Rising income inequality looms high on the global policy agenda, reflecting not only fears of its pernicious social and political effects, (including questions about the consistency of extreme inequality with democratic governance), but also the economic implications. While positive incentives are surely needed to reward work and innovation, excessive inequality is likely to undercut growth, for example by undermining access to health and education, causing investment-reducing political and economic instability, and thwarting the social consensus required to adjust in the face of major shocks.
Understandably, economists have been trying to understand better the links between rising inequality and the fragility of economic growth. Recent narratives include how inequality intensified the leverage and financial cycle, sowing the seeds of crisis; or how political-economy factors, especially the influence of the rich, allowed financial excess to balloon ahead of the crisis.
But what is the role of policy, and in particular fiscal redistribution to bring about greater equality? Conventional wisdom would seem to suggest that redistribution would in itself be bad for growth but, conceivably, by engendering greater equality, might help growth. Looking at past experience, we find scant evidence that typical efforts to redistribute have on average had an adverse effect on growth. And faster and more durable growth seems to have followed the associated reduction in inequality.
Disentangling the effects of inequality and redistribution on growth
In earlier work, we documented a robust medium-run relationship between equality and the sustainability of growth. We did not, however, have much to say on whether this relationship justifies efforts to redistribute.
Indeed, many argue that redistribution undermines growth, and even that efforts to redistribute to address high inequality are the source of the correlation between inequality and low growth. If this is right, then taxes and transfers may be precisely the wrong remedy: a cure that may be worse than the disease itself.
The literature on this score remains controversial. A number of papers point out that some policies that are redistributive—e.g., public investments in infrastructure, spending on health and education, and social insurance provision—may be both pro-growth and pro-equality. Others are more supportive of a fundamental tradeoff between redistribution and growth, as argued by Okun (1975) when he referred to the efficiency “leaks” that come with efforts to reduce inequality.
In a new paper, we ask what the historical data say about the relationship between inequality, redistribution, and growth. In particular, what is the evidence about the macroeconomic effects of redistributive policies, both directly on growth, and indirectly as they reduce inequality, which in turn affects growth?
To disentangle the channels, we make use of a new cross-country data set that carefully distinguishes net (post-tax and transfers) inequality from market (pre-tax and transfers) inequality and allows us to calculate redistributive transfers for a large number of countries over time—covering both advanced and developing countries. We analyze the behavior of average growth during five-year periods as well as the sustainability and duration of growth.
Our key questions are empirical. How big is the “big tradeoff”? How does the direct (in Okun’s view negative) effect of redistribution compare to its indirect and apparently positive effect through reduced inequality?
Some striking results on the links between redistribution, inequality and growth
First, we continue to find that inequality is a robust and powerful determinant both of the pace of medium-term growth and of the duration of growth spells, even controlling for the size of redistributive transfers. Thus, it would still be a mistake to focus on growth and let inequality take care of itself, if only because the resulting growth may be low and unsustainable. Inequality and unsustainable growth may be two sides of the same coin.
And second, there is remarkably little evidence in the historical data used in our paper of adverse effects of fiscal redistribution on growth. The average redistribution, and the associated reduction in inequality, seem to be robustly associated with higher and more durable growth. We find some mixed signs that very large redistributions may have direct negative effects on growth duration, such that the overall effect—including the positive effect on growth through lower inequality—is roughly growth-neutral.
These findings may suggest that countries that have carried out redistributive policies have actually designed those policies in a reasonably efficient way. However, it does not mean of course that countries wishing to enhance the redistributive role of fiscal policy should not pay attention to efficiency considerations. This is especially important for countries with weak governance and administrative capacity, where developing tax and spending instruments that can allow governments to undertake redistribution efficiently are of the essence. A forthcoming paper by the IMF will delve into these fiscal issues.
We should also be cautious about drawing definitive policy implications from cross-country regression analysis alone, of course. We know from history and first principles that after some point redistribution will be destructive to growth, and that beyond some point extreme equality also cannot be conducive to growth. And causality is difficult to establish with full confidence. And we also know that different sorts of policies are likely to have different effects in different countries at different times.
The conclusion that emerges from the historical macroeconomic data used in this paper is that, on average across countries and over time, the things that governments have typically done to redistribute do not seem to have led to bad growth outcomes. And quite apart from ethical, political, or broader social considerations, the resulting equality seems to have helped support faster and more durable growth.
To put it simply, we find little evidence of a “big tradeoff” between redistribution and growth. Inaction in the face of high inequality thus seems unlikely to be warranted in many cases.
Pakistan’s government suspended peace talks with the Tehreek-e-Taliban Pakistan (TTP) on February 17, after a faction of the Taliban claimed the recent brutal killing of 23 paramilitary soldiers. The TTP also claimed responsibility for a blast in Karachi on February 13, which killed more than 12 elite police officers. After the suspension of talks, the Pakistani army has attacked and killed suspected militants in the country’s tribal areas multiple times. It’s unclear whether this violence is the beginning of a sustained military campaign against the TTP or a shorter, more targeted assault. In any case, it seems that talks will not resume until each side can credibly convince the other it is committed to a ceasefire, which is unlikely.
Political analysts have long predicted that peace talks with the Taliban will eventually fail, as they have in the past. The Taliban does not recognize Pakistan’s government or its constitution, leaving no middle ground for negotiation. It wants to set up a system of extreme Sharia law, with Mullah Fazlullah as the leader of Pakistan, and Mullah Omar as Amir-ul-Momineen, the commander of the faithful. In other words, it wants to plunge Pakistan into the dark ages, or, more accurately, the Afghanistan of the 1990s. Its method of choice to reach this goal is violence and terror. How does one negotiate with that?Poorly planned peace talks with the Taliban
Pakistanis have argued that Prime Minister Nawaz Sharif was trying to exhaust the option of talks in order to draw support from the public in favor of conducting a military operation. That may have been the case. But Mr. Sharif also launched the talks carelessly, without any preparation. This poor implementation was after months of already shuffling his feet on his counterterrorism strategy. And in the process of conducting these poorly organized talks, he lent the Taliban dangerous legitimacy and has, thus, done Pakistan serious harm.
Sharif put together his government committee for talks at the last possible minute before his January 29 announcement of peace talks with the Taliban. His choice of committee members, who were not drawn from the parliament, was widely criticized. Worse, the government gave the committee no mandate, set no preconditions and defined no scope or time frame for the talks, thereby handing the TTP free rein to set the agenda. The Taliban was quick to assume the upper hand and dictated terms and the tone of the talks. It selected a “mediating” committee of fundamentalist religious clerics who are firmly on the TTP’s side. Then it warned the government to "desist” from “unnecessary conditions,” like conducting talks within the parameters of Pakistan’s constitution.
The talks gave the Taliban the mainstream platform of their dreams to articulate its case, and it proved alarmingly good at doing so. Shahidullah Shahid, the TTP’s spokesperson, even said about the talks, “The government has now accepted our reality; this is our victory.” Members of the Taliban-selected mediating committee became fixtures on nightly talk shows, advocating for the Taliban cause, telling lies, commanding the public’s ears. They brainwashed an audience all too ready to believe, an audience that was also offered no counter narrative. The TTP continued to also lie: Shahid recently said that Pakistan's constitution doesn't have a single element reflecting Islamic injunctions.What the TTP wants
In a nutshell, here are the TTP’s main demands: cut off relations with the United States, end drone strikes, impose Sharia law. Pakistanis know that these are the Taliban’s demands: In my interviews with students in both public and private high schools in Punjab over the past few months, many of them, both girls and boys, said that terrorism in Pakistan would end if these conditions were met. When the TTP articulates its demands this way, many Pakistanis do not immediately see the danger that lurks behind them, and sympathize with the Taliban cause. For example, drone strikes are already deeply unpopular in Pakistan, as is the United States. Many would welcome less dependence on the U.S., to which the government is seen as subservient. Finally, multiple generations of Pakistanis have been taught to believe that the country’s ideology is Islam, that the country was created to be an Islamic state with a compulsion to practice religion. It is tragic that Pakistan’s founder Mohammed Ali Jinnah’s vision is lost (he intended it to be a Muslim-majority state with the freedom to practice religion) and has been Islamized out of recognition.
That Islamization is unlikely to be reversed—Pakistan will likely always remain an Islamic republic. However, it is still very far from being the kind of fundamentalist Sharia state that the Taliban envisions. The Taliban wants a state in which only men are seen in public, no women work, and no girls’ schools operate; a country which is completely severed from the world economy, all forms of modernity and progress eradicated; a Pakistan whose long-fought for and recently achieved democracy is obliterated—in short, a Pakistan we would not recognize.The way forward for Sharif
The problem is that many Pakistanis do not recognize the extreme changes that would come with Taliban rule. Meanwhile, Sharif’s government is silent, fumbling, weak. It offers no counter narrative, articulates no vision and sets no preconditions. Giving the Taliban a platform to articulate its narrative, its way, as the peace talks have done, cloaks the Taliban’s demands as harmless, gives it legitimacy and generates followers, all the while hiding the danger that lurks behind. Surely Mr. Sharif does not want to give up leading Pakistan, nor his vision of Pakistan as a modern, economically prosperous nation. Surely he does not want those who want to overthrow him to drive the narrative.
Slowly but surely, independent voices countering the Taliban narrative are being silenced. Last month, the Express Tribune, for which I write a regular column, was attacked for the third time in a few months. Three staff members were killed. After the attack, I was asked by the newspaper’s editors to refrain from writing about terrorism for the time being.
So Mr. Sharif must step up now and articulate his vision of Pakistan’s future. He must stand up for the sanctity of Pakistan’s constitution and its democracy. He must set preconditions for any future talks. Talks have to be held under Pakistan’s constitution—no ifs, no buts. His government must state its unwillingness to compromise on women’s rights, the rights of minorities and Pakistan’s place in the world. Most of all, if he is to win the war of words and ideas with the Taliban, and, along with it, the hearts and minds of Pakistani citizens, Mr. Sharif must start talking to the Pakistani people. Otherwise the TTP wins.Authors
As implementation of the Affordable Care Act carries on across all corners of the health care industry, and touches lives in communities throughout the U.S., the need to ensure that clinicians and health care consumers are receiving the information and resources necessary to achieve these reforms has become increasingly urgent. On February 19th, the Engelberg Center for Health Care Reform at Brookings hosted the second in a series of briefings that explore new ways to engage clinicians, patients, and consumers in health reform efforts, including a special focus on the emerging role of traditional media, social media, and massive open online courses (MOOC).
As an effort of the Institution’s Merkin Initiative on Payment Reform and Clinical Leadership, led by Brookings fellow, Darshak Sanghavi, the event featured four panel discussions and over a dozen leaders representing health policy, physician and medical student professional societies, technology, education, and media. The event also signified the launch of a new partnership with the Khan Academy, a nonprofit dedicated to providing a free world-class education for anyone, anywhere, and reaches an estimated 10 million users per month. The Merkin-Khan Academy includes a series of free, online education tutorials about the U.S. health care system, including the role of health insurance, prescription drugs, delivery of care, and health reform.
During the event, Sal Khan, founder of the Khan Academy introduced the partnership and the tutorials, and Rishi Desai, Khan Academy’s health expert spoke about the importance of including health care topics as part of Khan’s interactive learning style.
Explore the Merkin-Khan Academy “Intro to the Health Care System."
The first panel titled “Why Clinicians are Confused about Payment and Delivery Reform” included Howard Bauchner, Journal of the American Medical Association (JAMA); Lois Nora, the American Board of Medical Specialties (ABMS); Atul Grover, Association of American Medical Colleges; and Nida Degesys, the American Medical Student Association (AMSA). The panel focused on the existing gap in communication and knowledge- sharing about “health reform in practice” among medical students, residents, and even clinicians already in the workforce. The panel cited a number of challenges, including significant cultural shifts in medicine, such as workforce shortages, the transition from a ‘physician as quarterback’ model to an interprofessional team model. Both will have significant implications for the success of delivery reforms and new payment models. The panel emphasized opportunities to close this gap by incorporating health policy into graduate medical education and board certification, and providing more accessible learning opportunities throughout a clinician’s career via social media, traditional media, and online education. However, all the panelists recognized that taking on health policy will be a difficult addition to an already daunting medical education.
The second panel titled “How Can We Better Explain Payment and Delivery Reform?” brought together an accomplished group of media experts, including Richard Besser, ABC News; Phil Galewitz, Kaiser Health News; Joanne Kenan, Politico; Laura Helmuth, Slate; and Elisabeth Rosenthal, The New York Times. The panel provided fascinating insights about recent efforts to shed light on public health and health policy issues. All panelists agreed that neither is considered newsworthy unless hooked to a personal narrative or political conflict, which resulted in new ways of approaching the topics. For example, Elisabeth Rosenthal discussed her series on health care costs by the featuring a reader’s experience in ‘shopping’ for a hip replacement. Laura Helmuth cited one of the most read health care articles on Slate used a “top 10 list” bit to explain the intricacies of Obamacare to health care consumers.
Building on the conversation to develop new ways to communicate with clinicians, the final panel Using Social Media to Spark Clinician Led Change in Health Care included several physicians and patient activists who are active social media users, including Kavita Patel, Brookings; e-Patient Dave, “e-Patient Dave Blog;” Neel Shah, Costs of Care Project; and Alice Chen, Doctors for America. The panelists agreed that social media can be a powerful tool to create a sense of community, not only for providers, but also for patients who are facing challenges in the health care system. Neel Shah of “Costs of Care” started his blog and crowd sourced frontline stories from physicians, nurses, and patients across the country. Similarly, Alice Chen of Doctors for America has brought physicians together to discuss how to change the health care system. While patients and providers are highly motivated to change the system, educating each other and exchanging ideas about how to accomplish that will be critical. Blogs, Twitter, and other online resources are becoming an essential venue for this community building and knowledge exchange.
While the media is important for educating clinicians about the basics of health reform, they cannot always get the details they need from these sources. Massive Open Online Courses (MOOCs), such as those provided by edX, are one resource that clinicians can use to learn about the intricacies of payment and delivery reform. As Anant Agarwal noted, edX is using technology to increase access to and improve the quality of education across the world. Through MOOCs, the Merkin Initiative can build upon the fundamentals taught in the Khan videos to educate clinicians about how to change their encounters at the patient level.Authors
Michigan has now joined Oregon in proposing a “Pay It Forward” student lending system in which students pay no tuition up front and pay back a fixed percentage of their income after college. This sounds very similar to an income-contingent repayment (ICR) system, which I advocate in a recent Hamilton Project proposal. But there is a key difference between Pay It Forward and ICR, and it’s one that makes Pay it Forward unworkable as proposed.
In both the Michigan and Oregon versions of Pay It Forward a borrower in repayment contributes a fixed percentage of income for a fixed number of years. Her liability is not denominated in dollars, as in a standard loan, but as a fixed number of payments.
An aside on vocabulary: economists call this a graduate tax –a tax on earnings for those who have gone to college. It’s called a tax, rather than a payment, because a borrower can’t buy her way out of the liability. The borrower is taxed for 25 years, even if she has repaid the principal (plus interest) after a few years.
In the proposed Pay It Forward systems, a graduate who does extremely well in the labor market will end up repaying many times over the cost of her education, while one who does poorly will pay much less. There is therefore cross-subsidization in this system, with the “winners” paying some of the college costs of the “losers.”
Economic theory – and history – shows that loans funded by a graduate tax won’t work because those expecting high earnings won’t participate. Yale famously attempted a graduate tax in the 1970s, lending money to its undergraduates and then having them pay back a fixed percentage of their income for a fixed number of years. What happened? Yale students who expected high earnings (e.g., aspiring investment bankers) shunned the program, while those who expected low earnings (e.g., aspiring artists) embraced it. Yale’s program spiraled into insolvency.
This is a classic case of adverse selection – borrowers who would be subsidized participate while those who would subsidize stay away. This is unsustainable, as without the high earners the system does not get enough payments to cover tuition costs. Because of adverse selection graduate tax can work only if participation is mandatory, with everyone forced into the borrowing pool.
Another interesting aside: this is similar to the dynamic in insurance markets, which collapse if sick people buy coverage and healthy ones go without. Adverse selection is why coverage is mandatory under the Affordable Care Act, and it’s why health policy wonks have so carefully tracked the enrollment of young, healthy people in the new insurance exchanges. The young, health participants cross-subsidize the older, sicker participants, just as high earners subsidize low earners in a (mandatory) graduate tax.
Neither the Oregon nor Michigan plan requires all borrowers to participate in their programs. I (and other economists) therefore predict that the programs, as currently proposed, will be brought down by adverse selection.
A minor tweak to Pay It Forward, as outlined in my Hamilton proposal, will maintain its positives (simplicity, insurance against bad draws in the labor market) while eliminating the negative (unsustainability). The change is this: denominate debt in dollars, and let borrowers pay their debt. If a student borrows $25,000 and (due to pluck and luck) earns enough that she has paid back the principal plus interest after just ten years, she will stop paying into the program.
If a borrower instead runs into hard times and still owes money after 25 years, the balance will be forgiven. In this way, Pay It Forward and my income-contingent repayment proposal both subsidize low earners. The key is that my modification keeps high earners from fleeing the program, transforming Pay It Forward it into a universally attractive program rather than one that appeals primarily to low earners.
As pointed out by Theda Skocpol, universal programs are politically more resilient than those that primarily benefit poor people. Keeping high earners in Pay It Forward will give it the broad-based political support it needs to survive.
My tweak also makes transparent the cost of Pay It Forward. Some borrowers cannot, given their low earnings, pay off their loans. Their forgiven debt is the cost of the program, and is borne by all taxpayers. Without my tweak, the costs of Pay It Forward are disguised by the fairytale that it is self-funding. When high earners shun the program and it collapses, the taxpayers will be on the hook to bail it out. The financial cost, in the end, is the same, but the political cost is much higher, since the program will be deemed an expensive failure.
With the political momentum behind Pay It Forward, we have a rare opportunity to restructure and reimagine how we pay for college. Get the design right, and we will have a financially and politically sustainable system for funding college that works for students and taxpayers. Get the design wrong, and we will have a spectacular flameout that sets back reform for another generation.Authors
Protests over growing scarcity and criminal violence in Venezuela are entering their 10th day. They have been met with violent government repression and censorship. International support is needed to convene the actors in this crisis to engage in dialogue and craft a peaceful outcome.
On February 12, nation-wide marches were convened by the political opposition and civil society to protest growing scarcity and criminal violence. While they began peacefully, they ended in violent confrontations between police, pro-government criminal gangs (known as colectivos) and some protestors. Public property in downtown Caracas was damaged, three persons are known to have died from gun shots, and over 70 were arrested by police, intelligence and military forces. The government and opposition have traded charges on who is responsible for the damage and the deaths, although subsequent reporting identified the shooters as government agents. Remarkably, the only broadcaster carrying live feed from the protest, NTN24, was an international channel, and was censored by the Maduro administration as events were unfolding. In the wake of the protest, the government ordered the arrest of opposition leader Leopoldo Lopez on the charge of fomenting violence.
Venezuela has since witnessed daily marches and counter-marches by opposition and government supporters, several of them accompanied by further violence and arrests. Protests intensified on February 18, the day that Lopez led a march to turn himself in to authorities. He was initially detained by the Guardia Nacional Bolivariana and held at the Ramo Verde military prison outside of Caracas. In the absence of live coverage of events, social media services such as Twitter and Facebook are filling the gap in documenting the level of repression and abuses by state security forces and paramilitary armed actors.
The worrisome economic and social trends identified in the Brookings Big Bets, Black Swans briefing book memo on Venezuela continue to worsen. Criminal violence has been high for some time, but the recent murder of a former Miss Venezuela has increased its salience on the public agenda. Student protestors cited criminal violence, including a recent rape attempt at a university in Tachira state, as a motivating factor behind their marches. Venezuela’s inflation also remains high and the scarcity of consumer goods still registers record levels. The government has been progressively restricting the sale of foreign currency, and rumors abound that it is experiencing serious cash flow problems. Certainly the devaluation of the official exchange rate from 6.3 bolívares fuertes (Bs.F) to the dollar to 11.36 is an effort to constrain official demand for dollars and control government cash flow. However, the differential with the black market rate for dollars (currently fluctuating around 87 Bs.F to the dollar) remains high. With two thirds of Venezuela’s consumer goods imported, the shortage of foreign exchange will inevitably contribute to further scarcity. The combination of scarcity and devaluation perpetuates a vicious cycle of inflationary pressures in the economy.
The geographic extent of the protests in Venezuela suggests that criticism of the government is spreading. Government repression of protestors and orders to arrest opposition leaders indicate that the Maduro administration has decided to double down on its present policies. The labeling of protestors as right-wing conspirators and participants in a coup d’etat suggests that President Maduro remains largely focused on finding opportunities to maintain political advantage, rather than on addressing the root sources of the protests, or broadening the base of support for his government. Some have begun to demand that the president resign from office immediately (known by its Twitter hashtag #LaSalida), which is a departure from the opposition’s previous consensus on an electoral strategy to replace Chavismo.
Although there are a number of reasons for deep concern over what is happening in Venezuela, the recent protests highlight two features of Venezuela’s current regime that are major obstacles to finding a negotiated way out of the current crisis.
The first is the type of repression that we are witnessing in Venezuela. Protesters have not been afforded police protection as they demonstrate, yet such protection is routinely used in democratic states to minimize the likelihood of violence and protect constitutional rights. Rather, the police and Guardia Nacional (Venezuela’s gendarmerie equivalent) appear only to repress or block protests. The colectivos and the intelligence service, Servicio Bolivariano de Inteligencia Nacional (SEBIN), are conducting the most violent repression and have been frequently cited in the past week for the indiscriminate use of firearms against civilians. These entities are the least accountable elements among the pro-government armed actors, operating in secrecy, out of uniform, and in the case of the colectivos, without being a formal part of the security forces or under a legal chain of command. They may therefore feel a particularly high sense of impunity, which can result in gross abuses of human rights. Most recently, the western Venezuelan city of San Cristobal has been placed under military control. So far, reports indicate that repression is still mostly the work of the Guardia Nacional and colectivos. The employment of regular Army troops would indicate that the Maduro administration has decided to escalate. This creates a risk that the army may begin to reconsider its support for the regime rather than fire on unarmed civilians.
The second important element to consider is the Venezuelan government’s growing efforts to censor the media. After shutting down NTN24’s signal in Venezuela, the government communications regulator, CONATEL (Comisión Nacional de Telecomunicaciones), threatened to fine local media that carried images of the violence. These threats are credible since it previously imposed such a fine on El Nacional, a major Venezuelan daily newspaper. As protests gained strength last week, President Maduro also tried to block Twitter from carrying anti-government images and information. Independent newspapers have been progressively unable to provide an alternative due to shortages of newsprint – most of which is imported; as a result, more than 29 have canceled or shortened their print editions.
This is the culmination of a long term trend towards greater government control over the flow of information in Venezuela. One of the major private television stations, RCTV, was ordered off the air in 2007 and dropped from cable television offerings in Venezuela in 2010 for being a persistent critic of the government. Globovisión, a private cable television channel formerly known for its extensive coverage of opposition political activities, was purchased by pro-government businesspeople in 2013, and has since adopted a less aggressive editorial line. Internet providers have been threatened by CONATEL for allowing their users to access websites with information on the black market bolívar exchange rate. The overall result is that media has become highly concentrated in the hands of government officials and pro-government private owners, with the independent media forced to carefully consider the news they report for fear of losing access to the foreign exchange they need to run their business. This means that it will become progressively more difficult for both Venezuelans and outside observers to obtain accurate information about what is a progressively deteriorating situation.
Venezuela’s own citizens have shown a way ahead in counteracting impunity among the state security forces and in increasing the availability of information to the public. Using the widespread availability of cell phone video cameras and social media websites such as Twitter and YouTube, Venezuelans are documenting the protests. Already, this has allowed journalists to identify SEBIN agents by name as responsible for the shooting deaths on February 12, and it has led President Maduro to fire the head of the political police. The knowledge that all government actions are being documented and disseminated widely should encourage officials, especially in the security forces, to ensure that their actions meet the strictest letter of the law and international human rights standards. Repressive actors in other regimes in Latin America, from El Salvador to Argentina, have eventually faced justice due to an active civil society willing to document and preserve a record of their illegal actions. Social media companies, internet service providers, private companies and international civil society should do what they can to contribute to Venezuelans’ ability to document and share the actions of their own government during this crisis. At least in this way, Venezuelans will be able to begin to counteract the repression and censorship that are aggravating the present political crisis.
International responses to the crisis have thus far been cautious. Most countries in the Americas have issued calls for dialogue and a peaceful resolution to the crisis while avoiding criticism of the government’s response. The Organization of American States has been paralyzed by divisions among its members over how to respond. The United States called for the protection of press freedom and freedom of assembly, which provoked the Venezuelan government to predictably expel three U.S. diplomats. Relations between the United States and Venezuela are so poor that there is realistically very little the U.S. can do at this point to contribute to a peaceful resolution to the crisis. The countries that are best poised to make a difference in Venezuela are either interested in preserving the status quo (China and Cuba), benefit from a large trade surplus with the present Venezuelan government (Brazil), or believe they need President Maduro’s good will to resolve their own domestic conflicts (Colombia). Chile has been more forthright in its criticism, but its center-right president, Sebastian Piñera, is about to leave office and therefore faces fewer constraints.
International support is needed to encourage dialogue between the government and opposition. This dialogue should be aimed at reducing violence, finding a solution to the present economic crisis, avoiding the use of presidential decree power to short circuit the political process, and ending media censorship. This would require the Maduro administration to accept a substantial change in its present policies. That might seem a dramatic move given the legacy of Chavismo. Yet Brazil, Chile, Colombia and Peru recently faced social protests, and have all adjusted their policies as part of a strategy to restore peace. The Maduro administration should be able to do the same. Given the combination of repression and censorship in Venezuela, there are no reasonable actions the opposition can unilaterally take to bring about a peaceful solution. However, it should hold fast to its previous commitment to elections and democracy as the way forward. Support from the international community therefore plays a pivotal role in convening the actors in Venezuela’s crisis to design a path towards a peaceful outcome.
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The number of Syrian refugees in Turkey is fast approaching one million. The government so far has managed to register more than 600,000 of them but recognizes that their actual numbers are already well beyond 700,000. Close to 210,000 of these refugees are housed in 21 refugee camps while the rest are in urban settings along the Syrian border. According to the 2014 Syrian Regional Response Plan Strategic Overview, the Turkish government foresees 1.5 million Syrians in the country by the end of 2014. A growing number of them are likely to swell the already growing numbers of Syrians in practically all the major cities of Turkey led of course by Istanbul. In a report published in September, Turkish human rights organization Mazlum-Der, estimated the number of Syrian refugees in Istanbul at approximately around 100,000; it is now thought that the number has doubled. Together with a small army of local and international NGOs and U.N. agencies, the Turkish government is trying to extend assistance and provide basic services. The government has opened the national health system to the refugees and is just beginning to address the issue of education of the children outside of the camps. In the meantime the question of the long-term status of the refugees is being increasingly raised. At a recent seminar organized in Ankara by the International Strategic Research Organization (USAK), numerous governmental and civil society experts recognized that these refugees are in Turkey for the long haul. Some even expect that they could be in Turkey for up to 10 to 15 years. Similar observations were also made by members of the Turkish parliament that this author interviewed in late January 2014. What is to be done?
The first refugees from Syria began to arrive late in April 2011. At first their numbers increased slowly and by March 2012 there were close to 66,000 Syrians housed in 17 refugee camps. In the meantime, the Turkish government extended a generous reception and adopted an open door policy characterized by a commitment to accept all Syrians that sought refuge and to respect the “non-refoulement” principle of international refugee law. The high quality of the refugee camps and services provided earned considerable praise for the Turkish government and its Disaster and Emergency Management Agency (AFAD), the agency primarily responsible for the management of the refugee crisis. However, as the conflict in Syria escalated, the number of arrivals significantly increased and finding space for new camps and then constructing them, became increasingly more difficult. By early 2013, almost 180,000 were living in Turkey’s refugee camps while more and more refugees found themselves outside camps, in urban settings. Their sheer numbers started to alter significantly the demographics and social fabric of towns in the region. For example, by late 2013 the border city of Kilis had seen its population double. Clearly, the government had not foreseen such an influx. The expectation, in line with most of the international community, was that the regime of Bashar al-Assad would not last long, possibly a couple of months, and that the refugees would return to Syria once a new and reformed regime was established.
It is against such a background that the question of the long-term status of the refugees began to be raised. The United Nations High Commissioner for Refugees (UNHCR) is mandated to oversee the protection of refugees around the world and identifies the voluntary return of refugees to Syria as the ideal and preferred option. However, it is very difficult to see how refugees would be able to return without a political settlement in Syria. That possibility continues to look terribly remote. Even were a settlement to be reached quickly, the political circumstances and the level of destruction in Syria may not make it possible for the refugees to return home for a long while to come.
Following voluntary return the second and third options involve either resettlement into third countries or integration in the host country or a combination of both. So far traditional countries of resettlement have not been very forthcoming. The United States in 2013 took less than 100 Syrian refugees while Germany and Sweden have admitted 18,000 and 14,000 respectively some of them from Jordan and Lebanon. Another 15,000 Syrian refugees have been granted or resettled by other EU member countries. In October 2013, Antonio Guterres, High Commissioner for Refugees, launched an appeal to member countries to volunteer to take at least 10,000 Syrian refugees to ease some of the burden on countries neighboring Syria. So far, no refugees appear to have been resettled from Turkey. It is unlikely that there will be any major resettlements from Turkey beyond some symbolic numbers.
This means that the third option, integration into the host country, will inevitably have to be considered. Turkey is already abuzz with rumors that the government is going to extend citizenship and the right to vote to the Syrian refugees. A number of officials as well as MPs during interviews with this author have categorically denied that the government had any such intentions and noted that there were no steps that had been taken in this direction. The current Turkish Law on Settlement allows only for refugees who are of “Turkish descent and culture” to settle in Turkey. The government would have to adopt special legislation to be able to extend mass naturalization for the Syrian refugees in Turkey. This would be a very controversial and divisive issue and a politically treacherous decision as Turkey enters a eighteen-month-long election cycle. While Turkey’s government has been generous, the public in Turkey is growing weary of the refugees and increasingly sees them as a burden. There is an unhappiness that is growing as prices rise - especially rent prices in towns along the Syrian border - and wages fall as more and more refugees enter the informal labor market. These attitudes are reflected in the results of a January 2014 poll taken by the Center for Economic and Foreign Policy Studies (EDAM). According to this poll 86 percent of the respondents want the intake to be stopped while close to 30 percent of these respondents advocated that the refugees should simply be sent back.
As much as the path of formal integration in the form of the granting of citizenship may at the moment be a difficult and thorny one there is the sheer reality that more than half a million Syrian refugees are present in urban settings. There is already an informal process of integration occurring as Syrians try to adjust to their new surroundings as they seek more permanent accommodation, employment and education for their children. The government as well as many municipalities and civil society groups are extending and expanding a range of services including language courses in Turkish. Refugees themselves realize that they are likely to be in Turkey for the long haul and demand these courses in Turkish. However, short of formal integration, the government is going to have to give priority to two policy areas critical to formal or informal integration: employment and education of refugee children.
There are growing reports in the Turkish media about the number of Syrians that seek employment in the informal sector and risk serious exploitation. This is pushing wages downwards and provoking resentment among locals. Current Turkish labor laws make it very difficult for Syrian refugees to obtain work permits and seek employment in the formal economy. The Turkish government should take measures to encourage and facilitate Syrians to enter the formal economy. This would help to alleviate the risk of the refugees being exploited by unscrupulous employers, help them earn a living and in turn alleviate the financial burden on the tax-payers. The latter would also go a long way in helping to address some of the negative stereotyping among the Turkish public. A second policy area critical to achieve a better integration of the Syrians is the education of the refugee children. The aforementioned RRP 2014 Strategic Overview notes that in Turkey "some 70 percent of Syrian children outside camps are not accessing any form of education." Currently, the Turkish government provides for schooling for children in the refugee camps while only a small proportion of their counterparts in urban settings receive any education. Inevitably the issue of education is highly political and closely tied up with the issue of what is going to happen to the refugees in the long term. However, above all, it is the right of all children to receive basic education that should be the guiding policy principle.
Striking a balance between addressing the needs of employment and education of Syrian refugees and their long term status is going to be a politically challenging exercise. Turkey is going to need assistance from the international community. Turkey provides the basic protection needs of the refugees by ensuring "non-refoulement" with its open door policy. It is spending considerable sums of tax-payers money for the upkeep of the refugees in the camps as well as the provisions of health services for all Syrian refugees. However, Turkey now faces the growing reality that most of the refugees will be in Turkey for the foreseeable future. Refugees continue to face many risks and vulnerabilities in urban settings. The most visible are the risks associated with lack of access to the formal labor market and education. The protection and care of refugees is a responsibility of the international community and it is of critical importance that the international community demonstrates a will to share this burden. This could take the form of the resettlement of especially vulnerable cases from Turkey as modest as the numbers might be. This should be accompanied by a much more generous effort to make funds available to Turkish and international specialized governmental as well as non-governmental actors to strengthen their capacity to address the long term needs of the refugees including employment and education. In turn, the Turkish government should take measures to facilitate the ability of competent international actors to register and work as well as access Syrian refugees and cooperate with stakeholders in Turkey.Authors
Matteo Renzi, the leader of the center-left Democratic Party (PD), is about to fulfill his greatest ambition and become Italy’s new prime minister. At 39, he will go down in history as the youngest man to have ever held the post in Italy, a major achievement in a country whose political establishment is dominated by aged politicians.
His youth is a key factor behind Renzi’s astonishing rise. He has used it to convey a message of freshness, resolve and, above all, change: of people, politics and policies.
Renzi has undoubtedly scored a major point on the first account. He became a political force only recently, in late 2012, when he lost an internal election for the PD leadership to Pierluigi Bersani, a seasoned politician who had the backing of the party establishment. But then, despite leading in the polls for months, the PD fared so poorly in the February 2013 general election that Bersani was forced out. Renzi seized the opportunity and last December overwhelmingly won a second election to lead the PD. He is now presiding over a generational turnover within the party.
The change in leadership has not gone hand-in-hand with a change of politics, though. It was not a resounding electoral victory that delivered Renzi the premiership, but an inner party maneuver. The PD leadership pulled the rug out from under distinguished party member Enrico Letta, the outgoing prime minister. In so doing, Renzi broke his often repeated promise that he would loyally support Letta and never accept the premiership without a popular mandate. He is now premier although he is not even a member of parliament.
So far, Renzi’s record is one of a shrewd, ruthless and energetic politician who cares little for ideology and much for public opinion. In reverting to party machinations, Renzi knew he would lay himself open to his critics’ accusation that he is no different from the ‘system’ he supposedly wants to overhaul. Why has he then taken a decision that risks fatally undermining his claim to be an agent of change?
Renzi maintains that the Letta government’s agenda did not match the scale of the political and economic challenges confronting Italy and that, in the current circumstances, he had no choice but to personally take on the responsibility to push forward an ambitious reform plan.
To his credit, he has good arguments to support the claim that he could not go back to the voters. Italy’s electoral law, which is based on a fully proportional system of distribution of parliamentary seats, is universally recognized as deeply flawed. With polls consistently pointing to an electorate evenly split between the center-left, the center-right and the anti-establishment Five Star Movement, there is no chance that snap elections could deliver a solid majority to any of them. Moreover, the power to dissolve parliament in Italy resides with Giorgio Napolitano, the 89-year-old President of the Republic. The elderly statesman has made it a point of honor to foster political stability to protect the country from the peril of markets again losing confidence in Italy’s ability to service its debts. The last time that happened, in summer 2011, the yield on Italy’s bonds skyrocketed. Now, it is at its lowest in eight years, an achievement that neither Napolitano nor Renzi want to jeopardize. A further argument against snap elections is that the new government would hardly be operational when Italy takes on the presidency of the European Union (EU) in the second half of 2014.
Renzi is aware that Italians are anything but pleased with the manner in which he has been handed the prime minister office. For the Italian people to forgive him his sins, he must keep his last, and most important, promise. He must reform Italy.
His most immediate goal is to reform the electoral law so as to ensure that any winning coalition will always have enough seats to govern. Linked to the electoral reform is a constitutional overhaul that would make the executive accountable to the Chamber of Deputies only (currently, a vote of confidence in both the Chamber and the Senate is required and all laws must be voted on by the two houses).
While ambitious, this reform pales in comparison to Renzi’s plans for the labor market, the government administration and the tax system. To stimulate labor demand, Renzi aims to make it easier for companies to hire and fire young workers (particularly in the research and innovation sectors) by injecting more flexibility into the system and reducing payroll taxes. His next step would be to increase the efficiency of the public administration, which he intends to achieve by aligning the rules that regulate the public sector with those in force in the private sector as far as flexibility, working hours and internal mobility are concerned. Finally, Renzi plans to reduce the income tax for both businesses and families (while increasing the tax on financial benefits).
Undoubtedly, there is a strong case for reform in Italy. Unemployment figures are tragically high, hovering around 12.7 percent (and 40 percent for the young). Public administration is both inefficient and overly costly, providing an unfriendly environment for doing business (the World Bank has ranked Italy 65th out of 189 countries on that account). And the tax burden is among the heaviest in Europe. However, all the changes proposed by Renzi involve significant social costs, meaning that the government will face immense opposition from various constituencies. Given that Renzi will rely on the same, fractious left-right majority that supported Letta, it is hard to see how he can achieve the degree of cohesion necessary to achieve his plans.
On top of these political problems, Renzi will be confronted with Italy’s structural weaknesses: a huge public debt (133 percent of the GDP, the world’s third largest) and nearly non-existent growth (a miserable 0.1 percent in 2013’s third quarter ended a two-year long contraction). Renzi will also have to reckon that Italy’s eurozone membership involves a helping hand from EU institutions and partners, notably a European Central Bank’s commitment to keeping interests rates low, an EU-wide plan to restructure banks in distress and a reduction of current surpluses run by countries such as Germany. In addition, to finance the tax reform proposed by Renzi, Italy will need the EU to be more lenient concerning the 3 percent deficit limit by which all eurozone members are bound. This means Renzi will have to tilt the balance in the EU debate against the austerity-driven approach championed by Germany. Due to its massive debt and chronic economic underperformance, Italy hardly commands the credibility to win this fight.
Renzi has a firmer grip on the PD than Letta, and a larger following too. He is also a smarter politician. In that sense, he has a better chance to reform Italy than his predecessor. But he has taken a huge gamble with a very weak hand: he has to overcome enormous structural handicaps with an unruly government coalition and insufficient popular legitimacy. His lightning-fast rise to power has taken many aback. But few would be surprised if he were to fall from power with equal speed.Authors
Lost in all the horse race discussion of whether Hillary Clinton should run for president in 2016 is a central strategic point: the foreign policy debate needs her. Leave aside that she is a woman, and other obvious reasons why her candidacy for the highest office in the land would be fascinating and ground-breaking. Rather, of all those who might run, she is best positioned to catalyze debate on the big issues facing the country and the world.
This is not because Hillary was necessarily an historic secretary of state during President Obama’s first term. To be sure, she was supremely competent, diligent, and tireless. She helped America’s image and standing abroad while protecting its core security and economic interests. She vigorously promoted women’s rights, and human rights more generally. But she lacks a signature, defining accomplishment. There was no big Mideast peace deal, or Iranian or North Korean disarmament accord, or brilliant victory in Afghanistan, or turnaround in relations with Pakistan, or climate treaty, or full blossoming of an initially promising Arab spring.
That said, there was one subject where Hillary’s accomplishments are too easily forgotten, and where we need a big dose of what she brought to the table—how to handle the rise of China, and more generally how to sustain the Asia-Pacific “rebalance” in American foreign policy.
This fundamental shift in strategic emphasis was arguably the cornerstone of first-term Obama foreign policy. Through coordinated actions of the secretaries of state, defense, and the treasury among others, as well as various key deputies and under and assistant secretaries like Jim Steinberg, Michele Flournoy, Jim Miller, Kurt Campbell, and Jeff Bader, the Obama administration revitalized America’s role in the fastest growing and most quickly militarizing part of the world. President Obama led the way, to be sure, including during an important trip to Australia and elsewhere in 2011. But it was Hillary’s consistent presence at ASEAN forums and other meetings throughout the region, combined with her steadfast and vocal commitment to the security of key allies and to international maritime norms, that captured the essence of the policy better than anything else. She countered Beijing’s new aggressiveness with firmness, but also with grace and without unnecessary provocativeness.
Unfortunately, much of this positive energy has been lost. Despite valiant efforts by national security advisor Susan Rice in a solid speech last fall, as well as occasional low-key visits to the region by various officials of late, the rebalance is facing headwinds. The challenge goes well beyond the president’s need to cancel his trip to the region last fall due to the government shutdown, or the partial sequestration of the defense budget that is weakening the resource base from which the military components of the rebalance derive, or the slow pace of trade talks under the Trans-Pacific Partnership. Indeed, Mr. Obama did not even mention the new paradigm in his recent State of the Union address. And the priorities of Secretary Kerry in particular are clearly found more in the region of the world that we are supposedly trying to pivot from rather than rebalance towards.
To be sure, and in fairness to the new foreign policy team, it was bound to be harder to say what should come after the rebalance was complete. The first term team had the easier job of simply announcing it as an overdue corrective, and countering those instances where China was too assertive. But the policy is too important to let it wither away, as other matters foreign and domestic suck the available oxygen out of the policy debate.
In one sense, the rebalance was always a sufficiently vague concept that it could be adapted to shifts in available resources and attention from Washington. But in another sense, it was designed to counter exactly that tendency—to take the Asia-Pacific region for granted, and to devote only what resources we could there—a tendency that had been prevalent in the decade after 9/11.
Moreover, whatever one thinks of the rebalance per se, the rise of China is an undeniable and seismic transformation in the international system. If the next American chief executive serves two terms, China’s GDP could quite likely reach that of the United States during his or her presidency, and its military budget could begin to approach America’s. In other words, China will arguably become a superpower on the next U.S. president’s watch. While we bog ourselves down debating Hillary’s role in Benghazi and other matters of second-tier importance, momentous things are happening on the world stage, and we need presidential candidates up to the challenge of wrestling with them.
Enter the former first lady, senator from New York, member of the Senate Armed Services Committee, and secretary of state. Hillary has the resume to address an issue of the magnitude of China’s rise. She also has the brain. She has the toughness to cope with the military side of China’s rise as well as the diplomatic credentials to address its enormous and ongoing issues of human rights, environmental policy, and economic fairness. She can do both hard and soft power.
Ok, enough gushing about Mrs. Clinton. Clearly I like her abilities—but that is not the point. Rather, the point is that she has the savvy, the sense of history, and the personal memory of the rebalance’s early phases to ensure that China, and the Asia-Pacific more generally, will be a central part of the next presidential campaign. Other candidates won’t all agree with her. We will have a debate, on issues such as, how much military superiority should the United States seek to preserve over China for the foreseeable future, and how should that affect our defense budget plans? Which new types of confidence building measures and, perhaps, arms control regimes might foster stability in the region? Where if anywhere should new American military bases in the broader Asia-Pacific be considered? How much should Washington try to mediate in disputes between Japan and China, or Japan and Korea?
Perhaps someone will beat Hillary, on the merits of these issues and in the election itself as well. So be it. It seems dubious, however, than anyone else can get these crucial issues and questions before the electorate and the world. For that reason more than any other, I hope she runs.
Michael O’Hanlon is coauthor with Jim Steinberg of the forthcoming book, Strategic Reassurance and Resolve: Managing U.S.-China Relations in the 21st Century.Authors
Ukraine’s political crisis has dragged on for nearly three months, but February 17 offered some slim grounds for optimism. Demonstrators vacated government buildings, and those protestors who had been arrested were amnestied. These actions improved the atmosphere for a possible political dialogue between President Yanukovych and the opposition to seek a peaceful settlement.
But everything came undone on February 18. A morning protest march to the Verkhovna Rada (Ukraine’s parliament) turned violent. While the government and opposition each blamed the other, one thing was absolutely clear: the Berkut riot police eagerly responded and escalated with disproportionate force, using stun grenades, rubber bullets and, it appears, real ammunition. They drove the demonstrators back and, in the evening, launched an assault on Maidan Nezalezhnosti (Independence Square)—which since November had been a tacitly recognized safe zone.
Overnight on the Maidan, 20,000 demonstrators faced off against the police, who employed armored personnel carriers and water cannon, and fire-bombed protest tents. Opposition leaders Vitaliy Klytchko and Arseniy Yatseniuk met briefly with Yanukovych; Klytchko reported afterwards that the president had offered no path toward a settlement, merely a demand that the demonstrators go home.
The images of the Maidan that emerged on the morning of February 19 show a war zone. Clashes continued throughout the day, and demonstrators have occupied government buildings elsewhere in Ukraine.
The Security Service of Ukraine—the country’s barely reformed KGB—announced a nationwide “anti-terrorist operation.” What that means and who will be defined as a “terrorist” remain to be seen. There are reports that the military—which wisely and correctly stood aside during the 2004 Orange Revolution—has sent an airborne unit to Kyiv. The situation is close to spinning out of control.
While one cannot condone violence by the protestors, Yanukovych and his government bear overwhelming responsibility. The authorities launched a major and bloody crackdown but could have behaved in a very different manner. Ukraine has seen massive demonstrations before, most notably during the Orange Revolution. No blood was shed then; under Yanukovych’s tenure, dozens now have died and hundreds have been injured.
Yanukovych became president in 2010 following an election judged by Ukrainian and international observers to have been free and fair. But his authoritarian actions over the past four years and the increasingly brutal repression of the protests are fast eroding any claim that he has to democratic legitimacy.
Yanukovych’s actions will only harden the opposition and may well prompt a broader public backlash against the government for its ugly resort to force. His actions have come close to destroying any prospect for a political dialogue, a prospect that now appears vanishingly small. But it still offers the best way out of the crisis.
No easy alternatives are evident. Do the demonstrators have the wherewithal to beat back police and the other “guys with guns” and throw Yanukovych out of office? Does Yanukovych have the wherewithal and support among the elite to continue a brutal repression that could see the number of dead rise into the hundreds, earning himself one of the darkest pages in Ukrainian history?
The United States and European Union have tried to encourage a dialogue between the different sides. They should continue to do so. But they must back that effort by applying all of their limited leverage.
Washington and Brussels should immediately announce targeted visa and financial sanctions against individual Ukrainians with two objectives. First, to make clear that those responsible for violence, particularly those in government, will be held accountable for their actions by being denied the ability to travel to the West or bank their money there. Second, to pressure those in the inner circle around Yanukovych in the hopes that they will push him to end the violence and seek a peaceful resolution of the crisis. The inner circle should understand that, if it is not part of the solution, it also will not be allowed to travel or bank in the West.
These steps, if applied in parallel by the United States and European Union, would affect those around Yanukovych. They in turn might push him to adopt a different course or move away from him, weakening his support. That could help change the game in Kyiv.
Western influence can only help resolve the crisis in Ukraine. Sanctions offer no magic bullet. The main responsibility for finding a solution rests with Ukrainians, first and foremost Yanukovych. But if the West does not put its leverage in play now, the situation may quickly deteriorate to the point where the West has no ability to affect the crisis.Authors
Editorial Note: This is a modified post based on the full version posted on the Health Affairs blog on February 14, 2014.
It seems that bipartisanship has reappeared in healthcare reform, as the three Congressional committees with Medicare jurisdiction recently agreed on a framework to repeal the sustainable growth rate (SGR) formula that is used to pay physicians and other healthcare providers. If passed into law, the SGR Repeal and Medicare Provider Payment Modernization Act of 2014 will signify a major step forward in transitioning Medicare’s payment system away from a fee-for-service (FFS) model that incentivizes volume and number of procedures, toward a value-based model that rewards improvements in quality of care and population health.
However, the biggest obstacle ahead is deciding how Congress will pay for the proposed “doc fix.” The Congressional Budget Office estimates suggest the physician payment reform bill will likely cost around $130-$170 billion, most of which would be needed to offset the scheduled payment cuts under the existing SGR formula. Although the SGR system was initially implemented to contain Medicare cost growth, relying on across-the-board payment cuts has not worked well in practice. Congress has enacted short-term patches to delay cuts each year since 2002, and as a result, the gap between actual Medicare spending and the SGR spending target has widened so much that physician payments will be reduced by 24% if Congress fails to act by April 1st. Below we provide a brief outline of key provisions in the legislation and their estimated costs.
Key Provisions and Costs: SGR Repeal and Medicare Provider Payment Modernization Act of 2014 (HR4015)Paying for a New Medicare System
The Congressional committees have floated a list of potential sources of savings to pay for these reforms, but there is a bigger opportunity here than just stabilizing physician payments. Instead, lawmakers, advocates, and health professionals should consider this rare opportunity to build a modern Medicare payment system that rewards better delivery of care and patient experience, improves population health, and reduces costs and system inefficiencies. Our proposed reforms to offset these costs reinforce the goal of the physician payment reforms—better care at a lower cost. If implemented together with the physician payment reforms, the whole package could have a more meaningful effect on beneficiary care and Medicare cost growth than the physician payment reforms alone. Below is a set of recommendations to help subsidize the costs of an SGR repeal and transition to value-based Medicare.
Pay for post-acute care based on patient’s health status and needs, not where care is received.
Estimated savings: $45 billion over 10 years
Medicare often pays varying amounts for care once a patient leaves the hospital, based not on their health needs but on whether they receive care in an inpatient rehabilitation facility, a nursing home or in their own home. Substantial evidence suggests that this approach is inefficient, and that many beneficiaries could receive appropriate care in less intensive and more convenient settings.
Enhance incentives for hospitals that improve post-acute care and lower readmissions.
Estimated savings: $10-$15 billion
Hospital readmissions are costly and can sometimes be avoided when patients receive proper, well-coordinated follow-up care. While the readmissions penalties included in the Affordable Care Act have led to a lower readmissions rate than in the past, the incentives for hospitals to pay attention to the care patients receive once they leave the hospital could be strengthened. In exchange for higher base rates, hospitals could assume greater responsibility for coordinating post-acute care and share in the savings that result from lower readmissions and working more efficiently with post-acute care providers. Hospitals could also bear more of the costs when they fail to achieve lower readmission.
Pay for outpatient care based on services provided, not the type of facility.
Estimated savings: $10-$15 billion
Similar to post-acute care, Medicare pays different rates for outpatient services based on facility type. In particular, Medicare pays a substantially higher amount for certain services provided in a hospital outpatient department, when the same services could be provided safely and effectively in a doctor’s office or other primary care setting. Without reform, higher payment for these services when a physician practice is part of a hospital conflicts directly with the goal of supporting a value-based system.
Use competitive bidding to set payments and improve quality, starting with lab tests.
Estimated savings: $8 billion over 10 years
Medicare’s method for reimbursing many services besides physician care is based on detailed fee schedules that are difficult to update as costs of services or products go down, and as new ones are introduced. For example, technological improvements for laboratory tests have brought down the costs of both individual tests and batteries of tests, indicating that Medicare was overpaying by about $900 million a year. One approach is to use competitive bidding to determine payments for basic lab tests and expand this approach to other services over time. Medicare has begun paying for some “durable medical equipment” products through competitive bidding, with substantial savings.
Reform Medicare benefits through a phased-in approach.
Medicare’s existing benefit structure also prevents beneficiaries from saving money when they choose high-quality, low-cost care, nor do they provide the best protection against high out-of-pocket expenses. Several organizations have outlined options to reform Medicare benefits, including Brookings, the Bipartisan Policy Center (BPC), and MedPAC. We recommend gradually phasing in a similar set of benefit reforms.
Reform Medicare supplemental insurance (Medigap) to eliminate first-dollar coverage.
Estimated savings: $50 billion or more over 10 years (if implemented immediately)
Supplemental Medigap coverage that eliminates all Medicare cost sharing (say, below 10% up to an out-of-pocket limit) could be prohibited, or alternatively, beneficiaries who choose such coverage would pay a fee that reflects the impact of their “first-dollar” coverage on overall Medicare costs.
Create a single deductible and an out-of-pocket limit for hospital and ambulatory services (Part A and Part B) and reform Medicare copayments.
Estimated savings: $50 billion (if implemented immediately)
Like all other modern insurance, Medicare should have a single deductible for hospital and physician services and a limit on individuals’ total out of pocket expenses. This reform would also implement reasonable copayments where they don’t exist and reduce those that are excessive.
Implement these Medigap and benefit reforms together.
$110 billion in total savings over 10 years
These reforms would have reinforcing effects on each other. For example, an out-of-pocket limit and copayment reforms in Medicare’s benefit package would enable the reforms in Medigap to have a greater impact, reducing Medicare costs and Medigap premiums further while still giving beneficiaries better protection against high costs.
Phase in the benefit reforms.
$20 to $40 billion over ten years (if phased in as recommended)
To limit disruptions, the benefit reforms could be phased in over time, such as introducing a modest premium surcharge for beneficiaries with the most generous Medigap plans, gradually adjust deductibles and copayments, or apply them to all new Medicare beneficiaries starting in five years.
Reward beneficiaries for efficient prescription drug use.
$30 billion over ten years
Under the current Medicare program for prescription drug coverage, low-income beneficiaries receive additional subsidies that reduce the amount they have to pay for their prescriptions, especially for brand-name drugs, and means they save very little when they choose available lower-cost but equally effective drugs. Introducing modest increases in copayments for brand-name drugs for those receiving low-income subsidies would help encourage more efficient prescription drug use without reducing the quality of care.
Raise the Medicare premium for higher-income individuals.
$60 billion over ten years
Many bipartisan Medicare reform proposals have included additional means testing as a way to reduce Medicare spending. While this reform might be viewed as primarily shifting Medicare costs from taxpayers to higher-income beneficiaries, it too could be phased in over time and eventually paired with reforms that enable beneficiaries to lower their payments when they use less-costly, high-quality care.
The unprecedented progress in Congress toward reforming Medicare’s physician payment system holds out real hope that Medicare can become a support rather than a recurring obstacle to physician leadership in improving American health care. The biggest remaining obstacle is how to pay for it. Through the reinforcing Medicare reforms that we have described here, truly meaningful, bipartisan Medicare reform may be closer than ever.
 (Medicare Payment Advisory Commission 2011, Gage et al., 2012, Institute of Medicine 2013).
 CBO 2013
 (MEDPAC 2013).
 Proposals from http://www.brookings.edu/research/reports/2013/04/person-centered-health-care-reform; http://bipartisanpolicy.org/library/report/health-care-cost-containment; http://medpac.gov/chapters/Jun12_Ch01.pdf;http://www.cbo.gov/sites/default/files/cbofiles/attachments/44906-HealthOptions.pdf
By Subir Lall
(Version in Português)
Today the IMF released a report on Portugal’s progress under the country’s Economic Adjustment Program. What is the latest assessment?
A strong start
There is no doubt that Portugal has made remarkable progress over the past three years. When the sovereign lost access to international bond markets in 2011, the outlook was grim. The economy was facing large domestic and external imbalances and dismal growth prospects. Unprecedented official financing from Portugal’s European partners and the IMF provided a window of opportunity to address the weaknesses at the root of the crisis and regain market confidence. While constrained by formal and informal strictures, the authorities rose to the occasion.
The authorities have made substantial progress in fiscal adjustment, while needing to frontload it in view of the high debt burden and to establish fiscal policy credibility. However, it is important to recognize that fiscal targets were relaxed when it was possible to do so, to avoid more severe consequences on growth. All told, about two-thirds of the structural fiscal effort necessary to comply with the European Fiscal Compact’s medium-term objectives has now been completed.
Equally important, wide-ranging structural reforms were enacted in spite of difficult socio-economic circumstances and legal hurdles. The government took steps to improve the functioning of the labor and product markets and make the business environment more conducive to growth. External adjustment has exceeded expectations implying a lower need to borrow from overseas; and financial stability has been preserved. The economy now shows early signs that it may have turned the corner. In light of the progress on all of these fronts, foreign bond market investors seem reassured, and sovereign yields recently dipped to their lowest level since April-2010.
Risks persist; unemployment remains high
These significant achievements in a relatively short period of time, however, do not mean the job is complete. Unemployment remains high, and even more so for the youth and long-term job seekers. Both public and non-financial private sector debt—respectively close to 129 and 255 percent of GDP—remain uncomfortably high by any standard. Faced with such high debt, clearly, further fiscal consolidation and private sector deleveraging will be necessary. But perhaps more importantly, working these heavy burdens down will require sustained high growth.
One thing is certain: durable high growth cannot be achieved by going back to the old pre-crisis model. There is no room to borrow more for consumption or unproductive investment. Moreover, since Portugal’s negative investment position vis-à-vis the rest of the world is so large—currently above 110 percent of GDP—and tilted toward debt, borrowing externally is not an option for the foreseeable future. The economy needs to generate external surpluses to reduce this negative investment position; investment needs to be geared toward tradable sectors—sectors that generate their earnings by selling their goods and services abroad; growth and employment have to be driven by exports.
This means that sustaining efforts to raise the economy’s competitiveness is the only path forward.
Adjustment burden should not fall excessively on labor
Given the constraints imposed by the monetary union framework, and in the absence of exchange rate flexibility, boosting the economy’s competitive position requires lowering unit labor and other input costs, raising productivity, and enhancing firms’ ability to adjust to shocks.
We have seen some progress in lowering unit labor costs in the private sector, facilitated in part by the reforms implemented thus far to soften employment protection and encouraging more flexible work arrangements, allowing enterprises to better adjust to the demand shock they were facing. Reforms to collective bargaining have helped to better align wages and productivity.
While more could be done to improve labor market functioning and employment opportunities, reducing other production costs is perhaps even more important. For one, labor costs make up only about 30 percent of operational costs. In addition, it is important to ensure that the burden of adjustment does not fall excessively on labor and is balanced by adjustment elsewhere. Therefore, ambitious product market reforms aimed at increasing competition and reducing rents in the nontradable sector need to be a centerpiece of the growth agenda going forward. Progress has been made on this front. Nonetheless, a lot more can be done to take the process forward. One priority is to identify remaining impediments to price flexibility and steps to boost productivity. Another one is to ensure that the new laws and regulations translate into effective change and lower input prices for exporters.
Maintain the momentum
Policymakers need to persist with ambitious reforms—to bring ongoing fiscal adjustment to term, to facilitate private sector deleveraging, and to boost competitiveness. Portugal cannot go back to the pre-crisis economic model which proved unsustainable. What has been achieved thus far, and under difficult circumstances, deserves to be recognized and needs to be taken forward over coming years. This will take time, and continued efforts will be needed irrespective of who is in power. It will require as broad a consensus as possible.
North Korea sometimes employs deceit in its continuing struggle with its adversaries (the United States, South Korea, et al.). But sometimes it is remarkably transparent and explicit in saying what it wants and what it will and will not do. A case in point is what it means by the term “denuclearization.” That is, of course, the stated objective of Washington, Beijing, Seoul, Tokyo, and Moscow. It is an essential element of any negotiation with Pyongyang, through the Six-Party Talks or any other diplomatic venue. But recently, this passage appeared in Choson Sinbo, a Korean-language newspaper in Japan that speaks for the North Korean leadership. This is what it said about denuclearization:
When the National Defense Commission proposed the measures to prevent a nuclear disaster, it definitely stated that the denuclearization of the Korean Peninsula is “the common goal of the [Korean] nation.” The goal is not “the North's giving up of the nuke.” The denuclearization that should be realized with the power of the entire nation is the denuclearization of the entire Korean Peninsula including South Korea; the key point here is to end the nuclear threat of the United States against the DPRK.
The important proposal suggests a concrete method of collaboration between the North and the South for denuclearization: the South Korean authorities should take the position that they will no longer introduce the means of nuclear strike of the United States into South Korea and its surrounding areas. In the joint military exercises of the United States and South Korea staged throughout the year, a lot of strategic bombers and nuclear submarines that can be loaded with nuclear weapons were deployed.
In achieving the goal of denuclearization of the Korean Peninsula, the North and the South have different roles. It is the South Korean authorities that can raise an objection as an “ally” to employing the combat weapons capable of a nuclear strike from the US bases in the Pacific Area of Operation, including the mainland of the United States and Guam for the war exercises of northward aggression.
The DPRK has created nuclear weapons as a self-defensive deterrence against the threat of a nuclear attack by the United States. It also expressed the position that it can start taking steps toward denuclearization if the United States makes the decision to discard its hostile policy against the DPRK, and to end the state of war on the Korean Peninsula that started in the last century and has continued even in this century. Last year, it took the initiative in proposing high-level discussions between the DPRK and the United States.
The collaboration between the North and the South may precipitate nuclear negotiation between the DPRK and the United States. The decision [of the South] to no longer introduce the means of nuclear strike of the United States creates a condition for that. If the South Korean authorities change their mindset of confrontation with fellow countrymen, the virtuous circle toward the denuclearization of the Korean Peninsula can be set in motion.
In effect, what North Korea insists that South Korea must do to secure its goal of denuclearization is effectively end its alliance with the United States and the defense commitment that comes with it. That, of course, is a price that South Korea is unwilling to pay. It means that the idea of a negotiated settlement with Pyongyang that is acceptable to South Korea, the United States, and others is an illusion.
On the issue of denuclearization, North Korea is not deceitful or inscrutable at all. Its intentions are hiding in plain sight.Authors
President Obama, President Peña and Prime Minister Harper meet at a time of darkening outlook for regional integration within the United States and Canada. There is little political appetite for free trade agreements and integrated energy policies. Despite this, citizens express a preference for trade negotiations within North America over negotiations with Asia and Europe, and significant majorities support trilateral trade within the region. It is time for the private sector and civil society to educate and persuade political leaders on the need for broader integration in trade, investment and energy within a North American production platform.
The North American Free Trade Agreement (NAFTA) provokes a deep yawn because at 20 years old it represents an old type of trade agreement. Instead of acting regionally, the three nations of North America have lapsed into dual bi-lateral discussions, i.e. U.S.-Canada, U.S.-Mexico, and Canada-Mexico. The days of exciting trilateral North American summits peaked in 2004 and subsequent gatherings of leaders focused on security and trade. But, even the Security & Prosperity Partnership was deactivated in 2009. With national problems making summit meetings unwelcome, political leaders left it to the private sector to use the NAFTA framework to develop a North American automobile industry that takes advantage of geographic proximity and complementary wage rates to create a highly competitive regional industry. Today, the aerospace industry is in the process of doing the same, and Mexico’s energy reform presents a significant opportunity for increased production in oil and natural gas.
What should be on the agenda for this North American summit to take place on February 19 in President Pena Nieto’s hometown, Toluca? An October 2013 survey commissioned by The Center for North American Studies at American University identified citizens’ preference to negotiate trade and economic matters in the context of the United States/Canada/Mexico. Despite a sense of stagnation, in both the United States and Canada, those surveyed in all three nations gave priority to negotiating free trade agreements within North America as compared to negotiations with Europe or Asia. Eighty percent of those surveyed in Canada support free trade between North American countries. Seventy-four percent of Mexicans and 65 percent of U.S. citizens surveyed stated the same. Thus, Presidents Obama and Pena Nieto as well as Prime Minister Harper meet in Toluca knowing that today their respective citizens support this regional effort.
Since NAFTA came into force in 1994, foreign direct investment (FDI) in North America has risen from $110 billion per annum in 1992 to $650 billion per annum in 2010. Canada has invested $200 billion per year in the United States, making it the fifth largest investor and the U.S. has invested $310 billion per year in Canada to become its largest foreign investor. Strong macro-economic policies and transparency have contributed confidence to further investment in Mexico, as well as Mexican investments in the United States and Canada. Canada weathered best the economic recession of 2009, but the U.S. economy and the closely associated Mexican economy have emerged adequately with Mexico predicted to grow at over 3 percent in 2014. However, to sustain, if not increase these investment flows, greater private sector and civil society engagement is required.
North American trade has more than trebled from $288.2 billion in 2010 to $547.3 billion in 2012. Every day, $2 billion worth of goods cross our northern border and goods valued at roughly $1 billion per day cross our southern border. According to the U.S. Chamber of Commerce, U.S. exports to North America have risen to $478 billion in 2011, accounting for 32 percent of total goods exported. This increase supports, partway, President Obama’s 2010 National Export Initiative to double U.S. exports within five years. Also, current efforts to harmonize regulatory measures and standards within the Trans Pacific Partnership might be incorporated into trilateral discussion under the NAFTA umbrella. This could begin to take place, whether or not the U.S. Congress approves the Trade Preference Authority (TPA) before our mid-term elections.
In the meantime, the regional production of automobiles and to a lesser extent electronics is not sufficient to create a comprehensive regional production platform. Integrated value chains take advantage of where the product and service is delivered more efficiently. Thus, products and related services constantly move across our three borders. This has accounted for the satisfactory increase in trade and investment flows, but more is needed. Within North America, we should widen the framework for consultations and begin to consider the recognition of professional degrees, discuss the interoperability of Medicare, IMSS and Canadian health care. Furthermore, the inter-operability of stock exchanges lies in our future, as does the regional regulation of hydrocarbons.
The most dynamic potential area for expansion is in energy where North America approaches self-sufficiency in hydrocarbons. The tight oil of North Dakota, the tar sands of Alberta and the shale gas along the Mexican border with Texas deliver the prospect of regional production to meet the energy needs of all three nations, plus natural gas for export. A critical factor in the region’s production of hydrocarbons is Mexico’s constitutional reform and implementing legislation to open up its energy sector. However, substantial challenges remain: a regional energy policy needs to be planned and the North American Working Group (NAEWG) recreated with private sector participation. Regulatory collaboration and the construction of additional cross-border pipelines must begin. To turn the regional dream into reality, governments must license investments in infrastructure to get the energy to market and make energy markets more efficient. All three governments need to address fuel efficiency measures and promote the shift from diesel and gasoline to natural gas in trucks and electrical power for cars.
A majority of people in all three nations remain reluctant, if not ignorant about the potential for energy collaboration and the three governments have a role to educate their respective citizens on the benefits of energy integration. Although those same citizens do not envisage a threat to their national sovereignty through closer economic integration, they are concerned about closer collaboration on hydrocarbons with only 24 percent of those surveyed in the U.S. favoring an integrated energy policy. In Canada, more people surveyed prefer an independent energy policy, a number which rises to 45 percent among those surveyed in Mexico. Governments must focus and educate on the advantages of North American energy integration while recognizing that environmental issues remain politically important in both the United States and Canada. Divergent approaches to regulating carbon emissions highlight the need for a regional conversation on the future of climate change mitigation.
In 1994, the private sector played an indispensable role in communicating the advantages of NAFTA to skeptical publics in all three countries. Well financed publicity campaigns won over the business community and their customers on the importance of regional production to meet global competition. Twenty years later, the private sector and civil society need to play a leadership role again. They need to cajole governments into playing a pro-active role in resolving the infrastructure problems of North America.
If leaders over-promised the opportunities of NAFTA in 1994, they could now respond to the challenges that have developed in the intervening 20 years. In May 2013, Vice President Joe Biden called upon citizens and the private sector to push their respective governments to make North America, “the most prosperous and most economically viable place of the world in the 21st century…” It is now up to us, citizens to make our leaders take up the opportunities of geographic proximity, predictable monetary policies, and greater public security along Mexico’s northern border. Citizens in all three countries are eager for new opportunities to design, manufacture, communicate and print their products for a global market. To meet these needs, all three presidents should lean in to strength NAFTA through the creation of a North American production platform.
Diana Villiers Negroponte is the editor of End of Nostalgia: Mexico Confronts the Challenges of Global Competition, Brookings Press, 2013.
The NAFTA Promise and the North American Reality: the Gap and How to Close it. Center for North American Studies conference at American University, Washington, D.C., October 31, 2013. http://www.american.edu/sis/cnas/upload/1_c_2013CNAS_RP_Introduction_to_Conference.pdf
 The NAFTA Promise, “Tracking support for trilateral trade,” Ibid.
 Available at: http://www.bea.gov/international/ii_web/timeseries2.cfm?econtypeid=1&dirlevel1id=1&Entitytypeid=1&stepnum=1; Bureau of Economic Analysis, Foreign Direct Investment in the U.S.: Balance of Payments and Direct Investment Position Data, http://www.bea.gov/international/di1fdibal.htm; Source OECD, International Direct Investment Statistics, http://miranda.sourceoecd.org/vl=4415314/cl=17/nw=1/rpsv/ij/oecdstats/16081080/v45n1/s1/p1; Statistics Canada, Table 376-0051: International Investment Position, Canadian direct investment abroad and foreign direct investment in Canada, http://www.statcan.ca.
 NAFTA at Twenty: Accomplishments, Challenges and the Way Forward, Carla A. Hills, statement before the House Committee on Foreign Affairs, Subcommittee on Western Hemisphere, January 15, 2014. Ms. Hills is the Chair of the Inter-American dialogue. http://thedialogue.org/page.cfm?pageID=32&pubID=3505
 See n. 3. These statistics are drawn together from OECD, TradeStats Express, U.S. Census Bureau, WTO and Industry Canada.
 NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth and Jobs. 2012. US. Chamber of Commerce. https://www.uschamber.com/sites/default/files/legacy/reports/1112_INTL_NAFTA_20Years.pdf
 Survey carried out by Knowledge Networks in the U.S. EKOS in Canada and Miguel Basáñez in Mexico for the Center for North American Studies, American University, Washington, D.C. http://www.american.edu/sis/cnas/upload/1_c_2013CNAS_RP_Introduction_to_Conference.pdfhttp://www.american.edu/sis/cnas/upload/1_c_2013CNAS_RP_Introduction_to_Conference.pdf
Salvador Sánchez Cerén, the former school teacher, ‘comandante’ of guerilla forces and current vice-president of the FMLN, was the clear winner in the February 2 presidential election. With a 10 point lead in the first of two rounds, it will be hard for the rightist party, ARENA to overcome strong preference in Salvador’s rural areas for continued social programs. However, with a weakened and fragmented rightist party, can the FMLN resist following Nicaragua’s path to strengthen presidential power and weaken democratic institutions?
The first round of the Salvadoran presidential elections on February 2 resulted in a 10 point lead for the FMLN candidate, Salvador Sánchez Cerén. Norman Quijano from the ARENA gained the next number of votes, but neither achieved the 50 percent plus one needed to win on the first round. Therefore, both these candidates automatically started their respective campaigns for a second round on March 5. Although a looser on the first round, the former president, Elías Antonio “Tony” Saca from the coalition of center right parties, Movimiento UNIDAD could play a critical role in the second round. His constituents could narrow the gap between the two major parties creating a more competitive election. This paper examines both the political consequences of the presidential election’s first round and analyzes what we might expect in, and beyond the second round on March 9.
First, the ideological divide between the leftist, FMLN and the business party, ARENA is deep. Since the end of El Salvador’s civil war in 1992, we have not witnessed such a political abyss. Second, Sánchez Cerén will need to demonstrate that Venezuela’s influence and money can be kept at arms length. He may need to enter into a coalition with Tony Saca to assuage fears that the FMLN will not pursue communist or ‘chavista’ policies. (The late Hugo Chavez has given his name to the Bolivarian socialism which characterizes Venezuela, Nicaragua, Bolivia and to a degree, Ecuador.) Third, pollsters are discredited due to their lack of transparency and erroneous predictions. Fourth, the ideological differences between the two major parties are now clearer for the voters. Salvadoran observers have narrowed the choice down to a “socialist” or “free market” system. We might add the choice between a Salvadoran solution to the nation’s problems, or a preference for the Nicaraguan model of a stable economic regime that attracts foreign investment at the cost of weak democratic institutions.Political polarization:
Norman Quijano of the business party, ARENA focused on the communist background of his opponent, the need for harsher treatment of gang leaders and the formation of “military farms” to intern young people who neither work nor study. These punitive messages failed to resonate with El Salvador’s majority of rural voters, particularly those on the coastal plane which traditionally have supported ARENA candidates. Quijano won 38.96 percent with 1.047 million votes. Observers consider that he ran an old fashioned campaign that failed to persuade voters that poor GDP growth, averaging 1.3 percent growth over the last four years compared to 4.2 percent growth in Nicaragua and low foreign direct investment have not produced the economic development seen in neighboring Central American nations. Quijano gained the majority in the four biggest cities, where a more educated and prosperous population voted, but he failed miserably in the rural areas. This included losses in the Pacific coastal region which has traditionally voted for conservative candidates, including ARENA’s founder Roberto D’Aubuisson. In 2014, ARENA’s base was the educated and more prosperous urban vote.
In contrast, Sánchez Cerén won 48.93 percent with 1.315 million votes. He pointed to the significant reduction in homicides from 14 to five per day without explicitly stating that he supported the March 2012 truce negotiated by the Catholic Church with the gang leaders from the Mara Salvatrucha and the 16th Street. He avoided political debates in which he is the weaker contestant, preferring to engage with citizens at large rallies. All those gatherings were peaceful and despite warnings from ARENA that violence would threaten the presidential campaign, the weeks before and voting day itself were orderly. Salvadorans value representative democracy, but it can be threatened by outside money and a return to political clientelism.
Tony Saca’s Movimiento UNIDAD was a coalition of three center right parties that held together in the hope that Saca’s magnetism could succeed. Until the last few weeks of the campaign, polls had showed a strong following for Saca. On this basis, as well as alleged financial inducements, Saca was able to hold the coalition together during the campaign, but the day after the election UNIDAD fractured. This split among center right parties may be followed by further splintering within ARENA. A dismal campaign, the low turnout of its base and serious headwinds that Norman Quijano faces as he heads into the second round could result in disillusionment among conservatives and a search for alternatives.
Politics in El Salvador are increasingly transactional. Politicians move to wherever the greatest personal benefit is to be found. Small parties emerge around a candidate and follow the leader in the expectation of jobs and positions in the public sector. The Movimiento UNIDAD is a clear example of this. In 2012, members of the National Assembly rebelled against the decision of the Supreme Court’s Constitutional Chamber and preferred to ignore the independence of the judiciary by seeking an interpretation of El Salvador’s constitution at the Inter-American Court of Justice. The issue was whether legislatures could nominate and vote for two sets of Supreme Court justices during one congressional term of office, or whether the constitution restricted them to nominating and voting for one set of justices, each of whom are allied – in a greater or lesser degree – to a political party. Only significant outside pressure obliged the legislatures to compromise and accept the supremacy of Salvador’s highest court on constitutional matters. The political nomination of judges remains a problem in El Salvador, but the relative independence and maximum authority of the Supreme Court was assured for now.Outside influence and money:
According to a study by the University of Salamanca, ALBA Petróleos has $800 million worth of assets in El Salvador. ALBA Petróleos is funded by the Venezuelan state oil company, PDVSA in a joint venture with 24 Salvadoran mayors from the FMLN. These mayors formed an association, which Spanish acronym is ENEPASA, to enable El Salvador to participate in Venezuela’s PetroCaribe. PDVSA owns 60 percent and ENEPASA; 40 percent of ALBA Petróleos. The purpose is to provide hydrocarbons at subsidized prices and support social programs, such as hospitals, schools, sports and to distribute, at subsidized prices, agricultural products and seeds. According to the Salamanca study, in 2010 ALBA Petróleos distributed $140 million in subsidies and social programs in the 24 municipalities led by FMLN mayors. Salvadoran media covers the distributions widely and picture the close relationship between ALBA Petróleos and the political leaders. Formally, a private joint venture of Salvadoran citizens, few doubt that the Venezuelan government is disinterested in the purpose and use of these monies. In a country whose per annual capital income is $3,799, the targeted distribution of ALBA funds can provide much needed support. They can also re-enforce old fashioned clientelism.
To mitigate the image of a former communist ‘comandante’ presiding over the Salvadoran state, Sánchez Cerén may seek a coalition with Tony Saca, the former president from the conservative party who won 11.44 percent of the vote. However, any coalition with Saca carries perils. Saca is widely rumored to have enriched himself handsomely during his presidency and he has freed his coalition partners to vote as they choose. A fractured party is an unpredictable political force with its members choosing their own personal advantage.The errors of pollsters:
Pollsters retained by distinct political parties and their allies reinforced the strengths of their clients. In El Salvador, only CID Gallop poll consistently gave the majority to the FMLN candidate. There is likely to be little confidence in pollsters’ predictions as we approach the second round on March 9.
ARENA has little chance to overcome Sánchez Cerén’s 10 point lead. Furthermore, Sánchez Cerén is reputed to be honest, modest and fair. He is trusted as a sincere man of the left. The concern is not for the election of a leftist president because the hemisphere has several notable presidents who lead a “new left” governments that combine liberal free market economies with distributive social policies. Brazil and Peru are good examples. Instead, the concern is for the future of El Salvador’s democracy, built carefully as an integral part of El Salvador’s peace agreement.
Should ARENA and UNIDAD fragment after this politically disastrous first round, which political party will stand to contest the early signs of centralization in the presidency and weakened political institutions? Since the Peace Agreement of January 1992, the FMLN has played by the democratic rules because strong political competition has prevented any one party from eroding the checks and balances of the democratic state. Should the FMLN continue to nominate its candidates to the National Assembly, picking malleable candidates without serious contestation from ARENA, we might anticipate a legislature deprived of the ability to contest the executive.
Already, the federal Electoral Tribunal has failed to constrain President Funes, as a government official, from advocating for a political candidate in violation of El Salvador’s constitution. Funes dominated the airwaves breaching the required balance of radio and TV time for each party. Second, despite the constitutional requirement that the Electoral Tribunal represent the major parties, there is currently no representative from ARENA on this tribunal. (In 2012, ARENA’s man moved to Tony Saca’s party.) Third, to contest the criticism that only 53.8 percent of Salvadorans voted – a relatively low number in comparison with previous elections – the Electoral Tribunal announced four days after the election that the turnout was 64 percent based on the fact that people failed to renew their voter registration thereby reducing the number of those eligible to vote. The Tribunal chose to ignore the hypothesis that a failure to register indicated a disinterest in participating in the election.
Furthermore, the electoral tribunal failed to restrain ALBA Petróleos actions despite the fact that Section 67 of the electoral law prohibits contributions to political parties from government institutions or businesses owned by a foreign state. PDVSA’s 60 percent interest in ALBA Petróleos makes it a foreign business owned by the Venezuelan government. Section 67 also prohibits contributions from political parties and agencies of a foreign government.Conclusion:
Funes is not President Daniel Ortega of Nicaragua, but he might admire Ortega’s capacity to transact successful business with the corporate sector and ensure a steady inflow of foreign direct investment to support the buoyant export of agricultural and manufacturing products. Ortega has delivered 4.4 percent GDP growth in 2013 and greater welfare benefits. However, the cost to Nicaragua is the destruction of an independent judiciary, deterioration in the rule of law and the manipulation of the National Assembly to enact laws favored by the President. Nicaragua’s reliance on PetroCaribe has provided vital energy support to the Nicaraguan economy, paid for through its exports to Venezuela. El Salvador’s next president may choose to emulate this pattern should the 2nd round remove effective political competition.
The FMLN have proved to be fierce defenders of El Salvador’s constitution in the 22 years since the Peace Agreements enabled their leaders to drop their guns and enter the political arena. The defense of these democratic institutions has encouraged the U.S. Congress, USAID, the Millenium Challenge Corporation (MCC), the European Union and the IMF to extend significant grants and loans to bolster El Salvador’s free market economy and strengthen its judicial institutions. However, a future weakening of democratic institutions risks lowering U.S support.
The United States government and its Embassy in San Salvador have remained neutral observers, but that does not mean that U.S. observers should turn a blind eye to undemocratic tendencies which would damage El Salvador’s future relations with the United States.
 See Diana Villiers Negroponte, Seeking Peace in El Salvador: the Struggle to Reconstruct a nation at the End of the Cold War, Palgrave Macmillan 2012.Authors
Dear President Obama,
The United States is in the midst of an energy transformation in which our vast abundance of cheap natural gas and rising production of crude oil pose the opportunity for a manufacturing renaissance and a revitalization of the North American industrial base. Utilizing these resources can make us – as well as Canada, our largest trading partner and steadfast ally – among the lowest-cost producers of almost any industrial product. This turnabout in our energy fortune has occurred as the result of historic advances in oil and gas exploration and extraction technologies, initially supported by federal research and development tax dollars, and decades of American innovation.
Our energy abundance has also been spurred by the presence of competitive markets, the willingness of our entrepreneurs to take on risk, the availability of capital for those with pioneering technology and a vision of a future that challenges conventional wisdom of where oil and gas can be found. These developments have brought a historic opportunity to expand our economy, produce thousands of high paying jobs, reduce our balance of payments and add tax revenue to the federal treasury. With the surplus of natural gas and crude oil beyond our domestic needs, we also have the opportunity to help alleviate the dependency of our major trading partners in Europe and Asia on more politically insecure regions of the world.
Yet groups such as America’s Energy Advantage continue with the chimera that exports of liquefied natural gas (LNG) are injurious to our manufacturing resurgence and that the gas resource base is inadequate to both foster industrial expansion and export. This argument is misleading as well as out of date. In the last four years, the U.S. Department of Energy (DOE) has raised its estimate of recoverable gas reserves by 34 percent as well as its forecast for 2035 production by more than 20 percent from the forecast it made just two years ago. Upon examining the evidence, you have acknowledged that we may have 100 years of reserves at current production levels and that gas offers the opportunity to serve as a “bridge” to a cleaner energy future based on renewables. While I welcome your prescience, I would argue that rather than being a bridge, gas is the future. Given the quantity of gas that is being discovered around the world, it will be the future in many nations once shale gas development takes off in China, Algeria, Russia, Argentina, South Africa and elsewhere.
Mr. President, you have stated that your energy policy is “an all of the above” strategy, suggesting that all energy options are needed to insure the nation’s future wellbeing. Yet you have failed to show such balance. We can reduce national CO2 emissions by backing out coal in the power sector – as you have rightly promoted – and replacing diesel in the transportation sector (18-wheeler trucks, marine transportation and locomotives). However, you have allowed your environmental constituency to guide your inaction on the issues of: expedited licensing of LNG projects; streamlining the permitting of oil and gas infrastructure needed to bring these new unconventional resources to market; making a decision on the Keystone XL pipeline despite five favorable environmental reviews; or using executive authority to lift the ban on U.S. crude oil exports.
Despite its promise, the development of natural gas infrastructure to get it to market both domestically and internationally remains mired in a cumbersome regulatory process. There are currently 25 applications awaiting an export permit from the DOE .Yet export permits issued by the Department are only provisional until projects complete the broader review demanded by FERC involving 20 state and federal agencies. While this review process stumbles along, LNG and intercontinental pipeline projects in other nations, as well as world class coal projects under development, will pose strong competitive threats after 2020 to any U.S. or Canadian LNG projects not already in the marketplace. By 2025 new shale gas projects will also emerge as competitors to those at the back end of the current U.S. queue.
While LNG exports represent the greatest opportunity, the current ban (with a few exceptions) on crude oil exports also needs to be reexamined, as current market conditions and policies based on assumptions about oil scarcity no longer reflect market realities. Here too, however, protectionist forces are already sharpening their knives to block exports under the mantra of “energy security.”
Mr. President, I am a lifelong democrat who voted for you twice, but I join a growing group of those who are tired of protectionist policies that keep this nation from moving our energy strategy forward. The opportunities afforded by the full development of our natural gas and crude oil resources need to be seized now, providing you a legacy for years to come. Mr. President, this is your energy moment!Authors
Editor's Note: Richard Bush offers his thoughts on the recent, historic meeting between the governments of China and Taiwan, the first in 65 years.
These talks were important because they occurred in the first place, and because the two ministers called each other by their official titles. The expectations for any breakthrough on the political issues that divided the two sides were very low, and the odds that much progress will be made on that front over the next two years are also low. It appears that there was some progress on the long outstanding agreement to allow each sides’ organization that implements cross-Strait policy to establish branch offices in the other’s territory, but differences over the right of such offices to visit their residents detained by law enforcement appear to remain.Authors