Referencing a recent report by Michael Mandel, The Washington Posts‘ Robert J. Samuelson discusses corporate investment:
Of course, businesses haven’t stopped investing entirely. In 2014, they spent $2.2 trillion on buildings, equipment (computers, machinery, trucks), software and research. For many large firms, the amounts are huge, estimates economist Michael Mandel of the Progressive Policy Institute, a left-leaning think tank. In 2014, AT&T led in business investment in the United States at $21.2 billion, followed by Verizon at $16 billion and Exxon Mobil at $12.4 billion.
Today the European Court of Justice invalidated the “Safe Harbor” agreement that allowed thousands of US companies to transfer personal data from Europe to the US, including personal data of employees at their European subsidiaries. As the WSJ wrote:
In a victory for privacy advocates, the European Court of Justice ruled that national regulators in the EU can override the 15-year-old “Safe Harbor” pact used by about 4,500 companies, including Apple Inc. and Alphabet Inc.’s Google, because it violates the privacy rights of Europeans by exposing them to allegedly indiscriminate surveillance by the U.S. government.
Leaving aside the legalities, this ruling indicates a rising mood of digital protectionism which is likely to hurt Europe far more than the US. Data traffic flows both ways, after all, and efforts to keep personal data inside the EU is likely to end up keeping useful data out as well. The future belongs to those countries who participate fully in the global digital economy.
Multinationals are about to get hit with a big tax penalty for operating in the United States. Is it finally time for corporate tax reform?
On Monday October 5 the OECD will release the “final package of measures for a co-ordinated international approach to reform the international tax system.” These BEPS recommendations (standing for Base Erosion and Profit Shifting) are intended to address “gaps and mismatches in existing rules which allow corporate profits to ‘’disappear’’ or shift to low/no-tax locations, where no real value creation takes place.” In other words, the goal is to make sure that multinationals pay their fair share of taxes globally. This is a laudable objective.
But BEPS also exposes the huge difference between the U.S. corporate tax rate, and that of many of our rivals. According to KPMG, the posted U.S. corporate tax rate, including both federal and state, stands at about 40%. By comparison, the average corporate tax rate in the European Union is about 22%. That includes Ireland (12.5%), United Kingdom (20%) and Germany (roughly 30%). To put this in perspective, a company earning an extra $1 billion in profits in the United States would pay roughly $400 million in corporate taxes, versus only $200 million in taxes if the profits were booked in the United Kingdom. That difference of $200 million could fund thousands of jobs.
Before BEPS, many U.S.-based multinationals were able to legally reduce their U.S. tax bills by shifting income to other countries with lower rates. They used a variety of tax strategies. The result for the companies: Lower effective taxes. The result for the United States: Higher competitiveness, since multinationals could avoid the full brunt of the excessively high U.S. corporate income tax rate. Continue reading “Understanding the Meaning of BEPS for the United States”→
Back in 2012, the Progressive Policy Institute identified the shortfall in business capital spending— or the “investment drought”, we termed it—as one of the major economic problems facing the U.S. economy. As we wrote then, “su1stainable economic growth, job creation, and rising real wages require domestic business investment.”
Unfortunately, three years later, the United States is still suffering from an investment drought. Capital per worker-hour has fallen since 2010, meaning that the average American worker has less equipment, buildings, and software to use, exactly the opposite of what we would want. More worrisome, this is not simply a short-run trend. In fact, the 10-year growth rate of productive capital is only 2 percent, by far the lowest in the post-war era (Figure 1).
Leading economists are increasingly concerned that the weakness in domestic investment is making it hard for businesses to boost productivity, measured by output per hour. The 10-year growth rate of nonfarm business labor productivity is only 1.3 percent, compared to 3 percent as recently as 2005. In a recent speech, Jason Furman, head of the White House Council of Economic Advisers called the decline in prod2uctivity growth “an investment- driven slowdown.”
A 2015 report by the OECD on productivity addresses the recent productivity slowdown and the question of whether it is temporary or “a sign of more permanent things to come.” They assert the importance of innovation for achieving growth, writing “productivity is expected to be the main driver of economic growth and well-being over the next 50 years, via investment in innovation and knowledge-based capital.”
International engagement is integral to PPI’s mission of policy innovation, going back to the “third way” dialogues we helped to launch back in the 1990s. In addition to multiple visits to Brussels and other European capitals over the past several years, PPI went to Australia last summer to unveil a unique study of the “App Economy” Down Under. Underscoring the value of such global outreach, the host for that July 2014 event, Communications Minister Malcolm Turnbull, just became Australia’s Prime Minister.
Extending our efforts in the Asia-Pacific region, we’ve just returned from a fascinating two-week foray to Japan, Vietnam, and Indonesia. Here’s a brief report on our trip, which centered on two new studies of the App Economy in Southeast Asia, as well as our work to support President Obama’s push for the Trans-Pacific Partnership (TPP).
It began on Sept. 7 (Labor Day) in Tokyo, where PPI’s traveling party was briefed by top officials of Ministry of Economy, Trade, and Industry (METI) on Japan’s priorities for the TPP negotiations, Among other things, we discussed TPP’s importance in supporting increased trade by small and mid-sized U.S. and Japanese firms, and we emphasized TPP’s critical role in promoting the cross border data flows on which the global economy increasingly depends.
At the Ministry of Defense, we received a broad survey of regional security concerns, including China’s “creeping expansion” and island-building activities in the South China Sea. This briefing helped to provide context for Prime Minister Shinzo Abe’s controversial new security proposals, which are intended to allow Japan’s armed forces more latitude in joining mutual defense efforts in the region, including joint exercises with U.S. forces.
Energy also figured prominently in our talks. From directors of the Agency for Natural Resources and Energy and Office for International Nuclear Energy Cooperation, we learned that the post-Fukushima shutdown of nuclear energy has left Japan importing an amazing 96 percent of its energy, leaving it hugely dependent on coal and Middle East oil. Little wonder that Japan is gradually bringing nuclear reactors back on line and trying to tilt its portfolio more toward natural gas and renewable solar and wind power. The United States could support these efforts by a key ally by lifting outdated restrictions on U.S. oil and gas exports.
Other key meetings in Tokyo included a wide-ranging conversation on U.S.-Japan relations and the progress of “Abenomics” with the Japan Institute of International Affairs (JIIA), as well as a roundtable discussion with the American Chamber of Commerce in Japan on the investment climate in Japan, the government’s efforts to stimulate economic growth, and the attempts to stimulate innovation in regenerative medicine.
PPI next traveled to Vietnam, a country in the throes of rapid economic development and modernization. In Ho Chi Minh City, we met with city officials eager to lower legal and regulatory barriers to foreign investors, as well as leaders of the city’s University of Technology and Education, an American-founded college that is trying to meet the economy’s insatiable demand for engineers and technicians.
If Ho Chi Minh City is Vietnam’s business center, Hanoi is the seat of a government firmly controlled by the Communist Party. There, PPI released“Vietnam and the App Economy,“ a report by our chief economic strategist Michael Mandel. Using a methodology Mandel pioneered in measuring the number of U.S. app-related jobs since the introduction of the smartphone in 2007, the study shows that Vietnam ranks surprisingly high in app job growth – first, in fact, in Southeast Asia (including Thailand, Malaysia, Singapore, Indonesia and the Philippines).
The report warns, however, that new regulations under consideration – for example, a rule that would prohibit data from leaving Vietnam – could crimp the development of the country’s nascent digital sector. What’s more, the wisdom of a heavy state role in certain sectors, such as telecom and mobile broadband, was the subject of some very spirited discussions with our hosts.
PPI’s visit and Dr. Mandel’s report were well-received in the Vietnamese media, gaining positive coverage from the Vietnam News Agency, ICT News Vietnam,Vietnam Breaking News, The Voice of Vietnam, andVietnamPlus.
PPI also released a second report, “TPP and the Benefits of Freer Trade for Vietnam: Some Lessons from U.S. Free Trade Agreements,”at an event organized by the American Chamber of Commerce in Hanoi, which included leading Vietnamese economists and economic reformers. Written by Ed Gerwin, who directs PPI’s Trade and Global Opportunity project, the report shows how countries that use high-standard free trade agreements to enhance transparency and the rule of law, adopt higher labor and environmental standards, and make other key reforms often see significant growth in foreign investment, greater innovation, and broader participation in global commerce. Gerwin’s report garnered media coverage in The Hill and theCommunist Party of Vietnam’s Online Newspaper.
Our schedule also included meetings with top-level officials from Vietnam’s Ministries of Foreign Affairs, Information and Communication, and Science and Technology, as well as visits to Saigon Hi-Tech Park, the U.S. Embassy, Viettel Corporation, FPT Software, and Vietnam Silicon Valley.
From Hanoi it was on to our final destination, Indonesia. At a packedpublic forum in Jakarta hosted by Mastel, an association of leading Indonesian and foreign companies, we released another Mandel study, “Indonesia: Road to the App Economy.”That was followed by a roundtable featuring top Indonesian government officials, business leaders and economists. PPI’s core premise – that emerging market economies, such as Indonesia, should not overlook possibilities for growth arising from the intangible, or data-driven economy, as well as traditional, labor-intensive manufacturing – sparked a lively discussion.
The report and Dr. Mandel’s public comments were quoted inCNN Indonesia, Bisnis Indonesia (the leading business print newspaper in the country), Detik.com (the number one online news outlet in Indonesia), andKompas Online(the number one print newspaper by circulation).
The PPI delegation included Will Marshall, Michael Mandel, Lindsay Lewis, Cody Tucker, and Ed Gerwin. We will continue to find ways to engage on policy issues globally, as the new economy being fostered by U.S. innovation needs better international understanding and increased appreciation. We hope you will find the opportunity to join us in the coming year as we push for unique policy solutions at home and abroad.
Every once in a while, personal injury lawyers come up with new ways to sue that can be real head scratchers. Courts usually weed out these theories, but they get through on occasion. This happened last year in Alabama, where the Alabama Supreme Court held that a company can be subject to liability, not for its own products, but for products entirely made and sold by its competitors. This theory for liability has been dubbed “innovator liability” because it is used primarily against companies that invent new products even though the plaintiffs in the cases are alleging that they have been harmed only by similar or “knock-off” products of other companies.
In May, the Alabama Legislature and Governor, in a swift bipartisan manner, overturned their state Supreme Court’s innovator liability ruling. Alabama’s policymakers appreciated that it makes no legal or economic sense for innovators to own the liability for an entire product line. In addition to being legally unprincipled, this liability theory punishes innovation, which could have devastating long-term impacts on consumers and businesses alike. The downsides of such liability are too great.
JAKARTA—The Progressive Policy Institute (PPI) today released a new policy report at a public forum in Jakarta, which measures the growing contribution of digital innovation to the Indonesian economy, compares the environment for investment in Indonesia to other locations in Southeast Asia, and warns of potential policy pitfalls and regulations that might harm future digital growth and economic prosperity in the country.
The report, “Indonesia: Road to the App Economy,” is an effort to measure the thousands of app-related jobs created in Indonesia since the introduction of the smartphone in 2007. Based on a methodology PPI Chief Economic Strategist Dr. Michael Mandel has developed to estimate app job growth in the United States, Great Britain, Australia, and Vietnam, the study is the first to quantify the number of Indonesian jobs directly related to the building, maintenance, support and marketing of applications for smart-devices.
“Up to this point, Indonesia has not been focused on app development. Nevertheless, the country has a rapidly growing number of app developers—these are the people who design and create the apps distributed domestically and internationally,” said Dr. Mandel, author of the report. “Moreover, Indonesian companies that do app development also have to hire sales people, project managers, database programmers, and other types of workers. Finally, each app developer supports a certain number of local jobs.
“In this paper, we estimate that Indonesia has roughly 22,000 App Economy jobs across the entire country. In addition, we show that Indonesia comes in third in our App Economy ranking of major Southeast Asia countries, behind Vietnam and just behind Singapore.
“Why is this important? The implication is that production of mobile apps—both for the domestic and global economies—could become an increasing source of growth in coming years for Indonesia. The Indonesian government is facing an important economic policy decision. Countries are better off nurturing a strong position in mobile app development. The key to growth is to be a creator of mobile apps, not simply a user. That strategy creates a workforce with the right skills and training to prosper in the global economy going forward.”
Indonesia’s growth rate has been slowing in recent years. In the second quarter, GDP grew 4.7% over the same quarter of the previous year, the smallest gain since 2009. Part of that slowdown is due to global economic weakness that has hurt commodity exports. However, that only points out the need to find another, more sustainable engine for growth for the Indonesian economy.
President Joko Widodo, in office since October 2014, seeks to transform Indonesia from an economy that imports manufacturing products such as telecommunications equipment into one that produces them. Indeed, his administration’s emphasis on production has included domestic content rules for smartphones using advanced networks, as a way of allowing Indonesia to participate in the global mobile revolution as producer rather than a consumer.
In this paper we take another perspective on Indonesia’s economy. Rather than focusing on hardware, we examine the potential of the production of mobile applications (“apps”) as a source of growth and jobs for Indonesia. The App Economy, as it is sometimes called, is the whole ecosystem of jobs, companies, and in- come connected with the production and distribution of mobile apps.
Many people mistakenly think of mobile apps as simply games or chat programs or social media. Games and social media are important—but in reality, they are only a small part of the App Economy. Apps are used by major multinationals, banks, media companies, retailers, and governments. As of July 2015, there were 1.6 million apps available for Android, and another 1.5 million available on Apple’s App Store.
App development is one route to economic success for a country such as Indonesia that has a large internal market. Today, many countries try to develop their manufacturing sector as a means to growth, emulating China and Korea. However, such a strategy necessarily requires a large investment in physical capital, not just for the factories but for the transportation infrastructure and power grid as well. Building and improving highways, rail lines, and ports is expensive and time consuming.
By comparison, mobile app development requires far less physical capital, and has the potential for paying off much more quickly. Moreover, going forward, mobile apps could be a major source of value-added and growth. What’s required is a skilled workforce and good telecom connections, both domestically and internationally. But once these are in place, a country such as Indonesia can become part of the global App Economy, creating good jobs and growth at home.
PPI Senior Fellow Hal Singer’s analysis on the impact of the FCC’s net neutrality ruling was cited in the Wall Street Journal:
Before Obamanet went into effect, economist Hal Singer of the Progressive Policy Institute predicted in The Wall Street Journal that if price and other regulations were introduced, capital investments by ISPs could quickly fall from the $77 billion invested in 2014—between 5% and 12% a year, according to his forecast.
Now Mr. Singer has analyzed the latest data, and his prediction has come true. He found that in the first half of 2015, as the new regulations were being crafted in Washington, major ISPs reduced capital expenditure by an average of 12%, while the overall industry average dropped 8%. Capital spending was down 29% at AT&T and Charter Communications, 10% at Cablevision, and 4% at Verizon. ( Comcast increased capital spending, but on a new home-entertainment operating system, not broadband.)
Until now, spending had fallen year-to-year only twice in the history of broadband: in 2001 after the dot-com bust, and in 2009 after the recession. “In every other year,” Mr. Singer wrote for Forbes, “ISPs—like hamsters on a wheel—were forced to upgrade their networks to prevent customers from switching to rivals offering faster connections.”
HANOI—The Progressive Policy Institute (PPI) today released a new policy report highlighting how key reforms Vietnam would need to implement under the Trans Pacific Partnership (TPP) could ultimately provide important benefits for Vietnam itself. The report was made public at an American Chamber of Commerce event in Hanoi attended by influential U.S. and Vietnamese business leaders, as well as leading Vietnamese economic experts and proponents of economic reform.
“Vietnam is poised to benefit significantly from the Trans Pacific Partnership agreement,” said Ed Gerwin, PPI Senior Fellow for Trade and Global Opportunity and author of the report. “But TPP will also require Vietnam to undertake significant legal and regulatory changes in areas including transparency, the rule of law, labor and environmental rules, the digital economy, and rules for state-owned enterprises. These reforms in Vietnam will play a critical role in driving increased U.S. trade and commerce with a growing and vibrant Vietnamese economy.
“Those of us who believe strong trade agreements can promote inclusive growth and positive change need to continue to remind Vietnam that adopting these necessary reforms—and sticking to them—will also deliver tangible benefits for Vietnam and its people. PPI looks forward to continuing to be a constructive voice in this effort.”
In “TPP and the Benefits of Freer Trade for Vietnam: Some Lessons from U.S. Free Trade Agreements,” Gerwin uses the experience of past high-standard U.S. trade agreements to illustrate why undertaking these often-difficult reforms would also be in Vietnam’s self interest. Gerwin notes, “the adjustments required by high-standard [trade deals] can also promote foreign investment, technological advancement, innovation, broader participation in trade, and other key developments that—together with additional reforms—can drive stronger and more broadly shared economic development.”
Countries trade because trade delivers mutual benefits. New market-opening trade agreements like the Trans Pacific Partnership (TPP) can enhance the shared benefits of trade by eliminating barriers to expanded international commerce and deepening economic cooperation between partners. It’s not surprising, therefore, that a detailed economic simulation of freer commerce under the TPP finds that each of the 12 TPP countries would see aggregate income gains and increased ex- ports under a comprehensive TPP. A strong TPP agreement, in short, could be a win—times 12.
But governments and their leaders don’t simply operate in the aggregate. Despite trade’s undeniable overall benefits, not everyone benefits from trade—and beneficial agreements that increase trade and open markets can require sometimes- difficult economic adjustments.
For the United States, for example, the TPP could support more good-paying jobs for U.S. workers who produce and sell American goods and services to growing Pacific Rim economies that should see even stronger growth under TPP. At the same time, however, growing trade can lead to lost jobs and lower wages for some American workers, and will require a renewed U.S. focus on comprehensive solutions, including assistance and better training for lower-skilled workers.
Other countries will need to adjust as well. Japan, for instance, will require reforms to its farm sector, while Canada will need to upgrade its intellectual property rules to comply with global standards.
PPI Unveils Report Measuring Vietnam’s App Economy at Public Forum in Hanoi
Report estimates 29,000 App jobs in Vietnam
HANOI—The Progressive Policy Institute (PPI) today released a new policy report at a public forum in Hanoi, which measures the growing contribution of digital innovation to the Vietnamese economy, compares the environment for investment in Vietnam to other locations in Southeast Asia, and warns of potential policy pitfalls and regulations that might harm future digital growth and economic prosperity in the country.
The report, “Vietnam and the App Economy,” is an effort to measure the thousands of app-related jobs created in Vietnam since the introduction of the smartphone in 2007. Based on a methodology PPI Chief Economic Strategist Dr. Michael Mandel has developed to estimate app job growth in the United States, Great Britain, and Australia, the study is the first to quantify the number of Vietnamese jobs that are directly related to the building, maintenance, support and marketing of applications for smart-devices.
“Vietnam has a rapidly growing number of app developers—these are the people who design and create the apps distributed domestically and internationally,” writes Dr. Mandel, author of the report. “Moreover, Vietnamese companies that do app development also have to hire sales people, project managers, database programmers and other types of workers. Finally, each app developer supports a certain number of local jobs.
“In this paper, we estimate that Vietnam has roughly 29,000 App Economy jobs across the entire country. In addition, we show that Vietnam has the top-rated App Economy in Southeast Asia (including Singapore, Indonesia, Malaysia, Thailand, and the Philippines).
“Why is this important? The App Economy is the whole ecosystem of jobs, companies, and income connected with mobile apps. The rise of the App Economy may offer low- and middle-income countries such as Vietnam a faster route to economic success.”
In addition, PPI’s mission to Vietnam includes meetings with: Vietnam Ministry of Foreign Affairs; Vietnam Ministry of Information and Communication; Vietnam Ministry of Science and Technology; Ho Chi Minh City Department of Planning and Investment; Ho Chi Minh City University of Technology and Education; Saigon Hi-Tech Park Management Board; U.S. Embassy Vietnam; American Chamber of Commerce Vietnam; Viettel Corporation; FPT Software; and Vietnam Silicon Valley.
Please contact Cody Tucker at ctucker@ppionline.org with media requests or questions.
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The Progressive Policy Institute is an independent, innovative and high-impact D.C.-based think tank founded in 1989. Through research, policy analysis and dialogue, PPI develops break-the-mold ideas aimed at economic growth, national security and modern, performance-based government. Today, PPI’s unique mix of political realism and policy innovation continues to make it a leading source of pragmatic and creative ideas. PPI is a non-profit, nonpartisan, 501(c)(3) educational organization.
All around the world we are seeing the rise of the App Economy—jobs, companies, and economic growth created by the production and distribution of mobile applications (“apps”) that run on smartphones. Since the introduction of the iPhone in 2007, the App Economy has grown from nothing to a powerful economic force that rivals existing industries.
Many people mistakenly think of mobile apps as simply games. In Vietnam, the mobile game app Flappy Bird got an enormous amount of attention after being released in 2013 by Vietnam-based developer Nguyễn Hà Đông, at one point becoming the number one downloaded free game on the iOS app store.
Games are important—but in reality, mobile games are only a small part of the App Economy. Apps are used by major multinationals, by banks, by media companies, by retailers, and by governments. As of July 2015, there were 1.6 million apps available for Android, and another 1.5 million available on Apple’s App Store.
Apps are the essential front door to the Internet. In the United States, most people use apps to access the Internet on their smartphones. They log onto the Face- book app, or their bank app, or the app of their airline. One could spend an entire day on the Internet while only using apps.
The Supreme Court this month received the first round of briefing in a case that could cure one of the newest, most significant abuses in our civil justice system: massive class actions that lawyers file on behalf of people who are not injured. In these cases, the class action plaintiffs’ lawyers use novel legal theories and damage models to get their classes certified and then count on companies to settle the claims and pay them attorney fees – sometimes for more than the class members will end up collecting from the settlement.
The whole point of civil litigation is to make people whole for their losses. Any person who is not injured and has no loss to be corrected should have his or her claim dismissed. The person has no substantive legal basis for the claim, and Article III of the U.S. Constitution gives federal courts jurisdiction only over cases where people allege actual injury traceable to the defendant. But, what happens when uninjured people are nonetheless swept into federal class actions?
This is the issue before the Supreme Court in Tyson Foods, Inc. v. Bouaphakeo. The plaintiffs’ counsel used a controversial damages model to turn discrete wage-and-hour claims for some Tyson employees into a much larger class action. They created an “average employee,” claiming that this “average employee” would be due overtime pay if the time taken to put on and take off protective gear was included in the work week. They then sought to have every class member – some 3,300 people – paid the same overtime as the “average employee,” regardless of how much the real employees actually worked, spent putting on and taking off gear, or were paid.
The problem is that hundreds of class members had no injury at all. It was clear under the plaintiffs’ own statistical sampling model that these employees were fully paid, even accounting for the time to put on and take off gear. Yet, the district court certified the case as a class action with these uninjured people. At trial, the jury found that the modeling majorly overstated the damages and about half of the class had no or only a de minimis injury. Yet, the court allowed all class members, including the uninjured, to get the same pro rata share of the award.
As Congress takes up the Iran nuclear deal next month, it ought to confront this paradox: The agreement allows the Iranians to do something Americans can’t—sell oil to the rest of the world.
Don’t get me wrong. I support the deal, under which Tehran would stop enriching weapons-grade uranium for the next 15 years in return for relief from economic sanctions. It’s not perfect, but President Obama is right that it’s better than what we’d have if his conservative critics got their way—no deal, leaving the Islamic Republic on the brink of acquiring nuclear weapons.
Still, freeing Iran to crank up its oil exports stands in stark incongruity to what’s happening here at home. Domestic oil production has soared by an amazing 68 percent over the past decade, yet we can sell very little of it abroad thanks to outdated laws banning U.S. oil and gas exports.
Passed during the energy crisis of the 1970s, these laws were intended to protect the nation’s then-dwindling oil and gas resources as a strategic reserve against supply disruptions like the Arab oil embargo. But the premise used to justify this deviation from our country’s free trade principles—energy scarcity—has been shattered by America’s shale boom.
In rolling out an ambitious higher education plan this month, Hillary Clinton put a genuine national dilemma — America’s ballooning student debt crisis — at the center of the 2016 debate. What a refreshing contrast to her Republican opponents.
Clinton’s “New College Compact” is a big, multifaceted plan to take the debt monkey off the backs of millennials who attend public universities. But one thing it is not is cheap — the price tag is $350 billion. And it does not do enough to rein in college tuition costs, much less roll them back.
So let us offer a friendly amendment that would do just that and thereby complement Clinton’s otherwise creative proposal. Our suggestion? The three-year college degree.
Three-year colleges are the norm in many European countries, and a few enterprising universities here have begun to follow suit. We propose requiring any U.S. college or university with students who receive any type of federal student aid to offer the option of earning a bachelor’s degree in three years.
While some schools might be tempted to squeeze a four-year degree into three years, that approach would be unwise, given that the majority of today’s college students need six years to complete a bachelors.
