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

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

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

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

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

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

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

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

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

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

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

      

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

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

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

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

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

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

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

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

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

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

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

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

We can argue the merits of this idea, and we should. But the main point should be beyond argument. We need more builders and fewer traders, more Warren Buffetts and fewer Carl Icahns. And to get them, we’re going to have to change the laws governing corporate and investor behavior. Fink has opened up a crucial debate, and it’s time for Congress and presidential aspirants to join it.

      

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

       

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

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

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

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

       

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

Read "Returning foreign fighters: Criminalization or reintegration?"

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

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

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Since it was created in 1935, Social Security has grown from covering about half of the work force to covering nearly all workers.  The largest remaining exempted group is a subset of state and local government workers (SLGWs).  As of 2008, Social Security did not cover about 27 percent of the 23.8 million SLGWs (Congressional Research Service 2011).  Non-coverage of SLGWs is concentrated in certain states scattered around the country and includes workers in a diverse set of jobs, ranging from administrators to custodial staff.  Some police and fire department employees are not covered.  About 40 percent of public school teachers are not covered by Social Security (Kan and Alderman 2014).    

Under current law, state and local governments that do not offer their own retirement plan must enroll their employees in Social Security.  But if it does offer a retirement plan, the state or local government can choose whether to enroll its workers in Social Security.  

This paper reviews and extends discussion on whether state and local government workers should face mandatory coverage in Social Security.^[1]  Relative to earlier work, we focus on links between this issue and recent developments in state and local pensions.  Although some of the issues apply equally to both existing and newly hired SLGWs, it is most natural to focus on whether newly hired employees should be brought into Social Security.^[2]  

The first thing to note about this topic is that it is purely a transitional issue.  If all SLGWs were already currently enrolled in Social Security, there would not be a serious discussion about whether they should be removed.  For example, there is no discussion of whether the existing three quarters of all SLGWs that are enrolled in Social Security should be removed from coverage.

Bringing state and local government workers into the system would allow Social Security to reach the goal of providing retirement security for all workers.  The effects on Social Security finances are mixed.  Bringing SLGWs into the system would also help shore up Social Security finances over the next few decades and, under common scoring methods, push the date of trust fund insolvency back by one year, but after that, the cost of increased benefit payments would offset those improvements. 

Mandatory coverage would also be fairer.  Other workers pay, via payroll taxes, the “legacy” costs associated with the creation of Social Security as a pay-as-you-go system.   Early generations of Social Security beneficiaries received far more in payouts than they contributed to the system and those net costs are now being paid by current and future generations.  There appears to be no convincing reason why certain state and local workers should be exempt from this societal obligation.  As a result of this fact and the short-term benefit to the program’s finances, most major proposals and commissions to reform Social Security and all commissions to shore up the long-term federal budget have included the idea of mandatory coverage of newly hired SLGWs.

While these issues are long-standing, recent developments concerning state and local pensions have raised the issue of mandatory coverage in a new light. Linking the funding status of state and local pension plans and the potential risk faced by those employees with the mandatory coverage question is a principal goal of this paper.  One factor is that many state and local government pension plans are facing significant underfunding of promised pension benefits.  In a few municipal bankruptcy cases, the reduction of promised benefits for both current employees and those who have already retired has been discussed.  The potential vulnerability of these benefits emphasizes the importance of Social Security coverage, and naturally invites a rethinking of whether newly hired SLGWs should be required to join the program.  On the other hand, the same pension funding problems imply that any policy that adds newly-hired workers to Social Security, and thus requires the state to pay its share of those contributions, would create added overall costs for state and local governments at a time when pension promises are already hard to meet.  The change might also divert a portion of existing employee or employer contributions to Social Security and away from the state pension program. 

We provide two key results linking state government pension funding status and SLGW coverage. First, we show that states with governmental pension plans that have greater levels of underfunding tend also to have a smaller proportion of SLGW workers that are covered by Social Security.  This tends to raise the retirement security risks faced by those workers and provides further fuel for mandatory coverage.  While one can debate whether future public pension commitments or future Social Security promises are more risky, a solution resulting in less of both is the worst possible outcome for the workers in question.  Second, we show that state pension benefit levels for career workers are somewhat compensatory, in that states with lower rates of Social Security coverage for SLGWs tend to have somewhat higher pension benefit levels.  The extent to which promised but underfunded benefits actually compensate for the higher risk to individual workers of non-Social Security coverage is an open question, though.  

Mandatory coverage of newly hired SLGWs could improve the security of their retirement benefits (by diversifying the sources of their retirement income), raise average benefit levels in many cases (even assuming significant changes in state and local government pensions in response to mandatory coverage), and would improve the quality of benefits received, including provisions for full inflation indexation, and dependent, survivor and disability benefits in Social Security that are superior to those in most state pension plans.  The ability to accrue and receive Social Security benefits would be particularly valuable for the many SLGWs who leave public service either without ever having been vested in a government pension or having been vested but not reaching the steep part of the benefit accrual path.  

Just as there is strong support for mandatory coverage in the Social Security community and literature, there is strong opposition to such a change in elements of the state and local government pension world.  The two groups that are most consistently and strongly opposed to mandatory coverage of newly hired SLGWs are the two parties most directly affected – state and local governments that do not already provide such coverage and their uncovered employees.  Opponents cite the higher cost to both employees and the state and local government for providing that coverage and the potential for losing currently promised pension benefits. They note that public pensions – unlike Social Security – can invest in risky assets and thus can provide better benefits at lower cost.  This, of course, is a best-case alternative as losses among those risky assets could also increase pressure on pension finances.

There is nothing inconsistent about the two sides of these arguments; one set tends to focus on benefits, the other on costs.  They can be, and probably are, all true simultaneously.  There is also a constitutional issue that used to hang over the whole debate – whether the federal government has the right to tax the states and local government units in their roles as employers – but that seems resolved at this point.

Section II of this paper discusses the history and current status of Social Security coverage for SLGWs.   Section III discusses mandatory coverage in the context of Social Security funding and the federal budget.  Section IV discusses the issues in the context of state and local budgets, existing pension plans, and the risks and benefits to employees of those governments.  Section V concludes.

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Note: A revised version of this paper is forthcoming in The Journal of Retirement.

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In recent weeks, the Obama Administration has taken the two most important steps in nearly a decade to increase access to retirement savings for more than 55 million Americans who currently do not participate in a retirement saving plan.

The Treasury Department's myRA program, launched this month, will help new savers and the self-employed start accounts without risk or fees. And earlier this week, the Department of Labor clarified rules that will make it easier for states to create retirement savings plans for small business employees.

myRA

The new myRAs provide another way for new savers to build small nest eggs. They will also help consultants, contract employees, and part-time workers save for retirement or for emergencies. 

For employees, myRAs are payroll deduction savings accounts designed to meet the needs of new savers and lower income workers.  They have no fees, cost nothing to open, and allow savers to regularly contribute any amount.  Savings are invested in US Treasury bonds, so savers can’t lose principal, an important feature for low-income workers who might otherwise abandon plans if they face early losses.  Those who are not formal employees and thus lack access to an employer-sponsored plan can participate in myRA through direct withdrawals from a checking or other bank account. 

As the growing “gig economy” creates more independent workers, the myRA will be a valuable entry to the private retirement system.  These workers might otherwise retire on little more than Social Security. All workers can build myRA balances by redirecting income tax refunds into their accounts. Because a myRA is a Roth IRA (that is, contributions are made from after-tax income), savers can withdraw their own contributions at any time without penalties or tax liability.  

When a myRA reaches $15,000, it must be rolled into another account, and Treasury may make it possible for workers to transfer these savings into funds managed by one of several pre-approved private providers.  MyRAs won’t replace either state-sponsored plans or employer-related pension or retirement savings plans.  However, they will make it possible for new and lower-income savers as well as the self-employed to build financial security without risk or fees.  

State-Sponsored Retirement Savings Plans

The DOL announcement gave the green light to several state models, including Automatic IRAs, marketplace models, and Multiple Employer Plans.  About two dozen states are considering these plans and, so far, Illinois and Oregon have passed “Secure Choice” plans based on the Automatic IRA, while Washington State has passed a marketplace plan.

DOL’s proposed Automatic IRA rules (open for a 60 day comment period) would let states administer automatic enrollment payroll deduction IRAs provided that the plans meet certain conditions for selecting or managing the investments and consumer protections.  States would also have to require businesses to offer such a plan if they don’t already offer their employees a pension or other retirement savings plan. Companies that are not required to offer an Automatic IRA or other plan, but decide to join the state plan voluntarily could still be subject to ERISA. The Retirement Security Project at the Brookings Institution first designed the Automatic IRA, which was proposed by the Administration before being adopted by some states.

In a separate interpretation, DOL allowed states to offer marketplace plans without being subject to the Employee Retirement Income Security Act (ERISA).  These plans are essentially websites where small businesses may select pre-screened plans that meet certain fee or other criteria.  Under the DOL guidance, these marketplaces may include ERISA plans, but states cannot require employers to offer them.   However, if states sponsor a marketplace model, they could also require employers without other plans to offer Automatic IRAs.

Finally, DOL’s rules let states administer Multiple Employer Plans (MEPs), where individual employers all use the same ERISA-covered model plan.  MEPs are usually simplified 401(k)-type plans. Because the state would be acting on behalf of participating employers, it could assume some functions that would otherwise be the responsibility of the employer. These include handling ERISA compliance, selecting investments, and managing the plan.

The Retirement Security Project has issued a paper and held an event discussing ways states could create small business retirement savings plans. The paper is available here and the event is available here.

Together, the two initiatives—the new MyRA and the state-sponsored plans-- could greatly increase the number of American workers who’ll be able to supplement their Social Security benefits with personal savings.

       

       

       

       

There is a marriage gap in America. This is not just a gap in choices and actions, but in norms and attitudes. Each generation is more liberal, on average, when it comes to issues like premarital relationships, same-sex marriage, and divorce. But generational averages can obscure other divides, including ideology—which in many cases is a more powerful factor.

Take opinions on the most important prerequisites for marriage, as explored in the American Family Survey conducted earlier this year by Deseret News and the Center for the Study of Elections and Democracy (disclosure: I am an adviser to the pollsters). There is widespread agreement that it is best to have a stable job and to have completed college before tying the knot. But there is less agreement in the 3,000-person survey on other questions, including premarital cohabitation.

Living in sin, or preparing for commitment?

In response to the question of whether it is “important to live with your future spouse before getting married,” a clear gap emerges between those who identify as Democrats and those who identify as Republicans. This gap trumps the generational one, with younger Republicans (under 40) more conservative than Democrats over the age of 40:

The importance of family stability for a child’s wellbeing and prospects is well-documented, not least in Isabel Sawhill’s book, Generation Unbound. The question is not whether stability matters, but how best to promote it. To the extent that biological parents stay together and provide a stable environment, it doesn’t much matter if they are married. For children living with both biological parents, there is no difference in outcomes between those being raised by a married couple compared to a cohabiting couple, according to research by Wendy Manning at Bowling Green State University.

But people who marry are much more likely to stay together:

Marriage, at least in America, does seem to act as an important commitment device, a “co-parenting” contract for the modern world, as I’ve argued in an essay for The Atlantic, “How to Save Marriage in America.”

The varied meaning of “cohabitation”

Cohabitation can signal radically different situations. A couple who plan to live together for a couple of years, then marry, and then plan the timing of having children are very different from a couple who start living together, accidentally get pregnant, and then, perhaps somewhat reluctantly, get married.

There is some evidence that cohabitation is in fact becoming a more common bridge to marriage and commitment. First-time premarital cohabiting relationships are also lasting longer on average and increasingly turn into marriage: around seven in ten cohabiting couples are still together after three years, of whom four have married.

In the end what matters is planning, stability, and commitment. If cohabitation is a planned prelude to what some scholars have labeled “decisive marriages,” it seems likely to prove a helpful shift in social norms, by allowing couples to test life under the same roof before making a longer-term commitment. Sawhill’s distinction between “drifters” and “planners” in terms of pregnancy may also be useful when it comes to thinking about cohabitation, too.

      

Like many Brits, I’m reeling. Everyone knew that the "Brexit" referendum was going to be close. But deep down I think many of us assumed that the vote would be to remain in the European Union. David Cameron had no realistic choice but to announce that he will step down.

Mr. Cameron’s fall can be traced back to a promise he made in the 2010 election to cap the annual flow of migrants into the U.K. at less than 100,000, "no ifs, no buts."Membership in the EU means free movement of labor, so this was an impossible goal to reach through direct policy. I served in the coalition government that emerged from the 2010 election, and this uncomfortable fact was clear from the outset. I don’t share the contents of briefings and meetings from my time in government (I think it makes good government harder if everyone is taking notes for memoirs), but my counterpart in the government, Mr. Cameron’s head of strategy, Steve Hilton, went public in the Daily Mail just before this week’s vote.

Steve recalled senior civil servants telling us bluntly that the pledged target could not be reached. He rightly fulminated about the fact that this meant we were turning away much more skilled and desirable potential immigrants from non-EU countries in a bid to bring down the overall number. What he didn’t say is that the target, based on an arbitrary figure, was a foolish pledge in the first place.

Mr. Cameron was unable to deliver on his campaign pledge, and immigration to the U.K. has been running at about three times that level. This fueled anger at the establishment for again breaking a promise, as well as anger at the EU. In an attempt to contain his anti-European right wing, Mr. Cameron made another rash promise: to hold a referendum.

The rest, as they say, is history. And now, so is he.

Immigration played a role in the Brexit campaign, though it seems that voters may not have made a clear distinction between EU and non-EU inward movement. Still, Thursday’s vote was, at heart, a plebiscite on what it means to British. Our national identity has always been of a quieter kind than, say the American one. Attempts by politicians to institute the equivalent of a Flag Day or July Fourth, to teach citizenship in schools, or to animate a “British Dream” have generally been laughed out of court. Being British is an understated national identity. Indeed, understatement is a key part of that identity.

Many Scots, Welsh and Northern Irish feel a much stronger affinity to their home nation within the U.K. than they do to Great Britain. Many Londoners look at the rest of England and wonder how they are in the same political community. These splits were obvious Thursday.

Identity politics has tended in recent years to be of the progressive kind, advancing the cause of ethnic minorities, lesbians and gays, and so on. In both the U.K. and the U.S. a strongly reactionary form of identity politics is gaining strength, in part as a reaction to the cosmopolitan, liberal, and multicultural forms that have been dominant. This is identity politics of a negative kind, defined not by what you are for but what you are against. A narrow majority of my fellow Brits just decided that at the very least, being British means not being European. It was a defensive, narrow, backward-looking attempt to reclaim something that many felt had been lost. But the real losses are yet to come.

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Editor's Note: This piece originally appeared in the Wall Street Journal's Washington Wire.

       

       

       

       

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Japan’s presence in the Arctic is not new, but it has been limited mostly to scientific research. Japan has stepped up its engagement after it gained observer status to the Arctic Council and appointed its first Arctic ambassador in 2013. However, Japan has yet to flesh out a full-blown Arctic strategy that identifies the range of its national interests in the polar region and actionable strategies to achieve them. The Arctic offers Japan an opportunity to expand cooperation with the United States in an uncharted area, poses hard questions on how to interact with Russia in the post-Ukraine era, and creates the interesting proposition of whether China and Japan can cooperate in articulating the views of non-Arctic states.

On October 19, the Center for East Asia Policy Studies at Brookings hosted a panel of distinguished experts for a discussion on what components should be included in Japan’s Arctic strategy, ranging from resource development, environmental preservation, and scientific research, to securing access to expanding shipping lanes and managing a complex diplomatic chessboard. 

Join the conversation on Twitter using #JapanArctic

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• Charting Japan's Arctic strategy

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What makes the Trans-Pacific Partnership (TPP) consequential?

Since the onset of the 21st century, countries from every corner of the world have vigorously negotiated free trade agreements (FTAs) based on the principle of preferential market access (as opposed to the most-favored nation obligation of the WTO). This has resulted in a veritable avalanche of such trade deals, with close to 400 FTAs notified to the WTO in the past 20 years. If the negotiation of preferential trade agreements is now the dominant trend in the trading regime, and almost no country has escaped contagion from the FTA syndrome, why does one agreement in particular—the TPP—remain the focal point of policy debates on trade?

Chart 1. Multilateral trade regimes and FTA proliferation

The TPP generates most attention because it has spurred the emergence of mega trade agreements (as compared to the mostly small bilateral trade deals that had characterized the FTA wave), and has offered a new platform to advance the trade agenda as negotiations on the Doha Round continue gridlocked. The TPP has come a long way from its humble beginnings as a trade grouping of four small open economies (Brunei, New Zealand, Chile, and Singapore). Today, it comprises 12 nations, covers 26 percent of world trade, and is expected to generate global income gains in the neighborhood of $492 billion by 2030.

Chart 2. From humble beginnings to mega trade deal

But the significance of the TPP is not to be grasped by numbers alone. Consider the following defining traits of this trade agreement:

1. Its high level of ambition for tariff liberalization vowing to disallow sectoral carve-outs. While it is true that sensitive sectors asserted their political weight by deferring or limiting tariff elimination (e.g., autos for the United States and five agricultural commodities for Japan), the commitment of TPP countries to eventually eliminate 99-100 percent of tariff rates is indeed impressive. Japan does stand out for a lower level of committed tariff elimination (95 percent); but again this is the highest level of liberalization that Japan has ever committed to in any trade negotiation.
2. Its comprehensive set of rules to target non-tariff barriers by introducing disciplines on issues such as regulatory coherence, state-owned enterprises, competitiveness, supply chains, etc. With 30 chapters and over 5,000 pages of text, grasping the reach of TPP rules will certainly take time. However, a quick glance does reveal novel, and needed, disciplines in important areas of the economy. For example, the e-commerce chapter establishes a binding obligation for governments to allow free data flows, disallows forced localization of data servers (except for the financial sector), and mandates that all countries must provide a legal framework to protect personal information. Another important innovation is the TPP provision that governments cannot require the transfer of source code from private companies operating in their market.
3. Its expansive vision as an Asia-Pacific platform with aspirations to set global standards. Its open architecture with a docking mechanism to encourage further member expansion and its explicit aim to establish a trans-regional platform that bridges Asia and North and South America are strong selling points for the TPP. It undercuts the oft-mentioned fear of using preferential trade agreements to create closed-off regions, and it gives its rules and standards the opportunity to disseminate far and wide.
4. Last but not least, the TPP has emerged as a central policy priority for both the U.S. and Japan to hone their international economic competitiveness and achieve broader foreign policy goals. In the area of foreign economic policy, the TPP is one of the most compelling frameworks to encourage China to deepen its market reforms and sign on to more ambitious liberalization commitments. The TPP, therefore, has emerged as a central arena for the interaction of the three giants of the world economy.

The TPP’s effect for the United States and Japan

The United States as a Pacific power

The U.S. expects to reap important economic benefits from the TPP. It is a trade agreement that taps into the areas of competitive strength of the American economy: agricultural exports, trade in services, the digital economy, to name a few. Econometric studies put the expected income gains of the TPP for the U.S. in the order of $131 billion per year, and to the extent that the TPP becomes a global standard, these gains will grow. Indeed, the TPP is the centerpiece of the American trade agenda. Its success is required for continued momentum in the on-going trans-Atlantic trade negotiations, but it could also influence other important trade initiatives. For example, TPP disciplines on services and state-owned enterprises are expected to influence deliberations on the Trade in Services Agreement, a plurilateral trade negotiation carried out under the aegis of the WTO.

From the point of view of global governance, the TPP is a litmus test of the U.S. ability to provide leadership at a time of great complexity in the world economic order: one where supply chains have emerged as a main driver of production and trade, where emerging economies are increasingly vocal in the management of the global economy, and where the test of updating Bretton Woods institutions looms large. Through the TPP, the U.S. can display its convening power to negotiate novel trade rules, to devise new institutional forms that complement and spur on the multilateral regime, and to be proactive and not just reactive to initiatives from rising economic powers.

But the TPP is also a pillar of U.S. Asia policy, one that solidifies the U.S. commitment to remain an engaged Pacific power. This trade agreement increases the appeal of the rebalancing policy by defining it not just as a reorientation of military resources toward a region undergoing a significant power transition; but also as the pursuit of a common endeavor: furthering economic interdependence with rules that match the realities of the 21st century economy, and potentially establishing a bridge toward China with the prospect of TPP membership.

Japan is an essential partner for the U.S. to achieve these important goals. Japan came late to the TPP negotiations (in the summer of 2013), but it transformed the economic and political significance of this deal. Japan’s participation allowed the TPP to qualify as a mega trade agreement. For the U.S. alone, the projected economic gains with Japan on board tripled. This is not surprising given the size of the Japanese market and the fact that the U.S. and Japan do not have a bilateral trade agreement; nor has Japan ever accepted these levels of liberalization. Moreover, prior to Japan joining the TPP there were doubts as to whether this could indeed become an Asia-Pacific platform of economic integration since no major Asian economy was participating. Japan’s entry put those objections to rest.

Japan as a reviving power

For Japan as well, the TPP negotiations have had salutary effects on its trade diplomacy and on the pursuit of central domestic and foreign policy priorities. Prior to joining the TPP, Japan’s trade strategy had achieved modest results: it lagged behind its peer competitors in negotiating an FTA network that covered a substantial share of its trade, it had faced difficulty in persuading Southeast Asian countries to adopt many WTO+ rules, it had received the cold shoulder from the U.S. and Europe as it proposed the negotiation of trade agreements, and remained deadlocked with China over the membership configuration of an East Asian trade grouping. The TPP altered the parameters of Japanese trade policy. It allowed the country to negotiate preferential access to main markets of destination, to disseminate next frontier trade rules, and to undertake concurrent mega trade negotiations. As a reaction to Japan’s courting of TPP membership, China recalibrated its trade policy to speed up the launch of trilateral trade negotiations in Northeast Asia and was now amenable to a 16-member trade grouping upholding the principle of ASEAN centrality (Regional Comprehensive Economic Partnership or RCEP), and the Europeans also came to the negotiation table.

As a full participant in the mega FTA movement, Japan can aim high in order to pursue signature objectives such as:

• Negotiate deep integration FTAs that enhance the international competitiveness of Japanese global supply chains. An assessment of Japan’s core competencies in the 21st century should start with the recognition that a significant share of industrial capacity has been relocated overseas. On-shoring of manufacturing operations is not a viable goal given projected demographic trends. Rather, the aim should be to sustain and strengthen Japan’s role in global supply chains (the leading force of international production and trade today). Japan’s international diplomacy has a role to play here by negotiating deep FTAs that meet the needs of fragmented production chains. Additionally, deep FTA commitments will also help Japan address its own domestic inefficiencies such as the modest liberalization of the services sector.
• Lock-in structural reforms. One of the main benefits of linking the domestic structural reform agenda to international trade commitments is that it will be harder to roll back the reforms if and when political circumstances change (this is indeed a major lesson of the failure to institutionalize Prime Minister Junichiro Koizumi’s reforms). Importantly, the TPP negotiations do not conform to the old-style gaiatsu pattern where a reluctant Japan would deflect U.S. pressure for it to change its ways. This time Japan has eagerly sought to be at the TPP table and has—of its own accord—identified the synergies between the new trade commitments and its own efforts to reform the domestic economy.
• Manage the transition from “regime-taker” to “regime-maker.” With the stagnation of the WTO, we have moved to a system of decentralized competition whereby different clusters of countries seek to define the standards for economic integration. The costs of a passive trade policy are much higher today than in a most favored nation (MFN) world where preferential trade agreements were the exception and not the rule. The expectation of steady liberalization benefits through successive multilateral trade rounds has been sharply revised. Therefore, countries that want to avoid the discriminatory effects of existing preferential trade deals and to improve access to important markets through additional elimination of tariffs and the adoption of rules that address behind-the-border barriers have resorted to an active FTA diplomacy. More broadly, Japan has much to win from displaying leadership in international economic governance, in a manner that resonates with the goals of the Abe administration to play a proactive role in world affairs.

Conclusion of TPP talks: Significance and impact

For all the shared interests between the U.S. and Japan in the TPP project, negotiations over long divisive market access terms proved difficult and frustratingly long. Of course, a host of other issues also kept the larger TPP membership apart. Biologics especially was the last topic to close in the final TPP ministerial held in Atlanta in October 2015, and negotiations went to the wire. Despite all these difficulties, the ability to strike a TPP deal last fall represents a big win for the trade regime which has not seen a success of this magnitude in two decades. Since its creation, the WTO has not updated the rules of international trade and investment, and the Doha Round lingers on life support. Many were skeptical that a major trade negotiation tackling front and center the complex and unwieldy behind-the-border agenda could succeed. This is the most powerful message coming from Atlanta: it can be done.

With a TPP deal in hand there is greater hope that we can manage the tectonic changes in international trade governance. The transformation of the trade agenda (increasingly about regulatory matters) and the limitations of the WTO as a negotiation forum, have called into question the pure multilateral ideal—one set of binding rules for 150+ countries. Instead, the center of action is now on what we call “variable geometry” arrangements where subsets of countries negotiate next-frontier rules: the plurilaterals in the WTO and the preferentials through mega trade agreements. The emerging system for trade governance is not risk-free, and much effort will be required to forestall potential dangers: fragmentation (if TPP-like standards do not disseminate widely) and exclusion (if less developed countries are bypassed by the FTA wave).

Moreover, the TPP deal opens a new and promising chapter in U.S.-Japan relations. It is certainly more than a U.S.-Japan trade agreement—it represents the ability of 12 countries at varying levels of development and with very different regulatory regimes to agree on the most substantive trade liberalization to date. But it is also true that at the core of the TPP, the U.S. and Japan as the largest and most developed economies have acted as an engine of negotiations. The TPP marks a milestone in U.S.-Japan relations, as an effective instance of cooperation to upgrade the international economic architecture. In the TPP, the U.S. and Japan are on close alignment on the rules area of the talks and were able to reach an agreement on market access issues that in the past had proven intractable.

Ratification, reform, and reach

None of these effects will be long lasting nor will they reach their full potential, if TPP countries (and the U.S. and Japan in particular) do not double down on the next crucial steps. For simplicity sake, these can be dubbed the three “Rs” of ratification, reform, and reach.

Ratification

Ratification rules in the TPP require that six countries representing 85 percent of combined GDP approve the agreement before it enters into force. Therefore, to meet this numerical requirement both the U.S. and Japan must ratify. However, for the U.S., TPP ratification will represent a steep political battle in the midst of an American presidential election year. Despite public opinion polls showing that most Americans see in international trade an opportunity, the politics of trade agreements are fractious. Long-standing opposition by environmental groups and unions to trade agreements has resulted in their active mobilization against the TPP. And the debate on the merits of trade agreements has only become more heated as critics suggest that trade globalization is to be blamed for growing income inequality and the erosion of state regulatory powers.

For both national parties, the TPP is a divisive issue. While President Barack Obama has made TPP negotiation and ratification a central priority of his administration, Democrats in Congress have not backed his trade initiative in large numbers, in part due to the opposition of the party’s traditional base, labor unions. The internal dynamics of the Republican Party have shifted dramatically, complicating the odds for the TPP. The Republican Party has become less cohesive with the emergence of the Tea Party wing determined to deny Obama a legacy-making trade agreement. The support of key Republican figures in the Senate has also waned due to dissatisfaction over the tobacco carve-out from investor-state dispute settlement and the exclusivity period for biologics. And the business community has also criticized these provisions, offering only qualified support for the TPP deal.

The U.S. has yet to fail in ratifying a negotiated trade agreement. And a vote down on the TPP would be singularly costly for the credibility of U.S. foreign policy and the evolution of the international trade regime.

Reform

One of the most powerful benefits of trade agreements is the ability of governments to use them as commitment devices to implement needed economic changes. Reform is in fact the crucial issue for Japan as it tries to leave behind stagnant growth. Economic revitalization certainly goes beyond agricultural reform, to encompass the host of productivity-enhancing measures across all areas of the economy, the internationalization of services, the promotion of inward direct investment, and the further upgrading of regional and trans-regional production networks.

Yet, farming countermeasures adopted in the wake of the TPP deal have raised doubts about the government’s resolve to transform its agricultural sector. Japan’s TPP market access commitments do include a 56,000-ton import rice quota (to grow eventually to 78,400 tons). But the government promptly announced an increase in stockpiling purchases to match the TPP quota, effectively preventing a drop in the price of rice and market adjustment. This artificial support preempts the modernization of the agricultural sector since it enables part-time farmers to continue operating in tiny plots, hindering the emergence of commercial farming. The government also submitted a generous 2016 supplementary budget with 312 billion yen earmarked for agricultural TPP countermeasures. But informed experts question its impact in boosting farming competitiveness since public works allocations still loom large (30 percent of outlays will go to land reclamation projects).

Just as the electoral cycle has not facilitated TPP ratification in the U.S., the looming Japanese Upper House election in July is not conducive to moving past prior trade compensation practices.

Reach

The release of the TPP text has clarified a very important point: membership can be extended not only to APEC economies but also to other countries that are willing to meet TPP disciplines. Enlargement will be critical to avoid the above-mentioned risks of fragmentation and exclusion by helping disseminate TPP standards. In the short and medium term, the conclusion of the TPP talks is expected to have two main effects: increase the list of potential applicants, and encourage a higher level of ambition among on-going trade negotiations.

The number of economies expressing an interest in joining the TPP has grown to include South Korea, Taiwan, Indonesia, Thailand, the Philippines, Colombia, and Costa Rica, among others. Regarding the second wave of accession the key issue will be readiness to undertake the ambitious liberalization commitments of the TPP, and the list of prospective applicants shows wide variation on this score. The conclusion of TPP talks also creates an incentive for the updating of existing FTAs and/or scaling up the level of ambition in ongoing trade negotiations, as countries outside the TPP want to secure export markets, attract foreign direct investment, and embed their companies in global supply chains.

In the long run, the key challenge will be to devise an effective strategy to engage emerging economies, such as China, India, and Brazil. This is still the gaping hole in the U.S. plans to develop trans-Pacific and trans-Atlantic trade groupings. Certainly, putting in place the TPP and the Transatlantic Trade and Investment Partnership is the first step in such strategy since it changes the incentive structure for these countries to entertain further market liberalization. But at the end of the day, these emerging economies must reach the determination that it is in their national interest to abide by these economic standards, and find the political will to tackle vested interests. This is a tall order indeed.

The most pressing question may well be how China will position itself vis-à-vis the TPP. Can we expect it to act on past precedent and seek TPP accession just as in the past it used WTO membership to advance economic reforms? Or will it choose instead to champion the negotiation of a Free Trade Area of the Asia-Pacific (FTAAP) after both the TPP and RCEP materialize, in order to play a more proactive role in the international economic architecture—more in conformance with the recent launch of the Asian Infrastructure Investment Bank?

The recently struck TPP agreement underscores the potential of furthering U.S.-Japan cooperation to supply needed international economic governance. However, the overview of remaining challenges also shows that clinching a TPP deal is just the first step.

This article originally appeared in the March/April 2016 issue of Economy, Culture & History Japan SPOTLIGHT Bimonthly.

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• The high stakes of TPP ratification: Implications for Asia-Pacific and beyond

       

       

       

       

       

       

It was fifty years ago that President Kennedy famously launched the Peace Corps, bringing international volunteerism to its true prominence in this country. Today, a diverse set of international volunteer efforts are supported by federal, state and local governments and through partnerships with NGOs. These efforts have been particularly effective at engaging two segments of our population: students or recent graduates; and retirees or those pursuing second careers.

But the segment that holds perhaps the greatest promise for global development has – for the most part – been underserved. We’re referring to mid-career employees at corporations: particularly large, globally-integrated enterprises. These corporate employees have what is most required for a successful international service engagement: cutting edge skills, deep expertise and relevant strategic knowhow.

Why has this resource largely gone untapped? Because a clear connection to business strategy and return on investment has been made in only a few cases.

There exists a triple benefit from corporate-sponsored international volunteerism. Local communities receive premier business and consulting services. Employees enrich their skill sets by working in international markets and leadership experience from working with diverse teams of colleagues and local partners. And corporations gain experienced leaders, insights into new markets, and brand and reputation enhancement that can ultimately create new global business opportunities.

IBM’s Corporate Service Corps (CSC) was developed with those benefits in mind. Often referred to as a “corporate peace corps,” CSC provides IBM employees with unique opportunities to develop and explore their roles as global citizens. Through one month deployments, IBM’s top talent works in teams of roughly 12 to provide in-depth business and IT consulting support to local entrepreneurs and small businesses, nonprofit organizations, educational institutions and governmental agencies. Already in its third year, Corporate Service Corps has deployed 700 IBM employees from 47 countries on 70 teams to 14 countries including China, Nigeria, Romania, Poland and Vietnam. The result is a leadership development program that has made strides in answering the economic, social and environmental sustainability challenges faced by many emerging markets.

We’re pleased to see that other organizations are adopting similar programs. In fact, the U.S. Agency for International Development (USAID) has announced a partnership with IBM to accelerate international volunteerism by leveraging the Corporate Service Corps model. USAID and IBM are creating an Alliance for International Corporate Volunteerism Program to help smaller companies and organizations eager to implement their own corporate peace corps, but lacking the resources and scale to do so.

As we look to help expand international service opportunities, there are several best practices to share based on IBM’s experience.

• In the case of executives, keep the duration of the projects relatively short. This allows for better access to a company’s top talent because rather than interrupting a career, you are asking someone to make service an integral part of it.
• Continue the relationship. While the duration of an individual’s participation may be short, your involvement with the region should be long-term and sustainable. It is not a vendor relationship; it is a partnership.
• Identify the right projects. The most successful development efforts take time and effort to scope out and plan. Partner with NGOs early and often to find the best local opportunities for growth and impact.
• Carefully mix and match skills when forming a team of service participants. This allows them to deliver results quickly and build capacity on the local level.
• Take advantage of technology. Technology can be a powerful tool to help train and prepare service participants. Technology like social networking can also help build a community of service participants and allow them to share their experiences.

The world has changed significantly over the last 50 years. Corporate-sponsored international volunteerism is now building upon the government’s original architecture of the Peace Corps. The same conditions and capabilities that have made the world “flat”, allowing its systems to become smarter, are also opening up new paths for citizen diplomacy. Those seeking out international volunteer service opportunities are no longer limited to government guidance and other official avenues into long-term engagements.

In an interconnected world, citizens have the choice of participating more directly in service through short-term assignments that will not disrupt their careers but enrich them. And it is these mid-career volunteers who possess the skills to make such assignments successful. Forward-thinking corporations with a clear understanding of the benefits of international volunteer programs can empower meaningful citizen diplomacy, contributing to sustainable development practices and building partnerships in a globalized world.

      

Volunteer, civil society and governmental delegates from 22 nations gathered in Johannesburg this month for the Southern Africa Conference on Volunteer Action for Development. The conference was co-convened by United Nations Volunteers (UNV) and Volunteer and Service Enquiry Southern Africa (VOSESA), in observance of the 10th anniversary of the United Nations International Year of Volunteers (IYV).

Naheed Haque, deputy executive coordinator for United Nations Volunteers, gave tribute to the late Nobel Laureate Wangari Mathai and her Greenbelt tree planting campaign as the “quintessential volunteer movement.” Haque called for a “new development paradigm that puts voluntarism at the center of community-centered sustainable development.” In this paradigm, human happiness and service to others would be key considerations, in addition to economic indicators and development outcomes including health and climate change.  

The international gathering developed strategies to advance three key priorities for the 15 nations in the Southern Africa Development Community (SADC): combating HIV/ AIDS; engaging the social and economic participation of youth; and promoting regional integration and peace. Research data prepared by Civicus provided information on the rise of voluntary service in Africa, as conferees assessed strategies to advance “five pillars” of effective volunteerism: engaging youth, community involvement, international volunteers, corporate leadership and higher education in service.

VOSESA executive director, Helene Perold, noted that despite centuries of migration across the region, the vision for contemporary regional cooperation between southern African countries has largely been in the minds of heads of states with “little currency at the grassroots level.” Furthermore, it has been driven by the imperative of economic integration with a specific focus on trade. Slow progress has now produced critiques within the region that the strategy for integrating southern African countries cannot succeed on the basis of economic cooperation alone. Perold indicated that collective efforts by a wide range of civic, academic, and governmental actors at the Johannesburg conference could inject the importance of social participation within and between countries as a critical component in fostering regional integration and achieving development outcomes. 

This premise of voluntary action’s unique contribution to regional integration was underscored by Emiliana Tembo, director of Gender and Social Affairs for the Common Market of Eastern and Southern Africa (COMESA). Along with measures promoting free movement of labor and capital to step up trade investment, Tembo stressed the importance of “our interconnectedness as people,” citing Bishop Desmond Tutu’s maxim toward the virtues of “Ubuntu – a person who is open and available to others.”

The 19 nation COMESA block is advancing an African free-trade zone movement from the Cape of South Africa, to Cairo Egypt. The “tripartite” regional groupings of SADC, COMESA and the East Africa Community are at the forefront of this pan-African movement expanding trade and development.

Preliminary research shared at the conference by VOSESA researcher Jacob Mwathi Mati noted the effects of cross border youth volunteer exchange programs in southern and eastern Africa. The research indicates positive outcomes including knowledge, learning and “friendship across borders,” engendered by youth exchange service programs in South Africa, Mozambique, Tanzania and Kenya that were sponsored Canada World Youth and South Africa Trust.   

On the final day of the Johannesburg conference, South Africa service initiatives were assessed in field visits by conferees including loveLife, South Africa’s largest HIV prevention campaign. loveLife utilizes youth volunteer service corps reaching up to 500,000 at risk youths in monthly leadership and peer education programs. “Youth service in South Africa is a channel for the energy of youth, (building) social capital and enabling public innovation,” Programme Director Scott Burnett stated. “Over the years our (service) participants have used their small stipends to climb the social ladder through education and micro-enterprise development.”

Nelly Corbel, senior program coordinator of the John D. Gerhart Center for Philanthropy and Civic Engagement at the American University in Cairo, noted that the Egyptian Arab Spring was “the only movement that cleaned-up after the revolution." On February 11^th, the day after the resignation of former Egyptian President Hosni Mubarak, thousands of Egyptian activists  removed debris from Tahrir Square and engaged in a host of other volunteer clean-up and painting projects. In Corbel's words: “Our entire country is like a big flag now,” from the massive display of national voluntarism in clean-up projects, emblematic of the proliferation of youth social innovation aimed at rebuilding a viable civil society.

At the concluding call-to-action session, Johannesburg conferees unanimously adopted a resolution, which was nominated by participating youth leaders from southern Africa states. The declaration, “Creating an Enabling Environment for Volunteer Action in the Region” notes that “volunteering is universal, inclusive and embraces free will, solidarity, dignity and trust… [creating] a powerful basis for unity, common humanity, peace and development.”  The resolution, contains a number of action-oriented recommendations advancing voluntarism as a “powerful means for transformational change and societal development.” Policy recommendations will be advanced by South African nations and other stakeholders at the forthcoming Rio + 20 deliberations and at a special session of the United Nations General Assembly on December 5, the 10^th anniversary of the International Year of the Volunteer.

      

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.

       

       

The headlines seem pretty good. Unemployment fell a tick to 7.3 percent. And jobs growth continued, with payrolls expanding by 169,000 in August, which is just shy of the 175,000 new jobs that analysts were expecting.

But beneath the headline: blech!

The most important news was the revisions to what we had previously thought was a healthy and perhaps self-sustaining recovery. Instead, jobs growth in July was revised from 162,000, to a weak 104,000, and June was also revised downward. Taken together, this month's revisions means we've created 74,000 fewer jobs than previously believed. And the previous jobs report subtracted another 26,000 jobs through revisions. Moreover, for reasons that remain a mystery, revisions have tended to be pro-cyclical, meaning that the healthy recovery we thought we were having might have been expected to yield further upward revisions. All this means that analysts are hastily revising their views.

The other bad news comes from the household survey, where employment fell 115,000, leading the employment-to-population ratio to decline by 0.1 percentage points. So the decline in the unemployment rate isn't due to folks getting jobs; instead, it's due to people dropping out of the labor force.

I have two simple metrics I use to measure the "underlying" pace of jobs growth. The first puts 80% weight on the (more accurate) payrolls survey, and 20% weight on the noisier household survey. That measure suggests employment grew by only 112,000 in August. The alternative is to focus on the 3-month average of payrolls growth, which suggests we're creating slightly around 148,000 jobs per month.

Bottom line: This report says that we're barely creating enough jobs to keep the unemployment rate falling from its current high levels. Policymakers have been looking for a signal that the recovery has become self-sustaining. This report doesn't provide it. And until we're confident that the recovery will keep rolling on, we should delay either any monetary tightening, further fiscal cuts, and definitely postpone the legislative shenanigans that Congress is threatening.

       

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.

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Editor's Note: This article was originally published in Pediatrics, a subscription-only journal. To obtain a subscription or log in to access the full article, click here.

ABSTRACT

Building a strong foundation for healthy development in the early years of life is a prerequisite for individual well-being, economic productivity, and harmonious societies around the world. Growing scientific evidence also demonstrates that social and physical environments that threaten human development (because of scarcity, stress, or instability) can lead to short-term physiologic and psychological adjustments that are necessary for immediate survival and adaptation, but which may come at a significant cost to long-term outcomes in learning, behavior, health, and longevity. Generally speaking, ministries of health prioritize child survival and physical well-being, ministries of education focus on schooling, ministries of finance promote economic development, and ministries of welfare address breakdowns across multiple domains of function. Advances in the biological and social sciences offer a unifying framework for generating significant societal benefits by catalyzing greater synergy across these policy sectors. This synergy could inform more effective and efficient investments both to increase the survival of children born under adverse circumstances and to improve life outcomes for those who live beyond the early childhood period yet face high risks for diminished life prospects.

Read the full article at Pediatrics »

       

       

       

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On October 17, the Brookings Project on International Order and Strategy hosted a discussion with Brookings Senior Fellow Robert Kagan and MIT Professor Barry Posen on U.S. grand strategy. Amid a background of seeming geopolitical upheaval, the discussion focused on whether the United States should pursue a strategy that seeks to maintain U.S. pre-eminence and global leadership or whether the United States can or must adopt a more restrained posture.

In his May 2014 New Republic essay "Superpowers Don't Get to Retire," Kagan argued that the United States has an enduring responsibility and capacity to shape the world order.

Posen is the Ford international professor of political science and director of the security studies program at MIT. He is the author of the new book, Restraint: A New Foundation for U.S. Grand Strategy (Cornell University Press, 2014). Posen argues that consistent U.S. overreaching has led to numerous failures and unexpected problems and cannot be sustained. Posen urges the United States to adopt a strategy of restraint in the future use of U.S. military strength.

Brookings Fellow Jeremy Shapiro moderated the discussion.

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• U.S. Grand Strategy: World Leader or Restrained Power?

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• Uncorrected Transcript (.pdf)

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On October 17, the Brookings Institution’s Project on International Order and Strategy hosted two of the most prominent thinkers on American grand strategy to discuss whether Washington should remain forward-leaning in its posture, or if it should adopt a more restrained approach to global engagement.

The event was moderated by Brookings Foreign Policy Fellow Jeremy Shapiro, and featured a debate between Brookings Foreign Policy Senior Fellow Robert Kagan and Barry Posen, Ford International Professor at Massachusetts Institute of Technology.

Kagan argued that the United States has an enduring responsibility and capacity to shape the world order and must remain actively engaged abroad to prevent the international order from collapse. Posen, on the other hand, warned against American overreach in foreign policy and urged Washington to embrace restraint, focusing on its own national security interests and limiting engagement – particularly military - abroad.

In their discussion of the Middle East, both scholars sought to define American regional interests with greater precision. Posen argued that “affective” relationships, such as those with Israel, do not explain the U.S. defense budget dedicated to the region or contingency plans for the region. Posen also disputed the view that oil is the primary driver of U.S. regional policy, suggesting that threats to major suppliers could be managed with a less robust regional security commitment than Washington has traditionally maintained.

Kagan argued that President Obama is more intellectually inclined toward Posen’s strategy of restraint than most of his predecessors, and yet he too has been drawn into the Middle East. “It can’t just be pure stupidity that has had the United States involved in the Middle East as consistently as it has been for almost 70 years now, taking the place of the previous powers that had been involved in the Middle East,” he said.

Posen discussed U.S. efforts against the Islamic State group (also called ISIS or ISIL). He noted that President Obama’s rhetoric on ISIS has gone beyond what is prudent, describing the strategy as one of “containment that’s augmented by the promise of future counter-offensives and destruction.” Washington’s current strategy, Posen argued, has demobilized allies by enabling them to skirt responsibility for the crisis.

Posen and Kagan differed in their interpretations of the track record of American interventions in the region. Posen criticized American understanding of the causes and effects of intervention, saying that it is easier to oust a government than to generate internal consensus or transform a country into a stable democracy. By contrast, Kagan argued that the U.S. has never invaded a Middle Eastern country with the purpose of rearranging domestic politics.

There was little discussion of terrorism and nuclear proliferation, though Posen identifies these two threats as major items on which the U.S. should remain engaged. More information about Posen’s arguments can be found in his new book, Restraint: A New Foundation for U.S. Grand Strategy (Cornell University Press, 2014). Kagan’s argument for continued pre-eminence and engagement in grand strategy can be found in his influential May 2014 New Republic essay “Superpowers Don’t Get to Retire.”

      

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As President Obama's second term winds down and the 2016 presidential election draws ever closer, the United States finds itself involved in two wars and other global hotspots continue to flare. As is often the case, defense and national security will be critical topics for the next president. Questions remain about which defense issues are likely to dominate the campaigns over the coming months and how should the next president handle these issues once in office. In addition, with the defense budget continuing to contract, what does the future hold for U.S. military and national security readiness, and will those constraints cause the next president to alter U.S. strategy overseas?

On February 1, the Center for 21st Century Security and Intelligence at Brookings hosted an event examining defense and security options for the next president. Panelists included Mackenzie Eaglen of the American Enterprise Institute, Robert Kagan of Brookings, and James Miller, former undersecretary for policy at the Department of Defense. Brookings Senior Fellow Michael O’Hanlon, author of “The Future of Land Warfare” (Brookings Institution Press, 2015), moderated the discussion.

 

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• Defense strategy for the next president

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• Uncorrected transcript (.pdf)

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