On March 5, Chinese President Xi Jinping spoke to the Shanghai delegates to the National People’s Congress (NPC) session in Beijing. China’s top leaders use these side meetings to convey policy guidance on a range of issues, and Xi used this particular one to offer his perspective on relations with Taiwan. There has been some nervousness in the wake of the January 16 elections, which swept the opposition Democratic Progressive Party (DPP) to power in both the executive and legislative branches. Because the Beijing government has always suspected that the fundamental objective of the DPP is to permanently separate Taiwan from China, observers were waiting expectantly to hear what Xi would have to say about Taiwan.

Well before the March 5 speech, of course, Xi’s subordinates responsible for Taiwan policy had already laid out what Taiwan President-elect Tsai Ing-wen and her party would have to do to prevent cross-Strait relations from deteriorating, and they continued to emphasize those conditions after Xi’s speech. But analysts believed that Xi’s own formulation would be the clearest indicator of Beijing’s policy. He is, after all, China’s paramount leader, and his words carry a far greater weight than those of other Chinese officials.

This is what Xi said to the Shanghai NPC delegation about Taiwan [translation by the author, emphasis added]:

Compatriots on the two sides of the Strait are blood brothers who share a common destiny, and are people for whom blood is thicker than water…Our policy towards Taiwan is correct and consistent, and will not change because of a change in [who heads] the Taiwan authorities. We will insist upon the political foundation of the “1992 consensus,” and continue to advance cross-Strait relations and peaceful development…If the historical fact of the “1992 consensus” is recognized and if its core connotation is acknowledged, then the two sides of the Strait will have a common political basis and positive interaction [virtuous circle] can be preserved. We will steadily push forward cross-Strait dialogue and cooperation in various fields, deepen cross-Strait economic, social, and financial development, and increase the familial attachment and welfare of compatriots [on both sides], close their spiritual gap, and strengthen their recognition that they share a common destiny. We will resolutely contain the separatist path of any form of Taiwan independence, protect state sovereignty and territorial integrity, and absolutely not allow a repetition of the historical tragedy of national separation. This is the common wish and firm intention of all Chinese sons and daughters, and is also our solemn pledge and obligation to history and to the people. The fruits of cross-Strait relations and peaceful development require the common support of compatriots on the two sides; creating a common and happy future requires the common effort of compatriots on the two sides; and realizing the great revival of the Chinese nation requires that compatriots on the two sides join hands to work with one heart.

The italicized sentences are key: They state what the new DPP government should do if it wishes to maintain healthy cross-Strait relations and affirms Beijing’s resolve to oppose any behavior it doesn’t like. Xi didn’t threaten specific actions, but he probably didn’t have to. As always, Beijing reserves the right to decide what DPP attitudes and actions constitute separatism and a quest for Taiwan independence. 

Xi didn’t threaten specific actions, but he probably didn’t have to.

Some background

There are two important points of reference contextualizing this statement from Xi. 

Xi on November 7, 2015. First, there are his reported remarks on the future of cross-Strait relations during his unprecedented meeting with current Taiwan president Ma Ying-jeou in Singapore last November 7. At that time, Xi first appealed to ethnic solidarity and national unity, as he did again on March 5. He asserted that the stakes to end the state of division between Mainland China and Taiwan were very high because it was a critical part of how he views rejuvenating the Chinese nation—a theme he repeated to the Shanghai delegation. 

Xi said Taiwan, under the new government, could either continue to follow the path it has walked for the last seven-plus years under the current Ma Ying-jeou administration (“peaceful development”), or it could take the path of renewed “confrontation,” “separation,” and zero-sum hostility. If Taiwan wished to follow the first path, Xi insisted, its leaders must adhere to the 1992 consensus and oppose “Taiwan independence.” Without this “magic compass that calms the sea,” Xi warned, “the ship of peaceful development will meet with great waves and even suffer total loss.” He was willing to overlook the DPP’s past positions and actions, but only if it identified with “the core connotation of the 1992 consensus” (a reference to the PRC view that the Mainland and Taiwan are both within the territorial scope of China, a view the DPP contests). Xi alluded to the “core connotation” on March 5 but did not re-state its content. Xi then made clear that if “disaster” occurred, it would be the DPP’s fault—it was therefore up to Tsai, he implied, to accommodate to Beijing’s conditions. 

In language and tone, Xi’s Singapore statement was far more strident and alarmist than what he said on March 5. He made that first statement more than two months before the election, when perhaps he thought that tough talk would weaken Tsai’s and the DPP’s appeal to voters. If that was his objective, he failed. The tone of his March 5 remarks was more modulated, but the substance was the same. Beijing would define the crossroads that Taiwan faced, and it was up to Tsai to take the right path—at least what it defined the right path.

Beijing would define the crossroads that Taiwan faced, and it was up to Tsai to take the right path—at least what it defined the right path.

Tsai on January 21, 2016. Second, there is an interview that Tsai gave to Liberty Times (Tzu-yu Shih Pao) on January 21—less than a week after the elections—in which she sought to meet Beijing partway. For the first time, she used the phrase “political foundation” and said it had four elements: 

• “The first is that the SEF-ARATS discussions of 1992 are a historical fact and both sides had a common acknowledgment to set aside differences and seek common ground;” 
• “The second is the Republic of China’s current constitutional order.”
• “The third is the accumulated results of the more than 20 years of cross-strait negotiations, exchanges, and interactions;” and
• “The fourth is Taiwan’s democratic principles and the will of the Taiwanese people to make sure that Taiwan voters understood the limits to his tolerance.”

So, Tsai accepts the 1992 meetings as a historical fact and acknowledges that the two sides did reach an agreement of sorts, but does not accept the 1992 consensus itself as a historical fact. She spoke more about process than content. The Republic of China’s “current constitutional order” is also part of the foundation, which some have read as Tsai’s acceptance that the Mainland and Taiwan are both parts of China’s territory (Beijing’s “core connotation”)—I, however, am not so sure. Tsai did not reject Xi’s requirements out of hand, but she framed them in her own way. 

So are ties growing friendlier?

Was Xi’s tonal moderation on March 5—relative to November 7—an indicator that mutual accommodation was going on? Perhaps. But the fact that the November meeting was ostensibly private while the March speech was public might explain the difference. 

Moreover, the stream of Chinese articles and statements since March 5 that explicitly restate Beijing’s long-standing preconditions are reason to doubt that much accommodation is actually occurring. The three basic scenarios I outlined last December—accommodation, limited Chinese punishment of the Tsai administration, and comprehensive punishment—are still in play, and the key variable remains whether Xi and his subordinates trust Tsai Ing-wen’s basic intentions. That is, will they accept her recent formulations as a good-faith effort to avoid deterioration? The next milestone will be May 20, when Tsai Ing-wen gives her inaugural address and may provide a more detailed formulation of her approach to China.

       

       

       

The biggest news at the end of the Brisbane G-20 on Sunday will be to confirm for the first time in an official G-20 communique that China will indeed chair the G-20 Summit in 2016. 

Coming on the heals of a momentous week of great power realignments and breakthroughs at the APEC Summit in Beijing and other one-on-one meetings of heads of state, the timing of China’s presidency of the G-20 Summit in 2016 could not be a better follow-up to this week’s accomplishments. It puts China in play as a global leader at a critical moment in geopolitical relations and in terms of several global agendas that will culminate in the next two years. It also provides an unusual opportunity for the U.S. and China to collaborate on a broader set of societal issues affecting everyone everywhere building on their agreements this week.

One of the reasons why the G-20 Summits have yet to realize their full potential is that the leaders-level summits have been captured by the finance ministers’ agendas and discourse. Leaders at G-20 Summits have individually and collectively failed to connect with their publics; ordinary citizens do not see their urgent issues being dealt with. Exchange rates, current account balances, reserve ratios for banks, and the role of the IMF do not resonate with public anxieties over their lives and livelihoods.

Three streams of global issues will culminate in 2015:  the forging of a “post-2015 agenda” on sustainable development with a new set of global goals to succeed the Millennium Development Goals (MDGs); the agreement on  “financing for development” (FFD) arrangements and mechanisms to support the new post-2015 Sustainable Development Goals (SDGs) to be realized in 2030; and the achievement of a United Nations Framework Convention on Climate Change (UNFCCC) by the end of 2015, which looks more promising now than it did a week ago.

What has been learned from previous global goal setting processes is that building on the momentum for the goal-setting process in 2015 and carrying it directly into the mobilization of national political commitment, resources and policies for implementation is vital. China as a member of the G-20 troika in 2015 through 2017 will be in crucial position of bridging the goal-setting and implementation phases of the new SDGs for 2030 to be adopted at the United Nations in September of next year.

China, as one of the five permanent members of the U.N. Security Council, will be in a pivotal position to create complementarities between the G-20 forum for the major economies and the U.N. as a forum for all countries for this critical period of setting the global sustainability agenda for the next fifteen years.  

The post-2015 agenda for social, economic and environmental sustainability is of high interest to the United States, and the new China-U.S. climate change agreement in Beijing this week augurs well for collaboration between the two countries on the broader agenda. White House Chief of Staff John Podesta was on the high-level panel for the post-2015 development agenda last year, which signals high U.S. policy involvement. The Shanghai Institute for International Studies has argued in a recent paper for the U.N. Development Program that “the G-20 and the U.N. could have certain complementary roles. The development issue could become the one linking the major work of both the U.N. and the G-20.”  

The world should welcome the unique role that China can now play in bringing the international community and the global system of international institutions together in charting a common path forward building on the progress made in the various summits this week. 

      

Editor’s Note: In the report “Think Tank 20: Growth, Convergence and Income Distribution: The Road from the Brisbane G-20 Summit” experts from Brookings and around the world address interrelated debates about growth, convergence and income distribution, three key elements that are likely to shape policy debates beyond the ninth G-20 summit that was held on November 15-16 in Brisbane, Australia. The content of this blog is based on the chapter on Latin America. Read the full brief on Latin America's growth trends here.

A figure says a thousand words. And, looking at Figure 1, which shows the population-weighted average income per capita in emerging economies relative to the U.S., there could be no doubt in anybody’s mind that since the late 1990s something rather extraordinary happened—a phenomenon with no antecedents in the post-WWII period—that propelled emerging economies into an exponential process of convergence.

Needless to say, this phenomenon had enormous consequences for the welfare of millions of citizens in emerging economies. It lifted more than 500 million people out from poverty and extreme poverty, and gave rise to the so-called emerging middle class that grew at a rate of 150 million per year.

So, it seems that something rather extraordinary happened in emerging economies. Or did it? Let’s look again. When China and India are removed from the emerging markets sample, Figure 1 becomes Figure 2a.

In Figure 2a, one can still discern a period of convergence starting in the late 1990s. But convergence here was not nearly as strong—relative income is still far below its previous heights—and it occurred after a period of divergence that started in the mid-1970s after the first oil shock, in the early 1980s with the debt crisis, and in the late 1980s with post-Berlin Wall meltdown in Eastern European economies.

This pattern is actually characteristic of every emerging region including Latin America (see Figure 2b). Only Asia differs markedly from this pattern—with China and India displaying exponential convergence since the late 1990s, while the rest of emerging Asia experienced a sustained but much slower convergence since the mid-1960s. 

From a Latin American perspective, the relevant question we need to ask is whether the recent bout of convergence that started in 2004 after a quarter of a century of relative income decline is a break with the past or just a short-lived phenomenon?

In order to address this question from a Latin American perspective, we study the arithmetic of convergence (i.e., whether mechanical projections are consistent with the convergence hypothesis) and the economics of convergence (i.e., whether income convergence was associated with a comparable convergence in the drivers of growth).

According to our definition of convergence,[1] since 1950, growth-convergence-development miracles represent a tiny fraction of emerging countries. Only five countries managed to achieve this: Japan, South Korea, Taiwan, Hong Kong and Singapore. In other words, convergence towards income per capita levels of rich countries is an extremely rare event.

But where does Latin America stand? Based on growth projections for the period 2014-2018, not a single Latin American country will converge to two-thirds of U.S. income per capita in two generations. Unfortunately, the arithmetic does not seem to be on the side of the region.

What about the economics? To answer this question, we analyze whether Latin America’s process of income convergence in the last decade was also associated with a similar convergence in the key drivers of growth: trade integration, physical and technological infrastructure, human capital, innovation, and the quality of public services. Figure 3 illustrates the results.

In contrast to relative income, during the last decade, LAC-7 [2] countries failed to converge towards advanced country levels in every growth driver. The overall index of growth drivers—the simple average of the five sub-indexes—remained unchanged in the last decade relative to the equivalent index for advanced economies. By and large, the latter holds true for every LAC-7 country with exceptions like Colombia (the only country that improved in every single growth driver in the last decade) and Chile (the country in the region where the levels of growth drivers are closer to those of advanced economies). 

Latin America had a decade of uninterrupted high growth rates—with the sole exception of 2009 in the aftermath of the Lehman crisis—that put an end to a quarter of a century of relative decline in income per capita levels vis-à-vis advanced economies. However, high growth and income convergence were largely the result of an unusually favorable external environment, rather than the result of convergence to advanced-country levels in the key drivers of growth. Fundamentally, the last was a decade of “development-less growth” in Latin America.

With the extremely favorable external conditions already behind us, the region is expected to grow at mediocre rates of around 2 percent in per capita terms for the foreseeable future. With this level of growth, the dream of convergence and development is unlikely to be realized any time soon.

To avoid such a fate the region must make a renewed effort of economic transformation. Although the challenges ahead appear to be huge, there is plenty of room for optimism. First, Latin America has built a sound platform to launch a process of development. Democracy has by-and-large consolidated across the region, and an entire generation has now grown up to see an election as the only legitimate way to select national leaders. Moreover, it is for the most part a relatively stable region with no armed conflicts and few insurgency movements threatening the authority of the state. Second, a sizeable group of major countries in Latin America have a long track record of sound macroeconomic performance by now. Third, the region could be just steps away from major economic integration. Most Latin American countries in the Pacific Coast have bilateral free trade agreements with their North American neighbors (11 countries with the U.S. and seven countries with Canada). Were these countries to harmonize current bilateral trade agreements among themselves—in the way Pacific Alliance members have been doing—a huge economic space would be born: a Trans-American Partnership that would comprise 620 million consumers, and have a combined GDP of more than $22 trillion (larger than the EU’s, and more than double that of China). Were such a partnership on the Pacific side of the Americas to gain traction, it could eventually be extended to Atlantic partners, in particular Brazil and other Mercosur countries.

In the last quarter of a century democracy, sound macroeconomic management and an outward-looking development strategy made substantial strides in the region. If these conquests are consolidated and the same kind of progress is achieved in key development drivers in the next 25 years, many countries in the region could be on the road to convergence.

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[1] We define convergence as a process whereby a country’s income per capita starts at or below one-third of U.S. income per capita at any point in time since 1950, and rises to or above two-thirds of U.S. income per capita.

[2] LAC-7 is the simple average of Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela, which account for 93 percent of Latin America’s GDP.

       

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In an era of fluid geopolitics and geoeconomics, challenges to the global order abound: from ever-changing terrorism, to massive refugee flows, a stubbornly sluggish world economy, and the specter of global pandemics. Against this backdrop, the question of whether leader summitry—either the G-7 or G-20 incarnations—can supply needed international governance is all the more relevant. This question is particularly significant for East Asia this year as Japan and China, two economic giants that are sometimes perceived as political rivals, respectively host the G-7 and G-20 summits. 

On April 18, the Center for East Asia Policy Studies and the Project on International Order and Strategy co-hosted a discussion on the continued relevancy and efficacy of the leader summit framework, Japan’s and China’s priorities as summit hosts, and whether these East Asian neighbors will hold parallel but completely separate summits or utilize these summits as an opportunity to cooperate on issues of mutual, and global, interest.

Join the conversation on Twitter using #G7G20Asia

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• Japan’s G-7 and China’s G-20 chairmanships: Bridges or stovepipes in leader summitry?

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• 20160418_g7g20_transcript

       

       

       

       

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On July 30-31, 2004, more than 40 preeminent international leaders from the public, private, and non-profit sectors came together at the Aspen Institute to discuss "America's Role in the Fight Against Global Poverty" and to set out a forward-looking strategy for the United States.

Co-hosted by Richard C. Blum of Blum Capital Partners LP, the Brookings Institution's Poverty and Global Economy Initiative, the Aspen Institute, and Realizing Rights: The Ethical Globalization Initiative, the group's aim was to explore the dilemma of global poverty from different perspectives, to disaggregate the seemingly intractable problem into more manageable challenges, and to identify key elements of an effective U.S. policy agenda.

With roundtable participants hailing from around the world and representing diverse experiences and approaches, the dialogue was as multifaceted as the challenge of poverty itself. Rather than simply summarize conference proceedings, this essay attempts to weave together the thoughtful exchanges, impassioned calls to action, fresh insights, and innovative ideas that characterized the discussion, and to set the stage for ongoing collaboration in the struggle for human dignity.

Helping to define the issues, share and encourage what works, and build the intellectual framework for such an enterprise will be the guiding mission of the Richard C. Blum Roundtable in the years ahead.


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From August 3 to 6, 2005, fifty preeminent international leaders from the public, private, and nonprofit sectors came together at the Aspen Institute for a roundtable, "The Private Sector in the Fight against Global Poverty."

The roundtable was hosted by Richard C. Blum of Blum Capital Partners and Strobe Talbott and Lael Brainard of the Brookings Institution, with the active support of honorary cochairs Walter Isaacson of the Aspen Institute and Mary Robinson of Realizing Rights: The Ethical Globalization Initiative. By highlighting the power of the market to help achieve social and economic progress in the world's poorest nations, the roundtable's organizers hoped to galvanize the private, public, and nonprofit sectors to move beyond argument and analysis to action. Put simply, as Brookings president Strobe Talbott explained, the roundtable's work was "brainstorming with a purpose."

With experts hailing from around the world and representing diverse sectors and approaches, the dialogue was as multilayered as the challenge of poverty itself. Rather than summarize the conference proceedings, this essay weaves together the thoughtful observations, fresh insights, and innovative ideas that characterized the discussion. A companion volume, Transforming the Development Landscape: The Role of the Private Sector, contains papers by conference participants, providing in-depth analysis of each conference topic.

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The context for aid is changing. Globalization has spurred economic convergence, upending the twentieth century economic balance and creating a smaller world where both problems and solutions spill across national borders more readily. This has given rise to a legion of new development actors, including emerging economies, NGOs, private businesses, and coordinating networks, who have brought fresh energy and resources to the field while rendering the prospect of genuine donor coordination ever more difficult. Global integration and competition for resources has raised the prominence of global public goods, whose equitable and sustainable provision requires international collective action. Meanwhile, poor countries are demanding a new form of partnership with the international community, built upon the principles of country ownership and mutual accountability.

2011 Brookings Blum Roundtable: Related Materials
	Read the roundtable report - Global Development Under Pressure »  Read the conference policy briefs »  Download the participant list » (PDF) Download the scene setter » (PDF) Download the full roundtable agenda » (PDF)

From G-20 meetings and the upcoming High Level Forum on Aid Effectiveness in Korea to unfolding events in the Middle East and North Africa, leadership from the United States is crucial, placing pressure on the Obama administration to deliver on its promise of far-reaching reforms to U.S. global development efforts. And amidst this shifting global landscape is the issue of effectively communicating the importance of global development cooperation to both a national and global public, at a time when budget pressures are being felt across many of the world’s major economies

At the eighth annual Brookings Blum Roundtable, co-chaired by Kemal Derviş and Richard C. Blum, 50 thought-leaders in international development came together to discuss a new role for global development cooperation, one that employs inclusive and innovative approaches for tackling contemporary development problems and that leverages the resources of a large field of actors.

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Roundtable Agenda

Wednesday, August 3, 2011

Welcome: 8:40 a.m. – 9:00 a.m.
Open Remarks
• Richard C. Blum, Blum Capital Partners, LP and Founder of the Blum Center for 
Developing Economies at Berkeley
• Mark Suzman, Global Development Program, Bill & Melinda Gates Foundation
• Kemal Derviş, Global Economy and Development, Brookings

Statement of Purpose, Scene Setter, Comments on the Agenda
• Homi Kharas, Brookings

Session I: 9:00AM - 10:30AM
Reframing Development Cooperation
In almost any discussion of international development, foreign aid takes center stage. But while 
aid can certainly be a catalyst for development, it does not work in isolation. Participants will 
discuss the key objectives of development cooperation, consider what measures of development 
cooperation are most valuable for recipients, and explore an effective balance of roles and 
responsibilities - including both public and private players - in today’s evolving development 
landscape.

Moderator
• Walter Isaacson, Aspen Institute

Introductory Remarks
• Owen Barder, Center for Global Development
• Donald Kaberuka, African Development Bank Group
• Ananya Roy, University of California, Berkeley
• Elizabeth Littlefield, Overseas Private Investment Corporation

Session II: 10:50AM - 12:20PM
The G-20's Development Agenda
Last year’s G-20 meeting in Seoul marked the first time the group formally took up the issue of development. There they announced the Seoul Development Consensus for Shared Growth and the Multi-Year Action Plan for Development: two far-reaching policies which are expected to guide the G20’s future agenda. What is the G-20’s comparative advantage vis-à-vis development, and how can the group’s development efforts be strengthened and supported?

Moderator
• Mark Suzman, Bill and Melinda Gates Foundation

Introductory Remarks
• Alan Hirsch, The Presidency, South Africa
• Suman Bery, International Growth Centre
• Homi Kharas, Brookings

Dinner Program: 6:00PM - 9:00PM
A Conversation with Al Gore and Mary Robinson
Topic: "Energy Security and Climate Justice"

Moderator
• Kemal Derviş, Global Economy and Development, Brookings

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Thursday, August 4, 2012 

Session III: 9:00AM - 10:30AM 
The Road to Buscan
In November, participants from over 150 countries, including ministers of developing and developed countries, heads of bilateral and multilateral development institutions, and civil society representatives, will take part in the fourth High Level Forum on Aid Effectiveness in Busan, South Korea. The forum is intended to take account of the development community’s progress in achieving greater impact through aid and to redefine the aid effectiveness agenda to adjust to a changing global landscape. What would constitute success or failure at Busan?

Moderator
• Raymond Offenheiser, Oxfam America

Introductory Remarks
• J. Brian Atwood, Organisation of Economic Co-operation and Development, 
Development Assistance Committee 
• Wonhyuk Lim, Korean Development Institute
• Ngozi Okonjo-Iweala, World Bank 
• Steven Radelet, U.S. Agency for International Development 

Session IV: 10:50AM - 12:20PM 
Lessons from the Middle East on Governance and Aid
Popular protests across the Middle East against authoritarian regimes have prompted reflection 
on the role of aid to non-democratic and poorly governed countries. Some critics believe that aid 
should only be given to relatively well-governed countries where it is more likely to be effective, 
but for others, this amounts to collective punishment for the people who suffer under such 
governments. Do aid allocation models need to change and what role can the development 
community now play in supporting peaceful, democratic reform in the Middle East?

Moderator
• Madeleine K. Albright, Albright Stonebridge Group

Introductory Remarks
• Ragui Assaad, University of Minnesota
• Sheila Herrling, Millennium Challenge Corporation
• Tarik Yousef, Silatech

Lunch Program: 12:30PM - 2:00PM
A Conversation with Thomas R. Nides, U.S. Deputy Secretary of State for Management and Resources

Moderator
• Richard C. Blum, Blum Capital Partners, LP and Founder of the Blum Center for Developing Economies at Berkeley

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Friday, August 5, 2012 

Session V: 9:00AM - 10:30AM
Implementing U.S. Development Reforms 
The end of 2010 saw the completion of two major policy reviews in Washington concerned with 
international development: the Presidential Policy Directive on Global Development and the 
Quadrennial Diplomacy and Development Review. Progress on implementation has been 
significant in many respects and meager in others. Additionally, despite directives to deliver on 
many valuable priorities for improvement, essential components of fundamental reform are still 
in need of address. Casting a shadow across the exercise, or alternatively serving as a spur to 
focus, the budget environment has soured.

Moderator
• Jim Kolbe, German Marshall Fund of the United States

Introductory Remarks
• Rajiv Shah, U.S. Agency for International Development
• Samina Ahmed, International Crisis Group
• Robert Mosbacher, Jr., Mosbacher Energy Company

Session VI: 10:50AM - 12:20PM
Communicating Development Cooperation
Public interest in and support for aid matter. Yet in many aid giving countries, there is 
widespread cynicism as to what end aid programs serve and ignorance as to what activities they 
actually involve. What are the best examples of development efforts which have been 
communicated successfully and what can we learn from this to shore up support for 
development cooperation now and in the future?

Moderator 
• Liz Schrayer, U.S. Global Leadership Coalition

Introductory Remarks 
• Steven Kull, Program on International Policy Attitudes
• Joshua Bolten, ONE
• S. Shankar Sastry, University of California, Berkeley
• Jack Leslie, Weber Shandwick

Closing Remarks: 12:20PM- 12:30PM
• Richard C. Blum, Blum Capital Partners, LP and Founder of the Blum Center for 
Developing Economies at Berkeley
• Kemal Derviş, Global Economy and Development, Brookings

Public Event: 4:00PM - 5:30PM
Brookings and the Aspen Institute present “Development as National Security?”: A Conversation with Rajiv Shah, U.S. Agency for International Development; Sylvia Mathews Burwell, Bill & Melinda Gates Foundation; Richard J. Danzig, Center for a New American Security; and Susan C. Schwab, University of Maryland.

Moderator
• Jessica Tuchman Mathews, Carnegie Endowment for International Peace

Welcome and Introductions
• Kemal Derviş, Brookings

Hosts
• Richard C. Blum and Senator Dianne Feinstein

       

There is a lot of hope around the potential of Big Data—massive volumes of data (such as cell phone GPS signals, social media posts, online digital pictures and videos, and transaction records of online purchases) that are large and difficult to process with traditional database and software techniques—to help achieve the sustainable development goals. The United Nations even calls for using the ongoing Data Revolution –the explosion in quantity and diversity of Big Data—to make more and better data usable to inform development analysis, monitoring and policymaking: In fact, the United Nations believes that that “Data are the lifeblood of decision-making and the raw material for accountability. Without high-quality data providing the right information on the right things at the right time; designing, monitoring and evaluating effective policies becomes almost impossible.” The U.N. even held a “Data Innovation for Policy Makers” conference in Jakarta, Indonesia in November 2014 to promote use of Big Data in solving development challenges.

Big Data has already played a role in development: Early uses of it include the detection of influenza epidemics using search engine query data or the estimation of a country’s GDP by using satellite data on night lights. Work is also under way by the World Bank to use Big Data for transport planning in Brazil.

During the Data for Development session at the recent NetMob conference at MIT, we presented a paper in which we jump on the Big Data bandwagon. In the paper, we use mobile phone data to assess how the opening of a new toll highway in Dakar, Senegal is changing how people commute to work (human mobility) in this metropolitan area. The new toll road is one of the largest investments by the government of Senegal and expectations for its developmental impact are high. In particular, the new infrastructure is expected to increase the flow of goods and people into and out of Dakar, spur urban and rural development outside congested areas, and boost land valuation outside Dakar. Our study is a first step in helping policymakers and other stakeholders benchmark the impact of the toll road against many of these objectives.

Assessing how the impact of the new toll highway differs by area and how it changes over time can help policymakers benchmark the performance of their investment and better plan the development of urban areas.

The Dakar Diamniadio Toll Highway

The Dakar Diamniadio Toll Highway (in red in Figure 1), inaugurated on August 1, 2013 is the first section (32 km or 20 miles) of a broader project to connect the capital, Dakar, through a double three-lane highway to a new airport (Aeroport International Blaise Diagne, AIBD) and a special economic zone, the Dakar Integrated Special Economic Zone (DISEZ) and the rest of the country.

Note: The numbers indicate the incidence of increased inter cell mobility and were used to calculate the percentage increase in mobility.

The cost of this large project is estimated to be about $696 million (FCFA 380.2 billion or 22.7 percent of 2014 fiscal revenues, excluding grants) with the government of Senegal having already disbursed $353 million. The project is one of the first toll roads in sub-Saharan Africa (excluding South Africa) structured as a public-private partnership (PPP) and includes multilateral partners such as the World Bank, the French Development Agency, and the African Development Bank.

In our study, we ask whether the new toll road led to an increase in human mobility and, if so, whether particular geographical areas experienced higher or lower mobility relative to others following its opening.

Did the Highway Increase Human Mobility?

Using mobile phone usage data (Big Data), we use statistical analysis in our paper to approximate where people live and where they work. We then estimate how the reduction in travel time following the opening of the toll road changes the way they commute to work.

As illustrated in the map of Figure 1, we find some interesting trends:

• Human mobility in the metropolitan Dakar area increased on average by 1.34 percent after the opening of the Dakar Diamniadio Toll Highway. However, this increase masks important disparities across the different sub-areas of the Dakar metropolitan areas. Areas in blue in Figure 1 are those for which mobility increased after the opening of the new road toll while those in red experienced decreased mobility.
• In particular, the Parcelles Assainies suburban area benefited the most from the toll road with an increase in mobility of 26 percent. The Centre Ville (downtown) area experienced a decrease in mobility of about 20 percent.

These trends are important and would have been difficult to discover without Big Data. Now, though, researchers need to parse through the various reasons these trends might have occurred. For instance, the Parcelles Assainies area may have benefited the most because of its closer location to the toll road whereas the feeder roads in the downtown area may not have been able to absorb the increase in traffic from the toll road. Or people may have moved from the downtown area to less expensive areas in the suburbs now that the new toll road makes commuting faster.

The Success of Big Data

From these preliminary results (our study is work in progress, and we will be improving its methodology), we are encouraged by the fact that our method and use of Big Data has three areas of application for a project such as this:

Benchmarking: Our method can be used to track how the impact of the Dakar Diamniadio Toll Highway changes over time and for different areas of the Dakar metropolitan areas. This process could be used to study other highways in the future and inform highway development overall.

Zooming in: Our analysis is a first step towards a more granular study of the different geographic areas within the Dakar suburban metropolitan area, and perhaps inspire similar studies around the continent. In particular, it would be useful to study the socio-economic context within each area to better appreciate the impact of new infrastructure on people’s lives. For instance, in order to move from estimates of human mobility (traffic) to measures of “accessibility,” it will be useful to complement the current analysis with an analysis of land use, a study of job accessibility, and other labor markets information for specific areas. Regarding accessibility, questions of interest include: Who lives in the areas most/least affected? What kind of jobs do they have access to? What type of infrastructure do they have access to? What is their income level? Answers to these questions can be obtained using satellite information for land prices, survey data (including through mobile phones) and data available from the authorities. Regarding urban planning, questions include: Is the toll diverting the traffic to other areas? What happens in those areas? Do they have the appropriate infrastructure to absorb the increase in traffic?

Zooming out: So far, our analysis is focused on the Dakar metropolitan area, and it would be useful to assess the impact of new infrastructure on mobility between the rest of the country and Dakar. For instance, the analysis can help assess whether the benefits of the toll road spill over to the rest of the country and even differentiate the impact of the toll road on the different regions of the country.

This experience tells us that there are major opportunities in converting Big Data into actionable information, but the impact of Big Data still remains limited. In our case, the use of mobile phone data helped generate timely and relatively inexpensive information on the impact of a large transport infrastructure on human mobility. On the other hand, it is clear that more analysis using socioeconomic data is needed to get to concrete and impactful policy actions. Thus, we think that making such information available to all stakeholders has the potential not only to guide policy action but also to spur it. 

References

Atkin, D. and D. Donaldson (2014). Who ’ s Getting Globalized ? The Size and Implications of Intranational Trade Costs . (February).

Clark, X., D. Dollar, and A. Micco (2004). Port efficiency, maritime transport costs, and bilateral trade. Journal of Development Economics 75(2), 417–450, December.

Donaldson, D. (2013). Railroads of the Raj: Estimating the Impact of Transportation Infrastructure. forthcoming, American Economic Review.

Fetzer Thiemo (2014) “Urban Road Construction and Human Commuting: Evidence from Dakar, Senegal.” Mimeo

Ji, Y. (2011). Understanding Human Mobility Patterns Through Mobile Phone Records : A cross-cultural Study.

Simini, F., M. C. Gonzalez, A. Maritan, and A.-L. Barab´asi (2012). A universal model for mobility and migration patterns. Nature 484(7392), 96–100, April.

Tinbergen, J. (1962). Shaping the World Economy; Suggestions for an International Economic Policy.

Yuan, Y. and M. Raubal (2013). Extracting dynamic urban mobility patterns from mobile phone data.

      

One of the foundational notions of digital financial services has been the distinction between payment rails and services running on the rails. This is a logical distinction to make, one easily understood by engineers who tend to think in terms of hierarchies (or stacks) of functionalities, capabilities, and protocols that need to be brought together. But this distinction makes less sense when it is taken to represent a logical temporal sequencing of those layers.

It is not too much of a caricature to portray the argument —and, alas, much common practice— like this: I’ll first build a state-of-the art digital payments platform, and then I’ll secure a great agent network to acquire customers and offer them cash services. Once I have mastered all that, then I’ll focus on bringing new services to delight more of my customers. The result is that research on customer preferences gets postponed, and product design projects are outsourced to external consultants who run innovation projects in a way that is disconnected from the rest of the business.

This mindset is understandable given limited organizational, financial and human resource capabilities. But the problem with such narrow sequencing is that all these elements reinforce each other. Without adequate services (a.k.a. customer proposition), the rails will not bed down (a.k.a. no business case for the provider or the agents). In businesses such as digital payments that exhibit strong network effects, it’s a race to reach a critical mass of users. You need to drive the entire stack to get there, as quickly as possible. Unless, you develop a killer app early on, as M-PESA seems to have done with the send money home use case in the Kenyan environment.

It is tough for any organization to advance on all these fronts simultaneously. Only superhero organizations can get this complex job done. I have argued in a previous post that the piece that needs to be parceled off is not the service creation but rather cash management: that can be handled by independently licensed organizations working at arms length from the digital rails-and-products providers.

What are payment rails?

Payment rails are a collection of capabilities that allow value to be passed around digitally. This could include sending money home, paying for a good or a bill, pushing money into my or someone else’s savings account, funding a withdrawal at an agent, or repaying a loan. The first set of capabilities relates to identity: being able to establish you are the rightful owner of the funds in your account, and to designate the intended recipient in a money transfer. The second set of capabilities relates to the accounting or ledger system: keeping track of balances held and owed, and authorizing transactions when there are sufficient funds per the account rules. The third set of capabilities relates to messaging: collecting the necessary transaction details from the payment initiator, conveying that information securely to the authorizing entity, and providing confirmations.

Only the third piece has been transformed by the rise of mobile phones: we now have an increasingly inclusive and ubiquitous real-time messaging fabric. Impressive as that is, this messaging capability is still linked to legacy approaches on identity and accounting. Which is why mobile money is still more an evolution than a revolution in the quest for financial inclusion.

The keepers of the accounts —traditionally, the banks— are, of course, the guardians of the system’s choke points. There is now recognition in financial inclusion circles that to expand access to finance it is not enough to proliferate the world with mobile phones and agents: you need to increase the number and type of account keepers, under the guise of mobile money operators, e-money issuers or payment banks. But that doesn’t change the fundamental dynamics, which is that there still are choke point guardians who need to be convinced that there is a business case in order to invest in marketing to poor people, that there are opportunities to innovate to meet their needs, and that perhaps all players can be better off if only they interoperated. A true transformation would be to open up these ledgers, so anyone can check the validity of any transaction and write them into the ledger.

That’s what crypto-currencies are after: decentralizing the accounting and transaction authorization piece, much in the same way as mobile phones have decentralized the transaction origination piece. Banks seek to protect the integrity of their accounting and authorizations systems —and hence their role as arbiters of financial transactions— by hiding them behind huge IT walls; crypto-currencies such as Bitcoin and Ripple do the opposite: they use sophisticated protocols to create a shared consensus for all to see and use.

The other set of capabilities in the digital rails, identity, is also still in the dark ages. Let me convince you of that through a personal experience. My wallet was stolen recently, and it contained my credit card. I can understand the bank wanting to know my name, but why is the bank announcing my name to the thief by printing it on the credit card, thereby making it easier for him to impersonate me? The reason is, of course, that the bank wants merchants to be able to cross check the name on the card with a piece of customer ID. But as you can imagine, my national ID got stolen along with my credit card, and because of that the thief knows not only my name but also my address. That was an issue because I also kept a key to my house in the wallet. None of this makes sense: why are these “trusted” institutions subverting my sense of personal security, not to mention privacy?

The problem is that the current financial regulatory framework is premised on a direct binding of every transaction to my full legal identity. As David Porteous and I argue in a recent paper, what we need is a more nuanced digital identity system that allows me to present different personas to different identity-requesting entities and choose precisely which attributes of myself get revealed in each case, while still allowing the authorities to trace the identity unequivocally back to me in case I break the law.

The much-celebrated success of mobile money has so far really only transformed one third (messaging) of one half (payment rails) of the financial inclusion agenda. We ain’t seen nothin’ yet.

      

       

Steven Pifer joined Bernard Gwertzman to discuss Vice President Joseph Biden's recent trip to Ukraine and Georgia and how it was meant to balance President Barack Obama's Moscow summit earlier in the month.

Bernard Gwertzman: Vice President Joseph Biden has just completed a trip to Ukraine and Georgia to reassure both of those former Soviet republics that the American desire to "reset" relations--Biden's words in Munich last February--with Russia were not meant at their expense. But he also had what one Biden aide called "tough love" for both of them. Could you elaborate on this trip?

Steven Pifer: That was the first point of the trip: to reassure Kiev and Tbilisi that the United States remains interested in robust relations with Ukraine and Georgia, and that we will work to keep open their pathways to Europe and the North Atlantic community. When I was in Ukraine about five or six weeks ago, what I heard from the Ukrainians was a concern--and I suspect there is a parallel concern in Georgia--that the effort to reset relations with Russia would somehow come at Ukraine's expense. So part of the trip by the vice president was to assure both Ukraine and Georgia that the United States is not going to undercut relations with those two countries as it tries to develop relations with Russia. You've seen points made by this administration, indeed going back to the Munich speech itself, saying the reset of relations would not mean recognition of a Russian "sphere of influence" over the former Soviet states, and then repeated assurances that the United States supports the rights of countries such as Ukraine and Georgia as sovereign states to choose their own foreign policy course.

Gwertzman: What was also interesting to me was that in his speech in Ukraine, Biden was virtually demanding that the Ukrainian leadership get their act together. In Georgia, I don't think he was publicly as tough. Can you elaborate on the "tough love" part of the visits?

Pifer: Let me start with Ukraine. Certainly the primary goal of the visit was to reassure Ukraine, but there was also a tough message there. In Ukraine, it's not only due to the presidential election, but you've had a situation in the past year and a half where the government really hasn't functioned because of infighting between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko. It's meant that Ukraine has passed up opportunities to accomplish some important things. A big part of the vice president's message in Kiev was to say, "You need to put aside political differences, come together as mature political leaders, find compromises, and get things done."

He also singled out the importance of Ukraine getting serious about reforming its energy sector. This is a huge national security vulnerability for Ukraine because they have a distorted price structure where people buy natural gas at prices that don't begin to cover the cost of the gas that Ukraine buys from Russia. As a result, Naftogaz, the national gas company, is perpetually in debt to Russia and on the verge of bankruptcy. That creates vulnerabilities for Ukraine.

Part of the vice president's message was, "You need to get serious about this." Part of the problem in Ukraine is if you are a household, you are probably paying a price that amounts to less than 30 percent of the actual cost of the gas bought from Russia. It's no wonder why Naftogaz is always in financial straits. But it's not just an economic problem because of the way it factors into the Ukraine-Russia relationship. It creates a national security issue for Ukraine. So there are two aspects to the tough message: One, the need for political leaders to get together, compromise, and produce good policy; and second, the special importance of tackling this energy security issue.

Read the full interview » (external link)

      

It’s a fair question to ask: what was all the fuss about last October? The elections in Georgia and Azerbaijan came and went and the results were no surprise. Azerbaijani incumbent Ilham Aliyev won and Georgia's Mikhail Saakashvilli did not. The Azerbaijani elections were bogus; the Georgian elections were not. So what? Life goes on.

But perhaps it is not that simple. Most outside observers saw these elections as a barometer of democratic progress in a region where the West — and the U.S. in particular — has invested time, resources and effort over more than 20 years to help these countries to build a better future for themselves. As stakeholders in the democratic process in the South Caucasus since Armenia, Azerbaijan and Georgia gained their independence in 1991, Europe and the U.S. must fuss over the outcomes of the Azerbaijani and Georgian elections. 

Beyond Election Day

Evaluating these elections and their impact on the domestic social and political landscape as well as foreign relations requires, however, a focus on more than just election day. The excellent report from the European Stability Inititive on the election observation mission to Azerbaijan makes a strong case for not judging democratic progress based only on how the elections may appear to be conducted on election day.

The Georgian elections proved that post-Soviet governments could change, politicians could change and a European path be chosen. The Azerbaijani elections proved that a regime could “buy” favorable reports from short-term observers imported for election day, carry on with election rigging, continue human rights violations and ignore international criticism, whether from the Department of State or the Organization for Security and Cooperation in Europe’s long-term observer mission.

Why the difference between the two neighboring countries? There are several reasons. First, Georgia’s generally free and fair 2012 parliamentary elections set a strong example for the 2013 presidential elections, and Georgia welcomed outside involvement and observation. Azerbaijan, on the other hand, prevented the visit of U.S. Deputy Assistant Secretary for Democracy and Human Rights Tom Melia before its elections. Second, Georgian political parties, including the opposition, agreed on electoral ground rules. Third, the Georgian population demanded leadership change. Fourth, the outcome of elections in Georgia was accepted as a transparent way to — for the first time in modern Georgian history — transfer political legitimacy.

Test of Democratic Evolution

The real test of democratic evolution has to do with actions — over a period of months before and after election day — as well as rhetoric that affect the integrity of the elections. The pre- and post-election environments in Azerbaijan consist of continuing intimidation of the political opposition and independent NGO leadership, suppression of freedom of expression and official dismissal of any need to change. While Georgia had a pretty good pre-election period, the post-election period remains fraught with challenges to the effectiveness of Parliament and other fragile institutions, and whether the current government will pursue criminal charges against former President Saakashvili.

Is it Our Business?

There are different views regarding whether democratic evolution — in its broadest sense — is our (e.g. the West, U.S.) business at all. Who are we — despite our support for democratic change — with all our defects to establish standards for others to follow? At least for the short-term the Maidan events in Ukraine put this point into practical focus. If a country wants to be part of the West there are certain standards of economic and political reform that must be met as part of that association. In other words values matter. The traditional excuses of geopolitical importance or interests of energy security for failure to accept even the minimal international norms for treatment of a country’s own citizens are gone.

A major issue for the post-election period has become the choice between closer association with the EU or Vladimir Putin’s Eurasian Union. This choice really is about values that countries choose to be identified by. Armenia and Georgia made clear choices at Vilnius summit for the Eastern Partnership: Georgia and Moldova for the EU; Armenia for Eurasian Union. Ukraine was asked to make a decision but chose to walk the line between short-run financial expediency and a long-term commitment to a European future. Azerbaijan decided to choose none of the above; “neutrality” the regime called it. All the while proclaiming — along with its apologists in the West — the strategic importance of Azerbaijani energy for Europe’s future.

These countries can no longer talk their way around this or employ foreign surrogates to do this for them. Arguments for overlooking bogus elections, corruption and human rights abuses based on overriding strategic importance to the U.S. (e.g. war against terror, Northern Distribution Network, energy security) are excuses for inaction on the fundamental values that must be at the core of our relationships in the 21st century.

When countries like Azerbaijan fail to live up to these standards we do not walk away. Rather we continue to insist on solid, value-based behavior by those who profess they are partners with us. That means economic and political reforms to complete the transition from post-Soviet to 21st Century status. This requires observance of human rights, respect for freedom of expression, and release of political prisoners. It also requires a pattern of increasingly democratic elections. That’s why we need to care about elections in the south Caucasus.

We must congratulate Tbilisi on its accomplishments in the October electoral process. At the same time we must encourage the Georgian government to move along with strengthening institutions like Parliament and the judiciary so Georgia can avoid a political justice system.

       

Event Information

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Recent events in Ukraine have raised important questions about Russian ambitions in the former Soviet space and the future political perspectives of the countries caught between Russia and the European Union. These countries are facing substantial obstacles in their efforts to maintain balanced relations with the United States, the European Union and the Russian Federation because of increased Russian political, economic and military pressures. In Ukraine, the annexation of Crimea and the ongoing turmoil in the East threaten the Ukrainian government's ability to maintain its independence and the sovereignty of Ukraine. Georgia and Moldova have expressed their intention to sign Association Agreements with the European Union, but increasingly face the prospects of destabilizing Russian economic sanctions and even the possible rekindling of their “frozen conflicts” in Abkhazia, South Ossetia and Transnistria.

On April 29, the Center on the United States and Europe at Brookings (CUSE) will host the ambassadors of Georgia, Moldova and Ukraine—Ambassadors Archil Gegeshidze, Olexander Motsyk and Igor Munteanu—as well as Eric Rubin, U.S. deputy assistant secretary of State for European and Eurasian Affairs, to discuss the dilemmas of these countries and possible solutions. Fiona Hill, director of CUSE, will introduce the speakers and moderate the discussion.

After opening remarks, panelists will take questions from the audience.

Audio

• A Discussion with the Ambassadors of Georgia, Moldova and Ukraine

Transcript

• Transcript (.pdf)

Event Materials

• 20140429_ambassadors_transcript

       

       

       

       

There is a lively debate today over whether or not campaign finance reforms have weakened the role of political parties in campaigns. This seems an odd argument in an era of historically high levels of party loyalty — on roll calls in Congress and voting in the electorate. Are parties too strong and unified or too weak and fragmented? Have they been marginalized in the financing of elections or is their role at least as strong as it has ever been? Does the party role in campaign finance (weak or strong) materially shape the capacity to govern?

In addition, the increasing involvement in presidential and congressional campaigns of large donors – especially through Super PACs and politically-active nonprofit organizations – has raised serious concerns about whether the super-wealthy are buying American democracy. Ideologically-based outside groups financed by wealthy donors appear to be sharpening partisan differences and resisting efforts to forge agreement across parties. Many reformers have advocated steps to increase the number of small donors to balance the influence of the wealthy. But some scholars have found evidence suggesting that small donors are more polarizing than large donors. Can that be true? If so, are there channels other than the ideological positioning of the parties through which small donors might play a more constructive role in our democracy?

In this paper, Thomas Mann and Anthony Corrado attempt to shed light on both of these disputed features of our campaign finance system and then assess whether campaign finance reform offers promise for reducing polarization and strengthening American democracy. They conclude that not only is campaign finance reform a weak tool for depolarizing American political parties, but some break in the party wars is probably a prerequisite to any serious pushback to the broader deregulation of campaign finance now underway.

Downloads

• Download the paper

      

The Supreme Court’s recent McCutcheon decision has reinvigorated the discussion on how campaign finance affects American democracy. Seeking to dissect the complex relationship between political parties, partisan polarization, and campaign finance, Tom Mann and Anthony Corrado’s new paper on Party Polarization and Campaign Finance reviews the landscape of hard and soft money in federal elections and asks whether campaign finance reform can abate polarization and strengthen governing capacity in the United States. The paper tackles two popular contentions within the campaign finance debate: First, has campaign finance reform altered the role of political parties as election financiers and therefore undermined deal making and pragmatism? Second, would a change in the composition of small and large individual donors decrease polarization in the parties?

The Role of Political Parties in Campaign Finance

Political parties have witnessed a number of shifts in their campaign finance role, including McCain-Feingold’s ban on party soft money in 2002. This has led many to ask if the breakdown in compromise and governance and the rise of polarization has come about because parties have lost the power to finance elections. To assess that claim, the authors track the amount of money crossing national and state party books as an indicator of party strength. The empirical evidence shows no significant decrease in party strength post 2002 and holds that “both parties have compensated for the loss of soft money with hard money receipts.” In fact, the parties have upped their spending on congressional candidates more than six-fold since 1980. Despite the ban on soft money, the parties remain major players in federal elections.

Large and Small Donors in National Campaigns

Mann and Corrado turn to non-party money and survey the universe of individual donors to evaluate “whether small, large or mega-donors are most likely to fuel or diminish the polarization that increasingly defines the political landscape.” The authors map the size and shape of individual giving and confront the concern that Super PACs, politically active nonprofits, and the super-wealthy are buying out American democracy. They ask: would a healthier mix of small and large donors reduce radicalization and balance out asymmetric polarization between the parties? The evidence suggests that increasing the role of small donors would have little effect on partisan polarization in either direction because small donors tend to be highly polarized. Although Mann and Corrado note that a healthier mix would champion democratic ideals like civic participation and equality of voice.

Taking both points together, Mann and Corrado find that campaign finance reform is insufficient for depolarizing the parties and improving governing capacity. They argue forcefully that polarization emerges from a broader political and partisan problem. Ultimately, they assert that, “some break in the party wars is probably a prerequisite to any serious pushback to the broader deregulation of campaign finance now underway.”

Click to read Mann and Corrado’s full paper, Party Polarization and Campaign Finance.

      

Tom Mann and Anthony Corrado recently argued that campaign finance reform will likely have little effect on political polarization. Their new paper has sparked a host of debate over campaign finance, the strength of parties, and the ideological motivations of donors. Today, the Monkey Cage blog hosted Mann and Corrado’s response to a critique from Ray LaRaja and Brian Schaffner.

LaRaja and Schaffner argue that pumping more funding to parties and changing the rules to facilitate that practice will provide a respite from polarization; to argue their point, they examine polarization at the state legislative level. In their response, Mann and Corrado argue that the critique is off point, noting that “no causal link to campaign finance laws (and polarization) is demonstrated.” Ultimately, Mann and Corrado explain: “The link between party financial practices and regulatory regimes is often a matter of strategy than law, and the evidence offered in their (LaRaja and Schaffner) response certainly falls well short of making a case that greater party resources would reduce the polarization that undermines the capacity to govern.”

For more on this debate:

Read Mann and Corrado’s paper, “Party Polarization and Campaign Finance”

Read LaRaja and Schaffner’s critique, “Want to reduce polarization? Give Parties Money”

Read Mann and Corrado’s response, “Don’t expect campaign finance reform to reduce polarization”

And check out some other great research on Washington Post’s Monkey Cage Blog

      

The news that Charles and David Koch and their network of conservative activists plan to spend $889 million on the 2016 elections has sent shockwaves throughout the political landscape. Publicized this week at a California gathering hosted by the business group Freedom Partners, this declaration of financial war raises the question of whether billionaires and their allies can buy elections.

As I note in my Brookings Institution Press book Billionaires: Reflections on the Upper Crust, the answer in 2012 clearly was no. A few billionaires devoted several hundred million dollars seeking to defeat President Barack Obama yet lost. Republicans nominated a candidate who was easy to caricature as an out-of-touch plutocrat who did not share the values of ordinary Americans. The President was successful in using that stereotype to mobilize voters, expand the electorate, and appeal to basic fairness on the part of the general public.

Yet 2014 was a different story. Conservative billionaires were far more successful in helping Republicans regain control of the Senate, boost their House numbers, and increase their domination over governorships and state legislatures.  The country now has GOP control of the House and Senate, and 31 governorships across the country.

In analyzing why they lost the 2012 presidential campaign, conservative billionaires decided they needed to recalibrate their message and strategy for the midterms. For example, Americans for Prosperity (AFP) focused on ads that employed moving personal stories to deliver policy messages and a robust field operation. Central to their approach was the idea that Obamacare was a failure and hurting ordinary people.

Explaining this communications shift, AFP President Tim Phillips told a reporter that “too often, we did kind of broader statistical ads or messages, and we decided that we needed to start telling the story of how the liberals’ policies, whether it’s the administration or Congress, are practically impacting the lives of Americans every day.” Media expert Elizabeth Wilner of Kantar Media/CMAG correctly anticipated that those kinds of ads would have a greater likelihood of electoral success. “Ads that tell stories are more compelling than ads that don’t,” she said. “And ads that use sympathetic figures are more compelling, generally, than those that don’t.”

In looking ahead to 2016, there are ominous signs that big money may distort the election outcome. Wealthy interests were far more likely in 2012 to contribute to Republicans than Democrats. Even if Democrats mobilize liberal billionaires, the GOP nominee is going to have a substantial fundraising advantage.

Money alone, of course, does not dictate elections. Research shows clearly that public opinion, media coverage, campaign strategies, policy positions, and the nature of the times matter as well. However, during a time of rising campaign costs and limited public engagement in the political process, big money sets the agenda, affects how the campaign develops, and shapes how particular people and policy problems get defined. It takes skilled candidates, favorable media coverage, and strong organizational efforts to offset the power of great wealth.

There are no guarantees that the future Democratic nominee will replicate Obama’s 2012 success. If Republicans nominate someone who relates well to ordinary voters and they tone down policies that disproportionately benefit the wealthy, the money story in 2016 likely will turn out very different from the last time. Billionaire activism very well could tilt a close election in favor of conservative interests.

      

One of the fundamental arguments in the “Political Realism” debate is whether or not strong political parties could make government work better. One way to assess party strength is to look at how much money parties can raise and spend.

In this vein, political scientists Ray LaRaja and Brian Schaffner have claimed that removing limits on party funding activity would make politics less polarized. I’ve been skeptical of this claim. In fact, in a short analysis, I found that the opposite is more likely the case—that states with limits on party fundraising appear to be less polarized, though I cautioned against inferring too much from this pattern.

LaRaja and Schaffner have now responded and previewed their forthcoming book, Campaign Finance and Political Polarization: When Purists Prevail, which will be out this fall from the University of Michigan Press. So, a response to their response is now in order.

I’ll start by granting a point of agreement: LaRaja and Schaffner note that I didn’t re-produce their analysis. I didn’t do this because, based on what they’ve written, it’s not clear exactly which states they consider to be “Parties Unlimited” and “Parties Limited” states. So, until they make their list public, it will be impossible to conduct a precise replication of their analysis.

The good news is they’ve promised to make their data public in the future. As they write in their recent post, “we will be posting all the data necessary to replicate (and challenge) our results upon publication of our book this fall, and we look forward to seeing what others find when they dig into the data.” They also note in their analysis that “11 states changed their laws on party limits during the period of our study (1993-2012).” Assembling this list, they note, was “possibly the most painstaking work we did on this book.” For now, their list of changes remains a well-kept secret, though the changes appear to be driving their analysis. So it will be good when all the relevant data and categorization choices are clear and on the table.

A lot depends on which states fall into which categories. But, there is a more fundamental question: does it make sense to dichotomize states into “Parties Unlimited” and “Parties Limited” states? States with limits vary considerably. Some states limit the money into parties, but allow unlimited flows to candidates; some states allow unlimited money into parties, but limit money from parties to candidates. Some limits are high, some are low. Some have exceptions for party-building activities. Rules vary between primary and general elections, as well.

Consider California. There are limits on how much parties can raise from individuals, but those limits are quite high (they are now at $35,200), and also only cover the party accounts that go to state candidates (so, for example, ballot measures are exempt or general party activities are exempted). California also has no limits on how much parties can transfer to candidates. So should California be a “limits” or “no limits” state? California also has the most polarized legislature, as measured by the distance between party medians. Depending on how you choose to classify states, you can get very different results, especially when you are only working with 20 states (LaRaja and Schaffner limit their claims to the 20 states with the most professionalized legislatures, as per the Squire Index).

LaRaja and Schaffner’s response presents a time series regression model to “calculate the predicted level of polarization over time in a state that limited party fundraising … and spending to on where those limits were removed.” But if states that removed limits became less polarized following the removal of those limits, why not tell us what those states were, and report the actual polarization trends in the states? Put another way: Why rely on model predictions when there are real world data? Grounding this debate in the trajectories of actual states would lend some realism to the claims. Then we could debate examples.

For example, as Thomas Mann and E.J. Dionne note in a recent Brookings paper, two of the states with no limits are Texas and North Carolina. As Mann and Dionne write, “The behavior of their legislatures in recent years cannot, on any plausible definition, be described as 'moderate.'” However, neither Texas nor North Carolina shows up as excessively polarized when polarization is merely a measure of voting patterns. Moreover, if parties are so pragmatic, why did the North Carolina Republican Party (which could raise and spend unlimited sums of money) fail to stop a takeover by multi-millionaire right-wing extremist Art Pope?

This takes us to questions of how party leaders actually behave. LaRaja and Shaffner show evidence in their response that parties give more money to moderate incumbents than to extreme incumbents. This should not be surprising. Presumably, moderate incumbents are more likely to be in competitive races, since moderates are more likely to represent competitive districts.

The more relevant question is what types of candidates parties recruit. Thankfully, we have answers to this courtesy of excellent work by David Broockman, Nicholas Carnes, Melody Crowder-Meyer, and Christopher Skovron, who surveyed 6,000 county-level political party leaders. They found that, “party leaders…use their influence to discourage moderates from seeking office: they strongly prefer candidates at least as ideologically polarized as their median party member. Republican party leaders show this preference especially.”

Their findings also reinforce something that should be apparent to students of polarization—that polarization is asymmetric. Republicans have moved far to the right. Democrats have mostly stayed in place. Let me quote Broockman et al.’s paper at further length, because the findings are extremely relevant to this debate:

“Republicans are much more likely to, unprompted, mention ideology as an important factor for candidates. Our evidence suggests that not only do Republicans care more about ideology, it is also readily accessible when they think of candidate recruitment. It seems likely, then, that Republicans are much more active in recruiting ideologically polarized candidates than Democrats are.”

“Democratic chairs are most inclined to support candidates who are middle-of-the-road or slightly left with respect to the party, while Republicans prefer candidates who espouse an ideology matching or more conservative than their party. In fact, while Democratic chairs are less likely to support very liberal candidates than those nearer to their party average, Republican chairs seem to give very conservative primary candidates the same boost that Democrats give to moderates.”

This does suggest that perhaps giving parties more money and therefore more control over candidates would produce moderation in blue states, but exacerbate polarization in red states. Unfortunately, there is nothing in LaRaja and Schaffner’s analysis that addresses this possibility.

The importance of recruitment also suggests that what we really want to know is who controls the actual recruitment mechanisms in the first place. It’s possible that states with limits might have strong party recruitment mechanisms. If what we really care about is the strength of party machines, why not try to measure that more directly?

LaRaja and Schaffner seem to envision parties being run by hard-headed pragmatists who can determine outcomes with money alone. They seem to assume that if parties can get billionaires to fund them, this will enable party leaders to support more moderate candidates. They seem to ignore that the billionaires may have a few ideas of their own about how they think government should be run (see, e.g. North Carolina).

This gets to a final point, about whether we ought to care if parties rely on small or large donors. LaRaja and Schaffner dismiss the case for small donors, noting that: “the endless romanticizing of small donors as being emblematic of American voters has no empirical grounding.” They go on to note that the ideological distribution of small donors and the ideological distribution of large donors “are nearly identical,” and therefore, “[p]utting more emphasis on ideological small donors may even make our politics worse as politicians streamline their messages to cater to this minority of individuals with more extreme views.”

Let’s grant that large and small donors have the same ideological distribution. If there is no difference, then there’s no reason to think that relying more on small donors would make politics any more extreme. However, since there are many more small donors than there are large donors, a small-donor matching system would allow less extreme candidates the ability to seek out less extreme donors from a larger population of potential donors. We know large donors are polarized, so relying more heavily on them doesn’t give parties much room to moderate. Of course, this presumes that large donors want to shape party positions. But that seems a safe bet.

There are also good (small-d) democratic reasons to support small-donor programs: they bring more participants into the political process; they orient politicians to think differently about whom they represent, and they probably make politics an attractive profession for a broader set of potential candidates. I’d even trade off some polarization for a small donor system. Fortunately, based on their data, it doesn’t appear that I’d even have to.

Finally, and perhaps most importantly, polarization is a function of many, many things, and it’s hard to imagine how changing limits on what parties can raise and spend would have much of an influence given the many other factors. Consider this thoughtful systems map developed by the Hewlett Foundation to analyze American politics as a system: it describes multiple factors that might influence levels of polarization. Systems thinking warns us to be careful of putting too much focus on a single point of leverage without thinking about the larger systems dynamics. This is why many reform skeptics are cautious about unintended consequences—thinking about a single variable in the absence of a larger context usually has unexpected results.

Moreover, as Mann and Dionne explain, we need to be cautious of applying lessons from the states to Washington:

"The gridlock in Washington is a consequence of the ideological polarization of the parties buttressed by vast party networks, their strategic opposition to one another throughout the legislative process fueled by the intense competition for control of the White House and Congress, the prevalence of divided party government, and the asymmetry between the parties that leads Republicans to eschew negotiation and compromise."

"The situation in the states is dramatically different. Most now have unified party governments, and gridlock is the exception, not the rule. There is little evidence of moderation in the Republican- controlled states, whatever their campaign finance laws."

I’m sure we will continue this debate for many months to come, especially after the publication of Campaign Finance and Political Polarization: When Purists Prevail this fall. I’m glad that LaRaja and Schaffner are bringing valuable data to this important question. It’s certainly far from settled.

       

The use of economic resources to support election campaigns is an essential ingredient of democratic competition. Often viewed as a malady of democracy, campaign finance is actually part of the normal workings of democratic life. However, it is indisputable that money is capable of inflicting significant distortions on politics and policymaking. When there is a failure to regulate money in the political process or existing regulation is ineffectual, the legitimacy of democratic processes can be jeopardized.

These concerns are particularly relevant to Latin America, a region plagued by a highly unequal income distribution, and where organized crime has a major presence, transacts billions of dollars each year in illicit business, and has the potential to corrupt democratic institutions. In this policy brief, Kevin Casas-Zamora and Daniel Zovatto offer practical guidance for making campaign finance regulation feasible and increasing its likelihood of success. In undertaking reform, countries should prioritize the most urgently needed changes with the broadest political consensus. Proposals for reform include:

• Establish greater control over private funding of parties and election campaigns;

• Create a public subsidy system to ensure fair access for parties and candidates to adequate funding to finance both regular day-to-day operations and election campaigns;

• Adopt mechanisms to keep campaign spending from skyrocketing;

• Craft party and candidate reporting systems to increase accountability, transparency, and disclosure; and

• Establish a graduated and credible system of sanctions for the chief financial officers of political parties in the event of violations of the rules in force.

Downloads

• The cost of democracy: Campaign finance in Latin America

       

Hillary Clinton’s release of her campaign finance proposals on Tuesday confirms there will be no significant substantive differences on political reform among the aspirants for the Democratic presidential nomination but a huge gulf between the two parties, whoever the nominees.

Harvard law professor and activist Larry Lessig announced his candidacy for the Democratic nomination this past weekend based on the single issue of political reform, but his quixotic and gimmicky campaign is akin to carrying coals to Newcastle. His only difference with the other Democratic candidates is his insistence that political reform (primarily on campaign finance) should be of the highest priority and other concerns (immigration, wages, climate change, economic inequality, infrastructure, national security) should play second fiddle. Lessig apparently believes that Republican and independent voters will rally to his call and create a broad base of public support for bipartisan cooperation on changing the rules of the electoral game.

If only it were that simple. The gaping differences between the parties on campaign reform are both ideological and strategic. Republicans are more philosophically disposed to elevate free speech over political equality. They also realize that as presently constituted, their party is advantaged by fewer or no restrictions on money in politics, lower turnout among minorities and youth, and single-member districts. Democrats instinctively reject the argument that money is speech and are comfortable with using public authority to set and enforce the rules of democracy. But they also know that they would benefit from restrictions on big money in elections, guaranteed voting rights for all citizens, and a more proportional translation of votes into seats.

The Clinton campaign finance proposals generally follow the thrust of liberal reformers: building a counterforce to big money through multiple matching funds for small donors, increasing transparency by requiring timely disclosure of mega-contributions and transfers that now evade public scrutiny, and overturning Citizens United, which set the stage for a Wild West of outsized contributions and spending. Her support for a constitutional amendment to accomplish the latter is a pipedream and probably wouldn’t work if it were adopted. As she acknowledges, appointing Supreme Court justices to change the current 5-4 majority is the more promising route to the desired change.

Lessig’s dream notwithstanding, this particular agenda will be achieved only if and when Democrats manage to control both ends of Pennsylvania long enough to put the policies and a sympathetic Supreme Court in place. It’s an important choice for voters to consider in the 2016 elections but by no means the only or most pressing one.

       

I was honored today to speak at the kick off meeting of the new ReFormers Caucus. This group of over 100 former members of the U.S. Senate, the House, and governors of both parties, has come together to fight for meaningful campaign finance reform. In the bipartisan spirit of the caucus, I shared speaking duties with Professor Richard Painter, who was the Bush administration ethics czar and my predecessor before I had a similar role in the Obama White House. 

As I told the distinguished audience of ReFormers (get the pun?) gathered over lunch on Capitol Hill, I wish they had existed when in my Obama administration role I was working for the passage of the Disclose Act. That bill would have brought true transparency to the post-Citizens United campaign finance system, yet it failed by just one vote in Congress.  But it is not too late for Americans, working together, to secure enhanced transparency and other campaign finance changes that are desperately needed.  Momentum is building, with increasing levels of public outrage, as reflected in state and local referenda passing in Maine, Seattle and San Francisco just this week, and much more to come at the federal, state and local level.

       

The rise of SuperPACs, the decision in Citizens United, and intensified polarization in Congress has ignited a flame under the already robust academic debate over the role of money in elections. Last week, Lee Drutman wrote an article for Vox outlining the recent contribution of Raymond J. La Raja and Brian Schaffner made to the debate with their book, Campaign Finance and Political Polarization: When Purists Prevail.

The crux of the book argues that allowing political parties to control more money, not less, is the key to reducing polarization. This runs counter to many pro-reform writings, focused chiefly on empowering small donors in order to counter big-money politics. La Raja and Schaffner counter this narrative, suggesting parties channel money to create moderation, rather than small donors, which are polarizing.

Drutman pushes back on both accounts by taking issue with some of the underlying assumptions in When Purists Prevail, including the weight they place on median voter theory and the extent parties will spend money on moderate candidates in primary elections. He marshals a host of recent research to support the critique, including: a recent Brookings paper on the strength of political parties, data on the power of outside money in congressional elections, and research showing moderate districts do not necessarily produce moderate candidates.

Click here to read the full article on Vox.

       

Event Information

Register for the Event

As the sixth anniversary of Citizens United v. FEC approaches on January 21, both experts and ordinary citizens believe the United States is confronting a campaign finance crisis. Citizens United and related court cases have unleashed a flood of dark money that many believe could drown our democracy. It is estimated that over $5 billion will be spent on the 2016 presidential race—more than 3 times the amount spent in 2008 (already the most expensive election cycle in history). A comprehensive poll conducted by the New York Times and CBS News in the spring of 2015 showed that 84 percent of adults—including 90 percent of Democrats and 80 percent of Republicans—believe that money has too much influence in American political campaigns. Even the richest Americans agreed: 85 percent of adults making $100,000 or more share that same belief.

There has been much handwringing about this state of affairs. But there has been too little public attention paid to finding solutions. On the sixth anniversary of Citizens United, the Governance Studies program at Brookings hosted current and former government officials, lobbyists, donors, advocates, and other experts to discuss how to resolve the campaign finance crisis. They focused on innovative reform efforts at the federal, state, and local levels which offer the hope of addressing the problem of big money in politics.

Panelists will included:

Cheri Beasley, Associate Justice, North Carolina Supreme Court
Daniel Berger, Partner, Berger & Montague, P.C.
John Bonifaz, Co-Founder and President, Free Speech for People
Norman L. Eisen, U.S. Ambassador to the Czech Republic (2011-2014); Special Assistant and Special Counsel to the President (2009-2011); Visiting Fellow, The Brookings Institution
Bruce Freed, Founder and President, Center for Political Accountability
Steve Israel, Member, U.S. House of Representatives (D-NY)
Roger Katz, Chair, Government Oversight Committee, Maine State Senate (R)
Allen Loughry, Justice, Supreme Court of Appeals of West Virginia
Chuck Merin, Executive Vice President, Prime Policy Group; Lobbyist
Connie Morella, Ambassador to OECD (2003-2007); Member, U.S. House of Representatives (R-Md., 1987-2003)
Jeffrey Peck, Principal, Peck Madigan Jones; Lobbyist
Nick Penniman, Executive Director, Issue One
Trevor Potter, Commissioner, Federal Election Commission (1991-1995; Chairman,1994)
John Pudner, Executive Director, Take Back Our Republic
Ann Ravel, Commissioner, Federal Election Commission (Chairwoman, 2015)
Timothy Roemer, Ambassador to India (2009-2011); Member, U.S. House of Representatives (D-Ind., 1991-2003); member 9/11 Commission; Senior Strategic Advisor to Issue One
John Sarbanes, Member, U.S. House of Representatives (D-Md.)
Claudine Schneider, Member, U.S. House of Representatives (R-R.I.,1981-1991)
Peter Schweizer, President, Government Accountability Institute
Zephyr Teachout, CEO, Mayday PAC
Lucas Welch, Executive Director, The Pluribus Project
Fred Wertheimer, Founder and President, Democracy 21
Tim Wirth, Member, U.S. Senate (D-Colo.,1987-1993); Member, U.S. House of Representatives (D-Colo.,1975-1987)
Dan Wolf, Chair, Committee on Steering and Policy, Massachusetts State Senate (D)

Click here for a full agenda.

Video

• The campaign finance crisis in America and how to fix it - Part 1
• The campaign finance crisis in America and how to fix it - Part 2
• The campaign finance crisis in America and how to fix it - Part 3
• The campaign finance crisis in America and how to fix it - Part 4

Audio

• The campaign finance crisis in America and how to fix it: A solutions summit (Part 1)
• The campaign finance crisis in America and how to fix it: A solutions summit (Part 2)
• The campaign finance crisis in America and how to fix it: A solutions summit (Part 3)
• The campaign finance crisis in America and how to fix it: A solutions summit (Part 4)

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• Solution Summits Agenda120
• 20160121_campaign_finance_summit_transcript

       

We have received many emails and calls in response to our blog last week about our campaign finance reform “Solutions Summit," so we thought we would share some pictures and quotes from the event. Also, Issue One’s Nick Penniman and I just co-authored an op-ed highlighting the themes of the event, which you can find here.

Ann Ravel, Commissioner of the Federal Election Commission and the outgoing Chairwoman kicked us off as our luncheon speaker. She noted that, “campaign finance issues [will] only be addressed when there is a scandal. The truth is, that campaign finance today is a scandal.”

    

(L-R, Ann Ravel, Trevor Potter, Peter Schweizer, Timothy Roemer)

Commenting on Ann’s remarks from a conservative perspective, Peter Schweizer, the President of the Government Accountability Institute, noted that, “increasingly today the problem is more one of extortion, that the challenge not so much from businesses that are trying to influence politicians, although that certainly happens, but that businesses feel and are targeted by politicians in the search for cash.” That’s Trevor Potter, who introduced Ann, to Peter’s left.

Kicking off the first panel, a deep dive into the elements of the campaign finance crisis, was Tim Roemer, former Ambassador to India (2009-2011), Member of the U.S. House of Representatives, (D-IN, 1991-2003) Member of the 9/11 Commission and Senior Strategic Advisor to Issue One. He explained that “This is not a red state problem. It’s not a blue state problem. Across the heartland, across America, the Left, the Right, the Democrats, the Republicans, Independents, we all need to work together to fix this.”

(L-R, Fred Wertheimer, John Bonifaz, Dan Wolf, Roger Katz, Allen Loughry, Cheri Beasley, Norman Eisen)

Our second panel addressed solutions at the federal and state level.  Here, Fred Wertheimer, the founder and President of Democracy 21 is saying that, “We are going to have major scandals again and we are going to have opportunities for major reforms. With this corrupt campaign finance system it is only a matter of time before the scandals really break out. The American people are clearly ready for a change. The largest national reform movement in decades now exists and it’s growing rapidly.”

Our third and final panel explained why the time for reform is now. John Sarbanes, Member of the U.S. House of Representatives (D-MD) argued that fixes are in political reach. He explains, “If we can build on the way people feel about [what] they’re passionate on and lead them that way to this need for reform, then we’re going to build the kind of broad, deep coalition that will achieve success ultimately.”

 

(L-R in each photo, John Sarbanes, Claudine Schneider, Zephyr Teachout)

Reinforcing John’s remarks, Claudine Schneider, Member of the U.S. House of Representatives (R-RI, 1981-1991) pointed out that “we need to keep pounding the media with letters to the editor, with editorial press conferences, with broad spectrum of media strategies where we can get the attention of the masses. Because once the masses rise up, I believe that’s when were really going to get the change, from the bottom up and the top down.”

Grace Abiera contributed to this post.

       

Campaign finance is a key issue for the quality of democracy. As we noted in a recently-published book of which we are co-authors, and which we had the honor to present in the Hall of Former Presidents of the Legislative Assembly last February 11 (El costo de la Democracia: Ensayos sobre el financiamiento político en América Latina, UNAM, Mexico City, 2015), it is important because of an inescapable fact: While democracy has no price, it does have an operating cost. The use of economic resources is an essential element for democratic competition. More than a pathology of democracy, political financing, when well-regulated, is a normal part of democratic life.

Yet it is undeniable that money is capable of introducing distortions in the democratic process. Its unequal distribution impacts, first, on the real possibilities enjoyed by the parties and the candidates to take their message to the voters. Second, having money gives individuals and social groups a differentiated possibility of participating in elections and exercizing their influence over the candidates through their contributions. This is vital for democracy. When political power is simply a reflection of economic power, the principle of “one person, one vote” loses meaning. Third, fundraising efforts offer obvious opportunities for the articulation of exchanges between donors and those who make decisions on public affairs, or at least for the continual appearance of conflicts of interest. This can be very problematic in the case of Latin America, where there is a risk of money from organized crime penetrating the campaigns.

And so it is not surprising that the issue is on the political agenda in many countries of the region, just as it has been for a long time in Costa Rica. Costa Rica introduced public financing for political parties in 1956, making it the second country in the world to do so, after Uruguay. Nonetheless, the generosity of the government contribution did not avoid a long succession of scandals associated with the issue, a history that includes figures ranging from Robert Vesco and Manuel Antonio Noriega to Carlos Hank González and the illegal donations from the government of Taiwan. 

The wounds left by each of these episodes gave way to worthy yet incomplete regulatory efforts. Most important has been the reform of the Electoral Code approved in 2009, which among many necessary changes prohibited corporate contributions to the political parties. And not only legislative action has made a difference. The Constitutional Chamber of the Supreme Court has also made a difference by lifting bank secrecy on financing, a very important decision that has been pointed to internationally.

Each of these steps has been moving the country in the right direction. This is worth underscoring: At a time when it is so easy to revile the Costa Rican political system, it should be recognized that in terms of political financing the country is, in general, better situated than it was 20 or 30 years ago. All the evidence we have indicates that private contributions today are less important in our campaigns than one generation ago. We can state with great certainty that our parties are financing more than 80% of the cost of their campaigns with the state contribution. That is good news.

However, the current regulatory framework presents problems such as:

a) It continues to be a regulatory system that is somehow upside down: It meticulously keeps tabs on the use of the state contribution by the parties, which does not give rise to conflicts of interest, while it is much less effective when it comes to verifying the truth of the information the parties provide about their private sources of financing, which do have the potential to compromise the autonomy of the political system. Correcting this imbalance, getting the Supreme Electoral Tribunal to prioritize monitoring private financing and to devote more resources to it, would not only be a way to straighten out its priorities, but frankly, all the parties would also breathe a sigh of relief.

b) The system of advances on the state contribution continues to be very limited (only 15% of the subsidy is disbursed before the presidential election and nothing in the case of municipal elections). It is time to admit that eliminating the system whereby the contributions were distributed in advance payments, which existed from 1971 to 1991 (when 50% was disbursed in advances), caused grave prejudice to the political system. The weakness of the advanced disbursement has ended up leaving the parties at the mercy of banks and lenders during the campaigns. Worse still, today the possibility of a party receiving loans during the campaign against its electoral expectations depends entirely on the fickle behavior of the opinion polls. This is unfair and risky, as the OAS electoral observation missions have noted.

c) The legal framework does little to limit parties’ spending on advertising, one of the most effective ways to reduce outlays during campaigns and to bring about fairness in electoral competition, which is one of the most important objectives in improving the current system. One must evaluate the advisability of adopting a system of advertising slots (provided free of charge by those holding concessions for the radio spectrum or purchased by the Supreme Electoral Tribunal and then made available to the parties) as has been done, with a positive outcome, by other democracies in the region such as Argentina, Brazil, Chile, Ecuador, and Mexico.

d) The current regulatory framework has serious vulnerabilities at the local level. Requiring the parties to file a single financial report with the contribution they receive nationwide (the same system that exists for the presidential election) is insufficient when in practice there are 81 local elections in which each candidate raises and spends money autonomously. Let’s be clear: Relatively little is known about who finances the campaigns at the local level in Costa Rica. This would not matter much except that the experience of other countries – from Mexico to Colombia – shows that local campaigns are the preferred point of entry for organized crime to penetrate the electoral structures. Reinforcing the financial controls on municipal elections is one of the country’s most urgent tasks in relation to campaign finance.

Costa Rica has made major strides in regulating political financing. Yet there is an urgent need to address the weaknesses in the current regulatory framework. There are bills in the legislative pipeline, such as No. 18,739, introduced by the Supreme Electoral Tribunal in April 2013, that incorporate almost all the reforms suggested here and that provide an excellent basis for moving this inevitable discussion forward. 

We will have to address the problems in the current regulatory framework sooner or later. The question is whether we will do so before or after the next scandal. Let’s hope that, for once, we act on time.

This piece was originally published by International IDEA. 

       

       

       

In new Urban-Brookings Tax Policy Center analysis of Earned Income Tax Credit (EITC) take-up at the county level, Benjamin Harris, a fellow in Economic Studies, and Research Assistant Lucie Parker use zip-code level data on taxes and demographics to take a "fresh look" at the EITC. "Since its creation in 1975," they write, "the Earned Income Tax Credit has played a major role in the U.S. safety net." Earlier this year, Harris presented EITC take-up using IRS data from 2007. Compare that to the new list of ten counties with the highest share of EITC recipients below:

Rank	County	EITC Share (pct)
10	Sharkey Co., MS	50.5
9	Quitman Co., MS	50.7
8	Coahoma Co., MS	51.6
7	Starr Co., TX	52.1
6	Claiborne Co., MS	52.7
5	Humphreys Co., MS	53.0
4	Buffalo Co., SD	54.1
3	Shannon Co., SD	54.5
2	Holmes Co., MS	55.5
1	Tunica Co., MS	56.1

"The regional variation EITC claiming is stark," Harris and Parker conclude. "The counties with the highest share of taxpayers claiming the EITC are overwhelming located in the Southeast. ... [O]ver half the taxpayers in a large share of counties in Alabama, Georgia, and Mississippi claim the EITC. With few exceptions, almost all counties with high EITC claiming are located in the South. Relative to the South, the Northeast and the Midwest have much lower claiming rates. Moreover, average EITC benefit closely follows the pattern for share of taxpayers taking up the credit: in counties where more taxpayers claim the credit, the credit is larger on the whole."

Visit this U.S. map interactive to get county level data on share of taxpayers claiming EITC as well as average EITC amount, in dollars, per county.

      

Each year millions of low- to moderate-income Americans supplement their income by claiming the Earned Income Tax Credit (EITC) during tax season. Last year, 1 in 5 taxpayers claimed the credit and earned an average of nearly $2,400.

This tax season, some of those eligible for the EITC may also be able to claim, for the first time, a new credit created by the Affordable Care Act (ACA) to offset the cost of purchasing health insurance for lower-income Americans. It’s called the ACA premium tax credit.

To qualify for the ACA premium tax credit, filers need first to have an annual income that falls between 100 and 400 percent of the federal poverty line (between $11,670 and $46,680 for a single-person household in 2014). Beyond the income requirements, however, filers must also be ineligible for other public or private insurance options like Medicaid or an employer-provided plan.

Why the tax credit overlap matters

Identifying the Americans eligible for both credits is important because it sheds light on how many still need help paying for health insurance even after the ACA extended coverage options.

In a recent study of the EITC-eligible population, Elizabeth Kneebone, Jane R. Williams, and Natalie Holmes estimated what share of EITC-eligible filers might also qualify for the ACA premium tax credit this year.

Below, see a list of the top 10 states with the largest overlap between filers eligible for the EITC and those estimated to qualify for the ACA premium tax credit.* Notably, none of these states has expanded Medicaid coverage to low-income families after the passage of the ACA.

Nationally, an estimated 7.5 million people (4.2 million “tax units”) are likely eligible for both the ACA premium tax credit and the EITC. Nearly 1.3 million of those tax units are from the following ten states.

1. Florida

Overlap: 22.5 percent / 405,924 tax units
State-based exchange? No Expanded Medicaid coverage? No

2. Texas

Overlap: 21.4 percent / 513,061 tax units
State-based exchange? No Expanded Medicaid coverage? No

3. South Dakota

Overlap: 20.5 percent / 15,124 tax units
State-based exchange? No Expanded Medicaid coverage? No

4. Georgia

Overlap: 19.8 percent / 186,020 tax units
State-based exchange? No Expanded Medicaid coverage? No

5. Louisiana

Overlap: 19.6 percent / 86,512 tax units
State-based exchange? No Expanded Medicaid coverage? No

6. Idaho

Overlap: 19.3 percent / 28,855 tax units
State-based exchange? Yes Expanded Medicaid coverage? No

7. Montana

Overlap: 18.9 percent / 18,138 tax units
State-based exchange? No Expanded Medicaid coverage? No

8. Wyoming

Overlap: 18.4 percent / 7,276 tax units
State-based exchange? No Expanded Medicaid coverage? No

9. Utah

Overlap: 18.1 percent / 42,284
State-based exchange? No (Utah runs a small businesses marketplace, but it relies on the federal government for an individual marketplace) Expanded Medicaid coverage? No

10. Oklahoma

Overlap: 18.0% / 63,045 tax units
State-based exchange? No Expanded Medicaid coverage? No

* For the purposes of this list, we measured the overlap in “tax units,” not people. One tax unit equals a single tax return. If a family of four together qualifies for the ACA premium tax credit, they would be counted as one tax unit, not four, since they filed jointly with one tax return.

       

       

       

Policy Brief #178

One of the strongest narratives in U.S. history has been the contribution made by talented, hard-working and entrepreneurial immigrants whose skills and knowledge created a prosperous new country. Yet today, the nation’s immigration priorities and outmoded visa system discourage skilled immigrants and hobble the technology-intensive employers who would hire them. These policies work against urgent national economic priorities, such as boosting economic vitality, achieving greater competitiveness in the global marketplace and renewing our innovation leadership.

In the long term, the nation needs comprehensive immigration reform. In the short term, policymakers should focus on reforms that are directly related to increasing the "brain gain" for the nation—creating new jobs and producing economic benefits—to produce tangible and achievable improvements in our immigration system.

	RECOMMENDATIONS
	Rebalance U.S. immigration policies to produce a "brain gain," with changes to visas that will allow employers to access workers with the scientific and technological skills they need to improve economic competitiveness, employment and innovation Tie immigration levels to national economic cycles to meet changing levels of need Use digital technologies to modernize the current visa system

Background

Immigrants are now one-tenth of the overall U.S. population—a situation that defies facile stereotyping. Immigrants have made significant contributions to American science and economic enterprise, most notably in the areas of high-tech and biotech.

• Immigrants’ productivity raises the U.S. Gross Domestic Product (GDP) by an estimated $37 billion per year
   
• More than a quarter of U.S. technology and engineering businesses launched between 1995 and 2005 had a foreign-born founder
   
• In Silicon Valley, more than half of new tech start-up companies were founded by foreignborn owners
   
• In 2005, companies founded by immigrants produced $52 billion in sales and employed 450,000 workers
   
• Nearly a quarter of the international patents filed from the United States in 2006 were based on the work of foreign-born individuals (more than half of whom received their highest degree from an American university)
   
• Economists calculate that, as a result of immigration, 90 percent of native-born Americans with at least a high-school diploma have seen wage gains
   
• Historically, immigrants have made outsize contributions to American science and technology, with Albert Einstein perhaps the leading example. One-third of all U.S. winners of Nobel prizes in medicine and physiology were born in other countries Far from "crowding out" native-born workers and depressing their wages, well-educated, entrepreneurial immigrants do much to create and support employment for Americans.

In order to fully reap the benefits of the worldwide talent market, U.S. immigration policy must be reoriented. Current policy is significantly—and negatively—affected by the unintended consequences of the 1965 Immigration and Nationality Act that made family unification its overarching goal. Although the law may have contributed to the high-tech boom by removing long-standing, country-specific quotas and expanding immigration from places with strong science and engineering education programs, its main effect was to enable immigrants to bring in family members, without regard for the new immigrants’ education, skill status or potential contributions to the economy.

Thus, in 2008, almost two-thirds of new legal permanent residents were family-sponsored and, over the past few years, the educational attainment of new immigrants has declined.

U.S. employers have a large, unmet demand for knowledge workers. They are eager to fill jobs with well-trained foreign workers and foreign graduates of U.S. universities—particularly those with degrees in the sciences, technology, engineering and mathematics—the "STEM" fields that continue to attract too few U.S.-born students. In 2008, the "Tapping America’s Potential" business coalition reported that the number of U.S. graduates in STEM had been stagnant for five years, and that number would have to nearly double by 2015 to meet demands.

Meanwhile, the United States is falling behind in the pace of innovation and international competitiveness. Evidence for the decline in innovation is the decreasing U.S. share of international patents. In 2009, for the first time in recent years, non-U.S. innovators earned more patents (around 96,000) than did Americans (93,000). Only a decade earlier, U.S. innovators were awarded almost 57 percent of all patents.

To date, Congress—for a variety of reasons, including partisanship—has stalled in addressing the problems of immigration and immigration policy. Unfortunately, this inaction extends to problems hampering the nation’s economy that, if remedied, could help the United States grow employment, pull out of the current recession more quickly and improve its position in the global economy.

Game-Changing Policy Reforms

Rebalance Fundamental Goals

The goals of U.S. immigration policy should be rebalanced to give priority to immigrants who have the education and talent to enhance America’s economic vitality, by stimulating innovation, job creation and global competitiveness. At the same time, it should decrease emphasis on family reunification (other than parents and children of U.S. citizens). Changing the composition of the immigration stream, even without increasing its size, would result in a "brain gain" for the United States.

Other countries, such as Canada, the United Kingdom and Australia, strategically craft immigration policy to attract skilled and unskilled workers, making the benefits easy to see and strengthening public support for immigration in the process. Canada, for example, explicitly targets foreign workers to fill positions for which there are not enough skilled Canadians. Applicants for admission to the country accumulate points based on their field of study, educational attainment and employment experience. Upon reaching the requisite number of points, the applicant is granted a visa. Some 36 percent of all Canadian immigrant visas are in the "skilled-worker" category, as opposed to only 6.5 percent in the United States.

An interesting by-product of this strategy—which is both clearly articulated and of obvious benefit to the national economy—is that Canadians see the benefits of the policy and, as a result, immigration is far less controversial than in the United States. In 2005 polling by The Gallup Organization, only 27 percent of Canadians wanted to decrease immigration, whereas 52 percent of U.S. citizens did. And, three times as many Canadians (20 percent) as Americans (seven percent) actually wanted to increase it.

An obvious place to begin the rebalancing process would be with the many foreign students who come to the United States for education in scientific and technology fields. They are familiar with our culture and speak English. Many would like to stay and build careers here. But, under current visa rules, most are sent home as soon as they graduate. A complete policy reversal is needed, with automatic green cards for foreign graduates of U.S. science and technology programs.

In fact, the United States should make it as easy as possible for these highly trained students to stay, since the expansion of job opportunities in India, China and other growth-oriented countries now offers them attractive options. Our current counterproductive policy, quite simply, puts the United States in the position of training our global competitors.

New York City mayor Michael Bloomberg, in a December 2009 Meet the Press interview, said about immigration: "We’re committing what I call national suicide. Somehow or other, after 9/11 we went from reaching out and trying to get the best and the brightest to come here, to trying to keep them out. In fact, we do the stupidest thing, we give them educations and then don’t give them green cards."

Universities collectively invest huge sums in the development of these students. In addition, research suggests that increasing the number of foreign graduate students would increase U.S. patent applications by an estimated 4.7 percent and grants of university patents by 5.3 percent.

Another strategic policy change would be for the federal government to take U.S. workforce and economic conditions into account when setting immigration levels and annual H-1B visa numbers for scientists and engineers. Such a flexible approach would reflect labor market needs, protect American workers’ jobs and wages, and dampen public concerns about employment losses during lean economic times.

Revamp the Antiquated Visa System

Increase the Number of Visas for Highly-skilled Workers

Today’s visa programs for high-skilled workers are not large enough to fill the numerical demand for such employees and are too short in duration. For example, H-1B visas for workers in "specialty occupations" are valid for a maximum of six years. Between fiscal years 2001 and 2004, the federal government increased the annual allocation of H-1B visas for scientists and engineers to 195,000. The rationale was that scientific innovators were so important for the country’s long-term economic development that the number set aside for those specialty professions needed to be high. Since 2004, that number has returned to its former level, 65,000—only a third of the peak, despite rapid technologic change in almost every field, such as information, medicine, energy and logistics.

Most of these visas are allocated within a few months of becoming available. Even in recessionplagued 2009, applications exceeded the supply of visas within three months. Almost half of the visa requests came from U.S. employers, most of them in high-tech industries. Clearly the demand for visas is greater than the supply, and a minimal step would be to raise the set-aside for high-skilled workers to the previous, 195,000 level.

Only a small percentage of aliens with student visas and aliens with H-1B visas are able to change directly to legal permanent resident status—about seven percent of each category, according to a study published in 2005—although about half of H-1B visa-holders eventually become legal permanent residents. Such an uncertain path is not conducive to career (or employment) planning in a competitive environment.

Several additional small programs support talented scientists and entrepreneurs. These, too, could be aligned with economic goals, expanded or more effectively promoted:

• The O-1 "genius" visa program allows the government to authorize visas for people with "extraordinary abilities in the arts, science, education, business, and sports." In 2008, around 45,000 genius visas were granted. The clear intent is to encourage talented people to migrate to America. However, the current program is too diffuse to have much impact on the level of scientific and technological innovation talent in the United States.
   
• The EB-5 visa program offers temporary visas to foreigners who invest at least $500,000 in the nation’s rural or "targeted employment areas" or at least $1,000,000 in other areas. If the investment creates at least ten jobs, the visa automatically becomes a permanent green card. The program is authorized by Congress to offer approximately 10,000 visas per year, but it is significantly underutilized—about 500 EB-5 visas a year were granted between 1992 and 2004. In 2009, 3,688 people did become legal permanent residents under the "employment creation (investors)" category, a number that includes spouses and children.

According to a March 2009 report from the Department of Homeland Security, the causes of the persistent underutilization of this program include "program instability, the changing economic environment, and more inviting immigrant investor programs offered by other countries." The report makes a number of recommendations designed to streamline program administration and encourages greater efforts to promote the program overseas.

Update the Visa System Infrastructure

Aside from questions about the number of visas allowed, the infrastructure for considering and granting visas needs a major upgrade. Currently, the U.S. visa process requires people seeking entry to provide paper copies of sometimes hard-to-obtain documents. Often these are lost in the system and must be submitted repeatedly. Obtaining a visa can take months and, in some cases, years. Implementation of the USA PATRIOT Act has slowed the process even further.

The visa system should adopt digital technology to reduce both errors and delays. Further, if the nation’s immigration policy moves toward a more credential-based approach, any new electronic processes should be designed to minimize the potential that false documents regarding an individual’s education and experience will be accepted.

Tie Immigration Levels to National Economic Indicators

To ease U.S.-born workers’ understandable worries about job competition from immigrants, Congress should tie overall annual levels of immigration to the unemployment rate and growth in the Gross Domestic Product. Immigration levels can be adjusted up or down depending on the level of economic conditions. These fluctuations should occur automatically, triggered by authoritative statistical reports.

Political Hurdles to Immigration Reform

U.S. news reporting on immigration focuses heavily on illegality and largely ignores the benefits of immigration. Sadly, important news organizations follow the tradition set in the 19th century, when many journalists railed against groups of newcomers, such as immigrants from Ireland and China. Immigration opponents’ unfavorable media narratives, often widely publicized, have a discernible impact on public opinion and affect policymaking. The economic, social, and cultural benefits of immigration are rarely reported.

The State of Public Opinion

Immigration does not rank high on Americans’ lists of the country’s most important problems. In 2008, only four percent of Americans (mostly people from Southwestern border states concerned about illegal entry) thought immigration was the country’s most important problem. Even during 2007’s acrimonious national debate about comprehensive reform, 60 percent of Americans believed new arrivals benefit the country. But public opinion can shift quickly, which makes politicians wary. Fifty-seven percent of voters in the November 2010 mid-term election considered immigration a "very important" issue, ranking it 7th and on a par with taxes and national security/war on terror, according to the Rasmussen report.

The Need for Reform Follow-Through

Administration and enforcement of immigration laws and visa programs are complex, in part because federal, state and local officials are involved in various aspects and are overseen by multiple federal agencies. Aligning the goals of these different entities to put an emphasis on the brain gain can help build support for policy improvements.

As the report of a 2009 Brookings Forum on Growth Through Innovation pointed out with regard to promoting innovation more broadly, "while the actions we need to take are clear and reasonably simple to outline, our political culture erects insurmountable barriers to long-term planning, funding and implementation."

Achieving an Improved Immigration Policy

It will be difficult to achieve comprehensive, coherent policy reform in the face of many competing goals and interest groups and in the current polarized political environment. The task is made more difficult by the divided authority over immigration matters within Congress, involving several committees and subcommittees with competing interests and different political dynamics. Individual members of Congress tend to focus on local concerns, forestalling consideration of broad, long-term national interests.

In the past, elected officials have overreacted to specific episodes of problems related to immigrants or anti-immigrant sentiments in developing policy, rather than taking into account long-term national economic priorities. Just as deleterious, stalemate and inaction have prevented needed reforms, despite a frustrating status quo for employers who need talented scientists and engineers, and who could hire many more Americans if they could fill key slots with skilled workers they cannot find in their local workforce.

A spectrum of experts has suggested creation of a broadly representative, independent federal immigration commission that could develop specific policies under parameters set by Congress. Proposals for such a body have the common themes of depoliticization, insulating members from parochial political pressures and relying on technical experts. Given past missteps and the current policy stalemate, it makes sense to consider such proposals seriously, in the hope that all aspects of immigration—especially those that affect U.S. economic vitality—receive the thoughtful attention they need.

Conclusion

The immigration policy reforms in this paper focus on those that would have swift and direct positive impact on the nation’s economy. Clearly, these are not the only reforms the system needs. A fairer, more comprehensive immigration policy also would:

• Develop more effective and cost-effective border control strategies
   
• Strengthen the electronic employment-eligibility ("e-verify") system and add an appeals process
   
• Improve the immigration courts system and the administration of immigration law
   
• Work harder to integrate immigrants into American life and teach them English and
   
• Create a path to citizenship for illegal immigrants with requirements that applicants learn English, pay back taxes, and pay fines.

Meanwhile, a number of the needed corrections to the system as it affects national economic goals, employment, innovation, and global competitiveness can be addressed, including:

• Tying visa and immigration levels to U.S. economic indicators, in order to assuage American workers’ concerns about threats to employment and wage levels
   
• Creation of an automatic green card for foreign graduates of U.S. science, technology, engineering, and mathematics educational programs and other steps to make staying in the United States a desirable option
   
• Expansion of visa programs (especially H-1B for highly skilled workers) and making more effective the O-1 and EB-5 visa programs and
   
• Creating a modern, electronic visa system.

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Editor's Note, Oct. 12, 2011: Congress has passed a trio of trade agreements negotiated during the George W. Bush administration and recently submitted by President Obama. The authors of this policy brief say the pacts with South Korea, Colombia and Panama will boost U.S. exports significantly, especially in the key automotive, agricultural and commercial services sectors.

Policy Brief #183

A trio of trade agreements now pending before Congress would benefit the United States both economically and strategically. Carefully developed accords with South Korea, Colombia and Panama will boost U.S. exports significantly, especially in the key automotive, agricultural and commercial services sectors.

Among the other benefits are:

• increased U.S. competitiveness
• enhancement of U.S. diplomatic and economic postures in East Asia and Latin America
• new investment opportunities
• better enforcement of labor regulation and
• improved transparency in these trading partners’ regulatory systems.

The pacts are known as Free Trade Agreements, or FTAs. The Korean agreement (KORUS) was negotiated in 2006-2007 and revised in 2010. The Colombian agreement (COL-US, sometimes known as COL-US FTA) was signed in 2006. The agreement with Panama (PFTA, sometimes known as the Panama Trade Promotion Agreement) was signed in 2007. All have the support of the Obama administration.

	RECOMMENDATIONS
	The three FTAs will substantially reduce these trading partners’ tariffs on U.S. goods, opening large markets for U.S. commerce and professional services. In combination, they will increase the size of the U.S. economy by about $15 billion. Furthermore, they will help reverse a slide in U.S. market influence in two important and increasingly affluent regions of the globe. Approval of all three agreements is in the national interest. To move forward, both Congress and the administration should take these appropriate steps: Congress should approve the trade agreements with Korea (KORUS), Colombia (COL-US) and Panama (PFTA) without additional delays.   To maximize the trade and investment benefits of KORUS, the administration should actively engage in the KORUS working groups, such as the Professional Services Working Group.   Similarly, the U.S. Trade Representative should participate in the Joint Committee’s scheduled annual meetings, in order to maintain a highlevel focus on U.S.-Korea trade, drive further trade liberalization and enable the committee to serve as a forum for broader discussions on trade in East Asia.   The Colombia-U.S. Joint Committee should include representatives of Colombia’s Trade and Labor Ministers with their US counterparts. The presence of the Labor minister should facilitate progress under the FTA through strengthened labor standards and timely implementation of all elements of the agreed-upon action plan. This Committee and specialized working groups could increase the pace of bilateral interaction and help officials identify important areas for discussion, negotiation and agreement.   Panama has ratified the Tax Information and Exchange Agreement which entered into force on April 2011. Panama and the US should strengthen bilateral communication so that collaboration in the battle against money laundering is pushed even further with greater cooperation.

Economic Effects of the Korea Agreement

The economic benefits to the United States from KORUS are especially significant, as the agreement will provide preferential market access to the world’s 11th largest—and a fast-growing—economy. In 2010, U.S.-Korea trade was worth $88 billion, comprising U.S. exports of $39 billion and imports of $49 billion, making Korea the United States’ seventh largest trading partner. According to the independent, quasi-judicial U.S. International Trade Commission (ITC), exports resulting from KORUS will increase the U.S. gross domestic product (GDP) by up to $12 billion. This constitutes a remarkable gain in both real and percentage terms.

To the United States, KORUS offers diverse economic advantages. Most strikingly, KORUS will open Korea’s service market to U.S. exports, allowing the United States to exploit its competitive advantages in financial services, education and information and communications technologies. The agreement also will lead to increased imports from Korea, which in turn will help the United States achieve greater economic specialization. The likely effects of more specialization—and of increased Korean investment in the United States—include greater U.S. efficiency, productivity, economic growth and job growth. Meanwhile, U.S. investors will gain new opportunities in the increasingly active Asia-Pacific region.

Lately, passage of KORUS has assumed enhanced importance with the impasse in the World Trade Organization’s Doha Round. No longer can the United States reasonably anticipate that Doha will lead to improved access to the Korean market. Moreover, an FTA between Korea and the European Union (EU) that took effect July 1st confers preferential access to European exporters, undermining the competitiveness of U.S. businesses in Korea. Even before the European FTA, the United States had been losing valuable ground in Korea. Between 2000 and 2010, the United States fell from first to third in the ranking of Korea’s trading partners (reversing positions with China), as U.S. products declined from 18 to only 9 percent of Korean imports. Failure to approve the agreement can be expected to lead to a further decline. These moves will strongly assist U.S. producers of electronic equipment, metals, agricultural products, autos and other consumer goods. For example, agricultural exports are expected to rise $1.8 billion per year.

On the services front, KORUS will increase U.S. businesses’ access to Korea’s $560 billion services market. Financial services providers, the insurance industry and transportation firms stand to benefit substantially. KORUS usefully builds on the link between investment and services by improving the ability of U.S. law firms to establish offices in Korea. In addition, the agreement establishes a Professional Services Working Group that will address the interests of U.S. providers of legal, accounting and engineering services, provided that U.S. representatives engage actively in the group. KORUS also requires that regulations affecting services be developed transparently and that the business community be informed of their development and have an opportunity to provide comments, which the Korean government must answer.

On the investment front, KORUS affords a chance to strengthen a bilateral investment relationship that probably is underdeveloped. In 2009, the U.S. foreign direct investment flow to Korea was $3.4 billion, while there was a net outflow of Korean foreign direct investment to the United States of $255 million. KORUS supports market access for U.S. investors with investment protection provisions, strong intellectual property protection, dispute settlement provisions, a requirement for transparently developed and implemented investment regulations and a similar requirement for open, fair and impartial judicial proceedings. All this should markedly improve the Korean investment climate for U.S. business. It will strengthen the rule of law, reducing uncertainty and the risk of investing in Korea.

On the governance side, KORUS establishes various committees to monitor implementation of the agreement. The most significant of these is the Joint Committee that is to meet annually at the level of the U.S. Trade Representative and Korea’s Trade Minister to discuss not only implementation but also ways to expand trade further. KORUS establishes committees to oversee the goods and financial services commitments, among others, and working groups that will seek to increase cooperation between U.S. and Korean agencies responsible for regulating the automotive sector and professional services. These committees and working groups, enriched through regular interaction between U.S. and Korean trade officials, should increase levels of trust and understanding of each county’s regulatory systems and help officials identify opportunities to deepen the bilateral economic relationship.

Strategic Effects of the Korea Agreement

Congressional passage of KORUS will send an important signal to all countries in the Asia-Pacific region that the United States intends to remain economically engaged with them, rather than retreat behind a wall of trade barriers, and is prepared to lead development of the rules and norms governing trade and investment in the region. KORUS will provide an important economic complement to the strong, historically rooted U.S. military alliance with Korea. It also will signal a renewed commitment by the United States in shaping Asia’s economic architecture.

The last decade has seen declining U.S. economic significance in Asia. Just as the United States has slipped from first to third in its ranking as a trading partner of Korea, similar drops are occurring with respect to Japan, Indonesia, Malaysia and other Asia-Pacific economic powers. In all of Northeast and Southeast Asia, the United States has only one FTA in effect, an accord with the Republic of Singapore. Passage of KORUS now would be particularly timely, both as a sign of U.S. engagement with Asia and as a mechanism for ensuring robust growth in U.S.-Asia trade and investment.

To illustrate how KORUS might affect U.S. interests throughout the region, consider regulatory transparency. The KORUS transparency requirements could serve as a model for how countries can set and implement standards. They might for example, influence the unfolding Trans-Pacific Partnership negotiations, talks that could set the stage for a broader Asia-Pacific FTA. U.S. producers, investors and providers of commercial and professional services could only benefit from a regional trend toward greater transparency and the lifting of barriers that would ensue. Other KORUS provisions favorable to the United States could function as similar benchmarks in the development of U.S. relations with Asia-Pacific nations and organizations.

Effects of the Colombia Agreement

COL-US will also strengthen relations with a key regional ally and open a foreign market to a variety of U.S. products. Bilateral trade between Colombia and the United States was worth almost $28 billion in 2010. COL-US is expected to expand U.S. GDP by approximately $2.5 billion, which includes an increase in U.S. exports of $1.1 billion and an increase of imports from Colombia of $487 million.

COL-US offers four major advantages:

• It redresses the current imbalance in tariffs. Ninety percent of goods from Colombia now enter the United States duty-free (under the Andean Trade Promotion and Drug Eradication Act). COL-US will eliminate 77 percent of Colombia’s tariffs immediately and the remainder over the following 10 years.
   
• It guarantees a more stable legal framework for doing business in Colombia. This should lead to bilateral investment growth, trade stimulation and job creation.
   
• It supports U.S. goals of helping Colombia reduce cocaine production by creating alternative economic opportunities for farmers.
   
• It addresses the loss of U.S. competitiveness in Colombia, in the wake of Colombian FTAs with Canada and the EU as well as Latin American sub-regional FTAs.

With respect to trade in goods, U.S. chemical, rubber and plastics producers will be key beneficiaries of COL-US, with an expected annual increase in exports in this combined sector of 23 percent, to $1.9 billion, relative to a 2007 baseline according to the ITC. The motor vehicles and parts sector is expected to see an increase of more than 40 percent. In the agriculture sector, rice exports are expected to increase from a 2007 baseline of $2 million to approximately $14 million (the corresponding increases would be 20 percent for cereal grains and 11 percent for wheat).

These and other gains will result from the gradual elimination of tariffs and from provisions that reduce non-tariff barriers as well. Among the latter, the most important changes would be increased transparency and efficiency in Colombia’s customs procedures and the removal of some sanitary and phytosanitary (or plant quarantine) restrictions. With respect to trade in services, Colombia has agreed to a number of so-called "WTO-plus" commitments that will expand U.S. firms’ access to Colombia’s $166 billion services market. For instance, the current requirement that U.S. firms hire Colombian nationals will be eliminated, and many restrictions on the financial sector will be removed.

On the investment front, the potential advantages to the United States also are substantial. In 2009, the U.S. flow of foreign direct investment into Colombia was $1.2 billion, which amounted to 32 percent of that nation’s total inflows. COL-US improves the investment climate in Colombia by providing investor protections, access to international arbitration and improved transparency in the country’s legislative and regulatory processes. These provisions will reduce investment risk and uncertainty.

COL-US presents significant improvements in the transparency of Colombia’s rule-making process, including opportunities for interested parties to have their views heard. COL-US also requires that Colombia’s judicial system conform with the rule of law for enforcing bilateral commitments, such as those relating to the protection of intellectual property. In addition to access to international arbitration for investors, COL-US includes dispute settlement mechanisms that the two governments can invoke to enforce each other’s commitments. Taken as a whole, these provisions offer an important benchmark for further developments in Colombia’s business environment. The transparency requirement alone could reduce corruption dramatically.

Labor rights have been a stumbling block to congressional approval of COL-US. The labor chapter of the agreement guarantees the enforcement of existing labor regulations, the protection of core internationally recognized labor rights, and clear access to labor tribunals or courts. In addition, in April 2011, Colombia agreed to an Action Plan strengthening labor rights and the protection of those who defend them. In the few months the plan has been in effect, Colombia has made important progress in implementation. It has reestablished a separate and fully equipped Labor Ministry to help protect labor rights and monitor employer-worker relations. It has enacted legislation authorizing criminal prosecutions of employers who undermine the right to organize or bargain collectively. It has partly eliminated a protection program backlog, involving risk assessments. And, it has hired more labor inspectors and judicial police investigators.

Besides economic benefits, COL-US offers sizable strategic benefits. It would fortify relations with an important ally in the region by renewing the commitment to the joint struggle against cocaine production and trade. Under the agreement, small and medium-sized enterprises in labor-intensive Colombian industries like textiles and apparel would gain permanent access to the U.S. consumer market. With considerable investments, Colombia would be able to compete with East Asia for these higher quality jobs, swaying people away from black markets and other illicit activities.

While Congress deliberates, the clock is ticking. Colombia is also looking at other countries as potential trade and investment partners in order to build its still underdeveloped infrastructure and reduce unemployment. Complementing its FTAs with Canada, the EU, and several countries in the region, Colombia has initiated formal trade negotiations with South Korea and Turkey and is moving toward negotiations with Japan. A perhaps more telling development is China’s interest in building an inter-oceanic railroad in Colombia as an alternative to the Panama Canal: on July 11th President Juan Manuel Santos signed a bilateral investment treaty with China (and the UK) and is expected to meet Chinese President Hu Jintao in the fall.

Effects of the Panama Agreement

Although Panama’s economy is far smaller than Korea’s or even Colombia’s, the PFTA will deliver important economic and strategic benefits to the United States. Considerable gains will take place in U.S. agriculture and auto manufacturing. Moreover, the PFTA will strengthen the U.S. presence in the region, allowing for the stronger promotion of democratic institutions and market-based economies.

U.S. merchandise exports to Panama topped $2.2 billion in 2009. The PFTA’s elimination of tariffs and reduction in non-tariff barriers will cause this figure to grow. For example, rice exports are expected to increase by 145 percent, pork exports by 96 percent and beef exports by 74 percent, according to the ITC. Exports of vehicles are expected to increase by 43 percent. The PFTA also guarantees access to Panama’s $21 billion services market for U.S. firms offering portfolio management, insurance, telecommunications, computer, distribution, express delivery, energy, environmental, legal and other professional services.

Panama’s trade-to-GDP ratio in 2009 was 1.39, highlighting the preponderance of trade in Panama’s economy and the international orientation of many of its sectors. Following passage of the PFTA, Panama will eliminate more than 87 percent of tariffs on U.S. exports immediately. The remaining tariffs will be removed within 10 years for U.S. manufactured goods and 15 years for agricultural and animal products.

PFTA protections to investors—similar to protections accorded under KORUS and COL-US—are especially valuable, as Panama receives substantial investments associated with sectors that will benefit from both from the expansion of the canal and from other infrastructure projects. A fair legal framework, investor protections and a dispute settlement mechanism, all features of the PFTA, are almost certain to increase U.S. investments in Panama. Panama’s Legislature also recently approved a Tax Information Exchange Agreement with the United States and amended current laws to foster tax transparency and strengthen intellectual property rights. These are crucial steps in preventing the use of Panamanian jurisdiction as a haven for money laundering activities.

Panamanian laws and regulations prohibiting strikes or collective bargaining were a concern that initially delayed implementation of the PFTA. But, these laws have been changed, with the exception of a requirement that 40 workers (not the recommended 20) are needed to form a union; the 40-worker requirement has been kept partly because labor groups in Panama support it. The PFTA’s labor chapter protects the rights and principles outlined in the International Labor Organization’s 1998 Declaration on Fundamental Principles and Rights at Work.

Besides offering economic advantages to the United States, the PFTA is a strategic agreement. Strengthening economic links with Panama should bolster the U.S. capacity to address cocaine trafficking in the region, in light of Panama’s location as Colombia’s gateway to North America. The importance of the canal, now undergoing an expansion that will double its shipping capacity, further underscores the U.S. need to strengthen bilateral relations with Panama.

The time to act is now. Like Colombia, Panama has been negotiating with economic powerhouses other than the United States. It recently signed a trade agreement with Canada and an Association Agreement with the EU. Delaying passage of the PFTA would generate a loss of market share for a variety of sectors of the U.S. economy.

Conclusion

All three FTAs encourage trade by removing tariff and non-tariff barriers. All the agreements provide access to large services markets, foster transparency and offer significant strategic advantages to the United States. Congress should approve each of them now.

The authors would like to thank Juan Pablo Candela for his assistance with this project.

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EXECUTIVE SUMMARY

A few influential Americans have begun to suggest that the United States should reduce its long-standing security commitment to Taiwan. Some say that Taiwan itself has chosen to improve relations with China, so the island has less need for advanced U.S. weaponry and a defense pledge. Others argue that Washington, to avoid unnecessary tensions with a rising China, should accommodate Beijing on the most neuralgic issue—Taiwan.

The first group overstates the limits of the ongoing Taiwan-China détente. True, progress has been made in normalizing, liberalizing, and institutionalizing the economic relationship. But, to the disappointment of many Chinese, none has occurred on political and security issues, because the Taiwan public is not ready to go there and serious conceptual differences exist on how to get there anyway. So the prospects for cross-Strait relations in the near-term are for modest, incremental progress only, or a stall.

The second group misunderstands the benefits and costs of a significant American accommodation to China regarding Taiwan (e.g. by sharply cutting back arms sales). In fact, Washington has frictions with China on a growing list of issues. Conceding to Beijing on Taiwan will not help us elsewhere. Moreover, our friends and allies (e.g. Japan and Korea) will worry that the United States might sacrifice their interests next for the sake of good relations with China. Finally, the primary reason China has failed to incorporate Taiwan on its terms is not U.S. arms sales but because its negotiating position is unacceptable to the Taiwan public.

As China rises and seeks to reshape East Asia more to its liking, how the United States responds will be a critical variable. It needs the right mix of accommodation and firmness. Giving way on Taiwan will neither pacify Beijing nor assure our allies.

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Introduction

Should the United States abandon Taiwan? Until recently, even to pose such a question would have been unthinkable in Washington. While the U.S. relationship with Taiwan may have had its ups and downs over the past six decades, but the strong American commitment has endured. But now, individuals who previously served in senior positions in the U.S. government are calling it into question. Theirs is not a modest proposal, and it deserves careful examination.

Some observers believe that Taiwan has become a strategic liability. They remind us that China regards the settlement of the Taiwan problem as its internal affair, yet the United States continues to provide the island with advanced weaponry and at least an implicit pledge to come to its defense. They echo Chinese diplomats who argue that our arms sales are the major obstacle to good U.S.-China relations. (These diplomats also assert that U.S. arms sales both discourage Taipei to negotiate seriously with Beijing and encourage Taiwanese politicians who have separatist agendas.) Therefore, it is argued, the United States needs to reconsider fundamentally its security support for Taiwan.

The most prominent voice for this point of view is Zbigniew Brzezinski, Jimmy Carter’s national security adviser. He argues that the hostility that arms sales foster in Beijing precludes whatever strategic cooperation a declining United States can secure from a rising China. Moreover, he says, “it is doubtful that Taiwan can indefinitely avoid a more formal connection with China,” and points to some version of the unification formula Beijing used for Hong Kong as a possible basis. That in turn would end the island’s need to depend on the United States for its security.[1] Others in this camp, more or less, include retired admiral Bill Owens, retired ambassador Chas Freeman, Charles Glaser of George Washington University, and the members of a policy panel assembled by the Miller Center of the University of Virginia.[2]

To make the conversation even more interesting, there are two other versions of this abandonment idea, ones that start with how Taiwan has changed since 2008:

• At least one conservative Congressman, a long-time supporter of Taiwan, believes that Taiwan was now working with an “autocratic China,” and since he opposes autocracy, the island’s government no longer deserved his support.[3] That is, Taiwan has abandoned U.S. values, which is bad, so he has abandoned Taiwan.
   
• A Portland State University scholar has argued that Taiwan seems to have decided that its own best interests require it to accommodate to China and rely much less on the United States (as Finland accommodated the Soviet Union during the Cold War). But in his view, this is good for Washington because it eliminates a long-time burden.[4]  And a Taiwan scholar recently argued that it was in the island’s own interest to get out of the middle of the China-U.S. rivalry.[5]

In the abstract, it should not be surprising that some Americans are rethinking U.S. support for Taiwan. We live in a new world. China’s power and international role are growing. It is in the interest of the United States to maximize areas of cooperation and mutual benefit with Beijing where possible, even as we demonstrate firmness when it overreaches (as it has). It is not in the U.S. interest to act in ways that lead Chinese leaders to conclude that America pursues a policy of containment. So, this logic goes, perhaps Washington should end commitments that are so offensive to China that it will not cooperate with the United States on projects of strategic value to us. Moreover, as the People’s Liberation Army (PLA) becomes more capable, America may find it harder operationally to honor its commitments to Taiwan, even if it wished to do so.

Taiwan Shifts Strategy

To sort through these competing ideas, it is necessary to understand how U.S.-China-Taiwan relations have changed in the last five years and what it means for U.S. policy.

For twenty-five years, Taiwan has faced a serious dilemma. On the one hand, many Taiwan companies benefit from investing in China to produce goods for the Chinese and international markets. On the other hand, China wishes to end Taiwan’s separate political status on terms similar to that used for Hong Kong, which most Taiwan people oppose. From around 1995 to 2008, Taiwan’s response to China’s political goals was to emphasize the island’s sovereignty, which only led Beijing to fear that Taiwan’s leaders intended to create a totally independent country. China in turn built up military capabilities to deter what it feared, which only made Taiwan more anxious. Washington worried that this action-reaction spiral might lead to war, and it periodically opposed some of Taipei’s initiatives.

Ma Ying-jeou won Taiwan’s 2008 presidential election by articulating a different vision: that the island could better preserve its prosperity, freedom, dignity, and security by engaging China rather than provoking it. Engagement would focus first on enhancing economic cooperation, thus avoiding contentious and unproductive political arguments. Expanding business ties would yield concrete benefits for both sides of the Taiwan Strait. Opening Taiwan universities to Mainland students would fill out enrollments and expose Chinese young people to a democratic society. In short, Ma believed, Taiwan could give China such a large stake in peace that it would not dare to risk that stake by coercing the island into submission. He made significant progress during his first term in removing obstacles to business and liberalizing trade, most notably in reaching an Economic Cooperation Framework agreement with China in 2010, the first step toward creating a free-trade area. Taiwan bounced back fairly quickly from the global economic crisis and had 4 percent growth in 2011. A growing stream of Chinese tourists buoyed some sectors of the Taiwan economy, and the number of Mainland students grew steadily.

Ma had another reason for engaging China: the United States. Taipei’s relations with Washington had suffered before 2008 because U.S. officials feared Taiwan’s political initiatives would spark a Chinese over-reaction, creating a conflict that might require American intervention. The reduction of tensions that Ma’s policies brought about calmed Washington’s fears and increased U.S. confidence that Taiwan’s intentions were constructive. The Bush and Obama administrations responded by improving U.S.-Taiwan relations, by approving three large arms-sales packages and extending other benefits.

Yet Ma’s China policy was not a total accommodation to Chinese wishes. Even though Beijing in 2009 exerted pressure on Taiwan to move toward political and security talks, Ma pushed back, and for good reason. The Taiwan public was not yet ready to support them, particularly the approximately 25 percent who retain the goal of total independence. In any case, there were serious conceptual differences between the two sides, specifically whether Taiwan was a sovereign entity for purposes of cross-Strait relations and the island’s international role. On the security side, China continued to build up its military capabilities relevant to Taiwan—particularly ballistic and cruise missiles. According to one think-tank’s analysis, an intensive missile barrage by the PLA can now ground Taiwan’s air force in the very early stages of a conflict, and Taiwan’s current defense strategy depends on its aircraft getting off the ground.[6] So Ma has spurned Chinese proposals for a peace accord because he does not see how it would improve Taiwan’s security, and his caution has persisted to this day.

In effect, Ma has pursued a mixed or hedging strategy toward China: engage it in areas that both benefit Taiwan and encourage Chinese restraint (economics and education); deflect Beijing on proposals that are not in the island’s interests (politics and security); and preserve a good relationship with the United States (to guard against the worst). A significant part of the Taiwan public—known as the Green Camp—was not happy with Ma’s mix of engagement and firmness. They feared he had put the island on a slippery slope to subordination and unification on China’s terms. The Greens would have preferred more firmness and less engagement. Yet so far, Ma’s strategy has the backing of the majority of island’s public, usually known as the Blue Camp. In the last election apparently, around 55 percent of voters approved of his approach while 45 percent remained skeptical or deeply opposed. 

Back to the Question of Abandonment

The fact that Ma is hedging the island’s bets should be reassuring to Americans who worry that Taiwan is, in effect, “abandoning the United States” for the sake of relations with China. Such strategic appeasement would only be happening if Taipei were willing to concede to Beijing on political and security matters. Yet Taiwan has been unwilling to abandon its claim that it is a sovereign entity and accept a solution similar to that applied to Hong Kong. Instead, it asserts what Ma calls “the sovereignty of the Republic of China.” Moreover, Taipei sees a continuing need for a deterrent against China’s use of its growing military capabilities. Even as it sees the value of enhancing Beijing’s stake in peace, it does not fully trust statements of peaceful intentions. And it is certainly not prepared to terminate its special security relationship with the United States.[7]

The more difficult question is whether the United States, for the sake of its own relationship with China, should, in effect, abandon Taiwan. China believes that U.S. political and security support for Taiwan is the primary reason it has not achieved its unification goal, because it fortifies the confidence of the island’s leaders that they can get away with refusing to negotiate on PRC terms. So Beijing believes that if it could induce Washington to end arms sales to Taiwan’s military, drop even an implicit commitment to defend the island if attacked, and support unification, its problem would be solved. So China would be very pleased if the United States abandoned Taiwan, and has suggested that if only Washington ended arms sales, U.S.-China relations would be problem free.

American analysts have offered several compelling reasons why the United States should not dissociate itself from Taiwan as long as Taiwan desires American support:[8]

• Although Taiwan has at times been the most important source of U.S.-China conflict, it is not the only one. For example, Beijing’s goals in East Asia are not limited to bringing the island back into the PRC fold. In addition, it seeks to expand its security perimeter away from its eastern and southern coast, where it was for decades. That in turn has meant that the PLA navy and air force are operating increasingly in the traditional domain of U.S. and Japanese forces.[9] Removing Taiwan as a problem would in no way end or reduce this mutual impingement; it would only change its location. Taiwan aside, Beijing would still regard American “socialization” as negative.
   
• U.S. allies and partners—Japan, the Republic Korea, and others not necessarily in the Asian region—have have much at stake in Washington’s future approach to Taiwan. Simply put, a United States that would abandon Taiwan could abandon them. Of course, there may be hypothetical reasons why America might withdraw support that stem from Taiwan’s policies rather than its own commitment. So the reasons for any abandonment would be important. But the fear remains.
   
• Whatever China says, U.S. arms are actually not the reason that Beijing has been unable to bring Taiwan “into the embrace of the Motherland.” More to the point, China has not been able to persuade Taiwan’s government and public to accept its formula, which is called “one country, two systems” and was the one used for Hong Kong. If China were to make an offer that was actually to Taiwan’s liking, it would not refuse because of U.S. arms sales. Of course, a weak and friendless Taiwan might conclude that it had no choice but to settle on whatever terms it could extract. But that is not an outcome to which Washington should be a party (nor is it really in China’s interest to gain Taiwan through intimidation).
   
• Finally, how a status quo United States and a reviving China cope with each other—their key foreign policy challenge for the rest of the century—will be played out over the next few decades in a series of test cases. North Korea, maritime East Asia, and Iran are a few of them. Taiwan is another. While active U.S. opposition to Taiwan’s unification with the Mainland would understandably lead Beijing to infer that our intentions are hostile across the board, supporting Beijing’s approach when Taipei objects would be a serious demonstration of weakness.

Should the United States concede to China on Taiwan, the lessons that Beijing would learn about the intentions of the United States would likely discourage its moderation and accommodation on other issues like Korea or maritime East Asia; in that respect, America’s friends and allies are right. Continuity of U.S. policy toward Taiwan will not guarantee that China’s actions in other areas will support the status quo, but it increases the likelihood that it will. Conversely, a China that addresses its Taiwan problem with creativity and due regard to the views on the island says something positive about what kind of great power the PRC will be. A more aggressive approach, one that relies on pressure and intimidation, signals reason for concern about its broader intentions. In this regard, Taiwan is the canary in the East Asian coal mine.

A Slippery Slope?

Even if Taipei does not make a proactive strategic decision to appease Beijing, and even if Washington does not seek to curry Chinese favor by sacrificing Taiwan’s interests, there remains the possibility that Taiwan might undermine itself through inattention or neglect. That is, Taiwan might assume that Beijing’s intentions are so benign that it is prepared to accept some version of the status quo over the long term. Yet China has a different objective—ending Taiwan’s de facto independence more or less on its terms—and it may not have infinite patience. The danger is, therefore, that a frustrated China might seek to exploit the power asymmetry between the two sides of the Strait and intimidate Taiwan into accepting “an offer it can’t refuse.”

So what can Taiwan do to forestall that day? The first thing is to not create the impression in Beijing that the door on unification is closing forever—which Taiwan is currently doing. In addition, there are things it can do at the margin to strengthen itself and therefore increase the confidence needed to resist PRC pressure.

• Economically, sustain the island’s competitiveness in shifting to a knowledge-based economy, and by liberalizing its economic ties with all its major trading partners, not just China. This will require eliminating some protectionist barriers, but the structural adjustment thus created will work to Taiwan’s benefit.
   
• Politically, reform the political system so that it does a better job of addressing the real challenges that Taiwan faces (rather than focusing on relatively superficial issues).
   
• Also politically, foster a clearer sense of what it means to say that Taiwan or the ROC is a sovereign entity, not just for its role in the international system but also regarding cross-Strait relations.
   
• Militarily, enhance the deterrent capabilities of Taiwan’s armed forces in ways that raise the costs and uncertainties for Beijing if it were ever to mount an intimidation campaign.

None of these forms of self-strengthening will be easy. But they will buoy Taiwan’s psychological confidence and reduce the chances of PRC pressure in the first place.

Because the United States has an interest in China approaching its Taiwan “test case” in a constructive manner—that is, avoiding intimidation and accommodating Taiwan’s concerns—it should help Taiwan where it can to improve its odds. The most obvious ways are economically, by drawing Taiwan into the circle of high-quality liberalization, and militarily, by supporting innovative and cost-effective ways to enhance deterrence.

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Missouri's population is spreading out, adding to the costs of providing services and infrastructure across the state, according to a new study released today by the Brookings Institution Center on Urban and Metropolitan Policy.

The 84-page study, Growth in the Heartland: Challenges and Opportunities for Missouri, reports that Missouri's population is quickly dispersing, with smaller metropolitan areas experiencing some of the state's fastest growth and residency in unincorporated areas on the rise. Though new residents and jobs fueled prosperity in the 1990s, the report finds that growth has slowed in the past year, and suggests that the state's highly decentralized development patterns could become troublesome as Missouri contends with a slowing economy and serious budget deficits.

Sponsored by the Ewing Marion Kauffman Foundation, Growth in the Heartland provides the most comprehensive and up-to-date body of research and statistics yet assembled analyzing the direction, scope, and implications of development in Missouri. In addition to assessing the consequences of those trends for the state's fiscal health, economic competitiveness, and quality of life, the report addresses the potential role of state and local policy in shaping those trends in the future. Specific findings of the report conclude that:

• Growth in the Columbia, Springfield, Joplin, and St. Joseph metropolitan areas strongly outpaced that of the Kansas City and St. Louis metropolitan areas in the 1990s. Altogether the four smaller areas captured fully one-quarter of the state's growth and doubled the growth rate of the Kansas City and St. Louis areas.
  
  
• Population and job growth also moved beyond the smaller metro areas and towns into the state's vast unincorporated areas. Overall, residency in these often-outlying areas grew by 12.3 percent in the 1990s—a rate 50 percent faster than the 8.1 percent growth of towns and cities.
  
  
• Most rural counties reversed decades of decline in the 1990s, with eight in ten rural counties experiencing population growth and nine in ten adding new jobs. By 2000, more rural citizens lived outside of cities and towns than in them, as more than 70 percent of new growth occurred in unincorporated areas.

"Missouri experienced tremendous gains during the last decade, but the decentralized nature of growth across the state poses significant fiscal challenges for the future," said Bruce Katz, vice president of Brookings and director of the policy center. "The challenge for Missouri is to give communities the tools, incentives, and opportunities to grow in more efficient and fiscally responsible ways."

The Brookings Institution Center on Urban and Metropolitan Policy is committed to shaping a new generation of policies that will help build strong neighborhoods, cities, and metropolitan regions. By informing the deliberations of state and federal policymakers with expert knowledge and practical experience, the center promotes integrated approaches and practical solutions to the challenges confronting metropolitan communities. Learn more at www.brookings.edu/urban.