Watering the Private Sector

January 31, 2012

By Michael Hendrix, Research Manager

Water is important to business and business is important to water.  That’s not as far-flung as it sounds (and I’m not referring to the water cooler here).  Water is in or is part of the making of nearly every good imaginable.  Water is used for farming, of course, but so too for energy generation.  Even if water were removed from every good we produce, we humans couldn’t function without it.  Whether or not we have the right kind of water in the right places at the right time matters to industry, customers, and communities.  The private sector is beginning to recognize this and offer their own solutions, which the public sector in turn is seeing as essential to the future of the economy and the critical resources upon which it runs.

Since demand for water is great, it’s a good thing that supply is just as vast.  While it’s true that fresh water is available in far fewer sums than salt water (about 1/37ths of what our oceans hold), lakes, rivers, and aquifers still hold tremendous reserves.  The real issue comes with location.  Water does not blanket the earth equally.  Nine countries account for 60% of accessible fresh water.  Some places have practically no access to water and other places are surrounded by only the frozen kind.  And in the end, water is a scarce resource that is extremely local.  How water resources are divided has an impact not just on national security but on the bottom lines of the companies relying on these sources.

As an article in the McKinsey Quarterly noted, “Companies have begun paying much more attention to the water environment in which they function.”  Of all the water consumed each year, industry takes up about 22% of that sum.  Over the past fifty years, that level of demand has quadrupled.  These statistics simply show that water is important to our global economy.  What’s not shown is how much more productive we’ve become with each gallon of water — the dramatic decline of water use to GDP clear tells this story.

Private sector innovations in water management are having a tremendous impact.  Beyond just the agricultural and waste management industries, the consumer beverages, energy, and mining businesses are coming up with new ways to get more product out of less water.  Linking these advancements with policy approaches will be just as important.

“The most far-sighted of these companies, however—with Nestlé as a leading example—recognize that while companies have to manage water efficiently behind their factory gate, society (along with companies and their suppliers) needs an equitable, efficiency-stimulating, and predictable legal and regulatory environment that governs all water uses. These companies also believe that private businesses have useful and legitimate inputs to make into the policy-formulation process, and that good business practices can guide effective implementation.”

It turns out that a predictable regulatory environment goes part and parcel with an efficient use of our water resources.  Rather than shunning the private sector from the management of a resource that critically matters to the entire economy, the public sector appears to be starting to recognize the benefits of cooperation.  As an emerging issue that’s becoming ever more essential to business, this may be a hopeful sign.

Chamber’s Kavinoky on Infrastructure

January 30, 2012

By Janet Kavinoky, Vice President, Americans for Transportation Mobility Coalition, and Executive Director, Transportation & Infrastructure, U.S. Chamber of Commerce

America’s infrastructure is in a sorry state.  More money and more care are needed for our transportation networks, energy systems, sewers, and all of the other frameworks that keep America running, but it’s not happening at the pace and scale needed.  It’s been estimated that more than $2.2 trillion will need to be invested over the next five years if Americans want to see their current infrastructure improved and expanded.  This infrastructure is getting older due to years of under-investment, reaching forty-year highs for the average age of all categories of infrastructure.  As the attacks on 9/11 showed as well, investing in infrastructure is more than a matter of dollars and concrete.  We have to take risks into account, ensuring that, should the worst occur, our nation’s infrastructure can bounce back.  This may seem a tall order in the face of DC’s financial and political traffic jam.   Yet, as a recent study by the National Chamber Foundation (NCF) found, public-private partnerships (PPPs) may be just what’s needed to fund and protect America’s infrastructure for the future.

Federal, state, and local taxpayer dollars are scarce, that much we know.  At present, we only spend 0.6% of our GDP on infrastructure, compared to, say, France at 1.53%.  That funding ratio is due to keep declining.  Yet, we still have to pay for the maintenance and improvement of America’s national transportation infrastructure network.  The maintenance backlog for our nation’s roads and bridges is $624 billion and growing, yet total federal, state, and local capital spending on infrastructure adds up to only $78 billion a year.

America’s inability to improve and expand its infrastructure will directly result in the loss of economic productivity as crumbling highways and aging bridges impede the flow of products to markets at home and abroad.  The World Economic Forum recently dropped America in its ranking of infrastructure competitiveness to 15th in the world this past year.  Just five years ago America was ranked number one.  So, even as our national government cuts spending and reduces the deficit, it is imperative that the United States maintains – at a minimum – the same level of federal investment in infrastructure while exploring new strategies and relationships to address our needs.

One such strategy is linking public sector funds with private sector capital.  These public-private partnerships go beyond just leveraging public funds.  They make infrastructure more efficient and, often, more resilient.  With shared risks and funds come additional sources of oversight and a greater potential for innovation.  On the investment side, PPPs bring market pressures along with private capital, thus making it easier to get projects off the ground and in a cost-efficient way.  On the resilience side, PPPs focus the attention of a broad array of stakeholders on the “long-term sustainability of facilities” since they’re also “responsible for the long-term upkeep.”

The U.S. Chamber’s Let’s Rebuild America initiative, which I am proud to head, cooperated with the National Chamber Foundation last year in the development of an event and original research on this very topic of increasing infrastructure investment and resilience.  The result was a recently released NCF white paper by Eric Boyer on “How PPPs Can Influence More Durable Approaches to U.S. Infrastructure.”  I’d encourage you to read it in full.

The cost imposed by disasters in 2011 — $265 billion — was the highest the world had ever seen.  This cost will only rise as we continue to build and repair infrastructure that is increasingly interdependent.  In the face of rising austerity and global competition, investing in infrastructure that is also more resilient will be one of the great challenges of the 21st century.  It is time that we find solutions to match.  Joining together the resources and efficiency of the private sector with the authority and interests of the public sector may be just the answer.

Blog Posts Driving the Debate

January 27, 2012

NCF curates a weekly list of blog posts that touch on emerging issues affecting the American business community.

The Capital Spectator posted a chart tracking long-term interest rates dating back to 1790.  Wonky?  Very.  What it shows though is that we’re at near all-time lows in interest rates.

There was a lot of discussion this week about the rise of China vis-à-vis the United States, but Kindred Winecoff thinks that the whole conversation is misguided.  Rather than looking at China’s growth on its own or solely in relation to the United States, we should all take a step back to look systemically at our current geopolitical structure.  From that vantage point we see that America retains unparalleled structural power.  Put another way, others may build lofty sand castles, but they do so in our sandbox.

Mark Perry responded to this week’s State of the Union address by President Obama, specifically to the president’s assertions about the state of manufacturing in America.  He deploys six points to argue that, in the end, “American manufacturing is doing quite well and experiencing record profits.”

The Ares blog gave the low-down on the Pentagon’s budget cuts.  There’s a lot to digest, but it’s important to begin to grasp this emerging issue.  The cuts will undoubtedly affect the private sector in numerous ways, from the service sector around bases to contracting firms here and abroad.

Reihan Salam responded to Matt Yglesias’s post on how six of the ten most productive cities on earth are found in America.  Yglesias pointed out though that the success of these cities, especially those harboring the tech industry, isn’t seeping into too many parts of America (and resulting in greater job creation than at present).  The reason is simply that the sector’s firms aren’t based in highly populated areas.  For as prosperous as Silicon Valley is, it really isn’t that populous.  Here’s where Salam injected his own commentary that perhaps the lack of people has to do with the high cost of living, which itself is a product of undue zoning and other such regulations.  Often with the best of intentions, the most prosperous cities throw up barriers to new entrants by limiting the supply of housing.  Silicon Valley’s average pay is in the six figures now, but few are flocking to an area boasting double-digit rent increases last year.  A lack of investment in infrastructure compounds the problem and discourages the lower-skilled workers from taking advantage of the opportunities for advancement to be found in more prosperous, populated areas.  Cities may then remain productive, but far from its potential.

Robert Shiller and the Winds of Austerity

January 24, 2012

By Michael Hendrix, Research Manager

An austere wind is blowing, whipped up by budget cuts and regulatory and economic uncertainty.  What of the job creator in this climate?  Will our economy simply dry up or will the weight of recession be blown away?  Robert Shiller of Yale took to a poem recently —  ”The building Trade is quite destroy’d, Artificers are not employ’d” — in wondering whether history or academia had any answers to this stiff gale.  He found some tempered hope, but not much more.  The truth is though, Shiller didn’t look in the right places.

The real question Shiller should have been asking is whether austerity increases confidence, not whether it produces economic growth.  Rather than focus on the purely measurable, Shiller should have taken a cue from his past writings and looked closer at the slippery “animal spirits” that drive our modern economy.

In the simplest sense, austerity means less money in the economy.  Governments reduce their expenditures on the proverbial guns and butter and the result is what Bernard Mandeville’s poem Fable of the Bees shows: “The Price of Land and Houses falls; Mirac’lous Palaces, whose Walls, Like those of Thebes, were rais’d by Play, Are to be let.”  Austerity cuts directly into demand and ripples across an economy, even touching the “mirac’lous palaces” of our American suburbs.

Is it that simple though?  Shiller doesn’t seem to think so, and neither do I.  Our economy is immensely complex, partly because we’re complex and often irrational consumers and spenders.  One recent study by Harvard economist Alberto Alesina on public sector austerity found that parsimony needn’t result in economic pain.  Rather, the record shows that fiscal tightening can lead to the sort of confidence to invest and create that we so desperately need today.  ”Sometimes, even often, economies prosper nicely after the government’s deficit is sharply reduced. Sometimes, just maybe, the austerity program boosts confidence in such a way as to ignite a recovery.”

This may still be too simple.  Alesina’s study was overly abstract for Shiller and without enough historical evidence.  For a look to the past he turned to Jaime Guajardo, Daniel Leigh, and Andrea Pescatori of the International Monetary Fund.  Their study “found a clear tendency for austerity programs to reduce consumption expenditure and weaken the economy.”

The authors culled the historical record to find only the austerity programs that were meant to better an economy over the longer term.  More often than not, austerity didn’t work out as they planned and indeed led to tougher times.

There’s still something being lost in the analysis.  Job creators run off of confidence nearly as much as they do capital.  It’s confidence that’s at the heart of economic growth.  Confidence is slippery though and hard to measure.  So for the dismal scientist looking to quantify the effects of austerity, it’s hard to tell whether austerity kills confidence and thus growth or is the result of declining confidence itself.

Perhaps in the end austerity is what we make of it.  Shiller is doubtful that austerity expands an economy and he’s likely right.  Sometimes a country has no choice but to cinch its belt and lean into the dry austere gusts.  The real challenge is to have a growth agenda that’s intent on building confidence and clearing away obstacles.  Why even wait for red tape to wither?  A confident private sector is far more willing to step into the breach opened by a shrinking public sector, deploying its capital both physical and financial.  Our loss-averse nature means that we’re often more inclined to take risks in the face of austerity.  That too is a good thing, since risk-taking is one of the essential elements of entrepreneurship.

In a time of austerity, confidence is key.  Private capital must be free and open to take advantage of whatever animal spirits there may be, though tempered by these tough times.  Austerity, if it comes, should simply be a re-prioritization of where our money goes — ideally, toward growth and innovation — to be matched with structural reform in government.

We must be prepared and confident in the face of this austere gale.

The Latest Business Horizon Quarterly

January 23, 2012

NCF is proud to be releasing the latest issue of the Business Horizon Quarterly, our publication on the emerging issues affecting the American business community.  To answer the question of “What is innovation?”, we’ve brought together a slate of thought leaders from a diversity of backgrounds, including:

  • John Raidt, Senior Fellow, Atlantic Council
  • Nick Schulz, DeWitt Wallace Fellow, American Enterprise Institute
  • Bill Raisch, Director, International Center for Enterprise Preparedness, New York University
  • Ted Fishman, Author

We invite you to check out the latest issue, give us a shout with your thoughts on our Facebook page, and stay tuned for more from NCF, the think tank of the U.S. Chamber of Commerce.

Infrastructure Resilience

January 23, 2012

By Eric Boyer, Consultant, National Chamber Foundation

Infrastructure resilience is one of the greatest challenges facing our country today.  In the post-disaster world of events like Hurricane Katrina and the near meltdown of the Fukishima Nuclear Power Plant in Japan following last year’s catastrophic earthquake and tsunami, public and private sector leaders have learned the  potential for a single event to disable the foundations of a functioning society.

The traditional approach to addressing resilience involves integrating the efforts of federal, local and state governments; as well as private sector owners of much of the nation’s infrastructure.  The US Department of Homeland Security’s (DHS) Office of Infrastructure Protection (IP) and the Federal Emergency Management Agency (FEMA) lead the charge, coordinating efforts to improve the design standards, disaster planning, and overall coordination of infrastructure facilities.  Much of their work involves engaging state and local governments where facilities are based, and the owners and operators of those facilities – often from the private sector – to arrange joint efforts for preparing roadways, water systems, and energy facilities for the worst that Mother Nature and others can bear.  With more than 20,000 local and municipal governments within the U.S. federal system, aligning federal, state, local, and private interests is anything but easy.

Amidst the existing challenges of engaging public and private stakeholders in infrastructure resilience, many state and local governments are re-shaping the boundaries between public and private sectors by developing innovative public-private partnerships (PPP) to develop, finance and operate critical infrastructure systems.  These innovative, infrastructure-delivery partnerships merge public and private interests and responsibilities for operating major roadways, bridges and other vital transportation arteries.  The integrated responsibilities in PPPs for infrastructure re-define public and private roles in major systems by integrating public managers into private sector approaches to building and financing infrastructure.  The Federal Highway Administration (FHWA) also reports more innovative PPPs for infrastructure delivery since 2005 than any other time in our nation’s history.

The future is not all bleak, however.  A recent report on “Public-Private Partnerships and Infrastructure Resilience” by the National Chamber Foundation, the think tank of the U.S. Chamber of Commerce, suggests that as more governments turn to private financing and related partnerships for developing facilities, many of the planning processes required of co-developing infrastructure with a private entity challenge governments to address a number of issues related to resilience.  Specifically, PPPs for infrastructure force public managers to consider risk assessments, design standards in respect to long-term operating needs, and coordination across public and private sectors in ways they had not done before.  The very involvement of market mechanisms in the infrastructure delivery process introduced through infrastructure PPPs, challenges the public sector to consider long-term planning, including resilience, in new ways.

Coordinating the many public and private sector interests involved in infrastructure resilience will always remain a challenge in the U.S.  As more and more states find themselves strapped for cash and begin to look at innovative approaches for engaging the private sector in what they deliver, it’s long past time that we find out how infrastructure PPPs affect our approaches to building durable and sustainable facilities that we all depend upon.

Blog Posts Driving the Debate

January 20, 2012

NCF curates a weekly list of blog posts that touch on emerging issues affecting the American business community.

James Pethokoukis at The American outlined a Harvard Business School survey of 10,000 alumni on the state of American competitiveness.  Here’s what they found: “The big problems are macroeconomic policy (soundness of government budgetary, interest rate, and monetary policies), political system (ability of the government to pass effective laws),  legal framework (modest legal costs; swift adjudication), regulation (effective and predictable regulations without unnecessary burden on firms), K-12 education system(universal access to high-quality education; curricula that prepare students for productive work), and complexity of the national tax code.

In the view of Jordan Weissmann at The AtlanticAmerican innovation is “not dead yet.”

Wired’s Threat Level blog revealed that major cybersecurity flaws have been found in six industrial control systems across the nation.  This doesn’t sound too frightening until you realize what these systems do: they “control functions in critical infrastructure such as water, power and chemical plants; gas pipelines and nuclear facilities; as well as in manufacturing facilities such as food processing plants and automobile and aircraft assembly lines.”  Rightfully so, there’s a real debate now as to whether these flaws should have been revealed before systems manufacturers had a chance to address them.

The Geo-graphics blog at the Council on Foreign Relations released a chart on how how housing has “defriended” the Facebook generation.  ”Household balance sheets among the Facebook generation were the hardest hit: between 2007 and 2009, half of those under the age of 35 lost over 25% of their wealth.”

Is the American middle class shrinking?  Scott Winship found that most of the narrowing in this income class has had more to do with households moving to the upper middle income levels.  Economic hardship is a reality for many in America, but Winship showed economic mobility may not be quite as bad as many feared.

The Eurocrisis has quieted down in recent weeks, but that doesn’t mean it’s gone away.  Felix Salmon at Reuters showed how “Greece’s endgame looms.”

“Greece will officially default on March 20. The only question is whether the EU will continue to fund the country after that date. For the sake of the euro zone, we had better all hope the answer is yes.”

High-Skilled Immigration and Job Creation in America

January 19, 2012

By Michael Hendrix, Research Manager

Vivek Wadhwa, a noted immigration expert at Duke University, came out with an article in BloombergBusinessweek recently that highlighted some of the latest research on the benefits of highly-skilled migrants to the American economy.  Together with Nick Schulz’s recent NCF white paper on this very same topic, we’re beginning to see a compelling case form for what both authors call the biggest “free lunch” of them all: high-skilled immigration reform.

The title of Vivek’s article is pretty self-explanatory: “Fix U.S. Immigration Policy, Create Jobs.”  The “why” and “how” are answered by two large studies authored by Stuart Anderson and Madeleine Zavodny, respectively.  As Vivek highlights, they each provide support for building America’s human capital by drawing on the best and the brightest from around the world.

“Increasing bodies of evidence show that skilled immigrants are fueling technological innovation and job growth in America. A study released last week by Stuart Anderson of the National Foundation for American Policy found that immigrants were on the founding leadership teams of 24 of the top 50 privately held, venture-backed companies in the U.S. The highest percentage of these immigrant founders came from India. What’s more, Anderson found that in 76 percent of these companies, immigrants held key positions in engineering, technology, or management.”

“In another study released in December 2011, Madeleine Zavodny, an economics professor at Agnes Scott College, found that foreign-born adults with advanced science, technology, engineering, and math (STEM) degrees were strong net generators of jobs for native-born American workers. Zavodny found that 100 foreign-born workers with advanced STEM degrees generated 262 jobs for native-born workers, on average. The study, sponsored by the American Enterprise Institute and the Partnership for a New American Economy, echoes earlier research  by Professor AnnaLee Saxenian of the University of California, Berkeley, that showed that Chinese and Indian engineers managed 24 percent of the technology businesses started in Silicon Valley from 1980 to 1998. My own research found that in a quarter of the U.S. engineering and technology companies founded from 1995 to 2005, the chief executive or lead technologist was foreign-born. In Silicon Valley, the percentage of immigrant-founded startups was much higher—52 percent.”

Paper Finds importance of Keeping Foreign-Born STEM Students in U.S.

January 18, 2012

By Randy Johnson, Senior Vice President, U.S. Chamber of Commerce

A white paper authored by Nick Schulz, who serves as a National Chamber Foundation (NCF) Scholar and the DeWitt Wallace Fellow at the American Enterprise Institute, and unveiled today by NCF is part of a growing body of research that demonstrates the importance of high-skilled immigration to our nation’s economy.

Mr. Schulz asserts that in a knowledge-based economy there is a clear link between productivity growth and the contributions of highly-skilled immigrants.  In particular, the report notes that highly-skilled foreign-born nationals are being hired by prominent scientific, technology, and engineering firms – such as Microsoft, Coca-Cola, Intel, Caterpillar, 3M, and Ingersoll-Rand – to supplement the skill sets of native-born Americans.  These immigrants contribute to business operations not just through their skills but also their understanding of foreign markets, and in so doing play an active role in international commerce.

The paper argues that due to their willingness to take risks, high-skilled immigrants are also entrepreneurial. To back this assertion, Mr. Schulz cites a study from Duke University that examines the new science, technology, engineering, and mathematics-related (STEM) companies founded in the decade between 1995 and 2005.  The study’s authors found that fully one-quarter of those firms had at least one immigrant founder.  In addition, the paper also cites a study from the National Bureau of Economic Research which shows that immigrants with advanced degrees are also more likely to file patents for new inventions than native-born Americans.

Mr. Schulz’s main concern is that although immigrants still come to the United States in order to study at some of the finest universities in the world, the United States is still rapidly losing its competitive edge.  There is a growing recognition echoed by other groups, such as the Council of Foreign Relations, that existing immigration laws hinder the ability of foreign-born nationals to work following the completion of their studies.  Perhaps most alarming is the fact that Indian and Chinese nationals currently studying in the U.S. have indicated that they are intending to leave this country and start businesses elsewhere, directly competing against our nation’s economic interests.

In short, foreign-born nationals supplement the skill sets of those individuals born in the United States.  It is an economic imperative that highly-skilled, foreign-born individuals, especially those studying in the critical STEM fields, remain in this country so that they may expand economic growth and create new job opportunities for all Americans.

Re-Posted from FreeEnterprise.com: Paper Finds importance of Keeping Foreign-Born STEM Students in U.S.

Nick Schulz on the Human Capital Imperative

January 18, 2012

By Michael Hendrix, Research Manager

The National Chamber Foundation (NCF) is unveiling a white paper today authored by Nick Schulz, NCF Scholar and DeWitt Wallace Fellow at the American Enterprise Institute, on the benefits of high-skilled immigrants to the American economy. In The Human Capital Imperative, Schulz argues that America’s immigration policy needs to adopt a welcoming stance toward the skilled human capital found overseas if the country wishes to remain competitive in the 21st century.

Schulz examines “what scholars and the public have learned over the years about the economic effects of adding new skilled immigrants to the work force.” He concludes that “the United States will need to take steps to make sure it can compete,” including increasing the number of visas available to skilled immigrants.

The paper follows up on the conclusions reached at a recent event at the U.S. Chamber called“Immigration & American Competitiveness: The Challenge Ahead.” The remarks of New York City Mayor Michael R. Bloomberg and U.S. Citizenship and Immigration Services Director Alejandro Mayorkas focused on how high-skilled immigration is important to our nation’s economic recovery.

Schulz finds that skilled immigrants make inordinate contributions to American prosperity. They “start businesses at higher rates than the native-born,” “work or start businesses in some of America’s key growth sectors,” “help create new intellectual property,” and add to broader productivity growth and innovation throughout the economy.

“When any economy faces challenges, the first thing it should do is determine if it has any self-inflicted wounds, as those are the easiest to correct. The evidence is clear that the benefits of skilled immigration are high. The costs of bad immigration are also high. It is past time for the nation to stop shooting itself in the foot.”

You can read the rest of the paper below on our blog or on its own page here.