The Cost of Doing Business in America

October 31, 2011

By Michael Hendrix, Research Manager

Every year the World Bank releases its Doing Business report, a collection of rankings aimed at putting a number to every factor a business must take into account when trying to “do business” and comparing that figure across countries.  Increasingly, with the release of every new report America has found itself lower and lower on some portion of the list.

Lest we panic too quickly, America is still a tremendous place to start and run a company.  Barring only three – Singapore, Hong Kong, and New Zealand – the US sits at the top of the overall country list.  The specifics tell a different story though.  We are ranked 72nd in the world in “paying taxes”, meaning that the cost and hassle of our corporate tax system is stifling business in the eyes of the World Bank.  Who else is ahead of us?  Practically the entire developed world, as well as others such as Afghanistan and Cambodia.  According to The Economist, America’s “tax code is as simple to understand as a thesis on post-structuralism translated into Klingon.”

“Trading across borders” is also an area in which America holds rather dismal rankings – 20th at last count.  With the passage of three free trade agreements, it is easy to think that American firms can trade with relative impunity.  It is true that tariffs are on the wane, but note that the World Bank includes trade facilitation issues in its ranking, meaning that it looks at the red tape a business must cut through in order to trade.  In short, rules matter to the World Bank and ours are becoming onerous.

Other concerns are small, but growing.  Take the cost of starting a business.  In 2004, the World Bank judged that it cost 0.7% of income per capita to get a firm off the ground.  Today, that number practically doubled to 1.4%, and with this rising trend our rankings have also fallen.

The World Bank may well be doing us a favor by highlighting growing areas of concern for business in America.  It is far too easy for commentators in a country as big as America to compare our performance only to ourselves.   That is a recipe for complacency.  The World Bank has the ability to step back, line us up against other countries, and figure out whether the fundamentals of our economy are as strong as we like to think they are.

It is also tempting to take any piece of data and project onto it our own visions of where America is failing, a surprisingly common pastime for an optimistic country.  The truth is that America’s fundamentals remain strong on average.  And on average, everything changes eventually.  These rankings will deserve a watchful eye in the coming years.


Against Declinism: Painting a Future of Long-Term Prosperity

October 7, 2011

Social demographer and urban historian Joel Kotkin joins us on our blog in his role as an NCF Fellow to offer his unique take on the state of America’s economy.

The notion of an America in decline has recently reached an apogee not seen in decades.  It has taken a deep hold of the academic establishment — never a bulwark of American optimism.  ”Declinism” has taken root even in the face of a collapsing  European Union, the alternative power long favored by academics.  Moreover, “peak oil” theorists continue to hammer away amidst one of the great energy booms in American history.  Belief in the coming dominance of China has spread itself from the corporate suite to Main Street, with nearly half of all Americans now predicting the Middle Kingdom’s eventual predominance.

Even among the patrician class — the business elite, if you will — such declinist notions are commonplace. One common call, reminiscent of the 1980s, is to abandon constitutional democracy for the kind of guided system one finds in Europe or even China.  The “down with democracy” crowd has gotten a boost from Peter Orszag, the Obama Administration’s former director of the Office of Management and Budget. Concerned with America’s inability to deal with its fiscal problems, climate change, and with rebuilding the economy, Orszag proposed shifting power from Congress and local legislatures to more “independent institutions” made up of un-elected policymakers.  Democracy, as the mandarins in Beijing would agree, can be “too much of a good thing.” Now comfortably ensconced at Citigroup, Orszag might also find the Chinese financial system, with its intersections between the state and banks, even more to his liking.

Many of these individuals have come to have a certain disdain for democracy, although these days it has more of a left-wing thrust than a right-wing bent.  William S. Dietrich, who sold his father’s Pittsburgh-based company in 1996 for a cool $146 million, has made money as an investor and recently donated $265 million to Carnegie Mellon.  He is a devoted declinist whose new book, according to a recent Carnegie Mellon bio of him, will be given the self-explanatory title, “American Recessional: The U.S. Decline and the Rise of China.”

Yet, perhaps it is too early for the English-speaking democracies to throw in the towel.  Someone should remind Mr. Dietrich that his last book, published in 1991,  was entitled In the Shadow of the Rising Sun.  Like many other books at the time, it  predicted Japanese world domination — a Pax Niponica — if the US did not undergo “fundamental institutional reform ” in the form of rule by enlightened bureaucrats.

It seems to me that the role of business is to first say that America’s preeminence is not over and then show why.  Then we can start crafting solutions that work along with our intrinsic strengths: decentralized politics, great natural resources, demographic dynamism, innovation, and entrepreneurship.  First, then, we must make the long-term case for prosperity which a solely short-term focus by business will be incapable of doing.


Can the Smart Grid Outsmart Hackers?

September 8, 2011

By Michael Hendrix, Research Manager

Computers hackers have been all across the news lately.  Sony experienced a full assault on its Playstation Network earlier this year, shuttering its gaming network for days and compromising nearly 100 million user accounts.  Last month’s Vanity Fair profiled Operation Shady Rat, a hacking campaign against a multitude of companies, non-profit organizations, and government agencies stretching across 14 countries.  If established entities are being threatened by this new “code war,” how safe is our nation’s energy infrastructure?

Discovery News recently highlighted how America’s utilities are slowly waking up to the threat of cyber attack, echoes of which were also heard at NCF’s event on infrastructure.  Potentially the most vulnerable aspects lie under the rubric of the “smart grid.”  Using advanced software and equipment, smart grid technology allows for the most efficient energy distribution possible.  Yet, it also opens up new points of access for hackers.  Every digital meter becomes a new “attack vector,” as the article puts it.  The whole piece is worth reading, but here’s an essential quote:

“When it comes to protecting against hackers, the nation’s electric utilities are about where the financial and telecommunications industries were a decade ago, according to Andy Bochman, Energy Security Lead for IBM’s Rational division, which focuses on smart-grid security software.  Bochman says the electrical sector has been late in the game when it comes to embracing information technology that focuses on security, but is catching up.  ‘We are now at a sustained back-and-forth between the powers that are trying to attack these systems, and forces aligned to defend them,’ Bochman said.”


The Missing Link: Growth

June 2, 2011

By Nick Schulz
Editor-in-Chief, American.com; DeWitt Wallace Fellow;
National Chamber Foundation Scholar

As the budget fight unfolds, keep in mind this chart from Bret Swanson about the various levels of tax revenues from differing growth rates:

Bret writes:

The consensus long range projection is just 2.5%. Fine, what if we could bump growth to a measly 3%? We would still generate an additional $25 trillion in tax revenue over the 40-year period. Didn’t the Medicare actuary just tell us the program’s unfunded liability is $24.6 trillion?

Boosting the share of the economy we collect in taxes doesn’t do any good if the economy lags. Collecting 20% or 25% of GDP in taxes, as some propose, doesn’t get us anywhere close to balance if we grow just 2% or 2.5%. On the other hand, 4% growth with the historical 18% tax-GDP ratio keeps up with even our current profligate spending path. The power of compound growth towers over every other consideration.

Bret prepared this data for a terrific National Chamber Foundation presentation he delivered earlier in the month. It is strange that the budget/entitlement conversation is framed today as mostly involving unpleasant options—cutting benefits that people like, kicking the can down the road, dramatically hiking taxes. Fostering conditions for economic growth is win-win, and it’s bizarre it’s not more central to the discussion.


Food for Thoughts

April 4, 2011

By Rich Cooper, Vice President, Research & Emerging Issues

As many of you know, NCF is reinvigorating itself and taking a fresh look at emerging issues that will be impacting the nation’s business community over the next 5-10 years. That’s a pretty wide horizon of opportunities to explore but if you’re going to start off on any type of meaningful adventure, it’s best to start on a full stomach.

That’s why NCF will begin a series of Emerging Issues Dinners over the coming months to take a look at key topics that are impacting the way America does business now and how that might change in the future. Like any good menu, the Emerging Issues Dinners will offer a variety of items for consideration; some that might be easy to digest – others that might have a bit more kick to them. Regardless of what’s being served, a lot of food for thought will be provided when you put experts, innovators and thought leaders around the table to share their insights.

Our first Emerging Issues Dinner is set for April at the US Chamber’s Headquarters in Washington, DC. On the menu will be an examination of the on-going challenges that State budgets are having with crushing debt and shortfalls and what the costs and consequences to the business environment. Our 2010 Governors Summit and release of the Enterprising States study successfully started our dialogue on the role that states are playing in our economy and we are looking forward to increasing that dialogue through this year’s Summit and updated Enterprising States. The recent and very public budget battles in Wisconsin, California, New York and elsewhere are just a few places where budget realities are taking hold and we need to understand what those realities mean for the future of business in those states. This is just one area we hope to examine during the evening’s conversation.

The dinner in April is simply a start to what we at NCF want to do with even more subjects that are of importance to you. Tell us what you think are the most pressing issues to you and your business over the next 5-10 years and why it should be on the menu of NCF. Drop me a line at rcooper@USChamber.com or give me a call at (202) 463-3180 and give me your insights.

Any good think tank benefits from the thoughts and inputs of many people with a range of perspectives. It also means that we set a table for informed and spirited discussion. We welcome you to be a part of that table. There’s a menu of opportunity in front of us. Tell us what should be on it.


Public Support for Free Enterprise is Overwhelming

June 17, 2010

By Arthur Brooks, President, AEI

Americans prefer capitalism over socialism.  A January 2010 Gallup poll surveyed respondents about their views on the two systems.  It found that 61 percent of Americans hold a positive view of capitalism while about the same percentage have a negative view of socialism.  The older the age group, the more negative the view of socialism.

Of course, capitalism and socialism are charged terms.  The choice of words may influence the results of a survey.  The results are even stronger using the term free markets.  In March 2009 the nonpartisan Pew Research Center asked individuals from a broad range of American demographic groups the following question: “Generally, do you think people are better off in a free market economy, even though there may be severe ups and downs from time to time, or don’t you think so?”

The results are decisive: Almost 70 percent of respondents agree that they are better off in a free market economy.  Only 20 percent disagree with the statement that America is better off with a free market economy.

Free enterprise is even more popular than capitalism and free markets.  In the same Gallup poll mentioned above, a stunning 86 percent have a positive image of free enterprise.  Only 10 percent have a negative image.  Similarly, 84 percent have a positive image of entrepreneurs, while just 10 percent see them negatively.

In sum, no matter how the question is posed, less than 30 percent of Americans say they believe we would be better off without free enterprise at the core of our system.


The Fairness Doctrine in These Taxing Times

April 16, 2010

By Arthur Brooks, President, AEI

Think the current administration’s redistributionist tax plans—its desire to “spread the wealth around”—are fair?  The way I see it, they’re profoundly unfair.  Real fairness does not mean bringing the top down.  It means giving the bottom a fighting chance to rise.
 
This is an argument some of us in the free enterprise movement have made with insufficient force.  Instead, we too easily cede the fairness argument to the other side and busily set about showing how entrepreneurship and markets are more, well…efficient.  (Inspiring stuff indeed.)
 
This is a mistake.  It reduces free enterprise to a mechanistic system of production—and ignores its ability to provide individual Americans the opportunity to earn their own success.  
 
We should always avoid the temptation to argue “My efficiency can beat your fairness.”  That’s a losing proposition. We must show that fairness is not the trump card of the redistributionists, but their Achilles’ heel.  
 
In my forthcoming book, The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America’s Future <http://www.aei.org/book/100036> , I define fairness this way: “a system that rewards hard work, merit, excellence, and  the honest makers in society.” And as I point out in my April 14 Wall Street Journal op-ed <http://www.aei.org/article/101913> , these are not just my views.  They’re the views of the overwhelming majority of Americans, who rarely get these things wrong.


Welcome to NCF’s Blog!

February 1, 2010

By Margaret Spellings, Executive Vice President, NCF

Hello and welcome to the NCF’s first blog! As the new executive vice president of NCF, I’d like to start off by expressing my excitement for all of our upcoming programs and events including the U.S. Chamber’s recently launched American Free Enterprise. Dream Big. campaign.

NCF’s Free Enterprise activities are focused around three initiatives: (I) Think. Free Enterprise., seeks to research and develop awareness about the positive effect free enterprise has had on the economy and job sustainability; (II) State of Action examines the efforts of governors and mayors to stabilize a fluctuating job market and achieve economic growth on a state and local level; and (III) Dream Big. Achieve., reaches out to future industry leaders and a new generation of entrepreneurs by engaging them in a discussion about the value of America’s free enterprise system. With these programs, NCF explores and creates awareness around the economic and historical foundations of the American free enterprise system.

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