Fixating on the traditional aggregate measures of the economy’s health — GDP growth, the unemployment rate, or the inflation trade — ignores not only rising income and wealth inequality, but the fact the American Dream machine has been sputtering for at least two or three decades. Stanford’s Raj Chetty and his co-authorshave shownthat only half of Americans born in 1980 or later were out-earning their parents at the age of 30, compared to 90 percent of those born forty years before. No wonder so many Americans across the political spectrum have been so anxious or even angry, with racial resentment and political incivility on the rise.
Three broad narratives for fixing our American Dream machine, which admittedly won’t cure all problems, have been advanced by political leaders and researchers. The two that have received the most media attention are both either misleading or inadequate.
One narrative, pushed by President Trump and in more muted tones by some Democrats, blames increased and “unfair” trade for the decline of manufacturing jobs and stagnant or slow real-wage growth. Trump and many Republicans also wrongly blame illegal immigrants, who are working (if they can) at low wages doing jobs like cleaning dishes or mowing lawns that few American citizens want to do.
Amazon justannouncedthat it would raise the minimum hourly wage for all of its US workers to $15 per hour, including workers employed by temp agencies. This is good news for Amazon’s workers, obviously. But it’s also a sign that we’ve moved into a new era, where technology is driving rising real wages for everyone, not just the well-educated.
Ecommerce is proving to be a positive force for labor. For 30 years, retail workers struggled with a horrible status quo that suppressed any growth in retail wages and forced workers of color into the lowest paying retailing jobs. Between 1987 and 2017, real hourly earnings for production and nonsupervisory workers in retail went up a grand total of 2%.
Amazon and other ecommerce sellers have decisively disrupted that horrible status quo, and created hundreds of thousands of better paying jobs. Even before the Amazon wage hike, PPIresearchfound that ecommerce fulfillment centers typically pay 30% more than brick-and-mortar retail in the same area. Labor share in warehousing rose from 75.8% in 2007 to 83.2% in 2017, coinciding with the rapid growth of ecommerce fulfillment centers. Amazon’s latest move will only push the labor share up further.
These higher wages don’t make Amazon a philanthropic organization, anymore than Henry Ford was being benevolent when he boosted wages for workers in his factories in 1914. Ford needed to pay more to attract a competent workforce because his introduction of the assembly line boosted productivity, lowered prices, made cars affordable to the masses, and created an auto boom and an insatiable demand for skilled workers.
In the same way, Amazon and other ecommerce firms are using technology to transform the previously expensive process of getting products from manufacturers into the hands of consumers—what we call the“Internet of Goods.” These technological improvements have created benefits for both consumers and workers. For example, BLS data shows that real margins in the electronic shopping industry (NAICS 4541)—defined as prices received by retailers less their acquisition price of goods—have fallen by 13% since 2007. That means consumers are gaining from lower prices.
Progressives need to embrace innovation. It’s the only road to the best future for everyone.
The Progressive Policy Institute (PPI) has previously opposed arbitrary, redundant, and costly regulations, and proposed the Regulatory Improvement Commission to eliminate them. Regulation plays a vital role in refereeing market competition, protecting public health and safety, and keeping powerful economic actors honest. But regulations must be more nimble and adaptable to catalyze growth in a fast-changing world.
For people skeptical that regulation inhibits innovation and productivity growth, here’s an example of a wrong-headed proposed rule that would put Washington in the business of micromanaging employment in the freight rail sector.
When the Rail Safety Improvement Act was passed following the 2008 Chatsworth train collision, it mandated freight railroads implement Positive Train Control (PTC). PTC is a nationwide system of newly developed technologies that constantly processes thousands of variables to avert human error, including train collisions and derailments. Its implementation came at a hefty price to the railroads, estimated to cost more than $10 billion by completion.
One of the benefits of PTC was that it would enable railroads to move from two-person to one-person crews at some point down the road, boosting productivity with no loss of safety.
However, lawmakers now appear eager to flip course as fears of automation and job loss loom large in public policy conversations. Earlier this year, the Safe Freight Act was introduced in the Senate, a companion bill to a bipartisan House proposal unveiled in 2017. The legislation would mandate the crew size of freight trains to include both a locomotive engineer and a train conductor. While the legislation will not pass before midterms, it is likely to be reintroduced next Congress.
These proposals would deny freight rail the productivity gains of the digital age despite the widespread embrace of automation for passenger vehicles and commercial trucks on highways. Labor productivity for rail transportation has risen only a modest 16 percent over the last decade, about the same as the lagging pace of productivity growth across the entire U.S. economy. Meanwhile, as shown in Figure 1, the price of railroad transportation has risen 77 percent since 2000, far outpacing inflation. Allowing the freight rail industry to digitize would jumpstart productivity growth and cut distribution costs for the energy, manufacturing, and construction sectors they serve.
What’s more, there is no evidence to suggest that one-person crews are less safe than two-person crews. Single-person crews are commonly used in other countries and the FRA acknowledges the “evidence…indicates that safety record of these foreign operations are acceptable.” In the U.S., crew sizes have steadily been reduced from the five-person crews of the 1970s to the current two-person crews, with accident rates falling more than 80 percent during that time. And passenger trains have safely used single-person crews for decades.
Railroad investment and technological advances have played a critical role in realizing safety gains over the last decade. Since 2008, freight railroads have spent $245.3 billion on capital expenditures like infrastructure and equipment. Ultrasound, ground-penetrating radar, smart sensors, analytics software, and data sharing have enabled railroads to proactively identify and fix track and equipment issues. As a result, railroad accidents are at a historic low, according to data from the FRA. As shown in the figure below, the total train accident rate dropped 42 percent from 2007 to 2017. Track-caused accidents have dropped 51 percent. And accidents caused by human error are down 41 percent.
The implementation of PTC promises to further drop accident rates. According to forecasts from the Federal Highway Administration, total U.S. freight shipments will rise from 17.7 billion tons in 2016 to 24.2 billion tons in 2040, a 37 percent increase. Imposing crew size mandates on the freight rail industry would inefficiently divert resources from investing in safety, cutting costs for consumers, and improving and expanding America’s rail infrastructure. Rather, it would unnecessarily increase labor costs in the safest era ever of rail travel.
WASHINGTON—As the Federal Trade Commission (FTC) kicks off public hearings today on economic concentration and competition, the Progressive Policy Institute (PPI) weighs in with a new e-book by economist and antitrust lawyer, Robert Litan, one of America’s leading authorities on antitrust law and competition policy.
In A Scalpel, Not an Axe: Updating Antitrust and Data Laws to Spur Competition and Innovation, Litan takes a deep dive into the growing debate here and abroad about the market power of big U.S. companies, especially in the tech sector. The emergence of “tech-lash,” he says, highlights some valid public concerns, but none rise to the level of justifying the drastic solutions peddled by “antitrust populists:” breaking up the big tech firms or regulating them as public utilities.
Instead, Litan offers a measured policy response to economic concentration. “While there is a temptation to turn to radical solutions to fix our problems – with growing income inequality and our newfound worries about a loss of privacy – major departures from existing policies, especially toward some of the most successful private sector firms and the major economic and social benefits they have generated, also risk unintended costly consequences with uncertain benefits,” he writes.
“Bob Litan’s timely new ebook establishes a new benchmark for rigorous and systematic thinking about the impact of America’s dominant tech platforms on competition and inequality,” said PPI President Will Marshall. ” It illuminates the real problems progressives should tackle and offers pragmatic remedies that won’t jeopardize America’s crucial lead in high-tech innovation.”
Among his key findings, Litan concludes that while tech platforms on balance have not harmed economy-wide innovation, there is evidence that the strength of competition throughout the economy has lessened somewhat. There is also evidence that the rise of the tech platforms and concentrated employer markets across multiple sectors at the local level are contributing to wage inequality.
Anti-trust policy, however, isn’t the right lever for dealing with these concerns, Litan maintains. Other targeted policies, outside antitrust, would improve the state of competition in America, including lifting unnecessary occupational licensing requirements, an end to “no poaching” agreements, and a return to freer trade, which disciplines pricing by U.S. companies.
“There is yet no sound legal or policy basis for to break technology platform firms up for antitrust or other reasons. The law justifiably requires severe and/or sustained anticompetitive conduct as a precondition for court-ordered breakups,” he writes.
Noting the trend toward mergers between firms with dominant positions in different markets, the book proposes tightening the statutory test for mergers and establishing a rebuttable presumption against mergers where the acquiring firm has a dominant position in its market and has the ability to effectively enter any market in which the acquired firm competes.
Nonetheless, the growth of these firms has generated significant non-antitrust concerns about data security and privacy. Litan recommends updating data laws to protect privacy and security by requiring all firms, not just those in tech, to provide plain English explanations of what data the firms collect about consumers and how it is used, the ability to opt out of having their information shared with third parties, and the full disclosure of funding for political ads. He argues that federal law should also require all large data warehouses – a term that would require further definition in an authorized rulemaking – to adopt reasonable measures to ensure data security.
A Scalpel, Not an Axe also warns that the strongest regulations tech’s critics demand may also pose a threat to competition. “In all that they do to regulate the tech industry more intensely, policymakers must be aware that additional data-related regulation is likely to favor large incumbent tech firms relative to smaller competitors and new entrants. Regulatory compliance is a fixed cost, and larger firms can take advantage of their economies of scale to comply,” Litan writes.
Americans justifiably have long taken great pride in the unmatched ability of the U.S. economy to enable entrepreneurs to launch and grow highly innovative companies that drive growth and advance living standards. Bold entrepreneurs and the companies they founded brought us modern communications, airplanes, automobiles, computer software and hardware, and electricity and other forms of energy to power them all.
These innovations and others have constantly reshaped and remade our economy – displacing less efficient technologies and ways of doing business in a process of “creative destruction” that economist Joseph Schumpeter, many decades ago, singled out as the most important feature of capitalist economies.
The most innovative and valuable companies of our time are the leading “technology platform” companies: Amazon, Apple, Facebook and Google – a group New York University Professor Scott Galloway simply labels “The Four.” Except for Apple, none of these companies existed before 1990. That they have eclipsed in the public mind – in such a relatively short amount of time – such other tech giants as Microsoft, Oracle, Cisco and Intel is a testament to the remarkable acumen of the founders and leaders of The Four, their highly skilled workforces, and to the economy and society that have enabled them to flourish.
The ecommerce revolution is driving an employment and wage boom in the warehousing industry. Over the past 3 years, the number of production and nonsupervisory workers in general warehousing has gone from 642K to 810K, propelled by the rapid expansion of ecommerce fulfillment centersaround the country.
Our earlierresearchshowed that ecommerce fulfillment centers pay about 30% more than brick-and-mortar retail jobs in the same area. That’s the best comparison, since presumably ecommerce is shifting jobs from brick-and-mortar retail to fulfillment centers.
But equally important, the rapid growth of ecommerce fulfillment centers is driving up demand for workers, leading to soaring real wages. Over the past three years, real hourly earnings for productivity and nonsupervisory workers in general warehousing has risen by 10.4%. By comparison, real wages for production and nonsupervisory workers in the private sector as a whole are up only 2.8%. In healthcare, the comparable figure is up only 2.0%.
Now, I don’t pretend there aren’t issues. Fulfillment center jobs are not easy work, requiring much more physical labor than offices or brick-and-mortar retail. There’s an open question of what a career ladder looks like in ecommerce. And we know from past technological revolutions that capital-labor conflict doesn’t disappear even when the overall economic pie is growing.
But in the big picture, ecommerce labor markets are behaving exactly as we would hope–strong demand and high productivity are driving up real wages for ecommerce workers. In fact, ecommerce is one of the few sectors producing big wage gains for less skilled workers, and they should lauded rather than demonized.
More bureaucracies in Washington won’t do much to improve lives. The public-sector success stories of today are the nimble and innovative metro regions.
“Go West, young man,” New York Tribune editor Horace Greeley famously urged soldiers coming home from the Civil War and wondering what to do with the rest of their lives. In that spirit, here’s my politically corrected advice to millennials who want to change the world: “Go local, young gender-unspecified person.”
Don’t look to Washington to remake American society from the top down. And don’t assume that real political change can only come through massive expansions of federal power.
They’re a tempting alternative to raising taxes, but their long-term costs far outweigh the revenue they bring in.
Raising taxes is painful. That may be why, since 2010, 47 states and a number of cities have instead raised both civil and criminal fines and fees. These increases are often viewed as a conflict-free way to plug budget holes.
In the last decade, for example, New York City grew its revenues from fines by 35 percent, raking in $993 million in fiscal 2016 alone. The monies came largely from parking and red light camera violations, as well as stricter enforcement of “quality of life” offenses such as littering and noise. In California, routine traffic tickets now carry a multiplicity of revenue-boosting “surcharges.” As a result, the true price of a $100 traffic ticket is more like $490 — and up to $815 with late fees, according to the Lawyers’ Committee for Civil Rights of the San Francisco Bay Area.
This increasing reliance on fines and fees comes despite what we learned following the shooting in 2014 of Michael Brown by a police officer in Ferguson, Mo. A federal investigation of the city’s police department subsequently revealed that as much as a quarter of the city’s budget was derived from fines and fees. Police officers, under pressure to “produce” revenue, extracted millions of dollars in penalties from lower-income and African-American residents. In 2017, the U.S. Commission on Civil Rights issued a follow-up report finding that the “targeting” of low-income and minority communities for fines and fees is far from unique to Ferguson.
Geography is a barrier to higher education for tens of millions of rural Americans. A few states have hit on an innovative solution.
fter graduating from her rural Pennsylvania high school in 2005, Tesla Rae Moore did what many, perhaps most American high school seniors today expect to do: she left home for college with her sights set on a four-year degree. But when she was a sophomore in nursing school at the University of Pittsburgh at Bradford, the unexpected intervened: she became pregnant with her son.
“It was a high-risk pregnancy, and I decided to stop the program,” she said. Moore returned to her hometown of Kane, a community of about 3,500 nestled at the edge of the Allegheny National Forest in northwestern Pennsylvania. At first just intending to take a break, she ended up dropping out. “I was going to go back, and then it was just one of those things,” she said. “Life happened.”
Moore didn’t lose her desire to return to school; she just couldn’t figure out how to make it work as the years went by and her family grew. “I’m a single mom, and the only income earner, so I couldn’t quit my job to go to school,” she said. “And if I took classes all day, I’d have to work at night, and who would take care of the kids?” Given her work and family obligations, Moore couldn’t fit in college unless she could attend classes nearby. But getting to Pitt-Bradford, the nearest four-year school, required a round-trip commute of an hour and a half. The nearest community college, in Butler County, was a two-hour drive each way. Moore didn’t have that kind of time to spare. Online-only classes might have been a solution, but Moore felt she needed more structure to succeed. “Especially for somebody that’s been out of school, it takes a lot of discipline,” she said.
A surprising number of Americans face the same problem Moore did. According to the Urban Institute, nearly one in five American adults—as many as forty-one million people—lives twenty-five miles or more from the nearest college or university, or in areas where a single community college is the only source of broad-access public higher education within that distance. Three million of the Americans in these so-called “higher education deserts” lack broadband internet, as well.
PPI submitted two excerpts from a forthcoming paper, “Taking Competition Policy Seriously: Macro Indicators for Regulators.” Here is a summary of the first excerpt, theintroduction:
Recent work has linked increased concentration to poor macroeconomic outcomes. In this spirit, this paper describes a set of quantitative market and labor indicators that can help competition regulators identify those sectors that are showing signs of impeding growth, overcharging customers, or underpaying workers. Conversely, these same indicators can be used to identify sectors that are exerting a positive influence on growth, benefiting customers, and providing jobs and higher pay to workers.
The paper finds that the tech/telecom/ecommerce (TTE) sector—also known as the digital economy–has outperformed the rest of the private sector on every macroeconomic indicator. Indeed, the evidence suggests that to the degree that there are competition problems in the US economy, they are more likely to be found outside the TTE sector.
The lack of real wage growth has raised the suspicion that corporations are using their market power to artificially hold down employment, pay, and labor share. In particular, the tech/telecom/ecommerce (TTE) sector has received sustained criticism for its “bigness”.
However, we find that the TTE sector has generated significantly faster hours growth and bigger real pay increases since 2007 than the rest of the private sector. We also find that labor share in the TTE sector has risen significantly since 2007, while falling in the rest of the private sector.
These results are consistent with strong competition in the labor markets associated with TTE industries. Competition regulators concerned with labor market monopsony should be looking outside the TTE sector, at industries where employment and real wage growth are weak and the labor share is falling.
The links to the comments on the FTC site can be foundhereandhere.
This week, Sen. Elizabeth Warren (D-MA) unveiled new legislation aimed at turning American’s largest companies into better corporate citizens.
Under Warren’s “Accountable Capitalism Act,” companies earning more than $1 billion a year in revenues would be required to obtain a new federal corporate charter her legislation would create. Among other things, this charter would mandate directors to “consider the interests of all major corporate stakeholders—not only shareholders—in company decisions,” as Warren wrote in a companion Wall Street Journal op-ed.
There is much to like about Sen. Warren’s approach.
For one thing, she rightly attacks the culture of “shareholder primacy” that has dictated corporate behavior in recent decades. As Warren points out, companies once spent a much greater share of their earnings on workers’ wages and long-term investment. “But between 2007 and 2016,” she writes, “large American companies dedicated 93% of their earnings to shareholders.” Recent evidence of this shift has been the spate of disgracefully large share buybacks in the wake of last year’s corporate tax cuts, which one analysis estimates could exceed $800 billion in 2018. Meanwhile, the modest gains in wages workers have seen have already been wiped out by inflation. Workers would likely indeed be better off if their employers spent more money on wages and less on fattening shareholders’ wallets.
A second appealing aspect of Warren’s approach is her adoption of the “benefit corporation” as a model for corporate reform. As I explain in this PPI policy brief, companies that choose to charter themselves as “benefit corporations” legally commit themselves to corporate purposes other than the sheer pursuit of profit.
Since 2010, 32 states and the District of Columbia have passed benefit corporation statutes, including the corporate powerhouse state of Delaware. Thousands of “double bottom line” companies are chartered as benefit corporations, including such well-known brands as Etsy and Warby Parker. Many further choose to become “certified B Corps,” adhering to the strict standards for corporate responsibility promoted by the nonprofit B Lab.
By organizing as benefit corporations, these companies are directly refusing to kowtow to the tyranny of shareholder primacy. In return, they are legally shielded from shareholder liability for decisions that don’t maximize profit. They also send a signal to consumers and investors looking for socially responsible firms.
Benefit corporations are a relatively new invention, but the already significant growth in these firms and the ready adoption by states of benefit corporation statutes shows the enormous potential of this model as well as the interest and capacity of companies to reform themselves.
It would be a pity if Sen. Warren’s legislation were to wreck this potential.
Set aside what the creation of a federal corporate charter would mean to the states, which have traditionally been the arbiters of corporate governance. From a sheer practical standpoint, corporate culture is not something that can be easily dictated by fiat, and Warren’s legislation will be difficult to enforce. Companies seeking to evade their new obligations will no doubt litigate what the new federal charter means, as will stakeholders – not necessarily workers – who see an opening to claim a stake in corporate spoils. Meanwhile, the workers intended as the legislation’s beneficiaries will still end up holding the bag.
Second, by requiring all companies of a certain size to become benefit corporations, Warren goes too far in dictating how companies should govern themselves. One of the most important principles in corporate law is the so-called “business judgment rule,” under which courts restrain themselves from second-guessing the business decisions a company makes, so long as the board of directors can show it acted in good faith on an informed basis and in the honest belief it was acting in the best interests of the company.
Companies that choose to become benefit corporations are exercising a business judgment that this is the right corporate status for them. Warren’s legislation essentially substitutes the federal government’s business judgment for that of individual companies in deciding how to run themselves. Government has traditionally had a poor track of interfering in the markets this way. Among the unintended potential results are that companies either keep themselves small enough not to trigger the $1 billion threshold (not a good thing when we want companies to grow) or that they leave the country once they reach a certain size.
There are, however, potentially effective ways to tip companies’ business judgment in favor of behaving like benefit corporations, which is the approach we propose in this brief. Rather than mandating companies to behave as we’d like them to see, government should offer an incentive attractive enough that they’ll do so on their own. In particular, we propose a preferred corporate tax rate for benefit corporations, provided they also supply sufficient evidence of their commitment to other aims besides shareholder profit.
A voluntary embrace of corporate responsibility is more likely to be an authentic one. This approach also builds on and accelerates a reform that is already happening, which means more room for innovation and less likelihood of litigation.
Sen. Warren deserves applause for beginning an important conversation about the rights and responsibilities of the nation’s most powerful “citizens.” The introduction of this bill could also serve as welcome wake-up call to the nation’s CEOs – if they do not work soon to reform themselves, reforms will be thrust upon them, and perhaps in ways they will not like.
Summary: Based on new “digital economy” data from a recent BEA working paper, we calculate that the labor share of the digital sector has risen since 2007, while gross margin of the digital sector has fallen over the same period. This result is consistent with strong competition in the digital product and labor markets (see the research note here).
In March 2018, the Bureau of Economic Analysis (BEA) released a working paper called “Defining and Measuring the Digital Economy.”[1] The working paper presented BEA’s initial work “to lay the foundation for a digital economy satellite account.”
The BEA authors focus on outlining their definition of the digital economy, and calculating its real growth and share of GDP. However, their data allows us to calculate two other policy-relevant measures of the digital economy: Labor share and gross margin.
Labor share is a measure of how much of the income of an industry is going to workers. For the purposes of this paper, we define the labor share as compensation (COMP) divided by value-added (VA), expressed as a percentage. [2]
Gross margin is a measure of the profitability of an industry per unit of sales. In the business literature, gross margin is a company’s total sales revenue minus its cost of goods sold, divided by total sales revenue, expressed as a percentage.[3]
For our purposes, we define gross margin as an industry’s total gross output (GO), minus the cost of intermediate inputs (II) and labor compensation (COMP), divided by total gross output, expressed as a percentage.[4]
Based on this definition, labor share in the private sector has trended down since at least 1990 (Table 1). Similarly, private sector gross margin have trended up since at least 1990. Since 2007, private sector labor share has fallen by 0.8 percentage points, and private sector gross margin has risen by 1.9 percentage points.[5]
Table 2: Digital Sector: Rising Labor Share, Falling Gross Margin
2007
2016
Labor Share
53.4%
55.4%
Gross Margin
28.4%
27.2%
Private sector industries only. Data: BEA working paper
The digital economy data from the BEA allows us to calculate the labor share and gross margin for the digital sector of the economy (Table 2). We see that labor share for private industries in the digital sector rose by 2 percentage points in the post-2007 “tech boom” period. Gross margin fell by 1.2 percentage points.
Figures 1 and 2 show the change in the labor share over time. Please note that this data was released prior to the July 2018 benchmark revision.
These results suggest that benefits of productivity growth in the digital sector since 2007 are being shared with workers and customers. This is consistent with strong competition in the digital product and labor markets. By contrast, companies in the broader private sector are benefitting from lower labor share and higher gross margin, which suggest that market power is rising outside of the digital sector.
The PDF version of this research note are found here. The results in this note are drawn from a forthcoming PPI policy paper, “Taking Competition Policy Seriously.”
Definition of Measures
Labor share = COMP/VA
Gross margin = (VA-COMP)/GO = (GO- II-COMP)/GO
VA = value-added
COMP = labor compensation
GO = Gross output
II= Intermediate inputs
[1] Kevin Barefoot, Dave Curtis, William Jolliff, Jessica R. Nicholson, Robert Omohundro. “Defining and Measuring the Digital Economy,” March 2018. https://www.bea.gov/digital-economy/_pdf/defining-and-measuring-the-digital-economy.pdf
[2] Several alternative measures of the labor share all have the same general trend.
[4] The numerator includes profit-type income, such as profits, rents, and interest. It also includes taxes on production and imports that are chargeable to business expenses, such as state and local sales and property taxes, and a hodgepodge of state, local, and federal excise taxes.
[5] All data in this note is prior to the July 2018 benchmark revision. We focus only on private industries.
On July 17, 2018, the European Union and Japan formally signed a landmark agreement on trade. This watershed agreement underscores the strong desire of the EU and Japan to benefit their citizens and economies by aggressively pursuing open, rules-based trade.
When ratified by their respective legislatures, the Economic Partnership Agreement (EPA) signed in Tokyo by European Commission President Jean-Claude Juncker and Japanese Prime Minister Shinzo Abe will create a largely free-trade zone, covering a third of global GDP. The EPA is the largest ever signed by both parties, and reflects shared values that they agree should govern their future trade and economic relations.
The Agreement also sends a clear and forceful message that the parties reject the protectionist policies pursued by the United States under Donald Trump. Negotiation of the deal started long ago (in 2013) and were delayed and extended for political and other reasons, including deadly floods in Japan. Trump’s election—and his growing attacks on open trade—provided new momentum for the negotiations and helped to push them over the finish line.
The EPA’s many benefits come not only from the wide variety of issues that it includes, but also from the creation of an almost completely tariff-free zone[1]. The deal’s extensive reforms will boost import-export trade in a massive market covering more than 600 million people.
The EPA’s starting point is the removal of trade barriers to promote market access for EU goods and services to Japan. Japan is the EU’s second biggest trading partner in the Asian region after China, and boosting EU trade further will support economic growth and jobs. Japan, which already sends 10 percent of its trade to the European zone[2], will similarly benefit from the EPA’s reforms.
Eliminating tariffs is not the only means the EPA uses to achieve its comprehensive objectives. The parties also agreed to pare down the costs of compliance with Japanese rules and standards[3], and to remove Japanese barriers that keep foreign firms from bidding for government contracts in certain sectors. Those two reforms alone will eliminate major obstacles to selling more EU goods and services in the Asian area.
The EPA promotes greater competition[4] for European products in Japan and easier access to Japan’s market, especially for EU agricultural goods, pharmaceuticals, medical devices and motor vehicles. The Agreement’s benefits also extend the service sector, particularly financial services, e-commerce and communications. As a whole, the EPA is forecast to increase EU exports to Japan by some 13,5 billion euros annually.
The accord also makes important changes in the field of data protection. It recognizes the two parties’ data protection systems as “equivalent,” and thereby creates the biggest jointly secured data flow in the world.
This strategic development is the latest in growing foreign opposition to Trump’s nationalism and protectionism, which have sparked a movement by many countries towards negotiating new market-opening agreements. As a result of these new agreements, American companies will increasingly be excluded from favorable trade treatment, illustrating how neglecting open trade and reneging on longstanding policies can be economically damaging on a global level.
Trump’s recent actions have only made things worse for the United States. Two major examples are his recent aluminum and steel taxes, which the international community has widely condemned, and the refusal of the U.S. government to cooperate in re-appointing judges to the Appellate Body in the World Trade Organization[5]––mostly because its members’ decisions did not seem to comply with the U.S. perspectives. These and other actions by the Trump Administration illustrate the perils of limiting trade, closing borders and refusing to cooperate in the multi-lateral system, embodied by the WTO.
While the overall impact of the EU-Japan Agreement may not be immediately visible, its political weight is. Both parties are, most importantly, emphasizing a strong message of shared democratic values and respect for the rule of law at an especially precarious moment in global affairs. In particular, they are underlining the substantial importance of cooperation in trade. By contrast, Trump’s zero-sum protectionism is blinding him to the economic damage his misguided policies are causing for the United States, which is careening toward isolation while the rest of the world is heading steadily towards shared prosperity.
[1] Starting from 90% at the beginning of the implementation of the Agreement, and gradually increasing up to 97%.
[2] According to the European Commission data, EU firms export roughly over €58 billion of goods and €28 billion of services to Japan exclusively every year.
[3] These obstacles make it 10-30% more expensive to export to Japan.
[4] For example, there will be zero tariffs on processed pork, and an elimination of the ones on cheese (currently 29.8%) and on wine (currently 15%).
[5] The WTO system provides a legal forum in Geneva for states in order to file complaints against other members, for alleged violations of WTO law. A three-member arbitration panel can hear each appeal and issues its decision, with the possibility of appeal to the WTO’s Appellate Body, a seven-member independent court that makes the final decision on the meaning of WTO law and its application.
WASHINGTON—Manufacturing productivity, on the decline for two decades, could be on the upswing and the sector could be on the verge of a significant transformation, according to a new report authored by PPI Chief Economic Strategist Dr. Michael Mandel. This shift hinges on an alternative digital future for manufacturers – one built around innovations in other sectors such as distribution and communications. Mandel terms such a digital transformation in manufacturing “The Internet of Goods.”
“The future of manufacturing, having come more slowly than expected, may now be on the verge of happening all at once,” Mandel writes. “The ability to digitize the actual manufacturing and distribution process is rapidly approaching the point where new business models and new markets will emerge. Digitization of production and digitization of distribution will lead to a renewed emphasis on local manufacturers, which will provide rapid response customization and distribution that foreign competitors cannot. Moreover, we are entering a new era of manufacturing platforms, both open and proprietary, which may boost global productivity and innovation in manufacturing.”
“The result: anticipate a thickening network of small-batch and custom factories taking hold around the country. The new business models will give a sustained competitive advantage against foreign competitors, because who wants to buy a custom item from a supplier 10,000 miles away that will take two months to arrive? This will enable the U.S. to rebuild its industrial networks in areas like the Midwest and upstate New York.”
“As this fascinating preview of the coming ‘Internet of Goods’ shows, America is on the cusp of an exciting new era of manufacturing start-ups and jobs enabled by digital innovation,” said PPI President Will Marshall. “Technology – not Donald Trump’s retrograde tariffs – is the right tool for growing manufacturing jobs across the country.”
—The rise of ecommerce fulfillment centers and the digitization of distribution; —The dramatic expansion of robots and 3D printing for quick and cheap delivery that will allow for more localized production of goods; and —Cloud-based manufacturing platforms that enable design, production, sales, and distribution to run as separate services on a packet-switched network.
As the Internet of Goods takes hold, state and local policy will play a powerful role in determining which areas are the big winners, according to Mandel. The gains will depend on whether the local workforce is prepared for tech-enabled physical industries; the availability of capital for local entrepreneurs to start new businesses or expand existing ones; and the regulatory environment.
The data on women graduating with computer science degrees is depressing. In 2006, 9800 women graduated with computer science degrees. Ten years later, despite the technology boom’s rapid job creation, only 12000 women graduated with computer science degrees. Since 2000, women have made up only around or under 25% of a broader range of STEM graduates as well, when accounting for a broader range of STEM degrees (computer science, engineering and mathematics). The latest data at the collegiate level shows that women make up less than 20% of the CIS graduates with technical skills, while women make up around 75% of graduates with degrees in biology and biology-related sciences. The rate of women in science is growing, but the growth is concentrated in biology and other healthcare related sciences. However, despite the nationwide numbers, individual schools have found success in closing the gender gaps in their computer science departments. By dividing introductory classes based on experience levels, making projects more relevant to real life applications, and giving women communities within the computer science department, programs like those offered at Harvey Mudd and Columbia University successfully closed the gender gaps in computer science at their respective universities.
Even as the percentage of women graduating with healthcare and biology degrees sees a steep increase, the percentage of women graduating with computer and information science degrees remains stagnant. This means that more women overall are graduating with STEM degrees, but the number of these women graduating with computer and information science degrees remains low.
This problem exists when looking outside of computer science as well, with the percentage of degrees conferred to women in engineering, mathematics, and computer science remaining around or below 25% since 2005. These trends show that women’s participation in certain STEM fields – not just computer science – are struggling. Women are missing out on some of the highest paying jobs available today, and companies are missing out on the innovation that diverse teams can bring them. Companies should evaluate their current gender compositions and workplace cultures in order to attract more diverse hires in the future. A study by McKinsey found that diverse companies think of more innovative solutions and are more profitable than companies that are not diverse.
Scholars suggest that girls miss out on careers in tech starting in high school. Dr. Sapna Cheryan at the University of Washington argues that early exposure has a large influence on a girl’s decision to pursue a degree – and therefore a career – in STEM. Cheryan points to early exposure as a partial explanation of why gender parity has been reached (or nearly reached) in mathematics, biology, and chemistry degrees, but is far from the horizon for physics, engineering, and computer science. High school curriculums across the United States always mandate some level of mathematics, and often require some level of biology or chemistry as well. In comparison, Virginia is the only state that lists computer science as a graduation requirement. Cheryan’s research indicates that when girls are required to take certain classes, rather than choosing into them, they are less likely to have low self efficacy later on in their lives, when they’re deciding what to study in college, especially because they are likely to perform just as well as the boys in their classes.
Cheryan’s research shows that accessibility is important in closing the gender gap in computer science, but research conducted by Accenture and Girls Who Code suggests that accessibility is not enough. A recent study by the nonprofit, which aims to increase middle and high school girls’ interests in computer science through after school programs and summer camps, indicates that increasing access to computer science without also actively making it more gender balanced may reinforce stereotypes within the field rather than break them down. Factors like having a woman computer science teacher, being assigned projects that have real life applications, and having coding experience, are all likely to make a positive impact on girls’ decisions to study computer science, while having no negative impact on boys’ decisions.
Girls Who Code itself exemplifies a program making a potentially groundbreaking impact on women in computer science. Girls Who Code, along with many other nonprofit and local and state government programs, is trying to close the gender gap in computer science. Girls Who Code identifies around 90% of their program graduates as intended computer science majors. However, there is at least a four year gap from the time a student completes their time with Girls Who Code and the time they graduate. While it is possible (and likely), that Girls Who Code and many programs like it are simply too young to show the impacts they’ve made, thus far, the evidence that programs like Girls Who Code are increasing the number of women graduating with computer science degrees is scarce. Whether these programs, most of which are under a decade old, are making the impact they want to, will become clear in the next few years as the cohorts of the programs graduate college.
It is also possible that these programs simply aren’t working, and that despite the good they do in teaching computer science to girls in ways that girls enjoy, the masculine culture and fear of discrimination overpower a woman’s desire to enter the computer science industry. The popular perception inside Silicon Valley is that the technology industry operates on meritocracy – that those who advance do so because of their hard work and intelligence, not their connections. However, many people in the industry earn their clout through friendships and who they know – in many startups, hiring processes are conducted primarily through “interviewing” friends and past coworkers. It makes sense that if women don’t already exist in these spaces, they have a hard time breaking in.
Additionally, according to a report by the National Center for Women in Technology, 56% of women left their careers at mid-level points in 2008. The quit rate for women is now twice that of men in computing related jobs. The lack of retention in the field may serve as an indicator of an unwelcoming, if not hostile, workplace environment for college students choosing degrees, especially considering that 80% of these women continue working and are not pulled away by family responsibilities. Women choosing degrees in STEM may believe that the discrimination they may face in their careers is not worth the benefits that come from entering the field.
Studies indicate that when choosing degrees, women have more prosocial motivations than men, who are more career- oriented. Specifically, a study by Anya Skatova and Eamonn Ferguson found that “Helping” motivates women the most, while “Career” is the top motivator for men. Programs like Girls Who Code find that their students are likely to work on projects that involve real life applications or educational opportunities. Projects that girls have coded since the program’s start include Tampon Run, a game intended to destigmatize menstruation, and an algorithm that helps detect whether a cancer is benign or malignant. While Girls Who Code and other initiatives intentionally focusing on girls may show the social impact of coding, the popular perception of computer scientists remains as a nerdy man with little social skills, much like the group of men in Silicon Valley, a popular TV show about the tech industry.
These perceptions and motivations inherently work against each other. If women do not perceive computer science as a field where they can have some social impact, they may be less likely to major in computer science. And because the industry requires some level of technical knowledge for most jobs, the likelihood of a woman entering computer science without having taken classes in it is low.
When schools implement programs that are more tailored to women’s interests and leanings, the gender balance narrows significantly. At Columbia University, the percentage of women majoring in computer science reached 47% in only a few years, after the university added three components to the department. One, a class called Computing in Context, taught students coding in a way that is relevant outside of pure technology. The class has projects in Python, an easier language to learn than the other introductory class that is offered in Java. In addition, the department added a one hour class for students who have no coding experience (intended primarily for students from marginalized communities) to talk about applications of computer science, think through logic problems, and gain a greater understanding of the role of computer science going into the future. Finally, the department started offering a combined track major, that allowed students to major in computer science with another major of their choice. These changes made computer science more accessible, but also taught students how to apply the skills they were learning outside of the popular conception of what jobs in tech look like.
At UCLA, Professor Linda Sax’s BRAID Initiative looks at how to attract and retain women in computer science, starting from middle school. At beacon schools like Harvey Mudd, the gender gap in computer science has made significant improvements. Harvey Mudd now has more women graduating with computer science degrees than men, after making a few changes similar to those that Columbia’s computer science department made. They changed their introductory programming language to Python and restructured their introductory class into three tracks, including a class for students with absolutely no background in computer science. In addition, students who always have the answer and ask more complex questions than the material mandates are encouraged to come in after class during office hours rather than taking up class time. After their introductory classes, students are connected to internships and research projects which keep them interested, leading to more women graduating with computer science degrees.
The payoff from the efforts made at schools like Harvey Mudd College and Columbia University show that with intentional programming, gender gaps in STEM fields can be closed. Successfully implementing these programs at a larger scale and having more schools participate in programs that lead to these outcomes will help innovation and bring more creativity to the technology industry.
It is relatively easy to digitize a song or a bank account. Yet fully digitizing physical industries such as manufacturing and agriculture has proven much more challenging. Manufacturers have taken the first step towards digitization by putting sensors into existing products such as turbines and tractors and using the resulting data to improve performance. The goal is now to turn data collection and analysis into a new revenue stream.
But data monetization is only one possible application of IT to manufacturing, and perhaps not the most effective at creating sustainable new markets or new business models. An alternative digital future for manufacturing, the “Internet of Goods,” is emerging. Three trends could lead to a manufacturing sector that uses information technology to boost productivity and create new markets.
