A clamor is rising against "short termism"—judging a company by its performance over the past quarter, rather than the past few years. BlackRock CEO Laurence Fink and Delaware Supreme Court Chief Justice Leo Strine, for example, recently joined the Business Roundtable and others in decrying the strong pressures for short-term results exerted by daily stock traders and activist hedge funds. Critics claim that these pressures prevent executives from making long-term investments needed for sustainable corporate growth.

There are pressures on and incentives for corporate leaders to put the short term ahead of the long term, but not necessarily from activist hedge funds or stock trading. And some proposed remedies for short-termism would undermine the economic interests of shareholders.

The current attack on short termism is premised on the sharp increase in the average daily trading volume of stocks over the past few decades. The primary cause has been a relatively small group of day traders, including the notorious high-frequency traders who buy millions of shares and sell them a millisecond later. These traders care not a whit about corporate fundamentals or business plans; they are trying to exploit slight pricing anomalies that arise because of technical differences in securities markets. Thus corporate executives should not be pressured by higher daily trading volumes to avoid good long-term investment spending.

Critics of short-termism are even more alarmed about activist hedge funds that may lobby corporations to pay higher dividends, for example, or sell unprofitable divisions. They claim these funds push for a quick boost in corporate earnings in order to sell their shares for a quick profit.

The data do not support this uniformly negative view. Activist hedge funds display a broad array of strategies and time horizons. On average, they hold a company's stock for one or two years, according to various empirical studies. Yet according to a recent McKinsey study of 400 activist campaigns over the past decade, the median campaign was launched when the company was on the decline and led to higher shareholder returns relative to peers for at least three years.

To win proxy contests, activist hedge funds must persuade other shareholders to support the changes they advocate. The funds usually hold a relatively small percentage of a company's shares; the overwhelming majority are owned by institutional investors such as mutual funds and pension plans.

Activist hedge funds have won roughly half of the proxy contests they've entered, as institutional investors have carefully distinguished among long-term plans depending on a company's specific circumstances. These institutions backed activist campaigns to increase dividends at companies like Apple with huge hoards of cash. But they've also supported multi-year research programs of biotech firms like Amgen that have shown they can deliver.

To thwart the perceived threats of short-termism, critics have proposed measures that would reduce the legal rights and economic interests of all shareholders. Martin Lipton, a prominent opponent of activist hedge funds, has recommended that U.S. corporate law adopt a new norm—that corporate directors be elected to five-year terms, rather than the usual one-year term. Such long tenure, combined with existing anti-takeover defenses, would effectively insulate the leadership of chronically under-performing companies.

There is a better approach: Boards should measure and reward the efforts of corporate executives and portfolio managers by looking at the organization's performance over the past three years. At present, most firms distribute cash bonuses and stock grants on the basis of the prior year's results. This approach does encourage top executives to favor short-term results over long-term growth.

At the same time, the top executives at both public companies and asset managers should be required to retain for three to five years half of the shares they receive through stock grants and options. At present, these people can usually sell all their shares as soon as they vest or the options are exercised. This is an inducement for top executives and managers to push up the company's stock price for a few months so they can sell at a temporary high.

While there are reasonable concerns about corporate short-termism, their remedies should be narrowly tailored. Most of these concerns can be addressed by adopting longer periods for executive compensation. But we should not overreact to day traders or hedge funds by dramatically reducing the legitimate rights and financial interests of all shareholders.

By 2020, Millennials will comprise more than one of three adult Americans. It is estimated that by 2025 they will make up as much as 75 percent of the workforce.  Millennials’ desire for pragmatic action that drives results will overtake today’s emphasis on ideology and polarization as Boomers finally fade from the scene. Thus, understanding the generation’s values offers a window into the future of corporate America.

Morley Winograd and Michael Hais outline the cultural force of the Millennial generation on the economy as Millennials increasingly dominate the nation’s workplaces and permeate its corporate culture. Winograd and Hais argue that the current culture on Wall Street is becoming increasingly isolated from the beliefs and values of America’s largest adult generation. The authors also include data on Millennials’ ideal employers, their financial behaviors, and their levels of institutional trust in order to provide further insight into this important demographic.

Key Millennial values shaping the future of the American economy include:

• Interest in daily work being a reflection of and part of larger societal concerns.
• Emphasis on corporate social responsibility, ethical causes, and stronger brand loyalty for companies offering solutions to specific social problems.
• A greater reverence for the environment, even in the absence of major environmental disaster.
• Higher worth placed on experiences over acquisition of material things.
• Ability to build communities around shared interests rather than geographical proximity, bridging otherwise disparate groups.

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Editor's note: This blog piece is based on findings from the new book Governance in an Age of Abundance: Experiences from the Extractive Industries in Latin America and the Caribbean, which will be launched at a Brookings public event later today. A Spanish version of this post is available on the Inter-American Development Bank's website. 

The myth of Sisyphus represents in Greek mythology a metaphor for pointless and interminable efforts. Sisyphus was condemned by Zeus to push a huge boulder up a steep hill. Every time he was close to reaching the top, the boulder was made to roll back down the hill and to the starting point, so that Sisyphus had to start all over again, in perpetuity.    

This metaphor may sound familiar to countries rich in natural resources. In many of these countries, citizens have hoped for generations that the revenue derived from extractive industries (oil, gas and mining) would translate into concrete benefits. Instead, rents from extractive industries have frequently been misused, either through wasteful state spending or public and private corruption. In many countries, heavy dependence on revenues from extractive industries has produced economic and political distortions. Also, revenues are all too often centralized at the national level, leaving local communities to wonder about the benefits of hosting extractive industries.

Overcoming the ‘Resource Curse’

The good news is that there are countries that have found a way to overcome the so-called "resource curse." In Norway, for example, the revenue deriving from the extractive industries supports a majority of government investment in education and health, as well as the pension system. While many resource-rich states can make the same claim, what makes Norway unusual is that it has been able to do so while minimizing corruption, mitigating economic distortions and ensuring efficiency in government spending at the same time.  

How did Norway do it? A look at the Natural Resources Governance Index (NRGI), developed by the Natural Resource Governance Institute, provides a possible explanation: by strengthening governance in the extractive sector. This implies establishing a robust legal and regulatory framework, agile mechanisms to promote transparency and disseminate information, effective safeguards and rigorous controls, and an overall institutional environment that is business-friendly and conducive to greater accountability in the public sector. And this is not a phenomenon unique to Norway, but it is replicated in other countries with large extractive sectors, such as Australia, Botswana and Canada.

Extractive Industries in Latin America and the Caribbean

Latin American and the Caribbean are at a crucial juncture in their effort to strengthen governance in the management of natural resources. On the one hand the above-mentioned NRGI, which measures the quality of extractives governance in 58 resource-rich countries, shows that among the eleven world leaders in quality of extractives governance, more than half are countries from the region (Brazil, Mexico, Chile, Colombia, Trinidad and Tobago and Peru). This is especially good news if one considers that Latin America and the Caribbean is the main source of metals at a global level, and that it holds the second largest oil reserves in the world. Latin America and the Caribbean are also remarkable because many countries have managed to develop large extractive sectors while at the same time avoiding the secessionist conflicts over extractives that plague resource-rich countries in other regions of the world.

On the other hand, Latin America still has to resolve some important issues. Overall, the region still falls short on rule of law and corruption measures in comparison to OECD (Organisation for Economic Co-operation and Development) countries. Social conflicts related to the exploitation of natural resources remain a sensitive issue in the region, especially when extractive industries operate in territories where indigenous communities have a significant interest and presence. Citizen demands regarding the control and mitigation of environmental impacts by governments and corporations are increasing, especially in terms of land use and conservation of water resources and forests. And many Latin Americans are increasingly demanding good governance and transparency in state spending.

Transparency is Key to Improving Governance

The recent IDB book Governance in an Age of Abundance: Experiences from the Extractive Industries in Latin America and the Caribbean (IDB, 2014), edited by Juan Cruz Vieyra and Malaika Masson, analyzes these challenges, particularly in light of recent initiatives to strengthen transparency in the governance of natural resources in the region.

The book focuses on two main themes. The first is on how best to improve governance in the extractives sector, especially in a way that promotes inclusive growth and takes into account the concerns of citizens. The key to this is governance mechanisms that include checks and balances to ensure that the needs of local communities are taken into account. The second theme of the book is a focus on evaluating concrete governance proposals, which include improved legislation, licensing arrangements, contracting procedures, and fiscal regimes. Underlying these two themes is a strong argument in favor of strengthened government capacity to produce, use, and disseminate accurate and timely information about the extractive sector.

The book identifies transparency as a key tool to improve the quality of governance in the extractive sector. This is not an easy task, because effective governance of this sector requires states to manage across a complex set of policy domains. Transparency is part of the solution to this problem by making data available to a wider set of stakeholders. This allows for improved coordination inside of government and helps civil society and the private sector to make informed contributions to public policy and hold governments accountable. For example, Colombia, through its Maparegalías initiative, is putting all the information about how money from extractive industry royalties are being spent, community by community, with everything placed online on an interactive map for easy access. But to make the most out of transparency, states need to address shortfalls in human capacity to use newly available data effectively in the public sector. This is particularly true at the sub-national level in many Latin American and Caribbean countries. Ultimately, as transparency improves and governments use data to operate more effectively and efficiently, citizen trust and confidence in the ability of the public sector to manage the wealth produced by extractive industries will improve. 

The findings of the book point towards two key challenges for governments related to designing and implementing transparency initiatives:

1. Governments need to make data more easily available and more accessible to stakeholders. This includes addressing the quality and timeliness of information. It also means improving the ease of use of data, both in terms of the formatting of data and navigability of the platforms that present it.
2. Governments need to be creative about soliciting feedback from stakeholders in the extractive sector. It is not enough to merely present data to the public. Governments should actively seek out input from citizens. This will ultimately mean investing in public and private capacity to analyze available data so that stakeholders can make informed contributions to governance.

These recommendations present the best way for governments in Latin America and the Caribbean to emerge from the paradoxical Sisyphean trap that resource abundance has all too often posed.

The authors are grateful to Pablo Bachelet, Juan Cruz Vieyra, Francesco De Simone and Martin Walter for their comments. 

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During the past decade, an abundance of wealth in minerals and hydrocarbons in Latin America and the Caribbean has translated into substantial revenues and macroeconomic growth. However, operations in the extractive sector have also led to significant challenges, such as corruption, negative social outcomes and environmental impacts.

On November 4, the Latin America Initiative and Energy Security Initiative at Brookings, with the Inter-American Development Bank (IDB), hosted a discussion on governance and institutional capacity in the extractive sector in Latin America and the Caribbean, drawing on findings from the publication Transparent Governance in an Age of Abundance: Experiences from the Extractive Industries in Latin America and the Caribbean, published by the IDB. Edited by Malaika Masson and Juan Cruz Vieyra, the book presents transparency as a central element to bolster governance quality and state legitimacy in the context of an increasingly demanding citizenry.

 Join the conversation on Twitter using #LatAmResources

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• Transparent Governance in Latin America’s Extractive Industries

When the head of the world’s largest investment fund raises fundamental questions about U.S. corporations, we should all pay attention.

In a letter earlier this week to the Fortune 500 CEOs, BlackRock Chairman Larry Fink criticized the short-term orientation that he believes shapes too much of today’s corporate behavior. “It concerns us,” he declared, that “in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies. Too many have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.” And he concluded, “When done for the wrong reasons and at the expense of capital investment, [returning cash to shareholders] can jeopardize a company’s ability to generate sustainable long-term returns.”

Fink is correct on all counts. In a new Brookings paper out today, University of Massachusetts economist William Lazonick states that the 454 companies listed continuously in the S&P 500 index between 2004 and 2013 used 51 percent of their earnings to buy back their own stock, almost all through purchases on the open market. An additional 35 percent went to dividends. “Buybacks represent a withdrawal of internally controlled finance that could be used to support investment in the company’s productive capabilities,” he said.

This is bad for the economy in two ways. As the growth of the U.S. workforce slows dramatically, economic growth will depend increasingly on improved productivity, must of which comes from raising capital investment per worker. Failing to make productivity-enhancing capital investments will doom our economy to a new normal of slow growth.

Many business leaders say that they are reluctant to make long-term investments without reasonable expectations of growing demand for their products. That brings us to the second way in which corporate short-termism is bad for the economy. Most consumer demand comes from wages. If employers refuse to share gains with their employees, growth in demand is bound to be anemic.

Although he clearly cares about his country, Fink is also acting as the steward of $4.8 trillion in investments. In an article published by McKinzie earlier this month, he warns that although the return of cash to shareholders is juicing equity markets right now, investors “will pay for it later when the ability to generate revenue in the long term dries up because of the lack of investment in the future.”

Unlike most other corporate leaders who express concerns about these developments, Fink is unwilling to rely on moral suasion alone. Because current incentives are so perverse, he argued, “It is hard for even the most dedicated CEO to buck this trend.” The constant pressure to produce quarterly results forces executives to go along—or risk losing their jobs. That pressure comes from investors who are, in Fink’s words, “renters, not owners, who are going to trade your stock as soon as they can pocket a quick gain.”

This logic leads BlackRock’s chairman to propose changing the tax code by lengthening to three years the the period needed to qualify for capital gains treatment while taxing trading gains at an even higher rate than ordinary income for investment held less than six months. To encourage truly patient capital, the capital gains rate would be stepped down to zero over a period of ten years.

In our latest 21st Century Capitalism initiative paper, "What must corporate directors do? Maximizing shareholder value versus creating value through team production," author Margaret M. Blair explores how the share value maximization norm (or the “short-termism” malady) came to dominate, why it is wrong, and why the “team production” approach provides a better basis for governing corporations over the long term.

Blair reviews the legal and economic theories behind the share-value maximization norm, and then lays out a theory of corporate law building on the economics of team production. Blair demonstrates how the team production theory recognizes that creating wealth for society as a whole requires recognizing the importance of all of the participants in a corporate enterprise, and making sure that all share in the expanding pie so that they continue to collaborate to create wealth.

Arguing that the corporate form itself helps solve the team production problem, Blair details five features which distinguish corporations from other organizational forms:

1. Legal personality
2. Limited liability
3. Transferable shares
4. Management under a Board of Directors
5. Indefinite existence

Blair concludes that these five characteristics are all problematic from a principal-agent point of view where shareholders are principals. However, the team production theory makes sense out of these arrangements. This theory provides a rationale for the role of corporate directors consistent with the role that boards of directors historically understood themselves to play: balancing competing interests so the whole organization stays productive.

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The workplace is changing rapidly, and more and more leaders in government and private industry are required to lead those who are geographically separated. Globalization, economic shifts from manufacturing to information, the need to be closer to customers, and improved technological capabilities have increased the geographic dispersion of many organizations. While these organizations offer many exciting opportunities, they also bring new leadership challenges that are amplified because of the separation between leaders and followers. Although much has been researched and written on leadership in general, relatively little has been focused on the unique leadership challenges and opportunities presented in geographically separated environments. Furthermore, most leaders are not given the right tools and training to overcome the challenges or take advantage of the opportunities when leading in these unique settings.

A survey of leaders within a geographically dispersed military organization confirmed there are distinct differences in how remote and local leaders operate, and most leadership tasks related to leading those who are remote are more difficult than with those who are co-located. The tasks most difficult for remote leaders are related to communicating, mentoring and building personal relationships, fostering teamwork and group identity, and measuring performance. To be effective, leaders must be aware of the challenges they face when leading from afar and be deliberate in their engagement.

Although there are unique leadership challenges in geographically dispersed environments, most current leadership literature and training is developed on work in face-to-face settings. Leading geographically dispersed organizations is not a new concept, but technological advances over the last decade have provided leaders with greater ability to be more influential and involved with distant teams than ever before. This advancement has given leaders not only the opportunity to be successful in a moment of time but ensures continued success by enhancing the way they build dispersed organizations and grow future leaders from afar.

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• Proximity to the flagpole: Effective Leadership in geographically dispersed organizations

In a new paper, William Galston and Elaine Kamarck argue that the laws and rules that shape corporate and investor behavior today must be changed. They argue that Wall Street today is trapped in an incentive system that results in delivering quarterly profits and earnings at the expense of long-term investment.

As Galston and Kamarck see it, there’s nothing wrong with paying investors handsome returns, and a vibrant stock market is something to strive for. But when the very few can move stock prices in the short term and simultaneously reap handsome rewards for themselves, not their companies, and when this cycle becomes standard operating procedure, crowding out investments that boost productivity and wage increases that boost consumption, the long-term consequences for the economy are debilitating.

Galston and Kamarck argue that a set of incentives has evolved that favors short-term gains over long-term growth. These damaging incentives include:

• The proliferation of stock buybacks and dividends
• The increase in non-cash compensation
• The fixation on quarterly earnings
• The rise of activist Investors

These micro-incentives are so powerful that once they became pervasive in the private sector, they have broad effects, Galston and Kamarck write. Taken together, they have contributed significantly to economy-wide problems such as: (1) Rising inequality, (2) A shrinking middle class, (3) An increasing wedge between productivity & compensation, (4) Less business investment, and (5) Excessive financialization of the U.S. economy.

So what should be done? Galston and Kamarck propose reining in both share repurchases and the use of stock awards and options to compensate managers as well as refocusing corporate reporting on the long term. To this end, these scholars recommend the following policy steps:

• Repeal SEC Rule 10-B-18 and the 25% exemption
• Improve corporate disclosure practices
• Strengthen sustainability standards in 10-K reporting
• Toughen executive compensation rules
• Reform the taxation of executive compensation

Galston and Kamarck state that the American economy would work better if public corporations behaved more like private and family-held firms—if they made long-term investments, retained and trained their workers, grew organically, and offered reasonable but not excessive compensation to their top managers, based on long-term performance rather than quarterly earnings. To make these significant changes happen, the incentives that shape the decisions of CEOs and board of directors must be restructured. Reining in stock buybacks, reducing short-term equity gains from compensation packages, and shifting managers’ focus toward long-term objectives, Galston and Kamarck argue, will help address the most significant challenges facing America’s workers and corporations.  

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In July 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, a far-reaching and still-controversial piece of legislation that was intended to reduce the odds of a repeat of the worst financial crisis in generations.  Five years later, is it working as hoped? Did it go too far—or not far enough? Are there parts that should be revisited? What remains on the U.S. and global financial-stability to-do list? 

On July 8, the Hutchins Center on Fiscal and Monetary Policy hosted a conversation with Treasury Secretary Jack Lew to address those and other questions about financial stability and the economy.

 Follow the conversation at @BrookingsEcon or #DoddFrank

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• Dodd-Frank at 5: A conversation with Treasury Secretary Jacob J. Lew
• Secretary Jack Lew on Dodd Frank
• Secretary Jack Lew on the $10 bill
• Secretary Jack Lew on Greece
• Secretary Jack Lew on China

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• Dodd-Frank at 5: A conversation with Treasury Secretary Jacob J. Lew

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In the months leading up to the 2015 United Nations climate change conference in Paris starting November 30, global businesses have pledged to do their part for proactive climate action. To "capture and catalyze" these commitments, the UN Framework Convention on Climate Change, in conjunction with the government of Peru, launched the Non-State Actor Zone for Climate Change (NAZCA). NAZCA is an online portal that showcases commitment to action by companies, investors, cities and subnational regions to address climate change. To date, more than 2,000 companies—from Baosteel Group Corporation to Exxon Mobil Corporation to Taiwan Semiconductor Manufacturing to Wal-Mart Stores, Inc.—have made voluntary commitments to reduce emissions, increase energy use efficiencies and invest in renewable energy sources.

IT sector stands out 

Proactive action by businesses to combat global climate change is not new. Over the past decade, businesses have increasingly engaged in voluntary climate action to share best practices, network, promote market mechanisms, and set greenhouse gas emission reduction targets. Despite this, not all businesses are eager participants. My recent paper on the role of the Global 500 companies in transnational climate governance shows that, after controlling for political economic and institutional factors at the country level, global businesses operating in the information technology (IT) sector are twice as likely as other firms to engage in proactive climate action. Next to the consumer staples sector, the IT sector has the highest share of global companies engaging in proactive climate action compared to the energy, health care, industrials, materials and utilities sectors.

Among the notable IT companies worldwide that have taken proactive climate action, including public disclosures of their carbon emissions, are Apple Inc., Google Inc., Hitachi, Ltd., LG Innotek, Microsoft Corp., Ericsson and Telefonica.

There are several reasons why IT companies are in a better position than other corporations to play a proactive role in climate change mitigation. First, IT companies, as a sector, tend to be wealthier, not only in terms of asset holdings but also profitability. They also employ a larger number of workers than other companies. Large and well-endowed corporations are better able to afford the costly investments necessary for deploying renewable energy and for undertaking carbon emissions management. According to my findings, wealthy corporations that employ a large number of workers have two to four time higher odds of proactive climate action than companies with smaller asset holdings and employee base.

Complementary capabilities

Second, my research also shows that, more often than not, when a company demonstrates a commitment to sustainability through complementary capabilities and competencies, namely investments in environmental R&D and/or certification with the ISO 14001 environmental management standard, the odds are higher that the company also engages in voluntary climate action and carbon disclosure. For example, a larger share of companies in the IT sector (75 percent) are certified with the ISO 14001 environmental management standard than Global 500 companies excluding IT (54 percent). A similar pattern, albeit less pronounced, is also true of investments in environmental R&D by IT companies compared to other global companies (56 percent versus 48 percent).

Wealth endowment and complementary capabilities aside, IT companies are more likely than other Global 500 companies to have an in-house managerial- or executive-level sustainability officer. Close to half of all IT companies have formally created a position of a vice president of sustainability or a chief sustainability officer compared to about 40 percent of other global businesses. These in-house champions of sustainability policies and initiatives play a critical role in helping to align corporate vision and allocate the necessary resources toward sustainability efforts.

Among the world’s largest companies by revenue, Apple Inc. (rank 15^th) is a leader in proactive climate action: Apple has pledged to "maintain 100% renewable energy in datacenters… [and] maintain carbon neutrality of purchased electricity for U.S. corporate facilities achieved in 2014 through renewable energy purchases and onsite generation and procurement." In 2014, Apple hired Lisa Jackson, a former administrator of the U.S. Environmental Protection Agency as its vice president of environmental, policy, and social initiatives, reporting directly to CEO Tim Cook. Along with Jacky Haynes, Apple’s senior director of social and environmental responsibility who specializes in supplier responsibility, Jackson has brokered a relationship with the Beijing-based Institute of Public & Environmental Affairs to train Apple facilities workers as part of Apple’s new Environmental, Health, and Safety Academy and to proactively publish emissions data of Apple’s supplier facilities in China. By committing to voluntary climate action, Apple and other corporations signal to consumers that they are socially responsible companies, not only to preempt public scrutiny but to gain an advantage in the "market for virtues."

Apple and Microsoft Corp. are the only two private sector entities that earned the U.S. Environmental Protection Agency (EPA)’s Green Power Partner of the Year award in 2015, which recognizes leadership in green power use and overall strategy and impact on the green power market.

Other IT companies, such as Autodesk, BT, Infosys, Salesforce and SAP have recently joined forces with Aviva, IKEA, Starbucks, Walmart, Marks and Spencer, Johnson & Johnson, among others, as part of RE100, a collaborative initiative of businesses, to set long-term target on powering their operations entirely with renewable energy.

Living up to promises

The fact that so many companies are recognizing the dangers of climate change and setting ambitious climate action goals is laudable. The biggest challenge will be seeing that they live up to their promises, especially given the voluntary nature of initiatives such as NAZCA. To thwart greenwashing, national governments and global governance organizations have an important role to play to keep the IT sector and other businesses accountable. The first step that NAZCA has taken is to invite "partnerships with others who would…make assessments of this type." A significant next step would be to publish guidelines and best practices for third-party monitoring and verification in order to strengthen the link between pledges for proactive action and ultimate follow-through by corporations. IT companies, as leaders in proactive climate action, should be at the forefront of working to establish best practices for adherence to voluntary commitments for mitigating global climate change.

Last June, Brookings senior fellow Elaine Kamarck and I published a paper laying out the rise of short-term thinking in U.S. corporations. We argued that this trend was bad for the economy, and we suggested policies that would at least slow it down and diminish its effects.

Since then, additional research on short-termism has emerged, and an increasing number of corporate leaders are expressing concern about the trajectory of U.S. firms. Last November, for example, the Boston Consulting Group documented a worrisome decline in the corporate activities and investments designed to discover and nurture future growth opportunities. This turn away from exploratory activities may not immediately affect investors, said the BCG report: in the short term, companies can maintain earnings and shareholder returns by “cutting costs, increasing dividends, and pursuing share buybacks.” (As Kamarck and I showed, this is what is happening across our economy.) But in the long run, BCG researchers found, firms that invest in exploration boost revenues and total returns far faster than do those who are content to exploit their existing lines of business and return most of their earnings to shareholders in the form of dividends and buybacks.

A few days ago, Laurence Fink, the chief executive of the world’s largest investment fund and a long-time foe of short-termism, sent a letter to the heads of S & P 500 companies and large European corporations. He noted that in the twelve months ending September 30 2015, buybacks had risen by 27 percent over the previous year, when buybacks already stood at record levels. “Today’s culture of quarterly earning hysteria,” he declared, is “totally contrary to the long-term approach we need.” And he warned corporate executives that in the absence of well-considered long-term plans for investment and growth, they would expose their firms “to the pressures on investors focused on maximizing near-term profit at the expense of long-term value.”

Many influential investors agree with Fink, and they are joining forces. On February 1, the Financial Times reported that since last summer, the world’s largest asset managers—Warren Buffett, Jamie Dimon, the chief executive of JPMorgan Chase, and the heads of BlackRock, Fidelity, Vanguard, and Capital Group, among others—have been holding secret meetings to frame proposals that would encourage longer-term investments while reducing friction with shareholders. These proposals, which are reportedly some months away from final agreement and publication, may well involve changes in boards of directors, executive compensation, and shareholder rights.

The summit participants plan to support these changes for the companies in which they invest. Given the pools of funds they control, which amount to many trillions of dollars, their coordinated action may well represent a turning-point in the struggle to reorient corporate strategy toward the long term.

In 2005, billionaire hedge fund manager Eddie Lampert acquired a large portion of Sears Holdings, the parent company of Sears and Kmart, among other brands. In 2008, Lampert reorganized the company into 30 autonomous business units that would operate like independent businesses, with their own IT contracts, marketing officers, and most importantly, annual financial statements. The idea was that having each unit compete for resources would drive better decision-making and boost profits overall. The exact opposite happened. The divisions turned against one another, making decisions that benefited their divisions at the expense of others. In the year after Lampert’s acquisition of Sears, the company thrived, but two years later, profits tanked, the share price plummeted, and hundreds of stores were closed. As Jillian Popadak explains in a new paper about corporate culture and firm value, erosion of corporate culture may be to blame.

It’s not the case that decentralization is always bad—some large technology companies take this approach—but in Sears’s case, the reorganization changed the norms and culture for employees, dis-incentivizing collaboration at the expense of the overall firm. Popadak notes that former Sears employees speak to this: they said the change created a “warring-tribes culture” that lacked cooperation, and “the result was confusing to the customer.” Media accounts tell a similar story. Accounts detail managers cutting floor staff to save money, intense rivalries over the space in the weekly circular, resulting in nonsense product combinations, and a paltry one percent investment in capital expenditures. Popadak argues this is an example of how important implicit norms can be when they are working to create value at the company. When the explicit emphasis on performance was introduced, it “overpowered the implicit values to collaborate, satisfy the customer, and not act selfishly.”

How can you tell if a firm’s culture creates long-term value, or even measure something so seemingly unquantifiable? Popadak argues that while corporate governance measures are designed to change the explicit rules at a company, the culture is a set of implicit rules that govern employee behavior: the expectations employees have about what it takes to be successful at the firm. In her paper, Popadak collected millions of reviews from job sites like Glassdoor.com, Payscale.com, and CareerBliss.com by year and firm, and then used the text of the reviews to create measures of firm culture based on six categories: adaptability, collaboration, customer-orientation, detail-orientation, results-orientation, and integrity. She then assessed how these measures changed when a firm underwent a governance change.

Popadak writes of this graphic, “The figure shows that firms with stronger shareholder governance exhibited statistically significant increases in results-orientation but decreases in customer-orientation, integrity, and collaboration in the year following the governance change.” In the short term, a move to results-orientation boosts sales growth and payout in the short term, but in the long term, there are “significant declines in intangible value, customer satisfaction and brand value.” Ultimately, Popadak concludes that sacrificing corporate culture for short-term payoff may not be worth it.

The leaked information in the Panama Papers from the law firm Mossack Fonseca has captured the headlines for weeks and will continue to do so as further names are exposed. The scandal has placed Panama in the limelight and provided an unprecedented glimpse into the world of hidden money and tax avoidance. To understand its broader context, it is vital that we distinguish between legal corruption, like that exposed by the Panama Papers, and illegal corruption, like that exposed by the Unaoil scandal. Governments must seize the moment to take decisive action against both.  

The U.S., the U.K., and a range of other countries will announce commitments to combat corruption at the Anti-Corruption Summit on May 12, championed by Prime Minister David Cameron as a game-changing event. The question is whether these commitments will deliver concrete actions that target the most costly kinds of corruption that flourish globally today.  

Unfortunately, the world often engages in “summitry” filled with communiques, calls for coordination and exchanging information, or creating another toothless generic initiative, which offer media and photo opportunities that fulfill particular political objectives for some leaders. Let us see if it’s different this time.

Mossack Fonseca, and its home country Panama, are just a couple nodes in the vast and complex set of “enablers” of corruption and tax evasion around the world.     

For those seeking secret shelters and corporate shells, the mighty U.S. (which unsurprisingly doesn’t feature much in the Panama Papers) is one of the world’s most appealing destinations: Setting up a shell corporation in Delaware, for instance, requires less background information than obtaining a driver’s license. As seen in the chart below, this opacity, coupled with the size of the U.S. as a haven, means that it has been ranked the third most secretive jurisdiction among close to 100 assessed by the Financial Secrecy Index. Panama is 13th.

Figure 1: Financial Secrecy Index 2015 (Select jurisdictions, from the Tax Justice Network)

Source: The Tax Justice Network’s Financial Secrecy Index http://www.financialsecrecyindex.com/introduction/fsi-2015-results

This graph depicts the top 40 worst performing jurisdictions as well as four select better performing jurisdictions (right of dashed line). The Index combines a qualitative secrecy score based on 15 indicators and a quantitative measure of a jurisdiction's share in global financial services exports. 

And the U.K. is an important enabler of corruption: It has stood by as its offshore jurisdictions and protectorates operate as safe havens for illicit wealth, which the Panama Papers make clear. The British Virgin Islands, for example, were the favored location for thousands of shell companies set up by Mossack Fonseca.  

The Panama Papers speak only indirectly to core aspects of today’s global corruption challenge, which are neither about Panama nor taxes. We ought to view the resulting scandals in a broader light, and recognize the immense, complex webs of corruption that increasingly link economic and political elites around the globe.

Grand corruption

The most powerful figures who engage in high-level or “grand” corruption are hardly running scared following the Panama leak. These figures include kleptocrat leaders as well as oligarchs who wield enormous influence on government affairs. Often, these players interact and collude, forming high-powered public-private networks that make the traditional notion of corruption as an illegal transaction between two parties look like child’s play.

Corruption in these elite networks far transcends the unethical behavior of the typical tax avoider, as it involves the abuse of power to accumulate power and assets, often via the direct plunder of public resources, asset stripping, or large-scale bribery. The multi-billion-dollar scandal embroiling the Brazilian oil giant Petrobras illustrates the complexity of colluding networks, and how grand such corruption can inflict political and economic damage of historical proportions on a country. 

The oil sector provides many more illustrations of grand corruption. Few company officials may have been more relieved by the Panama Papers leak than those at Unaoil, whose own scandal had just erupted. Unaoil is an “enabler” company incorporated in Monaco that bribed and influenced government officials in various countries on behalf of multinational companies vying for lucrative procurement contracts. While overshadowed by the Panama leaks, the Unaoil case is at least as emblematic of the challenges in tackling global corruption. For instance, it shows the deeply ingrained practice of Iraqi government officials seeking bribes for the award of contracts and the willingness of companies to provide them.

Corrupt elites, including those embroiled in the Unaoil scandal, often use structures like shell corporations and tax havens (along with real estate and other investments) to hide their ill-gotten funds. However, even if the Panama Papers leak prompts more scrutiny on illicit financial flows and the reform of these opaque financial structures, grand corruption will continue in many locations.  It is noteworthy that the political fallout has been concentrated in relatively well-governed countries that do have accountability and anti-corruption systems in place, as illustrated by the resignations of the prime minister of Iceland, the industry minister of Spain, and the head of Chile’s Transparency International chapter. 

In sharp contrast, President Vladimir Putin brushed off the leaked Russian information as a Western anti-Putin conspiracy; in China, discussion and dissemination were muffled by media censorship; and, in Azerbaijan, exposure of details on President Aliyev’s family mining interests will hardly dent his hold on power. While reforms leading from the Panama leaks will hopefully deter tax dodgers and unethical corporations and individuals from hiding dirty assets, powerful corrupt leaders will continue to enjoy impunity.

Legal corruption and state capture   

The Panama Papers shed a sliver of light on the type of corruption that is perhaps most damaging and difficult to tackle: legal corruption and state capture. Around the world, powerful economic and political elites unduly influence laws and policies, shaping the rules of the game for their own benefit, or what has been called the “privatization of public policy and lawmaking.” This generates huge rents for the elite, increases their power, and exacerbates a country’s political and economic inequality.

Resource-rich countries provide many illustrations. In Angola, the Democratic Republic of Congo, Nigeria, and Venezuela, for example, political elites have used state-owned resource companies to serve patronage agendas, often—though not exclusively—through legal means.

In many industrialized countries, an example of state capture is the tax system itself. It is in the interest of elites to safeguard a worldwide network of secret offshore companies and tax havens as places to hide wealth—whether acquired legitimately or illicitly. The evidence on tax avoidance from the U.S. is telling: According to Zucman, since the 1950s the effective rate of corporate tax has decreased from 45 to 15 percent, whereas the nominal rate has only decreased from 50 to 35 percent. And U.S. companies make full use of foreign tax havens: According to a new Oxfam report, the top 50 American multinationals reported in 2008 that 43 percent of their foreign earnings came from five tax havens, accounting for only 4 percent of the companies’ foreign workforces. Further, Bourguignon reports that federal tax rates on the richest Americans fell by 15 percent between 1970 and 2004.

Risks of legal corruption in the U.S. run high because private money can so easily sway public affairs. Following the 2010 Citizen United ruling by the Supreme Court, private funds from deep pockets increasingly dominate the conduct of electoral campaigns. The avenues for private money to influence public officials may widen further, if forms of bribery traditionally considered illegal become legalized. A forthcoming Supreme Court decision could make it legal for public officials to receive gifts and other benefits from private individuals (potentially overturning the corruption conviction of a former Virginia governor for doing exactly that).  

Upfront, there are no easy solutions, especially because powerful decision-makers benefit from this status quo. But there is the opportunity, and public pressure, to reform.  As mentioned, the cause of tackling corruption often attracts token gestures, and David Cameron’s announcement of a new global anti-corruption agency could be at high risk of falling into this category. Rather, countries like the U.S. and U.K. must take firm action to reform their own practices, and push for the same from their partners such as the U.K. crown dependencies and overseas territories, the European Union and G20 members, and the recipients of overseas aid.

First, take legal corruption and state capture seriously. 

Transparency can be one game changer, especially if it addresses the channels of influence through which policy becomes “privatized.” Disclosures of campaign finance contributions, conflicts of interests, assets held by (and tax returns filed by) politicians and public officials, and parliamentary deliberations and votes can all discourage abuse and reveal hidden networks at play. Encouragingly, the Organisation for Economic Co-operation and Development (OECD) recently issued their first salvo, the report “Financing Democracy,” focusing on a few selected case studies, and as a next step it should be empowered to develop standards and carry out assessments on political finance for all OECD countries.

Transparency will only help if citizens can actively scrutinize and engage with their governments. Civic space is under attack in many jurisdictions, with activists and journalists facing intimidation, prosecution, or worse. Securing rights of expression and assembly should be the business of any international actor concerned with anti-corruption or economic governance. For instance, when considering funding requests from governments with weak records on protecting civil society—like Angola and Azerbaijan—the World Bank and International Monetary Fund as well as donors like the U.S. should prioritize civic accountability as well as broader transparency reforms.

Furthermore, grand corruption will not decline without more effective prosecutions and other sanctions that target bribe-takers, as well as the facilitators and middlemen of corruption, be they lawyers, accountants, or fixers like Unaoil. Of course, law enforcement authorities should also remain vigilant against bribe-paying companies; and governments—including OECD members implementing to varying degrees the OECD foreign bribery convention—would do well to emulate the active enforcement of the U.S. Foreign Corrupt Practices Act (FCPA) in this regard. But bribe-takers and facilitators have not faced sufficient scrutiny and sanction.

Second, get rid of shadowy corners.

Lessons yielded by recent events from the 2008 financial crisis to the Panama Papers suggest that major global players should not allow large corners of the global economy to escape scrutiny. The U.S. and the U.K. (with its offshores), should heed the calls for dismantling secrecy and tax havens. Seeds of effort, such as the U.S. government’s decision to require banks to know the identities of the individuals behind shell companies, are now coming to light, but broader efforts, including legislation, will also be required.  

Beneficial ownership transparency should become standard operating procedure, with governments following the example of the U.K., the Netherlands, and others in setting up public registries, and joining the movement toward a global registry. In the case of resource-rich countries, establishing sector-specific registries may be the right place to start. This practice is now mandated by the Extractive Industries Transparency Initiative.

Within the extractive sector, home country governments should subject commodity traders to payment disclosure requirements when doing business with governments and state-owned companies. Governments of countries like Switzerland, the U.K., and Singapore that are home to corporate actors shoulder significant responsibility, especially in the current era of low commodity prices, when traders are entering into profitable new deals with cash-strapped resource-producing countries. Shining light in dark corners like these will render them less susceptible to abuse.

Third, prioritize transparency and scrutiny when public resources are allocated.

Whenever a government allocates resources for exploitation, it ought to do so in a fully transparent fashion. The Open Contracting Partnership has made great strides in defining a gold standard for such reporting, including guidance on issues such as open data, corporate identifiers, and beneficial ownership reporting.

Natural Resource Governance Institute research on oil and mining sector corruption shows that multiple types of high-value allocations require scrutiny and contract disclosure. These include the allocation of exploration and production licenses, but also on export, import, or transport rights, which have been associated with corruption in countries such as Indonesia, the Republic of Congo, and Ukraine. And most of the oil sector cases prosecuted under the U.S. FCPA have arisen around the award of service contracts, a segment of the oil industry where the Unaoil and Petrobras scandals also took place. Transparency should be the default setting for any transactions that allocate public resources. Further scrutiny is also needed on the abuse of (mis-)managed exchange rate regimes that generates rents for the few and creates major economic distortions, such as currently in Nigeria, Venezuela, and Egypt.

Concrete impact will also require a major attack on impunity since transparency and freedom of expression are necessary, but insufficient. And governments including those of the U.S. and the U.K. should adopt reforms to address legal corruption and various forms of opacity—whether addressing the capture by money in politics or the “dark corners” among oil traders headquartered in Geneva and London. 

An ambitious commitment to tackling corruption and impunity is not only needed now, but demanded by societies, as events in Brazil and elsewhere show. This is a potentially “game-changing” global moment to make real progress.  

This piece is also available in Spanish and French. 

In the marijuana reform conversation, one of the grandest boogeymen is “Big Marijuana.” Reform advocates, opponents of marijuana legalization, patients, consumers, media, and many others worry openly that the marijuana industry will consolidate into a corporate beast and a bad market actor reminiscent of Big Tobacco companies.

In a paper released earlier this month entitled, “Worry about bad marijuana—not Big Marijuana,” Jonathan Rauch and I engage the likelihood and risks of the emergence of such a corporate entity. Although the paper makes several points, we begin with a discussion of exactly what “Big Marijuana” means. What we find is that the concept is tossed around so frequently, assigned to so many different types of market actors, that it has ultimately lost meaning.

Often, the term is used to describe any large corporate entity or consolidation effort within the marijuana industry. In reality, standard corporate consolidation or the existence of large companies in an industry are basic aspects in capitalism. What’s more there are huge differences between marijuana industry actors today and Big Tobacco companies of the middle of the 20^th century—in terms of size, scope, and market power to name a few. It should be expected that an industry that is young, fractured, and rapidly maturing will endure periods of consolidation and in the process, large and successful corporate entities will emerge. One should not assume, however, that such behaviors are sinister, suspect, or intent on engaging in immoral or illegal activities.

Nor should one assume that only large corporate entities can engage in bad behaviors. They surely can, but other market actors may as well. The policy conversation around marijuana industry structure often holds Big Marijuana up as the actor who will bring problems for enforcement, diversion, sale to minors, sale to problem users, etc. The reality is that a marijuana entity of any size can behave in many of those behaviors. The problem with an unending focus on industry structure or corporate size is that policymakers and regulators can give a pass to smaller actors who may engage in the types of behaviors people inside and outside of industry seek to avoid—those same types of behaviors we saw from the tobacco industry.

We argue there is a more sensible, safer step forward that begins with a simple premise. There are certain outcomes that the marijuana industry must avoid, and policy and regulation should preferably ban, but at least disincentivize those outcomes. We mention a few in the paper: antisocial marketing (marketing to children or problem users), regulatory capture, outcomes that hurt medical marijuana patients, and increasing barriers to entry and corporate crowd out—but others like diversion, illegal sales, and more must (and do) concern policy makers. In some cases, certain behaviors are more likely to come from larger corporate entities, but many behaviors can happen, independent of firm size.

There are a variety of ways to avoid some of these outcomes beyond a focus on firm size and corporate consolidation. Some of those options are highlighted by the RAND Corporation’s Drug Policy Research Center. In “Options and Issues Regarding Marijuana Legalization,” the authors argue a shift away from the corporate model—either through the use of non-profit entities or government operation of whole portions of the market (supply, retail, or both) can have real benefit. These approaches can allow regulators greater control over negative market actions and induce incentives focused on public health and good governance, rather than profit maximization. Those arguments are quite convincing, but as states continue to construct medical and recreational marijuana programs using the corporate model, it is important to consider policy approaches within that existing framework.

Thus, we recommend that regulators and policy makers not primarily focus on firm size, corporate consolidation, or the corporatization of the marijuana industry. Instead, they should work to avoid specific outcomes they see as unwanted or bad and pass laws, promulgate regulations, conduct information and education campaigns, and take whatever actions are necessary to stop them in their tracks. At the end of the day, one thing is clear: no one wants “Bad Marijuana” regardless of whether it comes from Big, Small, or Otherwise-Sized Marijuana.

Click through to read the full report, “Worry about bad marijuana—not Big Marijuana.”

Click through to watch the public event and paper release “Big Marijuana: How corporations and lobbies will shape the legalization landscape.”

The Syrian uprising has changed significantly since the first signs of localized armed resistance began emerging in late April 2011. Western states and regional countries opposed to President Assad’s rule failed to manage the formation of an organized and representative political and military opposition body over the past three years. Instead, fragmentation of first the opposition, and then the conflict as a whole, has come to pose numerous serious threats to regional and international security and stability.

In a new Policy Briefing by the Brookings Doha Center, Charles Lister analyzes the Western-backed opposition, the spreading influence of jihadi militants, and the evolving capabilities of pro-government forces. With a definitive military victory seemingly out of reach for all sides of the conflict, Lister argues these parties will remain at a standoff until a political solution is reached. However, as armed groups multiply on either side, even an agreement between government and opposition will be unlikely to end the violence.

Lister concludes that Western and regional countries should focus on two core policy objectives. First: the international community should bolster a cohesive opposition that can challenge the Assad regime in battle as well as in negotiations. Second: the international community should aid Syria’s neighbors in managing the violent spillover of the conflict, particularly curtailing the potential for Syria-based jihadi groups to expand their operations beyond the country.

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From 2006 to 2011, Qatar was highly active as a conflict mediator within the greater Middle East, seeking political consensus in Lebanon as well as securing a key peace agreement regarding the Darfur conflict. What were the drivers of Qatari mediation during this time, and how successful were Qatari negotiators in their efforts? How has Qatar’s foreign policy during the Arab Spring affected its ability to act as a mediator? How might Qatar expand its mediation capacity in the future?

In an Analysis Paper, Sultan Barakat weighs the prospects for renewed Qatari mediation efforts in a changing regional landscape. He holds that Qatar’s turn towards a more interventionist foreign policy during the Arab Spring shifted the country’s focus away from mediation, while backlash against the country’s positions has limited its ability to engage with the region’s conflicts.

Drawing on interviews with government officials, Barakat concludes that Qatar’s efforts were much aided by financial resources and wide-ranging political ties which helped drive initial mediation efforts, yet were hampered by a lack of institutional capacity to support and monitor such mediation.

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Brookings Doha Center Analysis Paper, December 1, 2014

Intense turmoil in Syria and Iraq has created socio-political vacuums in which jihadi groups have been able to thrive. The Islamic State in Iraq and al-Sham (ISIS) had proven to be the strongest and most dynamic of these groups, seizing large swathes of territory in Syria and Iraq. Shortly after routing Iraqi forces and conquering Mosul in June 2014, ISIS boldly announced the establishment of a caliphate and renamed itself the Islamic State (IS). How did IS become such a powerful force? What are its goals and characteristics? What are the best options for containing and defeating the group?

In a new Brookings Doha Center Analysis Paper, Charles Lister traces IS’s roots from Jordan to Afghanistan, and finally to Iraq and Syria. He describes its evolution from a small terrorist group into a bureaucratic organization that currently controls thousands of square miles and is attempting to govern millions of people. Lister assesses the group’s capabilities, explains its various tactics, and identifies its likely trajectory.

According to Lister, the key to undermining IS’s long-term sustainability is to address the socio-political failures of Syria and Iraq. Accordingly, he warns that effectively countering IS will be a long process that must be led by local actors. Specifically, Lister argues that local actors, regional states, and the international community should work to counter IS’s financial strength, neutralize its military mobility, target its leadership, and restrict its use of social media for recruitment and information operations.

Nearly two years after ousting President Muhammad Morsi, Egypt’s military continues to crack down on the Muslim Brotherhood. Much like during Egypt’s 1952-54 political transition, the recent interactions between the powerful armed state bureaucracy and the influential religious organization have had a major impact on the country’s political trajectory. In both instances, the military and Muslim Brotherhood initially cooperated before ultimately clashing violently. How has each entity determined what approach to take toward the other? What does a continued imbalance in civil-military relations mean for Egypt’s future?

In a new Brookings Doha Center Analysis Paper, Omar Ashour examines the legacies and patterns of cooperation and conflict between the leaderships of Egypt’s military and the Muslim Brotherhood. Relying on extensive field research, he analyzes how each entity has made its critical decisions regarding the other by applying various decision-making models. Ashour considers the impact of cost-benefit analysis, organizational dynamics, factional disputes, and psychological factors to gain a deep understanding of the leaders’ motives.

Read "Collusion to Crackdown: Islamist-Military Relations in Egypt"

Ashour concludes that Egypt's prospects for social stability and economic recovery will remain bleak if the relationship between the military and the Muslim Brotherhood is not redefined within institutional, democratic rules of political competition. He argues that Egypt’s military should embrace a balanced civil-military relationship to realize broad, long-term benefits and avoid otherwise inevitable and costly clashes with segments of Egyptian society. As for the Muslim Brotherhood, Ashour recommends that it reevaluate its recent decisions and work to develop a sustained, solid, and cross-ideological civilian front that can pressure the military to leave politics and allow for democratization.

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Over the past year, much attention has been given to the growing production of shale oil and the challenge that these unconventional sources of energy pose to traditional producers in the Gulf. As the world’s leading exporter of liquefied natural gas (LNG), Qatar faces related concerns – mounting competition from new LNG exporters and more competitive pricing in key Asian gas markets. How will this global gas boom unfold? How can Doha develop a robust response to growing volatility in gas pricing and demand?

In a new Brookings Doha Center Analysis Paper, Naser al-Tamimi examines Qatar’s position on the global gas stage and assesses the prospects of new competitors. He argues that new LNG production and exports – from Australia, the United States, and other countries – present a challenge to Qatar’s dominant status in global gas markets, particularly in the Asia-Pacific region. At the same time, diversification and slowing growth in this region’s major economies, such as China, South Korea, and Japan, may reduce LNG demand across the board.

Read "Navigating uncertainty: Qatar’s response to the global gas boom"

Ultimately, Tamimi argues that Qatar’s pricing mechanisms and export revenues will come under significant pressure as a result of these developments, posing a potential challenge to Qatari finances. He contends that an effective response from Qatari officials must emphasize greater exports to the Middle East/North Africa region, greater contract flexibility to attract new buyers, and cooperation with other GCC members to improve Gulf bargaining power in key regional markets.

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Over the past few years, higher education has been a frequent casualty of the violent conflicts sweeping the Middle East. Campuses have been bombed in Syria, Gaza and now Yemen; occupied or closed in Libya and Iraq; and been the subject of severe police crackdowns across the region. What institutional measures can both regional entities and international bodies take to protect institutions of higher learning in the Arab world? Beyond this, how can strategies of protection be incorporated into programs of reconstruction and development for this much-maligned sector?

Read "Houses of wisdom matter: The responsibility to protect and rebuild higher education in the Arab world"

Sultan Barakat and Sansom Milton, in a new Brookings Doha Center Policy Briefing, contend that higher education is often an unrecognized casualty of these conflicts, with priority given to more pressing humanitarian needs. They assert that the protection and rebuilding of such institutions across the Middle East forms a crucial response to present concerns, helping to shelter and develop strategically vital youth populations. Crucially, they hold that an action plan for higher education in the Arab world cannot end at rebuilding shattered classrooms or rescuing individual scholars.

Ultimately, Barakat and Milton argue for a regional approach to defending and advancing higher education, as a key tool to combat violent extremism, address economic challenges, and encourage social stability. A strategy of “building back better” would allow higher education to serve as an engine for regional revitalization, living up to the historical example set by the region’s centuries-old institutions of higher learning.

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Over the past several years, thousands of foreign fighters have traveled to Syria and Iraq on a scale unprecedented in modern history. While most foreign fighters remain engaged in combat, some have begun to return, posing a real, if sometimes exaggerated, security threat to home countries. In such situations, how should governments aim to respond? Are there policies that can defuse the security threats posed by returning fighters without alienating individuals and communities key to countering violent extremism?

Read "Returning foreign fighters: Criminalization or reintegration?"

Drawing on case studies from countries such as France, Denmark, and the United Kingdom, this Policy Briefing by Charles Lister points to the necessity of counter-terrorism measures, yet cautions against allowing these policies to translate into blanket criminalization of individuals or communities. On a basic level, policymakers will have to navigate between “hard” policies of criminal investigation and prosecution and more “liberal” policies that that aim to rehabilitate fighters and better reintegrate them into their home communities.

Lister concludes that countries should adopt a nuanced approach toward returning foreign fighters, relying on closer coordination between local authorities and community leaders, improved information sharing on the foreign-fighter phenomenon, and a better understanding of the dynamics of recruitment and radicalization.

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International jihad has undergone a wholesale internal revolution in recent years. The dramatic emergence of the Islamic State (IS) and its proclamation of a Caliphate means that the world no longer faces one Sunni jihadi threat, but two, as IS and al-Qaida compete on the global stage. What is the relationship between the groups and how do their models differ? Is IS’s rapid organizational expansion sustainable? Can al-Qaida adapt and respond?

Read "Jihadi Rivalry: The Islamic State Challenges al-Qaida"

In a new Brookings Doha Center Analysis Paper, Charles Lister explores al-Qaida and IS’s respective evolutions and strategies. He argues that al-Qaida and its affiliates are now playing a long game by seeking to build alliances and develop deep roots within unstable and repressed societies. IS, on the other hand, looks to destabilize local dynamics so it can quickly seize control over territory.

Lister finds that the competition between IS and al-Qaida for jihadi supremacy will continue, and will likely include more terrorist attacks on the West. Accordingly, he calls for the continued targeting of al-Qaida leaders, the disruption of jihadi financial activities, and greater domestic intelligence and counter-radicalization efforts. Lister concludes, however, that state instability across the Muslim world must be addressed or jihadis will continue to thrive.

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Millions of Egyptians took to the streets in January 2011 chanting “‘ish, hurriyya, ‘adalah ijtima‘iyya,” or bread, freedom, and social justice. This simple chant captured protestors’ desire for a new Egypt defined by economic, political, and social change. Five years later, however, the attainment of those demands seems more elusive than ever. In the economic sphere, Egypt still faces the major challenge of high unemployment, particularly among educated youth. Why do so many of Egypt’s young university graduates struggle to find employment?

Read "Educated but unemployed: The challenge facing Egypt’s youth"

In this policy briefing, Adel Abdel Ghafar analyzes the roots of Egypt’s youth unemployment crisis, starting with the structural issues plaguing the country’s educational system. He then examines other contributing factors including neoliberal economic reforms, gender inequality, and the lack of entrepreneurship. Abdel Ghafar warns that failing to address the unemployment issue will increase the likelihood of another uprising.

Abdel Ghafar thus argues that the Egyptian government must urgently undertake reforms and devote extensive resources to dealing with youth unemployment. Specifically, he recommends ways in which Egypt can revamp public university funding, promote vocational training, stimulate entrepreneurship, and increase the participation of women in the workforce.

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