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Matthew Feeney

Today the Commonwealth of Virginia reached a temporary agreement with Uber and Lyft, both of which provide ridesharing services via their apps. Under the terms of the agreement, both companies have been granted broker’s licenses and are allowed to operate provided they meet a number of conditions, which are outlined in today’s press release from Virginia Attorney General Mark Herring’s office.

Uber and Lyft have both praised the agreement, which comes two months after the Virginia DMV issued the companies cease and desist letters.

It is welcome news that Virginia Gov. Terry McAuliffe and Attorney General Herring have worked out an agreement with Uber and Lyft. However, the agreement is temporary and lawmakers in Virginia and elsewhere in the U.S. need to implement permanent legislation that allows for innovative companies such as Uber and Lyft to fairly compete against taxis, as R Street Institute policy analyst Zach Graves stated in a news release:

Public interest advocates should be wary that this is only a temporary measure, and the battle over transportation services regulation in Virginia is certain to come up again in the 2015 legislative session. Ultimately, policymakers in Virginia and other states need to advance legislation that offers permanent legalization for all transportation network companies, without imposing additional anti-competitive regulations at the behest of the Taxi industry.

The concluding paragraph of the attorney general’s press release mentions that that the Virginia DMV is conducting a study as part of working towards such legislation:

Virginia DMV is currently leading a study at the request of the General Assembly to developing [sic] a long-term legislative solution that addresses services provided by Uber, Lyft, and similar companies, while also ensuring a level playing field for taxicabs and all other passenger transportation services. The study is scheduled to be completed in time for the 2015 legislative session. This temporary authority agreement can serve as a foundation for potential legislation and will also provide valuable data on the operations of these companies as legislation is crafted.

Let’s hope that the Virginia DMV does propose a solution that really would level the playing field. Companies like Uber and Lyft do, thanks to their business model, occupy mostly uncharted regulatory territory. It would be good to see Virginia among the first U.S. jurisdictions to successfully adapt to the rise of the so-called sharing economy, which will continue to grow.  

Matthew Feeney

While many sellers and buyers in the so-called sharing economy might like it for its convenience, there is a case to be made that in the developing world decentralized and peer-to-peer economies could help solve a crippling informational problem in environments with weak property rights and bad regulatory regimes.

Writing in Forbes earlier this week, Adam Ozimek, Director of Research and Senior Economist at Econsult Solutions, Inc., pointed out that the rating systems used by companies such as Uber and Airbnb allow for customers to “do what we previously thought tight regulations and even natural monopolies were needed to do.” Before the rise of the technologies that allowed for Uber and Lyft to exist, the taxi industry could argue that customers might face rip-offs or safety concerns  iin the absence of regulation. Thanks to the rating system used by companies in the sharing economy, this informational problem can be overcome.

Ozimek believes that the technologies used by the sharing economy could transform the developing world:

What I think is notable is how much more transformative these technologies should be for the developing world.

In developing countries you can find a lack a (sic) government that functions well enough to provide an effective regulatory regime. In addition, unreliable governance and weak property rights can make it hard to attract the investment required to build large companies with significant reputational capital. But a decentralized, crowd-based ratings system doesn’t require lots of capital investment. It doesn’t require effective regulatory bodies and good governance. It lowers the capital and regulatory bar for the existence of an effective services industry.

After all, in a country with a corrupt government, would you be more confident having a cab driver with a long list of good reviews or one with a bureaucratically issued license?

Of course, the rise of the sharing economy is dependent upon access to the necessary technologies, which many people in the developing world lack. Earlier this year Pew published findings on the use of cellphones and the Internet in emerging nations. According to Pew, in every nation surveyed, smartphones remain a minority of cell phones used. However, these minorities are significant in a number of countries such as China and Lebanon, where 37 percent and 45 percent of people respectively own smartphones.

A Gallup poll  conducted at the end of last year found that in the 62 percent of adults in the United States have access to smartphones with Internet access. 88 percent of Americans between 18 and 29-years-old said that they owned a smartphone.

Ozimek’s Forbes post was published on the same day that the U.S.-Africa leaders’ summit began in Washington, D.C. Pew’s findings show that the percentage of people who occasionally use the Internet or have a smartphone in the African nations examined ranges from the very low (Uganda at 12 percent) to the comparatively high (South Africa at 43 percent). Pew also found an unsurprising strong correlation between Internet use and national income.

As my colleague Marian Tupy pointed out a few days ago, Sub-Saharan Africa is “one of new millennium’s success stories,” with economic freedom and growth in the region resulting in a drop in poverty. Tupy also mentioned that there have been important recent improvements to the social standing of girls and women in Africa, which has become more peaceful since 1990.

Ozimek is right that the technologies used in the sharing economy will overcome the informational problem affecting much of the developing world. However, increased access to these technologies will require economic prosperity and growth, which Tupy pointed out comes about thanks to economic freedom, not aid.



Jim Harper

On Wikipedia’s list of Wikipedia controversies, you can read up on U.S. congressional staff edits to Wikipedia, which drew attention in mid-2006 because edits coming from Capitol Hill often sought to whitewash the pages of members of Congress. Most Hill staff know better than to do that now, but attention to Wikipedia editing in Congress has spiked again thanks to a new Twitter feed: @congressedits.

(How does it work? Congress has fixed, known IP addresses, and Wikipedia displays the IPs of users who are not logged in. Scan Wikipedia for edits coming from those IP addresses and you know which edits are being done by non-logged-in, Capitol Hill Wikipedians.)

So, is congressional Wikipedia editing bad? Not necessarily.

In a recent 90-day period, there were almost 400,000 hits on Wikipedia articles about bills pending in Congress. This makes Wikipedia a major source of information about congressional activity for average Americans. Getting content on Wikipedia from some of the most knowledgeable potential editors — congressional staff — could help Wikipedia deliver government transparency on a grand scale, positioning the public to demand better outcomes.

For this to happen, though, Wikipedians on the Hill must navigate Wikipedia rules around notability, neutrality, and conflicts of interest. Perhaps more challenging, Capitol Hill’s consensus on Wikipedia editing must shift from aversion to embrace.

We’ll be discussing congressional Wikipedia editing and the sea change to government transparency it might produce at a noon-time session on the Hill August 18th. The event is open to all, but Hill staff interested in improving congressional and government transparency are particularly welcome to join the discussion.

Jason Bedrick

Yesterday, I noted that American Federation of Teachers (AFT) president Randi Weingarten cited an imaginary statistic on MSNBC’s “Morning Joe.” Weingarten claimed that “most teachers right now in America have less than two years of experience.” That’s clearly false because the most recent NCES data shows that 91 percent of government school teachers had more than three years of classroom experience in 2011-12.

As I noted in an update to my post, some claimed that Weingarten had probably intended to refer to the mode, not “most.” Weingarten herself later admitted that she misspoke and meant to refer to the mode, but even then, the data she meant to cite was out of date. What she said was technically true for 2007-08 (though misleading, as I will show), but she claimed that this was the case “right now,” which is false. In fact, the most recent data (see page 12) show that the mode for teacher experience was five years in 2011-12.

Nevertheless, she still claims that the statistic she meant to cite buttresses her point. Actually though, her use of that statistic is misleading.

Let’s say the AFT threw a party that eight adults and two children attended. Their ages were 45, 41, 39, 38, 37, 35, 34, 32, 1, and 1. When asked about the ages of the attendees, Weingarten reports, “the mode of the partygoers’ ages was less than two years old.”

That’s technically true, but also terribly misleading. Using the mode to answer that question without further context obscures the fact that only 20 percent of the partygoers were under age two and that the median age was 36. 

Indeed, Weingarten’s (intended) use of the mode to describe the level of government school teacher experience was even worse than the above hypothetical, since only 9 percent of teachers had less than three years of experience (and it’s not clear from the NCES data how many of those teachers have less than two years experience, as Weingarten claimed). The average years of experience is 13.8 (page 10). 

Weingarten intended to use the mode to support her claim that “you don’t have a lot of the people who are senior teachers any more.” It’s hard to know what she meant by “a lot” or “senior” but more than 57 percent of teachers have 10+ years of experience and more than 21 percent have 20+ years of experience. A third have been teaching for between three and nine years.

There is some truth to the broader point that the teacher workforce is “greening,” though not nearly to the extent that Weingarten implies. A Consortium for Policy Research in Education report notes that about 37 percent of teachers had less than 10 years of experience in 1987-88 and that number has climbed about five points to 42.3 percent in 2011-12 (according to NCES).

Teachers today may be slightly less experienced on average than 25 years ago, but with nearly six in ten teachers having more than a decade’s worth of experience under their belts, Weingarten’s use of statistics is misleading at best.

How concerned should we be about this greening? At this point, probably not very. As the Urban Institute reported in 2010, teachers show the largest productivity gains in the first few years in the classroom, “after which their performance tends to level off. At some point, it even declines:

This and other research shows that, on average, teachers with more than 20 years of experience are more effective than teachers with no experience, but are not much more effective than those with 5 years of experience (Ladd 2008). Studies have also documented some evidence that effectiveness declines after some point, particularly among high school teachers. In fact, evidence suggests that the most experienced (greater than 25 years) high school mathematics teachers may be less effective than their less experienced counterparts (Ladd 2008) and even their inexperienced colleagues (Harris and Sass 2007). [Emphasis in the original.]

In summary, the teaching workforce is only slightly “greener” than a quarter-century ago, but the vast majority (91 percent) have more than three years of teaching experience, which is around when productivity gains begin to level out. Presenting the mode for years of teacher experience without that context greatly distorts the reality of the teaching workforce.

Doug Bandow

The United States confronts increasingly urgent challenges around the globe.  Washington’s policies are widely seen as failing

The Obama administration has been doing a little better, but not good enough, with China.  There is no open conflict between the two, but tensions are high. 

Territorial disputes throughout the South China Sea and Sea of Japan could flare into violence.  North Korea is more disruptive than ever.  Other important issues lurk in the background.

While there should be no surprise when important powers like the U.S. and People’s Republic of China (PRC) disagree, the two must work through such issues.  Unfortunately, the U.S. is far better at making demands than negotiating solutions.  In particular, Washington seems to ignore the interdependence of issues, the fact that positions taken in one area may affect responses in others.

For instance, the U.S. famously initiated a “pivot” to Asia, or “rebalancing” of U.S. resources to the region.  The U.S. implausibly claimed that the shift had nothing to do with China. 

But the residents of Zhongnanhai are not stupid.  For what other reason would America reaffirm military alliances and augment military forces in Beijing’s backyard?

Yet at the same time the Obama administration was pressing the PRC to apply greater pressure on North Korea to end the latter’s nuclear program and constant provocations.  Step on Pyongyang’s windpipe and force North Korea to yield, said Washington.

The U.S. acted as if it was asking for a small favor.  In fact, no one knows how the Democratic People’s Republic of Korea would react.  Worst geopolitically for China would be eventual Korean reunification, which would leave an expanded U.S. ally hosting American troops on the Yalu.

The latter would be unpleasant for Beijing even without the “pivot.”  A unified Korea could play a significant role in any campaign to contain the PRC.

The Obama administration’s attempt to moderate territorial disputes in the region runs into the same problem.  America is committed to one side, maintaining defense relationships, deployments, and treaties with several interested parties including Japan.  Washington’s endorsement of the status quo favors America’s friends and allies.

The PRC likely would be skeptical even if it saw the U.S.-led bloc as benign.  However, America’s senior ally is Japan, still remembered for its World War II depredations in China. 

The U.S. has sought Beijing’s aid in overthrowing the government of Syrian President Bashar al-Assad and forcing Iran to abandon any nuclear weapons ambitions.  The PRC’s acquiescence would expand American influence and even perhaps create a new U.S. client state.  That is not obviously in the PRC’s interest, especially when America is seen as attempting to maintain its dominance in East Asia.

Other issues also cannot be considered in isolation.  While human rights are not a security question, American pressure on Beijing to respect political activities hostile to the Communist Party’s monopoly of power may be seen to be no less threatening than Washington’s military moves. 

Moreover, U.S. attempts to convince Beijing to combat climate change by limiting energy use—which would inevitably slow China’s economic growth—look more sinister when Washington is working to constrain the PRC’s influence. 

There inevitably will be disagreements and misunderstandings between America and China.  The two nations must manage such controversies.  As I point out in a new article on China-U.S. Focus, “the world’s superpower and incipient superpower must strive to develop a sustained cooperative relationship, as did imperial Great Britain and rising America.”

Doing so will require recognizing that issues are interrelated.  In particular, the U.S. cannot be seen as leading a coalition against Beijing if it hopes to convince the PRC to adopt policies seemingly against its own geopolitical interests.  Washington will have to relearn the art of diplomacy as it better sets priorities.

Doug Bandow

The Democratic People’s Republic of Korea is angry with the U.S., citing all manner of crimes and misdemeanors.  Worse, Washington has turned the Republic of Korea into an international welfare queen, apparently forever stuck on the U.S. defense dole.

It’s time for the ROK to graduate and America to allow the Koreans solve their own problems.

Last week North Korea’s deputy UN ambassador, Ri Tong-il, denounced Washington:   U.S. behavior “is reminding us of the historical lasting symptoms of a mentally retarded patient.”  The DPRK’s list of grievances was long. 

Although it’s tempting to dismiss Ambassador Ri’s dyspeptic remarks, he made a legitimate point when justifying his nation’s nuclear program:  “No country in the world has been living like the DPRK, under serious threats to its existence, sovereignty, survival.”  Even paranoids have enemies.

In any war the North would face South Korea, which has vastly outstripped Pyongyang, and the U.S., the globe’s superpower.  East Asia is filled with additional American allies, while the North’s Cold War partners, Moscow and Beijing, have drifted away.  Impoverished, bankrupt, and alone in a world in which Washington bombs and invades small countries at will, the DPRK would be foolish to entrust its survival to U.S. self-restraint.

Which raises the question:  just what is America doing with troops on the Korean peninsula? 

The region never was a vital interest for Washington.  At the end of World War II the U.S. and Soviet Union divided the peninsula.  The North’s invasion of the ROK in June 1950 drew America back in militarily.  Washington later initiated a “Mutual” Defense Treaty with the South and retained a sizable military garrison, since whittled down to 28,500.

However, South Korea began its economic take off in the 1960s.  Democracy came to the South in the late 1980s. About the same time Beijing was reforming and the Cold War was ending, highlighted by the collapse of the Soviet Union.

Today the ROK has 40 times the GDP, twice the population, all the new technologies, the most important allies, access to international markets, and a system legitimized by elections and popular consent.  Yet Seoul remains seemingly helpless, dependent on America.

Why should Washington defend the South 61 years after the Korean War ended?

The ROK is well able to construct whatever military forces are necessary for its own protection.  The idea that Seoul cannot match a bankrupt, starving, and isolated nation with a fraction of South Korea’s resources is nonsense.

The DPRK’s nuclear capabilities are unclear, but American conventional forces on the peninsula play no role in preventing a nuclear strike.  To the contrary, U.S. conventional deployments put Americans in harm’s way, creating nuclear hostages.

 Some Americans envision U.S. bases in South Korea as “dual use,” part of a regional network to contain Beijing.  However, with South Korean President Park Geun-hye and Chinese President Xi Jinping exchanging state visits, it would be foolish to expect the ROK to commit national suicide by joining an American war against China.

Unfortunately, the defense promise is expensive for Washington, which must not only risk war but also create a larger military to back the commitment.  Moreover, the U.S. military presence inevitably makes America the focal point of North Korea’s antagonisms.

South Korea has achieved much internationally.  But that only sets Seoul’s military dependence in starker relief.  As I point out on Forbes online:  “a serious nation in every other regard, the ROK is a defense welfare queen, abusing the generosity of the American people.”

U.S. troops should return home and Washington’s security guarantee should end.  South Korea then would be freed of its embarrassing reliance on others for its defense.

Ilya Shapiro

Last year, in Fisher v. University of Texas at Austin, the Supreme Court delivered a blow to the use of racial preferences in university admissions by reversing a Fifth Circuit panel opinion that had allows the use of race in UT-Austin’s admissions policy. That wasn’t the end of the story, however; after holding that the university bears the burden of proving that its use of racial preferences is necessary and narrowly tailored—a point on which university administrators are due no deference—the Court remanded the case back to the Fifth Circuit to determine whether UT had offered evidence sufficient to prove that its use of race was “narrowly tailored to achieving the educational benefits” of diversity. 

Recall that UT-Austin’s admissions program fills most of its spots through a race-neutral Top Ten Percent Plan—which offers admission to high school graduates in the top ten percent of their class—then fills the remaining seats with a “holistic” rating that takes into account various factors typical to admissions programs (including race for certain preferred minorities).

Well, on remand, the Fifth Circuit panel split 2-1 but once again sided with the university, holding that even if the Top Ten Percent Plan already provided a “critical mass” of minority students, the use of racial preferences was necessary to achieve some other special kind of diversity.  The dissenting opinion by Judge Emilio Garza points out how the majority has deferred, once again, to the university’s hand-waving claim that its use of racial preferences is narrowly tailored to an actual, appropriate interest, without having actually proven anything approaching what is constitutionally required. 

Abigail Fisher, the white former applicant suing UT-Austin, has asked the full Fifth Circuit to rehear the case. Cato has filed a brief supporting that petition. 

In our brief, we argue that the Fifth Circuit panel failed to apply actual, deference-free strict scrutiny, failed to require the university to define the “critical mass” its race-based policy is intended to achieve, and failed to require the university to explain with particularity why race-blind measures wouldn’t be able to achieve its interests.  The constitutional laziness and deference the panel majority showed is striking.  The Fifth Circuit should hear this case en banc and correct the errors made by the panel majority, which contradict circuit precedent in various ways.

Further background and Cato’s previous filings in the case are available here.

Jason Bedrick

In a conversation about teacher tenure reform on MSNBC’s “Morning Joe” today, Randi Weingarten of the American Federation of Teachers (AFT) claimed that “most teachers right now in America have less than two years of experience.” 

Randi Weingarten on Morning Joe

Studies show that teachers are more effective after a few years of classroom experience, so this new development would be quite disturbing… if it were remotely true.

According to the most recent data from the National Center for Education Statistics, only 9% of government school teachers had less than three years of classroom experience in 2011-12. Even charitably assuming that by “most” Weingarten meant only 50.1%, there would have had to have been massive layoffs and unprecedented hiring in the last two years. Since the number of teachers has not changed significantly in that time, Weingarten’s claim assumes that about 1.4 million experienced teachers were replaced by new recruits since 2012. The latest NCES data showed only 8% of government school teachers leaving the profession after the 2008-09 school year, which is fewer than 275,000.

In other words, Weingarten would like us to believe that the number of teachers leaving the profession has increased five-fold in five years. Even half that number would have resulted in screaming headlines across the nation. It simply did not happen.

These figures are especially hard to believe when government school teacher “accountability” systems routinely rate nearly all teachers as “effective”—even when those same systems categorize schools as low-performing. Here’s an example from Michigan reported this morning, where school performance is somehow declining as teacher “effectiveness” supposedly improves:

For the last two years, every high school student in the Lansing School District received a letter from the district stating that all three high schools are on the state’s low-performing watch list.

The letters are mandated after a school is designated as one of the worst performing in the state by finishing in the bottom 5 percent academically.

Yet, according to the district, the effectiveness of its teachers is increasing significantly while it has had more schools put on the state’s low-performing watch list.

In 2009-10, the district had one school on the persistently lowest achieving list. That number increased to two in 2010-11 and then eight in 2011-12 and six in 2012-13. The 2013-14 list of low performing schools will be released later this month by the Michigan Department of Education.

In 2011-12, the Lansing School District rated all 887 of its teachers as “effective” — the second highest of four ratings available. In 2012-13, 337 teachers received “highly effective,” 456 received “effective,” 20 received “minimally effective” and 1 received “ineffective.”

In 2013-14, 363 teachers received “highly effective,” 301 received “effective,” 16 received “minimally effective” and 1 received “ineffective.”

In three years, only two out of 2,382 teacher evaluations (or 0.08%) rated teachers as “ineffective” in the failing schools. Would they have us believe that there was just an influx of rotten kids?

This problem is not only rampant across Michigan, but across the nation. Nearly all of New York’s teachers were rated “effective” while two-third of students were failing reading and math tests. In Indiana, fewer than 0.5% of teachers were rated “ineffective” last year, though 320 of 2,114 schools received a “D” or “F” grade. In 2013, only 4% of Louisiana teachers were rated “ineffective” though about 28% of schools received a “D” or “F” grade.

Government teacher evaluation systems too often fail to identify ineffective teachers and union rules often make it almost impossible to fire incompetent teachers, yet the AFT’s president would have us believe that there has been an unprecedented number of government school teachers replaced in the last two years. If you believe that, she also has a magic new diet pill to sell you.

Of course, this isn’t the first time the AFT has muddied national discourse about education policy with dubious “data.”


[Hat tip to Bob Bowden of Choice Media and Dave Dorsey of the Kansas Policy Institute.]

Doug Bandow

The agony of the families of the 298 people who died on flight MH17 lives on.  Fighting has prevented Dutch personnel from reaching the crash site.  However, despite calls for stronger action against Russia and its separatist clients in Ukraine, the tragic shoot down changed nothing in practice. 

American intelligence reportedly concluded that Russian separatists misjudged the flight for a Ukrainian military plane, which seems most likely.  If so, then what to do?

The bodies were still warm in Ukraine when America’s hawks began stiring the war machine.  Said Sen. John McCain:  involvement of Russia or Russian separatists in the plane shoot down “would open the gates for us assisting, finally, giving the Ukrainians some defensive weapons [and] sanctions that would be imposed as a result of that.  That would be the beginning.” 

The better answer, however, remains to do largely nothing.  The MH17 incident, while outrageous, actually is no trigger for anything.  Errant attacks on civilians, while always tragic, are not unusual.

However, in none of the earlier cases did an accidental or erroneous shoot down act as a casus belli.  Not once did much of anything happen.  Even during the Cold War such incidents were resolved peacefully.  The U.S. has no more cause than before for extensive involvement in the Ukraine imbroglio. 

Of course, Moscow’s geopolitical machinations are to be deplored.  But Russia is no Soviet Union and Vladimir Putin is no Joseph Stalin.  Unlike the U.S.S.R., Russia represents no ideological or military threat to America.

In fact, Putin’s Russia appears to have reverted to a traditional great power, concerned about international respect and border security.  Its ambitions are fierce, but bounded. 

Moscow’s intervention in Ukraine, like the former’s war against Georgia, is consistent if unfortunate.   But such action isn’t likely to lead much further.  Indeed, Moscow apparently has no interest in swallowing Ukraine, with a majority of non-Russians (in contrast to Crimea), just like it did not absorb Georgia.  Aggression further west is even less likely.

President Barack Obama correctly dismissed the threat posed by Moscow:  “Russia is a regional power that is threatening some of its immediate neighbors, not out of strength but out of weakness.” 

The situation facing Ukraine is tragic, but not one of strategic significance to America.  The U.S. never viewed Kiev’s independence as important, let alone vital, when facing the Russian Empire or the Soviet Union. 

Kiev’s situation is even less so today.  As I point out in National Interest:  “Washington has no security reason to confront Russia militarily, or to risk escalation to military action, over Moscow’s treatment of Ukraine.” 

The Ukrainians deserve sympathy, of course.  Moreover, diplomatic as well as economic pressure to constrain Russian misbehavior is warranted.  However, such efforts should be have a purpose other than punishment.  It would be a mistake to rupture relations with a country that could do much to impede or advance more substantial American objectives elsewhere—Iran, Afghanistan, Iraq, Syria, North Korea, and more. 

More broadly, it is time for Europe to take over responsibility for its own defense.  Russia’s economic and military strength is dwarfed by Europe, which possesses an economy eight times the size of Russia’s and a population three times as great.  The Ukraine crisis is primarily a problem for Brussels, not Washington.

The conflict in the Ukraine is a human tragedy.  However, the U.S. has little cause for leading an international campaign against Moscow.  Instead, let Europe take the lead in putting its security and prosperity on the line.

Chris Edwards

News outlets are running stories about the rise in corporate tax inversions. Inversions are financial reorganizations that place U.S. firms under foreign parent corporations. They are one of the many ways that companies are responding to America’s uniquely high corporate tax rate.

Liberal policymakers and pundits are outraged by inversions because they fear that the government will be starved of revenues. Treasury Secretary Jacob Lew has demanded new rules to stop inversions because “allowing these transactions to continue, we run the risk of eroding our corporate tax base and undoing the progress we have made to reduce our budget deficits.”

However, it is our high 40 percent tax rate that is eroding our corporate tax base. If we chopped the rate substantially, tax avoidance would fall and U.S. investment would rise. Over time, more income would be reported to the government, with the result that the government would probably not lose any money, and it could even gain some. Governments, businesses, and workers would all win from a corporate tax rate cut.

Here is some evidence that the government would win. For 19 OECD countries for which there is good data back to the 1960s, I plotted the average corporate tax rates and average corporate tax revenues. The chart illustrates the Laffer effect of cutting high statutory tax rates on a very mobile tax base.

Between the mid-1960s and mid-1980s, many countries had corporate tax rates of 40 percent or more. Governments in the 19 countries collected an average 2.5 percent of GDP from corporate taxes during those years.

Then came the Thatcher-Reagan tax-cutting revolution, and corporate tax rates began falling everywhere. Between 1985 and 2012, the average rate for the sample of 19 countries fell from 45 percent to 25 percent.

Did governments in these countries collect less revenue after that huge rate cut? The opposite occurred: corporate tax revenues soared during the 1990s and 2000s. Revenues did fall during the recent recession, but they are now starting to climb again. Even in the depths of the recession, average corporate tax revenues were still higher than they were prior to the beginning of the rate-cutting revolution in the 1980s.

For more on inversions, see my recent NYT article. For more on the mobility of corporate profits in the global economy, see Global Tax Revolution.

Data Notes:

  • OECD corporate tax revenue data is here. For three countries with missing 2012 data, I proxied the values with the 2011 figures.
  • OECD corporate tax rate data is available back to 1981. I have used the central government rates only because I have not found a good source for subnational (state/provincial) rates for years prior to the OECD data.
  • For this reason, the revenues (which include subnational governments) and the rates (which do not) are not an exact match, but that is not a big problem for the purpose of showing the rate/revenue trends over time.
  • The 19 countries included in chart calculations are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Spain, Sweden, United Kingdom, and the United States.

Dalibor Rohac and Marian L. Tupy

As the U.S. President Barack Obama prepares to meet 50 African leaders on Wednesday, August 6, it is worth reflecting on the factors behind the recent progress occurring in countries of Sub-Saharan Africa. As we write in our new paper,

The real gross domestic product [in Sub-Saharan Africa] rose at an average annual rate of 4.9 percent between 2000 and 2008 — twice as fast as that in the 1990s. […] As a result, between 1990 and 2010, the share of Africans living at $1.25 per day or less fell from 56 percent to 48 percent, while the continent’s population almost doubled in size. If the current trends continue, Africa’s poverty rate will fall to 24 percent by 2030.4 Since 1990 the per-capita caloric intake in Africa increased from 2,150 kcal to 2,430 kcal in 2013.5 Between 1990 and 2012, the proportion of the population of African countries with access to clean drinking water increased from 48 percent to 64 percent.

Although Sub-Saharan Africa is also becoming more democratic and better governed, a large gap between the quality of its institutions and those in the West persists. The continent remains, for example, economically unfree and heavily protectionist, not just vis-à-vis the outside world but also within the continent. For 25 African countries, the tariff costs of exporting or importing manufactured goods are higher within Africa than with the rest of world.

While international summits cannot not solve Africa’s internal problems, our paper argues that the upcoming meeting is a good opportunity for the U.S. administration to eliminate the existing trade barriers facing African exporters – regardless of whether they come in the form of explicit tariff barriers or implicit ones, such as agricultural subsidies:

[T]he elimination of the existing barriers to trade should be at the forefront of the efforts to help. Such barriers include tariffs, particularly on agricultural exports, which make it difficult for African economies to fully exploit their comparative advantage. As Brookings Institution researchers Emmanuel Asmah and Brandon Routman note, the structure of the tariff protection in the United States — but also in the European Union — is a significant part of the problem. The tariffs imposed up to a certain amount of imports may be low, yet the tariffs imposed for imports above the permitted quota might be very steep, in some cases up to 350 percent. Furthermore, agricultural subsidies in rich countries cause surplus production, which is often dumped on the world markets, depressing prices and undermining the livelihood of farmers in poor countries.

Doug Bandow

BEIJING, CHINA—Everything in China is big.  Including the battle over its future.

I recently returned from the People’s Republic of China.  It’s always a fascinating place with a future as yet unresolved. 

The country is growing economically, but no one really believes the government’s statistics.  The “one child” policy has created a birth dearth that may leave the PRC old before it grows rich. 

The PRC’s future is not yet determined.  Politics remains authoritarian, and it isn’t obvious that democracy would yield a meek Beijing. Nationalism could become an even more dangerous force without the current government’s power to close off discussion. 

Nevertheless, the young are restless.  Those I met had little patience with the Chinese Communist Party. 

Many hoped to go to America for school, for both its educational opportunities and personal freedoms.  Moreover, they weren’t afraid to speak out in front of others.

I was talking with some students about economic policy and how politics works (and fails!) in America.  One young man blurted out:  “I prefer elections, like in America for Congress.” 

No one spoke up for government control over what people could read or study.  I travel the world and normally have no trouble visiting any website, no matter how controversial, wherever I am. 

So I wasn’t thinking about the Great Firewall of China when I initially logged on after arriving.  But I couldn’t get onto Twitter—so much for tweeting about my experiences in the PRC. 

I mentioned my experience to a student heading off to the U.S. to attend university.  He snorted in disbelief:  “didn’t you know the PRC censored the internet?”  I said yes, but had forgotten.  After all, I’d been to Turkey, Egypt, Nigeria, and Kyrgyzstan, among other nations this year, and had enjoyed unimpeded access everywhere else. 

Another student offered me a program that disguised one’s browsing and allowed full access, even to nominally forbidden sites.  No passive acceptance of authority there!

I was talking with a group of Chinese university students and one of the women lamented government information controls and asked me what I thought.  While I said it wasn’t my place to tell the Chinese authorities what to do—I presumed the walls had ears and didn’t want to cause problems for those who got us together—I opined that most Americans believed openness to information and debate was the best strategy for economic, political, and social development.  I suggested that she should make her views known to her government. 

One young man asked where he could find my articles.  I gave him a couple of websites.  He then asked if he could actually view them in China and was relieved when I said yes. 

Perhaps the most dramatic moment was when a student asked me—in front of others during an economic discussion—about “the events of 1989.”  Why had the protestors gathered, he asked?  I kept my answer short and explained that they wanted political liberalization.  “Wow,” he exclaimed, and then seemed lost in thought. 

The PRC is a complicated civilization with a venerable heritage in rapid transition to somewhere, but no one is quite sure where.  China has shown how market liberalization creates growth and empowers the poor.

Alas, it is evident that market liberalization is not enough to create a free society.  But as I write in my new American Spectator article:  “the CCP seems to be losing the younger generation.  Those who make up the future of China want to decide their own futures.”

What this means for the PRC, its neighbors, and the rest of us remains to be seen.  “May you live in interesting times,” runs the famous Chinese curse.  We all are living in those times today.