from non-financial Fortune 150 companies to identify the top companies that were investing in the United States. That methodology, with small modifications, has been used in each year’s report since the first in 2012.
The GDPR will mean big changes in the way that European and U.S. companies do business in Europe. As we noted at a recent privacy panel, rather than being a matter of speculation, its economic impact has become an empirical question. Will the tighter privacy protections of the GDP slow growth and innovation, as skeptics claim, or will these provisions increase consumer trust and usher in a new era of European digital gains, as supporters say? We await the answers to these questions with great interest.
However, the enforcement stage of the GDPR has not gotten off on the right foot. CNIL, the French National Data Protection Commission, just fined Google 50 million euros for what they called “lack of transparency, inadequate information and lack of valid consent regarding the ads personalization.” The fines were based in part on complaints filed by privacy groups on May 25, 2018, the very day that the GDPR went into effect. Moreover, the complaints were filed in France, despite that fact that Google’s European headquarters are in Ireland.
The location of the complaints is relevant because the most straightforward reading of the GDPR’s “one-stop-shop” principle suggests that the location of a company’s European headquarters is the main factor determining the company’s lead regulator for GDPR purposes. That’s not the only criterion, for sure, but it was only natural for the Irish Data Protection Commission to take the lead role in regulating Google.
The fact that the privacy organizations filed their complaints with France, not Ireland, suggests that they were forum-shopping–looking for a country which would look favorably on the issues they raised. Moreover, France’s willingness to jump to the front of the regulator queue suggests that they were interested in setting a precedent, rather than letting the GDPR process unfold.
Finally, an important part of the rationale behind the GDPR was to further move towards a digital single market, by allowing companies to only deal with a single privacy regulator. If other countries follow France’s lead and find reasons to levy data protection-related fines on multinationals that have their European headquarters elsewhere, then the GDPR will end up fragmenting markets, rather than making them more consistent. That’s a losing proposition for everyone.
When I finish writing the statement, that cat will move,” promises Deshaunte’ Goldsmith, a sixth-grader at Digital Pioneers Academy Public Charter School. She presses enter on the keyboard and, sure enough, the animated cat on her screen begins to pace back and forth.
Goldsmith is a member of the founding class at the school knows as DPA, Washington, D.C.’s first computer science-focused middle school. Opened in August, the school is small, serving about 120 sixth-grade students across four classes but has plans to build out to 12th grade. Every day, students take computer science as a part of their core curriculum.
Today, in computers science, Goldsmith is learning how to write conditional statements — such as if the space bar is pressed, the cat will jump — using MIT’s animation-based platform Scratch. First, the students have to identify conditional statements, and then they have to write their own. At the end of class, they have to find and correct the error intentionally planted in the teacher’s code.
“The error’s in the third line of code,” Goldsmith says. “It’s missing part of the conditional statement.”
DPA occupies the second floor of Washington Heights Baptist Church in the Hillcrest neighborhood of the city’s seventh ward. Ninety-eight percent of the students come from wards seven and eight, D.C.’s poorest neighborhoods, and, because DPA’s leadership recruited heavily in the local area, two-thirds of the students went to the neighborhood elementary schools.
The number of large U.S. manufacturing facilities has dropped by more than a third since 2000, devastating many communities where factories were the lifeblood of the local economy.
One promising way to revive America’s manufacturing might is not by going big but by going small – and going local. Digitally-assisted manufacturing technologies, such as 3D printing, have the potential to launch a new generation of manufacturing startups producing customized, locally-designed goods in a way overseas mega-factories can’t match.To jumpstart this revolution, we need to provide local manufacturing entrepreneurs with access to the latest technologies to test out their ideas. The Grassroots Manufacturing Act would create federally-supported centers offering budding entrepreneurs and small and medium-sized firms access to the latest 3D printing and robotics equipment.
THE CHALLENGE: NEXT-GENERATION U.S. MANUFACTURING NEEDS A JUMPSTART.
The collapse in manufacturing employment and wages drove a stake through the heart of America. Conventional factories making commodity high-volume products could not compete with mega-sized plants in low-wage countries. That’s why many of America’s largest and most productive plants have closed or shrunk sharply since 2000, devastating many less dense areas where local factories were the main source of jobs.
Yet, for all the talk of an intangible data-driven economy, physical industries such as manufacturing and agriculture are still essential to prosperity – especially outside our largest cities. These are, however, precisely the industries where investment, incomes, and jobs have lagged behind, hurting millions of working Americans across the country.
U.S. manufacturing productivity is lagging.
One problem is that many small and medium-size factories have been stuck with old technologies and aging equipment because the owners don’t have the funds to modernize. As a result, productivity in U.S. factories has lagged, the price charged by domestic factories has risen, and the penetration of Chinese products into domestic markets has continued to increase. In 2017, imports from China, adjusted for inflation, rose by 9.4 percent. By comparison, the gross output of U.S. factories rose by only 2.2 percent.
Digitally-assisted manufacturing is the wave of the future, but investment in these technologies is also lagging.
Digitally-assisted manufacturing technologies are potentially game changers for U.S. manufacturing. Local factories using 3D printing, robotics, or similar advances could,for instance, produce customized and locally-designed products – better-fitting clothing, more-comfortable furniture, and customized equipment for businesses – at a price overseas mega-factories can’t match.
Moreover, there’s increasing evidence that digitization can open up new markets and create new jobs. Even the most automated technologies require loads of skilled workers to do the more complicated tasks machines can’t handle. Indeed, the newest term is “cobots” – collaborative robots designed to work with humans (rather than replace them).
Despite these potential rewards, however, the U.S. risks falling behind in this crucial race for next-generation manufacturing. The America Competes Act of 2010 authorized federal loan guarantees for small or medium-sized manufacturers for the use or production of innovative technologies. But no such loan guarantees have been issued.
The Manufacturing Extension Partnership is an excellent program, but its FY2018 funding of $140 million is 15 percent lower, in real terms, than its funding in 1998. The American Innovation and Competitiveness Act of 2017, signed in the last days of the Obama Administration, does offer limited funding for a couple of centers to explore automated manufacturing. However, that’s not enough for a country the size of the United States – not when Japan and Germany are putting much more money into pushing their manufacturing sectors into the future.
Now is the time to beef up our current support for local manufacturing entrepreneurs and create a new wave of digitally-assisted, high-wage manufacturing jobs around the country.
THE GOAL: CREATE 50,000 ADDITIONAL MANUFACTURING STARTUPS OVER THE NEXT FOUR YEARS USING DIGITALLY-ASSISTED TECHNOLOGIES – AND ONE MILLION NEW JOBS.
Digitally-assisted manufacturing technologies will boost productivity, cut costs, and increase flexibility. In the process, that will open up new markets for customized and semi-customized goods.
We advocate a national push to create 50,000 new manufacturing startups across the country to encourage the rebirth of American manufacturing ingenuity at the local level. If each startup employs 20 people, on average, that will mean one million new jobs. The goal is to get scale on new production technologies across the country – not just in one or two centers. We are not talking about industrial policy, or protectionism, or bringing back old and dying industries. Rather, the goal is to help accelerate the next wave of manufacturing prosperity.
THE PLAN:SEED THE CREATION OF STATE AND LOCAL DIGITAL MANUFACTURING CENTERS AND SUPPORT BUDDING MANUFACTURING ENTREPRENEURS.
We advocate a three-part program:
1. Increase access to technology.
It’s essential to provide local manufacturing entrepreneurs access to the latest technologies to test out their ideas. We propose a Manufacturing Grassroots Act that would offer state and local governments funds to set up centers with the latest 3D printing and robotics equipment – along with all the necessary software and training. Budding entrepreneurs and small businesses can apply for access on an “all-comers” basis, to give everyone an opportunity to get in on the ground floor of wealth creation.
2. Guarantee federal loans.
Existing small and medium-size manufacturers need help getting funding for the adoption of the new technologies. That means federal loan guarantees, based on the existing but unutilized program mentioned earlier from the 2010 America Competes Act. It may also mean setting up a new program for low-interest loans to manufacturers who want to digitize.
3. Fund federal research.
At the national level, Congress should budget $300 million to fund federal research to develop the underlying standards for online manufacturing platforms, just like the government developed the underlying standards for the Internet. This work is already going on, but it needs to be accelerated.
ENDNOTES
Michael Mandel, “The Rise of the Internet of Goods: A New Perspective on the Digital Future for Manufacturers,” Progressive Policy Institute and Manufacturers Alliance for Productivity and Innovation, August 2018.
Net neutrality is the basic idea that all internet traffic must be treated equally on the network and no company should be able to block or throttle online traffic in order to gain a competitive leg-up. This is a pro-competitive, prophylactic policy to ensure internet providers don’t unfairly become gatekeepers for online services. It’s a sound bi-partisan pragmatic public policy agreement.
For the last two decades, different versions of net neutrality have bounced between Congress, the Federal Communications Commission, the courts – and most recently the states – but the issue remains unresolved. Even today, the FCC’s most recent “Restoring Internet Freedom” order and local net neutrality rules in California and Vermont remain mired in court while Congress considers several different legislative approaches – none of which have been able to gain majority support.
This chaotic and uncertain approach drags down our economy, undermines investment needed to connect new communities and close the digital divide, and sucks up all the oxygen in the room so that other issues like increasing rural connectivity and reducing the digital divide, protecting elections from foreign interference, and finding ways to bring new competition to digital markets get crowded out. Economists estimate that the overhang of this debate drives away nearly $35 billion a year in network investment and consumer upgrades.
It is time for Congress to solve this problem for good by enacting a strong, pro-consumer net neutrality law – an outcome that is politically possible even in this era of maximalist gridlock and deeply divided government, given the broad consensus that has formed around the vital issue of ensuring an open internet.
Congratulations on your election to the U.S. House of Representatives! In addition to winning your own race, you are part of something larger – the first wave of a progressive resurgence in U.S. politics.
The midterm elections gave U.S. voters their first opportunity to react to the way Donald Trump has conducted himself in America’s highest office. Their verdict was an emphatic thumbs down. That’s an encouraging sign that our democracy’s antibodies are working to suppress the populist virus of demagoguery and extremism.
Now that Democrats have reclaimed the people’s House, what should they do with it? Some are tempted to use it mainly as a platform for resisting Trump and airing “unapologetically progressive” ideas that have no chance of advancing before the 2020 elections. We here at the Progressive Policy Institute think that would be huge missed opportunity.
If the voters increasingly are disgusted with their dissembling and divisive president, they seem even more fed up with Washington’s tribalism and broken politics. For pragmatic progressives, the urgent matter at hand is not to impeach Trump or to embroil the House in multiple and endless investigations. It’s to show Democrats are determined to put the federal government back in the business of helping Americans solve their problems.
We think the House Democratic Class of 2018 should adopt this simple mantra: “Get things done.” Tackle the backlog of big national problems that Washington has ignored: exploding deficits and debt; run-down, second-rate infrastructure; soaring health and retirement costs; climate change and more. And yes, getting things done should include slamming the brakes on Trump’s reckless trade wars, blocking GOP efforts to strip Americans of health care, as well as repealing tax cuts for the wealthiest Americans.
PPI, a leading center for policy analysis and innovation, stands ready to help. We’re developing an extensive “Do Something” Agenda. Today, we are releasing the first in a series of concrete, actionable ideas designed expressly for Democrats who come to Washington to solve problems, not just to raise money and smite political enemies.
As you get settled into your new office, we’ll look for opportunities to acquaint you and your staff with these pragmatic, common-sense initiatives, and to discuss other ways we might be of service to you. That’s what we’re here for.
Regards,
Will Marshall President Progressive Policy Institute
First and foremost, it’s time for Congress to start doing its job on trade. A key step is enacting the Trade Authority Protection (TAP) Act. This balanced legislation would rein in Trump’s abuse of delegated trade powers, require greater presidential accountability, and enable Congress to nullify irresponsible tariffs and trade restrictions.
For the last two decades, different versions of net neutrality have bounced between Congress, the Federal Communications Commission, the courts – and most recently the states – but the issue remains unresolved.
It is time for Congress to solve this problem for good by enacting a strong, pro-consumer net neutrality law – an outcome that is politically possible even in this era of maximalist gridlock and deeply divided government, given the broad consensus that has formed around the vital issue of ensuring an open internet.
The number of large U.S. manufacturing facilities has dropped by more than a third since 2000, devastating many communities where factories were the lifeblood of the local economy.
One promising way to revive America’s manufacturing might is not by going big but by going small – and going local. Digitally-assisted manufacturing technologies, such as 3D printing, have the potential to launch a new generation of manufacturing startups producing customized, locally-designed goods in a way overseas mega-factories can’t match. To jumpstart this revolution, we need to provide local manufacturing entrepreneurs with access to the latest technologies to test out their ideas. The Grassroots Manufacturing Act would create federally-supported centers offering budding entrepreneurs and small and medium-sized firms access to the latest 3D printing and robotics equipment.
As many as 4.4 million U.S. jobs are going unfilled due to shortages of workers with the right skills. Many of these opportunities are in so-called “middle-skill” occupations, such as IT or advanced manufacturing, where workers need some sort of post-secondary credential but not a four-year degree.
Expanding access to high-quality career education and training is one way to help close this “skills gap.” Under current law, however, many students pursuing short-term career programs are ineligible for federal financial aid that could help them afford their education. Pell grants, for instance, are geared primarily toward traditional college, which means older and displaced workers – for whom college is neither practicable nor desirable – lose out. Broadening the scope of the Pell grant program to shorter-term, high-quality career education would help more Americans afford the chance to upgrade their skills and grow the number of highly trained workers U.S. businesses need.
America’s massive health care industry faces three major challenges: how to cover everyone, reduce costs, and increase productivity. Telehealth – the use of technology to help treat patients remotely – may help address all three. Telehealth reduces the need for expensive real estate and enables providers to better leverage their current medical personnel to provide improved care to more people.
Despite its enormous potential, however, telehealth has hit legal snags over basic questions: who can practice it, what services can be delivered, and how it should be reimbursed. As is the case with any innovation, policymakers are looking to find the right balance between encouraging new technologies and protecting consumers – or, in this case, the health of patients.
Telehealth policy has come a long way in recent years, with major advances in the kinds of services that are delivered. Yet a simple change in Medicare policy could take the next step to increase access and encourage adoption of telehealth services. Currently, there are strict rules around where the patient and provider must be located at the time of service – these are known as “originating site” requirements – and patients are not allowed to be treated in their homes except in very special circumstances. To expand access to Telehealth, Congress could add the patient’s home as an originating site and allow Medicare beneficiaries in both urban and rural settings to access telehealth services in their homes.
As many as 41 million Americans live in “higher education deserts” – at least half an hour’s drive from the nearest college or university and with limited access to community college. Many of these deserts are in rural America, which is one reason so much of rural America is less prosperous than it deserves to be.
The lack of higher education access means fewer opportunities for going back to school or improving skills. A less educated workforce in turn means communities have a tougher time attracting businesses and creating new jobs. Congress should work to eradicate higher education deserts. In particular, it can encourage new models of higher education – such as “higher education centers” and virtual colleges – that can fill this gap and bring more opportunity to workers and their communities. Rural higher education innovation grants are one potential way to help states pilot new approaches.
Regulation plays a critical role in refereeing competition in a free market economy. But there’s a problem: Each year, Congress piles new rules upon old, creating a thick sludge of regulations – some obsolete, repetitive, and even contradictory – that weighs down citizens and businesses. In 2017, the Code of Federal Regulations swelled to a record 186,374 pages, up 19 percent from just a decade before. PPI proposes a Regulatory Improvement Commission (RIC), modeled on the highly successful Defense Base Realignment and Closure (BRAC) process for closing obsolete military installations. Like the BRAC process, the proposed RIC would examine old rules and present Congress with a package of recommendations for an up-or-down vote to eliminate or modify outdated rules.
Jumpstarting U.S. production and purchase of Electric Vehicles (EVs) would produce an unprecedented set of benefits, including cleaner air and a reduction in greenhouse gas emissions; a resurgence of the U.S. auto industry and American manufacturing; the creation of millions of new, good, middle class manufacturing jobs; lower consumer costs for owning and operating vehicles; and the elimination of U.S. dependence on foreign oil. U.S. automakers are already moving toward EVs, but the pace of this transition is lagging behind our foreign competitors. A dramatic expansion of tax credits for EV purchases could go a long way toward boosting the U.S. EV industry as part of a broader agenda to promote the evolution of the transportation industry away from carbon-intensive fuels.
More American workers would benefit directly from economic growth if they had an ownership in the companies where they work. To help achieve this goal, Congress should encourage more companies to adopt employee stock ownership plans (ESOPs), which provide opportunities for workers to participate in a company’s profits and share in its growth. Firms with ESOPs enjoy higher productivity growth and stronger resilience during downturns, and employees enjoy a direct stake in that growth. ESOP firms also generate higher levels of retirement savings for workers, thereby addressing another crucial priority for American workers.
Americans are fed up seeing corporate profits soaring even as their paychecks inch upward by comparison. Companies need stronger incentives to share their prosperity with workers – something the 2017 GOP tax package should have included.
Though President Donald Trump promised higher wages as one result of his corporate tax cuts, the biggest winners were executives and shareholders, not workers. Nevertheless, a growing number of firms are doing right by their workers, taking the high road as “triple-bottom line” concerns committed to worker welfare, environmental stewardship and responsible corporate governance. Many of these are so-called “benefit corporations,” legally chartered to pursue goals beyond maximizing profits and often “certified” as living up to their multiple missions. Congress should encourage more companies to follow this example. One way is to offer tax breaks only for high-road companies with a proven track record of good corporate citizenship, including better wages and benefits for their workers.
Doing good pays dividends for both corporations and governments. Just ask Philadelphia.
Azavea is a 65-person software development company based in Philadelphia. Its business is helping governments and nonprofits use geospatial data to achieve various public goals, such as improving traffic flow or reducing pollution. Many would call Azavea a dream employer. It shares its profits with its workers, buys locally, pays generously for training and allows employees to spend 10 percent of their time on personal projects. “We’re very much a people-first, employees-first company,” says CEO Robert Cheetham.
A growing number of firms are, like Azavea, on the leading edge of corporate reforms to make American businesses better stewards of the environment and worker well-being. They are so-called benefit corporations, whose charter explicitly allows them to pursue purposes other than sheer profit. Many are also certified, meaning they’ve met strict standards set by the nonprofit B Lab. More than 2,600 certified “B Corps” operate globally, according to the group, including such well-known brands as ice cream maker Ben and Jerry’s, women’s clothier Eileen Fisher and crowdfunding platform Kickstarter.
Now, an increasing number of governments are facilitating the growth of benefit companies. At least 34 states and the District of Columbia have passed laws — most of them within the past six years — that allow companies to organize as legally recognized benefit corporations. Legal status confers a potentially significant advantage for a company: protection from shareholder liability if executives fail to maximize profit in pursuit of other goals.
The big tech platforms get all the attention these days. But the biggest tech news of 2019 may turn out to be the rise of the manufacturing platforms—companies that rewrite the rules of production and product development, and in the process create new opportunities for local manufacturing.
The economic backdrop is the looming threat of an all-out U.S-China trade war, which places a new premium on domestic sourcing. If trade tensions get worse, highly-scaleable manufacturing platforms will make it much easier for companies and entrepreneurs to open up new factories in the United States and plug them right into the platform.
In many ways manufacturing platforms are the logical outgrowth of existing trends towards outsourcing and factoryless production. Manufacturers have been increasingly separating product design and marketing from the actual production process for years.
Three decades after a top climate scientist warned Congress of the dangers of global warming, greenhouse gas emissions keep rising and so do global temperatures.
Thirty years ago, a NASA scientist, James Hansen, told lawmakers at a Senate hearing that “global warming is now large enough that we can ascribe with a high degree of confidence a cause-and-effect relationship with the greenhouse effect.” He added that there “is only 1 percent chance of accidental warming of this magnitude.”
By that, he meant that humans were responsible.
His testimony made headlines around the United States and the world. But in the time since, greenhouse gas emissions, the global temperature average and cost of climate-related heat, wildfires, droughts, flooding and hurricanes have continued to rise.
This fall, the United Nations Intergovernmental Panel on Climate Change released an alarming report warning that if emissions continue to rise at their present rate, the atmosphere will warm up by as much as 2.7 degrees Fahrenheit (1.5 degrees Celsius) above preindustrial levels by 2040, resulting in the flooding of coastlines, the killing of coral reefs worldwide, and more catastrophic droughts and wildfires.
To avoid this, greenhouse gas emissions would need to fall by nearly half from 2010 levels in the next 12 years and reach a net of zero by 2050. But in the United States, the world’s second-largest emitter of greenhouse gases, President Trump continues to question the science of climate change, and his administration is rolling back emissions limits on power plants and fuel economy standards on cars and light trucks, while pushing to accelerate the use of fossil fuels. Other major nations around the world aren’t cutting emissions quickly enough, either.
So what has happened over the last 30 years? Progress has been made in fits and starts, but not nearly enough has been done to confront the planet-altering magnitude of what we have unleashed. Here’s a look at some of what has occurred:
Economists from Adam Smith onward have understood that free markets don’t exist or thrive in a state of nature. They are nestled within a framework of governance that defends societies against outside threats, writes and enforces common laws, and provides public goods – those that all people need but that private actors would have little incentive or ability to develop on their own.
Unlike private investments, investments in public goods generate benefits that accrue not to individual investors but rather society as a whole. Thus, the responsibility for investing in public goods falls on government: the one institution that represents all citizens and therefore has an obligation to act in the common interest. Public investments such as education, infrastructure, and scientific research lay the foundation for long-term economic growth and shared prosperity. Only by making these investments can governments facilitate the success of private enterprise and free markets.
For over three decades following the end of World War II, policymakers in the United States dutifully fulfilled this obligation and invested in America’s future. The post-WWII G.I. Bill provided unprecedented access to higher education for returning veterans and their families regardless of their financial situation, giving them an opportunity to pursue a lucrative and fulfilling career while providing businesses access to a skilled workforce.3 The Interstate Highway System connected people from across the country to exchange goods and services – and still supports one quarter of all vehicle traffic over 60 years later.4,5 And the “Space Race” of the 1960s resulted in the development of new technologies from LEDs to water purifiers that continue to benefit our society today.
But in recent years, policymakers have defaulted on their fundamental responsibility to maintain sufficient public investment. Between 1965 and 1980, federal spending on education, infrastructure, and scientific research averaged about 2.5 percent of gross domestic product (the total value of all goods and services produced by the United States in a given year). Investment spending at that level would have been equal to roughly $470 billion in 2017. Yet in reality, the federal government spent just $300 billion on public investment in 2017 – less than 1.5 percent of GDP.7 If current trends continue, such investment is projected to reach its lowest level in modern history by 2026 (Fig. 1).8
If the current generation of policymakers fails to “pay it forward” by maintaining and building upon the investments made by their predecessors, young Americans and future generations will not have the kind of opportunities for economic and social advancement that their parents and grandparents enjoyed. Instead, they would face a future of diminished economic dynamism and growth, lower productivity and wages, and greater social inequality and class conflict. Simply put, the de-facto policy of disinvestment is a formula for national decline.
Rather than address this looming threat, current policymakers have been making America’s public investment drought worse. Donald Trump and the Republican-controlled Congress abandoned any pretense of fiscal responsibility and enacted a package of partisan tax cuts in 2017 that the official scorekeepers at the non-partisan Congressional Budget Office estimate will cost more than $2 trillion over the next decade.16 These policies provided tax relief to those who needed it least while draining much-needed revenue from public investments that could benefit everyone.
But the federal government’s fiscal challenges extend beyond insufficient revenue. America’s aging population and rising health care costs are causing spending on expensive federal health and retirement programs such as Medicare, Medicaid, and Social Security to grow significantly faster than the rest of our economy – a trend that members of both parties, but particularly Democrats, have largely refused to tackle. The result is that many people who consider themselves progressives have become complicit in a profoundly unprogressive policy of throttling public investment. These forces together are producing ballooning public debts while leaving less and less room in the federal budget for investments in a better future.
Meanwhile, state and local governments are also cutting back their public investment spending due to similar demographic and political challenges. The bills for unfunded pension liabilities are coming due as a massive number of public employees move into retirement. The cost of state commitments to health programs such as Medicaid are also swelling due to the same rising health care costs that pressure Medicare at the federal level. And while policymakers in some states are working to tackle these problems, others have made matters worse by enacting their own reckless tax cuts based on the same flawed ideology as Republicans in Washington. The result is cuts to public investment at all levels of government.
Fortunately, there are signs that the American people appreciate the stakes: large majorities of voters in both parties have expressed strong support for government spending on public investments in several independent polls.17,18,19 Additionally, a poll conducted by PPI on the eve of the 2018 midterm elections found that more respondents were worried about the growing federal budget deficit than any other issue polled – including almost 9 out of 10 independent voters.20
These findings suggest that Democrats serving in the 116th Congress (or running for higher office in 2020) have a unique opportunity to draw a stark contrast between themselves and fiscally irresponsible Republicans by offering the electorate an agenda that pairs robust public investment in progressive priorities with the fiscal discipline necessary to secure those investments for generations to come.
KEY TAKEAWAYS
The goal of this report is to highlight for American policymakers and their constituents the role that public investment plays in providing the foundation for a prosperous economy, as well as the steps that must be taken to end America’s current public investment drought.
The first three sections provide an overview and analysis of the three main categories of public investment in the United States: research and development (intellectual capital), infrastructure (physical capital), and education (human capital). Next, the report demonstrates how these public investments both create long-term economic growth and ensure its benefits are shared by all. Finally, the report explores the external forces that have resulted in recent cuts to public investment, with one section on the pressures facing the federal budget and another on the parallel challenges facing state and local governments.
In 2019, PPI’s Center for Funding America’s Future will offer concrete proposals for a fiscally responsible public investment agenda that fosters robust and inclusive economic growth.
We’re Falling Behind in Research and Development (PP. 8-13):
• Federal R&D spending has contributed to countless technological innovations that enrich our society. To take just one example, a study of NIH’s Human Genome Project estimated that the project generated nearly $1 trillion of economic growth – yielding a massive return of $178 for every dollar spent.
• Back in the 1960s, the federal government spent as much as 1 percent of GDP on nondefense R&D as it sought to win the space race and put a man on the moon. But today, this spending has fallen by more than half. That disinvestment threatens basic scientific research that lays the foundation for new industries and technological innovations.
• This year, for the first time in modern history, China – not the United States – will be the global leader in R&D spending. If policymakers don’t boost public investment in R&D, they risk forfeiting America’s position as the global leader in innovation.
Our Infrastructure is Obsolete and Falling Apart (PP. 13-16): • Common public goods such as roads, school buildings, electric grids, and water systems provide the physical foundation for private investment and enterprise. But in recent years, that foundation has been allowed to crumble as total government spending on infrastructure has fallen to record-low levels as a percent of GDP.
• Several independent estimates suggest the United States will need to spend roughly $1.4 trillion more on infrastructure than it is currently projected to spend over the next decade. Failure to reverse America’s disinvestment in infrastructure could reduce GDP by nearly $4 trillion over that time period, costing the average family about $3,400 per year.
• Investments in infrastructure also boost economic growth in the short term by creating well-paying jobs today. Roughly 1 in 10 workers are employed in either developing or maintaining infrastructure, and wages at the bottom of the earnings distribution are approximately 30 percent higher than what other jobs requiring a comparable level of education would offer.
Workers Need Skills for Next-Generation Jobs (PP. 16-21):
• Education is a valuable investment for both individuals and governments. Investing in a child’s pre-kindergarten education generates 7 to 10 percent annual returns for the child and society at-large, while the average annual return on investment for postsecondary education is double or triple what it would be if a similar amount of money was invested in the stock market. Disinvesting from education not only hurts students but also hurts the public by foregoing increased worker productivity and higher tax revenue for the government.
• Per-pupil funding for K-12 education has stagnated or fallen in most states since the 2008 financial crisis. This disinvestment will likely be costly: every dollar spent educating a child results in an average of $3 in economic activity down the road. It can also reduce the number of students who graduate, potentially imposing long-term costs on them and taxpayers. High-school dropouts are about twice as likely to be unemployed as graduates, and those who are employed earn an average of $8,000 less per year than graduates do.
• “New-collar” jobs that require some postsecondary education but not a four-year degree now account for 53 percent of jobs in the United States. A worker who obtains the necessary credentials can see their incomes rise by as much as $11,000 within the first two years alone. But only 43 percent of U.S. workers have the appropriate credentials for these positions, resulting is a “skills gap” that is in part due to underinvestment by the government.
Public Investment Fosters Robust and Inclusive Economic Growth (PP. 21-26):
• Sustained public investment can unleash robust economic growth. The OECD estimates that increasing public investment by 1 percent would increase potential GDP by an average of 5 percent in the long run.
• Public investment also ensures the benefits of economic growth are widely shared. Technological innovations such as the internet improve the lives of people of all income levels. Better transportation infrastructure is correlated with higher social mobility. And investments in public education level the playing field for lower-income students who have access to fewer resources than their wealthier peers.
• But the ability of a state or local community to make public investments is heavily dependent on its existing wealth and fiscal capacities. Poorer communities require federal investments to attract private capital and talented workers. Such investments are vital for promoting economic mobility and keeping the American Dream alive for all.
Poor Federal Budget Choices Are Draining Public Investment (PP. 26-28):
• Washington Republicans abandoned any pretense of fiscal responsibility by adding $2 trillion of reckless tax cut to the national debt over the past year. These cuts both starved public investments of much-needed revenue and likely contributed to the GOP losing control of the U.S. House of Representatives in the 2018 midterm elections.
• Public investment is also being squeezed by the inexorable growth of Medicare, Medicaid, and Social Security. Due to the aging of the population and rising health care costs, ENDING AMERICA’S PUBLIC INVESTMENT DROUGHT P7 spending on these programs are projected to grow from about 10 percent of GDP today to nearly 16 percent of GDP in 2048. The refusal of both parties to modernize these programs has left fewer resources available for federal public investment.
• As a result of these decisions, public investment spending by the federal government in GDP-adjusted dollars has plummeted by nearly 40 percent since 1968 – and is projected to hit record-low levels by 2026 if current policies remain in place. Meanwhile, the share of federal spending committed to public investment will fall from 7.9 percent today to 4.4 percent in 2048.
State and Local Governments Face Challenges Similar to Those Facing Washington (PP. 28-33):
• State and local governments are also major contributors to public investment, but they are suffering from problems similar to those that afflict Washington.
• Republican governors and legislators in states such as Kansas and Oklahoma enacted unaffordable tax cuts that resulted in dramatic cuts to public investment. These tax cuts proved to be both bad policy and bad politics: Democrats won huge victories in both states in the 2018 midterm elections (despite their strong Republican lean) by campaigning for fairer and more responsible tax policies.
• State and local budgets are also strained by demographic changes. As a share of GDP, state spending on Medicaid has increased nearly 40 percent since 2000 due to rising health costs, while the costs of unfunded pension liabilities have doubled during the same period as the bill for retiring baby boomers comes due. The result: a perfect storm of fiscal mismanagement has drained public investment spending at all levels of government.
It would be better to go cashless, while creating new low-cost banking options for poor residents
Is cash a bane or a boon?
The underlying trends are clear. Across the country, from high-end salad chain Sweetgreen to the new Amazon Go stores, more and more retailers are going cashless as technology improves. For a company like Amazon, doing without cash means speeding or eliminating the checkout process, including getting rid of long lines at peak times. For small retailers, the advantages are fewer losses from cash theft and much simplified operations, especially in high-crime areas.
In response, New Jersey is considering new legislation that would require all brick-and-mortar stores to accept cash. Similar bills have been introduced in Chicago, Washington, D.C. and Philadelphia. Supporters say that such legislation is important to protect poor Americans who don’t have access to credit cards or bank accounts.
This move to lock in the status quo is a mistake. The shift to cashless stores is a positive for poor Americans and small retailers, if combined with a concerted effort to bring low-cost banking to poor Americans. Moreover, regulations requiring cash are likely to reduce the competitiveness of brick-and-mortar stores against e-commerce.
A version of this post originally appeared on Forbes.com
Can digitizing the food manufacturing industry help boost living standards? The short answer is yes, if we link food manufacturing into the Internet of Goods.
We’re used to thinking of food as cheap and getting cheaper. In 1947, spending on food—both in and out of the home—accounted for 27% of non-health personal spending. By 2000, the food budget share, omitting healthcare, had dropped to 14%.
This 50-year decline in the food budget share fueled American prosperity. With much less of their budgets going to food, middle-class households could afford to spend more on housing, cars, vacations, and all the other aspects of a good life.
But as Figure 1 shows, around 2000, something changed. The decline in the food budget share stopped. Indeed, household spending on food has inched up to close to 15% of non-health personal spending by 2017.
To put it another way, if the past trends had continued, the food share of non-health spending would be only 10%. Americans would have almost $500 billion more to spend in other areas.
What happened to the food industry? Groups such as the American Antitrust Institute point to consolidation in industries such as meat processing, which potentially has increased the market power of major players and their ability to raise prices.
Another factor boosting food costs may be greater attention to safety. In particular the Food Safety Modernization Act (FSMA) was signed into law by President Barack Obama on January 4, 2011. This legislation gives the FDA a new mandate to regulate food production and processing. Indeed, the necessary rules are still being implemented–for example, the FDA is currently asking for comments on a proposed guidance for “Standards for the Growing, Harvesting, Packing, and Holding of Produce for Human Consumption.” Obviously an important step given the current lettuce issue!
But perhaps most important, the food manufacturing industry has been in a deep and profound productivity slump in recent years. Measured by the Bureau of Labor Statistics (BLS), output per hour in food manufacturing has dropped by 8% since its peak in 2005 (Figure 2).
In response, the food manufacturing industry has been embracing digitization, but it’s a slow process. According to data from the BLS, the entire food manufacturing industry employed less than 1000 software developers and programmers as of May 2017, compared to 25,000 engineers and scientists.
Digitization will have a significant impact in several different areas of food manufacturing. First, it will become much easier to consistently track food from “farm to fork.” As a result, food recalls will become easier and cheaper. (According to one count, there were 456 food recalls in 2017).
Second, digitization of the production process will help boost productivity and lower costs. This includes product development. For example, FlavorWiki is a startup that uses data analytics to quantify consumer taste perceptions, and potentially help companies develop new products.
Finally, and perhaps the most important, digitization allows the development of local production models for food, requiring food to be shipped much shorter distances. In Japan, for example, the world’s largest automated leaf-vegetable factory has just opened in a suburb of Kyoto. In the U.S., companies such as Iron Ox are developed autonomous and hydroponic production models.
Such vertical farms might be tied directly into ecommerce networks to handle local delivery direct to consumers, thus cutting out several layers of the distribution chain. The result would be lower prices, higher quality, and less pollution from shipping, These are some of the benefits of the Internet of Goods.
Indeed, digitization will enable the rethinking of the entire food production, manufacturing, and distribution chain, to the benefits of consumers. With any luck, Americans will once again find their food budget shares falling and their standard of living rising.
Chinese hackers stealing technology from U.S. companies, Russian trolls interfering in our elections, U.S. tech leaders hauled before Congress to explain some new data breach or misuse of personal information – hardly a week goes by without Americans being bombarded with new revelations about assaults on our privacy.
The problem will only get worse as America’s physical industries – autos, construction and manufacturing of all kinds – go online. That will trigger explosive growth in the volume of personal information companies collect – and try to sell.
And while the United States leads the world when it comes to digital technology and data-driven commerce, we lag in updating our cybersecurity and privacy laws. Unlike Europe, which is implementing its General Data Protection Regulation (GDPR), Washington has no national standard for privacy.
States are moving to fill this policy vacuum. Following Nebraska and Alabama, California recently passed a law giving consumers the rights to know what information a business has collected about them, to “opt out” of a business selling their data, and to have their data deleted. That’s understandable, given growing public demands for data security, but a state-by-state approach to privacy makes little sense.
It would balkanize the seamless digital marketplace that has been key to America’s high-tech leadership, forcing consumers and businesses to run a bewildering gauntlet of varying standards, rules and enforcement regimes. Instead, we need a national privacy law that’s simple but strong, with one common standard and one set of rules that every company must follow and every consumer can understand.
U.S. voters need little convincing. A recent Expedition Strategies poll for PPI found that voters are very concerned about abuses of their personal information. 60 percent said they are worried about tech companies’ handling of privacy and data protection. It’s no wonder a solid majority (58 percent) backs national legislation enshrining consumers’ private rights, as shown in Figure 1.
PPI believes the new Democratic House majority should make a national privacy law a top priority for the next Congress convening in January. Since California’s new rules take effect in 2020, Congress should pass a national law by the end of the year.
Can a Democratic House and Republican Senate find common ground next year on a national privacy bill? The good news is that privacy is not intrinsically a partisan issue. It could provide an early test of Republicans’ willingness to work with Democrats to break the spell of tribal partisan warfare that hangs over Washington, and get our national government back in the business of solving national problems.
Our economy almost certainly has a problem with rising market power. A slew of studies shows that concentration in many sectors of the economy has increased over the past 20 to 30 years. A new PPI study, however, shows that critics of the supposedly overweening power of U.S. tech companies are barking up the wrong tree.
The study, by PPI Chief Economic Strategist Michael Mandel, finds that the digital sector – encompassing tech, telecoms and ecommerce – significantly outperforms the rest of the non-health private sector on every important economic measure, benefitting both workers and consumers. For example, productivity in the digital sector rose by almost 60 percent between 2007 and 2017, prices fell by 15 percent, real annual pay per worker rose by 15.4 percent, and employment grew by 14 percent. Such dynamism is hardly consistent with the critics’ portrait of tech giants throttling competition, suppressing innovation and using their market power to impose higher prices on consumers.
Meanwhile, in the rest of the non-health private sector, productivity grew only 5 percent, prices increased by 21 percent, real annual pay increased by 7 percent, and employment grew by 3.3 percent. If you are looking for evidence that market concentration is weakening our economy and making inequality worse, here’s where you should start.
And for all the glib journalistic talk of “techlash,” Americans don’t see Big Tech companies in a particularly sinister light. In fact, a recent PPI poll found that most voters view the tech giants as testaments to American ingenuity and oppose breaking them up.
The poll, conducted by Expedition Strategies survey on the eve of the midterm election, found that 67 percent of likely voters view the tech companies positively, as shown in Figure 1, and 55 percent oppose breaking them up. While 60 percent of voters acknowledge they are concerned about tech companies’ handling of privacy and data protection, 71 percent of voters view tech companies as “a sign that the American economy is working.” In contrast, just 32 percent view Big Tech as “too powerful.”
That being said, voters do worry about privacy and data protection – in fact, 60 percent of voters say that the industry that concerns them most when it comes to these issues is Big Tech. Voters by a margin of 58 percent to 42 percent also say they’d like to see a national legislative response to privacy regulation rather than a piecemeal state-by-state approach.
Figure 1. Please rate how you feel about the following industries:
Given the general trends toward consolidation, a comprehensive look at market power, competition and innovation across the U.S. economy is certainly in order. But rather than succumb to the reductive nostrum that “big is bad,” progressives ought to engage in a careful, sector-by-sector analysis before they start calling for break-ups and more regulation. As Mandel shows, the evidence suggests that the digital sector does not pose a special problem, and in fact is outperforming the rest of the private sector.
Progressives ought to be vigilant about market power and monopoly, but it makes little sense to draw targets on our most successful companies.
