issue: Trade

Bridging The Data Gap: How Digital Innovation Can Drive Growth and Jobs

Posted on by The Progressive Policy Institute

Seldom has the world stood poised before economic changes destined to bring as much palpable improvement to people’s lives and desirable social transformation as “big data.”

Breathless accounts abound of the huge amounts of data that citizens, consumers and  governments now generate on a daily basis in studies ranging from the French Prime Minister’s Commissariat général à la stratégie et à la prospective study on Analyse des big data: Quels usages, quels défis to Viktor Mayer-Schönberger and Kenneth Cukier’s seminal Big Data: A Revolution That Will Transform How We Live, Work and Think.

But the larger revolution will come not from the exabytes of data being generated on a daily basis, but through the vast advances in analytics that will help us convert this information into better lives, and better societies. Already, many companies are using the new information to offer more tailored products and services to customers; consumers are receiving more effective healthcare; clever administrations are cutting pollution and commuter transit times; people of all types are being entertained and educated in fascinating new ways; and entrepreneurs who seize the opportunity are helping raise North America and Europe from the longest economic recession since statistic-taking began.

Download the full report here.

Michael Mandel and Paul Hofheinz presented their paper today at the PPI & Lisbon Council joint event: New Engines of Growth: Driving Innovation and Trade in Data. 

Data, Trade and Growth

Posted on by The Progressive Policy Institute

We show in this paper that the architecture of the Internet dictates that current trade statistics significantly underestimate the magnitude and growth of cross-border data flows. As a result, the contributions of cross-border data flows to global growth and to small businesses are being significantly underestimated. This suggests that trade and tax policy should place more emphasis on maintaining cross-border data flows. Moreover, policies that discourage cross-border data flows, such as data localization and high tax rates on cross-border data, should be avoided if possible. Statistical agencies should explore adding data as a separate trade category, along with goods and services.

INTRODUCTION
The architecture of the Internet is designed as a “network of networks.” As such, one of its key attributes is making the passage of data from one network to another easy. So, when a user sends an email, views a video, or downloads a file from a website, the data may pass through a large number of different networks on the way from its origin to its destination, with the routing virtually transparent to the user.

This architecture has proven to be extremely flexible and powerful, both nationally and globally. Individuals, small businesses, and corporations with Internet access can easily access data of all sorts from around the world. Similarly, companies can efficiently and cheaply provide services such as email and web search on a global basis, in many cases without charge.

One sign of the Internet’s global success is the rapid growth of cross-border data flows. Cross-border data flows are growing far faster than conventionally measured trade in goods and services. According to TeleGeography, a consulting firm that keeps track of international data flows, demand for international bandwidth increased at a compound annual rate of 49% between 2008 and 2012.1 By comparison, the overall volume of global trade in goods and services, adjusted for inflation, rose at an average rate of 2.4% over the same period.

Continue reading and download the full report.

China’s Data Fog

Posted on by The Progressive Policy Institute

China recently released its January trade data, showing export growth of 10.6% and performing way above predictions – if you believe the numbers.  Many don’t.  After last year’s round of inflated figures, stories began to appear about just how businesses were cooking the books.  For example, some corporations were sending their goods on a “round trip” to Hong Kong and back, whereby a good produced in China goes “abroad,” to count as an export for tax purposes, and then is brought back to the mainland and sold at a premium because the same good is now also an “import.” Businesses being less than honest is neither a new nor a China-specific phenomenon — but as with every accomplishment the Chinese seem to be doing it bigger and more prolifically than most.

Exports aren’t the only quarter where domestically counted economic indicators have come under criticism.  Former Prime Minister Li Keqiang was quoted in a 2007 communique recently released by Wikileaks describing the data used to report China’s GDP as “man-made.”  In 2013, a Chinese university released a Gini coefficient estimate, a measure of a country’s rich-poor gap, at .61.  A short month later the Chinese government released their first official estimate in a decade coming in at 0.47 – where 0 is perfect equality and 1 is extreme disparities in wealth. (The U.S. for comparison is a middle-of-the-pack nation with a World Bank Gini coefficient of .45).  Foreign economists familiar with China labeled the official number, politely, as ‘optimistic.’

These examples highlight two related, but separate issues: Chinese economic data is manipulated at both the macro and at the micro level.  Government offices are incentivised to report good numbers and individual firms/households are incentivised to hide their wealth and keep it out of China.  Exacerbating the government’s stranglehold on numbers with any meaning is the aggressive harassment of investigative reporters.  Last December’s reporterpocalypse, whereby in retaliation for “biased” articles Beijing held up the visas for dozens of foreign reporters, was resolved only by United States Vice President Joe Biden’s direct intervention.  Even so, China has continued the trend of kicking out individual journalists with the banning of another New York Times reporter two weeks ago.  Of course, no one has it as rough as the Chinese national reporters, who are subject to intimidation, jail time, and annual mandatory classes on how to be a loyal “marxist” reporter.

Formerly, China’s data fog wouldn’t have much global impact.  But in an age of unprecedented investment, trade, and interdependence China’s behavior is a problem for actors worldwide.  U.S. current Foreign Direct Investment in China is a cool $51 billion, most of which is tied up in manufacturing and outside of finance.  American investors need to know the true quality of the environment in which they spend U.S. dollars.  Furthermore, globalization has led to the unprecedented integration of economies whereby governments need accurate data from abroad to determine domestic competitiveness.  Finally, as the 2007 financial crises demonstrated – failure in the number one (and presumably two) global economy has consequences far beyond a single state’s borders.

Can the US or other outside forces encourage transparency?  The fact is that the United States government has little to no political capital in Beijing.  When Chinese officials are approached directly by US counterparts, their “advice” is interpreted as at best, condescending and at worst, part of a massive beltway plot to keep China down.  This situation illustrates one aspect of a global sea change where the most effective ambassadors aren’t coming from the government, they are the corporations.

For corporations however, the need for accurate information is tempered by other considerations.  Companies operating in China have an obvious vested interest in staying on the good side of local/national authorities.  It’s hard enough to get things done even when you are courting, bribing and hiring the relatives of the right people.  But that doesn’t mean we should underestimate how much China wants to attract foreign business, and the leverage that this desire gives investors.  With the roll out of Shanghai’s new Free Trade Zone, Beijing has shown its hand.  The government desperately wants to shift the focus of China’s economy away from heavy industry and towards financial and service sectors – ideally with foreign role models around to “unleash diversity and competition.”

Encouraging transparency in China, the United States’ biggest trade partner and the number two global economy, is good economic policy and a smart business strategy.  Both official and commercial actors need to participate in lobbying for transparency.  In the end, the prospects of foreign businesses in China contribute to the development of the US and the global economies.  Governments and the participating corporations are responsible for pressuring China to do the right thing, and as their relative power shifts, pressure is best applied through multiple governmental and business channels.

 

Innovation from 9 to 5: China’s Economic Test

Posted on by The Progressive Policy Institute

China is investing more in R&D than the European Union, according to soon-to-be-released data from the Organization for Economic Cooperation and Development (OECD).  This milestone reflects a multi-pronged effort by Chinese policy makers to spur economic innovation. Other measures include incentives to lure foreign educated Chinese back home,  patent targets and subsidies, and a strong emphasis on market driven change and innovation across sectors in the recent national memo from President Xi.

The Chinese strategy of focusing resources on modernization has paid big dividends for the national economy and Chinese workers since Deng Xiaoping opened China to Nixon and the world in the 1970s. First heavy than light industry flourished under focused, deliberate state nourishment, leading China to its present status as the world’s second-largest economy. But this model of state-directed development faces new challenges as the standard of living rises and factories face competition from other countries with even cheaper labor, such as Vietnam and Bangladesh. Now that Chinese workers face threats to their job security, the government is asking: How can we innovate our way up the economic value chain?

The Chinese Communist Party has long justified its political monopoly by acting as the benign steward of transformative economic growth. But as growth rates flag, the difficulty of moving toward higher-valued added activities has presented the Chinese version of “it’s the economy stupid.” Unfortunately for President Xi Jinping, the party’s authoritarian ways are antithetical to the type of culture that has traditionally led to the entrepreneurial innovation the party seeks to develop.

Innovation is inherently disruptive. But the business environment, the legal environment, and societal pressures in China combine to foster businesses and businessmen who curry favor with officialdom and make few waves. Chinese schools feature rote memorization of the “correct” answers to any and all questions, stifling any instinct a student may have to think outside the box. Recently, the government officially endorsed a rehashing of ancient Confucian thought emphasizing obedience and deference to authority. Professors who ask China to follow its own constitution and develop rule of law get sacked.  Beijing would like to believe that it can suppress freedom of speech and thought, forego a genuine rule of law, and maintain strict political control, all while building a dynamic, modern economy. It has done an impressive job of organizing the economy around the imperative of “copy to catch up.” But it’s a lot harder to force people to be creative by decree.

After decades of following Western models of economic development, Chinese politicians now denounce the predetermined path in favor of forging a new “Chinese way” of combining free markets with controlled government. Ideally, China would develop an economy driven by a flexible, creative, innovative work force without transitioning to the classically liberal social and governmental structure traditionally necessary to cultivate that kind of human capital. The writing on the wall reads: “Be creative and daring! Only at work, never in any other capacity.”  China’s attempt to quarantine innovation underpins the success or failure of their targeted economic transformation and with it the fortunes of the CCP. It is dangerous to join the chorus of voices heralding China’s downfall since 1949, but this contradiction looks like a giant roadblock on the path forward.

Big Data: An Emerging Frontier for Innovation and Policy

Posted on by The Progressive Policy Institute

Michael Mandel participated in a recent OECD conference in Paris, France, Growth, Innovation And Competitiveness: Maximizing The Benefits Of Knowledge-Based Capital.  Mandel joined Matteo Pacca of McKinsey & Company and Jakob Haesler of tinyclues for a panel entitled, “‘Big-data: An Emerging Frontier for Innovation and Policy?”. He spoke on trade relating to “Big-data” and its role on generating growth and jobs.

Watch the event webcast.

PPI Unveils New Study, Rome Conference on The Data-Driven Economy”

Posted on by The Progressive Policy Institute

NEWS RELEASE 
FOR IMMEDIATE RELEASE

CONTACT:
Steven Chlapecka – schlapecka@ppionline.org, T: 202.525.3931

WASHINGTON—Government statistics don’t show it, but the production and consumption of data is the leading edge of economic growth in the United States, says a new report released today by the Progressive Policy Institute (PPI).

The report, Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy, is by Dr. Michael Mandel, PPI’s Chief Economic Strategist and a senior fellow at the Wharton’s Mack Center for Technological Innovation. It was prepared for a transatlantic conference in Rome on Oct. 11-12 organized by PPI and John Cabot University.

Government statistical agencies, notes Mandel, traditionally divide economic activity into two categories: goods and services. Data, however, is neither a good or service:

Data is intangible, like a service, but can be easily stored and delivered far from its original production point, like a good. What’s more, the statistical techniques that have been traditionally used to track goods and services don’t work well for data-driven economic activities. The implication is that the key statistics watched by policy makers – economic growth, consumption, investment and trade – dramatically understate the importance of data for the economy. In turn, these misleading statistics distort government policy.

To remedy this problem, Mandel proposes that data be added as a primary economic category alongside goods and services. After adjusting government figures to account for unmeasured data consumption, Mandel estimates that real U.S. GDP rose at a 2.3 percent rate in the first half of 2012, compared to the official rate of 1.7 percent.

Next week’s Rome conference, The Rise of the Data-Driven Economy: Implications for Growth and Policy, brings together two dozen representatives of U.S. and European companies, officials of the European Union and Parliament, and academic experts. The forum will highlight the contribution of data-driven growth to the economies of Europe as well the United States; examine the potential impact of new European Union rules on data regulation and privacy on cross-border data flows; and, explore broader Internet governance questions that will on the agenda in December’s meeting of the World Conference on International Telecommunications (WCIT) in Dubai.

Leading representatives of U.S. Internet and telecommunications firms will also be hand to discuss corporate responsibility for empowering customers to protect their privacy and being ethical stewards of data. These include Laura Fennell, General Counsel of Intuit; Maurice Fitzgerald, Vice President of Strategy-Autonomy of Hewlett-Packard; Carolyn Nuygen, Technology Policy Strategist of Microsoft; Anthony House, Manager of Public Policy for Europe, the Middle East and Africa at Google; and Ed Black, President and CEO of the Computer and Communications Industry Association.

The Progressive Policy Institute is an independent, innovative and high-impact D.C.-based think tank founded in 1989. As the original “idea mill” for President Bill Clinton’s New Democrats, PPI has a long legacy of promoting 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.

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Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy

Posted on by The Progressive Policy Institute

INTRODUCTION
We live in a world where ‘data-driven economic activities’—the production, distribution and use of digital information of all types—are the leading edge of economic growth. Mobile broadband, increasingly available even in poor countries, is fostering a fundamental technological and social transformation.  Big data—the storage, manipulation, and analysis of huge data sets—is changing the way that businesses and governments make decisions.  And torrents of data ceaselessly flow back and forth across national borders, keeping the global economy linked.

Yet paradoxically, economic and regulatory policymakers around the world are not getting the data they need to understand the importance of data for the economy. Consider this: The Bureau of Economic Analysis, the U.S. agency which estimates economic growth, will tell you how much Americans increased their consumption of jewelry and watches in 2011, but offers no information about the growing use of mobile apps or online tax preparation programs.  Eurostat, the European statistical agency, reports how much European businesses invested in buildings and equipment in 2010, but not how much those same businesses spent on consumer or business databases. And the World Trade Organization publishes figures on the flow of clothing from Asia to the United States, but no official agency tracks the very valuable flow of data back and forth across the Pacific.

The problem is that data-driven economic activities do not fit naturally into the traditional economic categories.  Since the modern concept of economic growth was developed in the 1930s, economists have been systematically trained to think of the economy is being divided into two big categories: ‘Goods’ and ‘services’.

Goods are physical commodities, like clothes and steel beams, while services include everything else from healthcare to accounting to haircuts to restaurants. Goods are tangible and can be easily stored for future use, while services are intangible, and cannot be stockpiled for future use.   In theory, a statistician could estimate the output of a country by counting the number of cars and the bushels of corns coming out of the country’s factories and farms, and by watching workers in the service sector and counting the number of haircuts performed and the number of meals served.

But data is neither a good or service. Data is intangible, like a service, but can easily be stored and delivered far from its original production point, like a good. What’s more, the statistical techniques that have been traditionally used to track goods and services don’t work well for data-driven economic activities.  The implication is that the key statistics watched by policymakers—economic growth, consumption, investment, and trade—dramatically understate the importance of data for the economy.  In turn, these misleading statistics distort government policy.

SUMMARY
In this policy brief we will show that government economic statistics, stuck in the 20th century, are missing most of the data boom.  To remedy this problem, it is time to expand our economic statistics to add data as a primary economic category, just like goods and services.  Until we do this, policymakers and regulators won’t have the information they need to make good decisions.

This policy brief is organized around three major arguments:

  1. We explain why data is becoming important enough to get its own statistical category. Individuals can consume data, just like they can consume soda (a good) or haircuts (a service). Businesses can invest in databases, just like they invest in buildings and equipment.  And countries can export and import data, just like they export and import goods and services. As a result, instead of breaking down the economy into goods and services, statisticians need to be thinking about goods, services, and data. Adding data as a primary economic category can give policymakers a much more accurate picture of economic growth, consumption, investment, employment, and trade.
  2. We show how the official economic statistics dramatically undercount the growth of data-driven activities.  To give a real-life example, we focus on the consumption of data by Americans.  According to statistics from the Bureau of Economic Analysis, real consumption of ‘internet access’ has been falling since the second quarter of 2011.
  3. In other words, according to official U.S. government figures, consumer access to the Internet—including mobile—has been a drag on economic growth for the past year and a half.  This is simply absurd. As a result, the official statistics are missing such important trends as the increasing adoption of smartphones and tablets, the growth of mobile broadband, and the enormous surge of usage of services like Gmail, Dropbox, Facebook, and Twitter.
  4. We adjust the official U.S. statistics to account for unmeasured data consumption by individuals. Based on our estimates, we show that real GDP rose at a 2.3% rate in the first half of 2012, compared to the 1.7% official rate. In other words, the impact of the data-driven economy on overall economic growth is being substantially underestimated. Based on these figures, the growth in data consumption in the United States accounts for roughly one-quarter of adjusted GDP growth in the first half of 2012, making  data consumption by individuals is one of the largest contributors to U.S. economic growth in this period.
  5. We assess the link between economic growth and future government privacy and data regulatory policy in the 21st century data-driven economy Given that we have shown that data powers growth, correctly measured, we discuss the possibility that excessive privacy and data regulation can inadvertently harm future growth prospects.

To put it another way, restrictive and prescriptive regulation of the Internet and the movement and uses of data could have the effect not only of constraining Internet freedom but also Internet free trade.  Such regulation could become the trade barriers of the data-driven economy, “balkanizing” access to information and innovative data-driven products and services and constraining global economic growth. That’s a highly undesirable outcome for everyone.

Download the memo.

Photo credit: Shutterstock/photobank.kiev.ua

WTO Filing a Step Toward Enhancing Competitiveness

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Are U.S. manufacturing jobs gone for good? Many so-called experts have mocked the Obama Administration’s latest trade action against China as being fundamentally useless, the economic equivalent of spitting into the wind. After all, factory job seem like a relic of the past.

Yet by our calculations, the U.S. could regain 4 million jobs in manufacturing at relatively low cost – if we follow the right policies. PPI does not advocate a trade war with China, or a tit-for-tat exchange of trade actions. But taking legitimate disputes to the WTO is the right way to enforce the rules – and in most cases to date with China the U.S. has had success. Such carefully targeted actions, back by accurate data, could make a big difference in boosting the economy.

That’s because we are fighting to recapture competitiveness that may have been disingenuously lost. When countries like China provide non-market financing or other subsidies to industries like automobiles, it gives their companies an advantage that wouldn’t be there absent government support. Such an advantage negatively impacts U.S. companies trying to compete, even if China does not export directly to the U.S. As the NYT explains, “While China exports virtually no fully assembled cars to the United States, it has rapidly expanded exports to developing countries, and those exports compete to some extent with cars exported from or designed in the United States.”

Monday’s WTO filing may be a small first step, but we must start somewhere. We are in a slow-growth economy with an anemic labor market. If we want U.S. companies to keep and increase production (and jobs) here, if we want to close the non-oil trade gap, we must be competitive. And it would help if we gave U.S. companies a level playing field to fight on instead of an uphill battle. Continue reading “WTO Filing a Step Toward Enhancing Competitiveness” →

Mitt Romney’s Vapid Foreign Policy

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PPI’s Will Marshall detailed Mitt Romney’s recent adventure in the world of foreign policy over at The American Interest.  Romney was able to stumble his way through a trip to Britain, Israel, and Poland all while offering very little in the form of substantive policies focusing more on criticisms of President Obama’s foreign policy.

Mitt Romney’s midsummer foray into foreign policy has left Democrats giddy with schadenfreude. More than his stumbling performance abroad, however, it’s the substance of Romney’s views that ought to really give voters pause.

Or, more precisely, lack of substance. With less than 100 days to go, Romney has yet to develop a coherent outlook on U.S. security and leadership in a networked world. What we get instead is GOP boilerplate about American greatness and exceptionalism, and a pastiche of spaghetti-against-the wall criticisms of Obama’s foreign policy.

Romney, of course, wants the election to center on the economy, and he’s offering himself, in effect, as a more experienced and capable CEO. His missteps over the past week, however, raise doubts about his ability to take over as Commander in Chief.

The sequence began with his first major foreign policy address, to the Veterans of Foreign Affairs. It was a pedestrian affair that left even conservative commentators underwhelmed, when they bothered to comment on it at all. Next, Romney embarked on his Grand Tour of three U.S. allies—Britain, Israel and Poland—supposedly dissed by Obama. The point of the exercise was to show that Romney knows how to treat America’s best friends.

Read the entire article HERE 

Photo Credit: Austen Hufford

Help Wanted: ‘Chief U.S. Investment Officer’

Posted on by The Progressive Policy Institute

Most people didn’t notice that Commerce Secretary Bryson resigned late last month. And why would they? The Commerce Department has long been one of the more obscure federal institutions, viewed by many as a hodge-podge of important but seemingly unrelated agencies like the Patent & Trademark Office, National Oceanic & Atmospheric Administration, Bureau of Economic Analysis, and Census Bureau. The agency is so partitioned that most Commerce employees probably haven’t noticed the unexpected departure.

That is a shame. Rather than being irrelevant, the Secretary of Commerce now plays a critical role as a champion for domestic investment – effectively America’s ‘Chief Investment Officer.’ Recent actions by President Obama put the Commerce Department at the forefront of encouraging U.S. investment.  That places a significant responsibility on the Department, since business spending on stuff like new office space and equipment is critical to stimulating economic growth.

Continue reading “Help Wanted: ‘Chief U.S. Investment Officer’” →

Stop the Uncertainty Surrounding Ex-Im Bank

Posted on by The Progressive Policy Institute

Late yesterday marked a formal end to the two-year debate on whether the Export-Import Bank (Ex-Im), the U.S. export credit agency, deserves to live to see another day. (It does.) What was once a routine process for Ex-Im reauthorization was held back by congressional charges of corporate welfare by the Tea Party. But while the decision to reauthorize the Bank for another two and a half years is good, the fact that it took so long is not: at this rate negotiations for the next round will have to begin before this legislation is finalized. That is a heavy drain on congressional and Ex-Im Bank resources. One has to ask, is there a way to avoid the same extended debate next time around?

Yes, with a little more clarity on why two-year long ideological attacks on Ex-Im creates uncertainty that hurts U.S. companies and detracts from Ex-Im’s effectiveness. As someone who worked at the Bank for almost three years, I’d like to offer some of that clarity.

Continue reading “Stop the Uncertainty Surrounding Ex-Im Bank” →

Manufacturing in the App Economy

Posted on by The Progressive Policy Institute

We live in a world where the communications sector is driving the recovery and receiving much attention. We believe that this is the most important ongoing development in the American economy, offering the potential for long-term transformation.

But while very important, a boom in communications isn’t enough, alone, to achieve balanced and sustainable growth. We need every sector of the economy, including manufacturing, to contribute. With this in mind, the Obama Administration has taken the positive step of proposing a series of policy measures that would encourage domestic manufacturing.

In this spirit, we undertake an audacious question: In this era of apps and social media, what is a reasonable long-term goal for manufacturing employment?

We first show that manufacturing has larger job spillovers than commonly thought, based on new calculations. Next, we estimate the employment consequences of eliminating the trade gap in manufactured non-oil goods, a desirable long-term goal, without reducing our standard of living.

Assuming such a balancing, we find that the U.S. should aim to add roughly 3.5-4 million direct and indirect manufacturing jobs over the long run, raising total manufacturing employment to about 15.5-16 million, or 2001 levels. This bold effort would ease the job drought and offer millions of Americans a path to the middle class. What’s more, we would be producing more at home, while borrowing less from the rest of the world.

Achieving this admittedly aspirational goal would come at a relatively small price: we calculate that overall economy-wide prices would have a one-time rise of only 1.8-2.0%, spread out over the time it takes to close the trade gap. To put this in context, the inflation rate for gross domestic purchases has averaged well over 2% annually over the past ten years. So closing the trade gap would raise prices by less than one-year’s inflation.

Read the entire report here

Measuring the Real Impact of Imports on Jobs

Posted on by The Progressive Policy Institute

When it comes to manufacturing, most politicians, economists, and journalists agree: the millions of manufacturing jobs lost in recent years are mostly not coming back. Looking at the official data, it’s easy to understand why. Productivity in the sector has continued to climb even as jobs dwindled, so it must be the case that these jobs were lost to good old human ingenuity.

But this conclusion is derived from faulty official data. Indeed, a closer look at the numbers reveals an entirely different history on what happened to U.S. manufacturing.

Specifically, this paper shows that rising imports play a much larger role in the loss of jobs since 2007 than official data suggests. In fact, we estimate that rising real imports are responsible for approximately 1.3 million of the jobs lost between 2007 and 2011, or almost one-third of total private non-construction job loss.

We reached the estimate of 1.3 million jobs through a process that adjusts for for measurement problems in the official statistics. This adjustment is based on a concept called the “import price bias,” which causes the government to undercount the growth of low-cost imports from countries such as China. After adjusting for the import price bias, our analysis suggests that the import growth of goods, adjusted for price changes, have been underestimated by roughly $117 billion since 2007 (in 2011 dollars).

Moreover, we find undercounting real imports leads to a distortion in most of the official statistics that keep track of economic activity, including real GDP, which was overstated during the Great Recession and subsequent recovery by 0.8%. Our analysis suggests imports of low-cost goods continued to expand their presence in U.S. markets during this period, a phenomenon that likely started in the early 2000’s when developing countries such as China significantly boosted their exporting presence.

In this paper we also discuss how these revised statistics might affect the economic and political landscape going into the 2012 election. Specifically, President Obama’s recently announced “insourcing” initiative has the potential to recover some portion of the 1.3 million jobs lost to rising imports. By comparison, current policies like the payroll tax break are more likely to leak overseas than we realize instead of stimulating demand at home.

Understanding the true effect of rising imports on jobs better explains the everyday reality of Americans who are struggling through a weak job market and stagnant real wages. This is especially true in key states such as Ohio, North Carolina and Pennsylvania, where voters know that jobs have been lost to foreign competition.

In the end, sustainable economic growth and the creation of tomorrow’s jobs cannot be achieved through the consumption, debt driven economy of the past few decades. Instead, we advocate more of the pro-investment, pro-manufacturing policies recently introduced by the Obama Administration, such policies shift America toward a “Production Economy” which emphasizes investment in physical, human, and knowledge capital. Understanding the true role of imports in the U.S. economy, we can design better, more targeted economic policies.

The Most Important Sentence in Obama’s Speech

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The AtlanticIn the Atlantic, PPI Chief Economic Strategist Michael Mandel explains why President Obama needed to start in the middle of his speech and focus on the competitiveness and production narrative:

“We now live in a world where technology has made it possible for companies to take their business anywhere.”

President Obama needs to give his jobs speech again. This time he should start in the middle.

To addressing the American people’s concerns and to win in 2012, the President needs a narrative–a story that explains how and why we got into this mess, what he has done to help so far, and how his latest proposals might help get the economy out of a ditch.

The good news: Thursday’s jobs speech contained the beginnings of a powerful story about the need to restore U.S. competitiveness. As Obama said:

“We now live in a world where technology has made it possible for companies to take their business anywhere. If we want them to start here and stay here and hire here, we have to be able to out-build, and out-educate, and out-innovate every other country on Earth.”

The bad news: Obama buried this nascent narrative in the second half of the speech. What’s more, most of his proposals last night–including the payroll tax cut–did not directly attack the competitiveness problem he identified.

Obama must do better than that. He should be telling the story of how America got distracted–by 9/11, by political infighting, and by excessive confidence. He should be explaining how we allowed ourselves to emphasize consumption and the present, rather than production and the future. And he should link each of his policy proposals to the idea of rebuilding the production economy.

Read the entire article.

Why America Needs a New Deal for Labor and Business

Posted on by The Progressive Policy Institute

Just before Labor Day, PPI’s President Will Marshall had an opinion piece in The Atlantic, in which he proposed reorienting the relationship of organized labor. Rather than adversaries, they should be partners. Here’s an excerpt:

President Obama is cobbling together a new jobs package for September, but it won’t be enough to revive the economy. Instead of offering another grab-bag of micro-initiatives, the administration needs to embrace a different model for growth that stimulates production rather than consumption, saving rather than borrowing and exports rather than imports.

This strategy emphasizes investment in the nation’s physical, human and knowledge capital–infrastructure, skilled workers and new technology. That’s a better way to raise U.S. wages and living standards than a new jolt of fiscal stimulus.

Getting consumers spending again will boost demand, but much of it will leak overseas via rising imports, stimulating foreign rather than U.S. production. In a world awash with cheap labor, where technology gaps are narrowing rapidly, a wealthy society like ours can thrive only by speeding the pace of economic innovation and capturing its value in jobs that stay in America.

The shift from a consumer-oriented to a producer-centered society won’t happen without a new partnership between labor and business–and a shift in outlook among workers themselves. Organized or not, U.S. workers should think of themselves first and foremost as producers rather than consumers. They have a compelling interest in keeping the companies they work for competitive, and in supporting a new economic policy framework that enables investment, entrepreneurship and domestic production. This reality points to new relations between workers and companies, and new political alliances.

A GRAND BARGAIN FOR LABOR

In the post-war compact of the 1950s and 1960s, workers offered loyalty and labor offered peace to companies in return for stable jobs with decent pay and benefits. But the deal between labor and capital changed as globalization took hold. Workers gave up job security; in return, they got low consumer prices and access to easy credit. Despite access to cheap foreign goods, however, real incomes fell for most households, as real wages dropped and job growth in most parts of the private sector virtually disappeared. Easy credit was used to fund consumption rather than investment in human capital.

Now, at a time when America’s economic preeminence cannot be taken for granted, the interests of workers are converging with those of companies, foreign and domestic, that want to invest in the U.S. economy. In a new compact for competitiveness, workers would pay more attention to innovation, workplace flexibility and productivity gains. Companies would invest more in upgrading workers’ skills, help them balance the pressures of work and family, and pay them middle class wages and benefits.

Two unions are pointing the way toward such a bargain: the United Auto Workers (UAW) and the Communications Workers of America (CWA).

Read the rest by clicking here to find out how. Read Marshall’s full policy briefing on the subject by clicking here.

Where Americans Can Cut Back

Posted on by The Progressive Policy Institute

Dollar billWhere can Americans cut back if the economy slips back into recession again? After all the talk about the “new frugality” and the deepest recession in 75 years, it might seem like households have tightened their belts as much as possible.

Surprisingly, however, the economic figures show several key areas where Americans have actually increased consumption compared to 2006, the year when housing prices peaked. Judge for yourself whether we can cut back more or not. (Note: all consumption changes are measured in inflation-adjusted 2005 dollars, comparing the 2nd quarter of 2011 with the second quarter of 2006)

1. Clothing — Consumption: + 8.9% since 2006

Despite the economic weakness, Americans spent on clothing at an almost $350 billon annual rate in the second quarter of 2011. Nothing seems to stop the waves of inexpensive shirts, dresses, and coats coming from overseas. Clothing imports from China, especially, are up 37 percent since 2006, and Americans are snapping them up. Perhaps we could buy a a few less t-shirts with funny sayings on them?

2. Personal care products — Consumption: +14.4% since 2006

We like to look our best, even in a recession. Perfume, makeup, shampoo, shaving cream and razors, body gels–Americans spend about $100 billion a year on these personal care items. Not only that, we’re spending more on imported cosmetics, which are up 26 percent since 2006. Are all those goos and gels really necessary?

3. Televisions — Consumption: +287.4% since 2006

No, that’s not a misprint. The government adjusts for the size of the television, among other things, and the average size screen has soared since 2006. If we don’t adjust for size and other variables, Americans are spending 12.7% more on televisions today compared to 2006. Total personal consumption outlays on televisions, according to the BEA: About $40 billion, pretty much all imported. Do you really need an even bigger TV?

4. Alcoholic Beverages (off-premises) — Consumption: +10.7% since 2006

Perhaps it’s not surprising that Americans need an extra drink these days. Still, the total home spending on alcoholic beverages is about $110 billion, at annual rates, according to the Bureau of Economic Analysis. A few less glasses might put a few extra dollars in the pocket.

Remember, all these figures apply to Americans in the aggregate. Those people who have been out of work for months or years don’t have room to cut back at all.

And remember–when journalists write that “consumer spending is 70 percent of economic activity,” they are completely wrong. What the U.S. economy needs is more production, not more consumption–and in a globalized economy, the two are not synonymous at all. And that, my friends, will be the subject of tomorrow’s post.

Photo credit: iChaz.