In 2013, the leaders of the G8 signed an agreement committing to advance open data in their respective countries. This report assesses the current state of open data efforts in these countries and finds substantial variation in their progress. Moving forward, countries have many opportunities to enhance their open data capabilities, such as by increasing international collaboration, better educating policymakers about the benefits of open data, and working closely with civil society on open data initiatives.
Reforming Regulation to Drive International Competitiveness
Poor regulation is especially damaging when applied to industries that face international competition. Unlike firms in other industries, these companies are more likely to move their production to jurisdictions where the cost of regulation is lower. Failing that, they may find themselves losing global market share to less burdened rivals in other nations. In either case, the U.S. economy suffers.
This report shows why regulatory reform focused on traded sector industries can substantially reduce costs and boost competitiveness while maintaining, or even increasing, social benefits. The paper analyzes some of the general policy issues associated with regulatory reform. It first looks at the regulatory process to show why it is unreasonable to expect that regulation will always maximize social welfare. In fact, it is not unreasonable to expect that some regulations will become significantly out of date or that the regulatory process imposes significant costs. The paper then looks at case studies in three areas—medical devices, aircraft production, and export controls of high-tech productions—in which regulation affects the competitiveness of specific industries that face global competition. It could have easily looked at other industries as well, including information industries, semiconductors, and life sciences.
The paper then lists general principles that regulators should follow:
- Anticipate innovation.
- Embrace transparency.
- Concentrate on metagoals.
- Place more trust in the consumer.
- Place more emphasis on reducing the cost of over regulation.
- Recognize the value of time to industry.
- Adhere to cost/benefit analysis.
- Take into account the competitiveness impacts of regulation.
The paper concludes by proposing specific institutional reforms to ensure agencies follow these principles, especially with regard to industries facing international competition:
- The National Economic Council should create inter-agency regulatory councils to examine the regulatory environment facing particular traded sector industries and use that analysis to guide reform.
- The Administration should create an Office of Innovation Policy.
- Agencies should open up the regulatory review process even further by making it easier for industry and the public to monitor rulemaking, “crowdsource” regulatory approaches, and initiate reviews of existing rules.
- Congress should update authorizing legislation and conduct more detailed oversight of the regulatory process.
- Congress should provide agencies with the resources they need to regulate effectively.
The Imperative of Protecting Life Sciences Innovation in the TPP
With negotiations over the Trans-Pacific Partnership (TPP) fast coming to a conclusion, it is imperative that the U.S. fight to preserve strong intellectual property protections that encourage innovation in life sciences—and the most important requirement should be 12 years of data exclusivity protection for novel biologic drugs. This report analyzes the critical role of IP rights in life sciences innovation, assesses the potential economic impact of the TPP, and argues it will not generate the benefits we seek unless strong IP protections are a centerpiece.
Healthy Funding: Ensuring a Growing and Predictable Budget for National Institutes of Health
The current budget and appropriations process coupled with a lack of consensus among policymakers on how to address our long-term fiscal challenges makes it seemingly impossible to deliver the level of funding for biomedical research that the American public overwhelmingly supports. This report reviews the implications of a reduced federal commitment to research funded by the National Institutes of Health (including a look beyond our shores) and then examines possible options for altering the budget process so that Congress can continue to invest in the nation’s biomedical leadership even as it makes progress on addressing broader fiscal challenges.
Members on both sides of the aisle understand that the federal government has an essential role in funding biomedical research and often point with pride to the advances made and lives saved or improved on account of research undertaken by scientists in their home states. Government funding for biomedical research brings large health benefits. It also reduces the burden of fiscal debt both by reducing the long-term cost of medical care and by boosting economic growth.
There also seems to be a growing awareness that the failure to provide both growing resources and increased predictability has negative effects on the pace of medical breakthroughs and the strength of the U.S. biomedical industry. Several other nations have succeeded in making long-term public commitments to biomedical research, partly because of its importance in attracting private research.
Unfortunately, political battles over the broader federal budget have prevented legislators from translating this support into rising, or even stable, budgets. This has resulted in tremendous uncertainty about what NIH’s budget will be from year to year. Although there is a general willingness to increase the agency’s budget, members differ over whether any increases should be offset by cuts to other programs. As a result, policymakers should consider separating NIH’s budget from the broader deficit battles and implement a number of budget reforms that could provide NIH with greater resources and flexibility. These include:
- Increase discretionary spending caps and ensure additional funding flows to NIH;
- Provide NIH with permanent appropriations, limiting the agency’s exposure to annual budget battles;
- Establish a biomedical research fund to supplement annual appropriations;
- Remove NIH from the discretionary budget, making the program mandatory; or
- Streamline regulatory processes to ensure efficient use of existing funding.
Cross-Border Data Flows Enable Growth in All Industries
The importance of cross-border data flows is not confined to high-tech industries. Increasingly, firms in a wide array of industries, from mining and retail to finance and manufacturing, have operations, suppliers, or customers in more than one country and rely on the data that come from these other countries. The benefits of sharing data across borders are realized by consumers in a myriad of ways: from cheaper, safer, and more environmentally friendly products to personalized services. Unfortunately, many countries have begun creating policies that impede cross-border data flows. Such policies are likely to backfire and hurt these nations’ own domestic firms.
This report offers several examples of how cross-border data flows are vital to not only technical industries, but traditional industries as well. It argues that countries should avoid protectionist rules that limit data exchange across borders, such as data residency requirements that confine data to a nation’s borders. This report explains why protectionist data policies—whether they are intended to enhance security or privacy, or foster economic activity—tend to backfire in the long run.
Finally, this report recommends six ways to roll back anti-competitive trade practices for data:
- International organizations should develop mechanisms to track data-related localized barriers to trade, making it easier to quantify the economic impact of those measures.
- International organizations, such as the World Bank, should push pack against countries that create barriers to cross-border data flows.
- The United States could negotiate its trade agreements, such as the Trans-Pacific Partnership (TPP) agreement, to eliminate these barriers.
- The United States should use international forums, such as the World Trade Organization (WTO), to propose a treaty to reduce member states’ incentives to pursue data-related localized barriers to trade. This agreement could be called a “Data Services Agreement”.
- All future U.S. trade promotion authority legislation that the U.S. Congress produces should push back on data protectionism by directing U.S. negotiators to do so.
- The United States should engage its trading partners in a “Geneva Convention on the Status of Data” to resolve international questions of jurisdiction and transparency regarding the exchange of data.
Only by creating a global trade system that respects the free flow of data can countries fully realize the benefits of a data-driven economy.
A Policymaker's Guide to the GMO Controversies
Crops and foods improved through biotechnology, popularly known as “GMOs” (for “genetically modified organisms”) remain at the center of a maelstrom of conflicting claims and assertions. This is evident throughout all media, but especially on the Internet. It is difficult for a layperson to make sense of it all, and this becomes even more important when the layperson is a government official in a position to make or influence policy decisions. Because bad information makes for bad policy choices we have prepared this report to provide some factual information, with abundant citations from independent third party authorities.
It always helps to consult the data, so we do that in order to examine several key questions that have been repeatedly visible in media of late. These include the economic benefits of GMOs, the U.S. rate of adoption of GMOs, the level of success of the labeling movement, the role of GMOs in affecting weeds and human health, and the sustainability of GMO-based agriculture. In all six cases we find overwhelming evidence for the economic, agricultural, environmental, and health benefits of GMOs.
Anyone who follows the news could be forgiven for believing that there is a genuine debate over the merits and safety of crops and foods derived through modern biotechnology. There is not. Scientists and farmers are virtually unanimous on the safety and desirability/effectiveness of crops improved through biotechnology. There is, however, definitely a controversy, one largely manufactured by a small handful of committed, anti-innovation advocacy groups using tried-and-true propaganda techniques to spread fear, uncertainty, and doubt about this important technology, aided by media coverage that is too often uninformed about science and agriculture. As with any campaign wanting to hold back technological innovation, the anti-GMO campaign is based both on ideology and vested interests. The ideological protestors simply reject modern technology in foods and want the world to return to a pre-industrial, pastoral system where farmers plowed with horses and reaped with scythes. In recent years, these professional protest industry’s opposition campaigns have been heavily aided by interests: in this case the organic food industry, a segment of which has openly adopted a strategy of spreading unjustified fears and disparagement of their competition. For if extremist elements of the organic industry can (despite all evidence) persuade consumers that GMO foods are harmful, the price of foods will not fall as much, providing less competition for high-priced organics. It is, therefore, worthwhile to dig a little deeper into some of the key issues of the controversy that have been featured prominently over the last year or so.
The False Claim That Inequality Rose During the Great Recession
Income inequality has become a major topic of public concern lately, partly as a result of the release last year of Thomas Piketty’s best-selling book on inequality, Capital in the Twenty-First Century, and his writings with his colleague Berkeley economics Professor Emanuel Saez. In 2013, Saez claimed that 95 percent of growth during the recovery from the Great Recession went to the top one percent. Many commentators jumped on these results as a foreboding sign of what was to come in the future and called for a focus on redistribution, rather than growth policies. After all, if the rich are getting all the gains, why focus on overall economic growth?
However, the claim that income inequality grew following the Great Recession is nothing more than a statistical gimmick. In fact, Piketty’s own research shows that the “1 percenters” experienced the largest loss of income from 2007 to 2012. A Congressional Budget Office report found that while the richest one percent of households saw their after-tax incomes decline by 27 percent from 2007 to 2011, the bottom 95 percent saw only one to two percent loss.
This report analyzes the data to provide a clearer picture on income inequality during the last eight years and argues, given these findings, that it would be a mistake to give up on pro-growth policies in favor of a predominant focus on redistribution.
American Innovation Under Structural Erosion and Global Pressures
For most of the postwar era, the United States has enjoyed superior leadership in innovation, whether measured by student skills, research and development spending, patents, or high-technology industry output. However, as Western European economies caught up with the global innovation frontier and Japan followed, this superiority began to erode. The U.S.-led IT revolution of the 1990s seemed to slow down this innovation convergence, but only until the bubble burst in the early 2000s. While America has recovered faster from the global financial crisis than other nations, structural trends in innovation convergence have not disappeared. On the contrary, the technological advancement of large emerging economies, such as China, has even more clearly delineated different nations’ impacts in global innovation.
In the absence of significant government investment in innovation (from both direct spending and tax incentives for business to invest more in innovation), the current budget sequestration is likely to pave the way for further relative decline in innovation with accompanying slower economic growth. It is not an inevitable scenario, however. The United States could once again lead in the race for global innovation advantage with an appropriate innovation strategy — one that’s credible, bipartisan and medium- to long-term in nature.
This report assesses the current state of the American innovation ecosystem, compares it to the systems of our top global competitors and argues that we need a comprehensive national innovation strategy, backed by significant government investment, to restore the United States to global leadership.
How and When Regulators Should Intervene
Regulatory oversight keeps companies in check, promotes fair competition, and upholds consumer protections. However, regulators can also go too far and overzealously target companies acting in good faith. Such actions are not just unfair, but they also divert companies towards needless compliance at the expense of useful product advancements. Policymakers must get regulation right to protect competitiveness in the innovation economy. This report proposes a typology that regulators can use when evaluating which infractions should be pursued and what type of penalty should be administered based on a sliding scale of intent and resulting harm. The report argues that smaller penalties should result when consumers are not harmed and the company acts unintentionally, while larger penalties should result when consumers are harmed by a company’s actions and that company acted with intent.
This sliding scale is represented by the following situations based on harm and intent. First, if a company makes a mistake and something happens that does not result in real consumer harm, then regulators should work to resolve the complaint, but not impose any penalties. Second, if an action is unintentional but results in real harm to consumers, then regulators should again work with the company to fix the problem but levy only a modest penalty against the company to mitigate the damage that resulted from the company’s mistake. Third, if a company intentionally commits an infraction that results in no harm, then regulators should not only work to resolve the problem, but also levy a modest penalty against the company to create an incentive against similar future infractions. Finally, if a company acts with intent, including negligence, and its actions harm consumers, then regulators should impose significant penalties.
The report then analyzes four case studies involving past or possible Federal Trade Commission action against companies—including Amazon, Google, Path, and Uber—each corresponding to a square in the below table.
The Intellectual Basis of U.S. Trade Policy Trench Warfare
At its core, trade policy is based in economics. And despite what many economists claim, economics is not a science. And, as with economics, intellectual approaches to the issue of trade differ substantially. These approaches reflect differences in economic doctrine among economists, policymakers and others. This paper postulates and describes three competing economic doctrines that shape the current U.S. trade debate: the predominant neoclassical doctrine (NC), the oppositional neo-Keynesian doctrine (NK), and the emerging innovation economics (IE) doctrine. The IE doctrine (IE) not only more accurately reflects the reality of the 21st century global innovation economy but offers the best opportunity for creating at least some actionable consensus on trade policy moving forward.
The three competing doctrines are:
1. The Washington free trade consensus grounded in neoclassical economics: The NCs’ primary rationale for and defense of free trade is allocative efficiency, because it privileges this over all else. In this doctrine, free trade lets the global economy allocate production on the basis of nations’ inherent comparative advantage: the belief that countries all have an inherent advantage in some kind of production relative to others. Thus, because all trade is voluntary, no two parties will trade unless they can both improve their welfare, especially consumer welfare, by obtaining things for which they do have a comparative advantage. In this sense, nations do not compete with each other economically. In addition, even one-sided trade (free trade by the U.S., mercantilist by others) increases U.S. welfare. By definition then, measures that hinder trade (e.g., countervailing duties, anti-dumping duties, tariffs, non-tariff barriers, etc.) even if used to pressure mercantilist nations to adopt free trade measures reduce allocative efficiencies for both nations involved.
2. The protectionist impulse grounded in Neo-Keynesian economics: Because neo-Keynesians privilege worker, as opposed to consumer, welfare they are resistant to and skeptical of globalization and trade, especially with low-wage nations. Rising demand based on rising worker incomes drives growth and trade, especially with low-wage nations, and might lead to downward pressures on some wages and therefore limit opportunity. Thus, just as NCs will go to great lengths to deny any negative economy-wide impacts from trade, NKs will do the same with regard to the benefits of trade. NKs oppose virtually all new trade agreements, and prefer stronger labor and environmental standards for other nations, assuming that if corporate costs go up in other nations, American workers will benefit. Similarly, NKs oppose stronger enforcement of some kinds of trade rules against foreign mercantilism, especially if those rules (such as IP protection and investor protections) are designed to enable multinational companies in the United States to become more competitive.
3. The qualified free trade support grounded in Innovation Economics: Because IE’s see innovation as the key driver of growth, they embrace global trade in part because trade enables larger markets, which in turn help spur innovation in innovation-based industries with high fixed costs but relatively low marginal costs of production. For IEs nations competitive advantage must be created and constantly fought for. As a result, they recognize that not all trading regimes, even if they maximize short-term U.S. consumer welfare, are structured in ways that boost productivity and innovation of firms in the United States. Indeed, some policies that improve consumer welfare (e.g., low currency values in foreign nations, export subsidies, etc.), are harmful to competitiveness, productivity and innovation. In a similar vein, IEs oppose policies such as weak intellectual property rights that might increase short-term consumer welfare but would harm innovation in the medium-term. In this sense, IEs see globalization and trade as a key tool for productivity and innovation, but only if the global trading system is structured in ways that limit mercantilist policies and if the United States embraces active national competitiveness policies.
In short, Washington’s trade policy debate is like World War I trench warfare. Both major sides (NC and NK) are committed to their doctrinal views with neither side willing to give an inch for fear of total victory for the other side. Each side is sure that if they just speak more loudly they can prevail on the latest trade policy skirmish. But like an increasing number of other policy areas, this kind of Manichean thinking – the belief by NKs that trade and globalization is largely a force for ill and by NC’s that it is a brilliant and liberating force – serves to obscure reality and hold back progress.
To break this stalemate, the Keynesian left will have to once and for all embrace U.S. integration into global markets and accept “natural” loss from trade. But the NC right and center will have to abandon their focus on short-term consumer welfare and their naive, textbook beliefs that markets are perfect, wonderful things without failure or political distortion. This will mean recognizing that nations compete; that trade can be negative sum; that if markets apply to goods and services, they also have to apply to currency; and that the only way to save the soul of the global trading system is to first risk going down the protectionist road – by taking aggressive trade enforcement actions in the service of pressing other nations to roll back their mercantilist regimes. And all sides will need to put their shoulder to the political wheel and advocate for a new national trade enforcement and competitiveness strategy that will enable enterprises in the United States to win in global competition.