From “High-Speed” to “High-Quality” Growth: Shenzhen, the birthplace of China's economic miracle, goes low-carbon
a metropolis of 10 million people in just 35 years. Shenzhen occupies a special place in modern Chinese reform history. Set up as the first Special Economic Zone under economic liberalization in 1980, the city has grown from a small fishing community to a metropolis of 10 million people in just 35 years.
Advances in basic molecular science are paving the way for increasingly targeted therapies that address the unique biological mechanisms involved in a patient’s illness. Ultimately, medicines may become truly “personalized,” allowing for a fully customized approach to health care that takes into account an individual patient’s medical history, disease risk, and pathology, and selects the most promising course of treatment based on these and other characteristics. This vision for the future may be a long way off, since translating scientific advances into targeted therapies has not proven to be quick or easy. However, taking advantage of innovative clinical trial designs could lead to more efficient clinical trials that do a better job of matching treatments to specific patient populations and speed the development of targeted therapies.
The Role of Clinical Trials in Biomedical Innovation
A major barrier to this type of innovation is that our current clinical trial and drug regulatory process – the formal system by which novel medicines are evaluated and approved by the U.S. Food and Drug Administration (FDA) – has lagged behind advances in scientific research. Regulatory approval decisions are typically based on evidence of efficacy and safety gathered from lengthy Phase III pivotal trials that enroll a large, diverse patient population. When the study population is heterogeneous, larger trials are often necessary to have adequate statistical power for obtaining statistical significance and identifying rare side effects that might not be detected in a small group. But most agree that the conventional approach to drug development constitutes a blunt tool where more elegant experiments could suffice, particularly to evaluate more targeted products for which a one-size-fits-all approach would be ineffective and wasteful.
In addition, the industry has been plagued by rising costs in recent decades. The cost of bringing a single product to market has been estimated in recent years at between $1.2 and 1.8 billion and unfortunately, these ballooning costs have not corresponded with an increase in successful product approvals. In fact the opposite is true – new data indicate the number of drugs invented per billion dollars invested in R&D has been nearly cut in half every nine years for the last fifty. Because large Phase III trials continue to be a major cost driver associated with drug development, there is much to be gained from greater efficiency at this stage. However, regulatory uncertainty, tight margins and high risk of failure have precluded much experimentation in this space.
Many have suggested that novel clinical trial designs could capitalize on our growing knowledge of patient subpopulations for which a therapy may be more effective without compromising FDA’s rigorous safety standards. Many are optimistic that these designs could also improve regulatory success rates and ensure the more rapid and cost-effective delivery of innovative products to patients who are predisposed to respond favorably.
One of the most promising areas for investigation is oncology – we now recognize cancer to be an incredibly diverse group of diseases that almost defy a single label. Even within breast cancer, for instance, we know of a number of tumor biomarkers that are highly deterministic of disease severity, survival, and optimal treatment regimen. For these diseases, and other conditions like them, the traditional design of clinical trials is not always the most effective or efficient way to evaluate novel therapies. A future of increasingly personalized medicines will demand a rethinking of how we weigh treatments’ benefits and risks for individual patients and how we can develop sufficient evidence of safety in an economically viable manner.
Adaptive Clinical Trials: Encouraging Flexibility and Efficiency
One promising approach for modernizing clinical trials and maximizing their efficiency is using data accumulated during the trial to inform their design. While traditional trials have fixed parameters that are determined in advance and held constant throughout the trial, “adaptive” trials allow for certain parameters – such as treatment regimen, study population, and sample size – to be modified based on interim results. These preliminary analyses conducted during an ongoing trial can also be used to stop a trial early if the product is unlikely to meet its target endpoint. Or, to drop certain treatment arms that appear less effective, which helps to avert failure, additional costs, and unnecessary risk to patients further down the line.
Adaptive designs could have particular value in enhancing the development of personalized therapies. They allow investigators to learn much more about products during development and to identify the most responsive patient subpopulations and the best drugs for these individuals. In oncology trials, for example, investigators are using tumor biomarkers to match patients with the most likely effective treatment. These designs could help increase the odds of success, and of delivering more valuable products to patients.
However, there is some hesitation on behalf of FDA and the pharmaceutical industry to use adaptive designs for Phase III pivotal trials. Because adaptive trials rely on preliminary data analysis, many fear that the results could influence the behavior of investigators, patients, or investors, They could also potentially introduce bias. Adaptive trials are also more likely to employ Bayesian statistical approaches to assess the trial evidence as it accumulates and to demonstrate the efficacy of a treatment. The application of these statistical methods to drug development is still fairly novel for most sponsors and reviewers, and their use introduces new challenges related to estimation and error control that might be particularly concerning in trials submitted for regulatory approval. For these reasons, complex adaptive designs and the use of Bayesian statistics remain mostly uncharted territory in Phase III designs, despite the pressing need to build efficiency and learning opportunities into this most expensive phase of development.
A number of factors could contribute to the success of adaptive trials:
Experience. Industry and regulators have significant experience with traditional clinical development paradigms, but at one point, even these were novel. Ongoing exploration and experience using adaptive designs is necessary to develop the relevant operational and statistical expertise to ensure that products are safe and effective for the American public. This will also help product developers and the FDA reviewers become more confident in using the results for regulatory decision making.
Transparency. Recent comments from FDA have indicated that one of the biggest obstacles for regulators is the need for data transparency when drug sponsors employ novel statistical approaches. Effective communication between drug sponsors and FDA regarding their analyses and willingness to share lessons learned can facilitate acceptance of adaptive designs on both sides.
A balance of clarity and flexibility. Clear standards for approval can help drug sponsors feel more secure and willing to make the decision to use adaptive designs. To this end, FDA is currently working to finalize its draft guidance for industry on adaptive designs. That said, in these early days, flexibility and openness on the part of both drug sponsors and regulators is needed to capitalize on the opportunities to learn from the implementation of adaptive trial designs.
Exploring adaptive trial designs and their potential to support timely and value-driven drug development and regulatory review will be important as FDA, industry, and other stakeholders continue their work to modernize the biomedical innovation process in the United States. A number of ongoing initiatives could be supported by adaptive methodologies and other streamlined approaches, including FDA’s Breakthrough Therapy Designation, proposed regulatory pathways such as Special Medical Use, or any number of other efforts that may result from the House Energy & Commerce Committee’s 21st Century Cures initiative.
For more information on adaptive trials, please visit the event page for the Brookings/FDA expert workshop, “Pioneering Statistical Approaches to Accelerate Drug Development through Adaptive Trial Designs.”Authors
- Gregory W. Daniel
- Derek Griffing
- Erica Socker
- Sophie Mayer
In March 2014, I published Still Ours to Lead: America, Rising Powers and the Tension between Rivalry and Restraint —a book that argues that both American decline and China’s rise (as well as that of other powers) has been substantially exaggerated. I’ve talked about these themes in several American cities, in Canada and in Europe. And while the questions that accompany my presentation vary, there’s one that is always asked: how do the emerging powers react to this argument?Brazil's and India’s Reaction
I had a good sense of what the Brazilian and Indian reaction would be. There are many parts of the argument that are deeply sympathetic both to their rise and their position, and as for the places where I’m critical, my friends in both capitals recognize that I’m critical from a position of underlying support. What’s more, there’s no one in either Brasilia or New Delhi that has any genuine pretense to leadership of the international system – and quietly, several of them still look to Washington to lead the international system, albeit taking the emerging powers’ interests increasingly into account. For all the pageantry and rhetoric that surrounds the BRICS and their Summits, the fact is that both Brazil and India recognize that many of their interests lie closer to those of the U.S. than those of China.China’s Reaction
But what the Chinese reaction would be, I wasn’t sure. Americans spent a lot of time over the past month debating the news that China had overtaken the U.S. when measured by ‘purchasing power parity’. So what would the Chinese make of my argument that the underlying realities are that the U.S. still holds an important lead in the international economy? Given the importance China places on forging “a new kind of great power relations” with Washington, given their increased willingness to put military weight behind their interests in the East and South China Sea, what would they make of an argument that the United States, and its alliance system, still constituted the essential pillar of a stable international system?
I spent the last week in Beijing, finding out.
It’s worth highlighting here that life in Beijing these days is far more similar to life in Washington than the mythology suggests—that is to say, there’s deep debate, not monolithic opinion, within China. So there’s no simple way to characterize Chinese opinion on anything, let alone a topic as broad and sensitive as U.S. leadership of the international system.
But if there’s a Friedman-esque short-hand here, it’s this: the more senior the interlocutor in China, the more frank they are in acknowledging that the U.S. still holds a major lead in economic, political and security affairs. In a way, that’s obvious on military issues. What was striking was how widespread this recognition was even in economic affairs.
With both scholars and with officials, I found a consistent recognition that the PPP measure of the Chinese economy is unreliable at best. Taking into account both real GDP, the major lead that the U.S. has in technology and innovation, the still huge gap in per-capita GDP, the Chinese economic and business establishment are perfectly clear-eyed. As one of my most senior interlocutors put it, there’s a “huge gap” between Chinese economic strength and that of America. China has an aspiration, widely shared, to join what they describe as the “50% club”—that is, those states who enjoy a per capita GDP at or just below 50% of that of the United States. China’s economic managers are well aware that the United States is the richest of the large economies (the highest per capita income of countries over 20 million)—a major accomplishment that China aspires, over time, to meet part way. For now, and for at least a couple of decades, China will have to strive hard to reach that 50% goal. And what’s more, China’s current suite of reforms are premised on a recognition that the only pathway to that goal is through deeper integration with the global economy—including cooperation and mutual investment with the United States. China may call for a shift from the dominance of the U.S. dollar, but it has yet to take the tough internal reforms to its currency that would make it able to press a credible case—and even then, it’s not clear that it would have many takers.Engagement in Iraq?
When it comes to political and security affairs, the issue was dramatized by the deteriorating situation in Iraq. Whatever the debate in Washington is about whether the U.S. should re-engage militarily, there’s exactly no question that China could (or should)—and that’s despite deep oil interests at stake. We can celebrate or bemoan the Administration’s decision to move slowly (or hesitantly or prudently, depending on where you sit) on military support to the Maliki government in confronting the ISIS, but no one serious would even raise the question of what role China should play. Asked the question about whether China is ready to take on greater responsibility on international crisis management, the answer within Beijing is uniform: we have neither the capacity nor the interest to take on shared responsibility, in the near to medium term.
Granted, there’s a certain sense of ‘I can insult my brother, but you’d better not’ here. Better for a Chinese state manager to acknowledge the continuing gap, than for the Americans to insist on it. But the irony is that China’s managers and scholars are more realistic about the continuing gap between China and the United States than many of America’s home-grown declinists. Time for a rethink in the U.S.Authors
The fate of 47 thousand children, most of them from Central America and the prospect of 43 thousand more children crossing the Texan border illegally by the end of 2014 poses a serious challenge to the laws of the United States and our humanitarian values. How should we treat these children? Should they be united with parents and family members living in the US or deported for entering the U.S. without sufficient reasons to justify asylum?
Three quarters of recently arrived and unaccompanied children originate from the three northern Central American states: Honduras, El Salvador and Guatemala. The phenomenon of children seeking to join their parents in the United States is not new. The difference lies in the number of children making their way from Central America to cross the Rio Grande Valley into South Texas. According to the Border Patrol, apprehension of unaccompanied children increased from 16,067 in FY 2011 to 24,481 in FY 2012 and 38,833 in FY 2013. During the first eight months of FY 2014, 47,017 children were apprehended, most of them from Honduras. If this flow continues at the current rate, the Border Patrol anticipates that 90,000 unaccompanied children could be apprehended by the end of the fiscal year (FY) on September 30. The journey is fraught with the danger of depending on human traffickers.
Children originating from a non-contiguous country are subject to distinct legal procedures from those originating in Mexico or Canada. The former are transferred from the Border Patrol to the Office of Refugee Resettlement (ORR), an agency of the Department of Health and Human Services (HHS) that is responsible for processing and sheltering unaccompanied minors. Under the Trafficking Victims Protection Reauthorization Act (PDF) (TVPRA) children from non-contiguous states must be transferred to ORR within 72 hours and simultaneously placed in removal proceedings with the Executive Office for Immigration Review (EOIR), within the Department of Justice.
The reality is that insufficient space exists to house the large number of apprehended children and the Immigration Courts are seriously overwhelmed by the number of removal proceedings. Consequently children wait on average 578 days before a Hearing. During that time, the child is placed with a parent or family member who must vouch that the child will appear in Court. The Migration Policy Institute anticipates that approximately 85-90 percent of children are placed with a parent or close relative. Thus, the current procedures provide the incentive for parents to be reunited with their children while awaiting their Hearing date. Emotional bonds are reestablished, schools attended, vaccines given and hope raised that the child can remain in the United States.
Before joining their families, ORR is responsible for lodging and feeding the child for up to 45 days. But current HHS centers are already filled in Texas, California and Oklahoma. To meet this need, the administration in early June requested $1.57 billion in emergency funding to house, feed, process and transport these children before they can be released to join relatives, or be placed in foster care.
The principal grounds for remaining in the United States are refugee asylum – fear of persecution for reasons of race, religion, nationality and membership in a particular social group or political opinion – and Special Immigrant Juvenile Status, granted to children who can establish that they were abused, neglected or abandoned by one or both parents. The Vera Institute estimates that 40 percent of unaccompanied children have humanitarian claims recognized in U.S. and international courts. However, the principal causes that send children to the United States are family reunification, poverty and fear of violence from local criminal organizations. Unless they were abused by traffickers on their journey to the U.S. border, it is hard for defense attorneys to prove the legal grounds required for refugee status. Consequently, half the children may eventually be sent home. In the meantime while they await their Court Hearing, they have a right to attend school and access health care, posing costs upon State and District budgets. To date in FY 2014, 3,300 children have been discharged to relatives or foster care in New York State, alone.
Two push factors and two pull factors explain the recent surge in unaccompanied children migrants.Push Factors:
- Economic conditions with endemic poverty, high youth unemployment and a close correlation between poor geographic areas and outflows of child migrants.
- Violence in the region. Organized criminal violence plagues the three Central American countries with homicide rates among the highest in the hemisphere. Recruitment into maras, or other local gangs is pervasive and grandparents seek to protect their grandchildren by sending them to join a parent al norte.
- It is estimated that 2.5 million Central Americans live in the United States, 60 percent of which are either undocumented or live with Temporary Protective Status (TPS) which denies them the right to petition for family reunification. Hope for reunification with children and better living standards enable family members in the United States to pay the $6-7,000 to traffickers who bring the child from his home in Central America to the U.S. side of the border. When Congress created TPS in 1990 and extended it to 220,000 Salvadorans in 2001, we failed to anticipate that they would seek to unite with their children.
- Criminal social networks, operating throughout the Americas have created human trafficking rings that offer door to door service. The Mexican government’s combat against these criminal organizations has pushed them into alternative profitable ventures, including the smuggling of Central American children. We should expect that as U.S. policy changes so too will the behavior of these organizations. They will react smartly to evolving U.S. policies.
There is no easy solution to this complex problem which has existed for over a decade, but whose surge in numbers presents a challenge to U.S. policy makers and resources. Solutions require immediate action from law enforcement and HHS as well as engagement on longer term solutions by the State Department in support of the Central American sending nations.
- Federal law enforcement authorities must confront and prosecute these criminal organizations which profit off unaccompanied children, as well as other undocumented migrants. Transnational efforts are needed to identify them and their work in the sending countries, as well as to disrupt their money laundering practices.
- Apprehended children need to be screened by ORR as swiftly as possible to determine the validity of their claims. The White House's anticipated request for congressional action on a supplemental appropriation of an additional $2 million for immigration courts, among other issues, will not prove sufficient to legally process newcomers as well as hear the backlog of cases. Therefore, greater attention should be given to hearings for children arriving after July 2014 with the intent of sending a strong message to the sending country that their unaccompanied children will not be able to join their parent or family member while they wait 18 months or more for a court appearance.
- Swift resolution of refugee asylum and Special Immigration Status cases will require a significant budget to increase the number of asylum officers, immigration judges and to train both prosecution and defense attorneys. This may come from civil society, but national support for training in the law could help to ensure that young defendants have a guide through the mysterious world of immigration law.
- The backlog of ORR cases will take time to work through and should be accomplished, but the immediate task is to send a strong disincentive message to the adults who both send and receive these children.
- Distinctive treatment between those arriving from Mexico and Canada and those arriving from non-contiguous states may have to end. Nearly all Mexican unaccompanied children are quickly returned to Mexico. With the assistance of Consuls from the countries of origin, a decision to deny asylum and Special Immigration Status requires governmental assistance in the repatriation and reintegration of the child back home. Civil society should monitor the returning children to ensure that they are not abused.
- Over the longer term, the perennial concern for economic development and education in the sending nations of Central America endures. Levels of poverty have not decreased enough to ensure job creation and quality education. Standards of living must increase in order to persuade those who care for the children that the risks of the journey are not worth the gains in the United States.
Together, these policy recommendations seek to balance our respect for immigration laws and due process with humanitarian values which ensure that the child will be cared for both in the United States and, when appropriate, upon return to the sending country.Authors
I have just returned from several days in Beijing, where I joined seven other Brookings colleagues in a series of meetings with academics, entrepreneurs and senior government officials for conversations about the state of U.S.-China relations. Nearly all of our conversations addressed the sharp and surprising downward turn that the bilateral relationship has taken in recent months, with mounting tensions spanning a wide range of issues from maritime disputes to cyber security.
Conversations often turned to the “New Type of Great Power Relations," a framework for U.S.-China relations that, since last year’s meeting between Presidents Obama and Xi, has become a kind of mutually endorsed shorthand for the type of bilateral relationship that will be necessary if both countries are to work together effectively on the world stage in the coming decades. But it remains unclear exactly what such a relationship would entail, and how—if at all–it would differ from both the current model of bilateral relations and the relationships that China and the United States enjoy with other countries.
I also detected a clear gap in perceptions: Many with whom we spoke in Beijing expressed concerns that Washington is either encouraging its allies in the Asia-Pacific region to pursue maritime territorial claims against China or, at the very least, profiting from the sharply increased regional tensions that these disputes have generated. This could not be further from the truth: As several of my colleagues asserted, the United States is deeply concerned about the potential for disputes in the East China Sea and South China Sea to escalate into more direct conflict. Of course, perception gaps in the United States are also quite concerning. Despite the unprecedented levels of people-to-people exchanges between the two countries, the vast majority of Americans now see China as posing a threat to the United States. While members of the senior leadership, as well as the Chinese public, argue that China has been on the defensive in these disputes, Americans increasingly see an aggressive and increasingly powerful China as the prime driver of regional tensions. And while many in China presume the United States is not ready to accept China’s rise as a global economic superpower, the surprising reality is that a majority of Americans believe—mistakenly—that China is already the world’s largest economy. This visit also made it clear that both sides have been too quick to view the other’s actions as part of a grand strategy.
In addition to our private meetings, we also participated in several meetings at Tsinghua University, including a public event hosted by the Brookings-Tsinghua Center for Public Policy exploring what China’s rise means for the international order. Here, one of my colleagues put the U.S.-China relationship in a global perspective, arguing persuasively that the United States and China should not expect a bilateral relationship free of conflict; rather, we should recognize that cooperation is possible even where disagreements exist. In the South China Sea, for example, the United States and China may have different views on specific issues, but both sides have a shared interest in regional stability and security and are working together to rally international support on major issues like climate change.
Our scholars also met with entrepreneurs, economists and senior economic officials. They generally held a more positive outlook, and our conversations reinforced the fact that our economic ties remain strong. However, across a wide range of issues from security to the economy, there was a consensus that both sides should work to patch up disagreements in advance of this fall’s APEC meetings in Beijing.Authors
Ukrainian President Petro Poroshenko today in Brussels signed the association agreement with the European Union. The signing is a milestone. Whether history records June 27 as Ukraine’s “most important day” since it regained independence in 1991—as Mr. Poroshenko suggested—remains to be seen. Much depends on implementation of the agreement.
The European Union wants stability on its borders. It can use the association agreement to help Ukraine build a more robust economy and democratic institutions. But EU officials will have to devote constant attention and resources to make that a reality.
For Russia, the association agreement is a setback, as it puts Ukraine on a course toward Europe … and out of Moscow’s geopolitical orbit. Will the Kremlin reconcile itself to that? It can make implementation of the agreement and Mr. Poroshenko’s job in general very difficult.Ukraine
The association agreement can be a game-changer for Ukraine. It includes a deep and comprehensive free trade arrangement (DCFTA) that will open much of the European market to Ukrainian exports. Implementation of the agreement will not only bring Ukraine’s trade and customs rules into conformity with EU standards, it will help the country draw closer to EU democratic norms and “Europeanize” other Ukrainian regulatory regimes.
The association agreement lacks a membership perspective but nevertheless is sweeping. In a private meeting in 2013, the foreign minister of a Central European member of the European Union said that, if Ukraine fully implements the association agreement, it will be “more ready for membership than my country was when it joined in 2004.”
Getting to signature took Kyiv years. Former President Victor Yanukovych supported the association agreement and made some tough decisions in 2010-2011 that enabled the agreement to be completed and initialed in 2012. Ironically, Mr. Yanukovych reversed course in November 2013 and held off on signature, triggering large pro-European demonstrations in Kyiv. Those evolved into broader protests against Mr. Yanukovych’s corruption and authoritarianism, and he fled the country in late February.
Implementation of the association agreement poses challenges for Ukraine. The DCFTA will entail some economic dislocation in the near term, as it also broadens access to Ukraine’s market for EU exporters. But the competition will help Ukrainian companies become more efficient. Most economists predict that the agreement will have a significant positive effect on Ukraine’s gross domestic product.
Implementation of agreements, unfortunately, has not always been Kyiv’s strong suit (look at the history of suspended IMF programs over the past 20 years). But it may be that Mr. Poroshenko, Acting Prime Minister Arseniy Yatseniuk and others in the cabinet and parliament get it: Ukraine has a rare second chance after the missed opportunity of the 2004 Orange Revolution to put itself on a course to becoming a modern European country, just as neighboring Poland has done.
The government should be helped by the fact that drawing closer to the European Union is popular in the parliament and the broad public. Public support for the European course appears to have increased as a consequence of Russia’s illegal seizure of Crimea and pressure on Kyiv.European Union
For the European Union, signature of the association agreement with Ukraine (as well as signature of similar pacts with Georgia and Moldova) represents a significant step forward in its Eastern Partnership policy. But signature does not end the story. EU officials will now need to provide loads of technical assistance and resources to help Ukraine implement the agreement. (The U.S. government should shape its assistance programs in ways that will help Kyiv with implementation.)
The European Union will need to be sensitive to near-term effects of the DCFTA, to ensure that the impact of dislocation does not fall too hard on the Ukrainian economy. One relatively painless step that EU countries can take would be to grant Ukrainian citizens visa-free travel.
While implementation of the association agreement will require EU attention, time and resources, it offers a big pay-off: a stable Ukraine with a growing economy and stronger democratic institutions is exactly the kind of country that the European Union wants as a neighbor.Russia
For the Kremlin, signature of the Ukraine-EU association agreement represents a setback. Vladimir Putin last December offered $15 billion in loans, with no overt strings attached, and a huge gas price cut to turn Ukraine away from signing.
It is difficult to escape the conclusion that Moscow’s actions since late February have aimed to destabilize the government in Kyiv and slow its path toward the European Union. The acting government that took office following Mr. Yanukovych’s departure immediately made clear the priority it attached to signing the association agreement. Within days, Russian forces seized Crimea, customs officials began blocking some Ukrainian exports to Russia, and Gazprom raised the price of the gas. “Little green men”—the term Ukrainians used to describe the soldiers in Crimea without identifying insignia whom Mr. Putin later admitted were Russian—began to turn up in the eastern Ukrainian regions of Donetsk and Luhansk.
Can Moscow now reconcile itself to the association agreement? A Russian deputy foreign minister warned of “serious consequences” but conceded that signing such a document was “a sovereign right of any state.” Mr. Putin’s spokesman said Moscow would take steps to avoid any negative impact on the Russian economy.
To be sure, Russia has legitimate interests at stake. Kyiv appears ready for a dialogue on minimizing the impact of the association agreement on Ukrainian-Russian trade. But will that satisfy Moscow?
That is a key question. Russia has significant influence over the armed separatists in Donetsk and Luhansk, many of whom are Russian citizens, and has other leverage over Ukraine. Russia can use that influence and leverage to promote a ceasefire and a settlement, if it wants to. If Moscow instead chooses to continue its efforts to destabilize Ukraine, that will immensely complicate implementation of the Ukraine-EU association agreement.
Today is a good day for Ukraine, opening new potential for its European course. We will now see how fast it can proceed down that path, and how much others will help—or hinder—it.Authors
(Versions in Español)
Emerging market economies have been experiencing strong growth, with annual growth for the period 2000-12 averaging 4¾ percent per year—a full percentage point higher than in the previous two decades. In the last two to three years, however, growth in most emerging markets has been cooling off, in some cases quite rapidly.
Is the recent slowdown just a hiccup or a sign of a more chronic condition? To answer this question, we first looked at the factors behind this strong growth performance.
Our new study finds that increases in employment and the accumulation of capital, such as buildings and machinery, continue to be the main drivers of growth in emerging markets. Together they explain 3 percentage points of annual GDP growth in 2000–12, while improvements in the efficiency of the inputs of production—which economists call “total factor productivity”—explain 1 ¾ percentage points (Figure 1).
We also found that the pickup in economic activity in the 2000s compared to the 1990s is solely explained by higher total factor productivity. After exhibiting declines in Latin America and the Middle East and North Africa in previous decades, total factor productivity is now on the rise in emerging market economies in all regions (see our previous blog for a targeted discussion on Latin America).
This is not an unusual development during good economic times. However, the improvements in productivity also reflect some structural (permanent) factors, such as the reallocation of inputs to more productive sectors and gains from past reforms (including from deregulation as well as trade and financial liberalization). All this is good news for emerging markets.
Lower potential growth
After identifying the causes of emerging markets’ strong growth performance in the 2000s, we turned to the question of whether the slowdown warrants a “doctor’s visit” or if it’s just a case of the hiccups that will subside.
In a previous blog, we showed that external factors account for a considerable part of this slowdown, although domestic factors also play a role. Whether the slowdown will persist depends on whether it has been driven by transitory (cyclical) or more permanent (structural) factors. Our study suggests that on average, cyclical and structural factors are equally important in explaining the growth slowdown in emerging markets over the last few years (Figure 2).
Is this good or bad news for global economy? Well, it implies that some of the slowdown in emerging markets—the cyclical part—would be just a hiccup, and that stronger growth should resume once growth picks up in advanced economies.
At the same time, our results suggest that emerging markets will have more difficulty sustaining the high growth rates of the 2000s in the next 3-4 years, as some of the slowdown reflects lower potential growth and is thus more permanent in nature. Estimates of potential growth rates in emerging markets for the next 3-4 years, at 3½ percent, suggest that growth would be on average 1¼ percentage points lower than so far in the 2000s, though the magnitude of the impact varies by country (Figure 3).
Several factors explain the anticipated slowdown in potential growth. First, investment (that is, the growth of the physical capital stock) is expected to moderate, as global interest rates which earlier facilitated large capital flows to emerging markets start to rise and commodity prices stabilize. In addition, natural constraints such as population aging will likely limit the contribution of labor in the coming years. Finally, in countries where external and financial imbalances were allowed to build, growth will have to slow as economies address risks to their balance sheets.
Structural reforms to the rescue
As a result, policymakers in emerging market countries will have to place renewed emphasis on structural reforms to raise productivity, which despite recent improvements remains relatively low compared to advanced economies (see a recent IMF paper for a discussion of tailored structural reforms).
So, where does this all leave us? The slowdown in emerging markets is not just a temporary phenomenon that will correct itself with minimal policy intervention. In some countries, transitioning towards a slower potential growth rate may be desirable if this means moving to growth rates that are more sustainable and balanced.
However, in other emerging markets, this may be an opportune time to reevaluate policies and undertake structural reforms that can deliver another period of strong growth, income convergence, and rising living standards. As Winston Churchill wisely noted, “An optimist sees the opportunity in every difficulty.”
By Michael Keen
It’s hard to pick up a newspaper these days (or, more likely for readers of blogs, to skim one online) without finding another story about some multinational corporation managing, as if by magic, to pay little corporate tax. What lets them do this, of course, are the tax rules that countries themselves set. A new paper takes a closer look at this issue, which is at the heart of the IMF’s mandate: the way tax rules spill over national boundaries, and what this means for macroeconomic performance and economic development. These effects, the paper argues, are pretty powerful and need to be discussed on a global level.
Follow the money
Take, for instance, international capital movements. Though tax is not the only explanation, the foreign direct investment (FDI) positions shown in Table 1 are hard to understand without also knowing that tax arrangements in several of these countries make them attractive conduits through which to route investments. In its share of the world’s FDI, for example, the Netherlands leads the world; and tiny Mauritius is home to FDI 25 times the size of its economy.
The tax revenues (or absence thereof) associated with the exploitation of gaps in the interaction between national tax systems can sometimes be very large—especially for developing countries. At the broadest level, these countries actually have more at stake than advanced ones, in that they raise a larger revenue share from corporate taxation (Chart 1). While at first glance this may seem like an added advantage of tax-induced FDI, it also constitutes risks. In the IMF’s work, we sometimes come across countries in which revenue collected from a handful of foreign companies is large not just relative to corporate tax but relative to all tax revenue: 10–15 percent in some cases. New evidence in the paper shows that these patterns are systematic: developing countries seem to be much more affected by spillovers from other countries’ tax systems than advanced economies. This makes them overly vulnerable to taxation changes elsewhere.
Problems for developing countries
One particular concern for developing countries is how tax treaties cede taxing rights in an attempt to attract investment and jobs. Over the past two decades or so, developing countries have signed a huge number (Chart 2). But the evidence on whether such accords actually deliver the benefits hoped for is, at best, mixed. What we do see close up in our country work is a sometimes significant leakage of revenue through treaty provisions. This has, for some time, led the IMF to urge great care in ceding tax discretion by signing tax treaties—a view that is now much more widely accepted.
Spillovers and a tax system for the 21st century
The basic problem in all this is one of spillovers—one country taking decisions with impact on others. These take various and sometimes complicated forms. Most obviously, a low or zero tax rate on income can make country an attractive place into which to shift profits through essentially paper transactions. And that can lead to lower tax bases in other countries: our preliminary estimates, set out in the paper suggest these effects to be both strongly significant and large. To address these and other shortcomings, one has to start by looking at the basic architecture of international taxation.
The present framework emerged from the League of Nations nearly a century ago. Since then, the world has been transformed by the growth of intra-firm trade, massively increased importance of services and intangibles (patents and the like), and increased digitalization. Recognizing this, an ambitious G20-OECD Action Plan on Base Erosion and Profit Shifting (BEPS) aims to address many current problems.
Welcome and crucial though BEPS is, a lively debate on more fundamental reform has emerged. For instance, some have suggested that multinationals should be taxed on a consolidated basis, so that transfer pricing—putting prices on transactions within the group—would no longer be needed; and their total income could then be apportioned across countries based, say, on shares of assets, payroll, and/or sales located in each. The paper stresses, however, that such “formula apportionment” could create significant new problems (and might not, as some have assumed, benefit developing countries). Other fundamental reforms touched on in the paper are still very tentative. Nice though that would be, the Fund has no simple solutions (nor, by the way, does anyone else).
But one thing in the emerging debate is certain: these basic questions, and the need for hands-on advice to countries trying to cope with the daily challenges of taxing multinationals, are not going away any time soon. The IMF’s experience, mandate, and global membership make its presence in this technically challenging but hugely important policy debate increasingly important.
In the morning of January 11, 2014, after an early warning from the Department of Meteorology and the National Disaster Management Office on the upcoming category 5 tropical cyclone Ian, power and radio transmission went off on the Island of Ha’apai, one of the most populated among the 150 islands of the Tongan archipelago in the South Pacific.
The Pacific Islands are inherently prone to hazards due to their geographic location and small size. Each year Pacific Island countries experience damage and loss caused by natural disasters estimated at an average $284 million, or 1.7% of regional GDP (World Bank 2013). In the coming decades, climate change is expected to make things worse through sea level rise and more intense cyclones.
Erica has a history of cardiac issues. She visits her doctor for a regular checkup and her doctor writes a new prescription to better control her heart disease. Unfortunately, her doctor didn't mention any instructions, except to take it once a day. Erica thanks her doctor and heads to the pharmacy. At the check-out counter, the clerk hands Erica her new prescription drug, in addition to three documents stapled to the bag that he says "will explain everything you need to know about your medication." Later on, while reviewing the materials at home, Erica is overwhelmed by the information, which is in fine print and difficult to understand. She is frustrated and confused, and tosses the documents in the trash.
This scenario is not uncommon. Research suggests that about 50 percent of Americans find it difficult to read health information.[i] Consumers who cannot find the information they need, or who do not understand the information because it is presented in a convoluted manner, are less likely to use it to prevent unnecessary medical errors. In Erica’s case, she could have ended up in the emergency room because she missed some basic warnings about her prescription. For example, one warning might have been that she should not chew the medication because it was an extended release capsule. Chewing the capsule could release the entire day’s dose at once, resulting in an unintended overdose.
We know that consumers are receiving information – sometimes too much information. Not only are consumers receiving pages of medication information, the information they receive is uncoordinated and sometimes conflicting. Some documents are written by the drug manufacturer, and others are written by pharmacies or another third party. Some medication information documents are FDA-approved and others are not.
The real question is – could medication information be presented in such a way that it would be more useful for consumers? The answer is a resounding “yes.” One study found that just 75 percent of consumer medication information met the minimum criteria for usefulness.[ii] That number might be impressive as a field goal percentage in the NBA, but for consumers it represents an unmet need for high quality medication information.
The U.S. Food and Drug Administration (FDA) has spent the past several years working with stakeholders to determine the most effective methods for conveying medication information. One overarching principle that has emerged from FDA’s engagement with the health care community is the need for a single, standardized document to replace the numerous existing documents. This document is identified as Patient Medication Information (PMI).
PMI creates an easier way for consumers to access and understand their medication information. By presenting the most salient pieces of information – including drug uses, warnings, side effects, and directions – on a single page that is easy to navigate, PMI can be a useful tool for enhancing treatments and preventing avoidable medication errors or side effects. PMI holds promise both for consumers and the broader health care system. For consumers, PMI could contribute to better outcomes and an overall improvement in patient experience. For health systems, PMI’s positive impact on medication adherence could improve performance on quality measures, such as hospital readmissions, that could lead to shared savings or other rewards.
Through a cooperative agreement, the Engelberg Center for Health Care Reform at the Brookings Institution has worked in collaboration with FDA over the past few years to convene a series of workshops focused on identifying best PMI practices – for example, how to make PMI both more usable and accessible. Workshop participants identified several guiding principles for improving the content, format, and distribution of PMI.
PMI Guiding Principles
PMI content should be consumer-friendly. Expert stakeholders identified a lack of consumer-friendly information as one of the most important barriers to effectively communicating critical medication information. To fix this problem, the language used in PMI will need to be simplified, patient-centric, and understandable across the entire spectrum of health literacy levels. The types of information that should be included in PMI must be essential for taking a medication properly. Extraneous information, such as a discussion of previous treatments a consumer must have previously tried and failed before receiving the new prescription, may be more confusing than helpful.
The best PMI formats are simple and easy to navigate. Consumers don’t want to be given a technical-looking instruction manual when they pick up their prescriptions. Participants at the workshops generally agreed that it would be ideal to keep PMI to a single page. They also agreed that actionable headers that help consumers locate the information they are looking for are preferable to the question and answer format (e.g., “Uses” and “Directions” are more effective than “What does the drug treat?” and “How do I use the drug?”). There was consensus on the point that consumers will ultimately decide the best format.
Access to PMI will be bolstered by multiple channels of distribution. Paper is still the primary source of medication information, and is preferred by certain demographics. However, technology is revolutionizing the way consumers receive information. This is generally good for society, but it introduces some challenges, including the fact that consumers now have more access to information of questionable quality. One method for ensuring access to consistent and high quality PMI would be to have a central repository for all PMI documents. This approach could support distribution of both printed and electronic PMI. Access to PMI could be further enhanced by making it available on smartphones and via email.
On July 1, the Center will convene a public meeting that will provide an opportunity for the health care community to discuss the issues mentioned above. Researchers will give an update on progress made since the previous meetings and share the lessons they learned from recent studies. Diverse stakeholders – including patient advocacy groups, providers, pharmacies, and drug manufacturers – will provide their perspectives on the future of PMI and assess their role in making high quality PMI a reality.
There are many issues that need to be addressed in exploring the promise of PMI. However, one thing that participants at the July 1 meeting should remember is this: Keep it simple, stakeholders.
[i] Shrank, William, and Jerry Avorn. "Educating Patients About Their Medications: The Potential And Limitations of Written Drug Information." Health Affairs26.3 (2007): 731-40. Healthaffairs.org. Health Affairs, May 2007.
[ii] Kimberlin, Carole, and Almut Winterstein. Expert and Consumer Evaluation of Consumer Medication Information‐2008. Rep. University of Florida College of Pharmacy, 4 Nov. 2008. Web. 8 June 2014.Authors
- Gregory W. Daniel
- Ahimsa Govender
- Derek Griffing