Brookings: Topics - Emerging Markets

China’s Increasing Interest in Africa: Benign but Hardly Altruistic

Yun Sun — Fri, 05 Apr 2013 14:42:00 -0400

China’s new leader President Xi Jinping has completed his foreign debut tour as the head of state after visiting Russia and three African countries: Tanzania, South Africa and the Republic of Congo. As the Chinese media hailed his “tremendous victory” and the “successful practice of great power diplomacy with Chinese characteristics”, the issue of China’s role and activities in Africa were once again put under the spotlight. Right before Xi embarked on his trip, Nigerian Central Bank Governor Lamido Sanusi criticized China’s engagement in Africa publicly in the Financial Times. His most quoted charge says “China takes from us primary goods and sells us manufactured ones. This was also the essence of colonialism.”

Sanusi’s comment cast a negative shadow to Xi’s first foreign visit and was met with ferocious rebuttals from an infuriated Beijing. China’s Ministry of Commerce pointed to the western countries’ “exploitation of African resources, trade of African people, occupation of African land and destruction of African culture” as the “essence of colonialism” and argued that it is China, not the West, that has provided support for Africa’s economic and social development. China’s Ministry of Foreign Affairs dispatched the head of its Africa Department, Lu Shaye, to deliver a formal demarche to a Hong Kong media outlet. He defended China’s role in Africa and argued that China has improved Africa’s international status by offering it a powerful alternative market and collaborator, delivering to Africa concrete benefits and treating it as an equal partner. In comparison, he argued, the West only “takes resources from Africa” and treats Africa with a condescending attitude.

The drastically diverging perceptions of China’s role in Africa are an interesting phenomenon. The polarization stems from the focus on different aspects of China’s activities on the continent. For example, dragon-slayers emphasize China’s selfish quest for African natural resources and how it sabotages international efforts to keep unpalatable African regimes in check. On the other hand, panda-huggers applaud China’s contribution to Africa’s economic development through infrastructure projects and revenue creation.

Unfortunately, neither reflects the nuanced, mixed nature of what China means to Africa. China enjoys unique financial and political advantages in promoting Africa’s growth through vast financing with little or no strings attached. However, these short-term benefits should not form a cover-up for the potential long-term negative consequences associated with neglecting issues of governance, fairness and sustainability.

On the positive side, China’s economic engagement in Africa has created significant benefits for African countries. Most importantly, Beijing has considerable capacity and willingness to provide financing to fuel Africa’s growth. During his recent trip, Xi reconfirmed China’s commitment to provide another $20 billion in financing to Africa. China usually attaches a significant amount of such funding to infrastructure projects, which forms the foundation for Africa’s industrialization and economic development. Many of these projects require large investment and long pay-back terms that traditional donors are reluctant to provide.

It is true that China does not emphasize the governance side of the story. This is a reflection of China’s own philosophy on the prioritization between economic development and political progress. Many Chinese officials, analysts and businessmen find the West’s overwhelming emphasis on democracy, governance, transparency in Africa amusing. To the West, they would ask an innocent but critical question: “for people who do not have food on the table, what’s the point of having democracy?” Using its own experience of subjugating political liberalization to the “higher cause” of economic development, China finds its approach to Africa as one that prioritizes the provision of basic elements of development, completely legitimate and fully justified.

In this way, China’s intention in Africa is benign. Beijing has no intention to colonize the continent, dictate the politics or economy of the local countries or deprive them of development opportunities. On the contrary, China truly sees itself as Africa’s “brother” and hopes to help African countries develop through infrastructure projects. Beijing seeks an approach different from that of the West, one that avoids the “meddling” with the internal affairs of African countries through conditional aid. In the last several years, China has contributed significantly to the economic growth of some of Africa’s poorest nations. China wants to see a prosperous Africa, which is beneficial to China’s interests as well.

However, this does not mean China is being altruistic. Helping Africa is important, but China would not do so if it had nothing to gain. Indeed, China emphasizes that any bilateral relationship has to be mutually beneficial. And China’s investment in Africa does pay itself back in multiple ways economically: development and exploitation of Africa’s natural resources, access to local market, employment opportunities for Chinese labors and service contracts for Chinese companies on infrastructure projects that China funds. When Chinese officials emphasize that China also invests substantially in countries that are not rich in natural resources to defuse international criticisms, they often forget to mention that China also has its eyes on other things that these countries can deliver, such as their support of Beijing’s “one China” policy, of China’s agenda at multilateral forums and of China as a “responsible stakeholder”. While there is nothing wrong with not being altruistic in one’s motives, it should be noted that China is not helping Africa in exchange for nothing.

In analyzing the nature of China’s activities in Africa, another important voice to examine is that of Africa itself. Many African countries and officials welcome China’s approach and fiercely defend China internationally. This seems like fairly powerful pushback to western criticisms of China’s role in Africa since African countries should know what they need more than anyone else. Africa’s approval of China poses an intriguing question for those in the West who disapprove of China’s activities in Africa: should the West reexamine its approach to Africa in order to better address what African countries truly need?

Authors

Yun Sun

Image Source: © Siphiwe Sibeko / Reuters

BRICS and China’s Aspiration for the New “International Order”

Yun Sun — Mon, 25 Mar 2013 16:24:00 -0400

The destinations of new Chinese leader’s first foreign tour are always carefully chosen and reflect two things: 1) They are important countries and represent certain foreign policy priorities for China, and 2) they are China-friendly, therefore the new leader will be met with open arms and a warm welcome rather than difficult questions or a long list of demands. Russia, China’s close neighbor and former ally, fits the profile and has been the first destination for both former President Hu Jintao in 2003 and for Xi Jinping this year. However, a decade ago, Hu focused on China’s periphery—Russia, Kazakhstan and Mongolia—while today Xi is taking China’s agenda further away. With the exception of Russia, Xi’s foreign tour focuses on Africa: specifically Tanzania, South Africa and the Republic of the Congo. The highlight is the fifth BRICS (Brazil, Russia, India, China and South Africa) summit in Durban, South Africa from March 26-27.

The unprecedented level of emphasis the new Chinese leader is attaching to the BRICS nations reflects the profound changes in China’s perceptions of itself and of the outside world. In the past decade, China has grown into the second largest economy in the world. However, this economic muscle is yet to be translated into comprehensive national power and the United States, despite its relative decline, remains the sole superpower in China’s foreign policy lexicon. As the U.S. rebalances to Asia, China feels a heightened pressure in its immediate periphery from Washington’s enhanced military deployment, alliances and “interference” in China’s territorial disputes. As the new Chinese leaders contemplate how to break away from this new “containment and encirclement of China,” the reliance on and cooperation with non-Western, rising economic powers are of high importance for China.

China sees natural common ground with emerging economies, especially in the pursuit of a new international economic order and the democratization of international relations. In Beijing’s view, the 2008 financial crisis dramatically changed the mapping of the world economy, deeply damaging the strength of the traditional developed countries. The economic recovery of the U.S. and Japan has been sluggish, while the eurozone crisis has lingered on for years. The relatively impressive momentum for growth comes from emerging economies, especially the BRICS nations.

For China, since the BRICS countries’ share and importance in the world economy has been growing but has not yet surpassed the developed countries’, the next step, naturally, would be for them to act as one group to increase their collective voice and bargaining power against traditional developed countries. In China’s view, this momentum would democratize international relations by offering developing counties more voice and rights. As Xi pointed out in his interview with journalists from BRICS nations right before his trip on March 19, the international economic governance system must reflect the profound changes of the global economic reality, and emerging markets/developing countries deserve more representation and bigger voices. The reform of voting rights at the IMF and World Bank signifies the direction to which China aspires—in Beijing’s dictionary, more responsibility is only justified when it is accompanied with more rights.

China also wishes to strengthen its identity as an emerging economy and a developing country by enhancing its contribution to the BRICS nations and their international status. Xi pledged to deepen the cooperative partnership and improve the cooperation mechanism among the BRICS nations. One possible major move would be the potential plan for the BRICS countries to establish their own development bank to provide funding assistance to Africa’s infrastructure development. If this plan transpires, it would demonstrate a major advancement by China in the field of international development assistance. By forming a de facto alliance among themselves, BRICS nations will gain more legitimacy and increase competitiveness for their development assistance, which is often criticized and even marginalized by traditional donors.

Xi’s first overseas trip reveals the international quagmire China is in. The past 10 years witnessed unprecedented growth of Chinese economy, but it was also accompanied by unparalleled foreign policy challenges. As many Chinese analysts observed, China’s external environment did not improve as a result of China’s rise, instead, it has worsened. China has become richer, but less respected. It has more transactions with the world than ever, but less friends.

Therefore, Xi’s trip to Russia, Africa and the BRICS summit genuinely reflects China’s strategic moves to break away from this predicament. It seeks to reconsolidate friendship with a Russia also antagonized by the West, with Africa to reinforce its developing-country identity and solidarity with the developing world, and with other emerging economies to align their collective power against the traditional developed countries. China learned its lesson that it is yet to be strong enough to challenge the existing international order (and the supremacy of the U.S.) alone. Alignment with other rising powers, like the BRICS countries, and reinforcement of its friendship base among developing countries will be a new emphasis for China’s foreign policy in the foreseeable future.

Authors

Yun Sun

Kenyans Head to the Polls - and a New Displacement Crisis?

Megan Bradley — Tue, 26 Feb 2013 11:45:00 -0500

Last night, Kenyans across the country crowded around radios and televisions for the second round of Presidential election debates. With elections less than a week away, tensions are running high. This is no ordinary election. The country’s last elections, in 2007, unleashed a surge of violence that left 1,300 dead and forced 600,000 from their homes – including some of my family friends, who fled the village of Ahero in western Kenya and eventually found shelter in the soccer stadium in Kisumu, Kenya’s third largest city. One of the leading presidential candidates and his running mate have been charged by the International Criminal Court with crimes against humanity for allegedly orchestrating much of this violence. Our friends have returned to Ahero, but scores of Kenyans will not be able to cast their votes on Monday from their home towns: an estimated 250,000 Kenyans are currently displaced. Some have still not been able to go home – or find a new home – after the last round of election violence. In 2012 alone, over 118,000 people were newly displaced by ethnically and politically charged violence.

On top of all this, in addition to a new president and MPs, Monday’s vote will see Kenyans elect representatives to a host of new positions created under the country’s 2010 Constitution. Chaloka Beyani, the Special Rapporteur on the Human Rights of Internally Displaced Persons (IDPs), points out that, “Elections this year are not only about national positions, but also about local ones. Power struggles over political representation at the local level have already resulted in new displacements in some instances.”

In order to ensure that Monday’s vote does not repeat the tragedy of 2007/2008, the government needs to ramp up efforts to prevent and prepare for potential violence and displacement. As the Special Rapporteur on the Human Rights of Internally Displaced Persons, has noted, “Instances of localized violence likely to result in the arbitrary displacement of persons in Kenya have steadily increased in the run up to the elections.” To its credit, the government of Kenya has laid the foundation for this prevention work by adopting a new IDP Act in December 2012 and approving a comprehensive IDP policy. According to the Special Rapporteur, “The IDP Act clearly obliges the government and others to guard against violence and prevent internal displacement.”

In addition to its obligation to prevent violence and new waves of displacement, the government of Kenya – and the international community – have a responsibility to hold the architects of the 2007/2008 crisis to account. Whatever the outcome of next week’s elections, this challenge must still be faced. In the meantime, I’ll be thinking of our friends in Ahero, hoping that the next time they visit the Kisumu soccer stadium, it will be to see a match and not to stay the night.

Authors

Megan Bradley

Image Source: © Stringer . / Reuters

Energy and Climate: Black to Gold to Green

Charles K. Ebinger and Kevin Massy — Thu, 17 Jan 2013 00:00:00 -0500

The United States can use its oil and gas bonanza to put itself back at the forefront of global trade, and take a leadership role in climate change mitigation. Charles K. Ebinger and Kevin Massy drafted this memorandum to President Obama as part of Big Bets and Black Swans: A Presidential Briefing Book.

How can American energy exports to China and India be used to advance climate change mitigation?
How should President Obama address opposition to exporting oil and gas, and promote greater investments in green energy?
What are the geopolitical benefits of increasing American oil and gas exports?

Download Memorandum (pdf) | Download the Presidential Briefing Book (pdf)

TO: President Obama

FROM: Charles K. Ebinger and Kevin Massy

Your second term offers a significant opportunity for the United States to strengthen its economic and geopolitical position by taking advantage of near-term global demand for oil, gas and coal, while bolstering its competitive position in the longer-term global market for lower-carbon technology and taking a leadership role in the battle to address climate change.

Recommendation:

By adopting policies that encourage the development and export of U.S. hydrocarbons including oil, coal and gas, the United States can take advantage of the rising demand for these fuels in developing and emerging economies around the world. As a condition of greater exploration, production and trade in these fuels, the Federal Government should impose a modest but meaningful volumetric or carbon-based tax on their production, with the resultant revenues allocated specifically to the development of two technologies that are essential to global efforts to fight climate change: carbon capture and sequestration; and advanced batteries, both at the grid and vehicle scale.

Background:

While the global political economy is likely to throw up many surprises over the next 20 years, three things appear certain:

U.S. global power and influence will have to be shared with others, as emerging powers such as China and India gain economic and geopolitical influence. As highlighted by the recent National Intelligence Council Report, Global Trends 2030, the global political order will change to one in which “power will shift to networks and coalitions in a multi-polar world.”

• Asia will continue to experience rapid growth in energy demand, most of which will have to be met with fossil fuels under any scenario. China’s energy demand is set to grow by 60 percent between 2010 and 2030, while India’s demand is projected to more than double. Despite the development of renewable and low-carbon technologies such as wind, solar and nuclear, coal will continue to play a leading role in global energy supply, with consumption in Asia’s electric power sector alone projected to increase by 63 percent between 2011 and 2020. Asian demand for energy will more than compensate for a broad leveling off of energy demand and a reduction in carbon emissions among the OECD countries.

• Consequently, global carbon emissions will continue rising at an unsustainable rate as efforts to get an internationally binding agreement on emissions reductions stall and investments in low-carbon technologies falter in the economic downturn. In its most recent annual assessment, the IEA concluded: “Taking all new developments and policies into account, the world is still failing to put the global energy system onto a more sustainable path.”

These global trends are coinciding with large structural domestic changes in the United States. Facing weak economic growth prospects, a massive debt burden, fiscal constraints and a dysfunctional political system, the one bright spot for our country in recent years has been the unexpected boom in oil and gas production. U.S. oil production rose at its highest annual rate ever in 2012 to levels not seen in decades. Thanks to technical developments in hydraulic fracturing and lateral drilling, natural gas production and inventories are at all-time highs. While the natural gas bonanza and environmental concerns are leading to a reduced role for coal in the U.S. power sector, exports of the commodity — of which the United States is the largest resource holder — are also at record levels.

The oil and gas boom has had many commentators breathlessly heralding an era of U.S. energy independence. This is unlikely to materialize either practically or economically. Under even the most optimistic scenarios for domestic hydrocarbon production, the United States will continue to import millions of barrels of crude oil per day for the foreseeable future, albeit increasingly from our own hemisphere rather than the Middle East. And as long as the United States is connected to the global trading system, it will be subject to supply and demand shocks beyond its borders, meaning that price disruptions anywhere in the world will be passed on to U.S. consumers.

However, there is a way in which the U.S. can use its oil and gas bonanza to arrest both its relative economic and political decline to put itself back at the forefront of global trade and to take a leadership role in climate change mitigation.

Irrespective of actions by OECD countries, China, India and other emerging nations will burn oil, gas and coal in ever greater quantities for the foreseeable future. The main beneficiaries of this demand are likely to be the OPEC nations, Russia, Australia and other oil, gas and coal producers. Given its huge reserves of hydrocarbons, the United States could position itself as perhaps the principal beneficiary of this demand by adopting a near-term policy of full-scale, export-led oil, gas and coal development. Such a policy would involve the expedited permitting of oil and gas production and ancillary pipeline infrastructure projects and the enabling of crude oil and gas exports, which are currently subject to policy restrictions or prohibitions. The resultant surge in production and exports would strengthen both the country’s fiscal position through export revenues and job creation; and its political position through weakening the market power and the revenue generation of OPEC nations and Russia. It would also bring geopolitical benefits through the deepening of partnerships with key consumers such as China and India.

The obvious opposition to such a policy is on environmental grounds. With global warming an unavoidable and worsening reality, such a course of action is open to criticism of being irresponsibly self-interested. However, a policy of full-scale hydrocarbon development can be consistent with leadership on climate change if, as a strict condition of the rapid development and export of our oil, gas, and coal resources, the production of hydrocarbons is taxed, either on a volumetric or carbon-content basis. You should then allocate the revenues to a modern “Apollo Mission” effort toward the development of carbon capture and storage (CCS), and advanced batteries and storage technologies. CCS is a necessary technology for any meaningful reduction in climate change given the continued prominence of coal in the global power generation mix. Advanced battery and alternative fuel storage technologies are essential to make electric cars competitively viable and to give solar and wind power the reliability and scale they need to compete with fossil fuels. The policy will also work to move the domestic economy towards lower-carbon consumption in power generation and transportation and to prove the new technologies at scale.

Having gained a competitive advantage in green technologies, the United States can then become the dominant global producer and exporter of CCS technology, advanced batteries and other lower-carbon products and services, maintaining its competitive position in the global energy economy.

The implementation of this policy will not be easy. There is likely to be opposition to exports of oil and gas on the grounds of U.S. energy security and ideological opposition to new taxes. Such concerns should be addressed by greater efforts at public education on the importance of global trade to U.S. energy security and the domestic economic and geopolitical benefits of expanded production.

Conclusion:

In a business-as-usual scenario, the world will continue its hydrocarbondependent trajectory towards an unsustainable level of carbon emissions with the principal economic benefits accruing to other resource-rich nations. By adopting this “black-gold-green” policy, the United States could simultaneously realize the near-term economic and geopolitical benefits generated by the world’s near-term need for hydrocarbons while taking a leadership role in the development and deployment of the technologies that are able to meaningfully address climate change over the longer term.

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Image Source: © Yuriko Nakao / Reuters

New Paradigms for Financial Regulation: Emerging Market Perspectives

Masahiro Kawai and Eswar Prasad, eds. — Thu, 27 Dec 2012 00:00:00 -0500

Brookings Institution Press 2012 300pp.

The global financial crisis has led to a sweeping reevaluation of financial market regulation and macroeconomic policies. Emerging markets need to balance the goals of financial development and broader financial inclusion with the imperative of strengthening macroeconomic and financial stability. The third in a series on emerging markets, New Paradigms for Financial Regulation develops new analytical frameworks and provides policy prescriptions for how the frameworks should be adapted to a world of more free and more volatile capital.

This volume provides an overview of the global regulatory landscape from the perspective of Asian emerging markets. The contributors discuss the many challenges ahead in developing sound and flexible financial regulatory systems for emerging market economies. The challenges are heightened by the rising integration of these economies into global trade and finance, the growing sophistication of their financial systems as globalization and emergence processes accelerate, and their potential vulnerability to instability arising from the financial markets in the advanced economies.

The contributors provide guidance about pitfalls to be avoided, general principles that should guide the creation of sound regulatory systems, and valuable analytic perspectives about how to continue to broaden the financial sector and innovate while still maintaining financial and macroeconomic stability.

Specific topics covered by the volume include:

Implications of global regulatory changes for emerging markets, with particular emphasis on Asian emerging markets
Effective design of regulatory and policy frameworks to promote financial system development and stability
Monetary policy frameworks to enhance financial stability and international policy coordination
Principles for a sound global regulatory architecture

This is the third in a series of books edited by Kawai and Prasad—copublished with the Asian Development Bank Institute—on international financial regulation and reform in the wake of global crisis, focusing on emerging markets. The first two books in the series are Asian Perspectives on Financial Sector Reforms and Regulation and Financial Market Regulation and Reforms in Emerging Markets.

ABOUT THE EDITORS

Masahiro Kawai

Masahiro Kawai is dean of the Asian Development Bank Institute and a former chief economist for the World Bank’s East Asia and the Pacific region.

Eswar Prasad

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Global MetroMonitor 2012: Slowdown, Recovery, and Interdependence

Emilia Istrate and Carey Anne Nadeau — Fri, 30 Nov 2012 00:00:00 -0500

While the global economic recovery slowed in 2012, the world’s largest metropolitan economies continued to have very different growth experiences. Disparities loom both across major world regions and within them, reflecting differences in metro industrial structure, national growth rates, and metro starting points.

An analysis of GDP per capita and employment changes from 2011 to 2012 for the largest 300 metropolitan economies worldwide, which account for nearly one-half (48 percent) of global output but contain only 19 percent of world population, shows that:

Three-quarters of the fastest-growing metropolitan economies in 2012 were located in developing Asia, Latin America, and the Middle East and Africa. By contrast, almost 90 percent of the slowest-growing metro economies were in Western Europe and North America. These recent trends reflect the accelerating shift of economic growth from developed metro areas in the global West towards developing metropolitan areas in the global South and East.
Compared to their countries, more than half of metro areas outperformed on employment growth in 2012, but only 40 percent achieved faster GDP per capita growth. Fifty-six (56) metro areas were pockets of growth in their countries, with both GDP per capita and employment expanding at a faster pace than national averages.
Almost three-quarters of the 300 metro areas had higher levels of employment and/or GDP per capita in 2012 than in 2007. Most metro areas in the developing Asia- Pacific and Latin America regions suffered no recession in the last five years or fully recovered to pre-recession levels, while only five North American metro areas managed to recover in both employment and GDP per capita. About 46 percent of metro areas, mostly in North America and Asia-Pacific, achieved higher employment and/or GDP per capita growth rates in 2011-12 than before the worldwide downturn.
Growth rates of both GDP per capita and employment slowed between 2011 and 2012 compared to the previous year for half of the 300 metro areas. Only in developed Asia- Pacific metro areas did combined GDP per capita growth accelerate last year, and among developed economies only North American metro areas achieved faster aggregate job growth in 2012 than in 2011.
Both national and local factors influence metropolitan economic growth. The previous year’s metro GDP per capita, the previous year’s national GDP per capita growth, and industry performance most affect annual changes in metro GDP per capita growth in the short-term. Over the long run (2000 to 2010), factors including national GDP per capita growth, initial metro GDP per capita, metro industry specialization, and metro human capital stock influence changes in a metro area’s standard of living.

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Authors

Emilia Istrate
Carey Anne Nadeau

Image Source: © Aly Song / Reuters

How Global Cities Adapt to Global Change

Alan Berube — Fri, 30 Nov 2012 16:00:00 -0500

Moving around (or trying to move around, at least) the city of São Paulo this week, spending time with the State Secretariat of Metropolitan Development, and visiting the port of Santos, it doesn't take too much insight to see that better transportation infrastructure is critical for the future global competitiveness of the entire São Paulo metropolitan region.

But I was struck at today's Global Cities Initiative (GCI) forum how many speakers and panelists, when confronted with the question of what one factor will matter most for the future of São Paulo , U.S. cities, and both countries, said the same thing: education.

The issue comes into stark relief in São Paulo thanks to the rapid de-industrialization the region has endured over the last couple of decades. By most estimates, services constitute 80 to 85 percent of greater São Paulo’s economy, up substantially from a couple decades ago when, as state governor Geraldo Alckmin explained, it was Latin America's industrial powerhouse. It still retains some of the nation's most advanced manufacturing sectors, but most of its low- and mid-skilled production jobs have fled to other regions of the country, or abroad to Asia.

One by-product of this industrial shift is an increasing demand for skilled workers to power existing firms, and to attract new investment. As in many U.S. cities, job quality is a chief concern in São Paulo as well, so that employment growth brings rising living standards.

Against that backdrop, it is amazing that only in the last decade or so has Brazil begun to provide universal primary and secondary education to its young people. It retains a world-class set of public universities, but even in the nation's most important regional economy, just 17 percent of adults hold a college degree. That's only about half the share as in the Chicago metropolis, for example. Given the ever-increasing pace of change in the global economy, especially in the traded sectors that shape the growth of cities, public leaders here recognize the need to dramatically accelerate educational achievement and attainment to maintain the city's global edge.

Government is responding. The average educational expenditure per student in Brazil rose 121 percent from 2000 to 2008, the largest increase among 30 countries. The government's Bolsa Familia program has helped as well, with payments conditional on school attendance. And as Eduardo Wurzmann of H&R Block Brazil observed, where 10 years ago education was not a major part of the public policy dialogue, one can pick up newspapers every day here and find significant coverage of the issue.

But as cities in the United States and around the world have learned, promoting adaptability and growth in city economies requires more than boosting education spending. Former Chicago mayor and Global Cities Initiative chairman Richard M. Daley, and mayors Antonio Villaraigosa of Los Angeles and Michael Coleman of Columbus, explained how their cities had stepped into the void of federal and state leadership to tackle tough issues related to education, job creation, and the environment. In an evolving federal system, Brazilian cities are still seeking the powers to act authoritatively like their American counterparts. Former Brazilian president Henrique Cardoso started this process of devolution in earnest in the late 1990s, handing over education and health responsibilities to cities, but explained how fiscal strictures continue to limit city flexibility.

Building city resilience is also not a one-electoral term project. Sustaining strategic investment over successive administrations, as discussed in Wednesday's GCI workshops, takes shared commitment across the public, private, and civic sectors. Mayors Daley and Coleman stressed how important partnership with business was to the success of their long-range plans. In that respect, it was heartening to hear Jorge Gerdau, president of Gerdau Group S.A. and the leading private sector spokesperson for Brazil's national competitiveness plan, list education as the number one factor critical to the future growth of the country, and especially cities like São Paulo.

And that made for a fitting coda to the first global GCI forum and our week in São Paulo. Cities exist, in the end, for the benefit of their people. So "going global" can only be a good thing for cities if it's a good thing for their residents. And those residents can only benefit from the opportunities that global trade and investment provide if they have the capacities--what Cardoso called the "human resources"--that ultimately promote economic adaptation and growth, and enhance local quality of life. That's a message that our two urban nations, and the metro areas that constitute them, can both embrace.

Authors

Alan Berube

Publication: The Avenue, The New Republic

Image Source: © Reuters Photographer / Reuters

No Global Safety Net if United States Jumps Off the Fiscal Cliff

Emilia Istrate — Fri, 30 Nov 2012 12:30:00 -0500

This week, the Organization for Economic Co-operation and Development (OECD) released a new forecast of the global growth for the next two years. The good news is that emerging markets might pick up slightly, but nothing to the levels seen before the global recession. The bad news is that the problems in the Eurozone area are here to stay, at least for the immediate future. As OECD Secretary-General Angel Gurria put it, “The world economy is far from being out of the woods.”

But what happened this year?

The slowing of the global recovery continued in both developed and developing countries in 2012. As our new Global MetroMonitor, a study of economic growth in the world’s 300 largest metropolitan economies, shows, growth rates decelerated last year for about half of these large metro areas. Ongoing problems in the Eurozone led an increased number of metro areas into at least a partial recession, not only in Eurozone countries but also in the United Kingdom and in Eastern Europe .The slowdown in the global economy also reduced growth rates in developing Asia-Pacific metro areas, though they are still growing faster than other metro areas around the world.

But the news is not bad all around.

The 300 largest metro economies worldwide accounted for nearly one-half of the global economy, but for more than one half of the global economic growth between 2011 and 2012. And these 300 metro areas concentrate only 19 percent of the world population.

Beneath the grim global and national outlooks, we see pockets of growth at the metropolitan level. Fifty-six metro economies did better than their countries in 2012 on both of the indicators used in our study. Further, they are not concentrated in any one country or one world region; they are spread around the world, from 12 in developing Asia-Pacific to five in the Middle East and Africa. North America had seven, two fewer than Western Europe.

In terms of recovery, almost three-quarters of the 300 metro areas had higher levels of employment and/or GDP per capita in 2012 than in 2007. Most of the metro areas in developing Asia-Pacific and Latin America had no recession or had fully recovered to their pre-recession peaks.

Which brings us to the U.S. fiscal cliff.

The U.S. recovery remains fragile, with only three U.S. metro areas (Dallas, Knoxville, and Pittsburgh) having recovered to their pre-recession peaks. North American metro areas represented almost two-thirds of the largest metro economies still below 2007 levels of both GDP per capita and employment. If upcoming debates over the fiscal cliff and long-term solvency derail their progress, it could severely threaten not only the American economy but also the broader global recovery.

Authors

Emilia Istrate

Publication: The Avenue, The New Republic

Image Source: Kevin Lamarque

São Paulo Striving to Keep Global Economic Edge

Alan Berube — Tue, 27 Nov 2012 00:00:00 -0500

What makes São Paulo a global city? Some might say its size. It is the largest city in South America. The São Paulo metro area, as our forthcoming Global MetroMonitor will reveal, is the 10th largest in the world by population and 13th largest by GDP. Others might point to its role as the finance capital of Latin America. Still others might point to its large international population, which includes the largest number of ethnic Japanese residents outside Japan.

Our contention in our recent Metro Trade report, and in our Global Cities Initiative [forum this week], is that trade and international exchange define a city's global character. There is no "yes/no" global city status, so much as a continuum of global engagement along which all cities sit by virtue of their firms' participation in the global marketplace.

In that respect, the São Paulo city-region is indeed highly globalized. As we heard in a presentation today by Aod Cunha of JP Morgan Chase, the São Paulo economy is much more knowledge-intensive and services-focused than are other parts of Brazil. The headquarters of dozens of national and multinational firms in Latin America--including 19 of the world's 25 largest banks—can be found here. At the same time, it is a manufacturing powerhouse, leading in aircraft exports via Embraer. And it retains an important role in Brazil's commodity economy, sending oil, sugars, and fruits to foreign markets, especially China.

Yet as São Paulo and other cities have begun to understand, the upsides of participation in global trade--gaining access to new sources of demand, boosting productivity, hedging against domestic declines--are balanced by the demands of real global engagement: brutal competition, frequent dislocation, and constant pressure to innovate.

So São Paulo faces some critical challenges to maintaining its competitive edge and re-asserting its leadership in the fast-changing Brazilian and Latin American economy. Chief among these, as Cunha described, is urban mobility and industrial development. One ride into the center of São Paulo city at rush hour, or from one neighborhood to another in the middle of the day—often a multi-hour project--tells you much of what you need to know about the urgency of the problem.

This partly reflects that, relative to demand, São Paulo's public transportation is underdeveloped and in need of upgrading and expansion. But it also reflects a planning and economic development challenge. One is struck immediately upon entering São Paulo from the airport 25 miles to the northeast how many high-rise residential buildings ring the outskirts of the city. Connecting those densely populated neighborhoods to the places in the region with jobs to keep firms competitive is a huge priority for the city and region and the subject of the ambitious SP2040 plan and its associated public and private investments.

These are not the only factors that will determine São Paulo's global success; tax and education reform are key issues that remain to be tackled at the national level for Brazil. But they provide a reminder of the key role that metropolitan leaders play through local investment decisions in supporting a city's global engagement. As Cunha concluded, there are too many variables to know whether Brazil will grow at 3, 4, or 5 percent in the long term ... but if it even hopes to grow at 1 percent, it can no longer afford to ignore the huge infrastructure challenges that face its most important metro economy and most globalized city.

Note: This post has been updated to reflect that São Paulo is home to 19 of the world's 25 largest banks, not 15 of the largest 20 as previously stated.

Read Metro Trade: Cities Return to Their Roots in the Global Economy »

Authors

Alan Berube

Publication: The Avenue, The New Republic

Image Source: © Nacho Doce / Reuters

Metropolitan Trade: Cities Return to Their Roots in the Global Economy

Alan Berube and Joseph Parilla — Mon, 26 Nov 2012 00:00:00 -0500

Economic theory, world history, and contemporary experience show that metropolitan areas (i.e., city-regional economies) and trade are inextricably linked. Trade is essential to metro areas—it is how they grow their economies. And metro areas are essential to trade—they provide the specialization and market access that facilitates exchange among producers and consumers. This report examines how the intersection between metro areas and trade is motivating a new—yet old—approach to economic growth in an age of increasing international exchange and rapid urbanization.

Cities, not nations, were the original global commercial nodes. From the first urban civilizations in Mesopotamia, to the Silk Road connecting cities from the Mediterranean to central China, to the Crusades-era city-republics of modern day Italy, to the medieval network of maritime trading cities that formed Northern Europe’s Hanseatic League, cities were the indispensable actors of global trade before the rise of the nation-state. They enhanced trade by providing the physical space, constant interaction, and economic specialization needed to facilitate exchange between previously isolated actors.
Two centuries of economic theory reveal how metro areas both facilitate trade, and are themselves an outcome of trade. Adam Smith observed that large markets give rise to the division of labor upon which specialization and trade depend. This eventually led to Ricardo’s theory of comparative advantage and the Heckscher-Ohlin model of factor endowments that helped explain trade patterns among cities and nations. Marshall, meanwhile, explained how metro areas exhibit agglomeration economies that enhance their productivity and capacity for trade. And Krugman observed that in a world of mobile capital and labor, metro areas remain critical nodes for trade because their exporting firms can benefit from both scale economies and access to large local markets.
Metro areas depend on trade for their own prosperity. The goods and services produced by a metro area’s firms that are consumed elsewhere—its exports—inject income from outside the region into the local economy. In turn, that income supports the purchase of local goods and services, creating a “multiplier effect” that increases regional employment and income. Moreover, exporting—especially to international markets—entails high fixed costs and demands high firm productivity. As a result, exporting metro economies are overall more productive and wealthier.
Trade is becoming increasingly important to global and national economies, thanks in part to the growth of metro areas. The rapid advancement of technology, the growth of multinational corporations, and the concomitant rise of Latin America and Asia have helped to triple trade’s share of global output since 1950. Metro areas, meanwhile, increased their share of world population from just 30 percent in 1950 to more than 50 percent today. Urbanization enhances the productivity and export potential of countries, while upgrading jobs and incomes for their populations that can ultimately translate into demand for higher-value imported goods and services. In 2012, the world’s 300 largest metro economies contain approximately 19 percent of global population but account for 48 percent of world GDP.
Trade defines a metro economy’s global economic character. Not all cities are “global cities” in the way that researchers have defined the term, but all cities are touched by the process of globalization by virtue of their distinctive specializations and positions in complex global supply chains. Not only New York, London, and Tokyo, but also São Paulo, Buenos Aires, and Seoul lead in the production of advanced services. Madrid, Hong Kong, and Dubai are centers of media and information. Nagoya, Hannover, and Milwaukee are globally significant manufacturing hubs. And U.S. metro areas such as Wichita, Greenville, and Portland rank among the nation’s most trade-oriented economies by virtue of their world-class local industry clusters.
Metro areas are critical actors for helping boost national and global trade. Beyond national platform-setting activities like trade agreements, currency policy, and investment in research and development, forward-thinking metro leaders—in some cases together with state and national partners—are increasingly adopting strategies to enhance their global trade position. At one level, they are investing in the key assets that drive trade: building an innovation ecosystem in Shenzhen; improving human capital for the aerospace industry in Wichita; and using inherited land and infrastructure to build a world-class inland port in San Antonio. At another level, they are organizing for trade: conducting a detailed market assessment to inform new export strategies in Portland; coordinating regionally and with higherlevel governments to drive inward investment in Rio; and financially supporting the global trade ambitions of small/medium-sized enterprises in Hong Kong and Singapore. Finally, they are boosting trade by building structured relationships with trading partners, including cultivating sustained, market-oriented linkages with Beijing and Shanghai in the San Francisco Bay Area.

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Authors

Alan Berube
Joseph Parilla

Image Source: © John Gress / Reuters

The Metropolitan Revolution: Remarks at Central Houston 2012 Annual Meeting

Bruce Katz — Fri, 05 Oct 2012 00:00:00 -0400

Editor's Note: In a recent speech, Bruce Katz heralds the Houston area as an emerging example of metropolitan innovation and smart governance. Katz also notes that this is part and parcel of a broader metropolitan shift, where regional leadership and economic development drive growth and opportunity.

I want to thank Bob Eury for that introduction and applaud you for your exceptional leadership of Central Houston.

This is an exciting time to be in Houston. Since the end of the Great Recession, this region has had the second best recovery among any of the 100 largest metro areas in the U.S. Your unemployment rate—at 7 percent—remains over a percentage point better than the national unemployment rate.

It’s also exciting because of the tremendous amount of momentum and activity in downtown and central Houston. This organization has been critical to that success. Your work on business recruitment and development, sustainability, transit, Main Street revitalization and social issues like homelessness has helped create a thriving urban core … or what the County Judge refers to as the “dynamic nerve center” of the region.

Finally, it’s great to see that Houston remains focused on its future. The four local propositions on the ballot next month are all critical for the long-term health and prosperity of the city and metro. The region needs a quality transit system, good high schools and community colleges to educate the next generation workforce, and ample green space for sustainable and inclusive growth. I support Central Houston in hoping all four measures are passed.

My goal today is to put this city … and the remarkable progress that you have made in downtown and central Houston … into a broader context.

I will make three points.

First, the urban cores of America’s metropolitan areas have been dramatically revalued in the past two decades by broad economic, demographic, and developmental forces. I believe that a new form of place-making is emerging in the United States, what I call “innovation districts.” I believe Houston can be a leader in this wave of place-making given the spatial configuration of your distinctive clusters, universities, firms, and amenities.

Second, Houston’s ambitions and success reflects a profound structural shift in power and governance in the U.S. Across the nation, cities and metros are taking control of their own destinies, becoming deliberate and intentional about their economic growth. Power is devolving to places and people who are closest to ground and oriented toward collaborative action. This shift is changing irreparably who our leaders are, what they do, and how they govern. In this century, leadership in the United States will bubble up from the bottom rather than rain down from the top. We call this “The Metropolitan Revolution.”

Finally, Houston and all U.S. metro areas will need to up their game in light of the partisan gridlock and ideological polarization that today defines our national government ... and the coming scale back of federal resources in coming years given the overarching budget deficit. The brutal reality is that Washington and frankly Austin will not be there to help and you will more on your own than at any time in modern memory. I will lay out my top suggestions for what you do going forward.

So let me begin with my first point about the revaluation of America’s urban cores.

After 50 years of unmitigated sprawl, the urban and metropolitan landscape in the United States is changing in dramatic ways after the housing bubble collapse in the mid and late-2000s.

For the most part, population growth in emerging suburban and exurban counties has slowed down post-recession whereas growth in most cities and dense suburban counties has picked up speed. Most important for our conversation today, downtowns are back. Metros with more than 5 million residents experienced a 13.3 percent increase in downtown residents during the last decade, while the downtown population in metros with 2.5 to 5 million people grew by 6.5 percent during this period.

This shift in settlement patterns is not an aberration; rather, it is reflective of some profound forces at play in the U.S. and global economy.

At the heart lies the restructuring of the U.S. economy. A new growth model and economic vision is emerging from the rubble of the recession, a next economy where we export more and waste less, innovate in what matters, produce and deploy more of what we invent, and build an economy that actually works for working families. The next economy will be fueled by innovation, powered by low carbon, driven by exports, rich with opportunity, and led by America’s largest metropolitan areas.

This economic restructuring has enormous impacts on the built environment and the form of cities and their metros. A consumption economy focuses on building homes and big box retail, in isolated zones, generally far away from denser urban cores.

An innovation economy, by contrast, craves proximity, extols integration, and champions the synergistic mash up between firms in disparate sectors, educational institutions, and the housing, retail and amenities. These are the sorts of interactions and mutual benefits that cities, with their density and diversity, can disproportionately supply. As one industry feeds another, productivity improves, entrepreneurship is encouraged, and employment and wages increase in the region.

Yet physical form is not only affected by economic imperatives. Demographics play a central role and the location and living preferences of rising demographic groups are changing radically.

Research shows that a growing segment of the population prefers communities that are walkable and livable. Elderly individuals increasingly seek places with easy access to medical services, shopping, and other necessities of daily life. Middle-aged couples whose children have left the nest are newly receptive to urban neighborhoods, cultural amenities, and shorter commutes. Young people, in particular, are experimenting with urban lifestyles, eschewing auto-centric lifestyles of previous generations in favor of biking, public transportation, and car sharing programs in urban areas. In fact, one study found that 16- to 34-year-olds in American households with incomes over $70,000 increased their public-transit use by 100 percent during the last decade.

Economic restructuring and demographic transformation is driving a new form of place-making within cities and metros. This new type of place-making—“innovation districts”—clusters and connects leading edge anchor institutions and cutting edge companies with smaller entrepreneurial firms, mixed-use housing, office and retail, and 21^st century amenities and transport.

This is a seismic shift in how we build our major cities and metros here and abroad.

In the 19^th century and early 20^th century—in Manchester, in Torino, in the Ruhr Valley, in our industrial Midwest—we built industrial districts, characterized by a high concentration of industrial enterprises commonly engaging in similar or complimentary work.

In the mid and late 20^th century—in Raleigh-Durham, in Silicon Valley, in suburban Washington, Boston, and Seattle—we built science and research parks and corporate campuses. Spatially isolated, accessible only by car, these parks put little emphasis on the quality of place or on integrating work, housing, and recreation.

Innovation districts reflect a new vision of where creative and talented workers want to live and work and how ideas happen. They place a far greater emphasis than industrial districts or science parks on the physical realm—infrastructure, urban design, and architecture—as well as the community environment—affordable housing, social activity, cultural institutions, and events. Innovation districts view cities not just as consumer zones of Starbucks and stadia, restaurants and retail, but hubs of invention, collaboration, and entrepreneurialism that drive the broader economy.

Barcelona’s and Boston’s innovation districts are the current buzz.

22@ Barcelona is located in a former industrial area on the Barcelona waterfront. 115 blocks in size, it now is home to five major clusters—media, medical technologies, ICT, energy, and design. In less than a decade, 69 percent of the area has been transformed and almost 4,500 firms have located there or are in the process of locating to the site.

The Boston Innovation District, located on 1,000 acres of the South Boston waterfront, was created in 2010 to take advantage of the strong assets of the city—many strong universities, human capital, and a growing concentration of life sciences and tech clusters. Since January 2010, 55 new businesses and 2,000 new jobs have been created on the site.

I would argue that Houston can play in the same league as Barcelona and Boston. Your economy is super vibrant and your mix and location of clusters, anchors, institutions, and firms is distinctive and primed for growth.

This leads to my second point: the United States is experiencing a Metropolitan Revolution; a structural shift in power and leadership away from Washington, D.C. and even state capitols, towards cities and metropolitan areas … and the networks of individuals and institutions who govern them.

This shift in power starts, of course, with a simple truth: Cities and metropolitan areas are the engines of economic prosperity and social transformation in the United States. Our nation’s top 100 metropolitan areas sit on only 12 percent of the nation’s land mass but are home to two-thirds of our population and generate 75 percent of our national GDP. Metros dominate because they embody concentration and agglomeration—networks of innovative firms, talented workers, risk-taking entrepreneurs, and supportive institutions and associations which cluster together in metropolitan areas and co-produce economic performance and progress. There is, in essence, no American (or Chinese or German or Brazilian) economy but rather a network of metropolitan economies.

Cities and metropolitan areas are also on the frontlines of America’s demographic change. Every major demographic trend that the U.S. is experiencing—rapid population growth, increasing diversity, an aging tsunami—is happening at a faster pace, a greater scale and a higher level of intensity in our major metropolitan areas.

Empowered by their economic strength and demographic dynamism, cities and metros are positioning themselves at the cutting edge of reform, investment, and innovation.

Signs of the revolution can be witnessed all across our country. It can be found in grand, economy shaping gestures: an Applied Sciences District in New York City, an Infrastructure Trust in Chicago, large scale transit investments in Denver and Los Angeles, modernization of port and freight infrastructure in Miami and Jacksonville.

But it can also be discovered in smart structural interventions: an intermediary in Northeast Ohio that helps manufacturing firms retool their factories for new demand; a Regional Export Council in Los Angeles that helps small businesses access global markets; and a network of Neighborhood Centers right here in Houston that gives new immigrants access to low cost banking, education, child care, and health care.

What unites these disparate efforts?

First, metropolitan leaders are measuring what matters. In a world that rewards places that strengthen distinct assets, metros need, first and foremost, a clear understanding of what makes them special, the discipline to build on their competitive advantages and the will to hold themselves accountable. This, to borrow from Michael Lewis’ indelible phrase, is Moneyball for Metros.

Second, metropolitan leaders are acting with intentionality and purpose. After decades of pursuing fanciful illusions (becoming the next Silicon Valley) or engaging in copy cat strategies, metros are deliberately building on their special assets, attributes, and advantages using business planning techniques honed in the private sector. The pre-recession economy, driven by consumption and amenities, celebrated the uniform. The next economy, driven by production and innovation, rewards the distinct.

Third, metropolitan leaders are blending the ecosystem and the enterprise. Smart metros do not just focus on the one transaction, attracting the one firm. They focus on building effective structures, institutions, intermediaries, and platforms to give firms, dozens of firms, what they need: talent, capital, market intelligence, strategic advice, branding, and marketing. These interventions help firms create jobs in the near term, but also help retool the broader metro economy for the long haul. They become the gift that keeps on giving.

Finally, metropolitan leaders are collaborating to compete. Neighboring cities and metros, long divided by petty differences, now realize they need to come together to engage forcibly in the global market, with and against cities and metros five or 10 times their size. As Colorado Governor John Hickenlooper likes to say "collaboration is the new competition."

I believe the metropolitan revolution is a structural phenomenon rather than a cyclical response to the current partisan divide in Washington D.C.

That’s because the contrast between the federal and state governments and metropolitan networks could not be starker.

The federal government and the states are legacy, almost anachronistic institutions: hyper-political and partisan, hopelessly fragmented, specialized and compartmentalized, frustratingly bureaucratic, technocratic, and prescriptive. By contrast, cities and metros have emerged as uber-networks in a world in which people live, operate, communicate, and engage through networks: interlinked firms, institutions, and individuals working together across sectors, disciplines, jurisdictions, artificial political borders, and, yes, even political parties.

The federal government and the states are present oriented. They govern, administer, and legislate in two-year cycles, aligned more with the timeline of political elections than with social or market dynamics. By contrast, you are intensely focused on, in the words of John Hofmeister, former president of Shell Oil, “getting the future right.” You think in the long term, act in the short run.

The federal and state governments are organized as a collection of hardened “silos and stovepipes,” fragmented executive agencies overseen by separate legislative committees. A transportation agency responds to transportation challenges like congestion with transportation solutions like widening a road, affirming the old adage that “If you have a hammer, everything looks like a nail.”

Cities and metros are, by contrast, organic communities. Resolving a transport challenge, for example, might most effectively and efficiently be achieved through a shift in housing or jobs location or alternative means of mobility. Metros are integrated rather than compartmentalized, holistic rather than segmented.

The Metropolitan Revolution is upending our fundamental views about our country. In traditional political science textbooks, the United States is portrayed neatly as a hierarchical structure – the federal government and the states on top setting direction, the cities and metropolitan areas on the bottom waiting to receive largesse or permission.

The metropolitan revolution is exploding this tired construct. Cities and metropolitan areas are becoming the leaders in the nation: experimenting, taking risk, making the hard choices, asking forgiveness not permission. A “new normal” in leadership could soon define a nation where metros lead and the federal government and states follow.

This leads to my final point: for Houston to prosper, you will need to take full ownership of your future.

Here is the brutal reality: Cities and metropolitan areas are on their own.

Mired in partisan division and rancor, the federal government appears incapable of taking bold actions to restructure our economy and maintain those policies in a predictable fashion over time. Recent Supreme Court decisions have also circumscribed the ability of the federal government to respond to national challenges. States are a varied lot. Some like Illinois are too broke and broken to engage. Most, like Georgia, Ohio and, in my view, Texas, have a long history of antagonism towards their urban and metropolitan engines.

To paraphrase Pogo, we have met the solution and it is us. There are no excuses. There is no deus ex machina. The cavalry is not coming.

That reality will be distressing to some … but liberating to others.

Here is my advice on where to head.

First, double down. In fact, quadruple down.

There is always a tendency for cities and metros to change horses in mid-stream and hop from strategic initiative to strategic initiative. With Washington adrift, with global markets uncertain, this is a time for sustained focus and discipline. You have accomplished an enormous amount in the past several decades, restoring the core of this grand metropolis and helping push transformative investments like the ones on your ballot this year. Do not waver. Pick those few catalytic projects and interventions that will further your progress, green light and fast track them … and get stuff done. Central Houston’s strategic vision—focusing on urban place, business development, transportation and education—is exactly the right kind of vision to build the future.

Second, aim high. When I look at Houston, I see an embarrassment of economic riches and possibilities. Perhaps most intriguing is the potential for Houston to graduate from being the global capital of conventional energy to being the global hub of clean energy and the clean economy more broadly.

For all the ideological discourse about the clean economy, we know that it is large, diverse, and disproportionately production, innovation, and export oriented. Brookings’ research shows that America already has a strong base of 2.7 million clean economy jobs, in sectors ranging from renewable energy to pollution reduction.

To put that number in perspective: the clean economy is nearly twice the size of the biosciences field, 60 percent of the 4.8 million strong IT sector, and larger than fossil fuel related industries.

Brookings’ research shows that Houston has strong potential in clean sectors such as renewable energy services, geothermal, and professional environmental services. Houston’s goal should be to build on its strengths and dominate in these sectors.

Third, be assertive with your state and federal governments.

Whoever wins the national election in 31 days, it is clear the federal government will scale back. But the current debate, largely framed around deficit targets, entitlement spending, and programmatic budgets, is not sufficient. We face more fundamental decisions, not just about the size and scale of the federal government but its scope and purpose, not just about federal focus but about federalist delivery.

Everyone in this room knows that the national government is a sprawling, legacy, byzantine, enterprise. The Simpson Bowles Commission, for example, found that there are over 44 job training programs across nine different federal agencies, and 105 programs meant to encourage STEM education.

As Washington struggles with deficit reduction, it is not enough to get the federal fiscal house in order. It is time for a house cleaning of epic proportions. One can imagine multiple ways—for example, consolidating trade agencies with similar missions, consolidating workforce programs under a performance block grant—to modernize the federal government to leverage the possibilities of a differentiated economy.

What does that mean for Houston? Get ahead of the curve. Provide tangible, concrete ideas for federal reforms will unleash innovation and give city and metropolitan leaders the flexibility to do more with less.

Fourth, go global. The 21^st century Metropolitan Revolution will be global in scope, in reach, in impact. For the first time in recorded history, more than half of the world’s population lives in cities and metropolitan areas. By 2030, the metro share will surpass 60 percent. Rising nations like China, India, and Brazil and their rapidly growing metros now power the world economy and drive global demand.

We believe that the world is on the cusp of a new global network of trading cities that link with each other on trade, learn from each other on urbanization and governance, and leverage each other on issues of mutual concern at the international stage. In some respects, we are going back to the future, to the Silk Road, to the Hanseatic League … when urban trade drove economies and relationships between cities drove urban trade.

Already, U.S. urban and metropolitan leaders are venturing outside the country, forging strong trade and other links with their counterparts in rising cities in rising nations: New York and London, Silicon Valley and Bangalore, Detroit and Torino, Los Angeles and Shenzhen, Miami (and Houston) and Sao Paulo. These networks obviously start with firms and ports that do business with each other. But, over time, they extend to supporting institutions—governments, universities, business associations—that provide support for companies at the leading edge of metropolitan economies. Mayor Parker and other leaders need to be commended for the efforts they have made to structure lasting relationships with major Brazilian cities and metros.

As metros link, they learn. A metropolitan business plan in Seattle informs one in Sao Paulo. Mayoral governance in New York is mimicked in London. An innovation district in Barcelona fuels thinking in Boston. Training industrial workers in Munich translates to Milwaukee. Bus rapid transit in Curitiba inspires Orlando.

As metros link and learn, they leverage. Metros are finding their collective voice at the continental and international stage, binding together and advocating if not demanding that nations and multi-lateral institutions act on urgent matters like climate change.

Houston is obviously a global city, the “gateway of North America” in the words of Judge Emmett. But to be fully successful in this century, you will need to be fully globally fluent. In less than two months, a delegation of Houston’s leaders will be joining Brookings and JP Morgan Chase in Sao Paulo for an international forum on trade and investment. In my view, that is exactly the kind of engagement that this century demands … and rewards.

Conclusion

Let me conclude with these thoughts. I am bullish on Houston. This organization … and your broader city and metropolis … have shown the ability over decades to evolve and iterate and and recover and reinvent yourself, building from a strong base of firms and sectors.

This is not a time to rest on your laurels. This is not a time to admire what you have accomplished.

We are living in an Urban Age and a Metropolitan Century … where everything you have done prepares you for what is to come.

Be bold. Be focused. Be disciplined. I look forward to your success.

Authors

Bruce Katz

Publication: Hilton Americas Houston

Convergence, Interdependence, and Divergence in the World Economy

Kemal Derviş — Thu, 30 Aug 2012 16:56:00 -0400

Most feel that we live in an integrated globalized world. But when looking at recent history, what can one really say about the nature of this integration? It seems there are three fundamental trends at work that today characterize the world economy.

The first trend is a new convergence. In his 1979 Nobel Prize lecture, the late development economist Sir Arthur Lewis said, “For the past hundred years the rate of growth of output in the developing world has depended on the rate of growth of output in the developed world. When the developed world grows fast, the developing world grows fast, when the developed slow down, the developing slow down. Is this linkage inevitable?”

Recent data suggest that while there remains linkage, it is now important to distinguish between long-term trends and cyclical movements. Since roughly 1990 the pace of per capita income growth in emerging and developing economies has accelerated in a sustainable manner and is substantially above that in advanced economies. This represents a major structural shift in the dynamics of the world economy.

A second fundamental feature in the world economy is cyclical interdependence. Although emerging and developing economies’ long-term trend growth rates have delinked—or “decoupled”—from those of advanced economies over the past 20 years, this has not led cyclical movements around the trend to delink.

New convergence and strengthened interdependence coincide with a third trend, relating to income distribution. In many countries the distribution of income has become more unequal, and the top earners’ share of income in particular has risen dramatically. In the United States the share of the top 1 percent has close to tripled over the past three decades, now accounting for about 20 percent of total U.S. income (see "The World Top Incomes Database" by Alvaredo and others, 2012). At the same time, while the new convergence mentioned above has reduced the distance between advanced and developing economies when they are taken as two aggregates, there are still millions of people in some of the poorest countries whose incomes have remained almost stagnant for more than a century (see "More or Less," F&D, September 2011). These two facts have resulted in increased divergence between the richest people in the world and the very poorest, despite the broad convergence of average incomes.

Read the full article in Finance and Development »

Authors

Kemal Derviş

Publication: Finance and Development (International Monetary Fund)

Image Source: Jose Manuel Ribeiro / Reuters

Golden Age of Gas

Rahool Panandiker and Urjit R. Patel — Thu, 09 Aug 2012 10:48:00 -0400

The “golden age of gas” is a phrase that may pass into common usage. Unlike the scorned and increasingly illegitimate recent “era of high finance” pioneered in the North Atlantic, this epithet may even have legs — considering that Shell has kicked off plans in the United States for retail distribution of compressed natural gas, or CNG, to the transport sector.

A crucial facet of this development is that cross-border gas trade is growing faster than gas production. The growth trajectory of global gas trade has surpassed the pre-2008-09 rate of over four per cent. Liquefied natural gas has doubled since 2007, to 330 billion cubic metres per annum in 2011; integration is taking place and geographic segmentation is gradually subsiding.

The reasons for the rise in the fuel’s “profile” are well known. First, gas is cleaner than coal and safer than nuclear power; it is widely accepted as a “bridge” towards competitive renewables. Moreover, the lower capital costs and greater flexibility of gas-based power plants afford obvious efficiencies in certain contexts; fertiliser plants with gas as feedstock have a significant cost advantage. Second, it has the potential to be a direct substitute for liquid transport fuels — India is familiar with this. Third, as new technologies make shale and tight gas economical to extract, the geographic spread of new finds means that strong oligopolistic structures will less likely dominate. In other words, apart from coal, natural gas holds out the prospect of a relatively competitive market structure.

Read the full story at Business Standard »

Authors

Rahool Panandiker
Urjit R. Patel

Publication: Business Standard

Isolation and Stalemate in the World Economy

Domenico Lombardi — Thu, 12 Jul 2012 16:31:00 -0400

Editor's Note: This article was originally published in the July 2012 edition of Longitude, a monthly Italian publication on world affairs.

Another G-20 summit has come and gone but the world economy and the euro area in particular are doing no better. There are, in fact, visible signs of a slowdown in the emerging economies, economic recovery has stalled in the United States, and, of course, the eurozone crisis has worsened further with one of its systemic economies, Spain, currently seeking official assistance for its troubled financial sector.

Against this backdrop, a few days ago at the Los Cabos Summit, 37 countries pledged $456 billion to the IMF. Pledging countries include those from the EU for $240 billion, and other advanced and emerging economies for the remaining $216 billion.

It is almost more remarkable, however, to see who is not on the list. For the first time in history, the US has not participated in this collective effort, forfeiting an important opportunity to exert political leadership among the systemic economies.

US disengagement has also created problems for China: for its own $43million pledge, as opposed to the $100 million initially requested by the IMF, China had to overcome domestic opposition to the fact that a still fundamentally poor country should contribute when the Fund’s biggest shareholder had pulled out.

In the end, emerging economies bolstered the efforts to strengthen the IMF’s financial capacity, but not before garnering assurances that their quota and their relative voting power in the organization will be further increased.

Already, on the basis of the latest reform package approved by the IMF Board of Governors in December 2010, due to be ratified by the membership over the coming months, China will become the third largest shareholder, with 6% of the voting power, while the other BRICs will feature among the top ten shareholders.

With these new pledges, the emerging economies will manage to secure amore favorable outcome by the end of the current round of IMF quota negotiations, scheduled to conclude by early 2014.

To this purpose, the communiqué unambiguously states that G-20 leaders “are committed to completing the comprehensive review of the quota formula, to address deficiencies and weaknesses in the current quota formula by January 2013, and to complete the next general review of quotas by January 2014.”

The message is then made even clearer: “the distribution of quotas based on the formula should better reflect the relative weights of IMF members in the world economy, which have changed substantially in view of strong GDP growth in dynamic emerging markets and developing countries.”

As a result of these pledges, the IMF’s lending capacity will increase to approximately $800 billion. As high as that may seem, it won’t make the IMF a systemic lender to the eurozone, or put it in a position to offer credible, precautionary arrangements, as was the case at the height of the international financial crisis.

At that time, the IMF played an important, stabilizing role vis-à-vis Colombia, Mexico, and Poland, through its uncapped, crisis-prevention flexible credit line (FCL). Indeed, following news of their precautionary programs, market spreads narrowed in these countries.

To suggest that Italy and Spain represent analogous situations is an unfair comparison, however, even if they qualified for an FCL, which is very unlikely. With FCL-supported countries such as those mentioned above, the IMF boasted the financial resources to stabilize the countries’ rollover needs, had their economies been cut off from markets.

For the larger eurozone sovereigns, the Fund today is not in a similar position. At least $400 billion would be required for a credible two-year arrangement for Spain; Italy would require close to $750 billion. Together they would exhaust the capabilities of both the IMF and the European rescue fund.

Then why hasn’t the G-20 stepped up to the plate, as it did – to great effect – at the height of the international financial crisis in 2009? The answer is that since then, two forces have been at work, leading to the political paralysis of what had been hailed early on by its leaders as their premier forum for international economic consultations.

The first is the internal dynamic of the eurozone in the management of its crisis, which exerts a disruptive effect on the dynamic of the G-20 as a whole. Germany has managed to establish the principle that the European countries must express a common position in international fora, which, inevitably, tends to reflect Germany’s own position.

Harmless on the surface, in reality this principle deprives Italy, France, and Spain, the three members of the eurozone that belong to the G-20 together with Germany, of the leverage that would derive from forming coalitions with important members of the group in support of their own positions, which differ more and more from those of the Germans.

Subscribing to the principle of a common position does not allow these countries to engage other systemic members of the G-20. By preventing conflict from materializing openly in the discussion, Germany, with the tacit support of the systemic countries of the eurozone, has prevented the possibility of a mediation within theG-20, while ensuring that its own position remains intact.

The isolation of Germany in the G-20 has therefore translated into the isolation of the eurozone. But, then, if G-20 members do not agree on the European position – and there is no scope for negotiations – how can they be expected to support the eurozone?

This has, indeed, been the dilemma of the US, which has constantly advocated a more balanced approach resting on credible medium-term consolidation in the context of growth-enhancing measures. Speaking of which, this brings us to the second factor hampering a more constructive G-20 dynamic. The Obama administration has taken a strategic pause vis-à-vis the G-20 since December 2010, reflecting growing unease with China.

In some circles in Washington the idea has taken hold that, in response to the unprecedented openness of the present administration, China has done little or nothing to reciprocate by initiating a change in its economic policy stance.

The importance of export-led growth has remained fundamentally unchanged. The barriers to access by foreign firms posed by the public procurement framework have also remained unchanged, despite pressures from the WTO and the US in this regard. Finally, the exchange rate with the dollar, which in Washington is considered the litmus test for a new course in Chinese economic policy, continues to be determined by monetary authorities’ interventions.

It is not a coincidence that the ratification of the IMF reform package has not yet been presented to Congress, and it probably will not be presented until after presidential elections later this year. Which means that the very administration initially creating the political premise for the approval of the package has in fact blocked its approval within the previously agreed timeframe of October of this year.

All in all, given the current status of play and the little efforts the eurozone has made to elicit international support, the latter bears an even greater responsibility to rise to the occasion at the forthcoming EU summit at the end of June. If expectations for a decisive move to counter the crisis fade again, we will all have to tighten our belts for months to come.

Authors

Domenico Lombardi

Publication: Longitude

Image Source: Andres Stapff / Reuters

Brookings Doha Energy Forum 2012 Policy Paper

Tue, 22 May 2012 00:00:00 -0400

Editor's Note: This report documents the proceedings of the inaugural Brookings Doha Energy Forum, a platform intended to foster debate, dialogue, and outcome-oriented research around one of the major geopolitical trends of the 21st century. The Forum convened a private, high-level meeting of senior government officials, senior energy company executives, and world-class energy analysts from the Middle East, Asia, Europe, and the United States.

LETTER FROM THE CONFERENCE CONVENERS

Dear Colleagues,

It is our pleasure to release the proceedings of the inaugural meeting of the Brookings Doha Energy Forum, a platform intended to foster debate, dialogue, and outcome-oriented research around one of the major geopolitical trends of the 21^st century.

The predominant international energy relationships of the past 50 years have been between the supplier states of the Middle East and the consumer states of the industrialized countries of the Organization for Economic Cooperation and Development (OECD). In recent years, however, a range of economic, political, technological, and environmental factors have begun to challenge the status quo. New demand centers in South and East Asia and a leveling out of demand in the United States and Europe have tilted the global energy landscape eastwards, giving increasing market power to emerging economies. The recent discovery and development of unconventional sources of oil and gas has accelerated this shift, and has begun to fragment the positions of traditional consumer nations. Rising energy demand in China and India has been accompanied by a wave of strategic energy investments by those countries as they seek to maximize energy security.

Systemic shifts in the global balance of supply and demand are coinciding with a period of rapid and unprecedented change in the Middle East. Whether or not unrest spreads in the Gulf, its leaders will have to navigate between meeting the increasing demands of domestic populations and meeting rising global demand for energy. The emergence of new governments in other parts of the region and fears of revolutionary “contagion” are already having an impact on oil prices, investor confidence, and energy security considerations among consumer nations.

This combination of global structural shifts and local political transitions has the potential to lead to a fundamental transformation of the region’s role and the global politics of oil and gas, and gives rise a number of critical questions:

What will be the strategic and economic implications of an eastward shift in focus by Middle East suppliers?
What will changes in the domestic policies mean for short and long-term stability of global energy markets?
As emerging markets become more important consumers and investors, how will the investment balance change between host and home countries?
What will the changing nature of supplier-consumer relationship mean for governance and transparency in producer nations?

The Brookings Doha Energy Forum, a collaboration between the Brookings Institution’s Doha Center and the Brookings Energy Security Initiative, was created to address these questions. At its inaugural meeting in February 2012, the Forum convened a private, high-level meeting of senior government officials, senior energy-company executives, and world-class energy analysts from the Middle East, Asia, Europe, and the United States. The two-day meeting, which was opened by His Excellency Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, Prime Minister and Minister of Foreign Affairs of Qatar, provided an opportunity for an open dialogue on the changing global energy landscape, the impact of a revolutionary Middle East on global energy markets, and the future of energy investments in the Middle East. The findings of the conference are reflected in this report.

The Brookings Doha Energy Forum relies on the expertise and support of stakeholders in the public and private sectors, both in the Middle East region and in the broader international community. We look forward to working with together within Brookings and with our partners to ensure the continued success of the project.

Sincerely,

Salman Shaikh
Director
Brookings Doha Center

Charles L. Ebinger
Director
Brookings Energy Security Initiative

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Publication: Brookings Doha Center and Brookings Energy Security Initiative