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 recent fall in world oil prices undoubtedly has an impact on the politics of the Middle East, where many states rely heavily on oil to fund their governments and to float their economies more generally. One can cite serious domestic and regional disruptions that have followed severe oil price declines in the recent past. Will the current period of dropping prices result in domestic upheaval and regional war? Is the price drop part of a Saudi power play against its regional rivals?

Read Sultans of Swing? The Geopolitics of Falling Oil Prices

In this Policy Briefing, F. Gregory Gause, III answers the above questions by analyzing the regional impact of previous declines in the price of oil. He argues that Saudi Arabia is merely continuing its policy of only considering production cuts to arrest falling prices if other producers join them. Gause also finds that, despite memorable exceptions, oil-dependent regimes are actually more stable than their non-oil counterparts, including during periods of lower prices.

In considering the Middle East, Gause identifies a pattern of the region’s oil producers negotiating agreements on production cuts, rather than coming to blows, when faced with low prices. He stresses that if Iran, and perhaps Russia, approach Saudi Arabia about negotiating an oil deal, the United States should encourage such talks, and be ready to expand them to include the largest strategic picture of the Middle East.

Downloads

• English PDF
• Arabic PDF

Indian Prime Minister Narendra Modi’s recent visit to the United Arab Emirates revealed New Delhi’s intention to bolster bilateral relations with the Gulf states. It was the first visit by an Indian prime minister in over 30 years, demonstrating the country’s renewed focus on expanding ties with the region it has always called “West Asia.” Although India and the Middle East share a long history of trade, immigration and cultural exchange, relations have yet to reach their full potential.

Read "Dealing with Delhi: How culture shapes India’s Middle East policy"

In this policy briefing, Kadira Pethiyagoda highlights the importance of an under-reported aspect of the relationship – culture. The author explains the role it plays in India’s policies toward the region, particularly under the current government, and argues that Gulf states need to understand the impact of Indian values and identity. Pethiyagoda provides recommendations on how the Gulf states can, through better understanding the cultural drivers of Indian foreign policy, build stronger ties with India, thereby advancing both economic and strategic interests.

Downloads

• English PDF
• Arabic PDF

Baltimore police officer Edward Nero, one of six being tried separately in relation to the arrest and death of Freddie Gray, has been acquitted on all counts. The outcome for officer Nero was widely expected, but officials are nonetheless aware of the level of frustration and anger that remains in the city. Mayor Stephanie Rawlings Blake said: "We once again ask the citizens to be patient and to allow the entire process to come to a conclusion."

Since Baltimore came to national attention, Brookings scholars have probed the city’s challenges and opportunities, as well addressing broader questions of place, race and opportunity.

• In this podcast, Jennifer Vey describes how, for parts of Baltimore, economic growth has been largely a spectator sport: "1/5 people in Baltimore lives in a neighborhood of extreme poverty, and yet these communities are located in a relatively affluent metro area, in a city with many vibrant and growing neighborhoods."
• Vey and her colleague Alan Berube, in this piece on the "Two Baltimores," reinforce the point about the distribution of economic opportunity and resources in the city:
  

  In 2013, 40,000 Baltimore households earned at least $100,000. Compare that to Milwaukee, a similar-sized city where only half as many households have such high incomes. As our analysis uncovered, jobs in Baltimore pay about $7,000 more on average than those nationally. The increasing presence of high-earning households and good jobs in Baltimore City helps explain why, as the piece itself notes, the city’s bond rating has improved and property values are rising at a healthy clip."

• Groundbreaking work by Raj Chetty, which we summarized here, shows that Baltimore City is the worst place for a boy to grow up in the U.S. in terms of their likely adult earnings:

• Here Amy Liu offered some advice to the new mayor of the city: "I commend the much-needed focus on equity but…the mayoral candidates should not lose sight of another critical piece of the equity equation: economic growth."
• Following an event focused on race, place and opportunity, in this piece I drew out "Six policies to improve social mobility," including better targeting of housing vouchers, more incentives to build affordable homes in better-off neighborhoods, and looser zoning restrictions.
• Frederick C. Harris assessed President Obama’s initiative to help young men of color, "My Brother’s Keeper," praising many policy shifts and calling for a renewed focus on social capital and educational access. But Harris also warned that rhetoric counts and that a priority for policymakers is to "challenge some misconceptions about the shortcomings of black men, which have become a part of the negative public discourse."
• Malcolm Sparrow has a Brookings book on policing reform, "Handcuffed: What Holds Policing Back, and the Keys to Reform" (there is a selection here on Medium). Sparrow writes:
  

  Citizens of any mature democracy can expect and should demand police services that are responsive to their needs, tolerant of diversity, and skillful in unraveling and tackling crime and other community problems. They should expect and demand that police officers are decent, courteous, humane, sparing and skillful in the use of force, respectful of citizens’ rights, disciplined, and professional. These are ordinary, reasonable expectations."

Five more police officers await their verdicts. But the city of Baltimore should not have to wait much longer for stronger governance, and more inclusive growth.

Britain’s Conservative Party just tore itself apart over the EU referendum; David Cameron was forced to resign as prime minister. Yet the party in meltdown is Labour. Polling out this past weekend shows Labour drawing 31%, vs. 37% for Conservatives, if a general election were held tomorrow.

The Conservative Party, showing once again its extraordinary capacity for self-preservation, is closing ranks behind new Prime Minister Theresa May. Still, how can the Tories be riding so high after such a political omnishambles? One doesn’t have to look far for an answer: the hard-left Labour leader, Jeremy Corbyn.

Asked who is or would be the best prime minister, just 16% of British voters give Mr. Corbyn the thumbs-up, compared with 52% for Ms. May. Fewer than half of Labour supporters (48%) think Mr. Corbyn would be the best PM. In her first outing in the House of Commons, Ms. May easily trounced Mr. Corbyn. (Her performance was described by the left-leaning Guardian newspaper as a “brutally brilliant” debut.) No wonder most of his parliamentary colleagues have abandoned him, forcing a leadership contest.

Again, the Conservative Party has just presided over an amateurish, disastrous session of British political history. That Tories still dominate is less about their strength than their political opponents’ weakness.

So: What will happen? I’ve just been in London, and conversations with political insiders suggest that this is the most likely scenario to play out:

First, Jeremy Corbyn, having attracted many left-wingers onto party rolls, fends off challenger Owen Smith to retain the leadership of the Labour Party.

Next, the majority of Labour MPs set themselves up as a separate parliamentary group.

As the second-largest group in parliament, these MPs would become the official opposition. They could call themselves anything–say, New Labour Party. (Read this excellent summary of the constitutional implications by Meg Russell of the University College London). This means money and status. If the anti-Corbyn MPs can’t get a new leader, they’ll get a new party.

In the meantime, a few remaining anti-Corbyn MPs stay behind and try to recapture their party. The key here, for those interested in the details, is to take control of Unite, the U.K.’s largest trade union. (Unite’s leader, Len McCluskey, is a strong supporter of Mr. Corbyn and has rallied the union’s members behind him, but his term ends soon.)

If the Labour Party, reduced to a parliamentary rump, remains in Mr. Corbyn’s hands, the next general election would be the moment when the split becomes formal. The New Labour Party would try to attract Liberal Democrat and Green supporters, as well as pro-European conservatives.

Theresa May is likely to wait until the next scheduled general election, in 2020, to face voters. But if Labour were to split, she might decide to call a snap general election to take advantage of opponents’ disarray. Either way, it seems likely the Tories would win.

Center-left parties across the globe seem to be struggling to connect with the anxieties of ordinary voters, leaving them at the mercy of populist appeals. Between populist surges and volatile electorates, we are seeing destabilizing forces at work in politics. Strong political parties act as stabilizers in stormy waters. Whatever one’s individual politics, the fate of the Labour Party in Britain, and perhaps the Republican Party in the U.S., should concern us all.

Editor's note: This piece originally appeared in The Wall Street Journal. 

Event Information

Earlier this month, the Trans-Pacific Partnership Agreement was signed by its 12 member states in New Zealand, bringing the trade deal one step closer to fruition. The member states must now work on resolving their respective domestic issues tied to TPP. For Japan, one of the major issue areas involving TPP is agriculture.

On February 24, the Center for East Asia Policy Studies hosted Kazuhito Yamashita for a presentation in which he discussed the impact of Japan’s market access commitment on agriculture, the TPP countermeasures that the Japanese government announced for agriculture, and the types of agricultural policy reform that are being considered in Japan.

Transcript

• Transcript of Kazuhito Yamashita Presentation (.pdf)

Event Materials

• Yamashita Brookings presentation for website 022416
• Transcript Kazuhito Yamashita Presentation

Editor’s Note: This blog post is one in a series of posts in which guest bloggers respond to the Brookings paper, “The potential and limitations of impact bonds: Lessons from the first five years of experience worldwide."

In 2014, clause 5 (1) of the County Early Childhood Education Bill 2014 declared free and compulsory early childhood education a right for all children in Kenya. Early childhood education (ECE) in Kenya has historically been located outside of the realm of government and placed under the purview of the community, religious institutions, and the private sector. The disparate and unstructured nature of ECE in the country has led to a proliferation of unregistered informal schools particularly in underprivileged communities. Most of these schools still charge relatively high fees and ancillary costs yet largely offer poor quality of education. Children from these preschools have poor cognitive development and inadequate school readiness upon entry into primary school.

The Kenyan constitution places the responsibility and mandate of providing free, compulsory, and quality ECE on the county governments. It is an onerous challenge for these sub-national governments in taking on a large-scale critical function that has until now principally existed outside of government.

In Nairobi City County, out of over 250,000 ECE eligible children, only about 12,000 attend public preschools. Except for one or two notable public preschools, most have a poor reputation with parents. Due to limited access and demand for quality, the majority of Nairobi’s preschool eligible children are enrolled in private and informal schools. A recent study of the Mukuru slum of Nairobi shows that over 80 percent of 4- and 5-year-olds in this large slum area are enrolled in preschool, with 94 percent of them attending informal private schools.

In early 2015, the Governor of Nairobi City County, Dr. Evans Kidero, commissioned a taskforce to look into factors affecting access, equity, and quality of education in the county. The taskforce identified significant constraints including human capital and capacity gaps, material and infrastructure deficiencies, management and systemic inefficiencies that have led to a steady deterioration of education in the city to a point where the county consistently underperforms relative to other less resourced counties. 

Nairobi City County now faces the challenge of designing and implementing a scalable model that will ensure access to quality early childhood education for all eligible children in the city by 2030. The sub-national government’s resources and implementation capacity are woefully inadequate to attain universal access in the near term, nor by the Sustainable Development Goal (SDG) deadline of 2030. However, there are potential opportunities to leverage emerging mechanisms for development financing to provide requisite resource additionality, private sector rigor, and performance management that will enable Nairobi to significantly advance the objective of ensuring ECE is available to all children in the county.

Social impact bonds (SIBs) are one form of innovative financing mechanism that have been used in developed countries to tap external resources to facilitate early childhood initiatives. This mechanism seeks to harness private finance to enable and support the implementation of social services. Government repays the investor contingent on the attainment of targeted outcomes. Where a donor agency is the outcomes funder instead of government, the mechanism is referred to as a development impact bond (DIB).

The recent Brookings study highlights some of the potential and limitations of impact bonds by researching in-depth the 38 impact bonds that had been contracted globally as of March, 2015. On the upside, the study shows that impact bonds have been successful in achieving a shift of government and service providers to outcomes. In addition, impact bonds have been able to foster collaboration among stakeholders including across levels of government, government agencies, and between the public and private sector. Another strength of impact bonds is their ability to build systems of monitoring and evaluation and establish processes of adaptive learning, both critical to achieving desirable ECD outcomes. On the downside, the report highlights some particular challenges and limitations of the impact bonds to date. These include the cost and complexity of putting the deals together, the need for appropriate legal and political environments and impact bonds’ inability thus far to demonstrate a large dent in the ever present challenge of achieving scale.

In the Kenyan context, especially at the sub-national level, there are two key challenges in implementing impact bonds.

To begin with, in the Kenyan context, the use of a SIB would invoke public-private partnership legislation, which prescribes highly stringent measures and extensive pre-qualification processes that are administered by the National Treasury and not at the county level. The complexity arises from the fact that SIBs constitute an inherent contingent liability to government as they expose it to fiscal risk resulting from a potential future public payment obligation to the private party in the project.

Another key challenge in a SIB is the fact that Government must pay for outcomes achieved and for often significant transaction costs, yet the SIB does not explicitly encompass financial additionality. Since government pays for outcomes in the end, the transaction costs and obligation to pay for outcomes could reduce interest from key decision-makers in government.

The above challenges notwithstanding, a combined approach of results-based financing and impact investing has high potential to mobilize both requisite resources and efficient capacity to deliver quality ECE in Nairobi City County. To establish an enabling foundation for the future inclusion of impact investing whilst beginning to address the immediate ECE challenge, Nairobi City County has designed and is in the process of rolling out a modified DIB. In this model, a pool of donor funds for education will be leveraged through the new Nairobi City County Education Trust (NCCET).

The model seeks to apply the basic principles of results-based financing, but in a structure adjusted to address aforementioned constraints. Whereas in the classical SIB and DIB mechanisms investors provide upfront capital and government and donors respectively repay the investment with a return for attained outcomes, the modified structure will incorporate only grant funding with no possibility for return of principal. Private service providers will be engaged to operate ECE centers, financed by the donor-funded NCCET. The operators will receive pre-set funding from the NCCET, but the county government will progressively absorb their costs as they achieve targeted outcomes, including salaries for top-performing teachers. As a result, high-performing providers will be able to make a small profit. The system is designed to incentivize teachers and progressively provide greater income for effective school operators, while enabling an ordered handover of funding responsibilities to government, thus providing for program sustainability.

Nairobi City County plans to build 97 new ECE centers, all of which are to be located in the slum areas. NCCET will complement this undertaking by structuring and implementing the new funding model to operationalize the schools. The structure aims to coordinate the actors involved in the program—donors, service providers, evaluators—whilst sensitizing and preparing government to engage the private sector in the provision of social services and the payment of outcomes thereof.

Event Information

On July 5, the Center for Universal Education at Brookings and the partners of the world’s first development impact bond for education held an online a discussion of the first year’s enrollment and learning results. The impact bond provides financing for Educate Girls, a non-profit that aims to increase enrollment for out-of-school girls and improve learning outcomes for girls and boys in Rajasthan, India. The UBS Optimus Foundation has provided upfront risk capital to Educate Girls and, contingent on program targets being met, will be paid back their principal plus a return by the Children's Investment Fund Foundation. Instiglio, a non-profit organization specializing in results-based financing mechanisms, serves as the program intermediary.

The webinar explored the experiences so far, the factors affecting the initial results, the key learnings, and ways these will inform the development of the programs it moves forward. The partners shared both positive and negative learnings to start a transparent discussion of the model and where, and how, it can be most effective.

Chaired by Emily Gustafsson-Wright, a fellow at the Center for Universal Education, the discussion featured Safeena Husain of Educate Girls, Phyllis Costanza of UBS Optimus Foundation, and Avnish Gungadurdoss of Instiglio. For further background on impact bonds as a financing mechanism for education and early childhood development in low- and middle-income countries, please see the Center for Universal Education’s report.

Further information on the outcome metrics and evaluation design in the Educate Girls Development Impact Bond » (PDF)

Watch a recording of the webinar via WebEx »

In late October at the United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) headquarters in Bangkok, a multi-stakeholder coalition was launched to promote the role of youth and civil society in advancing post-2015 United Nations Sustainable Development Goals (SDGs). The youth initiatives, fostering regional integration and youth service impact in the Association of Southeast Asian Nations (ASEAN) and counterpart regions of Northeast and South Asia, will be furthered through a new Asia-Pacific Peace Service Alliance. The alliance is comprised of youth leaders, foundations, civil society entities, multilateral partners and U.N. agencies. Together, their initiatives illustrate the potential of youth and multi-stakeholder coalitions to scale impacts to meet SDG development targets through youth service and social media campaigns, and partnerships with multilateral agencies, nongovernmental organizations, corporations and research institutes.

The “Asia-Pacific Forum on Youth Volunteerism to Promote Participation in Development and Peace” at UN ESCAP featured a new joint partnership of the U.S. Peace Corps and the Korea International Cooperation Agency (KOICA) as well as USAID support for the ASEAN Youth Volunteering Program. With key leadership from ASEAN youth entitles, sponsor FK Norway, Youth Corps Singapore and Peace Corps’ innovative program in Thailand, the forum also furthered President Obama’s goal of Americans serving “side by side” with other nations’ volunteers. The multi-stakeholder Asia-Pacific alliance will be powered by creative youth action and a broad array of private and public partners from Thailand, Malaysia, Myanmar, Indonesia, Singapore, the Philippines, Australia, Korea, China, Mongolia, Japan, India, Nepal, Pakistan, the U.S. and other nations.

During the event, Dr. Shamshad Akhtar, ESCAP executive secretary, pointed out that “tapping youth potential is critical to shape our shared destiny, as they are a source of new ideas, talent and inspiration. For ESCAP and the United Nations, a dynamic youth agenda is vital to ensure the success of post-2015 sustainable development.”

Dr. Surin Pitsuwan, former ASEAN secretary-general, called for a new Asia-wide multilateralism engaging youth and civil society.  In his remarks, he drew from his experience in mobilizing Asian relief and recovery efforts after Cyclone Nargis devastated the delta region of Myanmar in May 2008. Surin, honorary Alliance chairman and this year’s recipient of the Harris Wofford Global Citizenship Award, also noted the necessity of a “spiritual evolution” to a common sense of well-being to redress the “present course of possible extinction” caused by global conflicts and climate challenges. He summoned Asia-Pacific youth, representing 60 percent of the world’s young population, to “be the change you want to see” and to “commit our youth to a useful cause for humanity.”

The potential for similar upscaled service efforts in Africa, weaving regional integration and youth volunteering impact, has been assessed in Brookings research and policy recommendations being implemented in the Common Market of Eastern and Southern Africa (COMESA). Recommendations, many of which COMESA and ASEAN are undertaking, include enabling youth entrepreneurship and service contributions to livelihoods in regional economic integration schemes, and commissioning third-party support for impact evidence research.

A good example of successful voluntary service contributions from which regional economic communities like ASEAN can learn a lot is the current Omnimed pilot research intervention in Uganda. In eastern Ugandan villages, 1,200 village health workers supported by volunteer medical doctors, Uganda’s Health Ministry, Peace Corps volunteers and Global Peace Women are addressing lifesaving maternal and child health outcomes furthering UNICEF’s campaign on “integrated health” addressing malaria, diarrheal disease and indoor cooking pollution. The effort has included construction of 15 secure water sources and 1,200 clean cook stoves along with randomized controlled trials.

Last week, the young leaders from more than 40 nations produced a “Bangkok Statement” outlining their policy guidance and practical steps to guide volunteering work plans for the new Asia-Pacific alliance. Youth service initiatives undertaken in “collective impact” clusters will focus on the environment (including clean water and solar villages), health service, entrepreneurship, youth roles in disaster preparedness and positive peace. The forum was co-convened by ESCAP, UNESCO, the Global Peace Foundation and the Global Young Leaders Academy.

Volunteerism remains a powerful tool for good around the world. Young people, in particular, are motivated by the prospect of creating real and lasting change, as well as gaining valuable learning experiences that come with volunteering. This energy and optimism among youth can be harnessed and mobilized to help meet challenges facing our world today and accomplish such targets as the United Nations 2030 Sustainable Development Goals (SDGs).

On June 14, young leaders and development agents from leading non-governmental organizations (NGOs), faith-based organizations, corporations, universities, the Peace Corps, and United Nations Volunteers came together at the Brookings Institution to answer the question on how to achieve impacts on the SDGs through international service.

This was also the 10th anniversary gathering of the Building Bridges Coalition—a multi-stakeholder consortium of development volunteers— and included the announcement of a new Service Year Alliance partnership with the coalition to step up international volunteers and village-based volunteering capacity around the world.

Brookings Senior Fellow Homi Kharas, who served as the lead author supporting the high-level panel advising the U.N. secretary-general on the post-2015 development agenda, noted the imperative of engaging community volunteers to scale up effective initiatives, build political awareness, and generate “partnerships with citizens at every level” to achieve the 2030 goals.  

Kharas’ call was echoed in reports on effective grassroots initiatives, including Omnimed’s mobilization of 1,200 village health workers in Uganda’s Mukono district, a dramatic reduction of malaria through Peace Corps efforts with Senegal village volunteers, and Seed Global Health’s partnership to scale up medical doctors and nurses to address critical health professional shortages in the developing world. 

U.N. Youth Envoy Ahmad Alhendawi of Jordan energized young leaders from Atlas Corps, Global Citizen Year, America Solidaria, International Young Leaders Academy, and universities, citing U.N. Security Council Resolution 2250 on youth, peace, and security as “a turning point when it comes to the way we engage with young people globally… to recognize their role for who they are, as peacebuilders, not troublemakers… and equal partners on the ground.”

Service Year Alliance Chair General Stanley McChrystal, former Joint Special Operations commander, acclaimed, “The big idea… of a culture where the expectation [and] habit of service has provided young people an opportunity to do a year of funded, full-time service.” 

Civic Enterprises President John Bridgeland and Brookings Senior Fellow E.J. Dionne, Jr. led a panel with Seed Global Health’s Vanessa Kerry and Atlas Corps’ Scott Beale on policy ideas for the next administration, including offering Global Service Fellowships in United States Agency for International Development (USAID) programs to grow health service corps, student service year loan forgiveness, and technical support through State Department volunteer exchanges. Former Senator Harris Wofford, Building Bridge Coalition’s senior advisor and a founding Peace Corps architect, shared how the coalition’s new “service quantum leap” furthers the original idea announced by President John F. Kennedy, which called for the Peace Corps and the mobilization of one million global volunteers through NGOs, faith-based groups, and universities.

The multi-stakeholder volunteering model was showcased by Richard Dictus, executive coordinator of U.N. Volunteers; Peace Corps Director Carrie Hessler-Radelet; USAID Counselor Susan Reischle; and Diane Melley, IBM vice president for Global Citizenship. Melley highlighted IBM’s 280,000 skills-based employee volunteers who are building community capacity in 130 countries along with Impact 2030—a consortium of 60 companies collaborating with the U.N.—that is “integrating service into overall citizenship activities” while furthering the SDGs.

The faith and millennial leaders who contributed to the coalition’s action plan included Jim Lindsay of Catholic Volunteer Network; Service Year’s Yasmeen Shaheen-McConnell; C. Eduardo Vargas of USAID’s Center for Faith-Based and Community Initiatives; and moderator David Eisner of Repair the World, a former CEO of the Corporation for National and Community Service. Jesuit Volunteer Corps President Tim Shriver, grandson of the Peace Corps’ founding director, addressed working sessions on engaging faith-based volunteers, which, according to research, account for an estimated 44 percent of nearly one million U.S. global volunteers

The key role of colleges and universities in the coalition’s action plan—including  linking service year with student learning, impact research, and gap year service—was  outlined by Dean Alan Solomont of Tisch College at Tufts University; Marlboro College President Kevin Quigley; and U.N. Volunteers researcher Ben Lough of University of Illinois Urbana-Champaign.

These panel discussion directed us towards the final goal of the event, which was a multi-stakeholder action campaign calling for ongoing collaboration and policy support to enhance the collective impact of international service in achieving the 2030 goals.

This resolution, which remains a working document, highlighted five major priorities:

1. Engage service abroad programs to more effectively address the 2030 SDGs by mobilizing 10,000 additional service year and short-term volunteers annually and partnerships that leverage local capacity and volunteers in host communities.
2. Promote a new generation of global leaders through global service fellowships promoting service and study abroad.
3. Expand cross-sectorial participation and partnerships.
4. Engage more volunteers of all ages in service abroad.
5. Study and foster best practices across international service programs, measure community impact, and ensure the highest quality of volunteer safety, well-being, and confidence.

Participants agreed that it’s through these types of efforts that volunteer service could become a common strategy throughout the world for meeting pressing challenges. Moreover, the cooperation of individuals and organizations will be vital in laying a foundation on which governments and civil society can build a more prosperous, healthy, and peaceful world.

ABSTRACT

This study analyzes the willingness to pay for health insurance and hence the potential market for new low-cost health insurance product in Namibia, using the double bounded contingent valuation (DBCV) method. The findings suggest that 87 percent of the uninsured respondents are willing to join the proposed health insurance scheme and on average are willing to insure 3.2 individuals (around 90 percent of the average family size). On average respondents are willing to pay NAD 48 per capita per month and respondents in the poorest income quintile are willing to pay up to 11.4 percent of their income. This implies that private voluntary health insurance schemes, in addition to the potential for protecting the poor against the negative financial shock of illness, may be able to serve as a reliable income flow for health care providers in this setting.

Read the full paper on ScienceDirect »

Event Information

On March 26, the Center for Universal Education at Brookings hosted an expert consultation on the development of the World Bank Group's new Education Strategy. The consultative meeting brought together a small group of experts from diverse fields. The purpose of the discussion was to gather input and suggestions aimed at strengthening the World Bank Group's work in the education sector.

Elizabeth King, Director of Education in the Human Development Network at the World Bank, opened the event by providing an overview of the Bank’s current approach to education, and how it has evolved over the last several decades. She described the Bank’s priorities as reconnecting education to the broader development agenda, supporting more equitable access, ensuring better learning, and strengthening education systems. The Bank’s main operating principals are taking a whole-sector approach, building the evidence base in education, and measuring the results and impact. Beginning with this extensive consultation process, the Bank is demonstrating its willingness to work with others in the development community to build a larger and more robust evidence base from which to draw lessons to improve the quality of limited staff to maximize the impact of Bank activities, to underscore its commitment to partnerships with other organizations and civil society groups, and to move toward improving the measurement of results so as to be able to further improve the Bank’s education programs around the world.

View the event summary »

Event Materials

• 20100326_world_bank_participants

ABSTRACT

The AIDS pandemic in sub-Saharan Africa puts increasing pressure on the buffer capacity of low- and middle-income households without access to health insurance. This paper examines the relationship between health shocks, insurance status and health-seeking behaviour. It also investigates the possible mitigating effects of insurance on income loss and out-of-pocket health expenditure. The study uses a unique dataset based on a random sample of 1769 households and 7343 individuals living in the Greater Windhoek area in Namibia. The survey includes medical testing for HIV infection which allows for the explicit analysis of HIV-related health shocks. We find that the economic consequences of health shocks can be severe for uninsured households even in a country with a relatively well-developed public health care system such as Namibia. The uninsured resort to a variety of coping strategies to deal with the high medical expenses and reductions in income, such as selling assets, taking up credit or receiving financial support from relatives and friends. As HIV-infected individuals increasingly develop AIDS, this will put substantial pressure on the public health care system as well as social support networks. Evidence suggests that private insurance, currently unaffordable to the poor, protects households from the most severe consequences of health shocks.

Read the full article on Oxford Journals »

Event Information

Israeli society is diverse, dynamic, vibrant, and challenged. Israel’s long-held social solidarity faces new pressure from growing internal fissures and from the ongoing conflict with the Palestinians.

In bold and candid remarks earlier this year, Israeli President Reuven Rivlin identified four “tribes” in Israeli society, representing different worldviews, and called for a new effort to find common ground among secular, national-religious and ultra-Orthodox Jewish Israelis, and Arab citizens of Israel. How might Israel’s diverse society coalesce in the coming years? How will the future of Israeli society affect its democracy, its relations with its neighbors and with the United States?

On December 10, the Center for Middle East Policy at Brookings hosted President Reuven Rivlin to discuss his vision for the future of Israeli society and the U.S.-Israeli relationship. Bruce Jones, vice president and director of Foreign Policy at Brookings, gave welcoming remarks, and Tamara Cofman Wittes, senior fellow and director of the Center for Middle East Policy at Brookings, introduced President Rivlin.

Following President Rivlin’s remarks, Natan Sachs, fellow at the Center for Middle East Policy at Brookings, engaged the president in conversation.

Join the conversation on Twitter at #IsraelsFuture.

Video

• The new Israeli society: From melting pot to partnership

Audio

• The new Israeli society: From melting pot to partnership

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20151210_israel_rivlin_transcript

Editor’s note: The following remarks were prepared and delivered by Gary Burtless at a roundtable sponsored by the American Tax Policy Institute on January 7, 2016. Video of Burtless’ remarks are also available on the Institute’s website. Download the related slides at the right. 

To eliminate suspense from the start: Nothing I am about to say undermines the popular narrative about recent inequality trends.  For the past 35 years, U.S. inequality has increased.  Inequality has increased noticeably, no matter what income definition you care to use.  A couple of things you read in the newspaper are untrue under some income definitions. For example, under a comprehensive income definition it is false to claim that all the income gains of the past 2 or 3 decades have gone to the top 1 percent, or the top 5 percent, or the top 10 percent of income recipients.  Middle- and low-income Americans have managed to achieve income gains, too, as we shall see.

Tax policy certainly affects overall inequality, but I shall leave it for Scott, David, and Tracy to take that up. Let me turn to my main job, which is to distinguish between different reasonable income measures.

The crucial thing to know is that contradictory statements can be made about some income trends because of differences in the definition of income.  In general, the most pessimistic statements about trends rely on an income definition that is restrictive in some way.  The definition may exclude important income items, items, for example, that tend to equalize or boost family incomes.  The definition may leave out adjustments to income … adjustments that tend to boost the rate of income gain for low- or middle-income recipients, but not for top-income recipients.

The narrowest income definition commonly used to evaluate income trends is Definition #1 in my slide, “pretax private, cash income.”  Columnists and news reporters are unknowingly using this income definition when they make pronouncements about the income share of the “top 1 percent.”  The data about income under this definition are almost always based on IRS income tax returns, supplemented with a bit of information from the Commerce Department’s National Income and Product Account (NIPA) data file.

The single most common income definition used to assess income trends and inequality is the Census Bureau’s “money income” definition, Definition #2 on the slide.  It is just the same as the first definition I mentioned, except this income concept also includes government cash transfer payments – Social Security, unemployment insurance, cash public assistance, Veterans’ benefits, etc.

A slightly more expansive definition (#3) also adds food stamp (or SNAP) benefits plus other government benefits that are straightforward to evaluate. Items of this kind include the implicit rent subsidy low-income families receive in publicly-subsidized housing, school lunch subsides, and means-tested home heating subsidies.

Now we come to subtractions from income. These typically reflect families’ tax obligations.  The Census Bureau makes estimates of state and federal income tax liabilities as well as payroll taxes owed by workers (though not by their employers).  Since income and payroll taxes subtract from the income available to pay for other stuff families want to buy, it seems logical to also subtract them from countable income. This is done under income Definition #4.  Some tax obligations – notably the Earned Income Credit (EIC) – are in fact subtractions from taxes owed, which would not be a problem in the case of families that still owe positive taxes to the government.  However, the EIC is refundable to taxpayers, meaning that some families have negative tax liabilities:  The government owes them money.  In this case, if you do not take taxes into account you understate low-income families’ incomes, even as you’re overstating the net incomes available to middle- and high-income families.

Now let’s get a bit more complicated.  Forget what I said about taxes, because our next income definition (#5) also ignores them.  It is an even-more-comprehensive definition of gross or pretax income.  In addition to all those cash and near-cash items I mentioned in Definition #3, Definition #5 includes imputed income items, such as: 

• The value of your employer’s premium contribution to your employee health plan;
• The value of the government’s subsidy to your public health plan – Medicare, Medicaid, state CHIP plans, etc.
• Realized taxable gains from the sale of assets; and
• Corporate income that is earned by companies in which you own a share even though it is not income that is paid directly to you.

This is the most comprehensive income definition of which I am aware that refers to gross or pre-tax income.

Finally we have Definition #6, which subtracts your direct and indirect tax payments.  The only agency that uses this income definition is principally interested in the Federal budget, so the subtractions are limited to Federal income and payroll taxes, Federal corporate income taxes, and excise taxes.

Before we go into why you should care about any of these definitions, let me mention a somewhat less important issue, namely, how we define the income-sharing group over which we estimate inequality.  The most common assessment unit for income included under Definition #1 (“Pre-tax private cash income”) is the Federal income tax filing unit.  Sometimes this unit has one person; sometimes 2 (a married couple); and sometimes more than 2, including dependents.

The Census Bureau (and, consequently, most users of Census-published statistics) mainly uses “households” as reference units, without any adjustment for variations in the size of different households.  The Bureau’s median income estimate, for example, is estimated using the annual “money income” of households, some of which contain 1 person, some contain 2, some contain 3, and so on.

Many economists and sociologists find this unsatisfactory because they think a $20,000 annual income goes a lot farther if it is supporting just one person rather than 12.  Therefore, a number of organizations—notably, the Luxembourg Income Study (LIS), the Organisation of Economic Cooperation and Development (OECD), and the Congressional Budget Office (CBO)—assume household income is equally shared within each household, but that household “needs” increase with the square root of the number of people in the household.  That is, a household containing 9 members is assumed to require 1½ times as much income to enjoy the same standard of living as a family containing 4 members.  After an adjustment is made to account for the impact of household size, these organizations then calculate inequality among persons rather than among households.

How are these alternative income definitions estimated?  Who uses them?  What do the estimates show?  I’ll only consider a two or three basic cases.

First, pretax, private, cash income. By far the most famous users of this definition are Professors Thomas Piketty and Emmanuel Saez.  Their most celebrated product is an annual estimate of the share of total U.S. income (under this restricted definition) that is received by the top 1 percent of tax filing units.

Here is their most famous chart, showing the income share of the top 1 percent going back to 1913. (I use the Piketty-Saez estimates that exclude realized capital gains in the calculation of taxpayers’ incomes.) The notable feature of the chart is the huge rise in the top income share between 1970—when it was 8 percent of all pretax private cash income—and last year—when the comparable share was 18 percent.  

I have circled one part of the line—between 1986 and 1988—to show you how sensitive their income definition is to changes in the income tax code.  In 1986 Congress passed the Tax Reform Act of 1986 (TRA86). By 1988 the reform was fully implemented.  Wealthy taxpayers noticed that TRA86 sharply reduced the payoff to holding corporate earnings inside a separately taxed corporate entity. Rich business owners or shareholders could increase their after-tax income by arranging things so their business income was taxed only once, at the individual level.  The result was that a lot of income, once earned by and held within corporations, was now passed through to the tax returns of rich individual taxpayers. These taxpayers appeared to enjoy a sudden surge in their taxable incomes between 1986 and 1988.  No one seriously believes rich people failed to get the benefits of this income before 1987.  Before 1987 the same income simply showed up on corporate rather than on individual income tax returns.

A final point:  The chart displayed in SLIDE #6 is the source of the widely believed claim that U.S. inequality is nowadays about the same as it was at the end of the Roaring 1920s, before the Great Depression.  That is close to being true – under this income definition.

Census “money income”: This income definition is very similar to the one just discussed, except that it includes cash government transfer payments.  The producer of the series is the Census Bureau, and its most famous uses are to measure trends in real median household income and the official U.S. poverty rate. Furthermore, the Census Bureau uses the income definition to compile estimates of the Gini coefficient of household income inequality and the income shares received by each one-fifth of households, ranked from lowest to highest income, and received by the top 5 percent of households.

Here is a famous graph based on the Bureau’s “median household income” series.  I have normalized the historical series using the 1999 real median income level (1999 and 2000 were the peak income years according to Census data).  Since 1999 and 2000, median income has fallen about 10 percent.  If we accept this estimate without qualification, it certainly represents bad news for living standards of the nation’s middle class. The conclusion is contradicted by other government income statistics that use a broader, more inclusive income definition, however.

And here is the Bureau’s most widely cited distributional statistic (after its “official poverty rate” estimate).  Since 1979, the Gini coefficient has increased 17 percent under this income definition. (It is worth noting, however, that the portion of the increase that occurred between 1992 and 1993 is mainly the result of methodological changes in the way the Census Bureau ascertained incomes in its 1994 income survey.)

When you hear U.S. inequality compared with that in other rich countries, the numbers are most likely based on calculations of the LIS or OECD.  Their income definition is basically “Cash and Near-cash Public and Private income minus Income and Payroll taxes owed by households.”  Under this income definition, the U.S. looks relatively very unequal and America appears to have an exceptionally high poverty rate.  U.S. inequality has been rising under this income definition, as indeed has also been the case in most other rich countries. The increase in the United States has been above average, however, helping us to retain our leadership position, both in income inequality and in relative poverty.

We turn last to the most expansive income definition:  CBO’s measure of net after-tax income.  I will use CBO’s tabulations using this income definition to shed light on some of the inequality and living standard trends implied by the narrower income definitions discussed above.

Let’s consider some potential limitations of a couple of those definitions.  The limitations do not necessarily make them flawed or uninteresting.  They do mean the narrower income measures cannot tell us some of the things that users claim they tell us.

An obvious shortcoming of the “cash pretax private income” definition is that it excludes virtually everything the government does to equalize Americans’ incomes.  Believe it or not, the Federal tax system is mildly progressive.  It claims a bigger percentage of the (declared) incomes of the rich than it does of middle-income families’ and especially the poor.  Any pretax income measure will miss that redistribution.

More seriously, it excludes all government transfer payments.  You may think the rich get a bigger percentage of their income from government handouts compared with middle class and poorer households.  That is simply wrong.  The rich get a lot less.  And the percentage of total personal income that Americans derive from government transfer payments has gone way up over the years.  In the Roaring 1920s, Americans received almost nothing in the form of government transfers. Less than 1 percent of Americans’ incomes were received as transfer payments.  By 1970—near the low point of inequality according to the Piketty-Saez measure—8.3 percent of Americans’ personal income was derived from government transfers.  Last year, the share was 17 percent. None of the increase in government transfers is reflected in Piketty and Saez’s estimates of the trend in inequality.  Inequality is nowadays lower than it was in the late 1920s, mainly because the government does more redistribution through taxes and transfers.

Both the Piketty-Saez and the Census “money income” statistics are affected by the exclusion of government- and employer-provided health benefits from the income definition. This slide contains numbers, starting in 1960, that show the share of total U.S. personal consumption consisting of personal health care consumption.  I have divided the total into two parts. The first is the share that is paid for out of our own cash incomes (the blue part at the bottom).  This includes our out-of-pocket spending for doctors’ charges, hospital fees, pharmaceutical purchases, and other provider charges as well as our out-of-pocket spending on health insurance premiums. The second is the share of our personal health consumption that is paid out of government subsidies to Medicare, Medicaid, CHIP, etc., or out of employer subsidies to employee health plans (the red part). 

As everyone knows, the share of total consumption that consists of health consumption has gone way up.  What few people recognize is that the share that is directly paid by consumers—through payments to doctors, hospitals, and household health insurance premium payments—has remained unchanged.  All of the increase in the health consumption share since 1960 has been financed through government and employer subsidies to health insurance plans. None of those government or employer contributions is counted as “income” under the Piketty-Saez and Census “money income” definitions.  You would have to be quite a cynic to claim the subsidies have brought households no living standard improvements since 1960, yet that is how they are counted under the Piketty-Saez and Census “money income” definitions.

Final slide: How much has inequality gone up under income definitions that count all income sources and subtract the Federal income, payroll, corporation, and excise taxes we pay?  CBO gives us the numbers, though unfortunately its numbers end in 2011.

Here are CBO’s estimates of real income gains between 1979 and 2011.  These numbers show that real net incomes increased in every income category, from the very bottom to the very top.  They also show that real incomes per person have increased much faster at the top—over on the right—than in the middle or at the bottom—over on the left.  Still, contrary to a common complaint that all the income gains in recent years have been received by folks at the top, the CBO numbers suggest net income gains have been nontrivial among the poor and middle class as well as among top income recipients.

Suppose we look at trends in the more recent past, say, between 2000 and 2011.  That lower panel in this slide presents a very different picture from the one implied by the Census Bureau’s “money income” statistics.  Unlike the “money income numbers” [SLIDE #9], these show that inequality has declined since 2000.  Unlike the “money income numbers” [SLIDE #8], these show that incomes of middle-income families have improved since 2000.  There are a variety of explanations for the marked contrast between the Census Bureau and CBO numbers.  But a big one is the differing income definitions the two conclusions are based on.  The more inclusive measure of income shows faster real income gains among middle-income and poorer households, and it suggests a somewhat different trend in inequality.

This weekend’s election results in Turkey were a surprise to the vast majority of Turkish pollsters and pundits, myself included. The ruling Justice and Development Party (AKP) won nearly 50 percent of the popular vote. The party can now form a single-party government, even if it doesn’t have the supermajority necessary to remake the Turkish constitution. What happened?

As with much in life, the result does make sense in hindsight. Prior to the June 7 election, President Recep Tayyip Erdoğan and the AKP leadership had supported a Kurdish peace process, in part in the hope of gaining Kurdish votes. In that election, however, not only did the AKP fail to win new Kurdish votes, but support for the Nationalist Action Party (MHP)—a far-right Turkish nationalist party—swelled, apparently out of frustration among nationalist Turks with the AKP-led peace process with the Kurds. In other words, the AKP had the worst of both worlds.

Erdoğan and the AKP leadership, recognizing the political problem this posed for them, allowed the peace process to collapse amid mounting instability driven by the Syrian civil war. This, combined with disillusionment with the MHP leadership due to their perceived unwillingness to form a coalition government, drove about two million MHP voters to the AKP this weekend. The exodus shows, in a sense, what close substitutes the two parties can be among a more nationalist voting bloc.

The controlled chaos that resulted from the collapse of the peace process—combined with the escalating refugee crisis, the fear of ISIS attacks, and the struggling economy—helped the government politically. Voters evidently recalled that it had been the AKP that brought the country out of the very tough times of the 1990s.  

In contrast, the opposition parties seem to lack leadership and appear to promise only internal squabbles and indecisiveness. Craving security and stability, voters have now turned to the one party that appears to have the strength to provide it. In that sense, Erdoğan’s nationalist gambit—which was actually a well-conceived series of political maneuvers—worked. Even some one million conservative Kurdish voters returned to the AKP.

These voters perhaps did not notice the irony that the government had also engineered the instability they feared. In part, this success derives from government’s control over the media. These elections may have been free, in the sense that Turkish voters can cast a ballot for the candidates they want. But they were not fair. The state maintained tight control over traditional and social media alike. Freedom House and the Committee to Protect Journalists, among others, have cast doubt on Turkey’s press freedom credentials. Real opposition voices are difficult for media publish or voters to see on television. Thus, for example, Selahattin Demirtaş, the leader of the pro-Kurdish Peoples' Democratic Party (HDP) and the most charismatic opposition politician in Turkey, had essentially no air time during the campaign.

There are some important upsides to the election results. For one, HDP again passed the 10 percent threshold to remain in parliament. That will help mitigate—though hardly erase—the polarization that grips the country, and will hopefully make government reconsider its abandonment of the Kurdish peace process.

More significantly, the AKP does not have what it needs to convert Turkey’s government structure into a presidential system, which would be a bad move for the country. The election results will undoubtedly revitalize Erdoğan’s push for a presidential regime in Turkey. But that requires changing the constitution, and the AKP did not achieve the supermajority that it would need to do that on its own.

Critically, changing to a presidential system will require some support from the opposition and even more importantly popular support via a referendum. As political strategists around the world have learned, people tend not to vote on the actual referendum item, per se, but based on more general opinions of their leadership. So to win a referendum on the presidential system, Erdoğan and his AKP colleagues would need to show improvements in the economy, in the security situation, on the Kurdish issue, on Syrian refugees, and on national stability more generally. Instability in Turkey, particularly the renewal of violence in the Kurdish region, will deter investment and deepen the economic slump throughout the country.

With its new majority, AKP leaders are now in a position of strength to negotiate with the HDP over Kurdish issues. The refugee crisis also means the government also has more leverage with the EU. If it chooses to use its strength to reach positive agreements on those fronts, the outcomes could be very good for the Turkish people.

To actually win a referendum on the presidential system, Erdoğan would have to work to depolarize his country. While the presidential system itself would not be good for Turkey, the process of getting there might be.

Editor's Note: TechTakes is a new series that collects the diverse perspectives of scholars around the Brookings Institution on technology policy issues. This first post in the series features contributions from Scott Andes, Susan Hennessey, Adie Tomer, Walter Valdivia, Darrell M. West, and Niam Yaraghi on the Internet of Things.

In the coming years, the number of devices around the world connected to the Internet of Things (IoT) will grow rapidly. Sensors located in buildings, vehicles, appliances, and clothing will create enormous quantities of data for consumers, corporations, and governments to analyze. Maximizing the benefits of IoT will require thoughtful policies. Given that IoT policy cuts across many disciplines and levels of government, who should coordinate the development of new IoT platforms? How will we secure billions of connected devices from cyberattacks? Who will have access to the data created by these devices? Below, Brookings scholars contribute their individual perspectives on the policy challenges and opportunities associated with the Internet of Things.

The Internet of Things will be everywhere

Darrell M. West is vice president and director of Governance Studies and founding director of the Center for Technology Innovation.

Humans are lovable creatures, but prone to inefficiency, ineffectiveness, and distraction. They like to do other things when they are driving such as listening to music, talking on the phone, texting, or checking email. Judging from the frequency of accidents though, many individuals believe they are more effective at multi-tasking than is actually the case.

The reality of these all too human traits is encouraging a movement from communication between computers to communication between machines. Driverless cars soon will appear on the highways in large numbers, and not just as a demonstration project. Remote monitoring devices will transmit vital signs to health providers, who then can let people know if their blood pressure has spiked or heart rhythm has shifted in a dangerous direction. Sensors in appliances will let individuals know when they are running low on milk, bread, or cereal. Thermostats will adjust their energy settings to the times when people actually are in the house, thereby saving substantial amounts of money while also protecting natural resources.

With the coming rise of a 5G network, the Internet of Things will unleash high-speed devices and a fully connected society. Advanced digital devices will enable a wide range of new applications from energy and transportation to home security and healthcare. They will help humans manage the annoyances of daily lives such as traffic jams, not being able to find parking places, or keeping track of physical fitness. The widespread adoption of smart appliances, smart energy grids, resource management tools, and health sensors will improve how people connect with one another and their electronic devices. But they also will raise serious security, privacy, and policy issues.

Implications for surveillance

Susan Hennessey is Fellow in National Security in Governance Studies at the Brookings Institution. She is the Managing Editor of the Lawfare blog, which is devoted to sober and serious discussion of "Hard National Security Choices.”

As the debate over encryption and diminished law enforcement access to communications enters the public arena, some posit the growing Internet of Things as a solution to “Going Dark.” A recently released Harvard Berkman Center report, “Don’t Panic,” concludes in part that losses of communication content will be offset by the growth of IoT and networked sensors. It argues IoT provides “prime mechanisms for surveillance: alternative vectors for information-gathering that could more than fill many of the gaps left behind by sources that have gone dark – so much so that they raise troubling questions about how exposed to eavesdropping the general public is poised to become.”

Director of National Intelligence James Clapper agrees that IoT has some surveillance potential. He recently testified before Congress that “[i]n the future, intelligence services might use the IoT for identification, surveillance, monitoring, location tracking, and targeting for recruitment, or to gain access to networks or user credentials.”

But intelligence gathering in the Internet age is fundamentally about finding needles in haystacks – IoT is poised to add significantly more hay than needles. Law enforcement and the intelligence community will have to develop new methods to isolate and process the magnitude of information. And Congress and the courts will have to decide how laws should govern this type of access.

For now, the unanswered question remains: How many refrigerators does it take to catch a terrorist?

IoT governance

Scott Andes is a senior policy analyst and associate fellow at the Anne T. and Robert M. Bass Initiative on Innovation and Placemaking, a part of the Centennial Scholar Initiative at the Brookings Institution.

As with many new technology platforms, the Internet of Things is often approached as revolutionary, not evolutionary technology. The refrain is that some scientific Rubicon has been crossed and the impact of IoT will come soon regardless of public policy. Instead, the role of policymakers is to ensure this new technology is leveraged within public infrastructure and doesn’t adversely affect national security or aggravate inequality. While these goals are clearly important, they all assume technological advances of IoT are staunchly within the realm of the private sector and do not justify policy intervention. However, as with almost all new technologies that catch the public’s eye—robotics, clean energy, autonomous cars, etc.—hyperbolic news reporting overstates the market readiness of these technologies, further lowering the perceived need of policy support.

The problem with this perspective is twofold. First, greater scientific breakthroughs are still needed. The current rate of improvement in processing power and data storage, miniaturization of devices, and more energy efficient sensors only begin to scratch the surface of IoT’s full potential. Advances within next-generation computational power, autonomous devices, and interoperable systems still require scientific breakthroughs and are nowhere near deployment. Second, even if the necessary technological advancements of IoT have been met, it’s not clear the U.S. economy will be the prime recipient of its economic value. Nations that lead in advanced manufacturing, like Germany, may already be better poised to export IoT-enabled products. Policymakers in the United States should view technological advancements in IoT as a global economic race that can be won through sound science policies. These should include: accelerating basic engineering research; helping that research reach the market; supporting entrepreneurs’ access to capital; and training a science and engineering-ready workforce that can scale up new technologies.

IoT will democratize innovation

Walter D. Valdivia is a fellow in the Center for Technology Innovation at Brookings.

The Internet of Things could be a wonderful thing, but not in the way we imagine it.

Today, the debate is dominated by cheerleaders or worrywarts. But their perspectives are merely two sides of the same coin: technical questions about reliability of communications and operations, and questions about system security. Our public imagination about the future is being narrowly circumscribed by these questions. However, as the Internet of Things starts to become a thing—or multiples things, or a networked plurality—it is likely to intrude so intensely into our daily lives that alternative imaginations will emerge and will demand a hearing.

A compelling vision of the future is necessary to organize and coordinate the various market and political agents who will integrate IoT into society. Technological success is usually measured in terms set by the purveyor of that vision. Traditionally, this is a small group with a financial stake in technological development: the innovating industry. However, the intrusiveness and pervasiveness of the Internet of Things will prompt ordinary citizens to augment that vision. Citizen participation will deny any group a monopoly on that vision of the future. Such a development would be a true step in the direction of democratizing innovation. It could make IoT a wonderful thing indeed.

Applications of IoT for infrastructure

Adie Tomer is a fellow at the Brookings Institution Metropolitan Policy Program and a member of the Metropolitan Infrastructure Initiative.

The Internet of Things and the built environment are a natural fit. The built environment is essentially just a collection of physical objects—from sidewalks and streets to buildings and water pipes—that all need to be managed in some capacity. Today, we measure our shared use of those objects through antiquated analog or digital systems. Think of the electricity meter on a building, or a person manually counting pedestrians on a busy city street. Digital, Internet-connected sensors promise to modernize measurement, relaying a whole suit of indicators to centralized databases tweaked to make sense of such big data.

But let’s not fool ourselves. Simply outfitting cities and metro areas with more sensors won’t solve any of our pressing urban issues. Without governance frameworks to apply the data towards goals around transportation congestion, more efficient energy use, or reduced water waste, these sensors could be just another public investment that doesn’t lead to public benefit.

The real goal for IoT in the urban space, then, is to ensure our built environment supports broader economic, social, and environmental objectives. And that’s not a technology issue—that’s a question around leadership and agenda-setting.

Applications of IoT for health care

Niam Yaraghi is a fellow in the Brookings Institution's Center for Technology Innovation.

Health care is one of the most exciting application areas for IoT. Imagine that your Fitbit could determine if you fall, are seriously hurt, and need to be rushed to hospital. It automatically pings the closest ambulance and sends a brief summary of your medical status to the EMT personnel so that they can prepare for your emergency services even before they reach the scene. On the way, the ambulance will not need to use sirens to make way since the other autonomous vehicles have already received a notification about approaching ambulance and clear the way while the red lights automatically turn green. 

IoT will definitely improve the efficiency of health care services by reducing medical redundancies and errors. This dream will come true sooner than you think. However, if we do not appropriately address the privacy and security issues of healthcare data, then IoT can be our next nightmare. What if terrorist organizations (who are becoming increasingly technology savvy) find a way to hack into Fitbit and send wrong information to an EMT? Who owns our medical data? Can we prevent Fitbit from selling our health data to third parties? Given these concerns, I believe we should design a policy framework that encourages accountability and responsibility with regards to health data. The framework should precisely define who owns data; who can collect, store, mine and use it; and what penalties will be enforced if entities acted outside of this framework.

Editor's Note: The "Scaling up in Agriculture, Rural Development and Nutrition" publication is a series of 20 briefs published by the International Food Policy Research Institute. To read the full publication, click here.

Taking successful development interventions to scale is critical if the world is to achieve the Millennium Development Goals and make essential gains in the fight for improved agricultural productivity, rural incomes, and nutrition. How to support scaling up in these three areas, however, is a major challenge. This collection of policy briefs is designed to contribute to a better understanding of the experience to date and the lessons for the future.

Scaling up means expanding, replicating, adapting, and sustaining successful policies, programs, or projects to reach a greater number of people; it is part of a broader process of innovation and learning. A new idea, model, or approach is typically embodied in a pilot project of limited impact; with monitoring and evaluation, the knowledge acquired from the pilot experience can be used to scale up the model to create larger impacts. The process generally occurs in an iterative and interactive cycle, as the experience from scaling up feeds back into new ideas and learning.

The authors of the 20 policy briefs included here explore the experience of scaling up successful interventions in agriculture, rural development, and nutrition under five broad headings: (1) the role of rural community engagement, (2) the importance of value chains, (3) the intricacies of scaling up nutrition interventions, (4) the lessons learned from institutional approaches, and (5) the experience of international aid donors.

There is no blueprint for when and how to take an intervention to scale, but the examples and experiences described in this series of policy briefs offer important insights into how to address the key global issues of agricultural productivity, food insecurity, and rural poverty.

Editor's Note: Johannes Linn discusses the potential of multilateral development banks in the latest G-20 Research Group briefing book on the St. Petersburg G-20 Summit. Read the full collection here.

The origins of the multilateral development banks (MDBs) lie with the creation of the World Bank at Bretton Woods in 1944. Its initial purpose, as the International Bank for Reconstruction and Development, was the reconstruction of wartorn countries after the Second World War. 

As Europe and Japan recovered in the 1950s, the World Bank turned to providing financial assistance to the developing world. Then came the foundation of the InterAmerican Development Bank (IADB) in 1959, of the African Development Bank (AfDB) in 1964 and of the Asian Development Bank (ADB) in 1966, each to assist the development of countries in their respective regions. The European Bank for Reconstruction and Development (EBRD) was set up in 1991, following the collapse of the Soviet Union, to assist with the transition of countries in the former Soviet sphere. 

The MDBs are thus rooted in two key aspects of the geopolitical reality of the postwar 20th century: the Cold War between capitalist ‘West’ and communist ‘East’, and the division of the world into the industrial ‘North’ and the developing ‘South’. The former aspect was mirrored in the MDBs for many years by the absence of countries from the Eastern Bloc. This was only remedied after the fall of the Bamboo and Iron curtains. The latter aspect remains deeply embedded even today in the mandate, financing pattern and governance structures of the MDBs. 

Changing global financial architecture 

From the 1950s to the 1990s, the international financial architecture consisted of only three pillars: the International Monetary Fund (IMF) and the MDBs represented the multilateral official pillar; the aid agencies of the industrial countries represented bilateral official pillar; and the commercial banks and investors from industrial countries made up the private pillar. 

Today, the picture is dramatically different. Private commercial flows vastly exceed official flows, except during global financial crises. New channels of development assistance have multiplied, as foundations and religious and non-governmental organisations rival the official assistance flows in size. 

The multilateral assistance architecture, previously dominated by the MDBs, is now a maze of multilateral development agencies, with a slew of sub-regional development banks, some exceeding the traditional MDBs in size. For example, the European Investment Bank lends more than the World Bank, and the Caja Andina de Fomento (CAF, the Latin American Development Bank) more than the IADB. There are also a number of large ‘vertical funds’ for specific purposes, such as the International Fund for Agricultural Development and the Global Fund to Fight AIDS, Tuberculosis and Malaria. There are  specialized trust funds, attached to MDBs, but often with their own governance structures.

End of the North-South divide 

Finally, the traditional North-South divide is breaking down, as emerging markets have started to close the development gap, as global poverty has dropped and as many developing countries have large domestic capacities. This means that the new power houses in the South need little financial and technical assistance and are now providing official financial and technical support to their less fortunate neighbors. China’s assistance to Africa outstrips that of the World Bank.

The future for MDBs 

In this changed environment is there a future for MDBs? Three options might be considered: 

1. Do away with the MDBs as a relic of the past. Some more radical market ideologues might argue that, if there ever was a justification for the MDBs, that time is now well past. In 2000, a US congressional commission recommended the less radical solution of shifting the World Bank’s loan business to the regional MDBs. Even if shutting down MDBs were the right option, it is highly unlikely to happen. No multilateral financial institution created after the Second World War has ever been closed. Indeed, recently the Nordic Development Fund was to be shut down, but its owners reversed their decision and it will carry on, albeit with a focus on climate change. 

2. Carry on with business as usual. Currently, MDBs are on a track that, if continued, would mean a weakened mandate, loss of clients, hollowed-out financial strength and diluted technical capacity. Given their tight focus on the fight against poverty, the MDBs will work themselves out of a job as global poverty, according to traditional metrics, is on a dramatic downward trend. 

Many middle-income country borrowers are drifting away from the MDBs, since they find other sources of finance and technical advice more attractive. These include the sub-regional development banks, which are more nimble in disbursing their loans and whose governance is not dominated by the industrial countries. These countries, now facing major long-term budget constraints, will be unable to continue supporting the growth of the MDBs’ capital base. But they are also unwilling to let the emerging market economies provide relatively more funding and acquire a greater voice in these institutions.

Finally, while the MDBs retain professional staff that represents a valuable global asset, their technical strength relative to other sources of advice – and by some measures, even their absolute strength – has been waning. 

If left unattended, this would mean that MDBs 10 years from now, while still limping along, are likely to have lost their ability to provide effective financial and technical services on a scale and with a quality that matter globally or regionally. 

3. Give the MDBs a new mandate, new governance and new financing. If one starts from the proposition that a globalised 21st-century world needs capable global institutions that can provide long-term finance to meet critical physical and social infrastructure needs regionally and globally, and that can serve as critical knowledge hubs in an increasingly interconnected world, then it would be folly to let the currently still considerable institutional and financial strengths of the MDBs wither away.

• The mandate of the MDBs should be adapted to move beyond preoccupation with poverty eradication to focus explicitly on global and regional public goods as a way to help sustain global economic growth and human welfare. Moreover, the MDBs should be able to provide assistance to all their members, not only developing country members. 

• The governance of the MDBs should be changed to give the South a voice commensurate with the greater global role it now plays in economic and political terms. MDB leaders should be selected on merit without consideration of nationality. 

• The financing structure should be matched to give more space to capital contributions from the South and to significantly expand the MDBs’ capital resources in the face of the current severe capital constraints.

In addition, MDB management should be guided by banks’ membership to streamline their operational practices in line with those widely used by sub-regional development banks, and they should be supported in preserving and, where possible, strengthening their professional capacity so that they can serve as international knowledge hubs. 

A new MDB agenda for the G20 

The G20 has taken on a vast development agenda. This is fine, but it risks getting bogged down in the minutiae of development policy design and implementation that go far beyond what global leaders can and should deal with. What is missing is a serious preoccupation of the G20 with that issue on which it is uniquely well equipped to lead: reform of the global financial institutional architecture. 

What better place than to start with than the MDBs? The G20 should review the trends, strengths and weaknesses of MDBs in recent decades and endeavour to create new mandates, governance and financing structures that make them serve as effective pillars of the global institutional system in the 21st century. If done correctly, this would also mean no more need for new institutions, such as the BRICS development bank currently being created by Brazil, Russia, India, China and South Africa. It would be far better to fix the existing institutions than to create new ones that mostly add to the already overwhelming fragmentation of the global institutional system.

Event Information

The year 2015 will be a milestone year, with the adoption of the Sustainable Development Goals (SDGs) and the post-2015 development agenda by world leaders in September; the Addis Ababa Accord on financing for development in July; and the conclusion of climate negotiations at COP21 in Paris in December. The draft Addis Ababa Accord, which focuses on the actions needed to attain the SDGs, highlights the key role envisaged for the multilateral development banks (MDBs) in the post-2015 agenda. Paragraph 65 of the draft accord notes: “We call on the international finance institutions to establish a process to examine the role, scale, and functioning of the multilateral and regional development finance institutions to make them more responsive to the sustainable development agenda.”          

Against this backdrop, on April 18, 2015, the Global Economy and Development program at Brookings held a private roundtable with the leaders of the MDBs and other key stakeholders to discuss the role of the MDBs in supporting the post-2015 development agenda.

The meeting focused on four questions:

1. What does the post-2015 development agenda and the ambitions of the Addis and Paris conferences imply for the MDBs?


Given the ability of the MDBs to leverage shareholder resources, they can be efficient and effective mechanisms for scaling up development cooperation, particularly with respect to the agenda on investing in people and to the financing of sustainable infrastructure. New roles, instruments and partnerships might be needed.

2. How can MDBs best take advantage of the political attention that is being paid to the various conferences in 2015?   


The World Bank and selected regional development banks have launched a series of initiatives to optimize their balance sheets, address other constraints and enhance their catalytic role in crowding in private finance. And new institutions and mechanisms are coming to the fore. But the responses are not coordinated to best take advantage of each MDB’s comparative advantage.

3. What are the key impediments to scaling up the role and engagement of the MDBs?


Views on constraints are likely to differ but discussions should cover policy dialogue, capacity building, capital, leverage, shareholder backing on volume, instruments on leverage and risk mitigation, safeguards, and governance. 

4. How should the MDBs respond to the proposal to establish a process to examine the role, scale and functioning of the multilateral and regional development finance institutions to make them more responsive to the sustainable development agenda?   


A proactive response and engagement on the part of the MDBs would facilitate a better understanding of the contribution that the MDBs can make and greater support among shareholders for a coherent and stepped-up role.

Event Materials

• Participant List
• MDB PostEvent Summary

The replenishment process for concessional resources of the multilateral development banks is broken. We have come to this conclusion after a review of the experience with recent replenishments of multilateral development funds. We also base it on first-hand observation, since one of us was responsible for the World Bank’s International Development Association (IDA) replenishment consultations 20 years ago and recently served as the external chair for the last two replenishment consultations of the International Fund for Agricultural Development (IFAD), which closely follow the common multilateral development bank (MDB) practice. As many of the banks and their donors are preparing for midterm reviews as a first step toward the next round of replenishment consultations, this is a good time to take stock and consider what needs to be done to fix the replenishment process.

So what’s the problem?

Most of all, the replenishment process does not serve its key intended function of setting overall operational strategy for the development funds and holding the institutions accountable for effectively implementing the strategy. Instead, the replenishment consultations have turned into a time-consuming and costly process in which donor representatives from their capitals get bogged down in the minutiae of institutional management that are better left to the boards of directors and the managements of the MDBs. There are other problems, including lack of adequate engagement of recipient countries in donors’ deliberations, the lack of full participation of the donors’ representatives on the boards of the institutions in the process, and inflexible governance structures that serve as a disincentive for non-traditional donors (from emerging countries and from private foundations) to contribute.

But let’s focus on the consultation process. What does it look like? Typically, donor representatives from capitals assemble every three years (or four, in the case of the Asian Development Bank) for a year-long consultation round, consisting of four two-day meetings (including the meeting devoted to the midterm review of the ongoing replenishment and to setting the agenda for the next consultation process). For these meetings, MDB staff prepare, per consultation round, some 20 substantive documents that are intended to delve into operational and institutional performance in great detail. Each consultation round produces a long list of specific commitments (around 40 commitments is not uncommon), which management is required to implement and monitor, and report on in the midterm review. In effect, however, this review covers only half the replenishment cycle, which leads to the reporting, monitoring, and accountability being limited to the delivery of committed outputs (e.g., a specific sector strategy) with little attention paid to implementation, let alone outcomes.

The process is eerily reminiscent of the much maligned “Christmas tree” approach of the World Bank’s structural adjustment loans in the 1980s and 1990s, with their detailed matrixes of conditionality; lack of strategic selectivity and country ownership; focus on inputs rather than outcomes; and lack of consideration of the borrowers’ capacity and costs of implementing the Bank-imposed measures. Ironically, the donors successfully pushed the MDBs to give up on such conditionality (without ownership of the recipient countries) in their loans, but they impose the same kind of conditionality (without full ownership of the recipient countries and institutions) on the MDBs themselves—replenishment after replenishment.

Aside from lack of selectivity, strategic focus, and ownership of the commitments, the consultation process is also burdensome and costly in terms of the MDBs’ senior management and staff time as well as time spent by ministerial staff in donor capitals, with literally thousands of management and staff hours spent on producing and reviewing documentation. And the recent innovation of having donor representatives meet between consultation rounds as working groups dealing with long-term strategic issues, while welcome in principle, has imposed further costs on the MDBs and capitals in terms of preparing documentation and meetings.

It doesn’t have to be that way. Twenty years ago the process was much simpler and less costly. Even today, recent MDB capital increases, which mobilized resources for the non-concessional windows of the MDBs, were achieved with much simpler processes, and the replenishment consultations for special purpose funds, such as the Global Fund for HIV/AIDS, tuberculosis, and malaria and for the GAVI Alliance, are more streamlined than those of the MDBs.

So what’s to be done?

We recommend the following measures to fix the replenishment consultation process:

1. Focus on a few strategic issues and reduce the number of commitments with an explicit consideration of the costs and capacity requirements they imply. Shift the balance of monitoring and accountability from delivery of outputs to implementation and outcomes.
2. Prepare no more than five documents for the consultation process: (i) a midterm review on the implementation of the previous replenishment and key issues for the future; (ii) a corporate strategy or strategy update; (iii) the substantive report on how the replenishment resources will contribute to achieve the strategy; (iv) a financial outlook and strategy document; and (v) the legal document of the replenishment resolution.
3. Reduce the number of meetings for each replenishment round to no more than three and lengthen the replenishment period from three to four years or more.
4. Use the newly established working group meetings between replenishment consultation rounds to focus on one or two long-term, strategic issues, including how to fix the replenishment process.

The initiative for such changes lies with the donor representatives in the capitals, and from our interviews with donor representatives we understand that many of them broadly share our concerns. So this is a good time—indeed it is high time!—for them to act.

Led by presidential candidate Bernie Sanders, one-time supporters of ‘single-payer’ health reform are rekindling their romance with a health reform idea that was, is, and will remain a dream.  Single-payer health reform is a dream because, as the old joke goes, ‘you can’t get there from here.

Let’s be clear: opposing a proposal only because one believes it cannot be passed is usually a dodge.One should judge the merits. Strong leaders prove their skill by persuading people to embrace their visions. But single-payer is different. It is radical in a way that no legislation has ever been in the United States.

Not so, you may be thinking. Remember such transformative laws as the Social Security Act, Medicare, the Homestead Act, and the Interstate Highway Act. And, yes, remember the Affordable Care Act. Those and many other inspired legislative acts seemed revolutionary enough at the time. But none really was. None overturned entrenched and valued contractual and legislative arrangements. None reshuffled trillions—or in less inflated days, billions—of dollars devoted to the same general purpose as the new legislation. All either extended services previously available to only a few, or created wholly new arrangements.

To understand the difference between those past achievements and the idea of replacing current health insurance arrangements with a single-payer system, compare the Affordable Care Act with Sanders’ single-payer proposal.

Criticized by some for alleged radicalism, the ACA is actually stunningly incremental. Most of the ACA’s expanded coverage comes through extension of Medicaid, an existing public program that serves more than 60 million people. The rest comes through purchase of private insurance in “exchanges,” which embody the conservative ideal of a market that promotes competition among private venders, or through regulations that extended the ability of adult offspring to remain covered under parental plans. The ACA minimally altered insurance coverage for the 170 million people covered through employment-based health insurance. The ACA added a few small benefits to Medicare but left it otherwise untouched. It left unaltered the tax breaks that support group insurance coverage for most working age Americans and their families. It also left alone the military health programs serving 14 million people. Private nonprofit and for-profit hospitals, other vendors, and privately employed professionals continue to deliver most care.

In contrast, Senator Sanders’ plan, like the earlier proposal sponsored by Representative John Conyers (D-Michigan) which Sanders co-sponsored, would scrap all of those arrangements. Instead, people would simply go to the medical care provider of their choice and bills would be paid from a national trust fund. That sounds simple and attractive, but it raises vexatious questions.

• How much would it cost the federal government? Where would the money to cover the costs come from?
• What would happen to the $700 billion that employers now spend on health insurance?
• How would the $600 billion a year reductions in total health spending that Sanders says his plan would generate come from?
• What would happen to special facilities for veterans and families of members of the armed services?

Sanders has answers for some of these questions, but not for others. Both the answers and non-answers show why single payer is unlike past major social legislation.

The answer to the question of how much single payer would cost the federal government is simple: $4.1 trillion a year, or $1.4 trillion more than the federal government now spends on programs that the Sanders plan would replace. The money would come from new taxes. Half the added revenue would come from doubling the payroll tax that employers now pay for Social Security. This tax approximates what employers now collectively spend on health insurance for their employees...if they provide health insurance. But many don’t. Some employers would face large tax increases. Others would reap windfall gains.

The cost question is particularly knotty, as Sanders assumes a 20 percent cut in spending averaged over ten years, even as roughly 30 million currently uninsured people would gain coverage. Those savings, even if actually realized, would start slowly, which means cuts of 30 percent or more by Year 10. Where would they come from? Savings from reduced red-tape associated with individual insurance would cover a small fraction of this target. The major source would have to be fewer services or reduced prices. Who would determine which of the services physicians regard as desirable -- and patients have come to expect -- are no longer ‘needed’? How would those be achieved without massive bankruptcies among hospitals, as columnist Ezra Klein has suggested, and would follow such spending cuts? What would be the reaction to the prospect of drastic cuts in salaries of health care personnel – would we have a shortage of doctors and nurses? Would patients tolerate a reduction in services? If people thought that services under the Sanders plan were inadequate, would they be allowed to ‘top up’ with private insurance? If so, what happens to simplicity? If not, why not?

Let me be clear: we know that high quality health care can be delivered at much lower cost than is the U.S. norm. We know because other countries do it. In fact, some of them have plans not unlike the one Senator Sanders is proposing. We know that single-payer mechanisms work in some countries. But those systems evolved over decades, based on gradual and incremental change from what existed before. That is the way that public policy is made in democracies. Radical change may occur after a catastrophic economic collapse or a major war. But in normal times, democracies do not tolerate radical discontinuity. If you doubt me, consider the tumult precipitated by the really quite conservative Affordable Care Act.

Editor's note: This piece originally appeared in Newsweek.

One cannot help feeling a bit silly taking seriously the policy proposals of a person who seems not to take policy seriously himself. Donald Trump's policy positions have evolved faster over the years than a teenager's moods. He was for a woman's right to choose; now he is against it. He was for a wealth tax to pay off the national debt before proposing a tax plan that would enrich the wealthy and balloon the national debt. He was for universal health care but opposed to any practical way to achieve it.

Based on his previous flexibility, Trump's here-today proposals may well be gone tomorrow. As a sometime-Democrat, sometime-Republican, sometime-independent, who is now the leading candidate for the Republican presidential nomination, Trump has just issued his latest pronouncements on health care policy. So, what the hell, let's give them more respect than he has given his own past policy statements.

Perhaps unsurprisingly, those earlier pronouncements are notable for their detachment from fact and lack of internal logic. The one-time supporter of universal health care now joins other candidates in his newly-embraced party in calling for repeal of the only serious legislative attempt in American history to move toward universal coverage, the Affordable Care Act. Among his stated reasons for repeal, he alleges that the act has "resulted in runaway costs," promoted health care rationing, reduced competition and narrowed choice.

Each of these statements is clearly and demonstrably false. Health care spending per person has grown less rapidly in the six years since the Affordable Care Act was enacted than in any corresponding period in the last four decades. There is now less health care rationing than at any time in living memory, if the term rationing includes denial of care because it is unaffordable. Rationing because of unaffordability is certainly down for the more than 20 million people who are newly insured because of the Affordable Care Act. Hospital re-admissions, a standard indicator of low quality, are down, and the health care exchanges that Trump now says he would abolish, but that resemble the "health marts" he once espoused, have brought more choice to individual shoppers than private employers now offer or ever offered their workers.

Trump's proposed alternative to the Affordable Care Act is even worse than his criticism of it. He would retain the highly popular provision in the act that bars insurance companies from denying people coverage because of preexisting conditions, a practice all too common in the years before the health care law. But he would do away with two other provisions of the Affordable Care Act that are essential to make that reform sustainable: the mandate that people carry insurance and the financial assistance to make that requirement feasible for people of modest means.

Without those last two provisions, barring insurers from using preexisting conditions to jack up premiums or deny coverage would destroy the insurance market. Why? Because without the mandate and the financial aid, people would have powerful financial incentives to wait until they were seriously ill to buy insurance. They could safely do so, confident that some insurer would have to sell them coverage as soon as they became ill. Insurers that set affordable prices would go broke. If insurers set prices high enough to cover costs, few customers could afford them.

In simple terms, Trump's promise to bar insurers from using preexisting conditions to screen customers but simultaneously to scrap the companion provisions that make the bar feasible is either the fraudulent offer of a huckster who takes voters for fools, or clear evidence of stunning ignorance about how insurance works. Take your pick.

Unfortunately, none of the other Republican candidates offers a plan demonstrably superior to Trump's. All begin by calling for repeal and replacement of the Affordable Care Act. But none has yet advanced a well-crafted replacement.

It is not that the Affordable Care Act is perfect legislation. It isn't. But, as the old saying goes, you can't beat something with nothing. And so far as health care reform is concerned, nothing is what the Republican candidates now have on offer.

Editor's note: This piece originally appeared in U.S. News and World Report.

Health reform (aka Obamacare) is entering a new stage. The recent announcement by United Health Care that it will stop selling insurance to individuals and families through most health insurance exchanges marks the transition. In the next stage, federal and state policy makers must decide how to use broad regulatory powers they have under the Affordable Care Act (ACA) to stabilize, expand, and diversify risk pools, improve local market competition, encourage insurers to compete on product quality rather than premium alone, and promote effective risk management. In addition, insurance companies must master rate setting, plan design, and network management and effectively manage the health risk of their enrollees in order to stay profitable, and consumers must learn how to choose and use the best plan for their circumstances.

Six months ago, United Health Care (UHC) announced that it was thinking about pulling out of the ACA exchanges. Now, they are pulling out of all but a “handful” of marketplaces. UHC is the largest private vendor of health insurance in the nation. Nonetheless, the impact on people who buy insurance through the ACA exchanges will be modest, according to careful analyses from the Kaiser Family Foundation and the Urban Institute. The effect is modest for three reasons. One is that in some states UHC focuses on group insurance, not on insurance sold to individuals, where they are not always a major presence. Secondly, premiums of UHC products in individual markets are relatively high. Third, in most states and counties ACA purchasers will still have a choice of two or more other options. In addition, UHC’s departure may coincide with or actually cause the entry of other insurers, as seems to be happening in Iowa.

The announcement by UHC is noteworthy, however. It signals the beginning for ACA exchanges of a new stage in their development, with challenges and opportunities different from and in many ways more important than those they faced during the first three years of operation, when the challenge was just to get up and running. From the time when HealthCare.Gov and the various state exchanges opened their doors until now, administrators grappled non-stop with administrative challenges—how to enroll people, helping them make an informed choice among insurance offerings, computing the right amount of assistance each individual or family should receive, modifying plans when income or family circumstances change, and performing various ‘back office’ tasks such as transferring data to and from insurance companies. The chaotic first weeks after the exchanges opened on October 1, 2013 have been well documented, not least by critics of the ACA. Less well known are the countless behind-the-scenes crises, patches, and work-arounds that harried exchange administrators used for years afterwards to keep the exchanges open and functioning.

The ACA forced not just exchange administrators but also insurers to cope with a new system and with new enrollees. Many new exchange customers were uninsured prior to signing up for marketplace coverage. Insurers had little or no information on what their use of health care would be. That meant that insurers could not be sure where to set premiums or how aggressively to try to control costs, for example by limiting networks of physicians and hospitals enrollees could use. Some did the job well or got lucky. Some didn’t. United seems to have fallen in the second category. United could have stayed in the 30 or so state markets they are leaving and tried to figure out ways to compete more effectively, but since their marketplace premiums were often not competitive and most of their business was with large groups, management decided to focus on that highly profitable segment of the insurance market. Some insurers, are seeking sizeable premium increases for insurance year 2017, in part because of unexpectedly high usage of health care by new exchange enrollees.

United is not alone in having a rough time in the exchanges. So did most of the cooperative plans that were set up under the ACA. Of the 23 cooperative plans that were established, more than half have gone out of business and more may follow. These developments do not signal the end of the ACA or even indicate a crisis. They do mark the end of an initial period when exchanges were learning how best to cope with clerical challenges posed by a quite complicated law and when insurance companies were breaking into new markets. In the next phase of ACA implementation, federal and state policy makers will face different challenges: how to stabilize, expand, and diversify marketplace risk pools, promote local market competition, and encourage insurers to compete on product quality rather than premium alone. Insurance company executives will have to figure out how to master rate setting, plan design, and network management and manage risk for customers with different characteristics than those to which they have become accustomed.

Achieving these goals will require state and federal authorities to go beyond the core implementation decisions that have absorbed most of their attention to date and exercise powers the ACA gives them. For example, section 1332 of the ACA authorizes states to apply for waivers starting in 2017 under which they can seek to achieve the goals of the 2010 law in ways different from those specified in the original legislation. Along quite different lines, efforts are already underway in many state-based marketplaces, such as the District of Columbia, to expand and diversify the individual market risk pool by expanding marketing efforts to enroll new consumers, especially young adults. Minnesota’s Health Care Task Force recently recommended options to stabilize marketplace premiums, including reinsurance, maximum limits on the excess capital reserves or surpluses of health plans, and the merger of individual and small group markets, as Massachusetts and Vermont have done.

In normal markets, prices must cover costs, and while some companies prosper, some do not. In that respect, ACA markets are quite normal. Some regional and national insurers, along with a number of new entrants, have experienced losses in their marketplace business in 2016. One reason seems to be that insurers priced their plans aggressively in 2014 and 2015 to gain customers and then held steady in 2016. Now, many are proposing significant premium hikes for 2017.

Others, like United, are withdrawing from some states. ACA exchange administrators and state insurance officials must now take steps to encourage continued or new insurer participation, including by new entrants such as Medicaid managed care organizations (MCOs). For example, in New Mexico, where in 2016 Blue Cross Blue Shield withdrew from the state exchange, state officials now need to work with that insurer to ensure a smooth transition as it re-enters the New Mexico marketplace and to encourage other insurers to join it. In addition, state insurance regulators can use their rate review authority to benefit enrollees by promoting fair and competitive pricing among marketplace insurers. During the rate review process, which sometimes evolves into a bargaining process, insurance regulators often have the ability to put downward pressure on rates, although they must be careful to avoid the risk of underpricing of marketplace plans which could compromise the financial viability of insurers and cause them to withdraw from the market. Exchanges have an important role in the affordability of marketplace plans too. For example ACA marketplace officials in the District of Columbia and Connecticut work closely with state regulators during the rate review process in an effort to keep rates affordable and adequate to assure insurers a fair rate of return.

Several studies now indicate that in selecting among health insurance plans people tend to give disproportionate weight to premium price, and insufficient attention to other cost provisions—deductibles and cost sharing—and to quality of service and care. A core objective of the ACA is to encourage insurance customers to evaluate plans comprehensively. This objective will be hard to achieve, as health insurance is perhaps the most complicated product most people buy. But it will be next to impossible unless customers have tools that help them take account of the cost implications of all plan features and report accurately and understandably on plan quality and service. HealthCare.gov and state-based marketplaces, to varying degrees, are already offering consumers access to a number of decision support tools, such as total cost calculators, integrated provider directories, and formulary look-ups, along with tools that indicate provider network size. These should be refined over time. In addition, efforts are now underway at the federal and state level to provide more data to consumers so that they can make quality-driven plan choices. In 2018, the marketplaces will be required to display federally developed quality ratings and enrollee satisfaction information. The District of Columbia is examining the possibility of adding additional measures. California has proposed that starting in 2018 plans may only contract with providers and hospitals that have met state-specified metrics of quality care and promote safety of enrollees at a reasonable price. Such efforts will proliferate, even if not all succeed.

Beyond regulatory efforts noted above, insurance companies themselves have a critical role to play in contributing to the continued success of the ACA. As insurers come to understand the risk profiles of marketplace enrollees, they will be better able to set rates, design plans, and manage networks and thereby stay profitable. In addition, insurers are best positioned to maintain the stability of their individual market risk pools by developing and financing marketing plans to increase the volume and diversity of their exchange enrollments. It is important, in addition, that insurers, such as UHC, stop creaming off good risks from the ACA marketplaces by marketing limited coverage insurance products, such as dread disease policies and short term plans. If they do not do so voluntarily, state insurance regulators and the exchanges should join in stopping them from doing so.

Most of the attention paid to the ACA to date has focused on efforts to extend health coverage to the previously uninsured and to the administrative stumbles associated with that effort. While insurance coverage will broaden further, the period of rapid growth in coverage is at an end. And while administrative challenges remain, the basics are now in place. Now, the exchanges face the hard work of promoting vigorous and sustainable competition among insurers and of providing their customers with information so that insurers compete on what matters: cost, service, and quality of health care.

Editor's note: This piece originally appeared in Real Clear Markets. Kevin Lucia and Justin Giovannelli contributed to this article with generous support from The Commonwealth Fund.