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Monthly Archives: May 2009

Obama Gets Tax Policy Backwards

 

By Steven Malanga

Few subjects offer more grist for populists and more opportunity for demagoguery than that of U.S. companies, their foreign earnings and their taxes.

Posturing by politicians on this subject revolves around the fact that American companies have increased their foreign investments over a period of time when domestic jobs have disappeared in certain industries, creating a facile (and misleading) correlation in the minds of many between overseas investments and U.S. job losses. President Obama drew on that popular misconception when he announced he would seek changes in our corporate tax code last week which he claimed were designed to ensure that the government doesn’t “reward our companies for moving jobs off our shores.”

But academic research on firms doing business overseas suggests that President Obama has it backwards. Overseas investments rarely cost jobs in a corporation’s home country. Instead, firms that expand overseas are generally businesses that are also growing in their home countries. They are businesses that make a country’s economy competitive worldwide. This is not only recognized by researchers who’ve studied the issue, but also by policy makers in other countries, which is why few other countries now try to tax their multinational corporations’ foreign profits in the manner that President Obama is proposing. The result, most experts concur, is likely to raise the risks of foreign expansion and discourage some firms from going abroad. That doesn’t increase jobs at home.

The notion that U.S. corporate expansions overseas drain jobs here is a vestige of the 1950s and the early 1960s, when American corporations dominated a global economy consisting mostly of European countries recovering from World War II, communist countries whose industries weren’t competitive internationally, and the developing world. In those days, economists believed, the most likely reason a firm would open operations overseas was to take advantage of lower costs in other countries, most especially lower labor costs.

But as global competition intensified, economists noticed something unusual: For the most part, corporations in richer countries, such as the U.S., or a recovering Europe and Japan, weren’t investing in poorer countries where costs were low. Instead, they were investing mostly in each other’s markets, where costs were comparable. This became known as the Lucas Paradox, the notion that overseas investment didn’t happen the way we would predict it should.

As the world economy has advanced in the last 35 years, this tendency of corporations based in wealthy countries to invest primarily in other wealthy countries has only grown: Despite the popular perception in the media that our global firms spend most of their effort opening up sweatshops in poor countries, in the latest period studied, between 1995 and 2000, multinationals in rich countries were five times more likely to invest in operations in other countries where labor costs were comparable, according to a 2005 study by economists from Harvard and the University of Houston.

What we’ve learned is that companies don’t expand overseas primarily to eliminate local jobs, but to tap into other appealing markets where, if they succeed, they only become stronger. And lots of research has confirmed this idea, not just about U.S. firms, but about multinationals in other countries too. Studies of the Italian, French and German economies have found that when a business in one of these countries makes a decision to expand overseas the move rarely results in a net loss in domestic jobs, according to research summarized by Harvard’s Mihir A. Desai in a new paper published by the National Bureau of Economic Research, “Securing Jobs or the New Protectionism?” In fact, a company’s successful overseas expansion brings advantages to a home country, according to a study of Japanese multinationals which found that firms that increased their overseas investments also increased their domestic employment at a growth rate from three-to-eight times quicker than job growth among purely domestic firms.

The same holds true for the United States and its shrinking manufacturing industry. Desai looked at who was responsible for the decline in manufacturing jobs in the U.S. from 1986 to 2003 and found that it wasn’t multinationals. In fact, they have been expanding their manufacturing jobs in the U.S. even as they have been investing overseas. Instead, “the rapid decline of manufacturing employment in the late 1990s and early 2000s might well best be understood as marking the exit of purely domestic, low-productivity players rather than the displacement of domestic activity abroad by multinational firms,” Desai writes.

This shouldn’t be surprising. It’s a difficult and risky leap to go from a domestic company to an international one, and for the most part companies that succeed at it are our strongest firms. In a global marketplace, they are the firms most likely to face down new foreign competitors entering the country. Short of high tariffs to punish foreign products and make them uncompetitive here, it is our multinationals that give us our biggest edge.

But for many politicians, the Lucas Paradox doesn’t exist. To them, the world is simple: Jobs that U.S. firms create overseas are jobs that they are not creating here. We shouldn’t reward firms for doing that with tax breaks.

And so, instead of cutting our corporate tax rate, the second highest among developed countries, to bring it in line with the rest of the world, or treating overseas profits in the same manner as most other developed nations which generally don’t tax overseas earnings, the Obama administration will make our corporate tax code more onerous. One result, the research suggests, will be less job growth here as some U.S. firms contemplating going international decline to do so because we’ve further reduced the returns from setting up foreign operations and increased the risks.

What the research tells us is that patterns of international investment by big companies defy easy characterization because firms behave in ways that surprise us. That’s not the kind of stuff that can be explained easily in a sound bite at a press conference or on the campaign trail.

For a president confronting a world that doesn’t conform to popular opinion, the options are clear. He can attempt to set the country on the policy path that makes the most sense and do his best to explain why. Or he can simply give people a policy that corresponds to their misconceptions. On corporate taxes, we know what course Obama is taking.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute
 

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An Educational Revolution Will Build Ownership

aaby Akindele Akinyemi

May 19, 2009

Last night I attended the Black Enterprise Conference here in Detroit, MI. While I was at the Town Hall Meeting on President Obama’s Economic Agenda (the panel included Warren Ballentine who is a CNN Commentator, Joe Watkins from MSNBC, Washington Times editor Tara Wall and the Independent Women’s Forum President Michelle Bernard) I heard great ideas and great solutions to the issues facing urban America economically.

Today, Urban America are at a crossroads when it comes to leadership, policy and education. In an environment where we cannot seem to agree on anything, from religious differences to differences of culture and forms of government, or even forms and definitions of free enterprise as well as the definition of capitalism itself one thing we need is to regain our self-dignity as a community.
As we are pushing for eradicate poverty in our community one must be mindful of the fact that for each impoverished community is an emerging market waiting to be born. For example, there are areas of Detroit that is waiting to emerge from poverty.

If we continue to develop the emergence of an urban stakeholder class in Detroit we will no longer see homeowners not renters. We will see our urban, inner city communities not as wastelands, but emerging markets in Michigan, vastly under-served, and the last bastion of lost capitalism.

Part of eliminating poverty from our hearts is being in tune with God and understanding the importance of global education. Detroit is not an island. It is part of the greater regional Southeastern Michigan area. We have to move away from the spirit of fear and poverty to the spirit of success.

Part of creating a new reality and new focus is reshaping public policy in urban areas. Traditionally, public policy in America is principally designed around America’s first priority; economics and ownership. Individual property rights. From tax breaks and other protections for homeowners, to incentives for the working class, to incentives for small businesses and major corporations alike it’s all about owners and producers.

In general, urban communities do not care about tax break or tax cuts unless we have a job. If urban people do not own a home or business in the community that we serve do we really care about a bond issuance for infrastructure repairs or investment in our local community?

Frankly, those who are not owners or tax payers may not even know what others are talking about. Therefore, it’s Greek or Mandarin to those who are not owners or producers. And so, as a result we have effectively tied one hand behind the collective back of our political leadership; forcing them to pursue bad public policy and strategies that are not proactively protecting, enhancing and growing our own individual property rights, but rather a reactive, defensive “strategy” of trying to protect and preserve an ever decreasing pool of mostly entitlements and public subsidies.

This is why I propose and support the revamping of public education here in urban communities. If we move education to a global reality then we will be prepared to build a legacy for our grandchildren and beyond.

We need to open the doors of educational options as well as teaching (not indoctrinating) our children to become global citizens. Part of that global initiative is financial literacy to create future entrepreneurs. Teaching our children that they are scholars, not thieves, and giving them a sense of ownership of their education will move our community in the right direction. We must be in the business of giving our children a hand up not a hand out.

When we utilize the power of financial literacy it then should practically link itself to viable strategies for true economic empowerment and ownership in urban communities.

Education is paramount to the development of our community. There are MANY candidates who are running for office (both this year and next year) who will walk up to me and say, “I support charter schools.” My next question to them is why? 95% of the time I cannot get a serious answer from them. When I talk about educational reform I am not just talking about lifting the cap off charter schools or supporting the efforts of the Emergency Financial Manager of the Detroit Public Schools, Robert Bobb but creating an actual revolution in the educational movement.

You cannot create a silver rights movement in Detroit without revolution. It does not matter how much reform we do in education if you are not about changing the culture in our community then we are doing nothing but wasting time.

The culture must change in a silver rights framework. 1 out of 3 Black men in the City of Detroit has been incarcerated. These young men are bringing that prison culture into the streets of Detroit. This is why you see our young men sag their pants, all tattooed up and cannot speak English. You ever wondered why our women are doing the same thing? It’s not because women are coming out of prison at high alarming rates but because women are a reflection of men. When you break down the man in the culture you also breakdown the family unit.

This educational fight is fought on three levels in the silver rights movement. The first level is establishing the culture. We fight and eliminate this ghetto culture in poverty-stricken areas by creating a COUNTERCULTURE. Social conservatives MUST take the lead on this creation. We have to make education “cool” and “sexy” to retain our student population.

The second level is raising the bar on education. We are global citizens not just American citizens. We belong to the world community. Therefore, we must teach our children that they too are global students. When we teach our students to (1) believe in God, (2) believe in yourself so you can believe in your goals and ambitions and (3) believe in people they will go far. We do not do business with companies, governments, or organizations; we do business with people.

The third level is developing stakeholders. Our students and parents must support an institution of change that helps to create a community of stakeholders. When you develop a community of stakeholders you create an atmosphere of ownership. I often tell my candidates running for office that if the home ownership rate in a particular area is 35 percent, what do you think the voter turnout rate will be? We do not need a voter turnout drive per se (unless it is for a specific cause). We need more homeowners. When we have a homeowner, we have enlightened self-interest. They care because they have invested.

When you have a homeowner, you have got a policeman on the block. When you have a homeowner, you have a taxpayer. It is not a miracle; it is common sense. It is enlightened self-interest.

When you have a homeowner, you have a potential venture capitalist. Why? Because when you have a home, you build equity. If you want to start a business, and the bank turns you down, you approve yourself and get a home equity loan, and invest in your own business. You become your own scholarship and send your own child to whatever four-year college you want. You become a stakeholder. Our children are stakeholders in the very school they attend. We have to teach this message from K-16 education. Our job is to eradicate poverty.

So if we want to make a change, we have to do something really difficult. We have to work together to find common ground in urban communities. Our communities are fundamentally underserved. What I mean is places like Inkster, Michigan and Benton Harbor, Michigan do not have a grocery store within the city limits. Some areas like Muskegon Heights do not have a Walgreens, CVS, or Rite Aid. Some urban communities lack gas stations, entertainment, basic things that are hard to find in lower-income communities. Serving them will make them community stakeholders.

We have to view Michigan’s inner-cities as opportunities, as communities of promise. The Democratic Party exploits the urban community with entitlements and the GOP NEVER campaign or fully understand the importance of utilizing urban communities. I have never understood the strategy of trying to win a statewide election in Michigan without the inclusion of the urban communities.

Because of the lack of education we pass down bad habits from generation to generation. When will we stop blaming poverty on the poor? Poverty has nothing to do with the lack of money. It is the spirit of hopelessness. When will we stop blaming people with good intentions? Of course, the path to hell is paved with good intentions. But to suggest that Democrats or Republicans are devils, the rhetoric might be winning the battle, but it is losing the war. This is why I push for political balance in Detroit and other urban areas in Michigan. We need representation on both sides of the aisle representing urban issues.

I have had on occasion to advise certain city, county and state legislators who are my friends that calling the Mayor, County Executive, Governor or even President names is probably not the best way to get him or her to sign your legislation. Better to assume that people have the best intentions, but may not know the right way to go about achieving the desired outcome. That is the most practical way to get somebody to work with you.

We must understand that the inner cities of Michigan are tomorrow’s new markets. The new frontiers of capitalism are Michigan’s underserved communities. In the urban communities where people are making less than $25,000 a year are not dumb, and they are not stupid. They are uninformed or misinformed. It’s what they don’t’ know, that they don’t know, that is killing them. These communities are today’s slums and tomorrow’s gold mines. Right below our feet is the next frontier of new markets. These are green communities that have been underserved for a long time. These are communities that people can create with a vision.

You cannot discuss entrepreneurship without discussing education from a global perspective. Ethnic diversity is not a goody-two-shoes issue. Diversity is a business issue. Therefore, we need to be diverse in our approach to creating solutions.

 

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Obama’s Real Religion: Politics

deneenBy Deneen Borelli

Judging by his actions, it seems President Obama’s true spiritual devotion lies more with to politics than religion.  Religious institutions apparently only present a prominent forum for him to enhance his reputation.  
 
Under the tutelage of the Reverend Jeremiah Wright, Obama must have learned how even a professed servant of the Lord can put politics over Christianity.  Wright’s sermons were not limited to God, love and mercy.  Instead, “black liberation theology,” a concoction that mixed faith with radical hatred, political rhetoric and victimization, spewed from the pulpit masquerading as religion.
 
When Wright became an issue during the presidential campaign, Obama quickly distanced himself from the controversial minister.  Obama claimed he didn’t know the extent of Wright’s radicalism despite being a member of the church for 20 years.  
 
In an instant, Obama’s religious bedrock was split, crushed and swept away.
 
Wright’s church, with its huge congregation, presented Obama with a weekly opportunity to meet, greet and campaign.
 
The Obama’s still have yet to find a new congregation.
 
More recently, Obama’s speech at Georgetown University raised controversy about the President and religion.  Prior to Obama’s arrival, the Catholic university honored a White House request to cover up prominently displayed Christian symbols.  A Georgetown official told CNSNews that “The White House wanted a simple backdrop of flags and pipe and drape for the speech, consistent with what they’ve done for other policy speeches…”   
 
This week, Obama is supposed to give the commencement address at Notre Dame — another Catholic institution.  The invitation is controversial because Obama is an ardent supporter of abortion and embryonic stem cell research — positions that are in direct conflict with Catholic theology.  Outrage over the invite generated an online petition that gathered hundreds of thousands of signatures opposing Obama’s invitation, an award recipient declining an honor scheduled to be made at the same ceremony and the potential loss of future charitable donations to the school.
 
Just last week, Obama’s decision to skip National Day of Prayer activities caused yet another stir. Obama issued an official proclamation, but he skipped all public observances of the annual prayer and breakfast celebrations — the first president in 18 years to do so.
 
By avoiding a religious theme at the White House, perhaps Obama is demonstrating a literal separation of church and state.  
 
Since his election, Obama has only attended church services on his Inauguration Day and Easter Sunday.  The former was part of the official Inauguration ceremony and the latter was a major religious holiday that some believe was done more to save face than observe faith.
 
Theses observations illustrate Obama’s apparent devotion to the piety of political opportunity. Religious institutions and occasions seem to offer only a colorful stage for media attention.
 
Given Obama’s track record it’s not surprising that possibly his most direct religious statement as president has been his declaration that “we are not a nation of Christians.”

Deneen Borelli is a fellow for the Project 21 black leadership network.  Comments may be sent to DBorelli@nationalcenter.org.

 
 
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